By Darren Boey
Sep. 30 (Bloomberg) -- Australia's benchmark stock index, the S&P/ASX 200 Index, fell 2.72 percent at 10:05 a.m.
The index of 200 companies traded on the Australian Stock Exchange fell 130.60 to 4,676.80. Among the stocks in the index, 3 rose, 75 fell and 122 were unchanged.
Declines in the S&P/ASX 200 Index were led by Bhp Billiton Ltd, Commonwealth Bank Of Australia and Australia & New Zealand Banking Group Ltd. About 77.74 million shares changed hands on the Australian Stock Exchange.
Bhp Billiton Ltd, which fell A$2.94 to A$31.30, was the most active stock by value in Australia.
The next most-active issues were Bhp Billiton Plc, which fell A$1.71 to A$29.70, and Australia & New Zealand Banking Group Ltd, which fell A$1.18 to A$17.61.
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Monday, September 29, 2008
BSkyB to learn ITV stake fate Monday
LONDON, Sept 29 (Reuters) - Pay-TV firm BSkyB will learn on Monday whether it has won the right to keep its 17.9 percent stake in free-to-air broadcaster ITV .
BSkyB has challenged a ruling by the Competition Commission that it had to reduce the stake to below 7.5 percent, and the Competition Appeal Tribunal said on its website it would hand down its judgment at 1545 GMT on Monday.
BSkyB, with its then Chief Executive James Murdoch in charge, bought the stake in 2006 at 135 pence a share or 940 million pounds in a deal which effectively blocked cable group NTL -- now named Virgin Media -- from buying ITV.
Analysts believe BSkyB will try to hold on to the stake for as long as possible in the hope its value will rise and it could appeal against the ruling if it loses.
Shares in ITV, Britain's biggest terrestrial broadcaster, were trading down 1.7 percent at 43-1/4 pence at 0900 GMT, dragged down by economic concerns and the impact this will have on the advertising market.
"We believe that should the CAT rule against BSkyB, as we expect, then BSkyB will continue to appeal," said Numis.
"It has the right of appeal to the Court of Appeal (on a point of law), House of Lords (with permission) and the European Court of Justice. Further appeals could give time for ITV shares to recover."
Shares in ITV had edged higher in recent weeks as the impending CAT ruling sparked speculation that a sale of the stake could prompt a bid for the whole company.
Analysts at UBS said BSkyB would likely be given between 6 to 12 months to sell the stake, and also suggested that the group could place the stake in some sort of warehousing structure to retain some economic exposure to the stake.
"We believe Sky will not be in a hurry to crystallise a loss and that it will look to hold on in the hope that regulatory and macro visibility improves for the better for ITV," they said in a note.
"ITV is very highly geared to the ad market (1 percent change in advertising = around 9 percent change to earnings per share). The outlook for the UK economy is difficult at best -- as such there can be limited visibility over ITV's cashflow." (Reporting by Kate Holton; Editing by Quentin Bryar)
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BSkyB has challenged a ruling by the Competition Commission that it had to reduce the stake to below 7.5 percent, and the Competition Appeal Tribunal said on its website it would hand down its judgment at 1545 GMT on Monday.
BSkyB, with its then Chief Executive James Murdoch in charge, bought the stake in 2006 at 135 pence a share or 940 million pounds in a deal which effectively blocked cable group NTL -- now named Virgin Media -- from buying ITV.
Analysts believe BSkyB will try to hold on to the stake for as long as possible in the hope its value will rise and it could appeal against the ruling if it loses.
Shares in ITV, Britain's biggest terrestrial broadcaster, were trading down 1.7 percent at 43-1/4 pence at 0900 GMT, dragged down by economic concerns and the impact this will have on the advertising market.
"We believe that should the CAT rule against BSkyB, as we expect, then BSkyB will continue to appeal," said Numis.
"It has the right of appeal to the Court of Appeal (on a point of law), House of Lords (with permission) and the European Court of Justice. Further appeals could give time for ITV shares to recover."
Shares in ITV had edged higher in recent weeks as the impending CAT ruling sparked speculation that a sale of the stake could prompt a bid for the whole company.
Analysts at UBS said BSkyB would likely be given between 6 to 12 months to sell the stake, and also suggested that the group could place the stake in some sort of warehousing structure to retain some economic exposure to the stake.
"We believe Sky will not be in a hurry to crystallise a loss and that it will look to hold on in the hope that regulatory and macro visibility improves for the better for ITV," they said in a note.
"ITV is very highly geared to the ad market (1 percent change in advertising = around 9 percent change to earnings per share). The outlook for the UK economy is difficult at best -- as such there can be limited visibility over ITV's cashflow." (Reporting by Kate Holton; Editing by Quentin Bryar)
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Shares hit as banking crisis bites in Europe
* MSCI world equity index down 1.9 pct at 305.48
* B&B, Fortis bailouts shove European shares, euro lower
* TARP overshadowed as investors fret on banking contagion
By Veronica Brown
LONDON, Sept 29 (Reuters) - European shares fell heavily on Monday as fallout from the credit crisis hit the region's banking sector, forcing partial nationalisation of two banks and leaving investors to ponder the impact of a U.S. bailout plan.
The euro and sterling fell in the wake of share prices sliding, while safe-haven government bond prices rose.
Money markets remained frozen with banks refusing to lend to one another for all but the shortest periods, prompting the European Central Bank to offer additional funds.
The hard-fought U.S. proposal to establish a $700 billion fund to buy illiquid securities will be sent for a Congressional vote later on Monday after days of tense negotiations and compromises.
But European worries threatened to overshadow the proposal after the Belgian, Dutch and Luxembourg governments were forced to rescue financial firm Fortis over the weekend to prevent a domino-like spread of failure.
In addition, the UK government said that lender Bradford & Bingley's branch network will be sold to Spanish bank Santander and the remainder of the group would be nationalised.
"The nationalisations have an incredibly negative read across for the sector," said Mark Sartori, head of European sales trading at Fox-Pitt, Kelton.
"The contagion is spreading to mainland Europe and everyone's asking: who's next?" he added.
By 0830 GMT, MSCI main world equity index fell 1.9 percent .MIWD00000PUS, a 1-1/2 week low. The FTSEurofirst 300 Index was down 2.7 percent at 1073.97 , while a measure of banking stocks tanked 5 percent to 267.76 .
European shares followed a lead set in Asia overnight with Japan's Nikkei share average .N225 posting a 1.3 percent decline, erasing earlier gains.
The December U.S. S&P 500 future was down 2 percent SPc1, reversing initial gains on news the plan was set for a vote in the House of Representatives.
EURO FEELS THE HEAT
Currency markets also felt the pinch of banking sector contagion, with the euro falling more 2 percent to a 10-day low of $1.4310. A fall of 2.1 percent or more would be the biggest 1-day fall since Jan 2001, while a fall of 2.3 percent or more would be the biggest since its launch in 1999.
In addition, sterling dropped almost 2 percent to $1.8085.
"The crisis has taken on a more international complexion with B&B and Fortis ... There is a worry whether there is the ability or the willingness within Europe for a U.S.-style response," Calyon senior currency strategist Daragh Maher said.
The dollar was well-bid elsewhere on hopes of smooth legislative passing of the $700 billion proposal, rising 1.3 percent versus the Swiss franc. The high-yielding Australian and New Zealand dollars fell 1.7 and 1.3 percent respectively.
December Bund futures FGBLZ8 were 88 ticks higher at 114.68. Two-year bond yields fell to their lowest since mid-April, while 10-year yields were just under 16 basis points lower at 4.155 percent.
Two-year swap spreads, indicating the strains in the market, rose as high as 120 basis points from 113 bps late on Friday.
In early London trade on Monday the interbank cost of borrowing dollars for three months was indicated as high as 5.27 percent, the highest this year, according to Reuters data.
The closely-watched TED spread, or the difference between these market-based dollar rates and three-month U.S. government borrowing rates, fluctuated in a wide range of around 280 to 440 basis points.
SAFETY VS RISK
Washington's bailout package, though unpopular with the public and viewed sceptically by some analysts, is the biggest effort yet by the U.S. government to ease the worst global financial crisis since the Great Depression.
Yet it alone has not been enough to reverse a powerful move by global investors to purge their portfolios of risk.
"The package will improve liquidity in the system. But I don't think lenders are going to go out carte blanche and provide new capital to the market in an aggressive way," said Leigh Gardner, head of equities distribution for ABN AMRO in Australia. (Additional reporting by Kevin Plumberg in Hong Kong, Jessica Mortimer and Joanne Frearson in London) (Editing by Stephen Nisbet)
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* B&B, Fortis bailouts shove European shares, euro lower
* TARP overshadowed as investors fret on banking contagion
By Veronica Brown
LONDON, Sept 29 (Reuters) - European shares fell heavily on Monday as fallout from the credit crisis hit the region's banking sector, forcing partial nationalisation of two banks and leaving investors to ponder the impact of a U.S. bailout plan.
The euro and sterling fell in the wake of share prices sliding, while safe-haven government bond prices rose.
Money markets remained frozen with banks refusing to lend to one another for all but the shortest periods, prompting the European Central Bank to offer additional funds.
The hard-fought U.S. proposal to establish a $700 billion fund to buy illiquid securities will be sent for a Congressional vote later on Monday after days of tense negotiations and compromises.
But European worries threatened to overshadow the proposal after the Belgian, Dutch and Luxembourg governments were forced to rescue financial firm Fortis over the weekend to prevent a domino-like spread of failure.
In addition, the UK government said that lender Bradford & Bingley's branch network will be sold to Spanish bank Santander and the remainder of the group would be nationalised.
"The nationalisations have an incredibly negative read across for the sector," said Mark Sartori, head of European sales trading at Fox-Pitt, Kelton.
"The contagion is spreading to mainland Europe and everyone's asking: who's next?" he added.
By 0830 GMT, MSCI main world equity index fell 1.9 percent .MIWD00000PUS, a 1-1/2 week low. The FTSEurofirst 300 Index was down 2.7 percent at 1073.97 , while a measure of banking stocks tanked 5 percent to 267.76 .
European shares followed a lead set in Asia overnight with Japan's Nikkei share average .N225 posting a 1.3 percent decline, erasing earlier gains.
The December U.S. S&P 500 future was down 2 percent SPc1, reversing initial gains on news the plan was set for a vote in the House of Representatives.
EURO FEELS THE HEAT
Currency markets also felt the pinch of banking sector contagion, with the euro falling more 2 percent to a 10-day low of $1.4310
In addition, sterling dropped almost 2 percent to $1.8085
"The crisis has taken on a more international complexion with B&B and Fortis ... There is a worry whether there is the ability or the willingness within Europe for a U.S.-style response," Calyon senior currency strategist Daragh Maher said.
The dollar was well-bid elsewhere on hopes of smooth legislative passing of the $700 billion proposal, rising 1.3 percent versus the Swiss franc
December Bund futures FGBLZ8 were 88 ticks higher at 114.68. Two-year bond yields
Two-year swap spreads, indicating the strains in the market, rose as high as 120 basis points from 113 bps late on Friday.
In early London trade on Monday the interbank cost of borrowing dollars for three months was indicated as high as 5.27 percent
The closely-watched TED spread, or the difference between these market-based dollar rates and three-month U.S. government borrowing rates, fluctuated in a wide range of around 280 to 440 basis points.
SAFETY VS RISK
Washington's bailout package, though unpopular with the public and viewed sceptically by some analysts, is the biggest effort yet by the U.S. government to ease the worst global financial crisis since the Great Depression.
Yet it alone has not been enough to reverse a powerful move by global investors to purge their portfolios of risk.
"The package will improve liquidity in the system. But I don't think lenders are going to go out carte blanche and provide new capital to the market in an aggressive way," said Leigh Gardner, head of equities distribution for ABN AMRO in Australia. (Additional reporting by Kevin Plumberg in Hong Kong, Jessica Mortimer and Joanne Frearson in London) (Editing by Stephen Nisbet)
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U.S. economy worsening, small business survey says
CHICAGO, Sept 29 (Reuters) - Three out of four owners of small businesses say the U.S. economy is getting worse, that it is harder to get loans and that the economic environment had reduced the amount of money they take home, according to a survey released on Monday.
The Discover Small Business Watch also found that the economy was the top issue on the minds of small business owners ahead of the upcoming U.S. presidential elections in November and the Discover Small Business Watch index of economic confidence fell 12.3 points to 74.6 in September, its second lowest level since the survey was launched in August 2006.
Throughout this year small business owners have increasingly expressed dissatisfaction over the performance of the world's largest economy.
"This is further evidence that we are in a prolonged period where small business owners feel the economy is not getting any better," said Ryan Scully, director of the Discover business credit card.
In the survey, 73 percent of respondents said economic conditions in the United States were getting worse compared with just 8 percent who said they were getting better.
Seventy-two percent of respondents said it had become harder to borrow money, compared with 8 percent who said it had become easier. Also 72 percent said they had been forced to take home less money compared with 21 percent who said they had not.
"American business owners are full of independent spirit and do whatever it takes to stay afloat," Scully said. "Right now they're having a hard time doing that."
Fifty-two percent of respondents said the economy was the most important issue for them ahead of the presidential elections, compared with 11 percent who said national security and 10 percent who cited the war in Iraq. (Reporting by Nick Carey, editing by Carol Bishopric)
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The Discover Small Business Watch also found that the economy was the top issue on the minds of small business owners ahead of the upcoming U.S. presidential elections in November and the Discover Small Business Watch index of economic confidence fell 12.3 points to 74.6 in September, its second lowest level since the survey was launched in August 2006.
Throughout this year small business owners have increasingly expressed dissatisfaction over the performance of the world's largest economy.
"This is further evidence that we are in a prolonged period where small business owners feel the economy is not getting any better," said Ryan Scully, director of the Discover business credit card.
In the survey, 73 percent of respondents said economic conditions in the United States were getting worse compared with just 8 percent who said they were getting better.
Seventy-two percent of respondents said it had become harder to borrow money, compared with 8 percent who said it had become easier. Also 72 percent said they had been forced to take home less money compared with 21 percent who said they had not.
"American business owners are full of independent spirit and do whatever it takes to stay afloat," Scully said. "Right now they're having a hard time doing that."
Fifty-two percent of respondents said the economy was the most important issue for them ahead of the presidential elections, compared with 11 percent who said national security and 10 percent who cited the war in Iraq. (Reporting by Nick Carey, editing by Carol Bishopric)
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U.K. August Lending to Individuals: Summary (Table)
By Mark Evans
Sept. 29 (Bloomberg) -- Following is a summary of lending to individuals for August from the Bank of England in London:
Note: All levels (except approvals 000's) are in millions of pounds.
To contact the reporter on this story: Mark Evans in London at mevans8@bloomberg.net
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Sept. 29 (Bloomberg) -- Following is a summary of lending to individuals for August from the Bank of England in London:
=============================================================================
Aug. July June May April
2008 2008 2008 2008 2008
=============================================================================
Total Net Lending to Individuals 1,379 4,049 3,732 4,943 6,622
Mortgage Lending 143 2,998 2,563 3,690 5,604
Total Value of Approvals 13,612 14,554 16,455 18,056 22,283
No. of Applications (000's) 32 33 35 40 55
Consumer Credit 1,236 1,051 1,169 1,253 1,018
------------- Growth rates -----------------
Total Net Lending to Individuals
1 month 0.1% 0.3% 0.3% 0.3% 0.5%
3 month annualized 2.6% 3.6% 4.3% 5.6% 6.8%
12 month 6.2% 6.9% 7.4% 8.0% 8.4%
=============================================================================
Aug. July June May April
2008 2008 2008 2008 2008
=============================================================================
Mortgage Lending
1 month 0.0% 0.2% 0.2% 0.3% 0.5%
3 month annualized 1.9% 3.1% 4.0% 5.3% 6.5%
12 month 6.0% 6.9% 7.5% 8.1% 8.7%
Consumer Credit
1 month 0.5% 0.5% 0.5% 0.5% 0.4%
3 month annualized 6.1% 6.2% 6.1% 6.9% 8.1%
12 month 6.8% 6.9% 6.9% 7.0% 6.8%
=============================================================================
Note: All levels (except approvals 000's) are in millions of pounds.
To contact the reporter on this story: Mark Evans in London at mevans8@bloomberg.net
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Canada's Harper Says Financial Crisis Caused by U.S. Policies
By Theophilos Argitis
Sept. 29 (Bloomberg) -- Canadian Prime Minister Stephen Harper, vying for re-election on Oct. 14, signaled his government can do little to help resolve the financial crisis that he and his Group of Seven colleagues say was caused by U.S. policies.
Poor oversight, cheap credit and a tax structure that may encourage housing bubbles are among the reasons for the turmoil roiling U.S. markets, Harper said in an interview. Canada has stronger regulation than the U.S. and its financial institutions are ``strongly capitalized,'' Harper said.
``A lot of things have gone wrong here and, by the way, there were a lot of warning signs. This should not be a huge surprise,'' Harper, 49, said aboard his campaign plane. ``I certainly had expressed my concerns about some of these things to my American counterparts in the time leading up to this.''
Harper joined a growing chorus of criticism within the Group of Seven industrialized nations over the way the financial system has been managed in the world's biggest economy, highlighting the U.S.'s isolation as it seeks to stop the rout. Canada is the biggest U.S. trading partner and one of its closest G-7 allies.
French President Nicolas Sarkozy, speaking at the United Nations on Sept. 23, urged a November summit of the world's major economies to deal with the ``mad system'' that he says produced the meltdown. German Finance Minister Peer Steinbrueck used a speech last week to say the ``Anglo-Saxon'' model of banking has ``an exaggerated fixation on returns.''
`New rules'
Sarkozy told reporters his proposed meeting should establish ``principles and new rules'' to regulate financial markets and punish those who ``jeopardize people's savings.'' Leaders should focus on excessive executive salaries that reward success without penalizing failure, he said.
U.S. allies have refused to back Treasury Secretary Henry Paulson's $700 billion rescue plan. Earlier, Paulson had said he was confident that several nations would take steps comparable to his measure, under which the government would buy up mortgage-related securities to stem the financial crisis.
Asked whether there was anything more that Canada might be able to do to help restore stability in global markets, Harper said: ``Not that comes to mind.''
Playing Catch-Up
While there may be ``legislative steps'' in the future to bolster regulation, Harper said Canada has better rules than the U.S. and its financial system is dominated by commercial banks with ``clear asset bases,'' not institutions involved in the ``merchant banking, money manager'' area that are more vulnerable.
``Far more preferable to properly regulate and manage the system than to have to step in later,'' Harper said. Stronger oversight in Canada means ``right now, we're avoiding having to go in and be the underwriter of private financial industries.''
Harper said one factor behind the U.S. crisis is ``over- deregulation'' and regulators that often are grasping to play ``catch-up'' with increasingly complex financial instruments. There is also an ``inherent bias'' in the U.S. tax code that gives homeowners incentives to take on too much debt, he said.
U.S. taxpayers are allowed to deduct the interest on their home mortgages, something not permitted in Canada.
``Some of it may be regulation, some of it may be, and this would be something not popular to say if I were an American politician, mortgage interest deductibility,'' Harper said. ``There is an inherent bias in the tax code for people over-leveraging.''
Mismanagement
He also cited ``mismanagement'' of housing lenders Freddie Mac and Fannie Mae, which were taken over earlier this month, and indications the Federal Reserve may have kept borrowing costs too low. ``Interest rates had gone down too far'' in the U.S., Harper said.
The Bank of Canada's reluctance to tame the country's currency by cutting interest rates may have helped Canada avoid being in a similar position, Harper said. The gap between Canadian and U.S. benchmark interest rates widened to the most since June 2004 earlier this year, keeping Canada's currency close to parity with the U.S. dollar which hurt exports.
``The Bank of Canada deserves to be complimented,'' Harper said. ``Some of us were skeptical at the time about, you know, that we were allowing the differential to widen and seeing the dollar going up.''
The U.S. now has few options but to bail out investors, Harper said, adding he's optimistic Paulson's plan will help.
``The first objective right now is stability of the financial system, Harper said.
Polls show Harper's Conservatives are poised for their first back-to-back victories in two decades, largely because of the party's perceived superiority on economic issues. An Ipsos Reid poll on Sept. 22 showed 26 percent of Canadians say the economy is their top campaign issue, compared with 11 percent for the environment.
Harper, Canada's first elected Conservative prime minister since Brian Mulroney served from 1984 to 1993, ended 13 years of Liberal rule when he won power in 2006. He had to govern with 27 seats short of a majority in the 308-member Parliament, meaning he needed rival parties' help to pass legislation.
