By Fu Jing (China Daily)
The worsening global economic situation makes it difficult for China to predict its growth for next year, a senior official said on Friday.
"How fast China's economy will grow next year is uncertain," Liu He, deputy director of the Office of the Central Leading Group on Finance and Economy Work, told China Daily.
"To a large extent, the rate will be decided by the external situation," Liu said during a discussion with Swedish Prime Minister Fredrik Reinfeldt and other economists in Beijing.
This year, GDP is estimated to grow at 9.4 or 9.5 percent, down from 10.6 percent last year, he said. However, the impact of the current financial turbulence "on our economy is much less than on the rest of the world", he said.
Nicholas Stern, a former UK government advisor, also told China Daily it will take at least one or two years for the world to recover from the recession, which is now spreading from the US and the UK to the rest of the world.
"We don't know how long the recession will last, but it is unlikely to be short," he said.
Liu said China can use the downturn as an opportunity to restructure its economy, which has relied heavily on government investment, foreign trade and low-cost technology over the past years.
"When the economy is experiencing fast growth, companies are unwilling to upgrade their technologies," Liu said.
"The slowdown gives such firms the opportunity to enhance their competitive edge through better technologies."
Read more...
Saturday, October 25, 2008
US traders relieved despite Dow ending down 4 percent
NEW YORK -- If ever a 300-point loss on Wall Street could be a good thing, it was Friday.
 A pair of traders get together on the floor of the New York Stock Exchange, October 24, 2008. Wall Street capped another difficult week with steep losses Friday, sending the major indexes to their lowest levels in more than five years. [Agencies] |
Wall Street started the day with a nervous eye on how far stocks would have to fall before triggering emergency trading halts. They ended the session relieved, even though the Dow Jones industrial average closed down 312, or 3.6 percent, its lowest finish since the financial crisis began six weeks ago.
Stock markets in Europe and Asia had plummeted, and oil prices plunged past their lows for the last year on growing fears of a global recession. Major indexes declined more than 14 percent in Russia, and were ordered closed until Tuesday.
Dow futures, a bet, before trading opens, on where stocks would go, had plunged 550 points Friday morning, triggering a temporary trading halt.
"This is beyond volatile. It is chaotic," Carl Weinberg, chief economist at High Frequency Economics wrote in a morning note to clients. "This is the kind of day when the central banks step into the market with an 'unexpected' interest rate move to calm things down."
Instead, it was just another day's loss, one in a series since mid-September that have erased nearly $7 trillion in value from stocks.
Before US markets opened, CNBC flashed a rundown on the level of losses that would trigger trading circuit-breakers, which close the market after steep losses. The first circuit-breaker, a 90-minute halt, would kick in if the Dow lost 1,100 points before 2 p.m.
The Dow fell more than 500 points in the morning, but steadied itself, even though the only good news was the 5.5 percent increase in September existing home sales. That was tempered by median home prices, which dropped to $191,600, down 9 percent from a year ago.
The Dow closed at 8,378, its lowest finish since 8,306 on April 25, 2003. In the last six weeks, the Dow has experienced triple-digit moves in 27 of 30 trading sessions.
Broader indexes also fell more than 3 percent.
The paper loss for the week on the broadest stock index, the Dow Jones Wilshire 5,000, was $800 billion. A sell-off Wednesday, coupled with the losses Tuesday and Friday, gave the index its eighth-worst week since 1979. The index closed at its lowest level since May 2003.
Total losses in the Dow Jones Wilshire 5,000 since the market's October 9, 2007, high are $8.8 trillion, or 44 percent.
Stock investors avoided panic even as oil fell sharply, closing near $64 a barrel, despite a decision by the OPEC cartel to cut production quotas by 1.5 million barrels a day. OPEC officials, meeting in Vienna, left no doubt that they were ready to slice production again quickly if Friday's decision does not end the price freefall.
 Traders work in the crude oil options pit at the New York Mercantile Exchange on Friday, Oct. 24, 2008 in New York. Oil prices fell sharply to around $63 a barrel Friday amid weakening global demand for crude, despite a decision by the OPEC cartel to cut production quotas by 1.5 million barrels a day starting next month. [Agencies] |
"Oil prices have witnessed a dramatic collapse, unprecedented in speed and magnitude," the 13-nation cartel said in a statement.
The dollar plunged below 93 yen, a 13-year low. The British pound fell 8 cents against the dollar, its largest intraday drop since 1971.
Stocks shuddered around the world. Japan's Nikkei stock average dropped 9.6 percent. Hong Kong's benchmark index fell 8.3 percent. As the US market prepared to open, both Germany and France's key indexes were down 10 percent, although both narrowed their losses, with Germany's benchmark DAX index closing 5 percent lower, while France's CAC40 dropped 3.5 percent.
Markets in India, Thailand, Indonesia and the Philippines also fell as investors pulled money out of developing countries on fears they would not only be hit hard by the financial crisis but may also default on debt.
Selling had spread on sobering economic data and weak earnings.
The UK's third quarter gross domestic product fell 0.5 percent, the first decline in 16 years, putting the country on the brink of recession. Shares of Japan's Sony sank more than 14 percent when it slashed its earnings forecast for the fiscal year.
In Germany, Daimler stock dropped 11.4 percent in morning trading; it reported lower third-quarter earnings and abandoned its 2008 profit and revenue guidance.
"Periods of panic punctuated by occasional calm appears to be the manner of things for now," said Daragh Maher, a strategist at Calyon Corporate and Investment Bank in London.
The Federal Reserve Open Market Committee, which sets the Fed's target short-term interest rates, meets Tuesday and Wednesday. Most investors are expecting further rate cuts beyond the current 1.5 percent, which is already near historic lows.
Read more...
Confidence vital to weather crisis
[China Daily] Confidence and concerted efforts are what the international community needs now to counter the ongoing financial crisis, President Hu Jintao said on Friday.
He made the remarks while addressing the opening ceremony of the Asia-Europe Meeting (ASEM).
Hu said the financial crisis triggered by the US subprime mortgage crisis had had a serious impact on economic development and people's livelihoods around the globe.
"At this crucial moment, confidence is more important than anything else. Only with strong confidence and concerted efforts can we weather the crisis," he said, calling for better coordination among nations.
China appreciates and supports the positive measures taken by relevant countries in response to the financial crisis, he said.
"We hope those measures will produce the desired results soon."
On China's part, Hu said the country has made active efforts to the best of its ability, citing recent measures to stabilize the country's domestic financial system and increase liquidity in the financial markets.
"A healthy Chinese economy is itself an important contribution to global financial stability and economic development," he said.
The country will take a responsible attitude and work together with the rest of the world to maintain the stability of global economy, he said.
Beijing is hosting the summit of 45 European and Asian countries to discuss the global downturn, climate change and international security.
The leaders' meeting came at the end of another volatile week in world markets, with China's benchmark stock exchange ending at its lowest level for two years and its commodities markets battered by heavy selling.
Global markets plunge
Global stock markets plunged again on Friday to their lowest in five years and major currency rates gyrated wildly on intense concern about a worldwide recession, corporate damage and fragile emerging markets.
European shares lost more than 8 percent and Japan's Nikkei tumbled almost 10 percent.
US stocks plummeted at the opening bell on Friday as investors dumped stocks on fears that the global economy was in the throes of recession. The Dow Jones industrial average was down 398.08 points, or 4.58 percent, at 8,293.17.
Elsewhere in Asia, Hong Kong's Hang Seng index fell 8.3 percent to 12,618. Markets in India, Thailand, Indonesia and the Philippines were also down sharply as investors bailed from emerging markets to cut their exposure to risky assets and meet redemption needs at home.
"The global financial crisis has been constantly spreading and worsening, creating a severe shock to global economic growth," Premier Wen Jiabao told the meeting.
French President Nicolas Sarkozy said at the summit that European leaders would call on Asian support when leaders meet at a financial summit due to be held in Washington next month.
"Europe would like Asia to support our efforts, and we would like to make sure that on Nov 15 we can face the world together and say that the causes of this unprecedented crisis will never be allowed to happen again," he told the ASEM summit.
"If we manage to make sure this is done, maybe this crisis will go down in history as the day on which we managed to enter the 21st century and start resolving this crisis."
Hu said cooperation and dialogue between Asia and Europe was even more important in such uncertain times.
"We should embrace an open attitude and make full use of our strong economic complementarities to deepen existing cooperation."
This is the largest gathering of leaders under the ASEM since its inception in 1996.
Among the delegates are Sarkozy, German Chancellor Angela Merkel, Japanese Prime Minister Taro Aso, President of the Republic of Korea Lee Myung-bak and European Commission President Jose Manuel Barroso.
The ASEM has 45 members and represents more than 50 percent of the world's gross domestic product.
Read more...
President Hu Jintao and his French counterpart Nicolas Sarkozy lead other members representing Asian and European countries into the Great Hall of the People in Beijing for the Asia-Europe Meeting group photo on Friday. [China Daily]
He made the remarks while addressing the opening ceremony of the Asia-Europe Meeting (ASEM).
Hu said the financial crisis triggered by the US subprime mortgage crisis had had a serious impact on economic development and people's livelihoods around the globe.
"At this crucial moment, confidence is more important than anything else. Only with strong confidence and concerted efforts can we weather the crisis," he said, calling for better coordination among nations.
China appreciates and supports the positive measures taken by relevant countries in response to the financial crisis, he said.
"We hope those measures will produce the desired results soon."
On China's part, Hu said the country has made active efforts to the best of its ability, citing recent measures to stabilize the country's domestic financial system and increase liquidity in the financial markets.
"A healthy Chinese economy is itself an important contribution to global financial stability and economic development," he said.
The country will take a responsible attitude and work together with the rest of the world to maintain the stability of global economy, he said.
Beijing is hosting the summit of 45 European and Asian countries to discuss the global downturn, climate change and international security.
The leaders' meeting came at the end of another volatile week in world markets, with China's benchmark stock exchange ending at its lowest level for two years and its commodities markets battered by heavy selling.
Global markets plunge
Global stock markets plunged again on Friday to their lowest in five years and major currency rates gyrated wildly on intense concern about a worldwide recession, corporate damage and fragile emerging markets.
European shares lost more than 8 percent and Japan's Nikkei tumbled almost 10 percent.
US stocks plummeted at the opening bell on Friday as investors dumped stocks on fears that the global economy was in the throes of recession. The Dow Jones industrial average was down 398.08 points, or 4.58 percent, at 8,293.17.
