Daily Forex Fundamentals | Written by Union Bank of California | Sep 05 08 14:57 GMT |
The US dollar was mixed against a basket of currencies in choppy trading. The US unemployment data showed 84,000 jobs were lost in August which was unexpectedly higher than the forecasted 75,000, and revisions added another 58,000 to job losses for the prior two months. This 6.1 % increase in unemployment rate was the highest in nearly 4 ½ years. Employment is one of the many indicators utilized by the National Bureau of Economic Research to gauge recession. With bleak hiring data, analysts are forecasting the Federal Reserve to keep interest rates on hold until 2009 to keep in line with the weakening economy.
Overnight, the euro weakened against the dollar as investors fled risky investments with financial sector as their underlying concern. However, any losses were erased after the US unemployment data was released. In a data released by the Eurozone Future Inflation Gauge which aims to predict cyclical turns in inflation within the next six to nine months, the high euro zone inflation may be tapering off. In July the inflationary figures declined to 107.2, down from 108.9 in June, suggesting the euro zone inflation may be easing.
The Sterling weakened against the dollar and a basket of other currencies. The sterling continues to tumble as house prices declined for the fifth straight month in August and reports showed an ongoing economic slowdown, adding fuel to the view that the UK is falling into recession.
The Japanese yen strengthened against the dollar as investors became risk-averse and unwound their carry trades spooked by a 3 % slump in major US stock indices yesterday. The yen rallied against most major currencies as fears over global recession heightened, due to credit-market losses.
The Canadian dollar strengthened against the US dollar as stronger than expected Canadian employment data was released. After cutting 55,200 jobs in July, the employment data showed that the Canadian economy added 15,200 jobs in August, which was nearly double what was expected. However, any gains in the loonie were being capped as oil prices declined to $107 a barrel, a key exporting commodity for Canada.
The Australian and New Zealand dollar weakened against the US dollar and the yen as prices of commodity declined. With yesterdays slump in US stock prices and higher than expected US unemployment figures today, the Aussie and the Kiwi suffered as market participants unwound their riskier trades, indicating a negative carry trade sentiment.
Union Bank of California
The Bank of Tokyo-Mitsubishi Group
http://www.uboc.com
Disclaimer: This market comment is prepared by Union Bank of California's Global FX & Derivatives Department for the general information of its customers. It is based of the most accurate information currently available, but should not considered investment advise or a guarantee of future exchange rate or trends.
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Friday, September 5, 2008
Canada: Modest Employment Rebound in August
| Daily Forex Fundamentals | Written by TD Bank Financial Group | Sep 05 08 14:40 GMT | | |
After contracting for two consecutive months and a cumulative employment loss of 60,200, the Canadian labour market started to claw its way back in August. The latest tally reaffirmed our expectation that the massive drop in July overstated the weakness in the labour market, while also reminding us that the job boom of 2006-07 is done. All net jobs created in August were full-time positions, which had been declining since May. A second bit of good news is that the private sector contribution of 40,900 jobs managed to erase nearly half of July’s loss in that sector. Unfortunately, the public sector did not share in the gains, but the 23,900 jobs lost were not enough to erase July’s 29,500 gain. Since early 2007, the public sector had been contributing a much higher share of job gains than its economic weight, so a rebalancing between private and public sector is in order. Another reflection of this is that the service sector – which had been the bulwark of the labour market since late 2007 – saw no job creation on a net basis and has been shrinking for the last four months. While job losses were widespread within services, they were concentrated in health care and public administration. The current weakness in private services employment is likely overstated, and we look for modest growth from that sector going forward. The one public sector that fared well in August was education, with a 30,000 gain which erased July’s loss. Construction, which has been on a tear since mid-2006 and leads the way so far this year, added 18,500 jobs to the tally, mostly in non-residential projects in Ontario, B.C, and Alberta. Meanwhile, the manufacturing sector managed to add a surprising 13,800 jobs, which goes to show that attention grabbing headlines are no substitute for the overall big picture. Yes, times are definitely tough in manufacturing, but the net monthly job loss since January averages a surprisingly low 1,750. On a regional basis, employment gains favoured Ontario (14,000) and Saskatchewan (6,100), but was left nearly unchanged in every other province. Québec’s unemployment rate moved up significantly to 7.7% (from 7.4%), its highest in 18 months, as a result of few jobs created (3,800) but a fair number (15,100) of labour force entrants. Nationally, however, the employment gain was enough to prevent the low national unemployment rate (6.1%) from edging higher. Wages were 3.8% higher than a year-ago, slightly ahead of July’s CPI inflation rate of 3.4%. Overall, this report should help restore some confidence that Canada’s labour market is not headed for massive job losses like that recorded in July. It also points to easing inflationary pressure on the wage front. Both are positive takeaways for the Bank of Canada. Reading through the monthly volatility which will likely record other modest job losses in upcoming months, we expect only very modest trend growth in employment around 0.5% (Y/Y) over the next 5 quarters.
The information contained in this report has been prepared for the information of our customers by TD Bank Financial Group. The information has been drawn from sources believed to be reliable, but the accuracy or completeness of the information is not guaranteed, nor in providing it does TD Bank Financial Group assume any responsibility or liability. | |
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U.S. Labour Markets Worsens in August
Daily Forex Fundamentals | Written by TD Bank Financial Group | Sep 05 08 14:41 GMT |
* U.S. nonfarm payrolls declined by 84K in August, which was slightly worse than the market expectations for a 75K drop.
* But the report was even more sour below the surface, and suggests that the deterioration in the U.S labour market has continued unabated.
* The unemployment rate surged to 6.1%, compared to the market consensus for an unchanged print of 5.7%.
The U.S. economy lost an additional 84K jobs in August, bringing the total amount of jobs lost so far this year to a whopping 605K. The decline in August was slightly worse then the 75K drop expected by the markets, and comes on the heels of two big monthly declines in June (-100K, which was previously reported as -51K) and July (-60K, previously reported as -51K). In fact, the decline in June was the first triple-digit employment loss in this cycle. The 3-month average now stands at a whopping -81K. And with a further 250K workers entering the labour force, the unemployment rate surged to 6.1% (from 5.7% in July), which is the highest level of unemployment since August 2003. On the wages front, the average hourly earnings rose for the first time since March, rising to 3.6% Y/Y from 3.4% Y/Y in July, while average weekly earnings also edged higher to 3.3% Y/Y from 3.1% Y/Y. This turns out to be the only strong aspect of the report.
The details of the report were fairly sour. The entirety of the losses were in the private sector, which lost 101K jobs in August, and losses in this component has now increased to a whopping 772K jobs since December last year. The breakdown between the service and goods sectors was equally disturbing; with the goods sector losing 51K, while 27K jobs were lost in the services sector. There were declines in employment in all sectors of the economy, with the exception of education and health (+55K) and government (+17K). On the other hand, there were sizeable losses in manufacturing (-61K), trade and transportation (-35K), and business services (-53K).
With this report, there appears to be no end in sight to the distresses in the U.S. labour market, and little to suggest that the much longed-for improvement in labour market conditions is any closer. Moreover, it also suggests that the headwinds facing U.S. consumers are gaining strength. In terms of the Fed, the report will likely give further fodder to the doves on the FOMC, though we believe that it is unlikely to change the current monetary policy stance of the Fed in any meaningful way.
TD Bank Financial Group
The information contained in this report has been prepared for the information of our customers by TD Bank Financial Group. The information has been drawn from sources believed to be reliable, but the accuracy or completeness of the information is not guaranteed, nor in providing it does TD Bank Financial Group assume any responsibility or liability.
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* U.S. nonfarm payrolls declined by 84K in August, which was slightly worse than the market expectations for a 75K drop.
* But the report was even more sour below the surface, and suggests that the deterioration in the U.S labour market has continued unabated.
* The unemployment rate surged to 6.1%, compared to the market consensus for an unchanged print of 5.7%.
The U.S. economy lost an additional 84K jobs in August, bringing the total amount of jobs lost so far this year to a whopping 605K. The decline in August was slightly worse then the 75K drop expected by the markets, and comes on the heels of two big monthly declines in June (-100K, which was previously reported as -51K) and July (-60K, previously reported as -51K). In fact, the decline in June was the first triple-digit employment loss in this cycle. The 3-month average now stands at a whopping -81K. And with a further 250K workers entering the labour force, the unemployment rate surged to 6.1% (from 5.7% in July), which is the highest level of unemployment since August 2003. On the wages front, the average hourly earnings rose for the first time since March, rising to 3.6% Y/Y from 3.4% Y/Y in July, while average weekly earnings also edged higher to 3.3% Y/Y from 3.1% Y/Y. This turns out to be the only strong aspect of the report.
The details of the report were fairly sour. The entirety of the losses were in the private sector, which lost 101K jobs in August, and losses in this component has now increased to a whopping 772K jobs since December last year. The breakdown between the service and goods sectors was equally disturbing; with the goods sector losing 51K, while 27K jobs were lost in the services sector. There were declines in employment in all sectors of the economy, with the exception of education and health (+55K) and government (+17K). On the other hand, there were sizeable losses in manufacturing (-61K), trade and transportation (-35K), and business services (-53K).
With this report, there appears to be no end in sight to the distresses in the U.S. labour market, and little to suggest that the much longed-for improvement in labour market conditions is any closer. Moreover, it also suggests that the headwinds facing U.S. consumers are gaining strength. In terms of the Fed, the report will likely give further fodder to the doves on the FOMC, though we believe that it is unlikely to change the current monetary policy stance of the Fed in any meaningful way.
TD Bank Financial Group
The information contained in this report has been prepared for the information of our customers by TD Bank Financial Group. The information has been drawn from sources believed to be reliable, but the accuracy or completeness of the information is not guaranteed, nor in providing it does TD Bank Financial Group assume any responsibility or liability.
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Mid-Day Report: US Unemployment Rate Surged to 5 Year High, Markets Volatile
| Market Overview | Written by ActionForex.com | Sep 05 08 13:15 GMT | | |
| Unemployment rate in US surged sharply from 5.7% to 6.1% in Aug, much worse than expectation of 5.7% and is the highest reading since Sep 2003. Job market showed -84k contraction versus expectation of -75k. Prior month's fall was also revised down from -51k to -60k. Initial reactions to the data are wild which saw USD/JPY and AUD/USD dive to new session low but the actions are so far limited. EUR/USD attempts a bounce but was limited but Euro's weakness in crosses. Overall outlook in the markets remains unchanged and further downside is still in favor in EUR/USD, GBP/USD, USD/JPY, AUD/USD, EUR/JPY and GBP/JPY. Some clearer actions are seen in the USD/CAD considering stronger than expected Canadian job report. The Canadian Economy added 15.2k jobs in Aug, stronger than consensus of 8.0K. Unemployment rate was unchanged at 6.1%, better than expected of 6.2%. USD/CAD's consolidation from 1.0776 is still in progress and could have another dip to test 1.0541 support before completion. Other data released earlier saw Germany industrial production dropped more than expected by -1.8% mom, -0.6% yoy in Jul. Japanese Business Capex dropped -6.5% in Q1 versus expectation of 2.5% rise. USD/CAD Mid-Day OutlookDaily Pivots: (S1) 1.0590; (P) 1.0644; (R1) 1.0749; More. USD/CAD weakens after in early US session as consolidation from 1.0776 is still in progress. More choppy sideway trading could still be seen below 1.0776 with risk of another fall for 1.0410 cluster support remains. Nevertheless, as long as 1.0410 cluster support (38.2% retracement of 0.9823 to 1.0776 at 1.0412), support holds, recent rally should still be in force and further rise is still in favor after completing consolidation. However, considering that 1.0791/98 is almost met, break of 1.0410 will indicate that whole rally from 0.9823 has completed with five waves up to 1.0776 with bearish divergence condition in 4 hours MACD and RSI. In the bigger picture, medium term rise from 0.9056 is still in progress towards mentioned cluster resistance at 1.0791/98 (61.8% retracement of 1.1874 to 0.9056 at 1.0798, 61.8% projection of 0.9056 to 1.0378 from 0.9974 at 1.0791) first. Sustained break of 1.0791/98 will argue that rise from 0.9056 is probably more than just a correction in the long term down trend and will set the stage to test key long term resistance at 1.1874. However, break of 0.9974 support will indicate that whole medium term rise from 0.9056 has already finished. The three wave structure will indicate that it's just a correction in the long term down trend and much deeper decline could then be seen to retest 0.9056 low.
