By Scott Lanman
Aug. 28 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke, aiming to curb risks in derivatives markets, met in June with NYSE Euronext Chief Executive Officer Duncan Niederauer and CME Group Inc. Chairman Terrence Duffy.
The Fed chief met on June 17 with Niederauer and on June 27 with Duffy, according to Bernanke's schedule for the month, released to Bloomberg News after a Freedom of Information Act request. CME is the No. 1 futures exchange in the U.S., and NYSE Euronext is the world's biggest owner of stock exchanges.
Bernanke and Duffy ``discussed a number of economic issues, including the credit markets and over-the-counter derivatives,'' CME spokesman Allan Schoenberg said in an e-mail message.
The central bank is trying to improve processing of trades in the $454 trillion over-the-counter derivatives markets, an effort Bernanke said last month would help the financial system ``withstand future shocks.''
The New York Fed and 17 securities dealers including Goldman Sachs Group Inc. and JPMorgan Chase & Co. agreed in July to form a central counterparty for the credit-default swap market that could absorb the failure of one of the major dealers.
Fed officials began urging banks in 2005 to improve processing of credit-default swaps as a backlog of unsigned trades ballooned to the equivalent of more than 17 days of trading volume.
CME and NYSE are seeking to expand into the $62 trillion market for credit default swaps, which let investors bet on the likelihood that companies will fail to repay debt. NYSE spokesman Richard Adamonis declined to comment.
Derivatives are financial instruments derived from stocks, bonds, loans, currencies and other assets, or linked to specific events like changes in the weather or interest rates.
At Risk
The amount U.S. commercial banks have at risk in derivatives markets jumped 50 percent in the first quarter as the credit crisis triggered an increase in the value of the contracts, the Office of the Comptroller of the Currency said last month.
Bernanke in June also continued weekly breakfasts with Treasury Secretary Henry Paulson. The Fed chief met twice with Securities and Exchange Commission Chairman Christopher Cox as they worked out an agreement on sharing information about the capital and risk-management systems of securities firms.
Bernanke had lunch at the White House with President George W. Bush on June 3. Earlier that day, the chairman had given a speech voicing concern about the declining value of the dollar.
The Fed chief delivered private remarks on June 6 to the Bilderberg Group, a gathering of North American and European government and business leaders, at a hotel in the Washington suburb of Chantilly, Virginia.
U.K. Leaders
Bernanke also met with a number of British officials. He met in his office on June 5 with Howard Davies, director of the London School of Economics, who formerly served as chairman of the U.K. Financial Services Authority and deputy governor of the country's central bank.
The daybook shows Bernanke also met for about 30 minutes on June 6 with George Osborne, Treasury spokesman for the U.K.'s opposition Conservative Party.
The British Embassy in Washington hosted a dinner on June 24 for the Federal Open Market Committee while policy makers were in town for a two-day meeting on interest rates.
To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net
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Thursday, August 28, 2008
Mid-Day Report: Dollar Got No Boost From GDP Revision
| Market Overview | Written by ActionForex.com | Aug 28 08 13:25 GMT | | |
| Dollar shows little reaction to stronger than expected upward revision in US Q2 GDP. Instead, volatility is again seen in the Japanese yen. Preliminary Q2 GDP annualized growth rate was revised higher from 1.9% to 3.3% versus expectation of 2.7%. Record exports and the smallest trade deficit in eight years were the biggest driver in the upward revision. Personal consumption was revised up to 1.7% versus expectation of 1.6%. Jobless claims dropped slightly but remains elevated at 425k. Dollar remains pressured by strength in oil which extends rebound to close to 120 level. The Japanese yen spikes lower in on anticipation of higher open in US stock markets. However, note that outlook in the yen is still mixed with USD/JPY and EUR/JPY bounded in range. Euro remains supported by strong employment report in Germany which saw unemployment rate dropped to record low of 7.6% in Aug, with unemployment dropping more than expected by -40k. Eurozone M3 money supply slowed less than expected to 9.3% yoy in Jul. Sterling, on the other hand, remains pressured after poor data from UK today. Nationwide house price dropped -1.9% mom, -10.5% yoy in Aug. CBI distributive trades dropped to -46 in Aug. Technically speaking, EUR/USD and AUD/USD continues to press near term resistance. Both pairs have displayed clear indication of loss of downside momentum and is set to confirm that short term bottom is in place. EUR/USD Mid-Day OutlookDaily Pivots: (S1) 1.4648; (P) 1.4712; (R1) 1.4791; More EUR/USD continues to press 1.4807 resistance in early US session. Intraday outlook remains neutral for the moment. As discussed before, with bullish convergence condition in 4 hours MACD and RSI, firm break of 1.4807 will be an important signal that a short term bottom is finally in place. Further break of 1.4908 will confirm and bring stronger rebound to test 1.5284 double top neckline resistance before staging another fall. On the downside, though, below 1.4571 will indicate that recent fall is still in progress to key medium term support at 1.4309. In the bigger picture, the double top reversal pattern (1.6019, 1.6038) serves as an important signal of completion of medium term rise from 1.1639 (05 low), which is supported by the decisive break of 55 weeks EMA While it's still early to conclude, recent development continues to build up the case of a medium term reversal. Focus will now be on a) whether key support level of 1.4309, (38.2% retracement of 1.1639 (05 low) to 1.6038 at 1.4358, 61.8% retracement of 1.3262 to 1.6038 at 1.4322) will hold; b) whether next trend line support (1.1825, 1.2483, now at 1.4359) will hold; c) whether weekly MACD will turn negative and d) whether monthly MACD will cross below signal line.
| |
Economic Indicators Update
| GMT | Ccy | Events | Actual | Consensus | Previous | Revised |
|---|---|---|---|---|---|---|
| 06:00 | GBP | U.K. Nationwide hse price Y/Y Aug | -10.50% | -9.50% | -8.10% | |
| 06:00 | GBP | U.K. Nationwide hse price M/M Aug | -1.90% | -1.50% | -1.70% | -1.50% |
| 08:00 | EUR | Germany Unemployment change Aug | -40K | -10K | -20K | |
| 08:00 | EUR | Germany Unemployment rate Aug | 7.60% | 7.80% | 7.80% | |
| 08:00 | EUR | Eurozone M3 Y/Y Jul | 9.30% | 9.00% | 9.50% | |
| 08:00 | EUR | Eurozone M3 3M Jul | 9.60% | 9.50% | 9.90% | |
| 10:00 | GBP | U.K. CBI Distributive Trades Aug | -46 | -30 | -36 | |
| 12:30 | USD | U.S. PCE core Q/Q Q2 | 2.10% | 2.10% | 2.10% | |
| 12:30 | USD | U.S. PCE index Q/QQ2 | 1.20% | 1.10% | 1.50% | |
| 12:30 | USD | U.S. GDP deflator Q2 | 1.30% | 1.10% | 1.10% | |
| 12:30 | USD | U.S. GDP Q2 | 3.30% | 2.70% | 1.90% | |
| 12:30 | USD | U.S. Jobless claims | 425K | 428K | 432K | 435K |
| 12:30 | CAD | Canada Current account Q2 | 6.8B | 8.00B | 5.56B |
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U.K. House Prices Drop Most Since 1990, Retail Index Plunges
By Svenja O'Donnell
Aug. 28 (Bloomberg) -- U.K. house prices declined at the fastest annual pace in almost two decades and an index of retail sales plunged to a 25-year low in August as Britain's economy edged closer to a recession.
The average value of a home fell 10.5 percent to 164,654 pounds ($301,500), the biggest drop since the final quarter of 1990, Nationwide Building Society said today. A gauge of retail sales fell to minus 46 from minus 36 the previous month, the Confederation of British Industry said in a separate report. That's the lowest since its survey began in July 1983.
Today's reports indicate Britain is heading for its first recession since the early 1990s after stagnating in the second quarter as higher living costs hurt spending and the credit squeeze ripples through the economy. As the outlook worsens, economists at banks including Societe Generale SA and Bank of America Corp. now forecast the Bank of England will be forced to set aside inflation concerns and cut interest rates this year.
``The big issue is how long and how severe'' the U.K.'s recession is going to be, said Jim O'Neill, head of global economic research at Goldman Sachs Group Inc. ``We're in it. It shouldn't be news anymore.''
U.K. government bonds rose. The yield on the two-year gilt dropped 3 basis points to 4.46 percent at 12:30 p.m. in London.
House prices declined 1.9 percent from a month earlier, the 10th consecutive decline in values, Nationwide said. Meanwhile, retailers' pessimism deepened to the lowest on record, with the quarterly index of stores' business situation falling to minus 38 from minus 17 in May, today's report showed. The CBI survey was conducted between July 29 and Aug. 13.
Brutal Recession
``The CBI figures look even worse that what we saw in the troughs of the last recession, and that was brutal,'' said Ross Walker, an economist at Royal Bank of Scotland Group Plc in London.
The U.K. had five straight quarters of contraction starting in the third quarter of 1990. Home values lost 13 percent of their value in three years and unemployment almost doubled, rising to 9.9 percent in April 1993. The jobless rate was 2.7 percent in July.
The latest data are a further blow to Prime Minister Gordon Brown, who is battling to regain popularity with voters and quell talk of challenges to his authority from within the ruling Labour Party. He said on Aug. 20 that the government will announce measures to revive the economy next month.
Cutting Lending
Conservative Treasury spokesman George Osborne said today that ``what began as a fall in prices is fast becoming a housing crash.'' Bank of England Governor Mervyn King said this month that home values face ``a significant adjustment'' after a decade-long boom.
British banks have curtailed lending after the U.S. subprime mortgage collapse ricocheted through the global economy, sparking more than $500 billion in writedowns and credit losses. Home-loan approvals held close to the lowest in at least 11 years in July, the British Bankers' Association said Aug. 26. Banks granted 22,448 mortgages last month, down 65 percent from a year earlier.
``There seems to be no easing in the pace of decline'' in the housing market, said Walker. ``We're forecasting a recession this year, things are going to get tougher.''
The pound has weakened as prospects for the economy deteriorate. The currency, which touched a 26-year high of $2.1162 in November, has dropped 7 percent against the dollar this month and traded at $1.8335 today.
The Bank of England has refrained from cutting rates since April as it struggles to curb inflation, which King forecasts will reach 5 percent in coming months, while averting a recession at the same time. As evidence of slowing growth mounts, economists predict their dilemma will get easier.
Societe Generale economists Brian Hilliard and Bijal Shah on Aug. 26 forecast policy makers may cut rates as soon as November as the economy is ``weakening rapidly and inflation is likely to peak in October, before collapsing in 2009.''
They forecast the bank will cut its benchmark to 3.5 percent by ``late summer'' next year, which would match the lowest since the 1950s. The next interest-rate decision is on Sept. 4
To contact the reporter on this story: Svenja O'Donnell in London at sodonnell@bloomberg.net.
Read more...
Aug. 28 (Bloomberg) -- U.K. house prices declined at the fastest annual pace in almost two decades and an index of retail sales plunged to a 25-year low in August as Britain's economy edged closer to a recession.
The average value of a home fell 10.5 percent to 164,654 pounds ($301,500), the biggest drop since the final quarter of 1990, Nationwide Building Society said today. A gauge of retail sales fell to minus 46 from minus 36 the previous month, the Confederation of British Industry said in a separate report. That's the lowest since its survey began in July 1983.
Today's reports indicate Britain is heading for its first recession since the early 1990s after stagnating in the second quarter as higher living costs hurt spending and the credit squeeze ripples through the economy. As the outlook worsens, economists at banks including Societe Generale SA and Bank of America Corp. now forecast the Bank of England will be forced to set aside inflation concerns and cut interest rates this year.
``The big issue is how long and how severe'' the U.K.'s recession is going to be, said Jim O'Neill, head of global economic research at Goldman Sachs Group Inc. ``We're in it. It shouldn't be news anymore.''
U.K. government bonds rose. The yield on the two-year gilt dropped 3 basis points to 4.46 percent at 12:30 p.m. in London.
House prices declined 1.9 percent from a month earlier, the 10th consecutive decline in values, Nationwide said. Meanwhile, retailers' pessimism deepened to the lowest on record, with the quarterly index of stores' business situation falling to minus 38 from minus 17 in May, today's report showed. The CBI survey was conducted between July 29 and Aug. 13.
Brutal Recession
``The CBI figures look even worse that what we saw in the troughs of the last recession, and that was brutal,'' said Ross Walker, an economist at Royal Bank of Scotland Group Plc in London.
The U.K. had five straight quarters of contraction starting in the third quarter of 1990. Home values lost 13 percent of their value in three years and unemployment almost doubled, rising to 9.9 percent in April 1993. The jobless rate was 2.7 percent in July.
The latest data are a further blow to Prime Minister Gordon Brown, who is battling to regain popularity with voters and quell talk of challenges to his authority from within the ruling Labour Party. He said on Aug. 20 that the government will announce measures to revive the economy next month.
Cutting Lending
Conservative Treasury spokesman George Osborne said today that ``what began as a fall in prices is fast becoming a housing crash.'' Bank of England Governor Mervyn King said this month that home values face ``a significant adjustment'' after a decade-long boom.
British banks have curtailed lending after the U.S. subprime mortgage collapse ricocheted through the global economy, sparking more than $500 billion in writedowns and credit losses. Home-loan approvals held close to the lowest in at least 11 years in July, the British Bankers' Association said Aug. 26. Banks granted 22,448 mortgages last month, down 65 percent from a year earlier.
``There seems to be no easing in the pace of decline'' in the housing market, said Walker. ``We're forecasting a recession this year, things are going to get tougher.''
The pound has weakened as prospects for the economy deteriorate. The currency, which touched a 26-year high of $2.1162 in November, has dropped 7 percent against the dollar this month and traded at $1.8335 today.
The Bank of England has refrained from cutting rates since April as it struggles to curb inflation, which King forecasts will reach 5 percent in coming months, while averting a recession at the same time. As evidence of slowing growth mounts, economists predict their dilemma will get easier.
Societe Generale economists Brian Hilliard and Bijal Shah on Aug. 26 forecast policy makers may cut rates as soon as November as the economy is ``weakening rapidly and inflation is likely to peak in October, before collapsing in 2009.''
They forecast the bank will cut its benchmark to 3.5 percent by ``late summer'' next year, which would match the lowest since the 1950s. The next interest-rate decision is on Sept. 4
To contact the reporter on this story: Svenja O'Donnell in London at sodonnell@bloomberg.net.
Read more...
Revised U.S. Economic Growth Spikes in Second Quarter
Daily Forex Fundamentals | Written by RBC Financial Group | Aug 28 08 14:38 GMT |
Estimates of second-quarter GDP growth were widely expected to be revised up to reflect the more favourable trade numbers for June that were released earlier this month. However, market expectations were assuming a revised growth rate of only 2.7% in the second quarter, up from the first, or advance, estimate of 1.9% and a first-quarter gain of 0.9%.
The impact of the more favourable trade data was clearly evident. Second-quarter export growth was revised up to 13.2% from the advance estimate of 9.2%. The originally estimated 6.6% decline in imports deepened to a drop of 7.6%. Altogether, the improvement in net exports contributed about one-half of the overall lift in GDP growth.
Inventories continued to be a major subtraction to growth, cutting the gain in GDP by a lesser 1.4 percentage points than the 1.9 percentage points estimated earlier. Other contributions to the upward revision to overall growth came from the 1.7% gain in consumer spending from 1.5% previously and the robust 3.9% rise government spending from 3.4% in the advance estimate.
Business investment was revised down slightly to 2.2% from 2.3%. The second-quarter profits numbers, which were released for the first time this morning, provided little reason for optimism that this expenditure area will strengthen markedly going forward. After-tax profits dropped 3.8% in the quarter following a modest 1.1% rise in the first.
Annualized quarterly growth in the core PCE deflator, the key inflation measure in the GDP report, was left unchanged at 2.1%. Similarly the year-over-year rate was left unchanged at 2.2%.
The relatively robust second-quarter growth rate is in sharp contrast to expectations, which set in at the onset of the financial market turmoil a year ago. What helped stave off a bleaker outcome was, in part, a more immediate response to the fiscal stimulus package along with stronger-than-expected export growth.
Looking ahead, there are already some signs that the impact of the tax rebates is starting to wane going into the third quarter and expectations that it will be totally spent by the fourth quarter. The support to exports from the earlier depreciation of the U.S. dollar may be more long-lived, although the greenback is starting to trend higher. More worrying on the trade front near-term are indications of weakening growth overseas.
As a result of these factors, our forecast assumes that the second quarter will likely represent a peak in U.S. economic growth this year, with activity moving lower during the second half of the year. The prospects of weakening growth going forward are expected to keep the Fed on the sidelines maintaining a still-stimulative 2.00% Fed funds rate. Our forecast assumes that this will continue to be the case through the middle of next year before this interest rate starts to be gradually raised.
RBC Financial Group
http://www.rbc.com
The statements and statistics contained herein have been prepared by the Economics Department of RBC Financial Group based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This report is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.
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Estimates of second-quarter GDP growth were widely expected to be revised up to reflect the more favourable trade numbers for June that were released earlier this month. However, market expectations were assuming a revised growth rate of only 2.7% in the second quarter, up from the first, or advance, estimate of 1.9% and a first-quarter gain of 0.9%.
The impact of the more favourable trade data was clearly evident. Second-quarter export growth was revised up to 13.2% from the advance estimate of 9.2%. The originally estimated 6.6% decline in imports deepened to a drop of 7.6%. Altogether, the improvement in net exports contributed about one-half of the overall lift in GDP growth.
Inventories continued to be a major subtraction to growth, cutting the gain in GDP by a lesser 1.4 percentage points than the 1.9 percentage points estimated earlier. Other contributions to the upward revision to overall growth came from the 1.7% gain in consumer spending from 1.5% previously and the robust 3.9% rise government spending from 3.4% in the advance estimate.
