Latin American Currencies: Colombia Peso Jumps Most in 2 Months
By Andrea Jaramillo
"Sept. 12 (Bloomberg) -- Colombia's peso rose the most in two months after a government report showed U.S. retail sales unexpectedly declined in August, leading some investors to bet the Federal Reserve will cut borrowing costs."
"``After there was talk of higher rates, now the retail sales number is helping fuel bets the Fed will reinitiate rate cuts,'' said Boris Segura, an economist at Morgan Stanley in New York."
"The peso advanced 1.4 percent to 2,050.55 per dollar at 5:18 p.m. New York time, from 2,080 yesterday, according to the Colombian foreign-exchange electronic transactions system, known as SET-FX. It's the biggest advance since July 8."
A widening gap between the 10 percent Colombian target lending rate and the 2 percent U.S. benchmark and increased foreign direct investment propelled the peso to a nine-year high in June. The 8 percentage point difference between Colombian and U.S. benchmark rates is the biggest since November 1999.
"Futures on the Chicago Board of Trade showed a 38 percent chance the Fed will cut its target rate for overnight lending between banks by at least a quarter-percentage point by December, compared with an 11 percent chance a week ago and no possibility a month ago. The Fed next meets Sept. 16."
Segura said gains will be short-lived. He forecasts Latin American currencies will continue to slip amid the U.S. dollar's strengthening trend and a ``bleak outlook'' for the global economy.
Chile's De Gregorio
"Colombia's peso has plunged 13.7 percent since July 15, when the dollar began rising against the euro from an all-time low."
"The yield on Colombia's benchmark 11 percent bonds due in July 2020 rose 3 basis points to 11.58 percent, according to Colombia's stock exchange. The bond's price fell 0.178 centavo to 96.286 centavos per peso."
"Chilean central bank President Jose De Gregorio said today policy makers may lift interest rates faster than many economists expect, in a bid to stem inflation."
"Banco Central de Chile earlier this month raised its overnight lending rate a half-percentage point to 8.25 percent, the highest since December 1998. The central bank has raised the key rate 2.75 percentage points in the past 12 months."
"De Gregorio's ``hawkish'' comments pushed up fixed-rate bond yields, said Ricardo Gomez, head of fixed-income trading at Larrain Vial SA in Santiago. He forecasts the central bank will lift the key rate to as high as 9.5 percent by year-end."
"The yield on the nation's peso bonds due in March 2013 rose 23 basis points to 7.94 percent, according to Chile's Commerce Exchange."
`Very Nervous'
Annual inflation eased in August to 9.3 percent from a 13- year high of 9.5 percent in July. The central bank targets inflation of between 2 percent and 4 percent.
Chile's peso advanced 0.1 percent to 529.63 per dollar from 530.03 yesterday.
"In Venezuela, the bolivar weakened 6.6 percent to 4.5 per dollar in the black market from 4.2 yesterday, traders said."
"Venezuelan President Hugo Chavez yesterday ordered the American ambassador to leave and threatened to halt oil exports to the U.S. The U.S. is the biggest buyer of Venezuelan oil, which accounts for 90 percent of the South American country's exports."
"``The market is very nervous after Chavez's words last night,'' said Henry Travieso, a trader at Banfers Sociedad de Corretaje in Caracas. ``People are waiting to see what will happen after the latest political row.''"
"Mexico, Argentina, Peru"
The government pegs the bolivar at an official exchange rate of 2.15 per dollar under restrictions imposed in 2003. Venezuelans turn to the parallel market when they can't get government approval to buy dollars at the official rate.
"Mexico's peso rose 0.2 percent to 10.5945 per dollar, from 10.6115 yesterday. Yields on the 10 percent bonds due in 2024, Mexico's most-traded security, fell 3 basis points to 8.5 percent, according to Banco Santander SA."
"Argentina's peso fell 0.05 percent to 3.0815 per dollar, from 3.08 yesterday. The yield on the nation's inflation-linked peso bonds due in February 2033 rose 9 basis points to 10.92 percent, according to Citigroup Inc.'s local unit."
"Peru's sol closed little changed at 2.9746 per dollar, from 2.9745 yesterday."
"Banco Central de Reserva del Peru yesterday raised its overnight lending rate a quarter-percentage point to 6.5 percent, in line with the median forecast of 16 economists surveyed by Bloomberg News. The bank didn't intervene in the currency market today after selling $700 million earlier this week to ease the sol's slide. Last week it sold $323 million."
"The yield on the nation's 8.6 percent sol-denominated bond due in August 2017 rose 3 basis points to 8.03 percent, according to Citigroup Inc.'s unit in Lima."
To contact the reporter on this story: Andrea Jaramillo in Bogota at ajaramillo1@bloomberg.net
"Last Updated: September 12, 2008 18:40 EDT"
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European Bonds Drop as Stock Gains Sap Demand for Safest Assets
"Sept. 12 (Bloomberg) -- European government bonds declined as stocks advanced on speculation Lehman Brothers Holdings Inc. will be rescued in a takeover, damping investor demand for the safest assets."
"The 10-year German bund is poised to snap two weeks of gains after European Central Bank Vice President Lucas Papademos said the 15-nation economy is likely to escape a recession. Stocks in the euro region advanced, and those in Asia climbed for the first time in four days."
"``Speculation Lehman might find a buyer helped stocks at the expense of bonds,'' said Nick Stamenkovic, fixed-income strategist in Edinburgh at RIA Capital Markets. ``But at the end of the day, the crisis is far from over. Even if Lehman is wound up and sold off, the market will be looking for a new casualty and that will be supportive for the bond market.''"
"The yield on the 10-year German bund, Europe's benchmark government security, rose 4 basis points to 4.12 percent by 9:02 a.m. in London, leaving it 12 basis points higher in the week. The price of the 4.25 percent bond due July 2018 fell 0.32, or 3.2 euros per 1,000-euro ($1,400) face amount, to 101.01."
"The yield on the two-year note climbed 2 basis points to 3.90 percent, extending its weekly gain to 6 basis points. Yields move inversely to bond prices."
"The MSCI Asia Pacific Index of stocks added 0.9 percent by 4 p.m. in Tokyo, poised to end a three-day, 5.3 percent drop. The Dow Jones Stoxx 600, a benchmark for Europe, gained 1.1 percent."
"``It's not considered likely'' the euro-area economy will shrink in the third quarter ``but it can't be excluded, taking into account uncertainty and downside risks,'' Papademos said in Hamburg late yesterday. ``There are indications broad-based second-round effects are materializing and we want to make sure that they don't become even broader and stronger,'' he said."
Inflation Pressures
"The 15-nation economy contracted in the second quarter. Still, the ECB lifted interest rates to a seven-year high in July and said it will act to ensure inflation doesn't become embedded as workers seek to offset higher food and energy costs."
"Inflation is running at 3.8 percent, almost twice the bank's 2 percent limit. The ECB raised its key rate to 4.25 percent after price growth quickened to the fastest pace in 16 years."
"Declines for bonds may be limited before a government report today that will probably show factory production in Europe shrank. Industrial output in the region fell 0.2 percent in July, matching the drop in June, according to a Bloomberg News survey of economists before the European Union statistics office data due at 11 a.m. in Luxembourg."
French Prices
"Inflation in France, the second-largest euro-region economy, slowed more than forecast last month. Consumer prices climbed an annual 3.5 percent based on the European Union's methodology, down from 4 percent in July and June, which was the highest since Insee, the statistics office, began reporting the data in 1996. Economists expected a rate of 3.7 percent, according to the median of 21 forecasts in a Bloomberg News survey."
"French manufacturing confidence held near a five-year low as slowing economic growth dims optimism among executives. The Bank of France said its index of manufacturing sentiment rose to 94 from 92 in July, the lowest since May 2003."
"European bonds outperformed Treasuries in the second half of the year on speculation the region is entering a recession. German bonds have handed investors a 3.7 percent return since the end of June, compared with 2.8 percent for U.S. debt, according to Merrill Lynch's German Federal Governments and U.S. Treasury Master indexes."
To contact the reporters on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net
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Canadian July Trade Surplus Narrows on Import Growth (Update2)
By Greg Quinn
Sept. 11 (Bloomberg) -- Canada's trade surplus narrowed more than economists expected in July as imports of new cars and materials to build pipelines outstripped export gains.
"The surplus shrank to C$4.85 billion ($4.5 billion) from a revised C$5.64 billion in June, Statistics Canada said today in Ottawa. Imports rose 4.6 percent, the fourth straight gain, and exports increased 2.2 percent. Economists predicted the surplus would narrow to C$5.6 billion, the median of 17 estimates."
"The report indicates high commodity prices are supporting purchases from abroad by Canadian companies and consumers, offsetting the damage this year from weak factory sales to the U.S., Canada's main market. The Bank of Canada says trade will be the biggest drag on an economy that will grow 1 percent this year, the slowest since 1992."
"``The out-performance of real imports suggests that trade will once again be a drag,'' said Charmaine Buskas, senior economics strategist at TD Securities in Toronto, referring to the value of imports adjusted for price changes. Still, she said ``it is good news that there has been growth in both imports and exports.''"
"Canada's dollar rose to a record against its U.S. counterpart last year, crippling manufactured exports. The currency fell 0.7 percent to C$1.0784 per U.S. dollar at 4:11 p.m. in Toronto from C$1.0714 yesterday. Earlier it fell as low as C$1.0821, the weakest since Aug. 16, 2007."
Import Gain
"The import gain was led by a 9.5 percent jump in automotive products, mostly new cars, Statistics Canada said. Orders of parts for crude oil pipelines and underwater power cables lifted industrial goods imports by 6.1 percent, and shipments of excavating gear helped boost machinery and equipment imports by 2.9 percent."
Producers of energy and metals have expanded in recent years to take advantage of high prices. Tar sands in the western province of Alberta hold the world's biggest oil deposits outside the Middle East.
"On the export side, industrial goods rose 5 percent in July, led by shipments of nickel and fertilizers. Machinery and equipment exports rose 6.6 percent. Exports of energy products, meanwhile, dropped for the first time since October 2007."
"Falling energy prices may narrow Canada's trade surplus to less than C$3 billion in coming months, Doug Porter, deputy chief economist with BMO Capital Markets in Toronto, wrote in a note to clients. Natural gas, for example, has declined 45 percent from a 30-month closing high of $13.577 on July 3."
Trade With U.S.
"The trade surplus with the U.S. narrowed to C$8.88 billion from C$9.73 billion, as demand in that country continues to be hobbled by a housing slump, job losses and high energy costs."
"Canada's economy will probably grow at a 0.8 percent annualized pace in the July-to-September period, economists surveyed by Bloomberg say. The economy shrank in the first quarter for the first time in almost five years because of a drop in automotive shipments, most of which go to the U.S., before expanding at a 0.3 percent pace in the second quarter."
"Ford Motor Co. said yesterday it plans to cut 500 jobs at a plant in Oakville, Ontario, as the second-biggest U.S. automaker reduces North American output by 30 percent in the year's second half. Ford is slashing North American output to avoid piling up unsold vehicles on dealer lots. U.S. sales have slid in 21 of the past 22 months."
"Separately today, Statistics Canada said new-home prices increased 2.7 percent from July 2007, slowing for a sixth straight month to the worst growth since 2001. From June, prices rose 0.1 percent, matching economists' expectations."
To contact the reporter on this story: Greg Quinn in Ottawa at gquinn1@bloomberg.net.
"Last Updated: September 11, 2008 16:16 EDT"
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India's Rupee Set for 5th Weekly Loss as Investors Dump Stocks
By Anoop Agrawal
"Sept. 12 (Bloomberg) -- India's rupee headed for a fifth weekly loss, the longest stretch since May, as global funds shunned emerging-market assets on concern the economic slump is spreading from the U.S. to Europe and Asia."
The rupee traded near the lowest level in almost two years as data from the local market regulator showed overseas investors sold more Indian shares than they bought on five of the seven trading days this month. Demand for dollars from importers and capital outflows have increased concern India's current-account deficit will widen.
"``The demand-supply balance and the fundamentals are against the rupee,'' said V. Rajagopal, chief currency trader at Kotak Mahindra Bank Ltd. in Mumbai. ``There's no reason why this trend should not continue in the short term.''"
"The rupee declined 2.3 percent this week to 45.6925 against the dollar as of 10:07 a.m. in Mumbai, according to data compiled by Bloomberg. It touched 45.71, the lowest since Oct. 11, 2007."
"A government report today may show industrial production rose 6 percent in July from a year earlier, after rising 5.4 percent the previous month, according to the median estimate in a Bloomberg survey of economists."
"Another report last month showed Asia's third-biggest economy expanded 7.9 percent in the three months through June, the slowest pace since the last quarter of 2004."
"Foreign investors were net sellers for a fifth straight month, dumping $7.6 billion this year, according to data from the Securities & Exchange Board of India. They bought a record $19.5 billion in stocks and bonds last year, helping the rupee rally 12.2 percent, the biggest annual advance in more than three decades. The currency has since erased all of those gains."
To contact the reporter on this story: Anoop Agrawal in Mumbai at aagrawal8@bloomberg.net.
"Last Updated: September 12, 2008 00:55 EDT"
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"Brazil Stocks Rise, Led by Petrobras on Oil Find; Bolsa Drops "
By William Freebairn and Paulo Winterstein
Sept. 11 (Bloomberg) -- Brazilian stocks rose the most in six weeks as Petroleo Brasileiro SA surged almost 10 percent on its second giant oil find in a year and Merrill Lynch & Co. advised investors to buy steelmaker Cia. Siderurgica Nacional SA.
Petrobras gained the most on the Bovespa index after the oil company said its Iara offshore field contains 3 billion to 4 billion barrels of oil. CSN led steelmakers higher as Merrill said Brazil's third-largest producer may sell its iron-ore unit for $4.1 billion more than investors expect. Gafisa SA paced declines for homebuilders after Raymond James & Associates said higher borrowing costs may stifle consumer spending.
"Petrobras ``has had a lot of finds already, and we're expecting more,'' said Urban Larson, Latin America portfolio manager at F&C Management Ltd. in London, which oversees about $2.5 billion in stocks. ``They've got very good production growth in the long term,'' he said in a phone interview."
"The Bovespa index gained 1,637.24, or 3.3 percent, to 51,270.4. The MidLarge Cap index gained 3.9 percent, while the Small Cap index advanced 0.5 percent. Mexico's Bolsa declined 0.3 percent and Chile's Ipsa index rose 0.4 percent. The MSCI Latin America index gained 1.6 percent."
"Petrobras rose 9.5 percent to 31.40 reais after it said its Iara field may have enough oil to supply the nation for five years. If confirmed, Iara and Tupi, which sit in non-adjacent parts of the same exploration block, could almost double Brazil's 12.6 billion barrels of proven oil reserves, according to BP Plc."
Exploration Surprise
"``These sorts of announcements underscore the potential for exploration surprise that we still expect to see as a driver over the course of the next few years,'' UBS AG analyst Gustavo Gattass wrote in a research note today."
"Cia. Siderurgica Nacional, known as CSN, advanced 7.4 percent to 47.80 reais. Brazil's largest steelmaker may sell its iron-ore unit for $4.1 billion more than investors expect, Merrill said. Gerdau SA, Latin America's largest steelmaker, rose 4.6 percent to 25.36 reais."
"Cia. Vale do Rio Doce, the world's largest iron-ore producer, climbed to the highest in a week after UBS said profit margins may improve and valuations are ``deeply discounted.'' Vale rose 4.1 percent to 36.70 reais."
"Light SA, Brazil's second-biggest electricity distributor, jumped the most in a month after stockholders canceled plans to sell $586 million in common shares because of market conditions. Light rose 2.7 percent to 23.09 reais."
"Gafisa, Brazil's second-largest real estate developer, fell 4.3 percent to 23.35 reais. MRV Engenharia e Participacoes SA, a builder of low-income homes, slid 2.5 percent to 27.30 reais."
Rate Rise
Brazil's central bank raised its benchmark interest rate yesterday to the highest in almost two years in a bid to cool surging economic growth.
"Policy makers, by a vote of 5-3, raised the so-called Selic rate a fourth time since April to 13.75 percent from 13 percent to tame consumer prices. The decision raised Brazil's real interest rate, which is the Selic minus inflation, to the highest of all 54 countries tracked by Bloomberg. The dissenters voted for a half-point increase."
"Brazil stocks may fall further as commodity prices continue to drop and as economic indicators that act as positive catalysts are ``still a long way off,'' Banco Santander SA said. Rising interest rates in Brazil are also a risk, and may lead local investors to exit the market this year, it said."
"BM&F Bovespa SA, the world's third-largest securities exchange, fell to the lowest since it was created last month in the merger of equities and derivatives markets after Itau Corretora said it may reduce its estimates because August trading volumes were ``weak.''"
Trading Slump
BM&F Bovespa dropped 5.7 percent to 8.75 reais.
"The total volume of fixed income and equity securities in August was 101.04 billion reais, down 19 percent from July, according to a Sept. 9 statement. ``These falling volumes stem from global uncertainties that may continue to affect exchanges worldwide,'' wrote Itau analyst Victor Mizusaki. ``This weak performance may result in an additional cut in our assumptions.''"
"Mexico's Bolsa index fell for a third day, led by the country's biggest publicly traded lender, Grupo Financiero Banorte SAB, on concern a collapse of Lehman Brothers Holdings Inc. will trigger a new round of bank failures at its biggest trading partner. Lehman entered into talks with potential buyers after Moody's Investors Service said the company must find a ``stronger financial partner.'' Shares fell 42 percent."
"Telmex Internacional SAB dropped after UBS AG said a share buyback is ``unsustainable in the long term,'' and would hamper its ability to make acquisitions."
"Banorte fell 7.2 percent to 36.21 pesos. The bank may report 2008 profit of 7.7 billion pesos ($721 million), the low end of the company's forecast, as asset quality falls, Deutsche Bank AG analyst Mario Pierry wrote. Higher costs for funding will likely cancel out gains in income from credit cards, he wrote."
Telmex Internacional dropped 4.3 percent to 6.73 pesos.
"Most stocks in Argentina's main index fell, led by steelmaker Siderar SAIC, amid growing mistrust of government economic data and as declines triggered selling of holdings bought with credit."
`Technically Impeccable'
"Argentina's National Statistics Institute said yesterday that consumer prices rose 0.5 percent in August, less than analysts expected, while annual inflation slowed to 9 percent. The country's official price index, whose accuracy has been questioned by economists and politicians, is technically ``impeccable,'' institute director Ana Maria Edwin said in an interview with Clarin published today."
"``That deepens the distrust even more,'' Jorge Alberti, an analyst at ElAccionista.com, said by phone from Buenos Aires."
Siderar fell 3.4 percent to 24.15 pesos.
"Elsewhere in Latin America, Peru's Lima General index was little changed and Colombia's IGBC gained 1.4 percent."
To contact the reporter on this story: William Freebairn in Mexico City at wfreebairn@bloomberg.net; Paulo Winterstein in Sao Paulo at pwinterstein@bloomberg.net.
"Last Updated: September 11, 2008 17:17 EDT"
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Gold Headed for Second Weekly Decline as Dollar Climb Continues
By Feiwen Rong
Sept. 12 (Bloomberg) -- Gold headed for the second weekly decline on concern the dollar's climb to the highest in a year against the euro would erode the precious metal's appeal as a store of value.
"Bullion tumbled 7.1 percent this week before today, while the dollar rose 1.9 percent against the euro. Gold usually moves in the opposite direction to the U.S. currency as investors tend to buy bullion as an alternative asset when the dollar falls."
"``We should see some further downside risk in gold because the U.S. dollar could firm further, and the market is still mildly overbought so there's potential for more sell-off,'' Mark Pervan, analyst at Australia and New Zealand Banking Group Ltd., said today by phone from Melbourne."
