Japan's Bonds Complete Best Week Since June on Stocks Rout
By Theresa Barraclough
Oct. 24 (Bloomberg) -- Japanese 10-year bonds completed the biggest weekly gain since June as a global rout in stocks wiped out more than $10 trillion of market value this month.
"The notes climbed for a fourth day after Sony Corp. cut its annual earnings target by more than half, sending the Nikkei 225 Stock Average down 10 percent. Demand for shorter-maturity debt increased on mounting speculation the Bank of Japan will lower interest rates to prevent a prolonged recession."
"``JGBs are relatively attractive,'' said Eiji Dohke, chief strategist at UBS Securities Japan Ltd. in Tokyo. ``The decline in corporate-sector performance will weigh on domestic stocks.''"
"The yield on the 1.5 percent bond due September 2018 fell 2.5 basis points to 1.48 percent as of 5:10 p.m. in Tokyo at Japan Bond Trading Co., the nation's largest interdealer debt broker. The price rose 0.216 yen to 100.172 yen. Yields dropped 9 basis points this week. A basis point is 0.01 percentage point."
Five-year yields declined 2.5 basis points to 1.025 percent and slid 11.5 basis points since last week. Ten-year bond futures for December delivery gained 0.59 to 137.70 as of the afternoon close at the Tokyo Stock Exchange.
"Sony, the world's second-biggest maker of consumer electronics, yesterday slashed its forecast for annual operating profit by 57 percent, citing the stronger yen and worsening market conditions for televisions and digital cameras."
"The yen has climbed almost 13 percent against the dollar over the past three months, the sole gainer among the 16 most- actively traded currencies. The Nikkei dropped to 7,649.08, falling below 8,000 for the first time since May 2003."
Stock Losses
"Japan's bonds often move in the opposite direction to stocks. Benchmark 10-year yields had a correlation of 0.97 with the Nikkei 225 this week, according to data compiled by Bloomberg. A value of 1 means the two moved in lockstep."
"The gain in longer-dated bonds was limited on speculation the government will issue debt to finance an economic stimulus package, according to Principal Global Investors. Twenty-year yields have increased 2.5 basis points this week to 2.17 percent."
"``People are staying away from the long end,'' said Guthrie Williamson, portfolio manager in Sydney at PGI, which manages $244.9 billion in assets globally. ``The absorption will drive the market in the short term.''"
"The government will compile a second economic stimulus package by the end of the month, having drafted a 2 trillion yen ($20.8 billion) plan in August. Finance Minister Shoichi Nakagawa said on Oct. 21 that selling bonds to pay for an additional package remains an option."
Rate-Cut Odds
"There is a 26 percent chance the Bank of Japan will lower its benchmark rate to 0.25 percent from 0.5 percent by year-end, up from 3 percent odds a month ago, according to calculations by JPMorgan Chase & Co. using overnight interest-rate swaps."
"``With the yen advancing and stocks falling, concerns about Japan's financial system and economy are mounting,'' said Jun Fukashiro, senior fund manager at Toyota Asset Management Co. in Tokyo. ``A rate cut seems unavoidable.''"
"The government this week acknowledged Japan has probably entered its first recession in six years after the economy shrank in the second quarter and factory output, machine orders and household spending fell in August."
To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net.
"Last Updated: October 24, 2008 04:10 EDT"
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Libor for Overnight Dollars Rises as Recession Concern Mounts
By Gavin Finch
Oct. 24 (Bloomberg) -- The cost of borrowing in dollars overnight in London rose as the increased likelihood of a global recession spurred banks to hoard cash even after policy makers pumped record amounts of the U.S. currency into financial markets.
"The London interbank offered rate, or Libor, that banks charge for such loans climbed 7 basis points to 1.28 percent today, British Bankers' Association said. It gained for the first time in 10 days yesterday. The comparable rate for U.K. pounds jumped 19 basis points to 4.75 percent. The Libor-OIS spread, a measure of cash scarcity, widened by the most since Oct. 10."
"``The level of activity in the money markets remains significantly below standard norms and subject to sporadic abnormalities that can only be a function of illiquidity,'' said Charles Diebel, head of European rates strategy at Nomura International Plc in London."
The thaw in lending that began earlier this month after policy makers pumped cash into money markets and governments bailed out banks may be faltering as the global economy slides into a recession. Credit markets froze after the bankruptcy of Lehman Brothers Holdings Inc. on Sept. 15 as financial institutions hoarded cash on concern more banks would fail.
"Stocks plunged around the world, sending the Dow Jones Stoxx 600 Index down 4.8 percent to the lowest level in five years. The U.K. pound fell the most in at least 37 years against the dollar after the British economy contracted more than forecast in the third quarter. The yen surged to a 13-year high versus the U.S. currency, while the yield on 30-year Treasuries fell to the lowest level in more than three decades."
Commercial Paper
"U.S. companies' short-term interest costs rose today, with the rates on the highest-ranked 30-day commercial paper climbing 12 basis points to 2.63 percent, according to yields offered by companies and compiled by Bloomberg. Commercial paper, which typically matures in 270 days or less, is used by companies to finance payroll, rent and other daily expenses."
"The Libor-OIS spread, which measures the difference between the three-month dollar rate and the overnight indexed swap rate, widened 9 basis points to 263 basis points today. It was at 330 a week ago. A basis point is 0.01 percentage point."
"The difference between what banks and the U.S. Treasury pay to borrow for three months, the so-called TED spread, was at 270 basis points, up from 257 basis points yesterday. It was at 112 basis points two months ago."
ECB Lending
"The Treasury began purchasing stakes in a number of regional U.S. banks, as the government stepped up efforts to halt the credit freeze. PNC Financial Services Group Inc. said it is using Treasury funds to acquire National City Corp. for about $5.2 billion in stock. The capital injection is the first in phase two of a $250 billion program for financial companies, a person familiar with the matter said. An initial $125 billion was allocated to nine of the largest U.S. banks."
"The European Central Bank said Oct. 21 its lending to banks reached a record 773.2 billion euros ($979 billion) through monetary operations, up from 739.4 billion euros a week earlier and a 68 percent surge from the first week of September."
Policy makers in Europe and Japan have been offering banks an unlimited supply of dollar funding.
"Libor is set by a panel of banks in a daily survey by the British Bankers' Association at about noon in London. Members provide estimates on how much it would cost to borrow in 10 currencies for terms ranging from one day to a year. About $360 trillion of financial products worldwide, from mortgages to company loans and derivatives, is tied to the Libor."
"The three-month lending rate for Hong Kong dollars, known as Hibor, rose for the second day, gaining 5 basis points to 3.29 percent. Australian three-month interbank borrowing costs rose 3 basis points to 5.89 percent, the highest since Oct. 15."
"South Korea's benchmark 91-day certificate of deposit rate rose 1 basis point to 6.17 percent, the highest since January 2001. Indonesian three-month interbank rates climbed 4 basis points to 12.25 percent, 275 basis points above the central bank's main benchmark. That's the largest premium in three years."
To contact the reporters on this story: Gavin Finch in London at gfinch@bloomberg.net
"Last Updated: October 24, 2008 13:20 EDT"
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"Europe Stocks Fall on Earnings Concern, Led by Banks, Carmakers "
By Sarah Jones
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"Oct. 24 (Bloomberg) -- European stocks tumbled, sending the Dow Jones Stoxx 600 index to the lowest level in five years, on concern the deepening economic slump will crimp earnings."
"The U.K.'s FTSE 100 Index sank 5.6 percent and the pound slid the most versus the dollar since 1971 after the nation's economy shrank for the first time since 1992. HSBC Holdings Plc and Barclays Plc led banks lower, slumped more than 10 percent. Volvo AB slipped 15 percent after the truck maker's earnings missed analysts' estimates."
"The Stoxx 600 Index slid 4.8 percent to 198.73, the lowest since May 2003, at 4:30 p.m., extending this week's retreat to 7.9 percent. National benchmark indexes fell in all 18 western European markets, with Germany's DAX sinking 5 percent. France's CAC 40 dropping 3.8 percent as Air France-KLM Group said it will struggle to meet profit targets."
"``The panic levels are now quite unseen,'' said Christian Gattiker, Zurich-based head of equity research at Bank Julius Baer & Co. which manages about $307.6 billion globally. ``It's difficult to have any words for this situation right now.''"
"The Stoxx 600 has plunged 46 percent in 2008 as credit- related losses and writedowns topped $660 billion in the worst financial crisis since the Great Depression. More than $10 trillion has been erased from the market value of global equities this month, accounting for about one third of the total value erased this year."
The cost of borrowing in dollars overnight in London rose today as the increased likelihood of a global recession spurred banks to hoard cash even after policy makers pumped money into financial markets.
Pound Tumbles
"The London interbank offered rate for overnight dollars, rose for a second day. The Libor-OIS spread, a gauge of cash availability that measures the difference between the three- month rate and the overnight indexed swap rate, widened by the most since Oct. 10."
"The pound tumbled below $1.53 in its biggest drop in at least 37 years after a report showed the U.K. economy contracted more than forecast in the third quarter, bringing the nation to the brink of a recession. Europe's manufacturing and service industries contracted at a record pace in October, another report indicated."
"HSBC, Europe's largest bank, tumbled 14 percent to 696 pence. Morgan Stanley slashed its price estimate for the shares in Hong Kong by 25 percent as the contagion from the global turmoil spreads to Asia. The brokerage also lowered its price target for the London shares by 7.9 percent to 580 pence."
Barclays
"Barclays fell 15 percent to 185.1 pence after UBS AG downgraded the stock to ``neutral'' from ``buy,'' saying earnings and dividends at the U.K.'s second-biggest bank may be hurt as it raises capital."
"The VStoxx Index, which measures the cost of using options as insurance against drops in the Euro Stoxx 50 Index, rose as much as 34 percent to 86.61, a six-day high. The cost of protecting corporate bonds from default surged by a record."
"Volvo sank 15 percent to 36.90 kronor. Net income fell 37 percent to 1.98 billion kronor in the third quarter, missing the 3.26 billion-krona median estimate of analysts surveyed by Bloomberg."
"The world's second-largest maker of heavy trucks cut its industry growth outlook for this year after curtailing production as demand slows and some customers struggle to finance the purchase of new equipment. The European market for heavy trucks may be unchanged this year, while North America will contract by 10 percent, Volvo said."
`Automakers Being Hit'
Peugeot retreated 2.3 percent to 17.485 euros after Europe's second-biggest carmaker cut its full-year sales and earnings targets. Third-quarter sales dropped 5.2 percent to 13.3 billion euros ($17 billion) amid a European auto-market slump.
"The company said its full-year operating profit will amount to 1.3 percent of revenue, abandoning a 3.5 percent target, while vehicle sales probably will fall 3.5 percent."
"``Automakers are being hit in terms of growth,'' said Amandine Gerard, a fund manager at KBL Richelieu Gestion in Paris, which oversees $5.1 billion. ``Job cuts and new models aren't sufficient. The industry is directly hurt by the slowdown.''"
"Toyota Motor Corp., the world's second-largest automaker, reported a decline in quarterly sales for the first time in seven years as the financial crisis crippled worldwide demand."
Air France
Air France dropped 5.7 percent to 11.19 euros after Europe's biggest airline said it will be ``very difficult'' to meet its 1 billion-euro operating-profit target for the 12 months through March 2009.
"Analysts have cut earnings forecasts this year as the credit turmoil spread, threatening economic growth. Profit for companies in Europe's Stoxx 600 will decline 4.4 percent in 2008, down from 11 percent growth predicted the start of the year, according to estimates compiled by Bloomberg."
"Total, Europe's third-biggest oil company, fell 3.6 percent to 36.06 euros. Royal Dutch Shell Plc, Europe's largest oil company, declined 5.1 percent to 1,472 pence."
"Oil dropped to a 16-month low after OPEC agreed to cut oil production for the first time in almost two years. Crude for December delivery dropped as much as 7.7 percent to $62.65 a barrel, the lowest since May 31, 2007, in New York."
To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net.
"Last Updated: October 24, 2008 11:56 EDT"
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"Cocoa Falls to One-Year Low on Dollar Surge, Recession Fears "
By Ron Day
Oct. 24 (Bloomberg) -- Cocoa slumped to the lowest price in almost a year in New York as the dollar strengthened and concern grew that shrinking world economies may choke demand.
"The dollar rose to a two-year high versus the euro and climbed against the pound, as the U.K. economy contracted more than forecast in the third quarter, suggesting the nation may be in its first recession since 1991. U.S. stock futures tumbled, sending contracts on the Standard & Poor's 500 Index and Dow Jones Industrial Average down by their daily limits"
"``The only path seems to be down for the time being,'' Stephanie Garner, a cocoa trader for Sucden (U.K.) Ltd., said in a report today."
"Cocoa futures for December delivery fell for an eighth session, losing $103, or 5.2 percent, to $1,887 a metric ton at 8:51 a.m. on ICE Futures U.S. in New York. The price earlier reached $1,867, the lowest for a most-active contract since Oct. 26, 2007."
To contact the reporter on this story: Ron Day in New York at rday1@bloomberg.net.
"Last Updated: October 24, 2008 08:55 EDT"
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Euro Heads for Weekly Decline as Crisis Spreads Through Europe
By Stanley White and Ron Harui
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Oct. 24 (Bloomberg) -- The euro headed for its biggest weekly decline against the yen since the common European currency's debut in 1999 on speculation the global credit crisis is spreading through the region.
"The euro was also set for a weekly loss against the dollar after Belarus, Ukraine, Hungary and Iceland joined Pakistan in requesting at least $20 billion of emergency loans from the International Monetary Fund. Standard & Poor's Ratings Services yesterday threatened to cut Russia's debt ratings."
"``There are concerns over country risk in Europe,'' said Toshihiko Sakai, head of trading in foreign exchange and financial products in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan's biggest bank. ``Some currencies there appear to be under speculative attack because their banking sectors aren't sufficiently guaranteed by the governments.''"
"The euro fell to 122.78 yen at 12:10 p.m. in Tokyo from 125.89 late yesterday in New York. It touched 122.60, the weakest level since December 2002. It slid 9.9 percent this week. The euro declined to $1.2769 from $1.2934 yesterday, when it reached $1.2728, the lowest level since November 2006. The dollar bought 96.13 yen from 97.31. The euro may weaken to parity with the dollar by year-end, Sakai said."
"The pound fell to $1.6042 from $1.6230 for a 7.2 percent drop this week on speculation the Bank of England will lower interest rates to help avert a prolonged recession. Sterling touched $1.6038, the weakest since September 2003. It slid as much as 3.4 percent on Oct. 22, the biggest intraday loss since September 1992, when investor George Soros helped drive the currency out of Europe's system of linked exchange rates."
U.K. Economy
"U.K. gross domestic product rose 0.5 percent from a year earlier in the third quarter, slowing from a 1.5 percent pace of growth in the previous three months, according to a Bloomberg survey of economists. The Office for National Statistics will release the data at 9:30 a.m. today in London"
"The spread, or difference in yield, between two- and 10- year gilts was at 122 basis points, near the widest since October 1996, a sign traders expect the BOE to lower its 4.5 percent benchmark rates by year-end."
"The euro and the pound may weaken as European and U.K. banks have five times as much loan exposure to emerging markets as the U.S. or Japan, with most lending to Eastern Europe, according to Morgan Stanley."
Emerging Markets
"``Part of the reason why euro-dollar continues to drift lower has to do with the rising risks that pressures in Eastern Europe will have a negative boomerang effect on Euroland,'' London-based currency strategists Stephen Jen and Spyros Andreopoulos wrote in a research note yesterday."
"European banks' lending to emerging markets is about 21 percent of Europe's gross domestic product and U.K. banks' loans are around 24 percent of the nation's GDP, compared with 4 percent for the U.S. and 5 percent for Japan, the strategists wrote, citing data from the Bank for International Settlements."
The dollar also advanced before data that may show a revival in existing home sales as U.S. lawmakers press for measures to curb mortgage foreclosures.
"U.S. existing home sales rose 0.8 percent in September after a 2.2 percent decline the previous month, figures may show today, according to a separate survey. Federal Deposit Insurance Corp. Chairman Sheila Bair urged Congress yesterday to use loan guarantees to make it easier for homeowners to pay their mortgages."
"``U.S. homeowners are hurting, and policy makers have been somewhat late in addressing this issue,'' said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. ``Moves to help stem foreclosures are a positive for dollar sentiment.''"
European Recession
"The euro has fallen about 20 percent versus the dollar since touching the all-time high of $1.6038 on July 15. The European economy may be headed for a recession that could last two to three years, Finland's Finance Minister Jyrki Katainen said on Oct. 22 in an interview on Bloomberg Television."
"Net selling of European stocks among institutional investors has been three times higher than average over the past year, and foreign investors account for most of the sales, according to Samarjit Shankar, director of strategy for the global markets group in Boston at Bank of New York Mellon, the world's largest custodial bank with more than $23 trillion in assets under administration."
"``One thing that stands out this week is huge European equity market outflows,'' said Shankar. ``Net selling is adding to pressure on the euro. Growth in the euro zone is deteriorating very fast.''"
Yen Gains
"The yen rose versus all 16 major currencies this week as a global stocks rout wiped out more than $10 trillion of market value this month, prompting investors to sell higher-yielding assets funded in the Japanese currency."
The MSCI Asia Pacific Index fell 3.3 percent for a third day of declines after Sony Corp. slashed its earnings forecast and South Korea's economic growth weakened. The Standard & Poor's 500 Index has dropped 3.5 percent so far this week.
"``Holding stocks is a risk many people want to avoid,'' said Kengo Suzuki, currency strategist at Shinko Securities Co. in Tokyo. ``As long as investors trade off of sentiment and ignore fundamentals, this will support the yen.''"
"The euro may fall to 120 yen in coming weeks, he said."
"In a carry trade, investors get funds in a country with low borrowing costs and invest in one with higher interest rates, earning the spread between the two. The risk is that currency market moves erase those profits. Japan's benchmark rate of 0.5 percent is the lowest among major economies."
To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.netRon Harui in Singapore at rharui@bloomberg.net
"Last Updated: October 23, 2008 23:16 EDT"
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European Options Index Soars as U.K. Edges Closer to Recession
By Gareth Gore
Oct. 24 (Bloomberg) -- The benchmark index for European options rose to its highest in a week as stock markets plummeted after U.K. government figures showed the continent's second biggest economy is edging closer to recession.
"The VStoxx Index rose 24 percent to 80.52 as of 11:37 a.m. in Frankfurt, the steepest advance in six days. The index measures the cost of using options as insurance against drops in the Dow Jones Euro Stoxx 50 Index, which retreated as much as 9.2 percent in trading today."
"The U.K. economy shrank more than forecast in the third quarter as the financial crisis ravaged industries from banking to construction, the Office for National Statistics said today in London, evidence that Britain is in the grips of its first recession since 1991."
"Gross domestic product dropped 0.5 percent from the second quarter, the first contraction since 1992. Economists predicted a 0.2 percent decline, according to the median of 35 forecasts in a Bloomberg News survey."
"The VStoxx Index soared to the highest since the index was created in January 1999 last week on concern share-price swings may become more pronounced. In the U.S. its equivalent, the Chicago Board Options Exchange Volatility Index, exceeded 80 for the first time in its 18-year history October 16 as the market whipsawed between gains and losses."
"Today's most-active options contracts on the Euro Stoxx 50 were put options expiring in March 2009 at a strike level of 2,300 points. European-style puts options such as those traded on the index give the buyer the right to sell at a pre-agreed level on a specific date."
To contact the reporter on this story: Gareth Gore in Madrid ggore1@bloomberg.net.
"Last Updated: October 24, 2008 05:50 EDT"
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"Australia, New Zealand Dollars Slump This Week as Stocks Tumble "
By Candice Zachariahs and Ron Harui
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Oct. 24 (Bloomberg) -- The Australian and New Zealand dollars fell this week to the lowest levels against the yen in at least six years as investors sold higher-yielding assets.
The currencies headed for their third weekly drop this month as Asian stocks slid on signs the world economy is on the brink of a recession. Investors bought back yen they borrowed in so-called carry trades used to purchase assets offering higher returns in Australia and New Zealand. The two nations' dollars also fell versus the U.S. currency as the price of commodities the countries export plunged on concern demand will falter.
"``What you have is the global economy going down, commodity prices coming off and the old theme of global de-leveraging,'' said Thomas Harr, a senior currency strategist at Standard Chartered Plc in Singapore. ``All of these issues are negative for the Aussie and the kiwi and positive for the yen.''"
"Australia's dollar dropped 13.7 percent this week to 60.42 yen as of 6:03 p.m. in Sydney from 70 yen on Oct. 17 in New York. It reached 60.17 today, the lowest since October 2001."
"New Zealand's currency declined 11.8 percent for the week to 54.89 yen and touched 54.56, the weakest since September 2002."
"The Australian dollar fell 7.3 percent to 63.84 U.S. cents from 68.88 cents in New York on Oct. 17. New Zealand's dollar dropped to 57.52 cents, losing 5.7 percent for the week. It touched 57.41, the lowest since September 2003."
Risk Aversion
"``The Aussie is always seen as a proxy for risk aversion and emerging currencies in these times,'' said Gregg Gibbs, a currency strategist at ABN Amro Australia Ltd. in Sydney. ``It's a liquid currency that offers scope to get in and get trades done when people are fearing the worst.''"
"Australia's dollar has dropped 31 percent against the yen and 23 percent versus the U.S. dollar in the past month, the second-biggest losses of the 16 major currencies, as increasing signs of a global recession hammered stock and commodity prices."
"The Australian dollar still ``targets'' the 2000 low of 55.52 yen based on charts that predict price movements, said Kevin Edgeley, a technical analyst at Goldman Sachs Group Inc. in London. Daily momentum indicators such as the stochastic oscillator chart have ``turned lower again,'' Edgeley wrote in a research note yesterday."
New Zealand's dollar has fallen 24 percent versus the yen and 16 percent against the U.S. currency over the past month.
"Australia's S&P/ASX 200 Index of shares has declined 39 percent this year, joining a rout in global equities. Asian stocks tumbled after South Korea's economic growth weakened, deepening concern a global slowdown is hurting profits."
Commodities
The UBS Bloomberg Constant Maturity Commodity index of 26 raw materials dropped for a third day yesterday and is down 24 percent for the year. Raw materials account for 60 percent of Australia's exports and 70 percent of New Zealand's.
"The VIX volatility index, a gauge reflecting expectations for stock-market price changes and risk appetite, was at 67.80 compared with a record high closing price of 70.33 on Oct. 17."
"Benchmark interest rates are 6 percent in Australia and 6.5 percent in New Zealand, compared with 0.5 percent in Japan and 1.5 percent in the U.S., making the South Pacific nations' assets favorites for carry trades."
