07.04.08, 3:04 AM ET
Japan - *Nikkei sets 12-day losing streak, longest since 1954
*Nikkei sheds 8.4 percent during the 12-day losing run
*Property firms hit on credit fears
(Adds trade volume, detail)
By Aiko Hayashi
TOKYO, July 4 (Reuters) - The Nikkei share average fell 0.2 percent on Friday to set its longest losing streak in more than half a century, dragged down by property stocks such as Sumitomo Realty & Development on credit fears.
Shares of apartment developer Urban Corp tumbled nearly 30 percent, leading a sharp decline among some midsize property companies on speculation they could be risky investments following a handful of recent bankruptcies in the sector.
"A 12-day losing streak sounds big but there were days when the market didn't fall much and the amount of decline is only about 1,200 points. It's just a matter of words," said Masaru Hamasaki, senior strategist at Toyota (nyse: TM - news - people ) Asset Management.
"Still, we have to stay alert as Japanese stocks couldn't avoid being sharply hit if a spiral of interest rate hikes in Europe, the expansion of difference in interest rates, a weaker dollar, high oil prices and weak stock prices emerges."
The benchmark Nikkei fell 27.51 points to 13,237.89, down for a 12th day and its longest losing run since a 15-day period in 1954.
The Nikkei fell 2.3 percent during the week, and gave up 8.4 percent during the 12-day losing run.
The broader Topix shed 0.01 percent to 1,297.88.
"The afternoon's market fall is due to property shares that are under huge pressure on credit worries. Investors think the real estate sector will have a tough time going forward," said Hiroaki Kuramochi, general manager of the financial institutions service department at Tokai Tokyo Securities.
PROPERTY STOCKS DOWN
Shares of Sumitomo Realty & Development dropped 3 percent to 2,075 yen and Mitsubishi Estate Co Ltd (other-otc: MITEF.PK - news - people ) fell 1.3 percent to 2,375 yen.
Urban tumbled 28.1 percent to 189 yen, while Zephyr Co which announced the bankruptcy of a subsidiary in May, dropped 6.3 percent to 19,800 yen.
"I don't know what kind of information people are basing their sell-off on, but at this point, a lot of people are selling on worries about credit risks," said Credit Suisse analyst Masahiro Mochizuki, referring to Urban's shares.
Last month's bankruptcy of real estate developer Suruga Corp has led investors to worry that others in the sector might go bust as they suffer from tight financing, soaring construction material prices and weak apartment sales.
Shares of Secom Co and Sohgo Security Services Co fell after Morgan Stanley (nyse: MS - news - people ) cut its ratings on Japan's top two security service firms to "equal-weight" from "overweight", predicting their earnings will fall short of market expectations.
"We doubt that the security services industry is the safe, defensive industry that the stock market expects it to be this term," Morgan Stanley analyst Naoshi Nema wrote in a note to clients.
Secom fell 3.8 percent to 5,080 yen. Sohgo Security Services slid 3.4 percent to 1,238 yen.
One bright spot was Tokai Carbon Co Ltd The stock jumped 11.4 percent to 1,132 yen after the firm said it had started negotiating with overseas customers to raise the price of its graphite electrodes, used in electric steel furnaces.
Trade was moderate on the Tokyo exchange's first section, with 1.83 billion shares changing hands, in line with last week's daily average.
Advancing stocks narrowly outpaced declining ones by 839 to 748. (Reporting by Aiko Hayashi; Editing by Sophie Hardach)
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Friday, July 4, 2008
European shares pull back on U.S. holiday, Banks, miners fall; UBS bucks trend after update reassures
By Sarah Turner, MarketWatch
July 4, 2008
LONDON (MarketWatch) - European shares drifted lower on Friday in subdued trade as banks declined and miners also lost ground, though UBS rallied after the Swiss bank quelled fears that it would have to make another major fund raising effort.
The pan-European Dow Jones Stoxx 600 index dipped 0.2% to 282.55, after closing with strong gains on Thursday on the back of a rebound in the banking sector.
But banks struggled to hold onto those gains on Friday as traders weighed up better news from the investment banking sector with more downbeat news from a lender more sensitive to domestic economic conditions.
On the plus side, shares in Swiss banking giant UBS jumped 5% after it said that it expects to roughly break even in the second quarter, after a 3 billion Swiss franc ($2.93 billion) tax credit helped offset further write-downs, and added it doesn't need to raise more capital
The bank's statement came as a relief to investors following fears that it could face a loss of 4 billion or 5 billion francs, potentially leading it to ask shareholders for a further cash injection. See UBS story.
Peer Credit Suisse also traded higher, up 2%.
However, shares in stricken U.K. mortgage bank Bradford & Bingley fell 7.4% after it said that U.S. private equity group TPG Capital has withdrawn from a deal to inject cash, but that major shareholders will still back a 400 million pound ($793 million) capital raising.
The bank said TPG withdrew after rating agency Moody's downgraded the group's long-term debt ratings to Baa1 from A3.
Other banks under pressure included Royal Bank of Scotland , down 1.4% and Barclays , down 1%.
Of national indexes, the U.K. FTSE 100 index lost 0.8% to 5,434.60, the German DAX 30 index lost 0.3% to 6,333.84 and the French CAC-40 index declined 0.5% to 4,323.53.
U.S. stocks ended mostly higher on Thursday after a benign reaction to the government's report on employment, which declined only a bit more than expected in June. See Thursday's Market Snapshot.
U.S. markets are closed on Friday for the July 4 Independence Day holiday. In Asia, Japan's Nikkei 225 lost ground for the 12th time in a row. See Asia Markets.
Miners lost ground again, extending a steep drop earlier in the week sparked by lower coal prices. Shares in BHP Billiton fell 1.4% while Anglo American shares declined 2%.
Natural gas producer BG Group dipped 0.4% after Origin Energy , Australia's largest coal seam gas producer, rejected its A$13.8 billion ($13.3 billion) takeover bid.
Origin said that the offer does not adequately reflect the company's assets and business prospects.
BG Group unveiled the A$15.50-a-share hostile bid last week.
However, autos moved higher, despite light sweet crude prices staying over $145 a barrel in electronic trading, with Porsche shares up 1.2%.
The gains followed reports, citing traders, that Merrill Lynch upgraded the luxury sports car maker to neutral from underperform. End of Story
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July 4, 2008
LONDON (MarketWatch) - European shares drifted lower on Friday in subdued trade as banks declined and miners also lost ground, though UBS rallied after the Swiss bank quelled fears that it would have to make another major fund raising effort.
The pan-European Dow Jones Stoxx 600 index dipped 0.2% to 282.55, after closing with strong gains on Thursday on the back of a rebound in the banking sector.
But banks struggled to hold onto those gains on Friday as traders weighed up better news from the investment banking sector with more downbeat news from a lender more sensitive to domestic economic conditions.
On the plus side, shares in Swiss banking giant UBS jumped 5% after it said that it expects to roughly break even in the second quarter, after a 3 billion Swiss franc ($2.93 billion) tax credit helped offset further write-downs, and added it doesn't need to raise more capital
The bank's statement came as a relief to investors following fears that it could face a loss of 4 billion or 5 billion francs, potentially leading it to ask shareholders for a further cash injection. See UBS story.
Peer Credit Suisse also traded higher, up 2%.
However, shares in stricken U.K. mortgage bank Bradford & Bingley fell 7.4% after it said that U.S. private equity group TPG Capital has withdrawn from a deal to inject cash, but that major shareholders will still back a 400 million pound ($793 million) capital raising.
The bank said TPG withdrew after rating agency Moody's downgraded the group's long-term debt ratings to Baa1 from A3.
Other banks under pressure included Royal Bank of Scotland , down 1.4% and Barclays , down 1%.
Of national indexes, the U.K. FTSE 100 index lost 0.8% to 5,434.60, the German DAX 30 index lost 0.3% to 6,333.84 and the French CAC-40 index declined 0.5% to 4,323.53.
U.S. stocks ended mostly higher on Thursday after a benign reaction to the government's report on employment, which declined only a bit more than expected in June. See Thursday's Market Snapshot.
U.S. markets are closed on Friday for the July 4 Independence Day holiday. In Asia, Japan's Nikkei 225 lost ground for the 12th time in a row. See Asia Markets.
Miners lost ground again, extending a steep drop earlier in the week sparked by lower coal prices. Shares in BHP Billiton fell 1.4% while Anglo American shares declined 2%.
Natural gas producer BG Group dipped 0.4% after Origin Energy , Australia's largest coal seam gas producer, rejected its A$13.8 billion ($13.3 billion) takeover bid.
Origin said that the offer does not adequately reflect the company's assets and business prospects.
BG Group unveiled the A$15.50-a-share hostile bid last week.
However, autos moved higher, despite light sweet crude prices staying over $145 a barrel in electronic trading, with Porsche shares up 1.2%.
The gains followed reports, citing traders, that Merrill Lynch upgraded the luxury sports car maker to neutral from underperform. End of Story
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RPT-UPDATE 1-BSkyB mulls $4 bln bid for Spain's Digital Plus-FT
Fri Jul 4, 2008 6:07am EDT
(Repeats to reach more subscribers) (Adds analysts, company comment, shares)
LONDON, July 4 (Reuters) - British pay-TV firm BSkyB (BSY.L: Quote, Profile, Research, Stock Buzz) is considering a bid of more than 2.5 billion euros ($4 billion)for Spanish pay-TV platform Digital Plus, the Financial Times said on Friday.
The newspaper quoted people familiar with the situation as saying there had been no decision to proceed, but that BSkyB's strong cash flow could allow it to finance an acquisitions.
BSkyB declined to comment.
Analysts were sceptical that a bid would materialise, estimating that BSkyB is unlikely to take on the level of debt needed to complete the acquisition.
"Sky bidding for Digital Plus would be a negative. It doesn't have sufficient debt capacity to afford it," Credit Suisse analyst Simon Baker wrote in a research note.
BSkyB shares were 1.3 per cent higher at 452 pence by 0905 GMT, while shares in Spanish media group Prisa (PRS.MC: Quote, Profile, Research, Stock Buzz), Digital Plus' parent company, were up 2.13 per cent at 6.7 euros.
According to the Financial Times, Spanish groups Telefonica (TEF.MC: Quote, Profile, Research, Stock Buzz) and ONO, France's Vivendi (VIV.PA: Quote, Profile, Research, Stock Buzz) and French Telecom's (FTE.PA: Quote, Profile, Research, Stock Buzz) Orange unit were also likely to be interested in buying Digital Plusd. (Reporting by Myles Neligan and Mark Potter; Editing by Quentin Bryar)
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(Repeats to reach more subscribers) (Adds analysts, company comment, shares)
LONDON, July 4 (Reuters) - British pay-TV firm BSkyB (BSY.L: Quote, Profile, Research, Stock Buzz) is considering a bid of more than 2.5 billion euros ($4 billion)for Spanish pay-TV platform Digital Plus, the Financial Times said on Friday.
The newspaper quoted people familiar with the situation as saying there had been no decision to proceed, but that BSkyB's strong cash flow could allow it to finance an acquisitions.
BSkyB declined to comment.
Analysts were sceptical that a bid would materialise, estimating that BSkyB is unlikely to take on the level of debt needed to complete the acquisition.
"Sky bidding for Digital Plus would be a negative. It doesn't have sufficient debt capacity to afford it," Credit Suisse analyst Simon Baker wrote in a research note.
BSkyB shares were 1.3 per cent higher at 452 pence by 0905 GMT, while shares in Spanish media group Prisa (PRS.MC: Quote, Profile, Research, Stock Buzz), Digital Plus' parent company, were up 2.13 per cent at 6.7 euros.
According to the Financial Times, Spanish groups Telefonica (TEF.MC: Quote, Profile, Research, Stock Buzz) and ONO, France's Vivendi (VIV.PA: Quote, Profile, Research, Stock Buzz) and French Telecom's (FTE.PA: Quote, Profile, Research, Stock Buzz) Orange unit were also likely to be interested in buying Digital Plusd. (Reporting by Myles Neligan and Mark Potter; Editing by Quentin Bryar)
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Asian Currencies: Peso Falls on Inflation; Korean Won Declines
By Lilian Karunungan and Clarissa Batino
July 4 (Bloomberg) -- The Philippine peso led losses in Asian currencies this week after June inflation accelerated to the fastest in 14 years.
The peso, the worst performer in the region in the past three months, traded near the lowest since September as the government said consumer prices rose 11.4 percent last month from a year earlier, exceeding forecasts from economists and the central bank. Crude oil's advance to a record and a rally in rice prices have stoked inflation in the Southeast Asian nation.
``There's no end in sight for inflation and oil prices remain a wild card,'' said Sergio Edeza, treasurer at Rizal Commercial Banking Corp. in Manila. ``Higher commodity prices increase demand for U.S. dollars and that's hitting the peso, which also impacts on imported inflation.''
The Philippine currency fell 1.5 percent to 45.445 as of 4:12 p.m. in Manila, from 44.75 last week, according to Tullett Prebon Plc. The won fell 0.9 percent this week to 1,050.40 per dollar, according to Seoul Money Brokerage Services Ltd. The currency weakened 0.5 percent today, extending its decline this year to 10.8 percent.
The peso, which posted its biggest weekly loss since May, may weaken to as low as 47 this quarter as oil prices continue to advance, Rizal Bank's Edeza said.
Last month's inflation was the fastest since May 1994, according to data compiled by Bloomberg. Crude oil reached a record $145.85 a barrel yesterday in New York.
South Korea's won fell for a second week on speculation record crude oil prices mean refiners and importers have to buy more dollars to pay for the fuel.
Inflation Focus
The won had its lowest close since October 2005 today as oil prices above $145 a barrel push up import costs and widen the nation's trade deficit. The financial authorities bought about $7 billion of won since the end of May to help support the currency, JoongAng Ilbo newspaper reported July 1.
``The market is seeing a repeat of the pattern that oil is driving people to bid the dollar higher and the authorities emerge to stifle the attempt,'' said Ko Yun Jin, a currency dealer in Seoul at Kookmin Bank, the nation's largest lender.
Finance Minister Kang Man Soo reiterated today that the government should focus on restraining inflation at the fastest in a decade. A stronger currency reduces the cost of imports.
Top policy makers held a meeting yesterday to discuss how to curb the won's decline, Internet newswire MoneyToday reported, citing a finance ministry official it did not identity.
The currency also approached the weakest since October 2005 as overseas investors sold more local shares than they bought for a fourth week, according to data from the stock exchange. Global funds have been net sellers for the past 20 days.
Won to Rise
Korea's currency may gain in the second half of the year, as rising exports narrow the trade deficit, Samsung Electronics Co., Korean Air Lines Co. and SK Energy Co. said.
Exports typically rise in the final six months of the year as demand increases before the Christmas and New Year holidays, said Chu Woo Sik, head of investor relations at Samsung, the nation's largest exporter. The won may rise 5 percent by the end of the 2008, said Bae Yong Chul, head of the foreign-exchange department at SK Energy, South Korea's biggest oil refiner.
The three companies, with a combined market value of $102 billion, said their forecasts may be threatened if oil prices keep climbing beyond $145 a barrel, cooling global demand for Korea's exports and making fuel imports more expensive.
Malaysia's ringgit fell for a second week on concern record oil prices will stoke inflation and slow economic growth.
The currency dropped to a five-month low this week as crude oil extended gains and political risks increased amid calls for Prime Minister Abdullah Ahmad Badawi to resign. The ringgit was little changed after a government report today showed Malaysian export growth accelerated in May to the fastest pace in more than three years, led by palm oil shipments.
Growth Concern
``Inflation and growth are real concerns and it will be hard for the ringgit to perform in the short run,'' said Wan Murezani Mohamad, an analyst at Malaysian Rating Corp. in Kuala Lumpur. ``There are going to be humps along the way and political concerns will not fade away this year.''
The ringgit traded at 3.2660 per dollar in Kuala Lumpur versus 3.2685 late yesterday, according to data compiled by Bloomberg. The ringgit declined 0.1 percent this week, touching 3.2825 on July 2, the weakest since Jan. 24.
