Daily Forex Fundamentals | Written by Union Bank of California | Aug 27 08 14:50 GMT |
The US dollar softened as investors took profit on the greenback's recent rise. Persistent worries about the U.S. financial sector, economic growth, and a rebound in oil prices above $118 a barrel dented dollar sentiment and ignited dollar sales. Federal Deposit Insurance Corp. said the number of problem banks during the second quarter ballooned to 117 with $78 billion in assets, up from 90 banks with $26 billion in assets. Wall Street Journal reported that the FDIC might have to tap Treasury funds to help bail out failed banks. Financial woes overshadowed positive news on U.S. durable goods orders, which unexpectedly rose 1.3% in July after a revised gain of 1.3% in June, suggesting spending improved. Yesterday, the FOMC meeting minutes from August meeting indicated that most Fed members were concerned about inflation and weak financial conditions, but see rate hike as a likely next move, although timing was not mentioned. Thus, expect U.S. interest rates to remain on hold in the near-term while the dollar to remain supported by a weakening global growth outlook.
Meanwhile, hawkish comments from European Central Bank council member Axel Weber boosted the euro. Weber said any talk about interest rate cuts in the euro zone is premature and that a rate hike may be needed once the economic outlook “brightens” in the euro zone. Weber's comments surprised the markets since recent sluggish euro zone data had fuelled hope of a rate cut to avoid a recession. Yesterday, the euro fell to a six-month low against the US dollar after German business confidence slumped in August to the lowest level in three years. News that German economy shrank 0.5 percent in the second quarter, the first contraction in four years, added fears of a recession in Europe.
The British Pound Sterling continues to trade near two-year low versus the dollar on concern that a slowdown in the euro zone economy may have a sharp negative impact on the UK economy as the euro zone is Britain's biggest trading partner. Recent data out of Britain have not been upbeat. UK gross domestic product data revealed that growth stalled in the second quarter. Recession fears will continue to weigh on the sterling.
The Japanese yen benefited from US financial woes and is trading slightly higher as investors unwind carry trades. However, the yen is expected to remain weak on worries that Japan's economy shrank during the second quarter. Bank of Japan Governor Masaaki Shirakawa recently said Japan is expected to remain sluggish due to high energy costs and slowing export growth. Risk aversion is expected to provide occasional support to the yen in the near-term.
The Australian dollar benefited from a rebound in oil gold, metal, and oil prices as Australia is a big exporter of natural resources. However, gains will likely be returned on talk that domestic interest rates would be lowered on September by 25 basis points.
The New Zealand dollar also rebounded, supported by a rise in commodity prices and a survey showing a solid improvement in business confidence, which is good news for the economy. However, the survey also forecasted lower profits and investment, job losses and higher prices in the near-term. The Reserve Bank of New Zealand is expected to lower rates by 25 basis points on September 11.
The Canadian dollar held gains, helped by higher oil prices which rebounded on worries that Hurricane Gustav could disrupt oil production in the Gulf of Mexico. However, the Canadian currency is expected to remain weak as its economy deteriorates. Consumer sentiment is still negative, dented by a sluggish housing market and labor market. Canadian businesses are having a hard time remaining upbeat amid tighter lending conditions and slowing export demand. This Friday, second quarter Canadian gross domestic product will be released. If the data show signs of a possible recession in Canada, it would ignite hope of a rate cut by Bank of Canada on September 3.
The Mexican peso benefited from dollar sales. Mexico's economic growth is expected to slow, but not as much as the U.S. Data last week revealed that the Mexican economy slowed in the second quarter, hurt by lower oil production and weaker exports to the U.S. The U.S. is Mexico's main trading partner.
Union Bank of California
The Bank of Tokyo-Mitsubishi Group
http://www.uboc.com
Disclaimer: This market comment is prepared by Union Bank of California's Global FX & Derivatives Department for the general information of its customers. It is based of the most accurate information currently available, but should not considered investment advise or a guarantee of future exchange rate or trends.
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Wednesday, August 27, 2008
Morning Market Recap: Canadian Stocks Rise on Commodity Rally
Morning Market Recap: Canadian Stocks Rise on Commodity Rally
27 Agustus 2008 21:20
(CEP News) - U.S. dollar weakness and a storm brewing in the Gulf of Mexico sparked a commodity rally on Wednesday, pushing crude oil above $119 and the TSX up 200 points.
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27 Agustus 2008 21:20
(CEP News) - U.S. dollar weakness and a storm brewing in the Gulf of Mexico sparked a commodity rally on Wednesday, pushing crude oil above $119 and the TSX up 200 points.
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U.S. MBA Mortgage Applications Index for Aug. 22 (Table)
By Alex Tanzi
Aug. 27 (Bloomberg) -- Following is a summary of U.S. mortgage activity from the Mortgage Bankers Association.
========================================================================
Aug. 22 Aug. 15 Aug. 8 Aug. 1 July 25
2008 2008 2008 2008 2008 YoY%
========================================================================
-----Weekly Change (seasonally adjusted)--- -NSA-
Market index 0.5% -1.5% -1.5% 2.8% -14.1% -31.2%
Purchases 0.6% -0.4% 0.0% 1.8% -7.8% -25.2%
Refinancing 0.3% -3.7% -4.2% 4.4% -22.9% -40.0%
Fixed rate 0.7% -2.3% -2.0% 3.3% -12.9% -25.4%
Adjustable rate -1.6% 7.9% 5.1% -2.9% -26.3% -63.8%
---------- Contract Interest Rates -------- Yr. ago
FRM 30-year 6.44% 6.47% 6.58% 6.40% 6.46% 6.41%
FRM 15-year 5.94% 5.99% 6.17% 6.02% 5.98% 6.10%
ARM 1-yr Treasury 7.15% 7.07% 7.15% 7.17% 7.25% 6.52%
FHA 203(b) 6.43% 6.43% 6.56% 6.43% 6.47% 6.66%
========================================================================
Aug. 22 Aug. 15 Aug. 8 Aug. 1 July 25 July 18
2008 2008 2008 2008 2008 2008
========================================================================
------------ Applications (unadjusted)------------
Total
Avg. loan size $216.9 $219.3 $216.7 $219.8 $221.9 $221.9
Number change -0.9% -2.6% -2.2% 2.4% -13.7% -6.1%
$ volume change -2.0% -1.5% -3.6% 1.5% -13.7% -6.2%
Purchases
Avg. loan size $225.1 $227.4 $227.7 $230.5 $230.7 $229.5
Number change -1.6% -2.0% -1.0% 1.4% -7.7% -6.4%
$ volume change -2.6% -2.2% -2.2% 1.3% -7.2% -6.6%
Refinancings
Avg. loan size $201.8 $204.0 $196.4 $200.7 $205.5 $210.2
Number change 0.3% -3.7% -4.2% 4.4% -22.9% -5.6%
$ volume change -0.8% 0.0% -6.3% 2.0% -24.6% -5.6%
------------------------------------------------------------------------
========================================================================
Aug. 22 Aug. 15 Aug. 8 Aug. 1 July 25 July 18
2008 2008 2008 2008 2008 2008
========================================================================
Refi's as a % of
total # of loans 35.2% 34.8% 35.2% 35.9% 35.2% 39.4%
Refi's as a % of
total $ of loans 32.8% 32.4% 31.9% 32.8% 32.6% 37.3%
ARM's as a % of
total # of loans 7.9% 8.0% 7.3% 6.9% 7.3% 8.5%
ARM's as a % of
total $ of loans 13.3% 13.8% 12.2% 12.2% 12.8% 14.6%
---------- Indexes (seasonally adjusted) ---------
Market index level 421.6 419.3 425.9 432.6 420.8 489.6
Purchases 315.9 314.0 315.2 315.2 309.5 335.6
Refinancings 1038.0 1034.5 1074.6 1121.8 1074.4 1392.7
Fixed rate 407.2 404.2 413.8 422.4 409.1 469.8
Adjustable rate 727.7 739.2 685.3 652.3 671.8 911.1
------------------------------------------------------------------------
Conventional Index 450.3 456.1 465.3 477.6 473.8 563.8
Conv. Purchase 366.0 368.2 370.7 375.3 376.5 405.2
========================================================================
Aug. 22 Aug. 15 Aug. 8 Aug. 1 July 25 July 18
2008 2008 2008 2008 2008 2008
========================================================================
---------- Indexes (seasonally adjusted) ---------
Conv. Refinance 793.9 815.2 853.1 897.7 874.1 1213.9
Conv. FRMs 435.3 439.1 451.7 466.0 462.3 539.3
Conv. ARMs 759.3 804.8 744.9 716.3 711.1 1066.7
------------------------------------------------------------------------
Government Index 373.6 357.8 360.3 357.6 332.4 365.9
Government Purchas 243.8 236.0 235.5 228.8 213.4 235.7
Government Refi 2355.1 2218.5 2270.6 2332.1 2157.4 2363.1
Government FRMs 360.0 345.7 350.3 349.4 320.1 353.6
Government ARMs 674.6 626.4 582.7 541.8 605.1 640.0
========================================================================
NOTE: March, 16 1990=100. Contract interest rates assume a 20% down payment. Average loan size is in thousands.
To contact the reporter on this story: Alex Tanzi in Washington at atanzi@bloomberg.net
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Lockhart Says Fed Rate Consistent With Inflation Drop
By Scott Lanman and Steve Matthews
Aug. 27 (Bloomberg) -- Federal Reserve Bank of Atlanta President Dennis Lockhart said the central bank's interest-rate stance is ``consistent'' with slowing inflation, while signaling readiness to raise borrowing costs if needed.
``Current Fed policy is consistent with an easing in overall inflation given the dynamics of the economy,'' Lockhart said in a speech today in Atlanta. At the same time, ``I am mindful of today's elevated risks and am prepared at any point to change tactics to ensure inflation expectations do not become unanchored.''
Policy makers agreed on Aug. 5 that their next change in rates would be an increase, according to minutes of their meeting released yesterday. A number of officials concerned at rising risks of inflation favored an increase earlier than traders expected, the minutes also showed. Lockhart will vote on rates for the first time in 2009.
``Although recent measures of inflation are higher than I would like to see, I would say that recent price increases are more likely to be transitory than persistent,'' Lockhart said in the speech at Georgia State University's economic forecasting conference. Inflation expectations ``may have risen modestly -- but not by a material degree,'' he said.
The Fed left its benchmark lending rate unchanged at 2 percent for the second straight meeting on Aug. 5, after 3.25 points of reductions over the past year. Traders see a 79 percent chance the central bank won't raise rates again this year, based on futures prices. A month ago, traders were placing 75 percent odds on an increase.
`Medium Term'
Fed Chairman Ben S. Bernanke said last week inflation should ease later this year and in 2009, while warning that policy makers will act if price increases don't slow over the ``medium term.''
Lockhart said in an Aug. 15 interview he prefers to keep interest rates unchanged for now, while policy makers will likely debate whether to raise them in coming months.
Lockhart, 61, joined the Atlanta Fed in March 2007 and previously worked at Citigroup Inc. for 17 years.
His speech today focused on inflation without giving a broader economic outlook. Economists expect annualized rates of growth of 1.2 percent in the third quarter, according to the median estimate in a Bloomberg Survey.
Answering audience questions, Lockhart said his ``best guess is that home prices will continue to decline,'' with an additional fall ranging from 10 percent to 15 percent.
Recent news on Fannie Mae and Freddie Mac, the mortgage- finance companies recording high credit losses, has shown ``positive signs,'' Lockhart said. He declined to elaborate.
`Fluid Situation'
Freddie Mac sold $2 billion in short-term debt this week, and shares in both companies have gained. Still, ``it's a fluid situation,'' he said.
The consumer price index rose 5.6 percent for the 12 months ending in July, which Lockhart said was a ``high and worrisome number.''
The Fed's preferred benchmark, the personal consumption expenditures price index, minus food and energy, has been at 2 percent or higher since March 2004. Adjusted for the so-called core PCE rate, the real federal funds rate is slightly below zero, the lowest since November 2004.
While core-inflation measures ``can be useful tools,'' Lockhart said that ``I ultimately care about the trend rate of overall inflation, which I believe is ultimately the appropriate object of monetary policy.''
`Uncomfortably High'
``No matter how you measure it, the aggregate inflation we are experiencing in the United States at the moment is uncomfortably high,'' Lockhart said.
Crude oil has dropped to $117.62 a barrel from its record $147.27 on July 11. The decline will help reduce broader inflation pressures, Lockhart said. ``But the underlying global supply pressures remain tight, and demand pressures remain relatively high,'' he said. ``As such, any relief will likely be only partial.''
The Fed shouldn't raise interest rates in response to higher energy prices because monetary policy can't affect supply and demand in global oil markets, and such actions would probably do more harm by reducing Americans' real incomes, Lockhart said.
To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net; Steve Matthews in Atlanta at smatthews@bloomberg.net.
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Aug. 27 (Bloomberg) -- Federal Reserve Bank of Atlanta President Dennis Lockhart said the central bank's interest-rate stance is ``consistent'' with slowing inflation, while signaling readiness to raise borrowing costs if needed.
``Current Fed policy is consistent with an easing in overall inflation given the dynamics of the economy,'' Lockhart said in a speech today in Atlanta. At the same time, ``I am mindful of today's elevated risks and am prepared at any point to change tactics to ensure inflation expectations do not become unanchored.''
Policy makers agreed on Aug. 5 that their next change in rates would be an increase, according to minutes of their meeting released yesterday. A number of officials concerned at rising risks of inflation favored an increase earlier than traders expected, the minutes also showed. Lockhart will vote on rates for the first time in 2009.
``Although recent measures of inflation are higher than I would like to see, I would say that recent price increases are more likely to be transitory than persistent,'' Lockhart said in the speech at Georgia State University's economic forecasting conference. Inflation expectations ``may have risen modestly -- but not by a material degree,'' he said.
The Fed left its benchmark lending rate unchanged at 2 percent for the second straight meeting on Aug. 5, after 3.25 points of reductions over the past year. Traders see a 79 percent chance the central bank won't raise rates again this year, based on futures prices. A month ago, traders were placing 75 percent odds on an increase.
`Medium Term'
Fed Chairman Ben S. Bernanke said last week inflation should ease later this year and in 2009, while warning that policy makers will act if price increases don't slow over the ``medium term.''
Lockhart said in an Aug. 15 interview he prefers to keep interest rates unchanged for now, while policy makers will likely debate whether to raise them in coming months.
Lockhart, 61, joined the Atlanta Fed in March 2007 and previously worked at Citigroup Inc. for 17 years.
His speech today focused on inflation without giving a broader economic outlook. Economists expect annualized rates of growth of 1.2 percent in the third quarter, according to the median estimate in a Bloomberg Survey.
Answering audience questions, Lockhart said his ``best guess is that home prices will continue to decline,'' with an additional fall ranging from 10 percent to 15 percent.
Recent news on Fannie Mae and Freddie Mac, the mortgage- finance companies recording high credit losses, has shown ``positive signs,'' Lockhart said. He declined to elaborate.
`Fluid Situation'
Freddie Mac sold $2 billion in short-term debt this week, and shares in both companies have gained. Still, ``it's a fluid situation,'' he said.
The consumer price index rose 5.6 percent for the 12 months ending in July, which Lockhart said was a ``high and worrisome number.''
The Fed's preferred benchmark, the personal consumption expenditures price index, minus food and energy, has been at 2 percent or higher since March 2004. Adjusted for the so-called core PCE rate, the real federal funds rate is slightly below zero, the lowest since November 2004.
While core-inflation measures ``can be useful tools,'' Lockhart said that ``I ultimately care about the trend rate of overall inflation, which I believe is ultimately the appropriate object of monetary policy.''
`Uncomfortably High'
``No matter how you measure it, the aggregate inflation we are experiencing in the United States at the moment is uncomfortably high,'' Lockhart said.
Crude oil has dropped to $117.62 a barrel from its record $147.27 on July 11. The decline will help reduce broader inflation pressures, Lockhart said. ``But the underlying global supply pressures remain tight, and demand pressures remain relatively high,'' he said. ``As such, any relief will likely be only partial.''
The Fed shouldn't raise interest rates in response to higher energy prices because monetary policy can't affect supply and demand in global oil markets, and such actions would probably do more harm by reducing Americans' real incomes, Lockhart said.
To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net; Steve Matthews in Atlanta at smatthews@bloomberg.net.
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Weber Says ECB Must Ensure Banks Don't `Abuse' Rules
By Andreas Scholz and Simon Kennedy
Aug. 27 (Bloomberg) -- The European Central Bank must ensure cash-strapped financial institutions don't take advantage of its money-market auctions, council member Axel Weber said.
``We are monitoring banks' use of the collateral framework very closely,'' Weber, who heads Germany's Bundesbank, said in an interview in Frankfurt yesterday. ``We must ensure that our framework is not abused.''
The ECB will soon announce changes to the rules governing its auctions, council member Yves Mersch said in an Aug. 23 interview. The growing concern of officials is that banks struggling to sell securities damaged by the credit-market turmoil will dump them on the ECB and become overly reliant on central-bank funds.
``The collateral that we take must also be traded in the market because only then is it priced accurately,'' Weber said. ``We aim at taking final decisions in autumn which will be communicated immediately.''
The ECB's Governing Council next meets on Sept. 4.
Banks with operations in the 15 countries sharing the euro can raise funding from the ECB by pledging certain types of collateral including asset-backed securities. Bonds backed by mortgages and other assets accounted for 18 percent of the ECB's loan collateral at the end of 2007, up from 4 percent in 2004, Fitch Ratings data show.
