Daily Forex Fundamentals | Written by DailyFX | Oct 28 08 14:52 GMT |
The Conference Board's measure of US consumer confidence plunged to a record low of 38.0 from 61.4, signaling that sentiment amongst American households is the worst in over 40 years (records go back to 1967). Looking at a breakdown of the report, it is clear that a recession in the US - which should be confirmed by Q3 GDP figures on Thursday - is being felt by consumers, as those surveyed indicated that current economic conditions had deteriorated and that jobs have become increasingly hard to get. Furthermore, their outlooks for the next 6 months indicated that they thought business conditions would worsen, fewer jobs would be available, and income would decrease. Given the nine consecutive months of job losses we've seen reflected in US non-farm payrolls, it isn't incredibly suprirsing to see consumer confidence turn so pessimistic. What is unexpected, though, is the rise in 1-year inflation expectations to 6.9 percent from 6.2 percent. This is the highest level since July, when commodities were at their peak, and these indications that consumers still anticipate that prices will rise despite the rapid drop in energy and food costs puts the Federal Reserve in a tough position, especially since they are forecasted to slash rates by 50 basis points on Wednesday to 1.00 percent.
DailyFX
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Tuesday, October 28, 2008
U.S. Aug. S&P/Case-Shiller Home Price Index: Summary
By Alex Tanzi
Oct. 28 (Bloomberg) -- The following table shows the change in the U.S. composite home price index from S&P/Case-Shiller.
==========================================================================
Aug. July June May April March Feb.
2008 2008 2008 2008 2008 2008 2008
==========================================================================
-------------- US Composite-20 City Index -------------
Monthly % -1.03% -0.88% -0.50% -0.81% -1.28% -2.14% -2.62%
3-Mth Annualized -9.25% -8.43% -9.90% -15.71% -21.68% -24.90% -24.76%
Yearly % -16.62% -16.32% -15.88% -15.75% -15.23% -14.33% -12.70%
Index Level 164.57 166.29 167.77 168.61 169.99 172.20 175.97
-------------- US Composite-10 City Index -------------
Monthly % -1.10% -1.08% -0.58% -0.99% -1.47% -2.36% -2.79%
3-Mth Annualized -10.51% -10.11% -11.52% -17.66% -23.51% -26.01% -25.62%
Yearly % -17.72% -17.45% -16.96% -16.84% -16.24% -15.27% -13.54%
Index Level 176.60 178.56 180.51 181.57 183.38 186.12 190.61
==========================================================================
==============================================================
Current Previous 3-Mth YoY% Index
MoM% MoM% Annual% Change Level
==============================================================
US Composite-20 -1.03% -0.88% -9.25% -16.62% 164.57
--------------------------------------------------------------
Cleveland 1.07% -0.28% 6.24% -6.61% 110.54
Boston 0.10% 0.17% 6.15% -4.74% 162.75
Denver -0.02% 0.77% 9.28% -5.07% 132.64
Chicago -0.05% -0.35% -1.09% -9.80% 149.53
Atlanta -0.21% 0.34% 1.68% -8.52% 124.82
Dallas -0.21% 0.60% 4.35% -2.66% 122.90
New York -0.24% -0.72% -2.83% -6.92% 192.84
Washington DC -0.32% -1.07% -8.54% -15.36% 194.86
Tampa -0.44% -0.02% -6.26% -18.14% 174.30
Seattle -0.72% -0.99% -7.46% -8.80% 175.24
Charlotte -0.83% -0.19% -3.15% -2.78% 132.10
Detroit -0.83% 0.57% -1.37% -17.16% 92.44
Minneapolis -1.01% 1.29% 4.79% -13.80% 141.94
Portland -1.31% -0.47% -7.95% -7.56% 171.93
Los Angeles -1.75% -1.63% -17.65% -26.69% 189.18
==============================================================
Current Previous 3-Mth YoY% Index
NOTE: The S&P/Case-Shiller(R) Home Price Indices are constructed from
nonseasonally adjusted data on sales of individual properties. With this
method, changes in the index are derived only from actual changes in
selling prices of individual properties. Jan. 2000 = 100.
The S&P/Case-Shiller (R) index includes homes of all prices, while
the sample for the OFHEO index is based only on conforming mortgages
which leaves out much of the upper end of the housing market.
The composition of the U.S. metropolitan area captured by each of the
S&P/Case-Shiller(R) Home Price Indices (SPCSIs) is largely based upon the
most recent definitions established by the Office of Management and Budget
in 2003. With the exceptions of Chicago (as composed for the S&P/Case-Shiller
Home Price Index, akin to the OMB Chicago ``Metropolitan Division'') and New
York (as composed for the S&P/Case-Shiller New York Home Price Index, a
variant of the OMB New York ``Combined Statistical Area''), these markets are
consistent with what OMB refers to as the ``Metropolitan Statistical Area''
(MSA) of each city listed. For more information on geographic composition
of the SPCSIs, please see
http://www.macromarkets.com/csi_housing/market_definitions.shtml
Composite Weights:
Atlanta 3.9%
Boston 5.3%
Charlotte 1.3%
Chicago 6.3%
Cleveland 1.7%
Dallas 4.0%
Denver 2.6%
Detroit 4.8%
Las Vegas 1.1%
Los Angeles 15.1%
Miami 3.6%
Minneapolis 2.8%
New York 19.4%
Phoenix 2.9%
Portland 1.9%
San Diego 3.9%
San Francisco 8.4%
Seattle 3.9%
Tampa 1.5%
Washington DC 5.6%
To contact the reporter on this story:
Alex Tanzi in Washington at atanzi@bloomberg.net
Read more...
Oct. 28 (Bloomberg) -- The following table shows the change in the U.S. composite home price index from S&P/Case-Shiller.
==========================================================================
Aug. July June May April March Feb.
2008 2008 2008 2008 2008 2008 2008
==========================================================================
-------------- US Composite-20 City Index -------------
Monthly % -1.03% -0.88% -0.50% -0.81% -1.28% -2.14% -2.62%
3-Mth Annualized -9.25% -8.43% -9.90% -15.71% -21.68% -24.90% -24.76%
Yearly % -16.62% -16.32% -15.88% -15.75% -15.23% -14.33% -12.70%
Index Level 164.57 166.29 167.77 168.61 169.99 172.20 175.97
-------------- US Composite-10 City Index -------------
Monthly % -1.10% -1.08% -0.58% -0.99% -1.47% -2.36% -2.79%
3-Mth Annualized -10.51% -10.11% -11.52% -17.66% -23.51% -26.01% -25.62%
Yearly % -17.72% -17.45% -16.96% -16.84% -16.24% -15.27% -13.54%
Index Level 176.60 178.56 180.51 181.57 183.38 186.12 190.61
==========================================================================
==============================================================
Current Previous 3-Mth YoY% Index
MoM% MoM% Annual% Change Level
==============================================================
US Composite-20 -1.03% -0.88% -9.25% -16.62% 164.57
--------------------------------------------------------------
Cleveland 1.07% -0.28% 6.24% -6.61% 110.54
Boston 0.10% 0.17% 6.15% -4.74% 162.75
Denver -0.02% 0.77% 9.28% -5.07% 132.64
Chicago -0.05% -0.35% -1.09% -9.80% 149.53
Atlanta -0.21% 0.34% 1.68% -8.52% 124.82
Dallas -0.21% 0.60% 4.35% -2.66% 122.90
New York -0.24% -0.72% -2.83% -6.92% 192.84
Washington DC -0.32% -1.07% -8.54% -15.36% 194.86
Tampa -0.44% -0.02% -6.26% -18.14% 174.30
Seattle -0.72% -0.99% -7.46% -8.80% 175.24
Charlotte -0.83% -0.19% -3.15% -2.78% 132.10
Detroit -0.83% 0.57% -1.37% -17.16% 92.44
Minneapolis -1.01% 1.29% 4.79% -13.80% 141.94
Portland -1.31% -0.47% -7.95% -7.56% 171.93
Los Angeles -1.75% -1.63% -17.65% -26.69% 189.18
==============================================================
Current Previous 3-Mth YoY% Index
NOTE: The S&P/Case-Shiller(R) Home Price Indices are constructed from
nonseasonally adjusted data on sales of individual properties. With this
method, changes in the index are derived only from actual changes in
selling prices of individual properties. Jan. 2000 = 100.
The S&P/Case-Shiller (R) index includes homes of all prices, while
the sample for the OFHEO index is based only on conforming mortgages
which leaves out much of the upper end of the housing market.
The composition of the U.S. metropolitan area captured by each of the
S&P/Case-Shiller(R) Home Price Indices (SPCSIs) is largely based upon the
most recent definitions established by the Office of Management and Budget
in 2003. With the exceptions of Chicago (as composed for the S&P/Case-Shiller
Home Price Index, akin to the OMB Chicago ``Metropolitan Division'') and New
York (as composed for the S&P/Case-Shiller New York Home Price Index, a
variant of the OMB New York ``Combined Statistical Area''), these markets are
consistent with what OMB refers to as the ``Metropolitan Statistical Area''
(MSA) of each city listed. For more information on geographic composition
of the SPCSIs, please see
http://www.macromarkets.com/csi_housing/market_definitions.shtml
Composite Weights:
Atlanta 3.9%
Boston 5.3%
Charlotte 1.3%
Chicago 6.3%
Cleveland 1.7%
Dallas 4.0%
Denver 2.6%
Detroit 4.8%
Las Vegas 1.1%
Los Angeles 15.1%
Miami 3.6%
Minneapolis 2.8%
New York 19.4%
Phoenix 2.9%
Portland 1.9%
San Diego 3.9%
San Francisco 8.4%
Seattle 3.9%
Tampa 1.5%
Washington DC 5.6%
To contact the reporter on this story:
Alex Tanzi in Washington at atanzi@bloomberg.net
Read more...
FOMC Preview: Will the Fed Cut 25, 50 or 75bp?
Daily Forex Fundamentals | Written by GFT | Oct 28 08 14:35 GMT |
The biggest event risk this week is undoubtedly the Federal Reserve's monetary policy decision on Wednesday. Now more than ever, the Fed's decision could turnaround the currency and equity markets. Since the last interest rate cut by the central bank on October 8th, the dollar has rallied more than 8 percent and the Dow Jones Industrial Average has fallen by more than 10 percent. The Fed's half point rate cut at the time was a part of a coordinated effort with central banks from around the world including the ECB, the Bank of Canada, the Bank of England and the Swiss National Bank. With US interest rates now at 1.50 percent, the Fed will need to start rationing rate cuts going forward unless they want to take interest rates to zero.
Going into the FOMC meeting, economists can't seem to agree on how much the Federal Reserve will cut interest rates. Of the 64 economists surveyed by Bloomberg:
* 53 percent expect a 50bp rate cut
* 26.5 percent expect a 25bp cut
* 19 percent expect interest rates to remain unchanged
* 1 lone economist or 1.5 percent of the people polled expect a 75bp rate cut.
Fed Funds traders appear to be more optimistic as they have already priced in 50bp of easing for Wednesday with a 32 percent chance of a 75bp rate cut.
The recent strength of the US dollar will add pressure on the Federal Reserve to make a larger interest rate cut but everyone needs to realize that the rate cut by the Fed this week will not be their last. Even though the national average of gasoline prices has fallen 35 percent, layoffs continue to rise. If GM and Chrysler are forced to cut back or worse, pushed into bankruptcy, unemployment will continue to grow. The US economy is expected to get worse before it gets better and the Federal Reserve will not want to back themselves into a corner quite yet; a larger rate cut on Wednesday would give them less room to cut interest rates in December.
Here are the 3 most likely outcomes for Wednesday's monetary policy decision:
Coordinated Rate Cut by the Fed, ECB and BoE (Dollar Bearish)
The best and most effective option for the Federal Reserve would be to coordinate a rate cut with the European Central Bank and the Bank of England. All 3 central banks would get the most bang for their buck by working together. Given Monday's comments by ECB President Trichet about cutting interest rates again in November, he may not be opposed to making the rate cut one week earlier. The Times of London has also indicated that the BoE is under pressure to cut rates as well. This measure of solidarity would send a strong message to investors and at the same time not require the Federal Reserve to take interest rates below 1.00 percent, leaving them little room to cut interest rates later. A coordinated rate cut to should be bullish for the global equity markets and bearish for the US dollar.
Independent 50bp Rate Cut from the Fed (Dollar Neutral)
Although a coordinated rate cut is the most effective option for the currency market, it may not be the most likely option because for whatever reasons, the ECB and the BoE may be opposed to coordinated intervention. Since an independent rate cut by the Federal Reserve is exactly what the market expects, the impact on the US dollar should be limited. The key will be the tone of the FOMC statement.
25bp Rate Cut (Dollar Bullish)
A 25bp rate cut will be a big disappointment to both the currency and equity markets. Given the degree of risk aversion and fear, we do not believe that Bernanke will risk the consequences of a disappointment since it could trigger another round of selling for stocks and high yielding currencies. In this type of market environment where investors are becoming immune to new measures taken by the US Treasury and the Federal Reserve, it pays to over deliver.
75bp Not a Viable Option - Too Close to ZIRP
Even though Fed Funds traders are pricing in a respectable chance of a 75bp rate cut, we do not believe that this will happen because it is too close to zero. Zero interest rates come with a host of problems. If the economy worsens substantially despite zero interest rates, we will be experiencing a world of problems in rejuvenating growth. This situation can best be exhibited by the Japanese recession that ensued during much of the nineties. With interest rates at nearly zero levels, the BoJ found itself unable to stimulate growth with no policy tools available at its disposal. During this time the BoJ was forced to implement newly devised policy measures that had little if any effect on promoting growth. At the same time, a zero interest rate is also inflationary.
Although we believe that a coordinated rate cut would be the best option for the Federal Reserve if they want a good chance at stabilizing the markets, the fact that Trichet talked about cutting interest rates on November 6th specifically suggests that it may not be an option that he is seriously considering. If the central banks can work together, Wednesday's rate decision could turn around the currency markets, but if they choose to respond with fractured rate cuts, risk aversion could remain a problem.
Kathy Lien
http://www.gftforex.com
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.
Read more...
The biggest event risk this week is undoubtedly the Federal Reserve's monetary policy decision on Wednesday. Now more than ever, the Fed's decision could turnaround the currency and equity markets. Since the last interest rate cut by the central bank on October 8th, the dollar has rallied more than 8 percent and the Dow Jones Industrial Average has fallen by more than 10 percent. The Fed's half point rate cut at the time was a part of a coordinated effort with central banks from around the world including the ECB, the Bank of Canada, the Bank of England and the Swiss National Bank. With US interest rates now at 1.50 percent, the Fed will need to start rationing rate cuts going forward unless they want to take interest rates to zero.
Going into the FOMC meeting, economists can't seem to agree on how much the Federal Reserve will cut interest rates. Of the 64 economists surveyed by Bloomberg:
* 53 percent expect a 50bp rate cut
* 26.5 percent expect a 25bp cut
* 19 percent expect interest rates to remain unchanged
* 1 lone economist or 1.5 percent of the people polled expect a 75bp rate cut.
Fed Funds traders appear to be more optimistic as they have already priced in 50bp of easing for Wednesday with a 32 percent chance of a 75bp rate cut.
The recent strength of the US dollar will add pressure on the Federal Reserve to make a larger interest rate cut but everyone needs to realize that the rate cut by the Fed this week will not be their last. Even though the national average of gasoline prices has fallen 35 percent, layoffs continue to rise. If GM and Chrysler are forced to cut back or worse, pushed into bankruptcy, unemployment will continue to grow. The US economy is expected to get worse before it gets better and the Federal Reserve will not want to back themselves into a corner quite yet; a larger rate cut on Wednesday would give them less room to cut interest rates in December.
Here are the 3 most likely outcomes for Wednesday's monetary policy decision:
Coordinated Rate Cut by the Fed, ECB and BoE (Dollar Bearish)
The best and most effective option for the Federal Reserve would be to coordinate a rate cut with the European Central Bank and the Bank of England. All 3 central banks would get the most bang for their buck by working together. Given Monday's comments by ECB President Trichet about cutting interest rates again in November, he may not be opposed to making the rate cut one week earlier. The Times of London has also indicated that the BoE is under pressure to cut rates as well. This measure of solidarity would send a strong message to investors and at the same time not require the Federal Reserve to take interest rates below 1.00 percent, leaving them little room to cut interest rates later. A coordinated rate cut to should be bullish for the global equity markets and bearish for the US dollar.
Independent 50bp Rate Cut from the Fed (Dollar Neutral)
Although a coordinated rate cut is the most effective option for the currency market, it may not be the most likely option because for whatever reasons, the ECB and the BoE may be opposed to coordinated intervention. Since an independent rate cut by the Federal Reserve is exactly what the market expects, the impact on the US dollar should be limited. The key will be the tone of the FOMC statement.
25bp Rate Cut (Dollar Bullish)
A 25bp rate cut will be a big disappointment to both the currency and equity markets. Given the degree of risk aversion and fear, we do not believe that Bernanke will risk the consequences of a disappointment since it could trigger another round of selling for stocks and high yielding currencies. In this type of market environment where investors are becoming immune to new measures taken by the US Treasury and the Federal Reserve, it pays to over deliver.
75bp Not a Viable Option - Too Close to ZIRP
Even though Fed Funds traders are pricing in a respectable chance of a 75bp rate cut, we do not believe that this will happen because it is too close to zero. Zero interest rates come with a host of problems. If the economy worsens substantially despite zero interest rates, we will be experiencing a world of problems in rejuvenating growth. This situation can best be exhibited by the Japanese recession that ensued during much of the nineties. With interest rates at nearly zero levels, the BoJ found itself unable to stimulate growth with no policy tools available at its disposal. During this time the BoJ was forced to implement newly devised policy measures that had little if any effect on promoting growth. At the same time, a zero interest rate is also inflationary.
Although we believe that a coordinated rate cut would be the best option for the Federal Reserve if they want a good chance at stabilizing the markets, the fact that Trichet talked about cutting interest rates on November 6th specifically suggests that it may not be an option that he is seriously considering. If the central banks can work together, Wednesday's rate decision could turn around the currency markets, but if they choose to respond with fractured rate cuts, risk aversion could remain a problem.
Kathy Lien
http://www.gftforex.com
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.
Read more...
Hungary Sees Contracting Economy, Cuts Deficit Target
By Zoltan Simon
Oct. 28 (Bloomberg) -- Hungary's government said it expects the economy to shrink next year for the first time since 1993, as the effects of the global financial crisis that ravaged the country's markets deepen.