Consumer prices in Malaysia may rise 5 percent from a year earlier in June, the most in nine years, compared with 3.8 percent in May, Bank Negara said on June 5 when the government raised gasoline prices by 41 percent.
Export Growth
Overseas sales rose 22 percent from a year earlier to a record 60.6 billion ringgit ($18.6 billion), the Trade Ministry said in Kuala Lumpur today. The gain exceeded all forecasts in a Bloomberg survey of 17 economists where the median estimate was for a 12.5 percent increase.
Malaysian police in the past week confirmed investigations of Deputy Prime Minister Najib Razak and former Deputy Prime Minister Anwar Ibrahim. Both have called the claims against them fabrications intended to destroy their political careers.
Elsewhere, Taiwan's dollar was at NT$30.401 from NT$30.388 last week. The Singapore dollar rose 0.1 percent to S$1.3614. The Thai baht gained 0.2 percent to 33.49. The Indonesian rupiah was unchanged at 9,215, while Vietnam's dong traded at 16,846.50 compared with 16,843.00 last week.
To contact the reporters on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net; Clarissa Batino in Manila at cbatino@bloomberg.net.
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July 4 (Bloomberg) -- The Philippine peso led losses in Asian currencies this week after June inflation accelerated to the fastest in 14 years.
The peso, the worst performer in the region in the past three months, traded near the lowest since September as the government said consumer prices rose 11.4 percent last month from a year earlier, exceeding forecasts from economists and the central bank. Crude oil's advance to a record and a rally in rice prices have stoked inflation in the Southeast Asian nation.
``There's no end in sight for inflation and oil prices remain a wild card,'' said Sergio Edeza, treasurer at Rizal Commercial Banking Corp. in Manila. ``Higher commodity prices increase demand for U.S. dollars and that's hitting the peso, which also impacts on imported inflation.''
The Philippine currency fell 1.5 percent to 45.445 as of 4:12 p.m. in Manila, from 44.75 last week, according to Tullett Prebon Plc. The won fell 0.9 percent this week to 1,050.40 per dollar, according to Seoul Money Brokerage Services Ltd. The currency weakened 0.5 percent today, extending its decline this year to 10.8 percent.
The peso, which posted its biggest weekly loss since May, may weaken to as low as 47 this quarter as oil prices continue to advance, Rizal Bank's Edeza said.
Last month's inflation was the fastest since May 1994, according to data compiled by Bloomberg. Crude oil reached a record $145.85 a barrel yesterday in New York.
South Korea's won fell for a second week on speculation record crude oil prices mean refiners and importers have to buy more dollars to pay for the fuel.
Inflation Focus
The won had its lowest close since October 2005 today as oil prices above $145 a barrel push up import costs and widen the nation's trade deficit. The financial authorities bought about $7 billion of won since the end of May to help support the currency, JoongAng Ilbo newspaper reported July 1.
``The market is seeing a repeat of the pattern that oil is driving people to bid the dollar higher and the authorities emerge to stifle the attempt,'' said Ko Yun Jin, a currency dealer in Seoul at Kookmin Bank, the nation's largest lender.
Finance Minister Kang Man Soo reiterated today that the government should focus on restraining inflation at the fastest in a decade. A stronger currency reduces the cost of imports.
Top policy makers held a meeting yesterday to discuss how to curb the won's decline, Internet newswire MoneyToday reported, citing a finance ministry official it did not identity.
The currency also approached the weakest since October 2005 as overseas investors sold more local shares than they bought for a fourth week, according to data from the stock exchange. Global funds have been net sellers for the past 20 days.
Won to Rise
Korea's currency may gain in the second half of the year, as rising exports narrow the trade deficit, Samsung Electronics Co., Korean Air Lines Co. and SK Energy Co. said.
Exports typically rise in the final six months of the year as demand increases before the Christmas and New Year holidays, said Chu Woo Sik, head of investor relations at Samsung, the nation's largest exporter. The won may rise 5 percent by the end of the 2008, said Bae Yong Chul, head of the foreign-exchange department at SK Energy, South Korea's biggest oil refiner.
The three companies, with a combined market value of $102 billion, said their forecasts may be threatened if oil prices keep climbing beyond $145 a barrel, cooling global demand for Korea's exports and making fuel imports more expensive.
Malaysia's ringgit fell for a second week on concern record oil prices will stoke inflation and slow economic growth.
The currency dropped to a five-month low this week as crude oil extended gains and political risks increased amid calls for Prime Minister Abdullah Ahmad Badawi to resign. The ringgit was little changed after a government report today showed Malaysian export growth accelerated in May to the fastest pace in more than three years, led by palm oil shipments.
Growth Concern
``Inflation and growth are real concerns and it will be hard for the ringgit to perform in the short run,'' said Wan Murezani Mohamad, an analyst at Malaysian Rating Corp. in Kuala Lumpur. ``There are going to be humps along the way and political concerns will not fade away this year.''
The ringgit traded at 3.2660 per dollar in Kuala Lumpur versus 3.2685 late yesterday, according to data compiled by Bloomberg. The ringgit declined 0.1 percent this week, touching 3.2825 on July 2, the weakest since Jan. 24.
Consumer prices in Malaysia may rise 5 percent from a year earlier in June, the most in nine years, compared with 3.8 percent in May, Bank Negara said on June 5 when the government raised gasoline prices by 41 percent.
Export Growth
Overseas sales rose 22 percent from a year earlier to a record 60.6 billion ringgit ($18.6 billion), the Trade Ministry said in Kuala Lumpur today. The gain exceeded all forecasts in a Bloomberg survey of 17 economists where the median estimate was for a 12.5 percent increase.
Malaysian police in the past week confirmed investigations of Deputy Prime Minister Najib Razak and former Deputy Prime Minister Anwar Ibrahim. Both have called the claims against them fabrications intended to destroy their political careers.
Elsewhere, Taiwan's dollar was at NT$30.401 from NT$30.388 last week. The Singapore dollar rose 0.1 percent to S$1.3614. The Thai baht gained 0.2 percent to 33.49. The Indonesian rupiah was unchanged at 9,215, while Vietnam's dong traded at 16,846.50 compared with 16,843.00 last week.
To contact the reporters on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net; Clarissa Batino in Manila at cbatino@bloomberg.net.
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Vietnam Dong Investors Use Black Market for Dollars
By Patricia Lui and Wes Goodman
July 4 (Bloomberg) -- Vietnam's currency controls are forcing foreign investors into the black market to obtain dollars, aggravating declines in the world's worst-performing stock market and pushing benchmark bond yields above 20 percent.
Businesses that aren't controlled by the government pay about 7 percent more than the official rate when using the dong to buy dollars because the state gives its trading companies priority access to the U.S. currency, the World Bank said. The premium is reducing demand for the nation's stocks and bonds, according to PXP Vietnam Asset Management.
``There is clearly a shortage of dollars,'' said Kevin Snowball, a money manager at PXP Vietnam in Ho Chi Minh City, which oversees $117 million. ``If you have dollars and you want to buy dong, you will get the official rate, but if you have dong and you want to buy dollars it's a completely different story.''
Vietnam's financial markets are tumbling after the central bank raised interest rates three times this year to 14 percent to tame inflation that accelerated to a 16-year high of 26.8 percent in June. The economy expanded 6.5 percent in the first half, the slowest in at least seven years, while the trade deficit more than doubled to $14.8 billion.
Rally to Rout
Vietnam's benchmark stock index, which climbed 168 percent in the past two years as Prime Minister Nguyen Tan Dung encouraged state companies to raise cash and finance expansion, slumped 53 percent since December. Yields on five-year government bonds jumped to 20.53 percent on June 13, the highest since at least July 2006, from 8.71 percent on Jan. 3.
The dong has dropped 5 percent this year, its biggest decline since 1998, to 16,846.5 per dollar as of 4:40 p.m. in Hanoi. Traders are pricing in an 18 percent drop in the coming year to 20,500, according to offshore 12-month non-deliverable forwards. The contract was at 16,080 on Dec. 31. Forwards are agreements in which assets are bought and sold at current prices for future delivery. Non-deliverable contracts are settled in dollars.
The official rate will fall 6.4 percent to 18,000 by the end of the year, according to Calyon, the investment banking arm of Credit Agricole SA. HSBC Holdings Plc, Europe's biggest bank by market value, predicts it will strengthen 4.4 percent to 16,140 by year-end.
`Currency Crisis'
Vietnam may suffer a ``currency crisis'' similar to the slump in the Thai baht that triggered the regional collapse in 1997, Morgan Stanley analysts said in a report May 28.
``The central bank is not providing dollars, except to some importers and some working capital for exporters,'' said Noritaka Akamatsu, a Hanoi-based economist for the World Bank. ``That's why there is some depreciation pressure.''
The State Bank of Vietnam allows the currency to trade 2 percent either side of its daily reference rate. Gold shops and street money changers offer a black market rate of about 18,000, said Akamatsu. Banks offer a similar rate by adding fees to sell dollars, he said. The rate was as high as 19,500, he said.
The dong slumped in the forwards market in May as foreign investors trapped in the bond market bet against the currency to hedge against losses, Akamatsu said.
Frozen Market
Rajeev De Mello, who helps oversee about $600 billion as head of Asian bonds at Western Asset Management Co.'s Singapore office, sold Vietnamese bonds in April and says the market has frozen. Western Asset, part of Baltimore-based Legg Mason Inc., also couldn't get a price for dong forwards, he said.
``Even when things were good, it was difficult to buy bonds in any size,'' said De Mello. ``Now when things are bad, it's impossible to either buy or sell.''
Union Investment in Frankfurt, Germany's third-biggest fund manager, forecasts a smaller decline in the dong than the forward market and is buying contracts, said Sergey Dergachev, the firm's emerging-market investor, who helps oversee the equivalent of $285 billion. Union Investment expects an 11 percent drop to 19,000 by Dec. 31.
The risk is Vietnam exhausts its currency reserves of $22 billion supplying dollars or that ``overkill'' in cooling growth causes losses at state banks, said the World Bank's Akamatsu.
Pramerica Fixed Income Asia, a unit of Prudential Financial Inc., the second-biggest U.S. life insurer, is staying away.
``It's a shocking and timely reminder of problems that developing countries face,'' said Clifford Lau, a Singapore- based portfolio manager at Pramerica that oversees $7.6 billion in emerging-market debt. ``Everyone is taking a step back.''
To contact the reporter on this story: Patricia Lui in Singapore at plui4@bloomberg.netWes Goodman in Singapore at wgoodman@bloomberg.net
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Polish Zloty Climbs to Record Against Euro, Trades at 3.3247
By Ewa Krukowska
July 4 (Bloomberg) -- The Polish zloty rose to an all-time high against the euro, gaining for a second consecutive day.
The zloty advanced as much as 0.3 percent to 3.3247 per euro and traded at 3.3267 at 10 a.m. in Warsaw, from 3.3337 late yesterday.
To contact the reporter on this story: Ewa Krukowska in Warsaw at ekrukowska@bloomberg.net
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July 4 (Bloomberg) -- The Polish zloty rose to an all-time high against the euro, gaining for a second consecutive day.
The zloty advanced as much as 0.3 percent to 3.3247 per euro and traded at 3.3267 at 10 a.m. in Warsaw, from 3.3337 late yesterday.
To contact the reporter on this story: Ewa Krukowska in Warsaw at ekrukowska@bloomberg.net
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India's Edible Oil Imports May Surge to Meet Domestic Shortfall
By Thomas Kutty Abraham
July 4 (Bloomberg) -- India may increase edible oil imports by more than 80 percent in the four months to October, straining global stockpiles, to meet a shortfall in domestic supplies and cool the fastest inflation in 13 years.
Average monthly imports by the world's second-biggest buyer of cooking fat may total 550,000 tons, compared with 300,000 tons bought in April and May, Govindlal G. Patel, managing partner at Dipak Enterprise Ltd., said in a phone interview. Patel, 69, has been trading the commodity for more than four decades.
Increased imports may further deplete global reserves of vegetable oils, supporting palm oil prices that have climbed 19 percent this year. Soybean oil has surged 39 percent in the same period in Chicago on concern that supplies, reduced by the U.S. Midwest floods, will trail demand.
``Imports will be the only channel of supply for India as it enters the lean period as far domestic supplies are concerned,'' Patel said from the western Indian city of Rajkot. ``We are going to see more imports.''
Palm oil futures in Malaysia, the global benchmark, traded near a two-week high today at 3,618 ringgit ($1,107) a ton. The price has risen 40 percent in the past year. Soybean oil futures gained 0.4 percent to 69.17 cents a pound overnight in Chicago.
Palm oil, typically used as cooking oil or in soaps, is the world's most-consumed vegetable oil and can be mixed with diesel to stretch fossil fuel supplies. Soybean oil, the main rival, is used in food as well as for biodiesel. Both the commodities rose to records on March 4.
Government Curbs
India's edible oil imports in May fell 39 percent to 302,345 tons from 494,184 tons a year earlier, after private traders cut inventories of the commodity because of local government curbs on stockpiling, according to the Solvent Extractors' Association, a trade body comprising 800 oilseed processors.
``The restrictions have reduced the stocks in the pipeline and pushed up local edible oil prices,'' Patel said.
Prime Minister Manmohan Singh's government has scrapped the import duty on crude vegetable oils and asked state-run companies to import and sell 1 million tons of the commodity through ration shops at subsidized rates in year to March 31, 2009.
``The government may think of abolishing the import duty on refined edible oils as well as a last resort,'' Patel said. ``It has done everything possible to control prices.''
The imports, second only to those of China, rose 15 percent to 2.54 million tons in the seven months ended May from the same period a year earlier, the trade body said. Palm oil purchases climbed 40 percent to 2.3 million tons in the period from a year earlier, according to the solvent extractors' group.
Purchases may total 5.2 million tons in the year to October, up 11 percent from last year, Patel said.
To contact the reporter on this story: Thomas Kutty Abraham in Mumbai at tabraham4@bloomberg.net.
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July 4 (Bloomberg) -- India may increase edible oil imports by more than 80 percent in the four months to October, straining global stockpiles, to meet a shortfall in domestic supplies and cool the fastest inflation in 13 years.
Average monthly imports by the world's second-biggest buyer of cooking fat may total 550,000 tons, compared with 300,000 tons bought in April and May, Govindlal G. Patel, managing partner at Dipak Enterprise Ltd., said in a phone interview. Patel, 69, has been trading the commodity for more than four decades.
Increased imports may further deplete global reserves of vegetable oils, supporting palm oil prices that have climbed 19 percent this year. Soybean oil has surged 39 percent in the same period in Chicago on concern that supplies, reduced by the U.S. Midwest floods, will trail demand.
``Imports will be the only channel of supply for India as it enters the lean period as far domestic supplies are concerned,'' Patel said from the western Indian city of Rajkot. ``We are going to see more imports.''
Palm oil futures in Malaysia, the global benchmark, traded near a two-week high today at 3,618 ringgit ($1,107) a ton. The price has risen 40 percent in the past year. Soybean oil futures gained 0.4 percent to 69.17 cents a pound overnight in Chicago.
Palm oil, typically used as cooking oil or in soaps, is the world's most-consumed vegetable oil and can be mixed with diesel to stretch fossil fuel supplies. Soybean oil, the main rival, is used in food as well as for biodiesel. Both the commodities rose to records on March 4.
Government Curbs
India's edible oil imports in May fell 39 percent to 302,345 tons from 494,184 tons a year earlier, after private traders cut inventories of the commodity because of local government curbs on stockpiling, according to the Solvent Extractors' Association, a trade body comprising 800 oilseed processors.
``The restrictions have reduced the stocks in the pipeline and pushed up local edible oil prices,'' Patel said.
Prime Minister Manmohan Singh's government has scrapped the import duty on crude vegetable oils and asked state-run companies to import and sell 1 million tons of the commodity through ration shops at subsidized rates in year to March 31, 2009.
