By Lukanyo Mnyanda
Aug. 9 (Bloomberg) -- European government notes posted a third weekly gain after central bank President Jean-Claude Trichet said economic growth will weaken, prompting investors to reduce wagers on higher borrowing costs this year.
Two-year notes led the advance, pushing the difference in yield with the German 10-year bund to the widest since May 20, after reports this week added to signs growth in the region is faltering. The European Central Bank held its benchmark rate at 4.25 percent on Aug. 7, after which Trichet said expansion will be ``particularly weak'' in the second and third quarters.
``A lot of people took heart from what Trichet had to say about growth, as there was anxiety that he'd be more hawkish,'' said Marc Ostwald, a fixed-income strategist in London at Monument Securities Ltd. ``There is a sense the ECB is giving some ground.''
The yield on the two-year note dropped as much as 7 basis points to 4.03 percent, and was at 4.07 percent by 4 p.m. in London, heading for its biggest weekly drop since the period through Feb. 8. The price of the 4.75 percent note due June 2010 rose 0.02, or 20 euro cents per 1,000-euro ($1,504) face amount, to 101.16.
The yield on the 10-year bund, Europe's benchmark government security, was at 4.26 percent, leaving it 8 basis points lower in the week.
Government bonds pared gains yesterday as some investors bet there was still a risk the ECB will resume raising interest rates to restrain prices and discourage workers from seeking higher wage increases.
`Market Ahead of Itself'
``In the short term, our suspicion is the market has got ahead of itself,'' Sean Maloney, a debt strategist in London at Nomura International Plc, said.
Trichet told a press conference in Frankfurt there is ``no bias'' or ``pre-commitment'' toward future rate movements, repeating what he said July 3 after the previous rate decision. The ECB has observed ``some materialization of risks that we had identified'' he said.
Factory production in Germany rose by less than economists forecast in June, a government report showed Aug. 7. Separate data a day earlier showed factory orders in Europe's largest economy unexpectedly slipped in the same month.
Yield Difference
The difference in yield, or spread, between 10-year German bonds and U.S. Treasuries has narrowed 19 basis points in the past two weeks, to 33 basis points today. German two-year notes, which are more sensitive to interest-rate changes, yielded 19 basis points less than the 10-year bund, compared with 9 basis points a week ago.
The implied yield on the December Euribor futures contract fell 14 basis points in the past week and was last at 4.93 percent, indicating fewer investors expect the ECB to raise interest rates to fight inflation.
Europe's central bank is struggling to contain inflation which, at 4.1 percent, quickened to more than twice its ceiling in July. The fastest consumer-price growth in 16 years has come as the impact of the economic slowdown sparked by the collapse of the U.S. housing market has spread to Europe.
``The ECB press conference was more dovish than the market was anticipating,'' analysts led by Thorsten Weinelt, global head of research and chief strategist at Unicredit Markets & Investment Banking, a unit of Italy's largest lender, wrote in a client note. ``Expect today's price action to be dominated mainly by a re-assessment of yesterday's strong market movements.''
IMF's View
Europe's economy will grow 1.2 percent next year, with growth in Germany, the largest of the 15 nations that share the currency, slowing to 1 percent from 2 percent this year, according to the International Monetary Fund.
Italy's economy unexpectedly shrank in the second quarter, edging it closer to a fourth recession in a decade as households and businesses struggle to cope with more expensive oil.
The economy, the fourth-largest in Europe, contracted 0.3 percent after expanding 0.5 percent in the first quarter, the Rome-based statistics office Istat said yesterday. 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 government bonds returned investors 2.3 percent this year, while U.S. debt earned 3.1 percent, according to Merrill Lynch & Co.'s EMU Direct Government and U.S. Treasury Masters indexes.
To contact the reporter on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net
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Saturday, August 9, 2008
U.S. Stocks Post Biggest Weekly Rally Since April on Oil Slump
By Lynn Thomasson
Aug. 9 (Bloomberg) -- U.S. stocks rose, sending the Standard & Poor's 500 Index to the largest weekly rally since April, as retailers, automakers and restaurants climbed on speculation earnings will improve as oil retreats.
J.C. Penney Co., Ford Motor Co. and Macy's Inc. led S&P 500 consumer companies reliant on discretionary spending to the biggest gain since March 2003 after oil sank to a three-month low of $115 a barrel. McDonald's Corp. had the steepest advance in 11 months on July sales that topped analyst forecasts. Worse-than- estimated losses at Fannie Mae and Freddie Mac forced both companies to slash dividends, dragging their shares to losses exceeding 23 percent.
``U.S. stocks are applauding the sharp pullback in commodity prices,'' said Robert Stimpson, a fund manager for Akron, Ohio- based Oak Associates Ltd., which oversees $1.2 billion. ``It means lower inflationary pressures and basically gives a tax cut to the consumer.''
The S&P 500 added 2.9 percent to 1,296.32, the highest since June 25. The Dow Jones Industrial Average increased 3.6 percent to 11,734.32. The yield on 10-year Treasuries remained at 3.93 percent after the Federal Reserve kept its interest-rate benchmark at 2 percent.
After falling to a 2 1/2-year low on July 15, the S&P 500 rebounded 6.7 percent. It's still down 12 percent this year as record fuel costs and bank losses stemming from the U.S. mortgage crisis prompted analysts to lower profit estimates.
Dollar Gains, Oil Drops
The steepest weekly rally by the U.S. Dollar Index since January 2005 and speculation slowing economic growth will lessen demand for raw materials pushed oil to its fourth drop in five weeks. Crude lost a fifth of its value in the past month. Among 10 industries, only energy and material producers fell this week.
The Federal Open Market Committee voted to leave its target rate for overnight lending between banks unchanged and indicated it's not likely to raise it until credit losses subside. Recent declines in raw material prices may support the Fed's prediction for inflation to ease through next year. The statement, released Aug. 5, drove stocks to the biggest daily gain in four months.
J.C. Penney, the third-largest U.S. department-store chain, climbed 18 percent to $35.75. Macy's, the second-biggest, rose 14 percent to $20.73. Ford, the No. 2 U.S. automaker, added 13 percent to $5.26.
McDonald's surged 9.9 percent to $65.67. Global sales by restaurants open at least 13 months advanced 8 percent, the biggest gain since February, after the restaurant chain sold more chicken biscuits and $1 sweet tea in the U.S. and snack-sized chicken wraps in France.
`Stimulus Check'
``A decline in gas prices is the equivalent of a stimulus check going out to the average American,'' said Dan Veru, who helps manage $2.8 billion at Palisade Capital Management in Fort Lee, New Jersey. ``It can help retailers, and the customer might have a little more discretionary money to put to work.''
The Reuters/Jefferies CRB Index of 19 raw materials reached a four-month low as copper, crude oil and silver tumbled.
Massey Energy Co., the largest U.S. producer of coal from the Appalachian region, fell the most among energy producers in the S&P 500. The stock dropped every day this week, losing 22 percent to $59.03.
Exxon Mobil Corp., the world's biggest oil producer, slipped 1.3 percent to $78.72. Schlumberger Ltd., the largest oilfield- services provider, retreated 7.9 percent to $92.28.
Fannie, Freddie Drop
Fannie Mae sank 23 percent to $9.05. Before a one-time gain, Fannie Mae's loss was $2.51 a share, compared with the 72-cent average estimate of 10 analysts in a Bloomberg survey. The common-stock dividend will be cut to 5 cents from 35 cents a share.
Freddie Mac slashed its dividend at least 80 percent after posting a quarterly loss that was three times bigger than analysts' estimates. The company doubled reserves for future home-loan losses to $2.8 billion. Freddie Mac shares plunged 26 percent to $5.90.
Still, financials in the S&P 500 rose 1 percent this week.
MBIA Inc., the biggest bond insurer, posted a profit that beat analyst estimates and said it would resume a share buyback. The company also decided against taking additional reserves for mortgage-related guarantees. MBIA shares had the first back-to- back weekly gains since February, climbing 12 percent to $8.57.
KeyCorp added 8.8 percent to $11.94. Merrill Lynch & Co. upgraded Ohio's third-biggest bank to ``buy'' from ``underperform,'' calling it inexpensive relative to its peers.
Technology Stocks Climb
Cisco Systems Inc. had the biggest weekly gain since November 2006, adding 10 percent to $24.25. The biggest maker of networking equipment reported fourth-quarter profit that topped analysts' estimates by a penny. Revenue surpassed $10 billion for the first time, and sales this quarter and next will be in line with projections, the company said.
Technology stocks in the S&P 500 climbed 6 percent, the second-steepest advance among 10 industries.
Procter & Gamble Co., the largest consumer-products company, rose the most in six years after posting fourth-quarter profit that topped the average analyst estimate. The company said earnings may increase further as it boosts prices to counter higher oil and paper costs.
Only 19 S&P 500 companies are scheduled to report quarterly results next week, down from at least 74 this week. They include Wal-Mart Stores Inc. and Macy's. Earnings at companies in the S&P 500 will advance 2.3 percent this year, according to analyst estimates compiled by Bloomberg. That compares with forecasts for a 15 percent increase at the end of last year.
Economists predict U.S. retailers will say sales dropped in July for the first time in five months as record gasoline prices siphoned the cash from tax rebates out of consumers' pockets. Purchases fell 0.1 percent after a 0.1 percent gain in June, according to the median estimate in a Bloomberg News survey before the Commerce Department's Aug. 13 report.
Other reports may show food and fuel prices pushed up the cost of living and manufacturing stagnated.
To contact the reporter on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net.
Read more...
Aug. 9 (Bloomberg) -- U.S. stocks rose, sending the Standard & Poor's 500 Index to the largest weekly rally since April, as retailers, automakers and restaurants climbed on speculation earnings will improve as oil retreats.
J.C. Penney Co., Ford Motor Co. and Macy's Inc. led S&P 500 consumer companies reliant on discretionary spending to the biggest gain since March 2003 after oil sank to a three-month low of $115 a barrel. McDonald's Corp. had the steepest advance in 11 months on July sales that topped analyst forecasts. Worse-than- estimated losses at Fannie Mae and Freddie Mac forced both companies to slash dividends, dragging their shares to losses exceeding 23 percent.
``U.S. stocks are applauding the sharp pullback in commodity prices,'' said Robert Stimpson, a fund manager for Akron, Ohio- based Oak Associates Ltd., which oversees $1.2 billion. ``It means lower inflationary pressures and basically gives a tax cut to the consumer.''
The S&P 500 added 2.9 percent to 1,296.32, the highest since June 25. The Dow Jones Industrial Average increased 3.6 percent to 11,734.32. The yield on 10-year Treasuries remained at 3.93 percent after the Federal Reserve kept its interest-rate benchmark at 2 percent.
After falling to a 2 1/2-year low on July 15, the S&P 500 rebounded 6.7 percent. It's still down 12 percent this year as record fuel costs and bank losses stemming from the U.S. mortgage crisis prompted analysts to lower profit estimates.
Dollar Gains, Oil Drops
The steepest weekly rally by the U.S. Dollar Index since January 2005 and speculation slowing economic growth will lessen demand for raw materials pushed oil to its fourth drop in five weeks. Crude lost a fifth of its value in the past month. Among 10 industries, only energy and material producers fell this week.
The Federal Open Market Committee voted to leave its target rate for overnight lending between banks unchanged and indicated it's not likely to raise it until credit losses subside. Recent declines in raw material prices may support the Fed's prediction for inflation to ease through next year. The statement, released Aug. 5, drove stocks to the biggest daily gain in four months.
J.C. Penney, the third-largest U.S. department-store chain, climbed 18 percent to $35.75. Macy's, the second-biggest, rose 14 percent to $20.73. Ford, the No. 2 U.S. automaker, added 13 percent to $5.26.
McDonald's surged 9.9 percent to $65.67. Global sales by restaurants open at least 13 months advanced 8 percent, the biggest gain since February, after the restaurant chain sold more chicken biscuits and $1 sweet tea in the U.S. and snack-sized chicken wraps in France.
`Stimulus Check'
``A decline in gas prices is the equivalent of a stimulus check going out to the average American,'' said Dan Veru, who helps manage $2.8 billion at Palisade Capital Management in Fort Lee, New Jersey. ``It can help retailers, and the customer might have a little more discretionary money to put to work.''
The Reuters/Jefferies CRB Index of 19 raw materials reached a four-month low as copper, crude oil and silver tumbled.
Massey Energy Co., the largest U.S. producer of coal from the Appalachian region, fell the most among energy producers in the S&P 500. The stock dropped every day this week, losing 22 percent to $59.03.
Exxon Mobil Corp., the world's biggest oil producer, slipped 1.3 percent to $78.72. Schlumberger Ltd., the largest oilfield- services provider, retreated 7.9 percent to $92.28.
Fannie, Freddie Drop
Fannie Mae sank 23 percent to $9.05. Before a one-time gain, Fannie Mae's loss was $2.51 a share, compared with the 72-cent average estimate of 10 analysts in a Bloomberg survey. The common-stock dividend will be cut to 5 cents from 35 cents a share.
Freddie Mac slashed its dividend at least 80 percent after posting a quarterly loss that was three times bigger than analysts' estimates. The company doubled reserves for future home-loan losses to $2.8 billion. Freddie Mac shares plunged 26 percent to $5.90.
Still, financials in the S&P 500 rose 1 percent this week.
MBIA Inc., the biggest bond insurer, posted a profit that beat analyst estimates and said it would resume a share buyback. The company also decided against taking additional reserves for mortgage-related guarantees. MBIA shares had the first back-to- back weekly gains since February, climbing 12 percent to $8.57.
KeyCorp added 8.8 percent to $11.94. Merrill Lynch & Co. upgraded Ohio's third-biggest bank to ``buy'' from ``underperform,'' calling it inexpensive relative to its peers.
Technology Stocks Climb
Cisco Systems Inc. had the biggest weekly gain since November 2006, adding 10 percent to $24.25. The biggest maker of networking equipment reported fourth-quarter profit that topped analysts' estimates by a penny. Revenue surpassed $10 billion for the first time, and sales this quarter and next will be in line with projections, the company said.
Technology stocks in the S&P 500 climbed 6 percent, the second-steepest advance among 10 industries.
Procter & Gamble Co., the largest consumer-products company, rose the most in six years after posting fourth-quarter profit that topped the average analyst estimate. The company said earnings may increase further as it boosts prices to counter higher oil and paper costs.
Only 19 S&P 500 companies are scheduled to report quarterly results next week, down from at least 74 this week. They include Wal-Mart Stores Inc. and Macy's. Earnings at companies in the S&P 500 will advance 2.3 percent this year, according to analyst estimates compiled by Bloomberg. That compares with forecasts for a 15 percent increase at the end of last year.
Economists predict U.S. retailers will say sales dropped in July for the first time in five months as record gasoline prices siphoned the cash from tax rebates out of consumers' pockets. Purchases fell 0.1 percent after a 0.1 percent gain in June, according to the median estimate in a Bloomberg News survey before the Commerce Department's Aug. 13 report.
Other reports may show food and fuel prices pushed up the cost of living and manufacturing stagnated.
To contact the reporter on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net.
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U.S. Olympic Coach's Relative Killed in Beijing
By Theresa Tang and Eugene Tang
Aug. 9 (Bloomberg) -- An American tourist related to a U.S. Olympic volleyball coach was stabbed to death today in Beijing by a man who then killed himself, according to the city's police and a U.S. embassy spokeswoman.
The victim, his wife and their Chinese guide were attacked at the Drum Tower in central Beijing by a man wielding a knife, said Zhi Shaodong, a spokesman of the Chinese capital's police. The attacker jumped to his death from the second floor of the tower, Zhi said.
The attack on the first day of Beijing's Olympic Games cast a shadow on the world's largest sports event as China's government seeks to project the image of a progressive and peaceful nation to an estimated 4 billion television viewers globally. As many as 500,000 tourists are likely to visit the Chinese capital during the Olympics, which run through Aug. 24.
``Our thoughts and prayers are with the victims and their families, and the United States government has offered to provide any assistance the family needs,'' President George W. Bush said in Beijing, where he is attending the Games. He said he was ``saddened'' by the incident.
