By Ellis Mnyandu
NEW YORK (Reuters) - Stocks slid on Thursday as signs of regional weakness in manufacturing and poor corporate results fueled recession fears, causing investors to reduce risk and join a global equity sell-off.
Financial shares led Wall Street's losses and put the market on course to extend its rout a day after the benchmark S&P 500 had its worst tumble since the 1987 market crash.
"It's Just a matter of how bad the recession we're sliding into is going to be," said Manny Weintraub, managing director of Integre Advisors in New York.
The Dow Jones industrial average slid 275.50 points, or 3.21 percent, to 8,302.41. The Standard & Poor's 500 Index tumbled 31.13 points, or 3.43 percent, to 876.71. The Nasdaq Composite Index dropped 42.70 points, or 2.62 percent, to 1,585.63.
An index of factory activity in the Mid-Atlantic region fell to an 18-year low this month, the Philadelphia Federal Reserve Bank said.
Shares of Citigroup Inc tumbled more than 6 percent to $15.25 on the New York Stock Exchange after the banking company posted a $2.82 billion third-quarter loss.
Merrill Lynch , which is being bought by Bank of America, was down more than 4 percent at $17.52 after the securities firm posted a steeper-than-expected $7.5 billion third-quarter loss.
Shares of eBay Inc slumped nearly 10 percent to $13.82 a day after the online auction company gave a disappointing forecast and cited a widespread consumer spending slowdown that is expected to last into 2009.
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Thursday, October 16, 2008
Market falls after weak Philly Fed report
NEW YORK (Reuters) - Stocks slid in skittish trading on Thursday after a report showed a steeper-than-expected drop in factory activity in the Mid-Atlantic region for October.
The Philadelphia Federal Reserve Bank said its business activity index slumped unexpectedly to -37.5 in October from 3.8 in September.
The Dow Jones industrial average was down 116.92 points, or 1.36 percent, at 8,460.99. The Standard & Poor's 500 Index was down 14.76 points, or 1.63 percent, at 893.08. The Nasdaq Composite Index was down 14.73 points, or 0.90 percent, at 1,613.60.
(Reporting by Ellis Mnyandu; Editing by Kenneth Barry)
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The Philadelphia Federal Reserve Bank said its business activity index slumped unexpectedly to -37.5 in October from 3.8 in September.
The Dow Jones industrial average was down 116.92 points, or 1.36 percent, at 8,460.99. The Standard & Poor's 500 Index was down 14.76 points, or 1.63 percent, at 893.08. The Nasdaq Composite Index was down 14.73 points, or 0.90 percent, at 1,613.60.
(Reporting by Ellis Mnyandu; Editing by Kenneth Barry)
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U.S.: Consumer Prices Continue to Moderate in September
Daily Forex Fundamentals | Written by TD Bank Financial Group | Oct 16 08 14:58 GMT |
* U.S. headline CPI was flat in September, bringing the annual rate of inflation to 4.9% Y/Y.
* Core CPI was also soft, rising by only 0.1% M/M with the core inflation rate remaining unchanged at 2.5% Y/Y.
* This better than expected inflation report will provide some breathing room for further monetary easing by the Fed.
U.S. consumer prices moderated further in September, with the headline inflation index remaining unchanged on the month (at three-decimal places the index declined by 0.031% M/M), bringing the annual rate of price inflation to 4.9% Y/Y (down from 5.4% Y/Y in July), which is the slowest pace of price increase since May this year. The pace of price increase was slower than the 5.1% Y/Y expected by the markets. Core consumer prices were also softer than expected, with core goods and services rising by only 0.1% M/M (lower than the +0.2% expected), with the annual core inflation remaining at 2.5% Y/Y for the third straight month.
The details of the report were equally soft. Not surprisingly, with energy prices continuing to ease at a dramatic pace, the price of fuel and utilities declined by 2.8% M/M, while the price for gas at the pump declined by a further 0.6% M/M, following the 4.2% M/M drop in August. On the other hand, owner’s equivalent rent accelerated during the month, rising by 0.2% M/M, while the cost of medical care (up 0.3% M/M) and education (up 0.1%) were also higher.
On balance, the report provided further confirmation of the easing in consumer price pressures in the U.S. and will undoubtedly provide some breathing room for further monetary easing by the Fed. We expect a 50bps cut in the Feds policy rate at its next meeting later this month. Looking ahead, with commodity prices declining by the day, and the growing economic slack tempering wage pressures and limiting the ability of businesses to pass on higher prices to their consumers, we expect consumer prices to continue moderating further in the coming months.
TD Bank Financial Group
The information contained in this report has been prepared for the information of our customers by TD Bank Financial Group. The information has been drawn from sources believed to be reliable, but the accuracy or completeness of the information is not guaranteed, nor in providing it does TD Bank Financial Group assume any responsibility or liability.
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* U.S. headline CPI was flat in September, bringing the annual rate of inflation to 4.9% Y/Y.
* Core CPI was also soft, rising by only 0.1% M/M with the core inflation rate remaining unchanged at 2.5% Y/Y.
* This better than expected inflation report will provide some breathing room for further monetary easing by the Fed.
U.S. consumer prices moderated further in September, with the headline inflation index remaining unchanged on the month (at three-decimal places the index declined by 0.031% M/M), bringing the annual rate of price inflation to 4.9% Y/Y (down from 5.4% Y/Y in July), which is the slowest pace of price increase since May this year. The pace of price increase was slower than the 5.1% Y/Y expected by the markets. Core consumer prices were also softer than expected, with core goods and services rising by only 0.1% M/M (lower than the +0.2% expected), with the annual core inflation remaining at 2.5% Y/Y for the third straight month.
The details of the report were equally soft. Not surprisingly, with energy prices continuing to ease at a dramatic pace, the price of fuel and utilities declined by 2.8% M/M, while the price for gas at the pump declined by a further 0.6% M/M, following the 4.2% M/M drop in August. On the other hand, owner’s equivalent rent accelerated during the month, rising by 0.2% M/M, while the cost of medical care (up 0.3% M/M) and education (up 0.1%) were also higher.
On balance, the report provided further confirmation of the easing in consumer price pressures in the U.S. and will undoubtedly provide some breathing room for further monetary easing by the Fed. We expect a 50bps cut in the Feds policy rate at its next meeting later this month. Looking ahead, with commodity prices declining by the day, and the growing economic slack tempering wage pressures and limiting the ability of businesses to pass on higher prices to their consumers, we expect consumer prices to continue moderating further in the coming months.
TD Bank Financial Group
The information contained in this report has been prepared for the information of our customers by TD Bank Financial Group. The information has been drawn from sources believed to be reliable, but the accuracy or completeness of the information is not guaranteed, nor in providing it does TD Bank Financial Group assume any responsibility or liability.
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Unintended Consequences
Daily Forex Fundamentals | Written by Foreign Exchange Analytics | Oct 16 08 14:34 GMT |
When policymakers wade, or more like dive, into private markets like they have in the last few days, there are sure to be unintended consequences that will at times raise doubts about the efficacy of the rescue. But let’s not confuse a negative externality with a death sentence. The banking system failure was taken off the table in the last week starting with the unprecedented simultaneous rate cut by major central banks. But UK and then rest of the developed markets degrees of nationalization was the exclamation point behind systemic salvation.
Okay then why are credit spreads widening today, mortgage rates rising, equities (financials) sliding and CDS moving out?
Mortgage rates have moved up as Fannie and Freddie debt has widened out from Treasuries. This is a good example of unintended consequences. No official wants to see US mortgage rates rise…they want them to fall to improve housing affordability. But FDIC guarantees over new debt issued by banks (through 2012) is making for government guarantee arbitrage. Why pick up GSE debt with the same government guarantee as bank issued debt (new issue) that trades at a price discount/yield premium to GSE debt? In theory this guaranteed note program from banks will address longer-term funding needs and should see new bank issues soar. Look for some crowding out - of even US Treasuries as well as GSE debt. If this negative consequence becomes a trend, arguably the FDIC insurance of bank debt will add to housing market woes.
Surely there are other reasons why GSE debt has risen - new mandates to buy subprime and Alt-A mortgages from banks. And foreign central banks in weekly Fed H.4.1 remain net sellers of GSEs and buyers of Treasuries.
Crowding out issue ahead is likely to become prominent as debt issuance from the public sector soars. State and local governments will be scrambling to issue debt (California’s notes sold this week said to be sloppy). And federal debt issuance by most developed nations will be unprecedented with revenues challenges by weak or negative growth and rising outlays.
Fed guarantees for commercial paper also provides potential for unintended consequences - why issue any term debt when CP is backed by the Fed? Seems to me the cheapest source of corporate funding ahead will be CP - sure the Fed is not planning on seeing large mismatching in firm debt programs against liabilities.
And how do central banks wean commercial banks off cheap overnight, 7-day, 24-day and 84-day funding when nearly daily the net for acceptable collateral continues to widen? Banks can rely on the cheapest source of funds borrowing directly from central banks and not return to private capital markets for some time. Moreover, there are no stigmas for borrowing emergency funds from central banks. Banks if given a chance will game the system and there are ever more liquidity systems to game outside private capital markets. We have a real addiction problem in the making that may go beyond a simple absence of trust in counterparties. Japanese banks gamed the BOJ liquidity system for years before resuming lending and taking risk.
And then the world of risk pricing is complicated by false or casual causalities. Officials need to know if credit spreads are wider because of signs of weak economic activity like today’s retail sales or represent some other brewing problem like an unintended consequence. The Fed and Treasury need to know where to point the fire hose.
Surely more unintended and negative consequences will emerge from measures as dramatic as the policy actions in the last week. But hopefully none will be fatal to the banking system and most likely officials will need to do some additional tidying up to prevent new inefficiencies from clogging up the banking system.
David Gilmore
Foreign Exchange Analytics
http://www.fxa.com
Disclaimer: The opinions expressed herein are those of the author and not a recommendation to buy or sell specific securities.
Read more...
When policymakers wade, or more like dive, into private markets like they have in the last few days, there are sure to be unintended consequences that will at times raise doubts about the efficacy of the rescue. But let’s not confuse a negative externality with a death sentence. The banking system failure was taken off the table in the last week starting with the unprecedented simultaneous rate cut by major central banks. But UK and then rest of the developed markets degrees of nationalization was the exclamation point behind systemic salvation.
Okay then why are credit spreads widening today, mortgage rates rising, equities (financials) sliding and CDS moving out?
Mortgage rates have moved up as Fannie and Freddie debt has widened out from Treasuries. This is a good example of unintended consequences. No official wants to see US mortgage rates rise…they want them to fall to improve housing affordability. But FDIC guarantees over new debt issued by banks (through 2012) is making for government guarantee arbitrage. Why pick up GSE debt with the same government guarantee as bank issued debt (new issue) that trades at a price discount/yield premium to GSE debt? In theory this guaranteed note program from banks will address longer-term funding needs and should see new bank issues soar. Look for some crowding out - of even US Treasuries as well as GSE debt. If this negative consequence becomes a trend, arguably the FDIC insurance of bank debt will add to housing market woes.
Surely there are other reasons why GSE debt has risen - new mandates to buy subprime and Alt-A mortgages from banks. And foreign central banks in weekly Fed H.4.1 remain net sellers of GSEs and buyers of Treasuries.
Crowding out issue ahead is likely to become prominent as debt issuance from the public sector soars. State and local governments will be scrambling to issue debt (California’s notes sold this week said to be sloppy). And federal debt issuance by most developed nations will be unprecedented with revenues challenges by weak or negative growth and rising outlays.
Fed guarantees for commercial paper also provides potential for unintended consequences - why issue any term debt when CP is backed by the Fed? Seems to me the cheapest source of corporate funding ahead will be CP - sure the Fed is not planning on seeing large mismatching in firm debt programs against liabilities.
And how do central banks wean commercial banks off cheap overnight, 7-day, 24-day and 84-day funding when nearly daily the net for acceptable collateral continues to widen? Banks can rely on the cheapest source of funds borrowing directly from central banks and not return to private capital markets for some time. Moreover, there are no stigmas for borrowing emergency funds from central banks. Banks if given a chance will game the system and there are ever more liquidity systems to game outside private capital markets. We have a real addiction problem in the making that may go beyond a simple absence of trust in counterparties. Japanese banks gamed the BOJ liquidity system for years before resuming lending and taking risk.
And then the world of risk pricing is complicated by false or casual causalities. Officials need to know if credit spreads are wider because of signs of weak economic activity like today’s retail sales or represent some other brewing problem like an unintended consequence. The Fed and Treasury need to know where to point the fire hose.
Surely more unintended and negative consequences will emerge from measures as dramatic as the policy actions in the last week. But hopefully none will be fatal to the banking system and most likely officials will need to do some additional tidying up to prevent new inefficiencies from clogging up the banking system.
David Gilmore
Foreign Exchange Analytics
http://www.fxa.com
Disclaimer: The opinions expressed herein are those of the author and not a recommendation to buy or sell specific securities.
Read more...
US Industrial Production Posts a Steep Decline
Daily Forex Fundamentals | Written by RBC Financial Group | Oct 16 08 14:30 GMT |
US industrial production plunged 2.8% m/m in September after falling 1.0% m/m (revised from a 1.1% m/m fall) in the prior month. Capacity utilization fell to 76.4% following the prior month's 78.7%. The market was expecting a more muted fall with a decline in industrial production of 0.8% m/m and fall in capacity utilization to 77.9%.
The fall in industrial production marked the worst monthly decline since December 1974. The weakness was broad-based stretching to all industries except motor vehicles and utilities. Though consumer goods were hit hard with a 1.4% m/m fall, production of business equipment fell 7% m/m. This latter fall is the biggest month- on-month drop in the series dating back to 1947 and suggests businesses are retrenching and cutting back on investment likely hurting that component of GDP. The only industry hit harder was mining, which fell 7.8% m/m. Overall manufacturing production fell 2.6% m/m consistent with the steep fall in the ISM manufacturing survey for September. Some of this weakness, however, reflects the transitory impact of hurricanes Ike and Gustuv in addition to a strike at Boeing.
The only silver lining from this report is on the inflationary front. Overall capacity utilization fell to 76.4% from the prior month's 78.7% putting it at its lowest level since October 2003. Manufacturing capacity utilization fell to 74.5% after a 76.6% reading in August. The Fed looks at this as one measure of slack in the economy with a lower number suggesting less inflationary pressure.
The weakness in today's report buttresses the view that the US economy is on a downward trajectory. In response, we expect the Fed to cut the Fed funds rate by 50 bps bringing it to 1% by the end of this year.
RBC Financial Group
http://www.rbc.com
The statements and statistics contained herein have been prepared by the Economics Department of RBC Financial Group based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This report is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.
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US industrial production plunged 2.8% m/m in September after falling 1.0% m/m (revised from a 1.1% m/m fall) in the prior month. Capacity utilization fell to 76.4% following the prior month's 78.7%. The market was expecting a more muted fall with a decline in industrial production of 0.8% m/m and fall in capacity utilization to 77.9%.
The fall in industrial production marked the worst monthly decline since December 1974. The weakness was broad-based stretching to all industries except motor vehicles and utilities. Though consumer goods were hit hard with a 1.4% m/m fall, production of business equipment fell 7% m/m. This latter fall is the biggest month- on-month drop in the series dating back to 1947 and suggests businesses are retrenching and cutting back on investment likely hurting that component of GDP. The only industry hit harder was mining, which fell 7.8% m/m. Overall manufacturing production fell 2.6% m/m consistent with the steep fall in the ISM manufacturing survey for September. Some of this weakness, however, reflects the transitory impact of hurricanes Ike and Gustuv in addition to a strike at Boeing.
The only silver lining from this report is on the inflationary front. Overall capacity utilization fell to 76.4% from the prior month's 78.7% putting it at its lowest level since October 2003. Manufacturing capacity utilization fell to 74.5% after a 76.6% reading in August. The Fed looks at this as one measure of slack in the economy with a lower number suggesting less inflationary pressure.
The weakness in today's report buttresses the view that the US economy is on a downward trajectory. In response, we expect the Fed to cut the Fed funds rate by 50 bps bringing it to 1% by the end of this year.
RBC Financial Group
http://www.rbc.com
The statements and statistics contained herein have been prepared by the Economics Department of RBC Financial Group based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This report is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.
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U.S. September CPI Unchanged
Daily Forex Fundamentals | Written by RBC Financial Group | Oct 16 08 14:29 GMT |
Consumer prices in September were generally weaker than anticipated with the overall measure unchanged in the month rather than rising 0.1% as had been expected. This contributed to the year-over-year rate moderating to 4.9% from 5.4% in August. Core prices were also weaker than expected rising 0.1% rather than rising a projected 0.2% though this left the year-over-year rate unchanged at 2.5%.
The modest overall gain was helped by energy prices dropping 1.9% in the month. This largely reflected the housing fuels and utilities component dropping 2.8% following a 1.1% decline in August. Gasoline prices fell as well though only by 0.6% and compares to a 4.2% plummet in August. The slowing in the pace of decline in this component reflected the impact of Hurricane Ike which temporarily boosted prices because of the shutdown in refinery capacity in Texas. More sizeable declines in this component are expected to resume in October. Food prices continued to show large gains rising 0.6%. The modest rise in core prices was largely helped by a 0.7% drop in new car prices reflecting very weak demand and attempts by dealers to move the old car lines before the introduction of the 2009 models. Apparel prices were also down in the month though by a more moderate 0.1%.
In a separate report, jobless claims fell more than expected in the week ending October 11 to 461,000 from 477,000 the previous week. Expectations had been for a more moderate easing to 470,000. However, the four-week moving average remains high at 483,250 and that implies little easing in the pace of jobs losses in October from the 159,000 drop in payroll employment recorded in September.
The Fed will likely take encouragement from the moderate monthly gains in both the overall and core measure. The annual rate of increase for the overall measure remains high at 4.9% though this measure has been trending lower since a recent peak in July of 5.6%. These earlier strong annual increases have not been reflected in any noticeable upward trend in core prices with the annual rate holding steady at 2.5% over this period. This likely reflects the impact of slowing growth and easing labour market conditions that we generally expect to continue through the forecast period. In fact, our outlook for the Fed reflects the view that it will be concerned about a possible deepening in recessionary conditions, in the face of still tight credit, that will dominate policy actions. This will send Fed funds down another 50 basis points to 1.00% by the end of the year.
RBC Financial Group
http://www.rbc.com
The statements and statistics contained herein have been prepared by the Economics Department of RBC Financial Group based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This report is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.
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Consumer prices in September were generally weaker than anticipated with the overall measure unchanged in the month rather than rising 0.1% as had been expected. This contributed to the year-over-year rate moderating to 4.9% from 5.4% in August. Core prices were also weaker than expected rising 0.1% rather than rising a projected 0.2% though this left the year-over-year rate unchanged at 2.5%.
The modest overall gain was helped by energy prices dropping 1.9% in the month. This largely reflected the housing fuels and utilities component dropping 2.8% following a 1.1% decline in August. Gasoline prices fell as well though only by 0.6% and compares to a 4.2% plummet in August. The slowing in the pace of decline in this component reflected the impact of Hurricane Ike which temporarily boosted prices because of the shutdown in refinery capacity in Texas. More sizeable declines in this component are expected to resume in October. Food prices continued to show large gains rising 0.6%. The modest rise in core prices was largely helped by a 0.7% drop in new car prices reflecting very weak demand and attempts by dealers to move the old car lines before the introduction of the 2009 models. Apparel prices were also down in the month though by a more moderate 0.1%.