``The government may think of abolishing the import duty on refined edible oils as well as a last resort,'' Patel said. ``It has done everything possible to control prices.''
The imports, second only to those of China, rose 15 percent to 2.54 million tons in the seven months ended May from the same period a year earlier, the trade body said. Palm oil purchases climbed 40 percent to 2.3 million tons in the period from a year earlier, according to the solvent extractors' group.
Purchases may total 5.2 million tons in the year to October, up 11 percent from last year, Patel said.
To contact the reporter on this story: Thomas Kutty Abraham in Mumbai at tabraham4@bloomberg.net.
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Shanghai Copper Falls for First Day in Three on London Decline
By Glenys Sim
July 4 (Bloomberg) -- Copper futures in Shanghai fell for the first day in three, tracking a decline in London overnight, as a strengthening dollar curbed demand for raw materials as alternative investments.
Copper fell yesterday on the euro's decline to a one-week low against the dollar after European Central Bank President Jean-Claude Trichet signaled he may not lift the benchmark interest rate again this year.
``Shanghai is just mimicking the fall on the international markets last night,'' said Yang Wenhu, a trader at Northern Futures Co. in Dalian.
Copper for September delivery lost as much as 1,010 yuan, or 1.6 percent, to 63,220 yuan ($9,216) a metric ton on the Shanghai Futures Exchange. The most-active contract stood at 63,340 yuan at 2:46 p.m. local time.
Copper for delivery in three months rose $19.75, or 0.2 percent, to $8,664.75 a ton on the London Metal Exchange at the same time, after falling as much as 1 percent to $8,630 yesterday. Copper, headed for its third weekly gain, climbed to $8,940 a ton July 2, the highest ever.
Pressuring prices was the end of a three-day work stoppage at three mining operations in Peru, the world's third-largest producer of the metal.
``Supply disruptions which occur during the slow seasonal period only serve to improve sentiment and provide some support,'' said Yang. ``The international copper market will continue to be dictated by moves in the dollar, equities and the rest of the commodities complex.''
Among other LME-traded metals, aluminum was little changed at $3,183 a ton, zinc was up 1 percent at $1,800, and nickel added 0.7 percent to $21,000. Lead slipped 2.5 percent to $1,570, while tin had not traded as of 2:47 p.m. in Singapore.
To contact the reporter for this story: Glenys Sim in Singapore at gsim4@bloomberg.net
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July 4 (Bloomberg) -- Copper futures in Shanghai fell for the first day in three, tracking a decline in London overnight, as a strengthening dollar curbed demand for raw materials as alternative investments.
Copper fell yesterday on the euro's decline to a one-week low against the dollar after European Central Bank President Jean-Claude Trichet signaled he may not lift the benchmark interest rate again this year.
``Shanghai is just mimicking the fall on the international markets last night,'' said Yang Wenhu, a trader at Northern Futures Co. in Dalian.
Copper for September delivery lost as much as 1,010 yuan, or 1.6 percent, to 63,220 yuan ($9,216) a metric ton on the Shanghai Futures Exchange. The most-active contract stood at 63,340 yuan at 2:46 p.m. local time.
Copper for delivery in three months rose $19.75, or 0.2 percent, to $8,664.75 a ton on the London Metal Exchange at the same time, after falling as much as 1 percent to $8,630 yesterday. Copper, headed for its third weekly gain, climbed to $8,940 a ton July 2, the highest ever.
Pressuring prices was the end of a three-day work stoppage at three mining operations in Peru, the world's third-largest producer of the metal.
``Supply disruptions which occur during the slow seasonal period only serve to improve sentiment and provide some support,'' said Yang. ``The international copper market will continue to be dictated by moves in the dollar, equities and the rest of the commodities complex.''
Among other LME-traded metals, aluminum was little changed at $3,183 a ton, zinc was up 1 percent at $1,800, and nickel added 0.7 percent to $21,000. Lead slipped 2.5 percent to $1,570, while tin had not traded as of 2:47 p.m. in Singapore.
To contact the reporter for this story: Glenys Sim in Singapore at gsim4@bloomberg.net
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Gold Falls in London on Reduced Hedge Demand; Silver Also Drops
By Claudia Carpenter
July 4 (Bloomberg) -- Gold fell in London as a decline in energy costs may reduce demand for precious metals as a hedge against inflation. Silver, platinum and palladium also dropped.
Crude-oil futures declined for the first day in four sessions after jumping to a record yesterday on concern a possible attack on Iran's nuclear facilities would disrupt petroleum supplies. Gold dropped yesterday after European Central Bank President Jean- Claude Trichet signaled interest rates may be high enough to control inflation.
``We have peaked for the time being and now trying to find some support,'' said Wolfgang Wrzesniok-Rossbach, head of marketing and sales at refiner Heraeus Holding GmbH in Hanau, Germany. ``I don't foresee a big drop right now.''
Gold for immediate delivery fell $2.83, or 0.3 percent, to $931.63 an ounce as of 10 a.m. in London, narrowing this week's gain to 0.5 percent. Prices have climbed 43 percent in the past year as the Federal Reserve slashed borrowing costs, undermining the value of the dollar.
Short-term stochastics indicators signal gold may fall to $918 before a rebound, said Dhiren Sarin, an analyst at Barclays Capital in London. Stochastic charts measure the price of a security relative to its highs and lows during a particular period to try to predict a gain or decline.
The metal rose to a record $1,032.70 an ounce on March 17.
Platinum fell $4 to $2,023.50 an ounce, silver declined 22 cents to $18.04 an ounce and palladium dropped $4 to $459.25 an ounce. The UBS Bloomberg CMCI Index of 26 raw materials has advanced 34 percent this year.
The New York Mercantile Exchange is closed today for the U.S. Independence Day holiday.
To contact the reporter on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net
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July 4 (Bloomberg) -- Gold fell in London as a decline in energy costs may reduce demand for precious metals as a hedge against inflation. Silver, platinum and palladium also dropped.
Crude-oil futures declined for the first day in four sessions after jumping to a record yesterday on concern a possible attack on Iran's nuclear facilities would disrupt petroleum supplies. Gold dropped yesterday after European Central Bank President Jean- Claude Trichet signaled interest rates may be high enough to control inflation.
``We have peaked for the time being and now trying to find some support,'' said Wolfgang Wrzesniok-Rossbach, head of marketing and sales at refiner Heraeus Holding GmbH in Hanau, Germany. ``I don't foresee a big drop right now.''
Gold for immediate delivery fell $2.83, or 0.3 percent, to $931.63 an ounce as of 10 a.m. in London, narrowing this week's gain to 0.5 percent. Prices have climbed 43 percent in the past year as the Federal Reserve slashed borrowing costs, undermining the value of the dollar.
Short-term stochastics indicators signal gold may fall to $918 before a rebound, said Dhiren Sarin, an analyst at Barclays Capital in London. Stochastic charts measure the price of a security relative to its highs and lows during a particular period to try to predict a gain or decline.
The metal rose to a record $1,032.70 an ounce on March 17.
Platinum fell $4 to $2,023.50 an ounce, silver declined 22 cents to $18.04 an ounce and palladium dropped $4 to $459.25 an ounce. The UBS Bloomberg CMCI Index of 26 raw materials has advanced 34 percent this year.
The New York Mercantile Exchange is closed today for the U.S. Independence Day holiday.
To contact the reporter on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net
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Palm Oil Futures Near Two-Week High on Soybean, Crude Oil Rally
By Feiwen Rong
July 4 (Bloomberg) -- Palm oil futures in Malaysia, the global benchmark, traded near a two-week high as crude oil hovered near its all-time high and soybeans rallied to a record, improving prospect for higher demand for the tropical oil.
Oil in New York rose to its highest ever of $145.85 a barrel yesterday and traded above $145 today. Demand for crude palm oil and its main substitute soybean oil has increased as the use of vegetable oils for bio-diesel feedstock has cut availability for cooking. Soybean reached a record $16.31 a bushel yesterday on U.S. Midwest floods.
``Crude oil and soybean markets are supporting the palm oil market,'' Kan Heen Sing, trader at HLG Futures Sdn.
Palm oil for June delivery traded at 3,618 ringgit ($1,107) a ton on the Malaysia Derivatives Exchange at the midday break. Futures rallied to 3,647 ringgit yesterday, the highest since June 18. The price has risen 19 percent this year.
Still, palm oil has lagged behind gains in soybean oil, the main substitute for cooking and biofuels, Kan said. Soybean oil traded in Chicago is up 81 percent this year, faster than the 51 percent advance in crude oil.
Soybean oil prices traded at 37 percent premium to the palm oil prices today, widening from 25 percent at the end of May, according to Bloomberg data.
``There's rumor that Malaysia palm oil stockpiles may hit 2 million tons last month,'' Kan said.
Stockpiles of palm oil in Malaysia rose 6.9 percent to 1.91 million metric tons in May from April as production expanded and exports slowed, the Malaysian Palm Oil Board said June 10. That's the most since the February record of 1.93 million tons. The June stockpile is scheduled to be announced July 10.
To contact the reporter for this story: Feiwen Rong in Singapore at frong2@bloomberg.net
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July 4 (Bloomberg) -- Palm oil futures in Malaysia, the global benchmark, traded near a two-week high as crude oil hovered near its all-time high and soybeans rallied to a record, improving prospect for higher demand for the tropical oil.
Oil in New York rose to its highest ever of $145.85 a barrel yesterday and traded above $145 today. Demand for crude palm oil and its main substitute soybean oil has increased as the use of vegetable oils for bio-diesel feedstock has cut availability for cooking. Soybean reached a record $16.31 a bushel yesterday on U.S. Midwest floods.
``Crude oil and soybean markets are supporting the palm oil market,'' Kan Heen Sing, trader at HLG Futures Sdn.
Palm oil for June delivery traded at 3,618 ringgit ($1,107) a ton on the Malaysia Derivatives Exchange at the midday break. Futures rallied to 3,647 ringgit yesterday, the highest since June 18. The price has risen 19 percent this year.
Still, palm oil has lagged behind gains in soybean oil, the main substitute for cooking and biofuels, Kan said. Soybean oil traded in Chicago is up 81 percent this year, faster than the 51 percent advance in crude oil.
Soybean oil prices traded at 37 percent premium to the palm oil prices today, widening from 25 percent at the end of May, according to Bloomberg data.
``There's rumor that Malaysia palm oil stockpiles may hit 2 million tons last month,'' Kan said.
Stockpiles of palm oil in Malaysia rose 6.9 percent to 1.91 million metric tons in May from April as production expanded and exports slowed, the Malaysian Palm Oil Board said June 10. That's the most since the February record of 1.93 million tons. The June stockpile is scheduled to be announced July 10.
To contact the reporter for this story: Feiwen Rong in Singapore at frong2@bloomberg.net
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U.S. Stocks Enter Bear Market as Dow Retreats 20% From Record
By Elizabeth Stanton
July 4 (Bloomberg) -- U.S. stocks fell this week, giving the Dow Jones Industrial Average a 20 percent bear-market drop since October's all-time high, as record oil threatened global growth.
Monsanto Co. and Nucor Corp. led raw-material producers in the Standard & Poor's 500 Index to the steepest drop since January. General Motors Corp. tumbled to the lowest price since 1954 after Merrill Lynch & Co. said the largest U.S. automaker may face bankruptcy. Lehman Brothers Holdings Inc. slumped to an eight-year low on speculation credit losses will force it to merge with a bigger securities firm.
The S&P 500 lost 1.2 percent to 1,262.90 for the fifth straight weekly retreat, the longest streak of declines in four years. The index sank to 1,261.52 on July 2, down 19.4 percent since Oct. 9 and the lowest since July 2006. The Dow slipped 0.5 percent to 11,288.54. The MSCI World Index of 23 developed markets fell 18.4 percent from its October peak through yesterday.
Among large companies, ``the biggest losers are names with international exposure,'' said Mark Freeman, a Dallas-based money manager at Westwood Holdings Group, which manages $8 billion. ``The market is calling into doubt that element of support is going to be with us going forward.''
U.S. markets are closed today for the Independence Day holiday.
Materials companies in the S&P 500 lost 5.8 percent, the most among 10 industries. Monsanto, the world's biggest seed producer, fell 6.3 percent to $120.21. It closed at a record $142.69 on June 17. Nucor, the largest U.S. steelmaker by market value, slumped 16 percent to $62.54. The company dropped 24 percent since an all-time high in May.
Coal Producers Fall
Massey Energy Co. led coal producers in the S&P 500 to a 12 percent retreat that pared their 2008 gain to 27 percent. Massey Energy tumbled 17 percent to $75.46 this week.
Caterpillar Inc., the world's biggest maker of earthmoving equipment, contributed most to the Dow's weekly drop, followed by Boeing Co., the second-largest commercial plane maker, and aluminum producer Alcoa Inc. Before U.S. stocks started falling on May 19, Alcoa had the top gain in the Dow for 2008. Caterpillar was No. 4.
Caterpillar slumped 4.7 percent to $70.31, the lowest since March 10. Boeing retreated 3.7 percent to $64.47, and Alcoa fell 7.4 percent to $32.78.
``It gives you a sense of how much momentum money had been attracted to some of these sectors, as well as a growing realization of the slowdown in front of us,'' said Daniel Manion, manager of the $1.3 billion Sentinel Common Stock Fund in Montpelier, Vermont.
29% Drop, 322 Days
This is the Dow's 12th bear market since 1962 and first since 2002, according to Westport, Connecticut-based research firm Birinyi Associates Inc. Prior declines averaged 29 percent and lasted 322 days, Birinyi data show. The biggest was a 45 percent drop over 694 days starting in January 1973.
General Motors fell 12 percent to $10.12. Its July 3 closing price of $9.98 was the lowest since September 1954. Merrill Lynch analyst John Murphy said the automaker may need to raise as much as $15 billion and faces the possibility of bankruptcy.
The ``dramatic drop-off'' in the U.S. sales market probably will continue through 2009, forcing GM to find additional funding, Murphy wrote in a report. ``Bankruptcy is not impossible if the market continues to deteriorate.''
Lehman, the fourth-largest U.S. securities firm, fell to $19.81 on June 30, the lowest since May 2000. The shares rebounded to end the week at $22.85 after the company awarded mid-year bonuses to retain employees after posting its first quarterly loss since going public because of writedowns of mortgage-related assets.
Sagging Demand
Nvidia Corp. suffered the biggest drop in the S&P, falling 35 percent to $12.49, the lowest price since July 2006. Nvidia cut its second-quarter sales forecast because of a drop in demand and increased competition.
Family Dollar Stores Inc. rose the most in the S&P 500, gaining 16 percent to $22.52. The discount retailer reported 14 percent more third-quarter profit than analysts estimated as customers sought bargains while contending with higher gasoline and food costs.
Apollo Group Inc. climbed 15 percent to $55.18. The largest for-profit provider of college degrees beat per-share profit estimates by 9.7 percent, according to Bloomberg data.
Crude oil, which doubled in the past year, increased to a record $145.85 a barrel in New York yesterday. Its ascent is complicating the Federal Reserve's efforts to keep the economy out of recession amid bank losses stemming from the collapse of the U.S. subprime mortgage market, RBC Capital Markets strategist Myles Zyblock said in a report yesterday.
Shifting to Cash
He advised clients to cut equities to 55 percent of total investments from 60 percent and put the proceeds in cash. Zyblock downgraded financial shares to ``underweight,'' meaning the industry should represent a smaller slice of assets than is included in benchmark stock indexes.
``The equity market is without a parachute at the moment,'' he said. ``Financial and credit market-related stress is on the upswing.'' He added that ``surging energy costs are stealing from purchasing power and pressuring profitability.''
Yields on Treasury securities fell as traders pared bets the Fed will raise interest rates this year after lowering them seven times since September. The two-year note's yield declined to 2.53 percent from 2.63 percent on June 27.
U.S. employers cut jobs for a sixth straight month and service industries shrank in June, according to a government report yesterday. That's a sign the economic slowdown may deepen as the impact of federal tax rebates fades.