"Bullion for immediate delivery rose 0.7 percent to $751.55 an ounce at 1:07 p.m. in Singapore. It touched $736.70 an ounce yesterday, the lowest since Oct. 9, 2007. Silver for immediate delivery advanced 1.9 percent to $10.76 an ounce."
"The U.S. currency was little changed at $1.3988 per euro from $1.3998 yesterday, after touching $1.3882, the strongest level since Sept. 18, 2007."
"Gold's direction will also be affected by crude oil, Pervan said. ``Oil looks like it may be choppy in the near term in the active hurricane season and could slow gold's decline,'' Pervan said. Crude oil in New York advanced 0.4 percent to $101.26 a barrel at 1:08 p.m. in Singapore."
Long Positions
"``We judge speculative net long positions greatly reduced in precious metals, although still long,'' said John Reade, analyst at UBS Ltd. in London, in a report yesterday. Yet the ``predominance of recently added short positions in precious and base metals does not necessarily mean the market will rally.''"
"Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, has fallen 4.3 percent this week to 614.4 tons. The fund reached a record 705.9 tons on July 11."
December-delivery gold added 1.3 percent at $755.20 an ounce in after-hours electronic trading on the Comex division of the New York Mercantile Exchange.
Gold for December delivery traded in Shanghai fell 0.2 percent to 169 yuan a gram ($769 an ounce) at the same time.
"In Japan, gold for August delivery on the Tokyo Commodity Exchange gained 1.3 percent to 2,602 yen a gram ($754 an ounce)."
To contact the reporter on this story: Feiwen Rong in Singapore at frong2@bloomberg.net
"Last Updated: September 12, 2008 01:46 EDT"
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Emerging-Market Bonds Fall as Lehman Collapse Concerns Mount
By Lester Pimentel
"Sept. 11 (Bloomberg) -- Emerging-market bonds fell, led by declines in Argentine debt, as speculation Lehman Brothers Holdings Inc. may collapse prompted investors to shun all but the safest securities."
"The extra yield investors demand to own developing nations' bonds instead of U.S. Treasuries widened 3 basis points to 3.33 percentage points at 5 p.m. in New York, according to JPMorgan Chase & Co. A basis point equals 0.01 percentage point. The so- called spread is the biggest since June 2005."
"``There are concerns about financial sector distress,'' said Siobhan Morden, a Latin America debt strategist with Royal Bank of Scotland in New York. ``The market is re-pricing for external risk aversion.''"
"The yield to the 2015 call date on Brazil's 11 percent bond due in 2040, one of the most widely traded emerging-market securities, climbed 4 basis points to 5.55 percent, according to JPMorgan. The bond's price fell 0.15 cent on the dollar to 131.05 cents."
"Argentine bonds, among the highest-yielding debt in emerging markets, yielded 7.54 percentage points more than Treasuries, up 12 basis points from yesterday, according to JPMorgan."
"The risk of owning Argentina's bonds reached a record. Five- year credit-default swaps based on the country's debt climbed 21 basis points to 8.73 percentage points, according to Bloomberg data. That means it costs $873,000 to protect $10 million of the country's debt from default."
"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."
"``Argentina is one of the weakest credits in emerging markets, so it falls more than others when there's a sell-off,'' Morden said."
To contact the reporter on this story: Lester Pimentel in New York at lpimentel1@bloomberg.net
"Last Updated: September 11, 2008 17:14 EDT"
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Yen Falls Versus Euro on Speculation Lehman May Be Purchased
By Ye Xie
Sept. 12 (Bloomberg) -- The yen declined from a two-year high against the euro as speculation Lehman Brothers Holdings Inc. may be bought eased concern that investors will sell higher yielding assets funded with cheap loans in Japan.
The dollar rose to the strongest level in a year against the euro yesterday on evidence the economic slump that started in the U.S. has spread to the rest of the world. The yen had appreciated against all major currencies yesterday as concern Lehman will collapse.
"``It certainly caught the yen-crosses with their pants down,'' said Brian Dolan, chief currency strategist at FOREX.com, a unit of online trading firm Gain Capital in Bedminster, New Jersey."
"The yen fell to 150.23 per euro at 6:53 a.m. in Tokyo, after rising 0.5 percent yesterday when it touched 147.54, the strongest in more than two years. The U.S. currency traded $1.4017 per euro, after touched $1.3882 yesterday, the strongest level since Sept. 18, 2007. The yen was at 107.21 per dollar, following a 0.5 percent gain."
"The Standard & Poor's 500 Index rose 1.7 percent yesterday after earlier falling to its lowest level since 2005, as people with knowledge of the situation said other firms were reviewing Lehman's books in preparation for a possible takeover bid. The Wall Street Journal reported that Bank of America Corp. is among potential suitors."
"The ICE's Dollar Index touched 80.375 yesterday, the highest level since September 2007, when the Federal Reserve began cutting the target lending rate from 5.25 percent to 2 percent to stave off a recession. The index, a gauge measuring the dollar against the currencies of six U.S. trading partners, reached a low of 70.698 on March 17."
Dollar's Gains
"The dollar strengthened beyond 1.80 versus the Brazilian real yesterday for the first time since January and reached $1.7447 against the pound, the strongest level since April 2006."
"``The global slowdown has dimmed the allure of higher yields abroad,'' wrote Benedikt Germanier, a currency strategist at UBS AG in Stamford, Connecticut, in a research note to clients yesterday."
The dollar has gained 13 percent since touching the all- time low of $1.6038 per euro on July 15 as the European economy slumped and crude oil dropped more than 30 percent to $100.31 a barrel from its peak of $147.27.
"Industrial output in the 15 nations that use the euro probably fell 0.2 percent in July after a drop of the same amount in the previous month, according to the median forecast of 31 economists surveyed by Bloomberg News. The report from the European Union's statistics office is due today."
`Perception of Risk'
"``We're looking at a much weaker level for the euro over the next year,'' said Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co., in an interview on Bloomberg Television. ``Europe, Japan and Asia can't have strong growth with the U.S. so weak. The decoupling story is a mirage.''"
Canada's dollar fell yesterday to the weakest level since August 2007 after a government report showed the nation's trade surplus shrank in July as crude oil prices declined. The currency touched a one-year low of C$1.0821 per U.S. dollar.
Japan's currency rose 2.1 percent to 59 versus the Brazilian real yesterday and 0.2 percent to 13.09 against the South African rand on speculation investors will reduce carry trades in which they get funds in a country with low borrowing costs and buy assets where returns are higher. Japan's target lending rate of 0.5 percent compares with 13.75 percent in Brazil and 12 percent in South Africa.
"``We're in a situation where we're likely to see the current environment of slower global growth, lower interest rates, more risk reduction and deleveraging,'' said Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto. ``All suggest to me this process of unwinding the carry trades is going to continue.''"
To contact the reporter on this story: Ye Xie in New York at yxie6@bloomberg.net
"Last Updated: September 11, 2008 17:57 EDT"
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"Options Show Euro May Fall to $1.30, Bank of Tokyo's Miki Says "
By Stanley White
"Sept. 12 (Bloomberg) -- Currency options show the euro may decline to $1.30 by year-end, said Takeharu Miki, currency options manager at Bank of Tokyo-Mitsubishi UFJ Ltd."
"The risk-reversal rate, the premium on one-month put options over call options, was near the widest since at least October 2003, showing traders are increasing bets on a decline in the euro, Tokyo-based Miki said. Puts grant the right to sell and calls allow purchases. The 15-nation currency last traded at $1.4007 at 1:49 p.m. in Tokyo after falling yesterday to a one- year low of $1.3882."
"``The options market shows the euro is likely to keep heading lower and lower,'' said Miki. ``There's not much worry about a dead cat bounce. The risk-reversal rate shows the euro has the potential to fall.''"
"The euro's one-month 25-delta risk-reversal rate against the dollar was minus 1.1875 percent after reaching minus 1.2250 percent yesterday, the largest premium for euro puts since Bloomberg began compiling the data in October 2003. Delta measures the rate of change in an option's value relative to moves in the underlying currencies."
Volatility implied by euro-dollar options expiring in one month with a strike price near current levels rose to 12.85 percent today from 11.77 percent a week ago.
"Traders quote implied volatility, a measure of expectations for future currency moves, as part of pricing options."
To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net
"Last Updated: September 12, 2008 01:08 EDT"
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France August Consumer Prices: Summary (Table)
By Ainhoa Goyeneche
Sept. 12 (Bloomberg) -- Following is a summary of the August CPI report from the French Statistics Office in Paris:
================================================================================
Aug. July June May April March Feb.
2008 2008 2008 2008 2008 2008 2008
================================================================================
-------------- Monthly percentage change -------------
Overall CPI MoM 0.0% -0.2% 0.4% 0.5% 0.3% 0.8% 0.2%
Overall Ex Energy MoM 0.3% -0.3% 0.1% 0.2% 0.3% 0.6% 0.3%
Overall Ex Tobacco MoM 0.0% -0.2% 0.4% 0.5% 0.3% 0.8% 0.2%
EU Harmonized CPI MoM -0.1% -0.3% 0.4% 0.6% 0.4% 0.8% 0.2%
--------------- Yearly percentage change -------------
Overall CPI YoY 3.2% 3.6% 3.6% 3.3% 3.0% 3.2% 2.8%
Overall Ex Energy YoY 2.1% 2.4% 2.3% 2.3% 2.3% 2.4% 2.1%
Overall Ex Tobacco YoY 3.2% 3.6% 3.5% 3.3% 3.0% 3.1% 2.8%
EU Harmonized CPI YoY 3.5% 4.0% 4.0% 3.7% 3.4% 3.5% 3.2%
-------------------- Index Level ---------------------
Overall CPI 119.88 119.92 120.17 119.73 119.10 118.70 117.81
================================================================================
Aug. July June May April March Feb.
2008 2008 2008 2008 2008 2008 2008
================================================================================
Overall Ex Energy 116.83 116.51 116.81 116.71 116.46 116.14 115.47
Overall Ex Tobacco 118.64 118.69 118.95 118.50 117.86 117.46 116.57
EU Harmonized CPI 107.43 107.49 107.79 107.34 106.72 106.32 105.47
================================================================================
NOTE: National index level based at 1998=100; EU-Harmonized based at 2005=100.
SOURCE: INSEE-Institut National de la Statistique et des Etudes Economiques
(French Statistics Office)
To contact the reporter on this story: Ainhoa Goyeneche in Madrid at agoyenechecu@bloomberg.net
"Last Updated: September 12, 2008 02:45 EDT"
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Canadian Dollar Rises for First Time in a Week on Commodities
By Daniel Kruger
"Sept. 12 (Bloomberg) -- The Canadian dollar rose for the first time in a week as prices for gold, silver and other commodities rose."
The currency's increase was the biggest in three weeks. Commodities were bolstered as the U.S. dollar weakened against most major currencies amid investor speculation a possible deal to buy New York-based Lehman Brothers Holdings Inc. would reduce systemic risk to global financial markets.
"The Canadian dollar is helped by ``broad-based dollar weakness,'' said Matthew Strauss, a senior currency strategist at RBC Capital Markets Inc. in Toronto, a unit of Canada's biggest bank by assets. ``Plus, we've seen a small rebound in commodities which is obviously benefiting the Canadian dollar as well. It's getting help from both sides.''"
"The Canadian currency, dubbed the loonie because of the aquatic bird on the one-dollar coin, appreciated 1.3 percent to C$1.0610 per U.S. dollar at 4 p.m. in Toronto, from C$1.0752 yesterday. Earlier it advanced as high as C$1.0763. One Canadian dollar buys 94.25 U.S. cents."
"Gold for immediate delivery climbed $23.30, or 3 percent, to $768.80 an ounce. The metal yesterday reached its lowest since October. Silver rose 3.3 percent to 10.90 per ounce, its first gain in two weeks."
"Lehman, AIG Concerns"
"The yield on Canada's 10-year benchmark government bond rose 11 basis points, the most in three months, to 3.60 percent. The 4.25 percent security maturing June 2018 fell 84 cents to C$105.33. They dropped as low as 3.43 percent this week."
"Canada's bond market ``is totally focused on risk aversion and its ebb and flow,'' said Craig Wright, chief economist at Toronto-based Royal Bank of Canada, the country's largest lender by assets."
"Financial firms worldwide have recorded $514 billion of losses and writedowns since the start of last year, with $10.3 billion of that at Canadian firms. ``People have come to appreciate how broadly held these products were and how broadly felt the pain has been,'' Wright said."
Traders have begun to bet that the Federal Reserve's next move will be to lower borrowing costs. Futures indicate a 12 percent likelihood the Fed will lower its benchmark 2 percent rate for overnight loans by a quarter percentage when policy makers meet on Sept. 16. The December contract shows a 39 percent probability that the central bank will reduce rates at least once this year.
Rate Expectations
"The Bank of Canada left its benchmark rate unchanged at 3 percent on Sept. 3. The rate is ``appropriately accommodative,'' while inflationary pressures ``remain elevated,'' the central bank said. It didn't hint that slow growth may lead to a rate reduction. The next rate meeting is schedule Oct. 21."
"``Interest-rate expectations are beginning to weigh on the U.S. dollar, giving more support to the loonie,'' said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon, the world's largest custodial bank, with more than $23 trillion in assets under administration."
Canadian industrial companies' use of their production capacity fell to the lowest in 16 years last quarter amid weak demand from the U.S.
Industrial Production
"The share of plants in use fell to 78.9 percent from April to June, compared with the 78.8 percent median forecast of 10 economists in a Bloomberg News survey. Capacity utilization was the lowest since 1992, marking the fourth straight three-month period in which the index fell, Statistics Canada said today."
"Demand for commodities, which account for about half of Canada's exports, has weakened with the slowdown in the global economy. The Canadian dollar has fallen 5 percent since July 11, when crude futures peaked at $147.27 a barrel."
"The global economy may slow to about 3 percent growth in late 2008 from 5 percent in the previous year before re- accelerating toward 4 percent in 2009, said John Lipsky, first deputy managing director of the Washington-based International Monetary Fund, on Sept. 9."
"The Canadian currency will fall to C$1.10 per U.S. dollar in the second quarter of 2009, according to a Bloomberg News survey of 34 firms."
To contact the reporter on this story: Daniel Kruger in New York at dkruger1@bloomberg.net
"Last Updated: September 12, 2008 16:01 EDT"
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Treasuries Head for Weekly Advance; Retail Sales May Decline
By [bn:PRSN=1] Anchalee Worrachate [] and [bn:PRSN=1] Wes Goodman []
"Sept. 12 (Bloomberg) -- Treasuries rose, headed for a third weekly gain, before a U.S. government report that may show retail sales fell for the first time in six months, strengthening the case for an interest-rate cut."
"The yield on the 10-year note held near the lowest level in almost five months before the report likely to show consumer purchases excluding autos declined 0.2 percent in August. Treasuries advanced this week as Lehman Brothers Holdings Inc., a primary dealer that trades with the Federal Reserve, sought a buyer to shore up its finances."
"``The Lehman Brothers effect is greater on the U.S., even though it's not confined there because the U.S. is at the epicenter of the problem,'' said Richard McGuire, a senior fixed-income strategist in London at RBC Capital Markets. ``And although recent data suggest the U.S. economy might be able to dodge a recession, the outlook is still weak.''"
"The yield on the 10-year note rose 1 basis point to 3.67 percent as of 10:17 a.m. in London, according to BGCantor Market Data. The 4 percent security maturing in August 2018 fell 3/32, or 93 cents per $1,000 face amount, to 102 25/32. The yield has dropped almost a quarter-percentage point in three weeks."
The yield on the two-year note fell 1 basis point to 2.23 percent.
"Sales at U.S. retailers excluding car dealers declined last month, after a 0.4 percent gain in July, according to a Bloomberg survey of 76 economists. The Commerce Department releases the figures at 8:30 a.m. in Washington. Government figures will also probably show producer prices dropped 0.5 percent in August, compared with a 1.2 percent gain the month before, according to a separate survey."
Ratings Downgrade
"Without a ``strategic arrangement,'' Lehman's credit- ratings may be downgraded, Moody's Investors Service said yesterday. The shares fell 42 percent yesterday, and they are down 74 percent this week."
"Washington Mutual Inc., which takes in deposits to make home mortgages and has lost a third of its value this week, had its credit ratings cut by Moody's late yesterday in New York."
"WaMu's long-term deposit and issuer ratings were downgraded to Baa3, the last of the investment-grade rankings, from Baa2, Moody's said in a statement."
"Money-market rates indicate banks are still hoarding cash more than a year after the start of the global credit crunch. The difference between what the U.S. government and banks pay to borrow in dollars for three months, the so-called TED spread, widened 13 basis points the past two weeks to 123 basis points."
"The increase fell short of the 38-basis-point widening to 1.60 percentage points in the two weeks leading up to the failure of Bear Stearns Cos. on March 14. The Fed set up special lending facilities following the bailout of the company, giving securities firms the same access to its cash as commercial banks."
Treasuries Outperform
Treasuries outperformed European bonds this week by the most in three months on speculation the Fed may lower its benchmark interest rate to support the U.S. economy while the European Central Bank keeps rates on hold to fight inflation.
"The yield spread between German 10-year bunds and equivalent-maturity Treasuries widened by 15 basis points from last week, the most since the week ended June 6, to 45 basis points."
"Ten-year yields will slide to 3.30 by year-end, according to Robert Carnell, chief international economist at ING Wholesale Banking in London, part of the biggest Dutch financial-services company. He changed his forecast yesterday from 3.50 percent the day before."
"A Bloomberg survey of economists including Carnell projects the yield will rise to 4.04 percent by Dec. 31, with the most recent forecasts given the heaviest weightings."
Inflation Slows
Traders expectations for U.S. inflation have fallen to the lowest since 2003 after crude oil declined 29 percent from its July 11 record.
"The difference between yields on 10-year Treasury Inflation Protected Securities, or TIPS, and regular securities narrowed to 1.96 percentage points, from 2.14 percentage points at the end of last month. The figure represents the inflation rate traders expect for the next decade."
"U.S. consumer prices were unchanged in August from a month earlier after rising 0.8 percent in July, according to a Bloomberg survey. The Labor Department releases the figures on Sept. 16."
Futures on the Chicago Board of Trade show there is a 35 percent chance the Fed will cut its 2 percent target rate for overnight lending between banks by a quarter point this year. The odds were zero percent a month ago. The Fed has cut its key from 5.25 percent since September last year to prevent the economy from tipping into a recession.
Bond Returns
"U.S. government securities returned 1.13 percent in September, according to Merrill Lynch & Co.'s U.S. Treasury Master index. German bonds earned 0.5 percent, while Japanese debt handed investors a loss of 0.3 percent, the Merrill indexes show."
"The pace of economic expansion will slow to 0.6 percent in the fourth quarter from 1.2 percent in the third quarter and 3.3 percent in the previous period, according to a Bloomberg survey of banks and securities companies."
"``The prospect for huge returns in the bond market is significant,'' David Rosenberg, Merrill Lynch's North American economist in New York, wrote in a client note yesterday."
To contact the reporters on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net
"Last Updated: September 12, 2008 05:17 EDT"
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Canadian Dollar Falls to Lowest Since August 2007 on Trade
By Daniel Kruger
Sept. 11 (Bloomberg) -- The Canadian dollar fell to the lowest since August 2007 after a government report showed the nation's trade surplus shrank in July as crude oil prices declined during the month for the first time since March.
"Demand for commodities, which account for about half of Canada's exports, has weakened with the slowdown in the global economy. The Canadian dollar has fallen 6.5 percent since July 11, when crude futures peaked at $147.27 a barrel. Oil has since plunged 32 percent, touching $100.10 today."
"``Slower global growth should mean lower commodity prices, which is going to drag on the commodity currencies,'' said Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto."
