Gold Falls in London Trading as Buffett Buys Stake in Goldman
By Rachel Graham
"Sept. 24 (Bloomberg) -- Gold dropped in London after Warren Buffett bought a stake in Goldman Sachs Group Inc., buoying stocks and easing demand for gold as a haven from market turmoil."
U.S. stock index futures rose as the billionaire's investment in Goldman overshadowed concern Congress will hold up a $700 billion bank bailout plan for financial institutions.
"It ``helps stocks markets and puts pressure on precious metals,'' Afshin Nabavi, a senior vice president at MKS Finance SA, one of Switzerland's four bullion refiners, said by phone from Geneva."
"Gold for immediate delivery fell $3.89, or 0.4 percent, to $888.26 an ounce as of 9:02 a.m. in London. Futures for December added $3.20, or 0.4 percent, to $894.40 an ounce."
"Among other metals for immediate delivery, silver rose 4.5 cents, or 0.4 percent, to $13.32 an ounce, platinum gained $12.25, or 1 percent, to $1,233.75 an ounce and palladium added $2, or 0.8 percent, to $252."
To contact the reporter on this story: Rachel Graham in London at rgraham13@bloomberg.net
"Last Updated: September 24, 2008 04:10 EDT"
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Japan Consumer Prices Probably Exceeded 2% for Second Month
By Mayumi Otsuma
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Sept. 24 (Bloomberg) -- Japan's consumer-price inflation probably exceeded 2 percent for a second month as companies passed costs of food and other daily necessities to consumers.
"Core prices, which exclude fresh food, probably climbed 2.4 percent in August from a year earlier, the same pace as July, according to the median estimate of 32 economists surveyed by Bloomberg before figures to be released Sept. 26."
"The fastest inflation in a decade, spurred by rising oil costs, will start to moderate in coming months as energy prices drop, making it unlikely the Bank of Japan will raise interest rates. A financial crisis spurred by the bankruptcy of Lehman Brothers Holdings Inc. is clouding the prospects that Japan's economy will rebound from a second-quarter contraction."
"``Core consumer prices are peaking in the current quarter and will start to moderate'' as oil prices decline, said Mari Iwashita, chief market economist at Daiwa Securities SMBC in Tokyo. ``We'd expected the economy to recover next spring, but our prediction may have to be pushed backward.''"
Economists' estimates for core inflation ranged between 2.2 percent and 2.5 percent.
"The core inflation rate has surpassed wage growth for four months, stripping consumers of their spending power and pushing consumer sentiment to a 26-year low. A drop in exports and personal spending caused the economy to contract last quarter."
"Crude oil has fallen by more than a fifth since exceeding $147 a barrel for the first time on July 11, while soybeans, corn and wheat have slumped after climbing to records earlier this year. Still, Japanese companies will keep attempting to pass on increased costs to customers to make up for earlier losses, economists said."
Pass Through
"``Though adjustments in commodity prices are continuing in September, we'll see a lingering of these cost pass-through moves by companies,'' said Mamoru Yamazaki, chief Japan economist at RBS Securities in Tokyo. ``Core-price gains will probably hover above 2 percent for a while.''"
"Calbee Foods Co., a Tokyo-based snack food maker, said this month it will raise potato chip prices by about 8 percent in November to offset costlier oil used in the product. The company last year reduced the volume of chips in a package without changing prices."
"The central bank expects core consumer prices will moderate as oil prices decline, Governor Masaaki Shirakawa said last week. Even so, the Bank of Japan should carefully watch whether consumers' inflationary expectations and companies' price-setting behaviors change, he said."
Bank of Japan policy makers consider core prices to be stable if they remain between zero and 2 percent over the mid- and long-term period.
Inflation Risk
"``BOJ policy makers will probably keep referring to the risk of inflation because omitting those words may spur investor speculation about a rate cut,'' said Daiwa Securities Iwashita."
"The Bank of Japan has kept the key overnight lending rate at 0.5 percent since doubling it in February 2007, the lowest among industrialized economies. It shelved a policy of gradual rate increases in April."
"Of 29 economists who gave predictions through June in a Bloomberg survey, 24 said the central bank will keep rates unchanged. Four estimated higher rates and one forecast a cut."
Some indicators suggest the pace of Japan's inflation is already peaking.
"Core prices in Tokyo, a harbinger of nationwide inflation, advanced 1.4 percent in September from a year earlier, slower than a 1.5 percent increase of July, according to the median estimate of 30 economists. The report is also due Sept. 26."
"Producer prices rose 7.2 percent in August from a year earlier, 0.1 percentage point slower than July. That was the first slowdown in a year."
To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net
"Last Updated: September 23, 2008 12:00 EDT"
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"British Pound Advances Against Dollar, Climbs Versus Euro "
By Andrew MacAskill
Sept. 24 (Bloomberg) -- The pound advanced against the dollar and euro.
"The British currency rose to $1.8588 as of 9:47 a.m. in London, from $1.8522 yesterday. Against the euro, it climbed for a second day, to 78.95 pence, from 79.09 pence."
To contact the reporter on this story: Andrew MacAskill in London at amacaskill@bloomberg.net
"Last Updated: September 24, 2008 04:49 EDT"
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"Italian Stocks Update: Fiat, Maire, Tenaris, Telecom Italia "
By Francesca Cinelli
"Sept. 24 (Bloomberg) -- Italy's S&P/MIB Index was little changed, adding 22, or less than 0.1 percent, to 27,089. Futures expiring in December increased 27, or 0.1 percent, to 27,250."
The following were among the most active stocks on the Italian market today. Share symbols are in parentheses.
"Banca Popolare di Milano Scrl (BPM IM) added 5.1 cents, or 0.9 percent, to 6.08 euros. The regional bank offered to buy the stock it doesn't already own in fund manager Anima Sgr (ANM IM) for 107 million euros ($157 million) and plans to delist the company. The lender offered to pay 1.45 euros a share. Anima closed at 1.38 euros yesterday."
"``The transaction on Anima is not too expensive for Popolare Milano in terms of impact on capital ratios and could have a significant strategic value,'' Dresdner Kleinwort analyst Elena Perini wrote in a note."
"Cassa Lombarda downgraded Popolare di Milano to ``hold'' from ``buy'' on concern about the outlook for Anima's inflows. Mediobanca Securities, which previously rated Anima a ``neutral,'' recommends investors tender the shares. Banca Popolare di Milano is being assisted in the offer by Mediobanca."
"Eni SpA (ENI IM), Italy's largest oil company, dropped for a third day, losing 20.5 cents, or 1.1 percent, to 19.1 euros. Oil stocks were the fifth-worst performers among the 18 industry groups in the Dow Jones Stoxx 600 Index today."
"Saipem SpA (SPM IM), Europe's largest oil-field services contractor by market value, declined 47 cents, or 2 percent, to 23.3 euros."
"Fiat SpA (F IM), Italy's largest manufacturer, fell 19.5 cents, or 1.8 percent, to 10.53 euros. Euromobiliare Sim cut its price estimate on the stock by 6 percent to 16.4 euros."
"Fondiaria-Sai SpA (FSA IM), Italy's second-largest insurer, advanced 20.4 cents, or 1.2 percent, to 17.35 euros. The company cut its stake in Assicurazioni Generali SpA (G IM), Italy's biggest insurer. ``We welcome this step to a more diversified equity portfolio,'' Atanasio Pantarrotas, an analyst at Cheuvreux, wrote in a note."
"Gruppo Editoriale L'Espresso SpA (ES IM), the Italian publisher controlled by Carlo De Benedetti, dropped to the lowest in almost a month, losing 2 cents, or 1.1 percent, to 1.75 euros. Deutsche Bank AG and Citigroup Inc. downgraded the stock to ``sell'' yesterday."
"Maire Tecnimont SpA (MT IM), an Italian energy-services company, advanced 6.35 cents, or 2.4 percent, to 2.74 euros. Citigroup Inc. upgraded the stock to ``buy'' from ``hold,'' citing potential new orders. It lowered its price estimate to 3.4 euros from 3.8 euros."
"Stefanel SpA (STEF IM), an Italian clothing maker, surged for a third day, adding 2.07 cents, or 3.5 percent, to 61 cents. The company said it isn't planning any extraordinary operations and isn't aware of reasons for its stock-price movements. The company said it made the statement in response to a request from Italy's market regulator."
"Telecom Italia SpA (TIT IM), Italy's biggest phone company, gained 2.4 cents, or 2.2 percent, to 1.1 euros. Libyan Investment Authority, a government-owned sovereign fund, may buy about 10 percent of Italy's biggest phone company for 4 billion euros, Il Sole 24 Ore reported, without saying where it got the information."
"A direct purchase of Telecom Italia shares ``would certainly be a positive issue for the stock value,'' while buying a stake in its biggest investor, Telco SpA, would be ``neutral,'' Euromobiliare Sim analysts wrote in a note."
"Tenaris SA (TEN IM), the world's biggest maker of seamless steel tubes for pipelines, dropped 40.6 cents, or 2.5 percent, to 15.6 euros. Chesapeake Energy Corp., the second-biggest U.S. independent natural gas producer, said it plans to reduce its drilling rigs to 140 from 157 by the end of the year. The company expects other gas producers may also curtail production and capital spending in the wake of slumping energy prices."
To contact the reporter on this story: Francesca Cinelli in Milan at fcinelli@bloomberg.net
"Last Updated: September 24, 2008 04:43 EDT"
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French Business Confidence Declines to Five-Year Low (Update1)
By Helene Fouquet
Sept. 24 (Bloomberg) -- French business confidence fell to the lowest in five years in September as the global economic slowdown dimmed the outlook for sales.
"An index of sentiment among 4,000 manufacturers fell to 92 from a revised 97 in July, the last month reported, according to Insee, the Paris-based national statistics office. That was the lowest since August 2003. Economists expected a reading of 97, according to the median of 22 estimates in a Bloomberg survey."
"``Business leaders have no more illusions: things are going bad and they no longer believe that they have ways to slip past the crisis,'' Jean-Louis Mourier, an economist with Aurel Leven in Paris, said on Bloomberg Television. ``The global slowdown is weighing on their outlook. We hope for a rebound by the end of the year.''"
"The French economy contracted for the first time in more than five years in the second quarter, cooling 0.3 percent from the first three months. Finance Minister Christine Lagarde predicts the expansion in Europe's third-largest economy's next year would be ``soft'' after growth of about 1 percent in 2008, the slowest pace in six years."
U.S. Bailout
"The 25 percent decline in the price of crude oil since a July 11 record of $147.27 and the euro's decline from its peak that same month have yet to boost confidence among manufacturers as turmoil in the financial markets threatens to further sour growth. The euro has now gained 3.7 percent since Sept. 16, making European goods less competitive, on concern the proposed $700 billion bailout of financial companies in the U.S. will hurt demand for the dollar."
"Italian business confidence fell to the lowest in seven years in September a report showed today. German business confidence probably declined to the lowest level in more than three years in the month, another report will show today, according to a survey of economists by Bloomberg News."
Insee's sub-index of how executives see the economic outlook fell to minus 42 from a revised minus 33; a gauge of orders dropped to minus 24 from a revised minus 19; and a measure of foreign orders slipped to minus 27 from a revised minus 16. A gauge for executives' outlook for their own production fell from a revised minus 1 to minus 10.
Forecast Cut
The European Commission on Sept. 10 cut its forecast for growth in the euro zone to 1.3 percent for this year from 1.7 percent. That prediction may need to be trimmed further as the deepening crisis in credit markets that led to the bankruptcy of Lehman Brothers Holdings Inc. threatens to further sap producer and consumer demand.
"``Continuing turmoil in financial markets, rising energy and commodity prices and falling business and consumer confidence may result in the macroeconomic outlook deteriorating further,'' according to the EU's quarterly labor-market review released on Sept. 22. ``Economic activity is expected to weaken further in the second half of 2008.''"
"``France's manufacturing shrank very fast this month and I have little hope,'' Jean-Christophe Caffet, an economist at Natixis in Paris said in an interview. ``The oil price drop and a more competitive euro may not help manufacturers."
Earnings Hurt
"Trigano SA, a French maker of mobile homes reported fourth- quarter sales missed its targets, falling 24 percent. European Aeronautic, Defence & Space Co. said on Sept.9 it will shift work to non-European countries including Tunisia as it seeks 1 billion euros in cost-savings, two-thirds from its planemaking unit Airbus SAS. The plan is meant to help EADS cope with a weak dollar relative to the euro."
"Renault SA, France's second-largest carmaker, said on Sept. 1 it will cut 4,000 jobs in the country under a savings program to make up for soaring raw-material costs and flagging European auto markets."
"``Renault's massive job cuts will also weigh on manufacturers' confidence,'' Caffet said."
"Europe's manufacturing and service industries contracted at the fastest pace in almost seven years in September as the credit-market seizure intensified and companies scaled back production in response to slowing orders, a report showed yesterday."
To contact the reporters on this story: Helene Fouquet in Paris hfouquet1@bloomberg.net
"Last Updated: September 24, 2008 03:56 EDT"
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"Yen Declines as Fed Extends Currency Swaps, Goldman Funding "
By Stanley White and Ron Harui
"Sept. 24 (Bloomberg) -- The yen declined after the Federal Reserve announced it extended currency swap agreements to central banks in Australia, Denmark, Norway and Sweden, and as Goldman Sachs Group Inc. said it will raise funds."
Japan's currency dropped to 105.91 per dollar from 105.56 in New York as of 6:47 a.m. in London. It traded at 155.24 versus the euro from 154.63.
To contact the reporters on this story: Stanley White in Tokyo at swhite28@bloomberg.netRon Harui in Singapore at rharui@bloomberg.net
"Last Updated: September 24, 2008 01:49 EDT"
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"Home Resales in U.S. Probably Fell, Matching Year's Average "
By Bob Willis
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"Sept. 24 (Bloomberg) -- Home resales in the U.S. probably fell in August, signaling the market remained in a slump heading into the latest financial meltdown, economists said before a report today."
"Sales of existing homes dropped 1.2 percent last month to a 4.94 million annual pace, matching the year's average, according to the median estimate of economists surveyed by Bloomberg News."
"The collapse in lending that brought down American International Group. Inc. and Lehman Brothers Holdings Inc. this month may also make mortgages more difficult to get. A lack of credit raises the odds sales will again slump after hovering around a 10-year low this year, even as borrowing costs drop."
"``The risk to housing markets remains on the downside until we see an easing in credit standards,'' said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. ``We're looking at continued softness in sales, but there are signs of stabilization at low levels.''"
The National Association of Realtors' report on home resales is due at 10 a.m. in Washington. Estimates of the 73 economists surveyed ranged from 4.7 million to 5.15 million.
"Resales dropped to a 4.85 million rate in June, the lowest in a decade and down 33 percent from the record reached in September 2005."
"Tomorrow, the Commerce Department is forecast to report that sales of new houses dropped to an annual pace of 510,000 from 515,000 in July, according to the survey median. Those purchases reached a 17-year low of 503,000 in June, 64 percent lower than the July 2005 peak."
Builder Cutbacks
"As sales shrank, builders scaled back construction projects to pare swelling inventories. Work began in August on the fewest houses since 1991, the Commerce Department reported last week. The number of building permits issued also fell, signaling construction cutbacks will continue to hurt the economy."
"``The biggest issue is consumer confidence in housing right now,'' Ara Hovnanian, chief executive officer of Hovnanian Enterprises Inc., New Jersey's largest homebuilder, said in a Sept. 19 interview on Bloomberg Television. ``It remains a very challenging environment.''"
"Hovnanian said sales in ``some select markets,'' such as northern California and the Washington suburbs in Virginia, ``have really started to pick up.'' Still, it's ``absolutely'' too early to call a bottom for the market, he said."
"Resales stabilized in recent months as some Americans took advantage of depressed property values. One-third to 40 percent of July purchases reflected distressed properties, including foreclosures, the real-estate agent's group said last month."
Prices Drop
"The median price of an existing house in July dropped 7.1 percent compared with the same time last year, and the number of homes for sale jumped to a record."
"Stricter lending regulations and tumbling home prices make it harder for Americans to tap home equity for extra cash. Consumer spending in the third quarter will probably be the weakest since 1991, according to economists surveyed earlier this month."
"The housing slump is the ``root cause'' of the turmoil in financial markets, Treasury Secretary Henry Paulson said in testimony before the Senate yesterday. It ``has resulted in illiquid mortgage-related assets that are choking off the flow of credit which is so vitally important to our economy.''"
Federal Reserve Chairman Ben S. Bernanke joined Paulson in urging lawmakers to quickly pass a $700 billion rescue plan for financial institutions and warned the economy will shrink if markets don't begin functioning normally.
"Central bankers last week held the benchmark lending rate unchanged at 2 percent and said ``tight credit conditions, the ongoing housing contraction and some slowing in export growth are likely to weigh on economic growth over the next few quarters.''"
Bloomberg Survey
=============================================
Exist Exist
Homes Homes
Mlns MOM%
=============================================
Date of Release 09/24 09/24
Observation Period Aug. July
---------------------------------------------
Median 4.94 -1.2%
Average 4.94 -1.1%
High Forecast 5.15 3.0%
Low Forecast 4.70 -6.0%
Number of Participants 73 73
Previous 5.00 3.1%
---------------------------------------------
4CAST Ltd. 4.95 -1.0%
Action Economics 4.97 -0.6%
AIG Investments 4.90 -2.0%
Aletti Gestielle SGR 4.88 -2.4%
Analytical Synthesis 4.78 -4.4%
Argus Research Corp. 4.90 -2.0%
Banc of America Securitie 4.95 -1.0%
Bank of Tokyo- Mitsubishi 4.91 -1.8%
Bantleon Bank AG 4.91 -1.8%
Barclays Capital 4.92 -1.6%
BBVA 4.70 -6.0%
BMO Capital Markets 4.90 -2.0%
BNP Paribas 4.90 -2.0%
Briefing.com 4.95 -1.0%
Calyon 4.85 -3.0%
CFC Group 5.00 0.0%
CIBC World Markets 5.00 0.0%
Citi 4.95 -1.0%
ClearView Economics 4.85 -3.0%
Credit Suisse 4.90 -2.0%
Daiwa Securities America 4.90 -2.0%
Danske Bank 4.99 -0.2%
DekaBank 4.90 -2.0%
Desjardins Group 4.90 -2.0%
Deutsche Bank Securities 4.90 -2.0%
Dresdner Kleinwort 4.94 -1.2%
DZ Bank 4.95 -1.0%
First Trust Advisors 4.93 -1.5%
Fortis 4.90 -2.0%
FTN Financial 5.10 2.0%
Global Insight Inc. 4.90 -2.0%
"Goldman, Sachs & Co. 4.95 -1.0%"
H&R Block Financial Advis 4.92 -1.6%
Helaba 4.95 -1.0%
High Frequency Economics 5.10 2.0%
HSBC Markets 5.00 0.0%
IDEAglobal 4.95 -1.0%
Informa Global Markets 4.98 -0.4%
ING Financial Markets 4.97 -0.6%
Insight Economics 4.95 -1.0%
Intesa-SanPaulo 5.00 0.0%
J.P. Morgan Chase 5.00 0.0%
Janney Montgomery Scott L 5.13 2.6%
Landesbank Berlin 4.93 -1.5%
Landesbank BW 4.90 -2.0%
Lehman Brothers 4.95 -1.0%
Maria Fiorini Ramirez Inc 5.05 1.0%
Merk Investments 5.09 1.8%
Merrill Lynch 5.10 2.0%
MFC Global Investment Man 4.88 -2.4%
Moody's Economy.com 5.00 0.0%
Morgan Stanley & Co. 4.90 -2.0%
National Bank Financial 4.95 -1.0%
National City Corporation 4.90 -2.0%
Natixis 4.85 -3.0%
Nomura Securities Intl. 4.92 -1.6%
PNC Bank 4.90 -2.0%
RBS Greenwich Capital 4.90 -2.0%
"Ried, Thunberg & Co. 4.90 -2.0%"
Schneider Trading Associa 5.00 0.0%
Scotia Capital 4.90 -2.0%
Societe Generale 4.96 -0.8%
Standard Chartered 4.90 -2.0%
Stone & McCarthy Research 4.94 -1.2%
TD Securities 4.90 -2.0%
Thomson Financial/IFR 4.94 -1.2%
Unicredit MIB 5.15 3.0%
University of Maryland 5.03 0.6%
Wachovia Corp. 4.96 -0.8%
Wells Fargo & Co. 4.97 -0.6%
WestLB AG 4.95 -1.0%
Westpac Banking Co. 5.00 0.0%
Wrightson Associates 4.90 -2.0%
=============================================
To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net
"Last Updated: September 24, 2008 00:01 EDT"
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German Business Confidence Falls to Three-Year Low (Update2)
By Simone Meier
Sept. 24 (Bloomberg) -- German business confidence declined more than expected to the lowest level in more than three years in September as the worsening financial crisis in the U.S. damped the outlook for global economic growth.
