"Gold, Precious Metals Fall as Investors Sell to Cover Losses "
By Pham-Duy Nguyen
"Sept. 16 (Bloomberg) -- Gold, silver and other precious metals fell as investors sold commodities to raise cash and cover losses in other markets."
"Equities in Asia, Europe and the U.S. retreated on speculation American International Group Inc. would be the next victim of the credit crisis. The cost of borrowing dollars doubled overnight in London as banks hoarded cash after Lehman Brothers Holdings Inc. filed for bankruptcy protection and AIG's debt ratings were downgraded. Gold rose 5.6 percent in the previous two sessions as investors sought a haven from market turmoil."
"``It's all related to money flow at this point,'' said William O'Neill, a partner at Logic Advisors in Upper Saddle River, New Jersey. ``Some of this is the need to acquire capital related to margin calls. Gold has a very special quality to it as a monetary asset that silver and platinum lack and that's why it's holding up much better than other commodities.''"
"Gold futures for December delivery fell $9.20, or 1.2 percent, to $777.80 an ounce at 9:24 a.m. on the Comex division of the New York Mercantile Exchange. The metal reached a record $1,033.90 on March 17."
"Silver futures for December delivery dropped 55 cents, or 4.9 percent, to $10.585 an ounce on the Comex. Platinum futures for October delivery plummeted $99.20, or 8.4 percent, to $1,077 an ounce. Palladium futures for December delivery lost $14.05, or 5.9 percent, to $223.95 an ounce in New York."
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
"Last Updated: September 16, 2008 09:38 EDT"
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Emerging-Market Stocks Tumble as Credit Risk Surges (Update1)
By Fabio Alves and Denis Maternovsky
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"Sept. 16 (Bloomberg) -- Emerging-market stocks plunged the most in 11 years, currencies fell and the cost of insuring developing-nation bonds surged as mounting credit losses and tumbling commodities prompted investors to sell riskier assets."
"Every emerging stock market in MSCI indexes except Indonesia retreated. Russia's Micex Index fell the most since Bloomberg began tracking the measure in May 2001, led by financial companies OAO Sberbank and OAO VTB Group, before trading was suspended. Argentina's five-year credit-default swaps rose to the highest since at least June 2005. Brazil's real sank to the lowest since November 2007."
"The MSCI Emerging Markets Index fell 5.7 percent to 777.96 at 10:10 a.m. New York time after earlier plunging 7.2 percent, the biggest drop since October 1997. The measure lost 34 percent in 2008 before today, compared with a 19 percent decline for the Standard & Poor's 500 Index. A gauge of energy stocks slipped 8.9 percent to 658.26, its steepest loss since January 1999."
"Banks' borrowing costs in dollars more than doubled to the highest since 2001 after credit downgrades of American International Group Inc. and the collapse of Lehman Brothers Holdings Inc. led banks to hoard cash. Crude oil, copper, silver and sugar tumbled as investors hoarded cash."
"``Sentiment is very poor,'' said Nick Field, who helps oversee $27 billion in emerging market equities at London-based Schroders Plc. ``Emerging stocks are suffering because of the funding problems in the developing market banking system and also because people have to cover losses elsewhere and they're selling whatever stocks they can.''"
"Russia's Micex index plummeted 17 percent to 881.17, dragged down by a 23 percent plunge in Sberbank and a 19 percent decrease in OAO Gazprom. Korea's Kospi index fell 6.1 percent, while Czech's PX index slumped 5.6 percent. In Latin America, Brazil's Bovespa tumbled 3.1 percent to the lowest since April 2007, while Chile's Ipsa fell 1.5 percent."
"The cost of insuring bonds in emerging markets surged. Argentina's five-year credit-default swaps rose above 1,000 basis points as concern that New York-based AIG may collapse eroded demand for all but the safest investments."
"``Right now the market has taken on a life of its own, and there is no telling at what point this knife stops falling,'' said Ronald Smith, chief strategist at Alfa Bank in Moscow. ``The bottom may not be found until some time in October, and the rally may not start until December or even early next year.''"
"The extra yield investors demand to own developing nations' bonds instead of U.S. Treasuries swelled 42 basis points to 4.22 percentage points, the widest spread since October 2004, according to JPMorgan Chase & Co."
To contact the reporters for this story: Fabio Alves in New York at Falves3@bloomberg.net; Denis Maternovsky in Moscow at dmaternovsky@bloomberg.net
"Last Updated: September 16, 2008 10:22 EDT"
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"Argentina's Credit Default Swaps Surge Above 1,000 Basis Points "
By Lester Pimentel
"Sept. 16 (Bloomberg) -- Argentina's five-year credit-default swaps rose above 1,000 basis points as concern New York-based American International Group Inc. may collapse eroded demand for all but the safest investments."
"The cost of protecting the country's debt against default surged 87 basis points, or 0.87 percentage point, to 10.29 percentage points at 8:48 a.m. in New York, according to Bloomberg data. That means it costs $1,029,000 per year to protect $10 million of Argentine debt."
To contact the reporter on this story: Lester Pimentel in New York at lpimentel1@bloomberg.net
"Last Updated: September 16, 2008 08:53 EDT"
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European Bonds Advance as AIG Downgrades Spur Demand for Safety
By Anchalee Worrachate
"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 later trimmed gains on speculation that the Federal Reserve will cut interest rates today to shore up confidence and stabilize the banking system."
"``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 by as much as 14 basis points and was 7 basis points lower at 3.66 percent by 5:19 p.m. in London. It declined 28 basis points yesterday, the steepest 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 0.12 or 1.2 euros per 1,000-euro ($1,413) face amount, to 100.65."
The yield on the 10-year bund slipped 5 basis points to 3.40 percent. Bond yields move inversely to prices.
Stock Rises
"AIG's credit-rating 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."
"The cost of borrowing soared today, adding further pressure to the financial sector as it threatened companies' efforts to raise funds to stay solvent."
Borrowing Costs
"The London interbank offered rate, or Libor, that financial companies charge each other to borrow dollars jumped 333 basis points to 6.44 percent today, its biggest one-day increase, according to the British Bankers' Association. The difference between the rate for three-month dollar loans and the overnight indexed swap rate, the Libor-OIS spread that measures the availability of funds in the market, widened 11 basis points to 116 basis points, the most since at least December 2001."
"The collapse of Lehman and the rating downgrade of AIG are also hurting European companies, with costs of turning corporate debt into fixed rates soaring to a record."
"The five-year euro swap spread, or the difference between five-year swap rate and the equivalent maturity European bond yield, widened to 84 basis points from 79 basis points, the most since the euro's debut in 1999. A wider spread suggests traders are betting corporate borrowing costs will rise."
"``The whole of this year is going to be very tough,'' said Padhraic Garvey, head of investment-grade strategy at ING Bank NV in Amsterdam. ``The stress in the financial sector will keep the swap spread wide. It will potentially go wider if the Fed doesn't cut interest rates and the turmoil drags on.''"
European 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."
"Inflation expectations, as measured by the difference in yield between nominal and inflation-protected bonds, have declined as crude oil fell to a seven-month low. The so-called breakeven rate on French nine-year debt dropped to 1.96 percentage points, from 2.20 percentage points a month ago."
"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."
"The ZEW Center for European Economic Research said today its index of German investor and analyst confidence rose to minus 41.1 this month, from minus 55.5 in August. Economists surveyed by Bloomberg had expected a reading of minus 53 forecast."
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 2009.
To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net
"Last Updated: September 16, 2008 12:21 EDT"
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German Investor Confidence Rises More Than Expected (Update2)
By Gabi Thesing
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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 Touches Two-Year High Against Euro on Downgrade of AIG
By Ye Xie and Bo Nielsen
Sept. 16 (Bloomberg) -- The yen touched a two-year high against the euro as the debt-rating downgrade of American International Group Inc. fueled concern credit markets are seizing up after the collapse of Lehman Brothers Holdings Inc.
Japan's currency reached the highest level in almost five years against the New Zealand dollar as a drop in stocks encouraged investors to reduce holdings of higher-yielding assets and pay back loans in the yen. The dollar rose versus the euro as traders forecast the Federal Reserve will cut interest rates at its meeting today and investors sought a haven.
"``The markets are turning upside down,'' said Samarjit Shankar, director of global strategy for the market group in Boston at Bank of New York Mellon, the world's largest custodial bank, with more than $23 trillion in assets. ``Nobody knows what's coming next in terms of news flow. Institutional investors are getting out of risky positions and parking their money in short-term bills denominated in the yen.''"
"The yen increased 0.6 percent to 148.18 per euro at 11:46 a.m. in New York, from 149.11 yesterday. It touched 147.04, the strongest since August 2006. Japan's currency fell 0.2 percent to 104.91 per dollar, from 104.66, after touching 103.54, the strongest since May 27. The dollar increased 0.9 percent to $1.4121 per euro, from $1.4243 yesterday, when it reached $1.4481, the weakest level since Sept. 4."
Japan's currency erased its gain versus the dollar and pared its advance against the euro as financial network CNBC reported that U.S. ``assistance'' to AIG is a possibility.
AIG Downgrade
"AIG's credit was downgraded by Standard & Poor's and Moody's Investors Service, threatening 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 the biggest bankruptcy in history yesterday after Bank of America Corp. and Barclays Plc pulled out of talks to buy the New York-based firm.
"Money-market rates surged today as lending between banks all but seized up. The London interbank offered rate, or Libor, for overnight dollars more than doubled to the highest level in seven years, the British Bankers' Association said."
"The dollar may fall to 101.45 yen after it dropped below support of 104.95, wrote Andrew Chaveriat, a technical analyst at BNP Paribas SA in New York, in a research note yesterday. A support level is where buy orders cluster."
"Support at 104.95 yen is a 38.2 percent retracement of the dollar's climb from the March low of 95.76 yen to the August high of 110.66 yen, based on a series of numbers known as a Fibonacci sequence, Chaveriat wrote."
Yen Shorts
"The dollar may fall further against the yen as investors cover short positions against Japan's currency, according to Robert Blake, a strategist in Boston at State Street Global Markets LLC, which has $15.3 trillion in assets under custody."
"``Our flow data suggest sophisticated institutional investors remain short on the yen,'' Blake said. ``I would be hesitant to put a bottom on the dollar-yen.'' A short position is a bet a currency will decline."
"The yen gained as much as 2.5 percent to 67.25 against the New Zealand dollar, the strongest level since November 2003, and 3.5 percent to 81.43 versus the Aussie as investors reduced carry trades, in which they borrow where interest rates are low and buy higher-yielding assets elsewhere. 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 Standard & Poor's 500 Index fell 0.5 percent after posting the steepest drop since September 2001 yesterday.
Fed Cash
"The Fed added $50 billion in temporary reserves to the banking system after injecting $70 billion yesterday, the most since the Sept. 11, 2001, terrorist attacks. The European Central Bank offered 70 billion euros ($99.8 billion) in a one- day money-market auction today."
"The Libor OIS spread, which measures the availability of funds in the market, increased 15 basis points, or 0.15 percentage point, to 120 basis points today, the widest since at least December 2001."
Futures on the Chicago Board of Trade showed a 100 percent chance the Fed would reduce the target rate for overnight lending by a quarter-percentage point. Traders saw a 2 percent chance of a rate cut a week ago.
"``The market is expecting the Fed to calm things down,'' said Henry Wilkes, head of foreign-exchange trading at Brown Brothers Harriman & Co. in London. ``Whether they actually will is another matter. 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.''"
"Implied volatility on one-month euro-dollar options reached 14.71 percent today, the highest level since the aftermath of the Sept. 11 attacks, indicating traders see more price fluctuation in the next month. Volatility on one-month dollar- yen options touched 18.79 percent, the highest since March 17, the day before the Fed cut borrowing costs."
To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net
"Last Updated: September 16, 2008 11:49 EDT"
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"China Stocks Plunge, Led by ICBC, Construction Bank, Financials "
By Zhang Shidong
"Sept. 16 (Bloomberg) -- China's stocks slumped, led by financial companies, as credit turmoil caused a debt-rating downgrade for American International Group Inc. and the collapse of Lehman Brothers Holdings Inc."
"Industrial & Commercial Bank Ltd., the nation's biggest listed lender, also known as ICBC, and China Construction Bank Corp., the second-largest, both plunged by the 10 percent daily limit. China yesterday cut interest rates for the first time in six years and allowed most banks to set aside smaller reserves, prompting Poly Real Estate Group Co. to jump 4.8 percent."
"``The market perceives the rate cut as confirmation from the government that China's economy is in a downward cycle,'' said Zheng Tuo, who manages $790 million at Bank of Communications Schroders Fund Management Co. in Shanghai. ``Sour regional markets have also damped sentiment.''"
"The CSI 300 Index, which tracks yuan-denominated A shares listed on China's two exchanges, declined 77.19, or 3.7 percent, to 2,000.65 at the close, the lowest since Dec. 28, 2006. It dropped to as low as 1,987.30, falling below 2,000 for the first time in almost 21 months. China's markets were shut yesterday for a holiday, when the MSCI Asia Pacific excluding Japan Index fell 1.9 percent."
"Central bank efforts to cool inflation and concern about a slowdown in global demand for the nation's products have helped drive the CSI 300 down 63 percent this year, allowing France to overtake China as the world's fourth-largest stock market. The slump has made China the second-worst performing stock market in 2008."
"ICBC, Merchants"
"ICBC dropped 10 percent to 3.80 yuan. Construction Bank slumped 10 percent to 4.26 yuan. Bank of China Ltd., the country's third largest, tumbled 9.2 percent to 3.17 yuan. China Merchants Bank Co., the nation's biggest dual-currency credit- card issuer, plunged 10 percent to 16.07 yuan."
"Bank of China has lent $50 million to Lehman, according to a court document. ICBC held $1.21 billion of subprime-related securities at the end of June while Construction Bank held $1 billion of the investments."
"U.S. stocks tumbled yesterday, pushing the Standard & Poor's 500 Index down 4.7 percent. Lehman, the fourth-largest U.S. investment bank, was forced into the biggest bankruptcy filing in history, becoming the latest victim of the subprime mortgage crisis. American International Group'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."
"China's property companies rose on the expectation lower borrowing costs will spur demand for real estate. Poly Real Estate, the country's second-largest developer, advanced 4.8 percent to 11.80 yuan. COFCO Property (Group) Co., the property unit of the country's biggest grain trader, added 1.5 percent to 4.05 yuan."
People's Bank
"The People's Bank of China 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, it said in a statement last night."
"The move is ``a clear negative'' as it compressed banks' net interest margins by 16 basis points and increased the chance of rising credit costs for Chinese banks in 2009, Credit Suisse Group said in a research note today."
JPMorgan Chase & Co. cut the rating on China's banking industry to ``neutral'' on concern a worsening real-estate market may cause more loans to go bad.
"The central bank had boosted the reserve ratio requirement 16 times since the beginning of last year and increased interest rates six times in 2007 to curb inflation that reached a 12-year high in February. China's economy expanded 10.1 percent in the second quarter, the slowest pace since the end of 2005."
Coal Producers
"Coal producers including China Shenhua Energy Co. dropped after energy prices tumbled. Shenhua, the nation's largest coal producer, slid 9.8 percent to 21.19 yuan. China Coal Energy Co., the second-largest, fell 7.9 percent to 8.71 yuan. Yanzhou Coal Mining Co., the listed unit of China's fourth-biggest coal miner, lost 6.9 percent to 9.84 yuan."
Crude oil tumbled as much as $4.17 a barrel to a seven- month low of $91.54 a barrel after refineries along the Gulf of Mexico escaped major damage from Hurricane Ike.
"The Shanghai Composite Index, which tracks the bigger of China's stock exchanges, fell 4.5 percent to 1,986.64. The Shenzhen Composite Index lost 1.4 percent to 570.75."
