Brazil Real Falls as Lehman Collapse Damps High-Yield Demand
By Adriana Brasileiro
"Sept. 15 (Bloomberg) -- Brazil's real tumbled as the bankruptcy of Lehman Brothers Holdings Inc. damped demand for higher-yielding, emerging-market assets."
"The real fell 1.5 percent to 1.808 per dollar at 3:37 p.m. New York time, after most trading in Brazil had ended, from 1.781 on Sept. 12. The real earlier slumped 3 percent to 1.8341, near the seven-month low of 1.8374 reached on Sept. 11. Brazil's currency has fallen 9.8 percent in the month, making it the worst performer among the 16 most-traded currencies against the dollar."
"``Lehman's collapse marks a new and more frightening phase in the credit crisis,'' said Jose Mauro Delella, chief economist at Itau Asset Management in Sao Paulo. Growing pessimism ``only increases risk aversion.''"
Lehman filed for bankruptcy today after Barclays Plc and Bank of America Corp. abandoned takeover talks yesterday.
Brazilian Finance Minister Guido Mantega said growth will probably slow because of the international crisis and a local stock market decline is ``natural.''
"Brazil's central bank refrained from buying dollars for a third session today, underscoring the extent of capital outflows, said Joao Medeiros, a partner and currency trading director at Pioneer Corretora de Cambio in Sao Paulo."
"``The last time we had a crisis the central bank stayed out of the market for more than a month,'' Medeiros said, noting that exporters supplied the market with enough dollars so central bankers didn't need to act. ``We don't have the same situation now, so maybe if things don't calm down, the bank may have to do something.''"
Daily Dollar Purchases
"The bank had bought dollars daily since Dec. 27, in an effort to build up international reserves and slow the pace of the real's appreciation."
The yield on the overnight futures contract for January delivery declined for the first time in a week on speculation the pace of interest-rate increases will slow as inflation decelerates and world market losses threaten to erode growth. The yield fell 4 basis points to 13.99 percent.
"Brazilian economists in a weekly central bank survey pared their forecasts for inflation next year for the first time in more than two months, reducing the need for interest-rate increases this year."
"The inflation rate will end 2009 at 4.99 percent, less than the 5 percent forecast last week, according to a Sept. 12 survey of about 100 economists published today. Consumer prices will rise 6.26 percent in 2008, down from a previous forecast of 6.27 percent. The economists maintained their view that the so-called Selic benchmark rate will rise to 14.75 percent this year."
"Brazil's monetary policy makers last week voted 5-3 to raise the rate by three-quarters of a percentage point for a second straight meeting, to 13.75 percent. The dissenters argued for a half-point move."
"The yield on Brazil's zero-coupon bonds due in January 2010 fell almost 1 basis point, or 0.005 percentage point, to 14.72 percent, according to Banco Votorantim."
To contact the reporter on this story: Adriana Brasileiro in Rio de Janeiro at firstname.lastname@example.org
"Last Updated: September 15, 2008 15:44 EDT"
Swiss Franc Rises as Lehman's Collapse Sparks Aversion to Risk
By Lukanyo Mnyanda
"Sept. 15 (Bloomberg) -- The Swiss franc rose against the euro and dollar as Lehman Brothers Holdings Inc.'s collapse into bankruptcy boosted demand for the safest assets, causing investors to reduce so-called carry trades."
"The franc had its biggest one-day gain in six months against the dollar as stocks worldwide slumped. European government bonds and Treasuries surged as traders turned to fixed-income assets after Lehman triggered a record jump in the cost of protecting corporate debt from default. The yen rose versus all 16 major currencies as investors cut holdings of higher-yielding securities financed in Japan, which has the lowest interest rates among industrialized nations."
"``The franc is strengthening with the yen on the Lehman news,'' said Daragh Maher, deputy head of global currency strategy in London at Calyon, the investment-banking arm of France's Credit Agricole SA. ``It's all about risk at the moment.''"
"Against the dollar, the franc rose as much as 2.2 percent to 1.1057, the biggest gain since March 17, and was at 1.1219 by 3:53 p.m. in Zurich. It climbed 1 percent to 1.5915 per euro, from 1.6075 on Sept. 12. It may advance to 1.58 per euro this week, Maher predicted."
"The Swiss Market Index of equities slid 5.1 percent, set for its biggest drop since Jan. 21, declining with other European indexes. The Dow Jones Stoxx 600 Index of European shares slipped 4.5 percent."
"The Markit iTraxx Crossover Index of 50 European companies with mostly high-risk, high-yield credit ratings jumped by as much as 89 basis points, and was up 68 basis points to 614, according to JPMorgan Chase & Co. prices at 1:07 p.m. in London."
"Investors also bought safer assets as the so-called TED spread, the difference between what the U.S. government and banks pay to borrow in dollars for three months, jumped 55 basis points to 209 basis points, the widest since Dec. 14."
"The decline in financial-market confidence encouraged investors to seek safer alternatives to carry trades, where they borrow in a currency at a low interest rate and convert the proceeds into one they can lend out for a higher return. They take the risk currency fluctuations will erode their profits."
"The dollar fell the most in a decade against the yen as traders speculated the Federal Reserve may cut interest rates. Futures on the Chicago Board of Trade showed a 72 percent chance the Fed will lower its 2 percent target rate for overnight lending between banks by a quarter-percentage point tomorrow, compared with no chance a week ago."
"``It was an extraordinary way to wake up this morning,'' Peter Rosenstreich, chief market analyst at ACM Advanced Currency Markets SA in Geneva, said in a Bloomberg Television interview. ``Risk aversion is going to stay very heavy.''"
"Switzerland's benchmark rate is the industrialized world's third-lowest, and compares with 0.5 percent in Japan and 4.25 percent for the 15 nations using the euro."
The franc gained even as a government report showed Swiss producer and import-price inflation eased from the fastest pace in more than 19 years in August as oil retreated from a record.
"Prices for factory and farm goods and imports rose 4 percent in the year after rising 4.9 percent in July, the fastest pace since May 1989, the Federal Statistics Office said today."
"Swiss government bonds surged, with the yield on the 3 percent note due January 2018 falling 12 basis points to 2.71 percent. A basis point is 0.01 percentage point. Yields move inversely to bond prices."
To contact the reporter on this story: Lukanyo Mnyanda in London at email@example.com
"Last Updated: September 15, 2008 09:55 EDT"
Mexico's Currency Falls to Six-Month Low After Lehman Collapse
By Valerie Rota
"Sept. 15 (Bloomberg) -- Mexico's peso fell to a six-month low after Lehman Brothers Holdings Inc. filed for bankruptcy, reducing demand for higher-yielding, emerging-market assets."
"The peso was the second-biggest loser against the dollar after Brazil's real among the six most-traded currencies in Latin America. Lehman, once the fourth-largest U.S. investment bank, listed more than $613 billion of debt after failing to find a buyer, and Merrill Lynch & Co. agreed to be sold to Bank of America Corp. for $50 billion."
"``There's a lot of angst because of the U.S. financial market situation,'' said Sergio Gutierrez, who oversees 18 billion pesos ($1.7 billion) in assets at Investrust SA in Mexico City."
"The peso fell 1 percent to 10.7015 per dollar at 2:05 p.m. New York time, from 10.5945 on Sept. 12. It touched 10.7735, its weakest level since March 18. The peso may slide to 10.8 per dollar today, Gutierrez said."
"A drop in the price of oil, which funds more than a third of the Mexican government's revenue, added to losses in the peso, said Pablo Septien, who oversees $400 million in assets at Finaccess SA in Mexico City. Crude oil for October delivery fell to a seven-month low, dropping as much as 7 percent to $94.13 a barrel on the New York Mercantile Exchange."
"Mexican peso-denominated bonds fell, boosting the yield on the benchmark security due in 2024 by the most in nearly a week. The yield has risen 12 basis points, or 0.12 percentage point, since touching a three-month low of 8.42 percent on Sept. 2. Yields may extend their increase as inflation accelerates and demand for riskier assets wanes, Septien said."
"``On top of inflation, we're facing risk aversion,'' Septien said. ``I would be cautious.''"
"The yield on Mexico's 10 percent bond maturing in December 2024 increased 4 basis points to 8.54 percent today. The price fell 0.35 centavo to 112.75 centavos per peso, according to Banco Santander SA."
To contact the reporter on this story: Valerie Rota in Mexico City at firstname.lastname@example.org.
"Last Updated: September 15, 2008 14:10 EDT"
Canadian Dollar Falls as Lehman Files for Record Bankruptcy
By Ye Xie
"Sept. 15 (Bloomberg) -- The Canadian dollar fell the most in more than two weeks as Lehman Brothers Holdings Inc.'s bankruptcy filing raised speculation that deepening financial losses may prolong the economic slowdown in the U.S., Canada's largest export market."
The currency also dropped after crude oil fell below $95 a barrel to the lowest in seven months. Commodities such as oil and gold make up half of the country's exports. Canada's dollar depreciated the most versus the yen since March as traders cut holdings of high-yielding assets funded by loans in Japan.
"``It's certainly a disaster,'' said Steven Butler, director of foreign-exchange trading at Scotia Capital Inc. in Toronto. ``There's a flight back to less-risky assets. As commodities come off, I won't be surprised to see the Canadian dollar suffer.''"
"Canada's dollar, dubbed the loonie because of the aquatic bird on the one-dollar coin, fell 0.9 percent to C$1.0698 per U.S. dollar at 2:53 p.m. in Toronto, from C$1.0601 on Sept. 12. It declined 1.2 percent on Aug. 29. One Canadian dollar buys 93.48 U.S. cents."
"The loonie declined as low as 97.84 yen, the weakest since April, as investors pared carry trades, in which they borrow in countries with low interest rates to buy high-yielding assets elsewhere."
"The Canadian currency will slip to C$1.12 against the U.S. dollar by the end of 2009, according to the median forecast of 33 economists surveyed by Bloomberg News."
"Canada's dollar rose versus currencies of other commodity exporters that offer higher yields. It gained 1.4 percent versus the Australian dollar. The benchmark interest rate in Japan is 0.5 percent, compared with 3 percent in Canada and 7 percent in Australia."
`Taking Money Home'
"``People are getting out of carry trades and taking money back home,'' said Butler. ``The mood on the trading floor is extremely edgy.''"
"Crude oil for October delivery declined as much as $7.05, or 7 percent, to $94.13 a barrel on the New York Mercantile Exchange. That's the lowest since Feb. 14."
"``These are unprecedented times,'' said Jack Spitz, a managing director of foreign exchange at National Bank of Canada in Toronto. ``Risk aversion is the dominant force. The drop of crude below $100 a barrel is having an adverse effect on the Canadian dollar.''"
"The yield on Canada's two-year government bond fell 23 basis points, or 0.23 percentage point, to 2.55 percent, the lowest since March 20. The price of the 2.75 percent security maturing in December 2010 rose 48 cents to C$100.44. The yield on Canada's 10-year government bond fell 9 basis points to 3.51 percent."
"The 10-year bond yielded 96 basis points more than the two- year security, up from 45 basis points on June 10."
"The two-year bond's yield will rise to 3.15 percent by the end of this year, while the 10-year bond's yield will increase to 3.83 percent, according to the median forecasts of economists surveyed by Bloomberg News."
The yield advantage of Canada's 10-year bond compared with similar-maturity U.S. government securities was 3 basis points. The U.S. 10-year Treasury note yielded 12 basis points more than its Canadian counterpart on Sept. 12.
"Canadian and U.S. government bonds have returned 4.6 percent in 2008, according to Merrill Lynch & Co. index statistics."
"Lehman, the fourth-largest U.S. investment bank, filed a Chapter 11 petition with the U.S. Bankruptcy Court in Manhattan today. The collapse of Lehman, which listed more than $613 billion of debt, is the largest in history. In another development, Bank of America Corp. agreed to acquire Merrill Lynch & Co. for about $50 billion."
To contact the reporters on this story: Ye Xie in New York at email@example.com
"Last Updated: September 15, 2008 14:55 EDT"
U.S. Economy: August Industrial Production Contracts (Update1)
By Shobhana Chandra
Sept. 15 (Bloomberg) -- Industrial production in the U.S. fell in August by the most in almost three years as the slowdown in consumer spending prompted automakers to cut back.
"The 1.1 percent decrease in production at factories, mines and utilities was more than forecast, Federal Reserve figures showed today. Car output slumped 12 percent, the most in a decade, and declines ranged from semiconductors to building supplies."
"Today's report indicates the domestic slump is pulling down a U.S. manufacturing industry that has been buttressed by record exports. The figures may stoke concern the economic downturn will deepen amid a housing recession, rising unemployment and a credit crunch that today sent Lehman Brothers Holdings Inc. into bankruptcy."
"``We're seeing more pervasive weakness in manufacturing, going beyond autos,'' said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. ``The economy is taking a lurch downward. This is another report that points to a recession.''"
"Stocks slid and Treasuries climbed today in the aftermath of the Lehman bankruptcy and on concerns American International Group Inc., the largest U.S. insurer by assets, lacks sufficient assets to offset losses."
"The Standard & Poor's 500 Stock Index fell 4.7 percent to close at 1,192.7. Yields on benchmark 10-year notes fell to 3.43 percent at 4:16 p.m. in New York, from 3.72 percent at last week's close."
"Industrial production was forecast to drop 0.3 percent, according to the median estimate of 68 economists surveyed by Bloomberg News. July's reading was revised down to a 0.1 percent gain from the 0.2 percent previously estimated."
"Earlier today, a report from the New York Fed showed manufacturing worsened this month in that region. The Empire State general economic index fell to minus 7.4, the lowest reading since June, from 2.8 a month earlier. A reading of zero is the dividing line between growth and contraction."
"The Fed's production report also showed that capacity utilization, which measures the proportion of plants in use, decreased to 78.7 percent, the lowest level since October 2004. Capacity was estimated to fall to 79.6 percent, according to the Bloomberg survey median."
Economists track plant operating rates to gauge factories' ability to produce goods with existing resources. Lower rates reduce the risk of bottlenecks that can force prices higher. The utilization rate has averaged 81 percent over the past 30 years.
"Factory output, which accounts for about four-fifths of industrial production, dropped 1 percent after a 0.1 percent increase the prior month, the report showed."
"Production at utilities fell 3.2 percent, reflecting a cooler August than usual, economists said. Mining output, which includes oil drilling, decreased 0.4 percent. Shutdowns in the Gulf of Mexico as Hurricane Gustav approached may have contributed to the drop. Shutdowns ahead of Hurricane Ike will probably hurt mining output this month."
"The slump in motor vehicle and parts production followed a 2.5 percent gain the prior month, the report said. Carmakers assembled just 8.19 million autos at an annual pace last month, the fewest since April 1991."
"Production of consumer durable goods, including automobiles, furniture and electronics, fell 6 percent."
"Factories may slow further as sales weaken. Purchases at U.S. retailers fell 0.3 percent in August following a 0.5 percent decline in July as Americans retrenched in the face of mounting job losses and record foreclosures, Commerce Department figures showed last week."
"Carmakers are struggling. General Motors Corp. and Ford Motor Co., the biggest U.S. automakers, dragged the domestic industry to its 10th straight monthly sales decline in August as consumers snubbed trucks because of high fuel prices. Ford this month further pared production plans for the rest of 2008."
"``Not only is the U.S. in a recession, but the rest of the world is slowing down,'' Ford Chief Executive Officer Alan Mulally said during a speech on Sept. 8 in Dearborn, Michigan. ``I've never seen anything quite like it.''"
"Manufacturers are also cutting payrolls. Factories eliminated 61,000 jobs last month, the biggest decline in five years, Labor figures showed on Sept. 5. The drop included a loss of 39,000 jobs in auto-making and parts industries."
"Other recent reports show American manufacturers have become more cautious as consumer spending weakens. The Institute for Supply Management's factory index fell in August for the first time in three months, the group reported on Sept. 2."
"Consumer spending, the biggest part of the economy, will stall this quarter, while economic growth will slow to a 1.2 percent annual rate, less than half the prior quarter's pace, according to a Bloomberg survey from Sept. 2 to Sept. 9."
To contact the reporter on this story: Shobhana Chandra in Washington at firstname.lastname@example.org
"Last Updated: September 15, 2008 16:32 EDT"
Latin American Currencies: Colombia Peso Drops on Lehman Filing
By Andrea Jaramillo
Sept. 15 (Bloomberg) -- Colombia's peso fell to near a nine-month low as demand for emerging-market assets dried up after Lehman Brothers Holdings Inc. filed for bankruptcy.
"``This weekend's development reflects an ongoing process of de-leveraging,'' said Nick Chamie, head of emerging-market research for RBC Capital Markets in Toronto. ``Emerging markets were a major beneficiary in the hunt for yield, and as this process unwinds, these countries will continue'' to decline."
"The peso slid 0.9 percent to 2,068 per dollar at 4:21 p.m. New York time, from 2,050.55 on Sept. 12, according to the Colombian foreign-exchange electronic transactions system, known as SET-FX. The currency on Sept. 11 touched 2,105, its weakest since November."
"Lehman, the fourth-largest U.S. securities firm, succumbed to the subprime mortgage crisis, filing a Chapter 11 petition at in Manhattan today. Barclays Plc and Bank of America Corp. abandoned takeover talks with the 158-year-old bank yesterday."
"A widening gap between the 10 percent Colombian target lending rate and the 2 percent U.S. benchmark and increased foreign direct investment propelled the peso to a nine-year high of 1,633 in June. The 8 percentage point difference between Colombian and U.S. benchmark rates is the biggest since November 1999."
"The yield on Colombia's benchmark 11 percent bonds due in July 2020 rose 10 basis points, or 0.1 percentage point, today to 11.68 percent, according to Colombia's stock exchange. The bonds' price dropped 0.583 centavo to 95.703 centavos per peso."
"All six Latin American currencies tracked by Bloomberg weakened today, with the Brazilian real leading the decline."
"Venezuela's bolivar sank 6.3 percent to 4.8 per dollar in black market trading today as oil tumbled to a seven-month low amid concern the global economic slowdown will deepen, traders said."
The bolivar has plunged 30 percent from 3.38 a month ago as oil dropped 35 percent from a record high of $147.27 a barrel on July 11. Oil accounts for about 90 percent of Venezuela's exports. Crude for October delivery fell as much as 7 percent today to $94.13 a barrel on the New York Mercantile Exchange.
Venezuela pegs the bolivar at an official exchange rate of 2.15 per dollar under restrictions imposed in 2003. Venezuelans turn to the informal market when they can't get government approval to buy dollars at the official rate.
"Venezuelan demand for foreign currency is rising as economic growth leads to increasing imports, Manuel Barroso, president of the government's Foreign Exchange Administration Commission, said today. The commission, which provides currency at the official exchange rate, plans to sell $4.8 billion in foreign exchange this month, he said."
`Most at Risk'
"Emerging-market currencies that ``remain most at risk'' are those whose countries have ``large'' or rising current account deficits, including Chile, Win Thin, a senior currency strategist at Brown Brothers Harriman & Co. in New York, wrote in a note to clients today."
"The Argentine peso, Peruvian sol and Chilean peso are at greatest peril among Latin American currencies because they have ``generally outperformed up until now,'' Thin said."
"Colombia's peso has plunged 17 percent since July 15, when the dollar began rising against the euro from an all-time low. That dwarfs declines of 8 percent in the Chilean peso, 5 percent the Peruvian sol and 2 percent in the Argentine currency."
"Chile, Argentina, Peru"
"Chile's peso dropped 0.6 percent today to 532.75 per dollar from 529.63 on Sept. 12. The yield on the nation's peso bonds due in March 2013 was little changed at 7.92 percent, according to Bloomberg prices."
"In Argentina, the peso fell 0.2 percent to 3.086 per dollar, from 3.0815 on Sept. 12. The nation's 2009 budget assumes peso will weaken to an average of 3.19 pesos per dollar next year from 3.0869 pesos per dollar today, Cabinet Chief Sergio Massa said today."
"The yield on the Argentina's inflation-linked peso bonds due in February 2033 rose 28 basis points to 11.21 percent, according to Citigroup Inc.'s local unit."
"Peru's sol closed little changed, rising 0.04 percent to 2.9735 per dollar from 2.9746 on Sept. 12. Banco Central de Reserva del Peru entered in the currency market for a third consecutive week, selling $139 million today to ease the sol's slide. Last week it sold $700 million."
"The yield on Peru's 8.6 percent sol-denominated bond due in August 2017 was little changed at 8.03 percent, according to Bloomberg prices."
To contact the reporter on this story: Andrea Jaramillo in Bogota at email@example.com
"Last Updated: September 15, 2008 16:35 EDT"
European Bonds Surge as Lehman Woes Spur Demand for Safe Assets
By Anchalee Worrachate
"Sept. 15 (Bloomberg) -- European bonds surged as investors sought the safety of government securities after Lehman Brothers Holdings Inc. filed for bankruptcy, fueling speculation central banks will lower interest rates."