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Economic Indicators Update
| GMT | Ccy | Events | Actual | Consensus | Previous | Revised |
|---|---|---|---|---|---|---|
| 23:50 | JPY | Japan Business capex Q1 | -6.50% | 2.50% | -4.90% | |
| 10:00 | EUR | Germany Industrial prod'n M/M Jul | -1.80% | -0.50% | 0.20% | 0.10% |
| 10:00 | EUR | Germany Industrial prod'n Y/Y Jul | -0.60% | 0.80% | 1.70% | 1.50% |
| 11:00 | CAD | Canada Net change in employment Aug | 15.2K | 8.0K | -55.20K | |
| 11:00 | CAD | Canada Unemployment rate Aug | 6.10% | 6.20% | 6.10% | |
| 12:30 | USD | U.S. Non-farm payrolls Aug | -84K | -75.0K | -51.0K | -60K |
| 12:30 | USD | U.S. Unemployment rate Aug | 6.10% | 5.70% | 5.70% | |
| 12:30 | USD | U.S. Avg. hourly earnings M/M Aug | 0.40% | 0.30% | 0.30% | |
| 14:00 | CAD | Canada Ivey PMI Aug | 62.5 | 65.5 |
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German Output Falls More Than Expected on Machinery
By Simone Meier
Sept. 5 (Bloomberg) -- German industrial production declined more than economists expected in July, led by a drop in demand for investment goods such as machinery.
Output fell a seasonally adjusted 1.8 percent from June, when it rose 0.1 percent, the Economy Ministry in Berlin said today. Economists expected a drop of 0.5 percent, the median of 38 forecasts in a Bloomberg News survey showed. From a year earlier, production adjusted for working days fell 0.6 percent.
The German economy, Europe's largest, is showing few signs of recovery after contracting in the second quarter. Factory orders fell in July, manufacturing shrank last month and business confidence declined to a three-year low. Still, oil prices have retreated from a record, bolstering spending power.
``The manufacturing industry is in the middle of a strong downturn,'' said Ralph Solveen, an economist at Commerzbank AG in Frankfurt. Today's figure ``increases the risk of a contraction in third-quarter gross domestic product. The second half will be very weak and 2009 won't be much better overall.''
The euro dropped as low as $1.4212 after the release from $1.4232. The single currency traded at $1.4222 at 12:12 p.m. in Frankfurt. Germany's DAX benchmark shed 1.7 percent to 6175.55.
The gain in June output was revised down from a previously reported 0.2 percent. The ministry said it expects industrial production to show a ``weak'' development over coming months on declining orders and deteriorating business conditions.
Grappling
The German economy may expand 1.5 percent this year instead of a previously projected 1.9 percent, the Organization for Economic Cooperation and Development said on Sept. 2. By comparison, the euro-region economy may grow 1.3 percent instead of 1.7 percent, the Paris-based group said.
German companies have grappled with a 20 percent jump in the euro against the dollar in the past year, which made exports less competitive just as global growth weakened. Stephen Roach, Morgan Stanley's Asian chairman, said on Sept. 2 the global economic downturn has only just begun, with the U.S. economy, the world's largest, heading into a recession.
While the euro has declined from its high, it's still up 4 percent on the year. Oil prices have also retreated, dropping 27 percent from a record of $147.27 a barrel. Still, they're up 45 percent over the past year, sapping companies' spending power.
`Challenging' Environment
Continental AG, Europe's second-largest car-parts maker, said on Aug. 27 that business conditions are ``more challenging.'' Hochtief AG, Germany's largest builder, said last month the weaker dollar eroded 11.6 million euros ($17 million) at the pretax profit level in the second quarter.
In July, output of investment goods declined 3.7 percent from the previous month and construction production fell 2 percent, today's report showed. The output of consumer goods dropped 1.7 percent, with production of durable goods falling 6.5 percent.
German factory orders unexpectedly fell in July, extending their longest ever streak of decline. The VDMA lobby said last week that plant and machine orders dropped for a third straight month in July, led by sliding demand.
In the two months through July, which smoothes out monthly volatility, industrial production fell 1.7 percent from the previous two-month period, the ministry said today.
ECB Rates
Some German companies are trying to offset falling western European and U.S. orders by expanding in eastern Europe, oil- exporting countries and emerging Asia. ThyssenKrupp AG and Salzgitter AG, Germany's largest steelmakers, last month both raised their full-year earnings forecast on increasing demand.
``Are we at the end of the order boom? I don't see that,'' Michael Welt, chief financial officer of Gildemeister AG, the German machine-tool maker founded in 1870, said on Sept. 3. The Bielefeld-based company had ``excellent'' July orders, he said.
The European Central Bank yesterday kept its key rate at 4.25 percent to fight inflation even as the economy cools.
ECB President Jean-Claude Trichet reiterated that the governing council isn't ``surprised'' by the slowdown in the second quarter after a ``brilliant'' first three months. Global growth ``is expected to remain relatively resilient, benefiting mainly from sustained growth in emerging economies,'' he said.
To contact the reporters on this story: Simone Meier in Frankfurt at smeier@bloomberg.net
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Sept. 5 (Bloomberg) -- German industrial production declined more than economists expected in July, led by a drop in demand for investment goods such as machinery.
Output fell a seasonally adjusted 1.8 percent from June, when it rose 0.1 percent, the Economy Ministry in Berlin said today. Economists expected a drop of 0.5 percent, the median of 38 forecasts in a Bloomberg News survey showed. From a year earlier, production adjusted for working days fell 0.6 percent.
The German economy, Europe's largest, is showing few signs of recovery after contracting in the second quarter. Factory orders fell in July, manufacturing shrank last month and business confidence declined to a three-year low. Still, oil prices have retreated from a record, bolstering spending power.
``The manufacturing industry is in the middle of a strong downturn,'' said Ralph Solveen, an economist at Commerzbank AG in Frankfurt. Today's figure ``increases the risk of a contraction in third-quarter gross domestic product. The second half will be very weak and 2009 won't be much better overall.''
The euro dropped as low as $1.4212 after the release from $1.4232. The single currency traded at $1.4222 at 12:12 p.m. in Frankfurt. Germany's DAX benchmark shed 1.7 percent to 6175.55.
The gain in June output was revised down from a previously reported 0.2 percent. The ministry said it expects industrial production to show a ``weak'' development over coming months on declining orders and deteriorating business conditions.
Grappling
The German economy may expand 1.5 percent this year instead of a previously projected 1.9 percent, the Organization for Economic Cooperation and Development said on Sept. 2. By comparison, the euro-region economy may grow 1.3 percent instead of 1.7 percent, the Paris-based group said.
German companies have grappled with a 20 percent jump in the euro against the dollar in the past year, which made exports less competitive just as global growth weakened. Stephen Roach, Morgan Stanley's Asian chairman, said on Sept. 2 the global economic downturn has only just begun, with the U.S. economy, the world's largest, heading into a recession.
While the euro has declined from its high, it's still up 4 percent on the year. Oil prices have also retreated, dropping 27 percent from a record of $147.27 a barrel. Still, they're up 45 percent over the past year, sapping companies' spending power.
`Challenging' Environment
Continental AG, Europe's second-largest car-parts maker, said on Aug. 27 that business conditions are ``more challenging.'' Hochtief AG, Germany's largest builder, said last month the weaker dollar eroded 11.6 million euros ($17 million) at the pretax profit level in the second quarter.
In July, output of investment goods declined 3.7 percent from the previous month and construction production fell 2 percent, today's report showed. The output of consumer goods dropped 1.7 percent, with production of durable goods falling 6.5 percent.
German factory orders unexpectedly fell in July, extending their longest ever streak of decline. The VDMA lobby said last week that plant and machine orders dropped for a third straight month in July, led by sliding demand.
In the two months through July, which smoothes out monthly volatility, industrial production fell 1.7 percent from the previous two-month period, the ministry said today.
ECB Rates
Some German companies are trying to offset falling western European and U.S. orders by expanding in eastern Europe, oil- exporting countries and emerging Asia. ThyssenKrupp AG and Salzgitter AG, Germany's largest steelmakers, last month both raised their full-year earnings forecast on increasing demand.
``Are we at the end of the order boom? I don't see that,'' Michael Welt, chief financial officer of Gildemeister AG, the German machine-tool maker founded in 1870, said on Sept. 3. The Bielefeld-based company had ``excellent'' July orders, he said.
The European Central Bank yesterday kept its key rate at 4.25 percent to fight inflation even as the economy cools.
ECB President Jean-Claude Trichet reiterated that the governing council isn't ``surprised'' by the slowdown in the second quarter after a ``brilliant'' first three months. Global growth ``is expected to remain relatively resilient, benefiting mainly from sustained growth in emerging economies,'' he said.
To contact the reporters on this story: Simone Meier in Frankfurt at smeier@bloomberg.net
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ECB Officials Signal Inflation Still Biggest Concern
By Simone Meier
Sept. 5 (Bloomberg) -- European Central Bank President Jean- Claude Trichet and Executive Board members Juergen Stark and Jose Manuel Gonzalez-Paramo signaled they're still concerned about inflation even with the euro-region economy on the brink of a recession.
The ECB will do ``whatever needed to deliver price stability,'' Trichet said at a conference in Frankfurt today. At the same event, Stark said inflation is at ``worrying levels,'' while Gonzalez-Paramo said in a speech in Spain that the inflation outlook is ``a source of major concern.''
While the euro-region economy is struggling to recover from a second-quarter contraction, the ECB yesterday kept interest rates at a seven-year high to push down inflation, which is running at 3.8 percent. ECB council member Axel Weber has said he sees no room to lower the key rate from 4.25 percent.
``This hawkishness that they're still coming out with about monetary policy, when you've had oil prices 40 percent off the highs and very weak indicators in Germany, for me and I'm sure for many others that is a bit scary,'' Jim O'Neill, chief economist at Goldman Sachs Group Inc., said in an interview in Cernobbio, Italy, today.
The Frankfurt-based ECB yesterday cut its growth forecasts for this year and next to about 1.4 percent and 1.2 percent respectively. It also raised its inflation projections to around 3.5 percent for 2008 and 2.6 percent for 2009. The ECB aims to keep inflation below 2 percent.
`Still Too High'
``Even though yesterday's inflation forecasts show a deceleration of inflation in 2009, it will still be too high and clearly above our definition of price stability,'' Ewald Nowotny, who joined the ECB's Governing Council this month, said in Vienna today. It's too soon to sound the all-clear, he said.
The ECB is concerned that faster inflation will spark so- called second-round effects as companies pass on higher costs and workers demand more pay. Gonzalez-Paramo told reporters in San Sebastian, Spain, that the bank will have ``failed'' if broad- based second-round effects materialize.
``The bank can't fight against oil prices but it can do what is possible to avoid widespread second-round effects in the economy, and we will do that with the instruments we have,'' he said. The risk of second-round effects represents ``a source of acute concern.''
`Critical Challenge'
While crude oil prices have retreated 26 percent from a July 11 record of $147.27 a barrel, they're still up 42 percent from a year ago. ECB council member Athanasios Orphanides said in Frankfurt today that the decline in inflation from its 4 percent peak ``does not suggest a rapid improvement.''
Inflation still poses a ``critical challenge,'' he said. ``We shall always remember that focusing on price stability is the best contribution to stable growth and job creation over time.''
Policy makers expressed confidence that the euro-region economy will start to emerge from its trough from the fourth quarter. Gonzalez-Paramo said the bank expects ``the current episode of weakness to be followed by a period of gradual recovery.''
Stark said while third-quarter economic growth ``will be weak,'' he expects a ``gradual recovery in the course of 2009.'' At the same time, commodity-price increases ``threaten to unhinge inflation expectations,'' he said.
Trichet said it's ``precisely during such difficult times that the benefits of a solid monetary framework oriented to price stability become apparent.''
To contact the reporter on this story: Simone Meier in Frankfurt at smeier@bloomberg.net
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U.S. Economy: Payrolls Decline, Sending Unemployment to 6.1%
By Shobhana Chandra
Sept. 5 (Bloomberg) -- The U.S. lost more jobs than forecast in August and the unemployment rate climbed to a five-year high of 6.1 percent, a sign that the economic slowdown is worsening two months before Americans elect their next president.
Payrolls fell by 84,000 in August, and revisions added another 58,000 to job losses for the prior two months, the Labor Department said today in Washington. The increase in the jobless rate sent the misery index, which adds unemployment to inflation, to 11.7 percent, the highest level since 1991.
Treasuries gained as some traders bet the Federal Reserve's next move will be to cut interest rates, rather than raise them, and stocks sank. Today's figures increase the risk that President George W. Bush will become the first president since Richard Nixon to oversee two recessions, and may hurt fellow Republican John McCain's campaign to succeed him.
``It certainly increases the probability that we really are in a recession,'' William Poole, former president of the Federal Reserve Bank of St. Louis, said in an interview with Bloomberg Television. ``It is a weak number, including the revisions.''
Yields on benchmark 10-year Treasuries reached a four-month low of 3.55 percent and were at 3.61 percent at 9:43 a.m. in New York. The Standard & Poor's 500 Stock Index fell 0.4 percent to 1,231.92.
