Retail Sales' Message from Main Street

Daily Forex Fundamentals | Written by Ashraf Laidi | Oct 15 08 14:48 GMT |


The attached chart shows the year on year change in retail sales of 1.03% was the first decline since October 2002. There has been only 3 annual declines since 1992 (September 2001 and October 2002). The sales report carries negative implications for September retail jobs, especially as retail payrolls have now been in the red for longer than in the 2001-2 last recession.



Were seeing a repeat of autumn 2007 and summer 2008 when surging market volatility of summer 2007 and spring 2008 gave way to deepening economic deterioration as shaky equity market confidence impacted consumer demand, corporate earnings and planned capex. Separately, US Empire state manufacturing index fell to -24.6 in October from -7.4, the worst level on record. New orders tumble to -21 from 4.4. Fed Chairman Bernanke's speech at noon on the economic outlook to further indicate macroeconomic weakness and open the door for rates to drop as low as 1.00% before year-end. US Empire state manufacturing index drops to -24.6 in October from -7.4, the worst level on record. New orders tumble to -21 from 4.4. Prices paid index drops to 32 from 45.

USDJPY to Revisit 100.45

Weak macroeconomic data diverts attention from governments banking sector to the real economy, thus dragging USDJPY towards 101 and onto 100.50s. The failure to breach 103 yen has been cemented, shifting focus towards the 98 figure. The USDJPY pair is also increasingly reflecting eroding confidence among Japanese investors, whose losses in their own equity indices are dealing a major blow to investment appetite abroad, hence, yen crosses. Technically, the 2-hour chart shows a trend line resistance at 101.55, calling for 101.05-38% retracement of bounce from Oct 9 low. Subsequent target stands at 50% retracement i.e.100.44.

Time for More Declines in Sterling

The increasingly negative correlation between sterling and risk appetite allows for renewed losses towards $1.7450 and $1.7380 especially on the combination of eroding consumer demand and anticipated pessimist tone from Bernankes speech. We should start hearing the word recession being uttered more often by Federal Reserve officials, as we have already heard from Yellen and Lockhardt earlier.

Trend line resistance stands at $1.7450, backed by $1.7380. Upside capped at 1.7380.

Euro Eyes $1.35

Despite negative economic figures from the US, EURUSD will go unscathed as the impact of further deleveraging in capital markets is to drag higher yielding currencies against the dollar. With currency markets continuing to move to the tune of risk appetite, $1.3550 stands as the next interim support, followed by 1.3500.

Ashraf Laidi
http://www.ashraflaidi.com



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The Die Seems Cast

Daily Forex Fundamentals | Written by Black Swan Capital | Oct 15 08 14:42 GMT |
Currency Currents
Key News

* Tom Albanese, Rio Tinto's chief executive, on Wednesday warned about the health of China and said the slowdown in one of the world's fastest growing economies had led the mining company to revise its capital spending plans. Mr Albanese said there had been a marked reduction in Chinese commodity demand from the overheated levels of 2007 and added that the "vast majority of Chinese aluminium producers are now making operating losses."

Quotable

"After setting record lows in September, business conditions tumbled to new lows in early October, according to the industry analysts canvassed for the Morgan Stanley Business Conditions Index (MSBCI). The headline index plunged to 11% - exactly half the previous month's reading and, by far, the lowest measurement in our survey's six-year history. Underscoring this poor overall showing, every single component of the MSBCI declined in October. In fact, even the advance bookings index - the only indicator to display noticeable improvement in September - erased its previous gains and collapsed to 24%. Perhaps most glaring, the business conditions expectations index came in at an astounding 6% - sliding into single-digit territory for the first time and crystallizing an increasingly pessimistic outlook."

Richard Berner and David Cho, Morgan Stanley
FX Trading - The Die Seems Cast

Recession dead ahead it seems. So it's just a matter of waiting in the tall grass for the right time to sell the dollar, right? Well, we don't think so.

We're not looking at this dollar rally as a gracious selling opportunity within a larger bear market. As bad as we think the recession may possibly become in the US, we think it could become a lot worse for both the Eurozone and UK.

"In the Eurozone, the annual debt service for the new bailout debt could reach as high as 1% of GDP - about 2/3rds of potential GDP growth. For the US the added annual debt service could be as high as 0.3% of GDP or about 1/10th of potential GDP growth. The potential fiscal burden of these rescue packages is about 7 times as high for the Eurozone as they are for the US," according to Criton Zoakos, editor of the Leto letter.

As we've highlighted already this week, plenty of indicators pointed towards a dollar correction. But given the reappearing breakdown in stocks, after not holding on to a two-day rally, we aren't so sure the correction isn't over.

In other words, if investors lack confidence to play risky investments then the corrective rallies might not last as long as we originally expect. It was hard enough to convince everyone that the Treasury needed to inject money into the system. Now it seems harder to see that the money promised to this initiative actually does what was intended of it.

Hasn't exactly been a confidence booster so far.

As the Treasury and top CEOs hash out the details over where the money goes and what it ultimately gets used for, the S&P 500 is sinking.

Yesterday's reversal bar set the tone for today. Stocks are lower and the buzz surrounding Monday's historic surge is all but forgotten.

The euro has become fairly tied to stocks, as we've mentioned before. If the euro does rally, we think it is a gift to sell it at higher prices. But if stocks continue to signal a market short on confidence, then the risk taking dynamic will undermine the euro as well.

The duration of corrections is nearly impossible to predict. In this environment it may make sense to play the euro's next major downturn with put options on euro futures.

Jack Crooks
Black Swan Capital
http://www.blackswantrading.com

Black Swan Capital's Currency Snapshot is strictly an informational publication and does not provide individual, customized investment advice. The money you allocate to futures or forex should be strictly the money you can afford to risk. Detailed disclaimer can be found at http://www.blackswantrading.com/disclaimer.html



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U.S. September Retail Sales Were Much Weaker Than Expected

Daily Forex Fundamentals | Written by RBC Financial Group | Oct 15 08 14:26 GMT |

September retail sales were very weak dropping 1.2% in the month. The earlier-reported drop in auto sales flagged a likely decline in the month though expectations were centred on a 0.7% drop. Excluding motor vehicles, sales dropped 0.6% compared to expectations of a more modest 0.2% decline.

The weakness in retail sales was led by the 3.8% plummet in motor vehicles sales that had been earlier flagged by indications that unit sales had dropped to recessionary levels (12.5 million units) in the month. However, the month also saw declines in most other categories with sales at clothing stores down 2.3% and sporting goods stores off 1.1%. We thought that there might be a reversal of some outsized August declines in electronic and department stores though that was not the case with both categories dropping 1.5% in the month. The one component that managed to eke out a gain were sales at gasoline stations which rose a minimal 0.1% after a large 3.0% drop in August reflecting, in part, a temporary stabilization in gasoline prices.

In a separate report, producer prices in September fell an expected 0.4% following a 0.9% drop in August. The lessening in decline in large part reflected less downward pressure from energy prices with the gasoline component down only 0.5% in September after a 3.5% drop in August. However, heating oil prices continued to show a large 13.9% decline after a 13.6% drop in August. More unexpected was the 0.4% rise in core prices that was double the 0.2% increase expected by financial markets. The pressure was led by gains in pharmaceuticals (+0.9%), capital equipment (+0.5%) and passenger cars (+0.5%). The gain in the latter was particularly surprising given the marked weakening in auto sales in the month.

The drop in retail sales suggests that the annualized decline in Q3 consumer spending will likely be closer to 3% compared to our earlier-forecasted decline of 2.3% following a 1.2% gain in Q2. This weakening reflects a number of factors including tight credit, high energy prices and some payback from the temporary boost provided by the tax rebate cheques. Of the three, the first factor poses the greatest continuing risk to the economy not only weighing on consumer spending but also, and more critically, investment spending. Our expectation is that recent aggressive government actions to free up financial markets will be successful in gradually easing the credit tightening though we are allowing for one more 50-basis point interest rate cut by the Fed before year end to assure that the extent of declining activity remains minimal. Though the unexpectedly large rise in core producer prices reported this morning does indicate that price pressures persist, we expect that the weakening in growth will prevent these pressures from persisting.

RBC Financial Group
http://www.rbc.com

The statements and statistics contained herein have been prepared by the Economics Department of RBC Financial Group based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This report is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.

Digg!



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Daily Technical Strategist

Daily Forex Technicals | Written by FXTechstrategy | Oct 15 08 14:36 GMT |


Today's Focus: EURUSD & GBPUSD

* EURUSD: Hesitation Ahead Of 1.3785 And A Close Back Below the 1.3682/66 Area Highlight Lower Prices..
* GBPUSD: Presence Of A Shooting Star Candle Pattern Portends End Of Corrective Recovery.

EURUSD

With EUR failing ahead of the 1.3786 level, its Oct 09'08 high and closing back below the 1.3682/66 zone, its April'07/Dec'04 highs, its corrective bounce started at the 1.3259 may be coming to an end opening risk towards its Dec'04 high/August'07 low at 1.3366/61.Below the 1.3312/1.3264 zone, its .618 Ret (1.1640-1.6038 rally)/Jun'07 low will highlight its YTD low at 1.3259 where a decisive invalidation will activate its medium-longer term losses aiming at its .618 Ret(0.8231-1.6038 rally, monthly chart) at 1.3058.On the other hand, if a return above the 1.3786 and 1.3682/66 levels materialize, then the 1.3852/82 zone, its Sept 11'08 low/July'07 high will be targeted where a cap is expected to turn the pair back down. On the whole, EUR's bearishness is expected to resume on ending the present corrective upmove.
Support Comments
1.3366/61 Dec'04 high/August'07 low
1.3312/1.3264 .618 Ret (1.1640-1.6038 rally)/Jun'07 low
1.2980 Jun'06 high
Resistance Comment
1.3682/66 April'07/Dec'04 highs
1.3852/82 Sept 11'08 low/July'07 high
1.4015 Oct'07 low
1.4073 Sept 16'08 low

GBPUSD

Although daily momentum indicators continue to suggest we could see further gains, price action at the end of Tuesday trading session now indicates that the recovery started at 12387 could be coming to an end. This case is supported by the fact that the pair reversed its intra day gains Tuesday and later closed lower printing a shooting star candle pattern (top reversal signal).If this scenario plays out and downside weakness is triggered, GBP will target the 1.7447 level, its Sept 11'08 at first and then its April'06 low at 1.7251 ahead of the 1.6857 level, its June'03 high. Clearing that level will put the pair in position to aim at the 1.6786 level, its Oct 10'08 low with a break and close below resuming the pair's longer term weakness.Alternatively,if the top of the shooting star candle were to be cleared, the 1.7735 level, its Sept 16'08 low and the 1.7840 level, its Oct 03'08 high will come in as the next upside objectives. All in all, the pair retains its broader bearish structure even as corrective recovery is seen in the nearer term.
Support Comments
1.7447 YTD high
1.7251 April'06 low
1.7049 Nov'05 low
1.6857 June'03 high
Resistance Comments
1.7735 Sept 16'08 low
1.7840 Oct 03'08 high
1.8669 Sept 25'08 high

Mohammed Isah
Market Analyst
www.fxtechstrategy.com

This report is prepared solely for information and data purposes. Opinions, estimates and projections contained herein are the author's own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed to be reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness and neither the information nor the forecast shall be taken as a representation for which the author incur any responsibility. The does not accept any liability whatsoever for any loss arising from any use of this report or its contents. This report is not construed as an offer to sell or solicitation of any offer to buy any of the currencies referred to in this report



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U.S. Sept. Advance Retail Sales: Statistical Summary (Table)

By Alex Tanzi

Oct. 15 (Bloomberg) -- Following is the summary of the U.S. retail sales report for Sept. from the Commerce Department.