"The gain drove yields on two-year notes down by the most in six months as traders raised bets the financial-market turmoil will force the Federal Reserve to cut its benchmark rate at a meeting tomorrow. The dollar had its steepest drop in a decade versus the yen, stocks slid and gold rose as much as 3.7 percent. American International Group Inc., the insurer struggling to avoid credit downgrades, sought a $40 billion loan from the Fed as it seeks to sell assets, the New York Times said."
"``This is the mother of all Mondays,'' said Ciaran O'Hagan, a fixed-income strategist in Paris at Societe Generale SA. ``This is bad news for the economy. The question is with Lehman in its final throes and AIG about to go belly up, who is next? This will have major ramifications on banks' ability to lend. Yields will have to go lower.''"
"The yield on the two-year note declined as much as 28 basis points, the sharpest drop since March 17, the day after the Fed cut its emergency discount rate. It was down 24 basis points at 3.72 percent by 4:05 p.m. in London. The price of the 4 percent note maturing September 2010 climbed 0.45, or 4.5 euros per 1,000 euros ($1,430) face amount to 100.52."
"The yield on the 10-year bund, Europe's benchmark government security, tumbled 14 basis points to 4.04 percent after falling by 19 basis points earlier, the biggest decline since June 9. Bond yields move inversely to prices."
Fed Rate Odds
"The Fed may cut interest rates tomorrow, according to the futures market. Futures contracts on the Chicago Board of Trade showed a 60 percent chance the central bank will lower its 2 percent target rate for overnight lending between banks by at least a quarter point, from zero a week ago. It rose to as high as 90 percent earlier."
"Lehman last week reported the biggest loss in its history and said it would sell a majority stake in its asset-management unit, spin off real-estate holdings and cut the dividend to try to shore up capital and regain investor confidence. The company, founded in 1850, filed a Chapter 11 petition after Barclays Plc and Bank of America Corp. pulled out of talks to buy the bank."
Banks and financial institutions have posted almost $515 billion of losses and writedowns since the start of 2007 as the fallout from the subprime-mortgage crisis spread around the world.
"``It's a very nervous market out there,'' said Charles Berry, a bond trader in Stuttgart at Landesbank Baden- Wurttemberg, Germany's biggest state lender by assets. ``We don't know when the crisis will end. The spread between bid and ask prices in the cash bond market is quite wide. What that tells you is people are worried their counterparties might not be there in coming weeks.''"
"Money-market rates indicate banks are hoarding cash as they become increasingly reluctant to lend. The difference between what the U.S. government and banks pay to borrow in dollars for three months, the so-called TED spread, increased by 53 basis points to 2.07 percentage points, the widest in nine months."
"Today's bond gains drove the difference in yield, or spread, between two-year notes, which are more sensitive to the interest-rate outlook, and 10-year bunds to 29 basis points, the widest since May 8, steepening the so-called yield curve in the European government bond market. O'Hagan said he favors ``steepener'' trades as investors seek shorter-dated notes on expectations rates will be lowered."
"European stocks declined, stoking demand for the safest assets. The Dow Jones Euro Stoxx 600 Index, a benchmark for the euro region, tumbled 5.1 percent. The U.K.'s FTSE 100 Index dropped 4.7 percent."
"Bonds also rose as the cost of protecting European corporate debt from default soared. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-risk, high-yield credit ratings jumped 84 basis points to 630, according to JPMorgan Chase & Co. The index is a benchmark for the cost of protecting bonds against default and a gain indicates a deterioration in the perception of credit quality."
"``At this point, people don't care about the return on their money, but rather the return of their money,'' said David Keeble, London-based head of fixed-income strategy at Calyon, the investment-banking unit of Credit Agricole SA. ``Investors will need to buy riskless assets in this environment. What we need is every central banker around the planet talking and talking as though they are looking at this in a concerted way.''"
Bonds stayed lower even after the European Central Bank said it will offer financial institutions as much money as they need in the wake of Lehman's bankruptcy filing.
"Investors are starting to bet for the first time since August that the ECB will lower interest rates, derivatives trading showed. The odds of the ECB cutting its main refinancing rate rose to almost 11 percent today, the highest since March 18, according to a Credit Suisse Group index of probability based on overnight index-swap rates."
"The implied yield on the December Euribor contract dropped 9 basis points to 5.03 percent today, snapping three days of gains. The ECB's key rate is 4.25 percent."
"Treasuries outperformed European bonds on speculation interest rates in the U.S. will fall at a faster pace than those in the euro region. The yield spread between 10-year Treasury notes and German bunds widened to 48 basis points, from 46 basis points last week, the most since July 28."
"U.S. debt has returned 2.3 percent since the end of June, while German bonds have handed investors 3.1 percent, according to Merrill Lynch's U.S. Treasury Master and German Federal Governments indexes."
To contact the reporter on this story: Anchalee Worrachate in London at firstname.lastname@example.org
"Last Updated: September 15, 2008 11:51 EDT"
Yen Rises Most Against Dollar Since 1999 on Lehman Bankruptcy
By Ye Xie and Bo Nielsen
"Sept. 15 (Bloomberg) -- The yen strengthened the most against the dollar since 1999 after Lehman Brothers Holdings Inc. filed for bankruptcy, prompting traders to sell higher- yielding assets financed by loans in Japan."
Japan's yen and the Swiss franc gained versus every other major currency as the Wall Street firm's collapse encouraged investors to reverse carry trades. The dollar rose against Brazilian real and the Mexican peso as investors sought the relative safety of U.S. Treasuries.
"``Carry trades had a double-whammy today as concern about financial firms fed into risk aversion and concern about global growth compounded the hit,'' said Paresh Upadhyaya, who helps manage $50 billion in currency assets as a senior vice president at Putnam Investments in Boston. ``It's a perfect storm.''"
"The yen advanced 2.80 percent to 104.92 per dollar at 4:18 p.m. in New York, from 107.94 on Sept. 12. It was the biggest increase since the yen gained 2.81 percent on Sept. 9, 1999. The dollar fell 0.4 percent to $1.4280 per euro, from $1.4224, in up-and-down trading."
Japan's currency rose 2.3 percent to 149.83 per euro as Lehman's bankruptcy prompted investors to reduce trades in which they borrow in countries with low borrowing costs and buy higher-yielding assets elsewhere. The yen increased 4.6 percent to 84.82 versus the Australian dollar and 4 percent to 69.19 against New Zealand's currency.
"Lehman filed for the biggest bankruptcy filing in history after Bank of America Corp. and Barclays Plc pulled out of talks to buy the New York-based bank. Bank of America, the biggest U.S. consumer bank, instead agreed to acquire Merrill Lynch & Co. for about $50 billion, as the credit crisis claimed another U.S. financial company."
"``It's hard to imagine anything more cataclysmic than this,'' said Alan Ruskin, head of international currency strategy at RBS Greenwich Capital Markets in Greenwich, Connecticut. ``It will be hard to top that kind of news flow. The yen hasn't looked so good for quite a while.''"
"American International Group Inc., the largest U.S. insurer by assets, was given permission to access $20 billion of capital in its subsidiaries to free up liquidity, New York Governor David Paterson said."
"The franc increased 1.4 percent to 1.5854 per euro and 1.2 percent to 1.1171 per dollar, the biggest gain since Aug. 21. Japan's 0.5 percent target lending rate and Switzerland's 2.75 percent benchmark compare with 4.25 percent in Europe, 7 percent in Australia and 7.5 percent in New Zealand."
Fed Rate Outlook
"The dollar weakened versus the yen as expectations for a Fed interest-rate cut increased. Futures on the Chicago Board of Trade showed a 72 percent chance the central bank would lower its 2 percent target rate for overnight lending between banks by a quarter-percentage point tomorrow, compared with no chance a week ago."
"Implied volatility on one-month euro-dollar options surged to 14.34 percent today, the highest level since the Sept. 11, 2001, terrorists attacks, indicating traders see more price fluctuation in the next month."
The U.S. currency rose 1.8 percent to 1.8138 Brazilian reais and 1.3 percent to 10.7327 Mexican pesos as U.S. investors repatriated capital and bought Treasuries.
"``U.S. investors are scaling back overseas assets and sending money back home,'' said Jens Nordvig, a senior currency strategist at Goldman Sachs Group Inc. in New York. ``This trend has further to run. But I don't think this is something that will fuel the dollar rally on a sustained basis.'' The dollar will weaken to $1.45 in three months, Nordvig said."
"A rally in Treasuries pushed the yield on the two-year note down 0.41 percentage point to 1.80 percent, the biggest drop since the Sept. 11 attacks. It was the first time the yield fell below 2 percent since April. The 10-year note's yield dropped 0.24 percentage point to 3.48 percent."
"The yield advantage of the benchmark 10-year note over comparable-maturity Japanese government securities decreased to 1.95 percentage points, the narrowest since 1993, making the U.S. securities less attractive."
"Stocks tumbled, with the Standard & Poor's 500 Index dropping 4.7 percent. The Dow Jones Stoxx 600 Index retreated 3.5 percent. Markets in China, Hong Kong, Japan and South Korea were shut for holidays today."
The dollar has gained about 12 percent since touching an all-time low of $1.6038 per euro on July 15 as the European economy slowed and crude oil dropped 35 percent from its peak of $147.27 a barrel.
"`` The appetite for the U.S. dollar has not reversed,'' said Jack Spitz, a managing director at National Bank of Canada in Toronto. ``Risk reduction provides support.''"
To contact the reporters on this story: Ye Xie in New York at email@example.com; Bo Nielsen in Copenhagen at firstname.lastname@example.org
"Last Updated: September 15, 2008 16:21 EDT"
"India's Bonds Rally as China Cuts Rates, Oil Falls Below $100 "
By Anil Varma
"Sept. 15 (Bloomberg) -- Indian bonds rose the most in more than a month after China cut interest rates for the first time in six years, adding to speculation borrowing costs will fall worldwide amid slowing growth and falling commodity prices."
"Yields on benchmark 10-year yields fell to the lowest in more than three months after crude oil in New York fell below $100 per barrel for the first time in six months. Bonds also rose after Lehman Brothers Holdings Inc. filed for bankruptcy, stoking speculation liquidation of the 158-year-old U.S. securities firm will deepen a financial crisis that threatens to drag the global economy into a recession."
"``India's monetary-policy decisions have resembled those of China in recent years,'' said Krish Ramkumar, who manages the equivalent of $1.1 billion in Indian debt at Sundaram BNP Paribas Asset Management Co. in Mumbai. ``China's rate cut emphatically marks a clear change of direction in global growth and monetary trends. Also, the news came the same day oil broke below $100.''"
"The yield on the benchmark 8.24 percent note due April 2018 fell 20 basis points to 8.15 percent as of the 5:30 p.m. close in Mumbai, according to the central bank's trading system. The price rose 1.34 per 100 rupee face amount to 100.55. A basis point is 0.01 percentage point."
"The People's Bank of China reduced the one-year lending rate to 7.20 percent from 7.47 percent, effective tomorrow, and lowered the reserve ratio at the nation's smaller banks by 1 percentage point. Crude oil has fallen more than 35 percent from a record $147.27 per barrel reached in July to a seven-month low of $95.43."
"Lehman, the fourth-biggest U.S. investment bank that failed to find a buyer and succumbed to the subprime mortgage crisis, and Merrill Lynch & Co. agreed to be sold, adding to evidence that the credit crisis is deepening and threatening the global economy."
"Bonds fell earlier on concern tax payments by companies and fund outflows from emerging markets will reduce cash in the financial system. The overnight loan rate in the money market climbed to a four-month high, making it more expensive to buy debt with borrowed funds. Local firms must pay today the third quarterly installment of advance taxes for the financial year that began April 1."
"``Traders are cutting bond positions as tax outflows add pressure on liquidity,'' said Pradeep Madhav, chief operating officer in Mumbai at Securities Trading Corp. of India, a primary dealer that underwrites government debt sales. ``The worsening climate across global markets too is negative for liquidity. With overnight rates in double digits, bonds' carrying cost is more than what they yield.''"
The rate at which banks lend to each other overnight rose as high as 12 percent.
"Ten-year yields may rise to 8.5 percent this week as overseas investors pare holdings of emerging-market assets, Madhav said."
"Global funds have sold $7.9 billion more Indian shares than they bought this year following $17.2 billion in net purchases last year, according to data provided by the Securities & Exchange Board of India. The Bombay Stock Exchange Sensitive Index dropped as much as 6.1 percent today and is headed for the first annual loss since 2001."
"The cost of benchmark interest-rate swaps, or derivative contracts used to guard against rate fluctuations, declined. The five-year swap rate, a fixed payment made to receive floating rates, fell to 8.45 percent from 8.68 percent yesterday."
To contact the reporter on this story: Anil Varma in Mumbai at email@example.com.
"Last Updated: September 15, 2008 09:13 EDT"
"Morgan Stanley, Goldman Lead Record Surge in Bank Default Risk "
By Abigail Moses
Sept. 15 (Bloomberg) -- Morgan Stanley and Goldman Sachs Group Inc. led a record surge in the cost of default protection on banks around the world after Lehman Brothers Holdings Inc. filed for bankruptcy.
"Credit-default swaps on Morgan Stanley soared 184 basis points to 448 and Goldman jumped 114 basis points to 313, according to CMA Datavision prices at 9:15 a.m. in New York. Merrill Lynch & Co. dropped 153 basis points to 305 after Bank of America Corp. agreed to buy the world's biggest brokerage firm for about $50 billion. Bank of America increased 53 to 212."
"Investor speculation Lehman's bankruptcy may trigger further takeovers or mergers roiled credit markets. The U.S. government's decision not to bail out Lehman reduces the ``moral hazard'' introduced when Bear Stearns Cos. was rescued and the Bank of England nationalized mortgage lender Northern Rock Plc, according to Juan Esteban Valencia, a credit strategist at Societe Generale SA in London."
"``The get-out-of-jail-free card turned out not to be worth what they thought,'' said Matt King, head of quantitative credit strategy at Citigroup Inc. in London. ``This makes it much, much harder for financial institutions to get the financing they need.''"
"Contracts on Wachovia Corp., the fourth-biggest U.S. bank, increased 101 basis points to 554 and JPMorgan Chase & Co. surged 48 to 191."
"In Europe, HSBC Holdings Plc, Europe's biggest bank, and Barclays Plc led a jump in the cost of default protection, driving the benchmark Markit iTraxx Financial index of 25 banks and insurers a record 32 basis points higher to 127, according to JPMorgan."
"Credit-default swaps on London based HSBC soared 27 basis points to 98, the most ever, according to CMA Datavision prices in London. Barclays, the U.K.'s third-biggest bank, rose 30 to 162, Zurich-based UBS AG jumped 28 to 164 and Spain's Banco Santander surged 22 to 122."
"Credit-default swaps, contracts conceived to protect bondholders against default, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. A rise indicates deterioration in the perception of credit quality; a decline signals the opposite."
"A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year."
To contact the reporter on this story: Abigail Moses in London Amoses5@bloomberg.net
"Last Updated: September 15, 2008 09:22 EDT"
"Gold, Silver Gain as Investors Seek Haven From Market Turmoil "
By Pham-Duy Nguyen
"Sept. 15 (Bloomberg) -- Gold rose the most in two months after Lehman Brothers Holdings Inc. filed for bankruptcy, sparking a plunge in equities and reviving demand for the precious metal as a haven. Silver gained more than 3 percent."
"Stocks in Asia, Europe and the U.S. fell on speculation the credit crisis will widen. Since the second quarter of 2007, banks worldwide have posted $513.7 billion in credit losses and asset writedowns. Gold reached a record $1,033.90 an ounce on March 17 after the Federal Reserve brokered a deal for JPMorgan Chase & Co. to buy Bear Stearns Cos."
"``Fear is lifting gold,'' said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois. ``Once confidence is destroyed, it doesn't come back for generations. Gold is the only asset that is not somebody else's liability.''"
Gold futures for December delivery climbed $22.50 to $787 an ounce on the Comex division of the New York Mercantile Exchange. The 2.9 percent gain was the biggest since June 26. The metal still has dropped 24 percent from the all-time high.
"Silver futures for December delivery rose 34 cents, or 3.1 percent, to $11.135 an ounce."
"Gold has dropped 6 percent this year, while silver has tumbled 25 percent."
"Lehman's Chapter 11 filing listed more than $613 billion in debt, the most ever. Another investment bank, Merrill Lynch & Co., hurt by $52.2 billion in losses and writedowns related to subprime-mortgage securities, agreed to a $50 billion takeover by Bank of America Corp."
The Standard & Poor's 500 Index fell as much as 3.1 percent and U.S. Treasury securities surged.
`Rally to Be Sold'
"Gold's gains were limited as investors sold the metal to cover losses in other markets, Kaplan said."
"``This is a rally to be sold,'' Kaplan said. ``People are going to get out of gold to meet margin calls elsewhere.''"
"Hedge-funds and other large speculators, who helped drive commodity prices to records this, year may need to sell to raise cash, said Ron Goodis, a futures trading director at Equidex Brokerage Group Inc. in Closter, New Jersey."
"``My inclination is to short gold here,'' Goodis said. ``You've got this liquidation mode setting in. You've got nervousness across all markets and money has to come out. People aren't convinced gold is the place to be. Treasuries are the place to be, for now.''"
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at firstname.lastname@example.org.
"Last Updated: September 15, 2008 14:23 EDT"
Brazil May Signal Slower Pace of Rate Increases: Week Ahead
By Laura Price
Sept. 15 (Bloomberg) -- Brazil's central bank this week may say why three of its eight directors voted to slow the pace of interest-rate increases and signal how much more lending costs need to rise for inflation to ease.
"The central bank's monetary policy committee will release the minutes from its Sept. 9-10 meeting, when the board voted 5-3 to raise the so-called Selic rate by three-quarters of a percentage point for a second straight time to 13.75 percent. The dissenters argued for a half-point move."
"The split decision may indicate that the pace of future rate increases will slow, said Tony Volpon, chief economist at Sao Paulo-based brokerage CM Capital Markets. The yield on the overnight futures contract for January 2010 delivery fell 5.5 basis points to 14.64 percent after the central bank decision."
"``In the past, these split votes have been used to signal a change of speed in raising rates,'' Volpon said. ``The question is whether we're returning to this signaling device or whether it was just a difference of opinion.''"
Inflation slowed in August for the first time in 11 months to 6.17 percent because of a drop in food prices. The annual rate hit a three-year high of 6.37 percent in July and has exceeded the central bank's 4.5 percent target since January.
Policy makers have raised rates four times since April. The minutes will be published Sept. 18.
"Paulo Leme, managing director for emerging markets at Goldman Sachs in Miami, said the minutes will probably be ``less hawkish'' than in previous months to accommodate the view of the dissenters, who probably expect growth to slow next year."
"``As we saw in 2007, in the aftermath of split decisions, futures interest rates become more volatile, gyrating in response to any high frequency data on inflation or activity that could strengthen or weaken the dovish or hawkish views,'' Leme wrote in a Sept. 11 research report."
"Inflation, industrial production, retail sales, labor markets and the global economic environment will all help determine the future pace of rate increases, Leme said. Goldman Sachs expects the central bank to raise the Selic by three- quarters of a percentage point again next month and deliver two more half-point increases by the end of January."
"A government report Sept. 16 will probably show retail sales growth quickened to 10.6 percent in July from 8.2 percent in June, according to the median estimate in a Bloomberg survey of 5 economists."
"Concern that a global slowdown may have a stronger-than- expected impact on economic growth in Brazil may have affected the split decision, said Alvise Marino, an emerging-markets analyst at research firm IDEAglobal in New York."
"Inflation Concerns, Markets"
"Inflation has moderated solely because of food prices, while consumer prices for other products continue to rise at a faster- than-desired pace, according to Marino."
"``Inflation is still a concern,'' said Marino. ``It won't hold them from hiking rates.''"
"Pedro Tuesta, an economist at 4Cast Inc. in New York, said the central bank's split decision suggests Brazil's economy will cool and inflation will slow."
"Last week, the real fell for the third week in a row, losing 2.5 percent to 1.781 per dollar. The yield on the government's zero-coupon bond due January 2010 fell 14 basis points, or 0.14 percentage point, to 14.72 percent."
"The benchmark Bovespa index rose for the first time in three weeks to 52392.9 points from 51939.6. JBS SA, the world's largest beef producer, gained the most, advancing 12 percent. Companhia Energetica de Sao Paulo, the electric utility controlled by Brazil's wealthiest state, fell the most, dropping 14 percent."
