U.S. Jobless Claims for the Week of Sept. 20: Summary (Table)
By Andy Burt
Sept. 25 (Bloomberg) -- Following is a summary of the Sept. 20 initial jobless claims report from the Labor Department.
========================================================================
Week Ending Sept. 20 Sept. 13 Sept. 6 Prior Year
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"Initial Claims (SA) 493,000 461,000 445,000 309,000"
" Change 32,000 16,000 -6,000 184,000"
Percent change 6.9% 3.6% -1.3% 59.5%
" 4-Wk moving average 462,500 446,500 440,000 317,500"
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"Initial Claims (NSA) 395,601 385,057 336,733 247,643"
" Change 10,544 48,324 -21,997 147,958"
Percent change 2.7% 14.4% -6.1% 59.7%
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Week Ending Sept. 13 Sept. 6 Aug. 30 Prior Year
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"Continuing claims (SA) 3,542,000 3,479,000 3,532,000 2,560,000"
" Change 63,000 -53,000 128,000 982,000"
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Week Ending Sept. 13 Sept. 6 Aug. 30 Prior Year
========================================================================
Percent change 1.8% -1.5% 3.8% 38.4%
" 4-Wk Moving average (SA) 3,489,250 3,461,000 3,431,000 2,575,000"
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Ins. Unemployment Rate (SA) 2.6% 2.6% 2.6% 1.9%
Ins. Unemployment Rate (NSA) 2.3% 2.3% 2.3% 1.6%
------------------------------------------------------------------------
"Continuing claims (NSA) 3,014,605 3,068,695 3,059,126 2,160,459"
" Change -54,090 9,569 -38,459 854,146"
========================================================================
Sept. 6 Aug. 30 Aug. 23 Prior Year
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Percent change -1.8% 0.3% -1.2% 39.5%
"Extended benefits (NSA) 1,324 526 1,548 5"
" Change 798 -1,022 135 1,319"
"Emergency Unemp. Comp. (NSA) 1,056,924 1,394,329 1,097,375 0"
" Change -337,405 296,954 -297,374 1,056,924"
========================================================================
(SA) = Seasonally adjusted figures. (NSA) = Not seasonally adjusted.
To contact the reporter on this story: Andy Burt in Washington at aburt1@bloomberg.net
"Last Updated: September 25, 2008 08:30 EDT"
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Brazil Jobless Rate Falls to Second Lowest Since 2001 (Update2)
By Joshua Goodman
Sept. 25 (Bloomberg) -- Brazil's unemployment rate fell to the second lowest level since 2001 in August as companies step up production to meet demand fueled by the country's fastest economic expansion in more than a decade.
"Unemployment in Brazil's six largest metropolitan areas fell to 7.6 percent last month, down from 8.1 percent in July, the national statistics agency said today. The jobless rate was lower than the median forecast of 8 percent in a Bloomberg survey of 19 economists."
"Brazil's companies have been adding jobs at a record pace, fueling a surge in income that contributed to second-quarter economic growth of 6.1 percent. Increasing scarcity in the country's labor market is a concern to the central bank, which has raised the benchmark rate from a record low 11.25 percent to 13.75 percent since April in a bid to cool the heated economy."
"``Today's report shows there's no room for the central bank to end the tightening cycle,'' Alexandre Lintz, chief strategist in Brazil with BNP Paribas, said in an e-mail to clients."
"Brazil will add a record 2 million jobs in 2008, Labor Minister Carlos Lupi said Sept. 15, after announcing government registered jobs surged 79 percent last month. Companies have been hiring at a rapid pace to take advantage of 6 percent growth in the past four quarters, the fastest 12-month pace since 1995."
The August unemployment rate was the second lowest since October 2001. Joblessness fell to 7.4 percent in December 2007.
Target
Falling prices for food have been partially offset by robust domestic demand that has kept inflation above the 4.5 percent midpoint of the government's target range since January.
"Monthly inflation for non-food items accelerated to 0.41 percent through mid-September, from 0.38 percent last month, according to the benchmark IPCA-15 index released yesterday."
"A drop in commodity prices and slower global economic growth may help rein in inflation, policy makers said in the minutes of their Sept. 9-10 meeting. Economists covering Latin America's biggest economy expect policy makers to push the overnight rate up to 14.75 percent by year-end."
Brazil's real strengthened 1 percent to 1.8401 per dollar at 9:17 a.m. New York time from 1.8596 late yesterday.
To contact the reporter on this story: Joshua Goodman in Rio de Janeiro at Jgoodman19@bloomberg.net
"Last Updated: September 25, 2008 10:54 EDT"
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Brazilian Stocks Rise After Jobless Rate Falls; Bolsa Climbs
By Alexander Ragir
Sept. 25 (Bloomberg) -- Brazilian stocks rose for a second day as a drop in unemployment bolstered optimism that the global credit crisis hasn't slowed growth in Latin America's biggest economy.
"Lojas Americanas SA, Brazil's largest discount retailer, gained for the first time this week after the jobless rate in August fell to the second lowest level since 2001. Gafisa SA led a rally in homebuilders as Banco Santander SA said real estate stocks were undervalued and investors may have overestimated the effects of tighter credit. Petroleo Brasileiro SA rose to the highest in a month after it found a ``large'' deposit of natural gas and light crude oil in the offshore well known as Jupiter."
"``The Brazilian economy has never lived through such stability,'' said Julio Martins, who oversees $173 million as investment director at Banco Prosper in Rio de Janeiro. ``The uncertain variable comes from abroad and we are to some extent protected, but it's not bulletproof.''"
"The Bovespa index gained 3.7 percent to 51,694.57 at 12:51 p.m. New York time. The BM&FBovespa MidLarge Cap index rose 3.4 percent. The BM&FBovespa Small Cap index advanced 1.6 percent. Latin American stocks rallied amid speculation the U.S. Congress will reach an agreement on a $700 billion bailout of financial institutions. Mexico's Bolsa index gained 1.8 percent and Chile's Ipsa added 1.1 percent. The MSCI Latin America index rose 3.8 percent."
"Lojas Americanas jumped 7.7 percent to 7.98 reais. Cia. Brasileira de Distribuicao Grupo Pao de Acucar, Brazil's biggest supermarket chain, gained 5.5 percent to 34.80 reais."
Adding Jobs
"Unemployment in Brazil's six largest metropolitan areas fell to 7.6 percent last month, down from down from 8.1 percent in July, the national statistics agency said today. The jobless rate was lower than the median forecast of 8 percent in a Bloomberg survey of 19 economists. Brazil's companies have been adding jobs at a record pace, fueling a surge in income that contributed to second-quarter economic growth of 6.1 percent."
"Gafisa, the country's second-largest real estate developer, gained 4.8 percent to 24.10 reais. Cyrela Brazil Realty SA Empreendimentos e Participacoes, Brazil's biggest homebuilder, rose 3.4 percent to 20.26 reais. Gafisa was raised to ``buy'' from ``underperform,'' while Cyrela was raised to ``buy'' from ``hold,'' analysts including Marcello Milman wrote."
"``In our view, the market has basically put all homebuilders in the same basket, pricing in a very negative scenario regarding their solvency, even when the probability of a cash shortage seems very far out,'' the analysts wrote."
"Larger homebuilders in Brazil are better positioned to gain market share organically or through acquisitions, they wrote, adding valuations have become ``compelling.''"
Petrobras Rises
"Petrobras gained 4.3 percent to 35.96 reais after it said it will be able to provide a more-detailed estimate of oil reserves in the 1-BRSA- 559A-RJS well after further analysis. Petrobras said Jan. 21 that the deposit appeared to be ``Tupi-sized,'' a reference to a nearby prospect that it estimates has 8 billion barrels of oil."
"Centrais Eletricas Brasileiras SA Latin America's largest utility, rose the most in the Bovespa on speculation the company's plans to increase its capital may lead to a credit rating upgrade. The utility known as Eletrobras said it is seeking approval from shareholders in a meeting today to add 1.86 billion reais ($1.02 billion) to its capital base from ``excess reserves of profits.''"
"Some Mexican banks rose on speculation the U.S. Congress will give approval to a version of a government plan to buy assets from financial institutions, boosting stalled credit markets. Grupo Financiero Inbursa SA, the bank controlled by billionaire Carlos Slim, rose the most in almost four months, gaining 3.7 percent to 38 pesos."
"In other Latin America markets, Argentina's Merval gained 3.2 percent, Peru's Lima General rose 1.7 percent and Colombia's IGBC advanced 1 percent."
To contact the reporters on this story: Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net; William Freebairn in Mexico City wfreebairn@bloomberg.net
"Last Updated: September 25, 2008 12:59 EDT"
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Barclays Says Commodities to Revive After Worst Drop Since 1956
By Thomas Kutty Abraham
"Sept. 25 (Bloomberg) -- Commodities, set for the biggest quarterly loss in at least five decades, may rebound on demand for food and industrial materials from nations including India and China, according to Barclays Capital."
"The tumble since July is a temporary reversal in a long-term rally, Paul Horsnell, head of commodities research at Barclays Capital in London, said in Mumbai today."
"Crude oil, soybeans, copper and platinum have dropped from all-time highs after a rally in the U.S. dollar curbed demand for raw materials as a hedge against inflation and concerns increased that economic growth will slow. The Reuters/Jefferies CRB Index of 19 commodities has slumped by a fifth since June 30 and is headed for the biggest quarterly loss since at least 1956."
"``At this point commodities are in a normal correction stage rather than any change in major dynamics of demand'' from nations including China and India, Horsnell said."
"While the turmoil in global financial markets has increased volatility in commodities, there hasn't been a ``great outflow of money'' from commodity markets, he said."
"Crude oil may average $115 a barrel next year, extending a six-year rally, Horsnell said. Barclays cut its fourth-quarter oil price forecast 21 percent to $97.50 a barrel on Sept. 11 on weakening demand for fuels. Crude has fallen 28 percent since touching a record $147.27 a barrel on July 11."
Metals Affected
"While zinc may extend this year's 24 percent drop, lead may not see a ``sharp'' increase, Horsnell said. Prices of copper may stay stable and nickel, the worst among the six industrial metals traded on the London Metal Exchange, may not extend losses."
"``At this stage, metals are affected by the overall global macro economic sentiments, though they probably don't have poor fundamentals to match that, except in the case of zinc,'' he said."
"Among agricultural commodities, cotton, corn and soybean may gain the most over the next year, while wheat may fall because of higher production globally, he said."
"Gold, which has risen 8 percent this month as investors seek a haven from financial turmoil, probably won't touch the March 17 record of $1,032.70 an ounce again this year, he said."
To contact the reporter on this story: Thomas Kutty Abraham in Mumbai at tabraham4@bloomberg.net
"Last Updated: September 25, 2008 11:47 EDT"
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European Bonds Fall as German Confidence Unexpectedly Improves
By Agnes Lovasz and Anchalee Worrachate
"Sept. 25 (Bloomberg) -- European government bonds declined after an industry report showed German consumer confidence unexpectedly rose, easing concern the global financial turmoil will push the economy into a recession."
"Bonds also fell after stocks rose, reducing demand for the safest assets. The difference in yields between two- and 10-year notes narrowed from the widest in five months amid speculation Congress will soon pass the Bush administration's $700 billion plan to rid banks of troubled assets."
"``Consumer confidence was a little bit better than expected,'' said Ruediger Janssen, a fixed-income strategist at state-owned Bremer Landesbank Kreditanstalt in Bremen, Germany. ``But everybody is looking at the U.S., and everything will depend on whether they find a solution. Traders are nervous, especially at the short end, because all banks need money.''"
"The yield on the 10-year German bund, the euro region's benchmark government debt security, advanced 7 basis points, or 0.07 percentage point, to 4.23 percent at 5:21 p.m. in London. The 4.25 percent note due July 2018 fell 0.53, or 5.3 euros per 1,000-euro ($1,465) face amount, to 100.14."
The yield on the two-year note rose 7 basis points to 3.83 percent. Yields move inversely to bond prices.
"GfK AG's index of confidence for October, based on a survey of about 2,000 people, increased to 1.8, from a revised 1.6, the Nuremberg-based market-research company said today. Economists expected the gauge to be unchanged at 1.5, according to the median of 29 estimates in a Bloomberg survey."
Bond Spread
"The difference between two- and 10-year yields was 40 basis points, near the widest since April 16, after House Financial Services Committee Chairman Barney Frank told reporters late yesterday House and Senate Democrats had reached a deal on legislation and that Congress is advancing toward an accord."
President George W. Bush said in an address to the U.S. yesterday that without the rescue the nation will suffer ``a long and painful'' recession. Federal Reserve Chairman Ben S. Bernanke said the U.S. is facing ``grave threats'' to financial stability. Treasury Secretary Henry Paulson said the financial system is ``frozen.''
"Money-market rates around the world increased today on concern the bailout plan will be diluted, causing financial institutions to hoard cash."
"The one-month London interbank offered rate, or Libor, for dollars jumped 28 basis points to 3.71 percent, the highest level since January. The corresponding rate for euros rose 6 basis points to 4.97 percent, and the pound rate advanced 8 basis points to 5.99 percent."
"The difference between what banks and the Treasury pay to borrow money for three months, the so-called TED spread, widened as much as 28 basis points to 377 basis points. That's the most since Bloomberg began compiling the data in 1984. It was 114 basis points a month ago."
U.S. Bills
U.S. three-month bill yields rose today after declining a quarter-percentage point yesterday to less than 0.5 percent as investors sought the relative safety of the shortest-term Treasury maturities.
"European government bonds have lagged behind Treasuries this year. German debt has handed investors 3.2 percent, while U.S. government securities returned 4.7 percent, according to Merrill Lynch & Co.'s German Federal Governments and Treasury Master indexes."
"The Netherlands announced today its debt-sales calendar for the fourth quarter. Total funding this year will be about 21 billion euros, down from 24 billion euros expected previously, the government said. The Dutch State Treasury, which oversees debt sales on the government's behalf, said it will reopen on Nov. 11 a 4 percent bond maturing in January 2011."
To contact the reporters on this story: Agnes Lovasz in London at alovasz@bloomberg.net; Anchalee Worrachate in London at aworrachate@bloomberg.net
"Last Updated: September 25, 2008 12:24 EDT"
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Brazil Real Rises as U.S. Congress Agrees on Bailout Principles
By Adriana Brasileiro
"Sept. 25 (Bloomberg) -- Brazil's real and local bonds rose as U.S. lawmakers agreed on a ``set of principles'' for a $700 billion financial-rescue package, bolstering demand for emerging- market assets."
"The real rose 2 percent to 1.8128 per dollar at 3:57 p.m. New York time, from 1.8596 yesterday. Today's gain pares the real's loss this month to 10.5 percent, still the biggest among the 16 most-active currencies tracked by Bloomberg."
"``We started seeing more interest in local bonds and a lighter, less stressed sentiment on the market in general,'' said Marcio Ezequiel, head of fixed-income trading at Agora Corretora, Brazil's largest brokerage, in Sao Paulo."
"The yield on Brazil's inflation-linked bonds, known as NTN- Bs, due in May 2009 fell 24 basis points today to 9.41 percent."
Senate Banking Committee Chairman Christopher Dodd said Republicans and Democrats today agreed on a ``set of principles'' for a financial-rescue package.
Mounting speculation that the Federal Reserve will reduce borrowing costs this year also buoyed the allure of local fixed- income assets.
"Futures on the Chicago Board of Trade show an 86 percent chance that the Fed will cut the 2 percent target lending rate by a quarter-percentage point on Oct. 29, compared with 80 percent odds yesterday. There's a 30 percent likelihood of a reduction to 1.5 percent by the end of the year."
President George W. Bush predicted yesterday a ``long and painful recession'' if the bailout plan isn't approved soon.
"Brazilian stocks advanced, with the benchmark Bovespa index advancing 3.7 percent."
"The yield on Brazil's zero-coupon bond due in January 2010 fell 10 basis points, or 0.1 percentage point, to 14.79 percent. The yield on the overnight futures contract for January 2009 delivery fell 2 basis points to 14.06 percent."
To contact the reporter on this story: Adriana Brasileiro in Rio de Janeiro at abrasileiro@bloomberg.net
"Last Updated: September 25, 2008 16:05 EDT"
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"French Stocks: Alcatel-Lucent, Axa, Credit Agricole, Dexia "
By Adria Cimino
"Sept. 25 (Bloomberg) -- France's CAC 40 Index advanced 112.27, or 2.7 percent, to 4,226.81 in Paris, climbing for the first day this week. The SBF 120 Index added 2.5 percent."
Banks and insurance stocks led gains on speculation the U.S. Congress will reach an agreement on a $700 billion bailout of financial institutions.
"Credit Agricole SA, France's second-largest bank by assets, increased 94 cents, or 6.5 percent, to 15.34 euros. Axa SA, Europe's second-biggest insurer, jumped 1.11 euros, or 5 percent, to 23.62. Dexia SA, the world's biggest lender to local governments, rallied 63 cents, or 6.1 percent, to 10.89 euros."
The following shares rose or fell in Paris. Stock symbols are in parentheses.
"Acanthe Developpement SA (ACAN FP) sank 10 cents, or 4.8 percent, to 1.98 euros, falling for a third time this week. The real-estate management company reported a first-half net loss of 10.9 million euros ($16 million), compared with a year-earlier profit of 22.5 million euros."
"Alcatel-Lucent SA (ALU FP) added 8 cents, or 2.7 percent, to 3.05 euros, rising for a second day. WestLB raised its recommendation on shares of the world's biggest maker of fixed- line telephone networks to ``hold'' from ``sell.''"
"Aurea SA (AURE FP) slid 70 cents, or 6.5 percent, to 10 euros, falling for a third day this week. The recycler of raw materials such as motor oil said it remained ``cautious'' on the outlook for the second half."
"Casino Guichard-Perrachon SA (CO FP) climbed 1.98 euros, or 3.3 percent, to 61.38, advancing the most in about a month. Deutsche Bank AG raised its recommendation on shares of the biggest supermarket owner in Paris to ``buy'' from ``hold.''"
"Staff & Line SA (ALSTA FP) jumped 24 cents, or 6.4 percent, to 4 euros, climbing for a third day. The business software designer said it sees a ``favorable'' outlook for the second half and doesn't see business slowing."
"Valeo SA (FR FP) gained 34 cents, or 1.5 percent, to 23.76 euros, rising for a second day. Morgan Stanley raised its stake in France's second-largest auto-parts maker to 8.4 percent, according to the AMF, the French stock market regulator."
To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.
"Last Updated: September 25, 2008 12:31 EDT"
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"U.S. Jobless Claims Jump 32,000 to 493,000 Last Week (Update1) "
By Shobhana Chandra
Sept. 25 (Bloomberg) -- The number of Americans filing first-time claims for unemployment benefits rose last week to the highest since September 2001 as hurricanes kept residents of Texas and Louisiana out of work.
"Initial jobless claims increased by 32,000 to 493,000 in the week that ended Sept. 20, from a revised 461,000 the prior week, the Labor Department said today in Washington. Economists in a Bloomberg survey had forecast a drop. Hurricanes Ike and Gustav added 50,000 claims, the department said."
"The figures may reinforce concern that consumer spending, which accounts for more than two-thirds of the U.S. economy, will falter. Growth already is slowing during a housing slump and the worst financial crisis since the Great Depression."
"``The labor market is clearly in recession,'' Steven Wood, president of Insight Economics LLC in Danville, California, said before the report."
"Separately, orders for U.S. durable goods fell more than twice as much as forecast in August, a sign that slower sales and tighter credit conditions prompted companies to cut spending."
"Initial claims were forecast to decrease to 450,000 from 455,000 initially reported for the prior week, according to the median projection of 39 economists in a Bloomberg News survey. Estimates ranged from 433,000 to 505,000."
Weekly jobless claims figures in recent weeks have been distorted by the fallout from storms earlier this month.
Unemployment Rising
"The four-week moving average of initial claims, a less volatile measure, increased 462,500 from 446,500, today's report showed."
"The number of people continuing to collect jobless benefits rose close to a five-year high of 3.542 million in the week ended Sept. 13, from 3.479 million the prior week."
"The unemployment rate among people eligible for benefits, which tends to track the jobless rate, stayed at 2.6 percent for a third straight week. These data are reported with a one-week lag."
"Forty-one states and territories reported an increase in new claims, while 12 reported a decrease."
Initial jobless claims reflect weekly firings and tend to rise as job growth -- measured by the monthly non-farm payrolls report -- slows.
"So far this year, weekly claims have averaged 384,700, compared with an average 321,000 for all of 2007."
Credit Crunch
"The economy lost 605,000 jobs this year until August. The monthly payrolls report for September, due from the Labor Department on Oct. 3, may show job losses continued for the ninth consecutive month, according to the Bloomberg survey."
"The credit crisis may spur more layoffs. The turmoil has pushed Lehman Brothers Holdings Inc. into bankruptcy, Merrill Lynch & Co. into an acquisition by Bank of America Corp., and led to a government takeover of mortgage financiers Fannie Mae and Freddie Mac, and of insurer American International Group Inc."