Workforce reductions at companies from UAL Corp. to Gannett Co. are adding to the woes of Americans hurt by lower home values, scarcer credit and higher prices. Separate figures today showed that mortgage foreclosures accelerated in the second quarter to the fastest pace since at least 1979.
Election Looms
Today's report is the penultimate look at the job market before the Nov. 4 U.S. election, with McCain vying with Democratic candidate Barack Obama to take the White House. McCain yesterday addressed the Republican Party convention, pledging to ``keep taxes low'' and rein in unnecessary government spending.
``This hurts McCain,'' said Daniel Clifton, head of policy research for New York-based Strategas Research Partners. ``He's going to get a bounce in the polls after the convention, but it could be less because of this,'' he said, referring to the increase in unemployment.
Keith Hennessey, Bush's national economic council director, said in an interview with Bloomberg Television that he remained ``an optimist'' about the prospects for growth. ``We hope'' the payroll readings ``will improve going forward,'' he said.
Economists' Forecasts
Payrolls, which have now fallen for eight months, were forecast to drop 75,000 after a previously reported 51,000 decline in July, according to the median estimate of 76 economists surveyed by Bloomberg News. The jobless rate was projected to remain at 5.7 percent.
Factory payrolls dropped 61,000 after decreasing 38,000 in July, with most losses coming in the auto industry.
Today's figures indicate the labor market is deteriorating faster than U.S. central bankers expected. Among Fed governors and district bank presidents, none projected an unemployment rate above 6 percent for the average in the fourth quarter.
Traders see the Federal Open Market Committee keeping the benchmark target rate for overnight loans between banks at 2 percent through year-end, futures show. The chance of a cut in December is 13 percent, up from zero a week ago, with the probability of an increase at just 2 percent, down from 20 percent a week ago and 43 percent in July.
Mortgage Rout
Rising unemployment may make it harder for Americans to keep paying their mortgages. The share of loans with one or more payments overdue rose to a seasonally adjusted 6.41 percent of all mortgages, the Mortgage Bankers Association said in a report today. That's the highest since their data began in 1979.
The Labor Department report also showed the effects of the housing slump and the credit crisis that it triggered. Payrolls at builders fell 8,000 after decreasing 20,000. Financial firms trimmed payrolls by 3,000 for a second consecutive month.
Service industries, which include banks, insurance companies, restaurants and retailers, subtracted 27,000 workers after cutting 12,000 in July. Retail payrolls fell by 19,900 after a drop of 18,100.
``We're losing jobs in all kinds of industries now,'' Roger Kubarych, chief U.S. economist at UniCredit Global Research in New York, said in an interview with Bloomberg Radio. ``This is the clearest recessionary signal we've seen.''
Government offices hired 17,000 after an addition of 6,000 in July. That meant private payrolls fell by 101,000 in August.
Today's report brings the total decline in payrolls so far this year to 605,000. The economy created 1.1 million jobs in 2007.
Recession Monitor
Employment is among the indicators tracked by the National Bureau of Economic Research, the official arbiter of U.S. economic cycles, in calling a recession. The others are sales, incomes, production and gross domestic product.
The group defines a recession as a ``significant'' decrease in activity over a sustained period of time, and usually takes six to 18 months to make a determination.
Consumer spending, which accounts for more than two-thirds of the economy, in July posted the biggest drop in four years after inflation.
The economy ``is close to stagnating,'' Jan Hatzius, chief U.S. economist at Goldman Sachs Group Inc. in New York, said in an interview with Bloomberg Radio. In part because of continued gains in worker productivity, employers will keep cutting jobs, sending the unemployment rate to 6.75 percent next year, he said.
The average work week remained at 33.7 hours. Average weekly hours worked by production workers fell to 40.9 hours from 41 hours, while overtime decreased to 3.7 hours from 3.8 hours.
Workers' average hourly wages rose 7 cents, or 0.4 percent, to $18.14 from the prior month. Hourly earnings were 3.6 percent higher than August 2007. Economists surveyed by Bloomberg had forecast a 0.3 percent increase from July and a 3.4 percent gain for the 12-month period. Average weekly earnings increased to $611.32 from $608.96.
To contact the reporter on this story: Shobhana Chandra in Washington schandra1@bloomberg.net
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Sept. 5 (Bloomberg) -- The U.S. lost more jobs than forecast in August and the unemployment rate climbed to a five-year high of 6.1 percent, a sign that the economic slowdown is worsening two months before Americans elect their next president.
Payrolls fell by 84,000 in August, and revisions added another 58,000 to job losses for the prior two months, the Labor Department said today in Washington. The increase in the jobless rate sent the misery index, which adds unemployment to inflation, to 11.7 percent, the highest level since 1991.
Treasuries gained as some traders bet the Federal Reserve's next move will be to cut interest rates, rather than raise them, and stocks sank. Today's figures increase the risk that President George W. Bush will become the first president since Richard Nixon to oversee two recessions, and may hurt fellow Republican John McCain's campaign to succeed him.
``It certainly increases the probability that we really are in a recession,'' William Poole, former president of the Federal Reserve Bank of St. Louis, said in an interview with Bloomberg Television. ``It is a weak number, including the revisions.''
Yields on benchmark 10-year Treasuries reached a four-month low of 3.55 percent and were at 3.61 percent at 9:43 a.m. in New York. The Standard & Poor's 500 Stock Index fell 0.4 percent to 1,231.92.
Workforce reductions at companies from UAL Corp. to Gannett Co. are adding to the woes of Americans hurt by lower home values, scarcer credit and higher prices. Separate figures today showed that mortgage foreclosures accelerated in the second quarter to the fastest pace since at least 1979.
Election Looms
Today's report is the penultimate look at the job market before the Nov. 4 U.S. election, with McCain vying with Democratic candidate Barack Obama to take the White House. McCain yesterday addressed the Republican Party convention, pledging to ``keep taxes low'' and rein in unnecessary government spending.
``This hurts McCain,'' said Daniel Clifton, head of policy research for New York-based Strategas Research Partners. ``He's going to get a bounce in the polls after the convention, but it could be less because of this,'' he said, referring to the increase in unemployment.
Keith Hennessey, Bush's national economic council director, said in an interview with Bloomberg Television that he remained ``an optimist'' about the prospects for growth. ``We hope'' the payroll readings ``will improve going forward,'' he said.
Economists' Forecasts
Payrolls, which have now fallen for eight months, were forecast to drop 75,000 after a previously reported 51,000 decline in July, according to the median estimate of 76 economists surveyed by Bloomberg News. The jobless rate was projected to remain at 5.7 percent.
Factory payrolls dropped 61,000 after decreasing 38,000 in July, with most losses coming in the auto industry.
Today's figures indicate the labor market is deteriorating faster than U.S. central bankers expected. Among Fed governors and district bank presidents, none projected an unemployment rate above 6 percent for the average in the fourth quarter.
Traders see the Federal Open Market Committee keeping the benchmark target rate for overnight loans between banks at 2 percent through year-end, futures show. The chance of a cut in December is 13 percent, up from zero a week ago, with the probability of an increase at just 2 percent, down from 20 percent a week ago and 43 percent in July.
Mortgage Rout
Rising unemployment may make it harder for Americans to keep paying their mortgages. The share of loans with one or more payments overdue rose to a seasonally adjusted 6.41 percent of all mortgages, the Mortgage Bankers Association said in a report today. That's the highest since their data began in 1979.
The Labor Department report also showed the effects of the housing slump and the credit crisis that it triggered. Payrolls at builders fell 8,000 after decreasing 20,000. Financial firms trimmed payrolls by 3,000 for a second consecutive month.
Service industries, which include banks, insurance companies, restaurants and retailers, subtracted 27,000 workers after cutting 12,000 in July. Retail payrolls fell by 19,900 after a drop of 18,100.
``We're losing jobs in all kinds of industries now,'' Roger Kubarych, chief U.S. economist at UniCredit Global Research in New York, said in an interview with Bloomberg Radio. ``This is the clearest recessionary signal we've seen.''
Government offices hired 17,000 after an addition of 6,000 in July. That meant private payrolls fell by 101,000 in August.
Today's report brings the total decline in payrolls so far this year to 605,000. The economy created 1.1 million jobs in 2007.
Recession Monitor
Employment is among the indicators tracked by the National Bureau of Economic Research, the official arbiter of U.S. economic cycles, in calling a recession. The others are sales, incomes, production and gross domestic product.
The group defines a recession as a ``significant'' decrease in activity over a sustained period of time, and usually takes six to 18 months to make a determination.
Consumer spending, which accounts for more than two-thirds of the economy, in July posted the biggest drop in four years after inflation.
The economy ``is close to stagnating,'' Jan Hatzius, chief U.S. economist at Goldman Sachs Group Inc. in New York, said in an interview with Bloomberg Radio. In part because of continued gains in worker productivity, employers will keep cutting jobs, sending the unemployment rate to 6.75 percent next year, he said.
The average work week remained at 33.7 hours. Average weekly hours worked by production workers fell to 40.9 hours from 41 hours, while overtime decreased to 3.7 hours from 3.8 hours.
Workers' average hourly wages rose 7 cents, or 0.4 percent, to $18.14 from the prior month. Hourly earnings were 3.6 percent higher than August 2007. Economists surveyed by Bloomberg had forecast a 0.3 percent increase from July and a 3.4 percent gain for the 12-month period. Average weekly earnings increased to $611.32 from $608.96.
To contact the reporter on this story: Shobhana Chandra in Washington schandra1@bloomberg.net
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U.S. August Employment Situation: Statistical Summary (Table)
By Kristy Scheuble
Sept. 5 (Bloomberg) -- Following is a summary of the August employment situation from the Labor Department.
==============================================================================
Aug. July June May April March 3-month
2008 2008 2008 2008 2008 2008 Average
==============================================================================
Unemployment rate 6.1% 5.7% 5.5% 5.5% 5.0% 5.1% 5.8%
Rate (3 decimals) 6.055% 5.682% 5.505% 5.492% 4.953% 5.082% 5.747%
Avg. hourly earnings 0.4% 0.4% 0.3% 0.3% 0.1% 0.3% 0.4%
Avg. weekly hours 33.7 33.7 33.7 33.7 33.8 33.8 33.7
------------------------------------------------------------------------------
Nonfarm employment -84 -60 -100 -47 -67 -88 -81
Previous estimate n/a -51 -51 -47 -67 -88 n/a
Net Revision -58
Manufacturing -61 -38 -44 -21 -52 -46 -48
Previous estimate n/a -35 -35 -21 -52 -46 n/a
Household employment -342 -72 -155 -285 362 -24 -190
------------------------------------------------------------------------------
==============================================================================
Aug. July June May April March 3-month
2008 2008 2008 2008 2008 2008 Average
==============================================================================
------------Monthly Change in Employment------------
Nonfarm employment -84 -60 -100 -47 -67 -88 -81
Total private -101 -66 -110 -99 -91 -103 -92
Goods-producing -57 -48 -86 -51 -109 -79 -64
Construction -8 -20 -50 -38 -59 -39 -26
Manufacturing -61 -38 -44 -21 -52 -46 -48
Service providing -27 -12 -14 4 42 -9 -18
Trade, transport -35 -39 -20 -45 -56 -27 -31
Retail trade -20 -18 -8 -24 -46 -27 -15
Information -3 -9 -5 -5 -6 -3 -6
Financial -3 -3 -13 -3 -2 0 -6
Business services -53 -17 -55 -49 17 -59 -42
Temporary help -37 -24 -36 -36 -19 -31 -32
Education, health 55 51 71 63 48 44 59
Leisure, hospitality -4 -5 0 -11 14 16 -3
Government 17 6 10 52 24 15 11
------------------------------------------------------------------------------
==============================================================================
Aug. July June May April March 3-month
2008 2008 2008 2008 2008 2008 Average
==============================================================================
----------------------Earnings-----------------------
Avg. hourly earnings $18.14 $18.07 $18.00 $17.95 $17.89 $17.87 $18.07
MOM% change 0.4% 0.4% 0.3% 0.3% 0.1% 0.3% 0.4%
YOY% change 3.6% 3.4% 3.4% 3.5% 3.5% 3.7% 3.5%
Avg. weekly earnings $611.32 $608.96 $606.60 $604.92 $604.68 $604.01 $608.96
MOM% change 0.4% 0.4% 0.3% 0.0% 0.1% 0.6% 0.4%
YOY% change 3.3% 3.1% 2.8% 3.2% 3.5% 3.3% 3.1%
--------------------Hours of Work--------------------
Total private 33.7 33.7 33.7 33.7 33.8 33.8 33.7
MOM% change 0.0% 0.0% 0.0% -0.3% 0.0% 0.3% 0.0%
Manufacturing 40.9 41.0 41.0 41.0 41.0 41.2 41.0
MOM% change -0.2% 0.0% 0.0% 0.0% -0.5% 0.2% -0.1%
Overtime 3.7 3.8 3.8 3.9 4.0 4.0 3.8
--------------------Aggregate Hours--------------------
Aggregate hours index 106.8 106.9 107.0 107.1 107.5 107.6 106.9
3-month annualized -1.8% -1.7% -0.9% -0.4% -0.6% -1.1% n/a
MOM% change -0.1% -0.1% -0.1% -0.4% -0.1% 0.3% -0.1%
==============================================================================
Aug. July June May April March 3-month
2008 2008 2008 2008 2008 2008 Average
==============================================================================
-----------Labor Force Status (thousands)-------------
Pool available labor 14,172 13,781 13,387 13,253 12,381 12,545 13,780
Level change 391 394 134 872 -164 392 306
Augmented Unemp. Rate 8.9% 8.6% 8.4% 8.3% 7.8% 7.9% 8.6%
Civilian labor force 154,853 154,603 154,390 154,534 153,957 153,784 154,615
Level change 250 213 -144 577 173 410 106
Participation rate 66.1% 66.1% 66.1% 66.2% 66.0% 66.0% 66.1%
Employment 145,477 145,819 145,891 146,046 146,331 145,969 145,729
Level change -342 -72 -155 -285 362 -24 -190
Employment ratio 62.1% 62.4% 62.4% 62.6% 62.7% 62.6% 62.3%
Unemployment 9,376 8,784 8,499 8,487 7,626 7,815 8,886
Level change 592 285 12 861 -189 434 296
Avg. duration (wks) 17.4 17.1 17.5 16.6 16.9 16.2 17.3
Median duration 9.2 9.7 10.0 8.3 9.3 8.1 9.6
Not in labor force 79,253 79,261 79,237 78,871 79,241 79,211 79,250
Level change -8 24 366 -370 30 -225 127
Job leavers 10.7% 9.8% 9.9% 10.3% 11.2% 10.1% 10.1%
==============================================================================
Aug. July June May April March 3-month
2008 2008 2008 2008 2008 2008 Average
==============================================================================
--------------------Diffusion Index--------------------
Private nonfarm 48.9 41.4 42.3 46.4 45.6 47.4 44.2
3-mo. average 44.2 43.4 44.8 46.5 44.8 44.7 n/a
Manufacturing 38.7 28.6 30.4 44.6 35.1 38.1 32.6
3-mo. average 32.6 34.5 36.7 39.3 33.9 35.7 n/a
==============================================================================
NOTE: All figures seasonally adjusted. Employment figures in thousands.