The assailant, identified as Tang Yongming, 47, came from Hangzhou, in eastern China. An identification card was found on his body, police spokesman Zhi said. The U.S. visitors had entered China on tourist visas, he said.
`Crazy'
``Nothing like this has ever happened around here,'' said an eyewitness to Tang's suicide, who would identify himself only by his family name of Li. ``We get a lot of foreign tourists around here, and it's always very peaceful. That assailant must have been crazy.''
The wife of the slain man and the Chinese guide were taken to a Beijing hospital, said Susan Stevenson, a U.S. Embassy spokeswoman, declining to give further details.
Two relatives of a coach for the men's indoor volleyball team were stabbed and the wife was ``seriously injured,'' the U.S. Olympic Committee said in a statement, without giving any names.
``Our priority in this hour is to attend to the needs of the family members, the U.S. Olympic men's indoor volleyball team and staff, and the entire U.S. Olympic delegation,'' the committee said.
The Drum Tower, a major tourist site in central Beijing, was sealed off after the incident and uniformed police stood guard.
Sun Weide, a spokesman for the Beijing organizing committee declined to comment immediately.
To contact the reporter for this story: Theresa Tang in Hong Kong at ttang3@bloomberg.net
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Russia Is Waging `Full-Scale War' Over S. Ossetia, Georgia Says
By Alex Nicholson
Aug. 9 (Bloomberg) -- Georgia accused Russia of waging ``full-scale war,'' as Russian troops took control of the capital of the separatist South Ossetia region, rejecting calls by the international community for an immediate cease-fire.
``Georgia is under military aggression of the Russian federation,'' Georgian Security Council secretary Kakha Lomaia told reporters in a conference call today.
Ships of Russia's Black Sea Fleet moved toward Abkhazia, another separatist region, and Russian jets are crossing the border every 15 minutes and attacking military and civilian targets in as many as six locations simultaneously, he said. Russia's actions amounted to ``full-scale war,'' Lomaia said.
Russian tanks pushed into South Ossetia and, by morning today, reinforcements backed by bombers and artillery had forced Georgian units out of the South Ossetian capital, Tskhinvali, the Russian Defense Ministry said on its Web site.
President George W. Bush said the fighting represented ``a dangerous escalation.'' He called for an ``immediate halt to violence'' and ``an end to the Russian bombings.'' Bush was speaking in Beijing where he is attending the Olympic Games.
Russian Foreign Minister Sergei Lavrov said 1,500 civilians and 15 Russian peacekeepers have been killed so far, while Deputy Chief of the General Staff Anatoly Nogovitsyn confirmed that two Russian aircraft had been shot down. Georgia has shot down 10 planes, Lomaia said. The pilot of the 10th plane is alive and has been sent to a hospital, he said.
`Aggression'
``Whatever part of Georgia is used for this aggression is not safe,'' and Russia reserves the right to attack any part of Georgia used for the offensive in South Ossetia, Lavrov said. ``The source of the aggression must be hit to prevent the aggressor from doing that again,'' he said.
Georgia must withdraw its forces from South Ossetia and sign a non-aggression pact with the region and then ``the situation can calm down,'' Lavrov said.
Russian warplanes bombed sites including the port of Poti and a military base at Senaki, in the west of the country, Georgian officials said. The town of Gori, the birthplace of late Soviet dictator Joseph Stalin, was also hit.
The conflict could endanger U.S. aspirations to secure an emerging energy corridor linking Central Asia to Europe and deals a blow to its plans for bringing the former Soviet republic into the North Atlantic Treaty Organization's orbit.
Russian President Dmitry Medvedev said the fighting was a response to Georgia's assault on Russian citizens and the peacekeepers Russia has had in the disputed region since the early 1990s.
State of War
Georgian President Mikheil Saakashvili today signed a decree declaring a state of war, Lomaia said. At least 40 Georgians, both civilian and military, have been killed, he said. This toll does not include casualties from a residential building in Gori that was bombed, he said.
South Ossetia broke away from Georgia in the early 1990s and exists now as a de facto independent state with Russian peacekeepers and economic support.
The Russian government said that 30,000 refugees had entered its territory from the region.
``The people responsible for this humanitarian catastrophe must bear responsibility for what they have done,'' including under international law, Medvedev was quoted by the RIA Novosti news service as saying at a Kremlin meeting.
The conflict ``absolutely'' dooms Georgia's chances for NATO membership, said Robert Hunter, U.S. ambassador to the Brussels- based alliance under President Bill Clinton and now a senior adviser at the policy-research group RAND Corp. in Washington. ``You don't bring in a country that has this sort of trouble.''
Peace Envoys
As those hopes evaporated, Secretary of State Condoleezza Rice planned to send an envoy to broker a cease-fire between the sides. President George W. Bush, attending the opening ceremonies of the Beijing Olympic Games yesterday, said the U.S. backed the ``territorial integrity'' of Georgia.
The European Union and the Vienna-based Organization for Security and Cooperation in Europe, which has a peacekeeping mission in Georgia, are also sending emissaries to seek a cease- fire, French Foreign Minister Bernard Kouchner said in a statement late yesterday. France, which currently holds the EU's rotating presidency, earlier called on behalf of the EU for negotiations to end the fighting.
Deputy Secretary of State John D. Negroponte summoned Russian Charge d'Affaires Alexander Darchiyev to push for a Russian pullout, according to a statement issued yesterday by the State Department. Russia's attacks are a ``dangerous and disproportionate escalation of tension,'' and the U.S. calls for an ``immediate'' cease-fire and withdrawal of Russian troops, Negroponte said.
Russian Energy
EU help may not be as forthcoming as Saakashvili wants in part because of European dependence on Russian energy supplies.
``Countries like Germany and France were already resistant to the idea of giving a NATO security guarantee to a country with an open dispute with Russia,'' said Dominic Fean, a researcher at the French Institute of International Affairs in Paris. ``I can't see how they can get the consensus of 26 states anytime soon.''
Georgia's Ambassador to the U.S. Vasiil Sikharulidze told Bloomberg Television the conflict would make NATO entry for the country harder, ``but we are strongly convinced we have to continue this way and that we will be a NATO member.''
Saakashvili, a U.S.-educated lawyer, came to power in the 2003 ``Rose Revolution'' backed by the U.S. He vowed to bring South Ossetia and two other separatist regions under central control in a challenge to Russia.
Russian Passports
South Ossetia has a population of about 70,000 and is connected to Russia's North Ossetia region by a tunnel through the Caucasus Mountains. Most residents hold Russian passports.
Georgia is a key link in a U.S.-backed ``southern energy corridor'' that connects the Caspian Sea region with world markets, bypassing Russia. The BP Plc-led Baku-Tbilisi-Ceyhan oil pipeline to Turkey runs about 100 kilometers (60 miles) south of the South Ossetian capital, Tskhinvali.
The U.S. seeks to connect Central Asia natural gas supplies with European markets, skirting Russia in an attempt to weaken the grip of Russia's state-run OAO Gazprom energy company. One planned pipeline route runs from the Georgia-Turkey border.
NATO in April committed itself to bringing Georgia into the alliance without providing a timeframe or a clear path toward membership -- as Bush had pushed for -- out of concern it would antagonize Russia. Putin has called the expansion of NATO toward Russian frontiers a ``direct threat'' and likened South Ossetia's drive for independence to Kosovo's from Serbia.
Kosovo Precedent?
Sergei Mironov, a Putin ally who heads Russia's upper house of parliament, said the fighting is ``grounds'' to consider South Ossetia's appeal for international recognition, which cited Kosovo as a precedent, Interfax reported.
Russia hasn't recognized Kosovo since its declaration of independence.
The ruble dropped the most against the dollar in 8 1/2 years and Russian stocks tumbled yesterday on concern the fighting would worsen.
``This could be a prolonged and bloody conflict with an unpredictable end,'' said Pavel Felgenhauer, an independent military analyst in Moscow.
Hunter said flawed diplomacy was in part responsible for the clash. ``This is an issue that was allowed to get out of hand by people who haven't thought through what NATO membership really means, and on the Russian side doing too much muscle flexing over a country that is a pretty small place,'' he said.
To contact the reporter on this story: Alexander Nicholson in Moscow at Anicholson6@bloomberg.net.
Read more...
Aug. 9 (Bloomberg) -- Georgia accused Russia of waging ``full-scale war,'' as Russian troops took control of the capital of the separatist South Ossetia region, rejecting calls by the international community for an immediate cease-fire.
``Georgia is under military aggression of the Russian federation,'' Georgian Security Council secretary Kakha Lomaia told reporters in a conference call today.
Ships of Russia's Black Sea Fleet moved toward Abkhazia, another separatist region, and Russian jets are crossing the border every 15 minutes and attacking military and civilian targets in as many as six locations simultaneously, he said. Russia's actions amounted to ``full-scale war,'' Lomaia said.
Russian tanks pushed into South Ossetia and, by morning today, reinforcements backed by bombers and artillery had forced Georgian units out of the South Ossetian capital, Tskhinvali, the Russian Defense Ministry said on its Web site.
President George W. Bush said the fighting represented ``a dangerous escalation.'' He called for an ``immediate halt to violence'' and ``an end to the Russian bombings.'' Bush was speaking in Beijing where he is attending the Olympic Games.
Russian Foreign Minister Sergei Lavrov said 1,500 civilians and 15 Russian peacekeepers have been killed so far, while Deputy Chief of the General Staff Anatoly Nogovitsyn confirmed that two Russian aircraft had been shot down. Georgia has shot down 10 planes, Lomaia said. The pilot of the 10th plane is alive and has been sent to a hospital, he said.
`Aggression'
``Whatever part of Georgia is used for this aggression is not safe,'' and Russia reserves the right to attack any part of Georgia used for the offensive in South Ossetia, Lavrov said. ``The source of the aggression must be hit to prevent the aggressor from doing that again,'' he said.
Georgia must withdraw its forces from South Ossetia and sign a non-aggression pact with the region and then ``the situation can calm down,'' Lavrov said.
Russian warplanes bombed sites including the port of Poti and a military base at Senaki, in the west of the country, Georgian officials said. The town of Gori, the birthplace of late Soviet dictator Joseph Stalin, was also hit.
The conflict could endanger U.S. aspirations to secure an emerging energy corridor linking Central Asia to Europe and deals a blow to its plans for bringing the former Soviet republic into the North Atlantic Treaty Organization's orbit.
Russian President Dmitry Medvedev said the fighting was a response to Georgia's assault on Russian citizens and the peacekeepers Russia has had in the disputed region since the early 1990s.
State of War
Georgian President Mikheil Saakashvili today signed a decree declaring a state of war, Lomaia said. At least 40 Georgians, both civilian and military, have been killed, he said. This toll does not include casualties from a residential building in Gori that was bombed, he said.
South Ossetia broke away from Georgia in the early 1990s and exists now as a de facto independent state with Russian peacekeepers and economic support.
The Russian government said that 30,000 refugees had entered its territory from the region.
``The people responsible for this humanitarian catastrophe must bear responsibility for what they have done,'' including under international law, Medvedev was quoted by the RIA Novosti news service as saying at a Kremlin meeting.
The conflict ``absolutely'' dooms Georgia's chances for NATO membership, said Robert Hunter, U.S. ambassador to the Brussels- based alliance under President Bill Clinton and now a senior adviser at the policy-research group RAND Corp. in Washington. ``You don't bring in a country that has this sort of trouble.''
Peace Envoys
As those hopes evaporated, Secretary of State Condoleezza Rice planned to send an envoy to broker a cease-fire between the sides. President George W. Bush, attending the opening ceremonies of the Beijing Olympic Games yesterday, said the U.S. backed the ``territorial integrity'' of Georgia.
The European Union and the Vienna-based Organization for Security and Cooperation in Europe, which has a peacekeeping mission in Georgia, are also sending emissaries to seek a cease- fire, French Foreign Minister Bernard Kouchner said in a statement late yesterday. France, which currently holds the EU's rotating presidency, earlier called on behalf of the EU for negotiations to end the fighting.
Deputy Secretary of State John D. Negroponte summoned Russian Charge d'Affaires Alexander Darchiyev to push for a Russian pullout, according to a statement issued yesterday by the State Department. Russia's attacks are a ``dangerous and disproportionate escalation of tension,'' and the U.S. calls for an ``immediate'' cease-fire and withdrawal of Russian troops, Negroponte said.
Russian Energy
EU help may not be as forthcoming as Saakashvili wants in part because of European dependence on Russian energy supplies.
``Countries like Germany and France were already resistant to the idea of giving a NATO security guarantee to a country with an open dispute with Russia,'' said Dominic Fean, a researcher at the French Institute of International Affairs in Paris. ``I can't see how they can get the consensus of 26 states anytime soon.''
Georgia's Ambassador to the U.S. Vasiil Sikharulidze told Bloomberg Television the conflict would make NATO entry for the country harder, ``but we are strongly convinced we have to continue this way and that we will be a NATO member.''
Saakashvili, a U.S.-educated lawyer, came to power in the 2003 ``Rose Revolution'' backed by the U.S. He vowed to bring South Ossetia and two other separatist regions under central control in a challenge to Russia.
Russian Passports
South Ossetia has a population of about 70,000 and is connected to Russia's North Ossetia region by a tunnel through the Caucasus Mountains. Most residents hold Russian passports.
Georgia is a key link in a U.S.-backed ``southern energy corridor'' that connects the Caspian Sea region with world markets, bypassing Russia. The BP Plc-led Baku-Tbilisi-Ceyhan oil pipeline to Turkey runs about 100 kilometers (60 miles) south of the South Ossetian capital, Tskhinvali.
The U.S. seeks to connect Central Asia natural gas supplies with European markets, skirting Russia in an attempt to weaken the grip of Russia's state-run OAO Gazprom energy company. One planned pipeline route runs from the Georgia-Turkey border.
NATO in April committed itself to bringing Georgia into the alliance without providing a timeframe or a clear path toward membership -- as Bush had pushed for -- out of concern it would antagonize Russia. Putin has called the expansion of NATO toward Russian frontiers a ``direct threat'' and likened South Ossetia's drive for independence to Kosovo's from Serbia.
Kosovo Precedent?
Sergei Mironov, a Putin ally who heads Russia's upper house of parliament, said the fighting is ``grounds'' to consider South Ossetia's appeal for international recognition, which cited Kosovo as a precedent, Interfax reported.
Russia hasn't recognized Kosovo since its declaration of independence.
The ruble dropped the most against the dollar in 8 1/2 years and Russian stocks tumbled yesterday on concern the fighting would worsen.
``This could be a prolonged and bloody conflict with an unpredictable end,'' said Pavel Felgenhauer, an independent military analyst in Moscow.
Hunter said flawed diplomacy was in part responsible for the clash. ``This is an issue that was allowed to get out of hand by people who haven't thought through what NATO membership really means, and on the Russian side doing too much muscle flexing over a country that is a pretty small place,'' he said.
To contact the reporter on this story: Alexander Nicholson in Moscow at Anicholson6@bloomberg.net.
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Japanese Companies Expect to Miss Forecasts on Oil-Price Gains
By Hiroshi Suzuki
Aug. 9 (Bloomberg) -- Japanese companies expect rising energy and materials costs will erode profit and prevent them meeting earnings forecasts this year, Shinko Securities Co. said.
Pretax profit may fall an average 9.3 percent in the year ending March 31, Shinko said yesterday, reporting results of its survey of 1,199 Japanese companies. That compares with corporate estimates at the end of June showing an average 5.7 percent slide.
Japan's economy probably shrank an annualized 2.3 percent last quarter, economists said, bringing the country to the brink of its first recession in six years as exports fell and consumers spent less. Toyota Motor Corp. this week reported its biggest drop in earnings in five years as U.S. sales slumped.
``No quick recovery is likely for either domestic or overseas demand,'' Hiromichi Shirakawa, an economist at Credit Suisse Group in Tokyo, said ahead of the Shinko report. ``We can expect the environment for corporate earnings to worsen and plant and equipment spending by companies to stay stagnant.''
Companies plan to increase capital investment by 4.1 percent in the year ending March, according to a survey released this week by the Tokyo-based Development Bank of Japan. That compares with last fiscal year's 7.7 percent.