The government, which expects gross domestic product to contract by 1 percent, will seek to cut the budget deficit more than earlier planned to secure financing from the International Monetary Fund and the European Union and stabilize the economy, Prime Minister Ferenc Gyurcsany said in Budapest today.
Western Europe is on the brink of a recession, exacerbating problems for neighboring emerging economies, which were scorched by investors dumping riskier assets in a flight to safety. Hungary needs international support to make sure it can keep paying back loans, the premier said.
The package will ``avert the threat of a state default even in the most extreme market conditions,'' Gyurcsany said in a meeting with parliamentary party leaders. The government is securing funds at a time when ``there is no market for Hungarian government bonds.''
The MSCI Emerging Market Index has lost 40 percent of its value this month and fell to a four-year low yesterday. The Hungarian forint is the world's fourth-worst performer against the euro in the past three months, behind the Icelandic krona, the Polish zloty and the South Korean won.
Forint Surges
The forint rose as much as 3.2 percent to 262.48 per euro today and traded at 262.86 at 1:51 p.m. in Budapest. The currency, which fell to a record on Oct. 23, has gained more than 3 percent since the IMF on Oct. 26 said it would announce a ``substantial financing package for Hungary.
Hungary lined up help from the IMF and the EU after an emergency loan from the European Central Bank failed to stabilize local financial markets. Stocks, bonds and the forint plunged this month on concern that the country may face difficulty in financing its current-account and budget deficits as global credit dries up.
The financing package will be ``significant'' and ``in line with market expectations,'' Gyurcsany said. Orsolya Nyeste, an economist at Erste Bank AG in Budapest, yesterday estimated that the loan may be worth $12.4 billion.
The government is freezing salaries and canceling bonuses for public workers and reducing pensions to cut the budget deficit to 2.6 percent of GDP, rather than an earlier plan of 2.9 percent. Hungary estimates a gap of 3.4 percent this year, after 5 percent last year and a record 9.2 percent in 2006.
The IMF and the EU conditioned funds on capping spending and avoiding a drop in revenue, Gyurcsany said. The government has postponed tax cuts aimed at boosting growth to focus on reducing reliance on external financing and cut this year's bond sale plan by 200 billion forint.
The debt management agency was forced to cancel several auctions because of a lack of buyers at levels it would accept.
To contact the reporter on this story: Zoltan Simon in Budapest at zsimon@bloomberg.net
Read more...
Oct. 28 (Bloomberg) -- Hungary's government said it expects the economy to shrink next year for the first time since 1993, as the effects of the global financial crisis that ravaged the country's markets deepen.
The government, which expects gross domestic product to contract by 1 percent, will seek to cut the budget deficit more than earlier planned to secure financing from the International Monetary Fund and the European Union and stabilize the economy, Prime Minister Ferenc Gyurcsany said in Budapest today.
Western Europe is on the brink of a recession, exacerbating problems for neighboring emerging economies, which were scorched by investors dumping riskier assets in a flight to safety. Hungary needs international support to make sure it can keep paying back loans, the premier said.
The package will ``avert the threat of a state default even in the most extreme market conditions,'' Gyurcsany said in a meeting with parliamentary party leaders. The government is securing funds at a time when ``there is no market for Hungarian government bonds.''
The MSCI Emerging Market Index has lost 40 percent of its value this month and fell to a four-year low yesterday. The Hungarian forint is the world's fourth-worst performer against the euro in the past three months, behind the Icelandic krona, the Polish zloty and the South Korean won.
Forint Surges
The forint rose as much as 3.2 percent to 262.48 per euro today and traded at 262.86 at 1:51 p.m. in Budapest. The currency, which fell to a record on Oct. 23, has gained more than 3 percent since the IMF on Oct. 26 said it would announce a ``substantial financing package for Hungary.
Hungary lined up help from the IMF and the EU after an emergency loan from the European Central Bank failed to stabilize local financial markets. Stocks, bonds and the forint plunged this month on concern that the country may face difficulty in financing its current-account and budget deficits as global credit dries up.
The financing package will be ``significant'' and ``in line with market expectations,'' Gyurcsany said. Orsolya Nyeste, an economist at Erste Bank AG in Budapest, yesterday estimated that the loan may be worth $12.4 billion.
The government is freezing salaries and canceling bonuses for public workers and reducing pensions to cut the budget deficit to 2.6 percent of GDP, rather than an earlier plan of 2.9 percent. Hungary estimates a gap of 3.4 percent this year, after 5 percent last year and a record 9.2 percent in 2006.
The IMF and the EU conditioned funds on capping spending and avoiding a drop in revenue, Gyurcsany said. The government has postponed tax cuts aimed at boosting growth to focus on reducing reliance on external financing and cut this year's bond sale plan by 200 billion forint.
The debt management agency was forced to cancel several auctions because of a lack of buyers at levels it would accept.
To contact the reporter on this story: Zoltan Simon in Budapest at zsimon@bloomberg.net
Read more...
BOE's Gieve Says Markets Still `Under Acute Strain'
By Svenja O'Donnell and Jennifer Ryan
Oct. 28 (Bloomberg) -- Bank of England Deputy Governor John Gieve said investors are still facing ``acute'' stress as market declines force hedge funds to sell assets.
``The financial system remains under acute strain,'' Gieve said in a speech in London today. ``The falls in equity markets, corporate bond prices and the prices for leveraged loans is hitting both long-term institutional investors and leveraged investors, including hedge funds.''
The Bank of England said in a semi-annual report that $2.8 trillion in banking losses and the threat of a global recession are increasing risks to financial stability. Meanwhile, Prime Minister Gordon Brown yesterday suggested he may scrap decade- old fiscal rules to prop up the banking system as the nation faces its first recession since 1991.
Investment losses at hedge funds and insurers pose further risks to the system, the central bank's report said, as insurers may fall short of capital requirements and face credit rating downgrades, while hedge funds may be forced to sell assets.
``Some are being forced to sell into a falling market in response to margin calls and redemptions,'' Gieve said. ``And there are growing signs of stress in many emerging market economies.''
The International Monetary Fund predicts the world's advanced economies will next year grow at the slowest pace since 1982. Investors stung by losses from developed nations have sold riskier emerging-market assets, jeopardizing the position of those nations. The IMF has agreed to emergency loans for Ukraine and Hungary, while Belarus and Pakistan are seeking help.
Repossessions
In the U.K., the economy recorded its first quarterly contraction in 16 years in the three months through June, while the central bank said a 15 percent drop in house prices may push 10 percent of mortgage-holders into negative equity. That happens when the value of a home falls below the amount owed on the mortgage.
Repossessions of British homes jumped by 71 percent in the second quarter, the U.K. financial regulator said today.
Brown this month unveiled a 50 billion-pound rescue plan, which included the government buying stakes of Royal Bank of Scotland Group Plc, HBOS Plc, and Lloyds TSB Group Plc after money-market tensions undermined investors' confidence in banks around the world.
``The package of measures introduced in the U.K. and elsewhere has improved the prospects significantly, especially for banks, but it is too soon to declare the crisis over, Gieve said. ``We need to establish stronger restraints on the build up of risks in the financial system over the cycle with the dangers they bring to the wider economy.''
The Spanish system, which requires banks to build up loss reserves when the economy is booming, may serve as a lesson for others to follow, as it diminishes the need to raise capital in a downturn, Gieve said.
To contact the reporters on this story: Jennifer Ryan in London at Jryan13@bloomberg.netSvenja O'Donnell in London at sodonnell@bloomberg.net
Read more...
Oct. 28 (Bloomberg) -- Bank of England Deputy Governor John Gieve said investors are still facing ``acute'' stress as market declines force hedge funds to sell assets.
``The financial system remains under acute strain,'' Gieve said in a speech in London today. ``The falls in equity markets, corporate bond prices and the prices for leveraged loans is hitting both long-term institutional investors and leveraged investors, including hedge funds.''
The Bank of England said in a semi-annual report that $2.8 trillion in banking losses and the threat of a global recession are increasing risks to financial stability. Meanwhile, Prime Minister Gordon Brown yesterday suggested he may scrap decade- old fiscal rules to prop up the banking system as the nation faces its first recession since 1991.
Investment losses at hedge funds and insurers pose further risks to the system, the central bank's report said, as insurers may fall short of capital requirements and face credit rating downgrades, while hedge funds may be forced to sell assets.
``Some are being forced to sell into a falling market in response to margin calls and redemptions,'' Gieve said. ``And there are growing signs of stress in many emerging market economies.''
The International Monetary Fund predicts the world's advanced economies will next year grow at the slowest pace since 1982. Investors stung by losses from developed nations have sold riskier emerging-market assets, jeopardizing the position of those nations. The IMF has agreed to emergency loans for Ukraine and Hungary, while Belarus and Pakistan are seeking help.
Repossessions
In the U.K., the economy recorded its first quarterly contraction in 16 years in the three months through June, while the central bank said a 15 percent drop in house prices may push 10 percent of mortgage-holders into negative equity. That happens when the value of a home falls below the amount owed on the mortgage.
Repossessions of British homes jumped by 71 percent in the second quarter, the U.K. financial regulator said today.
Brown this month unveiled a 50 billion-pound rescue plan, which included the government buying stakes of Royal Bank of Scotland Group Plc, HBOS Plc, and Lloyds TSB Group Plc after money-market tensions undermined investors' confidence in banks around the world.
``The package of measures introduced in the U.K. and elsewhere has improved the prospects significantly, especially for banks, but it is too soon to declare the crisis over, Gieve said. ``We need to establish stronger restraints on the build up of risks in the financial system over the cycle with the dangers they bring to the wider economy.''
The Spanish system, which requires banks to build up loss reserves when the economy is booming, may serve as a lesson for others to follow, as it diminishes the need to raise capital in a downturn, Gieve said.
To contact the reporters on this story: Jennifer Ryan in London at Jryan13@bloomberg.netSvenja O'Donnell in London at sodonnell@bloomberg.net
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German Consumer Confidence Rises on Oil-Price Drop
By Gabi Thesing
Oct. 28 (Bloomberg) -- German consumer confidence unexpectedly rose for a second month as a drop in oil prices left households with more money to spend.
GfK AG's index for November, based on a survey of about 2,000 people, increased to 1.9 from 1.8 in October, the Nuremberg-based market-research company said in a statement today. Economists expected the gauge to drop to 1.5, according to the median of 16 estimates in a Bloomberg News survey.
Inflation slowed in September and the price of oil has more than halved since a July peak of $147.11, boosting households' disposable income. At the same time, a deepening crisis on global financial markets has sparked fears of a recession, curbing consumers' willingness to spend, GfK said.
``Many Germans are playing a waiting game as far as their purchases are concerned,'' GfK said in the statement. While oil- price declines have ``supported income expectations,'' the ``panic on the international stock exchanges has shaken consumer confidence in the future economic outlook.''
A gauge measuring economic expectations plunged to minus 27.5 from minus 15.7 and a measure of consumers' propensity to buy dropped to minus 18.2 from minus 12.8. Income expectations rose to minus 12.9 from minus 14.1.
The worst U.S. housing slump since the Great Depression has pushed up the cost of credit globally and caused stock markets to tumble. The world's biggest financial companies have posted more than $670 billion in writedowns and credit losses since the start of last year after the subprime mortgage market collapsed.
`Extreme Turbulence'
``Up to now, consumers have reacted extremely calmly to the extreme turbulence on the international financial markets'' due to low share ownership and a stable labor market, GfK said. ``It is very much hoped that consumers regain their confidence in the financial markets and that a recession can be avoided.''
Private consumption will stabilize through year's end or even rise slightly as falling oil prices push down inflation, the Economy Ministry said after GfK published its report. The impact of the financial crisis and of economic cooling on consumer confidence has been only slight, it added.
Still, consumption will no longer get a boost from the growth in employment, the Berlin-based ministry said.
German business confidence declined to the lowest level in more than five years in October as the financial crisis dimmed the outlook for economic growth, the Munich-based Ifo institute said yesterday.
German Chancellor Angela Merkel's government has slashed its growth forecast for Europe's biggest economy next year to just 0.2 percent.
To contact the reporter on this story: Gabi Thesing in Frankfurt at gthesing@bloomberg.net
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Oct. 28 (Bloomberg) -- German consumer confidence unexpectedly rose for a second month as a drop in oil prices left households with more money to spend.
GfK AG's index for November, based on a survey of about 2,000 people, increased to 1.9 from 1.8 in October, the Nuremberg-based market-research company said in a statement today. Economists expected the gauge to drop to 1.5, according to the median of 16 estimates in a Bloomberg News survey.
Inflation slowed in September and the price of oil has more than halved since a July peak of $147.11, boosting households' disposable income. At the same time, a deepening crisis on global financial markets has sparked fears of a recession, curbing consumers' willingness to spend, GfK said.
``Many Germans are playing a waiting game as far as their purchases are concerned,'' GfK said in the statement. While oil- price declines have ``supported income expectations,'' the ``panic on the international stock exchanges has shaken consumer confidence in the future economic outlook.''
A gauge measuring economic expectations plunged to minus 27.5 from minus 15.7 and a measure of consumers' propensity to buy dropped to minus 18.2 from minus 12.8. Income expectations rose to minus 12.9 from minus 14.1.
The worst U.S. housing slump since the Great Depression has pushed up the cost of credit globally and caused stock markets to tumble. The world's biggest financial companies have posted more than $670 billion in writedowns and credit losses since the start of last year after the subprime mortgage market collapsed.
`Extreme Turbulence'
``Up to now, consumers have reacted extremely calmly to the extreme turbulence on the international financial markets'' due to low share ownership and a stable labor market, GfK said. ``It is very much hoped that consumers regain their confidence in the financial markets and that a recession can be avoided.''
Private consumption will stabilize through year's end or even rise slightly as falling oil prices push down inflation, the Economy Ministry said after GfK published its report. The impact of the financial crisis and of economic cooling on consumer confidence has been only slight, it added.
Still, consumption will no longer get a boost from the growth in employment, the Berlin-based ministry said.
German business confidence declined to the lowest level in more than five years in October as the financial crisis dimmed the outlook for economic growth, the Munich-based Ifo institute said yesterday.
German Chancellor Angela Merkel's government has slashed its growth forecast for Europe's biggest economy next year to just 0.2 percent.
To contact the reporter on this story: Gabi Thesing in Frankfurt at gthesing@bloomberg.net
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Europe Faces `Huge Threat' as Emerging Markets Slide
Oct. 28 (Bloomberg) -- The European economy's close ties to emerging markets are turning from a blessing to a curse.
Already skirting recession, the 15 euro nations face greater pain as economies which gave them an edge over the U.S. and Japan stumble. Neighbors to the east, that buy about a third of the region's exports, are faltering as their banks weaken and currencies slide. Meanwhile, the halving of oil prices since a July record is slowing demand from the Middle East.
European companies such as France's Schneider Electric SA and Finland's Kone Oyj are saying orders will weaken as emerging-market countries from China to Argentina succumb to the credit crunch. Citigroup Inc.'s economists now expect deeper interest-rate cuts and a recession in the euro region.
``It's a huge threat to the euro area,'' said Nick Kounis, chief European economist at Fortis in Amsterdam. ``It had been hoped these markets would hold up better and drive European growth.''
As recently as Oct. 6, European Central Bank President Jean-Claude Trichet was betting ``ongoing growth in emerging- market economies might support a gradual recovery'' next year. Yesterday, he said the bank may lower rates next week as the financial crisis damps inflation.
The 14-month credit crunch is prompting investors to sell riskier stocks, bonds and currencies, while punishing banks they view to be short of capital. Emerging-market stocks dropped to a four-year low yesterday.
Lines at IMF
Ukraine, Hungary, Belarus and Pakistan are seeking aid from the International Monetary Fund and Argentina's markets are in turmoil after its government tried to take over private pension funds. European Union spokeswoman Amelia Torres said today the bloc is preparing a package to help Hungary.
Russia has pledged more than $200 billion to stem its worst banking crisis since 1998 and China is slowing after expanding more than 10 percent for five years.
At the same time, U.K. Prime Minister Gordon Brown said today the IMF is running out of cash and China and Persian Gulf oil-producing nations should pay into a new fund to help eastern Europe.
``The IMF has $250 billion available,'' Brown said. ``This may not be enough. We need a multilateral solution. The big surplus countries are in a position to help the most.''
Vulnerable
Europe's vulnerability to a downturn in emerging markets is reflected by how it benefited from their upswing. Exports to them were equivalent to about 6 percent of the continent's gross domestic product in 2006, compared with about 4.5 percent in 2000 and less than 4 percent in the U.S., says Juergen Michels, an economist at Citigroup Inc. in London.
The dozen, mostly Eastern European, nations which joined the broader European Union since 2004 account for 15.3 percent of the euro-area's foreign demand, up a third since the start of the decade, according to the ECB. The contributions of China and Russia have almost doubled. By contrast, the U.S. and U.K. portions have each dropped about 4 percentage points to 11.9 percent and 14.5 percent respectively.
``With a higher share of exports to emerging markets, the European countries benefited much more than the U.S. from booming emerging-market economies in recent years,'' said Michels. Now they are ``more exposed'' to their downturn.
Turbulence
The euro-area economy will contract for the first time since 1993 next year, forcing the ECB to cut its benchmark rate to at least 2 percent from 3.75 percent, he predicts. The Bank of England said in a report today that turbulence in emerging markets is posing heightened risks to Britain's financial stability.
Schneider Electric, the world's biggest maker of circuit breakers, now expects emerging markets to slow after four years. Even China ``isn't immune to external forces,'' Chief Executive Officer Jean-Pascal Tricoire said Oct. 22. Kone, a manufacturer of elevators, said the previous day that investment is slowing from Mexico to India to Qatar and that Russia is a ``question mark.''
Gareth Williams, an equity strategist at ING Bank NV in London, says more companies will downgrade earnings forecasts. Firms in Austria, Portugal and Spain have the most revenues from emerging markets, while Ireland, Greece and Italy have the least, he said in a report to clients yesterday.
Key Risk
Eastern Europe is ``rapidly becoming a key risk'' to the euro area, said Stephane Deo, chief European economist at UBS AG in London. He estimates 30 percent of euro-area exports at the start of this year went to its eastern trade partners, double the shipments to the U.S. Germany and the Netherlands are most at threat with 3.5 percent of their GDP accounted for by sales to the former communist bloc, he said.
Buoyant demand from Russia and the Middle East is ebbing as falling oil prices curb their purchasing power. Crude rose 625 percent from 2001 to a record $147.27 per barrel in July, enabling oil producers to buy equipment such as MAN AG's trucks and ``Made in Europe'' luxury goods including handbags from Gucci Group NV.