To contact the reporter on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net.
Read more...
Sept. 29 (Bloomberg) -- Canadian Prime Minister Stephen Harper, vying for re-election on Oct. 14, signaled his government can do little to help resolve the financial crisis that he and his Group of Seven colleagues say was caused by U.S. policies.
Poor oversight, cheap credit and a tax structure that may encourage housing bubbles are among the reasons for the turmoil roiling U.S. markets, Harper said in an interview. Canada has stronger regulation than the U.S. and its financial institutions are ``strongly capitalized,'' Harper said.
``A lot of things have gone wrong here and, by the way, there were a lot of warning signs. This should not be a huge surprise,'' Harper, 49, said aboard his campaign plane. ``I certainly had expressed my concerns about some of these things to my American counterparts in the time leading up to this.''
Harper joined a growing chorus of criticism within the Group of Seven industrialized nations over the way the financial system has been managed in the world's biggest economy, highlighting the U.S.'s isolation as it seeks to stop the rout. Canada is the biggest U.S. trading partner and one of its closest G-7 allies.
French President Nicolas Sarkozy, speaking at the United Nations on Sept. 23, urged a November summit of the world's major economies to deal with the ``mad system'' that he says produced the meltdown. German Finance Minister Peer Steinbrueck used a speech last week to say the ``Anglo-Saxon'' model of banking has ``an exaggerated fixation on returns.''
`New rules'
Sarkozy told reporters his proposed meeting should establish ``principles and new rules'' to regulate financial markets and punish those who ``jeopardize people's savings.'' Leaders should focus on excessive executive salaries that reward success without penalizing failure, he said.
U.S. allies have refused to back Treasury Secretary Henry Paulson's $700 billion rescue plan. Earlier, Paulson had said he was confident that several nations would take steps comparable to his measure, under which the government would buy up mortgage-related securities to stem the financial crisis.
Asked whether there was anything more that Canada might be able to do to help restore stability in global markets, Harper said: ``Not that comes to mind.''
Playing Catch-Up
While there may be ``legislative steps'' in the future to bolster regulation, Harper said Canada has better rules than the U.S. and its financial system is dominated by commercial banks with ``clear asset bases,'' not institutions involved in the ``merchant banking, money manager'' area that are more vulnerable.
``Far more preferable to properly regulate and manage the system than to have to step in later,'' Harper said. Stronger oversight in Canada means ``right now, we're avoiding having to go in and be the underwriter of private financial industries.''
Harper said one factor behind the U.S. crisis is ``over- deregulation'' and regulators that often are grasping to play ``catch-up'' with increasingly complex financial instruments. There is also an ``inherent bias'' in the U.S. tax code that gives homeowners incentives to take on too much debt, he said.
U.S. taxpayers are allowed to deduct the interest on their home mortgages, something not permitted in Canada.
``Some of it may be regulation, some of it may be, and this would be something not popular to say if I were an American politician, mortgage interest deductibility,'' Harper said. ``There is an inherent bias in the tax code for people over-leveraging.''
Mismanagement
He also cited ``mismanagement'' of housing lenders Freddie Mac and Fannie Mae, which were taken over earlier this month, and indications the Federal Reserve may have kept borrowing costs too low. ``Interest rates had gone down too far'' in the U.S., Harper said.
The Bank of Canada's reluctance to tame the country's currency by cutting interest rates may have helped Canada avoid being in a similar position, Harper said. The gap between Canadian and U.S. benchmark interest rates widened to the most since June 2004 earlier this year, keeping Canada's currency close to parity with the U.S. dollar which hurt exports.
``The Bank of Canada deserves to be complimented,'' Harper said. ``Some of us were skeptical at the time about, you know, that we were allowing the differential to widen and seeing the dollar going up.''
The U.S. now has few options but to bail out investors, Harper said, adding he's optimistic Paulson's plan will help.
``The first objective right now is stability of the financial system, Harper said.
Polls show Harper's Conservatives are poised for their first back-to-back victories in two decades, largely because of the party's perceived superiority on economic issues. An Ipsos Reid poll on Sept. 22 showed 26 percent of Canadians say the economy is their top campaign issue, compared with 11 percent for the environment.
Harper, Canada's first elected Conservative prime minister since Brian Mulroney served from 1984 to 1993, ended 13 years of Liberal rule when he won power in 2006. He had to govern with 27 seats short of a majority in the 308-member Parliament, meaning he needed rival parties' help to pass legislation.
To contact the reporter on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net.
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Paulson Must Make $700 Billion Rescue for Banks Work
By Scott Lanman and Christopher Stern
Enlarge Image/Details
Sept. 29 (Bloomberg) -- Treasury Secretary Henry Paulson and congressional Democrats hammered out a consensus on spending up to $700 billion to rescue the financial industry. There isn't consensus on whether it would work.
Lawmakers reached agreement yesterday as House Republican leaders backed away from opposition to the proposal after it included plans to create insurance for mortgage-backed securities. The House and Senate are scheduled to vote on the bill early this week, although it wasn't clear last night that it has sufficient votes to pass the House.
Giving Treasury authority to buy so many distressed securities from lenders is without precedent, and it's unclear how the government will pay prices that strike a balance between protecting taxpayers and preventing more bank failures.
``This has a reasonable chance of pulling back from the brink and having some success, but it's far from certain that will be the case,'' said former Fed Governor Laurence Meyer, now vice chairman of consultant Macroeconomic Advisers LLC in Washington.
``The markets are going to love it because it's a massive subsidy of shareholders and unsecured creditors,'' said Nouriel Roubini, chairman of Roubini Global Economics and economics professor at New York University. ``But you're not resolving the two fundamental issues: You still have to recapitalize the banking system, and household debt is going to stay high.''
U.S. stock futures fell on concern that plan won't avert more failures, with the S&P 500 future for December delivery down 2.1 percent to 1189.30 at 10:35 a.m. in Paris. The dollar gained 1.9 percent against the euro to $1.4342 and treasuries also gained.
Immediate Cash
The bill gives Paulson $250 billion at the start to buy assets, increasing the amount to $350 billion upon ``written certification'' from the president that the secretary is ``exercising the authority'' to buy assets. The Treasury chief, or whoever succeeds him, may use the remaining $350 billion if Congress fails to reject a request for it within 15 days.
The proposed law lets Paulson buy assets ``at the lowest price that the Secretary determines to be consistent with the purposes of this Act.'' The bill doesn't require any specific method for the purchases beyond saying mechanisms such as auctions or reverse auctions should be used ``when appropriate.'' Treasury officials declined to discuss how the plan will be implemented.
Democratic and Republican leaders trust that Paulson can avert a collapse after Lehman Brothers Holdings Inc. filed for bankruptcy and the government was forced to take over American International Group Inc. Success hinges on whether he can help banks raise capital after $556 billion in writedowns and losses, and get credit flowing through the economy.
`Far Worse Pain'
``We have clearly seen a run of failures of financial institutions not like anything we've seen since the Great Depression,'' House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, told reporters yesterday. ``If we didn't do this, there would be far worse pain in the sense of the lending freezing up.''
``It's a fragile situation,'' Paulson said in an interview on CBS television's ``60 Minutes'' program broadcast yesterday. ``It's gotta do it, and we're going to make this work.''
The draft legislation was posted on the House Financial Services Committee's Web site yesterday. It includes a provision to give taxpayers equity stakes in the companies that benefit from the plan.
The bill has a section aimed at limiting the pay of executives at companies that take advantage of assistance by prohibiting tax deductions for officials that exceed $500,000, which is half the normal deductible limit. It also allows ``clawbacks'' of money already paid to executives at troubled companies and forbids so-called golden parachutes.
Community Banks
The legislation takes steps to let some 800 community banks that held preferred stock in Fannie Mae and Freddie Mac before the mortgage giants were taken over by the federal government on Sept. 7, make better use of losses for tax purposes than they would otherwise be allowed.
House Republicans offered early resistance to the Paulson plan. They complained that it put the country on the road to socialism and instead argued that elimination of the capital gains tax would spur a wave of investment that would render the bailout plan unnecessary.
House Minority Leader John Boehner of Ohio commissioned Virginia Representative Eric Cantor to draft a rival plan without telling Democrats or Paulson. The plan, which depended on self- funded insurance premiums, was abandoned after Democrats lashed out at Republicans at a White House meeting Sept. 25.
Limited Insurance
Ultimately, Republicans got none of the tax breaks they sought, though the bill includes a limited self-funded insurance program for companies that benefit from the bailout. Last night Boehner, the top House Republican, urged his colleagues to support the bailout plan.
Some House Republicans, such as Representative Mike Pence of Indiana, are still holding out. ``We now have a deal that promises to bring near-term stability to our financial turmoil, but at what price?'' Pence said in a letter to colleagues.
Pence called the plan ``the largest corporate bailout in American history'' and that it would ``nationalize almost every bad mortgage in America.''
Paulson, the 62-year-old former Goldman Sachs Group Inc. chairman, said such a strategy is necessary to stabilize financial markets. ``We will have turbulence and turmoil in our financial system for some time, but I believe that this is going to work,'' he said on ``60 Minutes.''
`Some Doubts'
Yet as members of Congress and their staffs worked late nights over the past week negotiating and writing compromise legislation, money markets failed to improve. ``It just raised some doubts in my mind whether this was going to be sufficient,'' said Meyer, who was on the Fed board when the Asian financial crisis struck in 1997.
Should the plan fail, ``there may have to be a more substantial participation by the federal government to buy mortgages,'' Frank said last night. Any alternative proposal would involve ``significant purchases directly of the foreclosed mortgages.''
Paulson and Federal Reserve Chairman Ben S. Bernanke, who will be on a five-member oversight board for the program, have signaled that their priority is shoring up the nation's banks even if it means they don't get taxpayers the cheapest prices for the devalued assets the government buys.
The proposal also sets the stage for an overhaul of financial regulation next year, something Frank is already planning. The draft bill requires the Treasury secretary to report to Congress and make recommendations by April 30 on whether to regulate additional participants in the financial markets.
``It'll give us some temporary respite from the earlier pressures,'' said Joseph Mason, a Louisiana State University finance professor who formerly worked in the bank-research division of the Office of the Comptroller of the Currency. ``If we don't use that respite to design more permanent policy, we will find ourselves back in the same place.''
To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net; Christopher Stern in Washington at cstern3@bloomberg.net.
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Enlarge Image/Details
Sept. 29 (Bloomberg) -- Treasury Secretary Henry Paulson and congressional Democrats hammered out a consensus on spending up to $700 billion to rescue the financial industry. There isn't consensus on whether it would work.
Lawmakers reached agreement yesterday as House Republican leaders backed away from opposition to the proposal after it included plans to create insurance for mortgage-backed securities. The House and Senate are scheduled to vote on the bill early this week, although it wasn't clear last night that it has sufficient votes to pass the House.
Giving Treasury authority to buy so many distressed securities from lenders is without precedent, and it's unclear how the government will pay prices that strike a balance between protecting taxpayers and preventing more bank failures.
``This has a reasonable chance of pulling back from the brink and having some success, but it's far from certain that will be the case,'' said former Fed Governor Laurence Meyer, now vice chairman of consultant Macroeconomic Advisers LLC in Washington.
``The markets are going to love it because it's a massive subsidy of shareholders and unsecured creditors,'' said Nouriel Roubini, chairman of Roubini Global Economics and economics professor at New York University. ``But you're not resolving the two fundamental issues: You still have to recapitalize the banking system, and household debt is going to stay high.''
U.S. stock futures fell on concern that plan won't avert more failures, with the S&P 500 future for December delivery down 2.1 percent to 1189.30 at 10:35 a.m. in Paris. The dollar gained 1.9 percent against the euro to $1.4342 and treasuries also gained.
Immediate Cash
The bill gives Paulson $250 billion at the start to buy assets, increasing the amount to $350 billion upon ``written certification'' from the president that the secretary is ``exercising the authority'' to buy assets. The Treasury chief, or whoever succeeds him, may use the remaining $350 billion if Congress fails to reject a request for it within 15 days.
The proposed law lets Paulson buy assets ``at the lowest price that the Secretary determines to be consistent with the purposes of this Act.'' The bill doesn't require any specific method for the purchases beyond saying mechanisms such as auctions or reverse auctions should be used ``when appropriate.'' Treasury officials declined to discuss how the plan will be implemented.
Democratic and Republican leaders trust that Paulson can avert a collapse after Lehman Brothers Holdings Inc. filed for bankruptcy and the government was forced to take over American International Group Inc. Success hinges on whether he can help banks raise capital after $556 billion in writedowns and losses, and get credit flowing through the economy.
`Far Worse Pain'
``We have clearly seen a run of failures of financial institutions not like anything we've seen since the Great Depression,'' House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, told reporters yesterday. ``If we didn't do this, there would be far worse pain in the sense of the lending freezing up.''
``It's a fragile situation,'' Paulson said in an interview on CBS television's ``60 Minutes'' program broadcast yesterday. ``It's gotta do it, and we're going to make this work.''
The draft legislation was posted on the House Financial Services Committee's Web site yesterday. It includes a provision to give taxpayers equity stakes in the companies that benefit from the plan.
The bill has a section aimed at limiting the pay of executives at companies that take advantage of assistance by prohibiting tax deductions for officials that exceed $500,000, which is half the normal deductible limit. It also allows ``clawbacks'' of money already paid to executives at troubled companies and forbids so-called golden parachutes.
Community Banks
The legislation takes steps to let some 800 community banks that held preferred stock in Fannie Mae and Freddie Mac before the mortgage giants were taken over by the federal government on Sept. 7, make better use of losses for tax purposes than they would otherwise be allowed.
House Republicans offered early resistance to the Paulson plan. They complained that it put the country on the road to socialism and instead argued that elimination of the capital gains tax would spur a wave of investment that would render the bailout plan unnecessary.
House Minority Leader John Boehner of Ohio commissioned Virginia Representative Eric Cantor to draft a rival plan without telling Democrats or Paulson. The plan, which depended on self- funded insurance premiums, was abandoned after Democrats lashed out at Republicans at a White House meeting Sept. 25.
Limited Insurance
Ultimately, Republicans got none of the tax breaks they sought, though the bill includes a limited self-funded insurance program for companies that benefit from the bailout. Last night Boehner, the top House Republican, urged his colleagues to support the bailout plan.
Some House Republicans, such as Representative Mike Pence of Indiana, are still holding out. ``We now have a deal that promises to bring near-term stability to our financial turmoil, but at what price?'' Pence said in a letter to colleagues.
Pence called the plan ``the largest corporate bailout in American history'' and that it would ``nationalize almost every bad mortgage in America.''
Paulson, the 62-year-old former Goldman Sachs Group Inc. chairman, said such a strategy is necessary to stabilize financial markets. ``We will have turbulence and turmoil in our financial system for some time, but I believe that this is going to work,'' he said on ``60 Minutes.''
`Some Doubts'
Yet as members of Congress and their staffs worked late nights over the past week negotiating and writing compromise legislation, money markets failed to improve. ``It just raised some doubts in my mind whether this was going to be sufficient,'' said Meyer, who was on the Fed board when the Asian financial crisis struck in 1997.
Should the plan fail, ``there may have to be a more substantial participation by the federal government to buy mortgages,'' Frank said last night. Any alternative proposal would involve ``significant purchases directly of the foreclosed mortgages.''
Paulson and Federal Reserve Chairman Ben S. Bernanke, who will be on a five-member oversight board for the program, have signaled that their priority is shoring up the nation's banks even if it means they don't get taxpayers the cheapest prices for the devalued assets the government buys.
The proposal also sets the stage for an overhaul of financial regulation next year, something Frank is already planning. The draft bill requires the Treasury secretary to report to Congress and make recommendations by April 30 on whether to regulate additional participants in the financial markets.
``It'll give us some temporary respite from the earlier pressures,'' said Joseph Mason, a Louisiana State University finance professor who formerly worked in the bank-research division of the Office of the Comptroller of the Currency. ``If we don't use that respite to design more permanent policy, we will find ourselves back in the same place.''
To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net; Christopher Stern in Washington at cstern3@bloomberg.net.
Read more...
Australia, Japan Pump In Cash to Combat Credit Freeze
By David Yong and Garfield Reynolds
Sept. 29 (Bloomberg) -- Japan and Australia's central banks added more than $20 billion to money markets as agreement on a $700 billion plan to revive the U.S. financial system failed to bring down interbank lending rates.
Singapore's benchmark rate for three-month U.S. dollar loans rose one basis point to 3.79 percent, the most in eight months. Australian funding costs held near a six-month high as banks kept a record amount of cash at the central bank. Short- term rates for loans between banks jumped in Hong Kong and Japan as Belgium and the U.K. rescued their biggest lenders.
``When you have a global credit crisis, there's definitely counterparty risk involved in funding activities,'' said Thomas Harr, a senior currency strategist at Standard Chartered Plc in Singapore. ``If the bailout package is approved, it could help the situation somewhat as banks may become less scared of lending to each other.''
Money-market rates are signaling banks' reluctance to lend to each other as U.S. lawmakers may vote on an emergency bill by Oct. 1 to give the Treasury as much as $700 billion to buy tainted mortgage debt from banks to unfreeze credit markets.
Global banks chalked up $555.9 billion of writedowns tied to the collapse of U.S. subprime mortgage market, sending Lehman Brothers Holdings Inc. into the biggest bankruptcy and making Washington Mutual Inc. the largest bank failure in U.S. history. Fortis received a $16.3 billion bailout from the governments of Belgium, Netherlands and Luxembourg and the U.K. government may nationalize mortgage lender Bradford & Bingley Plc.
Singapore's three-month interbank offered rate for U.S. dollars, or Sibor, rose 1 basis point, or 0.01 percentage point 3.79 percent, the highest since Jan. 22, according to the Association of Banks in Singapore. In Hong Kong, the three-monthHibor jumped 9 basis points to 3.49 percent, the Association of Banks in Hong Kong said. The cost reached 3.8 percent on Sept. 25, the most since December 2007.
``Rates may still stay higher than normal because questions remain,'' said Song Seng Wun, an economist at CIMB-GK Securities Ltd. in Singapore. ``It's really now the devil in the details in the bailout package.''
Cash Injection
The Bank of Japan injected 1.9 trillion yen ($17.9 billion) today. It has added about 15 trillion yen to the system the past two weeks, the most in at least six years.
Japan's overnight call loan rate stood at 0.41 percent as of 3:10 p.m. in Tokyo, from 0.525 percent on Sept. 26, according to Tokyo Tanshi Co.
The Reserve Bank of Australia added A$2.72 billion ($2.3 billion) and has pumped in more than A$2 billion a day on average since Sept. 15, more than twice the level for the first half of this year.
In Australia, banks had a record A$10.7 billion sitting in exchange-settlement accounts today at the Reserve Bank of Australia after the cash injection. Those accounts are on-call deposits that earn interest at 0.25 percentage point below the central bank's overnight cash target rate of 7 percent.
``The interbank lending market has pretty much dried up so everyone is holding onto their own money,'' Joshua Williamson, a senior strategist at TD Securities Ltd. in Sydney, said in a telephone interview. ``Australia's banks are taking a wait-and- see approach toward the U.S. bailout.''
Borrowing Costs
Borrowing costs among Australian lenders were little changed today, holding near the highest since Bear Stearns Cos. collapsed six months ago, according to a gauge that measures the availability of funds in the market.
The difference between the rate Australian banks charge each other for three-month loans and the overnight indexed swap rate stood at 90.50 basis points, or 0.9050 percentage point, at 2:12 p.m. in Sydney, from 91 basis points on Sept. 26, when it climbed as high as 98.5 basis points, Bloomberg data show. The gap has averaged 45 basis points this year.
The Reserve Bank sold A$1.55 billion of term deposits, after offering A$2 billion of them, paying 6.95 percent on A$750 million of seven-day deposits and 7.02 percent on A$800 million of 14-day deposits, according to its Web Site.
To contact the reporters on this story: David Yong in Singapore at dyong@bloomberg.net; Garfield Reynolds in Sydney at greynolds1@bloomberg.net
Read more...
Sept. 29 (Bloomberg) -- Japan and Australia's central banks added more than $20 billion to money markets as agreement on a $700 billion plan to revive the U.S. financial system failed to bring down interbank lending rates.
Singapore's benchmark rate for three-month U.S. dollar loans rose one basis point to 3.79 percent, the most in eight months. Australian funding costs held near a six-month high as banks kept a record amount of cash at the central bank. Short- term rates for loans between banks jumped in Hong Kong and Japan as Belgium and the U.K. rescued their biggest lenders.
