By Lisa Baertlein
LOS ANGELES (Reuters) - Candy maker Hershey Co (HSY.N: Quote, Profile, Research, Stock Buzz) said on Friday it was raising U.S. prices by roughly 10 percent and warned that the higher cost of ingredients such as cocoa, corn sweetener, sugar and peanuts would weigh on profits.
The maker of Hershey chocolate bars and other sweets said its 2008 profit would be at the low end of its forecast range and cut sales and earnings growth projections for 2009, sending its shares down more than 4 percent.
Food makers across the board have been raising prices as commodity costs climb. For the first seven months of this year, U.S. consumers have seen grocery store prices rise nearly 6 percent.
Hershey's price increase is effective immediately and should help offset rising commodity costs, which the company expects will more than double from 2008 to 2009.
"The size of the price increase is the real surprise," Wachovia analyst Jonathan Feeney said in a client note.
Feeney said the confection industry historically has been recession resistant.
"We continue to think the disappointments are a product of under-investment," he said.
SUGAR HIGH
Hershey said prices for ingredients such as cocoa, corn sweeteners, sugar and peanuts are up by between 20 percent and 45 percent since the beginning of the year.
"Commodity costs have been volatile over the last several years and continue to remain at levels that are well above historical averages," Hershey Chief Executive David West said.
Citing current economic and market conditions, Hershey said it expects 2008 earnings per share to be "toward the lower end" of its previously forecast range of $1.85 to $1.90 per share. Hershey sees 2008 net sales growth of 3 percent to 4 percent.
"Consumers are likely to see higher every day and promotional retail prices as we implement the price increase and, as a result, we expect volume in the fourth quarter and next year to be lower than previously estimated," Hershey said in a statement.
The company lowered its 2009 net sales growth projection to 2 percent to 3 percent, versus its previous call for growth of 3 percent to 5 percent.
"Therefore, we continue to expect that earnings per share-diluted from operations in 2009 will increase, however, at a rate below our long-term objective of 6 percent to 8 percent growth," the company said.
Shares in Hershey closed at $41.62 on the New York Stock Exchange and fell to $39.76 in extended trade.
(Editing by Braden Reddall)
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Saturday, August 16, 2008
Dominican president begins new term under pressure
By Manuel Jimenez
SANTO DOMINGO, Aug 16 (Reuters) - President Leonel Fernandez will be sworn in for a third term on Saturday, facing mounting pressure to steer the Dominican Republic clear of a deep economic slump threatening much of the Caribbean.
Analysts say Fernandez's deft handling of the economy, and his ability to pull it out of the severe crisis he inherited in 2004, were key to the victory of the New York-raised lawyer and academic in his re-election in May.
But Fernandez has since been coping with fallout from the stumbling U.S. economy and high global oil and food prices.
As a result, economic growth is expected to slow sharply this year as the import-dependent country is buffeted by problems including the soaring cost of energy subsidies, budget strains and a return to double-digit inflation.
A drop in remittances from the United States, which is home to most of the Dominicans sending money back from abroad, is another problem undermining the domestic economy.
"I think his honeymoon is likely to be short. I think it's probably over," said Dan Erikson, a Caribbean expert at the Inter-American Dialogue policy group in Washington.
"I think this is going to be a real difficult period for Fernandez to navigate."
The Dominican Republic is far wealthier than Haiti, its poor neighbor on the island of Hispaniola. But many Dominicans struggle to satisfy basic needs despite a tourism and real estate boom.
PACT TO ADDRESS POVERTY
Fernandez and his centrist Dominican Liberation Party vowed on the campaign trail to come up with a "social pact" to address poverty and expand government programs if he won re-election, Recently announced fiscal belt-tightening measures, including controls on spending, don't augur well for poverty reduction, however.
"It limits your capacity to act if you go from buying oil at $60 per barrel on average to buying it at $110 per barrel," Deputy Planning Minister Guarocuya Felix told Reuters.
"You might have been able to use that difference to finance social needs ... It affects people's well-being," he said.
Fernandez inherited a crumbling economy in 2004 when he became president for the second time. The collapse of a major bank in 2003 had sent inflation soaring, plunging the government deep into the red and provoking a sharp economic recession.
Fernandez managed to turn things around with the help of loans from the International Monetary Fund. This time, however, the country's problems stem largely from external conditions that are outside his control.
"This is something that has affected the Caribbean as a whole," said Erikson. "Most of these countries are net importers and net fuel importers."
Fernandez, 54, was first president from 1996 to 2000 before winning office again in 2004. (Writing by Tom Brown; Editing by Michael Christie and Cynthia Osterman)
Read more...
SANTO DOMINGO, Aug 16 (Reuters) - President Leonel Fernandez will be sworn in for a third term on Saturday, facing mounting pressure to steer the Dominican Republic clear of a deep economic slump threatening much of the Caribbean.
Analysts say Fernandez's deft handling of the economy, and his ability to pull it out of the severe crisis he inherited in 2004, were key to the victory of the New York-raised lawyer and academic in his re-election in May.
But Fernandez has since been coping with fallout from the stumbling U.S. economy and high global oil and food prices.
As a result, economic growth is expected to slow sharply this year as the import-dependent country is buffeted by problems including the soaring cost of energy subsidies, budget strains and a return to double-digit inflation.
A drop in remittances from the United States, which is home to most of the Dominicans sending money back from abroad, is another problem undermining the domestic economy.
"I think his honeymoon is likely to be short. I think it's probably over," said Dan Erikson, a Caribbean expert at the Inter-American Dialogue policy group in Washington.
"I think this is going to be a real difficult period for Fernandez to navigate."
The Dominican Republic is far wealthier than Haiti, its poor neighbor on the island of Hispaniola. But many Dominicans struggle to satisfy basic needs despite a tourism and real estate boom.
PACT TO ADDRESS POVERTY
Fernandez and his centrist Dominican Liberation Party vowed on the campaign trail to come up with a "social pact" to address poverty and expand government programs if he won re-election, Recently announced fiscal belt-tightening measures, including controls on spending, don't augur well for poverty reduction, however.
"It limits your capacity to act if you go from buying oil at $60 per barrel on average to buying it at $110 per barrel," Deputy Planning Minister Guarocuya Felix told Reuters.
"You might have been able to use that difference to finance social needs ... It affects people's well-being," he said.
Fernandez inherited a crumbling economy in 2004 when he became president for the second time. The collapse of a major bank in 2003 had sent inflation soaring, plunging the government deep into the red and provoking a sharp economic recession.
Fernandez managed to turn things around with the help of loans from the International Monetary Fund. This time, however, the country's problems stem largely from external conditions that are outside his control.
"This is something that has affected the Caribbean as a whole," said Erikson. "Most of these countries are net importers and net fuel importers."
Fernandez, 54, was first president from 1996 to 2000 before winning office again in 2004. (Writing by Tom Brown; Editing by Michael Christie and Cynthia Osterman)
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Kuwait says China refinery to cost up to $9 bln-agency
KUWAIT, Aug 16 (Reuters) - A planned refinery joint venture in southern China between state-owned Kuwait Petroleum Corp (KPC) and Sinopec Corp 60028.SS is expected to cost up to $4 billion above initial estimates, state news agency KUNA cited KPC's head as saying.
The Kuwait-Chinese refinery and petrochemical project is expected to cost between $8 billion to $9 billion, Saad al-Shuwaib, Chief Executive of KPC told Chinese magazine Finance and Economy, KUNA reported late on Friday.
The project, which had been estimated to have a $5 billion price tag, got the approval of China's National Development and Reform Commission, Shuwaib told the magazine.
KPC and Sinopec, Asia's top refiner, received preliminary government approval for the Guangdong plant in 2006, but negotiations for major projects in the sensitive energy sector can sometimes drag on for years.
The refinery will be designed to process 100 percent Kuwaiti crude supplied by KPC, with a capacity of 15 million tons per year, or 300,000 barrels per day (bpd), said KUNA.
KPC has said it aims to become one of China's top five crude suppliers within three years and in 2008 alone will boost imports to 115,000 barrels per day from 88,000 bpd last year.
By 2015, KPC expects to supply between 500,000 and 700,000 barrels per day of crude to the Nansha plant and a second one in Quanzhou owned by a smaller firm, Sinochem (600500.SS: Quote, Profile, Research, Stock Buzz), an executive from the firm's overseas arm said in June.
Exxon Mobil (XOM.N: Quote, Profile, Research, Stock Buzz) and Saudi Aramco are also building a $5 billion refinery in Fujian province to help meet China's fast-growing demand for oil.
(Reporting by Rania El Gamal; editing by Gerrard Raven)
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The Kuwait-Chinese refinery and petrochemical project is expected to cost between $8 billion to $9 billion, Saad al-Shuwaib, Chief Executive of KPC told Chinese magazine Finance and Economy, KUNA reported late on Friday.
The project, which had been estimated to have a $5 billion price tag, got the approval of China's National Development and Reform Commission, Shuwaib told the magazine.
KPC and Sinopec, Asia's top refiner, received preliminary government approval for the Guangdong plant in 2006, but negotiations for major projects in the sensitive energy sector can sometimes drag on for years.
The refinery will be designed to process 100 percent Kuwaiti crude supplied by KPC, with a capacity of 15 million tons per year, or 300,000 barrels per day (bpd), said KUNA.
KPC has said it aims to become one of China's top five crude suppliers within three years and in 2008 alone will boost imports to 115,000 barrels per day from 88,000 bpd last year.
By 2015, KPC expects to supply between 500,000 and 700,000 barrels per day of crude to the Nansha plant and a second one in Quanzhou owned by a smaller firm, Sinochem (600500.SS: Quote, Profile, Research, Stock Buzz), an executive from the firm's overseas arm said in June.
Exxon Mobil (XOM.N: Quote, Profile, Research, Stock Buzz) and Saudi Aramco are also building a $5 billion refinery in Fujian province to help meet China's fast-growing demand for oil.
(Reporting by Rania El Gamal; editing by Gerrard Raven)
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FACTBOX-Dominican president starts new term
Aug 16 (Reuters) - The Dominican Republic swears in President Leonel Fernandez for a second consecutive term in office -- and his third term in total -- on Saturday, as the country faces deepening economic challenges.
Here are some facts about the Dominican Republic.
*POPULATION: 9.5 million. Ethnically mostly a mixture of European and African origin
*LANGUAGE: Spanish
*RELIGION: 95 percent Roman Catholic
*CAPITAL: Santo Domingo, population 2.25 million
*GEOGRAPHY: 18,800 square miles (48,700 square km) forming the eastern two-thirds of the island of Hispaniola, which it shares with Haiti
*GOVERNMENT: Constitutional republic with a president and a bicameral legislature, both of which serve four-year terms.
*ARMED FORCES: Army has 20,000 active-duty personnel. Air Force operates two main bases. Navy operates two major bases and maintains 12 operational vessels
*ECONOMY: The Dominican Republic has long been mainly an exporter of sugar, coffee, and tobacco, but services, such as tourism, have overtaken agriculture as the largest employer. Its economy is heavily dependent on the United States, the destination of nearly three-quarters of its exports. And remittances from Dominicans living abroad -- most in the United States -- represent about 10 percent of gross domestic product, equivalent to nearly half of exports and three-quarters of tourism receipts
*HISTORY: Hispaniola was explored and claimed by Christopher Columbus on his first voyage in 1492. The section of the island that became the Dominican Republic finally gained independence from Spain in 1865. The United States occupied the country from 1916 until 1924, when an elected government took over. It was overthrown by Gen. Rafael Trujillo, who ruled with a brutal hand until his assassination in 1961.
Leftist Juan Bosch was elected in December 1962 but was overthrown in a coup the following September. In 1965, civil war broke out. In April 1965, the United States intervened.
In 1966, former president, Joaquin Balaguer, a Trujillo associate, was re-elected. He won again in 1970 and 1974 but lost in 1978. Authoritarian and paternalistic, Balaguer became the dominant figure in Dominican politics to the end of the century.
Allegations of fraud after his 1994 election victory pressured Balaguer to agree to a shortened term. He was unable to run when new elections were conducted in 1996, but his backing helped Fernandez to his first win. Sources: Reuters/Central Intelligence Agency World Factbook/U.S. State Department/World Bank (Writing by Paul Grant, Washington Editorial Reference Unit; Editing by Michael Christie)
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Here are some facts about the Dominican Republic.
*POPULATION: 9.5 million. Ethnically mostly a mixture of European and African origin
*LANGUAGE: Spanish
*RELIGION: 95 percent Roman Catholic
*CAPITAL: Santo Domingo, population 2.25 million
*GEOGRAPHY: 18,800 square miles (48,700 square km) forming the eastern two-thirds of the island of Hispaniola, which it shares with Haiti
*GOVERNMENT: Constitutional republic with a president and a bicameral legislature, both of which serve four-year terms.
*ARMED FORCES: Army has 20,000 active-duty personnel. Air Force operates two main bases. Navy operates two major bases and maintains 12 operational vessels
*ECONOMY: The Dominican Republic has long been mainly an exporter of sugar, coffee, and tobacco, but services, such as tourism, have overtaken agriculture as the largest employer. Its economy is heavily dependent on the United States, the destination of nearly three-quarters of its exports. And remittances from Dominicans living abroad -- most in the United States -- represent about 10 percent of gross domestic product, equivalent to nearly half of exports and three-quarters of tourism receipts
*HISTORY: Hispaniola was explored and claimed by Christopher Columbus on his first voyage in 1492. The section of the island that became the Dominican Republic finally gained independence from Spain in 1865. The United States occupied the country from 1916 until 1924, when an elected government took over. It was overthrown by Gen. Rafael Trujillo, who ruled with a brutal hand until his assassination in 1961.
Leftist Juan Bosch was elected in December 1962 but was overthrown in a coup the following September. In 1965, civil war broke out. In April 1965, the United States intervened.
In 1966, former president, Joaquin Balaguer, a Trujillo associate, was re-elected. He won again in 1970 and 1974 but lost in 1978. Authoritarian and paternalistic, Balaguer became the dominant figure in Dominican politics to the end of the century.
Allegations of fraud after his 1994 election victory pressured Balaguer to agree to a shortened term. He was unable to run when new elections were conducted in 1996, but his backing helped Fernandez to his first win. Sources: Reuters/Central Intelligence Agency World Factbook/U.S. State Department/World Bank (Writing by Paul Grant, Washington Editorial Reference Unit; Editing by Michael Christie)
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U.S. Stocks Gain a Third Week as Oil's Retreat Boosts Retailers
By Elizabeth Stanton
Aug. 16 (Bloomberg) -- U.S. stocks rose for the third straight week after oil's retreat and better-than-estimated results from J.C. Penney Co. and Kohl's Corp. lifted consumer shares.
J.C. Penney, Kohl's and Dillard's Inc. led a measure of retailers in the Standard & Poor's 500 Index to the highest level since June 5. The gauge gained 4.8 percent as crude oil slumped 1.2 percent to $113.77 a barrel in New York. The S&P 500's rally was limited after analysts cut profit estimates for banks and brokerage firms and lower fuel prices hurt energy producers.
The S&P 500 climbed 0.2 percent to 1,298.20, extending its rebound from a 2 1/2-year low on July 15 to 6.9 percent. The Dow Jones Industrial Average decreased 0.6 percent to 11,659.90.
``When we had oil in the $140's, the red lights were flashing,'' said Patrick Becker Jr., chief investment officer at Becker Capital Management in Portland, Oregon. ``The red lights stopped flashing.''
The S&P 500 is still down 12 percent this year, a retreat led by financial companies as losses stemming from the collapse of the U.S. housing market surpassed $500 billion. All 10 industries in the benchmark index for U.S. equities have fallen. Crude oil's 23 percent retreat since a July record of $147.27 a barrel has driven a four-week rebound in U.S. stocks.
Retailers in the S&P 500 added 1.8 percent as a group. J.C. Penney gained the most, rising 12 percent to $39.94, after the third-largest U.S. department-store chain reported more profit than analysts estimated. Kohl's, the No. 4 chain, climbed 11 percent to $51.79 as it beat forecasts by 5.1 percent. Dillard's climbed 10 percent to $11.95.
Home Improvement Retailers
Home Depot Inc. rose 4.4 percent to a two-month high of $27.53. Lowe's Cos., the second-largest home-improvement retailer behind Home Depot, added 7.6 percent to $24.50.
Home Depot and Hewlett-Packard Co., the biggest personal- computer maker, are scheduled to release second-quarter results on Aug. 19, the last of the 30 companies in the Dow average to do so. Lowe's reports on Aug. 18. Second-quarter profits at the 473 companies in the S&P 500 that have posted results were 24 percent lower than a year earlier, according to data compiled by Bloomberg. Excluding financials, whose profits tumbled 94 percent, earnings rose 4.2 percent.
Financial institutions in the S&P 500 fell 2.8 percent this week, the most among 10 industries. Goldman Sachs Group Inc., Morgan Stanley and Lehman Brothers Holdings Inc. retreated. Analysts including Oppenheimer & Co.'s Meredith Whitney and Deutsche Bank AG's Mike Mayo cut profit estimates and predicted more writedowns on mortgage-related bonds. Merrill Lynch & Co.'s Guy Moszkowski downgraded Goldman, Morgan Stanley and Lehman.
`Deteriorated Significantly'
Industry conditions ``have deteriorated significantly from July,'' Moszkowski wrote in an Aug. 13 report.
Goldman lost 7.3 percent to $163.18, Morgan Stanley slipped 9.2 percent to $40.88 and Lehman fell 13 percent to $16.17.
JPMorgan Chase & Co. retreated 7.3 percent to $38.07. The second-biggest U.S. bank said it's had losses of $1.5 billion on mortgage-backed assets so far this quarter as the housing slump deepened amid turmoil in credit markets. Trading conditions ``have substantially deteriorated'' since July, and ``sharply widened'' spreads on mortgage-backed securities and loans caused losses, JPMorgan said.