===============================================================================
Sept. Aug. July June May April March Sept.
2008 2008 2008 2008 2008 2008 2008 YOY
===============================================================================
---------------------MOM%---------------------
Retail & food service -1.2% -0.4% -0.6% 0.1% 0.8% 0.2% 0.5% 0.0%
Ex-autos -0.6% -0.9% 0.1% 0.7% 1.2% 1.0% 0.8% 4.1%
Ex-gas -1.3% -0.1% -0.7% -0.3% 0.5% 0.2% 0.3% -2.1%
Ex-autos & build mat. -0.6% -0.8% 0.1% 0.8% 1.0% 0.9% 0.9% 4.3%
Ex-autos & gas -0.7% -0.6% 0.1% 0.3% 0.8% 1.1% 0.5% 2.0%
Ex-food service -1.2% -0.5% -0.7% 0.1% 0.8% 0.1% 0.5% -0.2%
Ex-build mat., auto dlrs -0.6% -0.8% 0.1% 0.8% 1.1% 0.9% 0.9% 4.3%
Ex-gas, bldg mat, dlrs(*)-0.7% -0.4% 0.1% 0.4% 0.7% 0.9% 0.6% 2.1%
------------3-mo. Average Annualized-----------
Retail & food service -4.0% 0.3% 3.7% 3.7% 3.0% -0.1% 0.8% n/a
Ex-autos 0.7% 6.6% 10.9% 10.3% 7.8% 3.3% 3.5% n/a
===============================================================================
Sept. Aug. July June May April March Sept.
2008 2008 2008 2008 2008 2008 2008 YOY
===============================================================================
Ex-gas -5.1% -1.9% 0.8% 1.6% 1.4% -0.9% -1.2% n/a
Ex-autos & build mat. 1.1% 6.7% 10.6% 10.0% 8.2% 4.1% 4.8% n/a
Ex-autos & gas 0.1% 4.6% 8.1% 8.5% 6.4% 2.7% 1.3% n/a
Ex-food service -4.6% -0.1% 3.3% 3.3% 2.9% -0.3% 0.7% n/a
Ex-build mat. & auto dlrs 1.0% 6.6% 10.6% 10.0% 8.1% 4.1% 4.6% n/a
Ex-gas, build mat & dlrs 0.4% 4.5% 7.4% 8.0% 6.6% 3.6% 2.4% n/a
---------------------MOM%---------------------
Motor vehicles, parts -3.8% 1.7% -4.2% -2.7% -0.9% -3.1% -0.5% -15.8%
Furniture -2.3% -2.2% -0.7% -2.0% 0.5% -0.2% 0.0% -9.2%
Electronics -1.5% -2.0% -0.5% -1.1% 1.6% 1.4% 0.0% -2.1%
Building materials -0.6% -2.0% 0.4% -0.6% 2.5% 2.2% -1.0% 1.8%
Food, beverages -0.5% 0.6% 0.2% 1.1% -0.1% 0.8% 0.9% 3.7%
Health, personal care 0.4% 0.1% 0.1% 0.8% 0.0% 0.7% 0.3% 6.3%
Gasoline stations 0.1% -3.0% 0.0% 3.2% 3.3% 0.6% 2.6% 18.1%
Clothing -2.3% 0.5% 0.4% -0.1% 0.6% 0.5% 0.6% -2.0%
Sporting goods -1.1% 0.6% -0.5% 0.5% 0.8% 0.7% 0.8% 1.0%
General merchandise -0.4% -0.4% 0.0% 0.4% 1.4% 0.7% 0.4% 1.0%
===============================================================================
Sept. Aug. July June May April March Sept.
2008 2008 2008 2008 2008 2008 2008 YOY
===============================================================================
Department stores -1.5% -1.6% -0.6% 0.0% 0.6% 0.2% -0.4% -8.2%
Miscellaneous -0.6% -2.5% 2.1% 1.9% -0.1% 0.8% 0.7% 1.6%
Non-store retailers -0.8% -1.9% -0.1% 0.5% 1.0% 2.4% 1.7% 8.2%
Eating, drinking -0.5% -0.1% 0.1% 0.2% 0.8% 1.1% 0.4% 1.0%
===============================================================================
NOTE: Percent changes are monthly unless otherwise noted.
Three month annualized calculations are the latest three months
average compared to the previous three months average.
Monthly changes are seasonally adjusted, yearly changes are not adjusted.

(*) This calculation removes gas, building materials & auto and other
motor vehicle dealers (a component of motor vehicles & parts) from
total retail & food service sales.

The estimates above are based on a sample of about 5,000 retail and food
service firms whose sales are then weighted. Based upon this sample, the
Census Bureau is 90 percent confident that retail sales to the over 3
million retail establishments was between -1.7 and -0.7 percent last month.

SOURCE: U.S. Commerce Department http://www.census.gov/retail

To contact the reporter on this story: Alex Tanzi in Washington at atanzi@bloomberg.net



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Fed's Rosengren Says Unemployment Rate May Increase

By Christopher Condon and Steve Matthews

Oct. 15 (Bloomberg) -- The unemployment rate in the U.S. may rise as the economy in coming quarters expands at an anemic rate, Federal Reserve Bank of Boston president Eric Rosengren said.

``We're in a period where the economy is likely to grow quite slowly,'' Rosengren said today in a speech in Boston. Such a forecast ``would imply that unemployment is going to rise.''

The central bank is facing increasing evidence that the U.S. may already be in a recession, with San Francisco Fed President Janet Yellen saying yesterday that economic activity appears to be declining.

Labor Department figures showed Oct. 3 that payrolls fell by 159,000 in September, the biggest reduction in five years. The unemployment rate was 6.1 percent, an increase from 5 percent as recently as April.

``We need to get the housing market back on track,'' Rosengren said in response to an audience question. ``I'm hopeful that over the course of the next three quarters that will happen.''

Fed Chairman Ben S. Bernanke said yesterday the government's purchases of up to $250 billion in bank stakes and the guarantee of debt will revive confidence in finance and promote ``vigorous, healthy'' economic growth.

The Fed, European Central Bank and four other central banks cut interest rates last week in an unprecedented coordinated effort to prevent a freeze in credit markets from causing a global recession. The Fed reduced its benchmark rate to 1.5 percent.

Reduce Rates

Traders anticipate the Federal Open Market Committee will reduce rates again at an Oct. 28-29 meeting. Bernanke is scheduled to give his assessment of financial markets later today in a speech to the Economic Club of New York.

Rosengren, who doesn't vote on interest-rate policy this year, dissented in December in favor of a larger rate cut.

The Treasury is making equity investments in banks as part of a $700 billion rescue plan approved by Congress.

The federal tax rebate provided this year didn't offer the degree of stimulus expected by policy makers, Rosengren said. Any additional effort to spur economic growth should be ``more of an investment than an expenditure.''

The rout sparked by the collapse of the U.S. subprime mortgage market has cost financial institutions worldwide $637 billion in writedowns and losses since the start of 2007. Firms have raised $612 billion of capital in response.

Manufacturing in the U.S. contracted in September at the fastest pace since the last recession. The Institute for Supply Management's factory index dropped to the lowest level since October 2001, the Tempe, Arizona-based group reported Oct. 1.

The consumer price index fell in August for the first time in almost two years as declining fuel costs and a slowing economy cooled inflation. Prices increased 5.4 percent in the 12 months to August, after increasing 5.6 percent for the 12-month period ending in July for the biggest gain since January 1991.

To contact the reporters on this story: Steve Matthews in Atlanta at smatthews@bloomberg.net; Christopher Condon in Boston at ccondon4@bloomberg.net



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Iceland Cuts Key Interest Rate to 12% From 15.5%

By John Fraher and Gabi Thesing

Oct. 15 (Bloomberg) -- European Central Bank President Jean- Claude Trichet said officials reshaping the world's financial system should try to return to the ``discipline'' that governed markets in the decades after World War II.

``Perhaps what we need is to go back to the first Bretton Woods, to go back to discipline,'' Trichet said after giving a speech at the Economic Club of New York yesterday. ``It's absolutely clear that financial markets need discipline: macroeconomic discipline, monetary discipline, market discipline.''

Some European policy makers are pushing to tighten oversight of markets after the past year's credit squeeze culminated last week in the biggest stock sell-off since 1933. British Prime Minister Gordon Brown has suggested the most sweeping rethink of global financial architecture since U.S. and European officials met in Bretton Woods, New Hampshire, in 1944. The rules they drew up there governed much of the world economy for the following 30 years.

``Creating stability by adapting frameworks that have worked historically can improve credibility and hence the effectiveness of policy stabilization measures,'' said Lena Komileva, an economist at Tullett Prebon Plc in London. ``This idea may gain traction with policy makers.''

Fixed Currencies

At Bretton Woods, nations agreed to fix exchange rates, establish the International Monetary Fund and start the process of rebuilding Europe's economy in the aftermath of World War II by encouraging coordinated economic policies. Brown said national regulators must coordinate their work and banks should be pushed to disclose more trading positions.

``If we don't have discipline, then we are putting into question the functioning of the market economies and the functioning of our financial markets,'' Trichet said.

Asked whether the escalation of the financial crisis exposed shortcomings in the global monetary system, Trichet said central bankers have ``been up to their responsibilities in these exceptional circumstances.''

Trichet and U.S. Federal Reserve Chairman Ben S. Bernanke are struggling to restore order to credit markets after the collapse of Lehman Brothers Holdings Inc. and $638 billion in writedowns make banks reluctant to lend. The ECB and the Fed last week cut interest rates in tandem and this week agreed to flood the financial system with dollars.

Trichet suggested that slowing growth in the 15-nation euro region may curb inflation, paving the way for more rate cuts after the ECB reduced its benchmark by 50 basis points to 3.75 percent.

`Downside Risks'

``There has been a materialization of the downside risks to growth and we have to take that into consideration in all respects, and particularly as regards the influence that it has on the upside risks for price stability,'' Trichet said.

He indicated that recent market turmoil was partly a consequence of the deregulation that occurred after Bretton Woods' demise. That was triggered in 1971, when inflation forced the U.S. to abandon the dollar's peg to gold, an anchor of the system, heralding the era of floating exchange rates.

``The explosion of the first Bretton Woods in a way could be interpreted as a rejection of discipline,'' said Trichet.

Brown, who has pushed for a decade to strengthen the hand of international authorities overseeing the financial system, said Oct. 13 in London that ``we must devise new rules for a world of global capital flows'' just as the founders of Bretton Woods ``devised rules for a world of limited capital flows.''

``We now have global financial markets but what we do not have is anything other than national and regional regulation and supervision,'' Brown told reporters today before a European Union summit in Brussels.