"The Canadian currency, dubbed the loonie because of the aquatic bird on the one-dollar coin, depreciated 0.7 percent to C$1.0788 per U.S. dollar at 2:47 p.m. in Toronto, from C$1.0713 yesterday. Earlier it fell as low as C$1.0821, the weakest since Aug. 16, 2007. One Canadian dollar buys 92.72 U.S. cents."
"Canada's trade surplus for July narrowed to C$4.9 billion ($4.54 billion) from a revised C$5.6 billion the month before, Statistics Canada in Ottawa said. The median forecast of 17 economists in a Bloomberg News survey was for a surplus of C$5.6 billion."
"The global economy may slow to about 3 percent growth in late 2008 from 5 percent in the previous year before re- accelerating toward 4 percent in 2009, said John Lipsky, first deputy managing director of the Washington-based International Monetary Fund, on Sept. 9."
`Cyclical Currency'
The Reuters/Jefferies CRB commodity index of 19 raw materials has fallen 25 percent since July 2.
"The Canadian dollar is ``a cyclical currency, it's going to be motivated by the movements in the broader commodity markets,'' said Jack Spitz, director of foreign exchange at National Bank of Canada in Toronto. ``With gold and crude both trading down, there's going to be a filtration into bids for'' the U.S. dollar."
"In an effort to bolster prices, the Organization of Petroleum Exporting Countries agreed at a meeting in Vienna yesterday to a total production limit for 11 members of 28.8 million barrels a day, unchanged from their previous targets. OPEC Secretary-General Abdalla El-Badri said an output cut of about 500,000 barrels a day would reduce a ``huge oversupply'' of oil on the market."
"Gold fell 2.2 percent to $742.50 an ounce today. The metal has plunged 28 percent after it hit an all-time high of $1,033.90 on March 17."
Currency Forecast
"The Canadian currency will fall to C$1.10 per U.S. dollar in the second quarter of 2009, according to a Bloomberg News survey of 34 firms."
"The Canadian dollar's drop to a low of C$1.0821 earlier today opens up the possibility the currency may reach as low as C$1.10, Spitz said. The C$1.08 level represents a 61.8 percent retracement of the Canadian currency's rally to about 90.50 Canadian cents per U.S. dollar in November from almost C$1.1880 in February 2007, he said."
"A close below C$1.08 would be a more definite sign, but the intraday move through that level wiped out some option barriers to the currency's depreciation, Spitz said."
"The Bank of Canada left its benchmark interest rate unchanged at 3 percent on Sept. 3. The rate is ``appropriately accommodative,'' while inflationary pressures ``remain elevated,'' the central bank said. It didn't hint that slow economic growth may lead to a rate reduction. The next meeting is scheduled for Oct. 21."
To contact the reporter on this story: Daniel Kruger in New York at dkruger1@bloomberg.net
"Last Updated: September 11, 2008 14:50 EDT"
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Brazil's Real Weakens Beyond 1.80 for First Time Since January
By Adriana Brasileiro
Sept. 11 (Bloomberg) -- Brazil's real weakened beyond 1.80 per dollar for the first time since January as concern Lehman Brothers Holdings Inc. will collapse led investors to dump higher-yielding assets.
"``There is near-panic in U.S. financial markets today,'' said Ovidio Pinho Soares, a currency strategist in Sao Paulo at Finabank Corretora. ``I'm surprised to see how fast the real is losing ground. It seems a bit exaggerated, but a lot of people are unwinding very heavy positions and money is really flowing out of Brazil.''"
"The real dropped 1.6 percent to 1.8144 per dollar at 4 p.m. New York time, after most trading had ended in Brazil, from 1.7878 yesterday. It touched 1.8374, the weakest level since Jan. 22. The real has dropped 14 percent from a nine-year high of 1.5545 reached on Aug. 1. The slide has triggered options on the real held by investors seeking to limit losses, Soares said."
Brazil's central bank refrained from buying dollars in the currency market today for the first time since Dec. 27. The bank had purchased dollars every day in an effort to slow the pace of the real's appreciation.
Lehman tumbled 42 percent as the firm entered into talks with potential buyers after Moody's Investors Service said the company must find a ``stronger financial partner.''
"Demand for reais also slowed after a split vote by central bank directors yesterday signaled the pace of interest-rate increases may slow, making local fixed-income assets less attractive to investors."
Falling Commodities
"Policy makers raised by a vote of 5-3 the benchmark overnight rate to 13.75 percent from 13 percent to control inflation. It was the first time directors disagreed since July 2007. The three dissenters voted for a half-percentage point increase. The bank has raised the rate four times this year, bringing it up from a record low of 11.25 percent in April."
"Falling commodity prices will continue to weigh on the real, wrote Win Thin, a New York-based currency strategist at Brown Brothers Harriman & Co., in a note e-mailed to clients."
"Thin advised clients to buy dollars and sell reais and said the next targets the Brazilian currency may break are 1.8470 and 1.9160, 18.8 percent and 23.3 percent weaker than this year's high of 1.5545 reached Aug. 1."
"The UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials has fallen 2.8 percent this week, extending its decline to 22 percent from a record high reached July 2."
"The yield on Brazil's zero-coupon bonds due in January 2010 fell 6 basis points, or 0.06 percentage point, to 14.74 percent, according to Banco Votorantim. The yield on the overnight futures contract for January delivery increased 6 basis points to 14.02 percent."
To contact the reporter on this story: Adriana Brasileiro in Rio de Janeiro at abrasileiro@bloomberg.net
"Last Updated: September 11, 2008 16:19 EDT"
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"Corn Gains for Second Day as Ike May Damage, Delay Crop Harvest "
By Jae Hur
"Sept. 15 (Bloomberg) -- Corn advanced for a second day on speculation excessive rains and winds from Hurricane Ike may damage and delay harvesting of the U.S. crop. Soybeans declined, while wheat rallied."
"Ike, which left Houston without drinking water and severed power to millions, weakened to a tropical depression as it moved inland over Missouri and Illinois. U.S. farmers will harvest 1.8 percent less corn than forecast last month, the Department of Agriculture said Sept. 12 in a report."
"``Any weather that's too extreme is going to affect the corn crop adversely,'' said John Reeve, associate director for agricultural commodities at UBS AG in Singapore. Excessive ``wind could be damaging and it could delay harvest,'' he said."
"Corn for December delivery added as much as 1.6 percent to $5.72 a bushel in after-hours trading on the Chicago Board of Trade and was at $5.675 by 2:25 p.m. Singapore time. Futures, which rose 2.7 percent last week, have fallen 29 percent from a record $7.9925 on June 27."
"The contract jumped by the 30-cent daily maximum on Sept. 12 after the USDA said production will total 12.072 billion bushels, down from 12.288 billion projected last month. The average estimate of 24 analysts surveyed by Bloomberg News was for 12.126 billion bushels."
The soybean crop estimate of 2.934 billion bushels was lower than the 2.973 billion the USDA projected in August and the 2.955 billion forecast by analysts on average.
Cash Corn
"The USDA pegged average cash corn prices in the year that began Sept. 1 at $5.50 a bushel, compared with $5.40 estimated in August and $4.20 in the most recent year. Cash soybean prices will average $12.35 a bushel in the crop year that began Sept. 1, up from last month's estimate of $12.25 and up from $10.15 in the previous year, the USDA said."
"``Friday's USDA report gave corn prices a real shot in the arm and also boosted soybeans to a lesser extent,'' said Toby Hassall, an analyst at Commodity Warrants Australia in Sydney. ``The dip in the U.S. dollar should encourage a broad-based bounce in commodities prices.''"
"Soybeans for November delivery lost 0.6 percent to $11.9475 a bushel as of 2:25 p.m. Singapore time after trading in $11.88- $12.10 band. Futures, which gained 2.1 percent last week, have slid 27 percent from a record $16.3675 on July 3."
"The dollar fell as much as 1.8 percent to $1.4481 per euro and stood at $1.4371 by 2:29 p.m. Singapore time. Crude oil for October delivery dropped as much as 2.7 percent to $98.46 a barrel, the lowest since Feb. 26, before trading at $99.10."
"Wheat for December delivery advanced as much as 9.5 cents, or 1.3 percent, to $7.2875 a bushel and last traded at $7.2575. Futures, which lost 4.3 percent last week, have fallen 46 percent from a record $13.495 set on Feb. 27."
"About 574 million bushels will be in storage in the year to May 31, and exports will total 1 billion bushels, matching the forecasts made in August, the USDA said Sept. 12. Analysts surveyed by Bloomberg News expected inventories of 556 million bushels and more exports."
"``The upside risks to wheat prices will continue to be limited by the prospect of bumper 2008 world production,'' Hassall said."
To contact the reporter on this story: Jae Hur in Singapore at jhur1@bloomberg.net
"Last Updated: September 15, 2008 02:57 EDT"
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"Retail Sales in U.S., Excluding Autos, Probably Fell in August "
By Timothy R. Homan
Enlarge Image/Details
Sept. 12 (Bloomberg) -- Sales at U.S. retailers excluding car dealers probably dropped in August for the first time in six months as Americans retrenched in the face of mounting job losses and record foreclosures.
"Non-auto purchases fell 0.2 percent after a 0.4 percent gain the prior month, according to the median of 76 estimates in a Bloomberg News survey. A separate report may show wholesale prices dropped in August for the first time this year."
"Consumer spending, which accounts for more than two-thirds of the economy, is faltering as wages haven't kept pace with inflation and the effect of the government's tax rebates fades. Americans are also confronting declining property values and stock prices, indicating even the recent retreat in fuel costs may not be enough to boost sales."
"``People are going to remain cautious,'' said Russell Price, a senior economist at H&R Block Financial Advisors Inc. in Detroit. ``You have the two factors of the waning impact from the fiscal stimulus checks as well as the growing impact of job losses.''"
The Commerce Department's sales report is due at 8:30 a.m. in Washington. Estimates excluding autos ranged from a drop of 0.6 percent to a 0.6 percent gain.
"The first increase in vehicle sales since January probably brought overall purchases up 0.2 percent after a 0.1 percent drop in July, according to the survey median. Lower gasoline prices probably curtailed spending at service stations, reducing overall sales, economists said."
"The Labor Department may report at the same time that producer prices in August fell 0.5 percent, according to the survey median, reflecting the decline in fuel costs. That would compare with a 1.2 percent rise the prior month, when oil prices reached a record."
Wholesale Prices
"Excluding food and fuel, so-called core prices rose 0.2 percent after increasing 0.7 percent in July, according to the survey."
"A 10 a.m. report from Reuters/University of Michigan is projected to show consumer sentiment climbed this month as gasoline prices retreated. The group's preliminary reading for September rose to 64, a point higher than the prior month. The index reached an 18-year low of 56.4 in June."
Automakers boosted incentives in August to revive demand as the economy lost jobs for an eighth straight month and the unemployment rate reached a five-year high of 6.1 percent.
"General Motors Corp. offered all customers the same prices paid by employees, helping boost sales in the second half of the month. GM this month said it will extend the incentive through September and has offered 72-month, no-interest financing on some vehicles since late June."
`A Recession'
"``Not only is the U.S. in a recession, but the rest of the world is slowing down,'' Ford Motor Co.'s Chief Executive Officer Alan Mulally said in a speech this week. ``I've never seen anything quite like it.''"
"A decline in gasoline prices in August may have pushed down filling station receipts in the retail sales report. The average pump price of a gallon of regular gasoline dropped to $3.76 last month from $4.06 in July, according to AAA."
"Weakening demand at merchants such as Gap Inc., Target Corp. and Abercrombie & Fitch Co. also hurt total purchases, signaling merchants may be heading for the worst back-to-school season in seven years."
"Sales at stores open at least a year climbed 1.7 percent in August, the smallest gain in five months, the International Council of Shopping Centers said last week. Purchases from July through September, retailing's second-biggest season after Christmas, may climb 1 percent, according to the ICSC. That would be the smallest gain since 2001."
Rebates Fade
"``By July, essentially all the rebates had already been distributed, and so were no longer providing support to incomes,'' Goldman Sachs Group Inc. economist Seamus Smyth said in a note to clients on Sept. 2. ``Combined with weak job growth and tight credit, consumers had no way to fund additional consumption.''"
"Consumer spending will stall from July to September, three months earlier than predicted last month, according to the median estimate of economists polled from Sept. 2 to Sept. 9. The slump will slow growth to less than half the prior quarter's pace."
Bloomberg Survey
================================================================
PPI Retail RetailU of Mich
Sales ex-autos Conf.
MOM% MOM% MOM% Index
================================================================
Date of Release 09/12 09/12 09/12 09/12
Observation Period Aug. Aug. Aug. Sept. P
----------------------------------------------------------------
Median -0.5% 0.2% -0.2% 64.0
Average -0.5% 0.3% -0.2% 64.2
High Forecast 0.2% 1.1% 0.6% 67.0
Low Forecast -1.2% -0.5% -0.6% 61.0
Number of Participants 77 80 76 67
Previous 1.2% -0.1% 0.4% 63.0
----------------------------------------------------------------
4CAST Ltd. -0.8% 0.0% 0.6% 65.5
Action Economics -0.9% 0.3% 0.0% 66.0
AIG Investments -1.2% 0.1% -0.3% 65.0
Aletti Gestielle SGR -0.8% 0.2% -0.6% 64.0
Allianz Dresdner Economic --- 0.0% --- ---
Argus Research Corp. 0.2% 0.2% 0.6% 64.0
Banc of America Securitie -0.6% 0.4% -0.2% ---
Bank of Tokyo- Mitsubishi -0.5% 0.9% 0.1% 66.6
Bantleon Bank AG -0.6% 0.5% -0.3% 63.8
Barclays Capital -0.5% 0.4% -0.2% 64.0
BBVA -0.5% -0.1% 0.0% 67.0
BMO Capital Markets -0.3% 0.4% -0.1% 64.0
BNP Paribas -0.5% 0.5% -0.2% 65.0
Briefing.com -0.3% 0.7% 0.2% 65.0
Calyon -0.4% 0.8% 0.2% 64.0
CFC Group --- 0.1% -0.2% 63.9
CIBC World Markets -0.5% 0.5% -0.3% ---
Citi -0.1% 0.3% -0.1% 64.0
ClearView Economics -0.5% 0.4% 0.2% ---
Commerzbank AG -0.8% 0.1% -0.3% 65.0
Credit Suisse -0.7% 0.4% -0.2% 63.0
Daiwa Securities America -0.7% -0.1% -0.2% 63.5
Danske Bank -0.6% 0.3% -0.3% 64.5
DekaBank --- 0.3% -0.1% 65.0
Desjardins Group -0.5% 0.3% -0.2% 64.5
Deutsche Bank Securities -1.0% 0.2% 0.0% 61.0
Deutsche Postbank AG -0.4% 0.3% -0.1% 64.5
Dresdner Kleinwort -0.5% 0.1% 0.0% 64.0
DZ Bank -0.3% 0.1% -0.1% 63.5
First Trust Advisors -0.9% 1.1% -0.4% 64.0
Fortis -1.0% 0.3% --- 65.0
FTN Financial -0.5% 0.0% -0.4% 62.0
Global Insight Inc. -0.5% 0.6% -0.1% 66.0
"Goldman, Sachs & Co. -0.3% 0.3% -0.5% ---"
H&R Block Financial Advis -0.5% 0.0% -0.3% 63.0
Helaba -1.0% 0.1% -0.4% 64.5
High Frequency Economics -0.7% 0.4% -0.1% 66.0
Horizon Investments -0.3% 0.2% -0.1% 64.0
HSBC Markets -0.4% 0.3% -0.1% 65.0
IDEAglobal -0.5% 0.3% 0.2% 63.0
ING Financial Markets -0.8% 0.3% -0.2% 64.0
Insight Economics -0.6% 0.1% -0.3% 64.0
Intesa-SanPaulo -0.6% 0.0% -0.3% 65.0
J.P. Morgan Chase -0.3% 0.4% -0.2% 63.5
Janney Montgomery Scott L -0.7% -0.4% -0.4% ---
JPMorgan Private Client -0.2% 0.1% -0.2% 63.5
Landesbank Berlin -0.7% -0.5% -0.4% 64.0
Landesbank BW -0.5% 0.2% --- 64.5
Lehman Brothers -0.3% 0.2% -0.4% 64.0
Lloyds TSB -0.2% 0.2% 0.1% 63.5
Maria Fiorini Ramirez Inc -0.6% 0.4% -0.2% 64.5
Merk Investments -0.4% 0.1% -0.2% 63.9
Merrill Lynch -1.0% 0.1% -0.4% 61.0
MFC Global Investment Man -1.0% 0.2% -0.3% 64.0
Moody's Economy.com -0.3% 0.3% -0.4% 64.0
Morgan Stanley & Co. -0.4% 0.2% -0.1% ---
National Bank Financial -0.4% 0.2% -0.2% 64.5
National City Corporation 0.1% 0.8% 0.4% 64.9
Natixis -0.5% 0.3% -0.4% 64.0
Newedge -0.6% 0.0% -0.2% 63.9
Nomura Securities Intl. -0.2% -0.2% -0.3% ---
Nord/LB -0.8% 0.9% 0.0% 63.5
Okasan Securities -0.7% 0.0% -0.3% ---
PNC Bank -0.2% 0.5% 0.1% ---
RBS Greenwich Capital -1.2% 0.2% -0.5% 65.0
"Ried, Thunberg & Co. -0.6% 0.4% -0.2% 62.5"
Schneider Trading Associa -0.5% -0.5% 0.0% 63.8
Scotia Capital -0.8% 0.1% -0.3% ---
Societe Generale -0.5% 0.3% 0.0% 65.0
Stone & McCarthy Research -0.5% 0.1% -0.6% 63.5
TD Securities -0.5% 0.0% -0.3% 65.0
Thomson Financial/IFR -0.4% 0.2% 0.1% 65.0
UBS Securities LLC -0.3% 0.4% -0.4% 64.0
Unicredit MIB -0.5% 0.3% --- ---
University of Maryland -0.1% 0.1% 0.2% 63.5
Wachovia Corp. -1.0% 0.4% 0.1% ---
Wells Fargo & Co. -0.6% 0.2% 0.0% 63.0
WestLB AG -0.5% 0.1% -0.1% 63.5
Westpac Banking Co. -0.8% 1.0% -0.5% 65.0
Wrightson Associates -0.6% 0.4% -0.2% 62.5
================================================================
To contact the reporter on this story: Timothy R. Homan in Washington thoman1@bloomberg.net
"Last Updated: September 12, 2008 00:01 EDT"
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"German Exports Rose in First Half on Demand in Russia, China "
By Simone Meier
Sept. 15 (Bloomberg) -- German exports rose 6.9 percent in the first six months of the year led by surging demand from emerging market economies including China and Russia.
"Exports increased to 511.2 billion euros ($732 billion) from a year earlier, the Federal Statistics Office in Wiesbaden said in a faxed statement today. In the second quarter, exports increased 8 percent to 258.7 billion euros from a year earlier."
"German companies are bolstering sales in faster-growing markets as the euro-region economy hovers at the brink of a recession after shrinking in the second quarter. German export growth will slow next year, deepening an economic slowdown, the BGA association of exporters and wholesalers said on Sept. 10."
"First-half exports to Russia rose the most, increasing 23 percent, today's report showed. Shipments of German goods to China gained 21 percent in that period. Exports to other countries in the euro region rose 3.9 percent."
Imports increased 7.1 percent to 407.6 billion euros in the first half from the year earlier period.
To contact the reporter on this story: Simone Meier in Frankfurt at smeier@bloomberg.net.
"Last Updated: September 15, 2008 04:04 EDT"
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"Italy Stocks Update: S&P/MIB Index Rises 311 to 28,253 "
By Daniel Hauck
"Sep. 12 (Bloomberg) -- Italy's benchmark stock index, the S&P/MIB Index, rose 1.11 percent at 9:10 a.m."