"The Munich-based Ifo institute's business climate index, based on a survey of 7,000 executives, fell to 92.9 from 94.8 in August. Economists expected a drop to 94.3, the median of 41 forecasts in a Bloomberg News survey showed."
"Germany's economy, which shrank in the second quarter, is showing few signs of recovery after the yearlong credit squeeze led to bankruptcy and bailouts on Wall Street. The impact on economic growth may be mitigated by oil prices and the euro retreating from records."
"``Economic conditions are deteriorating quickly as global demand slows down,'' said Klaus Baader, chief European economist at Merrill Lynch and Co. in London. ``The outlook is increasingly weak and hopes of a recovery in the fourth quarter are more and more at risk.''"
French business confidence dropped to the lowest level in five years in September and in Italy it fell to the lowest since October 2001 as the global economic slowdown dimmed the outlook.
Worsening Crisis
"``The time has come to lower interest rates,'' said Gernot Nerb, an economist at Ifo. ``That doesn't have to happen next week, but the signal should soon come that rates will fall in the next few months.''"
"The European Central Bank kept its key rate at 4.25 percent for a second month on Sept. 4, suggesting it's more concerned about faster inflation than slowing growth. President Jean-Claude Trichet said that day he still expects the current ``episode of weak activity'' to be followed by a ``gradual recovery.''"
"The Essen-based RWI research institute lowered its outlook for German growth next year to 0.7 percent last week citing weaker export demand and inflation. In June, RWI forecast expansion of 1.5 percent, saying the economy would weather the worst of the U.S. subprime mortgage crisis. RWI also reduced its growth outlook for this year to 1.7 percent from 2.2 percent."
Second quarter gross domestic product fell 0.5 percent.
The German economy may struggle to return to growth in the second half because of the credit crisis. Central banks around the world have injected cash into the financial system after Lehman Brothers Holdings Inc. filed for bankruptcy protection last week and U.S. authorities bailed out American International Group Inc.
Writedowns
"Financial institutions worldwide have reported more than $520 billion in losses and writedowns since the lending crisis started. In Germany, the DAX stock benchmark has shed more than a fifth of its value this year."
"Josef Ackermann, chief executive officer of Deutsche Bank AG, Germany's largest bank, said before the Lehman Brothers failure that financial markets remain ``extremely nervous.'' An economic slowdown ``could lead to the next phase of difficulties for financial markets,'' he said."
"``The world now faces the prospect of a global economic downturn and inevitably, these shocks are taking their toll on the euro-area economy,'' European Union Economic Affairs Commissioner Joaquin Almunia said on Sept. 22."
"In the economy of the 15 euro nations, manufacturing and services contracted for a fourth month in September. The European Commission cut its euro-region growth forecast for this year on Sept. 10 to 1.3 percent from 1.7 percent."
Not Good
"``The situation doesn't look good,'' said Alexander Koch, an economist at UniCredit Markets & Investment Banking in Munich. ``Another decline in German gross domestic product seems increasingly likely in the third quarter.''"
"Continental AG, the German tire maker that's being taken over by Schaeffler Group, cut its profit target for fiscal 2008 earlier this month, citing a worsening outlook for sales as economic growth slows. Rising raw-material prices curbed demand in the third quarter, the Hanover-based company said."
"While crude oil prices have retreated 27 percent from a July 11 record, they're still up more than 30 percent over the past year. The euro has depreciated 6 percent against the dollar over the past two months. It's up 4.3 percent from a year ago."
"Still, German investor confidence rose for a second month in September after oil prices and the euro declined and unemployment fell more than economists expected in August, pushing the jobless rate to the lowest level in 16 years."
"Lanxess AG, Germany's largest publicly traded specialty- chemicals maker, said on Sept. 17 it will meet its full-year profit goals as faster growth in Asian economies compensates for the U.S. slowdown. The third quarter is ``going well,'' Lanxess Chief Executive Officer Axel Heitmann said."
To contact the reporter on this story: Simone Meier in Frankfurt at smeier@bloomberg.net
"Last Updated: September 24, 2008 04:57 EDT"
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Japanese Manufacturers are Pessimistic This Quarter (Update1)
By Jason Clenfield
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Sept. 24 (Bloomberg) -- Confidence among Japanese manufacturers held near a four-year low as the global financial crisis threatens to smother demand in the country's export markets and higher raw-material costs erode profits.
"Sentiment among manufacturers was minus 10 points this quarter compared with minus 15.1 points three months earlier, a survey by the Cabinet Office and Finance Ministry showed today. A negative number means pessimists outnumber optimists."
"Japan's economy, the world's second largest, is in a recession and probably won't recover until next year as exports weaken and rising prices at home discourage consumers from spending, economists say. Market turmoil spurred by Lehman Brothers Holdings Inc.'s bankruptcy may prolong the slump by cooling overseas demand for Japanese goods further."
"``Japan's business confidence is in bad shape,'' said Masaru Hamasaki, a senior strategist at Toyota Asset Management Co., which manages the equivalent of $3.3 billion. ``Given that the economic slowdown is spreading around the world, we can't be optimistic about the outlook for Japan's economy.''"
The yen traded at 105.54 per dollar at 10:13 a.m. in Tokyo from 105.65 before the report was published.
"Bank of Japan Governor Masaaki Shirakawa said last week there's no end in sight to the financial turmoil that has erased more than $14 trillion from world markets this year. Shirakawa didn't say whether the central bank would consider cutting interest rates, which at 0.5 percent are the lowest among industrialized nations. ``All options are open,'' he said."
Tankan Survey
"Today's report offers a hint of the results likely to emerge in the Bank of Japan's Tankan survey due Oct. 1. That survey, the nation's most closely watched gauge of corporate confidence, will probably show sentiment among large manufacturers dropping to its lowest level in five years, according to economist forecasts."
"``The main risk is a deeper or longer recession due to the ongoing slide in global financial markets,'' said Takehiro Sato, chief Japan economist at Morgan Stanley in Tokyo."
"Slumping U.S. and European sales has hurt profits at exporters including Canon Inc. Earnings at the company, which depends on North America for about 30 percent of its sales, will decline this year for the first time since 1999, according to a report this month by the Nikkei newspaper."
"Markets outside the U.S. are also deteriorating. The European economy shrank for the first time in almost a decade last quarter, and EU Commissioner Joaquin Almunia said this month the outlook is ``unusually uncertain.''"
"Sales of construction equipment by companies including Komatsu Ltd. will fail to meet industry forecasts because of lower demand from India and China, the Japan Construction Equipment Manufacturers Association said last month."
"Unlike the Tankan, which measures the level of confidence, the survey examines the degree of change in sentiment from the previous quarter."
"The Bank of Japan is surveying companies through the end of this month, making the Tankan Japan's most current gauge of business confidence. The government gathered most of its responses for today's report at the end of August."
To contact the reporter on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net
"Last Updated: September 23, 2008 21:17 EDT"
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"Korea May Almost Double Feed Wheat Imports, Cut Corn (Update3) "
By Sungwoo Park
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"Sept. 24 (Bloomberg) -- South Korea, Asia's second-biggest grain importer, may nearly double feed wheat purchases next year as feed producers seek a cheaper substitute to U.S. corn because of rising costs and slowing demand."
"The Northeast Asian country may import around 1.2 million metric tons of feed wheat, up 85 percent from 650,000 tons this year, Kim Chi Young, purchasing team manager at Korea Feed Association, the country's biggest grain buyer, said in an interview in Seoul yesterday."
"Corn rose 50 percent in the past year and reached a record in June. The gain raised costs for companies including Halim Co., South Korea's largest poultry producer, and forced livestock farmers to cut herds or abandon their business. Commodity costs boosted inflation in Asia's fourth-biggest economy to a 10-year high in July, curbing consumer spending."
"``We'll see more people substituting corn for wheat because corn prices have gone up sharply,'' said Nicholas Chung, senior manager of the commodity derivatives team at state-run Korea Development Bank in Seoul. ``The expected jump in Korean wheat demand is likely to add fuel to gains in wheat prices.''"
"Wheat has fallen 14 percent in the past year as farmers increased planting to take advantage of prices that reached a record $13.495 a bushel on Feb. 27. Futures for December delivery rose as much as 9.5 cents, or 1.3 percent, to $7.6 a bushel, the highest since Sept. 8, today on the Chicago Board of Trade and traded at $7.53 at 4:59 p.m. Seoul time."
`Cheaper Ingredients'
"``We expect to see more feed wheat imports next year because we need cheaper ingredients for feed production,'' Kim said. ``Livestock farmers are suffering from rising costs because grain prices rose too much. What is worse is that they cannot pass on costs to customers since the overall economy remains sluggish.''"
"Purchases of feed corn by Korea, the world's third-biggest importer of the grain, are likely to decline to 7.2 million tons next year from 7.7 million tons estimated for this year, he said."
"Output of so-called compound feed produced with various raw materials including corn, wheat and soybean meal, may be lower next year than an estimated 16.14 million tons this year, Kim said. Prices of compound feed have gained about 40 percent in the past year driven by grain import costs, the group said in July."
"``More feed producers will switch to wheat from corn for the time being as corn may remain strong,'' said Han Sung Min, a manager at the international marketing division of Korea Exchange Bank Futures Co. in Seoul. ``Corn is in tight supply on low inventory, while wheat production is rising.''"
Ukraine Supplies
"The group and other importers bought feed wheat in May for the first time in about a year as prices declined. Adverse weather reduced exports last year from producers including Ukraine, Korea's biggest feed-wheat supplier."
"The price premium of corn to feed wheat has remained steady at around $40 to $50 a ton since the purchase in May, Kim said."
"``If prices are agreeable, we could import even more feed wheat,'' exceeding the 1.2 million-ton projection, he said. ``Ukraine will be a main source of our wheat imports as supply from the country is increasing.''"
Ukraine imposed limits on exports in October 2006 and February 2007 to try to prevent shortages and damp local prices.
"The former Soviet state expects to reap 48.6 million tons of grain this year, the most since at least 1991. Grain shipments will expand more than fivefold to 22 million tons in the year through July 2009, Deputy Agriculture Minister Yaroslav Hadzalo said Sept. 18."
"Korea Feed Association, which has 41 members including Cargill Agri Purina Inc. and CJ CheilJedang Corp., accounts for about 70 percent of the country's feed grain imports. South Korea imports more than 99 percent of its corn and wheat needs."
To contact the reporter on this story: Sungwoo Park in Seoul at spark47@bloomberg.net.
"Last Updated: September 24, 2008 04:42 EDT"
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"Japanese Notes Fall as Stocks Pare Loss, Goldman Raises Capital "
"Sept. 24 (Bloomberg) -- Japan's two-year government notes declined for the first time in three days as stocks pared losses, reducing demand for debt securities."
"Yields increased after the Nikkei 225 Stock Average reversed its drop after falling as much as 1.5 percent. Domestic notes also slid after Goldman Sachs Group Inc. won the backing of Warren Buffett, the world's preeminent stock-picker, easing concern that the U.S. credit-market crisis will deepen."
"``There was probably some selling of bonds related to equities having reduced their losses,'' said Tetsuya Miura, a fixed-income strategist at Shinko Securities in Tokyo. ``There seems to be a flow of private-sector funds into financial institutions, which is likely to weigh on JGBs.''"
"The yield on the 0.7 percent note due September 2010 rose 1.5 basis points to 0.795 percent as of 4:46 p.m. in Tokyo at Japan Bond Trading Co., the nation's largest interdealer debt broker. The price fell 0.028 yen to 99.816 yen."
Ten-year yields were unchanged at 1.48 percent and the yield on the five-year notes was also unchanged at 1.08 percent. A basis point is 0.01 percentage point.
Buffett's Berkshire Hathaway Inc. is buying $5 billion of perpetual preferred stock with a 10 percent dividend. Berkshire also gets warrants to buy $5 billion of common stock at $115 a share at any time in the next five years.
Five-year yields had fallen to the lowest in almost a week on speculation Congress will hold up a $700 billion bank bailout that Federal Reserve Chairman Ben S. Bernanke said is critical to prevent a recession. A Japanese government survey today showed sentiment among manufacturers held near a four-year low as the U.S. financial crisis threatens to smother demand.
Stocks Correlation
"The Nikkei gained 0.2 percent. Bonds often move in the opposite direction to stocks. Ten-year yields had a correlation of 0.68 with the Nikkei in the past six months, according to Bloomberg data. A value of 1 means the two moved in lockstep."
"The Standard & Poor's 500 Index slid 1.6 percent yesterday, to 1,188.22, capping a two-day decline of 5.3 percent."
"``I believe if the credit markets are not functioning that jobs will be lost, the unemployment rate will rise, more houses will be foreclosed upon, GDP will contract, that the economy will just not be able to recover,'' Bernanke told the Senate Banking Committee yesterday. ``My interest is solely for the strength and recovery of the U.S. economy.''"
The administration of George W. Bush is seeking unchecked power from Congress to buy $700 billion in troubled assets from financial companies.
Technical Trades
"Charts that traders use to predict price changes, such as moving average convergence-divergence, showed that 10-year futures are in a downtrend. The contracts completed a second week of declines on Sept. 19."
Ten-year bond futures for December delivery fell 0.07 to 136.96 at the close of the Tokyo Stock Exchange. Japan's financial markets were shut yesterday for a national holiday.
"``Futures are still clearly overbought,'' said Keiko Onogi, a debt strategist at Daiwa Securities SMBC Co., another primary dealer in Tokyo. ``However, it's very difficult for investors to trade in the current market situation.''"
"On the daily MACD chart, the line measuring the difference between 12- and 26-day moving averages was below the nine-day moving average, which is often a sell signal."
"MACD charts can indicate whether a price shift is a change in trend or a short-term deviation by comparing moving averages based on nine-, 12- and 26-day periods"
Tankan Forecast
"Sentiment among Japan's manufacturers with more than 1 billion yen ($9.4 million) in capital was minus 10 points this quarter compared with minus 15.1 points three months earlier, a survey by the Cabinet Office and Finance Ministry showed today. A negative number means pessimists outnumber optimists."
"The report adds to speculation the Bank of Japan's Tankan survey due Oct. 1 will show sentiment among large manufacturers dropped. The Tankan index of manufacturer sentiment slid to minus 2 points in September from 5 in June, according to the median estimate of 26 economists surveyed by Bloomberg News."
"The Ministry of Finance will sell 1.8 trillion yen in two- year notes tomorrow. The prior sale on Aug. 28 drew bids worth 3.85 times the amount on offer, compared with a so-called bid- to-cover ratio of 3.30 at the July sale."
To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net
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Europe Confidence Drops as Financial Turmoil Worsens (Update2)
By Fergal O'Brien
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Sept. 24 (Bloomberg) -- Business confidence in the euro area's three largest economies declined more than forecast this month as the worsening financial crisis in the U.S. imperiled expansion around the world.
"In Germany, Europe's biggest economy, the Munich-based Ifo institute's business climate index fell to a three-year low of 92.9 from 94.8 in August, below the 94.3 median forecast of 41 forecasts in a Bloomberg News survey. Business confidence in France declined to the weakest in five years, while sentiment in Italy dropped to a seven-year low, separate reports showed."
"Europe's economy is struggling after shrinking in the second quarter as the yearlong credit squeeze leads to bankruptcy filings and bailouts on Wall Street and cooling economic growth damps demand. Even as expansion slows, the European Central Bank is resisting any cut in interest rates as it seeks to curb inflation that reached a 16-year high in July."
"``Today's Ifo and yesterday's purchasing managers' index contradict any scenario of an imminent recovery in the euro-area business cycle,'' said Jacques Cailloux, chief euro-area economist at Royal Bank of Scotland Plc in London. ``While the ECB will likely acknowledge the weaker growth trajectory at the next policy meeting, it is unlikely in our view to be a step toward an imminent rate cut.''"
Below Forecasts
"In France, the second-biggest euro-area economy, a gauge of business sentiment dropped to 92 this month from a revised 97 in August, below forecasts for a September reading of 97. Italy's business confidence index dropped to 82.7 from 83.5 last month. That is the lowest since October 2001 and less than the median forecast of 83.2."
"Bonds rose after the reports, with the yield on the two- year German note dropping 11 basis points to 3.78 percent as of 12:10 p.m. in London. The yield on the 10-year German bund, the euro region's benchmark government debt security, declined 5 basis points to 4.18 percent."
"The ECB on Sept. 4 kept its key rate at 4.25 percent for a second month, suggesting it's more concerned about faster inflation than slowing growth. ECB Governing Council member Axel Weber said yesterday that while the bank is aware there is a ``phase of weakening,'' slower growth ``won't magic away the inflation problem.''"
Euro-area manufacturing and services contracted for a fourth month in September. The European Commission cut its euro- region growth forecast for this year on Sept. 10 to 1.3 percent from 1.7 percent and projected recessions in Germany and Spain.
Worsening Prospects
"The cooling economy is taking its toll on companies. Fiat SpA, Italy's largest manufacturer, suffered a 23 percent decline in Italian car sales in August. German tire maker Continental AG cut its profit target for fiscal 2008 earlier this month, citing worsening prospects for sales and rising raw-material prices."
"The economic outlook is ``clouded'' by the turmoil in financial markets, the European Forecasting Network said yesterday. In the U.S., Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson are pushing Congress to approve a $700 billion plan to remove illiquid assets from the banking system and calm a crisis that already has claimed Lehman Brothers Holdings Inc. and prompted U.S. authorities to bail out American International Group Inc."
Financial institutions worldwide have reported more than $520 billion in losses and writedowns since the lending crisis started. The Dow Jones Euro Stoxx 600 has shed more than a quarter of its value this year.
`Grave Mistake'
Paulson said yesterday it would be ``a grave mistake'' for Congress to delay or curtail the funds he requested to stabilize the financial system.
"``The crisis is a reason for concern,'' said Andreas Scheuerle, an economist at Dekabank in Frankfurt. ``We're facing an extremely difficult time with growth rates around stagnation or possibly even worse.''"
Companies may get some relief from the drop in the price of crude oil and the euro's decline against the dollar. Oil has fallen from a record close to $150 a barrel in July to around $109 today. The euro has dropped 7.8 percent from its July 15 record and was at $1.4660 today.
"Lanxess AG, Germany's largest publicly traded specialty- chemicals maker, said on Sept. 17 it will meet its full-year profit goals as faster growth in Asian economies compensates for the U.S. slowdown. The third quarter is ``going well,'' Lanxess Chief Executive Officer Axel Heitmann said."
"``Consumption is very weak and it will be getting worse over the coming quarters,'' said Paolo Pizzoli, an economist for ING Bank NV in Milan. ``The only hope is if oil stays around $100 a barrel, and that should give some relief. Still, with the financial crisis causing uncertainty, the future doesn't look good.''"
To contact the reporter on this story: Fergal O'Brien in Dublin at fobrien@bloomberg.net.
"Last Updated: September 24, 2008 07:12 EDT"
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Indian Rupee Falls on Speculation Importers Buying More Dollars
By Anoop Agrawal
Sept. 24 (Bloomberg) -- India's rupee fell for a second day on speculation importers bought dollars to settle bills.
The currency was poised for its worst run in a week as local refiners may be betting crude oil prices will rise. The cost of the commodity has climbed 11.5 percent this year.
"``The dollar is available at a higher premium and that has made importers, particularly refiners, jittery,'' said P.V. Rao, a currency trader at IndusInd Bank Ltd. in Mumbai. ``Refiners have stepped up dollar purchases as crude prices are not at levels where they can afford to keep open positions.''"
"The rupee dropped 0.2 percent to 45.865 per dollar as of 9:30 a.m. in Mumbai, according to data compiled by Bloomberg. The currency may fall to 46 this week, Rao said."
Crude oil for November delivery climbed 0.4 percent to $107.07 a barrel in after-hours trading on the New York Mercantile Exchange.
"India's average crude oil import bill climbed to $8 billion a month this year from $5.5 billion in 2007, Bloomberg data show. The rupee is the second-worst performer this year among the 10 most-active Asian currencies excluding the yen."
To contact the reporter on this story: Anoop Agrawal in Mumbai at aagrawal8@bloomberg.net.
"Last Updated: September 24, 2008 00:13 EDT"
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"Asian Currencies Decline, Led by Korean Won, on Risk Aversion "
By Aaron Pan
"Sept. 24 (Bloomberg) -- Asian currencies declined, led by the South Korean won and Thailand's baht, on speculation the U.S. Congress will delay passage of a $700 billion financial rescue plan, curbing investor appetite for riskier assets."
All but one of the 10 most-actively traded Asian currencies fell today after Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson yesterday said that failure to pass the bailout would threaten the U.S. economy as lawmakers balked at rubber-stamping the plan.
"``The whole market is moving in lockstep with the U.S. and all eyes are on Congress and whether the bailout will be passed,'' said Dariusz Kowalczyk, chief investment strategist at CFC Seymour Ltd. in Hong Kong. ``The less likely it is, the more risk averse the market will become and emerging-market currencies will suffer.''"