Energy companies in the S&P 500 fell 0.8 percent, giving the group a 20 percent retreat since the record set in May. Schlumberger Ltd., the world's biggest oilfield contractor, slumped 0.9 percent to a four-month low of $91.47. ConocoPhillips, the second-largest U.S. refiner, slid 4 percent to $77.66, the lowest since March 31. Exxon Mobil Corp., the biggest oil company, dropped 2.1 percent to $77.07.
Collateral Obligations
Constellation Energy Group Inc. fell 15 percent to $63.14 for the biggest decline in the S&P 500. The biggest U.S. power marketer increased its estimated collateral obligations should it lose its investment-grade credit rating.
The cost of using options as insurance against losses in the S&P 500 declined for a fifth straight week. The VIX, as the Chicago Board Options Exchange Volatility Index is known, fell 5.2 percent to 19.58, the lowest since June 5.
MBIA Inc. rose the most in the S&P 500, climbing 31 percent to $11.22, the highest since May 6. The largest bond insurance company had its AA credit rating affirmed by Standard & Poor's, which ended its review of the company's capital levels. MBIA shares tumbled from a peak of $73.31 in December 2006 as it posted losses related to its guarantees of mortgage bonds and derivatives.
Ambac Financial Group Inc., the second-largest bond insurer, rose 31 percent to $5.68.
Stock Buyback
Nvidia Corp. rose 18 percent to $12.96 for the second- biggest advance in the S&P 500. The maker of computer-graphics chips Aug. 13 expanded its stock-buyback plan to cover almost half the shares outstanding.
General Motors Corp. climbed 11 percent to $11.18. The largest U.S. automaker, seeking to speed up a restructuring plan announced last month, said it may be able to reap more of the $10 billion in projected savings this year instead of in 2009.
Hansen Natural Corp. rose 23 percent to $28.63. Billionaire Nelson Peltz bought shares of the maker of Monster Energy drink in the second quarter, according to a filing with the Securities and Exchange Commission.
U.S. builders began work in July on the fewest houses in 17 years and the economic outlook dimmed, indicating the real- estate slump is at the epicenter of the growth slowdown, economists said before reports next week. Housing starts plunged 9.9 percent to an annual rate of 960,000, according to the median estimate in a Bloomberg News survey before the Commerce Department's Aug. 19 report. The Conference Board's index of leading indicators probably fell 0.2 percent last month, a third consecutive drop.
Yields on Treasury securities declined as traders pared bets the Federal Reserve will raise interest rates this year. The 10-year note's yield fell to 3.84 percent, the lowest in a month, from 3.93 percent.
To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net
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Aug. 16 (Bloomberg) -- U.S. stocks rose for the third straight week after oil's retreat and better-than-estimated results from J.C. Penney Co. and Kohl's Corp. lifted consumer shares.
J.C. Penney, Kohl's and Dillard's Inc. led a measure of retailers in the Standard & Poor's 500 Index to the highest level since June 5. The gauge gained 4.8 percent as crude oil slumped 1.2 percent to $113.77 a barrel in New York. The S&P 500's rally was limited after analysts cut profit estimates for banks and brokerage firms and lower fuel prices hurt energy producers.
The S&P 500 climbed 0.2 percent to 1,298.20, extending its rebound from a 2 1/2-year low on July 15 to 6.9 percent. The Dow Jones Industrial Average decreased 0.6 percent to 11,659.90.
``When we had oil in the $140's, the red lights were flashing,'' said Patrick Becker Jr., chief investment officer at Becker Capital Management in Portland, Oregon. ``The red lights stopped flashing.''
The S&P 500 is still down 12 percent this year, a retreat led by financial companies as losses stemming from the collapse of the U.S. housing market surpassed $500 billion. All 10 industries in the benchmark index for U.S. equities have fallen. Crude oil's 23 percent retreat since a July record of $147.27 a barrel has driven a four-week rebound in U.S. stocks.
Retailers in the S&P 500 added 1.8 percent as a group. J.C. Penney gained the most, rising 12 percent to $39.94, after the third-largest U.S. department-store chain reported more profit than analysts estimated. Kohl's, the No. 4 chain, climbed 11 percent to $51.79 as it beat forecasts by 5.1 percent. Dillard's climbed 10 percent to $11.95.
Home Improvement Retailers
Home Depot Inc. rose 4.4 percent to a two-month high of $27.53. Lowe's Cos., the second-largest home-improvement retailer behind Home Depot, added 7.6 percent to $24.50.
Home Depot and Hewlett-Packard Co., the biggest personal- computer maker, are scheduled to release second-quarter results on Aug. 19, the last of the 30 companies in the Dow average to do so. Lowe's reports on Aug. 18. Second-quarter profits at the 473 companies in the S&P 500 that have posted results were 24 percent lower than a year earlier, according to data compiled by Bloomberg. Excluding financials, whose profits tumbled 94 percent, earnings rose 4.2 percent.
Financial institutions in the S&P 500 fell 2.8 percent this week, the most among 10 industries. Goldman Sachs Group Inc., Morgan Stanley and Lehman Brothers Holdings Inc. retreated. Analysts including Oppenheimer & Co.'s Meredith Whitney and Deutsche Bank AG's Mike Mayo cut profit estimates and predicted more writedowns on mortgage-related bonds. Merrill Lynch & Co.'s Guy Moszkowski downgraded Goldman, Morgan Stanley and Lehman.
`Deteriorated Significantly'
Industry conditions ``have deteriorated significantly from July,'' Moszkowski wrote in an Aug. 13 report.
Goldman lost 7.3 percent to $163.18, Morgan Stanley slipped 9.2 percent to $40.88 and Lehman fell 13 percent to $16.17.
JPMorgan Chase & Co. retreated 7.3 percent to $38.07. The second-biggest U.S. bank said it's had losses of $1.5 billion on mortgage-backed assets so far this quarter as the housing slump deepened amid turmoil in credit markets. Trading conditions ``have substantially deteriorated'' since July, and ``sharply widened'' spreads on mortgage-backed securities and loans caused losses, JPMorgan said.
Energy companies in the S&P 500 fell 0.8 percent, giving the group a 20 percent retreat since the record set in May. Schlumberger Ltd., the world's biggest oilfield contractor, slumped 0.9 percent to a four-month low of $91.47. ConocoPhillips, the second-largest U.S. refiner, slid 4 percent to $77.66, the lowest since March 31. Exxon Mobil Corp., the biggest oil company, dropped 2.1 percent to $77.07.
Collateral Obligations
Constellation Energy Group Inc. fell 15 percent to $63.14 for the biggest decline in the S&P 500. The biggest U.S. power marketer increased its estimated collateral obligations should it lose its investment-grade credit rating.
The cost of using options as insurance against losses in the S&P 500 declined for a fifth straight week. The VIX, as the Chicago Board Options Exchange Volatility Index is known, fell 5.2 percent to 19.58, the lowest since June 5.
MBIA Inc. rose the most in the S&P 500, climbing 31 percent to $11.22, the highest since May 6. The largest bond insurance company had its AA credit rating affirmed by Standard & Poor's, which ended its review of the company's capital levels. MBIA shares tumbled from a peak of $73.31 in December 2006 as it posted losses related to its guarantees of mortgage bonds and derivatives.
Ambac Financial Group Inc., the second-largest bond insurer, rose 31 percent to $5.68.
Stock Buyback
Nvidia Corp. rose 18 percent to $12.96 for the second- biggest advance in the S&P 500. The maker of computer-graphics chips Aug. 13 expanded its stock-buyback plan to cover almost half the shares outstanding.
General Motors Corp. climbed 11 percent to $11.18. The largest U.S. automaker, seeking to speed up a restructuring plan announced last month, said it may be able to reap more of the $10 billion in projected savings this year instead of in 2009.
Hansen Natural Corp. rose 23 percent to $28.63. Billionaire Nelson Peltz bought shares of the maker of Monster Energy drink in the second quarter, according to a filing with the Securities and Exchange Commission.
U.S. builders began work in July on the fewest houses in 17 years and the economic outlook dimmed, indicating the real- estate slump is at the epicenter of the growth slowdown, economists said before reports next week. Housing starts plunged 9.9 percent to an annual rate of 960,000, according to the median estimate in a Bloomberg News survey before the Commerce Department's Aug. 19 report. The Conference Board's index of leading indicators probably fell 0.2 percent last month, a third consecutive drop.
Yields on Treasury securities declined as traders pared bets the Federal Reserve will raise interest rates this year. The 10-year note's yield fell to 3.84 percent, the lowest in a month, from 3.93 percent.
To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net
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Treasuries Gain on Speculation Fed Won't Raise Rates This Year
By Dakin Campbell
Aug. 16 (Bloomberg) -- Treasuries gained, driving yields on two-year notes close to a three-month low, as falling commodity prices and a strengthening dollar spurred speculation the Federal Reserve won't raise interest rates this year.
Ten-year notes gained for a third straight week as central bank policy makers said in speeches and interviews the economy is unlikely to improve soon. Reports showed sales at U.S. retailers dropped in July for the first time in five months. The euro zone's economy contracted for the first time since the European common currency debuted in 1999.
``The focus has shifted from being concerned about inflation to the global growth story,'' said Kurush Mistry, an interest-rate strategist at Lehman Brothers Holdings Inc. in New York, one of the 19 primary dealers that trade with the central bank. ``If commodities keep coming down, the market will be less concerned about inflation and more sanguine about the fact that the Fed doesn't need to be as hawkish'' against rising prices.
The yield on the two-year note fell 12 basis points, or 0.12 percentage point, this week to 2.39 percent in New York, according to BGCantor Market Data. It touched 2.31 percent, close to the lowest since May 21. The price of the 2.75 percent security due in July 2010 rose 7/32, or $2.19 per $1,000 face amount, to 100 22/32.
The 10-year note's yield dropped 10 basis points this week to 3.84 percent. It touched 3.82 percent, the lowest since July 16. Yields on 30-year bonds fell 7 basis points to 4.46 percent.
Treasuries remained higher even after a report showed consumer-price growth quickened in July more than expected. The Standard & Poor's 500 index rose 0.2 percent on the week.
`Extremely Sluggish'
Investors bought bonds as credit-market losses widened after JPMorgan Chase & Co. said Aug. 12 it will write down the value of mortgage-backed assets by at least $1.5 billion this quarter and UBS AG forecast ``adverse economic and financial trends'' will continue this year.
Chicago Fed President Charles Evans said yesterday in a speech at Bloomington, Illinois the, second half will ``likely be extremely sluggish'' and inflation should ease ``over the medium term.'' Other Fed policy makers said this week the worst for the U.S. may still be ahead as bank losses mount and credit conditions tighten.
Consumer spending at U.S. retailers in July fell 0.1 percent from a month earlier, the Commerce Department said Aug. 13. Home seizures by banks rose the most since reporting began in 2005, RealtyTrac Inc. of Irvine, California, said.
`Not a Lot of Places'
``There's not a lot of places to go to feel safe with your money,'' said James DeMasi, a fixed-income strategist at brokerage Stifel Nicolaus & Co. in Baltimore. ``The Treasury market still provides that.''
Mortgage finance company Fannie Mae's 30-year bond yields yielded 5.96 percent yesterday, 2.12 percentage points more than 10-year Treasuries, according to data compiled by Bloomberg. That's 26 basis points from the 22-year high of 2.38 percentage points on March 6, about a week before the Fed helped bail out Bear Stearns Cos.
Traders boosted bets the Fed will leave its target rate for overnight lending between banks at 2 percent through December, futures contracts on the Chicago Board of Trade showed. The likelihood yesterday was 74 percent, compared with 62 percent a week earlier and 49 percent a month earlier.
The dollar advanced 1.8 percent against the currencies of six trading partners as the euro region's economy weakened.
Ten-year Treasuries yield less than the annual rate of inflation by close to the most since 1980. The so-called real yield is now a negative 1.8 percentage points.
Falling commodity prices have stoked speculation the global economy will weaken enough to cap inflation. Crude oil futures have declined 24 percent from a record $147.27 a barrel on July 11. The Reuters/Jefferies CRB Index of 19 raw materials has dropped 20 percent from its July 2 peak.
`Shift in Fed-Speak'
``We've had commodities come off a little bit, and we've had a reasonably significant shift in Fed-speak,'' said Ian Lyngen, an interest-rate strategist in Greenwich, Connecticut, at RBS Greenwich Capital, another primary dealer.
Minneapolis Fed President Gary Stern warned last month of inflation, and Dallas Fed President Richard Fisher dissented at the central bank's Aug. 5 decision to keep rates unchanged. Both have since said the economy is weakening.
Treasuries also gained this week as a portion of more than $43 billion in government debt maturing yesterday reentered the market. They included issues of three-, five-, and 30-year securities, according to the Treasury Department.
Net purchases of Treasury notes and bonds by foreign investors increased $28.3 billion in June, compared with $5.7 billion a month earlier, the Treasury Department said.
To contact the reporter on this story: Dakin Campbell in New York at dcampbell27@bloomberg.net
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Aug. 16 (Bloomberg) -- Treasuries gained, driving yields on two-year notes close to a three-month low, as falling commodity prices and a strengthening dollar spurred speculation the Federal Reserve won't raise interest rates this year.
Ten-year notes gained for a third straight week as central bank policy makers said in speeches and interviews the economy is unlikely to improve soon. Reports showed sales at U.S. retailers dropped in July for the first time in five months. The euro zone's economy contracted for the first time since the European common currency debuted in 1999.
``The focus has shifted from being concerned about inflation to the global growth story,'' said Kurush Mistry, an interest-rate strategist at Lehman Brothers Holdings Inc. in New York, one of the 19 primary dealers that trade with the central bank. ``If commodities keep coming down, the market will be less concerned about inflation and more sanguine about the fact that the Fed doesn't need to be as hawkish'' against rising prices.
The yield on the two-year note fell 12 basis points, or 0.12 percentage point, this week to 2.39 percent in New York, according to BGCantor Market Data. It touched 2.31 percent, close to the lowest since May 21. The price of the 2.75 percent security due in July 2010 rose 7/32, or $2.19 per $1,000 face amount, to 100 22/32.
The 10-year note's yield dropped 10 basis points this week to 3.84 percent. It touched 3.82 percent, the lowest since July 16. Yields on 30-year bonds fell 7 basis points to 4.46 percent.
Treasuries remained higher even after a report showed consumer-price growth quickened in July more than expected. The Standard & Poor's 500 index rose 0.2 percent on the week.
`Extremely Sluggish'
Investors bought bonds as credit-market losses widened after JPMorgan Chase & Co. said Aug. 12 it will write down the value of mortgage-backed assets by at least $1.5 billion this quarter and UBS AG forecast ``adverse economic and financial trends'' will continue this year.
Chicago Fed President Charles Evans said yesterday in a speech at Bloomington, Illinois the, second half will ``likely be extremely sluggish'' and inflation should ease ``over the medium term.'' Other Fed policy makers said this week the worst for the U.S. may still be ahead as bank losses mount and credit conditions tighten.
Consumer spending at U.S. retailers in July fell 0.1 percent from a month earlier, the Commerce Department said Aug. 13. Home seizures by banks rose the most since reporting began in 2005, RealtyTrac Inc. of Irvine, California, said.
`Not a Lot of Places'
``There's not a lot of places to go to feel safe with your money,'' said James DeMasi, a fixed-income strategist at brokerage Stifel Nicolaus & Co. in Baltimore. ``The Treasury market still provides that.''
Mortgage finance company Fannie Mae's 30-year bond yields yielded 5.96 percent yesterday, 2.12 percentage points more than 10-year Treasuries, according to data compiled by Bloomberg. That's 26 basis points from the 22-year high of 2.38 percentage points on March 6, about a week before the Fed helped bail out Bear Stearns Cos.
Traders boosted bets the Fed will leave its target rate for overnight lending between banks at 2 percent through December, futures contracts on the Chicago Board of Trade showed. The likelihood yesterday was 74 percent, compared with 62 percent a week earlier and 49 percent a month earlier.
The dollar advanced 1.8 percent against the currencies of six trading partners as the euro region's economy weakened.
Ten-year Treasuries yield less than the annual rate of inflation by close to the most since 1980. The so-called real yield is now a negative 1.8 percentage points.
Falling commodity prices have stoked speculation the global economy will weaken enough to cap inflation. Crude oil futures have declined 24 percent from a record $147.27 a barrel on July 11. The Reuters/Jefferies CRB Index of 19 raw materials has dropped 20 percent from its July 2 peak.
`Shift in Fed-Speak'
``We've had commodities come off a little bit, and we've had a reasonably significant shift in Fed-speak,'' said Ian Lyngen, an interest-rate strategist in Greenwich, Connecticut, at RBS Greenwich Capital, another primary dealer.
Minneapolis Fed President Gary Stern warned last month of inflation, and Dallas Fed President Richard Fisher dissented at the central bank's Aug. 5 decision to keep rates unchanged. Both have since said the economy is weakening.
Treasuries also gained this week as a portion of more than $43 billion in government debt maturing yesterday reentered the market. They included issues of three-, five-, and 30-year securities, according to the Treasury Department.
Net purchases of Treasury notes and bonds by foreign investors increased $28.3 billion in June, compared with $5.7 billion a month earlier, the Treasury Department said.
To contact the reporter on this story: Dakin Campbell in New York at dcampbell27@bloomberg.net
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Dollar Rises to Six-Month High on Oil Decline, Global Slowdown
By Ye Xie and Candice Zachariahs
Aug. 16 (Bloomberg) -- The dollar climbed to the strongest level in almost six months against the euro and advanced to a seven-month high versus the yen as the European and Japanese economies shrank and crude oil dropped.