Elsewhere in Asia, Hong Kong's Hang Seng index fell 8.3 percent to 12,618. Markets in India, Thailand, Indonesia and the Philippines were also down sharply as investors bailed from emerging markets to cut their exposure to risky assets and meet redemption needs at home.
"The global financial crisis has been constantly spreading and worsening, creating a severe shock to global economic growth," Premier Wen Jiabao told the meeting.
French President Nicolas Sarkozy said at the summit that European leaders would call on Asian support when leaders meet at a financial summit due to be held in Washington next month.
"Europe would like Asia to support our efforts, and we would like to make sure that on Nov 15 we can face the world together and say that the causes of this unprecedented crisis will never be allowed to happen again," he told the ASEM summit.
"If we manage to make sure this is done, maybe this crisis will go down in history as the day on which we managed to enter the 21st century and start resolving this crisis."
Hu said cooperation and dialogue between Asia and Europe was even more important in such uncertain times.
"We should embrace an open attitude and make full use of our strong economic complementarities to deepen existing cooperation."
This is the largest gathering of leaders under the ASEM since its inception in 1996.
Among the delegates are Sarkozy, German Chancellor Angela Merkel, Japanese Prime Minister Taro Aso, President of the Republic of Korea Lee Myung-bak and European Commission President Jose Manuel Barroso.
The ASEM has 45 members and represents more than 50 percent of the world's gross domestic product.
Read more...
Currency markets in turmoil as crisis extends
File photo shows banknotes of the US dollar (front) and Britain's pound. [Agencies]
(China Daily) Turmoil in the world's financial markets has worsened, as stocks in Hong Kong, South Korea, Britain, Germany, Russia, Braziland elsewhere plunged on Friday, and, the US dollar and Japanese yen soared in value against other currencies.
Loss of confidence, coupled with wild speculation triggered by fear, also roiled currency markets, as investors continued to turn to the American greenback and the Japanese yen, and drove down currency values of many developing countries, including Brazil, Ukraine, South Korea, and even of developed countries like Great Britain, the New York Times reported on Friday.
There were chilling new developments that attested to the wide scope of the world financial crisis, despite efforts by heads of state, central bankers and corporate leaders to stop the market from hemorrhaging. Cash flowed to the dollar and the yen, the two most sought-after “safe havens” in a hurricane ravaged world.
As a result, the currency values of the emerging economies have tumbled. Even the British pound and European euro lost ground in the swirl of storm.
Profit-seeking hedge funds and other investors are pulling money out of the above countries on an immense scale and putting it into dollars and yen. Analysts said that, currently, there existed few safe harbors, as commodities also tumbled.
Fears of a spreading global recession caused oil prices to fall more than 5 percent, to US$64, even after OPEC, the oil cartel, announced it was cutting output.
Economists believe that, when a developing country’s currency loses value rapidly, it impedes its ability to pay back loans and debts, which could cause a rash of corporate or government defaults -- a feature of previous financial crises in Asia in 1997-98 and Latin America, the New York Times report pointed out.
The cash flight to safety is hurting once-mighty currencies like Britain’s pound. On Friday, worries about how the financial crisis would affect Britain’s economy caused the pound to lose 8 cents against the dollar, falling to $1.53.
And the downdraft of the pound and the euro -- which fell to $1.26 against the dollar on Friday, its lowest level in two years -- is less serious for the economic well-being of Britain and Europe, than the deterioration of currencies like the Mexican peso or the Russian ruble.
Read more...
U.S. Stocks Plunge, S&P 500 Heads for Worst Month Since 1938
By Nick Baker
Oct. 25 (Bloomberg) -- U.S. stocks tumbled this week, driving the Standard & Poor’s 500 Index toward the steepest monthly loss since 1938, on concern the global economy is sliding into a recession.
Alcoa Inc., Citigroup Inc. and Hewlett-Packard Co. retreated the most in the Dow Jones Industrial Average, losing more than 18 percent, as investors bet the financial crisis spread beyond banks to industrial companies and computer makers. General Motors Corp. approached the lowest price since the 1950s, and Ford Motor Co. plunged 17 percent.
“There are forced sellers and no one willing to stick their neck out,” said Henry Herrmann, Overland Park, Kansas-based president of Waddell & Reed Financial Inc., which manages $70 billion.
The S&P 500 retreated 6.8 percent to 876.77, the lowest level since April 2003. The benchmark index for U.S. equities plunged 25 percent in October. The Dow average fell 5.4 percent to 8,378.95 this week. The MSCI World Index of 23 developed markets lost 8.3 percent, while Brazil, Russia and India drove a gauge of 25 emerging markets to a 17 percent slump.
More than $10 trillion has been erased from the market value of shares worldwide this month as earnings decrease. The 236 companies in the S&P 500 that have reported third-quarter results posted a 23 percent decline on average. Reports yesterday showed the U.K. economy contracted for the first time since 1992 and growth in South Korea was the slowest in four years.
Every Market Falls
All 48 of the developed and emerging markets tracked by MSCI have declined in 2008, with 22 losing at least half their value. The 73 percent plunge by Russia’s Micex Index is the steepest. Benchmark indexes for China, Greece, Ireland, Peru and Austria retreated more than 60 percent. The S&P 500 dropped 40 percent. Morocco and Jordan have done the best, falling 6.4 percent and 19.2 percent, respectively.
It’s “panic creating a freefall as investors simply liquidate anything and everything,” said Walter Gerasimowicz, the New York-based chief executive officer at Meditron Asset Management, which manages $1.1 billion. “The market seems to be very overdone, almost pricing for a depression.”
The Chicago Board Options Exchange Volatility Index, or VIX, a gauge of how much investors are paying for insurance against S&P 500 declines, rose 13 percent to a record 79.13 this week.
Treasuries rallied, pushing the yield on the 30-year bond to the lowest in more than three decades. It sank as low as 3.8676 percent yesterday.
‘Very, Very Cheap’
“The U.S. and European markets have blown out to record levels of attractiveness versus bonds,” Barton Biggs, a former Morgan Stanley strategist who now runs the hedge fund Traxis Partners LLC, said during a Bloomberg Television interview. Stocks are at “very, very cheap levels.”
This week, 245 of the 500 companies that make up the S&P 500 dropped to the lowest price in a year or more. Russian equities are the cheapest in the world, trading for 2.5 times estimated 2008 profit. The 27 nations with price-to-earnings ratios of 8 or less include Germany, Turkey, South Africa, the U.K. and Indonesia. The S&P 500’s multiple is 11.
“There is an extreme level of pessimism and almost despair,” said Biggs, 75. “As long as I have been in the business, those have always been good signs.”
Alcoa fell 20 percent to a 13-year low of $9.41. Citigroup lost 18 percent to $12.14, the lowest price since October 1996. Hewlett-Packard declined 18 percent to $32.44. GM decreased 7.5 percent to $5.95, remaining above the five-decade low of $4.76 reached two weeks ago. Ford slipped 17 percent to $2.01.
REITs, Consumer Stocks Drop
Producers of metals, chemicals and other raw materials lost the most among 10 industries in the S&P 500, falling 11.1 percent as a group. Financial institutions declined 10.5 percent.
All 24 of the smaller S&P 500 industry groups slumped, led by real-estate investment trusts. General Growth Properties Inc., a Chicago-based mall developer, plunged 65 percent to $2.17 after the Wall Street Journal reported it may sell up to $2 billion in preferred stock. Developers Diversified Realty Corp., which owns shopping centers, lost 51 percent to $8.08.
Producers of consumer goods retreated. Liz Claiborne Inc., the maker of Kate Spade handbags, fell 33 percent to $6.95. Nike Inc., the world’s largest athletic-shoe company, slumped 17 percent to $47.79. Whirlpool Corp., the biggest appliance maker, dropped 20 percent to $49.16.
To contact the reporter on this story: Nick Baker in New York at nbaker7@bloomberg.net.
Read more...
Oct. 25 (Bloomberg) -- U.S. stocks tumbled this week, driving the Standard & Poor’s 500 Index toward the steepest monthly loss since 1938, on concern the global economy is sliding into a recession.
Alcoa Inc., Citigroup Inc. and Hewlett-Packard Co. retreated the most in the Dow Jones Industrial Average, losing more than 18 percent, as investors bet the financial crisis spread beyond banks to industrial companies and computer makers. General Motors Corp. approached the lowest price since the 1950s, and Ford Motor Co. plunged 17 percent.
“There are forced sellers and no one willing to stick their neck out,” said Henry Herrmann, Overland Park, Kansas-based president of Waddell & Reed Financial Inc., which manages $70 billion.
The S&P 500 retreated 6.8 percent to 876.77, the lowest level since April 2003. The benchmark index for U.S. equities plunged 25 percent in October. The Dow average fell 5.4 percent to 8,378.95 this week. The MSCI World Index of 23 developed markets lost 8.3 percent, while Brazil, Russia and India drove a gauge of 25 emerging markets to a 17 percent slump.
More than $10 trillion has been erased from the market value of shares worldwide this month as earnings decrease. The 236 companies in the S&P 500 that have reported third-quarter results posted a 23 percent decline on average. Reports yesterday showed the U.K. economy contracted for the first time since 1992 and growth in South Korea was the slowest in four years.
Every Market Falls
All 48 of the developed and emerging markets tracked by MSCI have declined in 2008, with 22 losing at least half their value. The 73 percent plunge by Russia’s Micex Index is the steepest. Benchmark indexes for China, Greece, Ireland, Peru and Austria retreated more than 60 percent. The S&P 500 dropped 40 percent. Morocco and Jordan have done the best, falling 6.4 percent and 19.2 percent, respectively.
It’s “panic creating a freefall as investors simply liquidate anything and everything,” said Walter Gerasimowicz, the New York-based chief executive officer at Meditron Asset Management, which manages $1.1 billion. “The market seems to be very overdone, almost pricing for a depression.”
The Chicago Board Options Exchange Volatility Index, or VIX, a gauge of how much investors are paying for insurance against S&P 500 declines, rose 13 percent to a record 79.13 this week.
Treasuries rallied, pushing the yield on the 30-year bond to the lowest in more than three decades. It sank as low as 3.8676 percent yesterday.
‘Very, Very Cheap’
“The U.S. and European markets have blown out to record levels of attractiveness versus bonds,” Barton Biggs, a former Morgan Stanley strategist who now runs the hedge fund Traxis Partners LLC, said during a Bloomberg Television interview. Stocks are at “very, very cheap levels.”