The augmented unemployment rate is the number of job wanters plus the number
unemployed divided by the labor force plus the number of job wanters.
To contact the reporter on this story: Kristy Scheuble in Washington at kmckeaney@bloomberg.net
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U.S. Mortgage Foreclosures, Delinquencies Rise to 29-Year Highs
By Kathleen M. Howley
Sept. 5 (Bloomberg) -- Foreclosures accelerated in the second quarter to the fastest pace in almost three decades as interest rates increased and home values fell, prompting more Americans to walk away from homes they couldn't refinance or sell.
New foreclosures increased to 1.19 percent, rising above 1 percent for the first time in the survey's 29 years, the Mortgage Bankers Association said in a report today. The total inventory of homes in foreclosure reached 2.75 percent, almost tripling since the five-year housing boom ended in 2005. The share of loans with one or more payments overdue rose to a seasonally adjusted 6.41 percent of all mortgages, an all-time high, from 6.35 percent in the first quarter.
Tumbling home prices are depriving owners with adjustable- rate loans of the ability to sell or get a new loan as financing costs rise, said Jay Brinkmann, MBA's chief economist. Subprime ARMs accounted for 36 percent of new foreclosures and prime ARMs, held by the most creditworthy borrowers, were 23 percent, he said.
``People chose the lowest payment option to get into some of the very expensive housing markets and now that prices are coming way down, they can't sell and they can't afford the higher payments,'' Brinkmann said in an interview.
The three-year-old housing slump has slowed growth of the world's largest economy, caused more than half a trillion dollars of losses at banks such as Citigroup Inc. and UBS AG, and crimped earnings for companies such as Home Depot Inc. and Lowe's Cos. that rely on home purchases to fuel demand.
Economic Growth
The drop in home sales and prices, along with tighter credit conditions and higher energy costs, probably will ``weigh on economic growth over the next few quarters,'' Federal Reserve policy makers said Aug. 5 when they decided to hold their benchmark rate at 2 percent. The central bankers cut the rate seven times in the last year in an attempt to avert a U.S. recession.
The Fed probably will keep the rate level for the next few months, according to the price of Fed funds futures. There's an 81 percent chance of no change at the Sept. 16 meeting and a 75 percent chance of no action at the Oct. 29 meeting, they indicate.
New foreclosures on subprime loans rose to 4.7 percent from 4.06 percent in the first quarter, according to the report. The total foreclosure inventory increased to 11.81 percent from 10.74 percent and the so-called seriously delinquent share of loans that are 90 days or more overdue rose to 17.85 from 16.42 percent.
Foreclosures started on prime mortgages rose to 0.67 percent from 0.54 percent and the foreclosure inventory increased to 1.42 percent from 1.22 percent, the report said. The share of seriously delinquent prime mortgages was 2.35 percent, up from 1.99 percent.
Existing home sales fell to a 10-year low in the second quarter and the median price for a single-family house dropped 7.6 percent, according to the National Association of Realtors in Chicago.
About 75 percent of U.S. banks surveyed indicated they tightened standards on prime mortgages, up from 60 percent in the previous survey, the Federal Reserve said on Aug. 11.
The Mortgage Bankers report is based on a survey of 45.4 million loans by mortgage companies, commercial banks, thrifts, credit unions and other financial institutions.
To contact the reporter on this story: Kathleen M. Howley in Boston at kmhowley@bloomberg.net.
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Noble Returns 85% of Workers to Gulf of Mexico Drilling Rigs
By Aaron Clark
Sept. 5 (Bloomberg) -- Noble Corp., the third-largest U.S. offshore oil driller, said it returned about 85 percent of its workers to drilling rigs in the Gulf of Mexico after evacuations before Hurricane Gustav.
``Hopefully, we will be at 100 percent by the end of the day,'' John Breed, a Noble spokesman, said today in a telephone interview. The company's drilling rigs can typically resume operations ``within a few days,'' he said.
To contact the reporter on this story: Aaron Clark in New York at aclark27@bloomberg.net
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Sept. 5 (Bloomberg) -- Noble Corp., the third-largest U.S. offshore oil driller, said it returned about 85 percent of its workers to drilling rigs in the Gulf of Mexico after evacuations before Hurricane Gustav.
``Hopefully, we will be at 100 percent by the end of the day,'' John Breed, a Noble spokesman, said today in a telephone interview. The company's drilling rigs can typically resume operations ``within a few days,'' he said.
To contact the reporter on this story: Aaron Clark in New York at aclark27@bloomberg.net
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Natural Gas in New York Declines, Erasing Earlier Advance
By Reg Curren
Sept. 5 (Bloomberg) -- Natural gas in New York fell, erasing an earlier gain of as much as 2.4 percent.
Natural gas for October delivery declined 1.7 cents to $7.305 per million British thermal units at 10:12 a.m. on the New York Mercantile Exchange after rising as high as $7.499.
To contact the reporter on this story: Reg Curren in Calgary at rcurren@bloomberg.net.
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Sept. 5 (Bloomberg) -- Natural gas in New York fell, erasing an earlier gain of as much as 2.4 percent.
Natural gas for October delivery declined 1.7 cents to $7.305 per million British thermal units at 10:12 a.m. on the New York Mercantile Exchange after rising as high as $7.499.
To contact the reporter on this story: Reg Curren in Calgary at rcurren@bloomberg.net.
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Tropical Storm Hanna Heads for U.S.; Ike Brews at Sea
By Alex Morales and Ryan Flinn
Sept. 5 (Bloomberg) -- Tropical Storm Hanna plowed over the Bahamas toward South Carolina after devastating Haiti, while out at sea ``dangerous'' Hurricane Ike was less than five days from possible landfall in southern Florida, U.S. forecasters said.
Hanna, with winds of 65 miles (100 kilometers) per hour, was centered 115 miles east of Melbourne, Florida, the U.S. National Hurricane Center said on its Web site at 8 a.m. Miami time. The system was heading northwest at 18 mph and forecast to accelerate and turn north before hitting northeastern South Carolina early tomorrow. Hanna may move through eastern North Carolina and Virginia, then hug the Northeast coast and move into New England.
Ike weakened overnight to a Category 3 hurricane, the middle of the five-step Saffir-Simpson scale, with sustained winds of 125 mph, down from 135 mph. The system was 460 miles north of the Caribbean's Leeward Islands and heading west at 15 mph. On that track, the center predicted Ike may cut through the Bahamas from Sept. 7 to 8 before slamming into southeastern Florida Sept. 9.
``The U.S. is getting pounded this season,'' said Jeff Masters, meteorology director of Weather Underground in Ann Arbor, Michigan. ``The Carolinas will see winds near hurricane strength from Hanna. And Ike looks troubling, especially for Florida.''
Hanna devastated Haiti, which was recovering from strikes by Hurricane Gustav and Tropical Storm Fay in the past month. The latest storm killed at least 136 people in the north of the island, Radio Metropole Haiti reported on its Web site.
U.S. Prepares
Gonaives, Haiti's third-largest city with a population of 300,000, is still mostly under water, Agence France-Presse reported. Almost 10,000 people have been evacuated to shelters, AFP said, citing the head of Haiti's civil protection office.
The situation in Gonaives is ``catastrophic,'' AFP cited Senator Yuri Latortue, who represents the city, as saying.
A tropical-storm warning was in effect for the northern Bahamas. In the U.S., a warning was in place from Altamaha Sound, Georgia, to Chincoteague, Virginia. A warning means tropical- storm conditions, with winds of at least 39 mph, are expected within a day.
A tropical-storm watch was in effect from north of Chincoteague to Sandy Hook, New Jersey, including Chesapeake Bay north of Smith Point, the tidal part of the Potomac River, Delaware Bay and Washington. A watch means tropical-storm conditions are possible within 36 hours.
Hanna's relatively large size and high forward speed mean residents in the U.S. warning area will begin to experience the storm's rain and winds well before the eye arrives, according to the center in Miami. Tropical storm-force winds extend 315 miles from the eye.
FEMA Advice
Residents in Florida, Georgia, South Carolina and North Carolina should develop emergency plans and prepare kits including medicine, food, water and batteries to support themselves for 72 hours, the Federal Emergency Management Agency said in a statement on its Web site yesterday.
Virginia declared a state of emergency yesterday, as did North Carolina Governor Mike Easley. Easley put 12 water-rescue crews, 270 members of the National Guard and 144 Highway Patrol troopers on standby to help.
``Everyone who lives in the coastal counties needs to be ready,'' Easley said on his Web site.
South Carolina Governor Mark Sanford urged residents in two coastal counties to consider moving to higher ground. Horry and Georgetown counties yesterday issued voluntary evacuation orders for residents of low-lying areas, according to their Web sites. Schools and county offices are closed today in both counties.
Charleston County closed its schools and said an emergency situation is in effect. Beaufort County also closed schools, while in Berkeley and Colleton counties, schools will close early today, according to local authority Web sites.
North Carolina
In North Carolina, Brunswick County declared a state of emergency, and closed schools. The counties of New Hanover, Pender, Onslow, and Bladen also closed schools today, according to county Web sites. In Columbus and Jones counties, schools were closing today from midday.
Hurricane Ike yesterday had strengthened into a Category 4 hurricane, prompting concern among U.S. forecasters and emergency officials.
``It's very unusual for a storm to explode the way Ike did,'' Jim Rouiller, meteorologist with Planalytics Inc. in Wayne, Pennsylvania, said yesterday. ``In a 24-hour period we went from a tropical storm to a Category Four hurricane.''
FEMA Administrator David Paulison compared Ike with Hurricane Andrew because like that storm, which devastated South Florida in 1992, it's compact and powerful.
``It could be very dangerous,'' he told reporters on a conference call yesterday. ``We're going to be watching it very closely.''
Tropical Storm Josephine
To the east of Ike, Tropical Storm Josephine strengthened slightly, with sustained winds at 50 mph, up from 45 mph yesterday. It was about 665 miles west of the southern Cape Verde Islands and moving northwest at 9 mph.
FEMA and American Red Cross officials said they will be able to respond effectively to Hanna, Ike and Josephine.
``We have enough supplies to meet these three storms,'' Eric Smith, a FEMA assistant administrator, said yesterday.