The U.S. currency gained against the euro for a fifth week, its longest weekly winning streak since February 2006. A report next week is forecast to show investor confidence in Germany was near the lowest in at least 16 years. The pound dropped this week against the dollar the most since July 2005 after the Bank of England cut its forecast for British economic growth.
The dollar rose 2.2 percent this week to $1.4687, from $1.5005 on Aug. 8. It touched $1.4663 yesterday, the strongest level since Feb. 20. The U.S. currency increased 0.3 percent this week to 110.53 yen yesterday, when it reached 110.66, the strongest since Jan. 2. The euro fell 1.9 percent to 162.30 yen, the biggest decrease since May.
Sterling fell 3 percent this week to $1.8661 after touching $1.8512 yesterday, the lowest level since July 2006. It declined in each of the past 11 days, the longest stretch since at least January 1971. Bank of England Governor Mervyn King said on Aug. 13 that there was a ``chill in the economic air,'' signaling policy makers may reduce the 5 percent target lending rate.
Futures traders bet for the first time since March 2007 that the dollar will advance against the euro. The difference in the number of wagers by hedge funds and other large speculators on a gain in the dollar compared with those on a decline, known as net longs, was 24,060 on Aug. 12, compared with net shorts of 20,886 a week earlier, the Washington-based Commodity Futures Trading Commission said.
`Turning Point'
``We're actually at a fundamental turning point for the dollar,'' said Simon Derrick, currency strategist in London at Bank of New York Mellon Corp. in an interview on Bloomberg Television.
Goldman Sachs Group Inc. said this week that the dollar has ``bottomed'' against the euro, predicting it will strengthen to $1.45 per euro in three months. Lehman Brothers Holdings Inc. turned more bullish on the dollar, predicting it will advance to $1.43 by year-end and $1.40 by the end of March 2009, compared with previous forecasts of $1.50 and $1.48.
The median forecast of 38 analysts compiled by Bloomberg News was for the dollar to trade at $1.50 per euro by year-end and $1.40 by the close of 2009.
The euro may be undermined further by Europe's proximity to the conflict between Russia and Georgia, said Firas Askari, head currency trader at BMO Capital Markets in Toronto.
`Boris the Bear'
``Boris the Bear may be stretching his claws,'' he said. ``That would be more negative to Europe than the U.S.''
Europe's gross domestic product fell 0.2 percent in the second quarter, the first contraction since the 15-nation common currency was introduced in 1999, the European Union's statistics office said this week. Japan's economy shrank at an annual rate of 2.4 percent in the second quarter, the Cabinet Office said.
The ZEW Center for European Economic Research's index measuring German investor confidence was probably near the lowest since it was first compiled in December 1991, according to the median forecast of 43 economists surveyed by Bloomberg News. The report is due Aug. 19.
Crude oil fell 1.2 percent this week to $113.77 a barrel, extending its decline to 24 percent since reaching a record $147.27 a barrel 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 move in lockstep.
Dollar `Cheap'
``The world is finding the dollar is very, very cheap,'' said Steven Englander, a currency strategist at Lehman in New York. ``There's significant revision of growth outlook and monetary policies outside the U.S. Changing global sentiment is bringing down commodity prices, which is helping the dollar.''
The Dollar Index traded on the ICE futures market, tracking the greenback against the currencies of six U.S. trading partners, reached 77.268 yesterday, the highest since Jan. 22.
Dropping from an all-time high of 82.30 cents per euro set in October 2000, the dollar lost almost half of its value when it touched the record low of $1.6038 last month.
``We were in a seven-plus-year bear market for the dollar, and that pretty clearly is coming to an end,'' said Robert Sinche, head of global currency strategy at Bank of America Corp. in New York, in an interview on Bloomberg Television. ``Has the rebound come a little bit too far, too fast? Yes, we think that's probably the case also.''
Two-year U.S. Treasury notes yielded 1.60 percentage points less than comparable-maturity German bunds. When the yield spread was at this level on June 13, the dollar traded at $1.5380 per euro, 7 cents weaker than yesterday.
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.
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Aug. 16 (Bloomberg) -- The dollar climbed to the strongest level in almost six months against the euro and advanced to a seven-month high versus the yen as the European and Japanese economies shrank and crude oil dropped.
The U.S. currency gained against the euro for a fifth week, its longest weekly winning streak since February 2006. A report next week is forecast to show investor confidence in Germany was near the lowest in at least 16 years. The pound dropped this week against the dollar the most since July 2005 after the Bank of England cut its forecast for British economic growth.
The dollar rose 2.2 percent this week to $1.4687, from $1.5005 on Aug. 8. It touched $1.4663 yesterday, the strongest level since Feb. 20. The U.S. currency increased 0.3 percent this week to 110.53 yen yesterday, when it reached 110.66, the strongest since Jan. 2. The euro fell 1.9 percent to 162.30 yen, the biggest decrease since May.
Sterling fell 3 percent this week to $1.8661 after touching $1.8512 yesterday, the lowest level since July 2006. It declined in each of the past 11 days, the longest stretch since at least January 1971. Bank of England Governor Mervyn King said on Aug. 13 that there was a ``chill in the economic air,'' signaling policy makers may reduce the 5 percent target lending rate.
Futures traders bet for the first time since March 2007 that the dollar will advance against the euro. The difference in the number of wagers by hedge funds and other large speculators on a gain in the dollar compared with those on a decline, known as net longs, was 24,060 on Aug. 12, compared with net shorts of 20,886 a week earlier, the Washington-based Commodity Futures Trading Commission said.
`Turning Point'
``We're actually at a fundamental turning point for the dollar,'' said Simon Derrick, currency strategist in London at Bank of New York Mellon Corp. in an interview on Bloomberg Television.
Goldman Sachs Group Inc. said this week that the dollar has ``bottomed'' against the euro, predicting it will strengthen to $1.45 per euro in three months. Lehman Brothers Holdings Inc. turned more bullish on the dollar, predicting it will advance to $1.43 by year-end and $1.40 by the end of March 2009, compared with previous forecasts of $1.50 and $1.48.
The median forecast of 38 analysts compiled by Bloomberg News was for the dollar to trade at $1.50 per euro by year-end and $1.40 by the close of 2009.
The euro may be undermined further by Europe's proximity to the conflict between Russia and Georgia, said Firas Askari, head currency trader at BMO Capital Markets in Toronto.
`Boris the Bear'
``Boris the Bear may be stretching his claws,'' he said. ``That would be more negative to Europe than the U.S.''
Europe's gross domestic product fell 0.2 percent in the second quarter, the first contraction since the 15-nation common currency was introduced in 1999, the European Union's statistics office said this week. Japan's economy shrank at an annual rate of 2.4 percent in the second quarter, the Cabinet Office said.
The ZEW Center for European Economic Research's index measuring German investor confidence was probably near the lowest since it was first compiled in December 1991, according to the median forecast of 43 economists surveyed by Bloomberg News. The report is due Aug. 19.
Crude oil fell 1.2 percent this week to $113.77 a barrel, extending its decline to 24 percent since reaching a record $147.27 a barrel 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 move in lockstep.
Dollar `Cheap'
``The world is finding the dollar is very, very cheap,'' said Steven Englander, a currency strategist at Lehman in New York. ``There's significant revision of growth outlook and monetary policies outside the U.S. Changing global sentiment is bringing down commodity prices, which is helping the dollar.''
The Dollar Index traded on the ICE futures market, tracking the greenback against the currencies of six U.S. trading partners, reached 77.268 yesterday, the highest since Jan. 22.
Dropping from an all-time high of 82.30 cents per euro set in October 2000, the dollar lost almost half of its value when it touched the record low of $1.6038 last month.
``We were in a seven-plus-year bear market for the dollar, and that pretty clearly is coming to an end,'' said Robert Sinche, head of global currency strategy at Bank of America Corp. in New York, in an interview on Bloomberg Television. ``Has the rebound come a little bit too far, too fast? Yes, we think that's probably the case also.''
Two-year U.S. Treasury notes yielded 1.60 percentage points less than comparable-maturity German bunds. When the yield spread was at this level on June 13, the dollar traded at $1.5380 per euro, 7 cents weaker than yesterday.
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...
Pound Declines 11th Day Against Dollar, Slides for Fourth Week
By Kim-Mai Cutler and Andrew MacAskill
Aug. 16 (Bloomberg) -- The pound slid for an 11th day against the dollar yesterday, the longest run of declines in at least 37 years, on speculation a recession will force the Bank of England to cut interest rates.
The U.K. currency posted its fourth weekly drop after Bank of England Governor Mervyn King said Aug. 13 there was a ``chill in the economic air'' and a report showed unemployment climbed in July by the most in almost 16 years. Growth is being hurt as tourism flags and tax revenue fall. The pound tumbled about 6 percent since July 31.
``These are ferocious moves,'' said Simon Derrick, chief currency strategist in London at Bank of New York Mellon Corp. ``The consensus has shifted. The talk three or four weeks ago was whether the central bank would hike rates. Now we've cemented the idea that a rate cut may come sooner.''
The pound dropped 0.3 percent to $1.8650 in London, after falling as much as 1 percent, from $1.8698 on Aug. 14. The 11-day run was the longest since at least January 1971. The currency, poised late yesterday for a decline of about 3 percent in the week, tumbled to a more than two-year low. The pound also traded at 78.73 pence per euro, from 79.28 pence the day before.
Britain's currency may recover to $1.90, though investors should still sell it against the dollar over the longer-term, Derrick said.
The U.K. economy will expand about 0.1 percent on a year-on- year basis in the first quarter of 2009, according to central bank forecasts published Aug 13. Its previous prediction was 1 percent. Growth has sputtered as house prices plunged. The property market came to a ``virtual standstill'' in July, the Royal Institution of Chartered Surveyors said this week.
Inflation Concern
At the same time, inflation running at 4.4 percent, the highest in at least 11 years, has limited the central bank's ability to reduce interest rates to revive the economy.
Traders pared bets that the 5 percent benchmark interest rate will be left unchanged or raised. The implied yield on the March short-sterling futures contract dropped to 5.20 percent on Aug. 15 from 5.44 percent at the end of July.
The pound fell about 11 percent since reaching a 26-year-high of $2.1161 on Nov. 9 as the Federal Reserve slashed interest rates seven times to 2 percent from 5.25 percent since September. The BOE cut its main rate by 0.75 percentage point in the period.
``The market had thought the Fed had blundered while the Bank of England stood firm on inflation,'' said Derrick. ``Now it's thinking the Fed had it absolutely right and has positioned the U.S. economy to cope far better than the U.K. will be able to do. There has been a fundamental shift in thinking.''
Tourism Dropping
The number of foreign tourists visiting the U.K. in the second quarter fell as financial concerns affect the economic outlook in other European countries, according to Britain's Office for National Statistics. Visits by overseas residents dropped 5 percent from the previous three months, seasonally adjusted, and in the year through June visitor numbers declined 3 percent.
Merrill Lynch & Co. booked $29 billion of losses from U.S. subprime mortgages and collateralized debt obligations through its U.K. unit, making it unlikely it will pay British taxes for years to come. Most of the losses were recorded this year, including $5 billion from the sale of $30.6 billion in collateralized debt obligations, the New York-based firm said in an Aug. 5 filing with the U.S. Securities and Exchange Commission.
``We are seeing the start of what we believe is going to be an aggressive move lower in yields and also the pound as the bearish developments in asset markets and the economy continue to overwhelm,'' a team led by Tom Fitzpatrick, global head of currency strategy in New York at Citigroup Global Markets Inc., wrote in an investor report Aug. 14.
Rebound Due?
Technical indicators suggested the pound may be due for a recovery. The 14-day relative strength index fell to 16.2 yesterday, similar to ``Black Wednesday'' in 1992, when the pound was forced out of the Exchange Rate Mechanism that tied its value to other European currencies. A reading below 30 can signal a change in price direction.
The pound's losing streak is the longest since at least 1971, when Britain was two years away from joining the European Economic Community, a precursor of the European Union, and U.S. President Richard Nixon ended the so-called gold standard. The pound averaged about $2.44 that year.
This month's decline may deepen the unpopularity of Prime Minister Gordon Brown, whose Labour Party lags behind the opposition Conservatives in opinion polls. Labour has been criticized because of slower economic growth amid rising food and fuel prices.
``The Prime Minister's rating has just been in a downward direction and it is picking up pace,'' said Greig Baker, research director at the polling company ComRes.
Bonds Rise
Government bonds rose, with the yield on the 10-year gilt falling 6 basis points to 4.58 percent. The yield dropped 11 basis points in the week. The price of the 5 percent security due March 2018 rose 0.44, or 4.4 pounds per 1,000-pound ($1,865) face amount, to 103.23. The yield on the two-year gilt, which is more sensitive to the outlook for interest rates, dropped 3 basis points to 4.53 percent, down 14 basis points since Aug. 8. Bond yields move inversely to prices.
The pound is already weaker than the level at which it's forecast to end 2008 against the dollar. The currency will be worth $1.89 and 80 pence per euro by year-end, according to the median forecast of analysts and strategists surveyed by Bloomberg.
The yield on the 10-year note will end the year at 4.87 percent, according to a separate survey.
The pound fell 6.2 percent versus the dollar this year, after being little changed against the U.S. currency as recently as July 31. It's down 6.7 percent against the euro in 2008.
To contact the reporters on this story: Andrew MacAskill in London at amacaskill@bloomberg.net; Kim-Mai Cutler in London at kcutler@bloomberg.net;
Read more...
Aug. 16 (Bloomberg) -- The pound slid for an 11th day against the dollar yesterday, the longest run of declines in at least 37 years, on speculation a recession will force the Bank of England to cut interest rates.
The U.K. currency posted its fourth weekly drop after Bank of England Governor Mervyn King said Aug. 13 there was a ``chill in the economic air'' and a report showed unemployment climbed in July by the most in almost 16 years. Growth is being hurt as tourism flags and tax revenue fall. The pound tumbled about 6 percent since July 31.
``These are ferocious moves,'' said Simon Derrick, chief currency strategist in London at Bank of New York Mellon Corp. ``The consensus has shifted. The talk three or four weeks ago was whether the central bank would hike rates. Now we've cemented the idea that a rate cut may come sooner.''
The pound dropped 0.3 percent to $1.8650 in London, after falling as much as 1 percent, from $1.8698 on Aug. 14. The 11-day run was the longest since at least January 1971. The currency, poised late yesterday for a decline of about 3 percent in the week, tumbled to a more than two-year low. The pound also traded at 78.73 pence per euro, from 79.28 pence the day before.
Britain's currency may recover to $1.90, though investors should still sell it against the dollar over the longer-term, Derrick said.
The U.K. economy will expand about 0.1 percent on a year-on- year basis in the first quarter of 2009, according to central bank forecasts published Aug 13. Its previous prediction was 1 percent. Growth has sputtered as house prices plunged. The property market came to a ``virtual standstill'' in July, the Royal Institution of Chartered Surveyors said this week.
Inflation Concern
At the same time, inflation running at 4.4 percent, the highest in at least 11 years, has limited the central bank's ability to reduce interest rates to revive the economy.
Traders pared bets that the 5 percent benchmark interest rate will be left unchanged or raised. The implied yield on the March short-sterling futures contract dropped to 5.20 percent on Aug. 15 from 5.44 percent at the end of July.
The pound fell about 11 percent since reaching a 26-year-high of $2.1161 on Nov. 9 as the Federal Reserve slashed interest rates seven times to 2 percent from 5.25 percent since September. The BOE cut its main rate by 0.75 percentage point in the period.
``The market had thought the Fed had blundered while the Bank of England stood firm on inflation,'' said Derrick. ``Now it's thinking the Fed had it absolutely right and has positioned the U.S. economy to cope far better than the U.K. will be able to do. There has been a fundamental shift in thinking.''
Tourism Dropping
The number of foreign tourists visiting the U.K. in the second quarter fell as financial concerns affect the economic outlook in other European countries, according to Britain's Office for National Statistics. Visits by overseas residents dropped 5 percent from the previous three months, seasonally adjusted, and in the year through June visitor numbers declined 3 percent.
Merrill Lynch & Co. booked $29 billion of losses from U.S. subprime mortgages and collateralized debt obligations through its U.K. unit, making it unlikely it will pay British taxes for years to come. Most of the losses were recorded this year, including $5 billion from the sale of $30.6 billion in collateralized debt obligations, the New York-based firm said in an Aug. 5 filing with the U.S. Securities and Exchange Commission.
``We are seeing the start of what we believe is going to be an aggressive move lower in yields and also the pound as the bearish developments in asset markets and the economy continue to overwhelm,'' a team led by Tom Fitzpatrick, global head of currency strategy in New York at Citigroup Global Markets Inc., wrote in an investor report Aug. 14.
Rebound Due?
Technical indicators suggested the pound may be due for a recovery. The 14-day relative strength index fell to 16.2 yesterday, similar to ``Black Wednesday'' in 1992, when the pound was forced out of the Exchange Rate Mechanism that tied its value to other European currencies. A reading below 30 can signal a change in price direction.
The pound's losing streak is the longest since at least 1971, when Britain was two years away from joining the European Economic Community, a precursor of the European Union, and U.S. President Richard Nixon ended the so-called gold standard. The pound averaged about $2.44 that year.
This month's decline may deepen the unpopularity of Prime Minister Gordon Brown, whose Labour Party lags behind the opposition Conservatives in opinion polls. Labour has been criticized because of slower economic growth amid rising food and fuel prices.
``The Prime Minister's rating has just been in a downward direction and it is picking up pace,'' said Greig Baker, research director at the polling company ComRes.
Bonds Rise
Government bonds rose, with the yield on the 10-year gilt falling 6 basis points to 4.58 percent. The yield dropped 11 basis points in the week. The price of the 5 percent security due March 2018 rose 0.44, or 4.4 pounds per 1,000-pound ($1,865) face amount, to 103.23. The yield on the two-year gilt, which is more sensitive to the outlook for interest rates, dropped 3 basis points to 4.53 percent, down 14 basis points since Aug. 8. Bond yields move inversely to prices.