"The won fell 0.5 percent to 1,154.5 against the dollar as of the 3 p.m. close in Seoul, according to Seoul Money Brokerage Services Ltd. It has slumped 19 percent this year and reached 1,166.20 per dollar on Sept. 16, the weakest since 2004. The baht lost 0.7 percent to 33.97 and Singapore's dollar dropped 0.4 percent to S$1.4189."
"Korean policy makers may intervene to prevent further weakness in the won, according to Jay Won, a foreign-exchange trader with Korea Exchange Bank in Seoul. Finance Minister Kang Man Soo said today the level of the won should reflect ``economic fundamentals.''"
`Traders Are Cautious'
"``The local currency market remains unstable given a shortage of dollars,'' Won said. ``Traders are cautious about the intervention that may emerge to check the won's slide.''"
"Central banks intervene in the currency markets by selling or buying foreign exchange. South Korea's currency reserves fell to $243 billion by the end of August, from a record $264 billion at the start of the second quarter, as the Bank of Korea tried to halt the won's decline. It fell 14 percent versus the dollar in that time."
"Malaysia's ringgit fell 0.3 percent to 3.4222 per dollar. The MSCI Asia Pacific index of shares was down 0.1 percent, a second day of losses."
"The Fed arranged to channel $30 billion into the global financial system by opening currency swap lines with central banks in Australia, Denmark, Norway and Sweden to relieve shortages of dollars."
Malaysia's government and central bank said Sept. 22 they have no intention of re-pegging the nation's currency amid the global financial turmoil.
`Dashed For Now'
Taiwan's dollar weakened after a government report yesterday showed export orders grew at the slowest pace in more than five years.
"The currency ended a three-day advance on concern a global economic slowdown is crimping demand for the island's exports that account for about half of Taiwan's gross domestic product. Export orders, an indicator of shipments over the next one to three months, rose 5.38 percent in August from a year earlier, the smallest increase since May 2003."
"``Because of its trade-reliant economy, the hopes of a strong domestic revival in Taiwan may be dashed for now,'' said Daniel Soh, an economist at Forecast Pte in Singapore. ``Foreign demand for Taiwan's investment and capital goods are falling. That weakens the Taiwan dollar.''"
"The island's currency fell as much as 0.2 percent to NT$32.012 against the U.S. dollar before closing at NT$31.961, according to Taipei Forex Inc."
"Factory output in August rose 0.41 percent from a year earlier, the least since March 2007, when production shrank, the government said yesterday."
"Importers, Baht"
Thailand's baht declined the most since June as importers took advantage of the currency's recent advance to a five-week high to buy dollars at cheaper rates.
"``There was some importer demand from late yesterday afternoon which started from around 33.70 and continued to this morning,'' said Carl Rajoo, another economist at Forecast in Singapore. ``Definitely, news from the Congress on the bailout plan last night also affected all Asian currencies.''"
"The baht fell as much as 0.8 percent to 34.01 per dollar, its biggest loss since June 9."
"Elsewhere, the Indonesian rupiah lost 0.1 percent to 9,338 and Vietnam's dong was little changed at 16,615. The Philippine peso advanced 0.3 percent to 46.435."
To contact the reporter on this story: Aaron Pan in Hong Kong at apan8@bloomberg.net.
"Last Updated: September 24, 2008 04:31 EDT"
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Freddie Mac Says Congress Should Pass Bailout Plan (Update1)
By Keiko Ujikane and Oliver Biggadike
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Sept. 24 (Bloomberg) -- Freddie Mac Treasurer Tim Bitsberger said credit markets faced a ``crisis of confidence'' last week and urged Congress to pass the bailout plan proposed by U.S. Treasury Secretary Henry Paulson without delay.
"The crisis ``posed an unimaginable threat that financial institutions would not be able to fund or capitalize themselves,'' Bitsberger told a Euromoney capital markets conference in Tokyo today. ``That's why it's so important for some version of Secretary Paulson's plan to be passed by Congress and signed into law as soon as possible.''"
"Paulson's $700 billion proposal, which asks Congress for funds to buy mortgage-linked securities from financial institutions, may push the U.S. national debt to the highest level since 1954, according to economist estimates. Gross debt, which includes debt held by the public and by government agencies, reached about $9.6 trillion this year, or about 68 percent of gross domestic product."
"Foreign investors began cutting holdings of debt sold by Freddie and fellow government-chartered Fannie Mae in June on concern the companies, which own or guarantee more than 40 percent of the $12 trillion of U.S. home loans, might not survive the worst housing slump since the Great Depression. Freddie's investor base has shifted to domestic from international buyers amid volatility in global markets, Bitsberger said."
`Flight to Quality'
"``We are in flight-to-quality environment,'' said Bitsberger, who was assistant secretary for financial markets at the Treasury before joining Freddie in 2006. ``No-one could have predicted that the government would be forced to intervene so aggressively and so frequently.''"
"Federal regulators placed Freddie and Fannie into a so- called conservatorship on Sept. 7 and pledged to buy their mortgage securities in a bid to lower loan rates. Protecting Freddie's debt and mortgage investors will restore confidence to credit markets, Bitsberger said."
"Foreign demand for so-called U.S. agency debt weakened in July as Asian investors sold a net $15.7 billion compared with net buying of $15.5 billion in June, Treasury data show. Japan accounted for about a third of the sell off, followed by Korea, then China."
Japanese Investor Appetite
"``Japanese investors' appetite for Freddie and Fannie bonds is recovering relative to U.S. corporate bonds since the government's announcement on the agencies,'' said Shinji Kunibe, a senior portfolio manager who helps oversee $847 billion at the Tokyo branch of JPMorgan Asset Management. ``Still, there's uncertainty over the credit market, and the global economy may slow as the U.S. subprime problem spreads through the world.''"
"Foreign central-bank holdings of agency debt and mortgage bonds dropped to $959.2 billion in the week ended Sept. 17, from a record $983.9 billion on July 16, Federal Reserve data show. Agency debt includes the corporate borrowings of Fannie, Freddie and the Federal Home Loan Banks, as well as mortgage securities guaranteed by Fannie, Freddie and federal agency Ginnie Mae."
"Washington-based Fannie and McLean, Virginia-based Freddie make money by buying mortgages from banks and by guaranteeing home-loan securities. The companies also hold some loans and mortgage bonds in their portfolios as investments."
To contact the reporters on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.netOliver Biggadike in Tokyo at obiggadike@bloomberg.net
"Last Updated: September 24, 2008 05:16 EDT"
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Libor Jumps as Banks Seek Cash to Shore Up Finances (Update2)
By Gavin Finch and Kim-Mai Cutler
Sept. 24 (Bloomberg) -- Money-market interest rates increased as banks sought to bolster balance sheets amid deepening concern a bailout of financial institutions won't happen quickly enough to ease short-term funding constraints.
"The one-month London interbank offered rate, or Libor, for dollars jumped 22 basis points to 3.43 percent, the highest level since January, the British Bankers' Association said today. The corresponding rates in euros and pounds also rose, while yields on Treasury bills tumbled as investors fled all but the shortest- maturity government debt."
"Efforts by the Federal Reserve, the European Central Bank and Bank of Japan to revive money markets with emergency cash auctions haven't worked. Banks are hoarding cash and balking at lending to each other on concern more institutions will fail following the collapse of Lehman Brothers Holdings Inc. and the U.S. government takeover of American International Group Inc. A $700 billion bank rescue plan from Treasury Secretary Henry Paulson has met resistance from Congressional Democrats and Republicans."
"``There's no real term funding markets except for central banks,'' said Meyrick Chapman, a fixed-income strategist in London at UBS AG. ``The Libor is meaningless. It's for unsecured lending and there is no unsecured lending as far as I can see.''"
"Euro, Pound Libor"
Banks typically hold onto cash to bolster their balance sheets before closing their books at quarter-end. One-month dollar Libor soared 40 basis points at the end of November as banks refused to lend funds for year-end.
"The one-month Libor rate for euros rose 7 basis points today to 4.91 percent, and the pound rate also advanced 7 basis points, to 5.91 percent. The overnight rate for dollars doubled to 6.44 percent on Sept. 16 after the Lehman bankruptcy and AIG rescue."
"The Treasury and Fed last week unveiled the proposal to move troubled assets from the balance sheets of U.S. financial companies and put them in a new institution. Congressional leaders are weighing new strategies, including the possibility of approving only a $150 billion initial installment for the government to purchase troubled assets from financial firms."
"The difference between the Libor for three-month dollar loans and the overnight indexed swap rate, the Libor-OIS spread that measures the availability of funds in the market, widened 31 basis points to 166 basis points today, the highest level since at least December 2001. That compares with an average of 8 basis points in the 12 months to July 31, 2007, before the credit squeeze started."
Auction Demand
"Demand for euros at today's European Central Bank auction of three-month loans was the strongest on record, while banks paid a record premium for dollar loans at yesterday's Fed sale."
"The ECB allotted 50 billion euros ($73.3 billion) at a marginal rate of 4.98 percent. That's the highest since 2000. Banks bid for 155 billion euros. Banks paid 3.75 percent at yesterday's 28-day Fed term auction facility, or TAF. That's 57 basis points more than yesterday's one-month rate, the widest spread since the TAF program began in December."
Libor loans aren't secured and typically command rates above those of secured loans of similar maturities.
"``We've seen quite a bit of upward pressure in the past couple of weeks and the fact that the TAF came in at over 50 basis points above yesterday's one-month Libor will no doubt add to that,'' said Barry Moran, a Dublin-based money-market trader at Bank of Ireland, the country's second-biggest bank."
Bonds Advance
"Treasuries rose, led by three-month bills, on concern about the pace of the bailout. Rates on three-month Treasury bills plunged 31 basis points, or 0.31 percentage point, to 0.41 percent. Rates dropped to 0.02 percent on Sept. 17, the lowest since World War II. European and U.K government bonds climbed amid speculation the region is slipping into a recession."
"To help ease the gridlock in dollar funding, the Fed arranged $30 billion in swap lines today with central banks in Norway, Sweden, Denmark and Australia."
"The Fed, the ECB and the Bank of Japan joined with counterparts in Switzerland, the U.K. and Canada last week to pump hundreds of billions of dollars into the financial system."
"The world's biggest financial companies posted $522 billion in subprime-related losses and writedowns since the start of last year. That's more than last year's gross domestic product of Ireland and Finland combined, according to data compiled by Bloomberg."
To contact the reporters on this story: Gavin Finch in London at gfinch@bloomberg.net; Kim-Mai Cutler in London at kcutler@bloomberg.net
"Last Updated: September 24, 2008 11:03 EDT"
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Germany Ifo Business Confidence for September: Summary (Table)
By Kristian Siedenburg
Sept. 24 (Bloomberg) -- Following is a summary of the September German business confidence report from the Munich-based Ifo:
===============================================================================
Sept. Aug. July June May April March Feb. Jan.
2008 2008 2008 2008 2008 2008 2008 2008 2008
===============================================================================
Business climate 92.9 94.8 97.4 101.1 103.3 102.3 104.6 104.0 103.3
3-mo. average 95.0 97.8 100.6 102.2 103.4 103.6 104.0 103.4 103.5
Current 99.8 103.2 105.6 108.2 110.0 108.3 111.4 110.3 107.9
Expectations 86.5 87.0 89.9 94.5 97.1 96.6 98.3 98.0 98.9
----------------Business Climate by Sector--------------------
Trade & Industry -14.8 -11.1 -5.9 1.5 5.9 3.8 8.5 7.2 5.9
Manufacturing -11.6 -6.8 1.8 7.9 14.7 13.1 17.7 16.1 17.3
Construction -25.2 -26.4 -23.4 -19.0 -20.3 -20.0 -21.8 -25.0 -16.9
Wholesale trade -10.3 -5.5 -7.4 1.9 3.9 1.5 7.6 5.8 3.2
Retail trade -24.0 -21.5 -20.6 -6.8 -4.6 -11.0 -1.1 1.2 -17.4
===============================================================================
"NOTE: Index levels are based at 2000=100. Ifo polls about 7,000"
"companies which can characterize their situation as good, more"
"favorable, unchanged or more unfavorable. The current business"
situation is the difference between the good and poor responses
while the expectations is the difference between the more
favorable and more unfavorable responses. The business climate
index is the average of the current and expectations components.
SOURCE: Institut fuer Wirtschaftsforschung (Ifo) - Munich
To contact the reporter on this story: Kristian Siedenburg in Budapest at ksiedenburg@bloomberg.net
"Last Updated: September 24, 2008 04:01 EDT"
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"Yen Declines Against Euro on Fed Offer of Cash, Buffett Deal "
By Bo Nielsen and Stanley White
"Sept. 24 (Bloomberg) -- The yen weakened against the euro after the Federal Reserve agreed to provide central banks with more cash to increase lending, encouraging traders to purchase higher-yielding assets funded in Japan."
"Japan's currency also slid, dropping against most of its major counterparts, as Goldman Sachs Group Inc. raised $5 billion from Warren Buffett's Berkshire Hathaway Inc. and the same amount in a stock offering. Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson are due to give more congressional testimony on a proposed $700 billion bailout."
"``There's certainly a volley back and forth between taking on risk and taking it off,'' said Jeff Gladstein, global head of foreign-exchange trading at AIG Financial Products in Wilton, Connecticut. ``Everyone is still trying to decipher the bailout package.''"
"The yen dropped 0.6 percent to 155.59 per euro at 10:06 a.m. in New York, from 154.63 yesterday. The yen traded at 105.84 per dollar, compared with 105.56. The euro appreciated 0.5 percent to $1.4724, from $1.4648."
"Berkshire Hathaway, led by 78-year-old Buffett, is buying $5 billion of Goldman perpetual preferred stock with a 10 percent dividend. Berkshire also gets warrants to buy $5 billion of common stock at $115 a share at any time in the next five years. Goldman also sold 40.65 million shares of common stock at $123 apiece, the firm said in a statement."
Carry Trades
"Demand for the yen typically drops when appetite for higher-risk assets increases, as traders pare so-called carry trades. In such transactions, investors get funds in a country with low borrowing costs and invest in another with higher interest rates, earning the spread between the two. The risk is that currency-market moves can erase those profits."
"The Bank of Japan's benchmark rate of 0.5 percent compares with 4.25 percent in Europe, 7 percent in Australia and 7.5 percent in New Zealand."
The yen fell 0.7 percent to 88.53 per Australian dollar and 0.6 percent to 72.35 versus the New Zealand dollar.
"``Risk appetite is slightly better, but still very fragile,'' said Ian Stannard, a senior currency strategist in London at BNP Paribas SA, the most accurate currency forecaster in a 2007 Bloomberg survey."
"The dollar fell against the euro earlier as the Fed arranged $30 billion in swaps lines with central banks in Norway, Sweden, Denmark and Australia, providing easier access to the U.S. currency in a response to demand for dollar loans."
Bailout Debate
"The U.S. Congress may prolong debate on the government's proposal to remove illiquid assets from the banking system. Lawmakers have balked at rubber-stamping the Treasury's plan, with Democrats demanding it include support for homeowners and limits on executive pay. Republicans are also resisting the plan, which economists predict would push the budget deficit to an all-time high next year."
Bernanke and Paulson said yesterday the bailout is needed to avert a recession in the world's biggest economy.
"``The risk this afternoon is that Bernanke sounds more concerned from the fallout from the banking crisis into the real economy,'' said Steve Barrow, a currency strategist at Standard Bank Plc in London. ``That could weigh on the dollar.''"
"The U.S. currency has lost about 4.5 percent versus the euro since touching a one-year high of $1.3882 on Sept. 11. The dollar reached $1.6038 on July 15, the weakest level since the European currency made its 1999 debut. It may weaken to as low as $1.50 this year, Stannard said."
"The chance of the Fed cutting its 2 percent benchmark rate by a quarter-percentage point at its Oct. 29 policy meeting was 74 percent, compared with 58 percent yesterday, futures contracts on the Chicago Board of Trade showed."
The dollar fell against the euro today as the National Association of Realtors reported that U.S. sales of existing homes declined last month to a 4.91 million annual rate. The median forecast of 73 economists surveyed by Bloomberg News was for a drop to a 4.94 million pace.
To contact the reporters on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net; Stanley White in Tokyo at swhite28@bloomberg.net
"Last Updated: September 24, 2008 10:09 EDT"
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"German Stocks Rise, Led by Financial Companies; Arocandor Jumps "
By Stefanie Haxel and Sarah Jones
"Sept. 24 (Bloomberg) -- German stocks rose, led by financial companies and insurers after Warren Buffett invested in Goldman Sachs Group Inc. as the firm seeks to raise cash from investors."
"Munich Re, Hypo Real Estate Holding AG and Deutsche Bank AG advanced. Buffett's Berkshire Hathaway Inc. is buying $5 billion of perpetual preferred Goldman stock with a 10 percent dividend. Arcandor AG rallied 8.1 percent as banks extended the retailer's loan agreement after more than a week of negotiations."
"The benchmark DAX Index rose 11.11, or 0.2 percent, to 6,079.64 as of 12:06 p.m. in Frankfurt. DAX futures expiring in December added 0.1 percent. The HDAX Index of the country's 110 biggest companies advanced 0.1 percent."
"Goldman Sachs jumped 10 percent in Germany following Buffett's Berkshire's investment in the firm, while European financial shares performed better than any other regional industry groups. Berkshire also gets warrants to buy $5 billion of Goldman's common stock at $115 a share at any time in the next five years."
"Munich Re, the world's biggest reinsurer, rallied 4 percent to 108.19 euros. Hypo Real Estate Holding AG, Germany's second- biggest commercial-property lender, gained 1.8 percent to 165 euros. Deutsche Bank, Germany's largest bank, rose 1.4 percent to 54.57 euros."
"Arcandor rallied 8.1 percent to 3.62 euros after Germany's biggest department-store owner said it reached an agreement with Royal Bank of Scotland Group Plc, Bayern LB and Dresdner Bank AG on the extension of the loan."
The following stocks also rose or fell in German markets. Symbols are in parentheses.
"Nordex AG (NDX1 GY) climbed 82 cents, or 3.8 percent, to 22.50 euros. UniCredit Markets & Investment Banking raised the wind mill maker to ``hold'' from ``sell.''"
"Phoenix Solar AG (PS4 GY) gained 96 cents, or 2.5 percent, to 39.12, snapping a two-day drop. UniCredit Markets & Investment Banking raised its recommendation for the maker of sunlight- powered electricity plants to ``hold'' from ``sell.''"
"Solarworld AG (SWV GY) gained 68 cents, or 2.1 percent, to 33.70, the highest in three weeks. UniCredit Markets & Investment Banking raised its recommendation for Germany's third-largest solar power company to ``buy'' from ``hold,'' saying Solarworld should benefit U.S. senate approved the extension of the renewable energy tax credits"
To contact the reporter on this story: Stefanie Haxel in Frankfurt at shaxel@bloomberg.net.
"Last Updated: September 24, 2008 06:17 EDT"
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Dollar Falls Versus Euro as Congress Delays U.S. Bailout Plan
By Stanley White and Ron Harui
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"Sept. 24 (Bloomberg) -- The dollar fell against the euro as the U.S. Congress studies the government's $700 billion rescue proposal, with Federal Reserve Chairman Ben S. Bernanke saying a delay in passing the plan would hurt the economy."
"The greenback also approached a one-month low versus the British pound before a report that economists forecast will show U.S. home sales dropped, bolstering the case for a Fed interest- rate cut. The Australian and New Zealand dollars weakened as prices for commodities the countries export declined."
"``The dollar will face a lot of pressure to go lower,'' said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. ``Uncertainty about when the U.S. rescue package will pass and how much of a burden it will place on future generations is damaging confidence in the dollar.''"
"The currency dropped to $1.4684 per euro at 12:38 p.m. in Tokyo from $1.4648 late yesterday in New York. It was at 105.66 yen from 105.56 yen. Against the pound, the dollar traded at $1.8544 from $1.8522. It reached a one-month low of $1.8642 on Sept. 22. The euro bought 155.16 yen from 154.63 yen. The dollar may decline to $1.4710 per euro today, Soma forecast."
The Australian dollar fell to 83.43 U.S. cents from 84.40 cents late in Asia yesterday. New Zealand's dollar weakened 1.4 percent to 68.06 U.S. cents.
"Gold, Australia's third most-valuable raw material export, fell $3.80 to $887.40 an ounce. Crude oil, its fourth most- valuable export, was little changed at $107.07 a barrel after falling for the first time in a week. Raw materials account for 60 percent of Australia's exports and sales of commodities such as lumber make up 70 percent of New Zealand's overseas shipments."
Illiquid Assets
"U.S. lawmakers have balked at rubber-stamping the Treasury's plan to remove illiquid assets from the banking system, with Democrats demanding it include support for homeowners and limits on executive pay. Republicans are also resisting the plan, which economists predict would push the budget deficit to an all-time high next year."
Bernanke gives congressional testimony on the U.S. economy at 10 a.m. in Washington today. He and Treasury Secretary Henry Paulson said yesterday the bailout is needed to avert a recession in the world's biggest economy.