Jobs Losses
Payrolls fell by 62,000 after a 62,000 drop in May that was greater than first reported, the Labor Department said. The unemployment rate held at 5.5 percent after soaring the most in two decades in May. The Institute for Supply Management's non- manufacturing index sank to a five-month low.
As the Dow crossed the bear-market threshold on July 2, the benchmark index for U.S. stock options climbed to a three-month high. The VIX, as the Chicago Board Options Exchange Volatility Index is known, reached 25.92. It measures the cost of using options as insurance against declines in the S&P 500.
The Russell 2000 Index fell almost four times as fast as the S&P 500 this week, dragged down by companies added to the small- cap stock benchmark in its annual reconstitution. The Russell 2000, made up of companies with a median market value of $460.7 million, dropped 4.6 percent to 665.78. The losses cut the Russell 2000's advantage over the S&P 500 this year by more than half.
Alcoa is scheduled to report second-quarter results on July 8, becoming the first Dow company to do so. General Electric Co., the world's fifth-largest company by market value and also a Dow component, reports July 11. GE gained 2.5 percent to $26.91.
To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net.
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July 4 (Bloomberg) -- U.S. stocks fell this week, giving the Dow Jones Industrial Average a 20 percent bear-market drop since October's all-time high, as record oil threatened global growth.
Monsanto Co. and Nucor Corp. led raw-material producers in the Standard & Poor's 500 Index to the steepest drop since January. General Motors Corp. tumbled to the lowest price since 1954 after Merrill Lynch & Co. said the largest U.S. automaker may face bankruptcy. Lehman Brothers Holdings Inc. slumped to an eight-year low on speculation credit losses will force it to merge with a bigger securities firm.
The S&P 500 lost 1.2 percent to 1,262.90 for the fifth straight weekly retreat, the longest streak of declines in four years. The index sank to 1,261.52 on July 2, down 19.4 percent since Oct. 9 and the lowest since July 2006. The Dow slipped 0.5 percent to 11,288.54. The MSCI World Index of 23 developed markets fell 18.4 percent from its October peak through yesterday.
Among large companies, ``the biggest losers are names with international exposure,'' said Mark Freeman, a Dallas-based money manager at Westwood Holdings Group, which manages $8 billion. ``The market is calling into doubt that element of support is going to be with us going forward.''
U.S. markets are closed today for the Independence Day holiday.
Materials companies in the S&P 500 lost 5.8 percent, the most among 10 industries. Monsanto, the world's biggest seed producer, fell 6.3 percent to $120.21. It closed at a record $142.69 on June 17. Nucor, the largest U.S. steelmaker by market value, slumped 16 percent to $62.54. The company dropped 24 percent since an all-time high in May.
Coal Producers Fall
Massey Energy Co. led coal producers in the S&P 500 to a 12 percent retreat that pared their 2008 gain to 27 percent. Massey Energy tumbled 17 percent to $75.46 this week.
Caterpillar Inc., the world's biggest maker of earthmoving equipment, contributed most to the Dow's weekly drop, followed by Boeing Co., the second-largest commercial plane maker, and aluminum producer Alcoa Inc. Before U.S. stocks started falling on May 19, Alcoa had the top gain in the Dow for 2008. Caterpillar was No. 4.
Caterpillar slumped 4.7 percent to $70.31, the lowest since March 10. Boeing retreated 3.7 percent to $64.47, and Alcoa fell 7.4 percent to $32.78.
``It gives you a sense of how much momentum money had been attracted to some of these sectors, as well as a growing realization of the slowdown in front of us,'' said Daniel Manion, manager of the $1.3 billion Sentinel Common Stock Fund in Montpelier, Vermont.
29% Drop, 322 Days
This is the Dow's 12th bear market since 1962 and first since 2002, according to Westport, Connecticut-based research firm Birinyi Associates Inc. Prior declines averaged 29 percent and lasted 322 days, Birinyi data show. The biggest was a 45 percent drop over 694 days starting in January 1973.
General Motors fell 12 percent to $10.12. Its July 3 closing price of $9.98 was the lowest since September 1954. Merrill Lynch analyst John Murphy said the automaker may need to raise as much as $15 billion and faces the possibility of bankruptcy.
The ``dramatic drop-off'' in the U.S. sales market probably will continue through 2009, forcing GM to find additional funding, Murphy wrote in a report. ``Bankruptcy is not impossible if the market continues to deteriorate.''
Lehman, the fourth-largest U.S. securities firm, fell to $19.81 on June 30, the lowest since May 2000. The shares rebounded to end the week at $22.85 after the company awarded mid-year bonuses to retain employees after posting its first quarterly loss since going public because of writedowns of mortgage-related assets.
Sagging Demand
Nvidia Corp. suffered the biggest drop in the S&P, falling 35 percent to $12.49, the lowest price since July 2006. Nvidia cut its second-quarter sales forecast because of a drop in demand and increased competition.
Family Dollar Stores Inc. rose the most in the S&P 500, gaining 16 percent to $22.52. The discount retailer reported 14 percent more third-quarter profit than analysts estimated as customers sought bargains while contending with higher gasoline and food costs.
Apollo Group Inc. climbed 15 percent to $55.18. The largest for-profit provider of college degrees beat per-share profit estimates by 9.7 percent, according to Bloomberg data.
Crude oil, which doubled in the past year, increased to a record $145.85 a barrel in New York yesterday. Its ascent is complicating the Federal Reserve's efforts to keep the economy out of recession amid bank losses stemming from the collapse of the U.S. subprime mortgage market, RBC Capital Markets strategist Myles Zyblock said in a report yesterday.
Shifting to Cash
He advised clients to cut equities to 55 percent of total investments from 60 percent and put the proceeds in cash. Zyblock downgraded financial shares to ``underweight,'' meaning the industry should represent a smaller slice of assets than is included in benchmark stock indexes.
``The equity market is without a parachute at the moment,'' he said. ``Financial and credit market-related stress is on the upswing.'' He added that ``surging energy costs are stealing from purchasing power and pressuring profitability.''
Yields on Treasury securities fell as traders pared bets the Fed will raise interest rates this year after lowering them seven times since September. The two-year note's yield declined to 2.53 percent from 2.63 percent on June 27.
U.S. employers cut jobs for a sixth straight month and service industries shrank in June, according to a government report yesterday. That's a sign the economic slowdown may deepen as the impact of federal tax rebates fades.
Jobs Losses
Payrolls fell by 62,000 after a 62,000 drop in May that was greater than first reported, the Labor Department said. The unemployment rate held at 5.5 percent after soaring the most in two decades in May. The Institute for Supply Management's non- manufacturing index sank to a five-month low.
As the Dow crossed the bear-market threshold on July 2, the benchmark index for U.S. stock options climbed to a three-month high. The VIX, as the Chicago Board Options Exchange Volatility Index is known, reached 25.92. It measures the cost of using options as insurance against declines in the S&P 500.
The Russell 2000 Index fell almost four times as fast as the S&P 500 this week, dragged down by companies added to the small- cap stock benchmark in its annual reconstitution. The Russell 2000, made up of companies with a median market value of $460.7 million, dropped 4.6 percent to 665.78. The losses cut the Russell 2000's advantage over the S&P 500 this year by more than half.
Alcoa is scheduled to report second-quarter results on July 8, becoming the first Dow company to do so. General Electric Co., the world's fifth-largest company by market value and also a Dow component, reports July 11. GE gained 2.5 percent to $26.91.
To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net.
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Euro Trades Low Against The Dollar As Trichet Rules Out Anymore Hikes
Daily Forex Fundamentals | Written by Finotec Group | Jul 04 08 09:08 GMT |
http://www.finotec.com/
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The euro headed for a weekly decline against the dollar on speculation a weakening European economic outlook will rule out future interest-rate increases. The Euro traded near a one-week low against the dollar after European Central Bank President Jean-Claude Trichet said he has 'no bias' and that economic growth is 'not flattering,' following the ECB's decision to raise borrowing costs yesterday. The euro touched a one-week low of $1.5675 and is currently trading at $1.5704 as of 7:30 am, GMT. The euro has fallen 0.5 percent this week.
'Trichet has confirmed that the central bank has shifted back to a more neutral stance,' BNP Paribas SA strategists led by Hans-Guenter Redeker wrote in a research note dated yesterday. 'We believe that interest rates are now on hold, suggesting that further downward pressure on the euro is now likely to develop.' The euro may fall to $1.53 on a break below $1.5650, according to BNP.
The Australian and New Zealand dollars rose against the euro on speculation the European Central Bank will refrain from adding to yesterday's interest- rate increase, bolstering demand for higher-yielding currencies. The South Pacific currencies climbed the most in seven weeks as ECB President Jean-Claude Trichet said he has 'no bias' on further moves after raising the region's main refinancing rate to 4.25 percent. The Australian dollar headed for a weekly gain as the difference in yield between two-year Australian and European bonds widened to near the most in a week.
The dollar may advance to 107.70 yen, according to charts traders watch to predict price movements, said Tomoko Fujii, head of economics and strategy for Japan at Bank of America Corp., the second-largest U.S. bank. A so-called candle chart that displays a currency's high, low, open and close for each day, indicated traders became bullish on the dollar. The upside target of 107.70 was on its 200-day moving average, she said. The dollar-yen's short-term technical momentum is bullish, and candle charts on July 2 and yesterday showed a so-called bullish engulfing pattern, a formation that shows the buying pressure exceeded selling pressure, reversing the dollar's bearish-trend, she said. In this formation, the first day's body, which is the area between the open and closing price, is engulfed by the second day's body. USD/JPY currently trading at 106.75 as of 7:57 am, GMT.
http://www.finotec.com/
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Mirgor, Petrobras, Southern Copper: Latin Equity Preview
uitjBy Paulo Winterstein and James Attwood
July 4 (Bloomberg) -- The following stocks may have significant gains or losses in Latin American markets. Symbols are in parentheses after company names, and stock prices are from the last session.
The MSCI index of Latin American shares fell 2.8 percent to 4,368.16 yesterday. In Brazil, preferred shares are the most commonly traded class of stock.
Argentina
Irsa Inversiones y Representaciones SA (IRSA AR): Argentina's biggest real-estate developer said it bought a 30 percent stake in Metropolitan 885 Third Avenue LLC for $22.6 million. Metropolitan 885 Third Avenue's main asset is an office building in Manhattan, New York, Irsa wrote in a regulatory filing yesterday. Irsa fell 2 percent to 3.4 pesos.
Mirgor Sacifia (MIRG AF): Argentine automakers increased production 7.7 percent in June from a year earlier, the country's Automaker Association said yesterday in a statement. Mirgor, which makes climate-control systems for vehicles, fell 0.8 percent to 189 pesos.
Brazil
Petroleo Brasileiro SA (PETR4 BS): Brazil's state- controlled oil company said its Brazilian crude oil and natural gas liquids output rose 0.7 percent in June compared with May, and 2.2 percent higher than a year earlier. Output from Brazil's domestic on-shore and offshore oil fields rose to 1.87 million barrels a day from 1.85 million barrels a day in the previous month, according to a statement posted yesterday on the Rio de Janeiro-based company's Web site. Petrobras fell 3.3 percent to 42.55 reais.
Telecomunicacoes de Sao Paulo SA (TLPP4 BS): Brazil's consumer protection agency said yesterday that users affected by disruptions in high-speed Internet connections provided by Telesp, as the Brazilian unit of Telefonica SA is known, can request compensation. Telesp fell 3.5 percent to 41.95 reais.
Peru
Southern Copper Corp. (PCU/C PE): Workers at a smelter owned by Southern Copper, the world's seventh-largest copper producer, ended a three-day stoppage after the government ruled a nationwide mining strike was illegal, a company spokesman said. The Ilo smelter was operating normally yesterday, said Alberto Giles, a spokesman for Phoenix-based Southern Copper. Southern Copper fell 2 percent to $100.50.
To contact the reporters on this story: Paulo Winterstein in Sao Paulo at pwinterstein@bloomberg.net; James Attwood in Santiago at jattwood3@bloomberg.net.
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July 4 (Bloomberg) -- The following stocks may have significant gains or losses in Latin American markets. Symbols are in parentheses after company names, and stock prices are from the last session.
The MSCI index of Latin American shares fell 2.8 percent to 4,368.16 yesterday. In Brazil, preferred shares are the most commonly traded class of stock.
Argentina
Irsa Inversiones y Representaciones SA (IRSA AR): Argentina's biggest real-estate developer said it bought a 30 percent stake in Metropolitan 885 Third Avenue LLC for $22.6 million. Metropolitan 885 Third Avenue's main asset is an office building in Manhattan, New York, Irsa wrote in a regulatory filing yesterday. Irsa fell 2 percent to 3.4 pesos.
Mirgor Sacifia (MIRG AF): Argentine automakers increased production 7.7 percent in June from a year earlier, the country's Automaker Association said yesterday in a statement. Mirgor, which makes climate-control systems for vehicles, fell 0.8 percent to 189 pesos.
Brazil
Petroleo Brasileiro SA (PETR4 BS): Brazil's state- controlled oil company said its Brazilian crude oil and natural gas liquids output rose 0.7 percent in June compared with May, and 2.2 percent higher than a year earlier. Output from Brazil's domestic on-shore and offshore oil fields rose to 1.87 million barrels a day from 1.85 million barrels a day in the previous month, according to a statement posted yesterday on the Rio de Janeiro-based company's Web site. Petrobras fell 3.3 percent to 42.55 reais.
Telecomunicacoes de Sao Paulo SA (TLPP4 BS): Brazil's consumer protection agency said yesterday that users affected by disruptions in high-speed Internet connections provided by Telesp, as the Brazilian unit of Telefonica SA is known, can request compensation. Telesp fell 3.5 percent to 41.95 reais.
Peru
Southern Copper Corp. (PCU/C PE): Workers at a smelter owned by Southern Copper, the world's seventh-largest copper producer, ended a three-day stoppage after the government ruled a nationwide mining strike was illegal, a company spokesman said. The Ilo smelter was operating normally yesterday, said Alberto Giles, a spokesman for Phoenix-based Southern Copper. Southern Copper fell 2 percent to $100.50.
To contact the reporters on this story: Paulo Winterstein in Sao Paulo at pwinterstein@bloomberg.net; James Attwood in Santiago at jattwood3@bloomberg.net.
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Forex Technical Analysis
Daily Forex Technicals | Written by DeltaStock Inc. | Jul 04 08 08:16 GMT |
EUR/USD
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EUR/USD
The currency pair has set a local bottom at 1.5301 completing the slide from 1.5844. Technical indicators are neutral. Trading takes place above 50- day SMA, currently projected at 1.5609.
A weak intraday high was reached at 1.5909 after ECB's interest rate announcement, as the 0.25% hike was already priced in. The sharp sell-off that followed was fueled by Trichet's statement, that current hike will probably be enough to "anchor inflation expectations", that resulted in closing long positions built during last week. The effect was doubled by the fact, that due to today's national holiday in USA, all the US markets will remain closed, which practically made yesterday's trading session week's closing one. Expect calm, range trading below 1.5775 and above 1.5651 support zone.
Today's strategy: Stand aside.
| Resistance | Support | ||
| intraday | intraweek | intraday | intraweek |
| 1.5775 | 1.5852 | 1.5909 | 1.6020 |
| 1.5678 | 1.5651 | 1.5537 | 1.50+ |
USD/JPY
Current level - 106.84
The pair is in a corrective uptrend from the 95.75 short-term bottom. Technical indicators are flat and the upmove is dynamically supported at 104.74. The inner structure of the rise is by all means a corrective one, so from a larger point of view the overall downtrend from 124.14 is not over yet.
