By Joshua Gallu
Aug. 8 (Bloomberg) -- Swiss unemployment fell in July as new orders from Asia prompted manufacturers to hire, keeping the jobless rate at the lowest level since 2002 for a sixth month.
The seasonally adjusted number of unemployed decreased by 110 to 99,819, the State Secretariat for Economic Affairs in Bern said today. The jobless rate was unchanged at 2.5 percent, matching the median forecast of 15 economists in a Bloomberg News survey.
Swiss companies are boosting their workforces as emerging- market countries post new orders for machines and power grids. Orders from China and India are spurring companies like Zurich- based ABB Ltd., the world's biggest builder of power networks, and Winterthur, Switzerland-based Sulzer AG, the world's second- largest maker of pumps, to step up production.
``This is more or less full employment,'' said David Marmet, an economist at Zuercher Kantonalbank in Zurich. ``Companies are still saying they need workers, but the qualifications of the job seekers don't match the needs of the jobs being advertised. The adjusted rate probably can't go any lower.''
Swiss companies are reporting a ``pronounced shortage of skilled workers'' and ``recruitment difficulties'', the Swiss National Bank said in a report published July 3, citing a survey.
Without adjusting for seasonal changes, the number of people unemployed in Switzerland totals 92,163. Of these, 56,229 have been without work for between 1 month and half a year, while just 15,180 have been jobless for more than one year.
Wages, Prices
The average pay increase across 21 branches of the economy is 2.2 percent this year. Inflation accelerated to 3.1 percent in July, the fastest pace in almost 15 years and more than economists expected, led by rising energy costs.
The central bank, which left interest rates unchanged at its last policy meeting in June, faces a dilemma as it tries to balance the risk of inflation against slower economic growth.
Swiss companies from banks to industrial producers may scale back their workforces in the coming months as a U.S.-led global economic slowdown threatens earnings and foils expansion plans. UBS, the European bank with the highest losses from the subprime crisis, is cutting 200 jobs in Switzerland as part of a plan to eliminate 5,500 jobs across the company.
Factory Jobs
A gauge measuring employment growth in Switzerland's manufacturing sector dropped to the lowest level since April 2006 last month, a survey showed. The measure indicates job growth will slow in the coming months. The number of registered open jobs fell by 632 from the month before, today's release showed.
``It's still too early for slowing growth to affect the labor market,'' said Reto Huenerwadel, senior economist at UBS AG in Zurich. ``The momentum is going to shift. Sometime in the second or third quarter of next year we'll see the effect of slowing growth on the labor market.''
Switzerland's economic expansion slowed to 0.3 percent in the first quarter from the fourth, the weakest pace in 3 1/2 years, as sales abroad declined and companies curbed construction spending. The Swiss economy will probably expand between 1.5 percent and 2 percent this year after growing by 3.1 percent last year, according to the central bank.
To contact the reporters on this story: Joshua Gallu in Zurich at jgallu@bloomberg.net
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Friday, August 8, 2008
Wellink Says Second Quarter `Won't Look That Good'
By Jurjen van de Pol
Aug. 8 (Bloomberg) -- European Central Bank council member Nout Wellink said the euro-region economy ``deteriorated pretty quickly in the second quarter'' and growth ``won't look that good.''
``It is not going very well, let me say that,'' Wellink, who heads the Dutch central bank, told Dutch RTL television today. The third quarter won't be great either, Wellink told Dutch television NOS in a separate interview, adding he hopes growth will pick up in the fourth.
``It is partly a cyclical movement and partly there are structural adjustments ongoing in our economy, mainly as a result of the increased energy and food prices,'' Wellink told RTL. ``And there's a crisis in the financial world.''
The ECB yesterday kept its benchmark rate at 4.25 percent and President Jean-Claude Trichet said growth will be ``particularly weak'' through the third quarter. While the central bank remains concerned that the fastest inflation in 16 years is helping unions push through demands for higher wages, record energy costs and the stronger euro are damping economic expansion.
Wellink said there was ``broad agreement during the meeting, including myself, on not doing anything at this time'' with interest rates. Still, ``there was great concern about inflationary developments,'' he said.
Euro-region inflation accelerated to 4.1 percent in July. The ECB, which raised rates on July 3, aims to keep inflation below 2 percent.
`On The Tight Side'
Wellink said while last month's rate increase will help the ECB achieve price stability, the bank would act again if it saw evidence that it needed to.
``Our monetary policy is on the tight side,'' Wellink said. ``We think that at the moment our current policy will make an important contribution to stabilizing inflation and inflation expectations, but we are standing by if necessary and we are following the figures very precisely.'' The ECB ``keeps all options open,'' he added.
The euro-region economy contracted 0.2 percent in the second quarter from the first, according to the median estimate in a Bloomberg survey of economists. Second-quarter growth data for the 15-nation region will be published on Aug. 14.
The Dutch economy, the fifth-largest in the euro zone, will ``slow heavily'' this year and even further next year, Wellink said without providing figures. ``Dutch growth in 2008 is highly influenced by the spillover effect from the last two quarters of 2007. This effect will be small next year and will result in a lower figure.''
The Dutch central bank earlier forecast economic growth will cool to 1.5 percent next year from 2.4 percent this year. Wellink said European and Dutch wages were accelerating and urged unions, employers and the government to prevent a wage-price spiral, adding Dutch inflation might reach 4 percent early next year if people aren't careful.
The government shouldn't increase the value-added tax to 20 percent from 19 percent as it plans to do in January, Wellink said. He estimates the tax rise will contribute 0.5 percentage point to the inflation rate.
To contact the reporter on this story: Jurjen van de Pol in Amsterdam jvandepol@bloomberg.net
Read more...
Aug. 8 (Bloomberg) -- European Central Bank council member Nout Wellink said the euro-region economy ``deteriorated pretty quickly in the second quarter'' and growth ``won't look that good.''
``It is not going very well, let me say that,'' Wellink, who heads the Dutch central bank, told Dutch RTL television today. The third quarter won't be great either, Wellink told Dutch television NOS in a separate interview, adding he hopes growth will pick up in the fourth.
``It is partly a cyclical movement and partly there are structural adjustments ongoing in our economy, mainly as a result of the increased energy and food prices,'' Wellink told RTL. ``And there's a crisis in the financial world.''
The ECB yesterday kept its benchmark rate at 4.25 percent and President Jean-Claude Trichet said growth will be ``particularly weak'' through the third quarter. While the central bank remains concerned that the fastest inflation in 16 years is helping unions push through demands for higher wages, record energy costs and the stronger euro are damping economic expansion.
Wellink said there was ``broad agreement during the meeting, including myself, on not doing anything at this time'' with interest rates. Still, ``there was great concern about inflationary developments,'' he said.
Euro-region inflation accelerated to 4.1 percent in July. The ECB, which raised rates on July 3, aims to keep inflation below 2 percent.
`On The Tight Side'
Wellink said while last month's rate increase will help the ECB achieve price stability, the bank would act again if it saw evidence that it needed to.
``Our monetary policy is on the tight side,'' Wellink said. ``We think that at the moment our current policy will make an important contribution to stabilizing inflation and inflation expectations, but we are standing by if necessary and we are following the figures very precisely.'' The ECB ``keeps all options open,'' he added.
The euro-region economy contracted 0.2 percent in the second quarter from the first, according to the median estimate in a Bloomberg survey of economists. Second-quarter growth data for the 15-nation region will be published on Aug. 14.
The Dutch economy, the fifth-largest in the euro zone, will ``slow heavily'' this year and even further next year, Wellink said without providing figures. ``Dutch growth in 2008 is highly influenced by the spillover effect from the last two quarters of 2007. This effect will be small next year and will result in a lower figure.''
The Dutch central bank earlier forecast economic growth will cool to 1.5 percent next year from 2.4 percent this year. Wellink said European and Dutch wages were accelerating and urged unions, employers and the government to prevent a wage-price spiral, adding Dutch inflation might reach 4 percent early next year if people aren't careful.
The government shouldn't increase the value-added tax to 20 percent from 19 percent as it plans to do in January, Wellink said. He estimates the tax rise will contribute 0.5 percentage point to the inflation rate.
To contact the reporter on this story: Jurjen van de Pol in Amsterdam jvandepol@bloomberg.net
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Canada Lost 55,200 Jobs in July; Unemployment Fell
By Alexandre Deslongchamps
Aug. 8 (Bloomberg) -- Canadian employers unexpectedly shed the most jobs in 17 years in July as manufacturers responded to slow demand for their goods by trimming payrolls.
Employers fired 55,200 workers, Statistics Canada said today in Ottawa, after a drop of 5,000 the month before. The jobless rate fell to 6.1 percent from 6.2 percent as 74,100 people left the labor force. Economists anticipated 5,000 new jobs and the same jobless rate, according to the median of 22 estimates in Bloomberg surveys.
The economy is sputtering as factories struggle to sell products south of the border because of low U.S. consumer confidence and a Canadian currency that's appreciated about 16 percent in the past three years. The Bank of Canada signaled last month that interest rates will stay put for the foreseeable future, with growth virtually stalled even as inflation exceeds the top of policy makers' target range.
``Labor markets are starting to reflect the weakening in growth that we've been seeing,'' said Paul Ferley, assistant chief economist at Royal Bank of Canada in Toronto. The report ``eliminates some concern out there about possible near-term hikes by the Bank of Canada.''
The currency fell 1.4 percent, the biggest drop this year, to C$1.0683 per U.S. dollar -- the lowest since Aug. 16 of 2007 -- at 10:06 a.m. in Toronto from $1.0531 yesterday. One Canadian dollar buys 93.61 U.S. cents. The currency has dropped 6.48 percent so far this year versus its U.S. counterpart.
Back-to-Back Drops
June-July marked the first period since January 2006 that employers shed workers for two straight months, and the July loss was the biggest since February 1991. Factories fired 32,300 workers in July, led by manufacturers in Ontario, Canada's biggest province and its goods-producing hub.
Owens-Illinois Inc., the world's largest maker of glass containers, said July 29 it will close a factory in Toronto, affecting 430 workers, because of the strong Canadian dollar and rising energy prices.
General Motors Corp. may cut 15 percent of its salaried workforce in the U.S. and Canada by the end of 2008 as the money-losing automaker tries to pare $10 billion a year in costs, people familiar with the plan told Bloomberg News.
Canada lost 7,100 full-time jobs and 48,100 part-time jobs in July, particularly young workers, the statistics agency said. Services-related employment fell by a net 37,300, while goods-producing companies shed a net 17,800 workers.
`Export Drag'
In its last quarterly forecast on July 17, the central bank said growth will slow as an ``export drag'' offsets the domestic spending that's powered expansion in recent years. Policy makers said the economy will grow 1 percent this year, the slowest since 1992 when Canada had its last recession.
The economy shrank in the first quarter for the first time since 2003, dragged down by automobile exports. Gross domestic product contracted at a 0.3 percent annualized rate, Statistics Canada said, and 0.1 percent in May on a month-over-month basis.
Some service companies were hurt by the slower growth. Payrolls for professional, scientific and technical services fell by 15,300 employees and those for business, building and other support services dropped by 30,100, the statistics agency said. Retailers and wholesalers eliminated 33,600 positions.
BCE Inc., the Canadian phone company going private in the biggest leveraged buyout in history, said July 28 it plans to cut about 2,500 management jobs. The cuts equal about 15 percent of the managers, or 6 percent of the total Bell workforce, Montreal-based BCE said in a statement.
Wage Growth
Canadian wage growth also is slowing, gaining 4 percent in July from a year earlier compared with 4.4 percent in June and an 11-year high of 4.9 percent in February. Still, labor costs are rising faster than consumer prices, which gained 3.1 percent in June.
``Overall, this is a weak report, one that will have the market continuing to ponder the possibility of a further ease by the Bank of Canada,'' Avery Shenfeld, an economist with CIBC World Markets in Toronto, said in a note to clients. ``We doubt that outcome, since if, as we expect, energy prices heat up again, inflation will be too high to think about cutting.''
Canada has added a net 227,200 jobs in the past 12 months, even as the jobless rate rose from 6 percent last July, a sign that more people have entered the workforce than found work.
In the U.S., the number of workers filing first-time claims for unemployment benefits unexpectedly rose last week to the highest level in six years, signaling the labor market in the world's biggest economy -- Canada's main trading partner -- continues to weaken.
To contact the reporter on this story: Alexandre Deslongchamps in Ottawa at adeslongcham@bloomberg.net.
Read more...
Aug. 8 (Bloomberg) -- Canadian employers unexpectedly shed the most jobs in 17 years in July as manufacturers responded to slow demand for their goods by trimming payrolls.
Employers fired 55,200 workers, Statistics Canada said today in Ottawa, after a drop of 5,000 the month before. The jobless rate fell to 6.1 percent from 6.2 percent as 74,100 people left the labor force. Economists anticipated 5,000 new jobs and the same jobless rate, according to the median of 22 estimates in Bloomberg surveys.
The economy is sputtering as factories struggle to sell products south of the border because of low U.S. consumer confidence and a Canadian currency that's appreciated about 16 percent in the past three years. The Bank of Canada signaled last month that interest rates will stay put for the foreseeable future, with growth virtually stalled even as inflation exceeds the top of policy makers' target range.
``Labor markets are starting to reflect the weakening in growth that we've been seeing,'' said Paul Ferley, assistant chief economist at Royal Bank of Canada in Toronto. The report ``eliminates some concern out there about possible near-term hikes by the Bank of Canada.''
The currency fell 1.4 percent, the biggest drop this year, to C$1.0683 per U.S. dollar -- the lowest since Aug. 16 of 2007 -- at 10:06 a.m. in Toronto from $1.0531 yesterday. One Canadian dollar buys 93.61 U.S. cents. The currency has dropped 6.48 percent so far this year versus its U.S. counterpart.
Back-to-Back Drops
June-July marked the first period since January 2006 that employers shed workers for two straight months, and the July loss was the biggest since February 1991. Factories fired 32,300 workers in July, led by manufacturers in Ontario, Canada's biggest province and its goods-producing hub.
Owens-Illinois Inc., the world's largest maker of glass containers, said July 29 it will close a factory in Toronto, affecting 430 workers, because of the strong Canadian dollar and rising energy prices.
General Motors Corp. may cut 15 percent of its salaried workforce in the U.S. and Canada by the end of 2008 as the money-losing automaker tries to pare $10 billion a year in costs, people familiar with the plan told Bloomberg News.
Canada lost 7,100 full-time jobs and 48,100 part-time jobs in July, particularly young workers, the statistics agency said. Services-related employment fell by a net 37,300, while goods-producing companies shed a net 17,800 workers.
`Export Drag'
In its last quarterly forecast on July 17, the central bank said growth will slow as an ``export drag'' offsets the domestic spending that's powered expansion in recent years. Policy makers said the economy will grow 1 percent this year, the slowest since 1992 when Canada had its last recession.
The economy shrank in the first quarter for the first time since 2003, dragged down by automobile exports. Gross domestic product contracted at a 0.3 percent annualized rate, Statistics Canada said, and 0.1 percent in May on a month-over-month basis.
Some service companies were hurt by the slower growth. Payrolls for professional, scientific and technical services fell by 15,300 employees and those for business, building and other support services dropped by 30,100, the statistics agency said. Retailers and wholesalers eliminated 33,600 positions.
BCE Inc., the Canadian phone company going private in the biggest leveraged buyout in history, said July 28 it plans to cut about 2,500 management jobs. The cuts equal about 15 percent of the managers, or 6 percent of the total Bell workforce, Montreal-based BCE said in a statement.
Wage Growth
Canadian wage growth also is slowing, gaining 4 percent in July from a year earlier compared with 4.4 percent in June and an 11-year high of 4.9 percent in February. Still, labor costs are rising faster than consumer prices, which gained 3.1 percent in June.
``Overall, this is a weak report, one that will have the market continuing to ponder the possibility of a further ease by the Bank of Canada,'' Avery Shenfeld, an economist with CIBC World Markets in Toronto, said in a note to clients. ``We doubt that outcome, since if, as we expect, energy prices heat up again, inflation will be too high to think about cutting.''
Canada has added a net 227,200 jobs in the past 12 months, even as the jobless rate rose from 6 percent last July, a sign that more people have entered the workforce than found work.
In the U.S., the number of workers filing first-time claims for unemployment benefits unexpectedly rose last week to the highest level in six years, signaling the labor market in the world's biggest economy -- Canada's main trading partner -- continues to weaken.
To contact the reporter on this story: Alexandre Deslongchamps in Ottawa at adeslongcham@bloomberg.net.
Read more...
Singapore Cuts Growth Forecast; Expects `Bumpy Year'
By Shamim Adam
Aug. 8 (Bloomberg) -- Singapore lowered its 2008 growth forecast for a second time this year as Prime Minister Lee Hsien Loong warned of a ``bumpy year ahead,'' saying a U.S. slowdown will hurt the global economy.
The Southeast Asian economy will grow between 4 percent and 5 percent in 2008, Lee said in a televised National Day message today. The government had earlier estimated an expansion of as much as 6 percent this year, after growth of 7.7 percent in 2007.
Asian manufacturers face declining demand as a housing recession and financial turmoil slow expansion in the U.S., the region's largest overseas market. Accelerating inflation and higher fuel costs have also left consumers around the world with less to spend on music players and digital cameras.
``U.S. consumers are spending less, and that is affecting the whole global economy,'' Lee said. ``The difficulties will probably drag on well into next year before getting better.''
The U.S. housing slump last year sparked a credit market rout that's still rippling through the global economy. Higher interest rates are causing housing-led expansions to crumble in the U.S. and Europe, and financial institutions worldwide have posted about $492 billion of credit losses and markdowns since the start of 2007, according to data compiled by Bloomberg.
``Singapore's economy has so far been partly buffered, because we have been carried along by the vibrancy of the Asian region,'' Lee said. ``But Asian economies are starting to feel the impact of America's problems, and so are we. We must therefore prepare ourselves for a bumpy year ahead.''
GDP Growth
Singapore's economy grew 1.9 percent in the second quarter from a year earlier, after expanding 6.9 percent in the first three months of 2008, according to initial government estimates on July 10. The trade ministry will release an updated second- quarter growth figure at 8 a.m. on Aug. 11.
Growth was 4.5 percent in the first half, Lee said today. That suggests the economy expanded about 2.2 percent in the second quarter from a year earlier, according to Song Seng-Wun, an economist at CIMB-GK Securities Pte. in Singapore. Economists surveyed by Bloomberg News estimate the economy grew 2 percent last quarter.
``It's hard to be upbeat in this global environment,'' Song said. ``The Singapore dollar has certainly taken a hit because of the outlook on growth.''
The island's dollar fell the most in more than four years today on concern a slowing economy will prompt the central bank to favor a weaker currency.
Formula One
Singapore's consumer prices are climbing at the fastest pace in 26 years, and averaged 7.1 percent in the first half. The central bank in July raised its 2008 inflation forecast for a third time this year to a range of 6 percent to 7 percent.