Gains in the euro may be limited by speculation weakening German business confidence will add to evidence that growth is slowing in the 15 countries that share the currency.
"The Ifo institute's business climate index declined to 94.3 in September from 94.8 in August, according to the median of 41 forecasts in a Bloomberg News survey. That would be the weakest reading since June 2005. Ifo will release the report, based on a survey of 7,000 executives, at 10 a.m. in Munich today."
European Recession?
"``The Ifo may be an ugly number, showing there are still concerns whether the euro zone will fall into a recession,'' said Lee Wai Tuck, a currency strategist at Forecast Pte Ltd. in Singapore. ``You will see some euro selling again.''"
"The euro may fall to $1.4580 and 154.00 yen today, he said."
"The U.S. currency has lost about 5.5 percent versus the euro since touching a one-year high of $1.3882 on Sept. 11. The dollar reached $1.6038 on July 15, the weakest level since the European currency made its 1999 debut."
"The U.S. National Association of Realtors will say today that house purchases declined to a 4.94 million annual pace from 5 million in July, according to a Bloomberg survey. The report is due at 10 a.m. New York time. Sales reached a 4.85 million pace in June, the fewest since comparable records began in 1999."
Home Sales Slide
"The Commerce Department is forecast to report that sales of new houses dropped to an annual pace of 510,000 from 515,000 in July, according to a separate survey before tomorrow's data. Sales of existing and new homes are down 35 percent from their July 2005 peak."
"``A large amount of wealth has truly been lost, and these are losses that have not been offset by gains,'' Robert Merton, the Nobel Prize-winning economist and co-founder of Long-Term Capital Management, said yesterday during a panel discussion at Harvard Business School in Boston. ``Like it or not, those losses have to be borne by house-owners, by those who financed them and by the general population.''"
"The chance of the Fed cutting its 2 percent benchmark rate by a quarter-percentage point at its Oct. 29 policy meeting was 58 percent yesterday, compared with zero a month ago, futures contracts on the Chicago Board of Trade showed."
Weaker Dollar
"The U.S. Dollar Index traded on ICE futures in New York, which tracks the greenback against the currencies of six major trading partners, reached 75.890 on Sept. 22, the lowest since Aug. 13. It was at 76.618 from 76.468 yesterday."
"``The housing market is still slowing and the poor state of the economy is likely to continue,'' said Michiyoshi Kato, a senior vice president of currency sales in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan's second-largest bank by assets. ``Sentiment is bad toward the dollar,'' which may weaken to 105 yen today, he said."
"The U.S. dollar may extend its decline to parity with the Canadian dollar, according to charts that predict price movements, said Kevin Edgeley, a technical analyst at Goldman Sachs Group Inc. in London. The greenback last traded at C$1.0347 from C$1.0384."
"Daily and weekly momentum indicators such as the stochastic oscillator and Goldman's ``Trend Strength'' charts are both ``bearish,'' Edgeley wrote in a research note yesterday. ``There is scope for further extension toward the potential trend line support from February around C$1.0000.''"
To contact the reporters on this story: Stanley White in Tokyo at swhite28@bloomberg.netRon Harui in Singapore at rharui@bloomberg.net
"Last Updated: September 24, 2008 00:09 EDT"
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"Canadian Stocks Drop, Led by Potash, Nexen; Manulife Gains "
By John Kipphoff
"Sept. 23 (Bloomberg) -- Canadian stocks fell for a second day, led by commodity producers, on concern lending and global growth will remain in a slump until a proposed $700 billion U.S. bailout is approved and stabilizes the financial system."
"Potash Corp. of Saskatchewan Inc. retreated the most in seven weeks, and Canadian Oil Sands Trust slid, leading declines in raw-material and energy producers as prices of oil, soybeans and other commodities dropped. Manulife Financial Corp. paced a rally in financial stocks on speculation they'll snap up assets from U.S. rivals seeking to shore up illiquid balance sheets."
"``We have to have a signal that we're getting closer to a solution,'' said Gerry Brockelsby, founding partner of Marquest Investment Counsel in Toronto, which manages the equivalent of about $286 million. ``Hopefully this package will stabilize markets. I believe it will. That needs to be in a matter of days not weeks.''"
"The Standard & Poor's/TSX Composite Index dropped 0.8 percent to 12,532.63 in Toronto as more than three stocks slid for every two that rose. The S&P/TSX fell into a bear market last week before rallying by the most in two decades on Sept. 19 after the U.S. government proposed the plan to buy non- performing mortgage-related assets from banks in order to unblock seized-up credit markets."
"U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke urged congress to quickly approve their proposed rescue of financial institutions or risk continued market turmoil and a recession. Some lawmakers expressed doubts about the package, citing constituents' opposition to the plan and the financial burden facing taxpayers under the proposal."
Canadian Central Bank
"To provide liquidity, the Bank of Canada said today it will lend commercial banks and brokers C$4 billion ($3.9 billion)."
"Potash Corp., the world's biggest maker of fertilizers by market value, dropped 9.7 percent to C$167.80, the most since Aug. 5. Smaller rival Agrium Inc. slid 7.1 percent to C$81.23. Teck Cominco Ltd., Canada's biggest diversified mining company, decreased 3.4 percent to C$35.52. Barrick Gold Corp., the largest bullion mining company, fell 1.7 percent to C$38.80."
"Crude-oil prices fell the first time in a week, on skepticism that a bailout of financial companies will bolster economic growth and fuel demand. Copper, wheat and soybeans dropped as the falling U.S. dollar reduced demand for commodities denominated in the American currency. Gold slipped on signs market volatility may be ebbing, reducing the appeal of the precious metal as a haven."
Energy Stocks
"Canadian Oil Sands, lead partner in the largest oil-sands producer, fell 4.3 percent to C$41.54. Suncor Energy Inc. dropped 2.7 percent to C$48.05. Nexen Inc. slid 3.9 percent to C$26.50."
Energy shares in the S&P/TSX fell 1.8 percent as group. An index of raw-materials stocks lost 4.7 percent. The two groups account for more than two-fifths of the index's value.
"Manulife, now North America's biggest insurance company by market value after American International Group Inc.'s decline, climbed 3 percent to C$37.50, pushing an index of financial stocks up 2 percent."
AIG is expected to broken up after it was crippled by losses tied to the worst U.S. housing slump since the Great Depression. The biggest U.S. insurance company by assets agreed to turn over control to the U.S. government last week in exchange for a federal loan of as much as $85 billion to cover additional potential losses on default insurance contracts that it wrote.
Unit Sales
"AIG may get $115 billion by selling units, analysts at Credit Suisse Group AG estimated today."
"Two other Canadian insurance companies, Fairfax Financial Holdings Ltd. and Sun Life Financial Inc. also rose today, after the Globe and Mail reported that they too may bid for parts of American International."
"``The ones still standing, with the wherewithal to take advantage, will be the big winners of all this,'' Brockelsby said."
"Fairfax rose 4.8 percent to C$337, taking a four-day gain to 38 percent. The owner of Canadian and U.S. insurers said yesterday that it made $521.5 million in the third quarter by betting against financial companies. Sun Life, the country's third-largest insurance company, gained 2.5 percent to C$37.26."
To contact the reporter on this story: John Kipphoff in Toronto at jkipphoff@bloomberg.net.
"Last Updated: September 23, 2008 17:31 EDT"
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Italian September Business Confidence Falls to Seven-Year Low
By Lorenzo Totaro and Flavia Krause-Jackson
Sept. 24 (Bloomberg) -- Italian business confidence fell in September to the lowest level in more than seven years as signs Europe's fourth-biggest economy will slip into recession crimped optimism.
The Isae Institute's business confidence index dropped to 82.7 from 83.5 in August the Rome-based research center said today. That is the lowest since October 2001 and less than the median forecast of 83.2 in a Bloomberg survey of 20 economists.
"Growth in the $2.3 trillion economy has lagged behind the European Union average for more than a decade and is set to be the slowest in the euro region this year, the European Commission predicted Sept. 10. The economy will contract 0.1 percent in 2008, employers' association Confindustria said on the same day, which would be the first contraction in 15 years."
"``The current level of business confidence is consistent with flat gross domestic product growth at best,'' said Marco Valli, an economist at UniCredit in Milan. ``With slowing orders and high stocks, the prospects for production are not favorable. We expect some improvement possibly only at the beginning of next year.''"
"Exporters were the most pessimistic. An index measuring optimism about orders from overseas dropped to minus 21 from minus 10 as stockpiles grow from the lull in demand. The euro, after falling from a record in July, has gained 4 percent since Sept. 16 as credit markets seized up, leading the U.S. to propose a $700 billion bailout of the banking system. Gains in the euro make goods made in the 15-nation euro economy less competitive in the U.S., Italy's third-biggest trading partner after Germany and France."
"Fiat, Alitalia"
"The cooling economy is taking its toll on Italy's biggest companies. Fiat SpA, Italy's largest manufacturer, suffered a 23 percent decline in Italian car sales in August. Alitalia SpA, the national airline, asked for protection from creditors last month and is teetering on the brink of bankruptcy."
The renewed turmoil in financial markets threatens to further choke confidence and growth. Europe's manufacturing and service industries contracted at the fastest pace in almost seven years in September as the credit-market seizure intensified in the wake of the bankruptcy of Lehman Brothers Holdings Inc. and companies scaled back production in response to slowing orders.
"French business confidence fell to the lowest in almost five years in September, a separate report said today. German business confidence probably declined to the lowest level in more than three years in September, another report will show today, according to a survey of economists by Bloomberg News."
"The euro-zone economy contracted in the second quarter and slowing growth in France and Germany, Italy's two-biggest trading partners, weighed on Italy. The economy contracted 0.3 percent in three months through June and the commission forecast that Italy will slip into its fourth recession in a decade."
"Isae conducted its survey of 4,000 companies between Sept. 1 and Sept. 18."
"---Editors: Andrew Davis, Alan Crosby"
To contact the reporter on this story: Lorenzo Totaro at ltotaro@bloomberg.netFlavia Krause-Jackson in Rome at fjackson@bloomberg.net;
"Last Updated: September 24, 2008 03:32 EDT"
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"Australia's Dollar May Head to Parity, Says Citigroup (Update1) "
By Candice Zachariahs
"Sept. 24 (Bloomberg) -- Investors should buy the Australian dollar against the U.S. currency as the nation's high yields will make its assets attractive as the world's biggest economy slumps, said Citigroup Global Markets Inc."
"Benchmark interest rates in Australia are 7 percent compared with 2 percent in the U.S. Gold, Australia's third most-valuable raw material export is seen as a safe haven and has rallied 6.3 percent this year."
"``The Aussie stands out as the currency within the majors that potentially has the greatest benefit,'' said Tom Fitzpatrick, global currency head of strategy at Citigroup Global Markets Inc. in New York. ``We still believe we are likely to see the Aussie-U.S. get to parity.''"
Fitzpatrick said in July 2007 the Canadian dollar could reach parity with the U.S. currency within two to three months. Canada's dollar reached the milestone in September 2007 for the first time in 31 years.
"Investors should buy the Australian dollar at 83.81 U.S. cents with a target of 88 cents, analysts led by Fitzpatrick said in a note to investors dated yesterday. They should sell the currency if it falls to 82.30 cents, said Citigroup, the world's fourth-biggest currency trader."
"Australia's currency slid 1 percent to 83.59 U.S. cents at 3:56 p.m. in Sydney, from 84.40 cents in late Asian trading yesterday."
Fitzpatrick expects the currency to reach 88 cents within weeks and strengthen to parity versus the U.S. dollar by early 2009.
"``A lot of the difficulties that we see at this point are going to be predominantly in the U.S. and in Europe,'' he said."
The Australian currency has dropped 14.5 percent since reaching a 25-year high of 98.49 U.S. cents on July 16.
The country's interest rates make Australia a favorite for so-called carry trades where investors seek higher returns using funds from a country with low borrowing costs. The risk is exchange-rate fluctuations can erode profits.
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
"Last Updated: September 24, 2008 02:06 EDT"
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U.S. Treasuries Little Changed Before Record Two-Year Auction
By Kim-Mai Cutler and Wes Goodman
Sept. 24 (Bloomberg) -- U.S. Treasuries were little changed before the government sells a record $34 billion of two-year securities today.
"The size of the offering is feeding speculation the U.S. will boost debt sales to fund a proposed $700 billion financial- market rescue plan, which may drive prices lower. Treasuries fell earlier as Goldman Sachs Group Inc. said it will raise capital from Warren Buffett's Berkshire Hathaway Inc., bolstering investor confidence in financial companies."
"``We think the upside is pretty limited especially given supply,'' said Giles Gale, a London-based fixed-income strategist at Royal Bank of Scotland Group Plc. ``There are still questions about the troubled asset facility's progress through Congress and how it will work.''"
"The yield on the two-year note was 2 basis points higher at 2.08 percent as of 7:10 a.m. in New York, according to BGCantor Market Data. The 2.375 percent security due August 2010 fell 1/32, or 31 U.S. cents per $1,000-face amount, to 100 18/32. The 10-year yield slipped 1 basis point to 3.79 percent."
"S&P 500 futures contracts expiring in December rose 1 percent after Goldman Sachs secured backing from Buffett. Goldman said it will get at least $7.5 billion from Berkshire Hathaway and public investors, a bid to quell concerns that pushed up the Wall Street firm's borrowing costs and hurt its shares."
"``This news quickly erased any bid'' in the Treasury market, said Kenny Borowicz, a senior vice president at MF Global Singapore Ltd., part of the world's largest broker of exchange-traded futures and options contracts."
Debt Sale
"The Treasury Department increased its two-year auction by $2 billion from the previous sale in August. It plans to offer $24 billion of five-year securities tomorrow, the most since February 2003."
Investors bid for 2.18 times the amount of debt on offer at the prior two-year note auction. The average for the past 10 sales is 2.31.
"Investors outside the U.S., who own more than half of all Treasuries outstanding, say the government's plan to revive the banking system will diminish the appeal of the nation's bonds."
"Treasury Secretary Henry Paulson's proposal, which seeks funds to rescue banks by purchasing devalued securities they hold, would drive the country's debt to more than 70 percent of gross domestic product. The last time taxpayers owed as much was in 1954, when the U.S. was paying down costs from World War II."
Tainted Image
"``The image of U.S. Treasuries as a safe haven has been tainted by the ongoing financial debacle,'' said Kwag Dae Hwan, head of global investment in Seoul with South Korea's $220 billion National Pension Fund, which holds about $14 billion of U.S. government debt. ``A big question mark hangs over whether the U.S. can deal with an unprecedented amount of debt. That is unnerving all the investors, including me.''"
Federal Reserve Chairman Ben S. Bernanke gives congressional testimony on the U.S. economy at 10 a.m. in Washington today. He and Paulson said yesterday the bailout is needed to avert a recession in the world's biggest economy.
"``It's still all about this troubled-asset relief program,'' said Cyril Beuzit, the head of interest-rate strategy at BNP Paribas SA in London. ``There's some doubt about the ability for this plan to go through Congress quickly.''"
Beuzit is `neutral' on Treasuries over the next week.
Fed Swaps
The Fed arranged to channel $30 billion into the global financial system by opening currency swap lines with four central banks to relieve short-term dollar funding in markets worldwide.
"The U.S. central bank and its counterparts in Australia, Denmark, Norway and Sweden set up the currency exchange to address ``elevated pressures'' in dollar funding in markets, the Board of Governors said today in a statement."
The Bank of Japan said it supplied $30 billion today for one month to banks and brokerages in its first money-market operation in the U.S. currency.
"Investors have sought the relative safety of government debt as credit markets seized up. The difference between what banks and the Treasury pay to borrow money for three months, the so-called TED spread, was 2.73 percentage points, the highest since Sept. 18, when it was 3.13 percentage points, the most since Bloomberg began compiling the figures in 1984."
Traders have also increased bets the Fed will have to reduce its 2 percent target rate for overnight lending between banks to reinforce the rescue plan and bolster the economy ravaged by the worst housing-market slump in more than a generation.
Futures Bets
Futures contracts on the Chicago Board of Trade show a 78 percent chance the Fed will cut its key rate for by at least a quarter point this year. The odds rose from 68 percent yesterday.
"Home resales declined to an annual pace of 4.94 million last month from 5 million in July, according to a Bloomberg News survey of economists before the National Association of Realtors issues the figure tomorrow. A Commerce Department report the next day will show sales of new houses dropped to a 510,000 annual rate from 515,000, a separate survey showed."
"Treasuries have returned 1.9 percent this quarter, compared with 2.75 percent from equivalent German notes, according to Merrill Lynch & Co.'s U.S. Treasury Master and German Federal Government indexes."
To contact the reporters on this story: Kim-Mai Cutler in London at kcutler@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net
"Last Updated: September 24, 2008 07:16 EDT"
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"Russia, India Lead Emerging Market Gains on Goldman, Fed Deals "
By Emma O'Brien
Sept. 24 (Bloomberg) -- Emerging market stocks gained as Warren Buffett's backing of Goldman Sachs Group Inc. and the Federal Reserve's currency swap deal with four central banks lured investors back to riskier assets.
"Russia's benchmark Micex Index climbed 4.5 percent to 1,119.85 in Moscow and the government's 30-year dollar bonds increased for the first time in three days, lowering the yield by 3 basis points to 6.93 percent. The Bombay Stock Exchange Sensitive Index, or Sensex, jumped as much as 2 percent, helping to send the MSCI Emerging Markets Index 0.4 percent higher to 833.91 and paring yesterday's 2.8 percent decline."
"``When a big investor shows he has confidence in Goldman Sachs that's naturally supportive for financials and the Fed's swap deal addresses one of the biggest problems at the moment which is limited liquidity,'' said Beat Siegenthaler, chief strategist for emerging markets in London at TD Securities Ltd. ``Emerging markets are at the mercy of the global story and that is overriding most country-specific issues at the moment.''"
"Goldman will raise more than $7.5 billion by selling stakes to Buffett's Berkshire Hathaway Inc. and through public stock offerings. The Fed arranged to channel $30 billion into the global financial system by opening currency swap lines with central banks in Australia, Norway, Denmark and Sweden, helping to ease dollar shortages."
"China's CSI 300 Index, which tracks yuan-denominated A shares, advanced 0.7 percent to 2,138.85."
"Romania's benchmark stock index, the BET Index of the Bucharest Stock Exchange, rose 2 percent to 4,692.75 after the government suspended a 16 percent capital gains tax on stock market investments and cut transaction fees. The BET has lost 53 percent in the past year."
Oil Boost
"Russian stocks were also boosted by a jump in the price of oil, the country's biggest export earner. Crude for November delivery gained as much as 1.9 percent to $108.50 a barrel in electronic trading on the New York Mercantile Exchange, as investors anticipate a government report will show U.S. crude and fuel inventories fell last week."
"``We're seeing a relief rally driven by low valuations after recent declines in emerging markets,'' said Peter Westin, an equities strategist at JPMorgan Chase & Co. in Moscow. ``Oil is definitely providing some comfort.''"
"OAO Rosneft, Russia's largest oil producer, rose 5.8 percent, while OAO Lukoil, the biggest non-state oil company, gained 2.2 percent."
"The extra yield investors demand to own developing nations' bonds instead of U.S. Treasuries increased 4 basis points to 3.63 percentage points, according to JPMorgan's EMBI+ index at 9:49 a.m. in London. A basis point is 0.01 percentage point."
To contact the reporter on this story: Emma O'Brien in Moscow at eobrien6@bloomberg.net
"Last Updated: September 24, 2008 04:57 EDT"
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U.S. Housing Prices Tumble on Home Mortgage Scarcity (Update2)
By Kathleen M. Howley
Sept. 23 (Bloomberg) -- U.S. home prices tumbled in July as the credit crisis that led to this month's toppling of Lehman Brothers Holdings Inc. tightened mortgage standards and slashed real estate lending.
"Home purchase prices dropped 5.3 percent, seasonally adjusted, from a year earlier, the Office of Federal Housing Enterprise Oversight said today in a report. The one-month decline from June was 0.6 percent, said Washington-based Ofheo."
Eight out of nine U.S. regions showed declines for the year as lenders tightened requirements after banks posted $523 billion in mortgage-related losses and writedowns worldwide. U.S. Treasury Secretary Henry Paulson this week asked Congress to approve $700 billion to buy the type of investments that forced Lehman Brothers to file for bankruptcy and American International Group Inc. to accept a federal takeover.
"``You're still looking at the residual effects of a marketplace that is starved for mortgage money,'' Michael Aronstein, president of New York-based Marketfield Asset Management, said in an interview."
"The decline in July from June was greater than the 0.2 percent average estimate of 15 economists surveyed by Bloomberg News. Ofheo now is part of the Federal Housing Finance Agency created by Congress in July to oversee Fannie Mae and Freddie Mac, which own or guarantee $5.4 trillion of mortgage debt. The mortgage buyers were seized by the government two weeks ago to prevent their collapse."