To contact the reporter on this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net
"Last Updated: September 16, 2008 03:43 EDT"
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U.S. Economy: Consumer Prices Decrease as Energy Costs Retreat
By Timothy R. Homan
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Sept. 16 (Bloomberg) -- U.S. consumer prices fell in August for the first time in almost two years as fuel costs declined from record levels.
"The consumer price index dropped 0.1 percent after jumping 0.8 percent the prior month, the Labor Department said today in Washington. So-called core prices, which exclude food and energy, rose 0.2 percent, as forecast, after a 0.3 percent gain."
The diminishing threat of inflation may offer scope for Federal Reserve policy makers to lower interest rates to alleviate the collapse in credit that brought down Lehman Brothers Holdings Inc. Consumer prices are moderating as companies including General Motors Corp. and J.C. Penney Co. offer discounts to revive their sales.
"``Inflation is not a concern for the Fed'' right now, said Ryan Sweet, an economist at Moody's Economy.com in West Chester, Pennsylvania. ``The moderation in headline inflation is going to reflect lower energy prices, a global economy that is on the edge of recession and modest wage pressures.''"
"Treasuries soared today as investors sought the safety of government debt amid deteriorating confidence in credit markets. Yields on benchmark 10-year notes dropped to 3.31 percent at 8:47 a.m. in New York, from 3.41 percent late yesterday."
Consumer prices matched the median forecast of 75 economists surveyed by Bloomberg News. Estimates ranged from minus 0.3 percent to gains of 0.4 percent.
Annual Change
"Prices increased 5.4 percent in the 12 months to August, after a year-over-year gain of 5.6 percent in July that was the biggest since January 1991."
"The core rate climbed 2.5 percent from August 2007, less than anticipated, after a 2.5 percent year-over-year increase the prior month."
"The Fed ``shouldn't be worrying about inflation right now,'' said Nigel Gault, chief U.S. economist at Global Insight Inc. in Lexington, Massachusetts. ``Commodity costs are coming down, the economy is clearly weakening. It'll be less possible for consumer-goods companies to pass through commodity costs because their markets will be weaker. As of now, inflation is not the issue.''"
"Energy expenses dropped 3.1 percent, after a 4 percent gain in the prior month, led by the biggest slump in fuel oil since April 2003. Gasoline prices decreased 4.2 percent."
Oil prices have kept coming down this month. Crude oil futures on the New York Mercantile Exchange almost reached $90 a barrel today after averaging $116.69 in August.
The consumer price index is the government's broadest gauge of costs because it includes goods and services. Almost 60 percent of the CPI covers prices consumers pay for services ranging from medical visits to airline fares and movie tickets.
Food Costs
"Food prices, which account for about a fifth of the CPI, increased 0.6 percent after a 0.9 percent gain in July."
"New-vehicle prices dropped 0.6 percent, the most since November 2006, and hotel fares dropped 1.1 percent."
The price of airfares and clothing increased.
"Rents which, make up almost 40 percent of the core CPI, rose at the same pace as in July. A category designed to track rental prices climbed 0.1 percent for a second month."
"Today's figures also showed how lower prices helped American workers last month. Wages increased 0.6 percent after adjusting for inflation, following a decrease of 0.8 percent in July."
"Still, price-adjusted earnings were down 2.5 percent over the last 12 months. The decline in purchasing power is one reason economists forecast consumer spending will slow in the second half of this year."
"Companies are offering incentives as sales slump. J.C. Penney, along with American Eagle Outfitters Inc., sold discounted clothes in August amid what could be the worst back- to-school season in seven years for malls and department stores."
"General Motors cut prices by giving all customers the same discounts offered to employees. The move boosted sales in the second half of August. GM this month said it will extend the incentive through Sept. 30 and has offered 72-month, no-interest financing on some vehicles since late June."
To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net
"Last Updated: September 16, 2008 10:11 EDT"
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"Canada's July Factory Sales Gain 2.7% on Metals, Cars (Update1) "
By Alexandre Deslongchamps
"Sept. 16 (Bloomberg) -- Canadian factory shipments rose 2.7 percent in July, almost three times as much as economists anticipated, on higher sales of metals and motor vehicles."
"Shipments advanced to a record C$54.1 billion ($50.4 billion), the sixth gain in seven months, from C$52.7 billion in June, Statistics Canada said today in Ottawa. Economists surveyed by Bloomberg predicted a 1 percent increase, the median of 19 forecasts."
"The report shows manufacturers are coping with lukewarm demand from the U.S. for exports, where 75 percent of the goods Canada sells abroad are shipped. Still, economists such as Charmaine Buskas of TD Securities in Toronto predict slower growth in the U.S. will soon hurt sales."
"``This report is certainly positive, and suggests that the manufacturing sector was surprisingly resilient which has positive implications for growth,'' Buskas said today in a note to clients. ``Going forward the boost from manufacturing is unlikely to continue,'' she said, because economic conditions in the U.S. will sap consumer demand there."
"Canada's dollar, dubbed the loonie because of the aquatic bird on the one-dollar coin, fell 0.2 percent to C$1.0733 per U.S. dollar at 10:06 a.m. in Toronto from C$1.0709 yesterday. One Canadian dollar buys 93.17 U.S. cents."
"Excluding price changes, sales rose 2 percent."
"Overall, 17 of the 21 industries tracked by the statistics agency recorded higher sales during the month, led by a 10 percent jump in primary metals and a 3.1 percent gain for motor vehicles. New orders for manufacturers stalled at C$53.8 billion after a 1.1 percent gain in June and unfilled orders fell 0.4 percent."
"Inventories advanced 0.2 percent to C$67.2 billion, while the sales-to-inventory ratio fell to 1.24, the lowest since 1995, indicating production may rise in the coming months."
To contact the reporter on this story: Alexandre Deslongchamps in Ottawa at adeslongcham@bloomberg.net.
"Last Updated: September 16, 2008 10:08 EDT"
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Brazil's Retail Sales Rose 11% in July vs Year Ago (Update2)
By Joshua Goodman and Andre Soliani
"Sept. 16 (Bloomberg) -- Brazil's retail sales accelerated in July, led by home appliances and computer and office equipment."
"Retail sales jumped 11 percent in July, up from 8.2 percent in June, the national statistics agency said today. Sales have gained 10 percent or more in five of the first seven months of 2008. Sales rebounded from a 8.2 percent rise in June, the slowest pace in 14 months."
"The central bank last week raised interest rates for the fourth time since April in a bid to cool demand and slow inflation that's been above the midpoint of the government's target range since January. Policy makers increased the so-called Selic rate to 13.75 percent, up from a record low 11.25 percent"
"To be sure, demand has shown signs of easing. Monthly retail sales fell 0.2 percent in July from June, the first drop in five months."
"Vehicle sales rose 4 percent in August from a year ago, the slowest pace in almost two year, after car loan rates jumped, a Sept. 4 report from the country's Automakers Association showed."
The yield on Brazil's interest-rate futures contract for January 2010 delivery fell 1 basis point to 14.62 percent from 14.63 percent yesterday.
To contact the reporter on this story: Joshua Goodman in Rio de Janeiro at Jgoodman19@bloomberg.net; Andre Soliani in Brasilia at asoliani@bloomberg.net
"Last Updated: September 16, 2008 09:02 EDT"
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"Wall Street Upheaval May Sap Economy, Spur Rate Cut (Update2) "
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 is meeting 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 98 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."
"The cost of borrowing in dollars overnight more than doubled as banks hoarded cash amid speculation more financial institutions will fail. The overnight dollar rate soared 333 basis points to 6.44 percent today, its biggest jump, according to the British Bankers' Association."
Traders Anticipate Reversal
"``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."
"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 began its meeting this morning and is scheduled to announce its decision at about 2:15 p.m. in Washington."
Hoarding Cash
"``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.''"
"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."
`Surprised' at Markets
"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."
"``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 08:48 EDT"
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European Inflation Slows for First Time in 4 Months (Update1)
By Fergal O'Brien
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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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"Canadian Stocks Fall to Two-Year Low; Suncor, RIM, BCE Decline "
By John Kipphoff
"Sept. 16 (Bloomberg) -- Canadian stocks fell, sending the main index to the lowest in almost two years, as commodity producers and finance companies tumbled with oil prices on concern that tighter credit will cut global demand."
The cost of borrowing in dollars overnight more than doubled to the highest since 2001 as yesterday's collapse of Lehman Brothers Holdings Inc. and credit downgrades of American International Group Inc. led banks to hoard cash.
"Suncor Energy Inc., Research In Motion Ltd., BCE Inc. and Royal Bank of Canada paced declines as all ten industry groups in the Standard & Poor's/TSX Composite Index declined. The S&P/TSX dropped 2.4 percent to 11,956.81 at 9:53 a.m. in Toronto, the lowest since Oct. 13, 2006."
"Canada's main equity benchmark, which derives more than three-quarters of its value from energy, materials and financial stocks, has lost about C$214 billion ($200 billion) in value in September through yesterday. It has slumped 20 percent from its June 18 record, meeting the definition of a bear market."
"Crude oil for October delivery fell as much as 5.1 percent, to $90.83 a barrel, the lowest intraday price since Feb. 8."
AIG shares tumbled 44 percent in New York trading.
"Suncor, the second-largest oil-sands producer in the world, fell 5.9 percent to C$43.53, the lowest since Jan. 23."
"Research In Motion, the maker of the BlackBerry e-mail phone, dropped 3.5 percent to C$100.96 on speculation that job cuts in the financial sector will hurt the company's sales."
"BCE, Canada's biggest phone company, slid 3.3 percent to C$36.60, on concern that banks, intent on conserving capital, will balk at funding its C$52 billion ($48.5 billion) agreed buyout."
"Royal Bank, the nation's largest lender by assets, fell 1.8 percent to C$47.25."
To contact the reporter on this story: John Kipphoff in Toronto at jkipphoff@bloomberg.net.
"Last Updated: September 16, 2008 10:02 EDT"
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"Most U.S. Stocks Drop as AIG, Goldman, Morgan Stanley Retreat "
By Lynn Thomasson
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Sept. 16 (Bloomberg) -- Most U.S. stocks declined for a second day after a record jump in overnight lending rates and the credit downgrades of American International Group Inc. showed strains on the financial system are intensifying.
"AIG sank 41 percent, Goldman Sachs Group Inc. lost 4.5 percent and Morgan Stanley tumbled 17 percent after the cost of borrowing in dollars more than doubled as banks hoarded cash. Benchmark indexes pared losses on growing speculation the Federal Reserve will be forced to cut interest rates today and as a decline of more than $10 a barrel in oil over the last two days improved the prospects for airlines and automakers, sending Ford Motor Co. and US Airways Group Inc. up more than 5 percent."
"``Clearly, we're not out of the woods,'' John Carey, a Boston-based money manager at Pioneer Investment Management, which oversees about $300 billion, told Bloomberg Television. ``I wouldn't be looking for near-term gains at all.''"
"Five stocks dropped for every four that rose on the New York Stock Exchange. The Standard & Poor's 500 Index declined 1.49 point, or 0.1 percent, to 1,191.21 at 12:05 p.m. in New York after falling almost 2 percent. The Dow Jones Industrial Average fell 22.88, or 0.2 percent, to 10,894.63."
"Losses were limited as odds increased to 100 percent that the Fed will reduce its benchmark rate by at least a quarter percentage point today, according to Fed funds futures trading, and oil retreated to as low as $90.55 a barrel."
VIX Jumps
"The benchmark index for U.S. stock options jumped to the highest since March 2003. The Chicago Board Options Exchange Volatility Index rose 3.5 percent to 32.81, exceeding its 32.24 close on March 17 after the rescue of Bear Stearns Cos. The VIX is considered the market's ``fear gauge'' because it almost always rises as stocks fall."
The S&P 500 posted the steepest drop since the September 2001 terrorist attacks and stocks erased more than $600 billion of value yesterday after Lehman Brothers Holdings Inc.'s bankruptcy spurred speculation that credit-market losses may push the U.S. into a recession.
"AIG declined $1.95 to $2.81. Its credit ratings were downgraded by S&P and Moody's Investors Service, threatening efforts to raise emergency funds to keep the company afloat."
"The ratings reductions occurred after two people familiar with the situation said that the biggest U.S. insurer by assets is seeking $70 billion to $75 billion in loans arranged by Goldman Sachs and JPMorgan Chase & Co. to replenish capital. AIG probably has one day to raise the money, New York Governor David Paterson said during an interview with CNBC."
Biggest Profit Decline
"Goldman Sachs retreated $6.09 to $129.41. The largest of the two remaining independent U.S. securities firms posted a 70 percent decline in quarterly profit, the sharpest drop in its nine years as a public company. Goldman Sachs said it remains ``well positioned'' despite turmoil in credit markets."
"Morgan Stanley, the only other independent U.S. securities firm, lost $5.55 to $26.64."
The cost of borrowing in dollars overnight more than doubled to the highest since 2001 as the collapse of Lehman Brothers Holdings Inc. and credit downgrades of AIG led banks to hoard cash.
"The overnight dollar rate soared 3.33 percentage points to 6.44 percent today, its biggest jump, the British Bankers' Association said. The rate was 2.19 percent a month ago and 2.15 percent last week. Lehman filed for bankruptcy yesterday after succumbing to mounting credit-market losses."
`Uncharted Territory'
"``We're in uncharted territory,'' Laszlo Birinyi, who oversees more than $350 million as president of Birinyi Associates Inc. in Westport, Connecticut, said in a Bloomberg Television interview. ``There's no real historic precedent for what we're going through.''"
"Washington Mutual Inc. rallied 15 percent to $2.30, erasing a tumble of as much as 25 percent, after the Daily Mail said JPMorgan Chase & Co. is in ``advanced talks'' to buy WaMu. The shares also climbed after the savings and loan said it doesn't expect a ``material'' effect from Standard & Poor's decision to cut the lender's credit rating to junk."
Crude for October delivery lost as much as 5.4 percent to $90.55 a barrel. Chevron Corp. retreated 1.8 percent to $78.62.
"``There's a recession still ahead of us and it exacerbates the credit crunch and puts a further damper on investor and consumer psychology,'' said David Joy, who helps oversee about $149 billion as chief market strategist at RiverSource Investments in Boston."
Dell Tumbles
Dell Inc. dropped 9.4 percent to $16.30 after the second- biggest personal-computer maker predicted ``further softening'' in demand this quarter and said it will record expenses to trim payrolls.
The S&P 500 Information Technology Index slumped 0.4 percent.
Stocks declined even after the Labor Department said the cost of living in the U.S. dropped in August for the first time in almost two years as falling fuel costs and a slowing economy cooled inflation. The government's consumer price index decreased 0.1 percent.
The Federal Reserve announces its interest-rate decision at about 2:15 p.m. in Washington. Futures traders give 76 percent odds that the central bank will shift to 1.75 percent today from 2 percent. The Fed lowered its target for the overnight lending rate between banks seven times from September 2007 through April.
To contact the reporter on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net.
"Last Updated: September 16, 2008 12:09 EDT"
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"U.S. Stocks Drop as AIG, Goldman, Morgan Stanley Shares Retreat "
By Lynn Thomasson
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Sept. 16 (Bloomberg) -- U.S. stocks declined for a second day after a record jump in overnight lending rates and the credit downgrades of American International Group Inc. showed strains on the financial system are intensifying.
"AIG sank 36 percent, Goldman Sachs Group Inc. lost 4 percent and Morgan Stanley tumbled 12 percent after the cost of borrowing in dollars more than doubled as banks hoarded cash. Benchmark indexes pared losses on growing speculation the Federal Reserve will be forced to cut interest rates today and as a decline of more than $10 a barrel in oil over the last two days improved the prospects for airlines and automakers, sending Ford Motor Co. and US Airways Group Inc. up more than 5 percent."
"``Clearly, we're not out of the woods,'' John Carey, a Boston-based money manager at Pioneer Investment Management, which oversees about $300 billion, told Bloomberg Television. ``I wouldn't be looking for near-term gains at all.''"