"Slower sales of big-ticket items is prompting even foreign automakers to pare workers at their U.S. units. Bayerische Motoren Werke AG, the world's largest maker of luxury autos, on Sept. 18 said it'll eliminate 90 office jobs in North America because of slowing U.S. sales."
"``We can no longer afford to just modify or cut back on the way in which we have been operating,'' Jim O'Donnell, president of BMW of North America LLC, said in an e-mail to dealers."
To contact the reporter on this story: Shobhana Chandra in Washington schandra1@bloomberg.net
"Last Updated: September 25, 2008 08:48 EDT"
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Japan's Tankan Confidence May Fall to a Five-Year Low (Update1)
By Jason Clenfield
Enlarge Image/Details
"Sept. 25 (Bloomberg) -- Sentiment among Japan's largest manufacturers probably fell to a five-year low amid the worst global financial crisis since the Great Depression, a central bank survey is expected to show next week."
"An index that measures confidence among large makers of cars and electronics slid to minus 2 from 5, economists predict the Bank of Japan's Tankan survey will show on Oct. 1. It would be the first time since 2003 that the index is negative, which means pessimists outnumber optimists."
"``The consensus view is that Japan is already in a recession,'' said Takehiro Sato, chief Japan economist at Morgan Stanley. ``We expect the September Tankan to reinforce the market's perception that the recession could be longer and deeper than generally believed.''"
Bank of Japan Governor Masaaki Shirakawa said last week there's no end in sight to the financial crisis that has erased more than $14 trillion from world markets this year. He said that the turmoil may stifle demand for exports even though the effect on the nation's banks is limited.
"Exports growth slowed in August, led by a record drop in shipments to the U.S., a government report showed today. A jump in oil costs also contributed to Japan's first trade deficit since January."
Corporate executives filled out their questionnaires for the Tankan in the same weeks as the bailout of Freddie Mac and Fannie Mae and the bankruptcy of Lehman Brothers Holdings Inc.
`Pushing Down'
"``You can be sure that current developments are pushing sentiment down,'' said Martin Schulz, a senior economist at Fujitsu Research Institute Ltd. in Tokyo. ``The question is whether the change in sentiment will change long-term investment plans.''"
The turmoil in the U.S. sent the Nikkei 225 Stock Average to a three-year low and the yen to a three-month high against the dollar last week. A government survey yesterday showed the nation's manufacturers were pessimistic for a third quarter.
"Economists predict that Japan's largest companies will keep their spending plans unchanged from the previous survey, when they said they plan to increase investment 2.4 percent this year. While that pace is slower than the average of the past five years, it is still better than reductions made by corporations in the last recession."
"Most economists including Morgan Stanley's Sato say the world's second-largest economy is already in a recession after a drop in exports caused the economy to contract an annualized 3 percent in the second quarter. The slump is still not as serious as previous recessions, some say."
`More Moderate'
"``What's happening now is far more moderate than what happened in 2001 or 1998 because at those times the domestic corporate sector was under tremendous stress,'' said Richard Jerram, chief economist at Macquarie Securities Ltd. in Tokyo. ``Firms and banks were worried about their survival. I don't think that's the case this time around.''"
"Even if the large manufacturer index falls to minus 2, it would still be above numbers recorded during Japan's most recent recession, which ended in 2002. The survey plunged to minus 51 in 1998, when Asia was in the throes of a currency crisis and the government had to buy failed lenders including Long-Term Credit Bank of Japan Ltd."
"Economists say companies are better able to withstand the slowdown because they have shed the excess workers, production lines and debt that contributed to a decade of economic stagnation in the 1990s. The debt-to-equity ratio of Nikkei 225 Stock Average companies has dropped an average of 7 percent annually over the past five years, Bloomberg data show."
Oil Drop
"Further declines in oil prices, which have eased 27 percent since reaching a record in July, could benefit Japanese companies even more than their competitors, according to Julian Jessop, chief international economist at Capital Economics Ltd. in London."
"Still, the financial crisis will probably take an indirect toll on the economy, as growth slows in the overseas markets where Japanese manufacturers sell their products."
"``Sales in Europe in Asia and Europe are already tanking. The CEOS and theirs boards are extremely concerned,'' Fujitsu's Schulz said. ``I don't think they'll change their entire strategies. But no more business travel, no more new office space, no more new hires.''"
To contact the reporter on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net
"Last Updated: September 24, 2008 23:16 EDT"
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Banks' Subprime Market-Related Losses Top $523 Billion: Table
By Yalman Onaran and Dave Pierson
Sep. 25 (Bloomberg) -- The following table shows the $523.1 billion in asset writedowns and credit losses at more than 100 of the world's biggest banks and securities firms as well as the $380.7 billion capital raised to cope with them.
Those with a star next to their name have figures that were updated since the table was last published. You can see quarterly breakdowns for each bank and different regions by typing WDCI.
Firm Writedown & Loss Capital Raised
Citigroup Inc. 55.1 49.1
Merrill Lynch & Co. 52.2 29.9
UBS AG 44.2 28.4
HSBC Holdings Plc 27.4 5.1
Wachovia Corporation 22.7 11.0
Bank of America Corp. 21.2 20.7
Morgan Stanley* 15.7 5.6
IKB Deutsche Industriebank AG 15.1 12.4
Washington Mutual Inc. 14.8 12.1
Royal Bank of Scotland Group Plc 14.5 23.8
JPMorgan Chase & Co.* 14.3 9.7
Lehman Brothers Holdings Inc.* 13.8 13.9
Deutsche Bank AG* 10.6 6.2
Credit Suisse Group AG* 10.5 3.0
Wells Fargo & Company 10.0 5.8
Credit Agricole S.A. 9.0 8.7
Barclays Plc 7.9 18.3
Canadian Imperial Bank of Commerce 7.3 2.8
Fortis 7.3 7.1
Bayerische Landesbank 7.1 0.0
HBOS Plc 7.0 7.4
ING Groep N.V. 6.8 4.7
Societe Generale 6.7 9.6
Mizuho Financial Group Inc. 6.1 0.0
National City Corp. 5.4 8.9
Natixis 5.4 12.1
Indymac Bancorp Inc* 4.9 0.0
Lloyds TSB Group Plc 4.9 4.9
Goldman Sachs Group Inc.* 4.9 10.6
Landesbank Baden-Wurttemberg 4.8 0.0
WestLB AG 4.7 7.4
Dresdner Bank AG 4.0 0.0
BNP Paribas 3.9 0.0
E*TRADE Financial Corp. 3.6 2.4
HSH Nordbank AG* 3.6 1.9
Rabobank 3.6 0.0
Nomura Holdings Inc. 3.4 1.2
Bear Stearns Companies Inc. 3.2 0.0
Bank of China Ltd 3.1 0.0
DZ Bank AG 2.7 0.0
Landesbank Sachsen AG 2.6 0.0
UniCredit SpA 2.5 0.0
Commerzbank AG 2.3 0.0
ABN AMRO Holding NV 2.3 0.0
Royal Bank of Canada 2.2 0.0
Fifth Third Bancorp 1.9 2.6
Dexia SA 1.7 0.0
Mitsubishi UFJ Financial Group 1.6 1.6
Bank Hapoalim B.M. 1.5 2.6
Marshall & Ilsley Corp. 1.4 0.0
Alliance & Leicester Plc 1.3 0.0
U.S. Bancorp 1.3 0.0
Bank of Montreal 1.2 0.0
KeyCorp 1.2 1.6
Groupe Caisse d'Epargne 1.2 0.0
Hypo Real Estate Holding AG 1.2 0.0
Sovereign Bancorp Inc. 1.0 1.9
Gulf International Bank 1.0 1.0
Sumitomo Mitsui Financial Group 1.0 4.9
Sumitomo Trust and Banking Co. 0.8 1.0
National Bank of Canada 0.7 1.0
DBS Group Holdings Limited 0.2 1.1
Other European Banks* 8.8 3.0
(not listed above)
Other Asian Banks* 5.5 8.9
(not listed above)
Other US Banks* 2.9 4.9
(not listed above)
Other Canadian Banks 0.4 0.0
(not listed above)
________ ________
TOTAL 523.1 380.7
"All the charges stem from the collapse of the U.S. subprime- mortgage market and reflect credit losses or writedowns of mortgage assets that aren't subprime, as well as charges taken on leveraged-loan commitments since the beginning of 2007. They are net of financial hedges the firms used to mitigate losses and pre-tax figures unless the bank only provided after-tax numbers. Credit losses include the increase in the provisions for bad loans, impacted by the rising defaults in mortgage payments."
"Capital raised includes common stock, preferred shares, subordinated debt and hybrid securities which count as Tier 1 or Tier 2 capital as well as equity stakes or subsidiaries sold for capital strengthening. Capital data begins with funds raised in July 2007."
"All numbers are in billions of U.S. dollars, converted at today's exchange rate if reported in another currency. See WDCI Help pages for a list of the banks included in the Other European, Other U.S., Other Canada and Other Asia categories."
To contact the reporter on this story: Yalman Onaran in New York at yonaran@bloomberg.net; Dave Pierson at dpierson@bloomberg.net.
"Last Updated: September 25, 2008 09:33 EDT"
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Crude Oil Falls as Concern Grows About U.S. Fuel-Demand Outlook
By Mark Shenk
Sept. 25 (Bloomberg) -- Crude oil fell for a third day on concern that U.S. fuel consumption will drop further because of lower economic growth.
"Oil fell as much as 2.4 percent after President George W. Bush's statement yesterday that the nation may ``slip into a financial panic'' if Congress doesn't pass a $700 billion bailout program. U.S. fuel demand averaged 19.5 million barrels a day during the past four weeks, the lowest since October 2003, the Energy Department said."
"``I think concern about economic growth driving demand down is weighing on the market,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``Unfortunately, the end of the economic crisis isn't in sight. After being reassured that things were fine for the last year, people are fatigued.''"
"Crude oil for November delivery fell 83 cents, or 0.8 percent, to $104.90 a barrel at 10:22 a.m. on the New York Mercantile Exchange. Prices are down 29 percent from the record $147.27 a barrel reached on July 11."
"Gasoline demand averaged 9 million barrels a day during the past four weeks, down 3.4 percent from the same period last year, yesterday's report showed. Gasoline inventories dropped 5.9 million barrels to 178.7 million barrels, the lowest since 1967. Supply levels prior to 1990 were reported on a monthly basis."
"Stockpiles of crude oil fell 1.52 million barrels to 290.2 million in the week ended Sept. 19, the department said yesterday in its weekly report on supplies."
Home Sales
"Sales of new homes in the U.S. fell in August to a 17-year low, signaling the housing market suffered another setback even before the latest turmoil in financial markets. Sales dropped 11.5 percent, more than forecast, to an annual rate of 460,000, the fewest since January 1991, the Commerce Department said today in Washington. The median sales price dropped to a four-year low."
"Orders for U.S. durable goods fell more than twice as much as forecast in August, a sign that slower sales and tighter credit conditions prompted companies to cut spending. The 4.5 percent drop in bookings of goods meant to last several years followed a revised 0.8 percent gain in July, the Commerce Department said today in a separate report."
"Interruptions to supplies of crude and products increased today as Royal Dutch Shell Plc shut a gasoline-making unit at Europe's largest oil refinery, while in Nigeria, Chevron Corp. faced renewed strike action."
"Shell shut the unit at its Pernis refinery in the Netherlands following a technical fault yesterday, company spokesman Wim van de Wiel said."
"In Nigeria, a strike planned by Members of the National Union of Petroleum and Natural Gas Workers may disrupt exports from Chevron's Escravos terminal. The company produced 353,000 barrels of crude oil daily in Nigeria in 2007, according to its Web site."
"Brent crude oil for November settlement declined 92 cents, or 0.9 percent, to $101.53 a barrel on London's ICE Futures Europe exchange."
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.
"Last Updated: September 25, 2008 11:10 EDT"
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Canadian Dollar Reaches Highest in Seven Weeks on U.S. Plan
By Michael J. Moore
Sept. 25 (Bloomberg) -- Canada's dollar touched the highest in more than seven weeks as U.S. lawmakers agreed on a ``set of principles'' for a $700 billion financial-rescue plan to inject fresh capital into the paralyzed credit markets.
The Canadian dollar has strengthened 2.8 percent against its U.S. counterpart so far in September and 1.2 percent this week. The U.S. is Canada's largest trading partner.
"``Expectations of the passage of the plan should help stabilize the macroeconomic environment for the U.S., and therefore will positively affect the Canadian economy,'' said Paresh Upadhyaya, who helps manage $50 billion in currency assets as a senior vice president at Putnam Investments in Boston. ``The investment and trade links between the U.S. and Canada is why this passage is particularly important for Canada, and why it's helping the Canadian dollar.''"
"The Canadian currency appreciated 0.4 percent to C$1.0344 per U.S. dollar at 2:46 p.m. in Toronto, from C$1.0386 yesterday. It reached C$1.0299, the strongest since Aug. 4. One Canadian dollar buys 96.67 U.S. cents."
"Canada's dollar gained as oil rose 2.1 percent to $107.93 per barrel. The Bank of Canada Commodity Price Index increased this week for the first time in September, gaining 4 percent."
"``Oil is adding a slight bid to the Canadian dollar,'' said Jack Spitz, a managing director of foreign exchange at National Bank of Canada in Toronto. ``But the Canadian dollar is continuing to trade in the congested C$1.03 to C$1.04 range, so we'll have to wait for the bill to pass before it's reflected in any broader-based movements in currency land.''"
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."
"Bank of Canada Governor Mark Carney said while domestic banks are faring well amid the crisis in U.S. financial markets, demand for Canada's products may drop more than anticipated and inflation may slow."
"``Any slowdown in the U.S. economy would have consequences for Canada, but the current situation poses particular problems,'' because it affects ``areas that matter most for Canada,'' Carney, 43, said in the text of a speech at the Canadian Club of Montreal. Policy makers had already identified tighter credit ``as the main risk to a modest U.S. recovery next year'' and recent events made that possibility ``more probable,'' he said."
`No Choice'
"Spitz said ``Carney's really touting the bailout plan, because there really is no choice for U.S. lawmakers at this point.''"
"The yield on the two-year government bond climbed 2 basis points, or 0.02 percentage point, to 2.87 percent. The price of the 2.75 percent security due in December 2010 fell 6 cents to C$99.75."
"``Hope that the government package in the U.S. is going to be stitched together is pushing up short-term yields generally, and Canada had lagged the move a little bit,'' said Mark Chandler, a fixed-income strategist at RBC Capital Markets in Toronto."
The 10-year government note's yield increased 1 basis point to 3.68 percent. The price of the 4.25 percent note maturing in June 2018 fell 11 cents to C$104.66.
"The 10-year bond yielded 81 basis points more than the two- year security, down from 92 basis points on Sept. 18."
"The two-year bond's yield will rise to 2.95 percent by the end of this year, while the 10-year bond's yield will increase to 3.76 percent, according to the median forecasts of economists surveyed by Bloomberg News."
"The yield advantage of the 10-year U.S. Treasury note compared with similar-maturity Canadian government bonds was 17 basis points, up from 3 basis points on Sept. 18. The Canadian 10-year bond yielded 36 basis points more than its U.S. counterpart on Jan. 22."
"Canadian government bonds have returned 4.4 percent in 2008, according to Merrill Lynch & Co. index statistics. U.S. Treasuries have returned 4.7 percent this year."
To contact the reporter on this story: Michael J. Moore in New York at Mmoore55@bloomberg.net.
"Last Updated: September 25, 2008 14:48 EDT"
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"U.S. Economy: Home Sales, Durable Goods Orders Drop (Update2) "
By Bob Willis and Timothy R. Homan
"Sept. 25 (Bloomberg) -- Sales of new homes in the U.S. fell in August to a 17-year low and orders for durable goods dropped more than forecast, evidence of the mounting risks to the economy that Federal Reserve Chairman Ben S. Bernanke warned of yesterday."
"Home sales decreased 11.5 percent, more than forecast, to the lowest annual rate since the 1991 recession and the median price sank to a four-year low, figures from the Commerce Department showed today in Washington. Bookings for goods meant to last several years declined 4.5 percent and orders excluding transportation equipment were down 3 percent."
"The credit crisis that brought down Lehman Brothers Holdings Inc. and American International Group Inc. this month is making it harder for companies to invest in new equipment and for home buyers to get financing. Bernanke yesterday told Congress the economy has ``decelerated broadly,'' feeding speculation that the Fed will lower interest rates by year-end."
"Today's reports are ``a recipe for recession,'' said Guy Lebas, chief economist at Janney Montgomery Scott LLC in Philadelphia. ``The housing market is weak, consumer spending is weak, and we're facing weaker corporate spending.''"
"Following the report on durable goods orders, economists at Morgan Stanley in New York cut their forecast for third-quarter economic growth in half, to a 0.5 percent annual pace, on expectations that business investment would drop more than previously estimated."
Stocks Higher
"Stocks rose as Congress neared agreement on a rescue plan to take devalued assets off banks' books, alleviating the credit crisis and helping avert a long recession. The Standard & Poor's 500 index rose 2 percent to close at 1209.18. Ten-year Treasuries fell, pushing yields up to 3.86 percent from 3.81 percent late yesterday."
"Bernanke yesterday called for quick passage of the package, saying the country faces ``grave threats'' to financial stability and warned the crisis is hurting business and consumer spending."
Another report today showed first-time claims for unemployment benefits surged last week to the highest level in seven years as hurricanes Ike and Gustav threw thousands out of work in Texas and Louisiana.
"The financial meltdown and the broader economic slowdown prompted General Electric Co., whose businesses reflect a swath of the economy from jet engines to financial services, to lower its profit forecast for the second time this year and suspend its stock buyback."
Economists' Forecast
"Economists had forecast new-home sales would drop to a 510,000 annual pace, according to the median estimate in a Bloomberg survey of 75 economists. Forecasts ranged from 493,000 to 555,000. July sales were revised up to a 520,000 pace from a previously estimated 515,000."
"The home-sales report showed the median price of a new home dropped 6.2 percent from a year earlier to $221,900, the lowest level since September 2004."
"Sales of new homes were down 35 percent from August 2007, the Commerce report showed."
"While builders cut back, they weren't able to keep pace with the slump in sales. The number of homes for sale fell to a four- year low of 408,000, down 4.4 percent from the prior month. The decline was the biggest since 1963. Still, the supply of homes at the current sales rate rose to 10.9 months' worth from 10.3 months."
Timely Indicator
"While accounting for only about 10 percent of the housing market, new-home purchases are considered a timelier indicator because they are based on contract signings. Sales of previously owned homes, which make up the remainder, are compiled from closings and reflect contracts signed weeks or months earlier."
"Resales decreased 2.2 percent in August to an annual pace of 4.91 million units and median prices fell 9.5 percent from a year earlier, a record decline, the National Association of Realtors said yesterday."
"Inventories of new properties have been falling since July 2006 as builders have scaled back in the last two years. Ground was broken on the fewest new houses in 17 years in August, and permits, a sign of future construction, also fell, Commerce Department figures showed last week."
"New-home sales dropped in three of four regions, led by a 36 percent slump in the West and a 32 percent decline in the Northeast. Purchases rose 7.2 percent in the Midwest, today's report showed."
Lennar's Loss
"Lennar Corp., the second-largest U.S. homebuilder, this week reported its sixth straight quarterly loss and said the government must take measures to boost home prices that are down by nearly a fifth from their 2006 peaks."
"``Consensus is building that falling home prices are not only detrimental to the economy at large, but in order to repair our failing financial system we will have to stop the decline,'' Chief Executive Officer Stuart Miller said."
"The durable-goods orders report showed bookings for non- defense capital goods excluding aircraft, a measure of future business investment, dropped 2 percent after a 0.4 percent increase in July that was smaller than previously estimated. The decline last month was the biggest since January 2007. Shipments of those items, used in calculating gross domestic product, fell 1.7 percent."
"Bookings for transportation equipment dropped 8.9 percent, today's report showed. Orders for commercial aircraft decreased 38 percent and those for automobiles fell 8.1 percent, the most since January 2007."
"Boeing Co., the world's second-largest commercial planemaker, may have to provide more financing for its customers and may see more cancellations because of the spreading financial turmoil, Chief Executive Officer Jim McNerney said yesterday."
To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net
"Last Updated: September 25, 2008 16:51 EDT"
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"U.S. Economy: Home Sales, Durable Goods Orders Drop (Update1) "
By Bob Willis and Timothy R. Homan
"Sept. 25 (Bloomberg) -- Sales of new homes in the U.S. fell in August to a 17-year low and orders for durable goods dropped more than forecast, evidence of the mounting risks to the economy that Federal Reserve Chairman Ben S. Bernanke warned of yesterday."
"Home sales decreased 11.5 percent, more than forecast, to the lowest annual rate since the 1991 recession and the median price sank to a four-year low, figures from the Commerce Department showed today in Washington. Bookings for goods meant to last several years declined 4.5 percent and orders excluding transportation equipment were down 3 percent."