The ECB lends to banks mostly through the main refinancing operations maturing in one week. Longer-term auctions provide financing to banks during three- and six-month periods.
Governing council member Michael Bonello said in an interview with Reuters published today that he didn't expect ``major fundamental change.''
`Funding Opportunities'
Spain's banks in particular are struggling to attract investors as a decade-long property boom ends and mortgage delinquencies soar to the highest in at least six years. Investors demand higher rewards to buy bonds backed by Spanish mortgages than any other home loans in Europe. The ECB lent Spanish banks a record 49.4 billion euros ($73.1 billion) in July.
The ECB's money-market system is also attracting demand from outside the euro region. The Frankfurt-based central bank said in June it will accept asset-backed bonds sold by Macquarie Group Ltd., Australia's biggest securities firm, and backed by Australian consumer loans as collateral. U.K. mortgage lender Nationwide Building Society said Aug. 18 it's planning to expand into Ireland, a member of the euro region, to take advantage of ``funding opportunities.''
`React Quickly'
Weber defended the ECB's approach to date, saying the fact it had the widest collateral framework among major central banks ``helped us to react quickly when the financial crisis broke out.'' The task is now to carry out the central bank's routine two-year review of its collateral framework, he said.
Former Bank of England policy maker Willem H. Buiter says the ECB may be assigning unrealistically high prices to the debt it accepts as collateral for bank borrowing, which risks delaying the recovery of the mortgage-backed bond market.
``There is almost certainly an overpricing of the bonds,'' Buiter, now a professor at the London School of Economics, said in a telephone interview yesterday. ``By artificially supporting the market the ECB may be crowding out private purchasers.''
Mersch said last week that there will be no ``broad-based revolution'' and that changes to the collateral framework would be unveiled within weeks.
``At the margins there can still be cases where you see dangers of gaming the system,'' Mersch said in Jackson Hole, Wyoming. ``The Governing Council has been discussing the whole issue'' and has agreed on a ``certain amount'' of refinement to the existing rules, he said.
``We certainly won't tolerate the creation of collateral for central banks only without the intention of trading them,'' Weber said.
To contact the reporters on this story: Andreas Scholz in Frankfurt at agscholz@bloomberg.net; Simon Kennedy in Paris at Skennedy4@bloomberg.net
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Aug. 27 (Bloomberg) -- The European Central Bank must ensure cash-strapped financial institutions don't take advantage of its money-market auctions, council member Axel Weber said.
``We are monitoring banks' use of the collateral framework very closely,'' Weber, who heads Germany's Bundesbank, said in an interview in Frankfurt yesterday. ``We must ensure that our framework is not abused.''
The ECB will soon announce changes to the rules governing its auctions, council member Yves Mersch said in an Aug. 23 interview. The growing concern of officials is that banks struggling to sell securities damaged by the credit-market turmoil will dump them on the ECB and become overly reliant on central-bank funds.
``The collateral that we take must also be traded in the market because only then is it priced accurately,'' Weber said. ``We aim at taking final decisions in autumn which will be communicated immediately.''
The ECB's Governing Council next meets on Sept. 4.
Banks with operations in the 15 countries sharing the euro can raise funding from the ECB by pledging certain types of collateral including asset-backed securities. Bonds backed by mortgages and other assets accounted for 18 percent of the ECB's loan collateral at the end of 2007, up from 4 percent in 2004, Fitch Ratings data show.
The ECB lends to banks mostly through the main refinancing operations maturing in one week. Longer-term auctions provide financing to banks during three- and six-month periods.
Governing council member Michael Bonello said in an interview with Reuters published today that he didn't expect ``major fundamental change.''
`Funding Opportunities'
Spain's banks in particular are struggling to attract investors as a decade-long property boom ends and mortgage delinquencies soar to the highest in at least six years. Investors demand higher rewards to buy bonds backed by Spanish mortgages than any other home loans in Europe. The ECB lent Spanish banks a record 49.4 billion euros ($73.1 billion) in July.
The ECB's money-market system is also attracting demand from outside the euro region. The Frankfurt-based central bank said in June it will accept asset-backed bonds sold by Macquarie Group Ltd., Australia's biggest securities firm, and backed by Australian consumer loans as collateral. U.K. mortgage lender Nationwide Building Society said Aug. 18 it's planning to expand into Ireland, a member of the euro region, to take advantage of ``funding opportunities.''
`React Quickly'
Weber defended the ECB's approach to date, saying the fact it had the widest collateral framework among major central banks ``helped us to react quickly when the financial crisis broke out.'' The task is now to carry out the central bank's routine two-year review of its collateral framework, he said.
Former Bank of England policy maker Willem H. Buiter says the ECB may be assigning unrealistically high prices to the debt it accepts as collateral for bank borrowing, which risks delaying the recovery of the mortgage-backed bond market.
``There is almost certainly an overpricing of the bonds,'' Buiter, now a professor at the London School of Economics, said in a telephone interview yesterday. ``By artificially supporting the market the ECB may be crowding out private purchasers.''
Mersch said last week that there will be no ``broad-based revolution'' and that changes to the collateral framework would be unveiled within weeks.
``At the margins there can still be cases where you see dangers of gaming the system,'' Mersch said in Jackson Hole, Wyoming. ``The Governing Council has been discussing the whole issue'' and has agreed on a ``certain amount'' of refinement to the existing rules, he said.
``We certainly won't tolerate the creation of collateral for central banks only without the intention of trading them,'' Weber said.
To contact the reporters on this story: Andreas Scholz in Frankfurt at agscholz@bloomberg.net; Simon Kennedy in Paris at Skennedy4@bloomberg.net
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Weber Says Higher Rates May Be Needed After Recovery
By Christian Vits and Andreas Scholz
Aug. 27 (Bloomberg) -- European Central Bank council member Axel Weber said there's no scope for interest-rate cuts and policy makers may need to raise borrowing costs once the economy emerges from its slump.
``Monetary policy at the moment is roughly where it should be and I think the discussion about declining rates in Europe is premature,'' Weber, 51, said in an interview in his office in Frankfurt yesterday. ``If the economic outlook brightens somewhat again towards the end of the year and next year, which I still expect, we'll have to see if action is necessary.''
Europe's economy contracted in the second quarter and may not recover in the third, raising the risk of the region's first recession since the euro was introduced in 1999. Weber said the ECB, which increased its benchmark rate by a quarter point to 4.25 percent in July, remains focused on fighting inflation. Bond yields and the euro jumped.
``I don't expect inflation to come down necessarily just with weaker growth,'' Weber said. ``Inflation is still the No. 1 worry for central bankers in the euro region.''
``Weber wants to keep the option open to raise rates next year,'' said Holger Schmieding, chief European economist at Bank of America Corp. in London. ``He wants to choke any rate-cut debate.''
Rate-Cut Bets
This morning, Eonia forward contracts showed investors had fully priced in a cut in the ECB's benchmark rate to 4 percent by May. The yield on the May contract rose 9 basis points to 4.09 percent after Weber's remarks were published. The euro gained half a cent to $1.4773 and yields on two-year government bonds increased 4 basis points to 4.03 percent.
Weber said while current rates are ``roughly adequate'' for ``the imminent period of cyclical weakness,'' they are ``still more on the accommodative side than being neutral.''
Inflation at 4 percent is running at twice the ECB's definition of price stability of just less than 2 percent.
Inflation will remain in breach of the ECB's price-stability goal next year and ``we're not even sure that inflation on average will be below 2 percent in 2010,'' Weber said.
``If inflation risks further materialize and if we come to the conclusion that the inflation outlook has deteriorated, we'll have to re-examine our monetary-policy stance,'' he said.
Recession Concern
``His views will not be shared across the ECB Governing Council,'' said Ken Wattret, an economist at BNP Paribas SA in London. ``Keeping a consensus opinion together in this environment is going to be quite a challenge for'' ECB President Jean-Claude Trichet.
Business confidence in Germany plunged to a three-year low this month, heightening concern that Europe's largest economy is slipping into a recession.
While oil prices have receded from a record $147.27 a barrel, they're still up more than 60 percent over the past year, crimping companies' spending power just as the euro's appreciation and the U.S. housing slump weigh on exports.
In June, ECB staff projected growth would slow to about 1.8 percent this year and 1.5 percent in 2009 from 2.7 percent in 2007. The bank will publish new growth and inflation forecasts on Sept. 4, when it announces its next rate decision.
Weber said he expects ``a slight downward correction'' of the growth estimates for this year and next. ``The European economy, in my opinion, will be robust once we're through this dry spell,'' he said.
Inflation Expectations
Inflation forecasts may be revised ``slightly higher'' from the current 3.4 percent and 2.4 percent for this year and next. The ECB is concerned that long-term inflation expectations are above 2 percent, Weber said.
The long-term inflation expectation, defined as through 2013, rose to 2.03 percent in August, according to the ECB's quarterly survey of forecasters published Aug. 14. That's the highest since the survey started in 1999 and up from 1.95 percent three months ago. Expectations measured by the breakeven rate on French five- year inflation-indexed bonds were at 2.19 percent today.
``We observe with concern that the majority of market watchers don't expect us to meet our stability norm at the 6 to 10-year horizon,'' Weber said. ``For a central bank this puts in question its credibility and this can't be tolerated.''
To contact the reporter on this story: Christian Vits in Frankfurt cvits@bloomberg.net; Andreas Scholz in Frankfurt at agscholz@bloomberg.net.
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German Inflation Slows From Fastest Pace in 12 Years
By Gabi Thesing
Aug. 27 (Bloomberg) -- Inflation in Germany, Europe's largest economy, eased from a 12 year-high in August after oil prices retreated from a record.
Prices rose 3.3 percent from a year earlier using a harmonized European Union method, the Federal Statistics Office in Wiesbaden said today. Economists expected the pace of inflation to slow to 3.4 percent from 3.5 percent, according to the median of 23 forecasts in a Bloomberg News survey. From the previous month, prices fell 0.4 percent.
A 21 percent decline in the price of oil from a July record has eased pressure on companies to pass on higher costs and left consumers with more money to spend. Still, the European Central Bank kept its benchmark interest rate at 4.25 percent earlier this month and President Jean-Claude Trichet said inflation will moderate ``only gradually'' next year.
``Inflation will have peaked, but for the ECB it is way too early to signal the all clear,'' said Laurent Bilke, an economist at Lehman Brothers International in London. ``The governing council is still concerned about pipeline pressures and wage negotiations.'' Bilke expects the ECB will keep its key rate at a seven-year high until the end of 2008.
ECB Governing Council member Axel Weber told Bloomberg News in an interview published today said the ``inflation outlook hasn't markedly changed in the short term,'' and that ``action'' may be necessary once the economy emerges from its slump.
ECB Rates
The ECB this month kept rates unchanged to fight so-called second-round effects, or consumers and companies seeking compensation for higher costs by pushing up salaries and prices. The Frankfurt-based bank aims to keep inflation just below 2 percent.
ECB Executive Board member Juergen Stark told Sueddeutsche Zeitung in an interview published yesterday that he already sees ``broad-based second-round effects.''
Adding to the ECB's concerns are wage talks in Germany's metal industry that kick off next month. IG Metall, the country's largest trade union whose pay deals affect 3.2 million workers, wants more than the 6.5 percent increase it demanded last year.
Crude oil prices are still up 57 percent from a year earlier, sapping the spending power of consumers and companies. The July oil-price spike has pushed German producer prices to a 27-year high and wholesale prices to the highest rate in 26 years, while import prices rose the most in eight years.
`Absolute Necessity'
Trichet said on Aug. 7 that there is an ``absolute necessity to avoid the materialization'' of inflation risks stemming from pipeline pressures.
Still, with the economy cooling, companies may find it more difficult to pass on higher costs. The economies of the euro region and Germany both shrank between March and June and data since then has raised the possibility of a recession.
German business confidence declined to a three-year low in August and Consumer optimism slumped to the lowest level in five years, the Nuremberg-based GfK AG market research company said yesterday.
Under a national measure, the inflation rate declined to 3.1 percent in August from 3.3 percent as consumer prices fell 0.3 percent on the month.
To contact the reporter on this story: Simone Meier in Frankfurt at smeier@bloomberg.net; Gabi Thesing in Frankfurt at gthesing@bloomberg.net.
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Aug. 27 (Bloomberg) -- Inflation in Germany, Europe's largest economy, eased from a 12 year-high in August after oil prices retreated from a record.
Prices rose 3.3 percent from a year earlier using a harmonized European Union method, the Federal Statistics Office in Wiesbaden said today. Economists expected the pace of inflation to slow to 3.4 percent from 3.5 percent, according to the median of 23 forecasts in a Bloomberg News survey. From the previous month, prices fell 0.4 percent.
A 21 percent decline in the price of oil from a July record has eased pressure on companies to pass on higher costs and left consumers with more money to spend. Still, the European Central Bank kept its benchmark interest rate at 4.25 percent earlier this month and President Jean-Claude Trichet said inflation will moderate ``only gradually'' next year.
``Inflation will have peaked, but for the ECB it is way too early to signal the all clear,'' said Laurent Bilke, an economist at Lehman Brothers International in London. ``The governing council is still concerned about pipeline pressures and wage negotiations.'' Bilke expects the ECB will keep its key rate at a seven-year high until the end of 2008.
ECB Governing Council member Axel Weber told Bloomberg News in an interview published today said the ``inflation outlook hasn't markedly changed in the short term,'' and that ``action'' may be necessary once the economy emerges from its slump.
ECB Rates
The ECB this month kept rates unchanged to fight so-called second-round effects, or consumers and companies seeking compensation for higher costs by pushing up salaries and prices. The Frankfurt-based bank aims to keep inflation just below 2 percent.
ECB Executive Board member Juergen Stark told Sueddeutsche Zeitung in an interview published yesterday that he already sees ``broad-based second-round effects.''
Adding to the ECB's concerns are wage talks in Germany's metal industry that kick off next month. IG Metall, the country's largest trade union whose pay deals affect 3.2 million workers, wants more than the 6.5 percent increase it demanded last year.
Crude oil prices are still up 57 percent from a year earlier, sapping the spending power of consumers and companies. The July oil-price spike has pushed German producer prices to a 27-year high and wholesale prices to the highest rate in 26 years, while import prices rose the most in eight years.
`Absolute Necessity'
Trichet said on Aug. 7 that there is an ``absolute necessity to avoid the materialization'' of inflation risks stemming from pipeline pressures.
Still, with the economy cooling, companies may find it more difficult to pass on higher costs. The economies of the euro region and Germany both shrank between March and June and data since then has raised the possibility of a recession.
German business confidence declined to a three-year low in August and Consumer optimism slumped to the lowest level in five years, the Nuremberg-based GfK AG market research company said yesterday.
Under a national measure, the inflation rate declined to 3.1 percent in August from 3.3 percent as consumer prices fell 0.3 percent on the month.
To contact the reporter on this story: Simone Meier in Frankfurt at smeier@bloomberg.net; Gabi Thesing in Frankfurt at gthesing@bloomberg.net.
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Orders for Durable Goods in U.S. Unexpectedly Gain
By Timothy R. Homan
Aug. 27 (Bloomberg) -- Orders for U.S. durable goods unexpectedly increased in July, indicating that growing demand from abroad is still helping companies weather a slump in domestic spending.
The 1.3 percent gain in bookings of goods meant to last several years matched the previous month's rise, which was larger than previously estimated, the Commerce Department said today in Washington. Excluding transportation equipment, orders rose 0.7 percent after a 2.4 percent increase a month earlier.
The boost to the U.S. from trade, which was the biggest in almost 28 years last quarter, may wane after figures this month showed shrinking economies in the euro region and Japan. ``Many'' Federal Reserve officials anticipate export gains will fade, minutes of their Aug. 5 meeting showed yesterday.
``The impact from global weakening so far on U.S. manufacturers remains modest,'' Aaron Smith an economist at Moody's Economy.com, said in an interview with Bloomberg Television. Because of domestic weakness, the economy may still slow or contract ``while simultaneously still having very modest weakness in manufacturing and capital spending,'' he said.
Treasuries fell after the report and stock futures gained. The benchmark 10-year note yielded 3.82 percent as of 8:40 a.m. in New York, up 4 basis points from yesterday.
Economists projected orders would be unchanged after a previously reported 0.8 percent increase in June, according to the median of 76 forecast in a Bloomberg News survey. Estimates ranged from a drop of 2.1 percent to a gain of 2.2 percent.
Forecast to Drop
Excluding transportation equipment, orders were projected to fall 0.7 percent, after an originally reported 2 percent gain in June, according to the Bloomberg survey. Estimates ranged from a decline of 2.9 percent to an increase of 0.6 percent.
Bookings for non-defense capital goods excluding aircraft, a measure of future business investment, increased 2.6 percent, the most since April. Shipments of those items, used in calculating gross domestic product, rose 0.6 percent following a 0.4 percent gain that was smaller than previously estimated.
Today's revisions will probably have little impact on economists' forecasts for growth in the second quarter. Revised gross domestic product figures from the Commerce Department, due tomorrow, may show the economy expanded at a 2.7 percent annual rate from April through June, up from an advanced estimate of 1.9 percent reported last month as exports jumped, according to a Bloomberg survey.
Business spending on new equipment and software dropped at a 3.4 percent annual pace last quarter, the second consecutive decline and the biggest since the first three months of 2004, according to the government's advance estimate issued last month.