Manufacturers including Toyota, Mitsui Engineering & Shipbuilding Co. and Nippon Sheet Glass Co. have already forecast full-year earnings declines, citing costs for energy and raw materials. Oil's rise to record highs in the latest quarter ate away at profitability and crude remains 65 percent more expensive than a year ago.
Steel Prices
Tokyo-based Nippon Steel Corp. will increase contract prices of steel plates for domestic shipbuilders by about 40 percent, or 30,000 yen ($279) a ton, by Sept. 30, steel traders said June 18.
The U.S. credit crisis widened in the latest quarter to ensnare automakers including Toyota and General Motors Corp., which added to reserves against bad debts and losses on the residual value of vehicles returned at the end of lease contracts.
``If oil prices keep rising, limiting financial strength at Japanese companies, it's inevitable we'll see a significantly negative impact on capital investment and consumer spending,'' Rei Tsuruta, an economist at Mitsubishi UFJ Research & Consulting Co., said in a report dated Aug. 7
Shinko said it surveyed non-financial companies listed on the first section of the Tokyo Stock Exchange, which announced first-quarter earnings by Aug. 7. The results indicated a 4.1 percent average jump in sales, higher than the 3.6 percent gain forecast in June.
The Nikkei newspaper today reported its own survey of domestic companies, showing expectations for a 9.2 percent decline in pretax profit this year.
To contact the reporter on this story: Hiroshi Suzuki in Tokyo at hsuzuki5@bloomberg.net.
Read more...
Aug. 9 (Bloomberg) -- Japanese companies expect rising energy and materials costs will erode profit and prevent them meeting earnings forecasts this year, Shinko Securities Co. said.
Pretax profit may fall an average 9.3 percent in the year ending March 31, Shinko said yesterday, reporting results of its survey of 1,199 Japanese companies. That compares with corporate estimates at the end of June showing an average 5.7 percent slide.
Japan's economy probably shrank an annualized 2.3 percent last quarter, economists said, bringing the country to the brink of its first recession in six years as exports fell and consumers spent less. Toyota Motor Corp. this week reported its biggest drop in earnings in five years as U.S. sales slumped.
``No quick recovery is likely for either domestic or overseas demand,'' Hiromichi Shirakawa, an economist at Credit Suisse Group in Tokyo, said ahead of the Shinko report. ``We can expect the environment for corporate earnings to worsen and plant and equipment spending by companies to stay stagnant.''
Companies plan to increase capital investment by 4.1 percent in the year ending March, according to a survey released this week by the Tokyo-based Development Bank of Japan. That compares with last fiscal year's 7.7 percent.
Manufacturers including Toyota, Mitsui Engineering & Shipbuilding Co. and Nippon Sheet Glass Co. have already forecast full-year earnings declines, citing costs for energy and raw materials. Oil's rise to record highs in the latest quarter ate away at profitability and crude remains 65 percent more expensive than a year ago.
Steel Prices
Tokyo-based Nippon Steel Corp. will increase contract prices of steel plates for domestic shipbuilders by about 40 percent, or 30,000 yen ($279) a ton, by Sept. 30, steel traders said June 18.
The U.S. credit crisis widened in the latest quarter to ensnare automakers including Toyota and General Motors Corp., which added to reserves against bad debts and losses on the residual value of vehicles returned at the end of lease contracts.
``If oil prices keep rising, limiting financial strength at Japanese companies, it's inevitable we'll see a significantly negative impact on capital investment and consumer spending,'' Rei Tsuruta, an economist at Mitsubishi UFJ Research & Consulting Co., said in a report dated Aug. 7
Shinko said it surveyed non-financial companies listed on the first section of the Tokyo Stock Exchange, which announced first-quarter earnings by Aug. 7. The results indicated a 4.1 percent average jump in sales, higher than the 3.6 percent gain forecast in June.
The Nikkei newspaper today reported its own survey of domestic companies, showing expectations for a 9.2 percent decline in pretax profit this year.
To contact the reporter on this story: Hiroshi Suzuki in Tokyo at hsuzuki5@bloomberg.net.
Read more...
Euro Falls to Six-Month Low as Rate Increase Expectations Fade
By Ye Xie and Candice Zachariahs
Aug. 9 (Bloomberg) -- The euro dropped the most in more than three years this week, pushing the currency to a six-month low against the U.S. dollar, as traders pared bets the European Central bank will raise interest rates as the economy slows.
The currency fell the most in almost eight years yesterday, dropping below $1.50 for the first time since February, after ECB President Jean-Claude Trichet said Aug. 7 economic growth will be ``particularly weak'' through the third quarter. Crude oil fell to a three-month low, silver reached its cheapest since January and copper fell to its biggest weekly drop since May 2007, easing inflation concerns.
``What we have seen over the last few days is the recognition in Europe, in Australia, all around the world, that growth is slowing everywhere,'' said Mohamed El-Erian, co-chief executive officer of Newport Beach, California-based Pacific Investment Management Co., in a Bloomberg Radio interview. ``The euro is no longer as attractive as people once thought.''
Europe's shared currency fell 3.6 percent to $1.5005 yesterday, from $1.5564 on Aug. 1, the biggest weekly decline since January 2005. The currency tumbled 2.08 percent yesterday, touching $1.499, in what the second biggest one-day decline since the introduction for the euro in 1999.
Against the yen, the European currency slumped 1.3 percent to 165.38 yesterday, from 167.55 on Aug. 1. The dollar rose 2.3 percent to 110.18 yen, and touched 110.36 yesterday, the strongest since Jan. 2. It was the biggest weekly gain since the five days ended June 13.
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 yesterday. It was the first time the euro fell below the 200-day moving average since 2006.
Since reaching a record high of $1.6038 on July 15, the euro has dropped 6.4 percent. The so-called trading envelopes, which measure how far from the mean a price has strayed, show the euro's decline has doubled the typical changes versus the dollar in the past 20 days.
``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 yesterday. ``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. From that point of view, we do not think that this move is sustainable.''
`Undervalued'
The euro is about 2.5 percent ``undervalued'' against the dollar, according to Barclay's models, Woo wrote in a research note to clients yesterday.
The Dollar Index on the ICE futures exchange reached 75.903 yesterday, the highest since Feb. 21.
Pacific Investment Management's El-Erian said the U.S. government's efforts to support Fannie Mae and Freddie Mac will lead to greater Treasury issuance and a weaker dollar. ``It's ultimately inflationary as long as the global economy doesn't collapse,'' he said yesterday.
South African's rand led losses among the most-traded currencies yesterday 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.
Russian Ruble
Russia's 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 yesterday 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 on Aug. 7 after inflation accelerated and the economy teetered on the brink of a recession. It has dropped 2.7 percent this week to $1.9216, its biggest weekly drop in three years.
Trichet said Aug. 7 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.
`New Chapter'
``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.''
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 1 basis point to 4.95 percent yesterday.
Crude oil, metal and crop prices fell yesterday as the dollar climbed, reducing the appeal of commodities as a currency hedge. Oil has declined to $115.06 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.
To contact the reporters on this story: Ye Xie in New York at Yxie6@bloomberg.net; Candice Zachariahs in New York at czachariahs1@bloomberg.net
Read more...
Aug. 9 (Bloomberg) -- The euro dropped the most in more than three years this week, pushing the currency to a six-month low against the U.S. dollar, as traders pared bets the European Central bank will raise interest rates as the economy slows.
The currency fell the most in almost eight years yesterday, dropping below $1.50 for the first time since February, after ECB President Jean-Claude Trichet said Aug. 7 economic growth will be ``particularly weak'' through the third quarter. Crude oil fell to a three-month low, silver reached its cheapest since January and copper fell to its biggest weekly drop since May 2007, easing inflation concerns.
``What we have seen over the last few days is the recognition in Europe, in Australia, all around the world, that growth is slowing everywhere,'' said Mohamed El-Erian, co-chief executive officer of Newport Beach, California-based Pacific Investment Management Co., in a Bloomberg Radio interview. ``The euro is no longer as attractive as people once thought.''
Europe's shared currency fell 3.6 percent to $1.5005 yesterday, from $1.5564 on Aug. 1, the biggest weekly decline since January 2005. The currency tumbled 2.08 percent yesterday, touching $1.499, in what the second biggest one-day decline since the introduction for the euro in 1999.
Against the yen, the European currency slumped 1.3 percent to 165.38 yesterday, from 167.55 on Aug. 1. The dollar rose 2.3 percent to 110.18 yen, and touched 110.36 yesterday, the strongest since Jan. 2. It was the biggest weekly gain since the five days ended June 13.
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 yesterday. It was the first time the euro fell below the 200-day moving average since 2006.
Since reaching a record high of $1.6038 on July 15, the euro has dropped 6.4 percent. The so-called trading envelopes, which measure how far from the mean a price has strayed, show the euro's decline has doubled the typical changes versus the dollar in the past 20 days.
``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 yesterday. ``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. From that point of view, we do not think that this move is sustainable.''
`Undervalued'
The euro is about 2.5 percent ``undervalued'' against the dollar, according to Barclay's models, Woo wrote in a research note to clients yesterday.
The Dollar Index on the ICE futures exchange reached 75.903 yesterday, the highest since Feb. 21.
Pacific Investment Management's El-Erian said the U.S. government's efforts to support Fannie Mae and Freddie Mac will lead to greater Treasury issuance and a weaker dollar. ``It's ultimately inflationary as long as the global economy doesn't collapse,'' he said yesterday.
South African's rand led losses among the most-traded currencies yesterday 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.
Russian Ruble
Russia's 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 yesterday 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 on Aug. 7 after inflation accelerated and the economy teetered on the brink of a recession. It has dropped 2.7 percent this week to $1.9216, its biggest weekly drop in three years.
Trichet said Aug. 7 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.
`New Chapter'
``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.''
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 1 basis point to 4.95 percent yesterday.
Crude oil, metal and crop prices fell yesterday as the dollar climbed, reducing the appeal of commodities as a currency hedge. Oil has declined to $115.06 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.
To contact the reporters on this story: Ye Xie in New York at Yxie6@bloomberg.net; Candice Zachariahs in New York at czachariahs1@bloomberg.net
Read more...
GATX May Buy GE's Rail-Service Unit for as Much as $3.5 Billion
By Rachel Layne and Joyce Moullakis
Aug. 9 (Bloomberg) -- GATX Corp., the Chicago-based lessor of freight cars, is offering more than $3 billion for General Electric Co.'s Rail Services unit, people familiar with the discussions said.
GATX is the leading bidder for the unit, which has a book value of about $2.8 billion, the people said. The terms are still being negotiated, said the people, who asked not to be identified because the discussions are private. One said the offer may be as much as $3.5 billion.
Chief Executive Officer Brian Kenney is building GATX's rail business after selling an aircraft-leasing division in 2006. At GE, whose stock has slumped 20 percent this year, CEO Jeffrey Immelt is seeking to shed as much as $100 billion in slower- growing finance assets such as the rail leasing division. During a July 24 teleconference, GATX's Kenney said he's seeking to ``invest more aggressively'' during a financial slowdown.
``That's certainly what we prepared the company for over the last couple of years,'' said Kenney, 48, according to a transcript of the July call.
Rhonda Johnson, a spokeswoman for GATX, couldn't be reached for comment. Russell Wilkerson, a GE spokesman, declined to comment.
Fairfield, Connecticut-based GE is the world's biggest maker of jet engines, locomotives, medical imaging machines and power- generation equipment. GE's Web site says the rail division leases about 165,000 railcars and 120,000 trailers, containers and chassis to rail lines and shippers. The unit is based in Chicago and has offices in Canada, the U.S. and Mexico.
GE rose $1.07 to $29.64 yesterday in New York Stock Exchange composite trading. GATX climbed $2.26 to $46.45, and its shares have risen 27 percent this year.
GE Strategy
Immelt, 52, became CEO in 2001 and has since sold slower- growing and capital-intensive businesses such as insurance and plastics for more than $55 billion. At the same time he has made more than $80 billion in acquisitions in health care, water treatment and power-generation equipment.
GE shares fell the most since October 1987 on April 11, when Immelt announced an surprise decline in first-quarter earnings, blaming turmoil in credit markets. The credit crunch also has prompted several financial companies to seek to offload their rail units to shore up capital and re-focus on their main businesses.
The U.K.'s Royal Bank of Scotland Group Plc agreed to sell its train-leasing unit to Babcock & Brown Ltd. and partners in June for 3.6 billion pounds ($6.91 billion). The Babcock-led group wanted to benefit from rising rail travel in the U.K.
CIT Group Inc., the commercial lender that tapped emergency credit lines this year when cash ran short, is also assessing offers for its rail-leasing division. The company received multiple bids, including at least one from outside the U.S., according to Chief Financial Officer Joseph Leone. CIT Group hired advisers in April to assess options for the unit, which has assets of about $4 billion.
To contact the reporters on this story: Joyce Moullakis in London at jmoullakis@bloomberg.net; Rachel Layne in Boston at rlayne@bloomberg.net.
Read more...
Aug. 9 (Bloomberg) -- GATX Corp., the Chicago-based lessor of freight cars, is offering more than $3 billion for General Electric Co.'s Rail Services unit, people familiar with the discussions said.
GATX is the leading bidder for the unit, which has a book value of about $2.8 billion, the people said. The terms are still being negotiated, said the people, who asked not to be identified because the discussions are private. One said the offer may be as much as $3.5 billion.
Chief Executive Officer Brian Kenney is building GATX's rail business after selling an aircraft-leasing division in 2006. At GE, whose stock has slumped 20 percent this year, CEO Jeffrey Immelt is seeking to shed as much as $100 billion in slower- growing finance assets such as the rail leasing division. During a July 24 teleconference, GATX's Kenney said he's seeking to ``invest more aggressively'' during a financial slowdown.
``That's certainly what we prepared the company for over the last couple of years,'' said Kenney, 48, according to a transcript of the July call.
Rhonda Johnson, a spokeswoman for GATX, couldn't be reached for comment. Russell Wilkerson, a GE spokesman, declined to comment.
Fairfield, Connecticut-based GE is the world's biggest maker of jet engines, locomotives, medical imaging machines and power- generation equipment. GE's Web site says the rail division leases about 165,000 railcars and 120,000 trailers, containers and chassis to rail lines and shippers. The unit is based in Chicago and has offices in Canada, the U.S. and Mexico.
GE rose $1.07 to $29.64 yesterday in New York Stock Exchange composite trading. GATX climbed $2.26 to $46.45, and its shares have risen 27 percent this year.
GE Strategy
Immelt, 52, became CEO in 2001 and has since sold slower- growing and capital-intensive businesses such as insurance and plastics for more than $55 billion. At the same time he has made more than $80 billion in acquisitions in health care, water treatment and power-generation equipment.
GE shares fell the most since October 1987 on April 11, when Immelt announced an surprise decline in first-quarter earnings, blaming turmoil in credit markets. The credit crunch also has prompted several financial companies to seek to offload their rail units to shore up capital and re-focus on their main businesses.
The U.K.'s Royal Bank of Scotland Group Plc agreed to sell its train-leasing unit to Babcock & Brown Ltd. and partners in June for 3.6 billion pounds ($6.91 billion). The Babcock-led group wanted to benefit from rising rail travel in the U.K.
CIT Group Inc., the commercial lender that tapped emergency credit lines this year when cash ran short, is also assessing offers for its rail-leasing division. The company received multiple bids, including at least one from outside the U.S., according to Chief Financial Officer Joseph Leone. CIT Group hired advisers in April to assess options for the unit, which has assets of about $4 billion.
To contact the reporters on this story: Joyce Moullakis in London at jmoullakis@bloomberg.net; Rachel Layne in Boston at rlayne@bloomberg.net.
Read more...
TIPS Show Inflation Expectations at Lowest Level in Five Years
By Dakin Campbell
Aug. 9 (Bloomberg) -- Treasury Inflation Protected Securities show that traders' expectations for inflation over the next decade fell to the lowest in almost five years this week as prices of commodities tumbled.
The gap between yields on TIPS and conventional 10-year notes narrowed after the Federal Reserve signaled that it will keep borrowing costs steady after leaving interest rates unchanged at its Aug. 5 policy meeting. A basket of 19 commodities including oil fell to a four-month low.