Business investment was revised down slightly to 2.2% from 2.3%. The second-quarter profits numbers, which were released for the first time this morning, provided little reason for optimism that this expenditure area will strengthen markedly going forward. After-tax profits dropped 3.8% in the quarter following a modest 1.1% rise in the first.
Annualized quarterly growth in the core PCE deflator, the key inflation measure in the GDP report, was left unchanged at 2.1%. Similarly the year-over-year rate was left unchanged at 2.2%.
The relatively robust second-quarter growth rate is in sharp contrast to expectations, which set in at the onset of the financial market turmoil a year ago. What helped stave off a bleaker outcome was, in part, a more immediate response to the fiscal stimulus package along with stronger-than-expected export growth.
Looking ahead, there are already some signs that the impact of the tax rebates is starting to wane going into the third quarter and expectations that it will be totally spent by the fourth quarter. The support to exports from the earlier depreciation of the U.S. dollar may be more long-lived, although the greenback is starting to trend higher. More worrying on the trade front near-term are indications of weakening growth overseas.
As a result of these factors, our forecast assumes that the second quarter will likely represent a peak in U.S. economic growth this year, with activity moving lower during the second half of the year. The prospects of weakening growth going forward are expected to keep the Fed on the sidelines maintaining a still-stimulative 2.00% Fed funds rate. Our forecast assumes that this will continue to be the case through the middle of next year before this interest rate starts to be gradually raised.
RBC Financial Group
http://www.rbc.com
The statements and statistics contained herein have been prepared by the Economics Department of RBC Financial Group based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This report is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.
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Spain May Suffer From ECB Loan Curbs as Economy Cools
By Ben Sills and Esteban Duarte
Aug. 28 (Bloomberg) -- Spain's economy, brought to the brink of a recession by surging global credit costs, may find money even harder to come by when the European Central Bank tightens its lending practices.
Spain's banks have stored up 89 billion euros of their own asset-backed securities, more than any euro-region country, because the ECB accepts them as collateral in auctions, according to UniCredit SpA. Now the central bank wants to change the rules, ECB council member Yves Mersch said in an interview on Aug. 23, a move that may leave Spain holding the bag.
``This may affect negatively the profitability of Spanish banks and their ability to lend,'' said Willem Buiter, a professor at London School of Economics and a former Bank of England policy maker. ``It could lead to slower growth.''
Spain's banks have relied on cheap money from the ECB to help provide credit to consumers and companies even as the economy is buffeted by a real-estate downturn. Without the ECB, the country would be more dependent on foreign investors, who are demanding higher returns before committing funds.
ECB officials have agreed to adjust collateral rules in response to some banks' attempts at ``gaming the system,'' Mersch told Bloomberg News at the Federal Reserve's annual retreat in Jackson Hole, Wyoming. Axel Weber, another council member, said in an interview published yesterday in Frankfurt that the ECB must ensure its rules are ``not abused.''
Fitch Warning
The share of asset-backed bonds in the collateral deposited with the ECB jumped by a third last year. What's more, the quality of the assets underlying those bonds has deteriorated, Fitch Ratings said in a report in May. Spanish banks are pooling ``higher risk'' mortgages and consumer loans to back the bonds, Fitch said.
``We see bonds being issued just to forward them directly to the ECB,'' said Kornelius Purps, a fixed-income strategist in Munich at UniCredit, Europe's fourth-largest bank.
Holders of asset-backed securities can get money 39 percent cheaper at central-bank auctions than through investors. A Spanish mortgage-backed bond rated at the highest credit rating trades with a spread of about 2.8 percentage points to the euro interbank offered rate, or Euribor. The resulting rate of 7.76 percent compares with an average rate of 4.74 percent at yesterday's ECB auction for three-month money.
Since the credit squeeze began a year ago, Spanish institutions raised their monthly borrowing from the ECB by 31 billion euros to a record 49.4 billion euros, according to data compiled by Bloomberg based on central-bank figures. The increase is three times the size of Prime Minister Jose Luis Rodriguez Zapatero's fiscal stimulus package aimed at averting a recession.
`Delicate Situation'
``The economy is in a very delicate situation,'' said Jose Luis Martinez, a strategist at Citigroup Inc. in Madrid, who predicts a recession in Spain in the second half of the year. ``One reason for that is the tighter credit conditions and anything which exacerbates that is bad news.''
Spain's economy grew 0.1 percent in the second quarter, the slowest in 15 years. The euro region's gross domestic product shrank for the first time since the introduction of the single currency in 1999.
One option for ECB policy makers is to reduce the amount of money that can be borrowed for every euro of asset-backed collateral, Natacha Valla, chief economist of Goldman Sachs Group Inc. in Paris, said in a report after Mersch's comments.
Spanish Debt
Buiter said the ECB may make it harder for banks to use as collateral bonds backed by loans they themselves granted. Banco Popular Espanol SA, Spain's no. 3 lender, tripled its holdings of assets eligible in ECB auctions to 15.2 billion euros since December 2006. The bank faces 7 billion euros of debt maturities over the next 18 months.
Spain's economy doubled in size over the past decade as the decline in borrowing costs brought by euro membership spurred construction and consumer spending. That spree saw Spain run up the world's second-biggest current-account deficit after the U.S., leaving businesses and consumers reliant on foreign lenders.
With household debt reaching 130 percent of incomes, consumption was already slowing when the global credit crunch began. The turbulence triggered a collapse in the housing market as investors became more reluctant to provide financing to Spanish lenders. Home sales fell by 30 percent in June from a year earlier and mortgage lending slumped 37 percent, the National Statistics Institute in Madrid said today.
``If the ECB restricts the possibilities for using asset- backed bonds in refinancing operations, the market spread will widen again,'' said Sylvain Broyer, an economist at Natixis in Frankfurt. ``Such a tightening will hurt the part of the euro-zone economy which is weakest right now.''
To contact the reporters on this story: Ben Sills in Madrid at bsills@bloomberg.netEsteban Duarte in Madrid at eduarterubia@bloomberg.net;
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U.S. Initial Jobless Claims Fall 10,000 to 425,000
By Timothy R. Homan
Aug. 28 (Bloomberg) -- The number of Americans collecting unemployment insurance rose to the highest level in almost five years, a sign companies remain reluctant to hire.
The number of Americans filing first-time claims for unemployment benefits decreased by 10,000 to 425,000 in the week ended Aug. 23, from a revised 435,000 the prior week. The number of people staying on rolls rose to 3.423 million, the highest since November 2003.
Companies are trimming staff and freezing hiring plans as demand softens, forcing workers to stay on government assistance. Rising unemployment heightens job-security concerns and contributes to a slowdown in consumer spending, which accounts for more than two-thirds of the economy.
``The labor market may continue to weaken,'' said Russell Price, a senior economist at H&R Block Financial Advisors Inc. in Detroit. ``It's become clear that second half growth isn't going to be as strong as the first half, so businesses are going to finally start to trim payrolls a little more.''
Another government report showed the U.S. economy expanded at a faster pace than previously estimated in the second quarter, helped by surging exports and a smaller decline in inventories.
GDP Growth
The 3.3 percent increase in gross domestic product from April through June was higher than forecast and compares with an advance estimate of 1.9 percent issued last month, the Commerce Department said today in Washington. The economy grew at a 0.9 percent pace in the first quarter.
Economists had forecast unemployment claims would fall to 425,000 from a previously reported 432,000 in the prior week, according to the median of 41 projections in a Bloomberg News survey. Estimates ranged from 410,000 to 450,000.
The four-week moving average of initial claims, a less volatile measure than the weekly figure, dropped to 440,250 from 446,250, today's report showed.
So far this year, weekly claims have averaged 375,400, compared with 321,000 for all of 2007.
The jump in claims that began in the middle of July can be attributed to the government's extension of jobless benefits under the spending bill signed by President George W. Bush in June. The government hasn't been able to quantify the program's impact on initial claims.
The unemployment rate among people eligible for benefits, which tends to track the jobless rate, rose to 2.6 percent from 2.5 percent. Thirteen states and territories reported an increase in claims, while 40 had a decrease. These data are reported with a one-week lag.
Payrolls Report
Economists forecast the Labor Department will report on Sept. 5 that the U.S. lost jobs in August for an eighth straight month. Payrolls fell by 51,000 in July, bringing the total decline this year to 463,000, as the jobless rate rose to 5.7 percent from 5.5 percent the prior month.
Abbott Laboratories, the fourth-largest U.S. drugmaker, said last week that it plans to cut 1,000 jobs and transfer some operations to Europe to reduce expenses.
Rising prices and lower job and wage prospects may weaken consumer spending through the rest of the year. U.S. retail sales declined in July for the first time in five months, the Commerce Department said Aug. 13.
Consumers also are pessimistic about the job market. The Conference Board's confidence index for August released this week showed the share of people saying jobs are hard to get increased to the highest level since October 2003.
To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net
Read more...
Aug. 28 (Bloomberg) -- The number of Americans collecting unemployment insurance rose to the highest level in almost five years, a sign companies remain reluctant to hire.
The number of Americans filing first-time claims for unemployment benefits decreased by 10,000 to 425,000 in the week ended Aug. 23, from a revised 435,000 the prior week. The number of people staying on rolls rose to 3.423 million, the highest since November 2003.
Companies are trimming staff and freezing hiring plans as demand softens, forcing workers to stay on government assistance. Rising unemployment heightens job-security concerns and contributes to a slowdown in consumer spending, which accounts for more than two-thirds of the economy.
``The labor market may continue to weaken,'' said Russell Price, a senior economist at H&R Block Financial Advisors Inc. in Detroit. ``It's become clear that second half growth isn't going to be as strong as the first half, so businesses are going to finally start to trim payrolls a little more.''
Another government report showed the U.S. economy expanded at a faster pace than previously estimated in the second quarter, helped by surging exports and a smaller decline in inventories.
GDP Growth
The 3.3 percent increase in gross domestic product from April through June was higher than forecast and compares with an advance estimate of 1.9 percent issued last month, the Commerce Department said today in Washington. The economy grew at a 0.9 percent pace in the first quarter.
Economists had forecast unemployment claims would fall to 425,000 from a previously reported 432,000 in the prior week, according to the median of 41 projections in a Bloomberg News survey. Estimates ranged from 410,000 to 450,000.
The four-week moving average of initial claims, a less volatile measure than the weekly figure, dropped to 440,250 from 446,250, today's report showed.
So far this year, weekly claims have averaged 375,400, compared with 321,000 for all of 2007.
The jump in claims that began in the middle of July can be attributed to the government's extension of jobless benefits under the spending bill signed by President George W. Bush in June. The government hasn't been able to quantify the program's impact on initial claims.
The unemployment rate among people eligible for benefits, which tends to track the jobless rate, rose to 2.6 percent from 2.5 percent. Thirteen states and territories reported an increase in claims, while 40 had a decrease. These data are reported with a one-week lag.
Payrolls Report
Economists forecast the Labor Department will report on Sept. 5 that the U.S. lost jobs in August for an eighth straight month. Payrolls fell by 51,000 in July, bringing the total decline this year to 463,000, as the jobless rate rose to 5.7 percent from 5.5 percent the prior month.
Abbott Laboratories, the fourth-largest U.S. drugmaker, said last week that it plans to cut 1,000 jobs and transfer some operations to Europe to reduce expenses.
Rising prices and lower job and wage prospects may weaken consumer spending through the rest of the year. U.S. retail sales declined in July for the first time in five months, the Commerce Department said Aug. 13.
Consumers also are pessimistic about the job market. The Conference Board's confidence index for August released this week showed the share of people saying jobs are hard to get increased to the highest level since October 2003.
To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net
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Belgian Wage Index, Slammed by ECB, Triggers Another Pay Raise
By Fergal O'Brien
Aug. 28 (Bloomberg) -- Belgian public-sector workers in October will receive their third pay increase this year under a wage-indexation system that has been condemned by the European Central Bank for potentially contributing to a wage-price spiral.
A consumer-price index in Belgium this month rose above a level that triggers a 2 percent wage increase, boosted by food and fuel costs, according to the Economy Ministry in Brussels. The raise, the third since January, also applies to pensions and unemployment benefits in the euro area's sixth-largest economy.
Defended by labor unions that say it protects living standards and prevents strikes, wage-indexation systems have been attacked by ECB President Jean-Claude Trichet as ``extremely dangerous.'' With euro-area inflation at double the ECB's 2 percent ceiling, policy makers are concerned workers will demand more pay to compensate for the higher cost of living and companies will raise prices to cover rising labor costs.
``This is a country where the risk of second-round effects and a price-wage spiral is the biggest,'' said Dominique Barbet, an economist at BNP Paribas in Paris. ``Once you have started igniting inflation, it is very difficult to stop it, so certainly it is a problem.''
Used in seven of the euro area's 15 member countries, wage indexation links pay increases to inflation and is most prominent in Belgium, where it covers almost 100 percent of workers, according to the ECB. Cyprus and Luxembourg, two of the euro region's smallest members, also have systems for automatic adjustments for price increases.
Spending Power
In Spain, many wage settlements include clauses for workers to recover spending power lost through inflation in a system that affects about two-thirds of the workforce. France, Slovenia and Malta also have some form of indexation, according to the ECB.
Second-round effects are a ``general problem for all members of the euro area,'' Trichet said in July after the ECB raised its key interest rate to a seven-year high of 4.25 percent. ``It's particularly true for those who have indexation schemes.''
While Belgium's indexation measure -- the health index -- excludes tobacco and gasoline, it includes home heating oil, gas and electricity. The 66 percent jump in crude-oil prices in the past 12 months has pushed the index to its biggest annual gain in at least 14 years.
Pensioners and those on unemployment benefits receive an automatic 2 percent increase in payments when the index crosses a trigger level, followed by public-sector workers. The index is also taken into account when unions in each industry negotiate pay increases.
`Social Peace'
``It's a system of social peace we have in Belgium,'' said Karel Gacoms, regional secretary of labor union FGTB. ``The minimum we need for the workers is inflation. Otherwise, the workers would have a problem when they go'' shopping.
Belgian central bank governor Guy Quaden, who is also a member of the ECB governing council, has defended the country's indexation system, though he has indicated he may be in favor of limiting its applicability.
``The Belgian system has worked until now. I hope it will go on doing so,'' Quaden said in June. ``For people with the highest income, should they benefit from the same advantage? That's a question I'm asking myself.''
Figures published today showed inflation in Belgium eased to 5.4 percent this month from a 24-year high of 5.9 percent in July. Quaden said in an interview in Trends magazine last month he is ``not proud'' of the consumer-price increases, the second- highest in the euro area, after Slovenia.
Labor Costs
For companies in Belgium, rising labor costs are eroding competitiveness, threatening economic growth in a country where exports account for more than two-thirds of gross national product. Belgian labor costs jumped 1.4 percent in the first quarter from a year earlier, compared with a euro-area average of 0.1 percent, according to the Organization for Economic Cooperation and Development.
``In the last two years, our labor costs have increased much more rapidly than our competitors Germany, Netherlands, France,'' said Geert Vancronenburg, an official at the Federation of Belgian Enterprises in Brussels. The federation wants to start talks with unions on changing how indexation operates to curb labor-cost increases, he said.
For the ECB, ``rigid'' wage systems may slow the pace at which inflation eases even as oil prices decline from a record. Crude oil was trading at $119 a barrel today, 18 percent below the all-time high of $147.27 reached on July 11.
``In the euro area, we have a higher degree of rigidity of prices and wages than in the U.S.,'' ECB council member Axel Weber said in an interview published yesterday. ``For this reason, we have to closely monitor inflation developments, detached from the stability norm, because inflation rates tend to return to it only slowly.''
To contact the reporter on this story: Fergal O'Brien in Dublin at fobrien@bloomberg.net.
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Aug. 28 (Bloomberg) -- Belgian public-sector workers in October will receive their third pay increase this year under a wage-indexation system that has been condemned by the European Central Bank for potentially contributing to a wage-price spiral.
A consumer-price index in Belgium this month rose above a level that triggers a 2 percent wage increase, boosted by food and fuel costs, according to the Economy Ministry in Brussels. The raise, the third since January, also applies to pensions and unemployment benefits in the euro area's sixth-largest economy.
Defended by labor unions that say it protects living standards and prevents strikes, wage-indexation systems have been attacked by ECB President Jean-Claude Trichet as ``extremely dangerous.'' With euro-area inflation at double the ECB's 2 percent ceiling, policy makers are concerned workers will demand more pay to compensate for the higher cost of living and companies will raise prices to cover rising labor costs.
``This is a country where the risk of second-round effects and a price-wage spiral is the biggest,'' said Dominique Barbet, an economist at BNP Paribas in Paris. ``Once you have started igniting inflation, it is very difficult to stop it, so certainly it is a problem.''
Used in seven of the euro area's 15 member countries, wage indexation links pay increases to inflation and is most prominent in Belgium, where it covers almost 100 percent of workers, according to the ECB. Cyprus and Luxembourg, two of the euro region's smallest members, also have systems for automatic adjustments for price increases.
Spending Power
In Spain, many wage settlements include clauses for workers to recover spending power lost through inflation in a system that affects about two-thirds of the workforce. France, Slovenia and Malta also have some form of indexation, according to the ECB.
Second-round effects are a ``general problem for all members of the euro area,'' Trichet said in July after the ECB raised its key interest rate to a seven-year high of 4.25 percent. ``It's particularly true for those who have indexation schemes.''
While Belgium's indexation measure -- the health index -- excludes tobacco and gasoline, it includes home heating oil, gas and electricity. The 66 percent jump in crude-oil prices in the past 12 months has pushed the index to its biggest annual gain in at least 14 years.
Pensioners and those on unemployment benefits receive an automatic 2 percent increase in payments when the index crosses a trigger level, followed by public-sector workers. The index is also taken into account when unions in each industry negotiate pay increases.
