"Brazilian Stocks Plunge Most Since 2001; Bolsa, Ipsa Decline "
By Alexander Ragir and Paulo Winterstein
Sept. 15 (Bloomberg) -- Brazilian stocks plunged the most since September 2001 as prospects for a global economic slowdown dragged down oil and mining companies and sent Latin America's biggest securities exchange to a record drop.
"Banco do Brasil SA led banks to the biggest fall in six years as the bankruptcy of Lehman Brothers Holdings Inc. fueled speculation that turmoil in the credit markets will deepen. Petroleo Brasileiro SA, Brazil's state-controlled oil company, slid the most in nine years as the price of crude dropped $6 a barrel. Cia. Vale do Rio Doce paced 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 3,976.53, or 7.6 percent, to 48,416.33, the biggest drop since the Sept. 11, 2001, terrorist attacks in New York and Washington. Mexico's Bolsa fell 3.8 percent, while Chile's Ipsa index dropped 0.5 percent. The MSCI Emerging Markets Index tumbled 3.6 percent."
"Banco do Brasil, Latin America's biggest bank by assets, slumped 8.9 percent to 20.46 reais. The MSCI Brazil Financial Index fell 9.1 percent, the biggest drop since August 12, 2002. Banco Bradesco SA, the biggest Brazilian non-government bank, dropped 7 percent to 27.89 reais. Banco Itau Holding Financeira SA, the second-biggest non-state bank, fell 6.3 percent to 28.97 reais. Uniao de Bancos Brasileiros SA, the third-biggest, slid 8.1 percent to 17.80 reais."
"BM&FBovespa SA Bolsa de Valores, Mercadorias e Futuros, Latin America's biggest exchange, fell the most on the Bovespa, losing 14 percent to 8.40 reais."
Lehman Effect
"Lehman, once the fourth-largest U.S. investment bank, 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."
"``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 slid 9.7 percent to 29.80 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 15 percent to 460 reais."
"Vale slid 9.9 percent to 33.62 reais. Gasoline, crude oil and copper plunged and the Reuters/Jefferies CRB Index of 19 commodities erased its gain for the year as Lehman Brothers Holdings Inc.'s bankruptcy intensified concern that the U.S. economy is sinking."
"The gauge has tumbled 26 percent since reaching a record high on July 3, dropping into a bear market as tighter credit markets and bank losses threatened the global economy."
"Material stocks in the MSCI Brazil Index tumbled 10 percent, the second steepest decline after the energy group's 11 percent drop."
Tumble Since May
Brazil's Bovespa index has dropped 34 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 4.5 percent to 36.62 pesos. Mining company Grupo Mexico fell 7.8 percent to 12.27 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 aragir@bloomberg.net; Paulo Winterstein in Sao Paulo at pwinterstein@bloomberg.net.
"Last Updated: September 15, 2008 16:42 EDT"
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Consumer Prices in U.S. Probably Fell in August on Cheaper Fuel
By Timothy R. Homan
Enlarge Image/Details
"Sept. 16 (Bloomberg) -- Prices paid by U.S. consumers probably dropped in August for the first time in almost two years as fuel costs retreated and retailers discounted merchandise, economists said before a government report today."
"The cost of living dropped 0.1 percent after jumping 0.8 percent in July, according to the median forecast of 75 economists in a Bloomberg News survey. Excluding food and energy, so-called core prices likely rose 0.2 percent following a 0.3 percent increase the prior month."
The diminishing threat of inflation may make it easier for Federal Reserve policy makers today to lower interest rates to mitigate the damage from the collapse in credit that brought down Lehman Bothers Holdings Inc. Companies such as General Motors Corp. and J.C. Penney Co. are offering discounts to revive sales.
"``Price relief should not be that far away,'' said Brian Bethune, an economist at Global Insight Inc. in Lexington, Massachusetts. ``This is an emergency situation and an aggressive response from the Fed is needed.''"
The Labor Department's consumer-price report is due at 8:30 a.m. in Washington. Forecasts in the Bloomberg survey ranged from a decline of 0.3 percent to a 0.4 percent gain. The last time the cost of living fell was in October 2006.
"Prices probably rose 5.5 percent from August 2007, down from last month's 17-year high of 5.6 percent."
"Excluding food and energy, costs probably rose 2.6 percent in the last 12 months, the biggest gain since February 2007."
Builder Confidence
"A separate report today will probably show confidence among homebuilders this month edged up from a 23-year low in August. The National Association of Homebuilders/Wells Fargo sentiment index increased to 17 from 16 in August, according to the median estimate in a Bloomberg survey."
"The drop in prices last month was probably led by a slump in energy costs. Crude oil futures on the New York Mercantile Exchange averaged $116.69 a barrel in August, down from $133.48 the previous month. The price has dropped even more this month, reaching almost $94 yesterday."
"Regular gasoline averaged $3.76 a gallon last month, down from $4.06 in July, according to AAA."
"Consumers are retrenching even as fuel costs retreat. Mounting job losses and record foreclosures, along with the waning effects of the federal tax rebates, caused retail sales to drop in August for a second consecutive month, Commerce Department figures showed last week. Consumer spending comprises more than two-thirds of the U.S. economy."
Clothing Discounts
Retailers are providing incentives to boost sales. J.C. Penney and American Eagle Outfitters Inc. offered clothing discounts in August to offset what could be the worst back-to- school season for the industry in seven years. The price cuts may lower profits during the holiday shopping period later this year.
"General Motors offered all customers the same prices paid by employees, helping boost sales in the second half of the month. GM this month said it will extend the incentive through September and has offered 72-month, no-interest financing on some vehicles since late June."
The consumer-price index is the last of three monthly price gauges from the Labor Department.
"Prices paid to U.S. producers fell 0.9 percent in August, the first drop this year, the government said Sept. 12. Import costs last month decreased the most in almost 20 years of record- keeping, Labor figures showed last week."
The CPI is the government's broadest gauge of costs because it includes goods and services.
"At the last Federal Open Market Committee meeting on Aug. 5, Fed officials said they expect ``inflation to moderate later this year and next year.''"
Bloomberg Survey
================================================================
CPI Core CPI Core
CPI CPI
MOM% MOM% YOY% YOY%
================================================================
Date of Release 09/16 09/16 09/16 09/16
Observation Period Aug. Aug. Aug. Aug.
----------------------------------------------------------------
Median -0.1% 0.2% 5.5% 2.6%
Average -0.1% 0.2% 5.5% 2.6%
High Forecast 0.4% 0.4% 6.0% 2.6%
Low Forecast -0.3% 0.1% 5.2% 2.5%
Number of Participants 75 74 38 37
Previous 0.8% 0.3% 5.6% 2.5%
----------------------------------------------------------------
4CAST Ltd. -0.1% 0.2% --- ---
Action Economics -0.1% 0.2% 5.5% 2.6%
Aletti Gestielle SGR -0.2% 0.2% --- ---
Allianz Dresdner Economic 0.0% 0.2% 5.5% 2.6%
Argus Research Corp. -0.3% 0.2% --- ---
Banc of America Securitie -0.1% 0.2% --- ---
Bancolombia SA -0.1% --- 5.4% ---
Bank of Tokyo- Mitsubishi 0.1% 0.2% 5.6% 2.6%
Bantleon Bank AG -0.1% 0.2% --- ---
Barclays Capital -0.1% 0.2% 5.5% 2.6%
BMO Capital Markets -0.1% 0.2% 5.5% 2.5%
BNP Paribas 0.0% 0.2% 5.5% 2.6%
Briefing.com -0.2% 0.2% --- ---
Calyon -0.1% 0.1% --- ---
CFC Group --- --- 5.7% 2.6%
CIBC World Markets 0.0% 0.3% 5.6% 2.6%
Citi 0.0% 0.2% --- ---
ClearView Economics -0.2% 0.2% 5.3% 2.5%
Commerzbank AG -0.1% 0.2% --- ---
Credit Suisse 0.0% 0.2% 5.5% 2.6%
Daiwa Securities America -0.2% 0.2% --- ---
Danske Bank 0.0% 0.2% 5.5% 2.6%
DekaBank 0.0% 0.2% --- ---
Desjardins Group -0.1% 0.1% 5.3% 2.5%
Deutsche Bank Securities 0.0% 0.2% --- ---
Deutsche Postbank AG 0.0% 0.2% 5.5% 2.6%
Dresdner Kleinwort 0.0% 0.2% 5.5% 2.6%
DZ Bank -0.1% 0.1% --- ---
First Trust Advisors 0.0% 0.3% --- ---
Fortis 0.2% 0.2% 5.3% 2.6%
FTN Financial -0.3% 0.1% 5.2% 2.5%
Global Insight Inc. -0.1% 0.3% --- ---
"Goldman, Sachs & Co. -0.1% 0.2% --- ---"
H&R Block Financial Advis 0.0% 0.2% 5.5% 2.6%
Helaba 0.0% 0.2% 5.8% 2.6%
High Frequency Economics 0.0% 0.2% --- ---
HSBC Markets -0.1% 0.2% --- ---
IDEAglobal 0.1% 0.3% 5.7% 2.6%
ING Financial Markets -0.3% 0.2% 5.2% 2.6%
Insight Economics -0.2% 0.2% --- ---
Intesa-SanPaulo -0.1% 0.2% 5.6% 2.6%
J.P. Morgan Chase 0.0% 0.2% 5.5% 2.5%
JPMorgan Private Client 0.0% 0.2% --- ---
Landesbank Berlin -0.1% 0.2% 5.4% 2.5%
Landesbank BW 0.0% 0.2% --- ---
Lehman Brothers 0.0% 0.2% 5.5% 2.6%
Lloyds TSB 0.3% 0.2% 5.8% 2.6%
Maria Fiorini Ramirez Inc -0.1% 0.2% --- ---
Merk Investments 0.0% 0.2% 5.6% 2.6%
Merrill Lynch -0.1% 0.1% --- ---
Moody's Economy.com -0.1% 0.2% 5.3% 2.6%
Morgan Stanley & Co. 0.1% 0.2% --- ---
National Bank Financial -0.2% 0.1% --- ---
National City Corporation 0.1% 0.3% --- ---
Natixis 0.0% 0.2% 5.6% 2.6%
Nomura Securities Intl. 0.0% 0.2% --- ---
Okasan Securities -0.1% 0.2% 5.4% 2.6%
PNC Bank 0.1% 0.2% --- ---
RBC Capital Markets -0.1% 0.1% 5.5% 2.5%
RBS Greenwich Capital -0.1% 0.2% --- ---
"Ried, Thunberg & Co. -0.1% 0.2% --- ---"
Schneider Trading Associa -0.2% 0.3% 5.3% 2.6%
Scotia Capital 0.4% 0.4% 6.0% 2.6%
Societe Generale 0.0% 0.1% --- ---
Standard Chartered 0.0% 0.2% 5.6% 2.5%
Stone & McCarthy Research -0.1% 0.1% --- ---
TD Securities 0.1% 0.2% 5.6% 2.6%
Thomson Financial/IFR -0.3% 0.2% 5.2% 2.6%
UBS Securities LLC -0.1% 0.2% --- ---
Unicredit MIB 0.0% 0.2% --- ---
University of Maryland 0.0% 0.2% --- ---
Wachovia Corp. -0.1% 0.2% 5.4% 2.5%
Wells Fargo & Co. 0.0% 0.2% --- ---
WestLB AG -0.1% 0.2% 5.4% 2.6%
Westpac Banking Co. -0.2% 0.2% --- ---
Wrightson Associates -0.1% 0.2% --- ---
================================================================
To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net
"Last Updated: September 16, 2008 00:01 EDT"
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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 abrasileiro@bloomberg.net
"Last Updated: September 15, 2008 15:44 EDT"
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"U.K. Pound Slides Against Dollar, Euro Before Inflation Report "
By Andrew MacAskill
Sept. 16 (Bloomberg) -- The British pound fell against the dollar and snapped an eight-day gain versus the euro before a government report that may show inflation accelerated last month to more than double the central bank's target.
"Consumer prices rose 4.6 percent from a year earlier, according to the median forecast of 30 economists surveyed by Bloomberg. That would be the fourth month the rate topped the government's 3 percent upper limit."
"``Inflation is going to spike and then come down and that is going to allow the Bank of England to cut interest rates soon,'' said Neil Mellor, a currency strategist in London at Bank of New York Mellon Corp. ``We are going to see sterling cede further ground.''"
"The British currency dropped to $1.7941 as of 8:15 a.m. in London, from $1.8007 yesterday, when it rose for the third day. Against the euro, the pound declined to 79.35 pence, from 79.16 pence, paring a 3.2 percent gain during the streak."
"The pound's trade-weighted index, a gauge of the currency's performance against Britain's major trade partners, was little changed at 86.75, according to Deutsche Bank AG. The measure is down 8.4 percent this year."
"Britain's Office for National Statistics is scheduled to report the inflation figures at 9:30 a.m. in London. Inflation in July increased at a 4.4 percent rate, the most since comparable records began in 1997. August retail price index statistics will also be reported today."
Bonds Advance
"The U.S. Federal Reserve will decide interest rates today, with futures showing a 68 percent chance it will cut the key rate by a quarter-point."
"The Federal Open Market Committee is predicted to keep its benchmark rate at 2 percent, according to the median of 105 economists surveyed by Bloomberg. The announcement is scheduled for 2:15 p.m. in Washington."
"U.K. government bonds advanced, with the yield on the two- year note, which is more sensitive to interest-rate expectations, falling 6 basis points to 4.27 percent. The 4.75 percent security due June 2010 climbed 0.09, or 90 pence per 1,000-pound ($1,795) face amount, to 100.78."
The 10-year gilt yield slid 6 basis points to 4.40 percent. Bond yields move inversely to prices.
To contact the reporter on this story: Andrew MacAskill in London at amacaskill@bloomberg.net
"Last Updated: September 16, 2008 03:29 EDT"
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Gold Falls as Investors Seek Cash Amid U.S. Financial Turmoil
By Feiwen Rong and Glenys Sim
Sept. 16 (Bloomberg) -- Gold declined for the first day in three as some investors sold the precious metal to raise cash after U.S. stocks tumbled on increased speculation that credit- market losses and the economic slowdown will worsen.
Bullion dropped from its highest in a week after U.S. stocks slumped yesterday by the most since the September 2001 terrorist attacks. The precious metal had jumped 5.4 percent in the past two days.
"``In the short-term when disaster happens, some people rush to the door to liquidate whatever they can, be it gold or other assets to raise cash or to cover margin calls,'' Ellison Chu, manager of precious metals at Standard Bank Asia Ltd., said today by phone from Hong Kong."
"Gold for immediate delivery fell 1.4 percent to $775.40 an ounce at 12:43 p.m. in Singapore after earlier rising to $788.10 an ounce, the highest in a week. Silver for immediate delivery fell 3.1 percent to $10.77 an ounce."
"``Bullion will trade in a volatile range,'' Chu added. ``The whole Lehman bankruptcy news made people worry about the U.S. dollar, which is supportive for gold.''"
The dollar traded near a two-month low against the yen on speculation the Federal Reserve will cut the target lending rate today after Lehman filed for bankruptcy.
December-delivery gold fell 1.3 percent to $776.50 an ounce in after-hours electronic trading on the Comex division of the New York Mercantile Exchange at 1:02 p.m. in Singapore.
"Gold for August delivery traded in Tokyo was down 0.7 percent at 2,600 yen a gram ($774 an ounce) at the same time, while Shanghai gold for December delivery was higher at 172.60 yuan a gram ($786 an ounce)."
To contact the reporters on this story: Feiwen Rong in Singapore at frong2@bloomberg.net; Glenys Sim in Singapore at gsim4@bloomberg.net
"Last Updated: September 16, 2008 01:13 EDT"
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"French Stocks Fall, Led by BNP, Renault; France Telecom Gains "
By Sarah Thompson
"Sept. 16 (Bloomberg) -- France's CAC 40 Index dropped 1.32, or 1.3 percent, to 4,113.76 at 10:03 a.m. in Paris. The SBF 120 Index lost 1.3 percent."
The following were among the most active stocks in Paris. Symbols are in parentheses.
"Atos Origin SA (ATO FP) fell 49 cents, or 1.5 percent, to 31.80 euros. Merrill Lynch & Co. cut its share-price estimate on France's second-largest computer-services provider to 35 euros from 39 euros."
"``We believe there is still significant risk to earnings for the sector and that 2009 and 2010 will be difficult years for the industry,'' the analysts wrote in a research note dated today."
"BNP Paribas SA (BNP FP) fell 2.06 euros, or 3.4 percent, to 57.86 euros. French banks may see ``limited'' repercussions from the bankruptcy of Lehman Brothers Holdings Inc., the fourth-largest U.S. securities firm, the French finance ministry said. BNP Paribas, France's largest bank by market value, said it has ``manageable'' exposure to Lehman."
"Boizel Chanoine Champagne SA (BOZ FP) advanced 1.22 euros, or 1.7 percent, to 71.92 euros. France's second-largest producer of champagne will report half-year earnings after the market closes in Paris."
"Electricite de France SA (EDF FP) added 70 cents, or 1.5 percent, to 48.94 euros. British Energy Group Plc's board, led by Adrian Montague, will meet today to discuss a new, provisional bid of more than 12 billion pounds ($21.5 billion) from EDF, the London-based Times reported."
"Eramet SA (ERA FP) lost 9.37 euros, or 3.1 percent, to 297.99 euros. Copper for delivery in three months slumped as much as 3 percent to $6,720 a metric ton in London. Platinum, gold, nickel, lead, zinc and aluminum prices also fell."
"Separately, the French mining company that refines nickel and manganese said its Erasteel unit will invest 17 million euros in a new atomization unit in Sweden, building the world's largest capacity in gas-atomized metal powders."
"Esker SA (ESK FP) slumped 79 cents, or 18 percent, to 3.55 euros. The French supplier of fax software to Whirlpool Corp. and Adecco SA said its first-half loss widened to 1.5 million euros from 135,000 euros a year earlier."
"France Telecom SA (FTE FP) added 46.5 cents, or 2.4 percent, to 19.68 euros. Europe's third-largest phone company will focus on English-speaking African countries for future acquisitions, the Financial Times reported, citing an interview with Chief Executive Officer Didier Lombard."
"Renault SA (RNO FP) lost 1.59 euros, or 3.1 percent, to 49.61 euros. PSA Peugeot Citroen (UG FP) slipped 75 cents, or 2.4 percent, to 30.31 euros."
European car sales declined 16 percent last month as higher fuel prices and falling consumer confidence hit demand for models from General Motors Corp. and Toyota Motor Corp.
"Veolia Environnement SA (VIE FP) decreased 58 cents, or 1.8 percent, to 31.02 euros. The French water and public transport company was downgraded to ``hold'' from ``buy'' at Royal Bank of Scotland Group Plc, which said it had cut its estimates to below consensus."
To contact the reporter on this story: Sarah Thompson in London at sthompson17@bloomberg.net.
"Last Updated: September 16, 2008 04:28 EDT"
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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 1.4 percent to 10.7424 per dollar at 5 p.m. New York time, from 10.5945 on Sept. 12. It touched 10.7735, its weakest level since March 18."
"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 7.1 percent to $94 a barrel on the New York Mercantile Exchange."
"Mexican peso-denominated bonds of all maturities fell. The yield on the benchmark security due in 2024 has risen 10 basis points, or 0.1 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 2 basis points to 8.53 percent today. The price fell 0.23 centavo to 112.86 centavos per peso, according to Banco Santander SA."