"The S&P 500 declined 7.95 points, or 0.7 percent, to 1,184.75 at 10:51 a.m. in New York after falling almost 2 percent. The Dow Jones Industrial Average fell 50.56, or 0.5 percent, to 10,866.95. Two stocks dropped for each that rose on the New York Stock Exchange."
Losses were limited as traders bet with 100 percent certainty that the Fed will reduce its benchmark rate by at least a quarter percentage point today and oil retreated to as low as $90.55 a barrel.
VIX Jumps
"The benchmark index for U.S. stock options jumped to the highest since March 2003. The Chicago Board Options Exchange Volatility Index rose 3.5 percent to 32.81, exceeding its 32.24 close on March 17 after the rescue of Bear Stearns Cos. The VIX is considered the market's ``fear gauge'' because it almost always rises as stocks fall."
The S&P 500 posted the steepest drop since the September 2001 terrorist attacks and stocks erased more than $600 billion of value yesterday after Lehman Brothers Holdings Inc.'s bankruptcy spurred speculation that credit-market losses may push the U.S. into a recession.
"AIG declined $1.71 to $3.05. Its credit ratings were downgraded by S&P and Moody's Investors Service, threatening efforts to raise emergency funds to keep the company afloat."
"The ratings reductions occurred after two people familiar with the situation said that the biggest U.S. insurer by assets is seeking $70 billion to $75 billion in loans arranged by Goldman Sachs and JPMorgan Chase & Co. to replenish capital. AIG probably has one day to raise the money, New York Governor David Paterson said during an interview with CNBC."
Biggest Profit Decline
"Goldman Sachs retreated $5.78 to $129.72. The largest of the two remaining independent U.S. securities firms posted a 70 percent decline in quarterly profit, the sharpest drop in its nine years as a public company. Goldman Sachs said it remains ``well positioned'' despite turmoil in credit markets."
"Morgan Stanley, the only other independent securities firm, lost $3.83 to $28.36."
The cost of borrowing in dollars overnight more than doubled to the highest since 2001 as the collapse of Lehman Brothers Holdings Inc. and credit downgrades of AIG led banks to hoard cash.
"The overnight dollar rate soared 3.33 percentage points to 6.44 percent today, its biggest jump, the British Bankers' Association said. The rate was 2.19 percent a month ago and 2.15 percent last week. Lehman filed for bankruptcy yesterday after succumbing to mounting credit-market losses."
`Uncharted Territory'
"``We're in uncharted territory,'' Laszlo Birinyi, who oversees more than $350 million as president of Birinyi Associates Inc. in Westport, Connecticut, said in a Bloomberg Television interview. ``There's no real historic precedent for what we're going through.''"
"Washington Mutual Inc. rallied 30 percent to $2.60, erasing a tumble of as much as 25 percent, after the Daily Mail said JPMorgan Chase & Co. is in ``advanced talks'' to buy WaMu. The biggest U.S. savings and loan fell earlier after having its credit rating cut to junk by S&P because of the deteriorating housing market. WaMu has reported $6.3 billion of losses in the last three quarters due to soured mortgages."
Crude for October delivery lost as much as 5.4 percent to $90.55 a barrel. Chevron Corp. retreated 1.7 percent to $78.74.
"``There's a recession still ahead of us and it exacerbates the credit crunch and puts a further damper on investor and consumer psychology,'' said David Joy, who helps oversee about $149 billion as chief market strategist at RiverSource Investments in Boston."
Dell Tumbles
Dell Inc. dropped 9.2 percent to $16.33 after the second- biggest personal-computer maker predicted ``further softening'' in demand this quarter and said it will record expenses to trim payrolls.
The S&P 500 Information Technology Index slumped 1.3 percent as 47 of its 72 companies retreated.
Stocks declined even after the Labor Department said the cost of living in the U.S. dropped in August for the first time in almost two years as falling fuel costs and a slowing economy cooled inflation. The government's consumer price index decreased 0.1 percent.
The Federal Reserve announces its interest-rate decision at about 2:15 p.m. in Washington. Futures traders give 76 percent odds that the central bank will shift to 1.75 percent today from 2 percent. The Fed lowered its target for the overnight lending rate between banks seven times from September 2007 through April.
To contact the reporters on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net; Michael Patterson in London at mpatterson10@bloomberg.net.
"Last Updated: September 16, 2008 10:53 EDT"
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Money-Market Rates Double Amid Global Credit Seizure (Update3)
By Gavin Finch and Kim-Mai Cutler
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Sept. 16 (Bloomberg) -- The cost of borrowing in dollars overnight more than doubled to the highest since 2001 as the collapse of Lehman Brothers Holdings Inc. and credit downgrades of American International Group Inc. led banks to hoard cash.
"The overnight dollar rate soared 3.33 percentage points to 6.44 percent today, its biggest jump in at least seven years, according to the British Bankers' Association. The rate was as low as 2.07 percent in June."
Banks are driving up short-term lending rates on concern that AIG will follow Lehman into bankruptcy and leave financial institutions with losses on $441 billion of credit derivatives issued by the biggest U.S. insurer. Central banks around the world pumped more than $210 billion into the financial system as they sought to alleviate the credit-market seizure.
"``It's fear, you don't know who has exposure and who might not be getting their money anymore,'' said Imke Jersch, a senior money-market trader in Hanover at Norddeutsche Landesbank Girozentrale AG, Germany's fourth-biggest state-owned bank. ``It's a domino effect. You never know who might fall next.''"
"The increase underscores how the credit seizure that started in August 2007 with the collapse of the U.S. subprime- mortgage market is worsening, causing more than a dozen U.S. banks to fail. Money-market costs are used to calculate rates on $360 trillion of financial products worldwide from home loans to credit derivatives."
"Treasuries, Stocks"
"U.S. Treasuries soared, stocks dropped and the cost of default protection on Wall Street banks rose to a record as investors sought the safety of government assets. The yield on the 10-year note dropped to the lowest in five years and the Standard & Poor's 500 Index lost as much as 1.6 percent. Credit- default swaps on Morgan Stanley, Goldman Sachs Group Inc. and Citigroup Inc. all traded at record highs."
"The difference between the London interbank offered rate for three-month dollar loans and the overnight indexed swap rate, the Libor-OIS spread that measures the availability of funds in the market, widened 12 basis points to 117 basis points, the most since at least December 2001. That compares with an average of 8 basis points in the 12 months to July 31, 2007, before the credit squeeze started."
"The cost of borrowing euros for one week jumped 7 basis points to 4.49 percent today, the highest level since Dec. 24, according to the European Banking Federation. It was the biggest increase since July 3."
Rate-Cut Bets
"The Fed added $50 billion in temporary reserves to the banking system today through overnight repurchase agreements, or repos. The European Central Bank offered 70 billion euros ($100 billion) in a one-day refinancing operation and the Bank of England injected 20 billion pounds ($36 billion). The Bank of Japan added 2.5 trillion yen ($24 billion) and the Reserve Bank of Australia injected A$1.85 billion ($1.5 billion)."
"Traders raised bets the Fed will cut interest rates at a meeting today. Futures on the Chicago Board of Trade showed a 90 percent chance the central bank will lower its 2 percent target rate by a quarter-percentage point, compared with 68 percent yesterday and no chance a week ago. Policy makers are scheduled to announce their decision at 2:15 p.m. in Washington."
"``It's all a mess out there, it's unbelievable, it's very tough,'' said Padhraic Garvey, head of investment-grade strategy in Amsterdam at ING Bank NV. ``There really is no sign of this going away. If the Fed were to cut rates, it's not necessarily going to solve anything.''"
"Writedowns, Losses"
"Financial institutions have posted more than $514 billion in losses and writedowns since the beginning of last year as the U.S. mortgage crisis deepened. Bank of America Corp., the biggest U.S. consumer bank, agreed to acquire Merrill Lynch & Co. yesterday for about $50 billion."
"The seizure in the credit markets and increase in short- term borrowing costs this year triggered doubts over the validity of Libor, which is administered by the London-based British Bankers' Association."
To contact the reporters on this story: Gavin Finch in London at gfinch@bloomberg.net; Kim-Mai Cutler in London at kcutler@bloomberg.net
"Last Updated: September 16, 2008 09:48 EDT"
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Copper Drops to 8-Month Low as Turmoil Stirs Financial Markets
By Millie Munshi
"Sept. 16 (Bloomberg) -- Copper fell to the lowest price in almost eight months as turmoil in financial markets fueled speculation that economic growth will stagnate, slashing demand for raw materials."
"Equity indexes fell worldwide after a credit downgrade of American International Group Inc., the biggest U.S. insurer by assets, increased risk in global debt markets. The Standard & Poor's GSCI Index of 24 commodities, down as much as 4 percent today, has erased its gain for the year as tighter credit markets and financial losses threaten global growth."
"``In the current environment of financial market woes, macroeconomic concerns and risk reduction, we expect base metals to remain under pressure,'' analysts at Barclays Capital, including Gayle Berry in London, said today in a report."
"Copper futures for December delivery fell 9.35 cents, or 3 percent, to $3.043 a pound at 9:34 a.m. on the Comex division of the New York Mercantile Exchange. Earlier, the price touched $3.02, the lowest on a most-active contract since Jan. 22."
"Lehman, the fourth-largest U.S. investment bank, sought U.S. Bankruptcy Court protection yesterday, listing more than $613 billion in debts. Bank of America Corp., the biggest U.S. consumer bank, agreed to acquire Merrill Lynch & Co. for about $50 billion in stock yesterday as the credit crisis claimed another of America's oldest financial companies."
"The MSCI World Index of equities fell as much as 2.4 percent, after losing 3.6 percent yesterday, on signs that strains on the financial system are intensifying. The Federal Reserve Bank of New York added $50 billion in temporary reserves to the banking system through overnight repurchase agreements even as bank lending rates soared."
"On the London Metal Exchange, copper for delivery in three months fell $165, or 2.4 percent, to $6,765 a metric ton ($3.07 a pound). Before today, the price has dropped 8.2 percent in the past year."
To contact the reporter on this story: Millie Munshi in New York at mmunshi@bloomberg.net
"Last Updated: September 16, 2008 09:37 EDT"
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Fed Adds Most Reserves Since 9/11 as Banks Hoard Cash (Update1)
By Liz Capo McCormick
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"Sept. 15 (Bloomberg) -- The Federal Reserve added $70 billion in reserves to the banking system, the most since the September 2001 terrorist attacks, to reverse a surge in borrowing costs sparked by the collapse of Lehman Brothers Holdings Inc."
"Fed funds traded as high as 6 percent, or 4 percentage points above the central bank's target rate for overnight loans between banks, according to ICAP Plc, the world's largest inter- dealer broker. The margin was the greatest since Bloomberg began tracking the data in 1998. The rate dropped to as low as 0.5 percent after the Fed added the temporary reserves."
"The central bank uses repurchase agreements, or repos, to buy or sell Treasury, mortgage-backed and so-called agency debt for a set period, to help maintain enough money in the system to keep overnight interest rates close to the target. They don't signal a policy shift. Futures show traders boosted odds to 68 percent that the Fed will cut rates when policy makers meet tomorrow to offset financial market turmoil."
"Demand for short-term funds ``dramatically increased,'' said Michael Darda, chief economist for MKM Partners LLC in Greenwich, Connecticut. ``If the Fed puts enough liquidity in the system, the funds rate will come down. It may actually trade below target for a while.''"
"The so-called effective funds rate was 2.1 percent on Sept. 12, or 10 basis points over the target rate. The Federal Reserve Bank of New York reports daily, for the previous trading session, the effective funds rate. It is a weighted average rate of unsecured overnight lending transactions. A basis point is 0.01 percentage point."
Expanding Collateral Options
The Fed widened the collateral it accepts yesterday for loans to securities firms in an effort to help Wall Street weather Lehman's bankruptcy.
"The Fed added $50 billion in temporary reserves to the banking system when it arranged overnight repurchase agreements, or repos, at 11:50 a.m., after providing $20 billion earlier."
"``It is rare that overnight operations exceed $15 billion,'' Tony Crescenzi, chief bond market strategist for New York-based Miller Tabak & Co., wrote in a note to clients. ``There is a longstanding pattern in which the funds rate falls in the afternoon, as banks scramble to unload their excess monies onto other banks, lest they get stuck with excesses earning nothing.''"
SOMA Lending
"When the Fed added the reserves at 9:40 a.m., federal funds, the overnight lending rate between U.S. banks, traded at 4.25 percent, above the central bank's target rate, according to ICAP. The rate was at 6 percent at the time of the second open market operation. Fed funds opened at 3.5 percent today."
"A total of $5 billion in repos matures today. Wrightson, an ICAP research unit specializing in U.S. government finance, had expected the Fed to add about $15 billion in repos. Dealers submitted $270.1 billion in bids for the repurchase agreements."
"Fed funds' weighted average was 2.1 percent on Sept. 12 after trading between 1.75 percent and 2.9375 percent, according to the central bank."
"The Fed also accepted $25.8 billion in collateral as part of its daily System Open Market Account, or SOMA, securities lending program, the largest amount this year, according to Fed data tracked by Stone & McCarthy Research. Dealers submitted $29.8 billion in bids."
"The Fed offers specific Treasury securities held by SOMA for loan to dealers against Treasury general collateral on an overnight basis. Dealers bid in a multiple-price auction held every day at noon. The securities lending program is separate from the Fed's Term Securities Lending Facility, or TSLF, one of the three liquidity measures the Fed initiated since the credit crisis ensued last year."
The TSLF offers Treasury general collateral held by SOMA for maturities longer than overnight in a single-price auctions with dealers who program-eligible collateral.
To contact the reporter on this story: Liz Capo McCormick in New York at Emccormick7@bloomberg.net
"Last Updated: September 15, 2008 16:59 EDT"
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"Broker-Dealer Model Is `Broken,' More Firms May Fail, UBS Says "
By Joyce Moullakis
"Sept. 16 (Bloomberg) -- The broker-dealer model used by investment banks is broken, and history suggests more banks will fail or be forced to merge with competitors following Lehman Brothers Holdings Inc.'s collapse, analysts at UBS AG said."
"``This may only be the beginning with more bank failures to come,'' UBS analysts led by London-based Philip Finch said in a note to clients late yesterday. ``We are now entering the next phase of the crisis, one that may require forced consolidation.''"
"Finch said investors should avoid banks that are ``remotely at risk'' of having to raise capital or rely on wholesale funding. He cited Anglo Irish Bank Corp, Plc, Banco de Sabadell SA and Danske Bank A/S and Lloyds TSB Group Plc as examples."
"Lehman filed the biggest bankruptcy in history yesterday, and Bank of America Corp. agreed the same day to buy Merrill Lynch & Co, the third largest U.S. securities firm. In March, New York-based JPMorgan Chase & Co. agreed to acquire Bear Stearns Cos, allowing that firm to dodge a full-blown collapse."
"``Banks with diversified income sources as well as strong retail depository franchises should survive the crisis and potentially benefit from market share gains,'' Finch said. He put HSBC Holdings Plc, JPMorgan, and Credit Suisse Group AG in that category."
"While Goldman Sachs Group Inc. and Morgan Stanley have more liquidity and better funding arrangements than Lehman, the firms may need to look for a commercial bank or trust bank partner, the report said."
"Financial and securities firms have posted losses and writedowns totaling $514 billion in the past year, data compiled by Bloomberg show."
To contact the reporters on this story:
Joyce Moullakis in London at
jmoullakis@bloomberg.net
"Last Updated: September 16, 2008 05:35 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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"OPEC Emergency Meet Would Be Premature, Officials Say (Update2) "
By Ayesha Daya and Maher Chmaytelli
"Sept. 16 (Bloomberg) -- OPEC needs to study the effects of its production cuts before considering an emergency meeting, oil officials from Iran and Libya said as prices fell to a seven-month low near $90 a barrel."