The acceleration of the downtrend has denied the possibility, that a final spike high around 109.30 is still possible and it is clear, that a mid-term top is set at 108.59 and current slide is aiming at 102.63 and 100.06 later on
Allow one more upswing to 107.12 resistance before exhaustion of the current corrective upmove and renewing the downtrend. If correct, next short-term target is projected at 103.83 and 102.63 later on
Today's strategy: Sell on a break below 105.79, stop above intraday high, target above 103.83.
| Resistance | Support | ||
| intraday | intraweek | intraday | intraweek |
| 107.12 | 107.83 | 108.42 | 109.51 |
| 105.79 | 105.19 | 104.75 | 102.63 |
GBP/USD
Current level- 1.9842
The pair is in a broad consolidation above 1.9338 and below 2.0397. Technical indicators are flat on the higher time-frames and trading is situated between the 50- and 200-day SMA, currently projected at 1.9685 and 1.9982
The expected consolidation phase since 2.0007 has reached the minimum target at 1.9801, but there are no signs for its completion, so allow one more spike low to 1.9767 before change of the direction. We hold on to our short-term view, that the uptrend from 1.9474 is still intact and it will target 2.0274 and 2.0397 later on. Keep an eye on the 1.9912 resistance, as a break beyond that level will directly aim at 2.0274.
Today's strategy : Buy on a break above 1.9912, stop below intraday low, target at 2.0274. Intraday sell current levels for 1.9783.
| Resistance | Support | ||
| intraday | intraweek | intraday | intraweek |
| 2.0007 | 2.0028 | 2.0193 | 2.0397 |
| 1.9801 | 1.9767 | 1.9767 | 1.9196 |
DeltaStock Inc. - Online Forex & Securities Broker
www.deltastock.com
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Mattel Eclipses GM in Value on Toy-Car Gains: Chart of the Day
By Jeff Green and Heather Burke
July 4 (Bloomberg) -- Mattel Inc., helped by rising sales of Matchbox and Hot Wheels toy cars, has a larger market value than General Motors Corp. for the first time as record U.S. gasoline prices crimp sales of real cars and trucks.
GM shares fell to the lowest since 1954 this week after an analyst said bankruptcy was ``not impossible'' if the auto market continues to deteriorate. GM's U.S. unit sales fell 18 percent in June. The chart of the day shows a comparison of the change in market value for Mattel and GM.
Mattel is surpassing GM even after the toymaker reported its first quarterly loss in almost three years in April, a reflection of the diverging outlook for the two companies. Mattel may return to profitability after the first quarter, while GM will probably report losses through 2009 as buyers spurn pickup trucks and sport-utility vehicles, analysts said.
``Hot Wheels and Matchbox are basic, low-priced toys, so they appeal to consumers, in the U.S. and especially in less affluent countries, who may not be able to afford more expensive toys,'' Sean McGowan, a toy analyst at Needham & Co. in New York, said yesterday in an e-mail. He recommends buying Mattel shares.
GM, the world's largest automaker, rose 14 cents, or 1.4 percent, to $10.12 in New York Stock Exchange composite trading yesterday after a JP Morgan & Chase Co. analyst said GM has ``tough but manageable'' liquidity options. Mattel rose 8 cents to $17.22.
Mattel briefly passed Detroit-based GM in market value for the first time June 26 and regained its lead July 2. El Segundo, California-based Mattel is the world's biggest toymaker.
GM, turning 100 this year, reported its largest annual loss in 2007, $38.7 billion, after a tax accounting change, and hasn't had a profitable year since 2004. The carmaker's U.S. market share hovers at the lowest level since 1925, and last year GM was 3,000 cars away from being dethroned by Toyota Motor Corp. as the world's largest automaker.
Mattel said first-quarter revenue from toy cars rose 15 percent. The company had a $46.6 million loss in the quarter as Chinese manufacturing costs rose. The maker of Barbie dolls hasn't had an annual loss since 2000.
To contact the reporters on this story: Jeff Green in Southfield, Michigan at jgreen16@bloomberg.net; Heather Burke in New York at hburke2@bloomberg.net.
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European Stocks Fall; British Airways, Anglo American, B&B Drop
By Sarah Jones
July 4 (Bloomberg) -- European stocks fell, capping their fifth straight weekly decline, as oil prices near a record high weighed on airlines and a retreat in metals pushed commodity producers lower. Most Asian stocks fell, while U.S. markets were closed today for Independence Day.
British Airways Plc and Air France-KLM Group declined as crude traded above $145 a barrel. Anglo American Plc led mining shares lower as Goldman Sachs Group Inc. downgraded the industry. Bradford & Bingley Plc tumbled after TPG Inc. dropped plans to inject 179 million pounds ($354.7 million) into the company.
Europe's Dow Jones Stoxx 600 Index slipped 0.5 percent to 281.54 at 9:05 a.m. in London, extending this week's retreat to 2 percent. The fifth consecutive weekly drop is the longest losing streak since January.
``The focus is still very much strongly on the oil price because inflation is mainly driven by the oil price,'' said Bernd Meyer, head of pan-European equity strategy at Deutsche Bank AG in London.
The MSCI Asia Pacific Index was little changed today as the index completed a four-week, 12 percent slide, the longest losing streak since the period ended Feb. 8.
Credit-related losses topping $400 billion, record oil prices and accelerating inflation has led analysts to cut earnings estimates as the outlook for economic growth slows.
Earnings for Stoxx 600 companies will fall 1.7 percent this year, according to data compiled by Bloomberg. That's down from 11 percent growth predicted at the start of 2008.
National Markets
National benchmark indexes fell in 14 of the 17 western European markets that were open. The U.K.'s FTSE 100 lost 0.8 percent. France's CAC 40 slipped 0.7 percent, and Germany's DAX advanced 0.8 percent.
British Airways, Europe's third-largest airline, dropped 3 percent to 202.75 pence. Air France, Europe's biggest airline, retreated 1.4 percent to 14.20 euros.
Crude oil for August delivery was at $145.44 a barrel, up 15 cents, in after-hours electronic trading on the New York Mercantile Exchange.
Futures yesterday climbed to $145.85 a barrel, the highest since trading began in 1983. Prices have risen 3.6 percent this week and more than doubled in the past year.
Anglo American, the world's second-biggest mining company, lost 1.3 percent to 3,227 pence. Vedanta Resources Plc, India's largest zinc producer, declined 2 percent to 1,982 pence. Copper, lead and tin declined in London.
Goldman Sachs downgraded basic-resource shares to ``neutral,'' saying investor concerns about the impact from higher inflation will likely weigh on confidence in the sector.
``We are taking profits in basic resources,'' London-based analyst Peter Oppenheimer wrote in a note to investors. We have a ``view to upgrade again when risks subside.''
Bradford & Bingley
Bradford & Bingley fell 9 percent to 55.5 pence after TPG withdrew its offer to take a stake in the bank.
Britain's largest lender to landlords will continue with the capital-raising announced June 2 through an enlarged rights offer, the bank said. The rights offer is supported by some of the largest shareholders, including Legal & General Group Plc, Standard Life Plc., M&G Investment Managers and Insight Investment Management
Marks & Spencer Group Plc lost 3 percent to 229 pence, dropping for a seventh day. Citigroup Inc. downgraded the U.K.'s biggest clothing retailer to ``sell'' from ``buy'' after the company reported falling sales amid a slump in consumer spending.
The brokerage also cut its 2009 and 2010 pretax profit estimates 17 percent and 29 percent respectively and slashed its price estimate on the stock 54 percent to 205 pence.
``The current sharply deteriorating U.K. macro environment should drive a `Sell' stance on the U.K. general retailers,'' London-based analyst Richard Edwards wrote in a note.
UBS
UBS AG jumped 7.5 percent to 22.6 francs. The European bank hardest hit by the U.S. subprime crisis said it expects to post a second-quarter result ``at or slightly below break-even,'' helped by about 3 billion francs ($2.9 billion) in tax credits and that it sees ``no need to raise new equity.''
UBS, which posted a profit of 5.55 billion Swiss francs ($5.4 billion) a year earlier, said that market turmoil contributed to writedowns and a loss at the investment bank. The bank had a negative flow of net new money, which was worst in April. The results will be published Aug. 12 as planned.
To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net.
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July 4 (Bloomberg) -- European stocks fell, capping their fifth straight weekly decline, as oil prices near a record high weighed on airlines and a retreat in metals pushed commodity producers lower. Most Asian stocks fell, while U.S. markets were closed today for Independence Day.
British Airways Plc and Air France-KLM Group declined as crude traded above $145 a barrel. Anglo American Plc led mining shares lower as Goldman Sachs Group Inc. downgraded the industry. Bradford & Bingley Plc tumbled after TPG Inc. dropped plans to inject 179 million pounds ($354.7 million) into the company.
Europe's Dow Jones Stoxx 600 Index slipped 0.5 percent to 281.54 at 9:05 a.m. in London, extending this week's retreat to 2 percent. The fifth consecutive weekly drop is the longest losing streak since January.
``The focus is still very much strongly on the oil price because inflation is mainly driven by the oil price,'' said Bernd Meyer, head of pan-European equity strategy at Deutsche Bank AG in London.
The MSCI Asia Pacific Index was little changed today as the index completed a four-week, 12 percent slide, the longest losing streak since the period ended Feb. 8.
Credit-related losses topping $400 billion, record oil prices and accelerating inflation has led analysts to cut earnings estimates as the outlook for economic growth slows.
Earnings for Stoxx 600 companies will fall 1.7 percent this year, according to data compiled by Bloomberg. That's down from 11 percent growth predicted at the start of 2008.
National Markets
National benchmark indexes fell in 14 of the 17 western European markets that were open. The U.K.'s FTSE 100 lost 0.8 percent. France's CAC 40 slipped 0.7 percent, and Germany's DAX advanced 0.8 percent.
British Airways, Europe's third-largest airline, dropped 3 percent to 202.75 pence. Air France, Europe's biggest airline, retreated 1.4 percent to 14.20 euros.
Crude oil for August delivery was at $145.44 a barrel, up 15 cents, in after-hours electronic trading on the New York Mercantile Exchange.
Futures yesterday climbed to $145.85 a barrel, the highest since trading began in 1983. Prices have risen 3.6 percent this week and more than doubled in the past year.
Anglo American, the world's second-biggest mining company, lost 1.3 percent to 3,227 pence. Vedanta Resources Plc, India's largest zinc producer, declined 2 percent to 1,982 pence. Copper, lead and tin declined in London.
Goldman Sachs downgraded basic-resource shares to ``neutral,'' saying investor concerns about the impact from higher inflation will likely weigh on confidence in the sector.
``We are taking profits in basic resources,'' London-based analyst Peter Oppenheimer wrote in a note to investors. We have a ``view to upgrade again when risks subside.''
Bradford & Bingley
Bradford & Bingley fell 9 percent to 55.5 pence after TPG withdrew its offer to take a stake in the bank.
Britain's largest lender to landlords will continue with the capital-raising announced June 2 through an enlarged rights offer, the bank said. The rights offer is supported by some of the largest shareholders, including Legal & General Group Plc, Standard Life Plc., M&G Investment Managers and Insight Investment Management
Marks & Spencer Group Plc lost 3 percent to 229 pence, dropping for a seventh day. Citigroup Inc. downgraded the U.K.'s biggest clothing retailer to ``sell'' from ``buy'' after the company reported falling sales amid a slump in consumer spending.
The brokerage also cut its 2009 and 2010 pretax profit estimates 17 percent and 29 percent respectively and slashed its price estimate on the stock 54 percent to 205 pence.
``The current sharply deteriorating U.K. macro environment should drive a `Sell' stance on the U.K. general retailers,'' London-based analyst Richard Edwards wrote in a note.
UBS
UBS AG jumped 7.5 percent to 22.6 francs. The European bank hardest hit by the U.S. subprime crisis said it expects to post a second-quarter result ``at or slightly below break-even,'' helped by about 3 billion francs ($2.9 billion) in tax credits and that it sees ``no need to raise new equity.''
UBS, which posted a profit of 5.55 billion Swiss francs ($5.4 billion) a year earlier, said that market turmoil contributed to writedowns and a loss at the investment bank. The bank had a negative flow of net new money, which was worst in April. The results will be published Aug. 12 as planned.
To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net.
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U.K. Stocks Decline; Bradford & Bingley, Marks & Spencer Fall
By Adam Haigh
July 4 (Bloomberg) -- U.K. stocks fell, led by Bradford & Bingley Plc after TPG Inc. withdrew its offer to buy a stake in Britain's largest lender to landlords.
HBOS Plc declined as Societe Generale SA advised selling the shares. Marks & Spencer Group Plc fell for a seventh day, to the lowest since 2001, as Citigroup Inc. downgraded the stock to ``sell'' from ``buy.''
The benchmark FTSE 100 Index retreated 38.4, or 0.7 percent, to 5,438.2 at 8:44 a.m. in London, extending this week's decline to 1.6 percent its seventh straight weekly fall. The FTSE All- Share Index lost 0.6 percent today and Ireland's ISEQ Index dropped 0.5 percent.
Bradford & Bingley lost 3.7 percent to 58.75 pence, after briefly falling below the 55 pence strike price of its rights offering. The lender said it will raise 400 million ($793 million) in new capital without the buyout firm.
HBOS retreated 1.4 percent to 275.25 pence. Societe Generale cut its recommendation on the U.K.'s biggest mortgage lender to ``sell'' from ``hold.''
``Given the June downgrades to monoline insurers and continued weakening in the U.K. credit environment, we believe that interim results could disappoint the market,'' London-based analyst Asheefa Sarangi wrote in a note to clients.
Marks & Spencer lost 4.9 percent to 224.5, bringing this year's decline to 60 percent.
Citigroup lowered its 2009 and 2010 pretax profit estimates 17 percent and 29 percent respectively and slashed its price estimate on the stock 54 percent to 205 pence.
``Sector-wide revenue trends will weaken further as consumer demand patterns deteriorate,'' London-based analyst Richard Edwards wrote in a note.
Flying Brands Ltd., the U.K. mail-order flower seller that went public in 1993, slumped 11 percent to 46 pence after saying it will close its U.S. Greetings Direct business following ``extremely disappointing'' test results in June.
To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net
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July 4 (Bloomberg) -- U.K. stocks fell, led by Bradford & Bingley Plc after TPG Inc. withdrew its offer to buy a stake in Britain's largest lender to landlords.
HBOS Plc declined as Societe Generale SA advised selling the shares. Marks & Spencer Group Plc fell for a seventh day, to the lowest since 2001, as Citigroup Inc. downgraded the stock to ``sell'' from ``buy.''
The benchmark FTSE 100 Index retreated 38.4, or 0.7 percent, to 5,438.2 at 8:44 a.m. in London, extending this week's decline to 1.6 percent its seventh straight weekly fall. The FTSE All- Share Index lost 0.6 percent today and Ireland's ISEQ Index dropped 0.5 percent.
Bradford & Bingley lost 3.7 percent to 58.75 pence, after briefly falling below the 55 pence strike price of its rights offering. The lender said it will raise 400 million ($793 million) in new capital without the buyout firm.
HBOS retreated 1.4 percent to 275.25 pence. Societe Generale cut its recommendation on the U.K.'s biggest mortgage lender to ``sell'' from ``hold.''
``Given the June downgrades to monoline insurers and continued weakening in the U.K. credit environment, we believe that interim results could disappoint the market,'' London-based analyst Asheefa Sarangi wrote in a note to clients.
Marks & Spencer lost 4.9 percent to 224.5, bringing this year's decline to 60 percent.
Citigroup lowered its 2009 and 2010 pretax profit estimates 17 percent and 29 percent respectively and slashed its price estimate on the stock 54 percent to 205 pence.
``Sector-wide revenue trends will weaken further as consumer demand patterns deteriorate,'' London-based analyst Richard Edwards wrote in a note.
Flying Brands Ltd., the U.K. mail-order flower seller that went public in 1993, slumped 11 percent to 46 pence after saying it will close its U.S. Greetings Direct business following ``extremely disappointing'' test results in June.
To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net
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German Stocks Decline, Led by Deutsche Boerse, Linde, Henkel
By Stefanie Haxel
July 4 (Bloomberg) -- Germany's DAX Index dropped, erasing earlier gains. Deutsche Boerse AG, Linde Group and Henkel AG led declining shares.
The benchmark DAX fell 24.66, or 0.4 percent, to 6,329.08 as of 9:27 a.m. after advancing as much as 0.3 percent. The HDAX Index of the country's 110 biggest companies slipped 0.3 percent to 3,239.18.