This week, 245 of the 500 companies that make up the S&P 500 dropped to the lowest price in a year or more. Russian equities are the cheapest in the world, trading for 2.5 times estimated 2008 profit. The 27 nations with price-to-earnings ratios of 8 or less include Germany, Turkey, South Africa, the U.K. and Indonesia. The S&P 500’s multiple is 11.
“There is an extreme level of pessimism and almost despair,” said Biggs, 75. “As long as I have been in the business, those have always been good signs.”
Alcoa fell 20 percent to a 13-year low of $9.41. Citigroup lost 18 percent to $12.14, the lowest price since October 1996. Hewlett-Packard declined 18 percent to $32.44. GM decreased 7.5 percent to $5.95, remaining above the five-decade low of $4.76 reached two weeks ago. Ford slipped 17 percent to $2.01.
REITs, Consumer Stocks Drop
Producers of metals, chemicals and other raw materials lost the most among 10 industries in the S&P 500, falling 11.1 percent as a group. Financial institutions declined 10.5 percent.
All 24 of the smaller S&P 500 industry groups slumped, led by real-estate investment trusts. General Growth Properties Inc., a Chicago-based mall developer, plunged 65 percent to $2.17 after the Wall Street Journal reported it may sell up to $2 billion in preferred stock. Developers Diversified Realty Corp., which owns shopping centers, lost 51 percent to $8.08.
Producers of consumer goods retreated. Liz Claiborne Inc., the maker of Kate Spade handbags, fell 33 percent to $6.95. Nike Inc., the world’s largest athletic-shoe company, slumped 17 percent to $47.79. Whirlpool Corp., the biggest appliance maker, dropped 20 percent to $49.16.
To contact the reporter on this story: Nick Baker in New York at nbaker7@bloomberg.net.
Read more...
Hedge Fund Withdrawals Stress Market; Citadel Reassures Clients
By Saijel Kishan and Katherine Burton
Oct. 25 (Bloomberg) -- Hedge funds are aggravating the worst market selloff in 50 years as they dump assets to meet investor redemptions and keep lenders at bay.
U.S. hedge-fund managers may lose 15 percent of assets to withdrawals by year-end while their European rivals shed as much as 25 percent, Huw van Steenis, a Morgan Stanley analyst in London, wrote yesterday in a report to clients. Combined with investment losses, industry assets may shrink to $1.3 trillion, a 32 percent drop from the peak in June.
With the average hedge fund down 18 percent this year, as measured by the HFRX Global Index, managers are selling assets to repay departing investors and meet demands from lenders for more collateral. Others including Paulson & Co. and Winton Capital Management LLC are hoarding cash to soothe nervous clients and wait for signs the worst is over. When stocks rally, hedge funds take advantage to unload what they can.
``I have never seen a market as full of panic as I've seen in the last seven or eight weeks,'' Kenneth Griffin, founder of Citadel Investment Group LLC, a Chicago-based hedge-fund firm, said yesterday.
Citadel, addressing investor concerns that its funds may be forced to liquidate, said yesterday it has $8 billion in untapped bank credit, 30 percent of its assets in cash and ``modest'' client redemptions.
The firm had no material losses from trading partners as its main Wellington and Kensington funds fell about 35 percent this year through Oct. 17, Chief Operating Officer Gerald Beeson said on a conference call with bondholders. Year-end redemptions will be a ``few percent'' of assets.
Worst Year
Griffin, 40, who started Citadel in 1990, has posted the biggest losses of his career in 2008 after increasing wagers on loans and bonds before the markets plunged.
Most of the funds' declines occurred in the four weeks after Lehman Brothers Holdings Inc. went bankrupt, Beeson, 36, said. Kensington and Wellington lost money holding convertible bonds, high-yield bonds and bank loans, and investment-grade bonds, which were hedged with credit default swaps that protect the buyer in the event of a default.
Citadel was betting that the gap between the default swaps and the bonds would narrow. Instead, they widened as lenders left the market and investors bet that more companies would default.
``Even the healthy hedge funds are being forced to sell,'' Mohamed El-Erian, co-chief executive officer of Pacific Investment Management Co. of Newport Beach, California, said in an interview yesterday with cable-television network CNBC.
Shake-Out
John Paulson, whose New York-based Paulson Advantage Plus Fund climbed about 25 percent this year through September, was about 70 percent in cash at the end of last month, according to investors. David Harding, founder of London-based Winton Capital, said he is holding about 95 percent of assets in U.S. Treasury bills and cash or cash equivalents.
``What we're seeing now is an acceleration of the shake- out that should have happened a long time ago,'' said Peter Rup, chief investment officer at New York-based Orion Capital Management LLC, which invests in hedge funds.
The HFRX Global Index fell 7.76 percent this month through Oct. 22, according to Hedge Fund Research Inc. in Chicago. Hedge funds lost 5.4 percent last month, the most since the implosion of hedge fund Long-Term Capital Management LP a decade ago.
Passport Management LLC's Global Strategy fund fell 27 percent this month through Oct. 15, and 34 percent for the year, as investments in commodity stocks slumped, according to an investor letter. The $4.5 billion hedge-fund firm is run by John Burbank III in San Francisco.
Calming Investors
Platinum Asset Management LP, a Rye Brook, New York-based firm, lost as much as 29 percent this month through Oct. 15, bringing its year-to-date decline to 38 percent, according to investors.
Investors withdrew a record $43 billion from hedge funds last month, according to TrimTabs Investment Research in Sausalito, California.
``There's a bigger push by hedge funds to mitigate risk,'' said Matt Simon, analyst at New York-based Tabb Group, a financial-services consulting company. ``Funds are trying to keep jittery investors calm.''
To contact the reporter on this story: Saijel Kishan in New York at skishan@bloomberg.net; Katherine Burton in New York at kburton@bloomberg.net
Read more...
Oct. 25 (Bloomberg) -- Hedge funds are aggravating the worst market selloff in 50 years as they dump assets to meet investor redemptions and keep lenders at bay.
U.S. hedge-fund managers may lose 15 percent of assets to withdrawals by year-end while their European rivals shed as much as 25 percent, Huw van Steenis, a Morgan Stanley analyst in London, wrote yesterday in a report to clients. Combined with investment losses, industry assets may shrink to $1.3 trillion, a 32 percent drop from the peak in June.
With the average hedge fund down 18 percent this year, as measured by the HFRX Global Index, managers are selling assets to repay departing investors and meet demands from lenders for more collateral. Others including Paulson & Co. and Winton Capital Management LLC are hoarding cash to soothe nervous clients and wait for signs the worst is over. When stocks rally, hedge funds take advantage to unload what they can.
``I have never seen a market as full of panic as I've seen in the last seven or eight weeks,'' Kenneth Griffin, founder of Citadel Investment Group LLC, a Chicago-based hedge-fund firm, said yesterday.
Citadel, addressing investor concerns that its funds may be forced to liquidate, said yesterday it has $8 billion in untapped bank credit, 30 percent of its assets in cash and ``modest'' client redemptions.
The firm had no material losses from trading partners as its main Wellington and Kensington funds fell about 35 percent this year through Oct. 17, Chief Operating Officer Gerald Beeson said on a conference call with bondholders. Year-end redemptions will be a ``few percent'' of assets.
Worst Year
Griffin, 40, who started Citadel in 1990, has posted the biggest losses of his career in 2008 after increasing wagers on loans and bonds before the markets plunged.
Most of the funds' declines occurred in the four weeks after Lehman Brothers Holdings Inc. went bankrupt, Beeson, 36, said. Kensington and Wellington lost money holding convertible bonds, high-yield bonds and bank loans, and investment-grade bonds, which were hedged with credit default swaps that protect the buyer in the event of a default.
Citadel was betting that the gap between the default swaps and the bonds would narrow. Instead, they widened as lenders left the market and investors bet that more companies would default.
``Even the healthy hedge funds are being forced to sell,'' Mohamed El-Erian, co-chief executive officer of Pacific Investment Management Co. of Newport Beach, California, said in an interview yesterday with cable-television network CNBC.
Shake-Out
John Paulson, whose New York-based Paulson Advantage Plus Fund climbed about 25 percent this year through September, was about 70 percent in cash at the end of last month, according to investors. David Harding, founder of London-based Winton Capital, said he is holding about 95 percent of assets in U.S. Treasury bills and cash or cash equivalents.
``What we're seeing now is an acceleration of the shake- out that should have happened a long time ago,'' said Peter Rup, chief investment officer at New York-based Orion Capital Management LLC, which invests in hedge funds.
The HFRX Global Index fell 7.76 percent this month through Oct. 22, according to Hedge Fund Research Inc. in Chicago. Hedge funds lost 5.4 percent last month, the most since the implosion of hedge fund Long-Term Capital Management LP a decade ago.
Passport Management LLC's Global Strategy fund fell 27 percent this month through Oct. 15, and 34 percent for the year, as investments in commodity stocks slumped, according to an investor letter. The $4.5 billion hedge-fund firm is run by John Burbank III in San Francisco.
Calming Investors
Platinum Asset Management LP, a Rye Brook, New York-based firm, lost as much as 29 percent this month through Oct. 15, bringing its year-to-date decline to 38 percent, according to investors.
Investors withdrew a record $43 billion from hedge funds last month, according to TrimTabs Investment Research in Sausalito, California.
``There's a bigger push by hedge funds to mitigate risk,'' said Matt Simon, analyst at New York-based Tabb Group, a financial-services consulting company. ``Funds are trying to keep jittery investors calm.''
To contact the reporter on this story: Saijel Kishan in New York at skishan@bloomberg.net; Katherine Burton in New York at kburton@bloomberg.net
Read more...
Italy May Support Banks by Buying Hybrid Debt, Il Sole Reports
By Elisa Martinuzzi
Oct. 25 (Bloomberg) -- Italy, which has pledged funds to prevent the collapse of struggling banks, may buy so-called hybrid debt securities from lenders to help boost their capital ratios, Il Sole 24 Ore reported, without saying where it got the information.
The investments would enable banks to boost their Tier 1 ratios, while protecting their dividends, and the government wouldn't become a shareholder, Il Sole said.
A meeting of Italy's financial stability committee, which includes the Treasury, the Bank of Italy, securities watchdog Consob and insurance regulator Isvap, is planned for Oct. 28, a government official told Bloomberg today. The official declined to comment on plans to fund banks.