"``Ministers need at least September and October data to see the impact of OPEC's decision on the market,'' Mohammad Ali Khatibi, Iran's OPEC governor, told Bloomberg in a phone interview from Tehran today. ``We cannot be in a hurry -- an emergency meeting would be a judgment in a rush.''"
"The Organization of Petroleum Exporting Countries urged members to adhere more strictly to production quotas at its meeting in Vienna last week. Oil has plunged 38 percent from its July record on concern the deepening credit crisis will weaken global economic growth, cutting demand. Iran is traditionally among the most active OPEC members in urging action to defend prices."
"``The main reason for the price decline is the poor performance of the world economy, particularly in industrialized countries,'' Khatibi said. ``That is affecting oil demand. The International Energy Agency, the Energy Information Administration, all have revised oil demand downward.''"
"Crude oil for October delivery declined as much as $5.16, or 5.4 percent, to $90.55 a barrel, the lowest intraday price since Feb. 8. It was at $91.98 at 1:38 p.m. London time on the New York Mercantile Exchange."
`Very Concerned'
"``We are very concerned. It's a huge drop,'' Libya's top oil official Shokri Ghanem said today in a phone interview from Tripoli, commenting on the falling oil prices."
"OPEC agreed at its meeting in Vienna to a total limit for 11 members of 28.8 million barrels a day. That's 465,000 barrels a day lower than production from those 11 in August, according to secondary estimates published in an OPEC monthly report today."
"``It will take more than a month for the impact of the cut to be felt, so let's wait and see,'' Libya's Ghanem said, when asked if further action by OPEC was needed."
"Most of OPEC's extra pumping in the past few months has come from Saudi Arabia, the world's largest oil producer, which pledged to raise output by about 500,000 barrels a day in June and July, to calm markets."
"The group ``will take action if they see continue pressure for prices to fall below $80,'' John Sfakianakis, chief economist at Saudi British Bank, said today in an interview in London. ``I think they are more than fine if prices stay around $80-$90 in the next few months.''"
Lower Demand
"OPEC, which supplies more than 40 percent of the world's oil, lowered its forecast for demand this year by 120,000 barrels a day as the global economic slowdown cuts fuel consumption, according to the oil market report."
"The 13-member group reduced its forecast for average oil consumption next year to 87.66 million barrels a day, compared with an estimate last month of 87.80 million barrels."
"``The economic slowdown is now spreading beyond the U.S. to Europe and Japan with contagion risks to other regions,'' the report said. ``The weakening economic situation has been reflected in a slowdown in world oil demand growth.''"
"Last week, the International Energy Agency, an adviser to 27 nations, cut its forecast for global oil demand in 2008 and 2009."
Iran Production
"Iran doesn't need to cut any production because it is producing at its quota level, Khatibi said. ``As far as I know, Iran was producing around its commitment,'' he said."
"The country, OPEC's second-largest member, produced 4.08 million barrels a day of crude oil last month, according to Bloomberg estimates. Its quota is 3.8 million barrels a day."
"Libya, whose output target is 1.7 million barrels a day, produced 1.63 million barrels a day last month, according Bloomberg estimates."
"OPEC is scheduled to meet on Dec. 17 in Oran, Algeria."
To contact the reporters on this story: Ayesha Daya in Dubai adaya1@bloomberg.netMaher Chmaytelli in Nicosia at mchmaytelli@bloomberg.net
"Last Updated: September 16, 2008 10:28 EDT"
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"Overnight Money-Market Rate for Dollars Doubles, BBA Says "
By Gavin Finch
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"Sept. 16 (Bloomberg) -- The cost of borrowing in dollars overnight more than doubled to 6.44 percent, its biggest jump, according to the British Bankers' Association."
"The London interbank offered rate, or Libor, increased 333 basis points from yesterday, the BBA said today."
To contact the reporter on this story: Justin Carrigan in London at jcarrigan@bloomberg.net
"Last Updated: September 16, 2008 07:01 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 telephone. ``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's the lowest intraday price since Jan. 22. It was 1.7 percent lower at $6,795 a ton as of 1:03 p.m. local time."
"The metal may extend its decline as it's still above the 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."
"China is the biggest user of copper, accounting for about 27 percent of global consumption last year, Deutsche Bank AG said in a report on Sept. 11."
Refined copper imports by China rebounded in August as lower overseas prices encouraged buyers to stock up ahead of the autumn high production season.
Stockpile Gains
"Imports of refined copper and alloys rose to 101,317 tons, up 9.5 percent from the previous month, preliminary data from customs office showed today. The imports were 9.6 percent higher than a year earlier."
"Increases in Chinese stockpiles will help support copper at about $6,500 to $7,000 a ton, Macquarie Group Ltd. analyst Max Layton said today by telephone from London."
"Aluminum traded at $2,542 a ton. Earlier it fell to $2,525 a ton in London, the lowest compared with intraday prices since Jan. 29."
"China was both the biggest producer and consumer of aluminum last year, with a global share of 33 percent of both supply and demand, according to Deutsche Bank estimates."
"The increase in coal prices may lead to cuts in aluminum production in China, Layton said. ``Over half of Chinese aluminum smelting capacity is struggling to make a profit,'' Layton said."
Rate Cut
"China yesterday cut interest rates for the first time in six years and reduced the amount of cash that some banks are required to set aside as economic growth slows. 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."
"``There may well be a knee-jerk reaction in demand for metals,'' RBC Capital Markets analysts led by Alex Heath wrote in a report today, referring to the People's Bank of China's move."
"Kaha Kiknavelidze, Managing Partner at Rioni Capital Partners LLP, a hedge fund specializing in emerging markets, said further interest-rate cuts will be needed for growth in China to continue at current levels."
"``We don't think that yesterday's move is sufficient to continue high single-digit growth in China,'' Kiknavelidze said by telephone from London. The government needs to reduce restrictions on how much banks can lend and ease rates, he said."
"Among other metals traded on the exchange, tin slumped $700, or 3.7 percent, to $18,200 a ton while lead dropped $50, or 2.7 percent, to $1,800 and nickel fell $354, or 2 percent, to $17,751."
To contact the reporter on this story: Rachel Graham in London at rgraham13@bloomberg.net
"Last Updated: September 16, 2008 08:27 EDT"
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Corporate Bond Risk Rises to Record on AIG Counterparty Concern
By Shannon D. Harrington and Abigail Moses
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Sept. 16 (Bloomberg) -- The cost to protect against a default by Wall Street banks soared as the prospect of a failure by American International Group Inc. seized credit markets.
"Credit-default swaps on Morgan Stanley, Goldman Sachs Group Inc., Wachovia Corp. and Citigroup Inc. all traded at record highs as investors sought to hedge against potential losses on their holdings and to replace hedges they had with Lehman Brothers Holdings Inc., which filed for bankruptcy yesterday. Contracts on AIG, the biggest U.S. insurer, and Washington Mutual Inc., the U.S. savings and loan cut to junk yesterday, traded at distressed levels."
"``We're in a very dangerous situation, and almost anything can happen,'' Roger Altman, chief executive officer of Evercore Partners Inc. and a former U.S. deputy Treasury secretary, said in a Bloomberg Television interview. ``It's entirely possible that we'll see other failures, and the ripple effects from a broad economic view could be quite negative.''"
"A failure by AIG, which sold banks and investors protection on $587.5 billion of fixed-income assets, would add to potentially billions in losses the markets face from Lehman's failure. Investors and dealers in the $62 trillion credit-default swap market already are sifting through their exposures to Lehman while also dealing with contracts linked to Fannie Mae and Freddie Mac which are being settled in the largest technical defaults in the market's decade-long history. The government's takeover this month of the mortgage-finance companies triggered the defaults."
"``Counterparties are being judicious in their actions at this point, given what's happened,'' said J.J. McKoan, who oversees about $65 billion as director of global credit at AllianceBernstein Holding LP in New York. ``Few are willing to take on new risk positions.''"
CDX North America
"Credit-default swaps on the Markit CDX North America Investment Grade Index jumped as much as 34 basis points to a record 229 basis points and were trading at 207 basis points as of 12:35 p.m. in New York, according to broker Phoenix Partners Group."
"An index created by Credit Derivatives Research LLC that tracks credit-default swaps on 15 banks and securities firms, known as the CDR Counterparty Risk Index, jumped 90.8 basis points today to 406.2 basis points. It earlier rose to a record 409 basis points, said Dave Klein, manager of credit indexes at CDR in Walnut Creek, California."
"Buyers of protection on AIG paid a record 54 percent upfront and 5 percent a year, according to Phoenix. That's up from 33 percent yesterday and means it cost $5.4 million in advance and $500,000 a year to protect $10 million in bonds for five years."
"``If AIG goes under, there could be a domino effect,'' said Andrea Cicione, a credit strategist at BNP Paribas SA in London. ``AIG is very connected to the financial system and it is very connected to the real economy.''"
Debt Protection
"Credit-default swaps, contracts conceived to protect bondholders against default, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. A rise indicates deterioration in the perception of credit quality; a decline signals the opposite."
"Credit-default swaps on Morgan Stanley jumped 263 basis points to 762 basis points, according to CMA Datavision. They traded as high as 850 basis points, Phoenix prices show."
"Contracts on Wachovia, the fourth-biggest U.S. bank, rose 135 basis points to 753, CMA data show. Goldman Sachs surged 198 to 548. Citigroup jumped 80 basis points to 360 and JPMorgan Chase & Co. climbed 51 to 246."
Bank of America
"Bank of America Corp., which agreed to buy Merrill, the world's biggest brokerage firm, for about $50 billion, increased 52 basis points to 257 basis points, according to CMA. Merrill contracts climbed 202 to 550."
"``If AIG spirals in the same way as Lehman, the ramifications will be much more substantial,'' said Jim Reid, head of fundamental credit strategy at Deutsche Bank AG in London. ``The rating downgrades have accelerated the need for an imminent response.''"
"Contracts on the AAA rated finance arm of General Electric Co., GE Capital, rose 95 basis points to 457 and earlier reached a record 490, according to CMA."
"Credit swap sellers demanded 49.5 percentage points upfront to protect against a default by Seattle-based Washington Mutual, CMA data show. The upfront price rose to as high as 51.5 percentage points earlier. The contracts imply that investors have priced in a more than 89 percent chance the company will default in the next five years, according to a JPMorgan valuation model. WaMu was cut three steps to BB- yesterday by Standard & Poor's."
"In London, credit-default swaps on the Markit iTraxx Europe index of 125 companies with investment-grade ratings climbed 21 basis points to 145, JPMorgan prices show. In Tokyo, the Markit iTraxx Japan index rose the most since 2004, increasing 49 basis points to 179, Morgan Stanley prices show."
To contact the reporters on this story: Shannon D. Harrington in New York at sharrington6@bloomberg.net; Abigail Moses in London Amoses5@bloomberg.net
"Last Updated: September 16, 2008 12:44 EDT"
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BHP's Chairman Argus Says Commodity Markets to Remain Volatile
By Jesse Riseborough
"Sept. 16 (Bloomberg) -- BHP Billiton Ltd., the world's largest mining company, expects global commodity markets to remain volatile in the short term."
"``Unfortunately, mining stocks have seen a significant de- rating since May this year on the back of short-term uncertainty,'' Chairman Don Argus said today in the Melbourne- based company's U.S. annual report. ``This is disappointing for the management and shareholders of BHP.''"
"The Reuters/Jefferies CRB Index of 19 commodities erased its gain for the year as Lehman Brothers Holdings Inc.'s bankruptcy yesterday intensified concern that the U.S. economy is sinking. This year has been the most volatile for commodities since 1973 with prices for oil, copper and gold tumbling from records."
"``We are confident that longer-term market fundamentals should support growth in commodity demand and, therefore, our revenues,'' Argus said in the report lodged today with the Australian stock exchange. ``We expect Asian demand for our products to continue.''"
BHP fell 0.8 percent to A$35.76 at 10:26 a.m. Sydney time on the Australian stock exchange. It has dropped 11 percent this year.
"``I have no doubt that economic growth in the Asian region will slow at some point but, if I look at China specifically, the slow down is concentrated in regions oriented to the light export sector,'' Argus said. ``The sectors of the economy oriented more towards domestic consumption are still performing well.''"
To contact the reporter on this story: Jesse Riseborough in Melbourne at jriseborough@bloomberg.net
"Last Updated: September 15, 2008 20:54 EDT"
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Fed Funds Decline as Central Bank Adds $50 Billion (Update1)
By Liz Capo McCormick
"Sept. 16 (Bloomberg) -- The Federal Reserve added $50 billion in temporary reserves to the banking system, pushing down the rate for overnight loans between banks to spur lending and ease a crisis of confidence in financial markets."
"The fed funds rate declined as low as 2 percent, after opening at 3.75 percent, according to ICAP Plc, the world's largest inter-dealer broker. The rate has climbed back to 4 percent. The Fed added $70 billion in cash yesterday, the most since the September 2001 terrorist attacks, to bring borrowing costs down after the bankruptcy of Lehman Brothers Holdings Inc. triggered a hoarding of cash."
"Central banks from Tokyo to Frankfurt also injected more than $160 billion into their financial systems today in a bid to calm markets. Banks' demand for cash rose after American International Group Inc. had its credit ratings cut by Standard & Poor's and Moody's Investors Service late yesterday, threatening efforts to raise funds to keep the company afloat."
"``Banks' balance sheets are severely damaged and therefore the need for cash is very, very high,'' said Piyush Goyal, an interest-rate derivatives strategist at Barclays Capital Inc. in New York. ``The need for cash outstrips anything that the Fed is able to do. These are extraordinary times.''"
"The cost of borrowing in dollars overnight more than doubled to the highest since 2001. The London interbank offered rate, or Libor, soared 3.33 percentage points to 6.44 percent, according to the British Bankers' Association. The rate was as low as 2.07 percent in June."
Rate Cut Speculation
"Funds traded to as high as 7 percent yesterday, or 5 percentage points above the Fed's target rate, according to central bank data. That margin was the greatest at least since Bloomberg began tracking the data in 1998. The rate closed at 0.25 percent yesterday, and reached as low as 0.01 percent."
"The Fed will lower its target rate by at least a quarter- percentage point to 1.75 percent, futures trading showed. Contracts on the Chicago Board of Trade put the odds on a cut at 98 percent, compared with 2 percent a week ago. Of the 105 economists surveyed by Bloomberg News, 100 expect the Fed to leave rates unchanged today."
The European Central Bank awarded 70 billion euros ($99.8 billion) in a one-day money-market auction today. The Bank of Japan added a total of 2.5 trillion yen ($24 billion) and the Bank of England pumped in 20 billion pounds ($36 billion). Counterparts in Australia and Switzerland took similar steps.
`Safety Net'
"``The safety net that the Fed has been throwing out there is pretty wide,'' said George Goncalves, chief Treasury and agency debt strategist in New York at Morgan Stanley, the second- biggest U.S. securities firm."
"The Fed added the reserves through overnight repurchase, or repo, agreements. They don't signal a policy shift."
"In repos, the Fed buys U.S. Treasury, mortgage-backed and so-called agency debt from its 19 primary dealers for a set period, temporarily raising the amount of money available in the banking system. At maturity, the securities are returned to the dealers, and the cash to the Fed."
"The Fed also auctioned $20 billion in 28-day repos for mortgage-backed securities for one-day forward delivery, according to a statement posted this morning on the NY Fed's Web site."
"The forward transactions, done each Tuesday, are part of the Fed's so-called Single-Tranche OMO Program. Under the program announced March 7, the Fed agreed to make up to $100 billion available through weekly 28-day repurchase agreements."
The Fed has $78 billion in repos maturing today.