``When you have a global credit crisis, there's definitely counterparty risk involved in funding activities,'' said Thomas Harr, a senior currency strategist at Standard Chartered Plc in Singapore. ``If the bailout package is approved, it could help the situation somewhat as banks may become less scared of lending to each other.''
Money-market rates are signaling banks' reluctance to lend to each other as U.S. lawmakers may vote on an emergency bill by Oct. 1 to give the Treasury as much as $700 billion to buy tainted mortgage debt from banks to unfreeze credit markets.
Global banks chalked up $555.9 billion of writedowns tied to the collapse of U.S. subprime mortgage market, sending Lehman Brothers Holdings Inc. into the biggest bankruptcy and making Washington Mutual Inc. the largest bank failure in U.S. history. Fortis received a $16.3 billion bailout from the governments of Belgium, Netherlands and Luxembourg and the U.K. government may nationalize mortgage lender Bradford & Bingley Plc.
Singapore's three-month interbank offered rate for U.S. dollars, or Sibor, rose 1 basis point, or 0.01 percentage point 3.79 percent, the highest since Jan. 22, according to the Association of Banks in Singapore. In Hong Kong, the three-monthHibor jumped 9 basis points to 3.49 percent, the Association of Banks in Hong Kong said. The cost reached 3.8 percent on Sept. 25, the most since December 2007.
``Rates may still stay higher than normal because questions remain,'' said Song Seng Wun, an economist at CIMB-GK Securities Ltd. in Singapore. ``It's really now the devil in the details in the bailout package.''
Cash Injection
The Bank of Japan injected 1.9 trillion yen ($17.9 billion) today. It has added about 15 trillion yen to the system the past two weeks, the most in at least six years.
Japan's overnight call loan rate stood at 0.41 percent as of 3:10 p.m. in Tokyo, from 0.525 percent on Sept. 26, according to Tokyo Tanshi Co.
The Reserve Bank of Australia added A$2.72 billion ($2.3 billion) and has pumped in more than A$2 billion a day on average since Sept. 15, more than twice the level for the first half of this year.
In Australia, banks had a record A$10.7 billion sitting in exchange-settlement accounts today at the Reserve Bank of Australia after the cash injection. Those accounts are on-call deposits that earn interest at 0.25 percentage point below the central bank's overnight cash target rate of 7 percent.
``The interbank lending market has pretty much dried up so everyone is holding onto their own money,'' Joshua Williamson, a senior strategist at TD Securities Ltd. in Sydney, said in a telephone interview. ``Australia's banks are taking a wait-and- see approach toward the U.S. bailout.''
Borrowing Costs
Borrowing costs among Australian lenders were little changed today, holding near the highest since Bear Stearns Cos. collapsed six months ago, according to a gauge that measures the availability of funds in the market.
The difference between the rate Australian banks charge each other for three-month loans and the overnight indexed swap rate stood at 90.50 basis points, or 0.9050 percentage point, at 2:12 p.m. in Sydney, from 91 basis points on Sept. 26, when it climbed as high as 98.5 basis points, Bloomberg data show. The gap has averaged 45 basis points this year.
The Reserve Bank sold A$1.55 billion of term deposits, after offering A$2 billion of them, paying 6.95 percent on A$750 million of seven-day deposits and 7.02 percent on A$800 million of 14-day deposits, according to its Web Site.
To contact the reporters on this story: David Yong in Singapore at dyong@bloomberg.net; Garfield Reynolds in Sydney at greynolds1@bloomberg.net
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Spain's September Inflation Slows as Growth Fades, Oil Falls
By Ben Sills
Sept. 29 (Bloomberg) -- Inflation in Spain eased for a second month in September as slower economic growth relieved pressure on prices and oil fell.
Consumer prices gained 4.6 percent from a year earlier using the European Union's calculation method after a 4.9 percent increase in August, the Madrid-based National Statistics Institute said in an e-mailed press release today. Economists expected Spanish price gains to slow to 4.7 percent according to the median of nine estimates in a Bloomberg News survey.
``The oil price has come down quite a way and that will have an impact,'' said Dominic Bryant, an economist at BNP Paribas in London. Furthermore, ``for Spain, the weakness of demand is such that it's going to squeeze margins.''
The Spanish economy is set to suffer its first recession in 15 years in the second half of 2008 as the collapse of the housing market drags down other industries, according to European Commission forecasts. European Central Bank President Jean-Claude Trichet held interest rates at a seven-year high this month saying that the ECB is still concerned about inflation.
To contact the reporter on this story: Ben Sills in Madrid at bsills@bloomberg.net.
Read more...
Sept. 29 (Bloomberg) -- Inflation in Spain eased for a second month in September as slower economic growth relieved pressure on prices and oil fell.
Consumer prices gained 4.6 percent from a year earlier using the European Union's calculation method after a 4.9 percent increase in August, the Madrid-based National Statistics Institute said in an e-mailed press release today. Economists expected Spanish price gains to slow to 4.7 percent according to the median of nine estimates in a Bloomberg News survey.
``The oil price has come down quite a way and that will have an impact,'' said Dominic Bryant, an economist at BNP Paribas in London. Furthermore, ``for Spain, the weakness of demand is such that it's going to squeeze margins.''
The Spanish economy is set to suffer its first recession in 15 years in the second half of 2008 as the collapse of the housing market drags down other industries, according to European Commission forecasts. European Central Bank President Jean-Claude Trichet held interest rates at a seven-year high this month saying that the ECB is still concerned about inflation.
To contact the reporter on this story: Ben Sills in Madrid at bsills@bloomberg.net.
Read more...
Aso, Brown Efforts to Save Themselves May Help Bush
By Rich Miller and Simon Kennedy
Sept. 29 (Bloomberg) -- Embattled political leaders in Tokyo and London may end up coming to the aid of President George W. Bush in containing the economic fallout from the credit crisis as political self-preservation trumps nationalism.
Confronting a recession, Japan's new prime minister, Taro Aso, is likely to promise tax cuts and higher spending in a bid to win a parliamentary election as early as next month. British Prime Minister Gordon Brown, who faces unrest in his party over its and his sagging popularity, may also opt for budget-busting measures to turn around the weakest U.K. economy since the early 1990s.
That would be welcome news for Bush and Federal Reserve Chairman Ben S. Bernanke because the U.S. has become so dependent on exports to generate growth -- gross domestic product, which expanded at a 2.8 percent annual rate in the second quarter, would have contracted were it not for trade -- that anything foreign governments do to stimulate their own economies is likely to help.
``We're heading into a global recession,'' says Simon Johnson, former chief economist at the International Monetary Fund and now a senior fellow at the Peterson Institute for International Economics in Washington, who adds that ``there's room'' for governments to do more.
Pull All Strings
Central bankers, meanwhile, are under pressure to ease credit, and investors are betting they'll do so within months. Traders see the Bank of England cutting its benchmark rate, currently 5 percent, in October, according to a financial-market index compiled by Credit Suisse Group. Economists surveyed by Bloomberg News expect the European Central Bank to do likewise early next year after keeping its rate unchanged at 4.25 percent at a meeting this week.
``Policy makers may soon be forced to pull all available strings, including rate cuts by all the major central banks,'' says Joachim Fels, co-chief economist at Morgan Stanley in London. The ECB, Bank of Japan and other central banks have already united with Bernanke to pump dollars into money markets.
Leaders in China and Russia, meanwhile, are stepping back from claims that the credit crisis is a U.S. problem and are moving to aid their countries' economies.
`I Told You So'
When the turbulence began more than a year ago, other countries let the U.S. take the lead in mitigating the impact. While policy makers in Washington cut interest rates at the fastest pace in two decades and adopted a $168 billion economic- stimulus package, their counterparts in other capitals held back.
Talk of decoupling -- the seeming ability of the rest of the world to forge ahead while the U.S. faltered -- was fashionable. Some commentary still has an ``I told you so'' tone, suggesting that America is getting its comeuppance after years of lecturing the rest of the world on the benefits of unfettered capitalism.
German Chancellor Angela Merkel chided the U.S. and the U.K. for not listening when she called last year for stronger financial regulations. ``Germany has always pointed out how necessary they are,'' she said in a Sept. 22 speech in Berlin.
But any schadenfreude is accompanied by a realization that other countries aren't immune to America's woes. ``Like everywhere in the world, the French fear for their savings, their jobs, their purchasing power,'' President Nicolas Sarkozy said Sept. 25 in Toulon.
Bad Debts
Johnson says he expects global growth to fall ``considerably'' below the 3 percent rate the IMF deems equivalent to a world recession. The international economy grew 4.9 percent last year.
Treasury Secretary Henry Paulson has called on other countries to follow the U.S. by setting up programs similar to his $700 billion plan to buy bad debts from banks. While none have done so, Japan and the U.K., among others, are shifting their policies by looking for ways to boost growth.
Japanese officials, who earlier this year were advising the U.S. on the lessons they learned bailing out their banks in the 1990s, now are focused on expansion. The world's second-largest economy contracted at a 3.3 percent rate in the second quarter.
Aso, 68, last week named Shoichi Nakagawa, an advocate of increased government spending, as finance minister, a sign the new prime minister wants to move quickly to turn the economy around. Aso's Liberal Democratic Party has historically used spending on bridges and other infrastructure to build support.
`Boost the Economy'
LDP officials predict Aso will call an early election to capitalize on any honeymoon period his government enjoys, rather than wait until lawmakers' terms expire next September. The LDP, which has ruled Japan for all but 11 months of the past half- century, trails the opposition Democratic Party of Japan in some polls.
Japan is going to be ``spending money to boost the economy, ending the strong commitment to balance the budget by 2011,'' says Hideo Kumano, chief economist at Dai-Ichi Life Research Institute in Tokyo.
The U.K.'s Brown, 57, has his own political and economic problems seven months after his government nationalized mortgage lender Northern Rock Plc. With polls showing his Labour Party trailing the opposition Conservatives by 10 percentage points and more, Brown is already under pressure from restive party members to step down.
Meanwhile, a housing slump is pushing the British economy toward its first recession since 1991. Chancellor of the Exchequer Alistair Darling said last week he will put off action to curb the government's mounting budget deficit -- 10.4 billion pounds ($19.2 billion) in August, the largest for that month since records began in 1993 -- arguing that it isn't the ``right time to be taking money out of the economy.''
Radical Steps
Brown's government today seized Bradford & Bingley Plc, the country's largest lender to landlords, after it struggled to find funding for its lending.
Jim O'Neill, head of global economic research at Goldman Sachs Group Inc. in London, says the government should follow the U.S. in taking radical steps to rescue the economy, perhaps by taking over the mortgage-lending activities of troubled banks.
``We need to consider some out-of-the-box things,'' O'Neill says. Leaders in emerging markets, until now the dynamos of the global economy, also are under pressure to offset the spreading economic troubles.
``Asia is not going to come out of this global crisis and slowdown unscathed,'' says Venkatraman Anantha-Nageswaran, head of research at Bank Julius Baer & Co. in Singapore. ``People are on the edge, and there's political pressure to ease the burden.''
Slowing Growth
Chinese officials, who earlier this year were telling the U.S. to put its house in order, are now moving to counter a slowdown in their own economy.
China Investment Corp., the government's $200 billion sovereign-wealth fund, bought shares in leading banks to shore up a stock market that is down almost 60 percent in 2008, according to the official Xinhua News Agency. China's leaders are also working on a plan for as much as 400 billion yuan ($58 billion) of spending and tax cuts following four straight quarters of slowing economic growth.
Russian policy makers have little time for self- congratulation as they struggle to contain a crisis of confidence in the country's economy and markets.
President Dmitry Medvedev this month pledged 500 billion rubles ($19.6 billion) to ensure ``the stability of the stock market.'' This was part of more than $100 billion the government said could become available through loans, tax cuts and other measures. Russia's dollar-denominated RTS Index is the second- worst performer this quarter among 88 markets tracked by Bloomberg.
``You're not seeing a lot of the gloating about the U.S. problems that you heard before,'' says Nariman Behravesh, chief economist at Global Insight Inc. in Lexington, Massachusetts. ``Instead, you're starting to see a lot of the countries starting to do some of the stuff that the U.S. has been doing.''
To contact the reporters on this story: Rich Miller in Washington at rmiller28@bloomberg.net; Simon Kennedy in Paris at skennedy4@bloomberg.net
Read more...
Sept. 29 (Bloomberg) -- Embattled political leaders in Tokyo and London may end up coming to the aid of President George W. Bush in containing the economic fallout from the credit crisis as political self-preservation trumps nationalism.
Confronting a recession, Japan's new prime minister, Taro Aso, is likely to promise tax cuts and higher spending in a bid to win a parliamentary election as early as next month. British Prime Minister Gordon Brown, who faces unrest in his party over its and his sagging popularity, may also opt for budget-busting measures to turn around the weakest U.K. economy since the early 1990s.
That would be welcome news for Bush and Federal Reserve Chairman Ben S. Bernanke because the U.S. has become so dependent on exports to generate growth -- gross domestic product, which expanded at a 2.8 percent annual rate in the second quarter, would have contracted were it not for trade -- that anything foreign governments do to stimulate their own economies is likely to help.
``We're heading into a global recession,'' says Simon Johnson, former chief economist at the International Monetary Fund and now a senior fellow at the Peterson Institute for International Economics in Washington, who adds that ``there's room'' for governments to do more.
Pull All Strings
Central bankers, meanwhile, are under pressure to ease credit, and investors are betting they'll do so within months. Traders see the Bank of England cutting its benchmark rate, currently 5 percent, in October, according to a financial-market index compiled by Credit Suisse Group. Economists surveyed by Bloomberg News expect the European Central Bank to do likewise early next year after keeping its rate unchanged at 4.25 percent at a meeting this week.
``Policy makers may soon be forced to pull all available strings, including rate cuts by all the major central banks,'' says Joachim Fels, co-chief economist at Morgan Stanley in London. The ECB, Bank of Japan and other central banks have already united with Bernanke to pump dollars into money markets.
Leaders in China and Russia, meanwhile, are stepping back from claims that the credit crisis is a U.S. problem and are moving to aid their countries' economies.
`I Told You So'
When the turbulence began more than a year ago, other countries let the U.S. take the lead in mitigating the impact. While policy makers in Washington cut interest rates at the fastest pace in two decades and adopted a $168 billion economic- stimulus package, their counterparts in other capitals held back.
Talk of decoupling -- the seeming ability of the rest of the world to forge ahead while the U.S. faltered -- was fashionable. Some commentary still has an ``I told you so'' tone, suggesting that America is getting its comeuppance after years of lecturing the rest of the world on the benefits of unfettered capitalism.
German Chancellor Angela Merkel chided the U.S. and the U.K. for not listening when she called last year for stronger financial regulations. ``Germany has always pointed out how necessary they are,'' she said in a Sept. 22 speech in Berlin.
But any schadenfreude is accompanied by a realization that other countries aren't immune to America's woes. ``Like everywhere in the world, the French fear for their savings, their jobs, their purchasing power,'' President Nicolas Sarkozy said Sept. 25 in Toulon.
Bad Debts
Johnson says he expects global growth to fall ``considerably'' below the 3 percent rate the IMF deems equivalent to a world recession. The international economy grew 4.9 percent last year.
Treasury Secretary Henry Paulson has called on other countries to follow the U.S. by setting up programs similar to his $700 billion plan to buy bad debts from banks. While none have done so, Japan and the U.K., among others, are shifting their policies by looking for ways to boost growth.
Japanese officials, who earlier this year were advising the U.S. on the lessons they learned bailing out their banks in the 1990s, now are focused on expansion. The world's second-largest economy contracted at a 3.3 percent rate in the second quarter.
Aso, 68, last week named Shoichi Nakagawa, an advocate of increased government spending, as finance minister, a sign the new prime minister wants to move quickly to turn the economy around. Aso's Liberal Democratic Party has historically used spending on bridges and other infrastructure to build support.
`Boost the Economy'
LDP officials predict Aso will call an early election to capitalize on any honeymoon period his government enjoys, rather than wait until lawmakers' terms expire next September. The LDP, which has ruled Japan for all but 11 months of the past half- century, trails the opposition Democratic Party of Japan in some polls.
Japan is going to be ``spending money to boost the economy, ending the strong commitment to balance the budget by 2011,'' says Hideo Kumano, chief economist at Dai-Ichi Life Research Institute in Tokyo.
The U.K.'s Brown, 57, has his own political and economic problems seven months after his government nationalized mortgage lender Northern Rock Plc. With polls showing his Labour Party trailing the opposition Conservatives by 10 percentage points and more, Brown is already under pressure from restive party members to step down.
Meanwhile, a housing slump is pushing the British economy toward its first recession since 1991. Chancellor of the Exchequer Alistair Darling said last week he will put off action to curb the government's mounting budget deficit -- 10.4 billion pounds ($19.2 billion) in August, the largest for that month since records began in 1993 -- arguing that it isn't the ``right time to be taking money out of the economy.''
Radical Steps
Brown's government today seized Bradford & Bingley Plc, the country's largest lender to landlords, after it struggled to find funding for its lending.
Jim O'Neill, head of global economic research at Goldman Sachs Group Inc. in London, says the government should follow the U.S. in taking radical steps to rescue the economy, perhaps by taking over the mortgage-lending activities of troubled banks.
``We need to consider some out-of-the-box things,'' O'Neill says. Leaders in emerging markets, until now the dynamos of the global economy, also are under pressure to offset the spreading economic troubles.
``Asia is not going to come out of this global crisis and slowdown unscathed,'' says Venkatraman Anantha-Nageswaran, head of research at Bank Julius Baer & Co. in Singapore. ``People are on the edge, and there's political pressure to ease the burden.''
Slowing Growth
Chinese officials, who earlier this year were telling the U.S. to put its house in order, are now moving to counter a slowdown in their own economy.
China Investment Corp., the government's $200 billion sovereign-wealth fund, bought shares in leading banks to shore up a stock market that is down almost 60 percent in 2008, according to the official Xinhua News Agency. China's leaders are also working on a plan for as much as 400 billion yuan ($58 billion) of spending and tax cuts following four straight quarters of slowing economic growth.
Russian policy makers have little time for self- congratulation as they struggle to contain a crisis of confidence in the country's economy and markets.
President Dmitry Medvedev this month pledged 500 billion rubles ($19.6 billion) to ensure ``the stability of the stock market.'' This was part of more than $100 billion the government said could become available through loans, tax cuts and other measures. Russia's dollar-denominated RTS Index is the second- worst performer this quarter among 88 markets tracked by Bloomberg.
``You're not seeing a lot of the gloating about the U.S. problems that you heard before,'' says Nariman Behravesh, chief economist at Global Insight Inc. in Lexington, Massachusetts. ``Instead, you're starting to see a lot of the countries starting to do some of the stuff that the U.S. has been doing.''
To contact the reporters on this story: Rich Miller in Washington at rmiller28@bloomberg.net; Simon Kennedy in Paris at skennedy4@bloomberg.net
Read more...
Aso, Brown Efforts to Save Themselves May Help Bush
By Rich Miller and Simon Kennedy
Sept. 29 (Bloomberg) -- Embattled political leaders in Tokyo and London may end up coming to the aid of President George W. Bush in containing the economic fallout from the credit crisis as political self-preservation trumps nationalism.
Confronting a recession, Japan's new prime minister, Taro Aso, is likely to promise tax cuts and higher spending in a bid to win a parliamentary election as early as next month. British Prime Minister Gordon Brown, who faces unrest in his party over its and his sagging popularity, may also opt for budget-busting measures to turn around the weakest U.K. economy since the early 1990s.
That would be welcome news for Bush and Federal Reserve Chairman Ben S. Bernanke because the U.S. has become so dependent on exports to generate growth -- gross domestic product, which expanded at a 2.8 percent annual rate in the second quarter, would have contracted were it not for trade -- that anything foreign governments do to stimulate their own economies is likely to help.
``We're heading into a global recession,'' says Simon Johnson, former chief economist at the International Monetary Fund and now a senior fellow at the Peterson Institute for International Economics in Washington, who adds that ``there's room'' for governments to do more.
Pull All Strings
Central bankers, meanwhile, are under pressure to ease credit, and investors are betting they'll do so within months. Traders see the Bank of England cutting its benchmark rate, currently 5 percent, in October, according to a financial-market index compiled by Credit Suisse Group. Economists surveyed by Bloomberg News expect the European Central Bank to do likewise early next year after keeping its rate unchanged at 4.25 percent at a meeting this week.