To contact the reporters on this story: John Fraher in London at jfraher@bloomberg.netGabi Thesing in New York at gthesing@bloomberg.net



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Paulson Lacks Leverage to Compel Banks to Put New Cash to Work

By Robert Schmidt and Rebecca Christie
Enlarge Image/Details

Oct. 15 (Bloomberg) -- Treasury Secretary Henry Paulson persuaded nine major U.S. banks to accept $125 billion in government investment. Getting them to lend it out may prove a tougher sell.

The equity stakes the government is purchasing in Citigroup Inc., Morgan Stanley and seven other big institutions come with no guarantee that the investments will spur lending and unfreeze credit markets. Nor do they give the government board seats or any other leverage to demand that that the firms actually use the money to help the economy.

``The truth of the matter is, they can't put a gun to their head and say you have to lend this money,'' said Charles Horn, a former official at the Office of the Comptroller of the Currency, part of the Treasury Department, and now a partner at the Mayer Brown law firm in Washington.

Treasury officials acknowledge they can't force banks to get the taxpayer money into the hands of their customers. Instead, officials are betting that the government's investment will create conditions where banks have a greater incentive to earn profits from lending than to hoard money to shore up their balance sheets.

``It's in their economic interest,'' said David Nason, the Treasury's assistant secretary for financial institutions, in an interview with Bloomberg Television. ``When you give them a stronger capital position and you also provide a certain amount of government backstop to their funding sources, it's incumbent upon them to go out and continue to lend.''

Powerful Incentive

Tim Ryan, head of the Securities Industry and Financial Markets Association and a former bank regulator, said the sheer scale of the capital infusion banks are receiving is in itself a powerful incentive to put the funds to work in the economy.

``The bully pulpit doesn't really work with banks, but capital does,'' said Ryan, who directed the U.S. Office of Thrift Supervision in 1990-1992.

The government is providing banks with ``quite a war chest that they were not expecting,'' Ryan said. ``They need to put it to work. The only way you put it to work is to lend.''

The Bush administration's rescue, part of a $700 billion bailout passed by Congress this month, is raising questions about what role the federal government will play as it becomes a leading investor in the financial sector. Already, companies that accept the taxpayer money are required to submit to restrictions on their top executives' pay.

Government Involvement

``Obviously there is a danger'' of increased government involvement in banks' corporate affairs, said Martin Baily, a senior fellow at the Brookings Institution in Washington and former chairman of the Council of Economic Advisers under President Bill Clinton.

Still, Baily said that the equity purchases are set up to minimize government intervention.

Treasury has ``been telling these institutions what to do in the last couple months, so they've exercised a good bit of control,'' Baily added. ``I think they'd like to get out of that business.''

The Bush administration is counting on agencies that already regulate the banks, such as the Federal Reserve, to keep an eye on daily operations. Those agencies can encourage firms to keep credit flowing to businesses and households.

``The regulators can do a lot to give the signals to the bank,'' said finance professor Len Rushfield of Pepperdine University in Los Angeles.

Pressure Has Limits

Even so, subtle government pressure on banks may not make much difference. Unlike with the recent federal takeovers of Fannie Mae, Freddie Mac and insurer American International Group Inc., the U.S. won't take a major share of the banks they invest in. Also, the Treasury has said it won't seek voting rights when it buys stakes.

The Treasury said it would dedicate $250 billion to boost bank capital through preferred stock purchases. Bank regulators estimated yesterday that ``thousands'' of financial companies would participate, although the program will begin with the nine big banks.

``What you'll see most large institutions saying is, `We will certainly listen to the government but our decisions are what's in the best interest of our shareholders,''' said John Coffee, a securities law professor at Columbia University.

Financial companies that accept government investments also are counting on Paulson's pro-market philosophy to keep the government out of their boardrooms. The secretary, announcing the capital injections yesterday, said that he regretted having to make such a move.

Alternative `Unacceptable'

``Government owning a stake in any private U.S. company is objectionable to most Americans -- me included,'' he said. ``Yet the alternative of leaving businesses and consumers without access to financing is totally unacceptable.''

Bank executives know that the Treasury and members of Congress are going to monitor the situation, said Scott Talbott, chief lobbyist for the Financial Services Roundtable.

``Policy makers will watch closely to insure that the money is used for credit,'' he said.

The one unknown that makes Wall Street nervous, several industry executives said, is what the next Treasury secretary will do. The U.S. presidential election is less than a month away.

``You'd probably want to have Hank Paulson, more than a lot of other people'' overseeing the bailout, said Edward Fleischman, a Republican Securities and Exchange Commissioner from 1986 to 1992, and now a senior counsel at the Linklaters law firm in New York. ``But you're not going to have any choice who takes his job.''

For Related News:

To contact the reporter on this story: Robert Schmidt in Washington at rschmidt5@bloomberg.net. Rebecca Christie in Washington at Rchristie4@bloomberg.net.



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U.S. Retail Sales Slump 1.2%, Most in Three Years

By Bob Willis
Enlarge Image/Details

Oct. 15 (Bloomberg) -- Sales at U.S. retailers dropped in September by the most in three years as mounting job losses, plunging home prices and the deepening credit crisis rattled consumers.

Purchases fell 1.2 percent, more than forecast, following a 0.4 percent decline the prior month, the Commerce Department said today in Washington. Excluding autos, sales fell 0.6 percent, also more than anticipated.

The biggest decline in stock prices in at least seven decades last week may further undermine confidence, prompting consumers to cut back on non-essentials like new cars and vacations that will deepen the economic slump. U.S. stocks retreated after the report.

``Consumers are hunkering down,'' said Brian Bethune, chief financial economist at Global Insight Inc. in Lexington, Massachusetts. ``The fourth quarter is guaranteed to be terrible.''

The Labor Department reported separately that prices paid to U.S. producers fell 0.4 percent in September, the second consecutive decline. So-called core producer prices that exclude fuel and food increased 0.4 percent. The Federal Reserve Bank of New York's Empire State manufacturing index fell to minus 24.6 in October, the most since the survey began in 2001, from 7.4 in September.

The Standard & Poor's Index dropped as much as 38.65 points, or 3.9 percent, to 959.36.

Three-Month Slide

September's drop, the largest since August 2005, extended declines in retail sales to three consecutive months, the first time that's happened since comparable records began in 1992.

Sales are slowing just as merchants prepare for the holiday selling season, which may account for as much as 35 percent of a retailer's revenue.

The median forecast of 75 economists surveyed projected purchases would drop 0.7 percent following a previously reported 0.3 percent decline the prior month. Estimates ranged from a fall of 1.5 percent to a 0.1 percent gain.

Sales excluding automobiles decreased 0.6 percent after falling 0.9 percent the prior month. They were forecast to drop 0.2 percent from the prior month, according to the survey median.


Eleven of the 13 main categories tracked by Commerce showed a drop in demand last month, led by a 3.8 percent slump at auto dealers. Carmakers see little relief in sight.

Little Relief Seen

``We continue to see the trend of the past couple of months,'' Ford Motor Co. North American chief Mark Fields said in the Ford plant in Dearborn, Michigan.

GMAC LLC, the lender once owned by General Motors Corp., said this week it will grant financing only to buyers with credit scores of at least 700, who represent about 58 percent of U.S. consumers.

Industry figures earlier this month, which are the ones used to calculate gross domestic product, showed cars and light trucks sold at a 12.5 million annual pace in September, the fewest since 1993. October sales may drop to an 11 million pace, the first time the rate has dropped below 12 million since April 1983, according to an estimate by an analyst at Deutsche Bank AG.

Sales at furniture stores dropped 2.3 percent, the most since February 2003, and purchases at clothing outlets decreased by the same amount, the most this year. Americans cut back on visits to restaurants and bars, where sales dropped 0.5 percent, the most since January 2007.

Gap, Macy's

Weakening demand at merchants such as Gap Inc., J.C. Penney Co. and Macy's Inc. also hurt total purchases, signaling retailers may be heading for the worst holiday shopping season in six years.

Terry Lundgren, chief executive officer at Macy's, the second-biggest U.S. department-store chain, forecast a recovery in sales won't begin until the second half of next year.

``The most important issue for us is jobs,'' Lundgren said in an Oct. 10 telephone interview. ``That's what has to stabilize. If you lose your job, that affects everything.''

Excluding autos, gasoline and building materials, the retail group the government uses to calculate GDP figures for consumer spending, sales dropped 0.7 percent, after a 0.4 percent decrease in August. The government uses data from other sources to calculate the contribution from the three categories excluded.

The only categories registering gains last months were service stations, with a 0.1 percent increase, and health and personal care stores, where sale rose 0.4 percent.

Expansion Ends

Consumer spending fell at an annual rate of 2 percent in the third quarter, bringing to a halt a record expansion that began in 1992, according to the median estimate of economists surveyed in the first week of October. Purchases will probably drop at a 0.9 percent pace in this quarter and be unchanged in the first three months of 2009, the projections also showed.

The U.S. has lost 760,000 jobs in the first nine months of the year and the jobless rate was unchanged at a five-year high of 6.1 percent in September, the Labor Department reported earlier this month.

The government passed a $700 billion bank rescue package this month to thaw credit markets frozen by mounting losses on mortgage-backed securities. The plan will include direct cash infusions government purchases of preferred stock in the nation's biggest banks, and guarantees on new debt.

The Fed, as part of a concerted effort with other central banks, cut the target on its benchmark rate by a half point last week and Chairman Ben S. Bernanke signaled policy makers are ready to lower borrowing costs again showed the markets not stabilize.

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net


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U.S. Producer Prices Fall in September; Core Rate Up

By Timothy R. Homan

Oct. 15 (Bloomberg) -- Prices paid to U.S. producers fell in September for a second consecutive month on lower fuel costs, while the rate excluding food and energy rose more than economists forecast.

The 0.4 percent drop followed a 0.9 percent decline in August, the Labor Department said today in Washington. So-called core producer prices that exclude fuel and food increased 0.4 percent from a month earlier, double economists' projections.

Falling oil prices and weaker consumer spending are making it harder for American companies to raise prices, giving the Federal Reserve scope to cut interest rates. Still, the costs for food and other household goods are higher than a year ago.

``We are seeing some solid, tangible evidence of the disinflation ahead of us in the headline reading,'' said Joseph Brusuelas, chief economist at Merk Investments LLC in Palo Alto, California, who accurately forecast the 0.4 percent drop. ``However, there is some inflation embedded in prices that will keep the core rate elevated.''

In another sign of weakening consumer demand, sales at U.S. retailers dropped in September by the most in three years. Purchases fell 1.2 percent, more than forecast, following a 0.4 percent decline the prior month, the Commerce Department said today in Washington. Excluding autos, sales fell 0.6 percent, also more than anticipated.

Empire Index Slumps

An early indicator of this month's manufacturing activity showed the economic slump deepening. The Federal Reserve Bank of New York's general economic index fell to minus 24.6 for October, the lowest level since the index started in 2001. Readings below zero signal manufacturing activity is shrinking. Every component other than prices was negative for the month.