Record Foreclosures
"Prices fell the most from a year ago in the study's western region that includes California and Washington, down 18 percent. Florida, Georgia, the Carolinas and states in the South Atlantic region fell 5.2 percent, Ofheo said. In New York, New Jersey and Pennsylvania the drop was 3.5 percent."
"Lending for home purchases probably will drop to $930 billion this year from $1.16 trillion in 2007, the Washington-based Mortgage Bankers Association said in a Sept. 11 forecast. The average U.S. rate for a 30-year fixed mortgage probably will be 6 percent in 2008, down from 6.3 percent last year, the trade group said."
"Foreclosures and late mortgage payments rose in the second quarter to the highest level in at least three decades, Mortgage Bankers said in a Sept. 5 report."
"The share of U.S. homes in foreclosure reached 2.75 percent, almost tripling since the five-year housing boom ended in 2005. Mortgages with one or more payments overdue rose to a seasonally adjusted 6.41 percent from 6.35 percent in the first quarter."
Lending Standards
"Three-quarters of U.S. banks surveyed by the Federal Reserve in July said they had tightened lending standards for so-called prime borrowers, their most creditworthy customers. Eighty-five percent of banks offering so-called non-traditional loans, such as interest-only mortgages, said they had raised requirements."
"Sales of previously owned homes probably will drop to 5.01 million in the U.S. this year, 29 percent less than 2005's all- time high of 7.08 million, the National Association of Realtors said in a Sept. 9 forecast. Measured monthly, home sales reached a peak in September 2005 at an annualized pace of 7.25 million."
"The median U.S. home price will fall by between 4 percent and 7 percent, the Chicago-based trade group said in its forecast. Last year's 1.4 percent drop was the first national decline in the U.S. median since the Great Depression, according to Lawrence Yun, chief economist for the housing group."
To contact the reporter on this story: Kathleen M. Howley in Boston at kmhowley@bloomberg.net.
"Last Updated: September 23, 2008 14:26 EDT"
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"Australian, N.Z. Dollars Fall as Commodities Prices Decline "
By Candice Zachariahs
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Sept. 24 (Bloomberg) -- The Australian and New Zealand dollars fell the most in a week as prices of commodities the two nations export declined.
"The currencies also weakened against the yen as U.S. stocks slumped, curbing investor appetite for buying the two nation's higher-yielding assets with funds borrowed in Japan. U.S. shares completed their biggest two-day drop in six years on concern Congress will hold up a $700 billion plan to bail out the financial industry."
"``The Aussie was lower against a firmer U.S. dollar, softer commodity prices and weaker equity markets,'' said Richard Grace, chief currency strategist at Commonwealth Bank of Australia in Sydney. ``The Aussie tends to underperform in that environment,'' he said, using the currency's nickname."
"The Australian dollar fell 0.7 percent to 83.81 U.S. cents as of 5:02 p.m. in Sydney, from 84.40 cents late in Asia yesterday. It declined 0.1 percent to 89.01 yen. The currency will climb to between 85 and 87 U.S. cents in the next month before weakening to 78 cents by year-end, Grace said."
New Zealand's dollar slid 1 percent to 68.32 U.S. cents and dropped 0.2 percent to 72.57 yen.
The UBS Bloomberg Constant Maturity Commodity index of 26 raw materials fell for the first time in three days yesterday. The Standard & Poor's 500 Index dropped 5.3 percent during the past two days.
"Australia's dollar declined as the price of gold, the nation's third most-valuable raw material export, dropped below $900 an ounce in New York yesterday. Crude oil, its fourth most- valuable export, also fell. Raw materials account for 60 percent of Australia's exports, and sales of commodities such as lumber make up 70 percent of New Zealand's overseas shipments."
Volatility Rises
"The two currencies weakened against the yen after the VIX volatility index, a Chicago Board Options Exchange gauge used as a barometer of risk aversion, rose to 35.72, the highest level since Sept. 17."
"Benchmark interest rates are 7 percent in Australia and 7.5 percent in New Zealand, compared with 0.5 percent in Japan and 2 percent in the U.S., helping to attract investors to the South Pacific nations' assets."
"Consumer confidence in New Zealand rose in the third quarter from a 17-year low in the previous three months, according to a survey released today by Westpac Banking Corp. and McDermott Miller Ltd. Reserve Bank of New Zealand Governor Alan Bollard reduced interest rates in July and September to 7.5 percent from 8.25 percent. New Zealand's currency lost 8.1 percent against the U.S. dollar since the July rate reduction."
`Quick and Aggressive'
"The central bank will need to maintain its ``quick and aggressive approach,'' Joshua Williamson, a Sydney-based senior strategist at TD Securities, wrote in a research note today. New Zealand's policy makers will cut borrowing costs by 50 basis points to 7 percent next month, he said."
"The Reserve Bank of Australia said today it had agreed with the U.S. Federal Reserve on a $10 billion swap line to boost U.S. dollar liquidity in Australia. ``The swap serves to alleviate a shortage of U.S. dollar liquidity which has affected market participants around the world including in the Asia-Pacific time zone,'' Australia's central bank said on its Web site."
"Australian government bonds rose. The yield on the 10-year note fell 6 basis points, or 0.06 percentage point, to 5.71 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 gained 0.484, or A$4.84 per A$1,000 face amount, to 96.412."
"New Zealand's 10-year bonds also gained with the yield falling 2 basis points to 5.81 percent. The nation's two-year swap rate, a fixed payment made to receive floating rates, rose to 6.99 percent, from 6.97 percent yesterday."
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
"Last Updated: September 24, 2008 03:09 EDT"
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China's Yuan Falls Most in Three Weeks on Exports; Bonds Climb
By Judy Chen and Belinda Cao
Sept. 24 (Bloomberg) -- The yuan fell by the most in three weeks against the dollar on speculation China will limit currency gains as exports slow and global financial turmoil escalates. Bonds climbed.
"China's currency snapped a two-day gain as the central bank set a weaker reference rate, after yesterday fixing the currency at the highest level since scrapping a dollar link in 2005. Export orders declined to the lowest in the third quarter since the end of the peg, a central bank survey showed on Sept. 22."
"``Exporters will face more declines in orders from the U.S. and Europe,'' said Huang Yi, a foreign-exchange trader at Guangdong Development Bank Co. in Guangzhou. ``A stable exchange rate would help exporters to cope.''"
"The yuan dropped 0.15 percent to 6.8237 a dollar as of 5:30 p.m. in Shanghai, from 6.8135 yesterday, according to the China Foreign Exchange Trade System."
The People's Bank of China has slowed yuan gains this quarter to 0.45 percent after it rose 4.2 percent and 2.3 percent in the first and second quarters.
"Exports increased 21.1 percent in August, down from July's 26.9 percent gain, the Customs Bureau said on Sept. 10. Central bank Deputy Governor Su Ning said on Sept. 20 that China will be highly alert to the unstable global financial markets and decreasing overseas demand for Chinese goods."
Pressure for Declines
"``Foreign investors are pulling money out of China, initially because of the financial crisis,'' said Chris Ruffle, and helps oversee about $3 billion of assets as co-chairman of Martin Currie Investment Management Ltd. China unit in Shanghai. ``The next round will be when it becomes apparent that the currency will no longer go upward.''"
U.S. Treasury Secretary Henry Paulson said it would be ``a grave mistake'' for Congress to delay or curtail the $700 billion he requested to buy troubled assets to stabilize the financial system.
"China should target the yuan's rate within a band and intervene in the market if it trades beyond the range, the South China Morning Post reported today, citing Cheng Siwei, former vice chairman of the standing committee of the National People's Congress, the nation's legislature."
The central bank guides the exchange rate against a basket of currencies including the yen and South Korean won. The currency is allowed to trade 0.5 percent either side of the daily reference rate for yuan trading.
Bonds Climb
Government bonds rose after a three-year note issued by a state-owned bank yielded less than analysts and traders had expected at auction today.
"The Agricultural Development Bank of China sold 14.57 billion yuan ($2.13 billion) in three-year debt today at a yield of 4.02 percent, 3 basis points lower than the median estimate in a Bloomberg News survey yesterday. The auction drew bids worth 2.37 times the 12 billion yuan of debt offered."
"``The auction today helped with the rally, the good demand encouraged investors to buy longer-term debt as well,'' said Zhao Feng, a bond trader with Industrial Bank Co. Ltd. in Shanghai. ``The relative easing in funding on the interbank market has also fueled buying.''"
"The seven-day repo fixing, which reflects the borrowing cost between finance companies on the interbank market, fell for a second day to 3.33 percent today, according to the National Interbank Funding Center."
"The yield on the 4.94 percent bond due August 2028 dropped 3 basis points to 4.05 percent in Shanghai, according to Bloomberg calculations based on an index compiled by the nation's biggest debt clearing house. The price of the security was 112 per 100 yuan face amount. A basis point is 0.01 percentage point."
To contact the reporters on this story: Judy Chen in Shanghai at xchen45@bloomberg.net; Belinda Cao in Beijing at lcao4@bloomberg.net.
"Last Updated: September 24, 2008 06:25 EDT"
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Paulson `Deficit' May Push Dollar Down to Record: Chart of Day
By Garfield Reynolds
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Sept. 24 (Bloomberg) -- Treasury Secretary Hank Paulson's $700 billion proposal to bail out the U.S. financial system may send the dollar to record lows by swelling the budget deficit.
"Paulson's proposal to buy devalued securities from banks would drive government debt above 70 percent of gross domestic product, the most since 1954. The annual deficit may balloon to as much as $1 trillion, a level that TD Securities Ltd. says could drive the greenback to $1.95 per euro. The currency reached an all-time low against the euro of $1.6038 on July 15."
"The CHART OF THE DAY compares the federal budget surplus or deficit with the dollar's value against the U.S.'s main trading partners. The currency's trade-weighted index dropped 28 percent since the end of 2000, as the budget turned from a $237 billion surplus to deficits that reached a record $413 billion in 2004."
"The dollar is vulnerable to deficits because the U.S. lacks savings to fund investment, leading the government to rely on sales of bonds to investors abroad, TD Securities said in a report from London."
"``This is potentially a massive shock to the U.S. currency, because of the immense increase in the supply of Treasuries that will take place,'' Joshua Williamson, an economist at TD Securities in Sydney, said in a phone interview."
To contact the reporters on this story: Garfield Reynolds in Sydney at greynolds1@bloomberg.net
"Last Updated: September 24, 2008 00:43 EDT"
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"Treasuries Lose Allure for Asia, Europe Investors (Update2) "
By Daniel Kruger and Kyoungwha Kim
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"Sept. 24 (Bloomberg) -- Investors outside the U.S., who own more than half of all Treasuries outstanding, say the government's $700 billion plan to revive the banking system will diminish the appeal of the nation's bonds."
"Treasury Secretary Henry Paulson's proposal, which seeks funds to rescue banks by purchasing devalued securities, would drive the country's debt to more than 70 percent of gross domestic product. The last time taxpayers owed as much was in 1954, when the U.S. was paying down costs from World War II."
"``The image of U.S. Treasuries as a safe haven has been tainted by the ongoing financial debacle,'' said Kwag Dae Hwan, head of global investment in Seoul with South Korea's $220 billion National Pension Fund, which holds about $14 billion of U.S. government debt. ``A big question mark hangs over whether the U.S. can deal with an unprecedented amount of debt. That is unnerving all the investors, including me.''"
"The government depends on foreign money to finance the budget deficit, which UBS AG estimates will increase to $1 trillion next year from $407 billion if the bailout is approved. Investors outside the U.S. own 56 percent of the $4.8 trillion in marketable Treasuries outstanding, up from 42 percent of the $3.4 trillion outstanding five years ago, according to data compiled by the government."
Keeping Rates Low
"U.S. long-term interest rates would be 1 percentage point higher without demand from foreign governments and central banks, according to Professors Francis and Veronica Warnock at the University of Virginia in Charlottesville, who have done research for the Federal Reserve."
"The benchmark 4 percent note due in August 2018 ended yesterday at 101 21/32 to yield 3.80 percent, according to BGCantor Market Data. The yield fell to 3.78 percent as of 6:50 a.m. in New York today."
"Demand for all but the safest of government debt increased in the past two weeks as the government seized control of Washington-based Fannie Mae and McLean, Virginia-based Freddie Mac, the country's biggest mortgage finance companies, and agreed to take over New York-based American International Group Inc., the largest insurer. The bankruptcy of Lehman Brothers Holdings Inc., also located in New York, on Sept. 15 caused credit markets to seize up."
Yields on 10-year notes fell as low as 3.25 percent on Sept. 16 from the high this year of 4.27 percent on June 13. The rate on the three-month Treasury bill fell to as little as 0.02 percent on Sept. 18 as investors sought the safest securities.
`Unbelievably Expensive'
"The drop in yields combined with the likelihood that the government will sell more debt makes Treasuries ``unbelievably expensive,'' said Theodora Zemek, global head of fixed income at Axa Investment Managers in London, which has about 120 billion euros ($177 billion) invested in debt assets."
"``There is little value other than panic value in government bonds,'' Zemek said. ``We've potentially got a big sell-off.''"
"While Treasuries of all maturities have returned an average of 4.2 percent this year, including reinvested interest, Japanese investors lost money on U.S. debt, according to Merrill Lynch & Co. index data. A yen-based investor would have lost 0.4 percent as Japan's currency strengthened 5.9 percent against the dollar."
"The U.S. may have to borrow an extra $700 billion to $1 trillion to fund the bailout, according to Barclays Capital Inc. interest-rate strategist Michael Pond in New York. The proposal, sent to Congress Sept. 20, would increase the nation's debt ceiling by 6.6 percent to $11.315 trillion."
New Deal
"Paulson and Federal Reserve Chairman Ben S. Bernanke made their case for the plan to Congress yesterday, pushing for the biggest federal intrusion into markets since the New Deal. The Fed and Treasury failed to stem the credit crisis sparked by the collapse of the subprime mortgage market by cutting its target interest rate for overnight loans between banks to 2 percent from 5.25 percent in September."
"``If the credit markets are not functioning,'' Bernanke told the Senate Banking Committee yesterday in Washington, ``the economy will just not be able to recover.''"
"The cost to hedge against losses on 10-year Treasuries with credit-default swaps stood at 26.4 basis points, up from 2 basis points when the credit markets began to seize up in July 2007, according to BNP Paribas SA prices. That's higher than countries including Germany, Japan and France."
"Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a borrower's creditworthiness. An increase indicates deterioration in the perception of credit quality. A basis point on a contract hedging $10 million of debt for five years is equivalent to $1,000 annually."
Deteriorating Economy
"Treasuries may appreciate as a slowing U.S. economy and inflation sparks demand for fixed-income, according to some investors. Growth may decelerate to 1.7 percent this year and 1.5 percent in 2009 from 2 percent in 2007, according to the median estimate of 80 analysts surveyed by Bloomberg."
"``Yields are driven by the economy, the financial system and the inflation rate,'' said Robin Marshall, director of fixed-income in London at Smith & Williamson Investment Management in London, which oversees about $20 billion in assets. ``I'm not sure supply will be the conclusive driver.''"
"Even with the economy slowing, the yield on the 10-year note has climbed from 3.25 percent on Sept. 16, which was the lowest since 2003, amid concern about increased debt supply and a widening budget deficit. The dollar has dropped 5.5 percent against the euro since reaching a one-year high on Sept. 11."
Supply Concern
"``Bond yields are reflecting supply concerns,'' said Felix Stephen, senior investment strategist in Sydney at Advance Asset Management Ltd., which oversees the equivalent of $6.56 billion. ``The currency is also reflecting that, because global investors, predominantly the ones who will be buying this paper, want to make it as cheap as possible,'' Stephen said."
"Stephen, whose International Fixed Interest bond fund returned 5.1 percent this year, beating 83 percent of its peers, said he expects the 10-year Treasury yield to rise to 4.75 percent in the second half of next year."
"He may be right. Back in the 1950s, the last time debt as a percentage of GDP was as high as economists are now predicting, yields on long term government bonds rose to 4.27 percent from 2.32 percent, according to Sidney Homer's ``A History of Interest Rates.''"
To contact the reporters on this story: Daniel Kruger in New York at dkruger1@bloomberg.net; Kim Kyoungwha in Beijingt .
"Last Updated: September 24, 2008 06:54 EDT"
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Caterpillar Raises $1.3 Billion in Biggest Bond Sale in 2 Weeks
By Bryan Keogh and Gabrielle Coppola
Sept. 23 (Bloomberg) -- Caterpillar Inc. raised $1.3 billion in the biggest U.S. bond offering in two weeks following a credit seizure that shut down the corporate debt market.
"The sale, Caterpillar's biggest, was split between $750 million of 6.2 percent, five-year notes that priced to yield 320 basis points more than U.S. Treasuries of similar maturity and $550 million of 7.05 percent, 10-year bonds at a spread of 325 basis points, according to data compiled by Bloomberg. Caterpillar increased the size of the 10-year bond sale by $50 million. A basis point is 0.01 percentage point."
Caterpillar tapped the market after yields over benchmark rates on investment-grade bonds fell the most on record on Sept. 19 as the U.S. government said it would bail out the financial industry. Caterpillar's offering was the first by an investment- grade industrial company since Halliburton Co. and four others sold $3.8 billion of debt on Sept. 9.
"Caterpillar offered the highest yields it has paid on similar debt in nine years and widest spreads in at least three decades, Bloomberg data show."
"Caterpillar, the biggest maker of earthmoving equipment, last issued five-year notes on Aug. 7, selling $300 million of 4.9 percent senior unsecured debt that paid a spread of 175 basis points, Bloomberg data show. The spread widened to 275 basis points earlier today to yield 5.76 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority."
March Sale
"Peoria, Illinois-based Caterpillar sold 5.45 percent, 10- year notes on March 19 with a spread of 205 basis points, Bloomberg data show. The yield widened to 6.05 percent, or 229 basis points over Treasuries, as of Sept. 19, Trace data show."
"The new debt is rated A2, or the sixth-highest investment grade, by Moody's Investors Service, and an equivalent A by Standard & Poor's. Caterpillar hired Barclays Plc, Citigroup Inc. and Merrill Lynch & Co. to manage the sale. Caterpillar Financial Services Corp. issued the debt."
"The extra yield investors demand to own investment-grade debt rose 8 basis points today to 417 basis points, according to Merrill Lynch & Co.'s U.S. Corporate Master index. Spreads fell 25 basis points on Sept. 19 from a record high of 440 basis points."
To contact the reporter on this story: Bryan Keogh in New York at bkeogh4@bloomberg.net; Gabrielle Coppola in New York at gcoppola@bloomberg.net
"Last Updated: September 23, 2008 17:40 EDT"
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U.S. Stock Futures Rise on Buffett's Goldman Sachs Investment
By Daniela Silberstein and Kyung Bok Cho
"Sept. 24 (Bloomberg) -- U.S. stock-index futures rallied after Goldman Sachs Group Inc. won backing from Warren Buffett's Berkshire Hathaway Inc., easing concern that the credit crisis will deepen."
"Goldman, which this week transformed itself from the biggest U.S. securities firm to the fourth-largest bank holding company, surged 10 percent in Germany after saying Berkshire Hathaway will buy $5 billion of perpetual preferred shares. Morgan Stanley, which also won approval from this week to become a bank holding company, climbed 10 percent."
Futures indicated the Standard & Poor's 500 Index may rebound after concern that Congress will hold up a $700 billion bank bailout plan helped send the benchmark for American equities to its worst two-day slump in six years.
"``It's a good signal that Buffett thinks Goldman will survive and is ready to make an investment,'' said Urs Eilinger, Zurich-base chief investment officer at Infidar Investment Advisory Ltd., which has the equivalent of $3.2 billion under management. ``It's a trust signal for the market and we'll see stocks rebound.''"
"S&P 500 futures expiring in December rallied 16, or 1.3 percent, to 1,203 at 10:01 a.m. in London. Dow Jones Industrial Average futures soared 131, or 1.2 percent, to 10,985. Nasdaq- 100 Index futures rose 25 to 1,675.5."
"U.S. stocks declined yesterday as Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson urged Congress to quickly pass a rescue for financial institutions, saying the U.S. economy will shrink if markets don't begin functioning normally, while lawmakers expressed objections."
Jim Bunning
"Senator Sherrod Brown, a Democrat from Ohio, said his constituents hold a ``universally negative'' opinion toward the proposal, while Senator Jim Bunning, a Kentucky Republican, said the plan would ``take Wall Street's pain and spread it to the taxpayers.''"
The S&P 500 is down 19 percent this year on concern more than $500 billion in credit losses and writedowns at financial firms worldwide and a slowing economy will curb profits.
The bankruptcy of Lehman Brothers Holdings Inc. and the emergency sale of Merrill Lynch & Co. to Bank of America Corp. this month have fueled concern about firms that rely on bond markets for funding.