Deutsche Boerse, operator of the Frankfurt exchange, lost 1.27 euros, or 1.8 percent, to 70.60.
Linde, Germany's largest maker of industrial gas, retreated 1 euro, to 1.1 percent, to 90.68. Henkel AG, the maker of Persil detergent, slipped 21 cents, or 0.8 percent, to 25.14 euros.
To contact the reporter on this story: Stefanie Haxel in Frankfurt at shaxel@bloomberg.net
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July 4 (Bloomberg) -- Germany's DAX Index dropped, erasing earlier gains. Deutsche Boerse AG, Linde Group and Henkel AG led declining shares.
The benchmark DAX fell 24.66, or 0.4 percent, to 6,329.08 as of 9:27 a.m. after advancing as much as 0.3 percent. The HDAX Index of the country's 110 biggest companies slipped 0.3 percent to 3,239.18.
Deutsche Boerse, operator of the Frankfurt exchange, lost 1.27 euros, or 1.8 percent, to 70.60.
Linde, Germany's largest maker of industrial gas, retreated 1 euro, to 1.1 percent, to 90.68. Henkel AG, the maker of Persil detergent, slipped 21 cents, or 0.8 percent, to 25.14 euros.
To contact the reporter on this story: Stefanie Haxel in Frankfurt at shaxel@bloomberg.net
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Goldman Says European Banks May Need as Much as EU90 Billion
By Alexis Xydias
July 4 (Bloomberg) -- European banks may need to raise between 60 billion euros ($94 billion) and 90 billion euros to keep their financial ratios at current levels amid a decline in credit markets, according to Goldman Sachs Group Inc.
In a note to investors distributed today a team of London- based analysts cut their recommendations on Carnegie & Co. and Swedbank AB of Sweden to ``sell'' from ``neutral.'' Banco Santander SA, Spain's largest bank, was downgraded to ``neutral'' from ``buy.''
``Regulatory pressures and a sharp turn in the European credit cycle are the two main causes for concern for bank investors,'' the report said. ``If, in addition to regulatory tightening, the sector returns to the early 1990s' level of credit losses, we estimate that the capital shortfall could amount to 90 billion euros.''
To contact the reporter on this story: Alexis Xydias in London at axydias@bloomberg.net.
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July 4 (Bloomberg) -- European banks may need to raise between 60 billion euros ($94 billion) and 90 billion euros to keep their financial ratios at current levels amid a decline in credit markets, according to Goldman Sachs Group Inc.
In a note to investors distributed today a team of London- based analysts cut their recommendations on Carnegie & Co. and Swedbank AB of Sweden to ``sell'' from ``neutral.'' Banco Santander SA, Spain's largest bank, was downgraded to ``neutral'' from ``buy.''
``Regulatory pressures and a sharp turn in the European credit cycle are the two main causes for concern for bank investors,'' the report said. ``If, in addition to regulatory tightening, the sector returns to the early 1990s' level of credit losses, we estimate that the capital shortfall could amount to 90 billion euros.''
To contact the reporter on this story: Alexis Xydias in London at axydias@bloomberg.net.
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China Stock Funds Plunged 41% This Year, Galaxy Securities Says
By Zhang Shidong
July 4 (Bloomberg) -- China's mutual funds that buy stocks lost 41 percent of their value in the first half of the year as equities slumped and investors sold units, according to data compiled by China Galaxy Securities Co.
The combined net asset value of the 287 funds plunged to 1.74 trillion yuan ($254 billion) at the end of June from 2.94 trillion yuan at the end of last year, Beijing-based Galaxy Securities, China's second-largest brokerage by revenue, said in a report published in the China Securities Journal today.
China's benchmark CSI 300 Index slumped 48 percent in the first half on concern inflation at more than a decade-high and surging raw material prices will dent earnings growth. Gains in corporate earnings will slow down further in the third quarter on higher fuel costs, analysts including Chen Li at Shenyin & Wanguo Securities Co. said in an interview this week.
Investors sold 36.3 billion units from the mutual funds in the first six months, according to the Galaxy Securities report. The funds control about 30 percent by value of the tradable shares on the Shanghai and Shenzhen stock markets, it said. About two-thirds of the shares of companies listed in the cities are owned by the state or state-run institutions and are not available for sale.
The following table ranks the top 10 fund management companies by net asset value through June 30, according to China Galaxy Securities Co.
FIRM ASSETS (YUAN)
----------------------------------------------------------------
1. China Asset Fund Management Co. 202.4 billion
2. Boshi Fund Management Co. 132.1 billion
3. Harvest Fund Management Co. 120.9 billion
4. China Southern Fund Management Co. 117.6 billion
5. E Fund Management Co. 110.1 billion
6. GF Fund Management Co. 82.5 billion
7. Dacheng Fund Management Co. 78 billion
8. Hua An Fund Management Co. 72 billion
9. China International Fund Management Co. 69.7 billion
10. Invesco Great Wall Fund Management Co. 57.2 billion
----------------------------------------------------------------
To contact the reporter on this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net
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FX Trading Subdued
Daily Forex Fundamentals | Written by AC-Markets | Jul 04 08 08:20 GMT |
Market Brief
FX markets were relatively stable in Asian session as yesterday's volatility seem to have driven more then just the US participant to start their weekend early. EurUsd climbed tentatively back above the psychological 1.5700 level while UsdJpy bounced around 106.60 / 106.80 levels. Carry trades picked up a slight intraday upwards trend with EurJpy moving from 167.25 to 167.84 and AudJpy found support on the 10d-ma, rallying to 102.75. With a light calendar and the US 4th of July holiday we would expect trading to be subdued.
Oil prices were stable with Dubai trading at 145.13bll while gold slipped slightly to 934.35oz. US stock markets for the most part were able to shrug off the negative payroll data and close slightly higher however Asian markets were lower with only the Shanghai Composite trading up 1.95% higher today. European index futures are trading higher before the open US markets are closed.
As we had expected the ECB raised rates by 25bp to 4.25% yesterday while the accompanying press conference was more dovish then we had anticipated. In fact during the Q&A portion, Trichet said, 'I have no bias' in regards to future rate decisions. A comment he has never uttered before and clearly illustrates that the ECB now has a neutral bias. At this point we have a slight bias towards an additional hike in September due primary to Euro zone inflation which is expect to print at 4.1% for August. A large worrying figure and one that will provide Trichet with many sleepless nights, especially considering growth has now increased the pace of downwards deterioration. We don't expect EurUsd to pick up any noticeable trend until data from both countries starts giving us real signals as to the direction of monetary policy.
We will however be watching the UK and Gbp for selling opportunities. While the recent trading pattern of Gbp strength has been based on the markets renewed focus on inflation over growth we expect given the rapid decline of the domestic economy an eventual shift will occur. We expect a choppy move back to the 1.9300 lvls mid term.
Yesterday Sweden's Riksbank hiked rates 25bp to 4.50%, following the lead of the Norges Bank in a move that was widely expected. CPI inflation has recently jumped to 4.0% and rate expectations have followed suit putting the offensive. In addition, the bank signaled that the market could see two more rate hikes in order to slow the economy and contain inflation pressures.
In Australia trade deficit printed at $965m in May in line with expectations. However, there were large revisions of around $1.0bn to April, as higher contract prices for commodities were passed through.
10:00gmt - ECB's Trichet speaks
10:00gmt - ECB's Gonzales-Paramo speaks
ACM FOREX
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Market Brief
FX markets were relatively stable in Asian session as yesterday's volatility seem to have driven more then just the US participant to start their weekend early. EurUsd climbed tentatively back above the psychological 1.5700 level while UsdJpy bounced around 106.60 / 106.80 levels. Carry trades picked up a slight intraday upwards trend with EurJpy moving from 167.25 to 167.84 and AudJpy found support on the 10d-ma, rallying to 102.75. With a light calendar and the US 4th of July holiday we would expect trading to be subdued.
Oil prices were stable with Dubai trading at 145.13bll while gold slipped slightly to 934.35oz. US stock markets for the most part were able to shrug off the negative payroll data and close slightly higher however Asian markets were lower with only the Shanghai Composite trading up 1.95% higher today. European index futures are trading higher before the open US markets are closed.
As we had expected the ECB raised rates by 25bp to 4.25% yesterday while the accompanying press conference was more dovish then we had anticipated. In fact during the Q&A portion, Trichet said, 'I have no bias' in regards to future rate decisions. A comment he has never uttered before and clearly illustrates that the ECB now has a neutral bias. At this point we have a slight bias towards an additional hike in September due primary to Euro zone inflation which is expect to print at 4.1% for August. A large worrying figure and one that will provide Trichet with many sleepless nights, especially considering growth has now increased the pace of downwards deterioration. We don't expect EurUsd to pick up any noticeable trend until data from both countries starts giving us real signals as to the direction of monetary policy.
We will however be watching the UK and Gbp for selling opportunities. While the recent trading pattern of Gbp strength has been based on the markets renewed focus on inflation over growth we expect given the rapid decline of the domestic economy an eventual shift will occur. We expect a choppy move back to the 1.9300 lvls mid term.
Yesterday Sweden's Riksbank hiked rates 25bp to 4.50%, following the lead of the Norges Bank in a move that was widely expected. CPI inflation has recently jumped to 4.0% and rate expectations have followed suit putting the offensive. In addition, the bank signaled that the market could see two more rate hikes in order to slow the economy and contain inflation pressures.
In Australia trade deficit printed at $965m in May in line with expectations. However, there were large revisions of around $1.0bn to April, as higher contract prices for commodities were passed through.
10:00gmt - ECB's Trichet speaks
10:00gmt - ECB's Gonzales-Paramo speaks
ACM FOREX
Read more...
Daily Forex Fundamentals | Written by AC-Markets | Jul 04 08 08:20 GMT |
FX Trading Subdued
Market Brief
FX markets were relatively stable in Asian session as yesterday's volatility seem to have driven more then just the US participant to start their weekend early. EurUsd climbed tentatively back above the psychological 1.5700 level while UsdJpy bounced around 106.60 / 106.80 levels. Carry trades picked up a slight intraday upwards trend with EurJpy moving from 167.25 to 167.84 and AudJpy found support on the 10d-ma, rallying to 102.75. With a light calendar and the US 4th of July holiday we would expect trading to be subdued.
Oil prices were stable with Dubai trading at 145.13bll while gold slipped slightly to 934.35oz. US stock markets for the most part were able to shrug off the negative payroll data and close slightly higher however Asian markets were lower with only the Shanghai Composite trading up 1.95% higher today. European index futures are trading higher before the open US markets are closed.
As we had expected the ECB raised rates by 25bp to 4.25% yesterday while the accompanying press conference was more dovish then we had anticipated. In fact during the Q&A portion, Trichet said, 'I have no bias' in regards to future rate decisions. A comment he has never uttered before and clearly illustrates that the ECB now has a neutral bias. At this point we have a slight bias towards an additional hike in September due primary to Euro zone inflation which is expect to print at 4.1% for August. A large worrying figure and one that will provide Trichet with many sleepless nights, especially considering growth has now increased the pace of downwards deterioration. We don't expect EurUsd to pick up any noticeable trend until data from both countries starts giving us real signals as to the direction of monetary policy.
We will however be watching the UK and Gbp for selling opportunities. While the recent trading pattern of Gbp strength has been based on the markets renewed focus on inflation over growth we expect given the rapid decline of the domestic economy an eventual shift will occur. We expect a choppy move back to the 1.9300 lvls mid term.
Yesterday Sweden's Riksbank hiked rates 25bp to 4.50%, following the lead of the Norges Bank in a move that was widely expected. CPI inflation has recently jumped to 4.0% and rate expectations have followed suit putting the offensive. In addition, the bank signaled that the market could see two more rate hikes in order to slow the economy and contain inflation pressures.
In Australia trade deficit printed at $965m in May in line with expectations. However, there were large revisions of around $1.0bn to April, as higher contract prices for commodities were passed through.
10:00gmt - ECB's Trichet speaks
10:00gmt - ECB's Gonzales-Paramo speaks
ACM FOREX
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FX Trading Subdued
Market Brief
FX markets were relatively stable in Asian session as yesterday's volatility seem to have driven more then just the US participant to start their weekend early. EurUsd climbed tentatively back above the psychological 1.5700 level while UsdJpy bounced around 106.60 / 106.80 levels. Carry trades picked up a slight intraday upwards trend with EurJpy moving from 167.25 to 167.84 and AudJpy found support on the 10d-ma, rallying to 102.75. With a light calendar and the US 4th of July holiday we would expect trading to be subdued.
Oil prices were stable with Dubai trading at 145.13bll while gold slipped slightly to 934.35oz. US stock markets for the most part were able to shrug off the negative payroll data and close slightly higher however Asian markets were lower with only the Shanghai Composite trading up 1.95% higher today. European index futures are trading higher before the open US markets are closed.
As we had expected the ECB raised rates by 25bp to 4.25% yesterday while the accompanying press conference was more dovish then we had anticipated. In fact during the Q&A portion, Trichet said, 'I have no bias' in regards to future rate decisions. A comment he has never uttered before and clearly illustrates that the ECB now has a neutral bias. At this point we have a slight bias towards an additional hike in September due primary to Euro zone inflation which is expect to print at 4.1% for August. A large worrying figure and one that will provide Trichet with many sleepless nights, especially considering growth has now increased the pace of downwards deterioration. We don't expect EurUsd to pick up any noticeable trend until data from both countries starts giving us real signals as to the direction of monetary policy.
We will however be watching the UK and Gbp for selling opportunities. While the recent trading pattern of Gbp strength has been based on the markets renewed focus on inflation over growth we expect given the rapid decline of the domestic economy an eventual shift will occur. We expect a choppy move back to the 1.9300 lvls mid term.
Yesterday Sweden's Riksbank hiked rates 25bp to 4.50%, following the lead of the Norges Bank in a move that was widely expected. CPI inflation has recently jumped to 4.0% and rate expectations have followed suit putting the offensive. In addition, the bank signaled that the market could see two more rate hikes in order to slow the economy and contain inflation pressures.
In Australia trade deficit printed at $965m in May in line with expectations. However, there were large revisions of around $1.0bn to April, as higher contract prices for commodities were passed through.
10:00gmt - ECB's Trichet speaks
10:00gmt - ECB's Gonzales-Paramo speaks
ACM FOREX
Read more...
Today's Key Points
Daily Forex Fundamentals | Written by Danske Bank | Jul 04 08 07:40 GMT |
* US equities closed the day on a positive note after a job markets report in line with expectations.
* EUR fell two figures versus USD as bond yields dropped in Europe after ECB was less aggressive than most expected.
* US markets are closed for Independence Day. We are looking for factory orders out of Germany as the only data of interest today.
Markets Overnight
US markets closed down early yesterday on a positive note ahead of Independence Day today after payroll data suggested that the job market was not as dire as many investors had feared, while the European Central Bank (ECB) president struck a less aggressive tone on prospects for rate hikes.
In a shortened session, with regular trading set to end at 19.00 CEST, volume was light. The Dow Jones was up 0.9% and S&P500 added 0.6%, both led by Exxon Mobil Corp (+2%) and rival Chevron Corp (+1%) as oil set new highs (again). The Nasdaq Composite Index was up 0.3%.
Crude oil went as high as USD 145.85 per barrel before erasing most gains with the approach of the long holiday weekend.
US Treasury bond yields did not move much yesterday, although the yield curve steepened by 5bp with 2yr yields declining to 2.55% from 2.60%. 10yr yields were broadly unchanged at 3.99%
On FX markets demand for the dollar rose sharply after ECB comments and job report for June were largely as forecast. Thus EUR/USD fell roughly two big figures from 1.59 to 1.57 from 14.30-15.00 CEST, and the pair has been fairly stable since then - currently trading at 1.572. USD/JPY rose from 106 to the current level of around 106.8.
Mixed picture of Asian equity markets this morning as Hang Seng adds 1.1% and Nikkei225 drops 0.9% as we speak.