``We cannot prevent these prices from going up, when prices are rising worldwide, and we import all our energy and food,'' Lee said. Singapore's inflation averaged 2.1 percent in 2007.
The island will play host to Formula One's first night Grand Prix in September and is building two casino-resorts, all aimed at tapping an increase in global travel. The government expects to double the number of overseas visitors to 17 million annually by 2015 and triple tourism receipts to S$30 billion ($21.4 billion) by then.
``These projects will create many good jobs, and keep our momentum up despite the uncertainties ahead,'' Lee said.
He also addressed the government's concern with a declining birth rate, as more Singaporeans choose to delay getting married and having children.
``We have implemented one measure after another over the years, but we have not succeeded in reversing the trend,'' the premier said. ``We have to take this very seriously. To secure our long-term future, we also need enough babies to replace ourselves.''
The island celebrates its 43rd year of independence tomorrow.
To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net
Read more...
Aug. 8 (Bloomberg) -- Singapore lowered its 2008 growth forecast for a second time this year as Prime Minister Lee Hsien Loong warned of a ``bumpy year ahead,'' saying a U.S. slowdown will hurt the global economy.
The Southeast Asian economy will grow between 4 percent and 5 percent in 2008, Lee said in a televised National Day message today. The government had earlier estimated an expansion of as much as 6 percent this year, after growth of 7.7 percent in 2007.
Asian manufacturers face declining demand as a housing recession and financial turmoil slow expansion in the U.S., the region's largest overseas market. Accelerating inflation and higher fuel costs have also left consumers around the world with less to spend on music players and digital cameras.
``U.S. consumers are spending less, and that is affecting the whole global economy,'' Lee said. ``The difficulties will probably drag on well into next year before getting better.''
The U.S. housing slump last year sparked a credit market rout that's still rippling through the global economy. Higher interest rates are causing housing-led expansions to crumble in the U.S. and Europe, and financial institutions worldwide have posted about $492 billion of credit losses and markdowns since the start of 2007, according to data compiled by Bloomberg.
``Singapore's economy has so far been partly buffered, because we have been carried along by the vibrancy of the Asian region,'' Lee said. ``But Asian economies are starting to feel the impact of America's problems, and so are we. We must therefore prepare ourselves for a bumpy year ahead.''
GDP Growth
Singapore's economy grew 1.9 percent in the second quarter from a year earlier, after expanding 6.9 percent in the first three months of 2008, according to initial government estimates on July 10. The trade ministry will release an updated second- quarter growth figure at 8 a.m. on Aug. 11.
Growth was 4.5 percent in the first half, Lee said today. That suggests the economy expanded about 2.2 percent in the second quarter from a year earlier, according to Song Seng-Wun, an economist at CIMB-GK Securities Pte. in Singapore. Economists surveyed by Bloomberg News estimate the economy grew 2 percent last quarter.
``It's hard to be upbeat in this global environment,'' Song said. ``The Singapore dollar has certainly taken a hit because of the outlook on growth.''
The island's dollar fell the most in more than four years today on concern a slowing economy will prompt the central bank to favor a weaker currency.
Formula One
Singapore's consumer prices are climbing at the fastest pace in 26 years, and averaged 7.1 percent in the first half. The central bank in July raised its 2008 inflation forecast for a third time this year to a range of 6 percent to 7 percent.
``We cannot prevent these prices from going up, when prices are rising worldwide, and we import all our energy and food,'' Lee said. Singapore's inflation averaged 2.1 percent in 2007.
The island will play host to Formula One's first night Grand Prix in September and is building two casino-resorts, all aimed at tapping an increase in global travel. The government expects to double the number of overseas visitors to 17 million annually by 2015 and triple tourism receipts to S$30 billion ($21.4 billion) by then.
``These projects will create many good jobs, and keep our momentum up despite the uncertainties ahead,'' Lee said.
He also addressed the government's concern with a declining birth rate, as more Singaporeans choose to delay getting married and having children.
``We have implemented one measure after another over the years, but we have not succeeded in reversing the trend,'' the premier said. ``We have to take this very seriously. To secure our long-term future, we also need enough babies to replace ourselves.''
The island celebrates its 43rd year of independence tomorrow.
To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net
Read more...
U.S. Wholesale Inventories Rise 1.1% in June; Sales Up 2.8%
By Bob Willis
Aug. 8 (Bloomberg) -- Inventories at U.S. wholesalers rose faster than forecast in June, led by gains in stockpiles of higher- priced petroleum, farm goods and metals.
The 1.1 percent gain in the value of stockpiles followed a revised increase of 0.9 percent in May, the Commerce Department said today in Washington. Sales jumped 2.8 percent in June, the most since March 2004, after a 2.2 percent gain the prior month.
Distributors had enough supplies on hand to last 1.06 months at the current sales pace, a record low, down from 1.08 the prior month. The low level of inventories signals that companies, faced with slower demand, won't need to abruptly cut back on output as the economy slows, economists said.
``With prudent inventory management as of late, companies have taken some downside risk probably out of this cycle,'' Adam York, an economist at Wachovia Corp. in Charlotte, North Carolina, said before the report. ``Inventories will probably add to growth in the third and fourth quarters. Prices mean a lot to this number.''
Economists forecast wholesale inventories would rise 0.6 percent, according to the median of 37 estimates in a Bloomberg News survey. Projections ranged from a decline of 1.4 percent to a gain of 1.3 percent.
Wholesalers account for about a quarter of all business stockpiles. Factory inventories, which make up about a third of the total, rose 1 percent in June, the government said on Aug. 4. Retail stockpiles, which make up the rest, will be included in the Aug. 13 business inventories report.
Crude Oil Prices
The eighth straight monthly increase in wholesale stockpiles was led by a 8.3 percent rise in the value of petroleum products, 7.1 increase in farm goods and a 4.2 percent gain in metals. Inventories of computer equipment fell 1.2 percent in June and machinery dropped 0.3 percent, the report showed.
Inventories of automobiles remain a concern. Auto inventories increased as demand slumped. Vehicle stockpiles rose 0.5 percent as sales declined 4.7 percent.
Purchases of autos and light trucks dropped in July to the lowest level since 1993, industry figures last week showed. With sales falling, General Motors Corp. and Ford Motor Co., the two largest carmakers, have cut output of SUV's, pickup trucks and other models to clear inventories and meet falling demand.
``We reduced production in North America,'' GM Chief Executive Officer Rick Wagoner said in an interview Aug. 4.
Inventories of durable goods increased 0.6 percent and those of non-durable products advanced 1.8 percent.
Inflation Concern
The increase in petroleum stockpiles came as sales rose 12.7 percent, the biggest jump since April 2002. The average price of a barrel of crude oil in June rose to $134.02, compared with an average of $125.46 the prior month, according to trading on the New York Mercantile Exchange.
Rising prices for fuel and other commodities exaggerated the numbers in today's report, as recent inflation measures have accelerated. A measure of prices tied to consumer spending rose 0.8 percent in June, the most since September 2005, the Commerce Department said Aug. 4.
Companies pared inventories in the second quarter at a $62 billion annual pace, the fastest drawdown since the last three months of 2001, the Commerce Department reported last week in its quarterly growth estimate. That implies that companies are better positioned to absorb falling demand, suggesting the decreasing decline in stockpiles will add to growth in the current quarter, according to Wachovia's York.
``We could be looking at close to a 1 percentage point addition to GDP growth from inventories in the third and fourth quarters,'' he said.
Even as falling inventories pared growth by 1.9 percentage points in the second quarter, the economy grew at a 1.9 percent annual rate. That followed 0.9 percent growth in the prior three months and a 0.2 percent contraction in the last three months of 2007, the Commerce Department said last week.
Related news: For stories on U.S. manufacturing: {TNI US HOM} For stories on the U.S. economy: {TNI US ECO } To search for home foreclosures: {NSE HOME FORECLOSURE }
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Aug. 8 (Bloomberg) -- Inventories at U.S. wholesalers rose faster than forecast in June, led by gains in stockpiles of higher- priced petroleum, farm goods and metals.
The 1.1 percent gain in the value of stockpiles followed a revised increase of 0.9 percent in May, the Commerce Department said today in Washington. Sales jumped 2.8 percent in June, the most since March 2004, after a 2.2 percent gain the prior month.
Distributors had enough supplies on hand to last 1.06 months at the current sales pace, a record low, down from 1.08 the prior month. The low level of inventories signals that companies, faced with slower demand, won't need to abruptly cut back on output as the economy slows, economists said.
``With prudent inventory management as of late, companies have taken some downside risk probably out of this cycle,'' Adam York, an economist at Wachovia Corp. in Charlotte, North Carolina, said before the report. ``Inventories will probably add to growth in the third and fourth quarters. Prices mean a lot to this number.''
Economists forecast wholesale inventories would rise 0.6 percent, according to the median of 37 estimates in a Bloomberg News survey. Projections ranged from a decline of 1.4 percent to a gain of 1.3 percent.
Wholesalers account for about a quarter of all business stockpiles. Factory inventories, which make up about a third of the total, rose 1 percent in June, the government said on Aug. 4. Retail stockpiles, which make up the rest, will be included in the Aug. 13 business inventories report.
Crude Oil Prices
The eighth straight monthly increase in wholesale stockpiles was led by a 8.3 percent rise in the value of petroleum products, 7.1 increase in farm goods and a 4.2 percent gain in metals. Inventories of computer equipment fell 1.2 percent in June and machinery dropped 0.3 percent, the report showed.
Inventories of automobiles remain a concern. Auto inventories increased as demand slumped. Vehicle stockpiles rose 0.5 percent as sales declined 4.7 percent.
Purchases of autos and light trucks dropped in July to the lowest level since 1993, industry figures last week showed. With sales falling, General Motors Corp. and Ford Motor Co., the two largest carmakers, have cut output of SUV's, pickup trucks and other models to clear inventories and meet falling demand.
``We reduced production in North America,'' GM Chief Executive Officer Rick Wagoner said in an interview Aug. 4.
Inventories of durable goods increased 0.6 percent and those of non-durable products advanced 1.8 percent.
Inflation Concern
The increase in petroleum stockpiles came as sales rose 12.7 percent, the biggest jump since April 2002. The average price of a barrel of crude oil in June rose to $134.02, compared with an average of $125.46 the prior month, according to trading on the New York Mercantile Exchange.
Rising prices for fuel and other commodities exaggerated the numbers in today's report, as recent inflation measures have accelerated. A measure of prices tied to consumer spending rose 0.8 percent in June, the most since September 2005, the Commerce Department said Aug. 4.
Companies pared inventories in the second quarter at a $62 billion annual pace, the fastest drawdown since the last three months of 2001, the Commerce Department reported last week in its quarterly growth estimate. That implies that companies are better positioned to absorb falling demand, suggesting the decreasing decline in stockpiles will add to growth in the current quarter, according to Wachovia's York.
``We could be looking at close to a 1 percentage point addition to GDP growth from inventories in the third and fourth quarters,'' he said.
Even as falling inventories pared growth by 1.9 percentage points in the second quarter, the economy grew at a 1.9 percent annual rate. That followed 0.9 percent growth in the prior three months and a 0.2 percent contraction in the last three months of 2007, the Commerce Department said last week.
Related news: For stories on U.S. manufacturing: {TNI US HOM
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Italy's Economy Unexpectedly Shrinks; Nears Recession
By Flavia Krause-Jackson
Enlarge Image/Details
Aug. 8 (Bloomberg) -- Italy's economy unexpectedly shrank in the second quarter, edging it closer to the fourth recession in a decade as households and businesses struggle to cope with more expensive oil.
The economy, first of the three biggest in the euro region to report second-quarter growth, contracted 0.3 percent after expanding 0.5 percent in January to March, Istat, the Rome-based statistics office, said today. Economists expected stagnation, according to the median of 22 forecasts in a Bloomberg News survey. From the same period a year earlier, the economy didn't grow at all.
European Central Bank President Jean-Claude Trichet yesterday said economic growth will be ``particularly weak'' through the third quarter after policy makers left borrowing costs at 4.25 percent. Italy is a bellwether for the effect record oil prices are having on the region.
``It's hard to imagine Italy doing better in the coming quarters,'' David Mackie, an economist at JPMorgan Chase & Co in London, said in a note. ``It is difficult to escape the conclusion that Italy will experience a recession.''
Confidence Slump
Consumer confidence slumped to the lowest since 1993 as rising energy prices drove the inflation rate to the highest level in six years and borrowing costs rose. Manufacturing also stalled.
The price of crude, down by a fifth from a July record of $147.27 a barrel, is 65 percent more expensive than a year ago.
``The outlook for the euro zone isn't good at all,'' Neil Mackinnon, chief economist at ECU Group Plc in London, said on Bloomberg Television. ``Higher interest rates aren't on the agenda, and I think the next ECB move is down. A recession is looming.''
ECB council member Nout Wellink said in an interview with Dutch RTL television today that second-quarter growth in the euro area ``won't look that good.''
Gross domestic product in Germany, the region's biggest economy, declined 0.8 percent in the second quarter, according to the median forecast of 11 economists surveyed by Bloomberg. That would be the country's first contraction in four years. The GDP report is due Aug. 14.
Italy's economy will expand a mere 0.4 percent this year, the slowest pace since 2003, the Bank of Italy and the Isae research institute said last month.
Lucky Escape?
Some economists, such as Morgan Stanley's Vladimir Pillonca, predicted the country would enter a recession as soon as the first quarter after a contraction in the final three months of 2007. That didn't happen, though predictions are still gloomy.
The government and the European Commission forecast growth of 0.5 percent, which would make Italy the laggard among the Group of Seven leading industrial countries and the 15 nations sharing the euro. Italy's expansion has already trailed the European Union average for more than a decade.
``The outlook for the Italian economy has deteriorated at an alarming pace,'' Jonathan Loynes, an analyst at London-based Capital Economics, said in a research note. ``Unless Italy can quickly implement much-needed economic reforms it may start to lose ground to the rest of the euro zone.''
Unpopular Measures
To stimulate growth, Prime Minister Silvio Berlusconi has pledged unpopular measures such as reducing the state bureaucracy and raising the average pension age from 58.
Italian industrial production stagnated in June as oil prices were edging toward an all-time high. Indesit Co., a maker of washing machines, said on July 30 that 2008 earnings will be lower than last year's and Fiat SpA, the country's biggest automaker, idled four car factories last month in the face of slowing demand.
On the consumer side, Italians are cutting back on spending on everything from new cars to clothes. New auto sales fell for a seventh month in July. Italian retail sales declined for the 17th month in July, the Bloomberg purchasing managers index showed.
Italy has slipped to 46th in the World Economic Forum's 2007- 2008 competitiveness ranking, trailing Latvia and Bahrain. The country came last in terms of labor productivity -- a key measure of economic growth and competitiveness -- among the 30-member Organization for Economic Cooperation and Development.
The Italian statistics office didn't provide a breakdown of the GDP figure. Istat will release its final report on Sept. 10.
To contact the reporter on this story: Flavia Krause-Jackson in Rome at fjackson@bloomberg.net
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Aug. 8 (Bloomberg) -- Italy's economy unexpectedly shrank in the second quarter, edging it closer to the fourth recession in a decade as households and businesses struggle to cope with more expensive oil.
The economy, first of the three biggest in the euro region to report second-quarter growth, contracted 0.3 percent after expanding 0.5 percent in January to March, Istat, the Rome-based statistics office, said today. Economists expected stagnation, according to the median of 22 forecasts in a Bloomberg News survey. From the same period a year earlier, the economy didn't grow at all.
European Central Bank President Jean-Claude Trichet yesterday said economic growth will be ``particularly weak'' through the third quarter after policy makers left borrowing costs at 4.25 percent. Italy is a bellwether for the effect record oil prices are having on the region.
``It's hard to imagine Italy doing better in the coming quarters,'' David Mackie, an economist at JPMorgan Chase & Co in London, said in a note. ``It is difficult to escape the conclusion that Italy will experience a recession.''
Confidence Slump
Consumer confidence slumped to the lowest since 1993 as rising energy prices drove the inflation rate to the highest level in six years and borrowing costs rose. Manufacturing also stalled.
The price of crude, down by a fifth from a July record of $147.27 a barrel, is 65 percent more expensive than a year ago.
``The outlook for the euro zone isn't good at all,'' Neil Mackinnon, chief economist at ECU Group Plc in London, said on Bloomberg Television. ``Higher interest rates aren't on the agenda, and I think the next ECB move is down. A recession is looming.''
ECB council member Nout Wellink said in an interview with Dutch RTL television today that second-quarter growth in the euro area ``won't look that good.''
Gross domestic product in Germany, the region's biggest economy, declined 0.8 percent in the second quarter, according to the median forecast of 11 economists surveyed by Bloomberg. That would be the country's first contraction in four years. The GDP report is due Aug. 14.
Italy's economy will expand a mere 0.4 percent this year, the slowest pace since 2003, the Bank of Italy and the Isae research institute said last month.
Lucky Escape?
Some economists, such as Morgan Stanley's Vladimir Pillonca, predicted the country would enter a recession as soon as the first quarter after a contraction in the final three months of 2007. That didn't happen, though predictions are still gloomy.
The government and the European Commission forecast growth of 0.5 percent, which would make Italy the laggard among the Group of Seven leading industrial countries and the 15 nations sharing the euro. Italy's expansion has already trailed the European Union average for more than a decade.
``The outlook for the Italian economy has deteriorated at an alarming pace,'' Jonathan Loynes, an analyst at London-based Capital Economics, said in a research note. ``Unless Italy can quickly implement much-needed economic reforms it may start to lose ground to the rest of the euro zone.''
Unpopular Measures
To stimulate growth, Prime Minister Silvio Berlusconi has pledged unpopular measures such as reducing the state bureaucracy and raising the average pension age from 58.
Italian industrial production stagnated in June as oil prices were edging toward an all-time high. Indesit Co., a maker of washing machines, said on July 30 that 2008 earnings will be lower than last year's and Fiat SpA, the country's biggest automaker, idled four car factories last month in the face of slowing demand.
On the consumer side, Italians are cutting back on spending on everything from new cars to clothes. New auto sales fell for a seventh month in July. Italian retail sales declined for the 17th month in July, the Bloomberg purchasing managers index showed.
Italy has slipped to 46th in the World Economic Forum's 2007- 2008 competitiveness ranking, trailing Latvia and Bahrain. The country came last in terms of labor productivity -- a key measure of economic growth and competitiveness -- among the 30-member Organization for Economic Cooperation and Development.
The Italian statistics office didn't provide a breakdown of the GDP figure. Istat will release its final report on Sept. 10.
To contact the reporter on this story: Flavia Krause-Jackson in Rome at fjackson@bloomberg.net
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Natural Gas Futures Fall as Crude Oil Declines, Dollar Advances
By Reg Curren
Aug. 8 (Bloomberg) -- Natural gas in New York declined to the lowest in six months as crude oil fell and the U.S. dollar climbed, dulling the allure of commodities as an investment alternative.