"Goldman rose $13.01 to $138.06, extending yesterday's 3.5 percent increase. In addition to Buffett's investment, Goldman said yesterday it plans to sell at least $2.5 billion of common stock to the public in its first such offering since 2000. Sumitomo Mitsui Financial Group Inc., Japan's second-biggest bank by market value, may invest in Goldman's offering, two people familiar with the plans said."
"Morgan Stanley, Wachovia"
Morgan Stanley added $2.82 to $30.82. Japan's Mitsubishi UFJ Financial Group Inc. said on Sept. 22 that it will buy as much as 20 percent of Morgan Stanley.
"Charlotte, North-Carolina based Wachovia Corp. climbed 65 cents to $15.40. Citigroup Inc., the nation's biggest bank by assets, added 29 cents to $20.28."
"The Fed today said it has arranged to channel $30 billion into the global financial system by opening currency swap lines with central banks in Norway, Sweden, Denmark and Australia to address ``elevated pressures'' in dollar funding in markets worldwide."
"A National Association of Realtors' report to be released at 10 a.m. in Washington is forecast to show fewer Americans signed contracts to buy previously owned homes in August than in July, signaling the market remained in a slump heading into the latest financial meltdown, economists said."
"Sales of existing homes dropped 1.2 percent last month to a 4.94 million annual pace, matching the year's average, according to the median estimate of economists surveyed by Bloomberg News."
To contact the reporter on this story: Daniela Silberstein in Zurich at dsilberstei2@bloomberg.net; Kyung Bok Cho in Seoul at kcho7@bloomberg.net.
"Last Updated: September 24, 2008 05:15 EDT"
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"Dollar May Fall to Parity With Canadian Currency, Goldman Says "
By Ron Harui
"Sept. 24 (Bloomberg) -- The U.S. dollar may extend its decline to parity with the Canadian dollar, according to charts that predict price movements, said Kevin Edgeley, a technical analyst at Goldman Sachs Group Inc. in London."
"Daily and weekly momentum indicators such as the stochastic oscillator and Goldman's ``Trend Strength'' charts are both ``bearish,'' Edgeley wrote in a research note yesterday. ``There is scope for further extension toward the potential trend line support from February around C$1.0000.''"
"The U.S. currency dropped to C$1.0346 as of 10:50 a.m. in Tokyo from C$1.0384 late in New York yesterday, when it touched C$1.0305, the lowest since Aug. 4. The greenback has weakened 1.1 percent versus Canada's dollar in the past month."
"Support at C$1.0000 is on an ascending trend line that connects the lows of Feb. 28, May 21 and May 29, based on data compiled by Bloomberg. Support is a level where buy orders may be clustered. The C$1.0000 level was last traded on July 22."
"In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index. Resistance is where sell orders may be clustered, while support is where there may be buy orders."
To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net
"Last Updated: September 23, 2008 21:54 EDT"
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"Most Asian Stocks Gain, led by Mitsubishi UFJ; Sony Declines "
By Chua Kong Ho and Kyung Bok Cho
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"Sept. 24 (Bloomberg) -- Most Asian stocks rose, led by financial companies, as a share sale by Goldman Sachs Group Inc. eased concern that the global credit crisis will deepen."
Macquarie Group Ltd. surged 11 percent in Sydney after Warren Buffett'sBerkshire Hathaway Inc. said it will buy $5 billion of Goldman stock. Mitsubishi UFJ Financial Group Inc. rose 4.2 percent in Tokyo after saying it will purchase as much as 20 percent of Morgan Stanley. Honda Motor Co. and Sony Corp. dropped at least 2 percent on concern demand for cars and consumer electronics will fall as economic growth slows.
"``Buffett has given Goldman his seal of approval,'' said Kim Jae Dong, who oversees the equivalent of $2.6 billion as head of equities at SEI Asset Korea Co. in Seoul. ``That has helped lift peoples' worries that the big investment banks would fail, but there's still lingering concern about a recession.''"
"The MSCI Asia Pacific Index was down 0.1 percent at 116.23 as of 7:40 p.m. in Tokyo. About five stocks gained for every four that fell. The benchmark index dropped as much as 6.9 percent last week after Lehman Brothers Holdings Inc. filed for bankruptcy, American International Group Inc. was taken over by the U.S. government and Merrill Lynch & Co. sold itself to Bank of America Corp."
"Standard & Poor's 500 Index futures rose 1.4 percent today. Goldman, which this week transformed itself from the biggest U.S. securities firm to the fourth-largest bank by assets, advanced 7.8 percent in after-hours trading in New York after saying Berkshire will purchase $5 billion of perpetual preferred shares."
"Nikkei, Hang Seng"
"Japan's Nikkei 225 Stock Average rose 0.2 percent to 12,115.03. The country's markets were shut yesterday. Australia's S&P/ASX 200 Index gained 1.2 percent, led by National Australia Bank Ltd., the nation's biggest by assets."
"The S&P 500 Index dropped 1.6 percent yesterday, capping a two-day decline of 5.3 percent, as Congress members expressed skepticism about Treasury Secretary Henry Paulson's $700 billion bank bailout plan, which Federal Reserve Chairman Ben S. Bernanke said is critical for preventing a recession."
The Federal Reserve arranged today to channel $30 billion into the global financial system by opening currency swap lines with four central banks to relieve short-term dollar funding in markets worldwide.
"Macquarie, Australia's biggest securities firm, gained 11 percent to A$40, while National Australia Bank advanced 7.3 percent to A$25.60."
Goldman also said it plans to sell at least $2.5 billion of common stock to the public. It will be the firm's first such offering since 2000.
`Cheap Prices'
"Sumitomo Mitsui Financial Group Inc., Japan's second-largest listed bank by value, may invest in Goldman's public offering, two people with knowledge of the matter said, declining to be identified before a decision is announced. Kyodo news reported earlier that Sumitomo Mitsui will invest in Goldman. Spokespeople for the banks declined to comment. Sumitomo Mitsui gained 1.2 percent to 684,000 yen."
"Mitsubishi UFJ, Japan's largest bank, gained 4.2 percent to 936 yen. The lender said on Sept. 22 it agreed to buy 10 percent to 20 percent of Morgan Stanley, adding that it will start due diligence before determining a final price."
"Nomura Holdings Inc., Japan's biggest securities firm, rose 5.2 percent to 1,505 yen after agreeing to pay less than a month's revenue for units of bankrupt Lehman Brothers Holdings Inc. in Asia and Europe."
"``It's smart for Japan's financial institutions to pick up assets at cheap prices and expand overseas,'' said Roger Groebli, Singapore-based head of financial market analysis at LGT Capital Management, which oversees about $20 billion."
"Cars, Electronics"
"MSCI's Asian index has dropped 26 percent this year, as a U.S. housing recession triggered a global credit crisis that has saddled financial companies with more than $520 billion in writedowns and losses, crippled lending and threatened to drag the global economy into a recession."
"The Asian benchmark was valued at 13.18 times estimated earnings as of yesterday, the cheapest valuation since Nov. 20, 2007, according to data compiled by Bloomberg."
"Honda, Japan's second-largest automaker, slid 2 percent to 3,430 yen. Toyota Motor Corp., which counts North America as its largest market, fell 1.2 percent to 4,810 yen. Sony, the world's second-largest consumer electronics maker, dropped 2.6 percent to 3,430 yen."
"In Hong Kong, China Petroleum & Chemical Corp., Asia's biggest oil refiner, added 2.8 percent to HK$6.66."
Crude oil for November delivery fell 2.5 percent to $106.61 a barrel in New York yesterday and was recently trading at $107.80.
"Jiangxi Copper Co., China's second-biggest copper smelter, slumped after the price of the metal fell 3.2 percent, the most since Sept. 5. Jiangxi lost 2.7 percent to HK$8.39 in Hong Kong."
Palm Oil
"Sumitomo Chemical Co. declined 5.2 percent to 516 yen, after Deutsche Bank AG lowered its price estimate for the chemicals maker, citing weak demand and a delay in a joint venture."
"Plantation stocks declined in Kuala Lumpur after Standard Chartered Plc lowered its 2008 and 2009 price estimates for crude palm oil. IOI Corp., Malaysia's second-biggest oil-palm grower, slid 1.3 percent to 4.5 ringgit."
"ZTE Corp., China's second-biggest maker of telephone network equipment, plunged 9.7 percent to HK$27.10, the lowest since March 31. The China Securities Journal reported yesterday ZTE won fewer orders from China Telecommunications Corp. than rival Huawei Technology Co."
"Paladin Energy Ltd., the Australian company producing uranium in Namibia, rose 6.5 percent to A$4.62 after more than doubling its estimated ore reserves."
To contact the reporter for this story: Chua Kong Ho in Shanghai at kchua6@bloomberg.netl; Kyung Bok Cho in Seoul at kcho7@bloomberg.net
"Last Updated: September 24, 2008 06:47 EDT"
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U.S. Index Futures Advance; European Stocks Are Little Changed
By Adam Haigh
Sept. 24 (Bloomberg) -- U.S. index futures and financial shares in Asia and Europe rose after Goldman Sachs Group Inc. won backing from Warren Buffett. The Dow Jones Stoxx 600 Index erased gains as ProSiebenSat.1 Media AG reduced its earnings forecast.
"Goldman jumped 10 percent in Europe, UBS AG added 5.7 percent and Australia's Macquarie Group Ltd. rallied 11 percent after Buffett's Berkshire Hathaway Inc. said it's buying $5 billion of perpetual preferred stock in Goldman with a 10 percent dividend. ProSiebenSat.1, Germany's largest private broadcaster, sank 10 percent. British Energy Group Plc climbed 5.9 percent as Electricite de France SA agreed to buy the U.K.'s biggest power producer for 12.5 billion pounds ($23 billion)."
"``It shows there are deals to be done by the people that have a lot of cash,'' said Andy Lynch, who manages about $3 billion at Schroder Investment Management Ltd. in London. ``Buffett clearly has done another very, very good deal. EDF is in a good cash position.''"
"Futures on the Standard & Poor's 500 Index expiring in December rallied 0.8 percent, while the Stoxx 600 fell 0.1 percent to 266.99 at 11:47 a.m. in London. The MSCI Asia Pacific Index slipped 0.1 percent."
"The Stoxx 600 through yesterday had erased more than half of a record 8.3 percent rally on Sept. 19, when the U.S. government announced plans to bail out financial companies. The gauge is down 26 percent this year after losses and writedowns at financial companies topped $521 billion globally, sapping investor confidence as profits were wiped out."
National Markets
"National benchmark indexes fell in 13 of the 18 western European benchmarks today. The U.K.'s FTSE 100 Index lost 0.5 percent. France's CAC 40 Index slid 0.4 percent, while Germany's DAX decreased 0.2 percent."
"Mergers and acquisitions have totaled $471.5 billion in the past three months, compared with $524.5 billion in the year- earlier period, according to Bloomberg data, as a 12 percent drop in the MSCI World Index has slowed the pace of deals."
"U.S. stocks fell yesterday in the worst two-day slump in six years as Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson urged swift passage of the bailout measures, while lawmakers expressed objections."
"``It's critical that it gets approved and the quicker the better as far as stability in financial markets is concerned,'' said Lucy MacDonald, the London-based chief investment officer of global equities at RCM Ltd., which has about $100 billion under management. ``There is still a lot of arguing about the detail,'' she said in a Bloomberg Television interview."
Goldman
Goldman jumped 10 percent to $137.98 in Germany. The stock is down 42 percent this year and has lost 19 percent since the beginning of last week as Lehman Brothers Holdings Inc. filed for bankruptcy and American International Group Inc. government agreed an $85 billion credit line for the largest U.S. insurer.
"Berkshire also gets warrants to buy $5 billion of Goldman's common stock at $115 a share at any time in the next five years. In addition to raising money from Buffett, Goldman said it plans to sell at least $2.5 billion of common stock to the public."
"``The news today that Goldman could raise some money from Warren Buffett is pretty positive,'' said Sydney-based Shane Oliver, head of investment strategy at AMP Capital Investors, which has $81 billion. ``This turned around futures trading in the U.S. and gave a more positive tone to markets,'' he said in a Bloomberg Television interview."
"Sumitomo Mitsui Financial Group Inc. is considering an investment in Goldman, according to two people familiar with the plans. Mitsubishi UFJ Financial Group Inc. said Sept. 22 it will buy as much as 20 percent of Morgan Stanley."
"UBS, Macquarie"
"UBS, the European bank hardest hit by the subprime crisis, added 5.7 percent to 20.24 Swiss francs. Macquarie gained 11 percent to A$40."
"The Fed said it has arranged to channel $30 billion into the global financial system by opening currency swap lines with central banks in Australia, Denmark, Norway and Sweden to relieve short-term dollar funding in markets worldwide."
"ProSiebenSat.1 slumped 10 percent to 4.97 euros after lowering its 2008 earnings forecast, citing falling advertising revenue. Earnings before interest, tax, depreciation and amortization will be between 670 million and 700 million euros ($1.03 billion) compared with the previous forecast of matching last year's Ebitda of 783 million euros, the company said."
"British Energy advanced 5.9 percent to 767 pence. EDF will pay 774 pence a share for the East Kilbride, Scotland-based utility. That's 35 percent above the stock's closing price on March 14, the last trading session before British Energy said it may receive an offer. EDF climbed 3.5 percent to 51.89 euros."
"Arcandor AG, Germany's biggest department-store owner, climbed 7.7 percent to 3.61 euros as banks extended the retailer's loan agreement following more than a week of negotiations."
"A report today showed German business confidence slid to the lowest level in more than three years in September. The Ifo institute's business climate index, based on a survey of 7,000 executives, fell to 92.9 from 94.8 in August."
To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net
"Last Updated: September 24, 2008 06:56 EDT"
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Postbank Sees Impact From Worsening Financial Turmoil (Update1)
By Jann Bettinga
"Sept. 24 (Bloomberg) -- Deutsche Postbank AG, Germany's biggest consumer bank by customers, said it expects a further impact in the third quarter from worsening markets."
"Postbank foresees ``further financial impacts from the ongoing capital market crisis,'' the Bonn-based company said in an investor presentation today, citing a ``deterioration'' of the ``market environment'' in the third quarter."
"Postbank wrote down the value of securities by 143 million euros in the second quarter, bringing the lender's total losses related to the U.S. subprime-mortgage market collapse to 429 million euros. Postbank shares have declined 14 percent since Lehman Brothers Holdings Inc. filed for bankruptcy protection on Sept. 15 and after U.S. authorities bailed out American International Group Inc. last week."
"The bank said its tier 1 capital ratio, which regulators monitor to assess a bank's ability to absorb loan losses, will probably ``reflect high capital market volatility'' in the third quarter. The ratio was 6.3 percent at the end of June, compared with 6.9 percent at the end of 2007."
"Postbank fell as much as 2.8 percent in Frankfurt electronic trading, and was down 55 cents, or 1.6 percent, to 37.15 euros at 11:22 a.m. German time."
"The world's biggest banks and securities firms have reported more than $500 billion in writedowns and credit losses since the U.S. housing market slump started last year, data compiled by Bloomberg show."
"Frankfurt-based Deutsche Bank AG, Germany's biggest bank, agreed on Sept. 12 to pay 2.79 billion euros for a stake of 29.75 percent in Postbank and an option to raise the stake."
To contact the reporter on this story: Jann Bettinga in Frankfurt at jbettinga@bloomberg.net
"Last Updated: September 24, 2008 05:26 EDT"
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Most Japanese Stocks Advance as Banks Target Overseas Rivals
By Patrick Rial
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"Sept. 24 (Bloomberg) -- Most Japanese stocks rose, led by financial companies, as Mitsubishi UFJ Financial Group Inc. and Nomura Holdings Inc. took advantage of depressed prices to buy stakes in overseas rivals. Shipping lines fell as cargo rates for commodities dropped."
"Mitsubishi UFJ, the country's biggest lender by value, climbed 4.2 after saying it will buy as much as a fifth of Morgan Stanley. Nomura, Japan's largest brokerage, continued a three-day, 26 percent rally after agreeing to buy the European unit of Lehman Brothers Holdings Inc. Mitsui O.S.K. Lines Ltd., Japan's largest operator of iron-ore ships, retreated 4.8 percent as a benchmark for commodity freight rates fell a second day."
"``Japan's financial system has come out of the current crisis relatively unscathed,'' said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments Ltd., which manages $28 billion. ``Now companies like Nomura and Mitsubishi UFJ are seeing opportunities and acting on them.''"
"The Nikkei 225 Stock Average added 24.44, or 0.2 percent, to 12,115.03 at the close of trading in Tokyo, reversing a 1.5 percent drop. The broader Topix index retreated 0.72, or less than 0.1 percent, to 1,167.97. The gauge earlier fell 2.1 percent. About nine shares rose for every seven that slipped on the gauge."
Japan's markets were closed yesterday for a holiday as a benchmark of Asian shares slumped 2.2 percent. U.S. stocks fell on concern Congress will hold up passage of a plan for the government to buy distressed financial securities.
"The credit crisis has seen Lehman Brothers file for bankruptcy, and government takeovers of American International Group Inc. and mortgage giants Fannie Mae and Freddie Mac. The turmoil wiped off as much as $20 trillion in global equity values from a peak in October, with Morgan Stanley and Goldman losing more than half their value through last week."
Goldman Stake
"Mitsubishi UFJ said it will purchase up to 20 percent of U.S. brokerage Morgan Stanley for as much as $8.4 billion. The stock added 4.2 percent to 936 yen, reversing a decline of as much as 1.7 percent."
"Nomura rallied 5.2 percent to 1,505 yen, capping its best three-day gain since at least 1974. The brokerage agreed yesterday to buy the European operations of bankrupt Lehman Brothers Holdings Inc. for an undisclosed amount. The move came a day after Nomura said it will buy Lehman's Asian business for $225 million."
"Sumitomo Mitsui Financial Group Inc. rose 1.2 percent to 684,000 yen. Japan's third-largest listed bank may take a stake in Goldman, people familiar with the matter said. The stake could be worth several hundred billion yen in Goldman, Kyodo News reported. Goldman said late yesterday it will raise at least $7.5 billion from Warren Buffett's Berkshire Hathaway Inc."
Baltic Dry
"Mitsui O.S.K. retreated 4.8 percent to 1,078 yen, while Nippon Yusen K.K., Japan's biggest shipping line by sales, tumbled 3.9 percent to 804 yen. Mitsubishi Corp., Japan's largest trading company, slumped 5.5 percent to 2,685 yen."
"The Baltic Dry Index, a measure of commodity-shipping rates, yesterday fell 3.4 percent, the second-straight decline, on weaker demand for raw materials used to make steel. Prices for commodities such as copper, nickel and oil also retreated yesterday."
"FamilyMart Co., Japan's third-biggest convenience-store chain, surged by its daily limit of 14 percent to 4,080 yen, the steepest advance since October 1999. Kumio Tomonaga, an analyst at JPMorgan Chase & Co. raised the shares to ``overweight'' from ``neutral,'' citing higher cigarette sales due to stricter vending machine laws."
"Nikkei futures expiring in December gained 0.6 percent to 12,120 in Osaka and climbed 0.3 percent to 12,075 in Singapore."
To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net.
"Last Updated: September 24, 2008 03:56 EDT"
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India's Bonds Slide as Government to Hold Unscheduled Debt Sale
By Anil Varma
"Sept. 24 (Bloomberg) -- India's 10-year bonds fell, pushing yields to the highest in more than three weeks, after the government said it will hold an unscheduled debt sale this week."
"Benchmark notes dropped the most in a week after India said late yesterday it plans to sell 100 billion rupees ($2.19 billion) of bonds on Sept. 26, advancing a part of its borrowing from the second half of the fiscal year that started April 1. The additional borrowing is for meeting the ``emerging requirements of the government,'' the finance ministry said."
"``Bonds have fallen in reaction to the announcement of unscheduled debt supply,'' said Chidambaram Lakshmanan, a fixed- income trader at IndusInd Bank Ltd. in Mumbai. ``Yields could rise further in the coming days.''"
"The yield on the benchmark 8.24 percent note due April 2018 rose 12 basis points to 8.56 percent as of 11:14 a.m. in Mumbai, according to the central bank's trading system. The price fell 0.74, or 74 paise per 100 rupee face amount, to 97.95. A basis point is 0.01 percentage point."
India will sell 60 billion rupees of 7.94 percent debt due 2021 and 40 billion rupees of 8.28 percent notes maturing in 2032 at the Sept. 26 auction. The sale will boost government borrowings in the first half of the current fiscal year by more than 10 percent beyond the budgeted 960 billion rupees.
Bonds also declined on concern a government report will show tomorrow inflation quickened.
"The Ministry of Commerce and Industry may say that wholesale prices gained 12.23 percent in the week ended Sept. 13, compared with 12.14 percent in the previous week, according to the median estimate of 11 economists surveyed by Bloomberg News. The pace of price increases in Asia's third-largest economy reached 12.63 percent, the most in 16 years, in August."
Inflation Concerns
"``Pressure may increase on yields to rise as inflation stays high in the coming weeks,'' Indusind's Lakshmanan said."