`Social Peace'
``It's a system of social peace we have in Belgium,'' said Karel Gacoms, regional secretary of labor union FGTB. ``The minimum we need for the workers is inflation. Otherwise, the workers would have a problem when they go'' shopping.
Belgian central bank governor Guy Quaden, who is also a member of the ECB governing council, has defended the country's indexation system, though he has indicated he may be in favor of limiting its applicability.
``The Belgian system has worked until now. I hope it will go on doing so,'' Quaden said in June. ``For people with the highest income, should they benefit from the same advantage? That's a question I'm asking myself.''
Figures published today showed inflation in Belgium eased to 5.4 percent this month from a 24-year high of 5.9 percent in July. Quaden said in an interview in Trends magazine last month he is ``not proud'' of the consumer-price increases, the second- highest in the euro area, after Slovenia.
Labor Costs
For companies in Belgium, rising labor costs are eroding competitiveness, threatening economic growth in a country where exports account for more than two-thirds of gross national product. Belgian labor costs jumped 1.4 percent in the first quarter from a year earlier, compared with a euro-area average of 0.1 percent, according to the Organization for Economic Cooperation and Development.
``In the last two years, our labor costs have increased much more rapidly than our competitors Germany, Netherlands, France,'' said Geert Vancronenburg, an official at the Federation of Belgian Enterprises in Brussels. The federation wants to start talks with unions on changing how indexation operates to curb labor-cost increases, he said.
For the ECB, ``rigid'' wage systems may slow the pace at which inflation eases even as oil prices decline from a record. Crude oil was trading at $119 a barrel today, 18 percent below the all-time high of $147.27 reached on July 11.
``In the euro area, we have a higher degree of rigidity of prices and wages than in the U.S.,'' ECB council member Axel Weber said in an interview published yesterday. ``For this reason, we have to closely monitor inflation developments, detached from the stability norm, because inflation rates tend to return to it only slowly.''
To contact the reporter on this story: Fergal O'Brien in Dublin at fobrien@bloomberg.net.
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Poland Must Raise Key Rates, Wasilewska-Trenkner Says
By Monika Rozlal
Aug. 28 (Bloomberg) -- Poland's central bank should raise the benchmark interest rate once more this year as inflationary pressure persists, policy maker Halina Wasilewska-Trenkner said.
The inflation rate, which rose to a seven-year high of 4.8 percent in July, may reach 5.3 percent this month and be between 4.5 percent and 5 percent at the end of the year, Wasilewska- Trenkner said in an interview in her Warsaw office yesterday.
Narodowy Bank Polski left borrowing costs unchanged in August for a second month, after three increases this year, as policy makers shifted focus from inflation, which has been above the 2.5 percent target since October, to slowing growth. The economy probably expanded 5.6 percent in the second quarter, the weakest since the end of 2005, a survey of economists shows.
``We cannot expect the inflation rate to return to the target any faster,'' said Wasilewska-Trenkner, a 66-year-old former finance minister. ``We cannot wait for the economic growth slowdown to resolve the problem.''
The zloty fell to 3.348 to the euro by 3:10 pm in Warsaw from 3.337 yesterday.
The six-month Polish Forward Rate Agreement traded below the three-month WIBOR interbank rate, suggesting the central bank may start cutting interest rates next year. The FRA traded at 6.29 percent today, or 20 basis points below the WIBOR level of 6.49 percent.
Global Slowdown
``A slightly more hawkish communiqué from the Council and comments by its members are enough to limit expectations for cutting interest rates,'' said Mateusz Szczurek, the chief economist at ING Bank Slaski in Warsaw.
While the U.S., the U.K. and euro-region economies are expanding at slower rates than the Polish central bank projected, the domestic economy is not cooling as fast expected, Wasilewska- Trenkner said.
The Finance Ministry forecast the Polish economy grew 5.7 percent in the second quarter after a 6.1 percent expansion the quarter before. Growth figures will be released tomorrow.
The next inflation projection due in October may not be more optimistic about the outlook for price growth, even as oil prices fall and food prices rise at a slower pace than in past months.
The zloty, one of the strongest emerging-market currencies since the beginning of the year, is no longer helping keep inflation under control after ranking as the worst-performing in emerging markets this month.
Zloty `Umbrella'
Strong currencies typically cap import price growth.
``The zloty is still strong and helps in the fight against inflation but this protection umbrella over prices is a bit smaller than it used to be,'' she said. ``The climate shaping inflation has not changed much but the sum of all the factors is less positive.''
She suggested that policy makers continue their ``restrictive bias,'' meaning they are more likely to lean toward higher, rather than lower, rates.
One rate increase may suffice, she said, as anything more may ``violate the economic balance. Two more hikes this year would not be recommended.''
The economic slowdown ``will not lead immediately to a wage and price decline so we cannot say that we are nearing the end of the tightening cycle,'' she said.
The question of raising rates this year will ``dominate'' the debate, Wasilewska-Trenkner said.
``It would be good if we could start lowering interest rates several quarters from now, but it is too early to debate on that, at least not in the next one or two quarters,'' she said.
To contact the reporter on this story: Monika Rozlal in Warsaw at mrozlal@bloomberg.net.
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Aug. 28 (Bloomberg) -- Poland's central bank should raise the benchmark interest rate once more this year as inflationary pressure persists, policy maker Halina Wasilewska-Trenkner said.
The inflation rate, which rose to a seven-year high of 4.8 percent in July, may reach 5.3 percent this month and be between 4.5 percent and 5 percent at the end of the year, Wasilewska- Trenkner said in an interview in her Warsaw office yesterday.
Narodowy Bank Polski left borrowing costs unchanged in August for a second month, after three increases this year, as policy makers shifted focus from inflation, which has been above the 2.5 percent target since October, to slowing growth. The economy probably expanded 5.6 percent in the second quarter, the weakest since the end of 2005, a survey of economists shows.
``We cannot expect the inflation rate to return to the target any faster,'' said Wasilewska-Trenkner, a 66-year-old former finance minister. ``We cannot wait for the economic growth slowdown to resolve the problem.''
The zloty fell to 3.348 to the euro by 3:10 pm in Warsaw from 3.337 yesterday.
The six-month Polish Forward Rate Agreement traded below the three-month WIBOR interbank rate, suggesting the central bank may start cutting interest rates next year. The FRA traded at 6.29 percent today, or 20 basis points below the WIBOR level of 6.49 percent.
Global Slowdown
``A slightly more hawkish communiqué from the Council and comments by its members are enough to limit expectations for cutting interest rates,'' said Mateusz Szczurek, the chief economist at ING Bank Slaski in Warsaw.
While the U.S., the U.K. and euro-region economies are expanding at slower rates than the Polish central bank projected, the domestic economy is not cooling as fast expected, Wasilewska- Trenkner said.
The Finance Ministry forecast the Polish economy grew 5.7 percent in the second quarter after a 6.1 percent expansion the quarter before. Growth figures will be released tomorrow.
The next inflation projection due in October may not be more optimistic about the outlook for price growth, even as oil prices fall and food prices rise at a slower pace than in past months.
The zloty, one of the strongest emerging-market currencies since the beginning of the year, is no longer helping keep inflation under control after ranking as the worst-performing in emerging markets this month.
Zloty `Umbrella'
Strong currencies typically cap import price growth.
``The zloty is still strong and helps in the fight against inflation but this protection umbrella over prices is a bit smaller than it used to be,'' she said. ``The climate shaping inflation has not changed much but the sum of all the factors is less positive.''
She suggested that policy makers continue their ``restrictive bias,'' meaning they are more likely to lean toward higher, rather than lower, rates.
One rate increase may suffice, she said, as anything more may ``violate the economic balance. Two more hikes this year would not be recommended.''
The economic slowdown ``will not lead immediately to a wage and price decline so we cannot say that we are nearing the end of the tightening cycle,'' she said.
The question of raising rates this year will ``dominate'' the debate, Wasilewska-Trenkner said.
``It would be good if we could start lowering interest rates several quarters from now, but it is too early to debate on that, at least not in the next one or two quarters,'' she said.
To contact the reporter on this story: Monika Rozlal in Warsaw at mrozlal@bloomberg.net.
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U.S. Economy: Growth Faster Than Initially Estimated on Exports
By Courtney Schlisserman and Timothy R. Homan
Aug. 28 (Bloomberg) -- The U.S. economy expanded faster than previously estimated in the second quarter, helped by a surge in exports that will probably wane as Europe and Japan head toward recessions.
Gross domestic product increased at a 3.3 percent annual pace, compared with the initial estimate of 1.9 percent, the Commerce Department said today in Washington. Trade contributed the most to U.S. growth in almost three decades.
The expansion is likely to weaken in the second half as consumers burdened with falling home values and dwindling job prospects rein in spending. Separate figures today showed the number of Americans collecting unemployment benefits reached a five-year high last week.
``Outside of trade, the economy is considerably weaker,'' said Carl Riccadonna, an economist at Deutsche Bank Securities Inc. in New York. ``When you look at the spending, it looks terrible for the second half of the year.''
The increase in GDP last quarter was bigger than the median estimate of a 2.7 percent gain in a Bloomberg News survey of 78 forecasters. The expansion was the fastest since the third quarter of 2007 and followed growth of 1.9 percent in the first three months of the year.
Treasuries dropped after today's reports, sending benchmark 10-year note yields up to 3.80 percent at 10:18 a.m. in New York, from 3.77 percent late yesterday. The Standard & Poor's 500 Stock Index rose 0.7 percent to 1,290.95.
Jobless Claims
The Labor Department said initial jobless claims dropped to 425,000 last week, matching economists' forecasts, from 435,000 the previous week. The level remains well above the 321,000 average of last year. The number of people staying on unemployment rolls rose to 3.423 million, the highest since November 2003.
``The labor market may continue to weaken,'' said Russell Price, a senior economist at H&R Block Financial Advisors Inc. in Detroit. ``It's become clear that second-half growth isn't going to be as strong as the first half, so businesses are going to finally start to trim payrolls a little more.''
The smallest trade deficit in eight years was the biggest contributor to growth last quarter. The trade gap narrowed to a $376.6 billion annual pace and added 3.1 percentage points to growth, the most since 1980. Excluding trade, the economy would have expanded at a 0.2 percent pace after growing 0.1 percent in the first three months of the year.
The boost from trade may wane in the rest of the year as growth among some of the U.S.'s biggest trading partners slows. Europe and Japan both shrank last quarter.
Fed Forecast
Private economists aren't the only ones taking a dimmer view. Federal Reserve staff also ``marked down'' the central bank's forecast for growth in the second half of 2008, according to minutes of the Federal Open Market Committee's Aug. 5 meeting released this week.
Fed policy makers also said recent reports pointed to ``softer export demand,'' according to the minutes.
Consumer spending, which accounts for more than two-thirds of the economy, grew at a revised 1.7 percent annual rate in the second quarter, compared with the 1.5 percent estimated last month and 0.9 percent for the first three months of the year.
The longest expansion in consumer spending on record will probably end this year, according to economists surveyed by Bloomberg earlier this month. Retail sales fell in July for the first time in five months, led by a slump in auto purchases, according to Commerce data.
`In a Recession'
``We are in a recession,'' Farooq Kathwari, chief executive officer at Ethan Allen Interiors Inc., said in an interview with Bloomberg Television this week. ``Our industry has been impacted. Conditions are still tough.''
The Danbury, Connecticut-based home-furnishings retailer said last month that sales fell 8.7 percent in the second quarter compared with the same period last year.
A weakening labor market is one reason consumer spending is likely to slow after the government sent out about $92 billion in tax rebate checks. The U.S. has lost 463,000 jobs so far this year and wages haven't kept up with inflation, according to Labor Department data.
``We don't have a lot of demand out there on the part of consumers, so there is a worry,'' Joel Naroff, chief economist at Commerce Bancorp Inc. in Holland, New Jersey, said in a Bloomberg Radio interview. ``What we're looking at is an economy that's bouncing around, but when you really average it out we're just muddling along -- still some growth but nothing special.''
Weaker Salaries
Smaller increases in paychecks are another reason Americans are likely to cut back. Wages and salaries increased by $52.5 billion in the first three months of the year, $20.2 billion less than previously estimated, according to today's revised estimates.
The reduction caused total personal income to grow at a 3 percent annual pace in the first quarter, compared with a previous estimate of 3.7 percent.
Today's revisions showed housing continued to slump and companies invested less in new equipment. Residential construction decreased at a 15.7 percent pace, more than previously estimated.
The slide in residential construction has continued this quarter. Housing starts last month fell 11 percent and building permits also declined, the government said Aug. 19.
A smaller decline in stockpiles contributed to the larger- than-forecast gain in growth. Inventories fell at a $49.4 billion annual rate from April through June, down from a $62.2 billion first estimate. Still, the draw-down subtracted 1.44 percentage points from growth.
Today's report also included a first look at corporate profits for the second quarter. Earnings adjusted for the value of inventories and depreciation of capital expenditures, known as profits from current production, decreased 2.4 percent to an annual rate of $1.56 trillion. Earnings were down 7 percent from the same time last year, the biggest decrease since the 2001 recession.
To contact the report on this story: Courtney Schlisserman in Washington Cschlisserma@bloomberg.net
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Aug. 28 (Bloomberg) -- The U.S. economy expanded faster than previously estimated in the second quarter, helped by a surge in exports that will probably wane as Europe and Japan head toward recessions.
Gross domestic product increased at a 3.3 percent annual pace, compared with the initial estimate of 1.9 percent, the Commerce Department said today in Washington. Trade contributed the most to U.S. growth in almost three decades.
The expansion is likely to weaken in the second half as consumers burdened with falling home values and dwindling job prospects rein in spending. Separate figures today showed the number of Americans collecting unemployment benefits reached a five-year high last week.
``Outside of trade, the economy is considerably weaker,'' said Carl Riccadonna, an economist at Deutsche Bank Securities Inc. in New York. ``When you look at the spending, it looks terrible for the second half of the year.''
The increase in GDP last quarter was bigger than the median estimate of a 2.7 percent gain in a Bloomberg News survey of 78 forecasters. The expansion was the fastest since the third quarter of 2007 and followed growth of 1.9 percent in the first three months of the year.
Treasuries dropped after today's reports, sending benchmark 10-year note yields up to 3.80 percent at 10:18 a.m. in New York, from 3.77 percent late yesterday. The Standard & Poor's 500 Stock Index rose 0.7 percent to 1,290.95.
Jobless Claims
The Labor Department said initial jobless claims dropped to 425,000 last week, matching economists' forecasts, from 435,000 the previous week. The level remains well above the 321,000 average of last year. The number of people staying on unemployment rolls rose to 3.423 million, the highest since November 2003.
``The labor market may continue to weaken,'' said Russell Price, a senior economist at H&R Block Financial Advisors Inc. in Detroit. ``It's become clear that second-half growth isn't going to be as strong as the first half, so businesses are going to finally start to trim payrolls a little more.''
The smallest trade deficit in eight years was the biggest contributor to growth last quarter. The trade gap narrowed to a $376.6 billion annual pace and added 3.1 percentage points to growth, the most since 1980. Excluding trade, the economy would have expanded at a 0.2 percent pace after growing 0.1 percent in the first three months of the year.
The boost from trade may wane in the rest of the year as growth among some of the U.S.'s biggest trading partners slows. Europe and Japan both shrank last quarter.
Fed Forecast
Private economists aren't the only ones taking a dimmer view. Federal Reserve staff also ``marked down'' the central bank's forecast for growth in the second half of 2008, according to minutes of the Federal Open Market Committee's Aug. 5 meeting released this week.
Fed policy makers also said recent reports pointed to ``softer export demand,'' according to the minutes.
Consumer spending, which accounts for more than two-thirds of the economy, grew at a revised 1.7 percent annual rate in the second quarter, compared with the 1.5 percent estimated last month and 0.9 percent for the first three months of the year.
The longest expansion in consumer spending on record will probably end this year, according to economists surveyed by Bloomberg earlier this month. Retail sales fell in July for the first time in five months, led by a slump in auto purchases, according to Commerce data.
`In a Recession'
``We are in a recession,'' Farooq Kathwari, chief executive officer at Ethan Allen Interiors Inc., said in an interview with Bloomberg Television this week. ``Our industry has been impacted. Conditions are still tough.''
The Danbury, Connecticut-based home-furnishings retailer said last month that sales fell 8.7 percent in the second quarter compared with the same period last year.
A weakening labor market is one reason consumer spending is likely to slow after the government sent out about $92 billion in tax rebate checks. The U.S. has lost 463,000 jobs so far this year and wages haven't kept up with inflation, according to Labor Department data.
``We don't have a lot of demand out there on the part of consumers, so there is a worry,'' Joel Naroff, chief economist at Commerce Bancorp Inc. in Holland, New Jersey, said in a Bloomberg Radio interview. ``What we're looking at is an economy that's bouncing around, but when you really average it out we're just muddling along -- still some growth but nothing special.''
Weaker Salaries
Smaller increases in paychecks are another reason Americans are likely to cut back. Wages and salaries increased by $52.5 billion in the first three months of the year, $20.2 billion less than previously estimated, according to today's revised estimates.
The reduction caused total personal income to grow at a 3 percent annual pace in the first quarter, compared with a previous estimate of 3.7 percent.
Today's revisions showed housing continued to slump and companies invested less in new equipment. Residential construction decreased at a 15.7 percent pace, more than previously estimated.
The slide in residential construction has continued this quarter. Housing starts last month fell 11 percent and building permits also declined, the government said Aug. 19.
A smaller decline in stockpiles contributed to the larger- than-forecast gain in growth. Inventories fell at a $49.4 billion annual rate from April through June, down from a $62.2 billion first estimate. Still, the draw-down subtracted 1.44 percentage points from growth.
Today's report also included a first look at corporate profits for the second quarter. Earnings adjusted for the value of inventories and depreciation of capital expenditures, known as profits from current production, decreased 2.4 percent to an annual rate of $1.56 trillion. Earnings were down 7 percent from the same time last year, the biggest decrease since the 2001 recession.