To contact the reporter on this story: Valerie Rota in Mexico City at vrota1@bloomberg.net.
"Last Updated: September 15, 2008 17:33 EDT"
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India's 10-Year Bonds Head for Biggest 2-Day Gain in Six Weeks
By Anil Varma
"Sept. 16 (Bloomberg) -- India's 10-year bonds headed for the biggest two-day gain in almost six weeks on speculation the credit crisis that is spreading from the U.S. will deepen a global economic slump, pushing borrowing costs lower."
"Benchmark yields dropped to the lowest in more than three months after mounting credit losses led to the collapse of Lehman Brothers Holdings Inc., the sale of Merrill Lynch & Co. and a debt-rating downgrade of American International Group Inc. China reduced interest rates yesterday for the first time in six years after the economy slowed through four straight quarters."
"``The worsening of the global financial crisis has given rise to a view that the U.S. may cut rates again, putting pressure on central banks worldwide to follow suit,'' said S. Ananthanarayan, chief trader in Mumbai at Kotak Mahindra Bank Ltd. ``Bonds have gained since yesterday as the China rate cut helped this speculation.''"
"The yield on the benchmark 8.24 percent note due April 2018 fell 6 basis points to 8.10 percent as of 1:46 p.m. in Mumbai, according to the central bank's trading system. That is the lowest since June 2. Ten-year yields fell 20 basis points yesterday. The price rose 0.38, or 38 paise per 100 rupee face amount, to 100.93. A basis point is 0.01 percentage point."
"Credit losses forced Lehman to file the biggest bankruptcy in history. Merrill, the world's biggest brokerage firm, yesterday agreed to be sold at about $50 billion to Bank of America Corp. Debt ratings of AIG, the biggest U.S. insurer, were downgraded yesterday by Standard & Poor's and Moody's Investors Service."
"Rates, Inflation"
The People's Bank of China reduced the one-year lending rate to 7.20 percent from 7.47 percent and lowered the reserve ratio at the nation's smaller banks by 1 percentage point amid signs inflation is slowing.
"The Reserve Bank of India has increased the benchmark interest rate three times this year starting June after leaving it unchanged for more than a year. China, which raised its benchmark six times in 2007, left the rate unchanged this year until yesterday's reduction."
"China's annualized inflation rate declined to 4.9 percent in August, the least since June 2007, from a 12-year high of 8.7 percent in February. India's wholesale price inflation was 12.10 percent in the week ended Aug. 30, still near a 16-year high of 12.63 percent reached earlier that month."
"China raised banks' reserve requirements by 8.5 percentage points through 2007 and 2008 before cutting it by 1 percentage point for most lenders yesterday. India added 3.5 percentage points to its cash reserve ratio during the same period, raising it to an eight-year high of 9 percent in July."
"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 8.15 percent from 8.41 percent yesterday."
To contact the reporter on this story: Anil Varma in Mumbai at avarma3@bloomberg.net.
"Last Updated: September 16, 2008 04:34 EDT"
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"Corn, Soybeans Drop as Credit Turmoil May Hurt Economy, Demand "
By Jae Hur
Sept. 16 (Bloomberg) -- Corn and soybeans fell for a second day amid concern the ratings downgrade of American International Group Inc. will worsen the global turmoil and reduce demand for food and fuel. Wheat also dropped.
"Commodities dropped as Asian stocks slumped dropped by the most in eight months after Lehman Brothers Holdings Inc. sought court protection and the Federal Reserve balked at providing a loan to AIG, threatening its efforts to stay afloat."
"``The weakness in grains and soybeans prices today can be put down to the collapsing price of oil and, in the wake of renewed turmoil in financial markets, deteriorating global demand prospects for many commodities,'' said Toby Hassall, an analyst at Commodity Warrants Australia in Sydney."
"Corn for December delivery lost as much as 12.25 cents, or 2.2 percent, to $5.4975 a bushel in after-hours trading on the Chicago Board of Trade and was at $5.51 by 2:47 p.m. Singapore time. Futures reached a record $7.9925 on June 27."
"Soybeans for November delivery fell as much as 29 cents, or 2.5 percent, to $11.50 a bushel and was at $11.5525. Futures, which declined 1.9 percent yesterday, touched a peak $16.3675 on July 3."
"AIG plunged 61 percent yesterday in New York, part of the biggest tumble in U.S. stocks since Sept. 11 terrorist attacks. The UBS-Bloomberg Constant Maturity Commodity Index of 26 raw materials fell as much as 3.2 percent to the lowest since Jan. 28 after Lehman sought court protection and Bank of America Corp. agreed to buy Merrill Lynch & Co."
`Growing Concern'
"``Like other commodities, grains are capped by growing concern over the financial market,'' said Shuji Sugata, research manager at Mitsubishi Corp. Futures & Securities Ltd. in Tokyo. ``That has prompted investors to take money out from risk assets and fundamentals will play only after this concern calms down.''"
"A drop in crude oil to below $92 a barrel reduced the appeal for corn and soybeans as a source of biofuels, Sugata said."
"Crude for October delivery declined as much as 4.3 percent to $91.56 a barrel, the lowest since Feb. 11, and was at $92.22."
Wheat for December delivery dropped as much as 1.5 percent to $7.16 a bushel and stood at $7.185 by 2:48 p.m. Singapore time. Futures have fallen 47 percent from a peak $13.495 set on Feb. 27.
"Australia, the world's sixth-largest wheat exporter, may harvest 5 percent less of the grain than forecast because of dry weather. Production may be 22.5 million tons, the Australian Bureau of Agricultural and Resource Economics said today. That compares with its June forecast of 23.7 million tons and last year's drought-reduced crop of 13 million tons."
To contact the reporter on this story: Jae Hur in Singapore at jhur1@bloomberg.net
"Last Updated: September 16, 2008 03:48 EDT"
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"China Banks Downgraded on Rate Cut, Economic Slowdown (Update1) "
By Luo Jun
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"Sept. 16 (Bloomberg) -- Chinese banks were downgraded at JPMorgan Chase & Co. and Merrill Lynch & Co., which cited less profitable lending and higher bad-loan costs in a slowing economy."
"The People's Bank of China yesterday reduced the benchmark one-year lending rate by 27 basis points while keeping the deposit rate unchanged. The surprise move is a ``clear negative'' as it will harm loan profitability, Credit Suisse Group analysts said in a note today. A basis point is 0.01 percentage point."
"Industrial & Commercial Bank of China Ltd. led Chinese lenders lower in Hong Kong and Shanghai today, as the central bank move stoked concerns about loan margins and Asian financial stocks slumped following Lehman Brothers Holdings Inc.'s bankruptcy filing. Chinese banks face the prospect of ``zero growth'' next year, Credit Suisse analysts Sherry Lin and Daisy Wu said in a note today."
"``Chinese banks are at the start of sharing the pain of the economic slowdown,'' Simon Ho, a bank analyst at Citigroup Inc., wrote in a report today. ``Banks earnings could come under significant pressure even before taking into consideration a potential rise in credit costs.''"
"ICBC, the world's most profitable bank, fell 10 percent in Shanghai. Bank of China Ltd., the nation's third largest, and with $50 million of loan exposure to Lehman Brothers, dropped 9.2 percent. China Merchants Bank Co., Shenzhen Development Bank Co., Huaxia Bank Co., Shanghai Pudong Development Co., China Minsheng Banking Corp. and Industrial Bank Co. slumped by the 10 percent daily limit. The benchmark CSI 300 Index fell 3.7 percent today."
"The interest rate cut, China's first in six years, may reduce net interest margins by an average 16 basis points, the Credit Suisse analysts wrote."
Cooling Economy
"China's government is trying to bolster an economy that grew at the slowest pace since 2005 in the second quarter as the outlook for exports dim and the global credit crisis deepens. The nation's property market is contracting, threatening to create a bad-loan rebound as real estate companies struggle with financing."
"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 is the first time over the past 20 years that the Chinese government is facing inflation and economic slowdown at the same time -- making policy decisions difficult,'' Xue Lan, Hong Kong-based head of China research at Citigroup, said in a research note today."
"Merrill Lynch today cut earnings estimates for Chinese banks by between 4 percent and 8 percent and reduced price targets by 10 percent to 19 percent. JPMorgan downgraded the industry to ``neutral,'' citing rising credit costs and pressure on earnings from loans and fee-based services."
Zero Growth `Plausible'
"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 a record 17.5 percent. The biggest banks -- ICBC, Bank of China, Agricultural Bank of China, China Construction Bank Corp., Bank of Communications Co. and Postal Savings Bank of China -- are exempted from reductions in the reserve ratio requirement."
"``The reversal of monetary policy and escalated credit risk that will prompt banks to turn more risk averse are likely to work hand in hand to weaken banks' pricing power,'' Lin and Wu wrote. ``We reiterated that our zero growth scenario for 2009 is plausible.''"
To contact the reporters on this story: Luo Jun in Shanghai at jluo@bloomberg.net;
"Last Updated: September 16, 2008 03:27 EDT"
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"More Banks May Have to Raise Capital Post Lehman, Dresdner Says "
By Sarah Jones
"Sept. 16 (Bloomberg) -- The risk of more European banks having to raise capital has ``substantially'' increased after the bankruptcy of Lehman Brothers Holdings Inc., according to analysts at Dresdner Kleinwort."
"``The probability of rights issues has increased substantially,'' London-based analyst Arturo De Frias wrote in a note to investors. ``Fire sales might imply more writedowns, and losses from Lehman lines might weaken already tight capital ratios.''"
"Dresdner last month named Dexia SA, Barclays Plc, Fortis and Deutsche Postbank AG as the main candidates that might be in need of another ``large rights issue.''"
"``The capital ratios of many banks are already very tight and an additional loss'' of 1 billion euros ($1.4 million) to 2 billion euros ``from a Lehman line might push certain banks into rights issue territory again,'' Frias wrote. ``More than ever sector performance will depend on avoiding these potential additional rights issues.''"
European stocks tumbled yesterday after the bankruptcy of Lehman Brothers drove investors to the safety of government debt. The Dow Jones Stoxx 600 Banks Index slumped 6.2 percent.
To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net
"Last Updated: September 16, 2008 03:49 EDT"
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European Bonds Advance as AIG Downgrades Fuel Demand for Safety
"Sept. 16 (Bloomberg) -- European government notes rose, extending the biggest one-day advance in six months, as American International Group Inc. had its credit ratings lowered, fueling concern the turmoil in financial markets is spreading."
"The gains sent two-year note yields to the lowest level in five months after Lehman Brothers Holdings Inc. filed for the biggest bankruptcy in history yesterday. Washington Mutual Inc., the biggest U.S. savings and loan, had its credit rating cut to junk because of the deteriorating housing market. Bonds stayed higher even after an industry survey showed economic sentiment in Germany, Europe's largest economy, improved in September."
"``After the U.S. government let Lehman collapse, the question you need to ask is: who is too big to fail?'' said Peter Lucas, chief investment officer at Jersey, Channel Islands-based Ashburton Ltd., which manages about $1.7 billion. ``I don't think they're the last casualty. We're focusing on short-dated maturities. They will benefit the most in the risk-averse environment.''"
"The yield on the two-year note fell 7 basis points to 3.65 percent by 10:50 a.m. in London. It declined 28 basis points yesterday, the sharpest drop since March 17, the day after the Federal Reserve cut its discount rate. The price of the 4 percent note maturing September 2010 rose 0.13, or 1.3 euros per 1,000- euro ($1,426) face amount, to 100.65."
The yield on the 10-year bund slipped 7 basis points to 3.98 percent. Bond yields move inversely to prices.
Stock Declines
"Bonds also gained as declines in stocks stoked demand for the safest assets. Asian stock markets dropped the most in eight months today, with the MSCI Asia Pacific Index losing as much as 4.8 percent, the biggest drop since Jan. 22. The Dow Jones Stoxx 600, a benchmark for the euro region, slipped for a second day."
"AIG's credit downgrades by Standard & Poor's and Moody's Investors Service may threaten efforts to raise emergency funds to keep the company afloat. The biggest U.S. insurer by assets is seeking $70 billion to $75 billion in loans arranged by Goldman Sachs Group Inc. and JPMorgan Chase & Co. to replenish capital, according to two people familiar with the situation."
"Lehman, the 158-year-old securities firm that survived railroad bankruptcies of the 1800s, the Great Depression in the 1930s and the collapse of Long-Term Capital Management a decade ago, filed a Chapter 11 petition with U.S. Bankruptcy Court in Manhattan yesterday."
Slowing Inflation
"The inflation rate in the euro region fell to 3.8 percent in August from 4 percent, the first drop in four months, the European Union statistics office said today. Consumer prices slipped 0.1 percent from July, compared with a 0.2 percent decline predicted by 43 economists in a Bloomberg survey."
"Further gains may be limited after a survey showed German investor confidence improved more than forecast. The ZEW Center for European Economic Research said its index of investor and analyst expectations rose to minus 41.1, from minus 55.5 in August, compared with a reading of minus 53 forecast by a median forecast of 43 economists surveyed by Bloomberg."
"Inflation expectations, as measured by the difference in yield between nominal and index-linked bonds, declined as crude oil fell to a seven-month low. The so-called breakeven rate on French nine-year debt dropped to 2.15 percentage points, from 2.16 percentage points yesterday and 2.21 percentage points last week."
"Bonds held gains after an industry report showed car sales in Europe slid 16 percent last month as fuel prices, which are still 14 percent higher from the same period last year, and falling consumer confidence curbed demand."
Economists surveyed by Bloomberg forecast that the ECB will keep its benchmark rate on hold at 4.25 percent this year before cutting it in the first quarter of next year.
To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net
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Japanese Bonds Surge on Concern Financial Turmoil Is Worsening
"Sept. 16 (Bloomberg) -- Japanese government bonds surged, pushing 10-year yields to the lowest level in almost five months, after Lehman Brothers Holdings Inc.'s bankruptcy fueled concern that credit losses will widen."
"Bond futures jumped, causing the Tokyo Stock Exchange to halt trading in the contracts for 15 minutes in the morning session, as a slump in stocks boosted the appeal of fixed-income assets. The Bank of Japan, which started a two-day policy meeting today, added 2.5 trillion yen ($24 billion) to the financial system, the most since March."
"``The market is crazy,'' said Keiko Onogi, a debt strategist at Daiwa Securities SMBC Co., one of the 24 primary dealers that are required to bid at auctions, in Tokyo. ``There is concern about the financial turmoil and the market will stay at these high levels.''"
"The yield on the 1.5 percent bond due September 2018 dropped 6.5 basis points to 1.465 percent as of 4:10 p.m. in Tokyo at Japan Bond Trading Co., the nation's largest interdealer debt broker. The price rose 0.566 yen to 100.305 yen. The yield earlier hit 1.375 percent, the lowest since April 18."
"Ten-year bond futures for December delivery jumped 2.10 to 139.45 as of the afternoon close at the Tokyo Stock Exchange. The finance ministry suspended Lehman as a primary dealer, leaving 24 companies obliged to bid at government debt sales."
`Flight to Quality'
"``It's better to prepare for a flight to quality'' and buy bonds, said Koji Shimamoto, chief strategist at BNP Paribas Securities Japan Ltd. in Tokyo and the top-rated debt analyst in Japan according to the Nikkei Veritas newspaper."
"The Nikkei 225 Stock Average slipped 5 percent to the lowest since July 2005 after Lehman declared bankruptcy and American International Group Inc.'s debt ratings were cut by Standard & Poor's and Moody's Investors Service, hampering the insurer's efforts to raise emergency funds."
"Japan's bonds often move in the opposite direction to stocks. Benchmark 10-year yields had a correlation of 0.86 with the Nikkei 225 so far this month, according to Bloomberg data. A value of 1 means the two moved in lockstep."
"The difference between what the U.S. government and banks pay to borrow for three months, known as the TED spread, widened to 2.01 percentage points yesterday, the most since March."
"``Capital, always in short supply, is even less available now,'' said John Richards, head of debt-market strategy for the Asia-Pacific region at RBS Securities Japan Ltd., another primary dealer, in Tokyo. ``The drop in rates we expect to see in Japan due to weaker equity prices and slower U.S. growth will likely stick.''"
Money-Market Operations
"``The Bank of Japan will carefully monitor the recent developments among U.S. financial institutions and continue to try to secure smooth fund settlements and financial-market stability by implementing appropriate money-market operations,'' Governor Masaaki Shirakawa said in a statement on the BOJ's Web site."
"Debt demand also increased as the odds that the Fed will cut its 2 percent benchmark interest rate by a quarter- percentage point today were 86 percent, up from zero a week ago, according to a Credit Suisse Group index based on overnight swaps."
"``The feeling of financial crisis has strengthened,'' said Eiji Dohke, chief strategist at UBS Securities in Tokyo. ``The likelihood of a Federal Reserve interest-rate cut has become strong.''"
BOJ Rate Outlook
"Five-year yields, sensitive to changes in interest-rate expectations, lost 7 basis points, or 0.07 percentage point, to 1.045 percent. All 33 economists surveyed by Bloomberg News expect Bank of Japan policy makers will leave the benchmark lending rate unchanged at 0.5 percent tomorrow."
"Yields on Euroyen contracts for March delivery, which reflect the outlook for Japan's benchmark rate, fell 6.5 basis points to 0.75 percent, the lowest since April, at the Tokyo Financial Exchange. Last year's average yield was 0.77 percent."
"Demand for government securities may be limited in coming weeks on concern Japan will issue additional debt to help finance economic stimulus packages, according to Mitsubishi UFJ Securities Co., a unit of Japan's largest bank by assets."
"``The domestic market may focus on more domestic issues like the election after this week,'' said Takashi Nishimura, an analyst at Mitsubishi UFJ Securities, a unit of Japan's largest bank by assets, in Tokyo. There is concern the government may issue extra bonds, he said."
"Taro Aso, who said spending more to save an economy on the verge of a recession should be the government's top priority, is a front runner to become Japan's prime minister. Japan has 778 trillion yen of outstanding debt, which at 147 percent of gross domestic product is the largest among industrialized nations."
Further gains in bond futures may be limited as a technical chart traders use to predict price changes suggested the 10-year contract's 1.2 percent rise over the past week is approaching an excessive level.
"The 14-day relative strength index on the contracts for December delivery was 65 today, according to data compiled by Bloomberg. A reading above 70 suggests the futures advance may be overdone."
To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net.
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"Ecopetrol, Molinos, Pao de Acucar, VCP: Latin Equity Preview "
By Paulo Winterstein and James Attwood
"Sept. 16 (Bloomberg) -- The following companies may have unusual price changes today in Latin America trading. Stock symbols are in parentheses, and share prices are from the previous close. Preferred shares are usually the most-traded class of stock in Brazil."
"The MSCI Latin America Index tumbled 7.4 percent yesterday to 3,273.90. Markets in Mexico are closed today for a holiday."
Argentina
"Molinos Rio de la Plata SA (MOLI AF): Molinos agreed to buy up to 25 million of its own shares, or about 10 percent of shares outstanding, to contain price declines spurred by an international sell off, the Buenos Aires-based agricultural company wrote in statement posted on the regulator's Web site yesterday. Molinos jumped 7.8 percent to 7.65 pesos."