To contact the reporter on this story: Elisa Martinuzzi in Milan at emartinuzzi@bloomberg.net
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Oct. 25 (Bloomberg) -- Italy, which has pledged funds to prevent the collapse of struggling banks, may buy so-called hybrid debt securities from lenders to help boost their capital ratios, Il Sole 24 Ore reported, without saying where it got the information.
The investments would enable banks to boost their Tier 1 ratios, while protecting their dividends, and the government wouldn't become a shareholder, Il Sole said.
A meeting of Italy's financial stability committee, which includes the Treasury, the Bank of Italy, securities watchdog Consob and insurance regulator Isvap, is planned for Oct. 28, a government official told Bloomberg today. The official declined to comment on plans to fund banks.
To contact the reporter on this story: Elisa Martinuzzi in Milan at emartinuzzi@bloomberg.net
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Grasim to Cut Production of Fiber By 30% on Global Slowdown
By Saikat Chatterjee
Oct. 25 (Bloomberg) -- Grasim Industries Ltd., India's third-biggest cement maker, said it will cut production of viscose-staple fiber due to the global economic slowdown and rising inflation.
Production of the synthetic fiber will be reduced by about 30 percent at two factories in the central state of Madhya Pradesh and western Gujarat, the Mumbai-based company said in a statement to the Bombay Stock Exchange today.
Grasim also plans to advance a scheduled maintenance, it said in the statement.
To contact the reporter on this story: Saikat Chatterjee in New Delhi at schatterjee4@bloomberg.net.
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Oct. 25 (Bloomberg) -- Grasim Industries Ltd., India's third-biggest cement maker, said it will cut production of viscose-staple fiber due to the global economic slowdown and rising inflation.
Production of the synthetic fiber will be reduced by about 30 percent at two factories in the central state of Madhya Pradesh and western Gujarat, the Mumbai-based company said in a statement to the Bombay Stock Exchange today.
Grasim also plans to advance a scheduled maintenance, it said in the statement.
To contact the reporter on this story: Saikat Chatterjee in New Delhi at schatterjee4@bloomberg.net.
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Jet Airways Posts Biggest Loss in Three Years on Fuel
By Vipin V. Nair
Oct. 25 (Bloomberg) -- Jet Airways (India) Ltd., the nation's largest domestic carrier, posted its biggest quarterly loss in more than three years after jet fuel expenses surged.
The loss of 3.85 billion rupees ($77 million) for the three months ended Sept. 30 compared with a profit of 283.6 million rupees a year earlier, the Mumbai-based airline said in a statement to the Bombay Stock Exchange today. Revenue rose 45 percent to 32.6 billion rupees.
The company's spending on fuel, its biggest expense, more than doubled after local oil refiners increased the price of kerosene. Jet Airways Chairman Naresh Goyal forged a partnership with rival Kingfisher Airlines Ltd. this month to cut expenses to offset below-cost fares, higher expenses and an economic slowdown that reduced demand for air travel.
``Aviation is worse off now because everybody is cutting down on travel,'' said Jayesh Shroff, who helps manage the equivalent of about $2.5 billion in equities at SBI Asset Management Co. in Mumbai. ``Getting back to profits is definitely not going to happen so soon.''
Indian oil refiners have raised the price of jet fuel 24 percent since the start of the year in Jet Airways's base of Mumbai, inflating expenses for the airline. The average rate of jet fuel rose 69 percent in the quarter to 67.18 rupees a liter. The carrier spent 16.9 billion rupees buying jet fuel in the period, compared with 6.96 billion rupees a year ago.
Record Loss
Higher operating costs because of a pilot-shortage, insufficient infrastructure and more competition may lead India's airline industry to a record $2 billion loss this year, according to the Centre for Asia Pacific Aviation. The industry's loss will be the worst in the world outside the U.S., according to the International Air Transport Association.
``The impending recession globally has also impacted travel patterns to a very large extent and we expect a slowdown in demand growth over the next few quarters,'' Jet Airways said in a statement. ``We have deferred our expansion plans and are postponing our aircraft deliveries by at least a year.''
Jet Airways carried 2.83 million passengers in the last quarter, 7.6 percent more than a year earlier. The airline filled 66.3 percent of available seats compared with 66.8 percent a year earlier, the statement said.
The loss before tax for the three months ended Sept. 30 would have been wider by 8.79 billion rupees if the company hadn't changed its accounting practices in the previous quarter, according to the statement. The carrier plans to write off its currency losses on overseas loans stemming from the rupee's fall as depreciation, instead of recording a charge in the quarter.
Rupee Drops
The rupee declined 9.2 percent in the three months through September, its biggest quarterly loss since March 1992.
India's local passenger traffic fell 8 percent in September to 2.68 million from 2.92 million in August, the civil aviation ministry said this month. Global airline-passenger traffic fell in September, the first drop in five years, as the credit-market crisis and slowing economic growth deterred tourists and business executives from flying, IATA said yesterday.
Jet Airways fell by a record 18 percent to 171.5 rupees in Mumbai yesterday, the lowest level since it began trading in March 2005.
To contact the reporter on this story: Vipin V. Nair in Mumbai at vnair12@bloomberg.net.
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Oct. 25 (Bloomberg) -- Jet Airways (India) Ltd., the nation's largest domestic carrier, posted its biggest quarterly loss in more than three years after jet fuel expenses surged.
The loss of 3.85 billion rupees ($77 million) for the three months ended Sept. 30 compared with a profit of 283.6 million rupees a year earlier, the Mumbai-based airline said in a statement to the Bombay Stock Exchange today. Revenue rose 45 percent to 32.6 billion rupees.
The company's spending on fuel, its biggest expense, more than doubled after local oil refiners increased the price of kerosene. Jet Airways Chairman Naresh Goyal forged a partnership with rival Kingfisher Airlines Ltd. this month to cut expenses to offset below-cost fares, higher expenses and an economic slowdown that reduced demand for air travel.
``Aviation is worse off now because everybody is cutting down on travel,'' said Jayesh Shroff, who helps manage the equivalent of about $2.5 billion in equities at SBI Asset Management Co. in Mumbai. ``Getting back to profits is definitely not going to happen so soon.''
Indian oil refiners have raised the price of jet fuel 24 percent since the start of the year in Jet Airways's base of Mumbai, inflating expenses for the airline. The average rate of jet fuel rose 69 percent in the quarter to 67.18 rupees a liter. The carrier spent 16.9 billion rupees buying jet fuel in the period, compared with 6.96 billion rupees a year ago.
Record Loss
Higher operating costs because of a pilot-shortage, insufficient infrastructure and more competition may lead India's airline industry to a record $2 billion loss this year, according to the Centre for Asia Pacific Aviation. The industry's loss will be the worst in the world outside the U.S., according to the International Air Transport Association.
``The impending recession globally has also impacted travel patterns to a very large extent and we expect a slowdown in demand growth over the next few quarters,'' Jet Airways said in a statement. ``We have deferred our expansion plans and are postponing our aircraft deliveries by at least a year.''
Jet Airways carried 2.83 million passengers in the last quarter, 7.6 percent more than a year earlier. The airline filled 66.3 percent of available seats compared with 66.8 percent a year earlier, the statement said.
The loss before tax for the three months ended Sept. 30 would have been wider by 8.79 billion rupees if the company hadn't changed its accounting practices in the previous quarter, according to the statement. The carrier plans to write off its currency losses on overseas loans stemming from the rupee's fall as depreciation, instead of recording a charge in the quarter.
Rupee Drops
The rupee declined 9.2 percent in the three months through September, its biggest quarterly loss since March 1992.
India's local passenger traffic fell 8 percent in September to 2.68 million from 2.92 million in August, the civil aviation ministry said this month. Global airline-passenger traffic fell in September, the first drop in five years, as the credit-market crisis and slowing economic growth deterred tourists and business executives from flying, IATA said yesterday.
Jet Airways fell by a record 18 percent to 171.5 rupees in Mumbai yesterday, the lowest level since it began trading in March 2005.
To contact the reporter on this story: Vipin V. Nair in Mumbai at vnair12@bloomberg.net.
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France Telecom Doesn't See Cut in Targets; Concerned on Economy
By Chiara Remondini and Tommaso Ebhardt
Oct. 25 (Bloomberg) -- France Telecom SA, Europe's third- largest phone company, isn't planning to cut its full-year targets in spite of concern about market turmoil and the economic situation.
``We're not changing our plan but we're a little bit nervous,'' Chief Executive Officer Didier Lombard said in an interview in Venice today. ``Nobody understands what's happening in the market.''
On July 31, France Telecom repeated its outlook for full- year cash flow and stable profit margins. The company predicted gross operating profit as a percentage of sales to remain stable and organic cash flow of more than 7.8 billion euros ($9.9 billion).
``Everybody continues to telephone, and phones more when there's a crisis, but it's the general economy which is of high concern for us,'' Lombard said.
France Telecom is set to report third-quarter quarter earnings Oct. 30.
To contact the reporter on this story: Chiara Remondini in Milan at cremondini@bloomberg.net
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Oct. 25 (Bloomberg) -- France Telecom SA, Europe's third- largest phone company, isn't planning to cut its full-year targets in spite of concern about market turmoil and the economic situation.
``We're not changing our plan but we're a little bit nervous,'' Chief Executive Officer Didier Lombard said in an interview in Venice today. ``Nobody understands what's happening in the market.''
On July 31, France Telecom repeated its outlook for full- year cash flow and stable profit margins. The company predicted gross operating profit as a percentage of sales to remain stable and organic cash flow of more than 7.8 billion euros ($9.9 billion).
``Everybody continues to telephone, and phones more when there's a crisis, but it's the general economy which is of high concern for us,'' Lombard said.
France Telecom is set to report third-quarter quarter earnings Oct. 30.
To contact the reporter on this story: Chiara Remondini in Milan at cremondini@bloomberg.net
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Deutsche Telekom Repeats Targets, `Too Early' for 2009 Guidance
By Chiara Remondini and Tommaso Ebhardt
Oct. 25 (Bloomberg) -- Deutsche Telekom AG, Europe's biggest phone company, reiterated it will meet its targets for 2008 and said it's ``too early'' to make forecasts for next year.
``Everyone is currently facing tough challenges, but in past recessions our sector was fairly resistant,'' Chief Executive Officer Rene Obermann said in an interview in Venice today. ``We keep our targets.'' The CEO said he's ``very confident'' that 2008 guidance will be achieved while giving ``no prognosis at this point in time'' for next year as it's ``too early.''