Weekly Trade Balance 09/15
Weekly Consumer Price Index 09/16
Retail Sales 09/16
COPOM Monetary Policy Meeting Minutes 09/18
To contact the reporter on this story: Laura Price in Sao Paulo at email@example.com
"Last Updated: September 14, 2008 23:00 EDT"
"Italy Stocks Update: Generali, UniCredit, Geox, Tenaris Shares "
By Armorel Kenna
"Sept. 15 (Bloomberg) -- Italy's S&P/MIB Index fell the most in eight months, losing 128, or 4.3 percent, to 27,145. Futures expiring in September dropped 121, or 4.3 percent, to 27,160."
The following were among the most active stocks on the Italian market today. Share symbols are in parentheses.
"Real estate stocks fell in Italy. Aedes SpA (AE IM), an Italian real estate and fund-management company, fell the most in more than a month, losing 9 cents, or 8.8 percent, to 92.5 cents. Risanamento SpA (RN IM), Italy's third-largest property company dropped the most in a week, declining 6.4 percent to 1.02 euros. Uni Land SpA, the real estate developer that owns land in Rome once held by the Borghese princes, slipped 4.4 percent to 1.31 euros."
"Italian banking and insurance stocks slipped after Lehman Brothers Holdings Inc. said it would file for bankruptcy and Bank of America Corp. agreed to acquire Merrill Lynch & Co., the world's biggest brokerage firm."
"American International Group Inc., the largest U.S. insurer by assets, was working on plans late yesterday to raise capital and sell units to keep credit downgrades from hobbling the company."
"Assicurazione Generali SpA (G IM), Italy's biggest insurer, fell for the third day, declining 1.1 euros, or 4.6 percent, to 21.62 euros. Unipol Gruppo Finanziario SpA, Italy's fourth- biggest insurer, fell 5.6 percent to 1.62 euros."
"UniCredit SpA (UCG IM), the country's biggest bank, fell for the fourth day in five, losing 6.3 percent, to 3.51 euros."
"Mediolanum SpA (MED IM), the Italian financial services company partly owned by Prime Minister Silvio Berlusconi, slid 5.3 percent to 3.14 euros."
"Geox SpA (GEO IM), the Italian shoemaker that patented ventilated soles, was cut to ``neutral'' from ``buy'' at UBS AG. The shares fell 33 cents, or 4.3 percent, 7.41 euros."
Energy-related stocks fell after oil slid to a six-month low in New York.
"Eni SpA (ENI IM), Europe's fourth-largest oil company, declined for the first time in three days, falling 97 cents, or 4.7 percent, to 19.86 euros. Saipem SpA (SPM IM), Europe's biggest oil-field services contractor by market value, fell 6.1 percent to 22.37 euros."
"Tenaris SA (TEN IM), the world's largest supplier of pipes for the oil and gas industries, fell 5.7 percent to 15.72 euros. Chairman Paolo Rocca said the company isn't planning acquisitions, although he doesn't rule them out in the future. Tenaris isn't concerned about asset nationalization in Venezuela, Rocca said."
To contact the reporter on this story: Armorel Kenna in Milan at firstname.lastname@example.org
"Last Updated: September 15, 2008 09:20 EDT"
U.S. August Industrial Production: Statistical Summary (Table)
By Alex Tanzi
Sept. 15 (Bloomberg) -- Following is a summary of the U.S. industrial production and capacity utilization report for Aug. released by the Federal Reserve.
Aug. July June May April March Aug.
Weight 2008 2008 2008 2008 2008 2008 YOY%
Industrial production 100.0% -1.1% 0.1% 0.2% -0.1% -0.5% -0.2% -1.5%
Prev. estimates n/a n/a 0.2% 0.4% -0.2% -0.6% -0.2% n/a
Ex high-tech 95.69% -1.2% 0.0% 0.2% -0.2% -0.7% -0.4% -2.4%
Ex vehicles 94.88% -0.6% -0.1% 0.0% -0.2% -0.2% 0.0% -0.4%
Ex tech & vehicles 90.57% -0.7% -0.1% 0.0% -0.2% -0.3% -0.1% -1.4%
Manufacturing 78.70% -1.0% 0.1% 0.0% 0.1% -0.9% 0.1% -1.9%
" Motor vehicle, parts 5.12% -11.9% 2.5% 4.8% 0.5% -6.6% -4.8% -20.7%"
ex. motor veh/parts 73.58% -0.3% -0.1% -0.3% 0.1% -0.5% 0.4% -0.6%
Machinery 4.89% 0.3% 0.0% 0.3% -0.1% -3.2% 1.7% -3.0%
" Computer, electronics 6.85% 0.0% 0.4% 0.5% 0.4% 1.5% 2.0% 13.8%"
Aug. July June May April March Aug.
Weight 2008 2008 2008 2008 2008 2008 YOY%
Utilities 9.68% -3.2% -1.6% 1.8% -2.2% 1.6% -3.4% -4.2%
Electric 7.98% -4.0% -2.3% 3.2% -2.7% 1.3% -2.8% -5.1%
Natural Gas 1.70% 0.0% 1.5% -4.3% 0.0% 2.9% -6.3% -0.1%
Mining 11.62% -0.4% 1.1% 0.2% 0.0% 0.0% 0.3% 3.5%
Products 56.13% -1.5% 0.1% 0.6% -0.1% -0.7% -0.5% -1.8%
Consumer goods 29.33% -2.0% 0.2% 0.7% -0.2% -0.6% -1.1% -3.0%
Home electronics 0.31% -0.3% -0.5% -2.0% 2.5% 4.7% 1.0% 16.0%
Business equipment 9.38% -0.6% 0.2% 0.3% 0.3% -1.7% 0.9% 0.7%
Info processing 2.72% 0.2% -0.3% 0.6% 0.6% 1.3% 1.4% 10.3%
Defense and space 1.73% -0.7% -1.0% 1.1% -0.5% -0.1% 0.0% 0.4%
Construction supply 4.21% -1.0% 0.4% -0.3% 0.5% -1.0% 0.1% -5.8%
Business supplies 10.64% -0.6% -0.6% -0.2% -0.6% 0.1% -0.6% -2.0%
Materials 43.87% -0.9% 0.1% 0.0% -0.2% -0.4% 0.2% -0.6%
Energy 14.58% -1.1% 0.5% -0.2% -0.3% -0.1% -0.1% 0.8%
Total production 100.0% 110.3 111.6 111.5 111.3 111.4 112.0 112.0
Aug. July June May April March Year
Weight 2008 2008 2008 2008 2008 2008 Ago
Manufacturing 78.70% 111.4 112.5 112.4 112.4 112.3 113.3 113.6
Mining 11.62% 104.8 105.2 104.1 103.9 103.9 103.9 101.2
Utilities 9.68% 104.7 108.2 110.0 108.0 110.5 108.7 109.3
Total industry 100.0% 78.7% 79.7% 79.7% 79.7% 79.9% 80.4% 81.2%
Prev. estimates 100.0% n/a 79.9% 79.8% 79.6% 79.8% 80.5% n/a
Ex high-tech 95.07% 78.6% 79.6% 79.7% 79.6% 79.8% 80.4% 81.3%
Computers 1.13% 80.6% 80.6% 81.0% 81.5% 81.6% 81.2% 77.9%
Semiconductors 2.35% 78.0% 79.5% 78.8% 79.5% 81.2% 81.3% 80.9%
Manufacturing 80.83% 76.6% 77.5% 77.5% 77.6% 77.7% 78.5% 79.6%
Mining 9.90% 91.3% 91.7% 90.7% 90.6% 90.6% 90.7% 88.9%
Utilities 9.27% 81.5% 84.4% 85.9% 84.5% 86.6% 85.4% 87.0%
-----------Motor Vehicle Assemblies--------------
Total 10.75% 8.19 9.76 9.25 8.68 8.44 9.39 10.96
Autos & light trucks 10.47% 7.96 9.56 9.04 8.42 8.17 9.13 10.71
NOTE: All figures are seasonally adjusted. Motor vehicle assemblies
are in millions of units at an annual rate.
To contact the reporter on this story:
Alex Tanzi in Washington email@example.com
"Last Updated: September 15, 2008 09:15 EDT"
Money-Market Rates Climb on Lehman Bankruptcy; Bill Yields Fall
By Kim-Mai Cutler
"Sept. 15 (Bloomberg) -- The cost of borrowing in dollars overnight jumped the most since June and yields on Treasury bills tumbled after Lehman Brothers Holdings Inc. filed for bankruptcy, deepening the freeze in lending between banks."
"The London interbank offered rate, or Libor, climbed 96 basis points, or 0.96 percentage point, to 3.11 percent, the British Bankers' Association said today. The cost of borrowing in euros overnight increased 19 basis points to 4.49 percent, the BBA said."
"``The rates reflect a scramble for liquidity and just how stressed the system is,'' said Ciaran O'Hagan, a fixed-income strategist for Societe Generale SA in Paris. ``Spreads will widen further as risk aversion percolates. The system is undergoing extraordinary pressure.''"
"Rates on three-month U.S. bills, viewed as a haven because of their short maturities, slid 66 basis points to 0.80 percent. That caused the difference between what the U.S. government and banks pay to borrow in dollars for three months, the so-called TED spread, to have its biggest one-day jump of the yearlong credit crisis. It rose by 66 basis points to 201 basis points. The spread averaged 39 basis points in the first half of 2007."
"The spread widened on concern Lehman's collapse may herald more losses at financial institutions, hampering the ability of banks to repair their balance sheets and resume lending. The U.S. bank succumbed to the subprime-mortgage crisis it helped create in the biggest bankruptcy filing in history."
"Banks and insurers are among financial companies that have booked more than $513 billion in writedowns and credit-market losses since last year as the U.S. mortgage crisis deepened. Bank of America Corp., the biggest U.S. consumer bank, agreed to acquire Merrill Lynch & Co. today for about $50 billion as the crisis claimed another of America's oldest financial companies."
Bank lending on money markets has all but dried up since the collapse of the U.S. subprime-mortgage market last year. Libor is used as a benchmark for everything from home loans to company bonds and derivatives.
"``The market is simply so thin that there's not a lot you can do,'' said Jan Misch, a money-market trader in Stuttgart at Landesbank Baden-Wuerttemberg, Germany's biggest state-owned bank. ``There's still absolute uncertainty about what is going to happen.''"
"The difference between the Libor and what traders bet the U.S. central bank's federal funds rate will average over the next three months, the so-called OIS spread, was 101 basis points today, or the highest since December. The measure of risk aversion ended last week at 87 basis points."
Central Banks Act
"In an effort to help Wall Street weather Lehman's bankruptcy, the Federal Reserve widened the collateral it accepts for loans to securities firms to include stocks and also boosted its program for lending Treasuries to bond dealers by $25 billion, bringing it to $200 billion. At the same time, a group of 10 banks that includes JPMorgan Chase & Co., Goldman Sachs Group Inc. and Citigroup Inc. formed a $70 billion fund to ensure market liquidity."
The European Central Bank and the Bank of England offered financial institutions additional money after Lehman's application for bankruptcy threatened to derail global markets.
"The ECB said it injected 30 billion euros ($43 billion) at a marginal rate of 4.30 percent to soothe credit markets, while the Bank of England loaned financial institutions an additional 5 billion pounds ($9 billion) for three days in its exceptional fine-tuning operation. The Swiss central bank offered additional liquidity through its overnight facility for the first time since Feb. 22."
"``Banks are holding onto any cash they have,'' said Barry Moran, a money-market trader in Dublin at the Bank of Ireland, the country's second-biggest bank. ``While central banks will be doing everything in their power to keep the market functioning correctly, it will probably take a couple days to bring overnight rates down.''"
The three-month Libor rate for dollars was little changed at 2.82 percent.
"``The overnight rate is always going to be more sensitive to shocks like these,'' O'Hagan said. ``Short-term rates can be much more volatile than the three-month rate as they reflect a scramble for cash.''"
"Treasuries surged, sending two-year notes up by the most since the Fed unexpectedly cut rates in January, as Lehman's bankruptcy filing stoked speculation the central bank may lower interest rates as soon as tomorrow. The gains pushed the yield below 2 percent for the first time since April as Barclays Plc and Bank of America withdrew from talks to buy Lehman."
"Interest-rate futures on the Chicago Board of Trade showed a 66 percent chance the Fed will lower its key rate by a quarter-point to 1.75 percent tomorrow, compared with no chance a week ago."
To contact the reporters on this story: Kim-Mai Cutler in London at firstname.lastname@example.org
"Last Updated: September 15, 2008 12:49 EDT"
India's Rupee Drops Past 46 a Dollar as Risk Aversion Increases
By Anil Varma
Sept. 15 (Bloomberg) -- India's rupee weakened past 46 per dollar for the first time in two years on concern investors will dump riskier assets after Lehman Brothers Holdings Inc. filed for bankruptcy.
"The Indian currency declined for a fifth day on concern liquidation of the 158-year old U.S. securities firm will deepen a financial crisis that threatens to drag the global economy into a recession. The rupee fell as local traders sold the currency, taking a cue from its decline in the overseas non- deliverable forward market, said Paresh Nayar, head of currency and debt trading at Development Credit Bank Ltd. in Mumbai."
"``Concerns about a pullout of investors from emerging- markets is driving rupee sales,'' Nayar said. ``Also, the NDF market is influencing the rupee's trend.''"
"The rupee fell 0.7 percent to 46.05 per dollar at the 5 p.m. close in Mumbai, adding to last week's 2.3 percent loss, according to data compiled by Bloomberg. That is the lowest closing level since Sept. 19, 2006."
"Lehman, once the fourth-biggest U.S. investment bank, failed to find a buyer and succumbed to the subprime mortgage crisis after listing more than $613 billion of debt. Bank of America Corp., the largest U.S. consumer bank, said today it has agreed to buy Merrill Lynch & Co. in an all-stock deal that values the world's biggest brokerage firm at about $50 billion."
"Indian stocks fell. The Bombay Stock Exchange's Sensitive Index, or Sensex, declined 3.4 percent, taking the year's losses to 33.3 percent. Overseas investors have sold a record $7.9 billion more Indian shares than they bought this year, according to the Securities and Exchange Board of India."
"Offshore contracts that allow traders to bet on the rupee's value in one month indicate an implied exchange rate of 46.35 a dollar, or 0.6 percent lower than the spot rate, Bloomberg data show. Non-deliverable contracts are used for currencies that can't be freely converted and are settled in dollars. Local forwards show an implied rate of 46.21 a dollar in a month."
To contact the reporters on this story: Anil Varma in Mumbai at email@example.com.
"Last Updated: September 15, 2008 08:03 EDT"
Nordic Currencies: Norway's Krone Drops on Lehman Bankruptcy
By Bo Nielsen
"Sept. 15 (Bloomberg) -- Norway's krone fell against the euro by the most in six months as investors sold higher-yielding assets after Lehman Brothers Holdings Inc. filed for bankruptcy, sparking concern the financial-market turmoil will spread. Sweden's krona fell to the lowest level since November 2005."
"The Norwegian currency also slipped versus the dollar after the price of oil, the country's biggest export, slid to the lowest level since February as refineries along the Gulf of Mexico coast escaped major damage from Hurricane Ike."
"``Investors pulled out of everything that is risk-based and that includes the Norwegian krone and the Swedish krona,'' said Camilla Viland, a currency strategist in Oslo for DnB NOR ASA, Norway's biggest bank. ``The main theme today is risk aversion.''"
"The krone declined as much as 1.1 percent to 8.2218 per euro, and was at 8.2156 by 4:48 p.m. in Oslo, from 8.1313 on Sept. 12. It fell 1.5 percent to 5.7986 versus the dollar."
"Crude oil fell below $95 a barrel for the first time since February, from $101.18 at the end of last week."
"The Swedish krona dropped 0.3 percent to 9.5547 per euro, after slipping to 9.5881, the weakest in almost three years, as OMX Stockholm 30 Index of stocks lost 2.8 percent, encouraging traders to sell the currency. The krona declined 0.7 percent to 6.7408 versus the dollar."
"Investors sold the dollar after New York-based Lehman petitioned the U.S. Bankruptcy Court for the Southern District of New York today, according to a statement. The collapse of Lehman, which has more than $613 billion of debt, surpasses Drexel Burnham Lambert's failure in 1990."
"Merrill Lynch, the biggest brokerage, agreed to sell itself to Bank of America Corp. for $50 billion in an emergency deal reached yesterday."
"Investors also sold higher-yielding currencies such as the New Zealand and Australian dollar. Sweden's interest rate of 4.75 percent and Norway's main rate of 5.75 percent are only topped by New Zealand, Australia among the Group of 10 nations."
"When risk aversion is lower, investors borrow in low- yielding currencies such as the yen to buy assets in higher- yielding countries like Norway, in so-called carry trades. When risk aversion increases the trades are unwound. The yen is the best performer today among the major currencies monitored by Bloomberg."
"In other trading, Iceland's krona slipped 1.4 percent to 90.88 per dollar. The central bank, or Sedlabanki, last week kept its benchmark interest rate at a record 15.5 percent, in line with a Bloomberg survey."
"Nordic government bonds rose as investors sought refuge in the relative safety of fixed-income securities, with the yield on Sweden's 5.25 percent note due March 2011 falling 17 basis points to 4.01. The yield on Norway's 6 percent bond maturing in May 2011 slipped 17 basis points to 4.83 percent, according to Danske Bank A/S prices. Yields move inversely to bond prices."
To contact the reporter on this story: Bo Nielsen in Copenhagen at firstname.lastname@example.org
"Last Updated: September 15, 2008 10:57 EDT"
China Cuts Rates as U.S. Turmoil Adds to Global Risks (Update3)
By Li Yanping and Kevin Hamlin
Sept. 15 (Bloomberg) -- China cut interest rates for the first time in six years and allowed most banks to set aside smaller reserves as worsening credit-market turmoil and weakening export demand dimmed the outlook for economic growth.
"The People's Bank of China reduced the one-year lending rate to 7.20 percent from 7.47 percent, effective tomorrow, and lowered the reserve ratio at the nation's smaller banks by 1 percentage point. The changes were in a statement on the central bank's Web site today."
"Lehman Brothers Holdings Inc. filed for bankruptcy today and Merrill Lynch & Co. agreed to be sold, adding to evidence that the credit crisis is deepening and threatening the global economy. The slowest inflation in 14 months has given China room to cut borrowing costs and protect jobs in the world's fourth- largest economy."
"``Policy makers see the probability of a recession in the U.S. is higher now, so the outlook for Chinese exports has deteriorated,'' said Darius Kowalczyk, chief investment strategist at CFC Seymour Ltd. in Hong Kong. ``This is the beginning of an easing cycle in China.'' He was the only one of seven economists in a Bloomberg survey last week to predict a rate cut this year or in the first quarter of 2009."
"The announcement came on a holiday, with markets closed."
"The rate cut is ``to help solve important problems in our economy for its continued stable and fast development,'' the central bank said."
"Inflation cooled to 4.9 percent in August, export growth slowed and industrial production expanded by the least in six years, according to data released last week. China's economy expanded 10.1 percent in the three months to June 30 from a year earlier, the fourth straight quarter of slower growth."
"In the U.S., banks including JPMorgan Chase & Co., Goldman Sachs Group Inc. and Citigroup Inc. formed a $70 billion fund to ensure market liquidity as Lehman filed for bankruptcy and Bank of America Corp. agreed to acquire Merrill."
"The Federal Reserve has widened the collateral it accepts for loans to securities firms and boosted its program for lending Treasuries to bond dealers. It may reduce the benchmark interest rate tomorrow to 1.75 percent from 2 percent, according to the futures market."
"China's central bank pushed the reserve requirement for lenders to a record 17.5 percent in June. The biggest banks are excluded from the reduction. Those exempted are: Bank of China Ltd., Industrial and Commercial Bank of China, Agricultural Bank of China, China Construction Bank Corp., Bank of Communications Co. and Postal Savings Bank of China."
"The requirement for smaller banks drops by 1 percentage point from Sept. 25. In areas affected by the Sichuan earthquake, the reduction is 2 percentage points."
"The central bank left the key deposit rate unchanged at 4.14 percent, narrowing banks' margins on loans."
"Economists were split on whether the rate cut would cause the yuan to rise or fall. Mark Williams, of Capital Economics Ltd. in London, said ``using interest rates to stimulate growth is pretty good for further yuan appreciation.''"
"Falling interest rates are ``obviously negative for the yuan,'' said CFC Seymour's Kowalczyk."
"The currency has climbed 6.8 percent against the dollar this year, the best performer among Asian currencies. It closed at 6.8450 against the U.S. currency in Shanghai on Sept. 12."
"Zhu Baoliang, the chief economist at the State Information Center, a government research agency, said August's weaker economic data probably prompted today's moves, rather than events in the U.S."