"In a carry trade, investors get funds in a country with low borrowing costs and invest in one with higher interest rates, earning the spread between the two. The risk is that currency moves erase those profits."
New Zealand's dollar also declined this week as the central bank cut its benchmark interest rate by a record 1 percentage point to boost an economy that is already in recession.
`Below-Trend Growth'
"Traders are betting the Reserve Bank of New Zealand will reduce rates by a further 1.17 percentage points over the next 12 months, according to a Credit Suisse index based on overnight swaps trading."
"The pace of cuts is ``gathering steam,'' Ned Rumpeltin, a London-based currency strategist at Morgan Stanley, wrote in a research note yesterday. ``We expect the New Zealand dollar to remain weak in the months ahead as foreign-exchange markets remain volatile, risk appetite is fragile, and the economic slowdown becomes increasingly global.''"
"The Reserve Bank of Australia will lower rates by 1.60 percentage points over the next year, according to a separate Credit Suisse index."
"``We are now forecasting below-trend growth through to 2010,'' Tony Morriss, a senior currency strategist at ANZ Banking Group Ltd. in Sydney, wrote in a research note Oct. 21. ``We now expect the Reserve Bank to cut rates further over coming months, toward a cash rate of 4.5 percent.''"
"Australian government bonds rose for a fifth day. The yield on the benchmark 10-year note fell 17 basis points to 4.91 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 climbed 1.372, or A$13.72 per A$1,000 face amount, to 102.711. A basis point equals 0.01 percentage point."
"New Zealand's two-year swap rate, a fixed payment made to receive floating rates, rose to 6.356 percent from 6.2850 percent a week ago."
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net
"Last Updated: October 24, 2008 03:23 EDT"
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Mexico Peso Trades Near Record Low on Economic Growth Prospects
By Valerie Rota
"Oct. 24 (Bloomberg) -- Mexico's peso traded near a record low on concern the global economic slowdown will deepen, sapping demand for developing-nation exports."
"The peso has plunged 18 percent in October, heading for its worst monthly performance since December 1994, when Mexico devalued its currency to keep the nation from depleting its foreign reserves. The peso has weakened as deepening financial turmoil pushes the world toward a recession and lowers the price of oil, Mexico's biggest source of dollars."
"``Nobody knows how deep and how long this recession will be,'' said Mario Copca, a currency strategist at Mexico City- based Metanalisis SA. ``This uncertainty is making investors pull out of emerging markets.''"
"The peso fell as much as 5 percent to 14.0999 per dollar, from 13.4170 yesterday, when it touched a record low of 14.3017. It was little changed at 13.3842 at 5 p.m. New York time."
"The peso's decline so far this month is the worst since the Mexican currency fell 48 percent in December 1994, sparking capital outflows in what became known as the ``Tequila Crisis.''"
"In an effort to stem the peso's rout, Banco de Mexico has bought $13.1 billion worth of pesos since Oct. 8. The peso snapped a four-day losing streak yesterday after the bank bought $1.1 billion worth of pesos in two separate auctions, its biggest single-day purchase in a week."
"Mexico's peso will likely appreciate to as much as 12 per dollar by the end of this year, said Juan Carlos Lopez, head currency trader at Intercam Casa de Cambio SA in Mexico City."
Peso Demand
"Investors will increase their demand for pesos through year-end as the U.S. Federal Reserve cuts its key lending rate, widening the spread with Mexico's benchmark, and after legislators agree to allow oil monopoly Petroleos Mexicanos to hire private companies to explore and drill for oil, Lopez said."
Mexican senators yesterday passed all seven bills based on an initiative proposed by President Felipe Calderon that aims to reverse declining production of crude. The lower house of Congress plans to vote on the measures next week.
"The oil initiative allows companies that sign contracts for exploration and production to receive performance-based incentives, though it won't allow them to own Mexican oil or book reserves. The measures also don't change current laws that prohibit private companies from refining oil."
"``This was a light reform,'' Copca at Metanalisis said. ``Its not going to substantially help even though it was a needed first step.''"
"Traders trimmed bets that the peso will gain against the dollar, figures from the U.S. Commodity Futures Trading Commission today showed. The difference in the number of wagers on an advance in the peso compared to those on a drop was 429 on Oct. 21, compared with 3,101 a week earlier."
"Yields on Mexico's benchmark local-currency security rose for a ninth straight day, climbing to a 3 1/2-year high."
Bond Yields
"The yield on the 10 percent security maturing in December 2024 increased 38 basis points, or 0.38 percentage point, to 11.4 percent, the highest since April 2005. The bond's price fell 2.63 centavo to 89.69 centavos per peso, according to Banco Santander SA."
"Foreign holdings of Mexican fixed-rate securities maturing in a year or more have fallen 6.5 percent to 277 billion pesos ($21 billion) as of Oct. 15 from a record high on Aug. 12, according to the latest data posted on the central bank's Web site. Foreigners own one-fourth of the country's bonds, making them the biggest holders of the debt."
To contact the reporter on this story: Valerie Rota in Mexico City at vrota1@bloomberg.net
"Last Updated: October 24, 2008 17:30 EDT"
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Asian Currencies Have Weekly Losses as Recession Concerns Grow
By Anil Varma and Kim Kyoungwha
"Oct. 24 (Bloomberg) -- Asian currencies slumped this week, led by South Korea's won and Indonesia's rupiah, as stocks slid on concern a global recession will damp demand for the region's exports."
"The won completed a sixth weekly decline as the central bank said Asia's fourth-largest economy grew 0.6 percent last quarter, the slowest pace in four years. Choi Chun Sin, director general of the Bank of Korea's statistics department, said growth is slowing ``faster than expected'' and will fall short of the bank's forecast of 4.6 percent for 2008. Nine of the 10 most-active Asian currencies Bloomberg tracks fell this week."
"``Sentiment is really fragile,'' said Jo Hyun Suk, a currency dealer at Korea Exchange Bank in Seoul. ``The foreign exchange is being easily swayed by any bad news in a market whose volume shrank sharply of late.''"
"The won dropped 6.3 percent this week to 1,424 per dollar, near the lowest level in a decade, at the 3 p.m. close in Seoul, according to Seoul Money Brokerage Services Ltd. The rupiah touched 10,315 a dollar, the weakest since October 2005."
"The South Korean currency extended its loss this year to 35 percent, making it Asia's worst performer. The Kospi stock index lost 20.5 percent this week as overseas funds sold more of the nation's shares than they bought for an eighth day, according to Korea Exchange."
The MSCI Asia-Pacific Index of shares dropped as much as 6.2 percent today after Sony Corp. cut its earnings estimates and Korea's economic growth slowed. Japan's Nikkei 225 Stock Average plunged 9.6 percent.
Carry Trades
"The yen climbed to a 13-year high against the dollar as the risk of a global recession prompted investors to slash carry trades, in which they fund purchases of higher-yielding assets with the Japanese currency."
"The yen also surged to the strongest in six years versus the euro after Belarus, Ukraine, Hungary and Iceland joined Pakistan in requesting at least $20 billion of emergency loans from the International Monetary Fund. Standard & Poor's Ratings Services yesterday threatened to cut Russia's debt ratings."
"``I can't rule out the scenario where the yen rises even faster than anticipated,'' said Toru Umemoto, chief currency analyst in Tokyo at Barclays Capital. ``Speculators are unwinding carry trades. This risk aversion is coming from the credit crunch and the chance of a global recession.''"
"The yen rose to 92.80 per dollar, the highest level since August 1995, and traded at 94 from 97.31 late yesterday in New York. Against the euro, it climbed to 117.52 from 125.89. The euro bought $1.2551 from $1.2934."
`Bad Sentiment'
Indonesia's rupiah was poised for a weekly loss on speculation investors sold the nation's assets. The currency has dropped 6.3 percent this month as the central bank was forced to rescue its Dutch commercial banking unit to prevent the collapse of the lender from affecting its credibility.
"``It's a story of bad sentiment'' locally and in other emerging markets, said Enrico Tanuwidjaja, an economist at Oversea-Chinese Banking Corp. in Singapore. ``Bank Indonesia will probably try to stem the weakness in the rupiah from going beyond 10,000.''"
"The rupiah fell 3.6 percent this week to 10,175 per dollar, according to data compiled by Bloomberg. Central banks intervene in currency markets by arranging purchases or sales of foreign exchange."
Taiwan's dollar had its biggest weekly loss in 10 years after a government report yesterday showed the export outlook worsened more than economists expected last month.
`Contagion'
"The currency fell for an eighth day, the longest losing streak since August, after the Ministry of Economic Affairs said export orders grew at the slowest pace in six years in September as demand from the U.S. and China cooled. The central bank sold about $500 million yesterday to help slow the local dollar's loss, the Commercial Times reported, citing traders it didn't identify."
"``Taiwan is very exposed to the rest of the world,'' said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. ``Obviously the central bank is slowing the move somewhat but it's a contagion.''"
"The island's currency slumped 2.6 percent this week to NT$33.412 against the U.S. dollar, the biggest five-day loss since the period ended Jan. 10, 1998, according to Taipei Forex Inc. The local dollar lost 0.4 percent today."
India's rupee fell for an 11th week after the central bank cut the economic growth outlook for the year ending March 31 to as little as 7.5 percent from an earlier estimate of 8 percent.
"The currency slid as much as 0.7 percent to 50.165 per dollar, an all-time low, before trading at 49.95 in Mumbai, data compiled by Bloomberg show. The currency has lost more than 21 percent this year and is headed for its worst year since 1991."
`Troubling Sign'
"The Philippine peso completed a fifth weekly decline as manufacturers bought fewer electronic parts for a sixth month in August, suggesting exports of laptops and mobile-phone chips will extend declines."
"``The continued drop in electronics imports is symptomatic of the weakening global demand and a troubling sign that exports will slow,'' said David Cohen, an economist with Action Economics in Singapore. ``In this environment, the peso will remain under pressure.''"
"The peso lost 1.9 percent to 48.993 per dollar, according to Tullett Prebon Plc. Exports make up about 40 percent of the Philippine economy."
"Elsewhere, the Thai baht fell 1.3 percent versus the dollar this week to 34.69 and the Singapore dollar dropped 1.7 percent to S$1.5080. Vietnam's dong weakened 1.5 percent to 16,848."
To contact the reporter on this story: Anil Varma in Mumbai at avarma3@bloomberg.net; Kim Kyoungwha in Beijing at kkim19@bloomberg.net.
"Last Updated: October 24, 2008 04:45 EDT"
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Sieminski Sees `Sharp' Rise in Oil Once Economy Recovers: Video
"Oct. 24 (Bloomberg) -- Adam Sieminski, chief energy economist at Deutsche Bank AG, talks with Bloomberg's Betty Liu from Washington about the Organization of Petroleum Exporting Countries' decision to cut oil production targets for the first time in almost two years and the outlook for crude oil prices. OPEC will lower supply by 1.5 million barrels a day from November. The existing quota for OPEC's 11 members calls for production of 28.8 million barrels a day. (Source: Bloomberg)"
"00:00 OPEC production cuts; ""sharp"" price rebound"
Running time 03:36
"Last Updated: October 24, 2008 10:43 EDT"
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Gold Climbs in N.Y. as Investors Seek Haven From Falling Shares
By Pham-Duy Nguyen
"Oct. 24 (Bloomberg) -- Gold climbed in New York, paring earlier losses as equities tumbled worldwide, boosting demand for the precious metal as a safe harbor. Silver fell."
U.S. Treasuries rose as investors bought government securities amid a worldwide collapse in equities. The dollar climbed as much as 1.9 percent against a weighted basket of six major currencies.
"``You're seeing some people buy gold because the panic about the stock market is setting in,'' said Leonard Kaplan, president of Prospector Asset Management in Evanston, Illinois. ``Gold's rallied more than $30 off its lows for the day.''"
Gold futures for December delivery gained $11.20 to $725.90 an ounce at 11:45 a.m. on the Comex division of the New York Mercantile Exchange. A close at that price would mean an 8 percent drop for the week.
"Silver for December delivery fell 35 cents, or 3.6 percent, to $9.16 an ounce. Before today, the metal dropped 36 percent in 2008 after seven straight annual gains."
The MSCI World Index of 23 developed markets has dropped 8.2 percent this week. Russia's Micex Stock Exchange stopped trading until Oct. 28 after shares slumped 14 percent. The Standard & Poor's 500 Index lost as much as 6.1 percent and the Dow Jones Industrial Average fell as much as 5.8 percent.
"The euro touched $1.2497 today, a two-year low. It reached a record $1.6038 on July 15."
Crisis Spurred Gold
"After the collapse of Lehman Brothers Holdings Inc. on Sept. 15 triggered a $700 billion bailout package by the U.S. government, gold traded as high as $936.30 on Oct. 10 as investors sought a haven. The metal also touched $681 today as investors sold futures to cover losses in other markets."
"``The market wants to liquidate everything, everywhere,'' said Dennis Gartman, an economist and editor of the Suffolk, Virginia-based Gartman Letter."
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
"Last Updated: October 24, 2008 11:49 EDT"
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Denmark Raises Main Rate Half a Point to 5.5% to Boost Krone
By Tasneem Brogger
"Oct. 24 (Bloomberg) -- Denmark's central bank unexpectedly raised the benchmark lending rate by half a percentage point to an eight-year high, showing policymakers will defend the krone even as the economy teeters on the brink of recession."
"Copenhagen-based Nationalbanken lifted the rate to 5.5 percent, it said today. The bank's mandate is to keep the krone pegged to the euro in a 2.25 percent band. In the past week, the krone slid 0.1 percent and on Oct. 13 fell as much as 0.7 percent."
"Danish mortgage rates are rising as the economy faces a contraction, with unemployment forecast to double in the next two years. House prices have fallen for three consecutive quarters and dropped an annual 5.2 percent in the three months through September. Consumer confidence plunged to the lowest in 19 years this month, the statistics office said today."
"``In a climate in which the krone is under pressure, they need to react by raising rates,'' said Niels Roenholt, an economist at Jyske Bank A/S in Silkeborg, Denmark. ``But it's worrying in that it puts the Danish economy, not least mortgage holders, under even more pressure.''"
The krone slipped 0.05 percent against the euro to 7.4623 as of 12.25 p.m.
"The benchmark index of Denmark's 20 most-traded stocks dropped 7.4 percent as of 11:57 a.m. in Copenhagen. The yield on the 4 percent bond due November 2017 jumped 0.11 of a percentage point to 4.35 percent. The yield on Germany's 4.25 percent bond due July 2018, by comparison, slipped 0.07 of a percentage point."
`Raise Again'
"``The krone has actually fallen slightly since they raised rates this morning, so they may have to raise again,'' said Jacob Graven, chief economist at Sydbank A/S in Aabenraa. ``One can't rule out an increase as early as today, or possibly in the coming days. Additional increases may well be larger than half a point.''"
"Denmark is raising rates as Nordic neighbors Sweden and Norway cut borrowing costs to support growth. Sweden yesterday cut the benchmark rate by a greater-than-expected 0.5 of a percentage point to 3.75 percent, the second reduction in two weeks. Norway on Oct. 15 also lowered key rate by half a point to 5.25 percent."
"Today's Danish rate increase tracks moves in other economies defending small currencies, such as Hungary, which raised the benchmark by 3 percentage points to 11.5 percent on Oct. 22."
"By raising rates today, the central bank is showing ``they don't want to go anywhere near the outer limits of the target range,'' Graven said. ``they want to establish long-term credibility.''"
Sole Mandate
"Denmark became the first European economy to enter a recession after reporting two quarters of contraction in the three months ended March 31. The economy returned to growth in the second quarter, expanding 0.4 percent."
"Gross domestic product will shrink 0.2 percent this year and 1.4 percent in 2009, according to Deutsche Bank AG. That will send the budget from a surplus of about 3 percent of GDP this year to a 1 percent deficit in 2009, Deutsche Bank estimates."
Nationalbanken's mandate is to keep the krone pegged to the single currency within 2.25 percent of 7.46038 per euro.
Today's move is the fourth time since February 2006 that the bank has changed rates independently of the European Central Bank. The bank last raised the rate on Oct. 7 by 0.4 of a percentage point to 5 percent.
"The move was part of a ``continued intervention to support the Danish krone,'' the bank said in a statement."
Denmark is one of five members of the Exchange Rate Mechanism 2 and defends the tightest spread to the euro. The bank doesn't hold scheduled meetings and changes rates in response to currency swings that threaten its target.
To contact the reporters on this story: Tasneem Brogger in Copenhagen at tbrogger@bloomberg.net;
"Last Updated: October 24, 2008 06:27 EDT"
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Indian Bonds Fall Most in 3 Months as RBI Keeps Rates Unchanged
By Anil Varma
Oct. 24 (Bloomberg) -- India's 10-year bonds fell by the most in almost three months after the central bank refrained from taking steps to make money less expensive.
"Benchmark yields rose from a seven-month low after Governor Duvvuri Subbarao left the overnight lending rate and the proportion of cash lenders need to keep as reserves unchanged, dashing speculation of reductions in the two. The Reserve Bank of India had slashed the repurchase rate by 1 percentage point to 8 percent on Oct. 20 to prevent the global financial crisis from tipping India into an economic slump."
"``The bond market expected the central bank to take new steps to add money to the system, possibly another cut in the cash reserve ratio,'' said Srinivasa Raghavan, head of treasury in Mumbai at IDBI Gilts Ltd., a primary dealer that underwrites government debt sales."
"The yield on the benchmark 8.24 percent note maturing in April 2018 climbed 23 basis points to 7.78 percent at the 5:30 p.m. close in Mumbai, according to the central bank's trading system. The price fell 1.6 per 100 rupee face amount to 102.93. A basis point is 0.01 percentage point."
"Policy makers had reduced the so-called cash reserve ratio for banks by 2.5 percentage points to 6.5 percent starting Oct. 11, adding about 1 trillion rupees ($20 billion) to the financial system. Dollar sales by the central bank to stem the rupee's slide may drain part of the cash already injected, Raghavan said. The local currency touched a record low today."
`Draining Money'
"``Pressure on liquidity will increase because the RBI's currency-market intervention is draining money every day,'' Raghavan said. Central banks intervene by arranging sales or purchases of foreign exchange."
India's foreign-exchange reserves have declined by more than $42 billion from a record $316.2 billion reached in May. Reserves fell a record $9.9 billion in the week ended Oct. 10 as the rupee's losses accelerated.
Bonds also fell on concern increasing volatility in the nation's currency market will deter investors.
"``The rupee's increasing instability is a growing concern for the financial market as a whole,'' IDBI's Raghavan said. ``The central bank's policy statement today didn't announce steps to directly address the rupee slide.''"
"Reserve Bank's Subbarao said today there's no change in the bank's currency policy and the monetary authority doesn't have a specific target for the rupee. The bank will buy or sell rupees only to curb volatility, he said."
Falling Rupee
"India's rupee completed today an eleventh week of declines, the longest losing streak since December 2005. It fell past 50 per dollar for the first time in today's intraday trading. It briefly dropped to an all-time low of 50.165 per dollar before closing at 49.96, according to data compiled by Bloomberg."
"Implied volatility on one-month dollar-rupee options rose to 30 percent today, the highest in at least nine years, Bloomberg data show. The gauge of expected swings in the rupee is quoted by traders as part of pricing options."
"The cost of five-year interest-rate swaps, or derivative contracts used to guard against rate fluctuations, rose the most since July 29. The rate, a fixed payment made to receive floating rates, climbed to 6.97 percent from 6.69 percent yesterday."
To contact the reporter on this story: Anil Varma in Mumbai at avarma3@bloomberg.net.
"Last Updated: October 24, 2008 08:32 EDT"
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"Rupee Has 11th Weekly Loss as Stocks Plunge, Growth Outlook Cut "
By Anoop Agrawal and Anil Varma
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"Oct. 24 (Bloomberg) -- India's rupee dropped for an eleventh week, the longest losing streak since December 2005, as the nation's benchmark share index plunged the most in four years on signs global economies are headed for a recession."
"The currency weakened past 50 per dollar for the first time earlier as the Reserve Bank of India cut the economic growth outlook for the year ending March 31 to as little as 7.5 percent from an earlier estimate of 8 percent. The central bank also left the benchmark interest rate unchanged, dashing investor expectations for a reduction to prevent an economic slump."
"``Domestically, the exchange rate is not getting support from the interest-rate policy and a cut in borrowing costs would have further driven away rupee investors,'' said Vinod Kumar Khanna, general manager of treasury at state-owned Union Bank of India in Mumbai. ``With global equity markets under intense pressure, the rupee will weaken further.''"
"The rupee, which was made partly convertible in 1993, slid as much as 0.7 percent to 50.165 per dollar, an all-time low, before closing at 49.96 at 5 p.m. in Mumbai, according to data compiled by Bloomberg. It fell 2.2 percent this week. Nine of the 10 most-traded Asian currencies declined this week."
"The currency has lost more than 21 percent versus the dollar this year and is the worst performer in Asia after South Korea's won. It is headed for its worst year since 1991, when the nation devalued it by an average 20 percent against four major currencies to help boost exports."
Risk of Flight
"The central bank today left the repurchase rate at 8 percent, four days after slashing it by 1 percentage point."
"``The recent slide in the rupee has stopped the central bank from further loosening monetary policy'' as it may ``increase the risk of capital flight,'' said Sherman Chan, an economist at Moody's Economy.com."
"The rupee pared losses on speculation the central bank intervened to stem declines. The Reserve Bank doesn't comment on daily rupee movements, according to its Mumbai-based spokeswoman Alpana Killawala."
"India's foreign-exchange reserves have dwindled by more than $42 billion to $273.9 billion as on Oct. 17, from a record $316.2 billion reached in May, central bank data show. The drop indicates policy makers sold dollars."
"Overseas funds are shunning emerging-market assets as Pakistan, Hungary, Iceland, Ukraine and Belarus approached the International Monetary Fund for financial aid. Russia faces possible cuts to its sovereign debt rating and Argentina said this week that it will seize its nation's pension funds."
Shunning Assets
"Sales of Indian shares by overseas investors this year exceeded purchases by a record $12.2 billion as the benchmark Bombay Stock Exchange Sensitive Index, or Sensex, slid more than 55 percent. The gauge, headed for its first annual decline since 2001, fell 11 percent today, the most since May 2004."
"The MSCI Asia Pacific Index of regional shares tumbled as much as 6.2 percent today, touching the lowest since 2004."
"Asia's third-biggest economy faces a ``temporary slowdown'' in the year ending March 31, Prime Minister Manmohan Singh said on Oct. 20. Growth averaged almost 9 percent in the five years through March 31, the fastest for such a period since India gained independence from Great Britain in 1947."