Less Spending
Growth in coming quarters probably will slow as the effects of the federal tax rebates wear off and consumer spending weakens. Retail sales in July fell 0.1 percent, the first decline in five months, the Commerce Department reported Aug. 13.
``An increasingly strained consumer, deepening woes for the housing sector and a desire to pare inventories will all weigh on manufacturing output,'' Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York, said before the report.
Factories are faring better than in past downturns, helped in part by a weak dollar that has helped boost exports. The Institute for Supply Management's manufacturing index for July fell to 50, the dividing line between growth and contraction, from 50.2 a month earlier. During the 2001 recession it averaged 43.5.
Beige Book
Manufacturing ``declined or remained weak in most districts,'' even as ``demand for exports remained generally high,'' the Fed said last month in its regional economic known as the Beige Book. Bank lending ``was generally reported to be restrained.''
Regional reports this month offered mixed impressions. The New York Fed's general economic index rose in August to 2.8, the highest level since January, from minus 4.9 a month earlier. The Philadelphia Fed said last week that manufacturing in the region shrank in August for a ninth straight month.
Gains in orders for metals, machinery, communications gear, automobiles and aircraft all contributed to the increase in demand last month.
Orders for transportation equipment rose 3.1 percent, led by a 28 percent jump in airplane bookings. Demand for automobiles climbed 1.2 percent.
Auto Production
The gain in autos may have reflected a continued rebound following the end of a strike at American Axle & Manufacturing Holdings Inc., the largest axle supplier for General Motors Corp. GM said June 16 it had returned to full production.
Such gains are unlikely to continue as sales slump. Auto- industry figures this month showed purchases of cars and light trucks in the U.S. fell in July to a 12.5 million annual rate, the lowest level since March 1993, as consumers faced record gas prices.
Some manufacturers are trimming staff to offset high energy costs. Alcoa Inc., the world's third largest aluminum producer, said last week that it will lay off 300 employees in Texas starting Aug. 31. The cuts come as a result of ``uneconomical power prices,'' the New York-based company said in a statement.
Commodity costs have subsided since mid-July, easing cost pressures. Crude oil futures dropped below $112 a barrel on Aug. 15 after peaking at $147 on July 11.
To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net
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Shell Has Boiler Fault at Pernis Refinery, Radio Rijnmond Says
By Nidaa Bakhsh and Fred Pals
Aug. 27 (Bloomberg) -- Royal Dutch Shell Plc reported a boiler fault at the Netherlands' Pernis oil refinery, Europe's largest, according to Radio Rijnmond.
The fault occurred at 9:30 a.m. local time today and repairs were due to be completed by midday, the radio station said, citing the company. Wim van de Wiel, a Shell spokesman based in The Hague, wasn't immediately available for comment.
The refinery can process 416,000 barrels of oil a day, according to data compiled by Bloomberg.
To contact the reporters on this story: Nidaa Bakhsh in London at nbakhsh@bloomberg.net; Fred Pals in Amsterdam at fpals@bloomberg.net
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Aug. 27 (Bloomberg) -- Royal Dutch Shell Plc reported a boiler fault at the Netherlands' Pernis oil refinery, Europe's largest, according to Radio Rijnmond.
The fault occurred at 9:30 a.m. local time today and repairs were due to be completed by midday, the radio station said, citing the company. Wim van de Wiel, a Shell spokesman based in The Hague, wasn't immediately available for comment.
The refinery can process 416,000 barrels of oil a day, according to data compiled by Bloomberg.
To contact the reporters on this story: Nidaa Bakhsh in London at nbakhsh@bloomberg.net; Fred Pals in Amsterdam at fpals@bloomberg.net
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Persian Gulf Tanker Rates May Extend Advance on Jump in Hirings
By Alaric Nightingale
Aug. 27 (Bloomberg) -- The cost of shipping Middle East crude to Asia, which yesterday rose for the first time in eight days, may advance after oil companies booked more vessels, reducing the supply of carriers available for hire.
Refiners hired eight very large crude carriers, or VLCCs, to load Middle East crude, according to a report today from Barry Rogliano Salles. That's more than double the daily average, based on the Paris-based shipbroker's monthly loadings data of 104 cargoes a month.
Rates ``bottomed out'' yesterday, spurring several oil companies to seek vessels at the same time, Halvor Ellefsen, a tanker broker at SeaLeague AS, said in an e-mailed note today. There remain ``a lot'' of cargoes that need to be assigned to vessels, and those bookings should buoy rates for the next several days, he said.
SK Energy Co., South Korea's largest oil refiner, hired the VLCC Atlantic Liberty for 77.5 Worldscale points, according to a report today from Oslo-based PF Bassoe AS. That's 3.7 percent above the London-based Baltic Exchange's benchmark assessment of 74.22 points for Asia cargoes.
Worldscale points are a percentage of a nominal rate, or flat rate, for more than 320,000 specific routes. Flat rates for every voyage, quoted in U.S. dollars a ton, are revised annually by the Worldscale Association in London to reflect changing fuel costs, port tariffs and exchange rates.
Hire Rates
Each flat rate assessment gives owners and oil companies a starting point for negotiating hire rates without having to calculate the value of each deal from scratch.
Rental income jumped 61 percent yesterday to $14,016 a day after paying for fuel costs and port fees, according to the Baltic Exchange. For Saudi Arabia-to-Japan cargoes, income more than doubled to $13,101 a day; for shipments to the U.S. it added 24 percent to $14,931 a day.
Frontline Ltd., the world's biggest VLCC operator, said Aug. 22 it needs $31,400 a day to break even on each of its supertankers. The company's daily operating expenses, including insurance, crew and routine repairs, was $11,560 per ship.
To contact the reporter on this story: Alaric Nightingale in London at Anightingal1@bloomberg.net
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Aug. 27 (Bloomberg) -- The cost of shipping Middle East crude to Asia, which yesterday rose for the first time in eight days, may advance after oil companies booked more vessels, reducing the supply of carriers available for hire.
Refiners hired eight very large crude carriers, or VLCCs, to load Middle East crude, according to a report today from Barry Rogliano Salles. That's more than double the daily average, based on the Paris-based shipbroker's monthly loadings data of 104 cargoes a month.
Rates ``bottomed out'' yesterday, spurring several oil companies to seek vessels at the same time, Halvor Ellefsen, a tanker broker at SeaLeague AS, said in an e-mailed note today. There remain ``a lot'' of cargoes that need to be assigned to vessels, and those bookings should buoy rates for the next several days, he said.
SK Energy Co., South Korea's largest oil refiner, hired the VLCC Atlantic Liberty for 77.5 Worldscale points, according to a report today from Oslo-based PF Bassoe AS. That's 3.7 percent above the London-based Baltic Exchange's benchmark assessment of 74.22 points for Asia cargoes.
Worldscale points are a percentage of a nominal rate, or flat rate, for more than 320,000 specific routes. Flat rates for every voyage, quoted in U.S. dollars a ton, are revised annually by the Worldscale Association in London to reflect changing fuel costs, port tariffs and exchange rates.
Hire Rates
Each flat rate assessment gives owners and oil companies a starting point for negotiating hire rates without having to calculate the value of each deal from scratch.
Rental income jumped 61 percent yesterday to $14,016 a day after paying for fuel costs and port fees, according to the Baltic Exchange. For Saudi Arabia-to-Japan cargoes, income more than doubled to $13,101 a day; for shipments to the U.S. it added 24 percent to $14,931 a day.
Frontline Ltd., the world's biggest VLCC operator, said Aug. 22 it needs $31,400 a day to break even on each of its supertankers. The company's daily operating expenses, including insurance, crew and routine repairs, was $11,560 per ship.
To contact the reporter on this story: Alaric Nightingale in London at Anightingal1@bloomberg.net
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U.K. Natural Gas Advances as Total Cuts North Sea Production
By Ben Farey
Aug. 27 (Bloomberg) -- U.K. natural gas advanced after Total SA said production from its Elgin-Franklin North Sea oil and gas fields was reduced at the request of Forties pipeline operator BP Plc.
Gas for immediate delivery advanced 9.5 percent to 56.5 pence a therm as of 10:36 a.m. local time, according to broker ICAP Plc. That's equal to $10.42 a million British thermal units. A therm is 100,000 Btus.
``Production on Elgin-Franklin has been reduced at the request of the Forties pipeline operator,'' Brian O'Neill, Total's spokesman in Aberdeen, Scotland, said in an e-mail yesterday. BP's spokesman in Aberdeen, Richard Grant, wouldn't immediately comment today on the status of the oil pipeline.
A reduction in Elgin-Franklin oil supply to the pipeline would force Total to cut gas production. Maximum gas output at Elgin-Franklin is 15.5 million cubic meters a day, according to Total's Web site. The field is able to pump 175,000 barrels of condensate, a light oil that's produced in association with natural gas.
Gas from the fields arrives in the U.K. at the Bacton Seal terminal in Norfolk. Flows at the terminal were recorded at 14.5 million cubic meters at 9:29 a.m., according to network manager National Grid Plc. That's 10 million cubic meters lower than on Aug. 25.
The next-week contract jumped 17 percent to 53.75 pence. Gas for next month increased 5.1 percent to 57 pence a therm.
Deliveries into Total's St. Fergus terminal in Scotland dropped as much as 10 million cubic meters to a rate of about 29 million a day at 9:15 a.m. today. The terminal receives gas from Norway through the Vesterled link and from North Sea fields including Total's Alwyn Area and BP's Bruce and Rhum fields.
Interconnector (U.K.) Ltd.'s pipeline, linking Britain and Belgium, is now closed until 6 a.m. on Sept. 11 for planned annual maintenance. The closure will reduce daily gas demand during the period. About 26 million cubic meters of gas flowed to Belgium yesterday.
U.K. gas demand in the 24 hours through 6 a.m. tomorrow is forecast at 187 million cubic meters, according to National Grid. That's the lowest this year.
About 324 million cubic meters of the fuel will remain in the pipeline system at that time, National Grid said, 1 million fewer than at the start of today.
Contracts to deliver gas in the future also increased. Gas for the six months through March 2009 increased 2.8 percent to 102.50 pence a therm. That's equal to $18.92. Gas for next summer, the six months through September 2009, increased 2.6 percent to 84.90 pence, according to Spectron Group Ltd.
To contact the reporter on this story: Ben Farey in London at bfarey@bloomberg.net
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Aug. 27 (Bloomberg) -- U.K. natural gas advanced after Total SA said production from its Elgin-Franklin North Sea oil and gas fields was reduced at the request of Forties pipeline operator BP Plc.
Gas for immediate delivery advanced 9.5 percent to 56.5 pence a therm as of 10:36 a.m. local time, according to broker ICAP Plc. That's equal to $10.42 a million British thermal units. A therm is 100,000 Btus.
``Production on Elgin-Franklin has been reduced at the request of the Forties pipeline operator,'' Brian O'Neill, Total's spokesman in Aberdeen, Scotland, said in an e-mail yesterday. BP's spokesman in Aberdeen, Richard Grant, wouldn't immediately comment today on the status of the oil pipeline.
A reduction in Elgin-Franklin oil supply to the pipeline would force Total to cut gas production. Maximum gas output at Elgin-Franklin is 15.5 million cubic meters a day, according to Total's Web site. The field is able to pump 175,000 barrels of condensate, a light oil that's produced in association with natural gas.
Gas from the fields arrives in the U.K. at the Bacton Seal terminal in Norfolk. Flows at the terminal were recorded at 14.5 million cubic meters at 9:29 a.m., according to network manager National Grid Plc. That's 10 million cubic meters lower than on Aug. 25.
The next-week contract jumped 17 percent to 53.75 pence. Gas for next month increased 5.1 percent to 57 pence a therm.
Deliveries into Total's St. Fergus terminal in Scotland dropped as much as 10 million cubic meters to a rate of about 29 million a day at 9:15 a.m. today. The terminal receives gas from Norway through the Vesterled link and from North Sea fields including Total's Alwyn Area and BP's Bruce and Rhum fields.
Interconnector (U.K.) Ltd.'s pipeline, linking Britain and Belgium, is now closed until 6 a.m. on Sept. 11 for planned annual maintenance. The closure will reduce daily gas demand during the period. About 26 million cubic meters of gas flowed to Belgium yesterday.
U.K. gas demand in the 24 hours through 6 a.m. tomorrow is forecast at 187 million cubic meters, according to National Grid. That's the lowest this year.
About 324 million cubic meters of the fuel will remain in the pipeline system at that time, National Grid said, 1 million fewer than at the start of today.
Contracts to deliver gas in the future also increased. Gas for the six months through March 2009 increased 2.8 percent to 102.50 pence a therm. That's equal to $18.92. Gas for next summer, the six months through September 2009, increased 2.6 percent to 84.90 pence, according to Spectron Group Ltd.
To contact the reporter on this story: Ben Farey in London at bfarey@bloomberg.net
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Maersk Profit Advances 40% on Oil Exploration Unit
By Christian Wienberg
Aug. 27 (Bloomberg) -- A.P. Moeller-Maersk A/S, the world's largest container shipper, said profit gained 40 percent in the first six months after earnings nearly doubled in the oil exploration division.
Net income rose to 11.6 billion kroner ($2.3 billion) from 8.31 billion kroner a year earlier, the Copenhagen-based company said today in a statement. Profit beat the 10.5 billion-krone median estimate of nine analysts surveyed by Bloomberg. Revenue increased 13 percent to 148.4 billion kroner.
Maersk raised its full-year sales and profit forecasts based on earnings in the Oil & Gas division, which has become the largest profit contributor after oil prices nearly doubled over the past 18 months. The company said today it will buy a competitor to become the biggest shipper of refined oil products. The Maersk Line container business remains ``challenging'' because of rising fuel costs, overcapacity and a weaker dollar.
``Years of investments in Oil & Gas are now seriously paying off for Maersk,'' Karsten Sloth and Christian Nagstrup, analysts at Silkeborg, Denmark-based Jyske Bank A/S, said in a note before the earnings announcement. ``Meanwhile, Maersk Line has little to celebrate.'' They rate the stock ``accumulate.''
Maersk rose as much as 5.9 percent to 56,000 kroner in Copenhagen trading and was up 2,100 kroner, or 4 percent, as of 2:18 p.m. Before today, the shares had dropped 2.8 percent this year, outpacing the Bloomberg European 500 Index of Europe's 500 largest companies, which lost 23 percent.
Qatar, North Sea
The energy exploration unit almost doubled first-half profit to 6.47 billion kroner. It has invested $6 billion kroner in oil and gas fields offshore of Qatar, and also explores in the Danish and U.K. parts of the North Sea.
Maersk predicted profit before minority interests of 20 billion kroner to 23 billion kroner this year, compared with a previous range of 18 billion kroner to 20 billion kroner. Sales will be about 320 billion kroner, up from a previous forecast of 300 billion kroner, the company said.
The Danish company also said today that it will buy Brostroem AB for 3.62 billion Swedish kronor ($568 million), creating the world's largest operator of gasoline, jet fuel and diesel tankers. The purchase will bring Maersk's combined fleet to 301 chemical and refined oil tankers, including 60 that are under construction.
Refining Demand
The additional tankers may help Maersk tap demand for longer-distance oil deliveries as most new refineries are being built in Asia and the Middle East, away from the U.S. and Europe where the bulk of the fuel is consumed.
Maersk is undertaking the biggest cost-reduction plan in its 103-year history by cutting as much as 12 percent of the labor force at the container unit.
Maersk Line, which operates more than 500 vessels that can carry 1.7 million containers, posted a 359 million kroner profit compared with a 1.23 billion kroner loss the year before.
Global container rates were 10 percent higher in the second quarter than a year ago when fuel surcharges are included, Philip Damas, research director at Drewry Shipping Consultants Ltd. in London. Rates from Asia to Europe, the most important for Maersk, rose 3 percent.
Maersk Line's profit is restrained by a weaker dollar because the company generates most of its income in the U.S. currency and incurs many costs in the euro and the Danish krone.
The dollar declined 16 percent against the euro at the end of the second quarter from a year before. Bloomberg 380 Centistoke bunker fuel traded in Rotterdam gained 84 percent.
To contact the reporter on this story: Christian Wienberg in Copenhagen at cwienberg@bloomberg.net
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Aug. 27 (Bloomberg) -- A.P. Moeller-Maersk A/S, the world's largest container shipper, said profit gained 40 percent in the first six months after earnings nearly doubled in the oil exploration division.
Net income rose to 11.6 billion kroner ($2.3 billion) from 8.31 billion kroner a year earlier, the Copenhagen-based company said today in a statement. Profit beat the 10.5 billion-krone median estimate of nine analysts surveyed by Bloomberg. Revenue increased 13 percent to 148.4 billion kroner.
Maersk raised its full-year sales and profit forecasts based on earnings in the Oil & Gas division, which has become the largest profit contributor after oil prices nearly doubled over the past 18 months. The company said today it will buy a competitor to become the biggest shipper of refined oil products. The Maersk Line container business remains ``challenging'' because of rising fuel costs, overcapacity and a weaker dollar.
``Years of investments in Oil & Gas are now seriously paying off for Maersk,'' Karsten Sloth and Christian Nagstrup, analysts at Silkeborg, Denmark-based Jyske Bank A/S, said in a note before the earnings announcement. ``Meanwhile, Maersk Line has little to celebrate.'' They rate the stock ``accumulate.''