Progress Energy Inc., a Wilmington-based utility, said yesterday it would send power line and tree crews to coastal areas in North Carolina tomorrow.
To contact the reporter on this story: Alex Morales in London at amorales2@bloomberg.net; Ryan Flinn in San Francisco at rflinn@bloomberg.net
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Sept. 5 (Bloomberg) -- Tropical Storm Hanna plowed over the Bahamas toward South Carolina after devastating Haiti, while out at sea ``dangerous'' Hurricane Ike was less than five days from possible landfall in southern Florida, U.S. forecasters said.
Hanna, with winds of 65 miles (100 kilometers) per hour, was centered 115 miles east of Melbourne, Florida, the U.S. National Hurricane Center said on its Web site at 8 a.m. Miami time. The system was heading northwest at 18 mph and forecast to accelerate and turn north before hitting northeastern South Carolina early tomorrow. Hanna may move through eastern North Carolina and Virginia, then hug the Northeast coast and move into New England.
Ike weakened overnight to a Category 3 hurricane, the middle of the five-step Saffir-Simpson scale, with sustained winds of 125 mph, down from 135 mph. The system was 460 miles north of the Caribbean's Leeward Islands and heading west at 15 mph. On that track, the center predicted Ike may cut through the Bahamas from Sept. 7 to 8 before slamming into southeastern Florida Sept. 9.
``The U.S. is getting pounded this season,'' said Jeff Masters, meteorology director of Weather Underground in Ann Arbor, Michigan. ``The Carolinas will see winds near hurricane strength from Hanna. And Ike looks troubling, especially for Florida.''
Hanna devastated Haiti, which was recovering from strikes by Hurricane Gustav and Tropical Storm Fay in the past month. The latest storm killed at least 136 people in the north of the island, Radio Metropole Haiti reported on its Web site.
U.S. Prepares
Gonaives, Haiti's third-largest city with a population of 300,000, is still mostly under water, Agence France-Presse reported. Almost 10,000 people have been evacuated to shelters, AFP said, citing the head of Haiti's civil protection office.
The situation in Gonaives is ``catastrophic,'' AFP cited Senator Yuri Latortue, who represents the city, as saying.
A tropical-storm warning was in effect for the northern Bahamas. In the U.S., a warning was in place from Altamaha Sound, Georgia, to Chincoteague, Virginia. A warning means tropical- storm conditions, with winds of at least 39 mph, are expected within a day.
A tropical-storm watch was in effect from north of Chincoteague to Sandy Hook, New Jersey, including Chesapeake Bay north of Smith Point, the tidal part of the Potomac River, Delaware Bay and Washington. A watch means tropical-storm conditions are possible within 36 hours.
Hanna's relatively large size and high forward speed mean residents in the U.S. warning area will begin to experience the storm's rain and winds well before the eye arrives, according to the center in Miami. Tropical storm-force winds extend 315 miles from the eye.
FEMA Advice
Residents in Florida, Georgia, South Carolina and North Carolina should develop emergency plans and prepare kits including medicine, food, water and batteries to support themselves for 72 hours, the Federal Emergency Management Agency said in a statement on its Web site yesterday.
Virginia declared a state of emergency yesterday, as did North Carolina Governor Mike Easley. Easley put 12 water-rescue crews, 270 members of the National Guard and 144 Highway Patrol troopers on standby to help.
``Everyone who lives in the coastal counties needs to be ready,'' Easley said on his Web site.
South Carolina Governor Mark Sanford urged residents in two coastal counties to consider moving to higher ground. Horry and Georgetown counties yesterday issued voluntary evacuation orders for residents of low-lying areas, according to their Web sites. Schools and county offices are closed today in both counties.
Charleston County closed its schools and said an emergency situation is in effect. Beaufort County also closed schools, while in Berkeley and Colleton counties, schools will close early today, according to local authority Web sites.
North Carolina
In North Carolina, Brunswick County declared a state of emergency, and closed schools. The counties of New Hanover, Pender, Onslow, and Bladen also closed schools today, according to county Web sites. In Columbus and Jones counties, schools were closing today from midday.
Hurricane Ike yesterday had strengthened into a Category 4 hurricane, prompting concern among U.S. forecasters and emergency officials.
``It's very unusual for a storm to explode the way Ike did,'' Jim Rouiller, meteorologist with Planalytics Inc. in Wayne, Pennsylvania, said yesterday. ``In a 24-hour period we went from a tropical storm to a Category Four hurricane.''
FEMA Administrator David Paulison compared Ike with Hurricane Andrew because like that storm, which devastated South Florida in 1992, it's compact and powerful.
``It could be very dangerous,'' he told reporters on a conference call yesterday. ``We're going to be watching it very closely.''
Tropical Storm Josephine
To the east of Ike, Tropical Storm Josephine strengthened slightly, with sustained winds at 50 mph, up from 45 mph yesterday. It was about 665 miles west of the southern Cape Verde Islands and moving northwest at 9 mph.
FEMA and American Red Cross officials said they will be able to respond effectively to Hanna, Ike and Josephine.
``We have enough supplies to meet these three storms,'' Eric Smith, a FEMA assistant administrator, said yesterday.
Progress Energy Inc., a Wilmington-based utility, said yesterday it would send power line and tree crews to coastal areas in North Carolina tomorrow.
To contact the reporter on this story: Alex Morales in London at amorales2@bloomberg.net; Ryan Flinn in San Francisco at rflinn@bloomberg.net
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GDF Suez Is in Talks to Buy Dutch Offshore Assets
By Tara Patel
Sept. 5 (Bloomberg) -- GDF Suez SA, operator of Europe's largest natural gas network, is in exclusive talks to buy 1.08 billion euros ($1.5 billion) of offshore and pipeline assets from Nederlandse Aardolie Maatschappij BV, to become the largest operator in the Dutch part of the North Sea.
The assets cover exploration, production and transportation of oil and natural gas, including working interests of 30 to 60 percent in five producing wells, participation in the Dutch section of a pipeline and ``very promising exploration potential,'' Paris-based GDF Suez said today in a statement.
The wells currently produce about 3.3 million barrels of oil equivalent a year, the company said. Nederlandse Aardolie Maatschappij, also known as NAM, is a joint venture of Royal Dutch Shell Plc and Exxon Mobil Corp. and is the operator of the Slochteren gas field, source of about half of Dutch production.
The acquisition, which still requires due diligence and regulatory approval, is part of GDF Suez's push to double gas reserves to 1.5 billion barrels of oil equivalent from 2006 levels, mainly through external growth.
Total SA agreed two days ago to buy Talisman Energy Inc.'s assets in the Dutch sector of the North Sea for $480 million. The purchase includes three field stakes with 2007 production equivalent to about 23 million cubic feet of natural gas a day.
`A Bit Expensive'
Compared with the Total agreement, the GDF Suez price ``looks a bit expensive,'' Meriem Kettani Salam, an analyst at Dresdner Kleinwort, said by telephone from London. ``This could relate to what is not discovered yet.''
The transaction would increase the company's medium-term resources in the Netherlands by 30 percent and make it an operator of two of the three major offshore pipelines in that country, according to Jean-Marie Dauger, executive vice president of GDF Suez in charge of global gas LNG.
``With this acquisition, GDF Suez reinforces its strong position in the Netherlands and becomes the largest exploration and production operator in the Dutch sector of the North Sea,'' he said in the statement.
The purchase would give GDF Suez a participatory interest in the Dutch section of the A6-F3 pipeline, which transports gas from the German part of the North Sea to the Nogat pipeline system and a 30 percent interest in Nogat BV, a company that owns and operations the gas transportation system.
GDF Suez was created last month through a merger of state- controlled Gaz de France SA and Suez SA.
To contact the reporters on this story: Tara Patel in Paris at Tpatel2@bloomberg.net
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Sept. 5 (Bloomberg) -- GDF Suez SA, operator of Europe's largest natural gas network, is in exclusive talks to buy 1.08 billion euros ($1.5 billion) of offshore and pipeline assets from Nederlandse Aardolie Maatschappij BV, to become the largest operator in the Dutch part of the North Sea.
The assets cover exploration, production and transportation of oil and natural gas, including working interests of 30 to 60 percent in five producing wells, participation in the Dutch section of a pipeline and ``very promising exploration potential,'' Paris-based GDF Suez said today in a statement.
The wells currently produce about 3.3 million barrels of oil equivalent a year, the company said. Nederlandse Aardolie Maatschappij, also known as NAM, is a joint venture of Royal Dutch Shell Plc and Exxon Mobil Corp. and is the operator of the Slochteren gas field, source of about half of Dutch production.
The acquisition, which still requires due diligence and regulatory approval, is part of GDF Suez's push to double gas reserves to 1.5 billion barrels of oil equivalent from 2006 levels, mainly through external growth.
Total SA agreed two days ago to buy Talisman Energy Inc.'s assets in the Dutch sector of the North Sea for $480 million. The purchase includes three field stakes with 2007 production equivalent to about 23 million cubic feet of natural gas a day.
`A Bit Expensive'
Compared with the Total agreement, the GDF Suez price ``looks a bit expensive,'' Meriem Kettani Salam, an analyst at Dresdner Kleinwort, said by telephone from London. ``This could relate to what is not discovered yet.''
The transaction would increase the company's medium-term resources in the Netherlands by 30 percent and make it an operator of two of the three major offshore pipelines in that country, according to Jean-Marie Dauger, executive vice president of GDF Suez in charge of global gas LNG.
``With this acquisition, GDF Suez reinforces its strong position in the Netherlands and becomes the largest exploration and production operator in the Dutch sector of the North Sea,'' he said in the statement.
The purchase would give GDF Suez a participatory interest in the Dutch section of the A6-F3 pipeline, which transports gas from the German part of the North Sea to the Nogat pipeline system and a 30 percent interest in Nogat BV, a company that owns and operations the gas transportation system.
GDF Suez was created last month through a merger of state- controlled Gaz de France SA and Suez SA.
To contact the reporters on this story: Tara Patel in Paris at Tpatel2@bloomberg.net
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Brazil May Have 70 Billion Barrels of Oil Near Tupi, Bueno Says
By Jeb Blount and Juan Pablo Spinetto
Sept. 5 (Bloomberg) -- Brazil has between 30 billion and 70 billion barrels of oil in its so-called ``pre-salt'' fields near the Tupi discovery off the coast of Rio de Janeiro state, Julio Bueno, the state's economic affairs secretary, said.
The estimate is for fields already discovered by Petroleo Brasileiro SA, Brazil's state-controlled oil company, BG Plc and other companies in the Santos Basin, Bueno said in an interview with Bloomberg Television in London.
``We think that in the areas that Petrobras and other companies have already discovered we have 30 billion to 70 billion,'' Bueno, a former Petrobras executive, said. ``It's not an easy task to say how much you have, but it's a good amount to think about.''
To contact the reporters on this story: Jeb Blount in Rio de Janeiro at jblount@bloomberg.netJuan Pablo Spinetto in London at jspinetto@bloomberg.net
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Sept. 5 (Bloomberg) -- Brazil has between 30 billion and 70 billion barrels of oil in its so-called ``pre-salt'' fields near the Tupi discovery off the coast of Rio de Janeiro state, Julio Bueno, the state's economic affairs secretary, said.
The estimate is for fields already discovered by Petroleo Brasileiro SA, Brazil's state-controlled oil company, BG Plc and other companies in the Santos Basin, Bueno said in an interview with Bloomberg Television in London.
``We think that in the areas that Petrobras and other companies have already discovered we have 30 billion to 70 billion,'' Bueno, a former Petrobras executive, said. ``It's not an easy task to say how much you have, but it's a good amount to think about.''
To contact the reporters on this story: Jeb Blount in Rio de Janeiro at jblount@bloomberg.netJuan Pablo Spinetto in London at jspinetto@bloomberg.net
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Kashagan Costs Rise 33 Percent on Metals, Labor, Mynbayev Says
By Anthony DiPaola
Sept. 5 (Bloomberg) -- The Eni SpA-led group developing Kazakhstan's Kashagan oil field has seen costs surge by a third in the past year as raw material and labor prices in the industry gained, Energy Minister Sauat Mynbayev said.
The budget for Kashagan's experimental phase has risen to $36 billion from the Kazakh government's estimate a year ago that starting production at the world's largest discovery in three decades would cost $27 billion, Mynbayev said in a telephone interview.
At that time, the government forecast the overall cost of starting and running the field through the 2040s would be $136 billion. The experimental period covers exploration and development at the field through the start of production, which Mynbayev said is on target to meet an October 2013 deadline.