The pound is already weaker than the level at which it's forecast to end 2008 against the dollar. The currency will be worth $1.89 and 80 pence per euro by year-end, according to the median forecast of analysts and strategists surveyed by Bloomberg.
The yield on the 10-year note will end the year at 4.87 percent, according to a separate survey.
The pound fell 6.2 percent versus the dollar this year, after being little changed against the U.S. currency as recently as July 31. It's down 6.7 percent against the euro in 2008.
To contact the reporters on this story: Andrew MacAskill in London at amacaskill@bloomberg.net; Kim-Mai Cutler in London at kcutler@bloomberg.net;
Read more...
General Motors Not Seeing Signs of U.S. Recovery, Wagoner Says
By Jeff Green
Aug. 16 (Bloomberg) -- General Motors Corp. Chief Executive Officer Rick Wagoner said he's not yet seeing signs of recovery in the U.S. economy or in vehicle sales following the recent decline in oil prices.
``It still feels to me like we're in it,'' the CEO of the world's largest automaker said, referring to the sluggish economy that helped push GM to $15.5 billion in losses in the second quarter. He was speaking at the Athens Coney Island restaurant in Royal Oak, Michigan, after leading a morning parade of classic GM cars from the last 100 years.
Wagoner is trying to increase cash by at least $15 billion before the end of next year to pay the bills while he tries to recover sales lost to rivals such as Toyota Motor Corp. and Honda Motor Co. GM's U.S. market share is the lowest since 1925 and the Detroit automaker has lost $69.8 billion since 2004, its last profitable year.
Gasoline prices that topped $4 a gallon in the U.S. this year have soured U.S. buyers on GM trucks, which make up a majority of domestic sales.
To contact the reporter on this story: Jeff Green in Southfield, Michigan, at jgreen16@bloomberg.net
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Aug. 16 (Bloomberg) -- General Motors Corp. Chief Executive Officer Rick Wagoner said he's not yet seeing signs of recovery in the U.S. economy or in vehicle sales following the recent decline in oil prices.
``It still feels to me like we're in it,'' the CEO of the world's largest automaker said, referring to the sluggish economy that helped push GM to $15.5 billion in losses in the second quarter. He was speaking at the Athens Coney Island restaurant in Royal Oak, Michigan, after leading a morning parade of classic GM cars from the last 100 years.
Wagoner is trying to increase cash by at least $15 billion before the end of next year to pay the bills while he tries to recover sales lost to rivals such as Toyota Motor Corp. and Honda Motor Co. GM's U.S. market share is the lowest since 1925 and the Detroit automaker has lost $69.8 billion since 2004, its last profitable year.
Gasoline prices that topped $4 a gallon in the U.S. this year have soured U.S. buyers on GM trucks, which make up a majority of domestic sales.
To contact the reporter on this story: Jeff Green in Southfield, Michigan, at jgreen16@bloomberg.net
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European Stocks Fall on Bank Concerns; Hypo Real Estate Drops
By Sarah Jones and Sarah Thompson
Aug. 16 (Bloomberg) -- European stocks had the biggest weekly drop in a month after JPMorgan Chase & Co. reported a $1.5 billion loss on mortgage-backed assets, deepening concern that banks will post more writedowns.
Hypo Real Estate Holding AG fell as the German lender said profit tumbled 95 percent. Standard Chartered Plc sank after analysts downgraded the shares on speculation the bank may have to raise capital. Swiss Life Holdings led insurers lower after it agreed to buy stakes in MLP AG and AWD Holding AG. Eurasian Natural Resources Corp. paced a retreat among mining companies.
Europe's Dow Jones Stoxx 600 Index slipped 0.7 percent to 287.25, the steepest decline since the week ended July 11. The benchmark is down 21 percent this year as asset writedowns and credit losses at financial firms topped $500 billion worldwide, threatening to prolong the slowdown in global economic growth.
JPMorgan's figures ``spooked investors and triggered profit-taking in financials,'' said Piers Hillier, the London- based head of European equities at WestLB Mellon Asset Management who oversees the equivalent of $8.8 billion. ``Concern Standard Chartered will need to raise more capital didn't help. We've also seen a sharp fall-off in commodities.''
Crude oil, gold, silver and copper all retreated this week as a strengthening dollar reduced the appeal of commodities as alternative investments.
National benchmark indexes declined in 11 of the 18 western European markets. France's CAC 40 dropped 0.9 percent. The U.K.'s FTSE 100 fell 0.6 percent, while Germany's DAX sank 1.8 percent.
Economy Watch
Economic reports also weighed on equities as higher-than- forecast U.S. consumer prices and jobless claims added to concern inflation is accelerating while growth slows. Europe's economy contracted in the second quarter for the first time since the launch of the euro almost a decade ago, data also showed.
JPMorgan, the second-biggest U.S. bank by market value, said it lost $1.5 billion on mortgage-backed assets in less than two months and that subprime writedowns are expected to continue to rise ``significantly'' during the second half of this year, with ``deterioration'' expected to continue into 2009.
Hypo Real Estate declined 6.5 percent after Germany's second-largest commercial-property lender said second-quarter pretax profit plunged 95 percent because of writedowns on debt- related investments.
Deutsche Bank AG, Germany's biggest bank, fell 3.1 percent. Barclays, the U.K.'s third-largest lender, retreated 4.6 percent.
Europe's Stoxx 600 Banks Index has lost 30 percent this year, the steepest slump among 18 groups in the broader index.
Earnings Estimates
Earnings for financial firms in the Stoxx 600 will decline 25 percent this year, more than 13 times the projected drop for all companies in the measure, according to analysts' estimates compiled by Bloomberg. Forecasts at the start of the year saw profit for the group increasing 4.5 percent.
Standard Chartered retreated 11 percent. Citigroup Inc. cut its recommendation on the shares to ``sell'' from ``hold,'' saying the U.K. bank that earns most of its money in Asia faces ``a choice of slower growth or having to raise equity to support its capital ratios.''
Swiss Life slumped 16 percent after Switzerland's largest life insurer agreed to buy stakes in MLP and AWD from AWD Chief Executive Officer Carsten Maschmeyer for a total of 427 million euros ($627 million).
UBS AG downgraded Swiss Life shares to ``sell'' from ``neutral,'' citing the risk of further earnings dilution if the company were to bid for MLP.
Stake Purchase
ENRC declined 14 percent. Kazakhmys Plc, Kazakhstan's biggest copper producer, paid 402 million pounds ($750 million) to raise its stake in the ferrochrome producer to 25 percent. Kazakhmys shares lost 6 percent.
Xstrata Plc, which is making a hostile 5 billion-pound bid for Lonmin Plc, dropped 3.8 percent. Norsk Hydro ASA, the world's fifth-largest aluminum producer, fell 4.7 percent.
Michael Page International Plc, the U.K.'s second-biggest recruitment company, sank 11 percent after saying it rejected a 1.3 billion-pound takeover from Adecco SA and ended talks.
CSM NV tumbled 19 percent, the steepest drop in the Stoxx 600. The world's largest supplier of ingredients to bakeries said first-half profit slumped 63 percent from a year earlier, when the company had a gain from selling its sugar unit. CSM also forecast price increases would hurt sales in the U.S. this year.
Arcandor AG sank 12 percent. Germany's biggest department- store operator reported a third-quarter loss, said operating profit fell and cut its forecast after sales at the company's Karstadt chain declined.
William Demant Holding A/S lost 14 percent. The world's second-largest hearing-aid maker said first-half profit fell 18 percent after the economic slowdown in the U.S. curbed demand for its most expensive products. Earnings missed analysts' estimates.
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Aug. 16 (Bloomberg) -- European stocks had the biggest weekly drop in a month after JPMorgan Chase & Co. reported a $1.5 billion loss on mortgage-backed assets, deepening concern that banks will post more writedowns.
Hypo Real Estate Holding AG fell as the German lender said profit tumbled 95 percent. Standard Chartered Plc sank after analysts downgraded the shares on speculation the bank may have to raise capital. Swiss Life Holdings led insurers lower after it agreed to buy stakes in MLP AG and AWD Holding AG. Eurasian Natural Resources Corp. paced a retreat among mining companies.
Europe's Dow Jones Stoxx 600 Index slipped 0.7 percent to 287.25, the steepest decline since the week ended July 11. The benchmark is down 21 percent this year as asset writedowns and credit losses at financial firms topped $500 billion worldwide, threatening to prolong the slowdown in global economic growth.
JPMorgan's figures ``spooked investors and triggered profit-taking in financials,'' said Piers Hillier, the London- based head of European equities at WestLB Mellon Asset Management who oversees the equivalent of $8.8 billion. ``Concern Standard Chartered will need to raise more capital didn't help. We've also seen a sharp fall-off in commodities.''
Crude oil, gold, silver and copper all retreated this week as a strengthening dollar reduced the appeal of commodities as alternative investments.
National benchmark indexes declined in 11 of the 18 western European markets. France's CAC 40 dropped 0.9 percent. The U.K.'s FTSE 100 fell 0.6 percent, while Germany's DAX sank 1.8 percent.
Economy Watch
Economic reports also weighed on equities as higher-than- forecast U.S. consumer prices and jobless claims added to concern inflation is accelerating while growth slows. Europe's economy contracted in the second quarter for the first time since the launch of the euro almost a decade ago, data also showed.
JPMorgan, the second-biggest U.S. bank by market value, said it lost $1.5 billion on mortgage-backed assets in less than two months and that subprime writedowns are expected to continue to rise ``significantly'' during the second half of this year, with ``deterioration'' expected to continue into 2009.
Hypo Real Estate declined 6.5 percent after Germany's second-largest commercial-property lender said second-quarter pretax profit plunged 95 percent because of writedowns on debt- related investments.
Deutsche Bank AG, Germany's biggest bank, fell 3.1 percent. Barclays, the U.K.'s third-largest lender, retreated 4.6 percent.
Europe's Stoxx 600 Banks Index has lost 30 percent this year, the steepest slump among 18 groups in the broader index.
Earnings Estimates
Earnings for financial firms in the Stoxx 600 will decline 25 percent this year, more than 13 times the projected drop for all companies in the measure, according to analysts' estimates compiled by Bloomberg. Forecasts at the start of the year saw profit for the group increasing 4.5 percent.
Standard Chartered retreated 11 percent. Citigroup Inc. cut its recommendation on the shares to ``sell'' from ``hold,'' saying the U.K. bank that earns most of its money in Asia faces ``a choice of slower growth or having to raise equity to support its capital ratios.''
Swiss Life slumped 16 percent after Switzerland's largest life insurer agreed to buy stakes in MLP and AWD from AWD Chief Executive Officer Carsten Maschmeyer for a total of 427 million euros ($627 million).
UBS AG downgraded Swiss Life shares to ``sell'' from ``neutral,'' citing the risk of further earnings dilution if the company were to bid for MLP.
Stake Purchase
ENRC declined 14 percent. Kazakhmys Plc, Kazakhstan's biggest copper producer, paid 402 million pounds ($750 million) to raise its stake in the ferrochrome producer to 25 percent. Kazakhmys shares lost 6 percent.
Xstrata Plc, which is making a hostile 5 billion-pound bid for Lonmin Plc, dropped 3.8 percent. Norsk Hydro ASA, the world's fifth-largest aluminum producer, fell 4.7 percent.
Michael Page International Plc, the U.K.'s second-biggest recruitment company, sank 11 percent after saying it rejected a 1.3 billion-pound takeover from Adecco SA and ended talks.
CSM NV tumbled 19 percent, the steepest drop in the Stoxx 600. The world's largest supplier of ingredients to bakeries said first-half profit slumped 63 percent from a year earlier, when the company had a gain from selling its sugar unit. CSM also forecast price increases would hurt sales in the U.S. this year.
Arcandor AG sank 12 percent. Germany's biggest department- store operator reported a third-quarter loss, said operating profit fell and cut its forecast after sales at the company's Karstadt chain declined.
William Demant Holding A/S lost 14 percent. The world's second-largest hearing-aid maker said first-half profit fell 18 percent after the economic slowdown in the U.S. curbed demand for its most expensive products. Earnings missed analysts' estimates.
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Ex-Hong Kong Housing Head Quits New World on Government Review
By Li Xiaowei
Aug. 16 (Bloomberg) -- Hong Kong's former housing chief Leung Chin-man resigned from a unit of New World Development Co. after the city's chief executive officer ordered a review of possible conflicts of interest related to the job.
Leung stepped down to ``quiet public criticism,'' he said in an e-mailed statement today. He will seek employment outside the real estate sector and not ask the government for compensation to avoid wasting public funds, he added.
Donald Tsang, Hong Kong's chief executive, asked for a re- evaluation because the civil service body that cleared Leung to take the job hadn't considered his involvement in the awarding of a 2004 development to a group including a New World unit. Civil service reviews are in place to prevent conflicts of interest when former officials join the private sector.
``We and Mr. Leung decided to respond to the bigger picture and terminate the contract unconditionally to ease any worries in society,'' New World China Land Ltd. said today in an e- mailed statement. Leung stepped down with immediate effect and won't receive any compensation, it added.
New World is controlled by billionaire Cheng Yu-tung.
The housing branch of the Hong Kong Transport and Housing Bureau didn't consider Leung's involvement in the 2004 Hunghom Peninsula deal when he sought clearance for the New World post, it said in a statement on the government Web site yesterday.
``We would like to express our sincere apologies,'' it said.
No conflict of interest was perceived because Leung stopped working for the government two years ago and was going to work only for New World's mainland unit, it added.
A group including a New World Development unit and Sun Hung Kai Properties Ltd. bought Hunghom Peninsula from the government for barely half the asking price, the South China Morning Post said today. The group later announced, and then abandoned, plans to knock down the waterfront estate, it added.
To contact the reporter on this story: Li Xiaowei in Shanghai at Xli12@bloomberg.net
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Aug. 16 (Bloomberg) -- Hong Kong's former housing chief Leung Chin-man resigned from a unit of New World Development Co. after the city's chief executive officer ordered a review of possible conflicts of interest related to the job.
Leung stepped down to ``quiet public criticism,'' he said in an e-mailed statement today. He will seek employment outside the real estate sector and not ask the government for compensation to avoid wasting public funds, he added.
Donald Tsang, Hong Kong's chief executive, asked for a re- evaluation because the civil service body that cleared Leung to take the job hadn't considered his involvement in the awarding of a 2004 development to a group including a New World unit. Civil service reviews are in place to prevent conflicts of interest when former officials join the private sector.
``We and Mr. Leung decided to respond to the bigger picture and terminate the contract unconditionally to ease any worries in society,'' New World China Land Ltd. said today in an e- mailed statement. Leung stepped down with immediate effect and won't receive any compensation, it added.
New World is controlled by billionaire Cheng Yu-tung.
The housing branch of the Hong Kong Transport and Housing Bureau didn't consider Leung's involvement in the 2004 Hunghom Peninsula deal when he sought clearance for the New World post, it said in a statement on the government Web site yesterday.
``We would like to express our sincere apologies,'' it said.
No conflict of interest was perceived because Leung stopped working for the government two years ago and was going to work only for New World's mainland unit, it added.
A group including a New World Development unit and Sun Hung Kai Properties Ltd. bought Hunghom Peninsula from the government for barely half the asking price, the South China Morning Post said today. The group later announced, and then abandoned, plans to knock down the waterfront estate, it added.
To contact the reporter on this story: Li Xiaowei in Shanghai at Xli12@bloomberg.net
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Taiwan's Solar Industry May Reach NT$500 Billion in 2012
By Tim Culpan
Aug. 16 (Bloomberg) -- Taiwan's solar industry may grow to NT$500 billion ($16 billion) by 2012 as the government promotes the use of renewable energy, the Cabinet said.
Revenue from makers of solar-electricity components was NT$11.3 billion for the first six months of this year, the Cabinet said in a statement posted on its Web site last night, following a visit by Premier Liu Chao-shiuan to two manufacturers yesterday.
``The solar energy industry is the star of tomorrow,'' Liu was cited as saying. ``We mustn't let high oil prices use up our competitiveness.''
Liu urged Taiwan's legislature to pass a renewable energy bill to spur the development of new energy sources. The island wants to cut its dependency on oil and gas imports as fuel prices surge.
A delegation including Liu, chairman of the National Science Council Lee Lou-chuang and vice minister of economics Hsieh Fada yesterday visited Sino-American Silicon Products Inc., Taiwan's largest supplier of silicon used in solar cell making, and Gintech Energy Corp., Taiwan's second-largest maker of solar cells.
To contact the reporter on this story: Tim Culpan in Taipei at tculpan1@bloomberg.net.
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Aug. 16 (Bloomberg) -- Taiwan's solar industry may grow to NT$500 billion ($16 billion) by 2012 as the government promotes the use of renewable energy, the Cabinet said.
Revenue from makers of solar-electricity components was NT$11.3 billion for the first six months of this year, the Cabinet said in a statement posted on its Web site last night, following a visit by Premier Liu Chao-shiuan to two manufacturers yesterday.
``The solar energy industry is the star of tomorrow,'' Liu was cited as saying. ``We mustn't let high oil prices use up our competitiveness.''
Liu urged Taiwan's legislature to pass a renewable energy bill to spur the development of new energy sources. The island wants to cut its dependency on oil and gas imports as fuel prices surge.
A delegation including Liu, chairman of the National Science Council Lee Lou-chuang and vice minister of economics Hsieh Fada yesterday visited Sino-American Silicon Products Inc., Taiwan's largest supplier of silicon used in solar cell making, and Gintech Energy Corp., Taiwan's second-largest maker of solar cells.
To contact the reporter on this story: Tim Culpan in Taipei at tculpan1@bloomberg.net.