On Aug. 7, Deutsche Telekom predicted a slide in sales and earnings at its German fixed-line phone unit this year. The company didn't see the need to correct its forecast because of the global economic crisis, Obermann said Oct. 10.
Deutsche Telekom targets adjusted profit of about 19.3 billion euros ($24.5 billion) and free cash flow of 6.6 billion euros for the company as a whole.
To contact the reporter on this story: Chiara Remondini in Milan at cremondini@bloomberg.net.
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Oct. 25 (Bloomberg) -- Deutsche Telekom AG, Europe's biggest phone company, reiterated it will meet its targets for 2008 and said it's ``too early'' to make forecasts for next year.
``Everyone is currently facing tough challenges, but in past recessions our sector was fairly resistant,'' Chief Executive Officer Rene Obermann said in an interview in Venice today. ``We keep our targets.'' The CEO said he's ``very confident'' that 2008 guidance will be achieved while giving ``no prognosis at this point in time'' for next year as it's ``too early.''
On Aug. 7, Deutsche Telekom predicted a slide in sales and earnings at its German fixed-line phone unit this year. The company didn't see the need to correct its forecast because of the global economic crisis, Obermann said Oct. 10.
Deutsche Telekom targets adjusted profit of about 19.3 billion euros ($24.5 billion) and free cash flow of 6.6 billion euros for the company as a whole.
To contact the reporter on this story: Chiara Remondini in Milan at cremondini@bloomberg.net.
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France Telecom Doesn't See Cut in Targets; Concerned on Economy
By Chiara Remondini and Tommaso Ebhardt
Oct. 25 (Bloomberg) -- France Telecom SA, Europe's third- largest phone company, isn't planning to cut its full-year targets in spite of concern about market turmoil and the economic situation.
``We're not changing our plan but we're a little bit nervous,'' Chief Executive Officer Didier Lombard said in an interview in Venice today. ``Nobody understands what's happening in the market.''
On July 31, France Telecom repeated its outlook for full- year cash flow and stable profit margins. The company predicted gross operating profit as a percentage of sales to remain stable and organic cash flow of more than 7.8 billion euros ($9.9 billion).
``Everybody continues to telephone, and phones more when there's a crisis, but it's the general economy which is of high concern for us,'' Lombard said.
France Telecom is set to report third-quarter quarter earnings Oct. 30.
To contact the reporter on this story: Chiara Remondini in Milan at cremondini@bloomberg.net
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European Bonds Rise as Regional Services, Manufacturing Shrink
By Andrew MacAskill
Oct. 25 (Bloomberg) -- European government bonds climbed as stocks tumbled and an industry survey showed the region's manufacturing and service industries shrank for a fifth month in October as the 15-nation economy slides toward a recession.
Two-year German notes advanced for a fifth week, pushing yields to the lowest level in almost three years, as the MSCI World Index of equities lost 9 percent. U.S. Treasuries and U.K. government bonds also gained after more than $10 trillion was wiped off equity values so far this month, fueling investor demand for the safest assets.
``This will keep the entire government bond universe well supported,'' said Kornelius Purps, a fixed-income strategist in Munich at Unicredit Markets and Investment Banking, a unit of Italy's largest lender. ``This is a truly ugly scenario and once again on a Friday we are just one step away from the cliff.''
The yield on the two-year German note slipped 11 basis points to 2.67 percent by 5 p.m. in London yesterday, extending its drop in the week to 27 basis points. The 4 percent note due September 2010 rose 0.19, or 1.9 euros per 1,000-euro ($1,259) face amount, to 102.38.
The yield on the 10-year German bund, Europe's benchmark government security, fell 25 basis points in the past five days to 3.76 percent, the steepest decline since the period ended Aug. 1. Yields move inversely to bond prices.
Equities slumped around the world on concern a global recession will erode corporate earnings. Europe's Dow Jones Stoxx 600 Index slid 6 percent and the Dow Jones Industrial Average lost 3.4 percent.
The euro headed for a 5 percent weekly decline against the dollar and traded at the weakest in six years versus the yen.
Bond Returns
European bonds outperformed U.S. Treasuries this month, handing investors a 2.2 percent return, compared with 1.6 percent for their U.S. counterparts, according to Merrill Lynch & Co.'s EMU Direct and Treasury Master indexes.
Royal Bank of Scotland Group Plc's composite gauge for Europe's manufacturing and services fell to the weakest since the survey began in 1998. Italian business confidence slipped to the weakest in 15 years, a separate report yesterday showed.
Royal Bank of Scotland said yesterday its composite index for Europe's manufacturing and services fell to 44.6, from 46.9 in September. The Isae Institute's index of business sentiment in Italy, the euro region's third-largest economy, fell to 77.7 this month from 81.8 in September, the Rome-based research center said.
European government bonds extended gains yesterday after a report showed the U.K. economy contracted more than forecast in the third quarter. Gross domestic product shrank 0.5 from the second quarter, the Office for National Statistics said.
`Economic Slowdown'
``This hasn't helped sentiment and was more confirmation that in Europe we are moving to an economic slowdown,'' said Wilson Chin, a fixed-income strategist at ING Bank NV in Amsterdam.
The International Monetary Fund on Oct. 7 predicted growth in the 15 countries sharing the euro would slow to 0.2 percent next year, the weakest since the single currency began trading in 1999, from 1.3 percent this year.
The cost of borrowing in dollars overnight in London increased as the likelihood of a global recession spurred banks to hoard cash. The London interbank offered rate, or Libor, that banks charge for such loans climbed 7 basis points to 1.28 percent yesterday, the British Bankers' Association said.
Spreads Widen
Two-year yields, which are most sensitive to the outlook for interest rates, have slipped more than a percentage point this month as widening credit- and stock-market losses encouraged investors to buy shorter-dated debt, seen as the safest assets.
The difference in yield, or spread, between two- and 10-year notes widened to 108 basis points yesterday, from 40 basis points a month ago. A steepening of the so-called yield curve suggests investors are increasing bets on lower rates.
``This is a combination of safe-haven flows and people looking for the European Central Bank to cut rates aggressively,'' said Charles Diebel, head of European interest- rate strategy in London at Nomura International Plc. The two-year note is ``pretty rich at these levels and people are looking for too much monetary easing too soon.''
ECB council member Ewald Nowotny said the bank has room to lower borrowing costs, Reuters reported yesterday, citing an interview with CNBC. The ECB cut its main refinancing rate by half a percentage point to 3.75 percent on Oct. 8 in concert with other central banks around the world.
Investors should continue buying shorter-dated European bonds because the yield curve may steepen further, according to a team of analysts from ING.
``On the curve we maintain a preference for steepeners, and especially on the two/10-year segment,'' strategists including Padhraic Garvey, head of investment-grade debt strategy in Amsterdam at ING, wrote in a client note yesterday.
U.K. government bonds gained by the most this past week since 1999. The yield on the 10-year gilt fell 11 basis points to 4.36 percent after a report showed Britain's economy contracted more than forecast in the third quarter, bringing the nation to the brink of a recession.
To contact the reporter on this story: Andrew MacAskill in London at amacaskill@bloomberg.net
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Canadian Dollar Falls for a Fourth Week; Government Bonds Gain
By Chris Fournier
Oct. 25 (Bloomberg) -- Canada's dollar fell for a fourth week, its longest losing streak in almost a year, and two-year bond yields touched the lowest in almost two decades on speculation the economic slump will deepen and oil will decline.
Canada's currency, dubbed the loonie for the aquatic bird on the one-dollar coin, is poised for its worst month since at least 1950 after touching the lowest since September 2004 yesterday. It has declined 17 percent since September.
``We're right off the charts in terms of how big this decline is,'' said Doug Porter, deputy chief economist with BMO Capital Markets in Toronto. ``We continue to see tremendous volatility in all financial markets and that's most definitely affecting the currency markets as well.''
The Canadian dollar depreciated 7.5 percent to C$1.2775 per U.S. dollar in Toronto, from C$1.1820 on Oct. 17. Yesterday it touched C$1.2842, the lowest since Sept. 23, 2004. One Canadian dollar buys 78.28 U.S. cents. It's slide is the longest since it fell for six straight weeks in the period ended Dec. 14.
The loonie's drop this month is the most in at least 58 years, according to Bloomberg and Bank of Canada data. The Canadian dollar was fixed to the U.S. currency from the founding of the country's central bank in 1939 until after World War II, according to the bank's Web site. It was allowed to float from 1950 until 1962, and then again from June 1970.
`Canadian Dollar's Prospects'
The currency fell 6.2 percent in November 1976, after Quebec, the country's second-most populous province, elected the separatist Parti Quebecois, ``prompting markets to make a major reassessment of the Canadian dollar's prospects,'' wrote James Powell, author of a book on the history of the currency.
The drop this month is also larger than any annual decline since 1950, exceeding the previous full-year drop of 9.1 percent in 1992.
Crude oil, which accounted for 10 percent of Canada's export revenue in 2007, dropped 11 percent this week to $64.22 a barrel, a 16-month low. Crude reached a record $147.27 on July 11. Since then, the loonie has lost 21 percent.
Alberta's government estimates its oil sands, about 750 kilometers (466 miles) northeast of Calgary, hold the largest oil reserves in the world outside Saudi Arabia.
`Very Brave Person'
``Commodity prices are rumbling away in the background and that's definitely one of the factors weighing on the Canadian dollar,'' Porter said.
Porter predicts the currency will strengthen to C$1.17 or C$1.18 in 12 months, although ``you have to be a very brave person to say when it's going to bottom,'' he said.
The MSCI World Index lost 8.3 percent this week and is down by almost half this year. The Bank of Canada Commodity Price Index, which comprises 23 raw materials produced in Canada such as crude, natural gas and aluminum, fell for a fourth week.
``Canada continues to be buffeted by global financial- market dislocations, hampering recovery prospects,'' Citigroup Global Markets Inc.'s Dana Peterson wrote in a note. ``Canadian financial conditions have soured, exports are impaired by flagging U.S. domestic demand, and commodity price declines and volatility are diminishing terms of trade.''
Teck Cominco Ltd., the Vancouver miner that generated half its third-quarter operating profit from coal and about a third from copper, said on Oct. 22 that its earnings stand to increase by C$50 million ($39.3 million) for every 1 percent the loonie weakens against the U.S. dollar. Sales of the company's products are priced in U.S. dollars and become worth more when converted to Canadian dollars.