``We've agreed to cost increases when they're based on market conditions,'' Mynbayev said today. ``We didn't agree when it was based on mistakes or reconfigurations. We can change the budget in the future if market conditions change''
Eni and partners, including Exxon Mobil Corp., Royal Dutch Shell Plc and Total SA, have pushed back the start date of the field four times due to cost overruns and delays. The 2013 target date is eight years behind the original schedule.
Paolo Scaroni, Eni's chief executive officer, and Christophe de Margerie, his counterpart at Total, both said in July they hoped to have first oil flowing before Oct. 2013. Eni declined to comment on the budget or timeline for the field.
Sulfur Gas
Technical issues like the presence of dangerous sulfur gases caused some delays as Eni had to reconfigure the field's layout to house workers on artificial islands in the Caspian Sea away from the wells.
Eni's initial budget projected capital expenditure at $10 billion for the experimental phase. It raised that to $19 billion in February 2007, in part because of the need to redesign the field.
Kazakhstan's national oil company is a partner in the project and will pay its share of the group's costs, Mynbayev said. Other partners are ConocoPhillips and Japan's Inpex Holdings Inc.
Eni is currently sole operator of the Kashagan development. The Rome-based company will jointly run the field with some of the partners after production starts, according to a revised production accord agreed to in January.
To contact the reporter on this story: Anthony DiPaola in Rome at adipaola@bloomberg.net.
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Sept. 5 (Bloomberg) -- The Eni SpA-led group developing Kazakhstan's Kashagan oil field has seen costs surge by a third in the past year as raw material and labor prices in the industry gained, Energy Minister Sauat Mynbayev said.
The budget for Kashagan's experimental phase has risen to $36 billion from the Kazakh government's estimate a year ago that starting production at the world's largest discovery in three decades would cost $27 billion, Mynbayev said in a telephone interview.
At that time, the government forecast the overall cost of starting and running the field through the 2040s would be $136 billion. The experimental period covers exploration and development at the field through the start of production, which Mynbayev said is on target to meet an October 2013 deadline.
``We've agreed to cost increases when they're based on market conditions,'' Mynbayev said today. ``We didn't agree when it was based on mistakes or reconfigurations. We can change the budget in the future if market conditions change''
Eni and partners, including Exxon Mobil Corp., Royal Dutch Shell Plc and Total SA, have pushed back the start date of the field four times due to cost overruns and delays. The 2013 target date is eight years behind the original schedule.
Paolo Scaroni, Eni's chief executive officer, and Christophe de Margerie, his counterpart at Total, both said in July they hoped to have first oil flowing before Oct. 2013. Eni declined to comment on the budget or timeline for the field.
Sulfur Gas
Technical issues like the presence of dangerous sulfur gases caused some delays as Eni had to reconfigure the field's layout to house workers on artificial islands in the Caspian Sea away from the wells.
Eni's initial budget projected capital expenditure at $10 billion for the experimental phase. It raised that to $19 billion in February 2007, in part because of the need to redesign the field.
Kazakhstan's national oil company is a partner in the project and will pay its share of the group's costs, Mynbayev said. Other partners are ConocoPhillips and Japan's Inpex Holdings Inc.
Eni is currently sole operator of the Kashagan development. The Rome-based company will jointly run the field with some of the partners after production starts, according to a revised production accord agreed to in January.
To contact the reporter on this story: Anthony DiPaola in Rome at adipaola@bloomberg.net.
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Marubeni Group to Pay $2.5 Billion for Senoko Power
By Dinakar Sethuraman and Tara Patel
Sept. 5 (Bloomberg) -- A Marubeni Corp.-led group agreed to pay S$3.65 billion ($2.5 billion) in cash for Senoko Power Ltd., Singapore's biggest utility, to expand into Southeast Asia's power and gas markets.
The group, including GDF Suez SA, Kansai Electric Power Co. and Kyushu Electric Power Co., won an auction to buy the utility from Temasek Holdings Pte, the Singapore government-owned investment company said in an e-mailed statement today.
The Marubeni venture will gain a 30 percent share in Singapore's electricity market as the government sells its generators to further open the industry to competition after the disposal of Tuas Power Ltd. earlier this year. The sale of a third generator Power Seraya Ltd. will be completed by the end of 2009, Temasek said in July.
``The winning bid represents faith in Singapore's relatively open power and gas markets,'' said Ian Angell, vice president of gas and power at Wood Mackenzie Consultants Ltd. ``We have to see how they integrate the power operations with their global gas positions including GDF's stake in the Singapore LNG terminal.''
The Marubeni group is paying S$1.1 million per megawatt of generating capacity, while China Huaneng Group in March agreed to pay S$4.24 billion, or S$1.58 million per megawatt, for Tuas Power, the smallest of the three generators.
The Marubeni venture, also known as Lion Power Holdings Ltd., will also take up S$323 million of Senoko's debt as of March 31, 2008, as part of the acquisition, Temasek said. Senoko's 3,300 megawatts of capacity is generated by burning fossil fuels including natural gas.
GDF, Temasek
GDF Suez, the world's second-biggest utility, will benefit from Singapore's demand for gas-fired power generation after buying in June a 30% stake in the island's first liquefied natural gas terminal.
``Singapore represents a significant development potential for GDF Suez and will enable the group to strengthen its foothold in Southeast Asia,'' Dirk Beeuwsaert, head of the GDF Suez Energy International, said in an e-mailed statement today.
Temasek, which bought stakes in companies such as Merrill Lynch & Co. after banks wrote down $500 billion of investments tied to the U.S. subprime mortgages, may use the funds to pick up assets at good value.
Financing Arrangement
To speed up the sale of Senoko Power, Temasek had arranged financing for the five short-listed bidders, comprising a venture between CLP Holdings Ltd. and Mitsubishi Corp., Keppel Corp., Tata Power Co., YTL Corp. and the Marubeni group.
Credit Suisse Group AG and Morgan Stanley & Co., advising Temasek on the sale, will organize a bridge loan for two years at a cost of about 2.5 percentage points over the London Interbank Offered Rate, according to a document sent to bidders last month, a copy of which was obtained by Bloomberg News. The funds may be lent by banks including DBS Group Holdings Ltd. and United Overseas Bank Ltd.
The pool of funds for mergers and acquisitions has shrunk after the collapse of the U.S. subprime mortgage market. Transactions in Asia's power industry totaled $16.5 billion so far this year, a fifth of 2007, according to data compiled by Bloomberg News.
Temasek was trying to ``sweeten the deal as we are in the middle of a credit crisis,'' said Simon Powell, head of power research at CLSA Ltd. in Hong Kong.
Sarah Seah, spokeswoman for Keppel, declined to comment. Shalini Singh, spokeswoman for Tata Power, did not answer calls to her mobile phone, while Ho Say Keng, a company secretary at YTL, could not be reached.
Selling Power Assets
Temasek, manager of about $130 billion in assets, last year revived a plan abandoned six years ago to sell the Singapore utilities to tap rising demand for power assets.
Senoko Power and Power Seraya were transferred in 2001 to Temasek from Singapore Power Ltd., the main electricity supplier, after the government separated ownership of generators from transmission and distribution. Temasek had owned Tuas Power since 1995.
Tuas is the best asset because the units are bigger and the turbines more advanced, making it more efficient and competitive than Senoko Power and Power Seraya, CLSA's Powell said.
``Tuas is one of the lowest-cost generators in Singapore and has better economics from a short-run marginal cost of generation perspective,'' Powell said. ``The Senoko plant is older and the units are smaller.''
The Tuas Power station consists of four blocks of natural gas-fired combined cycle plants and two units of steam plants with a total generating capacity of 2,670 megawatts.
To contact the reporter on this story: Dinakar Sethuraman in Singapore at dinakar@bloomberg.net; Tara Patel in Paris at Tpatel2@bloomberg.net.
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Sept. 5 (Bloomberg) -- A Marubeni Corp.-led group agreed to pay S$3.65 billion ($2.5 billion) in cash for Senoko Power Ltd., Singapore's biggest utility, to expand into Southeast Asia's power and gas markets.
The group, including GDF Suez SA, Kansai Electric Power Co. and Kyushu Electric Power Co., won an auction to buy the utility from Temasek Holdings Pte, the Singapore government-owned investment company said in an e-mailed statement today.
The Marubeni venture will gain a 30 percent share in Singapore's electricity market as the government sells its generators to further open the industry to competition after the disposal of Tuas Power Ltd. earlier this year. The sale of a third generator Power Seraya Ltd. will be completed by the end of 2009, Temasek said in July.
``The winning bid represents faith in Singapore's relatively open power and gas markets,'' said Ian Angell, vice president of gas and power at Wood Mackenzie Consultants Ltd. ``We have to see how they integrate the power operations with their global gas positions including GDF's stake in the Singapore LNG terminal.''
The Marubeni group is paying S$1.1 million per megawatt of generating capacity, while China Huaneng Group in March agreed to pay S$4.24 billion, or S$1.58 million per megawatt, for Tuas Power, the smallest of the three generators.
The Marubeni venture, also known as Lion Power Holdings Ltd., will also take up S$323 million of Senoko's debt as of March 31, 2008, as part of the acquisition, Temasek said. Senoko's 3,300 megawatts of capacity is generated by burning fossil fuels including natural gas.
GDF, Temasek
GDF Suez, the world's second-biggest utility, will benefit from Singapore's demand for gas-fired power generation after buying in June a 30% stake in the island's first liquefied natural gas terminal.
``Singapore represents a significant development potential for GDF Suez and will enable the group to strengthen its foothold in Southeast Asia,'' Dirk Beeuwsaert, head of the GDF Suez Energy International, said in an e-mailed statement today.
Temasek, which bought stakes in companies such as Merrill Lynch & Co. after banks wrote down $500 billion of investments tied to the U.S. subprime mortgages, may use the funds to pick up assets at good value.
Financing Arrangement
To speed up the sale of Senoko Power, Temasek had arranged financing for the five short-listed bidders, comprising a venture between CLP Holdings Ltd. and Mitsubishi Corp., Keppel Corp., Tata Power Co., YTL Corp. and the Marubeni group.
Credit Suisse Group AG and Morgan Stanley & Co., advising Temasek on the sale, will organize a bridge loan for two years at a cost of about 2.5 percentage points over the London Interbank Offered Rate, according to a document sent to bidders last month, a copy of which was obtained by Bloomberg News. The funds may be lent by banks including DBS Group Holdings Ltd. and United Overseas Bank Ltd.
The pool of funds for mergers and acquisitions has shrunk after the collapse of the U.S. subprime mortgage market. Transactions in Asia's power industry totaled $16.5 billion so far this year, a fifth of 2007, according to data compiled by Bloomberg News.
Temasek was trying to ``sweeten the deal as we are in the middle of a credit crisis,'' said Simon Powell, head of power research at CLSA Ltd. in Hong Kong.
Sarah Seah, spokeswoman for Keppel, declined to comment. Shalini Singh, spokeswoman for Tata Power, did not answer calls to her mobile phone, while Ho Say Keng, a company secretary at YTL, could not be reached.
Selling Power Assets
Temasek, manager of about $130 billion in assets, last year revived a plan abandoned six years ago to sell the Singapore utilities to tap rising demand for power assets.
Senoko Power and Power Seraya were transferred in 2001 to Temasek from Singapore Power Ltd., the main electricity supplier, after the government separated ownership of generators from transmission and distribution. Temasek had owned Tuas Power since 1995.
Tuas is the best asset because the units are bigger and the turbines more advanced, making it more efficient and competitive than Senoko Power and Power Seraya, CLSA's Powell said.
``Tuas is one of the lowest-cost generators in Singapore and has better economics from a short-run marginal cost of generation perspective,'' Powell said. ``The Senoko plant is older and the units are smaller.''
The Tuas Power station consists of four blocks of natural gas-fired combined cycle plants and two units of steam plants with a total generating capacity of 2,670 megawatts.
To contact the reporter on this story: Dinakar Sethuraman in Singapore at dinakar@bloomberg.net; Tara Patel in Paris at Tpatel2@bloomberg.net.
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Canada Dollar Gains After Payrolls Rise in Nation, Fall in U.S.
By Cordell Eddings
Sept. 5 (Bloomberg) -- Canada's dollar rose after a government report showed the nation's employers added more jobs in August than forecast, spurring speculation the Bank of Canada may refrain from cutting borrowing costs next month.
The currency also gained after another report showed the U.S., Canada's biggest trade partner, lost more jobs than forecast in August and its unemployment rate climbed to a five- year high. The report fueled expectations the Federal Reserve will cut rather than raise interest rates.
``The overall trend for the Canadian dollar is higher,'' said Maria Jones, a currency strategist at TD Securities in Toronto, a unit of Canada's third-largest bank. ``As far as the U.S. numbers are concerned, what's important is not necessarily the jobs report, but the unemployment rate says clearly the Fed is not going to hike rates any time soon, so we should see some retracement in the dollar strength that will bode well for the Canadian dollar.''