Overnight Repos: Type of Collateral Submitted Accepted Stop Rate U.S. Treasuries $7.25 billion None N/A Agency $27.2 billion $21.2 billion 2 percent Mortgage-backed $28.8 billion $28.8 billion 2.06 percent TOTAL $63.25 billion $50.0 billion
One-Day Forward Delivery 28-day Repos: Type of Collateral Submitted Accepted Stop Rate Mortgage-backed $68.20 billion $20 2.37 percent
To contact the reporter on this story: Liz Capo McCormick in New York at Emccormick7@bloomberg.net
"Last Updated: September 16, 2008 11:05 EDT"
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"FTSE 100 Drops Below 5,000 for First Time Since 2005; RBS Falls "
By Adam Haigh
"Sept. 16 (Bloomberg) -- U.K. stocks slumped, sending the benchmark FTSE 100 Index below 5,000 for the first time since June 2005, 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 16 percent and HBOS Plc tumbled 40 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 6.4 percent and Rio Tinto Group lost 8 percent as copper retreated in London."
"``A sustained run below this point would open up the scope for bigger losses to be exposed on the downside,'' London-based James Hughes, a market analyst at CMC Markets wrote in an email."
"The benchmark FTSE 100 Index fell 220.6, or 4.2 percent, to 4,983.6 at 2:25 p.m. in London, extending its loss this year to 23 percent. The FTSE All-Share Index dropped 4.2 percent and Ireland's ISEQ Index retreated 5.3 percent, the lowest since 2003."
"Stocks extended the slide after the British Bankers' Association said the cost of borrowing in dollars overnight more than doubled to 6.44 percent, a record jump."
"About $1.1 trillion has been wiped off the value of U.K. shares this year as banks including Barclays Plc and Royal Bank have been forced to raise capital as losses at financial companies topped $229.5 billion across Europe, eroding profits."
`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.''"
"Royal Bank of Scotland, the U.K.'s second largest bank, slid 16 percent to 177.6 pence. HBOS, Britain's biggest mortgage lender, plummeted 40 percent to 139.4 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.
"``The financial sector is again under the spotlight and AIG is the cumulus nimbus cloud,'' said David Buik, a London-based market analyst at BGC Partners."
"Barclays slid 11 percent to 282.75. The U.K.'s third largest bank is close to a deal to buy assets of Lehman Brothers Holdings Inc. for $2 billion, according to the Wall Street Journal. 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."
"BHP, the world's largest mining company, slipped 6.4 percent to 1,348 pence. Rio Tinto, the third biggest, dropped 8 percent to 3,859 pence."
"Copper for delivery in three months slumped 2.3 percent in London. Platinum, gold, nickel, lead, zinc and aluminum prices also fell."
To contact the reporters on this story: Adam Haigh in London at ahaigh1@bloomberg.net
"Last Updated: September 16, 2008 09:28 EDT"
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"Italy's UniCredit, Generali Say Lehman Liabilities Are Limited "
By Alessandra Migliaccio
"Sept. 16 (Bloomberg) -- UniCredit SpA and Assicurazioni Generali SpA, Italy's biggest bank and largest insurer, are among financial companies in the country who said their liabilities linked to Lehman Brothers Holdings Inc. are limited."
"UniCredit, Europe's fourth-biggest bank, said yesterday its overall liability to Lehman is ``very limited,'' while Generali, the continent's No. 3 insurer, said it has ``no exposure to Lehman equity'' and a maximum of 110 million euros ($157 million) of ``net exposure'' to the firm's debt. Italy's central bank said there are ``limited risks'' for the country's lenders from the bankruptcy."
"Financial institutions around the world are being asked to disclose their holdings of assets related to Lehman, after the U.S. investment bank yesterday filed the biggest bankruptcy in history. Lehman bondholders may lose more than $111 billion following the collapse, Bank of America Corp. analysts wrote in a note today."
"``The lack of trust among banks, among financial institutions, and among investors is very worrying,'' said Fabio Sdogati, a professor at the business school of Milan's Politecnico University."
"Mediobanca SpA, Italy's biggest publicly traded investment bank, ``has no exposure either in shares or debt,'' an official for the bank said today. Intesa Sanpaolo SpA, Italy's second-largest lender, hasn't yet made a statement on Lehman."
"Among the smaller Italian financial institutions, Banca Popolare di Milano Scrl said today its risk related to Lehman is less than 10 million euros. Insurer Unipol SpA said it doesn't own any Lehman equity and that its exposure on bonds is equal to 1 percent of its investment portfolio."
Negative Impact
"Mediolanum SpA, the financial-services company partly owned by Prime Minister Silvio Berlusconi, said clients and not the company are exposed by a total of 160 million euros on insurance policies."
"UniCredit Chief Executive Officer Alessandro Profumo said Lehman's bankruptcy may have a negative effect on financial markets. ``We have already registered a widening of spreads,'' he said yesterday in Palermo, Sicily. The comments were confirmed by UniCredit's spokesman."
"The turmoil in financial markets triggered by last year's U.S. subprime mortgage crisis has already cost financial institutions more than $500 billion of credit losses and writedowns in the past year, according to data compiled by Bloomberg."
To contact the reporter on this story: Alessandra Migliaccio in Rome at amigliaccio@bloomberg.net
"Last Updated: September 16, 2008 09:00 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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"Crude Oil, Copper, Sugar Decline as Turmoil May Reduce Demand "
By Claudia Carpenter
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"Sept. 16 (Bloomberg) -- Crude oil, copper and sugar declined on concern turmoil in financial markets will slow global economic growth and reduce demand for raw materials."
"Oil fell as much as 4.4 percent and copper dropped to a seven-month low after American International Group Inc.'s credit ratings were cut, threatening efforts to keep the insurer afloat one day after Lehman Brothers Holdings Inc. filed for bankruptcy. Stocks in China, the world's biggest metals buyer, fell to the lowest since December 2006."
"``This is part and parcel of the whole global slowdown that's I think migrating through the U.S. to western Europe and particularly into emerging markets,'' Michael Aronstein, president of New York-based Marketfield Asset Management, said in a phone interview from Rye, New York. ``The emerging market demand story has been the fundamental case for commodities.''"
"The Standard & Poor's GSCI Index slumped 3.3 percent, extending its decline to 33 percent since reaching an all-time high in July. The UBS Bloomberg CMCI index of 26 raw materials has fallen 24 percent from its record."
"Crude oil dropped $3.55, or 3.7 percent, to $92.16 a barrel as of 12:20 p.m. London time on the New York Mercantile Exchange. Earlier, the price declined to $91.54, the lowest since Feb. 11. Oil has dropped 37 percent from a record $147.27 on July 11."
"Copper for delivery in three months on the London Metal Exchange declined as much as 3 percent to $6,720 a metric ton, the lowest since Jan. 22. The contract was at $6,805 a ton as of 12:21 p.m. in London."
More to Come
"``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.''"
"AIG, the biggest U.S. insurer ranked by assets, had its credit ratings cut three levels by Standard & Poor's and two grades by Moody's Investors Service. Shares of the New York-based company plunged 61 percent in New York Stock Exchange composite trading yesterday."
"The Federal Open Market Committee meets in Washington today amid a crisis atmosphere triggered by the collapse of Lehman 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 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,'' said Dan North, chief economist of credit insurer Euler Hermes, a unit of Allianz SE, in Owings Mills, Maryland."
"Sugar, Corn"
"Sugar slid for a second day in London as investor sales overwhelmed increased purchases of the sweetener by processors. White, or refined, sugar for December delivery dropped $8.40, or 2.2 percent, to $371.50 a ton on the Liffe exchange. The contract declined 1.6 percent yesterday."
"Corn and soybeans fell for a second day and wheat dropped. Since reaching records this year, corn has tumbled 31 percent and soybeans are down 29 percent."
"``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 futures for December delivery fell 12.5 cents, or 2.2 percent, to $5.495 a bushel on the Chicago Board of Trade, after earlier dropping to $5.4375."
"Soybean futures for November delivery fell 19.5 cents, or 1.7 percent, to $11.595 a bushel. Wheat for December delivery declined 9.5 cents, or 1.3 percent, to $7.175 a bushel."
To contact the reporter on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net
"Last Updated: September 16, 2008 08:14 EDT"
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Fed Adds $50 Billion to the Banking System; Funds Rate Declines
By Liz Capo McCormick
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"Sept. 16 (Bloomberg) -- The Federal Reserve added $50 billion in temporary reserves to the banking system when it arranged overnight repurchase agreements, or repos."
"The rate for overnight loans between banks had opened at 3.75 percent, above the Federal Reserve's targetrate, as American International Group Inc.'s credit rating cut increased banks' reluctance to lend. The rate dropped to the central bank's target of 2 percent after the cash injection."
"The Fed added $70 billion in reserves to the banking system yesterday, the most since the September 2001 terrorist attacks, to bring borrowing costs down after the bankruptcy of Lehman Brothers Holdings Inc. triggered a hoarding of cash. Funds opened at 3.5 percent yesterday."
"``From a pure reserve perspective, the desk might not need to arrange any repos at all today,'' Wrightson ICAP analysts wrote in a note. ``From a dealer-funding perspective, another round of large morning repos may have a calming effect.''"
"Funds traded to as high as 6 percent yesterday, or 4 percentage points above the central bank's target rate for overnight loans between banks, according to ICAP Plc, the world's largest inter-dealer broker. That margin was the greatest at least since Bloomberg began tracking the data in 1998. The rate closed at 0.25 percent yesterday, and reached as low as 0.01 percent."
"The Fed will lower its target rate by a quarter percentage point to 1.75 percent, futures trading showed. Contracts on the Chicago Board of Trade put the odds on a cut at 96 percent, compared with 2 percent a week ago. Of the 105 economists surveyed by Bloomberg News, 100 expect the Fed to leave rates unchanged today."
Foreign Central Banks
Central banks from Tokyo to Frankfurt injected cash into their financial systems in a bid to calm markets.
The European Central Bank awarded 70 billion euros ($99.8 billion) in a one-day money-market auction today. The Bank of Japan added a total of 2.5 trillion yen ($24 billion) and the Bank of England pumped in 20 billion pounds ($36 billion). Counterparts in Australia and Switzerland took similar steps.
"Banks' demand for the security of cash rose again after AIG had its credit ratings cut by Standard & Poor's and Moody's Investors Service yesterday, threatening efforts to raise funds to keep the company afloat and roiling global financial markets."
"The so-called effective funds rate was 2.93 percent yesterday, according to ICAP. The rate was from 2.1 percent on Sept. 12, according to The Federal Reserve Bank of New York reports daily the official effective funds rate, for the previous trading session. It is a weighted average rate of unsecured overnight lending transactions. A basis point is 0.01 percentage point."
Single-Tranche OMO
The Fed will also auction $20 billion in 28-day repos for mortgage-backed securities for one-day forward delivery that it has been arranging on Tuesdays.
"The forward transaction is part of the Fed's so-called Single-Tranche OMO Program. Under the program announced March 7, the Fed agreed to make up to $100 billion available through weekly 28-day repurchase agreements."
The Fed has $78 billion in repos maturing today.
"In repos, the Fed buys U.S. Treasury, mortgage-backed and so-called agency debt from its 19 primary dealers for a set period, temporarily raising the amount of money available in the banking system. At maturity, the securities are returned to the dealers, and the cash to the Fed."
Repos help maintain enough money in the system to keep overnight interest rates close to the central bank's target. They don't signal a policy shift.
To contact the reporter on this story: Liz Capo McCormick in New York at Emccormick7@bloomberg.net
"Last Updated: September 16, 2008 08:36 EDT"
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Money-Market Rates Double Amid Global Credit Seizure (Update4)
By Gavin Finch and Kim-Mai Cutler
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Sept. 16 (Bloomberg) -- The cost of borrowing in dollars overnight more than doubled to the highest since 2001 as the collapse of Lehman Brothers Holdings Inc. and credit downgrades of American International Group Inc. led banks to hoard cash.
"The London interbank offered rate, or Libor, that financial institutions charge each other to borrow soared 3.33 percentage points to 6.44 percent today, its biggest jump in at least seven years, according to the British Bankers' Association. The rate was as low as 2.07 percent in June."
"Banks are driving up short-term lending rates on concern that AIG, the biggest U.S. insurer, will follow Lehman into bankruptcy and leave financial institutions with losses on $441 billion of credit derivatives. Central banks around the world pumped more than $210 billion into the financial system as they sought to alleviate the credit-market seizure."
"``It's fear,'' said Imke Jersch, a senior money-market trader in Hanover at Norddeutsche Landesbank Girozentrale AG, Germany's fourth-biggest state-owned bank. ``You don't know who has exposure and who might not be getting their money anymore. It's a domino effect. You never know who might fall next.''"
"The credit freeze started in August 2007 when banks became wary of lending to institutions holding securities tied to U.S. subprime mortgages. Since the start of last year, the world's biggest financial institutions have posted almost $515 billion in losses and writedowns. Eleven U.S. banks have collapsed since January."
Shares Tumble
"AIG tumbled as much as 74 percent today, taking its decline this year to more than 94 percent. Standard & Poor's yesterday cut the insurer's long-term counterparty rating three grades to A-, citing ``reduced flexibility in meeting additional collateral needs and concerns over increasing residential mortgage-related losses.''"
"The reductions occurred after two people familiar with the situation said AIG is seeking $70 billion to $75 billion in loans arranged by Goldman Sachs and JPMorgan Chase & Co. to replenish capital. The insurer may get government assistance to avert a collapse, CNBC reported today, without saying where it got the information."
"The yield on the 10-year Treasury note fell to the lowest level in five years as investors sought the safety of government debt. The cost of buying protection against default by Wall Street banks soared, as credit-default swaps on Morgan Stanley, Goldman Sachs Group Inc. and Citigroup Inc. all traded at records. Average yields on overnight U.S. commercial paper backed by assets such as credit cards and car loans jumped 54 basis points to 3.45 percent, the highest since March."
`Like a Heart Attack'
"``I have never seen anything remotely like this. The money market was typically the one thing that always worked,'' said Luca Jellinek, head of interest-rate strategy in London at Royal Bank of Scotland Group Plc. ``It's the cardiovascular system of the financial body. When this happens, it's like a heart attack.''"
"Libor, set by 16 banks including Citigroup and UBS AG in a daily survey by the British Bankers' Association, is used to calculate rates on $360 trillion of financial products worldwide from home loans to credit derivatives."
"The difference between the Libor for three-month dollar loans and the overnight indexed swap rate, the Libor-OIS spread that measures the availability of funds in the market, widened 12 basis points to 117 basis points, the most since at least December 2001. That compares with an average of 8 basis points in the 12 months to July 31, 2007, before the credit squeeze started."
Cash Injections
"The Fed added $50 billion in temporary reserves to the banking system today through overnight repurchase agreements, or repos. The European Central Bank offered 70 billion euros ($100 billion) in a one-day refinancing operation and the Bank of England injected 20 billion pounds ($36 billion). The Bank of Japan added 2.5 trillion yen ($24 billion) and the Reserve Bank of Australia injected A$1.85 billion ($1.5 billion)."
"Traders raised bets the Fed will cut interest rates at a meeting today to buoy markets. Futures on the Chicago Board of Trade showed a 90 percent chance the central bank will lower its 2 percent target rate by a quarter-percentage point, compared with 68 percent yesterday and no chance a week ago. Policy makers are scheduled to announce their decision at 2:15 p.m. in Washington."
"``It's all a mess out there, it's unbelievable, it's very tough,'' said Padhraic Garvey, head of investment-grade strategy in Amsterdam at ING Bank NV. ``There really is no sign of this going away. If the Fed were to cut rates, it's not necessarily going to solve anything.''"
To contact the reporters on this story: Gavin Finch in London at gfinch@bloomberg.net; Kim-Mai Cutler in London at kcutler@bloomberg.net
"Last Updated: September 16, 2008 11:19 EDT"
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Global Central Banks Pump Money to Soothe Markets (Update3)
By Joshua Gallu and Shamim Adam
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Sept. 16 (Bloomberg) -- Central banks from Tokyo to New York injected more than $200 billion of cash into the financial system in a bid to calm markets roiled by the demise of Lehman Brothers Holdings Inc. and crisis at American International Group Inc.