Brazil
"Cia. Brasileira de Distribuicao Grupo Pao de Acucar (PCAR4 BS): Brazil's biggest food retailer said August sales at stores open at least a year climbed for a fourth month, rising 17 percent from the year-earlier period. Net sales at all stores rose 29 percent to 1.5 billion reais ($835 million), led by electronics and textiles, Grupo Pao de Acucar said yesterday in a regulatory filing. Pao de Acucar fell 2.7 percent to 33.99 reais."
"Petroleo Brasileiro SA (PETR4 BS): Brazil's state-controlled oil company expects exports of its oil and fuels to exceed imports in 2008, the company's refining chief Paulo Roberto Costa said. Petrobras has been increasing diesel output from its domestic refineries and adding vegetable oils into its domestic Brazilian diesel blends, which the company forecasts will keep imports of diesel at 50,000 to 60,000 barrels a day in 2009, Costa told reporters yesterday in Rio de Janeiro. Petrobras dropped 9.7 percent to 29.80 reais."
"Votorantim Celulose & Papel SA (VCPA4 BS): The Safra family's plan to participate in the controlling block of a merged VCP and Aracruz Celulose SA ``opens the way for the consolidation of activities between VCP and Aracruz'' and should help VCP stock, Fator Corretora chief analyst Lika Takahashi wrote in a note yesterday. VCP, as Brazil's third-largest pulp producer is known, fell 5.4 percent to 34.95 reais."
Colombia
"Ecopetrol SA (ECOPETL CB): Colombia's state-controlled oil producer received a reiterated ``buy'' from Citigroup Inc. on growth prospects. Ecopetrol's planned American depositary receipt listing on Sept. 18 probably will support the share price by increasing investor access and improving information disclosure, Citigroup analysts wrote in a note to clients yesterday. The stock fell 1.9 percent to 2,625 pesos."
To contact the reporters on this story: Paulo Winterstein in Sao Paulo at pwinterstein@bloomberg.net; James Attwood in Santiago at jattwood3@bloomberg.net.
"Last Updated: September 16, 2008 00:01 EDT"
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Copper Drops in London on Concern Market Turmoil May Cut Demand
By Rachel Graham
Sept. 16 (Bloomberg) -- Copper dropped to a seven-month low in London on concern that the turmoil in financial markets may further weaken the global economy and reduce demand for raw materials. Aluminum and zinc also fell.
"Stocks in Europe and Asia declined for a second day and U.S. index futures retreated after Standard & Poor's and Moody's Investors Service cut debt ratings for American International Group Inc., threatening efforts to keep the biggest U.S. insurer afloat."
"``Risk aversion has risen dramatically,'' Stephen Briggs, a commodity strategist at RBS Global Banking & Markets in London said by phone. ``The pace of slowing demand'' is also an issue for industrial metals, he said."
"Copper for delivery in three months slid as much as $210, or 3 percent, to $6,720 a metric ton on the London Metal Exchange. That is the lowest intraday price since Jan. 22. It last traded at $6,784 a ton."
"The metal may extend its decline as it remains above its cost of production, Briggs said."
"``It's exposed in that sense,'' he said. Most copper mines are profitable at prices over about $4,000 a ton, he added."
"Among other metals traded on the exchange, aluminum traded as low as $2,525 a ton in London, the lowest compared with intraday prices since Jan. 29. Tin slumped $700, or 3.7 percent, to $18,200 a ton while lead dropped $60, or 3.2 percent, to $1,790 and nickel fell $454, or 2.5 percent, to $17,651."
To contact the reporter on this story: Rachel Graham in London at rgraham13@bloomberg.net
"Last Updated: September 16, 2008 04:32 EDT"
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Treasuries Little Changed; Fed May Cut Interest Rates Today
By Agnes Lovasz and Wes Goodman
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"Sept. 16 (Bloomberg) -- Treasuries were little changed after the biggest rally since the September 2001 terrorist attacks, as traders raised bets the Federal Reserve will cut interest rates today to buoy financial markets hammered by the collapse of Lehman Brothers Holdings Inc."
"The yield on two-year notes held at the lowest level since mid-April as weaker stocks supported demand for the relative safety of government securities. American International Group Inc., the U.S. insurer that is seeking bank loans, had its debt ratings cut by Standard & Poor's and Moody's Investors Service."
"``A lot of people are thinking in terms of a concerted action on the monetary policy front. The market is certainly betting on it,'' said Luca Jellinek, a London-based strategist at Royal Bank of Scotland Group Plc."
"Yields on U.S. two-year notes fell 2 basis points to 1.73 percent as of 10:35 a.m. in London, the lowest level since April 15, according to bond broker BGCantor Market Data. The 2.375 percent security due August 2010 was at 101 8/32. The 10-year note yield was at 3.40 percent."
"The Fed will lower its target rate for overnight lending between banks by a quarter point to 1.75 percent, futures trading showed. Contracts on the Chicago Board of Trade put the odds on a cut at 68 percent, compared with zero a week ago."
"Treasuries pared gains as U.S. stock-index futures reversed losses. Futures on the Standard & Poor's 500 index were 0.1 percent higher, after earlier falling as much as 1.7 percent."
"Treasury yields dropped earlier as the MSCI Asia-Pacific Index of regional shares slid as much as 5.5 percent, adding to declines in Europe and the U.S. yesterday. The MSCI World Index of equities fell 0.8 percent, declining the most in the past two days since the week ending Feb. 8 as Lehman yesterday filed the biggest bankruptcy in history."
`Illiquid Markets'
"An index of emerging-market bonds compiled by JPMorgan Chase & Co. yielded 3.97 percentage points more than Treasuries, the most since 2005, as investors demanded greater compensation to hold the securities. The spread widened more than half a percentage point in two days."
"``It has really been the new world of risk that has brought about these tremors in the markets,'' Carl Weinberg, chief economist at High Frequency Economics in Valhalla, New York, said yesterday. ``Markets are pretty illiquid. People who have safe assets aren't willing to sell them.'' High Frequency began warning about the housing market in 2005."
"U.S. three-month bill yields were at 1.02 percent today, after falling to 0.80 percent yesterday, the lowest since March."
Lending Squeeze
"The difference between what the U.S. government and banks pay to borrow in dollars for three months, the so-called TED spread was 1.77 percentage points, from 2.01 percentage points yesterday, also the most since March, indicating banks are still hoarding cash."
"Treasuries also rallied before a Labor Department report today that may show prices paid by U.S. consumers dropped in August for the first time in almost two years. The cost of living fell 0.1 percent, after increasing 0.8 percent in July, according to the median forecast of 75 economists in a Bloomberg News survey."
"Two-year notes yielded 27 basis points less than the Fed's 2 percent target rate, close to the biggest difference since Sept. 8."
"The difference between two- and 10-year yields widened to 1.67 percentage points from 1.40 percentage points a week ago, indicating greater demand for shorter maturities, those most sensitive to interest-rate changes."
Fed Cuts
"``A rate cut of 50 basis points is much more likely than 25, which would be seen as a token gesture,'' Goldman Sachs Group Inc. economist Ed McKelvey wrote in a report yesterday. Goldman, one of the 19 primary dealers that trade directly with the U.S. central bank, said a more likely outcome would be for policy makers to hold rates and say in its statement that the odds of a reduction are increasing."
"Yasutoshi Nagai, chief economist in Tokyo at Daiwa Securities SMBC Co., part of Japan's second-largest brokerage, today forecast a quarter-point cut. There is a chance of a half- point reduction, he said."
"AIG's senior unsecured debt rating was cut two levels by Moody's to A2 from Aa3, which is No. 6 in its 10 investment- grade rankings. Moody's said its decision was made ``in light of the continuing deterioration in the U.S. housing market and the consequent impact on the group's liquidity and capital position.''"
"The Fed urged AIG, the biggest U.S. insurer, to seek private capital and discouraged the insurer from expecting a loan from the central bank, according to two people with knowledge of the discussions."
Financial Losses
"Credit-market losses and writedowns tied to a U.S. housing recession and defaulted subprime mortgages have totaled $514 billion since the start of 2007, propelling Treasuries to their best month since January. The Merrill U.S. Treasury Master index returned 2.1 percent so far in September, versus January's 2.5 percent."
"German bonds returned 0.6 percent and Japanese government securities handed investors a loss of 0.4 percent since the end of August, the Merrill indexes show."
"``We have been buying 10-year bonds'' in the U.S., said Junko Ikeda, who helps invest 50 billion yen ($479 million) of foreign bonds at STB Asset Management Co. in Tokyo. ``The market needs to see a recovery in home prices before the U.S. economy can rebound. We don't think it's going to happen so soon, maybe from the middle of next year.''"
"Ten-year yields may fall to 3 percent by year-end, she said."
"The Bank of Japan added 2.5 trillion yen to the financial system today, the biggest injection since March, and China cut interest rates yesterday as Asian central banks attempted to calm markets. The Fed added $70 billion in reserves to the banking system, the most since the September 2001 terrorist attacks."
To contact the reporters on this story: Agnes Lovasz in London at alovasz@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net.
"Last Updated: September 16, 2008 05:40 EDT"
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German Investor Confidence Rises More Than Expected (Update2)
By Gabi Thesing
Sept. 16 (Bloomberg) -- German investor confidence rose for a second month after a decline in oil prices and a weaker euro improved the prospects for growth in Europe's largest economy.
"The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations rose to minus 41.1 from minus 55.5 in August. That's the highest reading since April this year. Economists expected an increase to minus 53, the median of 43 forecasts in a Bloomberg News survey showed. The report aims to predict economic developments six months ahead."
"The price of oil has dropped almost 40 percent from a July record and the euro has lost 8 percent against the dollar in the past three months, providing relief to consumers and exporters. Still, stocks and bond yields plunged after Lehman Brothers Holdings Inc became the latest victim of a yearlong credit squeeze yesterday and on concern that American International Group Inc. won't be able to raise funds to keep the company afloat."
"``An oil price drop of almost $50 will of course lift the mood,'' said Dominic Bryant, an economist at BNP Paribas in London, whose forecast closely matched the outcome. ``Still, most forecasts were probably submitted before the Lehman collapse. So I wouldn't be surprised if it dropped again next month.''"
Mood Jumps
The gauge assessing the current economic situation jumped from minus 9.2 to minus 1. Economists expected a drop to minus 15. ZEW said 31 responses out of 315 were filed after the Lehman Brothers collapse.
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. Germany's benchmark DAX index has lost 26 percent so far this year.
"American International Group Inc. had its credit ratings cut by Standard & Poor's and Moody's Investors Service, threatening efforts to raise funds to keep the company from sinking and roiling global financial markets."
"New York-based Lehman, founded 158 years ago, said yesterday it plans to file for Chapter 11 bankruptcy protection after failing to find a buyer. Merrill Lynch, also based in New York, agreed to sell itself to Bank of America Corp. for $50 billion in an emergency deal worked out over the weekend."
Paying the Price
"``There are signs that the ongoing market crisis has affected corporates already and yesterday's news will push up borrowing costs even further.'' said James Nixon, an economist at Societe Generale SA in London."
"The cost of borrowing euros for three months has remained close to the highest level since December 2000. The euro interbank offered rate, or Euribor, was little changed at 4.97 percent, European Banking Federation data showed today. The one-week rate rose to 4.5 percent. Germany's Ifo institute said yesterday that companies reported tighter lending standards ``in all sectors.''"
"The past increases in oil prices and consumers' recession fears put additional pressure on firms. European car sales declined 16 percent last month as higher fuel prices and falling consumer confidence hit demand for models from General Motors Corp. and Toyota Motor Corp, a report this morning showed."
"The German economy shrank for the first time in almost four years in the three months through June and may not recover until the end of the year, ZEW President Wolfgang Franz said Sept. 11. Until then, a recession ``cannot be ruled out,'' he said."
Germany's RWI institute today scaled back its outlook for growth in Europe's biggest economy next year by to 0.7 percent from 1.5 percent as weaker export demand and inflation push the country toward a recession.
Fizzling
"German Finance Minister Peer Steinbrueck today told fellow lawmakers that a third-quarter contraction ``can't be ruled out.'' Even so, ``there can be no talk of an ongoing recession.''"
"Investors have nevertheless raised bets that the worsening growth outlook and waning oil price may force the European Central Bank to lower interest rates. The yield on the March Eonia forward contracts contract was at 3.96 percent today, down from 4.26 percent a month ago."
"Still, the drop in oil costs and financial market turmoil has not eased inflation concerns at the Frankfurt-based central bank."
"ECB Governing Council member Yves Mersch told Germany's Boersen-Zeitung and Financial Times Deutschland in an interview published today that core inflation, which excludes price gains for oil and energy, is still too high and above the central bank's comfort zone."
"Core inflation accelerated to 1.9 percent last month from 1.7 percent, a report showed this morning. While headline inflation slowed for the first time in four months, at 3.8 percent it is still almost at twice the ECB's limit."
"The ECB raised its benchmark rate by a quarter point to 4.25 percent in July after inflation accelerated to 4 percent, the fastest pace in 16 years."
To contact the reporter on this story: Gabi Thesing in Frankfurt at gthesing@bloomberg.net
"Last Updated: September 16, 2008 06:32 EDT"
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Yen Rises to Near Two-Year High Against Euro on AIG Concern
By Bo Nielsen and Stanley White
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"Sept. 16 (Bloomberg) -- The yen rose to near a two-year high against the euro as the debt-rating downgrade of American International Group Inc. fueled concern credit markets will seize up after the collapse of Lehman Brothers Holdings Inc., prompting traders to pare so-called carry trades."
The yen jumped to the highest level in more than two years against the Australian and New Zealand dollars as a global stock-market rout encouraged investors to cut purchases of higher-yielding assets funded in Japan. The dollar rose versus the euro before a meeting of the Federal Reserve today at which traders expect policy makers to cut interest rates to buoy financial markets.
"``If I was going to take a position right now, it would be to go long yen,'' said David Powell, a currency strategist with Bank of America Corp. in London. ``Risk aversion has taken over.'' A long position is a bet that a currency or asset will increase in price."
"The yen rose to 148.21 per euro as of 10:52 a.m. in London, from 149.11 in New York yesterday. It traded at 147.54 on Sept. 11, the strongest since August 2006. It was little changed versus the dollar at 104.53, from 104.66. The dollar climbed to $1.4168 per euro, from $1.4243 yesterday, when it reached $1.4481, the lowest since Sept. 4."
`End of the World'
"AIG's credit downgrades by Standard & Poor's and Moody's Investors Service may threaten efforts to raise emergency funds to keep the company afloat. The largest U.S. insurer by assets is seeking $70 billion to $75 billion in loans arranged by Goldman Sachs Group Inc. and JPMorgan Chase & Co., according to people familiar with the situation."
Lehman filed for bankruptcy yesterday after Bank of America Corp. and Barclays Plc pulled out of talks to buy the New York- based bank.
"``It's the end of the world as we know it, at least that is how it feels,'' said Greg Gibbs, a currency strategist at ABN Amro Holdings NV in Sydney. ``The main beneficiary has been the yen, which is not a surprise being the typical risk-aversion play and the prospect that Japanese outflow to foreign markets dries up.''"
The yen gained 2.4 percent to 82.40 versus the Australian dollar and 1.6 percent to 67.93 against the New Zealand dollar.
"The Japanese currency typically advances when demand for riskier assets wanes, as investors reduce carry trades. In such transactions, they borrow in low interest-rate countries to buy higher-yielding assets elsewhere, earning the spread between the two."
"Japan's 0.5 percent target lending rate compares with 4.25 percent in Europe, 7 percent in Australia and 7.5 percent in New Zealand. The MSCI Asia-Pacific Index fell 3.7 percent."
Investor Confidence
"The euro fell even after the ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations rose to minus 41.1, from minus 55.5 in August. That's the highest reading since April this year. Economists in a Bloomberg News survey expected an increase to minus 53."
"Futures on the Chicago Board of Trade yesterday showed a 68 percent chance the Fed will lower its 2 percent target rate for overnight lending between banks by a quarter-percentage point when it meets today, compared with no chance a week ago. Policy makers are scheduled to announce their decision at 2:15 p.m. in Washington."
"``The market is expecting the Fed to calm things down, whether they actually will is another matter,'' said Henry Wilkes, head of foreign-exchange trading at Brown Brothers Harriman in London. ``We're heading into unprecedented waters with the concerns about AIG and the contagion into the insurance market. A lot of people are a bit shell-shocked.''"
Volatility
"The implied yield on the March Federal Funds future fell to 1.52 percent, the lowest since March 17, when the U.S. central bank bailed out Bear Stearns Cos."
"Implied volatility on one-month euro-dollar options reached 14.46 percent today, the highest level since the aftermath of the Sept. 11, 2001, terrorists attacks, indicating traders see more price fluctuation in the next month. Volatility on one- month dollar-yen options touched 18.28 percent today, the highest since March 19."
"The dollar has gained about 11 percent since touching an all-time low of $1.6038 per euro on July 15, sliding as the European economy slowed and crude oil dropped more than a third from its July peak of $147.27 a barrel."
"``The appetite for the U.S. dollar has not reversed,'' said Jack Spitz, a managing director of foreign exchange at National Bank of Canada in Toronto. ``Risk reduction provides support.''"
To contact the reporter on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net; Stanley White in Tokyo at swhite28@bloomberg.net
"Last Updated: September 16, 2008 06:04 EDT"
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"Stocks in Europe, Asia Fall on AIG Debt Rating Cuts; UBS Drops "
By Adria Cimino
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Sept. 16 (Bloomberg) -- Stocks fell in Europe and Asia after the downgrade of American International Group Inc.'s credit rating increased turmoil in global debt markets. U.S. index futures rose as traders bet the Federal Reserve will cut interest rates.
"UBS AG, which took more than $43 billion of subprime- related writedowns, lost 5.9 percent, and Mitsubishi UFJ Financial Group Inc. slumped 7.9 percent on speculation that the seizure in financial markets will worsen and hurt the global economy. Rio Tinto Group sank 3 percent and BG Group Plc declined 3.7 percent as commodity prices retreated, while Porsche SE dropped 2.1 percent after an industry group said the slump in European car sales deepened."
"``Things can't get much worse,'' said Roland Lescure, who manages the equivalent of $128 billion as chief investment officer of Groupama Asset Management in Paris. ``We're at the heart of the storm right now. The downgrade of credit ratings is bad news, but inevitable.''"
"The MSCI World Index lost 1 percent to 1,224.99 at 10:44 a.m. in London, bringing this year's decline to 23 percent. More than $16 trillion has been erased from global equities this year as the biggest surge in mortgage defaults in at least three decades sparked $514 billion in credit losses and writedowns."
The dollar fell against the yen and was little changed against the euro.
"Futures traders increased bets the Fed will cut borrowing costs today, putting the odds of a quarter point reduction in rates at 68 percent, up from zero a week ago."
Investor Confidence
Stocks pared declines after a report showed German investor confidence rose for a second month after a decline in oil prices and a weaker euro improved the prospects for growth in Europe's largest economy.
The ZEW Center for European Economic Research said its index of investor and analyst expectations increased to minus 41.1 from minus 55.5 in August. That's the highest reading since April this year.
"Europe's Dow Jones Stoxx 600 Index declined 1.1 percent. The MSCI Asia Pacific Index decreased 3.9 percent as trading resumed in Japan, China, Hong Kong and South Korea after markets were shut for public holidays yesterday."
Futures on the Standard & Poor's 500 Index added 0.2 percent.