``The bottom line is you've seen a significant turn in commodity prices,'' said Thomas Tucci, head of U.S. government bond trading at RBC Capital Markets in New York, the investment- banking arm of Canada's biggest lender. ``Going forward you're more likely to see inflation erode.''
Ten-year TIPS yielded 2.18 percentage points less than similar-maturity notes, the smallest difference since October 2003. The yield gap indicates the annual rate of inflation foreseen over the life of the security.
The yield on the benchmark 10-year Treasury was little changed last week at 3.94 percent, according to BGCantor Market Data. The 4 percent security due in August 2018 traded at 100 15/32. The two-year note's yield increased 1 basis point, or 0.01 percentage point, to 2.50 percent on the week.
Yields on 30-year bonds decreased 3 basis points for the week to 4.52 percent as the securities, more sensitive to inflation than shorter-term debt, outperformed notes.
Consumer Price Report
Oil fell for the fourth week in five, leading the Reuters/Jefferies CRB Index, a basket of 19 raw materials, to a four-month low. Crude traded on the New York Mercantile Exchange for September delivery fell 8 percent this week to $115.20 a barrel.
The government on Aug. 14 will likely say that consumer prices including food and energy rose 0.4 percent last month, after a 1.1 percent increase in June, according to the median forecast in a Bloomberg News survey of 52 economists. That would be the smallest monthly increase since April.
If ``I am with the Fed right now, I feel pretty good about my statement that we expect inflation to moderate over time,'' Brian Edmonds, head of interest rates at Cantor Fitzgerald LP, said Aug. 5. Cantor is one of 19 primary dealers that trade with the U.S. central bank.
Fed policy makers left the benchmark rate for overnight lending between banks unchanged at 2 percent on Aug. 5 for a second straight policy meeting, saying inflation is a significant concern while risks to growth remain. The central bank reduced interest rates by 3.25 percentage points in a series of seven cuts between September and April.
Inflation Bet
``The Fed is making a bet inflation is going to take care of itself over the next six months,'' E. Craig Coats Jr., co- head of fixed income at Keefe, Bruyette & Woods Inc. in New York, said after the central bank's meeting.
Traders increased bets the Fed won't raise the target rate through the end of the year. They saw a 62 percent chance yesterday that the central bank will hold the rate steady through December, compared with 35 percent odds a week earlier, according to futures contracts on the Chicago Board of Trade.
Auctions of 10- and 30-year Treasuries this week drew better-than-forecast demand, showing investors are still attracted to the safety of U.S. government debt.
The sale of $10 billion in 30-year bonds attracted the most participation in two-and-a-half years from a class of investors that includes foreign central banks. The group, known as indirect bidders, bought 42.9 percent of the auction, the most since February 2006. The sale, the biggest of the maturity since 2006, drew a yield of 4.609 percent, below the 4.662 percent average forecast of nine bond-trading firms surveyed by Bloomberg News.
`Fear and Uncertainty'
``The auction went much better than anyone expected,'' Nils Overdahl, a portfolio manager in Bethesda, Maryland, at New Century Advisors, said on Aug. 7. He helps manage $500 million in assets. ``There's still a great deal of fear and uncertainty in the market. People are happy to hold onto the safety of Treasuries.''
A sale of $17 billion in 10-year notes, the most in five years, drew a yield of 4.075 percent, lower than the 4.101 percent forecast by six bond-trading firms in another Bloomberg survey. Investors bid for 2.61 times the amount offered, the strongest so-called bid-to-cover ratio since September.
Speculation eased that the European Central Bank, whose sole mandate is to maintain price stability, will raise interest rates. The ECB held its benchmark rate at 4.25 percent at its policy meeting this week. Its president, Jean-Claude Trichet, said expansion will be ``particularly weak'' in the second and third quarters.
To contact the reporter on this story: Dakin Campbell in New York at dcampbell27@bloomberg.net
Read more...
Aug. 9 (Bloomberg) -- Treasury Inflation Protected Securities show that traders' expectations for inflation over the next decade fell to the lowest in almost five years this week as prices of commodities tumbled.
The gap between yields on TIPS and conventional 10-year notes narrowed after the Federal Reserve signaled that it will keep borrowing costs steady after leaving interest rates unchanged at its Aug. 5 policy meeting. A basket of 19 commodities including oil fell to a four-month low.
``The bottom line is you've seen a significant turn in commodity prices,'' said Thomas Tucci, head of U.S. government bond trading at RBC Capital Markets in New York, the investment- banking arm of Canada's biggest lender. ``Going forward you're more likely to see inflation erode.''
Ten-year TIPS yielded 2.18 percentage points less than similar-maturity notes, the smallest difference since October 2003. The yield gap indicates the annual rate of inflation foreseen over the life of the security.
The yield on the benchmark 10-year Treasury was little changed last week at 3.94 percent, according to BGCantor Market Data. The 4 percent security due in August 2018 traded at 100 15/32. The two-year note's yield increased 1 basis point, or 0.01 percentage point, to 2.50 percent on the week.
Yields on 30-year bonds decreased 3 basis points for the week to 4.52 percent as the securities, more sensitive to inflation than shorter-term debt, outperformed notes.
Consumer Price Report
Oil fell for the fourth week in five, leading the Reuters/Jefferies CRB Index, a basket of 19 raw materials, to a four-month low. Crude traded on the New York Mercantile Exchange for September delivery fell 8 percent this week to $115.20 a barrel.
The government on Aug. 14 will likely say that consumer prices including food and energy rose 0.4 percent last month, after a 1.1 percent increase in June, according to the median forecast in a Bloomberg News survey of 52 economists. That would be the smallest monthly increase since April.
If ``I am with the Fed right now, I feel pretty good about my statement that we expect inflation to moderate over time,'' Brian Edmonds, head of interest rates at Cantor Fitzgerald LP, said Aug. 5. Cantor is one of 19 primary dealers that trade with the U.S. central bank.
Fed policy makers left the benchmark rate for overnight lending between banks unchanged at 2 percent on Aug. 5 for a second straight policy meeting, saying inflation is a significant concern while risks to growth remain. The central bank reduced interest rates by 3.25 percentage points in a series of seven cuts between September and April.
Inflation Bet
``The Fed is making a bet inflation is going to take care of itself over the next six months,'' E. Craig Coats Jr., co- head of fixed income at Keefe, Bruyette & Woods Inc. in New York, said after the central bank's meeting.
Traders increased bets the Fed won't raise the target rate through the end of the year. They saw a 62 percent chance yesterday that the central bank will hold the rate steady through December, compared with 35 percent odds a week earlier, according to futures contracts on the Chicago Board of Trade.
Auctions of 10- and 30-year Treasuries this week drew better-than-forecast demand, showing investors are still attracted to the safety of U.S. government debt.
The sale of $10 billion in 30-year bonds attracted the most participation in two-and-a-half years from a class of investors that includes foreign central banks. The group, known as indirect bidders, bought 42.9 percent of the auction, the most since February 2006. The sale, the biggest of the maturity since 2006, drew a yield of 4.609 percent, below the 4.662 percent average forecast of nine bond-trading firms surveyed by Bloomberg News.
`Fear and Uncertainty'
``The auction went much better than anyone expected,'' Nils Overdahl, a portfolio manager in Bethesda, Maryland, at New Century Advisors, said on Aug. 7. He helps manage $500 million in assets. ``There's still a great deal of fear and uncertainty in the market. People are happy to hold onto the safety of Treasuries.''
A sale of $17 billion in 10-year notes, the most in five years, drew a yield of 4.075 percent, lower than the 4.101 percent forecast by six bond-trading firms in another Bloomberg survey. Investors bid for 2.61 times the amount offered, the strongest so-called bid-to-cover ratio since September.
Speculation eased that the European Central Bank, whose sole mandate is to maintain price stability, will raise interest rates. The ECB held its benchmark rate at 4.25 percent at its policy meeting this week. Its president, Jean-Claude Trichet, said expansion will be ``particularly weak'' in the second and third quarters.
To contact the reporter on this story: Dakin Campbell in New York at dcampbell27@bloomberg.net
Read more...
European Stocks Advance as Bank Concern Eases, Oil Declines
By Michael Patterson
Aug. 9 (Bloomberg) -- European stocks climbed for a third time in four weeks as oil dropped to a three-month low and earnings from Societe Generale SA and Royal Bank of Scotland Group Plc eased concern that banks need more capital.
Marks & Spencer Group Plc, Daimler AG and Air France-KLM rose after crude oil fell more than $7 a barrel. Societe Generale, France's second-largest bank, rallied the most in six months on a smaller-than-estimated profit decline. Royal Bank of Scotland, the second-biggest U.K. bank, rose 12 percent. European Aeronautic Defence & Space Co. gained the most in seven years as the euro fell to the lowest versus the dollar since February.
Europe's Dow Jones Stoxx 600 Index added 3.2 percent this week to 289.28, the highest level since June 30. The measure has climbed 8.5 percent from an almost three-year low on July 15 as crude tumbled more than 20 percent from a record and profits from Credit Suisse Group AG to Air France-KLM and Adidas AG beat analysts' estimates.
``Much of the market had been sold off aggressively ahead of first-half results and we were due a bounce,'' said Jane Coffey, head of equities at Royal London Asset Management, which oversees about $63 billion. ``A weakening oil price will allow central banks to be less concerned about inflation. This makes equities look more attractive.''
This week's rally pared the Stoxx 600's decline in 2008 to 21 percent. The benchmark index for European equities has dropped in eight of the previous nine months as asset writedowns and credit losses at banks approached $500 billion worldwide, threatening to prolong the slowdown in global economic growth.
National Markets
National benchmark indexes advanced in 15 of the 18 western European markets in the week. France's CAC 40 gained 4.1 percent. The U.K.'s FTSE 100 added 2.5 percent, while Germany's DAX climbed 2.6 percent.
Marks & Spencer, the U.K.'s largest clothing retailer, rallied 9 percent. Daimler, the world's second-biggest maker of luxury cars, increased 14 percent.
Crude oil tumbled this week as the dollar's gain against the euro reduced the appeal of commodities as an inflation hedge. Futures dipped to $115.61 a barrel on Aug. 8, a three-month low.
``The decline in oil was a critical factor,'' said Gregor Logan, the co-chief investment officer at New Star Asset Management in London, which oversees about $41 billion.
Air France, Europe's biggest airline, increased 13 percent. The carrier got an added boost this week after reporting first- quarter profit that exceeded analysts' projections.
Societe Generale
Societe Generale jumped 15 percent. The bank said net income fell 63 percent to 644 million euros ($1 billion), compared with the 550 million-euro median estimate of 13 analysts surveyed by Bloomberg. The company's capital position is ``completely solid,'' Chief Executive Officer Frederic Oudea said.
Royal 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.
The European Central Bank, the Bank of England and the Federal Reserve left their benchmark interest rates on hold this week. Still, the euro headed for its biggest weekly loss against the dollar since January 2005 as oil tumbled and ECB President Jean-Claude Trichet said economic growth will be ``particularly weak'' through the third quarter.
A stronger dollar boosts the value of sales in the U.S. currency when converted into euros and pounds, which benefits companies including EADS and BAE Systems Plc.
Lonmin Surges
EADS, which controls planemaker Airbus SAS, climbed 23 percent and BAE, Europe's largest defense company, increased 3.3 percent.
Lonmin rallied 47 percent, the steepest gain in the Stoxx 600. Xstrata Plc made a 5 billion-pound ($9.8 billion) hostile bid for the world's third-biggest platinum company, which was rejected by Lonmin as ``wholly inadequate.'' Xstrata shares tumbled 13 percent.
Coloplast A/S slumped 20 percent, the steepest drop in the Stoxx 600 Index, after the world's largest maker of ostomy products cut its forecast for the fiscal year.
Basic-resources companies and oil producers were the worst performers among 18 industry groups in the Stoxx 600 as crude and metals prices declined. Copper on the London Metal Exchange slumped 6.2 percent, the sixth straight weekly drop. Nickel and zinc also retreated.
BHP Billiton Ltd., the world's biggest mining company, lost 5.9 percent. Anglo American Plc, the fourth-largest diversified mining company, decreased 3 percent. Total SA, Europe's third- biggest oil company, slipped 2.7 percent.
To contact the reporter on this story: Michael Patterson in London at mpatterson10@bloomberg.net.
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Aug. 9 (Bloomberg) -- European stocks climbed for a third time in four weeks as oil dropped to a three-month low and earnings from Societe Generale SA and Royal Bank of Scotland Group Plc eased concern that banks need more capital.
Marks & Spencer Group Plc, Daimler AG and Air France-KLM rose after crude oil fell more than $7 a barrel. Societe Generale, France's second-largest bank, rallied the most in six months on a smaller-than-estimated profit decline. Royal Bank of Scotland, the second-biggest U.K. bank, rose 12 percent. European Aeronautic Defence & Space Co. gained the most in seven years as the euro fell to the lowest versus the dollar since February.
Europe's Dow Jones Stoxx 600 Index added 3.2 percent this week to 289.28, the highest level since June 30. The measure has climbed 8.5 percent from an almost three-year low on July 15 as crude tumbled more than 20 percent from a record and profits from Credit Suisse Group AG to Air France-KLM and Adidas AG beat analysts' estimates.
``Much of the market had been sold off aggressively ahead of first-half results and we were due a bounce,'' said Jane Coffey, head of equities at Royal London Asset Management, which oversees about $63 billion. ``A weakening oil price will allow central banks to be less concerned about inflation. This makes equities look more attractive.''
This week's rally pared the Stoxx 600's decline in 2008 to 21 percent. The benchmark index for European equities has dropped in eight of the previous nine months as asset writedowns and credit losses at banks approached $500 billion worldwide, threatening to prolong the slowdown in global economic growth.
National Markets
National benchmark indexes advanced in 15 of the 18 western European markets in the week. France's CAC 40 gained 4.1 percent. The U.K.'s FTSE 100 added 2.5 percent, while Germany's DAX climbed 2.6 percent.
Marks & Spencer, the U.K.'s largest clothing retailer, rallied 9 percent. Daimler, the world's second-biggest maker of luxury cars, increased 14 percent.
Crude oil tumbled this week as the dollar's gain against the euro reduced the appeal of commodities as an inflation hedge. Futures dipped to $115.61 a barrel on Aug. 8, a three-month low.
``The decline in oil was a critical factor,'' said Gregor Logan, the co-chief investment officer at New Star Asset Management in London, which oversees about $41 billion.
Air France, Europe's biggest airline, increased 13 percent. The carrier got an added boost this week after reporting first- quarter profit that exceeded analysts' projections.
Societe Generale
Societe Generale jumped 15 percent. The bank said net income fell 63 percent to 644 million euros ($1 billion), compared with the 550 million-euro median estimate of 13 analysts surveyed by Bloomberg. The company's capital position is ``completely solid,'' Chief Executive Officer Frederic Oudea said.
Royal 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.
The European Central Bank, the Bank of England and the Federal Reserve left their benchmark interest rates on hold this week. Still, the euro headed for its biggest weekly loss against the dollar since January 2005 as oil tumbled and ECB President Jean-Claude Trichet said economic growth will be ``particularly weak'' through the third quarter.
A stronger dollar boosts the value of sales in the U.S. currency when converted into euros and pounds, which benefits companies including EADS and BAE Systems Plc.
Lonmin Surges
EADS, which controls planemaker Airbus SAS, climbed 23 percent and BAE, Europe's largest defense company, increased 3.3 percent.
Lonmin rallied 47 percent, the steepest gain in the Stoxx 600. Xstrata Plc made a 5 billion-pound ($9.8 billion) hostile bid for the world's third-biggest platinum company, which was rejected by Lonmin as ``wholly inadequate.'' Xstrata shares tumbled 13 percent.
Coloplast A/S slumped 20 percent, the steepest drop in the Stoxx 600 Index, after the world's largest maker of ostomy products cut its forecast for the fiscal year.
Basic-resources companies and oil producers were the worst performers among 18 industry groups in the Stoxx 600 as crude and metals prices declined. Copper on the London Metal Exchange slumped 6.2 percent, the sixth straight weekly drop. Nickel and zinc also retreated.