In a separate report, jobless claims fell more than expected in the week ending October 11 to 461,000 from 477,000 the previous week. Expectations had been for a more moderate easing to 470,000. However, the four-week moving average remains high at 483,250 and that implies little easing in the pace of jobs losses in October from the 159,000 drop in payroll employment recorded in September.
The Fed will likely take encouragement from the moderate monthly gains in both the overall and core measure. The annual rate of increase for the overall measure remains high at 4.9% though this measure has been trending lower since a recent peak in July of 5.6%. These earlier strong annual increases have not been reflected in any noticeable upward trend in core prices with the annual rate holding steady at 2.5% over this period. This likely reflects the impact of slowing growth and easing labour market conditions that we generally expect to continue through the forecast period. In fact, our outlook for the Fed reflects the view that it will be concerned about a possible deepening in recessionary conditions, in the face of still tight credit, that will dominate policy actions. This will send Fed funds down another 50 basis points to 1.00% by the end of the year.
RBC Financial Group
http://www.rbc.com
The statements and statistics contained herein have been prepared by the Economics Department of RBC Financial Group based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This report is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.
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Contradictions in the Markets Send the USD Higher
Daily Forex Fundamentals | Written by Crown Forex | Oct 16 08 14:42 GMT |
A full fundamental calendar from the US today has finally been released showing that inflation in the nation has slightly eased yet industrial production and the labor market remains week. With all the different colors on the calendar, the USD was able to find its way to the upside against majors in the markets.
The Euro reversed to the downside from the 1.35 resistance level to pare earlier gains recorded as it is currently trading near the 1.34 levels where the breach of the level will send the pair lower to target 1.3372 before extending its losses to the 61.8% correction for the long term ascending channel at 1.3320. The direction is still neutral as we see the ADX indicator showing slight adjustments with the momentum indicators still in normal levels.
As for the Royal currency it breached the 1.7220 level to the downside where it is currently being limited by the support level at 1.7180. Trading is of low volumes but if the mentioned support is broken, the pair will decline further to 1.7140 before gathering momentum to rebound to the upside. Direction indicators are also neutral suggesting a sideways pattern
After the USD/JPY spiked to record a high at 101.37 which is the 61.8% correction for the ascending channel, the pair reversed to the downside to currently trade below the level at 100.85. Movements are within narrow ranges between the mentioned level and the 99.64 level but the pair still has slight potential to retest the resistance level at 100.85
Crown Forex
disclaimer:The above may contain information for investors/traders and is not a recommendation to buy or sell currencies, gold, silver & energies, nor an offer to buy or sell currencies, gold, silver & energies. The information provided is obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. I am not liable for any losses or damages, monetary or otherwise that result. I recommend that anyone trading currencies, gold, silver & energies should do so with caution and consult with a broker before doing so. Prior performance may not be indicative of future performance. Currencies, gold, silver &energies presented should be considered speculative with a high degree of volatility and risk.
Read more...
A full fundamental calendar from the US today has finally been released showing that inflation in the nation has slightly eased yet industrial production and the labor market remains week. With all the different colors on the calendar, the USD was able to find its way to the upside against majors in the markets.
The Euro reversed to the downside from the 1.35 resistance level to pare earlier gains recorded as it is currently trading near the 1.34 levels where the breach of the level will send the pair lower to target 1.3372 before extending its losses to the 61.8% correction for the long term ascending channel at 1.3320. The direction is still neutral as we see the ADX indicator showing slight adjustments with the momentum indicators still in normal levels.
As for the Royal currency it breached the 1.7220 level to the downside where it is currently being limited by the support level at 1.7180. Trading is of low volumes but if the mentioned support is broken, the pair will decline further to 1.7140 before gathering momentum to rebound to the upside. Direction indicators are also neutral suggesting a sideways pattern
After the USD/JPY spiked to record a high at 101.37 which is the 61.8% correction for the ascending channel, the pair reversed to the downside to currently trade below the level at 100.85. Movements are within narrow ranges between the mentioned level and the 99.64 level but the pair still has slight potential to retest the resistance level at 100.85
Crown Forex
disclaimer:The above may contain information for investors/traders and is not a recommendation to buy or sell currencies, gold, silver & energies, nor an offer to buy or sell currencies, gold, silver & energies. The information provided is obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. I am not liable for any losses or damages, monetary or otherwise that result. I recommend that anyone trading currencies, gold, silver & energies should do so with caution and consult with a broker before doing so. Prior performance may not be indicative of future performance. Currencies, gold, silver &energies presented should be considered speculative with a high degree of volatility and risk.
Read more...
Singapore, Malaysia Guarantee Bank Deposits to Boost Confidence
By Jae Hur and Chen Shiyin
Oct. 16 (Bloomberg) -- Singapore and Malaysia will guarantee bank deposits to shore up confidence in the two Southeast nations' financial institutions amid a deepening credit crisis.
The Singapore government has ``decided to guarantee all Singapore dollar and foreign currency deposits of individual and non-bank customers in banks, finance companies and merchant banks licensed by the Monetary Authority of Singapore,'' the Ministry of Finance and the MAS said in a joint statement. Malaysia announced similar measures on its central bank's Web site today.
Singapore and Malaysia follow Hong Kong, Indonesia, Australia and New Zealand in extending safeguards on deposits amid widening bank losses. The world's largest banks and securities firms have reported writedowns and credit losses of $647 billion, prompting the U.S. government to say it will invest in nine of the country's largest banks and central banks worldwide to cut interest rates to shore up liquidity.
Singapore's guarantee will take immediate effect and remain in place until Dec. 31, 2010, according to today's statement. The guarantee also extends to deposits placed with credit co- operatives in the Registry of Co-operative Societies, it said.
``MAS has a reputation for monitoring the markets quite intimately, and if things continue to deteriorate, the next phase will be the real economy,'' said Christopher Wong, who helps manage about $25 billion as an investment manager at Aberdeen Asset Management Asia Ltd. in Singapore. ``The three big Singapore banks are quite sound, but there are a lot of foreign banks operating in Singapore and it's good to pre-empt the fear factor.''
`Pre-emptive' Measures
Malaysia's guarantee takes immediate effect and extends to all ringgit and foreign currency deposits with commercial, Islamic and investment banks, and deposit-taking development financial institutions regulated by the central bank, the Ministry of Finance and Bank Negara Malaysia said in a joint statement.
``These measures are pre-emptive and precautionary, since Malaysian financial institutions are well-capitalized with ample liquidity, and confidence of depositors remains intact,'' the statement said.
Deposits will be fully guaranteed by the government through Perbadanan Insurans Deposit Malaysia until December 2010, according to the statement.
Backed By Reserves
Singapore had S$335.1 billion ($227 billion) in deposits as of August 2008, according to data released by the central bank.
The city's Ministry of Finance and MAS ``have assessed that a guarantee of up to S$150 billion will be well in excess of possible liabilities arising from the failure of any financial institutions,'' today's statement said. ``The guarantee will be backed by S$150 billion of the reserves of the Singapore government.''
Singapore's economy slipped into its first recession since 2002 in the third quarter after demand for exports weakened and bank losses mounted.
Before today's announcement, the Deposit Insurance Scheme, administered by the Singapore Deposit Insurance Corp., insured the first S$20,000 of all savings in the city's full banks and finance companies.
Hong Kong, Australia
The Hong Kong Monetary Authority said on Oct. 14 it will use its foreign exchange reserves to guarantee deposits and set up a fund from which banks can access additional capital.
Bank of East Asia Ltd., Hong Kong's third-biggest by assets, last month suffered a brief run on deposits at branches in the city amid speculation about its stability.
In Australia, Prime Minister Kevin Rudd said on Oct. 13 that the government will guarantee all deposits with institutions for the next three years and back all ``term wholesale funding'' by Australian banks operating in international credit markets.
The Monetary Authority of Singapore said this month it will review the marketing of investment products, after complaints that customers were misled into buying some products linked to now-bankrupt Lehman Brothers Holdings Inc.
Investors in Singapore and Hong Kong have held public protests to demand compensation after losses on investments linked to Lehman.
To contact the reporters on this story: Chen Shiyin in Singapore at chen37@bloomberg.net; Jae Hur in Singapore at jhur1@bloomberg.net
Read more...
Oct. 16 (Bloomberg) -- Singapore and Malaysia will guarantee bank deposits to shore up confidence in the two Southeast nations' financial institutions amid a deepening credit crisis.
The Singapore government has ``decided to guarantee all Singapore dollar and foreign currency deposits of individual and non-bank customers in banks, finance companies and merchant banks licensed by the Monetary Authority of Singapore,'' the Ministry of Finance and the MAS said in a joint statement. Malaysia announced similar measures on its central bank's Web site today.
Singapore and Malaysia follow Hong Kong, Indonesia, Australia and New Zealand in extending safeguards on deposits amid widening bank losses. The world's largest banks and securities firms have reported writedowns and credit losses of $647 billion, prompting the U.S. government to say it will invest in nine of the country's largest banks and central banks worldwide to cut interest rates to shore up liquidity.
Singapore's guarantee will take immediate effect and remain in place until Dec. 31, 2010, according to today's statement. The guarantee also extends to deposits placed with credit co- operatives in the Registry of Co-operative Societies, it said.
``MAS has a reputation for monitoring the markets quite intimately, and if things continue to deteriorate, the next phase will be the real economy,'' said Christopher Wong, who helps manage about $25 billion as an investment manager at Aberdeen Asset Management Asia Ltd. in Singapore. ``The three big Singapore banks are quite sound, but there are a lot of foreign banks operating in Singapore and it's good to pre-empt the fear factor.''
`Pre-emptive' Measures
Malaysia's guarantee takes immediate effect and extends to all ringgit and foreign currency deposits with commercial, Islamic and investment banks, and deposit-taking development financial institutions regulated by the central bank, the Ministry of Finance and Bank Negara Malaysia said in a joint statement.
``These measures are pre-emptive and precautionary, since Malaysian financial institutions are well-capitalized with ample liquidity, and confidence of depositors remains intact,'' the statement said.
Deposits will be fully guaranteed by the government through Perbadanan Insurans Deposit Malaysia until December 2010, according to the statement.
Backed By Reserves
Singapore had S$335.1 billion ($227 billion) in deposits as of August 2008, according to data released by the central bank.
The city's Ministry of Finance and MAS ``have assessed that a guarantee of up to S$150 billion will be well in excess of possible liabilities arising from the failure of any financial institutions,'' today's statement said. ``The guarantee will be backed by S$150 billion of the reserves of the Singapore government.''
Singapore's economy slipped into its first recession since 2002 in the third quarter after demand for exports weakened and bank losses mounted.
Before today's announcement, the Deposit Insurance Scheme, administered by the Singapore Deposit Insurance Corp., insured the first S$20,000 of all savings in the city's full banks and finance companies.
Hong Kong, Australia
The Hong Kong Monetary Authority said on Oct. 14 it will use its foreign exchange reserves to guarantee deposits and set up a fund from which banks can access additional capital.
Bank of East Asia Ltd., Hong Kong's third-biggest by assets, last month suffered a brief run on deposits at branches in the city amid speculation about its stability.
In Australia, Prime Minister Kevin Rudd said on Oct. 13 that the government will guarantee all deposits with institutions for the next three years and back all ``term wholesale funding'' by Australian banks operating in international credit markets.
The Monetary Authority of Singapore said this month it will review the marketing of investment products, after complaints that customers were misled into buying some products linked to now-bankrupt Lehman Brothers Holdings Inc.
Investors in Singapore and Hong Kong have held public protests to demand compensation after losses on investments linked to Lehman.
To contact the reporters on this story: Chen Shiyin in Singapore at chen37@bloomberg.net; Jae Hur in Singapore at jhur1@bloomberg.net
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Paulson Says Stock-Buying Aimed at `Regulated' Firms
By Peter Cook and Rebecca Christie
Oct. 16 (Bloomberg) -- U.S. Treasury Secretary Henry Paulson said his plan to inject capital into financial companies is focused on banks and thrifts, indicating unregulated firms such as hedge funds won't initially get government aid.
``Right now we're focused on financial institutions, regulated financial institutions,'' Paulson said in an interview with Bloomberg Television, when asked whether hedge funds might also be eligible. ``The program right now is for banks and thrifts.''
Paulson pushed Congress to pass a financial rescue package that gives him broad authority to pump money into cash-strapped banks. Earlier this week, he said the first $250 billion of the overall $700 billion rescue would go into the balance sheets of financial companies in exchange for non-voting, preferred equity.
U.S. stocks have fallen for three straight days since Paulson's Oct. 14 announcement of the equity purchases. The Standard & Poor's 500 Index yesterday dropped 9 percent and fell much as 3 percent today.
``You don't want to react too much to the equity market any single day,'' Paulson said in the interview. ``But if you look at credit spreads, if you look at some of the indicators that I look at every day, there's no doubt in my mind we've done the right things.''
To contact the reporters on this story: Peter Cook in Washington at pcook6@bloomberg.net; Rebecca Christie in Washington at Rchristie4@bloomberg.net.
Read more...
Oct. 16 (Bloomberg) -- U.S. Treasury Secretary Henry Paulson said his plan to inject capital into financial companies is focused on banks and thrifts, indicating unregulated firms such as hedge funds won't initially get government aid.
``Right now we're focused on financial institutions, regulated financial institutions,'' Paulson said in an interview with Bloomberg Television, when asked whether hedge funds might also be eligible. ``The program right now is for banks and thrifts.''
Paulson pushed Congress to pass a financial rescue package that gives him broad authority to pump money into cash-strapped banks. Earlier this week, he said the first $250 billion of the overall $700 billion rescue would go into the balance sheets of financial companies in exchange for non-voting, preferred equity.
U.S. stocks have fallen for three straight days since Paulson's Oct. 14 announcement of the equity purchases. The Standard & Poor's 500 Index yesterday dropped 9 percent and fell much as 3 percent today.
``You don't want to react too much to the equity market any single day,'' Paulson said in the interview. ``But if you look at credit spreads, if you look at some of the indicators that I look at every day, there's no doubt in my mind we've done the right things.''
To contact the reporters on this story: Peter Cook in Washington at pcook6@bloomberg.net; Rebecca Christie in Washington at Rchristie4@bloomberg.net.
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Hurricane Omar Sweeps Over Virgin Islands, Out to Sea
By Alex Morales and Brian K. Sullivan
Oct. 16 (Bloomberg) -- Hurricane Omar sped up on its path toward the open Atlantic Ocean and its winds slowed to 115 miles (185 kilometers) per hour after it swept over the Virgin Islands, where it prompted a curfew and closed an oil refinery.
Hurricane warnings and watches were discontinued for the U.S. and British Virgin Islands and islands including St. Eustatius, St. Barthelemy and Anguilla, the National Hurricane Center said in an advisory just before 8 a.m. Miami time.
``We had a whole heap of wind and water,'' Maria Robles, the night attendant at the Divi Carina Bay Resort in St. Croix, said today in a telephone interview.
U.S. Virgin Islands Governor John deJongh Jr. closed schools, sent non-essential government workers home and ordered a curfew that began at 6 p.m. local time yesterday, according to a statement on his Web site. The Public Works Department was distributing sandbags on all of the territory's islands.
``We will vigorously enforce this curfew as it is necessary that we clear the streets and avoid persons becoming injured,'' Police Commissioner James McCall said in the statement.
Omar packed winds of 125 mph earlier today as it blew through the Virgin Islands.
Outside the King Christian Hotel at Christiansted, St. Croix, two boats sank and another was smashed against the concrete dock, a security officer who declined to be identified said in a telephone interview. At the Buccaneer Hotel, also on St. Croix, many trees lost branches or were uprooted, another security officer said by phone.
Eye of Omar
The eye of Omar was 160 miles north-northeast of the northern Leeward Islands and moving northeast at 29 mph, after speeding up from 20 mph an hour earlier, according to the latest advisory from the hurricane center in Miami. After clearing the Caribbean, the system is forecast to track northeast and into the central Atlantic Ocean.
The worst of the storm had passed the French islands of St. Barthelemy and St. Martin by 5 a.m. local time, Meteo-France, the government forecaster, said in a statement on its Web site. As much as 5 inches of rain fell on St. Martin, it said.
``The strong rains have ended, though showers may persist,'' the agency said. There will be ``rapid improvement of the wind and rain this morning.''
Evacuation Orders
Evacuation orders were issued yesterday for parts of Anguilla, while in the British Virgin Islands, ports and clinics were closed and ferry service suspended, the Caribbean Disaster Emergency Response Agency said on its Web site.
Omar is a Category 3 storm, in the middle of the five-step Saffir-Simpson scale, defined as having sustained winds of 111 mph to 130 mph. Omar may bring as much as 20 inches (50 centimeters) of rain to the northern Leeward Islands, possibly causing ``life-threatening'' flash floods and mudslides, the center said.
On Montserrat, authorities were monitoring the effect heavy rains might have on the island's Soufriere Hill volcano. They ordered an evacuation of parts of the island because of the risk of the volcano's dome collapsing and the threat posed by mudflows of volcanic ash and water, the country's Disaster Management Agency said.
``The entire population is asked to be vigilant in the light of proposed increased rainfall which could cause severe flooding,'' the agency said on the Montserrat Volcano Observatory Web site. ``Residents are being asked not to traverse watercourses during intense rainfall and farmers are asked to move animals from these channels before it starts raining.''
St. Croix in the Virgin Islands is the site of the Hovensa LLC oil refinery, the third-biggest in the Americas. Hovensa shut down processing equipment at the facility, Alex Moorhead, a spokesman for the plant, said yesterday by telephone.
The refinery handled 456,000 barrels a day in July, according to the latest U.S. Energy Department records. The U.S. mainland received 338,000 barrels a day of refined products from the plant. The refinery is owned by Hess Corp. of New York and Venezuela's state oil company, Petroleos de Venezuela SA.
To contact the reporters on this story: Alex Morales in London at amorales2@bloomberg.net; Brian K. Sullivan in Boston at bsullivan10@bloomberg.net
Read more...
Oct. 16 (Bloomberg) -- Hurricane Omar sped up on its path toward the open Atlantic Ocean and its winds slowed to 115 miles (185 kilometers) per hour after it swept over the Virgin Islands, where it prompted a curfew and closed an oil refinery.
Hurricane warnings and watches were discontinued for the U.S. and British Virgin Islands and islands including St. Eustatius, St. Barthelemy and Anguilla, the National Hurricane Center said in an advisory just before 8 a.m. Miami time.
``We had a whole heap of wind and water,'' Maria Robles, the night attendant at the Divi Carina Bay Resort in St. Croix, said today in a telephone interview.
U.S. Virgin Islands Governor John deJongh Jr. closed schools, sent non-essential government workers home and ordered a curfew that began at 6 p.m. local time yesterday, according to a statement on his Web site. The Public Works Department was distributing sandbags on all of the territory's islands.
``We will vigorously enforce this curfew as it is necessary that we clear the streets and avoid persons becoming injured,'' Police Commissioner James McCall said in the statement.
Omar packed winds of 125 mph earlier today as it blew through the Virgin Islands.
Outside the King Christian Hotel at Christiansted, St. Croix, two boats sank and another was smashed against the concrete dock, a security officer who declined to be identified said in a telephone interview. At the Buccaneer Hotel, also on St. Croix, many trees lost branches or were uprooted, another security officer said by phone.