"UBS, the largest Swiss bank, lost 5.9 percent 18.91 francs. Natixis SA, France's fourth-biggest bank, slumped 6.7 percent to 2.78 euros."
"Barclays Plc, the U.K.'s third-largest bank, retreated 1.6 percent to 311 pence. The bank said today it's in talks to buy assets from bankrupt Lehman Brothers Holdings Inc. two days after abandoning plans to acquire the entire securities firm."
Corporate Bonds
"The cost of protecting European corporate bonds from default rose, according to traders of credit-default swaps. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-risk, high-yield credit ratings climbed 38 basis points to 632, according to JPMorgan Chase & Co. prices at 7 a.m. in London."
"Mitsubishi UFJ fell 7.9 percent to 790 yen, while Sumitomo Mitsui Financial Group Inc. declined 9.8 percent to 619,000 yen."
"AIG's credit ratings were downgraded by S&P and Moody's, threatening efforts to raise emergency funds to keep the company afloat. S&P lowered AIG's long-term counterparty rating three grades to A- from AA-, citing a ``combination of reduced flexibility in meeting additional collateral needs and concerns over increasing residential mortgage-related losses.''"
Credit Rating
The ratings assessor also lowered AIG's short-term counterparty credit rating and cut its counterparty credit and financial strength ratings on most of AIG's insurance operating subsidiaries. AIG's senior unsecured debt rating was downgraded by Moody's to A2 from Aa3.
AIG added 69 cents to $5.45 in Germany. The shares tumbled 61 percent yesterday in New York trading.
Washington Mutual Inc. slid 15 cents to $1.85. The biggest U.S. savings and loan had its credit rating cut to junk by S&P because of the deteriorating housing market.
"Stocks slid yesterday in the U.S., pushing the Standard & Poor's 500 Index to the steepest drop since the September 2001 terrorist attacks, as Lehman's bankruptcy increased speculation that credit-related losses will worsen."
"``Lehman is the latest episode in a series of dark events,'' said Jean Bruneau, head of sales trading at Societe Generale SA in Paris. ``In a healthy economic system, there is confidence -- that confidence is gone.''"
"Rio Tinto, the world's second-largest iron-ore producer, decreased 3 percent to 4,067 pence. BG Group, the U.K.'s third- biggest oil and natural-gas producer, slumped 3.7 percent to 1,056 pence. Total SA, Europe's largest oil refiner, lost 1.1 percent to 42.91 euros."
Metals Prices
"Copper and aluminum plunged by the daily limit in Shanghai. The metals also fell in London, as did lead, nickel, tin and zinc."
Crude oil tumbled below $92 a barrel to a seven-month low and gasoline fell on concern that turmoil on Wall Street may weaken the global economy and reduce demand for fuels and raw materials. The contract for October delivery fell as much as 4.4 percent to $91.54 on the New York Mercantile Exchange.
"Porsche, the maker of the 911 sports car, lost 2.1 percent to 83.52 euros. Continental AG, Europe's second-largest car- parts maker, slipped 1.1 percent to 72.70 euros."
European car sales declined 16 percent last month as higher fuel prices and falling consumer confidence hit demand for models from General Motors Corp. and Toyota Motor Corp.
"Registrations fell to 805,839 from 955,318 a year earlier, the Brussels-based European Automobile Manufacturers' Association said today in a statement. Sales for the first eight months dropped 3.9 percent, accelerating from a 2.8 percent contraction through July."
To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.
"Last Updated: September 16, 2008 05:53 EDT"
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German August Inflation Slows as Oil Price Retreats (Update1)
By Simone Meier
"Sept. 16 (Bloomberg) -- Inflation in Germany, Europe's largest economy, slowed in August as oil prices retreated."
"Consumer prices rose 3.3 percent from a year earlier after increasing 3.5 percent in July, the Federal Statistics Office in Wiesbaden said today, using a harmonized European Union method. That's in line with an initial estimate published on Aug. 27. In the month, prices fell 0.4 percent."
"Crude oil prices have dropped 38 percent since reaching a July 11 record of $147.27 a barrel, easing pressure on companies to pass on higher costs. Still, the European Central Bank this month kept its key rate at 4.25 percent to fight price pressures even with the euro-region economy on the brink of a recession."
"``Oil prices have retreated faster and more than we expected,'' said Stefan Muetze, an economist at Helaba Invest GmbH in Frankfurt. ``Inflation will definitely slow over the coming months. We still expect the ECB to keep borrowing costs on hold for the rest of the year.''"
"Under a national measure, inflation slowed to 3.1 percent in August from 3.3 percent and consumer prices fell 0.3 percent from the previous month, today's report showed."
"The price of heating oil rose 43 percent from a year earlier and diesel was 20 percent more expensive, today's report showed. The cost of food and non-alcoholic beverages rose 6.9 percent in the year. Core inflation, excluding energy costs, was at 2.4 percent in August, the statistics office said."
Pay Push
"ECB council member Yves Mersch said in an interview with Financial Times Deutschland published today that one ``shouldn't underestimate that we have core inflation, which is very high.''"
The ECB is concerned about so-called second-round effects emerging as labor unions push through more pay and companies raise prices to compensate higher costs. ECB Vice President Lucas Papademos said on Sept. 11 there are ``indications'' of ``broad- based'' second-round effects materializing.
"In Germany, the IG Metall labor union representing 3.2 million workers said earlier this month that it will seek as much as 8 percent more pay in this year's wage round. That would be the biggest increase in at least 16 years."
"Crude oil prices are still up 14 percent from a year ago, sapping the spending power of consumers and companies. The July oil-price spike has pushed German producer prices to a 27-year high and wholesale prices to the highest rate in 26 years, while import prices rose the most in eight years."
"In the economy of the 15 euro nations, inflation probably slowed to 3.8 percent in August from 4 percent in the previous month, a Bloomberg survey shows. The EU's statistics office in Luxembourg will release the report at 11 a.m. today."
"Still, with the economy cooling, companies may find it more difficult to pass on higher costs. European industrial production fell more than economists forecast in July and manufacturing contracted for a third straight month in August."
To contact the reporter on this story: Simone Meier in Frankfurt at smeier@bloomberg.net
"Last Updated: September 16, 2008 02:37 EDT"
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France Overtakes China as World's Fourth-Largest Stock Market
By Zhang Shidong
Sept. 16 (Bloomberg) -- France overtook China as the world's fourth-largest stock market after lending curbs and an economic slowdown made the Asian nation's equities among the worst performers globally this year.
"Equities traded on China's Shanghai and Shenzhen stock exchanges dropped in value to $1.98 trillion as of Sept. 12, below the $2.01 trillion for France as of Sept. 14, according to the most recent data compiled by Bloomberg. China's markets were shut yesterday for a holiday."
To contact the reporter on this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net
"Last Updated: September 15, 2008 20:38 EDT"
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Standard Chartered Closes Bet to Sell Euro on `Extreme' Markets
By Ron Harui
"Sept. 16 (Bloomberg) -- Standard Chartered Plc, the U.K. bank that gets most of its profit from Asia, closed its recommendation to sell the euro against Australia's dollar, given the ``current extreme conditions'' in the global markets."
"The European currency rose to a five-year high versus Australia's as Lehman Brothers Holdings Inc.'s filing of the largest bankruptcy in history boosted speculation that credit- market losses will increase, prompting investors to sell higher- yielding assets. Standard Chartered closed its bet that the euro would fall versus the Australian dollar with a loss of 2.76 percent, according to the bank."
"``Recent trading conditions have been extreme, suggesting risk should be minimized,'' wrote Callum Henderson, Singapore- based head of foreign-exchange strategy at Standard Chartered, in a client note today. ``Our short euro-Aussie trade recommendation was stopped out, forcing us to close it,'' he said, referring to Australia's currency by its nickname."
"The euro rose 2.2 percent to 1.8040 against Australia's dollar as of 2:31 p.m. in Tokyo from 1.7658 late in New York yesterday. It touched 1.8070, the strongest since June 2003."
"Standard Chartered had advised its clients to sell the euro on Sept. 12 at 1.7436 versus the Australian dollar, and place an automatic order to buy back the currency should it trade at 1.7700 on a daily closing basis. A short position is a bet on a decline in an asset's price."
"``We had put on this recommendation of selling the euro- Aussie on the view that markets would look for rate spreads to narrow in favor of the Australian dollar as the euro zone continued into a recession,'' Henderson wrote."
VIX Volatility Index
"Europe's single currency gained for a second day, as the VIX volatility index, a Chicago Board Options Exchange gauge reflecting expectations for stock market price changes and a barometer of risk aversion, surged to as high as 31.87 percent yesterday, the highest since March 18."
"Australia's benchmark interest rate of 7 percent compares with 4.25 percent in the 15-nation region sharing the euro, making the nation a popular destination for international investors seeking higher returns."
The euro also climbed versus the Aussie as the yield advantage of two-year Australian government bonds over similar- maturity European debt narrowed to 1.63 percentage points today from 1.99 percentage points yesterday.
To contact the reporter on this story: Ron Harui in Tokyo at rharui@bloomberg.net
"Last Updated: September 16, 2008 02:19 EDT"
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China Cuts Fuel Imports as Domestic Supply Grows (Update1)
By Wang Ying and Winnie Zhu
"Sept. 16 (Bloomberg) -- China, the world's second-biggest energy consumer after the U.S., cut diesel and gasoline imports in August from a record as higher domestic prices spurred oil refiners to boost fuel supplies."
"Diesel imports fell to 880,000 metric tons from 970,000 tons in July and gasoline purchases declined to 382,151 tons from 606,000 tons, the Customs General Administration of China said in an e-mailed statement today. China imported 30,000 tons and 44,858 tons of diesel and gasoline a year earlier, respectively."
"The government raised fuel prices by as much as 18 percent on June 20, encouraging refiners to produce more fuels and draw down inventories. China's fuel shortage has receded, Zhang Guobao, who heads the National Energy Administration, the top energy regulator, said last month."
"China, traditionally a supplier of gasoline to Asian countries, was a net importer of the fuel in August, with exports at 150,000 tons. Shipments of diesel, mainly used to fuel trucks and power generators, were at 20,000 tons."
"With improved domestic supplies, China International United Petroleum & Chemical Corp., the country's biggest oil trader, would halt diesel purchases in August and September, a trader said on Aug. 7. China National United Oil Corp. would have reduced August imports by a ``big margin'' from July after boosting purchases for two months, a second trader said."
The country had suffered a fuel shortage since July last year after domestic refineries curtailed output to avoid losses caused by government-controlled fuel prices and soaring crude- oil import costs.
"China, the largest consumer of diesel in Asia, had also increased fuel imports after a deadly earthquake struck the southwestern province of Sichuan in May and before the Beijing Olympics last month."
"The tight diesel market has eased substantially and gasoline supplies in particular are relatively adequate now, the energy regulator's Zhang said on Aug. 18. China may halt diesel imports by February because its refineries are increasing production, Goldman Sachs Group Inc. analysts said."
================================================================
Aug Jan.-Aug Jan.-Aug
================================================================
- Imports (Million Metric Tons) - -YoY%-
Crude oil 15.65 119.98 8.7
Oil products 3.34 28.72 18.3
Gasoline 0.382 1.83 2461.3
Kerosene 0.61 4.28 32.7
Diesel 0.88 5.71 1473.2
Other fuel oil 1.21 15.1 -19.1
Coal 3.79 28.68 -18
- Exports (Million Metric Tons) - -YoY%-
Crude oil 0.40 2.22 -23.7
Oil products 1.4 10.93 6.3
Gasoline 0.15 1.09 -71.7
Kerosene 0.41 3.51 18.9
Diesel 0.02 0.27 -44.3
Other fuel oil 0.76 4.65 134.3
Coal 3.37 33.64 0.3
================================================================
Note: Figures are preliminary and may be revised in the final
Customs report at the end of the month.
To contact the reporter on this story: Winnie Zhu in Shanghai at wzhu4@bloomberg.net; Wang Ying in Beijing at wang30@bloomberg.net.
"Last Updated: September 15, 2008 23:52 EDT"
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European Inflation Slows for First Time in 4 Months (Update1)
By Fergal O'Brien
Sept. 16 (Bloomberg) -- European inflation slowed for the first time in four months in August as oil prices dropped from a record.
"The inflation rate in the euro area fell to 3.8 percent from 4 percent in July, the European Union statistics office in Luxembourg said today. That is the lowest since May and matches an estimate published Aug. 29."
"Oil prices have fallen by more than a third since reaching a record above $147 a barrel on July 15, cutting the cost of fuels including gasoline and home heating oil. While European Central Bank council member Axel Weber has described the oil- price decline as ``reassuring,'' he also said it is too early to ``give the all-clear'' on inflation."
"``The question in the ECB's mind will be that oil came down fast, so could there be a rebound?'' said Gareth Claase, an economist at Royal Bank of Scotland in London. ``It doesn't look like it. It looks like a large proportion of the decline is going to be persistent.''"
"A separate report today showed investor confidence in Germany, Europe's largest economy, rose for a second month to its highest reading since April. The euro rose as much as 0.3 percent to $1.4291 after the reports and was at $1.4256 as of 10:08 a.m. in London."
Commodities Decline
"Energy-price inflation eased to 14.6 percent in August from 17.1 percent in July, today's EU report showed. From the previous month, energy prices fell 3 percent and overall consumer prices slipped 0.1 percent. Fuels for transport and heating oil declined and had the biggest downward impact on the monthly index."
"In addition to oil, commodities including wheat, cotton and copper have also dropped in recent months, dragging the Reuters/Jefferies CRB Index of 19 commodities around 26 percent from its July record and erasing its gains for the year."
"Still, the ECB is concerned about so-called second-round effects emerging as labor unions push through larger pay deals and companies raise prices to compensate for higher costs. The central bank this month raised its 2008 inflation projection to around 3.5 percent from 3.4 percent and increased its 2009 forecast to 2.6 percent from 2.4 percent."
The ECB aims to keep inflation below 2 percent and Weber said on Sept. 13 that some of the recent wage demands are ``astonishingly high.''
Pay Increases
"In Germany, the IG Metall labor union representing 3.2 million workers said earlier this month that it will seek as much as 8 percent more pay in this year's wage round. That would be the biggest increase in at least 16 years."
"Inflation in Germany slowed to 3.3 percent last month from 3.5 percent in July, a separate report showed today. U.K. inflation accelerated to 4.7 percent, the fastest in at least 11 years."
"In the 15-nation euro area, the core inflation rate, which excludes energy, food and tobacco, accelerated to 1.9 percent from 1.7 percent. That's the highest since March and exceeded the 1.8 percent median forecast of 22 economists surveyed by Bloomberg News."
"While policy makers remain concerned about a wage-price spiral, cooling economic growth may stay the ECB's hand on rates. Fortis Bank said on Sept. 10 the ECB will keep its benchmark interest rate on hold through 2009, revising a previous forecast for two increases."
"Two days later, BNP Paribas said slowing inflation and a faltering economy will prompt the Frankfurt-based central bank to cut interest rates three times next year, revising an earlier prediction that the bank would keep rates on hold."
"``Core inflation will continue to gradually move higher as past rises in commodity prices and accelerating labor cost growth filter through,'' said Nick Kounis, an economist at Fortis Bank in Amsterdam. ``This should keep the ECB's inflation worries alive and, combined with a gradual recovery in the economy from the fourth quarter onwards, is likely to keep the central bank on hold.''"
To contact the reporter on this story: Fergal O'Brien in Dublin at fobrien@bloomberg.net.
"Last Updated: September 16, 2008 05:30 EDT"
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"Emerging-Market Bonds, Stocks, Currencies Sink as Lehman Fails "
By Denis Maternovsky and Lester Pimentel
"Sept. 15 (Bloomberg) -- Emerging-market bonds, stocks and currencies tumbled from Moscow to Mexico City as the bankruptcy of Lehman Brothers Holdings Inc. drove investors to sell all but the safest assets."
"The extra yield investors demand to own developing nations' bonds instead of U.S. Treasuries swelled 43 basis points to 3.77 percentage points, the widest spread in more than three years, according to JPMorgan Chase & Co.'s EMBI+ index. The MSCI Emerging Markets Index of stocks dropped 1.9 percent to 855.47, the lowest since November 2006. The index has lost a third of its value this year."
"Investors sought the haven of gold and U.S. Treasuries after Lehman, once the fourth-biggest U.S. investment bank, filed the largest bankruptcy in history today, with $613 billion of debt."
"``The world looks a little uglier,'' said Michael Atkin, head of sovereign research at Putnam Investments in Boston. ``Risky assets'' are ``much less attractive in this environment. There's more weakness to come in emerging markets.''"
"The yield on the Russian government's 30-year dollar bonds jumped 26 basis points to 6.24 percent. That's 2 percentage points more than similar-maturity U.S. notes, the widest spread since October 2004. Brazil's 11 percent bond due 2040 fell 2.96 cents on the dollar to 127.60 cents, the lowest in 14 months. The yield to the 2015 call date on the Brazil bond rose to 6.05 percent, according to JPMorgan. Yields on two-year U.S. Treasuries fell below 2 percent for the first time since April."
"Brazil's real lost 1.9 percent to 1.8144 per dollar while the Mexican peso slumped 1.4 percent to 10.7406. The Turkish lira dropped 2.1 percent to 1.2645, and India's rupee touched 6.0550 per dollar, the lowest since September 2006."
Oil Sinks
"The declines cut into gains from a five-year rally that was triggered by a surge in developing nations' commodity exports. The 3.62 percentage-point spread on emerging-market debt, while more than double the 1.49 percentage-point record low reached last year, is still a fraction of the record high of 16.97 percentage points set after Russia's debt default in 1998."
"The cost of protecting developing nations' bonds against default jumped today, with credit-default swaps on Argentina's debt, among the highest-yielding in emerging markets, climbing 1.1 percentage points to 8.92 percentage points, the highest in at least three years. Venezuela's five-year credit-default swaps jumped 1.62 percentage points to 8.71 percentage points."
"Oil, the biggest export from Venezuela, Mexico and Colombia, fell more than 6 percent to $94.54 a barrel on concern the global economic slowdown will deepen. Gold, meanwhile, surged $22.50 to $787 an ounce."
Credit-Default Swaps Soar
"``The Lehman collapse is likely to trigger a significant spike in risk aversion, and it will likely take months for emerging markets to recover, rather than weeks,'' said Ivailo Vesselinov, senior economist at Dresdner Kleinwort in London."
"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."
"Contracts on ICICI Bank Ltd., India's second-largest lender, rose 35 basis points to a record 4 percentage points, Barclays Capital prices show."
"``We are going through a massive structural change in the U.S. financial sector,'' said Luis Costa, emerging-markets debt strategist at Commerzbank AG in London. ``We're now in a situation where even the pricing on CDS is being questioned given the massive rise of counterparty risk.''"
`Big Unwind'
"Turkey's ISE National 100 Index fell the most since March 17, losing 1,952.43, or 5.3 percent, to 35,081.44 at the close of trading in Istanbul. India's Sensitive Index of stocks slumped 3.4 percent to 13,531.27 and Indonesia's Jakarta Composite Index tumbled 4.7 percent, Asia's biggest decline. Russia's Micex Index fell 6.2 percent to 1,067.45, the lowest closing level since the start of 2006. Financial markets were closed in South Korea, China and Hong Kong for public holidays."
"``We are in midst of a very, very big unwind of leveraged trades and until this has come to an end, fundamental issues, such as earnings and growth potential, will not be taken into consideration,'' said Matthias Siller, who manages about $4 billion at Baring Asset Management in London and focuses on emerging markets."