``Policy makers may soon be forced to pull all available strings, including rate cuts by all the major central banks,'' says Joachim Fels, co-chief economist at Morgan Stanley in London. The ECB, Bank of Japan and other central banks have already united with Bernanke to pump dollars into money markets.
Leaders in China and Russia, meanwhile, are stepping back from claims that the credit crisis is a U.S. problem and are moving to aid their countries' economies.
`I Told You So'
When the turbulence began more than a year ago, other countries let the U.S. take the lead in mitigating the impact. While policy makers in Washington cut interest rates at the fastest pace in two decades and adopted a $168 billion economic- stimulus package, their counterparts in other capitals held back.
Talk of decoupling -- the seeming ability of the rest of the world to forge ahead while the U.S. faltered -- was fashionable. Some commentary still has an ``I told you so'' tone, suggesting that America is getting its comeuppance after years of lecturing the rest of the world on the benefits of unfettered capitalism.
German Chancellor Angela Merkel chided the U.S. and the U.K. for not listening when she called last year for stronger financial regulations. ``Germany has always pointed out how necessary they are,'' she said in a Sept. 22 speech in Berlin.
But any schadenfreude is accompanied by a realization that other countries aren't immune to America's woes. ``Like everywhere in the world, the French fear for their savings, their jobs, their purchasing power,'' President Nicolas Sarkozy said Sept. 25 in Toulon.
Bad Debts
Johnson says he expects global growth to fall ``considerably'' below the 3 percent rate the IMF deems equivalent to a world recession. The international economy grew 4.9 percent last year.
Treasury Secretary Henry Paulson has called on other countries to follow the U.S. by setting up programs similar to his $700 billion plan to buy bad debts from banks. While none have done so, Japan and the U.K., among others, are shifting their policies by looking for ways to boost growth.
Japanese officials, who earlier this year were advising the U.S. on the lessons they learned bailing out their banks in the 1990s, now are focused on expansion. The world's second-largest economy contracted at a 3.3 percent rate in the second quarter.
Aso, 68, last week named Shoichi Nakagawa, an advocate of increased government spending, as finance minister, a sign the new prime minister wants to move quickly to turn the economy around. Aso's Liberal Democratic Party has historically used spending on bridges and other infrastructure to build support.
`Boost the Economy'
LDP officials predict Aso will call an early election to capitalize on any honeymoon period his government enjoys, rather than wait until lawmakers' terms expire next September. The LDP, which has ruled Japan for all but 11 months of the past half- century, trails the opposition Democratic Party of Japan in some polls.
Japan is going to be ``spending money to boost the economy, ending the strong commitment to balance the budget by 2011,'' says Hideo Kumano, chief economist at Dai-Ichi Life Research Institute in Tokyo.
The U.K.'s Brown, 57, has his own political and economic problems seven months after his government nationalized mortgage lender Northern Rock Plc. With polls showing his Labour Party trailing the opposition Conservatives by 10 percentage points and more, Brown is already under pressure from restive party members to step down.
Meanwhile, a housing slump is pushing the British economy toward its first recession since 1991. Chancellor of the Exchequer Alistair Darling said last week he will put off action to curb the government's mounting budget deficit -- 10.4 billion pounds ($19.2 billion) in August, the largest for that month since records began in 1993 -- arguing that it isn't the ``right time to be taking money out of the economy.''
Radical Steps
Brown's government today seized Bradford & Bingley Plc, the country's largest lender to landlords, after it struggled to find funding for its lending.
Jim O'Neill, head of global economic research at Goldman Sachs Group Inc. in London, says the government should follow the U.S. in taking radical steps to rescue the economy, perhaps by taking over the mortgage-lending activities of troubled banks.
``We need to consider some out-of-the-box things,'' O'Neill says. Leaders in emerging markets, until now the dynamos of the global economy, also are under pressure to offset the spreading economic troubles.
``Asia is not going to come out of this global crisis and slowdown unscathed,'' says Venkatraman Anantha-Nageswaran, head of research at Bank Julius Baer & Co. in Singapore. ``People are on the edge, and there's political pressure to ease the burden.''
Slowing Growth
Chinese officials, who earlier this year were telling the U.S. to put its house in order, are now moving to counter a slowdown in their own economy.
China Investment Corp., the government's $200 billion sovereign-wealth fund, bought shares in leading banks to shore up a stock market that is down almost 60 percent in 2008, according to the official Xinhua News Agency. China's leaders are also working on a plan for as much as 400 billion yuan ($58 billion) of spending and tax cuts following four straight quarters of slowing economic growth.
Russian policy makers have little time for self- congratulation as they struggle to contain a crisis of confidence in the country's economy and markets.
President Dmitry Medvedev this month pledged 500 billion rubles ($19.6 billion) to ensure ``the stability of the stock market.'' This was part of more than $100 billion the government said could become available through loans, tax cuts and other measures. Russia's dollar-denominated RTS Index is the second- worst performer this quarter among 88 markets tracked by Bloomberg.
``You're not seeing a lot of the gloating about the U.S. problems that you heard before,'' says Nariman Behravesh, chief economist at Global Insight Inc. in Lexington, Massachusetts. ``Instead, you're starting to see a lot of the countries starting to do some of the stuff that the U.S. has been doing.''
To contact the reporters on this story: Rich Miller in Washington at rmiller28@bloomberg.net; Simon Kennedy in Paris at skennedy4@bloomberg.net
Read more...
Sept. 29 (Bloomberg) -- Embattled political leaders in Tokyo and London may end up coming to the aid of President George W. Bush in containing the economic fallout from the credit crisis as political self-preservation trumps nationalism.
Confronting a recession, Japan's new prime minister, Taro Aso, is likely to promise tax cuts and higher spending in a bid to win a parliamentary election as early as next month. British Prime Minister Gordon Brown, who faces unrest in his party over its and his sagging popularity, may also opt for budget-busting measures to turn around the weakest U.K. economy since the early 1990s.
That would be welcome news for Bush and Federal Reserve Chairman Ben S. Bernanke because the U.S. has become so dependent on exports to generate growth -- gross domestic product, which expanded at a 2.8 percent annual rate in the second quarter, would have contracted were it not for trade -- that anything foreign governments do to stimulate their own economies is likely to help.
``We're heading into a global recession,'' says Simon Johnson, former chief economist at the International Monetary Fund and now a senior fellow at the Peterson Institute for International Economics in Washington, who adds that ``there's room'' for governments to do more.
Pull All Strings
Central bankers, meanwhile, are under pressure to ease credit, and investors are betting they'll do so within months. Traders see the Bank of England cutting its benchmark rate, currently 5 percent, in October, according to a financial-market index compiled by Credit Suisse Group. Economists surveyed by Bloomberg News expect the European Central Bank to do likewise early next year after keeping its rate unchanged at 4.25 percent at a meeting this week.
``Policy makers may soon be forced to pull all available strings, including rate cuts by all the major central banks,'' says Joachim Fels, co-chief economist at Morgan Stanley in London. The ECB, Bank of Japan and other central banks have already united with Bernanke to pump dollars into money markets.
Leaders in China and Russia, meanwhile, are stepping back from claims that the credit crisis is a U.S. problem and are moving to aid their countries' economies.
`I Told You So'
When the turbulence began more than a year ago, other countries let the U.S. take the lead in mitigating the impact. While policy makers in Washington cut interest rates at the fastest pace in two decades and adopted a $168 billion economic- stimulus package, their counterparts in other capitals held back.
Talk of decoupling -- the seeming ability of the rest of the world to forge ahead while the U.S. faltered -- was fashionable. Some commentary still has an ``I told you so'' tone, suggesting that America is getting its comeuppance after years of lecturing the rest of the world on the benefits of unfettered capitalism.
German Chancellor Angela Merkel chided the U.S. and the U.K. for not listening when she called last year for stronger financial regulations. ``Germany has always pointed out how necessary they are,'' she said in a Sept. 22 speech in Berlin.
But any schadenfreude is accompanied by a realization that other countries aren't immune to America's woes. ``Like everywhere in the world, the French fear for their savings, their jobs, their purchasing power,'' President Nicolas Sarkozy said Sept. 25 in Toulon.
Bad Debts
Johnson says he expects global growth to fall ``considerably'' below the 3 percent rate the IMF deems equivalent to a world recession. The international economy grew 4.9 percent last year.
Treasury Secretary Henry Paulson has called on other countries to follow the U.S. by setting up programs similar to his $700 billion plan to buy bad debts from banks. While none have done so, Japan and the U.K., among others, are shifting their policies by looking for ways to boost growth.
Japanese officials, who earlier this year were advising the U.S. on the lessons they learned bailing out their banks in the 1990s, now are focused on expansion. The world's second-largest economy contracted at a 3.3 percent rate in the second quarter.
Aso, 68, last week named Shoichi Nakagawa, an advocate of increased government spending, as finance minister, a sign the new prime minister wants to move quickly to turn the economy around. Aso's Liberal Democratic Party has historically used spending on bridges and other infrastructure to build support.
`Boost the Economy'
LDP officials predict Aso will call an early election to capitalize on any honeymoon period his government enjoys, rather than wait until lawmakers' terms expire next September. The LDP, which has ruled Japan for all but 11 months of the past half- century, trails the opposition Democratic Party of Japan in some polls.
Japan is going to be ``spending money to boost the economy, ending the strong commitment to balance the budget by 2011,'' says Hideo Kumano, chief economist at Dai-Ichi Life Research Institute in Tokyo.
The U.K.'s Brown, 57, has his own political and economic problems seven months after his government nationalized mortgage lender Northern Rock Plc. With polls showing his Labour Party trailing the opposition Conservatives by 10 percentage points and more, Brown is already under pressure from restive party members to step down.
Meanwhile, a housing slump is pushing the British economy toward its first recession since 1991. Chancellor of the Exchequer Alistair Darling said last week he will put off action to curb the government's mounting budget deficit -- 10.4 billion pounds ($19.2 billion) in August, the largest for that month since records began in 1993 -- arguing that it isn't the ``right time to be taking money out of the economy.''
Radical Steps
Brown's government today seized Bradford & Bingley Plc, the country's largest lender to landlords, after it struggled to find funding for its lending.
Jim O'Neill, head of global economic research at Goldman Sachs Group Inc. in London, says the government should follow the U.S. in taking radical steps to rescue the economy, perhaps by taking over the mortgage-lending activities of troubled banks.
``We need to consider some out-of-the-box things,'' O'Neill says. Leaders in emerging markets, until now the dynamos of the global economy, also are under pressure to offset the spreading economic troubles.
``Asia is not going to come out of this global crisis and slowdown unscathed,'' says Venkatraman Anantha-Nageswaran, head of research at Bank Julius Baer & Co. in Singapore. ``People are on the edge, and there's political pressure to ease the burden.''
Slowing Growth
Chinese officials, who earlier this year were telling the U.S. to put its house in order, are now moving to counter a slowdown in their own economy.
China Investment Corp., the government's $200 billion sovereign-wealth fund, bought shares in leading banks to shore up a stock market that is down almost 60 percent in 2008, according to the official Xinhua News Agency. China's leaders are also working on a plan for as much as 400 billion yuan ($58 billion) of spending and tax cuts following four straight quarters of slowing economic growth.
Russian policy makers have little time for self- congratulation as they struggle to contain a crisis of confidence in the country's economy and markets.
President Dmitry Medvedev this month pledged 500 billion rubles ($19.6 billion) to ensure ``the stability of the stock market.'' This was part of more than $100 billion the government said could become available through loans, tax cuts and other measures. Russia's dollar-denominated RTS Index is the second- worst performer this quarter among 88 markets tracked by Bloomberg.
``You're not seeing a lot of the gloating about the U.S. problems that you heard before,'' says Nariman Behravesh, chief economist at Global Insight Inc. in Lexington, Massachusetts. ``Instead, you're starting to see a lot of the countries starting to do some of the stuff that the U.S. has been doing.''
To contact the reporters on this story: Rich Miller in Washington at rmiller28@bloomberg.net; Simon Kennedy in Paris at skennedy4@bloomberg.net
Read more...
Aso, Brown Efforts to Save Themselves May Help Bush
By Rich Miller and Simon Kennedy
Sept. 29 (Bloomberg) -- Embattled political leaders in Tokyo and London may end up coming to the aid of President George W. Bush in containing the economic fallout from the credit crisis as political self-preservation trumps nationalism.
Confronting a recession, Japan's new prime minister, Taro Aso, is likely to promise tax cuts and higher spending in a bid to win a parliamentary election as early as next month. British Prime Minister Gordon Brown, who faces unrest in his party over its and his sagging popularity, may also opt for budget-busting measures to turn around the weakest U.K. economy since the early 1990s.
That would be welcome news for Bush and Federal Reserve Chairman Ben S. Bernanke because the U.S. has become so dependent on exports to generate growth -- gross domestic product, which expanded at a 2.8 percent annual rate in the second quarter, would have contracted were it not for trade -- that anything foreign governments do to stimulate their own economies is likely to help.
``We're heading into a global recession,'' says Simon Johnson, former chief economist at the International Monetary Fund and now a senior fellow at the Peterson Institute for International Economics in Washington, who adds that ``there's room'' for governments to do more.
Pull All Strings
Central bankers, meanwhile, are under pressure to ease credit, and investors are betting they'll do so within months. Traders see the Bank of England cutting its benchmark rate, currently 5 percent, in October, according to a financial-market index compiled by Credit Suisse Group. Economists surveyed by Bloomberg News expect the European Central Bank to do likewise early next year after keeping its rate unchanged at 4.25 percent at a meeting this week.
``Policy makers may soon be forced to pull all available strings, including rate cuts by all the major central banks,'' says Joachim Fels, co-chief economist at Morgan Stanley in London. The ECB, Bank of Japan and other central banks have already united with Bernanke to pump dollars into money markets.
Leaders in China and Russia, meanwhile, are stepping back from claims that the credit crisis is a U.S. problem and are moving to aid their countries' economies.
`I Told You So'
When the turbulence began more than a year ago, other countries let the U.S. take the lead in mitigating the impact. While policy makers in Washington cut interest rates at the fastest pace in two decades and adopted a $168 billion economic- stimulus package, their counterparts in other capitals held back.
Talk of decoupling -- the seeming ability of the rest of the world to forge ahead while the U.S. faltered -- was fashionable. Some commentary still has an ``I told you so'' tone, suggesting that America is getting its comeuppance after years of lecturing the rest of the world on the benefits of unfettered capitalism.
German Chancellor Angela Merkel chided the U.S. and the U.K. for not listening when she called last year for stronger financial regulations. ``Germany has always pointed out how necessary they are,'' she said in a Sept. 22 speech in Berlin.
But any schadenfreude is accompanied by a realization that other countries aren't immune to America's woes. ``Like everywhere in the world, the French fear for their savings, their jobs, their purchasing power,'' President Nicolas Sarkozy said Sept. 25 in Toulon.
Bad Debts
Johnson says he expects global growth to fall ``considerably'' below the 3 percent rate the IMF deems equivalent to a world recession. The international economy grew 4.9 percent last year.
Treasury Secretary Henry Paulson has called on other countries to follow the U.S. by setting up programs similar to his $700 billion plan to buy bad debts from banks. While none have done so, Japan and the U.K., among others, are shifting their policies by looking for ways to boost growth.
Japanese officials, who earlier this year were advising the U.S. on the lessons they learned bailing out their banks in the 1990s, now are focused on expansion. The world's second-largest economy contracted at a 3.3 percent rate in the second quarter.
Aso, 68, last week named Shoichi Nakagawa, an advocate of increased government spending, as finance minister, a sign the new prime minister wants to move quickly to turn the economy around. Aso's Liberal Democratic Party has historically used spending on bridges and other infrastructure to build support.
`Boost the Economy'
LDP officials predict Aso will call an early election to capitalize on any honeymoon period his government enjoys, rather than wait until lawmakers' terms expire next September. The LDP, which has ruled Japan for all but 11 months of the past half- century, trails the opposition Democratic Party of Japan in some polls.
Japan is going to be ``spending money to boost the economy, ending the strong commitment to balance the budget by 2011,'' says Hideo Kumano, chief economist at Dai-Ichi Life Research Institute in Tokyo.
The U.K.'s Brown, 57, has his own political and economic problems seven months after his government nationalized mortgage lender Northern Rock Plc. With polls showing his Labour Party trailing the opposition Conservatives by 10 percentage points and more, Brown is already under pressure from restive party members to step down.
Meanwhile, a housing slump is pushing the British economy toward its first recession since 1991. Chancellor of the Exchequer Alistair Darling said last week he will put off action to curb the government's mounting budget deficit -- 10.4 billion pounds ($19.2 billion) in August, the largest for that month since records began in 1993 -- arguing that it isn't the ``right time to be taking money out of the economy.''
Radical Steps
Brown's government today seized Bradford & Bingley Plc, the country's largest lender to landlords, after it struggled to find funding for its lending.
Jim O'Neill, head of global economic research at Goldman Sachs Group Inc. in London, says the government should follow the U.S. in taking radical steps to rescue the economy, perhaps by taking over the mortgage-lending activities of troubled banks.
``We need to consider some out-of-the-box things,'' O'Neill says. Leaders in emerging markets, until now the dynamos of the global economy, also are under pressure to offset the spreading economic troubles.
``Asia is not going to come out of this global crisis and slowdown unscathed,'' says Venkatraman Anantha-Nageswaran, head of research at Bank Julius Baer & Co. in Singapore. ``People are on the edge, and there's political pressure to ease the burden.''
Slowing Growth
Chinese officials, who earlier this year were telling the U.S. to put its house in order, are now moving to counter a slowdown in their own economy.
China Investment Corp., the government's $200 billion sovereign-wealth fund, bought shares in leading banks to shore up a stock market that is down almost 60 percent in 2008, according to the official Xinhua News Agency. China's leaders are also working on a plan for as much as 400 billion yuan ($58 billion) of spending and tax cuts following four straight quarters of slowing economic growth.
Russian policy makers have little time for self- congratulation as they struggle to contain a crisis of confidence in the country's economy and markets.
President Dmitry Medvedev this month pledged 500 billion rubles ($19.6 billion) to ensure ``the stability of the stock market.'' This was part of more than $100 billion the government said could become available through loans, tax cuts and other measures. Russia's dollar-denominated RTS Index is the second- worst performer this quarter among 88 markets tracked by Bloomberg.
``You're not seeing a lot of the gloating about the U.S. problems that you heard before,'' says Nariman Behravesh, chief economist at Global Insight Inc. in Lexington, Massachusetts. ``Instead, you're starting to see a lot of the countries starting to do some of the stuff that the U.S. has been doing.''
To contact the reporters on this story: Rich Miller in Washington at rmiller28@bloomberg.net; Simon Kennedy in Paris at skennedy4@bloomberg.net
Read more...
Sept. 29 (Bloomberg) -- Embattled political leaders in Tokyo and London may end up coming to the aid of President George W. Bush in containing the economic fallout from the credit crisis as political self-preservation trumps nationalism.
Confronting a recession, Japan's new prime minister, Taro Aso, is likely to promise tax cuts and higher spending in a bid to win a parliamentary election as early as next month. British Prime Minister Gordon Brown, who faces unrest in his party over its and his sagging popularity, may also opt for budget-busting measures to turn around the weakest U.K. economy since the early 1990s.
That would be welcome news for Bush and Federal Reserve Chairman Ben S. Bernanke because the U.S. has become so dependent on exports to generate growth -- gross domestic product, which expanded at a 2.8 percent annual rate in the second quarter, would have contracted were it not for trade -- that anything foreign governments do to stimulate their own economies is likely to help.
``We're heading into a global recession,'' says Simon Johnson, former chief economist at the International Monetary Fund and now a senior fellow at the Peterson Institute for International Economics in Washington, who adds that ``there's room'' for governments to do more.
Pull All Strings
Central bankers, meanwhile, are under pressure to ease credit, and investors are betting they'll do so within months. Traders see the Bank of England cutting its benchmark rate, currently 5 percent, in October, according to a financial-market index compiled by Credit Suisse Group. Economists surveyed by Bloomberg News expect the European Central Bank to do likewise early next year after keeping its rate unchanged at 4.25 percent at a meeting this week.
``Policy makers may soon be forced to pull all available strings, including rate cuts by all the major central banks,'' says Joachim Fels, co-chief economist at Morgan Stanley in London. The ECB, Bank of Japan and other central banks have already united with Bernanke to pump dollars into money markets.
Leaders in China and Russia, meanwhile, are stepping back from claims that the credit crisis is a U.S. problem and are moving to aid their countries' economies.