"The U.S. Federal Reserve added $50 billion in temporary reserves to the banking system, while the European Central Bank awarded 70 billion euros ($99.8 billion) in a one-day money- market auction, more than double yesterday's amount. The Bank of Japan added a total of 2.5 trillion yen ($24 billion) and the Bank of England pumped in 20 billion pounds ($36 billion)."
"Stocks dropped around the world and bonds surged for a second day today after the collapse of Lehman and concern about AIG's survival prompted traders to flee from private assets to government debt. The Fed yesterday pumped $70 billion into the banking system, the most since the September 2001 terrorist attacks, and may cut its benchmark lending rate today."
"``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.''"
`Chain Reaction'
"Money-market rates may rise further on speculation American International Group Inc. will fail to raise enough cash to stay afloat. The cost of borrowing in dollars overnight more than doubled to 6.44 percent today, its biggest jump, according to the British Bankers' Association. The so-called Libor OIS spread, which measures the availability of funds in the market, widened 11 basis points to 116 basis points, the most since at least December 2001."
"``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.''"
"China lowered its interest rate for the first time in six years late yesterday and may do so again to protect growth. While the Fed's policy-setting Open Market Committee hasn't signaled a rate cut and few economists predict one, futures traders put the odds of a reduction at 100 percent, up from 12 percent at the end of last week."
"The Fed added $50 billion to the banking system today when it arranged overnight repurchase agreements, or repos, after adding $70 billion in reserves yesterday, the most since the September 2001 terrorist attacks, to bring borrowing costs down after the Lehman bankruptcy triggered a hoarding of cash."
Overbidding
"The increase in Japanese funds was the first since June 30 and the biggest since March 31, when the central bank added 3 trillion yen. 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. Unlike its counterparts in Europe, the Bank of Japan didn't act yesterday because its markets were closed for a holiday."
The Bank of England said today financial institutions bid for almost three times as much money as it was offering. It loaned 5 billion pounds for three days yesterday.
"The ECB, which yesterday awarded 30 billion euros for one day, said there were 56 bids at its auction today totaling 102.48 billion euros. In its regular offering of seven-day funds, the ECB said 533 banks bid for a total of 328.7 billion euros, the most since December. It allocated 150 billion euros."
The Frankfurt-based ECB pledged yesterday to ``contribute to orderly conditions'' as needed.
"Australia, Switzerland"
"Among the other central banks, the Reserve Bank of Australia injected A$1.848 billion ($1.5 billion) into the financial system, adding to yesterday's $2.1 billion. The Swiss National Bank offered overnight funds at 1.90 percent, the same rate as yesterday when it released about 8 billion francs ($7.2 billion) into its market."
"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. 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 closed 4.9 percent lower today in Taipei."
"Taiwan's central bank pumped $3.59 billion into the foreign-currency interbank market today, the monetary authority said."
"Since the credit crisis began in August 2007, major central banks outside the U.S. have lacked the Fed's scope to lower interest rates, preferring instead to fight market tensions with tools that boost liquidity while keeping monetary policy focused on curbing inflation."
U.K. Inflation
"Bank of England Governor Mervyn King said in a letter to Chancellor Alistair Darling today that he expects U.K. inflation will stay ``markedly'' above its target. Inflation in the 15- nation euro area eased for the first time in four months in August, yet at 3.8 percent remained almost double the ECB's 2 percent limit, a report showed today."
"Economists at Morgan Stanley said central banks may start to weigh rate cuts if financial markets become disorderly. ``Central banks may want to counter the implied tightening of financial conditions and cut rates to stabilize confidence and prevent a negative feedback loop between falling asset prices and the real economy,'' the economists said in a report yesterday."
To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net; Joshua Gallu in Zurich jgallu@bloomberg.net
"Last Updated: September 16, 2008 09:16 EDT"
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Crude Oil Tumbles as Wall Street Turmoil Adds to Demand Concern
By Mark Shenk
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Sept. 16 (Bloomberg) -- Crude oil tumbled more than $3 a barrel on concern that turmoil on Wall Street may weaken the global economy and cut fuel demand.
"Oil fell more than 5 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 drop in oil prices has erased this year's gain."
"``There's no question that the bears are in control of the energy markets,'' said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. ``The softening economy and the weak demand are the focus right now.''"
"Crude oil for October delivery fell $3.04, or 3.2 percent, to $92.67 a barrel at 11:21 a.m. on the New York Mercantile Exchange. Futures dropped as much as $5.16, or 5.4 percent, to $90.55 a barrel, the lowest since Feb. 8."
Oil in New York has declined 3.5 percent this year and dropped 37 percent from the record $147.27 a barrel reached on July 11.
"Gasoline for October delivery tumbled 9.19 cents, or 3.6 percent, to $2.4695 a gallon in New York. The contract touched $2.448 a gallon, the lowest since Feb. 14."
Demand Forecast
"The Organization of Petroleum Exporting Countries, supplier of more than 40 percent of the world's oil, lowered its forecast for 2009 oil demand to 87.66 million barrels a day because of the global economic slowdown."
"OPEC needs to study the effects of its production cuts before considering an emergency meeting, Iran's OPEC governor said today."
"``Ministers need at least September and October data to see the impact of OPEC's decision on the market,'' Mohammad Ali Khatibi said in a phone interview from Tehran today. ``We cannot be in a hurry; an emergency meeting would be a judgment in a rush.''"
"OPEC agreed at its meeting in Vienna to a limit for 11 members of 28.8 million barrels a day, about 500,000 barrels a day lower than the group's July output. The group is scheduled to meet on Dec. 17 in Oran, Algeria."
"Brent crude oil for November settlement declined $2.98, or 3.2 percent, to $91.26 a barrel on London's ICE Futures Europe exchange. Futures fell to $88.99 today, the lowest since Feb 8. Prices have dropped 14 straight days, the longest stretch since the contract was introduced in 1988."
Refinery Repairs
Texas oil refiners may need weeks to restore normal operations as utilities struggle to restore power after Hurricane Ike swept through the region.
"U.S. crude-oil inventories probably fell 3.35 million barrels last week because of Ike, a Bloomberg News survey of analysts showed. Supplies of gasoline and distillate fuel, a category that includes heating oil and diesel, probably also dropped. The Energy Department is scheduled to release its weekly petroleum supply report tomorrow."
"``The market has factored in a substantial drop in tomorrow's report,'' said Rick Mueller, director of oil markets at Energy Security Analysis Inc. in Wakefield, Massachusetts. ``There would have to be a fantastic drop of 10 or 15 million barrels to turn the market around.''"
Nigerian Attacks
Nigerian militants attacked a pipeline operated by a unit of Royal Dutch Shell Plc and a Chevron Corp. oil field as raids against the oil industry in the Niger River delta entered a fourth day. The latest attacks began when Nigerian soldiers and militants clashed south of the oil-industry hub of Port Harcourt.
"Nigeria has Africa's biggest hydrocarbon reserves, with more than 30 billion barrels of crude and 187 trillion cubic feet of gas. The West African country, which has dropped behind Angola as the continent's top oil exporter because of the violence, is the fifth-biggest source of U.S. oil imports."
"``There's been a hurricane, attacks in Nigeria and the inventory data will be very bullish due to shipping disruptions and refinery closures, and yet we're testing $90,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``This shows that energy became intertwined with financial markets. Now that's coming undone.''"
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.
"Last Updated: September 16, 2008 11:24 EDT"
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South Korea's Kospi Falls Most in 13 Months on Lehman Failure
By Saeromi Shin
Sept. 16 (Bloomberg) -- South Korean stocks fell by the most in 13 months after Lehman Brothers Holdings Inc.'s collapse and a debt-rating downgrade on American International Group Inc. triggered the second halt of program trading this month.
"Woori Finance Holdings Co. slid by a record on speculation more financial failures will follow. LG Electronics Inc., Asia's second-largest handset maker, tumbled 9.2 percent on concern earnings growth will cool as the global economy slows. The won fell the most since August 1998 as overseas investors dumped shares. South Korea may provide funds to help stabilize markets, Vice Finance Minister Kim Dong Soo said."
"``Sentiment is really fragile as the global credit crisis has yet to unravel,'' said Im Jeong Jae, a fund manager at Shinhan BNP Paribas Investment Trust Management Co. in Seoul, which manages the equivalent of $866 million in Korean equities. ``AIG and other smaller financial firms are under financial distress. It's unclear how the U.S. government will respond.''"
"The Kospi fell 90.17, or 6.1 percent, to 1,387.75, the most since Aug. 16, 2007 and the biggest fluctuation among global benchmark measures tracked by Bloomberg. Just one of its 19 industry groups advanced. The gauge has slumped 27 percent this year as slowing global growth threatens the country's exports."
"Policy makers held an emergency meeting today to discuss intervention in markets and government bonds rallied on speculation the central bank will cut interest rates. Overseas investors since Aug. 1 have sold more shares than they bought every day except six, according to Korea Exchange data."
Trading Halt
"Kookmin Bank, South Korea's biggest bank, dropped 8 percent to 55,300 won, the most since July 16. Woori, which controls the second largest, retreated 14 percent to 13,050 won."
"Lehman filed for bankruptcy after Barclays Plc and Bank of America Corp. abandoned takeover talks. AIG, the biggest U.S. insurer by assets, had its credit ratings downgraded by Standard & Poor's and Moody's Investors Service, threatening efforts to raise emergency funds to keep the company afloat."
"A measure tracking financial companies was the biggest contributor to the Kospi's decline. Samsung Securities Co., the nation's largest brokerage by market value, declined 9.8 percent to 64,400 won, the most since Aug. 16, 2007."
"South Korean financial institutions invested about $720 million in securities linked to Lehman, according to the Financial Services Commission."
"Kospi 200 futures slumped 5 percent to 182.60. A decline in the futures of more than 5 percent in the morning session triggered an exchange rule that resulted in a five-minute halt to program trading, the buying and selling of more than 15 stocks in one basket. It's the third time this year the so- called ``sidecar'' was activated."
"LG Electronics declined 9.2 percent to 89,400, the lowest since Feb. 13. JPMorgan Chase & Co. cut its price estimate by 9.1 percent to 100,000 won. LG's third-quarter handset shipments are likely to miss the company's targets, and its display division may post a loss due to competition, the brokerage said."
To contact the reporter on this story: Saeromi Shin in Seoul at sshin15@bloomberg.net.
"Last Updated: September 16, 2008 07:28 EDT"
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"U.K. Pound Slips Against Dollar, Euro on Outlook for Inflation "
By Andrew MacAskill
"Sept. 16 (Bloomberg) -- The U.K. pound fell by the most in two weeks against the dollar after Bank of England Governor Mervyn King said inflation will peak 'soon' and then slow 'sharply' in 2009, boosting speculation of an interest-rate cut."
"The pound also snapped an eight-day gain versus the euro as King said in a letter today to Chancellor of the Exchequer Alistair Darling that price-growth in Europe's second-largest economy will peak at about 5 percent. The governor was required to explain why inflation exceeded the government's target after the statistics office today said consumer prices jumped an annual 4.7 percent in August, the most since records began in 1997."
"``The market is reading that inflation is going to come down and this will allow the Bank of England to cut interest rates,'' said Chris Turner, head of currency research in London at ING Groep NV. ``This is being perceived as sterling negative and we are going to see it start coming off.''"
"The British currency fell as much as 1.2 percent to $1.7796, and was at $1.7803 by noon in London, from $1.8007 yesterday. Against the euro, the pound slipped to 79.66 pence, from 79.16 pence, after gaining 3 percent in the previous eight days."
"King said the balance between the risks of slower growth and inflation remained 'finely balanced'. The bank will ``assess how the balance of risks is evolving at its next and subsequent meetings,'' he said in his letter."
"Under the terms of the Bank of England's mandate, King is obliged to write a letter of explanation to Darling if inflation breaches its 2 percent target by more than one percentage point and stays there after three months."
U.K. policy makers have kept the main rate at 5 percent since April on concern inflation will become embedded in the economy. They are scheduled to release the minutes of their last meeting tomorrow.
"The pound's trade-weighted index, a gauge of the currency's performance against Britain's major trade partner, fell to 86.68, according to Deutsche Bank AG. The measure is down 8.4 percent this year."
To contact the reporter on this story: Andrew MacAskill in London at amacaskill@bloomberg.net
"Last Updated: September 16, 2008 07:20 EDT"
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U.S. August Consumer Price Index: Statistical Summary (Table)
By Andy Burt
Sept. 16 (Bloomberg) -- Following is a summary of the August consumer price report from the Labor Department.
===============================================================================
August July June May April 3-mo. August
Weight 2008 2008 2008 2008 2008 Annual YOY%
===============================================================================
All items 100.0% -0.1% 0.8% 1.1% 0.6% 0.2% 7.2% 5.4%
(3 decimals) 100.0% -0.137% 0.818% 1.056% 0.650% 0.207% n/a n/a
ex-food/energy 76.5% 0.2% 0.3% 0.3% 0.2% 0.1% 3.4% 2.5%
(3 decimals) 76.5% 0.194% 0.327% 0.323% 0.202% 0.104% n/a n/a
ex-food 86.2% -0.3% 0.8% 1.1% 0.7% 0.1% 6.8% 5.2%
ex-energy 90.3% 0.3% 0.4% 0.4% 0.2% 0.2% 4.4% 3.1%
Energy 9.7% -3.1% 4.0% 6.6% 4.4% 0.0% 32.9% 27.2%
Services 58.7% 0.1% 0.5% 0.5% 0.5% 0.3% 4.8% 4.1%
ex-energy 54.9% 0.2% 0.3% 0.4% 0.3% 0.1% 3.8% 3.3%
-------------------------------------------------------------------------------
Housing 42.4% -0.1% 0.6% 0.5% 0.5% 0.3% 4.2% 3.8%
Owners eq. rent 23.9% 0.1% 0.1% 0.3% 0.1% 0.2% 2.1% 2.5%
===============================================================================
August July June May April 3-mo. August
Weight 2008 2008 2008 2008 2008 Annual YOY%
===============================================================================
Fuels & util. 5.1% -1.1% 3.3% 1.8% 2.4% 2.2% 16.8% 15.3%
Food/beverages 14.9% 0.6% 0.9% 0.7% 0.3% 0.9% 9.1% 5.9%
Food 13.8% 0.6% 0.9% 0.8% 0.3% 0.9% 9.6% 6.1%
Apparel 3.7% 0.5% 1.2% 0.1% -0.3% 0.5% 7.4% 1.7%
Transportation 17.7% -1.5% 1.7% 3.8% 2.0% -0.7% 16.8% 12.1%
Vehicles 7.2% -0.4% 0.2% 0.1% -0.1% -0.2% -0.4% -0.9%
Gasoline 5.2% -4.2% 4.1% 10.1% 5.7% -2.0% 45.2% 35.6%
Medical care 6.2% 0.2% 0.1% 0.2% 0.2% 0.2% 2.1% 3.3%
Recreation 5.6% 0.5% 0.4% 0.1% 0.1% -0.1% 4.4% 2.4%
"Education, comm. 6.1% 0.2% 0.5% 0.5% 0.4% 0.4% 5.0% 3.6%"
Pers. computers 0.2% -1.9% -1.0% -1.4% -1.8% -1.5% -15.9% -12.8%
"Other good, serv 3.3% 0.2% 0.4% 0.4% 0.4% 0.5% 4.0% 4.1%"
Tobacco 0.7% 0.1% 1.2% 1.5% 0.8% 0.3% 11.6% 7.6%
Commodities 41.3% -0.5% 1.2% 1.9% 0.9% 0.1% 10.4% 7.3%
ex-food/bev. 26.4% -1.1% 1.3% 2.5% 1.2% -0.4% 11.2% 8.1%
ex-food/energy 21.6% 0.1% 0.5% 0.1% -0.1% 0.0% 2.5% 0.6%
-------------------------------------------------------------------------------
===============================================================================
August July June May April March Feb.