"Stock prices in the MSCI gauge for developing countries average 9.8 times forecast earnings for the next 12 months, the cheapest in a decade versus reported profits. Valuations have fallen even as developing economies are projected to expand 6.7 percent next year, double the average rate during the 1990s, with one-tenth the inflation, according to the Washington-based International Monetary Fund."
"PT Bank Mandiri, OAO Sberbank"
"PT Bank Mandiri, the biggest Indonesian bank, sank 8.2 percent, while Cathay Financial Holding Co., Taiwan's largest financial services company, fell 6.9 percent, and state-owned OAO Sberbank, Russia's biggest lender, lost 6.2 percent to 44.82 rubles."
"``I would wait for any ripples from Lehman dismantling to pass before taking on any more risk, especially exposure to financials,'' said Maxim Tishin, a portfolio manager at UFG Asset Management in Moscow, which oversees over $350 million of debt. ``We are talking about a few weeks at the very least.''"
To contact the reporter on this story: Denis Maternovsky in Moscow at dmaternovsky@bloomberg.net; or Lester Pimentel in New York at lpimentel1@bloomberg.net
"Last Updated: September 15, 2008 17:34 EDT"
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Yuan Advances Most in Seven Weeks as Dollar Drops; Bonds Rally
By Judy Chen and Kim Kyoungwha
Sept. 16 (Bloomberg) -- The yuan gained by the most in seven weeks following declines in the U.S. dollar on concern that credit-market losses will widen after Lehman Brothers Holdings Inc. filed for bankruptcy. Bonds rallied.
"The People's Bank of China cut interest rates for the first time in six years and allowed most banks to set aside smaller reserves to ensure steady economic growth, according to a statement posted on its Web site yesterday. China has slowed the yuan's advance to 0.3 percent against the dollar in the third quarter to bolster exports, after it rose 6.6 percent in the first half of this year."
"``The rate cut doesn't have as much impact on the yuan as the dollar's moves overseas,'' said Chen Yue, a Shenzhen-based currency dealer at China Merchants Bank Co., the country's sixth-largest lender. ``But it's a sign that stability is the major theme of the current yuan policy.''"
"The yuan climbed 0.18 percent to 6.8324 a dollar as of 1:02 p.m. in Shanghai, versus 6.8450 on Sept. 12, according to the China Foreign Exchange Trade System. It jumped as much as 0.3 percent to 6.8230 at opening. Local financial markets were closed yesterday for a public holiday."
"The ICE future exchange's Dollar Index, a measure of the greenback's strength versus the currencies of major trading partners, has slid 2.2 percent from a one-year high touched on Sept. 11, Bloomberg data show."
Financial Turmoil
"Standard & Poor's and Moody's Investors Service downgraded the credit ratings of American International Group Inc. The biggest U.S. insurer by assets is seeking as much $75 billion in loans to replenish capital and stay afloat, according to people familiar with the situation. Lehman, once the fourth-largest U.S. investment bank, yesterday filed for the biggest bankruptcy in history."
"China's central bank reduced the one-year lending rate to 7.20 percent from 7.47 percent, effective today, and lowered the reserve ratio at the nation's smaller banks by 1 percentage point, the statement said."
"The yuan is allowed to trade by up to 0.5 percent against the dollar either side of the daily reference rate, which was set at 6.8203 today, the strongest level since July 17."
"Non-deliverable forwards contracts in the yuan show traders have pared bets for the extent of yuan appreciation in the next 12 months. The currency will rise 0.86 percent to 6.7745 in a year, compared with a stronger prediction for an 11.6 percent appreciation on April 7."
End of Strong Yuan
"``A lot of speculators will be looking for the end of China's strong currency policy,'' Callum Henderson, Singapore- based head of foreign-exchange strategy at Standard Chartered Plc, said in a television interview with Bloomberg today."
"The policy change will cause ``significant buying'' of the dollar in the yuan forwards market, according to Henderson. Forwards are agreements in which assets are bought and sold at current prices for settlement at a later-specified time and date."
Government bonds rose on speculation the central bank's decision to cut lending rates signaled further reduction in borrowing costs amid slowing inflation.
"China's bonds started a one-month rally on Aug. 12 after the statistics bureau said inflation slowed in July to 6.7 percent, from a 12-year high of 8.7 percent in February. In August, gains in consumer prices slowed for a fourth month to 4.9 percent. The benchmark 10-year yield has declined 54 basis points in the month up to Sept. 12. A basis point is 0.01 percentage point."
"Rate Cut, Rally"
"``The rate cut will push the rally in bonds further,'' said Xu Hanfei, a fixed-income analyst at Industrial Bank Co. in Shanghai. ``The expectations for further relaxation and more flexibility in monetary policy will encourage institutional investors to shift more investment into debt.''"
"The central bank's announcement over the long weekend ``signaled possible big changes as for where the rates will go in the future,'' Yang Hui, a fixed-income analyst with Citic Securities Co. in Beijing, wrote in a research note today. ``The policy boosts confidence in debt investment and will help reinforce the current rally.''"
"The yield on the 4.07 percent bond due March 2018 declined 11 basis points to 3.88 percent in Shanghai, according to the China Interbank Bond Market. The price of the security climbed 0.87 per 100 yuan face amount to 101.5."
To contact the reporters on this story: Judy Chen in Shanghai at xchen45@bloomberg.net; Kim Kyoungwha in Beijing at kkim19@bloomberg.net.
"Last Updated: September 16, 2008 01:25 EDT"
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"Wall Street Upheaval May Sap Economy, Spurs Rate-Cut Pressure "
By Matthew Benjamin
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"Sept. 16 (Bloomberg) -- The Wall Street convulsions that took down two of the largest investment banks in 24 hours threaten to make it harder for consumers and companies to borrow, push unemployment higher and put pressure on the Federal Reserve to consider an interest-rate cut."
"The Federal Open Market Committee meets in Washington today amid a crisis atmosphere triggered by the collapse of Lehman Brothers Holdings Inc. with $613 billion of debt. While policy makers haven't signaled a cut and few economists predict one today, futures traders put the odds of a reduction at 68 percent, up from 12 percent at the end of last week."
"``The turn of events over the weekend is going to make things more difficult,'' said Dan North, chief economist of credit insurer Euler Hermes, a unit of Allianz SE, in Owings Mills, Maryland. ``The Fed has made a lot of credit available, but no one wants to use it because there's still fear that whoever you lend it to is going to go bankrupt.''"
"By pushing up the price of money, the meltdown may further depress consumer spending that was propped up last quarter by tax rebates. That would leave the economy, which some economists say is already in recession, increasingly dependent on exports as the jobless rate climbs and industrial production contracts."
"``Until the financial sector sorts itself out the economy is never going to resume normal growth,'' said Ken Rogoff, former chief economist at the International Monetary Fund and now a Harvard University professor."
Traders Anticipate Reversal
"The FOMC will keep its benchmark rate at 2 percent for a third straight meeting, according to 100 of 105 economists in a Bloomberg News survey. Traders, by contrast, are increasingly convinced that the Fed will lower rates, a reversal from last month, when officials ``generally'' agreed the next move would be an increase, minutes of the gathering showed."
"Policy makers cut rates seven times from September 2007, a month after the credit crisis began, through April. They suspended the easing as oil prices surged, increasing expectations inflation would accelerate. The FOMC is scheduled to announce its decision at about 2:15 p.m. in Washington."
"``It is more likely they will move in October if things don't improve,'' said John Silvia, chief economist at Wachovia Corp. in Charlotte, North Carolina. ``Mortgages and bank loans are going to be more difficult to get. The ability of anybody to make a loan and securitize it is going to be more difficult. It is going to be a challenge.''"
Hoarding Cash
"Yesterday, the federal funds rate soared as high as 6 percent, triple the Fed's target, as banks hoarded cash. That spurred the Fed to pump $70 billion into money markets through repurchase operations, the most since September 2001."
"Premiums on investment-grade U.S. corporate bonds climbed. The extra yield investors demand to buy such bonds instead of Treasuries with a comparable maturity soared to 3.80 percentage points, the highest since Merrill Lynch began keeping the data in 1996, from 3.44 percentage points on Sept. 12."
"``Certainly there will be an increase in credit costs, manifested in rising credit spreads, that will contribute to the slowdown,'' said Mark Gertler, a New York University economist and research co-author with Bernanke."
"Should Chairman Ben S. Bernanke and his colleagues on the FOMC forego a rate decrease today, they may note in their statement that risks to financial stability have increased, while those of inflation have waned. That may offer a signal that officials are prepared to cut if needed to help the economy."
`Surprised' at Markets
"``I am surprised that the market has been pricing in such a high possibility of a rate cut,'' said former St. Louis Fed President William Poole in an interview with Bloomberg Television. ``If the Fed responds by cutting rates, it would be suggesting to the market that it believes turmoil is likely to continue and there must be much deeper repercussions.''"
Credit was tightening before the events over the weekend. The Fed last month said more banks stiffened loan terms for consumers and businesses since April as delinquencies climbed.
"Most ``domestic institutions reported having tightened their lending standards and terms on all major loan categories over the previous three months,'' the Fed said in its quarterly Senior Loan Officer Survey."
How much of an impact the crisis has may depend on banks' ability to keep credit flowing.
Banks Drop
"National City Corp., Fifth Third Bancorp and Sovereign Bancorp Inc. fell in New York trading yesterday on concern that regional banks already facing losses tied to subprime mortgages are vulnerable to losses from Lehman or will pay more to borrow because of its failure."
"The U.S.'s slide may also have an impact on other nations starting to falter. Japan and the 15-nation euro area contracted in the second quarter, while the European Commission says Spain and the U.K. are already in recession."
"``It shortens the odds for a deeper global economic downturn,'' said Thomas Mayer, chief European economist at Deutsche Bank AG in London. ``The storm has emanated from the U.S. but'' it will ``weigh on the world economy everywhere.''"
To contact the reporters on this story: Matthew Benjamin at mbenjamin2@bloomberg.net
"Last Updated: September 16, 2008 00:00 EDT"
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"Emerging Market Bonds, Currencies Drop as AIG Drives Selloff "
"Sept. 16 (Bloomberg) -- Emerging-market bonds, stocks and currencies fell for a second day as investors switched to safer assets on concern debt rating downgrades threaten American International Group Inc.'s efforts to raise emergency funds."
"The extra yield investors demand to own developing nations' bonds instead of U.S. Treasuries rose 16 basis points to 3.96 percentage points, the widest spread since May 2005, according to JPMorgan Chase & Co.'s EMBI+ index. The MSCI Emerging Markets Index of stocks dropped 3.5 percent to 796.79, the lowest since October 2006."
"``Selling pressure is very significant and the end of it isn't yet in sight,'' said Mikhail Galkin, a fixed-income analyst at MDM Bank in Moscow. ``Troubles at U.S.-based financial institutions trigger de-leveraging and liquidation of many assets, including EM bonds.''"
"AIG, the biggest U.S. insurer by assets, was cut by Standard & Poor's and Moody's Investors Service in New York late yesterday after a 61 percent stock plunge. The MSCI Asia-Pacific Index of stocks fell 4.4 percent today, the biggest drop since January."
"The yield on the Russian government's 30-year dollar bonds rose 12 basis points to 6.39 percent, the highest level since July 2006. The Korean won slumped 4.6 percent to 1,160 per dollar, leading the slump in emerging-market currencies."
"Kookmin Bank, South Korea's largest lender, dropped 7.5 percent to 55,600 won ($48.13), while Woori Finance Holdings Co., which controls the nation's second-biggest bank, fell 9.9 percent to 13,650 won. VTB Group, Russia's second-biggest bank, fell 9.4 percent to 4.1 kopeks (16 cents) at 10:48 a.m. in Moscow, the lowest since the shares were listed in May 2007."
To contact the reporter on this story: Denis Maternovsky in Moscow at dmaternovsky@bloomberg.net
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Indian Rupee Falls to Two-Year Low as Capital Outflows May Rise
By Anil Varma
"Sept. 16 (Bloomberg) -- India's rupee fell to a two-year low on speculation turmoil on Wall Street will heighten risk aversion among global investors, boosting sales of emerging- market assets."
"The currency dropped for a sixth day after mounting credit losses led to the collapse of Lehman Brothers Holdings Inc., the sale of Merrill Lynch & Co. and a debt rating downgrade of American International Group Inc. The rupee fell the most in almost a month as India's benchmark share index fell for a sixth day, joining a slide across equity markets worldwide."
"``Capital outflows may increase as the global investment climate has deteriorated and stock markets are down across Asia and elsewhere,'' said Vikas Agarwal, a strategist in Mumbai at JPMorgan Chase & Co., the third-biggest U.S. bank. ``The rupee may come under more pressure as foreign investors remain net sellers of local equities.''"
"The rupee fell 1.1 percent to 46.54 per dollar as of 10:20 a.m. in Mumbai, according to data compiled by Bloomberg. It slid earlier to 46.575, the lowest since Aug. 28, 2006. JPMorgan forecasts the rupee to drop as low as 47 by the end of the year."
"Lehman was forced by credit losses into the biggest bankruptcy filing in history. Merrill, the world's biggest brokerage firm, yesterday agreed to be sold at about $50 billion to Bank of America Corp. Debt ratings of AIG, the biggest U.S. insurer, were downgraded yesterday by Standard & Poor's and Moody's Investors Service, threatening efforts to raise emergency funds to keep the company afloat."
"Indian stocks fell. The Bombay Stock Exchange's Sensitive Index, or Sensex, declined as much as 3.5 percent. The index is heading for its first annual loss since 2001."
To contact the reporters on this story: Anil Varma in Mumbai at avarma3@bloomberg.net.
"Last Updated: September 16, 2008 01:25 EDT"
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Japan's August Consumer Sentiment Falls to Record Low (Update1)
By Toru Fujioka
"Sept. 16 (Bloomberg) -- Japanese consumers became the most pessimistic they've been in at least 26 years, making it unlikely they will spend to aid an economy weakened by slower global demand."
"The sentiment index dropped to 30.1 last month from 31.4 in July, the Cabinet Office said today in Tokyo. It's the lowest since the government began compiling the figures in 1982."
"The economy had its sharpest contraction in seven years last quarter, the government said last week. Households pared spending for a fifth month in July as consumer prices rose at the fastest pace since 1997 and wages grew the least this year."
"``Consumers can't be optimistic with inflation and sluggish wage growth,'' said Yasuhide Yajima, a senior economist at NLI Research Institute in Tokyo. ``Consumer spending will remain too weak to support the economy.''"
"Of the four components used by the government to gauge consumer sentiment, the willingness to purchase durable goods and the outlooks for livelihood and wages fell to the lowest level ever, today's report showed."
"Some 88.2 percent of households predict prices will rise a year from now, down from a record 89.3 in July, today's report said."
"``Higher prices are the major drag for sentiment,'' said Akira Maekawa, an economist at UBS AG in Tokyo."
"Some 57.2 percent of households said their livelihood is ``tough,'' rising to a record for the sixth straight year in 2007, the Labor Ministry reported last week."
"Wages grew 0.3 percent in July, when the cost of daily necessities rose 3.6 percent. Job prospects also worsened, with the ratio of positions available to each applicant fell for a sixth month to 0.89, the lowest since October 2004."
To contact the reporters on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net
"Last Updated: September 16, 2008 02:42 EDT"
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Korean Won Falls Most Since 1998 on Credit Woes; Bonds Advance
By Kim Kyoungwha and Judy Chen
Sept. 16 (Bloomberg) -- South Korea's won fell the most since August 1998 as global investors accelerated sales of Asian equities in the wake of Lehman Brothers Holdings Inc.'s bankruptcy filing.
"Korea's policy makers held an emergency meeting to discuss intervention in financial markets and government bonds rallied on speculation the central bank will cut interest rates. The won fell 19.6 percent this year, the worst among the 10 most-active Asian currencies outside Japan, as foreign investors sold more Korean shares than they bought every day except six since Aug. 1, according to Korea Exchange data."
"``There's panic selling for the won as investors' sentiment is badly bruised by Lehman's bankruptcy,'' said Lee Myung Hoon, a currency dealer with Industrial Bank of Korea in Seoul. ``A global share tumble is taking a toll on the local equity market. We are not sure how far the won will drop.''"
"The won fell 4.4 percent to 1,160 against the dollar as of the 3 p.m. close in Seoul, according to Seoul Money Brokerage Services Ltd. That was the weakest level since 2004."
"South Korea may provide additional money to help stabilize financial markets, Vice Finance Minister Kim Dong Soo said today. The nation's Kospi stock index tumbled as much as 7.1 percent."
"``There's a concern in the short term that global stocks, bonds and currency markets will be more volatile,'' Kim said before the emergency meeting today with counterparts from the central bank and the financial regulator in Seoul. ``We will try to manage liquidity in a stable manner through measures such as open market operations.''"
"Remarks this morning by Choi Jong Ku, director general of the finance ministry's international bureau, that the currency's declines are ``excessive'' did little in curbing the won's loss."
``Excessive Reaction''
"``Our foreign-exchange market reaction to the U.S. financial markets instability is excessive,'' Choi said in a statement in Gwacheon. ``An excessive reaction can cause a drastic adjustment.''"
"Goldman Sachs Group Inc. lowered its forecast for the won's level in three months to 1,130 from an earlier estimate of 1,040, citing ``large refinancing needs of Korean banks.''"
"The won will then climb to 1,110 and 1,090 over six and 12- month horizons, Economist Kwon Goohoon wrote in a report today."
"``We continue to believe that the recent spike to around 1,150 is an overshoot,'' Kwon said. ``That said, we expect the won to remain under pressure in the short term. Korean banks will likely be net buyers of the dollar due to large foreign-exchange debts falling due within a year.''"
"External borrowings that mature in a year almost tripled to $175.65 billion as of June 30, official figures show."
Bonds Advance
Local currency bonds rose on speculation deepening instability in financial markets will persuade the central bank to cut interest rates.
"``There's a flurry of bids for flight to quality,'' said Kong Dong Rak, a fixed-income strategist with Hana Daetoo Securities Co. in Seoul. ``The central bank, though not immediately, could lower interest rates in coming months.''"
"The yield on the 5.5 percent benchmark bond due June 2011 fell 14 basis points to 5.51 percent, according to the Korea Exchange. The price rose 0.38, or 38 won per 10,000 won face amount, to 101.44. A basis point is 0.01 percentage point."
The finance ministry sold 1.12 trillion won ($971 million) of 10-year government debt today at a yield of 5.73 percent.
To contact the reporters on this story:
Kim Kyoungwha in Beijing at
kkim19@bloomberg.net;
Judy Chen in Shanghai at xchen45@bloomberg.net
"Last Updated: September 16, 2008 02:14 EDT"
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Crude Oil Tumbles as Wall Street Turmoil Adds to Demand Concern
By Grant Smith
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"Sept. 16 (Bloomberg) -- Crude oil tumbled, dipping below $92 a barrel in the biggest two-day drop in almost four years, on concern that turmoil on Wall Street may weaken the global economy and reduce demand."
"Oil fell as much as 4.4 percent today after American International Group Inc. had its credit rating cut, threatening efforts to raise funds to keep the insurer afloat, and Lehman Brothers Holdings Inc. yesterday sought bankruptcy protection."