Maersk rose as much as 5.9 percent to 56,000 kroner in Copenhagen trading and was up 2,100 kroner, or 4 percent, as of 2:18 p.m. Before today, the shares had dropped 2.8 percent this year, outpacing the Bloomberg European 500 Index of Europe's 500 largest companies, which lost 23 percent.
Qatar, North Sea
The energy exploration unit almost doubled first-half profit to 6.47 billion kroner. It has invested $6 billion kroner in oil and gas fields offshore of Qatar, and also explores in the Danish and U.K. parts of the North Sea.
Maersk predicted profit before minority interests of 20 billion kroner to 23 billion kroner this year, compared with a previous range of 18 billion kroner to 20 billion kroner. Sales will be about 320 billion kroner, up from a previous forecast of 300 billion kroner, the company said.
The Danish company also said today that it will buy Brostroem AB for 3.62 billion Swedish kronor ($568 million), creating the world's largest operator of gasoline, jet fuel and diesel tankers. The purchase will bring Maersk's combined fleet to 301 chemical and refined oil tankers, including 60 that are under construction.
Refining Demand
The additional tankers may help Maersk tap demand for longer-distance oil deliveries as most new refineries are being built in Asia and the Middle East, away from the U.S. and Europe where the bulk of the fuel is consumed.
Maersk is undertaking the biggest cost-reduction plan in its 103-year history by cutting as much as 12 percent of the labor force at the container unit.
Maersk Line, which operates more than 500 vessels that can carry 1.7 million containers, posted a 359 million kroner profit compared with a 1.23 billion kroner loss the year before.
Global container rates were 10 percent higher in the second quarter than a year ago when fuel surcharges are included, Philip Damas, research director at Drewry Shipping Consultants Ltd. in London. Rates from Asia to Europe, the most important for Maersk, rose 3 percent.
Maersk Line's profit is restrained by a weaker dollar because the company generates most of its income in the U.S. currency and incurs many costs in the euro and the Danish krone.
The dollar declined 16 percent against the euro at the end of the second quarter from a year before. Bloomberg 380 Centistoke bunker fuel traded in Rotterdam gained 84 percent.
To contact the reporter on this story: Christian Wienberg in Copenhagen at cwienberg@bloomberg.net
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Natural Gas Advances Amid Storm Threat to Gulf Energy Output
By Reg Curren
Aug. 27 (Bloomberg) -- Natural gas in New York rose amid speculation Tropical Storm Gustav will regain hurricane strength and reduce energy production in the Gulf of Mexico next week.
The storm is forecast to enter the Gulf on Aug. 30, possibly as a Category 3 hurricane on the Saffir-Simpson scale, the Miami- based National Hurricane Center said. Such a storm has winds of 111 (178 kilometers) to 130 miles per hour. The Gulf accounts for about 14 percent of gas output and more than a fifth of oil production, according to the U.S. Energy Department.
``Speculators have built in a direct hit on the energy areas, all of the weather models have it going into'' the areas of concentrated gas output, said Michael Rose, trading director at Angus Jackson Inc. in Fort Lauderdale, Florida. ``If it misses that area, prices will fall as quickly as they went up.''
Natural gas for September delivery rose 35.5 cents, or 4.3 percent, to $8.633 per million British thermal units at 9:54 a.m. on the New York Mercantile Exchange. Futures have tumbled 37 percent since closing at $13.577 on July 3, a 30-month high.
The September contract expires today. The more-actively traded contract for October deliver gained 35.4 cents, or 4.2 percent, to $8.741 per million Btu. The price earlier touched $8.88 per million Btu.
``People get scared'' looking at Gustav in the context of what Katrina did, said Rose. ``These things are very serious, though we do have good supplies and the platforms have been shored up.''
Katrina and Rita
Hurricane Katrina formed over the Bahamas on Aug. 23, 2005, making landfall in southeast Louisiana on Aug. 29. Behind Katrina came Hurricane Rita, the most intense tropical cyclone ever observed in the Gulf. Rita made landfall on Sept. 24, 2005, at Sabine Pass near the border of Texas and Louisiana.
The storms curtailed Gulf gas flow, prompting the fuel to touch $15.78 per million Btu on Dec. 13, 2005, the highest since gas began Nymex trading.
``Some producers that employ their own weather forecasting staff, are projecting a high degree of probability that Gustav's path will cause shut-ins of oil and gas'' platforms, said Tom Orr, director of research at Weeden & Co. in Greenwich, Connecticut.
``We could see substantial shut-ins of perhaps of as much as a third of Gulf production, and that is putting significant upward pressure on natural gas'' prices, said Orr.
Two areas of low pressure are following Gustav in the Atlantic and may become storms, according to the National Hurricane Center.
Gustav may also hinder the accumulation of supplies for winter. Analysts forecast gas stockpiles will reach 3.5 trillion cubic feet by Nov. 1, the start of the heating season.
Inventory of the heating fuel is 1 percent above the five- year average of 2.629 trillion cubic feet, according to Energy Department data, and rose to a record 3.545 trillion cubic feet in Nov. 2007.
To contact the reporters on this story: Reg Curren in Calgary at rcurren@bloomberg.net.
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Aug. 27 (Bloomberg) -- Natural gas in New York rose amid speculation Tropical Storm Gustav will regain hurricane strength and reduce energy production in the Gulf of Mexico next week.
The storm is forecast to enter the Gulf on Aug. 30, possibly as a Category 3 hurricane on the Saffir-Simpson scale, the Miami- based National Hurricane Center said. Such a storm has winds of 111 (178 kilometers) to 130 miles per hour. The Gulf accounts for about 14 percent of gas output and more than a fifth of oil production, according to the U.S. Energy Department.
``Speculators have built in a direct hit on the energy areas, all of the weather models have it going into'' the areas of concentrated gas output, said Michael Rose, trading director at Angus Jackson Inc. in Fort Lauderdale, Florida. ``If it misses that area, prices will fall as quickly as they went up.''
Natural gas for September delivery rose 35.5 cents, or 4.3 percent, to $8.633 per million British thermal units at 9:54 a.m. on the New York Mercantile Exchange. Futures have tumbled 37 percent since closing at $13.577 on July 3, a 30-month high.
The September contract expires today. The more-actively traded contract for October deliver gained 35.4 cents, or 4.2 percent, to $8.741 per million Btu. The price earlier touched $8.88 per million Btu.
``People get scared'' looking at Gustav in the context of what Katrina did, said Rose. ``These things are very serious, though we do have good supplies and the platforms have been shored up.''
Katrina and Rita
Hurricane Katrina formed over the Bahamas on Aug. 23, 2005, making landfall in southeast Louisiana on Aug. 29. Behind Katrina came Hurricane Rita, the most intense tropical cyclone ever observed in the Gulf. Rita made landfall on Sept. 24, 2005, at Sabine Pass near the border of Texas and Louisiana.
The storms curtailed Gulf gas flow, prompting the fuel to touch $15.78 per million Btu on Dec. 13, 2005, the highest since gas began Nymex trading.
``Some producers that employ their own weather forecasting staff, are projecting a high degree of probability that Gustav's path will cause shut-ins of oil and gas'' platforms, said Tom Orr, director of research at Weeden & Co. in Greenwich, Connecticut.
``We could see substantial shut-ins of perhaps of as much as a third of Gulf production, and that is putting significant upward pressure on natural gas'' prices, said Orr.
Two areas of low pressure are following Gustav in the Atlantic and may become storms, according to the National Hurricane Center.
Gustav may also hinder the accumulation of supplies for winter. Analysts forecast gas stockpiles will reach 3.5 trillion cubic feet by Nov. 1, the start of the heating season.
Inventory of the heating fuel is 1 percent above the five- year average of 2.629 trillion cubic feet, according to Energy Department data, and rose to a record 3.545 trillion cubic feet in Nov. 2007.
To contact the reporters on this story: Reg Curren in Calgary at rcurren@bloomberg.net.
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Medvedev Seeks China's Support After West Slams Move on Regions
By Alex Nicholson and Lyubov Pronina
Aug. 27 (Bloomberg) -- Russian President Dmitry Medvedev met his Chinese counterpart Hu Jintao today, seeking support from Russia's biggest Asian ally for its recognition of two breakaway Georgian regions, a move widely condemned in the West.
Medvedev ``informed'' Hu about his decision to recognize the statehood of Abkhazia and South Ossetia during a meeting of the six-member Shanghai Cooperation Organization in the Tajik capital, Dushanbe, the president's spokeswoman Natalia Timakova told reporters without elaborating. China has yet to comment.
Russia said it plans to establish diplomatic relations with the two regions, as Russian warships docked at the Abkhaz capital Sukhumi, the Interfax news service reported. Russia's recognition of the regions drew condemnation from Western leaders. U.S. President George W. Bush asked Medvedev to ``reconsider this irresponsible decision.''
``Russia's main aim is to get support from the organization for its military action and approval in one form or another for recognizing South Ossetian independence,'' said Yevgeny Volk, an analyst in Moscow for the Washington-based Heritage Foundation. ``It is clear that Russia is using it as a counterweight to the West in the conflict and its recognition of South Ossetia.''
While Russia would seek to win formal recognition from members of the group, Volk said such a decision for countries like China and India, which have separatist regions of their own, would amount to ``chopping the branch they sit on.''
`Puppet Regimes'
In addition to Russia and China, the organization includes the former Soviet republics Tajikistan, Uzbekistan, Kyrgyzstan and Kazakhstan, while India, Iran, Pakistan and Mongolia have observer status. The meeting in Dushanbe will discuss terrorism and drug trafficking from Afghanistan, the Kremlin press service said.
Ukraine today refused to recognize Abkhazia and South Ossetia. President Viktor Yushchenko said ``we regret Russia's decision'' on the regions. Medvedev's decision ``supporting puppet regimes indicates the Russian Federation uses the rule of force to resolve international problems,'' Ukraine's Foreign Affairs Ministry said in a statement.
European countries including Germany, the U.K., Italy, France and Sweden criticized the Russian move.
Medvedev called his decision on the breakaway regions an ``obvious'' move to protect his country's borders. Russia's acceptance of the independence of the pro-Moscow regions, which broke away from Georgia in wars in the early 1990s, followed its military drubbing of Georgia this month after leaders in Tbilisi tried to retake South Ossetia by force.
Russian Fleet
The missile cruiser ``Moskva'' and two other warships from Russia's Black Sea fleet docked today at Sukhumi on the Russian navy's first ``official visit'' following Medvedev's decision to recognize the region's independence, Interfax reported, citing Garri Kupalba, Abkhazia's deputy defense minister.
Russia has no plans to increase its naval presence in the Black Sea as ships from the North Atlantic Treaty Organization arrive to deliver humanitarian aid to Georgia, Anatoly Nogovitsyn, deputy head of Russia's General Staff, told reporters in Moscow. The arrival of NATO ships is ``aggravating'' the situation in the region, he said.
By recognizing Abkhazia and South Ossetia, Medvedev and Prime Minister Vladimir Putin are engaging in tit-for-tat gamesmanship with the West over Kosovo's February declaration of independence, which was backed by the U.S. and much of Europe and opposed by Russia as an illegal affront to its ally Serbia. Georgia is a pro-Western democracy supported by the U.S. and Europe in part because it controls a Caspian Sea oil pipeline that bypasses Russia.
`Legal Force'
The Georgian situation is a ``special case'' that can't be compared with Kosovo, Medvedev told the BBC yesterday. Both Abkhazia and South Ossetia cited Kosovo as a precedent in their bids for statehood.
Georgian President Mikheil Saakashvili said Russia's recognition of the regions had ``no legal force'' and renewed his call for his country's ``speedy'' entry into NATO. Russia views further eastward expansion of NATO as a security threat.
South Ossetia, about half the size of Puerto Rico, has a population of about 70,000. Russian officials say 2,100 civilians died in recent fighting in the region, which is connected to Russia's North Ossetia region via a tunnel through the Caucasus Mountains.
Abkhazia, slightly larger than the U.S. state of Delaware, has about 200,000 people. Georgia says about 250,000 ethnic Georgians fled a war there in the early 1990s and haven't been allowed to return.
French Foreign Minister Bernard Kouchner said in an interview on Europe 1 radio today that he assumes Ukraine and Moldova are now ``Russian targets,'' following the Kremlin's recognition of Georgia's breakaway regions.
Kouchner, whose country holds the European Union's rotating presidency, said it ``will take 20 years'' to resolve the conflict in Georgia following the conflict with Russia.
To contact the reporters on this story: Lyubov Pronina in Dushanbe via the Moscow newsroom at lpronina@bloomberg.net; Alex Nicholson in Moscow at anicholson6@bloomberg.net
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Aug. 27 (Bloomberg) -- Russian President Dmitry Medvedev met his Chinese counterpart Hu Jintao today, seeking support from Russia's biggest Asian ally for its recognition of two breakaway Georgian regions, a move widely condemned in the West.
Medvedev ``informed'' Hu about his decision to recognize the statehood of Abkhazia and South Ossetia during a meeting of the six-member Shanghai Cooperation Organization in the Tajik capital, Dushanbe, the president's spokeswoman Natalia Timakova told reporters without elaborating. China has yet to comment.
Russia said it plans to establish diplomatic relations with the two regions, as Russian warships docked at the Abkhaz capital Sukhumi, the Interfax news service reported. Russia's recognition of the regions drew condemnation from Western leaders. U.S. President George W. Bush asked Medvedev to ``reconsider this irresponsible decision.''
``Russia's main aim is to get support from the organization for its military action and approval in one form or another for recognizing South Ossetian independence,'' said Yevgeny Volk, an analyst in Moscow for the Washington-based Heritage Foundation. ``It is clear that Russia is using it as a counterweight to the West in the conflict and its recognition of South Ossetia.''
While Russia would seek to win formal recognition from members of the group, Volk said such a decision for countries like China and India, which have separatist regions of their own, would amount to ``chopping the branch they sit on.''
`Puppet Regimes'
In addition to Russia and China, the organization includes the former Soviet republics Tajikistan, Uzbekistan, Kyrgyzstan and Kazakhstan, while India, Iran, Pakistan and Mongolia have observer status. The meeting in Dushanbe will discuss terrorism and drug trafficking from Afghanistan, the Kremlin press service said.
Ukraine today refused to recognize Abkhazia and South Ossetia. President Viktor Yushchenko said ``we regret Russia's decision'' on the regions. Medvedev's decision ``supporting puppet regimes indicates the Russian Federation uses the rule of force to resolve international problems,'' Ukraine's Foreign Affairs Ministry said in a statement.
European countries including Germany, the U.K., Italy, France and Sweden criticized the Russian move.
Medvedev called his decision on the breakaway regions an ``obvious'' move to protect his country's borders. Russia's acceptance of the independence of the pro-Moscow regions, which broke away from Georgia in wars in the early 1990s, followed its military drubbing of Georgia this month after leaders in Tbilisi tried to retake South Ossetia by force.
Russian Fleet
The missile cruiser ``Moskva'' and two other warships from Russia's Black Sea fleet docked today at Sukhumi on the Russian navy's first ``official visit'' following Medvedev's decision to recognize the region's independence, Interfax reported, citing Garri Kupalba, Abkhazia's deputy defense minister.
Russia has no plans to increase its naval presence in the Black Sea as ships from the North Atlantic Treaty Organization arrive to deliver humanitarian aid to Georgia, Anatoly Nogovitsyn, deputy head of Russia's General Staff, told reporters in Moscow. The arrival of NATO ships is ``aggravating'' the situation in the region, he said.
By recognizing Abkhazia and South Ossetia, Medvedev and Prime Minister Vladimir Putin are engaging in tit-for-tat gamesmanship with the West over Kosovo's February declaration of independence, which was backed by the U.S. and much of Europe and opposed by Russia as an illegal affront to its ally Serbia. Georgia is a pro-Western democracy supported by the U.S. and Europe in part because it controls a Caspian Sea oil pipeline that bypasses Russia.
`Legal Force'
The Georgian situation is a ``special case'' that can't be compared with Kosovo, Medvedev told the BBC yesterday. Both Abkhazia and South Ossetia cited Kosovo as a precedent in their bids for statehood.
Georgian President Mikheil Saakashvili said Russia's recognition of the regions had ``no legal force'' and renewed his call for his country's ``speedy'' entry into NATO. Russia views further eastward expansion of NATO as a security threat.
South Ossetia, about half the size of Puerto Rico, has a population of about 70,000. Russian officials say 2,100 civilians died in recent fighting in the region, which is connected to Russia's North Ossetia region via a tunnel through the Caucasus Mountains.
Abkhazia, slightly larger than the U.S. state of Delaware, has about 200,000 people. Georgia says about 250,000 ethnic Georgians fled a war there in the early 1990s and haven't been allowed to return.
French Foreign Minister Bernard Kouchner said in an interview on Europe 1 radio today that he assumes Ukraine and Moldova are now ``Russian targets,'' following the Kremlin's recognition of Georgia's breakaway regions.
Kouchner, whose country holds the European Union's rotating presidency, said it ``will take 20 years'' to resolve the conflict in Georgia following the conflict with Russia.
To contact the reporters on this story: Lyubov Pronina in Dushanbe via the Moscow newsroom at lpronina@bloomberg.net; Alex Nicholson in Moscow at anicholson6@bloomberg.net
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E.ON Will Cut Jobs, Bundle Units in Run-Up to Possible Sale
By Nicholas Comfort
Aug. 27 (Bloomberg) -- E.ON AG's power generation unit will cut jobs, combine German regional divisions to become more competitive, and separate the sales and grid operations in the run-up to its expected sale.