Prices paid to factories, farmers and other producers were forecast to decline 0.4 percent, according to the median of 73 forecasts in a Bloomberg News survey. Estimates ranged from a drop of 1.5 percent to a 0.2 percent gain.

Core prices were projected to rise 0.2 percent, according to the survey median.

Producers paid 8.7 percent more for goods from September 2007, compared with a 9.6 percent gain in the 12 months ended in August.

Inflation Signals

Excluding food and energy, the increase was 4 percent from a year earlier, the biggest year-over-year jump since 1991, after a 3.6 percent 12-month increase in the prior month, the government report showed.

Producer prices are one of three monthly inflation gauges reported by the Labor Department. Import costs fell in September by the most in more than five years, Labor figures showed last week. Consumer prices, due tomorrow, may rise 0.1 percent after falling by that amount in August, a Bloomberg survey shows.

In today's producer price report, food was 0.2 percent costlier, after rising 0.3 percent in August.

Producers paid 0.5 percent less for gasoline and 6.4 percent less for diesel fuel. Residential natural gas costs dropped 8.2 percent from the prior month, the steepest drop since October 2006.

The wholesale-price report is based on figures for the Tuesday of the week that includes the 13th of the month. On that basis, crude oil costs on the New York Mercantile Exchange were down almost 9 percent in September from the prior month.

Oil, which reached a record $147.27 a barrel on July 11, fell below $80 this week on the New York Mercantile Exchange.

Cars, Capital Goods

Costs of intermediate goods, those used in earlier stages of production, fell 1.2 percent from August. Excluding food and energy, intermediate prices dropped 0.3 percent.

Prices for raw materials, or so-called crude goods, declined 7.9 percent, following an 11.9 percent drop the prior month.

Passenger car prices rose 0.5 percent after falling 0.3 percent a month earlier, and light trucks increased 1 percent after falling 1.9 percent in August.

Prices for capital equipment gained 0.5 percent and consumer goods prices decreased 0.6 percent.

Lower prices are hurting company earnings. Alcoa Inc., the largest U.S. aluminum producer, last week fell the most in more than 20 years after its third-quarter profits fell short of analyst estimates.

``Aluminum prices have fallen steeply and demand has softened further,'' Klaus Kleinfeld, chief executive officer of the New York-based company, said in an Oct. 7 statement. ``The resulting margin squeeze will have a greater impact going forward, but will be somewhat mitigated by the easing of energy prices and a stronger U.S. dollar.''

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net



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Global Confidence Plunged on Concerns About Recession

By Brian Swint

Oct. 15 (Bloomberg) -- Confidence in the global economy plunged in October after a deepening freeze in financial markets increased the chances of a recession, a survey of Bloomberg users on six continents showed.

The Bloomberg Professional Global Confidence Index fell to 4 from 11.3 in September, the lowest reading since the survey started in November. Sentiment dropped the most in Asia and Europe and was weakest in Japan. The results reflect responses from 3,764 Bloomberg users in more than 100 countries.

Stock markets slumped the most since at least 1970 last week as concerns about a potential collapse of the banking system reverberated through the world economy. That's sapping confidence just as the U.S. and Europe hurtle toward recession, forcing central banks to slash interest rates in tandem and governments to rescue financial institutions.

``There's a vicious circle developing between the financial sector and the real economy,'' said Martin van Vliet, an economist at ING Group in Amsterdam, who took part in the survey. ``Further economic weakness is certainly in the pipeline.''

Bloomberg users from Dubai to New York posted responses to the survey between Oct. 6 and Oct. 10 after the U.S. Congress's decision to approve a $700 billion rescue plan for banks. The U.K. unveiled plans to buy stakes in banks as well as lending guarantees on Oct. 8. The survey didn't reflect a decision by euro-region governments on Oct. 12 to back similar measures.


Country Economies

When asked about their own economies, British respondents were the most pessimistic, with the index falling to 3 from 5.7. The U.S. reading declined to 5.1 from 15.2 and a gauge of Japanese confidence slipped to 5.4 from 7. While Brazilian users were the most optimistic, its index still plunged the most for any country, falling 32 points to 26.2.

The credit squeeze, which worsened after the collapse of Lehman Brothers Holdings Inc. last month, is dragging down a global economy already hit by a record surge in oil prices this year. U.S. employers cut the most jobs in five years in September, while confidence among Japanese consumers and German investors are both close to record lows.

``On top of the financial crisis, we're likely to see spillovers into the real sector,'' said Alvin Liew, an economist at Standard Chartered Plc in Singapore who took part in the survey. ``If this slowdown is a protracted one, that would have knock-on impact on domestic demand as well.''

IMF Forecast

The International Monetary Fund last week forecast that global growth will slow to 3 percent in 2009, from 3.9 percent this year and 5 percent in 2007. That would mean a world recession under the fund's informal definition.

Respondents in all countries except Brazil were more confident their central banks would cut rates, the survey showed, with U.K. users expecting the biggest declines. The Bank of England's benchmark rate of 4.5 percent is still the highest among the Group of Seven nations even after last week's 50 basis point reduction.

The MSCI World Index, which fell 20 percent last week, recovered around half its losses in the two days after euro region nations committed 1.3 trillion euros ($1.8 trillion) to guarantee bank loans and take stakes in lenders. The benchmark dropped 3.8 percent today.

Treasury Secretary Henry Paulson said yesterday he plans to use $250 billion of taxpayer funds to purchase stakes in thousands of financial firms, while central banks are slashing rates and flooding the financial system with cash.

The measures may be starting to work. The rate banks charge each other to borrow dollars for three months fell for a third day today, declining 9 basis points to 4.55 percent, the British Bankers' Association said today. The one-week rate fell to 3.83 percent from 4.08 percent yesterday.

``The various rescue packages have essentially prevented something bad from turning into something much worse,'' said Nariman Behravesh, chief economist at Global Insight Inc., a Lexington, Massachusetts, forecasting firm. Still, ``the U.S., Europe and Japan are all headed to a recession. The credit crunch has hit them equally hard.''

To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net.


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OPEC Likely to Cut Output 1 Million Barrels, PFC Says

By Grant Smith

Oct. 15 (Bloomberg) -- OPEC will probably announce a production cut of 1 million barrels a day at its November meeting, said PFC Energy, an industry consultant that correctly called the decision at the group's last summit.

The Organization of Petroleum Exporting Countries, due to meet Nov. 18 in Vienna, is concerned the 47 percent drop in crude prices from July's record indicates that supplies may overtake demand, according to Washington-based PFC. A million barrels is about 3 percent of the group's current output.

OPEC, whose 13 members produce more than 40 percent of the world's crude, announced the November meeting last week as oil plunged on concern the financial crisis will push the world into recession, cutting energy demand. The group's president Chakib Khelil said a production cut is ``very likely.'' Saudi Arabia, the world's largest exporter, hasn't said whether it would support a reduction.

``There's a growing consensus among the group that they should take a million barrels off the market,'' PFC analyst David Kirsch said in a telephone interview from Paris today. ``Saudi Arabia may not have been behind the initial public call for the meeting, but they recognize production has to be trimmed.''


OPEC reduced its estimate for 2009 demand for a second month today, by 450,000 barrels a day, or 0.5 percent, to 87.21 million barrels a day.

Overproduction

The day before OPEC's last gathering in Vienna on Sept. 9, PFC Energy said in a report that the organization would likely remove 500,000 barrels a day of ``overproduction'' to observe its official quotas more closely.

While OPEC did not make any formal quota adjustment at that conference, it announced a resolution to observe quotas which OPEC Secretary-General Abdalla El-Badri said would effectively reduce supplies by 500,000 barrels a day.

Twenty-nine of 32 analysts surveyed by Bloomberg prior to that meeting had predicted production would be unchanged.

``They're trying to strike a balance between the risk of over-tightening the market and creating a glut,'' Kirsch added. ``In a perfect world OPEC would like $90 a barrel.''

The plunge in oil prices will cut record revenue for OPEC members. Members are likely to earn $1.08 trillion from exports next year, according to U.S. Department of Energy figures released on Oct. 9. That's less than the $1.22 trillion forecast the previous month.

The 11 members with output targets pledged to keep production at 28.8 million barrels a day at its last meeting, about 520,000 barrels below actual July production. That excludes Iraq, which has no quota, and Indonesia, scheduled to leave the group at the end of the year.

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net


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Exxon Is Said to Shut Gasoline Unit at Fos Refinery for Repairs

By Nidaa Bakhsh

Oct. 15 (Bloomberg) -- Exxon Mobil Corp., the world's largest oil company, plans to shut a gasoline-making unit at the smaller of its two French refineries for repairs early next year, an official with knowledge of the work said.

A so-called fluid catalytic cracker at Fos on France's south coast will close in January for four weeks, the official said, declining to be identified because he isn't allowed to speak publicly about the work. Associated units will also be taken off line, he said.

Exxon's spokeswoman in Paris, Sylvie Sanders, said she isn't authorized to comment on plant shutdowns.


The FCC unit can handle 28,000 barrels of oil a day, about a quarter of the refinery's 119,000-barrel-a-day processing capacity, according to data compiled by Bloomberg. FCCs process vacuum gasoil into higher-value gasoline or lighter crude products.

Gasoline for immediate loading in Amsterdam-Rotterdam- Antwerp, Europe's trading hub, soared to an all-time high of $1,192 a metric ton in July after refinery maintenance curtailed output and record oil prices boosted production costs for refiners. Spot gasoline has since declined to $663 a ton, Bloomberg data show.

Exxon has a 233,000-barrel-a-day refinery at Gravenchon in Normandy, northern France, according to the company's Web site. The two plants combined account for 20 percent of the country's fuel needs.

The Irving, Texas-based company will shut units including a 34,000-barrel-a-day FCC at Gravenchon in the first quarter of next year, an official said in January.

To contact the reporter on this story: Nidaa Bakhsh in London at nbakhsh@bloomberg.net


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ECB Leads Push to Flood Banks With Unlimited Dollars

By Simone Meier

Oct. 15 (Bloomberg) -- The European Central Bank, Bank of England and Swiss National Bank loaned financial institutions a combined $254 billion in their first tenders of unlimited dollar funds, stepping up efforts to ease strains in markets.

The Frankfurt-based ECB lent banks $170.9 billion for seven days at a fixed rate of 2.277 percent. The Bank of England allotted $76.3 billion and the Swiss central bank $7.1 billion at the same rate, also for a week.

Policy makers are trying to unfreeze credit markets and get banks lending to each other again after a crisis of confidence culminated last week in the biggest stock-market sell-off since 1933, threatening to tip the world into a recession. Money-market rates have started to decline, suggesting the measures may be working.

The London interbank offered rate, or Libor, that banks charge each other for three-month loans in dollars fell 9 basis points to 4.55 percent today, according to the British Bankers' Association. It was its third consecutive decline.

Asian money-market rates fell earlier today after the Bank of Japan said it will also offer unlimited dollar funds, with its first tender to be held on Oct. 21, and Hong Kong agreed to guarantee all bank deposits.

In the U.S., the government has earmarked $250 billion to purchase stakes in the nation's largest financial companies including Goldman Sachs Group Inc. to prevent a banking collapse. The U.K. is spending 50 billion pounds ($87 billion) on bank stakes, while France, Germany, Spain, the Netherlands and Austria have pledged 1.3 trillion euros to shore up their banking systems.