"The credit crisis that brought down Lehman Brothers Holdings Inc. and American International Group Inc. this month is making it harder for companies to invest in new equipment and for home buyers to get financing. Bernanke yesterday told Congress the economy has ``decelerated broadly,'' feeding speculation that the Fed will lower interest rates by year-end."
"Today's reports are ``a recipe for recession,'' said Guy Lebas, chief economist at Janney Montgomery Scott LLC in Philadelphia. ``The housing market is weak, consumer spending is weak, and we're facing weaker corporate spending.''"
"Following the report on durable goods orders, economists at Morgan Stanley in New York cut their forecast for third-quarter economic growth in half, to a 0.5 percent annual pace, on expectations that business investment would drop more than previously estimated."
Stocks Higher
"Stocks rose on speculation that Congress will reach agreement on a $700 billion fund to take devalued assets off banks' books, alleviating the credit crisis and helping avert a long recession. The Standard & Poor's 500 index was up 2 percent to 1209.5 as of 11:54 a.m. in New York."
"Bernanke yesterday called for quick passage of the package, saying the country faces ``grave threats'' to financial stability and warned the crisis is hurting business and consumer spending."
Another report today showed first-time claims for unemployment benefits surged last week to the highest level in seven years as hurricanes Ike and Gustav threw thousands out of work in Texas and Louisiana.
"The financial meltdown and the broader economic slowdown prompted General Electric Co., whose businesses reflect a swath of the economy from jet engines to financial services, to lower its profit forecast for the second time this year and suspend its stock buyback."
Economists' Forecast
"Economists had forecast new-home sales would drop to a 510,000 annual pace, according to the median estimate in a Bloomberg survey of 75 economists. Forecasts ranged from 493,000 to 555,000. July sales were revised up to a 520,000 pace from a previously estimated 515,000."
"The home-sales report showed the median price of a new home dropped 6.2 percent from a year earlier to $221,900, the lowest level since September 2004."
"Sales of new homes were down 35 percent from August 2007, the Commerce report showed."
"While builders cut back, they weren't able to keep pace with the slump in sales. The number of homes for sale fell to a four-year low of 408,000, down 4.4 percent from the prior month. The decline was the biggest since 1963. Still, the supply of homes at the current sales rate rose to 10.9 months' worth from 10.3 months."
Timely Indicator
"While accounting for only about 10 percent of the housing market, new-home purchases are considered a timelier indicator because they are based on contract signings. Sales of previously owned homes, which make up the remainder, are compiled from closings and reflect contracts signed weeks or months earlier."
"Resales decreased 2.2 percent in August to an annual pace of 4.91 million units and median prices fell 9.5 percent from a year earlier, a record decline, the National Association of Realtors said yesterday."
"Inventories of new properties have been falling since July 2006 as builders have scaled back in the last two years. Ground was broken on the fewest new houses in 17 years in August, and permits, a sign of future construction, also fell, Commerce Department figures showed last week."
"New-home sales dropped in three of four regions, led by a 36 percent slump in the West and a 32 percent decline in the Northeast. Purchases rose 7.2 percent in the Midwest, today's report showed."
Lennar's Loss
"Lennar Corp., the second-largest U.S. homebuilder, this week reported its sixth straight quarterly loss and said the government must take measures to boost home prices that are down by nearly a fifth from their 2006 peaks."
"``Consensus is building that falling home prices are not only detrimental to the economy at large, but in order to repair our failing financial system we will have to stop the decline,'' Chief Executive Officer Stuart Miller said."
"The durable-goods orders report showed bookings for non- defense capital goods excluding aircraft, a measure of future business investment, dropped 2 percent after a 0.4 percent increase in July that was smaller than previously estimated. The decline last month was the biggest since January 2007. Shipments of those items, used in calculating gross domestic product, fell 1.7 percent."
"Bookings for transportation equipment dropped 8.9 percent, today's report showed. Orders for commercial aircraft decreased 38 percent and those for automobiles fell 8.1 percent, the most since January 2007."
"Boeing Co., the world's second-largest commercial planemaker, may have to provide more financing for its customers and may see more cancellations because of the spreading financial turmoil, Chief Executive Officer Jim McNerney said yesterday."
To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net
"Last Updated: September 25, 2008 11:58 EDT"
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Taiwan Unexpectedly Lowers Rate; First Cut Since 2003 (Update3)
By Janet Ong and Chinmei Sung
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"Sept. 25 (Bloomberg) -- Taiwan's central bank unexpectedly reduced interest rates for the first time since 2003, saying the global financial crisis has heightened the risk of an economic slowdown."
Governor Perng Fai-nan and his board cut the discount rate on 10-day loans to banks by 12.5 basis points to 3.5 percent in Taipei today. Two of 13 economists surveyed by Bloomberg News expected the decision. Ten forecast no change and one a rise.
"``The decision was made as inflationary pressure fell and there is rising downside risk to economic growth,'' Perng said in a briefing in Taipei today."
"Perng joins counterparts in China, Australia and New Zealand in lowering rates this month as share markets tumble and the world's economic expansion falters. Central banks globally are trying to ease a credit squeeze as $523 billion in losses and writedowns tied to a slump in the U.S. mortgage market erode investor confidence and prompt bankers to hoard cash."
"``Governor Perng is worried about the economy,'' said Ernest Lee, a bond trader at Mega Securities Co. in Taipei. ``He's trying to prevent a recession.''"
"Taiwan's Taiex index has slumped 29 percent this year, more than declines in equity markets in Japan, South Korea and Singapore. The rate decision was released after the close of trading on the Taiwan Stock Exchange, with the index falling 1.2 percent to 6,060.83 today."
`Celebration Rally'
"``The bond and stock markets will have a celebration rally tomorrow'' after the rate cut, Mega Securities' Lee said."
"The yield on the bond maturing September 2018 declined 7.2 basis points to 2.228 percent at the 1:30 p.m. close in Taipei, according to Gretai Securities Market, Taiwan's biggest exchange for bonds. The island's currency slipped 0.2 percent to NT$32.088 against the U.S. dollar."
"``Growth is clearly the concern now more than inflation,'' said Tony Phoo, an economist at Standard Chartered Plc in Taipei."
Taiwan's central bank last week reduced the amount of deposits that lenders are required to set aside as reserves and injected funds into the money market.
"Taiwan's banking system has ample liquidity although the distribution is uneven among financial institutions, Perng said."
"To address the problem, the bank said today it will allow insurance companies to borrow from the central bank through so- called repurchase agreements. Previously only banks, bill finance companies, brokerages and Chunghwa Post were allowed to do so."
Easing Inflation
The central bank also extended the maturity of the repurchase agreements to 180 days from 30 days to help boost liquidity in the financial system.
"Inflation eased in August from a 14-year high, providing room for the central bank to end four years of increases in borrowing costs and lower the benchmark lending rate today. The situation with negative real interest rate is expected to improve as inflationary pressure eased, the central bank said."
"``Taiwan's economy depends more than half on exports, so since the global economy is slowing down, we want to stimulate domestic demand,'' Governor Perng said."
"Export orders expanded by the least in five years in August as demand from China fell and sales to the U.S. slowed, and the island's jobless rate rose to a six-month high."
"``The economic decline will become more significant and it is better to cut rates sooner than later so it can be more effective,'' said Cheng Cheng-mount, chief economist at Citibank in Taipei, who predicted a rate cut today."
Computer Chips
"AIG General Insurance (Taiwan) Co., American International Group Inc.'s non-life unit in Taiwan, plans to cut 110 workers by the end of October as it trims the unprofitable car insurance business."
"United Microelectronics Corp. said this week it will restrict hiring amid slowing demand for semiconductors. The Hsinchu, Taiwan-based chipmaker forecasts third-quarter revenue may fall because of flat shipments and a decline in prices."
"Taiwan Semiconductor Manufacturing Co., the world's largest custom-chip maker, forecast third-quarter sales below analysts' expectations on slower demand from U.S. customers such as Texas Instruments Inc. and Nvidia Corp."
"The government last month cut its 2008 growth forecast to 4.3 percent, the slowest in more than three years, down from a previous estimate of 4.78 percent."
"The Central Bank of the Republic of China (Taiwan) raised borrowing costs at each quarterly meeting between September 2004 and June 2008, increasing the benchmark rate from a low of 1.375 percent."
Falling fuel prices and slowing growth cooled inflation to 4.78 percent in August from 5.91 percent in July.
To contact the reporter on this story: Janet Ong in Taipei at jong3@bloomberg.net
"Last Updated: September 25, 2008 08:00 EDT"
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"Buy Euro as Dollar May Decline Toward $1.53, Citigroup Says "
By Candice Zachariahs
"Sept. 25 (Bloomberg) -- Investors should buy the euro against the dollar as weakness in the world's largest economy and a slow adjustment of its housing sector will push the greenback lower, according to Citigroup Global Markets Inc."
"The Euro may rise as high as $1.53 versus the U.S. currency as the market focuses on underlying fundamentals once a plan to bail out U.S. banks is approved, according to a research report from a team of analysts at the world's fourth-biggest currency trader. The U.S. is facing ``grave threats'' to financial stability, Federal Reserve Chairman Ben S. Bernanke said yesterday in Washington."
"``The recent spot dip represents a buying opportunity,'' according to the research note from Citigroup sent to Bloomberg yesterday. ``Greater stabilization in housing is a pre-condition for a sustained economic recovery and by extension a U.S. dollar recovery.''"
"Investors should buy the euro at $1.4715, targeting an initial advance to $1.4950 and onward to $1.53, the report said. They should sell the currency if it weakens to $1.4603, Citigroup said."
The dollar traded at $1.4636 per euro as of 9:36 a.m. in Tokyo from $1.4621 yesterday. The U.S. currency has risen 9.6 percent versus the euro since reaching a record low of $1.6038 on July 15.
"Sales of new houses in the U.S. probably fell to an annual rate of 510,000 in August from 515,000 the previous month, according to the median forecast of economists surveyed by Bloomberg News. Sales fell in June to a 503,000 pace, the lowest level since 1991. The Commerce Department report is due at 10 a.m. in Washington."
"A ``relatively quick resolution'' to the debate on the $700 billion U.S. rescue plan for financial institutions is likely, the Citigroup report said. Normal market functioning will shift the focus to the fundamentals and this would ``not be favorable'' for the dollar, the report said."
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
"Last Updated: September 24, 2008 20:59 EDT"
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"Italian Stocks Update: Finmeccanica, Immsi, Intesa, Prysmian "
By Francesca Cinelli
"Sept. 25 (Bloomberg) -- Italy's S&P/MIB Index rose for the first time this week, adding 644, or 2.4 percent, to 27,573. Futures expiring in December increased 560, or 2.1 percent, to 27,690."
The following were among the most active stocks on the Italian market today. Share symbols are in parentheses.
"Atlantia SpA (ATL IM), Europe's largest toll-highway operator, advanced 39.7 cents, or 2.7 percent, to 15.28 euros, rebounding from a four-year low. Natixis Securities maintained its ``add'' rating on the stock."
"Autogrill SpA (AGL IM), the world's biggest manager of airport restaurants, gained 18.8 cents, or 2.3 percent, to 8.26 euros. ``Visibility on sales into 2009 is extremely low,'' though the company ``has the necessary flexibility to defend cash generation and interest cover in 2009, mainly through cost- cutting measures,'' Alessandro Falcioni and Roberto Odierna, analysts at UniCredit Markets & Investment Banking, wrote."
"Banca Monte dei Paschi di Siena SpA (BMPS IM), Italy's third-biggest bank, declined 1.5 cents, or 0.8 percent, to 1.87 euros. Morgan Stanley analysts `` will share with clients a 'least preferred' list of stocks,'' that currently includes Monte Paschi, the brokerage wrote in a report, saying that revised shorting rules in European markets had led it to remove all short recommendations from its model portfolio."
"Banca Italease SpA (BIL IM), an Italian leasing company, advanced 24.8 cents, or 5 percent, to 5.21 euros on renewed speculation about an agreement with Germany's DZ Banks AG. ``From the Banca Italease shareholder standpoint, we are not expecting any particular premiums,'' Euromobiliare Sim analysts wrote. ``The news of the closing, on the other hand, would be very good for Banco Popolare SC (BP IM) in terms of capital allocation.''"
"Banco Popolare, Banca Italease's main shareholder, added 29 cents, or 2.5 percent, to 11.7 euros."
"Fiat SpA (F IM), Italy's largest manufacturer, advanced 24.3 cents, or 2.4 percent, to 10.5 euros after losing 4.4 percent yesterday. The company confirmed its 2008 financial targets and said in a statement after markets closed yesterday that ``rumors of a possible profit warning are unfounded.''"
"The carmaker's 2009 targets aren't achievable, Euromobiliare Sim wrote. The brokerage rates Fiat a ``buy.''"
"Finmeccanica SpA (FNC IM), Italy's biggest defense company, rose for a fourth day, adding 48.3 cents, or 3 percent, to 16.63 euros. Societe Generale upgraded the stock to ``buy'' from ``hold'' and increased its price estimate to 18 euros from 17 euros. ``The share price weakness now presents us with a good buying opportunity,'' analysts Zafar Khan and Colin Campbell wrote in a research report."
"Immsi SpA (IMS IM), the holding company whose chairman Roberto Colaninno leads CAI, the investor group bidding for Alitalia SpA, rose the most in almost a month, adding 6.56 cents, or 9.3 percent, to 76.97 cents."
"Alitalia's biggest unions signed a government-brokered plan with CAI, raising the prospects of a last-minute deal to save the airline from collapse."
"Piaggio & C. SpA (PIA IM), maker of the Vespa motor scooter, rose to the highest in about 6 1/2 months, adding 11.5 cents, or 7 percent, to 1.75 euros. Immsi is Piaggio's main shareholder."
"Intesa Sanpaolo SpA (ISP IM) and UniCredit SpA (UCG IM), Italy's two biggest banks, added 13 cents, or 3.4 percent, to 3.99 euros and 10.6 cents, or 3.2 percent, to 3.42 euros respectively."
Intesa designed and was financing the CAI rescue plan.
Banking and insurance stocks gained in Europe as investors speculated that takeovers may increase and the U.S. Congress may reach an agreement on a bailout plan soon.
"Premafin Finanziaria SpA (PF IM), the company controlled by the Ligresti family, which owns a controlling stake in insurer Fondiaria-SAI SpA (FSA IM), jumped the most in more than 5 1/2 years, adding 11.1 cents, or 10 percent, to 1.2 euros."
The Ligresti family is among the bidders for Alitalia.
"Separately, Mediobanca Securities upgraded the stock to ``neutral'' from ``underperform.''"
``We cannot rule out the possibility that the recurring purchases made by the Ligrestis could support the share price performance in the mid-term.''
"Prysmian SpA (PRY IM), the Italian energy-cable maker, surged the most since the company listed shares on May 3, 2007, adding 1.05 euros, or 7.8 percent, to 14.45 euros. ``The current shaky outlook on investment banks may have fuelled uncertainty over Goldman Sachs's 32 percent stake in Prysmian,'' Luca Todesco, an analyst at Citigroup who rates the stock a ``buy,'' wrote in a report. ``A disposal is highly unlikely at this price and we would anyway see it more as an opportunity than a threat.''"
"STMicroelectronics NV (STM IM), Europe's largest semiconductor maker, advanced for the first time in four days, adding 18.3 cents, or 2.5 percent, to 7.61 euros."
"National Semiconductor Corp., the supplier of power- management chips to mobile-phone makers, increased its quarterly dividend 33 percent."
"Tenaris SA (TEN IM), the world's biggest maker of seamless steel tubes for pipelines, fell for a third day, losing 26.2 cents, or 1.7 percent, to 15.05 euros. Chesapeake Energy Corp., the second-biggest U.S. independent natural gas producer, said Sept. 22 it plans to reduce its drilling rigs to 140 from 157 by the end of the year. The company expects other gas producers to also curtail production and capital spending in the wake of slumping energy prices."
To contact the reporter on this story: Francesca Cinelli in Milan at fcinelli@bloomberg.net
"Last Updated: September 25, 2008 12:16 EDT"
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Copper Rebounds as Dollar's Decline Increases Metal Demand
By Millie Munshi
"Sept. 25 (Bloomberg) -- Copper gained, rebounding from a two-day slide, as a weaker dollar boosted the appeal of commodities as inflation hedges."
"The dollar fell against the euro for the first time in three days as President George W. Bush said the U.S. may face a ``painful'' recession. Copper and other commodities, mostly traded in the U.S. currency, often move in the opposite direction of the dollar as traders buy raw materials as a store of value. Before today, the metal was up 2.2 percent in 2008."
"``The dollar is weaker against the euro today, and that helps copper,'' said Donald Selkin, the chief market strategist at National Securities Corp. in New York. ``Concerns about inflation are definitely on people's minds.''"
"Copper futures for December delivery gained 1.95 cents, or 0.6 percent, to $3.126 a pound at 12:53 p.m. on the Comex division of the New York Mercantile Exchange. The metal dropped 4.6 percent in the previous two days."
"U.S. lawmakers have ``work to do'' to reach an agreement on a $700 billion financial rescue plan, Senate Banking Committee Chairman Christopher Dodd said."
"The plan, first proposed by U.S. Treasury Secretary Henry Paulson, aims at boosting banks and other financial institutions by targeting mortgage-related securities. The toxic assets have weighed on balance sheets and sparked a credit crisis as banks became reluctant to lend, said Brian Hicks, who helps manage $1.5 billion at U.S. Global Investors Inc. in San Antonio."
`Bail Out Banks'
"Should the government purchase the mortgage-linked assets, it will be ``very inflationary and help to boost commodities,'' Hicks said. ``The dollar is going to be weaker, and the money supply will increase as we try to bail out these banks.''"
The Reuters/Jefferies CRB Index of 19 raw materials surged to a record in July as inflation concerns drove investors to stock up on raw materials as alternative assets. Copper surged 28 percent in the first half of the year as the dollar sank toward a record against the euro.
"Earlier, copper dropped as much as 1.1 percent on signs the U.S. economy is continuing to weaken, which may curb demand for the metal."
"Orders for U.S. durable goods dropped 4.5 percent last month, a government report showed today. Economists projected bookings would drop 1.9 percent, the median of 74 forecasts in a Bloomberg News survey."
"``There's a lot of macro news out there that's negative,'' said Patrick Chidley, an analyst at Barnard Jacobs Mellet in Stamford, Connecticut. ``Fears of the U.S. economy are driving copper.''"
"On the London Metal Exchange, copper for delivery in three months rose $43, or 0.6 percent, to $6,953 a metric ton ($3.15 a pound). Before today, the metal gained 3.5 percent this year."
To contact the reporter on this story: Millie Munshi in New York at mmunshi@bloomberg.net.
"Last Updated: September 25, 2008 12:55 EDT"
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Gold Drops on Speculation U.S. Rescue Plan Will Placate Markets
By Pham-Duy Nguyen
Sept. 25 (Bloomberg) -- Gold futures dropped on speculation that a U.S. plan to ease the credit crunch will stabilize financial markets and reduce the appeal of the precious metal as a haven. Silver also fell.
"Lawmakers have agreed on a ``set of principles'' for a plan to rescue financial firms, Senator Christopher Dodd said. Before today, gold rose 17 percent in two weeks amid Lehman Brothers Holdings Inc.'s bankruptcy filing and the government's takeover of American International Group Inc., Fannie Mae and Freddie Mac."
"``If the bailout is cheered, the stock market will rally, the dollar can gain and gold could go down,'' said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois. ``Maybe there will be a day or two of absolute euphoria. You could have the mother of all stock-market rallies on the bailout.''"
"Gold futures for December delivery fell $13, or 1.5 percent, to $882 an ounce on the Comex division of the New York Mercantile Exchange. The price reached a record $1,033.90 on March 17 and has gained 5.3 percent this year."
"Silver futures for December delivery declined 16.5 cents, or 1.2 percent, to $13.275 an ounce. The metal has fallen 11 percent this year."
President George W. Bush said last night ``a long and painful'' recession is ahead should Congress delay approval of the $700 billion proposal.
Equities Rally
"U.S. stocks advanced today, led by a rally in financial shares. The Standard & Poor's 500 Index rose as much as 2.9 percent."
"Gold jumped 13 percent last week, swinging to $926 from $767.40 as the financial crisis deepened. The metal is consolidating gains this week, said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago."
"``I wouldn't read too much into gold's decline today,'' Zeman said. ``That's a very big run we've had, so we're seeing a little profit taking.''"
"Should Congress approve Treasury Secretary Henry Paulson's plan, gold still may rally, said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago."
"``You're going to see this break being bought,'' McGhee said. ``At the end of the day, if they put the rescue plan through, it's massively inflationary and horrendously bearish for the dollar.''"
The dollar was up 0.3 percent at 2:25 p.m. New York time against a basket of six major currencies.