E.ON Energie AG will begin to bundle six of its seven state and regional units from Sept. 1, the Munich-based company said today in a statement on its Web site. ``Socially acceptable'' job cuts will take place over ``several years,'' according to the statement.
Germany's largest utility is trying to reduce operating costs to retain customers by curbing higher retail prices for electricity and gas. The overhaul will also offset the lower fees E.ON charges for use of its power grid, which are capped by the regulator, and prepare for a possible sale of the infrastructure.
``Clearly, it's to save money,'' said Ulrich Huwald, an analyst at M.M. Warburg in Hamburg who recommends investors hold the stock. ``Germany is increasingly feeling an effect on profits from regulation like grid fees.''
The measures, which will include cutting as many as 1,800 jobs, should save ``several hundred million euros,'' Die Welt reported earlier, citing an interview with E.ON Energie Chief Executive Officer Klaus-Dieter Maubach.
Close Centers
E.ON Energie will bundle six of seven regional businesses and close 40 of its more than 60 service centers to centrally manage both products and prices, Maubach told the Berlin-based newspaper. The number of those locations will shrink to a maximum of 20 later on, the paper cited him as saying.
No one will be fired in the overhaul, which is expected to be finished by the end of 2012, as the company will use measures such as partial retirement, Welt said, citing Maubach.
Profit at E.ON's grid unit fell 16 percent to 460 million euros ($677 million) in the first half, the company said Aug. 13. Network fees are based on what reimbursement Germany's Federal Network Agency judges appropriate given E.ON's level of investment.
The authority, known as the Bundesnetzagentur, invalidated 25 percent of the costs the company claimed in January, Renate Hichert, a Bonn-based agency spokeswoman, said by telephone this month. The investments which determine 2008's grid fees are based on spending from 2006, she said.
E.ON said in February that it is ready to sell its grid to resolve two European Union antitrust probes into the company's business practices. The utility will have as much as two years to sell the infrastructure following approval by the EU Commission in the fall.
E.ON has lost 600,000 clients in its standard business in the ``past months,'' the newspaper said. That was more than compensated for by a gain of 800,000 customers at the utility's E-Wie-Einfach discount electricity and gas unit, Maubach told the newspaper, without specifying a timeframe.
To contact the reporter on this story: Nicholas Comfort in Frankfurt at ncomfort1@bloomberg.net
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Aug. 27 (Bloomberg) -- E.ON AG's power generation unit will cut jobs, combine German regional divisions to become more competitive, and separate the sales and grid operations in the run-up to its expected sale.
E.ON Energie AG will begin to bundle six of its seven state and regional units from Sept. 1, the Munich-based company said today in a statement on its Web site. ``Socially acceptable'' job cuts will take place over ``several years,'' according to the statement.
Germany's largest utility is trying to reduce operating costs to retain customers by curbing higher retail prices for electricity and gas. The overhaul will also offset the lower fees E.ON charges for use of its power grid, which are capped by the regulator, and prepare for a possible sale of the infrastructure.
``Clearly, it's to save money,'' said Ulrich Huwald, an analyst at M.M. Warburg in Hamburg who recommends investors hold the stock. ``Germany is increasingly feeling an effect on profits from regulation like grid fees.''
The measures, which will include cutting as many as 1,800 jobs, should save ``several hundred million euros,'' Die Welt reported earlier, citing an interview with E.ON Energie Chief Executive Officer Klaus-Dieter Maubach.
Close Centers
E.ON Energie will bundle six of seven regional businesses and close 40 of its more than 60 service centers to centrally manage both products and prices, Maubach told the Berlin-based newspaper. The number of those locations will shrink to a maximum of 20 later on, the paper cited him as saying.
No one will be fired in the overhaul, which is expected to be finished by the end of 2012, as the company will use measures such as partial retirement, Welt said, citing Maubach.
Profit at E.ON's grid unit fell 16 percent to 460 million euros ($677 million) in the first half, the company said Aug. 13. Network fees are based on what reimbursement Germany's Federal Network Agency judges appropriate given E.ON's level of investment.
The authority, known as the Bundesnetzagentur, invalidated 25 percent of the costs the company claimed in January, Renate Hichert, a Bonn-based agency spokeswoman, said by telephone this month. The investments which determine 2008's grid fees are based on spending from 2006, she said.
E.ON said in February that it is ready to sell its grid to resolve two European Union antitrust probes into the company's business practices. The utility will have as much as two years to sell the infrastructure following approval by the EU Commission in the fall.
E.ON has lost 600,000 clients in its standard business in the ``past months,'' the newspaper said. That was more than compensated for by a gain of 800,000 customers at the utility's E-Wie-Einfach discount electricity and gas unit, Maubach told the newspaper, without specifying a timeframe.
To contact the reporter on this story: Nicholas Comfort in Frankfurt at ncomfort1@bloomberg.net
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Gustav Soaks Haiti, Forecast to Be Hurricane in Gulf
By Brian K. Sullivan and Alex Morales
Aug. 27 (Bloomberg) -- Tropical Storm Gustav brought heavy rains to Haiti today and menaced Cuba, Jamaica and the Cayman Islands. Crude oil rose as the storm was forecast to regain hurricane strength on a track toward the Gulf of Mexico's oil- producing region.
Gustav, packing sustained winds of almost 60 miles (95 kilometers) per hour, was about 90 miles west of the Haitian capital, Port-au-Prince, and 120 miles southeast of Guantanamo, Cuba, just before 8 a.m. Miami time, the U.S. National Hurricane Center said in an advisory.
``Though Gustav has temporarily weakened overnight due to its interaction with Haiti, this storm remains likely to explode into a major hurricane over the northwestern Caribbean'' on Aug. 29, said Jim Rouiller, a senior energy meteorologist with Planalytics Inc., a forecaster based in Wayne, Pennsylvania.
The storm weakened from a hurricane overnight as it crossed southwestern Haiti. As much as 25 inches (64 centimeters) of rain may fall in parts of the Dominican Republic, Haiti, eastern Cuba, Jamaica and the Caymans, the center said.
``They're getting tremendous rains in Haiti and there will be mudslides and flash flooding,'' said AccuWeather Inc. meteorologist Paul Walker. ``It's going to continue moving to the northwest, and I'd imagine they're going to have to shut down the oil rigs and refineries.''
Deaths From Landslides
A landslide killed five people in Haiti, according to Agence France-Presse. In the Dominican Republic, eight members of one family died because of a landslide, the Associated Press reported.
The storm is forecast to pass over the Caribbean between Cuba and Jamaica, before entering the Gulf on Aug. 30. Gustav may gain ``major'' hurricane status, reaching at least Category 3 on the five-step Saffir-Simpson scale of intensity, the center said.
The hurricane center's current five-day forecast track shows Gustav crossing western Cuba before heading toward Louisiana.
``The upper Texas coastline to Louisiana remain most at risk,'' Rouiller said. ``The entirety of the Gulf energy production region remains under the gun and I expect somewhere near 85 percent of the Gulf energy infrastructure will be shut- in,'' meaning sealed off.
Memories of 2005
In August and September 2005, U.S. crude oil and fuel production plunged and prices rose to records when hurricanes Katrina and Rita shut refineries and platforms as they struck the Gulf coast. Katrina closed 95 percent of offshore output in the region. Almost 19 percent of U.S. refining capacity was idled because of damage and blackouts caused by the hurricanes.
The hurricane center's track for Gustav takes it toward waters south of Louisiana, where U.S. oil and gas platforms and pipelines are most concentrated. Offshore fields in the Gulf accounted for 26 percent of total U.S. crude production and 12 percent of natural gas output in April, according to the U.S. Energy Department.
Louisiana has 19 oil refineries, which together process almost 3 million barrels a day. Those closest to the coast include ConocoPhillips' Belle Chasse refinery, Petroleos de Venezuela SA's Chalmette plant and several refineries clustered near Lake Charles.
Oil Climbs
Crude oil for October delivery rose $2.48, or 2.1 percent, to $118.75 a barrel on the New York Mercantile Exchange. Prices are up about 60 percent from a year ago.
Tropical-storm warnings were in place across southern Haiti and in Jamaica. The Cuban provinces of Guantanamo, Santiago de Cuba and Granma were under a hurricane warning, and hurricane watches were in force in other parts of Cuba and in the Cayman Islands.
``After it moves away from Haiti and the higher mountains, it could become a hurricane again, maybe tomorrow,'' Eric Blake, a meteorologist at the center, said today in a phone interview. ``The conditions are there for the storm to be a major hurricane in the northwest Caribbean. Right now we're forecasting Category 3, and one category higher or lower is not out of the question.''
Category 3 storms have sustained winds of at least 111 mph, and Category 4 hurricanes blow at a minimum of 131 mph.
The system is moving northwest at 5 mph, and a turn to the west-northwest is expected today, the center said.
In Jamaica, the government began to prepare 140 shelters as Gustav advanced, the Office of Disaster Preparedness and Emergency Management said in an e-mailed statement.
Cuban authorities inspected dams and reservoirs to assess whether they can cope with the expected rainfall brought on by the storm, the official Cuban News Agency said. In Granma province, the Provincial Defense Council ordered the evacuation of people from low-lying areas, and supplies of rice, cement and fertilizer were moved out of the reach of potential floodwaters, the agency reported.
To contact the reporters on this story: Brian K. Sullivan in Boston at bsullivan10@bloomberg.net; Alex Morales in London at amorales2@bloomberg.net.
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Aug. 27 (Bloomberg) -- Tropical Storm Gustav brought heavy rains to Haiti today and menaced Cuba, Jamaica and the Cayman Islands. Crude oil rose as the storm was forecast to regain hurricane strength on a track toward the Gulf of Mexico's oil- producing region.
Gustav, packing sustained winds of almost 60 miles (95 kilometers) per hour, was about 90 miles west of the Haitian capital, Port-au-Prince, and 120 miles southeast of Guantanamo, Cuba, just before 8 a.m. Miami time, the U.S. National Hurricane Center said in an advisory.
``Though Gustav has temporarily weakened overnight due to its interaction with Haiti, this storm remains likely to explode into a major hurricane over the northwestern Caribbean'' on Aug. 29, said Jim Rouiller, a senior energy meteorologist with Planalytics Inc., a forecaster based in Wayne, Pennsylvania.
The storm weakened from a hurricane overnight as it crossed southwestern Haiti. As much as 25 inches (64 centimeters) of rain may fall in parts of the Dominican Republic, Haiti, eastern Cuba, Jamaica and the Caymans, the center said.
``They're getting tremendous rains in Haiti and there will be mudslides and flash flooding,'' said AccuWeather Inc. meteorologist Paul Walker. ``It's going to continue moving to the northwest, and I'd imagine they're going to have to shut down the oil rigs and refineries.''
Deaths From Landslides
A landslide killed five people in Haiti, according to Agence France-Presse. In the Dominican Republic, eight members of one family died because of a landslide, the Associated Press reported.
The storm is forecast to pass over the Caribbean between Cuba and Jamaica, before entering the Gulf on Aug. 30. Gustav may gain ``major'' hurricane status, reaching at least Category 3 on the five-step Saffir-Simpson scale of intensity, the center said.
The hurricane center's current five-day forecast track shows Gustav crossing western Cuba before heading toward Louisiana.
``The upper Texas coastline to Louisiana remain most at risk,'' Rouiller said. ``The entirety of the Gulf energy production region remains under the gun and I expect somewhere near 85 percent of the Gulf energy infrastructure will be shut- in,'' meaning sealed off.
Memories of 2005
In August and September 2005, U.S. crude oil and fuel production plunged and prices rose to records when hurricanes Katrina and Rita shut refineries and platforms as they struck the Gulf coast. Katrina closed 95 percent of offshore output in the region. Almost 19 percent of U.S. refining capacity was idled because of damage and blackouts caused by the hurricanes.
The hurricane center's track for Gustav takes it toward waters south of Louisiana, where U.S. oil and gas platforms and pipelines are most concentrated. Offshore fields in the Gulf accounted for 26 percent of total U.S. crude production and 12 percent of natural gas output in April, according to the U.S. Energy Department.
Louisiana has 19 oil refineries, which together process almost 3 million barrels a day. Those closest to the coast include ConocoPhillips' Belle Chasse refinery, Petroleos de Venezuela SA's Chalmette plant and several refineries clustered near Lake Charles.
Oil Climbs
Crude oil for October delivery rose $2.48, or 2.1 percent, to $118.75 a barrel on the New York Mercantile Exchange. Prices are up about 60 percent from a year ago.
Tropical-storm warnings were in place across southern Haiti and in Jamaica. The Cuban provinces of Guantanamo, Santiago de Cuba and Granma were under a hurricane warning, and hurricane watches were in force in other parts of Cuba and in the Cayman Islands.
``After it moves away from Haiti and the higher mountains, it could become a hurricane again, maybe tomorrow,'' Eric Blake, a meteorologist at the center, said today in a phone interview. ``The conditions are there for the storm to be a major hurricane in the northwest Caribbean. Right now we're forecasting Category 3, and one category higher or lower is not out of the question.''
Category 3 storms have sustained winds of at least 111 mph, and Category 4 hurricanes blow at a minimum of 131 mph.
The system is moving northwest at 5 mph, and a turn to the west-northwest is expected today, the center said.
In Jamaica, the government began to prepare 140 shelters as Gustav advanced, the Office of Disaster Preparedness and Emergency Management said in an e-mailed statement.
Cuban authorities inspected dams and reservoirs to assess whether they can cope with the expected rainfall brought on by the storm, the official Cuban News Agency said. In Granma province, the Provincial Defense Council ordered the evacuation of people from low-lying areas, and supplies of rice, cement and fertilizer were moved out of the reach of potential floodwaters, the agency reported.
To contact the reporters on this story: Brian K. Sullivan in Boston at bsullivan10@bloomberg.net; Alex Morales in London at amorales2@bloomberg.net.
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PetroChina Net Falls Most in 6 Years; Cnooc Jumps 89%
By Wang Ying and Winnie Zhu
Aug. 27 (Bloomberg) -- PetroChina Co., China's largest oil company, posted its steepest semi-annual profit decline in more than six years as refining losses eroded gains from record crude oil prices that drove better-than-estimated earnings at Cnooc Ltd.
Net income at PetroChina dropped 35 percent to 53.6 billion yuan ($7.8 billion) in the first half, lower than the 54 billion yuan median forecast of analysts in a Bloomberg News survey. The fall was the biggest since a 43 percent slump in the second half of 2001. Cnooc, China's third-largest oil producer, posted an 89 percent increase to 27.5 billion yuan, compared with an estimate of 22.1 billion yuan.
PetroChina, overtaken by Exxon Mobil Corp. as the world's most valuable company in the first half, was hurt by government fuel-price caps that undermined gains from a 46 percent jump in oil prices. Cnooc, which doesn't run refineries, increased crude reserves and production at home to post more than triple the earnings growth of Exxon and Royal Dutch Shell Plc.
``With global crude prices expected to decline, we expect PetroChina to perform better in the second half, while Cnooc will have stable growth,'' Yin Xiaodong, an analyst at Citic Securities Co., said by telephone from Beijing today.
Crude prices reached a record of $147.27 a barrel on July 11. Prices have dropped 19 percent since then and are still 63 percent higher than a year ago.
PetroChina, China Petroleum & Chemical Corp. and Cnooc are increasing output to meet the needs of the world's fastest- growing major economy, which has expanded by more than 10 percent for the past 5 years. China's oil consumption jumped 88 percent to 7.9 million barrels a day in 2007 compared with a decade ago, according to the BP Statistical Review.
Sudan, Iran
Chinese oil companies have been criticized by the U.S. and Western European countries for sourcing supplies from Sudan, Iran and Myanmar, which face trade sanctions.
China's refineries are still losing money even though the government raised gasoline and diesel prices by at least 17 percent in June, China National Petroleum Corp., the parent company of PetroChina, said on June 28.
PetroChina's second-quarter profit fell 38 percent to 24.7 billion yuan, according to Bloomberg calculations made by deducting earnings for the first three months from today's figures. Cnooc doesn't report quarterly results.
PetroChina's sales rose 40 percent to 549.5 billion yuan in the first six months. The company, 88 percent owned by the Chinese government through China National Petroleum Corp., will pay a first-half dividend of 0.131827 yuan a share.
``PetroChina was unable to fully pass on costs to gasoline and diesel users,'' said Charles Chen, who helps manage the equivalent of $3.7 billion at JF Asset Management Co. in Taipei. ``Cnooc doesn't have this problem.''
Cnooc Sales
Cnooc's oil and gas sales rose 64 percent to 54 billion yuan from 33.2 billion yuan a year earlier. Total oil and gas production gained 8 percent to the equivalent of 92 million barrels of oil. The average price Cnooc got for its oil surged 74 percent to $102.5 a barrel, the company said.
Cnooc plans to increase crude oil and natural gas output by as much as 18 percent this year as economic growth spurs energy demand, the Beijing-based company said Jan. 29. Cnooc started production at two oil fields and announced two discoveries in the first half.
``Production will continue rapid growth in the next two years,'' David Johnson, a Hong Kong-based energy analyst at Macquarie Bank Ltd., said today.
PetroChina has a market value of $337.8 billion. The stock advanced 3.4 percent to close at HK$10.3, before the earnings announcement, while Cnooc gained 3.8 percent to HK$11.62.
Exxon, Shell
Exxon's earnings climbed 16 percent in the first six months while Shell's profit rose 29 percent, according to data compiled by Bloomberg. Both companies struggled to boost output as countries from Kazakhstan to Venezuela cut access to oil.