To contact the report on this story: Courtney Schlisserman in Washington Cschlisserma@bloomberg.net
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Ruble May Strengthen 3% by Year-End, Renaissance Says
By Emma O'Brien
Aug. 28 (Bloomberg) -- The ruble may gain 3 percent against its dollar-euro basket by the end of 2008 as high oil prices and Russia's current-account surplus offset investor concerns over the conflict with Georgia, Renaissance Capital analysts said.
The currency is set for its biggest monthly drop versus the basket since its introduction in 2005 as the five-day war with neighboring Georgia cause investors to sell Russian assets. The country's $38 billion current-account surplus and this year's 24 percent jump in oil prices will lure buyers back to the world's largest energy supplier, said Alexei Moiseev, head of fixed- income research.
``I don't see any way that the situation in Georgia will prevent Russia from exporting energy or affect the current- account surplus,'' Renaissance's Moscow-based Moiseev said. ``All the good fundamentals are still there.''
Russia's currency was at 29.8597 to the basket by 6:03 p.m. in Moscow, from 29.8483 yesterday. Bank Rossii, Russia's central bank, keeps the ruble within a trading band against the basket to limit the effect of its fluctuations on the competitiveness of local exports. The basket is made up of about 55 percent dollars and 45 percent euros.
The ruble gained 0.1 percent to 24.5774 per dollar today, and fell 0.2 percent to 36.3073 per euro.
The currency will probably end the year at 29 to the basket, Moiseev said, changing a previous year-end forecast of 29.40.
Stable Outlook
Oil and gas activities make up about 20 percent of Russia's gross domestic product and generate more than 60 percent of total export revenue, according to TD Securities Ltd.
Fitch Ratings is unlikely to change Russia's BBB+ debt rating, the third-lowest investment-grade ranking, or its ``stable'' outlook any time soon, Edward Parker, an emerging- markets credit analyst at Fitch in London, said in an interview.
The conflict with Georgia only adds ``a layer of political risk'' to investing in Russia, a country in its 10th year of economic growth and with the world's third-largest international reserves, Parker said yesterday.
As much as $25 billion of capital has flowed out of Russia since the start of the Georgia conflict on Aug. 7, analysts at BNP Paribas SA, France's largest bank, said in a note today.
Above-target inflation will also contribute to a stronger ruble, Moiseev said.
Bank Policy
Bank Rossii has been widening the ruble's trading band to the basket since mid-May to subdue price growth that was at 14.7 percent in July, compared with the government's 11.8 percent target. Each 1 percentage point increase in the ruble to the basket reduces inflation by 0.3 percentage point, according to the central bank's calculations.
A strengthening currency helps reduce prices on imported goods. While Bank Rossii has raised its key interest rates four times this year in a bid to halt gains in consumer prices, it isn't an effective way of controlling inflation in Russia because the country doesn't have a fully fledged consumer-credit market.
``The ruble will appreciate because they really have no other means to fight inflation,'' Moiseev said. The currency will gain ``as the dust settles over the coming weeks,'' he said.
To contact the reporter on this story: Emma O'Brien in Moscow on eobrien6@bloomberg.net
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Aug. 28 (Bloomberg) -- The ruble may gain 3 percent against its dollar-euro basket by the end of 2008 as high oil prices and Russia's current-account surplus offset investor concerns over the conflict with Georgia, Renaissance Capital analysts said.
The currency is set for its biggest monthly drop versus the basket since its introduction in 2005 as the five-day war with neighboring Georgia cause investors to sell Russian assets. The country's $38 billion current-account surplus and this year's 24 percent jump in oil prices will lure buyers back to the world's largest energy supplier, said Alexei Moiseev, head of fixed- income research.
``I don't see any way that the situation in Georgia will prevent Russia from exporting energy or affect the current- account surplus,'' Renaissance's Moscow-based Moiseev said. ``All the good fundamentals are still there.''
Russia's currency was at 29.8597 to the basket by 6:03 p.m. in Moscow, from 29.8483 yesterday. Bank Rossii, Russia's central bank, keeps the ruble within a trading band against the basket to limit the effect of its fluctuations on the competitiveness of local exports. The basket is made up of about 55 percent dollars and 45 percent euros.
The ruble gained 0.1 percent to 24.5774 per dollar today, and fell 0.2 percent to 36.3073 per euro.
The currency will probably end the year at 29 to the basket, Moiseev said, changing a previous year-end forecast of 29.40.
Stable Outlook
Oil and gas activities make up about 20 percent of Russia's gross domestic product and generate more than 60 percent of total export revenue, according to TD Securities Ltd.
Fitch Ratings is unlikely to change Russia's BBB+ debt rating, the third-lowest investment-grade ranking, or its ``stable'' outlook any time soon, Edward Parker, an emerging- markets credit analyst at Fitch in London, said in an interview.
The conflict with Georgia only adds ``a layer of political risk'' to investing in Russia, a country in its 10th year of economic growth and with the world's third-largest international reserves, Parker said yesterday.
As much as $25 billion of capital has flowed out of Russia since the start of the Georgia conflict on Aug. 7, analysts at BNP Paribas SA, France's largest bank, said in a note today.
Above-target inflation will also contribute to a stronger ruble, Moiseev said.
Bank Policy
Bank Rossii has been widening the ruble's trading band to the basket since mid-May to subdue price growth that was at 14.7 percent in July, compared with the government's 11.8 percent target. Each 1 percentage point increase in the ruble to the basket reduces inflation by 0.3 percentage point, according to the central bank's calculations.
A strengthening currency helps reduce prices on imported goods. While Bank Rossii has raised its key interest rates four times this year in a bid to halt gains in consumer prices, it isn't an effective way of controlling inflation in Russia because the country doesn't have a fully fledged consumer-credit market.
``The ruble will appreciate because they really have no other means to fight inflation,'' Moiseev said. The currency will gain ``as the dust settles over the coming weeks,'' he said.
To contact the reporter on this story: Emma O'Brien in Moscow on eobrien6@bloomberg.net
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Copper Falls as Metal Inventories Increase to Six-Month High
By Millie Munshi
Aug. 28 (Bloomberg) -- Copper fell after inventories monitored by the London Metal Exchange jumped to the highest in six months, easing supply concerns.
Stockpiles gained 2,200 metric tons, or 1.3 percent, to 170,500 tons today, the highest since Feb. 6. Before today, copper dropped 5.9 percent this month as inventories gained 18 percent.
The metal ``has eased back this morning following another stock increase,'' analysts at Barclays Capital including Gayle Berry in London said in a report.
Copper futures for December delivery dropped 0.25 cent to $3.4425 a pound at 10:06 a.m. on the Comex division of the New York Mercantile Exchange. Earlier, the price fell as much as 1.3 percent and gained as much as 0.7 percent. The metal reached a record $4.2605 on May 5.
Copper for delivery in three months declined $10 to $7,640 a metric ton ($3.46 a pound) in London. Before today, the price gained 4.6 percent in the past 12 months.
To contact the reporter on this story: Millie Munshi in New York at mmunshi@bloomberg.net
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Aug. 28 (Bloomberg) -- Copper fell after inventories monitored by the London Metal Exchange jumped to the highest in six months, easing supply concerns.
Stockpiles gained 2,200 metric tons, or 1.3 percent, to 170,500 tons today, the highest since Feb. 6. Before today, copper dropped 5.9 percent this month as inventories gained 18 percent.
The metal ``has eased back this morning following another stock increase,'' analysts at Barclays Capital including Gayle Berry in London said in a report.
Copper futures for December delivery dropped 0.25 cent to $3.4425 a pound at 10:06 a.m. on the Comex division of the New York Mercantile Exchange. Earlier, the price fell as much as 1.3 percent and gained as much as 0.7 percent. The metal reached a record $4.2605 on May 5.
Copper for delivery in three months declined $10 to $7,640 a metric ton ($3.46 a pound) in London. Before today, the price gained 4.6 percent in the past 12 months.
To contact the reporter on this story: Millie Munshi in New York at mmunshi@bloomberg.net
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South African Rand Climbs Against Dollar as Gold, Platinum Rise
By Mike Cohen and Garth Theunissen
Aug. 28 (Bloomberg) -- South Africa's rand rose for a second day against the dollar as the country's stocks rose with the prices of gold and platinum, the nation's largest exports.
The rand climbed by the most in five days as a weaker dollar boosted demand for the precious metals as alternative investments and hedges against inflation. South Africa produces almost 80 percent of the world's platinum and about 10 percent of its gold, typically causing the rand to move in tandem with metals' prices.
``When the dollar falls, commodity prices rise on the back of that,'' said Jacques Simpson, an analyst in Cape Town at Metropolitan Asset Managers Ltd. ``Higher commodity prices boost earnings for South African mining companies. That boosts demand for local stocks, which can translate into rand strength.''
The rand gained as much as 1 percent to 7.6720 per dollar and was at 7.7060 by 2:07 p.m. in Johannesburg, from 7.7500 yesterday. It also climbed versus 14 of the 16 most-actively traded currencies monitored by Bloomberg, adding 0.1 percent against the euro to 11.3949.
Gold advanced for a third day, gaining as much as 1.4 percent to $838.70 an ounce, while platinum added 2.1 percent to $1,473.50 an ounce.
South Africa's FTSE/JSE Africa All Share Index climbed 1.2 percent as companies including Impala Platinum Holdings Ltd. advanced.
The rand gained even as government data showed producer- price inflation quickened at the fastest pace in 22 years last month, buoyed by surging fuel and electricity prices. The cost of goods leaving the country's factories and mines quickened to 18.9 percent from 16.8 percent in June, Statistics South Africa said. Prices were expected to rise 17.5 percent, according to the median estimate of 16 economists surveyed by Bloomberg.
Price Pressures
Consumer inflation quickened to 13 percent in July, from 11.6 percent the previous month, a separate report showed yesterday. It was the 15th consecutive month it exceeded the central bank's 3 percent to 6 percent target.
Government bonds were little changed with the yield on the 13 percent note due August 2010, which is more sensitive to interest-rate expectations, adding 1 basis point to 9.72 percent. The yield on the benchmark 13.5 percent security, due September 2015, was unchanged at 9.11 percent. Yields move inversely to bond prices.
South Africa's unemployment rate fell to 23.1 percent in the second quarter from 23.5 percent in the first three months of the year, Pretoria-based Statistics South Africa said today. The number of people without work in Africa's biggest economy declined to 4.11 million from 4.19 million.
To contact the reporter on this story: Mike Cohen in Cape Town at mcohen21@bloomberg.net; Garth Theunissen in Johannesburg gtheunissen@bloomberg.net
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Aug. 28 (Bloomberg) -- South Africa's rand rose for a second day against the dollar as the country's stocks rose with the prices of gold and platinum, the nation's largest exports.
The rand climbed by the most in five days as a weaker dollar boosted demand for the precious metals as alternative investments and hedges against inflation. South Africa produces almost 80 percent of the world's platinum and about 10 percent of its gold, typically causing the rand to move in tandem with metals' prices.
``When the dollar falls, commodity prices rise on the back of that,'' said Jacques Simpson, an analyst in Cape Town at Metropolitan Asset Managers Ltd. ``Higher commodity prices boost earnings for South African mining companies. That boosts demand for local stocks, which can translate into rand strength.''
The rand gained as much as 1 percent to 7.6720 per dollar and was at 7.7060 by 2:07 p.m. in Johannesburg, from 7.7500 yesterday. It also climbed versus 14 of the 16 most-actively traded currencies monitored by Bloomberg, adding 0.1 percent against the euro to 11.3949.
Gold advanced for a third day, gaining as much as 1.4 percent to $838.70 an ounce, while platinum added 2.1 percent to $1,473.50 an ounce.
South Africa's FTSE/JSE Africa All Share Index climbed 1.2 percent as companies including Impala Platinum Holdings Ltd. advanced.
The rand gained even as government data showed producer- price inflation quickened at the fastest pace in 22 years last month, buoyed by surging fuel and electricity prices. The cost of goods leaving the country's factories and mines quickened to 18.9 percent from 16.8 percent in June, Statistics South Africa said. Prices were expected to rise 17.5 percent, according to the median estimate of 16 economists surveyed by Bloomberg.
Price Pressures
Consumer inflation quickened to 13 percent in July, from 11.6 percent the previous month, a separate report showed yesterday. It was the 15th consecutive month it exceeded the central bank's 3 percent to 6 percent target.
Government bonds were little changed with the yield on the 13 percent note due August 2010, which is more sensitive to interest-rate expectations, adding 1 basis point to 9.72 percent. The yield on the benchmark 13.5 percent security, due September 2015, was unchanged at 9.11 percent. Yields move inversely to bond prices.
South Africa's unemployment rate fell to 23.1 percent in the second quarter from 23.5 percent in the first three months of the year, Pretoria-based Statistics South Africa said today. The number of people without work in Africa's biggest economy declined to 4.11 million from 4.19 million.
To contact the reporter on this story: Mike Cohen in Cape Town at mcohen21@bloomberg.net; Garth Theunissen in Johannesburg gtheunissen@bloomberg.net
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Fannie Rises for Sixth Day as Mudd Replaces Deputies
By Dawn Kopecki and Jody Shenn
Aug. 28 (Bloomberg) -- Fannie Mae rose for a sixth day in New York trading, the longest streak since May 2007, after Chief Executive Officer Daniel Mudd replaced three top deputies in an effort to restore investor confidence.
Chief Financial Officer Stephen Swad hired less than two years ago to help the government-chartered company complete an accounting overhaul, will be replaced by Controller David Hisey, Washington-based Fannie said yesterday. Peter Niculescu will take over from Chief Business Officer Robert Levin. The head of risk management, Enrico Dallavecchia will also leave.
Mudd is shaking up Fannie's management after $9.4 billion of losses the past four quarters and a 90 percent drop in market value eroded capital and sparked concern the company may not weather the worst housing slump since the Great Depression. The decline prompted U.S. Treasury Secretary Henry Paulson to forge a rescue package for Fannie and smaller competitor Freddie Mac.
``It's like sports, when the team is losing, everyone wants to see a new coach come in,'' said Len Blum, managing director at Westwood Capital LLC, a New York-based investment bank. ``I'm not that moved by it. The real issue is they don't have that much capital, not that they need three new managers.''
Fannie rose 53 cents, or 8.2 percent, to $7.01 at 10:30 a.m. in New York Stock Exchange composite trading. The stock is up 60 percent since Aug. 20. Freddie climbed 48 cents, or 10 percent, to $5.23, extending gains over the past six days to 61 percent.
Still in `Limbo'
``The market will probably receive it well that Fannie's doing something, but the focus will inevitably shift back to the capital injection,'' said Ajay Rajadhyaksha, the head of fixed- income strategy at Barclays Capital in New York. ``Investors care most about whether there's clarity on a Treasury injection or not and under what terms that would happen. Until that happens, we remain in limbo.''
Fannie and Freddie have reported $14.9 billion in net losses for the past four quarters as loan delinquencies rose. Freddie as of June 30 was about $2.7 billion away from breaching capital requirements set by its regulator because of those losses and a delayed equity sale. Fannie had a cushion of about $9.5 billion. Missing the targets would lead to tighter government controls.
``As we move through the bottom of this cycle, maintaining capital, managing credit and driving revenues are the priorities,'' Mudd, who turns 50 today, said in the statement. ``We have to organize and staff accordingly.''
Promotions
Swad, 47, was recruited from Time Warner Inc.'s AOL division as part of a management sweep following a $6.3 billion earnings restatement. His replacement Hisey, 48, previously a managing director at BearingPoint Inc. and an audit partner at KPMG LLP, was hired as controller in 2005.
Levin, 52, had been at the company since 1981. He temporarily served as CFO after the board ousted former CEO Franklin Raines and CFO Timothy Howard in late 2004. As his replacement, Niculescu will oversee Fannie's three divisions: single-family mortgage guarantees, capital markets and housing and community development.
Niculescu, 48, ran the company's mortgage purchases through the housing boom and bust. Before joining Fannie in 1999, he was co-head of fixed-income research at Goldman Sachs Group Inc.
Dallavecchia, 46, part of the executive team that helped steer Fannie out if its accounting troubles, will be replaced by Michael Shaw, 61.
Freddie Mac CEO
Freddie may also have to make management changes following Fannie's announcement, said Joshua Rosner, an analyst with Graham Fisher & Co. in New York.
Freddie is searching for a replacement for CEO Richard Syron, 64. Syron, who was hired in 2004, was supposed to name a successor within three years.
``It highlights the fact that Freddie still has not addressed the weakness of its management bench,'' Rosner said.
Fannie and Freddie, created to boost homeownership, own or guarantee at least 42 percent of the $12 trillion in U.S. residential-mortgage debt outstanding. They make money by buying home loans and mortgage securities, profiting on the difference between their borrowing cost and the yield on the debt. They also guarantee and package loans as securities, charging a fee.
Paulson last month was granted the authority to inject unlimited amounts of money into the companies if needed.
Fannie Mae and Freddie Mac yesterday sold $3 billion of short-term notes at yields that suggest the companies are still capable of financing their businesses without government assistance. The yields on the debt relative to benchmark rates, while higher than in sales earlier this month, remain lower than a year ago, data compiled by Bloomberg show.
``The real problem at Fannie Mae is that they didn't have enough capital going into this crisis, that's more the fault of our government than the executives,'' Blum said. ``The capital is inadequate, changing management doesn't fix the problem.''
To contact the reporters on this story: Dawn Kopecki in Washington at dkopecki@bloomberg.net; Jody Shenn in New York at jshenn@bloomberg.net.
Read more...
Aug. 28 (Bloomberg) -- Fannie Mae rose for a sixth day in New York trading, the longest streak since May 2007, after Chief Executive Officer Daniel Mudd replaced three top deputies in an effort to restore investor confidence.