`Still Go Higher'
``Can the U.S. dollar still go higher against the Canadian dollar? Why not?'' CIBC World Markets' Adam Fazio in New York and Shane Enright in Toronto wrote in a note to clients. Citing ``panic-induced markets,'' the strategists said the loonie could weaken to C$1.30 this month.
The yield on the Government of Canada two-year note fell below 2 percent for the first time since at least 1989, when Bloomberg records begin. The Bank of Canada cut borrowing costs by 25 basis points, or 0.25 percentage point, to 2.25 percent on Oct. 21, after lowering rates by 50 basis points on Oct. 8 in conjunction with other central banks around the world.
The two-year note's yield declined 17 basis points this week to 2.10 percent. Yesterday it touched 1.991 percent. The price of the 2.75 percent security due in December 2010 rose 32 cents to C$101.32.
The 10-year note's yield fell 9 basis points in the period to 3.64 percent. The price of the 4.25 percent security maturing in June 2018 added 69 cents to C$104.89.
To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net
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Asia Backs Sarkozy Push for Financial-Market Revamp
By Jennifer M. Freedman and Jonathan Stearns
Oct. 25 (Bloomberg) -- Asian and European leaders called for an overhaul of global banking rules that date to World War II, lending support to French President Nicolas Sarkozy as he presses the U.S. to join an effort to resolve the financial crisis.
The heads of state and government ``pledged to undertake effective and comprehensive reform of the international monetary and financial systems,'' according to a statement released at a meeting in Beijing that ended today. Chinese Premier Wen Jiabao told a press conference after the gathering of more than 40 Asian and European Union leaders that ``we need even more financial regulation to ensure financial safety.''
The two-day summit was the first meeting of Asian and EU chiefs since calls for coordinated action mounted along with bank failures and plunging stock prices that began last month. The U.S. will host the Group of 20 industrialized and developing nations on Nov. 15 at the urging of Sarkozy.
South Korea said it ``highly valued'' Sarkozy's ``strong leadership.'' The French president has compared the effort to the 1944 Bretton Woods conference in New Hampshire that fixed exchange rates, hitched the world to the gold standard and created the International Monetary Fund and World Bank.
The EU has floated the ideas of including more bank supervision, stricter regulation of hedge funds, new rules for credit-rating companies and changes at the IMF.
`Falling Behind'
``The IMF, World Bank and other agencies are falling behind the times,'' said Jeon Hyochan, a researcher at Samsung Economic Research Institute in Seoul. ``The agencies need to strengthen their ability to take pre-emptive measures.''
The Washington-based IMF is considering an emergency program to prevent a collapse of emerging markets by almost doubling borrowing limits for members and waiving its standard demands for economic austerity measures. The agency agreed yesterday to lend Iceland $2.1 billion in accordance with existing rules after the island nation's banking system collapsed, threatening a prolonged economic contraction.
``There is a unanimous consensus to push forward reform,'' said Kazuo Kodama, a spokesman at Japan's Ministry of Foreign Affairs. No agreement has been reached on the details of that reform, he said.
`Excessively Stringent'
Japan wants the IMF to be able to act in a ``nimble, speedy, timely manner'' and ``without excessively stringent conditions'' when helping poorer nations, said Osamu Sakashita, a spokesman for Prime Minister Taro Aso.
The EU and Asian leaders were less specific in their statement, which says the ``IMF should play a critical role in assisting countries seriously affected by the crisis.''
Sarkozy's campaign for an overhaul threatens to expose differences with the U.S. over global financial governance. That may provoke tensions and bog down talks while individual countries continue to act on their own to limit the fallout.
Sarkozy said the mid-November meeting in Washington will involve regulatory decisions because EU and Asian leaders agree that action is needed. He and Wen said China will be an ``active'' participant.
``We have all understood it would not be possible to simply meet and have a conversation,'' Sarkozy said. ``We needed to turn it into a decision-making forum.''
Exchange Rates
The gathering to be hosted by President George W. Bush will be the first of a series of financial summits that will also address foreign-exchange rates, according to Sarkozy, who said talks about currencies may be put off until after Nov. 15. ``It is simply impossible to talk about the financial crisis without discussing currencies and the way in which they interact.''
The pound and the euro have both lost more than 20 percent against the dollar in the past three months, and more than 30 percent against the yen. Aso said derivatives products that ``flow around the world'' should also feature on the agenda.
South Korea stressed the importance of trans-Atlantic unity in taking any actions. ``If Europe and the U.S. become united, it would enhance whatever countermeasures are taken,'' South Korean President Lee Myung Bak said, according to his spokesman, Lee Dong Kwan.
The credit crisis is choking off funds to companies and people, undermining business and consumer sentiment. Economists at Deutsche Bank AG expect the Group of Seven economies to contract 1.1 percent next year, the worst since the Great Depression, and global growth to be the weakest since the 1980s.
Markets Tumble
Stock markets and commodities have tumbled along with currencies this year amid growing concern that governments, central banks and finance ministers are powerless to counter eroding corporate earnings and a global recession.
Oil-producing nations haven't escaped the carnage as crude plunged 56 percent from its July peak to $64 a barrel.
More than $10 trillion has been erased from the market value of equities so far this month, accounting for about one-third of the total value wiped off stocks this year. MSCI's index of developed and emerging stock markets plunged 48 percent in 2008 and is heading for its worst year on record as credit-related losses topped $660 billion.
The Standard & Poor's 500 index is down more than 40 percent this year, poised for its worst annual retreat since 1931. The S&P 500 has lost 26 percent since U.S. investment bank Lehman Brothers Holdings Inc. declared bankruptcy on Sept. 15, while the U.K.'s FTSE 100 has fallen 25 percent, Japan's Nikkei 225 has tumbled 37 percent and Germany's DAX has dropped 29 percent.
To contact the reporters on this story: Jennifer M. Freedman in Beijing at jfreedman@bloomberg.net; Jonathan Stearns in Beijing at jstearns2@bloomberg.net
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India's Inflation Concerns Persist, Subbarao Says
By Cherian Thomas
Oct. 25 (Bloomberg) -- Reserve Bank of India Governor Duvvuri Subbarao said inflation concerns persist, adding pressure on the central bank to do more to support economic growth.
``We can't drop our guard on controlling inflation,'' Subbarao told reporters in Mumbai today. ``We have to balance the concerns of preserving financial stability, maintaining price stability and sustaining growth.''
Subbarao yesterday kept interest rates unchanged and signaled he may hold borrowing costs steady in coming weeks as inflation remains a concern, triggering a plunge in stocks and bonds. A weaker rupee may raise import costs and stoke inflation, Subbarao said today.
``The RBI's status-quo on interest rates held a surprise element for a certain segment of the market,'' said Namrata Padhye, an economist at IDBI Gilts Ltd. in Mumbai. ``Easing of interest rates at this juncture would have only hurt the rupee.''
India's rupee dropped for an 11th week yesterday, the longest losing streak since December 2005, as the nation's benchmark share index plunged the most in four years on signs global economies are headed for a recession.
The rupee slid as much as 0.7 percent to 50.165 per dollar, an all-time low, before closing at 49.96 in Mumbai yesterday. The Sensitive index plunged 11 percent.
The governor yesterday held the repurchase rate at 8 percent, after lowering it by 1 percentage point on Oct. 20. He also kept the cash reserve ratio, or the proportion of deposits lenders need to set aside as reserves, at 6.5 percent after cutting it by 2.5 percentage points since Oct. 11.
Lower Growth Forecast
Subbarao also cut India's growth forecast to between 7.5 percent and 8 percent for the year to March 31, from the 8 percent estimated in July.
He kept the inflation estimate unchanged at 7 percent by March 31, while betting the decline in commodity prices will slow price increases. India's key wholesale price inflation is 11.07 percent, more than double the 5 percent aim of the central bank.
India will be ``much less'' influenced by a global recession than many other countries because growth in the nation's $1.2 trillion economy, Asia's third-largest, is driven by domestic consumer demand, Subbarao said.
``In a globalizing world, where financial integration is so deep, it is futile to think that any country can be decoupled'' from a global recession, Subbarao said. ``Having said that, if there is any major emerging economy that can decouple, it is India.''
The governor said he has ``concerns'' on the inflation front.
Inflation to Decline
``In a mathematical sense, inflation is coming down, and indeed, when we project 7 percent inflation by March, we believe it will continue to decline,'' Subbarao said.
While wholesale price inflation is the key price index in India, the central bank also studies trends in the consumer prices, he said.
Consumer prices for agriculture and rural labor have risen by 11 percent, while that for industrial workers is at 9 percent, Subbarao said.
While the winter crop harvest is ``promising,'' the forecast for production is 115 million tons, lower than the 121 million tons estimated earlier, he said.
Oil prices are also subject to volatility, the governor said.
``If supply is cut as the OPEC did yesterday, or the dollar weakens, then there is upward pressure on oil,'' Subbarao said. ``On the other hand, if recession is weaker than it is, then there will be downward pressure. So we don't know how these forces will play.''
To contact the reporter on this story: Cherian Thomas in New Delhi at Cthomas1@bloomberg.net.
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South African Rand Logs Fifth Weekly Drop as Stocks, Gold Slide
By Garth Theunissen
Oct. 25 (Bloomberg) -- South Africa's rand fell for a fifth week as stocks and commodities slumped and investors sold higher- yielding assets on concern the worldwide financial crisis will crimp economic growth.
The rand also dropped to a record against the Japanese yen as South Africa's benchmark equity index declined to the lowest level in more than two years. The currency weakened as a decline in gold, the country's biggest export, eroded earnings prospects for the biggest producer of precious metals.
``Negative speculative sentiment toward'' emerging markets ``is turning the rand into a one-way downward bet,'' said Ian Cruickshanks, head of research at Nedbank Treasury in Johannesburg. ``We're not masters of our own currency.''
The rand slumped 11 percent this week to 11.1480 per dollar by 7 p.m. in Johannesburg yesterday, extending its drop this year to almost 40 percent. Against the euro, the rand slid 5.8 percent in the week to 14.09. It fell 18 percent versus the yen.
Emerging-market currencies including the Hungarian forint, Ukraine's hryvnia and South Korea's won have slumped this week as investors cut holdings of higher-yielding assets in favor of safer holdings such as U.S. Treasuries. The MSCI World Index of stocks lost 7.7 percent, extending its decline this year to 45 percent, as credit-related losses and writedowns topped $660 billion in the worst financial crisis since the Great Depression.