Eye of Omar
The eye of Omar was 160 miles north-northeast of the northern Leeward Islands and moving northeast at 29 mph, after speeding up from 20 mph an hour earlier, according to the latest advisory from the hurricane center in Miami. After clearing the Caribbean, the system is forecast to track northeast and into the central Atlantic Ocean.
The worst of the storm had passed the French islands of St. Barthelemy and St. Martin by 5 a.m. local time, Meteo-France, the government forecaster, said in a statement on its Web site. As much as 5 inches of rain fell on St. Martin, it said.
``The strong rains have ended, though showers may persist,'' the agency said. There will be ``rapid improvement of the wind and rain this morning.''
Evacuation Orders
Evacuation orders were issued yesterday for parts of Anguilla, while in the British Virgin Islands, ports and clinics were closed and ferry service suspended, the Caribbean Disaster Emergency Response Agency said on its Web site.
Omar is a Category 3 storm, in the middle of the five-step Saffir-Simpson scale, defined as having sustained winds of 111 mph to 130 mph. Omar may bring as much as 20 inches (50 centimeters) of rain to the northern Leeward Islands, possibly causing ``life-threatening'' flash floods and mudslides, the center said.
On Montserrat, authorities were monitoring the effect heavy rains might have on the island's Soufriere Hill volcano. They ordered an evacuation of parts of the island because of the risk of the volcano's dome collapsing and the threat posed by mudflows of volcanic ash and water, the country's Disaster Management Agency said.
``The entire population is asked to be vigilant in the light of proposed increased rainfall which could cause severe flooding,'' the agency said on the Montserrat Volcano Observatory Web site. ``Residents are being asked not to traverse watercourses during intense rainfall and farmers are asked to move animals from these channels before it starts raining.''
St. Croix in the Virgin Islands is the site of the Hovensa LLC oil refinery, the third-biggest in the Americas. Hovensa shut down processing equipment at the facility, Alex Moorhead, a spokesman for the plant, said yesterday by telephone.
The refinery handled 456,000 barrels a day in July, according to the latest U.S. Energy Department records. The U.S. mainland received 338,000 barrels a day of refined products from the plant. The refinery is owned by Hess Corp. of New York and Venezuela's state oil company, Petroleos de Venezuela SA.
To contact the reporters on this story: Alex Morales in London at amorales2@bloomberg.net; Brian K. Sullivan in Boston at bsullivan10@bloomberg.net
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U.S. Industrial Production Fell 2.8%, Most Since 1974
By Shobhana Chandra
Oct. 16 (Bloomberg) -- Industrial production in the U.S. fell in September by the most in almost 34 years as hurricanes and an aircraft strike combined with the credit crunch to weaken manufacturing.
The 2.8 percent decrease in production at factories, mines and utilities exceeded forecasts and followed a revised 1 percent decrease in August, the Federal Reserve said today. For the third quarter, output fell at an annual rate of 6 percent, the biggest decline since 1991.
Last month's Gulf Coast hurricanes accounted for 2.25 percentage points of the decline in industrial production, and a strike at Boeing Co. accounted for most of the rest of the drop, the Fed said. Frozen credit markets and higher borrowing costs will force consumers and companies to further trim purchases of expensive items such as cars and machinery.
``The plunge was mainly due to hurricanes and the strike,'' said James O'Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut. ``That said, the trend in manufacturing is weakening. The recession is intensifying, reflecting weakness in both domestic and foreign demand.''
Last month's decline in output was the biggest since December 1974. Industrial production was forecast to fall 0.8 percent after a previously reported 1.1 percent drop, according to the median estimate of 73 economists surveyed by Bloomberg News. Projections ranged from a gain of 0.1 percent to a drop of 2.8 percent.
Factory output, which accounts for about four-fifths of industrial production, fell 2.6 percent after a 0.9 percent decrease the prior month.
Oil Drilling Down
Utility production rose 2.2 percent after dropping 3.1 percent. Mining output, which includes oil drilling, decreased 7.8 percent, after no change in August.
Oil production operations and other facilities were shut down because of Hurricane Ike, which made landfall on the Gulf Coast of Texas on Sept. 13, less than two weeks after Hurricane Gustav struck Louisiana.
Capacity utilization, which measures the proportion of plants in use, fell to 76.4 percent from 78.7 percent the prior month.
Industrial capacity utilization was estimated to fall to 77.9 percent according to the Bloomberg survey median, from an originally reported 78.7 percent in September that was the lowest level in almost four years.
Motor vehicle and parts production increased 1.9 percent following an 11.3 percent drop the prior month, the report said.
Production of consumer durable goods, including automobiles, furniture and electronics, fell 0.7 percent.
Auto Sales
Auto industry figures earlier this month showed cars and light trucks sold at a 12.5 million annual pace in September, the fewest since 1993. General Motors Corp. this week said it will close a Wisconsin SUV factory on Dec. 23, two years earlier than planned.
Industrial production also was damped by a shutdown at Boeing Co., the world's No. 2 commercial planemaker. Chicago- based Boeing on Oct. 13 said its factories will remain idle into a sixth week after the company and its machinists union failed to settle a strike over job security.
Regional reports indicate factories are taking a bigger hit this month. The New York Federal Reserve reported yesterday that its Empire manufacturing index sank in October to the lowest level since the gauge started in 2001.
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, a Commerce Department report showed yesterday.
To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net
Read more...
Oct. 16 (Bloomberg) -- Industrial production in the U.S. fell in September by the most in almost 34 years as hurricanes and an aircraft strike combined with the credit crunch to weaken manufacturing.
The 2.8 percent decrease in production at factories, mines and utilities exceeded forecasts and followed a revised 1 percent decrease in August, the Federal Reserve said today. For the third quarter, output fell at an annual rate of 6 percent, the biggest decline since 1991.
Last month's Gulf Coast hurricanes accounted for 2.25 percentage points of the decline in industrial production, and a strike at Boeing Co. accounted for most of the rest of the drop, the Fed said. Frozen credit markets and higher borrowing costs will force consumers and companies to further trim purchases of expensive items such as cars and machinery.
``The plunge was mainly due to hurricanes and the strike,'' said James O'Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut. ``That said, the trend in manufacturing is weakening. The recession is intensifying, reflecting weakness in both domestic and foreign demand.''
Last month's decline in output was the biggest since December 1974. Industrial production was forecast to fall 0.8 percent after a previously reported 1.1 percent drop, according to the median estimate of 73 economists surveyed by Bloomberg News. Projections ranged from a gain of 0.1 percent to a drop of 2.8 percent.
Factory output, which accounts for about four-fifths of industrial production, fell 2.6 percent after a 0.9 percent decrease the prior month.
Oil Drilling Down
Utility production rose 2.2 percent after dropping 3.1 percent. Mining output, which includes oil drilling, decreased 7.8 percent, after no change in August.
Oil production operations and other facilities were shut down because of Hurricane Ike, which made landfall on the Gulf Coast of Texas on Sept. 13, less than two weeks after Hurricane Gustav struck Louisiana.
Capacity utilization, which measures the proportion of plants in use, fell to 76.4 percent from 78.7 percent the prior month.
Industrial capacity utilization was estimated to fall to 77.9 percent according to the Bloomberg survey median, from an originally reported 78.7 percent in September that was the lowest level in almost four years.
Motor vehicle and parts production increased 1.9 percent following an 11.3 percent drop the prior month, the report said.
Production of consumer durable goods, including automobiles, furniture and electronics, fell 0.7 percent.
Auto Sales
Auto industry figures earlier this month showed cars and light trucks sold at a 12.5 million annual pace in September, the fewest since 1993. General Motors Corp. this week said it will close a Wisconsin SUV factory on Dec. 23, two years earlier than planned.
Industrial production also was damped by a shutdown at Boeing Co., the world's No. 2 commercial planemaker. Chicago- based Boeing on Oct. 13 said its factories will remain idle into a sixth week after the company and its machinists union failed to settle a strike over job security.
Regional reports indicate factories are taking a bigger hit this month. The New York Federal Reserve reported yesterday that its Empire manufacturing index sank in October to the lowest level since the gauge started in 2001.
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, a Commerce Department report showed yesterday.
To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net
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U.S. Sept. Industrial Production: Statistical Summary (Table)
By Alex Tanzi
Oct. 16 (Bloomberg) -- Following is a summary of the U.S. industrial production and capacity utilization report for Sept. released by the Federal Reserve.
To contact the reporter on this story:
Alex Tanzi in Washington atanzi@bloomberg.net
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Oct. 16 (Bloomberg) -- Following is a summary of the U.S. industrial production and capacity utilization report for Sept. released by the Federal Reserve.
===============================================================================
Sept. Aug. July June May April Sept.
Weight 2008 2008 2008 2008 2008 2008 YOY%
===============================================================================
Industrial production 100.0% -2.8% -1.0% 0.0% 0.1% -0.1% -0.5% -4.5%
Prev. estimates n/a n/a -1.1% 0.1% 0.2% -0.1% -0.5% n/a
Ex high-tech 95.69% -3.0% -1.0% -0.1% 0.1% -0.1% -0.6% -5.4%
Ex vehicles 94.88% -3.0% -0.5% -0.1% -0.1% -0.2% -0.2% -3.8%
Ex tech & vehicles 90.57% -3.2% -0.5% -0.2% -0.1% -0.2% -0.4% -4.8%
-----------------Industry Groups-----------------
Manufacturing 78.70% -2.6% -0.9% 0.0% -0.1% 0.1% -0.9% -4.8%
Motor vehicle, parts 5.12% 1.9% -11.3% 2.6% 4.3% 0.5% -6.2% -16.4%
ex. motor veh/parts 73.58% -2.8% -0.2% -0.2% -0.3% 0.0% -0.5% -4.1%
Machinery 4.89% -3.3% 1.6% -0.8% -0.2% -0.1% -3.1% -7.4%
Computer, electronics 6.85% 0.0% 0.0% 0.4% 0.5% 0.3% 1.3% 12.2%
===============================================================================
Sept. Aug. July June May April Sept.
Weight 2008 2008 2008 2008 2008 2008 YOY%
===============================================================================
Utilities 9.68% 2.2% -3.1% -2.0% 1.8% -2.2% 1.5% -2.1%
Electric 7.98% 2.6% -3.9% -2.4% 2.9% -2.4% 1.3% -3.1%
Natural Gas 1.70% 0.0% 1.1% 0.3% -2.9% -1.4% 2.3% 3.2%
Mining 11.62% -7.8% 0.0% 1.6% 0.1% 0.2% 0.1% -3.6%
-----------------Market Groups-------------------
Products 56.13% -2.5% -1.3% -0.2% 0.6% -0.2% -0.7% -4.9%
Consumer goods 29.33% -1.4% -1.7% -0.2% 0.6% -0.4% -0.5% -5.0%
Home electronics 0.31% -0.1% -0.6% 3.9% -2.0% 2.0% 4.5% 17.0%
Business equipment 9.38% -7.0% -0.2% 0.0% 0.3% 0.3% -1.7% -7.0%
Info processing 2.72% -0.1% 0.2% -0.3% 0.6% 0.5% 1.2% 9.0%
Defense and space 1.73% -0.9% -0.1% -1.0% 1.1% -0.5% -0.1% -0.3%
Construction supply 4.21% -1.5% -1.0% 0.8% -0.4% 0.4% -0.9% -6.5%
Business supplies 10.64% -1.8% -0.5% -0.6% -0.3% -0.6% 0.1% -4.2%
Materials 43.87% -3.4% -0.8% 0.2% -0.1% 0.0% -0.5% -3.9%
Energy 14.58% -6.1% -0.9% 0.8% -0.3% 0.1% -0.2% -4.1%
----------------------Indexes------------Yr. Ago-
Total production 100.0% 107.3 110.4 111.4 111.5 111.3 111.4 112.3
===============================================================================
Sept. Aug. July June May April Year
Weight 2008 2008 2008 2008 2008 2008 Ago
===============================================================================
Manufacturing 78.70% 108.5 111.3 112.3 112.3 112.4 112.3 114.0
Mining 11.62% 97.7 106.0 106.0 104.3 104.2 104.0 101.3
Utilities 9.68% 106.7 104.5 107.8 109.9 108.0 110.4 109.0
-------------Capacity Utilization----------------
Total industry 100.0% 76.4% 78.7% 79.6% 79.7% 79.7% 79.9% 81.3%
Prev. estimates 100.0% n/a 78.7% 79.7% 79.7% 79.7% 79.9% n/a
Ex high-tech 95.07% 76.3% 78.7% 79.6% 79.7% 79.6% 79.8% 81.4%
Computers 1.13% 79.8% 79.7% 79.9% 80.5% 81.1% 81.3% 77.9%
Semiconductors 2.35% 75.7% 76.8% 78.3% 78.4% 79.1% 80.8% 79.6%
Manufacturing 80.83% 74.5% 76.6% 77.3% 77.5% 77.6% 77.7% 79.8%
Mining 9.90% 85.0% 92.2% 92.3% 90.9% 90.9% 90.7% 88.9%
Utilities 9.27% 82.9% 81.3% 84.0% 85.9% 84.5% 86.5% 86.6%
-----------Motor Vehicle Assemblies--------------
Total 10.75% 8.38 8.15 9.76 9.25 8.68 8.44 10.49
Autos & light trucks 10.47% 8.15 7.94 9.56 9.04 8.42 8.17 10.24
===============================================================================
NOTE: All figures are seasonally adjusted. Motor vehicle assemblies
are in millions of units at an annual rate.
To contact the reporter on this story:
Alex Tanzi in Washington atanzi@bloomberg.net
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Philadelphia Fed's Factory Index Plunged in October
By Shobhana Chandra
Oct. 16 (Bloomberg) -- Manufacturing in the Philadelphia region shrank in October at the fastest pace in almost two decades, a sign the worsening credit crush is pushing the economy into a deeper slump.
The Federal Reserve Bank of Philadelphia's general economic index plunged to minus 37.5 this month, less than forecast and the lowest reading since October 1990, from 3.8 in September, the bank said today. Negative readings signal contraction. The index averaged 5.1 last year.
The decline signals manufacturing isn't recovering after a separate report showed industrial output dropped in September by the most in almost 34 years. More reductions in production are likely as job losses and tougher lending rules hurt sales.
``The manufacturing sector, which had already been feeling pain for several months, is now suffering pronounced weakness as domestic demand craters and export growth slows substantially,'' said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York.
Economists expected the Philadelphia index to fall to minus 10, according to the median of 54 forecasts in a Bloomberg News survey. Estimates ranged from 5 to minus 25.
Production at factories, mines and utilities dropped 2.8 percent in September, exceeding forecasts and following a revised 1 percent decrease in August, the Fed said today. Last month's Gulf Coast hurricanes accounted for 2.25 percentage points of the decline and a strike at Boeing Co. subtracted another half point. The decline in output was the biggest drop since December 1974.
Orders Slump
The Philadelphia Fed's index of new orders slumped to minus 30.5, the lowest level since August 1980, and the shipments index decreased to minus 18.8 from 2.6.
The gauge of prices paid declined to 7.2, the lowest level since July 2003, after 31.5 the prior month, indicating that prices rose at a slower pace. An index of prices received was 5.3, down from 15.5.
The employment index was minus 18 after being little-changed in September.
The headline index is a separate question unrelated to the individual measures and some economists consider it a gauge of business sentiment.
Expectations for the next six months fell to minus 4.2 from 30.8, today's report showed.
The New York Fed yesterday reported its Empire index of manufacturing sank in October to the lowest level since records began in 2001. The regional surveys provide early clues to the health of manufacturing nationwide, which accounts for about 12 percent of the economy.
To contact the reporter on this story: Shobhana Chandra in Washington schandra1@bloomberg.net
Read more...
Oct. 16 (Bloomberg) -- Manufacturing in the Philadelphia region shrank in October at the fastest pace in almost two decades, a sign the worsening credit crush is pushing the economy into a deeper slump.
The Federal Reserve Bank of Philadelphia's general economic index plunged to minus 37.5 this month, less than forecast and the lowest reading since October 1990, from 3.8 in September, the bank said today. Negative readings signal contraction. The index averaged 5.1 last year.
The decline signals manufacturing isn't recovering after a separate report showed industrial output dropped in September by the most in almost 34 years. More reductions in production are likely as job losses and tougher lending rules hurt sales.
``The manufacturing sector, which had already been feeling pain for several months, is now suffering pronounced weakness as domestic demand craters and export growth slows substantially,'' said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York.
Economists expected the Philadelphia index to fall to minus 10, according to the median of 54 forecasts in a Bloomberg News survey. Estimates ranged from 5 to minus 25.
Production at factories, mines and utilities dropped 2.8 percent in September, exceeding forecasts and following a revised 1 percent decrease in August, the Fed said today. Last month's Gulf Coast hurricanes accounted for 2.25 percentage points of the decline and a strike at Boeing Co. subtracted another half point. The decline in output was the biggest drop since December 1974.
Orders Slump
The Philadelphia Fed's index of new orders slumped to minus 30.5, the lowest level since August 1980, and the shipments index decreased to minus 18.8 from 2.6.
The gauge of prices paid declined to 7.2, the lowest level since July 2003, after 31.5 the prior month, indicating that prices rose at a slower pace. An index of prices received was 5.3, down from 15.5.
The employment index was minus 18 after being little-changed in September.
The headline index is a separate question unrelated to the individual measures and some economists consider it a gauge of business sentiment.
Expectations for the next six months fell to minus 4.2 from 30.8, today's report showed.
The New York Fed yesterday reported its Empire index of manufacturing sank in October to the lowest level since records began in 2001. The regional surveys provide early clues to the health of manufacturing nationwide, which accounts for about 12 percent of the economy.
To contact the reporter on this story: Shobhana Chandra in Washington schandra1@bloomberg.net
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Inflation in U.S. Wanes; Consumer Prices Unchanged
By Timothy R. Homan
Oct. 16 (Bloomberg) -- The cost of living in the U.S. was unchanged in September, restrained by declines in fuel costs, automobile prices and airline fares that show the slowing economy is starting to cool inflation.
The Labor Department's consumer price index was unchanged after a 0.1 percent drop in August; economists had forecast an increase for last month. So-called core prices, which exclude food and energy, rose 0.1 percent, also less than forecast.
Today's figures show that for the first time in two years, prices didn't increase for two straight months. Waning inflation gives Federal Reserve Chairman Ben S. Bernanke scope to lower interest rates further as policy makers attempt to unfreeze credit markets.
``It'll give the Fed a little bit of cover to cut rates when they meet next,'' on Oct. 28-29, John Ryding, chief economist at RDQ Economics in New York, said in an interview with Bloomberg Television.
Treasury securities, which had fallen earlier in the day on signs of easing pressures in money markets, remained lower after the consumer-price report. Yields on benchmark 10-year notes were 4.02 percent at 8:43 a.m. in New York, from 3.95 percent late yesterday.
Economist's Forecasts
Consumer prices were forecast to rise 0.1 percent, according to the median forecast of 75 economists in a Bloomberg News survey. Estimates ranged from a decline of 0.3 percent to a gain of 0.2 percent. Costs excluding food and energy were forecast to rise 0.2 percent, the survey showed.
Prices increased 4.9 percent in the 12 months to September after a year-over-year gain of 5.4 percent in August. The core rate increased 2.5 percent from September 2007, the same as the year-over-year increase in the prior month.