Rate Bets
Traders are also betting the Federal Reserve will be forced to cut borrowing costs as credit-market losses threaten to slow economic growth. Gold rose to the record after the Fed lowered its benchmark rates from 5.25 percent in September 2007 to 2.25 percent in March. The federal-funds rate is now at 2 percent.
"Interest-rate futures show an 82 percent chance policy makers will lower the rate to 1.75 percent by Oct. 29, compared with no chance a month ago."
"``We are bullish of gold,'' said Dennis Gartman, an economist and the editor of the Suffolk, Virginia-based Gartman Letter, whose opinion changed after Lehman filed for bankruptcy. ``Given our concerns for the banking system, we have actually taken delivery of physical gold.''"
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
"Last Updated: September 25, 2008 14:26 EDT"
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U.K. Gilts Fall as Bailout Optimism Reduces Demand for Safety
By Lukanyo Mnyanda and Andrew MacAskill
"Sept. 25 (Bloomberg) -- U.K. gilts fell, with the yield on the 10-year note rising for the first day in three, after U.S. and European stocks advanced on optimism U.S. lawmakers will approve a $700 billion bailout for banks."
"Investors switched to higher yielding assets on optimism Congress will approve Treasury Secretary Henry Paulson's plan, helping stocks. Bonds also fell as investors reduced bets on lower interest rates by the Bank of England after policy maker Andrew Sentance said the bank must stick to its inflation mandate."
"``We are seeing a sell-off with the upbeat tone of the stock markets, which is taking the shine off safe haven bids for fixed- income,'' said Richard McGuire, a senior fixed-income strategist in London at RBC Capital Markets."
"The yield on the 10-year note rose 4 basis points, the first gain since Sept. 22, to 4.61 percent as of 4.07 p.m. in London. The 5 percent security due March 2018 lost 0.30, or 3 pounds per 1,000-pound ($1,845) face amount, to 102.96. The yield on the two-year note rose 3 basis points to 4.32 percent."
"The FTSE 100 snapped three days of losses, jumping 1.3 percent, the biggest gain since Sept. 19, when Paulson and Federal Reserve Chairman Ben S. Bernanke first pledged to take tainted assets off banks' balance sheets. Europe's Dow Jones Stoxx 600 jumped 1.6 percent."
"The implied yield on the short-sterling futures contract due in December jumped 29 basis since Sept. 19 and was at 6.11 percent today, while the odds of the central bank cutting rates in October dropped to 68 percent, from 85 percent yesterday, according to an index of derivatives compiled by Credit Suisse Group, the second-biggest Swiss bank."
Price Growth
"Sentance said late yesterday a wage-price spiral is still a risk in the U.K. and the Bank of England needs to ``stick to the basics'' of monetary policy in targeting price growth. Inflation accelerated to 4.7 percent in August, the fastest pace in at least 11 years. His words were echoed by another policy maker, Kate Barker, who said today there's a threat of inflation persisting at current levels."
"The pound was little changed at $1.8450, after earlier trading as high as $1.8669, the strongest level since Aug. 22."
"``There has to have been a shift in thinking within the BOE, or at least a heightened resistance, toward moving to a more dovish stance,'' said Simon Derrick, chief currency strategist in London at Bank of New York Mellon Corp. ``This should keep sterling reasonably well supported.''"
"The spread between the five-year gilt and its index-linked counterpart, a measure of inflation expectations, has risen in the past week. The so-called breakeven rate was at 2.65 percentage points today, from 2.56 a week ago."
Rates on Hold
Policy makers kept the rate unchanged on Sept. 4 as they weighed the risks of accelerating inflation against the danger that mounting bank losses will push Europe's second-biggest economy into its first recession since 1991.
The next decision is due on Oct. 9.
"Money-market rates rose earlier today on concern the U.S. Treasury's plan to bailout banks will be delayed or diluted, causing financial institutions to hoard cash. The euro interbank offered rate, or Euribor, that banks charge each other for one- month loans rose to the highest level since December 2000."
"The U.K.'s Debt Management Office sold 2.5 billion pounds of 4.5 percent bonds maturing in 2019 at an average yield of 4.7 percent. Demand for the notes exceeded supply 2.2 times, according to the DMO."
To contact the reporters on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net; Andrew MacAskill in London at amacaskill@bloomberg.net
"Last Updated: September 25, 2008 11:53 EDT"
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"New Zealand Economy in Recession, May Prompt More Rate Cuts "
By Tracy Withers
"Sept. 25 (Bloomberg) -- New Zealand's economy probably slumped into its first recession in 10 years in the second quarter, adding pressure on the central bank to cut interest rates to a three-year low next month."
"Gross domestic product shrank 0.5 percent in the three months ended June 30 after contracting 0.3 percent in the first quarter, according to the median estimate of 13 economists surveyed by Bloomberg. The GDP report is released tomorrow at 10:45 a.m. in Wellington."
"Reserve Bank Governor Alan Bollard has cut the benchmark interest rate by three quarters of a point to 7.5 percent since July to try to kick-start the economy. New Zealand's dollar is the worst performer among 16 major currencies tracked by Bloomberg, falling 14 percent against the U.S. dollar the past six months as traders increased bets on further rate cuts."
"``Confirmation of a recession could encourage the market to price in further monetary easing,'' said Doug Steel, senior economist at Westpac Banking Corp. in Wellington. The contraction ``will do little to calm investors' nerves.''"
"Bollard cut the record-high official cash rate in July by a quarter-point to 8 percent, his first reduction in five years, when most economists expected no change. He followed on Sept. 11 with a half-point cut to 7.5 percent when all but one analyst forecast a quarter-point change."
"Nine of 14 economists surveyed by Bloomberg expect another half-point cut at the next review on Oct. 23, taking the benchmark to a three-year low of 7 percent."
Consumer Confidence
"Bollard has urged banks to pass on the savings to customers, saying the economy is experiencing a ``marked slowdown led by the household sector.''"
The central bank forecast the economy contracted 0.2 percent in the second quarter and will probably slow further in the three months ended Sept. 30.
"Consumer confidence fell to a 17-year low in the second quarter as food prices soared, fuel costs reached a record and home-loan interest rates remained at an all-time high."
"Retail sales slumped 1.5 percent in the same period, the most in at least 13 years, as consumers had little left to spend on computers or dining out."
"``A clear shift in consumer sentiment occurred during this period, which placed significant pressure on retail sales, with margins coming under further pressure as retailers sought to clear seasonal inventories,'' Ian Morrice, chief executive officer at Warehouse Group Ltd., said this month."
Profits Plunge
"Auckland-based Warehouse Group, the nation's biggest discount retailer, reported a 52 percent plunge in profit in the six months ended July 27."
"When customers stopped visiting his Wellington audio- equipment store, owner Digby Paape cut prices and ran special promotions to boost sales."
"``If we didn't have the promotions, floor traffic could have dried up,'' said Paape, who sells Bose Corp. equipment such as the NZ$9,000 ($6,120) Lifestyle 48 home entertainment system. ``With the cost of those systems, our customers are more vulnerable to falls in confidence.''"
"Record-high borrowing costs also stalled the housing market, while a drought crimped farm production and exports."
"Construction fell 5.8 percent from the first quarter as home building slumped for a third consecutive quarter, according to a government report on Sept. 8."
Housing Slump
"House prices are falling and home sales tumbled to a 26- year low in August, according to the Real Estate Institute."
"Exports fell 3.7 percent from the first quarter when they dropped 3.9 percent as a drought crimped milk production, according to a government report on Sept. 10. Overseas shipments make up one-third of the economy."
"Farmers produced 4.3 percent less milk in the year ended June 30, Fonterra Cooperative Group Ltd., the world's largest dairy exporter, said yesterday."
The following are economists' forecasts for the change in the second-quarter gross domestic product from the first quarter and from a year earlier. The table also shows the annual average growth rate:
Annual
QoQ% YoY% Average
----------------------------------------------------
Median -0.5% 0.6% 2.3%
High Forecast -0.3% 0.8% 2.3%
Low Forecast -0.6% 0.5% 2.3%
No. of replies 13 13 11
----------------------------------------------------
4Cast -0.6% 0.5% 2.3%
ANZ Bank -0.5% 0.6% 2.3%
ASB Bank -0.3% 0.7% 2.3%
Bank of New Zealand -0.4% 0.7% 2.3%
Barclays -0.5% 0.5% ---
Citibank -0.4% 0.6% 2.3%
Deutsche Bank -0.5% 0.5% 2.3%
First NZ Capital -0.5% 0.6% 2.3%
Goldman Sachs JBWere -0.3% 0.7% 2.3%
JPMorgan -0.3% 0.7% ---
Macquarie -0.6% 0.5% 2.3%
UBS Warburg -0.3% 0.8% 2.3%
Westpac Bank -0.5% 0.6% 2.3%
=======================================================
To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.
"Last Updated: September 24, 2008 08:01 EDT"
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"European Equities Will Outperform U.S., JPMorgan Says (Update1) "
By Adam Haigh and Michael Patterson
"Sept. 25 (Bloomberg) -- European stocks will outperform U.S. shares as the European Central Bank cuts interest rates and cheap valuations spur investors to pour money back into the region, according to JPMorgan Chase & Co."
"The ECB and the Bank of England will ``throw in the towel'' and lower their respective benchmark lending rates by 0.75 percentage point and 1 percentage point by the end of 2009 as inflation cools, JPMorgan's London-based strategist Mislav Matejka wrote in a research note today. European stocks trade for 10.7 times profit, the cheapest level since 1990 and a 37 percent discount to U.S. shares, according to JPMorgan data."
"Europe's Dow Jones Stoxx 600 Index has tumbled 29 percent over the past 18 months as investors pulled money from the region at a record pace, according to Matejka. The Standard & Poor's 500 Index, the benchmark for U.S. equities, has retreated 17 percent during the same period."
"``European equities could start to perform better than their U.S. peers again,'' wrote Matejka, reversing his stance over the past 18 months that U.S. stocks were a better bet. ``Some of the tailwinds that U.S. stocks enjoyed so far will become supports for European companies, namely the onset of central bank easing.''"
"A rebound in European economic growth isn't necessary for the region's equities to outperform as long as currencies are weakening, bond yields are falling and valuations are cheap, Matejka wrote. During four of the last six periods since 1970 that European stocks outperformed the U.S., Europe's economy was weaker, he wrote."
To contact the reporters on this story: Adam Haigh in London at ahaigh1@bloomberg.net; Michael Patterson in London at mpatterson10@bloomberg.net.
"Last Updated: September 25, 2008 05:36 EDT"
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Siemens Shares Dip After Rival GE Cuts Profit Target (Update1)
By Sheenagh Matthews
"Sept. 25 (Bloomberg) -- Siemens AG, Europe's largest engineering company, dropped as much as 2.6 percent in Frankfurt trading before recovering, after U.S. rival General Electric Co. cut its third-quarter earnings forecast."
"Siemens, which gained as much as 1.4 percent before the announcement, slumped to 65.80 euros before finishing with a 0.7 percent gain at 68.04 euros."
"GE's profit this quarter will be 43 cents to 48 cents a share, compared with an earlier target of 50 cents to 54 cents, the Fairfield, Connecticut-based company said today in a statement."
"Siemens, which competes with GE on power generation and medical diagnostic equipment, has slipped 38 percent this year, cutting the company's market value to 62.2 billion euros ($91 billion)."
To contact the reporter on this story: Sheenagh Matthews in Frankfurt at smatthews6@bloomberg.net.
"Last Updated: September 25, 2008 12:01 EDT"
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U.S. New-Home Sales Fell in August to 17-Year Low (Update1)
By Bob Willis
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"Sept. 25 (Bloomberg) -- Sales of new homes in the U.S. fell in August to a 17-year low, signaling the housing market suffered another setback even before the latest turmoil in financial markets."
"Sales dropped 11.5 percent, more than forecast, to an annual rate of 460,000, the fewest since January 1991, the Commerce Department said today in Washington. The median sales price dropped to a four-year low."
A financial meltdown that prompted the government this week to ask Congress for $700 billion in emergency funding to buy up troubled bank assets may continue to clog the flow of credit to homebuyers and businesses. Shrinking credit availability threatens to extend the three-year housing slump and deepen the economic downturn.
"``The market is looking particularly depressing,'' said Guy Lebas, chief economist at Janney Montgomery Scott LLC in Philadelphia, whose sales forecast was the closest. ``Construction activity has to fall further than it has, as do prices,'' to reduce a glut of unsold homes."
"Economists had forecast new-home sales would drop to a 510,000 annual pace, according to the median estimate in a Bloomberg survey of 75 economists. Forecasts ranged from 493,000 to 555,000. July sales were revised up to a 520,000 pace from a previously estimated 515,000."
Stocks rose on speculation that Congress will reach agreement on the bailout package and help avert a long recession. The Standard & Poor's 500 index was up 1.9 percent to 1208.81 as of 10:08 a.m. in New York.
"Durable Goods, Claims"
Other reports today showed orders for durable goods in August dropped 4.5 percent and first-time claims for unemployment benefits surged last week to the highest level in seven years as hurricanes Ike and Gustav threw thousands out of work in Texas and Louisiana.
"The median price of a new home dropped 6.2 percent from a year earlier to $221,900, the lowest level since September 2004."
"Sales of new homes were down 35 percent from August 2007, the Commerce report showed."
"While builders cut back, they weren't able to keep pace with the slump in sales. The number of homes for sale fell to a four-year low of 408,000, down 4.4 percent from the prior month. The decline was the biggest since 1963. Still, the supply of homes at the current sales rate rose to 10.9 months' worth from 10.3 months."
Timely Indicator
"While accounting for only about 10 percent of the housing market, new-home purchases are considered a timelier indicator because they are based on contract signings. Sales of previously owned homes, which make up the remainder, are compiled from closings and reflect contracts signed weeks or months earlier."
"Resales decreased 2.2 percent in August to an annual pace of 4.91 million units and median prices fell 9.5 percent from a year earlier, a record decline, the National Association of Realtors said yesterday."
"Inventories of new properties have been falling since July 2006 as builders have scaled back in the last two years. Ground was broken on the fewest new houses in 17 years in August, and permits, a sign of future construction, also fell, Commerce Department figures showed last week."
"New-home sales dropped in three of four regions, led by a 36 percent slump in the West and a 32 percent decline in the Northeast. Purchases rose 7.2 percent in the Midwest, today's report showed."
Lennar's Loss
"Lennar Corp., the second-largest U.S. homebuilder, this week reported its sixth straight quarterly loss and said the government must take measures to boost home prices that are down by nearly a fifth from their 2006 peaks."
"``Consensus is building that falling home prices are not only detrimental to the economy at large, but in order to repair our failing financial system we will have to stop the decline,'' Chief Executive Officer Stuart Miller said."
"Stricter lending regulations and tumbling home prices make it harder for Americans to tap home equity for extra cash. Consumer spending in the third quarter will probably be the weakest since 1991, according to economists surveyed earlier this month."
"``The continuing decline in house prices reduces homeowners' equity and puts continuing pressure on balance sheets of financial institutions,'' Fed Chairman Ben S. Bernanke told a congressional hearing yesterday. ``Stabilization of our financial system is an essential precondition for economic recovery.''"
To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net
"Last Updated: September 25, 2008 10:18 EDT"
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"GE Is Able to Make Acquisitions in 2009, Sherin Says (Update1) "
By Rachel Layne
"Sept. 25 (Bloomberg) -- General Electric Co. still has the flexibility to make acquisitions next year after shifting capital to shore up finance units and protect its AAA credit rating, the highest available, its top executives said today."
"Fairfield, Connecticut-based GE has earmarked about $3 billion for non-finance acquisitions next year, concentrating in infrastructure and health-care businesses, Chief Financial Officer Keith Sherin said in an interview today. Profit from the finance businesses will be reduced to about 40 percent of GE's total next year from more than half in 2007, Sherin and Chief Executive Officer Jeffrey Immelt said today."
"``We're making some steps here to strengthen the balance sheet, but we still have some flexibility here to do inorganic growth'' on the industrial side, said Sherin, 49. The company earlier this year also took advantage of buying opportunities for financial assets, including most of Merrill Lynch & Co.'s corporate finance unit in the first quarter."
"GE today cut its annual forecast for the second time this year and suspended its $15 billion stock buyback. The company also said it won't raise its dividend in 2009, the first year in more than three decades with no increase, as it stockpiles capital and protects the existing payout amid volatile markets. The dividend currently yields about 4.8 percent."
"``We haven't had any change in our strategy, and we're still very confident about the infrastructure segments and health care,'' Sherin said. ``Those are the target priorities for us around industrial M&A.''"
Immelt Strategy
"Since taking over in 2001, Immelt has shed assets for more than $55 billion in net proceeds, including its insurance companies and plastics units, while making $85 billion in purchases in faster-growing areas such as energy, aviation and health care. GE said it doesn't see a large disposition, such as splitting off GE Capital, other than those that have been announced."
"``We still think over the long term this is a good business for GE to be in,'' Immelt said on company-owned network CNBC, of the remaining finance units."
"The company still plans to spin off its consumer and industrial group, which includes appliances and lighting, in the first half of next year, Sherin said. GE's U.S. private-label credit card unit, with $30 billion in assets, will likely remain with GE instead of being sold as planned, GE said."
"GE will more likely reduce the credit-card division by not renewing contracts and by possible divestments of parts of the portfolio, Sherin said."
"``We like the portfolio. These are the businesses we've been striving to get into as a set of strategic, competitive businesses,'' Sherin said. ``There is no material change to the portfolio we're working on.''"
Profit Forecast
"Full-year earnings will be $1.95 to $2.10 a share instead of the previous projection of $2.20 to $2.30, GE said today. The average estimate of 14 analysts in a Bloomberg survey is $2.20 a share."
"GE rose $1.09, or 4.4 percent, to $25.68 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have declined 30 percent since April 10, the day before Immelt announced a surprise drop in first-quarter profit and said 2008 profit would trail his forecast of at least $2.42 a share."
To contact the reporter on this story: Rachel Layne in Boston at rlayne@bloomberg.net
"Last Updated: September 25, 2008 17:32 EDT"
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Yen Declines as Bailout Plan Spurs Demand for Higher Yields
By Ye Xie and Daniel Kruger
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"Sept. 25 (Bloomberg) -- The yen declined versus the euro on speculation Congress will pass a $700 billion U.S. financial bailout, encouraging traders to buy higher-yielding assets funded by low-cost loans in Japan."
"Japan's currency also fell against the Brazilian real, the Mexican peso and the dollar as stock gains encouraged investors to resume carry trades. Colombia's peso and South Africa's rand rallied against the dollar as President George W. Bush and congressional negotiators closed in on a compromise rescue plan, boosting demand for emerging-market assets."
"``You're seeing some confidence returning, and that is reflected in the yen,'' said Thomas Benfer, vice president of foreign exchange at BMO Capital Markets in New York."
"The yen dropped 0.3 percent to 155.58 per euro at 4:04 p.m. in New York, from 155.15 yesterday. Japan's currency fell 0.3 percent to 106.38 per dollar, from 106.11. The dollar traded at $1.4624 per euro, compared with $1.4621."
"Negotiators reached a bipartisan agreement on a ``set of principles'' for the bailout, Senate Banking Committee Chairman Christopher Dodd said. Bush was preparing to meet today with congressional leaders as well as Republican presidential candidate John McCain and his Democratic rival Barack Obama on the financial-industry rescue, said White House press secretary Dana Perino."
"The yen fell 2.4 percent to 58.428 against the real and 1.6 percent to 9.935 versus the Mexican peso as a 1.9 percent increase in the Standard & Poor's 500 Index encouraged investors to resume trades in which they get funds in countries with low borrowing costs and buy assets where returns are higher. Japan's 0.5 percent target lending rate compares with 13.75 percent in Brazil, 8.25 percent in Mexico and 4.25 percent in Europe."
Colombia's Peso
"Colombia's peso rose 3.1 percent to 2,093.80 per dollar, while the rand gained 0.7 percent to 8.1130."
"The greenback erased its loss against the euro today as some investors took off bets against the U.S. currency on the news Congress was close to passing the bailout package, according to John McCarthy, director of currency trading at ING Financial Markets LLC in New York."
"``The market was probably short dollars over the last couple of days, and with the stock market rallying and the general feeling this was going to be done, we saw the market scramble to get dollars,'' McCarthy said. A short position is a bet that a currency will fall."
"Traders have been reluctant to push the dollar outside a range of $1.4437 and $1.4866 per euro this week because the effect of a financial industry bailout remains unclear, according to Alan Kabbani, a senior currency trader at Wachovia Corp. in Charlotte, North Carolina."
`Falling Again'
"``The market may be overoptimistic that this will work quickly and money will flow again,'' Kabbani said. ``There's no quick fix. We may wake up in the morning to find the dollar falling again.''"
"The collapse of Lehman Brothers Holdings Inc. and the U.S. government takeover of insurer American International Group Inc. have led to a seizure in lending between banks. The three-month London interbank offered rate, or Libor, for dollars rose to 3.77 percent today, the highest level relative to the Fed's target rate on record."