Europe's Dow Jones Stoxx 600 Index slid 8.4 percent in the week while the FTSE/JSE Africa All Share Index lost 8.3 percent.
Risk-Taking Evaporating
``Risk-taking has evaporated, which is resulting in consistent currency weakness,'' said Roderick Ngotho, a currency strategist for Europe, the Middle East and Africa at UBS AG in London. ``Asset classes across the board are suffering.''
South Africa's currency has slumped 38 percent this year while the benchmark stock index has lost more than 30 percent after foreigners turned net sellers of almost 41 billion rand ($3.8 billion) of the nation's stocks and bonds. Africa's biggest economy relies on the inflows to finance the shortfall in its current account, a measure of trade in goods and services, which has exceeded 7 percent of gross domestic product for four consecutive quarters.
The deficit will reach 7.6 percent of GDP this year before swelling to 7.8 percent next year and 8.9 percent in 2010, Finance Minister Trevor Manuel said in his mid-term budget speech on Oct. 21. Manuel also slashed his economic growth forecast for next year to 3 percent from 4.2 percent.
``The focus is on external vulnerabilities, whether on the capital or current account,'' said Ngotho. ``Countries with the biggest external imbalances are suffering most.''
Gold, Platinum
Gold plunged 9.2 percent in the past five days, dropping to $682.41 an ounce yesterday, the lowest in more than a year. Platinum, South Africa's second-biggest export earner, fell 11.4 percent in the week to $773.75 an ounce.
``The commodity super-cycle has broken, which automatically translates into weaker export performance,'' said Cruickshanks. ``Commodities are still the backbone of this economy.''
South Africa produces almost 80 percent of the world's platinum and about 10 percent of its gold, typically causing the rand to trade in tandem with the metals' prices.
Government bonds fell in the week, with the yield on the benchmark 13.5 percent security due September 2015 adding 56 basis points to 9.86 percent. The yield on the 13 percent note maturing in August 2010 climbed 118 basis points to 10.69 percent. Yields move inversely to bond prices.
``The severe currency weakness has made people adjust their interest rate expectations,'' said Mokgatla Madisha, a bond trader at Investec Asset Management in Cape Town, which oversees around $60 billion dollars in assets. ``The market is now pricing in the small possibility of an interest-rate hike early next year, whereas a couple weeks ago investors were looking for cuts as early as December.''
South Africa's main interest rate is 12 percent.
To contact the reporter on this story: Garth Theunissen in Johannesburg gtheunissen@bloomberg.net
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Will the Fed Put a Stop to the Dollar Rally?
| Daily Forex Fundamentals | Written by GFT | Oct 25 08 06:09 GMT | | |
TODAY'S BIGGEST PERCENTAGE MOVERS
THE STORIES IN THE CURRENCY MARKET
EXPECTATIONS FOR UPCOMING FED MEETINGS
** PERCENTAGES MAY NOT ADD UP TO 100% BECAUSE OF THE PROBABILITY OF LARGER OR SMALLER MOVES BEYOND THOSE SHOWN ON THIS TABLE WILL THE FED PUT A STOP TO THE DOLLAR RALLY?Contrary to the some people's belief, the US equities did not crash today. When S&P futures hit its limit down levels before the US markets opened and Dow futures dropped 5 percent, some media outlets were touting the possibility of circuit breakers kicking in; that would have meant an 1100 point decline in the Dow. Thankfully, it did not happen and even though the Dow fell 312 points today, it is off its lows. The type of moves that we have seen in the currency market today is typically what we see in a quarter or a half year. USD/JPY is down more than 3 percent, the NZD/USD is down 6.25 percent while the AUD/USD has declined 7.75 percent. The sell-off in the Japanese Yen crosses is even more severe with AUD/JPY falling more than 10 percent. On Thursday, we said that even though it may be very tempting to call a top in the dollar, especially against the Euro, in order for this EUR/USD rally to be real and for investors to be convinced to stop selling higher yielding currencies, we need to see stabilization in the financial markets and a return of confidence. Equities are driving currencies as everyone sells first and ask questions later. The trigger for the collapse today was concerns about corporate profitability. Sony issued a profit warning, Samsung reported a 44 percent decline in Q3 profits while Volvo reported a 37 percent decline. Investors are finally seeing how big of a toll the global slowdown is having on exports. With risk of a further decline in export demand, central banks around the world will have to act aggressively to prevent the global recession from turning into a global depression. Fed Fund Futures are Pricing in the Possibility of a 75bp Rate Cut The anticipated event risk next week is the Federal Reserve's interest rate decision. Going into the meeting, the market is now pricing in an 68 percent chance of a 50bp rate cut and an 32 percent chance of a 75bp rate cut. This indicates that the market believes 25bp will be the minimum that the Fed eases on Wednesday. We believe that a 75bp rate cut will be a too aggressive because it leaves the central bank with next to no room to cut interest rates in case things get worse – and they will. The 3 most realistic options are a 50bp rate cut, a 50bp coordinated easing along with other central banks and a 25bp rate cut. A coordinated easing will probably have the most significant impact on the financial markets and given the drop in oil prices and the deterioration in European economic data, the ECB and the BoE may not be opposed to this option. Although the Fed may have considered a 25bp rate cut earlier this week, they know that if they under deliver now, the consequences for the equity market could be severe. A larger interest rate cut could put a stop to the dollar's rally. Where are the Value Points for the Currency Market? In the Wed edition of the Daily Currency Focus we talked about how the dollar could rise another 5%. At that time, the EUR/USD was trading at 1.2829 and the GBP/USD at 1.6236. The GBP/USD has already hit the 5 percent target and at one point this morning it even became undervalued on a purchasing parity basis. Although the UK GDP report confirms that the country is headed for a recession and validates the weakness, we have seen a near term low in the currency pair. As for the EUR/USD on the other hand it has only dropped 2.9 percent. The EUR/USD does not become a value play until 1.15-1.20. Consumer Confidence, GDP, Chicago PMI and New Measures by the Treasury In addition to the FOMC interest rate decision, there are a handful of other US economic data worth watching in the coming week. This includes new home sales, consumer confidence, durable goods, third quarter GDP, personal income, personal spending and Chicago PMI. Also keep an eye out for any new announcements from the US Treasury in an effort to bolster investor confidence. Existing home sales increased 5.5 percent last month which was stronger than the market expected, but the median price of a house sold fell sharply. HOW MUCH HAVE FX RANGES EXPANDED IN 2007?We all know that the daily trading range of currencies have expanded, but by how much? Compared to 2007, the daily average trading range for the EUR/USD year to date has increased 195%. The average range for GBP/USD has increased 150% while the range for USD/JPY has expanded by 140%. Since the beginning of October, the ranges have exploded even further. The average trading range for the EUR/USD is now 300% greater than the range in 2007. Here is a table with a quick study that we ran on trading ranges:
EURO TESTS 1.25, EMERGING MARKETS TO SUFFER FROM DOLLAR STRENGTHAny positive sentiment expressed in Thursday's trading has been all but extinguished as the Euro drops 335 pips - the currency even temporarily traded below 1.25 against the US dollar. The Eurozone had a wealth of numbers released today, including German Import prices, French and German PMI, and Italian Business and Consumer Confidence. Unsurprisingly, PMI reports show that the Manufacturing sector has weakened substantially. Italian business confidence was weak while surprisingly consumer confidence was strong. In addition, German Import prices fell to -1.0%. Next Monday, the Euro-zone will face the German IFO index and there is a decent chance that sentiment has weakened substantially as uncertainty and fear has taken its toll on the global economy. The latest round of dollar strength continues to push emerging market currencies lower. It has forced these countries to raise interest rates (Denmark hiked by 50bp), take loans from the IMF and to obtain swap lines with the ECB. Crippled by a weak currency and the risk of runs on their currency, emerging Europe will no longer be the engine of growth that everyone may have hoped for. YEN HITS 1995 HIGH, WILL THE BANK OF JAPAN INTERVENE?The Japanese yen strengthen across the board, reaching some unheard of gains against the dollar and carry trades. Today's USD/JPY trading is one for the history books, with the pair falling more than 700 pips intraday. Even though the currency pair ended down only 370 pips, volatility like this is worth mentioning. The sell-off was triggered by the extreme losses in global equity markets, with the Nikkei falling almost 10 percent. Any hopes of stabilizing volatility seem to be tossed out the window as investors become more fearful than ever. The VIX hit a new historical high today, reflecting the continued aim of risk aversion. These magnificent price movements in JPY are not the result of any strengthening fundamentals in the part of the Japanese economy. If you are wondering about Bank of Japan intervention, don't expect it to happen. As an export dependent nation, a strong currency is not in Japan's best interest. However unlike in the past where the BoJ has intervened when USD/JPY fell below 105 and 100, we may not see any action by the Japanese government this time around. The Prime Minister has already said that the rise in the yen is not always bad because it pushes down oil prices for Japan. If he is considering intervention, he would not mention this. Since the problems are inherent in the US and the Eurozone, intervening at this time would be counterproductive for Japan. The Japanese government will want to stand aside and allow the US and Eurozone governments to take their own measures to spur growth and not strengthen the dollar for short term relief. GBP/USD SEES SHARP REVERSAL AFTER HAVING BEEN DOWN 1000 PIPSEven though the British pound has ended the US trading session down 375 pips or 2.25 percent, it has had an impressive recovery. A few hours before the US market opened, the GBP/USD fell more than 1000 pips to a low of 1.5267. At that time, the GBP/USD went from overvalued on a purchasing power parity basis to undervalued. Third quarter growth contracted 0.5 percent, which was more than the market expected. This decline confirmed the central bank's warning that the country is in a recession. Candor has not been rewarded in the financial markets as King's comments sent the British pound tumbling close to 13 percent against the US dollar this week. There are no significant UK economic releases on the calendar in the coming week. We believe that after the sharp sell-off, the GBP/USD is now due for a recovery. It is Daylight Savings in Europe this weekend, so the difference between Eastern Time and GMT becomes +5. COMMODITY CURRENCIES RAVAGED BY RISK AVERSIONDespite OPEC 1.5 million barrel production cut, oil prices have tumbled, taking the Canadian dollar down with it. Risk aversion is to blame as the dollar's strength drives higher yielding currencies and oil prices lower. Canadian consumer prices were stronger than expected, just like the price component of the IVEY PMI report had predicted. The Australian dollar was the worst hit of the 3 commodity currencies with the currency falling 7.7 percent against the US dollar and 11 percent against the Japanese Yen. The New Zealand dollar dropped close to 7 percent as well. In the coming week, there are not many releases expected from Australia or New Zealand. Canada only has the August GDP report due for release. Therefore the fate of the comm. Dollars will continue to be tied to the market's risk appetite. EUR/USD: Currency in Play on MondayEUR/USD will be the currency in play on Monday with Eurozone and US economic data due for release. We expect German IFO Business Climate Index at 5:00 am ET and US New Home Sales at 10:00 am ET. Trading today has seen EUR/USD falling more than 300 points, reaffirming its position in the Bollinger Band sell zone. In order to identify support, we are using Fibonacci retracements drawn from the lows of November 2005 to the highs of April 2008. Despite the large slide in prices, action did respect the support 78.6% retracement. Resistance will be the high of yesterday's rally located at 1.3000. Lying above this level price action will face significant hurdles as there is the one-standard deviation Bollinger band, the 10-period SMA, as well as the 61.8% retracement lying at 1.3305. Therefore we will define resistance as a range between 1.3000 and 1.3305. To make any convincing attempt at a rebound, EUR/USD must develop the momentum to break these levels.