`No Quick Fix'

``There is no quick fix, confidence is gone and it will take quite a while for it to return,'' said Thorsten Polleit, an economist at Barclays Capital in Frankfurt. ``I doubt that things will get back to where they were before the crisis.''

The bankruptcy of New York-based Lehman Brothers Holdings Inc. last month precipitated the latest chapter of the 14-month crisis, causing banks to stop lending to each other out of concern they may not get their money back.

The world's largest financial companies have posted more than $635 billion in writedowns and credit losses since the start of last year after the U.S. housing market slumped.

The ECB, Bank of England and SNB on Oct. 8 joined the U.S. Federal Reserve in a global round of coordinated interest-rate cuts as the economic outlook deteriorated.

The Fed announced on Oct. 13 that the world's largest central banks would offer unlimited dollar loans with maturities of seven days, 28 days and 84 days. All of the previous dollar swap arrangements between the Fed and other central banks were capped.

European leaders meet today in Brussels to discuss the next steps in responding to the market meltdown.

``When a fire's burning in the global financial markets, it has to be put out, even if it's a case of arson,'' German Finance Minister Peer Steinbrueck said in Brussels today. ``But then the arsonists have to be held responsible and spreading the flames must be outlawed.''

To contact the reporter on this story: Simone Meier in Frankfurt at smeier@bloomberg.net.



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BP's BTC Oil Pipeline Exports Climb as Platform Resumes Output

By Alexander Kwiatkowski

Oct. 15 (Bloomberg) -- Crude oil shipments through BP Plc's Baku-Tbilisi-Ceyhan pipeline will average about 44 percent more than previously expected over the next month after one of two platforms resumed production.

Shipments from Oct. 18 to Nov. 21 will average 548,571 barrels a day, according to a revised loading program. An average of about 380,857 barrels a day was previously scheduled. A total of 19.2 million barrels will load in the period, compared with a previous forecast of 13.3 million barrels.

BP started production from the West Azeri platform in the Caspian Sea on Oct. 9 after a gas leak reduced output from the development. The Central Azeri platform resumed processing oil and gas from West Azeri, while its own production remained shut, BP's Azerbaijan spokeswoman Tamam Bayatly said Oct. 13.

To contact the reporter on this story: Alexander Kwiatkowski in London at akwiatkowsk2@bloomberg.net



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Shipping Rates Plunge on Credit Freeze, Commodity Demand Slump

By Ben Farey and Chan Sue Ling

Oct. 15 (Bloomberg) -- Commodity shipping rates plunged to the lowest in more than five years today as a lack of credit for trade left cargoes stranded and the global economic slowdown limited raw material demand.

Traders are finding it harder to get letters of credit that guarantee payments for goods, shipping executives said. Together with a slowdown in trade, that has contributed to this year's 82 percent drop in the Baltic Dry Index, a measure of shipping costs for grain, coal and other commodities. Rates are so low Zodiac Maritime Agencies Ltd., the line managed by Israel's billionaire Ofer family, may idle 20 of its largest ships.

``Letters of credit and the credit lines for trade currently are frozen,'' Khalid Hashim, managing director of Precious Shipping, Thailand's second-largest shipping company, said in Singapore yesterday. ``Nothing is moving because the trader doesn't want to take the risk of putting cargo on the boat and finding that nobody can pay.''

The Baltic Dry Index fell 11 percent today to 1,615, the lowest since February 2003. Rates for larger ships of the type Zodiac intends to idle fell 17 percent today, taking this year's plunge to 85 percent, according to the London-based Baltic Exchange.

Crude oil, industrial metals and grains have all slumped since reaching records in July on concern the worst financial crisis since the 1930s will cause a global recession. The Standard & Poor's Goldman Sachs Commodity Index has dropped 45 percent from its all-time high of 890.28 on July 3.

Banks Leery

Banks are leery of financing commodities and shipping transactions. Rio Tinto Group, the world's second-largest aluminum producer, may delay the planned sale of $10 billion of assets and Sterlite Industries (India) Ltd. shelved its $2.6 billion purchase of Asarco LLC. Ship owners can't find cash to finance the construction of new ships.

``Our customers are facing hard challenges,'' Isabella Loh, chief executive officer of Shell Marine Products, a unit of Royal Dutch Shell Plc, said at a conference in Singapore today. ``The credit crunch has affected liquidity and is having an impact on shipyards with cancellations and postponed orders, and expansion may be on hold.''

Precious Shipping took as long as 15 months to secure financing for the 18 vessels it has on order, Hashim said. American Shipping Co. ASA can't get financing for two shuttle tankers that are part of its program to build 12 vessels.

Timetable Review

Rio said today it's reviewing its spending timetable and project costs. Sterlite, a unit of London-based Vedanta Resources Plc, told bankrupt U.S. copper producer Asarco to cut its price by ``hundreds of millions'' of dollars.

``Acquirers will find it harder to source funds and even if they can source funds, they'll have to pay more,'' said Steve Robinson, a senior investment manager with Alleron Investment Management in Sydney, which manages A$1.2 billion ($839 million). ``Given what's happened with commodity markets, they may not find buyers prepared to pay a premium.''

Zodiac will instruct the captains of its capesize vessels, which typically carry iron ore and coal, to deliver their current cargoes and then weigh anchor, said two hedge fund managers who saw an e-mail from the company outlining the plan.

The credit crisis may prompt a wave of ``consolidation'' in the shipping industry, Clyde Michael Bandy, chief executive officer of Chemoil Energy Ltd., said at the conference in Singapore.

To contact the reporter on this story: Ben Farey in London at bfarey@bloomberg.net; Chan Sue Ling in Singapore slchan@bloomberg.net



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Omar Becomes Hurricane on Path Toward Virgin Islands

By Alex Morales

Oct. 15 (Bloomberg) -- Hurricane Omar strengthened from a tropical storm over the Caribbean south of Puerto Rico and is forecast to hit the Virgin Islands early tomorrow.

Hurricane warnings were in place in the U.S. Virgin Islands, site of the Hovensa oil refinery; the British Virgin Islands; Vieques; Culebra; and islands including St. Maarten, Saba and St. Eustatius, the National Hurricane Center in Miami said. A hurricane warning means sustained winds of at least 74 miles (119 kilometers) per hour are expected within a day.

Omar packed 80 mph winds and was 265 miles south-southwest of San Juan, Puerto Rico, the center said in an advisory on its Web site shortly before 8 a.m. Miami time. The system was moving northeast at 7 mph.

``Additional strengthening is forecast during the next 24 hours,'' the center said. ``On the forecast track Omar would move through the northern Leeward Islands tonight and early Thursday.''



Two days ago, Omar caused power cuts in eastern Venezuela and halted activity at Jose, one of the country's main oil terminals, the state oil company, Petroleos de Venezuela SA, said yesterday in an e-mailed statement. While the storm is affecting shipping to the Hovensa refinery, it isn't expected to hamper operations, Alex Moorhead, spokesman for the facility, said yesterday.

``We do not anticipate the need to shut down the refinery'' due to the storm, he said. The Coast Guard shut the harbor to incoming traffic yesterday, he said.

Mudslides, Floods

The refinery exported 338,000 barrels a day of refined products to the U.S. in July, according to the latest U.S. Energy Department records. The refinery is jointly owned by Hess Corp. of New York and Petroleos de Venezuela.

Tropical-storm warnings, indicating winds of 39 mph to 73 mph are expected within a day, were in place in Puerto Rico, Antigua, Barbuda and Montserrat.

Omar may bring as much as 12 inches (30 centimeters) of rain to the Netherlands Antilles and 20 inches to Puerto Rico and the northern Leeward Islands, the center said. Those rains could produce ``life-threatening'' flash floods and mudslides, it said.

To the west, a tropical depression was moving along the coast of Honduras and may bring up to 15 inches of rain, threatening lethal flooding and landslides there and in Nicaragua, Belize, Guatemala and Mexico's Yucatan Peninsula, the center said in a separate advisory. The system was 95 miles east of Limon, Honduras, and moving west at 3 mph, with maximum sustained winds of 30 mph.

``Gradual strengthening is forecast and the depression could become a tropical storm later today or tonight,'' the U.S. agency said.

To contact the reporter on this story: Alex Morales in London at amorales2@bloomberg.net

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Oil Falls on Doubts Rescue Will Avoid Recession, Bolster Demand

By Mark Shenk

Oct. 15 (Bloomberg) -- Crude oil fell below $75 a barrel for the first time in more than a year on skepticism that a rescue of the world's banks will be enough to avoid a recession and stem a decline in global fuel demand.

Oil, which has followed movements in equity markets this month as the credit crisis deepened, fell as stocks dropped today. The Organization of Petroleum Exporting Countries cut its 2009 demand forecast for a second month because of ``dramatically worsening'' conditions in financial markets.

``The oil market is under a lot of pressure and nothing is going to change that anytime soon,'' said Ric Navy, a broker at BNP Paribas SA in New York. ``We are entering a poor-demand cycle, which will put further downward pressure on prices.''


Crude oil for November delivery fell $2.36, or 3 percent, to $76.27 a barrel at 9:22 a.m. on the New York Mercantile Exchange. Futures touched $74.97, the lowest since September 2007. Prices, which are down 12 percent from a year ago, have dropped 48 percent from the record $147.27 a barrel reached on July 11.

OPEC, supplier of more than 40 percent of the world's oil, cut its forecast today for oil demand next year by 450,000 barrels a day, or 0.5 percent, to 87.21 million barrels a day. The 13-member group will hold an extraordinary meeting on Nov. 18 in Vienna, after a decision to trim supplies last month failed to stem a slump in prices.

A government report tomorrow may show that U.S. crude-oil and gasoline inventories rose last week, according to the median of responses by analysts in a Bloomberg News survey. The report will be released a day late because of the Columbus Day federal holiday Oct. 13 in the U.S.

Brent crude oil for November settlement declined $2.41, or 2.2 percent, to $72.12 a barrel on London's ICE Futures Europe exchange.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.


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OPEC Cuts 2009 Oil Demand Forecast for a Second Month

By Grant Smith

Oct. 15 (Bloomberg) -- The Organization of Petroleum Exporting Countries, supplier of more than 40 percent of the world's oil, lowered its 2009 demand forecast for a second month as the worst financial crisis since the 1930s threatens to send the global economy into a recession.

OPEC will hold an extraordinary meeting on Nov. 18 in Vienna, after its decision to trim excess supplies at last month's gathering failed to check a slump in prices, which have tumbled 49 percent from their July record. The group told members on Sept. 10 to strictly comply with production quotas, implying a cut of about 500,000 barrels a day.

``Dramatically worsening conditions in financial markets indicate strong fallout on the real economy is now inevitable,'' OPEC said today in its monthly oil market report. ``Ongoing financial market turmoil is expected to continue to impact oil demand well into the coming year.''

The 13-member group reduced its forecast for average oil consumption next year by 450,000 barrels a day, or 0.5 percent, to 87.21 million barrels a day, according to the report. OPEC, based in Vienna, also cut its forecast for demand this year by 330,000 barrels a day.