"Capital Economics' Williams said it was ``suspicious'' that the central bank acted when the Shanghai Composite Index seemed set to drop below 2,000. It closed on Sept. 12 at 2,079.67 after slumping 60 percent this year on concern that measures to tame inflation will erode company profits."
"The property market could be headed for a ``meltdown'' as home prices and sales decline, Morgan Stanley said Sept. 12."
China's policy makers have already loosened loan quotas -- restrictions on how much banks can lend -- and raised export-tax rebates for garments and textiles to help exporters and small businesses.
"-- With reporting by Chua Kong Ho in Shanghai and Patricia Kuo in Hong Kong. Editors: Paul Panckhurst, Riad Hamade."
To contact the reporters on this story: Li Yanping in Beijing at email@example.comKevin Hamlin in Beijing on firstname.lastname@example.org
"Last Updated: September 15, 2008 08:57 EDT"
Fed Adds Most Reserves Since 9/11 Attacks as Banks Hoard Cash
By Liz Capo McCormick
"Sept. 15 (Bloomberg) -- The Federal Reserve added $70 billion in reserves to the banking system, the most since the September 2001 terrorist attacks, to keep bank borrowing costs low after the bankruptcy of Leman Brothers Holdings Inc."
"Fed funds traded as high as 6 percent, or 4 percentage points above the central bank's target rate for overnight loans between banks, according to ICAP Plc, the world's largest inter- dealer broker. The margin is the greatest since Bloomberg began tracking the data in 1998. The rate dropped to as low as 1.75 percent after the Fed added the temporary reserves."
"The central bank uses repurchase agreements, or repos, to buy or sell Treasury, mortgage-backed and so-called agency debt for a set period, to help maintain enough money in the system to keep overnight interest rates close to the target. They don't signal a policy shift. Futures show traders boosted odds to 68 percent that the Fed will cut rates when policy makers meet tomorrow to offset financial market turmoil."
"``If the fed funds rate closes high today, I would be really worried as it would mean that there really is no money out there to be lent,'' said Stan Jonas, who trades interest- rate derivatives at Axiom Management Partners LLC in New York."
"The so-called effective funds rate was 2.1 percent on Sept. 12, or 10 basis points over the target rate. The Federal Reserve Bank of New York reports daily, for the previous trading session, the effective funds rate. It is a weighted average rate of unsecured overnight lending transactions. A basis point is 0.01 percentage point."
Expanding Collateral Options
The Fed widened the collateral it accepts yesterday for loans to securities firms in an effort to help Wall Street weather Lehman's bankruptcy.
"The Fed added $50 billion in temporary reserves to the banking system when it arranged overnight repurchase agreements, or repos, at 11:50 a.m., after providing $20 billion earlier."
"``It is rare that overnight operations exceed $15 billion,'' Tony Crescenzi, chief bond market strategist for New York-based Miller Tabak & Co., wrote in a note. ``There is a longstanding pattern in which the funds rate falls in the afternoon, as banks scramble to unload their excess monies onto other banks, lest they get stuck with excesses earning nothing.''"
"When the Fed added the reserves at 9:40 a.m., federal funds, the overnight lending rate between U.S. banks, traded at 4.25 percent, above the central bank's target rate, according to ICAP. The rate was 6 percent at the time of the second open market operation. Fed funds opened at 3.5 percent today."
"A total of $5 billion in repos matures today. Wrightson, an ICAP research unit specializing in U.S. government finance, had expected the Fed to add about $15 billion in repos. Dealers submitted $270.1 billion in bids for the repurchase agreements."
"Fed funds' weighted average was 2.1 percent on Sept. 12 after trading between 1.75 percent and 2.9375 percent, according to the central bank."
"The Fed also accepted $25.8 billion in collateral as part of its daily system Open Market Account, or SOMA, Securities Lending program, the largest amount so far this year, according to Fed data tracked by Stone & McCarthy Research. Dealer submitted $29.8 billion in bids."
"The Fed offers specific Treasury securities held by SOMA for loan to dealers against Treasury general collateral on an overnight basis. Dealers bid in a multiple-price auction held every day at noon. The securities lending program is separate from the Fed's Term Securities Lending Facility, or TSLF, one of the three liquidity measures the Fed initiated since the credit crisis ensued last year."
The TSLF offers Treasury general collateral held by SOMA for maturities longer than overnight in a single-price auctions with dealers who program-eligible collateral.
Overnight Repos: Type of Collateral Submitted Accepted Stop Rate U.S. Treasuries $9.800 billion None N/A Agency $29.10 billion $17.758 billion 4 percent Mortgage-backed $70.60 billion $32.242 billion 4 percent TOTAL $109.5 billion $50.0 billion
Overnight Repos: Type of Collateral Submitted Accepted Stop Rate U.S. Treasuries $19.85 billion None N/A Agency $37.65 billion $3.5 billion 4.5 percent Mortgage-backed $103.1 billion $16.5 billion 4.5 percent TOTAL $160.6 billion $20.0 billion
The ``stop'' is the lowest rate accepted by the Fed. Sums may not match totals due to rounding.
To contact the reporter on this story: Liz Capo McCormick in New York at Emccormick7@bloomberg.net
"Last Updated: September 15, 2008 15:05 EDT"
"U.K. Stocks Slump Most in 8 Months; Barclays, HBOS, RBS Plunge "
By Adam Haigh
"Sept. 15 (Bloomberg) -- U.K. stocks tumbled the most in eight months, led by financial companies, after Lehman Brothers Holdings Inc. filed for bankruptcy."
"Barclays Plc, which pulled out of talks to buy Lehman yesterday, slid 13 percent, the steepest retreat since at least 1988. HBOS Plc, the biggest mortgage lender in Britain, slumped a record 27 percent and Royal Bank of Scotland Group Plc dropped 13 percent."
"``The problem when you have a crisis is the notion of fear and that is what you have,'' Piers Hillier, the London-based head of European equities at WestLB Mellon Asset Management who oversees the equivalent of $8.8 billion, said in a Bloomberg Television interview. ``The fact that Lehman has gone to the wall does raises a lot of questions. The concern is that we haven't been able to address the problem,'' he added."
"The FTSE 100 index tumbled 245.6, or 4.5 percent, to 5,171.1 at 1:57 p.m. in London, the steepest slump since January, for a decline of 20 percent so far this year. The FTSE All-Share Index lost 4.4 percent today, and Ireland's ISEQ Index slid 5.4 percent."
"The cost to protect corporate bonds from default surged as Lehman's bankruptcy, the biggest in U.S. history, and the emergency sale of Merrill Lynch & Co. to Bank of America Corp. heightened concern the subprime crisis will cause more bank failures and add to $514 billion of credit losses and asset writedowns worldwide."
"Barclays lost 13 percent to 303.75 pence. HBOS dropped 27 percent to 207 pence and Royal Bank, the second-largest U.K. bank, slid 13 percent to 203.75 pence."
"``It seems like everyone is trying to get out of their positions on this news,'' said Joshua Raymond, market strategist at City Index Ltd. in London. ``It's taken a turn for the worst and we are continuing now on a downward trend.''"
"BHP Billiton Ltd., the world's largest mining company, slid 5.3 percent to 1,429 pence and Anglo American Plc, the world's fourth biggest diversified mining company, dropped 5.9 percent to 2,355 pence. Copper for three-month delivery sank 3.1 percent on the London Metal Exchange."
The following stocks also rose or fell in the U.K. markets. Stock symbols are in parentheses.
"Heritage Oil Ltd. (HOIL LN), a U.K.-based explorer with interests in Africa, rose 13.5 pence, or 6.5 percent, to 222.75 after winning government approval to take a working interest in Dominion Petroleum Ltd. licenses in Tanzania."
"J Sainsbury Plc (SBRY LN), the third-largest U.K. supermarket chain, fell 14 pence, or 3.8 percent, to 351 pence after Chief Executive Officer Justin King told the Financial Times that consumer sentiment is ``worse than it has ever been.''"
To contact the reporter on this story: Adam Haigh in London at email@example.com
"Last Updated: September 15, 2008 09:41 EDT"
"Coffee Falls to 1-Month Low on Drop in Crude Oil, Credit Crisis "
By Shruti Date Singh
Sept. 15 (Bloomberg) -- Coffee fell to the lowest price in a month in New York as crude oil declined and Lehman Brothers Holdings Inc.'s bankruptcy filing shook investors' confidence in the credit markets.
"Crude oil in New York reached $94.13 a barrel today, the lowest since Feb. 14, after refineries along the Gulf of Mexico escaped major damage from Hurricane Ike. Lehman, the fourth- largest U.S. investment bank, succumbed to the subprime mortgage crisis in the biggest bankruptcy in history."
"``Crude below $100 is putting pressure on everything,'' said Byron Barrios, a trader at East Coast Options Services in New York. ``Everything is down with some of the big banks. People are going to want to see what happens.''"
"Arabica coffee futures for December delivery fell 0.15 cent, or 0.1 percent, to $1.3905 a pound on ICE Futures U.S., the former New York Board of Trade. The price earlier reached $1.3615, the lowest for a most-active contract since Aug. 15."
The Reuters/Jefferies CRB Index of 19 raw materials extended a drop to the lowest level since Dec. 19. Commodities often follow moves in crude oil because energy prices affect the cost of producing and transporting agricultural products.
"``We are seeing pressure because of liquidation across the board,'' Barrios said."
"Robusta coffee futures for January delivery rose $14, or 0.6 percent, to $2,192 a metric ton on the Liffe exchange in London."
To contact the reporter on this story: Shruti Date Singh in Chicago at firstname.lastname@example.org.
"Last Updated: September 15, 2008 14:45 EDT"
Europe Options Index Has Steepest Rise in 8 Months on Lehman
By Adam Haigh
Sept. 15 (Bloomberg) -- The benchmark index for European options rallied the most since January as investors bought insurance against equity declines after Lehman Brothers Holdings Inc. filed for bankruptcy.
"The VStoxx, which measures the cost of using options as insurance against losses in the Dow Jones Euro Stoxx 50 Index, surged 26 percent to 34.14 at 1:21 p.m. in London, the biggest one-day jump since Jan. 21 and the highest since March."
"``There has been a massive spike up,'' said Ben King, a trader at derivatives broker ETX Capital in London. ``The volatility is going through the roof.''"
"Lehman, once the fourth-largest U.S. investment bank, filed for bankruptcy after Barclays Plc and Bank of America Corp. abandoned talks to buy the crippled firm. Bank of America agreed to acquire Merrill Lynch & Co., the world's biggest brokerage firm, for about $50 billion."
"Put options with a strike price of 200 pence expiring this month on Royal Bank of Scotland Group Plc, the most traded contract today among options on London's Liffe exchange monitored by Bloomberg, rallied 1,400 percent to 7.5 pence. Royal Bank shares slid 12 percent to 206.5 pence. The options contract is 3.1 percent away from the strike price."
"``There is a lot of pain out there,'' said Ian Thurgood, an equities and derivatives broker at ODL Securities in London. ``With such a violent move it forces people to do something. Due to the expiry this week people are buying back near month puts and rolling them on to October, November and December,'' he added."
"Puts on Allianz SE, Europe's largest insurer, for expiry in December with a strike price of 92 euros surged 110 percent to 3.93 euros, the most active of options contracts on the Eurex exchange, according to Bloomberg data."
"Calls for Deutsche Bank AG with a strike price of 58 euros that expire this month slumped 81 percent to 28 cents, as the stock of Germany's biggest bank lost 9.4 percent to 52.49 euros in Frankfurt."
More than two puts were traded for each call that exchanged hands on the VStoxx.
"European-style calls give the right to buy a security for a certain amount, the strike price, on a given date. Puts convey the right to sell. Investors use options to guard against fluctuations in the price of securities they already own, make leveraged bets on shares or wager that volatility, or stock-price swings, will increase or decrease."
"In France, puts of Axa SA expiring this month with a strike price of 20.5 euros soared 685 percent, the steepest gain today among all the options contracts on the index, Bloomberg data show."
For Related News:
To contact the reporter on this story: Adam Haigh in London at email@example.com.
"Last Updated: September 15, 2008 09:06 EDT"
"Platinum, Palladium Fall as Lehman's Bankruptcy Fuels Selling "
By Halia Pavliva
"Sept. 15 (Bloomberg) -- Platinum fell, trading near a 20- month low, and palladium declined as investors sold commodities, seeking the safety of government debt and cash after Lehman Brothers Holdings Inc. sought bankruptcy court protection."
"Lehman's Chapter 11 filing, the biggest in U.S. history, and the sale of Merrill Lynch & Co. to Bank of America Corp. heightened concern that the subprime-lending crisis may cause more turmoil. American International Group Inc., the biggest U.S. insurer, tumbled as it faced a liquidity crunch. Two-year Treasury note yields fell to the lowest since April."
"``The banking crisis continues to be the center of attention and it's no surprise,'' Miguel Perez-Santalla, a sales vice president at Heraeus Precious Metals Management in New York, said today in a note to clients. ``The bankruptcy of Lehman Bros. and the takeover of Merrill Lynch have combined to give bad signs for the USA.''"
"Platinum futures for October delivery fell $34.30, or 2.8 percent, to $1,176.20 an ounce on the New York Mercantile Exchange. The price dropped 12 percent last week, touching $1,121.10, the lowest for a most-active contract since January 2007. The metal has plunged 49 percent from a record $2,308.80 in March."
"Palladium futures for December delivery fell $4.80, or 2 percent, to $238 an ounce in New York. Last week, the price sank 11 percent, reaching $217.25, the lowest since October 2005. The most-active contract is down 37 percent this year."
Platinum and palladium are used in jewelry and emission- control parts for car and truck engines.
"``The next few days will be dominated by risk reduction across all financial markets as participants identify and neutralize newly acquired positions,'' John Reade, an analyst at UBS AG, said in a note to clients. ``Much will depend on the dollar. We suspect that the weekend's financial events will end the recent couple of months of U.S. dollar strength and there is a risk that the euro can trade higher in the near term.''"
"The U.S. Dollar Index, a weighted basket of six major currencies, including the euro, was little changed after dropping as much as 1.7 percent earlier."
To contact the reporter on this story: Halia Pavliva in New York at firstname.lastname@example.org.
"Last Updated: September 15, 2008 14:03 EDT"
"China May Lower Rates Again, Increase Spending to Spur Economy "
By Li Yanping and Kevin Hamlin
"Sept. 16 (Bloomberg) -- China may cut interest rates again, ease limits on bank lending and boost spending to spur economic growth after lowering borrowing costs for the first time in six years."
"``Policy makers will consider further interest-rate cuts in the coming month, in conjunction with a more proactive fiscal policy,'' said Jing Ulrich, chairwoman of China equities at JPMorgan Chase & Co. in Hong Kong. The central bank yesterday reduced the one-year lending rate and lowered the proportion of deposits that the nation's smaller banks must set aside."
The slowest inflation in 14 months gave China room to lower borrowing costs and protect jobs as the outlook for exports dims and the credit crisis deepens. The rate cut came as stock markets slumped globally after Lehman Brothers Holdings Inc. filed for bankruptcy and Bank of America Corp. agreed to buy Merrill Lynch & Co. for $50 billion.
"``A gradual easing cycle has probably begun,'' said Alec Young, an international equity strategist at Standard & Poor's in New York. ``The focus is no longer on inflation and is more on China's growth. The rest of the world is flirting with a recession and China's growth is slowing too.''"
"The People's Bank of China reduced the one-year lending rate to 7.20 percent from 7.47 percent, effective today. It lowered the reserve-requirement ratio for smaller banks to 16.5 percent from 17.5 percent."
"The rate cut is ``to help solve important problems in our economy for its continued stable and fast development,'' the central bank said in a statement on its Web site yesterday, when markets were closed for a holiday."
"In July, the central bank reduced restrictions on how much banks can lend by raising 2008 loan quotas for national banks by 5 percent and regional lenders by 10 percent, according to reports by Goldman Sachs Group Inc., BNP Paribas SA, and China Merchants Bank Co."
"It's likely those quotas, the main constraint on borrowers, will be eased again, said Mark Williams, a London- based economist with Capital Economics Ltd. The rate cut will have a limited impact on the economy because bank lending financed just 15 percent of fixed investment last year, Williams said."
"The Shanghai Composite Index of stocks has fallen 60 percent this year, closing on Sept. 12 at 2,079.67, on concern that measures to tame inflation will erode company profits."
Stock Market's Drop
"It's ``suspicious'' that the central bank acted when the index seemed set to drop below 2,000, Williams said, adding that some people thought that level ``was a floor at which the government would intervene to shore up the market.''"
China last week released data indicating that the economy has slowed.
"Inflation cooled to 4.9 percent in August, export growth slowed and industrial production expanded by the least in six years. China's economy expanded 10.1 percent in the three months to June 30 from a year earlier, the fourth straight quarter of slower growth."
"The weakness in China's asset markets is not just in stocks. Property could be headed for a ``meltdown'' as home prices and sales decline, Morgan Stanley said Sept. 12."
"``This is the beginning of an easing cycle in China,'' said Darius Kowalczyk, chief investment strategist at CFC Seymour Ltd. in Hong Kong."
"China has already slowed gains by the yuan against the dollar to protect jobs at exporters of shoes, toys and clothes and raised export-tax rebates for garments and textiles."
"Infrastructure spending is a possible tool for stimulating economic growth. Officials are working on a plan for as much as 400 billion yuan ($58 billion) of spending and tax cuts, according to economists and reports in domestic news media."
"China's central bank pushed the reserve requirement for lenders to a record 17.5 percent in June. The biggest banks are excluded from the reduction. Those exempted are: Bank of China Ltd., Industrial and Commercial Bank of China, Agricultural Bank of China, China Construction Bank Corp., Bank of Communications Co. and Postal Savings Bank of China."
"The requirement for smaller banks drops by 1 percentage point from Sept. 25. In areas affected by the Sichuan earthquake, the reduction is 2 percentage points."
"The central bank left the key deposit rate unchanged at 4.14 percent, narrowing banks' margins on loans."
"Zhu Baoliang, the chief economist at the State Information Center, a government research agency, said August's economic data probably prompted yesterday's moves, rather than events in the U.S."
"In the U.S., banks including JPMorgan Chase & Co., Goldman Sachs Group Inc. and Citigroup Inc. formed a $70 billion fund to ensure market liquidity as Lehman filed for bankruptcy and Bank of America Corp. agreed to acquire Merrill. The Federal Reserve may reduce the benchmark interest rate today to 1.75 percent from 2 percent, according to the futures market."
To contact the reporters on this story: Li Yanping in Beijing at email@example.com; Kevin Hamlin in Beijing on firstname.lastname@example.org
"Last Updated: September 15, 2008 13:44 EDT"
"Canada Stocks Fall on Lehman Failure; Suncor, Brookfield Drop "
By John Kipphoff
Sept. 15 (Bloomberg) -- Canadian stocks fell the most in almost eight months as Lehman Brothers Holdings Inc.'s failure dragged down financial companies and declines in oil and metals dimmed the profit outlook for commodity producers.
"Suncor Energy Inc. led resource producers lower as crude oil closed below $100 a barrel for the first time in six months. Brookfield Properties Inc., the owner of Manhattan's World Financial Center, fell the most in 15 years, pacing losses for financial shares."
"``We've seen some mighty institutions fail,'' said Greg Eckel, a money manager at Morgan Meighen & Associates in Toronto, which oversees about $1.2 billion. ``We just don't know the fallout yet. These things add up in terms of global growth. Sentiment has been shattered.''"
"The Standard & Poor's/TSX Composite Index dropped 4 percent to 12,254.32 in Toronto, the most since Jan. 21. The index has fallen 11 percent so far in September, on pace for the worst monthly drop since February 2001."
"The S&P/TSX derives more than three-quarters of its value from energy, materials and financial stocks and has fallen 19 percent from its June 18 record after financial institutions worldwide posted more than $511 billion in credit losses and commodity prices retreated from peaks."
"Today Lehman Brothers filed for protection in the biggest bankruptcy ever and Merrill Lynch & Co. sold itself to Bank of America Corp. for $50 billion in stock, as the credit crisis claimed another victim."
"Suncor Energy, the world's second-largest oil-sands producer, declined 7.9 percent to C$46.25. Canadian Oil Sands Trust, the largest tar sands producer, dropped 7.7 percent to C$40.25. Canadian Natural Resources Ltd., the nation's fourth- largest energy company by market value, fell 7.5 percent to C$77.01."
"Potash Corp. of Saskatchewan Inc., the biggest maker of crop nutrients by market value, retreated 4.9 percent to C$163.83. Teck Cominco Ltd., Canada's biggest diversified mining company, slid 6.1 percent to C$36.64."
"Crude oil slid as much as 7 percent to a seven-month low of $94.13 in and closed at $95.71, wiping out this year's gains in New York. Metals dropped in New York and London, with the exception of gold and silver, prompting a slump of as much as 5 percent in the GSCI Index of 24 commodities, on signs the credit crisis may weaken the economy and curb demand for materials."