Crude has plunged more than $30 since touching a record $147.27 in New York on July 11. The dollar gained the most in more than four years against the euro amid an outlook for major world economies to slow. Mild weather is also limiting the demand for gas-fired power generation to run air conditioners.
The stronger dollar is playing a role, as are slumping crude prices, said Cameron Horwitz, an analyst at SunTrust Robinson Humphrey in Houston. ``Weather forecasts for cooler-than-normal temperatures to linger through the middle of August are also keeping a damper on things.''
Natural gas for September delivery fell 30.3 cents, or 3.5 percent, to $8.268 per million British thermal units at 10:46 a.m. on the New York Mercantile Exchange. Futures have fallen 38 percent since June 30 as supplies expanded and crude oil prices declined. Gas earlier touched $8.253, the lowest since Feb. 8.
``Crude is whacking everything,'' said Stephen Briggs, a partner at Intermarket Management LLC in Verona, New Jersey. ``It's red across the commodity screens as the dollar gets stronger.''
Crude oil for September delivery fell $3.25, or 2.7 percent, to $116.77 a barrel in New York. Prices have fallen 7 percent so far this week.
Oil may fall next week amid weakening demand caused by a global economic slowdown. Thirteen of 35 analysts surveyed by Bloomberg News, or 37 percent, said prices will drop through Aug. 15. Twelve of the respondents, or 34 percent, said oil will rise and 10 forecast little change.
The euro traded at $1.5046 to the dollar at 10:48 a.m. in New York from $1.5325 yesterday.
Milder Weather
Below-normal temperatures are probable in much of the eastern half of the U.S. through Aug. 17, according to the Climate Prediction Center in Camp Springs, Maryland.
Gas supplies are also near the five-year average for this time of year, the Energy Department said in a report yesterday.
With almost three months left before injections cease because of heating demand, analysts expect inventories to reach 3.4 trillion cubic feet. The five-year average in storage to start winter on Nov. 1 is 3.327 trillion.
Stockpiles increased 56 billion cubic feet in the week ended Aug. 1, to 2.517 trillion cubic feet, the Energy Department said. The average change for this time of year over the past five is 50 billion cubic feet.
Supplies would need to expand at about 57 billion cubic feet a week from now until Oct. 31 to match the five-year average.
To contact the reporters on this story: Reg Curren in Calgary at rcurren@bloomberg.net.
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Aug. 8 (Bloomberg) -- Natural gas in New York declined to the lowest in six months as crude oil fell and the U.S. dollar climbed, dulling the allure of commodities as an investment alternative.
Crude has plunged more than $30 since touching a record $147.27 in New York on July 11. The dollar gained the most in more than four years against the euro amid an outlook for major world economies to slow. Mild weather is also limiting the demand for gas-fired power generation to run air conditioners.
The stronger dollar is playing a role, as are slumping crude prices, said Cameron Horwitz, an analyst at SunTrust Robinson Humphrey in Houston. ``Weather forecasts for cooler-than-normal temperatures to linger through the middle of August are also keeping a damper on things.''
Natural gas for September delivery fell 30.3 cents, or 3.5 percent, to $8.268 per million British thermal units at 10:46 a.m. on the New York Mercantile Exchange. Futures have fallen 38 percent since June 30 as supplies expanded and crude oil prices declined. Gas earlier touched $8.253, the lowest since Feb. 8.
``Crude is whacking everything,'' said Stephen Briggs, a partner at Intermarket Management LLC in Verona, New Jersey. ``It's red across the commodity screens as the dollar gets stronger.''
Crude oil for September delivery fell $3.25, or 2.7 percent, to $116.77 a barrel in New York. Prices have fallen 7 percent so far this week.
Oil may fall next week amid weakening demand caused by a global economic slowdown. Thirteen of 35 analysts surveyed by Bloomberg News, or 37 percent, said prices will drop through Aug. 15. Twelve of the respondents, or 34 percent, said oil will rise and 10 forecast little change.
The euro traded at $1.5046 to the dollar at 10:48 a.m. in New York from $1.5325 yesterday.
Milder Weather
Below-normal temperatures are probable in much of the eastern half of the U.S. through Aug. 17, according to the Climate Prediction Center in Camp Springs, Maryland.
Gas supplies are also near the five-year average for this time of year, the Energy Department said in a report yesterday.
With almost three months left before injections cease because of heating demand, analysts expect inventories to reach 3.4 trillion cubic feet. The five-year average in storage to start winter on Nov. 1 is 3.327 trillion.
Stockpiles increased 56 billion cubic feet in the week ended Aug. 1, to 2.517 trillion cubic feet, the Energy Department said. The average change for this time of year over the past five is 50 billion cubic feet.
Supplies would need to expand at about 57 billion cubic feet a week from now until Oct. 31 to match the five-year average.
To contact the reporters on this story: Reg Curren in Calgary at rcurren@bloomberg.net.
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U.S. Productivity Increases 2.2%, Labor Costs Cool
By Shobhana Chandra
Aug. 8 (Bloomberg) -- Worker productivity in the U.S. grew in the second quarter as employers cut jobs to weather the jump in raw-material expenses.
Efficiency, a measure of how much an employee produces for each hour of work, rose at a 2.2 percent annual rate, less than forecast, after a 2.6 percent gain in the prior quarter, the Labor Department said today in Washington. Labor costs climbed at a 1.3 percent pace, less than anticipated.
Employers eliminated 165,000 jobs from April through June to shore up profits, and still managed to get more output with fewer workers. Gains in productivity help lower inflation and bolster the Federal Reserve's forecast that prices will moderate.
``Productivity still looks pretty good,'' said Michael Feroli, an economist at JPMorgan Chase & Co. in New York. ``It's encouraging on the inflation front. We are seeing good cost control from businesses. It's good news for the Fed.''
Treasuries fell in the minutes following the report before turning higher. The yield on the benchmark 10-year note was 3.90 percent at 9:45 a.m. in New York, compared with 3.93 percent late yesterday.
Compared with the second quarter of last year, productivity rose 2.8 percent.
`Impressive' Resilience
``Historically, productivity growth has tended to suffer during periods of energy-price shocks,'' David Greenlaw, chief U.S. fixed-income economist at Morgan Stanley in New York, said in a note to clients. ``The current year-over-year growth rate of just a shade under 3 percent demonstrates an impressive degree of resilience.''
Economists had forecast a 2.5 percent rate of increase in second-quarter productivity, according to the median of 67 forecasts in a Bloomberg News survey. Estimates ranged from gains of 0.7 percent to 3.6 percent.
Unit labor costs, which are adjusted for efficiency gains, were projected to rise at a 1.4 percent pace, according to the survey median.
This is the Labor Department's preliminary report on efficiency. Final figures will be released on Sept. 4.
Labor's revised figures for the prior three years showed productivity rose an average 1.4 percent from 2005 to 2007, down from a previously estimated 1.6 percent. Commerce Department growth revisions issued on July 31 had showed the economy expanded less than previously estimated since 2005.
Today's report may ease concern that the productivity surge that began in 1996 was waning. Efficiency rose an average 2.9 percent in the nine years ended in 2004.
Hours worked dropped at a 0.5 percent pace in the second quarter, the fourth consecutive decline. Output increased at a 1.7 percent rate.
Hourly Compensation
Compensation for each hour worked climbed at a 3.6 percent annual rate after a 5.2 percent gain in the prior quarter.
Among manufacturers, productivity dropped at a 1.4 percent pace, the biggest decline since the last three months of 2003.
Employers remained focused on maintaining productivity at the start of the second half of the year. Payrolls fell in July for a seventh straight month and the number of hours worked dropped. Americans labored an average 33 hours and 36 minutes per week, six minutes less than in June and matching the shortest workweek since records began in 1964, government figures showed.
YRC Worldwide Inc., the biggest U.S. trucking company by sales, reported a second-quarter profit that ended two quarters of losses as it shut terminals, cut jobs and changed management at some regional brands.
Focus on Efficiency
``Our actions to improve operational efficiency, get our regional companies back on track and reduce overhead costs have been effective,'' Chief Executive Officer Bill Zollars said in a statement on July 24. ``Further operational improvements'' are planned for this quarter.
In the 1990s, former Fed Chairman Alan Greenspan was one of the first to recognize productivity was accelerating because of the increased use of computers and the Internet, and that the improvement would contain inflation even as the economy gained strength and unemployment stayed low. The realization allowed the Fed to keep interest rates little changed from 1996 to 1999.
The risks of softening growth and rising inflation led central bankers to keep the benchmark rate unchanged at 2 percent this week.
``Although downside risks to growth remain, the upside risks to inflation are also of significant concern,'' Fed officials said Aug. 5 in a statement. ``The committee expects inflation to moderate later this year and next year, but the inflation outlook remains highly uncertain.''
To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net
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Aug. 8 (Bloomberg) -- Worker productivity in the U.S. grew in the second quarter as employers cut jobs to weather the jump in raw-material expenses.
Efficiency, a measure of how much an employee produces for each hour of work, rose at a 2.2 percent annual rate, less than forecast, after a 2.6 percent gain in the prior quarter, the Labor Department said today in Washington. Labor costs climbed at a 1.3 percent pace, less than anticipated.
Employers eliminated 165,000 jobs from April through June to shore up profits, and still managed to get more output with fewer workers. Gains in productivity help lower inflation and bolster the Federal Reserve's forecast that prices will moderate.
``Productivity still looks pretty good,'' said Michael Feroli, an economist at JPMorgan Chase & Co. in New York. ``It's encouraging on the inflation front. We are seeing good cost control from businesses. It's good news for the Fed.''
Treasuries fell in the minutes following the report before turning higher. The yield on the benchmark 10-year note was 3.90 percent at 9:45 a.m. in New York, compared with 3.93 percent late yesterday.
Compared with the second quarter of last year, productivity rose 2.8 percent.
`Impressive' Resilience
``Historically, productivity growth has tended to suffer during periods of energy-price shocks,'' David Greenlaw, chief U.S. fixed-income economist at Morgan Stanley in New York, said in a note to clients. ``The current year-over-year growth rate of just a shade under 3 percent demonstrates an impressive degree of resilience.''
Economists had forecast a 2.5 percent rate of increase in second-quarter productivity, according to the median of 67 forecasts in a Bloomberg News survey. Estimates ranged from gains of 0.7 percent to 3.6 percent.
Unit labor costs, which are adjusted for efficiency gains, were projected to rise at a 1.4 percent pace, according to the survey median.
This is the Labor Department's preliminary report on efficiency. Final figures will be released on Sept. 4.
Labor's revised figures for the prior three years showed productivity rose an average 1.4 percent from 2005 to 2007, down from a previously estimated 1.6 percent. Commerce Department growth revisions issued on July 31 had showed the economy expanded less than previously estimated since 2005.
Today's report may ease concern that the productivity surge that began in 1996 was waning. Efficiency rose an average 2.9 percent in the nine years ended in 2004.
Hours worked dropped at a 0.5 percent pace in the second quarter, the fourth consecutive decline. Output increased at a 1.7 percent rate.
Hourly Compensation
Compensation for each hour worked climbed at a 3.6 percent annual rate after a 5.2 percent gain in the prior quarter.
Among manufacturers, productivity dropped at a 1.4 percent pace, the biggest decline since the last three months of 2003.
Employers remained focused on maintaining productivity at the start of the second half of the year. Payrolls fell in July for a seventh straight month and the number of hours worked dropped. Americans labored an average 33 hours and 36 minutes per week, six minutes less than in June and matching the shortest workweek since records began in 1964, government figures showed.
YRC Worldwide Inc., the biggest U.S. trucking company by sales, reported a second-quarter profit that ended two quarters of losses as it shut terminals, cut jobs and changed management at some regional brands.
Focus on Efficiency
``Our actions to improve operational efficiency, get our regional companies back on track and reduce overhead costs have been effective,'' Chief Executive Officer Bill Zollars said in a statement on July 24. ``Further operational improvements'' are planned for this quarter.
In the 1990s, former Fed Chairman Alan Greenspan was one of the first to recognize productivity was accelerating because of the increased use of computers and the Internet, and that the improvement would contain inflation even as the economy gained strength and unemployment stayed low. The realization allowed the Fed to keep interest rates little changed from 1996 to 1999.
The risks of softening growth and rising inflation led central bankers to keep the benchmark rate unchanged at 2 percent this week.
``Although downside risks to growth remain, the upside risks to inflation are also of significant concern,'' Fed officials said Aug. 5 in a statement. ``The committee expects inflation to moderate later this year and next year, but the inflation outlook remains highly uncertain.''
To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net
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Nigerian Navy Steps Up Patrols in Niger Delta to Curb Attacks
By Tony Tamuno
Aug. 8 (Bloomberg) -- Nigeria's navy has increased patrols in the oil-rich Niger Delta region to curb attacks by militants, said Rear-Admiral Bodunrin Raji.
The patrols have resulted in fewer incidents of crude theft in the region, Raji, the commander of the Nigerian navy in the region, told youth and community leaders from the states of Rivers and Bayelsa in Port Harcourt yesterday.
``The eastern naval command's efforts are geared toward a secure and peaceful maritime environment in line with Nigerian navy's role'' Raji said.
Violence in the oil-producing Niger Delta has cut more than 20 percent of the country's oil production since 2006. Some of the armed groups say they are fighting for a greater share of oil wealth for the region, whose inhabitants remain impoverished.
Nigeria loses at least 100,000 barrels of oil per day to theft, according to the Web site of Waltham, Massachusetts-based Global Insight Inc. A report commissioned for former President Olusegun Obasanjo estimated the amount of crude stolen by criminal groups at up to 300,000 barrels a day, according to an article published in 2006 on the Web site of the International Assessment and Strategy Center, an Alexandria, Virginia-based think-tank.
On Aug. 6, members of a naval patrol killed an unspecified number of militants, destroyed two boats and seized a third vessel following a clash with unidentified gunmen along the Cawthorne Channel, near Port Harcourt.
To contact the reporter on this story: Tony Tamuno in Port Harcourt via Johannesburg at pmrichardson@bloomberg.net.
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Aug. 8 (Bloomberg) -- Nigeria's navy has increased patrols in the oil-rich Niger Delta region to curb attacks by militants, said Rear-Admiral Bodunrin Raji.
The patrols have resulted in fewer incidents of crude theft in the region, Raji, the commander of the Nigerian navy in the region, told youth and community leaders from the states of Rivers and Bayelsa in Port Harcourt yesterday.
``The eastern naval command's efforts are geared toward a secure and peaceful maritime environment in line with Nigerian navy's role'' Raji said.
Violence in the oil-producing Niger Delta has cut more than 20 percent of the country's oil production since 2006. Some of the armed groups say they are fighting for a greater share of oil wealth for the region, whose inhabitants remain impoverished.
Nigeria loses at least 100,000 barrels of oil per day to theft, according to the Web site of Waltham, Massachusetts-based Global Insight Inc. A report commissioned for former President Olusegun Obasanjo estimated the amount of crude stolen by criminal groups at up to 300,000 barrels a day, according to an article published in 2006 on the Web site of the International Assessment and Strategy Center, an Alexandria, Virginia-based think-tank.
On Aug. 6, members of a naval patrol killed an unspecified number of militants, destroyed two boats and seized a third vessel following a clash with unidentified gunmen along the Cawthorne Channel, near Port Harcourt.
To contact the reporter on this story: Tony Tamuno in Port Harcourt via Johannesburg at pmrichardson@bloomberg.net.
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Galp, BG Advance After Making New Oil Find in Brazil
By Joao Lima
Aug. 8 (Bloomberg) -- Galp Energia SGPS SA, Portugal's biggest oil company, and BG Group Plc rose after finding light crude oil in a deepwater well in Brazil's Santos Basin, the location of the biggest discovery in the Americas since 1976.
BG, the U.K.'s third-largest oil and natural-gas producer, climbed as much as 3.4 percent in London trading. Galp jumped 6.2 percent in Lisbon. The Iara well discovery is in the same block as the Tupi find, estimated to contain as many as 8 billion barrels of recoverable oil.
``Given further drilling updates are expected soon, we believe the share price has further upside potential in the short to mid term,'' Anish Kapadia, an analyst at UBS AG, said today in a research note. He has a ``buy'' rating on Galp.
Lisbon-based Galp is seeking to expand exploration in countries including Brazil and Angola to increase access to crude supplies and rely less on refining and selling fuel at home and in neighboring Spain. It owns holdings in four exploration blocks in the Santos Basin, and like BG has a stake in Tupi.
Tupi is the largest oil discovery in the Americas since Mexico's Cantarell field was found in 1976, and compares with the 12 billion barrels held at Kazakhstan's Kashagan field, the largest oil find in the last three decades.
Petroleo Brasileiro SA, Brazil's state-controlled oil company, is the operator and owns 65 percent of the block where both the Iara and Tupi wells were drilled. BG owns 25 percent and Galp owns 10 percent.
Estimated Reserves
``Given the discovery, recoverable reserves on block BM-S- 11 could increase to 10 billion barrels from currently 5 billion to 8 billion barrels,'' Kapadia said.
Galp jumped as much as 80 cents and traded at 12.98 euros in Lisbon at 1:50 p.m. local time. BG increased as much as 38 pence and last traded at 1,107 pence. Petrobras, as the Brazilian oil company is known, rose 34 cents, or 2.5 percent, to 14.17 euros in Frankfurt.
Iara is in Brazil's ``pre-salt'' offshore region, a new oil province that may contain about 50 billion barrels of oil according to Peter Wells, a director at U.K. research company Neftex Petroleum Consultants Ltd. The Iara well, which has yet to be declared commercially viable, is still being drilled in the hope of finding more oil at greater depths.
The oil at Iara has a 30-degree grade according to the American Petroleum Institute scale and is located 230 kilometers (143 miles) off the coast of Rio de Janeiro, Petrobras said yesterday. The well was drilled in water 2,230 meters deep and to a depth of 5,600 meters beneath the ocean floor.
`Material Discovery'
BG Chief Executive Office Frank Chapman today described Iara as a ``material discovery.'' The well ``is the sixth consecutive drilling success in the deep water pre-salt Santos Basin since BG and its partners began their drilling program in 2005,'' Reading, England-based BG said today in a statement.
Some oil industry analysts, including David Thomas from Citigroup Global Markets Inc., have said that Tupi, Tupi Sul and Iara may be linked as part of a larger offshore deposit.
Petrobras in January said that a gas and oil discovery known as Jupiter, in the Santos Basin's BM-S-24 block, could be as big as Tupi. Petrobras owns 80 percent of Jupiter and operates the well. Galp has 20 percent of Jupiter.
Refining and marketing still account for more than half of Galp's operating profit. Galp's first-half adjusted net income fell 25 percent to 214 million euros as crude prices rose, squeezing refining margins 46 percent to $3.50 a barrel, Galp said Aug. 6.