Chief Financial Officer Stephen Swad hired less than two years ago to help the government-chartered company complete an accounting overhaul, will be replaced by Controller David Hisey, Washington-based Fannie said yesterday. Peter Niculescu will take over from Chief Business Officer Robert Levin. The head of risk management, Enrico Dallavecchia will also leave.
Mudd is shaking up Fannie's management after $9.4 billion of losses the past four quarters and a 90 percent drop in market value eroded capital and sparked concern the company may not weather the worst housing slump since the Great Depression. The decline prompted U.S. Treasury Secretary Henry Paulson to forge a rescue package for Fannie and smaller competitor Freddie Mac.
``It's like sports, when the team is losing, everyone wants to see a new coach come in,'' said Len Blum, managing director at Westwood Capital LLC, a New York-based investment bank. ``I'm not that moved by it. The real issue is they don't have that much capital, not that they need three new managers.''
Fannie rose 53 cents, or 8.2 percent, to $7.01 at 10:30 a.m. in New York Stock Exchange composite trading. The stock is up 60 percent since Aug. 20. Freddie climbed 48 cents, or 10 percent, to $5.23, extending gains over the past six days to 61 percent.
Still in `Limbo'
``The market will probably receive it well that Fannie's doing something, but the focus will inevitably shift back to the capital injection,'' said Ajay Rajadhyaksha, the head of fixed- income strategy at Barclays Capital in New York. ``Investors care most about whether there's clarity on a Treasury injection or not and under what terms that would happen. Until that happens, we remain in limbo.''
Fannie and Freddie have reported $14.9 billion in net losses for the past four quarters as loan delinquencies rose. Freddie as of June 30 was about $2.7 billion away from breaching capital requirements set by its regulator because of those losses and a delayed equity sale. Fannie had a cushion of about $9.5 billion. Missing the targets would lead to tighter government controls.
``As we move through the bottom of this cycle, maintaining capital, managing credit and driving revenues are the priorities,'' Mudd, who turns 50 today, said in the statement. ``We have to organize and staff accordingly.''
Promotions
Swad, 47, was recruited from Time Warner Inc.'s AOL division as part of a management sweep following a $6.3 billion earnings restatement. His replacement Hisey, 48, previously a managing director at BearingPoint Inc. and an audit partner at KPMG LLP, was hired as controller in 2005.
Levin, 52, had been at the company since 1981. He temporarily served as CFO after the board ousted former CEO Franklin Raines and CFO Timothy Howard in late 2004. As his replacement, Niculescu will oversee Fannie's three divisions: single-family mortgage guarantees, capital markets and housing and community development.
Niculescu, 48, ran the company's mortgage purchases through the housing boom and bust. Before joining Fannie in 1999, he was co-head of fixed-income research at Goldman Sachs Group Inc.
Dallavecchia, 46, part of the executive team that helped steer Fannie out if its accounting troubles, will be replaced by Michael Shaw, 61.
Freddie Mac CEO
Freddie may also have to make management changes following Fannie's announcement, said Joshua Rosner, an analyst with Graham Fisher & Co. in New York.
Freddie is searching for a replacement for CEO Richard Syron, 64. Syron, who was hired in 2004, was supposed to name a successor within three years.
``It highlights the fact that Freddie still has not addressed the weakness of its management bench,'' Rosner said.
Fannie and Freddie, created to boost homeownership, own or guarantee at least 42 percent of the $12 trillion in U.S. residential-mortgage debt outstanding. They make money by buying home loans and mortgage securities, profiting on the difference between their borrowing cost and the yield on the debt. They also guarantee and package loans as securities, charging a fee.
Paulson last month was granted the authority to inject unlimited amounts of money into the companies if needed.
Fannie Mae and Freddie Mac yesterday sold $3 billion of short-term notes at yields that suggest the companies are still capable of financing their businesses without government assistance. The yields on the debt relative to benchmark rates, while higher than in sales earlier this month, remain lower than a year ago, data compiled by Bloomberg show.
``The real problem at Fannie Mae is that they didn't have enough capital going into this crisis, that's more the fault of our government than the executives,'' Blum said. ``The capital is inadequate, changing management doesn't fix the problem.''
To contact the reporters on this story: Dawn Kopecki in Washington at dkopecki@bloomberg.net; Jody Shenn in New York at jshenn@bloomberg.net.
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Canada's Dollar Is Little Changed After Current Account Report
By Chris Fournier
Aug. 28 (Bloomberg) -- Canada's currency was little changed, paring an earlier decline, after a government report showed the nation's current account surplus widened.
Canada's dollar traded at C$1.0457 per U.S. dollar at 9:03 a.m. in Toronto, from C$1.0459 yesterday. One Canadian dollar buys 95.63 U.S. cents.
Receipts from outside Canada exceeded payments sent abroad by C$6.8 billion ($6.5 billion) between April and June, compared with a revised C$4.5 billion surplus in the first quarter, Statistics Canada said today in Ottawa. Economists surveyed by Bloomberg predicted a C$8 billion surplus.
To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net
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Aug. 28 (Bloomberg) -- Canada's currency was little changed, paring an earlier decline, after a government report showed the nation's current account surplus widened.
Canada's dollar traded at C$1.0457 per U.S. dollar at 9:03 a.m. in Toronto, from C$1.0459 yesterday. One Canadian dollar buys 95.63 U.S. cents.
Receipts from outside Canada exceeded payments sent abroad by C$6.8 billion ($6.5 billion) between April and June, compared with a revised C$4.5 billion surplus in the first quarter, Statistics Canada said today in Ottawa. Economists surveyed by Bloomberg predicted a C$8 billion surplus.
To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net
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Euro Rises for Second Day on Crude Oil Gain, ECB Rate Outlook
By Ye Xie and Gavin Finch
Aug. 28 (Bloomberg) -- The euro rose against the dollar for a second day as an increase in crude oil prices led traders to raise bets that the European Central Bank will maintain borrowing costs at a seven-year high to curb inflation.
The 15-nation euro appreciated to near a record against the pound after ECB policy makers Axel Weber and Lucas Papademos said yesterday the central bank remains focused on fighting inflation. South Africa's rand strengthened versus the dollar as commodities including gold and platinum increased.
``Oil is helping weaken the dollar,'' said Dustin Reid, a senior currency strategist at ABN Amro Bank NV in Chicago. ``We are still feeling the impact of hawkish comments from various ECB officials.''
The euro climbed 0.2 percent to $1.4754 at 10:32 a.m. in New York, from $1.4727 yesterday. Europe's currency traded at 161.12 yen, compared with 161.27. Against the pound, the euro advanced 0.4 percent to 80.51 pence after touching 80.61 pence, the highest since April 17. It reached 80.99 pence on April 16, the strongest since the euro's 1999 debut. The dollar fell 0.2 percent to 109.22 yen, from 109.49.
Crude oil for October delivery rose for a fourth day, increasing 0.1 percent to $118.27 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.
Dollar `Stalling'
``Oil prices dictate some of the future activities of the dollar,'' said Carl Forcheski, vice president on the corporate currency sales desk at Societe Generale SA in New York. ``The recovery of the dollar is stalling a bit.''
South Africa's rand increased 0.7 percent to 7.6986 per dollar as gold advanced 1.7 percent to $847.80 an ounce and platinum added 2.1 percent to $1,473.50 an ounce. The precious metals are South Africa's largest exports.
The New Zealand dollar climbed 0.2 percent to 70.31 U.S. cents as commodity prices rose. Sales of commodities make up 70 percent of New Zealand's overseas shipments. The Australian dollar appreciated 0.7 percent to 86.47 U.S. cents after the Bureau of Statistics said second-quarter capital spending increased 5.7 percent, almost three times the median forecast of 23 economists surveyed by Bloomberg News.
ECB policy makers may need to raise borrowing costs once the economic outlook ``brightens'' toward the end of the year and in 2009, said Weber, who heads Germany's central bank, in an interview yesterday in Frankfurt. Papademos, the ECB's vice president, said in a speech in Buenos Aires that there's a risk of a wage-price spiral that would ``require a stronger degree of monetary tightening.''
European Inflation
Traders reduced bets that the central bank will cut its 4.25 percent main refinancing rate next year. The implied yield on the Euribor futures contract expiring in September 2009 rose 7 basis points, or 0.07 percentage point, to 4.53 percent today, up 17 basis points since the start of the week.
An annual inflation rate of 4 percent in the nations using the euro is twice the ECB's target of just below 2 percent. The yield advantage of two-year German government debt over comparable-maturity Treasuries widened to 1.44 percentage points from a two-month low of 1.54 on Aug. 13.
The dollar briefly pared its loss against the euro and yen today after the Commerce Department reported a 3.3 percent annualized increase in gross domestic product from April through June that was higher than the previous estimate of 1.9 percent. The economy grew at a 0.9 percent pace in the first quarter.
Dollar's Rally
The U.S. currency has gained 8 percent from a record low of $1.6038 per euro 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 six-week advance of the ICE futures exchange's Dollar Index may stall at 77.85, said Kevin Edgeley, a technical analyst at Goldman Sachs Group Inc. in London who uses charts to predict price movements. The index, which gauges the greenback against the currencies of six major U.S. trading partners, declined 0.5 percent to 76.71. It reached an eight-month high of 77.619 on Aug. 26.
Japanese investors are repatriating earnings on speculation that the U.S. housing slump will worsen, according to Yasutoshi Nagai, chief economist in Tokyo at Daiwa Securities SMBC Co., part of Japan's second-largest brokerage.
Investors' disposals of overseas bonds exceeded purchases by 1.42 trillion yen ($13 billion) in the week ended Aug. 23, the biggest net sales since at least 2001, the Finance Ministry said today in Tokyo. JPMorgan Asset Management Japan Ltd. said last week it was reducing holdings of debt of Fannie Mae and Freddie Mac, the two largest U.S. mortgage financers.
``The global economy is sluggish and Japanese investors can't take on risk, and so we've seen them reducing exposure to foreign assets,'' said Nagai. ``I'd expect the yen to continue appreciating for the rest of this year,'' to about 105 versus the dollar, he said.
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. 28 (Bloomberg) -- The euro rose against the dollar for a second day as an increase in crude oil prices led traders to raise bets that the European Central Bank will maintain borrowing costs at a seven-year high to curb inflation.
The 15-nation euro appreciated to near a record against the pound after ECB policy makers Axel Weber and Lucas Papademos said yesterday the central bank remains focused on fighting inflation. South Africa's rand strengthened versus the dollar as commodities including gold and platinum increased.
``Oil is helping weaken the dollar,'' said Dustin Reid, a senior currency strategist at ABN Amro Bank NV in Chicago. ``We are still feeling the impact of hawkish comments from various ECB officials.''
The euro climbed 0.2 percent to $1.4754 at 10:32 a.m. in New York, from $1.4727 yesterday. Europe's currency traded at 161.12 yen, compared with 161.27. Against the pound, the euro advanced 0.4 percent to 80.51 pence after touching 80.61 pence, the highest since April 17. It reached 80.99 pence on April 16, the strongest since the euro's 1999 debut. The dollar fell 0.2 percent to 109.22 yen, from 109.49.
Crude oil for October delivery rose for a fourth day, increasing 0.1 percent to $118.27 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.
Dollar `Stalling'
``Oil prices dictate some of the future activities of the dollar,'' said Carl Forcheski, vice president on the corporate currency sales desk at Societe Generale SA in New York. ``The recovery of the dollar is stalling a bit.''
South Africa's rand increased 0.7 percent to 7.6986 per dollar as gold advanced 1.7 percent to $847.80 an ounce and platinum added 2.1 percent to $1,473.50 an ounce. The precious metals are South Africa's largest exports.
The New Zealand dollar climbed 0.2 percent to 70.31 U.S. cents as commodity prices rose. Sales of commodities make up 70 percent of New Zealand's overseas shipments. The Australian dollar appreciated 0.7 percent to 86.47 U.S. cents after the Bureau of Statistics said second-quarter capital spending increased 5.7 percent, almost three times the median forecast of 23 economists surveyed by Bloomberg News.
ECB policy makers may need to raise borrowing costs once the economic outlook ``brightens'' toward the end of the year and in 2009, said Weber, who heads Germany's central bank, in an interview yesterday in Frankfurt. Papademos, the ECB's vice president, said in a speech in Buenos Aires that there's a risk of a wage-price spiral that would ``require a stronger degree of monetary tightening.''
European Inflation
Traders reduced bets that the central bank will cut its 4.25 percent main refinancing rate next year. The implied yield on the Euribor futures contract expiring in September 2009 rose 7 basis points, or 0.07 percentage point, to 4.53 percent today, up 17 basis points since the start of the week.
An annual inflation rate of 4 percent in the nations using the euro is twice the ECB's target of just below 2 percent. The yield advantage of two-year German government debt over comparable-maturity Treasuries widened to 1.44 percentage points from a two-month low of 1.54 on Aug. 13.
The dollar briefly pared its loss against the euro and yen today after the Commerce Department reported a 3.3 percent annualized increase in gross domestic product from April through June that was higher than the previous estimate of 1.9 percent. The economy grew at a 0.9 percent pace in the first quarter.
Dollar's Rally
The U.S. currency has gained 8 percent from a record low of $1.6038 per euro 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 six-week advance of the ICE futures exchange's Dollar Index may stall at 77.85, said Kevin Edgeley, a technical analyst at Goldman Sachs Group Inc. in London who uses charts to predict price movements. The index, which gauges the greenback against the currencies of six major U.S. trading partners, declined 0.5 percent to 76.71. It reached an eight-month high of 77.619 on Aug. 26.
Japanese investors are repatriating earnings on speculation that the U.S. housing slump will worsen, according to Yasutoshi Nagai, chief economist in Tokyo at Daiwa Securities SMBC Co., part of Japan's second-largest brokerage.
Investors' disposals of overseas bonds exceeded purchases by 1.42 trillion yen ($13 billion) in the week ended Aug. 23, the biggest net sales since at least 2001, the Finance Ministry said today in Tokyo. JPMorgan Asset Management Japan Ltd. said last week it was reducing holdings of debt of Fannie Mae and Freddie Mac, the two largest U.S. mortgage financers.
``The global economy is sluggish and Japanese investors can't take on risk, and so we've seen them reducing exposure to foreign assets,'' said Nagai. ``I'd expect the yen to continue appreciating for the rest of this year,'' to about 105 versus the dollar, he said.
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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Gold Rises as Dollar, Oil Spark Investor Demand; Silver Gains
By Pham-Duy Nguyen
Aug. 28 (Bloomberg) -- Gold rose to the highest in more than two weeks as a weaker dollar and higher energy costs revived demand for the precious metal. Silver also gained.
UBS AG issued a ``strong tactical buy recommendation,'' the first in a year. The dollar fell as much as 0.6 percent against a weighted basket of six currencies before paring losses. Crude oil climbed for a fourth straight day, nearing $120 a barrel. Gold and oil reached records this year as the dollar fell to an all-time low against the euro.
``Gold looks very strong,'' said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago. ``The dollar is very vulnerable and stalling out. And a lot of people think crude can go to $150.''
Gold futures for December delivery rose $13.80, or 1.7 percent, to $847.80 an ounce at 8:56 a.m. on the Comex division of the New York Mercantile Exchange. Earlier, the price touched $849.30, the highest since Aug. 11.
Silver futures for December delivery rose 48.7 cents, or 3.6 percent, to $14.055 an ounce on the Comex.
Before today, silver fell 9.1 percent this year, while gold dropped 0.5 percent.
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
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Aug. 28 (Bloomberg) -- Gold rose to the highest in more than two weeks as a weaker dollar and higher energy costs revived demand for the precious metal. Silver also gained.
UBS AG issued a ``strong tactical buy recommendation,'' the first in a year. The dollar fell as much as 0.6 percent against a weighted basket of six currencies before paring losses. Crude oil climbed for a fourth straight day, nearing $120 a barrel. Gold and oil reached records this year as the dollar fell to an all-time low against the euro.
``Gold looks very strong,'' said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago. ``The dollar is very vulnerable and stalling out. And a lot of people think crude can go to $150.''
Gold futures for December delivery rose $13.80, or 1.7 percent, to $847.80 an ounce at 8:56 a.m. on the Comex division of the New York Mercantile Exchange. Earlier, the price touched $849.30, the highest since Aug. 11.
Silver futures for December delivery rose 48.7 cents, or 3.6 percent, to $14.055 an ounce on the Comex.
Before today, silver fell 9.1 percent this year, while gold dropped 0.5 percent.
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
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Lead Rises to 3-Week High in London on China Demand Speculation
By Chanyaporn Chanjaroen
Aug. 28 (Bloomberg) -- Lead rose to the highest in three weeks in London on speculation demand improved in China, the world's largest consumer and producer of the metal.
Stockpiles monitored by the London Metal Exchange have fallen 18 percent since the end of June, mostly in Singapore, the nearest lead warehouse location to China. The amount of metal earmarked for withdrawal jumped 29 percent today, according to exchange data.
``It remains a speculative bullishness,'' said Neil Hawkes, a lead analyst at London-based researcher CRU. ``I'd rather wait to see the data for September and October, when the demand picture becomes clearer after summer.''
The contract for delivery in three months advanced $30, or 1.5 percent, to $2,080 a ton as of 11:21 a.m. local time. Earlier it traded at $2,125 a ton, the highest intraday price since Aug. 7.
China became a net importer in July, indicating demand for the metal in the domestic market. Refined lead imports rose 137 percent last month from a year ago, according to Aug. 22 customs data. Lead is mostly used in car batteries.
The demand outlook for the year remains weak because of lower vehicle sales in Europe and the U.S., Hawkes said. U.S. sales of cars and light trucks tumbled 13 percent in July and, according to a Deutsche Bank report, may be headed for a 15-year low.
Copper Shipments
LME-tracked copper inventories rose 2,200 tons, or 1.3 percent, to 170,050 tons, the highest since Feb. 6, according to the exchange's daily report. Including those monitored by the commodity exchanges in Shanghai and New York, stockpiles total 196,736 tons, or 3.8 days of global consumption. Last year's average was 4.9 days.