Last week, the International Energy Agency, an adviser to 28 nations, lowered its projection for global oil demand next year by 0.5 percent to 87.2 million barrels a day.

Next year, the world's most advanced economies will grow at the slowest pace since 1982, the International Monetary Fund said in its latest World Economic Outlook on Oct. 8.


Developing Nations

Oil consumption in developing countries will still increase 2.6 percent to 25.72 million barrels a day next year, OPEC said.

The group lowered the demand forecast for its own crude in 2009 by 190,000 barrels a day, or 0.6 percent, to 31.14 million barrels a day. That means consumption of OPEC's oil would shrink by 870,000 barrels a day next year.

In 2008, demand for OPEC crude is predicted to be 32.01 million barrels a day, 10,000 barrels lower than last month.

OPEC also lowered its expectation for supplies from outside the group this year and next, following storm damage in the Gulf of Mexico and pipeline disruptions in Azerbaijan.

The group acknowledged that next month's summit, announced last week, is in response to ``recent financial turmoil'' that may ``considerably reduce demand for crude oil.''

Output Cut

OPEC president Chakib Khelil said on Oct. 9 that a production cut is ``very likely.'' Iranian Oil Minister Gholamhossein Nozari today agreed that a reduction is the most likely outcome of the Nov. 18 summit. Saudi Arabia, the world's largest oil exporter, hasn't said whether it would support a cut.

OPEC forecast supply from outside the 13-member group to rise by 970,000 barrels a day, or 2 percent, in 2009 to 50.7 million barrels a day. Last month it forecast 2009 non-OPEC supply at 50.81 million barrels a day.

The group shaved its 2008 projection for non-OPEC production by 200,000 barrels a day to 49.74 million barrels a day. Industrialized countries' own output will decline by 270,000 barrels a day.

Total OPEC crude production averaged 32.157 million barrels a day in September, a drop of 308,600 barrels a day from August, the report said, citing secondary-source estimates that include analysts and news agencies.

Saudi output fell by 113,600 barrels a day in September to 9.377 million barrels a day, according to the report.

OPEC's 13 members are Algeria, Angola, Ecuador, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela. Indonesia will leave the group on Jan. 1.

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net.


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Kuwait Refinery Workers Threaten Strike Over Rights

By Fiona MacDonald

Oct. 15 (Bloomberg) -- Workers at Kuwait National Petroleum Co. are threatening to shut down the country's three refineries from Oct. 19 in a protest over equal rights.

``We issued a letter that we plan to strike on Sunday,'' Rashed al-Hajeri, a member of the KNPC Labor Syndicate, said in a phone interview today. ``We have been asking for promotions for almost one year now and have received nothing. Our colleagues with the same jobs in other companies under the umbrella of Kuwait Petroleum Corp. have higher positions than us. We should be equal.''

If their demands aren't met, the strike will start from 7 a.m. local time on Oct. 19, al-Hajeri said. The syndicate is calling on 3,000 workers to join the protest.

``This means the refineries will be totally shut down,'' according to al-Hajeri. ``Distillation and exports will be affected, along with local marketing and 40 KNPC gas stations.'' The strike will last until the workers' demands are met, he said.

Kuwait's three refineries, Mina Abdullah, Mina Al-Ahmadi and Shuaiba, have a total capacity of 936,000 barrels a day. Kuwait is the fourth-largest oil producer in the Organization of Petroleum Exporting Countries.

Kuwait Petroleum, the state-owned oil company, has asked to be given until March to study the workers' demands, according to an e-mailed statement from the syndicate. The management has ``procrastinated'' in meeting its demands, which would cost an annual 1.76 million dinars ($6.5 million) in benefits for the 2,000 employees who qualify for them, the statement said.

KNPC couldn't immediately be reached for comment.

To contact the reporter on this story: Fiona MacDonald in Kuwait FmacDonald4@bloomberg.net



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Norway's Krone Extends Drop Versus Euro as Rate Cut to 5.25%

By Bo Nielsen

Oct. 15 (Bloomberg) -- Norway's krone extended its decline against the euro after the country's central bank cut the benchmark interest rate by half a percentage point to 5.25 percent.

The currency dropped 0.8 percent to 8.6069 per euro by 2:15 p.m. in Oslo, from 8.5365 yesterday. The krone fell 0.7 percent against the dollar, to 6.3155.

The reduction in the rate, which matched the prediction in a Bloomberg survey of economists, was the first since March 2004.

To contact the reporter on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net



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Canada's Dollar Drops as Crude Oil Plunges, U.S. Economy Slows

By Chris Fournier

Oct. 15 (Bloomberg) -- Canada's currency weakened for a second day as crude oil fell below $75 a barrel and reports showed the U.S. economy may fall into recession.

The Canadian dollar has fallen 13.4 percent since July 11 when crude reached a record $147.27. Canada relies on commodities for about half its export revenue. Its largest trading partner is the U.S.

``We think the trends here are going to continue,'' said Steven Barrow, a currency strategist at Standard Bank Plc in London. The Canadian dollar is being ``undermined by what's happening in commodity prices and affected economically by the slowdown in the U.S.''



The Canadian dollar weakened as much as 0.6 percent to C$1.1688 per U.S. dollar, from C$1.1624 yesterday. It last traded at C$1.1664 at 9:22 a.m. in Toronto. One Canadian dollar buys 85.73 U.S. cents.

Sales at U.S. retailers dropped in September by the most in three years, the Commerce Department said today in Washington. The Federal Reserve's gauge of manufacturing in New York sank to a record low. The U.S. is in a recession, San Francisco Fed President Janet Yellen said in a speech last night.

Crude oil for November delivery fell as much as $3.66, or 4.7 percent, to $74.97 on the New York Mercantile Exchange.

Canadian Prime Minister Stephen Harper will return to office with more seats in Parliament, though still not enough for a majority government, after winning yesterday's election as the financial crisis spreads north from the U.S.

Harper's Conservative Party won 143 districts, according to preliminary results from Elections Canada. Stephane Dion's Liberal Party won 76, followed by the Bloc Quebecois with 50 and the New Democratic Party with 37. Harper held 127 seats in the 308-seat legislature before the vote was called.

The stronger showing for Harper, 49, strengthens his hand to control the legislative agenda and deal with the effects of the credit crunch. His first task will be to shore up banks and manage a slowdown in tax revenue that threatens to end a record streak of 11 consecutive budget surpluses.

To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net

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Mexico's Peso Declines on Recession Concern, Falling Oil Prices

By Michael J. Moore

Oct. 15 (Bloomberg) -- Mexico's peso fell as U.S. retail sales dropped the most in three years last month, signaling Mexico's largest trading partner is likely headed toward a recession.

The peso declined 3.5 percent to 12.738 per dollar at 9:44 a.m. New York time, from 12.3134 yesterday. The currency rose 6.9 percent Oct. 13, the biggest increase in 13 years, after a 14 percent decline last week.

``The release of very weak retail sales in the U.S. has a fairly profound impact on Mexico,'' said Lawrence Goodman, head of global emerging-market currency strategy at Bank of America Corp. in New York. High volatility in the peso ``makes it difficult to envision a substantial inflow that would be requisite to push the peso higher.''


U.S. retail sales fell 1.2 percent in September, more than forecast, following a 0.4 percent decline the prior month, the Commerce Department said today in Washington. The U.S. purchases about 80 percent of Mexican exports.

Banco de Mexico sold $8.9 billion of foreign reserves last week, including $6.4 billion on Oct. 10 alone, after the peso slid to a record low of 14.2927. The sales pushed down the country's foreign reserves to a one-year low of $75 billion, the central bank said yesterday.

The peso's decline has also been fueled by the tumble in oil prices. Crude oil dropped as low as 4.7 percent today to $74.94 per barrel in New York Mercantile Exchange trading, its lowest level in 13 months. It is down 48 percent from a record high of $147.27 reached on July 11. Oil accounts for about 40 percent of the Mexican government's revenue.

The yield on Mexico's benchmark 10 percent peso bonds due in 2024 rose 10 basis points, or 0.1 percentage point, to 9.01 percent. The bond's price fell 0.91 centavo to 108.36 centavos per peso, according to Banco Santander SA.

To contact the reporter on this story: Michael J. Moore in New York at mmoore55@bloomberg.net


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Calyon's Kotecha Says Euro May Fall to $1.30 in Coming Months

By Mark Barton and Andrew MacAskill

Oct. 15 (Bloomberg) -- Mitul Kotecha, global head of currency strategy at Calyon in Hong Kong, comments on the euro, dollar and yen.

Kotecha spoke in a Bloomberg Television interview today. Calyon is the investment-banking unit of France's Credit Agricole SA, France's third-largest bank by market value.

On the euro versus the dollar

``There is every chance the euro in the next few months will fall below $1.30 and we are certainly suggesting that we could end up possibly as low as $1.28 or even beyond that.

``Higher risk aversion, concerns about the European economy, and deleveraging are giving a positive impact for the U.S. dollar against the euro.''

On the Japanese yen

``Risk aversion is certainly not going to ease very quickly, which again supports currencies such as the Japanese yen.

``Dollar-yen is clearly looking to move below 100. I think 95 is still a very important psychological level and I can easily see it getting there within the next couple of months.''

On dollar strength

``We will see at least some semblance of risk appetite returning into 2009, albeit extremely gradually. I think that will turn the trend for the U.S. dollar. We may start to see the dollar resume a weaker trend as we go into 2009, into the second and third quarters, as risk appetite resumes.

On the outlook for global growth

``The economic consequences are still going to get much worse. Clearly, we are going to be in a severe recession. That implies that risk appetite is not really going to improve too dramatically.

``It's going to be a long and protracted recession. But I think going to a depression is way off the mark. We are not there yet.''

To contact the reporter on this story: Andrew MacAskill in London at amacaskill@bloomberg.net



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South Africa's Rand Drops Versus Dollar on Recession Concern

By Garth Theunissen

Oct. 15 (Bloomberg) -- South Africa's rand snapped a two- day gain against the dollar and the euro amid speculation the $2 trillion pumped into the world's banks won't be enough to avert a global recession.

The rand slipped the most in a week versus the dollar as stocks in Asia and Europe fell for the first time in three days on concern weakening economic growth will curb demand for South Africa's commodities, hurting company earnings. Federal Reserve Bank of San Francisco President Janet Yellen said yesterday the U.S. may already be in a recession.

``In the context of a slowing domestic economy, a global recession will be a double whammy for South Africa,'' said Roderick Ngotho, a currency strategist in London for Europe, the Middle East and Africa at UBS AG, the world's second-biggest currency trader. ``South Africa's export prospects will be severely compromised by a slowing global economy and that's not constructive for currency strength.''

The rand weakened 2.4 percent to 93412 per dollar by 2:31 p.m. in Johannesburg, from 9.1190 yesterday. It slipped versus 15 of the 16 most-actively traded currencies monitored by Bloomberg, losing 1.5 percent to 12.6106 per euro.

The prospect of a global slump is hurting emerging-market currencies from Brazil to Indonesia irrespective of attempts by the biggest economies to end the credit crisis with an unprecedented bank bailout. The IMF's World Economic Outlook last week forecast that global growth will slow to 3 percent in 2009, from 3.9 percent this year and 5 percent in 2007. That would mean a recession under the fund's informal definition.