"The index of 40 companies traded on the Borsa Italiana rose 311 to 28,253. Among the stocks in the index, 38 rose and 2 fell."
"Gains in the S&P/MIB Index were led by Eni Spa, Unicredit Spa and Intesa Sanpaolo Spa."
"Last Updated: September 12, 2008 03:10 EDT"
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Platinum Futures in Tokyo Gain as Ike Prompts Rebound in Oil
By Dave McCombs
"Sept. 12 (Bloomberg) -- Platinum futures in Tokyo advanced for the first time in four days as oil rose from a five month low, boosting demand for the metal as a hedge against inflation."
"Platinum rallied after touching a 30-month low yesterday as Hurricane Ike headed toward Houston, the busiest U.S. oil refining center."
"``A rally in the oil market will help stabilize precious metals,'' Jonathan Barratt, managing director of Commodity Broking Services in Sydney, said today by phone."
"Platinum for August delivery gained 2.3 percent to 3,986 yen a gram ($1,157 an ounce) at 1:26 p.m. on the Tokyo Commodity Exchange. The most-active contract yesterday fell to 3,844 yen, the lowest since March 13, 2006."
"Metal for immediate delivery added $33 to $1,176 an ounce, a 2.9 percent advance from New York yesterday."
To contact the reporter for this story: Dave McCombs in Tokyo at dmccombs@bloomberg.net
"Last Updated: September 12, 2008 01:18 EDT"
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"Corporate Bond Risk Soars in Europe, Credit-Default Swaps Show "
By Abigail Moses
"Sept. 15 (Bloomberg) -- The cost of protecting European corporate bonds from default soared, according to traders of credit-default swaps."
"Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-risk, high-yield credit ratings jumped 84 basis points to 630, according to JPMorgan Chase & Co. prices at 7:08 a.m. in London. The index is a benchmark for the cost of protecting bonds against default and an increase indicates deterioration in the perception of credit quality; a decline signals the opposite."
"The Markit iTraxx Europe index of 125 companies with investment-grade ratings rose 35.5 basis points to 138, JPMorgan prices show."
"A basis point on a credit-default swap contract protecting 10 million euros ($14.4 million) of debt from default for five years is equivalent to 1,000 euros a year."
"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."
"The CDX North America Investment Grade Index was trading at a record 200 basis points in an emergency trading session yesterday in New York, according to broker Phoenix Partners Group. It closed at 152.5 basis points Sept. 12, according to CMA Datavision in London. The index reached 197.5 basis points in March."
To contact the reporter on this story: Abigail Moses in London Amoses5@bloomberg.net
"Last Updated: September 15, 2008 02:15 EDT"
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Yen Declines as Gain in Stocks Spurs Demand for Carry Trades
By Agnes Lovasz and Ron Harui
Enlarge Image/Details
"Sept. 12 (Bloomberg) -- The yen fell against the euro and the dollar on speculation that Lehman Brothers Holdings Inc. will find a buyer, giving investors confidence to purchase higher-yielding assets funded in the Japanese currency."
"The yen snapped four days of gains against the euro amid optimism a government-brokered takeover of the New York-based bank will support credit markets. U.S. officials, who are helping Lehman identify potential acquirers, may announce a deal before Asian markets open on Sept. 15, according to a person with knowledge of the matter. The euro rose against the dollar."
"The yen dropped to 151.26 per euro as of 8:34 a.m. in London, from 149.98 in New York yesterday, when it reached 147.54, the highest level since Aug. 11, 2006. It fell to 107.54 per dollar from 107.17. The euro rose to $1.4066, after touching $1.3882 yesterday, the weakest since Sept. 18 last year."
"``We're seeing a stabilization of risk appetite so near- term gains are developing for euro-dollar and the yen is coming under pressure,'' said Ian Stannard, a London-based currency strategist for BNP Paribas SA, the most accurate currency forecaster in a 2007 survey by Bloomberg. ``Dollar-yen is regaining a little bit of ground and we might see a more sustained move higher developing.''"
"The U.S. currency dropped to $1.7661 against the British pound from $1.7580, and was at 1.1360 Swiss francs from 1.1381."
Reviewing Books
"The U.S. government isn't likely to contribute money in any Lehman deal, the person with knowledge of the matter said. Bankers from other firms were reviewing Lehman's books today, according to people familiar with the matter. They declined to identify potential acquirers."
"``There's likely to be a buyer somewhere for Lehman,'' said Lee Wai Tuck, a currency strategist at Forecast Pte Ltd. in Singapore. ``Risk appetite may improve a bit. The yen could be sold.''"
The MSCI Asia-Pacific Index of regional shares advanced 0.9 percent after the Standard & Poor's 500 Index rose 1.4 percent yesterday.
"Investors increased carry trades, in which they get funds in a country with low borrowing costs and invest in one with higher interest rates, earning the spread between the borrowing and lending rate. The risk is that currency market moves erase those profits."
"The benchmark interest rate is 0.5 percent in Japan, compared with 4.25 percent in the 15-nation euro region, 7 percent in Australia and 7.5 percent in New Zealand, making the yen a popular target for so-called carry trades."
Dollar Index
"The ICE's Dollar Index touched 80.375 yesterday, the highest level since September 2007, when the Fed began cutting the target lending rate from 5.25 percent to 2 percent to stave off a recession. The index, a gauge measuring the dollar against the currencies of six U.S. trading partners, reached a low of 70.698 on March 17."
"The dollar strengthened beyond 1.80 versus the Brazilian real yesterday for the first time since January and reached $1.7447 against the pound, the strongest level since April 2006."
The dollar has gained more than 12 percent since touching the all-time low of $1.6038 per euro on July 15 as the European economy slumped and crude oil dropped more than 30 percent to $101.38 a barrel from its peak of $147.27.
"Industrial output in the 15 nations that use the euro probably fell 0.2 percent in July after a drop of the same amount in the previous month, according to the median forecast of 31 economists surveyed by Bloomberg News. The report from the European Union's statistics office is due today."
"``We're looking at a much weaker level for the euro over the next year,'' said Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co., in an interview on Bloomberg Television. ``Europe, Japan and Asia can't have strong growth with the U.S. so weak. The decoupling story is a mirage.''"
To contact the reporters on this story: Agnes Lovasz in London at alovasz@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net
"Last Updated: September 12, 2008 03:57 EDT"
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French Manufacturing Confidence Holds Near 5-Year Low (Update1)
By Helene Fouquet
Sept. 12 (Bloomberg) -- French manufacturing confidence held near a five-year low as slowing economic growth in the euro-region's second-largest economy led to a decline in orders.
"The Paris-based Bank of France said its index of manufacturing confidence rose to 94 from 92 in July, the lowest since May 2003. Economists expected the index to remain unchanged at 92, the median of 8 forecasts in a Bloomberg News survey showed."
"Cooling economies in Asia and the U.S. prompted the European Commission on Sept. 10 to cut its forecasts for growth across the euro region. The French economy, which contracted 0.3 percent in the second quarter, will stagnate this quarter, growing just 1 percent in 2008, the slowest pace in six years, the commission said."
"``Shocks have been really deep this year -- commodities price increases, the high euro, high inflation, the credit crunch, and weak consumer confidence,'' Alexandre Bourgeois, an economist with Natixis SA said in Paris in an interview. ``There will be some pick up, but overall there is no reason to expect much improvement this year.''"
Declining Orders
"The EU commission also forecast that Germany, Europe's largest economy and France's biggest trading partner, would slip into recession this year, weighing on demand for French goods."
"``My order book backlog is now two to three months when the same backlog was six months at the same time last year,'' Jean- Francois Fountaine, Chief Executive Officer and founder of Fountaine Pajot SA, a French maker of luxury catamarans based near La Rochelle in western France said in an interview."
"``It's not just a currency problem. My customers in France, Germany, Spain and in the U.S. have trouble getting loans to buy the catamarans,'' he said."
"The slowing economy threatens to boost unemployment, further sapping French consumer confidence, which fell to a record low in July. Payrolls fell for the first time in four years in the second quarter, Insee said yesterday. The statistics office raised its initial forecasts for the decline to 28,000, more than twice the level initially reported."
Weaker growth and falling oil prices are easing inflation and may give consumers and manufacturers some relief in the coming months. Inflation in France slowed more than expected in August to 3.5 percent from the peak of 4 percent in July. The decline of the euro from a July record may also make European goods more attractive abroad.
"``Forecasts point to a slight increase in activity over the coming months,'' the Bank of France said."
"Oil prices have fallen almost 30 percent in the last two months, slowing inflation and reducing production costs. Since reaching a record $1.6038 against the dollar on July 15, the euro has dropped around 12 percent, making European exports more competitive."
To contact the reporters on this story: Helene Fouquet in Paris at hfouquet1@bloomberg.net.
"Last Updated: September 12, 2008 04:37 EDT"
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"Italy Stocks Update: S&P/MIB Index Falls 764.00 to 27,608 "
By Daniel Hauck
"Sep. 15 (Bloomberg) -- Italy's benchmark stock index, the S&P/MIB Index, fell 2.69 percent at 9:10 a.m."
"The index of 40 companies traded on the Borsa Italiana fell 764 to 27,608. Among the stocks in the index, 1 rose and 39 fell."
"Declines in the S&P/MIB Index were led by Unicredit Spa, Intesa Sanpaolo Spa and Eni Spa."
"Last Updated: September 15, 2008 03:10 EDT"
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U.S. Treasury Bill Rates Fall as Possible Lehman Sale Drags On
By Sandra Hernandez
Sept. 12 (Bloomberg) -- Rates on three-month Treasury bills fell to an eight-week low as the possible sale of Lehman Brothers Holdings Inc. dragged on and U.S. retail sales unexpectedly dropped.
"Yields on two-year notes, the most sensitive to monetary policy, fell the furthest below 10-year yields in more than three weeks as traders added to bets the Federal Reserve will cut interest rates by year-end to spur the economy. Concern rose that a failure by Lehman to find a buyer will trigger bank crashes and credit-market losses."
"``The market is trading on fear of an ongoing financial crisis,'' said Robert Tipp, chief investment strategist for fixed income in Newark, New Jersey, at Prudential Investment Management, which oversees more than $200 billion of bonds. ``The lack of a concrete solution out there has people scrambling to hold bonds at the least risk here.''"
"Rates on three-month bills, viewed as a haven because of their short maturities, fell 12 basis points, or 0.12 percentage point, to 1.49 percent at 4:05 p.m. in New York. They touched 1.43 percent, the lowest since July 21. The bills posted the biggest five-day gain, pushing rates down 29 basis points, since the Fed rescued Bear Stearns Cos. from bankruptcy to stem a financial-market meltdown in the week ended March 21."
The two-year note's yield declined 2 basis points to 2.20 percent after earlier dropping as much as 7 basis points. It was down 10 basis points on the week.
"``Everybody just keeps waiting for something more concrete on Lehman,'' said Carl Lantz, an interest-rate strategist in New York at Credit Suisse Securities USA, one of the 19 primary dealers that trade with the U.S. central bank. ``The longer we wait, the more nervous I think people get.''"
Potential Bidders
"Treasury trading was low as traders awaited a resolution of Lehman's crisis, Lantz added. A total of $301.3 billion in Treasuries changed hands as of 2:45 p.m. in New York, the least since the close of trading on Sept. 4, according to ICAP Plc, the world's largest inter-dealer broker."
"Sales at U.S. retailers fell by 0.3 percent in August, the Commerce Department said. Economists surveyed by Bloomberg News had forecast a 0.2 percent increase. Sales excluding automobiles declined 0.7 percent."
"Bank of America Corp. leads a list of potential bidders for Lehman, a person with knowledge of the talks said, even as the U.S. Treasury opposed funding a deal and the structure of any transaction remained in flux. Treasury Secretary Henry Paulson doesn't want to put up money to help fund an acquisition of the bank, a person familiar with his thinking said today."
AIG Plunges
"Speculation that other financial institutions will founder amid cash shortages propelled gains in prices of shorter- maturity debt. American International Group Inc., the third largest U.S. insurer by assets, plunged 31 percent in New York Stock Exchange trading on concern the company's credit ratings will be cut and trigger more than $13 billion in collateral calls that would drain cash."
"``Obviously the AIG issue just adds to the issues at hand,'' said Sean Murphy, a Treasury trader and strategist in New York at RBC Capital Markets, the investment-banking arm of Canada's biggest lender. ``The ability to raise capital for AIG is going to be a problem going forward.''"
"Concerns about financial-market stability will cause a steepening of the so-called yield curve, Murphy said. Two-year notes yielded 1.52 percentage points less than 10-year notes, the biggest difference since Aug. 21. A widening of the yield gap indicates traders favor two-year notes in anticipation of interest-rate cuts. Traders may bet on a widening yield gap by buying two-year notes and selling 10-years."
Rate Bets
Futures on the Chicago Board of Trade show traders see a 38 percent chance the Fed will cut its 2 percent target rate for overnight lending between banks by at least a quarter-percentage point this year. The odds were zero a month ago. The Fed has cut its key rate from 5.25 percent since September 2007 to prevent the economy from tipping into a recession.
"While some traders are betting on more cuts, policy makers probably won't lower rates with a measure of inflation that excludes food and fuel above 2 percent, meaning two-year notes are too expensive, according to Suvrat Prakash, an interest-rate strategist in New York at the primary dealer BNP Paribas Securities Corp."
So-called core inflation rose at a 2.5 percent annual pace in July.
Treasury Returns
"Treasuries underperformed debt issued by Fannie Mae and Freddie Mac, the mortgage-finance companies now controlled by the U.S. government, for a third straight day. Treasury Secretary Paulson on Sept. 7 announced a rescue plan for the government-sponsored enterprises, or GSEs, after speculation they lacked sufficient capital prompted their shares to plunge."
"The yield on the 10-year Treasury note increased 8 basis points to 3.72 percent, up 2 basis points on the week. The five- year note's yield rose 3 basis points to 2.95 percent today. It fell 4 basis points on the week."
"``Before the GSEs were bailed out by the Treasury, you'd expect on a day like this with a flight to quality for agencies to underperform,'' Prakash said. ``The implication is investors will be made whole on their debt.''"
"The difference between yields on Washington-based Fannie's five-year debt and five-year Treasuries narrowed 6.3 basis points to 56.1 basis points, the least since May 2, according to data compiled by Bloomberg."
"U.S. government debt has returned 1.13 percent this month, according to Merrill Lynch & Co.'s U.S. Treasury Master index. German bonds earned 0.5 percent, while Japanese debt handed investors a loss of 0.3 percent, the Merrill indexes show."
To contact the reporter on this story: Sandra Hernandez in New York at shernandez4@bloomberg.net.
"Last Updated: September 12, 2008 16:20 EDT"
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Brazil's Split Vote Signals Pace of Increases to Slow (Correct)
By Joshua Goodman and Andre Soliani
(Corrects rates in the eighth paragraph.)
"Sept. 11 (Bloomberg) -- Brazil's central bank decision to lift the benchmark interest rate three-quarters of a percentage point yesterday was too much for three of eight directors, signaling the pace of increases may slow. Interest rate futures and the currency fell."
"Policy makers, by a vote of 5-3, raised the so-called Selic rate a fourth time since April to 13.75 percent from 13 percent to tame consumer prices. The decision raised Brazil's real interest rate, which is the Selic minus inflation, to the highest of all 54 countries tracked by Bloomberg. The dissenters voted for a half-point increase."
"The split decision, the first since July 2007, suggests policy makers expect Latin America's biggest economy to slow and inflation to ease, said Pedro Tuesta, an economist at 4Cast Inc. in New York. Consumer prices rose in August at the slowest pace in 11 months after food costs declined."
"``The vote count signals the central bank will slow the pace of interest rate increases,'' said Tuesta. ``The central bank is looking ahead and there are signs aggregate demand growth will slow in the second half.''"
"Central bankers led by Henrique Meirelles raised the Selic rate to the highest in almost two years on the same day that a report showed economic growth unexpectedly accelerated to 6.1 percent in the second quarter, fueling concern that rising demand may stoke inflation. Consumer price increases have exceeded the bank's 4.5 percent target since January."
"Tuesta said the jump in growth, which beat all estimates in a Bloomberg survey of 36 economists, was ``part of the past.'' Policy makers, he said, are counting on easing commodity prices to cool annual inflation."
Yields Drop
"Brazil's real fell 1.7 percent to 1.8181 to the dollar, the weakest in 7 1/2 months, at 2:41 p.m. New York time. The currency is down 10 percent this month, the worst performance among the 16 most-traded currencies tracked by Bloomberg."
The yield on the overnight futures contract for January 2010 delivery fell 6.3 basis points to 14.64 percent after a 13-basis- point decline yesterday.
"``The markets are now predicting the tightening cycle may be shorter than initially expected,'' Marcio Ezequiel, head of fixed-income trading at Agora Corretora in Sao Paulo, said."
"Citigroup Inc. in a report this week said inflation ``likely peaked'' in July, at 6.37 percent. Inflation slowed in August for the first time in 11 months to 6.17 percent."
"The previous split decision in 2007, when three board members also dissented, foreshadowed a halt to Brazil's longest cycle of interest rate cuts two meetings later."
Signs of Slowdown
"Economists may lower their forecasts for central bank rate increases to 14.25 percent or 14.5 percent by year end from a 14.75 percent estimate in the most recent central bank survey of analysts published Sept. 5, Agora's Ezequiel said."
"Meirelles said on Aug. 29 he was ``seeing real signs'' inflation was converging to the government's target. The following week, carmakers said vehicle sales grew 4 percent in August from a year ago, the slowest pace in almost two years, after car-loan costs jumped."
"Roberto Padovani, chief economist at WestLB in Sao Paulo, said in a Bloomberg Television interview that the additional rate increases ``will be enough to bring GDP growth down to 4.5 percent from 5 percent this year.''"
Output Gap
"Though inflation forecasts for next year remain ``stubbornly high'' at 5 percent, the central bank may shift gears in the face of tightening global credit and a worsening outlook for Brazil's commodity exports, said Alvise Marino, an emerging-markets analyst at research firm IDEAglobal in New York"
"Previous central bank rate increases were accompanied by a message that demand was growing faster than supply. Government plans to boost spending excluding interest payments by 13 percent in 2009 is also adding pressure on inflation, said Thomas Trebat, director of Columbia University's Center for Brazilian Studies in New York."
"Manufacturers operated at a record 83.5 percent capacity in July and industrial output grew 8.5 percent that month, more than economists expected."
"Finance Minister Guido Mantega said today in Brasilia economic growth isn't stoking inflation. Growth this year will exceed the government's 5 percent forecast, he said."
`Sustainable'
"``The economy can grow at a pace of 5 percent to 5.5 percent keeping inflation within the target,'' Mantega told reporters. ``The increase of GDP comes as inflation is slowing and therefore growth is sustainable.''"
The central bank started to raise the Selic rate at the April 15-16 meeting after holding it unchanged for six months at a record low of 11.25 percent. Policy makers had increased the rate by half a percentage point twice before accelerating the pace in July. Last night's rate increase puts the Selic rate at the level it was in November 2006.
To contact the reporters on this story: Joshua Goodman in Rio de Janeiro at Jgoodman19@bloomberg.net; Andre Soliani in Brasilia at at soliani@bloomberg.net
"Last Updated: September 11, 2008 15:31 EDT"
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Copper May Have First Weekly Gain in Three on Arbitrage Trading
By Li Xiaowei
"Sept. 12 (Bloomberg) -- Copper gained for a third day in London, heading for the first weekly gain in three, as investors step up arbitrage trading to take advantage of the price gap between London and Shanghai."