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Asian Currencies Post Weekly Decline on Global Growth Concern
By Aaron Pan and David Yong
Aug. 16 (Bloomberg) -- Asian currencies posted a weekly decline, led by the Philippine peso, after a contraction in Europe's economy added to concern a global slowdown will damp demand for emerging-market assets.
The peso had its worst week in a year as overseas investors sold more of the nation's stocks than they bought for the past 14 days. All the 10 most-traded Asian currencies fell this week as government reports showed Europe and Japan's economies both contracted in the second quarter and the Bank of England cut its U.K growth forecast, citing a ``chill in the economic air.''
``The peso will depreciate in the short term as risk aversion seems to have made a comeback in emerging markets with the selling in stocks,'' said Ricky Cebrero, a treasurer at East West Banking Corp. in Manila.
The peso slumped 2.2 percent this week to 45.310 per dollar in Manila yesterday, according to Tullett Prebon Plc. The decline is the most since the five days ended Aug. 17, 2007. The peso may reach 45.50 in ``coming sessions,'' Cebrero said.
Taiwan's dollar dropped for a fourth week on concern a slowing world economy will cut demand for the island's exports.
The currency has dropped every day in August except one as the government reported its first trade deficit since 2006. The Taiwan dollar's decline was caused by foreign fund outflows, the Commercial Times newspaper reported yesterday, citing an unidentified central bank official.
`Underperform'
``Taiwan will underperform relative to the rest of the region as the global slowdown unfolds,'' said Daniel Hui, a currency strategist at HSBC Holdings Plc in Hong Kong. ``The U.S. dollar is rebounding because the outlook for the rest of the world is basically being downgraded.''
The currency fell 0.8 percent this week to NT$31.330, after touching NT$31.405 yesterday, the weakest since Feb. 25. It has fallen 3.1 percent in the past month.
Taiwan's gross domestic product may expand 4.78 percent this year, the slowest since 2005, according to a statistics bureau forecast in May. Growth in exports, which account for about half of GDP, slowed to 8 percent in July from 21 percent the previous month, the government said Aug. 7.
Singapore's dollar posted its fourth weekly decline as the government lowered its export and growth forecasts, predicting a ``bumpy year'' ahead. The currency has lost 3.5 percent this month, making it the worst performer among the most-active Asian currencies.
`Weak Numbers'
``The Singapore dollar will remain soft in the coming weeks as we are expecting more weak numbers from the Euro zone, which will set the tone for Asia and Singapore,'' said Wai Ho Leong, a regional economist at Barclays Capital in Singapore.
The local currency fell 1.3 percent this week to S$1.4167 against the U.S. dollar, according to data compiled by Bloomberg. It lost 0.5 percent yesterday.
Malaysia's ringgit had its biggest weekly slump in nine months on speculation growth in its largest overseas markets in Singapore, Japan and Europe will keep faltering.
``I can't say that the outlook is particularly positive for the ringgit,'' said Dwyfor Evans, a Hong Kong-based strategist at State Street Global Markets. ``Ominously, regional export data is deteriorating quickly.''
The ringgit fell 1.4 percent this week to 3.3490 per dollar, according to data compiled by Bloomberg. The drop is the biggest since the five days ended Nov. 16.
Elsewhere, the Indonesian rupiah lost 0.2 percent this week to 9,190 per dollar, the Thai baht declined 0.4 percent to 33.84 and Vietnam's dong weakened 0.3 percent to 16,600.
To contact the reporters on this story: Aaron Pan in Hong Kong at apan8@bloomberg.net; David Yong in Singapore at dyong@bloomberg.net.
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Aug. 16 (Bloomberg) -- Asian currencies posted a weekly decline, led by the Philippine peso, after a contraction in Europe's economy added to concern a global slowdown will damp demand for emerging-market assets.
The peso had its worst week in a year as overseas investors sold more of the nation's stocks than they bought for the past 14 days. All the 10 most-traded Asian currencies fell this week as government reports showed Europe and Japan's economies both contracted in the second quarter and the Bank of England cut its U.K growth forecast, citing a ``chill in the economic air.''
``The peso will depreciate in the short term as risk aversion seems to have made a comeback in emerging markets with the selling in stocks,'' said Ricky Cebrero, a treasurer at East West Banking Corp. in Manila.
The peso slumped 2.2 percent this week to 45.310 per dollar in Manila yesterday, according to Tullett Prebon Plc. The decline is the most since the five days ended Aug. 17, 2007. The peso may reach 45.50 in ``coming sessions,'' Cebrero said.
Taiwan's dollar dropped for a fourth week on concern a slowing world economy will cut demand for the island's exports.
The currency has dropped every day in August except one as the government reported its first trade deficit since 2006. The Taiwan dollar's decline was caused by foreign fund outflows, the Commercial Times newspaper reported yesterday, citing an unidentified central bank official.
`Underperform'
``Taiwan will underperform relative to the rest of the region as the global slowdown unfolds,'' said Daniel Hui, a currency strategist at HSBC Holdings Plc in Hong Kong. ``The U.S. dollar is rebounding because the outlook for the rest of the world is basically being downgraded.''
The currency fell 0.8 percent this week to NT$31.330, after touching NT$31.405 yesterday, the weakest since Feb. 25. It has fallen 3.1 percent in the past month.
Taiwan's gross domestic product may expand 4.78 percent this year, the slowest since 2005, according to a statistics bureau forecast in May. Growth in exports, which account for about half of GDP, slowed to 8 percent in July from 21 percent the previous month, the government said Aug. 7.
Singapore's dollar posted its fourth weekly decline as the government lowered its export and growth forecasts, predicting a ``bumpy year'' ahead. The currency has lost 3.5 percent this month, making it the worst performer among the most-active Asian currencies.
`Weak Numbers'
``The Singapore dollar will remain soft in the coming weeks as we are expecting more weak numbers from the Euro zone, which will set the tone for Asia and Singapore,'' said Wai Ho Leong, a regional economist at Barclays Capital in Singapore.
The local currency fell 1.3 percent this week to S$1.4167 against the U.S. dollar, according to data compiled by Bloomberg. It lost 0.5 percent yesterday.
Malaysia's ringgit had its biggest weekly slump in nine months on speculation growth in its largest overseas markets in Singapore, Japan and Europe will keep faltering.
``I can't say that the outlook is particularly positive for the ringgit,'' said Dwyfor Evans, a Hong Kong-based strategist at State Street Global Markets. ``Ominously, regional export data is deteriorating quickly.''
The ringgit fell 1.4 percent this week to 3.3490 per dollar, according to data compiled by Bloomberg. The drop is the biggest since the five days ended Nov. 16.
Elsewhere, the Indonesian rupiah lost 0.2 percent this week to 9,190 per dollar, the Thai baht declined 0.4 percent to 33.84 and Vietnam's dong weakened 0.3 percent to 16,600.
To contact the reporters on this story: Aaron Pan in Hong Kong at apan8@bloomberg.net; David Yong in Singapore at dyong@bloomberg.net.
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Japan's Bonds Gain for Third Week on Growing Recession Concern
By Theresa Barraclough
Aug. 16 (Bloomberg) -- Japan's 10-year bonds gained for a third week on growing speculation the world's second-largest economy is on the brink of a recession.
Ten-year yields fell to the lowest in almost four months during the week after a government report on Aug. 13 showed the economy contracted last quarter for the first time since 2001. Benchmark bonds also advanced on speculation the central bank will cut its assessment of the economy for a second straight month in a report next week.
``The GDP report in Japan suggested ongoing sluggish business activity and the Bank of Japan is likely to downgrade its assessment of business conditions next week,'' said Susumu Kato, chief economist in Tokyo at Calyon Securities, one of the 26 primary dealers required to bid at government debt sales. ``This is very supportive for JGBs.''
The yield on the 1.5 percent bond due June 2018 fell 1 basis point this week to 1.455 percent according to Japan Bond Trading Co., the nation's largest interdealer debt broker. The price rose 0.086 yen to 100.387. The yield fell as low as 1.415 percent on Aug. 14, the least since April 21.
Ten-year bond futures for September delivery gained 0.01 this week to 137.69 on the Tokyo Stock Exchange. A basis point is 0.01 percentage point.
The nation's gross domestic product shrank an annualized 2.4 percent in the three months ended June 30 as exports and consumer spending fell, the Cabinet Office said in Tokyo.
`Downside Risks'
``The economy is weakening and there are more downside risks,'' Japan's Economic and Fiscal Policy Minister Kaoru Yosano said at a press conference in Tokyo on Aug. 13. ``With prices rising, consumers are becoming cautious about spending and holding back consumption.''
The odds were 11 percent yesterday that the Bank of Japan will reduce its target rate to 0.25 percent from 0.5 percent by year end, according to calculations by JPMorgan Chase & Co. using interest-rate swaps. The chance was 5 percent a week ago.
The gain in bonds this week was tempered on speculation 10- year yields near the lowest since April deterred investors from buying government debt.
The yield climbed as much as 6 basis points during yesterday's trading, the biggest intraday gain since July 7, after a technical chart traders use to gauge changes suggested the recent rally in bonds was too rapid.
`Too Low'
``The yields are just too low and the market looked overheated,'' said Takashi Nishimura, an analyst in Tokyo at Mitsubishi UFJ Securities Co., a unit of Japan's largest bank by assets. ``Investors ought to start thinking about the risk of an upward revision of the economic outlook as we have been too pessimistic about the Japanese economy.''
The 10-day relative strength index on 10-year yields declined to 28 on Aug. 14, the second day it was below 30, a level that implies the securities are overbought. The last time the index fell under 30 for two consecutive days was on March 13 and 14. Yields gained a total of 6 basis points during the following two days.
``A lot of market participants are skeptical about further yield declines,'' said Eiji Dohke, chief strategist at UBS Securities Japan Ltd. in Tokyo.
Ten-year bonds also gained this week on speculation corporate failures will increase as economic growth falters, underpinning demand for low-risk assets.
`Deepening Slump'
Urban Corp., Japan's worst-performing real-estate stock in 2008, filed for protection from its creditors on Aug. 13 with debt of 255.8 billion yen ($2.32 billion), making it the largest bankruptcy among listed companies in the nation this year. Urban became the fifth publicly traded Japanese property company to file for court protection in the past month.
The bankruptcy ``underscores the deepening slump in the real estate market and negative implications on bank balance sheets,'' Tomoko Fujii, head of Japan economics and strategy at Bank of America Corp., wrote in a research note on Aug. 14. The real-estate slump should add to caution of risky lending and ``should be positive for the JGB market.''
Trading was lower than average this week due to the nation's Obon summer holidays, Mitsubishi UFJ's Nishimura said.
To contact the reporter on this story: Theresa Barraclough in Osaka at tbarraclough@bloomberg.net.
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Aug. 16 (Bloomberg) -- Japan's 10-year bonds gained for a third week on growing speculation the world's second-largest economy is on the brink of a recession.
Ten-year yields fell to the lowest in almost four months during the week after a government report on Aug. 13 showed the economy contracted last quarter for the first time since 2001. Benchmark bonds also advanced on speculation the central bank will cut its assessment of the economy for a second straight month in a report next week.
``The GDP report in Japan suggested ongoing sluggish business activity and the Bank of Japan is likely to downgrade its assessment of business conditions next week,'' said Susumu Kato, chief economist in Tokyo at Calyon Securities, one of the 26 primary dealers required to bid at government debt sales. ``This is very supportive for JGBs.''
The yield on the 1.5 percent bond due June 2018 fell 1 basis point this week to 1.455 percent according to Japan Bond Trading Co., the nation's largest interdealer debt broker. The price rose 0.086 yen to 100.387. The yield fell as low as 1.415 percent on Aug. 14, the least since April 21.
Ten-year bond futures for September delivery gained 0.01 this week to 137.69 on the Tokyo Stock Exchange. A basis point is 0.01 percentage point.
The nation's gross domestic product shrank an annualized 2.4 percent in the three months ended June 30 as exports and consumer spending fell, the Cabinet Office said in Tokyo.
`Downside Risks'
``The economy is weakening and there are more downside risks,'' Japan's Economic and Fiscal Policy Minister Kaoru Yosano said at a press conference in Tokyo on Aug. 13. ``With prices rising, consumers are becoming cautious about spending and holding back consumption.''
The odds were 11 percent yesterday that the Bank of Japan will reduce its target rate to 0.25 percent from 0.5 percent by year end, according to calculations by JPMorgan Chase & Co. using interest-rate swaps. The chance was 5 percent a week ago.
The gain in bonds this week was tempered on speculation 10- year yields near the lowest since April deterred investors from buying government debt.
The yield climbed as much as 6 basis points during yesterday's trading, the biggest intraday gain since July 7, after a technical chart traders use to gauge changes suggested the recent rally in bonds was too rapid.
`Too Low'
``The yields are just too low and the market looked overheated,'' said Takashi Nishimura, an analyst in Tokyo at Mitsubishi UFJ Securities Co., a unit of Japan's largest bank by assets. ``Investors ought to start thinking about the risk of an upward revision of the economic outlook as we have been too pessimistic about the Japanese economy.''
The 10-day relative strength index on 10-year yields declined to 28 on Aug. 14, the second day it was below 30, a level that implies the securities are overbought. The last time the index fell under 30 for two consecutive days was on March 13 and 14. Yields gained a total of 6 basis points during the following two days.
``A lot of market participants are skeptical about further yield declines,'' said Eiji Dohke, chief strategist at UBS Securities Japan Ltd. in Tokyo.
Ten-year bonds also gained this week on speculation corporate failures will increase as economic growth falters, underpinning demand for low-risk assets.
`Deepening Slump'
Urban Corp., Japan's worst-performing real-estate stock in 2008, filed for protection from its creditors on Aug. 13 with debt of 255.8 billion yen ($2.32 billion), making it the largest bankruptcy among listed companies in the nation this year. Urban became the fifth publicly traded Japanese property company to file for court protection in the past month.
The bankruptcy ``underscores the deepening slump in the real estate market and negative implications on bank balance sheets,'' Tomoko Fujii, head of Japan economics and strategy at Bank of America Corp., wrote in a research note on Aug. 14. The real-estate slump should add to caution of risky lending and ``should be positive for the JGB market.''
Trading was lower than average this week due to the nation's Obon summer holidays, Mitsubishi UFJ's Nishimura said.
To contact the reporter on this story: Theresa Barraclough in Osaka at tbarraclough@bloomberg.net.
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Lockhart Favors Current Fed Rate, Sees Debate About an Increase
By Steve Matthews and Kathleen Hays
Aug. 16 (Bloomberg) -- Federal Reserve Bank of Atlanta President Dennis Lockhart said he prefers to keep interest rates unchanged for now, while anticipating a debate among policy makers about whether to raise them in coming months.
``From my perspective, I like policy where it is,'' Lockhart, 61, said in an interview with Bloomberg News yesterday in Atlanta. ``I view the current situation as reasonably balanced, with a great deal of uncertainty around both the downsides to growth and the upsides to inflation.''
The economy's expansion is likely to remain ``weak'' through the second half of this year, which should help to damp inflation, said the Atlanta Fed chief, who will vote on rates next year. That means ``the reasonable policy debate will be around holding versus raising rates,'' he said.
``If the inflation numbers remain high -- which is another way of saying if I'm wrong -- then I may support action earlier,'' Lockhart said. He said he is ``quite comfortable with the current posture'' as long as price gains moderate.
Lockhart's remarks followed a government report Aug. 14 that showed consumer prices jumped by the most since 1991 in the year to July, spurred by energy costs. He said ``all'' Fed officials are concerned about the ``creeping'' up in prices, while the slide in oil in the past month will help ease the pressure.
Energy Costs
``Certainly, it helps a great deal,'' the bank president said. ``The outlook for the second half of the year and going into 2009 is we'll see some alleviation of inflation pressures. Having oil and other commodities come down so strongly helps.''
The Fed kept its benchmark interest rate at 2 percent for the second straight meeting on Aug. 5. It paused after the most aggressive series of rate reductions in two decades this year. The odds of no change in rates through the end of the year are 77 percent, up from 49 percent a month ago, futures contracts show.
The Federal Open Market Committee, which is made up of the Washington-based Fed board members and five district bank presidents, next gathers Sept. 16. Four of the bank chiefs rotate onto the panel, with the New York Fed president holding a permanent slot.
``I would not rule out any action'' on rates, said Lockhart, who joined the Atlanta Fed last year and previously worked at Citigroup Inc. for 17 years. ``I think we have to react to circumstances.''
Inflation Expectations
The Atlanta Fed president said he was carefully watching inflation expectations, which have shown a ``slight upward drift'' yet are ``still anchored.''
One measure of investors' expectations for consumer prices shows they anticipate average increases of 2.19 percent in the coming 10 years. That's the spread between yields on 10-year Treasury Inflation Protected Securities and regular 10-year Treasuries. Lockhart said he prefers inflation at 1.5 percent to 2 percent.
Lockhart also said that the housing slump is likely to last at least several more months, with prices and sales continuing to fall. He expressed concern about the impact on growth of the tightening of access to credit as banks struggle to improve asset quality.
``The housing market still has some way to go,'' he said, calling inventories excessive. ``We see relatively few signs that house prices have bottomed out'' nationwide, he said.
Economists forecast the Commerce Department will report next week that U.S. housing starts fell to the lowest level since 1991 in July. The collapse in residential construction has subtracted from gross domestic product growth for the past 10 straight quarters.
Export Impact
With export growth helping, the U.S. economy seems likely to avoid an outright contraction this year, Lockhart added. While some forecasters see the likelihood of growth near zero in the fourth quarter, Lockhart said he doesn't expect anything ``close'' to negative. Still, he also said a global slowdown means exports are likely to slow.
Lockhart added that financial turmoil isn't likely to abate in the near future.
``Banks are tightening their standards,'' he said. ``I perceive a caution'' about bankers lending to consumers, especially with employment weakening, he said.