Separately, the Labor Department said initial jobless claims fell last week as job losses related to the Gulf Coast hurricanes subsided, while total benefit rolls rose to the highest level in five years. First-time applications declined by 16,000 to 461,000 in the week that ended Oct. 11.
Some companies are cutting prices to entice cash-strapped consumers who are limiting purchases to essential items such as food and fuel.
Record Decline
Energy expenses dropped 1.9 percent, led by the biggest decrease in the cost of natural gas on record. Gasoline prices fell 0.6 percent.
Oil prices have kept coming down this month. Crude oil futures on the New York Mercantile Exchange dipped below $75 a barrel yesterday after averaging $103.76 in September.
The consumer-price index is the last of three monthly price gauges from the Labor Department. The CPI is the government's broadest gauge of costs because it includes goods and services.
Prices paid to U.S. producers fell for a second month in September, the first back-to-back drop in two years, the government said yesterday. Import costs last month decreased by the most since April 2003, Labor figures showed last week.
Food prices, which account for about a fifth of the CPI, rose 0.6 percent for a second month.
New-vehicle prices dropped 0.7 percent, the most since August 2005, and air fares fell 1.7 percent, the biggest decline since November 2006.
Earnings Weaken
Today's figures also showed wages were unchanged last month, after adjusting for inflation, following an increase of 0.6 percent in August. They were down 2.5 percent over the 12 months to September. The decline in purchasing power is contributing to the slowdown in consumer spending.
The Commerce Department said yesterday retail sales dropped in September by the most in three years.
Mattel, the world's largest toymaker, said this month that most of its holiday toys will cost less than $20 to help lure shoppers who are cutting back on spending.
Wal-Mart Stores Inc. said this month it will cut prices ahead of the holiday season, offering 10 items for $10 each.
Hotel companies are struggling as consumers pull back on spending. Marriott International Inc., the biggest U.S. hotel chain, said in a statement that a measure of rates and occupancy will ``at best'' fall 3 percent in North America in 2009.
The effects of the deepening credit crisis on the economy will cause the unemployment rate to keep rising for another year, reaching 7.3 percent by the last three months of 2009, said Maury Harris, chief U.S. economist at UBS Securities LLC in New York. The rate was 6.1 percent last month, matching a five-year high.
``This is something that is impossible to turn around right away,'' Harris said in an interview on Bloomberg Radio yesterday.
To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net
Read more...
Oct. 16 (Bloomberg) -- The cost of living in the U.S. was unchanged in September, restrained by declines in fuel costs, automobile prices and airline fares that show the slowing economy is starting to cool inflation.
The Labor Department's consumer price index was unchanged after a 0.1 percent drop in August; economists had forecast an increase for last month. So-called core prices, which exclude food and energy, rose 0.1 percent, also less than forecast.
Today's figures show that for the first time in two years, prices didn't increase for two straight months. Waning inflation gives Federal Reserve Chairman Ben S. Bernanke scope to lower interest rates further as policy makers attempt to unfreeze credit markets.
``It'll give the Fed a little bit of cover to cut rates when they meet next,'' on Oct. 28-29, John Ryding, chief economist at RDQ Economics in New York, said in an interview with Bloomberg Television.
Treasury securities, which had fallen earlier in the day on signs of easing pressures in money markets, remained lower after the consumer-price report. Yields on benchmark 10-year notes were 4.02 percent at 8:43 a.m. in New York, from 3.95 percent late yesterday.
Economist's Forecasts
Consumer prices were forecast to rise 0.1 percent, according to the median forecast of 75 economists in a Bloomberg News survey. Estimates ranged from a decline of 0.3 percent to a gain of 0.2 percent. Costs excluding food and energy were forecast to rise 0.2 percent, the survey showed.
Prices increased 4.9 percent in the 12 months to September after a year-over-year gain of 5.4 percent in August. The core rate increased 2.5 percent from September 2007, the same as the year-over-year increase in the prior month.
Separately, the Labor Department said initial jobless claims fell last week as job losses related to the Gulf Coast hurricanes subsided, while total benefit rolls rose to the highest level in five years. First-time applications declined by 16,000 to 461,000 in the week that ended Oct. 11.
Some companies are cutting prices to entice cash-strapped consumers who are limiting purchases to essential items such as food and fuel.
Record Decline
Energy expenses dropped 1.9 percent, led by the biggest decrease in the cost of natural gas on record. Gasoline prices fell 0.6 percent.
Oil prices have kept coming down this month. Crude oil futures on the New York Mercantile Exchange dipped below $75 a barrel yesterday after averaging $103.76 in September.
The consumer-price index is the last of three monthly price gauges from the Labor Department. The CPI is the government's broadest gauge of costs because it includes goods and services.
Prices paid to U.S. producers fell for a second month in September, the first back-to-back drop in two years, the government said yesterday. Import costs last month decreased by the most since April 2003, Labor figures showed last week.
Food prices, which account for about a fifth of the CPI, rose 0.6 percent for a second month.
New-vehicle prices dropped 0.7 percent, the most since August 2005, and air fares fell 1.7 percent, the biggest decline since November 2006.
Earnings Weaken
Today's figures also showed wages were unchanged last month, after adjusting for inflation, following an increase of 0.6 percent in August. They were down 2.5 percent over the 12 months to September. The decline in purchasing power is contributing to the slowdown in consumer spending.
The Commerce Department said yesterday retail sales dropped in September by the most in three years.
Mattel, the world's largest toymaker, said this month that most of its holiday toys will cost less than $20 to help lure shoppers who are cutting back on spending.
Wal-Mart Stores Inc. said this month it will cut prices ahead of the holiday season, offering 10 items for $10 each.
Hotel companies are struggling as consumers pull back on spending. Marriott International Inc., the biggest U.S. hotel chain, said in a statement that a measure of rates and occupancy will ``at best'' fall 3 percent in North America in 2009.
The effects of the deepening credit crisis on the economy will cause the unemployment rate to keep rising for another year, reaching 7.3 percent by the last three months of 2009, said Maury Harris, chief U.S. economist at UBS Securities LLC in New York. The rate was 6.1 percent last month, matching a five-year high.
``This is something that is impossible to turn around right away,'' Harris said in an interview on Bloomberg Radio yesterday.
To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net
Read more...
ECB Power Grows Beyond Borders as Neighbors Seek Aid
By Simon Kennedy
Oct. 16 (Bloomberg) -- The European Central Bank's power is growing beyond its borders as the financial crisis forces neighboring economies to seek its shelter.
Hungary today won a loan of up to 5 billion euros ($6.8 billion) from the ECB to help spur its local credit market, a day after Switzerland said it will conduct currency swaps with the Frankfurt-based central bank. Iceland, whose banks have collapsed, is also seeking greater support. None are among the 15 nations which use the euro.
ECB President Jean-Claude Trichet is strengthening his position as the continent's guardian of financial stability even after he was last week forced to reverse July's interest-rate increase. When the dust settles, the greater reliance on the ECB may result in some nations accelerating efforts to join the currency bloc.
``It looks like the ECB is coming through the crisis with an enhanced reputation and questions are being asked of other central banks as to whether they have the scale to handle these kind of problems,'' said James Nixon, an economist at Societe Generale SA in London and a former ECB forecaster.
Markets in some eastern European countries are being roiled after a boom following their entry to the European Union in 2004 as banks worldwide hoard cash and investors shun riskier assets. Stock indexes in Hungary, Poland and the Czech Republic have lost more than a fifth of their value in the past month on concern bursting real estate bubbles and slowing exports will push them into recession.
Hungary Support
As they find themselves lacking the tools to defend their markets and protect their economies, central banks outside the euro area are turning to the ECB for ammunition. Hungary today became the first eastern European economy to receive ECB support after some commercial banks suspended foreign currency loans and demand on the government bond market dried up.
``The ECB will be busy in central and eastern Europe in the coming days, weeks and months,'' said Lars Christensen, chief analyst at Danske Bank A/S in Copenhagen. ``It obviously wants to preserve financial stability.''
Hungary will use the loan to supply euros to local lenders through currency swap transactions, starting today.
Iceland too is looking for aid after its foreign-market froze and its three largest banks collapsed. Foreign Minister Ingibjorg Solrun Gisladottir wrote in the Morgunbladid newspaper on Oct. 13 that her country needs ECB assistance even though it's not in the 27-nation EU let alone the euro region.
Renewed Allure
In Switzerland, where the government today gave UBS AG a $59.2 billion rescue, the central bank is receiving ECB backup in the form of a seven-day currency swap. It has been unable to bring the three-month Swiss franc Libor rate within its target range since it cut that band to between 2 and 3 percent on Oct. 8.
The crisis ``shows that you need a strong central bank,'' said Stefan Bielmeier at Deutsche Bank AG in Frankfurt. ``The joint currency is certainly becoming more attractive in the current environment.''
Policy makers are already looking for the ECB to extend its powers more broadly than its mandate currently allows.
Hungarian Prime Minister Ferenc Gyurcsany said Oct. 14 that the EU should allow the ECB to intervene across the entire bloc rather than just the currency region. He said Hungary's forint should be placed in the exchange-rate mechanism, a system designed to test its stability before euro adoption, by a 2010 parliamentary election, the Financial Times reported.
U-Turn
Support for the ECB is mounting even after the credit crunch last week forced it to cut its benchmark rate to 3.75 percent having boosted it to 4.25 percent as recently as July. The ECB yesterday performed another U-turn in widening the type of collateral it accepts when lending to banks.
Some countries may nevertheless find it difficult to join the euro area as the financial crisis saps their ability to meet the ECB's entry requirements, said Neil Shearing, an economist at Capital Economics Ltd. in London.
Among the terms that govern entry to the euro region, a country must pare its budget deficit to below 3 percent of gross domestic product and its debt to below 60 percent. Hungary's government is aiming for a fiscal shortfall of 3.4 percent this year and debt is about 65 percent of GDP.
``It's going to be much more difficult to generate public and political support for the euro,'' said Shearing. After Slovakia joins Jan. 1 he doesn't expect another member before Poland in 2012 at the earliest.
`No Plans to Join'
Nor is support for euro membership growing in all European countries. British Prime Minister Gordon Brown today repeated his opposition to giving up the pound right away, saying ``we continue to review it but we've got no plans to join.''
For now, the ECB's new-found prominence is boosting the allure of euro membership even for some of the countries which once were skeptical of joining.
The leaders of Denmark and Sweden said this week that the financial crisis highlights the value of joining the currency bloc. Polish Prime Minister Donald Tusk had already surprised investors last month by saying his country will target 2012 for joining the euro.
``When it's a little unsafe out there it's better to be inside a big currency like the euro,'' Swedish Prime Minister Fredrik Reinfeldt said yesterday.
To contact the reporter on this story: Simon Kennedy in Paris at skennedy4@bloomberg.net
Read more...
Oct. 16 (Bloomberg) -- The European Central Bank's power is growing beyond its borders as the financial crisis forces neighboring economies to seek its shelter.
Hungary today won a loan of up to 5 billion euros ($6.8 billion) from the ECB to help spur its local credit market, a day after Switzerland said it will conduct currency swaps with the Frankfurt-based central bank. Iceland, whose banks have collapsed, is also seeking greater support. None are among the 15 nations which use the euro.
ECB President Jean-Claude Trichet is strengthening his position as the continent's guardian of financial stability even after he was last week forced to reverse July's interest-rate increase. When the dust settles, the greater reliance on the ECB may result in some nations accelerating efforts to join the currency bloc.
``It looks like the ECB is coming through the crisis with an enhanced reputation and questions are being asked of other central banks as to whether they have the scale to handle these kind of problems,'' said James Nixon, an economist at Societe Generale SA in London and a former ECB forecaster.
Markets in some eastern European countries are being roiled after a boom following their entry to the European Union in 2004 as banks worldwide hoard cash and investors shun riskier assets. Stock indexes in Hungary, Poland and the Czech Republic have lost more than a fifth of their value in the past month on concern bursting real estate bubbles and slowing exports will push them into recession.
Hungary Support
As they find themselves lacking the tools to defend their markets and protect their economies, central banks outside the euro area are turning to the ECB for ammunition. Hungary today became the first eastern European economy to receive ECB support after some commercial banks suspended foreign currency loans and demand on the government bond market dried up.
``The ECB will be busy in central and eastern Europe in the coming days, weeks and months,'' said Lars Christensen, chief analyst at Danske Bank A/S in Copenhagen. ``It obviously wants to preserve financial stability.''
Hungary will use the loan to supply euros to local lenders through currency swap transactions, starting today.
Iceland too is looking for aid after its foreign-market froze and its three largest banks collapsed. Foreign Minister Ingibjorg Solrun Gisladottir wrote in the Morgunbladid newspaper on Oct. 13 that her country needs ECB assistance even though it's not in the 27-nation EU let alone the euro region.
Renewed Allure
In Switzerland, where the government today gave UBS AG a $59.2 billion rescue, the central bank is receiving ECB backup in the form of a seven-day currency swap. It has been unable to bring the three-month Swiss franc Libor rate within its target range since it cut that band to between 2 and 3 percent on Oct. 8.
The crisis ``shows that you need a strong central bank,'' said Stefan Bielmeier at Deutsche Bank AG in Frankfurt. ``The joint currency is certainly becoming more attractive in the current environment.''
Policy makers are already looking for the ECB to extend its powers more broadly than its mandate currently allows.
Hungarian Prime Minister Ferenc Gyurcsany said Oct. 14 that the EU should allow the ECB to intervene across the entire bloc rather than just the currency region. He said Hungary's forint should be placed in the exchange-rate mechanism, a system designed to test its stability before euro adoption, by a 2010 parliamentary election, the Financial Times reported.
U-Turn
Support for the ECB is mounting even after the credit crunch last week forced it to cut its benchmark rate to 3.75 percent having boosted it to 4.25 percent as recently as July. The ECB yesterday performed another U-turn in widening the type of collateral it accepts when lending to banks.
Some countries may nevertheless find it difficult to join the euro area as the financial crisis saps their ability to meet the ECB's entry requirements, said Neil Shearing, an economist at Capital Economics Ltd. in London.
Among the terms that govern entry to the euro region, a country must pare its budget deficit to below 3 percent of gross domestic product and its debt to below 60 percent. Hungary's government is aiming for a fiscal shortfall of 3.4 percent this year and debt is about 65 percent of GDP.
``It's going to be much more difficult to generate public and political support for the euro,'' said Shearing. After Slovakia joins Jan. 1 he doesn't expect another member before Poland in 2012 at the earliest.
`No Plans to Join'
Nor is support for euro membership growing in all European countries. British Prime Minister Gordon Brown today repeated his opposition to giving up the pound right away, saying ``we continue to review it but we've got no plans to join.''
For now, the ECB's new-found prominence is boosting the allure of euro membership even for some of the countries which once were skeptical of joining.
The leaders of Denmark and Sweden said this week that the financial crisis highlights the value of joining the currency bloc. Polish Prime Minister Donald Tusk had already surprised investors last month by saying his country will target 2012 for joining the euro.
``When it's a little unsafe out there it's better to be inside a big currency like the euro,'' Swedish Prime Minister Fredrik Reinfeldt said yesterday.
To contact the reporter on this story: Simon Kennedy in Paris at skennedy4@bloomberg.net
Read more...
Financial Crisis Poses `Serious' Tests, Almunia Says
By Matthew Newman
Oct. 16 (Bloomberg) -- European Union Monetary Affairs Commissioner Joaquin Almunia said the turmoil in the global financial system poses ``serious challenges'' for economic growth in Europe.
``There is no doubt that the financial crisis is impacting the non-financial sector, both households and businesses,'' Almunia said in a speech to a conference in Brussels today. ``There is a significant risk that potential output growth will be negatively affected in the time to come.''
Leaders from the 27 EU nations are pushing for an overhaul of the financial system to prevent a repeat of the credit crisis that sparked the biggest stock-market selloff since the Great Depression. They pledged today at a summit in Brussels to boost lending to industry, the first indication that an economic- stimulus plan may be needed as the banking turmoil threatens to tip Europe into a recession.
``Expectations regarding economic activity have rapidly deteriorated in the past two months,'' European Central Bank council member Guy Quaden told a separate Brussels conference today. He said the ECB will ``act firmly whenever necessary'' in response to the financial crisis.
The 15-nation euro region's economy will probably stagnate this quarter after shrinking in the previous three months, the European Commission forecast on Sept. 10. The commission also lowered its full-year growth forecast to 1.3 percent from 1.7 percent and signaled the 2009 outlook may also be cut. New growth forecasts are due on Nov. 3.
`Inadequate Supervision'
Almunia said the crisis is a consequence of ``inadequate supervision and regulation'' of the capital markets, adding that ``our financial systems have proved highly vulnerable to liquidity and confidence problems.''
Policy makers ``have to recognize the serious risks to economic stability and growth prospects of the current model'' of international financial-market structure, which has ``proved unsustainable,'' the commissioner said.
The financial crisis ``is compounding the effect of the oil and commodity price shocks that hit before the summer,'' Almunia said. ``Although these prices have eased since, volatility in energy and food markets are likely to characterize the global economy for some time.''
Oil prices have dropped almost 50 percent from their all- time high in the last three months, helping euro-area inflation slow for a second month in September after reaching a 16-year peak in the summer. Energy-price inflation eased to 13.5 percent last month from 14.6 percent in August, while food-price gains slowed to 5.7 percent from 6.2 percent, data yesterday showed.
`Durably Higher'
``We cannot rule out that we may be facing an environment with durably higher energy prices,'' Almunia said.
The commissioner also warned against governments erecting trade barriers to shield domestic companies from international competition. ``We also face the serious danger that the financial crisis and a cooling global economy give way to a surge in protectionism,'' Almunia said.
To contact the reporter on this story: Matthew Newman in Brussels at mnewman6@bloomberg.net.
Read more...
Oct. 16 (Bloomberg) -- European Union Monetary Affairs Commissioner Joaquin Almunia said the turmoil in the global financial system poses ``serious challenges'' for economic growth in Europe.
``There is no doubt that the financial crisis is impacting the non-financial sector, both households and businesses,'' Almunia said in a speech to a conference in Brussels today. ``There is a significant risk that potential output growth will be negatively affected in the time to come.''
Leaders from the 27 EU nations are pushing for an overhaul of the financial system to prevent a repeat of the credit crisis that sparked the biggest stock-market selloff since the Great Depression. They pledged today at a summit in Brussels to boost lending to industry, the first indication that an economic- stimulus plan may be needed as the banking turmoil threatens to tip Europe into a recession.
``Expectations regarding economic activity have rapidly deteriorated in the past two months,'' European Central Bank council member Guy Quaden told a separate Brussels conference today. He said the ECB will ``act firmly whenever necessary'' in response to the financial crisis.
The 15-nation euro region's economy will probably stagnate this quarter after shrinking in the previous three months, the European Commission forecast on Sept. 10. The commission also lowered its full-year growth forecast to 1.3 percent from 1.7 percent and signaled the 2009 outlook may also be cut. New growth forecasts are due on Nov. 3.
`Inadequate Supervision'
Almunia said the crisis is a consequence of ``inadequate supervision and regulation'' of the capital markets, adding that ``our financial systems have proved highly vulnerable to liquidity and confidence problems.''
Policy makers ``have to recognize the serious risks to economic stability and growth prospects of the current model'' of international financial-market structure, which has ``proved unsustainable,'' the commissioner said.