`Weaker Commodity Prices'


``The rand is reacting to the outside sentiment that a global recession may be hot on the heels of the crisis in financial markets,'' said Jim Bryson, head of foreign-exchange trading at Rand Merchant Bank in Johannesburg. ``A global recession would imply weaker commodity prices and that would imply lower export revenue for a commodity-backed economy like South Africa's.''

The currency will ``trade with sentiment, falling as low as 9.45 by the end of the week if stocks keep weakening, Bryson said. At the same time, a rally in equities would ``drive the rand all the way back to 9 to the dollar,'' he said.

South Africa's FTSE/JSE Africa All Share Index tumbled 4.9 percent, snapping a two-day advance, as stocks around the world fell. The MSCI World Index of equities lost 1.3 percent and Europe's benchmark Dow Jones Stoxx 600 Index slipped 3.8 percent

`Forecasting Recession'

Investors should ``hedge against further rand weakness versus the dollar, euro and yen,'' Ngotho said.

Economic growth in the U.S. and the 15-nation euro-region economy will slow to 0.3 percent next year, according to UBS. About 25 percent of South Africa's total exports go the euro region and about 12 percent to the U.S., according to data compiled by the Zurich-based bank.

``Our economists are forecasting a global recession that will be led by a slowdown in the U.S. and Europe,'' Ngotho said.

Government bonds were little changed, with the yield on the benchmark 13.5 percent security due September 2015 at 9.99 percent. Yields move inversely to bond prices.

To contact the reporter on this story: Garth Theunissen in Johannesburg gtheunissen@bloomberg.net


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Brazil's Real Declines as Global Stock Slide Sparks Outflows

By Drew Benson

Oct. 15 (Bloomberg) -- Brazil's real fell as a decline in global stocks sparked capital outflows from emerging-market countries.

The real sank 1.1 percent to 2.1186 per dollar at 8:25 a.m. New York time, following a 10.3 percent surge during the previous two days.

To contact the reporter on this story: Drew Benson in Buenos Aires at abenson9@bloomberg.net



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Gold Is Little Changed as Global Slump Damps Commodity Demand

By Pham-Duy Nguyen

Oct. 15 (Bloomberg) -- Gold was little changed on speculation that a global slowdown will reduce demand for precious metals and other raw materials. Silver declined.

U.S. stock-index extended declines after worse-than- estimated slumps in retail sales and New York manufacturing heightened concern the economy is in a recession. UBS AG said gold probably will peak in 2008 after seven annual gains and average $825 an ounce in 2009. The metal climbed to a record in March.

``The problem that gold seems to be suffering from is fewer-than-normal players,'' UBS metals strategist John Reade said in a report. ``Comex traders seem almost sidelined as leveraged investors hoard cash. Jewelry demand is very slow. Safe-haven buying has slowed.''


Gold futures for December delivery rose $1.10 to $840.60 at 9:16 a.m. on the Comex division of the New York Mercantile Exchange. The metal dropped 7.4 percent in the previous four sessions. The record was $1,033.90 on March 17.

Total gold trading on the Comex yesterday was 97,369, compared with 126,405 a week earlier. Volume was an estimated 32,918 today.

Silver futures for December delivery fell 66.5 cents, or 6 percent, to $10.395 an ounce. Before today, the price dropped 26 percent this year.

To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.


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Stock Bears Diminished Before Bailouts in Italy, France, U.K.

By Alexis Xydias

Oct. 15 (Bloomberg) -- Investors in Italy, France, Spain and the U.K. became less bearish on stocks even before governments around the world agreed to provide more than $2 trillion to rescue banks, a survey of Bloomberg users showed.

While most respondents expect benchmark indexes to decline in the next six months, fewer predicted losses than in September for France's CAC 40 Index, Spain's IBEX 35 Index and the U.K.'s FTSE 100 Index, according to the Bloomberg Professional Global Confidence Survey of 2,747 users. In Italy, investors said the S&P/MIB will gain while in Brazil they turned bearish for the first time since the poll started in November. Pessimism increased in the U.S.,Germany, Switzerland, Japan and Mexico.

The survey was taken between Oct. 6 and 10 as the MSCI World Index had its worst week on record. The gauge of 23 developed countries has since rebounded 11 percent as Britain took control of Edinburgh-based Royal Bank of Scotland Group Plc and HBOS Plc; France, Germany, Spain, the Netherlands and Austria committed $1.8 trillion to support financial firms; and the U.S. said it will invest $250 billion in banks.

``Even though the economic situation is very, very difficult, everything seems to be priced in current stock valuations,'' said Jacques Porta, who helps manage $180 million at Ofivalmo Patrimoine in Paris and participated in the survey. Porta said his company ``started'' buying stocks last week. ``We'll now have to monitor how weak earnings may come out.''

Credit-Market Freeze

Indexes in all 10 nations plunged more than 24 percent this year as concern that frozen credit markets will trigger a global recession erased $25 trillion in value from stocks worldwide. Financial firms reported $638 billion in losses and writedowns from mortgage-related investments since the beginning of 2007.



The MSCI World dropped 40 percent from its October record. The measure was valued last week at 11 times the earnings of its 1,730 companies, the lowest level since at least January 1995, data compiled by Bloomberg show.

The index climbed 9.5 percent on Oct. 13, the biggest advance since data began in 1970, while the Standard & Poor's 500 Index posted its largest surge in seven decades.

Pessimism Drops

Investors turned bullish in Italy, where the benchmark S&P/MIB Index trades at 7.6 times earnings, the cheapest among the 10 nations tracked in the survey.

The Bloomberg confidence index in the country rose to 53.16 from 46.43 in September. A number below 50 indicates investors expect stocks to retreat in the next six months, while a reading above 50 signifies a potential rally.

The biggest improvement in sentiment came in the U.K., where the confidence index rose to 28.89 from 22. That was still the lowest reading among the 10 nations. The measure for Spain climbed to 33.44 from 32.65, while France's gauge increased to 43.06 from 41.18.

Brazil, where the benchmark Bovespa Index gets about 45 percent of its value from commodities companies, saw the steepest slump in sentiment as oil tumbled. The confidence measure slid to a record low of 41.39 from 61.68 as crude extended its drop from a July record to 48 percent.

U.S. sentiment slipped to 34.25 from 35.18 even after Treasury Secretary Henry Paulson announced a $700 billion bank bailout and the Federal Reserve coordinated an unprecedented set of global interest-rate cuts with the European Central Bank, Bank of England, Bank of Canada and Sweden's Riksbank.

MSCI World, S&P 500

While the MSCI World was valued at the cheapest relative to earnings in at least 13 years at the end of last week, the S&P 500 was the cheapest in a year, data compiled by Bloomberg show.

The benchmark for American equities now trades at 19.1 times the earnings of its 500 companies, the most expensive among the 10 nations in the survey except Switzerland, where the 20-company SMI Index is valued at 37 times profit.

Wall Street analysts as of last week had not cut forecasts for record U.S. earnings. For the fourth quarter, analysts said companies in the S&P 500 will earn about $241 billion, the most ever.

New York-based Alcoa Inc., the biggest U.S. aluminum producer, and Charlotte, North Carolina-based Bank of America Corp., the second-largest U.S. bank, posted the biggest declines in more than two decades last week after third-quarter profits missed predictions by 28 percent and 69 percent. U.S. stocks fell yesterday on a worsening outlook for earnings at Purchase, New York-based PepsiCo Inc. and Redmond, Washington- based Microsoft Corp.

``The aggressive selling appears to be drying up, but for this bounce to turn into a rally we need the earnings season to be better than everyone predicts,'' said Nick Batsford, a technical analyst at Hobart Capital Markets Ltd. in London who participated in the survey.

To contact the reporter on this story: Alexis Xydias in London at axydias@bloomberg.net.

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Oil Falls on Doubts Rescue Will Avoid Recession, Bolster Demand

By Mark Shenk

Oct. 15 (Bloomberg) -- Crude oil fell below $75 a barrel for the first time in more than a year on skepticism that a rescue of the world's banks will be enough to avoid a recession and stem a decline in global fuel demand.

Oil, which has followed movements in equity markets this month as the credit crisis deepened, fell as stocks dropped today. The Organization of Petroleum Exporting Countries cut its 2009 demand forecast for a second month because of ``dramatically worsening'' conditions in financial markets.

``The oil market is under a lot of pressure and nothing is going to change that anytime soon,'' said Ric Navy, a broker at BNP Paribas SA in New York. ``We are entering a poor-demand cycle, which will put further downward pressure on prices.''


Crude oil for November delivery fell $2.36, or 3 percent, to $76.27 a barrel at 9:22 a.m. on the New York Mercantile Exchange. Futures touched $74.97, the lowest since September 2007. Prices, which are down 12 percent from a year ago, have dropped 48 percent from the record $147.27 a barrel reached on July 11.

OPEC, supplier of more than 40 percent of the world's oil, cut its forecast today for oil demand next year by 450,000 barrels a day, or 0.5 percent, to 87.21 million barrels a day. The 13-member group will hold an extraordinary meeting on Nov. 18 in Vienna, after a decision to trim supplies last month failed to stem a slump in prices.

A government report tomorrow may show that U.S. crude-oil and gasoline inventories rose last week, according to the median of responses by analysts in a Bloomberg News survey. The report will be released a day late because of the Columbus Day federal holiday Oct. 13 in the U.S.

Brent crude oil for November settlement declined $2.41, or 2.2 percent, to $72.12 a barrel on London's ICE Futures Europe exchange.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.


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Sugar Drops in New York as Crude-Oil Decline Cuts Fuel Demand

By Ron Day

Oct. 15 (Bloomberg) -- Sugar declined in New York for the first time in three sessions on speculation that falling crude- oil prices will trim demand for fuel made from cane.

Oil slid to its lowest price in more than a year after OPEC, the Organization of Petroleum Exporting Countries, lowered its 2009 demand forecast for a second month as the worst financial crisis since the 1930s threatens a global recession. Lower oil prices may reduce demand for ethanol, a fuel additive refined from cane in Brazil, the world's biggest sugar producer.

Raw-sugar futures for March delivery fell 0.32 cent, or 2.7 percent, to 11.39 cents a pound at 8:16 a.m. on ICE Futures U.S. in New York.

To contact the reporter on this story: Ron Day in New York at rday1@bloomberg.net.



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Copper Leads Slide on London Metal Exchange on Shipping Slump

By Claudia Carpenter

Oct. 15 (Bloomberg) -- Copper, aluminum, nickel and other industrial metals fell in London as a slump in shipping costs heightened speculation that demand will weaken.

The Baltic Dry Index, a measure of seaborne freight costs, fell 11 percent today, for a 50 percent drop this month. Pacific Basin Shipping Ltd., Hong Kong's biggest dry-bulk carrier, said demand for moving coal and other raw materials will fall because banks are guaranteeing fewer loads.

``Commodities are stacking up in ports,'' said Tim Mercer, chief investment officer of Hong Kong-based hedge fund Musashi Capital Ltd. `If demand were significantly restricted due to finance issues, it would hammer base metals.''