``I would characterize today's markets as still showing some stress,'' he said. ``Credit spreads have been somewhat rising.''
Values of some mortgage-backed securities continue to be hurt by falling home prices, Lockhart said. ``Those securities continue to be a source of problems for financial institutions.''
Loan Survey
The Fed said Aug. 11 in a quarterly survey that more banks made it harder to borrow money for homes, small businesses and credit cards. About 75 percent of U.S. banks indicated they tightened standards on prime mortgage loans, up from 60 percent in the previous survey, the central bank said.
``The healing process of the financial sector is going to take some time,'' Lockhart said. While financial institutions have reported more than $500 billion in losses and writedowns, ``I think it is reasonable to assume there will be some more pain before we really completely see a turn,'' he said.
To contact the reporters on this story: Steve Matthews in Atlanta at smatthews@bloomberg.net; Kathleen Hays in Seattle at khays$@bloomberg.net
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Aug. 16 (Bloomberg) -- Federal Reserve Bank of Atlanta President Dennis Lockhart said he prefers to keep interest rates unchanged for now, while anticipating a debate among policy makers about whether to raise them in coming months.
``From my perspective, I like policy where it is,'' Lockhart, 61, said in an interview with Bloomberg News yesterday in Atlanta. ``I view the current situation as reasonably balanced, with a great deal of uncertainty around both the downsides to growth and the upsides to inflation.''
The economy's expansion is likely to remain ``weak'' through the second half of this year, which should help to damp inflation, said the Atlanta Fed chief, who will vote on rates next year. That means ``the reasonable policy debate will be around holding versus raising rates,'' he said.
``If the inflation numbers remain high -- which is another way of saying if I'm wrong -- then I may support action earlier,'' Lockhart said. He said he is ``quite comfortable with the current posture'' as long as price gains moderate.
Lockhart's remarks followed a government report Aug. 14 that showed consumer prices jumped by the most since 1991 in the year to July, spurred by energy costs. He said ``all'' Fed officials are concerned about the ``creeping'' up in prices, while the slide in oil in the past month will help ease the pressure.
Energy Costs
``Certainly, it helps a great deal,'' the bank president said. ``The outlook for the second half of the year and going into 2009 is we'll see some alleviation of inflation pressures. Having oil and other commodities come down so strongly helps.''
The Fed kept its benchmark interest rate at 2 percent for the second straight meeting on Aug. 5. It paused after the most aggressive series of rate reductions in two decades this year. The odds of no change in rates through the end of the year are 77 percent, up from 49 percent a month ago, futures contracts show.
The Federal Open Market Committee, which is made up of the Washington-based Fed board members and five district bank presidents, next gathers Sept. 16. Four of the bank chiefs rotate onto the panel, with the New York Fed president holding a permanent slot.
``I would not rule out any action'' on rates, said Lockhart, who joined the Atlanta Fed last year and previously worked at Citigroup Inc. for 17 years. ``I think we have to react to circumstances.''
Inflation Expectations
The Atlanta Fed president said he was carefully watching inflation expectations, which have shown a ``slight upward drift'' yet are ``still anchored.''
One measure of investors' expectations for consumer prices shows they anticipate average increases of 2.19 percent in the coming 10 years. That's the spread between yields on 10-year Treasury Inflation Protected Securities and regular 10-year Treasuries. Lockhart said he prefers inflation at 1.5 percent to 2 percent.
Lockhart also said that the housing slump is likely to last at least several more months, with prices and sales continuing to fall. He expressed concern about the impact on growth of the tightening of access to credit as banks struggle to improve asset quality.
``The housing market still has some way to go,'' he said, calling inventories excessive. ``We see relatively few signs that house prices have bottomed out'' nationwide, he said.
Economists forecast the Commerce Department will report next week that U.S. housing starts fell to the lowest level since 1991 in July. The collapse in residential construction has subtracted from gross domestic product growth for the past 10 straight quarters.
Export Impact
With export growth helping, the U.S. economy seems likely to avoid an outright contraction this year, Lockhart added. While some forecasters see the likelihood of growth near zero in the fourth quarter, Lockhart said he doesn't expect anything ``close'' to negative. Still, he also said a global slowdown means exports are likely to slow.
Lockhart added that financial turmoil isn't likely to abate in the near future.
``Banks are tightening their standards,'' he said. ``I perceive a caution'' about bankers lending to consumers, especially with employment weakening, he said.
``I would characterize today's markets as still showing some stress,'' he said. ``Credit spreads have been somewhat rising.''
Values of some mortgage-backed securities continue to be hurt by falling home prices, Lockhart said. ``Those securities continue to be a source of problems for financial institutions.''
Loan Survey
The Fed said Aug. 11 in a quarterly survey that more banks made it harder to borrow money for homes, small businesses and credit cards. About 75 percent of U.S. banks indicated they tightened standards on prime mortgage loans, up from 60 percent in the previous survey, the central bank said.
``The healing process of the financial sector is going to take some time,'' Lockhart said. While financial institutions have reported more than $500 billion in losses and writedowns, ``I think it is reasonable to assume there will be some more pain before we really completely see a turn,'' he said.
To contact the reporters on this story: Steve Matthews in Atlanta at smatthews@bloomberg.net; Kathleen Hays in Seattle at khays$@bloomberg.net
Read more...
Merrill, Goldman Pressured by Cuomo on Auction-Rate Debt
By David Mildenberg and Karen Freifeld
Aug. 16 (Bloomberg) -- Merrill Lynch & Co. and Goldman Sachs Group Inc. face increased pressure by New York State Attorney General Andrew Cuomo to settle claims they misled investors on auction-rate debt as Wachovia Corp. agreed to buy back $9 billion of the bonds.
Merrill's prior offer to repurchase $10 billion of the securities was inadequate and the firm may face ``imminent'' legal action, Cuomo said yesterday. New York has subpoenaed about 25 firms involved in sales of auction-rate securities, including five that then settled. Goldman is among the firms being probed, he said.
``I want to do it my way,'' he said.
Wachovia joined Citigroup Inc., Morgan Stanley, JPMorgan Chase & Co. and UBS AG in settlements stemming from a nationwide investigation into why auction-rate securities were marketed as safe as cash until the $330 billion market collapsed. Regulators have sought auction-rate buybacks for customers, reimbursement for consumers forced to sell securities at prices below face value and relief for institutional investors.
``All the banks want to put these things behind them quickly so they can move on,'' said James Cox, a professor at Duke University Law School in Durham, North Carolina.
Merrill spokesman Mark Herr said the firm was ``surprised'' to find it faced legal action, saying, ``We thought we were making progress.'' At Goldman, spokeswoman Andrea Raphael said the bank was ``cooperating fully'' in an attempt to meet the ``liquidity needs'' of clients. Both banks are based in New York. Wachovia is based in Charlotte, North Carolina.
Fidelity, Schwab
Cuomo is investigating retail brokerages such as Fidelity Investments and Charles Schwab Corp. that sold auction-rate securities underwritten by investment banks, according to Alex Detrick, a Cuomo spokesman.
``There's no doubt on that list you have many retail brokerage firms who sold securities and our belief is those firms are also liable to the investors,'' Cuomo said, referring to the group of 25 subpoenaed firms. ``If a retail brokerage firm sold them the security, we believe they're liable.''
Securities firms have little defense against regulators because of incriminating documents and the risk to their reputations, said William Shepherd, a Houston attorney whose firm, Shepherd, Smith Edwards & Kantas, has met with more than 500 investors holding the securities.
``The regulators had these firms dead to rights,'' said Shepherd, who worked as a bond market salesman in Texas for 20 years. ``All the firms will be shamed or forced to do something, even Goldman which seems to be saying that all of their clients are rich and sophisticated.''
`Blue in the Face'
Wachovia, the fourth-largest U.S. bank, will pay a $50 million fine to settle claims by the Securities and Exchange Commission and states led by Missouri that it misled investors. It also will take a $275 million pre-tax charge because of higher legal costs in the third quarter. The move follows a similar $500 million writedown in the second quarter that was disclosed Aug. 11.
``If it wasn't for the secretary of state in Missouri and others, I don't think we would have gotten anywhere,'' said Tom Nagel, a St. Louis insurance agent who has more than $750,000 in auction-rate securities with Wachovia. ``I dealt with Wachovia people until I was blue in the face and they categorically denied selling this as a money market. But if they don't want to admit they did wrong, shame on them.''
In addition to reimbursing its clients, Wachovia agreed to a public arbitration process to resolve ``claims of consequential damages suffered by retail investors'' and provide ``liquidity solutions'' to its institutional investors, Cuomo said in a statement on the Wachovia settlement.
`Didn't Do Right'
Wachovia's purchases of auction-rate securities from its individual and small-business clients will start by Nov. 10, and conclude by Nov. 28, the company said. Investors who sold the securities between Feb. 13 and today will be reimbursed for their loss by Nov. 28. The securities held by other Wachovia clients will be eligible for repurchase between June 10 and June 30 of 2009, Wachovia said.
``Wachovia clearly didn't do right by their customers,'' Missouri Secretary of State Robin Carnahan said in a Bloomberg Television interview. ``I'm as excited as I can be that these 40,000 investors will have access to money that they haven't had before.''
Auction-rate securities are typically bonds with interest rates reset by periodic bidding. Banks and securities dealers that ran the auctions abandoned their routine role as buyers of last resort in mid-February, causing the market to collapse and leaving holders frozen in the securities.
`No Place to Hide'
UBS AG and Citigroup Inc. last week agreed to redeem about $26 billion of the securities and pay fines of a combined $250 million, while Morgan Stanley and JPMorgan & Co. yesterday said they would buy back more than $7 billion of the debt and pay a combined $60 million in fines. The firms neither admitted nor denied wrongdoing.
Wachovia ``didn't have any choice,'' said Gary Townsend, a former bank analyst and co-founder of Hill-Townsend Capital Management in Chevy Chase, Maryland. ``When everyone else is settling, there is no place to hide.''
States will divide the fines based on the amount of securities sold in each state. The North American Securities Administrators Association, which represents state regulators, will distribute the money.
The periodic auctions that had allowed investors to move in or out of the securities at will fell apart when would-be sellers outnumbered buyers. In mid-February, auctions failed in unprecedented numbers, triggering penalty rates as high as 20 percent or pegged to a money-market formula, depending on language in the original bond documents.
Nagel, the St. Louis investor, needed to withdraw money in February to pay for a medical device required by his wife that cost almost $100,000. ``I called my broker on Feb. 12 and they said it would be no problem. Two days later, the broker called and said, `I've got a little problem,'' Nagel said. He hasn't been able to withdraw the securities since then.
To contact the reporters on this story: David Mildenberg in Charlotte, North Carolina, at dmildenberg@bloomberg.net.
Read more...
Aug. 16 (Bloomberg) -- Merrill Lynch & Co. and Goldman Sachs Group Inc. face increased pressure by New York State Attorney General Andrew Cuomo to settle claims they misled investors on auction-rate debt as Wachovia Corp. agreed to buy back $9 billion of the bonds.
Merrill's prior offer to repurchase $10 billion of the securities was inadequate and the firm may face ``imminent'' legal action, Cuomo said yesterday. New York has subpoenaed about 25 firms involved in sales of auction-rate securities, including five that then settled. Goldman is among the firms being probed, he said.
``I want to do it my way,'' he said.
Wachovia joined Citigroup Inc., Morgan Stanley, JPMorgan Chase & Co. and UBS AG in settlements stemming from a nationwide investigation into why auction-rate securities were marketed as safe as cash until the $330 billion market collapsed. Regulators have sought auction-rate buybacks for customers, reimbursement for consumers forced to sell securities at prices below face value and relief for institutional investors.
``All the banks want to put these things behind them quickly so they can move on,'' said James Cox, a professor at Duke University Law School in Durham, North Carolina.
Merrill spokesman Mark Herr said the firm was ``surprised'' to find it faced legal action, saying, ``We thought we were making progress.'' At Goldman, spokeswoman Andrea Raphael said the bank was ``cooperating fully'' in an attempt to meet the ``liquidity needs'' of clients. Both banks are based in New York. Wachovia is based in Charlotte, North Carolina.
Fidelity, Schwab
Cuomo is investigating retail brokerages such as Fidelity Investments and Charles Schwab Corp. that sold auction-rate securities underwritten by investment banks, according to Alex Detrick, a Cuomo spokesman.
``There's no doubt on that list you have many retail brokerage firms who sold securities and our belief is those firms are also liable to the investors,'' Cuomo said, referring to the group of 25 subpoenaed firms. ``If a retail brokerage firm sold them the security, we believe they're liable.''
Securities firms have little defense against regulators because of incriminating documents and the risk to their reputations, said William Shepherd, a Houston attorney whose firm, Shepherd, Smith Edwards & Kantas, has met with more than 500 investors holding the securities.
``The regulators had these firms dead to rights,'' said Shepherd, who worked as a bond market salesman in Texas for 20 years. ``All the firms will be shamed or forced to do something, even Goldman which seems to be saying that all of their clients are rich and sophisticated.''
`Blue in the Face'
Wachovia, the fourth-largest U.S. bank, will pay a $50 million fine to settle claims by the Securities and Exchange Commission and states led by Missouri that it misled investors. It also will take a $275 million pre-tax charge because of higher legal costs in the third quarter. The move follows a similar $500 million writedown in the second quarter that was disclosed Aug. 11.
``If it wasn't for the secretary of state in Missouri and others, I don't think we would have gotten anywhere,'' said Tom Nagel, a St. Louis insurance agent who has more than $750,000 in auction-rate securities with Wachovia. ``I dealt with Wachovia people until I was blue in the face and they categorically denied selling this as a money market. But if they don't want to admit they did wrong, shame on them.''
In addition to reimbursing its clients, Wachovia agreed to a public arbitration process to resolve ``claims of consequential damages suffered by retail investors'' and provide ``liquidity solutions'' to its institutional investors, Cuomo said in a statement on the Wachovia settlement.
`Didn't Do Right'
Wachovia's purchases of auction-rate securities from its individual and small-business clients will start by Nov. 10, and conclude by Nov. 28, the company said. Investors who sold the securities between Feb. 13 and today will be reimbursed for their loss by Nov. 28. The securities held by other Wachovia clients will be eligible for repurchase between June 10 and June 30 of 2009, Wachovia said.
``Wachovia clearly didn't do right by their customers,'' Missouri Secretary of State Robin Carnahan said in a Bloomberg Television interview. ``I'm as excited as I can be that these 40,000 investors will have access to money that they haven't had before.''
Auction-rate securities are typically bonds with interest rates reset by periodic bidding. Banks and securities dealers that ran the auctions abandoned their routine role as buyers of last resort in mid-February, causing the market to collapse and leaving holders frozen in the securities.
`No Place to Hide'
UBS AG and Citigroup Inc. last week agreed to redeem about $26 billion of the securities and pay fines of a combined $250 million, while Morgan Stanley and JPMorgan & Co. yesterday said they would buy back more than $7 billion of the debt and pay a combined $60 million in fines. The firms neither admitted nor denied wrongdoing.
Wachovia ``didn't have any choice,'' said Gary Townsend, a former bank analyst and co-founder of Hill-Townsend Capital Management in Chevy Chase, Maryland. ``When everyone else is settling, there is no place to hide.''
States will divide the fines based on the amount of securities sold in each state. The North American Securities Administrators Association, which represents state regulators, will distribute the money.
The periodic auctions that had allowed investors to move in or out of the securities at will fell apart when would-be sellers outnumbered buyers. In mid-February, auctions failed in unprecedented numbers, triggering penalty rates as high as 20 percent or pegged to a money-market formula, depending on language in the original bond documents.
Nagel, the St. Louis investor, needed to withdraw money in February to pay for a medical device required by his wife that cost almost $100,000. ``I called my broker on Feb. 12 and they said it would be no problem. Two days later, the broker called and said, `I've got a little problem,'' Nagel said. He hasn't been able to withdraw the securities since then.
To contact the reporters on this story: David Mildenberg in Charlotte, North Carolina, at dmildenberg@bloomberg.net.
Read more...
China's Economy Slows on Weaker Production, Olympics Closures
By Kevin Hamlin
Aug. 16 (Bloomberg) -- China's growth is cooling and may spur the government to ease lending restrictions, provide more export-tax rebates and stall yuan appreciation, analysts said after economic reports this week.
Industrial production grew in July at the weakest pace in 16 months amid faltering orders for Chinese exports. Consumer prices rose the least in 10 months, giving policy makers room to boost the economy without fueling inflation.
The slowdown in China, which powered almost 30 percent of the global expansion last year, may be exacerbated by factory closures aimed at cutting pollution during the Beijing Olympics, according to Goldman Sachs Group Inc. The central bank yesterday said it would ``fine-tune'' monetary policy as weaker overseas demand for the nation's goods poses risks to the economy.
``Concerns over China's export health will translate into a complete reversal of the current tightening policy,'' said Donald Straszheim, vice chairman of Newport Beach, California- based Roth Capital Partners. ``Maintaining economic growth is now number one.''
China's economy grew 10.1 percent in the second quarter, the fourth consecutive slowdown, prompting Communist Party leaders to put a bigger emphasis on maintaining growth and protecting jobs. Government statements in the past month have dropped references to a ``tight'' monetary policy.
`Quite Nervous'
``China needs much faster growth than an average Western country as it has to generate 10 million jobs a year,'' said Tao Dong, chief Asia economist at Credit Suisse Group AG in Hong Kong. ``Eight percent growth in China is equivalent to a recession. Below nine percent would make the authorities quite nervous.''
Economic statistics for July released in the past week showed a mixed picture. Exports rose, retail sales climbed the most since 1999 and spending on factories and property increased.
At the same time, weaker production growth foreshadowed softening demand for Chinese goods as the U.S., Japanese and European economies falter. A government-backed survey earlier this month showed export orders falling to a record, suggesting shipments may ease in coming months.