`I Told You So'
When the turbulence began more than a year ago, other countries let the U.S. take the lead in mitigating the impact. While policy makers in Washington cut interest rates at the fastest pace in two decades and adopted a $168 billion economic- stimulus package, their counterparts in other capitals held back.
Talk of decoupling -- the seeming ability of the rest of the world to forge ahead while the U.S. faltered -- was fashionable. Some commentary still has an ``I told you so'' tone, suggesting that America is getting its comeuppance after years of lecturing the rest of the world on the benefits of unfettered capitalism.
German Chancellor Angela Merkel chided the U.S. and the U.K. for not listening when she called last year for stronger financial regulations. ``Germany has always pointed out how necessary they are,'' she said in a Sept. 22 speech in Berlin.
But any schadenfreude is accompanied by a realization that other countries aren't immune to America's woes. ``Like everywhere in the world, the French fear for their savings, their jobs, their purchasing power,'' President Nicolas Sarkozy said Sept. 25 in Toulon.
Bad Debts
Johnson says he expects global growth to fall ``considerably'' below the 3 percent rate the IMF deems equivalent to a world recession. The international economy grew 4.9 percent last year.
Treasury Secretary Henry Paulson has called on other countries to follow the U.S. by setting up programs similar to his $700 billion plan to buy bad debts from banks. While none have done so, Japan and the U.K., among others, are shifting their policies by looking for ways to boost growth.
Japanese officials, who earlier this year were advising the U.S. on the lessons they learned bailing out their banks in the 1990s, now are focused on expansion. The world's second-largest economy contracted at a 3.3 percent rate in the second quarter.
Aso, 68, last week named Shoichi Nakagawa, an advocate of increased government spending, as finance minister, a sign the new prime minister wants to move quickly to turn the economy around. Aso's Liberal Democratic Party has historically used spending on bridges and other infrastructure to build support.
`Boost the Economy'
LDP officials predict Aso will call an early election to capitalize on any honeymoon period his government enjoys, rather than wait until lawmakers' terms expire next September. The LDP, which has ruled Japan for all but 11 months of the past half- century, trails the opposition Democratic Party of Japan in some polls.
Japan is going to be ``spending money to boost the economy, ending the strong commitment to balance the budget by 2011,'' says Hideo Kumano, chief economist at Dai-Ichi Life Research Institute in Tokyo.
The U.K.'s Brown, 57, has his own political and economic problems seven months after his government nationalized mortgage lender Northern Rock Plc. With polls showing his Labour Party trailing the opposition Conservatives by 10 percentage points and more, Brown is already under pressure from restive party members to step down.
Meanwhile, a housing slump is pushing the British economy toward its first recession since 1991. Chancellor of the Exchequer Alistair Darling said last week he will put off action to curb the government's mounting budget deficit -- 10.4 billion pounds ($19.2 billion) in August, the largest for that month since records began in 1993 -- arguing that it isn't the ``right time to be taking money out of the economy.''
Radical Steps
Brown's government today seized Bradford & Bingley Plc, the country's largest lender to landlords, after it struggled to find funding for its lending.
Jim O'Neill, head of global economic research at Goldman Sachs Group Inc. in London, says the government should follow the U.S. in taking radical steps to rescue the economy, perhaps by taking over the mortgage-lending activities of troubled banks.
``We need to consider some out-of-the-box things,'' O'Neill says. Leaders in emerging markets, until now the dynamos of the global economy, also are under pressure to offset the spreading economic troubles.
``Asia is not going to come out of this global crisis and slowdown unscathed,'' says Venkatraman Anantha-Nageswaran, head of research at Bank Julius Baer & Co. in Singapore. ``People are on the edge, and there's political pressure to ease the burden.''
Slowing Growth
Chinese officials, who earlier this year were telling the U.S. to put its house in order, are now moving to counter a slowdown in their own economy.
China Investment Corp., the government's $200 billion sovereign-wealth fund, bought shares in leading banks to shore up a stock market that is down almost 60 percent in 2008, according to the official Xinhua News Agency. China's leaders are also working on a plan for as much as 400 billion yuan ($58 billion) of spending and tax cuts following four straight quarters of slowing economic growth.
Russian policy makers have little time for self- congratulation as they struggle to contain a crisis of confidence in the country's economy and markets.
President Dmitry Medvedev this month pledged 500 billion rubles ($19.6 billion) to ensure ``the stability of the stock market.'' This was part of more than $100 billion the government said could become available through loans, tax cuts and other measures. Russia's dollar-denominated RTS Index is the second- worst performer this quarter among 88 markets tracked by Bloomberg.
``You're not seeing a lot of the gloating about the U.S. problems that you heard before,'' says Nariman Behravesh, chief economist at Global Insight Inc. in Lexington, Massachusetts. ``Instead, you're starting to see a lot of the countries starting to do some of the stuff that the U.S. has been doing.''
To contact the reporters on this story: Rich Miller in Washington at rmiller28@bloomberg.net; Simon Kennedy in Paris at skennedy4@bloomberg.net
Read more...
U.K. Mortgage Approvals Fell to Lowest Since 1999
By Jennifer Ryan
Sept. 29 (Bloomberg) -- U.K. mortgage approvals slid in August to the lowest since at least 1999 as the global credit squeeze prompted banks and building societies to curtail credit.
Lenders approved 32,000 loans for house purchase, down from 33,000 in July, the lowest since comparable data began nine years ago, the Bank of England said. The value of those loans fell to 143 million pounds ($258 million), the lowest since April 1993.
The worst house-price slump in at least a quarter century and a tightening global credit squeeze threaten to push the economy into its first recession since 1991. Central bank policy maker Kate Barker said last week that market turmoil may constrain bank lending ``for a considerable period.''
``The reading is very low, and consistent with a further decline in house prices,'' Alan Clarke, economist at BNP Paribas SA. ``With credit conditions likely to tighten further, the supply of credit will deteriorate.''
Economists had forecast that U.K. lenders would approve 30,000 new home loans last month, according to the median of 27 estimates in a Bloomberg News survey.
During the past month, the Bank of England joined a coordinated effort by world central banks to increase the availability of dollars and ease money-market strains, with new auctions of overnight and one-week funds totalling $40 billion.
Bradford & Bingley
U.K. authorities earlier today seized the lending book of Bradford & Bingley Plc, the nation's biggest lender to landlords, and forced the company to sell its savings accounts to Banco Santander SA, Spain's biggest lender, after it had trouble financing its daily operations.
For lenders facing global financial-market turmoil, ``the adjustment is proving highly painful and it is clear that lending by U.K. banks will be very constrained, relative to the past few years, for a considerable period,'' Barker said on Sept. 25.
U.K. house prices fell an annual 6.2 percent in September, Hometrack, a London-based property research group that has been following property prices since 2001, said today. Prices fell by the most in a quarter century in August from a year earlier, HBOS Plc, whose survey began in 1983, said Sept. 4.
Households, which have a record 1.4 trillion pounds of debt, added to their unsecured borrowings, today's report showed. Net consumer credit, which includes credit cards, personal loans and overdrafts, rose by 1.2 billion pounds.
Bank of England policy makers voted to keep the key interest rate at 5 percent this month as inflation quickened to 4.7 percent, more than double the target. The economy's growth rate stalled in the second quarter. The bank will make its next interest-rate decision on Oct. 9.
To contact the reporter on this story: Jennifer Ryan in London at Jryan13@bloomberg.net
Read more...
Sept. 29 (Bloomberg) -- U.K. mortgage approvals slid in August to the lowest since at least 1999 as the global credit squeeze prompted banks and building societies to curtail credit.
Lenders approved 32,000 loans for house purchase, down from 33,000 in July, the lowest since comparable data began nine years ago, the Bank of England said. The value of those loans fell to 143 million pounds ($258 million), the lowest since April 1993.
The worst house-price slump in at least a quarter century and a tightening global credit squeeze threaten to push the economy into its first recession since 1991. Central bank policy maker Kate Barker said last week that market turmoil may constrain bank lending ``for a considerable period.''
``The reading is very low, and consistent with a further decline in house prices,'' Alan Clarke, economist at BNP Paribas SA. ``With credit conditions likely to tighten further, the supply of credit will deteriorate.''
Economists had forecast that U.K. lenders would approve 30,000 new home loans last month, according to the median of 27 estimates in a Bloomberg News survey.
During the past month, the Bank of England joined a coordinated effort by world central banks to increase the availability of dollars and ease money-market strains, with new auctions of overnight and one-week funds totalling $40 billion.
Bradford & Bingley
U.K. authorities earlier today seized the lending book of Bradford & Bingley Plc, the nation's biggest lender to landlords, and forced the company to sell its savings accounts to Banco Santander SA, Spain's biggest lender, after it had trouble financing its daily operations.
For lenders facing global financial-market turmoil, ``the adjustment is proving highly painful and it is clear that lending by U.K. banks will be very constrained, relative to the past few years, for a considerable period,'' Barker said on Sept. 25.
U.K. house prices fell an annual 6.2 percent in September, Hometrack, a London-based property research group that has been following property prices since 2001, said today. Prices fell by the most in a quarter century in August from a year earlier, HBOS Plc, whose survey began in 1983, said Sept. 4.
Households, which have a record 1.4 trillion pounds of debt, added to their unsecured borrowings, today's report showed. Net consumer credit, which includes credit cards, personal loans and overdrafts, rose by 1.2 billion pounds.
Bank of England policy makers voted to keep the key interest rate at 5 percent this month as inflation quickened to 4.7 percent, more than double the target. The economy's growth rate stalled in the second quarter. The bank will make its next interest-rate decision on Oct. 9.
To contact the reporter on this story: Jennifer Ryan in London at Jryan13@bloomberg.net
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European Retail Sales Dropped for a Fourth Month in September
By Jurjen van de Pol
Sept. 29 (Bloomberg) -- European retail sales fell for a fourth month in September as higher consumer prices and the worsening credit squeeze sapped confidence, the Bloomberg purchasing managers index showed.
The measure of sales in the euro area fell to 46.2 from 47.7 in August. A reading below 50 indicates contraction. The index is based on a survey of more than 1,000 executives compiled for Bloomberg News by Markit Economics.
Prices rose the most in 16 years in July, driven higher by food and energy costs, leaving consumers with less money to spend. At the same time, banks have become more reluctant to lend as the U.S. financial turmoil spreads, undermining global growth and pushing down confidence among executives and consumers for a third month in August.
``The current uncertainty about the economy makes people want to save rather than spend,'' said Nick Kounis, an economist at Fortis in Amsterdam. ``The banking crisis in the U.S. is a fresh threat and could dampen consumer confidence.''
Retail sales dropped in Germany and Italy, two of the three largest economies in the 15-nation euro region. French shops sold more for a third month. European retailers are firing workers at the fastest pace in almost three years, the report showed.
Fiat SpA, Italy's largest manufacturer, suffered a 23 percent decline in Italian car sales in August. Gruppo Coin SpA, Italy's largest department-store chain, said second-quarter profit fell 75 percent after consumer confidence sagged to near a 15-year low.
Slower Growth
The Italian government last week cut its 2008 economic growth forecast to 0.1 percent, the slowest pace in five years, and less than a June estimate of 0.5 percent. Unemployment in Italy probably rose for a fifth quarter in the three months through June, a report will show today, according to the medium forecast of 15 economists in a Bloomberg News survey.
``We expect consumer spending to contract again in the third quarter, reflecting the impact of a weaker labor market and of the July oil-price peak,'' said Paolo Pizzoli, an economist at ING Wholesale Banking in Milan.
Today's report showed that retailers' gross margins continued to fall as shops needed to offer greater discounts to attract customers, Markit Economics said. Inflation in the euro zone reached 3.8 percent in August, almost twice the European Central Bank's 2 percent target.
Shedding Workers
The declining profit margins and weak economic conditions are forcing European retailers to cut staff. German department store owner Arcandor AG announced plans to eliminate at least a fifth of jobs at the headquarters of its Karstadt unit, Germany's largest department-store chain, and lowered its profit forecast for 2009.
Retail sales in Europe's largest economy fell for the fourth month. More than a third of German retailers didn't meet sales targets for September and some companies saw consumer demand falling faster than expected, the report showed.
The German economy contracted 0.5 percent in the second quarter and may not recover in the third as investments falter and consumer spending slumps. The threat of job losses may further undermine consumer sentiment and spending.
French retailers seem to be coping with the global slowdown as sales expanded in September and consumer confidence in Europe's second-largest economy unexpectedly rose for the first time in more than a year as the retreat in fuel prices left people with more to spend. Crude oil prices have fallen almost 30 percent since the peak of $147.27 a barrel on July 11.
Gucci Sales
PPR SA's, the owner of luxury clothes maker Gucci Group, last week confirmed sales and profit will increase this year. Chief Executive Officer Francois-Henri Pinault said a slowdown of ``one or two years'' is in store following four years of luxury-goods expansion.
The gains may be short lived as the spreading credit crunch threatens to further choke economic growth.
``The strength of the global financial crisis will have consequences on economic growth and employment in France,'' President Nicolas Sarkozy told ministers on Sept. 26 at the weekly Cabinet meeting in Paris.
For the Bloomberg retail indicator, Markit Economics recruited a panel of companies in Germany, France and Italy, which together make up around 80 percent of total euro-area retail sales by value. The panel includes large chain retailers as well as smaller stores.
To contact the reporter on this story: Jurjen van de Pol in Amsterdam jvandepol@bloomberg.net
Read more...
Sept. 29 (Bloomberg) -- European retail sales fell for a fourth month in September as higher consumer prices and the worsening credit squeeze sapped confidence, the Bloomberg purchasing managers index showed.
The measure of sales in the euro area fell to 46.2 from 47.7 in August. A reading below 50 indicates contraction. The index is based on a survey of more than 1,000 executives compiled for Bloomberg News by Markit Economics.
Prices rose the most in 16 years in July, driven higher by food and energy costs, leaving consumers with less money to spend. At the same time, banks have become more reluctant to lend as the U.S. financial turmoil spreads, undermining global growth and pushing down confidence among executives and consumers for a third month in August.
``The current uncertainty about the economy makes people want to save rather than spend,'' said Nick Kounis, an economist at Fortis in Amsterdam. ``The banking crisis in the U.S. is a fresh threat and could dampen consumer confidence.''
Retail sales dropped in Germany and Italy, two of the three largest economies in the 15-nation euro region. French shops sold more for a third month. European retailers are firing workers at the fastest pace in almost three years, the report showed.
Fiat SpA, Italy's largest manufacturer, suffered a 23 percent decline in Italian car sales in August. Gruppo Coin SpA, Italy's largest department-store chain, said second-quarter profit fell 75 percent after consumer confidence sagged to near a 15-year low.
Slower Growth
The Italian government last week cut its 2008 economic growth forecast to 0.1 percent, the slowest pace in five years, and less than a June estimate of 0.5 percent. Unemployment in Italy probably rose for a fifth quarter in the three months through June, a report will show today, according to the medium forecast of 15 economists in a Bloomberg News survey.
``We expect consumer spending to contract again in the third quarter, reflecting the impact of a weaker labor market and of the July oil-price peak,'' said Paolo Pizzoli, an economist at ING Wholesale Banking in Milan.
Today's report showed that retailers' gross margins continued to fall as shops needed to offer greater discounts to attract customers, Markit Economics said. Inflation in the euro zone reached 3.8 percent in August, almost twice the European Central Bank's 2 percent target.
Shedding Workers
The declining profit margins and weak economic conditions are forcing European retailers to cut staff. German department store owner Arcandor AG announced plans to eliminate at least a fifth of jobs at the headquarters of its Karstadt unit, Germany's largest department-store chain, and lowered its profit forecast for 2009.
Retail sales in Europe's largest economy fell for the fourth month. More than a third of German retailers didn't meet sales targets for September and some companies saw consumer demand falling faster than expected, the report showed.
The German economy contracted 0.5 percent in the second quarter and may not recover in the third as investments falter and consumer spending slumps. The threat of job losses may further undermine consumer sentiment and spending.
French retailers seem to be coping with the global slowdown as sales expanded in September and consumer confidence in Europe's second-largest economy unexpectedly rose for the first time in more than a year as the retreat in fuel prices left people with more to spend. Crude oil prices have fallen almost 30 percent since the peak of $147.27 a barrel on July 11.
Gucci Sales
PPR SA's, the owner of luxury clothes maker Gucci Group, last week confirmed sales and profit will increase this year. Chief Executive Officer Francois-Henri Pinault said a slowdown of ``one or two years'' is in store following four years of luxury-goods expansion.
The gains may be short lived as the spreading credit crunch threatens to further choke economic growth.
``The strength of the global financial crisis will have consequences on economic growth and employment in France,'' President Nicolas Sarkozy told ministers on Sept. 26 at the weekly Cabinet meeting in Paris.
For the Bloomberg retail indicator, Markit Economics recruited a panel of companies in Germany, France and Italy, which together make up around 80 percent of total euro-area retail sales by value. The panel includes large chain retailers as well as smaller stores.
To contact the reporter on this story: Jurjen van de Pol in Amsterdam jvandepol@bloomberg.net
Read more...
Fed Would Gain More Power Over Short-Term Rates in Rescue Bill
By Craig Torres and Scott Lanman
Sept. 29 (Bloomberg) -- The Federal Reserve would gain more power over short-term interest rates as part of Congress's $700 billion legislation to revive credit markets, making it easier for the Fed to pump funds into the banking system.
The draft bill, released yesterday, gives the Fed authority as of Oct. 1 to pay interest on reserves held at the central bank by financial institutions. That would encourage banks to deposit excess funds with the Fed rather than dumping them into the money markets and distorting its overnight federal funds rate.
The flood of liquidity pumped into the financial system by the Fed to encourage interbank lending over the past year has made it harder for the central bank to gauge market conditions and keep fed funds at its 2 percent target. The rate has traded between zero and 7 percent since Sept. 15.
``It's probably a good thing,'' said Marvin Goodfriend, a former senior policy adviser at the Richmond Fed who is now professor of economics at Carnegie Mellon University in Pittsburgh. Allowing payment of interest on reserves will ``enable the Fed to have credit policy that's independent of its monetary policy,'' he said.
While containing the interest provision sought by Fed Chairman Ben S. Bernanke since May, the draft legislation increases congressional scrutiny of the Fed's emergency loans in connection with the collapses of Bear Stearns Cos. and American International Group Inc.
Report to Congress
The bill requires the central bank to submit reports to Congress on loans to nonbanks since March 1 as well as updates at least every two months while the loans are outstanding.
The Federal Open Market Committee sets a target for the federal funds rate, which the New York Fed is obligated to achieve on a daily basis through temporary and permanent purchases or sales of bonds in the open market. Banks are required to hold a proportion of their customers' deposits in an account at the central bank.
Paying interest on reserves puts a ``floor'' under the traded overnight rate, which would allow a central bank ``to provide liquidity during times of stress'' without affecting the rate, New York Fed economists said in a paper last month. New Zealand's central bank has adopted such an approach.
The Fed had already received authority in 2006 to start paying interest on reserves in October 2011. Bernanke asked House Speaker Nancy Pelosi in May to expedite the authority. U.S. lawmakers are reviewing the $700 billion plan to buy troubled assets from financial institutions, and the House and Senate may vote tomorrow.
New Date
The draft legislation doesn't mention the Fed in the three- line section that would provide the interest-payment authority. The bill says that the part of the 2006 law giving the Fed the power ``is amended by striking `October 1, 2011' and inserting `October 1, 2008'.''
In 2006, the Congressional Budget Office estimated that Fed interest payments would cost the government $1.4 billion in the first five years.
``I expect them to use it to manage the funds rate more efficiently,'' said Lou Crandall, chief economist at Wrightson ICAP LLC, in Jersey City, New Jersey.
A measure of availability of cash among banks, known as the Libor-OIS spread, widened to 2.08 percentage points, the most on record, on Sept. 26. In the year before the credit crisis started in August last year, the spread averaged 8 basis points.
Commercial banks borrowed $39.4 billion from the Fed's discount window for the week ending Sept. 24, almost double the previous period, as the financial crisis deepened and funding from other banks dried up.
Counterparty fears also increased in the wake of Lehman Brothers Holdings Inc.'s bankruptcy filing on Sept. 15.
To contact the reporters on this story: Craig Torres in Washington at ctorres3@bloomberg.net; Scott Lanman in Washington at slanman@bloomberg.net.
Read more...
Sept. 29 (Bloomberg) -- The Federal Reserve would gain more power over short-term interest rates as part of Congress's $700 billion legislation to revive credit markets, making it easier for the Fed to pump funds into the banking system.