Weight 2008 2008 2008 2008 2008 2008 2008
===============================================================================
-------------------- YOY% Change --------------------
All items 100.0% 5.4% 5.6% 5.0% 4.2% 3.9% 4.0% 4.0%
(3 decimals) 100.0% 5.372% 5.600% 5.022% 4.176% 3.937% 3.981% 4.027%
ex-food/energy 76.5% 2.5% 2.5% 2.4% 2.3% 2.3% 2.4% 2.3%
(3 decimals) 76.5% 2.541% 2.510% 2.413% 2.313% 2.258% 2.355% 2.273%
-------------- Contribution to Change ---------------
All items 100.0% -0.14% 0.82% 1.06% 0.65% 0.21% 0.34% 0.03%
Housing 42.4% -0.03% 0.26% 0.20% 0.20% 0.13% 0.18% 0.08%
Transportation 17.7% -0.26% 0.30% 0.66% 0.36% -0.12% 0.13% -0.12%
Food & beverages 14.9% 0.09% 0.13% 0.11% 0.05% 0.14% 0.03% 0.05%
Medical care 6.2% 0.01% 0.00% 0.01% 0.01% 0.01% 0.01% 0.01%
"Education, comm. 6.1% 0.01% 0.03% 0.03% 0.02% 0.02% 0.02% 0.01%"
Recreation 5.6% 0.03% 0.02% 0.01% 0.00% 0.00% 0.01% 0.01%
Apparel 3.7% 0.02% 0.05% 0.00% -0.01% 0.02% -0.05% -0.01%
"Other good, ser. 3.3% 0.01% 0.01% 0.01% 0.01% 0.02% 0.01% 0.01%"
===============================================================================
"NOTE: All percentage changes are monthly, unless otherwise noted."
"Monthly and three month annual changes are seasonally adjusted,"
yearly changes are unadjusted.
To contact the reporter on this story: Andy Burt in Washington aburt1@bloomberg.net
"Last Updated: September 16, 2008 08:30 EDT"
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Russia's Micex Index Falls Most Ever; Exchanges Suspend Trading
By William Mauldin and Bradley Cook
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"Sept. 16 (Bloomberg) -- Russia's Micex Index plunged a record 17 percent, prompting the exchange to halt trading, after the cost of borrowing in dollars overnight more than doubled and oil prices tumbled."
"OAO Sberbank and OAO VTB Group, Russia's two biggest banks, led the decline in Moscow, falling 23 percent and 31 percent respectively. Financial stocks worldwide slid after American International Group Inc., the biggest U.S. insurer, had its credit ratings downgraded. OAO Rosneft, the government-controlled oil producer, lost 22 percent."
"The ruble-denominated Micex fell to 881.17 at the close in Moscow, after trading was suspended for an hour and subsequently reopened for three minutes. Today's decline was the biggest since Bloomberg started tracking the gauge in May 2001, and the largest fluctuation among equity indexes included in global benchmarks."
"``It's panic,'' said Oleg Vorotnitsky, head of equity trading at Uralsib Financial Corp. in Moscow. ``There are problems with liquidity on the market. People are having difficulties with refinancing their positions so they started selling. Concern about AIG'' is adding to the panic, he said."
"The dollar-denominated RTS Index lost 11 percent to 1,131.12, marking a 55 percent retreat from its highest close of 2,487.92, on May 19. The gauge has fallen 51 percent so far this quarter, the worst performance of major world equities indexes."
"The RTS Exchange halted equities trading for the remainder of the day at 5 p.m., while the Micex stopped trading for an hour from 4:42 p.m. Moscow time."
Russian Rates
"The overnight dollar rate soared 333 basis points to 6.44 percent today, its biggest jump, according to the British Bankers' Association. Rates climbed yesterday after Lehman Brothers Holdings Inc. succumbed to mounting credit-market losses and filed for bankruptcy."
"Russia's Mosprime interbank benchmark rate jumped to 10.83 percent today from 8.42 percent yesterday, according to the Web site of Russia's central bank. Rising lending rates may impede Russian investors from borrowing money to buy stocks."
"``It's a market where traditionally leveraged players have been active, and we're seeing a de-leveraging,'' said David Aserkoff, chief strategist at Moscow-based Renaissance Capital."
"Sberbank sank 23 percent to 34.65 rubles. VTB plunged 31 percent to 3.17 kopeks, having erased 77 percent of its value since its May 2007 initial public offering, the world's biggest last year."
"Rosneft, Russia's biggest oil producer, fell 36.9 rubles, or 22 percent, to 132.20 rubles, the lowest since its IPO in 2006. OAO Novatek, Russia's second-biggest natural-gas producer, sank 19.92 rubles, or 15 percent, to 110.09 rubles."
Gazprom Declines
"``Right now the market has taken on a life of its own, and there is no telling at what point this knife stops falling,'' said Ron Smith, chief strategist at Alfa Bank in Moscow. ``The bottom may not be found until some time in October, and the rally may not start until December or even early next year.''"
"OAO Gazprom, Russia's biggest corporate borrower, declined 18 percent to 158.41 rubles, less than half its all-time high of 367.54 rubles on May 19. Gazprom has the biggest weighting in the MSCI Emerging Markets Index and contributed to the benchmark's 5.7 percent drop as of 3:15 p.m. London time."
"Crude oil tumbled, dipping below $91 a barrel and taking its two-day decline to more than $10 on concern that turmoil on Wall Street may weaken the global economy and reduce demand."
"``For now, we expect the oil price and global financials to dictate moves on the Russian market,'' JPMorgan Chase & Co. strategist Peter Westin in Moscow wrote in a note to investors. ``The outlook for Russian equities today is anything but cheerful.''"
To contact the reporters on this story: To contact the reporter on this story: William Mauldin in Moscow at wmauldin1@bloomberg.net. Bradley Cook in Moscow at bcook7@bloomberg.net.
"Last Updated: September 16, 2008 10:51 EDT"
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"Canadian Dollar Falls as Investors Abandon Risk, Commodities "
By Daniel Kruger
Sept. 16 (Bloomberg) -- The Canadian dollar fell for a second day as investors sold commodities including crude oil and gold as part of a move toward less risky assets.
"Concerns that global economic growth is slowing, reducing demand for natural resources, also weakened the Canadian currency. Canada's dollar has fallen 6.1 percent against the U.S. currency since the price of crude oil peaked at $147.27 a barrel on July 11."
"``The commodity cycle is still an important driver,'' said Matthew Strauss, a currency strategist at RBC Capital Markets in Toronto. ``All commodities across the board, even including gold, were down overnight. That is weighing on the Canadian dollar.''"
"Canada's dollar, dubbed the loonie because of the aquatic bird on the one-dollar coin, fell 0.3 percent to C$1.0732 per U.S. dollar at 12:04 p.m. in Toronto, from C$1.0706 yesterday. One Canadian dollar buys 93.17 U.S. cents."
"After surging 17 percent in 2007 as commodity prices soared, the Canadian dollar has depreciated 7.1 percent so far this year as the U.S. economy cooled."
The Standard & Poor's/TSX Composite Index declined 1.2 percent today in Toronto.
"Crude oil for October delivery dropped 3.5 percent to $92.33 a barrel on the New York Mercantile Exchange. Earlier it reached $90.55, the lowest since Feb. 8."
Currency Forecast
"The Canadian currency will slip to C$1.12 against the U.S. dollar by the end of 2009, according to the median forecast of 33 economists surveyed by Bloomberg News."
Canada's government bonds erased an earlier gain and declined.
"The yield on the two-year note rose 2 basis points, or 0.02 percentage point, to 2.49 percent. The price of the 2.75 percent security maturing in December 2010 fell 4 cents to C$100.56."
The yield on the 10-year security increased 3 basis points to 3.42 percent. The price of the 4.25 percent security maturing in June 2018 declined 27 cents to C$106.85.
"The two-year bond's yield will increase to 3.15 percent by year-end, while the 10-year bond's yield will gain to 3.83 percent, according to the median forecasts of economists surveyed by Bloomberg."
"Canadian government bonds have returned 5.3 percent in 2008, according to Merrill Lynch & Co. index statistics. U.S. Treasuries have returned 6.1 percent this year."
To contact the reporter on this story: Daniel Kruger in New York at dkruger1@bloomberg.net
"Last Updated: September 16, 2008 12:07 EDT"
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"Brazilian Stocks Slide for a Second Day, Led by Financials "
By Alexander Ragir
"Sept. 16 (Bloomberg) -- Brazilian stocks tumbled for a second day, sending the Bovespa index to the lowest in 17 months, as credit downgrades at global insurer American International Group Inc. and a plunge in commodity prices pulled down the nation's biggest financial companies and raw-material producers."
"BM&F Bovespa SA led declines on the Bovespa index as financial companies dropped on concern over tightening credit after the cost of borrowing in dollars more than doubled. Petroleo Brasileiro SA, Brazil's state-controlled oil company, paced a retreat for commodity producers as crude fell below $91."
"``It's a combination of risk aversion and redemptions that's making people sell,'' said Bill Rudman, who helps manage $3 billion of emerging-market equity at WestLB Mellon Asset Management in London. ``In August, people were thinking about entering emerging markets again but now that rug was pulled out from under them. It looks like, if you go now and you get it right you're lucky and if you get it wrong, you're dumb.''"
"The Bovespa index tumbled 1,808.28, or 3.7 percent, to 46,608.05 at 9:31 a.m. New York time. The MidLarge Cap index dropped 4.6 percent, while the Small Cap index retreated 3.1 percent. The MSCI Emerging Markets Index fell 6 percent, the biggest tumble since Jan. 2 as every European and Asian emerging market in MSCI indexes except Indonesia retreated."
Petrobras fell 4.5 percent to 28.45 reais.
Crude oil tumbled more than 4 percent while copper and sugar also declined on concern turmoil in financial markets will slow global economic growth and reduce demand for raw materials.
"``Brazil is very sensitive to the oil price,'' Rudman said in a telephone interview."
"The Standard & Poor's GSCI Index of commodities slumped 3.3 percent, extending its decline to 33 percent since reaching an all-time high in July. The UBS Bloomberg CMCI index of 26 raw materials has fallen 24 percent from its record."
Banks Fall
"BM&F Bovespa fell 7.5 percent to 7.77 reais. Banco Bradesco SA, Brazil's biggest non-state bank, dropped 6.2 percent to 26.15 reais. Uniao de Bancos Brasileiros SA, Brazil's third-biggest non-state bank, declined 6 percent to 16.74 reais."
"AIG's credit ratings were downgraded by S&P and Moody's Investors Service, threatening efforts to raise emergency funds to keep the company afloat. AIG sank as much as 74 percent, sending the Standard & Poor's 500 Index to its worst two-day slump since July."
The Bovespa posted its steepest drop since the September 2001 terrorist attacks yesterday after Lehman Brothers Holdings Inc.'s bankruptcy spurred speculation that credit-market losses may push the U.S. into a recession.
To contact the reporters on this story: Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net;
"Last Updated: September 16, 2008 10:09 EDT"
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"Italy Stocks Update: Eni, Saipem, Fondiaria, Intesa Sanpaolo "
By Armorel Kenna
"Sept. 16 (Bloomberg) -- Italy's S&P/MIB Index fell for a second day, losing 595, or 2.2 percent, to 26,738. Futures expiring in September dropped 672, or 2.5 percent, to 26,755."
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 the downgrade of American International Group Inc.'s credit rating, may weaken the global economy and reduce demand for fuels and raw materials. Bank and insurance company stocks also fell."
"Eni SpA (ENI IM), Italy's largest energy company, fell for a second day, declining 78 cents, or 3.9 percent, to 19.19 euros. Saipem SpA (SPM IM), Europe's biggest oil-field services contractor by market value, slid 3.4 percent to 21.81 euros."
"Banca Popolare di Milano Scrl, an Italian regional lender that's been looking for a partner for more than a year, fell for a second day, losing 28 cents, or 4.5 percent, to almost 6 euros. The bank said its risk related to Lehman Brothers Holdings Inc. is less than 10 million euros ($14.3 million)."
"Fondiaria-Sai SpA (FSA IM), Italy's second-largest insurer, dropped 99 cents, or 5.5 percent, to 16.94 euros."
"Intesa Sanpaolo SpA (ISP IM), Italy's second biggest bank, slipped 4.4 percent to 3.63 euros. UniCredit SpA (UCG IM), the country's biggest bank, lost 4.1 percent to 3.48 euros."
To contact the reporter on this story: Armorel Kenna in Milan at akenna@bloomberg.net
"Last Updated: September 16, 2008 08:29 EDT"
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Angola Crude Exports Will Fall 10% in November to 9-Month Low
By Alexander Kwiatkowski
"Sept. 16 (Bloomberg) -- Angola, which overtook Nigeria as Africa's oil biggest producer this year, will cut daily crude exports in November by 10 percent to the lowest in at least nine months."
"BP Plc, Total SA, Chevron Corp., Exxon Mobil Corp. and other companies will load an average of 1.76 million barrels a day, down from October's revised schedule of 1.96 million barrels a day, according to loading programs."
The total crude loaded will decline to 52.8 million barrels from 60.9 million barrels in October.
To contact the reporters on this story: Alexander Kwiatkowski in London at akwiatkowsk2@bloomberg.net;
"Last Updated: September 16, 2008 04:43 EDT"
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U.S. Treasuries Erase Gains on Speculation of AIG Bailout
By Sandra Hernandez
Sept. 16 (Bloomberg) -- Treasuries erased gains on speculation American International Group Inc. will receive government help to avoid a collapse.
Traders earlier pushed yields on 10-year notes to the lowest in more than five years on concern the biggest U.S. insurer by assets wouldn't be able to raise funds. Stock rallied.
"Ten-year note yields rose 2 basis points, or 0.02 percentage point, to 3.40 percent at 11:08 a.m. in New York, according to BGCantor Market Data. They touched 3.25 percent, the lowest since June 2003. The two-year note's yield rose 2 basis points to 1.73 percent. It touched 1.56 percent, the lowest since April 1."
To contact the reporter on this story: Sandra Hernandez in New York at shernandez4@bloomberg.net
"Last Updated: September 16, 2008 11:09 EDT"
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"European Stocks Tumble on AIG Debt Rating Cuts; UBS, HBOS Drop "
By Adria Cimino
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"Sept. 16 (Bloomberg) -- European stocks fell for a second day, sending the Dow Jones Stoxx 600 Index to the lowest in three years, after the downgrade of American International Group Inc.'s credit rating increased turmoil in global debt markets."
"UBS AG, which reported more than $43 billion of subprime- related losses and writedowns, fell 17 percent after the cost of borrowing in dollars overnight more than doubled as banks hoarded cash. HBOS Plc, Britain's biggest mortgage lender, lost 22 percent. Xstrata Plc, the world's fourth-largest copper producer, dropped 7.4 percent as commodity prices retreated on speculation that the seizure in financial markets will hurt the global economy."
"``We're at the heart of the storm right now,'' said Roland Lescure, who manages the equivalent of $128 billion as chief investment officer of Groupama Asset Management in Paris. ``The downgrade of credit ratings is bad news.''"
"The Stoxx 600 sank 2.6 percent to 263.54, the lowest since May 19, 2005, bringing this year's decline to 28 percent. More than $16 trillion has been erased from global equities in 2008 as the biggest surge in mortgage defaults in at least three decades sparked $514 billion in credit losses and writedowns."
"The cost of borrowing in dollars overnight soared 3.33 percentage points to 6.44 percent, its biggest jump and highest level since 2001, the British Bankers' Association said."
Risk Appetite
"``Banks have adjusted their risk premiums,'' said Peter Jarvis, a London-based director of European equities at F&C Asset Management, which has about $200 billion. ``Until we see clarity in the financial systems and trust between banks, investors' risk appetite for asset classes such as equities is not going to improve.''"