The financial crisis ``is compounding the effect of the oil and commodity price shocks that hit before the summer,'' Almunia said. ``Although these prices have eased since, volatility in energy and food markets are likely to characterize the global economy for some time.''
Oil prices have dropped almost 50 percent from their all- time high in the last three months, helping euro-area inflation slow for a second month in September after reaching a 16-year peak in the summer. Energy-price inflation eased to 13.5 percent last month from 14.6 percent in August, while food-price gains slowed to 5.7 percent from 6.2 percent, data yesterday showed.
`Durably Higher'
``We cannot rule out that we may be facing an environment with durably higher energy prices,'' Almunia said.
The commissioner also warned against governments erecting trade barriers to shield domestic companies from international competition. ``We also face the serious danger that the financial crisis and a cooling global economy give way to a surge in protectionism,'' Almunia said.
To contact the reporter on this story: Matthew Newman in Brussels at mnewman6@bloomberg.net.
Read more...
Credit Suisse, Bernstein Slash 2009 Crude Oil Price Forecasts
By Grant Smith
Oct. 16 (Bloomberg) -- Credit Suisse Group and Sanford C. Bernstein & Co. slashed their oil price forecasts for next year as tightening credit conditions and slowing economic growth erodes demand for crude.
Bernstein lowered its crude oil price forecast to $70 a barrel from $90 a barrel in 2009 and cut the 2010 estimate to $80 from $95 a barrel, according to a report today. Zurich-based Credit Suisse reduced its next-year estimate by 32 percent to $75 in an e-mailed report.
``In light of the deterioration of the global economy, we believe that crude prices are likely to correct below the marginal cost of supply in 2009,'' Bernstein analysts including Neil McMahon in London and Ben Dell in New York wrote. The 2008 forecast was also cut $105 from $110 a barrel.
Crude oil fell for a third day, taking the decline from its July record to more than 50 percent. Oil for November delivery fell as much as $3.33, or 4.5 percent, to $71.21 a barrel in electronic trading on the New York Mercantile Exchange, the lowest since Aug. 29, 2007. It was at $73.53 a barrel as of 1:04 p.m. London time.
There are still factors supporting oil prices, Bernstein and Credit Suisse both said.
``We continue to believe that oil and gas prices will trend up in line with the marginal cost of supply,'' the Bernstein analysts said, adding that this is currently estimated to be about $75-$80 a barrel for oil.
``However prices should continue to cycle between the cash cost at the bottom ($45-$50 a barrel) and the price of demand destruction ($110-$125 a barrel) at the top, with the peaks and troughs of the oil cycle dependent on near-term supply demand dynamics,'' they said.
Credit Suisse said that crude will only drop ``sustainably'' below $80 a barrel if there is a decline of about 7 percent in consumption in the U.S. and Europe that would permit OPEC's spare capacity to increase by at least 7 percent.
-- With reporting by Guy Collins in London. Editors: Jonas Bergman, Steve Voss
To contact the reporter on this story: Guy Collins at guycollins@bloomberg.netGrant Smith in London at gsmith52@bloomberg.net
Read more...
Oct. 16 (Bloomberg) -- Credit Suisse Group and Sanford C. Bernstein & Co. slashed their oil price forecasts for next year as tightening credit conditions and slowing economic growth erodes demand for crude.
Bernstein lowered its crude oil price forecast to $70 a barrel from $90 a barrel in 2009 and cut the 2010 estimate to $80 from $95 a barrel, according to a report today. Zurich-based Credit Suisse reduced its next-year estimate by 32 percent to $75 in an e-mailed report.
``In light of the deterioration of the global economy, we believe that crude prices are likely to correct below the marginal cost of supply in 2009,'' Bernstein analysts including Neil McMahon in London and Ben Dell in New York wrote. The 2008 forecast was also cut $105 from $110 a barrel.
Crude oil fell for a third day, taking the decline from its July record to more than 50 percent. Oil for November delivery fell as much as $3.33, or 4.5 percent, to $71.21 a barrel in electronic trading on the New York Mercantile Exchange, the lowest since Aug. 29, 2007. It was at $73.53 a barrel as of 1:04 p.m. London time.
There are still factors supporting oil prices, Bernstein and Credit Suisse both said.
``We continue to believe that oil and gas prices will trend up in line with the marginal cost of supply,'' the Bernstein analysts said, adding that this is currently estimated to be about $75-$80 a barrel for oil.
``However prices should continue to cycle between the cash cost at the bottom ($45-$50 a barrel) and the price of demand destruction ($110-$125 a barrel) at the top, with the peaks and troughs of the oil cycle dependent on near-term supply demand dynamics,'' they said.
Credit Suisse said that crude will only drop ``sustainably'' below $80 a barrel if there is a decline of about 7 percent in consumption in the U.S. and Europe that would permit OPEC's spare capacity to increase by at least 7 percent.
-- With reporting by Guy Collins in London. Editors: Jonas Bergman, Steve Voss
To contact the reporter on this story: Guy Collins at guycollins@bloomberg.netGrant Smith in London at gsmith52@bloomberg.net
Read more...
Nuclear Reactors May Supply a Fifth of Power by 2050
By Tara Patel
Oct. 16 (Bloomberg) -- Nuclear reactors may produce more than a fifth of global electricity by 2050 as demand for power rises in countries such as China and India, according to a report by the Organization for Economic Cooperation and Development.
At the higher end of forecasts, atomic power output would climb to 22 percent of the total in 2050 from the current 16 percent, according to the study published today by the Paris- based OECD's Nuclear Energy Agency. To reach this level, 54 reactors would need to be built each year between 2030 and 2050, the agency said. There are 439 operating in the world.
``Some 50 countries are considering introducing nuclear power and about 12 are actively preparing it,'' Mohamed ElBaradei, director-general of the International Atomic Energy Agency, said today at a conference in Paris. ``It takes a minimum of 10 years to put the basic infrastructure in place. This is not an area where you can cut corners.''
Utilities and governments from the U.S. to Abu Dhabi have proposed building reactors to meet increasing energy demand and reduce carbon dioxide emissions, which scientists say cause global warming. More than 90 new plants are approved and in the planning stage, while at least double that are proposed, according to the World Nuclear Association. Applications have been filed for about 20 reactors in the U.S. and China plans to quadruple nuclear capacity from existing and new reactors by 2020.
Nuclear Deals Accelerate
``The world could construct nuclear power plants at a rate more than sufficient to meet the NEA high scenario projections,'' according to a summary of the OECD report.
The pace of nuclear-generation deals is increasing as atomic power gains prominence amid high crude prices and government targets to reduce reliance on polluting fossil fuels. Total SA is one oil producer that's moving into the industry. The Paris-based company joined forces earlier this year with Areva SA, the world's largest reactor builder, and GDF Suez SA to bid for a planned reactor in Abu Dhabi.
``It's an earthquake,'' Anne Lauvergeon, chief executive officer of Areva, said Jan. 15. ``For the first time, a Gulf country has decided to start a civil nuclear-energy sector.''
India, where homes and industry suffer chronic power shortages, plans to spend as much as $14 billion to buy reactors from suppliers such as Areva, General Electric Co. and Westinghouse Electric Co. after a U.S.-backed deal helped end a three-decade ban on nuclear generation earlier this month.
EDF Reactor Plans
Electricite de France SA, the world's biggest reactor operator, last month announced a bid to take over British Energy Group Plc for 12.5 billion pounds ($21.8 billion) to become the U.K.'s biggest power producer. The French utility, which runs 58 nuclear reactors at home, plans to build four so-called third- generation plants in the U.K., with the first starting in 2017.
In June, 41 reactors were being built around the world, with an average construction time of 62 months, the OECD said.
There is enough uranium, which is used to fuel atomic reactors, to expand the industry ``at least until 2050,'' the OECD report said. ``The current resource-to-consumption ratio is better than that of gas or oil.''
The IAEA's ElBaradei reiterated a call for international control over the nuclear fuel cycle to prevent the use of a civilian atomic energy industry for weapons development.
``We could start with a nuclear fuel bank under the IAEA,'' with a view to bringing all new enrichment and reprocessing operations under multinational control and eventually existing facilities as well, he said. ``Ambitious and creative measures are necessary if we are ever going to halt the spread of nuclear weapons.''
Waste Concerns
The industry still faces the question of what should be done with high-level radioactive waste, the OECD said. Delays and failures to push through disposal projects ``have a significant negative impact on the image of nuclear energy.''
Quantities of waste are ``relatively small'' and can be stored for extended periods, the agency said, noting that ``no facilities for disposal of spent nuclear fuel and high-level radioactive waste have been licensed.''
To contact the reporter on this story: Tara Patel in Paris at Tpatel2@bloomberg.net
Read more...
Oct. 16 (Bloomberg) -- Nuclear reactors may produce more than a fifth of global electricity by 2050 as demand for power rises in countries such as China and India, according to a report by the Organization for Economic Cooperation and Development.
At the higher end of forecasts, atomic power output would climb to 22 percent of the total in 2050 from the current 16 percent, according to the study published today by the Paris- based OECD's Nuclear Energy Agency. To reach this level, 54 reactors would need to be built each year between 2030 and 2050, the agency said. There are 439 operating in the world.
``Some 50 countries are considering introducing nuclear power and about 12 are actively preparing it,'' Mohamed ElBaradei, director-general of the International Atomic Energy Agency, said today at a conference in Paris. ``It takes a minimum of 10 years to put the basic infrastructure in place. This is not an area where you can cut corners.''
Utilities and governments from the U.S. to Abu Dhabi have proposed building reactors to meet increasing energy demand and reduce carbon dioxide emissions, which scientists say cause global warming. More than 90 new plants are approved and in the planning stage, while at least double that are proposed, according to the World Nuclear Association. Applications have been filed for about 20 reactors in the U.S. and China plans to quadruple nuclear capacity from existing and new reactors by 2020.
Nuclear Deals Accelerate
``The world could construct nuclear power plants at a rate more than sufficient to meet the NEA high scenario projections,'' according to a summary of the OECD report.
The pace of nuclear-generation deals is increasing as atomic power gains prominence amid high crude prices and government targets to reduce reliance on polluting fossil fuels. Total SA is one oil producer that's moving into the industry. The Paris-based company joined forces earlier this year with Areva SA, the world's largest reactor builder, and GDF Suez SA to bid for a planned reactor in Abu Dhabi.
``It's an earthquake,'' Anne Lauvergeon, chief executive officer of Areva, said Jan. 15. ``For the first time, a Gulf country has decided to start a civil nuclear-energy sector.''
India, where homes and industry suffer chronic power shortages, plans to spend as much as $14 billion to buy reactors from suppliers such as Areva, General Electric Co. and Westinghouse Electric Co. after a U.S.-backed deal helped end a three-decade ban on nuclear generation earlier this month.
EDF Reactor Plans
Electricite de France SA, the world's biggest reactor operator, last month announced a bid to take over British Energy Group Plc for 12.5 billion pounds ($21.8 billion) to become the U.K.'s biggest power producer. The French utility, which runs 58 nuclear reactors at home, plans to build four so-called third- generation plants in the U.K., with the first starting in 2017.
In June, 41 reactors were being built around the world, with an average construction time of 62 months, the OECD said.
There is enough uranium, which is used to fuel atomic reactors, to expand the industry ``at least until 2050,'' the OECD report said. ``The current resource-to-consumption ratio is better than that of gas or oil.''
The IAEA's ElBaradei reiterated a call for international control over the nuclear fuel cycle to prevent the use of a civilian atomic energy industry for weapons development.
``We could start with a nuclear fuel bank under the IAEA,'' with a view to bringing all new enrichment and reprocessing operations under multinational control and eventually existing facilities as well, he said. ``Ambitious and creative measures are necessary if we are ever going to halt the spread of nuclear weapons.''
Waste Concerns
The industry still faces the question of what should be done with high-level radioactive waste, the OECD said. Delays and failures to push through disposal projects ``have a significant negative impact on the image of nuclear energy.''
Quantities of waste are ``relatively small'' and can be stored for extended periods, the agency said, noting that ``no facilities for disposal of spent nuclear fuel and high-level radioactive waste have been licensed.''
To contact the reporter on this story: Tara Patel in Paris at Tpatel2@bloomberg.net
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European Oil Companies Plunge as Crude Price Declines
By Nicholas Comfort
Oct. 16 (Bloomberg) -- The Dow Jones Europe Stoxx Oil & Gas Index dropped, led by Europe's two biggest oil companies, as crude prices sank to the lowest in more than a year on concern the global economy will slide into a recession.
The 40-company index fell as much as 6.8 percent to 247.49. Royal Dutch Shell Plc, Europe's largest oil producer, dropped as much as 7.2 percent to 1,294 pence in London, while smaller rival BP Plc lost as much as 6 percent. BP has tumbled 24 percent since oil's record high in July.
Crude futures, which have followed movements in equity markets this month, fell as benchmark indexes from Tokyo to Budapest slumped more than 6 percent. Global stocks have dropped on concern the deepening credit crisis will spur the failure of more financial companies. Efforts to calm markets probably won't result in an immediate economic rebound, Federal Reserve Chairman Ben S. Bernanke told the Economic Club of New York yesterday.
The MSCI World Index slid 2.4 percent to 927.30 at 12:06 p.m. in London, trimming this week's gain to 1.2 percent on growing concern bailout plans in the U.S. and Europe will fail to avert a recession. Crude oil for November delivery fell as much as 4.5 percent to $71.21 a barrel in New York, the lowest since August 2007, and was at $73.19 at 12:18 p.m. London time.
Oil Weighs on Stocks
``Oil prices are falling on fears we will see a recession,'' Eugen Weinberg, senior commodity analyst at Commerzbank AG in Frankfurt, said by telephone today. Producers ``hang on the oil price, and that's weighing down their stocks.''
U.K. oil and natural-gas explorers Tullow Oil Plc, Dana Petroleum Plc and Cairn Energy Plc all fell more than 10 percent in London trading, while Galp Energia SGPS SA, the Portuguese oil company with operations in Brazil, plunged as much as 13 percent.
Norwegian drilling-services companies Sevan Marine ASA, Prosafe SE and Seadrill Ltd. were the three worst performers in the Dow Jones Europe Stoxx 600 Index. John Wood Group Plc, the U.K.'s largest oilfield-services provider, slipped as much as 14 percent.
Power generators also fell as German electricity for next- year delivery, a European benchmark, dropped to a four-month low on declining oil and coal prices.
The Dow Jones Europe Stoxx Utilities Index retreated 3.23, or 1 percent, to 336.31 as of 12:24 p.m. E.ON AG, the largest weighted company in the group, was trading down 1.2 percent at 27.07 euros in Frankfurt.
To contact the reporter on this story: Nicholas Comfort in Frankfurt at ncomfort1@bloomberg.net
Read more...
Oct. 16 (Bloomberg) -- The Dow Jones Europe Stoxx Oil & Gas Index dropped, led by Europe's two biggest oil companies, as crude prices sank to the lowest in more than a year on concern the global economy will slide into a recession.
The 40-company index fell as much as 6.8 percent to 247.49. Royal Dutch Shell Plc, Europe's largest oil producer, dropped as much as 7.2 percent to 1,294 pence in London, while smaller rival BP Plc lost as much as 6 percent. BP has tumbled 24 percent since oil's record high in July.
Crude futures, which have followed movements in equity markets this month, fell as benchmark indexes from Tokyo to Budapest slumped more than 6 percent. Global stocks have dropped on concern the deepening credit crisis will spur the failure of more financial companies. Efforts to calm markets probably won't result in an immediate economic rebound, Federal Reserve Chairman Ben S. Bernanke told the Economic Club of New York yesterday.
The MSCI World Index slid 2.4 percent to 927.30 at 12:06 p.m. in London, trimming this week's gain to 1.2 percent on growing concern bailout plans in the U.S. and Europe will fail to avert a recession. Crude oil for November delivery fell as much as 4.5 percent to $71.21 a barrel in New York, the lowest since August 2007, and was at $73.19 at 12:18 p.m. London time.
Oil Weighs on Stocks
``Oil prices are falling on fears we will see a recession,'' Eugen Weinberg, senior commodity analyst at Commerzbank AG in Frankfurt, said by telephone today. Producers ``hang on the oil price, and that's weighing down their stocks.''
U.K. oil and natural-gas explorers Tullow Oil Plc, Dana Petroleum Plc and Cairn Energy Plc all fell more than 10 percent in London trading, while Galp Energia SGPS SA, the Portuguese oil company with operations in Brazil, plunged as much as 13 percent.
Norwegian drilling-services companies Sevan Marine ASA, Prosafe SE and Seadrill Ltd. were the three worst performers in the Dow Jones Europe Stoxx 600 Index. John Wood Group Plc, the U.K.'s largest oilfield-services provider, slipped as much as 14 percent.
Power generators also fell as German electricity for next- year delivery, a European benchmark, dropped to a four-month low on declining oil and coal prices.
The Dow Jones Europe Stoxx Utilities Index retreated 3.23, or 1 percent, to 336.31 as of 12:24 p.m. E.ON AG, the largest weighted company in the group, was trading down 1.2 percent at 27.07 euros in Frankfurt.
To contact the reporter on this story: Nicholas Comfort in Frankfurt at ncomfort1@bloomberg.net
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Shell Quadruples Renewable-Energy Project Spending
By Dinakar Sethuraman
Oct. 16 (Bloomberg) -- Royal Dutch Shell Plc, Europe's largest oil company, has quadrupled spending on renewable energy projects this year to meet rising demand and a global target of halving emissions by 2050.
Shell has spent $1 billion in the past five years on carbon capture, biofuel and solar and wind energy projects to cut emissions of greenhouse gases led by carbon dioxide, Graeme Sweeney, executive vice president for future fuels & CO2, said in Singapore today. He didn't give details on the spending.
``Natural gas, liquefied natural gas and advanced biofuels can play a key role in meeting the challenges,'' Sweeney said. ``We need to invest in carbon capture and storage technology so that we can run coal-fired power plants.''
Demand for energy is doubling because the world population may increase 40 percent by 2050 and the number of vehicles may double to 2 billion, Sweeney said. China is the world's largest emitter of CO2 and by 2035 its carbon emissions will account for 30 percent of the world's total. CO2 in the atmosphere has increased to 380 parts per million today from 280 ppm in pre- industrial times.
``We should learn to be much more efficient in how we use energy,'' said Sweeney, who received a doctorate in mathematics from Victoria University of Manchester. ``We need vehicles that do 80 miles (130 kilometers) a gallon on an average by 2050.''
Renewable sources must account for a third of the global energy produced by 2050 to meet carbon emission goals, Sweeney said. That would mean building associated infrastructure that's two-thirds the size of the current oil and gas system, he said.
Dutch Project
Shell is awaiting approval for what Sweeney says is the world's first CO2 capture project at a coal-power plant in Australia, where the gas blamed for global warming will be stored in a saline aquifer about 2 kilometers below the surface.
The company may get the go-ahead from the Dutch government to tap emissions from Pernis oil refinery, Europe's biggest, and bury them in a depleted gas field, Sweeney said. The project may capture as much as 400,000 metric tons of CO2 a year.
``By 2050, all OECD nations will have full carbon capture and storage associated with power plants,'' Sweeney said. Carbon- capture technology gathers CO2 during power generation and pipes it into underground storage instead of venting it into the air.
Sweeney, who joined Shell in 1976, didn't comment on the investment in the projects. A 500-megawatt power plant will incur an incremental cost of more than $1 billion currently for a carbon capture plan, he said.