Copper for delivery in three months dropped $315, or 6 percent, to $4,985 a metric ton on the London Metal Exchange as of 1:36 p.m. local time. The contract gained 11 percent the past two days.

Stocks in Europe and Asia also fell for the first time in three days after Federal Reserve Bank of San Francisco President Janet Yellen said the U.S. is in a recession.

Aluminum fell $107, or 4.7 percent, to $2,175 a ton, the biggest drop since July 8. Stockpiles of the metal in warehouses monitored by the LME jumped 55,875 tons, or 4 percent, to 1.46 million tons, the most since February 1995.

Aluminum Corp. of China Ltd., China's biggest producer, cut alumina capacity at its Shandong plant by 1 million tons and shut aluminum smelters in Shandong and Henan provinces, said a company executive, who asked not be identified. Global output will exceed demand by 276,000 tons this year and 375,000 tons next year, Standard Bank Plc forecast yesterday.

``We need more output cuts,'' Jorge Vazquez, an analyst at Laredo, Texas-based research company Harbor Intelligence, said in an interview in London today.

Lead Declines

Lead fell $124, or 7.6 percent, to $1,516 a ton. The market will have a supply surplus of 49,000 tons this year after five years of deficits, Standard Bank said. Prices will average $1,890 a ton in 2009 and $1,740 a ton in 2010.

Lead is mostly used in car batteries and ``current forecasts suggest there will be no recovery in the U.S. auto industry until 2010,'' Standard Bank said.

``I don't see an increase in demand for lead this year or next,'' Jim Grubbs, vice president of sales and marketing at St. Louis-based Doe Run Resources Inc., said yesterday from London. ``We do not see a crushing fall in demand in our markets in the U.S. either.''

Tin declined $955, or 6.4 percent, to $14,040 a ton, nickel dropped $820, or 6.4 percent, to $11,980 a ton and zinc fell $80, or 5.7 percent, to $1,330 a ton.

To contact the reporter on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net or ccarpenter2@bloomberg.net



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U.K. Stocks Decline, Led by Shell, Anglo American, Rio Tinto

By Sarah Thompson

Oct. 15 (Bloomberg) -- U.K. stocks declined for the first time in three days, led by energy producers on concern a $2 trillion global push to rescue banks will not be enough to bolster economic growth.

Royal Dutch Shell Plc, Europe's biggest oil company, fell 2.6 percent. Anglo American Plc fell by a record and Rio Tinto Group plunged 10 percent as commodity producers followed metal prices lower.

The benchmark FTSE 100 slipped 186.99, or 4.3 percent, to 4,207.22 at 2:17 p.m. in London. The gauge had rallied 12 percent in the last two days as governments and central banks worldwide announced bailouts and funding to unfreeze credit markets and prevent the collapse of the global banking system.

``Miners are being hit hard and this is taking down the whole U.K. market,'' said Jimmy Yates, a trader at CMC Markets in London. ``After the recent rout in financial stocks, investors are now turning their negative attentions to this sector. It's no surprise to see money coming out of these stocks.''

The FTSE All-Share Index lost 4.1 percent today and Ireland's ISEQ Index decreased 3.6 percent.

Indexes extended declines after U.K. unemployment rose to the highest level in almost two years in September as the prospect of a recession and the global financial crisis prompted a spate of job cuts from banks to construction companies.

Shell declined 4.2 percent to 1,433 pence. Oil fell as much as 1 percent to $77.85 today. Prices, down 8.6 percent from a year ago, have dropped 47 percent from the record $147.27 a barrel on July 11.

Copper Slides

Anglo American, the world's second-largest mining company, lost 15 percent to 1,404 pence, the biggest drop since at least 1999. Copper, aluminum, nickel and other industrial metals fell as a slump in shipping costs heightened speculation that demand will weaken.

Separately, Rio Tinto, battling an $86 billion takeover from BHP Billiton Ltd., may delay the planned sale this year of $10 billion of assets because of the global financial crisis.

The company is also reviewing its near-term spending timetable and project costs ``against the backdrop of the current markets,'' according to a statement. It wants to sell the assets to help pay for its $38.1 billion purchase last year of aluminum producer, Alcan Inc. Rio decreased 13 percent to 2,540 pence.

The following stocks also gained or fell in the U.K. market. Stock symbols are in parentheses.

U.K. companies:

Autonomy Corp. (AU/ LN) advanced 5.5 pence, or 0.7 percent, to 823.5. The U.K.'s second-biggest software company said third-quarter profit rose to a record on cash collection from blue-chip customers and as clients complied with new U.S. regulations.

Pearson Plc (PSON LN) added 10 pence, or 1.8 percent, to 569.5. The publisher of the Financial Times newspaper said profit this year will be at the top end of analyst estimates.

Irish companies:

Fyffes Plc (FFY ID) rose 3 cents, or 12 percent, to 28.5 cents in Dublin. The Irish banana distributor wasn't among a group of companies that will be fined by the European Union for fixing prices. Based on the penalty criteria, the fine could have been as much as 55 million euros, according to Goodbody Stockbrokers.

To contact the reporter on this story: Sarah Thompson in London at sthompson17@bloomberg.net



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European Stocks Drop on Recession Concerns; BHP, Xstrata Slide

By Adam Haigh

Oct. 15 (Bloomberg) -- European stocks fell for the first time in three days after U.S. retail sales declined more than forecast and Federal Reserve Bank of San Francisco President Janet Yellen said the world's largest economy is already in a recession.

BHP Billiton Ltd. and Xstrata Plc dropped more than 12 percent as copper retreated and concern deepened $2 trillion in funds for banks won't be enough to stave off a global economic contraction. Vedanta Resources Plc tumbled 15 percent as the global credit crisis threatened the purchase of Asarco LLC. ASML Holding NV sank 4.2 percent after the region's largest maker of semiconductor equipment forecast shipments that fell short of analysts' estimates.

The Dow Jones Stoxx 600 Index lost 3.4 percent to 224.33 at 2:32 p.m. in London, following the biggest two-day rally on record. Reports today showed U.S. retail sales dropped in September by the most in three years and manufacturing in the New York region sank to a record low.

``We don't have much of a rosy outlook in terms of global growth next year, that is what is worrying markets,'' said Christian Gattiker, Zurich-based head of equity research at Bank Julius Baer & Co., in a Bloomberg Television interview. ``We have much more to go in terms of earnings deterioration.'' Parent company Julius Baer Holding AG has about $328 billion.

National benchmark indexes slid in all 18 western European markets. The U.K.'s FTSE 100 lost 4.2 percent as Rio Tinto Group retreated. France's CAC 40 decreased 3.5 percent, led by Total SA as crude oil dropped below $76 a barrel. Germany's DAX declined 3.6 percent as Siemens AG tumbled.

Pessimism Soars

Pessimism on stocks soared to an all-time high as a growing conviction the global economy is in a recession spurred investors to shun commodity shares, a Merrill Lynch & Co. survey showed.

Confidence in the global economy plunged in October, according to the Bloomberg Professional Global Confidence Index. The measure fell to the lowest reading on record.

The Stoxx 600 has lost 38 percent this year as concern the seizure in credit markets will trigger a global recession erased $25 trillion in value from stocks worldwide. Financial firms reported $637 billion in losses and writedowns from mortgage- related investments since the beginning of 2007.


Two-Day Rally

The benchmark rallied 13 percent in the previous two days as governments and central banks worldwide announced bailouts and funding to unfreeze credit markets and prevent the collapse of the global banking system.

The Bush administration said yesterday it was investing $250 billion to purchase stakes in U.S. financial companies.

The injection in banks won't stop stock prices from falling because ``nobody'' believes the measure is sufficient, Japanese Prime Minister Taro Aso said in parliament, responding to a lawmaker's question about his plans to help limit the global crisis.

Money-market rates fell for a third day. The cost of borrowing in dollars for three months in London declined today to 4.55 percent from 4.64 percent, the British Bankers' Association said.

The dollar Libor-OIS spread, a gauge of demand for cash, narrowed 6 basis points to 333 basis points. That's still more than triple the level of 105 basis points on Sept. 15. The spread was 24 basis points on Jan. 24.

Weakening Outlook

``Recent financial developments and economic data make it clear that the outlook for the U.S. economy has weakened noticeably,'' Yellen said in her speech to the Silicon Valley Chapter of Financial Executives International.

The U.S. is already in a recession by most accounts, according to economists surveyed by Bloomberg News this month.

U.K. unemployment last month rose to the highest level in almost two years, the Office for National Statistics said today. Claims for jobless benefits increased 31,800 to 939,900, the highest since November 2006.

BHP Billiton, the world's largest mining company, declined 12 percent to 948.5 pence. Xstrata, the fourth-biggest copper producer, sank 17 percent to 1,095 pence.

Copper, lead, tin and nickel prices slid on the London Metals Exchange.

Rio Tinto Group, battling a $86 billion takeover bid from BHP Billiton, may delay the planned sale this year of $10 billion of assets because of the global financial crisis. The shares lost 13 percent to 2,466 pence.

Vedanta

Vedanta fell 15 percent to 769.5 pence. Lawyers said the $2.6 billion purchase of bankrupt copper producer Asarco by Sterlite Industries (India) Ltd., a unit of London-based Vedanta, won't be completed after Sterlite told Asarco to cut its asking price.

The credit crisis has increased borrowing costs as declining metal prices hurt the outlook for earnings, thwarting acquisitions and expansions.

Total, Europe's third largest oil producer, lost 3.1 percent to 38.03 euros as crude fell as much as $3.66, or 4.7 percent, to $74.97 on the New York Mercantile Exchange.

Analysts slashed earnings estimates this year as concern mounted that the global economy is slowing. Profit at companies in the Stoxx 600 are forecast to drop 3.6 percent this year, compared with 11 percent growth forecast at the end of last year, based on data compiled by Bloomberg. Earnings for S&P 500 companies will decline 3.1 percent in 2008, compared with a 15 percent increase predicted in December 2007, the data show.

``Recession beckons,'' David Buik said in a Bloomberg Television interview in London. ``There is a realization that the relief rally is over.''

Valuations

The Stoxx 600 was valued at 8.5 times earnings of companies in the index last week, the cheapest on record, and climbed to 9.7 times profit yesterday. The MSCI World Index traded at 11 times the earnings of its 1,730 companies on Oct. 10, the lowest on record, and closed yesterday at 12.2 times profit.

The S&P 500, the benchmark for American equities, ended last week valued at 17.2 times earnings, also the lowest in more than a year. The index jumped 11.6 percent on Oct. 13, pushing its price-to-earnings ratio to 19.2.

ASML sank 4.2 percent to 10.45 euros. Europe's largest maker of semiconductor equipment said third-quarter profit fell 56 percent on lower machine sales after chipmakers delayed expansion plans.

Siemens and Lafarge SA led declines among companies that made more than one-fifth of sales in the U.S. last year. Siemens, Europe's largest engineering company, declined 8.4 percent to 49.34 euros. Lafarge, the world's biggest cement company, dropped 11 percent to 58.50 euros.

KBC Group NV slumped 16 percent to 39.46 euros after reporting a net loss in the third quarter as it wrote down the value of collateralized debt obligations..

To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net


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