"Brookfield Properties dropped 16 percent to C$18.99, the most since August 1993. Brookfield was cut to ``market perform'' by BMO Capital Markets analyst Karine MacIndoe, who said that the company may face ``what is likely to be an accelerated deterioration of fundamentals'' in its ``core Manhattan market.''"
Most Since 9/11
"Parent company Brookfield Asset Management Inc. slid 11 percent to C$28.49, the most since the Sept. 11, 2001, attacks on the U.S."
"Canada's six biggest banks have had writedowns of about C$11.6 billion ($10.86 billion) tied to U.S. debt investments, a fraction of the global total."
"Canadian Imperial Bank of Commerce, which accounted for two-thirds of total Canadian writedowns, fell the most since July 24, losing 4.8 percent to C$61.11. CIBC Chief Executive Officer Richard Nesbitt said at a conference that his bank expects a loss of about C$25 million from Lehman."
"Sun Life Financial Inc. fell 3 percent to C$39.31, the most in five weeks. Canada's third-largest insurance company said that it will have a charge in the third quarter from investments tied to Lehman. Sun Life has C$334 million in bonds and about C$15 million in derivatives contracts tied to Lehman, the insurer said. It didn't estimate the amount of the charge."
"Royal Bank of Canada, the nation's largest lender by assets, fell 2.2 percent to C$48.10. Toronto-Dominion Bank, the second-biggest, dropped 1.6 percent to C$61.30."
"All 10 industry groups in the S&P/TSX declined, led by a measure of computer-related shares, which lost 6.4 percent. Gauges of materials, energy and financial shares, which together account for three-quarters of the main index's value, retreated 6.1 percent, 5.4 percent and 2.4 percent, respectively."
"Research In Motion Ltd. slid 6.9 percent to C$104.60, the most since June 26. The maker of the BlackBerry e-mail phone makes about 60 percent of its sales in the U.S. Banks and brokerages are among its most important customers."
"Some consumer-related companies advanced on speculation demand for groceries and other household goods will be hurt least in a recession. George Weston Ltd., the maker of Arnold bread and parent of Canada's biggest grocer, gained 4.1 percent to C$52.75."
"``It's encouraging to see some buyers step in,'' Eckel said. ``Maybe people have done most of their selling already. The market does like to put things behind it.''"
To contact the reporter on this story: John Kipphoff in Toronto at email@example.com.
"Last Updated: September 15, 2008 17:25 EDT"
"French Stocks Tumble: BNP Paribas, SocGen, Axa, Total Drop "
By Sarah Thompson
"Sept. 15 (Bloomberg) -- France's CAC 40 Index slumped 163.69, or 3.8 percent, to 4,168.97 in Paris. The SBF 120 Index lost 3.6 percent."
"Shares of financial companies declined after Lehman Brothers Holdings Inc., the fourth-largest U.S. investment bank, succumbed to the subprime mortgage crisis it helped create in the biggest bankruptcy filing in history."
"BNP Paribas SA, France's biggest bank, slid 7.2 percent to 59.92 euros. Societe Generale SA, the second-biggest, lost 10 percent to 58.74 euros."
"Axa SA, Europe's second-biggest insurer, was temporarily halted in Paris trading after the company was listed as the largest holder of common stock in Lehman."
"Paris-based Axa, which has a majority stake in investment manager AllianceBernstein Holding LP, owns almost 7.3 percent of Lehman's common stock, according to the filing today with the U.S. Bankruptcy Court in the Southern District of New York. The shares slid 9 percent to 20.355 euros."
The following were among the most active stocks in Paris. Symbols are in parentheses.
"Alstom SA (ALO FP) decreased 2.90 euros, or 4.4 percent, to 63.625 euros. The world's third-largest power plant maker said it will sue the Wall Street Journal over a story saying the company breached international trade rules."
"Electricite de France SA (EDF FP) dropped 1.95 euros, or 3.9 percent, to 48.24 euros. The board of Europe's biggest power producer will meet Sept. 17 to discuss a possible bid for British Energy Plc."
"Eramet SA (ERA FP), operator of the world's largest ferronickel plant, fell 17.41 euros, or 5.4 percent, to 307.36. Zinc fell the most in almost 10 months, leading industrial metals lower in London."
"Groupe Eurotunnel SA (GET FP) decreased 25 cents, or 2.8 percent, to 8.7 euros. The operator of the rail tunnel between France and the U.K. resumed restricted freight and passenger services on Saturday after a fire shut the link last week."
"NicOx SA (COX FP) soared 1.46 euros, or 19 percent, to 9.04 euros. The French drugmaker developing treatments with Pfizer Inc. gained the most since March 2006 in Paris trading after saying its naproxcinod painkiller achieved successful results in clinical trials."
"Total SA (FP FP) retreated 2.305 euros, or 5 percent, to 43.4 euros. Crude oil for October delivery fell $4.42, or 4.4 percent, to $96.76 a barrel at 10:30 a.m. on the New York Mercantile Exchange. Futures dropped as much as $7.05, or 7 percent, to $94.13 a barrel, the lowest since Feb. 14."
To contact the reporter on this story: Sarah Thompson in London at firstname.lastname@example.org.
"Last Updated: September 15, 2008 12:32 EDT"
"ECB, BOE Join Fed in Soothing Markets After Lehman (Update1) "
By John Fraher
Sept. 15 (Bloomberg) -- The European Central Bank and the Bank of England joined the Federal Reserve in taking action to soothe financial markets spooked by Lehman Brothers Holdings Inc.'s bankruptcy filing.
"The ECB said it awarded banks 30 billion euros ($43 billion) in a one-day money-market auction that was more than three times oversubscribed. The Bank of England loaned banks 5 billion pounds ($9 billion) for three days. Earlier, the Federal Reserve widened the collateral it accepts for loans to securities firms."
Stocks plunged and the cost of borrowing dollars surged after Lehman became the latest victim of a yearlong credit squeeze. Financial institutions worldwide have reported more than $500 billion in losses and writedowns and the credit-market turmoil has erased $11 trillion from global stocks in the past year.
"``It remains to be seen whether today's operation will be sufficient to restore market confidence,'' said Jacques Cailloux, chief euro-area economist at Royal Bank of Scotland Group Plc. ``The ECB will likely wait for the U.S. open to consider more aggressive action. Key will be how credit and equity markets develop in the coming days.''"
The ECB said it injected the funds at a marginal rate of 4.30 percent. The Swiss central bank offered liquidity through its overnight facility for the first time since Feb. 22.
"``We have to be extraordinarily alert,'' ECB President Jean-Claude Trichet told reporters in Frankfurt today. ``We have said it in recent weeks'' that ``it's an ongoing market correction'' with ``episodes of a high level of volatility.''"
"China cut interest rates for the first time in six years and the Reserve Bank of Australia added A$2.1 billion ($1.7 billion) through so-called repurchase agreements today. The Bank of Japan, whose markets were closed today for a holiday, said it was monitoring the situation."
"``The job of central banks now is to ensure there is sufficient liquidity in the system and they're assuring market participants of that,'' said Thomas Mayer, co-chief economist at Deutsche Bank AG in London."
"The Fed also yesterday boosted its program for lending Treasuries to bond dealers by $25 billion, bringing it to $200 billion. At the same time, a group of 10 banks that includes JPMorgan Chase & Co., Goldman Sachs Group Inc. and Citigroup Inc. formed a $70 billion fund to ensure market liquidity."
"Yields on two-year Treasury notes fell below 2 percent for the first time since April on speculation the Fed will need to cut rates. U.S. index futures dropped, with December contracts on the Standard & Poor's 500 Index falling 3.3 percent. The cost of borrowing dollars overnight jumped to 3.11 percent today from 2.15 percent."
No Rate Cut Yet
The ECB and the Bank of England may nevertheless hold off cutting rates right away as they seek to curb inflation. The ECB has spent much of the past year arguing that it can use its money market operations to tackle the credit crisis and doesn't need to resort to rate cuts.
"``Rate cuts are only likely to be forthcoming if financial markets melt down in the coming days or weeks,'' said David Mackie, chief European economist at JPMorgan Chase & Co. ``For the time being, European policy makers look like they will continue to hold the line on the separation of powers. At some point though, that line could be reached.''"
"Trichet said in his speech today that ``price stability is a prerequisite for financial stability, a very important objective at the current juncture.''"
"The ECB was the first central bank to respond when credit markets first seized up in August last year by offering financial institutions unlimited funds. Banks today asked for 90.3 billion euros in funds, close to the 94.8 billion euros bid on the first day of the crisis last year."
"``The results of the one-day refinancing bill auction show that demand for liquidity is currently very high and highlights how fragile the current situation is,'' said Cailloux. ``The ECB will likely take note that the financial system remains starved of cash and that it might thus be forced to step in again.''"
To contact the reporter on this story: John Fraher in London at email@example.com
"Last Updated: September 15, 2008 07:14 EDT"
"Asian Stocks in U.S. Fall Most Since 2001, Led by Japan Banks "
By Lu Wang
"Sept. 15 (Bloomberg) -- Asian stocks trading in the U.S. fell the most in more than six years, led by Japanese banks on concern they may have to write off loans to Lehman Brothers Holdings Inc. after the securities firm filed for bankruptcy."
"``People are running away from uncertainty, not knowing which bank is going to be next or whether the entire system will hold,'' said Simon Liew, a strategist at Frontier Wealth Management Pte in Singapore."
"The Bank of New York Co.'s Asia ADR Index, which tracks the region's American depositary receipts, lost 5.9 percent to 121.84 at 4 p.m. in New York, the steepest drop since December 2001. Nikkei 225 Stock Average futures expiring in December were at 11,730 in Chicago, compared with 12,175 in Singapore and 12,260 in Osaka."
"Markets in Japan, China, Hong Kong and South Korea were shut Monday for public holidays and will resume trading Tuesday."
"Lehman, the fourth-largest U.S. investment bank, was forced into the biggest bankruptcy filing in history, becoming the latest victim of the subprime mortgage crisis it helped create. At least seven Japanese banks lent a total of $1.62 billion, according to the Chapter 11 filing by Lehman. Among the largest unsecured creditors are Aozora Bank Ltd., based in Tokyo, and Mizuho Corporate Bank Ltd., a unit of Mizuho Financial Group Inc."
"Mizuho, Japan's second-biggest bank by assets, dropped 7.5 percent to $7.88 in New York Stock Exchange composite trading. Shares of Aozora Bank are not listed in the U.S."
"Nomura Holdings Inc., Japan's biggest investment bank, retreated 7.9 percent to $12.19. Mitsubishi UFJ Financial Group Inc., Japan's biggest lender, lost 7.7 percent to $7.20."
Asian Banks Slide
"Financial shares across the region declined. ICICI Bank Ltd., India's second-largest lender, slumped 13 percent to $26.11. Kookmin Bank, the biggest in South Korea, sank 10 percent to $49.22."
Energy shares including PetroChina Co. fell along with oil and gasoline prices. Crude slid to a seven-month low and gasoline tumbled as refineries along the Gulf of Mexico escaped major damage from Hurricane Ike and Lehman's bankruptcy spurred concern the economy may weaken and cut demand.
"PetroChina, the country's top energy producer, dropped 6 percent to $105.77. Santos Ltd., an Australian oil and natural gas company, slid 9.9 percent to $58.43."
To contact the reporter on this story: Lu Wang in New York at firstname.lastname@example.org
"Last Updated: September 15, 2008 16:45 EDT"
Cocoa Rises in N.Y. as Dollar Slides on Wall Street Turmoil
By Ron Day and Yi Tian
"Sept. 15 (Bloomberg) -- Cocoa rose as the bankruptcy of Lehman Brothers Holdings Inc. weakened the dollar, trimming the costs of commodities to buyers using other currencies."
"The dollar plunged as much as 3.1 percent against the yen after Lehman sought protection from creditors, listing $613 billion in debts, the most in U.S. Bankruptcy Court history. The dollar also fell against a basket of six major currencies, making commodities traded in New York cheaper for overseas buyers."
"``We have a weak dollar and that spilled over into cocoa,'' said Adam Klopfenstein, a senior market strategist for Lind- Waldock in Chicago, a unit of MF Global. A continuing strike by Ivory Coast coffee and cocoa exchange workers and speculation that disease may cut the country's harvest also boosted futures, he said. Ivory Coast is the world's biggest cocoa producer."
"Cocoa futures for December delivery rose $47, or 1.8 percent, to $2,607 a metric ton on ICE Futures U.S., the former New York Board of Trade. Earlier, the price fell to $2,496, the lowest for a most-active contract since April 10."
"The U.S. Dollar Index, a weighted basket that measures the currency against those six trading partners, dropped as much as 1.7 percent, its second straight decline. The index still is up 1.9 percent this month."
"Still, commodities sank today as the Lehman Brothers bankruptcy intensified concern that the credit crisis may weaken the U.S. economy even more. Gasoline, crude oil and copper plunged and the Reuters/Jefferies CRB Index of 19 commodities fell to a loss of 1.9 percent for the year, erasing earlier gains."
"Lehman, the fourth-largest U.S. investment bank, failed after the U.S. government refused to provide financial support as the New York-based company sought a buyer. Bank of America Corp., after pulling back from a Lehman deal, agreed to pay about $50 billion to acquire Merrill Lynch & Co., which also was battered by losses and writedowns from subprime-mortgage securities."
To contact the reporters on this story: Ron Day in New York at email@example.com; Yi Tian in New York at firstname.lastname@example.org.
"Last Updated: September 15, 2008 14:17 EDT"
Wheat Rises Most in Three Weeks as U.S. Growers May Seed Less
By Tony C. Dreibus
Sept. 15 (Bloomberg) -- Wheat rose the most in three weeks on speculation that U.S. growers will seed less of the grain because of high fertilizer prices.
"The price of ammonia, used to make nitrogen fertilizer, more than tripled in the past year. As costs rise and wheat prices decline, growers will leave ground unplanted instead of losing money. Wheat futures have tumbled 46 percent from a record in February."
"``Fertilizer isn't cheap,'' said Vince Boddicker, a manager at Farmers Trading Co. in Mitchell, South Dakota. ``If fertilizer stays up, the farmers won't plant wheat and corn, and then they'll have to buy back acres next year.''"
"Wheat futures for December delivery rose 7.75 cents, or 1.1 percent, to $7.27 a bushel on the Chicago Board of Trade, the biggest percentage gain since Aug. 21. The most-active contract still has dropped 18 percent this year after global growers planted more grain to take advantage of prices that rose 77 percent in 2007. The all-time high on Feb. 27 was $13.495."
"U.S. farmers planted 46.6 million acres with winter wheat in the year that ended May 31. Growers in Kansas, the largest state producer, last year seeded 9.9 million acres."
"``A lot of eyes are on the fertilizer prices,'' said Aaron Harries, a spokesman for Kansas Wheat, a group comprised of Kansas wheat growers and industry officials. ``We don't see any reason to expect more plantings because wheat is below $8, and that's below break-even with fertilizer prices.''"
"Wheat is the fourth-biggest U.S. crop, valued at $13.7 billion in 2007, behind corn, soybeans and hay, government data show."
To contact the reporter on this story: Tony C. Dreibus in Chicago at Tdreibus@bloomberg.net.
"Last Updated: September 15, 2008 15:11 EDT"
Natural Gas in New York Is Steady on Concern Over Winter Supply
By Reg Curren
Sept. 15 (Bloomberg) -- Natural gas futures were little changed as production disruptions in the Gulf of Mexico may hinder stockpile gains before cold weather boosts demand.
"Gulf production has been mostly shut this month because of hurricanes Ike and Gustav, spurring expectations that winter stockpiles will be below the record of 3.545 trillion cubic feet set last November. Supplies normally gain before November, when demand for the heating fuel begins its rise to a winter peak."
"``We could end up with 200 billion cubic feet'' less of output, said Chris Jarvis, president of Caprock Risk Management LLC in Hampton Falls, New Hampshire. ``That would put us at 3.3 or 3.4 trillion for the winter, which is pretty lousy given all of the new production.''"
Natural gas for October delivery rose 0.8 cent to settle at $7.374 per million British thermal units at 3:04 p.m. on the New York Mercantile Exchange. Prices had declined as low as $7.071 per million Btu before rebounding.
"The bankruptcy filing by Lehman Brothers Holdings Inc. signaled reduced trading in commodities and weighed on prices as the investment firm liquidated energy holdings, said Michael Rose, director of trading at Angus Jackson Inc., a futures brokerage in Fort Lauderdale, Florida."
"U.S. gas supplies advanced 58 billion cubic feet in the week ended Sept. 5 to 2.905 trillion cubic feet, the Energy Department said last week. The average stockpile increase for the same week over the past five years is 78 billion cubic feet."
About 14 percent of U.S. natural gas output comes from offshore wells in the Gulf.
Chevron Corp.'s Sabine Pipe Line LLC said today in a Web site update that it was ``assessing the status of the Henry Hub as well as facilities along the Sabine mainline.'' Initial reports indicate that flooding has had an impact on the system.
"Sabine, a wholly owned subsidiary of Chevron, operates a 131-mile gas line running between Louisiana and Texas as well as Henry Hub in Erath, Louisiana, the benchmark pricing and delivery point for New York futures."
"The company halted operations on Sept. 12, prompting the Nymex to declare force majeure, which allows companies to cite unexpected or uncontrollable events to avoid penalties for failing to meet delivery contracts."
"``I've been looking for the statement that they've gotten power back and that they're starting to ramp up and I haven't seen that,'' said Gene McGillian, an analyst at TFS Energy LLC in Stamford, Connecticut."
"The market may also ``be starting to pay attention to all of the lost production over the past two weeks,'' said McGillian. ``It looks like 130 billion cubic feet has been shut in since Hurricane Gustav rolled through.''"
"Total supply loss from Ike and Gustav as of today was 129 billion cubic feet, according to a report by Bentek Energy LLC, a Golden, Colorado-based energy-markets information company."
"The short position on Nymex natural gas futures might be another reason for the sudden price move higher, he said."
"``The non-commercials are pretty heavily loaded up on the short side, so it kind of feeds on itself when it begins to turn,'' McGillian said."
"Gas had traded as high as $7.705 per million Btu and as low as $7.07 in the past week before today and when the price broke through the previous high, it probably triggered additional buying, said McGillian."
"Technical traders watch for patterns on daily charts for clues to price direction, and will sell or buy commodities or equities based on those indicators."
Short trades are those placed anticipating prices will fall. When prices rise speculators may have to buy futures contracts to close out positions as they try to limit losses or lock in gains.
"Short positions in gas futures held by speculators rose to a record in the week ended Sept. 2, according to the Washington- based Commodity Futures Trading Commission."
To contact the reporter on this story: Reg Curren in Calgary at email@example.com.
"Last Updated: September 15, 2008 16:00 EDT"
"Corn Rises as Flooding, Winds May Reduce Yields in U.S. Midwest "
By Jeff Wilson
"Sept. 15 (Bloomberg) -- Corn rose, erasing an earlier decline, on speculation storms related to Hurricane Ike damaged the biggest U.S. crop, already hurt by dry August weather and June flooding."
"The storms dumped as much as 10 inches (25 centimeters) of rain in parts of the Midwest over the weekend, with winds of up to 74 miles (119 kilometers) per hour, damaging crops, said Mike Tannura, a meteorologist for T-Storm Weather. Even before the storm hit, the government last week reduced its estimate of the corn harvest by 1.8 percent from its August forecast."
"``We have supply factors that justify higher prices,'' said Jerry Gidel, a market analyst for North American Risk Management Services Inc. in Chicago. ``The tolerance for smaller crops was reduced'' after the Department of Agriculture forecast a corn crop of 12.072 billion bushels on Sept. 12."
"Corn futures for December delivery rose 8 cents, or 1.4 percent, to $5.7125 a bushel at 11:50 a.m. on the Chicago Board of Trade, after prices earlier fell as much as 3.1 percent. Corn jumped the exchange's 30-cent daily limit on Sept. 12, when the government cut its forecast for this year's crop. The most-active futures, which rose 2.7 percent last week, reached a record $7.9925 on June 27."
"About 61 percent of the U.S. corn crop was rated in good or excellent condition on Sept. 6, down from a season peak of 67 percent a month earlier, the U.S. Department of Agriculture said last week. The USDA was scheduled to update crop conditions later today."
The USDA forecast on Sept. 12 did not account for any damage from Ike or Hurricane Gustav earlier this month.
"``Flooding and winds caused some damage,'' and this afternoon's weekly crop ratings are likely to show a decline, said Chad Henderson, a market analyst for Prime Agricultural Consultants Inc. in Brookfield, Wisconsin. ``It will be two weeks before farmers start harvesting and the full extent of the damage can be measured.''"