Cost of Capture
U.S. consulting company McKinsey & Co. has estimated the cost of carbon capture at $70 to $90 a ton of carbon, Sweeney said. The procedure is currently not eligible for carbon credits under the United Nations Clean Development Mechanism or the European Union emissions program, he said.
EU emission permits for December delivery traded at 22.99 euros ($30.80) a ton on London's European Climate Exchange yesterday afternoon. They have added 2.6 percent this year.
Governments around the world are seeking to cut greenhouse gases as the global population rises and economies in China and India grow. Emissions are blamed by scientists for climate change, which may cause stronger storms, drought and food shortages.
Shell supported a plan by the U.K. to slow the development of first-generation biofuels produced from crops including corn and sugarcane, Sweeney said. ``We should not advance the size of biofuels at the expense of sustainability,'' he said.
To contact the reporter on this story: Dinakar Sethuraman in Singapore at dinakar@bloomberg.net.
Read more...
Oct. 16 (Bloomberg) -- Royal Dutch Shell Plc, Europe's largest oil company, has quadrupled spending on renewable energy projects this year to meet rising demand and a global target of halving emissions by 2050.
Shell has spent $1 billion in the past five years on carbon capture, biofuel and solar and wind energy projects to cut emissions of greenhouse gases led by carbon dioxide, Graeme Sweeney, executive vice president for future fuels & CO2, said in Singapore today. He didn't give details on the spending.
``Natural gas, liquefied natural gas and advanced biofuels can play a key role in meeting the challenges,'' Sweeney said. ``We need to invest in carbon capture and storage technology so that we can run coal-fired power plants.''
Demand for energy is doubling because the world population may increase 40 percent by 2050 and the number of vehicles may double to 2 billion, Sweeney said. China is the world's largest emitter of CO2 and by 2035 its carbon emissions will account for 30 percent of the world's total. CO2 in the atmosphere has increased to 380 parts per million today from 280 ppm in pre- industrial times.
``We should learn to be much more efficient in how we use energy,'' said Sweeney, who received a doctorate in mathematics from Victoria University of Manchester. ``We need vehicles that do 80 miles (130 kilometers) a gallon on an average by 2050.''
Renewable sources must account for a third of the global energy produced by 2050 to meet carbon emission goals, Sweeney said. That would mean building associated infrastructure that's two-thirds the size of the current oil and gas system, he said.
Dutch Project
Shell is awaiting approval for what Sweeney says is the world's first CO2 capture project at a coal-power plant in Australia, where the gas blamed for global warming will be stored in a saline aquifer about 2 kilometers below the surface.
The company may get the go-ahead from the Dutch government to tap emissions from Pernis oil refinery, Europe's biggest, and bury them in a depleted gas field, Sweeney said. The project may capture as much as 400,000 metric tons of CO2 a year.
``By 2050, all OECD nations will have full carbon capture and storage associated with power plants,'' Sweeney said. Carbon- capture technology gathers CO2 during power generation and pipes it into underground storage instead of venting it into the air.
Sweeney, who joined Shell in 1976, didn't comment on the investment in the projects. A 500-megawatt power plant will incur an incremental cost of more than $1 billion currently for a carbon capture plan, he said.
Cost of Capture
U.S. consulting company McKinsey & Co. has estimated the cost of carbon capture at $70 to $90 a ton of carbon, Sweeney said. The procedure is currently not eligible for carbon credits under the United Nations Clean Development Mechanism or the European Union emissions program, he said.
EU emission permits for December delivery traded at 22.99 euros ($30.80) a ton on London's European Climate Exchange yesterday afternoon. They have added 2.6 percent this year.
Governments around the world are seeking to cut greenhouse gases as the global population rises and economies in China and India grow. Emissions are blamed by scientists for climate change, which may cause stronger storms, drought and food shortages.
Shell supported a plan by the U.K. to slow the development of first-generation biofuels produced from crops including corn and sugarcane, Sweeney said. ``We should not advance the size of biofuels at the expense of sustainability,'' he said.
To contact the reporter on this story: Dinakar Sethuraman in Singapore at dinakar@bloomberg.net.
Read more...
EDF's Quest for U.S. Nuclear Dominance in Doubt, CM-CIC Says
By Tara Patel
Oct. 16 (Bloomberg) -- Electricite de France SA, the world's biggest operator of nuclear reactors, may struggle to dominate the U.S. market after pulling out of a takeover battle for Constellation Energy Group Inc., according to CM-CIC Securities.
EDF's ``domination will be less flagrant,'' Patrice Lambert-de Diesbach, an analyst at the Paris-based brokerage, said in a note to clients today. The French utility will still retain its position as the only ``operational architect'' of new generation plants, he said.
EDF, which has a 9.5 percent stake in Constellation, yesterday said it wouldn't make a new offer for the Baltimore- based utility because of the ``current state of financial markets.'' That clears the way for Warren Buffett's MidAmerican Energy Holdings Co., whose $4.7 billion bid for Constellation was accepted last month.
EDF and Constellation last year created a 50-50 joint venture called Unistar Nuclear Energy LLC to develop so-called Evolutionary Power Reactors, or EPRs, in the U.S. The latest models are designed by Areva SA, the world's biggest maker of nuclear reactors.
``Unistar couldn't do without EPRs or EDF so the risk would be to see Unistar betting on two reactor models at the same time,'' CM-CIC, which has a `buy' rating on EDF shares, wrote in the note.
The brokerage said that Buffett, a stakeholder in General Electric Co., may favor GE Hitachi Nuclear Energy's own Economic Simplified Boiling Water Reactor new generation model.
`Some Delay'
``There could be some delay in EDF's plans'' in the U.S., Emmanuel Retif, an analyst at Raymond James Asset Management, said by telephone from Paris.
Areva and Bechtel Group Inc. earlier this month won a design engineering contract from Unistar for an EPR at Constellation Energy's Calvert Cliffs plant in Lusby, Maryland.
``It doesn't change anything. We have confidence in Warren Buffett,'' Areva spokeswoman Patricia Marie said today.
EDF will work with several U.S. partners to develop at least four new-generation reactors there, the utility said in a statement yesterday.
``I want a partnership in the U.S. and I won't rule out any option,'' EDF Chief Executive Officer Pierre Gadonneix said last week in an interview in Paris. ``I think in the U.S. you have to have an American partner. It's not the law that says this, it's my conviction.''
EDF, which is targeting four nations for nuclear energy investment, last month agreed to pay 12.5 billion pounds ($22 billion) to buy British Energy Group Plc.
The utility is developing a 1,600-megawatt EPR in Flamanville, France and plans four in the U.K. It has also made the U.S., China and South Africa as priority markets for atomic expansion.
For Related News: EDF acquisitions stories EDF FP TCNI MNA Today's top deals TOP DEAL M&A search MA
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Oct. 16 (Bloomberg) -- Electricite de France SA, the world's biggest operator of nuclear reactors, may struggle to dominate the U.S. market after pulling out of a takeover battle for Constellation Energy Group Inc., according to CM-CIC Securities.
EDF's ``domination will be less flagrant,'' Patrice Lambert-de Diesbach, an analyst at the Paris-based brokerage, said in a note to clients today. The French utility will still retain its position as the only ``operational architect'' of new generation plants, he said.
EDF, which has a 9.5 percent stake in Constellation, yesterday said it wouldn't make a new offer for the Baltimore- based utility because of the ``current state of financial markets.'' That clears the way for Warren Buffett's MidAmerican Energy Holdings Co., whose $4.7 billion bid for Constellation was accepted last month.
EDF and Constellation last year created a 50-50 joint venture called Unistar Nuclear Energy LLC to develop so-called Evolutionary Power Reactors, or EPRs, in the U.S. The latest models are designed by Areva SA, the world's biggest maker of nuclear reactors.
``Unistar couldn't do without EPRs or EDF so the risk would be to see Unistar betting on two reactor models at the same time,'' CM-CIC, which has a `buy' rating on EDF shares, wrote in the note.
The brokerage said that Buffett, a stakeholder in General Electric Co., may favor GE Hitachi Nuclear Energy's own Economic Simplified Boiling Water Reactor new generation model.
`Some Delay'
``There could be some delay in EDF's plans'' in the U.S., Emmanuel Retif, an analyst at Raymond James Asset Management, said by telephone from Paris.
Areva and Bechtel Group Inc. earlier this month won a design engineering contract from Unistar for an EPR at Constellation Energy's Calvert Cliffs plant in Lusby, Maryland.
``It doesn't change anything. We have confidence in Warren Buffett,'' Areva spokeswoman Patricia Marie said today.
EDF will work with several U.S. partners to develop at least four new-generation reactors there, the utility said in a statement yesterday.
``I want a partnership in the U.S. and I won't rule out any option,'' EDF Chief Executive Officer Pierre Gadonneix said last week in an interview in Paris. ``I think in the U.S. you have to have an American partner. It's not the law that says this, it's my conviction.''
EDF, which is targeting four nations for nuclear energy investment, last month agreed to pay 12.5 billion pounds ($22 billion) to buy British Energy Group Plc.
The utility is developing a 1,600-megawatt EPR in Flamanville, France and plans four in the U.K. It has also made the U.S., China and South Africa as priority markets for atomic expansion.
For Related News: EDF acquisitions stories EDF FP
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OPEC President Says Oil's `Ideal' Price Is $70-$90
By Ahmed Rouaba
Oct. 16 (Bloomberg) -- The ``ideal'' price for crude oil is between $70 and $90 a barrel, OPEC President and Algerian Oil Minister Chakib Khelil said today.
The Organization of Petroleum Exporting Countries hasn't decided the size of an output cut it may opt for at a meeting in Vienna next month, Khelil told reporters during a visit to Algeria's Hassi Rmel gas fields. OPEC announced last week it will hold an extraordinary meeting on Nov. 18 to review the crude market.
``No-one can say how much, the decision is made in the meeting,'' said Khelil. The global financial crisis is likely to persist until 2010 in Europe and the U.S., Khelil said.
Oil futures in New York have fallen 50 percent from their July record of $147.27 and traded at $73.88 today.
Algeria, currently producing 1.4 million barrels of crude a day, has already earned $80 billion in oil and gas revenue this year, Khelil said.
To contact the reporter on this story: Ahmed Rouaba in Algiers through the newsroom in London at rouaba@hotmail.com
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Oct. 16 (Bloomberg) -- The ``ideal'' price for crude oil is between $70 and $90 a barrel, OPEC President and Algerian Oil Minister Chakib Khelil said today.
The Organization of Petroleum Exporting Countries hasn't decided the size of an output cut it may opt for at a meeting in Vienna next month, Khelil told reporters during a visit to Algeria's Hassi Rmel gas fields. OPEC announced last week it will hold an extraordinary meeting on Nov. 18 to review the crude market.
``No-one can say how much, the decision is made in the meeting,'' said Khelil. The global financial crisis is likely to persist until 2010 in Europe and the U.S., Khelil said.
Oil futures in New York have fallen 50 percent from their July record of $147.27 and traded at $73.88 today.
Algeria, currently producing 1.4 million barrels of crude a day, has already earned $80 billion in oil and gas revenue this year, Khelil said.
To contact the reporter on this story: Ahmed Rouaba in Algiers through the newsroom in London at rouaba@hotmail.com
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N.Y. Natural Gas Futures Advance as Low Prices Attract Buyers
By Reg Curren
Oct. 16 (Bloomberg) -- Natural gas futures gained in New York on speculation that prices at the lowest in more than a year will spur demand.
Gas produced from the Barnett Shale region of Texas, an area that has bolstered U.S. output, costs between $7 and $8 per million British thermal units to produce, according to analysts including Cameron Horwitz of SunTrust Robinson Humphrey in Houston. Prices today touched $6.436, the lowest since Sept. 26, 2007, before rebounding.
``There's a lot of price support around the low $6.40 area and this is a market that doesn't want to break much further,'' said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. ``There's concern that if prices go much lower we'll see a dropoff in production.''
Natural gas for November delivery rose 3.8 cents, or 0.6 percent, to $6.63 per million British thermal units at 9:32 a.m. on the New York Mercantile Exchange. Prices fell 2 percent yesterday.
Costs to extract natural gas have risen and ``we're getting to that level'' that has prompted companies such as Chesapeake Energy Corp., the second-biggest U.S. independent natural gas producer, to slow output, said Flynn.
``We're not only cutting back on current production, but it may also affect future output,'' Flynn said.
A government report today is expected to show a bigger-than- average rise in U.S. inventories.
Gas in storage probably advanced 80 billion cubic feet in the week ended Oct. 10, according to the median of 16 analyst estimates compiled by Bloomberg. The average change for the week over the past five years is a gain of 63 billion.
Inventories in the week ended Oct. 3 totaled 3.198 trillion cubic feet, 69 billion cubic feet, or 2.2 percent, above the five-year average, the Energy Department's supply report last week showed.
Today's report is scheduled for release at 10:35 a.m. in Washington.
To contact the reporter on this story: Reg Curren in Calgary at rcurren@bloomberg.net.
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Oct. 16 (Bloomberg) -- Natural gas futures gained in New York on speculation that prices at the lowest in more than a year will spur demand.
Gas produced from the Barnett Shale region of Texas, an area that has bolstered U.S. output, costs between $7 and $8 per million British thermal units to produce, according to analysts including Cameron Horwitz of SunTrust Robinson Humphrey in Houston. Prices today touched $6.436, the lowest since Sept. 26, 2007, before rebounding.
``There's a lot of price support around the low $6.40 area and this is a market that doesn't want to break much further,'' said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. ``There's concern that if prices go much lower we'll see a dropoff in production.''
Natural gas for November delivery rose 3.8 cents, or 0.6 percent, to $6.63 per million British thermal units at 9:32 a.m. on the New York Mercantile Exchange. Prices fell 2 percent yesterday.
Costs to extract natural gas have risen and ``we're getting to that level'' that has prompted companies such as Chesapeake Energy Corp., the second-biggest U.S. independent natural gas producer, to slow output, said Flynn.
``We're not only cutting back on current production, but it may also affect future output,'' Flynn said.
A government report today is expected to show a bigger-than- average rise in U.S. inventories.
Gas in storage probably advanced 80 billion cubic feet in the week ended Oct. 10, according to the median of 16 analyst estimates compiled by Bloomberg. The average change for the week over the past five years is a gain of 63 billion.
Inventories in the week ended Oct. 3 totaled 3.198 trillion cubic feet, 69 billion cubic feet, or 2.2 percent, above the five-year average, the Energy Department's supply report last week showed.
Today's report is scheduled for release at 10:35 a.m. in Washington.
To contact the reporter on this story: Reg Curren in Calgary at rcurren@bloomberg.net.
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Rand Rebounds From Six-Year Low After Biggest Slump Since 1994
By Garth Theunissen
Oct. 16 (Bloomberg) -- South Africa's rand rebounded from its weakest in more than six years against the dollar on speculation yesterday's loss, the biggest since at least the end of apartheid in 1994, was exaggerated.
The rand surged the most today in 23 years versus the U.S. currency after its 14-day relative strength index, a technical chart used by traders, climbed to as high as 81. A reading above 70 indicates it has weakened too much. Earlier the rand slipped to the lowest level since August 2002 as Asian and European equities tumbled on concern a global economic recession will erode demand for the country's commodity exports.
``The rand has fallen too much, too fast,'' said Jim Bryson, head of foreign exchange trading in Johannesburg at Rand Merchant Bank. ``You'd expect it to come back, because after a fall like that exporters start repatriating foreign earnings.''
The rand rose as much as 7.6 percent to 9.8343 per dollar, the biggest one-day gain since December 1985, according to Bloomberg data, and was at 10.1550 by 1:25 p.m. in Johannesburg. It advanced versus all 16 most-actively traded currencies monitored by Bloomberg, adding 4.2 percent to 13.7253 per euro.
South Africa's currency plunged as much as 18 percent versus the dollar late yesterday as U.S. stocks dropped by the most since the crash of 1987, sparked by the biggest slowdown in retail sales in three years.
`Irrational Panic'
``The rand's volatility reflects the irrational panic that has taken hold in global markets,'' said Elisabeth Gruie, an emerging-markets currency strategist in London at BNP Paribas SA, France's biggest bank. ``For the moment it's in a recovery phase after an extreme move yesterday. The abruptness of the rand's move yesterday was quite shocking.''
The currency fell more than 15 percent versus the euro yesterday, extending its annual loss to about 36 percent. It has declined 46 percent against the dollar this year.
``This was an unbelievable blowout,'' said Marc Copeland, a Cape Town, South Africa-based currency trader at Investec Asset Management, which oversees about $60 billion. ``Investors are scrambling for money, they have been hurt everywhere around the world and they are getting out of these emerging markets because they are too risky.''
The prospect of a global economic slowdown has prompted investors to dump higher-yielding assets, hurting emerging-market currencies from Brazil to South Korea even as policy makers in Europe and the U.S. pump money into financial markets to alleviate the worst banking crisis since the Great Depression.
`Caught the Flu'
``With emerging markets under pressure, while everyone else is coughing we've caught the flu,'' said Bryson. ``It's going to be a wild day.''
The rand may ``retest today's lows, or fall to at least 10.60 to the dollar,'' if it moves above 10.10 per dollar again, Bryson said. ``The speed of the move makes it difficult to call. It will continue to trade with extreme volatility.''
Stocks fell around the world, with Europe's Dow Jones Stoxx 600 Index losing 3 percent and the MSCI Asia Pacific Index dropping 8.5 percent, the biggest drop on record. South Africa's FTSE/JSE Africa All Share Index slipped as much as 2.5 percent.
``South Africa is a victim of a severe weakening in risk appetite, which is prompting investors to unwind their positions in emerging market assets,'' said Esther Law, an emerging-markets strategist in London at Royal Bank of Scotland Plc. ``Investors are getting out of high-yielding assets as fears of slower economic growth begins to overtake concerns about the global financial crisis.''
Platinum Slumps
The prices of commodities, which South Africa relies on for export income, declined. The UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials fell 1.3 percent, extending yesterday's 4.7 percent slide. Platinum, which competes with gold as South Africa's biggest export, slipped as much as 7.1 percent today.
Government bonds slumped, with the yield on South Africa's benchmark 13.5 percent security due September 2015 climbing 28 basis points to 9.29 percent. The yield on the 13 percent note maturing in August 2010, which is more sensitive to interest-rate expectations, rose 32 basis points to 9.52 percent. Yields move inversely to bond prices.
The weakening rand is clouding the inflation outlook in South Africa, Tito Mboweni, the country's central bank governor, said late yesterday in a speech in the capital, Pretoria. ``It's a terrible situation to be in,'' he said.
To contact the reporters on this story: Garth Theunissen in Johannesburg gtheunissen@bloomberg.net
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Oct. 16 (Bloomberg) -- South Africa's rand rebounded from its weakest in more than six years against the dollar on speculation yesterday's loss, the biggest since at least the end of apartheid in 1994, was exaggerated.
The rand surged the most today in 23 years versus the U.S. currency after its 14-day relative strength index, a technical chart used by traders, climbed to as high as 81. A reading above 70 indicates it has weakened too much. Earlier the rand slipped to the lowest level since August 2002 as Asian and European equities tumbled on concern a global economic recession will erode demand for the country's commodity exports.
``The rand has fallen too much, too fast,'' said Jim Bryson, head of foreign exchange trading in Johannesburg at Rand Merchant Bank. ``You'd expect it to come back, because after a fall like that exporters start repatriating foreign earnings.''