The demand was strong enough for Europe to recoup two- thirds of its higher oil bill in the past five years, calculates Klaus Baader, chief European economist at Merrill Lynch & Co. While the drop in energy costs will ``be good in the short-term for domestic demand, over the medium term, reductions in demand for exports are going to weigh on the European economy,'' he said.
Already retrenching as they try to cover $221.8 billion in losses and writedowns, European banks also stand to be hurt more than most if emerging markets goes sour, said Stephen Jen, chief currency strategist at Morgan Stanley in London.
European banks lent $3.5 trillion to these economies, compared with $500 billion from the U.S. and $200 billion from Japan, according to his estimates. Those in Austria and Spain were particularly exposed, he said. Three quarters of loans to China and India originate in Europe.
``Pressures on emerging-market economies could have a particularly negative boomerang effect on European banks,'' Jen said.
To contact the reporter on this story: Simon Kennedy in Paris at Skennedy4@bloomberg.net
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Already skirting recession, the 15 euro nations face greater pain as economies which gave them an edge over the U.S. and Japan stumble. Neighbors to the east, that buy about a third of the region's exports, are faltering as their banks weaken and currencies slide. Meanwhile, the halving of oil prices since a July record is slowing demand from the Middle East.
European companies such as France's Schneider Electric SA and Finland's Kone Oyj are saying orders will weaken as emerging-market countries from China to Argentina succumb to the credit crunch. Citigroup Inc.'s economists now expect deeper interest-rate cuts and a recession in the euro region.
``It's a huge threat to the euro area,'' said Nick Kounis, chief European economist at Fortis in Amsterdam. ``It had been hoped these markets would hold up better and drive European growth.''
As recently as Oct. 6, European Central Bank President Jean-Claude Trichet was betting ``ongoing growth in emerging- market economies might support a gradual recovery'' next year. Yesterday, he said the bank may lower rates next week as the financial crisis damps inflation.
The 14-month credit crunch is prompting investors to sell riskier stocks, bonds and currencies, while punishing banks they view to be short of capital. Emerging-market stocks dropped to a four-year low yesterday.
Lines at IMF
Ukraine, Hungary, Belarus and Pakistan are seeking aid from the International Monetary Fund and Argentina's markets are in turmoil after its government tried to take over private pension funds. European Union spokeswoman Amelia Torres said today the bloc is preparing a package to help Hungary.
Russia has pledged more than $200 billion to stem its worst banking crisis since 1998 and China is slowing after expanding more than 10 percent for five years.
At the same time, U.K. Prime Minister Gordon Brown said today the IMF is running out of cash and China and Persian Gulf oil-producing nations should pay into a new fund to help eastern Europe.
``The IMF has $250 billion available,'' Brown said. ``This may not be enough. We need a multilateral solution. The big surplus countries are in a position to help the most.''
Vulnerable
Europe's vulnerability to a downturn in emerging markets is reflected by how it benefited from their upswing. Exports to them were equivalent to about 6 percent of the continent's gross domestic product in 2006, compared with about 4.5 percent in 2000 and less than 4 percent in the U.S., says Juergen Michels, an economist at Citigroup Inc. in London.
The dozen, mostly Eastern European, nations which joined the broader European Union since 2004 account for 15.3 percent of the euro-area's foreign demand, up a third since the start of the decade, according to the ECB. The contributions of China and Russia have almost doubled. By contrast, the U.S. and U.K. portions have each dropped about 4 percentage points to 11.9 percent and 14.5 percent respectively.
``With a higher share of exports to emerging markets, the European countries benefited much more than the U.S. from booming emerging-market economies in recent years,'' said Michels. Now they are ``more exposed'' to their downturn.
Turbulence
The euro-area economy will contract for the first time since 1993 next year, forcing the ECB to cut its benchmark rate to at least 2 percent from 3.75 percent, he predicts. The Bank of England said in a report today that turbulence in emerging markets is posing heightened risks to Britain's financial stability.
Schneider Electric, the world's biggest maker of circuit breakers, now expects emerging markets to slow after four years. Even China ``isn't immune to external forces,'' Chief Executive Officer Jean-Pascal Tricoire said Oct. 22. Kone, a manufacturer of elevators, said the previous day that investment is slowing from Mexico to India to Qatar and that Russia is a ``question mark.''
Gareth Williams, an equity strategist at ING Bank NV in London, says more companies will downgrade earnings forecasts. Firms in Austria, Portugal and Spain have the most revenues from emerging markets, while Ireland, Greece and Italy have the least, he said in a report to clients yesterday.
Key Risk
Eastern Europe is ``rapidly becoming a key risk'' to the euro area, said Stephane Deo, chief European economist at UBS AG in London. He estimates 30 percent of euro-area exports at the start of this year went to its eastern trade partners, double the shipments to the U.S. Germany and the Netherlands are most at threat with 3.5 percent of their GDP accounted for by sales to the former communist bloc, he said.
Buoyant demand from Russia and the Middle East is ebbing as falling oil prices curb their purchasing power. Crude rose 625 percent from 2001 to a record $147.27 per barrel in July, enabling oil producers to buy equipment such as MAN AG's trucks and ``Made in Europe'' luxury goods including handbags from Gucci Group NV.
The demand was strong enough for Europe to recoup two- thirds of its higher oil bill in the past five years, calculates Klaus Baader, chief European economist at Merrill Lynch & Co. While the drop in energy costs will ``be good in the short-term for domestic demand, over the medium term, reductions in demand for exports are going to weigh on the European economy,'' he said.
Already retrenching as they try to cover $221.8 billion in losses and writedowns, European banks also stand to be hurt more than most if emerging markets goes sour, said Stephen Jen, chief currency strategist at Morgan Stanley in London.
European banks lent $3.5 trillion to these economies, compared with $500 billion from the U.S. and $200 billion from Japan, according to his estimates. Those in Austria and Spain were particularly exposed, he said. Three quarters of loans to China and India originate in Europe.
``Pressures on emerging-market economies could have a particularly negative boomerang effect on European banks,'' Jen said.
To contact the reporter on this story: Simon Kennedy in Paris at Skennedy4@bloomberg.net
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Home Prices in 20 U.S. Cities Fell From Year Ago
By Timothy R. Homan
More Photos/Details
Oct. 28 (Bloomberg) -- House prices in 20 U.S. cities declined at the fastest pace on record as foreclosures climbed before the credit crisis deepened this month.
The S&P/Case-Shiller home-price index dropped 16.6 percent in August from a year earlier, as forecast, after a 16.3 percent decline in July. The gauge has fallen every month since January 2007, and year-over-year records began in 2001.
The decrease in property values, which helped boost sales last month to the highest level of the year, will probably intensify in coming months as the latest tightening of credit markets threatens to dry up mortgage financing. Prolonged price declines may push even more houses into foreclosure, weakening consumer spending and the economy.
``There's still quite a bit further for prices to go down, even though the volume has probably bottomed out,'' William Cheney, chief economist at John Hancock Financial Services Inc. in Boston, said in a Bloomberg Television interview. ``Prices will probably find a bottom sometime next year.''
Stocks rallied after yesterday's declines drove the Standard & Poor's 500 Index to the lowest level since March 2003. The S&P 500 rose 22.2, or 2.6 percent, to 871.2 as of 9:32 a.m. in New York. Treasuries fell, pushing yields higher. The benchmark 10- year note yielded 3.77 percent, up 9 basis points from yesterday.
Home prices decreased 1 percent in August from the prior month after declining 0.9 percent in July, the report showed. The figures aren't adjusted for seasonal effects so economists prefer to focus on year-over-year changes instead of month-to-month.
As Forecast
The economists forecast for the 20-city index was based on the median of 27 estimates in a Bloomberg News survey. Projections ranged from declines of 15.9 percent to 17.1 percent.
For a fifth consecutive month, all areas showed a decrease in prices in August compared with a year earlier, led by 31 percent declines in Phoenix and Las Vegas.
Just two markets, Cleveland and Boston, showed an increase in property values in August from the prior month, down from six cities in July.
``The downturn in residential real estate prices continued, with very few bright spots in the data,'' David Blitzer, chairman of the index committee at S&P, said in a statement.
Robert Shiller, chief economist at MacroMarkets LLC and a professor at Yale University, and Karl Case, an economics professor at Wellesley College, created the home-price index based on research from the 1980s.
Spurring Demand
Reports this month showed falling prices had spurred demand. New and previously owned houses sold at a combined 5.644 million annual pace in September, the most since November, according to Bloomberg News calculations based on figures from the Commerce Department and National Association of Realtors.
Sales of distressed properties accounted for 35 percent to 40 percent of last month's total, the agents' group also said.
The median price of an existing home fell 9 percent in September from a year earlier, according to the Realtors. The median price of new houses fell 9.1 percent during the same period, Commerce reported yesterday.
Foreclosure filings increased 71 percent in the third quarter from a year earlier, according to Irvine, California- based RealtyTrac, a seller of foreclosure data. A total of 765,558 U.S. properties got a default notice, were warned of a pending auction or were foreclosed on in the quarter, the most since records began in January 2005, RealtyTrac said.
Declining home construction has subtracted from growth since the first quarter of 2006. The downturn is likely to remain a drag on the economy for the next few quarters, economists said.
Homebuilder Ryland Group Inc. reported a wider third-quarter loss last week and said foreclosed properties are driving down the value of homes made by the Calabasas, California-based company.
Chief Executive Officer Chad Dreier said in an Oct. 23 conference call that falling home prices in many parts of the country are preventing potential buyers from selling their houses and purchasing a Ryland home.
To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net
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More Photos/Details
Oct. 28 (Bloomberg) -- House prices in 20 U.S. cities declined at the fastest pace on record as foreclosures climbed before the credit crisis deepened this month.
The S&P/Case-Shiller home-price index dropped 16.6 percent in August from a year earlier, as forecast, after a 16.3 percent decline in July. The gauge has fallen every month since January 2007, and year-over-year records began in 2001.
The decrease in property values, which helped boost sales last month to the highest level of the year, will probably intensify in coming months as the latest tightening of credit markets threatens to dry up mortgage financing. Prolonged price declines may push even more houses into foreclosure, weakening consumer spending and the economy.
``There's still quite a bit further for prices to go down, even though the volume has probably bottomed out,'' William Cheney, chief economist at John Hancock Financial Services Inc. in Boston, said in a Bloomberg Television interview. ``Prices will probably find a bottom sometime next year.''
Stocks rallied after yesterday's declines drove the Standard & Poor's 500 Index to the lowest level since March 2003. The S&P 500 rose 22.2, or 2.6 percent, to 871.2 as of 9:32 a.m. in New York. Treasuries fell, pushing yields higher. The benchmark 10- year note yielded 3.77 percent, up 9 basis points from yesterday.
Home prices decreased 1 percent in August from the prior month after declining 0.9 percent in July, the report showed. The figures aren't adjusted for seasonal effects so economists prefer to focus on year-over-year changes instead of month-to-month.
As Forecast
The economists forecast for the 20-city index was based on the median of 27 estimates in a Bloomberg News survey. Projections ranged from declines of 15.9 percent to 17.1 percent.
For a fifth consecutive month, all areas showed a decrease in prices in August compared with a year earlier, led by 31 percent declines in Phoenix and Las Vegas.
Just two markets, Cleveland and Boston, showed an increase in property values in August from the prior month, down from six cities in July.
``The downturn in residential real estate prices continued, with very few bright spots in the data,'' David Blitzer, chairman of the index committee at S&P, said in a statement.
Robert Shiller, chief economist at MacroMarkets LLC and a professor at Yale University, and Karl Case, an economics professor at Wellesley College, created the home-price index based on research from the 1980s.
Spurring Demand
Reports this month showed falling prices had spurred demand. New and previously owned houses sold at a combined 5.644 million annual pace in September, the most since November, according to Bloomberg News calculations based on figures from the Commerce Department and National Association of Realtors.
Sales of distressed properties accounted for 35 percent to 40 percent of last month's total, the agents' group also said.
The median price of an existing home fell 9 percent in September from a year earlier, according to the Realtors. The median price of new houses fell 9.1 percent during the same period, Commerce reported yesterday.
Foreclosure filings increased 71 percent in the third quarter from a year earlier, according to Irvine, California- based RealtyTrac, a seller of foreclosure data. A total of 765,558 U.S. properties got a default notice, were warned of a pending auction or were foreclosed on in the quarter, the most since records began in January 2005, RealtyTrac said.
Declining home construction has subtracted from growth since the first quarter of 2006. The downturn is likely to remain a drag on the economy for the next few quarters, economists said.
Homebuilder Ryland Group Inc. reported a wider third-quarter loss last week and said foreclosed properties are driving down the value of homes made by the Calabasas, California-based company.
Chief Executive Officer Chad Dreier said in an Oct. 23 conference call that falling home prices in many parts of the country are preventing potential buyers from selling their houses and purchasing a Ryland home.
To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net
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Iceland Central Bank Raises Key Interest Rate to 18%
By Tasneem Brogger and Helga Kristin Einarsdottir
Oct. 28 (Bloomberg) -- Iceland's central bank unexpectedly raised the benchmark interest rate to 18 percent, the highest in at least seven years, after the island reached a loan agreement with the International Monetary Fund.
Policy makers raised the key rate by 6 percentage points, the Reykjavik-based bank said in a statement today, taking the rate to the highest since the bank began targeting inflation in 2001.
``I don't think 6 percentage points will make the krona any more attractive,'' said Henrik Gullberg, a strategist at Deutsche Bank AG in London. ``Basically what we're seeing is a complete liquidation of everything in emerging markets, and Iceland, even in the emerging-market universe, is very vulnerable. Six percent isn't worth a lot if the currency drops another 15 percent.''
The central bank is raising rates as Iceland, the first western nation to seek financial help from the IMF since the U.K. in 1976, faces an economic contraction, coupled with possible hyperinflation and rising joblessness. The economy will shrink as much as 10 percent next year, the IMF forecasts. Iceland will receive about $2.1 billion from the Washington-based fund, according to a deal struck on Oct. 24.
``The only thing that'll improve the krona is a return of risk appetite, and there are no signs of this happening any time soon,'' Gullberg said.
Iceland's Talks
Iceland is in talks with the governments of Sweden, Norway and Denmark to secure as much as $4 billion in additional loans. The central bank has also sent requests for support the European Central Bank and the Federal Reserve, Prime Minister Geir Haarde said at a Nordic government summit in Helsinki today.
The increase in the key rate comes after the central bank on Oct. 15 cut it by 3.5 percentage points from 15.5 percent. That move indicated policy makers were focusing on growth and abandoning their target of stabilizing inflation, which may soar as high as 75 percent in coming months, according to Lars Christensen, chief analyst at Danske Bank A/S in Copenhagen.
The IMF deal is due to be presented to the fund's executive board later this week. One of the conditions attached to the loan was that policy makers raise the key rate to 18 percent, the central bank said in a statement on its Web site today.
Central bank Governor David Oddsson told reporters today he hopes rates ``don't stay at the current level for too long. This decision doesn't necessarily mean that we assume that rates will rise further.'' The bank holds its next rate setting meeting on Nov. 6.
Under Review
Still, the central bank will continue to ``review the matter,'' he said. The benchmark rate hasn't been higher since the central bank introduced inflation targeting in 2001. Policy makers target price gains of 2.5 percent. Inflation was 15.9 percent in October, Statistics Iceland said yesterday.
The central bank has been holding daily auctions since the currency's collapse earlier this month with local market makers setting the rate at about 150 kronur per euro. According to Roed- Frederiksen, further rate increases can't be ruled out if policy makers want to strengthen the krona once international traders are granted access to the market.
Iceland's financial regulator took control of Kaupthing Bank hf, Landsbanki Islands hf and Glitnir Bank hf earlier this month, after they couldn't secure short-term funding. That precipitated the collapse of the currency. The central bank on Oct. 7 attempted to peg the krona only to abandon the measure a day later citing ``insufficient support.''
To contact the reporters on this story: Tasneem Brogger in Copenhagen at tbrogger@bloomberg.net;
Read more...
Oct. 28 (Bloomberg) -- Iceland's central bank unexpectedly raised the benchmark interest rate to 18 percent, the highest in at least seven years, after the island reached a loan agreement with the International Monetary Fund.
Policy makers raised the key rate by 6 percentage points, the Reykjavik-based bank said in a statement today, taking the rate to the highest since the bank began targeting inflation in 2001.
``I don't think 6 percentage points will make the krona any more attractive,'' said Henrik Gullberg, a strategist at Deutsche Bank AG in London. ``Basically what we're seeing is a complete liquidation of everything in emerging markets, and Iceland, even in the emerging-market universe, is very vulnerable. Six percent isn't worth a lot if the currency drops another 15 percent.''
The central bank is raising rates as Iceland, the first western nation to seek financial help from the IMF since the U.K. in 1976, faces an economic contraction, coupled with possible hyperinflation and rising joblessness. The economy will shrink as much as 10 percent next year, the IMF forecasts. Iceland will receive about $2.1 billion from the Washington-based fund, according to a deal struck on Oct. 24.
``The only thing that'll improve the krona is a return of risk appetite, and there are no signs of this happening any time soon,'' Gullberg said.
Iceland's Talks
Iceland is in talks with the governments of Sweden, Norway and Denmark to secure as much as $4 billion in additional loans. The central bank has also sent requests for support the European Central Bank and the Federal Reserve, Prime Minister Geir Haarde said at a Nordic government summit in Helsinki today.
The increase in the key rate comes after the central bank on Oct. 15 cut it by 3.5 percentage points from 15.5 percent. That move indicated policy makers were focusing on growth and abandoning their target of stabilizing inflation, which may soar as high as 75 percent in coming months, according to Lars Christensen, chief analyst at Danske Bank A/S in Copenhagen.
The IMF deal is due to be presented to the fund's executive board later this week. One of the conditions attached to the loan was that policy makers raise the key rate to 18 percent, the central bank said in a statement on its Web site today.
Central bank Governor David Oddsson told reporters today he hopes rates ``don't stay at the current level for too long. This decision doesn't necessarily mean that we assume that rates will rise further.'' The bank holds its next rate setting meeting on Nov. 6.
Under Review
Still, the central bank will continue to ``review the matter,'' he said. The benchmark rate hasn't been higher since the central bank introduced inflation targeting in 2001. Policy makers target price gains of 2.5 percent. Inflation was 15.9 percent in October, Statistics Iceland said yesterday.