Global Daily
The calendar for today is relatively thin. The US markets are closed for Independence Day and in Euroland the only data of interest is German factory orders from May published at 12:00. Following three consecutive months of decline, the numbers are expected to show a minor improvement with an 0.6% m/m reading, but that will do little to the soft trend. Later in the day Trichet is scheduled to speak, but we do not expect him to reveal anything new on the monetary policy outlook so closely after the policy meeting.
Following yesterday's re-pricing in European bond markets on the back of the ECB press conference we do not expect much action today. Bond yields should be left with equities and credit markets as their only directional guide.
Danske Bank
http://www.danskebank.com/danskeresearch
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* US equities closed the day on a positive note after a job markets report in line with expectations.
* EUR fell two figures versus USD as bond yields dropped in Europe after ECB was less aggressive than most expected.
* US markets are closed for Independence Day. We are looking for factory orders out of Germany as the only data of interest today.
Markets Overnight
US markets closed down early yesterday on a positive note ahead of Independence Day today after payroll data suggested that the job market was not as dire as many investors had feared, while the European Central Bank (ECB) president struck a less aggressive tone on prospects for rate hikes.
In a shortened session, with regular trading set to end at 19.00 CEST, volume was light. The Dow Jones was up 0.9% and S&P500 added 0.6%, both led by Exxon Mobil Corp (+2%) and rival Chevron Corp (+1%) as oil set new highs (again). The Nasdaq Composite Index was up 0.3%.
Crude oil went as high as USD 145.85 per barrel before erasing most gains with the approach of the long holiday weekend.
US Treasury bond yields did not move much yesterday, although the yield curve steepened by 5bp with 2yr yields declining to 2.55% from 2.60%. 10yr yields were broadly unchanged at 3.99%
On FX markets demand for the dollar rose sharply after ECB comments and job report for June were largely as forecast. Thus EUR/USD fell roughly two big figures from 1.59 to 1.57 from 14.30-15.00 CEST, and the pair has been fairly stable since then - currently trading at 1.572. USD/JPY rose from 106 to the current level of around 106.8.
Mixed picture of Asian equity markets this morning as Hang Seng adds 1.1% and Nikkei225 drops 0.9% as we speak.
Global Daily
The calendar for today is relatively thin. The US markets are closed for Independence Day and in Euroland the only data of interest is German factory orders from May published at 12:00. Following three consecutive months of decline, the numbers are expected to show a minor improvement with an 0.6% m/m reading, but that will do little to the soft trend. Later in the day Trichet is scheduled to speak, but we do not expect him to reveal anything new on the monetary policy outlook so closely after the policy meeting.
Following yesterday's re-pricing in European bond markets on the back of the ECB press conference we do not expect much action today. Bond yields should be left with equities and credit markets as their only directional guide.
Danske Bank
http://www.danskebank.com/danskeresearch
Read more...
India's Inflation Accelerates to Fastest in 13 Years
By Kartik Goyal
July 4 (Bloomberg) -- India's inflation accelerated to the fastest pace in more than 13 years, strengthening the case for the central bank to increase borrowing costs this month.
Wholesale prices rose 11.63 percent in the week to June 21, after gaining 11.42 percent in the previous week, Commerce Ministry Spokesman Rajeev Jain told Bloomberg News in a telephone interview in New Delhi today. The median forecast of 16 economists surveyed by Bloomberg News was for an 11.47 percent increase.
Faster inflation is threatening the popularity of Prime Minister Manmohan Singh's government, which is struggling to survive as its communist allies consider withdrawing their support over a nuclear deal with the U.S. A nationwide truckers' strike may have added to inflation.
``Miseries don't come alone,'' said Dharmakirti Joshi, an economist at Mumbai-based Crisil Ltd., the local unit of Standard & Poor's. ``The political disharmony, inflation and the truckers' strike have disrupted the smooth functioning of the economy.''
Soaring energy, food and commodities prices are pushing up inflation around the world and forcing central banks to raise borrowing costs amid slowing economic growth. Sweden and Indonesia raised their benchmark interest rates yesterday, as did the European Central Bank. China has increased its cash reserve ratio to a record 17.5 percent.
Rate Increase
The Reserve Bank of India, which next meets to review rates on July 29, last month raised its benchmark interest rate twice to a six-year high of 8.5 percent and lifted its cash reserve ratio to 8.75 percent, to prevent money supply in the banking system from fanning inflation.
India's 10-year bonds fell for a fifth day, pushing yields to the highest in seven years. The yield on the benchmark 8.24 percent note rose 14 basis points to 8.95 percent as of 11:28 a.m. in Mumbai, according to data compiled by Bloomberg.
More than 4 million heavy and light commercial vehicles stayed off the nation's roads for two days this week to protest against taxes and rising fuel costs. The strike ended late yesterday after the government decided to roll back an increase in toll tax and promised not to raise the charge for one year, said Charan Singh Lohara, president of truckers' union.
The government increased retail fuel prices on June 4, pushing inflation to more than double the central bank's year- end target of 5.5 percent.
Political Impact
Rising prices have caused Prime Minister Singh's Congress party to lose ground in nine of 11 state elections since January 2007. Singh faces elections in six more states this year and national elections by May 2009.
To contain inflation that has tripled in the past seven months, the government yesterday banned exports of corn after restricting overseas sales of food items including wheat, rice, cooking oils and pulses. India had earlier banned cement exports and imposed a tax on outgoing shipments of steel products.
``Inflation is likely to hit 13 percent in a month,'' Joshi of Crisil said. The Reserve Bank may raise the repurchase rate by 25 basis points in the July meeting and increase the cash reserve ratio, depending on the liquidity in the system, he said.
To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net.
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July 4 (Bloomberg) -- India's inflation accelerated to the fastest pace in more than 13 years, strengthening the case for the central bank to increase borrowing costs this month.
Wholesale prices rose 11.63 percent in the week to June 21, after gaining 11.42 percent in the previous week, Commerce Ministry Spokesman Rajeev Jain told Bloomberg News in a telephone interview in New Delhi today. The median forecast of 16 economists surveyed by Bloomberg News was for an 11.47 percent increase.
Faster inflation is threatening the popularity of Prime Minister Manmohan Singh's government, which is struggling to survive as its communist allies consider withdrawing their support over a nuclear deal with the U.S. A nationwide truckers' strike may have added to inflation.
``Miseries don't come alone,'' said Dharmakirti Joshi, an economist at Mumbai-based Crisil Ltd., the local unit of Standard & Poor's. ``The political disharmony, inflation and the truckers' strike have disrupted the smooth functioning of the economy.''
Soaring energy, food and commodities prices are pushing up inflation around the world and forcing central banks to raise borrowing costs amid slowing economic growth. Sweden and Indonesia raised their benchmark interest rates yesterday, as did the European Central Bank. China has increased its cash reserve ratio to a record 17.5 percent.
Rate Increase
The Reserve Bank of India, which next meets to review rates on July 29, last month raised its benchmark interest rate twice to a six-year high of 8.5 percent and lifted its cash reserve ratio to 8.75 percent, to prevent money supply in the banking system from fanning inflation.
India's 10-year bonds fell for a fifth day, pushing yields to the highest in seven years. The yield on the benchmark 8.24 percent note rose 14 basis points to 8.95 percent as of 11:28 a.m. in Mumbai, according to data compiled by Bloomberg.
More than 4 million heavy and light commercial vehicles stayed off the nation's roads for two days this week to protest against taxes and rising fuel costs. The strike ended late yesterday after the government decided to roll back an increase in toll tax and promised not to raise the charge for one year, said Charan Singh Lohara, president of truckers' union.
The government increased retail fuel prices on June 4, pushing inflation to more than double the central bank's year- end target of 5.5 percent.
Political Impact
Rising prices have caused Prime Minister Singh's Congress party to lose ground in nine of 11 state elections since January 2007. Singh faces elections in six more states this year and national elections by May 2009.
To contain inflation that has tripled in the past seven months, the government yesterday banned exports of corn after restricting overseas sales of food items including wheat, rice, cooking oils and pulses. India had earlier banned cement exports and imposed a tax on outgoing shipments of steel products.
``Inflation is likely to hit 13 percent in a month,'' Joshi of Crisil said. The Reserve Bank may raise the repurchase rate by 25 basis points in the July meeting and increase the cash reserve ratio, depending on the liquidity in the system, he said.
To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net.
Read more...
Philippines to Speed Overseas Borrowing to Boost Peso
By Clarissa Batino
July 4 (Bloomberg) -- The Philippines plans to speed up overseas borrowings this year to strengthen the peso and cool price gains, Finance Secretary Gary Teves said, as inflation jumped to a 14-year high.
``There is concern about the rapid depreciation of the peso,'' Teves said in a telephone interview today. Overseas loans could strengthen the currency ``because we're adding more foreign exchange.''
The peso has lost 10 percent against the dollar this year, according to Bankers Association of the Philippines data. That helped push inflation to 11.4 percent last month by making it more expensive to import rice and oil, adding pressure on the central bank to increase interest rates further.
The government may bring forward the release of $900 million in loans from the World Bank and Asian Development Bank to this quarter and raise as much as $750 million from commercial sources, adding to the $500 million it borrowed in January, Teves said. The central bank agrees that this would help stem the peso's depreciation, he said.
``Overseas borrowing will increase the supply of dollars and that will help temper the depreciation, but it won't reverse the trend,'' said Ricky Cebrero, a treasurer at East West Banking Corp. in Manila. ``Easing some pressure on the peso will help control inflation.''
Strategy Change
The Philippines' borrowing strategy has reversed since late last year when it decided to increase its reliance on local debt to slow gains in the peso that affected exports and earnings of overseas workers, which together make up about half of the $118 billion economy. The currency gained almost 19 percent in 2007.
Inflation last month jumped to the fastest pace since May 1994 as food prices surged and weekly fuel-price increases ``triggered large price build-ups across wide commodities and services groups,'' Bangko Sentral ng Pilipinas Governor Amando Tetangco said today.
Policy makers, who next meet on July 17, raised the overnight borrowing rate by a quarter-point to 5.25 percent on June 5, the first increase since October 2005. The bank has scope to increase borrowing costs further without endangering growth, Deputy Governor Diwa Guinigundo said June 27.
The peso was little changed at 45.525 per dollar as of 12:54 p.m. in Manila, according to Tullett Prebon Plc.
Asset Sales
``To address supply-side inflation, we have started measures to boost rice and food supply along with subsidies on fuel and power,'' Teves said today. As a result, the government may incur a budget deficit of as much as 75 billion pesos.
Selling the government's stakes in Petron Corp., the nation's largest refiner, and PNOC Exploration Corp., an oil and gas explorer, may also help reverse the peso's decline if they're bought by overseas investors, Teves said yesterday.
The government may delay selling its Food Terminal Inc. land in Manila because ``the market for real estate has softened,'' he said, without elaborating.
To contact the reporters on this story: Clarissa Batino in Manila at cbatino@bloomberg.net; Francisco Alcuaz Jr. in Manila at falcuaz@bloomberg.net
Read more...
July 4 (Bloomberg) -- The Philippines plans to speed up overseas borrowings this year to strengthen the peso and cool price gains, Finance Secretary Gary Teves said, as inflation jumped to a 14-year high.
``There is concern about the rapid depreciation of the peso,'' Teves said in a telephone interview today. Overseas loans could strengthen the currency ``because we're adding more foreign exchange.''
The peso has lost 10 percent against the dollar this year, according to Bankers Association of the Philippines data. That helped push inflation to 11.4 percent last month by making it more expensive to import rice and oil, adding pressure on the central bank to increase interest rates further.
The government may bring forward the release of $900 million in loans from the World Bank and Asian Development Bank to this quarter and raise as much as $750 million from commercial sources, adding to the $500 million it borrowed in January, Teves said. The central bank agrees that this would help stem the peso's depreciation, he said.
``Overseas borrowing will increase the supply of dollars and that will help temper the depreciation, but it won't reverse the trend,'' said Ricky Cebrero, a treasurer at East West Banking Corp. in Manila. ``Easing some pressure on the peso will help control inflation.''
Strategy Change
The Philippines' borrowing strategy has reversed since late last year when it decided to increase its reliance on local debt to slow gains in the peso that affected exports and earnings of overseas workers, which together make up about half of the $118 billion economy. The currency gained almost 19 percent in 2007.
Inflation last month jumped to the fastest pace since May 1994 as food prices surged and weekly fuel-price increases ``triggered large price build-ups across wide commodities and services groups,'' Bangko Sentral ng Pilipinas Governor Amando Tetangco said today.
Policy makers, who next meet on July 17, raised the overnight borrowing rate by a quarter-point to 5.25 percent on June 5, the first increase since October 2005. The bank has scope to increase borrowing costs further without endangering growth, Deputy Governor Diwa Guinigundo said June 27.
The peso was little changed at 45.525 per dollar as of 12:54 p.m. in Manila, according to Tullett Prebon Plc.
Asset Sales
``To address supply-side inflation, we have started measures to boost rice and food supply along with subsidies on fuel and power,'' Teves said today. As a result, the government may incur a budget deficit of as much as 75 billion pesos.
Selling the government's stakes in Petron Corp., the nation's largest refiner, and PNOC Exploration Corp., an oil and gas explorer, may also help reverse the peso's decline if they're bought by overseas investors, Teves said yesterday.
The government may delay selling its Food Terminal Inc. land in Manila because ``the market for real estate has softened,'' he said, without elaborating.
To contact the reporters on this story: Clarissa Batino in Manila at cbatino@bloomberg.net; Francisco Alcuaz Jr. in Manila at falcuaz@bloomberg.net
Read more...
Spain, Ireland `Thrown to the Wolves' After ECB Move
By Ben Sills and Fergal O'Brien
July 4 (Bloomberg) -- Jose Mauricio Rodriguez Montalvo rents a room from his sister to help her afford her basement flat in Madrid as mortgage costs soar.
``She's crying over the Euribor,'' the 12-month money- market rate used to set Spanish mortgages, Montalvo, 28, said in an interview. ``We're just praying it won't keep going up.''
For homeowners in Spain and in Ireland, struggling to stay afloat amid the wreckage of a decade-long real-estate boom, those prayers are going unanswered. The European Central Bank yesterday increased its benchmark rate to 4.25 percent to fight inflation, pushing both economies a step closer to recession.
The two countries are particularly vulnerable to higher lending costs because their housing industries account for about 10 percent of their economies, twice the EU average. Montalvo's family has seen its monthly mortgage payment leap 50 percent to 2,080 euros since the ECB began raising rates in December 2005.
``They have been thrown to the wolves,'' said Stuart Thomson, who helps manage $46 billion in bonds at Resolution Investment Management Ltd. in Glasgow, Scotland. `It's much easier to bring inflation lower if you're willing to have a recession in economies like Spain, Italy and Ireland.''
The Irish economy contracted for the first time in more than a decade in the first quarter. Growth in Spain was the slowest in 13 years in the period, and economists surveyed by Bloomberg News see a 45 percent probability of a recession, or two consecutive quarterly contractions, within the next year.
Balancing Act
The ECB has more than doubled its key rate in less than two years under its mandate to control prices. Euro-region inflation accelerated to 4 percent last month, the fastest in 16 years, on soaring food and oil costs, even with growth slowing.
Trichet yesterday signaled further rate increases weren't imminent as he strikes a balance between taming inflation and not choking economic growth. Still, while he acknowledged some countries will be harder hit than others by the rate increase, he said the bank must serve the entire euro region just as the Federal Reserve sets policy for all 50 U.S. states.
``If you concentrate on California or Florida, it is not at all like Massachusetts or Alaska,'' he said in an interview with Ireland's RTE radio. ``It is the same in our case and we have to make a judgment what is good for the full body of the 320 million people'' in the euro area.
Fraction of Germany
Spain and Ireland make up less than 15 percent of the region's economy and their economies together are about half the size of Germany's. Growth in Europe's biggest economy accelerated in the first quarter to the fastest pace in 12 years and manufacturing was still expanding in June. Spanish industry contracted by the most on record.