Boost Spending
Chief Executive Officer Manuel Ferreira de Oliveira on June 27 said Galp will spend an estimated 9 billion euros this year to buy gas and oil for its customers, about 3 billion euros more than in 2007.
Eni SpA, Italy's biggest oil company, and Portuguese holding company Amorim Energia BV, each control a third of Galp. Eni may seek to take control of Galp or sell its stake in the Portuguese oil company if it's not successful, Eni Chief Executive Officer Paolo Scaroni said July 31.
Galp said in a regulatory filing today that it hasn't held any contacts with Repsol YPF SA of Spain that could lead to a merger, and that the companies haven't discussed any asset swap related to the potential acquisition by Gas Natural SDG SA of Spanish utility Union Fenosa SA.
The statement followed a report in Portuguese daily newspaper Diario Economico that said Galp shareholders were in talks with Repsol. An official at Repsol declined to comment.
To contact the reporter on this story: Joao Lima in Lisbon at jlima1@bloomberg.net
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Aug. 8 (Bloomberg) -- Galp Energia SGPS SA, Portugal's biggest oil company, and BG Group Plc rose after finding light crude oil in a deepwater well in Brazil's Santos Basin, the location of the biggest discovery in the Americas since 1976.
BG, the U.K.'s third-largest oil and natural-gas producer, climbed as much as 3.4 percent in London trading. Galp jumped 6.2 percent in Lisbon. The Iara well discovery is in the same block as the Tupi find, estimated to contain as many as 8 billion barrels of recoverable oil.
``Given further drilling updates are expected soon, we believe the share price has further upside potential in the short to mid term,'' Anish Kapadia, an analyst at UBS AG, said today in a research note. He has a ``buy'' rating on Galp.
Lisbon-based Galp is seeking to expand exploration in countries including Brazil and Angola to increase access to crude supplies and rely less on refining and selling fuel at home and in neighboring Spain. It owns holdings in four exploration blocks in the Santos Basin, and like BG has a stake in Tupi.
Tupi is the largest oil discovery in the Americas since Mexico's Cantarell field was found in 1976, and compares with the 12 billion barrels held at Kazakhstan's Kashagan field, the largest oil find in the last three decades.
Petroleo Brasileiro SA, Brazil's state-controlled oil company, is the operator and owns 65 percent of the block where both the Iara and Tupi wells were drilled. BG owns 25 percent and Galp owns 10 percent.
Estimated Reserves
``Given the discovery, recoverable reserves on block BM-S- 11 could increase to 10 billion barrels from currently 5 billion to 8 billion barrels,'' Kapadia said.
Galp jumped as much as 80 cents and traded at 12.98 euros in Lisbon at 1:50 p.m. local time. BG increased as much as 38 pence and last traded at 1,107 pence. Petrobras, as the Brazilian oil company is known, rose 34 cents, or 2.5 percent, to 14.17 euros in Frankfurt.
Iara is in Brazil's ``pre-salt'' offshore region, a new oil province that may contain about 50 billion barrels of oil according to Peter Wells, a director at U.K. research company Neftex Petroleum Consultants Ltd. The Iara well, which has yet to be declared commercially viable, is still being drilled in the hope of finding more oil at greater depths.
The oil at Iara has a 30-degree grade according to the American Petroleum Institute scale and is located 230 kilometers (143 miles) off the coast of Rio de Janeiro, Petrobras said yesterday. The well was drilled in water 2,230 meters deep and to a depth of 5,600 meters beneath the ocean floor.
`Material Discovery'
BG Chief Executive Office Frank Chapman today described Iara as a ``material discovery.'' The well ``is the sixth consecutive drilling success in the deep water pre-salt Santos Basin since BG and its partners began their drilling program in 2005,'' Reading, England-based BG said today in a statement.
Some oil industry analysts, including David Thomas from Citigroup Global Markets Inc., have said that Tupi, Tupi Sul and Iara may be linked as part of a larger offshore deposit.
Petrobras in January said that a gas and oil discovery known as Jupiter, in the Santos Basin's BM-S-24 block, could be as big as Tupi. Petrobras owns 80 percent of Jupiter and operates the well. Galp has 20 percent of Jupiter.
Refining and marketing still account for more than half of Galp's operating profit. Galp's first-half adjusted net income fell 25 percent to 214 million euros as crude prices rose, squeezing refining margins 46 percent to $3.50 a barrel, Galp said Aug. 6.
Boost Spending
Chief Executive Officer Manuel Ferreira de Oliveira on June 27 said Galp will spend an estimated 9 billion euros this year to buy gas and oil for its customers, about 3 billion euros more than in 2007.
Eni SpA, Italy's biggest oil company, and Portuguese holding company Amorim Energia BV, each control a third of Galp. Eni may seek to take control of Galp or sell its stake in the Portuguese oil company if it's not successful, Eni Chief Executive Officer Paolo Scaroni said July 31.
Galp said in a regulatory filing today that it hasn't held any contacts with Repsol YPF SA of Spain that could lead to a merger, and that the companies haven't discussed any asset swap related to the potential acquisition by Gas Natural SDG SA of Spanish utility Union Fenosa SA.
The statement followed a report in Portuguese daily newspaper Diario Economico that said Galp shareholders were in talks with Repsol. An official at Repsol declined to comment.
To contact the reporter on this story: Joao Lima in Lisbon at jlima1@bloomberg.net
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Gold, Oil Ratio `Out of Whack' After Declines: Chart of the Day
By Claudia Carpenter
Aug. 8 (Bloomberg) -- Gold may outperform crude oil in the next six months as buyers in India, the world's biggest consumer of gold, stock up on the metal, according to Patrick Chidley, an analyst at Barnard Jacobs Mellet USA LLC.
Gold jewelry demand in India and Turkey was ``extremely strong'' in the past week, with sales to India the highest since this time last year as buyers took advantage of lower prices and rebuilt inventories, according to UBS AG. Gold has dropped 16 percent from a record in March as lower oil prices eroded demand for the metal as an inflation hedge and jewelry demand waned.
The CHART OF THE DAY highlights the ``black gold ratio,'' showing how much gold it would take to buy a barrel of oil. The ratio rose to 0.1538 of an ounce on June 12, the highest since at least 1950, and averaged 0.066 since 1970. Based on historical averages, if oil falls to $100, gold would go to $1,515 an ounce.
Gold traded at $862.65 an ounce as of 10:46 a.m. in London, while crude oil was at $118.05 a barrel in New York.
``This ratio is way out of whack,'' Chidley said from Stamford, Connecticut. ``As we've seen the oil price come off, that relationship could come back into focus and I see the relationship below 0.1 in the next six months with gold coming up. Indian jewelers have to come back to the market.''
The October-December period is the busiest season in India for jewelry sales, spurred by the wedding season and Diwali, the Festival of Light.
To contact the reporter on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net
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Asian Currencies Slump as Slowing Growth May Damp Asset Demand
By Aaron Pan and Patricia Lui
Aug. 8 (Bloomberg) -- Asian currencies slumped this week, led by Singapore's dollar, on concern slowing global growth will curb demand for the region's assets.
Singapore's currency posted its biggest weekly loss in a decade after the Straits Times newspaper today cited Finance Minister Tharman Shanmugaratnam as saying the economy is moving toward a slowdown and growth is unlikely to rebound ``anytime soon.'' Nine of the 10 most-active Asian currencies outside of Japan fell this week.
``Tharman's dovish comments confirm expectations that the central bank won't be seeking any further policy tightening,'' said Emmanuel Ng, economist at Oversea-Chinese Banking Corp. in Singapore. ``Second-quarter GDP and the full-year growth numbers also run the risk of being revised downwards at Prime Minister Lee's speech later today.''
The local dollar weakened 2.2 percent this week to S$1.40 against the U.S. currency as of 5:04 p.m. in Singapore, the biggest loss since the five days ended June 26, 1998, according to data compiled by Bloomberg.
Prime Minister Lee Hsien Loong will deliver his annual eve of National Day speech today and may announce revised second- quarter and full-year growth forecasts.
The Philippine peso lost 0.3 percent this week to 44.335, Indonesia's rupiah dropped 0.8 percent to 9,173 and Thailand's baht declined 0.4 percent to 33.67. Vietnam's dong advanced 1.2 percent this week to 16,550.
Shipments Slow
Taiwan's dollar had its biggest weekly loss in more than two years on speculation slowing global economic growth will curb demand for consumer electronics produced by the island's exporters.
The currency fell for a ninth day, the longest losing streak since July 2005, after a government report yesterday showed shipments grew last month at less than half the pace forecast by economists. Taiwan's gross domestic product may expand 4.78 percent this year, the slowest since 2005, according to a statistics bureau forecast released in May.
``The Taiwan dollar is finding it difficult to fight the strong U.S. dollar trend that's happening in the whole region,'' said Philip Wee, a currency strategist at DBS Group Holdings Ltd. in Singapore. ``Europe and Japan are all showing negative growth numbers, and the Asian region is seeing declining GDP.''
Taiwan's dollar fell 1.5 percent this week to NT$31.090 against the U.S. currency, according to Taipei Forex Inc.
Political Risks
Taiwan's export growth slowed to 8 percent in July from 21.3 percent the previous month, the government reported yesterday. Economists in a Bloomberg News survey forecast overseas sales, which account for about half of the island's GDP, would increase 17.1 percent.
Malaysia's ringgit fell for a sixth day, paring most of this year's advance, on concern that investors are selling local assets on heightened political risks and as the price of commodities the nation exports declined.
The currency finished its worst week in almost nine months as a decline in the nation's foreign-exchange reserves indicated global funds are taking their money out of the country.
Police yesterday charged opposition leader Anwar Ibrahim for engaging in ``unnatural sex,'' a crime in Muslim-majority Malaysia. Anwar pleaded not guilty, saying it was a ploy to derail his political comeback.
`No Surprise'
``It's no surprise if capital is flowing out especially from the equity market,'' said Carol Chan, a currency analyst in Hong Kong at CFC Seymour Ltd. ``Political unrest is also compounding the situation. For sure, commodity prices are trending down and that also will have an impact on exports.''
The ringgit fell 1.2 percent this week to 3.3015 against the U.S. dollar, according to data compiled by Bloomberg. The currency, which started the year at 3.3070, has declined for a sixth straight day, the longest run since October 2006.
South Korea's won posted a second weekly decline as global funds sold local stocks and refiners imported oil, increasing demand for the dollar.
Losses in the currency were limited after the Bank of Korea raised its key interest rate to an eight-year high of 5.25 percent yesterday to curb inflation. Global investors have sold more local shares than they bought every day except five since June 1, according to stock exchange data.
``There's pent-up demand for the dollar from foreign stock sales and importers' deals,'' said Lee Yoon Jin, a currency dealer with state-run Korea Development Bank in Seoul.
Korea's currency fell 1.3 percent this week to 1,027.90 against the dollar, according to Seoul Money Brokerage Services Ltd. The decline widened this year's loss to 9.3 percent, the second-worst performance among the 10 most-active currencies outside of Japan.
To contact the reporters on this story: Aaron Pan in Hong Kong at apan8@bloomberg.net; Patricia Lui in Singapore at plui4@bloomberg.net.
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Aug. 8 (Bloomberg) -- Asian currencies slumped this week, led by Singapore's dollar, on concern slowing global growth will curb demand for the region's assets.
Singapore's currency posted its biggest weekly loss in a decade after the Straits Times newspaper today cited Finance Minister Tharman Shanmugaratnam as saying the economy is moving toward a slowdown and growth is unlikely to rebound ``anytime soon.'' Nine of the 10 most-active Asian currencies outside of Japan fell this week.
``Tharman's dovish comments confirm expectations that the central bank won't be seeking any further policy tightening,'' said Emmanuel Ng, economist at Oversea-Chinese Banking Corp. in Singapore. ``Second-quarter GDP and the full-year growth numbers also run the risk of being revised downwards at Prime Minister Lee's speech later today.''
The local dollar weakened 2.2 percent this week to S$1.40 against the U.S. currency as of 5:04 p.m. in Singapore, the biggest loss since the five days ended June 26, 1998, according to data compiled by Bloomberg.
Prime Minister Lee Hsien Loong will deliver his annual eve of National Day speech today and may announce revised second- quarter and full-year growth forecasts.
The Philippine peso lost 0.3 percent this week to 44.335, Indonesia's rupiah dropped 0.8 percent to 9,173 and Thailand's baht declined 0.4 percent to 33.67. Vietnam's dong advanced 1.2 percent this week to 16,550.
Shipments Slow
Taiwan's dollar had its biggest weekly loss in more than two years on speculation slowing global economic growth will curb demand for consumer electronics produced by the island's exporters.
The currency fell for a ninth day, the longest losing streak since July 2005, after a government report yesterday showed shipments grew last month at less than half the pace forecast by economists. Taiwan's gross domestic product may expand 4.78 percent this year, the slowest since 2005, according to a statistics bureau forecast released in May.
``The Taiwan dollar is finding it difficult to fight the strong U.S. dollar trend that's happening in the whole region,'' said Philip Wee, a currency strategist at DBS Group Holdings Ltd. in Singapore. ``Europe and Japan are all showing negative growth numbers, and the Asian region is seeing declining GDP.''
Taiwan's dollar fell 1.5 percent this week to NT$31.090 against the U.S. currency, according to Taipei Forex Inc.
Political Risks
Taiwan's export growth slowed to 8 percent in July from 21.3 percent the previous month, the government reported yesterday. Economists in a Bloomberg News survey forecast overseas sales, which account for about half of the island's GDP, would increase 17.1 percent.
Malaysia's ringgit fell for a sixth day, paring most of this year's advance, on concern that investors are selling local assets on heightened political risks and as the price of commodities the nation exports declined.
The currency finished its worst week in almost nine months as a decline in the nation's foreign-exchange reserves indicated global funds are taking their money out of the country.
Police yesterday charged opposition leader Anwar Ibrahim for engaging in ``unnatural sex,'' a crime in Muslim-majority Malaysia. Anwar pleaded not guilty, saying it was a ploy to derail his political comeback.
`No Surprise'
``It's no surprise if capital is flowing out especially from the equity market,'' said Carol Chan, a currency analyst in Hong Kong at CFC Seymour Ltd. ``Political unrest is also compounding the situation. For sure, commodity prices are trending down and that also will have an impact on exports.''
The ringgit fell 1.2 percent this week to 3.3015 against the U.S. dollar, according to data compiled by Bloomberg. The currency, which started the year at 3.3070, has declined for a sixth straight day, the longest run since October 2006.
South Korea's won posted a second weekly decline as global funds sold local stocks and refiners imported oil, increasing demand for the dollar.
Losses in the currency were limited after the Bank of Korea raised its key interest rate to an eight-year high of 5.25 percent yesterday to curb inflation. Global investors have sold more local shares than they bought every day except five since June 1, according to stock exchange data.
``There's pent-up demand for the dollar from foreign stock sales and importers' deals,'' said Lee Yoon Jin, a currency dealer with state-run Korea Development Bank in Seoul.
Korea's currency fell 1.3 percent this week to 1,027.90 against the dollar, according to Seoul Money Brokerage Services Ltd. The decline widened this year's loss to 9.3 percent, the second-worst performance among the 10 most-active currencies outside of Japan.
To contact the reporters on this story: Aaron Pan in Hong Kong at apan8@bloomberg.net; Patricia Lui in Singapore at plui4@bloomberg.net.
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Rand Slumps, Heads Toward Biggest Weekly Decline in Two Years
By Garth Theunissen
Aug. 8 (Bloomberg) -- South Africa's rand slumped to the lowest level in a month against the dollar, heading for the biggest weekly drop in more than two years, as gold and platinum slid, cutting the value of the country's biggest export earners.
The rand posted the largest decline versus the dollar among the 16 major currencies tracked by Bloomberg as gold fell to an eight-week low and platinum was poised for a fourth-weekly drop. The Reuters/Jeffries CRB Index of 19 commodities retreated for a fourth day this week and is down 16 percent from a July 3 record. House prices increased at the slowest pace in almost nine years, an industry report showed yesterday.
``A rampant dollar is heightening the commodity downturn, which isn't good for the rand,'' said Tolga Ediz, an emerging- markets currency strategist in London at Lehman Brothers Holdings Inc. ``South Africa's poor macroeconomic picture also isn't helping the currency.''
The rand dropped as much as 3.3 percent to 7.7448 per dollar, the weakest level since July 11, and was at 7.7268 by 3:08 p.m. in Johannesburg. It has lost 6.6 percent since Aug. 1, the biggest weekly decline since the period ended June 23, 2006.
Gold for immediate delivery fell as much as $17.63 to $855.42 an ounce, the lowest since May 5. Platinum fell 6.5 percent in the week to $1,549.50 an ounce. South Africa produces almost 80 percent of the world's platinum and about 10 percent of its gold, meaning the rand often moves in tandem with the metals' prices.
`Importer Interest'
The rand's drop this week follows a seven-week rally that sent it 12 percent higher after the central bank raised its benchmark interest rate by a half-point in June to a five-year high of 12 percent. The rand was the best performer in the world last month.
``A turnaround in the rand has triggered a bout of profit taking and importer interest after almost two months of gains,'' said Russell Lamberti, an economist in Johannesburg at Econometrix Treasury Management, which advises clients on bonds and foreign exchange. ``Commodity prices have also fallen sharply and the rand isn't immune to that.''
Growth in South African house prices rose an annual 3.2 percent in July, the slowest pace since September 1999, as borrowing costs at the highest in more than five years curbed demand, Johannesburg-based Absa Group Ltd., the country's biggest mortgage lender, said yesterday.
The South African Reserve Bank raised its key lending rate 10 times since June 2006 to 12 percent to curb the fastest inflation in at least a decade. Consumer-price growth accelerated to an annual 11.6 percent in June, exceeding the central bank's 3 percent-to-6 percent target range for a 15th month.
Government bonds fell, with the yield on South Africa's benchmark 13.5 percent security due September 2015 climbing 12 basis points to 9.53 percent. In the week the yield gained 28 basis points. Yields move inversely to bond prices.
``The weaker currency is prompting a bond sell-off,'' said Mokgatla Madisha, a bond trader at Investec Asset Management in Cape Town, which oversees around $60 billion dollars in assets. ``A softer rand worsens the inflation outlook because it increases the cost of oil imports.''
South Africa imports about two-thirds of its oil needs.
To contact the reporter on this story: Garth Theunissen in Johannesburg at gtheunissen@bloomberg.net
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Aug. 8 (Bloomberg) -- South Africa's rand slumped to the lowest level in a month against the dollar, heading for the biggest weekly drop in more than two years, as gold and platinum slid, cutting the value of the country's biggest export earners.