The central bank has been holding daily auctions since the currency's collapse earlier this month with local market makers setting the rate at about 150 kronur per euro. According to Roed- Frederiksen, further rate increases can't be ruled out if policy makers want to strengthen the krona once international traders are granted access to the market.
Iceland's financial regulator took control of Kaupthing Bank hf, Landsbanki Islands hf and Glitnir Bank hf earlier this month, after they couldn't secure short-term funding. That precipitated the collapse of the currency. The central bank on Oct. 7 attempted to peg the krona only to abandon the measure a day later citing ``insufficient support.''
To contact the reporters on this story: Tasneem Brogger in Copenhagen at tbrogger@bloomberg.net;
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Consumer Confidence in U.S. Plunged to Record Low
By Shobhana Chandra
Oct. 28 (Bloomberg) -- U.S. consumer confidence fell to the lowest level on record in October as stocks plunged and banks shut off credit, raising the risk spending will tumble.
The Conference Board's confidence index decreased to 38, less than forecast and the lowest reading since monthly records began in 1967, the New York-based research group said today. A separate report showed home values continued to drop in August.
Household wealth has evaporated as the Standard & Poor's 500 index verged on its worst one-month loss in 70 years, home equity shrank and job losses mounted. The dimming outlook signals consumer spending, which accounts for more than two-thirds of the economy, will deteriorate further, deepening the U.S. slump.
``The economy feels like it is contracting at a rapid pace,'' Lewis Alexander, chief economist at Citigroup Global Markets Inc. in New York, said in a Bloomberg Television interview. ``It's clear that consumers have really been affected by the volatility we've seen in the last six weeks.''
The report underscores voter discontent with the country's direction heading into the Nov. 4 presidential election. A majority of voters think Illinois Senator Barack Obama, the Democrat, will be better able to handle the economic turmoil than Republican rival John McCain, according to polls.
Consumer confidence was projected to drop to 52, according to the median estimate in a Bloomberg News survey of 66 economists. Forecasts ranged from 45 to 56.6. September's reading was revised up to 61.4 from an originally reported 59.8.
Market Reaction
Stocks gave up some of their earlier gains following the report. The Standard & Poor's 500 index rose 15.3 points, or 1.8 percent, to 864.2 at 10:24 a.m. in New York, after being up almost 33 points earlier. Treasury securities fell.
The 23.4-point drop this month was the third biggest on record, trailing two plunges in the early 1970s linked to oil shocks. Measures on current conditions and expectations both declined.
``It doesn't get much worse than this,'' said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. ``There's a risk of a deeper, longer-lasting recession.''
Home prices in 20 U.S. metropolitan areas dropped 16.6 percent in August from the same month in 2007, the fastest pace since year-over-year records began in 2001, a report from S&P/Case-Shiller today also showed. For a fifth consecutive month, all areas showed a decrease in prices from a year earlier.
The housing slump is likely to extend well into a fourth year as foreclosures put more properties on the market and drive down prices even more.
Components Drop
The Conference Board's measure of present conditions dropped to 41.9 from 61.1 the prior month. The gauge of expectations for the next six months slumped to 35.5 from 61.5.
The share of consumers who said jobs are plentiful dropped to 8.9 percent from 12.6 percent last month. The proportion of people who said jobs are hard to get jumped 5 points to 37.2 percent.
The proportion of people who expect their incomes to rise over the next six months dropped to 10.8 percent from 15.1 percent. The share expecting more jobs decreased to 7.4 percent from 11.9 percent.
The confidence figures corroborate declines seen in other measures. A report earlier this month showed the Reuters/University of Michigan preliminary index of consumer sentiment decreased in October by the most on record.
The Conference Board's index tends to be more influenced by attitudes about the labor market, economists have said.
Job Losses
The economy lost jobs for nine consecutive months through September, bringing the total drop in payrolls to 760,000 this year, Labor Department figures showed. Some economists anticipate job losses accelerated in October.
Consumer spending probably dropped last quarter by the most in almost two decades, economists forecast a Commerce Department report will show in two days. As a result, the economy probably shrank from July to September, the survey showed.
Today's confidence report showed fewer people planned to purchase automobiles and major appliances. Home-buying plans improved.
The slump in spending may be even bigger this quarter as consumers retrench. The International Council of Shopping Centers predicts the November-December holiday season, which brings in more than a third of some retailers' annual sales, will be the weakest since 2002.
The credit freeze ``impacted consumers' attitudes,'' Farooq Kathwari, chief executive officer of home-furnishings retailer Ethan Allen Interiors Inc., said in a Bloomberg Television interview this month. ``People are cautious, people are holding back.''
To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net
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Oct. 28 (Bloomberg) -- U.S. consumer confidence fell to the lowest level on record in October as stocks plunged and banks shut off credit, raising the risk spending will tumble.
The Conference Board's confidence index decreased to 38, less than forecast and the lowest reading since monthly records began in 1967, the New York-based research group said today. A separate report showed home values continued to drop in August.
Household wealth has evaporated as the Standard & Poor's 500 index verged on its worst one-month loss in 70 years, home equity shrank and job losses mounted. The dimming outlook signals consumer spending, which accounts for more than two-thirds of the economy, will deteriorate further, deepening the U.S. slump.
``The economy feels like it is contracting at a rapid pace,'' Lewis Alexander, chief economist at Citigroup Global Markets Inc. in New York, said in a Bloomberg Television interview. ``It's clear that consumers have really been affected by the volatility we've seen in the last six weeks.''
The report underscores voter discontent with the country's direction heading into the Nov. 4 presidential election. A majority of voters think Illinois Senator Barack Obama, the Democrat, will be better able to handle the economic turmoil than Republican rival John McCain, according to polls.
Consumer confidence was projected to drop to 52, according to the median estimate in a Bloomberg News survey of 66 economists. Forecasts ranged from 45 to 56.6. September's reading was revised up to 61.4 from an originally reported 59.8.
Market Reaction
Stocks gave up some of their earlier gains following the report. The Standard & Poor's 500 index rose 15.3 points, or 1.8 percent, to 864.2 at 10:24 a.m. in New York, after being up almost 33 points earlier. Treasury securities fell.
The 23.4-point drop this month was the third biggest on record, trailing two plunges in the early 1970s linked to oil shocks. Measures on current conditions and expectations both declined.
``It doesn't get much worse than this,'' said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. ``There's a risk of a deeper, longer-lasting recession.''
Home prices in 20 U.S. metropolitan areas dropped 16.6 percent in August from the same month in 2007, the fastest pace since year-over-year records began in 2001, a report from S&P/Case-Shiller today also showed. For a fifth consecutive month, all areas showed a decrease in prices from a year earlier.
The housing slump is likely to extend well into a fourth year as foreclosures put more properties on the market and drive down prices even more.
Components Drop
The Conference Board's measure of present conditions dropped to 41.9 from 61.1 the prior month. The gauge of expectations for the next six months slumped to 35.5 from 61.5.
The share of consumers who said jobs are plentiful dropped to 8.9 percent from 12.6 percent last month. The proportion of people who said jobs are hard to get jumped 5 points to 37.2 percent.
The proportion of people who expect their incomes to rise over the next six months dropped to 10.8 percent from 15.1 percent. The share expecting more jobs decreased to 7.4 percent from 11.9 percent.
The confidence figures corroborate declines seen in other measures. A report earlier this month showed the Reuters/University of Michigan preliminary index of consumer sentiment decreased in October by the most on record.
The Conference Board's index tends to be more influenced by attitudes about the labor market, economists have said.
Job Losses
The economy lost jobs for nine consecutive months through September, bringing the total drop in payrolls to 760,000 this year, Labor Department figures showed. Some economists anticipate job losses accelerated in October.
Consumer spending probably dropped last quarter by the most in almost two decades, economists forecast a Commerce Department report will show in two days. As a result, the economy probably shrank from July to September, the survey showed.
Today's confidence report showed fewer people planned to purchase automobiles and major appliances. Home-buying plans improved.
The slump in spending may be even bigger this quarter as consumers retrench. The International Council of Shopping Centers predicts the November-December holiday season, which brings in more than a third of some retailers' annual sales, will be the weakest since 2002.
The credit freeze ``impacted consumers' attitudes,'' Farooq Kathwari, chief executive officer of home-furnishings retailer Ethan Allen Interiors Inc., said in a Bloomberg Television interview this month. ``People are cautious, people are holding back.''
To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net
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OPEC May Call Early Meeting If Oil Declines Further
By Nicholas Larkin and Grant Smith
Oct. 28 (Bloomberg) -- The Organization of Petroleum Exporting Countries may call a meeting earlier than the scheduled December date if oil prices continue to fall, according to Secretary-General Abdalla el-Badri.
``If circumstances dictate we have another meeting, of course we will meet,'' el-Badri said today at the Oil & Money conference in London. He said he expects a market response to last week's production cut after about a week.
Shokri Ghanem, chairman of Libya's National Oil Corp., echoed el-Badri's comments, and said he's watching the market to see whether it's ``deteriorating or stabilizing.''
Crude rose from a 17-month low today, climbing as much as $1.67, or 2.6 percent, to $64.89 a barrel on the New York Mercantile Exchange after falling as low as $61.75. It was at $63.76 a barrel at 10:23 a.m. London time. The price has fallen 56 percent since reaching a record $147.27 on July 11 and is down 32 percent from a year ago.
United Arab Emirates Oil Minister Mohamed al-Hamli said at the conference that at the time of oil's price peak, speculation accounted for about $30 to $40 of the price.
El-Badri also said output from sources such as Canadian oil sands, Brazilian oil fields and biofuels will be less viable if current prices persist.
Abdullah bin Hamad al-Attiyah, Qatar's energy minister, said a range of $70 to $80 was the ``best price'' to ensure investments. He said the recent decline poses no danger to Qatari projects, adding that he has no indication of an OPEC meeting before December.
To contact the reporters on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net; Grant Smith in London at gsmith52@bloomberg.net
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Oct. 28 (Bloomberg) -- The Organization of Petroleum Exporting Countries may call a meeting earlier than the scheduled December date if oil prices continue to fall, according to Secretary-General Abdalla el-Badri.
``If circumstances dictate we have another meeting, of course we will meet,'' el-Badri said today at the Oil & Money conference in London. He said he expects a market response to last week's production cut after about a week.
Shokri Ghanem, chairman of Libya's National Oil Corp., echoed el-Badri's comments, and said he's watching the market to see whether it's ``deteriorating or stabilizing.''
Crude rose from a 17-month low today, climbing as much as $1.67, or 2.6 percent, to $64.89 a barrel on the New York Mercantile Exchange after falling as low as $61.75. It was at $63.76 a barrel at 10:23 a.m. London time. The price has fallen 56 percent since reaching a record $147.27 on July 11 and is down 32 percent from a year ago.
United Arab Emirates Oil Minister Mohamed al-Hamli said at the conference that at the time of oil's price peak, speculation accounted for about $30 to $40 of the price.
El-Badri also said output from sources such as Canadian oil sands, Brazilian oil fields and biofuels will be less viable if current prices persist.
Abdullah bin Hamad al-Attiyah, Qatar's energy minister, said a range of $70 to $80 was the ``best price'' to ensure investments. He said the recent decline poses no danger to Qatari projects, adding that he has no indication of an OPEC meeting before December.
To contact the reporters on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net; Grant Smith in London at gsmith52@bloomberg.net
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TransCanada's Quarterly Profit Rises to C$390 Million
By Jordan Burke
Oct. 28 (Bloomberg) -- TransCanada Corp., owner of Canada's largest pipeline system, said third-quarter profit rose 20 percent after an acquisition boosted its power business.
Net income rose to C$390 million ($303 million), or 67 cents a share, from C$324 million, or 60 cents, a year earlier, the Calgary-based company said today in a statement. Revenue fell 2.3 percent to C$2.14 billion.
The company got state approval from New York in August to buy a New York City power plant from National Grid Plc for $2.9 billion. The purchase of the 2,480-megawatt Ravenswood plant in Queens, the largest power acquisition in TransCanada's history, expanded its power-generating capacity by about 30 percent to 10,200 megawatts.
Chief Executive Officer Hal Kvisle, 56, is expanding TransCanada's power business to diversify from its natural- gas pipeline network in western Canada and take advantage of growing electricity demand.
TransCanada also is expanding into oil lines to capitalize on rising output from Alberta's oil sands. In July, TransCanada and partner ConocoPhillips said they plan to build a $7 billion expansion of the Keystone pipeline project to transport crude to U.S. Gulf Coast refineries from western Canada.
The company said today it will increase its Keystone stake to about 80 percent from 50 percent.
Keystone Financing
TransCanada said in today's statement it is ``seeking to establish further committed bank lines in support of its Keystone Pipeline construction efforts and expects these to be in place in fourth-quarter 2008.''
The 1.1 million barrel per day pipeline, which includes a 500,000 barrel per day expansion, is scheduled to start operating in 2012. Capital investment for the pipeline will total $12 billion between 2008 and 2012.
The expansion would enable processing of Alberta oil- sands output at plants on the Gulf coast that account for almost half of U.S. refining capacity.
TransCanada rose C$1.35, or 4.1 percent, to C$33.98 at 9:53 a.m. in Toronto Stock Exchange trading. The stock has dropped 16 percent this year.
Alaska to Alberta
In August, the company received approval to build a $27 billion pipeline that would carry natural gas 1,715- miles (2,744-kilometers) from Prudhoe Bay, Alaska, to the Alberta Hub in Canada and then to U.S. markets.
Natural-gas futures traded in New York averaged $8.99 per million British thermal units during the third quarter, up 44 percent from the previous year. Oil futures averaged $118.22 a barrel during the quarter, up 57 percent from the previous year.
Pipelines used to transport products including gasoline and diesel fuel accounted for 9.2 percent of the company's 2007 revenue.
(TransCanada is scheduled to hold an earnings conference call for investors and analysts at 11 a.m. New York time. To listen, go to http://www.transcanada.com.)
To contact the reporter on this story: Jordan Burke in New York at jburke29@bloomberg.net.
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Oct. 28 (Bloomberg) -- TransCanada Corp., owner of Canada's largest pipeline system, said third-quarter profit rose 20 percent after an acquisition boosted its power business.
Net income rose to C$390 million ($303 million), or 67 cents a share, from C$324 million, or 60 cents, a year earlier, the Calgary-based company said today in a statement. Revenue fell 2.3 percent to C$2.14 billion.
The company got state approval from New York in August to buy a New York City power plant from National Grid Plc for $2.9 billion. The purchase of the 2,480-megawatt Ravenswood plant in Queens, the largest power acquisition in TransCanada's history, expanded its power-generating capacity by about 30 percent to 10,200 megawatts.
Chief Executive Officer Hal Kvisle, 56, is expanding TransCanada's power business to diversify from its natural- gas pipeline network in western Canada and take advantage of growing electricity demand.
TransCanada also is expanding into oil lines to capitalize on rising output from Alberta's oil sands. In July, TransCanada and partner ConocoPhillips said they plan to build a $7 billion expansion of the Keystone pipeline project to transport crude to U.S. Gulf Coast refineries from western Canada.
The company said today it will increase its Keystone stake to about 80 percent from 50 percent.
Keystone Financing
TransCanada said in today's statement it is ``seeking to establish further committed bank lines in support of its Keystone Pipeline construction efforts and expects these to be in place in fourth-quarter 2008.''
The 1.1 million barrel per day pipeline, which includes a 500,000 barrel per day expansion, is scheduled to start operating in 2012. Capital investment for the pipeline will total $12 billion between 2008 and 2012.
The expansion would enable processing of Alberta oil- sands output at plants on the Gulf coast that account for almost half of U.S. refining capacity.
TransCanada rose C$1.35, or 4.1 percent, to C$33.98 at 9:53 a.m. in Toronto Stock Exchange trading. The stock has dropped 16 percent this year.
Alaska to Alberta
In August, the company received approval to build a $27 billion pipeline that would carry natural gas 1,715- miles (2,744-kilometers) from Prudhoe Bay, Alaska, to the Alberta Hub in Canada and then to U.S. markets.
Natural-gas futures traded in New York averaged $8.99 per million British thermal units during the third quarter, up 44 percent from the previous year. Oil futures averaged $118.22 a barrel during the quarter, up 57 percent from the previous year.
Pipelines used to transport products including gasoline and diesel fuel accounted for 9.2 percent of the company's 2007 revenue.
(TransCanada is scheduled to hold an earnings conference call for investors and analysts at 11 a.m. New York time. To listen, go to http://www.transcanada.com.)
To contact the reporter on this story: Jordan Burke in New York at jburke29@bloomberg.net.
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Occidental Profit Rises 72% as Oil Climbs to Record
By Joe Carroll
Oct. 28 (Bloomberg) -- Occidental Petroleum Corp., the fourth-largest U.S. energy company, said third-quarter profit jumped 72 percent as oil prices topped $147 a barrel for the first time and production increased.
Net income rose to $2.27 billion, or $2.78 a share, from $1.32 billion, or $1.58, a year earlier, the Los Angeles-based company said today in a statement. The per-share profit beat by 7 cents the average of 15 analyst estimates compiled by Bloomberg.
Occidental agreed to spend $3.2 billion so far this year acquiring oil and natural-gas assets from New Mexico to Alberta, and forged exploration deals in Libya and Abu Dhabi. The company is dipping into a $1.51 billion cash reserve to fund expansion as the global credit crisis and slowing demand for petroleum-based fuel make it harder for smaller rivals to finance projects.
``It's a cash-generating machine,'' said Pavel Molchanov, an analyst at Raymond James & Associates Inc. in Houston, who rates Occidental shares a ``buy'' and owns none. ``Their free cash flow is pretty colossal.''
Occidental rose $2.99, or 7.1 percent, to $45.07 at 9:52 a.m. in New York Stock Exchange composite trading, rebounding from a 7.9 percent drop yesterday. The stock, which has 11 buy recommendations from analysts and 6 holds, tumbled 22 percent in the third quarter.
Production, Prices
Production of oil and natural gas climbed 3.2 percent to the equivalent of 588,000 barrels of crude a day, led by increases in Qatar, Oman and the U.S. Rocky Mountains, Occidental said. The company received an average of $104.15 a barrel for its oil, 54 percent more than a year earlier.
Tina Vital, an equity analyst who follows the oil industry for Standard & Poor's in New York, said she expects Chief Executive Officer Ray Irani, 73, to meet his goal of increasing 2008 production of oil and gas by 6 percent to the equivalent of 604,000 barrels of oil a day.
With a capital budget of $4.7 billion, Irani expanded oil and gas exploration in Colombia and Argentina and increased the company's holdings in Texas, Colorado and New Mexico.