Copper fell $105, or 1.4 percent, to $7,545 a ton.
There's speculation that copper stockpiles in Shanghai will rise as about 6,000 tons of the metal may have arrived in the city, according to RBC Capital Markets. Two shipments arrive in China every month as part of a term contract from Chile, the world's largest producer of the metal, RBC said today in a daily report.
Any new imports apart from regular shipments are likely to be for consumption, the brokerage said.
Shanxi Taigang Stainless Steel Co., China's biggest maker of the rust-assistant alloy, said demand of its products has weakened, partly contributing to a 3 percent decline in its first-half profit. Nickel is a key ingredient in stainless-steel production.
Nickel has lost 23 percent this year. Glencore International AG, the world's largest commodity-trading company, said today operating income in its minerals and metals division dropped 28 percent to $2.3 billion in the first half, because of lower nickel and zinc prices.
Nickel dropped $700, or 3.3 percent, to $20,300 a ton. Zinc declined $42, or 2.3 percent, to $1,807 a ton, taking this year's loss to 24 percent.
Among other metals traded on the LME, aluminum lost $6 to $2,759 a ton and tin fell $300 to $20,200.
-- With reporting by Helen Yuan and Li Xiaowei in Shanghai. Editors: James Ludden, Stuart Wallace.
To contact the reporter on this story: Chanyaporn Chanjaroen in London at cchanjaroen@bloomberg.net
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Aug. 28 (Bloomberg) -- Lead rose to the highest in three weeks in London on speculation demand improved in China, the world's largest consumer and producer of the metal.
Stockpiles monitored by the London Metal Exchange have fallen 18 percent since the end of June, mostly in Singapore, the nearest lead warehouse location to China. The amount of metal earmarked for withdrawal jumped 29 percent today, according to exchange data.
``It remains a speculative bullishness,'' said Neil Hawkes, a lead analyst at London-based researcher CRU. ``I'd rather wait to see the data for September and October, when the demand picture becomes clearer after summer.''
The contract for delivery in three months advanced $30, or 1.5 percent, to $2,080 a ton as of 11:21 a.m. local time. Earlier it traded at $2,125 a ton, the highest intraday price since Aug. 7.
China became a net importer in July, indicating demand for the metal in the domestic market. Refined lead imports rose 137 percent last month from a year ago, according to Aug. 22 customs data. Lead is mostly used in car batteries.
The demand outlook for the year remains weak because of lower vehicle sales in Europe and the U.S., Hawkes said. U.S. sales of cars and light trucks tumbled 13 percent in July and, according to a Deutsche Bank report, may be headed for a 15-year low.
Copper Shipments
LME-tracked copper inventories rose 2,200 tons, or 1.3 percent, to 170,050 tons, the highest since Feb. 6, according to the exchange's daily report. Including those monitored by the commodity exchanges in Shanghai and New York, stockpiles total 196,736 tons, or 3.8 days of global consumption. Last year's average was 4.9 days.
Copper fell $105, or 1.4 percent, to $7,545 a ton.
There's speculation that copper stockpiles in Shanghai will rise as about 6,000 tons of the metal may have arrived in the city, according to RBC Capital Markets. Two shipments arrive in China every month as part of a term contract from Chile, the world's largest producer of the metal, RBC said today in a daily report.
Any new imports apart from regular shipments are likely to be for consumption, the brokerage said.
Shanxi Taigang Stainless Steel Co., China's biggest maker of the rust-assistant alloy, said demand of its products has weakened, partly contributing to a 3 percent decline in its first-half profit. Nickel is a key ingredient in stainless-steel production.
Nickel has lost 23 percent this year. Glencore International AG, the world's largest commodity-trading company, said today operating income in its minerals and metals division dropped 28 percent to $2.3 billion in the first half, because of lower nickel and zinc prices.
Nickel dropped $700, or 3.3 percent, to $20,300 a ton. Zinc declined $42, or 2.3 percent, to $1,807 a ton, taking this year's loss to 24 percent.
Among other metals traded on the LME, aluminum lost $6 to $2,759 a ton and tin fell $300 to $20,200.
-- With reporting by Helen Yuan and Li Xiaowei in Shanghai. Editors: James Ludden, Stuart Wallace.
To contact the reporter on this story: Chanyaporn Chanjaroen in London at cchanjaroen@bloomberg.net
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Oil Is Little Changed as Gustav Threatens U.S. Gulf Platforms
By Mark Shenk
Aug. 28 (Bloomberg) -- Crude oil was little changed after rising for three days on forecasts that Tropical Storm Gustav will threaten production platforms in the Gulf of Mexico.
Exxon Mobil Corp. is preparing refineries along the coast as Gustav approaches. The storm may strengthen to a hurricane today and enter the Gulf on Aug. 31, according to the National Hurricane Center. The region is home to 26 percent of U.S. oil output and 14 percent of the country's gas production.
``There's been no headline to explain prices coming off recently,'' said Tom Bentz, a broker at BNP Paribas in New York. ``This is probably just a short break. If the storm remains on this track, prices will start to rise again.''
Crude oil for October delivery rose 4 cents to $118.19 a barrel at 10:32 a.m. on the New York Mercantile Exchange. Prices are up 65 percent from a year ago. Oil has dropped 20 percent from a record $147.27 a barrel reached on July 11.
Brent crude oil for October settlement rose 15 cents to $116.39 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.
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Aug. 28 (Bloomberg) -- Crude oil was little changed after rising for three days on forecasts that Tropical Storm Gustav will threaten production platforms in the Gulf of Mexico.
Exxon Mobil Corp. is preparing refineries along the coast as Gustav approaches. The storm may strengthen to a hurricane today and enter the Gulf on Aug. 31, according to the National Hurricane Center. The region is home to 26 percent of U.S. oil output and 14 percent of the country's gas production.
``There's been no headline to explain prices coming off recently,'' said Tom Bentz, a broker at BNP Paribas in New York. ``This is probably just a short break. If the storm remains on this track, prices will start to rise again.''
Crude oil for October delivery rose 4 cents to $118.19 a barrel at 10:32 a.m. on the New York Mercantile Exchange. Prices are up 65 percent from a year ago. Oil has dropped 20 percent from a record $147.27 a barrel reached on July 11.
Brent crude oil for October settlement rose 15 cents to $116.39 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.
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Russian Stocks Climb for Second Day; Rosneft Rises With Crude
By William Mauldin
Aug. 28 (Bloomberg) -- Russian stocks climbed the most in two weeks as investors bought into an equity market that has the cheapest valuations in two years.
OAO Rosneft, Russia's biggest oil producer, surged as crude oil prices rose for a fourth day. Bank Vozrozhdenie and AFI Development Plc gained after reporting earnings.
The ruble-denominated Micex Index climbed 2.6 percent to 1,337.02 at 4:05 p.m. in Moscow, its biggest gain since Aug. 11. The dollar-denominated RTS Index rose 2.4 percent to 1,626.65, a second day of gains.
``If you're brave now and buying Russia on a cheap valuation, then now is a good entry point,'' said Bernhard Maeder, portfolio manager at Credit Suisse Asset Management in Zurich. ``Some of the companies like the telecoms are quite defensive and have relatively stable earnings.''
OAO Mobile TeleSystems, Russia's biggest mobile telephone company, climbed 16.5 rubles, or 6.9 percent, to 255.90 rubles on the Micex Stock Exchange, its biggest advance in seven months. MTS said its board approved buying back 11.1 billion rubles ($452 million) of shares.
The RTS has retreated more than any other major stock market so far this quarter as Russia sent troops into Georgia, falling oil prices weighed on energy stocks and the government probed steel and coal producer OAO Mechel.
`Smart Money'
The events of July and August pushed the price-to-earnings ratio for the 50-stock RTS to 8.7, the lowest in two years, according to data compiled by Bloomberg.
``The smart money should be looking through the risk and when the dust settles buying at these attractive valuations,'' said Michael Kavanagh, head of research at UralSib Financial Corp. in Moscow. ``Certainly Russia looks oversold at the moment. One could suggest that the political risk has been priced in.''
Rosneft climbed 9.3 rubles, or 4.8 percent, to 202.21 rubles, its biggest gain since July 14. Crude for October delivery rose as much as $1.74, or 1.5 percent, to $119.89 a barrel in New York as meteorologists forecast Tropical Storm Gustav will be the most damaging since Hurricane Katrina.
AFI Development, the real estate developer of Israeli billionaire Lev Leviev, advanced 31 cents, or 6.2 percent, to $5.31 in London trading. The shares have lost 62 percent of their value since their initial public offering last year. The company said first-half profit almost doubled on increased demand for office buildings and retail space in Moscow.
Bank Vozrozhdenie
``Sentiment appears to be recovering ever so slightly, with growing number of investors thinking we may be in the midst of a bottoming process,'' Alfa Bank strategists Ron Smith and Erik DePoy wrote in a note to investors. Russian stocks will be driven by ``the rising oil prices and bargains galore.''
Bank Vozrozhdenie, a Russian mortgage lender, rose 55.45 rubles, or 6.4 percent, to 920 rubles, its first gain in four days. First-half profit more than doubled to 1.56 billion rubles ($63.5 million), the lenders said on its Web site today.
OAO AvtoVAZ, Russia's biggest carmaker, climbed 1.708 rubles, or 9.7 percent, to 19.30 rubles, the biggest gain in almost three months. AvtoVAZ and Nissan Motor. Co. may assemble cars at an airplane plant or shipyard in Russia's Far East, Vedomosti reported, citing unidentified officials from the two companies.
OAO Mosenergosbyt, the heat and power retailer supplying Moscow, climbed 0.027 ruble, or 11 percent, to 0.283 rubles, on track for its biggest gain in a week. Russia's antitrust regulator agreed to the sale of 50.9 percent of Mosenergosbyt to electricity trader OOO Transneftservice C, Interfax reported, citing an unidentified person in federal agency.
OAO Mosenergo, the utility that generates power and heat for Moscow, climbed 5.5 percent to 2.507 rubles.
To contact the reporter on this story: William Mauldin in Moscow at wmauldin1@bloomberg.net.
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Aug. 28 (Bloomberg) -- Russian stocks climbed the most in two weeks as investors bought into an equity market that has the cheapest valuations in two years.
OAO Rosneft, Russia's biggest oil producer, surged as crude oil prices rose for a fourth day. Bank Vozrozhdenie and AFI Development Plc gained after reporting earnings.
The ruble-denominated Micex Index climbed 2.6 percent to 1,337.02 at 4:05 p.m. in Moscow, its biggest gain since Aug. 11. The dollar-denominated RTS Index rose 2.4 percent to 1,626.65, a second day of gains.
``If you're brave now and buying Russia on a cheap valuation, then now is a good entry point,'' said Bernhard Maeder, portfolio manager at Credit Suisse Asset Management in Zurich. ``Some of the companies like the telecoms are quite defensive and have relatively stable earnings.''
OAO Mobile TeleSystems, Russia's biggest mobile telephone company, climbed 16.5 rubles, or 6.9 percent, to 255.90 rubles on the Micex Stock Exchange, its biggest advance in seven months. MTS said its board approved buying back 11.1 billion rubles ($452 million) of shares.
The RTS has retreated more than any other major stock market so far this quarter as Russia sent troops into Georgia, falling oil prices weighed on energy stocks and the government probed steel and coal producer OAO Mechel.
`Smart Money'
The events of July and August pushed the price-to-earnings ratio for the 50-stock RTS to 8.7, the lowest in two years, according to data compiled by Bloomberg.
``The smart money should be looking through the risk and when the dust settles buying at these attractive valuations,'' said Michael Kavanagh, head of research at UralSib Financial Corp. in Moscow. ``Certainly Russia looks oversold at the moment. One could suggest that the political risk has been priced in.''
Rosneft climbed 9.3 rubles, or 4.8 percent, to 202.21 rubles, its biggest gain since July 14. Crude for October delivery rose as much as $1.74, or 1.5 percent, to $119.89 a barrel in New York as meteorologists forecast Tropical Storm Gustav will be the most damaging since Hurricane Katrina.
AFI Development, the real estate developer of Israeli billionaire Lev Leviev, advanced 31 cents, or 6.2 percent, to $5.31 in London trading. The shares have lost 62 percent of their value since their initial public offering last year. The company said first-half profit almost doubled on increased demand for office buildings and retail space in Moscow.
Bank Vozrozhdenie
``Sentiment appears to be recovering ever so slightly, with growing number of investors thinking we may be in the midst of a bottoming process,'' Alfa Bank strategists Ron Smith and Erik DePoy wrote in a note to investors. Russian stocks will be driven by ``the rising oil prices and bargains galore.''
Bank Vozrozhdenie, a Russian mortgage lender, rose 55.45 rubles, or 6.4 percent, to 920 rubles, its first gain in four days. First-half profit more than doubled to 1.56 billion rubles ($63.5 million), the lenders said on its Web site today.
OAO AvtoVAZ, Russia's biggest carmaker, climbed 1.708 rubles, or 9.7 percent, to 19.30 rubles, the biggest gain in almost three months. AvtoVAZ and Nissan Motor. Co. may assemble cars at an airplane plant or shipyard in Russia's Far East, Vedomosti reported, citing unidentified officials from the two companies.
OAO Mosenergosbyt, the heat and power retailer supplying Moscow, climbed 0.027 ruble, or 11 percent, to 0.283 rubles, on track for its biggest gain in a week. Russia's antitrust regulator agreed to the sale of 50.9 percent of Mosenergosbyt to electricity trader OOO Transneftservice C, Interfax reported, citing an unidentified person in federal agency.
OAO Mosenergo, the utility that generates power and heat for Moscow, climbed 5.5 percent to 2.507 rubles.
To contact the reporter on this story: William Mauldin in Moscow at wmauldin1@bloomberg.net.
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U.K. Stocks Gain on U.S. Economy Report; Wolseley Shares Rise
By Alexis Xydias
Aug. 28 (Bloomberg) -- U.K. stocks advanced to the highest this month, led by companies that sell their products in the U.S. after a report showed the world's largest economy grew faster than expected last quarter.
Wolseley Plc, the world's biggest distributor of plumbing and heating equipment, and Invensys Plc, the maker of Whirlpool washing machine controls, climbed.
The benchmark FTSE 100 Index rose 66.60, or 1.2 percent, to 5,594.7 at 2:17 p.m. in London. The FTSE All-Share Index climbed 1.2 percent and Ireland's ISEQ Index gained 2.5 percent.
```The economic numbers are certainly slightly encouraging,'' said Patrick Evershed, a director at New Star Asset Management Ltd. in London. ``The stock market is welcoming what may be a bit of a breather in the economy.''
Wolseley jumped 6 percent to 442.5 pence. Invensys climbed 3.6 percent to 277.75 pence. Both companies count North America as their biggest markets.
The U.S. economy grew 3.3 percent in the second quarter, faster than previously estimated, helped by surging exports and a smaller decline in inventories, the Commerce Department said today.
Bodycote Plc jumped 8.1 percent to 227 pence. The U.K. supplier of metal-strengthening services to Ford Motor Co. said it agreed to sell its testing division for $765 million and return cash to investors.
Kazakhmys Plc fell 2.2 percent to 1,309 pence. Kazakhstan's biggest copper producer posted a 23 percent drop in first-half profit to $608.4 million, after cold weather and repairs cut output at two smelters.
Severn Trent Declines
Severn Trent Plc, the U.K.'s second-biggest water company, declined 2 percent to 1,377 pence and United Utilities Group Plc, the U.K.'s largest publicly traded water company, lost 1.5 percent to 710.5 pence.
Goldman Sachs Group Inc downgraded the shares to ``sell'' from ``neutral,'' saying both look ``overpriced'' relative to the utilities sector.
The following stocks also rose or fell in London and Dublin. Stock symbols are in parentheses:
U.K. Stocks:
Amec Plc (AMEC LN), which provides services for the world's largest energy companies including Exxon Mobil Corp., rose 32 pence, or 3.9 percent, to 855.5. The company said first-half profit rose 34 percent after it won contracts from oil and gas producers.
Irish Stocks:
Irish Life & Permanent Plc (IPM ID) jumped 53 cents, or 9 percent, to 6.45 euros. Ireland's largest mortgage lender rose for a third day after yesterday saying it has no plans to raise capital from investors.
To contact the reporter on this story: Alexis Xydias in London at axydias@bloomberg.net.
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Aug. 28 (Bloomberg) -- U.K. stocks advanced to the highest this month, led by companies that sell their products in the U.S. after a report showed the world's largest economy grew faster than expected last quarter.
Wolseley Plc, the world's biggest distributor of plumbing and heating equipment, and Invensys Plc, the maker of Whirlpool washing machine controls, climbed.
The benchmark FTSE 100 Index rose 66.60, or 1.2 percent, to 5,594.7 at 2:17 p.m. in London. The FTSE All-Share Index climbed 1.2 percent and Ireland's ISEQ Index gained 2.5 percent.
```The economic numbers are certainly slightly encouraging,'' said Patrick Evershed, a director at New Star Asset Management Ltd. in London. ``The stock market is welcoming what may be a bit of a breather in the economy.''
Wolseley jumped 6 percent to 442.5 pence. Invensys climbed 3.6 percent to 277.75 pence. Both companies count North America as their biggest markets.
The U.S. economy grew 3.3 percent in the second quarter, faster than previously estimated, helped by surging exports and a smaller decline in inventories, the Commerce Department said today.
Bodycote Plc jumped 8.1 percent to 227 pence. The U.K. supplier of metal-strengthening services to Ford Motor Co. said it agreed to sell its testing division for $765 million and return cash to investors.
Kazakhmys Plc fell 2.2 percent to 1,309 pence. Kazakhstan's biggest copper producer posted a 23 percent drop in first-half profit to $608.4 million, after cold weather and repairs cut output at two smelters.