"Copper has fallen 22 percent from the July peak of $8,940 a ton in London, as increasing stockpiles signaled weaker demand and a rebound in the U.S. currency reduced dollar-priced investments. Shanghai prices have declined 13 percent"
"``The price gap provides opportunities for arbitrage,'' or buying London and selling Shanghai, Wang Zhouyi, an analyst at China International Futures (Shanghai) Co., said today by phone from Shanghai. ``Yet strength in the dollar may impede the arbitrage because it reduces appeal of commodities investments.''"
"Copper for three-month delivery rose as much as 0.7 percent to $6,980 a ton on the London Metal Exchange and traded at $6,961 at 10:10 a.m. in Shanghai. Metal for December delivery rose 1.5 percent to $55,380 yuan ($8,091) a ton on the Shanghai Futures Exchange at the same time."
"The U.S. currency was little changed from yesterday, after touching $1.3882, the strongest level since Sept. 18, 2007."
"Among LME-traded metals, aluminum was 0.2 percent up at $2,625 a ton, zinc dropped 0.6 percent to $1,784, tin declined 1.5 percent to $18,500, lead and nickel were un-traded in Asia after settling at $1,855 and $18,500 yesterday."
To contact the reporter for this story: Li Xiaowei in Shanghai at Xli12@bloomberg.net
"Last Updated: September 11, 2008 23:31 EDT"
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Treasuries Show Paulson `Bazooka' Misfire; Bonds Gain (Update1)
By Daniel Kruger
Sept. 15 (Bloomberg) -- U.S. bond prices show Henry Paulson's ``bazooka'' fired blanks when he took over beleaguered mortgage-finance companies Fannie Mae and Freddie Mac.
"Instead of instilling confidence in the credit markets, the Treasury secretary's plan to place the government-sponsored enterprises in conservatorship on Sept. 7 only served to underscore weakness in the world's biggest economy and the plight of U.S. financial institutions. Lehman Brothers Holdings Inc., American International Group Inc., Merrill Lynch & Co. and Washington Mutual Inc. all plunged last week."
"For the first time since May, bond investors from New York to Tokyo are piling into Treasuries on speculation the Federal Reserve may need to cut interest rates by year-end."
"``They pulled out the bazooka, yet they only got 24 hours of favorable response from the financial markets,'' said Thomas Girard, a money manager who helps oversee $110 billion in fixed- income assets at New York Life Investment Management in New York. ``That's got to be a little bit worrisome.''"
Girard said he is taking advantage of any decline in U.S. government debt prices to add to his holdings of the securities.
"The yield on the benchmark two-year Treasury fell 12 basis points last week, or 0.12 percentage point, to 2.21 percent, and is down from this year's high of 3.11 percent on June 13. The price of the 2.375 percent note due August 2010 rose 7/32, or $2.19 per $1,000 face value, to 100 10/32, according to BGCantor Market Data."
"Treasuries surged today in Asia, sending two-year yields down to 1.87 percent as of 11:19 a.m. in Singapore, as Lehman prepared to file for bankruptcy. It was the biggest decline since January. Bank of America Corp. agreed to buy Merrill, a person with knowledge of the deal said. American International Group Inc., the insurer struggling to avoid credit downgrades, is seeking a $40 billion loan from the Fed, the New York Times reported."
"The Fed widened the collateral it accepts for loans to Wall Street bond dealers, while a group of 10 banks that includes JPMorgan Chase & Co., Goldman Sachs Group Inc. and Citigroup Inc. separately formed a $70 billion fund to ensure market liquidity."
`Not Enough'
"Interest-rate derivatives imply that banks remain hesitant to lend amid speculation credit losses will increase as the slowdown deepens. It costs banks 1.35 percentage points more than the government to borrow cash for three months. The difference, or TED spread, was 1.04 percentage points on Sept. 5."
"``We're still concerned about credit tightening by U.S. banks,'' said Masataka Horii, one of four managers of the $52 billion Kokusai Global Sovereign Open fund in Tokyo. ``The government GSE rescue plan will help, but it is not sufficient.''"
"Kokusai Global, the second-biggest actively managed bond fund behind the $132 billion Pimco Total Return Fund, increased its Treasury holdings to 27 percent of assets in August, the most since April 2007, from 20 percent in March."
"Financial institutions have taken more than $500 billion in writedowns and losses since the start of 2007, according to data compiled by Bloomberg. Renewed concern that losses will increase, further weighing on an economy growing at the slowest pace since 2001, are driving investors to Treasuries."
Ease Speculation
"Futures on the Chicago Board of Trade show a 36 percent chance the Fed will cut its 2 percent target rate for overnight lending between banks by at least a quarter-percentage point this year. Not since May have traders put on bets for a reduction in borrowing costs. On Sept. 5, futures were indicating there was no chance policy makers would lower borrowing costs. The Fed meets tomorrow to set interest rates."
"Treasuries of all maturities returned 2.3 percent since June 30, compared with an average of 2.06 percent for all types of corporate and mortgage bonds, according to indexes compiled by New York-based Merrill Lynch & Co."
"Paulson announced a plan on Sept. 7 to place Washington- based Fannie and Freddie, of McLean, Virginia, in conservatorship as their losses mounted, allowing the government to buy as much as $100 billion of preferred stock in the companies as needed."
Rescue Plans
"Just two months earlier, when Paulson sought congressional approval to grant unlimited credit to Fannie and Freddie in times of financial strife, the Treasury secretary indicated that he would unlikely use those powers. Instead, he said the move would bolster confidence in the companies and markets."
"``If you have a bazooka in your pocket, and people know you have a bazooka, you may never have to take it out,'' he said at the time."
Past efforts by the government and Fed to jump-start the credit markets only temporarily reduced demand for Treasuries.
"Two-year note yields rose 26 basis points to 1.74 percent on March 11, the biggest increase since 1996, after the Fed said it would accept mortgage debt as collateral for as much as $200 billion in Treasuries to be auctioned through a new Term Securities Lending Facility. By March 14, yields had fallen back to their prior levels."
`Stop-Gap Measure'
"Three months earlier, on Dec. 12, yields soared 21 basis points to 3.13 percent when the Fed announced a joint effort with foreign central banks to increase their lending programs. Three weeks later, yields were back down to 2.88 percent."
"``The whole credit crisis is going to keep a bid in Treasuries for some time to come,'' said Mark MacQueen, a partner and money manager at Austin, Texas-based Sage Advisory Services Ltd., which oversees $6 billion. ``This is more of a stop-gap measure to pass it off to the next administration,'' he said of the takeover of Fannie and Freddie."
"Traders in the forward markets, where financial instruments are sold for future delivery, are pricing three-month cash from December to March at 94 basis points over the expected federal funds rate. That's up from 85 basis points at the start of last week and an average of 7 basis points in 2006."
"What's different now is that the budget deficit is accelerating, causing the Treasury to step up its borrowing as its supports Fannie and Freddie. Economists at New York-based Goldman Sachs Group Inc. forecast that the shortfall for fiscal 2009 beginning Oct. 1 will reach a record $565 billion. The Bush administration estimated a $490 billion deficit for the period."
`Falling Apart'
"The median forecast of 32 economists and strategists is for two-year yields to rise to 2.64 percent by year-end, according to a survey by Bloomberg. If accurate, investors who by the securities now would have a loss of 0.37 percent."
"Bond market bulls say the government's takeover of Fannie and Freddie may do little to encourage companies to hire, or for consumers to increase spending. The Commerce Department in Washington said Sept. 12 that sales at retailers fell 0.7 percent in August when excluding automobiles, the most this year. A week earlier, the government said the unemployment rate climbed to a five-year high of 6.1 percent in August."
"``While it was a necessary step, it's not a sufficient step to prevent the economy from falling apart,'' said Gary Pollack, who helps oversee $12 billion as head of fixed-income trading at Deutsche Bank AG's Private Wealth Management unit in New York. ``It does not address the fundamental economic backdrop of a weak consumer, declining jobs, a weak global economy and a continued decline in housing prices.''"
Buy Treasuries
Pollack said he favors Treasuries maturing in fewer than 10 years. Those securities tend to outperform longer-dated debt when the Fed cuts rates.
"``Housing's problems go deeper than just mortgage rates,'' said Carl Lantz, an interest-rate strategist in New York at Credit Suisse Securities USA LLC, one of the 19 primary dealers of U.S. government debt that trade with the Fed. ``The concern was always what happens when unemployment starts rising and people are forced to sell the house.''"
"Credit Suisse told clients on Sept. 8 they should buy 10- year Treasuries, saying yields may fall to 3.3 percent. The yield on the benchmark 4 percent security due in August 2018 ended last week at 3.72 percent."
To contact the reporter on this story: Daniel Kruger in New York at dkruger1@bloomberg.net
"Last Updated: September 14, 2008 23:30 EDT"
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"Australian, N.Z. Dollars Gain as Investors Boost Carry Trades "
By Candice Zachariahs
"Sept. 12 (Bloomberg) -- The Australian and New Zealand dollars rose as Asian equities rallied, increasing investors' appetite for higher-yielding assets."
The currencies climbed from two-year lows against the yen as Asian stocks gained for the first time in four days on speculation a possible purchase of Lehman Brothers Holdings Inc. will help stabilize markets. That gave investors confidence to return to so-called carry trades. Australia's currency also advanced as traders pared bets the central bank will reduce interest rates next month.
"``We've got quite a strong rebound under way,'' said Tony Morriss, a currency strategist at Australia & New Zealand Banking Group Ltd. in Sydney. ``Any resolution of the Lehman issue will see risk appetite increased and you're seeing that now on the yen crosses like the Aussie-yen.''"
"The Australian dollar rose 1.5 percent to 80.74 U.S. cents at 5:57 p.m. in Sydney, from 79.52 late in Asia yesterday. It touched 79.12, close to its lowest since August 2007. It gained 2.2 percent to 86.78 yen from 84.94 yen yesterday. The currency reached 84.09 yen, the lowest since June 2006."
The New Zealand dollar advanced 1.3 percent to 65.66 U.S. cents and 1.9 percent to 70.57 yen.
Lehman Sale
The local dollars gained as the Standard & Poor's 500 Index rose 1.4 percent after the Wall Street Journal reported that Bank of America Corp. is among potential suitors for Lehman.
"The U.S. Treasury and Federal Reserve have been working with Lehman on a sale, and a deal may be announced before Asian markets open Sept. 15, said a person familiar with the matter who declined to be identified. Bankers from other firms were reviewing Lehman's books yesterday, according to people with knowledge of the situation, who declined to identify potential acquirers."
"Benchmark interest rates are 7 percent in Australia and 7.5 percent in New Zealand, compared with 2 percent in the U.S. and 0.5 percent in Japan, making the South Pacific nations popular targets for carry trades."
"In carry trades, investors get funds in a country with low borrowing costs and invest in another with higher interest rates, earning the spread between the two. The risk is that currency market moves can erase those profits."
Australian Employment
"The Australian dollar also rose as a stronger-than-expected employment report yesterday spurred traders to reduce bets on the Reserve Bank of Australia lowering the benchmark to 6.75 percent next month. Traders trimmed bets on the likelihood of a RBA rate reduction in October to 69 percent, from 80 percent yesterday, a Credit Suisse Group index based on overnight swaps trading shows."
"The New Zealand dollar briefly pared its advance after a government report showed retail sales fell more than economists forecast in July. New Zealand retail sales fell 0.8 percent from June, seasonally adjusted, Statistics New Zealand said in Wellington today. The median estimate of 13 economists surveyed by Bloomberg News was for a 0.3 percent decline."
The Australian and New Zealand dollars fell for a third week against the greenback as commodities declined amid concerns about a slowing global economy. The UBS Bloomberg Constant Maturity Commodity Index of 26 commodities declined 2.7 percent this week. Raw materials account for 60 percent of Australia's exports and sales of commodities such as lumber make up 70 percent of New Zealand's overseas shipments.
"Australian government bonds fell. The yield on the 10-year note rose 2 basis points, or 0.02 percentage point, to 5.68 percent. The price of the 5.25 percent security maturing in March 2019 fell 0.146, or A$1.46 per A$1,000 face amount to 96.640. Bond yields move inversely to prices."
To contact the reporter on this story: Candice Zachariahs in Sydney at Czachariahs2@bloomberg.net
"Last Updated: September 12, 2008 04:02 EDT"
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Dollar Drops Most in Decade Against Yen as Lehman Goes Bankrupt
By Bo Nielsen and Ron Harui
Sept. 15 (Bloomberg) -- The dollar fell the most in a decade against the yen after Lehman Brothers Holdings Inc. filed for bankruptcy and traders speculated the Federal Reserve may need to cut interest rates to buoy financial markets.
The U.S. currency also dropped the most since June against the Swiss franc as American International Group Inc. sought capital to avoid credit downgrades. The dollar pared declines against the euro after Bank of America Corp. agreed to acquire Merrill Lynch & Co. and as investors sought the relative safety of U.S. Treasuries.
"``Risk aversion is going through the roof,'' said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi Ltd. in London. ``There is great deal of uncertainty on how this will affect the markets.''"
"The dollar weakened as much as 3.4 percent to 104.54 yen, the most since October 1998, and traded at 104.62 at 9:55 a.m. in London, from 107.94 on Sept. 12. The U.S. currency traded at $1.4260 per euro, from $1.4224. It touched $1.3882 on Sept. 11, the strongest since Sept. 18, 2007."
"The Japanese currency surged 2.7 percent to 149.38 per euro, the biggest jump since 2001, and rallied against all 16 major currencies as investors reduced so-called carry trades. In such transactions, funds are borrowed in a country with low interest rates and used to buy assets where returns are higher. Traders earn the spread between the two rates, taking the risk that currency market moves erase their profit."
`Pressure on Dollar'
"The Australian dollar fell 4.1 percent to 85.29 yen, the biggest drop since November, and New Zealand's dollar declined 3.6 percent to 69.51 yen. Japan's benchmark interest rate is 0.5 percent, making the yen a favorite funding currency for the carry trade. The 15-nation euro region's key interest rate is 4.25 percent."
"``The pressure on the dollar will be more emphasized against the low-yielders as markets remain volatile and risk reduction is the theme,'' said Ian Stannard, a senior currency strategist at BNP Paribas SA in London. The dollar may trade as low as 101 yen in the coming weeks, he said."
"The U.S. currency fell as Lehman filed a Chapter 11 petition in the U.S. Bankruptcy Court for the Southern District of New York. The ICE's Dollar Index, a gauge measuring the dollar against the currencies of six U.S. trading partners, slipped 0.5 percent to 78.527 on concern that credit-market losses will spread to other financial institutions."
"AIG, trying to stave off credit downgrades that would force it to post more than $13 billion in collateral, is seeking capital from buyout firms Kohlberg Kravis Roberts & Co. and J.C. Flowers & Co., said a person familiar with the situation yesterday. The insurer is seeking $40 billion from the Fed, the New York Times reported."
Merrill Purchase
"Bank of America Corp. said in a statement today it agreed to acquire Merrill Lynch for about $50 billion, after shares in Merrill plummeted in the past week."
"The dollar also declined as the implied yield on federal funds futures contracts for December delivery slid 16 basis points to 1.75 percent, a quarter-percentage point less than the Fed's target rate. The last time the deficit was so large was in April before the central bank cut the rate by a quarter point on the last day of the month."
"Futures on the Chicago Board of Trade showed late last week a 12 percent chance that the Fed will lower its 2 percent target rate for overnight lending between banks by a quarter-percentage point, compared with no chance a week ago."
`Safe-Haven Flows'
"``In prior crises, after the initial sell-off in the dollar, the remainder of the day was all about moves back into the dollar on safe-haven flows as people go back into cash,'' said Simon Derrick, chief currency strategist in London at Bank of New York Mellon Corp. ``I expect dollar strength to be the core theme of the day.''"
"The yield on the two-year Treasury dropped 38 basis points to 1.81 percent, the biggest decline since the September 2001 terror attacks and the first time is has fallen below 2 percent since April, as investors sold higher-yielding assets."
"The Swiss franc, which typically gains when trader aversion to higher-risk investments increases, rose 1.3 percent to 1.1155 per dollar, the biggest gain since June 6."
"Stocks tumbled, with Standard & Poor's 500 Index futures expiring in December snapping three days of gains to slide 3.2 percent. The MSCI World Index of shares fell 0.7 percent. Markets in China, Hong Kong, Japan and South Korea were shut for holidays today."
China Cuts Rate
The dollar gained about 11 percent through to the end of last week since touching an all-time low of $1.6038 per euro on July 15.
"``If the stress in the U.S. financial system intensifies, there's the potential for a partial retracement of the dollar's recent gains,'' Hardman said. The dollar may trade at $1.46 this week, he said."
"China cut its one-year lending rate by 27 basis points and lowered the reserve ratio by 1 percentage point at some of the banks, according to People's Bank of China, in response to the slowdown in the global economy."
"The world may face ``Japan-like'' economic stagnation as turmoil in financial markets weighs on growth and challenges the ability of policy makers to manage the crisis, Tony Tan, deputy chairman of Government of Singapore Investment Corp., said yesterday."
To contact the reporters on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net; Ron Harui in Tokyo at rharui@bloomberg.net
"Last Updated: September 15, 2008 05:42 EDT"
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"Dollar Weakens Against Euro, Yen as Lehman Files for Bankruptcy "
By Bo Nielsen and Ron Harui
Sept. 15 (Bloomberg) -- The dollar fell against the euro and the yen after Lehman Brothers Holdings Inc. filed for bankruptcy and traders speculated the Federal Reserve may need to cut interest rates to buoy financial markets.
"The U.S. currency dropped to its lowest in almost two months against the yen, and the Swiss franc surged, as American International Group Inc. sought capital to avoid credit downgrades. The dollar pared declines after Bank of America Corp. agreed to acquire Merrill Lynch & Co. and as investors sought the relative safety of U.S. Treasuries."
"``The dollar will weaken on concern over the U.S. financial system and on the potential for an emergency rate cut tomorrow,'' said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi Ltd. in London. ``There is great deal of uncertainty on how this will affect the markets.''"
"The dollar declined to $1.4481, the lowest since Sept. 4, before trading at $1.4302 per euro at 8:30 a.m. in London, from $1.4224 in New York late last week. It touched $1.3882 on Sept. 11, the strongest since Sept. 18, 2007. The U.S. currency dropped 2.2 percent to 105.62 yen. It earlier reached 105.27 yen, the lowest since July 17."
"The U.S. currency fell against all 16 most-active currencies today as Lehman filed a Chapter 11 petition in the U.S. Bankruptcy Court for the Southern District of New York. The currency is headed for the biggest one-day decline since Aug. 16, 2007, when a global stock rout prompted investors to reduce so-called carry trades."
Dollar Index
"The ICE's Dollar Index, a gauge measuring the dollar against currencies of six U.S. trading partners, slipped 0.7 percent to 78.383 on concern that credit-market losses will spread to other financial institutions."
"AIG, trying to stave off credit downgrades that would force it to post more than $13 billion in collateral, is seeking capital from buyout firms Kohlberg Kravis Roberts & Co. and J.C. Flowers & Co., said a person familiar with the situation yesterday. The insurer is seeking $40 billion from the Fed, the New York Times reported."
"Bank of America Corp. said in a statement today that it has agreed to acquire Merrill Lynch for about $50 billion, after shares in Merrill plummeted in the past week."
"The dollar also declined as the implied yield on federal funds futures contracts for December delivery slid 16 basis points to 1.75 percent, a quarter-percentage point less than the Fed's target rate. The last time the deficit was so large was in April before the central bank cut the rate by a quarter point on the last day of the month."
"Futures on the Chicago Board of Trade showed late last week a 12 percent chance that the Fed will lower its 2 percent target rate for overnight lending between banks by a quarter-percentage point, compared with no chance a week ago."
`Safe-Haven Flows'
"``In prior crises, after the initial sell-off in the dollar, the remainder of the day was all about moves back into the dollar on safe-haven flows as people go back into cash,'' said Simon Derrick, chief currency strategist in London at Bank of New York Mellon Corp. ``I expect dollar strength to be the core theme of the day.''"