Sales rose 46 percent to $7.06 billion. Production is expected to rise by 7.6 percent next year and 8.5 percent in 2010, Chief Financial Officer Stephen Chazen said during a July conference call with investors.
Profit Margin
Occidental's 32 percent profit margin in the first half of this year was more than three times that of its largest rival, Irving, Texas-based Exxon Mobil Corp. At the end of 2007, Occidental's reserves were large enough to sustain production for almost 14 years.
The company agreed earlier this month to spend $500 million to develop two oil fields in Abu Dhabi that might boost the company's worldwide output by 3.4 percent.
Under an agreement with Abu Dhabi National Oil Co., Occidental will operate and own 100 percent of a concession in the Jarn Yaphour and Ramhan oil and natural-gas fields.
Jarn Yaphour, an onshore discovery located near the United Arab Emirates' capital city, will be developed first, with production scheduled to begin next year. The field is expected to pump the equivalent of 10,000 barrels of oil a day, Occidental said in an Oct. 8 statement.
The offshore Ramhan field will undergo appraisal work before Occidental decides whether it's commercially viable. If the company proceeds with the project, Ramhan also will begin pumping the equivalent of 10,000 barrels of crude a day in 2011.
Oil Futures
Oil futures traded in New York jumped 57 percent in the third quarter from a year earlier to an average of $118.22 a barrel. Prices have plunged 56 percent since reaching a record $147.27 on July 11, wiping out 16 months of gains and prompting companies such as Suncor Energy Inc. and Petro-Canada to postpone some projects.
Eighty percent of Occidental's production is crude oil, making it more weighted to oil than any of its larger U.S. rivals.
Occidental spent $860 million on stock buybacks in the first half of this year, a 56 percent increase from 2007. During the same period, free cash flow, or cash available after capital spending, more than doubled to $3.05 billion.
``The oil companies in the best position are those with strong balance sheets who don't have to borrow to drill,'' Standard & Poor's Vital said.
Exxon Mobil is the largest U.S. oil company by market value, followed by San Ramon, California-based Chevron Corp. and ConocoPhillips of Houston.
(Occidental will hold a conference call for analysts and investors, starting at 11:30 a.m. New York time. To listen, dial +1-800-473-6123 or go to the Web site at http://www.oxy.com).
To contact the reporter on this story: Joe Carroll in Houston at jcarroll8@bloomberg.net.
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Oct. 28 (Bloomberg) -- Occidental Petroleum Corp., the fourth-largest U.S. energy company, said third-quarter profit jumped 72 percent as oil prices topped $147 a barrel for the first time and production increased.
Net income rose to $2.27 billion, or $2.78 a share, from $1.32 billion, or $1.58, a year earlier, the Los Angeles-based company said today in a statement. The per-share profit beat by 7 cents the average of 15 analyst estimates compiled by Bloomberg.
Occidental agreed to spend $3.2 billion so far this year acquiring oil and natural-gas assets from New Mexico to Alberta, and forged exploration deals in Libya and Abu Dhabi. The company is dipping into a $1.51 billion cash reserve to fund expansion as the global credit crisis and slowing demand for petroleum-based fuel make it harder for smaller rivals to finance projects.
``It's a cash-generating machine,'' said Pavel Molchanov, an analyst at Raymond James & Associates Inc. in Houston, who rates Occidental shares a ``buy'' and owns none. ``Their free cash flow is pretty colossal.''
Occidental rose $2.99, or 7.1 percent, to $45.07 at 9:52 a.m. in New York Stock Exchange composite trading, rebounding from a 7.9 percent drop yesterday. The stock, which has 11 buy recommendations from analysts and 6 holds, tumbled 22 percent in the third quarter.
Production, Prices
Production of oil and natural gas climbed 3.2 percent to the equivalent of 588,000 barrels of crude a day, led by increases in Qatar, Oman and the U.S. Rocky Mountains, Occidental said. The company received an average of $104.15 a barrel for its oil, 54 percent more than a year earlier.
Tina Vital, an equity analyst who follows the oil industry for Standard & Poor's in New York, said she expects Chief Executive Officer Ray Irani, 73, to meet his goal of increasing 2008 production of oil and gas by 6 percent to the equivalent of 604,000 barrels of oil a day.
With a capital budget of $4.7 billion, Irani expanded oil and gas exploration in Colombia and Argentina and increased the company's holdings in Texas, Colorado and New Mexico.
Sales rose 46 percent to $7.06 billion. Production is expected to rise by 7.6 percent next year and 8.5 percent in 2010, Chief Financial Officer Stephen Chazen said during a July conference call with investors.
Profit Margin
Occidental's 32 percent profit margin in the first half of this year was more than three times that of its largest rival, Irving, Texas-based Exxon Mobil Corp. At the end of 2007, Occidental's reserves were large enough to sustain production for almost 14 years.
The company agreed earlier this month to spend $500 million to develop two oil fields in Abu Dhabi that might boost the company's worldwide output by 3.4 percent.
Under an agreement with Abu Dhabi National Oil Co., Occidental will operate and own 100 percent of a concession in the Jarn Yaphour and Ramhan oil and natural-gas fields.
Jarn Yaphour, an onshore discovery located near the United Arab Emirates' capital city, will be developed first, with production scheduled to begin next year. The field is expected to pump the equivalent of 10,000 barrels of oil a day, Occidental said in an Oct. 8 statement.
The offshore Ramhan field will undergo appraisal work before Occidental decides whether it's commercially viable. If the company proceeds with the project, Ramhan also will begin pumping the equivalent of 10,000 barrels of crude a day in 2011.
Oil Futures
Oil futures traded in New York jumped 57 percent in the third quarter from a year earlier to an average of $118.22 a barrel. Prices have plunged 56 percent since reaching a record $147.27 on July 11, wiping out 16 months of gains and prompting companies such as Suncor Energy Inc. and Petro-Canada to postpone some projects.
Eighty percent of Occidental's production is crude oil, making it more weighted to oil than any of its larger U.S. rivals.
Occidental spent $860 million on stock buybacks in the first half of this year, a 56 percent increase from 2007. During the same period, free cash flow, or cash available after capital spending, more than doubled to $3.05 billion.
``The oil companies in the best position are those with strong balance sheets who don't have to borrow to drill,'' Standard & Poor's Vital said.
Exxon Mobil is the largest U.S. oil company by market value, followed by San Ramon, California-based Chevron Corp. and ConocoPhillips of Houston.
(Occidental will hold a conference call for analysts and investors, starting at 11:30 a.m. New York time. To listen, dial +1-800-473-6123 or go to the Web site at http://www.oxy.com).
To contact the reporter on this story: Joe Carroll in Houston at jcarroll8@bloomberg.net.
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BP May Seek Acquisitions After Posting Higher Profit
By Eduard Gismatullin
Oct. 28 (Bloomberg) -- BP Plc, Europe's second-biggest oil company, may seek acquisition targets and intends to boost future dividends after posting an 83 percent increase in third- quarter profit on higher crude and natural-gas prices.
Net income advanced to $8.05 billion, or 42.56 cents a share, from $4.41 billion, or 23.07 cents, a year earlier, the London-based company said today in a statement. Excluding one- time items and inventory changes, earnings beat analysts' estimates for the third straight quarter.
Chief Executive Officer Tony Hayward said the global financial crisis may ``create opportunities for us and we will look at those very closely.'' Although oil prices could extend their 57 percent decline from July's record, BP is in a position to ``cope with such volatility,'' Hayward added. The company increased its quarterly dividend by 29 percent.
``It's a pretty robust performance and that was a very big increase in the dividend,'' said Colin Morton, who helps manage about 1 billion pounds ($1.6 billion) at Rensburg Fund Management in Leeds, England. ``In the short-term, profitability will come under pressure'' as oil prices fall, he said.
Excluding one-time items and gains or losses from inventories, profit was $8.88 billion. That beat the $6.82 billion median estimate from 10 analysts in a Bloomberg survey.
BP jumped as much as 7.8 percent in London trading and was 23 pence higher at 461 pence as of 10:18 a.m. local time. Revenue rose 44 percent to $104.6 billion in the quarter.
Slower Growth
BP stock fell 20 percent in the third quarter on concern that a slowing world economy will crimp demand for fuel. That compared with a 22 percent drop for larger rival Royal Dutch Shell Plc, which reports earnings in two days.
Of the 31 analysts tracked by Bloomberg who cover BP, 20 recommend buying the shares, 9 advise holding the stock and two say ``sell.''
New York oil futures were on average 57 percent higher in the third quarter compared with a year earlier. Natural-gas futures were up 44 percent. Crude has since slid close to a 17- month low on declining demand for fuel in the U.S., the world's largest importer of crude.
BP will pay a quarterly dividend of 14 cents a share in December, up from 10.825 cents last year.
``Our aim remains unchanged - to grow that dividend through time in line with our view of future sustainable performance,'' Hayward said.
Capital spending was estimated at around $21 billion to $22 billion for the year, in line with the company's previous forecast.
U.S. Refining
Adjusted earnings from refining and marketing rose more than fivefold to $1.97 billion after the return of BP's refineries in Texas City, Texas, and Whiting, Indiana.
The plants have a combined processing capacity of 895,000 barrels of oil a day, according to the U.S. Energy Department.
``Refinery turnaround activities are expected to be higher in the fourth quarter than in the third,'' the company said.
Production in the third quarter was little changed as new projects offset hurricane-induced shutdowns in the U.S. and other disruptions in Angola and Azerbaijan. A second well was started at BP's Thunder Horse field in the Gulf of Mexico.
Crude oil and gas output totaled 3.66 million barrels of oil equivalent a day, compared with 3.65 million barrels in the year-earlier quarter.
Hayward pledged earlier this year to boost output 13 percent in the next five years to 4.3 million barrels of oil equivalent a day. BP is budgeting an average oil price of $60 a barrel to keep production above 4 million barrels a day through 2020.
Chesapeake Transactions
Last month, BP bought Arkansas natural-gas properties from Chesapeake Energy Corp. for $1.9 billion, tapping fuel from rock formations that are more costly to exploit than traditional fields. The purchase followed BP's $1.75 billion acquisition of Chesapeake's assets in Oklahoma's Woodford Shale formation back in July.
BP also settled a dispute over the running of the company's joint venture in Russia with its billionaire co-owners after Hayward agreed to replace TNK-BP's CEO Robert Dudley.
The accord left BP with its stake in the 50-50 venture intact while acceding to demands by the Russian billionaires -- Mikhail Fridman, German Khan, Viktor Vekselberg and Len Blavatnik, collectively known as AAR -- for a more independent board. TNK-BP accounts for almost a quarter of BP's global output and reserves.
BP was forced to halt its 475,000-barrel-a-day Texas City refinery for three weeks on Sept. 11 as Hurricane Ike swept through the region.
BTC Disruption
Oil shipments through the Baku-Tbilisi-Ceyhan pipeline, which transports Azeri crude blend from the Caspian Sea to Turkey's Mediterranean Sea, have been disrupted since August. BP also suffered a shutdown from its Angolan Greater Plutonio fields of about two months after an equipment failure.
The company bought back 269.8 million shares for $2.9 billion in the first nine months of the year, it said today.
BP will hold a conference call on the third-quarter earnings at 2 p.m. London time.
To contact the reporter on this story: Eduard Gismatullin in London at egismatullin@bloomberg.net
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Oct. 28 (Bloomberg) -- BP Plc, Europe's second-biggest oil company, may seek acquisition targets and intends to boost future dividends after posting an 83 percent increase in third- quarter profit on higher crude and natural-gas prices.
Net income advanced to $8.05 billion, or 42.56 cents a share, from $4.41 billion, or 23.07 cents, a year earlier, the London-based company said today in a statement. Excluding one- time items and inventory changes, earnings beat analysts' estimates for the third straight quarter.
Chief Executive Officer Tony Hayward said the global financial crisis may ``create opportunities for us and we will look at those very closely.'' Although oil prices could extend their 57 percent decline from July's record, BP is in a position to ``cope with such volatility,'' Hayward added. The company increased its quarterly dividend by 29 percent.
``It's a pretty robust performance and that was a very big increase in the dividend,'' said Colin Morton, who helps manage about 1 billion pounds ($1.6 billion) at Rensburg Fund Management in Leeds, England. ``In the short-term, profitability will come under pressure'' as oil prices fall, he said.
Excluding one-time items and gains or losses from inventories, profit was $8.88 billion. That beat the $6.82 billion median estimate from 10 analysts in a Bloomberg survey.
BP jumped as much as 7.8 percent in London trading and was 23 pence higher at 461 pence as of 10:18 a.m. local time. Revenue rose 44 percent to $104.6 billion in the quarter.
Slower Growth
BP stock fell 20 percent in the third quarter on concern that a slowing world economy will crimp demand for fuel. That compared with a 22 percent drop for larger rival Royal Dutch Shell Plc, which reports earnings in two days.
Of the 31 analysts tracked by Bloomberg who cover BP, 20 recommend buying the shares, 9 advise holding the stock and two say ``sell.''
New York oil futures were on average 57 percent higher in the third quarter compared with a year earlier. Natural-gas futures were up 44 percent. Crude has since slid close to a 17- month low on declining demand for fuel in the U.S., the world's largest importer of crude.
BP will pay a quarterly dividend of 14 cents a share in December, up from 10.825 cents last year.
``Our aim remains unchanged - to grow that dividend through time in line with our view of future sustainable performance,'' Hayward said.
Capital spending was estimated at around $21 billion to $22 billion for the year, in line with the company's previous forecast.
U.S. Refining
Adjusted earnings from refining and marketing rose more than fivefold to $1.97 billion after the return of BP's refineries in Texas City, Texas, and Whiting, Indiana.
The plants have a combined processing capacity of 895,000 barrels of oil a day, according to the U.S. Energy Department.
``Refinery turnaround activities are expected to be higher in the fourth quarter than in the third,'' the company said.
Production in the third quarter was little changed as new projects offset hurricane-induced shutdowns in the U.S. and other disruptions in Angola and Azerbaijan. A second well was started at BP's Thunder Horse field in the Gulf of Mexico.
Crude oil and gas output totaled 3.66 million barrels of oil equivalent a day, compared with 3.65 million barrels in the year-earlier quarter.
Hayward pledged earlier this year to boost output 13 percent in the next five years to 4.3 million barrels of oil equivalent a day. BP is budgeting an average oil price of $60 a barrel to keep production above 4 million barrels a day through 2020.
Chesapeake Transactions
Last month, BP bought Arkansas natural-gas properties from Chesapeake Energy Corp. for $1.9 billion, tapping fuel from rock formations that are more costly to exploit than traditional fields. The purchase followed BP's $1.75 billion acquisition of Chesapeake's assets in Oklahoma's Woodford Shale formation back in July.
BP also settled a dispute over the running of the company's joint venture in Russia with its billionaire co-owners after Hayward agreed to replace TNK-BP's CEO Robert Dudley.
The accord left BP with its stake in the 50-50 venture intact while acceding to demands by the Russian billionaires -- Mikhail Fridman, German Khan, Viktor Vekselberg and Len Blavatnik, collectively known as AAR -- for a more independent board. TNK-BP accounts for almost a quarter of BP's global output and reserves.
BP was forced to halt its 475,000-barrel-a-day Texas City refinery for three weeks on Sept. 11 as Hurricane Ike swept through the region.
BTC Disruption
Oil shipments through the Baku-Tbilisi-Ceyhan pipeline, which transports Azeri crude blend from the Caspian Sea to Turkey's Mediterranean Sea, have been disrupted since August. BP also suffered a shutdown from its Angolan Greater Plutonio fields of about two months after an equipment failure.
The company bought back 269.8 million shares for $2.9 billion in the first nine months of the year, it said today.
BP will hold a conference call on the third-quarter earnings at 2 p.m. London time.
To contact the reporter on this story: Eduard Gismatullin in London at egismatullin@bloomberg.net
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Valero Exceeds Earnings Estimates After Oil Retreats
By Jordan Burke
Oct. 28 (Bloomberg) -- Valero Energy Corp., the largest U.S. refiner, posted a smaller decline in third-quarter earnings than analysts predicted after crude-oil costs retreated from an all-time high, easing a squeeze on profit margins.
Net income fell 9.6 percent to $1.15 billion from $1.27 billion a year earlier, San Antonio-based Valero said today in a statement. Earnings per share rose to $2.18 from $2.09 after buybacks reduced the number of shares outstanding. Per-share profit excluding a divestiture gain was $1.86, 35 cents higher than the average of 18 analyst estimates compiled by Bloomberg.
Crude-oil futures in New York touched a record high above $147 a barrel in July before plunging below $70 on concern slowing economies around the world will sap fuel demand. Valero said its average profit per barrel of oil processed jumped 32 percent to $13.11 as margins widened on products such as diesel and heating oil.
``You had very strong distillate margins,'' said Roger Read, an analyst at Natixis Bleichroeder Inc. in Houston who has a ``hold'' rating on Valero shares. ``The challenge for Valero and the refining sector is similar for everyone else. It's what is in front of you that looks more challenging than what's behind you.''
Valero jumped $1.79, or 12 percent, to $16.90 at 9:40 a.m. in New York Stock Exchange composite trading. Before today, the stock had plunged 78 percent this year.
Spending Cuts
Revenue climbed 52 percent to almost $36 billion, the company said. The sale in July of Valero's refinery in Krotz Springs, Louisiana, resulted in a pretax gain of $305 million. The 2007 results included a $426 million gain on the sale of the company's Lima, Ohio, plant.
Valero will cut capital spending to $3 billion this year from its latest estimate of $3.8 billion, Chief Executive Officer Bill Klesse said in the statement, citing ``the very uncertain economic environment.'' Capital spending next year will be $3.5 billion, he said, lower than a previous target of $4 billion.
Profit margins on distillate fuels were strong throughout the third quarter, and margins widened on such products as asphalt, petroleum coke and heavy fuel oil, Klesse said.
U.S. refiners have seen profit margins on gasoline narrow as demand slumps. Gasoline purchases in the U.S. were down 7.6 percent from a year earlier in the four weeks ended Oct. 17, according to MasterCard Inc.'s SpendingPlus report.
Ike and Gustav
Before last month, gasoline profit margins as indicated by futures prices closed below zero five times since at least 1989, and the lowest margin was a loss of $1.40 per barrel. The margin plunged to a record loss of $7.36 per barrel processed on Sept. 22 and closed below zero 14 times this month, according to data compiled by Bloomberg.