BHP Billiton Ltd., the world's biggest mining company, lost 5.9 percent. Anglo American Plc, the fourth-largest diversified mining company, decreased 3 percent. Total SA, Europe's third- biggest oil company, slipped 2.7 percent.
To contact the reporter on this story: Michael Patterson in London at mpatterson10@bloomberg.net.
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Berkshire Net Falls 7.6% to $2.88 Billion as Insurance Slumps
By Josh P. Hamilton and Erik Holm
Aug. 9 (Bloomberg) -- Billionaire investor Warren Buffett's Berkshire Hathaway Inc. posted its third straight profit decline as lower rates pressured results in insurance operations.
Second-quarter net income fell 7.6 percent to $2.88 billion, or $1,859 a share, from $3.12 billion, or $2,018, a year earlier, the Omaha, Nebraska-based company said yesterday. Excluding investment gains, profit was $1,465 a share, beating the $1,352 average estimate of two analysts compiled by Bloomberg.
Buffett has been seeking non-U.S. acquisitions, purchasing distressed securities and funding buyouts as he scales back sales in some insurance units because of price competition. Buffett last month pledged $3 billion to Dow Chemical Co.'s $15.4 billion purchase of Rohm & Haas Co. In April, he 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.
``He doesn't have to keep writing bad policies, say in reinsurance, just to maintain market share at the cost of big losses later on,'' said Tom Russo, a partner at Gardner Russo & Gardner in Lancaster, Pennsylvania, which manages more than $3 billion, including Berkshire shares. ``Most competitors do just the opposite, favoring reported profits at the cost of long-term wealth creation.''
Berkshire's earnings from underwriting insurance and reinsurance policies fell 43 percent to $360 million. The businesses typically provide about half of Berkshire's profit. Commercial insurance rates in the U.S. fell 13 percent from a year earlier, the Council of Insurance Agents and Brokers said.
`Fewer Opportunities'
``Price competition resulted in fewer opportunities'' to sell reinsurance at acceptable prices, the company said in a regulatory filing. Reinsurers assume liabilities from insurers for a share of their premiums.
Investment losses, fallout from the collapse of the subprime mortgage market, catastrophe claims and falling property and casualty rates caused second-quarter profit declines or losses at 18 of the 24 companies in the KBW Insurance Index.
Berkshire shares had their worst first half since 1990 and are down 18 percent this year in New York Stock Exchange composite trading. Berkshire's results were posted yesterday after the close of regular trading.
Profit from selling policies at car insurer Geico Corp. fell 8.3 percent to $298 million before taxes on rising claims costs. Price reductions from last year, which went into effect as drivers renewed their policies, cut into the profit margin. The unit added about 105,000 new policyholders in the quarter.
`Caution Flag'
``Even Warren Buffett himself threw the caution flag earlier when he said look, don't expect the earnings from 2006 and 2007 to continue into 2008,'' said Charles Hamilton, an analyst at FTN Midwest Securities Corp. in Nashville, Tennessee, in a Bloomberg Television interview. ``We're not particularly surprised by the weaker earnings.''
Increases in the value of some holdings and derivatives raised earnings by $610 million, compared with $608 million a year earlier. Investment income at Berkshire's insurance units, including stock dividends, rose 2.6 percent to $884 million.
Berkshire boosted holdings of auction-rate securities to $6.5 billion as of June 30 from $3.8 billion March 31 and none at the end of 2007. The market froze in February when investors were left unable to redeem the securities after dealers that ran the periodic bidding to determine interest costs suddenly stopped supporting the auctions.
Buffett told investors at Berkshire's annual meeting in May that bonds from the same issue were selling simultaneously from the same broker with yields of 6 percent and 11 percent.
Auction-Rate Securities
``Those are extreme dislocations,'' Buffett said. ``Those are great times to make unusual amounts of money.''
The worst housing slump since the Great Depression has hurt Berkshire's building-related companies.
Earnings fell 26 percent to $82 million at Shaw Industries, the world's largest carpet manufacturer, as sales to residential customers declined. Profit at furniture stores, jewelry shops and the candy business declined 47 percent to $29 million.
``Pretax earnings in 2008 declined in all of Berkshire's retail operations,'' the company said, citing ``weak local residential housing markets and general economic conditions as well as an overall decline in consumer confidence.''
Earnings from Berkshire's energy and utilities unit decreased 10 percent to $208 million.
Marmon Holdings Inc., purchased this year, helped increase profit at Berkshire's manufacturing, service and retailing businesses by 11 percent to $719 million.
Seeking Acquisitions
Marmon employs about 20,000 people in 125 business units, mostly in North America, Europe and China, according to the company's Web site. Its operations include manufacturing and leasing railroad tank cars and making wire and cable products. The unit earned $261 million in the period ended June 30.
Buffett, 77, completed a four-city European tour in May aimed at drumming up potential acquisitions of family-owned companies as U.S. results slump. Berkshire had about $31 billion in cash as of June 30, most of it in insurance units.
Buffett, ranked the world's richest person by Forbes magazine, built Berkshire over four decades from a failing textile manufacturer into a $175 billion holding company by buying out-of-favor securities and businesses whose management he deemed superior.
To contact the reporters on this story: Josh P. Hamilton in New York at jphamilton@bloomberg.netErik Holm in New York at eholm2@bloomberg.net
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Aug. 9 (Bloomberg) -- Billionaire investor Warren Buffett's Berkshire Hathaway Inc. posted its third straight profit decline as lower rates pressured results in insurance operations.
Second-quarter net income fell 7.6 percent to $2.88 billion, or $1,859 a share, from $3.12 billion, or $2,018, a year earlier, the Omaha, Nebraska-based company said yesterday. Excluding investment gains, profit was $1,465 a share, beating the $1,352 average estimate of two analysts compiled by Bloomberg.
Buffett has been seeking non-U.S. acquisitions, purchasing distressed securities and funding buyouts as he scales back sales in some insurance units because of price competition. Buffett last month pledged $3 billion to Dow Chemical Co.'s $15.4 billion purchase of Rohm & Haas Co. In April, he 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.
``He doesn't have to keep writing bad policies, say in reinsurance, just to maintain market share at the cost of big losses later on,'' said Tom Russo, a partner at Gardner Russo & Gardner in Lancaster, Pennsylvania, which manages more than $3 billion, including Berkshire shares. ``Most competitors do just the opposite, favoring reported profits at the cost of long-term wealth creation.''
Berkshire's earnings from underwriting insurance and reinsurance policies fell 43 percent to $360 million. The businesses typically provide about half of Berkshire's profit. Commercial insurance rates in the U.S. fell 13 percent from a year earlier, the Council of Insurance Agents and Brokers said.
`Fewer Opportunities'
``Price competition resulted in fewer opportunities'' to sell reinsurance at acceptable prices, the company said in a regulatory filing. Reinsurers assume liabilities from insurers for a share of their premiums.
Investment losses, fallout from the collapse of the subprime mortgage market, catastrophe claims and falling property and casualty rates caused second-quarter profit declines or losses at 18 of the 24 companies in the KBW Insurance Index.
Berkshire shares had their worst first half since 1990 and are down 18 percent this year in New York Stock Exchange composite trading. Berkshire's results were posted yesterday after the close of regular trading.
Profit from selling policies at car insurer Geico Corp. fell 8.3 percent to $298 million before taxes on rising claims costs. Price reductions from last year, which went into effect as drivers renewed their policies, cut into the profit margin. The unit added about 105,000 new policyholders in the quarter.
`Caution Flag'
``Even Warren Buffett himself threw the caution flag earlier when he said look, don't expect the earnings from 2006 and 2007 to continue into 2008,'' said Charles Hamilton, an analyst at FTN Midwest Securities Corp. in Nashville, Tennessee, in a Bloomberg Television interview. ``We're not particularly surprised by the weaker earnings.''
Increases in the value of some holdings and derivatives raised earnings by $610 million, compared with $608 million a year earlier. Investment income at Berkshire's insurance units, including stock dividends, rose 2.6 percent to $884 million.
Berkshire boosted holdings of auction-rate securities to $6.5 billion as of June 30 from $3.8 billion March 31 and none at the end of 2007. The market froze in February when investors were left unable to redeem the securities after dealers that ran the periodic bidding to determine interest costs suddenly stopped supporting the auctions.
Buffett told investors at Berkshire's annual meeting in May that bonds from the same issue were selling simultaneously from the same broker with yields of 6 percent and 11 percent.
Auction-Rate Securities
``Those are extreme dislocations,'' Buffett said. ``Those are great times to make unusual amounts of money.''
The worst housing slump since the Great Depression has hurt Berkshire's building-related companies.
Earnings fell 26 percent to $82 million at Shaw Industries, the world's largest carpet manufacturer, as sales to residential customers declined. Profit at furniture stores, jewelry shops and the candy business declined 47 percent to $29 million.
``Pretax earnings in 2008 declined in all of Berkshire's retail operations,'' the company said, citing ``weak local residential housing markets and general economic conditions as well as an overall decline in consumer confidence.''
Earnings from Berkshire's energy and utilities unit decreased 10 percent to $208 million.
Marmon Holdings Inc., purchased this year, helped increase profit at Berkshire's manufacturing, service and retailing businesses by 11 percent to $719 million.
Seeking Acquisitions
Marmon employs about 20,000 people in 125 business units, mostly in North America, Europe and China, according to the company's Web site. Its operations include manufacturing and leasing railroad tank cars and making wire and cable products. The unit earned $261 million in the period ended June 30.
Buffett, 77, completed a four-city European tour in May aimed at drumming up potential acquisitions of family-owned companies as U.S. results slump. Berkshire had about $31 billion in cash as of June 30, most of it in insurance units.
Buffett, ranked the world's richest person by Forbes magazine, built Berkshire over four decades from a failing textile manufacturer into a $175 billion holding company by buying out-of-favor securities and businesses whose management he deemed superior.
To contact the reporters on this story: Josh P. Hamilton in New York at jphamilton@bloomberg.netErik Holm in New York at eholm2@bloomberg.net
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PRESS DIGEST - Financial Times - Aug 9
Sat Aug 9, 2008 12:15am EDT
The Financial Times
HOME LOANS 'RESCUE REMEDY' TABLED
Housing minister Caroline Flint has confirmed that the government is considering a "mortgage rescue scheme" to protect the income of homeowners who lose their jobs. The measure is one of several ministers are examining in efforts to reverse the slump in the housing market. Among the most likely schemes is the temporary suspension of stamp duty for first time buyers on homes of up to 250,000 pounds - a measure that is being recommended by the property industry and also happens to be official Tory policy.
COUNCILS PREDICT 5M WAITING LIST FOR SOCIAL HOUSING
The Local Government Association has warned that the social housing waiting list could double over the next three years to five million people. The reduced availability of mortgages and the rising price of housing have pushed homes out of the reach of first-time buyers, raising demand for social housing. However, almost half of all heads of housing associations surveyed by the LGA claim they will be unable to cope. To ease the strain, the LGA is calling for councils to be allowed to borrow in the same way as housing associations so that they can build more homes for rent.
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The Financial Times
HOME LOANS 'RESCUE REMEDY' TABLED
Housing minister Caroline Flint has confirmed that the government is considering a "mortgage rescue scheme" to protect the income of homeowners who lose their jobs. The measure is one of several ministers are examining in efforts to reverse the slump in the housing market. Among the most likely schemes is the temporary suspension of stamp duty for first time buyers on homes of up to 250,000 pounds - a measure that is being recommended by the property industry and also happens to be official Tory policy.
COUNCILS PREDICT 5M WAITING LIST FOR SOCIAL HOUSING
The Local Government Association has warned that the social housing waiting list could double over the next three years to five million people. The reduced availability of mortgages and the rising price of housing have pushed homes out of the reach of first-time buyers, raising demand for social housing. However, almost half of all heads of housing associations surveyed by the LGA claim they will be unable to cope. To ease the strain, the LGA is calling for councils to be allowed to borrow in the same way as housing associations so that they can build more homes for rent.
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Russia's `War' With Georgia Dashes NATO Entry Plans
By Bradley Cook and Janine Zacharia
Aug. 9 (Bloomberg) -- The armed conflict between Russia and Georgia deals a blow to U.S. aspirations of bringing the former Soviet republic into NATO's orbit and securing an emerging energy corridor linking Central Asia to Europe.
Russian tanks pushed into the separatist South Ossetia region, and Georgia said Russian warplanes bombed sites including the port of Poti and the western military base at Senaki. Georgian President Mikheil Saakashvili evacuated the presidential residence to a ``safe location'' and will reemerge to chair an emergency session of government officials, Kakha Lomaia, head of Georgia's Security Council, said by telephone after midnight in Tbilisi.
Georgia said 30 Georgians were killed in the violence and 70 were injured, while the Russian government said 1,300 people had died in South Ossetia due to Georgian military actions.
Russian President Dmitry Medvedev said the fighting was a response to Georgia's assault on Russian citizens and the peacekeepers Russia has had in the disputed region since the early 1990s. Saakashvili called it a ``well-planned invasion'' and appealed for international help. Russian Prime Minister Vladimir Putin said, ``War has started.''
The conflict ``absolutely'' dooms Georgia's chances for North Atlantic Treaty Organization membership, said Robert Hunter, U.S. ambassador to the Brussels-based alliance under President Bill Clinton and now a senior adviser at the policy- research group RAND Corp. in Washington. ``You don't bring in a country that has this sort of trouble.''
Rice Works Phone
As those hopes evaporated, Secretary of State Condoleezza Rice worked the phones with her Russian counterpart, Foreign Minister Sergei Lavrov, and planned to send an envoy to broker a cease-fire between the sides. President George W. Bush, attending the opening ceremonies of the Beijing Olympic Games yesterday, said the U.S. backed the ``territorial integrity'' of Georgia. The U.S. asked Russia to withdraw its combat forces.
The European Union joined efforts to stop the conflict, though help may not be as forthcoming as Saakashvili wants in part because of European dependence on Russian energy supplies.
``Countries like Germany and France were already resistant to the idea of giving a NATO security guarantee to a country with an open dispute with Russia,'' said Dominic Fean, a researcher at the French Institute of International Affairs in Paris. ``I can't see how they can get the consensus of 26 states anytime soon.''
Georgia's Ambassador to the U.S. Vasiil Sikharulidze told Bloomberg Television the conflict would make NATO entry for the country harder, ``but we are strongly convinced we have to continue this way and that we will be a NATO member.''
`Rose Revolution'
Saakashvili, a U.S.-educated lawyer, came to power in the 2003 ``Rose Revolution'' backed by the U.S. He vowed to bring South Ossetia and two other separatist regions under central control in a challenge to Russia.
South Ossetia has a population of about 70,000 and is connected to Russia's North Ossetia region by a tunnel through the Caucasus Mountains. Most South Ossetian residents hold Russian passports.
Georgia is a key link in a U.S.-backed ``southern energy corridor'' that connects the Caspian Sea region with world markets, bypassing Russia. The BP Plc-led Baku-Tbilisi-Ceyhan oil pipeline to Turkey runs about 100 kilometers (60 miles) south of the South Ossetian capital, Tskhinvali.
Gas Strategy
The U.S. seeks to connect Central Asia natural gas supplies with European markets, skirting Russia in an attempt to weaken the grip of Russia's state-run OAO Gazprom energy company. One planned pipeline route runs from the Georgia-Turkey border.
NATO in April committed itself to bringing Georgia into the alliance without providing a timeframe or a clear path toward membership -- as Bush had pushed for -- out of concern it would antagonize Russia. Putin has called the expansion of NATO toward Russian frontiers a ``direct threat'' and likened South Ossetia's drive for independence to Kosovo's from Serbia.
Sergei Mironov, a Putin ally who heads Russia's upper house of parliament, said the fighting is ``grounds'' to consider South Ossetia's appeal for international recognition, which cited Kosovo as a precedent, Interfax reported.
Russia hasn't recognized Kosovo since its declaration of independence.
Diplomatic efforts in the South Ossetia crisis were inconclusive late yesterday, raising the possibility that violence might spread, potentially rattling energy markets.