"``The credit channel is blocked up,'' said Stephen Malyon, co-head of currency strategy in Toronto at Scotia Capital Inc., a unit of Canada's third-largest bank by assets. ``Odds favor the next move by the Fed will be a cut. It surely will hurt the dollar.''"
Fed Rate Outlook
"Futures contracts on the Chicago Board of Trade showed an 80 percent chance that the Fed will cut the 2 percent target rate for overnight lending between banks by a quarter-percentage point on Oct. 29, compared with zero chance a month ago."
"The dollar has fallen 6 percent against the euro since touching a one-year high of $1.3882 on Sept. 11. The dollar reached $1.6038 on July 15, the weakest level since the European currency made its debut in 1999."
"``The prospects of loose fiscal and monetary conditions in an economy that's slowing rapidly is hitting the dollar,'' said Simon Derrick, chief currency strategist at Bank of New York Mellon Corp. in London. The bailout package ``may restore confidence in a lot of things, but it won't restore confidence in the dollar.''"
"Taiwan's dollar lost 0.2 percent to 32.008 per U.S. dollar after the central bank unexpectedly reduced interest rates for the first time since 2003, saying the deepening global financial crisis has heightened the risk of an economic slump."
To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Daniel Kruger in New York at dkruger1@bloomberg.net
"Last Updated: September 25, 2008 16:06 EDT"
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Bernanke Moves Closer to Rate Cut as Risks Intensify (Update1)
By Scott Lanman and Craig Torres
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"Sept. 25 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke moved closer to cutting interest rates, signaling that risks to U.S. growth are greater than policy makers saw them just last week."
"The ``intensification'' of the financial crisis in recent weeks is curbing Americans' access to borrowing, making the outlook for consumer spending ``sluggish at best,'' Bernanke told lawmakers in Washington yesterday. While he noted that risks to inflation remain, the Fed chief's testimony focused on ``grave threats'' to the banking system."
"``It opens the door a bit further for rate cuts, although it doesn't signal that the committee is at that point already,'' said former Fed researcher Brian Sack, now senior economist at Macroeconomic Advisers LLC in Washington. ``It still seems like it would take a further deterioration in financial conditions or in the data to prompt a rate cut.''"
"The economy also showed signs of worsening today. Sales of new homes fell in August to a 17-year low and orders for durable goods dropped more than forecast, separate reports showed."
"Bernanke's assessment reflected further disruptions to money markets since the central bank met Sept. 16, when the Federal Open Market Committee left the benchmark rate at 2 percent."
"Money-market rates around the world soared today as Congress and the U.S. Treasury negotiated a $700 billion bailout of financial institutions. The difference between the three-month London interbank offered rate, or Libor, and a measure of expectations of the overnight rate widened to the most on record."
`Unprecedented Weakness'
"Libor itself, a benchmark for confidence in the banking system, jumped the most in eight years today."
"Fortis, Belgium's financial-services company, fell the most since it was formed in a merger 18 years ago on concern it needs help with funding. General Electric Co. today cut its annual profit forecast for the second time this year as ``unprecedented weakness'' in credit markets hurt its finance arm."
"Traders increased bets on a quarter-point rate cut at or before the FOMC's Oct. 28-29 meeting, sending the probability implied in futures contracts to 80 percent yesterday from 58 percent the previous day."
"``Increasingly, the odds favor the Fed coming back and easing again,'' said James O'Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut. The FOMC cut rates seven times from September 2007 to April."
"Still, interest-rate futures proved false in anticipating last month's decision, when the FOMC kept the main rate unchanged at 2 percent for a third meeting. Bernanke has shown a preference for separating monetary policy from efforts to increase liquidity and help financial markets function."
Economic Dangers
The Fed chief used his description of the dangers to the economy in trying to persuade lawmakers yesterday to support Treasury Secretary Henry Paulson's $700 billion plan for the government to remove devalued assets from the financial system.
"Fed policy makers last week said tighter credit would ``weigh'' on growth, and consumer spending was ``softening.'' By contrast, Bernanke yesterday said that without congressional passage of Paulson's plan, the economy's performance may be damaged ``over perhaps a period of years.''"
Growth Slows
Bernanke's testimony yesterday before the Joint Economic Committee signaled that restrictive credit has now slowed the economy from its 3.3 percent annualized pace in the second quarter to a pace ``appreciably below its potential rate.''
The Fed chief later joined Paulson for a House Financial Services Committee hearing yesterday to discuss the proposed financial rescue.
Fed officials have so far failed to stem the credit crisis even after the steepest rate cuts in two decades and interventions in Bear Stearns Cos. and American International Group Inc. this year. The Fed also backed the Treasury's action this month to take over Fannie Mae and Freddie Mac as the turmoil engulfed the two largest mortgage finance companies.
"The central bank has also pumped billions of dollars into banks to try to restore liquidity, while invoking emergency powers to loan to securities firms. This week, the Fed expanded agreements with central banks abroad to offer dollars in overseas markets, providing up to $30 billion for Australia, Sweden, Norway and Denmark."
Fed Strategy
"``We still think that they're going to leave the funds rate at 2 percent and try to address the specific market problems with liquidity provisions,'' said Stephen Stanley, chief economist at RBS Greenwich Capital Markets. The Fed will leave rate unchanged ``barring an absolute cataclysm in the economy and/or financial markets,'' said Stanley, a former economist at the Richmond Fed."
"The crisis has intensified even with the Fed's cash injections, with banks hesitant to lend to each other on concern more institutions will fail."
"Three-month Libor, a rate banks charge each other for loans in dollars, rose to 3.77 percent from 3.48 percent today, the biggest jump since 1999, British Bankers' Association data showed today."
"Lawmakers at both hearings yesterday pressed Bernanke to explain better how the crisis would affect average Americans, such as constituents who were calling and writing to oppose what some termed a bailout for Wall Street."
"In a worsening credit crisis, ``people cannot borrow to buy a car, to send a student to college, to buy a house,'' Bernanke told the House committee. Scant lending harms ``people at the lunch-bucket level,'' he said."
"``Bernanke was refreshingly frank, open and honest about the economic outlook in a way that has been uncommon in his tenure,'' said Joseph Brusuelas, chief economist at fund manager Merk Investments LLC in Palo Alto, California."
To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net
"Last Updated: September 25, 2008 12:27 EDT"
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Bernanke Sees `Grave Threats' to Financial Stability (Update5)
By Craig Torres
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Sept. 24 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said the U.S. is facing ``grave threats'' to financial stability and warned that the credit crisis has started to damage household and business spending.
"``Economic activity appears to have decelerated broadly,'' Bernanke said today to a congressional Joint Economic Committee hearing, downgrading the assessment of Fed officials when they met on Sept. 16. ``Stabilization of our financial system is an essential precondition for economic recovery.''"
"Bernanke's comments, his most dire about the economy since he became central bank chief in 2006, may stoke investors' expectations the Fed will lower interest rates by year-end to alleviate the credit crisis. He reiterated his call for Congress to pass Treasury Secretary Henry Paulson's plan for a $700 billion fund to remove devalued assets from the banking system."
"Without the bailout, ``credit will be restricted further for homeownership, for small business, for individual consumers and so on, but that is not just an inconvenience,'' Bernanke said. ``What that is going to do is affect spending and economic activity and it will cause the economy as a whole to decline and be much weaker than it otherwise would be.''"
"The Federal Open Market Committee left its benchmark rate unchanged at 2 percent this month for a third straight meeting after seven cuts since September 2007. Policy makers next gather Oct. 28-29, when traders see a 78 percent chance of a reduction, futures prices show."
`Downside Risks'
"``The downside risks'' to economic growth ``remain a significant concern,'' Bernanke said."
"Lawmakers including Representative Paul Kanjorski, the second highest-ranking Democrat on the House Financial Services Committee, said taxpayers don't want to rescue mortgage lenders and other financial institutions viewed as responsible for the credit crisis."
"Taxpayer interests ``must trump those of corporate fat cats and cowboy capitalists,'' Kanjorski of Pennsylvania told Bernanke at an afternoon hearing by the House panel. ``Americans are tired of enabling corporate excess.''"
The Fed chairman's testimony today signaled that restrictive credit has now slowed the economy from its 3.3 percent annualized pace in the second quarter to a pace ``appreciably below its potential rate.'
"Bernanke is ``very much leaning to seeing downside risks to growth as much greater,'' said James O'Sullivan, senior economist at UBS Securities LLC in Stamford, Connecticut. ``If we don't get credit market relief, the risks tilt overwhelmingly to growth rather than inflation.''"
Waning Credit
"Tumbling housing prices and waning mortgage credit have pushed up borrowing costs for both banks and consumers, and will probably slow the expansion to a 1.7 percent annual rate in 2008, according to the median forecast of 80 economists in a Bloomberg News survey."
Unemployment rose in August to a five-year high of 6.1 percent and payrolls have fallen for eight straight months.
"``The weakness in fundamentals underlying consumer spending suggest that household expenditures will be sluggish, at best, in the near term,'' the Fed chairman said. ``The continuing decline in house prices reduces homeowners' equity and puts continuing pressure on balance sheets of financial institutions.''"
"Bernanke said construction of commercial office buildings and business spending on equipment and software are likely to slow. Declining growth abroad could reduce the lift the U.S. economy received from exports in the first half, he said."
`Quite Adverse'
"``If financial conditions fail to improve for a protracted period, the implications for the broader economy could be quite adverse,'' Bernanke said."
Bernanke also said slowing growth should help moderate inflation pressures. The consumer price index rose 5.4 percent for the year ending in August.
"``The inflation outlook remains highly uncertain,'' he said. ``The upside risks to inflation remain a significant concern.''"
"Responding to questions from lawmakers, Bernanke said that should the rescue succeed and spur an economic recovery, the Fed may raise interest rates sooner than it otherwise would. For the plan itself, ``I don't expect any effect on inflation,'' he said."
Bernanke yesterday told the Senate Banking Committee in a joint appearance with Paulson that lawmakers should pass the rescue plan quickly.
Worsening Crisis
"In a worsening credit crisis, ``people cannot borrow to buy a car, to send a student to college, to buy a house,'' Bernanke told the House committee today. Scant lending harms ``people at the lunch bucket level.''"
Fed officials have so far failed to stem the credit crisis even after the steepest rate cuts in two decades and interventions in Bear Stearns Cos. and American International Group Inc. this year.
"The Fed has also pumped billions of dollars into banks to try to restore liquidity, while invoking extraordinary powers to loan to securities firms."
The Treasury this month took over Fannie Mae and Freddie Mac as the turmoil engulfed the two largest mortgage finance companies.
Lawmakers have balked at approving the Treasury's proposal to buy illiquid assets from financial institutions without changes. Republicans resisted the plan's size and scope and Democrats demanded support for homeowners and limits on executive pay.
To contact the reporter on this story: Craig Torres in Washington at ctorres3@bloomberg.net.
"Last Updated: September 24, 2008 17:55 EDT"
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"Kokusai, Biggest Bond Fund in Asia, Bets on Dollar (Update1) "
By Wes Goodman
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"Sept. 25 (Bloomberg) -- The biggest bond fund in Asia said it is buying the U.S. dollar, and holds the greatest amount of the currency in 18 months, because the nation's economic instability may infect the rest of the world."
"Kokusai Global Sovereign Open Fund's U.S. holdings are the highest since April 2007, Masataka Horii, one of four managers for the $51.9 billion in Tokyo, said in an interview. The fund increased its allocation to 27 percent of its assets as of the end of August, from a record low of 20 percent in March."
"``The slowdown in growth will spread from the U.S.,'' said Horii, 42, at Kokusai Asset Management Co. in Tokyo. ``Investors won't want to take risks. Money will go back to the dollar, especially from emerging markets.''"
The dollar has fallen 3.7 percent the past two weeks against a basket comprised of six currencies of major trading partners on concern borrowing to fund a bailout of the banking sector will swell the nation's budget deficit. The U.S. currency traded at $1.4708 per euro as of 1:03 p.m. in Tokyo from $1.4621 late yesterday in New York. It was at 105.83 yen from 106.11.
Kokusai is favoring the dollar while Treasury Secretary Henry Paulson's $700 billion proposal to stabilize the banking system sends the currency lower.
Dollar Weakens
"The dollar weakened the most against the euro on Sept. 22 since the European currency's 1999 debut, falling 2.1 percent. The combination of the plan proposed by Paulson, government spending and a slower economy may swell the U.S. budget deficit to $1.5 trillion, or 10 percent of GDP, said Michael Feroli, an economist at JPMorgan Chase & Co. in New York."
"Investors in the Kokusai Global Sovereign Open Fund have lost 3.23 percent in September, versus a 1.75 percent decline in the Citigroup World Government Bond Index, the benchmark the company uses to gauge performance. The fund outperformed the benchmark last year, according to data compiled by Bloomberg."
"Horii is also bullish because the Federal Reserve refrained from cutting interest rates this month even as markets crumbled, maintaining the extra yield that Japanese investors get for buying U.S. debt."
"The target rate for overnight loans between banks is 2 percent in the U.S., compared with 0.5 percent in Japan. Ten-year Treasuries yield 2.30 percentage points more than Japanese securities of similar maturity, on line with the average for the past six months."
"``The Fed won't cut the policy rate,'' Horii said. ``That will favor the U.S. dollar.''"
"Reducing Europe, Asia"
"Kokusai reduced its holdings of European and Asian debt to fund its U.S. purchases, Horii said. The company trimmed bonds in Europe to 39 percent of its portfolio from 44 percent, and in Japan to 9.5 percent from 13 percent since March."
"Gross domestic product in the U.S. is likely to be 1.7 percent this year and 1.5 percent in 2009, according to the median estimate in a Bloomberg survey. For Japan, growth is forecast at 1 percent in 2008 and 1.15 percent next year. In the euro zone, the forecasts are 1.35 percent and 1 percent."
"The U.S. rescue plan may help revive the world's biggest economy, leading investors to use funds borrowed in Japan in search of higher yields elsewhere, said Akira Takei, general manager for international bonds at Mizuho Asset Management Co. in Tokyo."
"``What we have seen since last week is an unwinding of the flight to quality,'' said Takei, who helps oversee the equivalent of $36.9 billion at the unit of Japan's second-largest bank. ``It means the yen will tend to be weaker.''"
"Mizuho bought dollars and sold Japan's currency at the end of last week, Takei said. The greenback may rise to 115 yen by year-end, according to Takei, who correctly forecast the rally in Treasuries last year."
To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net
"Last Updated: September 25, 2008 00:30 EDT"
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Libor Rises Most Since 1999 as Banks Shun Money-Market Lending
By Gavin Finch and David Yong
"Sept. 25 (Bloomberg) -- Money-market rates around the world soared on concern the U.S. Treasury's $700 billion bailout plan will be diluted as it makes its way through Congress, causing banks to hoard cash to meet their future funding needs."
"The three-month London interbank offered rate, or Libor, that banks charge each other for dollar loans jumped today by the most since 1999 and the euro rate rose to the highest level since November 2000. Rates in Hong Kong and Singapore climbed as Bank of East Asia Ltd. faced a run on deposits. The Libor-OIS spread, a measure of the availability of cash among banks, widened to the most on record."
"``Liquidity in the money markets in maturities over a week is desperately scarce,'' said Tim Bond, head of global asset allocation at Barclays Capital in London. ``A near-term solution to the crisis is urgent. Unchecked, the current crisis would turn into a self-reinforcing vortex of defaults, bank-capital contraction and deep recession within a matter of weeks.''"
"Money-market rates signal banks have all but stopped lending to each other. Treasury Secretary Henry Paulson's bailout plan, which proposes removing tainted assets from bank balance sheets, may be cut back in size, U.S. House Budget Committee Chairman John Spratt said today. The U.S. faces a ``painful'' recession if the package isn't approved, President George W. Bush said yesterday."
`Nothing's Working'
"Banks are balking at lending to each other because they are concerned counterparties may hold tainted assets at a time when demands on their own cash are rising. General Motors Corp. on Sept. 19 said it would draw the remaining $3.5 billion from a $4.5 billion revolving credit line from banks, a decision Chief Executive Officer Rick Wagoner described today as ``defensive.''"
"The Libor-OIS spread, which measures the difference between the three-month dollar rate and the overnight indexed swap rate, widened 32 basis points to 199 basis points today, and exceeded 200 basis points for the first time. It averaged 8 basis points in the 12 months to July 31, 2007, before the credit squeeze began."
"``The message coming from our money-market traders is that nothing's working,'' said Padhraic Garvey, the Amsterdam-based head of investment-grade debt strategy at ING Bank NV. ``Banks are not dealing with one another and the situation has gotten worse. The real market is probably about 10 to 20 basis points above where Libor fixings are.''"
"Stocks, Bills"
"Stocks in the U.S. and Europe rose and Treasury bills dropped as investors speculated that Congress will eventually approve some measures to cleanse bank balance sheets. The Standard & Poor's 500 Index increased 2.4 percent and Europe's Dow Jones Stoxx 600 Index climbed 2 percent. The yield on the three-month Treasury bill rose to 0.77 percent, still down from 1.61 percent two weeks ago."
"The stock gains came several hours after money-market rates were set. The Libor for dollars, euros and eight other currencies is ``fixed'' once a day following a survey of 16 participant banks by the London-based British Bankers' Association and published before noon local time."
"The turmoil in money markets is rippling through the economy. General Electric Co. cut its earnings forecast today and said it will pare back GE Capital's commercial paper to between 10 percent and 15 percent of total debt. Pilgrim's Pride Corp., the biggest U.S. chicken producer, expects to breach one of its credit covenants because it will post a ``significant'' fourth-quarter loss."
"Fortis, the financial-services company that set out in June to bolster capital by 8.3 billion euros ($12.2 billion), tumbled as much as 21 percent in Brussels trading, the most since it was formed in 1990, on concern it needs help with funding."
`Systemic Risks'
"The drop is ``linked to rumors that every Belgian citizen is frightened by Fortis,'' said Scander Bentchikou, a Paris- based analyst at Oddo Securities. ``Lots of people say they should diversify and fear a drop in the deposit base.''"
"``We don't have any indication of the withdrawal of customers,'' said Fortis spokeswoman Liliane Tackaert in Brussels. The shares ended the day down 6.3 percent."
"Short-term borrowing by companies has plunged as borrowing costs surged. The U.S. commercial paper market slumped $61 billion, or 3.5 percent, to a seasonally adjusted $1.7 trillion in the week ended Sept. 24, the Federal Reserve said today in Washington. On a non-seasonally adjusted basis, the market dropped $44 billion to $1.64 trillion."
"``Systemic risks are extremely high, and the outlook appears bleak,'' said Laurence Mutkin, the London-based head of European fixed-income strategy at Morgan Stanley. ``Term lending markets appear almost to have closed, while cash hoarding continues.''"
"Hong Kong, Singapore"
"The cost of three-month loans in euros climbed 5 basis points to 5.11 percent, the BBA said today. The dollar rate rose 29 basis points to 3.77 percent. That's the most compared to the Fed's target rate on record. Hong Kong's three-month rate rose 13 basis points to 3.80 percent, the highest level since December 2007."
"Hong Kong had its first bank run since the Asian financial crisis in 1997 as depositors rushed to withdraw funds from Bank of East Asia. The bank's chairman, David Li, said the lender has ``no problem'' and Joseph Yam, chief executive of Hong Kong's central bank, urged customers to ``stay calm.'' The Hong Kong Monetary Authority injected HK$3.88 billion ($500 million) into the banking system today."
"Chinese lenders, including Industrial and Commercial Bank of China, have set tighter standards on credit lines with international finance companies, according to people at the banks' treasury departments who declined to be named. Others like China Citic Bank Corp. imposed tighter limits on interest- rate swaps to avoid losses."
`Felt the Impact'
"Singapore's three-month dollar loan rate surged 29 basis points to 3.684 percent today, the highest level since Jan. 22, according to the Association of Banks in Singapore. In Australia, the one-month bank bill swap rate, used to determine yields on variable-rate loans, was 7.458 percent, the highest level since Aug. 5, according to data compiled by Bloomberg."
"``The Australian financial system has felt the impact'' of global difficulties, the Reserve Bank of Australia said in its half-yearly Financial Stability Review published today in Sydney. ``The general increase in uncertainty has also meant that most banks are taking a more cautious attitude to lending.''"
"The nation's banks were holding A$7 billion ($5.9 billion) of on-call deposits with the central bank, the most since at least 2003, according to the Reserve Bank of Australia."
Financial institutions around the world have posted almost $522 billion in losses and writedowns on assets linked to the collapse of the U.S. subprime-mortgage market since the start of last year.
"The difference between what banks and the Treasury pay to borrow money for three months, the so-called TED spread, narrowed 1 basis point to 301 basis points. It rose to 326 basis points earlier, the most since Bloomberg began compiling the data in 1984. It was 114 basis points a month ago."