The rand rose as much as 7.6 percent to 9.8343 per dollar, the biggest one-day gain since December 1985, according to Bloomberg data, and was at 10.1550 by 1:25 p.m. in Johannesburg. It advanced versus all 16 most-actively traded currencies monitored by Bloomberg, adding 4.2 percent to 13.7253 per euro.
South Africa's currency plunged as much as 18 percent versus the dollar late yesterday as U.S. stocks dropped by the most since the crash of 1987, sparked by the biggest slowdown in retail sales in three years.
`Irrational Panic'
``The rand's volatility reflects the irrational panic that has taken hold in global markets,'' said Elisabeth Gruie, an emerging-markets currency strategist in London at BNP Paribas SA, France's biggest bank. ``For the moment it's in a recovery phase after an extreme move yesterday. The abruptness of the rand's move yesterday was quite shocking.''
The currency fell more than 15 percent versus the euro yesterday, extending its annual loss to about 36 percent. It has declined 46 percent against the dollar this year.
``This was an unbelievable blowout,'' said Marc Copeland, a Cape Town, South Africa-based currency trader at Investec Asset Management, which oversees about $60 billion. ``Investors are scrambling for money, they have been hurt everywhere around the world and they are getting out of these emerging markets because they are too risky.''
The prospect of a global economic slowdown has prompted investors to dump higher-yielding assets, hurting emerging-market currencies from Brazil to South Korea even as policy makers in Europe and the U.S. pump money into financial markets to alleviate the worst banking crisis since the Great Depression.
`Caught the Flu'
``With emerging markets under pressure, while everyone else is coughing we've caught the flu,'' said Bryson. ``It's going to be a wild day.''
The rand may ``retest today's lows, or fall to at least 10.60 to the dollar,'' if it moves above 10.10 per dollar again, Bryson said. ``The speed of the move makes it difficult to call. It will continue to trade with extreme volatility.''
Stocks fell around the world, with Europe's Dow Jones Stoxx 600 Index losing 3 percent and the MSCI Asia Pacific Index dropping 8.5 percent, the biggest drop on record. South Africa's FTSE/JSE Africa All Share Index slipped as much as 2.5 percent.
``South Africa is a victim of a severe weakening in risk appetite, which is prompting investors to unwind their positions in emerging market assets,'' said Esther Law, an emerging-markets strategist in London at Royal Bank of Scotland Plc. ``Investors are getting out of high-yielding assets as fears of slower economic growth begins to overtake concerns about the global financial crisis.''
Platinum Slumps
The prices of commodities, which South Africa relies on for export income, declined. The UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials fell 1.3 percent, extending yesterday's 4.7 percent slide. Platinum, which competes with gold as South Africa's biggest export, slipped as much as 7.1 percent today.
Government bonds slumped, with the yield on South Africa's benchmark 13.5 percent security due September 2015 climbing 28 basis points to 9.29 percent. The yield on the 13 percent note maturing in August 2010, which is more sensitive to interest-rate expectations, rose 32 basis points to 9.52 percent. Yields move inversely to bond prices.
The weakening rand is clouding the inflation outlook in South Africa, Tito Mboweni, the country's central bank governor, said late yesterday in a speech in the capital, Pretoria. ``It's a terrible situation to be in,'' he said.
To contact the reporters on this story: Garth Theunissen in Johannesburg gtheunissen@bloomberg.net
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Ruble Slides to 20-Month Low on Oil, Threatens Russian Budget
By Emma O'Brien
Oct. 16 (Bloomberg) -- Russia's ruble fell to the lowest level in 20 months versus the dollar today as oil slumped, raising the prospect of the country's first budget deficit in a decade.
The currency's decline challenged central-bank efforts to support the ruble by spending its reserves, the world's third largest. Russia's budget for 2009 breaks even based on an average oil price of $70 a barrel, according to the Finance Ministry. Urals crude, the country's main export, slid 3.1 percent today to $66.57 a barrel, down 53 percent from a record $142.94 on July 4.
``This is obviously a concern because of the fiscal impact of lower energy on Russia,'' said Michael Ganske, head of emerging- markets research in London at Commerzbank AG, which holds Russian debt in its model portfolio and is one of the world's top 10 traders of the ruble. ``Investors are really freaking out, Russia could have a fiscal deficit.''
The ruble declined as much as 0.6 percent to 26.4094 per dollar, the weakest since Feb. 13, 2007. It was little changed at 26.2599 as of 3:52 p.m. in Moscow, from 26.2525 yesterday.
The plunge in oil prices comes as Russia re-emerges as a force in global economic and political affairs, a process started by former President Vladimir Putin and furthered by his successor Dmitry Medvedev. Russia last ran a budget deficit in 1999, the year after it defaulted on $40 billion of debt.
Reserves Drop
Foreign-currency reserves dropped $15.5 billion to $530.60 billion, Bank Rossii, the central bank, said today. It's the second straight weekly decline. Holdings are down 11 percent from a record $597.5 billion in the week to Aug. 8, though they're still the third largest, after China and Japan.
``They are bleeding reserves and the 2009 outlook for now seems unfavorable,'' said Elina Ribakova, an economist at Citigroup Inc. in Moscow. ``Eventually something has got to give, either it's the ruble or interest rates, and they are unlikely to increase interest rates for fear of crippling the banks. So the ruble is the way out.''
Government bonds dropped and stock trading was halted after the Micex Index tumbled as much as 9.2 percent as the global credit crisis prompted investors to sell riskier, emerging-market assets. The equity benchmark plunged 67 percent this year, on course for its first annual drop since at least 2002.
Moscow-based OAO Gazprom, the world's biggest producer of natural gas, slumped 69 percent this year to 110.14 rubles. It's now worth less than a third of what it was on May 8, when its $347.4 billion market value made it the world's third-largest company, bigger than General Electric Co.
Wealth Destruction
Russian billionaires from aluminum magnate Oleg Deripaska to soccer-club owner Roman Abramovich lost more than $230 billion in five months during the nation's worst financial crisis since the default. The combined wealth of Forbes magazine's 25 richest Russians tumbled 62 percent between May 19 and Oct. 6, based on declines in the equity value of traded companies and analysts' estimates of closely held assets they own.
United Co. Rusal, the world's largest aluminum smelter, is seeking a loan from the Russian government to refinance debt owed to foreign banks, it said Oct. 14.
Renaissance Group, a Moscow-based financial company, announced today it would cut 100 jobs from its banking and asset management divisions, which together employ 1,481 people. Billionaire Mikhail Prokhorov agreed to buy 50 percent minus one share of the company last month for $500 million in cash, less than a quarter of its value a year earlier when state-controlled VTB Group tried to take it over.
Bank Rossii targets a ruble rate against a currency basket made up of about 55 percent dollars and the rest euros.
To contact the reporter on this story: Emma O'Brien in Moscow at eobrien6@bloomberg.net
Read more...
Oct. 16 (Bloomberg) -- Russia's ruble fell to the lowest level in 20 months versus the dollar today as oil slumped, raising the prospect of the country's first budget deficit in a decade.
The currency's decline challenged central-bank efforts to support the ruble by spending its reserves, the world's third largest. Russia's budget for 2009 breaks even based on an average oil price of $70 a barrel, according to the Finance Ministry. Urals crude, the country's main export, slid 3.1 percent today to $66.57 a barrel, down 53 percent from a record $142.94 on July 4.
``This is obviously a concern because of the fiscal impact of lower energy on Russia,'' said Michael Ganske, head of emerging- markets research in London at Commerzbank AG, which holds Russian debt in its model portfolio and is one of the world's top 10 traders of the ruble. ``Investors are really freaking out, Russia could have a fiscal deficit.''
The ruble declined as much as 0.6 percent to 26.4094 per dollar, the weakest since Feb. 13, 2007. It was little changed at 26.2599 as of 3:52 p.m. in Moscow, from 26.2525 yesterday.
The plunge in oil prices comes as Russia re-emerges as a force in global economic and political affairs, a process started by former President Vladimir Putin and furthered by his successor Dmitry Medvedev. Russia last ran a budget deficit in 1999, the year after it defaulted on $40 billion of debt.
Reserves Drop
Foreign-currency reserves dropped $15.5 billion to $530.60 billion, Bank Rossii, the central bank, said today. It's the second straight weekly decline. Holdings are down 11 percent from a record $597.5 billion in the week to Aug. 8, though they're still the third largest, after China and Japan.
``They are bleeding reserves and the 2009 outlook for now seems unfavorable,'' said Elina Ribakova, an economist at Citigroup Inc. in Moscow. ``Eventually something has got to give, either it's the ruble or interest rates, and they are unlikely to increase interest rates for fear of crippling the banks. So the ruble is the way out.''
Government bonds dropped and stock trading was halted after the Micex Index tumbled as much as 9.2 percent as the global credit crisis prompted investors to sell riskier, emerging-market assets. The equity benchmark plunged 67 percent this year, on course for its first annual drop since at least 2002.
Moscow-based OAO Gazprom, the world's biggest producer of natural gas, slumped 69 percent this year to 110.14 rubles. It's now worth less than a third of what it was on May 8, when its $347.4 billion market value made it the world's third-largest company, bigger than General Electric Co.
Wealth Destruction
Russian billionaires from aluminum magnate Oleg Deripaska to soccer-club owner Roman Abramovich lost more than $230 billion in five months during the nation's worst financial crisis since the default. The combined wealth of Forbes magazine's 25 richest Russians tumbled 62 percent between May 19 and Oct. 6, based on declines in the equity value of traded companies and analysts' estimates of closely held assets they own.
United Co. Rusal, the world's largest aluminum smelter, is seeking a loan from the Russian government to refinance debt owed to foreign banks, it said Oct. 14.
Renaissance Group, a Moscow-based financial company, announced today it would cut 100 jobs from its banking and asset management divisions, which together employ 1,481 people. Billionaire Mikhail Prokhorov agreed to buy 50 percent minus one share of the company last month for $500 million in cash, less than a quarter of its value a year earlier when state-controlled VTB Group tried to take it over.
Bank Rossii targets a ruble rate against a currency basket made up of about 55 percent dollars and the rest euros.
To contact the reporter on this story: Emma O'Brien in Moscow at eobrien6@bloomberg.net
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East European Currencies: Forint Advances Most Since June 2007
By Ewa Krukowska
Oct. 16 (Bloomberg) -- The Hungarian forint rose the most in almost 16 months against the euro after the European Central Bank agreed to lend Hungary's central bank as much as 5 billion euros ($6.7 billion) to help revive the local credit market. The Turkish lira fell versus the dollar.
Concern that Hungary's economy would collapse amid the global financial crisis pushed the forint down to a two-year low earlier today and sent the benchmark stock index to the weakest level in almost four years.
``The sentiment against the forint improved today after the agreement with the ECB,'' said Radoslaw Bodys, central European economist at Merrill Lynch in London. ``But risk aversion is high and investors will stay nervous given Hungary's high external exposure, including current account deficit and loans denominated in foreign currencies.''
The forint rose as much as 3.8 percent to 261.46 per euro and traded at 263.63 as of 11:37 a.m. in Budapest. The currency yesterday sank 7.1 percent to 271.84, the biggest drop since the debut of the euro in 1999.
The ECB agreed to repo transactions with the Hungarian central bank to facilitate access to cash after demand on the government bond market dried up and commercial banks this week suspended foreign-currency loans. In repo transactions, securities are sold for cash with an agreement to be repurchased at a later date.
`Significantly Ease'
``We suspect that Hungarian bonds will be used in the repo agreement with the ECB,'' Martin Blum, head of emerging-markets economics and currency strategy in Vienna at UniCredit SpA, wrote in a client note. ``In other words Hungarian banks will get euros from the ECB in exchange for their bond holdings. If this is confirmed that would clearly be a positive for the bond market and would significantly ease the foreign exchange liquidity shortage in the local banking sector.''
The government, which has also lined up potential funding from the International Monetary Fund, is preparing new measures to help the stock, bond and currency markets, Finance Minister Janos Veres said, without giving any details. He reiterated that the government will cut the budget deficit faster than planned.
Earlier this week, the central bank launched daily currency swap tenders to boost liquidity as investors withdraw from riskier assets in a flight to safety. Wide current account deficit and a slower growth rate than in other central European countries make Hungary highly vulnerable to worsening sentiment.
Hungarian banks are ``facing sharply higher financing costs and reduced access to international markets,'' Standard & Poor's said yesterday, putting Hungary and Ukraine's credit ratings on review for downgrades.
IMF Help
Those two countries have joined Iceland as the only European states to turn to the IMF for help as investors withdraw from riskier assets in a flight to safety. Hungary's debt is rated BBB+, the third lowest investment-grade rating.
``We see a significant risk of contagion to other central and eastern markets,'' Lars Christensen, chief analyst at Danske Bank in Copenhagen, wrote in a client note today. ``At the moment there are no safe havens in central and eastern Europe and we continue to recommend hedging all foreign exchange exposure to the region.''
Elsewhere, the Turkish lira fell 0.4 percent to 1.4725 against the dollar, dropping to a two-year low. It declined 0.4 percent to 1.9827 per euro, its weakest level since the beginning of May.
The Polish zloty increased 1.7 percent to 3.5474 against the euro and the Czech koruna rose 0.4 percent to 24.772 per euro.
The Romanian leu advanced 1.2 percent to 3.7656 per euro and the Slovak koruna was little changed at 30.490 against the single currency.
To contact the reporter on this story: Ewa Krukowska in Warsaw at ekrukowska@bloomberg.net
Read more...
Oct. 16 (Bloomberg) -- The Hungarian forint rose the most in almost 16 months against the euro after the European Central Bank agreed to lend Hungary's central bank as much as 5 billion euros ($6.7 billion) to help revive the local credit market. The Turkish lira fell versus the dollar.
Concern that Hungary's economy would collapse amid the global financial crisis pushed the forint down to a two-year low earlier today and sent the benchmark stock index to the weakest level in almost four years.
``The sentiment against the forint improved today after the agreement with the ECB,'' said Radoslaw Bodys, central European economist at Merrill Lynch in London. ``But risk aversion is high and investors will stay nervous given Hungary's high external exposure, including current account deficit and loans denominated in foreign currencies.''
The forint rose as much as 3.8 percent to 261.46 per euro and traded at 263.63 as of 11:37 a.m. in Budapest. The currency yesterday sank 7.1 percent to 271.84, the biggest drop since the debut of the euro in 1999.
The ECB agreed to repo transactions with the Hungarian central bank to facilitate access to cash after demand on the government bond market dried up and commercial banks this week suspended foreign-currency loans. In repo transactions, securities are sold for cash with an agreement to be repurchased at a later date.
`Significantly Ease'
``We suspect that Hungarian bonds will be used in the repo agreement with the ECB,'' Martin Blum, head of emerging-markets economics and currency strategy in Vienna at UniCredit SpA, wrote in a client note. ``In other words Hungarian banks will get euros from the ECB in exchange for their bond holdings. If this is confirmed that would clearly be a positive for the bond market and would significantly ease the foreign exchange liquidity shortage in the local banking sector.''
The government, which has also lined up potential funding from the International Monetary Fund, is preparing new measures to help the stock, bond and currency markets, Finance Minister Janos Veres said, without giving any details. He reiterated that the government will cut the budget deficit faster than planned.
Earlier this week, the central bank launched daily currency swap tenders to boost liquidity as investors withdraw from riskier assets in a flight to safety. Wide current account deficit and a slower growth rate than in other central European countries make Hungary highly vulnerable to worsening sentiment.
Hungarian banks are ``facing sharply higher financing costs and reduced access to international markets,'' Standard & Poor's said yesterday, putting Hungary and Ukraine's credit ratings on review for downgrades.
IMF Help
Those two countries have joined Iceland as the only European states to turn to the IMF for help as investors withdraw from riskier assets in a flight to safety. Hungary's debt is rated BBB+, the third lowest investment-grade rating.
``We see a significant risk of contagion to other central and eastern markets,'' Lars Christensen, chief analyst at Danske Bank in Copenhagen, wrote in a client note today. ``At the moment there are no safe havens in central and eastern Europe and we continue to recommend hedging all foreign exchange exposure to the region.''
Elsewhere, the Turkish lira fell 0.4 percent to 1.4725 against the dollar, dropping to a two-year low. It declined 0.4 percent to 1.9827 per euro, its weakest level since the beginning of May.
The Polish zloty increased 1.7 percent to 3.5474 against the euro and the Czech koruna rose 0.4 percent to 24.772 per euro.
The Romanian leu advanced 1.2 percent to 3.7656 per euro and the Slovak koruna was little changed at 30.490 against the single currency.
To contact the reporter on this story: Ewa Krukowska in Warsaw at ekrukowska@bloomberg.net
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Brazil's Real Gains as U.S. Stock Futures Recover From Slide
By Drew Benson
Oct. 16 (Bloomberg) -- Brazil's real erased losses as U.S. stock-index futures advanced, easing concern that investors will dump emerging-market assets.
The real climbed 1 percent to 2.2037 per U.S. dollar at 8:58 a.m. New York time, from 2.2265 yesterday, when the currency slumped 5.9 percent.
Brazil's central bank plans to sell as many as 50,000 currency swap contracts at an auction today to help stem the drop. The bank will sell the swaps between 11:45 a.m. and noon New York time, according to a statement.
U.S. stock-index futures advanced, indicating the Standard & Poor's 500 Index will climb after its biggest plunge since the 1987 crash, after a gauge of borrowing costs declined to a four- year low and inflation was less than forecast.
To contact the reporter on this story: Drew Benson in Buenos Aires at Abenson9@bloomberg.net
Read more...
Oct. 16 (Bloomberg) -- Brazil's real erased losses as U.S. stock-index futures advanced, easing concern that investors will dump emerging-market assets.
The real climbed 1 percent to 2.2037 per U.S. dollar at 8:58 a.m. New York time, from 2.2265 yesterday, when the currency slumped 5.9 percent.
Brazil's central bank plans to sell as many as 50,000 currency swap contracts at an auction today to help stem the drop. The bank will sell the swaps between 11:45 a.m. and noon New York time, according to a statement.
U.S. stock-index futures advanced, indicating the Standard & Poor's 500 Index will climb after its biggest plunge since the 1987 crash, after a gauge of borrowing costs declined to a four- year low and inflation was less than forecast.
To contact the reporter on this story: Drew Benson in Buenos Aires at Abenson9@bloomberg.net
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Yen Weakens Against Dollar on Drop in Money-Market Rates
By Ye Xie and Kim-Mai Cutler
Oct. 16 (Bloomberg) -- The yen fell versus the dollar as a drop in money-market rates encouraged investors to resume purchases of higher-yielding assets funded by low-cost loans.
Japan's currency weakened against the South African rand and the Australian dollar as $254 billion in emergency cash from central banks revived lending between financial institutions, giving a boost to carry trades. South Korea's won fell the most against the dollar in almost 11 years after Standard & Poor's said it may cut banks' credit ratings.
``One consistent theme going forward will be continued easing of credit market conditions,'' said Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York. ``That tends to weaken the yen as risk aversion abates.''
The yen declined 0.8 percent to 100.76 per dollar at 10:36 a.m. in New York, from 99.96 yesterday. Japan's currency traded at 134.74 per euro, compared with 134.93. It touched 133.38, near the strongest since June 2005. The dollar increased 0.7 percent to $1.3401 per euro, from $1.3499.