The ruble dropped the most against the dollar in 8 1/2 years and Russian stocks tumbled yesterday on concern the fighting would worsen.
``This could be a prolonged and bloody conflict with an unpredictable end,'' said Pavel Felgenhauer, an independent military analyst in Moscow.
NATO Role
While NATO Secretary General Jaap de Hoop Scheffer called on all sides to end fighting and hold direct talks, the alliance is staying out of the discussions.
``NATO hasn't got a direct role in the conflict in the Caucasus,'' spokeswoman Carmen Romero said in an interview. ``We don't have a mandate to negotiate or mediate.''
Republican presidential candidate John McCain and Democratic rival Barack Obama called on Russia and Georgia to halt hostilities and hold negotiations.
Hunter said flawed diplomacy was in part responsible for the clash. ``This is an issue that was allowed to get out of hand by people who haven't thought through what NATO membership really means, and on the Russian side doing too much muscle flexing over a country that is a pretty small place,'' he said.
To contact the reporters on this story: Bradley Cook in Moscow at bcook7@bloomberg.net; Janine Zacharia in Washington at jzacharia@bloomberg.net.
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Aug. 9 (Bloomberg) -- The armed conflict between Russia and Georgia deals a blow to U.S. aspirations of bringing the former Soviet republic into NATO's orbit and securing an emerging energy corridor linking Central Asia to Europe.
Russian tanks pushed into the separatist South Ossetia region, and Georgia said Russian warplanes bombed sites including the port of Poti and the western military base at Senaki. Georgian President Mikheil Saakashvili evacuated the presidential residence to a ``safe location'' and will reemerge to chair an emergency session of government officials, Kakha Lomaia, head of Georgia's Security Council, said by telephone after midnight in Tbilisi.
Georgia said 30 Georgians were killed in the violence and 70 were injured, while the Russian government said 1,300 people had died in South Ossetia due to Georgian military actions.
Russian President Dmitry Medvedev said the fighting was a response to Georgia's assault on Russian citizens and the peacekeepers Russia has had in the disputed region since the early 1990s. Saakashvili called it a ``well-planned invasion'' and appealed for international help. Russian Prime Minister Vladimir Putin said, ``War has started.''
The conflict ``absolutely'' dooms Georgia's chances for North Atlantic Treaty Organization membership, said Robert Hunter, U.S. ambassador to the Brussels-based alliance under President Bill Clinton and now a senior adviser at the policy- research group RAND Corp. in Washington. ``You don't bring in a country that has this sort of trouble.''
Rice Works Phone
As those hopes evaporated, Secretary of State Condoleezza Rice worked the phones with her Russian counterpart, Foreign Minister Sergei Lavrov, and planned to send an envoy to broker a cease-fire between the sides. President George W. Bush, attending the opening ceremonies of the Beijing Olympic Games yesterday, said the U.S. backed the ``territorial integrity'' of Georgia. The U.S. asked Russia to withdraw its combat forces.
The European Union joined efforts to stop the conflict, though help may not be as forthcoming as Saakashvili wants in part because of European dependence on Russian energy supplies.
``Countries like Germany and France were already resistant to the idea of giving a NATO security guarantee to a country with an open dispute with Russia,'' said Dominic Fean, a researcher at the French Institute of International Affairs in Paris. ``I can't see how they can get the consensus of 26 states anytime soon.''
Georgia's Ambassador to the U.S. Vasiil Sikharulidze told Bloomberg Television the conflict would make NATO entry for the country harder, ``but we are strongly convinced we have to continue this way and that we will be a NATO member.''
`Rose Revolution'
Saakashvili, a U.S.-educated lawyer, came to power in the 2003 ``Rose Revolution'' backed by the U.S. He vowed to bring South Ossetia and two other separatist regions under central control in a challenge to Russia.
South Ossetia has a population of about 70,000 and is connected to Russia's North Ossetia region by a tunnel through the Caucasus Mountains. Most South Ossetian residents hold Russian passports.
Georgia is a key link in a U.S.-backed ``southern energy corridor'' that connects the Caspian Sea region with world markets, bypassing Russia. The BP Plc-led Baku-Tbilisi-Ceyhan oil pipeline to Turkey runs about 100 kilometers (60 miles) south of the South Ossetian capital, Tskhinvali.
Gas Strategy
The U.S. seeks to connect Central Asia natural gas supplies with European markets, skirting Russia in an attempt to weaken the grip of Russia's state-run OAO Gazprom energy company. One planned pipeline route runs from the Georgia-Turkey border.
NATO in April committed itself to bringing Georgia into the alliance without providing a timeframe or a clear path toward membership -- as Bush had pushed for -- out of concern it would antagonize Russia. Putin has called the expansion of NATO toward Russian frontiers a ``direct threat'' and likened South Ossetia's drive for independence to Kosovo's from Serbia.
Sergei Mironov, a Putin ally who heads Russia's upper house of parliament, said the fighting is ``grounds'' to consider South Ossetia's appeal for international recognition, which cited Kosovo as a precedent, Interfax reported.
Russia hasn't recognized Kosovo since its declaration of independence.
Diplomatic efforts in the South Ossetia crisis were inconclusive late yesterday, raising the possibility that violence might spread, potentially rattling energy markets.
The ruble dropped the most against the dollar in 8 1/2 years and Russian stocks tumbled yesterday on concern the fighting would worsen.
``This could be a prolonged and bloody conflict with an unpredictable end,'' said Pavel Felgenhauer, an independent military analyst in Moscow.
NATO Role
While NATO Secretary General Jaap de Hoop Scheffer called on all sides to end fighting and hold direct talks, the alliance is staying out of the discussions.
``NATO hasn't got a direct role in the conflict in the Caucasus,'' spokeswoman Carmen Romero said in an interview. ``We don't have a mandate to negotiate or mediate.''
Republican presidential candidate John McCain and Democratic rival Barack Obama called on Russia and Georgia to halt hostilities and hold negotiations.
Hunter said flawed diplomacy was in part responsible for the clash. ``This is an issue that was allowed to get out of hand by people who haven't thought through what NATO membership really means, and on the Russian side doing too much muscle flexing over a country that is a pretty small place,'' he said.
To contact the reporters on this story: Bradley Cook in Moscow at bcook7@bloomberg.net; Janine Zacharia in Washington at jzacharia@bloomberg.net.
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Singapore Cuts GDP Forecast as Asian Nations Face Slower Growth
By Shamim Adam
Aug. 9 (Bloomberg) -- Singapore cut its 2008 growth forecast for a second time this year, joining its Asian neighbors in signaling a deeper slowdown.
The island's economy will expand between 4 percent and 5 percent, from an earlier estimate of 4 percent to 6 percent, Prime Minister Lee Hsien Loong said yesterday. Growth was 7.7 percent in 2007.
The U.S. housing recession has roiled financial markets and hurt demand for Asian-made goods, threatening expansion in a region the Asian Development Bank says will account for more than a fifth of global growth this year. Record commodity costs have forced central banks from Vietnam to Indonesia to raise interest rates at the risk of stifling expansion further.
``There is a much more subdued environment for the region in the third quarter,'' said Song Seng-Wun, an economist at CIMB-GK Securities Pte. in Singapore. ``Asia's factories will probably be less busy in the second half.''
The Singapore dollar fell the most in more than four years yesterday on concern slowing growth will prompt the central bank to favor a weaker currency. The benchmark stock index fell 1 percent to 2,807.54, its lowest close since March 17.
Governments from South Korea to Thailand have lowered their 2008 growth forecasts since the start of this year as the impact of the U.S. slowdown spreads and soaring oil and food prices hurt spending.
``The U.S. economy is still facing serious problems,'' Singapore's Premier Lee said in his National Day speech last night. ``U.S. consumers are spending less, and that is affecting the whole global economy. The difficulties will probably drag on well into next year before getting better.''
Global Recession
The world economy is ``precariously close'' to a recession in 2009, UBS AG said earlier this week as it cut next year's global growth forecast to 2.9 percent from 3.1 percent, citing a U.S. slowdown. UBS considers a 2.5 percent global growth rate as one that is consistent with a recession.
Japan's government this week said the world's second- biggest economy is ``weakening'' for the first time since 2001. Gross domestic product in Japan probably shrank an annualized 2.3 percent in the three months ended June 30, according to a Bloomberg News survey.
The country's exports fell for the first time in more than four years in June as growth in shipments to Asia and China slowed, signaling the U.S. slowdown is spreading to the emerging markets that helped sustain growth.
China, Korea
In China, economic growth slowed for a fourth straight quarter in the three months to June 30, expanding 10.1 percent. Growth below 9 percent would be ``unacceptable'' for a government targeting 10 million new jobs a year, Credit Suisse Group said this month.
South Korea's finance ministry on Aug. 7 said growth in Asia's fourth-largest economy is easing as consumer spending slows and higher fuel costs stoke inflation. An expansion of 4.8 percent last quarter was the weakest annual pace since the start of 2007.
Central banks across Asia have raised interest rates this year to combat inflation that's projected by the International Monetary Fund to be the fastest in nine years globally, further threatening economic growth.
The Bank of Korea raised its benchmark interest rate by a quarter percentage point this week to 5.25 percent, the highest in almost eight years. Thailand, Indonesia, Vietnam, India and the Philippines have all raised borrowing costs this year.
Still, weak growth may be a bigger challenge for economies than inflation, UBS chief economist Larry Hatheway said in a report on Aug. 6. ``Softer global economic activity for longer suggests peaking and then declining inflation,'' he said.
The U.S. Federal Reserve, the European Central Bank and the Bank of England this week left interest rates unchanged as slowing growth made them wary about raising borrowing costs.
Singapore's economy grew 1.9 percent in the second quarter from a year earlier, after expanding 6.9 percent the first three months. The government will release revised numbers on Aug. 11.
To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net
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Aug. 9 (Bloomberg) -- Singapore cut its 2008 growth forecast for a second time this year, joining its Asian neighbors in signaling a deeper slowdown.
The island's economy will expand between 4 percent and 5 percent, from an earlier estimate of 4 percent to 6 percent, Prime Minister Lee Hsien Loong said yesterday. Growth was 7.7 percent in 2007.
The U.S. housing recession has roiled financial markets and hurt demand for Asian-made goods, threatening expansion in a region the Asian Development Bank says will account for more than a fifth of global growth this year. Record commodity costs have forced central banks from Vietnam to Indonesia to raise interest rates at the risk of stifling expansion further.
``There is a much more subdued environment for the region in the third quarter,'' said Song Seng-Wun, an economist at CIMB-GK Securities Pte. in Singapore. ``Asia's factories will probably be less busy in the second half.''
The Singapore dollar fell the most in more than four years yesterday on concern slowing growth will prompt the central bank to favor a weaker currency. The benchmark stock index fell 1 percent to 2,807.54, its lowest close since March 17.
Governments from South Korea to Thailand have lowered their 2008 growth forecasts since the start of this year as the impact of the U.S. slowdown spreads and soaring oil and food prices hurt spending.
``The U.S. economy is still facing serious problems,'' Singapore's Premier Lee said in his National Day speech last night. ``U.S. consumers are spending less, and that is affecting the whole global economy. The difficulties will probably drag on well into next year before getting better.''
Global Recession
The world economy is ``precariously close'' to a recession in 2009, UBS AG said earlier this week as it cut next year's global growth forecast to 2.9 percent from 3.1 percent, citing a U.S. slowdown. UBS considers a 2.5 percent global growth rate as one that is consistent with a recession.
Japan's government this week said the world's second- biggest economy is ``weakening'' for the first time since 2001. Gross domestic product in Japan probably shrank an annualized 2.3 percent in the three months ended June 30, according to a Bloomberg News survey.
The country's exports fell for the first time in more than four years in June as growth in shipments to Asia and China slowed, signaling the U.S. slowdown is spreading to the emerging markets that helped sustain growth.
China, Korea
In China, economic growth slowed for a fourth straight quarter in the three months to June 30, expanding 10.1 percent. Growth below 9 percent would be ``unacceptable'' for a government targeting 10 million new jobs a year, Credit Suisse Group said this month.
South Korea's finance ministry on Aug. 7 said growth in Asia's fourth-largest economy is easing as consumer spending slows and higher fuel costs stoke inflation. An expansion of 4.8 percent last quarter was the weakest annual pace since the start of 2007.
Central banks across Asia have raised interest rates this year to combat inflation that's projected by the International Monetary Fund to be the fastest in nine years globally, further threatening economic growth.
The Bank of Korea raised its benchmark interest rate by a quarter percentage point this week to 5.25 percent, the highest in almost eight years. Thailand, Indonesia, Vietnam, India and the Philippines have all raised borrowing costs this year.
Still, weak growth may be a bigger challenge for economies than inflation, UBS chief economist Larry Hatheway said in a report on Aug. 6. ``Softer global economic activity for longer suggests peaking and then declining inflation,'' he said.
The U.S. Federal Reserve, the European Central Bank and the Bank of England this week left interest rates unchanged as slowing growth made them wary about raising borrowing costs.
Singapore's economy grew 1.9 percent in the second quarter from a year earlier, after expanding 6.9 percent the first three months. The government will release revised numbers on Aug. 11.
To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net
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Japanese Bonds Complete Weekly Gain on Interest-Rate Outlook
By Theresa Barraclough
Aug. 9 (Bloomberg) -- Japan's government bonds yesterday completed a weekly gain as signs that economic growth is slowing spurred traders to start betting the central bank will cut interest rates this year.
The odds yesterday were 5 percent for a rate cut by year- end from a 3 percent chance on Aug. 7 of an increase, according to calculations by JPMorgan Chase & Co. using swaps. The 10-year yield fell to the lowest in 3 1/2 months yesterday after the government on Aug. 7 said the world's second-largest economy is ``weakening'' for the first time since May 2001, when the country was in a recession.
``Over the past few days the rate hike expectation has receded and now the market is pricing in no move,'' said Tatsuo Ichikawa, a fixed-income strategist at ABN Amro Securities Japan Ltd. in Tokyo. ``This will support the market for the short term. The market is also biased toward the weak growth outlook.''
The yield on the 1.5 percent bond due June 2018 fell 3.5 basis points this week to 1.475 percent, according to Japan Bond Trading Co., the nation's largest interdealer debt broker. Five- year yields declined 6 basis points over the five days to 1.015 percent. A basis point is 0.01 percentage point.
Ten-year bond futures for September delivery rose 0.57 to 137.68 yesterday at the 3 p.m. close at the Tokyo Stock Exchange.
``The economy has been weakening recently,'' the Cabinet Office said in its monthly economic report in Tokyo on Aug. 7, downgrading its assessment for August. In July it had said ``the economic recovery appears to be pausing.''
Stalling Recovery
Economists estimate a government report next week will show Japan's economy shrank in the quarter ended June 30, bringing the country to the brink of its first recession in six years.
``The longest economic recovery period may be over and we have to face the reality,'' said Yuuki Sakurai, general manager of financial and investment planning in Tokyo at Fukoku Mutual Life Insurance Co., which manages the equivalent of $54 billion. Investors ought to buy bonds because ``it's not the time to take chances,'' Sakurai said.
Gross domestic product shrank an annualized 2.3 percent in the three months ended June 30, according to the median estimate of 26 economists surveyed by Bloomberg News. The Cabinet Office will release the report on Aug. 13.
Investors who ``have dollar- or euro-denominated bonds, may try to reduce holdings and put funds back into Japanese bonds,'' Sakurai said. Fukoku may add to its Japanese bond holdings, which account for more than 40 percent of assets, Sakurai said.
Net Sellers
Japanese investors were net sellers of foreign bonds in the week ended Aug. 1, according to Ministry of Finance data based on reports from designated major investors. Domestic investors sold a net 176 billion yen ($1.6 billion) in foreign debt, the largest net sale since June 13.
The gain in bonds was limited this week on speculation 10- year yields at the lowest in more than three months deterred investors such as life insurers from buying the securities.
``In terms of lifers' perspective, 10-year yields are definitely too low,'' said Keiko Onogi, a debt strategist in Tokyo at Daiwa Securities SMBC Co., one of the 26 primary dealers that bid at government debt sales. Investors will ``not buy aggressively from this level.''