Hurricane Ike, which slammed the Gulf Coast on Sept. 13, idled three of Valero's Texas refineries for at least a week. Ike and Hurricane Gustav, which struck 12 days earlier, shut down about 20 percent of U.S. refining capacity and cut the nation's gasoline supplies to a 41-year low.
The company processed 2,306 barrels per day of oil and other feedstocks during the quarter, down 9.3 percent from a year earlier.
`Decent Result'
``This will be seen as a decent result, given the hurricane-related operating problems Valero experienced this quarter,'' Mark Flannery, an analyst at Credit Suisse in New York, said in a note to clients.
Valero benefits from a cost advantage over competitors because it has the largest U.S. capacity to process cheap grades of heavy, sour crude. Cheap oil grades, such as Mexican Maya, typically account for more than 70 percent of the crude refined by the company.
During the third quarter, Maya oil sold at an average discount of $11.58 a barrel to the benchmark West Texas Intermediate delivered in Cushing, Oklahoma. That compares with an average discount of $12.27 a year earlier.
Valero has 16 refineries from Quebec to Aruba, most along the U.S. Gulf Coast.
To contact the reporter on this story: Jordan Burke in New York at jburke29@bloomberg.net.
Read more...
Oct. 28 (Bloomberg) -- Valero Energy Corp., the largest U.S. refiner, posted a smaller decline in third-quarter earnings than analysts predicted after crude-oil costs retreated from an all-time high, easing a squeeze on profit margins.
Net income fell 9.6 percent to $1.15 billion from $1.27 billion a year earlier, San Antonio-based Valero said today in a statement. Earnings per share rose to $2.18 from $2.09 after buybacks reduced the number of shares outstanding. Per-share profit excluding a divestiture gain was $1.86, 35 cents higher than the average of 18 analyst estimates compiled by Bloomberg.
Crude-oil futures in New York touched a record high above $147 a barrel in July before plunging below $70 on concern slowing economies around the world will sap fuel demand. Valero said its average profit per barrel of oil processed jumped 32 percent to $13.11 as margins widened on products such as diesel and heating oil.
``You had very strong distillate margins,'' said Roger Read, an analyst at Natixis Bleichroeder Inc. in Houston who has a ``hold'' rating on Valero shares. ``The challenge for Valero and the refining sector is similar for everyone else. It's what is in front of you that looks more challenging than what's behind you.''
Valero jumped $1.79, or 12 percent, to $16.90 at 9:40 a.m. in New York Stock Exchange composite trading. Before today, the stock had plunged 78 percent this year.
Spending Cuts
Revenue climbed 52 percent to almost $36 billion, the company said. The sale in July of Valero's refinery in Krotz Springs, Louisiana, resulted in a pretax gain of $305 million. The 2007 results included a $426 million gain on the sale of the company's Lima, Ohio, plant.
Valero will cut capital spending to $3 billion this year from its latest estimate of $3.8 billion, Chief Executive Officer Bill Klesse said in the statement, citing ``the very uncertain economic environment.'' Capital spending next year will be $3.5 billion, he said, lower than a previous target of $4 billion.
Profit margins on distillate fuels were strong throughout the third quarter, and margins widened on such products as asphalt, petroleum coke and heavy fuel oil, Klesse said.
U.S. refiners have seen profit margins on gasoline narrow as demand slumps. Gasoline purchases in the U.S. were down 7.6 percent from a year earlier in the four weeks ended Oct. 17, according to MasterCard Inc.'s SpendingPlus report.
Ike and Gustav
Before last month, gasoline profit margins as indicated by futures prices closed below zero five times since at least 1989, and the lowest margin was a loss of $1.40 per barrel. The margin plunged to a record loss of $7.36 per barrel processed on Sept. 22 and closed below zero 14 times this month, according to data compiled by Bloomberg.
Hurricane Ike, which slammed the Gulf Coast on Sept. 13, idled three of Valero's Texas refineries for at least a week. Ike and Hurricane Gustav, which struck 12 days earlier, shut down about 20 percent of U.S. refining capacity and cut the nation's gasoline supplies to a 41-year low.
The company processed 2,306 barrels per day of oil and other feedstocks during the quarter, down 9.3 percent from a year earlier.
`Decent Result'
``This will be seen as a decent result, given the hurricane-related operating problems Valero experienced this quarter,'' Mark Flannery, an analyst at Credit Suisse in New York, said in a note to clients.
Valero benefits from a cost advantage over competitors because it has the largest U.S. capacity to process cheap grades of heavy, sour crude. Cheap oil grades, such as Mexican Maya, typically account for more than 70 percent of the crude refined by the company.
During the third quarter, Maya oil sold at an average discount of $11.58 a barrel to the benchmark West Texas Intermediate delivered in Cushing, Oklahoma. That compares with an average discount of $12.27 a year earlier.
Valero has 16 refineries from Quebec to Aruba, most along the U.S. Gulf Coast.
To contact the reporter on this story: Jordan Burke in New York at jburke29@bloomberg.net.
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East European Currencies: Zloty Gains Most Since 2000 on Stocks
By Ewa Krukowska
Oct. 28 (Bloomberg) -- The zloty rose by the most in more than eight years against the euro as stocks rebounded and Poland's government said it will seek to adopt the single European currency at the start of 2012. Hungary's forint gained for a fourth day.
The zloty rallied from a four-day low as the benchmark WIG20 Index of stocks climbed the most in a week, gaining with other European markets. Prime Minister Donald Tusk told a news conference in Warsaw that Poland may satisfy all euro-adoption criteria by the end of 2011. The cabinet will meet with President Lech Kaczynski today to discuss the euro-entry prospects and the economic effect of the global financial crisis.
``Risk appetite toward the region is improving and the increase in stocks is helping currencies,'' said Maja Goettig, chief economist in Warsaw at Bank BPH, a unit of General Electric Co. ``The talks on Poland's plans to adopt the euro are also supporting the zloty.''
The zloty rose as much as 4.2 percent to 3.6941 per euro, the biggest intraday gain since May 2000, and was up 3.5 percent by 1 p.m. in Warsaw. It fell 13 percent in the past two months as investors shunned emerging-market assets on concern the global credit crisis will raise debt-servicing costs for developing nations.
The NTX Index of the 30 largest publicly traded companies in central and eastern Europe rose 5 percent today, snapping four days of losses. The Dow Jones Stoxx 600 Index gained 2.1 percent.
The adoption of the European Union's currency is of ``key significance'' to Poland, Deputy Prime Minister Grzegorz Schetyna told non-state owned broadcaster TVN24 today.
Referendum
The government will consider a referendum on the date of the euro-area entry before locking the zloty in the Exchange Rate Mechanism known as ERM-2, he said.
A vote on the euro-adoption date is a key demand of the main opposition party Law & Justice. Tusk's ruling coalition, which has 240 votes in the 460-seat assembly, needs the opposition's backing to pass a constitutional amendment allowing the nation to change currencies.
The government expects the zloty to enter ERM-2 in the spring of 2009, TVN CNBC reported, without saying where it got the information. Poland will have to spend at least two years in the currency system, in which the zloty will be allowed to trade within a band against the euro.
In other trading, the forint rose 3 percent to 262.97 per euro after the European Union said it's preparing a financial-aid package to help Hungary weather the credit crisis. The EU ``is preparing to grant financial assistance to Hungary,'' Amelia Torres, a spokeswoman for EU Economic and Monetary Affairs Commissioner Joaquin Almunia told a press conference in Brussels.
Hungarian Measures
Hungary has lined up help from the International Monetary Fund and the European Central Bank to help stabilize financial markets after stocks, bonds and the forint plunged in the past two weeks on concern about the country's ability to finance its current-account and budget deficits as global credit dried up.
The government lowered its economic-growth estimate for next year for a second time this month, and is considering the possibility of negative growth, Finance Minister Janos Veres said today in an interview with public television M1.
In other trading, the Turkish lira gained 4.9 percent to 1.5505 per dollar, from 1.6300 yesterday, and the Romanian leu was little changed at 3.7196 per euro.
The Czech koruna rose 1.8 percent to 24.257 versus the euro as local markets were closed for a public holiday. The Slovak koruna advanced 0.1 percent to 30.480 per euro as the central bank cut its main rate by half a percentage point to 3.75 percent.
To contact the reporters on this story: Ewa Krukowska in Warsaw at ekrukowska@bloomberg.net
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Oct. 28 (Bloomberg) -- The zloty rose by the most in more than eight years against the euro as stocks rebounded and Poland's government said it will seek to adopt the single European currency at the start of 2012. Hungary's forint gained for a fourth day.
The zloty rallied from a four-day low as the benchmark WIG20 Index of stocks climbed the most in a week, gaining with other European markets. Prime Minister Donald Tusk told a news conference in Warsaw that Poland may satisfy all euro-adoption criteria by the end of 2011. The cabinet will meet with President Lech Kaczynski today to discuss the euro-entry prospects and the economic effect of the global financial crisis.
``Risk appetite toward the region is improving and the increase in stocks is helping currencies,'' said Maja Goettig, chief economist in Warsaw at Bank BPH, a unit of General Electric Co. ``The talks on Poland's plans to adopt the euro are also supporting the zloty.''
The zloty rose as much as 4.2 percent to 3.6941 per euro, the biggest intraday gain since May 2000, and was up 3.5 percent by 1 p.m. in Warsaw. It fell 13 percent in the past two months as investors shunned emerging-market assets on concern the global credit crisis will raise debt-servicing costs for developing nations.
The NTX Index of the 30 largest publicly traded companies in central and eastern Europe rose 5 percent today, snapping four days of losses. The Dow Jones Stoxx 600 Index gained 2.1 percent.
The adoption of the European Union's currency is of ``key significance'' to Poland, Deputy Prime Minister Grzegorz Schetyna told non-state owned broadcaster TVN24 today.
Referendum
The government will consider a referendum on the date of the euro-area entry before locking the zloty in the Exchange Rate Mechanism known as ERM-2, he said.
A vote on the euro-adoption date is a key demand of the main opposition party Law & Justice. Tusk's ruling coalition, which has 240 votes in the 460-seat assembly, needs the opposition's backing to pass a constitutional amendment allowing the nation to change currencies.
The government expects the zloty to enter ERM-2 in the spring of 2009, TVN CNBC reported, without saying where it got the information. Poland will have to spend at least two years in the currency system, in which the zloty will be allowed to trade within a band against the euro.
In other trading, the forint rose 3 percent to 262.97 per euro after the European Union said it's preparing a financial-aid package to help Hungary weather the credit crisis. The EU ``is preparing to grant financial assistance to Hungary,'' Amelia Torres, a spokeswoman for EU Economic and Monetary Affairs Commissioner Joaquin Almunia told a press conference in Brussels.
Hungarian Measures
Hungary has lined up help from the International Monetary Fund and the European Central Bank to help stabilize financial markets after stocks, bonds and the forint plunged in the past two weeks on concern about the country's ability to finance its current-account and budget deficits as global credit dried up.
The government lowered its economic-growth estimate for next year for a second time this month, and is considering the possibility of negative growth, Finance Minister Janos Veres said today in an interview with public television M1.
In other trading, the Turkish lira gained 4.9 percent to 1.5505 per dollar, from 1.6300 yesterday, and the Romanian leu was little changed at 3.7196 per euro.
The Czech koruna rose 1.8 percent to 24.257 versus the euro as local markets were closed for a public holiday. The Slovak koruna advanced 0.1 percent to 30.480 per euro as the central bank cut its main rate by half a percentage point to 3.75 percent.
To contact the reporters on this story: Ewa Krukowska in Warsaw at ekrukowska@bloomberg.net
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Pound Snaps Seven-Day Decline Against Dollar, Surges Versus Yen
By Agnes Lovasz
Oct. 28 (Bloomberg) -- The pound snapped a seven-day slide against the dollar and posted its biggest intraday gain versus the yen in at least 25 years as rising stock markets bolstered demand for the British currency.
The pound also rose versus the euro and government bonds declined. The FTSE 100 Index, a U.K. equity benchmark, jumped as much as 4.7 percent and the cost of protecting European company bonds from default fell, credit-default swaps showed. The pound's relative strength index, a chart used to indicate price direction, also signaled it was poised to rebound.
``There's been a really strong correlation between currencies and equities lately,'' said John Hydeskov, a senior analyst in Copenhagen at Danske Bank A/S, Denmark's biggest bank. ``The pound has been hit hard by this continued deleveraging. The gains in equities today are quite strong, so risk sentiment keeps things in balance.''
The pound was at $1.5743 as of 12:13 p.m. in London, from $1.5552 yesterday, rebounding from near a five-year low. The U.K. currency slid 10 percent versus the dollar during the run of declines. Against the euro, the pound strengthened to 79.88, from 80.33. It surged to 150.10 yen, from 144.29 yen, the largest increase since at least January 1983.
The currency's 14-day relative-strength index versus the dollar, a technical indicator some traders use to forecast price direction, was at 21.5 today, below the 30 threshold that typically signals a rebound.
Gilts Fall
Any gain in the pound may be limited on signs Britain's economy is sliding into its first recession since 1992.
The U.K. currency has declined 12 percent versus its U.S. counterpart this month and 21 percent since June as tumbling house prices and bank rescues sparked concern economic growth was faltering.
The pound traded near the weakest in five years against the dollar yesterday and close to its all-time low versus the euro after Hometrack Ltd. said house prices dropped this month by the most since at least 2001.
The British currency had its biggest intraday decline in at least 37 years on Oct. 24 when a government report showed the economy contracted more than twice as much as economists predicted, probably marking the start of a recession. In the second quarter, there was no growth.
Bank of England Deputy Governor John Gieve said in a speech today that financial markets remain under ``acute'' stress.
`Acute Strain'
``The financial system remains under acute strain,'' Gieve said in London. ``The falls in equity markets, corporate bond prices and the prices for leveraged loans is hitting both long- term institutional investors and leveraged investors, including hedge funds.''
The U.K. central bank said in its semi-annual report that slower economic growth has increased risks to financial stability.
Repossessions of British homes jumped by 71 percent in the second quarter, the U.K. financial regulator said, as rising borrowing costs made it harder for property owners to pay off their mortgages.
The yield on the 10-year gilt gained 5 basis points to 4.43 percent. The 5 percent security due March 2018 fell 0.42, or 4.2 pounds per 1,000-pound ($1,572) face amount, to 104.31. The yield on the two-year note rose 5 basis points to 3.17 percent. Bond yields move inversely to prices.
The U.K. government sold 1 billion pounds of 1.25 percent inflation-linked bonds at an auction today. The notes mature in November 2032. Demand for the securities exceeded the amount allocated by 2.5 times.
To contact the reporter on this story: Agnes Lovasz in London at alovasz@bloomberg.net
Read more...
Oct. 28 (Bloomberg) -- The pound snapped a seven-day slide against the dollar and posted its biggest intraday gain versus the yen in at least 25 years as rising stock markets bolstered demand for the British currency.
The pound also rose versus the euro and government bonds declined. The FTSE 100 Index, a U.K. equity benchmark, jumped as much as 4.7 percent and the cost of protecting European company bonds from default fell, credit-default swaps showed. The pound's relative strength index, a chart used to indicate price direction, also signaled it was poised to rebound.
``There's been a really strong correlation between currencies and equities lately,'' said John Hydeskov, a senior analyst in Copenhagen at Danske Bank A/S, Denmark's biggest bank. ``The pound has been hit hard by this continued deleveraging. The gains in equities today are quite strong, so risk sentiment keeps things in balance.''
The pound was at $1.5743 as of 12:13 p.m. in London, from $1.5552 yesterday, rebounding from near a five-year low. The U.K. currency slid 10 percent versus the dollar during the run of declines. Against the euro, the pound strengthened to 79.88, from 80.33. It surged to 150.10 yen, from 144.29 yen, the largest increase since at least January 1983.
The currency's 14-day relative-strength index versus the dollar, a technical indicator some traders use to forecast price direction, was at 21.5 today, below the 30 threshold that typically signals a rebound.
Gilts Fall
Any gain in the pound may be limited on signs Britain's economy is sliding into its first recession since 1992.
The U.K. currency has declined 12 percent versus its U.S. counterpart this month and 21 percent since June as tumbling house prices and bank rescues sparked concern economic growth was faltering.
The pound traded near the weakest in five years against the dollar yesterday and close to its all-time low versus the euro after Hometrack Ltd. said house prices dropped this month by the most since at least 2001.
The British currency had its biggest intraday decline in at least 37 years on Oct. 24 when a government report showed the economy contracted more than twice as much as economists predicted, probably marking the start of a recession. In the second quarter, there was no growth.
Bank of England Deputy Governor John Gieve said in a speech today that financial markets remain under ``acute'' stress.
`Acute Strain'
``The financial system remains under acute strain,'' Gieve said in London. ``The falls in equity markets, corporate bond prices and the prices for leveraged loans is hitting both long- term institutional investors and leveraged investors, including hedge funds.''
The U.K. central bank said in its semi-annual report that slower economic growth has increased risks to financial stability.
Repossessions of British homes jumped by 71 percent in the second quarter, the U.K. financial regulator said, as rising borrowing costs made it harder for property owners to pay off their mortgages.
The yield on the 10-year gilt gained 5 basis points to 4.43 percent. The 5 percent security due March 2018 fell 0.42, or 4.2 pounds per 1,000-pound ($1,572) face amount, to 104.31. The yield on the two-year note rose 5 basis points to 3.17 percent. Bond yields move inversely to prices.
The U.K. government sold 1 billion pounds of 1.25 percent inflation-linked bonds at an auction today. The notes mature in November 2032. Demand for the securities exceeded the amount allocated by 2.5 times.
To contact the reporter on this story: Agnes Lovasz in London at alovasz@bloomberg.net
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Yen Falls Most Since 2001 Against Euro as Global Stocks Rebound
By Ye Xie and Lukanyo Mnyanda
Oct. 28 (Bloomberg) -- The yen fell the most against the euro since January 2001 and dropped versus the dollar as a rebound in global stocks encouraged investors to reduce bets against higher-yielding currencies.
The currency declined versus the Australian and New Zealand dollars on speculation carry trades will get a boost and Japan's central bank will sell the yen for the first time in four years to help exporters. South Africa's rand, Mexico's peso and Brazil's real advanced versus the dollar on reduced aversion to higher-yielding, emerging-market assets.
``When stocks rise, investors have to cover their short yen-cross positions,'' said Hidetoshi Yanagihara, senior currency trader at Mizuho Corporate Bank in New York. ``The foreign-exchange market still has a high correlation with stock markets.'' A short is a bet an asset will decline.