The draft bill, released yesterday, gives the Fed authority as of Oct. 1 to pay interest on reserves held at the central bank by financial institutions. That would encourage banks to deposit excess funds with the Fed rather than dumping them into the money markets and distorting its overnight federal funds rate.
The flood of liquidity pumped into the financial system by the Fed to encourage interbank lending over the past year has made it harder for the central bank to gauge market conditions and keep fed funds at its 2 percent target. The rate has traded between zero and 7 percent since Sept. 15.
``It's probably a good thing,'' said Marvin Goodfriend, a former senior policy adviser at the Richmond Fed who is now professor of economics at Carnegie Mellon University in Pittsburgh. Allowing payment of interest on reserves will ``enable the Fed to have credit policy that's independent of its monetary policy,'' he said.
While containing the interest provision sought by Fed Chairman Ben S. Bernanke since May, the draft legislation increases congressional scrutiny of the Fed's emergency loans in connection with the collapses of Bear Stearns Cos. and American International Group Inc.
Report to Congress
The bill requires the central bank to submit reports to Congress on loans to nonbanks since March 1 as well as updates at least every two months while the loans are outstanding.
The Federal Open Market Committee sets a target for the federal funds rate, which the New York Fed is obligated to achieve on a daily basis through temporary and permanent purchases or sales of bonds in the open market. Banks are required to hold a proportion of their customers' deposits in an account at the central bank.
Paying interest on reserves puts a ``floor'' under the traded overnight rate, which would allow a central bank ``to provide liquidity during times of stress'' without affecting the rate, New York Fed economists said in a paper last month. New Zealand's central bank has adopted such an approach.
The Fed had already received authority in 2006 to start paying interest on reserves in October 2011. Bernanke asked House Speaker Nancy Pelosi in May to expedite the authority. U.S. lawmakers are reviewing the $700 billion plan to buy troubled assets from financial institutions, and the House and Senate may vote tomorrow.
New Date
The draft legislation doesn't mention the Fed in the three- line section that would provide the interest-payment authority. The bill says that the part of the 2006 law giving the Fed the power ``is amended by striking `October 1, 2011' and inserting `October 1, 2008'.''
In 2006, the Congressional Budget Office estimated that Fed interest payments would cost the government $1.4 billion in the first five years.
``I expect them to use it to manage the funds rate more efficiently,'' said Lou Crandall, chief economist at Wrightson ICAP LLC, in Jersey City, New Jersey.
A measure of availability of cash among banks, known as the Libor-OIS spread, widened to 2.08 percentage points, the most on record, on Sept. 26. In the year before the credit crisis started in August last year, the spread averaged 8 basis points.
Commercial banks borrowed $39.4 billion from the Fed's discount window for the week ending Sept. 24, almost double the previous period, as the financial crisis deepened and funding from other banks dried up.
Counterparty fears also increased in the wake of Lehman Brothers Holdings Inc.'s bankruptcy filing on Sept. 15.
To contact the reporters on this story: Craig Torres in Washington at ctorres3@bloomberg.net; Scott Lanman in Washington at slanman@bloomberg.net.
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Gazprom Plans $935 Million Pipe in East Russia, Interfax Says
By Denis Maternovsky
Sept. 29 (Bloomberg) -- OAO Gazprom plans to earmark 23.5 billion rubles ($935 million) next year to build a natural-gas pipeline in Russia's Far East, Interfax reported.
Russia's gas export monopoly intends to connect the Sobolevskoye deposit with Petropavlovsk-Kamchatsky, the capital of the Kamchatka region, the news service cited Deputy Chief Executive Officer Alexander Ananenkov as telling government officials today. The pipeline should open in late 2010, according to Interfax.
Gazprom also plans to invest about 5 billion rubles in infrastructure at two deposits in the area, Interfax said, citing Ananenkov.
To contact the reporter on this story: Denis Maternovsky in Moscow at dmaternovsky@bloomberg.net
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Sept. 29 (Bloomberg) -- OAO Gazprom plans to earmark 23.5 billion rubles ($935 million) next year to build a natural-gas pipeline in Russia's Far East, Interfax reported.
Russia's gas export monopoly intends to connect the Sobolevskoye deposit with Petropavlovsk-Kamchatsky, the capital of the Kamchatka region, the news service cited Deputy Chief Executive Officer Alexander Ananenkov as telling government officials today. The pipeline should open in late 2010, according to Interfax.
Gazprom also plans to invest about 5 billion rubles in infrastructure at two deposits in the area, Interfax said, citing Ananenkov.
To contact the reporter on this story: Denis Maternovsky in Moscow at dmaternovsky@bloomberg.net
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Aramco, Total to Sell 25% of Refinery in IPO, Al-Awsat Reports
By Zainab Fattah
Sept. 29 (Bloomberg) -- Saudi Aramco and Total SA of France plan to sell 25 percent of their joint-venture oil refinery to the Saudi public in an initial public offering, Asharq al-Awsat reported today, without saying where it got the information.
State-owned Aramco and Total will each own a 37.5 percent stake in project, the newspaper reported. The companies will build an oil refining and petrochemical complex in Jubail, Saudi Arabia, which is expected to start operations by 2012.
To contact the reporter on this story: Zainab Fattah in Dubai on zfattah@bloomberg.net
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Sept. 29 (Bloomberg) -- Saudi Aramco and Total SA of France plan to sell 25 percent of their joint-venture oil refinery to the Saudi public in an initial public offering, Asharq al-Awsat reported today, without saying where it got the information.
State-owned Aramco and Total will each own a 37.5 percent stake in project, the newspaper reported. The companies will build an oil refining and petrochemical complex in Jubail, Saudi Arabia, which is expected to start operations by 2012.
To contact the reporter on this story: Zainab Fattah in Dubai on zfattah@bloomberg.net
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BP Restarts Aromatics Recovery Unit at Texas City Refinery
By Christian Schmollinger
Sept. 29 (Bloomberg) -- BP Plc, Europe's second-largest oil producer, restarted an aromatics recovery unit at its Texas City, Texas, refinery after Hurricane Ike passed through the region Sept. 13.
The start-up of the plant began at 6 a.m. local time on Sept. 27 and will last until Oct. 11, the London-based company said in a filing with the Texas Commission on Environmental Quality.
The refinery can process 475,000 barrels of crude oil a day, according to the U.S. Energy Department. An aromatics recovery unit splits off benzene, toluene and other chemicals from the refinery process that can be sold separately or blended into gasoline.
To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net.
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Sept. 29 (Bloomberg) -- BP Plc, Europe's second-largest oil producer, restarted an aromatics recovery unit at its Texas City, Texas, refinery after Hurricane Ike passed through the region Sept. 13.
The start-up of the plant began at 6 a.m. local time on Sept. 27 and will last until Oct. 11, the London-based company said in a filing with the Texas Commission on Environmental Quality.
The refinery can process 475,000 barrels of crude oil a day, according to the U.S. Energy Department. An aromatics recovery unit splits off benzene, toluene and other chemicals from the refinery process that can be sold separately or blended into gasoline.
To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net.
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Inpex to Use Bacteria at Old Oil Wells to Produce Gas
By Shigeru Sato and Yuji Okada
More Photos/Details
Sept. 29 (Bloomberg) -- Japanese researchers have developed a method of using bacteria found in depleted oil wells to turn leftover crude into natural gas, a technique that could help meet 10 percent of the country's demand for the fuel.
Inpex Holdings Inc., Japan's largest energy explorer, has produced methane using microbes and crude residue from the 139- year-old Yabase field in northern Japan, said Haruo Maeda, director of a laboratory operated by Teikoku Oil Co., an Inpex unit. A 2 billion yen ($19 million) trial will start in 2015 to decide if gas can be produced commercially at Yabase, he said.
Oil prices have more than tripled since 2002, making it attractive to invest in fields and technologies previously thought unviable. Inpex's trial at Yabase, Japan's biggest field in the 1950s, may help the world's fourth-largest energy consuming nation cut its $30 billion annual liquefied natural gas import bill.
``If oil stays above $100 a barrel in years ahead, it may be worth trying this unique technique,'' Hirofumi Kawachi, senior energy analyst at Mizuho Investors Securities Co., said in Tokyo. ``Development costs are the key for Inpex to determine whether or not to push ahead with this project.''
Inpex's shares fell 6.1 percent to 918,000 yen in Tokyo.
Goldman Sachs Group Inc. on Sept. 17 forecast oil prices in New York to average $123 a barrel in 2009, even as it slashed the outlook from $148 because of the global credit crisis. The benchmark crude contract was at $103.87 a barrel at 4:47 p.m. in Tokyo today in after-hours electronic trade.
Oil Extraction
The U.S. Energy Information Administration in June forecast that demand for liquid fuels will rise to 112.5 million barrels of oil equivalent a day by 2020. That's a 30 percent increase from the Paris-based International Energy Agency's 2008 estimate of 86.8 million barrels.
Conventional oil extraction exploits only 30 percent to 45 percent of underground deposits, said Kensuke Kanekiyo, managing director of the Institute of Energy Economics, Japan.
Inpex aims to turn the rest into cleaner-burning gas, Maeda said. The Yabase field trial will also help determine the cost of producing the fuel commercially, he said.
Yabase could supply 10 percent of Japan's annual gas needs if Inpex's trial is successful, said Kazuhiro Fujiwara, assistant general manager of Hiroshima-based Chugai Technos Corp., who led a group of researchers that came up with a way to use two types of bacteria to produce methane.
One kind of oil-eating microbes turns crude into hydrogen and the second reacts with hydrogen and carbon dioxide, which is added, to produce methane, according to Inpex's Maeda. These bacteria have also been cultivated in a laboratory as part of a three-year study by Inpex and Tokyo University, he said.
1926 Proposal
Researchers including Fujiwara and Maeda published a joint paper on the subject in May in the Journal of Environmental Biotechnology.
The use of bacteria to improve oil recovery was first proposed in a 1926 paper published in the Industrial Engineering and Chemical News. Researchers in the former Soviet Union began observing bacteria in underground oil wells in 1930s and subsequent studies were held in the West and the Middle East.
Data from these older studies weren't enough to help boost oil recovery, Japanese researchers said in the May paper.
Inpex has found bacteria that can penetrate wells as deep as 1,500 meters and produce methane gas at temperatures as high as 55 degrees Celsius (131 degrees Fahrenheit), Maeda said. The experimental technique could potentially be used at oil wells in China and Indonesia, according to Fujiwara.
Field Experiment
In its field trial, Inpex plans to inject carbon dioxide into an oil well using a steel pipe, according to a project concept prepared by the company. The well will then be sealed to allow bacteria to produce methane, which will be extracted through another pipe and stored in tanks on the surface.
The presence of various gases in the well would need to be regulated because oxygen kills the bacteria and too much carbon dioxide may slow the rate of methane production, Maeda said.
While the hydrogen- and methane-producing microbes exist in the well, externally cultivated bacteria can be added if needed to increase fuel production, Fujiwara said.
The technology to be used in the trial is broadly similar to that of carbon capture and storage systems, or CCS, for reducing emissions blamed for global warming, Fujiwara said. CCS allows carbon dioxide produced by power plants to be stored underground or below the seabed.
The Yabase field could hold up to 6 million tons of carbon, he said.
Reducing Emissions
Japan emitted 1.3 billion tons of carbon in the year ended March 2007, according to the environment ministry, 6.2 percent more than the 1990 level. The country has pledged to cut emissions by 6 percent from the 1990 level by 2012 under the 1997 Kyoto Protocol on climate change.
Inpex's unit produces 40 kiloliters, or 252 barrels a day, of crude oil at the Yabase field. Output peaked at 600 kiloliters in the early 1950s, Maeda said. That's equivalent to 14 percent of Japan's crude imports in 1950, according to data compiled by the trade ministry.
Cumulative oil production reached 5.6 million kiloliters as of March 2007, the most from a Japanese field, according to the Japan Natural Gas Association.
To contact the reporters on this story: Shigeru Sato in Tokyo at ssato10@bloomberg.net; Yuji Okada in Tokyo at yokada6@bloomberg.net.
Read more...
More Photos/Details
Sept. 29 (Bloomberg) -- Japanese researchers have developed a method of using bacteria found in depleted oil wells to turn leftover crude into natural gas, a technique that could help meet 10 percent of the country's demand for the fuel.
Inpex Holdings Inc., Japan's largest energy explorer, has produced methane using microbes and crude residue from the 139- year-old Yabase field in northern Japan, said Haruo Maeda, director of a laboratory operated by Teikoku Oil Co., an Inpex unit. A 2 billion yen ($19 million) trial will start in 2015 to decide if gas can be produced commercially at Yabase, he said.
Oil prices have more than tripled since 2002, making it attractive to invest in fields and technologies previously thought unviable. Inpex's trial at Yabase, Japan's biggest field in the 1950s, may help the world's fourth-largest energy consuming nation cut its $30 billion annual liquefied natural gas import bill.
``If oil stays above $100 a barrel in years ahead, it may be worth trying this unique technique,'' Hirofumi Kawachi, senior energy analyst at Mizuho Investors Securities Co., said in Tokyo. ``Development costs are the key for Inpex to determine whether or not to push ahead with this project.''
Inpex's shares fell 6.1 percent to 918,000 yen in Tokyo.
Goldman Sachs Group Inc. on Sept. 17 forecast oil prices in New York to average $123 a barrel in 2009, even as it slashed the outlook from $148 because of the global credit crisis. The benchmark crude contract was at $103.87 a barrel at 4:47 p.m. in Tokyo today in after-hours electronic trade.
Oil Extraction
The U.S. Energy Information Administration in June forecast that demand for liquid fuels will rise to 112.5 million barrels of oil equivalent a day by 2020. That's a 30 percent increase from the Paris-based International Energy Agency's 2008 estimate of 86.8 million barrels.
Conventional oil extraction exploits only 30 percent to 45 percent of underground deposits, said Kensuke Kanekiyo, managing director of the Institute of Energy Economics, Japan.
Inpex aims to turn the rest into cleaner-burning gas, Maeda said. The Yabase field trial will also help determine the cost of producing the fuel commercially, he said.
Yabase could supply 10 percent of Japan's annual gas needs if Inpex's trial is successful, said Kazuhiro Fujiwara, assistant general manager of Hiroshima-based Chugai Technos Corp., who led a group of researchers that came up with a way to use two types of bacteria to produce methane.
One kind of oil-eating microbes turns crude into hydrogen and the second reacts with hydrogen and carbon dioxide, which is added, to produce methane, according to Inpex's Maeda. These bacteria have also been cultivated in a laboratory as part of a three-year study by Inpex and Tokyo University, he said.
1926 Proposal
Researchers including Fujiwara and Maeda published a joint paper on the subject in May in the Journal of Environmental Biotechnology.
The use of bacteria to improve oil recovery was first proposed in a 1926 paper published in the Industrial Engineering and Chemical News. Researchers in the former Soviet Union began observing bacteria in underground oil wells in 1930s and subsequent studies were held in the West and the Middle East.
Data from these older studies weren't enough to help boost oil recovery, Japanese researchers said in the May paper.
Inpex has found bacteria that can penetrate wells as deep as 1,500 meters and produce methane gas at temperatures as high as 55 degrees Celsius (131 degrees Fahrenheit), Maeda said. The experimental technique could potentially be used at oil wells in China and Indonesia, according to Fujiwara.
Field Experiment
In its field trial, Inpex plans to inject carbon dioxide into an oil well using a steel pipe, according to a project concept prepared by the company. The well will then be sealed to allow bacteria to produce methane, which will be extracted through another pipe and stored in tanks on the surface.
The presence of various gases in the well would need to be regulated because oxygen kills the bacteria and too much carbon dioxide may slow the rate of methane production, Maeda said.
While the hydrogen- and methane-producing microbes exist in the well, externally cultivated bacteria can be added if needed to increase fuel production, Fujiwara said.
The technology to be used in the trial is broadly similar to that of carbon capture and storage systems, or CCS, for reducing emissions blamed for global warming, Fujiwara said. CCS allows carbon dioxide produced by power plants to be stored underground or below the seabed.
The Yabase field could hold up to 6 million tons of carbon, he said.
Reducing Emissions
Japan emitted 1.3 billion tons of carbon in the year ended March 2007, according to the environment ministry, 6.2 percent more than the 1990 level. The country has pledged to cut emissions by 6 percent from the 1990 level by 2012 under the 1997 Kyoto Protocol on climate change.
Inpex's unit produces 40 kiloliters, or 252 barrels a day, of crude oil at the Yabase field. Output peaked at 600 kiloliters in the early 1950s, Maeda said. That's equivalent to 14 percent of Japan's crude imports in 1950, according to data compiled by the trade ministry.
Cumulative oil production reached 5.6 million kiloliters as of March 2007, the most from a Japanese field, according to the Japan Natural Gas Association.
To contact the reporters on this story: Shigeru Sato in Tokyo at ssato10@bloomberg.net; Yuji Okada in Tokyo at yokada6@bloomberg.net.
Read more...
Australia Could Get 35% of Power Supply From Waves, Study Shows
By Angela Macdonald-Smith
Sept. 29 (Bloomberg) -- Australia could economically get 35 percent of its needs for continuous power supply from energy generated by waves, helping cut greenhouse gases, said Carnegie Corp., an Australian clean-energy technology company.
The country has a wave energy resource in near-shore areas where water is less than 25 meters deep of about 171,000 megawatts, Perth-based Carnegie said today, citing a report. That's about four times total installed power generating capacity, it said, citing research from RPS MetOcean, a unit of Abingdon, England-based RPS Group Plc.
Rising fossil fuel prices and increasing pressure to cut greenhouse pollution blamed for global warming are boosting demand for power produced from renewable sources such as the wind, waves and solar rays. Carnegie's CETO wave power technology is being used by a venture between Electricite de France SA and Renewable Energy Holdings Plc for projects in the Northern Hemisphere and on Reunion island in the Indian Ocean.
Australia's estimated wave power resource in deeper waters is about 500,000 megawatts, more than 10 times national installed capacity, Carnegie said in an e-mailed statement.
Carnegie, which holds the rights to own and operate all commercial CETO wave energy projects in the Southern Hemisphere, operates a test plant using the technology near Perth in Western Australia and is studying a project at Albany in the state's south. The CETO system sits on the seabed and carries high- pressure seawater ashore where it's used to produce either electricity or fresh water.
To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net
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Sept. 29 (Bloomberg) -- Australia could economically get 35 percent of its needs for continuous power supply from energy generated by waves, helping cut greenhouse gases, said Carnegie Corp., an Australian clean-energy technology company.
The country has a wave energy resource in near-shore areas where water is less than 25 meters deep of about 171,000 megawatts, Perth-based Carnegie said today, citing a report. That's about four times total installed power generating capacity, it said, citing research from RPS MetOcean, a unit of Abingdon, England-based RPS Group Plc.
Rising fossil fuel prices and increasing pressure to cut greenhouse pollution blamed for global warming are boosting demand for power produced from renewable sources such as the wind, waves and solar rays. Carnegie's CETO wave power technology is being used by a venture between Electricite de France SA and Renewable Energy Holdings Plc for projects in the Northern Hemisphere and on Reunion island in the Indian Ocean.
Australia's estimated wave power resource in deeper waters is about 500,000 megawatts, more than 10 times national installed capacity, Carnegie said in an e-mailed statement.
Carnegie, which holds the rights to own and operate all commercial CETO wave energy projects in the Southern Hemisphere, operates a test plant using the technology near Perth in Western Australia and is studying a project at Albany in the state's south. The CETO system sits on the seabed and carries high- pressure seawater ashore where it's used to produce either electricity or fresh water.
To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net
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Oil, Metals, Crops Fall on Concern U.S. Bail-Out Plan May Fail
By Grant Smith
Sept. 29 (Bloomberg) -- Commodities fell, led by oil, copper and lead, on concern the U.S. plan to spend $700 billion propping up America's banks will fail to unlock credit markets and avert a slowdown in the world's largest economy.
Crude, gasoline, heating oil, copper, lead, corn, soybeans, silver and rice all dropped more than 2 percent, leading the S&P Goldman Sachs Commodity Index to a 3.2 percent decline. While U.S. Treasury Secretary Henry Paulson and leaders in Congress reached an agreement giving the government the authority to buy distressed bank assets, short-term interest rates failed to decline in Asia and Europe as banks restricted lending.
``The fear is that the rescue package is not enough to stop the economy falling into a full-blown recession,'' Eugen Weinberg, a commodity analyst at Commerzbank AG in Frankfurt. ``And as people fear that problems outside the U.S. might be even worse, we see the euro weaken and remove support for commodities.''