The government paid PetroChina and China Petroleum & Chemical Corp., the nation's largest refiners, rebates of 75 percent on the 17 percent value-added tax levied on crude imports in the second quarter.
The two companies will get about 40 percent rebate on the tax for crude imported between July and September, the South China Morning Post reported yesterday, citing people it didn't identify.
PetroChina will expedite overseas oil and gas projects to meet the country's rising energy demand, President Zhou Jiping said today. Annual capital spending will remain above 200 billion yuan in the coming years, and about 70 percent of that will be plowed into exploration and development, he told reporters in Hong Kong.
Asset Acquisitions
The Beijing-based company said today it will acquire a 52 percent stake in parent China National Petroleum Corp.'s unit, CNPC Hong Kong, for HK$7.6 billion to boost natural gas sales.
PetroChina has agreed to buy the China National's 50 percent stake in CNPC Exploration & Development Co., the Wall Street Journal reported yesterday, citing a person familiar with the matter. Zhou said the company needs more time to complete the purchase.
PetroChina also plans to set up a ``world-class'' oil refining operation, Zhou said. China's current refining capacity isn't enough to meet rising demand for oil products, he said.
The oil producer plans to boost its annual refining capacity by 14 percent to more than 160 million metric tons by 2010, Vice President Shen Diancheng said in May.
To contact the reporter on this story: Wang Ying in Hong Kong at wang30@bloomberg.net; Winnie Zhu in Hong Kong at wzhu4@bloomberg.net
Read more...
Aug. 27 (Bloomberg) -- PetroChina Co., China's largest oil company, posted its steepest semi-annual profit decline in more than six years as refining losses eroded gains from record crude oil prices that drove better-than-estimated earnings at Cnooc Ltd.
Net income at PetroChina dropped 35 percent to 53.6 billion yuan ($7.8 billion) in the first half, lower than the 54 billion yuan median forecast of analysts in a Bloomberg News survey. The fall was the biggest since a 43 percent slump in the second half of 2001. Cnooc, China's third-largest oil producer, posted an 89 percent increase to 27.5 billion yuan, compared with an estimate of 22.1 billion yuan.
PetroChina, overtaken by Exxon Mobil Corp. as the world's most valuable company in the first half, was hurt by government fuel-price caps that undermined gains from a 46 percent jump in oil prices. Cnooc, which doesn't run refineries, increased crude reserves and production at home to post more than triple the earnings growth of Exxon and Royal Dutch Shell Plc.
``With global crude prices expected to decline, we expect PetroChina to perform better in the second half, while Cnooc will have stable growth,'' Yin Xiaodong, an analyst at Citic Securities Co., said by telephone from Beijing today.
Crude prices reached a record of $147.27 a barrel on July 11. Prices have dropped 19 percent since then and are still 63 percent higher than a year ago.
PetroChina, China Petroleum & Chemical Corp. and Cnooc are increasing output to meet the needs of the world's fastest- growing major economy, which has expanded by more than 10 percent for the past 5 years. China's oil consumption jumped 88 percent to 7.9 million barrels a day in 2007 compared with a decade ago, according to the BP Statistical Review.
Sudan, Iran
Chinese oil companies have been criticized by the U.S. and Western European countries for sourcing supplies from Sudan, Iran and Myanmar, which face trade sanctions.
China's refineries are still losing money even though the government raised gasoline and diesel prices by at least 17 percent in June, China National Petroleum Corp., the parent company of PetroChina, said on June 28.
PetroChina's second-quarter profit fell 38 percent to 24.7 billion yuan, according to Bloomberg calculations made by deducting earnings for the first three months from today's figures. Cnooc doesn't report quarterly results.
PetroChina's sales rose 40 percent to 549.5 billion yuan in the first six months. The company, 88 percent owned by the Chinese government through China National Petroleum Corp., will pay a first-half dividend of 0.131827 yuan a share.
``PetroChina was unable to fully pass on costs to gasoline and diesel users,'' said Charles Chen, who helps manage the equivalent of $3.7 billion at JF Asset Management Co. in Taipei. ``Cnooc doesn't have this problem.''
Cnooc Sales
Cnooc's oil and gas sales rose 64 percent to 54 billion yuan from 33.2 billion yuan a year earlier. Total oil and gas production gained 8 percent to the equivalent of 92 million barrels of oil. The average price Cnooc got for its oil surged 74 percent to $102.5 a barrel, the company said.
Cnooc plans to increase crude oil and natural gas output by as much as 18 percent this year as economic growth spurs energy demand, the Beijing-based company said Jan. 29. Cnooc started production at two oil fields and announced two discoveries in the first half.
``Production will continue rapid growth in the next two years,'' David Johnson, a Hong Kong-based energy analyst at Macquarie Bank Ltd., said today.
PetroChina has a market value of $337.8 billion. The stock advanced 3.4 percent to close at HK$10.3, before the earnings announcement, while Cnooc gained 3.8 percent to HK$11.62.
Exxon, Shell
Exxon's earnings climbed 16 percent in the first six months while Shell's profit rose 29 percent, according to data compiled by Bloomberg. Both companies struggled to boost output as countries from Kazakhstan to Venezuela cut access to oil.
The government paid PetroChina and China Petroleum & Chemical Corp., the nation's largest refiners, rebates of 75 percent on the 17 percent value-added tax levied on crude imports in the second quarter.
The two companies will get about 40 percent rebate on the tax for crude imported between July and September, the South China Morning Post reported yesterday, citing people it didn't identify.
PetroChina will expedite overseas oil and gas projects to meet the country's rising energy demand, President Zhou Jiping said today. Annual capital spending will remain above 200 billion yuan in the coming years, and about 70 percent of that will be plowed into exploration and development, he told reporters in Hong Kong.
Asset Acquisitions
The Beijing-based company said today it will acquire a 52 percent stake in parent China National Petroleum Corp.'s unit, CNPC Hong Kong, for HK$7.6 billion to boost natural gas sales.
PetroChina has agreed to buy the China National's 50 percent stake in CNPC Exploration & Development Co., the Wall Street Journal reported yesterday, citing a person familiar with the matter. Zhou said the company needs more time to complete the purchase.
PetroChina also plans to set up a ``world-class'' oil refining operation, Zhou said. China's current refining capacity isn't enough to meet rising demand for oil products, he said.
The oil producer plans to boost its annual refining capacity by 14 percent to more than 160 million metric tons by 2010, Vice President Shen Diancheng said in May.
To contact the reporter on this story: Wang Ying in Hong Kong at wang30@bloomberg.net; Winnie Zhu in Hong Kong at wzhu4@bloomberg.net
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Gazprom Leads Surge in Russian Debt Risk to Five-Month High
By Abigail Moses and Denis Maternovsky
Aug. 27 (Bloomberg) -- OAO Gazprom led a jump in the cost of protecting Russian companies from default to the highest in almost five months on investor concern the country's military incursion in Georgia will trigger a rise in borrowing costs.
Credit-default swaps on the world's largest natural-gas producer increased 37 basis points to 261 this month, and Moscow-based oil-pipeline operator OAO Transneft rose 28.5 to 260, according to at CMA Datavision prices at 2 p.m. in London. Contracts on Russia's government debt climbed 32 to 134, the highest since April 2.
The credit crisis has already prompted a jump in Russian corporate funding costs, with the nation's largest lender, OAO Sberbank, increasing rates on outstanding loans by an average of 2 percentage points last month. International investor concern over the Georgia military action may add at least a further 0.5 percentage point to annual interest payments, according to Mikhail Galkin, a fixed-income analyst at MDM Bank in Moscow.
``Access to capital for Russian corporations, already severely damaged by the global credit crunch, has further deteriorated on the back of increased political risks,'' Galkin said in an interview today.
Ten years ago, the Russian government shattered investor confidence by failing to repay ruble-denominated debt and devaluing the currency. The crisis triggered losses at Long-Term Capital Management LP that almost paralyzed the global financial system and prompted the Federal Reserve to organize a bailout of the Greenwich, Connecticut-based hedge fund.
`Irresponsible'
The U.S. and European Union yesterday condemned Russia's recognition of Georgia's two breakaway regions of South Ossetia and Abkhazia, which President George W. Bush said was ``irresponsible'' and ``inconsistent'' with United Nations Security Council resolutions.
Gazprom is seeking to borrow $500 million from international lenders after the Moscow-based company sold $500 million of five-year bonds in July. The company paid interest of 7.51 percent on the notes compared with 7.34 percent on $400 million of similar-maturity debt in April.
Transneft increased charges for shipping oil through its pipelines to cover higher financing costs, Vladimir Kushnarev, a vice president at the state-owned company, said in an interview with Russian newspaper Vedmosti this month. The Moscow-based company is seeking to refinance after Sberbank demanded as much as 12 percent annual interest on outstanding loans, the paper reported.
The cost of default protection on OAO VimpelCom, Russia's second-largest mobile-phone company, has also risen. Credit- default swaps on the Moscow-based company climbed 36 basis points this month to 391, CMA prices show. Contracts on VTB Group, the nation's second-biggest bank, increased 37.5 basis points to 353.5 since the start of August.
Default Protection
Credit-default swaps, contracts conceived to protect bondholders against default, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. A rise indicates a deterioration in the perception of credit quality; a decline signals the opposite.
A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.
The cost of default protection on European corporate debt also rose today with the benchmark Markit iTraxx Crossover Index of 50 companies with mostly high-risk, high-yield credit ratings increasing 6 basis points to 568, according to JPMorgan Chase & Co. prices. The Markit iTraxx Europe index of 125 companies with investment-grade ratings rose 1.75 basis points to 102.
Credit-default swaps on the Markit CDX North America Investment Grade index, a benchmark gauge of credit risk linked to the bonds of 125 companies in the U.S. and Canada, increased 1 basis point to 144 basis points, CMA prices show.
To contact the reporters on this story: Abigail Moses in London Amoses5@bloomberg.net Denis Maternovsky in Moscow at dmaternovsky@bloomberg.net
Read more...
Aug. 27 (Bloomberg) -- OAO Gazprom led a jump in the cost of protecting Russian companies from default to the highest in almost five months on investor concern the country's military incursion in Georgia will trigger a rise in borrowing costs.
Credit-default swaps on the world's largest natural-gas producer increased 37 basis points to 261 this month, and Moscow-based oil-pipeline operator OAO Transneft rose 28.5 to 260, according to at CMA Datavision prices at 2 p.m. in London. Contracts on Russia's government debt climbed 32 to 134, the highest since April 2.
The credit crisis has already prompted a jump in Russian corporate funding costs, with the nation's largest lender, OAO Sberbank, increasing rates on outstanding loans by an average of 2 percentage points last month. International investor concern over the Georgia military action may add at least a further 0.5 percentage point to annual interest payments, according to Mikhail Galkin, a fixed-income analyst at MDM Bank in Moscow.
``Access to capital for Russian corporations, already severely damaged by the global credit crunch, has further deteriorated on the back of increased political risks,'' Galkin said in an interview today.
Ten years ago, the Russian government shattered investor confidence by failing to repay ruble-denominated debt and devaluing the currency. The crisis triggered losses at Long-Term Capital Management LP that almost paralyzed the global financial system and prompted the Federal Reserve to organize a bailout of the Greenwich, Connecticut-based hedge fund.
`Irresponsible'
The U.S. and European Union yesterday condemned Russia's recognition of Georgia's two breakaway regions of South Ossetia and Abkhazia, which President George W. Bush said was ``irresponsible'' and ``inconsistent'' with United Nations Security Council resolutions.
Gazprom is seeking to borrow $500 million from international lenders after the Moscow-based company sold $500 million of five-year bonds in July. The company paid interest of 7.51 percent on the notes compared with 7.34 percent on $400 million of similar-maturity debt in April.
Transneft increased charges for shipping oil through its pipelines to cover higher financing costs, Vladimir Kushnarev, a vice president at the state-owned company, said in an interview with Russian newspaper Vedmosti this month. The Moscow-based company is seeking to refinance after Sberbank demanded as much as 12 percent annual interest on outstanding loans, the paper reported.
The cost of default protection on OAO VimpelCom, Russia's second-largest mobile-phone company, has also risen. Credit- default swaps on the Moscow-based company climbed 36 basis points this month to 391, CMA prices show. Contracts on VTB Group, the nation's second-biggest bank, increased 37.5 basis points to 353.5 since the start of August.
Default Protection
Credit-default swaps, contracts conceived to protect bondholders against default, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. A rise indicates a deterioration in the perception of credit quality; a decline signals the opposite.
A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.
The cost of default protection on European corporate debt also rose today with the benchmark Markit iTraxx Crossover Index of 50 companies with mostly high-risk, high-yield credit ratings increasing 6 basis points to 568, according to JPMorgan Chase & Co. prices. The Markit iTraxx Europe index of 125 companies with investment-grade ratings rose 1.75 basis points to 102.
Credit-default swaps on the Markit CDX North America Investment Grade index, a benchmark gauge of credit risk linked to the bonds of 125 companies in the U.S. and Canada, increased 1 basis point to 144 basis points, CMA prices show.
To contact the reporters on this story: Abigail Moses in London Amoses5@bloomberg.net Denis Maternovsky in Moscow at dmaternovsky@bloomberg.net
Read more...
Energy Futures Increase as Gustav Threatens U.S. Gulf Platforms
By Mark Shenk
Aug. 27 (Bloomberg) -- Energy futures rose on forecasts that Tropical Storm Gustav will strengthen as it enters the Gulf of Mexico, home to more than a fifth of U.S. oil production.
Gustav may become the strongest storm to reach the Gulf since 2005 when hurricanes Katrina and Rita shut refineries and platforms, AccuWeather.com said on its Web site. Gustav is packing winds of 60 miles (97 kilometers) per hour, the National Hurricane Center said. Prices also rose as traders expected a report will show that U.S. gasoline supplies fell a fifth week.
``The forecasts have Gustav heading for Louisiana, which is very bad news,'' said Peter Beutel, president of energy consultant Cameron Hanover Inc. in New Canaan, Connecticut. ``If the storm track holds, this could shape up to be an untimely repeat of Hurricane Katrina. The damage caused by Katrina is in the collective consciousness of everyone who trades.''
Crude oil for October delivery rose $2.34, or 2 percent, to $118.61 a barrel at 10:03 a.m. on the New York Mercantile Exchange. Prices are up 65 percent from a year ago. Futures have dropped 19 percent since touching $147.27 a barrel on July 11, the highest since trading began in 1983.
Natural gas for September delivery rose 34.8 cents, or 4.2 percent, to $8.626 per million British thermal units in New York.
The storm is heading toward waters south of Louisiana, where U.S. offshore oil and gas platforms and pipelines are most concentrated. The Gulf accounts for about 14 percent of U.S. gas output. The coast along Louisiana and Texas is home to 42 percent of U.S. refining capacity.
Gustav was about 90 miles west of the Haitian capital, Port- au-Prince, and forecast to head into the central Gulf of Mexico by Aug. 31, the hurricane center said.
The storm has the potential to grow to a Category 4 hurricane with winds of at least 131 miles per hour by the time it enters the Gulf, said Jim Rouiller, senior energy meteorologist with Planalytics Inc. in Wayne, Pennsylvania.
Katrina and Rita
In August and September 2005, U.S. crude oil and fuel production plunged and prices rose to records when hurricanes Katrina and Rita struck the Gulf Coast. Katrina closed 95 percent of offshore output in the region. Almost 19 percent of U.S. refining capacity was idled because of damage and blackouts caused by the storms.
``Since Katrina there's a greater perception of our vulnerability, especially to a strong storm,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``There's a potential of disruption throughout the industry.''
The hurricane center's track for Gustav takes it toward waters south of Louisiana, where U.S. offshore oil and gas platforms and pipelines are most concentrated.
``I think we are better prepared than before Katrina but we don't need a Katrina-level storm to cause a great deal of damage,'' Lynch said.
U.S. Inventories
Gasoline stockpiles probably fell 2.45 million barrels last week from 196.6 million barrels the week before, according to the median of 12 analyst responses in a Bloomberg News survey. The Energy Department is scheduled to release its weekly report today at 10:35 a.m. in Washington.
Inventories of crude oil probably rose 1.1 million barrels and supplies of distillate fuel, including heating oil and diesel, climbed 600,000 barrels, the survey showed.
Gasoline for September delivery climbed 11.52 cents, or 3.9 percent, to $3.0849 a gallon in New York. Heating oil rose 8.77 cents, or 2.7 percent, to $3.2976 a barrel.
The Organization of Petroleum Exporting Countries, producer of 42 percent of the world's oil, should maintain output when it meets in Vienna next month to help curb prices, International Energy Agency Executive Director Nobuo Tanaka said.
``We wish producers will maintain the current level of production,'' Tanaka said in an interview at an oil conference in Stavanger, Norway. ``The current price level is putting a burden on the global economy.''
Brent crude oil for October settlement rose $2.08, or 1.8 percent, to $116.71 a barrel on London's ICE Futures Europe exchange.
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.
Read more...
Aug. 27 (Bloomberg) -- Energy futures rose on forecasts that Tropical Storm Gustav will strengthen as it enters the Gulf of Mexico, home to more than a fifth of U.S. oil production.
Gustav may become the strongest storm to reach the Gulf since 2005 when hurricanes Katrina and Rita shut refineries and platforms, AccuWeather.com said on its Web site. Gustav is packing winds of 60 miles (97 kilometers) per hour, the National Hurricane Center said. Prices also rose as traders expected a report will show that U.S. gasoline supplies fell a fifth week.