The rand posted the largest decline versus the dollar among the 16 major currencies tracked by Bloomberg as gold fell to an eight-week low and platinum was poised for a fourth-weekly drop. The Reuters/Jeffries CRB Index of 19 commodities retreated for a fourth day this week and is down 16 percent from a July 3 record. House prices increased at the slowest pace in almost nine years, an industry report showed yesterday.
``A rampant dollar is heightening the commodity downturn, which isn't good for the rand,'' said Tolga Ediz, an emerging- markets currency strategist in London at Lehman Brothers Holdings Inc. ``South Africa's poor macroeconomic picture also isn't helping the currency.''
The rand dropped as much as 3.3 percent to 7.7448 per dollar, the weakest level since July 11, and was at 7.7268 by 3:08 p.m. in Johannesburg. It has lost 6.6 percent since Aug. 1, the biggest weekly decline since the period ended June 23, 2006.
Gold for immediate delivery fell as much as $17.63 to $855.42 an ounce, the lowest since May 5. Platinum fell 6.5 percent in the week to $1,549.50 an ounce. South Africa produces almost 80 percent of the world's platinum and about 10 percent of its gold, meaning the rand often moves in tandem with the metals' prices.
`Importer Interest'
The rand's drop this week follows a seven-week rally that sent it 12 percent higher after the central bank raised its benchmark interest rate by a half-point in June to a five-year high of 12 percent. The rand was the best performer in the world last month.
``A turnaround in the rand has triggered a bout of profit taking and importer interest after almost two months of gains,'' said Russell Lamberti, an economist in Johannesburg at Econometrix Treasury Management, which advises clients on bonds and foreign exchange. ``Commodity prices have also fallen sharply and the rand isn't immune to that.''
Growth in South African house prices rose an annual 3.2 percent in July, the slowest pace since September 1999, as borrowing costs at the highest in more than five years curbed demand, Johannesburg-based Absa Group Ltd., the country's biggest mortgage lender, said yesterday.
The South African Reserve Bank raised its key lending rate 10 times since June 2006 to 12 percent to curb the fastest inflation in at least a decade. Consumer-price growth accelerated to an annual 11.6 percent in June, exceeding the central bank's 3 percent-to-6 percent target range for a 15th month.
Government bonds fell, with the yield on South Africa's benchmark 13.5 percent security due September 2015 climbing 12 basis points to 9.53 percent. In the week the yield gained 28 basis points. Yields move inversely to bond prices.
``The weaker currency is prompting a bond sell-off,'' said Mokgatla Madisha, a bond trader at Investec Asset Management in Cape Town, which oversees around $60 billion dollars in assets. ``A softer rand worsens the inflation outlook because it increases the cost of oil imports.''
South Africa imports about two-thirds of its oil needs.
To contact the reporter on this story: Garth Theunissen in Johannesburg at gtheunissen@bloomberg.net
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Vietnam Should Make Dong Flexible, Researcher Says
By Van Nguyen
Aug. 8 (Bloomberg) -- Vietnam should make the dong more flexible and allow the market to determine the exchange rate, according to the former head of a state-run research institute.
The State Bank of Vietnam's curbs on the currency and local banks are ``distorting the economy'' and policy makers must give lenders freedom to run their business, Nguyen Van Nam, former director of the Hanoi-based Ministry of Industry and Trade's Institute for Trade, said in an interview yesterday. The dong is allowed to move by up to 2 percent on either side of a daily reference rate set by the central bank.
Vietnam has raised the benchmark interest rate three times this year to the highest in Asia as inflation quickened to the fastest in at least 16 years. It doubled the daily dong trading band to 2 percent and capped this year's credit growth at 30 percent, from 54 percent last year. Factory workers went on strike in Ho Chi Minh City this month demanding higher wages, VietnamNet reported on its Web site on Aug. 6.
``I am concerned Vietnam will have more chaos with this kind of government control and unpredictability in policy making,'' said Nam, who is leading a team to study and advise the government on economic management. He will submit a report to the Prime Minister at the end of 2009.
Morgan Stanley in late May had predicted a run on the currency, saying many of the classic fundamental conditions are in place including ``an overvalued currency, a dangerously unbalanced economy and low foreign-exchange reserves.'' The controls on the currency forced foreign investors into the black market to obtain dollars, with the gap between the official rate and the street rate as wide as 7 percent in early July.
Supply and Demand
The dong has advanced 1.8 percent in the past month, trimming this year's losses to 3.2 percent, after the central bank on July 21 assured investors it had sufficient reserves, without revealing details, and urged people not to rush in to buy dollars.
The dollar traded for 16,450 dong on the street, according to a telephone information service run by state-owned Vietnam Posts and Telecommunications, compared with the official rate of 16,550 as of 3:36 p.m. in Hanoi.
``The authorities should let supply and demand determine the exchange rate rather than use the official fixing rate as a signal where the bank desires the rate to be,'' said Daniel Hui, a Hong Kong-based currency strategist at HSBC Holdings Plc.
Capital Shortage
Companies are facing severe capital shortage while banks can't lend money even though some banks have sufficient reserves, according to Vietnam's former researcher Nam.
``By imposing a daily exchange rate and telling banks which businesses to lend, the central bank's controls are distorting the economy,'' he said.
The dong is the third-best performer among the 16 most- traded currencies in Asia outside Japan in the past month. The central bank set a stronger reference rate for dong trading each day this month.
When the economy shows signs of improvement, the government should reduce its control and encourage free-market principles, Nam said.
To contact the reporters on this story: Van Nguyen in Ho Chi Minh City at vnguyen23@bloomberg.net
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Pound Slides to 17-Month Low Versus Dollar on Recession Concern
By Andrew MacAskill and Kim-Mai Cutler
Aug. 8 (Bloomberg) -- The pound dropped to a 17-month low against the dollar on concern the economy is edging toward a recession as U.K. banks repossessed the most homes in 12 years in the first half and house prices lost two years of gains.
The British currency slid for a sixth day, falling below $1.93 for the first time since March last year. The number of home foreclosures jumped 41 percent from the previous six months as the credit squeeze left more consumers unable to pay their record debts, data from the Council of Mortgage Lenders showed. The Bank of England left interest rates on hold yesterday at 5 percent.
``It looks like the U.K. economic picture is going to deteriorate further and we are going to see sterling come under increasing pressure,'' said Ian Stannard, a senior currency strategist at BNP Paribas SA in London, who predicts the pound will fall to $1.85 by the end of the year. ``The next housing data in particular looks like it is going to be disastrous.''
The British currency fell to $1.9216, the lowest level since March 14, 2007, and was at $1.9262 as of 12:35 p.m. in London, from $1.9439 yesterday. It lost 2.5 percent since Aug. 1 and was headed for its biggest weekly slump in three years. It traded at 78.46 pence per euro, from 78.83, down 0.4 percent in the week.
A record drop in U.K. house prices has erased two years of gains, the London-based Times newspaper said, citing statistics from mortgage lender Halifax, a unit of HBOS Plc.
Rate Unchanged
The nine-member Monetary Policy Committee, led by Governor Mervyn King, kept the main interest rate for a fourth month after inflation accelerated and the economy edged toward a recession.
U.K. services, manufacturing and construction shrank in July and house prices dropped the most in a quarter-century, while King predicts consumer-price growth will soon accelerate to more than double the 2 percent target.
``Sterling is falling,'' said Paul Robson, a London-based currency strategist at the Royal Bank of Scotland Group Plc. ``Incomes are stretched and access to borrowing is restricted. Consumption will remain under pressure, slowing the economy.''
Government bonds headed for a third weekly gain. The yield on the two-year gilt was little changed at 4.65 percent. The price of the 4.75 percent security due June 2010 was 100.21. The 10-year gilt yield fell 1 basis point to 4.67 percent. Yields move inversely to bond prices.
The pound has slipped 3 percent versus the dollar this year and 6.8 percent against the euro.
Britain's faltering economy will weaken the currency to $1.91 and to 80 pence per euro by year-end, according to the median forecast of analysts and strategists surveyed by Bloomberg. The yield on the 10-year note will end the year at 4.87 percent, according to a separate survey.
To contact the reporter on this story: Kim-Mai Cutler in London at kcutler@bloomberg.net; Andrew MacAskill in London at amacaskill@bloomberg.net
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Brazil, Peru: Latin America Bond and Currency Preview
By Jamie McGee
Aug. 8 (Bloomberg) -- The following events and economic reports may influence trading in Latin American local bonds and currencies today. Bond yields and exchange rates are from a previous session.
Brazil: Inflation, as measured by the government's benchmark IPCA index, slowed to 0.55 percent in July from 0.74 percent in June, according to the median estimate of 41 economists in a Bloomberg survey.
The government's statistics agency is scheduled to release the data at 8 a.m. New York time.
The real fell 1.3 percent 1.5971 per dollar.
The yield on the country's zero-coupon bonds due January 2010 rose 3 basis points, or 0.03 percentage point, to 14.72 percent, according to Banco Votorantim.
Peru: The trade surplus narrowed to $410 million in June from a $972 million surplus in the year-earlier period, according to the median estimate of six economists in a Bloomberg survey.
The National Institute of Statistics is scheduled to release the data at 10:30 a.m.
The sol fell 0.8 percent to 2.8135 per U.S. dollar.
The yield on the nation's 8.6 percent sol-denominated bonds due in August 2017 rose 5 basis points to 7.9 percent, according to Citigroup Inc.'s local unit.
To contact the reporter on this story: Jamie McGee in New York at jmcgee8@bloomberg.net
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Aug. 8 (Bloomberg) -- The following events and economic reports may influence trading in Latin American local bonds and currencies today. Bond yields and exchange rates are from a previous session.
Brazil: Inflation, as measured by the government's benchmark IPCA index, slowed to 0.55 percent in July from 0.74 percent in June, according to the median estimate of 41 economists in a Bloomberg survey.
The government's statistics agency is scheduled to release the data at 8 a.m. New York time.
The real fell 1.3 percent 1.5971 per dollar.
The yield on the country's zero-coupon bonds due January 2010 rose 3 basis points, or 0.03 percentage point, to 14.72 percent, according to Banco Votorantim.
Peru: The trade surplus narrowed to $410 million in June from a $972 million surplus in the year-earlier period, according to the median estimate of six economists in a Bloomberg survey.
The National Institute of Statistics is scheduled to release the data at 10:30 a.m.
The sol fell 0.8 percent to 2.8135 per U.S. dollar.
The yield on the nation's 8.6 percent sol-denominated bonds due in August 2017 rose 5 basis points to 7.9 percent, according to Citigroup Inc.'s local unit.
To contact the reporter on this story: Jamie McGee in New York at jmcgee8@bloomberg.net
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Canadian Dollar Drops Near Year Low on Unexpected Job Losses
By Cordell Eddings
Aug. 8 (Bloomberg) -- Canada's dollar fell to the lowest in almost a year after a government report showed employers unexpectedly shed jobs for a second straight month, raising speculation that the central bank may cut borrowing costs.
The currency dropped 1.2 percent against the U.S. dollar, the biggest decline since March 20. Employers reduced payrolls by 55,200 positions, Statistics Canada said in Ottawa.
The currency fell to C$1.0663 per U.S. dollar at 8:15 a.m. in Toronto, from $1.053 yesterday, the lowest since last August. One Canadian dollar buys 93.79 U.S. cents.
``This is very worrisome,'' said Michael Gregory, a senior economist in Toronto at the bank of Montréal. ``The expected slowdown in the Canadian economy is happening, and maybe happening a little more steeply even than the bank of Canada was expecting.''
After gaining 17 percent in 2007, the Canadian dollar is down 6.4 percent in 2008 amid a shrinking economy the drop in oil prices. It's one of five of the 16 most-widely traded currencies to drop against the U.S. greenback, joining the New Zealand dollar, South Korean won, South African rand and British pound.
Economist had anticipated 5,000 new jobs were added in July, according to the median of 22 estimates in a Bloomberg survey.
`` A weak number like this is a lot more than what people were thinking,'' said Gregory. ``Clearly it has weight to the evidence that the bank could cut rates before the end of the year.''
To contact the reporter on this story: Cordell Eddings in New York at ceddings@bloomberg.net
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Aug. 8 (Bloomberg) -- Canada's dollar fell to the lowest in almost a year after a government report showed employers unexpectedly shed jobs for a second straight month, raising speculation that the central bank may cut borrowing costs.
The currency dropped 1.2 percent against the U.S. dollar, the biggest decline since March 20. Employers reduced payrolls by 55,200 positions, Statistics Canada said in Ottawa.
The currency fell to C$1.0663 per U.S. dollar at 8:15 a.m. in Toronto, from $1.053 yesterday, the lowest since last August. One Canadian dollar buys 93.79 U.S. cents.
``This is very worrisome,'' said Michael Gregory, a senior economist in Toronto at the bank of Montréal. ``The expected slowdown in the Canadian economy is happening, and maybe happening a little more steeply even than the bank of Canada was expecting.''
After gaining 17 percent in 2007, the Canadian dollar is down 6.4 percent in 2008 amid a shrinking economy the drop in oil prices. It's one of five of the 16 most-widely traded currencies to drop against the U.S. greenback, joining the New Zealand dollar, South Korean won, South African rand and British pound.
Economist had anticipated 5,000 new jobs were added in July, according to the median of 22 estimates in a Bloomberg survey.
`` A weak number like this is a lot more than what people were thinking,'' said Gregory. ``Clearly it has weight to the evidence that the bank could cut rates before the end of the year.''
To contact the reporter on this story: Cordell Eddings in New York at ceddings@bloomberg.net
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Euro Falls the Most in 8 Years on Reduced Bets for Higher Rate
By Ye Xie and Anchalee Worrachate
Aug. 8 (Bloomberg) -- The euro fell the most in almost eight years against the dollar as traders pared bets the European Central Bank will raise interest rates as the economy slows.
The euro is poised for its biggest weekly loss since January 2005 after ECB President Jean-Claude Trichet yesterday said economic growth will be ``particularly weak'' through the third quarter. An index that tracks the dollar against the currencies of six U.S. trading partners touched the highest since February. Crude oil fell to a three-month low.
``This is the beginning of a new chapter for the dollar as Trichet and other central banks are paying more attention to the downside risk to growth,'' said Dustin Reid, a senior currency strategist at ABN Amro Bank NV in Chicago. ``The decline of oil prices is a significant driver behind this dollar rally because it enables other central banks to turn their eyes away from inflation and focus on growth.''
The euro declined 1.95 percent to $1.5032 at 10:23 a.m. in New York and reached $1.5005, the lowest level since Feb. 27, from $1.5325 yesterday. It dropped as much as 2.08 percent, the biggest one-day drop since Sept. 6, 2000. Against the yen, the European currency traded at 165.84, from 167.70. The dollar rose 0.5 percent to 109.97 yen after touching 110.08, the strongest since Jan. 10.
Moving Average
The euro's decline below $1.53 and the break of the 200-day moving average at $1.5226 ``marks a significant change in sentiment for the dollar,'' pointing to a further decline to $1.46, Kevin Edgeley, a London-based technical analyst at Goldman Sachs Group Inc., wrote in a report today.
The euro has declined 3.1 percent against the dollar in its fourth weekly decline, the worst losing streak since May 2007. Against the yen, the U.S. currency has advanced 2.1 percent, heading for its biggest weekly gain in almost two months.
``The most important aspect of the dramatic collapse in the euro dollar is the absence of confirmation from other markets,'' said David Woo, global head of currency strategy at Barclays Capital Inc. in London. ``None of the typical drivers of the euro-dollar in the past couple of years could have accounted for the magnitude of this move, which leads one to conclude that this is a technical driven move.''
The South African rand led losses among the most-traded currencies as the prices of gold and platinum dropped, reducing prospects for export earnings from the country's biggest exports. The greenback rose to a six-month high against the Australian dollar, and advanced to the highest since September against the New Zealand dollar on speculation the central banks will cut borrowing costs.
Russia's Ruble
The Russian ruble fell by the most in 2 1/2 years against a dollar-euro basket used by the government after Georgia's Interior Ministry said four Russian fighter-jets entered Georgian airspace and bombed the towns of Gori and Kareli, boosting the risk of war. The ruble dropped as much as 0.8 percent against the basket.
The pound fell below $1.93 for the first time since March 2007 as the Bank of England kept its main interest rate steady at 5 percent yesterday after inflation accelerated and the economy teetered on the brink of a recession. It has dropped 2.7 percent this week to $1.9210, its biggest weekly drop in three years.
The Dollar Index on the ICE futures exchange reached 75.713 today, the highest since Feb. 21.
`No Bias'
Trichet said yesterday he has ``no bias'' or ``pre- commitment'' toward future rate movements after the central bank left the main refinancing rate at 4.25 percent. He told reporters in Frankfurt that while inflation remains a threat, risks to economic growth are ``materializing.''
European retail sales dropped by the most in at least 13 years in June, the European Union said on Aug. 5. Consumer confidence slid in July by the most since the Sept. 11, 2001, terrorist attacks, the European Commission said July 30.
Traders pared bets the ECB will lift rates a second time this year after increasing its main rate by a quarter-point last month. The implied yield on the December interest rate futures, an indication of expectations, retreated 2 basis pointsto 4.94 percent today.
The New Zealand dollar slumped as much as 2.2 percent to 69.84 U.S. cents, the biggest loss in two months. Australia's dollar dropped 1.7 percent, falling for a fourth day, to 89.10 U.S. cents, from 90.66 cents yesterday. The Reserve Bank of Australia said it may lower borrowing costs, after keeping its benchmark interest rate at a 12-year high of 7.25 percent this week.
Oil, Metals, Crops
Crude oil, metal and crop prices fell as the dollar climbed, reducing the appeal of commodities as a currency hedge. Oil has declined to $118.15 a barrel since touching the record of 147.27 on July 11.
The euro-dollar exchange rate and oil have had a correlation of 0.9 in the past year, according to Bloomberg calculations. A reading of 1 would mean they moved in lockstep.
``Oil prices have turned out to be much more supportive of the dollar than I expected,'' said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan's largest currency broker. ``It does temporarily relieve some concern that the U.S. economy will weaken further. This is a plus for sentiment.''
To contact the reporters on this story: Ye Xie in New York at Yxie6@bloomberg.net; Anchalee Worrachate in London at aworrachate@bloomberg.net;
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Aug. 8 (Bloomberg) -- The euro fell the most in almost eight years against the dollar as traders pared bets the European Central Bank will raise interest rates as the economy slows.
The euro is poised for its biggest weekly loss since January 2005 after ECB President Jean-Claude Trichet yesterday said economic growth will be ``particularly weak'' through the third quarter. An index that tracks the dollar against the currencies of six U.S. trading partners touched the highest since February. Crude oil fell to a three-month low.
``This is the beginning of a new chapter for the dollar as Trichet and other central banks are paying more attention to the downside risk to growth,'' said Dustin Reid, a senior currency strategist at ABN Amro Bank NV in Chicago. ``The decline of oil prices is a significant driver behind this dollar rally because it enables other central banks to turn their eyes away from inflation and focus on growth.''