"Traders increased bets the Federal Reserve will cut borrowing costs today. The odds of a quarter point reduction in rates rose to 90 percent, up from 68 percent yesterday."
"National benchmark indexes fell in all of the 18 western European markets except Spain and Portugal. The U.K.'s FTSE 100 sank 3.4 percent. Germany's DAX lost 1.6 percent, while France's CAC 40 declined 2 percent."
"The VStoxx index, which measures the cost of using options as insurance against losses on the Dow Jones Euro Stoxx 50 Index, surged 11 percent to 36.19, the highest since March."
"The Stoxx 600 Banks Index dropped to a two-month low as concern about defaults rose, according to traders of credit- default swaps. In Europe, the Markit iTraxx Financial index of 25 banks and insurers rose 19 basis points to 146.5, the highest in six months, according to JPMorgan prices."
AIG
"AIG, which sold Wall Street's largest firms and other investors protection on $441 billion of fixed-income assets, had its credit ratings downgraded by S&P and Moody's, threatening efforts to raise emergency funds to keep the company afloat. The biggest U.S. insurer fell 61 percent yesterday after failing to present a plan to raise capital and stave off credit downgrades, helping push the Standard & Poor's 500 Index to the steepest drop since the September 2001 terrorist attacks."
"Washington Mutual Inc., the biggest U.S. savings and loan, had its credit rating cut to junk by S&P. Lehman Brothers Holdings Inc.'s bankruptcy yesterday fueled speculation credit- related losses will worsen."
"UBS, the largest Swiss bank, plunged 17 percent to 16.64 francs. Natixis SA, France's fourth-biggest bank, slumped 16 percent to 2.50 euros."
"HBOS, the U.K.'s biggest mortgage lender, tumbled 22 percent to 182 pence."
"Barclays, Xstrata"
Barclays Plc retreated 2.5 percent to 308 pence. The U.K.'s third-largest bank said today it's in talks to buy assets from bankrupt Lehman two days after abandoning plans to acquire the entire securities firm.
"Xstrata slid 7.4 percent to 2,105 pence. Anglo American Plc, the world's fourth-biggest diversified mining company, fell 6.3 percent to 2,258 pence."
"BG Group Plc, the U.K.'s third-biggest oil and natural-gas producer, slumped 6.1 percent to 1,029 pence. Total SA, Europe's largest oil refiner, lost 2.7 percent to 42.23 euros."
"Copper dropped to a seven-month low in London. Lead, nickel, tin and zinc also fell."
"Crude oil tumbled, dipping below $91 a barrel and taking its two-day decline to more than $10 on concern that turmoil on Wall Street may weaken the global economy and reduce demand. The contract for October delivery fell as much as 5.4 percent to $90.55 on the New York Mercantile Exchange."
"Technology stocks dropped after Dell Inc., the second- biggest personal-computer maker, predicted ``further softening'' in demand this quarter."
"STMicroelectronics NV, Europe's largest chipmaker, lost 1.7 percent to 8.57 euros. Infineon Technologies AG, the industry's second biggest, retreated 5.1 percent to 5.63 euros."
"Customers showed ``continued conservatism'' in technology spending in the U.S. last quarter, which has spread to Western Europe and some Asian countries, Dell said, reiterating comments made last month."
To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.
"Last Updated: September 16, 2008 12:15 EDT"
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Commercial Mortgage Bond Yields Over Benchmarks Soar to Record
By Sarah Mulholland
Sept. 16 (Bloomberg) -- Yields on commercial mortgage bonds relative to benchmark rates rose to record highs on concern that Lehman Brothers Holdings Inc. may dump its real estate on the market after filing for bankruptcy.
"Spreads on AAA rated commercial mortgage-backed debt rose 41.25 basis points to 318.81 basis points more than benchmark swap rates as of yesterday's close, Bank of America Corp. data show. The previous record of 312.35 basis points was set March 10, the week before the Federal Reserve arranged JPMorgan Chase & Co.'s purchase of Bear Stearns Cos. A basis point is 0.01 percentage point."
"``A bankruptcy is not a positive for any credit products,'' said Lisa Pendergast, an analyst at RBS Greenwich Capital in Greenwich, Connecticut. ``There is a concern that as Lehman moves into bankruptcy, the liquidation will put pressure on the prices of all commercial mortgage securities.''"
"The $776 billion market for commercial-mortgage debt may plummet further if more financial institutions fail and have to sell assets. Since the start of last year, banks worldwide have taken more than $514 billion in writedowns and credit losses amid the worst housing slump since the Great Depression."
"Lehman held $8.5 billion in commercial-mortgage backed securities as of last month, the company said last week. Lehman held an additional $15.5 billion in commercial mortgage loans that had not been sliced up and sold as bonds."
"The cost to protect commercial-mortgage bonds against default soared yesterday, credit-default swaps show. Spreads on AAA contracts on Markit's CMBX index rose 43 basis points to 191 basis points, according to New York-based Markit Group."
Bondholder Protection
"The cost to insure against default on BBB- commercial mortgage-backed securities, the lowest investment-grade rating, soared 131 basis points to 2,437 basis points. That means it costs about $2.44 million to insure $10 million of the underlying securities."
Credit-default swaps are used to speculate on a borrower's ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. Rising spreads on the CMBX index mean investors are more concerned that commercial mortgage loans may be in jeopardy.
New York-based Lehman was forced into bankruptcy after Bank of America and Barclays Plc backed away from bidding for the investment bank when the U.S. Treasury wouldn't provide a backstop on losses. Bank of America agreed to acquire Merrill Lynch & Co. for $50 billion yesterday.
To contact the reporter on this story: Sarah Mulholland in New York at smulholland3@bloomberg.net
"Last Updated: September 16, 2008 10:09 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 72.96, or 1.8 percent, to 4,096.01 at 1:56 p.m. in Paris. The SBF 120 Index lost 1.7 percent."
The following were among the most active stocks. Symbols are in parentheses.
"BNP Paribas SA (BNP FP) fell 2.7 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."
"Societe Generale SA, the country's No. 2 bank dropped 2.07 euros, or 3.5 percent, to 56.67 euros. Natixis SA, which is seeking 3.7 billion euros ($5.3 billion) in new capital after subprime-related writedowns, tumbled 47 cents, or 16 percent, to 2.51 euros, hitting its lowest since 2003."
"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 49 cents, or 1 percent, to 47.75 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."
"EDF won't pay an inflated amount for British Energy, the French utility's chief executive officer said."
"Eramet SA (ERA FP) lost 11.67 euros, or 3.8 percent, to 295.69 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."
"Esker SA (ESK FP) slumped 53 cents, or 12 percent, to 3.81 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 49 cents, or 2.6 percent, to 19.705 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."
"Lafarge SA (LG FP) added 2.955 euros, or 3.7 percent, to 83.555 euros. Groupe Bruxelles Lambert SA, the Brussels-based investment firm jointly controlled by billionaires Albert Frere and Paul Desmarais, bought 57.5 million euros ($81.6 million) of Lafarge shares, raising its stake in the world's largest cement producer to more than 20 percent."
"Renault SA (RNO FP) lost 1.125 euros, or 2.2 percent, to 50.075 euros. PSA Peugeot Citroen (UG FP) slipped 59 cents, or 1.9 percent, to 30.47 euros."
"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."
"Veolia Environnement SA (VIE FP) decreased 1.01 euros, or 3.2 percent, to 30.59 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 08:17 EDT"
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"Credit Markets Seize Up on Bets Lehman, AIG Woes Will Spread "
By Shelley Smith and John Glover
Sept. 16 (Bloomberg) -- Credit markets are seizing up on concern more banks will fail after Lehman Brothers Holdings Inc. filed for bankruptcy and American International Group Inc. was downgraded.
"Corporate borrowing costs soared by the most on record in the U.S. and climbed to an all-time high in Europe, Merrill Lynch & Co. indexes show. The cost of borrowing in dollars overnight more than doubled to 6.44 percent, its biggest jump, according to the British Bankers' Association."
"``It's been absolutely shocking,'' said Phil Roantree, a London-based investment manager at New Star Asset Management Group Plc. ``There has been no liquidity in the market and prices are being hammered as people try and sell pretty much everything that isn't a government note, especially financials.''"
"Banks tightened lending as AIG was downgraded by Moody's Investors Service and Standard & Poor's, adding to evidence that fallout from the collapse of the U.S. subprime-mortgage market is spreading. The surge in funding costs came less than a day after Lehman filed for bankruptcy, the biggest in history, and Merrill sold itself to Bank of America Corp."
"The extra yield investors demand to hold U.S. investment- grade bonds advanced 36 basis points, the biggest one-day increase on record, to a peak of 380 basis points, Merrill indexes based on yesterday's close show. The spread on European financial company debt over government bonds climbed 26 basis points, the biggest jump and to the highest level since Merrill started compiling the daily data in 1999. Spreads on all European investment-grade debt also rose to an all-time high."
Worldwide Losses
"Financial institutions including Lehman have posted more than $514 billion in losses and writedowns since the beginning of last year as the credit crisis worsened. The cost of protecting investment-grade corporate bonds in Europe from default rose to a six-month high today, credit-default swaps show."
"Lehman's bankruptcy has renewed a so-called flight to quality, according to Hank Calenti, a London-based credit analyst at Royal Bank of Canada in London."
"``The name of the game is likely to be risk aversion over the short-term,'' Calenti wrote in a note to clients on financial debt. ``Economic Darwinism is back.''"
"The average spread on European investment-grade financial bonds over government debt rose to a high of 268 basis points, while non-financial corporate bonds in Europe advanced 15 basis points to 174, the most since July 2002, Merrill data show. A basis point is 0.01 percentage point."
"High-yield bond spreads also advanced 43 basis points to 887 basis points, the most since March 2003, according to Merrill indexes."
To contact the reporter on this story: Shelley Smith in London at ssmith118@bloomberg.netJohn Glover in London at johnglover@bloomberg.net
"Last Updated: September 16, 2008 08:38 EDT"
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"Swiss Franc Rises; Stocks, Money Markets Spur Aversion to Risk "
By Lukanyo Mnyanda
Sept. 16 (Bloomberg) -- The Swiss franc rose to a five-month high against the euro and gained versus the dollar as surging money-market rates and the credit downgrade of American International Group Inc. stoked demand for the safest assets.
"The franc climbed to the highest level against the euro since mid-April as a plunge in equities worldwide cut demand for so- called carry trades funded in the Swiss currency. The Japanese yen, also a source of funds for such transactions, increased versus the euro and the dollar. European government bonds and U.S. Treasuries advanced as traders turned to the relative safety of government assets."
"``It's 100 percent about risk aversion,'' said Niels Christensen, a currency strategist in Copenhagen at Nordea Bank AB, the biggest Scandinavian bank by market value. ``You'd need to be very brave to call off the meltdown in stock markets. It all looks very nasty at the moment.''"
"The Swiss currency rose to 1.5752 per euro, the highest level since April 14, and traded at 1.5836 as of 4:19 p.m. in Zurich, from 1.5885 yesterday. The currency may test 1.57 per euro overnight, Christensen said. Against the dollar, the franc advanced to 1.1148, from 1.1159."
"Switzerland's currency stayed higher as the British Bankers' Association said the cost of borrowing in dollars overnight more than doubled to 6.44 percent, its biggest jump in at least seven years. The London interbank offered rate, or Libor, increased 3.33 percentage points from yesterday, the BBA said today."
"The so-called TED spread, the difference between what the U.S. government and banks pay to borrow in dollars for three months, was at 198 basis points, from 201 basis points yesterday, the highest since March 21."
Equities Slide
"AIG sank as much as 74 percent in early New York trading after the insurer's credit ratings were cut, threatening efforts to raise funds to keep the company afloat and roiling global financial markets. The insurance company has one day to reach an agreement to raise $75 billion to $80 billion, New York Governor David Paterson told CNBC today."
"The Swiss Market Index of equities dropped as much as 4 percent, adding to its 3.8 percent slide yesterday. The Dow Jones Stoxx 600 Index of European shares slipped 2.7 percent, pushing its decline the past two days to 6 percent. The MSCI World Index, a global benchmark, retreated 1.8 percent."
"Declining financial-market confidence encouraged investors to seek safer alternatives to carry trades, where they borrow in a currency at a low interest rate and convert the proceeds into one they can lend out for a higher return. They take the risk currency fluctuations will erode their profits."
Yen Gains
The dollar and euro fell a second day against the yen as traders speculated the Federal Reserve may cut interest rates. Futures on the Chicago Board of Trade showed a 100 percent chance the Fed will lower its 2 percent target rate for overnight lending between banks by at least a quarter-percentage point today. The odds on a 25 basis-point decrease were 2 percent a week ago.
"``We're seeing a continuing unwinding of carry trades,'' David Woo, London-based head of foreign-exchange strategy at Barclays Capital, said in a Bloomberg Television interview."
"Switzerland's benchmark rate of 2.75 percent is the industrialized world's third-lowest, and compares with 0.5 percent in Japan and 4.25 percent for the 15 nations using the euro."
"Swiss government bonds climbed, with the yield on the 3 percent note due January 2018 falling 7 basis points to 2.70 percent. A basis point is 0.01 percentage point. Yields move inversely to bond prices."
To contact the reporter on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net
"Last Updated: September 16, 2008 10:48 EDT"
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Indian Rupee Falls Most in Decade as Capital Outflows May Rise
By Anil Varma
"Sept. 16 (Bloomberg) -- India's rupee fell the most in a decade on speculation turmoil on Wall Street will heighten risk aversion among global investors, boosting sales of emerging- market assets."
"The currency dropped to the lowest in more than two years 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 also slumped as India's benchmark share index fell for a sixth day, sliding in tandem with 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 1.9 percent to 46.925 per dollar as of the 5 p.m. close in Mumbai, according to data compiled by Bloomberg. It slid as low as 46.975 earlier. JPMorgan forecasts the rupee to drop to 47 by the end of the year."
"The rupee was the second-biggest loser among the 10 most- active currencies in Asia outside Japan today. The South Korean won slid 4.4 percent, the most since 1998 as well."
"Credit losses forced Lehman to file for 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, threatening efforts to raise emergency funds to keep the company afloat."
Stocks Decline
"Indian stocks fell. The Bombay Stock Exchange's Sensitive Index, or Sensex, declined for a sixth day, heading for its first annual loss since 2001."
The rupee also weakened on speculation the nation's companies increased purchases of dollars to pay for shipments from abroad and to repay overseas loans. A weaker rupee makes overseas purchases costlier.
"``Expectations are increasingly shifting toward greater medium-term rupee weakness,'' JPMorgan's Agarwal said. ``Importers and those with outstanding overseas loans are increasingly likely to secure their foreign-currency needs.''"
"India's imports have grown faster than exports this year, causing the nation's trade deficit to widen. Shipments from abroad increased at an average 38 percent per month, beating a 26 percent average growth in overseas sales. The shortfall averaged $9 billion a month this year, compared with $5.8 billion in 2007, central bank data show."
To contact the reporters on this story: Anil Varma in Mumbai at avarma3@bloomberg.net.
"Last Updated: September 16, 2008 08:10 EDT"
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India's 10-Year Bonds Complete Biggest 2-Day Gain in Six Weeks
By Anil Varma
"Sept. 16 (Bloomberg) -- India's 10-year bonds completed their 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 7 basis points to 8.09 percent at the 5:30 p.m. close in Mumbai, according to the central bank's trading system. That is the lowest since May 28. Ten-year yields fell 20 basis points yesterday. The price rose 0.43, or 43 paise per 100 rupee face amount, to 100.98. 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."
"The cost of benchmark Indian 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 7.97 percent from 8.45 percent yesterday."
To contact the reporter on this story: Anil Varma in Mumbai at avarma3@bloomberg.net.
"Last Updated: September 16, 2008 08:16 EDT"
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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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