To contact the reporter on this story: Anoop Agrawal in Mumbai at aagrawal8@bloomberg.net
"Last Updated: October 24, 2008 07:49 EDT"
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Oil Options at $50 Soar After OPEC Cut Fails to Support Prices
By Alexander Kwiatkowski
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Oct. 24 (Bloomberg) -- Oil options contracts to sell crude at $50 by December almost tripled today after an OPEC decision to slash production failed to allay concerns that the global economic slump is hurting demand.
"The cost of the $50 December 2008 put option, which gives the holder the right to sell oil futures at $50 a barrel, rose as much as 142 percent to $1.50 on the New York Mercantile Exchange, compared with 62 cents yesterday, according to exchange data."
"``It certainly seems to me that we could get down to $50 a barrel,'' Adam Sieminski, Deutsche Bank's chief energy economist, said in a Bloomberg Radio interview today. ``You could look at the OPEC cut as a sign of weakness, not strength.''"
"The cost of the option jumped on speculation that an output cut announced today by the Organization of Petroleum Exporting Countries, which supplies about 40 percent of the world's oil, won't be enough to stem plunging prices."
"OPEC decided at its Vienna headquarters today to lower the production quota for 11 of its members by 1.5 million barrels a day, to 27.308 million barrels a day, starting from Nov. 1."
"Crude oil futures for December delivery dropped as much as $5.19, or 7.7 percent, to $62.65 a barrel in electronic trading on Nymex, and traded at $64.51 a barrel at 9:59 a.m. local time."
The price of crude has tumbled 56 percent since rising to a record $147.27 a barrel in New York on July 11.
"Speculators can profit from the rising value of put options by selling the options themselves back into the market. Alternatively, if crude futures fall below the $50-a-barrel ``strike'' price, holders of the put options can exercise their right to sell futures at $50, and then buy the futures back for less in the market, making a profit."
"The Nymex options contracts are for 1,000 barrels each, as are the underlying futures contracts. On Oct. 3, the $50 December put option was valued at 1 cent a barrel, or $10 for the 1,000-barrel lot."
To contact the reporter on this story: Alexander Kwiatkowski in London at akwiatkowsk2@bloomberg.net
"Last Updated: October 24, 2008 10:18 EDT"
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Yen Rises to 13-Year High Versus Dollar as Carry Trade Unwinds
By Ye Xie and Agnes Lovasz
Oct. 24 (Bloomberg) -- The yen climbed to a 13-year high against the dollar as a worldwide drop in stocks encouraged investors to dump higher-yielding assets and pay back low-cost loans in Japan.
Japan's currency surged to the strongest in six years against the euro as the prospect of a deepening global recession prompted the unwinding of carry trades. The pound fell below $1.53 after the U.K. economy shrank in the third quarter. The dollar rose to a two-year high versus the euro as investors sought refuge in the greenback.
"``It's time to hunker down for the winter,'' said Scott Ainsbury, a portfolio manager who helps manage about $15 billion in currencies at New York-based hedge fund FX Concepts Inc. ``It's a flight to quality. It's an unwinding of leveraged carry trades. Money is going back to dollars.''"
"The yen rose 2.8 percent to 94.62 per dollar at 4:18 p.m. in New York, from 97.31 yesterday, after touching 90.93, the strongest since August 1995. The yen advanced 5.4 percent to 119.09 per euro from 125.89 and touched 113.81, the strongest since May 2002. The dollar rose 2.7 percent to $1.2580 against the 15-nation euro from $1.2934 after touching $1.2497, the strongest since October 2006."
"Japan's currency rose 8.6 percent this week against the dollar, the biggest gain since October 1998. It surged 13 percent versus the euro, the greatest weekly advance ever. The euro headed for a 5.1 percent decline versus the dollar."
Dollar's Gain
"The dollar gained against most major currencies on demand for a haven from global turmoil. The greenback rose as much as 3 percent to a four-year high of C$1.2842 versus the Canadian dollar and advanced as much as 4.8 percent to 8.03 Swedish krona, the strongest since December 2005."
"``We are in a financial crisis,'' said Richard Clarida, a global strategist at Pacific Investment Management Co. in Newport, California, which has $830 billion in assets under management. ``The flight to quality is boosting the dollar and the yen.''"
"Emerging-market currencies tumbled after Belarus, Ukraine, Hungary and Iceland joined Pakistan in requesting at least $20 billion of emergency loans from the International Monetary Fund. The real dropped 5 percent to 2.3740 against the dollar, the South African rand decreased 1.2 percent to 11.1613 and the Russian ruble fell 1.2 percent to 27.1806."
Weaker Pound
"The pound depreciated as much as 5.9 percent to $1.5269, the lowest level since August 2002, after the Office for National Statistics said U.K. gross domestic product dropped 0.5 percent from the second quarter, the first contraction since 1992. Sterling's intraday decline surpassed that on Black Wednesday in September 1992, when the U.K. was driven out of Europe's exchange-rate mechanism. Against the euro, the pound weakened to a record 81.96 pence."
The yen gained 10 percent to 58.62 against the Australian dollar and 9 percent to 52.70 versus the New Zealand currency on speculation the rout in global stocks will encourage investors to unwind trades in which they get funds in a country with low borrowing costs and buy assets where returns are higher. Japan's 0.5 percent target lending rate compares with 6 percent in Australia and 6.5 percent in New Zealand.
The Aussie lost 16 percent versus the yen this week and one third of its value this month. The kiwi declined 18 percent this week and 28 percent in October.
`Market Carnage'
"``I've never seen this before in terms of global financial market carnage,'' said Alan Ruskin, head of international currency strategy in North America at RBS Greenwich Capital Markets Inc. in Greenwich, Connecticut. ``Those who haven't got out of the yen carry trade will have to watch it collapse.''"
"Volatility on one-month dollar-yen options, a measure of expectations for future price swings, surged to 41.79 percent, the highest since Bloomberg began compiling data in December 1995. Greater fluctuation may cut carry trade profits."
"The Standard & Poor's 500 Index dropped 2.2 percent after plunging as much as 6.1 percent, while the Dow Jones Industrial Average fell 2 percent. Trading in futures on the S&P 500 and the Dow was limited after declines in the contracts of more than 6 percent triggered a so-called limit-down restriction. Indexes pared declines after a person briefed on the matter said the U.S. Treasury is considering buying stakes in insurers."
"The Nikkei 225 Stock Average declined 9.6 percent to 7,649.08 in Tokyo, a level not seen since April 2003 and just 41 points from the lowest since 1982. Canon Inc., the world's biggest digital-camera maker, and electronics companies Panasonic Corp. and Sharp Corp. plunged more than 12 percent as the surging yen cut the value of overseas sales."
Japan's Economy
"Abrupt moves in Japan's currency may hurt the world's second-largest economy, Vice Finance Minister Kazuyuki Sugimoto said. He told reporters in Tokyo that ``we'll carefully watch'' fluctuation in foreign exchange."
"The yen touched a post-World War II high of 79.75 against the dollar on April 19, 1995, prompting the Group of Seven nations to intervene that year by buying the greenback to stabilize currency markets. The G-7 comprises Canada, France, Germany, Italy, Japan, the U.K. and the U.S."
"The dollar has ``little significant support'' versus the yen between today's and the postwar level, wrote Kevin Edgeley, a technical analyst at Goldman Sachs Group Inc. in London, in a research note today."
"The yen may appreciate to about 129 against the pound, a level not seen since 1995, wrote Edgeley, who uses charts of historical prices to predict currency moves."
Euro's Vulnerability
"The euro and the pound may weaken further because European and U.K. banks have five times as much loan exposure to emerging markets as the U.S. or Japan, with most lending to Eastern Europe, according to Morgan Stanley."
"European banks' lending to emerging markets is about 21 percent of Europe's gross domestic product and U.K. banks' loans are around 24 percent of national output, compared with 4 percent for the U.S. and 5 percent for Japan, wrote London-based currency strategists Stephen Jen and Spyros Andreopoulos in a research note yesterday, citing data from the Basel, Switzerland-based Bank for International Settlements."
"``Part of the reason why euro-dollar continues to drift lower has to do with the rising risk that pressures in Eastern Europe will have a negative boomerang effect on Euroland,'' the strategists wrote."
To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Agnes Lovasz in London at alovasz@bloomberg.net
"Last Updated: October 24, 2008 16:20 EDT"
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France's CAC 40 Slumps to Lowest Since 2003; Air France Slides
By Adria Cimino
Oct. 24 (Bloomberg) -- French stocks tumbled after Air France-KLM Group said it will be ``very difficult'' to meet its forecast and PSA Peugeot Citroen SA and Renault SA cut earnings targets for the year.
"Air France, Europe's biggest airline, slid 8 percent. Peugeot, the region's second-largest carmaker, and Renault, the country's second-largest automaker, each dropped more than 9 percent. Societe Generale SA and Axa SA led financial shares lower as they both fell more than 13 percent."
"The benchmark CAC 40 Index retreated 315.35, or 9.5 percent, to 2,995.52 at 2:46 p.m. in Paris, heading for a 9.8 percent drop this week. The index is on course for lowest close since July 2003. The SBF 120 Index lost 9 percent today."
"Air France sank 8 percent to 10.91 euros, its lowest since 2003. The carrier said it will be ``very difficult'' to meet its 1 billion-euro ($1.28 billion) operating-profit target for the 12 months through March 2009."
"Peugeot tumbled 9 percent to 16.29 euros, its lowest since 1997. The carmaker cut its full-year sales and earnings targets after third-quarter revenue dropped 5.2 percent amid a European auto-market slump."
"Renault plunged 18 percent to 20.88 euros, its lowest since 1997. The company cut its full-year profit and sales goals after third-quarter revenue fell 2.2 percent amid a slump in auto demand. Renault will shut its French factories for one or two weeks, and in some cases for longer, Le Figaro reported, citing CFDT union leaders."
"Societe Generale, France's third-largest bank by assets, lost 15 percent to 41.27 euros. Axa, Europe's second-biggest insurer, slid 13 percent to 13.08 euros. Natixis SA, the Paris- based bank that raised 3.7 billion euros in a rights offering last month, sank 16 percent to 1.62 after earlier plunging as much as 35 percent."
The following shares rose or fell in Paris. Stock symbols are in parentheses.
"Alcatel-Lucent SA (ALU FP) slid 34 cents, or 19 percent, to 1.46 euros. The world's largest supplier of fixed-line phone networks was cut to ``underperform'' from ``neutral'' at Merrill Lynch & Co., which said the stock is among the least attractive in the industry amid a weakening economy."
"Areva SA (CEI FP) lost 37.24 euros, or 8.9 percent, to 382.76. The world's biggest maker of nuclear reactors said third-quarter sales rose 9 percent to 2.94 billion euros on progress at atomic power plant projects. Analysts estimated 2.98 billion euros, according to a Bloomberg survey."
"CGGVeritas (GA FP) sank 2.20 euros, or 19 percent, to 9.68. Credit Suisse Group cut its recommendation on shares of the world's largest seismic surveyor to ``underperform'' from ``neutral.''"
"France Telecom SA (FTE FP) slid 1.80 euros, or 9 percent, to 18.28. Europe's third-largest phone company said a French regulatory proposal to cut what the company charges for completing mobile-phone calls on its network by more than 50 percent would hurt sales in 2009 and 2010."
"Gemalto NV (GTO FP) sank 2.98 euros, or 13 percent, to 20.54. Societe Generale cut its recommendation on shares of the world's largest maker of smartcards to ``sell'' from ``hold.''"
"Neovia Electronics (NOEV FP) plunged 36 cents, or 14 percent, to 2.15 euros. The company, which specializes in the assembly of flat screen televisions, said first-half revenue fell 50 percent to 1.4 million euros."
"PPR SA (PP FP) retreated 3.07 euros, or 7.5 percent, to 37.85. The owner of the Gucci luxury-goods brand said third- quarter sales rose 1.7 percent, the least since 2005, to 4.94 billion euros after the global credit crunch cut into demand for goods from handbags to furniture."
"Total SA (FP FP), the stock with the biggest weighting on the CAC 40, sank 3.62 euros, or 9.7 percent, to 33.78 euros. Crude oil fell, heading for its fourth weekly decline, as OPEC's decision to slash production by 1.5 million barrels a day failed to ease concerns that the global economic slump is hurting fuel demand."
To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.
"Last Updated: October 24, 2008 08:56 EDT"
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"Global Stocks Tumble on Economic Concern; Oil Falls, Yen Rises "
By Lynn Thomasson and Sarah Jones
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Oct. 24 (Bloomberg) -- Global stocks from Seoul to Stockholm tumbled to the lowest since August 2003 on concern the deepening economic slump will damage earnings. Oil dropped to a 16-month low and the yen reached the highest since 1995 against the dollar.
"The Standard & Poor's 500 Index lost 3.5 percent, a smaller decline than European and Asian equities, even after futures on the U.S. measure fell so far that trading was curbed. The U.K.'s FTSE 100 Index sank 5 percent and the pound had the biggest drop versus the dollar since 1971 following a government report showing the economy shrank for the first time in sixteen years. South Korea's economy grew at the slowest pace in four years, driving the Kospi Index down 11 percent."
"``There's a worldwide fear of a worldwide recession,'' said Michael Binger, Minneapolis-based fund manager at Thrivent Asset Management, which oversees about $70 billion. ``The concern has moved to being about which banks and companies will fail to which countries could fail, with Iceland and some of the smaller countries around the world being on life support.''"
"The MSCI World Index of developed markets declined 4.3 percent to 871.64. MSCI's emerging-markets benchmark fell 7.8 percent to 473.98, completing eight straight weeks of losses, the longest stretch since 1998. The MSCI index covering both regions slumped to the lowest since August 2003. Russia's Micex Stock Exchange halted trading until next week following today's 14 percent retreat."
$10 Trillion
"More than $10 trillion has been erased from the market value of equities so far this month. That accounts for about one-third of the total value wiped off world equities this year. MSCI's measure tracking both developed and emerging markets is heading for the worst year on record, plunging 47 percent in 2008, amid $660 billion in global credit-related losses and the biggest financial crisis since the Great Depression."
"The Chicago Board Options Exchange Volatility Index surged to 79.13, the highest in its 18-year history. The VIX measures the cost of using options as insurance against S&P 500 declines."
"``We're getting very close to the emotional blow-off where everybody says, `I don't care; I want out,''' said E. Craig Coats Jr., who co-heads fixed income at Keefe, Bruyette & Woods Inc. in New York. ``Everybody seems to be saying `I want to be in cash or Treasuries.'''"
"More than 200 companies in the S&P 500 have reported quarterly results since the start of October, posting an average profit slump of 23 percent, according to Bloomberg data."
Auto Sales Slump
"Toyota Motor Corp., Japan's biggest carmaker, tumbled 6.4 percent to 3,200 yen after saying quarterly sales fell for the first time in seven years."
"U.S. auto sales this month may fall to the lowest rate in at least 25 years as tighter credit and falling home values decrease demand, said analysts at Deutsche Bank AG."
"American International Group Inc. declined 19 percent to $1.70. The insurer said it has used $90.3 billion of a U.S. government credit line since it was bailed out last month, an amount exceeding the original loan meant to save the company."
Europe's Dow Jones Stoxx 600 Index slid 4.7 percent. The MSCI Asia Pacific Index fell 5.7 percent.
Air France-KLM Group slid 3.1 percent to 11.50 euros. The region's biggest airline said it will be ``very difficult'' to meet full-year earnings targets as the global credit crisis and slowing economic growth undermine demand for travel.
"Yields on 30-year bonds touched the lowest in more than three decades amid speculation a global slowdown will drive U.S. policy makers to cut borrowing costs. Its yield rose 4 basis points to 4.09 percent, following a plunge as low as 3.8676 percent shortly before 6 a.m. in New York as stocks fell."
`Not Buying'
"``The issue that drives prices now are the margin calls, redemptions and sales,'' said George Feiger, chief executive officer of Contango Capital Advisors, which oversees about $2 billion in Berkeley, California. ``I'm not buying now.''"
"Iceland secured an emergency bailout loan of $2 billion from the International Monetary Fund after the collapse of the island's banking system paralyzed much of its foreign exchange market, Prime Minister Geir Haarde said in Reykjavik."
"Futures on the S&P 500 lost 6.6 percent before U.S. markets officially opened, triggering a Chicago Mercantile Exchange measure meant to limit losses."
Home Resales Jump
"Pulte Homes Inc. gained 4.8 percent to $8.50 after home resales in the U.S. rose more than forecast in September. Cheaper prices on foreclosed property lifted purchases of existing homes up 5.5 percent last month to a 5.18 million annual pace, the highest level in a year, the National Association of Realtors said in Washington."
Oil tumbled 5.4 percent to $64.15 a barrel even after OPEC's decision to slash production by 1.5 million barrels a day. Energy stocks in the S&P 500 lost 3.9 percent. Exxon Mobil Corp. retreated 1.9 percent to $69.04.
"National City Corp. plunged 25 percent to $2.07. PNC Financial Services Group Inc., Pennsylvania's largest bank, plans to buy the lender, Ohio's largest bank, for about $5.2 billion in stock with funds from the U.S. Treasury. The offer of $2.23 a share is 19 percent less than National City's closing price yesterday."
"Fifth Third Bancorp had the biggest loss in the S&P 500, sliding 29 percent to $8.07. Ohio's second-biggest bank was cut to ``sell'' from ``neutral'' at Goldman Sachs Group Inc."
Extreme Pessimism
"``There is an extreme level of pessimism and almost despair,'' said Barton Biggs, managing partner at hedge fund Traxis Partners LLC. ``We're at very, very cheap levels.''"
The yen climbed to a 13-year high against the dollar as stock-market losses prompted investors to dump higher-yielding assets funded by low-cost loans in Japan.
"Japan's currency rose 8.6 percent this week against the dollar, the biggest gain since October 1998. It surged 13 percent versus the euro, the greatest weekly advance. The euro headed for a 5.1 percent decline versus the dollar."
"The pound depreciated as much as 5.9 percent to below $1.53. Sterling's intraday decline surpassed that on Black Wednesday in September 1992, when the U.K. was driven out of Europe's exchange-rate mechanism."
To contact the reporters on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net; Sarah Jones in London at sjones35@bloomberg.net.
"Last Updated: October 24, 2008 17:35 EDT"
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"Russian Stocks Fall With Global Equities on Oil, Debt Concerns "
By William Mauldin
"Oct. 24 (Bloomberg) -- Russian stocks tumbled with equity markets around the world, capping a tenth straight weekly decline on falling crude prices and renewed turmoil in the country's bond and currency markets."
"OAO Sberbank, Russia's biggest bank, plunged 24 percent as the yields climbed on Russian government bonds. OAO Rosneft fell with oil futures."
"The ruble-denominated Micex Index slid 14 percent to 513.62, posting its tenth consecutive weekly decline. The dollar-based RTS Index sank 14 percent to 549.43. Both the Micex Stock Exchange and the RTS halted trading twice, saying they would resume on Oct. 28 or when directed by regulators."
"The yield on the benchmark Russian 30-year bond climbed to 12.49 percent, the most since 2001, after Standard & Poor's yesterday cut the outlook on Russia's credit rating to ``negative'' from ``stable.'' The ruble weakened to 27.09 to the dollar, the lowest since 2006."
"``The sum of all fears is driving asset prices down -- oil, defaults, ruble-devaluation risk and the fear of a massive cut in earnings growth,'' said Chris Weafer, chief strategist at UralSib Financial Corp. in Moscow. ``For investors oil is the critical factor as everything hinges on the amount of oil revenue that the country earns.''"
"Crude for December delivery fell $3.14, or 4.6 percent, to $64.70 a barrel in New York on concern OPEC's output cut, announced today, won't stem the slide in prices and demand."
"Sberbank, VTB Group"
"Rosneft, Russia's biggest oil company, fell 14.2 rubles, or 14 percent, to 84 rubles, a record low."
"Sberbank dropped 5.55 rubles to 17.50 rubles, or 84 percent below its July 2007 high. VTB Group, the second-biggest bank, slipped 0.3 kopek, or 9.4 percent, to 2.99 kopeks. A kopek is one hundredth of a ruble."
"Russia's RTS Index is trading at a price-to-earnings ratio of 3, compared with a ratio of 12 a year ago, according to data compiled by Bloomberg."
"``As with the equities, there are bonds out there trading hands at prices far below what their fundamentals would suggest, said Ron Smith, chief strategist at Alfa Bank in Moscow. ``The markets haven't been about fundamentals since August.''"
To contact the reporter on this story: William Mauldin in Moscow at wmauldin1@bloomberg.net.
"Last Updated: October 24, 2008 10:20 EDT"
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"Natural Gas Drops on Outlook for Weaker Economy, Lower Demand "
By Reg Curren
"Oct. 24 (Bloomberg) -- Natural gas futures fell in New York, dropping along with crude oil and gasoline, on concern demand for energy will decline as the world economy slows."
"About 40 percent of natural gas demand in the U.S. originates with commercial and industrial consumers, who tend to cut back in times of economic weakness. Crude declined after OPEC's decision to cut oil output did little to shake the perception that there's enough oil to meet demand."
"``The economic news out of the U.K. and with crude down to a new low, gas has to go to a new low,'' said Tom Orr, research director at Weeden & Co. in Greenwich, Connecticut."
"Natural gas for November delivery fell 18 cents, or 2.8 percent, to settle at $6.239 per million British thermal units at 3:02 p.m. on the New York Mercantile Exchange. The futures haven't settled this low since Sept. 21, 2007, when they closed at $6.08. Prices had their fourth weekly decline in five weeks."
"``Gas may go and test the $5.30 level from late August 2007,'' Orr said. ``There's a big, mass, coordinated slowdown. No one wants to own anything and panic abounds.''"
"Economists at Deutsche Bank AG expect the Group of Seven economies, which includes the U.S. and U.K., to contract 1.1 percent next year. The U.K. government said today the country's economy shrank more than forecast in the third quarter as the financial crisis mounted, putting the country on course for its first recession since 1991."
"``Equity markets are the big gorilla in the room and commodities are following them as a beacon on the economy,'' said Chris Jarvis, president of Caprock Risk Management LLC in Hampton Falls, New Hampshire. ``Global recession fears are at an apex right now.''"
Falling Stocks
Stocks slumped around the world amid speculation the slowdown reduce earnings. The Standard & Poor's 500 Index slid as much as 6.1 percent and the Dow Jones Industrial Average dropped almost as much. The U.K.'s FTSE 100 Index sank 5 percent.
"A slowing economy may push oil as low as $50 a barrel and that will drag other energy prices, including natural gas, lower, said Jarvis."
"``This is all recession-based fear,'' he said. ``Everybody is trying to ascertain the degree of the slowdown.''"
"Crude oil futures in New York declined $3.69, or 5.4 percent, to $64.15 a barrel, the lowest since May 31, 2007."
"U.S. petroleum-fuel demand fell 8.5 percent last week from a year earlier, the Energy Department said Oct. 22."