The People's Bank of China yesterday said demand from abroad ``will continue to weaken.'' The central bank has halted the yuan's appreciation, making exports more affordable to overseas buyers.
The yuan fell 0.2 percent to 6.8700 against the dollar today for a fourth weekly loss, the longest stretch since a peg to the U.S. currency was scrapped in 2005. The Chinese currency gained 6.6 percent in the first half, double the pace of a year earlier.
Olympic Closures
Factory closures and restrictions on construction, mining and motor vehicles to reduce pollution for the Olympics will also be a drag on growth in August and September, Goldman Sachs said in an August 8 report. Factories closed in Beijing and the surrounding areas account for 26 percent of China's economy, according to Goldman.
Inflation slowed to 6.3 percent in July, giving the government more leeway to promote growth. The government has already raised loan quotas for banks to help small and medium- sized businesses and increased tax rebates for exports of textiles and garments.
``Beijing wants her export sector to thrive,'' said Roth Capital's Straszheim. ``Since 2004 double-digit economic growth has been taken for granted.''
Policies to sustain growth in Asia's second-largest economy could put a floor under raw material prices, helping commodity- dependent countries from Australia to Brazil.
Fiscal `Firepower'
China has the funds to pay for pro-growth policies, according to Credit Suisse. The country has a budget surplus of 1.5 percent of gross domestic product and currency reserves equal to 45 percent of GDP.
``Without this firepower we would be very negative on both China and commodities,'' said Andrew Garthwaite, an economist at Credit Suisse in London.
China plans to spend 3.8 trillion yuan ($550 billion) on transportation and infrastructure in its five-year plan running through 2010 and this year is tripling annual spending on railways to 300 billion yuan.
``New policy measures to support growth could include further tax rebates for low-end exporters, an easing of lending quotas, slower yuan appreciation or even depreciation,'' said Glenn Maguire, chief Asia-Pacific economist at Societe Generale SA in Hong Kong. ``China is returning to the investment-heavy growth model we saw in 2003 and 2004.''
To contact the reporter on this story: Kevin Hamlin in Beijing on khamlin@bloomberg.net;
Read more...
Aug. 16 (Bloomberg) -- China's growth is cooling and may spur the government to ease lending restrictions, provide more export-tax rebates and stall yuan appreciation, analysts said after economic reports this week.
Industrial production grew in July at the weakest pace in 16 months amid faltering orders for Chinese exports. Consumer prices rose the least in 10 months, giving policy makers room to boost the economy without fueling inflation.
The slowdown in China, which powered almost 30 percent of the global expansion last year, may be exacerbated by factory closures aimed at cutting pollution during the Beijing Olympics, according to Goldman Sachs Group Inc. The central bank yesterday said it would ``fine-tune'' monetary policy as weaker overseas demand for the nation's goods poses risks to the economy.
``Concerns over China's export health will translate into a complete reversal of the current tightening policy,'' said Donald Straszheim, vice chairman of Newport Beach, California- based Roth Capital Partners. ``Maintaining economic growth is now number one.''
China's economy grew 10.1 percent in the second quarter, the fourth consecutive slowdown, prompting Communist Party leaders to put a bigger emphasis on maintaining growth and protecting jobs. Government statements in the past month have dropped references to a ``tight'' monetary policy.
`Quite Nervous'
``China needs much faster growth than an average Western country as it has to generate 10 million jobs a year,'' said Tao Dong, chief Asia economist at Credit Suisse Group AG in Hong Kong. ``Eight percent growth in China is equivalent to a recession. Below nine percent would make the authorities quite nervous.''
Economic statistics for July released in the past week showed a mixed picture. Exports rose, retail sales climbed the most since 1999 and spending on factories and property increased.
At the same time, weaker production growth foreshadowed softening demand for Chinese goods as the U.S., Japanese and European economies falter. A government-backed survey earlier this month showed export orders falling to a record, suggesting shipments may ease in coming months.
The People's Bank of China yesterday said demand from abroad ``will continue to weaken.'' The central bank has halted the yuan's appreciation, making exports more affordable to overseas buyers.
The yuan fell 0.2 percent to 6.8700 against the dollar today for a fourth weekly loss, the longest stretch since a peg to the U.S. currency was scrapped in 2005. The Chinese currency gained 6.6 percent in the first half, double the pace of a year earlier.
Olympic Closures
Factory closures and restrictions on construction, mining and motor vehicles to reduce pollution for the Olympics will also be a drag on growth in August and September, Goldman Sachs said in an August 8 report. Factories closed in Beijing and the surrounding areas account for 26 percent of China's economy, according to Goldman.
Inflation slowed to 6.3 percent in July, giving the government more leeway to promote growth. The government has already raised loan quotas for banks to help small and medium- sized businesses and increased tax rebates for exports of textiles and garments.
``Beijing wants her export sector to thrive,'' said Roth Capital's Straszheim. ``Since 2004 double-digit economic growth has been taken for granted.''
Policies to sustain growth in Asia's second-largest economy could put a floor under raw material prices, helping commodity- dependent countries from Australia to Brazil.
Fiscal `Firepower'
China has the funds to pay for pro-growth policies, according to Credit Suisse. The country has a budget surplus of 1.5 percent of gross domestic product and currency reserves equal to 45 percent of GDP.
``Without this firepower we would be very negative on both China and commodities,'' said Andrew Garthwaite, an economist at Credit Suisse in London.
China plans to spend 3.8 trillion yuan ($550 billion) on transportation and infrastructure in its five-year plan running through 2010 and this year is tripling annual spending on railways to 300 billion yuan.
``New policy measures to support growth could include further tax rebates for low-end exporters, an easing of lending quotas, slower yuan appreciation or even depreciation,'' said Glenn Maguire, chief Asia-Pacific economist at Societe Generale SA in Hong Kong. ``China is returning to the investment-heavy growth model we saw in 2003 and 2004.''
To contact the reporter on this story: Kevin Hamlin in Beijing on khamlin@bloomberg.net;
Read more...
U.S. Tells Russia to Remove Forces From Georgia `Immediately'
By Helena Bedwell and Henry Meyer
Aug. 16 (Bloomberg) -- The U.S. demanded Russia pull its troops out of Georgia ``immediately,'' after Georgian President Mikheil Saakashvili signed a European Union-brokered peace plan that ended five days of fighting.
``Now with the signature of the Georgian president on this cease-fire accord, all Russian troops and any irregular and paramilitary forces that entered with them must leave immediately,'' U.S. Secretary of State Condoleezza Rice told reporters in the Georgian capital Tbilisi yesterday.
A statement late yesterday from the Kremlin said Russian President Dmitry Medvedev had spoken by telephone with French President Nicolas Sarkozy, the current head of the EU, about steps toward getting the plan signed by all parties. Both ``expressed satisfaction'' at the level of cooperation, the Kremlin statement said.
Four days after Medvedev ordered a halt to hostilities, Russian troops are seizing military equipment at Georgian bases well beyond the breakaway South Ossetia region that sparked the conflict. Russian General Nikolai Uvarov told Bloomberg Television in an interview yesterday it could take ``days'' to complete the task.
Saakashvili told reporters in Tbilisi late yesterday that the Russians had moved into three Georgian towns -- Kaspi, Borjomi and Khashuri -- after the cease-fire.
Moves Stoke Tensions
The continued Russian military activity is fueling tensions between Russia and the U.S., which deployed its military to deliver aid to Georgia. The West sees Georgia as a key ally in the region, in part because it has a pipeline that carries Caspian Sea crude oil to Western markets, bypassing Russia. The U.S. backs Georgia's bid to join the North Atlantic Treaty Organization, which Russian leaders view as a security threat.
``Moscow must honor its commitment to withdraw its invading forces from all Georgian territory,'' President George W. Bush said yesterday in Washington, insisting that only Russia's pre- conflict contingent of peacekeepers remain in South Ossetia and Abkhazia, another breakaway region. Bush added that ``bullying and intimidation'' by Russia won't be tolerated.
German Chancellor Angela Merkel condemned the Russian military offensive against Georgia as ``disproportionate,'' after talks with Medvedev in Sochi, southern Russia.
Georgia Seeks Peacekeepers
``We are under Russian invasion and Russian occupation right now,'' Saakashvili said standing next to Rice against a backdrop of U.S. and Georgian flags. He said the cease-fire agreement is ``not a final settlement'' and called for a ``genuine international peacekeeping force on the ground to replace the occupiers.''
Russian troops still control one third of Georgian territory, Saakashvili said earlier.
No country has recognized South Ossetia or Abkhazia since they broke away from Georgia in wars after the 1991 collapse of the Soviet Union. Russia has had peacekeepers in both regions since then and expelled all Georgian forces from the territories in recent fighting.
``Unfortunately, after what happened, it's unlikely that the Abkhaz and South Ossetians can live in a single state with Georgia,'' Medvedev said. ``Or some absolutely titanic efforts must be made to resolve this conflict.''
He met Aug. 14 in Moscow with South Ossetian President Eduard Kokoity and Sergei Bagapsh, the leader of Abkhazia, and told them that Russia would support their regions' decisions about their future status.
No Russian Timetable
Medvedev gave no timetable for a troop withdrawal after his talks with Merkel. ``I'm telling you that we have been fulfilling our peacekeeping mandate and will continue to do so,'' he said.
Russia wants to maintain a buffer zone inside Georgia proper to protect the territories, Russian Deputy Prime Minister Sergei Ivanov said in an interview with Bloomberg Television.
The Russian peacekeeping mission includes weakening Georgia's military so that it ``can't even think about repeating its attempts to attack this or that territory,'' Anatoly Nogovitsyn, deputy chief of Russia's General Staff, said.
Russia sent troops, tanks and warplanes into Georgia on Aug. 8 in response to a Georgian offensive to restore control over South Ossetia. As many as 2,000 civilians died in the fighting, Russian and South Ossetian officials said. Georgia accused Russia of a ``well-planned invasion.''
Statehood for the two regions, where most people have Russian passports, ``is an open question,'' Ivanov said. ``Look, we have many precedents in the world.''
A Precedent
Both self-declared republics argue that Kosovo's declaration of independence from Serbia, recognized by much of the West, should be a precedent for their independence.
Russian troops seized U.S.- and Russian-made weapons in the Georgian town of Senaki, near Abkhazia, Nogovitsyn told reporters in Moscow yesterday.
The U.S. has provided military training and financial aid to Georgia's army. About 1,000 U.S. soldiers joined 600 Georgians for exercises in mid-July, three weeks before fighting broke out in South Ossetia.
In the city of Gori, near South Ossetia, Russian peacekeepers are securing an abandoned Georgian arsenal and preventing looting, Nogovitsyn said. Saakashvili told reporters in Tbilisi yesterday that the Russian army has brought in ``thousands and thousands of irregulars'' who are terrorizing the population.
The EU peace plan calls for the withdrawal of Georgian and Russian troops, renunciation of the use of force, an end to all military operations and a commitment to making humanitarian aid freely available in the conflict zone.
``The primary risk at the moment in our opinion lies with possible economic and financial sanctions by the U.S. should Russian troops deploy further in Georgia,'' Morgan Stanley analysts including Jonathan Garner wrote.
Bush ordered the U.S. military three days ago to spearhead a humanitarian aid mission to Georgia, with shipments to be delivered by the navy and military aircraft. Nogovitsyn said Russia isn't convinced the goal of the U.S. mission is humanitarian and ``is very worried'' about it.
To contact the reporters on this story: Helena Bedwell in Tbilisi hbedwell@bloomberg.net; Henry Meyer in Moscow at hmeyer4@bloomberg.net
Read more...
Aug. 16 (Bloomberg) -- The U.S. demanded Russia pull its troops out of Georgia ``immediately,'' after Georgian President Mikheil Saakashvili signed a European Union-brokered peace plan that ended five days of fighting.
``Now with the signature of the Georgian president on this cease-fire accord, all Russian troops and any irregular and paramilitary forces that entered with them must leave immediately,'' U.S. Secretary of State Condoleezza Rice told reporters in the Georgian capital Tbilisi yesterday.
A statement late yesterday from the Kremlin said Russian President Dmitry Medvedev had spoken by telephone with French President Nicolas Sarkozy, the current head of the EU, about steps toward getting the plan signed by all parties. Both ``expressed satisfaction'' at the level of cooperation, the Kremlin statement said.
Four days after Medvedev ordered a halt to hostilities, Russian troops are seizing military equipment at Georgian bases well beyond the breakaway South Ossetia region that sparked the conflict. Russian General Nikolai Uvarov told Bloomberg Television in an interview yesterday it could take ``days'' to complete the task.
Saakashvili told reporters in Tbilisi late yesterday that the Russians had moved into three Georgian towns -- Kaspi, Borjomi and Khashuri -- after the cease-fire.
Moves Stoke Tensions
The continued Russian military activity is fueling tensions between Russia and the U.S., which deployed its military to deliver aid to Georgia. The West sees Georgia as a key ally in the region, in part because it has a pipeline that carries Caspian Sea crude oil to Western markets, bypassing Russia. The U.S. backs Georgia's bid to join the North Atlantic Treaty Organization, which Russian leaders view as a security threat.
``Moscow must honor its commitment to withdraw its invading forces from all Georgian territory,'' President George W. Bush said yesterday in Washington, insisting that only Russia's pre- conflict contingent of peacekeepers remain in South Ossetia and Abkhazia, another breakaway region. Bush added that ``bullying and intimidation'' by Russia won't be tolerated.
German Chancellor Angela Merkel condemned the Russian military offensive against Georgia as ``disproportionate,'' after talks with Medvedev in Sochi, southern Russia.
Georgia Seeks Peacekeepers
``We are under Russian invasion and Russian occupation right now,'' Saakashvili said standing next to Rice against a backdrop of U.S. and Georgian flags. He said the cease-fire agreement is ``not a final settlement'' and called for a ``genuine international peacekeeping force on the ground to replace the occupiers.''
Russian troops still control one third of Georgian territory, Saakashvili said earlier.
No country has recognized South Ossetia or Abkhazia since they broke away from Georgia in wars after the 1991 collapse of the Soviet Union. Russia has had peacekeepers in both regions since then and expelled all Georgian forces from the territories in recent fighting.
``Unfortunately, after what happened, it's unlikely that the Abkhaz and South Ossetians can live in a single state with Georgia,'' Medvedev said. ``Or some absolutely titanic efforts must be made to resolve this conflict.''
He met Aug. 14 in Moscow with South Ossetian President Eduard Kokoity and Sergei Bagapsh, the leader of Abkhazia, and told them that Russia would support their regions' decisions about their future status.
No Russian Timetable
Medvedev gave no timetable for a troop withdrawal after his talks with Merkel. ``I'm telling you that we have been fulfilling our peacekeeping mandate and will continue to do so,'' he said.
Russia wants to maintain a buffer zone inside Georgia proper to protect the territories, Russian Deputy Prime Minister Sergei Ivanov said in an interview with Bloomberg Television.
The Russian peacekeeping mission includes weakening Georgia's military so that it ``can't even think about repeating its attempts to attack this or that territory,'' Anatoly Nogovitsyn, deputy chief of Russia's General Staff, said.
Russia sent troops, tanks and warplanes into Georgia on Aug. 8 in response to a Georgian offensive to restore control over South Ossetia. As many as 2,000 civilians died in the fighting, Russian and South Ossetian officials said. Georgia accused Russia of a ``well-planned invasion.''
Statehood for the two regions, where most people have Russian passports, ``is an open question,'' Ivanov said. ``Look, we have many precedents in the world.''
A Precedent
Both self-declared republics argue that Kosovo's declaration of independence from Serbia, recognized by much of the West, should be a precedent for their independence.
Russian troops seized U.S.- and Russian-made weapons in the Georgian town of Senaki, near Abkhazia, Nogovitsyn told reporters in Moscow yesterday.
The U.S. has provided military training and financial aid to Georgia's army. About 1,000 U.S. soldiers joined 600 Georgians for exercises in mid-July, three weeks before fighting broke out in South Ossetia.
In the city of Gori, near South Ossetia, Russian peacekeepers are securing an abandoned Georgian arsenal and preventing looting, Nogovitsyn said. Saakashvili told reporters in Tbilisi yesterday that the Russian army has brought in ``thousands and thousands of irregulars'' who are terrorizing the population.
The EU peace plan calls for the withdrawal of Georgian and Russian troops, renunciation of the use of force, an end to all military operations and a commitment to making humanitarian aid freely available in the conflict zone.
``The primary risk at the moment in our opinion lies with possible economic and financial sanctions by the U.S. should Russian troops deploy further in Georgia,'' Morgan Stanley analysts including Jonathan Garner wrote.
Bush ordered the U.S. military three days ago to spearhead a humanitarian aid mission to Georgia, with shipments to be delivered by the navy and military aircraft. Nogovitsyn said Russia isn't convinced the goal of the U.S. mission is humanitarian and ``is very worried'' about it.
To contact the reporters on this story: Helena Bedwell in Tbilisi hbedwell@bloomberg.net; Henry Meyer in Moscow at hmeyer4@bloomberg.net
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Closing Market Recap: Strategists Fret as Correlations Flip
Closing Market Recap: Strategists Fret as Correlations Flip
16 Agustus 2008 4:11
(CEP News) - Traders advised caution on Friday as a pair of the most consistent market correlations wilted. In one, Treasury yields and equities moved in opposite directions for the second straight session. In the other, the Canadian dollar outperformed all G10 currencies even as crude oil and gold fell to long-term lows.
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16 Agustus 2008 4:11
(CEP News) - Traders advised caution on Friday as a pair of the most consistent market correlations wilted. In one, Treasury yields and equities moved in opposite directions for the second straight session. In the other, the Canadian dollar outperformed all G10 currencies even as crude oil and gold fell to long-term lows.