Canada's currency rose 0.3 percent to C$1.0663 per U.S. dollar at 10:12 a.m. in Toronto, from C$1.0696 yesterday. One Canadian dollar buys 93.78 U.S. cents.
The currency pared gains after the Ivey purchasing managers' index for August unexpectedly fell to 51.5, the lowest since December, showing that Canadian business and government spending increased at a slower pace.
The Canadian economy added 15,200 jobs last month after a loss of 55,200 positions in July, Statistics Canada said in Ottawa today. The median forecast of 23 economists surveyed by Bloomberg News was for an increase of 10,000. Canada's unemployment rate held at 6.1 percent.
U.S. Payrolls
U.S. payrolls fell by 84,000 in August, and revisions added another 58,000 to job losses for the prior two months, the Labor Department said in Washington. The U.S. jobless rate jumped to 6.1 percent, matching the level of September 2003, from 5.7 percent the prior month.
The Bank of Canada left its benchmark interest rate unchanged Sept. 3 at 3 percent. The rate is ``appropriately accommodative,'' while inflationary pressures ``remain elevated,'' the central bank said.
Canada's currency, dubbed the loonie because of the aquatic bird on the one-dollar coin, will slip to C$1.10 against the U.S. dollar by the end of 2009, according to the median forecast of economists surveyed by Bloomberg.
The yield on the two-year Canadian government bond was little changed at 2.68 percent. The price of the 3.75 percent security due in June 2010 rose 1 cent to C$100.15.
To contact the reporter on this story: Cordell Eddings in New York at ceddings@bloomberg.net
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Sept. 5 (Bloomberg) -- Canada's dollar rose after a government report showed the nation's employers added more jobs in August than forecast, spurring speculation the Bank of Canada may refrain from cutting borrowing costs next month.
The currency also gained after another report showed the U.S., Canada's biggest trade partner, lost more jobs than forecast in August and its unemployment rate climbed to a five- year high. The report fueled expectations the Federal Reserve will cut rather than raise interest rates.
``The overall trend for the Canadian dollar is higher,'' said Maria Jones, a currency strategist at TD Securities in Toronto, a unit of Canada's third-largest bank. ``As far as the U.S. numbers are concerned, what's important is not necessarily the jobs report, but the unemployment rate says clearly the Fed is not going to hike rates any time soon, so we should see some retracement in the dollar strength that will bode well for the Canadian dollar.''
Canada's currency rose 0.3 percent to C$1.0663 per U.S. dollar at 10:12 a.m. in Toronto, from C$1.0696 yesterday. One Canadian dollar buys 93.78 U.S. cents.
The currency pared gains after the Ivey purchasing managers' index for August unexpectedly fell to 51.5, the lowest since December, showing that Canadian business and government spending increased at a slower pace.
The Canadian economy added 15,200 jobs last month after a loss of 55,200 positions in July, Statistics Canada said in Ottawa today. The median forecast of 23 economists surveyed by Bloomberg News was for an increase of 10,000. Canada's unemployment rate held at 6.1 percent.
U.S. Payrolls
U.S. payrolls fell by 84,000 in August, and revisions added another 58,000 to job losses for the prior two months, the Labor Department said in Washington. The U.S. jobless rate jumped to 6.1 percent, matching the level of September 2003, from 5.7 percent the prior month.
The Bank of Canada left its benchmark interest rate unchanged Sept. 3 at 3 percent. The rate is ``appropriately accommodative,'' while inflationary pressures ``remain elevated,'' the central bank said.
Canada's currency, dubbed the loonie because of the aquatic bird on the one-dollar coin, will slip to C$1.10 against the U.S. dollar by the end of 2009, according to the median forecast of economists surveyed by Bloomberg.
The yield on the two-year Canadian government bond was little changed at 2.68 percent. The price of the 3.75 percent security due in June 2010 rose 1 cent to C$100.15.
To contact the reporter on this story: Cordell Eddings in New York at ceddings@bloomberg.net
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U.S. Payrolls Fell 84,000; Jobless Rate Jumps to 6.1%
By Shobhana Chandra
Sept. 5 (Bloomberg) -- The U.S. lost more jobs than forecast in August and the unemployment rate climbed to a five- year high, heightening the risk that the economic slowdown will worsen.
Payrolls fell by 84,000 in August, and revisions added another 58,000 to job losses for the prior two months, the Labor Department said today in Washington. The jobless rate jumped to 6.1 percent, matching the level of September 2003, from 5.7 percent the prior month.
Workforce reductions at companies from UAL Corp. to Gannett Co. are adding to the woes of Americans hurt by lower home values, scarcer credit and higher prices. The report may fuel concern that consumer spending, the biggest part of the economy, will decline and bring the expansion to a halt. Stock-index futures dropped and Treasury notes climbed.
``It certainly increases the probability that we really are in a recession,'' William Poole, former president of the Federal Reserve Bank of St. Louis, said in an interview with Bloomberg Television. ``It is a weak number, including the revisions.''
Payrolls were forecast to drop 75,000 after a previously reported 51,000 decline in July, according to the median estimate of 76 economists surveyed by Bloomberg News. Estimates ranged from declines of 40,000 to 150,000. The jobless rate was projected to remain at 5.7 percent.
Factory payrolls dropped 61,000 after decreasing 38,000 in July. Economists had forecast a drop of 35,000. The decline included a loss of 39,000 jobs in auto manufacturing and parts industries.
Factory Workforce
Today's report also showed the effects of the housing slump and the credit crisis that it triggered. Payrolls at builders fell 8,000 after decreasing 20,000. Financial firms trimmed payrolls by 3,000 for a second consecutive month.
Service industries, which include banks, insurance companies, restaurants and retailers, subtracted 27,000 workers after cutting 12,000 in July. Retail payrolls fell by 19,900 after a drop of 18,100.
``We're losing jobs in all kinds of industries now,'' Roger Kaubarych, chief U.S. economist at UniCredit Global Research in New York, said in an interview with Bloomberg Radio. ``This is the clearest recessionary signal we've seen.''
Government payrolls increased by 17,000 after rising 6,000. That meant private payrolls fell by 101,000 in August.
Today's report brings the total decline in payrolls so far this year to 605,000. The economy created 1.1 million jobs in 2007.
Recession Indicators
Employment is among the indicators tracked by the National Bureau of Economic Research, the official arbiter of U.S. economic cycles, in calling a recession. The others are sales, incomes, production and gross domestic product.
The group defines a recession as a ``significant'' decrease in activity over a sustained period of time, and usually takes six to 18 months to make a determination.
Job losses are one reason economic growth will soften after a second-quarter rate of 3.3 percent. The economy may expand at an average 0.7 percent annual pace from July through December, according to the median forecast in a Bloomberg survey.
Consumer spending, which accounts for more than two-thirds of the economy, in July posted the biggest drop in four years after inflation.
``The pace of economic activity has been slow in most districts,'' the Federal Reserve said in its Beige Book report this week. There's ``a general pullback in hiring.''
`Close to Stagnating'
The economy ``is close to stagnating,'' Jan Hatzius, chief U.S. economist at Goldman Sachs Group Inc. in New York, said in an interview with Bloomberg Radio. In part because of continued gains in worker productivity, employers will keep cutting jobs, sending the U.S. unemployment rate to 6.75 percent next year, he said.
Goldman economists projected a 100,000 decline in payrolls for August.
The average work week remained at 33.7 hours. Average weekly hours worked by production workers fell to 40.9 hours from 41 hours, while overtime decreased to 3.7 hours from 3.8 hours.
Workers' average hourly wages rose 7 cents, or 0.4 percent, to $18.14 from the prior month. Hourly earnings were 3.6 percent higher than August 2007. Economists surveyed by Bloomberg had forecast a 0.3 percent increase from July and a 3.4 percent gain for the 12-month period. Average weekly earnings increased to $611.32 from $608.96.
To contact the reporter on this story: Shobhana Chandra in Washington schandra1@bloomberg.net
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Sugar Drops in New York as Dollar Strength Damps Commodities
By Ron Day
Sept. 5 (Bloomberg) -- Sugar fell, its sixth decline in seven sessions, as a strengthening dollar damped demand for commodities.
The dollar gained for a seventh straight session against the euro, a day after the European Central Bank kept its main refinancing rate at a seven-year high of 4.25 percent. The rising dollar makes commodities traded in New York and Chicago more costly for buyers using other currencies.
Sugar futures for October delivery fell 0.05 cent, or 0.4 percent, to 12.6 cents a pound at 8:54 a.m. on ICE Futures U.S., the former New York Board of Trade. Through yesterday, the price had dropped 10 percent since Aug. 26. Still, most-active futures are up 17 percent this year before today.
To contact the reporter on this story: Ron Day in New York at rday1@bloomberg.net.
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Sept. 5 (Bloomberg) -- Sugar fell, its sixth decline in seven sessions, as a strengthening dollar damped demand for commodities.
The dollar gained for a seventh straight session against the euro, a day after the European Central Bank kept its main refinancing rate at a seven-year high of 4.25 percent. The rising dollar makes commodities traded in New York and Chicago more costly for buyers using other currencies.
Sugar futures for October delivery fell 0.05 cent, or 0.4 percent, to 12.6 cents a pound at 8:54 a.m. on ICE Futures U.S., the former New York Board of Trade. Through yesterday, the price had dropped 10 percent since Aug. 26. Still, most-active futures are up 17 percent this year before today.
To contact the reporter on this story: Ron Day in New York at rday1@bloomberg.net.
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Yen Rises to Highest Versus Dollar Since July as U.S. Jobs Fall
By Ye Xie and Agnes Lovasz
Sept. 5 (Bloomberg) -- The yen rose to the highest level against the dollar since July after the U.S. lost jobs for an eighth month and touched a one-year high versus the euro as investors sold higher-yielding assets funded in Japan.
Japan's yen rallied against most of the world's major currencies on concern credit-market losses will lead to a global recession. The Australian and New Zealand dollars dropped to a two-year low on speculation a slump in stocks and commodities encouraged investors to reverse carry trades.
``The market is in favor of risk reduction,'' said Robert Sinche, head of global currency strategy at Bank of America Corp. in New York. ``People are eliminating positions they previously held, euro-yen, Aussie-yen, in massive size.''
The yen rose for a third day against the dollar, increasing 0.7 percent to 106.36 at 10:31 a.m. in New York, from 107.08 yesterday. It reached 105.55, the highest since July 17. Japan's currency climbed 1.1 percent to 151.66 versus the euro, from 153.40, and touched 150.60, the highest since Aug. 17, 2007. Against the euro, the dollar traded at $1.4261, compared with $1.4325. It touched $1.4196, the strongest since Oct. 24.
Japan's currency increased as much as 3.5 percent to 85.03 versus the Australian dollar and 3 percent to 69.90 versus the New Zealand dollar as investors reduced trades in which they get funds in a country with low borrowing costs and buy assets where returns are higher. Japan's 0.5 percent benchmark interest rate compares with 4.25 percent in Europe, 7 percent in Australia and 8 percent in New Zealand.
Russia vs. Georgia
The yen also benefited on concern Russia's conflict with Georgia will escalate. Investors have taken about $30 billion out of Russia since the start of its five-day war with Georgia on Aug. 8, according to BNP Paribas SA. The U.S. and the European Union have demanded that Russian soldiers withdraw to their pre-war positions.
Volatility implied by dollar-yen options expiring in one month rose to 13.13 percent, the highest since mid-July, showing market swings may erase carry-trade profits.
``These currency moves are huge,'' said Toru Tokoyoda, head of foreign-exchange sales in Tokyo at Lehman Brothers Holdings Inc., the fourth-largest U.S. securities firm. ``Volatility is likely to squeeze higher on further gains in the yen as that would spur demand to hedge against that move.''
One-month volatility may rise to 15 percent provided that the yen strengthens to 105 per dollar today, he said.
U.S. stocks dropped, and the MSCI World Index had its worst weekly slump since 2002. The UBS Bloomberg Constant Maturity Commodity Index reached a seven-month low.
Ruble's Gain
Russia's ruble gained versus the dollar-euro basket for the first time in four days, increasing 0.4 percent to 30.2935, after the central bank said it sold a ``significant'' amount of foreign reserves yesterday to prop up the currency. The basket is calculated by multiplying the ruble's rate versus the dollar by 0.55, the euro rate by 0.45 and then adding the results.
South Korea's won rose against all of the major currencies on speculation the central bank is buying the currency to halt its decline. The won advanced 1 percent to 1,117.95 versus the dollar, reversing an earlier drop of as much as 1.2 percent.
The Australian dollar fell 1.6 percent to 80.94 U.S. cents and the New Zealand dollar dropped 1.1 percent to 66.58 U.S. cents on concern the economic slowdown that started in the U.S. will spread to other Group of 10 industrialized nations.