OPEC's Decision
"The Organization of Petroleum Exporting Counties decided to cut production targets by 1.5 million barrels a day, the first reduction in almost two years, in an attempt to stem the decline in oil prices."
"``Gas storage is less than last year's record, though more than adequate, particularly with the expectation that industrial demand will take a hit,'' Michael Fitzpatrick, vice president for energy risk management at MF Global Ltd. in New York, said in a note today."
"Stockpiles advanced 70 billion cubic feet in the week ended Oct. 17 to 3.347 trillion cubic feet, the Energy Department said yesterday. Sufficient supplies in storage help utilities and large industrial consumers meet demand during the cold-weather season, when usage outstrips production."
"Supplies now top the five-year average of 3.327 trillion cubic feet that's on hand at the start of the heating season in early November, when 52 percent of U.S. homes count on gas to keep them warm. Inventories reached a record 3.545 trillion cubic feet a year earlier."
"EnCana Corp., Canada's biggest natural gas producer, said pipelines in British Columbia damaged in bombings earlier this month have been repaired and shipments on them have resumed."
"A 12-inch pipe able to send 60 million cubic feet of gas a day, and an 8-inch line, moving 40 million a day, returned to service over the past few days after testing, Alan Boras, a spokesman for the Calgary-based company, said today in an interview."
To contact the reporter on this story: Reg Curren in Calgary at rcurren@bloomberg.net.
"Last Updated: October 24, 2008 16:04 EDT"
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Credit-Default Swaps Jump to Record as Assets Plummet Globally
By Shannon D. Harrington and Michael Shanahan
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Oct. 24 (Bloomberg) -- The cost of protecting corporate bonds from default surged to a record as a global asset sell-off pushed U.S. stocks lower and sent commodities markets falling.
"Credit-default swaps protecting against a default by companies including Bayer AG, Germany's largest drugmaker, French automaker PSA Peugeot Citroen and U.S. newspaper publisher New York Times Co., soared to records. A benchmark European index climbed above 900 basis points for the first time as the U.K. economy shrank more than forecast."
"``The fear is truly palpable among investors we are speaking to,'' Kenneth Hackel, head of fixed-income strategy at RBS Greenwich Capital Markets, said today in a note to clients. ``The non-stop volatility overwhelms any good news on the margin as investors assume the next sharp move is imminent and will be negative.''"
"The slump has been driven by hedge funds dumping assets amid record losses and investor withdrawals and concern that governments from Argentina to Pakistan may default in a global recession. Toyota Motor Corp., the world's second-largest automaker, reported its first sales decline in seven years."
"Credit-default swaps on the Markit CDX North America Investment Grade Index, tied to 125 companies in the U.S. and Canada including aluminum producer Alcoa Inc. and package shipper United Parcel Service Inc., increased 13 basis points to 226 basis points as of 1:18 p.m. in New York and earlier was quoted at a record 240, according to broker Phoenix Partners Group."
New York Times
"Contracts on Europe's Markit iTraxx Crossover Index of mostly high-yield, high-risk companies soared as much as 107 basis points to an all-time high of 920 before dropping back to 875, according to JPMorgan Chase & Co. prices."
"Contracts on New York Times jumped 79 basis points to 601 basis points, according to CMA Datavision. Standard & Poor's yesterday lowered the newspaper publisher three grades below investment quality on concern that the slowing economy will continue to sap revenue after advertising sales slid 16 percent in the third quarter."
"Contracts on Peabody Energy Corp., the largest U.S. coal producer, jumped 70 basis points to a record 645, CMA data show. 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."
American International Group
"Credit swaps on American International Group Inc., the insurer bailed out by the U.S. government last month, climbed deeper into distressed levels. Traders demanded 42 percentage points upfront and 5 percentage points a year, up from an initial price of 38 percentage points yesterday, CMA data show. That means it would cost $4.2 million initially and $500,000 a year to protect $10 million in AIG debt for five years."
"AIG has tapped $90.3 billion of a government credit line and may now need more than the $122.8 billion available, Chief Executive Officer Edward Liddy said Oct. 22."
"Bayer contracts rose 29 basis points to 134, CMA data show. Swaps on Peugeot, Europe's second-biggest carmaker, jumped 41 to 510 after Chief Executive Officer Christian Streiff said the company will make ``massive production cuts'' in the quarter. Contracts protecting against a default by Renault SA, which posted a 2.2 percent revenue decline, increased 35 to 525, CMA data show. Volvo AB jumped 106 to 459 after the world's second- largest maker of heavy trucks cut its industry growth outlook."
Slump Hurts Automakers
"The U.K. economy contracted 0.5 percent in the third quarter, evidence that Britain is in the grips of its first recession since 1991. Automakers are feeling the full force of the global economic slump, with Peugeot posting third-quarter revenue down 5.2 percent."
"The upfront cost to protect against a default by General Motors Corp., the biggest U.S. automaker, rose 2 percentage points to 67 percentage points, CMA and Phoenix prices show. The GM swaps price implies a 93 percent chance of default in the next five years, according to a JPMorgan valuation model. That assumes investors could recover 15 cents on the dollar in GM failure."
"Credit swaps on a unit of hedge-fund manager Citadel Investment Group, traded at 30 percentage points upfront today, according to Phoenix. That's unchanged from a mid-price of 30 last week. Citadel's biggest hedge fund fell as much as 30 percent this year because of losses on convertible bonds, stocks and corporate debt, two people familiar with the Chicago-based firm said earlier this month."
European iTraxx
"Credit-default swaps on the Markit iTraxx Europe index of 125 companies with investment-grade ratings rose as much as 31.5 basis points to 193, before falling back to 185, JPMorgan prices show. The previous record of 172 basis points was set in March before the Federal Reserve backed the bailout of Bear Stearns Cos. by JPMorgan."
"The cost of protecting high-yield, high-risk corporate loans also soared."
"The price of the Markit LCDX index linked to U.S. leveraged loans, which falls as sentiment worsens, dropped 1.7 percentage points to a mid-price of 84.2 percent of face value, according to Goldman Sachs Group Inc."
"Stocks tumbled around the world, with the Standard & Poor's 500 Index dropping as much as 6.1 percent. Crude oil, copper and gold led a drop in commodities, extending a record quarterly decline, on expectations an economic slump will sap demand for raw materials. The pound dropped below $1.53 in its biggest drop in at least 37 years. The ruble fell to a 2 1/2-year low as Russia's biggest export, oil, dropped below $65 a barrel to a 16- month low."
To contact the reporters on this story: Shannon D. Harrington in New York at sharrington6@bloomberg.net; Michael Shanahan in London mshanahan3@bloomberg.net
"Last Updated: October 24, 2008 13:41 EDT"
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"Europe Services, Manufacturing Shrink at Record Pace (Update1) "
By Frances Robinson
Oct. 24 (Bloomberg) -- Europe's manufacturing and service industries contracted at a record pace in October as the financial crisis damped exports and consumer spending.
"Royal Bank of Scotland Group Plc's composite index dropped to 44.6, the lowest since the survey began in 1998, from 46.9 in September, Reuters reported. Economists forecast a decline to 45.4, according to the median of 17 estimates in a Bloomberg survey. The index is based on a survey of purchasing managers by Markit Economics in London and a reading below 50 indicates contraction."
"Europe's economy may be tipped into a recession as the global credit crunch forces governments to bail out banks and stock markets plunge. Daimler AG, the world's second-biggest maker of luxury cars, yesterday slashed its 2008 earnings forecast by 1 billion euros ($1.3 billion) and Fiat SpA, Italy's biggest carmaker, said it will cut production in the fourth quarter."
"``We're going to see a contraction of the European economy in the fourth quarter,'' said Nick Kounis, chief European economist at Fortis Bank in Amsterdam. The European Central Bank ``is going to cut interest rates as early as the next governing council meeting'' on Nov. 6, he said."
"The euro dropped more than a cent after the PMI figures were published to $1.2530, a two-year low. European stocks fell, extending the Dow Jones Stoxx 600's decline to 46 percent this year."
Rate Cuts Expected
"The International Monetary Fund on Oct. 7 predicted growth in the 15 countries sharing the euro would slow to 0.2 percent next year, the weakest since the single currency began trading in 1999, from 1.3 percent this year."
"The ECB joined a globally coordinated rate cut this month in an effort to boost confidence, reducing its benchmark by half a point to 3.75 percent. Investors expect the Frankfurt-based bank to lower the rate by a further half-point to 3.25 percent next month, Eonia forward contracts show."
"``The euro zone is experiencing a double-whammy,'' said Andreas Scheuerle, an economist at Dekabank in Frankfurt. ``The escalation of the financial crisis in the past few weeks has damped demand in the euro zone as well as from its trading partners.''"
"Markit's manufacturing index dropped to 41.3 this month from 45 in September, while the services index fell to 46.9 from 48.4. At the same time, inflation pressures continued to ease from a July peak, today's report showed."
Risks Materialize
"``There has been a materialization of the downside risks to growth and we have to take that into consideration in all respects, and particularly as regards the influence that it has on the upside risks for price stability,'' ECB President Jean-Claude Trichet said in New York on Oct. 14. In an interview on French radio on Oct. 19, he described the 15-nation euro area as being in a ``very, very important growth slowdown.''"
The euro's decline and lower oil prices may help to steady the economy by making exports more competitive and reducing household energy bills.
"``Commodity and oil prices and the euro's rate against the dollar will help confidence to recover,'' said Kenneth Broux, and economist at Lloyds TSB in London. Oil prices have halved in the past three months, helping euro-area inflation slow to 3.6 percent in September."
To contact the reporter on this story: Frances Robinson in Frankfurt at frobinson6@bloomberg.net
"Last Updated: October 24, 2008 05:02 EDT"
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`Broken' TIPS Cheapest U.S. Debt as Inflation Slows (Update3)
By Dakin Campbell
Oct. 20 (Bloomberg) -- Bonds that protect against faster inflation may be the biggest bargain in the Treasury market even as gains in consumer prices slow.
"Treasury Inflation-Protected Securities fell 8 percent since June as investors shunned all but the most easily traded debt amid the seizure in credit markets. TIPS were the only part of the U.S. government bond market to lose money in that time as Treasuries of all maturities gained 2.12 percent, according to Merrill Lynch & Co. indexes."
"BlackRock Inc., Brown Brothers Harriman & Co., DWS Investment GmbH and New Century Advisors are buying the securities because inflation will likely increase at a faster pace over the next decade than the 1 percent annual rate TIPS yields suggest. Consumer prices, unchanged in September, may increase 4.5 percent this year and 2.65 percent in 2009, according to the median estimate of 69 forecasters surveyed by Bloomberg."
"``There is something broken here,'' said William Chepolis, who oversees more than $9 billion of bonds as a fixed-income fund manager in New York at DWS Investment, a unit of Frankfurt- based Deutsche Bank AG. ``At some point the market will figure out that it has overcorrected and will come back.''"
"The slump in 10-year TIPS pushed yields on the securities to within 0.87 percentage point of benchmark notes on Oct. 10. The so-called breakeven rate, a measure of what investors expect the rate of inflation to be over the life of the securities, fell to the lowest level since January 1999."
`Dire Economic Scenarios'
"Since then, the rate has risen 26 basis points, or 0.26 percentage point, suggesting that TIPS are starting to outperform bonds that aren't linked to inflation. TIPS, which pay interest on a principal amount that rises with the Labor Department's consumer price index, make up about $520 billion of the $4.8 trillion in U.S. marketable debt outstanding."
"The last time the breakeven rate was as narrow was 1999, when it shrank to 0.80 percentage point before widening more than 1.30 percentage points to 2.11 percentage points six months later amid concern that inflation would accelerate. TIPS gained 1.8 percent during that period, compared with a loss of 3.8 percent for Treasuries, Merrill Lynch index data shows."
"A Barclays Capital Inc. bond pricing model suggests 10-year breakeven rates should be 1.30 percentage points higher, based on the outlook for inflation, according to an Oct. 9 note to clients."
`Dire' Outlook
"The difference in yields reflects ``the most dire economic scenarios,'' according to Michael Pond, a New York-based interest-rate strategist at Barclays who was rated the leading TIPS analyst by Institutional Investor magazine."
"The inflation rate will fall below 1 percent by the second half of next year as the economy lapses into a recession, said David Rosenberg, chief North American economist at Merrill Lynch in New York. If true, that would make TIPS less attractive."
"``When we are completely through this de-leveraging phase and we start to see aggregate demand outpace aggregate supply we will start another inflation phase,'' said Rosenberg. ``Whether that is 2011 or 2012, take your pick.''"
"Inflation expectations, as measured by 10-year TIPS, climbed in March to the highest level since August 2006 as commodity prices surged."
"The breakeven rate touched 2.68 percentage points March 13, less than a week before JPMorgan Chase & Co. agreed to buy Bear Stearns Cos. in the first failure of a major U.S. financial institution during the credit crisis that has cost $660 billion in losses and writedowns, according to data compiled by Bloomberg."
Commodities Tumble
"Crude oil prices has tumbled more than 49 percent after reaching an all-time high of $147.27 a barrel July 11, while the Reuters/Jefferies CRB Index of 19 raw materials has slumped more than 40 percent after touching a record high on July 3."
"``The TIPS market reflects the risk that we will have a dis-inflationary environment,'' said Brian Weinstein, who manages $9 billion in inflation bonds at New York-based BlackRock. ``Even if you believe there is a disinflation risk you still might get paid to buy TIPS as an insurance policy because they are so cheap.''"
"Fed officials watch the TIPS market for signs of inflation expectations and referred to the securities in 12 of 13 policy- setting meetings since 2007, according to minutes of the gatherings. Policy makers led by Ben S. Bernanke mentioned five- year TIPS at their April 30 meeting, where they lowered their target interest rate for overnight loans between banks to 2 percent from 2.25 percent."
Bigger Part
"TIPS may become a larger part of the government's plan to pay for the Treasury's $700 billion financial rescue program and a widening budget deficit, which will increase outstanding debt by $1.35 trillion next year, bond strategists at New York-based JPMorgan Chase & Co. said in a Sept. 26 report to clients."
"Bond dealers trimmed their holdings of TIPS as the credit crisis accelerated and lending dried up, causing investors to demand the most easily traded government debt. While TIPS account for almost 11 percent of the Treasury market, they make up less than 2 percent of the average daily trading volume among the 17 primary dealers of U.S. government securities, according to Federal Reserve data."
"The supply of TIPS by the primary dealers that trade directly with the Federal Reserve fell by $986 million to $3.54 billion in the week ended Oct. 1, the lowest since July. Daily transaction volume fell 18 percent, according to Fed data."
"``Breakeven rates reflect the extreme sensitivity to liquidity in the market,'' said Nils Overdahl, a bond-fund manager at New Century in Bethesda, Maryland, which oversees $500 million. ``All markets right now are broken and to the extent that sentiment improves you will see everything gravitate back toward a more fundamental valuation.''"
Bid-Ask
"Trading in other parts of the Treasury market also suffered. The gap between the asking and selling prices for older, or off-the-run, debt widened, suggesting investors are shunning the securities because they are harder to trade than new ones."
"The difference in the so-called bid-ask price on 10-year notes widened to 8/32 for securities issued in February, from less than 1/32 for debt issued in August, according to BG Cantor Market Data."
Nine of 75 economists surveyed by Bloomberg News expect the economy to contract in 2009.
"``One outcome could be disastrous to inflation and the real economy and the other could be inflationary,'' said Kenneth Volpert, who manages $18 billion of the debt for Vanguard in Valley Forge, Pennsylvania. ``I'd like to see what happens to the real economy, and that may mean you miss some opportunity.''"
"The government's sale of 10-year TIPS on Oct. 8 showed that buyers may already be returning to the market. Investors bid for 2.22 times the $6 billion available, above the bid-to-cover average of 1.93 times for the past dozen auctions."
"``Historically the best time to buy TIPS is in late October or early November,'' said James Evans, a senior vice president at New York-based Brown Brothers Harriman & Co. who helps oversee $15 billion in fixed-income assets. ``A lot of the downside has already been priced in.''"
To contact the reporter on this story: Dakin Campbell in New York at dcampbell27@bloomberg.net
"Last Updated: October 20, 2008 15:37 EDT"
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"Oil, Gold, Commodities in `Freefall' as Economic Slump Deepens "
By Claudia Carpenter and Rachel Graham
"Oct. 24 (Bloomberg) -- Crude oil, copper and gold led a drop in commodities, extending a record quarterly decline, on expectations an economic slump will sap demand for raw materials."
"Oil is heading for its fourth weekly retreat and gold, copper and lead their worst weeks in at least two decades. The S&P GSCI index of 24 raw materials has dropped 11 percent since Oct. 17, adding to a third-quarter drop of 28 percent, the gauge's worst-ever performance. Global equity markets also fell."
"``Selling is across all asset classes,'' said Robin Bhar, a commodities analyst at Calyon in London. ``A month ago we were on the edge of a cliff and now we're in freefall.''"
"The U.K. economy shrank more than forecast in the third quarter, suggesting the nation may be in its first recession since 1991. The International Monetary Fund said Oct. 8 the world's advanced economies will next year grow at the slowest pace since 1982."
"Oil for December delivery dropped as much as $4.91, or 7.2 percent, to $62.93 a barrel on the New York Mercantile Exchange and was at $63.08 a barrel at 12:31 p.m. London time."
"The Organization of Petroleum Exporting Countries agreed to cut oil production for the first time in almost two years to stem a collapse in prices. Oil ministers of the 13 OPEC nations decided to reduce supply by 1.5 million barrels a day from November, ministers said today as they left a meeting at the group's Vienna headquarters."
"``The market expected a cut of 1 to 1.5 million barrels a day, and it got it,'' said Mike Wittner, London-based head of oil-market research at Societe Generale SA. ``This was already priced in.''"
Lead Plunges
"Lead, used in car batteries, was the worst performer among industrial metals on the London Metal Exchange. Toyota Motor Corp., the world's second-largest automaker, reported its first drop in quarterly sales in seven years. Volvo AB, the second- biggest heavy-truck maker, expects a 10 percent decline in the North American market this year."
"``The most important factors for industrial metals are construction and auto manufacturing and those two have been hit,'' Eugen Weinberg, an analyst at Commerzbank AG, said in Frankfurt. A car contains about 300 pounds (130 kilograms) of aluminum, according to Commerzbank."
"Lead for three-month delivery fell $126, or 9.8 percent, to $1,161 a metric ton on the LME, for a weekly drop of 19 percent. Aluminum tumbled $62, or 3.1 percent, to $1,945 a ton, or a 12 percent drop for the week. Copper declined every day this week, pulling prices down 22 percent."
"The 162-member Bloomberg World Mining Index slumped 8.4 percent, heading for a weekly drop of 18 percent."
`Rock Bottom'
"``Confidence is at rock bottom,'' Jamie Craggy, a dealer at One Financial, an online commodities brokerage, said by phone from London. ``No one wants to be long any commodity.''"
"Gold headed for its steepest weekly decline in more than a quarter-century in London as the rising dollar curbed investor demand for the precious metal. Investment in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, has stalled after reaching a record 770.6 tons on Oct. 10. Holdings fell to 747.1 tons yesterday."
"``Any financial market movements are being interpreted as bearish for precious metals,'' Walter de Wet, an analyst at Standard Bank Ltd. in Johannesburg, wrote in a note today. ``The worst culprit is the greenback.''"
"Gold for immediate delivery fell $25.85, or 3.6 percent, to $695.60 an ounce in London. Platinum retreated $31.55, or 3.9 percent, to $778.95 an ounce."
Agriculture Slumps
"Among other commodities, palm oil futures in Kuala Lumpur slumped as much as 12 percent to the lowest in more than three years. Corn and soybeans traded in Chicago headed for a fourth weekly drop on concern that the economic slump will reduce demand for oil, raw materials, food and livestock feed."
"U.K. food sales dropped 0.1 percent in the third quarter from a year earlier, the first decline since records began in 1986, official statistics showed yesterday."
"White sugar, robusta coffee and cocoa all fell on London's Liffe exchange."
"``There's wholesale deleveraging going on, with no concept of what of is of fundamental value,'' said Mark O'Byrne, managing director of brokerage Gold and Silver Investments Ltd. in Dublin. ``People aren't looking for wealth accumulation, they're looking for wealth preservation.''"
To contact the reporter on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net or ccarpenter2@bloomberg.net; Rachel Graham in London rgraham13@bloomberg.net
"Last Updated: October 24, 2008 08:10 EDT"
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Malaysia Holds Interest Rate Steady for 20th Straight Meeting
By Shamim Adam
"Oct. 24 (Bloomberg) -- Malaysia's central bank kept its benchmark interest rate unchanged even as inflation slows and growth concerns mount, betting that borrowing costs are low enough to spur the economy."
"Bank Negara Malaysia maintained its overnight policy rate at 3.5 percent for a 20th straight meeting today, it said in a statement in Kuala Lumpur. The decision was predicted by 13 of the 14 economists surveyed by Bloomberg News."
"``Malaysia did not raise interest rates earlier on when its regional counterparts had done so and that gives them time to retain their policy,'' said Wan Suhaimi Saidi, an economist at Kenanga Investment Bank Bhd. in Kuala Lumpur. ``For the time being, the economy is not weak enough to warrant a rate cut. They will be cautious in cutting rates because it will affect the currency.''"
"The central bank held off from raising rates this year even as inflation accelerated to a 26-year high and its neighbors tightened policy, arguing it was focused on staving off a growth slowdown. The decision to keep rates steady gives it room now to delay any action at a time when policy makers in China, India and Australia are cutting borrowing costs."
"Still, ``in the face of diminishing inflationary pressures, and in the event of heightened downside risks to growth, the bank will take swift monetary policy action to provide support to the economy,'' Bank Negara said."
"Inflation in Malaysia has eased as oil and commodity prices fell. Consumer prices rose 8.2 percent in September from a year earlier, easing from a rate of 8.5 percent in August, according to data released today."
Gasoline Prices
"The government has cut gasoline prices three times since late August as crude oil fell from a record $147.27 a barrel on July 11. Fuel prices are expected to drop further, Domestic Trade and Consumer Affairs Minister Shahrir Abdul Samad said today, adding that he doesn't foresee an increase in transportation costs while some food items will be cheaper."
"Bank Negara expects inflation to slow to below 4 percent before the second half of 2009, Governor Zeti Akhtar Aziz said last week."
"``The assessment is that inflation has now peaked and is expected to moderate into 2009,'' the central bank said in its statement today. ``An increasing number of indicators now signal an easing of inflationary pressures. Lower cost pressures and moderating domestic demand are expected to reduce inflation in 2009.''"
"Central banks around the world are shifting their focus to supporting growth from damping inflation as the global credit crisis escalates. The turmoil has led to the collapse of banks and forced some countries to approach the International Monetary Fund for loans, while more nations are reporting a contraction in their economies, increasing the risk of a world recession."