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Asian Stocks Fall for Third Week on Outlook for Economic Growth
By Chen Shiyin
Aug. 16 (Bloomberg) -- Asian stocks declined for a third week, driving the region's benchmark index to a two-year low, on concern that economic growth in Japan and China is faltering.
Mitsui Fudosan Ltd. led property stocks lower in Tokyo after developer Urban Corp. filed for bankruptcy and Japan's housing investment unexpectedly fell. Aluminum Corporation of China Ltd. dropped after reports showed the nation's producer prices rose at the fastest pace since 1996 and industrial-output growth cooled. Telstra Corp. and Singapore Telecommunications Ltd. led phone companies lower after posting earnings that missed estimates.
``The broader concern now is with economic growth, especially with signs that even China is slowing down,'' said Nicole Sze, a Singapore-based investment analyst at Bank Julius Baer & Co., which manages $350 billion in assets worldwide. ``It's possible that you'll see more earnings downgrades.''
The MSCI Asia Pacific Index lost 1.8 percent to 124.84 this week, the lowest since August 2006. It's dropped 21 percent this year as soaring food and fuel prices threatened consumer spending and corporate profits, while writedowns and credit losses at the world's largest financial companies topped $500 billion.
Japan's Nikkei 2005 Stock Average dropped 1.1 percent in the week. China's CSI 300 Index slumped 5.6 percent, the region's biggest loss. Benchmarks declined in most markets.
Mitsui Fudosan, Japan's No. 1 developer, slipped 2.4 percent to 2,275 yen. Mitsubishi Estate Co., the second-biggest, dropped 4.4 percent to 2,390 yen. Tokyu Land Corp., a smaller developer, plunged 9 percent to 477 yen.
Urban's Bankruptcy
Urban, Japan's worst-performing real-estate stock this year, plunged 94 percent to 6 yen this week after saying it sought protection from creditors, with $2.35 billion in debt, the biggest corporate failure in Japan this year. It joined builders Zephyr Co. and Kyoei Sangyo Co. that went bankrupt last month.
Property stocks also declined after the government said Japan's economy contracted 0.6 percent last quarter, bringing the country to the brink of its first recession in six years, as exports fell and consumers spent less. The GDP report also showed housing investment dropped 3.4 percent last quarter, compared with expectations for an increase.
``Urban's bankruptcy is stoking fears that more are on the way, even among seemingly profitable companies,'' said Yoshihiro Ito, senior strategist at Okasan Asset Management Co. in Tokyo, which oversees the equivalent of $9.3 billion. ``The market is trying to figure out whether this economic slump is going to be deep or shallow.''
Inflation, Production
China's factory-gate prices rose 10 percent in July, the fastest since 1996, on soaring energy and commodity costs, the statistics bureau said on Aug. 11. It also said production climbed 14.7 percent last month, the slowest pace since February 2007, after China capped factory production ahead of the Olympic Games to clear the air.
Aluminum Corp., China's biggest producer of the metal, tumbled 10 percent to 10.34 yuan, rounding off its fifth straight week of losses. Zhuzhou Smelter Group Co., China's largest zinc producer, plunged 14 percent to 6.71 yuan.
Telstra, Australia's No. 1 phone company, fell 2.6 percent to A$4.42 after it reported an A$1.77 billion ($1.54 billion) profit in the second half, missing the A$2.11 billion median estimate in a Bloomberg survey of analysts.
Singapore Telecommunications (ST SP), Southeast Asia's largest phone company, slipped 0.1 percent to S$3.49 after saying first-quarter profit dropped 5.3 percent, more than analysts had forecast, as a stronger currency eroded overseas earnings.
The MSCI Asia-Pacific Telecommunication Services Index fell 4.15 percent this week, the largest retreat among the broader index's 10 industry groups. China Mobile Ltd. (941 HK), the world's largest phone company, dropped 6.6 percent to HK$93.45 in Hong Kong after Citigroup Inc. cut its share-price estimate by 20 percent.
To contact the reporter for this story: Chen Shiyin in Singapore at schen37@bloomberg.net.
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Aug. 16 (Bloomberg) -- Asian stocks declined for a third week, driving the region's benchmark index to a two-year low, on concern that economic growth in Japan and China is faltering.
Mitsui Fudosan Ltd. led property stocks lower in Tokyo after developer Urban Corp. filed for bankruptcy and Japan's housing investment unexpectedly fell. Aluminum Corporation of China Ltd. dropped after reports showed the nation's producer prices rose at the fastest pace since 1996 and industrial-output growth cooled. Telstra Corp. and Singapore Telecommunications Ltd. led phone companies lower after posting earnings that missed estimates.
``The broader concern now is with economic growth, especially with signs that even China is slowing down,'' said Nicole Sze, a Singapore-based investment analyst at Bank Julius Baer & Co., which manages $350 billion in assets worldwide. ``It's possible that you'll see more earnings downgrades.''
The MSCI Asia Pacific Index lost 1.8 percent to 124.84 this week, the lowest since August 2006. It's dropped 21 percent this year as soaring food and fuel prices threatened consumer spending and corporate profits, while writedowns and credit losses at the world's largest financial companies topped $500 billion.
Japan's Nikkei 2005 Stock Average dropped 1.1 percent in the week. China's CSI 300 Index slumped 5.6 percent, the region's biggest loss. Benchmarks declined in most markets.
Mitsui Fudosan, Japan's No. 1 developer, slipped 2.4 percent to 2,275 yen. Mitsubishi Estate Co., the second-biggest, dropped 4.4 percent to 2,390 yen. Tokyu Land Corp., a smaller developer, plunged 9 percent to 477 yen.
Urban's Bankruptcy
Urban, Japan's worst-performing real-estate stock this year, plunged 94 percent to 6 yen this week after saying it sought protection from creditors, with $2.35 billion in debt, the biggest corporate failure in Japan this year. It joined builders Zephyr Co. and Kyoei Sangyo Co. that went bankrupt last month.
Property stocks also declined after the government said Japan's economy contracted 0.6 percent last quarter, bringing the country to the brink of its first recession in six years, as exports fell and consumers spent less. The GDP report also showed housing investment dropped 3.4 percent last quarter, compared with expectations for an increase.
``Urban's bankruptcy is stoking fears that more are on the way, even among seemingly profitable companies,'' said Yoshihiro Ito, senior strategist at Okasan Asset Management Co. in Tokyo, which oversees the equivalent of $9.3 billion. ``The market is trying to figure out whether this economic slump is going to be deep or shallow.''
Inflation, Production
China's factory-gate prices rose 10 percent in July, the fastest since 1996, on soaring energy and commodity costs, the statistics bureau said on Aug. 11. It also said production climbed 14.7 percent last month, the slowest pace since February 2007, after China capped factory production ahead of the Olympic Games to clear the air.
Aluminum Corp., China's biggest producer of the metal, tumbled 10 percent to 10.34 yuan, rounding off its fifth straight week of losses. Zhuzhou Smelter Group Co., China's largest zinc producer, plunged 14 percent to 6.71 yuan.
Telstra, Australia's No. 1 phone company, fell 2.6 percent to A$4.42 after it reported an A$1.77 billion ($1.54 billion) profit in the second half, missing the A$2.11 billion median estimate in a Bloomberg survey of analysts.
Singapore Telecommunications (ST SP), Southeast Asia's largest phone company, slipped 0.1 percent to S$3.49 after saying first-quarter profit dropped 5.3 percent, more than analysts had forecast, as a stronger currency eroded overseas earnings.
The MSCI Asia-Pacific Telecommunication Services Index fell 4.15 percent this week, the largest retreat among the broader index's 10 industry groups. China Mobile Ltd. (941 HK), the world's largest phone company, dropped 6.6 percent to HK$93.45 in Hong Kong after Citigroup Inc. cut its share-price estimate by 20 percent.
To contact the reporter for this story: Chen Shiyin in Singapore at schen37@bloomberg.net.
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USD Rally Continues
| Daily Forex Fundamentals | Written by CMS Forex | Aug 15 08 22:03 GMT | | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| The dollar continued rallying versus its rivals Friday. The GBP/USD dropped for an 11th day, the longest losing streak in at least 37 years, on speculation a UK recession will force the Bank of England to lower interest rates. The Australian dollar fell as commodity prices declined and traders bet on lower interest rates. However, the Canadian dollar gained as Canada's trade surplus increased in June and manufacturing shipments exceeded expectation. The EUR/USD fell for a fifth week and traded at the lowest level since February 20. After failing to break resistance at 1.60, the pair was down over 13 cents. Slumping European economic growth has evaporated the European growth advantage, making it likely that the European interest rate advantage will diminish. The EUR/USD will possibly test the significant 1.45-support. If this long-term uptrend is broken, the pair will fall to the 1.35 area.
Financial and Economic News and CommentsUS & Canada US industrial production was up for a second consecutive month in July increasing 0.2% m/m, boosted by the end of auto strikes, following a downwardly revised 0.4% m/m gain in June, the Federal Reserve said. Industrial production fell 0.1% y/y. Capacity utilization increased to 79.9% in July after June's downwardly revised 79.8%. The 1972-2007 average is 81.0%. Manufacturing production was up 0.4% m/m in July, the largest monthly gain in the past year, after increasing 0.1% m/m in June. Manufacturing capacity utilization increased to 77.7%. Overall, today's data showed some improvement, giving the Federal Reserve more room to address inflation by starting to raise short-term interest rates.
The Reuters/University of Michigan preliminary index of consumer sentiment increased to 61.7, indicating confidence among US consumers rose in August, from 61.2 in July. The current conditions index, which reflects Americans' perceptions of their financial situation, fell to 69.3 in August from 73.1 in July. The consumer expectations index, which projects the direction of consumer spending, rose to 56.8, the highest since March, from July's 53.5. Consumers in the August survey said they expect a 4.8% inflation rate over the next 12 months, down from a 5.1% forecast in the July survey.
The Federal Reserve Bank of New York's general economic index unexpectedly rose to 2.8 in August, indicating manufacturing in New York grew the most since January, from -4.9 in July. A reading of zero is the dividing line between growth and contraction. The prices paid index fell to 65.2 in August, the biggest drop since March 2006, from 77.9 in July. The prices received index was unchanged at an all-time high of 32.6. Companies in New York were more optimistic about their prospects. The index measuring the outlook for six months from now rose to 34.6 in August, the highest level this year, from July's 15.6. Other measures showed factories continue to struggle. The new orders measure declined to -2.2 from July's 8.3. The unfilled orders gauge fell to -9 from -8.4. The employment measure improved to -4.5 from -6.3, signaling fewer firings. International buying of US financial assets fell to $53.4 billion in June, posting the smallest gain in nine months, from a revised $83.2 billion in May, the Treasury Department said. Federal Reserve Bank of Atlanta President Dennis Lockhart said the 20% decline in oil prices from their peak should help slow inflation, while economic weakness may continue into 2009. “Certainly, it helps a great deal….The outlook for the second half of the year and going into 2009 is we'll see some alleviation of inflation pressures. Having oil and other commodities come down so strongly helps,” Lockhart said in a Bloomberg Television interview when asked about the decline in energy prices. Canada's factory shipments gained 2.1% m/m in June, doubling forecasts and capping the first 3-month gain since 2005. Shipments advanced to C$52.5 billion ($49.4 billion) in June, the fifth gain in six months, from C$51.4 billion in May, Statistics Canada reported. Excluding price changes, sales rose 0.6% m/m. Europe Optimism about Germany's economic outlook fell to a 5-year low, a Forschungsgruppe Wahlen poll for ZDF television showed. Asia-Pacific The Australian affordability index rose 0.4 points to 105.3, indicating Australian housing affordability held close to a 24-year low in Q2, from 104.9 in Q1, the Housing Industry Association and Commonwealth Bank of Australia reported. A lower reading means properties are less affordable. New Zealand's retail sales fell 1.5% q/q, the most in at least 13 years in Q2, when adjusted for inflation, after dropping 1.2% q/q in Q1, Statistics New Zealand said. The yuan fell 0.2% to 6.8700 against the dollar today for a fourth weekly loss, the longest stretch since a peg to the dollar was scrapped in 2005. The yuan gained 6.6% in the first half, double the pace of a year earlier. 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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Friday's News Recap: U.S. Industrial Production Grows, Consumer Sentiment Rises
Friday's News Recap: U.S. Industrial Production Grows, Consumer Sentiment Rises
16 Agustus 2008 3:03
(CEP News) - U.S. markets received some upbeat reports Friday morning as U.S. consumer sentiment improved, industrial production saw an unexpected boost in July and manufacturing in New York rebounded into growth mode in August. However, the Bureau of Labor Statistics reported rising unemployment while in the afternoon, the Fed's Dennis Lockhart said he "wouldn't rule out any action" on Fed rates.
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16 Agustus 2008 3:03
(CEP News) - U.S. markets received some upbeat reports Friday morning as U.S. consumer sentiment improved, industrial production saw an unexpected boost in July and manufacturing in New York rebounded into growth mode in August. However, the Bureau of Labor Statistics reported rising unemployment while in the afternoon, the Fed's Dennis Lockhart said he "wouldn't rule out any action" on Fed rates.
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Dollar Hits 6 Month High vs Euro
| Daily Forex Fundamentals | Written by CMS Forex | Aug 15 08 21:46 GMT | | |
|
NZ: Retail Sales Surprise Forecasts on Upside In New Zealand, retail sales for June, surprised forecasts on the upside and increased 0.9%. Expectations had been for a 1.6% decline. That's welcoming news for the New Zealand economy, as the central bank has embarked on a rate cut campaign, in the face of falling demand. AUD/NZD - Aussie Sinks vs Kiwi After Retail Sales Figure
With the Reserve Bank of Australia gearing up for its own rate cuts, the Aussie-Kiwi pair fell sharply in today's trading following the better than expected sales data out of New Zealand. The Kiwi surged in the hours after the release, consolidated near 1.24 and capped off its 180 pip rally in NY trading. The pair is now about 360 pips lower for the week. US: Industrial Production Increases 0.2% US industrial production output increased 0.2% in July, a slower pace than June, but better than expectations. The capacity utilization rate, the proportion of factories in use, increased to 79.9% from June's downwardly revised figure. US: NY Empire Manufacturing Index Posts a 2.8 The Empire State Manufacturing index indicates that conditions for New York manufacturers improved marginally in August. The general business conditions index rose several points, to 2.8, after posting negative figures for the last 3 months. US: Consumer Confidence Increases in August The mid-month UMich survey of consumer confidence for August rose slightly to 61.7. Consumers' views of "current conditions" declined, while their "future expectations" brightened. The 12-month forecast for inflation cooled from 5.1% to 4.8%, as consumers factor in the recent fall in commodity prices. EUR/USD - Euro Breaks Below 1.47 vs Dollar
The Euro-Dollar pair broke below 1.47 in NY trading, capping another week of strong gains for the greenback. To start the week, the pair fell below key support at 1.50 which then turned to resistance near 1.4950. That resistance held in the middle of the week as the pair consolidated. Dollar bulls used yesterday's higher than expected US CPI data to start a rally, and continued it in today's NY session following another batch of better than expected fundamentals. USD/JPY - Dollar Caps 200-Pip Rally vs Yen
The Dollar rose against the Yen overnight as well, capping a 200 pip rally over the last 3 sessions. It met resistance near 110.65. Oil prices were down again today, dipping below $112, and US stocks were in the green. Falling oil prices have been a major catalyst in the Dollar's recent revival. CAN: Manufacturing Shipments Surprise Forecasts In Canada, manufacturing shipments rose 2.1% in June, higher than expected. It's the 5th increase in 6 months, and showed widespread gains. In a separate release, June's sales of new motor vehicles were lower by 1% for the month. Sales of new trucks fell as consumers switch to passenger cars. USD/CAD - Loonie Gains After Shipments Data
The US Dollar-Canadian Dollar pair plunged 100 pips from its intra-day high to test 1.0580, with a good amount of it coming in the wake of the shipments release. The last three peaks in the pair have come in successively lower highs, forming a new line of resistance as the pair consolidates this week. It will be interesting to note if a downward channel develops, or if the greenback strengthens again next week. Next Weeks's Upcoming Releases Next week starts with housing prices from the UK, sales data from Switzerland, trade figures from the Euro-zone and producer prices from New Zealand. Monday evening, Australia posts its meeting minutes and the BOJ will conclude their interest rate meeting. 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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Friday's News Recap: U.S. Industrial Production Grows, Consumer Sentiment Rises
Friday's News Recap: U.S. Industrial Production Grows, Consumer Sentiment Rises
16 Agustus 2008 3:03
(CEP News) - U.S. markets received some upbeat reports Friday morning as U.S. consumer sentiment improved, industrial production saw an unexpected boost in July and manufacturing in New York rebounded into growth mode in August. However, the Bureau of Labor Statistics reported rising unemployment while in the afternoon, the Fed's Dennis Lockhart said he "wouldn't rule out any action" on Fed rates.
Read more...
16 Agustus 2008 3:03
(CEP News) - U.S. markets received some upbeat reports Friday morning as U.S. consumer sentiment improved, industrial production saw an unexpected boost in July and manufacturing in New York rebounded into growth mode in August. However, the Bureau of Labor Statistics reported rising unemployment while in the afternoon, the Fed's Dennis Lockhart said he "wouldn't rule out any action" on Fed rates.
Read more...
Economists See Good News in StatsCan Manufacturing Report
Economists See Good News in StatsCan Manufacturing Report
16 Agustus 2008 0:16
(CEP News) Ottawa - A larger-than-expected jump in Canada's manufacturing sales figures in June provided a hint of good news for the country's economy, but there may still be bumps on the road ahead, says a BMO economist.
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16 Agustus 2008 0:16
(CEP News) Ottawa - A larger-than-expected jump in Canada's manufacturing sales figures in June provided a hint of good news for the country's economy, but there may still be bumps on the road ahead, says a BMO economist.
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