Severn Trent Declines
Severn Trent Plc, the U.K.'s second-biggest water company, declined 2 percent to 1,377 pence and United Utilities Group Plc, the U.K.'s largest publicly traded water company, lost 1.5 percent to 710.5 pence.
Goldman Sachs Group Inc downgraded the shares to ``sell'' from ``neutral,'' saying both look ``overpriced'' relative to the utilities sector.
The following stocks also rose or fell in London and Dublin. Stock symbols are in parentheses:
U.K. Stocks:
Amec Plc (AMEC LN), which provides services for the world's largest energy companies including Exxon Mobil Corp., rose 32 pence, or 3.9 percent, to 855.5. The company said first-half profit rose 34 percent after it won contracts from oil and gas producers.
Irish Stocks:
Irish Life & Permanent Plc (IPM ID) jumped 53 cents, or 9 percent, to 6.45 euros. Ireland's largest mortgage lender rose for a third day after yesterday saying it has no plans to raise capital from investors.
To contact the reporter on this story: Alexis Xydias in London at axydias@bloomberg.net.
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European Stocks Climb on U.S. Growth; CRH, Credit Agricole Gain
By Adam Haigh
Aug. 28 (Bloomberg) -- European stocks rose for a third day after the U.S. economy expanded more than previously estimated last quarter and Credit Agricole SA said a key measure of financial strength held steady.
CRH Plc surged 2.9 percent and Siemens AG advanced 1.8 percent, leading gains by companies with at least a fifth of their sales in the U.S. Credit Agricole, France's third-biggest bank, jumped 9.5 percent. UBS AG, the European bank hardest hit by the subprime contagion, climbed 4.6 percent, and Barclays Plc of the U.K. gained 4.5 percent.
The Dow Jones Stoxx 600 Index added 1.2 percent to 286.57 at 2:37 p.m. in London, trimming this year's decline to 21 percent. More than $13 trillion has been erased from global equity markets this year as credit-related losses and accelerating inflation threatened to push the U.S. into recession.
``The probability of a recession seems cast away,'' said Jacques Porta, who helps manage $180 million at Ofivalmo Patrimoine in Paris. The U.S. figures ``are good news. It's a good surprise,'' he said.
National benchmark indexes rose in all 18 western European markets. The U.K.'s FTSE 100 gained 1.1 percent, and Germany's DAX increased 1.2 percent. France's CAC 40 climbed 1.5 percent.
In the U.K., the prospect of a recession and tighter mortgage lending discouraged home buyers, sending house prices to the biggest annual decline in almost two decades in August, Nationwide Building Society, Britain's fourth-biggest mortgage lender, said today.
CRH, Siemens
CRH, the world's second-biggest maker and distributor of building materials, rallied 2.6 percent to 17.70 euros. Siemens, Europe's largest engineering company, climbed 1.9 percent to 74.72 euros.
The U.S. economy grew 3.3 percent in the second quarter, surpassing last month's estimate of 1.9 percent, the Commerce Department said.
The data shows ``a fairly resilient economy and some recovery towards the end of the year,'' said Felix Lanters, Amsterdam-based head of portfolio management at Theodor Gilissen Bankiers, which oversees $13 billion in assets. ``Anything that points towards a normalization of the environment probably helps the most distressed parts of the market,'' the financials.
Credit Agricole
Credit Agricole advanced 9.5 percent to 14.47 euros after saying its Tier 1 capital ratio held steady. The bank raised 5.9 billion euros last month and lifted the Tier 1 capital ratio to 8.9 percent as of June 30. It remained at that level at the end of the second quarter, the company said today.
``Investors are hanging onto the news about solvency, that's the good news,'' said Amandine Gerard, a fund manager at Richelieu Finance, which oversees $6.2 billion in Paris.
UBS, the biggest Swiss bank, climbed 4.6 percent to 345 francs. Barclays Plc, the U.K.'s third-largest bank, gained 4.5 percent to 345 pence.
The Stoxx 600 Banks Index has dropped 31 percent this year as the world's largest financial firms reported $507 billion in asset writedowns and credit losses and raised more than $353 billion to replenish capital.
Analysts estimate banks' earnings will decline 24 percent in 2008, according to data compiled by Bloomberg News.
``We would naturally be buying selectively into the financials as they have been beaten up,'' said Stephen Docherty, Glasgow-based head of global equities at Aberdeen Asset Management, which has $194 billion. He has an overweight position globally on banks.
MBIA
In the U.S., MBIA Inc., the largest bond insurer, agreed to reinsure $184 billion in municipal bonds for Financial Guaranty Insurance Co., signaling its ability to win new business after losing its top AAA rating.
Fannie Mae Chief Executive Officer Daniel Mudd replaced three top deputies in an effort to restore investor confidence after record losses and a 90 percent drop in the shares.
Natixis SA, the French bank seeking 3.7 billion euros in new capital, sank 4.8 percent to 5.42 euros as the bank reported a net loss of 1.02 billion euros in the second quarter, wider the 669 million-euro median loss estimate of nine analysts surveyed by Bloomberg.
Swiss Life Holding tumbled 8.9 percent to 204 francs. Switzerland's biggest life insurer will miss its 2008 profit target as impairments and investment losses cut first-half earnings, the company said. Profit from operations, which excludes a one-time gain from asset sales, plunged 63 percent to 227 million Swiss francs ($208 million) in the first half. The insurer booked net capital losses and impairments of 1.2 billion francs.
Ahold, Essilor
Royal Ahold NV slid 4.5 percent to 8.29 euros. The Dutch owner of the U.S. Stop & Shop chain reported second-quarter operating profit dropped 14 percent to 235 million euros ($347 million), less than the 260 million-euro estimate of eight analysts in a Bloomberg survey.
Essilor International SA climbed 9.2 percent to 36.26 euros. The world's largest maker of eyeglass lenses reported net income rose 9 percent to 198.3 million euros as it sold more of its products in emerging markets such as Brazil and Argentina. That beat the 192.2 million-euro median estimate of 14 analysts in a Bloomberg News survey. Essilor had reported profit of 181.7 million euros in the year-earlier period.
BT Group Plc climbed 3.9 percent to 171.7 pence. Goldman Sachs Group Inc. raised its recommendation on the U.K.'s largest phone company to ``buy'' from ``neutral,'' saying risks to the share price are now discounted into the price.
To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net
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Aug. 28 (Bloomberg) -- European stocks rose for a third day after the U.S. economy expanded more than previously estimated last quarter and Credit Agricole SA said a key measure of financial strength held steady.
CRH Plc surged 2.9 percent and Siemens AG advanced 1.8 percent, leading gains by companies with at least a fifth of their sales in the U.S. Credit Agricole, France's third-biggest bank, jumped 9.5 percent. UBS AG, the European bank hardest hit by the subprime contagion, climbed 4.6 percent, and Barclays Plc of the U.K. gained 4.5 percent.
The Dow Jones Stoxx 600 Index added 1.2 percent to 286.57 at 2:37 p.m. in London, trimming this year's decline to 21 percent. More than $13 trillion has been erased from global equity markets this year as credit-related losses and accelerating inflation threatened to push the U.S. into recession.
``The probability of a recession seems cast away,'' said Jacques Porta, who helps manage $180 million at Ofivalmo Patrimoine in Paris. The U.S. figures ``are good news. It's a good surprise,'' he said.
National benchmark indexes rose in all 18 western European markets. The U.K.'s FTSE 100 gained 1.1 percent, and Germany's DAX increased 1.2 percent. France's CAC 40 climbed 1.5 percent.
In the U.K., the prospect of a recession and tighter mortgage lending discouraged home buyers, sending house prices to the biggest annual decline in almost two decades in August, Nationwide Building Society, Britain's fourth-biggest mortgage lender, said today.
CRH, Siemens
CRH, the world's second-biggest maker and distributor of building materials, rallied 2.6 percent to 17.70 euros. Siemens, Europe's largest engineering company, climbed 1.9 percent to 74.72 euros.
The U.S. economy grew 3.3 percent in the second quarter, surpassing last month's estimate of 1.9 percent, the Commerce Department said.
The data shows ``a fairly resilient economy and some recovery towards the end of the year,'' said Felix Lanters, Amsterdam-based head of portfolio management at Theodor Gilissen Bankiers, which oversees $13 billion in assets. ``Anything that points towards a normalization of the environment probably helps the most distressed parts of the market,'' the financials.
Credit Agricole
Credit Agricole advanced 9.5 percent to 14.47 euros after saying its Tier 1 capital ratio held steady. The bank raised 5.9 billion euros last month and lifted the Tier 1 capital ratio to 8.9 percent as of June 30. It remained at that level at the end of the second quarter, the company said today.
``Investors are hanging onto the news about solvency, that's the good news,'' said Amandine Gerard, a fund manager at Richelieu Finance, which oversees $6.2 billion in Paris.
UBS, the biggest Swiss bank, climbed 4.6 percent to 345 francs. Barclays Plc, the U.K.'s third-largest bank, gained 4.5 percent to 345 pence.
The Stoxx 600 Banks Index has dropped 31 percent this year as the world's largest financial firms reported $507 billion in asset writedowns and credit losses and raised more than $353 billion to replenish capital.
Analysts estimate banks' earnings will decline 24 percent in 2008, according to data compiled by Bloomberg News.
``We would naturally be buying selectively into the financials as they have been beaten up,'' said Stephen Docherty, Glasgow-based head of global equities at Aberdeen Asset Management, which has $194 billion. He has an overweight position globally on banks.
MBIA
In the U.S., MBIA Inc., the largest bond insurer, agreed to reinsure $184 billion in municipal bonds for Financial Guaranty Insurance Co., signaling its ability to win new business after losing its top AAA rating.
Fannie Mae Chief Executive Officer Daniel Mudd replaced three top deputies in an effort to restore investor confidence after record losses and a 90 percent drop in the shares.
Natixis SA, the French bank seeking 3.7 billion euros in new capital, sank 4.8 percent to 5.42 euros as the bank reported a net loss of 1.02 billion euros in the second quarter, wider the 669 million-euro median loss estimate of nine analysts surveyed by Bloomberg.
Swiss Life Holding tumbled 8.9 percent to 204 francs. Switzerland's biggest life insurer will miss its 2008 profit target as impairments and investment losses cut first-half earnings, the company said. Profit from operations, which excludes a one-time gain from asset sales, plunged 63 percent to 227 million Swiss francs ($208 million) in the first half. The insurer booked net capital losses and impairments of 1.2 billion francs.
Ahold, Essilor
Royal Ahold NV slid 4.5 percent to 8.29 euros. The Dutch owner of the U.S. Stop & Shop chain reported second-quarter operating profit dropped 14 percent to 235 million euros ($347 million), less than the 260 million-euro estimate of eight analysts in a Bloomberg survey.
Essilor International SA climbed 9.2 percent to 36.26 euros. The world's largest maker of eyeglass lenses reported net income rose 9 percent to 198.3 million euros as it sold more of its products in emerging markets such as Brazil and Argentina. That beat the 192.2 million-euro median estimate of 14 analysts in a Bloomberg News survey. Essilor had reported profit of 181.7 million euros in the year-earlier period.
BT Group Plc climbed 3.9 percent to 171.7 pence. Goldman Sachs Group Inc. raised its recommendation on the U.K.'s largest phone company to ``buy'' from ``neutral,'' saying risks to the share price are now discounted into the price.
To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net
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Fannie Mae Rises for Sixth Day After Mudd Shakes Up Management
By Dawn Kopecki and Jody Shenn
Aug. 28 (Bloomberg) -- Fannie Mae rose for a sixth day in New York trading, the longest streak since May 2007, after Chief Executive Officer Daniel Mudd replaced three top deputies in an effort to restore investor confidence.
Chief Financial Officer Stephen Swad hired less than two years ago to help the government-chartered company complete an accounting overhaul, will be replaced by Controller David Hisey, 48, Washington-based Fannie said yesterday. Peter Niculescu, 48, will take over from Chief Business Officer Robert Levin. The head of risk management, Enrico Dallavecchia, 46, will also leave.
Mudd is shaking up Fannie's management after $9.4 billion of losses the past four quarters and a 90 percent drop in market value eroded capital and sparked concern the company may not weather the worst housing slump since the Great Depression. The decline prompted U.S. Treasury Secretary Henry Paulson to forge a rescue package for Fannie and smaller competitor Freddie Mac.
``It's like sports, when the team is losing, everyone wants to see a new coach come in,'' said Len Blum, managing director at Westwood Capital LLC, a New York-based investment bank. ``I'm not that moved by it. The real issue is they don't have that much capital, not that they need three new managers.''
Fannie rose 48 cents, or 7.4 percent, to $6.96 at 9:38 a.m. in New York Stock Exchange composite trading. The stock is up 59 percent since Aug. 20. Freddie climbed 44 cents, or 9.2 percent, to $5.19, extending gains over the past six days to 60 percent.
Still in `Limbo'
``The market will probably receive it well that Fannie's doing something, but the focus will inevitably shift back to the capital injection,'' said Ajay Rajadhyaksha, the head of fixed- income strategy at Barclays Capital in New York. ``Investors care most about whether there's clarity on a Treasury injection or not and under what terms that would happen. Until that happens, we remain in limbo.''
Fannie and Freddie have reported $14.9 billion in net losses for the past four quarters as loan delinquencies rose. Freddie as of June 30 was about $2.7 billion away from breaching capital requirements set by its regulator because of those losses and a delayed equity sale. Fannie had a cushion of about $9.5 billion. Missing the targets would lead to tighter government controls.
``As we move through the bottom of this cycle, maintaining capital, managing credit and driving revenues are the priorities,'' Mudd, who turns 50 today, said in the statement. ``We have to organize and staff accordingly.''
Promotions
Swad, 47, was recruited from Time Warner Inc.'s AOL division as part of a management sweep following a $6.3 billion earnings restatement. His replacement Hisey, previously a managing director at BearingPoint Inc. and an audit partner at KPMG LLP, was hired as controller in 2005.
Levin, 52, had been at the company since 1981. He temporarily served as CFO after the board ousted former CEO Franklin Raines and CFO Timothy Howard in late 2004. As his replacement, Niculescu will oversee Fannie's three divisions: single-family mortgage guarantees, capital markets and housing and community development.
Niculescu ran the company's mortgage purchases through the housing boom and bust. Before joining Fannie in 1999, he was co- head of fixed-income research at Goldman Sachs Group Inc.
Dallavecchia, part of the executive team that helped steer Fannie out if its accounting troubles, will be replaced by Michael Shaw, 61.
Freddie Mac CEO
Freddie may also have to make management changes following Fannie's announcement, said Joshua Rosner, an analyst with Graham Fisher & Co. in New York.
Freddie is searching for a replacement for CEO Richard Syron, 64. Syron, who was hired in 2004, was supposed to name a successor within three years.
``It highlights the fact that Freddie still has not addressed the weakness of its management bench,'' Rosner said.
Fannie and Freddie, created to boost homeownership, own or guarantee at least 42 percent of the $12 trillion in U.S. residential-mortgage debt outstanding. They make money by buying home loans and mortgage securities, profiting on the difference between their borrowing cost and the yield on the debt. They also guarantee and package loans as securities, charging a fee.
Paulson last month was granted the authority to inject unlimited amounts of money into the companies if needed.
Fannie Mae and Freddie Mac yesterday sold $3 billion of short-term notes at yields that suggest the companies are still capable of financing their businesses without government assistance. The yields on the debt relative to benchmark rates, while higher than in sales earlier this month, remain lower than a year ago, data compiled by Bloomberg show.
``The real problem at Fannie Mae is that they didn't have enough capital going into this crisis, that's more the fault of our government than the executives,'' Blum said. ``The capital is inadequate, changing management doesn't fix the problem.''
To contact the reporters on this story: Dawn Kopecki in Washington at dkopecki@bloomberg.net; Jody Shenn in New York at jshenn@bloomberg.net.
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Aug. 28 (Bloomberg) -- Fannie Mae rose for a sixth day in New York trading, the longest streak since May 2007, after Chief Executive Officer Daniel Mudd replaced three top deputies in an effort to restore investor confidence.
Chief Financial Officer Stephen Swad hired less than two years ago to help the government-chartered company complete an accounting overhaul, will be replaced by Controller David Hisey, 48, Washington-based Fannie said yesterday. Peter Niculescu, 48, will take over from Chief Business Officer Robert Levin. The head of risk management, Enrico Dallavecchia, 46, will also leave.
Mudd is shaking up Fannie's management after $9.4 billion of losses the past four quarters and a 90 percent drop in market value eroded capital and sparked concern the company may not weather the worst housing slump since the Great Depression. The decline prompted U.S. Treasury Secretary Henry Paulson to forge a rescue package for Fannie and smaller competitor Freddie Mac.
``It's like sports, when the team is losing, everyone wants to see a new coach come in,'' said Len Blum, managing director at Westwood Capital LLC, a New York-based investment bank. ``I'm not that moved by it. The real issue is they don't have that much capital, not that they need three new managers.''
Fannie rose 48 cents, or 7.4 percent, to $6.96 at 9:38 a.m. in New York Stock Exchange composite trading. The stock is up 59 percent since Aug. 20. Freddie climbed 44 cents, or 9.2 percent, to $5.19, extending gains over the past six days to 60 percent.
Still in `Limbo'
``The market will probably receive it well that Fannie's doing something, but the focus will inevitably shift back to the capital injection,'' said Ajay Rajadhyaksha, the head of fixed- income strategy at Barclays Capital in New York. ``Investors care most about whether there's clarity on a Treasury injection or not and under what terms that would happen. Until that happens, we remain in limbo.''
Fannie and Freddie have reported $14.9 billion in net losses for the past four quarters as loan delinquencies rose. Freddie as of June 30 was about $2.7 billion away from breaching capital requirements set by its regulator because of those losses and a delayed equity sale. Fannie had a cushion of about $9.5 billion. Missing the targets would lead to tighter government controls.