"The yield on the two-year Treasury dropped 35 basis points to 1.85 percent, the first time is has fallen below 2 percent since April, as investors sold higher-yielding assets."
"The Swiss franc, which typically gains when trader aversion to higher-risk investments increases, rose 1.5 percent to 1.1136 per dollar, the biggest gain since June 5."
"Stocks tumbled, with Standard & Poor's 500 Index futures expiring in December snapping three days of gains to slide 3.3 percent. The MSCI Asia-Pacific Index of regional shares excluding Japan declined 1.6 percent. Markets in China, Hong Kong, Japan and South Korea were shut for holidays today."
Risk Aversion
The dollar gained about 11 percent through to the end of last week since touching an all-time low of $1.6038 per euro on July 15.
"The yen advanced against all of the 16 major currencies as investors reduced so-called carry trades, in which funds are borrowed in a country with low interest rates and used to buy assets where returns are higher. Traders earn the spread between the two rates, taking the risk that currency market moves erase their profit."
"The benchmark interest rate of 0.5 percent in Japan compares with 4.25 percent in the 15-nation euro region, making the yen a favorite funding currency for the carry trade."
"The Australian dollar slid 2 percent to 87.19 yen and New Zealand's dollar dropped 1.7 percent to 70.90 yen, both approaching two-year lows against Japan's currency."
To contact the reporters on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net; Ron Harui in Tokyo at rharui@bloomberg.net
"Last Updated: September 15, 2008 04:14 EDT"
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"Stocks in Europe, Asia Rise on Possible Lehman Sale; UBS Gains "
By Sarah Jones
Sept. 12 (Bloomberg) -- Stocks in Europe and Asia rose for the first time in four days on speculation Lehman Brothers Holdings Inc. will find a buyer. U.S. index futures advanced.
"UBS AG, the European bank hardest hit by the subprime- related losses, climbed 2.8 percent, and Mitsubishi UFJ Financial Group Inc. gained 4.3 percent in Tokyo. Lehman jumped 28 percent in German trading. BHP Billiton Ltd., the world's largest mining company, rallied 5.2 percent as copper rose for a third day in London. Deutsche Postbank AG climbed 2.7 percent after Banco Santander SA offered to buy the German bank."
"The MSCI World Index added 1.1 percent to 1,276.32 at 9:52 a.m. in London, lifting the index to a 0.6 percent gain for the week. The U.S. Treasury and the Federal Reserve have been working with Lehman on a sale of the securities firm, and a deal may be announced before Asian markets open Sept. 15, a person with knowledge of the matter said."
"``Finding a resolution to the Lehman situation is what is most important for the market,'' said Kevin Lilley, a London-based fund manager at Royal London Asset Management, which oversees about $63 billion. ``The market is up today because the U.S. government has stepped in to help find Lehman a buyer. Once again the government is lending support to the financial markets.''"
"Europe's Dow Jones Stoxx 600 Index advanced 1.4 percent, while the MSCI Asia Pacific Index increased 0.8 percent. Futures on the Standard & Poor's 500 Index rose less than 0.1 percent before a report that may show retail sales excluding autos fell."
"UBS, SocGen"
"UBS gained 2.8 percent to 23.54 francs. Societe Generale SA, France's second-largest bank, rose 3.5 percent to 66.12 euros. Credit Suisse Group AG, Switzerland's second-biggest bank, added 2.3 percent to 52.15 francs."
"Lehman soared 28 percent to $5.40 in Germany. The investment bank is looking for a buyer after announcing the biggest loss in its 158-year history on Sept. 10, as devalued real estate assets led to $5.6 billion of writedowns in the third quarter."
"Bank of America Corp. is a potential suitor, the Wall Street Journal said on its Web site. Bankers from other firms were reviewing Lehman's books yesterday, according to people with knowledge of the situation."
"Unlike when JPMorgan Chase & Co. took over Bear Stearns Cos., the Federal Reserve and Treasury aren't likely to put up money for a purchase of Lehman, people briefed on the matter said yesterday."
More than $15 trillion has been erased from global equities in 2008 as the biggest surge in mortgage defaults in at least three decades sparked $510 billion in credit-related losses worldwide and threatened economic growth.
Mitsubishi
"Mitsubishi UFJ, Japan's largest bank, rallied 4.3 percent to 858 yen. Woori Finance Holdings Co., which has the most U.S. mortgage-related investments among South Korean banks, gained 5.2 percent to 15,050 won."
"BHP Billiton jumped 5.2 percent to 1,478 pence as copper headed for the first weekly gain in three. Rio Tinto Group, the world's third-biggest mining company, added 4.1 percent to 4,330 pence."
"The base metal for three-month delivery rose as much as 1.3 percent to $7,020 a ton on the London Metal Exchange."
"The Stoxx 600 Basic Resources Index has slumped 19 percent since July, pushing shares to their cheapest in seven years. The index closed on Sept. at 8.1 times earnings, the lowest since April 2001."
"Postbank climbed 2.7 percent to 47 euros. Santander said yesterday it was seeking to buy the whole bank, without elaborating. The bid comes after Deutsche Bank AG, Germany's biggest bank, said it was in talks to buy as much as 30 percent of Deutsche Postbank."
"Sacyr Vallehermoso SA rallied 9.6 percent to 13.54 euros as it considers selling its 20 percent stake in Repsol YPF SA, Spain's largest oil company."
"Chairman Luis del Rivero won approval from the board in July to initiate the sale of the Repsol shares, news Web site El Confidencial reported today, without saying where it obtained the information."
To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net.
"Last Updated: September 12, 2008 05:01 EDT"
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Velarde Raises Peru Lending Rate to 6.5% to Slow Inflation
By Alex Emery
Sept. 11 (Bloomberg) -- Peru's central bank President Julio Velarde raised the overnight lending rate for the seventh time in 12 months in a bid to slow the fastest inflation in a decade.
"The bank increased borrowing costs by a quarter percentage point to a seven-year high of 6.5 percent, as forecast by 14 of 16 economists in a Bloomberg survey."
"Annual inflation in Peru is more than double policy makers' target of no more than 3 percent. The bank raised borrowing costs in an attempt to help slow record consumer spending that's contributing to higher prices, said Boris Segura, a Latin America economist at Morgan Stanley in New York."
"``There's excess demand and inflation expectations are rising,'' Segura said in a telephone interview before the bank's decision. ``The increase will help make the economy grow at a more sustainable rate.''"
"Consumer prices climbed 0.6 percent last month, pushing annual inflation to 6.27 percent, the fastest since 1998. Since mid-2006, prices for oil, wheat, corn and soybeans have doubled, spurring inflation in Peru, which is a net importer of the commodities. Food prices rose 10.3 percent in the past year."
Velarde called on the government to cut public spending on Aug. 28 after the economy expanded 10.1 percent in the first half. Federal government outlays rose 18.4 percent and private investment jumped 26.5 percent in the first six months of the year as record commodity earnings spurred consumer demand for homes and cars.
"Bank lending jumped 25 percent to a record $26 billion through the first half on surging credit card spending, consumer loans and mortgages, according to Peru's banking association."
`Healthier' Growth
"``It would be healthier to grow at a slower rate in the long term,'' Jorge Monsante, chief executive of Credibolsa SAB, Peru's largest brokerage, said in an interview. ``Consumer spending and bank loans have grown too fast over the past year.''"
"Economic growth will slow to 7 percent next year as demand for Peruvian exports drops in the U.S. and Europe, Peru's main trading partners, according to the central bank."
"Peru's exports have risen fourfold since 2001 on rising prices for copper, gold, fishmeal and natural gas. Peru is the world's third-largest copper producer, No. 1 in fishmeal and fifth-largest in gold."
"Velarde joins monetary policy makers across Latin America who have pushed rates up in the last year, seeking to tame prices and meet their inflation targets."
To contact the reporter on this story: Alex Emery in Lima at aemery1@bloomberg.net
"Last Updated: September 11, 2008 19:17 EDT"
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Gold Falls Below $750 on Dollar's Surge; Silver Plummets
By Pham-Duy Nguyen
Enlarge Image/Details
"Sept. 11 (Bloomberg) -- Gold fell below $750 an ounce, marking the longest slump in eight years, as the dollar's surge reduced demand for the precious metal as an alternative investment. Silver dropped to the lowest since June 2006."
"Gold has tumbled 28 percent from a record in March as the dollar climbed 15 percent against the euro from an all-time low in July. The dollar today reached the highest in a year, and the Reuters/Jefferies CRB Index of 19 raw materials dropped to the lowest level since Jan. 24."
"``This is indiscriminate slaughter across all commodities,'' said Ralph Preston, a futures analyst at Heritage West Futures Inc. in San Diego. ``It's indisputable that the funds rushed in to pump up prices, and now they're rushing out. This is a phenomenal run for the dollar. We're shorting the metals.''"
"Gold futures for December delivery fell $17, or 2.2 percent, to $745.50 an ounce on the Comex division of the New York Mercantile Exchange. The drop was the ninth straight, the longest slide since September 2000. Earlier, the price touched $739.80, the lowest for a most-active contract since Oct. 9."
"Silver futures for December delivery fell 33.5 cents, or 3.1 percent, to $10.555 an ounce. Earlier, the price touched $10.21, the lowest since June 28, 2006."
"Gold still has climbed 3.4 percent in the past year, while silver is down 18 percent."
"Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, has fallen 4.3 percent this week to 614.4 metric tons. The fund reached a record 705.9 tons on July 11."
Global Slowdown
"Commodity indexes have fallen from records this year on concern that a global economic slowdown, triggered by the housing slump and the credit crisis in the U.S., will spread to other countries. Commodities are generally priced in the U.S. currency."
"``It's certainly dollar-inspired liquidation for gold,'' said Stephen Platt, a commodity analyst at Archer Financial Services Inc. in Chicago. ``The U.S. will be slow to recover, and inflationary pressure will remain low because of weak demand. The U.S. slowdown is spreading and beginning to impact emerging-market economies.''"
"Gold, traditionally a haven from turmoil in financial markets, hasn't benefited from a plunge in equities, bank failures and rising geopolitical tension in the Middle East and Europe."
"``The safe haven of choice is the dollar, not the metals,'' Preston of Heritage West said. ``When it comes to the buck, it's going straight up. I wouldn't dare pick a top.''"
"Gold, down 11 percent this year, is headed for the first annual decline in eight years. The record on March 17 was $1,033.90."
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
"Last Updated: September 11, 2008 14:38 EDT"
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"Swinging Real, Won Point to More Pain Amid Slowdown (Update2) "
By Liz Capo McCormick
Sept. 15 (Bloomberg) -- Swings in emerging-market currencies may foreshadow further losses for traders already suffering from the broadest declines this decade.
"Volatility in options covering currencies from the Brazilian real to the South Korean won is rising at a faster rate than those for the euro and pound, according to JPMorgan Chase & Co. indexes. Rising volatility was an element of past financial market upheavals, including the global slump in stock markets from 2000 through 2002 after the technology bubble burst."
"The trigger this time is speculation that developing nations can no longer withstand simultaneous slowdowns in the economies of the U.S., Europe and Japan and the resulting lower appetite for high-risk assets. The 26 emerging-market currencies tracked by Bloomberg are down an average 5.5 percent since June, compared with an increase of 2.2 percent in the first half of 2008."
"``Anyone who still believes strongly in the decoupling theory on an economics basis has to throw that book out the window now,'' Mike Moran, senior currency strategist at Standard Chartered Bank in New York, said. ``This has been a second awakening for the currency markets, with the first being that the secular dollar weakness the past couple years has clearly come to an end.''"
"Morgan Stanley, the second-biggest U.S. securities firm, is advising clients to sell emerging currencies in Asia, Latin America, Eastern Europe and the Middle East, and buy the dollar. Stock valuations suggest that earnings in emerging markets will drop as much as in 2001-2002, when profits fell 18 percent from their peak, New York-based Morgan Stanley estimated."
`Getting Worse'
"``Any of these emerging currencies could move down another 5 percent to 10 percent,'' said Stephen Jen, the global head of currency research at Morgan Stanley in London. ``This is a three-month story already, and it's getting worse and worse. What we are dealing with is the aftermath of an energy shock and a credit crunch that is hitting every single economy.''"
"Emerging-market currencies led by the South African rand and Turkish lira dropped today as Lehman Brothers Holdings Inc. filed for bankruptcy, boosting demand for the safest assets."
"The global economy will expand 2.8 percent in 2009, just 0.3 percentage point above the pace deemed a worldwide recession and last witnessed in 2001, according to a report released by Zurich-based UBS AG on Sept. 11. Back then, the currencies of developing economies fell an average 6.8 percent."
"The biggest losers since June in emerging markets have been the Icelandic krona, Hungarian forint, Czech koruna and Polish zloty. Each has fallen more than 10 percent. Only China's yuan has appreciated, gaining 0.15 percent."
"Sell Rupee, Won"
"India's rupee and South Korea's won may decline the most because the ability to buy and sell financial assets such as stocks is easier for foreign investors in those countries than in most other developing nations, Jen said."
"The rupee today touched 46.0050 per dollar, a two-year low, and has weakened more than 6 percent since mid-year. The won, which has tumbled 8.7 percent since July, was trading at 1,108.70 against the U.S. currency as of 6:01 p.m. in Singapore. It reached 1,159 on Sept. 3, the lowest level since August 2004."
"Now, rising volatility may extend declines in emerging- market currencies. Traders use implied volatility to gauge expectations for currency swings and in setting options prices."
"Volatility was an element of past upheavals, including the global slump in stock markets from 2000 through 2002 after the technology bubble burst. Swings in developing-nation exchange- rates then outpaced those of the major economies by almost 6 percentage points, according to New York-based JPMorgan indexes."
`Driving Factor'
"``Movements in implied volatility are better than any backward looking indicator,'' said Gordian Kemen, a fixed-income strategist at Lehman Brothers Inc. in New York. ``It's very forward looking. When volatility goes up it many times becomes a driving factor on its own.''"
"Options indicate traders expect the currencies to fluctuate at an annualized rate of 11.91 percent, compared with 8.71 percent on July 25. That's just below the peak of 12.5 percent going back through 2000, when JPMorgan began tracking the data."
"What's more, volatility implied from emerging-market options surpassed that of major currencies this month for the first time since June."
"JPMorgan's implied volatility index for emerging economies three-month options, was 11.91 percent at the end of last week; while its index for developed nations was 11.57 percent. That's a switch from the past year, when volatility in developed nations averaged 1 percentage point more than emerging markets as investors bet a rise in commodity prices produced in places like Brazil, India and Russia would allow their economies to weather a U.S.-led slowdown."
Reserves Bolstered
"One-month implied volatility on options for the won more than doubled to almost 23 percent, the highest since 1999, from 10 percent in July. Implied volatility on the rupee more than tripled to about 13 percent from 4 percent in February."
"The rise in commodities prices has bolstered the reserves of many emerging markets, meaning they may fare better now than in prior bouts of economic weakness, according to Alex Patelis, head of international economics for Merrill Lynch & Co."
"``Yes, it's not pleasant, but it's not as bad as it used to be,'' Patelis said in a Bloomberg Radio interview. ``The reason is the shock is emanating from the United States this time around, rather than from emerging markets themselves.''"
"Foreign-exchange reserves in Brazil have risen 27 percent over the past year, compared with increases of 43 percent in Russia, 36 percent in China and 25 percent in India, according to data compiled by Bloomberg."
Snap-Back
The potential for a snap-back in stock markets may limit any declines in exchange rates.
"Declines in oil, nickel and wheat from records have pushed the MSCI Emerging Market Index down by more than a third since October, leaving the index 25 percent below its 200-day moving average. Over the past two decades, the difference grew this wide only in the aftermath of Sept. 11, the $40 billion Russian default and Mexico's currency devaluation in 1994. Each time, the index rallied 20 percent or more in the next three months."
"While the International Monetary Fund expects growth in emerging markets may slow to 6.7 percent next year from 6.9 percent in 2008, that's better than advanced economies, which are likely to decelerate to 1.4 percent from 1.7 percent."
"And though volatility is rising, some strategists still anticipate gains in emerging markets. The rupee is forecast to rebound to 43.53 per dollar, while the won will trade at 1,109 per dollar by year-end, according to estimates of at least 24 contributors surveyed by Bloomberg."
Brazilian Real
"Working against emerging-market currencies is an easing of inflation pressures as commodities including gold and oil decline, meaning central banks have scope to leave interest rates unchanged, or even cut them, said Standard Chartered's Moran."
"Brazil's real fell to the lowest level since February on Sept. 11, weakening to 1.8374 per dollar, after central bankers split on whether to raise borrowing costs further. The currency is little changed versus the dollar since December, after almost doubling in the previous five years."
"``Emerging market volatility is playing catch-up,'' said Naomi Fink, a Tokyo-based strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. ``There is going to be a further re-pricing of risk that will affect emerging markets. Credit was plentiful in the emerging market countries too.''"
To contact the reporters on this story: Liz Capo McCormick in New York at emccormick7@bloomberg.net
"Last Updated: September 15, 2008 06:05 EDT"
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Finland August Consumer Prices: Summary (Table)
By Joel Rinneby
Sept. 15 (Bloomberg) -- Following is a summary of the August consumer prices report from Statistics Finland in Helsinki:
==================================================================
Aug. July June May April March Feb.
2008 2008 2008 2008 2008 2008 2008
==================================================================
------------------ Overall CPI ------------------
MoM 0.4% -0.1% 0.4% 0.5% 0.1% 0.9% 0.5%
YoY 4.7% 4.4% 4.4% 4.2% 3.5% 3.9% 3.7%
==================================================================
Note: Base Year 2005=100.
Historical data is based on previous releases and may be subject
to change.
Source: Tilastokeskus (Statistics Finland)
To contact the reporter on this story: Joel Rinneby in Stockholm at jrinneby@bloomberg.net
"Last Updated: September 15, 2008 02:02 EDT"
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OPEC Says `Thank You' as Dollar Tempers Oil Drop: Chart of Day
By Alexander Kwiatkowski
Sept. 15 (Bloomberg) -- OPEC members' dismay at the 30 percent plunge in oil from July's record has been tempered by the rising value of their dollar revenues from selling crude.
The CHART OF THE DAY plots the drop in the price of October crude oil futures since reaching a record $148.13 on July 11. The upper line shows the oil price adjusted to reflect the 13 percent increase in purchasing power delivered by the dollar's gain against the euro in the same period.
"``Despite all the rhetoric, with the rally in the dollar index, OPEC is still saying `thank you very much,''' Olivier Jakob, managing director of Petromatrix Gmbh in Zug, Switzerland, said. ``For OPEC, $80 now is the same as $100 two months ago.''"
"The Organization of Petroleum Exporting Countries' oil revenues will rise to a record $1.23 trillion this year, almost double 2007's level, the U.S. Department of Energy said on Sept. 11. Saudi Arabian oil minister Ali al-Naimi, who sets energy policy in OPEC's largest exporter, said last week that the rising dollar was compensating producers for lower prices."
To contact the reporter on this story: Alexander Kwiatkowski in London at akwiatkowsk2@bloomberg.net
"Last Updated: September 14, 2008 19:02 EDT"
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"Buy Aussie Dollar Versus Kiwi, TD, Morgan Stanley Say (Update1) "
By Candice Zachariahs
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"Sept. 12 (Bloomberg) -- Investors should buy Australia's dollar against the New Zealand currency after central bankers in Wellington signaled they will cut interest rates further to prevent a prolonged recession, currency strategists said."
Traders are betting Governor Alan Bollard will reduce rates from 7.5 percent a further 1.28 percentage points over the next 12 months. They pared bets the Reserve Bank of Australia will cut its 7 percent benchmark in October after a report showed the economy added three times as many workers as forecast in August.