"Crude oil in New York tumbled as much as 7 percent to a seven-month low earlier today, after refineries along the Gulf of Mexico escaped damage from Hurricane Ike over the weekend."
"Commodities, as measured by the Standard & Poor's GSCI Index of 24 raw-material futures, fell as much as 5.3 percent to the lowest since Feb. 8, after the bankruptcy filing by Lehman Brothers Holdings Inc. revived concerns that a global slowdown will reduce demand for food, feed and fuel. The index is down 30 percent from a record in July."
"Corn is the biggest U.S. crop, valued at a record $52.1 billion in 2007, government figures show."
To contact the reporter on this story: Jeff Wilson in Chicago at firstname.lastname@example.org
"Last Updated: September 15, 2008 12:52 EDT"
South African Rand Falls Versus Dollar on Financial Market Woes
By Garth Theunissen
"Sept. 15 (Bloomberg) -- South Africa's rand fell against the dollar and euro after Lehman Brothers Holdings Inc. filed for bankruptcy, prompting investors to sell higher-yielding emerging- market assets."
"The rand also snapped a two-day advance after Merrill Lynch & Co., the world's biggest brokerage firm, agreed to sell itself to Bank of America Corp. South Africa's benchmark stock index dropped the most in four days, tracking a decline in equity markets around the world sparked by concern financial-market turmoil may deepen."
"``High-yielding currencies are bearing the brunt of the trouble in financial markets,'' said Elisabeth Gruie, an emerging-markets currency strategist in London at BNP Paribas SA, France's biggest bank. ``Emerging-market currencies have sold off due to risk aversion that has been triggered by the uncertainty surrounding the state of the U.S. financial system.''"
"The rand dropped as much as 3.3 percent to 8.2575 per dollar and was at 8.1053 by 4:40 p.m. in Johannesburg, from 7.9913 on Sept. 12. It weakened versus 15 of the 16 major currencies monitored by Bloomberg, losing 1.1 percent to 11.4902 per euro."
"``Chaos in financial markets means global risk aversion has increased,'' said Kay Walsh, an economist and currency researcher at Rand Merchant Bank in Johannesburg. ``With so much uncertainty around, investors are disposing of riskier assets, and unfortunately the rand falls into the risky category.''"
"Lehman, once the fourth-largest U.S. investment bank and the biggest underwriter of mortgage-backed securities at the peak of the country's real-estate market, lost 94 percent of its market value this year due to credit-related losses. The 158-year-old firm was forced into bankruptcy after two suitors, Barclays Plc and Bank of America Corp., abandoned takeover talks yesterday."
"Instead, Bank of America, the largest U.S. consumer bank, agreed to buy Merrill Lynch for about $50 billion, according to a statement today."
"Stocks tumbled across the world and the dollar fell as investors sought the safety of government bonds. The MSCI World Index, a benchmark for equities in 23 developed countries, lost 2.1 percent. The drop extended the measure's decline this year to almost 20 percent as the worst U.S. housing recession since the Great Depression caused the subprime-debt market to collapse, widening credit spreads and weighing on global economic growth."
"South Africa's FTSE/JSE Africa All Share Index fell 2.4 percent, its biggest drop since Sept. 9. Europe's Dow Jones Stoxx 600 Index slumped 3.8 percent."
"South African government bonds gained, with the yield on the benchmark 13.5 percent security due September 2015 losing 2 basis points to 9.08 percent. Yields move inversely to bond prices."
"The rand is the worst-performing major currency this year, having fallen almost 16 percent against the dollar and about 14 percent versus the euro."
To contact the reporter on this story: Garth Theunissen in Johannesburg email@example.com
"Last Updated: September 15, 2008 11:03 EDT"
"U.S. Stocks Drop, S&P 500 Sinks Most Since 2001 Terror Attacks "
By Lynn Thomasson and Elizabeth Stanton
"Sept. 15 (Bloomberg) -- U.S. stocks tumbled, pushing the Standard & Poor's 500 Index to the steepest drop since the September 2001 terrorist attacks, as Lehman Brothers Holdings Inc.'s bankruptcy and declining commodities increased speculation that credit-market losses and the economic slowdown will worsen."
"Stocks erased more than $600 billion in value as financial shares in the S&P 500 decreased the most since at least 1989, according to data compiled by Bloomberg. American International Group Inc. sank 61 percent and Washington Mutual Inc. decreased 27 percent. Concern the U.S. is heading for a recession pushed oil lower, prompting a drop in energy stocks, and sent General Electric Co. down 8 percent."
"``Fear is in charge,'' said Henry Herrmann, president and chief executive officer of Waddell & Reed Financial Inc. in Overland Park, Kansas, which manages $70 billion. ``This blows another hole in the banking system's ability to extend credit.''"
"The S&P 500 declined 59 points, or 4.7 percent, to 1,192.70, the lowest level since October 2005. The Dow Jones Industrial Average tumbled 504.48, or 4.4 percent, to 10,917.51. The MSCI World Index of developed-market equities slumped the most in six years while the 7.6 percent drop in Brazil's Bovespa was the steepest since Sept. 11, 2001. The dollar weakened the most against the yen in a decade and two-year Treasury notes surged."
More than 24 stocks slipped for each that rose on the New York Stock Exchange on concern financial shares will continue their slump. The S&P 500 has fallen 23 percent since an October record as bank losses from the first nationwide decline in U.S. home values since the Great Depression reached $514.6 billion.
`Remember Where You Were?'
"``It really goes to the heart of the financial system,'' said Stephen Wood, who helps oversee $213 billion as senior portfolio strategist at Russell Investment Group in New York. ``It'll be one of those days where people say in 10 years, `Do you remember where you were?'''"
The Dow average pared its decline by half at midday in New York after plunging more than 330 points in the first 30 minutes of trading. Losses accelerated at 2 p.m. when Treasury Secretary Henry Paulson said the U.S. wasn't considering a ``bridge loan'' to bail out AIG.
"GE, which makes power-plant turbines and jet engines and offers commercial loans, retreated $2.15 to a five-year low of $24.60. The company may miss profit estimates because of credit- market turmoil, according to Citigroup Inc."
"Caterpillar Inc., the world's largest maker of construction equipment, fell 3.4 percent to $63.21. AK Steel Holding Corp. slumped 19 percent to $31.82."
"Investors paid up for protection from further losses. The Chicago Board Options Exchange Volatility Index jumped 24 percent to 31.70, the highest since the March bailout of Bear Stearns Cos. The VIX measures the cost of using options as insurance against declines in the S&P 500."
"``We need to get to the bottom of the credit crisis before financials are the sort of place that we want to put a lot of money,'' said Bruce McCain, the Cleveland-based chief investment strategist at Key Private Bank, which oversees about $30 billion."
Lehman was forced into bankruptcy after Barclays Plc and Bank of America Corp. abandoned takeover talks yesterday and the company lost 94 percent of its market value this year. Lehman sank 94 percent to 21 cents.
"Citigroup Inc., the largest U.S. bank by assets, declined 15 percent to $15.24 for the steepest drop since July 2002. Bank of America retreated 21 percent, the most since at least July 1982, to $26.55 after agreeing to purchase Lehman rival Merrill Lynch & Co. for $50 billion. American Express Co., the biggest U.S. credit card company by purchases, fell 8.9 percent to $35.48."
`Down The Drain'
"``It's all basically going down the drain,'' said Franz Wenzel, who helps oversee about $830 billion as deputy director for investment strategy at Axa Investment Managers in Paris. ``The rhythm of the shoes that drop has accelerated. That's what we follow with caution.''"
"AIG lost $7.38 to $4.76, the lowest price since June 1988. The biggest U.S. insurer fell after failing to present a plan to raise capital and stave off credit downgrades. AIG may need to raise $20 billion in capital and sell $20 billion of assets to ease a cash crunch brought on by the collapse of U.S. mortgage markets, people familiar with insurer's plans said."
"Goldman Sachs Group Inc. fell 12 percent, the most since April 2000, to $135.50. JPMorgan Chase & Co. retreated 10 percent to $37. Their shares were downgraded by Merrill Lynch."
Goldman Sachs was cut to ``neutral'' on the likelihood Lehman's bankruptcy will reduce profitability for the biggest U.S. securities firm. The analysts cut their recommendation on JPMorgan to ``underperform'' and predicted the lender will report a third-quarter loss.
"Morgan Stanley, the biggest U.S. securities firm other than Goldman Sachs, fell 14 percent to $32.19."
Betting Against Financials
"The Financial Select Sector SPDR Fund, an exchange-traded fund linked to financial companies, had 42.6 million shares on loan on Sept. 11, or 87 percent more than a week earlier, according to Alexander Hofmann, an analyst at Data Explorers in London. Shares on loan can be an indication of short positions."
Former Fed Chairman Alan Greenspan said the financial crisis that began with the collapse of the subprime-mortgage market last year ``is probably a once in a century event'' that will lead to the failure of more firms.
"``There's no question that this is in the process of outstripping anything I've seen, and it is still not resolved,'' Greenspan said in an interview yesterday on ABC's ``This Week with George Stephanopoulos.'' Greenspan, 82, retired from the Fed in January 2006 after serving for 18 years as chairman."
"Washington Mutual retreated 27 percent to $2, the lowest price since October 1990. The company may cost taxpayers as much as $24 billion in the event of a U.S. government bailout, said Richard Bove, an analyst at Ladenburg Thalmann & Co. After the close of exchanges, Standard & Poor's lowered the bank's credit rating to junk because of the deteriorating housing market."
"``You may get an assisted merger with a limit on how much the private buyer would pay for the bank with the government giving a guarantee for the rest,'' Bove said in an interview with Bloomberg Radio."
Some investors said Lehman's failure may allow financial markets to rebound.
"``The air will be clean within the next one month and we can get a fairly good rebound starting from the middle of October until the spring of next year,'' Gloom, Boom & Doom Report publisher Marc Faber said in a Bloomberg Television interview from Thailand."
"Merrill climbed 0.1 percent to $17.06, almost fully erasing a 33 percent surge. Bank of America, the biggest U.S. consumer bank, agreed to buy the company in a stock transaction now valued at $22.82 a share as the credit crisis claimed another of America's oldest financial institutions."
"The U.S. Securities and Exchange Commission will likely stiffen rules targeting manipulative short selling, a person familiar with the matter said."
"The SEC may strengthen rules this week by requiring brokers to deliver shares that have been sold short, according to the person, who declined to be identified because the plans aren't complete. The SEC also will consider it securities fraud when short sellers deceive brokers about their intention to deliver shares to buyers, the person said."
"The S&P 500 Energy Index lost 6.9 percent. Chevron Corp. fell 4.9 percent to $80.09, and Valero Energy Corp. decreased 13 percent to $31.19."
Crude oil plunged 5.4 percent to $95.71 a barrel in New York as refineries along the Gulf of Mexico escaped major damage from Hurricane Ike.
"Stocks pared their losses during the first 1 1/2 hours of trading, led by gains in consumer companies including Procter & Gamble Co. and McDonald's Corp., on speculation the Federal Reserve will reduce rates tomorrow. Traders in futures contracts gave 60 percent odds the Fed will shift its target for overnight loans between banks to 1.75 percent from 2 percent."
"European and Asian stocks slumped on concern turmoil in the U.S. banking industry will infect financial institutions and economies abroad. The MSCI World Index lost 3.6 percent to 1,236.90, a three-year low, as of 4:33 p.m. in New York."
"Europe's Dow Jones Stoxx 600 Index retreated 3.5 percent to 270.68 for the biggest decline since March 17. The MSCI Asia Pacific excluding Japan Index slipped 1.9 percent to 347.26, the lowest since October 2006. Markets in Japan, South Korea, Hong Kong and China were closed for holidays."
To contact the reporters on this story: Lynn Thomasson in New York at firstname.lastname@example.org; Elizabeth Stanton in New York at email@example.com.
"Last Updated: September 15, 2008 18:05 EDT"
Wal-Mart Canadian Unit Seeks to Offer Bank Services (Update3)
By Kevin Bell and Chris Burritt
"Sept. 15 (Bloomberg) -- Wal-Mart Stores Inc., the world's biggest retailer, applied to the Canadian government for official bank status that would allow it to expand financial services in the country."
"Wal-Mart's Canadian unit has applied to the minister of finance to establish a bank under the name Wal-Mart Canada Bank and, in French, La Banque Wal-Mart du Canada, according to a notice posted Sept. 13 on the Canadian government's Web site."
"Wal-Mart's efforts to operate a bank in the U.S. failed in the face of opposition from some legislators, banking groups and community banks that said the retailer might take its customers."
"``It's a natural evolution of our business because retailers and banking are a common combination in Canada,'' Kevin Groh, a spokesman for Wal-Mart's Canadian unit, said in a telephone interview. ``Our financial services business has been growing and we see expanding that business as a great opportunity.''"
"Wal-Mart may offer its own credit card to customers and low-interest loans, which require a banking license, he said."
"In Canada, Wal-Mart competes with Loblaw Cos., the country's biggest supermarket chain, and auto-supplies retailer Canadian Tire Corp., both of which obtained charters from the government to operate banks. Both retailers offer low-interest loans and mortgages as well as credit cards."
"In July, the chief executive officer of Wal-Mart's Mexican unit, Eduardo Solorzano, said Wal-Mart de Mexico SAB's banking operations may stop posting losses by the end of 2010, earlier than the retailer forecast. The division offers banking services for low-income consumers in branches located within the company's stores."
Canada's Office of the Superintendent of Financial Institutions will accept written objections to Wal-Mart's application until Nov. 3.
"Wal-Mart fell 78 cents, or 1.3 percent, to $61.63 at 4 p.m. in New York Stock Exchange composite trading. The shares have gained 30 percent this year."
To contact the reporter on this story: Kevin Bell in Toronto at firstname.lastname@example.org
"Last Updated: September 15, 2008 16:37 EDT"
Bulgarian Economic Growth Accelerates to 3-Year High (Update2)
By Elizabeth Konstantinova
"Sept. 15 (Bloomberg) -- Bulgaria's economic growth accelerated to its fastest pace in three years in the second quarter, driven by consumption, investment and agriculture."
"The Balkan country's $40 billion economy expanded 7.1 percent, from 7 percent in the first three months, the statistics office in Sofia said at a news conference today. The result beat the 6.5 percent median estimate of eight economists surveyed by Bloomberg."
"Bulgaria, the European Union's poorest member with a per- capita gross domestic product that is 37 percent of the EU average, is counting on investment and economic growth to help raise living standards in the former communist country. A lending boom over the past three years spurred consumption and investment."
"``Investment, through construction and real estate is still driving the economy,'' Dimitar Chobanov, senior economist at the Institute for Market Economics in Sofia, said today. ``Export growth is slowing down, which may hinder the economy next year.''"
"Gross fixed capital formation leaped 28.6 percent, compared with 15.5 percent in the first quarter, on imports of equipment and new cars and investment in real estate and construction. Growth in the construction industry slowed to 7.7 percent from 13.6 percent."
"``It's good to see the farming sector recovering and I expect its performance will be much stronger in the third quarter,'' Chobanov said."
"Agricultural output rose 6.7 percent in the second quarter, after a 1.6 percent decline in the previous quarter and a 36.4 percent drop in the fourth quarter, data showed. Services were up 5.8 percent after an 8.3 percent increase, while industrial output gained 8.4 percent in the second quarter from 7.7 percent."
The nation of 7.8 million people ships about 65 percent of its exports to major economies in the EU. The euro-area's economy contracted 0.2 percent in the second quarter from the first as faltering sales undermined investment by companies and soaring costs eroded consumers' spending power.
"Bulgarian import growth more than doubled to 13.7 percent from 5.8 percent, while exports began to show the impact of the slowing EU economy, rising 5.1 percent in the second quarter after a 9.2 percent increase in the previous three months, the statistics office said."
"Economic growth will be between 6.2 percent and 6.5 percent this year, buoyed by a rebound in the harvest this year after unfavorable weather conditions devastated crops in 2007, Bulgarian Economy Minister Petar Dimitrov said on Aug. 8."
"End-user individual consumption growth was 5.3 percent, down from 5.7 percent in the previous quarter. Public consumption fell 0.3 percent after a 5.8 percent decline in the first quarter, according to the statistics office."
To contact the reporter on this story: Elizabeth Konstantinova in Sofia at email@example.com
"Last Updated: September 15, 2008 10:02 EDT"
"AIG, Citigroup, Napster, Panera, Take-Two: U.S. Equity Movers "
By Elizabeth Stanton
"Sept. 15 (Bloomberg) -- The following companies are having unusual price changes in U.S. trading. Stock symbols are in parentheses, and share prices are as of 1:10 p.m. in New York."
"Financial shares tumbled after Lehman Brothers Holdings Inc. (LEH US), the fourth-largest U.S. investment bank, succumbed to the subprime mortgage crisis it helped create in the biggest bankruptcy filing in history and American International Group Inc. (AIG US), the largest U.S. insurer, failed to present a plan to raise capital and stave off credit downgrades."
Lehman plunged 94 percent to 23 cents. AIG slid 46 percent to $6.50. Citigroup Inc. (C US) dropped 14 percent to $15.47. Washington Mutual Inc. (WM US) fell 16 percent to $2.28. CIT Group Inc. (CIT US) declined 17 percent to $9.48. Wachovia Corp. (WB US) slipped 21 percent to $11.29 after being downgraded to ``hold'' from ``buy'' by Deutsche Bank AG analyst Mike Mayo.
"MGIC Investment Corp. (MTG US) retreated 8.7 percent to $6.22. GFI Group Inc. (GFIG US) dropped 23 percent to $5.53. General Electric Co. (GE US), which received about half of its revenue and profit from financial units last year, slid 6 percent to $25.14."
Energy shares fell after crude oil sank to a seven-month low and gasoline tumbled. Frontier Oil Corp. (FTO US) dropped 11 percent to $20.370. Petrohawk Energy Corp. (HK US) fell 4.5 percent to $24.17. Sunoco Inc. (SUN US) retreated 14 percent to $41.22. Tesoro Corp. (TSO US) decreased 7.9 percent to $17.56. Valero Energy Corp. (VLO US) slumped 7.9 percent to $32.05. Whiting Petroleum Corp. (WLL US) declined 5.7 percent to $78.65.
CVR Energy Inc. (CVI US) lost 16 percent to $10.80. Oilsands Quest Inc. (BQI US) fell 13 percent to $2.78.
Airlines rose on speculation that oil's retreat will improve their profit outlook. AMR Corp. (AMR US) rose 12 percent to $11.67. Continental Airlines Inc. (CAL US) climbed 5.4 percent to $19.97. AirTran Holdings Inc. (AAI US) gained 10 percent to $2.96. UAL Corp. (UAUA US) jumped 12 percent to $12.71. US Airways Group Inc. (LCC US) increased 6.6 percent to $8.40.
"Amylin Pharmaceuticals Inc. (AMLN US) climbed 6.1 percent to $21.40 for the biggest gain since Aug. 28. Billionaire investor Carl Icahn raised his stake in the maker of the Byetta diabetes drug to 7.33 percent, according to a filing with the U.S. Securities and Exchange Commission."
"Axcelis Technologies Inc. (ACLS US) slumped 68 percent to $1.35, the lowest since its initial public offering in July 2000. The supplier of chip-making equipment said in a Securities and Exchange Commission filing that Sumitomo Heavy Industries Ltd. (6302 JP) won't be making an offer for the company."
"Hudson Highland Group Inc. (HHGP US) fell 16 percent to $8.06, the lowest since March 17. The employee recruiter was downgraded to ``neutral'' from ``outperform'' by Robert W. Baird & Co. analyst Mark Marcon."
"MannKind Corp. (MNKD US) jumped the most since Aug. 26, gaining 8.4 percent to $3.50. The company is due tomorrow to release data on its inhaled insulin from the first of three final-stage trials needed for U.S. approval."
"Merrill Lynch & Co. (MER US) surged 17 percent, the most since at least 1980, to $19.95. Bank of America Corp. (BAC US), the biggest U.S. consumer bank, agreed to buy Merrill Lynch for about $50 billion in stock as the credit crisis claimed another of America's oldest financial companies. Bank of America will pay $29 a share, or 70 percent more than Merrill's closing price on Sept. 12. Bank of America retreated 18 percent to $27.74."
"Napster Inc. (NAPS US) surged 86 percent, the most ever, to $2.53. The pioneer of digital downloading of music agreed to be acquired by Best Buy Co. (BBY US) for $2.65 a share, or $121 million."
"Panera Bread Co. (PNRA US) rose 5.5 percent to $50.71, its biggest gain in almost two months. The owner of more than 1,200 bakery-cafes affirmed its third-quarter earnings forecast of 42 cents to 44 cents a share."