Brent crude oil for November settlement fell as much as $4.03, or 3.9 percent, to $99.51 a barrel on the ICE Futures Europe exchange. The contract traded at $99.80 at 9:48 a.m. London time.
Gold for immediate delivery fell as much as low as $867.83 an ounce, trading for $870.03 at 9:50 a.m. in London. Silver for immediate delivery declined 2.7 percent to $12.94 an ounce.
U.S. lawmakers are reviewing a tentative agreement to revive credit markets through the bailout package, which may be voted on by the House tomorrow, House Speaker Nancy Pelosi said. President George W. Bush said in a speech Sept. 27 that the package was needed to prevent a ``deep and painful recession.''
Corn, Soybeans
Corn for December delivery fell as much as 13 cents, or 2.4 percent, to $5.30 a bushel in after-hours electronic trading on the Chicago Board of Trade and was at that price by 9:21 a.m. London time.
Soybeans for November delivery lost as much as 30 cents, or 2.6 percent, to $11.34 a bushel and last traded at $11.35 by 9:24 a.m. London time.
``Even if the Troubled Asset Rescue Plan is passed, that doesn't necessarily mean there aren't any obstacles on the road to economic recovery,'' said David Moore, a commodity strategist at Commonwealth Bank of Australia in Sydney. ``There are worries about the outlook for the international economy.''
The dollar strengthened as much as 2 percent against the single European currency, the most since Aug. 8, and traded at $1.4338 as of 9:27 a.m. in London.
A stronger dollar makes commodities more expensive for buyers outside the U.S., potentially weakening demand.
U.S. fuel demand averaged 19.5 million barrels a day during the past four weeks, the lowest since October 2003, the Energy Department said in a Sept. 24 report. New home sales in the U.S. fell in August to a 17-year low and orders for durable goods dropped more than forecast, government reports showed Sept. 25.
To contact the reporters on this story: Grant Smith in London at gsmith52@bloomberg.net
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Sept. 29 (Bloomberg) -- Commodities fell, led by oil, copper and lead, on concern the U.S. plan to spend $700 billion propping up America's banks will fail to unlock credit markets and avert a slowdown in the world's largest economy.
Crude, gasoline, heating oil, copper, lead, corn, soybeans, silver and rice all dropped more than 2 percent, leading the S&P Goldman Sachs Commodity Index to a 3.2 percent decline. While U.S. Treasury Secretary Henry Paulson and leaders in Congress reached an agreement giving the government the authority to buy distressed bank assets, short-term interest rates failed to decline in Asia and Europe as banks restricted lending.
``The fear is that the rescue package is not enough to stop the economy falling into a full-blown recession,'' Eugen Weinberg, a commodity analyst at Commerzbank AG in Frankfurt. ``And as people fear that problems outside the U.S. might be even worse, we see the euro weaken and remove support for commodities.''
Brent crude oil for November settlement fell as much as $4.03, or 3.9 percent, to $99.51 a barrel on the ICE Futures Europe exchange. The contract traded at $99.80 at 9:48 a.m. London time.
Gold for immediate delivery fell as much as low as $867.83 an ounce, trading for $870.03 at 9:50 a.m. in London. Silver for immediate delivery declined 2.7 percent to $12.94 an ounce.
U.S. lawmakers are reviewing a tentative agreement to revive credit markets through the bailout package, which may be voted on by the House tomorrow, House Speaker Nancy Pelosi said. President George W. Bush said in a speech Sept. 27 that the package was needed to prevent a ``deep and painful recession.''
Corn, Soybeans
Corn for December delivery fell as much as 13 cents, or 2.4 percent, to $5.30 a bushel in after-hours electronic trading on the Chicago Board of Trade and was at that price by 9:21 a.m. London time.
Soybeans for November delivery lost as much as 30 cents, or 2.6 percent, to $11.34 a bushel and last traded at $11.35 by 9:24 a.m. London time.
``Even if the Troubled Asset Rescue Plan is passed, that doesn't necessarily mean there aren't any obstacles on the road to economic recovery,'' said David Moore, a commodity strategist at Commonwealth Bank of Australia in Sydney. ``There are worries about the outlook for the international economy.''
The dollar strengthened as much as 2 percent against the single European currency, the most since Aug. 8, and traded at $1.4338 as of 9:27 a.m. in London.
A stronger dollar makes commodities more expensive for buyers outside the U.S., potentially weakening demand.
U.S. fuel demand averaged 19.5 million barrels a day during the past four weeks, the lowest since October 2003, the Energy Department said in a Sept. 24 report. New home sales in the U.S. fell in August to a 17-year low and orders for durable goods dropped more than forecast, government reports showed Sept. 25.
To contact the reporters on this story: Grant Smith in London at gsmith52@bloomberg.net
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Scottish Power Plans $184 Million Spend on Tidal Power Turbines
By Paul Dobson
Sept. 29 (Bloomberg) -- Scottish Power Ltd., Iberdrola SA's U.K. unit, plans to invest more than 100 million pounds ($184 million) on tidal-power developments as the utility develops energy-production that doesn't add to carbon-dioxide emissions.
Scottish Power is studying two sites in Scotland and another in Northern Ireland for deploying underwater turbines capable of generating a combined 60 megawatts of electricity, enough for more than 40,000 homes, the Glasgow-based company said today in a statement. It will install as many as 20, 1-megawatt turbines at each site, following a year of testing.
Europe's utilities are racing to develop new forms of energy production to harness natural sources of energy, including the wind, waves and solar rays. The technologies are more costly than conventional power production, and are subsidized by governments. They don't emit carbon dioxide, and avoid emission-permit costs.
The planned turbines use the Lanstroem technology that has undergone four years of testing in Norway, developed by Hammerfest Stroem AS, a company owned by Scottish Power, StatoilHydro ASA and Hammerfest Energi. Planning applications may be made in summer next year, and generation may start from 2011.
Just one of the sites, the Pentland Firth, may have potential tidal energy to meet one-third of Scotland's power requirements, the company said. Iberdrola plans to invest 1.2 billion euros ($1.8 billion) in renewable energy in the U.K. from 2008 to 2010.
The tidal stream technology uses turbines in the water that turn as water driven by tides passes by. The equipment may be manufactured in Scotland, Scottish Power said.
To contact the reporter on this story: Paul Dobson in London at pdobson2@bloomberg.net
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Sept. 29 (Bloomberg) -- Scottish Power Ltd., Iberdrola SA's U.K. unit, plans to invest more than 100 million pounds ($184 million) on tidal-power developments as the utility develops energy-production that doesn't add to carbon-dioxide emissions.
Scottish Power is studying two sites in Scotland and another in Northern Ireland for deploying underwater turbines capable of generating a combined 60 megawatts of electricity, enough for more than 40,000 homes, the Glasgow-based company said today in a statement. It will install as many as 20, 1-megawatt turbines at each site, following a year of testing.
Europe's utilities are racing to develop new forms of energy production to harness natural sources of energy, including the wind, waves and solar rays. The technologies are more costly than conventional power production, and are subsidized by governments. They don't emit carbon dioxide, and avoid emission-permit costs.
The planned turbines use the Lanstroem technology that has undergone four years of testing in Norway, developed by Hammerfest Stroem AS, a company owned by Scottish Power, StatoilHydro ASA and Hammerfest Energi. Planning applications may be made in summer next year, and generation may start from 2011.
Just one of the sites, the Pentland Firth, may have potential tidal energy to meet one-third of Scotland's power requirements, the company said. Iberdrola plans to invest 1.2 billion euros ($1.8 billion) in renewable energy in the U.K. from 2008 to 2010.
The tidal stream technology uses turbines in the water that turn as water driven by tides passes by. The equipment may be manufactured in Scotland, Scottish Power said.
To contact the reporter on this story: Paul Dobson in London at pdobson2@bloomberg.net
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Indian Rupee Declines, Set for Worst Month Since Asian Crisis
By Anoop Agrawal
Sept. 29 (Bloomberg) -- India's rupee slumped, heading for its worst monthly loss since the Asian financial crisis in 1997, as global investors sold emerging-market assets.
The rupee fell to the lowest in almost two weeks on speculation the $700 billion rescue package for banks in the U.S., the world's largest economy, won't halt a slowdown in global economic growth. Overseas funds have already cut holdings of Indian shares equivalent to more than half of their net purchases last year.
``There won't be any respite for the rupee in the near term because of uncertainty of the financial crisis being sorted anytime soon,'' said Parthasarathi Mukherjee, president of treasury at Axis Bank Ltd. ``We may see an accelerated fall in the rupee.''
The rupee declined 6.2 percent this month to 46.92 against the dollar as of 9:33 a.m. in Mumbai, the biggest monthly drop since November 1997, according to data compiled by Bloomberg. The currency reached 46.9750 last week, the lowest since July 2006.
Overseas investors have sold $9.2 billion more of local equities this year than they bought, according to data from the Securities & Exchange Board of India. They bought a record $17.2 billion in stocks last year which helped the rupee complete its best annual gain in at least 34 years.
The Bombay Stock Exchange Sensitive Index, or Sensex, is set for its first annual decline since 2001.
The rupee is the second-worst performer this year among the 10 most-active Asian currencies excluding the yen.
To contact the reporter on this story: Anoop Agrawal in Mumbai at aagrawal8@bloomberg.net.
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Sept. 29 (Bloomberg) -- India's rupee slumped, heading for its worst monthly loss since the Asian financial crisis in 1997, as global investors sold emerging-market assets.
The rupee fell to the lowest in almost two weeks on speculation the $700 billion rescue package for banks in the U.S., the world's largest economy, won't halt a slowdown in global economic growth. Overseas funds have already cut holdings of Indian shares equivalent to more than half of their net purchases last year.
``There won't be any respite for the rupee in the near term because of uncertainty of the financial crisis being sorted anytime soon,'' said Parthasarathi Mukherjee, president of treasury at Axis Bank Ltd. ``We may see an accelerated fall in the rupee.''
The rupee declined 6.2 percent this month to 46.92 against the dollar as of 9:33 a.m. in Mumbai, the biggest monthly drop since November 1997, according to data compiled by Bloomberg. The currency reached 46.9750 last week, the lowest since July 2006.
Overseas investors have sold $9.2 billion more of local equities this year than they bought, according to data from the Securities & Exchange Board of India. They bought a record $17.2 billion in stocks last year which helped the rupee complete its best annual gain in at least 34 years.
The Bombay Stock Exchange Sensitive Index, or Sensex, is set for its first annual decline since 2001.
The rupee is the second-worst performer this year among the 10 most-active Asian currencies excluding the yen.
To contact the reporter on this story: Anoop Agrawal in Mumbai at aagrawal8@bloomberg.net.
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Asian Currencies Fall, Led by Won, on U.S. Bank Rescue Progress
By Anil Varma and Aaron Pan
Sept. 29 (Bloomberg) -- Asian currencies fell, with South Korea's won dropping to the lowest level since 2003, after U.S. lawmakers agreed on a $700 billion rescue package for credit markets, stoking demand for the dollar.
The won is the worst performer this year of the 16 most- actively traded currencies, having tumbled more than 20 percent as the global economic slowdown and credit crunch prompted investors to sell emerging-market assets. The currency also fell on reports the U.K.'s Bradford & Bingley Plc will be taken over or nationalized, spurring investors to seek the safest assets.
``The dollar is being buoyed on the back of the bailout plan and that's undermining the won,'' said Emmanuel Ng, an economist at Oversea-Chinese Banking Corp. in Singapore. ``Risk aversion remains at elevated levels and market sentiment will remain cautious.''
The won slid 2.9 percent to 1,195.75 versus the dollar as of 2 p.m. local time, according to Seoul Money Brokerage Services Ltd. The currency touched 1,198.55, the weakest level since December 2003. Indonesia's rupiah dropped 0.8 percent to 9,463 and the Philippine peso declined 0.4 percent to 46.912.
Congress may vote on the rescue plan today, which would let the U.S. Treasury begin purchasing distressed debt securities from financial companies.
The won's decline is overdone and the government is ready to intervene to stem its losses, Choi Jong Ku, director general of the ministry's international finance bureau, said in a statement in Gwacheon, near Seoul.
Deepening Crisis
Indonesia's rupiah declined for a fifth day on concern the deepening credit crisis is deterring investors. India's rupee slumped, heading for its worst monthly loss since the Asian financial crisis in 1997, as global investors sold stocks. Overseas funds have already cut holdings equivalent to more than half of their net purchases of local shares last year.
``There won't be any respite for the rupee in the near term because of uncertainty of the financial crisis being sorted anytime soon,'' said Parthasarathi Mukherjee, president of treasury at Axis Bank Ltd. ``We may see an accelerated fall in the rupee.''
The rupee declined 6.2 percent this month to 46.92 against the dollar in Mumbai, the biggest monthly drop since November 1997, according to data compiled by Bloomberg. It reached 46.9750 last week, the lowest since July 2006.
Selling Stocks
Overseas investors have sold $9.2 billion more Indian equities this year than they bought, according to data from the Securities & Exchange Board of India. They purchased a record $17.2 billion in stocks last year which helped the rupee complete its best annual gain in at least 34 years.
The Philippine peso fell on speculation the U.S. rescue plan for financial companies will help sustain growth in the world's biggest economy.
``The dollar is stronger as the U.S. bailout plan nears approval,'' said Rafael Algarra, treasurer at Security Bank Corp. in Manila. ``It is positive for the dollar, at least in the short-term, as it restores confidence in the U.S. economy.''
The peso touched 46.925, the lowest since Sept. 18, according to Tullett Prebon Plc.
Elsewhere, the Thai baht declined 0.3 percent to 34.03 against the U.S. currency and the Malaysian ringgit weakened 0.2 percent to 3.4410. Vietnam's dong was unchanged at 16,600.
To contact the reporter on this story: Anil Varma in Mumbai at avarma3@bloomberg.net; Aaron Pan in Hong Kong at Apan8@bloomberg.net.
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Sept. 29 (Bloomberg) -- Asian currencies fell, with South Korea's won dropping to the lowest level since 2003, after U.S. lawmakers agreed on a $700 billion rescue package for credit markets, stoking demand for the dollar.
The won is the worst performer this year of the 16 most- actively traded currencies, having tumbled more than 20 percent as the global economic slowdown and credit crunch prompted investors to sell emerging-market assets. The currency also fell on reports the U.K.'s Bradford & Bingley Plc will be taken over or nationalized, spurring investors to seek the safest assets.
``The dollar is being buoyed on the back of the bailout plan and that's undermining the won,'' said Emmanuel Ng, an economist at Oversea-Chinese Banking Corp. in Singapore. ``Risk aversion remains at elevated levels and market sentiment will remain cautious.''
The won slid 2.9 percent to 1,195.75 versus the dollar as of 2 p.m. local time, according to Seoul Money Brokerage Services Ltd. The currency touched 1,198.55, the weakest level since December 2003. Indonesia's rupiah dropped 0.8 percent to 9,463 and the Philippine peso declined 0.4 percent to 46.912.
Congress may vote on the rescue plan today, which would let the U.S. Treasury begin purchasing distressed debt securities from financial companies.
The won's decline is overdone and the government is ready to intervene to stem its losses, Choi Jong Ku, director general of the ministry's international finance bureau, said in a statement in Gwacheon, near Seoul.
Deepening Crisis
Indonesia's rupiah declined for a fifth day on concern the deepening credit crisis is deterring investors. India's rupee slumped, heading for its worst monthly loss since the Asian financial crisis in 1997, as global investors sold stocks. Overseas funds have already cut holdings equivalent to more than half of their net purchases of local shares last year.
``There won't be any respite for the rupee in the near term because of uncertainty of the financial crisis being sorted anytime soon,'' said Parthasarathi Mukherjee, president of treasury at Axis Bank Ltd. ``We may see an accelerated fall in the rupee.''
The rupee declined 6.2 percent this month to 46.92 against the dollar in Mumbai, the biggest monthly drop since November 1997, according to data compiled by Bloomberg. It reached 46.9750 last week, the lowest since July 2006.
Selling Stocks
Overseas investors have sold $9.2 billion more Indian equities this year than they bought, according to data from the Securities & Exchange Board of India. They purchased a record $17.2 billion in stocks last year which helped the rupee complete its best annual gain in at least 34 years.
The Philippine peso fell on speculation the U.S. rescue plan for financial companies will help sustain growth in the world's biggest economy.
``The dollar is stronger as the U.S. bailout plan nears approval,'' said Rafael Algarra, treasurer at Security Bank Corp. in Manila. ``It is positive for the dollar, at least in the short-term, as it restores confidence in the U.S. economy.''
The peso touched 46.925, the lowest since Sept. 18, according to Tullett Prebon Plc.
Elsewhere, the Thai baht declined 0.3 percent to 34.03 against the U.S. currency and the Malaysian ringgit weakened 0.2 percent to 3.4410. Vietnam's dong was unchanged at 16,600.
To contact the reporter on this story: Anil Varma in Mumbai at avarma3@bloomberg.net; Aaron Pan in Hong Kong at Apan8@bloomberg.net.
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Australian, New Zealand Dollars Slip, as Rescue Plan Progresses
By Candice Zachariahs
Enlarge Image/Details
Sept. 29 (Bloomberg) -- The Australian dollar fell for a second day and New Zealand's currency slipped after U.S. lawmakers reached an agreement on a bank rescue plan, reviving confidence in the U.S. currency. Australian bonds fell.
The currencies pared earlier gains as the U.S. dollar rose to a one-week high against the euro and advanced against the yen as lawmakers said the U.S. Congress may consider the $700 billion plan today and vote on it Oct. 1.
``The only real issue is what U.S. politicians are going to end up deciding on,'' said Joseph Capurso, a currency strategist in Sydney at Commonwealth Bank of Australia. ``After a while the idea will sink in that the world economic outlook is still weak and that's bad news for the Aussie,'' he said referring to the currency by its nick-name.
The Australian dollar fell 0.7 percent to 82.51 U.S. cents at 4:22 p.m. in Sydney from 83.11 cents in New York on Sept. 26. It declined to 87.68 yen from 88.10 in New York.
New Zealand's dollar slid 0.5 percent to 68.26 cents from 68.60 cents late last week. It bought 72.53 yen from 72.72 yen.
U.S. Rescue
The currencies declined against the dollar after President George W. Bush and congressional leaders said they reached an agreement that will give Treasury Secretary Henry Paulson an immediate $250 billion to buy bad loans, with the rest to be doled out in stages.
``I am confident this legislation gives us the flexibility to unclog our financial markets,'' Paulson said in en e-mailed statement.
``A generally firmer U.S. dollar should limit the topside'' for the Australian and New Zealand dollars, said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington.
New Zealand's annual trade deficit narrowed for a third straight month in August as a falling currency and record oil shipments buoyed exports. The currency has lost 14.5 percent against the U.S. dollar over the past six months.
The gap narrowed to NZ$4.28 billion ($2.9 billion) in the 12 months ended Aug. 31 from NZ$4.48 billion in the year through May, Statistics New Zealand said in Wellington today. The median estimate in a Bloomberg survey of eight analysts was for a NZ$4.43 billion shortfall.
Bonds Decline
Australian government bonds declined.
``We're seeing government bond markets weaken up a little bit as we hear good news on this legislation in the States,'' said Sally Auld, interest rate strategist at JP Morgan Securities Australia Ltd. ``That's unwinding a little bit of that risk premium that was in fixed income.''
The yield on the 10-year note rose 4 basis points, or 0.04 percentage point, to 5.655 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 fell 0.321, or A$3.21 per A$1,000 face amount, to 96.833.
New Zealand's two-year swap rate, a fixed payment made to receive floating rates, fell to 6.81 percent today from 6.93 on Sept. 26.
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
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Enlarge Image/Details
Sept. 29 (Bloomberg) -- The Australian dollar fell for a second day and New Zealand's currency slipped after U.S. lawmakers reached an agreement on a bank rescue plan, reviving confidence in the U.S. currency. Australian bonds fell.
The currencies pared earlier gains as the U.S. dollar rose to a one-week high against the euro and advanced against the yen as lawmakers said the U.S. Congress may consider the $700 billion plan today and vote on it Oct. 1.
``The only real issue is what U.S. politicians are going to end up deciding on,'' said Joseph Capurso, a currency strategist in Sydney at Commonwealth Bank of Australia. ``After a while the idea will sink in that the world economic outlook is still weak and that's bad news for the Aussie,'' he said referring to the currency by its nick-name.
The Australian dollar fell 0.7 percent to 82.51 U.S. cents at 4:22 p.m. in Sydney from 83.11 cents in New York on Sept. 26. It declined to 87.68 yen from 88.10 in New York.