Ten-year yields have fallen 42 basis points since reaching an 11-month high of 1.895 percent on June 16 on concern the economy is entering a recession.
Corporate Bonds
Demand for debt was boosted on speculation some investors are switching from riskier assets such as corporate bonds to government securities.
The cost of protecting Japanese corporate bonds from default yesterday rose to the highest in almost three weeks, according to traders of credit-default swaps.
The Markit iTraxx Japan index gained 4 basis points yesterday to 120, according to Morgan Stanley, which is the highest since July 22. The indexes are benchmarks for protecting bonds against default and traders use them to speculate on changes in credit quality. A basis point, or 0.01 percentage point, is worth $1,000 on a swap that protects $10 million of debt from default.
``Holding cash or bonds is the safest this year,'' said Fukoku's Sakurai. ``The most important thing is not to make a loss.''
To contact the reporter on this story: Theresa Barraclough in Osaka at tbarraclough@bloomberg.net.
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Aug. 9 (Bloomberg) -- Japan's government bonds yesterday completed a weekly gain as signs that economic growth is slowing spurred traders to start betting the central bank will cut interest rates this year.
The odds yesterday were 5 percent for a rate cut by year- end from a 3 percent chance on Aug. 7 of an increase, according to calculations by JPMorgan Chase & Co. using swaps. The 10-year yield fell to the lowest in 3 1/2 months yesterday after the government on Aug. 7 said the world's second-largest economy is ``weakening'' for the first time since May 2001, when the country was in a recession.
``Over the past few days the rate hike expectation has receded and now the market is pricing in no move,'' said Tatsuo Ichikawa, a fixed-income strategist at ABN Amro Securities Japan Ltd. in Tokyo. ``This will support the market for the short term. The market is also biased toward the weak growth outlook.''
The yield on the 1.5 percent bond due June 2018 fell 3.5 basis points this week to 1.475 percent, according to Japan Bond Trading Co., the nation's largest interdealer debt broker. Five- year yields declined 6 basis points over the five days to 1.015 percent. A basis point is 0.01 percentage point.
Ten-year bond futures for September delivery rose 0.57 to 137.68 yesterday at the 3 p.m. close at the Tokyo Stock Exchange.
``The economy has been weakening recently,'' the Cabinet Office said in its monthly economic report in Tokyo on Aug. 7, downgrading its assessment for August. In July it had said ``the economic recovery appears to be pausing.''
Stalling Recovery
Economists estimate a government report next week will show Japan's economy shrank in the quarter ended June 30, bringing the country to the brink of its first recession in six years.
``The longest economic recovery period may be over and we have to face the reality,'' said Yuuki Sakurai, general manager of financial and investment planning in Tokyo at Fukoku Mutual Life Insurance Co., which manages the equivalent of $54 billion. Investors ought to buy bonds because ``it's not the time to take chances,'' Sakurai said.
Gross domestic product shrank an annualized 2.3 percent in the three months ended June 30, according to the median estimate of 26 economists surveyed by Bloomberg News. The Cabinet Office will release the report on Aug. 13.
Investors who ``have dollar- or euro-denominated bonds, may try to reduce holdings and put funds back into Japanese bonds,'' Sakurai said. Fukoku may add to its Japanese bond holdings, which account for more than 40 percent of assets, Sakurai said.
Net Sellers
Japanese investors were net sellers of foreign bonds in the week ended Aug. 1, according to Ministry of Finance data based on reports from designated major investors. Domestic investors sold a net 176 billion yen ($1.6 billion) in foreign debt, the largest net sale since June 13.
The gain in bonds was limited this week on speculation 10- year yields at the lowest in more than three months deterred investors such as life insurers from buying the securities.
``In terms of lifers' perspective, 10-year yields are definitely too low,'' said Keiko Onogi, a debt strategist in Tokyo at Daiwa Securities SMBC Co., one of the 26 primary dealers that bid at government debt sales. Investors will ``not buy aggressively from this level.''
Ten-year yields have fallen 42 basis points since reaching an 11-month high of 1.895 percent on June 16 on concern the economy is entering a recession.
Corporate Bonds
Demand for debt was boosted on speculation some investors are switching from riskier assets such as corporate bonds to government securities.
The cost of protecting Japanese corporate bonds from default yesterday rose to the highest in almost three weeks, according to traders of credit-default swaps.
The Markit iTraxx Japan index gained 4 basis points yesterday to 120, according to Morgan Stanley, which is the highest since July 22. The indexes are benchmarks for protecting bonds against default and traders use them to speculate on changes in credit quality. A basis point, or 0.01 percentage point, is worth $1,000 on a swap that protects $10 million of debt from default.
``Holding cash or bonds is the safest this year,'' said Fukoku's Sakurai. ``The most important thing is not to make a loss.''
To contact the reporter on this story: Theresa Barraclough in Osaka at tbarraclough@bloomberg.net.
Read more...
Asian Stocks Fall for Second Week, Led by Commodity Producers
By Chua Kong Ho and Shani Raja
Aug. 9 (Bloomberg) -- Asian stocks fell for a second week, led by commodity producers, after prices of copper and oil declined on speculation slowing growth will curb demand.
BHP Billiton Ltd., the world's biggest mining company, dropped in Sydney. Mitsubishi UFJ Financial Group Inc. led Japanese banks lower after its profit declined and the government said the world's second-largest economy may be in a recession. Mitsui O.S.K. Lines Ltd. led shipping companies after a measure of marine freight fees slumped.
``Commodities prices have hit a choking point,'' said Nader Naeimi, a Sydney-based senior investment strategist at AMP Capital Investors, which manages about $108 billion. ``With further evidence of slowing growth there'll be ongoing pressure on mining and resources stocks.''
The MSCI Asia Pacific Index fell 2.7 percent to 127.11 this week, extending last week's 1.8 percent decline. Japan's Nikkei 225 Stock Average added 0.6 percent. Most other Asian markets declined.
China's CSI 300 Index retreated 8.8 percent, the biggest weekly decline since the five days ending June 13, on disappointment the government refrained from announcing measures to boost the market ahead of the Olympic Games, which began in Beijing yesterday.
MSCI's Asian gauge extended its decline this year to 19.4 percent, part of a rout that has erased more than $13 trillion from equities worldwide since October, as about $495 billion in writedowns and credit-related losses threaten to push the U.S. into recession.
Commodity Slump
BHP dropped 5 percent to A$37.15, while rival Rio Tinto Group lost 4.6 percent to A$116. Mitsui, which trades in commodities from energy to metals, declined 9.7 percent to 1,933 yen.
The Reuters/Jefferies CRB Index of 19 raw materials, including copper and oil, fell 6.9 percent this week, extending its biggest monthly loss in July since 1980. Oil fell 7.9 percent to settle at $115.20 a barrel, after reaching a record $147.27 a barrel on July 11.
Mitsubishi UFJ, Japan's largest bank by market value, dropped 9 percent to 845 yen, the biggest weekly decline this year, after posting a 66 percent drop in profit on rising costs related to bad loans. Sumitomo Mitsui Financial Group Inc., the second-largest Japanese bank, declined 10 percent to 702,000 yen, the most since the five days ended March 7.
Japan's Cabinet Office said on Aug. 7 the economy ``may be in a recession'' because of slower growth in the U.S. Bank lending stalled in Japan after accelerating for six months, the central bank said yesterday.
``There aren't many bullish companies left with the economic outlook so murky,'' said Naoteru Teraoka, who helps oversee $21 billion at Chuo Mitsui Asset Management Co. in Tokyo. ``We have yet to hit a real bottom.''
Mitsui O.S.K., the second-largest Japanese shipping company, dropped 12 percent to 1,200 yen. Nippon Yusen K.K., Japan's biggest shipping line, declined 7.9 percent to 845 yen. The Baltic Dry Index, a measure of commodity-shipping rates, dropped for a 20th day.
To contact the reporter for this story: Chua Kong Ho in Shanghai at kchua6@bloomberg.net; Shani Raja in Sydney at sraja4@bloomberg.net
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Aug. 9 (Bloomberg) -- Asian stocks fell for a second week, led by commodity producers, after prices of copper and oil declined on speculation slowing growth will curb demand.
BHP Billiton Ltd., the world's biggest mining company, dropped in Sydney. Mitsubishi UFJ Financial Group Inc. led Japanese banks lower after its profit declined and the government said the world's second-largest economy may be in a recession. Mitsui O.S.K. Lines Ltd. led shipping companies after a measure of marine freight fees slumped.
``Commodities prices have hit a choking point,'' said Nader Naeimi, a Sydney-based senior investment strategist at AMP Capital Investors, which manages about $108 billion. ``With further evidence of slowing growth there'll be ongoing pressure on mining and resources stocks.''
The MSCI Asia Pacific Index fell 2.7 percent to 127.11 this week, extending last week's 1.8 percent decline. Japan's Nikkei 225 Stock Average added 0.6 percent. Most other Asian markets declined.
China's CSI 300 Index retreated 8.8 percent, the biggest weekly decline since the five days ending June 13, on disappointment the government refrained from announcing measures to boost the market ahead of the Olympic Games, which began in Beijing yesterday.
MSCI's Asian gauge extended its decline this year to 19.4 percent, part of a rout that has erased more than $13 trillion from equities worldwide since October, as about $495 billion in writedowns and credit-related losses threaten to push the U.S. into recession.
Commodity Slump
BHP dropped 5 percent to A$37.15, while rival Rio Tinto Group lost 4.6 percent to A$116. Mitsui, which trades in commodities from energy to metals, declined 9.7 percent to 1,933 yen.
The Reuters/Jefferies CRB Index of 19 raw materials, including copper and oil, fell 6.9 percent this week, extending its biggest monthly loss in July since 1980. Oil fell 7.9 percent to settle at $115.20 a barrel, after reaching a record $147.27 a barrel on July 11.
Mitsubishi UFJ, Japan's largest bank by market value, dropped 9 percent to 845 yen, the biggest weekly decline this year, after posting a 66 percent drop in profit on rising costs related to bad loans. Sumitomo Mitsui Financial Group Inc., the second-largest Japanese bank, declined 10 percent to 702,000 yen, the most since the five days ended March 7.
Japan's Cabinet Office said on Aug. 7 the economy ``may be in a recession'' because of slower growth in the U.S. Bank lending stalled in Japan after accelerating for six months, the central bank said yesterday.
``There aren't many bullish companies left with the economic outlook so murky,'' said Naoteru Teraoka, who helps oversee $21 billion at Chuo Mitsui Asset Management Co. in Tokyo. ``We have yet to hit a real bottom.''
Mitsui O.S.K., the second-largest Japanese shipping company, dropped 12 percent to 1,200 yen. Nippon Yusen K.K., Japan's biggest shipping line, declined 7.9 percent to 845 yen. The Baltic Dry Index, a measure of commodity-shipping rates, dropped for a 20th day.
To contact the reporter for this story: Chua Kong Ho in Shanghai at kchua6@bloomberg.net; Shani Raja in Sydney at sraja4@bloomberg.net
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Dollar Surges on Further Signs of Economic Slowdown
| Daily Forex Fundamentals | Written by CMS Forex | Aug 08 08 22:27 GMT | | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| The greenback surged on short covering and further signs the US economic slowdown is spreading globally. The EUR/USD fell to a 5-month low, the AUD/USD was also at a 5-month low, the USD/CAD rose to a 12- month high and the GBP/USD was at its lowest point in 20 months. The USD/JPY reached the highest level since the beginning of 2008. The dollar index traded near 76 today, about 5 points above April's low and just below the resistance from the long-term downtrend that started in 2005. If this resistance is broken, the USD rally will continue. The EUR/USD broke the 1.54 support yesterday after the European Central Bank acknowledged risks to European economic growth. The pair fell the most in 8 years as stops were hit and traders bet the euro's interest rate advantage will diminish. Elevated US productivity growth and modest US labor-cost increase also pressured the pair. The EUR/USD is likely to test the 1.49 support. If it is broken, the next major support is the long-term uptrend at 1.45.
Financial and Economic News and CommentsUS & Canada US nonfarm productivity increased at a 2.2% annual rate in Q2, less than expected, after rising 2.6% in Q1, data from the Labor Department showed. Non-farm productivity rose 2.8% y/y. The productivity rise eases the Federal Reserve's pressures on balancing risks to both economic growth and inflation while holding interest rates low. US unit labor costs advanced at a 1.3% annual rate in Q2, up a modest 1.5% y/y, indicating the economic slowdown and slackening labor market are making it more difficult for workers to command higher wages. Real compensation, adjusted for inflation, fell at a 1.4% annual rate in Q2 but increased 0.1% y/y.
US wholesale inventories increased 1.1% m/m in June to a seasonally adjusted $435.85 billion, faster than forecast, after advancing an upwardly revised 0.9% m/m in May, data from the Commerce Department showed. Wholesale sales rose 2.8% m/m in June to a seasonally adjusted $411.23 billion, also more than forecast, following an upwardly revised 2.2% m/m increase in May. The inventory-to-sales ratio declined to 1.06, a new record low, compared with May's 1.08. Wholesale inventories gained 9.5% y/y, while wholesale sales rose 17% y/y. Canada unexpectedly lost 55,200 jobs, the most in 17 years in July, after a 5,000 drop in June, Statistics Canada reported. The unemployment rate fell to 6.1% in July from June's 6.2% as 74,100 people left the labor force.
Europe European Central Bank council member Nout Wellink said the eurozone economy "deteriorated pretty quickly in the second quarter" and economic growth "won't look that good." "It is not going very well, let me say that," Wellink, De Nederlandsche Bank President, told Dutch RTL television. "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." Growth in Q3 won't be great either, Wellink told Dutch television NOS in a separate interview, saying he hopes growth will pick up in Q4. The seasonally adjusted number of unemployed in Switzerland fell 110 to 99,819, the State Secretariat for Economic Affairs in Bern said. The Swiss unemployment rate was unchanged at 2.5%, the lowest level since 2002 for a sixth month. Asia-Pacific Japan's Economy Watchers index fell to 29.3, indicating sentiment among Japanese merchants in July dropped to the lowest level since October 2001, from 29.5 in June, the Cabinet Office said. The index of conditions in two to three months declined to 30.8 from June's 32.1. The gauges indicate further slowdown for the Japanese economy. FX Strategy Update
Hans Nilsson ©C2004-2005 Globicus International, Inc. and Capital Market Services, L.L.C. Any information in this report is based on data obtained from sources considered to be reliable, but no representations or guarantees are made by Capital Market Services, L.L.C. with regard to the accuracy of the data. The opinions and estimates contained herein constitute our best judgment at this date and time, and are subject to change without notice. Capital Market Services, L.L.C. accepts no responsibility or liability whatsoever for any expense, loss or damages arising out of, or in any way connected with, the use of all or any part of this report. No part of this report may be reproduced or distributed in any manner without the permission of Capital Market Services, L.L.C. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dollar Ends Week With a Bang, Surges vs Rivals Setting Multi-Month Highs
| Daily Forex Fundamentals | Written by CMS Forex | Aug 08 08 22:21 GMT | | |
|
EUR/USD - Euro Slides 300 Pips as 1.53 Barrier Breached
Dollar bulls were out in full force today. The Euro-Dollar pair plunged 300 pips from its global open, slicing through the 1.53 barrier, to test 1.50. Investors and traders reduced bets that the ECB will raise rates anytime soon, following yesterday's ECB meeting and statement. For the week, the Dollar is now up close to 600 pips, and today's jump was the largest in nearly 4 years. GBP/USD - Pound Sinks on Concerns over Recession, Down 280 Pips Friday
The Pound-Dollar pair also faced a steep sell off falling nearly 280 pips to test 1.9150. That's a 17-month low. Traders are seeing a UK economy teetering towards recession. Reports this week showed the UK housing sector faced large repossessions in the first half of the year and home prices slipped more than 8% compared to last year. CAN Canadian Economy Sheds 55K in July The Canadian labor market slowed significantly in July, shedding 55,200 jobs. That was a big surprise to forecasts, which expected some small positive growth. The unemployment rate improved however, to 6.1%, as a large number of workers, especially younger ones, are exiting the workforce. Most of the jobs lost were part-time and were clustered in manufacturing. USD/CAD - Greenback Highest in Almost a Year Against Loonie
The US Dollar-Canadian Dollar pair rallied around 150 pips to test the 1.07 area. It has had a clear breakout from its downward channel seen through most of June and July, and is at the highest level in almost a year. If the Canadian economy shows serious strains, the central bank may be compelled to lower rates. The outlook for interest rates, and the 2 week slide in oil and commodity prices, have all combined to make a perfect storm for Dollar strength. AUD/USD - Aussie Falls for 9th Day, Down 900 Pips in 3 Weeks
The Australian dollar fell for a ninth day, cracking below 0.90 in a 180 pip fall this session. The pair is now almost 900 pips lower than it was three weeks ago. The RBA on Tuesday said in their statement that they are ready to ease rates from their 12-year high. USD/JPY - Dollar Hits 110.35 vs Yen, Highest Since January
US stocks were up as well, with the Dow surging more than 200 points by 1 PM. Oil retreated as much as $4, falling to lows last seen in May. The Dollar-Yen pair extended its gains from earlier in the week to climb to 110.35, the highest it's been since the beginning of the year. Next Week Next week, fundamental data will focus on inflation, as the UK, US, and Euro-zone release CPI figures. Some other highlights will be retail sales from the US, trade data from Canada and the US, and Japanese GDP.