"Take-Two Interactive Inc. (TTWO US) fell 22 percent to $17.01 for the biggest decline since December 2001. Electronic Arts Inc. (ERTS US), the second-largest video-game publisher, said it ended discussions with Take-Two Interactive and won't make a proposal to buy the company. Electronic Arts lost 1.2 percent to $44.43."
To contact the reporter on this story: Elizabeth Stanton in New York at firstname.lastname@example.org
"Last Updated: September 15, 2008 13:40 EDT"
Saras Says Refining Margins Double in Europe After U.S. Storms
By Anthony DiPaola
"Sept. 15 (Bloomberg) -- Saras SpA, owner of the Mediterranean region's largest refinery, said margins for European refiners nearly doubled after capacity at U.S. facilities to turn crude oil into gasoline and diesel fell because of Hurricanes Gustav and Ike."
"Refining margins, the amount companies earn from selling gasoline and diesel, rose to more than $7 a barrel on average for the industry last week, according to data provided by Saras. The margin was about $3.5 the week before and has risen from just above $1 a barrel at the start of the year."
Hurricanes Gustav and Ike contributed to higher fuel prices last week as companies closed down drilling rigs in the Gulf of Mexico and took about a fifth of U.S. refining capacity off line.
"``The joint effect of the U.S. dollar strengthening and hurricanes slamming into the U.S. Gulf are pushing euro- denominated refining margins to new historical highs,'' Banco Santander SA analyst Armando Iobbi wrote in a note Sept. 12."
"Industry margins began the week higher than $10 a barrel, Saras said. Saras raised its forecast in June, saying it could add a premium of as much as $6 a barrel above the benchmark."
"The benchmark refining margin is prepared for Saras by London-based Energy Market Consultants and posted on the company's Web site weekly. It reflects the performance for a standard Mediterranean-based refinery using half Urals and half Brent crude, according to Saras' Web site."
"European refiners including Saras and ERG SpA have been investing to boost output of diesel fuel, which has generally been more profitable than gasoline. Now they're benefiting from tighter supply for fuel in the U.S., analysts like Iobbi said."
"Saras said it hasn't shipped gasoline to the U.S. market after the hurricanes, and other European refiners shipping the fuel west has created a tight market in Europe."
To contact the reporter on this story: Anthony DiPaola in Rome at email@example.com.
"Last Updated: September 15, 2008 09:33 EDT"
"German Stocks Fall to Two-Year Low; Allianz, Deutsche Bank Drop "
By Stefanie Haxel
"Sept. 15 (Bloomberg) -- German stocks plunged to the lowest in almost two years after Lehman Brothers Holdings Inc. said it will file for bankruptcy and Bank of America Corp. agreed to buy Merrill Lynch & Co., the world's biggest brokerage firm."
"Allianz SE, Europe's largest insurer, slumped the most since January, and Deutsche Bank AG slid to the lowest in two months. TUI AG sank to the lowest in more than five years after Spiegel reported Europe's largest travel company may merge its airlines unit with Air Berlin Plc."
"The DAX Index plunged 170.73, or 2.7 percent, to 6,064.16, the lowest since October 2006. DAX futures expiring in September dropped 3.1 percent as of 5:47 p.m. in Frankfurt. The HDAX Index of the country's 110 biggest companies slumped 2.9 percent."
The DAX has fallen 25 percent this year as credit losses and writedowns at financial firms worldwide topped $500 billion and slowing economic growth damped the outlook for earnings.
"``Within days, two of the biggest financial firms disappeared,'' said Matthias Joerss, an analyst at Sal. Oppenheim Jr. & Cie. in Frankfurt. ``That's a dangerous situation adding to uncertainty which should weigh especially on weaker financial stocks. We are seeing a final sell-out and I expect the market to drop further near-term.''"
"Lehman, once the fourth-largest U.S. investment bank, said it will file for protection from creditors after Barclays Plc and Bank of America abandoned talks to buy the crippled firm. Bank of America agreed to acquire Merrill Lynch for about $50 billion as the credit crisis claimed another of America's oldest financial companies."
"Allianz, Deutsche Bank"
"Allianz lost 6.76 euros, or 6.1 percent, to 103.89. Deutsche Bank, Germany's biggest bank, dropped 3.69 euros, or 6.4 percent, to 54.21 euros, the lowest since July 16. Commerzbank AG, the second-largest, retreated 1.58 euros, or 9 percent, to 15.91, the lowest since January 2005."
"Deutsche Postbank AG dropped 3.14 euros, or 7.3 percent, to 39.76, the lowest in more than three years. WestLB lowered its recommendation for Germany's biggest consumer bank by clients to ``hold'' from ``buy.''"
"TUI dropped 46 cents, or 3.7 percent, to 11.94 euros, the lowest since August 2003. The company may merge its TUIfly carrier with Air Berlin, Europe's third-biggest discount airline, as talks over an alternative alliance stall, Spiegel magazine reported, citing the heads of the two companies."
"Air Berlin slipped 9 cents, or 2.2 percent, to 3.93 euros. Separately, a flight from the southern Spanish city of Malaga to Nuremberg in southern Germany was forced to turn around in the air and return to the airport after a technical fault, Agence France-Presse reported."
"Deutsche Boerse AG decreased 1.34 euros, or 2.1 percent, to 62.10. Europe's largest exchange by market value started to apply so-called fast trading rules in electronic trading, extending volatility and mistrade ranges, according to a statement in on its Web site."
The following stocks also rose or fell in German markets. Symbols are in parentheses.
"Advanced Vision Technology Ltd. (VSJ GY) tumbled 44 cents, or 6.8 percent, to 6 euros, the steepest retreat in almost six weeks. The company's board of directors said it's unable to give an opinion on an offer by Ronin Investment Managing Co. to buy a stake in the maker of quality-control technology for printing, citing weakness in the North American and European markets and volatility on the capital markets."
Closely held Ronin offered to buy about 23 percent of the company for 8.5 million euros ($12.1 million) on Sept. 10.
"Arcandor AG (ARO GY) fell 35 cents, or 7.9 percent, to 4.10 euros, the lowest in 16 years. Euler Hermes AG capped credit guarantees for suppliers to three units of Arcandor, owner of Germany's largest department-store chain, Frankfurter Allgemeine Sonntagszeitung reported yesterday."
"BASF SE (BAS GY) lost 1.57 euros, or 4.2 percent, to 36.24, the lowest since January 2007. BASF sank after the world's largest chemical maker agreed to pay 3.45 billion Swiss francs ($3.1 billion) in cash for Ciba Holding AG."
"Including debt and pension obligations, the price is 6.1 billion francs."
"Henkel AG & Co. KGaA (HEN3 GY), the maker of Loctite glue and Persil detergent, climbed 56 cents, or 2.1 percent, to 27.54 euros, the highest in a month. Crude oil declined as much as 7 percent to $94.13 a barrel as refineries along the Gulf of Mexico escaped major damage from Hurricane Ike."
"``The dramatically falling oil price is the main reason for today's increase of the stock,'' said Alexander Schlipf, an analyst at Bankhaus Metzler in Frankfurt. Schlipf has a ``buy'' recommendation on the stock."
"Hochtief AG (HOT GY), Germany's largest builder, sank 4.36 euros, or 8.6 percent, to 46.55. Workers at Budapest Airport, majority-owned by Hochtief, may strike after labor talks failed, Hungary's MTI news agency reported."
"IVG Immobilien AG (IVG GY) retreated 40 cents, or 4.1 percent, to 9.38 euros, the lowest in almost four years. Wolfhard Leichnitz resigned as chief executive officer of Germany's largest commercial property company for personal reasons."
"Solon AG fuer Solartechnik (SOO1 GY) slumped 2.85 euros, or 7.3 percent, to 36.29, snapping a two-day advance. Goldman Sachs Group Inc. reduced its recommendation for the solar company to ``sell'' from ``neutral,'' and added the stock to its ``conviction sell'' list."
To contact the reporter on this story: Stefanie Haxel in Frankfurt at firstname.lastname@example.org.
"Last Updated: September 15, 2008 12:16 EDT"
EU Ministers Welcome Dollar's Gains Against Euro Amid Slowdown
By Sandrine Rastello
"Sept. 16 (Bloomberg) -- European Union officials regard the dollar's advance against the euro as welcome respite for their economies at a time when several countries are close to a recession, according to a draft of an internal EU document."
"``Excessive volatility on exchange-rate markets is undesirable for economic growth,'' ministers from the 27 EU nations said in the document, which was agreed to three days ago at a meeting of finance ministers and central bankers in Nice, France. ``The recent re-appreciation of the U.S. dollar vis-a-vis the euro and other European currencies is welcome,'' according to the draft, which was obtained by Bloomberg News."
"The euro has fallen more than 10 percent since reaching a record $1.6038 on July 15. While the drop in crude oil prices is also providing support, the region's economy shrank in the second quarter and is still struggling amid slowing global demand and the continuing credit squeeze."
"The ``near-term outlook for growth remains relatively weak'' and inflationary pressures should ease ``in the next few months,'' according to the document, which is a summation of the talks on Sept. 12-13 in Nice and will be the basis for discussions at the finance ministers' next meeting in early October in Luxembourg."
"The European Commission on Sept. 10 lowered its economic- growth forecast for the 15-nation euro area and predicted a recession this year for Germany and Spain, as well as the U.K., which does not use the euro. The region's economy probably won't grow in the current quarter after the first contraction since the euro was introduced in 1999, according to the commission."
"``The depreciation of the euro is welcome even if the euro remains overvalued,'' Luxembourg Finance Minister Jean-Claude Juncker, who chairs the group of counterparts from the euro region, said on Sept. 12 in Nice."
"``I'm pleased that today the euro is slightly below $1.40,'' French Finance Minister Christine Lagarde said Sept. 11 in Nice. Belgium's Didier Reynders said the currency now reflected ``fundamentals.''"
"The ministers also said it's ``crucial'' to let the ``necessary adjustment'' in exchange rates occur ``in some emerging economies with large and growing current-account surpluses,'' citing China specifically. The Chinese yuan has gained 10 percent against the euro since the start of the third quarter, following a 2.5 percent gain in the second quarter and a 3.2 percent decline in the first."
"The EU will ``closely'' monitor currency developments, including through a continuing dialogue between European and Chinese officials, according to the document. Juncker said in July that he and other EU officials will probably next meet their counterparts from Beijing around the time of the EU-China summit on Dec. 1 in Lyon, France."
"The document calls for a ``coordinated response at the EU level'' to the economic slowdown. In it, ministers repeat a pledge to pursue fiscal discipline and to continue structural changes to their economies and demand further efforts to boost transparency in financial markets."
It also confirms the European Investment Bank will lend up to 15 billion euros ($21.3 billion) through 2009 to support small- and medium-sized enterprises.
To contact the reporter on this story: Sandrine Rastello in Paris at email@example.com.
"Last Updated: September 15, 2008 18:01 EDT"
Independent Investment Banks `Won't Exist' CIBC's Nesbitt Says
By Doug Alexander
"Sept. 15 (Bloomberg) -- The failure of Lehman Brothers Holdings Inc. shows that investment banks need the backing of a consumer bank to survive, said CIBC World Markets Chief Executive Officer Richard Nesbitt."
"``I don't think around the world there's any place for a large investment bank unless they're part of a commercial bank,'' Nesbitt told investors at a conference in Toronto today. ``I don't think they'll exist, except for the very, very tiny investment dealers.''"
"In the biggest reshaping of the financial industry since the Great Depression, two of Wall Street's most storied firms, Merrill Lynch & Co. and Lehman Brothers, headed toward extinction today. Lehman filed for bankruptcy protection and Merrill Lynch was bought by Bank of America Corp., the largest consumer bank in the U.S."
"``It's an actual evolution of the business,'' Nesbitt said. Investment banks will continue to shrink, and focus more on their domestic market, while trying to provide services to their consumer-banking clients, he said."
"``There are a number of activities that won't make sense for banks to do anymore,'' said Nesbitt, who heads the investment- banking unit at Canada's No. 5 bank. ``The profit margin is not going to be there unless the pricing goes up or the funding costs come down.''"
"Canadian Imperial Bank of Commerce is paring back CIBC World Markets after taking C$7.55 billion ($7 billion) in pretax writedowns in the past five quarters tied to U.S. subprime mortgages. The bank sold most of its U.S. investment banking business, exited debt-related activities, cut jobs and recruited Nesbitt in January from the Toronto Stock Exchange to oversee the changes."
"``I think you're going to see dramatic change in investment banks around the world,'' Nesbitt said in his speech. ``They're going to be smaller.''"
"Nesbitt said he's set an earnings target of C$300 million to C$500 million a year for CIBC World Markets, using C$1.5 billion in economic capital. The firm earned C$438 million in fiscal 2007 and C$498 million in fiscal 2006."
"CIBC World Markets had a loss of C$4.33 billion in the first nine months of the fiscal year ending Oct. 31, after the writedowns tied to U.S. subprime securities."
Nesbitt said CIBC World Markets may have losses of about C$25 million from securities tied to Lehman Brothers.
"``Lehman Brothers, in position to CIBC, was a collateral posting counterparty and we do not have large exposures,'' Canadian Imperial CEO Gerald McCaughey, 52, said at the conference."
"CIBC World Markets will be hiring more analysts, sales people and traders as it focuses on its primary businesses, Nesbitt said."
"``We do need to add to our bench strength,'' Nesbitt said. ``It was substantially depleted by a couple of the rounds of departures that we've seen over the last few years.''"
"The bank reduced its investment-banking staff by about 14 percent this year, he said."
To contact the reporter on this story: Doug Alexander in Toronto at firstname.lastname@example.org
"Last Updated: September 15, 2008 12:44 EDT"
Solon Declines to 1 1/2-Year Low on Goldman Downgrade (Update1)
By Stefanie Haxel
"Sept. 15 (Bloomberg) -- Solon AG fuer Solartechnik, a German solar-power company, sank to a 19-month low in Frankfurt trading after Goldman Sachs Group Inc. added the stock to its ``conviction sell'' list."
"Solon declined 2.85 euros, or 7.3 percent, to 36.29 euros, the lowest close since Feb. 16, 2007. The stock has lost 50 percent this year, valuing the Berlin-based company at 455 million euros ($645 million)."
"Goldman cut its recommendation to ``sell'' from ``neutral'' and lowered its share-price estimate 22 percent to 36 euros, saying planned legislation in Spain may hurt Solon's earnings."
"``Recently proposed changes to solar regulation in Spain add a further significant level of risk to the earnings of downstream solar companies like Solon with large exposure to the country,'' analyst Mariano Alarco said today in a note to clients. ``We believe Solon's margins will be under pressure.''"
To contact the reporter on this story: Stefanie Haxel in Frankfurt at email@example.com.
"Last Updated: September 15, 2008 12:13 EDT"
"Fed Widens Collateral, Banks Set Up $70 Billion Fund (Update5) "
By Craig Torres and Liz Capo McCormick
Sept. 15 (Bloomberg) -- The Federal Reserve widened the collateral it accepts for loans to securities firms to include stocks in an effort to help Wall Street weather Lehman Brothers Holdings Inc.'s plans for bankruptcy.
"The Fed also yesterday boosted its program for lending Treasuries to bond dealers by $25 billion, bringing it to $200 billion. At the same time, a group of 10 banks that includes JPMorgan Chase & Co., Goldman Sachs Group Inc. and Citigroup Inc. formed a $70 billion fund to ensure market liquidity."
"Central bankers and banking leaders acted after three days of emergency talks led by Treasury Secretary Henry Paulson and New York Fed President Timothy Geithner on the mounting turmoil in financial markets. Yesterday's steps may spur speculation the Fed may take further action, including lowering interest rates, to stem a deepening in the yearlong credit crisis."
"It is ``critically important to put in a firebreak to an already weakened system,'' said Saumil Parikh, who helps oversee $688 billion at Pacific Investment Management Co. in Newport Beach, California. Policy makers are aiming to prevent a ``broad run on the U.S. financial system,'' he said."
The European Central Bank and the Bank of England today pumped emergency funds in their financial systems. The U.K. central bank loaned an additional 5 billion pounds ($9 billion) for three days. The operation attracted bids for 24.1 billion pounds. The ECB said it injected 30 billion euros ($43 billion) for one day after bids totaled 90.27 billion euros.
The central banks of Switzerland and Australia also provided extra funds. The Bank of Canada said it would offer ``liquidity as required to support the stability of the Canadian financial system.''
"The Fed's announcement came late on a Sunday evening following news of Barclays Plc and Bank of America Corp. abandoning talks to buy Lehman, the investment bank that lost 77 percent of its value last week. Bank of America separately agreed to acquire Merrill Lynch & Co. for about $50 billion, according to a statement by the company today."
The offer of loans on easier terms adds to efforts by the central bank to ensure liquidity and alleviate a jump in funding costs this year. The program for loans to the primary dealers in Treasuries was set up in March in the aftermath of the collapse of Bear Stearns Cos.
"Speculation may climb that the Fed will now consider lowering interest rates further to offset the impact of a tighter credit crunch on the faltering economy. As recently as Aug. 5, the rate-setting Federal Open Market Committee ``generally anticipated'' the next move in rates would be an increase."
"There is an 70 percent chance the Fed will pare its key rate by a quarter-point tomorrow, up from 12 percent at the end of last week, according to futures prices."
"Government figures last week showed that retail sales fell in August, a month when the U.S. unemployment rate climbed to 6.1 percent, the highest level in five years."
"Liquidity moves ``by the Fed can only go so far,'' said Mark Spindel, chief investment officer at Potomac River Capital LLC, a Washington DC investment firm. ``It just might be that firms and investors might have to take more losses, and maybe what the economy and markets need are lower rates.''"
Fed Chairman Ben S. Bernanke said in yesterday's statement that the Fed has been in touch with other central banks ``to monitor and share conditions in financial markets and firms around the world.''
"Talks held at the New York Fed Friday evening, Sept. 12, through late yesterday were aimed at identifying ``potential market vulnerabilities in the wake of an unwinding of a major financial institution.''"
"Lehman plans to file a Chapter 11 petition in the U.S. Bankruptcy Court for the Southern District of New York, the firm in a statement today. The filing will be by the holding company and won't include any of its subsidiaries, Lehman said."
"The Fed will now accept equities in the Primary Dealer Credit Facility, its program for lending cash directly to securities firms, in addition to investment-grade debt. Collateral for the Term Securities Lending Facility, which auctions loans of Treasuries, will now include all investment- grade debt securities."
"Fed officials have already made direct loans to commercial banks more attractive this year in an effort to ease funding strains. They lowered the cost to a quarter-point more than the benchmark federal funds rate, down from 1 percentage point historically. In March, the so-called discount-window loans were extended to 90 days."
"Direct loans to commercial banks hit record levels in six of the past eight weeks, reaching $23.5 billion as of Sept. 10. There were no PDCF loans to the 19 primary Treasuries dealers outstanding."
"Paulson and the Fed were against using government funds to prevent Lehman's collapse, seeking to draw a line for bailouts after the rescues of Bear Stearns and the mortgage companies Fannie Mae and Freddie Mac."
The Securities and Exchange Commission separately said yesterday it's ``taking action'' to protect Lehman's customers and will keep staff on-site at the firm ``in coming weeks.''
"Changes to the Fed collateral for securities dealers will make it closely match ``collateral that can be pledged in the tri-party repo systems.'' Banks use tri-party repos, or repurchases, for short-term financing amongst each other."
"In effect, the Fed is assuring that if investors pull away from brokers, they will be able to access cash through the PDCF with the same wide set of collateral used in tri-party repo, including stocks."
"The Fed also granted an exemption on a rule that limits banks' transactions with their brokerage subsidiaries, a move that provides securities dealers with another source of funding if they need it for market making this week."
"The group of 10 banks said that any member can borrow up to a third of the fund, to which each is contributing $7 billion. Participants also include Bank of America, Barclays PLC, Citigroup Inc., Credit Suisse, Merrill Lynch, Morgan Stanley and UBS AG."
"``These initiatives will be critical to facilitating liquid, smooth functioning markets, and addressing potential concerns in the credit markets,'' Treasury Secretary Henry Paulson said in a separate statement."
To contact the reporters on this story: Craig Torres in Washington at firstname.lastname@example.org; Liz Capo McCormick in New York at Emccormick7@bloomberg.net
"Last Updated: September 15, 2008 09:17 EDT"
Argentina's Second Quarter GDP Growth Likely Slowed: Week Ahead
By Bill Faries
Sept. 15 (Bloomberg) -- Argentina's economic expansion probably slowed in the second quarter as a four-month farm strike depressed activity from agricultural sales to construction.
"``Half the country was paralyzed,'' said Carola Sandy, a Latin America economist at Credit Suisse Group in New York. ``Because of the strikes and roadblocks many sectors didn't get the inputs they needed.''"