Sharp Downturn
"``The greater focus of policy makers is now towards restoring the functioning of the international financial markets and towards avoiding a sharp global economic downturn,'' Bank Negara said. ``While the downside risks to global growth have increased significantly, concerns about inflation have subsided as commodity and energy prices declined, and as slower growth sets in.''"
"In Malaysia, the economy may expand 5 percent this year, lower than the government's August forecast of 5.7 percent growth, Finance Minister Najib Razak said in an interview yesterday."
"``The slower global growth and the decline in commodity prices will affect the performance of the export sector and consequently, the overall economic growth in 2009,'' the central bank said."
"Malaysia will cut its 2009 economic-growth forecast on Nov. 4, from the current estimate of 5.4 percent, Najib said earlier this week. Bank Negara's Zeti last week predicted growth may be little as 4 percent in 2009 and said policy makers have the capacity and the capability to implement ``fiscal, monetary and other measures'' to prevent such an economic downturn."
"Other central banks aren't waiting. The Reserve Bank of India lowered its benchmark by 1 percentage point on Oct. 20, while China has cut borrowing costs twice in the past six weeks."
"In Thailand, central bank Governor Tarisa Watanagase today said the monetary authority has room to ease interest rates to counter slower economic growth after raising borrowing costs in July and August."
To contact the reporter on this story: Shamim Adam in Singapore sadam2@bloomberg.net
"Last Updated: October 24, 2008 07:51 EDT"
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"U.K. Stocks Drop, Led by HSBC, Barclays, Energy Producers "
By Sarah Thompson
"Oct. 24 (Bloomberg) -- U.K. stocks declined, led by financial and energy companies, as investors speculated the worsening economy at home and elsewhere will hurt earnings."
"HSBC Holdings Plc, Europe's biggest bank, declined the most since Sept. 11, 2001, after Morgan Stanley cut its share-price estimate for the company by 25 percent as the contagion from the global turmoil spread to Asia. Barclays Plc fell after it was lowered to ``neutral'' from ``buy'' at UBS AG, which said earnings and dividends at the U.K.'s second-biggest bank may be hurt as it raises capital."
BG Group Plc led shares of energy producers lower. The U.K. oil and gas producer declined to comment on a report in the Australian that it will make a full offer for Queensland Gas Co.
"The FTSE 100 Index lost 243.93, or 6 percent, to a five- year low of 3,843.9 at 10:13 a.m. in London, headed for a 5.4 percent decline this week. The FTSE All-Share index fell 5.8 percent and Ireland's ISEQ index declined 5.3 percent."
"``Corporate earnings aren't looking good,'' said Andreas Nigg, a Zurich-based fund manager at Vontobel Asset Management, which oversees $39 billion. ``In previous recessions, analysts' estimates have usually been too optimistic. It looks like this is also the case now.''"
"Britain's economy shrank in the third quarter, the government said today, as the global financial crisis ravaged industries from banking to construction, evidence that Britain is in the grips of its first recession since 1991."
Earnings Estimates
"Analysts have cut profit forecasts this year as the credit turmoil spread, threatening economic growth. Earnings for companies in Europe's Dow Jones Stoxx 600 Index will decline 4.4 percent in 2008, down from 11 percent growth predicted at the start of the year, according to estimates compiled by Bloomberg."
"The yen climbed against the dollar as the risk of a global recession prompted investors to slash carry trades, in which they fund purchases of higher-yielding assets with the Japanese currency."
HSBC slid 8.4 percent to 737.25. Morgan Stanley also lowered its earnings estimates for HSBC by 3 percent to $1.11 a share for this year and 10 percent to $1.05 for 2009.
"``We question how long HSBC shares can continue to tread water in the face of falling earnings and increased pressure on capital,'' Morgan Stanley analysts led by Anil Agarwal wrote in a report today."
Barclays
Barclays fell 4.1 percent to 209.25.
"``A more difficult outlook for the U.K. economy has contributed to lower than previously expected top-line growth and higher impairment losses,'' London-based UBS analyst John- Paul Crutchley wrote in a note today. ``3.6 billion pounds of new equity prior to the end of March 2009 will lead to further dilution to earnings per share.''"
"Barclays is likely to cut its dividend next year as profit declines, Crutchley said, predicting a 2009 dividend of 12 pence and earnings of 24.36 pence a share, reduced from a previous estimate of 43.59 pence."
"HBOS Plc, the U.K. bank that agreed to be bought by Lloyds TSB Group Plc, slid 9.3 percent to 66 pence. Aviva Plc, the U.K.'s biggest insurer, declined 8 percent to 253 pence."
"BG lost 5 percent to 735. AGL Energy was halted from trading in Australia pending a ``possible material transaction,'' according to an AGL statement, while Queensland Gas also requested a halt for its shares. AGL, Australia's largest power and gas retailer, owns about 25 percent of Queensland Gas."
"BHP Billiton Ltd., the world's largest mining company, slid 1.7 percent to 809 pence. Royal Dutch Shell Plc, Europe's biggest oil company, decreased 5 percent to 1,473."
"Copper for delivery in three months slumped for a fifth day, sliding 5.3 percent to $3,825 a metric ton in London. Nickel, lead, zinc and aluminum prices also fell."
"Oil for December delivery dropped as much as 96 cents, or 1.4 percent, to $66.88 a barrel on the New York Mercantile Exchange and was at $67.06 a barrel at 2:49 p.m. Singapore time."
The following stocks also gained or fell in the U.K. market. Stock symbols are in parentheses.
U.K. companies:
"Just Retirement Plc (JR/ LN) plunged 6 pence, or 15 percent, to 34. The U.K. life insurer for retired workers said first-quarter new business fell 3.8 percent on a ``temporary'' slowdown in home-equity loans."
"Henderson Group Plc (HGI LN) slumped 6.5 pence, or 11 percent, to 52 after the U.K. money manager had its recommendation cut to ``underweight'' from ``equal-weight'' at Morgan Stanley."
"Hochschild Mining Plc (HOC LN) slid 5.25 pence, or 4.7 percent, to 107.5. Peru's second-largest silver miner will reduce investment in its mines next year as silver prices decline, Gestion reported in its online edition."
"National Express Group Plc (NEX LN) lost 35 pence, or 5.7 percent, to 575. The U.K. long-distance coach operator said trading is heading for a strong year."
"Prudential Plc (PRU LN) decreased 26.25 pence, or 8 percent, to 303.75. The U.K.'s second-largest insurer is looking to buy parts of American International Group Inc. beyond the U.S. company's Asian operations, the Financial Times reported, citing an interview with Chief Executive Officer Mark Tucker."
To contact the reporter on this story: Sarah Thompson in London at sthompson17@bloomberg.net.
"Last Updated: October 24, 2008 05:20 EDT"
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"Canada Stocks Retreat on Economy Concern, Led by Manulife "
By John Kipphoff
"Oct. 24 (Bloomberg) -- Canadian stocks fell, touching a four-year low, as finance and energy shares slid on concern that a deepening global economic slowdown will hurt demand for the nation's commodities."
"Manulife Financial Corp., Canada's biggest insurance company, paced a drop in financial companies on an analyst downgrade. Petro-Canada led oil and gas companies lower as crude prices fell to a 16-month low. The main index pared its drop late in the session as some energy producers rebounded and gold miners, including Barrick Gold Corp., rallied along with the metal's price as investors sought a safe haven."
"The Standard & Poor's/TSX Composite Index dropped 0.4 percent to 9,294.09 in Toronto after earlier falling 7.5 percent, the most in eight years, to the lowest since September 2004. The S&P/TSX, which derives three-quarters of its value from finance, energy and materials shares, slid 2.8 percent this week and is poised for a 21 percent drop in October, the steepest since the crash of 1987."
"``It's truly awful, whichever way you measure it,'' said David Baskin, president of Baskin Financial Services in Toronto, which manages about C$350 million. ``It'll stop at some point. Valuations are looking attractive. But who wants to be the guy to make the call? Not me. You step in and buy something and 10 minutes later it's down 5 percent.''"
"Manulife Financial slid 3.9 percent to C$25, taking its drop in October to 35 percent. Canada's largest insurance company was cut to ``market perform'' from ``outperform' by BMO Capital Markets analyst John Reucassel. Manulife said this month that credit losses may cut third-quarter earnings by about C$250 million."
Lenders
"Royal Bank of Canada, the country's biggest lender, declined 2.1 percent to C$46.50. Toronto-Dominion Bank, Canada's second-largest bank, retreated 2.1 percent to C$56.80."
A measure of financial companies slipped 2.5 percent.
"Energy stocks fell 0.2 percent today, led by oil-sands companies. The group has dropped 25 percent in October."
"Petro-Canada fell 3.3 percent to C$26.89. The nation's third-largest energy producer reported a 61 percent increase in profit this week and said it may pare back the C$23.8 billion ($22.3 billion), Fort Hills oil-sands project that it plans to build with partners UTS Energy Corp. and Teck Cominco Ltd."
"UTS fell 11 percent to 92 cents and has lost 83 percent of its market value this year amid doubts that it can raise its share of the financing for Fort Hills. Teck Cominco, Canada's biggest diversified mining company, rose 3.7 percent to C$13 after dropping 33 percent in the previous three sessions."
Junior Partner
"Opti Canada Inc. a junior partner in another oil sands project, Long Lake, dropped 13 percent to C$4.17. Opti and partner Nexen Inc. this week delayed a decision to expand the mine."
"Suncor Energy Inc. was unchanged at C$26.20 after dropping as much as 12 percent. The world's second-biggest oil-sands mining company cut its 2009 capital budget by 33 percent yesterday to conserve cash, slowing construction at its Voyageur expansion project."
"Gold climbed 2.2 percent to $730.30 an ounce in New York, paring its weekly drop as equities tumbled worldwide. Gold's gain helped materials shares in the S&P/TSX rise 4.9 percent, one of two industry groups among 10 in the index to advance today. It's still down 36 percent in October."
"Barrick Gold Corp., the biggest bullion miner, rose 8.9 percent to C$25.75. Goldcorp Inc. gained 12 percent to C$22."
To contact the reporter on this story: John Kipphoff in Montreal at jkipphoff@bloomberg.net.
"Last Updated: October 24, 2008 17:35 EDT"
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Barclays First U.K.-Backed Bonds Lead Sales in Europe (Update1)
By Shelley Smith
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"Oct. 24 (Bloomberg) -- Barclays Plc, the U.K.'s second- biggest bank, led corporate bond sales of 6.6 billion euros ($8.3 billion) in Europe this week with the first notes guaranteed by the British government under its bank rescue package."
"Total sales kept below the 12-month average of 11.9 billion euros for a sixth week, according to data compiled by Bloomberg. Barclays raised 3 billion euros of three-year bonds after initially planning a sale of a minimum of 1 billion euros, according to Mark Geller, a syndicate official at Barclays Capital in London."
"``The book was over 4 billion euros, so we decided 3 billion was the appropriate size,'' Geller said. ``It has set the benchmark for this type of deal globally.''"
"The U.K. government pledged to guarantee as much as 250 billion pounds ($392 billion) of bank debt to help unlock credit markets, which have been effectively shut since the bankruptcy of Lehman Brothers Holdings Inc. last month. Even with the guarantee, Barclays had to offer investors 1.19 percentage points of extra yield over similar-maturity government debt, Bloomberg data show."
"Investors are demanding the highest yields relative to government debt in at least a decade to buy corporate bonds amid speculation that government measures won't prevent a global recession. The spread on European investment-grade company debt widened 7 basis points this week to 3.8 percentage points, the biggest gap since Merrill Lynch & Co. started collating the daily data in 1999. The spread was 0.83 percentage points last year."
Recession Looms
"The U.K. economy shrank 0.5 percent in the third quarter, the first contraction since 1992, Britain's Office for National Statistics said today. The International Monetary Fund in Washington said Oct. 8 that the world's advanced economies will grow next year at the slowest pace since 1982."
"``The financial crisis has morphed into an economic one,'' said Suki Mann, a credit strategist at Societe Generale SA in London. ``The macro outlook now points squarely to a recession in many countries. The withdrawal of liquidity may leave a mark on credit for years to come.''"
"The cost of protecting corporate bonds from default surged by a record today. Credit-default swaps on the Markit iTraxx Europe index of 125 companies with investment-grade ratings rose as much as 31.5 basis points to 193, before falling back to 185, JPMorgan prices show."
"Britain's government is offering banks the debt guarantee for the next six months, which may be extended, according to the Debt Management Office. U.K. lenders Lloyds TSB Group Plc, HBOS Plc, Abbey National Plc, HSBC Holdings Plc, Nationwide Building Society, Standard Chartered Plc and Royal Bank of Scotland Group Plc can also sell U.K.-backed debt."
"Gasunie, GDF Suez"
"In other sales this week, Dutch gas network operator Nederlandse Gasunie NV raised 1 billion euros from five-year notes priced to yield 195 basis points more than the benchmark mid-swap rate, Bloomberg data show. The Groningen, Netherlands- based company last sold bonds in June 2006 when it raised 300 million euros from 15-year debt at a spread of 20 basis points."
"GDF Suez SA, the world's second-biggest utility, sold 500 million pounds ($782 million) of 20-year notes priced to yield 220 basis points more than similar-maturity U.K. government debt. The bonds are the first pound-denominated sale by the Paris-based company. GDF Suez last sold notes Oct. 17 when it raised 1 billion euros of five-year notes yielding 274.8 basis points more than similar-maturity government debt, Bloomberg data show."
"The city of Paris raised 150 million euros by selling 13- year bonds. Network Rail Infrastructure Finance Plc, a unit of the U.K.'s train track operator, increased its 1.375 percent bonds due in 2037 by 750 million pounds, Bloomberg data show."
To contact the reporter on this story: Shelley Smith in London at ssmith118@bloomberg.net
"Last Updated: October 24, 2008 08:17 EDT"
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South Korean Economy Grows at Weakest Pace in 4 Years (Update5)
By William Sim
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"Oct. 24 (Bloomberg) -- South Korea's economy expanded at the slowest pace in four years last quarter, sparking concern the nation is headed for its first recession since requiring an International Monetary Fund bailout 10 years ago."
"The economy grew 0.6 percent from the previous three months, when it advanced 0.8 percent, the central bank said in Seoul today. Goods and services exports fell 0.9 percent, the biggest drop in seven years, and household spending rose 0.1 percent."
"The Kospi stock index plunged 11 percent, capping its worst week since at least 1987, and the won dropped near a 10-year low. The risk of a recession may force the central bank to cut interest rates a second time and the government to pump more stimulus into the economy after this week pledging $130 billion to help banks and as much as $8 trillion won ($6 billion) for the building industry."
"``The global crisis has been brought home to Korea with a rapid deceleration in growth, and there's worse to come,'' said Daniel Melser, a senior economist at Moody's Economy.com in Sydney. ``The state of the economy demands a rapid easing in monetary policy from the Bank of Korea.''"
Gross domestic product in the quarter matched the median estimate of 16 economists surveyed by Bloomberg News.
"From a year earlier, the $970 billion economy expanded 3.9 percent, the slowest pace since 2005, and down from 4.8 percent growth in the second quarter."
`Shockwaves'
"The Kospi index slumped to 938.75 at close of trading in Seoul, sliding below 1,000 for the first time since 2005 and extending this year's decline to 51 percent. The won fell 1.1 percent to 1,424 per dollar, taking its 2008 drop to 35 percent, Asia's worst-performing currency."
"``Slowing U.S. and European growth have sent shockwaves through the economies of the developing world.,'' said Hiroshi Fujimoto, a fund manager at Shinkin Asset Management Co. in Tokyo, which manages the equivalent of $5.7 billion. ``Exporters are likely to see their sales drop off a cliff.''"
"China's economic expansion moderated to the weakest in five years last quarter, Japan's economy shrank in the second quarter and Singapore tumbled into a recession this year."
"South Korea's Posco, Asia's biggest maker of stainless steel, said this week it will slash planned output by about a third this quarter to cope with moderating demand."
"Samsung, Lotte"
"Samsung Electronics Co., Asia's largest maker of chips, flat screens and mobile phones, today posted its biggest quarterly profit drop in more than three years. The company's stock tumbled 13.6."
"Lotte Shopping Co. said yesterday that third-quarter profit fell 19 percent, missing analysts' estimates, on slowing sales growth. Shares in South Korea's largest department-store operator plunged 13 percent today to a record low."
"``Korea's economy will not be able to avoid a recession,'' said Arthur Woo, a Hong Kong-based economist at Merrill Lynch & Co. ``With global demand conditions set to slow further, this should have a knock-on effect to Korean exports.''"
"Real gross domestic income, a measure of purchasing power, declined 3 percent from the previous quarter, today's report showed. That's the biggest drop since the first quarter of 1998."
"Jobs growth slowed in September to the weakest pace since 2005 as manufacturers, builders and retailers cut workers."
"The Bank of Korea cut the benchmark interest rate by a quarter percentage point to 5 percent on Oct. 9, the first reduction in four years. The board meets again on Nov. 7."
"``The central bank should take steps to help the economy,'' said Kim Jae Eun, an economist at Hana Daetoo Securities Co. in Seoul. ``Interest rates may go as low as 4 percent.''"
Government Aid
"South Korea this week pledged $130 billion, equivalent to 14 percent of GDP, to support lenders as the global credit freeze makes its harder for banks to secure foreign funds. It will give lenders access to $30 billion in U.S. dollars and guarantee $100 billion of foreign-currency debt."
Finance Minister Kang Man Soo said yesterday the government is ``working hard'' to avert a crisis in the economy.
"The government will spend up to 8 trillion won to help builders, including buying land and unsold homes. The central bank said yesterday will make an extra 2.5 trillion won available for banks to lend at discount rates to small companies."
"The financial-aid plan, coupled with the government's relatively low debt and ample foreign reserves, may help South Korea avoid a repeat of 1997 when it needed an emergency $57 billion loan from the IMF, the three main ratings companies signaled this week."
Moody's Investors Service and Fitch Ratings affirmed South Korea's sovereign credit ratings on Oct. 21. Standard & Poor's said the bank package is more ``swift and broad'' than expected.
"South Korea's debt ratio is close to the lowest among major economies, says the Organization for Economic Cooperation and Development. The government's financial liabilities stood at 28 percent of GDP in 2006, compared with Japan's 180 percent and 62 percent in the U.S., according to the OECD Web site."
The nation's $240 billion in foreign reserves are the world's sixth-biggest holdings.
To contact the reporter on this story: William Sim in Seoul at wsim2@bloomberg.net.
"Last Updated: October 24, 2008 03:32 EDT"
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Central Banks Fail to Alleviate `Logjam' in Libor: Chart of Day
By Mark Gilbert and Gavin Finch
"Oct. 9 (Bloomberg) -- Central-bank efforts to drive down money-market borrowing costs with coordinated interest-rate cuts are failing, according to Nick Stamenkovic, a fixed-income strategist at RIA Capital Markets in Edinburgh."
"``Central banks have pulled out all the stops and there's no sign whatsoever that money-market strains are easing,'' Stamenkovic said. ``The logjam is going to remain in place for some time to come. Three-month rates and beyond are actually deteriorating.''"
"The CHART OF THE DAY shows the divergence between the policy rates set by the Federal Reserve, the European Central Bank and the Bank of England, and the three-month cost of dollars, euros and pounds. The dollar London interbank offered rate climbed to its highest this year today, at 4.75 percent. The euro rate of 5.39 percent is up from 4.96 percent a month ago, while the pound rate has risen 43 basis points in the past three months to stand at 6.28 percent."
"The Fed, the ECB and the Bank of England all reduced their key lending rates by half a point yesterday, with the central banks of Canada, Sweden, Switzerland and China also implementing cuts."
To contact the reporters on this story: Mark Gilbert in London at magilbert@bloomberg.net Gavin Finch in London at gfinch@bloomberg.net
"Last Updated: October 9, 2008 09:52 EDT"
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China's Stocks Retreat for Third Week; Shenzhen Bank Declines
By Zhang Shidong and Jiang Jianguo
"Oct. 24 (Bloomberg) -- China's benchmark stock index fell for a third week, led by financial companies, on concern global financial turmoil may increase local losses on overseas transactions and slow corporate earnings growth."
"Shenzhen Development Bank Co., controlled by buyout firm TPG Inc., slid 4.1 percent after profit growth slowed in the third quarter. China Merchants Bank Co., the nation's biggest dual- currency credit-card issuer, slumped by the 10 percent daily limit. The government will tighten monitoring of financial institutions' foreign currency holdings to prevent more losses, Shanghai Securities News said today. China Eastern Airlines Corp. sank 5.3 percent on concern the demand for flights will drop."
"``We have sold bank shares on concern about earnings prospects,'' said Mo Fan, an analyst at Soochow Asset Management Co., which oversees 5 billion yuan ($731 million) in Shanghai. ``Further lending rate cuts will hurt their profitability on loans.''"
"The CSI 300 Index, which tracks yuan-denominated stocks traded in Shanghai and Shenzhen, slid 53.18, or 2.9 percent, to 1,781.60 at the close, the lowest since December 2006. It lost 2.8 percent this week, its third-straight weekly decline."
"The CSI 300 has slumped 67 percent this year, making it Asia's worst-performing benchmark index. Stocks have fallen amid concern demand for Chinese products will decline as the global credit crisis drags the world's largest economies into recession."
Shenzhen Bank
"A gauge of financial companies accounted for 61 percent of the CSI 300's slump on speculation the central bank may further cut interest rates and the floor rate for mortgages, paring lenders' profits."
"Shenzhen Bank fell 4.1 percent to 12.03 yuan after reporting third-quarter profit growth slowed to 56 percent from 91 percent in the first half of the year. Merchants Bank tumbled 10 percent to 12.14 yuan. Industrial & Commercial Bank of China Ltd., the nation's biggest listed lender, declined 2.6 percent, to 3.70 yuan. Shanghai Pudong Development Bank Co., part-owned by Citigroup Inc., lost 6 percent to 12.14 yuan."
"Some institutions have suffered ``huge'' losses in overseas investments, the Shanghai Securities News, which is affiliated with the Xinhua News Agency, said today, without giving details."
"China will lower interest rates again this quarter after inflation eased and the global financial crisis sapped economic growth, according to all nine economists in a Bloomberg survey. China has cut borrowing costs twice in the past six weeks."
"The government will lower down-payment requirements and cut interest rates on mortgages for first-time home buyers from Oct. 27, the People's Bank of China said in a statement on its Web site Oct. 22."
China Eastern
"China Eastern, the nation's No. 3 airline by fleet size, slid 5.3 percent to 3.78 yuan. Air China Ltd., the nation's largest international carrier, dropped 4.9 percent to 4.43 yuan. China Southern Airlines Co., China's biggest carrier by fleet, fell 4.7 percent to 3.28 yuan."