``The forecasts have Gustav heading for Louisiana, which is very bad news,'' said Peter Beutel, president of energy consultant Cameron Hanover Inc. in New Canaan, Connecticut. ``If the storm track holds, this could shape up to be an untimely repeat of Hurricane Katrina. The damage caused by Katrina is in the collective consciousness of everyone who trades.''
Crude oil for October delivery rose $2.34, or 2 percent, to $118.61 a barrel at 10:03 a.m. on the New York Mercantile Exchange. Prices are up 65 percent from a year ago. Futures have dropped 19 percent since touching $147.27 a barrel on July 11, the highest since trading began in 1983.
Natural gas for September delivery rose 34.8 cents, or 4.2 percent, to $8.626 per million British thermal units in New York.
The storm is heading toward waters south of Louisiana, where U.S. offshore oil and gas platforms and pipelines are most concentrated. The Gulf accounts for about 14 percent of U.S. gas output. The coast along Louisiana and Texas is home to 42 percent of U.S. refining capacity.
Gustav was about 90 miles west of the Haitian capital, Port- au-Prince, and forecast to head into the central Gulf of Mexico by Aug. 31, the hurricane center said.
The storm has the potential to grow to a Category 4 hurricane with winds of at least 131 miles per hour by the time it enters the Gulf, said Jim Rouiller, senior energy meteorologist with Planalytics Inc. in Wayne, Pennsylvania.
Katrina and Rita
In August and September 2005, U.S. crude oil and fuel production plunged and prices rose to records when hurricanes Katrina and Rita struck the Gulf Coast. Katrina closed 95 percent of offshore output in the region. Almost 19 percent of U.S. refining capacity was idled because of damage and blackouts caused by the storms.
``Since Katrina there's a greater perception of our vulnerability, especially to a strong storm,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``There's a potential of disruption throughout the industry.''
The hurricane center's track for Gustav takes it toward waters south of Louisiana, where U.S. offshore oil and gas platforms and pipelines are most concentrated.
``I think we are better prepared than before Katrina but we don't need a Katrina-level storm to cause a great deal of damage,'' Lynch said.
U.S. Inventories
Gasoline stockpiles probably fell 2.45 million barrels last week from 196.6 million barrels the week before, according to the median of 12 analyst responses in a Bloomberg News survey. The Energy Department is scheduled to release its weekly report today at 10:35 a.m. in Washington.
Inventories of crude oil probably rose 1.1 million barrels and supplies of distillate fuel, including heating oil and diesel, climbed 600,000 barrels, the survey showed.
Gasoline for September delivery climbed 11.52 cents, or 3.9 percent, to $3.0849 a gallon in New York. Heating oil rose 8.77 cents, or 2.7 percent, to $3.2976 a barrel.
The Organization of Petroleum Exporting Countries, producer of 42 percent of the world's oil, should maintain output when it meets in Vienna next month to help curb prices, International Energy Agency Executive Director Nobuo Tanaka said.
``We wish producers will maintain the current level of production,'' Tanaka said in an interview at an oil conference in Stavanger, Norway. ``The current price level is putting a burden on the global economy.''
Brent crude oil for October settlement rose $2.08, or 1.8 percent, to $116.71 a barrel on London's ICE Futures Europe exchange.
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.
Read more...
Russia's Ruble Is No `One-Way Bet,' UniCredit Says
By Emma O'Brien
Aug. 27 (Bloomberg) -- A bet the Russian ruble will strengthen is no longer a certainty and the currency may weaken at least another 1 percent against its dollar-euro basket as tensions with Georgia and falling oil prices deter investors, analysts at UniCredit SpA say.
The ruble has slumped almost 4 percent to the dollar since the five-day war started Aug. 7, extending declines yesterday after Russia recognized the independence of two breakaway regions of neighboring Georgia. Before the conflict, banks such as Merrill Lynch & Co. had predicted above-target inflation would force Russia to let the its currency strengthen by as much as 5 percent to the basket in the next 12 months.
``The escalation of political risks in Russia and the deterioration of investor sentiment may hasten the reversal'' of the ruble, UniCredit's Moscow-based analyst Vladimir Osakovsky said in a note to clients today. ``Ruble strength is no longer a one-way street.''
The ruble, which had gained more than 1 percent against the basket through by Aug. 7, is now at 29.8504, 0.7 percent weaker than its average basket price over the past 12 months. It rose 0.2 percent to 24.6102 per dollar by 5:45 p.m. in Moscow, and lost 0.3 percent to 36.2560 per euro, after sliding 0.2 percent yesterday.
Osakovsky says it could fall beyond 30.1084 to the basket, the 6-month low reached Aug. 11 before traders and investors said Russia's central bank started buying the currency to arrest its decline.
``It depends on the scale of the retaliation and if there's more military action,'' Osakovsky said in an interview. ``Likewise if the European Union or the U.S. imposes some kind of economic sanctions.''
Controlled Currency
By buying and selling rubles regularly, Bank Rossii contains the currency within a trading band against the basket, which is made up of about 55 percent dollars and 45 percent euros. It manages the ruble in order to limit the impact of its fluctuations on the competitiveness of Russian exporters.
The ruble dropped 2.4 percent against the dollar on Aug. 8, the day Russia sent in troops, tanks and warplanes in response to what it said were Georgian attacks against its peacekeepers and local citizens in the Georgian breakaway area of South Ossetia.
It fell to an almost seven-month low against the U.S. currency yesterday after President Dmitry Medvedev signed decrees recognizing the independence of South Ossetia and nearby Abkhazia, which broke away from Georgia in wars in the 1990s. Most of their citizens have Russian passports.
Crude oil's 18 percent decline from a record $147.27 a barrel on July 11 also diminishes one of the ``fundamental'' reasons for people to buy rubles and invest in Russia, the world's largest energy exporter, Osakovsky said.
Oil Slip
Oil's drop will probably erode Russia's $37 billion current- account surplus ``cutting support for the currency and breaking the long-term trend of ruble appreciation,'' he said.
Bank Rossii has allowed the ruble to trade more freely since mid-May when the bank said it would allow greater volatility in the ruble to prepare it for a free-float by 2011.
A strengthening currency also reduces prices on imported goods, helping to reduce Russian inflation, which was 14.7 percent in July, above the government's 11.8 percent target. Each 1 percentage point appreciation of the ruble can reduce inflation by 0.3 percentage points, according to the central bank's own calculations.
To contact the reporter on this story: Emma O'Brien in Moscow on eobrien6@bloomberg.net
Read more...
Aug. 27 (Bloomberg) -- A bet the Russian ruble will strengthen is no longer a certainty and the currency may weaken at least another 1 percent against its dollar-euro basket as tensions with Georgia and falling oil prices deter investors, analysts at UniCredit SpA say.
The ruble has slumped almost 4 percent to the dollar since the five-day war started Aug. 7, extending declines yesterday after Russia recognized the independence of two breakaway regions of neighboring Georgia. Before the conflict, banks such as Merrill Lynch & Co. had predicted above-target inflation would force Russia to let the its currency strengthen by as much as 5 percent to the basket in the next 12 months.
``The escalation of political risks in Russia and the deterioration of investor sentiment may hasten the reversal'' of the ruble, UniCredit's Moscow-based analyst Vladimir Osakovsky said in a note to clients today. ``Ruble strength is no longer a one-way street.''
The ruble, which had gained more than 1 percent against the basket through by Aug. 7, is now at 29.8504, 0.7 percent weaker than its average basket price over the past 12 months. It rose 0.2 percent to 24.6102 per dollar by 5:45 p.m. in Moscow, and lost 0.3 percent to 36.2560 per euro, after sliding 0.2 percent yesterday.
Osakovsky says it could fall beyond 30.1084 to the basket, the 6-month low reached Aug. 11 before traders and investors said Russia's central bank started buying the currency to arrest its decline.
``It depends on the scale of the retaliation and if there's more military action,'' Osakovsky said in an interview. ``Likewise if the European Union or the U.S. imposes some kind of economic sanctions.''
Controlled Currency
By buying and selling rubles regularly, Bank Rossii contains the currency within a trading band against the basket, which is made up of about 55 percent dollars and 45 percent euros. It manages the ruble in order to limit the impact of its fluctuations on the competitiveness of Russian exporters.
The ruble dropped 2.4 percent against the dollar on Aug. 8, the day Russia sent in troops, tanks and warplanes in response to what it said were Georgian attacks against its peacekeepers and local citizens in the Georgian breakaway area of South Ossetia.
It fell to an almost seven-month low against the U.S. currency yesterday after President Dmitry Medvedev signed decrees recognizing the independence of South Ossetia and nearby Abkhazia, which broke away from Georgia in wars in the 1990s. Most of their citizens have Russian passports.
Crude oil's 18 percent decline from a record $147.27 a barrel on July 11 also diminishes one of the ``fundamental'' reasons for people to buy rubles and invest in Russia, the world's largest energy exporter, Osakovsky said.
Oil Slip
Oil's drop will probably erode Russia's $37 billion current- account surplus ``cutting support for the currency and breaking the long-term trend of ruble appreciation,'' he said.
Bank Rossii has allowed the ruble to trade more freely since mid-May when the bank said it would allow greater volatility in the ruble to prepare it for a free-float by 2011.
A strengthening currency also reduces prices on imported goods, helping to reduce Russian inflation, which was 14.7 percent in July, above the government's 11.8 percent target. Each 1 percentage point appreciation of the ruble can reduce inflation by 0.3 percentage points, according to the central bank's own calculations.
To contact the reporter on this story: Emma O'Brien in Moscow on eobrien6@bloomberg.net
Read more...
Pound Drops Versus Euro on Bets Economy Heading for a Recession
By Lukanyo Mnyanda
Aug. 27 (Bloomberg) -- The U.K. pound fell for a second day against the euro on speculation a deepening slump in the nation's housing market may force the central bank to cut interest rates.
The pound was near a two-year low versus the dollar as Taylor Wimpey Plc., the largest U.K. homebuilder, reported a first-half loss of 1.4 billion pounds ($2.6 billion), adding to concern the economy is entering a recession. Nationwide Building Society will tomorrow say house prices fell for a ninth month, according to economists surveyed by Bloomberg News. The difference in yield between 10-year gilts and German bunds slipped to the narrowest in seven months.
``There are a variety of broader negative stories floating around that are sterling negative,'' said Simon Derrick, chief currency strategist in London at Bank of New York Mellon Corp. ``That's not helping the cause.'' The currency may drop to $1.80 versus the dollar in a month, he predicted.
The U.K. currency fell to 79.98 pence per euro by 1 p.m. in London, from 79.65 yesterday. It dropped to 80.04 pence on Aug. 25, the lowest level since Aug. 14. The pound was at $1.8456, paring its loss this month to 6.6 percent. It's headed for the biggest monthly drop since October 1992, when it fell 12 percent.
Taylor Wimpey and other builders are being forced to cut operations and shed jobs as the economy, Europe's second-largest, reels from the most widespread housing slump in 30 years. Bank of England Governor Mervyn King said this month the U.K. faces a ``difficult and painful adjustment'' as falling house prices and rising inflation hurt consumer spending.
The pound dropped versus the dollar in each of the past five weeks, the longest losing run since February 2006. It slipped last week after a government report showed economic growth stagnated in the second quarter, adding to pressure on the central bank to cut interest rates to revive the economy.
Gilts Reverse Gains
Gilts dropped with Treasuries and European bonds, reversing an earlier gain that pushed the yield on the 10-year bond to the lowest level since April 16.
The 10-year yield rose 2 basis points to 4.51 percent. The 5 percent security due March 2018 fell 0.15, or 1.5 pounds per 1,000-pound face amount, to 103.76. Two-year gilt yields, which are more sensitive to interest-rate expectations, climbed 3 basis points to 4.51 percent. Bond yields move inversely to prices.
Two-year gilts advanced the most in two weeks yesterday as an industry report showed mortgage approvals held near the weakest level in a decade. The number of mortgages approved last month slumped 65 percent in the year and their value fell to the least since 1998, the British Bankers' Association said.
The spread between 10-year gilts and their German equivalent narrowed 4 basis points to 34 basis points, the least since Jan. 11. The gap was 69 basis points on Feb. 25, which was the widest this year.
``The economic situation in the U.K. is getting worse and we expect gilts to remain supported as a result,'' said Giuseppe Maraffino, a bond strategist in Milan at UniCredit Markets & Investment Banking, a unit of Italy's largest bank. Investors should favor shorter-dated notes and two-year gilt yields may drop to 4 percent by year-end, he predicted.
To contact the reporter on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net
Read more...
Aug. 27 (Bloomberg) -- The U.K. pound fell for a second day against the euro on speculation a deepening slump in the nation's housing market may force the central bank to cut interest rates.
The pound was near a two-year low versus the dollar as Taylor Wimpey Plc., the largest U.K. homebuilder, reported a first-half loss of 1.4 billion pounds ($2.6 billion), adding to concern the economy is entering a recession. Nationwide Building Society will tomorrow say house prices fell for a ninth month, according to economists surveyed by Bloomberg News. The difference in yield between 10-year gilts and German bunds slipped to the narrowest in seven months.
``There are a variety of broader negative stories floating around that are sterling negative,'' said Simon Derrick, chief currency strategist in London at Bank of New York Mellon Corp. ``That's not helping the cause.'' The currency may drop to $1.80 versus the dollar in a month, he predicted.
The U.K. currency fell to 79.98 pence per euro by 1 p.m. in London, from 79.65 yesterday. It dropped to 80.04 pence on Aug. 25, the lowest level since Aug. 14. The pound was at $1.8456, paring its loss this month to 6.6 percent. It's headed for the biggest monthly drop since October 1992, when it fell 12 percent.
Taylor Wimpey and other builders are being forced to cut operations and shed jobs as the economy, Europe's second-largest, reels from the most widespread housing slump in 30 years. Bank of England Governor Mervyn King said this month the U.K. faces a ``difficult and painful adjustment'' as falling house prices and rising inflation hurt consumer spending.
The pound dropped versus the dollar in each of the past five weeks, the longest losing run since February 2006. It slipped last week after a government report showed economic growth stagnated in the second quarter, adding to pressure on the central bank to cut interest rates to revive the economy.
Gilts Reverse Gains
Gilts dropped with Treasuries and European bonds, reversing an earlier gain that pushed the yield on the 10-year bond to the lowest level since April 16.
The 10-year yield rose 2 basis points to 4.51 percent. The 5 percent security due March 2018 fell 0.15, or 1.5 pounds per 1,000-pound face amount, to 103.76. Two-year gilt yields, which are more sensitive to interest-rate expectations, climbed 3 basis points to 4.51 percent. Bond yields move inversely to prices.
Two-year gilts advanced the most in two weeks yesterday as an industry report showed mortgage approvals held near the weakest level in a decade. The number of mortgages approved last month slumped 65 percent in the year and their value fell to the least since 1998, the British Bankers' Association said.
The spread between 10-year gilts and their German equivalent narrowed 4 basis points to 34 basis points, the least since Jan. 11. The gap was 69 basis points on Feb. 25, which was the widest this year.
``The economic situation in the U.K. is getting worse and we expect gilts to remain supported as a result,'' said Giuseppe Maraffino, a bond strategist in Milan at UniCredit Markets & Investment Banking, a unit of Italy's largest bank. Investors should favor shorter-dated notes and two-year gilt yields may drop to 4 percent by year-end, he predicted.
To contact the reporter on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net
Read more...
East European Currencies: Hungarian Forint Drops Against Euro
By Ewa Krukowska
Aug. 27 (Bloomberg) -- Hungary's forint fell against the euro after Prime Minister Ferenc Gyurcsany told state radio he would resign if lawmakers don't approve his tax plan and next year's budget proposals. The Polish zloty declined.
The government wants to cut taxes by as much as 1.2 trillion forint ($7.4 billion) over the next four years to stimulate the weakest economic growth since 1993 last year, Gurcsany wrote in an article published in Nepszabadsag newspaper. The premier is reversing some of the tax increases he pushed through in 2006 as part of a plan to trim a record budget deficit and meet euro- adoption terms next year.
``Hungary has a minority government, which doesn't make it easy for pushing legislation through parliament,'' said Michal Dybula, central European economist at BNP Paribas SA in Warsaw. ``Gurcsany's statement today boosted political uncertainty.''
The forint fell as much as 0.4 percent to 236.83 per euro, and was at 236.10 by 2:55 p.m. in Budapest, from 235.84 yesterday.
The forint is the best emerging-markets performer in the past six months, rising almost 10 percent versus Europe's common currency as the central bank raised interest rates to the highest level in more than three years to curb inflation.
In other trading, the Polish zloty fell 0.2 percent to 3.3342 per euro as the central bank kept interest rates on hold at 6 percent, in line with analysts' expectations.
Polish Rates
The zloty is the worst-performing emerging-market currency in the region this month, falling 3.6 percent on rising risk aversion and as traders bet the central bank's rate-increase cycle is nearing an end amid slowing economic growth.
The central bank's Monetary Policy Council raised interest rates eight times in the past 16 months to quell inflation. Policy makers will hold a news briefing at 4 p.m. in Warsaw to comment on today's decision.
``We continue to expect the MPC to hike rates once again this year, probably in October, and it will probably be the last rise in the cycle,'' Piotr Kalisz, an economist at Citigroup Inc. in Warsaw, wrote in a client note.