``The fact the U.S. is weak doesn't brighten the prospect of the rest of the G-10,'' said Steven Englander, a currency strategist at Lehman Brothers Holdings Inc. in New York. ``As long as the market is feeding into the risk-aversion story, it's reasonably good for the yen, but not necessarily helpful for the rest of the G-10 against the dollar.''
ECB Comment
The euro dropped for a seventh day against the dollar, its longest decline since October 2006. The ECB kept its main refinancing rate at a seven-year high of 4.25 percent yesterday and President Jean-Claude Trichet told a press conference growth risks are on the ``downside.''
The 15-nation euro has dropped more than 10 percent against the dollar from the record high of $1.6038 set on July 15. The ECB lowered its 2008 economic growth forecast yesterday to about 1.4 percent from 1.8 percent.
U.S. payrolls shrank by 84,000 last month, following a revised decline of 60,000 in July, the Labor Department said today in Washington. The median forecast of 76 economists surveyed by Bloomberg News was for a reduction of 75,000. The jobless rate rose to 6.1 percent. The U.S. has lost jobs every month this year, the longest losing streak since 2002.
To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Agnes Lovasz in London at alovasz@bloomberg.net
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Gold, Silver Gain on Demand for Alternative to U.S. Assets
By Pham-Duy Nguyen
Sept. 5 (Bloomberg) -- Gold rose the most in two weeks after a report showed the U.S. unemployment rate climbed to a five-year high, reviving demand for the precious metal as an alternative to U.S. assets. Silver also gained.
U.S. stock futures extended their decline for a fourth session and the dollar pared gains against the euro. Some investors buy gold to hedge against turmoil in financial markets. Gold reached a record on March 17, while the dollar and the Standard & Poor's 500 Index in July headed to the lowest levels this year.
``The unemployment rate is a scary number to people,'' said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago. ``The dollar is losing strength. Equities are losing value. With no better choices to put money into, we're going to see renewed interest in some commodities, and gold is going to benefit.''
Gold futures for December delivery rose $15.20, or 1.9 percent, to $818.40 an ounce at 9:39 a.m. on the Comex division of the New York Mercantile Exchange. A close at that price would mark the biggest percentage gain for a most-active contract since Aug. 21.
Silver futures for December delivery climbed 6 cents, or 0.5 percent, to $13 an ounce.
Before today, silver fell 13 percent this year, while gold dropped 4.2 percent.
The U.S. jobless rate in August jumped to 6.1 percent, matching the level of September 2003, from 5.7 percent the prior month.
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
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Sept. 5 (Bloomberg) -- Gold rose the most in two weeks after a report showed the U.S. unemployment rate climbed to a five-year high, reviving demand for the precious metal as an alternative to U.S. assets. Silver also gained.
U.S. stock futures extended their decline for a fourth session and the dollar pared gains against the euro. Some investors buy gold to hedge against turmoil in financial markets. Gold reached a record on March 17, while the dollar and the Standard & Poor's 500 Index in July headed to the lowest levels this year.
``The unemployment rate is a scary number to people,'' said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago. ``The dollar is losing strength. Equities are losing value. With no better choices to put money into, we're going to see renewed interest in some commodities, and gold is going to benefit.''
Gold futures for December delivery rose $15.20, or 1.9 percent, to $818.40 an ounce at 9:39 a.m. on the Comex division of the New York Mercantile Exchange. A close at that price would mark the biggest percentage gain for a most-active contract since Aug. 21.
Silver futures for December delivery climbed 6 cents, or 0.5 percent, to $13 an ounce.
Before today, silver fell 13 percent this year, while gold dropped 4.2 percent.
The U.S. jobless rate in August jumped to 6.1 percent, matching the level of September 2003, from 5.7 percent the prior month.
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
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Oil Falls as U.S. Jobless-Rate Increase May Cut Fuel Demand
By Mark Shenk
Sept. 5 (Bloomberg) -- Crude oil fell more than $1 a barrel after a government report showed employers in the U.S. cut more jobs last month than economists forecast, a signal that demand may drop.
Payrolls fell in the U.S., the world's biggest energy consuming country, the Labor Department said today. The euro strengthened against the dollar after the report. U.S. fuel demand averaged 20.2 million barrels a day during the past four weeks, down 3.5 percent from a year ago, the Energy Department said yesterday.
``The jobless number is a sign that there will be further reductions of gasoline consumption,'' said Jim Ritterbusch, president of Ritterbusch & Associates in Galena, Illinois. ``The market has got to decide whether it will follow the weaker dollar or the bad economy. At the end of the day I think prices will move lower on the threat of demand destruction.''
Crude oil for October delivery fell $1.05, or 1 percent, to $106.84 a barrel at 10:08 a.m. on the New York Mercantile Exchange. Prices are up 41 percent from a year ago.
The dollar traded at $1.4299 against the euro, compared with $1.4325 yesterday. It touched $1.4196, the highest since Oct. 24 earlier today.
Brent crude oil for October settlement fell $1.33, or 1.3 percent, to $104.97 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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Sept. 5 (Bloomberg) -- Crude oil fell more than $1 a barrel after a government report showed employers in the U.S. cut more jobs last month than economists forecast, a signal that demand may drop.
Payrolls fell in the U.S., the world's biggest energy consuming country, the Labor Department said today. The euro strengthened against the dollar after the report. U.S. fuel demand averaged 20.2 million barrels a day during the past four weeks, down 3.5 percent from a year ago, the Energy Department said yesterday.
``The jobless number is a sign that there will be further reductions of gasoline consumption,'' said Jim Ritterbusch, president of Ritterbusch & Associates in Galena, Illinois. ``The market has got to decide whether it will follow the weaker dollar or the bad economy. At the end of the day I think prices will move lower on the threat of demand destruction.''
Crude oil for October delivery fell $1.05, or 1 percent, to $106.84 a barrel at 10:08 a.m. on the New York Mercantile Exchange. Prices are up 41 percent from a year ago.
The dollar traded at $1.4299 against the euro, compared with $1.4325 yesterday. It touched $1.4196, the highest since Oct. 24 earlier today.
Brent crude oil for October settlement fell $1.33, or 1.3 percent, to $104.97 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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Ukrainian Stock Market Trading Resumed After Two-Hour Halt
By Daryna Krasnolutska
Sept. 5 (Bloomberg) -- Ukraine's PFTS Stock Exchange resumed trading after a two-hour halt called because of today's slump in the PFTS Index.
Trading was suspended from 12:45 p.m. until 3 p.m. Kiev time, the bourse said in a statement on its Web site.
The 20-stock PFTS Index has lost 32 percent this quarter, the second-steepest slump among 88 equity indexes tracked by Bloomberg, as Russia's invasion of Georgia and the feud between President Viktor Yushchenko and Prime Minister Yulia Timoshenko shook investor confidence in the Ukrainian market.
``We decided to halt trading after quotes for more than 75 percent of the PFTS stocks fell in today's session,'' said Andriy Kolomiets, a spokesman for the PFTS Stock Exchange. ``The main cause is global stock market falls, especially in Russia, which our market tends to follow.''
Russia's RTS Index fell the most among 88 stock indexes tracked by Bloomberg today, capping its worst week since May 2006.
To contact the reporters on this story: Daryna Krasnolutska in Kiev at dkrasnolutsk@bloomberg.net.
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Sept. 5 (Bloomberg) -- Ukraine's PFTS Stock Exchange resumed trading after a two-hour halt called because of today's slump in the PFTS Index.
Trading was suspended from 12:45 p.m. until 3 p.m. Kiev time, the bourse said in a statement on its Web site.
The 20-stock PFTS Index has lost 32 percent this quarter, the second-steepest slump among 88 equity indexes tracked by Bloomberg, as Russia's invasion of Georgia and the feud between President Viktor Yushchenko and Prime Minister Yulia Timoshenko shook investor confidence in the Ukrainian market.
``We decided to halt trading after quotes for more than 75 percent of the PFTS stocks fell in today's session,'' said Andriy Kolomiets, a spokesman for the PFTS Stock Exchange. ``The main cause is global stock market falls, especially in Russia, which our market tends to follow.''
Russia's RTS Index fell the most among 88 stock indexes tracked by Bloomberg today, capping its worst week since May 2006.
To contact the reporters on this story: Daryna Krasnolutska in Kiev at dkrasnolutsk@bloomberg.net.
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Russian Stocks, Bonds Tumble as Central Bank Props Up Ruble
By Denis Maternovsky and Abigail Moses
Sept. 5 (Bloomberg) -- Russian stocks plunged and the cost to protect government bonds from default jumped to the highest in almost four years as the central bank shored up its currency pummeled by the conflict in Georgia and tumbling commodity prices.
The central bank said it intervened after the ruble fell to the lowest level in almost a year against the dollar yesterday. Russia's RTS Index dropped the most among 88 stock indexes tracked by Bloomberg today, capping its worst week since May 2006, and credit-default swaps on the government's debt rose 13 basis points to 165, the highest since November 2004, according to CMA Datavision prices.
Russia investors pulled out a net $4.6 billion since the invasion of Georgia last month, according to the central bank, contributing to the worst quarterly slump in shares since the government's debt default a decade ago. Russia, the world's biggest energy exporter and largest producer of nickel and palladium, was also hurt as crude oil slumped 7 percent this week to the lowest since April.
``They have to intervene because people are selling ruble assets and taking the money out of the country,'' said Nigel Rendell, senior emerging-markets strategist at Royal Bank of Canada Ltd. in London. ``In a time of uncertainty, I think it's a sensible move to get out of Russia. The political situation doesn't look good.''
The central bank is probably buying more rubles than at any time in recent years, possibly the most since 1998, Rendell said.
American Ally
The five-day war with Georgia brought Russia into conflict with one of the region's staunchest U.S. allies. Georgia is the third-largest member of the allied coalition in Iraq and part of a U.S.-backed ``southern energy corridor'' that connects the Caspian Sea region with world markets, bypassing Russia.
The ruble, which is kept within a trading band against a currency basket to limit the impact of fluctuations on the competitiveness of Russian exports, fell to as low as 25.4602 per dollar yesterday, the weakest level in a year.
The central bank in Moscow responded by selling a ``significant'' amount of foreign currency to prop up the ruble, First Deputy Chairman Alexei Ulyukayev said. ``The ruble had got to the higher end of the trading band, so it was reasonable,'' he told reporters in Sochi today, declining to give the exact amount.
The bank sold about $4.5 billion of foreign reserves yesterday, according to Mikhail Galkin, a fixed-income analyst at MDM Bank in Moscow.
The currency snapped three days of declines today, advancing to 30.3236 against the central bank's dollar-euro basket as of 1:15 p.m. in Moscow.
Goldman's Call
Goldman Sachs Group Inc. said today that investors should close their long ruble positions, or bets that the Russian currency will rise, based on 12-month non-deliverable forwards. The contracts oblige traders to exchange one currency for another at a set price and date in the future. Settlements are made in dollars.
Russia's RTS stock index fell 33 percent since July 1, the worst slump since the government defaulted on $40 billion of debt in August 1998, devaluing the ruble and crushing the banking system. The dollar-denominated index dropped 5.7 percent to 1,440.26, bringing its weekly slide to 12 percent. The ruble- denominated Micex Index also sank 5.7 percent to 1,209.4, the lowest since June 2006.
Ukraine Suspended
Neighboring Ukraine's PFTS Index was the world's second- worst stock index this quarter, falling 29.1 percent, as Russia's invasion of Georgia and the feud between President Viktor Yushchenko and Prime Minister Yulia Timoshenko shook investor confidence. Stock market trading was suspended today because of a 7 percent slump, according to Andriy Kolomiets, the spokesman for the PFTS Stock Exchange.
Credit-default swaps on Ukraine's government debt rose 25 basis points to a record 502, according to CMA Datavision.
Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company's ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. An increase indicates a deterioration in the perception of credit quality.
Five-year credit-default swaps on OAO Gazprom, Russia's largest company, increased 13.5 basis points to 298, the highest level since March, Bloomberg data show.
``There is a global risk aversion and an understanding that there will be new debt issued that will pay more than existing curves,'' said MDM's Galkin.
Shares of OAO Rosneft, the country's biggest oil producer, dropped as much as 8.8 percent and last traded at 191 rubles. OAO GMK Norilsk Nickel, Russia's biggest mining company, tumbled as much as 15.2 percent and was trading at 3,805 rubles.
Oil has fallen more than 7 percent this week, heading for its biggest weekly decline in a month, with crude for October delivery at $106.90 on the New York Mercantile Exchange. Nickel dropped $605 to $18,600 a metric ton.
To contact the reporter on this story: Denis Maternovsky in Moscow at dmaternovsky@bloomberg.net
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