"``No doubt that air travel demand will continue to fall for a certain period of time,'' Luo Zhuping, director and board secretary of China Eastern, said by phone today."
All six Chinese airlines listed in Shanghai and Hong Kong have plunged more than 70 percent this year as travel demand slowed. China Eastern and Air China said this month they may post a loss in the first nine months.
"The Shanghai Composite Index, which tracks the bigger of China's stock exchanges, fell 1.9 percent to 1,839.62. The Shenzhen Composite Index dropped 1.7 percent to 505.82."
The following companies were among the most active in China's markets. Stock symbols are in brackets after companies' names.
"Henan Yuguang Gold & Lead Co. (600531 CH), the world's largest lead producer, retreated 0.17 yuan, or 2.5 percent, to 6.72. The company said third-quarter profit fell 69 percent from a year earlier to 17.5 million yuan ($2.56 million), because excess supply led to lower metal prices."
"Jiangxi Copper Co. (600362 CH), China's second-biggest producer of the metal, fell 0.30 yuan, or 2.9 percent, to 10.01, dropping for a fourth day on speculation it suffered losses in futures trading and as copper prices dropped."
To contact the reporters on this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net; Jiang Jianguo in Shanghai at jjiang@bloomberg.net
"Last Updated: October 24, 2008 04:15 EDT"
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ICBC Profit Growth Slows as Demand for Loans Eases (Update2)
By Luo Jun and Chia-Peck Wong
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"Oct. 24 (Bloomberg) -- Industrial & Commercial Bank of China Ltd., the world's biggest bank by market value, reported the smallest profit increase since going public two years ago as credit market turmoil and a slowing economy curbed loan demand."
"Net income rose 26 percent in the third quarter to 28.2 billion yuan ($4.1 billion), or 0.09 yuan a share, from 22.46 billion yuan, or 0.07 yuan, a year earlier, the Beijing-based bank said in a statement today."
"Chairman Jiang Jianqing, who more than doubled ICBC's profit in the past three years, is contending with the slowest economic growth since 2003 and market turmoil that led to almost $660 billion of writedowns and losses at global banks. Earnings grew at less than half the pace of the first six months, and ICBC's losses tied to the U.S. subprime market and Lehman Brothers Holdings Inc. swelled to $1.3 billion by Sept. 30."
"``All the evidence we've seen, such as a deterioration in asset quality, slower loan growth and contraction of net interest margins, points to a downturn in the banking industry,'' said Li Ming, who manages 9 billion yuan at Dacheng Fund Management Co. in Shenzhen. ``The best period is officially behind us.''"
"Chinese banks may report a 7 percent decline in profit in 2009 on tighter lending margins and an increase in non- performing loans as the slowing economy drives some businesses out, Citigroup Inc. said last week. Citigroup forecast the non- performing loan ratio of the nation's six largest publicly traded banks will rise 0.74 percentage point to 3 percent."
New Loans
"Banks offered 1 trillion yuan of new loans in the third quarter, 10 percent less than the amounted offered in the second quarter and about 25 percent less than that of the first quarter, according to the central bank. China's economic growth slowed for five straight quarters to 9 percent in the third quarter."
"ICBC increased lending by 8 percent in the first nine months to 4.29 trillion yuan from the end of last year. Non- performing loans accounted for 2.37 percent of total advances as of Sept. 31, down from 2.74 percent at the end of 2007. The bank set aside 8 billion yuan against potential loan losses in the third quarter."
China's government has eased restrictions on bank lending since July and cut interest rates twice in the past month to stimulate the economy as the worst financial crisis since the Great Depression undermines global growth. The rate cuts hurt profitability on loans.
`More Downside'
"``The operating environment for Chinese banks isn't optimistic,'' said Ivan Li, a Hong Kong-based analyst at Kim Eng Securities Ltd. ``Banks are a play on the economy; with economic growth slowing down, it's hard to be positive on banks. Profit growth will continue to slow, there may be more downside on ICBC's shares.''"
"China Construction Bank Corp., the nation's third-largest by market value, today said third-quarter profit increased 12 percent on higher interest income. Net income climbed to 25.6 billion yuan, or 0.11 yuan a share, the Beijing-based company said in a Hong Kong stock exchange statement."
"China this week trimmed costs, including mortgage rates, taxes and down-payments, for first-home buyers to stop a cooling property market from dragging down growth in the world's fourth- largest economy."
Shares of ICBC have dropped 54 percent in Shanghai and 44 percent in Hong Kong this year. The stock closed 7.4 percent lower in Hong Kong today. The benchmark CSI 300 Index is down 67 percent this year.
"ICBC's net interest income gained 13 percent to 64.78 billion yuan in the in the third quarter. Net fee and commission income from services such as credit cards, wealth management and insurance sales fell 4 percent to 10.1 billion yuan."
Most Profitable Bank
ICBC in August became the world's most profitable bank after earning a record 64.5 billion yuan in the first half as a focus on domestic lending shielded it from the global credit crunch that started with U.S. subprime-mortgage defaults.
"ICBC will be ``cautious'' in buying U.S. debt to avoid losses, and will consider cutting or keeping its subprime holdings depending on prices, Jiang, 55, said last month."
"The bank has $1.37 trillion of assets and held $1.87 billion of U.S. subprime-related securities, Alt-A residential mortgage-backed securities and structured investment vehicles at the end of September. The bank also held $152 million of bonds related to Lehman."
"Writeoffs on these investments totaled $1.3 billion as of Sept. 30, compared with $702 million at the end of the second quarter. ICBC also marked down the value of investments in debt issued by Fannie Mae and Freddie Mac, the two biggest U.S. home loan companies, by $76 million in the third quarter."
"After a government bailout three years ago, ICBC is now the world's biggest bank with a market value of $174 billion, $18 billion more than the closest rival HSBC Holdings Plc. It has 16,476 branches nationwide and 112 branches outside China, and 170 million personal customers -- equivalent to the populations of Russia and Canada combined."
To contact the reporters on this story:
Luo Jun in Shanghai at at
jluo6@bloomberg.net
"Last Updated: October 24, 2008 11:48 EDT"
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U.S. Economy: Home Resales Rose More Than Forecast (Update1)
By Bob Willis
"Oct. 24 (Bloomberg) -- Home resales in the U.S. rose more than forecast in September, aided by foreclosure-driven declines in prices that indicated the market was stabilizing before the latest slump in financial markets."
"Purchases of existing homes jumped 5.5 percent last month to a 5.18 million annual pace, the highest level in a year, the National Association of Realtors said today in Washington. The median price dropped 9 percent."
Economists said sales figures for this month and next will be critical in determining whether sales have reached a bottom as predicted by the Realtors' group. Federal Reserve Chairman Ben S. Bernanke earlier this month said even households with ``good credit'' were finding it tough to get mortgages.
"``This may be a temporary bump as we clear out these foreclosed properties,'' said Adam York, an economist at Wachovia Corp. in Charlotte, North Carolina. ``As the meltdown really hits these figures in late October and November, that's when we could see some retracement.''"
Stocks tumbled as concern grew that the credit crisis has infected the broader economy. The Standard & Poor's 500 index dropped down 3.5 percent to close at 876.8. Treasuries rose.
"Resales were forecast to rise to a 4.95 million annual rate from a 4.91 million pace in August, according to the median estimate of 66 economists in a Bloomberg News survey. Projections ranged from 4.7 million to 5.11 million."
One-Year Increase
"Sales rose 1.4 percent compared with a year earlier, the first year-over-year increase since November 2005. Resales totaled 5.65 million in 2007."
"Today's figures compare with the 4.86 million level reached in June, the lowest in a decade and 33 percent down from the record reached in September 2005."
"Foreclosure-related sales accounted for 35 percent to 40 percent of last month's total, the agents' group said. Of those, about 80 percent were for primary residence, higher than the average of about 75 percent and signaling that investors are not a primary reason for the jump, said Lawrence Yun, the group's chief economist."
"``In terms of sales, I think we have bottomed out,'' Yun said in a press conference. ``The first step to housing-market stabilization is rising home sales. Hopefully, this trend can continue.''"
Less Supply
"The number of previously owned unsold homes on the market at the end of September represented 9.9 months' worth at the current sales pace, the fewest since February and down from 10.6 months' at the end of the prior month."
"Inventories need to continue dropping in order to stabilize prices, and that will take more time, Yun also said. In the past, the Realtors' group has said a five to six month's supply represents a stable market."
"The median price of an existing home dropped from a year ago to $191,600, the lowest since April 2004. Falling home prices make it harder to refinance mortgages, pushing up foreclosures in the third quarter to the highest since record-keeping began in 2005, according to Realtytrac.com."
"Resales account for about 90 percent of the market, while purchases of new homes make up the rest. Sales of existing homes are compiled from contract closings and may reflect contracts signed one or two months earlier."
"Today's report showed resales of single-family homes climbed 6.2 percent to an annual rate of 4.62 million. Sales of condos and co-ops were unchanged at a 560,000 rate."
"Purchases increased in three of four regions, led by a 17 percent surge in the West as distressed sales jumped in California and Nevada. In the Northeast, sales fell 1.2 percent."
Less Equity
Declines in home equity have undermined consumer spending as owners have less cash to tap. A cascade of bank losses and failures has led to the most severe financial crisis in seven decades. Most economists are forecasting a recession in the U.S. and a global slowdown.
"As home sales shrank, builders scaled back construction projects by 64 percent through September from a peak in January 2006, the biggest decline since at least 1959. Work began last month on the fewest single-family homes in 26 years, the Commerce Department reported last week. The number of building permits issued also fell, a sign that declines in construction will continue to hurt the economy."
"``The housing downswing is really not exactly even nearing a bottom at this point,'' David Seiders, chief economist at the National Association of Homebuilders said Oct. 17 in an interview with Bloomberg Television. ``The core problem in the economy is still housing, and house prices are decimating the financial markets.''"
"Construction companies continue to struggle. Pulte Homes Inc., the third-largest U.S. builder, this week reported a net loss of $280.4 million for the third quarter, more than double what analysts had projected."
"``A bottom in the housing market may not come for some time,'' Chief Executive Officer Richard Dugas said on a conference call yesterday."
To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net
"Last Updated: October 24, 2008 16:57 EDT"
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Japan's Yields to Increase in Coming Months on Supply (Update1)
By Theresa Barraclough and Yasumasa Song
"Oct. 24 (Bloomberg) -- Japan's long-term bond yields are likely to rise in coming months on speculation the government will increase debt sales to finance an economic stimulus package, according to Principal Global Investors."
The government will compile a second economic stimulus package by the end of the month after having drafted a 2 trillion yen ($20.8 billion) plan in August. Finance Minister Shoichi Nakagawa said on Oct. 21 that selling bonds to pay for an additional package remains an option.
"``People are staying away from the long end,'' said Guthrie Williamson, portfolio manager in Sydney at PGI, which manages $244.9 billion in assets globally. ``I agree that the absorption will drive the market in the short term, but in the longer run the fundamentals of slowing growth will support bond prices.''"
"The yield on the benchmark 20-year bond fell 1 basis point this week to 2.135 percent as of 1:19 p.m. in Tokyo at Japan Bond Trading Co., the nation's largest interdealer debt broker."
"The difference in yields between five-and 20-year debt expanded to about 113 basis points today, compared to an average of 92 basis points last year, according to data compiled by Bloomberg News. A basis point is 0.01 percentage point."
Back Into Recession
"The government this week acknowledged Japan has probably entered its first recession in six years after the economy shrank in the second quarter and factory output, machine orders and household spending fell in August."
"``The more the government becomes aware that the economy is deteriorating, the more likely deficit-covering bonds will be issued,'' said Tatsuhiko Takeda, who helps manage bond investments at Tokyo-based T&D Asset Management Co."
"The government plans to compile the stimulus package to avert a ``serious recession,'' Economy Minister Kaoru Yosano said last week. Prime Minister Taro Aso said the government should avoid issuing deficit-covering bonds ``as much as possible'' to fund the spending."
"An economic slowdown may push 10-year bond yields to 1.2 percent by the end of March, according to Williamson. Ten-year yields dropped 12 basis points to 1.45 percent this week."
"Should his predictions prove accurate, investor will make a 2.7 percent return, according to Bloomberg calculations."
Benchmark 10-year yields have fallen from an 11-month high of 1.895 percent in June as a global credit crisis and slowing economy sent the Nikkei 225 Stock Average to a five-year low today.
To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net; Yasumasa Song in Tokyo at ysong9@bloomberg.net.
"Last Updated: October 24, 2008 00:51 EDT"
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"Brazil's Real Drops as Global Stocks Fall, U.S. Limits Futures "
By Drew Benson
"Oct. 24 (Bloomberg) -- Brazil's real dropped as global stock markets plunged and trading in U.S. futures was limited amid widespread flight from higher-yielding, emerging-market assets."
"The real slid 4.4 percent to 2.367 per dollar at 9:31 a.m. New York time, from 2.2608 yesterday."
"The central bank bought reais for dollars at a rate of 2.35 per dollar in a bid to shore up the currency during a 10-minute window that opened at 8:53 a.m. New York time. The bank also said it will offer 40,000 currency swaps today. With them, the bank sells the U.S. currency in the futures market, allowing investors to hedge against a weaker real."
"``Overall risk reduction amidst concerns about global recession and talk of position liquidations by troubled funds that may already have suffered losses this week on the emerging- markets tumble are contributing to the move'' worldwide to the U.S. dollar and the Japanese yen, said New York-based Marc Chandler and Meg Browne of Brown Brothers Harriman in a research note."
"The real's decline erased a rebound yesterday sparked by a central bank announcement that it will pump the equivalent of $50 billion into currency markets, its biggest move yet to bolster the currency."
The real has tumbled 31 percent from a nine-year high on Aug. 1.
To contact the reporter on this story: Drew Benson in Buenos Aires at Abenson9@bloomberg.net
"Last Updated: October 24, 2008 09:32 EDT"
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Argentine Bonds Drop as Global Rout Adds to Default Concern
By Drew Benson
Oct. 24 (Bloomberg) -- Argentine bonds fell as investors continued to dump the debt amid a global financial market meltdown and concern the country is trying to avert default by nationalizing private pension funds.
"The yield on Argentina's 8.28 percent dollar bonds due in 2033 surged 2.58 percentage points, to 31.84 percent at 10:12 a.m. in New York, according to JPMorgan Chase & Co."
"Argentina's peso weakened 0.69 percent to 3.266 per dollar, from 3.2435 yesterday."
To contact the reporter on this story: Drew Benson in Buenos Aires at abenson9@bloomberg.net
"Last Updated: October 24, 2008 10:14 EDT"
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"U.K. Stocks Drop, Led by HSBC, Barclays as Economy Contracts "
By Sarah Thompson
"Oct. 24 (Bloomberg) -- U.K. stocks dropped, led by financial and energy companies, as the government reported Britain's economy shrank more than forecast in the third quarter, dimming the outlook for earnings and bringing the country to the brink of a recession."
"HSBC Holdings Plc, Europe's biggest bank, declined the most since Sept. 11, 2001, after Morgan Stanley cut its share- price estimate for the company by 25 percent. Barclays Plc fell after it was lowered to ``neutral'' from ``buy'' at UBS AG, which said earnings and dividends at the U.K.'s second-biggest bank may be hurt as it raises capital. BG Group Plc led shares of oil companies lower."
"The FTSE 100 Index lost 204.47 or 5 percent, to 3,883.36, a 4.4 percent decline this week. The FTSE All-Share index fell 5 percent and Ireland's ISEQ index declined 2.2 percent."
"``Corporate earnings aren't looking good,'' said Andreas Nigg, a Zurich-based fund manager at Vontobel Asset Management, which oversees $39 billion. ``In previous recessions, analysts' estimates have usually been too optimistic. It looks like this is also the case now.''"
"Britain's economy shrank in the third quarter, the government said today, as the global financial crisis ravaged industries from banking to construction, evidence that Britain is in the grips of its first recession since 1991."
Earnings Estimates
"Analysts have cut profit forecasts this year as the credit turmoil spread, threatening economic growth. Earnings for companies in Europe's Dow Jones Stoxx 600 Index will decline 4.4 percent in 2008, down from 11 percent growth predicted at the start of the year, according to estimates compiled by Bloomberg."
"The pound tumbled below $1.53 in its biggest drop in at least 37 years after a report showed the U.K. economy contracted more than forecast in the third quarter, bringing the nation to the brink of a recession."
Trading in futures on the Standard & Poor's 500 Index and the Dow Jones Industrial Average was limited to prevent contracts from further declines after drops of more than 6 percent.
HSBC slid 14 percent to 696. Morgan Stanley also lowered its earnings estimates for HSBC by 3 percent to $1.11 a share for this year and 10 percent to $1.05 for 2009.
"``We question how long HSBC shares can continue to tread water in the face of falling earnings and increased pressure on capital,'' Morgan Stanley analysts led by Anil Agarwal wrote in a report today."
Barclays
Barclays fell 12 percent to 192.
"``A more difficult outlook for the U.K. economy has contributed to lower than previously expected top-line growth and higher impairment losses,'' London-based UBS analyst John- Paul Crutchley wrote in a note today. ``3.6 billion pounds of new equity prior to the end of March 2009 will lead to further dilution to earnings per share.''"
"Barclays is likely to cut its dividend next year as profit declines, Crutchley said, predicting a 2009 dividend of 12 pence and earnings of 24.36 pence a share, reduced from a previous estimate of 43.59 pence."
"HBOS Plc, the U.K. bank that agreed to be bought by Lloyds TSB Group Plc, slid 18 percent to 59.9 pence. Aviva Plc, the U.K.'s biggest insurer, declined 11 percent to 245 pence."
"BG slid 8.9 percent to 705. The third-largest U.K. oil and natural-gas producer is negotiating to buy Australian AGL Energy Ltd.'s stake in Queensland Gas Co. and may bid for the company, two people familiar with the plan said."
"BG approached Sydney-based AGL and has offered to acquire its 24.9 percent shareholding in Queensland Gas, BG's partner in an Australian A$8 billion ($5 billion) coal-seam gas project, the people said, declining to be identified because the talks are confidential. The stake's market value is A$726 million, based on today's closing share price. An announcement may come as early as Monday, the people said."
"BP Plc, Europe's second-largest oil company, decreased 5.4 percent to 440 pence. Royal Dutch Shell Plc, Europe's biggest oil company, decreased 5.1 percent to 1,472."
Crude oil tumbled to a 16-month low as OPEC's decision to slash production by 1.5 million barrels a day failed to ease concern that the global economic slump is curbing fuel demand.
The following stocks also gained or fell in the U.K. market. Stock symbols are in parentheses.
U.K. companies:
"Daniel Stewart Securities Plc (DAN LN) slumped 0.25 pence, or 11 percent, to 2.13. The U.K. financial adviser said ``very preliminary'' talks with Dowgate have ended."
"Henderson Group Plc (HGI LN) slumped 5.5 pence, or 9.4 percent, to 53 after the U.K. money manager had its recommendation cut to ``underweight'' from ``equal-weight'' at Morgan Stanley."
"Hochschild Mining Plc (HOC LN) slid 8 pence, or 7.1 percent, to 104.75. Peru's second-largest silver miner will reduce investment in its mines next year as silver prices decline, Gestion reported in its online edition."
"National Express Group Plc (NEX LN) lost 32.5 pence, or 5.3 percent, to 577.5. The U.K. long-distance coach operator said trading is heading for a strong year."
"Prudential Plc (PRU LN) decreased 43.5 pence, or 13 percent, to 286.5. The U.K.'s second-largest insurer is looking to buy parts of American International Group Inc. beyond the U.S. company's Asian operations, the Financial Times reported, citing an interview with Chief Executive Officer Mark Tucker."
To contact the reporter on this story: Sarah Thompson in London at sthompson17@bloomberg.net.
"Last Updated: October 24, 2008 12:32 EDT"
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VIX Surges to Intraday Record of 89.53 as Global Stocks Tumble
By Jeff Kearns
Oct. 24 (Bloomberg) -- The benchmark index for U.S. stock options soared to the highest intraday level in its 18-year history as stocks tumbled around the world on concern that the global economy is in recession.
"The VIX, as the Chicago Board Options Exchange Volatility Index is known, jumped 16 percent to 78.36 at 10:25 a.m. in New York after earlier rising as high as 89.53. The index measures the cost of using options as insurance against declines in the Standard & Poor's 500 Index, which slid 5.6 percent."
""This is worse than we've ever seen," said Diane Garnick, who helps oversee $500 billion as an investment strategist at Invesco Ltd. in New York. "It's not only telling us that people are scared, but also that people don't trust the market. My fear is people will leave the equity market and not rejoin it in the medium term.""
The VIX has averaged 26.74 this year compared with 17.54 last year. The volatility benchmark didn't close above 50 before Oct. 6 and hasn't closed below that level since then.
November VIX futures jumped 12 percent to 56.20. January futures added 10 percent to 42.
"Investors use options to guard against fluctuations in the price of securities they own, speculate on share-price changes, and bet that volatility, or stock swings, will increase or decrease."
"In Europe, the benchmark for European options rose to its highest in a week as stock markets plummeted after U.K. government figures showed the continent's second biggest economy is edging closer to recession."
"The VStoxx Index rose 27 percent to 81.89, the steepest advance since Oct. 16. The index measures the cost of using options as insurance against drops in the Dow Jones Euro Stoxx 50 Index, which retreated as much as 9.6 percent today."
"The VXO Volatility Index, a predecessor to the VIX that reflects the price of options on the S&P 100, climbed as much as 26 percent to 86.15, the highest on a closing basis since October 1987. It jumped to 103.41 on Oct. 10. The "old VIX" set an intraday record of 172.79 a day after the October 1987 stock-market crash."
To contact the reporter on this story: Jeff Kearns in New York at jkearns3@bloomberg.net.
"Last Updated: October 24, 2008 10:32 EDT"
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South Korea Stocks Plummet; Steepest Weekly Drop in 2 Decades
By Saeromi Shin
"Oct. 24 (Bloomberg) -- South Korea's stocks fell, dragging the Kospi Index to its worst week in at least two decades, as the slowest growth in four years stoked concern the economy is headed for a recession. The won fell."
"Samsung Electronics Co., Asia's largest maker of computer chips and the biggest constituent on the Kospi, plummeted 14 percent after quarterly profit fell the most in three years. Lotte Shopping Co. lost 13 percent on earnings that missed analyst estimates. STX Pan Ocean Co. fell 15 percent after freight tariffs fell. The economy grew 0.6 percent in the third quarter, the central bank said today."
"The Kospi tumbled 110.96, or 11 percent, to 938.75 in Seoul, its lowest close since May 2005. The measure has fallen 20.5 percent this week, the worst slump since 1987, when the exchange first started compiling weekly data in its current format. All 19 industry groups declined."