Kathy Lien DISCLAIMER: GFT refers to Global Futures & Forex, Ltd. and all of its divisions, branches and subsidiaries, including Global Forex Trading and GFT Global Markets UK Limited. GFT Global Markets UK Limited is authorized and regulated by the United Kingdom Financial Services Authority. Each investment product is offered only to and from jurisdictions where solicitation and sale are lawful. Trading of foreign exchange contracts, contracts for differences, derivatives and other investment products which are leveraged, can carry a high level of risk, and may not be suitable for all investors. It is possible to lose more than the initial investment. In Australia, GFT means Global Futures & Forex, Ltd. ARBN 103 508 461, AFS Licence 226625. A Product Disclosure Statement (PDS) is available at www.gft.com.au. You should read and consider the PDS before making any decision to deal in GFT products. © 2008 Global Futures & Forex, Ltd. All rights reserved. | |
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Clear Technicals And Balanced Fundamentals Offer A Unique AUDNZD Range Trade
| Daily Forex Technicals | Written by DailyFX | Oct 25 08 06:27 GMT | | |||||||||||||||||||||||||
| Market conditions have deteriorated yet again and volatility has put nearly every liquid pair into a breakout scenario. Any sort of range trade taken in this sort of environment is exceedingly dangerous if the outlook is beyond an intraday time frame. Why Would AUDNZD Stay in a Range? Levels to Watch:
As expected, panic has kicked up volatility in the currency market yet again. With the dramatic shift in sentiment, most of the viable range setups that survived the price action of the past few weeks saw major breakouts. AUDNZD represents one of the last pairs to retain a clear congestion zone and still have a fundamental cushion to further surges in risk sentiment. With both central banks indicating a slower pace of rate cuts, the pair may find balance. Technically, this pair has been extremely volatile - like the rest of the currency market - but price action has been otherwise contained by surprisingly clear levels. Resistance is our primary concern at 1.15/14 and is defined by notable 50% fib retracement and two weeks worth of daily highs. Support is less reliable in a very brief double bottom. Suggested Strategy
Trading Tip - Market conditions have deteriorated yet again and volatility has put nearly every liquid pair into a breakout scenario. Any sort of range trade taken in this sort of environment is exceedingly dangerous if the outlook is beyond an intraday time frame. To reduce our risk, we are once again dipping into the Aussie dollar pool to use AUDUNZD as a pair with a natural fundamental buffer to the recent, dramatic swings in risk appetite. However, the stability this pair has shown over the past few weeks could change very quickly; so any positions should be tracked closely while stops and targets should be placed and followed mechanically. Our suggested strategy looks for entry amid the forest of upper wicks and doesn't push the absolute extreme of the range. The stop is relatively wide, but it would not survive a false break. To keep with the broader market trend, we will only consider a short in this trading band. No orders should be set during the weekend as a gap could easily knock a position in only to have it stopped out. To limit risk we will cancel all open orders by Wednesday. Event Risk Australia And New Zealand Australia - In only a few months' time, the outlook for Australian growth and interest rates has marked an abrupt change. Initially fundamental traders and policy officials believed the domestic economy would survive the global crunch; but that quickly changed as a lack of demand began to seep in prices for key Australian commodities. With the additional help of a spreading credit problem, forecasts for domestic spending soon fell inline with the rest of the world. After a 100 basis point rate cut at their last meeting, the Australian dollar is set on a dovish path; yet the outlook for additional easing is taking a much more reserved pace. Now, policy officials seem to be taking a wait and see approach with the data taking a greater importance in future decisions. Upcoming data will certainly redefine the policy landscape. Aside from credit and leading indicator reports, third quarter business confidence will take measure of activity going into the financial crisis. More critical to growth will be the third quarter housing and retail sales readings though. New Zealand - There is little in the way of scheduled event risk over the coming week from the New Zealand dollar. This is perhaps fortunate for the currency as there is perhaps a greater interest in data after RBNZ Governor Alan Bollard delivered a 100 basis point this week and announced that he would take a more restrained approach to policy future policy decision. This suggests that central banker will want to see how such a sharp adjustment to lending rates will impact domestic lending conditions and economic activity. Nonetheless, should general risk sentiment take a sudden turn over the coming work, the kiwi dollar will likely take on the features of the market's premier carry currency.
Disclaimer Investment in the currency exchange is highly speculative and should only be done with risk capital. Prices rise and fall and past performance is no assurance of future performance. This website is an information site only. Accordingly we make no warranties or guarantees in respect of the content. The publications herein do not take into account the investment objectives, financial situation or particular needs of any particular person. Investors should obtain individual financial advice based on their own particular circumstances before making an investment decision on the basis of the recommendations in this website. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. All intellectual property rights are the property of Daily FX. Daily FX and its affiliates, will not be held responsible for the reliability or accuracy of the information available on this site. The content herein is provided in good faith and believed to be accurate, however, there are no explicit or implicit warranties of accuracy or timeliness made by Daily FX or its affiliates. The reader agrees not to hold Daily FX or any of its affiliates liable for decisions that are based on information from this website. Daily FX highly recommends that before making a decision, the reader collects several opinions related to the decision and verifies facts from at least several independent sources. | |||||||||||||||||||||||||
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Georgia's Alpha Bank & Trust Seized as U.S. Closings Rise to 16
By Ian Katz and Alison Vekshin
Oct. 25 (Bloomberg) -- Alpha Bank & Trust in Alpharetta, Georgia, with $346 million in deposits, was seized by regulators and closed as the collapse of the housing market and loan defaults claimed a 16th U.S. bank this year.
Alpha, with $354 million in assets, was shut by the Georgia Department of Banking and Finance, and the Federal Deposit Insurance Corp. sold the deposits to Stearns Bank N.A., of St. Cloud, Minnesota. Alpha's two offices north of Atlanta will open on Oct. 27 as branches of Stearns Bank, the FDIC said yesterday.
Regulators have closed the most banks in 15 years, and the collapses of Washington Mutual Inc. and IndyMac Bancorp Inc. were among the biggest in history. About 4.4 percent of Alpha's assets were defaulted real-estate loans it took back on its balance sheet, quadruple the total for most U.S. banks, based on data compiled by Charlottesville, Virginia-based SNL Financial.
Alpha ``could no longer meet the regulatory minimum to ensure safety and soundness,'' Robert Braswell, commissioner of the Georgia Department of Banking and Finance, said in an interview. He declined to discuss what activities or failed investments led to the bank's collapse.
Stearns is assuming Alpha's insured deposits and will acquire about $38.9 million, or 11 percent, of the assets as of Sept. 30, the FDIC said. Stearns didn't pay a premium, the FDIC said. The agency said it will retain the remaining assets and $3.1 million in uninsured deposits held in 59 accounts.
Alpha Bank had $16.8 million in brokered deposits, excluded from the sale to Stearns, the FDIC said. Brokers will be paid by the FDIC for insured funds. Construction and development loans accounted for 76 percent of its $305.7 million in total loans.
Second Bank
The cost to the FDIC deposit insurance fund will be $158 million, the agency said.
Alpha is the second Alpharetta-based bank closed by the government this year. In August, Integrity Bank was closed after failing to raise $40 million to cover losses on residential and commercial development loans.
Stearns Bank had $723 million in deposits as of June 30, a 24 percent drop from a year earlier, and $1 billion in assets, a 21 percent decline from a year ago, according to FDIC statistics.
The FDIC oversees 8,451 institutions with $13.3 trillion in assets, and insures deposits of as much as $250,000 per depositor per bank and the same amount for some retirement accounts. The agency has proposed doubling premiums charged to banks for coverage to replenish its reserves amid forecasts bank failures through 2013 will cost almost $40 billion.
WaMu, National City
Washington Mutual, the biggest savings and loan, sold its assets to JPMorgan Chase & Co. Sept. 25 after customers drained $16.7 billion in deposits in less than two weeks. Wachovia Corp., the sixth-biggest bank, agreed to be acquired by Wells Fargo & Co. for $11.7 billion, a deal that trumped an FDIC- brokered sale of banking operations to Citigroup Inc.
PNC Financial Services Group Inc., the biggest bank in Pennsylvania, bought National City Corp. of Cleveland yesteday for $5.2 billion, with $7.7 billion from the Treasury bailout fund. National City dropped 83 percent in trading before today.
The Treasury is buying preferred shares in nine banks: Citigroup, Wells Fargo, JPMorgan, Bank of America Corp., Merrill Lynch & Co. Morgan Stanley, Goldman Sachs Group Inc., Bank of New York Mellon Corp. and State Street Corp.
The FDIC is running a successor to California lender IndyMac, closed in July, and through this week had eased mortgage terms for more than 3,500 borrowers. The failure drained more than 10 percent from the U.S. insurance fund that had $45.2 billion at the end of the second quarter.
The agency in August said 117 banks were classified as ``problem'' in the second quarter, a 30 percent jump from the first quarter. The agency doesn't name the ``problem'' lenders.
``Banks overall are very well-capitalized,'' FDIC Chairman Sheila Bair told the Senate Banking Committee on Oct. 23. ``We have some banks with some challenges, but the vast majority are well-capitalized.''
The U.S. closed 27 banks from October 2000 through the end of last year, according to a list at fdic.gov.
To contact the reporters on this story: Ian Katz in Washington at ikatz2@bloomberg.net; Alison Vekshin in Washington at avekshin@bloomberg.net
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