``As we move through the bottom of this cycle, maintaining capital, managing credit and driving revenues are the priorities,'' Mudd, who turns 50 today, said in the statement. ``We have to organize and staff accordingly.''
Promotions
Swad, 47, was recruited from Time Warner Inc.'s AOL division as part of a management sweep following a $6.3 billion earnings restatement. His replacement Hisey, previously a managing director at BearingPoint Inc. and an audit partner at KPMG LLP, was hired as controller in 2005.
Levin, 52, had been at the company since 1981. He temporarily served as CFO after the board ousted former CEO Franklin Raines and CFO Timothy Howard in late 2004. As his replacement, Niculescu will oversee Fannie's three divisions: single-family mortgage guarantees, capital markets and housing and community development.
Niculescu ran the company's mortgage purchases through the housing boom and bust. Before joining Fannie in 1999, he was co- head of fixed-income research at Goldman Sachs Group Inc.
Dallavecchia, part of the executive team that helped steer Fannie out if its accounting troubles, will be replaced by Michael Shaw, 61.
Freddie Mac CEO
Freddie may also have to make management changes following Fannie's announcement, said Joshua Rosner, an analyst with Graham Fisher & Co. in New York.
Freddie is searching for a replacement for CEO Richard Syron, 64. Syron, who was hired in 2004, was supposed to name a successor within three years.
``It highlights the fact that Freddie still has not addressed the weakness of its management bench,'' Rosner said.
Fannie and Freddie, created to boost homeownership, own or guarantee at least 42 percent of the $12 trillion in U.S. residential-mortgage debt outstanding. They make money by buying home loans and mortgage securities, profiting on the difference between their borrowing cost and the yield on the debt. They also guarantee and package loans as securities, charging a fee.
Paulson last month was granted the authority to inject unlimited amounts of money into the companies if needed.
Fannie Mae and Freddie Mac yesterday sold $3 billion of short-term notes at yields that suggest the companies are still capable of financing their businesses without government assistance. The yields on the debt relative to benchmark rates, while higher than in sales earlier this month, remain lower than a year ago, data compiled by Bloomberg show.
``The real problem at Fannie Mae is that they didn't have enough capital going into this crisis, that's more the fault of our government than the executives,'' Blum said. ``The capital is inadequate, changing management doesn't fix the problem.''
To contact the reporters on this story: Dawn Kopecki in Washington at dkopecki@bloomberg.net; Jody Shenn in New York at jshenn@bloomberg.net.
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Fannie Mae, MBIA, Tiffany, Williams-Sonoma: U.S. Equity Movers
By Jeff Kearns
Aug. 28 (Bloomberg) -- The following companies are having unusual price changes in U.S. markets. Stock symbols are in parentheses, and prices are as of 9:40 a.m. in New York.
Brown-Forman Corp. (BF/B US) dropped the most in the Standard & Poor's 500 Index, sliding 6.1 percent to $72.34. The maker of Jack Daniel's and Southern Comfort whiskey reported a profit decline that trailed analysts' estimates after writing down the value of dead agave plants used for making tequila.
Fannie Mae (FNM US) rose for a sixth day, gaining 8.6 percent to $7.04. Daniel Mudd, chief executive officer of the biggest U.S. mortgage-finance company, replaced Fannie's finance chief and chief business officer in a management shakeup.
Freddie Mac (FRE US), the second-largest mortgage financier, jumped 10 percent to $5.23.
FuelCell Energy Inc. (FCEL US) lost 7.3 percent, the most in three weeks, to $8.14. The maker of pollution-free power plants reported a third-quarter loss of 39 cents a share. Analysts projected a loss of 27 cents, the average of nine estimates in a Bloomberg survey.
Jo-Ann Stores Inc. (JAS US) rose the most in four months, adding 11 percent to $25.07. The largest U.S. fabric retailer reported a second-quarter loss that was less than analysts estimated and raised its annual forecast.
MBIA Inc. (MBI US) climbed the most in the S&P 500, surging 20 percent to $14.38. The largest bond insurer will reinsure $184 billion in municipal bonds for Financial Guaranty Insurance Co., winning new business after losing its top AAA rating.
Ambac Financial Group Inc. (ABK US), the second-biggest bond insurer, rose 12 percent to $5.86.
Men's Wearhouse Inc. (MW US) increased 7.1 percent, the most since Aug. 8, to $21.42. The apparel retailer with more than 1,200 stores reported adjusted profit of 72 cents a share, beating the average analyst estimate by 2.1 percent.
Tiffany & Co. (TIF US) rose the most since August 2005, climbing 11 percent to $43.89. The world's second-largest luxury- jewelry retailer posted profit and sales that exceeded analysts' estimates and forecast higher annual earnings.
Williams-Sonoma Inc. (WSM US) had the steepest drop since September 2001, sliding 11 percent to $16.34. The biggest U.S. gourmet-cookware chain said second-quarter profit fell 29 percent after it reduced prices to lure shoppers. Full-year profit and sales will decline more than it thought, the retailer said.
To contact the reporter on this story: Jeff Kearns in New York at jkearns3@bloomberg.net.
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Aug. 28 (Bloomberg) -- The following companies are having unusual price changes in U.S. markets. Stock symbols are in parentheses, and prices are as of 9:40 a.m. in New York.
Brown-Forman Corp. (BF/B US) dropped the most in the Standard & Poor's 500 Index, sliding 6.1 percent to $72.34. The maker of Jack Daniel's and Southern Comfort whiskey reported a profit decline that trailed analysts' estimates after writing down the value of dead agave plants used for making tequila.
Fannie Mae (FNM US) rose for a sixth day, gaining 8.6 percent to $7.04. Daniel Mudd, chief executive officer of the biggest U.S. mortgage-finance company, replaced Fannie's finance chief and chief business officer in a management shakeup.
Freddie Mac (FRE US), the second-largest mortgage financier, jumped 10 percent to $5.23.
FuelCell Energy Inc. (FCEL US) lost 7.3 percent, the most in three weeks, to $8.14. The maker of pollution-free power plants reported a third-quarter loss of 39 cents a share. Analysts projected a loss of 27 cents, the average of nine estimates in a Bloomberg survey.
Jo-Ann Stores Inc. (JAS US) rose the most in four months, adding 11 percent to $25.07. The largest U.S. fabric retailer reported a second-quarter loss that was less than analysts estimated and raised its annual forecast.
MBIA Inc. (MBI US) climbed the most in the S&P 500, surging 20 percent to $14.38. The largest bond insurer will reinsure $184 billion in municipal bonds for Financial Guaranty Insurance Co., winning new business after losing its top AAA rating.
Ambac Financial Group Inc. (ABK US), the second-biggest bond insurer, rose 12 percent to $5.86.
Men's Wearhouse Inc. (MW US) increased 7.1 percent, the most since Aug. 8, to $21.42. The apparel retailer with more than 1,200 stores reported adjusted profit of 72 cents a share, beating the average analyst estimate by 2.1 percent.
Tiffany & Co. (TIF US) rose the most since August 2005, climbing 11 percent to $43.89. The world's second-largest luxury- jewelry retailer posted profit and sales that exceeded analysts' estimates and forecast higher annual earnings.
Williams-Sonoma Inc. (WSM US) had the steepest drop since September 2001, sliding 11 percent to $16.34. The biggest U.S. gourmet-cookware chain said second-quarter profit fell 29 percent after it reduced prices to lure shoppers. Full-year profit and sales will decline more than it thought, the retailer said.
To contact the reporter on this story: Jeff Kearns in New York at jkearns3@bloomberg.net.
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U.S. Stocks Rally as Economic Growth Tops Estimates; Banks Gain
By Lynn Thomasson
Aug. 28 (Bloomberg) -- U.S. stocks climbed for a third day, led by manufacturers and financial companies, after growth in exports helped the economy expand faster than estimated in the second quarter.
American International Group Inc., Caterpillar Inc. and AT&T Inc. climbed 2 percent each and helped lead gains in nine of ten industry groups in the Standard & Poor's 500 Index after the Commerce Department said gross domestic product grew at a 3.3 percent annual rate. Energy producers rose as Tropical Storm Gustav's threat to production facilities sent oil higher for a fourth day. Tiffany & Co., the world's second-largest luxury jewelry retailer, jumped the most in three years on profit that topped analysts' estimates.
``You're getting stronger growth, and that is conceivably good for equities,'' said Alan Gayle, the Richmond, Virginia- based senior investment strategist at Ridgeworth Capital Management, which oversees about $70 billion. ``A number like this above 3 percent suggests that the economy is not as bad as a lot of the recent commentary has suggested.''
The S&P 500 gained 8.21 points, or 0.6 percent, to 1,289.87 at 10:22 a.m. in New York. The Dow Jones Industrial Average rose 95.1, or 0.8 percent, to 11,597.61. The Nasdaq Composite Index added 11.18 to 2,393.64. Almost two stocks rose for each that fell on the New York Stock Exchange.
August Advance
The S&P 500 extended its August gain to 1.8 percent as the GDP report showed businesses are weathering rising inflation and more than $500 billion in subprime-related bank losses. The government's initial estimate of economic growth was 1.9 percent last month and economists in a Bloomberg survey on average projected 2.7 percent. The data follows an unexpected advance in durable goods orders that helped boost stocks yesterday.
Three of the biggest gains in the S&P 500 today were MBIA Inc., Fannie Mae and Freddie Mac, which have all lost at least 22 percent this year.
AIG, the largest U.S. insurer, climbed 43 cents to $20.43. Caterpillar, the biggest maker of bulldozers, increased $1.42 to $70.98. AT&T, the top U.S. phone company, added 71 cents to $31.91.
Fannie Mae, the biggest U.S. mortgage-finance company, gained 5 percent to $6.81. Chief Executive Officer Daniel Mudd replaced three top deputies in an effort to restore investor confidence after record losses and a 90 percent drop in the shares.
Financial stocks in the S&P 500 climbed 1 percent, capping their first three-day advance since the middle of July.
Bond Insurers Gain
MBIA, the largest bond insurer, jumped 21 percent for the top gain in the S&P 500 after agreeing to reinsure municipal bonds for Financial Guaranty Insurance Co. MBIA led bond insurers posting record losses after straying from the business of backing municipal bonds to guaranteeing collateralized debt obligations that have tumbled in value.
Ambac Financial Group Inc., the bond insurer that lost about three-fourths of its market value this year, gained 65 cents to $5.88.
Tiffany had the steepest gain since 2005, rising 12 percent to $44.45. The retailer posted profit that exceeded analysts' estimates on better-than-expected sales and predicted higher annual earnings than previously estimated.
Exxon Mobil Corp. and Chevron Corp. led energy shares to a third straight advance as oil climbed to nearly $119 a barrel. Royal Dutch Shell Plc, BP Plc and ConocoPhillips evacuated Gulf of Mexico rigs as Gustav approached.
Coca-Cola, Brown Forman
Coca-Cola Co. lost 1.3 percent to $53.11 for the biggest of only four declines in the 30-stock Dow average. The world's biggest sodamaker was cut to ``neutral'' from ``outperform'' at Credit Suisse Group AG, which said rival PepsiCo Inc. is a better bet because it's further along with a restructuring.
Brown-Forman Corp. fell the most in the S&P 500, losing 5.9 percent to $72.48. The maker of Jack Daniel's and Southern Comfort whiskey reported a profit decline and trailed analysts' estimates after writing down the value of dead agave plants used for making tequila.
Coca-Cola and Brown-Forman led the S&P 500 Consumer Staples Index to the only retreat among the 10 main industries in the index.
The S&P 500 is poised to complete only its third monthly advance since reaching a record in October. It is still down more than 13 percent this year.
The S&P 500's August gain has been led by so-called consumer discretionary companies, which include retailers and hotel and restaurant chains. The S&P 500 Consumer Discretionary Index rallied 5.7 percent this month through for the best gain among 10 industries as of the close of trading yesterday.
Energy Concern
The group was helped by an 18 percent retreat in oil prices from a July record. Limited Brands Inc., owner of the Victoria's Secret lingerie chain, has led the advance with a 23 percent gain after posting profit that topped analysts' estimates and predicting full-year earnings will exceed its earlier projections.
The four-day gain in crude has threatened the rally in consumer shares this week as concern grows that Gustav will cause the most damage to Gulf of Mexico energy facilities since Hurricane Katrina.
An index of technology shares in the S&P 500 has had the second-best return in August with a 3.7 percent gain through yesterday, led by a 44 percent jump in Advanced Micro Devices Inc.
Banks, brokerages and insurers have fared the worst in August, with the S&P 500 Financials Index down 5 percent in August through yesterday on concern a government bailout of Fannie Mae and Freddie Mac will wipe out shareholders. The two largest U.S. mortgage-finance companies fell more than 40 percent each in August through yesterday.
To contact the reporter on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net.
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Aug. 28 (Bloomberg) -- U.S. stocks climbed for a third day, led by manufacturers and financial companies, after growth in exports helped the economy expand faster than estimated in the second quarter.
American International Group Inc., Caterpillar Inc. and AT&T Inc. climbed 2 percent each and helped lead gains in nine of ten industry groups in the Standard & Poor's 500 Index after the Commerce Department said gross domestic product grew at a 3.3 percent annual rate. Energy producers rose as Tropical Storm Gustav's threat to production facilities sent oil higher for a fourth day. Tiffany & Co., the world's second-largest luxury jewelry retailer, jumped the most in three years on profit that topped analysts' estimates.
``You're getting stronger growth, and that is conceivably good for equities,'' said Alan Gayle, the Richmond, Virginia- based senior investment strategist at Ridgeworth Capital Management, which oversees about $70 billion. ``A number like this above 3 percent suggests that the economy is not as bad as a lot of the recent commentary has suggested.''
The S&P 500 gained 8.21 points, or 0.6 percent, to 1,289.87 at 10:22 a.m. in New York. The Dow Jones Industrial Average rose 95.1, or 0.8 percent, to 11,597.61. The Nasdaq Composite Index added 11.18 to 2,393.64. Almost two stocks rose for each that fell on the New York Stock Exchange.
August Advance
The S&P 500 extended its August gain to 1.8 percent as the GDP report showed businesses are weathering rising inflation and more than $500 billion in subprime-related bank losses. The government's initial estimate of economic growth was 1.9 percent last month and economists in a Bloomberg survey on average projected 2.7 percent. The data follows an unexpected advance in durable goods orders that helped boost stocks yesterday.
Three of the biggest gains in the S&P 500 today were MBIA Inc., Fannie Mae and Freddie Mac, which have all lost at least 22 percent this year.
AIG, the largest U.S. insurer, climbed 43 cents to $20.43. Caterpillar, the biggest maker of bulldozers, increased $1.42 to $70.98. AT&T, the top U.S. phone company, added 71 cents to $31.91.
Fannie Mae, the biggest U.S. mortgage-finance company, gained 5 percent to $6.81. Chief Executive Officer Daniel Mudd replaced three top deputies in an effort to restore investor confidence after record losses and a 90 percent drop in the shares.
Financial stocks in the S&P 500 climbed 1 percent, capping their first three-day advance since the middle of July.
Bond Insurers Gain
MBIA, the largest bond insurer, jumped 21 percent for the top gain in the S&P 500 after agreeing to reinsure municipal bonds for Financial Guaranty Insurance Co. MBIA led bond insurers posting record losses after straying from the business of backing municipal bonds to guaranteeing collateralized debt obligations that have tumbled in value.
Ambac Financial Group Inc., the bond insurer that lost about three-fourths of its market value this year, gained 65 cents to $5.88.
Tiffany had the steepest gain since 2005, rising 12 percent to $44.45. The retailer posted profit that exceeded analysts' estimates on better-than-expected sales and predicted higher annual earnings than previously estimated.
Exxon Mobil Corp. and Chevron Corp. led energy shares to a third straight advance as oil climbed to nearly $119 a barrel. Royal Dutch Shell Plc, BP Plc and ConocoPhillips evacuated Gulf of Mexico rigs as Gustav approached.
Coca-Cola, Brown Forman
Coca-Cola Co. lost 1.3 percent to $53.11 for the biggest of only four declines in the 30-stock Dow average. The world's biggest sodamaker was cut to ``neutral'' from ``outperform'' at Credit Suisse Group AG, which said rival PepsiCo Inc. is a better bet because it's further along with a restructuring.
Brown-Forman Corp. fell the most in the S&P 500, losing 5.9 percent to $72.48. The maker of Jack Daniel's and Southern Comfort whiskey reported a profit decline and trailed analysts' estimates after writing down the value of dead agave plants used for making tequila.
Coca-Cola and Brown-Forman led the S&P 500 Consumer Staples Index to the only retreat among the 10 main industries in the index.
The S&P 500 is poised to complete only its third monthly advance since reaching a record in October. It is still down more than 13 percent this year.
The S&P 500's August gain has been led by so-called consumer discretionary companies, which include retailers and hotel and restaurant chains. The S&P 500 Consumer Discretionary Index rallied 5.7 percent this month through for the best gain among 10 industries as of the close of trading yesterday.
Energy Concern
The group was helped by an 18 percent retreat in oil prices from a July record. Limited Brands Inc., owner of the Victoria's Secret lingerie chain, has led the advance with a 23 percent gain after posting profit that topped analysts' estimates and predicting full-year earnings will exceed its earlier projections.
The four-day gain in crude has threatened the rally in consumer shares this week as concern grows that Gustav will cause the most damage to Gulf of Mexico energy facilities since Hurricane Katrina.
An index of technology shares in the S&P 500 has had the second-best return in August with a 3.7 percent gain through yesterday, led by a 44 percent jump in Advanced Micro Devices Inc.
Banks, brokerages and insurers have fared the worst in August, with the S&P 500 Financials Index down 5 percent in August through yesterday on concern a government bailout of Fannie Mae and Freddie Mac will wipe out shareholders. The two largest U.S. mortgage-finance companies fell more than 40 percent each in August through yesterday.
To contact the reporter on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net.
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