The euro declined 1.95 percent to $1.5032 at 10:23 a.m. in New York and reached $1.5005, the lowest level since Feb. 27, from $1.5325 yesterday. It dropped as much as 2.08 percent, the biggest one-day drop since Sept. 6, 2000. Against the yen, the European currency traded at 165.84, from 167.70. The dollar rose 0.5 percent to 109.97 yen after touching 110.08, the strongest since Jan. 10.
Moving Average
The euro's decline below $1.53 and the break of the 200-day moving average at $1.5226 ``marks a significant change in sentiment for the dollar,'' pointing to a further decline to $1.46, Kevin Edgeley, a London-based technical analyst at Goldman Sachs Group Inc., wrote in a report today.
The euro has declined 3.1 percent against the dollar in its fourth weekly decline, the worst losing streak since May 2007. Against the yen, the U.S. currency has advanced 2.1 percent, heading for its biggest weekly gain in almost two months.
``The most important aspect of the dramatic collapse in the euro dollar is the absence of confirmation from other markets,'' said David Woo, global head of currency strategy at Barclays Capital Inc. in London. ``None of the typical drivers of the euro-dollar in the past couple of years could have accounted for the magnitude of this move, which leads one to conclude that this is a technical driven move.''
The South African rand led losses among the most-traded currencies as the prices of gold and platinum dropped, reducing prospects for export earnings from the country's biggest exports. The greenback rose to a six-month high against the Australian dollar, and advanced to the highest since September against the New Zealand dollar on speculation the central banks will cut borrowing costs.
Russia's Ruble
The Russian ruble fell by the most in 2 1/2 years against a dollar-euro basket used by the government after Georgia's Interior Ministry said four Russian fighter-jets entered Georgian airspace and bombed the towns of Gori and Kareli, boosting the risk of war. The ruble dropped as much as 0.8 percent against the basket.
The pound fell below $1.93 for the first time since March 2007 as the Bank of England kept its main interest rate steady at 5 percent yesterday after inflation accelerated and the economy teetered on the brink of a recession. It has dropped 2.7 percent this week to $1.9210, its biggest weekly drop in three years.
The Dollar Index on the ICE futures exchange reached 75.713 today, the highest since Feb. 21.
`No Bias'
Trichet said yesterday he has ``no bias'' or ``pre- commitment'' toward future rate movements after the central bank left the main refinancing rate at 4.25 percent. He told reporters in Frankfurt that while inflation remains a threat, risks to economic growth are ``materializing.''
European retail sales dropped by the most in at least 13 years in June, the European Union said on Aug. 5. Consumer confidence slid in July by the most since the Sept. 11, 2001, terrorist attacks, the European Commission said July 30.
Traders pared bets the ECB will lift rates a second time this year after increasing its main rate by a quarter-point last month. The implied yield on the December interest rate futures, an indication of expectations, retreated 2 basis pointsto 4.94 percent today.
The New Zealand dollar slumped as much as 2.2 percent to 69.84 U.S. cents, the biggest loss in two months. Australia's dollar dropped 1.7 percent, falling for a fourth day, to 89.10 U.S. cents, from 90.66 cents yesterday. The Reserve Bank of Australia said it may lower borrowing costs, after keeping its benchmark interest rate at a 12-year high of 7.25 percent this week.
Oil, Metals, Crops
Crude oil, metal and crop prices fell as the dollar climbed, reducing the appeal of commodities as a currency hedge. Oil has declined to $118.15 a barrel since touching the record of 147.27 on July 11.
The euro-dollar exchange rate and oil have had a correlation of 0.9 in the past year, according to Bloomberg calculations. A reading of 1 would mean they moved in lockstep.
``Oil prices have turned out to be much more supportive of the dollar than I expected,'' said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan's largest currency broker. ``It does temporarily relieve some concern that the U.S. economy will weaken further. This is a plus for sentiment.''
To contact the reporters on this story: Ye Xie in New York at Yxie6@bloomberg.net; Anchalee Worrachate in London at aworrachate@bloomberg.net;
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Ruble Drops Against Basket as Georgia Says Russia Bombed Towns
By Emma O'Brien
Aug. 8 (Bloomberg) -- Russia's ruble fell the most in 2 1/2 years against the dollar-euro basket used by policy makers to limit its movements, as concern Russia is headed for a war with neighboring Georgia deterred investors.
The currency also slipped by the most in 18 months versus the dollar after the Georgian Interior Ministry said Russian fighter jets bombed two towns in the former Soviet republic near the breakaway region of South Ossetia, intensifying the dispute over the area.
``There are concerns regarding the conflict in South Ossetia,'' said Stanislav Ponomarenko, head of research in Moscow at ING Bank NV. ``This could be scaring some investors from Russia a bit and they're selling rubles.''
The ruble weakened as much as 0.8 percent against the basket, the most since January 2006, and was at 29.4694 by 1:15 p.m. in Moscow, from 29.3585 yesterday. It is headed for a 0.4 percent drop in the week.
Against the dollar, the ruble dropped by as much as 1.3 percent to 23.9962, and was at 23.9092, from 23.6833, leaving it 1.8 percent lower in the week. It was also at 36.27438 per euro, from 36.2947 yesterday and 36.5538 on Aug. 1.
Russian Prime Minister Vladimir Putin told reporters in Beijing that ``countermeasures'' would be taken to deal with what he called Georgia's ``aggression'' after peacekeepers were attacked. He didn't elaborate.
Interfax news service later reported that Georgian forces shelled a Russian barracks in South Ossetia, killing an unknown number of soldiers. Russia's government denied the bombing claim and the Defense Ministry accused Georgia of ``unleashing a dirty, reckless scheme.'' NATO Secretary General Jaap de Hoop Scheffer called on ``all sides'' to end hostilities ``immediately.''
Regional Tensions
South Ossetia broke away from Georgia in the early 1990s and now exists as a de facto independent state with Russian peacekeepers and economic support. The U.S. ally that wants to join the North Atlantic Treaty Organization has accused Russia of stoking tensions in the region.
``Traders say there is demand from non-residents for dollars now,'' said Evgeniy Nadorshin, a senior economist in Moscow at Trust Investment Bank, which ranks itself among the top 50 traders of ruble in the world.
Russia's benchmark Micex stock index fell as much as 2.6 percent, snapping a two-day advance.
`Long Positions'
Slowing inflation may also be encouraging some investors to unwind so-called long positions on the ruble, or bets it will gain, Ponomarenko said. The inflation rate fell to 14.7 percent in July, from a 5 1/2-year high of 15.1 percent in May and June.
Russia's central bank controls the ruble against the basket in order to limit the impact of any fluctuations on the competitiveness of local exports. The basket rate is calculated by multiplying the rate to the dollar by 0.55, the euro rate by 0.45 and then adding the two together.
Investors should use the ruble's weakness this week to put on long positions, Ponomarenko said today. ``This ruble weakness will be temporary and we see it as a chance to buy.''
Russian government bonds were mixed. The benchmark 30-year note yielded 5.65 percent, up 4 basis points. The yield on the two-year 8.25 percent bond fell 5 basis points to 5.62 percent. The difference in yield between Russian and U.S. two-year notes narrowed to 318 basis points, from 324 yesterday.
To contact the reporter on this story: Emma O'Brien in Moscow at eobrien6@bloomberg.net
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Aug. 8 (Bloomberg) -- Russia's ruble fell the most in 2 1/2 years against the dollar-euro basket used by policy makers to limit its movements, as concern Russia is headed for a war with neighboring Georgia deterred investors.
The currency also slipped by the most in 18 months versus the dollar after the Georgian Interior Ministry said Russian fighter jets bombed two towns in the former Soviet republic near the breakaway region of South Ossetia, intensifying the dispute over the area.
``There are concerns regarding the conflict in South Ossetia,'' said Stanislav Ponomarenko, head of research in Moscow at ING Bank NV. ``This could be scaring some investors from Russia a bit and they're selling rubles.''
The ruble weakened as much as 0.8 percent against the basket, the most since January 2006, and was at 29.4694 by 1:15 p.m. in Moscow, from 29.3585 yesterday. It is headed for a 0.4 percent drop in the week.
Against the dollar, the ruble dropped by as much as 1.3 percent to 23.9962, and was at 23.9092, from 23.6833, leaving it 1.8 percent lower in the week. It was also at 36.27438 per euro, from 36.2947 yesterday and 36.5538 on Aug. 1.
Russian Prime Minister Vladimir Putin told reporters in Beijing that ``countermeasures'' would be taken to deal with what he called Georgia's ``aggression'' after peacekeepers were attacked. He didn't elaborate.
Interfax news service later reported that Georgian forces shelled a Russian barracks in South Ossetia, killing an unknown number of soldiers. Russia's government denied the bombing claim and the Defense Ministry accused Georgia of ``unleashing a dirty, reckless scheme.'' NATO Secretary General Jaap de Hoop Scheffer called on ``all sides'' to end hostilities ``immediately.''
Regional Tensions
South Ossetia broke away from Georgia in the early 1990s and now exists as a de facto independent state with Russian peacekeepers and economic support. The U.S. ally that wants to join the North Atlantic Treaty Organization has accused Russia of stoking tensions in the region.
``Traders say there is demand from non-residents for dollars now,'' said Evgeniy Nadorshin, a senior economist in Moscow at Trust Investment Bank, which ranks itself among the top 50 traders of ruble in the world.
Russia's benchmark Micex stock index fell as much as 2.6 percent, snapping a two-day advance.
`Long Positions'
Slowing inflation may also be encouraging some investors to unwind so-called long positions on the ruble, or bets it will gain, Ponomarenko said. The inflation rate fell to 14.7 percent in July, from a 5 1/2-year high of 15.1 percent in May and June.
Russia's central bank controls the ruble against the basket in order to limit the impact of any fluctuations on the competitiveness of local exports. The basket rate is calculated by multiplying the rate to the dollar by 0.55, the euro rate by 0.45 and then adding the two together.
Investors should use the ruble's weakness this week to put on long positions, Ponomarenko said today. ``This ruble weakness will be temporary and we see it as a chance to buy.''
Russian government bonds were mixed. The benchmark 30-year note yielded 5.65 percent, up 4 basis points. The yield on the two-year 8.25 percent bond fell 5 basis points to 5.62 percent. The difference in yield between Russian and U.S. two-year notes narrowed to 318 basis points, from 324 yesterday.
To contact the reporter on this story: Emma O'Brien in Moscow at eobrien6@bloomberg.net
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Vietnam Coffee Production to Drop, Association Says
By Nguyen Dieu Tu Uyen
Enlarge Image/Details
Aug. 8 (Bloomberg) -- Coffee production from Vietnam, the world's biggest grower after Brazil, will be less than expected because of dry weather and rising fertilizer costs, according to the Vietnam Coffee and Cocoa Association.
The crop will be 950,000 metric tons for the year ending Sept. 30, 2009, below a previous estimate of 1 million tons, Luong Van Tu, chairman of the association, said in an interview today. Vietnam may produce 1.3 million tons, Fortis, a Belgian financial-services firm, said in a June report.
``Production can't be that high since the crop was hurt by unseasonal rains earlier this year, dry weather and high fertilizer prices,'' Tu said in Hanoi.
A drop in production from Vietnam, mostly a grower of the bitter-tasting robusta variety used in espresso and instant coffee, may boost bean prices in London. Robusta has climbed 30 percent in the past year, increasing costs at Nestle SA, the world's largest food company, and Kraft Foods Inc.
``The dry period in July with much less rain than previous years meant some trees shed fruit, but I don't think the damage will be that much,'' said Hoang Tuan Khai, chairman and chief executive officer of Vietnam General Import Export No.1 Joint- Stock Co., known as Generalexim. Khai, whose main business is exporting coffee, said the harvest would be 1 million tons.
Robusta coffee in London traded at $2,354 a ton today.
Lower Rainfall
Rainfall declined last month in the provinces of Dak Lak, Lam Dong and Dak Nong, which grow three-quarters of Vietnam's coffee. In Dak Lak, the largest growing area, rainfall fell 16 percent to 1,436 millimeters from a year earlier, the Dak Lak Hydrology and Meteorology Office said. Buon Ma Thuot got 87.3 millimeters compared with 197.1 millimeters.
``The region is not yet seeing any dramatic reduction in crop potential,'' said Joel Widenor, meteorologist for MDA EarthSat Weather Services in Rockville, Maryland. ``But good August rains will be important to ensure recent drier trends don't become a more dramatic issue.''
Neighboring Lam Dong province, the second-biggest growing area, got 2,180 millimeters of rain last month, 27 percent below July 2007, according to the local weather office. Rainfall in Dak Nong declined 28 percent to 2,856 millimeters.
Vietnam's Coffee and Cocoa Association estimates production at 900,000 tons in the crop year ending next month, said Tu, a former deputy trade minister responsible for negotiating Vietnam's entry into the World Trade Organization last year.
Dry Weather, Fertilizer
The current Vietnamese crop may total 19.5 million bags, or 1.17 million tons, Fortis said in June. The International Coffee Organization and the agricultural attache's office at the U.S. Embassy in Hanoi expect 2007-08 production to total 17.5 million bags, or 1.05 million tons.
A May report from the U.S. agriculture office forecast an increase in production to 21.5 million bags in the 2008-09 year, citing higher yields and an increase in growing areas.
The dryness and high fertilizer costs have hurt production in Vietnam, said Nguyen Xuan Thai, director of Dak Lak-based Thang Loi Coffee Co., the largest grower. Output from his plantations dropped by as much 30 percent because trees shed fruit, Thai said.
The amount of coffee fruit in some areas of Dak Lak and neighboring provinces has dropped by about a quarter, said Huu Thanh Hong, business manager of Dak Lak-based Sept. 2nd Import- Export Co., Vietnam's third-biggest exporter.
Beans Shed
``The dry weather was part of the reason the beans shed,'' Cao Van Tu, director of Dak Lak-based Ea Pok Coffee Co. ``In addition, when there is no rain, you can't put fertilizer on the trees. If you do, the chemical will burn the tree.''
Costs of fertilizer in Vietnam have doubled this year because of a three-fold increase in international prices, said Ha Dac Thuy, Hanoi-based vice chairman of the Vietnam Fertilizer Association. Vietnam imports about 40 percent of its annual fertilizer needs of 1.7 million tons, he said.
An increase in bank lending rates to as much as 21 percent also means the country's fertilizer producers and importers raised prices, Thuy said.
To contact the reporter on this story: Nguyen Dieu Tu Uyen in Hanoi at uyen1@bloomberg.net.
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Enlarge Image/Details
Aug. 8 (Bloomberg) -- Coffee production from Vietnam, the world's biggest grower after Brazil, will be less than expected because of dry weather and rising fertilizer costs, according to the Vietnam Coffee and Cocoa Association.
The crop will be 950,000 metric tons for the year ending Sept. 30, 2009, below a previous estimate of 1 million tons, Luong Van Tu, chairman of the association, said in an interview today. Vietnam may produce 1.3 million tons, Fortis, a Belgian financial-services firm, said in a June report.
``Production can't be that high since the crop was hurt by unseasonal rains earlier this year, dry weather and high fertilizer prices,'' Tu said in Hanoi.
A drop in production from Vietnam, mostly a grower of the bitter-tasting robusta variety used in espresso and instant coffee, may boost bean prices in London. Robusta has climbed 30 percent in the past year, increasing costs at Nestle SA, the world's largest food company, and Kraft Foods Inc.
``The dry period in July with much less rain than previous years meant some trees shed fruit, but I don't think the damage will be that much,'' said Hoang Tuan Khai, chairman and chief executive officer of Vietnam General Import Export No.1 Joint- Stock Co., known as Generalexim. Khai, whose main business is exporting coffee, said the harvest would be 1 million tons.
Robusta coffee in London traded at $2,354 a ton today.
Lower Rainfall
Rainfall declined last month in the provinces of Dak Lak, Lam Dong and Dak Nong, which grow three-quarters of Vietnam's coffee. In Dak Lak, the largest growing area, rainfall fell 16 percent to 1,436 millimeters from a year earlier, the Dak Lak Hydrology and Meteorology Office said. Buon Ma Thuot got 87.3 millimeters compared with 197.1 millimeters.
``The region is not yet seeing any dramatic reduction in crop potential,'' said Joel Widenor, meteorologist for MDA EarthSat Weather Services in Rockville, Maryland. ``But good August rains will be important to ensure recent drier trends don't become a more dramatic issue.''
Neighboring Lam Dong province, the second-biggest growing area, got 2,180 millimeters of rain last month, 27 percent below July 2007, according to the local weather office. Rainfall in Dak Nong declined 28 percent to 2,856 millimeters.
Vietnam's Coffee and Cocoa Association estimates production at 900,000 tons in the crop year ending next month, said Tu, a former deputy trade minister responsible for negotiating Vietnam's entry into the World Trade Organization last year.
Dry Weather, Fertilizer
The current Vietnamese crop may total 19.5 million bags, or 1.17 million tons, Fortis said in June. The International Coffee Organization and the agricultural attache's office at the U.S. Embassy in Hanoi expect 2007-08 production to total 17.5 million bags, or 1.05 million tons.
A May report from the U.S. agriculture office forecast an increase in production to 21.5 million bags in the 2008-09 year, citing higher yields and an increase in growing areas.
The dryness and high fertilizer costs have hurt production in Vietnam, said Nguyen Xuan Thai, director of Dak Lak-based Thang Loi Coffee Co., the largest grower. Output from his plantations dropped by as much 30 percent because trees shed fruit, Thai said.
The amount of coffee fruit in some areas of Dak Lak and neighboring provinces has dropped by about a quarter, said Huu Thanh Hong, business manager of Dak Lak-based Sept. 2nd Import- Export Co., Vietnam's third-biggest exporter.
Beans Shed
``The dry weather was part of the reason the beans shed,'' Cao Van Tu, director of Dak Lak-based Ea Pok Coffee Co. ``In addition, when there is no rain, you can't put fertilizer on the trees. If you do, the chemical will burn the tree.''
Costs of fertilizer in Vietnam have doubled this year because of a three-fold increase in international prices, said Ha Dac Thuy, Hanoi-based vice chairman of the Vietnam Fertilizer Association. Vietnam imports about 40 percent of its annual fertilizer needs of 1.7 million tons, he said.
An increase in bank lending rates to as much as 21 percent also means the country's fertilizer producers and importers raised prices, Thuy said.
To contact the reporter on this story: Nguyen Dieu Tu Uyen in Hanoi at uyen1@bloomberg.net.
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Copper Futures Head for Biggest Weekly Drop Since May 2007
By Millie Munshi
Aug. 8 (Bloomberg) -- Copper headed for the biggest weekly drop since May 2007 on heightened concern that slumping worldwide economies will erode demand for industrial commodities.