The London interbank offered rate, or Libor, that banks charge each other for three-month loans in dollars declined for a fourth day, sliding 5 basis points, or 0.05 percentage point, to 4.50 percent, the British Bankers' Association said. The overnight rate fell 20 basis points to 1.94 percent, the lowest level since November 2004 though still 44 basis points above the Federal Reserve's target.
The dollar rose to the highest level versus the euro since March 2007 on Oct. 10, partly as banks' reluctance to lend to each other spurred a surge in demand for U.S. currency funding in global money markets.
Yen vs. Rand
Japan's currency dropped 5.2 percent to 9.88 against the South African rand and 3.2 percent to 68.24 versus the Australian dollar on speculation investors will resume trades in which they get funds in a country with low borrowing costs and buy assets where returns are higher. Japan's 0.5 percent benchmark rate compares with 12 percent in South Africa and 6 percent in Australia.
The yen has gained 5 percent against the dollar and 10 percent against the euro this quarter as global credit market losses led investors to unwind carry trades and buy Japan's currency to repay loans.
The South Korean won fell 10.8 percent to 1,372.50 per dollar after S&P said it may downgrade Kookmin Bank and six other Korean financial companies on concern they will have difficulty refinancing maturing debts. It was the biggest drop since the aftermath of South Korea's bailout by the International Monetary Fund in December 1997.
The dollar pared its gain versus the yen after the Philadelphia Fed reported that its factory index dropped to minus 37.5 this month, the lowest reading since October 1990, from 3.8 in September. Negative readings signal contraction. The index averaged 5.1 last year.
To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Kim-Mai Cutler in London at kcutler@bloomberg.net
Read more...
Oct. 16 (Bloomberg) -- The yen fell versus the dollar as a drop in money-market rates encouraged investors to resume purchases of higher-yielding assets funded by low-cost loans.
Japan's currency weakened against the South African rand and the Australian dollar as $254 billion in emergency cash from central banks revived lending between financial institutions, giving a boost to carry trades. South Korea's won fell the most against the dollar in almost 11 years after Standard & Poor's said it may cut banks' credit ratings.
``One consistent theme going forward will be continued easing of credit market conditions,'' said Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York. ``That tends to weaken the yen as risk aversion abates.''
The yen declined 0.8 percent to 100.76 per dollar at 10:36 a.m. in New York, from 99.96 yesterday. Japan's currency traded at 134.74 per euro, compared with 134.93. It touched 133.38, near the strongest since June 2005. The dollar increased 0.7 percent to $1.3401 per euro, from $1.3499.
The London interbank offered rate, or Libor, that banks charge each other for three-month loans in dollars declined for a fourth day, sliding 5 basis points, or 0.05 percentage point, to 4.50 percent, the British Bankers' Association said. The overnight rate fell 20 basis points to 1.94 percent, the lowest level since November 2004 though still 44 basis points above the Federal Reserve's target.
The dollar rose to the highest level versus the euro since March 2007 on Oct. 10, partly as banks' reluctance to lend to each other spurred a surge in demand for U.S. currency funding in global money markets.
Yen vs. Rand
Japan's currency dropped 5.2 percent to 9.88 against the South African rand and 3.2 percent to 68.24 versus the Australian dollar on speculation investors will resume trades in which they get funds in a country with low borrowing costs and buy assets where returns are higher. Japan's 0.5 percent benchmark rate compares with 12 percent in South Africa and 6 percent in Australia.
The yen has gained 5 percent against the dollar and 10 percent against the euro this quarter as global credit market losses led investors to unwind carry trades and buy Japan's currency to repay loans.
The South Korean won fell 10.8 percent to 1,372.50 per dollar after S&P said it may downgrade Kookmin Bank and six other Korean financial companies on concern they will have difficulty refinancing maturing debts. It was the biggest drop since the aftermath of South Korea's bailout by the International Monetary Fund in December 1997.
The dollar pared its gain versus the yen after the Philadelphia Fed reported that its factory index dropped to minus 37.5 this month, the lowest reading since October 1990, from 3.8 in September. Negative readings signal contraction. The index averaged 5.1 last year.
To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Kim-Mai Cutler in London at kcutler@bloomberg.net
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Canada's Dollar Advances Amid Rally in Commodity Currencies
By Chris Fournier
Oct. 16 (Bloomberg) -- Canada's dollar rose for the first time in three days as commodity-linked currencies strengthened globally.
``We saw a little bit of position rebalancing back into purchasing the Australian dollar, so that's helping the commodity currencies,'' said Maria Jones, currency trader at TD Securities Canada Inc. in Toronto.
The Canadian dollar rose as much as 1 percent to C$1.1796 per U.S. dollar from C$1.1915 yesterday. The currency last traded at C$1.1867 at 8:53 a.m. in Toronto. One Canadian dollar buys 84.27 U.S. cents.
The Canadian dollar has depreciated 14.9 percent since July 11, when crude reached a record $147.27 per barrel. The Australian dollar has dropped twice as much. Canada relies on commodities for about half its export revenue.
To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net
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Oct. 16 (Bloomberg) -- Canada's dollar rose for the first time in three days as commodity-linked currencies strengthened globally.
``We saw a little bit of position rebalancing back into purchasing the Australian dollar, so that's helping the commodity currencies,'' said Maria Jones, currency trader at TD Securities Canada Inc. in Toronto.
The Canadian dollar rose as much as 1 percent to C$1.1796 per U.S. dollar from C$1.1915 yesterday. The currency last traded at C$1.1867 at 8:53 a.m. in Toronto. One Canadian dollar buys 84.27 U.S. cents.
The Canadian dollar has depreciated 14.9 percent since July 11, when crude reached a record $147.27 per barrel. The Australian dollar has dropped twice as much. Canada relies on commodities for about half its export revenue.
To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net
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Mexico to Seek Prison for Currency Speculators, Universal Says
By Hugh Collins
Oct. 16 (Bloomberg) -- Mexico will seek penalties of 10 years' imprisonment for executives of companies who bet against the currency last week, El Universal reported.
The executives can be jailed for failing to reveal relevant information about their companies' currency positions, the Mexico City-based daily reported, citing anonymous government officials.
The paper on Oct. 13 reported that Finance Minister Agustin Carstens said last week's 14 percent decline in the peso resulted from companies' speculative bets against the currency.
To contact the reporter on this story: Hugh Collins in Mexico City at hcollins8@bloomberg.net
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Oct. 16 (Bloomberg) -- Mexico will seek penalties of 10 years' imprisonment for executives of companies who bet against the currency last week, El Universal reported.
The executives can be jailed for failing to reveal relevant information about their companies' currency positions, the Mexico City-based daily reported, citing anonymous government officials.
The paper on Oct. 13 reported that Finance Minister Agustin Carstens said last week's 14 percent decline in the peso resulted from companies' speculative bets against the currency.
To contact the reporter on this story: Hugh Collins in Mexico City at hcollins8@bloomberg.net
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U.K. Stocks Drop, Led by Energy Shares on Recession Concerns
By Sarah Thompson
Oct. 16 (Bloomberg) -- U.K. stocks slumped for a second day as investors speculated a global bailout of banks has failed to stave off recession. BHP Billiton Ltd., Rio Tinto Group and Royal Dutch Shell dropped as oil and metals prices decreased.
Travis Perkins Plc tumbled 38 percent after it said pretax profit will probably be at the low end of analysts' estimates and that it plans to scrap its dividend to hoard cash.
The benchmark FTSE 100 slipped 123.04, or 3 percent, to 3,956.55 at 12:35 p.m. in London. The FTSE All-Share Index lost 3.2 percent and Ireland's ISEQ Index decreased 2.1 percent.
``No-one can see the light at the end of the tunnel just yet,'' said Piers Hillier, the London-based head of European equities at WestLB Mellon Asset Management who oversees the equivalent of $8.8 billion. ``Commodities are being hit hard and now that inflationary fears are subsiding, we need to see further rate cuts.''
Europe's 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.
BHP, the world's largest mining company, retreated 4.7 percent to 873 pence. Rio, the third-biggest, lost 6 percent to 2,216 pence.
Copper fell to the lowest since January 2006 in London and aluminum slid to a three-year low as stocks in Japan plunged the most in 21 years, fanning speculation a global recession will slash demand for industrial metals.
Shell, Europe's largest oil company, decreased 4.4 percent to 1,333 pence. BP Plc, the region's second-biggest, slid 1.5 percent to 408. Crude oil fell for a third day, taking the decline from its July record to more than 50 percent.
`Too Late'
``Rescue efforts came too late and we're staring down the barrel of a long recession, with commodities bearing the brunt,'' David Buik, a market analyst at BGC Partners in London, said. ``We will be in this situation until the end of 2009.''
Travis Perkins slumped 182.25 pence to 298.75, a record drop. The building materials distributor that owns the Wickes home-improvement chain now predicts a ``more rapid decline'' in its business than forecast earlier.
Cost-cutting will help offset the ``steeper decline'' in construction expected to befall the industry, Chief Executive Officer Geoff Cooper said in an interview. Royal Bank of Scotland analyst John Messenger said Oct. 10 Travis is faced with breaching loan agreements next year if it doesn't negotiate new terms or raise additional equity. Banks have already committed to five-year credit lines so no change to existing covenants is necessary, Cooper said.
The following stocks also gained or fell in the U.K. market. Stock symbols are in parentheses.
U.K. companies:
Arena Leisure Plc (ARE LN) which runs more than a quarter of the U.K.'s horse races, said annual profit will miss analysts' estimates because the credit crunch has hurt spending and attendance. The shares plunged 4 pence, or 14 percent, to 25 pence.
Ashmore Group Plc (ASHM LN), a London-based money manager that focuses on emerging markets, said assets under management for the last quarter dropped 15 percent ``reflecting the turbulent nature of the markets during the period.'' The shares lost 16 pence, or 9.9 percent, to 145.
Aggreko Plc (AGK LN) jumped 31 pence, or 7.8 percent, to 431. The world's largest provider of mobile generators said annual pretax profit increased by ``at least'' 50 percent as hurricanes Gustav and Ike boosted North American demand.
Telecity Group Plc (TCY LN) rose 3 pence, or 1.6 percent, to 193. The U.K. data center operator that hosts Sony Corp.'s European PlayStation servers will withstand the financial crisis because of its broader client base, Chief Executive Officer Michael Tobin said.
TUI Travel Plc (TT/ LN) slumped 57.55 pence, or 23 percent, to 192.2. Europe's largest tourism company said majority owner TUI AG has ``no current intention'' of making an offer for the shares it doesn't own.
Smiths News Plc (NWS LN) dropped 3.25 pence, or 4.4 percent, to 70.75. The U.K. magazine and newspaper wholesaler formed from the split of W.H. Smith Plc in 2006 said full-year profit dropped 7.7 percent as publishers raised prices to compensate for increasing production costs.
Irish Companies:
Waterford Wedgwood Plc (WTFU ID) plummeted 50 percent to 0.001 euros. The Irish crystal maker controlled by billionaire Tony O'Reilly plans to eliminate 280 local jobs at its crystal division as part of a cost-reduction plan.
To contact the reporter on this story: Sarah Thompson in London at sthompson17@bloomberg.net.
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Oct. 16 (Bloomberg) -- U.K. stocks slumped for a second day as investors speculated a global bailout of banks has failed to stave off recession. BHP Billiton Ltd., Rio Tinto Group and Royal Dutch Shell dropped as oil and metals prices decreased.
Travis Perkins Plc tumbled 38 percent after it said pretax profit will probably be at the low end of analysts' estimates and that it plans to scrap its dividend to hoard cash.
The benchmark FTSE 100 slipped 123.04, or 3 percent, to 3,956.55 at 12:35 p.m. in London. The FTSE All-Share Index lost 3.2 percent and Ireland's ISEQ Index decreased 2.1 percent.
``No-one can see the light at the end of the tunnel just yet,'' said Piers Hillier, the London-based head of European equities at WestLB Mellon Asset Management who oversees the equivalent of $8.8 billion. ``Commodities are being hit hard and now that inflationary fears are subsiding, we need to see further rate cuts.''
Europe's 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.
BHP, the world's largest mining company, retreated 4.7 percent to 873 pence. Rio, the third-biggest, lost 6 percent to 2,216 pence.
Copper fell to the lowest since January 2006 in London and aluminum slid to a three-year low as stocks in Japan plunged the most in 21 years, fanning speculation a global recession will slash demand for industrial metals.
Shell, Europe's largest oil company, decreased 4.4 percent to 1,333 pence. BP Plc, the region's second-biggest, slid 1.5 percent to 408. Crude oil fell for a third day, taking the decline from its July record to more than 50 percent.
`Too Late'
``Rescue efforts came too late and we're staring down the barrel of a long recession, with commodities bearing the brunt,'' David Buik, a market analyst at BGC Partners in London, said. ``We will be in this situation until the end of 2009.''
Travis Perkins slumped 182.25 pence to 298.75, a record drop. The building materials distributor that owns the Wickes home-improvement chain now predicts a ``more rapid decline'' in its business than forecast earlier.
Cost-cutting will help offset the ``steeper decline'' in construction expected to befall the industry, Chief Executive Officer Geoff Cooper said in an interview. Royal Bank of Scotland analyst John Messenger said Oct. 10 Travis is faced with breaching loan agreements next year if it doesn't negotiate new terms or raise additional equity. Banks have already committed to five-year credit lines so no change to existing covenants is necessary, Cooper said.
The following stocks also gained or fell in the U.K. market. Stock symbols are in parentheses.
U.K. companies:
Arena Leisure Plc (ARE LN) which runs more than a quarter of the U.K.'s horse races, said annual profit will miss analysts' estimates because the credit crunch has hurt spending and attendance. The shares plunged 4 pence, or 14 percent, to 25 pence.
Ashmore Group Plc (ASHM LN), a London-based money manager that focuses on emerging markets, said assets under management for the last quarter dropped 15 percent ``reflecting the turbulent nature of the markets during the period.'' The shares lost 16 pence, or 9.9 percent, to 145.
Aggreko Plc (AGK LN) jumped 31 pence, or 7.8 percent, to 431. The world's largest provider of mobile generators said annual pretax profit increased by ``at least'' 50 percent as hurricanes Gustav and Ike boosted North American demand.
Telecity Group Plc (TCY LN) rose 3 pence, or 1.6 percent, to 193. The U.K. data center operator that hosts Sony Corp.'s European PlayStation servers will withstand the financial crisis because of its broader client base, Chief Executive Officer Michael Tobin said.
TUI Travel Plc (TT/ LN) slumped 57.55 pence, or 23 percent, to 192.2. Europe's largest tourism company said majority owner TUI AG has ``no current intention'' of making an offer for the shares it doesn't own.
Smiths News Plc (NWS LN) dropped 3.25 pence, or 4.4 percent, to 70.75. The U.K. magazine and newspaper wholesaler formed from the split of W.H. Smith Plc in 2006 said full-year profit dropped 7.7 percent as publishers raised prices to compensate for increasing production costs.
Irish Companies:
Waterford Wedgwood Plc (WTFU ID) plummeted 50 percent to 0.001 euros. The Irish crystal maker controlled by billionaire Tony O'Reilly plans to eliminate 280 local jobs at its crystal division as part of a cost-reduction plan.
To contact the reporter on this story: Sarah Thompson in London at sthompson17@bloomberg.net.
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Crude Oil Falls to 13-Month Low on Global Recession Concern
By Mark Shenk
Oct. 16 (Bloomberg) -- Crude oil fell to a 13-month low as plunging global stocks heightened doubts that bank bailouts will prevent a recession.
Oil, which has followed movements in equity markets this month, dropped below $72 a barrel as benchmark indexes in Asia and Europe slumped. The U.S. Energy Department will probably say today that oil and gasoline supplies rose last week, a Bloomberg News survey showed.
``The fate of energy demand is in the credit market,'' said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. ``Oil prices have been tracking the stock market, which should remain the case until there's more confidence about the economy.''
Crude oil for November delivery fell 81 cents, or 1.1 percent, to $73.73 a barrel at 9:22 a.m. on the New York Mercantile Exchange. Futures touched $71.21, the lowest since Aug. 28, 2007. Prices, which are down 16 percent from a year ago, have dropped 50 percent from the record $147.27 a barrel reached on July 11.
``Commodities have gone from a leading asset class to a follower in just two months,'' said Christopher Edmonds, the managing principal of FIG Partners Energy Research & Capital Group in Atlanta. ``Two months ago you would look at the oil market for a signal about the direction of other markets. Today you look at equities to get an idea where oil will go.''
Credit Suisse Group and Sanford C. Bernstein & Co. cut their 2009 oil-price forecasts in separate reports today. Bernstein lowered its 2009 crude oil price forecast to $70 a barrel from $90, while Zurich-based Credit Suisse reduced its next-year estimate by 32 percent to $75.
Fundamentals
``The moves of the market have nothing to do with fundamentals,'' Edmonds said. ``Fear about the economy, credit markets and that fuel demand will drop is what we are looking at. Until we get some certainty about the economy this will remain the case.''
The Energy Department supply report today will show that U.S. crude-oil inventories rose 2.6 million barrels, according to the median of analyst responses in the Bloomberg survey. The report will be released at 11 a.m. New York time, a day late because of the Columbus Day federal holiday Oct. 13 in the U.S.
Brent crude oil for November settlement declined $1.11, or 1.6 percent, to $69.69 a barrel on London's ICE Futures Europe exchange.
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.
Read more...
Oct. 16 (Bloomberg) -- Crude oil fell to a 13-month low as plunging global stocks heightened doubts that bank bailouts will prevent a recession.
Oil, which has followed movements in equity markets this month, dropped below $72 a barrel as benchmark indexes in Asia and Europe slumped. The U.S. Energy Department will probably say today that oil and gasoline supplies rose last week, a Bloomberg News survey showed.
``The fate of energy demand is in the credit market,'' said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. ``Oil prices have been tracking the stock market, which should remain the case until there's more confidence about the economy.''
Crude oil for November delivery fell 81 cents, or 1.1 percent, to $73.73 a barrel at 9:22 a.m. on the New York Mercantile Exchange. Futures touched $71.21, the lowest since Aug. 28, 2007. Prices, which are down 16 percent from a year ago, have dropped 50 percent from the record $147.27 a barrel reached on July 11.
``Commodities have gone from a leading asset class to a follower in just two months,'' said Christopher Edmonds, the managing principal of FIG Partners Energy Research & Capital Group in Atlanta. ``Two months ago you would look at the oil market for a signal about the direction of other markets. Today you look at equities to get an idea where oil will go.''
Credit Suisse Group and Sanford C. Bernstein & Co. cut their 2009 oil-price forecasts in separate reports today. Bernstein lowered its 2009 crude oil price forecast to $70 a barrel from $90, while Zurich-based Credit Suisse reduced its next-year estimate by 32 percent to $75.
Fundamentals
``The moves of the market have nothing to do with fundamentals,'' Edmonds said. ``Fear about the economy, credit markets and that fuel demand will drop is what we are looking at. Until we get some certainty about the economy this will remain the case.''
The Energy Department supply report today will show that U.S. crude-oil inventories rose 2.6 million barrels, according to the median of analyst responses in the Bloomberg survey. The report will be released at 11 a.m. New York time, a day late because of the Columbus Day federal holiday Oct. 13 in the U.S.
Brent crude oil for November settlement declined $1.11, or 1.6 percent, to $69.69 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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