To contact the reporters on this story: Gavin Finch in London at gfinch@bloomberg.net; David Yong in Singapore at dyong@bloomberg.net
"Last Updated: September 25, 2008 13:00 EDT"
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Ireland Becomes First Euro Nation to Enter Recession (Update2)
By Fergal O'Brien
"Sept. 25 (Bloomberg) -- Ireland became the first euro area economy to slide into a recession, as homebuilding and consumer spending slumped and the global financial crisis intensified."
"Gross domestic product contracted 0.5 percent in the three months through June from the previous quarter, when it shrank 0.3 percent, the Central Statistics Office said today in Dublin. From a year earlier, the economy lost 0.8 percent."
"The housing collapse, coupled with the global credit crisis, forced the Irish government to slash spending to keep its deficit in check and pushed the benchmark stock index to fall more than any other in western Europe this year. Ireland's slump may be followed by recessions across Europe, according to the European Commission, which has cut its forecasts for growth across the euro area."
"``Ireland is unlikely to be alone in entering the euro area recession club,'' Julian Callow, an economist at Barclays Capital in London, said in a note. ``We expect that Italy and quite possibly Germany will also record contractions in their third quarter GDP, following contractions in the second quarter, with a substantial risk that France does as well.''"
"Ireland's contraction follows a decade-long boom, sparked by exports in the mid-1990s and then extended by record homebuilding. The economy has expanded around 7 percent a year for the last decade, three times the euro-area average. Ireland hasn't had a full-year economic contraction since 1983."
House Prices Plunge
"Now, home building is plunging as house prices drop. Bank of Ireland Plc, the country's second-biggest bank, said on Sept. 17 it will slash its dividend by 50 percent and post a drop in first-half profit as loan losses mount. House prices fell 9.4 percent in July from a year earlier."
"``The housing market is torpedoing the economy,'' Pat McArdle, chief economist with Ulster Bank Ltd. in Dublin, said in a phone interview. ``The third quarter will definitely be worse.''"
"From a year earlier, consumer spending fell 1.4 percent in the second quarter, the first year-on-year decline in at least 11 years, according to the statistics office. Exports rose 2.4 percent and imports fell 1.1 percent."
"Finance Minister Brian Lenihan said in parliament today that the ``poor performance in tax receipts over the summer months'' has continued into September. Earlier this month, he brought forward the 2009 budget by six weeks after warning of a 5 billion-euro ($7.33 billion) shortfall in tax revenue this year."
"``Ireland is an exceptionally open economy and the deterioration in the global climate has had a major impact,'' Lenihan said. ``The pace of growth in our main trading partners has slowed'' and the euro's increase against the dollar and the pound reduced export competitiveness, he said."
To contact the reporter on this story: Fergal O'Brien in Dublin at fobrien@bloomberg.net.
"Last Updated: September 25, 2008 11:23 EDT"
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Swiss Franc Gains as U.S. Bailout Concern Boosts Risk Aversion
By Lukanyo Mnyanda
Sept. 25 (Bloomberg) -- The Swiss franc rose against the dollar and euro on concern the U.S. Treasury's $700 billion bailout plan will be delayed or diluted and President George W. Bush said the U.S. may face a ``painful'' recession.
The franc climbed against its 16 most-actively traded counterparts as Bush said late yesterday that the rescue plan is needed to keep the U.S. from slipping into a ``financial panic.'' Swiss government bonds declined as equities advanced.
"``People are maintaining safety in currencies like the franc,'' said Jeremy Stretch, a senior strategist in London at Rabobank International, the third-largest Dutch bank. ``Even if stocks are up now, nobody is certain the momentum will be maintained.''"
"Against the dollar, the franc rose as much as 1.1 percent to 1.0802 and was at 1.0863 at 1:47 p.m. in Zurich, from 1.0916 yesterday. It traded at 1.5929 per euro, from 1.5961."
"Bush described how the U.S. became enmeshed in a financial crisis that has frozen credit markets, led to the bankruptcy of an investment bank and pushed the government to nationalize its largest insurer and biggest mortgage-finance companies. Financial institutions around the world have posted $523 billion in losses and writedowns tied to the collapse of the U.S. subprime-mortgage market since the start of last year."
Stocks Gain
"The Swiss Market Index of the biggest and most actively traded companies jumped 1 percent, after losing 3.5 percent during the previous three sessions. The Dow Jones Stoxx 600 Index, a regional equity benchmark, rose 0.2 percent."
"The franc stayed higher after General Electric Co. cut its profit forecast and suspended its stock buyback, citing ``unprecedented weakness and volatility'' in the financial- services market."
"The currency was further supported as the euro interbank offered rate, or Euribor, that banks charge each other for one- month loans climbed today to the highest level since December 2000. The three-month London interbank offered rate, or Libor, for dollars rose the most since 1999."
The yield on the 3 percent government note due January 2018 advanced 4 basis points to 2.82 percent. Yields move inversely to bond prices.
To contact the reporter on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net
"Last Updated: September 25, 2008 08:31 EDT"
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"Carney Says Canada Exports, Prices May Drop Amid U.S. Turmoil "
By Alexandre Deslongchamps
"Sept. 25 (Bloomberg) -- Bank of Canada Governor Mark Carney said while domestic banks are faring well amid the crisis in U.S. financial markets, demand for Canada's products may drop more than anticipated and inflation may slow."
"``Any slowdown in the U.S. economy would have consequences for Canada, but the current situation poses particular problems,'' because it affects ``areas that matter most for Canada,'' Carney, 43, said in the text of a speech he's giving today at the Canadian Club of Montreal. Policy makers had already identified tighter credit ``as the main risk to a modest U.S. recovery next year'' and recent events made that possibility ``more probable,'' he said."
"At the same time, prices for some commodities are falling, a trend that the central bank highlighted ``as a downside risk for the outlook for inflation in Canada,'' Carney said."
"Economic growth will slow to 1 percent this year, the least since 1992, the Bank of Canada said in a July forecast that it will revise next month. Central bankers left the benchmark lending rate unchanged at 3 percent on Sept. 3. The next decision is scheduled for Oct. 21, followed by a quarterly forecast two days later."
"Slower growth and inflation may prompt the central bank to cut its benchmark lending rate, as predicted by some economists such as David Wolf, chief strategist at Merrill Lynch & Co. in Toronto."
"Policy makers will probably ease by the end of the fourth quarter, according to the weighted average of 11 economists surveyed by Bloomberg. Wolf predicts the bank will cut its rate from 3 percent to 2.75 percent at its next meeting."
Crisis `Cathartic'
"Carney, a former Goldman Sachs Group Inc. investment banker, said the ``ferocious storm'' in markets could prove ``cathartic'' and policy responses such as the proposed U.S. bailout may mark the ``beginning of the end'' for the crisis."
"``Canadian institutions are in considerably better shape than their international peers,'' Carney also said. Countries other than Canada may have to proceed with a bailout similar to the one being considered in the U.S., he said."
Carney didn't comment on the outlook for monetary policy other than to highlight the trends in demand and prices.
"(To listen to a Webcast of the hearing, click on http://www.bankofcanada.ca/en/real/index.html)"
To contact the reporter on this story: Alexandre Deslongchamps in Ottawa at adeslongcham@bloomberg.net.
"Last Updated: September 25, 2008 13:00 EDT"
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BOJ Adds 1 Trillion Yen in 7th Day of Fund Injections (Update2)
By Nate Hosoda and Theresa Barraclough
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Sept. 25 (Bloomberg) -- The Bank of Japan added 1 trillion yen ($9.5 billion) to the financial system in its seventh day of fund injections to help ease a global credit crunch.
"Japan's overnight call loan rate was at 0.40 percent after the operation at 12:50 p.m. in Tokyo, falling from 0.65 percent, according to Tokyo Tanshi Co. Short-term rates on yen loans rose to a two-month high as domestic banks charged non-Japanese lenders the highest overnight borrowing costs since February."
"``Cash is king,'' said Tomohiko Katsu, a deputy general manager of capital markets at Shinsei Bank Ltd. in Tokyo. ``Domestic bankers and foreign bankers are finding it hard to find funding, so the BOJ has to continue providing money.''"
"The BOJ has pumped 15 trillion yen into the system over the past week, the most in at least six years, as other central banks poured cash into money markets after the collapse of Lehman Brothers Holdings Inc. U.S. President George W. Bush said a $700 billion rescue plan for financial firms is needed to avert ``a long and painful'' recession."
"Non-Japanese banks borrowing yen are facing premiums near the highest level since UBS AG, the European bank hardest hit by the subprime crisis, reported a record loss on Feb. 14. Foreign lenders pay 0.60 percent for overnight loans, while Japan's banks pay 0.40 percent, according to Tokyo Tanshi Co."
"The London Interbank Offer Rate, or Libor, to borrow yen for three months rose to 0.906 percent yesterday, the highest level since July 22, according to the British Bankers' Association."
BOJ Dollar Operations
"Japan's central bank today said it accepted bids for $29.6 billion in loans at an average rate of 3.448 percent as part of a $60 billion arrangement with the Federal Reserve to supply dollars to financial institutions. The operation was held yesterday for 40 firms including Mitsubishi UFJ Financial Group Inc., Mizuho Financial Group Inc. and Goldman Sachs Japan Co."
Bank of Japan board member Tadao Noda said that the dollar operations will increase and companies are adjusting their holdings of the currency to prepare for the first-half of the fiscal year that ends this month. Noda spoke to reporters in Kushiro City in northern Japan today.
The BOJ plans to conduct four other dollar operations this year. It will lend $10 billion for three months on Oct. 7; $30 billion for one month on Oct. 21; $10 billion for three months on Nov. 4; and $30 billion for one month on Nov. 18.
"Investors exchanging yen for dollar funds are accepting interest payments 45 basis points below one-year Libor for the Japanese currency, according to data compiled by Bloomberg."
"The figure was as low as minus 53 basis points on Sept. 19, the widest level since the Japanese banking crisis in the late 1990s. A negative level indicates investors are willing to receive reduced interest payments on the yen they lend to obtain financing they need in dollars."
To contact the reporter on this story: Nate Hosoda in Tokyo at nhosoda@bloomberg.net
"Last Updated: September 25, 2008 02:16 EDT"
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Soybeans Gain as Increased Moisture May Reduce U.S. Crop Yield
By Jeff Wilson
"Sept. 25 (Bloomberg) -- Soybeans rose for the first time in three sessions on speculation that dry August weather and flooding this month from Hurricane Ike reduced yields in the U.S., the world's largest grower and exporter."
"As much as 10 inches (25 centimeters) of rain fell Sept. 12 through Sept. 15 in the Midwest, after getting less than 25 percent of normal moisture in August, National Weather Service data show. Before the storms, the government said farmers would harvest 40 bushels per acre on average. Farmers are getting 25 to 60 bushels in early harvests from Ohio to Illinois, according to Mike Zuzolo, president of Risk Management Commodities Inc."
"``The early harvest results have been a little disappointing,'' said Greg Wagner, a senior commodity analyst for AgResource Co. in Chicago. ``It's still too early to generalize, but anytime you have variability it usually means lower production.''"
"Soybean futures for November delivery gained 11.5 cents, or 1 percent, to $11.985 a bushel at 11:56 a.m. on the Chicago Board of Trade. As of yesterday, soybeans had dropped 27 percent since reaching a record $16.3675 a bushel on July 3."
"A close above the Sept. 22 high of $12.1225 would likely boost the November contract toward the 200-day moving average near $13.40 a bushel, Zuzolo said."
"The U.S. soybean crop, which will be completed by November, may rise 13 percent to 2.934 billion bushels from last year, the U.S. Department of Agriculture said Sept. 12, less than an August forecast of 2.973 billion. Farmers planted 18 percent more acres with the oilseed this year than last."
"The unsold supply of soybeans before next year's harvest will total 135 million bushels, the USDA said Sept. 12. The surplus on Aug. 31 was estimated to be 140 million bushels, down from a record 574 million a year earlier, the department said."
"``Bean yields could still drop a little bit more,'' Zuzolo said by telephone from Lafayette, Indiana."
"Corn is the biggest U.S. crop, valued at a record $52.1 billion in 2007, followed by soybeans at $26.8 billion, government figures show."
To contact the reporter on this story: Jeff Wilson in Chicago at jwilson29@bloomberg.net
"Last Updated: September 25, 2008 12:58 EDT"
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"Crude Oil, Gasoline Rise on Bailout Plan, U.S. Fuel Supply Drop "
By Mark Shenk
"Sept. 25 (Bloomberg) -- Crude oil and gasoline rose on speculation that Congress will adopt a rescue plan for the U.S. economy, and a report showing that the nation's gasoline supplies dropped to the lowest in 41 years."
"Energy prices rose after Senate Banking Committee Chairman Christopher Dodd said Republicans and Democrats have agreed on a ``set of principles'' for a financial-rescue package. Gasoline stockpiles fell 5.9 million barrels to 178.7 million barrels, the lowest since 1967, the Energy Department said yesterday."
"``It's become clear that they are going to pass something and that's increased optimism about both the economy and demand,'' said Michael Fitzpatrick, vice president for energy risk management at MF Global Ltd. in New York."
"Crude oil for November delivery rose $2.29, or 2.2 percent, to settle at $108.02 a barrel at 2:45 p.m. on the New York Mercantile Exchange. Prices are down 27 percent from the record $147.27 a barrel reached on July 11."
"Gasoline for October delivery climbed 10.26 cents, or 4 percent, to settle at $2.6973 a gallon in New York."
"Refineries operated at 66.7 percent of capacity last week, the lowest since the department began compiling weekly figures in 1989, yesterday's report showed."
"``Yesterday's inventory numbers were very bullish,'' said Peter Beutel, president of Cameron Hanover Inc. in Stamford, Connecticut. It's a big deal when you have a third of refining capacity off line.''"
Interruptions
"Interruptions to supplies of crude and products increased today as Royal Dutch Shell Plc shut a gasoline-making unit at Europe's largest oil refinery, and Chevron Corp. faced renewed strike action in Nigeria."
"Shell shut the unit at its Pernis refinery in the Netherlands following a technical fault yesterday, company spokesman Wim van de Wiel said."
"In Nigeria, a strike planned by members of the National Union of Petroleum and Natural Gas Workers may disrupt exports from Chevron's Escravos terminal. The company produced 353,000 barrels of crude oil daily in Nigeria in 2007, according to its Web site."
"Brent crude oil for November settlement climbed $2.15, or 2.1 percent, to settle at $104.60 a barrel on London's ICE Futures Europe exchange."
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.
"Last Updated: September 25, 2008 16:23 EDT"
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Corn Declines as U.S. Economic Slowdown Reduces Global Demand
By Jeff Wilson
"Sept. 25 (Bloomberg) -- Corn fell for the first time in a week on speculation that a slowing U.S. economy will depress demand for food, animal feed and alternative fuels made from the grain."
"The Standard & Poor's GSCI Index of 24 commodities dropped as much as 1.6 percent today after a report showed orders for U.S. durable goods fell more than forecast in August, as slower sales and tighter credit conditions reduced company spending. Before today, corn plunged 26 percent in the third quarter while crude oil declined 24 percent."
"``Everybody is anxious about the U.S. economy, and that means domestic and overseas buyers are sitting on their hands,'' waiting for lower prices before making purchases, said Don Roose, president of U.S. Commodities Inc. in West Des Moines, Iowa. ``Commodities are not generally known as a place of safety in times of economic instability.''"
"Corn futures for December delivery fell 4 cents, or 0.7 percent, to $5.59 a bushel at 10:46 a.m. on the Chicago Board of Trade. The price rose 6.8 percent the previous four sessions. Before today, the most-active contract had fallen 30 percent from a record $7.9925 on June 27."
"U.S. sales of corn are lagging behind a year ago as importing nations substitute cheaper alternatives for livestock feed, including wheat from Russian and parts of Europe, Roose said. The U.S. is the world's biggest corn grower and exporter."
Global Demand
"Global trade in corn will decline 13 percent to 87 million metric tons in the marketing year that began July 1, compared with a year earlier, the International Grain Council said in a report today. That's down from an August forecast of 88 million tons."
"Corn sales by U.S. exporters fell 68 percent to 547,796 tons last week, compared with a year earlier, the U.S. Department of Agriculture said in a report today. Total sales for delivery before the end of the marketing year Aug. 31 are down 36 percent at 12.96 million metric tons from 20.38 million a year earlier."
"``The export-sales report shows that trade is slowing,'' Roose said. ``Most users are going to remain hand-to-mouth buyers.''"
"Corn is the biggest U.S. crop, valued at a record $52.1 billion in 2007, government figures show."
To contact the reporter on this story: Jeff Wilson in Chicago at jwilson29@bloomberg.net
"Last Updated: September 25, 2008 11:47 EDT"
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China's Banks Limit Interest-Rate Swaps With Overseas (Update1)
By Belinda Cao
Sept. 25 (Bloomberg) -- Chinese banks said they've cut approvals for traders to enter into interest-rate swap agreements with international finance companies to avoid losses as credit markets collapse.
"China Citic Bank Corp. introduced tighter limits for swaps with overseas banks after the failure of Lehman Brothers Holdings Inc., according to Guan Jiaying, the bank's interest-rate swap analyst in Beijing. Traders are favoring domestic counterparties for the contracts, which involve swapping fixed for floating rates, said Ye Yuzhang at Industrial Bank Co. in Shanghai."
"``It takes longer for us now to get an internal approval to renew an IRS line with foreign banks if the current one expires due to our tighter risk controls,'' Ye said. ``If the prices offered aren't so different, we prefer to make such deals with domestic banks.''"
"Chinese lenders have increased swap trading in the past two years to hedge risks related to interest rate movements as the central bank raised borrowing costs to battle decade-high inflation. Last week, the People's Bank of China cut the one-year lending rate for the first time in six years after the economy slowed for a fourth quarter."
"The nominal amount of interest-rate swap contracts traded between banks in China declined 25 percent to 3.75 billion yuan ($549.4 million) last week, from 5 billion yuan a week earlier, according to data compiled by the National Interbank Funding Center in Shanghai. Weekly volume touched 20 billion yuan earlier this year, according to Citic Bank's Guan."
Stricter Standards
"The one-year interest rate swap, which is based on the 7-day repurchase rate, slid 1.3 basis points to 3 percent as of 2:02 p.m. today, according to rates compiled by Bloomberg. Swaps are derivative contracts used to guard against or profit from interest-rate fluctuations."
China's inflation rate exceeded 5 percent for 12 consecutive months through July before slowing to 4.9 percent last month. The central bank cut its one-year lending rate by 0.27 percentage point to 7.2 percent on Sept. 15.
"China's four biggest banks, including Industrial and Commercial Bank of China, China Construction Bank Corp., Bank of China and the Agricultural Bank of China, all set stricter standards for approving credit lines for swaps to international counterparts, especially U.S. banks, according to people at the banks' treasury departments who declined to be named."
Swap Trading Shrinks
"``Domestic banks have definitely become more cautious in dealing with foreign institutions after Lehman's bankruptcy,'' said Fan Xiulan, a Beijing-based fixed-income analyst with BOC International Holdings, the investment banking arm of Bank of China Ltd. ``Swaps trading shrank obviously recently.''"
"Citibank (China) Co. and JP Morgan Chase (China) Co. are the only two U.S. banks licensed for interest-rate swap transactions in China, according to a list of 62 financial companies posted by the National Interbank Funding Center. It includes 41 local firms. HSBC Holdings Plc, Deutsche Bank AG and Standard Chartered Plc are among the most active international lenders in the market, Industrial Bank's Ye said."
"China's banking regulator denied a media report that it had banned the nation's lenders from offering credit to U.S. financial institutions. The South China Morning Post, citing people it didn't identify, reported today that the regulator ordered Chinese banks to halt inter-bank lending in all currencies to U.S. banks to avoid possible losses during the financial crisis."
To contact the reporter on this story: Belinda Cao in Beijing at lcao4@bloomberg.net
"Last Updated: September 25, 2008 02:31 EDT"
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"Russian Stocks Slump on Higher Loan Rates for Brokers, Oil Drop "
By William Mauldin
Sept. 25 (Bloomberg) -- Russia's 30-stock Micex Index slumped as a drop in oil prices threatened to slow economic growth and brokers faced higher borrowing costs.
"OAO Rosneft and OAO Lukoil, Russia's biggest oil producers, led declines after crude fell for a third day. The ruble- denominated Micex fell 0.9 percent to 1,095.51 at the close in Moscow. The dollar-denominated RTS Index dropped 0.8 percent to 1,304.99."
"Russian financial companies are having to pay rates as high as 22 percent for stock repurchase agreements, a form of short- term funding that brokers rely on, compared with 4 percent to 8 percent a month ago, said David Aserkoff, chief strategist at Renaissance Capital in Moscow. In so-called repo deals, brokers temporarily give shares to banks for short-term loans."
"``In most markets, it's easy to say, `Hang onto these securities for me, give me some cash,' and everybody's happy,'' Aserkoff said. ``When this process stops, trading here becomes more difficult.''"
"Banks are hesitant to lend to some brokers after KIT Finance said it faced losses and agreed on Sept. 17 to sell a stake to ZAO Lider, which manages pension funds for OAO Gazprom. Financier Ivan Tyryshkin is negotiating to buy UTrade.ru after the online brokerage curtailed operations because of falling markets and client margin calls, Kommersant reported yesterday."