New Zealand's dollar slid 0.5 percent to 68.26 cents from 68.60 cents late last week. It bought 72.53 yen from 72.72 yen.
U.S. Rescue
The currencies declined against the dollar after President George W. Bush and congressional leaders said they reached an agreement that will give Treasury Secretary Henry Paulson an immediate $250 billion to buy bad loans, with the rest to be doled out in stages.
``I am confident this legislation gives us the flexibility to unclog our financial markets,'' Paulson said in en e-mailed statement.
``A generally firmer U.S. dollar should limit the topside'' for the Australian and New Zealand dollars, said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington.
New Zealand's annual trade deficit narrowed for a third straight month in August as a falling currency and record oil shipments buoyed exports. The currency has lost 14.5 percent against the U.S. dollar over the past six months.
The gap narrowed to NZ$4.28 billion ($2.9 billion) in the 12 months ended Aug. 31 from NZ$4.48 billion in the year through May, Statistics New Zealand said in Wellington today. The median estimate in a Bloomberg survey of eight analysts was for a NZ$4.43 billion shortfall.
Bonds Decline
Australian government bonds declined.
``We're seeing government bond markets weaken up a little bit as we hear good news on this legislation in the States,'' said Sally Auld, interest rate strategist at JP Morgan Securities Australia Ltd. ``That's unwinding a little bit of that risk premium that was in fixed income.''
The yield on the 10-year note rose 4 basis points, or 0.04 percentage point, to 5.655 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 fell 0.321, or A$3.21 per A$1,000 face amount, to 96.833.
New Zealand's two-year swap rate, a fixed payment made to receive floating rates, fell to 6.81 percent today from 6.93 on Sept. 26.
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
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Russian Ruble Falls Versus Dollar, Currency Basket as Oil Slips
By Emma O'Brien
Sept. 29 (Bloomberg) -- The ruble weakened against the dollar and the Russian central bank's currency basket after the price of crude oil, the country's biggest export earner, declined for a second day.
The managed currency was at 30.2727 versus the basket as of 10:30 a.m. in Moscow, from 30.2393 on Sept. 26. The ruble dropped to 25.2243 per dollar, from 25.0408 at the end of last week. It rose to 36.4396 per euro, from 36.5929.
Bank Rossii keeps the ruble within a trading band against the basket to limit the impact of its fluctuations on the competitiveness of Russian exports. The basket rate is calculated by multiplying the ruble's rate to the dollar by 0.55, the euro rate by 0.45, then adding the two together.
Crude declined 1.6 percent to $105.21 a barrel in New York trading, extending a 1.1 percent drop at the end of last week.
The currency may recover some of its losses today after an agreement by U.S. lawmakers on a $700 billion rescue plan for the financial markets, said Ulrich Leuchtmann, head of emerging- markets currency strategy in Frankfurt for Commerzbank AG, Germany's second-biggest lender.
``The agreement is positive news for emerging-market currencies,'' he said. ``I don't expect a huge rally as the market still is concerned about the consequences for the real economy.''
The U.S. proposal, which involves the Treasury being authorized to buy distressed securities from lenders, is expected to be voted on by members of the House of Representatives and the Senate early this week.
To contact the reporter on this story: Emma O'Brien in Moscow at eobrien6@bloomberg.net
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Sept. 29 (Bloomberg) -- The ruble weakened against the dollar and the Russian central bank's currency basket after the price of crude oil, the country's biggest export earner, declined for a second day.
The managed currency was at 30.2727 versus the basket as of 10:30 a.m. in Moscow, from 30.2393 on Sept. 26. The ruble dropped to 25.2243 per dollar, from 25.0408 at the end of last week. It rose to 36.4396 per euro, from 36.5929.
Bank Rossii keeps the ruble within a trading band against the basket to limit the impact of its fluctuations on the competitiveness of Russian exports. The basket rate is calculated by multiplying the ruble's rate to the dollar by 0.55, the euro rate by 0.45, then adding the two together.
Crude declined 1.6 percent to $105.21 a barrel in New York trading, extending a 1.1 percent drop at the end of last week.
The currency may recover some of its losses today after an agreement by U.S. lawmakers on a $700 billion rescue plan for the financial markets, said Ulrich Leuchtmann, head of emerging- markets currency strategy in Frankfurt for Commerzbank AG, Germany's second-biggest lender.
``The agreement is positive news for emerging-market currencies,'' he said. ``I don't expect a huge rally as the market still is concerned about the consequences for the real economy.''
The U.S. proposal, which involves the Treasury being authorized to buy distressed securities from lenders, is expected to be voted on by members of the House of Representatives and the Senate early this week.
To contact the reporter on this story: Emma O'Brien in Moscow at eobrien6@bloomberg.net
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Euro May Decline to $1.4390 on Technical Chart, Okasan Says
By Stanley White
Sept. 29 (Bloomberg) -- Technical analysis shows the euro may fall to $1.4390 this week, said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo.
The 15-nation currency is set to decline as its stochastic chart is showing a sell signal, Soma said. This suggests the euro will break below first support at its 30-day moving average of $1.4491, he said. Second support at $1.4390 is a 23.6 percent retracement on the euro's decline from a record high of $1.6038 on July 15 to a one-year low of $1.3882 on Sept. 11, according to a series of numbers known as the Fibonacci sequence.
``There's a very good chance for the euro to fall,'' Soma said. ``The euro has simply run out of steam and will take out support levels in a slow grind lower.''
The euro fell to $1.4498 at 11:12 a.m. in Tokyo from $1.4614 late in New York on Sept. 26, paring last week's gain of 1 percent.
Stochastic charts are used to indicate momentum by measuring the price of a security compared with its highs and lows. Support is where buy orders may be clustered. Other Fibonacci levels are 38.2 percent, 50 percent, 61.8 percent and 76.4 percent. A break of one suggests a security may move to the next, while a failure suggests a move will stall.
In technical analysis, investors and analysts study charts of trading patterns and prices to forecast price changes in a security, commodity, currency or index.
To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net
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Sept. 29 (Bloomberg) -- Technical analysis shows the euro may fall to $1.4390 this week, said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo.
The 15-nation currency is set to decline as its stochastic chart is showing a sell signal, Soma said. This suggests the euro will break below first support at its 30-day moving average of $1.4491, he said. Second support at $1.4390 is a 23.6 percent retracement on the euro's decline from a record high of $1.6038 on July 15 to a one-year low of $1.3882 on Sept. 11, according to a series of numbers known as the Fibonacci sequence.
``There's a very good chance for the euro to fall,'' Soma said. ``The euro has simply run out of steam and will take out support levels in a slow grind lower.''
The euro fell to $1.4498 at 11:12 a.m. in Tokyo from $1.4614 late in New York on Sept. 26, paring last week's gain of 1 percent.
Stochastic charts are used to indicate momentum by measuring the price of a security compared with its highs and lows. Support is where buy orders may be clustered. Other Fibonacci levels are 38.2 percent, 50 percent, 61.8 percent and 76.4 percent. A break of one suggests a security may move to the next, while a failure suggests a move will stall.
In technical analysis, investors and analysts study charts of trading patterns and prices to forecast price changes in a security, commodity, currency or index.
To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net
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Pound Drops Versus Dollar on B&B Seizure, Before Mortgage Data
By Agnes Lovasz and Andrew MacAskill
Sept. 29 (Bloomberg) -- The pound dropped against the dollar after the U.K. government seized Bradford & Bingley Plc, Britain's biggest lender to landlords, as the credit crisis deepened.
The pound declined the most in more than a week versus the U.S. currency before a report that will probably show U.K. mortgage approvals slid to the lowest level since at least 1999. President George W. Bush and Congressional leaders agreed on a $700 billion plan to revive credit markets by purchasing banks' distressed debt.
The pound slid to $1.8102, the lowest level since Sept. 19, as of 8:24 a.m. in London, from $1.8445 at the end of last week. Against the euro, the pound traded little changed at 79.26 pence, from 79.23 pence.
Banco Santander SA, Spain's biggest bank, will pay 612 million pounds to buy Bradford & Bingley branches and deposits, the U.K. Treasury said today in a statement. The British lender became the country's second bank, after Northern Rock Plc, to be nationalized this year as survivors of the global credit crunch balked at swallowing all the risks facing weaker competitors.
Lenders probably granted 30,000 loans for house purchases in August, the Bank of England will say, according to the median estimate of 27 economists in a Bloomberg survey. The central bank is scheduled to release the mortgage data today at 9:30 a.m. in London.
The credit crunch has starved the housing market of loans and threatened to push the U.K. economy into a recession. In an attempt to stimulate growth, the Bank of England will lower its benchmark interest rate as soon as next month, Citigroup Inc. said on Sept. 26, revising an earlier prediction for no reduction until next year. Policy makers next meet to review rates on Oct. 9.
U.S. Bailout
U.S. lawmakers reached agreement yesterday as House Republican leaders backed away from opposition to the proposal after it included plans to create insurance for mortgage-backed securities. The House and Senate are scheduled to vote on the bill early this week, although it wasn't clear last night that it has sufficient votes to pass the House.
U.K. government bonds gained. The yield on the 10-year note fell 1 basis point to 4.53 percent as of 8:25 a.m. in London. The 5 percent security due March 2018 gained 0.10, or 1 pound per 1,000-pound ($1,810) face amount, to 103.55.
The yield on the two-year note dropped 3 basis points to 4.22 percent. Bond yields move inversely to prices.
Policy makers kept the benchmark interest rate unchanged on Sept. 4 as they weighed the risks of accelerating inflation against the danger that mounting bank losses will push Europe's second-biggest economy into its first recession since 1991.
To contact the reporter on this story: Andrew MacAskill in London at amacaskill@bloomberg.net; Agnes Lovasz in London at alovasz@bloomberg.net
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Sept. 29 (Bloomberg) -- The pound dropped against the dollar after the U.K. government seized Bradford & Bingley Plc, Britain's biggest lender to landlords, as the credit crisis deepened.
The pound declined the most in more than a week versus the U.S. currency before a report that will probably show U.K. mortgage approvals slid to the lowest level since at least 1999. President George W. Bush and Congressional leaders agreed on a $700 billion plan to revive credit markets by purchasing banks' distressed debt.
The pound slid to $1.8102, the lowest level since Sept. 19, as of 8:24 a.m. in London, from $1.8445 at the end of last week. Against the euro, the pound traded little changed at 79.26 pence, from 79.23 pence.
Banco Santander SA, Spain's biggest bank, will pay 612 million pounds to buy Bradford & Bingley branches and deposits, the U.K. Treasury said today in a statement. The British lender became the country's second bank, after Northern Rock Plc, to be nationalized this year as survivors of the global credit crunch balked at swallowing all the risks facing weaker competitors.
Lenders probably granted 30,000 loans for house purchases in August, the Bank of England will say, according to the median estimate of 27 economists in a Bloomberg survey. The central bank is scheduled to release the mortgage data today at 9:30 a.m. in London.
The credit crunch has starved the housing market of loans and threatened to push the U.K. economy into a recession. In an attempt to stimulate growth, the Bank of England will lower its benchmark interest rate as soon as next month, Citigroup Inc. said on Sept. 26, revising an earlier prediction for no reduction until next year. Policy makers next meet to review rates on Oct. 9.
U.S. Bailout
U.S. lawmakers reached agreement yesterday as House Republican leaders backed away from opposition to the proposal after it included plans to create insurance for mortgage-backed securities. The House and Senate are scheduled to vote on the bill early this week, although it wasn't clear last night that it has sufficient votes to pass the House.
U.K. government bonds gained. The yield on the 10-year note fell 1 basis point to 4.53 percent as of 8:25 a.m. in London. The 5 percent security due March 2018 gained 0.10, or 1 pound per 1,000-pound ($1,810) face amount, to 103.55.
The yield on the two-year note dropped 3 basis points to 4.22 percent. Bond yields move inversely to prices.
Policy makers kept the benchmark interest rate unchanged on Sept. 4 as they weighed the risks of accelerating inflation against the danger that mounting bank losses will push Europe's second-biggest economy into its first recession since 1991.
To contact the reporter on this story: Andrew MacAskill in London at amacaskill@bloomberg.net; Agnes Lovasz in London at alovasz@bloomberg.net
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U.S. Consumer Spending Likely Rose 0.2% in August on Car Sales
By Bob Willis
Enlarge Image/Details
Sept. 29 (Bloomberg) -- Consumer spending in the U.S. probably rose in August as carmakers boosted incentives to shore up sales in the face of rising unemployment and slumping confidence, economists said ahead of a report today.
The 0.2 percent increase in purchases would follow a 0.2 percent rise in July, according to the median forecast of 64 economists surveyed by Bloomberg News. The average gain was 0.3 percent a month during the last official recession, in 2001. Today's report may also show inflation accelerating on higher commodity costs that have since receded.
Demand from consumers is faltering as the boost from tax rebates fades, job losses mount, home equity evaporates and a credit crunch toppled some of the nation's largest financial companies. Steeper discounts at General Motors Corp. stirred some demand for cars, helping pull auto sales from 15-year lows.
``Consumers are under pressure from just about every conceivable angle at this point,'' said Russell Price, a senior economist at H&R Block Financial Advisors in Detroit. ``Spending is likely to turn negative at some point over the next few months.''
The Commerce Department's report is due at 8:30 a.m. in Washington. Spending estimates in the Bloomberg survey ranged from a gain of 0.5 percent to a drop of 0.2 percent.
The survey also projects incomes rose 0.2 percent in August, according to economists' estimates, after dropping 0.7 percent the prior month when the flow of rebate checks dropped off after peaking the prior two months.
Inflation Signs
The income and spending report is also likely to show inflation is eroding American's purchasing power. The price gauge tied to spending patterns probably rose 4.5 percent in the year ended August, holding at the fastest rate in 17 years for a second month, according to the survey median.
The measure that excludes food and energy costs, the one tracked by the Federal Reserve, probably rose 2.4 percent from a year earlier, matching the prior month and the most since February 2007, the survey showed.
Concern over both slower growth and rising prices led Fed policy makers on Sept. 16 to hold the benchmark interest rate at 2 percent.
Fed Chairman Ben S. Bernanke told lawmakers at a hearing last week that the economy faces ``grave threats'' to financial stability and warned the credit crisis is hurting business spending. He added that the outlook for consumer spending is ``sluggish at best.''
Auto Industry Woes
Purchases of big-ticket items remain weak. Sales of autos and light trucks edged up in August to a 13.7 million rate from the prior month's 12.5 million annual pace, which was the lowest since 1993, according to Bloomberg calculations based on industry data. Sales may drop again in coming months as financial market turmoil constrains credit.
``The auto industry is the smallest it's been in years in terms of sales'' and the U.S. economy is ``lackluster,'' General Motor Corp.'s Vice Chairman Bob Lutz said Aug. 28 in Joliet, Illinois. ``Nobody is quite sure when it's going to turn around.''
Economists surveyed by Bloomberg in the first week of September forecast consumer spending in the third quarter will be flat, the weakest since 1991, following a 1.2 percent pace in the second quarter.
Economists forecast overall economic growth of 1.2 percent in the July-to-September period, from 2.8 percent in the second quarter, according to the Bloomberg survey.
To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net
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Enlarge Image/Details
Sept. 29 (Bloomberg) -- Consumer spending in the U.S. probably rose in August as carmakers boosted incentives to shore up sales in the face of rising unemployment and slumping confidence, economists said ahead of a report today.
The 0.2 percent increase in purchases would follow a 0.2 percent rise in July, according to the median forecast of 64 economists surveyed by Bloomberg News. The average gain was 0.3 percent a month during the last official recession, in 2001. Today's report may also show inflation accelerating on higher commodity costs that have since receded.
Demand from consumers is faltering as the boost from tax rebates fades, job losses mount, home equity evaporates and a credit crunch toppled some of the nation's largest financial companies. Steeper discounts at General Motors Corp. stirred some demand for cars, helping pull auto sales from 15-year lows.
``Consumers are under pressure from just about every conceivable angle at this point,'' said Russell Price, a senior economist at H&R Block Financial Advisors in Detroit. ``Spending is likely to turn negative at some point over the next few months.''
The Commerce Department's report is due at 8:30 a.m. in Washington. Spending estimates in the Bloomberg survey ranged from a gain of 0.5 percent to a drop of 0.2 percent.
The survey also projects incomes rose 0.2 percent in August, according to economists' estimates, after dropping 0.7 percent the prior month when the flow of rebate checks dropped off after peaking the prior two months.
Inflation Signs
The income and spending report is also likely to show inflation is eroding American's purchasing power. The price gauge tied to spending patterns probably rose 4.5 percent in the year ended August, holding at the fastest rate in 17 years for a second month, according to the survey median.
The measure that excludes food and energy costs, the one tracked by the Federal Reserve, probably rose 2.4 percent from a year earlier, matching the prior month and the most since February 2007, the survey showed.
Concern over both slower growth and rising prices led Fed policy makers on Sept. 16 to hold the benchmark interest rate at 2 percent.
Fed Chairman Ben S. Bernanke told lawmakers at a hearing last week that the economy faces ``grave threats'' to financial stability and warned the credit crisis is hurting business spending. He added that the outlook for consumer spending is ``sluggish at best.''
Auto Industry Woes
Purchases of big-ticket items remain weak. Sales of autos and light trucks edged up in August to a 13.7 million rate from the prior month's 12.5 million annual pace, which was the lowest since 1993, according to Bloomberg calculations based on industry data. Sales may drop again in coming months as financial market turmoil constrains credit.
``The auto industry is the smallest it's been in years in terms of sales'' and the U.S. economy is ``lackluster,'' General Motor Corp.'s Vice Chairman Bob Lutz said Aug. 28 in Joliet, Illinois. ``Nobody is quite sure when it's going to turn around.''
Economists surveyed by Bloomberg in the first week of September forecast consumer spending in the third quarter will be flat, the weakest since 1991, following a 1.2 percent pace in the second quarter.
Economists forecast overall economic growth of 1.2 percent in the July-to-September period, from 2.8 percent in the second quarter, according to the Bloomberg survey.
==================================
Personal Spending Forecasts MOM%
==================================
Date of Release 09/29
Observation Period Aug.
----------------------------------
Median 0.2%
Average 0.2%
High Forecast 0.5%
Low Forecast -0.2%
Number of Participants 64
Previous 0.2%
----------------------------------
4CAST Ltd. 0.0%
Action Economics 0.2%
Aletti Gestielle SGR 0.3%
Argus Research Corp. -0.2%
Banc of America Securitie 0.2%
Bank of Tokyo- Mitsubishi 0.4%
Bantleon Bank AG 0.3%
Barclays Capital 0.3%
BBVA 0.5%
BMO Capital Markets 0.3%
BNP Paribas 0.1%
Calyon 0.1%
CIBC World Markets 0.1%
Commerzbank AG 0.2%
Credit Suisse 0.4%
Daiwa Securities America 0.3%
Danske Bank 0.2%
DekaBank 0.2%
Desjardins Group 0.1%
Deutsche Bank Securities 0.2%
Dresdner Kleinwort 0.2%
DZ Bank 0.2%
First Trust Advisors 0.3%
Fortis 0.1%
Global Insight 0.1%
H&R Block Financial Advis 0.2%
Helaba 0.2%
HSBC Markets 0.1%
IDEAglobal 0.3%
Informa Global Markets 0.0%
ING Financial Markets 0.2%
Insight Economics 0.3%
Intesa-SanPaulo 0.2%
J.P. Morgan Chase 0.2%
Janney Montgomery Scott L 0.1%
JPMorgan Private Client 0.0%
Landesbank Berlin 0.2%
Landesbank BW 0.3%
Lehman Brothers 0.3%
Lloyds TSB 0.2%
Maria Fiorini Ramirez Inc 0.2%
Merk Investments 0.0%
Merrill Lynch 0.1%
Moody's Economy.com 0.1%
Morgan Stanley & Co. 0.3%
National City Corporation 0.1%
Natixis 0.2%
Newedge 0.2%
Nomura Securities Intl. 0.1%
PNC Bank 0.3%
RBS Greenwich Capital 0.2%
Ried, Thunberg & Co. 0.3%
Schneider Trading Associa 0.0%
Scotia Capital -0.2%
Societe Generale 0.2%
Stone & McCarthy Research 0.3%
TD Securities 0.2%
Thomson Financial/IFR 0.0%
University of Maryland 0.2%
Wachovia Corp. 0.1%
Wells Fargo & Co. 0.2%
WestLB AG 0.2%
Westpac Banking Co. 0.1%
Wrightson Associates 0.3%
==================================
To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net
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