"``People are gripped with fear of a potential failure of the country's financial system,'' said Kim Young Chan, a fund manager at Shinhan BNP Paribas Investment Trust Management Co. in Seoul, which manages the equivalent of $700 million in equities. ``Samsung's earnings could slow down further as global demand slumps and chip prices could fall more.''"
The Korea Exchange temporarily halted program trading of Kospi shares for the 11th time this year after index futures plunged. Trading of Kosdaq shares was suspended for 30 minutes for the second day in a row after the index dropped. The Kospi has fallen 35 percent this month as concerns that companies will struggle to refinance debt prompted the government to announce measures to support banks and builders.
Weaker Growth
"From a year earlier, South Korea's $970 billion economy expanded 3.9 percent, the slowest pace since 2005, and down from 4.8 percent growth in the second quarter, today's central bank report showed. The risk of recession may force the government to cut interest rates and step up stimulus measures, said Kim Jae Eun, an economist at Hana Daetoo Securities Co."
"The Bank of Korea cut its benchmark interest rate to 5 percent on Oct. 9, the first reduction in four years. The board meets again on Nov. 7. South Korea this week pledged $130 billion, equivalent to 14 percent of gross domestic product, to support banks as the credit crunch saps access to foreign funds."
"The government will also spend as much as 8 trillion won ($5.6 billion) to revive the construction industry, including buying land and unsold homes. The central bank said yesterday it will make an extra 2.5 trillion won available for banks to lend at discount rates to small companies."
The plan may help South Korea avert a repeat of 1997 when it needed an emergency $57 billion bailout from the International Monetary Fund.
`Really Fragile'
"``The overall global economic condition is likely to be in bad shape,'' said Baik Jae Yer, a fund manager at Korea Investment Trust Management Co. in Seoul, which oversees the equivalent of $5.6 billion in equities. ``Earnings momentum could slow down in the next one or two quarters.''"
"Samsung Electronics tumbled 14 percent to 407,500 won, the most since March 1995, taking a four-day decline to 22 percent. Third-quarter net income slumped 44 percent as excess supply drove down prices for semiconductors and displays."
"Lotte, the largest South Korean department-store operator, tumbled 13 percent to 133,500, a record low. The shares fell 40 percent in the past eight days and trade at about a third of their 2006 initial public offering price. Third-quarter net profit fell 19 percent to 122.7 billion won, less than the median analyst forecast of 153 billion won in a Bloomberg survey."
"Investors are selling emerging-market assets as the credit crisis, stemming from home-loan defaults in the U.S., threatens to drag the global economy into recession. The currency slid 6.3 percent versus the dollar from a week ago, extending this year's drop to 35 percent, Asia's worst performer. Overseas investors sold a net 4 trillion won of Kospi shares in the past month."
"``Sentiment is really fragile,'' said Jo Hyun Suk, a currency dealer with Korea Exchange Bank in Seoul. ``The foreign exchange is being easily swayed by any bad news.''"
To contact the reporter on this story: Saeromi Shin in Seoul at sshin15@bloomberg.net.
"Last Updated: October 24, 2008 05:22 EDT"
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"China's Yuan May Weaken Against Dollar, Standard Chartered Says "
By Judy Chen
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"Oct. 24 (Bloomberg) -- The yuan may experience a ``modest'' decline against the dollar in the first half of 2009 while appreciating against a basket of currencies of China's trading partners, according to Standard Chartered Plc."
"Gains against other currencies including the euro and the British pound may help deflect criticism that that an undervalued yuan gives Chinese exporters an unfair advantage, David Mann and Callum Henderson, the U.K. bank's currency strategists in Hong Kong and Singapore, wrote in a report on Oct. 22. The central bank has managed the yuan against a basket of currencies since it scrapped a dollar peg in 2005."
"Appreciation against the basket will ``make it possible for the yuan to weaken slightly against the dollar while still being consistent with calls from the international community for trade- weighted'' gains, the analysts wrote."
"The yuan may weaken 1.9 percent to 6.91 per dollar in June 2009, after reaching 6.78 at the end of this year, Mann and Henderson forecast. The currency was little changed at 6.8354 at 5:30 p.m. in Shanghai, according to China Foreign Exchange Trade System."
"China's currency declined the past two months, after gaining every month since May 2006, which hasn't prompted any complaints from the country's trading partners. U.S. Treasury Secretary Henry Paulson said Oct. 22 he is ``pleased'' the yuan has risen more than 20 percent since July 2005."
Stalling Gains
"China stalled the yuan's advance against the dollar since the mid-July, while allowing gains of 25 percent against the euro and 23 percent versus the British pound in the same time."
"Asia's second-biggest economy is concerned a global recession will reduce demand for the goods it exports. The yuan rose 0.08 percent against the dollar last quarter, the smallest advance since the peg ended more than three years ago."
"``The worries over a global recession and the expected narrowing in the trade surplus'' will lead to ``some modest depreciation in yuan's spot rate against the dollar in the first half of 2009,'' Mann and Henderson wrote."
"The Westpac Nominal Effective Exchange Rate, a trade- weighted index for the yuan, has risen 2 percent this month after climbing 4.6 percent last quarter, the biggest quarterly gain since the end of the fixed exchange rate."
"Central bank Governor Zhou Xiaochuan said on Oct. 6 that China will focus on maintaining stability in the exchange rate. The country's gross domestic product grew 9 percent in the third quarter, the slowest pace in five years, down from 10.1 percent in the second quarter."
To contact the reporters on this story: Judy Chen in Shanghai at xchen45@bloomberg.net
"Last Updated: October 23, 2008 17:36 EDT"
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Canadian Dollar Heads for Worst Month Since 1950; Bonds Rally
By Chris Fournier
Oct. 24 (Bloomberg) -- Canada's currency is headed for its worst monthly fall since at least 1950 and the yield on the two- year bond touched the lowest in almost two decades on speculation the economic slump will deepen and oil will decline further.
"The loonie, as the currency is known because of the aquatic bird on the one-dollar coin, touched the lowest since September 2004. Crude accounted for 10 percent of Canada's export revenue in 2007."
"``We're right off the charts in terms of how big this decline is,'' said Doug Porter, deputy chief economist with BMO Capital Markets in Toronto. ``We continue to see tremendous volatility in all financial markets and that's most definitely affecting the currency markets as well.''"
"Canada's dollar declined as much as 2.9 percent to C$1.2842 per U.S. dollar, from C$1.2472 yesterday, the lowest since Sept. 23, 2004. It traded at C$1.2734 at 2:24 p.m. in Toronto. One Canadian dollar buys 78.53 U.S. cents. The currency is down 7.2 percent since Oct. 17, its fourth straight weekly decline, the longest losing streak in almost a year."
"The loonie has dropped 16 percent since Sept. 30, the most in a month since 1950, according to Bloomberg and Bank of Canada data. The Canadian dollar was fixed to the U.S. currency from the founding of the country's central bank in 1939 until after World War II, according to the bank's Web site. It was allowed to float from 1950 until 1962, and then again from June 1970."
`Incredible Weakness'
"``Overnight we've seen the Canadian dollar go from a little burst of strength to incredible and further weakness,'' Porter said. ``The two main drivers here are risk aversion by investors everywhere in the face of what look to be very weak equity markets. But also there seems to be a lack of liquidity in markets which is amplifying the moves we're seeing in all currencies.''"
"The loonie's second-largest monthly drop was 6.2 percent in November 1976, after Quebec, the country's second-most populous province, elected the separatist Parti Quebecois, ``prompting markets to make a major reassessment of the Canadian dollar's prospects,'' wrote James Powell, author of a book on the history of the currency."
"The drop this month is also larger than any annual decline since 1950. The currency fell 9.1 percent in 1992. This year, the loonie has depreciated by more than a fifth."
"Crude oil dropped as much as $5.19, or 7.7 percent, to $62.65 a barrel. Crude reached a record $147.27 on July 11. Since then, the loonie has lost 21 percent."
"Alberta's oil-sands, about 750 kilometers (466 miles) northeast of Calgary, are estimated by the provincial government to hold the largest oil reserves in the world outside Saudi Arabia."
`Risk Aversion'
"``Commodity prices are rumbling away in the background and that's definitely one of the factors weighing on the Canadian dollar,'' Porter said. ``That's tied in with the risk aversion story.'' Porter predicts the currency will strengthen to C$1.17 or C$1.18 in 12 months, although ``you have to be a very brave person to say when it's going to bottom.''"
"The MSCI World Index lost 5.6 percent to 859.44, extending this week's retreat to 9.6 percent."
"``There are so many things happening, between commodity prices and absolute market panic on the equity side,'' said Eric Lascelles, chief economics strategist at TD Securities Inc. in Toronto. ``There are some pretty big drivers out there right now, including rampant pessimism and flight-to-safety flows.''"
"Canada's dollar has outperformed the commodity-based currencies of South Africa, Australia, Brazil, Mexico, Norway and New Zealand this month. Against the loonie, the rand slumped 11.3 percent, the Aussie weakened 6.7 percent, the real depreciated 2.4 percent, the peso was down 3.5 percent, the krone fell 0.2 percent and the New Zealand dollar dropped 0.4 percent."
Commodity Price Index
"The Bank of Canada Commodity Price Index, which comprises 23 raw materials produced in Canada such as crude, natural gas and aluminum, fell for a fourth week."
"``Canada continues to be buffeted by global financial-market dislocations, hampering recovery prospects,'' Citigroup Global Markets Inc.'s Dana Peterson wrote in a note. ``Canadian financial conditions have soured, exports are impaired by flagging U.S. domestic demand, and commodity price declines and volatility are diminishing terms of trade.''"
Bank of Canada
"The Bank of Canada may cut its target rate to 1 percent before the spring of 2009 because of ``dim growth prospects and a benign inflation outlook,'' the New York-based economist wrote. Citigroup predicts the Canadian dollar will strengthen to C$1.23 within three months."
"Teck Cominco Ltd., the Vancouver miner that generated half its third-quarter operating profit from coal and about a third from copper, said on Oct. 22 that its earnings stand to increase by C$50 million ($39.3 million) for every 1 percent the loonie weakens against the U.S. dollar. Sales of the company's products are priced in U.S. dollars and become worth more when converted to Canadian dollars."
"Economic growth will slow to 0.6 percent this year, the least since 1991, the Bank of Canada said yesterday. The bank cut borrowing costs by 25 basis points to 2.25 percent on Oct. 21, after lowering rates by 50 basis points on Oct. 8 in conjunction with other central banks around the world."
"``Can the U.S. dollar still go higher against the Canadian dollar? Why not?'' CIBC World Markets' Adam Fazio in New York and Shane Enright in Toronto wrote in a note to clients. Citing ``panic-induced markets,'' the strategists said the loonie could weaken to C$1.30 this month."
"The yield on the Government of Canada two-year note fell below 2 percent for the first time since at least 1989, when Bloomberg records begin."
"The yield on the two-year note fell 3 basis points, or 0.03 percentage point, to 2.09 percent. Earlier it touched 1.991 percent. The price of the 2.75 percent security due in December 2010 rose 5 cents to C$101.35."
The 10-year note's yield fell 2 basis points to 3.60 percent. The price of the 4.25 percent security maturing in June 2018 added 14 cents to C$105.22.
To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net
"Last Updated: October 24, 2008 14:28 EDT"
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Jiangxi Copper Slumps on Futures Loss Speculation (Update1)
By Xiao Yu
"Oct. 24 (Bloomberg) -- Jiangxi Copper Co., China's second- biggest smelter of the metal, slumped to its lowest in more than three years in Hong Kong trading on speculation it suffered losses in futures trading and as copper prices dropped."
"Jiangxi Copper fell 11 percent to close at HK$3.40, bringing this year's loss to 82 percent. The benchmark Hang Seng Index declined 8.3 percent today."
"``Slumping copper prices and speculation the company would make bigger losses in futures trading this quarter drove down stock prices,'' said Sabrina Xie, a Shenzhen-based analyst with Guotai Junan Securities Co., who recommended investors to sell the stock."
"Copper tumbled below $4,000 a ton for the first time since November 2005 yesterday on concern a global economic slump will curb commodities demand. The 172 million yuan investment loss Jiangxi Copper posted in the third quarter came mainly from futures trading, Xie said."
"Jiangxi Copper said Oct. 21 that third-quarter profit plunged 27 percent because of lower metal prices. Its futures trading unit, Jinrui Futures Co., on Oct. 21 denied newspapers reports that it lost 1 billion yuan from trading."
"Jinrui is the biggest holder of copper buy positions on the Shanghai Futures Exchange, and is among the top holders of sell positions for some copper contracts, exchange data shows."
"Jiangxi Copper last night said the global financial turmoil has hurt sales and raw material purchases. The company, which has sufficient cash, may miss production targets and is closely monitoring its trading positions, it said."
"Secretary Pan Qifang couldn't be reached for immediate comments. The company is based in Guixi, Jiangxi province."
The Shanghai Futures Exchange suspended trading in most copper contracts today after they plunged the daily limit for three straight days. This is the second time this month futures trading has been suspended.
To contact the reporter on this story: Xiao Yu in Beijing at yxiao@bloomberg.net
"Last Updated: October 24, 2008 05:11 EDT"
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Italian Business Confidence Falls to 15-Year Low (Update1)
By Lorenzo Totaro
Oct. 24 (Bloomberg) -- Italian business confidence fell to the lowest in 15 years in October and consumer optimism dipped on prospects that the global financial crisis has pushed Europe's fourth-biggest economy into a recession.
"The Isae Institute's business confidence index dropped to 77.7 from a revised 81.8 in September, the Rome-based research center said today. That was less than the median forecast of 81.7 in a survey of 17 economists by Bloomberg News. Consumer confidence slipped to 102.2 from 102.8, Isae said."
"The credit crunch is making it difficult for companies to borrow and invest, and the falling stock market, combined with higher mortgage rates, is weighing on consumer spending. The Italian economy contracted in the second quarter and Bank of Italy Governor Mario Draghi indicated on Oct. 21 that Italy is already in the fourth recession in a decade."
"``Manufacturers' confidence has fallen to a level consistent with clearly shrinking factory output, and negative growth,'' said Marco Valli, an economist at UniCredit SpA in Milan. ``The positive effect on production of lower oil prices and the weaker currency is unlikely to show up anytime soon.''"
U.K. Contracts
"Oil prices have tumbled 54 percent from the record $147.27 on July 11 and dropped about 23 percent from a year ago on the prospect that a global economic recession will crimp demand. On the currency market, the euro is trading near a two-year low against the dollar, making European exports cheaper abroad."
"Still, the slumping global economy is offsetting the effects of the cheaper oil and exports on confidence. The U.K. economy shrank 0.5 percent in the third quarter, the first contraction in 16 years, a report said today. Unemployment in Spain rose to the highest in more than four years and tops the EU at 11.3 percent, another report showed today."
Prospects for a global recession slammed financial markets today with Italy's benchmark S&P/MIB falling as much as 9 percent to its lowest in almost 11 years.
"ISAE also presented evidence about how the freeze in credit markets is affecting the real economy. The number of Italian companies failing to get a loan, either because banks refused to lend or because the costs involved were considered excessive, rose in the third quarter to 8 percent from 6.9 percent in the previous three months, Isae said today."
Car Sales
"Manufacturers are also being hit by slumping demand. Italian new auto registrations declined for a ninth straight month in September, cutting Fiat SpA's car sales by 6 percent in its biggest market."
"As Italy's largest manufacturer, Fiat is a bellwether for the state of the country's economy. The carmaker now forecasts earnings may plunge as much as 85 percent next year in a ``worst-case'' scenario if the financial crisis continues to sap credit and depress auto demand. It is ``difficult to peg a particular point as being a reliable guidance for the performance of Fiat in 2009,'' Fiat said in a release on Oct. 23."
"Eaton Corp., the Cleveland-based maker of power- distribution equipment and car-engine parts, said on Oct. 20 it will close an engine-valve factory in Massa, Italy, putting 355 people out of work by year-end, as demand declines in the automotive industry."
"Isae conducted its survey of 4,000 companies between Oct. 1 and Oct. 20."
To contact the reporter on this story: Lorenzo Totaro at ltotaro@bloomberg.net
"Last Updated: October 24, 2008 06:51 EDT"
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Money-Market Rates in London Fall as Central Banks Inject Cash
By Gavin Finch
Oct. 16 (Bloomberg) -- Money-market rates in London fell after central banks provided $254 billion of emergency cash to ease the paralysis in the credit markets and UBS AG got a $59 billion government bailout.
"The London interbank offered rate, or Libor, that banks charge each other for three-month loans in dollars declined for a fourth day, sliding 5 basis points, or 0.05 percentage point, to 4.50 percent today, the British Bankers' Association said. The overnight rate fell 20 basis points to 1.94 percent, the lowest level since November 2004 though still 44 basis points above the Federal Reserve's target. Asian rates also dropped."
"``Lending rates between banks are generally coming down, albeit slowly,'' said Su-Lin Ong, a senior economist at RBC Capital Markets Ltd. in Sydney. ``The system's been through incredible stress in the last month, so it's not going to snap in overnight.''"
"While the declines signal the $3 trillion earmarked by governments to tackle a collapse in trust between banks may be working, investors remain skeptical that the measures will stave off a global recession. Stocks in Asia and Europe slid today, the yen traded near its strongest level in three years and corporate short-term borrowing slumped for a fifth week."
Central banks are intensifying efforts to jolt credit markets back to life. The Bank of England said today it will delay the disclosure of emergency borrowing and reduce the penalty charged on overnight loans to eliminate the stigma of central bank assistance. The European Central Bank yesterday said it will also accept lower-rated securities as collateral when lending to banks and offer them as many euros as they want over the next six months.
`Throwing Everything'
"``Central banks are throwing everything they can at the credit markets to get them working again,'' said Win Thin, an economist at Brown Brothers Harriman & Co."
"UBS, Switzerland's biggest bank, will get a 6 billion Swiss franc ($5.2 billion) capital injection from the government to help it set up a fund for as much as $60 billion of toxic assets that will be supported by the central bank. The transaction will leave UBS with ``essentially zero'' risk related to U.S. subprime- mortgage-backed securities, Chief Executive Officer Marcel Rohner said."
"While Libor is used to determine rates on $360 trillion of financial products worldwide, from mortgages to company loans, the process by which it's produced has become little more than guesswork since credit markets froze, three people with knowledge of how interbank rates are set said this month."
`No Cash Transactions'
"Financial institutions lodged a record 210.8 billion euros ($282 billion) in the ECB's deposit facility yesterday, the central bank said today, as lenders sought a haven for their cash. They deposited 196.1 billion euros on Oct. 14. Banks also borrowed 12.7 billion euros from the ECB at the emergency overnight marginal rate of 4.25 percent compared with 19.6 billion euros a day earlier."
"``Libor rates have come down post rescue package announcements, but more importantly and worryingly there do not appear to be any significant cash transactions returning to the market yet,'' said Jacques Cailloux, chief euro-area economist at Royal Bank of Scotland Group Plc in London."
"The ECB yesterday lent banks $170.9 billion for seven days at a fixed rate of 2.28 percent, 180 basis points less than the comparable Libor the day before. The Bank of England allotted $76.3 billion and the Swiss central bank loaned $7.1 billion at the same rate, also for a week."
Libor-OIS Spread
"The Libor-OIS spread, a gauge of cash scarcity that measures the difference between the three-month dollar rate and the overnight indexed swap rate, narrowed 3 basis points to 339 basis points today. It was about 24 basis points in January and 11 basis points in the 10 years prior to August 2007, before the start of the credit squeeze."
"In June, former Fed Chairman Alan Greenspan said the spread should serve as a measure for telling when markets have returned to normal."
"Overnight indexed swaps are over-the-counter traded derivatives in which one party agrees to pay a fixed rate in exchange for the average of a floating central-bank rate during the life of the swap. For dollar swaps, the floating rate is the daily effective federal funds rate."
"The U.S. commercial paper market contracted $40.3 billion to a seasonally adjusted $1.51 trillion for the week ended Oct. 15, the Fed said today in Washington. A drop in financial commercial paper outstanding led the decline, falling $36.1 billion to $604.9 billion, the lowest since May 2005."
"Commercial paper, which typically matures in 270 days or less, is used by companies to finance payroll, rent and other daily expenses."
"Asia, Australia"
Asian rates fell after the Reserve Bank of Australia and Bank of Japan pumped $4.8 billion into markets.
"The interest Australian banks charge each other for three- month loans fell to 5.695 percent, compared with 7.49 percent on Sept. 19, four days after Lehman Brothers Holdings Inc. collapsed. Japan's overnight call loan rate traded at 0.46 percent, from 0.53 percent before the cash injection, according to brokerage Tokyo Tanshi Co."
"The BOJ operations are ``necessary but not sufficient,'' said Guthrie Williamson, portfolio manager in Sydney at Principal Global Investors, which manages $244.9 billion in assets globally. ``It helps to keep the day-to-day money markets moving, but it doesn't change the fundamentals of slowing economic growth and balance sheet de-leveraging.''"
"Singapore's three-month interbank offered rate for U.S. dollars declined 3 basis points to 4.54 percent. Hong Kong's three-month interbank lending rate, or Hibor, rose 1 basis point to 4.35 percent, after declining the previous two days."
To contact the reporters on this story: Gavin Finch in London at gfinch@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
"Last Updated: October 16, 2008 12:57 EDT"
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Latin America Currencies: Chilean Peso Plunges for Fourth Day
By Andrea Jaramillo
"Oct. 24 (Bloomberg) -- Chile's peso plunged for a fourth day, sending it toward its biggest monthly decline in at least two decades as copper, the country's biggest export, sank amid mounting concern the global economy will fall into recession."
"The peso dropped 2.5 percent to 665.45 per U.S. dollar at 9:30 a.m. New York time, from 648.68 yesterday. It touched a five-year low of 668.07 earlier today and has dropped 17 percent this month."
"Colombia's peso declined 1.4 percent to 2,397 per dollar, from 2,365 yesterday, according to the Colombian foreign-exchange electronic transactions system, known as SET-FX."
"``Latin America is getting hit hard,'' said Francisco Diez, director of emerging-market trading at RBC Capital Markets in New York."
"The yield on Colombia's benchmark 11 percent bonds due in July 2020 rose 58 basis points, or 0.58 percentage point, to 13.85 percent. The bond's price slid 2.952 centavos to 83.768 centavos per peso. It earlier touched 83.288, its lowest level since the securities were issued in July 2005."
To contact the reporter on this story: Andrea Jaramillo in Bogota at ajaramillo1@bloomberg.net
"Last Updated: October 24, 2008 10:20 EDT"
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Brazil Stocks Fall to Lowest in 3 Years on Outlook; Bolsa Drops
By Alexander Ragir
"Oct. 24 (Bloomberg) -- Brazilian stocks fell to the lowest level in three years as slowing global growth, slumping commodity prices and the weakening real darkened the outlook for earnings."