"Banks are keeping rates higher for brokers even after a decline in the interbank rates that top-tier lenders charge each other to 5.75 percent from a record 11.1 percent last week. They have ceased lending to some real-estate companies, Alfa economist Natalya Orlova wrote in a report today. VTB Group, the second- biggest bank, fell 1.4 percent to 5.29 kopeks."
Property Prices
"``A large number of banks have stopped lending to construction companies in recent weeks,'' Orlova wrote. ``Russia's real estate prices have to drop significantly to equal Eastern European levels.''"
"PIK Group, a Moscow apartment builder, fell 7.9 percent to $8.45 in London trading, a record low. Developer OAO Open Investments slid 4.4 percent to $170 on the RTS exchange."
A perception of increased political risk after Russia's war with Georgia and expectations of economic slowdown amid lower crude prices have helped make Russia's RTS Index the second-worst performer this quarter among 88 markets tracked by Bloomberg.
"Foreign investors pulled $56.7 billion from Russia from Aug. 8 to Sept. 19, according to BNP Paribas SA's estimates. Regulators halted stock trading for two days last week amid record declines."
"Russia's international reserves, the world's third largest, fell $900 million last week to the lowest in three months after the central bank sold currency to support the ruble."
Paulson Plan
"Alfa Bank today cut its economic growth forecast for 2008 to 7 percent from 7.5 percent, citing restricted lending as banks build up a ``liquidity cushion.''"
"Crude futures fell as much as $2.51, or 2.4 percent, to $103.22 a barrel in New York."
"State-run Rosneft dropped 4.8 percent to 190.56 rubles, its first decline in a week. Lukoil, the second-biggest oil producer, sank 67 rubles, or 4 percent, to 1,591.07 rubles."
"The extra yield investors demand to own developing nations' bonds instead of U.S. Treasuries rose 5 basis points to 3.7 percentage points, the highest in a week, on concern that lawmakers may dilute or delay Treasury Secretary Henry Paulson's $700 billion plan to bail out the banking system."
"Bonds, Options"
"``Any delay in the adoption of the bailout package could further damage confidence in the market,'' said Nikolay Podguzov, a fixed-income strategist at Renaissance Capital in Moscow."
"The yield on 6.875 percent 10-year dollar bonds of VTB Group, Russia's second-biggest bank, climbed 1 basis point to a record 10.47 percent, the highest since they were sold in May."
"The Russian market for options used to cushion investors against equity-price swings is ``hurting'' because of the funding squeeze and may not return to ``normality'' before financial markets stabilize and borrowing cost drop, according to Renaissance Capital."
"``It is hard to expect the options market to return to normality'' until ``we see other parts of the wholesale financial markets returning to standard function,'' Aserkoff wrote in a note to investors."
To contact the reporter on this story: William Mauldin in Moscow at wmauldin1@bloomberg.net.
"Last Updated: September 25, 2008 11:27 EDT"
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"Corporate Defaults May Rise to 23% by 2010, S&P Says (Update2) "
By Gabrielle Coppola
"Sept. 25 (Bloomberg) -- The default rate among high-yield, high-risk, non-financial borrowers may rise to 23.2 percent by 2010, the highest level since 1981, Standard & Poor's said."
"The ``worst-case scenario'' estimate suggests that 353 junk- rated borrowers outside the financial sector may default in the next two years, with more than 200 defaults occurring in the second half of 2009 and in 2010, analysts led by Diane Vazza in New York wrote in a report today."
"``As the financial landscape adapts to changes unseen since the Great Depression of the 1930's, the heat will eventually spread among non-financials,'' the analysts wrote, adding to default pressure ``on a much bigger scale than has materialized to date.''"
"Defaults in the housing and financial sectors mark the first two phases of the default cycle, according to the report. A third cycle, which will see tightened lending conditions spread to non- financials, particularly consumer products, media and entertainment companies, and retail and restaurant borrowers, has yet to come, the report said."
"``Substantially weaker earnings, massive write downs, slowing economic fundamentals, and a new culture of risk aversion -- combined with regulatory supervision -- will make risk capital much harder to come by,'' the analysts wrote."
"The intensity of coming defaults will be worse than previous cycles because companies burned through capital cushions when lending conditions were loose, over-borrowing and extending and using extra cash to finance dividend payouts to produce short- term benefits for shareholders, the report said."
Distressed Debt
"The 52 U.S. defaults this year have been ``relatively limited'' because triggers that would force companies to return to capital markets for more funding have been ``benign'' in the first nine months of 2008, the report said."
"The number of securities with a distressed rating rose to 374 in September, coming from 221 companies and affecting more than $190 billion, or 29 percent of outstanding debt as of Sept. 15, according to a separate report today by S&P."
"Debt sold by automotive and finance companies represents the largest portion of distressed issues, while bonds from companies selling discretionary consumer products are trading at wider spreads than any other sector, analysts wrote in that report."
"Distressed debt trades at spreads of 1,000 basis points or more over U.S. Treasuries. A basis point is 0.01 percentage point."
To contact the reporter on this story: Gabrielle Coppola in New York at gcoppola@bloomberg.net
"Last Updated: September 25, 2008 15:15 EDT"
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"India Central Bank May Cap Rupee Drop, Former Panel Member Says "
By Anoop Agrawal
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"Sept. 25 (Bloomberg) -- India may cap rupee losses at between 46 and 47 a dollar as further declines will strain finances of state-owned refiners reeling from a rebound in oil prices, according to a former member of a central bank panel."
"A drop in the rupee will increase import costs for oil companies that are facing as much as $35 billion in losses this year for selling fuels below cost. The Reserve Bank of India will intervene to support the currency as global financial turmoil spurs capital outflows, said A.V. Rajwade, one of the six members of the 2006 central bank committee that recommended steps to make the rupee fully convertible by 2011."
"``There's a greater probability of a rupee drop because the current account will be pretty awful,'' he said in an interview in Mumbai yesterday. ``The central bank will probably put a floor because the oil companies' finances are stretched.''"
"The rupee slumped to a two-year low last week and implied volatility on one-month dollar-rupee options rose to the highest in at least nine years as Lehman Brothers Holdings Inc.'s bankruptcy drove global funds to safer assets. The currency traded at 45.955 a dollar yesterday in Mumbai. It touched 46.975 on Sept. 16, the lowest level since July 24, 2006."
"Overseas investors have sold $8.8 billion more Indian shares than they bought this year, causing a 14.2 percent slide in the rupee that was the second-worst performance among the 10 most-active Asian currencies excluding the yen."
"The current-account deficit, the shortfall in trade and investment flows, widened to a record $17.4 billion in the financial year ended March 31, from $9.8 billion the previous year, central bank data show."
Oil Subsidies
"Oil subsidies have climbed to $42.5 billion even as India raised fuel prices twice this year, according to the central bank. Indian Oil Corp., the country's biggest refiner, reported a 72 percent drop in profit in the quarter ended June 30, while smaller rivals Bharat Petroleum Corp. and Hindustan Petroleum Corp. reported losses. Crude oil in New York has risen almost 19 percent from a seven-month low touched on Sept. 16."
"``Oil companies are finding it extremely difficult to finance even their working capital,'' Rajwade said. Central bank intervention policy will ``keep in mind their finances.''"
The rupee has risen 2.2 percent from its low reached last week on speculation the central bank sold dollars and after the U.S. government proposed a $700 billion bailout package for its troubled banks and financial firms.
"India's foreign-currency reserves stood at a seven-month low of $280.3 billion as of Sept. 12, according to central bank data, after dropping from a record $306.2 billion in May. The depletion indicates it sold dollars to support the rupee."
Enough Ammunition
"``They won't lack ammunition,'' Rajwade said. Central banks intervene in currency markets by arranging sales of purchases of foreign exchange."
"The Reserve Bank of India said on Sept. 16 it would augment supply of dollars in the domestic market, and raised interest rates on some foreign-currency deposits to attract more inflows."
"The central bank may refrain from raising rupee interest rates because the government would pay a political price with elections due in seven months, Rajwade said."
"Social disorder may discourage overseas funds from putting money into India, he said. A chief executive of a local unit of an Italian company was bludgeoned to death this week near New Delhi by workers who were fired by the factory."
"Rupee ``volatility is rising,'' Rajwade said. ``I am advising my clients to pay a fee and buy options'' to hedge their risks."
To contact the reporter on this story: Anoop Agrawal in Mumbai at aagrawal8@bloomberg.net
"Last Updated: September 24, 2008 22:23 EDT"
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"Korea Currency Swap Rates to Fall to 5-Month Low, Samsung Says "
By Kim Kyoungwha
"Sept. 25 (Bloomberg) -- South Korea's currency swap rates will fall to a five-month low as banks rolling over foreign debt underpin demand for dollars, said Choi Seok Won, head of fixed income research at Samsung Securities Co."
"``Demand for dollars in the swap market outweighs supply as the global credit crunch is worsening the funding situation for local banks trying to pay off debt,'' Choi said in an interview. ``Unless foreign investors buy local debt en masse and supply much-needed cash, the shortage isn't likely to ease any time soon.''"
"The volume of overseas borrowings set to mature in a year or less tripled to $175.65 billion in June from $65.9 billion at end of 2005, rocking foreign investor confidence in Asia's fourth largest economy. In a reflection of the concern, the won has tumbled 20 percent this year versus the dollar."
"One-year swap rates may decline to 2 percent, the lowest since April 24, Seoul-based Choi said. The rate, which was at 2.74 percent as of 1 p.m. in Seoul, has shed 0.95 percentage point from a two-month high of 3.72 on Sept. 9, according to Bloomberg data."
"A currency swap is a foreign exchange agreement in which investors pay or receive a variable interest rate in a one currency in exchange for a fixed swap rate in another currency to hedge or bet on interest rate moves in two different countries. In Korea, local participants typically pay a fixed rate in won in exchange for a floating rate in dollars. Heavy demand to receive the floating dollar rate has pushed it lower recently."
Swap Lines
"The Korean government, in an effort to calm the market, will use its foreign-exchange stabilization fund of $55 billion to provide dollars in the local won-dollar swap market as early as this week, JoongAng Ilbo reported, citing an unidentified finance ministry official."
"``The release of reserves may provide a good temporary boost but this can't be an ultimate solution to the problem,'' Choi said. ``Like some central banks that have opened a swap line with the Federal Reserve, if the Bank of Korea uses that channel it might improve the situation.''"
"The Fed arranged to funnel $30 billion into the global financial system by opening swap lines with four central banks in Australia, Denmark, Norway and Sweden to relieve shortages of dollars in markets worldwide. They set up the currency exchange to address ``elevated pressures'' in dollar funding, the Board of Governors said yesterday in a statement."
"That move came after the Fed, the ECB and the Bank of Japan joined with counterparts in Switzerland, the U.K. and Canada last week to pump hundreds of billions of dollars into the financial system."
Funding Problems
"Funding difficulties may worsen as a deepening global downturn damps demand for Korean-made laptops, mobile phones and flat-screen televisions. The trade balance, which swung to a deficit in December for the first time in five years, recorded a shortfall of $3.23 billion in August."
"South Korea may keep posting trade deficits as the financial turmoil in the U.S. weakens demand for its exports, the main engine of the country's economic growth, said Rim Che Min, vice minister at the Ministry of Knowledge Economy."
"``We're concerned that financial turmoil may affect real economic activities such as investment, consumption and exports,'' he said in an e-mailed statement today. ``I'm worried that trade deficits may continue.''"
"The $970 billion economy expanded 4.8 percent in the second quarter from a year earlier, the slowest since the first three months of 2007, when it grew 4 percent."
To contact the reporters on this story: Kim Kyoungwha in Beijing at kkim19@bloomberg.net;
"Last Updated: September 25, 2008 02:36 EDT"
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Company Bond Risk Declines as U.S. Congress Nears Bailout Deal
By Shannon D. Harrington and Abigail Moses
Sept. 25 (Bloomberg) -- The cost of default protection on corporate bonds fell as the U.S. Congress neared an agreement on a $700 billion financial-rescue plan.
"Benchmark credit-default swap indexes in the U.S. and Europe fell for the first time in three days, signaling an improvement in investor perceptions of corporate credit risk. Contracts on banks including Wachovia Corp. and Goldman Sachs Group Inc. also fell."
Congressional negotiators said they reached an agreement in principle on a rescue plan that would buy troubled assets from financial institutions. Senate Banking Committee Chairman Christopher Dodd said after a session today Congress is ``prepared to act expeditiously on a package'' that will ``send a message to the markets.''
"Contracts on the Markit CDX North America Investment Grade Index of 125 companies in the U.S. and Canada dropped 8.5 basis points to 160.5 basis points as of 4:38 p.m. in New York, according to broker Phoenix Partners Group. The Markit iTraxx Europe index of 125 companies with investment-grade ratings fell 8 basis points to 108.5, JPMorgan Chase & Co. prices show. Europe's benchmark financial index of 25 banks and insurance companies decreased 10 basis points to 106 basis points."
Goldman Swaps
"Credit-default swaps on Goldman, which yesterday raised $10 billion through a stock offering and cash infusion from Warren Buffett's Berkshire Hathaway Inc., declined 28 basis points to 358 basis points, according to CMA Datavision. Charlotte, North Carolina-based Wachovia, the fourth-largest U.S. bank, fell 30 basis points to 670 basis points."
"Merrill Lynch & Co., the securities company that last week agreed to sell itself to Bank of America Corp., declined 2 basis points to 328 basis points."
"Contracts on Morgan Stanley were little changed at 783 basis points, CMA data show. Earlier, the contracts traded as high as 900 basis points, according to Phoenix."
"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 basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year."
"Credit-default swaps on Washington Mutual Inc. climbed deeper into distressed levels amid concern that the biggest U.S. savings and loan, whose debt was cut to the fourth-lowest ranking yesterday by Standard & Poor's, is running out of time to find a buyer."
"Contracts on WaMu traded at 70 percentage points upfront in addition to 5 percentage points a year, Phoenix prices show. That means it cost $7 million upfront and $500,000 a year for five years to protect $10 million in WaMu bonds."
"``Without timely assistance, WaMu will fail,'' Egan-Jones Ratings Co. wrote in a report yesterday."
"Five banks that were considering bids, including JPMorgan, have failed to make an offer in the week since WaMu put itself up for sale. The lender next approached Carlyle Group and Blackstone Group LP, two people briefed on the matter said."
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 25, 2008 17:43 EDT"
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India's Inflation Holds Near Lowest Level in 5 Weeks (Update1)
By [bn:PRSN=1] Kartik Goyal []
"Sept. 25 (Bloomberg) -- India's inflation held near a five- week low, giving the central bank room to keep borrowing costs unchanged and avoid placing funding pressures on lenders spooked by the U.S. financial meltdown."
"Wholesale prices rose 12.14 percent in the week to Sept. 13 from a year earlier, matching the previous week's gain, the commerce ministry said in New Delhi today. Economists were predicting a 12.23 percent increase."
Weaker-than-expected inflation may allow Reserve Bank of India Governor Duvvuri Subbarao to stop raising interest rates as three increases since June threaten to damp a slowing economy. Some economists including Macquarie Group Ltd.'s Rajeev Malik who previously forecast higher borrowing costs next month now expect the central bank to pause.
"``The key reason for our revision is the backdrop of the ongoing global financial stress,'' Malik said. ``Governor Subbarao will probably signal a shift to neutral at the October policy review.''"
Bonds gained on speculation yields near the highest this month will attract investors. The yield on the benchmark 8.24 percent note due April 2018 dropped 6 basis points to 8.57 percent at the 5:30 p.m. close in Mumbai.
"India's finance ministry this week allowed companies building roads, ports, utilities and other infrastructure projects to borrow more overseas, giving them access to cheaper funds. The central bank on Sept. 16 also announced measures to boost cash in India's financial system."
`Overdone Tightness'
The moves by the government and the central bank to improve domestic access to credit came as liquidity in India's financial system began to show signs of what Macquarie Group's Malik described as ``overdone tightness.''
"The rate at which Indian banks lend to each other climbed to an 18-month high of 15.125 percent on Sept. 19, following the failure of Lehman Brothers Holdings Inc. and the U.S. government takeover of American International Group. The rate declined to 9.75 percent today, according to data compiled by Bloomberg."
"Indian banks borrowed an average 642.8 billion rupees from the central bank in the last two weeks, more than five times the average 113 billion rupees in the previous fortnight, further indicating a shortage of funds in the banking system."
"``Against the backdrop of the complete annihilation of global investment sentiment and domestic growth moderation, it appears the Reserve Bank is likely to maintain the status quo on rates,'' said Shubhada Rao, an economist at YES Bank Ltd. in Mumbai. ``The recent measures from the government and central bank are aimed to address issues such as slowing capital flows and arresting the sharp pace of rupee depreciation.''"
Weaker Currency
The rupee has declined almost 17 percent this year and is the second-worst performer this year among the ten most-active Asian currencies excluding the yen. The rupee fell as the credit-market turmoil in the U.S. prompted overseas funds to pull out money from Indian stocks.
"Foreign investors, who bought a record $17 billion of Indian stocks in 2007, have withdrawn $8.85 billion this year, fueling a 33 percent decline in the benchmark stock index."
India's central bank in July raised the benchmark interest rate by a half point to a seven-year high of 9 percent after increasing it twice in June. The reserve requirement for lenders was also lifted to 9 percent from 8.75 percent. The Reserve Bank's next policy announcement is due Oct. 24.
Slower Growth
"The bank expects the $1.2 trillion economy to expand 8 percent in the 12 months ending March, the slowest pace in four years. India's economy grew 7.9 percent in the three months to June 30 from a year earlier, the weakest pace since the last quarter of 2004."
Elevated energy and commodity prices forced the central bank in July to raise its inflation forecast for the year to March 31 to 7 percent from a previous target of between 5 percent and 5.5 percent.
The government may revise today's preliminary wholesale- price estimate in two months after receiving additional data. The commerce ministry today raised its inflation estimate for the week ended July 19 to 12.54 percent from 11.98 percent.
To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net.
"Last Updated: September 25, 2008 08:41 EDT"
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U.S. Commercial Paper Slumps Most Since August 2007 (Update3)
By Bryan Keogh
Sept. 25 (Bloomberg) -- Corporate short-term borrowing plunged as rates around the world soared and investors pulled record amounts of cash from the biggest buyers of the debt.
"The U.S. commercial paper market slumped $61 billion, or 3.5 percent, to a seasonally adjusted $1.7 trillion for the week ended Sept. 24, the Federal Reserve said today in Washington. On a non-seasonally adjusted basis, the market dropped $44 billion to $1.64 trillion."
"The financing arms of equipment makers such as Caterpillar Inc. and Deere & Co. may reduce their reliance on commercial paper after General Electric Co. said it will cut the debt by about $10 billion. Investors pulled a record amount of cash out of money-market mutual funds in the week ended Sept. 23 after the first shareholder losses in 14 years. Money-market funds are the biggest buyers of commercial paper, which typically helps fund day-to-day expenses including payroll and rent."
"``If you can't do that, we have some serious problems,'' said Jerry R. Marlatt, a partner in New York in the financial products group of Clifford Chance LP who works with issuers of asset-back commercial paper. ``We're at a key intersection here in terms of confidence.''"
"The U.S. market for short-term debt backed by assets including mortgages and car loans fell $7.8 billion this week to a seasonally adjusted $753.8 billion, according to the Fed. Financial commercial paper outstanding fell $50.3 billion, or 6.3 percent, to $748.3 billion. Commercial paper usually matures in three months or less."
Money Market Funds
"``The declines reflect the seizing up of the credit market and withdrawals of monies from money market funds, which held $700 billion of commercial paper at the end of the second quarter,'' Tony Crescenzi, chief bond market strategist at Miller Tabak & Co. in New York, wrote in a note to clients today. ``The declines add to the urgency for fixes to the credit crisis.''"
"Money-market rates jumped today, signaling banks have all but stopped lending to each other, as a U.S. House chairman said the U.S. bailout plan may be cut back in size."
"The market fell as GE said General Electric Capital Corp. would reduce commercial paper outstanding to 10 percent to 15 percent of its financing arm's total debt, according to a press release. That's about $10 billion, according to Chief Financial Officer Keith Sherin."
GE Debt
"The paper amounted to 18 percent of total debt at the end of the first half, GE said in July. Fairfield, Connecticut-based GE today reduced its annual profit forecast for the second time this year and suspended its stock buyback because of ``unprecedented weakness and volatility'' in the financial services market. Sherin said the company doesn't need to issue any long-term debt in the fourth quarter."
"Borrowers are opting to lock in long-term financing in corporate bonds as short-term debt markets, including commercial paper, seized up this month and yields soared to eight-month highs. Companies have sold at least $6.63 billion of investment- grade bonds this month to repay commercial paper, almost a third of the total issued, Bloomberg data show."