"South America's second-biggest economy probably grew about 8 percent in the second quarter, according to a Bloomberg survey of five economists, down from 8.6 percent in the same quarter a year ago. The national statistics institute will release its quarterly gross domestic product report on Sept. 18 at 3 p.m. New York time."
"A March increase in agricultural export taxes prompted the biggest anti-government protests since 2001, when Argentina defaulted on $95 billion of bonds. Farmers withheld produce and interrupted traffic. Truckers, frustrated at the lack of work, staged their own roadblocks. The crisis ended after President Cristina Fernandez de Kirchner rescinded the decree that had implemented the new tariffs."
"Construction activity in June fell 8.8 percent from May, the most in more than four years. Economic activity grew 6.5 percent in June from a year earlier, the slowest expansion in over two years. Both indicators have rebounded in the third quarter, following the end of the protests."
"Argentina's economy has grown more than 8.5 percent in each of the past five years. In July, the central bank cut its 2008 growth forecast to 6.5 percent from 7 percent previously. Sandy said she forecasts growth of 6.5 percent this year and 4 percent in 2009."
Markets Last Week
"Last week, the yield on Argentina's benchmark 8.28 percent dollar bonds due in 2033 rose 71 basis points, or 0.71 percentage point, to 12.27 percent, according to Bloomberg data. The bond's price fell 0.45 cent on the dollar to 67.4 cents."
"The Buenos Aires benchmark Merval stock index fell 1.9 percent to 1647.65. Ledesma SAAI (LEDE AR), a sugar and paper producer, fell 14.5 percent while steel pipe maker Tenaris SA (TS AR), rose 6.3 percent."
The following is a list of events in Argentina this week:
2009 Budget to Congress Sept. 15
Budget Balance Sept. 17-22
Gross Domestic Product Sept. 18
Current Account Balance Sept. 19
To contact the reporter on this story: Bill Faries in Buenos Aires email@example.com;
"Last Updated: September 14, 2008 23:01 EDT"
"Sugar to Climb Near 24-Year High on India, Brazil (Update2) "
By Shruti Date Singh and Thomas Kutty Abraham
"Sept. 15 (Bloomberg) -- No matter what happens in the global economy, sugar demand is about to top production for the first time since 2006, the year prices reached a 24-year peak."
"India, the second-biggest grower, will reduce supplies 16 percent next year, shifting to more profitable crops. Brazil, the largest producer, expects to use 57 percent of its cane for ethanol this year, up from 54 percent. Refiners in Europe will process 15 percent less because a 2004 trade ruling bars growers from exporting surpluses."
"``The fundamentals for next year are better than in the last 12 months and are the best for market values in the last three seasons,'' said Sergey Gudoshnikov, a senior economist for the London-based International Sugar Organization, which represents countries producing 82 percent of the world's sugar."
"The shortfall may make sugar one of the only commodities to continue rallying even as the slowing global economy reduces demand for raw materials from aluminum to oil. Sugar use isn't affected by price swings in developed countries, while people are eating more sweeteners in China and India, the largest consumer, according to London-based ED&F Man Holdings Ltd."
"Sugar on ICE Futures U.S. in New York may jump 28 percent to 18 cents a pound next year from 14.06 cents on Sept. 12, said analyst Jonathan Kingsman in Lausanne, Switzerland, whose firm Kingsman SA advises banks, hedge funds and Fortune 500 companies on commodity purchases. Kona Haque, a commodity strategist at Macquarie Bank Ltd. in London, said the price may reach 20 cents, and Jean Bourlot, a managing director and head of agricultural trading at Morgan Stanley, said it may double in 18 months."
The sweetener traded at 13.61 cents today in New York.
Commodity Bear Market
"The S&P GSCI Index of 24 commodities, after six straight years of gains, has plunged 31 percent from a record on July 3 and slipped into a bear market as global economic growth slowed. Natural gas, silver and crude oil led the declines."
"In the meantime, ``crop competition, booming ethanol demand and declining sugar beet areas globally signal higher prices,'' London-based Bourlot said in a Sept. 11 telephone interview."
"The last time the world consumed more sugar than it produced was in 2006, when the cane crop in Thailand was down for a third straight year and record energy prices boosted demand for alternative fuels. Futures reached 19.73 cents a pound on Feb. 3, 2006, the highest since April 1981."
"In the following months, production surged in Brazil and India, sending global sugar inventories to an all-time high. The ISO estimates stockpiles will reach a record 69.2 million metric tons in the year that ends Sept. 30. Sugar prices dropped 20 percent in 2006 and 7.9 percent last year."
"Stockpiles will fall 5.8 percent to 65.2 million tons in the year ending Sept. 30, 2009, the first decline since 2006, according to ISO forecasts. Still, they will be 18 percent higher than in 2006."
"``I just don't think sugar has any business being up over 14 cents,'' said Judy Ganes-Chase, a former Merrill Lynch & Co. commodity analyst who runs a consulting firm in Katonah, New York. ``We still need to work through that massive glut. The market is more fundamentally justified in the 9-to-11-cent range than the 12-to-14-cent range'' for 2009, she said."
"Kingsman said the rally will fail if the price of ethanol from sugar cane declines and if the Brazilian currency's weakness against the dollar encourages exports onto world markets. The ISO says prices may be affected by factors unrelated to supply and demand, from energy use, to food policy and shifts by investors away from commodities."
"Global consumption will increase 2.3 percent to 165.5 million metric tons in the next year, and production will drop 4.4 percent to 161.6 million tons, spurring a shortfall of 3.9 million tons, the ISO said. Czarnikow Group Ltd., a London-based brokerage and consulting firm that has been in the business since 1861, puts the deficit at 3.3 million tons."
"Higher prices may boost profits at Brazil's Cosan SA Industria e Comercio, the world's biggest sugar-cane processor, and at Bajaj Hindusthan Ltd., India's largest producer. Costs may rise for buyers such as Nestle SA, the biggest food company."
One reason analysts forecast inventory declines is more of the crop is being used to make ethanol rather than sweetener.
"Piracicaba, Brazil-based Cosan is stepping up production of the fuel and expects sugar to stay above 14 cents a pound next year, Chief Financial Officer Paulo Diniz said Sept. 12 on a conference call. The rebounding dollar and rising sugar prices may make Cosan profitable next year, after three straight quarters of losses, Vice Chairman Pedro Mizutani said. Brazil's real lost all this year's gains against the U.S. currency."
India Crop Decline
"The biggest change in sugar supplies during the coming year will likely be in India. Output will plunge 16 percent to 23.9 million tons from 28.5 million tons as farmers plant more wheat, and a late monsoon may reduce yields in Maharashtra state, the country's biggest producer, according to the ISO."
"``The effective withdrawal of India from the export market is a significant bull factor,'' Kingsman said."
"India's exports may plunge more than 78 percent to less than 1 million tons in the coming year, said S.L. Jain, director general of the Indian Sugar Mills Association in New Delhi."
"Shree Renuka Sugars Ltd., India's biggest refiner, bought 30,000 tons of raw sugar from Brazil for arrival in October, Managing Director Narendra Murkumbi said Aug. 27. The Mumbai- based company's purchase was the first from an overseas supplier in more than two years."
"``We may import more raw sugar after December,'' Murkumbi said. ``Domestic raw material is not available and buying from the spot market in Brazil is more attractive.''"
"European production will fall 15 percent to 22.5 million tons in the year starting Oct. 1 from 26.5 million, according to Ratzeburg, Germany-based F.O. Licht, a soft-commodity market researcher. The European Union will produce 14 million tons, about 20 percent less than this year, after the World Trade Organization ruled the 27-nation bloc can't sell its surplus on the world market because it unfairly profited from subsidies."
"Europe will help provide ``a more bullish impetus for world sugar prices,'' Licht said Sept. 9. ``That's a new phenomenon.''"
"The U.S., the world's fifth-biggest sugar producer, will refine 3.5 percent less of the sweetener than previously expected in the year that starts next month, and the decline doesn't fully reflect the damage caused to crops by Hurricane Gustav, the Agriculture Department said Sept. 12."
"Brazil will produce 32.8 million tons of sugar this year, according to the Agriculture Ministry's crop-forecasting agency. While the estimate is higher than last year's 31.3 million tons, it's less than in April as mills turn more cane into fuel."
"Global ethanol consumption will rise 34 percent to about 65.2 billion liters in 2008, mostly because of the U.S. and Brazil, the biggest producers and users of the alternative fuel, according to the ISO. Crude-oil futures closed at $101.18 a barrel on Sept. 12, up 27 percent from a year earlier, though down from a record $147.27 on July 11. Gasoline closed at $2.7696 a gallon, up 37 percent from a year earlier."
"Abah Ofon, a commodities analyst at Standard Chartered Bank in Dubai, said in a Sept. 3 e-mail ethanol demand will boost sugar to an average of 16.2 cents in the second quarter of 2009."
"``There's greater noise in the U.S. about the perceived inflationary impact of corn ethanol,'' Ofon said. ``There's going to be a more serious debate on opening up the U.S. market.''"
"The U.S., which mainly uses corn to produce ethanol, imposes a tariff of 54 cents a gallon on imports from Brazil."
"Senator Dianne Feinstein, a Democrat from California, introduced legislation in June that would avoid penalizing foreign suppliers, including Brazil, and enable U.S. refiners to purchase ethanol no matter where it's made."
"``The demand for inexpensive and climate-friendly ethanol continues to grow as oil and gas prices remain sky-high,'' Feinstein said in a statement e-mailed to Bloomberg News."
"In July, when the Reuters/Jefferies CRB index dropped 10 percent, ``sugar prices bucked the broader commodity direction,'' Goldman Sachs Group Inc. said in an Aug. 7 report. ``We anticipate recovering crude-oil prices and tighter sugar supply/demand expectations to support'' the market, said Goldman, which has a 12-month forecast of 15 cents a pound."
To contact the reporters on this story: Shruti Date Singh in Chicago at firstname.lastname@example.org; Thomas Kutty Abraham in Mumbai at email@example.com
"Last Updated: September 15, 2008 07:38 EDT"
Lehman in Good Standing at U.S. Futures Exchanges (Update1)
By Matthew Leising and Grant Smith
Sept. 15 (Bloomberg) -- Lehman Brothers Inc. remains in good standing with U.S. derivatives exchange clearinghouses after its parent company filed for bankruptcy protection today.
"CME Group Inc., the world's largest futures market, and its New York Mercantile Exchange unit, the world's largest energy market, said New York-based Lehman ``continues to meet all of its obligations'' and is operating as normal. Options Clearing Corp., which guarantees all trades in the $1.6 trillion U.S. options market, also said Lehman remains in good standing."
"``The OCC is continuing to act for them,'' OCC said in an e-mailed statement. The Chicago-based clearinghouse guarantees the equity derivative trades of the seven U.S. options markets, including the Chicago Board Options Exchange and the International Securities Exchange."
"Intercontinental Exchange Inc., the second-largest U.S. futures market, said Lehman is conducting business as usual with the clearinghouse of its New York-based ICE Clear U.S. market. Agricultural commodities futures and financial futures including equity indexes are traded at ICE Futures U.S."
"Intercontinental's London market had a different outlook after its clearinghouse LCH.Clearnet Ltd. declared one of the bankrupt firm's units a ``defaulter.'' Lehman Brothers International Europe was suspended from using the ICE Futures Europe market, home to Brent crude oil trading and other energy contracts."
To contact the reporter on this story: Grant Smith in London at firstname.lastname@example.org
"Last Updated: September 15, 2008 11:47 EDT"
Lehman Brothers Suspended From London Commodity Trade (Update3)
By Chanyaporn Chanjaroen and Alexander Kwiatkowski
"Sept. 15 (Bloomberg) -- Lehman Brothers Holdings Inc., the fourth-largest U.S. investment bank, was suspended from energy and commodities trading in London after Europe's biggest clearing house declared the company a defaulter."
"The London Metal Exchange, the world's largest copper bourse, the Liffe commodities exchange, and Intercontinental Exchange Inc.'s ICE Futures Europe, part of the second-biggest energy exchange, all suspended Lehman today. LCH.Clearnet Group Ltd., which clears trades, declared Lehman's European subsidiary a defaulter."
"``Lehman is an important counterparty in the commodity markets,'' Robin Bhar, a metals strategist at Calyon in London, said by phone. Still, the bank's positions on the LME are ``unlikely to be huge,'' he said."
"Lehman was forced to file for bankruptcy after two suitors, Barclays Plc and Bank of America Corp., abandoned takeover talks yesterday. It joins Bear Stearns Cos. and other banks that couldn't survive the credit crunch."
"The firm's value-at-risk to commodities, a measure of how much the bank estimates it could lose, averaged $15 million a day in the quarter ended Aug. 31, compared with $12 million in the previous quarter, according to a Sept. 10 statement."
"Lehman is a so-called category 2 member of the LME and eligible to issue and clear contracts. It can't trade on the floor of the exchange. It was suspended from trading on the bourse's Select electronic platform. The LME trades copper, aluminum, zinc, nickel, tin, lead, steel and plastics."
Winding Down Business
"The firm can still trade by phone, LME spokesman Thom Lant said. Each trade has to be approved by PricewaterhouseCoopers LLP, which is handling the winding down of the business, he said."
"Lehman has suspended almost all market activity, PricewaterhouseCoopers said today at a press conference in London. The company will sell its portfolio of greenhouse-gas credits as early as next week, Oslo-based Point Carbon reported, citing an unidentified executive at the bank."
"Lehman's head of European commodities is Jason Tudor, a former head of metals at Barclays Capital. He joined Lehman in 2006."
"Intercontinental Exchange suspended Lehman's access to its ICE Futures Europe trading facilities. The exchange trades Brent crude oil, gasoil and other energy futures. Lehman also trades emissions on ICE."
"Liffe has commodities trading in coffee, sugar, cocoa in London, and wheat and rapeseed in Paris."
"The London clearing house ``is managing the markets in an orderly manner,'' LCH.Clearnet spokeswoman Rachel Harper said today by phone."
"Lehman remains a clearing member at the New York Mercantile Exchange, the bourse said today."
"The London Bullion Market Association doesn't expect any effect from the bankruptcy of member Lehman, Chief Executive Officer Stewart Murray said. The LBMA, representing the wholesale gold and silver market in London, has 57 ordinary members this year, up from 55 last year and 52 in 2006, Murray said."
"``They're ordinary members, they're not market makers, they're not clearers,'' Murray said by phone from London today. The bank's weighting within the London bullion market was ``quite small given the many number of ordinary members,'' he said."
To contact the reporter on this story: Chanyaporn Chanjaroen in London at email@example.com; Alexander Kwiatkowski in London at firstname.lastname@example.org
"Last Updated: September 15, 2008 11:28 EDT"
Michelin Leads Autos Lower on Continental Target Cut (Update1)
By Laurence Frost
"Sept. 15 (Bloomberg) -- Michelin & Cie., the world's second-largest tiremaker, led automotive stocks lower after competitor Continental AG cut profit forecasts, citing a worsening economy."
"Michelin fell 2.54 euros, or 5.1 percent, to 47.50 euros, its biggest decline since Aug. 13. The stock has dropped 39 percent this year, paring the company's market value to 6.89 billion euros ($9.78 billion)."
"Continental, which makes auto parts and tires, said Sept. 13 it won't meet full-year profit goals because of rising raw- material prices and weaker demand for vehicles in Europe and the U.S. Hanover, Germany-based Continental forecast earnings before interest and taxes equivalent to 8.5 percent of revenue in fiscal 2008. That compares with an earlier estimated EBIT margin of at least 9.3 percent."
"Continental fell 43 cents, or 0.6 percent, to 73.50 euros in Frankfurt, cushioned by a 75 euro-a-share takeover offer from ball-bearing maker Schaeffler Group that expires tomorrow. Nokian Renkaat Oyj, the world's most profitable publicly traded tiremaker, declined 2.6 percent in Helsinki."
"Renault SA, France's second-biggest carmaker, fell 3.4 percent, pacing a 3.5 percent drop in the Dow Jones Stoxx 600 Automobiles & Parts index. Daimler AG dropped 4.3 percent in German trading, while Bayerische Motoren Werke AG declined 3.4 percent."
"Continental accepted Schaeffler's raised bid on Aug. 21 after resisting the approach. Schaeffler secured control of 28 percent of Continental with swaps agreements. Herzogenaurach, Germany-based Schaeffler said Sept. 2 that it controls 48.3 percent of Continental."
To contact the reporter on this story: Laurence Frost in Paris at email@example.com
"Last Updated: September 15, 2008 12:31 EDT"
"Brazil's Bovespa Falls, Led by Petrobras, Vale; Bolsa Drops "
By Alexander Ragir and Paulo Winterstein
"Sept. 15 (Bloomberg) -- Brazilian stocks dropped the most in almost a week, dragged down by commodity producers, as the bankruptcy of Lehman Brothers Holdings Inc. led investors to flee from riskier, emerging-market assets."
"Banco do Brasil SA led banks to the biggest drop in a months as the bankruptcy of Lehman, once the fourth-largest U.S. investment bank, fueled speculation that turmoil in the credit markets will deepen. Petroleo Brasileiro SA, Brazil's state- controlled oil company, slid the most in a week as the price of crude dropped $4 a barrel. Cia. Vale do Rio Doce led a drop for raw-material producers as industrial metals plunged."
"``It's clearly very negative what's happening in the U.S.,'' said Roberto Lampl, who helps manage $4 billion in emerging- market stocks at ING Investment Management in the Hague. ``At the moment you're seeing a lot of risk aversion and fund flow being negative for emerging markets.''"
"Brazil's Bovespa index slid 4.6 percent to 49,994.38 at 12:45 p.m. New York time, the biggest drop since Sept. 9. Mexico's Bolsa fell 1.8 percent, while Chile's Ipsa index dropped 0.7 percent. The MSCI Emerging Markets Index tumbled 2.8 percent."
"Banco do Brasil, Latin America's biggest bank by assets, slumped 4.9 percent to 21.34 reais. The MSCI Brazil Financial Index fell 6.5 percent, the biggest drop since Aug. 16. Banco Bradesco SA, the biggest Brazilian non-government bank, dropped 5.1 percent to 28.45 reais. Banco Itau Holding Financeira SA, the second-biggest non-state bank, fell 5.6 percent to 29.17 reais. Uniao de Bancos Brasileiros SA, the third-biggest, slid 5.1 percent to 18.37 reais."
"BM&FBovespa SA Bolsa de Valores, Mercadorias e Futuros, Latin America's biggest exchange, fell 9.2 percent to 8.86 reais."
Lehman was forced into bankruptcy after Barclays Plc and Bank of America abandoned takeover talks yesterday and the company lost 94 percent of its market value this year.
Global Market Effect
"``There's no direct effect at all in Latin America with Lehman,'' said Urban Larson, Latin America portfolio manager at F&C Management Ltd. in London, which oversees about $2.5 billion in stocks. ``But indirectly, it has a huge effect on global market conditions.''"
"Petrobras fell 6.4 percent to 30.90 reais as crude oil traded at a seven-month low. OGX Petroleo e Gas Participacoes SA, the oil company controlled by Brazilian billionaire Eike Batista, dropped 13 percent to 469.60 reais."
"Vale slid 5 percent to 35.45 reais. The S&P GSCI Index of 24 commodities fell 2.8 percent, extending its slide from July's record to 31 percent."
Brazil's Bovespa index has dropped 32 percent from its May 20 high as rising interest rates and falling commodity prices raised concern about economic growth.
"Mexico's Bolsa fell for the fourth time in five days, led by retailer Wal-Mart de Mexico SAB. The biggest retailer in Latin America dropped 4.1 percent to 36.80 pesos. Mining company Grupo Mexico fell 6.1 percent to 12.50 pesos as metals prices slumped."
"``There's just this sentiment that the economic slowdown in the U.S. is much worse than people had thought,'' said Brian Chase, South American equity strategist at JPMorgan Chase & Co."
To contact the reporters on this story: Alexander Ragir in Rio de Janeiro at firstname.lastname@example.org; Paulo Winterstein in Sao Paulo at email@example.com.
"Last Updated: September 15, 2008 12:59 EDT"
"U.S. Treasuries Rise, Two-Year Note Yield Falls to 1.71 Percent "
By Agnes Lovasz
"Sept. 16 (Bloomberg) -- Treasuries advanced, pushing the two-year yield down to the lowest level in more than five months."
"The yield on two-year notes dropped 3 basis points, or 0.3 percentage point, to 1.71 percent as of 8 a.m. in London, the lowest level since April 1, according to bond broker BGCantor Market Data. The 2.375 percent security due August 2010 rose 2/32, or 63 cents per $1,000 face amount, to 101 9/32."
Ten-year yields declined 2 basis points to 3.38 percent.
To contact the reporter on this story: Agnes Lovasz in London at firstname.lastname@example.org
"Last Updated: September 16, 2008 03:07 EDT"
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