"Lojas Americanas SA tumbled 11 percent after Itau Corretora said the biggest discount retailer is likely to report a loss on higher financing costs. Uniao de Bancos Brasileiros SA plunged 17 percent, leading a decline in financial companies. Petroleo Brasileiro SA, the state-controlled oil company, dropped to the lowest level since March 2007 as oil slid as much as 7 percent."
"``This is a very bad crisis and there's a lot of forced selling by people that borrowed money to invest and have to sell because they are getting redemptions,'' said Edward Hocknell, who helps manage about $15 billion at Baillie Gifford Overseas Ltd. in Edinburgh. ``Markets have momentum in both directions. The fear and deleveraging may have more to come.''"
"The Bovespa index dropped 7.2 percent to 31,378.82 at 11:09 a.m. New York time, the lowest level since November 2005. It plunged as much as 8.7 percent earlier. Mexico's Bolsa slid 5.1 percent. The MSCI Emerging Markets Index tumbled 7.7 percent."
"Stocks tumbled around the world, sending the global benchmark index to the lowest level since June 2003. The Standard & Poor's 500 slid 4.1 percent, the FTSE 100 Index sank 6.9 percent and South Korea's Kospi Index fell 10 percent. The market rout in Asia started after Samsung Electronics Co.'s profit fell, Sony Corp. slashed its earnings forecast and Toyota Motor Corp. sales dropped for the first time in seven years."
"Financial stocks fell the most in the MSCI Brazil Index, sliding 10 percent. Unibanco led declines for banks, plunging 1.96 reais to 9.54 reais. The bank said its profit increased 5.6 percent in the third quarter from the year earlier period. Unibanco reported earnings ahead of the scheduled date after a two-day slide of more than 20 percent."
`Getting Out'
"``People are getting out of financial stocks in general and Unibanco is the weakest link'' of the Brazilian banks with the highest trading volumes, said Felipe Taylor, a Rio de Janeiro- based equity portfolio manager at Ciano Investimentos Gestao, the $142 million hedge fund run by former central bank chief economist Ilan Goldfajn. ``The smaller banks have already been taken out so now they're selling Unibanco.''"
"Banco do Brasil, Latin America's biggest bank, slid 8.6 percent to 11.96 reais."
"The real slid 4.1 percent against the dollar today. The yen climbed against the dollar as the risk of a global recession prompted investors to slash carry trades, in which they fund purchases of higher-yielding assets with the Japanese currency."
"Lojas Americanas dropped 60 reais to 4.65 reais. The retailer may report a 3 million real loss, compared with profit of 8 million reais, Itau analysts said yesterday. Rival Lojas Renner slid 9.8 percent to 16.06 reais."
Commodity Slump
Petrobras fell 9.5 percent to 20.55 reais as crude oil plunged on concern the global economic slump is curbing fuel demand.
Vale fell 4 percent to 22.37 reais. Copper and lead were poised for their biggest weekly declines since the 1980s while aluminum dropped the most in two years as consumer demand for cars and houses crumbles amid the widening world economic slowdown.
"Mexico's Bolsa fell for a fourth day on concern about earnings and the weaker currency. The peso traded near a record low on concern the global economic slowdown will deepen, sapping demand for developing-nation exports."
"Grupo Bimbo SAB slid as much as 9 percent to 9.80 pesos, the lowest intraday price since December 2006. Mexico's largest baker reported third-quarter profit that trailed the average analyst estimate by 8.4 percent, Bloomberg data showed."
Grupo Financiero Banorte SAB fell 1.7 percent to 20.97 pesos after Mexico's biggest publicly traded bank posted third-quarter operating profit that trailed by 30 percent the average estimate by two analysts surveyed by Bloomberg.
"Elsewhere in Latin America, Chile's Ipsa fell 1.8 percent, Peru's Lima General slipped 0.8 percent and Colombia's IGBC dropped 5.7 percent."
To contact the reporter on this story: Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net.
"Last Updated: October 24, 2008 11:27 EDT"
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"Overnight Dollar Libor Increases to 1.28 Percent, BBA Says "
By Gavin Finch
"Oct. 24 (Bloomberg) -- The London interbank offered rate, or Libor, for overnight dollars climbed 7 basis points to 1.28 percent, the British Bankers' Association said."
"The three-month rate dropped 2 basis points to 3.52 percent, the BBA said today."
"The Libor-OIS spread, a gauge of cash availability that measures the difference between the three-month rate and the overnight indexed swap rate, widened 8 basis points to 262 basis points."
To contact the reporter on this story: Gavin Finch in London at gfinch@bloomberg.net
"Last Updated: October 24, 2008 06:57 EDT"
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"Italian Stocks: Monte dei Paschi, Intesa, Eni, Fiat, UniCredit "
By Francesca Cinelli
"Oct. 24 (Bloomberg) -- Italy's S&P/MIB Index extended losses, dropping 1,671, or 7.9 percent, to 19,390, as trading in futures on the Standard & Poor's 500 Index and the Dow Jones Industrial Average was limited to stop contracts from dropping, following declines of more than 6 percent."
"``Panic selling was spurred also by the U.K. GDP shrinking,'' Antonio Cesarano, head of economic research at MPS Capital Services in Siena, Italy, told Bloomberg Television. ``In the meantime, with the slash in forecasts seen above all in the automotive industry, it's clearer and clearer the financial crisis is strongly hurting the real economy.''"
The following were among the most active stocks on the Italian market today. Share symbols are in parentheses.
"Banca Monte dei Paschi di Siena SpA (BMPS IM), Italy's third-biggest bank, dropped to a record, losing 13.7 cents, or 10 percent, to 1.28 euros. Banking stocks were the worst performers among the 18 industry groups in Europe's Dow Jones Stoxx 600 Index."
"Enel SpA (ENEL IM) fell 27.8 cents, or 5.2 percent, to 5.02 euros. UBS AG cut its price estimate on Italy's biggest utility to 5.9 euros from 7.5 euros."
"``Given the 15 billion-euro ($19 billion) refinancing in 2010, a looming 11 billion-euro put option and a tight credit market, management might soon have to decide on how to rethink capital structure,'' analyst Alberto Gandolfi wrote in a note."
"Eni SpA (ENI IM), Italy's largest oil company, declined 1.45 euros, or 9 percent, to 14.9 euros. Societe Generale cut its price estimate on the stock to 17.1 euros from 19.2 euros."
"Fiat SpA (F IM) fell to the lowest in more than three years, losing 48.3 cents, or 7.6 percent, to 5.9 euros. UniCredit cut its recommendation on Italy's largest manufacturer to ``hold'' from ``buy,'' while Commerzbank cut its price estimate on the stock to 5.5 euros from 6.5 euros, leaving a ``sell'' rating unchanged."
"``Losses and cash burn have happened more quickly than expected,'' Bernstein analysts including Max Warburton wrote. ``Cash burn was severe in the third quarter, particularly at Fiat, and break-even or losses look likely for all European auto businesses in the fourth quarter.''"
"Separately, Renault SA sank in Paris trading after France's second-largest carmaker cut its full-year profit and sales targets."
"Intesa Sanpaolo SpA (ISP IM) was suspended for excessive losses, after tumbling 34.05 cents, or 12 percent, to 2.61 euros. The lender will probably cut its dividend to strengthen finances and help it reach targets, MF reported. A company official wasn't immediately available to comment when contacted by Bloomberg."
"Keefe, Bruyette & Woods Ltd. downgraded Intesa to ``market perform'' from ``outperform.'' The brokerage, which lowered price estimates on a range of Italian banks, upgraded Unione di Banche Italiane SCPA (UBI IM) to ``outperform'' from ``market perform.'' UBI declined 54.2 cents, or 4.6 percent, to 11.35 euros."
"Intesa also had its price estimate cut at Cheuvreux, which lowered its price projection to 3.8 euros from 4.3 euros."
"Maire Tecnimont SpA (MT IM), an Italian energy-services company, fell to a record, losing 22 cents, or 14 percent, to 1.36 euros after Dow Chemical Co., the largest U.S. chemicals maker, recorded weak third-quarter sales in its plastic-materials division."
"Piaggio & C. SpA (PIA IM) fell 10 cents, or 6.7 percent, to 1.4 euros. Citigroup Inc. downgraded Europe's largest motor-scooter maker to ``sell' from ``hold.''"
"Prysmian SpA (PRY IM), an Italian energy-cable maker, dropped to a record, declining 29.2 cents, or 3.2 percent, to 8.96 euros. ``While we're aware cable market conditions could deteriorate, we see no reason to panic,'' Citigroup analyst Luca Todesco wrote in a note, citing ABB Ltd.'s comments on third-quarter results as a driver for Prysmian's decline."
"Saipem SpA (SPM IM), Europe's largest oil-field-services contractor by market value, plummeted 1 euro, or 8 percent, to 11.53 euros. Merrill Lynch lowered its price estimate on the stock to 20 euros from 28 euros. Oil stocks dropped in Europe as crude is headed for its fourth weekly retreat."
"Tenaris SA (TEN IM), the world's biggest maker of seamless steel tubes for pipelines, declined 73.4 cents, or 10 percent, to 6.95 euros. ``The recent correction of energy prices and increased competition from foreign producers will make the U.S. market very challenging for the next two years,'' Euromobiliare Sim analysts wrote in a note."
"Saras SpA (SRS IM), the owner of the Mediterranean region's biggest refinery, dropped 12.25 cents, or 4.8 percent, to 2.43 euros. UBS AG added the stock to its Least Preferred list."
"STMicroelectronics NV (STM IM) slid to the lowest in more than 10 years, losing 38.2 cents, or 6.1 percent, to 5.87 euros. Technology stocks fell in Europe after Sony Corp., the world's second-largest maker of consumer electronics, slashed its earnings forecast, and Samsung Electronics Co., Asia's biggest maker of chips, flat screens and mobile phones, posted its biggest quarterly profit drop in more than three years."
"Telecom Italia SpA (TIT IM) declined 5.35 cents, or 5.9 percent, to 84.7 cents. The company may exercise its option to buy 48 percent of the holding company that controls Telecom Argentina SA in less than two months, Il Sole 24 Ore reported."
"UniCredit SpA (UCG IM) fell to the lowest in more than 11 years, losing 15.35 cents, or 7.6 percent, to 1.87 euros. The Italian government may buy a 10 percent stake in UniCredit, MF reported."
"The government and the Bank of Italy are monitoring the situation at the country's largest lender after its share price continued to slide, the newspaper said."
"``At this stage in our view the Bank of Italy needs to set up a threshold of Core tier 1 for Italian banks,'' Deutsche Banks AG analysts wrote in a note. ``Without this, there is no visibility.''"
To contact the reporter on this story: Francesca Cinelli in Milan at fcinelli@bloomberg.net
"Last Updated: October 24, 2008 07:38 EDT"
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"European Bonds Rise as Regional Services, Manufacturing Shrink "
By Andrew MacAskill
Oct. 24 (Bloomberg) -- European government bonds rose as stocks tumbled and an industry survey showed the region's manufacturing and service industries shrank for a fifth month in October as the economy slides toward a recession.
"Two-year notes advanced for a fifth week, pushing yields to the lowest level in almost three years, as the MSCI World Index of equities headed for an 8 percent loss. Royal Bank of Scotland Group Plc's composite gauge for Europe's manufacturing and services fell to the weakest since the survey began in 1998, Reuters reported today. Italian business confidence slipped to the weakest in 15 years, a separate report showed."
"``This is a truly ugly scenario and once again on a Friday we are just one step away from the cliff,'' said Kornelius Purps, a fixed-income strategist in Munich at Unicredit Markets and Investment Banking, a unit of Italy's largest lender. ``This will keep the entire government bond universe well supported.''"
"The yield on the two-year note slipped 11 basis points to 2.67 percent by 5 p.m. in London, extending its drop in the week to 27 basis points. The 4 percent note due September 2010 rose 0.19, or 1.9 euros per 1,000-euro ($1,259) face amount, to 102.38."
"The yield on the 10-year German bund, Europe's benchmark government security, fell 25 basis point in the past five days, the steepest decline since Aug. 1, to 3.76 percent. Yields move inversely to bond prices."
Equities slumped around the world on concern a global recession will erode corporate earnings. Europe's Dow Jones Stoxx 600 Index slid 6 percent and the Dow Jones Industrial Average lost 3.4 percent.
"The euro headed for a 5 percent weekly decline against the dollar, and traded at the weakest in six years versus the yen."
Shrinking Economies
"Royal Bank of Scotland said its composite index for Europe's manufacturing and services fell to 44.6, from 46.9 in September. The Isae Institute's index of business sentiment in Italy, the euro region's third-largest economy, fell to 77.7 this month from 81.8 in September, the Rome-based research center said."
"European government bonds extended gains after a report showed the U.K. economy contracted more than forecast in the third quarter. Gross domestic product shrank 0.5 from the second quarter, the Office for National Statistics in London said."
"``This hasn't helped sentiment and was more confirmation that in Europe we are moving to an economic slowdown,'' said Wilson Chin, a fixed-income strategist at ING Bank NV in Amsterdam."
"The cost of borrowing in dollars overnight in London increased as the likelihood of a global recession spurred banks to hoard cash. The London interbank offered rate, or Libor, that banks charge for such loans climbed 7 basis points to 1.28 percent today, the British Bankers' Association said."
`Safe-Haven Flows'
"Two-year yields, which are most sensitive to the outlook for interest rates, have slipped more than a percentage point this month as widening credit- and stock-market losses encouraged investors to buy shorter-dated debt, seen as the safest assets."
"``This is a combination of safe-haven flows and people looking for the European Central Bank to cut rates aggressively,'' said Charles Diebel, head of European interest- rate strategy in London at Nomura International Plc. The two-year note is ``pretty rich at these levels and people are looking for too much monetary easing too soon.''"
"ECB council member Ewald Nowotny said the bank has room to lower borrowing costs, Reuters reported today, citing an interview with CNBC. Policy makers held back with lowering rates last year ``and now we have ammunition we can use,'' Nowotny told CNBC television in an interview to be broadcast today, according to Reuters. The ECB cut its main refinancing rate by half a percentage point to 3.75 percent on Oct. 8 in concert with other central banks around the world."
Yield Spread
"The difference in yield, or spread, between two- and 10-year notes widened to 108 basis points today, from 40 basis points a month ago. A steepening of the so-called yield curve suggests investors are increasing bets on lower rates."
"Investors should continue buying shorter-dated European bonds because the yield curve may steepen further, according to a team of analysts from ING."
"``On the curve we maintain a preference for steepeners, and especially on the two/10-year segment,'' strategists including Padhraic Garvey, head of investment-grade debt strategy in Amsterdam at ING, wrote in a client note today."
"European bonds outperformed U.S. Treasuries this month, handing investors a 2.2 percent return, compared with 1.6 percent for their U.S. counterparts, according to Merrill Lynch & Co.'s EMU Direct and Treasury Master indexes."
To contact the reporter on this story: Andrew MacAskill in London at amacaskill@bloomberg.net
"Last Updated: October 24, 2008 12:16 EDT"
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U.S. 30-Year Yield Drops to Lowest Since Regular Sales Began
By Sandra Hernandez and Bo Nielsen
"Oct. 24 (Bloomberg) -- Treasuries rose, sending the yield on the 30-year bond to the lowest since regular issuance of the securities began in 1977, as widening financial turmoil wiped more than $10 trillion off stock markets worldwide this month."
"U.S. notes rallied on speculation the global slowdown will deepen. The U.K. economy shrank more than forecast, a report showed today. Trading in U.S. stock-index futures was limited after declines of more than 6 percent. U.S. government securities returned 1.6 percent in October, the most since January, according to Merrill Lynch & Co.'s U.S. Treasury Master index, as tumbling stocks spurred demand for the safest assets."
"``We're getting very close to the emotional blow-off where everybody says, `I don't care; I want out,''' said E. Craig Coats Jr., who co-heads fixed income at Keefe, Bruyette & Woods Inc. in New York. ``Everybody seems to be saying `I want to be in cash or Treasuries.'''"
"The yield on the 4 1/2 percent bond due in May 2038 decreased 10 basis points, or 0.10 percentage point, to 3.95 percent at 9:44 a.m. in New York, according to BGCantor Market Data, after dropping as low as 3.8676 percent. The price advanced 1 24/32, or $17.50 per $1,000 face value, to 109 17/32."
"Ten-year note yields declined 12 basis points to 3.57 percent, and have fallen 37 basis points this week, the most since 1995, on speculation government and central bank efforts to revive lending won't avert a global slowdown."
"``Bonds are the instrument, par excellence, to profit from the crisis,'' Societe Generale SA said in a report."
`Fires Are Spreading'
U.S. stocks dropped. The MSCI Asia Pacific Index of regional shares fell as much as 6.2 percent to its lowest level since 2003. Trading in futures on the Standard & Poor's 500 Index and the Dow Jones Industrial Average was limited after declines in contracts of more than 6 percent triggered a so- called limit down restriction.
"``The fires are spreading around the globe,'' Peter Mueller, a fixed-income strategist in Frankfurt at Commerzbank AG, Germany's second-largest bank by assets, wrote in a note today. ``The flight to quality should therefore continue to give massive support to bunds and U.S. Treasuries as this week draws to a close.''"
"The difference between yields on two- and 10-year notes widened for the first time in more than a week as the shorter maturities, which are more sensitive to monetary policy, outperformed. The yield spread widened 9 basis points to 2.16 percentage points. It's still narrower than this year's high of 2.39 percentage points on Oct. 15."
Traders can profit from a widening yield spread by buying two-year notes and selling 10-year notes.
"Yen, Pound"
"Two-year note yields dropped 18 basis points to 1.41 percent. They touched 1.35 percent, the lowest in more than two weeks."
"This year's credit-market meltdown prompted Federal Reserve officials to make an emergency reduction in borrowing costs on Oct. 8, and they will cut again when they meet on Oct. 29, futures contracts indicate."
"Futures on the Chicago Board of Trade show a 100 percent chance policy makers will lower their target for overnight bank lending, now 1.5 percent, by at least a half-percentage point, compared with 38 percent odds a week ago."
"The yen climbed to a 13-year high against the dollar as the risk of a global recession prompted investors to slash carry trades, in which they fund purchases of higher-yielding assets with the Japanese currency. The British pound had its biggest decline in at least 37 years after the Office for National Statistics in London said the economy contracted 0.5 percent in the third quarter, exceeding the 0.2 percent forecast by analysts in a Bloomberg survey."
Emerging-Market Assets
"Investors sold emerging-market stocks, bonds, and currencies as the credit crisis imperiled developing economies. The Polish zloty, Hungarian forint and South African rand headed for their biggest weekly declines. Ukraine's credit ratings were lowered for the second time since June by Standard & Poor's on concern about the country's banks, a day after Russia's credit rating outlook was lowered to ``negative'' from ``stable.''"
"``There's uncertainty and anxiety,'' said Hiroyuki Bando, chief manager for fixed income, equities and currencies in Tokyo at Mitsubishi UFJ Trust & Banking Corp., part of Japan's biggest bank. ``That's supportive for Treasuries.''"
"Yields on three-month Treasury bills, sought as a haven in times of uncertainty, fell 21 basis points to a one-week low of 0.75 percent. They were 3.38 percent at the start of the year."
TED Spread
"The difference between what banks and the U.S. government pay to borrow for three months, known as the TED spread, widened for a second day, to 2.75 percentage points. The spread, which is the difference between three-month bill yields and the three- month London interbank offered rate, is more than triple this year's low of 76 basis points in May."
"Another indicator of credit stress, the difference between the rate banks charge for three-month dollar loans relative to the overnight indexed swap rate, the so-called Libor-OIS spread, widened to 2.64 percentage points from 2.54 percentage points yesterday. The spread has narrowed from 3.64 percentage points on Oct. 10."
Yields on Treasury Inflation-Protected Securities with maturities of up to five years were higher than yields on conventional Treasuries of similar maturity in another sign investors are liquidating positions and betting on a deepening U.S. recession.
The difference between yields on five-year Treasuries and five-year TIPS was minus 0.06 percentage points. TIPS typically yield less than Treasuries because their principal payments rise at the rate of inflation. A shrinking yield gap indicates investors expect inflation to slow.
"``The financial crisis is now morphing ever more clearly into an economic one,'' Ciaran O'Hagan, a fixed-income strategist in Paris at Societe Generale, said in a report yesterday. ``That leaves spread markets still going in only one direction -- south.''"
To contact the reporters on this story: Sandra Hernandez in New York at shernandez4@bloomberg.net; Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net.
"Last Updated: October 24, 2008 09:50 EDT"
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Canada Annual Inflation Stays Close to 5-Year High (Update3)
By Theophilos Argitis
Oct. 24 (Bloomberg) -- Canada's annual inflation rate remained close to the highest in five years in September as gasoline prices kept surging and food prices rose.
"Consumer prices rose 3.4 percent from a year earlier, after a 3.5 percent pace in August that was the fastest since March 2003, Statistics Canada said today in Ottawa. Prices advanced 0.1 percent on a monthly basis in part because of a jump in clothing prices. Economists in a Bloomberg survey predicted a 3.3 percent annual pace and no month-over-month change."
"The Bank of Canada, which has lowered interest rates by three-quarters of a percentage point this month, said yesterday that inflation in the country has probably peaked, predicting a lack of credit and a global recession will push prices down. Canada's inflation rate will slow to 1 percent in the second half of next year, below the bank's target."
"``Inflation is a backburner issue,'' said Michael Gregory, a senior economist at BMO Capital Markets in Toronto. ``The Bank of Canada has bigger fish to fry these days.''"
"Policy makers set rates to keep inflation between 1 percent and 3 percent, with an optimal target of 2 percent. Bank of Canada Governor Mark Carney cut borrowing costs by a quarter of a point to 2.25 percent three days ago, saying more action will likely be needed to help the economy."
"Canada's dollar declined 2.1 percent to C$1.2742 per U.S. dollar at 4:09 p.m. in Toronto, from C$1.2472 late yesterday. The currency is down about 7 percent this week."
Core Inflation
"Excluding gasoline and seven other volatile items, inflation accelerated 1.7 percent in September from a year earlier, matching economists' predictions, and 0.4 percent from August. Economists predicted the so-called core rate would gain 0.3 percent on a monthly basis."
"Prices at gasoline filling stations were up 27 percent between September 2007 and last month, the statistics agency said. Food price inflation also accelerated in September, to 5.6 percent from a pace of 4.5 percent in August, led by a 16 percent increase in bakery and cereal products."
"The price index for shelter increased 4.5 percent over the 12-month period, the agency said."
"Falling prices for automobiles helped keep annual inflation from accelerating further in September, the statistics agency said. The costs of buying or leasing a vehicle fell 9.3 percent from September 2007, the biggest such drop in more than 52 years."
To contact the reporter on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net.
"Last Updated: October 24, 2008 16:12 EDT"
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