"While the companies saw costs of short-term borrowing nearly double last week, they still have access to the commercial paper market, which has all but frozen to others as credit markets seize up, said Ken Bentsen Jr., president of the Equipment Leasing and Finance Association, a 700-member trade group."
Liquidity Trap
"``Others are looking to make sure they're not caught in a short-term liquidity trap,'' he said. ``They want to make sure they're not too reliant on any one source of funding.''"
"Yields on 30-day commercial paper rose 57 basis points to 3.67 percent, the highest since January, Bloomberg data show. A basis point is 0.01 percentage point. The yield over the Federal Reserve target rate widened to a record 167 basis points. The spread averaged about 2 basis points more prior to last August, when the CP market first seized up."
"Overnight yields plunged for a fifth-straight day, declining 77 basis points to a four-year low of 1.25 percent, or 75 basis points less than the target rate."
"``What I'm being told is people are now only buying overnight paper'' in the asset-backed CP market, Marlatt said. Banks ``used to sell 30-day paper, but it's really hard to do right now.''"
"The three-month London interbank offered rate, or Libor, that banks charge each other for dollar loans jumped today by the most since 1999 and the euro rate rose to the highest level since November 2000. Rates in Hong Kong and Singapore climbed as Bank of East Asia Ltd. faced a run on deposits."
Broad Purge
"Investors pulled $292.5 billion from U.S. money-market mutual funds that can invest in corporate debt in the week ended Sept. 23, according to the Money Fund Report. At the same time, individuals deposited $201.1 billion with taxable funds that invest only in less risky government debt. Investors withdrew a record $120.5 billion overall."
"``These declines in some ways carry more weight than those of a year ago, when the market was purging issuers with mortgage- related exposures,'' Crescenzi wrote. ``This time the purge is broad and is impacting issuers with far more predictable cash flows -- regular run-of-the-mill companies in need of working capital.''"
To contact the reporter on this story: Bryan Keogh in New York at bkeogh4@bloomberg.net
"Last Updated: September 25, 2008 13:18 EDT"
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"Bollinger Band Shows Euro May Rise to $1.49, Bank of Tokyo Says "
By Stanley White
"Sept. 25 (Bloomberg) -- The euro may rise to $1.49 provided the currency stays above its moving average for the past five days, said Masashi Hashimoto, a foreign-exchange analyst at Bank of Tokyo-Mitsubishi UFJ Ltd. in Tokyo."
Resistance at $1.49 is near the upper Bollinger band on the euro's daily chart. Bollinger bands are two standard deviations above and below the average price of a currency or security over the past 20 days. A standard deviation measures how tightly prices are clustered around the average level. Resistance is a level where sell orders may be clustered.
"``The euro is showing signs of stabilizing above its five- day moving average,'' Hashimoto said. ``That suggests it has the potential to grind higher in coming days.''"
"The euro rose to $1.4725 at 2:14 p.m. in Tokyo from $1.4621 late yesterday in New York. Since reaching a one-year low of $1.3882 on Sept. 11, the euro has gained 6 percent."
"In technical analysis, investors and analysts study charts of trading patterns and prices to forecast price changes in a security, commodity, currency or index."
To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net
"Last Updated: September 25, 2008 01:19 EDT"
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Natural Gas Rises as Financial Bailout Package Agreement Nears
By Reg Curren
"Sept. 25 (Bloomberg) -- Natural gas futures gained in New York on speculation a $700 billion U.S. government bailout of the financial industry will be completed soon, helping to prop up the economy and boost energy demand."
"Gas has dropped 43 percent from a 30-month high on July 3 on concern an economic slowdown would curb demand for the heating, power plant and industrial fuel. Senate Banking Committee Chairman Christopher Dodd said Republicans and Democrats have agreed on a ``set of principles'' for a financial-rescue package."
"``If you take the financial nuclear meltdown off the table, it sets the stage for a big run in commodities,'' said Chris Jarvis, president of Caprock Risk Management LLC in Hampton Falls, New Hampshire. ``The closer we get to an agreement, the more commodities are going to react to it.''"
"Natural gas for October delivery rose 4.5 cents, or 0.6 percent, to settle at $7.724 per million British thermal units at 3:19 p.m. on the New York Mercantile Exchange. The October contract expires tomorrow. The November contract rose 2.3 cents to $7.931."
"Dodd, speaking to reporters on Capitol Hill, said the principles will allow Congress to ``act expeditiously'' and ``send a signal to markets.''"
"The Bush administration and congressional negotiators are closing in on a compromise plan to stabilize financial markets, White House press secretary Dana Perino said."
"``The trump card is the bailout package,'' said Jarvis. ``If they do the package, commodities will rock. If they don't do the package and $700 billion goes to vapor, I don't care what you own, you're toast.''"
"Crude oil for November delivery advanced $2.29, or 2.2 percent, to $108.02 a barrel in New York."
Weaker Dollar
"``It looks like something is in the works right now'' on a financial package, said Gene McGillian, an analyst at TFS Energy LLC in Stamford, Connecticut. ``The financial markets will stabilize and we won't have a looming depression hanging over the market.''"
"If the government assumes $700 billion of debt, the ``dollar will start to drop,'' McGillian said. ``We saw in the spring the dollar dropped to record lows against the euro and that seemed to help oil prices.''"
Investors bought commodities earlier this year as a hedge against the weaker currency and inflation. The sliding dollar pushed crude to an all-time closing high of $145.29 a barrel on July 3. Gas reached a 30-month closing high of $13.577 that same day.
"Natural gas also had a ``double whammy'' day with options on the October futures contract expiring today and the Department of Energy report on inventories, said McGillian."
"``The market is exposed to some increased price volatility,'' he said."
To contact the reporter on this story: Reg Curren in Calgary at rcurren@bloomberg.net.
"Last Updated: September 25, 2008 16:38 EDT"
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Emerging-Market Bonds Fall for 3rd Day on Bailout Delay Concern
By Denis Maternovsky
Sept. 25 (Bloomberg) -- Emerging-market bonds fell for a third day on investor concern that U.S. lawmakers may dilute or delay Treasury Secretary Henry Paulson's $700 billion plan to bail out the banking system.
"The extra yield investors demand to own developing nations' bonds instead of U.S. Treasuries rose 5 basis points to 3.7 percentage points, the highest in a week. The MSCI Emerging Markets Index of stocks dropped 0.6 percent to 826.04."
"``Any delay in the adoption of the bailout package could further damage confidence in the market,'' said Nikolay Podguzov, a fixed-income strategist at Renaissance Capital in Moscow."
Paulson said the financial system is ``frozen'' as he attempts to convince both Republican and Democrat opponents to support the plan. The reluctance of banks to lend to each other pushed the cost of three-month interbank dollar loans to the highest since January at 3.476 percent yesterday.
"The yield on the 6.875 percent 10-year dollar bonds of VTB Group, Russia's second-biggest bank, rose 1 basis point to a record 10.47 percent, Bloomberg prices show. The yield on the Russian government's 30-year dollar bonds was unchanged at 6.93 percent, trading near their four-year low. A basis point is 0.01 percentage point."
To contact the reporter on this story: Denis Maternovsky in Moscow at dmaternovsky@bloomberg.net
"Last Updated: September 25, 2008 04:00 EDT"
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Bush Advisor Lazear Says Credit Has `Completely Frozen Up'
By Peter Cook and Timothy R. Homan
"Sept. 25 (Bloomberg) -- The U.S. labor market could mirror the ``malaise'' of the Japanese economy in the past decade if Congress does not pass the administration's plan to relieve the credit crunch, President George W. Bush's chief economist said."
"``We're concerned that credit has completely frozen up,'' Edward Lazear, chairman of the White House's Council of Economic Advisers, said in a Bloomberg Television interview. ``The credit market tightness has been a major problem.''"
"Earlier today, the Labor Department said initial jobless claims last week rose to the highest level since September 2001. The Commerce Department also reported a drop in durable goods orders and said sales of new homes in August fell to a 17-year low."
"``There are clearly signs that the economy is weak,'' Lazear said, adding that he was ``not happy'' with today's economic figures. ``There are only so many shocks an economy can take.''"
"Lazear warned that if businesses don't have the capital to invest and create jobs, ``we are talking about the type of malaise we have seen in Japan the past 10 to 15 years.''"
To contact the reporters on this story: Peter Cook in Washington at pcook6@bloomberg.net; Timothy R. Homan in Washington at thoman1@bloomberg.net
"Last Updated: September 25, 2008 11:14 EDT"
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"Australia, N.Z. Dollars Gain on Reports of U.S. Rescue Deal "
By Candice Zachariahs
Sept. 25 (Bloomberg) -- The Australian and New Zealand dollars rose as reports the U.S. government is nearing a deal to implement Treasury's plan to rescue financial institutions bolstered demand for higher-yielding assets.
The currencies rose as House Financial Services Committee Chairman Barney Frank said House and Senate Democrats reached a deal on the $700 billion plan. The Australian dollar also strengthened after the Reserve Bank of Australia said the nation's financial system is weathering the global credit turmoil better than many others.
"``We've had some headlines out about the likelihood of the U.S. bailout getting passed,'' said John Horner, a currency strategist at Deutsche Bank AG in Sydney. ``That's seen risk sentiment improve.''"
The Australian dollar rose 0.1 percent to 83.86 U.S. cents at 4:30 p.m. in Sydney from 83.79 cents in late Asian trading yesterday. It declined 0.3 percent to 88.64 yen.
New Zealand's currency rose 0.3 percent to 68.60 U.S. cents from 68.42 cents yesterday. It bought 72.52 yen from 72.64.
"Benchmark interest rates are 7 percent in Australia and 7.5 percent in New Zealand, compared with 0.5 percent in Japan and 2 percent in the U.S., luring investors to the South Pacific nations' assets. The currencies are favorites with investors using carry trades to seek higher returns using funds received in a country with low borrowing costs. The risk is that exchange-rate fluctuations erase profits."
Bailout Accord
The Australian and New Zealand currencies rose after Frank told reporters in Washington that he and Senate Banking Committee Chairman Christopher Dodd will hold a meeting tomorrow to negotiate with Republicans.
The U.S. currency weakened as President George W. Bush warned the U.S. may face a ``painful'' recession and traders bet on a Federal Reserve interest-rate cut next month.
"Australia's financial system was in a ``positive position,'' the Reserve Bank said in its half-yearly Financial Stability Review published today in Sydney."
"While ``strong and profitable,'' the nation's five largest banks have almost tripled provisions for bad debts to A$3.1 billion ($2.6 billion), the report said."
"The New Zealand dollar's advance may slow before a report that will probably show the economy slumped into its first recession in 10 years in the second quarter, adding pressure on the central bank to cut interest rates to a three-year low next month."
Growth Report
"Gross domestic product shrank 0.5 percent in the three months ended June 30 after contracting 0.3 percent in the first quarter, according to the median estimate of 13 economists surveyed by Bloomberg. The GDP report is released tomorrow at 10:45 a.m. in Wellington."
"``We're a little bit on neutral, waiting for the GDP figure coming out tomorrow, said Alex Sinton, a senior currency dealer at ANZ National Bank Ltd. in Auckland. ``While that's a lag number and it's going to be negative, it's a question of how negative and how the market reacts.'' He expects the kiwi, as the currency is called, to trade between 67.80 and 68.80 cents."
"Australian government bonds declined. The yield on the 10- year note rose 2 basis points, or 0.02 percentage point, to 5.723 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 fell 0.129, or A$1.29 per A$1,000 face amount, to 96.313."
"New Zealand's two-year swap rate, a fixed payment made to receive floating rates, rose to 6.995 percent today from 6.990 percent yesterday."
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
"Last Updated: September 25, 2008 03:28 EDT"
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Noda Says Bank of Japan Scenario for Recovery Is Under Threat
By Mayumi Otsuma
"Sept. 25 (Bloomberg) -- Bank of Japan board member Tadao Noda said global growth will slow further, casting doubt on the bank's expectation that the economy will recover after stagnating for the time being."
"``We maintain the view that Japan's economy will return to a moderate growth path, which is our main scenario,'' Noda said in a speech to business executives in Kushiro City in northern Japan today. ``However, at present, that probability is extremely uncertain.''"
"A global financial crisis spurred by the bankruptcy of Lehman Brothers Holdings Inc. may exacerbate a slowdown in Japan's economy, which is already on the verge of a recession. Export growth slowed last month, led by a record drop in shipments to the U.S., a government report showed today."
"``It's significant that one of the bank's somewhat hawkish members is now noting the downside risks to the economy,'' said Tomoko Fujii, head of Japan economics and strategy at Bank of America Corp. ``But he's not talking about any policy choices, like a rate cut.''"
The yen traded at 105.65 per dollar at 3:18 p.m. in Tokyo from 105.92 before the remarks were published. The yield on the benchmark 10-year bond fell to 1.475 percent.
"``In general, Japan's financial system remains stable even though tensions are rising because of volatility of global financial markets,'' said Noda, a former executive at Mizuho Financial Group Inc. ``Japan's financial institutions may report more losses resulting from the bankruptcy of Lehman Brothers, however, most of those losses can probably be absorbed.''"
Low-Rate Policy
"Noda's speech didn't include remarks about the possible side effects of prolonging a low-rate policy, which was included in the bank's policy statement last week. The bank kept its benchmark interest rate unchanged at 0.5 percent, the lowest among major economies, at the meeting."
"``In the near term, I would say downside risks are more visible than upside risks,'' Noda told reporters at a press conference. He added that while growth in 2009 will be slower than this year, the economy will start to show signs of rebounding by late next year."
"The global economy will probably slow further this year and next, Noda said, adding that it will regain momentum in 2010 at the earliest."
"``Economic growth is decelerating not only in the U.S. and Europe but around the world, including emerging economies,'' Noda said. ``This has clearly affected Japan's exports.''"
Gather Momentum
"The central bank sticks to its view that the world's second-largest economy will gather momentum eventually because companies aren't loaded with excess debt, production and capacity, making the nation more resilient to external shocks, Noda said. The central bank will watch capital investment and employment trends closely, he added."
"Noda reiterated that inflationary pressures are rising globally and the bank must watch people's inflationary expectations as well as companies' price-setting behavior. Core consumer prices, which exclude fresh food, probably climbed 2.4 percent in August from a year earlier, according to the median estimate of 33 economists surveyed by Bloomberg ahead of government figures to be released tomorrow."
"The fastest inflation in a decade has been spurred by rising costs of oil and will start to moderate in coming months, BOJ policy makers have said. The bank hasn't seen any signs of second-round inflation, in which price increases will cause wage-price spirals, Noda said, adding that he doesn't expect a ``surge'' in those second-round effects anytime soon."
Crude Oil
"Crude oil has fallen by more than a fifth since exceeding $147 a barrel for the first time on July 11 while soybeans, corn and wheat have slumped after climbing to records this year."
Noda reiterated that the bank will implement policy ``flexibly'' and that board members don't have any preconceptions about the direction of its policy.
"Japanese lenders are willing to extend loans, and that has kept financial conditions for companies generally accommodative, he said, though small businesses and construction and real- estate companies have had some difficulty getting loans, he said."
To contact the reporter on this story: Mayumi Otsuma in Kushiro at motsuma@bloomberg.net
"Last Updated: September 25, 2008 02:21 EDT"
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<<2.691_20080925232358US Jobless Claims for the Week of Sept 20 Summary
(Table) .txt>> <<2.646_20080925191217Brazil Jobless Rate Falls to
Second Lowest Since 2001 (Update2) .txt>>
<<2.644_20080925230014Brazilian Stocks Rise After Jobless Rate Falls
Bolsa Climbs .txt>> <<2.636_20080925220858Barclays Says Commodities to
Revive After Worst Drop Since 1956 .txt>>
<<2.634_20080925225653European Bonds Fall as German Confidence
Unexpectedly Improves .txt>> <<2.634_20080925225101Brazil Real Rises
as US Congress Agrees on Bailout Principles .txt>>
<<2.634_20080925221515French Stocks AlcatelLucent Axa Credit Agricole
Dexia .txt>> <<2.633_20080925232217US Jobless Claims Jump 32000 to
493000 Last Week (Update1) .txt>> <<2.632_20080925220023Japan's Tankan
Confidence May Fall to a FiveYear Low (Update1) .txt>>
<<2.632_20080925185635Banks' Subprime MarketRelated Losses Top $523
Billion Table .txt>> <<2.629_20080925233933Crude Oil Falls as Concern
Grows About US FuelDemand Outlook .txt>>
<<2.629_20080925225036Canadian Dollar Reaches Highest in Seven Weeks on
US Plan .txt>> <<2.628_20080925233520US Economy Home Sales Durable
Goods Orders Drop (Update2) .txt>> <<2.627_20080925190738US Economy
Home Sales Durable Goods Orders Drop (Update1) .txt>>
<<2.626_20080925225833Taiwan Unexpectedly Lowers Rate First Cut Since
2003 (Update3) .txt>> <<2.626_20080925225012Buy Euro as Dollar May
Decline Toward $153 Citigroup Says .txt>>
<<2.626_20080925220357Italian Stocks Update Finmeccanica Immsi Intesa
Prysmian .txt>> <<2.625_20080925225356Copper Rebounds as Dollar's
Decline Increases Metal Demand .txt>> <<2.625_20080925225307Gold Drops
on Speculation US Rescue Plan Will Placate Markets .txt>>
<<2.625_20080925225151UK Gilts Fall as Bailout Optimism Reduces Demand
for Safety .txt>> <<2.625_20080925223602New Zealand Economy in
Recession May Prompt More Rate Cuts .txt>>
<<2.624_20080925231711European Equities Will Outperform US JPMorgan Says
(Update1) .txt>> <<2.624_20080925221120Siemens Shares Dip After Rival
GE Cuts Profit Target (Update1) .txt>> <<2.623_20080925234232US
NewHome Sales Fell in August to 17Year Low (Update1) .txt>>
<<2.623_20080925233701GE Is Able to Make Acquisitions in 2009 Sherin
Says (Update1) .txt>> <<2.623_20080925224150Yen Declines as Bailout
Plan Spurs Demand for Higher Yields .txt>>
<<2.622_20080925233228Bernanke Moves Closer to Rate Cut as Risks
Intensify (Update1) .txt>> <<2.622_20080925232423Bernanke Sees `Grave
Threats' to Financial Stability (Update5) .txt>>
<<2.622_20080925231737Kokusai Biggest Bond Fund in Asia Bets on Dollar
(Update1) .txt>> <<2.622_20080925223741Libor Rises Most Since 1999 as
Banks Shun MoneyMarket Lending .txt>> <<2.622_20080925220551Ireland
Becomes First Euro Nation to Enter Recession (Update2) .txt>>
<<2.621_20080925225126Swiss Franc Gains as US Bailout Concern Boosts
Risk Aversion .txt>> <<2.621_20080925222650Carney Says Canada Exports
Prices May Drop Amid US Turmoil .txt>> <<2.621_20080925220052BOJ Adds
1 Trillion Yen in 7th Day of Fund Injections (Update2) .txt>>
<<2.619_20080925225422Soybeans Gain as Increased Moisture May Reduce US
Crop Yield .txt>> <<2.619_20080925224625Crude Oil Gasoline Rise on
Bailout Plan US Fuel Supply Drop .txt>> <<2.618_20080925225332Corn
Declines as US Economic Slowdown Reduces Global Demand .txt>>
<<2.618_20080925224921China's Banks Limit InterestRate Swaps With
Overseas (Update1) .txt>> <<2.618_20080925224831Russian Stocks Slump
on Higher Loan Rates for Brokers Oil Drop .txt>>
<<2.618_20080925224125Corporate Defaults May Rise to 23% by 2010 S&P
Says (Update2) .txt>> <<2.618_20080925220709India Central Bank May Cap
Rupee Drop Former Panel Member Says .txt>> <<2.617_20080925225923Korea
Currency Swap Rates to Fall to 5Month Low Samsung Says .txt>>
<<2.617_20080925225743Company Bond Risk Declines as US Congress Nears
Bailout Deal .txt>> <<2.617_20080925220618India's Inflation Holds Near
Lowest Level in 5 Weeks (Update1) .txt>> <<2.616_20080925225603US
Commercial Paper Slumps Most Since August 2007 (Update3) .txt>>
<<2.616_20080925225216Bollinger Band Shows Euro May Rise to $149 Bank of
Tokyo Says .txt>> <<2.616_20080925224741Natural Gas Rises as Financial
Bailout Package Agreement Nears .txt>>
<<2.616_20080925221959EmergingMarket Bonds Fall for 3rd Day on Bailout
Delay Concern .txt>> <<2.615_20080925233908Bush Advisor Lazear Says
Credit Has `Completely Frozen Up' .txt>>
<<2.615_20080925223243Australia NZ Dollars Gain on Reports of US Rescue
Deal .txt>> <<2.615_20080925220259Noda Says Bank of Japan Scenario for
Recovery Is Under Threat .txt>>
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A blog for global investors, with information about most of the world financial markets. Updated frequently, every day, with my views on these markets. Bear or Bull? Read to discover!
6 comments:
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mathew hadley
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