"The cost of benchmark Indian interest-rate swaps, or derivative contracts used to guard against rate fluctuations, rose. The five-year swap rate, a fixed payment made to receive floating rates, climbed to 8.50 percent, the highest since Sept. 12, from 8.5 percent yesterday."
"India's five-year borrowing costs are set to climb faster than one-year rates as the government increases debt sales and investors should use swaps to profit from the move, according to HDFC Bank Ltd."
"Five-year rates, currently lower than shorter-term costs, will rise faster as the government sells more debt, said Ashish Vaidya, head of interest-rate trading at the nation's third- biggest bank by market value. Traders should enter two simultaneous swap contracts, agreeing to make five-year fixed- rate payments in exchange for a floating rate in one and making an opposite transaction in the one-year segment."
"Investors will make money from the so-called ``steepener'' trade, which combines two swaps to bet long-term interest rates will rise more, as the spread between five-year and one-year rates narrow. The spread, currently at 54 basis points, will disappear in two months, according to Vaidya."
To contact the reporter on this story: Anil Varma in Mumbai at avarma3@bloomberg.net.
"Last Updated: September 24, 2008 02:08 EDT"
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"Barclays Plans to Bid for Monte Paschi Branches, Sole Reports "
By Armorel Kenna
"Sept. 24 (Bloomberg) -- Barclays Plc's Italian unit plans to bid for 150 branches that Banca Monte dei Paschi di Siena SpA is selling, Il Sole 24 Ore reported, citing Vittorio De Stasio, chief executive officer of the division."
"Barclays, Banco Popolare Scarl and other Italian banks will together make an offer for the branches, challenging a bid by Deutsche Bank AG, according to the newspaper. Monte Paschi is selling the branches to comply with an antitrust ruling."
"The U.K. bank has 1.2 billion euros ($1.8 billion) under management in Italy, according to the report. Its Italian unit has no risk related to Lehman Brothers Holdings Inc., which filed for bankruptcy on Sept. 15, Il Sole cited the CEO as saying."
To contact the reporter on this story: Armorel Kenna in Milan at akenna@bloomberg.net
"Last Updated: September 24, 2008 02:47 EDT"
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"Commodity Supply May Be Curbed by Crisis, Goldman JBWere Says "
By Jae Hur
"Sept. 24 (Bloomberg) -- Commodity prices will stay ``stronger for longer'' as financing becomes a real constraint on supply growth because of the global credit turmoil, Goldman Sachs JBWere Pty said."
"``Credit restrictions and volatile equity markets have implications for the supply side,'' the Melbourne-based firm said in a report. ``Junior companies wishing to finance greenfield projects that would have had little difficulty in raising either debt or equity 18 months ago, would likely struggle today.''"
"Raw material prices, as measured by the Standard & Poor's GSCI index, have climbed 12 percent since Sept. 16 as the dollar dropped on concern the U.S. government's $700 billion plan to buy bad mortgage debts would erode confidence in the currency. Gold, a traditional haven in times of financial crisis, has gained 13 percent."
"``Longer term, we believe the structural bull market endures, based on supply and demand fundamentals,'' Goldman Sachs JBWere said. ``The theme of industrialization and urbanization in emerging markets has not disappeared. Neither have the supply constraints for certain commodities been sustainably alleviated.''"
"In China, ``growth rates have been slowing for some time, but fears of a collapse in demand for raw materials post- Olympics are unfounded,'' it said."
"``We expect sentiment to improve as a cleaner read on the Chinese economy becomes available during the fourth quarter of 2008, and that the outcome in China will be considerably stronger than the market currently seems to fear,'' it said."
Credit Curbs
"For the medium-term, credit restrictions will put pressure on demand for raw materials."
"``The housing market collapse in the U.S. has already taken a large and obvious toll on demand for raw materials,'' as well as the weaker outlook for automotive sales in many parts of the world, the firm said."
"In the short-term, tighter credit availability and higher financing costs have restricted the activities of commodities traders in the physical and derivatives markets with de-risking and switching of counterparties, it said."
"``The dollar has become the key short-term price driver, not just for gold, but for all exchange-traded commodities,'' it said. Short-term speculative money has moved neutral for oil or net-short for base metals, it said."
To contact the reporter on this story: Jae Hur in Singapore at jhur1@bloomberg.net
"Last Updated: September 23, 2008 23:25 EDT"
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"China's Fuel Imports May Fall Next Year, Sinopec Official Says "
By Winnie Zhu
"Sept. 24 (Bloomberg) -- China, the world's fastest-growing major economy, may import less fuel next year as more crude oil refineries start operating, an official at China Petroleum & Chemical Corp. said."
"The nation may add more than 35 million metric tons of refining capacity this year, Tian Chun Rong, senior engineer at China Petroleum, also known as Sinopec, said at a conference in Shanghai today. Refiners may boost capacity by more than 20 million tons a year between 2009 and 2010, Tian said."
"The Chinese government raised fuel prices by as much as 18 percent on June 20, encouraging refiners to produce more fuels and draw down inventories. China's fuel shortage has receded, Zhang Guobao, who heads the National Energy Administration, the top energy regulator, said last month."
"Fuel imports may reach 47 million tons this year and exports 19 million tons, Tian said."
"Sinopec, Asia's biggest refiner, plans to cut crude oil imports as demand growth may slow for the rest of 2008, Spokesman Huang Wensheng said on Sept. 19, without elaborating."
"China cut its diesel and gasoline imports in August from a record as higher domestic prices spurred oil refiners to expand fuel supplies, the Customs General Administration of China said on Sept. 16."
To contact the reporter on this story: Winnie Zhu in Shanghai at wzhu4@bloomberg.net.
"Last Updated: September 24, 2008 01:19 EDT"
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"Polish Central Bank to Hold Key Interest Rate, Survey Shows "
By Dorota Bartyzel
Sept. 24 (Bloomberg) -- Poland's central bank will probably keep its key interest rate unchanged for a third month as policy makers wait for more data to assess the impact of previous increases and global economic turmoil on the country's inflation.
"Narodowy Bank Polski in Warsaw will leave the seven-day reference rate unchanged at 6 percent, according to 15 out of 18 economists in a Bloomberg survey. Three expect a quarter-point increase. The decision will be announced after noon, followed by a press conference at 4 p.m."
"A majority of the 10-member rate-setting Monetary Policy Council has already rejected a motion to boost rates at two past meetings, saying more time is needed to see the economy's reaction to the cumulative 2 percentage-point increase in the base rate over the past 16 months. Since August, all but core inflation data have indicated a deeper economic slowdown that may help damp inflation."
"``August data on retail sales and industrial output will be a strong argument for keeping the rate unchanged this month,'' said Monika Kurtek, an economist at Bank BPH. ``They indicate lower private consumption, thus also lower GDP growth in the third quarter than previously expected.''"
"Slowing economic growth and easing inflation pressures throughout central Europe are giving central banks time to pause in their interest rate cycles. The Czech Republic is expected to leave policy unchanged at a meeting tomorrow, while policy makers in Hungary and Slovakia are seen holding interest rates steady at meetings next week."
"August retail sales grew 7.7 percent, the smallest increase since January 2006, compared with 14.3 percent in July, while industrial output fell in August for the first time in three years and wages rose at the slowest pace this year."
Euro Adoption
"Kurtek sees economic growth at between 4.7-4.8 percent in the third quarter, compared with a 5 percent forecast by Deputy Finance Minister Katarzyna Zajdel-Kurowska. The economy expanded 6.1 percent in the first three months and 5.8 percent in the second quarter. The full-year economic growth is expected by the government at 5.5 percent, down from 6.6 percent last year."
"While data may support keeping the rate unchanged, the plan to meet euro adoption criteria in 2011, a goal agreed by the government and the central bank only last week, may require another rate increase, some policy makers and economists said."
"Before adopting the euro, Poland needs to meet inflation, debt, deficit and interest rate criteria. It will also need to spend at least two years in the exchange-rate mechanism, which will test the zloty's stability. The inflation rate, at 4.8 percent in August, has remained above the Polish central bank's target of 2.5 percent since October last year."
"Marian Noga, a member of the council, said on Sept. 16 the euro-adoption plans ``will require further policy tightening to tame inflation and meet the criteria.''"
To contact the reporter on this story: Dorota Bartyzel in Warsaw at dbartyzel@bloomberg.net.
"Last Updated: September 24, 2008 02:19 EDT"
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"Israeli 2008 GDP to Grow 4.5%, Statistics Bureau Says (Update1) "
By David Rosenberg
"Sept. 24 (Bloomberg) -- Israel's economy will probably expand 4.5 percent in 2008, the slowest pace since 2003, as export growth eases, the Central Bureau of Statistics said."
"Exports will increase 5.8 percent this year, slowing from 8.5 percent in 2007, the Jerusalem-based bureau said at a press conference today. The forecasts were based on data for the first six to eight months of the year."
"The growth rate has been falling as the global financial crisis hurts the key exports markets of Europe and the U.S. and a strong shekel makes Israeli goods more expensive abroad. The Bank of Israel held its benchmark lending rate steady on Sept. 22, after four consecutive increases, not to depress growth further."
"``This year has seen a slowdown in the pace of growth but not a drop in output,'' Soli Peleg, the head of the macroeconomics division at the bureau, said. ``Growth will be under 4 percent in the second half, mainly because of exports and investment.''"
The shekel has gained about 28 percent against the dollar during the past three years.
Central bank Governor Stanley Fischer told parliament's finance committee yesterday that tight government budget policies and conservative bank lending would help Israel weather the global turmoil.
Global Danger
"``The danger still hasn't passed,'' Fischer told the committee. ``I want to stress that the Israeli economy is well- positioned to cope with the impact of the shocks coming from overseas.''"
Israeli exports have been driven by companies like Israel Chemicals Ltd. which has benefited from the increased demand for fertilizers in emerging markets. Other industries are performing less well. The bureau estimates that exports of polished diamonds will fall 16.8 percent this year.
The bureau's 2008 growth estimate compares with 4.2 percent forecasts by the Bank of Israel and the Finance Ministry. They both expect growth to slow next year to 3.5 percent or less. Merrill Lynch & Co. said in a Sept. 12 report that gross domestic product will probably expand 4.4 percent this year and 2.9 percent in 2009.
"Consumer spending will probably grow 4.4 percent this year, slowing from 6.7 percent in 2007, the bureau said. Investment in fixed assets will probably drop to 4.9 percent in 2008, from 15.5 percent last year, it said."
The bureau said more complete estimates will be released on Oct. 22.
To contact the reporters on this story: David Rosenberg in Jerusalem at drosenberg1@bloomberg.net
"Last Updated: September 24, 2008 05:58 EDT"
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"U.K. Stocks Climb, Led by HBOS, Banks; British Energy Advances "
By Sarah Thompson and Sarah Jones
"Sept. 24 (Bloomberg) -- U.K. stocks rose, led by banks after Goldman Sachs Group Inc. won the backing of Warren Buffett as the security firm seeks to raise cash from investors."
"HBOS Plc, Britain's largest mortgage lender, and Royal Bank of Scotland Group plc advanced. British Energy Group Plc rallied 6 percent after France's Electricite de France SA agreed to buy the company for 12.5 billion pounds ($23 billion)."
"The benchmark FTSE 100 index increased 8.88, or 0.2 percent, to 5,145 at 10:54 a.m. in London. The measure earlier fell as much as 0.4 percent. The FTSE All-Share Index added 0.2 percent. Ireland's ISEQ Index gained 3.2 percent."
Goldman Sachs soared 11 percent in Germany after Buffett's Berkshire Hathaway Inc. said it will buy $5 billion of perpetual preferred stock with a 10 percent dividend.
"HBOS, the mortgage lender which agreed to be bought by Lloyds TSB Group Plc, advanced 4.1 percent to 187.5 pence. Royal Bank of Scotland, the U.K.'s second largest bank, advanced 4.3 percent to 212 pence. Barclays Plc, the U.K. bank that bought Lehman Brothers Holdings Inc.'s U.S. division, added 1.8 percent to 363.5 pence."
The FTSE 100 through yesterday had erased more than a third of a record 8.8 percent rally on Sept. 19 when the U.S. government announced plans to stem credit-related losses. The measure is down 20 percent this year as losses at financial companies topped $521 billion globally.
"British Energy jumped 5.7 percent to 766 pence after EDF, the world's largest operator of nuclear reactors, agreed to buy the Scotland-based utility for 774 pence a share."
The following stocks also rose or fell in the U.K. market. Stock symbols are in parentheses.
U.K. companies:
"Derwent London Plc (DLN LN) fell 24 pence, or 2.2 percent, to 1,076. The office developer focused on central London was cut to ``sell'' at UBS AG, which noted the economic background continues to worsen."
"Eaga Plc (EAGA LN) added 3 percent, or 3 percent, to 136.25 The company, which runs a program to provide heating and energy insulation for the elderly, was rated ``buy'' in new coverage at Goldman Sachs Group Inc., citing expectations that the company will continue winning contracts."
"Hansard Global Plc (HSD LN) added 3 pence, or 2.3 percent, to 135. The U.K. asset manager said full-year profit rose 18 percent on revenue from Latin America and Asia."
"Imperial Tobacco Group Plc (IMT LN) added 51 pence, or 2.9 percent, to 1,809. Europe's second-largest cigarette maker said its annual financial performance met managers' forecast after February's takeover of Altadis SA."
"Man Group Plc (EMG LN) added 9 pence, or 2.3 percent, to 407. The U.K.'s biggest hedge fund has asked to be put on the list of stocks in which short-selling is banned following fears that rival hedge funds are targeting it as an alternative to now protected banks and insurers, the Financial Times reported, citing no one."
"Media Corp Plc (MDC LN) slumped 0.67 pence, or 38 percent, to 1.13. The U.K. Internet advertising company said revenue and profit for the year ending Sept. 2008 will be lower than forecast as its Internet publishing division is expected to perform ``below market expectations.''"
"Smiths Group Plc (SMIN LN) increased 28 pence, or 2.8 percent, to 1,047. The world's biggest maker of airport-security scanners posted an 84 percent fall in annual profit following a year-earlier one-time gain from a disposal."
"Ricardo Plc (RCDO LN) added 11 pence, or 3.7 percent, to 310. The U.K. developer of fuel-efficient engines for automakers said fiscal 2008 increased 15 percent to 197.7 million pounds."
To contact the reporter on this story: Tom Biesheuvel in London tbiesheuvel@bloomberg.net
"Last Updated: September 24, 2008 05:58 EDT"
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New Zealand Consumer Confidence Rises on Rate Cuts (Update2)
By Tracy Withers
"Sept. 24 (Bloomberg) -- New Zealand's consumer confidence rose in the third quarter, buoyed by larger-than-expected cuts to interest rates and falling fuel prices."
"The household sentiment index gained to 104.8 from a 17- year-low of 81.7 in the second quarter, according to a survey by Westpac Banking Corp. and McDermott Miller Ltd. released in Wellington today. A reading above 100 indicates optimists outnumber pessimists."
"Reserve Bank Governor Alan Bollard unexpectedly cut the benchmark interest rate in July, his first reduction in five years, and followed on Sept. 11 with a larger-than-expected half-point cut to 7.5 percent. Rising confidence adds to signs New Zealand's economy may recover from a first-half recession."
"``Lower petrol prices and interest rates are finally helping to revive the unconscious consumer,'' said Donna Purdue, senior economist at Westpac in Wellington. Still, ``consumer spending will be muted for some time yet.''"
"Westpac surveyed 1,559 consumers between Sept. 1 and 15 on their personal finances, the economic outlook and whether it is a good time to buy a major household item. The poll has a margin of error of 2.5 percent."
"A net 17 percent of those polled expect the economy will worsen over the next year, down from 52 percent in the second quarter. The net figure subtracts pessimists from optimists. Twice as many people expect a better economic performance over the next five years."
"A net 14 percent of respondents said it was a good time to buy a major household item, compared with 11 percent who thought it was a bad time to buy in the second quarter. The measure is less than the long-run average of 28 percent, Purdue said."
To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.
"Last Updated: September 23, 2008 22:39 EDT"
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"ICBC, BoC Fall as Government Purchases Fail to Ease Concerns "
By Zhang Dingmin
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Sept. 24 (Bloomberg) -- Industrial & Commercial Bank of China Ltd. and Bank of China Ltd. fell the most in a week in Shanghai trading as government support failed to ease concerns about a slowing economy and worsening asset quality.
"ICBC, the nation's biggest bank, dropped 4.4 percent to 4.16 yuan as of 9:43 a.m., while Bank of China Ltd., the third largest, fell 3.3 percent. China Construction Bank Corp. slid 3.9 percent."
"The Chinese government, which spent $60 billion bailing out the three banks between 2003 and 2005 before selling them to the public, has moved in to buy shares in the banks again after stocks tumbled this year. Analysts have cut ratings on Chinese banks in the past month as a slowing economy raised concerns that rising bad loans will erode their profits."
"``Chinese banks appear to be approaching their first real test of resilience,'' Beijing-based Fitch Ratings analysts Charlene Chu and Chunling Wen wrote in a report Sept. 22. ``Increased vigilance is warranted as Chinese banks take on the growing challenges ahead.''"
"China Investment Corp., the nation's $200 billion sovereign wealth fund, bought 2 million Shanghai-traded shares in the three state-controlled lenders yesterday, trying to shore up a stock market that's tumbled 60 percent this year."
"Still, Zhang Xi, a Beijing-based analyst at China Galaxy Securities Co., said China's interest and exchange rate controls provided long-term support for the big lenders' profitability, and their risk of collapse was limited given their importance in the nation's financial system."
"``There's no reason to be pessimistic'' about the three lenders,'' she said today before the market opened. ``It was a wise decision for CIC to buy as prices have reached a bottom and there's no risk of collapse like counterparts in the U.S.''"
"The three banks surged by their daily 10 percent limit in the two trading days after the official Xinhua News Agency said Sept. 18 that Central Huijin, a unit of CIC, would buy shares in the lenders."
"ICBC had fallen nearly 50 percent in Shanghai this year. Bank of China dropped 46 percent while CCB plunged 54 percent, even though Chinese lenders mostly avoided the more than $520 billion of writedowns and credit losses by global financial firms."
To contact the reporter for this story: Zhang Dingmin in Beijing at Dzhang14@bloomberg.net
"Last Updated: September 23, 2008 22:52 EDT"
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"Funds Will Flee China as Yuan Gains Cool, Martin Currie Says "
By Judy Chen
"Sept. 24 (Bloomberg) -- Overseas investors are repatriating funds from China as the U.S. credit crisis starves them of capital and yuan gains are reined in to help the economy, according to Martin Currie Investment Management Ltd."
"The currency has risen 0.45 percent against the dollar since the end of June, set for the smallest quarterly advance in more than two years, as China limits its appreciation to help exporters weather a slump in global demand. The yuan has jumped 21 percent since a peg to the dollar was scrapped in July 2005, helping draw speculative capital from abroad."
"``Foreign investors are pulling money out of China, initially because of the financial crisis,'' said Chris Ruffle, who is based in Shanghai and helps oversee about $3 billion of assets as co-chairman of Martin Currie's China unit. ``The next round will be when it becomes apparent that the currency will no longer go upward.''"
Premier Wen Jiabao said on Sept. 20 that China will step up economic controls as the country seeks to shield itself from global financial volatility. A loss of confidence in credit markets forced Lehman Brothers Holdings Inc. to file the biggest bankruptcy in history this month and prompted the U.S. government to nationalize the nation's No. 1 insurer by assets as well as the two largest mortgage-financing companies.
Excessive Outflows
"China's CSI 300 Index has slumped 61 percent this year, the second-worst performing stock benchmark in the world. Ukraine's PFTS Index is the biggest loser, having plunged 67 percent."
"Shares aren't the only assets that are out of favor in China. The proportion of Chinese households planning to buy a home is the lowest since at least 1999, according to a quarterly central bank survey published this week. Property prices in 70 major cities rose 5.3 percent in August from a year earlier, the smallest gain in 18 months, official figures show."
"China should prevent ``excessive capital outflows from stock and housing markets,'' Chen Dongqi, deputy director of the National Development and Reform Committee's Macroeconomic Research Institute, said at a conference in Shanghai on Sept. 12. He noted that speculative capital flowed from China in June, and possibly July and August as well."
"The yuan dropped 0.15 percent, the most in three weeks, to 6.8238 a dollar as of 1:17 p.m. in Shanghai, from 6.8135 yesterday, according to the China Foreign Exchange Trade System. Traders are betting the currency, which climbed 10 percent in the past year, will gain 0.8 percent in the next 12 months, according to non-deliverable forward contracts."
The contracts are agreements in which assets are bought and sold at current prices for settlement at a later-specified time and date. Non-deliverable forwards are settled in dollars rather than the underlying asset.
Economic Downturn
"Expectations for yuan appreciation have cooled as China's economy, the fourth-largest in the world, slows. The People's Bank of China reduced the one-year lending rate to 7.20 percent from 7.47 percent on Sept. 15 after growth eased to 10.1 percent in the second quarter, the least in more than two years."