The yen slid 3.1 percent to 119.54 per euro at 9:36 a.m. in New York, from 115.92 yesterday, when it touched 113.64, the strongest level in more than six years. The yen fell 2.7 percent to 95.27 per dollar from 92.78. It reached 90.93 on Oct. 24, the strongest since August 1995. The euro rose 0.4 percent to $1.2543 after dropping to $1.2330, the weakest since April 2006.
Japan's currency dropped 6.8 percent to 59.87 against the Aussie and 5.4 percent to 52.95 versus the New Zealand dollar on speculation investors will revive trades in which they get funds in a country with low borrowing costs and buy assets where returns are higher. Japan's 0.5 percent target lending rate compares with 3.75 percent in Europe, 6 percent in Australia and 6.5 percent in New Zealand.
Stock Gains
The Standard & Poor's 500 Index climbed 2.8 percent after Japan's Nikkei 225 Stock Average rebounded from the lowest level in 26 years.
The yen has jumped 25 percent versus the euro and 42 percent against the Australian dollar this month as the global credit crisis and a stock rout erased more than $12 trillion in equity value.
Japan's Economic and Fiscal Policy Minister Kaoru Yosano said in Tokyo today that abrupt increases in currency volatility are ``undesirable.'' Finance Minister Shoichi Nakagawa said yesterday the government is ready to act if needed.
A surge in the yen is eroding Japanese exporters' overseas income. Honda Motor Co., Japan's second-largest automaker, cut its operating profit forecast today for the year ended in March by 13 percent to 550 billion yen ($5.8 billion). The new estimate was based on an exchange rate of 100 per dollar. Every gain of 1 yen against the greenback reduces annual operating profit by 20 billion yen.
`Bad' Bet
``At this point, it would be bad to bet against intervention'' by the Bank of Japan, said Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London, in an interview on Bloomberg Television. ``Currencies are being driven by risk appetite and anxiety in the market.''
The Aussie rose 4.6 percent to 62.88 U.S. cents after touching 60.09 cents yesterday, the weakest level since April 2003. The Reserve Bank of Australia bought its currency for a third day to stem losses.
The real rose 2.9 percent to 2.1863 against the dollar, the peso advanced 2.6 percent to 13.1763 and the rand increased 4.5 percent to 10.5160 on demand for assets in emerging markets.
The euro may weaken to $1.22 this week as the ``worries over Europe's economy are heightening,'' said Ryohei Muramatsu, manager of Group Treasury Asia at Commerzbank AG in Tokyo.
ECB Outlook
European Central Bank President Jean-Claude Trichet said yesterday policy makers may cut interest rates next week. Europe's economy is on the brink of a recession, with the region's manufacturing and services industries contracting at a record pace in October and German business confidence dropping to a five-year low.
Investors are betting the ECB will lower borrowing costs further by June after reducing the main refinancing rate by a half-percentage point to 3.75 percent on Oct. 8. The implied yield on the three-month Euribor contract expiring in June was 3.1 percent today, compared with 3.23 percent a week ago. The contract has averaged 44 basis points, or 0.44 percentage point, more than the ECB's overnight target during the past two years, Bloomberg data show.
The Federal Reserve will lower its 1.5 percent target lending rate by a half-percentage point at the conclusion of its two-day policy meeting tomorrow, according to the median forecast of 65 economists surveyed by Bloomberg News.
To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Lukanyo Mnyanda in London at lmnyanda@bloomberg.net
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Oct. 28 (Bloomberg) -- The yen fell the most against the euro since January 2001 and dropped versus the dollar as a rebound in global stocks encouraged investors to reduce bets against higher-yielding currencies.
The currency declined versus the Australian and New Zealand dollars on speculation carry trades will get a boost and Japan's central bank will sell the yen for the first time in four years to help exporters. South Africa's rand, Mexico's peso and Brazil's real advanced versus the dollar on reduced aversion to higher-yielding, emerging-market assets.
``When stocks rise, investors have to cover their short yen-cross positions,'' said Hidetoshi Yanagihara, senior currency trader at Mizuho Corporate Bank in New York. ``The foreign-exchange market still has a high correlation with stock markets.'' A short is a bet an asset will decline.
The yen slid 3.1 percent to 119.54 per euro at 9:36 a.m. in New York, from 115.92 yesterday, when it touched 113.64, the strongest level in more than six years. The yen fell 2.7 percent to 95.27 per dollar from 92.78. It reached 90.93 on Oct. 24, the strongest since August 1995. The euro rose 0.4 percent to $1.2543 after dropping to $1.2330, the weakest since April 2006.
Japan's currency dropped 6.8 percent to 59.87 against the Aussie and 5.4 percent to 52.95 versus the New Zealand dollar on speculation investors will revive trades in which they get funds in a country with low borrowing costs and buy assets where returns are higher. Japan's 0.5 percent target lending rate compares with 3.75 percent in Europe, 6 percent in Australia and 6.5 percent in New Zealand.
Stock Gains
The Standard & Poor's 500 Index climbed 2.8 percent after Japan's Nikkei 225 Stock Average rebounded from the lowest level in 26 years.
The yen has jumped 25 percent versus the euro and 42 percent against the Australian dollar this month as the global credit crisis and a stock rout erased more than $12 trillion in equity value.
Japan's Economic and Fiscal Policy Minister Kaoru Yosano said in Tokyo today that abrupt increases in currency volatility are ``undesirable.'' Finance Minister Shoichi Nakagawa said yesterday the government is ready to act if needed.
A surge in the yen is eroding Japanese exporters' overseas income. Honda Motor Co., Japan's second-largest automaker, cut its operating profit forecast today for the year ended in March by 13 percent to 550 billion yen ($5.8 billion). The new estimate was based on an exchange rate of 100 per dollar. Every gain of 1 yen against the greenback reduces annual operating profit by 20 billion yen.
`Bad' Bet
``At this point, it would be bad to bet against intervention'' by the Bank of Japan, said Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London, in an interview on Bloomberg Television. ``Currencies are being driven by risk appetite and anxiety in the market.''
The Aussie rose 4.6 percent to 62.88 U.S. cents after touching 60.09 cents yesterday, the weakest level since April 2003. The Reserve Bank of Australia bought its currency for a third day to stem losses.
The real rose 2.9 percent to 2.1863 against the dollar, the peso advanced 2.6 percent to 13.1763 and the rand increased 4.5 percent to 10.5160 on demand for assets in emerging markets.
The euro may weaken to $1.22 this week as the ``worries over Europe's economy are heightening,'' said Ryohei Muramatsu, manager of Group Treasury Asia at Commerzbank AG in Tokyo.
ECB Outlook
European Central Bank President Jean-Claude Trichet said yesterday policy makers may cut interest rates next week. Europe's economy is on the brink of a recession, with the region's manufacturing and services industries contracting at a record pace in October and German business confidence dropping to a five-year low.
Investors are betting the ECB will lower borrowing costs further by June after reducing the main refinancing rate by a half-percentage point to 3.75 percent on Oct. 8. The implied yield on the three-month Euribor contract expiring in June was 3.1 percent today, compared with 3.23 percent a week ago. The contract has averaged 44 basis points, or 0.44 percentage point, more than the ECB's overnight target during the past two years, Bloomberg data show.
The Federal Reserve will lower its 1.5 percent target lending rate by a half-percentage point at the conclusion of its two-day policy meeting tomorrow, according to the median forecast of 65 economists surveyed by Bloomberg News.
To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Lukanyo Mnyanda in London at lmnyanda@bloomberg.net
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Oil Rises as Global Stocks Rebound, OPEC Considers Meeting
By Mark Shenk
Oct. 28 (Bloomberg) -- Crude oil rose for the first time in three days as global stock markets rebounded and OPEC ministers said the group may meet again before December.
Oil advanced, tracking equities, as the MSCI World Index climbed, snapping a two-day, 8.4 percent drop. OPEC's secretary- general said the group may call a new meeting if prices fail to react to the 1.5 million-barrel-a-day production cut it announced last week.
``The oil-market fundamentals are taking a back seat to what's occurring in the financial markets,'' said Tom Bentz, senior energy analyst at BNP Paribas in New York. ``Global stock markets are up today, so the oil market is following.''
Crude oil for December delivery rose $1.29, or 2 percent, to $64.51 a barrel at 9:04 a.m. on the New York Mercantile Exchange. Futures touched $61.30 yesterday, the lowest since May 9, 2007. Prices, which have tumbled 56 percent since reaching a record $147.27 on July 11, are down 30 percent from a year ago.
``The equity markets are being looked at as an indication of future oil demand,'' said James Ritterbusch, president of Ritterbusch & Associates in Galena, Illinois. ``The main driver of the market is demand destruction while any supply news, such as from OPEC, is being shrugged off.''
The Organization of Petroleum Exporting Countries' decision last week to trim production for the first time in almost two years failed to stop prices falling yesterday.
``If circumstances dictate we have another meeting, of course we will meet,'' OPEC Secretary-General Abdalla el-Badri said at the Oil & Money conference in London. He said he expects a market response to last week's output cut after about a week.
Shokri Ghanem, chairman of Libya's National Oil Corp., echoed el-Badri's comments, saying he's watching the market to see whether it's deteriorating or stabilizing.
Sign of Weakness
``The talk of another OPEC cut is being taken by the market as a sign of weakness,'' said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. ``There are doubts that they can cut much more than 1.5 million to 2 million barrels a day. Compliance is going to be a big problem, given the desperation of some countries for cash.''
Brent crude oil for December settlement increased 83 cents, or 1.4 percent, to $62.24 a barrel on London's ICE Futures Europe exchange. Futures touched $59.02 yesterday, the lowest since Feb. 22, 2007.
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.
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Oct. 28 (Bloomberg) -- Crude oil rose for the first time in three days as global stock markets rebounded and OPEC ministers said the group may meet again before December.
Oil advanced, tracking equities, as the MSCI World Index climbed, snapping a two-day, 8.4 percent drop. OPEC's secretary- general said the group may call a new meeting if prices fail to react to the 1.5 million-barrel-a-day production cut it announced last week.
``The oil-market fundamentals are taking a back seat to what's occurring in the financial markets,'' said Tom Bentz, senior energy analyst at BNP Paribas in New York. ``Global stock markets are up today, so the oil market is following.''
Crude oil for December delivery rose $1.29, or 2 percent, to $64.51 a barrel at 9:04 a.m. on the New York Mercantile Exchange. Futures touched $61.30 yesterday, the lowest since May 9, 2007. Prices, which have tumbled 56 percent since reaching a record $147.27 on July 11, are down 30 percent from a year ago.
``The equity markets are being looked at as an indication of future oil demand,'' said James Ritterbusch, president of Ritterbusch & Associates in Galena, Illinois. ``The main driver of the market is demand destruction while any supply news, such as from OPEC, is being shrugged off.''
The Organization of Petroleum Exporting Countries' decision last week to trim production for the first time in almost two years failed to stop prices falling yesterday.
``If circumstances dictate we have another meeting, of course we will meet,'' OPEC Secretary-General Abdalla el-Badri said at the Oil & Money conference in London. He said he expects a market response to last week's output cut after about a week.
Shokri Ghanem, chairman of Libya's National Oil Corp., echoed el-Badri's comments, saying he's watching the market to see whether it's deteriorating or stabilizing.
Sign of Weakness
``The talk of another OPEC cut is being taken by the market as a sign of weakness,'' said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. ``There are doubts that they can cut much more than 1.5 million to 2 million barrels a day. Compliance is going to be a big problem, given the desperation of some countries for cash.''
Brent crude oil for December settlement increased 83 cents, or 1.4 percent, to $62.24 a barrel on London's ICE Futures Europe exchange. Futures touched $59.02 yesterday, the lowest since Feb. 22, 2007.
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.
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Brazilian Real, Mexican Peso Strengthen as Risk Aversion Eases
By Jamie McGee
Oct. 28 (Bloomberg) -- Brazil's real and Mexico's peso strengthened as investor aversion to higher-yielding assets eased.
The real rose for a second day, gaining 2.57 percent to 2.1942 per dollar at 7:39 a.m. New York time, from 2.2506 yesterday. The peso gained 2.82 percent to 13.1513 per dollar from 13.5222.
To contact the reporters on this story: Jamie McGee in New York at jmcgee8@bloomberg.net
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Oct. 28 (Bloomberg) -- Brazil's real and Mexico's peso strengthened as investor aversion to higher-yielding assets eased.
The real rose for a second day, gaining 2.57 percent to 2.1942 per dollar at 7:39 a.m. New York time, from 2.2506 yesterday. The peso gained 2.82 percent to 13.1513 per dollar from 13.5222.
To contact the reporters on this story: Jamie McGee in New York at jmcgee8@bloomberg.net
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Gold Futures Fall in N.Y. as Dollar Strengthens; Silver Drops
By Pham-Duy Nguyen
Oct. 28 (Bloomberg) -- Gold futures fell in New York as the dollar climbed, diminishing the appeal of the precious metal as an alternative investment. Silver also declined.
The dollar rose as much as 1.1 percent against a weighted basket of six major currencies. Before today, gold dropped 11 percent this year, while the dollar gained 13 percent.
``The dollar is the most dominant force in the gold market,'' said Frank McGhee, the head dealer at Integrated Brokerage Services in Chicago. ``Gold is suffering from a stronger dollar.''
Gold futures for December delivery fell 90 cents to $742 an ounce at 9:36 a.m. on the Comex division of the New York Mercantile Exchange. Earlier, the price dropped as much as 2.5 percent. The metal reached a record $1,033.90 on March 17.
Silver futures for December delivery declined 21 cents, or 2.3 percent, to $8.985 an ounce. Before today, the price fell 38 percent this year.
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
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Oct. 28 (Bloomberg) -- Gold futures fell in New York as the dollar climbed, diminishing the appeal of the precious metal as an alternative investment. Silver also declined.
The dollar rose as much as 1.1 percent against a weighted basket of six major currencies. Before today, gold dropped 11 percent this year, while the dollar gained 13 percent.
``The dollar is the most dominant force in the gold market,'' said Frank McGhee, the head dealer at Integrated Brokerage Services in Chicago. ``Gold is suffering from a stronger dollar.''
Gold futures for December delivery fell 90 cents to $742 an ounce at 9:36 a.m. on the Comex division of the New York Mercantile Exchange. Earlier, the price dropped as much as 2.5 percent. The metal reached a record $1,033.90 on March 17.
Silver futures for December delivery declined 21 cents, or 2.3 percent, to $8.985 an ounce. Before today, the price fell 38 percent this year.
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
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Copper Climbs on Signs of Increased Demand in China; Lead Soars
By Claudia Carpenter
Oct. 28 (Bloomberg) -- Copper rose for a second day in London on speculation that demand for the metal will strengthen in China, the world's largest user. Lead gained the most since at least 1987.
China's copper imports rose 29 percent in September, the country's customs office said yesterday. Merrill Lynch & Co. forecasts China's copper demand will increase 9 percent next year from 8 percent growth this year and 13 percent last year.
``We're not calling for a collapse in China's copper demand,'' said Francisco Blanch, head of global commodities research at Merrill Lynch in London. ``Emerging market growth is a secular theme that will dominate the next 10 years.''
All industrial metals except zinc increased on the London Metal Exchange. Copper for delivery in three months climbed $158, or 3.9 percent, to $4,178 a metric ton as of 12:05 p.m. in London. Prices jumped 6.6 percent yesterday.
The metal used in construction and power plants has dropped 38 percent this year as a housing slump and reducing lending in the U.S. spilled over into Europe and Asia.
Lead increased $160, or 12 percent, to $1,455 a ton. China imported more lead than it exported in September for a third consecutive month, the longest period of net imports since 1997, according to Barclays Capital. Consumption is up 41 percent this year and ``we are entering the seasonally strong winter period for replacement battery demand,'' Barclays said in a note yesterday.
A regular auto battery contains about 7.5 kilograms (16.5 pounds) of lead, according to the International Lead and Zinc Study Group in Lisbon.
Copper Supply
Copper prices have also been pressured by higher supplies. Stockpiles of copper in warehouses monitored by the LME increased 2,175 tons, or 1 percent, to 215,550 tons, bringing this month's increase to 8.5 percent, according to LME data released today.
Supply growth may start to slow as prices fall below the marginal cost of production of between $4,000 and $4,500 a ton, Merrill's Blanch said.
Kazakhmys Plc, Kazakhstan's largest copper producer, halted output at some of its low-grade mines and was reviewing operations. The company still expects to meet its production target, company spokesman John Smelt said today.
ZAO Russian Copper Co., Russia's third-largest producer of copper, will freeze all investment projects for 2009 as global financial turmoil erodes demand for the metal. The Yekaterinburg- based company said in February it planned to invest $1.6 billion in the next four years to expand in the Ural Mountains region.
Gartman Letter
``Low prices are doing what low prices are supposed to: rationing supply,'' U.S. economist Dennis Gartman wrote in his daily Gartman Letter today. This is ``especially true in Russia, which is so dependent upon mining and energy.''
Industrial Metallurgical Holding, which produces about 5 percent of Russia's nickel, halted all production at its Ufaleynickel complex and is negotiating to cut about 400 jobs after nickel prices dropped to five-year lows. The company spends about $26,000 to produce a ton of nickel.
``Supply response is coming very quickly across all commodities, partly voluntary and partly due to lack of credit,'' said Tim Mercer, chief investment officer of Hong Kong-based hedge fund Musashi Capital Ltd. ``Commodities will take off again in the not too distant future.''
The UBS Bloomberg CMCI Index of 26 raw materials jumped 2.5 percent yesterday.
Nickel added $699 to $11,799 a ton, aluminum increased $28 to $2,066 a ton and tin increased $1,350 to $14,900 a ton. Zinc dropped $10 to $1,175.
To contact the reporter on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net or ccarpenter2@bloomberg.net
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Oct. 28 (Bloomberg) -- Copper rose for a second day in London on speculation that demand for the metal will strengthen in China, the world's largest user. Lead gained the most since at least 1987.
China's copper imports rose 29 percent in September, the country's customs office said yesterday. Merrill Lynch & Co. forecasts China's copper demand will increase 9 percent next year from 8 percent growth this year and 13 percent last year.
``We're not calling for a collapse in China's copper demand,'' said Francisco Blanch, head of global commodities research at Merrill Lynch in London. ``Emerging market growth is a secular theme that will dominate the next 10 years.''
All industrial metals except zinc increased on the London Metal Exchange. Copper for delivery in three months climbed $158, or 3.9 percent, to $4,178 a metric ton as of 12:05 p.m. in London. Prices jumped 6.6 percent yesterday.