"``The fear is that the sharp deterioration of the banking crisis in the U.S. will spread to the real economy and demand for oil,'' said Carsten Fritsch, a Commerzbank AG analyst in Frankfurt. ``There's a good possibility prices will fall further before they stabilize.''"
"Crude oil for October delivery fell as much as $4.17, or 4.4 percent, to $91.54 a barrel, the lowest intraday price since Feb. 11. It was at $92.81 at 11:14 a.m. London time on the New York Mercantile Exchange."
Oil has declined 3.3 percent this year and dropped 37 percent from the record $147.27 a barrel reached on July 11.
"Gasoline for October delivery fell for a second day, declining as much as 8.52 cents, or 3.3 percent, to $2.4762 a gallon in New York."
Lehman Suspended
"CME Group Inc., the world's largest futures market, and its Nymex unit, said 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."
Lehman Brothers has beeen suspended from energy and commodities trading in London.
"The plunge in oil, cotton and copper led to the Reuters/Jefferies CRB Index of 19 commodities erasing its gains for the year. The CRB index fell 3.3 percent to 348.26 yesterday, down 2.9 percent for the year."
Gold declined as some investors sold the precious metal to raise cash after U.S. stocks tumbled.
"Gold for immediate delivery fell 1 percent to $778.56 an ounce at 10:24 a.m. in London after earlier rising to $788.10 an ounce, the highest in a week. Silver for immediate delivery dropped 1.9 percent to $10.9150 an ounce."
Pessimistic Sentiment
"``The whole market is in risk reduction mode,'' said Paul Horsnell, head of commodities research at Barclays Capital Inc. in London. ``This has to wash its way through the whole system'' before prices return to being driven by fundamentals of supply and demand."
"Brent crude oil for November settlement fell as much as $4.44, or 4.7 percent, to $89.80 a barrel on London's ICE Futures Europe exchange. It was at $91.23 a barrel at 11:09 a.m. London time."
"Prices have dropped 14 straight days, the longest stretch since Brent futures were introduced in 1988."
Texas oil refiners may need weeks to restore normal operations as utilities struggle to restore power after Hurricane Ike swept through the region.
"Exxon Mobil Corp., the world's biggest oil company, said its Beaumont, Texas, refinery took the ``most serious hit'' of its plants, from a wall of water pushed ashore by Ike. Marathon Oil Corp.'s Texas City, Texas, plant is without power and water."
Production Idled
"A total of 14 Texas and Louisiana refineries, with combined crude-oil processing capacity of 3.57 million barrels a day, are shut because of Ike, the U.S. Energy Department said yesterday."
"The International Energy Agency, an energy adviser to 27 industrialized countries, said it is analyzing the impact of Ike on oil, gas and refinery output and may release emergency stockpiles if called upon. The IEA coordinated the release of crude oil and fuel supplies after Hurricanes Katrina and Rita struck the U.S. Gulf Coast in 2005."
"U.S. crude-oil and fuel inventories probably fell last week because of Ike, a Bloomberg News survey of analysts showed. The Energy Department is scheduled to release its weekly petroleum supply report on Sept. 17."
To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net.
"Last Updated: September 16, 2008 06:17 EDT"
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"CRB Commodity Index Falls, Down for Year, Erasing Record Rally "
By Millie Munshi
"Sept. 15 (Bloomberg) -- Gasoline, crude oil and copper plunged and the Reuters/Jefferies CRB Index of 19 commodities erased its gain for the year as Lehman Brothers Holdings Inc.'s bankruptcy intensified concern that the U.S. economy is sinking."
"Lehman, once the fourth-largest U.S. investment bank, filed the biggest bankruptcy in history today, and Bank of America Corp. agreed to pay about $50 billion to acquire Merrill Lynch & Co., which was battered by losses and writedowns from subprime- mortgage securities. The CRB index fell 3.3 percent to 348.26 at 3:06 p.m. in New York, down 2.9 percent for the year."
"The gauge has tumbled 27 percent since reaching a record high on July 3, dropping into a bear market as tighter credit markets and bank losses threatened the global economy. Crude oil settled at its lowest close since February, cotton touched the lowest price in a year, and gasoline dropped to its lowest level since March."
"``With the fall of Lehman, we've gotten headwinds for economic growth, which will impact commodity prices very negatively,'' said Walter ``Bucky'' Hellwig, who helps oversee $30 billion at Morgan Asset Management in Birmingham, Alabama. ``Global demand is slowing and hurting prices and will continue to be the trend.''"
"The UBS-Bloomberg Constant Maturity Commodity Index fell as much as 3.2 percent, and the Standard & Poor's GSCI Index slumped as much as 5.3 percent."
Economic Slowdown
"World equity markets tumbled on speculation the global economy will cool. U.S. stocks dropped, erasing more than $600 billon in market value. The MSCI World Index of equities lost as much as 3.6 percent."
"``A tsunami of bad financial news points to the continued problems in the global economy and the risk ahead,'' said William O'Neill, a partner at Logic Advisors in Upper Saddle River, New Jersey. ``The money flow has changed, and people seem uninterested in buying commodities.''"
"This year has been the most volatile for commodities since 1973. Ospraie Management LLC, the New York-based investment firm run by Dwight Anderson, shut its biggest fund this month after losses in commodity companies. RK Capital Management LLP lost as much as 30 percent in August as metals dropped."
Gold jumped as much as 3.5 percent to $791.40 an ounce in New York on revived demand for the precious metal as a haven from market turmoil. Silver also gained.
"``Fear is lifting gold,'' said Leonard Kaplan, 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.''"
To contact the reporter on this story: Millie Munshi in New York at mmunshi@bloomberg.net
"Last Updated: September 15, 2008 17:22 EDT"
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"Asian Currencies: Korean Won, Rupee Fall as Stocks Tumble "
By Lilian Karunungan and Kim Kyoungwha
Sept. 16 (Bloomberg) -- South Korea's won fell by the most since August 1998 as global investors accelerated sales of Asian equities in the wake of Lehman Brothers Holdings Inc.'s bankruptcy filing. The Indian rupee weakened.
"The currency, the biggest loser among 26 emerging-market currencies tracked by Bloomberg, declined to the lowest in more than four years and the nation's Kospi stock index tumbled as much as 7.1 percent. Korea's policy makers held an emergency meeting to discuss intervention in financial markets. Vice Finance Minister Kim Dong Soo said the government may provide funds to help stabilize financial markets."
"``There's panic selling for the won as investors' sentiment is badly bruised by Lehman's bankruptcy,'' said Lee Myung Hoon, a currency dealer with Industrial Bank of Korea in Seoul. ``A global share tumble is taking a toll on the local equity market. We are not sure how far the won will drop.''"
"The won fell 4.4 percent to 1,160 against the dollar as of the 3:00 p.m. close in Seoul, according to Seoul Money Brokerage Services Ltd. It earlier touched 1,166.25, the weakest since August 2004. The rupee fell 1.8 percent to 46.89 per dollar in Mumbai, according to data compiled by Bloomberg."
"``There's a concern in the short term that global stocks, bonds and currency markets will be more volatile,'' South Korea's Kim said before an emergency meeting today with counterparts from the central bank and the financial regulator in Seoul. ``We will try to manage liquidity in a stable manner through measures such as open market operations.''"
"Global investors sold more Korean shares than they bought every day except six since Aug. 1, according to Korea Exchange data."
Outflows
"India's rupee dropped the most since 1998 on speculation turmoil on Wall Street will heighten risk aversion among global investors, curbing demand for emerging-market assets. India's benchmark share index fell for a sixth day as American International Group Inc.'s debt ratings were downgraded, hampering the insurer's efforts to raise emergency funds."
"``Capital outflows may increase as the global investment climate has deteriorated and stock markets are down across Asia and elsewhere,'' said Vikas Agarwal, a strategist in Mumbai at JPMorgan Chase & Co., the third-biggest U.S. bank. ``The rupee may come under more pressure as foreign investors remain net sellers of local equities.''"
"The rupee slid earlier to 46.9525, the lowest since July 24, 2006. JPMorgan forecasts the rupee will reach 47 by the end of the year."
"The Bombay Stock Exchange's Sensitive Index, or Sensex, declined as much as 3.5 percent. The index is heading for its first annual loss since 2001."
AIG Rescue
"The Philippine peso declined to its lowest level in 16 months and the nation's key stock index dropped 4.5 percent. Foreign investors sold $626 million more Philippine stocks than they bought this year, according to stock exchange data."
"``People are waiting for further news from AIG,'' said Catherine Tan, head of foreign exchange at Thomson Financial Asia in Singapore. ``If the rescue falls through, there will be much more blood on the street and there will be more selling of currencies. When you have risk aversion, the peso is one of the currencies being hit in Asia.''"
"The local currency dropped 0.2 percent to 47.200 per dollar in Manila, according to bankers Association of the Philippines. The peso has fallen 12 percent in the past six months."
"AIG, which had its credit ratings cut by Standard & Poor's and Moody's Investors Service, is seeking as much as $75 billion in loans to boost capital, according to people familiar with the situation."
"Elsewhere, the Singapore dollar rose 0.2 percent to S$1.4307 against the U.S. currency. The Thai baht gained 0.9 percent to 34.28. Taiwan's dollar declined 0.1 percent to NT$32.070. The Malaysian ringgit and Indonesia's rupiah were little changed versus the dollar at 3.4565 and 9,455, respectively. Vietnam's dong was unchanged at 16,590."
To contact the reporters on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net; Kim Kyoungwha in Beijing at kkim19@bloomberg.net
"Last Updated: September 16, 2008 05:42 EDT"
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"Asian Stocks, Dollar Drop, Japanese Bonds Gain, on Lehman, AIG "
By Chua Kong Ho and Shani Raja
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"Sept. 16 (Bloomberg) -- Asian stocks plunged, the dollar fell and Japanese bonds rose as debt-rating downgrades threatened American International Group Inc.'s efforts to survive a credit-market slump."
"Mitsubishi UFJ Financial Group Inc. and Aozora Bank Ltd. led the steepest decline by Japan's banks since 1987's ``Black Monday'' on concern the bankruptcy of Lehman Brothers Holdings Inc. will add to loan losses. AIG plunged 61 percent yesterday in New York, part of the biggest tumble in U.S. stocks since the September 2001 terrorist attacks. Oil fell to a seven-month low and the cost to protect corporate bonds from default surged."
"``You're going to get a massive flight to safety,'' said Nader Naeimi, a Sydney-based senior investment strategist at AMP Capital Investors, which manages about $108 billion. ``Banking stocks are guilty by association. There's no place to hide.''"
"The MSCI Asia Pacific Index declined 4.2 percent to 110.79 at 3:01 p.m. in Tokyo, the biggest decline since Jan. 22. Benchmark indexes in Japan, Hong Kong, South Korea, Taiwan and the Philippines retreated more than 4 percent. The dollar fell 0.8 percent to 103.82, the lowest since July 16. It was little changed at $1.4244 per euro."
"South Korea's Kospi Index tumbled 6.1 percent. The won slumped 4.6 percent to 1,160 per dollar, leading declines in emerging-market currencies. Vice Finance Minister Kim Dong Soo said the government may provide more funds to help stabilize financial markets."
Policy Makers Act
"Taiwan's government instructed its four major funds and state-owned banks to buy shares, the Bank of Japan added 2.5 trillion yen ($24 billion) to the financial system and China yesterday cut interest rates for the first time in six years."
"Markets in Japan, China, Hong Kong and South Korea were shut for public holidays yesterday, meaning investors had their first opportunity to react to Lehman's bankruptcy today. At least seven Japanese banks lent the company a total of $1.62 billion, according to the Chapter 11 filing by Lehman."
"Mitsubishi UFJ fell 7.7 percent to 792 yen, while Aozora Bank dropped 16 percent to 171 yen. The 84-stock Topix Banks Index fell as much as 10 percent, the most since October 20, 1987, the day after the ``Black Monday'' global stock market crash. U.S. stocks tumbled yesterday, pushing the Standard & Poor's 500 Index down 4.7 percent. S&P 500 futures lost 0.4 percent today."
Lehman Exposure
"In South Korea, Kookmin Bank, the nation's largest, dropped 8 percent to 55,300 won, while Woori Finance Holdings Co., which controls the nation's second-biggest bank, fell 14 percent to 13,050 won. South Korea's Financial Services Commission said yesterday the country's firms have invested about $720 million in loans and securities linked to Lehman."
"Oil fell 3.8 percent to $92.08 on the New York Mercantile Exchange, sending energy producers lower. Inpex Holdings Inc., Japan's largest oil explorer, plunged 11 percent to 894,000 yen. Woodside Petroleum Ltd., Australia's second-biggest oil and gas producer, slid 3.2 percent to A$50.36."
"AIG, the biggest U.S. insurer by assets, may be propped up by $70 billion to $75 billion in loans arranged by Goldman Sachs Group Inc. and JPMorgan Chase & Co., according to people familiar with the situation. S&P cut the insurer's long-term counterparty rating to A- from AA-."
`Brave Souls'
"``Any brave souls who step up out there and buy today may well be seen as heroes in two or three years time,'' said Prasad Patkar, who helps manage the equivalent of about $1.8 billion at Platypus Asset Management in Sydney. ``There's an old saying which says `sell when the victory bugles are sounding, and buy when the canons are firing.' Well, the canons are firing.''"
"Japanese five-year government bond yields fell 7.5 basis points to 1.04 percent. Yields on U.S. two-year notes dropped 1 basis point, or 0.01 percentage point, to 1.72 percent, according to bond broker BGCantor Market Data. Futures contracts on the Chicago Board of Trade indicate the odds of a quarter- point Fed rate cut today surged to 68 percent from zero percent a week ago."
"The cost to protect Japanese company debt from default increased the most since 2004, credit default swaps show. The Markit iTraxx Japan index rose 45 basis points to 175 compared with the end of trading on Sept. 12, Morgan Stanley data shows."
Credit-default swaps protect bonds against default and traders use them to speculate on changes in credit quality. They pay the buyer face value in exchange for the underlying securities should a company fail to adhere to debt agreements.
"``The financial crisis continues to look worse and not better,'' said Marc Fovinci, head of fixed income at Ferguson Wellman Capital Management Inc. in Portland, Oregon, who helps invest $2.8 billion. ``The Fed will cut to try to calm the financial waters. I see yields falling.''"
"The Australian and New Zealand dollars dropped to the weakest in more than two years against the yen as investors lost appetite for higher-yielding assets. The Australian dollar fell 2.8 percent to 82.51 yen, from 84.91 yen in late Asian trading. New Zealand's currency declined to 67.99 yen from 69.21 yen."
"``It's the end of the world as we know it, at least that is how it feels,'' said Greg Gibbs, a currency strategist at ABN Amro Holdings NV in Sydney. ``The main beneficiary has been the yen.''"
To contact the reporter for this story: Chua Kong Ho in Shanghai at kchua6@bloomberg.net; Shani Raja in Sydney at sraja4@bloomberg.net.
"Last Updated: September 16, 2008 02:59 EDT"
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"German Investor Confidence Probably Increased on Oil, Euro "
By Gabi Thesing
"Sept. 16 (Bloomberg) -- German investor confidence probably rose for a second month after a decline in oil prices and a weaker euro improved the prospects of Europe's largest economy, a survey of economists shows."
"The ZEW Center for European Economic Research will say its index of investor and analyst expectations rose to minus 53 from minus 55.5 in August, the median of 43 forecasts in a Bloomberg News survey shows. ZEW releases the report, which aims to predict economic developments six months ahead, at 11 a.m. in Mannheim."
"``If the economy is down in the dumps then of course any glimmer of hope like an improvement in the oil price will boost optimism,'' said Stefan Bielmeier, an economist at Deutsche Bank AG in Frankfurt. ``The renewed financial market turmoil may eventually push up borrowing costs a bit, but I think the fallout in Europe will be contained.''"
"The price of oil has dropped more than a third from a July record and the euro has lost 10 percent against the dollar in the past three months, providing relief to consumers and exporters. Still, stocks and bond yields plunged yesterday after Lehman Brothers Holdings Inc 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. Germany's benchmark DAX index has lost 26 percent so far this year.
Lehman Bankruptcy
"New York-based Lehman, founded 158 years ago, said yesterday it plans to file for Chapter 11 bankruptcy protection after failing to find a buyer. Merrill Lynch, also based in New York, agreed to sell itself to Bank of America Corp. for $50 billion in an emergency deal worked out over the weekend."
"ZEW said yesterday that even though financial analysts could file their responses until today, the majority of those surveyed has already submitted their evaluation before Sept. 13."
"The cost of borrowing euros for three months has remained close to the highest level since December 2000. The euro interbank offered rate, or Euribor, was little changed at 4.97 percent, European Banking Federation data showed yesterday. The one-week rate held at 4.4 percent. Germany's Ifo institute said yesterday that companies reported tighter lending standards ``in all sectors.''"
"The German economy shrank for the first time in almost four years in the three months through June and may not recover until the end of the year, ZEW President Wolfgang Franz said Sept. 11. Until then, a recession ``cannot be ruled out,'' he said."
Lower Growth Forecast
"The Kiel-based IfW institute last week slashed its forecast for 2009 to just 0.2 percent, from a previous prediction of 1 percent, when the institute said the economy would weather the worst ravages of the U.S. subprime mortgage crisis."
"Germany is now ``feeling the impact of the crisis as it develops globally,'' cooling demand for German goods, the institute said. The economy expanded 2.5 percent in 2007, and 3 percent in 2006."
"Bundesbank President Axel Weber, who also sits on the European Central Bank's Governing Council, said Sept. 10 that Germany's economic ``resilience'' will prevent it from sliding into a ``deep recession.''"
"``Germany's foreign trade will by no means collapse next year, but it will make a smaller contribution to the economy's dynamism than usual,'' Anton Boerner, head of the BGA association of exporters and wholesalers, said the same day."
"Investors have raised bets that the gloomy growth outlook and declining oil prices may force the ECB to lower borrowing costs. The yield on the March Eonia forward contracts contract was at 4 percent yesterday, down from 4.26 percent a month ago."
"The ECB raised its benchmark rate by a quarter point to 4.25 percent in July after inflation accelerated to 4 percent, the fastest pace in 16 years and double the bank's 2 percent limit."
To contact the reporter on this story: Gabi Thesing in Frankfurt at gthesing@bloomberg.net
"Last Updated: September 15, 2008 18:01 EDT"
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Emerging-Market `Panic' May End With 20% Stock Rally (Update3)
By Michael Tsang and Eric Martin
"Sept. 15 (Bloomberg) -- Emerging-market companies, earning more for shareholders than ever before, are getting no respect just as their stocks drop to levels that preceded rallies."
"More than $500 billion in credit-market losses and falling prices of oil, nickel and soybeans pushed the MSCI Emerging Markets Index down more than a third since October, leaving it 25.7 percent below its 200-day moving average. In the past two decades, the difference grew that wide only in the aftermath of Sept. 11, the 1998 Russian debt default and Mexico's 1994 peso devaluation, data compiled by Bloomberg show. In every case, the index gained 20 percent or more within three months."
"This time, prospects for a rebound are even greater as developing-nation economies grow twice as fast as a decade ago, says Uri Landesman, head of global growth and international equities at ING Groep NV's asset management unit in New York. Return on equity, or a company's profit made with money invested by shareholders, rose to 16.8 percent this quarter, the highest for emerging markets since Bloomberg began tracking MSCI Inc. data in 2003 and a level Morgan Stanley says may be a record."