Singapore lowered its 2008 growth forecast, warning of a ``bumpy year ahead.'' Italy's economy unexpectedly shrank in the second quarter, edging closer to a recession. The Federal Reserve this week said ``downside risks to growth remain'' in the U.S. Copper has tumbled 20 percent from a record in May, touching a six-month low today, on signs of less consumption.
``People have gotten very worried about demand for commodities because of this global meltdown,'' said Michael K. Smith, president of T&K Futures & Options in Port St. Lucie, Florida. ``If all these major economies are going to slow down, people think that's really bad news for copper.''
Copper futures for September delivery fell 8 cents, or 2.3 percent, to $3.338 a pound at 9:33 a.m. on the Comex division of the New York Mercantile Exchange. A close at that price would mark a weekly drop of 6.8 percent, the most since the week ending May 18, 2007.
Earlier, the price touched $3.3255, the lowest since Feb. 7. The metal reached a record $4.2605 on May 5.
The metal also dropped as a decline in energy prices led a slide in commodities, Smith said.
``Crude is the king of commodities,'' he said. ``When oil drops, it brings everything else down with it.''
Oil dropped as much as 2.5 percent today and was down almost 20 percent from a record in July. The Reuters/Jefferies CRB Index of 19 raw materials fell as much as 1.2 percent.
On the London Metal Exchange, copper for delivery in three months fell $225, or 2.9 percent, to $7,440 a metric ton ($3.37 a pound). Before today, the price dropped 1 percent in the past 12 months.
To contact the reporter on this story: Millie Munshi in New York at mmunshi@bloomberg.net
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Aug. 8 (Bloomberg) -- Copper headed for the biggest weekly drop since May 2007 on heightened concern that slumping worldwide economies will erode demand for industrial commodities.
Singapore lowered its 2008 growth forecast, warning of a ``bumpy year ahead.'' Italy's economy unexpectedly shrank in the second quarter, edging closer to a recession. The Federal Reserve this week said ``downside risks to growth remain'' in the U.S. Copper has tumbled 20 percent from a record in May, touching a six-month low today, on signs of less consumption.
``People have gotten very worried about demand for commodities because of this global meltdown,'' said Michael K. Smith, president of T&K Futures & Options in Port St. Lucie, Florida. ``If all these major economies are going to slow down, people think that's really bad news for copper.''
Copper futures for September delivery fell 8 cents, or 2.3 percent, to $3.338 a pound at 9:33 a.m. on the Comex division of the New York Mercantile Exchange. A close at that price would mark a weekly drop of 6.8 percent, the most since the week ending May 18, 2007.
Earlier, the price touched $3.3255, the lowest since Feb. 7. The metal reached a record $4.2605 on May 5.
The metal also dropped as a decline in energy prices led a slide in commodities, Smith said.
``Crude is the king of commodities,'' he said. ``When oil drops, it brings everything else down with it.''
Oil dropped as much as 2.5 percent today and was down almost 20 percent from a record in July. The Reuters/Jefferies CRB Index of 19 raw materials fell as much as 1.2 percent.
On the London Metal Exchange, copper for delivery in three months fell $225, or 2.9 percent, to $7,440 a metric ton ($3.37 a pound). Before today, the price dropped 1 percent in the past 12 months.
To contact the reporter on this story: Millie Munshi in New York at mmunshi@bloomberg.net
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Cocoa Falls in N.Y. as Dollar Gain Against Euro May Curb Demand
By Ron Day
Aug. 8 (Bloomberg) -- Cocoa fell, heading for the biggest weekly drop since March, as the dollar gained against the euro, lifting the costs of raw materials for buyers using other currencies.
The euro slumped to a five-month low against the dollar as traders pared bets the European Central Bank will raise interest rates as the economy slows. The Reuters/Jefferies CRB Index of 19 commodities fell, as crude oil, gold and wheat declined.
Cocoa futures for December delivery dropped $69, or 2.5 percent, to $2,744 a metric ton at 8:42 a.m. on ICE Futures U.S., the former New York Board of Trade. A close at that price would mark a 9.1 percent decline since Aug. 1, the biggest weekly drop since March 21.
To contact the reporter on this story: Ron Day in New York at rday1@bloomberg.net.
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Aug. 8 (Bloomberg) -- Cocoa fell, heading for the biggest weekly drop since March, as the dollar gained against the euro, lifting the costs of raw materials for buyers using other currencies.
The euro slumped to a five-month low against the dollar as traders pared bets the European Central Bank will raise interest rates as the economy slows. The Reuters/Jefferies CRB Index of 19 commodities fell, as crude oil, gold and wheat declined.
Cocoa futures for December delivery dropped $69, or 2.5 percent, to $2,744 a metric ton at 8:42 a.m. on ICE Futures U.S., the former New York Board of Trade. A close at that price would mark a 9.1 percent decline since Aug. 1, the biggest weekly drop since March 21.
To contact the reporter on this story: Ron Day in New York at rday1@bloomberg.net.
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Gold Falls, Heads for Longest Slide Since 2006 as Euro Plunges
By Pham-Duy Nguyen
Aug. 8 (Bloomberg) -- Gold fell for the sixth straight session, the longest losing streak since June 2006, as the euro plunged against the dollar, eroding the appeal of the precious metal as an alternative investment. Silver also declined.
The euro fell the most in four years against the dollar on speculation a slowing economy will prevent the European Central Bank from raising interest rates. Gold generally moves in tandem with the euro as an alternative to the dollar. The metal reached a record $1,033.90 an ounce in March as the euro headed for an all-time high.
``This is a rout,'' said Leonard Kaplan, president of Prospector Asset Management in Evanston, Illinois. ``All those people who were bearish the dollar and bullish gold are getting their heads handed to them.''
Gold futures for December delivery fell $11.10, or 1.3 percent, to $866.80 an ounce at 9:01 a.m. on the Comex division of the New York Mercantile Exchange. A close at that price would leave gold down 6.1 percent since July 31. The last time the metal plunged six straight sessions was June 6 to June 14, 2006, when the price dropped 13 percent.
Silver futures for September delivery fell 49.7 cents, or 3.1 percent, to $15.76 an ounce on the Comex. Before today, silver gained 9 percent this year, while gold advanced 4.8 percent.
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
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Aug. 8 (Bloomberg) -- Gold fell for the sixth straight session, the longest losing streak since June 2006, as the euro plunged against the dollar, eroding the appeal of the precious metal as an alternative investment. Silver also declined.
The euro fell the most in four years against the dollar on speculation a slowing economy will prevent the European Central Bank from raising interest rates. Gold generally moves in tandem with the euro as an alternative to the dollar. The metal reached a record $1,033.90 an ounce in March as the euro headed for an all-time high.
``This is a rout,'' said Leonard Kaplan, president of Prospector Asset Management in Evanston, Illinois. ``All those people who were bearish the dollar and bullish gold are getting their heads handed to them.''
Gold futures for December delivery fell $11.10, or 1.3 percent, to $866.80 an ounce at 9:01 a.m. on the Comex division of the New York Mercantile Exchange. A close at that price would leave gold down 6.1 percent since July 31. The last time the metal plunged six straight sessions was June 6 to June 14, 2006, when the price dropped 13 percent.
Silver futures for September delivery fell 49.7 cents, or 3.1 percent, to $15.76 an ounce on the Comex. Before today, silver gained 9 percent this year, while gold advanced 4.8 percent.
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
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China's Stocks Slump Most in Six Weeks Before Olympic Games
By Zhang Shidong and Dingmin Zhang
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Aug. 8 (Bloomberg) -- China's stocks tumbled the most in six weeks on disappointment the government refrained from announcing measures to boost the market ahead of the Olympic Games, opening in Beijing today.
China's CSI 300 Index extended its decline this year to 51 percent amid speculation the opening ceremony may be disrupted by security threats. Citic Securities Co., the brokerage unit of the country's biggest investment company, declined after the value of shares traded on China's two principal exchanges slumped yesterday to the lowest level since December 2006.
``The market was expecting the government to announce some market-stabilizing measures before the games, but nothing got announced so far,'' said Mona Chung, a Hong Kong-based fund manager at Daiwa Asset Management Ltd.
The CSI 300 Index dropped 128.98, or 4.7 percent, to 2,591.46 at the close, the biggest slump since June 27. The gauge closed at its lowest level since March 7, 2007.
The index fell 6.8 percent this week, the worst drop since the five days to June 13. Central bank efforts to cool inflation have deflated a stocks boom that drove the gauge up sevenfold in the two years through 2007 and drew record investors.
All but 14 stocks on the 300-member benchmark index dropped. More than 30 stocks plunged by the daily 10 percent limit, including Air China Ltd. and China Southern Airlines Co.
The government has a history of market intervention. Regulators are restricting approvals for share sales to try to arrest the slump, two people familiar with the matter told Bloomberg News last week. The government cut the tax on equity trading in April to stem the decline in shares, after tripling the duty in May 2007 to cool a rally that was drawing more than 300,000 new investors a day.
`Security Threats'
Concern that the Olympics will be targeted by separatists intensified after an attack on Aug. 5 by members of the Uighur ethnic group killed 16 police officers in China's northwestern city of Kashgar.
There have been ``rumors about security threats at the Games since the noon trading break,'' said Peter Pak, a Hong Kong-based strategist at BOCI Securities Ltd. ``So far nobody is able to substantiate a threat.''
Air China, the nation's largest international carrier, tumbled to 8.69 yuan. China Southern, the biggest carrier by fleet size, slumped to 6.76 yuan, the most since Jan. 28.
``Sentiment toward airlines is usually more fragile than about other industries,'' said Li Lei, an analyst at China Securities Co. in Beijing.
Citic Securities fell 4.6 percent to 21.39 yuan. Haitong Securities Co., the country's biggest brokerage by market value, lost 8.2 percent to 21.52 yuan.
Share Trades
Shares worth 56.9 billion yuan ($8.29 billion) were traded on the Shanghai and Shenzhen stock markets yesterday, the lowest since Dec. 13, 2006, according to data compiled by Bloomberg. That compared with an average daily trading value of 101 billion yuan in July.
China Shipping Development Co. led a drop among container lines, falling 8.5 percent to 16.07 yuan, after freight rates retreated. China Cosco Holdings Co., the world's largest operator of iron-ore and coal hauling ships, plunged 8.6 percent to 16.17 yuan.
The Baltic Dry Index, which tracks costs on international trade routes, dropped 4.4 percent to 7,521 points, as Chinese demand waned in the run-up to Olympics and commodity prices declined. The retreat was the largest since June 13, when it slid 4.9 percent.
The Shanghai Composite Index, which tracks the bigger of China's stock exchanges, fell 4.5 percent to 2,605.72. The Shenzhen Composite Index lost 5.6 percent to 747.34.
The following stocks rose or fell and the stock symbols are in brackets after companies' names.
China Quanjude Group Co. (002186 CH), the operator of roast duck restaurants, slumped 5.35 yuan, or 10 percent, to 48.18, the lowest close since July 17. The company said first-half net income fell 13 percent to 33 million from a year earlier because costs increased, it said in a statement. Nine-month profit may decline as much as 30 percent, it said.
Shanghai Electric Power Co. (600021 CH), the supplier of a third of the electricity in China's richest city, slid 0.21 yuan, or 5 percent, to 3.96, the biggest decline since June 27. The company posted a loss of 560.1 million yuan in the first half because coal costs increased 25 percent.
To contact the reporter on this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net; Zhang Dingmin in Beijing at Dzhang14@bloomberg.net
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Aug. 8 (Bloomberg) -- China's stocks tumbled the most in six weeks on disappointment the government refrained from announcing measures to boost the market ahead of the Olympic Games, opening in Beijing today.
China's CSI 300 Index extended its decline this year to 51 percent amid speculation the opening ceremony may be disrupted by security threats. Citic Securities Co., the brokerage unit of the country's biggest investment company, declined after the value of shares traded on China's two principal exchanges slumped yesterday to the lowest level since December 2006.
``The market was expecting the government to announce some market-stabilizing measures before the games, but nothing got announced so far,'' said Mona Chung, a Hong Kong-based fund manager at Daiwa Asset Management Ltd.
The CSI 300 Index dropped 128.98, or 4.7 percent, to 2,591.46 at the close, the biggest slump since June 27. The gauge closed at its lowest level since March 7, 2007.
The index fell 6.8 percent this week, the worst drop since the five days to June 13. Central bank efforts to cool inflation have deflated a stocks boom that drove the gauge up sevenfold in the two years through 2007 and drew record investors.
All but 14 stocks on the 300-member benchmark index dropped. More than 30 stocks plunged by the daily 10 percent limit, including Air China Ltd. and China Southern Airlines Co.
The government has a history of market intervention. Regulators are restricting approvals for share sales to try to arrest the slump, two people familiar with the matter told Bloomberg News last week. The government cut the tax on equity trading in April to stem the decline in shares, after tripling the duty in May 2007 to cool a rally that was drawing more than 300,000 new investors a day.
`Security Threats'
Concern that the Olympics will be targeted by separatists intensified after an attack on Aug. 5 by members of the Uighur ethnic group killed 16 police officers in China's northwestern city of Kashgar.
There have been ``rumors about security threats at the Games since the noon trading break,'' said Peter Pak, a Hong Kong-based strategist at BOCI Securities Ltd. ``So far nobody is able to substantiate a threat.''
Air China, the nation's largest international carrier, tumbled to 8.69 yuan. China Southern, the biggest carrier by fleet size, slumped to 6.76 yuan, the most since Jan. 28.
``Sentiment toward airlines is usually more fragile than about other industries,'' said Li Lei, an analyst at China Securities Co. in Beijing.
Citic Securities fell 4.6 percent to 21.39 yuan. Haitong Securities Co., the country's biggest brokerage by market value, lost 8.2 percent to 21.52 yuan.
Share Trades
Shares worth 56.9 billion yuan ($8.29 billion) were traded on the Shanghai and Shenzhen stock markets yesterday, the lowest since Dec. 13, 2006, according to data compiled by Bloomberg. That compared with an average daily trading value of 101 billion yuan in July.
China Shipping Development Co. led a drop among container lines, falling 8.5 percent to 16.07 yuan, after freight rates retreated. China Cosco Holdings Co., the world's largest operator of iron-ore and coal hauling ships, plunged 8.6 percent to 16.17 yuan.
The Baltic Dry Index, which tracks costs on international trade routes, dropped 4.4 percent to 7,521 points, as Chinese demand waned in the run-up to Olympics and commodity prices declined. The retreat was the largest since June 13, when it slid 4.9 percent.
The Shanghai Composite Index, which tracks the bigger of China's stock exchanges, fell 4.5 percent to 2,605.72. The Shenzhen Composite Index lost 5.6 percent to 747.34.
The following stocks rose or fell and the stock symbols are in brackets after companies' names.
China Quanjude Group Co. (002186 CH), the operator of roast duck restaurants, slumped 5.35 yuan, or 10 percent, to 48.18, the lowest close since July 17. The company said first-half net income fell 13 percent to 33 million from a year earlier because costs increased, it said in a statement. Nine-month profit may decline as much as 30 percent, it said.
Shanghai Electric Power Co. (600021 CH), the supplier of a third of the electricity in China's richest city, slid 0.21 yuan, or 5 percent, to 3.96, the biggest decline since June 27. The company posted a loss of 560.1 million yuan in the first half because coal costs increased 25 percent.
To contact the reporter on this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net; Zhang Dingmin in Beijing at Dzhang14@bloomberg.net
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German Stocks Drop, Led by E.ON; Carmakers Gain on Lower Oil
By Henrietta Rumberger
Aug. 8 (Bloomberg) -- German stocks fell for a second day as a decline in utilities overshadowed speculation lower oil prices will reduce costs for carmakers.
E.ON AG and RWE AG, the country's biggest utilities, retreated as power for next-year delivery headed for a fourth weekly drop. Bayerische Motoren Werke AG and Daimler AG climbed as crude futures traded near $118 a barrel in New York.
The benchmark DAX Index decreased 23.49, or 0.4 percent, to 6,520 at 1:59 p.m. in Frankfurt. The measure has still added 1.7 percent this week. DAX futures expiring in September fell 0.7 percent to 6,538. The HDAX Index of the country's 110 biggest companies retreated 0.3 percent to 3,315.24.
E.ON, the country's biggest utility, dropped 82 cents, or 2 percent, to 39.45 euros. RWE, the second-largest, slipped 88 cents, or 1.1 percent, to 75.10 euros.
Power for next year in Germany was poised for a 1.5 percent weekly decline as coal and emission prices fell. Corresponding Nordic, French and Dutch contracts also decreased.
BMW, the world's biggest luxury carmaker, rallied 1.44 euros, or 5.2 percent, to 29.065. Daimler AG, the second-largest, climbed 1.49 euros, or 3.7 percent, to 41.70.
Crude oil was on course for its fourth decline in five weeks as demand fell and the dollar gained, reducing the appeal of commodities as an inflation hedge.
Conergy AG rallied 77 cents, or 8.4 percent, to 9.94 euros. Germany's second-largest solar company reported second-quarter earnings before interest, tax, depreciation and amortization of 1.8 million euros ($2.74 million), its first profit since the start of a cost-reduction program.
Conergy is ``making good progress'' with a plan to cut jobs and should be able to fund severance packages and consultant fees this year, Chief Executive Officer Dieter Ammer said today.
The following stocks also rose or fell in German markets. Symbols are in parentheses.
BayWa AG (BYW GY) declined to the lowest in more than two weeks, dropping 1 euro, or 2.5 percent, to 38.50 euros. UniCredit Markets & Investment Banking cut its recommendation on the shares of the supplier of building material to ``sell'' from ``buy.''
Deutz AG (DEZ GY) slipped 20 cents, or 4.2 percent, to 4.52 euros as Credit Suisse Group cut its recommendation on shares of the maker of diesel engines for trucks and ships to ``underperform'' from ``neutral.''
ElringKlinger AG (ZIL2 GY) retreated 24 cents, or 1.4 percent, to 17.46 euros. UniCredit cut its share-price estimate for the supplier of car parts to 22 euros from 28. BHF-Bank and Landesbank Baden-Wuerttemberg also lowered their price projections.
Freenet AG (FNT GY) climbed for a third day, jumping 13 cents, or 1.2 percent, to 111.45 euros. The mobile-phone and Internet operator that agreed to buy competitor Debitel AG anticipates selling its digital subscriber line, or DSL, business this year, Chief Executive Officer Eckhard Spoerr said.
Gagfah SA (GFJ GY) lost 15 cents, or 1.5 percent, to 9.84 euros. UniCredit lowered its price projection on shares of Germany's largest publicly traded residential landlord to 10 euros from 10.20.
Hannover Re (HNR1 GY) retreated 60 cents, or 2 percent, to 29.79 euros. UniCredit lowered its share-price estimate for Germany's second-biggest reinsurer to 36 euros from 40.
ProSiebenSat.1 Media AG (PSM GY) added 30 cents, or 5.2 percent, to 6.02 euros, the fourth advance this week. Citigroup Inc. raised its price estimate on shares of Germany's biggest private broadcaster to 5.90 euros from 5.