Capital Market Services, L.L.C. ©C2004-2005 Globicus International, Inc. and Capital Market Services, L.L.C. Any information in this report is based on data obtained from sources considered to be reliable, but no representations or guarantees are made by Capital Market Services, L.L.C. with regard to the accuracy of the data. The opinions and estimates contained herein constitute our best judgment at this date and time, and are subject to change without notice. Capital Market Services, L.L.C. accepts no responsibility or liability whatsoever for any expense, loss or damages arising out of, or in any way connected with, the use of all or any part of this report. No part of this report may be reproduced or distributed in any manner without the permission of Capital Market Services, L.L.C. | |
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Closing Market Recap: U.S. Dollar Skyrockets as Olympics Begin
News Recap | Written by CEP News | Aug 08 08 20:36 GMT |
(CEP News) - The U.S. dollar raced ahead in gold medal-fashion on Friday as the Beijing Summer Olympics began. The "U.S.A." chants from the forex market were virtually audible as investors rushed to get on the bandwagon in what some analysts were calling a watershed day for the long-suffering greenback.
"The US multi-year down trend is over. The process we described as 'carving out a bottom' has been completed. Recent days have been a watershed, but it has been a long time in the making," wrote Marc Chandler, global head of currency strategy at Brown Brothers Harriman in a note to clients.
The currency rally pushed down dollar-denominated commodities and that boosted U.S. equity markets. Rising stock markets gave investors another reason to buy U.S. dollars - something economists call a virtuous cycle.
The greenback posted its largest one-day gain against the euro in seven years as it surged to six-month high. The U.S. dollar also hit a 17-month high against the British pound and 11-month high against the Canadian dollar.
In Canada, a report showed the economy shed 55,000 jobs in July, shocking economists who believed the country had added 5,000 jobs. Markets responded by pricing in Bank of Canada interest rate cuts.
"After this morning's jobs report, it's safe to say that the boom in the Canadian labour market is over," said Dina Cover, economist at TD Securities.
There were some statistical anomalies that had economists scratching their heads. Even though it was the worst jobs report in 17 years, the unemployment rate ticked down to 6.1% as a large number of people - particularly youth - dropped out of the workforce.
The Canadian dollar fell 1.5 cents but currency strategists said the move in CAD/USD was predominantly a USD story. Even with the employment report, the loonie made gains on the euro, Australian dollar and Swiss franc.
Adam Fazio, currency strategist at CIBC World Markets, said markets are pricing in economic weakness around the globe.
"In the U.S., the credit crisis is well discounted by markets. The linkage between Canada and the U.S. is well-known and heavily discounted," he said.
Now, Fazio warns, investors are pricing in global interest rate cuts and bank failures as other countries experience the malaise the U.S. has been battling.
"It's kind of like the reality show, 'The Biggest Loser'," he said.
The powerful moves on Friday were the result of an extended period of range trading, Fazio said.
"A period of range trading is like a spring that coils tighter and tighter. This is what happens when key levels break," he said.
The Canadian dollar was down 0.0134 to 0.9377 against the U.S. dollar (1.0664 USD/CAD) and down 0.62 to 103.32 against the yen.
"The prospect for more U.S. dollar strength is very high on Monday," Fazio said.
The U.S. dollar was up 0.72 to 110.17 against the yen and the Dollar Index was up 1.286 to 75.833.
The pound sterling was down 0.0221 to 1.9218 against the U.S. dollar and up 0.0019 to 2.0491 against the Canadian dollar.
The euro was down 0.0299 to 1.5025 against the U.S. dollar, down 0.0113 to 1.6023 against the Canadian dollar, down 0.0065 to 0.7818 against the pound sterling and was lower by 2.18 to 165.52 against the yen.
Fazio said the appetite for dollars was fuelled by changing interest rate expectations. Economists say the Bank of Canada is firmly on the sidelines but that the bond market is betting on interest rate cuts by the end of the year.
Short-term fixed income rallied following the Canadian employment report. At the Montreal Exchange, the Sept. BAX contract was up 0.060 to 96.965, the Dec. contract up 0.040 to 97.240 and the Mar09 contract up 0.060 to 97.310 - all on some of the highest volumes in months. At those levels, the contracts are pricing in a 30% chance of a cut at the Sept. 3 Bank of Canada meeting and at least two cuts by the end of the year
Yields on two-year Canadian government bonds were down 5.5 bps to 2.72%, with five-year yields down 4.0 bps to 3.09%, 10-year yields down 3.6 bps to 3.61% and 30-year yields down 2.2 bps to 4.05%.
U.S. two-year yields were up 6.4 bps to 2.49%, with five-year yields up 4.7 bps to 3.19%, 10-year yields were up 0.8 bps to 3.93% and 30-year yields were down 1.8 bps to 4.54%. The Eurodollar March 09 contract was down 4.5 ticks to 96.92. The yield curve was flatter, with the 10/2-year spread down 6.1 bps to 141.80 bps.
In Germany, returns on two-year German bonds were down 3.5 bps to 4.06%, with five-year yields down 1.8 bps to 4.07%, 10-year yields flat at 4.26% and 30-year yields up 2.7 bps to 4.69%.
Yields on UK two-year bonds were up 2.7 bps to 4.67%, with five-year yields up 1.1 bps to 4.62%, 10-year yields flat at 4.68% and 30-year yields up 0.6 bps to 4.45%.
Energy markets were a big story, as crude closed at its lowest since May 1 and were largely responsible for a surge in U.S. stocks and some softness in Canada. WTI crude oil was down $5.02 to $115.00. The front month gold contract at the Chicago Board of Trade was down $13.50 to $864.40 per ounce.
Toronto's S&P/TSX composite index closed down 43 points to 13342, the Dow Jones industrial average up 303 points to 11734, the S&P 500 up 30 points to 1296 and the Nasdaq up 58 points to 2414.
European stock markets closed in positive territory with the Eurostoxx up 17 points to 2928, the UK FTSE 100 up 12 points to 5489 and the German DAX up 18 points to 6562.
The focus in the week ahead will continue to be on worldwide growth but the U.S. will also be in the spotlight. Market watchers will have a chance to gauge how steep home price declines are affecting the American consumer as retail sales figures are released on Wednesday. The Reuters/University of Michigan survey of consumer sentiment will also be released on Friday.
All data taken at 4:20 p.m. EDT.
By Adam Button, abutton@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it , edited by Stephen Huebl, shuebl@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it
CEP Newswires - CEP News © 2008. All Rights Reserved. www.economicnews.ca
The Copying, Broadcast, Republication or Redistribution of CEP News Content is Expressly Prohibited Without the Prior Written Consent of CEP News.
A copy of CEP News disclaimer can be found at http://www.economicnews.ca/cepnews/wire/disclaimer.
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(CEP News) - The U.S. dollar raced ahead in gold medal-fashion on Friday as the Beijing Summer Olympics began. The "U.S.A." chants from the forex market were virtually audible as investors rushed to get on the bandwagon in what some analysts were calling a watershed day for the long-suffering greenback.
"The US multi-year down trend is over. The process we described as 'carving out a bottom' has been completed. Recent days have been a watershed, but it has been a long time in the making," wrote Marc Chandler, global head of currency strategy at Brown Brothers Harriman in a note to clients.
The currency rally pushed down dollar-denominated commodities and that boosted U.S. equity markets. Rising stock markets gave investors another reason to buy U.S. dollars - something economists call a virtuous cycle.
The greenback posted its largest one-day gain against the euro in seven years as it surged to six-month high. The U.S. dollar also hit a 17-month high against the British pound and 11-month high against the Canadian dollar.
In Canada, a report showed the economy shed 55,000 jobs in July, shocking economists who believed the country had added 5,000 jobs. Markets responded by pricing in Bank of Canada interest rate cuts.
"After this morning's jobs report, it's safe to say that the boom in the Canadian labour market is over," said Dina Cover, economist at TD Securities.
There were some statistical anomalies that had economists scratching their heads. Even though it was the worst jobs report in 17 years, the unemployment rate ticked down to 6.1% as a large number of people - particularly youth - dropped out of the workforce.
The Canadian dollar fell 1.5 cents but currency strategists said the move in CAD/USD was predominantly a USD story. Even with the employment report, the loonie made gains on the euro, Australian dollar and Swiss franc.
Adam Fazio, currency strategist at CIBC World Markets, said markets are pricing in economic weakness around the globe.
"In the U.S., the credit crisis is well discounted by markets. The linkage between Canada and the U.S. is well-known and heavily discounted," he said.
Now, Fazio warns, investors are pricing in global interest rate cuts and bank failures as other countries experience the malaise the U.S. has been battling.
"It's kind of like the reality show, 'The Biggest Loser'," he said.
The powerful moves on Friday were the result of an extended period of range trading, Fazio said.
"A period of range trading is like a spring that coils tighter and tighter. This is what happens when key levels break," he said.
The Canadian dollar was down 0.0134 to 0.9377 against the U.S. dollar (1.0664 USD/CAD) and down 0.62 to 103.32 against the yen.
"The prospect for more U.S. dollar strength is very high on Monday," Fazio said.
The U.S. dollar was up 0.72 to 110.17 against the yen and the Dollar Index was up 1.286 to 75.833.
The pound sterling was down 0.0221 to 1.9218 against the U.S. dollar and up 0.0019 to 2.0491 against the Canadian dollar.
The euro was down 0.0299 to 1.5025 against the U.S. dollar, down 0.0113 to 1.6023 against the Canadian dollar, down 0.0065 to 0.7818 against the pound sterling and was lower by 2.18 to 165.52 against the yen.
Fazio said the appetite for dollars was fuelled by changing interest rate expectations. Economists say the Bank of Canada is firmly on the sidelines but that the bond market is betting on interest rate cuts by the end of the year.
Short-term fixed income rallied following the Canadian employment report. At the Montreal Exchange, the Sept. BAX contract was up 0.060 to 96.965, the Dec. contract up 0.040 to 97.240 and the Mar09 contract up 0.060 to 97.310 - all on some of the highest volumes in months. At those levels, the contracts are pricing in a 30% chance of a cut at the Sept. 3 Bank of Canada meeting and at least two cuts by the end of the year
Yields on two-year Canadian government bonds were down 5.5 bps to 2.72%, with five-year yields down 4.0 bps to 3.09%, 10-year yields down 3.6 bps to 3.61% and 30-year yields down 2.2 bps to 4.05%.
U.S. two-year yields were up 6.4 bps to 2.49%, with five-year yields up 4.7 bps to 3.19%, 10-year yields were up 0.8 bps to 3.93% and 30-year yields were down 1.8 bps to 4.54%. The Eurodollar March 09 contract was down 4.5 ticks to 96.92. The yield curve was flatter, with the 10/2-year spread down 6.1 bps to 141.80 bps.
In Germany, returns on two-year German bonds were down 3.5 bps to 4.06%, with five-year yields down 1.8 bps to 4.07%, 10-year yields flat at 4.26% and 30-year yields up 2.7 bps to 4.69%.
Yields on UK two-year bonds were up 2.7 bps to 4.67%, with five-year yields up 1.1 bps to 4.62%, 10-year yields flat at 4.68% and 30-year yields up 0.6 bps to 4.45%.
Energy markets were a big story, as crude closed at its lowest since May 1 and were largely responsible for a surge in U.S. stocks and some softness in Canada. WTI crude oil was down $5.02 to $115.00. The front month gold contract at the Chicago Board of Trade was down $13.50 to $864.40 per ounce.
Toronto's S&P/TSX composite index closed down 43 points to 13342, the Dow Jones industrial average up 303 points to 11734, the S&P 500 up 30 points to 1296 and the Nasdaq up 58 points to 2414.
European stock markets closed in positive territory with the Eurostoxx up 17 points to 2928, the UK FTSE 100 up 12 points to 5489 and the German DAX up 18 points to 6562.
The focus in the week ahead will continue to be on worldwide growth but the U.S. will also be in the spotlight. Market watchers will have a chance to gauge how steep home price declines are affecting the American consumer as retail sales figures are released on Wednesday. The Reuters/University of Michigan survey of consumer sentiment will also be released on Friday.
All data taken at 4:20 p.m. EDT.
By Adam Button, abutton@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it , edited by Stephen Huebl, shuebl@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it
CEP Newswires - CEP News © 2008. All Rights Reserved. www.economicnews.ca
The Copying, Broadcast, Republication or Redistribution of CEP News Content is Expressly Prohibited Without the Prior Written Consent of CEP News.
A copy of CEP News disclaimer can be found at http://www.economicnews.ca/cepnews/wire/disclaimer.
Read more...
Equity Markets Rally Behind Dollar Strength
Daily Forex Fundamentals | Written by AC-Markets | Aug 08 08 22:29 GMT |
The Usd finished stronger against most of the G10 in the late US session. The EurUsd suffered additional losses trading testing 1.50 as a current support level, while UsdJpy maintained its current level of 110 on the aggressive shift in market sentiment. The GbpUSd declined sharply, trading through our previous projection of 1.93 to 1.92 on weak economic conditions. Commodity prices continued this week’s slide to the downside, with oil retracing back to levels we saw back in April indicating that new support may be found at 110. If energy prices remain contained, this will provide further room for the dollar to appreciate. Bonds continued to sell off across the curve on increasing risk appetite, the 2yr yield in particular increased 7bps. Currency Traders are looking for the ECB not to raise rates next meeting, signifying a move towards a softening monetary policy. As most of the G10 braces for a down cycle, the Usd may have reached a floor, nevertheless we should look for a consistent chain of positive economic data before we position ourselves for an extended rally into the end of the year.
AC Markets
http://www.ac-markets.com
Disclaimer: This report has been prepared by AC Markets (thereof ACM) and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by Salesperson or Traders of ACM at any given time. ACM is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment.
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The Usd finished stronger against most of the G10 in the late US session. The EurUsd suffered additional losses trading testing 1.50 as a current support level, while UsdJpy maintained its current level of 110 on the aggressive shift in market sentiment. The GbpUSd declined sharply, trading through our previous projection of 1.93 to 1.92 on weak economic conditions. Commodity prices continued this week’s slide to the downside, with oil retracing back to levels we saw back in April indicating that new support may be found at 110. If energy prices remain contained, this will provide further room for the dollar to appreciate. Bonds continued to sell off across the curve on increasing risk appetite, the 2yr yield in particular increased 7bps. Currency Traders are looking for the ECB not to raise rates next meeting, signifying a move towards a softening monetary policy. As most of the G10 braces for a down cycle, the Usd may have reached a floor, nevertheless we should look for a consistent chain of positive economic data before we position ourselves for an extended rally into the end of the year.
AC Markets
http://www.ac-markets.com
Disclaimer: This report has been prepared by AC Markets (thereof ACM) and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by Salesperson or Traders of ACM at any given time. ACM is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment.
Read more...
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