"``You're more than getting paid for your risk,'' said Landesman, who oversees $5 billion. ``When you have a panic like this, the baby gets thrown out with the bathwater.''"
"Equity prices in the MSCI index average 9.8 times forecast earnings over the next 12 months, the cheapest in a decade versus reported profits. Valuations have fallen even as developing economies are projected to expand 6.7 percent next year, double the average rate during the 1990s, with one-tenth the inflation, according to the Washington-based International Monetary Fund."
Equity Return
"The MSCI Emerging Markets Index lost 3.5 percent today as stocks tumbled worldwide on the bankruptcy of Lehman Brothers Holdings Inc., the fourth-largest U.S. investment bank. Brazil's Bovespa index plunged 7.6 percent, while Russia's Micex tumbled 6.2 percent."
"While return on equity for industrialized-nation stocks fell almost 10 percent from an all-time high in October as global economic growth slowed, developing-nation companies increased profitability, data compiled by Bloomberg show."
"Return on equity at China Mobile Ltd., the world's largest wireless carrier by users, climbed to 27.76 percent in the first half, the most on record dating back to 2003. China Mobile said last month that second-quarter profit jumped 51 percent, beating analysts' estimates."
"Even so, the Beijing-based company, which lost 45 percent of its value this year in the biggest decline since 2001, is trading at 10.1 times estimated 2009 profit. That's the lowest valuation compared with reported earnings in more than five years."
No Respect
"CEZ AS, the Czech Republic's biggest utility, reported a return on equity of 27.6 percent in the second quarter, the highest since at least 2002, data compiled by Bloomberg show."
"The company, located in Prague, raised its full-year profit forecast after saying last month second-quarter earnings rose 68 percent on cost cuts and higher electricity prices. Still, CEZ plummeted 23 percent this year and traded at a record low 9.7 times next year's forecast earnings last week."
"``Emerging-market equities should get respect,'' said Brett Hammond, New York-based chief investment strategist at TIAA-CREF, which oversees $420 billion and increased its allocation to developing nations. ``The fundamentals are what's driving earnings. They're still robust compared to anything in the developed world.''"
"After emerging-market stocks surged more than fourfold in the past five years, investors grew skeptical of growth prospects as commodity prices fell by the most in almost three decades and the biggest U.S. housing bust since the Great Depression caused $514 billion in asset writedowns and credit losses for banks."
Pulling Out
"``The air is coming out of those emerging-market stocks,'' said Jeffrey Kleintop, chief market strategist at LPL Financial in Boston, which oversees $273 billion. ``What we're seeing is a really nasty bear market and it can stay oversold for as long as it stayed overbought in the bull market run-up.''"
Kleintop said LPL started trimming its emerging-market holdings in the first quarter and sold out completely in July.
"Investors have pulled almost $29 billion from emerging- market equity funds this year, the most ever on a net basis, data compiled by EPFR Global, a Cambridge, Massachusetts-based fund research firm, and New York-based Merrill Lynch & Co. show."
The 14-week stretch of redemptions also matches the longest streak since EPFR started tracking the data in 2000.
"Traders in currency markets are also betting on further declines as the economic slowdowns in the U.S., Europe and Japan make investors less willing to take on risk. Volatility on options for currencies from the Brazilian real to South Korean won versus the dollar is rising at a faster pace than those to buy or sell the euro and yen, according to JPMorgan Chase & Co."
Commodities Slump
"The MSCI Emerging Markets Index plummeted 34 percent this year, the biggest year-to-date drop in a decade."
"Raw-materials producers, which make up about a third of the index, accelerated the decline as 19 commodities such as crude oil, metals and farm products averaged the biggest monthly loss since 1980. Today, the MSCI index slumped 25.7 percent below its average price in the past 200 trading days. The gap, which tracks the depth and speed of a sell-off and gauges investor pessimism, signaled similar bearishness only three times in the MSCI gauge's 20-year history."
"In the wake of the Asian financial crisis and Russia's default on $40 billion of ruble-denominated debt, the index plunged 37 percent below its 200-day moving average in September 1998. During the so-called Tequila Crisis that began when Mexico devalued its currency in December 1994, emerging markets hit bottom after tumbling 22.7 percent below the average."
Worst Ever
The benchmark index slid 24.3 percent below the 200-day mean in September 2001 after terrorists crashed commercial jetliners into New York's World Trade Center and the Pentagon.
"This year's plunge is one of the worst in history, with less than a 0.3 percent chance of occurring at any given time, based on volatility-adjusted probabilities compiled by Bloomberg."
History shows that each of the three prior troughs heralded the start of a bull market for emerging-market equities. Developing-nation stocks climbed an average 24 percent in the next three months and 36 percent over a 12-month span.
"The steepest drop preceded the biggest rally, with the MSCI index jumping 27 percent between September and December 1998."
"``It's been an incredibly quick and deep sell-off, and very little has been spared,'' said Greg Lesko, who oversees $900 million at Deltec Asset Management Corp., a New York-based hedge fund. ``We're seeing real value out there, and when we see real value we like to be buying it.''"
To contact the reporters on this story: Michael Tsang in New York at mtsang1@bloomberg.net; Eric Martin in New York at emartin21@bloomberg.net.
"Last Updated: September 15, 2008 17:18 EDT"
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Japan and Australia Join Central Bank Efforts to Calm Markets
By Shamim Adam and Mayumi Otsuma
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Sept. 16 (Bloomberg) -- Japan and Australia pumped cash into their financial systems as Asian central banks attempted to calm markets after Lehman Brothers Holdings Inc. filed for bankruptcy.
"The Bank of Japan added 2.5 trillion yen ($24 billion) into the financial system, its biggest money-market operation since March, and the Reserve Bank of Australia injected A$1.85 billion ($1.5 billion), for a two-day total of nearly A$4 billion. South Korea said it's ready to provide liquidity if needed."
"Japanese bonds jumped, sending the yield on the benchmark 10-year bond to the lowest in more than a week on concern the credit crisis will worsen. Financial institutions worldwide have reported more than $510 billion in losses and writedowns and the credit-market collapse has erased $11 trillion from global stocks in the past year."
"``Central banks have to show they are ready to take action to ensure stability,'' said Thomas Lam, an economist at United Overseas Bank Ltd. in Singapore. ``Precautionary steps are high on their list to prevent any significant impact and support their markets.''"
"The Federal Reserve yesterday added $70 billion in reserves to the banking system, the most since the September 2001 terrorist attacks, and may cut its benchmark lending rate today. China lowered its key rate for the first time in six years late yesterday."
Bank of Japan
"Japan's overnight call loan rates was at 0.545 percent at 3.35 p.m. in Tokyo after the Bank of Japan made two injections of cash. It rose as high as 0.57 percent, according to Tokyo Tanshi Co. The central bank's target rate is 0.5 percent."
"Today's increase in funds was the first since June 30 and the biggest since March 31, when the central bank added 3 trillion yen."
"Australian one-month money market rates dropped 3 basis points to 7.21 percent today, the first decline in five days."
"The European Central Bank, the Bank of England and the Swiss central bank also added liquidity yesterday. Three-month money market rates in Europe fell 4 basis points to 4.25 percent yesterday, the lowest level since Aug. 27."
"Yesterday, the federal funds rate soared as high as 6 percent, triple the Fed's target, as banks hoarded cash. That spurred the Fed to pump $70 billion into money markets through repurchase operations, the most since September 2001."
Financial-Market Stability
"``The Bank of Japan will carefully monitor the recent developments among U.S. financial institutions and continue to try to secure smooth fund settlements and financial-market stability by implementing appropriate money-market operations,'' Governor Masaaki Shirakawa said. The central bank started a two- day policy meeting in Tokyo today."
"South Korea will provide liquidity ``through open-market operations,'' Vice Finance Minister Kim Dong Soo said. He held an emergency meeting today with his counterparts from the central bank and the financial regulator in Seoul."
"``The government and the Bank of Korea expect local and overseas financial markets will recover their stability considering key nations' efforts to stabilize the markets,'' Kim said after the meeting."
The Bank of Korea said in a separate statement today it will provide foreign currency liquidity through the swap market when necessary to ``help calm market players.''
Indonesian Liquidity
"Bank Indonesia cut its overnight rate, used to lend to commercial banks, by 2 percentage points and raised the rate on deposits placed by the lenders to ensure liquidity. The benchmark BI Rate was kept unchanged at 9.25 percent."
"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 authorities are afraid of a chain reaction and a further tightening of financial conditions, which would ultimately have a negative impact on the economy,'' said Tomoko Fujii, head of economics and strategy at Bank of America Corp. in Tokyo. ``They have no choice but to try to calm the markets.''"
"Borrowing costs may be reduced further as Chinese officials seek to spur economic growth, analysts say."
"``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."
"Taiwan's government instructed its four major funds and state-owned banks to buy shares to help reverse the stock market's slump. The Taiex index, which fell as much as 5.4 percent today, closed 4.9 percent lower."
Fed Meeting
"Fed policy makers will meet today to decide on its key interest rate. The central bank hasn't reduced rates since April 30, when it made the seventh cut since September 2007, bringing the target rate for overnight loans between banks to 2 percent."
Futures show traders boosted odds to 68 percent that the Fed will cut rates at the meeting.
"``Cutting interest rates may not be the most appropriate way to solve the crisis,'' said Lam. ``It's better for them to continue or enlarge their liquidity and collateral program.''"
To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net; Mayumi Otsuma in Tokyo at motsuma@bloomberg.net
"Last Updated: September 16, 2008 03:51 EDT"
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"U.K. Stocks Slump to Lowest Since 2005; RBS, HBOS Lead Retreat "
By Adam Haigh
"Sept. 16 (Bloomberg) -- U.K. stocks fell for a second day, sending the benchmark FTSE 100 Index to the lowest in more than three years, as concern grew there may be further capital raisings at financial companies and commodity stocks fell with metals prices."
"Royal Bank of Scotland Group Plc dropped 6.8 percent and HBOS Plc tumbled 12 percent after American International Group Inc.'s credit ratings were downgraded by Standard & Poor's and Moody's Investors Service, threatening efforts to raise emergency funds to keep the company afloat. BHP Billiton Ltd slid 3.6 percent and Rio Tinto Group lost 4.4 percent as copper retreated in London."
"``It will be another day of darkness today I'm afraid,'' said David Buik, a London-based market analyst at BGC Partners. ``The financial sector is again under the spotlight and AIG is the cumulus nimbus cloud.''"
"The benchmark FTSE 100 Index fell 82.1, or 1.6 percent, to 5,122.1 at 9:10 a.m. in London, extending its loss this year to 21 percent. The FTSE All-Share Index dropped 1.6 percent and Ireland's ISEQ Index retreated 3.7 percent, to the lowest since 2003."
"About $1.1 trillion has been wiped off the value of U.K. shares this year as banks including Barclays Plc and Royal Bank of Scotland have been forced to raise capital as losses at financial companies topped $229.5 billion across Europe, eroding profits."
"Royal Bank of Scotland, the U.K.'s second largest bank, slid 6.8 percent to 196.1 pence. HBOS, Britain's biggest mortgage lender, declined 12 percent to 203.5 pence."
AIG had its ratings cut after two people familiar with the situation said the biggest U.S. insurer by assets is seeking $70 billion to $75 billion in loans to replenish capital.
`Risk is Just too High'
"``There is a lot of uncertainty out there as to how this will unwind and how it will affect the financial system,'' said Jane Coffey, head of equities at Royal London Asset Management, which oversees about $63 billion in a Bloomberg Television interview. ``It seems that nobody is prepared to do any transactions with anyone else again because the counterparty risk is just too high.''"
"BHP, the world's largest insurer, slipped 3.6 percent to 1,388 pence. Rio Tinto, the third biggest, dropped 4.3 percent to 4,015 pence."
"Copper for delivery in three months slumped as much as 3 percent to $6,720 a metric ton in London. Platinum, gold, nickel, lead, zinc and aluminum prices also fell"
"Northgate Plc, the biggest provider of leased vans in Spain and the U.K., retreated 19 percent to 243 pence after saying the business outlook for the current year is lower than previously forecast and that it will focus on spending cuts."
-- With reporting by John Dawson in London. Editors: Roger Neill.
To contact the reporters on this story: Adam Haigh in London at ahaigh1@bloomberg.net
"Last Updated: September 16, 2008 04:21 EDT"
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"Dollar Volatility Rises to Six-Month High After Lehman, Merrill "
By Stanley White
Sept. 16 (Bloomberg) -- Volatility implied by dollar-yen options expiring in one month rose to the highest in six months after Lehman Brothers Holdings Inc. filed for bankruptcy and Bank of America Corp. agreed to acquire Merrill Lynch & Co.
"Traders bought options known as straddles to hedge against declines in the dollar on speculation credit-market losses will prompt a reduction in so-called carry trades, said Takeharu Miki, currency options manager at Bank of Tokyo-Mitsubishi UFJ Ltd. The premium for dollar put options that grant the right to sell over call options that allow purchases widened to the most in two months, showing more risk of weakness in the U.S. currency."
"``People are in a panic to buy volatility,'' said Miki of Bank of Tokyo-Mitsubishi UFJ, a unit of Japan's biggest publicly listed lender by assets. ``News on Lehman and Merrill is pretty bearish for the dollar and bullish for the yen. I've been in the market for 15 years and I've never seen a counterparty the size of Lehman completely disappear.''"
"The dollar fell to 104.04 yen, the lowest since July 16, and traded at 104.39 yen at 12:47 p.m. in Tokyo from 104.66 late yesterday in New York and 107.94 at the end of last week."
In carry trades investors borrow in countries with low interest rates and buy higher-yielding assets elsewhere. The risk is that currency market moves erase those profits. Japan's 0.5 percent benchmark rate compares with 2 percent in the U.S.
"Implied volatility for one-month dollar-yen options rose to 17.86 percent, the highest since March 19, and was last quoted at 17.61 percent from 17.24 percent late yesterday. Volatility may rise to 20 percent should the dollar approach 100 yen, Miki said."
"The one-month 25-delta risk reversal rate widened to minus 4.07 percent, the largest premium on dollar puts over calls since July 16. Delta measures the rate of change in an option's value relative to moves in the underlying currency."
`Caught Out'
"Traders bought one-month straddles, call and put options with the same strike price and duration, for a volatility of 18.3 percent, Miki said. Holders of straddles benefit from large moves in the underlying currencies. Dealers quote implied volatility, a measure of expectations for future price swings, as part of pricing options."
"Traders also entered three-month risk reversals by selling dollar calls and buying puts at a 4.7 percent premium, he said."
"``People in the interbank market who were short in dollar puts got caught out,'' Miki said. ``The dollar is down three yen from the end of last week, and that's quite a surprise.''"
"Lehman, a 158-year-old firm, filed for the biggest bankruptcy in history yesterday after Bank of America 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 for about $50 billion, as losses on difficult-to-value securities tied to mortgages claimed another of America's oldest financial companies."
To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net
"Last Updated: September 15, 2008 23:58 EDT"
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U.K. Inflation Rises to Record 4.7% as Recession Threat Looms
By Brian Swint
"Sept. 16 (Bloomberg) -- U.K. inflation accelerated to the fastest pace in at least 11 years last month, putting pressure on the Bank of England to refrain from cutting interest rates as the economy slides toward a recession."
"Consumer prices rose 4.7 percent in August from a year earlier, the most since records began in 1997, the Office for National Statistics said today in London. The rate exceeded the government's 3 percent limit for a fourth month, triggering a letter of explanation by central bank Governor Mervyn King."
"Lehman Brothers Holdings Inc.'s filing for the biggest bankruptcy in history threatens to exacerbate the global credit squeeze, and the Confederation of British Industry yesterday called on the Bank of England to cut borrowing costs. Inflation risks have prevented policy makers from lowering the benchmark interest rate from the current 5 percent since April."
"``We expect inflation to stay high until the middle of next year,'' said David Tinsley, an economist at National Australia Bank in London who used to work for the central bank. ``The bank will probably have to cut rates against a very high level of inflation. It just can't wait until it gets back to the 2 percent target, the economy will be dead.''"
British law requires the bank's governor to write to the Treasury when inflation strays more than 1 percent from the target and a further letter if it stays there after three months.
"This will be the third letter since Prime Minister Gordon Brown gave the bank control of monetary policy in 1997, when he was finance minister. The bank will probably publish the correspondence with Chancellor of the Exchequer Alistair Darling at 10:30 a.m. in London."
Economists' Forecasts
"Economists predicted inflation at 4.6 percent in August, according to the median of 28 forecasts in a Bloomberg News survey. With the rate at more than double the 2 percent target, the bank says it and may accelerate further to about 5 percent."
"Oil prices have dropped 36 percent since reaching a record above $147 a barrel on July 11. Household energy bills are still 10.1 percent higher than a year ago, today's report showed. Power suppliers Centrica Plc, E.ON AG, RWE AG and Scottish Power Plc have announced gas-price increases of as much as 34 percent in the past two months."
"So-called core inflation, which strips out costs of food, energy, tobacco and alcoholic beverages, accelerated to 2 percent in August, matching the fastest pace since 1997."
"Retail price inflation, the cost-of-living measure often used in wage negotiations, slowed to 4.8 percent from 5 percent last month. The cost of driving, lower mortgage-interest payments and depreciating house prices pulled the rate down, the statistics office said."
`Amber Light'
"Policy maker Paul Tucker said last week that Britons' price expectations were an ``amber light.'' U.K. consumers' predictions for inflation in the next year reached the highest since at least 1999, a survey by the Bank of England showed Sept. 11."
"The combination of faster inflation and slower economic growth has hurt Brown. The opposition Conservative Party leads Brown's Labour Party by almost 20 percentage points, a YouGov Plc poll showed this week."
"The CBI, the country's top business lobby, yesterday called on the Bank of England to lower the main rate by half a percentage point in November after the group's forecasts showed the U.K. entered a recession in July. Lehman, the fourth-largest U.S. investment bank, yesterday sought bankruptcy protection."
"With faster inflation eroding households' incomes and banks paring loans, retail sales may have dropped 0.5 percent in August, a Bloomberg survey shows. Jobless claims probably rose for a seventh month, the median forecast of economists shows. Those reports are due Sept. 18 and tomorrow, respectively."
The central bank lowered the benchmark interest rate three times from December to April and kept the rate at 5 percent for a fifth month on Sept. 4.
"``We expect to see a large rise in unemployment and grim retail sales data,'' said NAB's Tinsley. ``It would have been a bad week without the financial turbulence. By the time we get through to Friday, the pressure on the Bank of England to cut will be quite intense.''"
To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net.
"Last Updated: September 16, 2008 04:33 EDT"
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"Australia, N.Z. Dollars Slide as Carry Trades Fall Out of Favor "
By Candice Zachariahs
Sept. 16 (Bloomberg) -- The New Zealand dollar dropped to the weakest in more than four years against the yen and Australia's slid to a 2 1/2-year low as a global stocks rout curbed demand for the nations' higher-yielding assets.
"The currencies, favorites of so-called carry trades, also fell against the U.S. dollar after the Standard & Poor's 500 Index had its steepest decline since the September 2001 terrorist attacks on concerns more financial institutions will fail after Lehman Brothers Holdings Inc. filed for bankruptcy."
"``Everything's been driven by the equity markets,'' said David Forrester, a currency economist at Barclays Capital Inc. in Singapore. The currencies ``expected to do the worst are Kiwi and Aussie. These are considered risky assets,'' he said referring to the currencies by their nicknames."