Spanish Prime Minister Jose Luis Rodriguez Zapatero has called on the ECB to be ``flexible'' in setting monetary policy.
The Euribor has risen almost 30 basis points since June 5 when Trichet first signaled higher rates. That made new mortgages more expensive and will make existing ones costlier as 98 percent of Spanish home loans are on a variable rate. The jump in costs has sapped demand for housing.
Home starts in Spain plunged 70 percent in March from a year ago and dropped around 60 percent in Ireland. The slowdown prompted Dublin-based realtor Lisney to lower salaries by 10 percent for its 170 workers. The Irish unit of CB Richard Ellis plans to cut around a 10th of its workforce.
``Transactions have dried up,'' said Guy Hollis, managing director of CBRE in Ireland. ``It's not going to last forever, but we have to be prudent.''
Job Creation
The building boom going bust is tarnishing a decade of gains. Ireland's economy has grown the most in the euro area since monetary union in 1999, while Spain created more than a third of new jobs in the region.
After years of ``inappropriately low'' interest rates, Spain and Ireland are now feeling the ``hangover,'' said Alan Ahearne, a lecturer at Ireland's National University and a former economist at the Fed.
Irish banks including Allied Irish Banks Plc had their 2008 earnings estimates cut by Merrion Stockbrokers yesterday because of expectations for deteriorating credit quality.
The decade-long expansion does leave Spain and Ireland with resources to ease the pain of the slowdown. Zapatero's government will use a budget surplus of 2.2 percent of gross domestic product to finance 18 billion euros of measures to prevent defaults and aid unemployed construction workers.
Ireland, with the second-lowest government debt in the euro area after Luxembourg, will maintain a 184 billion-euro infrastructure investment plan.
That may not be enough to buffer the hard landing. The Spanish downturn destroyed 75,000 jobs in the first quarter when the unemployment rate jumped the most in three years to almost 10 percent. Ireland's jobless rate has risen to a nine-year high of 5.4 percent.
``Central banks are paid to cause a recession now and then,'' said Fortis Investments Chief Investment Officer William De Vijlder. ``Maybe it's a shock to put it like that, but that's reality.''
To contact the reporter on this story: Ben Sills in Madrid at bsills@bloomberg.net; Fergal O'Brien in Dublin at fobrien@bloomberg.net.
Read more...
July 4 (Bloomberg) -- Jose Mauricio Rodriguez Montalvo rents a room from his sister to help her afford her basement flat in Madrid as mortgage costs soar.
``She's crying over the Euribor,'' the 12-month money- market rate used to set Spanish mortgages, Montalvo, 28, said in an interview. ``We're just praying it won't keep going up.''
For homeowners in Spain and in Ireland, struggling to stay afloat amid the wreckage of a decade-long real-estate boom, those prayers are going unanswered. The European Central Bank yesterday increased its benchmark rate to 4.25 percent to fight inflation, pushing both economies a step closer to recession.
The two countries are particularly vulnerable to higher lending costs because their housing industries account for about 10 percent of their economies, twice the EU average. Montalvo's family has seen its monthly mortgage payment leap 50 percent to 2,080 euros since the ECB began raising rates in December 2005.
``They have been thrown to the wolves,'' said Stuart Thomson, who helps manage $46 billion in bonds at Resolution Investment Management Ltd. in Glasgow, Scotland. `It's much easier to bring inflation lower if you're willing to have a recession in economies like Spain, Italy and Ireland.''
The Irish economy contracted for the first time in more than a decade in the first quarter. Growth in Spain was the slowest in 13 years in the period, and economists surveyed by Bloomberg News see a 45 percent probability of a recession, or two consecutive quarterly contractions, within the next year.
Balancing Act
The ECB has more than doubled its key rate in less than two years under its mandate to control prices. Euro-region inflation accelerated to 4 percent last month, the fastest in 16 years, on soaring food and oil costs, even with growth slowing.
Trichet yesterday signaled further rate increases weren't imminent as he strikes a balance between taming inflation and not choking economic growth. Still, while he acknowledged some countries will be harder hit than others by the rate increase, he said the bank must serve the entire euro region just as the Federal Reserve sets policy for all 50 U.S. states.
``If you concentrate on California or Florida, it is not at all like Massachusetts or Alaska,'' he said in an interview with Ireland's RTE radio. ``It is the same in our case and we have to make a judgment what is good for the full body of the 320 million people'' in the euro area.
Fraction of Germany
Spain and Ireland make up less than 15 percent of the region's economy and their economies together are about half the size of Germany's. Growth in Europe's biggest economy accelerated in the first quarter to the fastest pace in 12 years and manufacturing was still expanding in June. Spanish industry contracted by the most on record.
Spanish Prime Minister Jose Luis Rodriguez Zapatero has called on the ECB to be ``flexible'' in setting monetary policy.
The Euribor has risen almost 30 basis points since June 5 when Trichet first signaled higher rates. That made new mortgages more expensive and will make existing ones costlier as 98 percent of Spanish home loans are on a variable rate. The jump in costs has sapped demand for housing.
Home starts in Spain plunged 70 percent in March from a year ago and dropped around 60 percent in Ireland. The slowdown prompted Dublin-based realtor Lisney to lower salaries by 10 percent for its 170 workers. The Irish unit of CB Richard Ellis plans to cut around a 10th of its workforce.
``Transactions have dried up,'' said Guy Hollis, managing director of CBRE in Ireland. ``It's not going to last forever, but we have to be prudent.''
Job Creation
The building boom going bust is tarnishing a decade of gains. Ireland's economy has grown the most in the euro area since monetary union in 1999, while Spain created more than a third of new jobs in the region.
After years of ``inappropriately low'' interest rates, Spain and Ireland are now feeling the ``hangover,'' said Alan Ahearne, a lecturer at Ireland's National University and a former economist at the Fed.
Irish banks including Allied Irish Banks Plc had their 2008 earnings estimates cut by Merrion Stockbrokers yesterday because of expectations for deteriorating credit quality.
The decade-long expansion does leave Spain and Ireland with resources to ease the pain of the slowdown. Zapatero's government will use a budget surplus of 2.2 percent of gross domestic product to finance 18 billion euros of measures to prevent defaults and aid unemployed construction workers.
Ireland, with the second-lowest government debt in the euro area after Luxembourg, will maintain a 184 billion-euro infrastructure investment plan.
That may not be enough to buffer the hard landing. The Spanish downturn destroyed 75,000 jobs in the first quarter when the unemployment rate jumped the most in three years to almost 10 percent. Ireland's jobless rate has risen to a nine-year high of 5.4 percent.
``Central banks are paid to cause a recession now and then,'' said Fortis Investments Chief Investment Officer William De Vijlder. ``Maybe it's a shock to put it like that, but that's reality.''
To contact the reporter on this story: Ben Sills in Madrid at bsills@bloomberg.net; Fergal O'Brien in Dublin at fobrien@bloomberg.net.
Read more...
UBS Sees Second-Quarter Net at or `Below Breakeven'
By Warren Giles and Elena Logutenkova
July 4 (Bloomberg) -- UBS AG, the European bank hardest hit by the U.S. subprime crisis, expects to post a second-quarter result ``at or slightly below break-even,'' helped by about 3 billion francs ($2.9 billion) in tax credits.
UBS, which posted a profit of 5.55 billion Swiss francs ($5.4 billion) a year earlier, said that market turmoil contributed to writedowns and a loss at the investment bank. The bank had a negative flow of net new money, which was worst in April, and will publish full quarterly results Aug. 12 as planned, the Zurich-based bank said today in a statement.
Chief Executive Officer Marcel Rohner is cutting 5,500 jobs, shutting businesses at the investment-banking unit and trying to stem defections among wealthy clients after 25.4 billion francs of net losses in the previous three quarters.
``Outflows in the wealth management business are just sending a poor signal about growth potential and investor sentiment,'' Stefan-Michael Stalmann, an analyst at Dresdner Kleinwort, said in a note to clients last week. ``The agenda in the next one or two quarters is likely to be dominated by a variety of operational challenges.''
Banks worldwide have announced $402 billion in writedowns and credit losses related to the subprime crisis. Markdowns at UBS, which amounted to more than $38 billion in the previous three quarters, led the bank to raise $29.2 billion of capital from investors this year. UBS said today that it sees ``no need to raise new equity.''
`Strategic Headache'
UBS fell 68 percent in Swiss trading over the past 12 months, cutting the company's market value to 61.6 billion francs. The stock is the fourth-biggest loser among the 59 companies in the Bloomberg Europe Banks and Financial Services Index.
Growth in assets from affluent clients at UBS, the largest manager of money for the wealthy, slowed to 8.8 percent in 2007 from 13 percent in the previous year, according to an annual survey by Scorpio Partnership released last week.
UBS also faces an investigation by the U.S. Department of Justice into whether the bank may have helped clients evade American taxes. Prosecutors this week got a Miami federal judge to authorize the Internal Revenue Service to issue a summons to UBS for client information as part of the probe. The bank has said that it's ``working diligently'' with both Swiss and U.S. authorities.
Strategic Review
Chairman Peter Kurer, who replaced Marcel Ospel in April, told shareholders at the annual meeting that he will lead a strategic review of all of the bank's businesses to make them better complement the wealth management unit, which he called UBS's ``core franchise.''
The bank plans to inform shareholders about results of the review at an extraordinary shareholders meeting on Oct. 2. The meeting was called to elect four new board members, as Kurer seeks to increase the level of financial expertise on the board after criticism from shareholders including former UBS President Luqman Arnold.
UBS brought in Jerker Johansson from Morgan Stanley in mid- March to run its investment-banking unit. Johansson in May took control of the firm's fixed-income business from Andre Esteves, who ran it for less than 10 months and left in June.
Johansson also announced plans to shut the U.S. municipal bond business, split off proprietary trading of both stocks and debt into a separate unit within the investment bank, and hired former Morgan Stanley colleague Thomas Daula as chief risk officer for the division.
UBS is cutting about 26 percent of the headcount at its fixed-income division, and about 9 percent in investment banking and equities. The securities unit, which at the end of the first quarter employed 21,230 people, is targeting pretax profit of about 4 billion Swiss francs after markets normalize, down from 5.6 billion francs in 2006.
To contact the reporter on this story: Warren Giles in Geneva at wgiles@bloomberg.net; Elena Logutenkova in Zurich at elogutenkova@bloomberg.net
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LBO Defaults May Rise as About $500 Billion Comes Due, BIS Says
By Neil Unmack
July 4 (Bloomberg) -- Leveraged-buyout loan defaults may be ``significantly higher'' than ratings companies' estimates as about $500 billion of debt used to fund the takeovers comes due, the Bank for International Settlements said.
Companies bought by private-equity firms worldwide must repay the high-risk, high-yield loans and bonds by 2010, the Basel, Switzerland-based bank said in a report today, citing Fitch Ratings data. They may find it hard to raise the cash because of a slump in demand for collateralized debt obligations that pool the loans, BIS said.
Investors are shunning structured debt instruments such as CDOs, the main buyers of leveraged loans, after the credit-market seizure caused by the U.S. subprime mortgage collapse, the BIS said. The ability of LBO firms to refinance may be crimped further as banks tighten lending criteria after reporting $402 billion of credit losses and asset writedowns.
``The risk of a significant increase in LBO firm defaults in the next few years may have risen substantially,'' the BIS said. ``With prospects for a recovery in demand from securitization vehicles in 2008 remaining uncertain and banks having little capacity to fund new loans, refinancing risk remains a key challenge for many LBO firms.''
Defaults may be ``significantly higher'' than forecast by ratings companies because of the leverage that buyout firms use to acquire companies, BIS said in the report, citing year-end default-rate predictions of 4 percent.
Rising Defaults
The default rate on high-yield notes worldwide rose to 2 percent in May, from 1.7 percent in April, and is likely to reach 6.3 percent by May 2009, according to Moody's Investors Service.
Buyout firms typically borrow to finance about two-thirds of the cost of acquisitions. The debt they raise is rated below Baa3 by Moody's Investors Service and BBB- at Standard & Poor's.
Investors are demanding more in interest relative to benchmark rates to buy high-yield debt. The average U.S. leveraged loan yielded 413.2 basis points more than the benchmark London interbank offered rate this year, compared with 270 basis points at the end of 2007, according to S&P.
Sales of collateralized loan obligations, or CLOs, slowed to $30 billion in the first quarter, less than half the amount a year earlier, the BIS said, citing JPMorgan Chase & Co. data. The total of outstanding CLOs expanded to almost $250 billion in 2007, more than double the amount in 2004, according to the report, prepared by the bank's Committee on the Global Financial System.
Potential `Friction'
CLOs repackage loans into new securities with varying credit ratings and returns. The range of participants means it may take longer for holders of debt to get their money back after a default because of potential ``friction'' between different creditors during restructuring, the BIS report said.
``Agreements between creditors were often relatively easy to achieve when creditors were solely banks, but may be less straightforward when non-bank creditors are involved,'' the report said.
LBO loan defaults may trigger forced sales by some CLO managers, putting further pressure on loan prices, the BIS report said.
The BIS was formed in 1930 and acts as a central bank for the world's monetary authorities.
To contact the reporter on this story: Neil Unmack in London nunmack@bloomberg.net
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July 4 (Bloomberg) -- Leveraged-buyout loan defaults may be ``significantly higher'' than ratings companies' estimates as about $500 billion of debt used to fund the takeovers comes due, the Bank for International Settlements said.
Companies bought by private-equity firms worldwide must repay the high-risk, high-yield loans and bonds by 2010, the Basel, Switzerland-based bank said in a report today, citing Fitch Ratings data. They may find it hard to raise the cash because of a slump in demand for collateralized debt obligations that pool the loans, BIS said.
Investors are shunning structured debt instruments such as CDOs, the main buyers of leveraged loans, after the credit-market seizure caused by the U.S. subprime mortgage collapse, the BIS said. The ability of LBO firms to refinance may be crimped further as banks tighten lending criteria after reporting $402 billion of credit losses and asset writedowns.
``The risk of a significant increase in LBO firm defaults in the next few years may have risen substantially,'' the BIS said. ``With prospects for a recovery in demand from securitization vehicles in 2008 remaining uncertain and banks having little capacity to fund new loans, refinancing risk remains a key challenge for many LBO firms.''
Defaults may be ``significantly higher'' than forecast by ratings companies because of the leverage that buyout firms use to acquire companies, BIS said in the report, citing year-end default-rate predictions of 4 percent.
Rising Defaults
The default rate on high-yield notes worldwide rose to 2 percent in May, from 1.7 percent in April, and is likely to reach 6.3 percent by May 2009, according to Moody's Investors Service.
Buyout firms typically borrow to finance about two-thirds of the cost of acquisitions. The debt they raise is rated below Baa3 by Moody's Investors Service and BBB- at Standard & Poor's.
Investors are demanding more in interest relative to benchmark rates to buy high-yield debt. The average U.S. leveraged loan yielded 413.2 basis points more than the benchmark London interbank offered rate this year, compared with 270 basis points at the end of 2007, according to S&P.
Sales of collateralized loan obligations, or CLOs, slowed to $30 billion in the first quarter, less than half the amount a year earlier, the BIS said, citing JPMorgan Chase & Co. data. The total of outstanding CLOs expanded to almost $250 billion in 2007, more than double the amount in 2004, according to the report, prepared by the bank's Committee on the Global Financial System.
Potential `Friction'
CLOs repackage loans into new securities with varying credit ratings and returns. The range of participants means it may take longer for holders of debt to get their money back after a default because of potential ``friction'' between different creditors during restructuring, the BIS report said.
``Agreements between creditors were often relatively easy to achieve when creditors were solely banks, but may be less straightforward when non-bank creditors are involved,'' the report said.
LBO loan defaults may trigger forced sales by some CLO managers, putting further pressure on loan prices, the BIS report said.
The BIS was formed in 1930 and acts as a central bank for the world's monetary authorities.
To contact the reporter on this story: Neil Unmack in London nunmack@bloomberg.net
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