"``It would be no surprise to see New Zealand and Australian policy rates converge over the next 6 to 12 months,'' Stephen Koukoulas, London-based head of global foreign exchange and fixed income strategy for TD Securities, wrote in a client note dated yesterday. ``This is not priced into the market.''"
"The Australian dollar rose for the second day today against the New Zealand currency, also known as the kiwi, trading at NZ$1.2290 per Aussie dollar as of 12:56 p.m. in Sydney, from NZ$1.2264 yesterday."
Koukoulas recommends investors buy the Australian dollar at NZ$1.2260 with a target of NZ$1.2600. Investors should exit the trade if the currency falls to NZ$1.2010.
Morgan Stanley and Commonwealth Bank of Australia both extended recommendations investors buy the Australian currency versus the kiwi. CBA has set a target for its trading strategy at NZ$1.3000.
"RBC Capital Markets recommends betting the Australian dollar will rise to between NZ$1.28 and NZ$1.33, using call options that grant the right to buy the Australian dollar versus the New Zealand dollar."
Goldman Sees Kiwi Lower
"Goldman Sachs Group Inc., the world's biggest securities firm, lowered its forecasts for the New Zealand dollar against the greenback for the coming months, citing the Reserve Bank of New Zealand's unexpected half-a-point rate cut and ``dovish'' statement this week."
"``We now expect the bank to ease by 75 basis points this year, which is not discounted by the market,'' Goldman Sachs analysts including New York-based senior currency strategist Jens Nordvig wrote in a research note yesterday. ``This underpins our more bearish stance on the kiwi.''"
"The New Zealand dollar will weaken to 64 U.S. cents in 3 months and 60 cents in 12 months, compared with previous predictions of 68 cents and 61 cents, respectively, the Goldman Sachs analysts wrote."
New Zealand Recession
"New Zealand is in its first recession since 1998, slashing retail sales and employment, central bank Governor Bollard said yesterday."
"``We've got room to move,'' Bollard said in an interview from Wellington. ``We're in a loosening mode.''"
"Australian employers hired almost three times as many workers in August as economists forecast as demand for skilled labor in the mining sector increased, a government report showed yesterday."
"Traders cut bets on the likelihood of a RBA rate cut in October from 80 percent yesterday to 67 percent today, a Credit Suisse Group index based on overnight swaps trading shows."
"-- With reporting by Ron Harui in Singapore. Editors: Garfield Reynolds, Chris Young."
To contact the reporter on this story: Candice Zachariahs in Sydney at Czachariahs2@bloomberg.net
"Last Updated: September 11, 2008 23:04 EDT"
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Japanese Bonds Complete Second Weekly Decline as Stocks Advance
"Sept. 12 (Bloomberg) -- Japanese government bonds fell for a second week as the country's equities advanced, reducing demand for debt."
Ten-year yields climbed to a one-month high this week after the U.S. government took over Fannie Mae and Freddie Mac. Yields today rose toward that level on speculation a takeover of Lehman Brothers Holdings Inc. will bolster equity markets. The Nikkei 225 Stock Average gained for the first time in four days.
"``The equity market was so bullish and the bond market was so bearish with the Fannie and Freddie news,'' said Yuuki Sakurai, general manager of financial and investment planning in Tokyo at Fukoku Mutual Life Insurance Co., which manages the equivalent of $54 billion in assets. ``The effect of the Lehman talks is optimistic,'' which weighs on government bonds, he said."
"The yield on the 1.5 percent bond due September 2018 added 2.5 basis points to 1.525 percent as of 4:06 p.m. in Tokyo at Japan Bond Trading Co., the nation's largest interdealer debt broker. The price lost 0.217 yen to 99.783 yen. The yield has climbed 9 basis points, or 0.09 percentage point, this week."
Ten-year bond futures for December delivery were little changed at 137.35 as of the afternoon close at the Tokyo Stock Exchange and the Nikkei 225 gained 0.9 percent.
"Treasury Secretary Henry Paulson on Sept. 7 placed Fannie and Freddie in a government-operated conservatorship. The Treasury will provide secured short-term funding to Fannie, Freddie and 12 federal home-loan banks, and buy mortgage-backed debt in the open market."
"Ten-year bonds slumped the following day, pushing yields up to 1.55 percent, the highest since Aug. 6."
Inverse Correlation
"``The inverse correlation is getting back between Japanese equities and bonds,'' said Keiko Onogi, a debt strategist at Daiwa Securities SMBC Co., one of the 26 primary dealers that are required to bid at auctions, in Tokyo."
"Japan's bonds often move in the opposite direction to stocks. Benchmark 10-year yields had a correlation of 0.87 with the Nikkei 225 this month, according to data compiled by Bloomberg. A value of 1 means the two moved in lockstep."
"The bonds have handed investors a return of about 1 percent this quarter through yesterday, the least among Group of Seven nations, according to indexes compiled by Merrill Lynch & Co. The Nikkei has lost 10 percent in the same period."
Lehman Sale
"Lehman Brothers entered into talks with potential buyers of the securities firm after Moody's Investors Service said the company must find a ``stronger financial partner'' and the shares plummeted. Bank of America Corp. is among the possible buyers, the Wall Street Journal said, citing unidentified people. Spokesmen for Lehman and Bank of America declined to comment."
The decline in bonds was limited after the Japanese government today revised down second-quarter figures for gross domestic product.
"The downward revision boosted speculation the Bank of Japan may be more inclined to cut interest rates as inflation ebbs, according to Calyon Securities. The economy shrank an annualized 3 percent, compared with a contraction of 2.4 percent originally announced on Aug. 13, the Cabinet Office said today."
"``Growth in July to September is expected to be another weak one as both domestic and external demand may remain rather weak,'' which supports bonds, said Susumu Kato, chief economist in Tokyo at Calyon Securities, also a primary dealer. There will be growing pressures for ``the BOJ to cut interest rates when core CPI inflation subsides into 2009.''"
Wholesale Inflation
"A central bank report on Sept. 10 showed Japan's wholesale inflation rate slowed for the first time in 11 months. Prices companies pay for energy and raw materials rose 7.2 percent from a year earlier after gaining 7.3 percent in July, the bank said. From July, producer prices fell 0.1 percent, the first drop since September 2007."
"The central bank will probably leave interest rates unchanged at 0.5 percent this year, according to a Bloomberg News survey of economists and analysts. The estimate puts a heavier weighting on more recent forecasts."
Bonds also declined this week on concern Japan's next premier will increase government spending by issuing additional debt to help finance economic stimulus packages.
"Taro Aso, who said spending more to save an economy on the verge of a recession should be the government's top priority, is a front runner to become Japan's prime minister."
"``The possibility of Aso winning is high,'' said Kazuya Seki, a deputy general manager at Chuo Mitsui Trust and Banking Co., a unit of Japan's seventh-largest publicly traded bank by assets. Investors are ``conscious of an expansion in fiscal deficit and bonds are not easily bought.''"
"Aso said last month that the government should consider postponing its goal of balancing the budget by 2011 because the economy is probably in a recession. Japan already has 778 trillion yen of outstanding debt, which at 147 percent of gross domestic product is the largest among industrialized nations."
To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net.
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Lehman Sparks Record Surge in Bond Risk on Counterparty Concern
By Abigail Moses
Sept. 15 (Bloomberg) -- Lehman Brothers Holdings Inc. triggered a record jump in the cost of default protection on investor concern its bankruptcy will cause losses in the $62 trillion credit derivatives market.
"Credit-default swaps on the benchmark Markit iTraxx Crossover index soared 57 basis points to 599, earlier traded at 635, according to JPMorgan Chase & Co. prices at 8:35 a.m. in London. During an unprecedented trading session in New York yesterday the Markit CDX North America Investment Grade index reached a record 200 basis points from 152.5 on Sept. 12."
"Wall Street firms traded yesterday to cancel or offset credit-default swap contracts with Lehman, among the top 10 counterparties in the market. A default by a financial institution that had $2 trillion in contracts outstanding might trigger between $36 billion and $47 billion in losses for those that traded with the firm, Barclays Capital analysts wrote in February."
"``It's set markets into a panic,'' said Tim Brunne, a credit analysts at Unicredit SpA in Munich. ``The question still is who's next? It's probably not over.''"
"Credit-default swaps, contracts conceived to protect bondholders against default, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. A rise indicates deterioration in the perception of credit quality; a decline signals the opposite."
"A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year."
Counterparty Risk
"An index created by New York-based Credit Derivatives Research LLC that tracks credit-default swaps on 15 banks and securities firms, known as the CDR Counterparty Risk Index, rose 51 basis points last week to 215, the highest since the collapse of Bear Stearns in March."
"The cost of default protection surged by record amounts around the world. The Markit iTraxx Australia index rose 41 basis points to 195 in Sydney, Citigroup Inc. prices show. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan, advanced 20 basis points to 185, according to JPMorgan. Japan's equity and bond markets are closed today for a national holiday."
To contact the reporter on this story: Abigail Moses in London Amoses5@bloomberg.net
"Last Updated: September 15, 2008 03:37 EDT"
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Treasuries Soar as Lehman Spurs Forecasts for Lower Fed Rate
By Agnes Lovasz and Wes Goodman
"Sept. 15 (Bloomberg) -- Treasuries surged, sending two-year notes up by the most since the September 2001 terrorist attacks on the U.S., as Lehman Brothers Holdings Inc. filed for bankruptcy and traders forecast the Federal Reserve will cut interest rates."
"The gains pushed the yield below 2 percent for the first time since April after Barclays Plc and Bank of America Corp. withdrew from talks to acquire Lehman. Bank of America agreed to buy Merrill Lynch & Co. for about $50 billion. The dollar fell by the most since August 2007 against the yen, European and Asian stocks tumbled and gold gained as much as 3.7 percent."
"``It's a big knee-jerk reaction to the events overnight,'' said Sean Maloney, a fixed-income strategist in London at Nomura International Plc. ``It's very hard to see the safe-haven theme unwinding any time soon. It's a panic-driven market and in that sort of environment we're very prone to a big overshoot.''"
"The yield on two-year notes dropped 37 basis points, or 0.37 percentage point, to 1.84 percent as of 9:04 a.m. in London, according to bond broker BGCantor Market Data. It fell 53 basis points on Sept. 13, 2001. The 2.375 percent security due August 2010 rose 23/32, or $7.19 per $1,000 face amount, to 101 1/32."
Ten-year yields declined 21 basis points to 3.51 percent.
"The Fed expanded its lending facilities to support financial markets, increased the size of its Treasuries lending program to $200 billion and widened the collateral it accepts for loans to Wall Street bond dealers."
"The steps ``are intended to mitigate the potential risks and disruptions to markets,'' Fed Chairman Ben S. Bernanke said in a statement yesterday in Washington."
Liquidity Fund
"A group of 10 banks that includes JPMorgan Chase & Co., Goldman Sachs Group Inc. and Citigroup Inc. formed a $70 billion fund to ensure market liquidity."
"``The dynamics have shifted to such an extent over the weekend that you couldn't rule out further gains'' in Treasuries, Maloney said."
"U.S. notes gained as the MSCI World Index of equities fell 0.5 percent. The dollar declined 2.1 percent against the yen and dropped 0.7 percent versus the euro. Markets in Japan, Hong Kong and China were closed for holidays."
"``There has been a big reaction everywhere, and it's quite a volatile day,'' said Brendon Johnston in Wellington, a bond trader at Westpac Banking Corp., Australia's second-largest lender by market capitalization."
Fed Futures
"The implied yield on federal funds futures contracts for December delivery slid 19 basis points to 1.73 percent, a quarter-percentage point less than the Fed's target rate. The difference hasn't been this wide since April before the central bank cut the target rate by a quarter point on the last day of the month."
The contract yield has been 5 basis points more than the Fed rate on average for the past six months.
"Futures contracts on the Chicago Board of Trade showed a 36 percent chance the Fed will cut its 2 percent target rate for overnight lending between banks by at least a quarter point this year, as of Sept. 12. The odds that the Fed will keep its rate unchanged at a policy meeting tomorrow were 88 percent."
"``I was surprised'' by Lehman's bankruptcy, said Yasutoshi Nagai, chief economist in Tokyo at Daiwa Securities SMBC Co., part of Japan's second-largest brokerage, who was preparing a report for clients from home during the Japanese holiday. ``There's a flight to quality. Stocks will decline and bond prices will go up.''"
Nagai changed his forecast for two-year yields to 2.2 percent by Dec. 31 from 2.5 percent.
Default Swaps
"The cost of protecting European, Australian and Asian corporate bonds from default jumped, according to traders of credit-default swaps."
"Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-risk, high-yield credit ratings jumped 79 basis points to 625, according to JPMorgan Chase & Co. prices at 6:45 a.m. in London. The index is a benchmark for the cost of protecting bonds against default and an increase indicates deterioration in the perception of credit quality."
"Default swaps pay the buyer face value in exchange for the underlying securities, or cash equivalent, if a borrower fails to adhere to its debt agreements."
"``The immediate problem is the derivative default swaps market, in which a plethora of institutional accounts and dealer accounts are at risk,'' Bill Gross, manager of the world's largest bond fund at Pacific Investment Management Co., said in an interview with Bloomberg Radio yesterday. ``It induces a tremendous amount of volatility and uncertainty in terms of Monday morning trading.''"
Paulson's Bazooka
U.S. bond prices show Henry Paulson's ``bazooka'' fired blanks when he took over beleaguered mortgage-finance companies Fannie Mae and Freddie Mac.
"Instead of instilling confidence in the credit markets, the Treasury secretary's plan to place the government-sponsored enterprises in conservatorship on Sept. 7 only served to underscore weakness in the world's biggest economy and the plight of U.S. financial institutions. American International Group Inc. and Washington Mutual Inc. joined Lehman and Merrill in plunging last week."
"AIG may seek help from the Fed, the Wall Street Journal reported. The insurer has turned down a private-equity investment because it would have meant turning over control of the company, the Journal said on its Web site, citing unnamed people familiar with the situation."
Buying Safety
"For the first time since May, bond investors from New York to Tokyo are piling into Treasuries on speculation the Fed will cut interest rates by year-end."
"``We're still concerned about credit tightening by U.S. banks,'' said Masataka Horii, one of four managers of the $52 billion Kokusai Global Sovereign Open fund in Tokyo. ``The government GSE rescue plan will help, but it is not sufficient.''"
"Kokusai Global, the second-biggest actively managed bond fund behind Gross' $132 billion Pimco Total Return Fund, increased its Treasury holdings to 27 percent of assets in August, the most since April 2007, from 20 percent in March, Horii said."
"The yield on the three-month overnight indexed swap, a gauge of expectations for central bank rates, fell 14 basis points to 1.80 percent, the lowest level in almost six months."
To contact the reporters on this story: Agnes Lovasz in London at alovasz@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net
"Last Updated: September 15, 2008 04:20 EDT"
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European Bonds Surge as Lehman Woes Spur Demand for Safe Assets
By Anchalee Worrachate
Sept. 15 (Bloomberg) -- European bonds surged as investors sought the safety of government securities after Lehman Brothers Holdings Inc. filed for bankruptcy.
"The gain drove yields on 10-year notes down by the most in three months on speculation the financial turmoil will force the Federal Reserve to cut its benchmark rate at a meeting tomorrow. Barclays Plc and Bank of America Corp. withdrew from talks to buy Lehman yesterday. American International Group Inc., the insurer struggling to avoid credit downgrades, is seeking a $40 billion loan from the Fed as it tries to sell assets, according to the New York Times."
"``This is the mother of all Mondays,'' said Ciaran O'Hagan, a fixed-income strategist in Paris at Societe Generale SA. ``This is bad news for the economy. The question is with Lehman in its final throes and AIG about to go belly up, who is next? This will have major ramifications on banks' ability to lend. Yields will have to go lower.''"
"The yield on the two-year declined 26 basis points to 3.70 percent, the sharpest drop since March 17, the day after the Fed cut its emergency discount rate. The price of the 4 percent note maturing in September 2010 climbed 0.48, or 4.8 euros per 1,000 euros ($1,430) face amount to 100.56. The yield on the 10-year note fell 15 basis points to 4.04 percent by 8:05 a.m. in London, the biggest decline since June 9. Bond yields move inversely to prices."
Widening Spread
"The gains drove the difference in yield, or spread, between two-year notes, which are more sensitive to the interest-rate outlook, and 10-year notes to the widest since May 9, steepening the so-called yield curve in the European government bond market. O'Hagan said he favors ``steepener'' trades as investors seek shorter-dated bonds on expectations for rate cuts."
"European stocks declined, stoking demand for the safest assets. The Dow Jones Euro Stoxx 600 Index, a benchmark for the euro region, tumbled 2.6 percent. The U.K.'s FTSE 100 Index dropped 2.8 percent."
"Bonds also rose as the cost of protecting European corporate bonds from default soared. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-risk, high-yield credit ratings jumped 84 basis points to 630, according to JPMorgan Chase & Co. The index is a benchmark for the cost of protecting bonds against default and an increase indicates deterioration in the perception of credit quality."
Money Back
"``At this point, people don't care about the return on their money, but rather the return of their money,'' said David Keeble, London-based head of fixed-income strategy at Calyon, the investment-banking unit of Credit Agricole SA. ``Investors will need to buy riskless assets in this environment. What we need is every central banker around the planet talking and talking as though they are looking at this in a concerted way.''"
"Investors are betting for the first time since August that the European Central Bank will cut interest rates, derivatives trading showed. The chances of the ECB cutting its main refinancing rate rose to the highest since March 18, according to a Credit Suisse Group index of probability based on overnight index-swap rates. The ECB's key rate is 4.25 percent."
"The implied yield on the December Euribor contract dropped 8 basis points to 5.03 percent today, snapping three successive gains."
To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net
"Last Updated: September 15, 2008 03:43 EDT"
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"Copper May Decline Next Week on Demand Concern, Survey Says "
By Chanyaporn Chanjaroen
"Sept. 12 (Bloomberg) -- Copper may fall next week as global economic growth cools, reducing demand for industrial metals."
Nine of 16 analysts and traders surveyed yesterday and Sept. 10 forecast copper will drop next week. Five expected an increase and two were neutral. Copper for delivery in three months on the London Metal Exchange has risen 1.2 percent this week.
The euro-area economy contracted in the second quarter and U.S. jobless claims reached the highest since October 2003.
This week's survey results:
Bullish: 5 Bearish: 9 neutral: 2
To contact the reporter on this story: Chanyaporn Chanjaroen in London at cchanjaroen@bloomberg.net
"Last Updated: September 12, 2008 01:14 EDT"
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Brazil's Real Climbs After Central Bank Stays Out of Market
By Lester Pimentel
Sept. 12 (Bloomberg) -- Brazil's real rose the most since April after the central bank refrained from buying dollars yesterday in a bid to shore up the currency.
"The real rose 1.7 percent to 1.781 per dollar at 4:46 p.m. New York time, from 1.8123 yesterday. The real is still down 14 percent from a nine-year high of 1.5545 on Aug. 1 as plunging prices for the country's commodity exports curbed dollar inflows."
The central bank stayed out of the currency market for a second day. It had purchased dollars every day this year to build up foreign reserves and slow a rally that pushed the real up 62 percent over the past five years. Demand for reais also picked up today as analysts said that the real has fallen too far too fast.
"``The move was overdone,'' said Benito Berber, a strategist at RBS Greenwich Capital Markets Inc. in Greenwich, Connecticut. ``Brazil is a country with strong fundamentals and high levels of reserves.''"
"The real's slide quickened this week as concern that New York-based Lehman Brothers Holdings Inc. would collapse eroded demand for higher-yielding, emerging-market assets. The currency sank 5.6 percent in the first four days of the week. It is the worst performer since Aug. 1 among the 16 most-traded currencies against the dollar."