"New Zealand's currency slid 1.9 percent to 67.90 yen at 4:42 p.m. in Sydney, from 69.21 yen late in Asia yesterday. It touched 67.70, the weakest since June 2004. It bought 65.14 U.S. cents from 65.71."
"The Australian dollar fell 3 percent to 82.35 yen. The currency earlier reached 82.15 yen, the weakest since March 2006. It fell 2 percent to 79.02 U.S. cents and touched 78.76 cents, the lowest since August 2007."
"The currencies fell as Lehman filed for the biggest bankruptcy in history yesterday and American International Group Inc.'s credit ratings were downgraded, threatening efforts to raise emergency funds and keep the company afloat."
"Asian stocks plunged the most in eight months today and Mitsubishi UFJ Financial Group Inc. and Aozora Bank Ltd., two of Lehman's biggest creditors, led the steepest decline by Japanese banks since 1987."
Worst Performers
"The Australian and New Zealand dollars are the worst performers this quarter among the 16 most-traded currencies against the yen, sliding 19 percent and 16 percent respectively. They've also posted drops of 10 percent and 6.8 percent versus the Swiss franc."
"``As this crisis rolls on, the Aussie and Kiwi will lose more ground to safer currencies,'' said Tony Morriss, a senior currency strategist with ANZ Banking Group Ltd. in Sydney."
"The VIX volatility index, a Chicago Board Options Exchange gauge reflecting expectations for stock market price changes and a barometer of risk aversion, rose to 31.70 yesterday, the highest since March 17."
"In carry trades, investors get funds in a country with low borrowing costs and invest in another with higher interest rates, earning the spread between the two. The risk is that currency market moves can erase those profits."
Bonds Gained
"Benchmark interest rates are 7 percent in Australia and 7.5 percent in New Zealand, compared with 2 percent in the U.S. and 0.5 percent in Japan, making them favorites with investors seeking higher returns."
"Australian government bonds gained. The yield on the 10- year note fell 12 basis points, or 0.12 percentage points, to 5.448 percent. The price of the 5.25 percent bond maturing in March 2019 rose 0.965, or A$9.65 per A$1,000 face amount, to 98.433. Bond yields move inversely to prices."
"New Zealand's two-year swap rate, a fixed payment made to receive floating rates, fell to 6.8 percent, its lowest since April 2006, from 6.84 on Sept. 12."
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
"Last Updated: September 16, 2008 02:56 EDT"
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Popolare Milano Says Lehman Risk Is Less Than EU10 Million
By Jerrold Colten
"Sept. 16 (Bloomberg) -- Banca Popolare di Milano Scrl, an Italian regional lender that's been looking for a partner for more than a year, said its risk related to Lehman Brothers Holdings Inc. is less than 10 million euros ($14.3 million)."
"Popolare Milano's ``net exposure'' to Lehman includes ``securities held in the portfolio and counterparty risk,'' the Milan-based lender said in a stock-exchange statement today."
The Bank of Italy said yesterday that there is ``limited risk'' for Italian banks from the Lehman bankruptcy.
To contact the reporter on this story: Jerrold Colten in Milan at jcolten@bloomberg.net
"Last Updated: September 16, 2008 04:22 EDT"
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"Italy Stocks Update: Eni, Saipem, Intesa Sanpaolo, Unipol "
By Armorel Kenna
"Sept. 16 (Bloomberg) -- Italy's S&P/MIB Index fell for a second day, losing 45, or 1.6 percent, to 26,887. Futures expiring in September dropped 532, or 1.9 percent, to 26,895."
The following were among the most active stocks on the Italian market today. Share symbols are in parentheses.
"Italian energy-related stocks fell as crude oil tumbled below $92 a barrel to a seven-month low on concern that turmoil, after Lehman Brothers Holdings Inc. yesterday sought bankruptcy protection, may weaken the global economy and reduce demand for fuels and raw materials. Bank and insurance company stocks also fell."
"Eni SpA (ENI IM), Europe's fourth largest energy company, fell for a second day, declining 46 cents, or 2.3 percent, to 19.51 euros. Saipem SpA (SPM IM), Europe's biggest oil-field services contractor by market value, slid 3 percent to 21.89 euros."
"Telecom Italia SpA (TIT IM): Libyan Arab Foreign Bank, an offshore institution owned by the country's central bank, may buy a stake in Italy's biggest phone company, Corriere della Sera reported. Separately la Repubblica said that Telecom Italia may put its fixed-line network into a separate unit that will be listed, as the phone company looks for ways to cut debt. The stock rose 0.8 percent to 1.09 euros."
"Unipol Gruppo Finanziario SpA, (UNI UM) Italy's fourth- biggest insurer, fell 5 cents, or 3.3 percent to 1.58 euros. Intesa Sanpaolo SpA, Italy's second-largest bank, fell 3.2 percent to 3.67 euros."
To contact the reporter on this story: Armorel Kenna in Milan at akenna@bloomberg.net
"Last Updated: September 16, 2008 04:01 EDT"
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Palm Oil Drops for Second Day to 17-Month Low as Crude Declines
By Jae Hur and Yoga Rusmana
"Sept. 16 (Bloomberg) -- Palm oil futures in Malaysia fell for a second day to the lowest in 17 months after crude oil tumbled below $92 a barrel, eroding demand prospects for biofuel made from vegetable oil."
"Crude oil declined for a second day to the lowest in seven months on concern that turmoil on Wall Street may hurt the global economy and reduce demand for fuels and raw materials. Vegetable oils, used mostly in food and biofuels, often track the performance of crude."
"``This is a natural consequence of demand concern,'' said James Gruber, an analyst at CLSA Asia Pacific Markets, in Jakarta. ``Deflation is the biggest risk right now for the global economy and that has a direct impact on the demand side of commodities."
"Futures for November delivery dropped as much as 6.7 percent to 2,090 ringgit ($605) a metric ton on the Malaysian Derivatives Exchange, the lowest since April 2007. The contract was at 2,095 ringgit at the midday break, more than halving from the record 4,486 ringgit in March."
"The drop today is ``mainly because of the decline in crude oil prices and also negative sentiment on the commodity markets that we have seen in the past weeks,'' Merlissa Paramitha Trisno, an analyst at PT Mandiri Sekuritas, said in Jakarta."
"Crude oil had its biggest two-day drop in almost four years after Lehman Brothers Holdings Inc., once the fourth-biggest U.S. investment bank, yesterday sought bankruptcy protection. Merrill Lynch & Co., the world's biggest brokerage firm, also agreed to sell itself to Bank of America Corp."
"China, the world's biggest vegetable oil consumer, imported 360,000 tons of palm oil in August, the country's customs office said today, citing preliminary data. Palm oil imports were 491,255 tons in July and 533,897 tons in August last year, Bloomberg data shows."
"State Trading Corp., India's second-biggest government- owned trading company, called bids to import as much as 12,000 tons of palm oil. STC is seeking refined, bleached and deodorized palm olein between Sept. 20 and Oct. 10."
To contact the reporters on this story: Jae Hur in Singapore at jhur1@bloomberg.net; Yoga Rusmana in Jakarta at yrusmana@bloomberg.net
"Last Updated: September 16, 2008 01:32 EDT"
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"Japan, China Join Central Bank Efforts to Calm Market (Update3) "
By Shamim Adam and Mayumi Otsuma
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Sept. 16 (Bloomberg) -- The Bank of Japan added a total of 2.5 trillion yen ($24 billion) to the financial system and China cut interest rates as Asian central banks attempted to calm markets after Lehman Brothers Holdings Inc. filed for bankruptcy.
"The Federal Reserve yesterday added $70 billion in reserves to the banking system, the most since the September 2001 terrorist attacks, and may cut its benchmark lending rate today. China lowered its benchmark rate for the first time in six years late yesterday and may act again."
"Japanese bonds jumped, sending the yield on the benchmark 10-year bond to its biggest drop in five years on concern the credit crisis will worsen. Financial institutions worldwide have reported more than $510 billion in losses and writedowns and the credit-market collapse has erased $11 trillion from global stocks in the past year."
"``Central banks have to show they are ready to take action to ensure stability,'' said Thomas Lam, an economist at United Overseas Bank Ltd. in Singapore. ``Precautionary steps are high on their list to prevent any significant impact and support their markets.''"
"The Bank of Japan added 2.5 trillion yen in two operations today. The overnight call loan rates traded at 0.54 percent at 2:10 p.m. in Tokyo after the second operation. It rose as high as 0.57 percent, according to Tokyo Tanshi Co. The central bank's target rate is 0.5 percent."
"Today's increase in funds was the first since June 30 and the biggest since March 31, when the central bank added 3 trillion yen."
Australian Rates
"Australian one-month money market rates dropped 3 basis points to 7.21 percent today, the first decline in five days, after the Reserve Bank of Australia injected A$1.848 billion ($1.5 billion) to the financial system, adding to yesterday's $2.1 billion."
"The European Central Bank, the Bank of England and the Swiss central bank also added liquidity yesterday. Three-month money market rates in Europe dropped 4 basis points to 4.25 percent yesterday, the lowest level since Aug. 27."
"Yesterday, the federal funds rate soared as high as 6 percent, triple the Fed's target, as banks hoarded cash. That spurred the Fed to pump $70 billion into money markets through repurchase operations, the most since September 2001."
"``The Bank of Japan will carefully monitor the recent developments among U.S. financial institutions and continue to try to secure smooth fund settlements and financial-market stability by implementing appropriate money-market operations,'' Governor Masaaki Shirakawa said. The central bank starts a two- day policy meeting in Tokyo today."
Bank of Korea
"South Korea will provide liquidity ``through open-market operations,'' Vice Finance Minister Kim Dong Soo said before an emergency meeting today with his counterparts from the central bank and the financial regulator in Seoul."
The Bank of Korea said in a separate statement today it will provide foreign currency liquidity through the swap market when necessary to ``help calm market players.''
"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 authorities are afraid of a chain reaction and a further tightening of financial conditions, which would ultimately have a negative impact on the economy,'' said Tomoko Fujii, head of economics and strategy at Bank of America N.A. in Tokyo. ``They have no choice but to try to calm the markets.''"
Taiwan's Stocks
"Taiwan's government instructed its four major funds and state-owned banks to buy shares to help reverse the stock market's slump. The index, which fell as much as 5.4 percent today, was 4.5 percent lower at 1:05 p.m. in Taipei."
"Fed policy makers will meet today to decide on its key interest rate. The central bank hasn't reduced rates since April 30, when it made the seventh cut since September 2007, bringing the target rate for overnight loans between banks to 2 percent."
Futures show traders boosted odds to 68 percent that the Fed will cut rates at the meeting.
"``Cutting interest rates may not be the most appropriate way to solve the crisis,'' said Lam. ``It's better for them to continue or enlarge their liquidity and collateral program.''"
To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net; Mayumi Otsuma in Tokyo at motsuma@bloomberg.net
"Last Updated: September 16, 2008 01:20 EDT"
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"China May Cut Rates Again, Boost Spending for Growth (Update3) "
By Li Yanping and Kevin Hamlin
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"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. China's stocks tumbled today after Lehman Brothers Holdings Inc. filed for bankruptcy and Bank of America Corp. agreed to buy Merrill Lynch & Co.
"``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."
`Important Problems'
"The CSI 300 Index of stocks fell 3.7 percent today to the lowest close since 2006 as banks declined. The yuan rose to 6.8420 against the dollar as of 5:12 p.m. in Shanghai from 6.8450 on the previous trading day, Sept. 12."
"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."
Shanghai Stocks Fall
"The Shanghai Composite Index of stocks fell 4.5 percent to 1,986.64, closing below 2,000 for the first time since 2006."
"It was ``suspicious'' that the central bank acted when the index was near 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 the economy 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."
"Asset-market weakness is not limited to stocks. Property could be headed for a ``meltdown'' as home prices and sales decline, Morgan Stanley said Sept. 12. In August, prices rose at the slowest pace in 18 months, the government said today."
Property companies' shares rose today on reduced costs for borrowers.
`Easing Cycle'
"``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 is probably the only Asian country ``that has leeway for expansionary fiscal and monetary policies in the second half'' because of slowing inflation, said Ifzal Ali, chief economist at the Asian Development Bank."
"The ADB today forecast China's economy will expand 10 percent this year, unchanged from an estimate in April. It cut its prediction for next year to 9.5 percent from 9.8 percent."
China's central bank pushed the reserve requirement for lenders to a record 17.5 percent in June.
Biggest Banks
"Now that it's falling, 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."
To contact the reporters on this story: Li Yanping in Beijing at yli16@bloomberg.net; Kevin Hamlin in Beijing on khamlin@bloomberg.net
"Last Updated: September 16, 2008 05:26 EDT"
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"European Car Sales Drop 16% on Cost of Fuel, Economy (Update1) "
By Laurence Frost
"Sept. 16 (Bloomberg) -- European car sales tumbled 16 percent last month, the fourth straight decline, as higher fuel prices and slowing economies hurt demand for models from General Motors Corp. and Toyota Motor Corp."
"Vehicle purchases dropped to 805,839 in August from 955,318 a year earlier, the sharpest decline since the inclusion of data from countries that joined the European Union in 2004, the Brussels- based European Automobile Manufacturers' Association said today."
"Eight-month sales fell 3.9 percent, compared with a 2.8 percent contraction through July. GM suffered a 24 percent decline for August as pricier gasoline hurt demand for pickups and sport-utility vehicles, while registrations of Toyota's aging model line up dropped 23 percent. The decline was sharpest in Spain, where sales fell 41 percent, while Eastern Europe -- which has rescued results in recent months -- had an 8.7 percent drop."
"``This is a really bad number,'' said Arndt Ellinghorst, an analyst at Credit Suisse in London with an ``underweight'' rating on the European auto industry. ``No market is safe. Eastern Europe has been a growth engine, but now that too is coming down.''"
"The decline in sales reflects ``the general deterioration in consumer confidence and the effect of continuing high fuel prices,'' the European auto-industry body said in a statement."
"Peugeot, VW"
"Among European manufacturers, Paris-based PSA Peugeot Citroen, the region's second-biggest carmaker, had the steepest decline, with registrations down 19 percent. Wolfsburg, Germany-based Volkswagen AG, the European No.1 carmaker, suffered a 9.5 percent drop, led by an 18 percent decline for the Spanish-made Seat."
"VW sold more than 186,000 autos in total last month, followed by Peugeot with almost 97,000. Renault SA, the French No. 2, had a 5.6 percent decline to 72,000 registrations, while Detroit-based GM and Toyota of Japan, the world's two biggest automakers, sold 71,000 and 45,000 vehicles respectively."
"The nine-member Bloomberg Europe Autos Index was down 2.2 percent as of 8:50 a.m. in London. Boulogne-Billancourt-based Renault fell as much as 3.7 percent, Peugeot as much as 3.1 percent and Fiat SpA 2.7 percent after Italy's biggest carmaker suffered a 12 percent drop in August sales to less than 56,000 vehicles."
To contact the reporter on this story: Laurence Frost in Paris at lfrost4@bloomberg.net
"Last Updated: September 16, 2008 04:04 EDT"
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"Asia to Expand Slower Than Expected in 2008, 2009, ADB Says "
By Shamim Adam
"Sept. 16 (Bloomberg) -- Asian economies will expand at a slower-than-expected pace this year and next as growth in the U.S., Europe and Japan weakens and central banks pursue policies to quell inflation, the Asian Development Bank said."
"Asia excluding Japan will grow 7.5 percent this year, less than an April estimate of 7.6 percent, the Manila-based institution said in a report today. The region will expand 7.2 percent in 2009, the lender said."
"The U.S. housing slump has roiled financial markets and forced Lehman Brothers Holding Inc. to file for bankruptcy yesterday, deepening a crisis that threatens to tip the world into a recession. A slowdown will hurt demand for Asian-made goods and reduce expansion in a region the ADB says will account for more than a fifth of global growth this year."
"``The global economy is in trying times,'' the ADB said. ``The financial crisis has spread and has severely affected even those countries with limited exposure to the problem of the U.S. subprime market. Developing Asian economies are being caught between rising inflation pressures and weakening growth prospects.''"
"The economies of Europe and Japan contracted last quarter, while the U.S. has lost 605,000 jobs this year. The world may face ``Japan-like'' economic stagnation as turmoil in financial markets weighs on growth and challenges the ability of policy makers to manage the crisis, said Tony Tan, deputy chairman of sovereign wealth fund Government of Singapore Investment Corp."
"Inflation in Asia will reach 7.8 percent this year, higher than an April forecast of 5.1 percent that was already the most in a decade, the ADB said. Prices may ease to 6 percent next year, the report said."
Tightening Measures
"``Monetary policy has a major role in containing these price pressures, and regional economies need to address rising inflation even at the expense of slower short-term growth,'' the ADB said. ``Central banks should impose the requisite tightening measures to prevent inflation from becoming entrenched in their economies.''"
"The ADB left its forecast for China's growth this year unchanged at 10 percent, and reduced its prediction for next year to 9.5 percent from 9.8 percent. India will expand 7.4 percent in 2008, and 7 percent next year, lower than initial projections, it said."
"The People's Bank of China will probably start easing bank lending controls in the second half, the ADB said. China yesterday said it will lower the one-year lending rate and cut the proportion of deposits that the nation's smaller banks must set aside."
"In India, the central bank will probably implement ``additional tightening in policy'' to fight inflation, according to the ADB."
To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net
"Last Updated: September 15, 2008 22:02 EDT"
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Slovak Harmonized Inflation Unchanged at 4.4% on Food Prices
By Radoslav Tomek
"Sept. 16 (Bloomberg) -- Slovak inflation was unchanged in August, according to the European Union methodology, as consumer prices posted the first monthly drop in a year."
"The so-called harmonized annual rate held steady at 4.4 percent, the Bratislava-based Slovak Statistics Office said today. On a monthly basis, prices fell 0.1 percent. The annual rate was below the 4.5 percent median estimate of five economists surveyed by Bloomberg."
"Falling food prices are helping keep inflation in check four months before the east European nation adopts the euro. The data won't prompt a change in borrowing costs since the central bank's key two-week interest rate already matches the 4.25 percent benchmark rate in the euro region, economists have said."
"The EU-harmonized inflation rate, which is based on a different basket of goods and services than the national figure and puts less weight on items like household costs, compares with the August national rate of 5 percent. The EU uses the harmonized rate when approving a nation's readiness for switching to Europe's common currency."
"The monthly decline was driven by a 1.1 percent drop in food prices and a 0.4 percent decline in transportation prices. Rising the most were prices of health care, which were up 0.7 percent, followed by miscellaneous services with a 0.6 percent increase."
To contact the reporter on this story: Radoslav Tomek in Bratislava at rtomek@bloomberg.net.
"Last Updated: September 16, 2008 03:07 EDT"
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Low as Capital Outflows May Rise .txt>> <<2.624_20080916105647Japan's
August Consumer Sentiment Falls to Record Low (Update1) .txt>>
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Commodity Index Falls Down for Year Erasing Record Rally .txt>>
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Tumble .txt>> <<2.622_20080916123217Asian Stocks Dollar Drop Japanese
Bonds Gain on Lehman AIG .txt>> <<2.622_20080916110331German Investor
Confidence Probably Increased on Oil Euro .txt>>
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A blog for global investors, with information about most of the world financial markets. Updated frequently, every day, with my views on these markets. Bear or Bull? Read to discover!
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