The Czech koruna was little changed at 24.574 against the euro, from 24.572 yesterday, after a report by the Prague-based statistics office showed second-quarter real wages grew at the slowest pace in almost 10 years.
The average salary rose 1.1 percent when adjusted for 6.8 percent inflation, compared with revised growth of 2.6 percent in the first three months.
The Romanian leu gained 0.2 percent to 3.5451 per euro as CEZ AS, a Czech utility, said today it will invest 1.1 billion euros ($1.6 billion) in a 600-megawatt wind farm in Romania.
``The size of the investment is substantial given total net foreign direct investment reached 8.4 billion euro in the 12- month period ended in June,'' Bartosz Pawlowski, a strategist at TD Securities in London, wrote in a client note. ``Even though we don't expect the Romanian current account deficit to decline from around 14 percent of GDP last year, we think the situation on the financing side should continue to improve.''
The Slovak koruna was little changed at 30.309 per euro, as was the Turkish lira at 1.1902 against the dollar.
To contact the reporter on this story: Ewa Krukowska at ekrukowska@bloomberg.net
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Aug. 27 (Bloomberg) -- Hungary's forint fell against the euro after Prime Minister Ferenc Gyurcsany told state radio he would resign if lawmakers don't approve his tax plan and next year's budget proposals. The Polish zloty declined.
The government wants to cut taxes by as much as 1.2 trillion forint ($7.4 billion) over the next four years to stimulate the weakest economic growth since 1993 last year, Gurcsany wrote in an article published in Nepszabadsag newspaper. The premier is reversing some of the tax increases he pushed through in 2006 as part of a plan to trim a record budget deficit and meet euro- adoption terms next year.
``Hungary has a minority government, which doesn't make it easy for pushing legislation through parliament,'' said Michal Dybula, central European economist at BNP Paribas SA in Warsaw. ``Gurcsany's statement today boosted political uncertainty.''
The forint fell as much as 0.4 percent to 236.83 per euro, and was at 236.10 by 2:55 p.m. in Budapest, from 235.84 yesterday.
The forint is the best emerging-markets performer in the past six months, rising almost 10 percent versus Europe's common currency as the central bank raised interest rates to the highest level in more than three years to curb inflation.
In other trading, the Polish zloty fell 0.2 percent to 3.3342 per euro as the central bank kept interest rates on hold at 6 percent, in line with analysts' expectations.
Polish Rates
The zloty is the worst-performing emerging-market currency in the region this month, falling 3.6 percent on rising risk aversion and as traders bet the central bank's rate-increase cycle is nearing an end amid slowing economic growth.
The central bank's Monetary Policy Council raised interest rates eight times in the past 16 months to quell inflation. Policy makers will hold a news briefing at 4 p.m. in Warsaw to comment on today's decision.
``We continue to expect the MPC to hike rates once again this year, probably in October, and it will probably be the last rise in the cycle,'' Piotr Kalisz, an economist at Citigroup Inc. in Warsaw, wrote in a client note.
The Czech koruna was little changed at 24.574 against the euro, from 24.572 yesterday, after a report by the Prague-based statistics office showed second-quarter real wages grew at the slowest pace in almost 10 years.
The average salary rose 1.1 percent when adjusted for 6.8 percent inflation, compared with revised growth of 2.6 percent in the first three months.
The Romanian leu gained 0.2 percent to 3.5451 per euro as CEZ AS, a Czech utility, said today it will invest 1.1 billion euros ($1.6 billion) in a 600-megawatt wind farm in Romania.
``The size of the investment is substantial given total net foreign direct investment reached 8.4 billion euro in the 12- month period ended in June,'' Bartosz Pawlowski, a strategist at TD Securities in London, wrote in a client note. ``Even though we don't expect the Romanian current account deficit to decline from around 14 percent of GDP last year, we think the situation on the financing side should continue to improve.''
The Slovak koruna was little changed at 30.309 per euro, as was the Turkish lira at 1.1902 against the dollar.
To contact the reporter on this story: Ewa Krukowska at ekrukowska@bloomberg.net
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Euro Rises From Six-Month Low Against Dollar on Weber, Oil Gain
By Ye Xie and Gavin Finch
Aug. 27 (Bloomberg) -- The euro rose from a six-month low versus the dollar as European Central Bank council member Axel Weber said there's no scope for interest-rate cuts and crude oil prices increased for a third straight day.
The greenback fell against the yen on concern credit-market losses will widen after the Federal Deposit Insurance Corp. said the number of problem banks increased to the most in five years. The dollar pared its losses against the yen and the euro as a government report showed orders for U.S. durable goods unexpectedly rose last month.
``The euro is getting some support from Weber,'' said Matthew Strauss, a senior currency strategist in Toronto at RBC Capital Markets Inc., a unit of Canada's biggest bank by assets. ``Clearly we are not likely to see a rate cut in the near future.''
The 15-nation euro climbed 0.6 percent to $1.4741 at 9:17 a.m. in New York, from $1.4653 yesterday, when it touched $1.4571, the lowest level since Feb. 14. The dollar depreciated 0.1 percent to 109.49 yen, from 109.60. The euro advanced 0.5 percent to 161.41 yen, from 160.64.
The euro advanced as traders reduced bets that the ECB will cut its 4.25 percent main refinancing rate next year. The implied yield on the Euribor futures contract expiring in September 2009 rose 13 basis points, or 0.13 percentage point, to 4.45 percent, after falling 6 basis points yesterday. The yield averaged 18 basis points above the ECB's benchmark from 1999 to August 2007.
Weber's Stance
Discussion about an ECB rate cut is ``premature,'' said Weber, who heads Germany's Bundesbank, in an interview in Frankfurt. Policy makers may need to raise borrowing costs once the economic outlook ``brightens'' toward the end of the year and next year, he said.
Crude oil for October delivery rose 1.8 percent to $118.30 a barrel on forecasts Tropical Storm Gustav will strengthen as it enters the Gulf of Mexico, home to 26 percent of U.S. production. The euro-dollar exchange rate and oil have had a correlation of 0.9 in the past year, according to Bloomberg calculations. A reading of 1 would mean they moved in lockstep.
The euro has fallen 8 percent from a record high of $1.6038 set on July 15 as the European economy shrank in the second quarter and crude oil declined 20 percent from its all-time high reached last month. The euro depreciated yesterday to a six- month low after a report showed German business confidence dropped in August to the lowest level in three years.
U.S. Durable Goods
Bookings for U.S. goods made to last several years increased 1.3 percent in July after a revised gain of the same amount in the previous month, the Commerce Department said today in Washington. The median forecast of 76 economists in a Bloomberg News survey was for no change in durable goods orders.
Federal Reserve policy makers agreed that their next move will be a rate increase, although they didn't indicate the timing, minutes of their Aug. 5 meeting showed yesterday.
Futures on the Chicago Board of Trade show a 17 percent chance the Fed will increase its 2 percent target rate for overnight lending between banks by at least a quarter-point in December, compared with 70 percent odds a month ago. Policy makers next meet Sept. 16.
The Dollar Index's chart is forming a double top, a ``catalyst'' that may push the U.S. currency lower, said Toru Tokoyoda, head of foreign-exchange sales in Tokyo at Lehman Brothers Holdings Inc.
Double Top
A double top occurs when a security makes two successive peaks and often indicates the reversal of a trend. The distance between the peaks and the lowest point of the double top may indicate the next support level, where buy orders are concentrated.
The ICE futures exchange's Dollar Index, which compares the greenback against the currencies of six U.S. trading partners, fell 0.4 percent to 76.933, from 77.251 yesterday. It rose to 77.413 on Aug. 19, fell to 76.022 on Aug. 21 and then rose yesterday to a second peak, the eight-month high of 77.619.
``Some players are taking their cue from this chart formation,'' said Tokoyoda, who predicts the dollar may fall to $1.4750 versus the euro today.
The FDIC said yesterday its ``problem list'' of banks increased 30 percent in the second quarter to 117 banks, the highest total in five years, as more commercial real-estate loans were overdue.
The agency, which provides cover for U.S. bank deposits, may have to tap Treasury Department funds to carry it through an anticipated wave of bank failures, the Wall Street Journal reported, citing chairman Sheila Bair. Bair told the Journal the borrowing wouldn't be to cover any FDIC losses. Instead, it would provide short-term liquidity to cover bank failures.
To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Gavin Finch in London at gfinch@bloomberg.net;
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Aug. 27 (Bloomberg) -- The euro rose from a six-month low versus the dollar as European Central Bank council member Axel Weber said there's no scope for interest-rate cuts and crude oil prices increased for a third straight day.
The greenback fell against the yen on concern credit-market losses will widen after the Federal Deposit Insurance Corp. said the number of problem banks increased to the most in five years. The dollar pared its losses against the yen and the euro as a government report showed orders for U.S. durable goods unexpectedly rose last month.
``The euro is getting some support from Weber,'' said Matthew Strauss, a senior currency strategist in Toronto at RBC Capital Markets Inc., a unit of Canada's biggest bank by assets. ``Clearly we are not likely to see a rate cut in the near future.''
The 15-nation euro climbed 0.6 percent to $1.4741 at 9:17 a.m. in New York, from $1.4653 yesterday, when it touched $1.4571, the lowest level since Feb. 14. The dollar depreciated 0.1 percent to 109.49 yen, from 109.60. The euro advanced 0.5 percent to 161.41 yen, from 160.64.
The euro advanced as traders reduced bets that the ECB will cut its 4.25 percent main refinancing rate next year. The implied yield on the Euribor futures contract expiring in September 2009 rose 13 basis points, or 0.13 percentage point, to 4.45 percent, after falling 6 basis points yesterday. The yield averaged 18 basis points above the ECB's benchmark from 1999 to August 2007.
Weber's Stance
Discussion about an ECB rate cut is ``premature,'' said Weber, who heads Germany's Bundesbank, in an interview in Frankfurt. Policy makers may need to raise borrowing costs once the economic outlook ``brightens'' toward the end of the year and next year, he said.
Crude oil for October delivery rose 1.8 percent to $118.30 a barrel on forecasts Tropical Storm Gustav will strengthen as it enters the Gulf of Mexico, home to 26 percent of U.S. production. The euro-dollar exchange rate and oil have had a correlation of 0.9 in the past year, according to Bloomberg calculations. A reading of 1 would mean they moved in lockstep.
The euro has fallen 8 percent from a record high of $1.6038 set on July 15 as the European economy shrank in the second quarter and crude oil declined 20 percent from its all-time high reached last month. The euro depreciated yesterday to a six- month low after a report showed German business confidence dropped in August to the lowest level in three years.
U.S. Durable Goods
Bookings for U.S. goods made to last several years increased 1.3 percent in July after a revised gain of the same amount in the previous month, the Commerce Department said today in Washington. The median forecast of 76 economists in a Bloomberg News survey was for no change in durable goods orders.
Federal Reserve policy makers agreed that their next move will be a rate increase, although they didn't indicate the timing, minutes of their Aug. 5 meeting showed yesterday.
Futures on the Chicago Board of Trade show a 17 percent chance the Fed will increase its 2 percent target rate for overnight lending between banks by at least a quarter-point in December, compared with 70 percent odds a month ago. Policy makers next meet Sept. 16.
The Dollar Index's chart is forming a double top, a ``catalyst'' that may push the U.S. currency lower, said Toru Tokoyoda, head of foreign-exchange sales in Tokyo at Lehman Brothers Holdings Inc.
Double Top
A double top occurs when a security makes two successive peaks and often indicates the reversal of a trend. The distance between the peaks and the lowest point of the double top may indicate the next support level, where buy orders are concentrated.
The ICE futures exchange's Dollar Index, which compares the greenback against the currencies of six U.S. trading partners, fell 0.4 percent to 76.933, from 77.251 yesterday. It rose to 77.413 on Aug. 19, fell to 76.022 on Aug. 21 and then rose yesterday to a second peak, the eight-month high of 77.619.
``Some players are taking their cue from this chart formation,'' said Tokoyoda, who predicts the dollar may fall to $1.4750 versus the euro today.
The FDIC said yesterday its ``problem list'' of banks increased 30 percent in the second quarter to 117 banks, the highest total in five years, as more commercial real-estate loans were overdue.
The agency, which provides cover for U.S. bank deposits, may have to tap Treasury Department funds to carry it through an anticipated wave of bank failures, the Wall Street Journal reported, citing chairman Sheila Bair. Bair told the Journal the borrowing wouldn't be to cover any FDIC losses. Instead, it would provide short-term liquidity to cover bank failures.
To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Gavin Finch in London at gfinch@bloomberg.net;
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Fannie, Freddie Mortgage Profit Rises With Debt Costs
By Jody Shenn
Aug. 27 (Bloomberg) -- The crisis of confidence that sent Fannie Mae and Freddie Mac debt costs to record highs above U.S. Treasuries is also providing the mortgage-finance companies with the biggest profits on new investments since at least 1998.
The current-coupon mortgage bonds Fannie and Freddie buy yield about 40 basis points, or 0.40 percentage point, more than what they pay to borrow by selling benchmark bonds, according to Citigroup Inc. The difference exceeded 20 basis points only twice in the 10 years through 2007 -- in 1998 and 2003.
The gap enables the government-chartered companies to offset some of the credit losses on mortgages they own or guarantee and eases pressure on U.S. Treasury Secretary Henry Paulson to step in with a bailout. The companies, which profit from their $1.6 trillion of mortgage investments, have tumbled more than 85 percent this year in New York Stock Exchange trading as mortgage delinquencies grow and the cost of debt rises.
``From Fannie and Freddie's perspective, there's actually better investments now,'' said Moshe Orenbuch, an analyst at Credit Suisse Group in New York, adding that their interest margin is likely to continue to widen. ``It's ironic.''
Congress created Fannie and Freddie to expand homeownership and provide market stability. They make money by buying mortgages from banks, funding their purchases with low-cost debt, and by guaranteeing home-loan securities.
Interest Income
Washington-based Fannie said last month net interest income rose to $2.1 billion in the second quarter, from $1.7 billion in the first quarter. The company's profit on its investments expanded to 100 basis points from 82 basis points, according to Credit Suisse.
Freddie's net interest income jumped 92 percent to $1.5 billion. The annualized profit per dollar of investments rose to 80 basis points from 48 basis points.
``They, at the increment, are very, very profitable,'' said Dan Fuss, vice chairman of Loomis Sayles & Co. in Boston and co- manager of the $17 billion Loomis Sayles Bond Fund. ``If they can continue to do anything close to business as usual, they are immensely profitable.''
``Our funding costs remain attractive, particularly based on the opportunities to purchase mortgage assets at attractive spreads,'' Freddie spokesman Michael Cosgrove said. A Fannie spokesman, Jason Lobo, declined to comment.
Fannie and Freddie shares fell this year and their borrowing costs rose amid concern they don't have enough capital to weather the biggest housing downturn since the Great Depression. The companies had $14.9 billion of losses in the past four quarters as late payments on mortgages rose to the highest on record.
Most in 10 Years
Freddie on Aug. 19 sold $3 billion of five-year reference notes to yield 113 basis points more than similar-maturity Treasuries, the most in at least 10 years. Fannie sold $3.5 billion of three-year notes at a record spread of 122.5 basis points on Aug. 13.
The crisis of confidence prompted Paulson to draw up a rescue plan last month giving him authority to inject unlimited amounts of capital into the companies.
Fannie and Freddie, which have lost at least 85 percent of their market value this year, extended a rally today. Fannie climbed 50 cents, or 8.9 percent, to $6.12 in New York Stock Exchange composite trading at 9:44 a.m., while Freddie added 50 cents, or 13 percent, to $4.47.
Depleting Capital
While the difference between Fannie and Freddie's cost to borrow and the returns they get on new investments has widened, losses are depleting capital and causing the companies to rein in their purchases of securities.
Both said they plan to limit growth to preserve capital, after boosting holdings by $115 billion in the first seven months of this year. Their reluctance to purchase is contributing to higher yields on mortgage assets. If they were expected to buy more, ``yields on mortgage-backed securities would decline, reducing their spread opportunity,'' said Rick Redmond, a portfolio manager in New York at Caspian Capital Management LLC, which oversees $5.8 billion.
Fewer purchases by Fannie and Freddie means the companies' debt costs are having little influence on mortgage bond prices and home-loan rates, according to some analysts. Yields in the $4.5 trillion market for agency mortgage bonds, those issued by Fannie, Freddie and Ginnie Mae, guide rates on new home loans.
`Make a Difference'
``It would make a difference if they were increasing their portfolios,'' said UBS AG mortgage analyst Laurie Goodman in New York, whose team was ranked No. 1 in a 2007 poll by Institutional Investor magazine for ``pass-through'' agency mortgage bonds.
Fannie and Freddie's holdings are shrinking at a monthly rate of about $20 billion because of refinancings, home sales and borrower defaults, according to an Aug. 21 report from New York- based Citigroup analysts Scott Peng, Brad Henis, and Brett Rose. That money can be reinvested into higher yielding securities.
That is one reason ``there is no pressing need'' for a bailout, they wrote in the report, titled ``All That Sound and Fury, Signifying Nothing New.''
The companies are also boosting fees to guarantee home-loan securities, off-balance-sheet obligations for which they don't need to borrow. Fannie plans on Oct. 1 it will double to 50 basis points an upfront ``adverse market delivery charge,'' introduced this year for every mortgage the company buys or guarantees.
To contact the reporter on this story: Jody Shenn in New York at jshenn@bloomberg.net.
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