"``If the economy gets really bad, the government will be under pressure to stimulate the economy,'' said Ruffle, who began to invest in China's yuan-denominated A shares in 1997. ``One way is to let the yuan depreciate.''"
"China has managed the yuan's exchange rate against a basket of currencies that includes the euro, the yen and the pound since a fixed-exchange rate to the dollar ended three years ago."
"Slowing appreciation and a worsening economy may encourage local investors to seek opportunities beyond China, according to Ruffle. China allows domestic funds to invest overseas under the so-called qualified domestic institutional investor, or QDII program."
"``When you see the yuan will be flat and perhaps going down, you may want to diversify risks,'' said Ruffle. ``Towards the end of this year, QDII will become popular.''"
To contact the reporters on this story: Judy Chen in Shanghai at xchen45@bloomberg.net
"Last Updated: September 24, 2008 01:47 EDT"
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HDFC Says Enter Swaps as India's Rate Spread Vanishes (Update1)
By Anil Varma
"Sept. 24 (Bloomberg) -- India's five-year borrowing costs are set to climb faster than one-year rates as the government increases debt sales and investors should use swaps to profit from the move, according to HDFC Bank Ltd."
"Five-year rates, currently lower than shorter-term costs, will rise more as the government needs to fund higher spending before general elections due in seven months, said Ashish Vaidya, head of interest-rate trading at the nation's third-biggest bank by market value. Traders should enter two simultaneous swap contracts, agreeing to make five-year fixed-rate payments in exchange for a floating rate in one and doing an opposite transaction in the one-year segment."
"``The government is expected to boost its borrowings,'' Mumbai-based Vaidya said in an interview. ``The inversion of India's interest-rate curve should correct and the spread should reach zero in two months.''"
"Five-year swap rates dropped faster than the cost of one- year contracts this quarter, sliding below the latter on July 18, as falling energy prices eased concern inflation will accelerate. Swaps due in 2013 have slumped 2.06 percentage points from a record high touched July 1, while those due next year declined 1.39 percentage points."
Swaps are derivatives contracts used to guard against or gain from interest-rate fluctuations and involve the exchange of floating- and fixed-rate payments.
Shrinking Spread
"The five-year swap traded at 8.5 percent at 12:36 p.m. in Mumbai, 47 basis points lower than the cost of the one-year contract, according to data compiled by Bloomberg. The spread has already shrunk by 13 basis points after Vaidya forecast it narrow before trading began today. The measure was 89 basis points on Sept. 15, the highest in more than three years. A basis point is 0.01 percentage point."
"HDFC Bank predicts the spread between the two rates will narrow in the coming weeks and disappear in November. Investors can gain from that by entering into a so-called ``steepener'' trade, which combines two swaps to bet long-term interest rates will rise more, Vaidya said."
They should agree to make five-year fixed-rate payments in exchange for a floating rate in one contract and simultaneously do the opposite transaction in the one-year segment.
"Typically, longer-term rates rise because of sales of government bonds, which usually mature in five years or more. All bonds sold by the government in the fiscal year that began April 1 are due to mature only in or after 2013."
India said late yesterday it will sell 100 billion rupees ($2.2 billion) of bonds this week at an unscheduled auction to meet an ``emerging requirement.'' The sale will boost borrowings in the first half of the current fiscal year by more than 10 percent beyond the budgeted 960 billion rupees. The government said it was advancing a part of the planned borrowing for the second half of the fiscal year.
"``The government's borrowing needs can rise as revenue collections may decline amid slowing growth and smaller company profits,'' Vaidya said."
"The central bank predicted in July India's $1.2 trillion economy to grow 8 percent this year, the slowest pace since 2004, revising downward its earlier forecast of as much as 8.5 percent."
To contact the reporters on this story: Anil Varma in Mumbai at avarma3@bloomberg.net.
"Last Updated: September 24, 2008 03:23 EDT"
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U.S. Fed Agrees to $30 Billion Swap With Four Central Banks
By Craig Torres and Shamim Adam
Enlarge Image/Details
"Sept. 24 (Bloomberg) -- The U.S. Federal Reserve agreed to channel $30 billion into the global financial system by opening currency swap lines with central banks in Norway, Sweden, Denmark and Australia."
"The Fed set up the currency exchange to address ``elevated pressures'' in dollar funding in markets, the Board of Governors said today in a statement."
"The U.S. is broadening its effort to revive confidence in markets as concern mounts that a $700 billion plan to rescue the banking system may face delays in Congress. The Fed last week expanded its swap lines with the European Central Bank and Swiss National Bank by $70 billion, and created $110 billion in new facilities with central banks in Japan, the U.K. and Canada."
"``This is another weapon in the arsenal of governments aimed at boosting confidence,'' said Joshua Williamson, a senior strategist at TD Securities Ltd. in Sydney. ``Hopefully it will help market sentiment, stop banks from hoarding cash and start greasing the wheels of the financial economy.''"
"After the announcement, borrowing costs for Australian banks fell from the highest since Bear Stearns Cos. collapsed six months ago."
The difference between the rate banks charge each other for three-month loans and the overnight indexed swap rate declined to 82.5 basis points as of 4:10 p.m. in Sydney from as much as 93.25 points earlier today.
The yen declined as the plan gave investors confidence to buy assets that have higher yields outside Japan. The yen fell to 155.69 per euro at 7:38 a.m. in London from 154.63 late yesterday in New York. It was at 105.92 versus the dollar from 105.56.
Working Together
"The programs ``are designed to improve liquidity conditions in global financial markets,'' the Fed said. ``Central banks continue to work together during this period of market stress and are prepared to take further steps as the need arises.''"
Central bankers are trying to break a credit logjam in money markets as $522 billion in writedowns and losses tied to the U.S. mortgage market prompt bankers to hoard cash.
"``This agreement is a part of our precautionary measures,'' said Riksbank Governor Stefan Ingves in a statement on the bank's web site. ``Our assessment is that financial stability in Sweden is satisfactory and that the Swedish banks are profitable and solvent.''"
"Norway's central bank, or Norges Bank, yesterday supplied $5 billion in one-week dollar currency swaps to ease liquidity in financial markets. The bank also swapped $5 billion to ease dollar shortages last week."
`Safety Measure'
"The Fed's swap arrangement ``is just a safety measure,'' said Henrik Gullberg, a currency strategist at Deutsche Bank AG in London. ``If the situation doesn't improve then'' the Nordic central banks ``could draw on this facility but if not I don't think they will need to.''"
Nordic interbank and currency swap markets were little changed after the announcement.
"``In Sweden in recent days the markets have been O.K.,'' Gullberg said. ``Norway's been O.K. too after the central bank used its own reserves to help the situation.'' Still, ``it's obviously been very welcomed by the domestic banks.''"
"The Federal Open Market Committee, a group of Fed Board governors and regional reserve bank presidents, voted to authorize the swap facility totaling $10 billion each for the Reserve Bank of Australia and Riksbank in Sweden, and $5 billion each for the central banks of Norway and Denmark."
"``The Fed's pre-emptive moves in setting up these swap lines suggest that it's not taking any chances,'' said Venkatraman Anantha-Nageswaran, head of research at Bank Julius Baer & Co. Ltd. in Singapore."
Bank of Japan
The Bank of Japan supplied $30 billion today to banks and brokerages in its first money-market operation since last week's $60 billion swap arrangement with the Fed.
"The Bank of England yesterday allocated $30.1 billion in loans, its fourth overnight dollar auction and the most since it began the emergency sales last week."
"Swap lines were first established in December when officials joined forces to boost dollar liquidity around the world after interest-rate reductions in the U.S., the U.K. and Canada failed to ease concerns about bank lending."
"The joint action is the latest attempt by central bankers to fight the financial crisis, which deepened last week after Lehman Brothers Holdings Inc. filed for bankruptcy and the U.S. government took over American International Group Inc."
"Central banks in Frankfurt, London and Zurich this week kept up their dollar auctions to provide liquidity to financial markets."
Danish Treasuries
Denmark's central bank on Sept. 22 said it's raising the issuance of Treasury bills through an extraordinary auction of as much as 25 billion kroner ($4.9 billion) to meet lender demand for secure notes. The notes can be used as collateral by so-called primary dealers to boost liquidity.
Sweden's central bank on the same day decided to loosen the rules on what collateral it will accept when lending money in order to increase liquidity. Australia pumped more than A$12 billion ($10 billion) into its banking system last week.
"``The swap serves to alleviate a shortage of U.S. dollar liquidity which has affected market participants around the world including in the Asia-Pacific time zone,'' the Australian central bank said."
To contact the reporter on this story: Craig Torres in Washington at ctorres3@bloomberg.net. Shamim Adam in Singapore at sadam2@bloomberg.net
"Last Updated: September 24, 2008 04:50 EDT"
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"European Stocks, U.S. Index Futures Advance; UBS, Goldman Climb "
By Adam Haigh
Sept. 24 (Bloomberg) -- European stocks and U.S. index futures gained as Warren Buffett's investment in Goldman Sachs Group Inc. overshadowed concern the Congress will hold up a $700 billion bank bailout plan. Financial shares in Asia also rose.
UBS AG added 1.8 percent and Goldman jumped 9.7 percent in Europe after Buffett's Berkshire Hathaway Inc. said it's buying $5 billion of perpetual preferred stock in Goldman with a 10 percent dividend. British Energy Group Plc climbed 5.7 percent after Electricite de France SA agreed to buy the U.K.'s biggest power producer for 12.5 billion pounds ($23 billion).
The Dow Jones Stoxx 600 Index increased 0.3 percent to 268.01 at 8:33 a.m. in London. Futures on the Standard & Poor's 500 Index rallied 1.3 percent. The MSCI Asia Pacific Index was little changed.
"``The news today that Goldman could raise some money from Warren Buffett is pretty positive,'' said Sydney-based Shane Oliver, head of investment strategy at AMP Capital Investors, which has $81 billion. ``This turned around futures trading in the U.S. and gave a more positive tone to markets,'' he said in a Bloomberg Television interview."
"U.S. stocks fell yesterday in the worst two-day slump in six years as Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson urged swift passage of the bailout measures, while lawmakers expressed objections. Senator Sherrod Brown, a Democrat from Ohio, said his constituents hold a ``universally negative'' opinion toward the proposal, while Senator Jim Bunning, a Kentucky Republican, said the plan would ``take Wall Street's pain and spread it to the taxpayers.''"
`Critical'
"``It's critical that it gets approved and the quicker the better as far as stability in financial markets is concerned,'' said Lucy MacDonald, the London-based chief investment officer of global equities at RCM Ltd., which has $100 billion under management. ``There is still a lot of arguing about the detail and especially about the buying into the distressed assets,'' she said in a Bloomberg Television interview."
"The Stoxx 600 through yesterday had erased more than half of a record 8.3 percent rally on Sept. 19, when the U.S. government announced plans to stem credit-related losses. The measure is down 27 percent this year as losses at financial companies topped $521 billion globally."
"UBS, the European bank hardest hit by the subprime crisis, added 1.8 percent to 19.5 Swiss francs. Goldman jumped 9.7 percent to $137.14 in German trading. Macquarie Group Ltd. of Australia gained 11 percent to A$40."
Warrants
"Berkshire also gets warrants to buy $5 billion of Goldman's common stock at $115 a share at any time in the next five years. In addition to raising money from Buffett, Goldman said it plans to sell at least $2.5 billion of common stock to the public."
"The Fed today said it has arranged to channel $30 billion into the global financial system by opening currency swap lines with central banks in Australia, Denmark, Norway and Sweden to relieve short-term dollar funding in markets worldwide."
"British Energy advanced 5.7 percent to 765.5 pence. EDF will pay 774 pence a share for the East Kilbride, Scotland-based utility, according to a statement. That's 35 percent above the stock's closing price on March 14, the last trading session before British Energy said it may receive an offer. EDF climbed 5.3 percent to 52.83 euros."
To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net.
"Last Updated: September 24, 2008 03:36 EDT"
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European Bonds Advance; German Confidence Falls to 3-Year Low
"Sept. 24 (Bloomberg) -- European government bonds rose after an industry survey showed business confidence in Germany, the euro region's largest economy, fell to the lowest level in three years, strengthening the case for a cut in interest rates."
"The gains pushed the difference in yield, or spread, between two- and 10-year notes to the widest in five months as investors raised bets the economy will enter a recession. The Munich-based Ifo institute's business climate index, based on a survey of 7,000 executives, fell to 92.9 in September, from 94.8 in August. Economists in a Bloomberg survey expected a drop to 94.3."
"``Economic fundamentals in the region will be supportive of bonds,'' said Peter Mueller, a fixed-income strategist in Frankfurt at Commerzbank AG, Germany's second-biggest lender. ``We expect the next European Central Bank move to be a cut, even though it might not happen this year. That argues for lower bond yields.''"
"The yield on the two-year note dropped 14 basis points to 3.76 percent as of 2:15 p.m. in London. The 4 percent note due September 2010 climbed 0.25, or 2.5 euros per 1,000-euro ($1,467) face amount, to 100.43."
"The yield on the 10-year German bund, the euro region's benchmark government debt security, fell 6 basis points to 4.18 percent. It will decline to 4 percent in coming weeks, and below that level by the end of the year, Mueller said. Yields move inversely to bond prices."
Money Markets
Bonds also gained after money-market interest rates increased as bank sought to bolster balance sheets amid deepening concern a U.S. bailout of financial institutions won't happen quickly enough to ease short-term funds constraints.
"The one-month London interbank offered rate, or Libor, for dollars jumped 22 basis points to 3.43 percent, the highest level since January, the British Bankers' Association said. The corresponding rate in euros rose 7 basis points to 4.91 percent and the pound rate also advanced 7 basis points, to 5.91 percent."
German growth shrank in the second quarter as Europe's economy showed few signs of recovery after a yearlong credit squeeze led to bankruptcies and bailouts on Wall Street. French business confidence dropped to the lowest level in five years in September and in Italy it was the weakest since October 2001.
"``The Ifo survey points to the first recession in Germany since the early 1990s,'' said Lena Komileva, a market economist at Tullett Prebon Plc, the second-biggest broker of transactions between banks. ``A year into the financial crisis, evidence of widespread fallout from the crisis across real economies in the euro zone defies any perceptions of an ongoing expansion.''"
"The spread between two- and 10-year European notes widened to 41 basis points, the most since April 16. A wider spread, or steeper yield curve, indicates investors raised bets the economy will slow."
Bond Auction
"Appetite for German debt recovered at an auction today following a surge in yields. The nation sold 5.6 billion euros of a new 4 percent five-year note, with bids exceeding the securities offered by 1.2 times, compared with a so-called 1.06 bid-to-cover ratio at a March auction of new debt. The Bundesbank retained 1.38 billion euros of the securities, down from 1.67 billion euros at the previous sale."
"The yield on the benchmark two-year German note jumped 33 basis points on Sept. 19, the most in at least 18 years, after U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke proposed measures to removed tainted assets from bank balance sheets."
"``Demand improved from the previous auction primarily because of higher yields and risks of a recession in the euro region,'' said Riccardo Barbieri, head of trading strategy in London at Bank of America Corp. ``It might not be a strong result and German debt sales have generally done poorly this year, but overall the backdrop was more favorable.''"
The yield on Germany's benchmark five-year note fell 6 basis points to 4 percent today.
To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net
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Stake in Goldman .txt>> <<2.635_20080924121725Japan Consumer Prices
Probably Exceeded 2% for Second Month .txt>>
<<2.635_20080924120814British Pound Advances Against Dollar Climbs
Versus Euro .txt>> <<2.634_20080924122233Italian Stocks Update Fiat
Maire Tenaris Telecom Italia .txt>> <<2.633_20080924122910French
Business Confidence Declines to FiveYear Low (Update1) .txt>>
<<2.632_20080924165223Yen Declines as Fed Extends Currency Swaps Goldman
Funding .txt>> <<2.632_20080924162442Home Resales in US Probably Fell
Matching Year's Average .txt>> <<2.631_20080924164342German Business
Confidence Falls to ThreeYear Low (Update2) .txt>>
<<2.630_20080924121700Japanese Manufacturers are Pessimistic This
Quarter (Update1) .txt>> <<2.628_20080924165345Korea May Almost Double
Feed Wheat Imports Cut Corn (Update3) .txt>>
<<2.628_20080924122026Sept 24 (Bloomberg) Japan's twoyear government
notes declined for the first time in .txt>>
<<2.627_20080924162228Europe Confidence Drops as Financial Turmoil
Worsens (Update2) .txt>> <<2.627_20080924122556Indian Rupee Falls on
Speculation Importers Buying More Dollars .txt>>
<<2.627_20080924121911Asian Currencies Decline Led by Korean Won on Risk
Aversion .txt>> <<2.627_20080924120926Freddie Mac Says Congress Should
Pass Bailout Plan (Update1) .txt>> <<2.625_20080924163339Libor Jumps
as Banks Seek Cash to Shore Up Finances (Update2) .txt>>
<<2.625_20080924162516Germany Ifo Business Confidence for September
Summary (Table) .txt>> <<2.625_20080924153652Yen Declines Against Euro
on Fed Offer of Cash Buffett Deal .txt>> <<2.625_20080924122846German
Stocks Rise Led by Financial Companies Arocandor Jumps .txt>>
<<2.624_20080924165536Dollar Falls Versus Euro as Congress Delays US
Bailout Plan .txt>> <<2.623_20080924144955Canadian Stocks Drop Led by
Potash Nexen Manulife Gains .txt>> <<2.623_20080924122115Italian
September Business Confidence Falls to SevenYear Low .txt>>
<<2.623_20080924121936Australia's Dollar May Head to Parity Says
Citigroup (Update1) .txt>> <<2.622_20080924152640US Treasuries Little
Changed Before Record TwoYear Auction .txt>>
<<2.621_20080924163648Russia India Lead Emerging Market Gains on Goldman
Fed Deals .txt>> <<2.621_20080924161920US Housing Prices Tumble on
Home Mortgage Scarcity (Update2) .txt>>
<<2.621_20080924153731Australian NZ Dollars Fall as Commodities Prices
Decline .txt>> <<2.621_20080924144628China's Yuan Falls Most in Three
Weeks on Exports Bonds Climb .txt>> <<2.619_20080924165411Paulson
`Deficit' May Push Dollar Down to Record Chart of Day .txt>>
<<2.619_20080924162354Treasuries Lose Allure for Asia Europe Investors
(Update2) .txt>> <<2.619_20080924115816Caterpillar Raises $13 Billion
in Biggest Bond Sale in 2 Weeks .txt>> <<2.618_20080924154059US Stock
Futures Rise on Buffett's Goldman Sachs Investment .txt>>
<<2.618_20080924153822Dollar May Fall to Parity With Canadian Currency
Goldman Says .txt>> <<2.618_20080924144749Most Asian Stocks Gain led
by Mitsubishi UFJ Sony Declines .txt>> <<2.617_20080924163125US Index
Futures Advance European Stocks Are Little Changed .txt>>
<<2.617_20080924122732Postbank Sees Impact From Worsening Financial
Turmoil (Update1) .txt>> <<2.617_20080924122707Most Japanese Stocks
Advance as Banks Target Overseas Rivals .txt>>
<<2.617_20080924122507India's Bonds Slide as Government to Hold
Unscheduled Debt Sale .txt>> <<2.617_20080924122322Barclays Plans to
Bid for Monte Paschi Branches Sole Reports .txt>>
<<2.616_20080924153621Commodity Supply May Be Curbed by Crisis Goldman
JBWere Says .txt>> <<2.616_20080924144603China's Fuel Imports May Fall
Next Year Sinopec Official Says .txt>> <<2.616_20080924123249Polish
Central Bank to Hold Key Interest Rate Survey Shows .txt>>
<<2.616_20080924121325Israeli 2008 GDP to Grow 45% Statistics Bureau
Says (Update1) .txt>> <<2.615_20080924153953UK Stocks Climb Led by
HBOS Banks British Energy Advances .txt>> <<2.615_20080924152241New
Zealand Consumer Confidence Rises on Rate Cuts (Update2) .txt>>
<<2.613_20080924144538ICBC BoC Fall as Government Purchases Fail to Ease
Concerns .txt>> <<2.613_20080924122001Funds Will Flee China as Yuan
Gains Cool Martin Currie Says .txt>> <<2.612_20080924122413HDFC Says
Enter Swaps as India's Rate Spread Vanishes (Update1) .txt>>
<<2.611_20080924164504US Fed Agrees to $30 Billion Swap With Four
Central Banks .txt>> <<2.610_20080924165006European Stocks US Index
Futures Advance UBS Goldman Climb .txt>> <<2.638_20080924153420Sept 24
(Bloomberg) European government bonds rose after an industry survey
showed b.txt>>
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A blog for global investors, with information about most of the world financial markets. Updated frequently, every day, with my views on these markets. Bear or Bull? Read to discover!
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