"The real also rebounded today as a report showing U.S. retail sales unexpectedly declined in August fueled speculation the Federal Reserve will cut its benchmark overnight rate. Brazil's central bank on Sept. 10 raised its overnight lending rate to 13.75 percent, widening the gap with the Fed's 2 percent rate."
Fed Rate Probabilities
Futures on the Chicago Board of Trade show traders see a 33 percent chance the Fed will lower its target rate for overnight lending between banks by at least a quarter-percentage point this year. The odds were zero a month ago.
"The yield on the government's zero-coupon bonds due in January 2010 fell 1 basis point, or 0.01 percentage point, to 14.73 percent, according to Banco Votorantim. The yield on the country's overnight interest rate futures contract for January delivery rose 1 basis point to 14.03 percent."
To contact the reporter on this story: Lester Pimentel in New York at lpimentel1@bloomberg.net
"Last Updated: September 12, 2008 16:58 EDT"
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Gold Prices May Rebound on Demand for Alternative to Dollar
By Pham-Duy Nguyen
"Sept. 15 (Bloomberg) -- Gold may rebound on speculation that the dollar's rally against the euro will stall, boosting demand for the precious metal as an alternative investment."
"Fifteen of 28 traders, investors and analysts surveyed from Mumbai to Chicago on Sept. 11 and Sept. 12 advised buying gold, which fell 4.8 percent last week to $764.50 an ounce in New York. Nine said to sell, and four were neutral."
"Gold generally moves in the opposite direction of the U.S. currency. The metal reached a record $1,033.90 in March as the dollar weakened to the lowest ever against the euro in July."
"Gold's loss last week surprised most analysts surveyed Sept. 4 and Sept. 5. The survey has forecast prices accurately in 136 of 228 weeks, or 60 percent of the time."
This week's survey results: Bullish: 15 Bearish: 9 Neutral: 4
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
"Last Updated: September 14, 2008 14:00 EDT"
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"Pound Set for Weekly Gain Versus Euro, Trades Near 3-Week High "
By Andrew MacAskill and Lukanyo Mnyanda
"Sept. 12 (Bloomberg) -- The pound was little changed against the euro, headed for its first weekly advance in five, on speculation gains by the European common currency were overdone."
"The pound rose to a three-week high against the common currency yesterday on speculation an economic slowdown in Britain won't be as deep as in the euro region. The economy will pick up in a year, Bank of England Governor Mervyn King told a panel of lawmakers in London."
"``The euro is now playing catch up because we have been focused exclusively on sterling weakness,'' said Divyang Shah, chief strategist in London at CBA Europe Ltd., a unit of Commonwealth Bank of Australia. ``Sterling may continue to strengthen in the short term'' against the euro and may trade at 78.50 next week, he said."
"The British currency was little changed at 79.61 pence per euro as of 9:19 a.m. in London, from 79.62 pence yesterday, when it advanced for a sixth day. Against the dollar, the pound rose to $1.7702, from $1.7580."
The pound has fallen 11 percent against the dollar this year and 7.7 percent versus the euro.
"Policy makers kept the country's benchmark interest rate at 5 percent for a fifth month on Sept. 4, as inflation risks prevented them from cutting borrowing costs to spur growth. They are scheduled to release minutes of their meeting on Sept. 17."
"Government bonds fell, with the 10-year yield rising 5 basis points to 4.50 percent. The 5 percent security due March 2018 declined 0.42, or 4.2 pounds per 1,000-pound ($1,770) face amount, to 103.81."
"The yield on the two-year note, which is more sensitive to interest-rate expectations, increased 3 basis points to 4.45 percent. Bond yields move inversely to prices."
To contact the reporter on this story: Andrew MacAskill in London at amacaskill@bloomberg.net
"Last Updated: September 12, 2008 04:24 EDT"
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"Gold Gains for Second Day in London on Sinking Dollar, Equities "
By Marianne Stigset
"Sept. 15 (Bloomberg) -- Gold gained for a second session in London as Lehman Brothers Holding Inc.'s looming bankruptcy pushed the dollar and stocks lower, prompting investors to seek a hedge against financial market risk. Platinum also advanced."
"U.S. equity-index futures and stocks in Asia and Europe dropped after Lehman said today it would file for bankruptcy and Bank of America Corp. agreed to acquire Merrill Lynch & Co., the world's biggest brokerage firm. The dollar retreated against the euro and the yen."
"``Systemic risk indicators have adjusted upward, which is supportive of precious metals,'' Manqoba Madinane, a commodity analyst at Standard Bank Group Ltd. in Johannesburg, said in a report today. ``Following the Lehman Brothers decision, we believe risk will stay high, which could keep the greenback under pressure.''"
"Gold for immediate delivery climbed $12.45, or 1.6 percent, to $778.95 an ounce as of 8:16 a.m. in London. The metal declined 4.7 percent last week, the second straight weekly decline."
"``Gold has jumped higher on the Asian opening this morning following the dollar drop and with technical indicators still showing the market oversold and physical demand still seasonally strong,'' James Moore, an analyst at TheBullionDesk.com, wrote in a report."
"Gold futures for December climbed $16.80, or 2.2 percent, to $781.30 an ounce in electronic trading on the Comex division of the New York Mercantile Exchange."
Weekly Survey
"Fifteen of 28 traders, investors and analysts surveyed by Bloomberg from Mumbai to Chicago on Sept. 11 and Sept. 12 advised buying gold. Nine said to sell, and four were neutral."
"Hedge-fund managers and other large speculators decreased their net-long position in New York gold futures in the week ended Sep. 9, according to U.S. Commodity Futures Trading Commission data."
"Speculative long positions, or bets prices will rise, outnumbered short positions by 82,655 contracts on the Comex division of the New York Mercantile Exchange, the Washington- based commission said in its Commitments of Traders report from Sept. 12."
"Among other metals for immediate delivery, silver gained 7 cents, or 0.6 percent, to $10.95 an ounce, palladium rose $1.75, or 0.7 percent, to $248.25 an ounce."
"Platinum for immediate delivery rose $7, or 0.6 percent, to $1,217 an ounce."
To contact the reporter on this story: Marianne Stigset in Oslo at mstigset@bloomberg.net
"Last Updated: September 15, 2008 03:36 EDT"
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"Asia Faces `Downside' Growth Risk, Merrill Lynch Says (Update1) "
By Shamim Adam
"Sept. 12 (Bloomberg) -- Asia's economies will grow at a slower-than-expected pace this year and next as demand from the U.S., Europe and Japan weakens and turmoil in global financial markets deepens, according to Merrill Lynch & Co."
"The region will expand 7.7 percent this year, from an earlier forecast of 7.9 percent, wrote Merrill analysts in Hong Kong led by Asia-Pacific chief economist T. J. Bond. Growth will ease to 7.3 percent in 2009, lower than a previous prediction of 7.9 percent, the report published yesterday said."
"``The backdrop for global demand has deteriorated,'' the economists wrote. ``Asian exports to the U.S. have already slowed significantly, and will probably drop into negative territory. The deterioration in Europe and Japan is the unpleasant new surprise.''"
"Japan's economy shrank 3 percent last quarter, the steepest decline since 2001, while the euro-area economy contracted 0.2 percent in the same period. Manufacturing orders in Germany, Europe's largest economy, fell for an unprecedented eighth straight month in July and Europe's manufacturing and service industries contracted for a third month in August."
"Asia's ``growth should remain well above recession levels,'' the Merrill report said. ``However, we now expect it to drop below trend.''"
Global Recession
"Goldman Sachs Group Inc. last month estimated that half of the world economy already faces recession, with richer nations faring the worst as emerging markets continue to expand. The global economy faces a 25 percent chance of recession in the next year, according to UBS AG economists."
"The U.S. Treasury Department and the Federal Housing Finance Agency last weekend seized control of Fannie Mae and Freddie Mac after the biggest surge in mortgage defaults in at least three decades threatened to topple the companies, which make up almost half the U.S. home-loan market."
Financial institutions worldwide have reported $510 billion in losses and writedowns since the beginning of 2007 and the credit market collapse erased $9 trillion from global stocks in the past year.
"``The weakness in financial markets has reached levels where it could affect the real economy,'' the Merrill report said. ``The main channel is through the exchange rate: a sharp currency depreciation can feed through rapidly into inflation. Higher interest rates in response tend to slow domestic consumption and investment.''"
Stronger Dollar
The U.S. dollar this quarter has strengthened against nine out of ten Asian currencies tracked by Bloomberg.
"China's economy will expand 10 percent this year, Merrill predicted, cutting its earlier forecast of 10.4 percent. Growth will be 9.2 percent next year, the economists said, a percentage point less than previously expected."
"``We expect China's potential growth rate to slow towards 9 percent for the next three years, gradually declining towards 8 percent by 2013,'' the economists said. ``Domestic consumption and investment, instead of exports, will help sustain China's growth and smooth volatility due to the global slowdown and the real- estate cycle.''"
To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net
"Last Updated: September 12, 2008 01:11 EDT"
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Euro Trades Near One-Year Low on Speculation Production Shrank
By Stanley White and Ron Harui
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"Sept. 12 (Bloomberg) -- The euro traded near a one-year low against the dollar on speculation that a government report will show today industrial production in Europe shrank, backing the case for the region's central bank to cut interest rates."
"The currency is headed for a third weekly loss as traders increased bets that the European Central Bank will lower borrowing costs to support economic growth. The yen was near a two-year high against the euro on concern that Lehman Brothers Holdings Inc. may collapse, prompting sales of higher-yielding assets funded with cheap loans in Japan."
"``We're looking at a much weaker level for the euro over the next year,'' said Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co., in an interview on Bloomberg Television. ``Europe, Japan and Asia can't have strong growth with the U.S. so weak. The decoupling story is a mirage.''"
"The euro traded at $1.4003 at 1:23 p.m. in Tokyo after reaching $1.3882 yesterday, the weakest level since Sept. 18, 2007. It has fallen 1.9 percent this week. The yen bought 150.03 per euro from 149.98 yesterday, when it touched 147.54, the strongest in more than two years. It rose 2.4 percent versus the euro this week. The U.S. currency traded at 107.17 yen and was set for a 0.5 percent decline this week."
"The dollar also was at $1.7584 against the British pound from $1.7580, and at 1.1360 Swiss francs from 1.1381."
"Industrial output in the 15 nations that use the euro fell 0.2 percent in July, matching the decline in June, according to a Bloomberg News survey of economists before the European Union statistics office data due today."
`Many Conflicting Reports'
"Traders are betting that the ECB will reduce its 4.25 percent benchmark interest rate by 47 basis points over the next 12 months, up from 35 basis points a week earlier, according to a Credit Suisse Group index based on overnight swaps."
"The yen is trading near two-year highs against the Australian and New Zealand dollars on concern about Lehman's capacity to raise capital after posting a record loss. U.S. officials are helping Lehman find a buyer, a person familiar with the matter said."
"``There have been so many conflicting reports about Lehman that traders aren't sure what to think,'' said Osao Iizuka, head of foreign exchange trading in Tokyo at Sumitomo Trust & Banking Co., Japan's seventh-largest publicly listed lender. ``That's behind the yen's gains this week.''"
"Japan's currency may move between 149 and 150.50 versus the euro today, Iizuka forecast."
Dollar Index
"A Lehman deal may be announced before Asian markets open Sept. 15., a person with knowledge of the matter said. The government isn't likely to contribute money, the person said. Bankers from other firms were reviewing Lehman's books today, according to people with knowledge of the situation, who declined to identify potential acquirers."
"The yen has advanced 2.3 percent this week against the Australian dollar to 85.95. It has strengthened 2.9 percent to 70.01 per New Zealand dollar. Investors reduced carry trades, in which they get funds in a country with low borrowing costs and buy assets where returns are higher. The risk is that currency swings erase those profits."
"The ICE's Dollar Index was at 79.922 after touching 80.375 yesterday, the highest level since September 2007, when the Federal Reserve began cutting the target lending rate from 5.25 percent to 2 percent to stave off a recession. The index, a gauge measuring the dollar against the currencies of six U.S. trading partners, reached a low of 70.698 on March 17."
Brazilian Real
"The dollar strengthened beyond 1.80 versus the Brazilian real yesterday for the first time since January, and reached $1.7447 against the pound, the strongest level since April 2006."
"``The global slowdown has dimmed the allure of higher yields abroad,'' wrote Benedikt Germanier, a currency strategist at UBS AG in Stamford, Connecticut, in a research note to clients yesterday."
The dollar has gained 12.7 percent since touching the all- time low of $1.6038 per euro on July 15 as the European economy slumped and crude oil dropped more than 30 percent to $101.50 a barrel from its peak of $147.27.
"Gains in the dollar may be limited by speculation a Commerce Department report may show today that U.S. retail sales fell in August for the first time in six months, adding to signs the world's largest economy is slowing."
"The currency headed for a fourth weekly loss versus the yen, the longest stretch since March 14, on prospects a cooling U.S. economy will back the case for the Fed to cut interest rates. The difference in yields between two-year Treasuries and Japanese government bonds narrowed to 1.47 percentage points from 1.57 percentage points a week earlier."
`Economy is Faltering'
"``The data may fuel worries that the U.S. economy is faltering and may even be in a recession,'' said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. ``It's a negative for the dollar,'' which may weaken to 106.70 yen today, he said."
"Retail sales excluding cars and trucks dropped 0.2 percent in August, the first decline since February, after a 0.4 percent gain in July, according to the median estimate in a Bloomberg News survey. The Commerce Department will release the report at 8:30 a.m. in Washington."
"Traders added to bets that the Fed will lower its 2 percent target rate for overnight lending between banks this year for an eighth time since last September, futures contracts on the Chicago Board of Trade show. The likelihood of a cut to 1.75 percent at the Fed's Dec. 16 meeting climbed to 30 percent, from 14 percent yesterday. The majority of bets are for no change."
To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.netRon Harui in Singapore at rharui@bloomberg.net
"Last Updated: September 12, 2008 01:00 EDT"
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"Morgan, Goldman, Deutsche Say Brazil Stocks are Cheap (Update3) "
By Alexis Xydias and Alexander Ragir
"Sept. 12 (Bloomberg) -- Morgan Stanley, Deutsche Bank AG and Goldman Sachs Group Inc. strategists recommended that investors buy more Brazilian stocks as equities have become cheap after a 20 percent decline this year."
"Brazilian stocks were raised to ``major overweight'' by Morgan Stanley's emerging-market strategists, who cited the shares' prices and the earnings outlook for South America's largest economy."
"Brazil's Bovespa index gained for a third day, rising 2.2 percent to 52,392.86."
"Investors should buy raw material and energy stocks such as Cia. Vale do Rio Doce, the world's biggest iron ore miner, and Petroleo Brasileiro SA, Brazil's state-controlled oil company, Morgan Stanley strategists led by Jonathan Garner wrote in a note to clients."
"``Absolute valuations are attractive,'' they said."
"Brazil's Bovespa index trades at 13.01 times earnings, compared with a price-to-earnings ratio of 13.96 on Jan. 1. Vale fell 27 percent this year, while Petrobras dropped 25 percent."
"Investors should allocate 5.75 percentage points more of Brazilian stocks than are represented in the MSCI Emerging Markets Index, the Morgan Stanley strategists wrote."
"Separately, Deutsche said in a note that the ``valuation excesses are gone'' for Brazilian stocks and investors should shift into stocks that benefit from consumer demand."
"``The time is right to start a rotation towards the interest-rate-sensitive sectors such as consumer discretionary, homebuilders and wireless telecoms,'' wrote Deutsche strategist Guilherme Paiva. He recommended PDG Realty SA Empreendimentos e Participacoes, B2W Cia. Global do Varejo, Net Servicos de Comunicacao SA, Vivo Participacoes SA."
Goldman Sachs
Goldman said yesterday that Brazilian stocks are the cheapest in the Americas when comparing estimated earnings for the next twelve months.
"The MSCI Brazil index trades at a price that is 8.1 times estimated earnings, according to the New York-based bank. Argentina, with a price to earnings ratio of 8.3, is the next cheapest, Goldman said. Chilean stocks are the most expensive, trading at 13.9 times estimated earnings, followed by the U.S., which trades at 12.5 times earnings."
"``Brazil's low P/E is partially explained by its high exposure to Energy and Materials, typically low P/E sectors,'' Goldman strategist David Kostin wrote in a note."
The Bovespa fell 29 percent from its May high as interest rates rose and commodity prices dropped.
The Reuters Jefferies Commodities Index dropped 24 percent from its July 2 high.
Brazil Rates
Brazil's central bank raised its benchmark interest rate to the highest in almost two years on Sept. 10 in a bid to cool accelerating economic growth that's stoking inflation.
Deutsche Bank said today it expects the central bank to start cutting rates from September 2009.
"Morgan Stanley also raised Turkey to ``equal-weight'' from ``underweight,'' meaning investors should hold as many of the shares as are represented in the emerging-market benchmark."
"Malaysia and Thailand were cut by the bank to ``equal- weight'' from ``overweight,'' while Egypt was downgraded to ``underweight'' from ``equal-weight.''"
To contact the reporter on this story: Alexis Xydias in London at axydias@bloomberg.net. Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net;
"Last Updated: September 12, 2008 16:37 EDT"
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Gold Rebounds as Dollar Weakens Against Euro; Silver Advances
By Pham-Duy Nguyen
"Sept. 12 (Bloomberg) -- Gold rose, snapping a nine-day losing streak, as the dollar fell against the euro, reviving demand for the precious metal as an alternative investment."
"The euro rose as much as 1.5 percent against the dollar. The 15-nation currency is still down 0.3 percent this week, and gold dropped 4.8 percent. The metal reached a record in March as the euro headed to an all-time high in July."
"``Gold is definitely oversold and it's certainly due for a bounce,'' said Frank Lesh, a trader at FuturePath Trading LLC in Chicago. ``This is about capital flow. We're seeing some profit taking on the long-dollar positions and a little bit of buying coming into gold.''"
"Gold futures for December delivery rose $19, or 2.5 percent, to $764.50 an ounce on the Comex division of the New York Mercantile Exchange. The metal fell 11 percent from Aug. 28 through yesterday."
"Silver futures for December delivery gained 24 cents, or 2.3 percent, to $10.795 an ounce. The metal still dropped 12 percent this week."
"Gold is down 26 percent from the record $1,033.90 reached on March 17. The decline offers a buying opportunity, said Patrick Chidley, a gold-mining analyst at Barnard Jacobs Mellet in Stamford, Connecticut."
"``I would be accumulating positions here as gold has reached the point where mines will shut at a faster rate, while demand in Asia and the Middle East will increase dramatically,'' Chidley said. ``The fundamentals remain excellent for higher gold prices.''"
`Insurance Policy'
"Gold has fallen partly because tight credit conditions and losses in equity markets have forced funds to cash in ``part of the insurance policy,'' Chidley said."
"Precious metals will rise once the dollar's rally stalls, analysts at Deutsche Bank AG said in a report."
"``Precious metals may be the first of the five broad commodity markets that might stabilize from the extreme correction that has occurred in the second half,'' the bank said. ``This reflects the possibility that dollar strength will start to fade as we enter into the fourth quarter. We recommend relative value plays such as long silver versus short gold.''"
"Silver's losses have outpaced gold's this year on speculation a global slowdown will reduce demand for raw materials. The metal, which has wider industrial applications than gold, is down 28 percent this year."
Gold has dropped 8.8 percent in 2008.
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
"Last Updated: September 12, 2008 15:19 EDT"
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Index Falls 76400 to 27608 .txt>> <<2.631_20080915100751US Treasury
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for Bankruptcy .txt>> <<2.629_20080912105306Stocks in Europe Asia Rise
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Pain Amid Slowdown (Update2) .txt>> <<2.628_20080915110929Finland
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