Solar-Fabrik AG (SFX GY) gained 17 cents, or 1.9 percent, to 9.37 euros. The solar company that buys recyclable wafers from the semiconductor industry said first-half profit rose 20 percent to 1.8 million euros on solar power systems sales.
To contact the reporter on this story: Henrietta Rumberger in Frankfurt at hrumberger@bloomberg.net.
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Aug. 8 (Bloomberg) -- German stocks fell for a second day as a decline in utilities overshadowed speculation lower oil prices will reduce costs for carmakers.
E.ON AG and RWE AG, the country's biggest utilities, retreated as power for next-year delivery headed for a fourth weekly drop. Bayerische Motoren Werke AG and Daimler AG climbed as crude futures traded near $118 a barrel in New York.
The benchmark DAX Index decreased 23.49, or 0.4 percent, to 6,520 at 1:59 p.m. in Frankfurt. The measure has still added 1.7 percent this week. DAX futures expiring in September fell 0.7 percent to 6,538. The HDAX Index of the country's 110 biggest companies retreated 0.3 percent to 3,315.24.
E.ON, the country's biggest utility, dropped 82 cents, or 2 percent, to 39.45 euros. RWE, the second-largest, slipped 88 cents, or 1.1 percent, to 75.10 euros.
Power for next year in Germany was poised for a 1.5 percent weekly decline as coal and emission prices fell. Corresponding Nordic, French and Dutch contracts also decreased.
BMW, the world's biggest luxury carmaker, rallied 1.44 euros, or 5.2 percent, to 29.065. Daimler AG, the second-largest, climbed 1.49 euros, or 3.7 percent, to 41.70.
Crude oil was on course for its fourth decline in five weeks as demand fell and the dollar gained, reducing the appeal of commodities as an inflation hedge.
Conergy AG rallied 77 cents, or 8.4 percent, to 9.94 euros. Germany's second-largest solar company reported second-quarter earnings before interest, tax, depreciation and amortization of 1.8 million euros ($2.74 million), its first profit since the start of a cost-reduction program.
Conergy is ``making good progress'' with a plan to cut jobs and should be able to fund severance packages and consultant fees this year, Chief Executive Officer Dieter Ammer said today.
The following stocks also rose or fell in German markets. Symbols are in parentheses.
BayWa AG (BYW GY) declined to the lowest in more than two weeks, dropping 1 euro, or 2.5 percent, to 38.50 euros. UniCredit Markets & Investment Banking cut its recommendation on the shares of the supplier of building material to ``sell'' from ``buy.''
Deutz AG (DEZ GY) slipped 20 cents, or 4.2 percent, to 4.52 euros as Credit Suisse Group cut its recommendation on shares of the maker of diesel engines for trucks and ships to ``underperform'' from ``neutral.''
ElringKlinger AG (ZIL2 GY) retreated 24 cents, or 1.4 percent, to 17.46 euros. UniCredit cut its share-price estimate for the supplier of car parts to 22 euros from 28. BHF-Bank and Landesbank Baden-Wuerttemberg also lowered their price projections.
Freenet AG (FNT GY) climbed for a third day, jumping 13 cents, or 1.2 percent, to 111.45 euros. The mobile-phone and Internet operator that agreed to buy competitor Debitel AG anticipates selling its digital subscriber line, or DSL, business this year, Chief Executive Officer Eckhard Spoerr said.
Gagfah SA (GFJ GY) lost 15 cents, or 1.5 percent, to 9.84 euros. UniCredit lowered its price projection on shares of Germany's largest publicly traded residential landlord to 10 euros from 10.20.
Hannover Re (HNR1 GY) retreated 60 cents, or 2 percent, to 29.79 euros. UniCredit lowered its share-price estimate for Germany's second-biggest reinsurer to 36 euros from 40.
ProSiebenSat.1 Media AG (PSM GY) added 30 cents, or 5.2 percent, to 6.02 euros, the fourth advance this week. Citigroup Inc. raised its price estimate on shares of Germany's biggest private broadcaster to 5.90 euros from 5.
Solar-Fabrik AG (SFX GY) gained 17 cents, or 1.9 percent, to 9.37 euros. The solar company that buys recyclable wafers from the semiconductor industry said first-half profit rose 20 percent to 1.8 million euros on solar power systems sales.
To contact the reporter on this story: Henrietta Rumberger in Frankfurt at hrumberger@bloomberg.net.
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U.K. Stocks Decline as Oil, Metals Drop; BP, BHP Billiton Slide
By Sarah Jones
Aug. 8 (Bloomberg) -- U.K. stocks fell for a second day as a drop in oil and copper's slump to a six-month low damped the profit outlook for commodities producers.
BP Plc, Europe's largest oil company, fell the most in more than a week. BHP Billiton Ltd., the world's biggest mining company, extended its biggest weekly drop since May.
The FTSE 100 Index lost 0.6 percent to 5,446.9 at 1:18 p.m. in London, trimming this week's gains to 1.7 percent. The FTSE All-Share Index slipped 0.4 percent, while Ireland's ISEQ Index added 0.3 percent.
BP lost 2.3 percent to 520 pence. BHP fell 2.8 percent to 1,507 pence.
Crude oil for September delivery sank 2.3 percent to $117.23 a barrel on the New York Mercantile Exchange, as demand dropped and the dollar gained, reducing the appeal of commodities as an inflation hedge.
Copper retreated 2.8 percent to $7,450 a metric ton on the London Metal Exchange, while zinc plunged to the lowest in more than two years in London on signs a slower global economy will curb demand for industrial metals.
To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net.
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Aug. 8 (Bloomberg) -- U.K. stocks fell for a second day as a drop in oil and copper's slump to a six-month low damped the profit outlook for commodities producers.
BP Plc, Europe's largest oil company, fell the most in more than a week. BHP Billiton Ltd., the world's biggest mining company, extended its biggest weekly drop since May.
The FTSE 100 Index lost 0.6 percent to 5,446.9 at 1:18 p.m. in London, trimming this week's gains to 1.7 percent. The FTSE All-Share Index slipped 0.4 percent, while Ireland's ISEQ Index added 0.3 percent.
BP lost 2.3 percent to 520 pence. BHP fell 2.8 percent to 1,507 pence.
Crude oil for September delivery sank 2.3 percent to $117.23 a barrel on the New York Mercantile Exchange, as demand dropped and the dollar gained, reducing the appeal of commodities as an inflation hedge.
Copper retreated 2.8 percent to $7,450 a metric ton on the London Metal Exchange, while zinc plunged to the lowest in more than two years in London on signs a slower global economy will curb demand for industrial metals.
To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net.
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European Stocks Advance, Led by Ryanair, Daimler; RBS Climbs
By Adria Cimino
Aug. 8 (Bloomberg) -- European stocks rose, capping their weekly advance, as declines in oil and metals sent airlines, carmakers and retailers higher.
Ryanair Holdings Plc, Europe's largest discount carrier, Daimler AG and Carrefour SA climbed as oil slipped more than $2 a barrel and copper fell to a six-month low. Royal Bank of Scotland Group Plc jumped to a seven-week high on a smaller loss than analysts estimated.
``We were waiting for a decline in the oil price, which had been asphyxiating the economy,'' said Alexandre Iatrides, a fund manager at Richelieu Finance in Paris, which oversees $6.2 billion. ``RBS shares today illustrate investors' renewed confidence in the industry.''
Europe's Dow Jones Stoxx 600 Index added 0.7 percent to 288.93 at 3:15 p.m. in London, extending this week's advance to 3.1 percent. Stocks headed for the third weekly gain in four weeks as Royal Bank joined BNP Paribas SA and Societe Generale SA in posting earnings that topped analysts' estimates.
Shares pared their advance after Fannie Mae, the largest U.S. mortgage-finance company, had its fourth straight quarterly loss and cut its dividend. Stocks rebounded, following gains in early U.S. trading.
The Stoxx 600 has dropped 21 percent this year on concern credit losses nearing $500 billion worldwide, accelerating inflation and record oil prices will stifle economic and profit growth. Bradford & Bingley, Taylor Wimpey Plc and Yell Group Plc have led the retreat, losing more than 75 percent of their market value.
European Aeronautic Defence & Space Co. and BAE Systems Plc gained today as the dollar rose against the euro and the pound.
National Markets
National benchmark indexes declined in 11 of the 18 western European markets. France's CAC advanced 0.1 percent, while Germany's DAX decreased 0.3 percent. The U.K.'s FTSE 100 slipped 0.3 percent, dragged lower by BHP Billiton Ltd. and Vodafone Group Plc.
Ryanair increased 6.9 percent to 2.73 euros. Air France, Europe's biggest airline, advanced 4.2 percent to 18.17 euros.
Carrefour, the world's second-largest retailer, climbed 2.5 percent to 35.76 euros. DSG International Plc, the U.K.'s biggest consumer-electronics retailer, jumped 6.6 percent to 52.75 pence.
Crude for September delivery fell as much as $2.97, or 2.5 percent, to $117.05 a barrel on the New York Mercantile Exchange. Prices have retreated 6 percent this week.
Oil, Metals Retreat
Oil headed for its fourth decline in five weeks as demand fell and the dollar gained, reducing the appeal of commodities as an inflation hedge. A stronger dollar also boosts the value of sales in the U.S. currency when converted into euros and pounds, benefiting EADS and BAE Systems.
Daimler, the world's second-biggest maker of luxury cars, jumped 3.5 percent to 41.61 euros, and Bayerische Motoren Werke AG, the largest luxury-car maker, increased 4.8 percent to 28.94 euros.
EADS, which controls planemaker Airbus SAS, climbed 7.4 percent to 14.59 euros. EADS makes most of its sales in dollars. BAE, Europe's largest defense company, increased 2.2 percent to 472 pence. BAE Systems makes 44 percent of sales in the U.S. and Canada.
The euro slumped to a five-month low against the dollar as traders pared bets the European Central Bank will raise interest rates as the economy slows. It reached $1.5106 today after closing at $1.5325 yesterday in New York.
Copper slid in London, heading for a sixth straight weekly drop, on signs a slower global economy may curb demand for industrial metals. Aluminum and zinc also fell.
Royal Bank of Scotland, the U.K.'s second-biggest bank, gained 2.7 percent to 239 pence. The bank posted a smaller loss than analysts estimated and said the 5.9 billion pounds ($11.4 billion) of writedowns it announced in April may be sufficient for the year.
To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.
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Aug. 8 (Bloomberg) -- European stocks rose, capping their weekly advance, as declines in oil and metals sent airlines, carmakers and retailers higher.
Ryanair Holdings Plc, Europe's largest discount carrier, Daimler AG and Carrefour SA climbed as oil slipped more than $2 a barrel and copper fell to a six-month low. Royal Bank of Scotland Group Plc jumped to a seven-week high on a smaller loss than analysts estimated.
``We were waiting for a decline in the oil price, which had been asphyxiating the economy,'' said Alexandre Iatrides, a fund manager at Richelieu Finance in Paris, which oversees $6.2 billion. ``RBS shares today illustrate investors' renewed confidence in the industry.''
Europe's Dow Jones Stoxx 600 Index added 0.7 percent to 288.93 at 3:15 p.m. in London, extending this week's advance to 3.1 percent. Stocks headed for the third weekly gain in four weeks as Royal Bank joined BNP Paribas SA and Societe Generale SA in posting earnings that topped analysts' estimates.
Shares pared their advance after Fannie Mae, the largest U.S. mortgage-finance company, had its fourth straight quarterly loss and cut its dividend. Stocks rebounded, following gains in early U.S. trading.
The Stoxx 600 has dropped 21 percent this year on concern credit losses nearing $500 billion worldwide, accelerating inflation and record oil prices will stifle economic and profit growth. Bradford & Bingley, Taylor Wimpey Plc and Yell Group Plc have led the retreat, losing more than 75 percent of their market value.
European Aeronautic Defence & Space Co. and BAE Systems Plc gained today as the dollar rose against the euro and the pound.
National Markets
National benchmark indexes declined in 11 of the 18 western European markets. France's CAC advanced 0.1 percent, while Germany's DAX decreased 0.3 percent. The U.K.'s FTSE 100 slipped 0.3 percent, dragged lower by BHP Billiton Ltd. and Vodafone Group Plc.
Ryanair increased 6.9 percent to 2.73 euros. Air France, Europe's biggest airline, advanced 4.2 percent to 18.17 euros.
Carrefour, the world's second-largest retailer, climbed 2.5 percent to 35.76 euros. DSG International Plc, the U.K.'s biggest consumer-electronics retailer, jumped 6.6 percent to 52.75 pence.
Crude for September delivery fell as much as $2.97, or 2.5 percent, to $117.05 a barrel on the New York Mercantile Exchange. Prices have retreated 6 percent this week.
Oil, Metals Retreat
Oil headed for its fourth decline in five weeks as demand fell and the dollar gained, reducing the appeal of commodities as an inflation hedge. A stronger dollar also boosts the value of sales in the U.S. currency when converted into euros and pounds, benefiting EADS and BAE Systems.
Daimler, the world's second-biggest maker of luxury cars, jumped 3.5 percent to 41.61 euros, and Bayerische Motoren Werke AG, the largest luxury-car maker, increased 4.8 percent to 28.94 euros.
EADS, which controls planemaker Airbus SAS, climbed 7.4 percent to 14.59 euros. EADS makes most of its sales in dollars. BAE, Europe's largest defense company, increased 2.2 percent to 472 pence. BAE Systems makes 44 percent of sales in the U.S. and Canada.
The euro slumped to a five-month low against the dollar as traders pared bets the European Central Bank will raise interest rates as the economy slows. It reached $1.5106 today after closing at $1.5325 yesterday in New York.
Copper slid in London, heading for a sixth straight weekly drop, on signs a slower global economy may curb demand for industrial metals. Aluminum and zinc also fell.
Royal Bank of Scotland, the U.K.'s second-biggest bank, gained 2.7 percent to 239 pence. The bank posted a smaller loss than analysts estimated and said the 5.9 billion pounds ($11.4 billion) of writedowns it announced in April may be sufficient for the year.
To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.
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Buffett Builds Berkshire Holdings as Earnings Decline
By Josh P. Hamilton
Aug. 8 (Bloomberg) -- Devotees of Warren Buffett's investing strategy may need to look no farther for a bargain than the battered stock of the billionaire's Berkshire Hathaway Inc.
``Regardless of what's happening to earnings, the cash is still rolling in and asset prices are down,'' which will help Berkshire add holdings, said Frank Betz, a partner at Warren, New Jersey-based Carret Zane Capital Management, which oversees $800 million, including Berkshire shares. ``It's Buffett time.''
Berkshire may post a 32 percent decline in second-quarter profit today to $2.13 billion as falling prices crimp insurance earnings and building-related businesses slow with the housing slump, said Charles Hamilton, an analyst at FTN Midwest Securities Corp. The Omaha, Nebraska-based investment and holding company's stock had its worst first half since 1990 and is down 18 percent this year through yesterday.
Buffett, 77, has been seeking acquisitions and funding takeovers while buyout firms struggle to borrow. Last month he pledged $3 billion to Dow Chemical Co.'s $15.4 billion buyout of Rohm & Haas Co. In April, Buffett agreed to put up $6.5 billion to help Mars Inc. buy Wm. Wrigley Jr. Co. in a deal that gives Berkshire a discounted stake in the chewing gum maker.
Berkshire had about $35 billion in cash as of March 31 and competing insurers including American International Group Inc. and MBIA Inc. have had to raise capital to cushion against losses from bad bets on the housing market. Buffett toured four European cities in May, drumming up potential acquisitions to boost earnings while U.S. insurance operations decline.
Bricks, Corporate Jets
A profit drop would be the third straight for Berkshire, the company's worst streak since 2004. AIG has been unprofitable three straight quarters, and Robert Willumstad, the insurer's chief executive officer, said yesterday the company ``would not consider any major acquisitions at this time.''
Buffett, ranked the richest person by Forbes magazine, built Berkshire over four decades from a failing textile maker into a $175 billion company by buying out-of-favor stocks and businesses whose management he deemed superior. Subsidiaries provide products from bricks to corporate jets.
Buffett said at Berkshire's annual meeting in May that his company will ``make some extra money'' from the credit crisis. ``If a market goes down, it's more attractive than before,'' Buffett said.
Berkshire entered bond insurance in December as the largest companies in the industry, MBIA and Ambac Financial Group Inc., struggled to maintain their credit ratings. CIT Group Inc., the lender that lost 64 percent of its market value this year through yesterday, said last month a Berkshire subsidiary agreed to pay $300 million for a loan portfolio backed by factory-built homes.
`Caution Flag'
Berkshire's stock may stumble to $108,000 in 12 months, said FTN's Hamilton, who rates the shares ``neutral.'' They declined $1,485, or 1.3 percent, to $113,990 at 9:38 a.m. in New York Stock Exchange composite trading.
``He's given the caution flag and people are ignoring it,'' said Hamilton, based in Nashville, Tennessee. Buffett has said insurance profits will slip as rates fall amid competition for market share and the pace of natural disasters returns to normal after two uneventful U.S. hurricane seasons.
Berkshire investors are betting with history on their side: the shares advanced in 17 of the past 20 years.
When markets are in turmoil, Buffett's offers become more attractive because he has cash available, said Michael Revy, a portfolio manager at Froley Revy Investment Co. in Los Angeles.
The Dow investment was trumpeted by the chemical company as an endorsement of the business, even as Chief Financial Officer Geoffery Merszei said on a conference call with investors that Buffett is ``going to demand very good conditions.''
Private Placement
Berkshire agreed to buy Dow preferred stock paying 8.5 percent annual interest and convertible to common stock. The stake may make Berkshire the biggest shareholder of the Midland, Michigan-based company. Dow paid less than a 6.5 percent coupon on recent bond offerings, according to Bloomberg data through yesterday.
``In a private placement you get an anchor investor'' and don't have to disclose as much financial information as in a public offering, Revy said.
Buffett agreed not to hedge or sell his position for five years, a commitment that most investors may have been unwilling or unable to make, Revy said.
Some investors in convertible securities will short the company's common stock, selling borrowed shares that they can replace cheaper if the company falters. A jump in short selling can unnerve investors, Revy said.
Florida Deal
Also last month, Buffett struck a deal with the state of Florida, which agreed to pay $224 million in exchange for an assurance he'll buy $4 billion in tax-free state bonds paying 6.5 percent should a hurricane cause more than $25 billion in losses to the state's catastrophe reinsurance program this year.
Florida sells coverage to homeowners at below-market rates, and plans to fund cash shortfalls in the bond market
Said Carret Zane's Betz, ``Warren probably gets up every morning and licks his chops wondering `where's the next bargain going to come from?'''
To contact the reporter on this story: Josh P. Hamilton in New York at jphamilton@bloomberg.net.
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