The metal used in construction and power plants has dropped 38 percent this year as a housing slump and reducing lending in the U.S. spilled over into Europe and Asia.
Lead increased $160, or 12 percent, to $1,455 a ton. China imported more lead than it exported in September for a third consecutive month, the longest period of net imports since 1997, according to Barclays Capital. Consumption is up 41 percent this year and ``we are entering the seasonally strong winter period for replacement battery demand,'' Barclays said in a note yesterday.
A regular auto battery contains about 7.5 kilograms (16.5 pounds) of lead, according to the International Lead and Zinc Study Group in Lisbon.
Copper Supply
Copper prices have also been pressured by higher supplies. Stockpiles of copper in warehouses monitored by the LME increased 2,175 tons, or 1 percent, to 215,550 tons, bringing this month's increase to 8.5 percent, according to LME data released today.
Supply growth may start to slow as prices fall below the marginal cost of production of between $4,000 and $4,500 a ton, Merrill's Blanch said.
Kazakhmys Plc, Kazakhstan's largest copper producer, halted output at some of its low-grade mines and was reviewing operations. The company still expects to meet its production target, company spokesman John Smelt said today.
ZAO Russian Copper Co., Russia's third-largest producer of copper, will freeze all investment projects for 2009 as global financial turmoil erodes demand for the metal. The Yekaterinburg- based company said in February it planned to invest $1.6 billion in the next four years to expand in the Ural Mountains region.
Gartman Letter
``Low prices are doing what low prices are supposed to: rationing supply,'' U.S. economist Dennis Gartman wrote in his daily Gartman Letter today. This is ``especially true in Russia, which is so dependent upon mining and energy.''
Industrial Metallurgical Holding, which produces about 5 percent of Russia's nickel, halted all production at its Ufaleynickel complex and is negotiating to cut about 400 jobs after nickel prices dropped to five-year lows. The company spends about $26,000 to produce a ton of nickel.
``Supply response is coming very quickly across all commodities, partly voluntary and partly due to lack of credit,'' said Tim Mercer, chief investment officer of Hong Kong-based hedge fund Musashi Capital Ltd. ``Commodities will take off again in the not too distant future.''
The UBS Bloomberg CMCI Index of 26 raw materials jumped 2.5 percent yesterday.
Nickel added $699 to $11,799 a ton, aluminum increased $28 to $2,066 a ton and tin increased $1,350 to $14,900 a ton. Zinc dropped $10 to $1,175.
To contact the reporter on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net or ccarpenter2@bloomberg.net
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German Regulator Looking Into Volkswagen Trading After Surge
By Alexis Xydias
Oct. 28 (Bloomberg) -- Germany's financial-markets regulator is looking into trading of Volkswagen AG shares after Porsche SE's plan to raise its stake in the automaker triggered a fourfold increase in two days.
BaFin is monitoring Volkswagen and hasn't started a formal probe, said spokeswoman Anja Engelland. The gains follow Porsche's Oct. 26 announcement that it plans to increase the stake in Volkswagen to 75 percent. The move forced short-sellers to cover their bets on a decline in the stock.
Volkswagen, Europe's biggest carmaker, is the most shorted stock in Germany's benchmark DAX Index. The so-called short squeeze today pushed the value of Wolfsburg, Germany-based Volkswagen's common shares as high as 296 billion euros ($370 billion), more than Exxon Mobil Corp.'s $343 billion at yesterday's close in New York, according to data compiled by Bloomberg.
``The regulator needs to investigate,'' said Piers Hillier, head of European equities at WestLB Mellon Asset Management U.K. Ltd. in London. ``The bigger question has to be why they have not done so already. If ever there was an example of market manipulation, this is it. Porsche's stake-building process is at best obscure.''
The gains follow Porsche's Oct. 26 announcement that the maker of the 911 sports car plans to increase its Volkswagen holding from 42.6 percent, spurring short-sellers to buy from a shrinking pool of stock to close their positions. Volkswagen is the world's 16th-largest company by sales, data compiled by Bloomberg show.
No Formal Inquiry
BaFin is analyzing trading in Volkswagen stock, though it hasn't opened a formal inquiry into whether there's any manipulation and ``pure cash-settled options do not require disclosure'' under the country's laws, said Engelland, a spokeswoman for the Bonn-based agency. Results from any analysis are unlikely this week, she added.
Michael Brendel, a Volkswagen spokesman, said the company doesn't comment on its stock price. Frank Gaube and Frank Scholtys, spokesmen for Stuttgart, Germany-based Porsche, didn't immediately respond to two messages left at their office or to a message left on Gaube's mobile-phone voicemail seeking comment.
About 12.9 percent of Volkswagen's common stock was on loan as of Oct. 23, mostly for short sales, the highest proportion of any company on the DAX, according to London-based Data Explorers.
`No Limit'
``One of the biggest risks with the herd mentality approach to shorting is that a lot of money can be made on the outset,'' said Ed Oliver, a senior business consultant at Spitalfields Advisors, a London-based firm specializing in securities lending. ``But you can end up losing the whole of it when you try to close the position. There's no limit.''
Stuttgart, Germany-based Porsche added to an earlier 35 percent stake and said two days ago that it holds options for another 31.5 percent. Volkswagen rose as much as 485.01 euros today, or 93 percent, to 1,005.01 euros and was trading at 790 euros at 1:52 p.m. in Frankfurt.
``Porsche heads for a domination agreement and triggers a short-squeeze,'' Horst Schneider, an HSBC Holdings Plc analyst in Dusseldorf, Germany, wrote in a report yesterday, in which he upgraded Volkswagen's common shares to ``neutral'' from ``underweight.'' The stock ``will be more driven by covering of short positions rather than by fundamental valuations.''
Carmakers worldwide are struggling with plunging sales as credit markets seize up and economies contract, deterring consumers from making large purchases. U.S. industry-wide auto sales fell 27 percent in September, the steepest monthly slide since 1991, while nine-month deliveries in Europe declined 4.4 percent as September sales dropped 8.2 percent.
Carmakers' Debt Downgraded
PSA Peugeot Citroen, Europe's second-largest carmaker, and smaller French competitor Renault SA both had their credit ratings downgraded by Moody's Investors Service because of the risk that car markets won't recover next year. Standard & Poor's said it may cut the credit rating of Fiat SpA, Italy's biggest carmaker, to less than investment grade.
Until yesterday, when the stock more than doubled, Volkswagen's largest gain in almost two decades was a 27 percent jump on Sept. 18. People familiar with securities lending said at the time that the collapse of Lehman Brothers Holdings Inc. caused the increase by triggering recalls of borrowings. The stock fell 23 percent on Oct. 20, the steepest drop also in almost two decades, as short-sellers predicted the price would decline once Porsche gains control.
Lower Saxony
There may be little ordinary stock freely trading in Volkswagen because most of the shares are owned by Porsche, the German state of Lower Saxony and the banks that underwrote Porsche's options, Adam Jonas, a London-based analyst at Morgan Stanley, wrote in a research report yesterday. Lower Saxony is Volkswagen's second-largest owner with a 20.1 percent stake.
Index-tracking funds also hold stakes in Volkswagen, now the DAX's most heavily weighted stock, and must retain the holdings as long as the carmaker remains a member.
Deutsche Boerse AG, the operator of Germany's main stock markets, said Volkswagen will remain in the DAX unless the carmaker announces the freely traded stock no longer meets requirements.
``We're applying our regulatory framework and, as long as Volkswagen's free float is above 5 percent, the index won't be changed,'' said Torsten Baar, a spokesman for Frankfurt-based Deutsche Boerse.
Porsche's Intent
Until Oct. 26, Porsche had said it was aiming only for a stake exceeding 50 percent, and Chief Executive Officer Wendelin Wiedeking said at the Paris Motor Show early this month that a stake of as much as 75 percent would be ``not realistic'' because of market turmoil.
Short sales have largely been undertaken by investors betting on a decline in Volkswagen's common stock, which hold voting rights, or its underperformance relative to the preferred shares, which carry no votes, according to analysts.
The common shares, which outnumber the preferred equity almost three to one, are the only stocks to gain this year on the DAX and the nine-member Bloomberg Europe Autos Index. In contrast, Volkswagen's preferred stock has dropped 61 percent.
``Volkswagen has been one of the greatest shorts of hedge funds, and it's been an absolute, absolute disaster,'' Emmanuel Roman, co-chief executive officer of GLG Partners Inc., said at a conference in London on Oct. 23. ``It's been very painful.'' GLG didn't participate in short-selling trading of the carmaker's common shares, he said.
To contact the reporter on this story: Alexis Xydias in London at axydias@bloomberg.net;
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Oct. 28 (Bloomberg) -- Germany's financial-markets regulator is looking into trading of Volkswagen AG shares after Porsche SE's plan to raise its stake in the automaker triggered a fourfold increase in two days.
BaFin is monitoring Volkswagen and hasn't started a formal probe, said spokeswoman Anja Engelland. The gains follow Porsche's Oct. 26 announcement that it plans to increase the stake in Volkswagen to 75 percent. The move forced short-sellers to cover their bets on a decline in the stock.
Volkswagen, Europe's biggest carmaker, is the most shorted stock in Germany's benchmark DAX Index. The so-called short squeeze today pushed the value of Wolfsburg, Germany-based Volkswagen's common shares as high as 296 billion euros ($370 billion), more than Exxon Mobil Corp.'s $343 billion at yesterday's close in New York, according to data compiled by Bloomberg.
``The regulator needs to investigate,'' said Piers Hillier, head of European equities at WestLB Mellon Asset Management U.K. Ltd. in London. ``The bigger question has to be why they have not done so already. If ever there was an example of market manipulation, this is it. Porsche's stake-building process is at best obscure.''
The gains follow Porsche's Oct. 26 announcement that the maker of the 911 sports car plans to increase its Volkswagen holding from 42.6 percent, spurring short-sellers to buy from a shrinking pool of stock to close their positions. Volkswagen is the world's 16th-largest company by sales, data compiled by Bloomberg show.
No Formal Inquiry
BaFin is analyzing trading in Volkswagen stock, though it hasn't opened a formal inquiry into whether there's any manipulation and ``pure cash-settled options do not require disclosure'' under the country's laws, said Engelland, a spokeswoman for the Bonn-based agency. Results from any analysis are unlikely this week, she added.
Michael Brendel, a Volkswagen spokesman, said the company doesn't comment on its stock price. Frank Gaube and Frank Scholtys, spokesmen for Stuttgart, Germany-based Porsche, didn't immediately respond to two messages left at their office or to a message left on Gaube's mobile-phone voicemail seeking comment.
About 12.9 percent of Volkswagen's common stock was on loan as of Oct. 23, mostly for short sales, the highest proportion of any company on the DAX, according to London-based Data Explorers.
`No Limit'
``One of the biggest risks with the herd mentality approach to shorting is that a lot of money can be made on the outset,'' said Ed Oliver, a senior business consultant at Spitalfields Advisors, a London-based firm specializing in securities lending. ``But you can end up losing the whole of it when you try to close the position. There's no limit.''
Stuttgart, Germany-based Porsche added to an earlier 35 percent stake and said two days ago that it holds options for another 31.5 percent. Volkswagen rose as much as 485.01 euros today, or 93 percent, to 1,005.01 euros and was trading at 790 euros at 1:52 p.m. in Frankfurt.
``Porsche heads for a domination agreement and triggers a short-squeeze,'' Horst Schneider, an HSBC Holdings Plc analyst in Dusseldorf, Germany, wrote in a report yesterday, in which he upgraded Volkswagen's common shares to ``neutral'' from ``underweight.'' The stock ``will be more driven by covering of short positions rather than by fundamental valuations.''
Carmakers worldwide are struggling with plunging sales as credit markets seize up and economies contract, deterring consumers from making large purchases. U.S. industry-wide auto sales fell 27 percent in September, the steepest monthly slide since 1991, while nine-month deliveries in Europe declined 4.4 percent as September sales dropped 8.2 percent.
Carmakers' Debt Downgraded
PSA Peugeot Citroen, Europe's second-largest carmaker, and smaller French competitor Renault SA both had their credit ratings downgraded by Moody's Investors Service because of the risk that car markets won't recover next year. Standard & Poor's said it may cut the credit rating of Fiat SpA, Italy's biggest carmaker, to less than investment grade.
Until yesterday, when the stock more than doubled, Volkswagen's largest gain in almost two decades was a 27 percent jump on Sept. 18. People familiar with securities lending said at the time that the collapse of Lehman Brothers Holdings Inc. caused the increase by triggering recalls of borrowings. The stock fell 23 percent on Oct. 20, the steepest drop also in almost two decades, as short-sellers predicted the price would decline once Porsche gains control.
Lower Saxony
There may be little ordinary stock freely trading in Volkswagen because most of the shares are owned by Porsche, the German state of Lower Saxony and the banks that underwrote Porsche's options, Adam Jonas, a London-based analyst at Morgan Stanley, wrote in a research report yesterday. Lower Saxony is Volkswagen's second-largest owner with a 20.1 percent stake.
Index-tracking funds also hold stakes in Volkswagen, now the DAX's most heavily weighted stock, and must retain the holdings as long as the carmaker remains a member.
Deutsche Boerse AG, the operator of Germany's main stock markets, said Volkswagen will remain in the DAX unless the carmaker announces the freely traded stock no longer meets requirements.
``We're applying our regulatory framework and, as long as Volkswagen's free float is above 5 percent, the index won't be changed,'' said Torsten Baar, a spokesman for Frankfurt-based Deutsche Boerse.
Porsche's Intent
Until Oct. 26, Porsche had said it was aiming only for a stake exceeding 50 percent, and Chief Executive Officer Wendelin Wiedeking said at the Paris Motor Show early this month that a stake of as much as 75 percent would be ``not realistic'' because of market turmoil.
Short sales have largely been undertaken by investors betting on a decline in Volkswagen's common stock, which hold voting rights, or its underperformance relative to the preferred shares, which carry no votes, according to analysts.
The common shares, which outnumber the preferred equity almost three to one, are the only stocks to gain this year on the DAX and the nine-member Bloomberg Europe Autos Index. In contrast, Volkswagen's preferred stock has dropped 61 percent.
``Volkswagen has been one of the greatest shorts of hedge funds, and it's been an absolute, absolute disaster,'' Emmanuel Roman, co-chief executive officer of GLG Partners Inc., said at a conference in London on Oct. 23. ``It's been very painful.'' GLG didn't participate in short-selling trading of the carmaker's common shares, he said.
To contact the reporter on this story: Alexis Xydias in London at axydias@bloomberg.net;
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U.K. Stocks Climb; BP, Aviva, Standard Chartered Shares Rally
By Sarah Jones
Oct. 28 (Bloomberg) -- U.K. stocks rallied for the first time in three days, led by commodity producers and financial companies, after BP Plc reported higher earnings and Standard Chartered Plc said credit losses won't be ``material.''
BP jumped 8 percent after the oil company posted an 83 percent rise in profit. BHP Billiton Ltd. climbed as copper rose above $4,000 a metric ton. Standard Chartered, the U.K.'s third- biggest bank, jumped 14 percent, while Aviva Plc surged 12 percent after the insurer said its capital reserves were ``very strong.''
The FTSE 100 Index jumped 151.99, or 4 percent, to 4,004.58 at 12:10 p.m. in London, as all but 17 stocks advanced. Today's gain trimmed the gauge's loss in October to 18 percent, still the worst decline since October 1987. The FTSE All-Share Index rose 3.7 percent, while Ireland's ISEQ Index increased 2.4 percent.
BP gained 8 percent to 473 pence after the energy company said it is ``well-placed'' to cope with the financial crisis after posting third-quarter profit of $8.05 billion on record crude and higher natural-gas prices.
``The numbers have comfortably surpassed the top end of expectations,'' said Richard Hunter, head of U.K. equities at Hargreaves Lansdown Stockbrokers in London. ``The shares are an outright buy at current levels.''
Oil Stocks
Royal Dutch Shell Plc, Europe's largest oil company, increased 5.8 percent to 1,545 pence. Cairn Energy Plc increased 2.2 percent to 1,205 pence.
BHP led mining shares higher as copper rose for a second day in London on speculation that demand for the metal will strengthen in China. Nickel and Lead also gained.
The world's largest mining company increased 5.4 percent to 891.5 pence. Rio Tinto Group, the world's third-largest, added 6.5 percent to 2,388 pence. Xstrata Plc rose 5.9 percent to 751 pence.
Standard Chartered, which makes the majority of its revenue in Asia, increased 14 percent to 772.5 pence after the bank said credit losses from U.S. financial institutions won't be ``material.'' The bank said its wholesale unit has seen ``strong'' income growth and customer deposits are ``steady.''
Aviva, the U.K.'s biggest insurer by assets, gained 14 percent to 279.75 pence after saying its capital reserves are ``very strong.'' The insurer reported a 12 percent increase in life and pension sales in the first nine months of the year, helped by gains in the U.S.
The following stocks also gained or fell in the U.K. market. Stock symbols are in parentheses.
ARM Holdings Plc (ARM LN) increased 10 pence, or 12 percent, to 90.5 after the U.K. designer of chips used in mobile phones said third-quarter profit soared 38 percent to 11.8 million pounds ($18.5 million), on record sales.
BG Group Plc (BG/ LN) added 45.5 pence, or 6.9 percent, to 709.5 as crude oil rallied for the first time in three days and after the third-biggest U.K. oil and gas producer agreed to pay A$5.2 billion ($3.1 billion) for the rest of Queensland Gas Co. as it seeks to ensure the development of a planned gas export project in Australia.
Carpetright Plc (CPR LN) dropped 11.5 pence, or 2.6 percent, to 428 after the U.K.'s largest carpet retailer reported a 13 percent decline in revenue at U.K. and Irish shops open at least a year in the 25 weeks to Oct. 25. The company also said it's close to taking over a concessionaire that sells beds in 94 stores.
ICAP Plc (IAP LN) dropped 10 pence, or 3.4 percent, to 285.25 after Goldman Sachs Group Inc. added the biggest interbank broker and rival Tullett Prebon Plc (TLPR LN) to its ``sell'' list, citing competition from exchanges amid global market turmoil
Irish companies:
Ryanair Holdings Plc (RYA ID) increased 7.3 cents, or 2.9 percent, to 2.56 after Citigroup Inc. upgraded Europe's largest discount airline to ``buy'' from ``hold.''
To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net.
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Oct. 28 (Bloomberg) -- U.K. stocks rallied for the first time in three days, led by commodity producers and financial companies, after BP Plc reported higher earnings and Standard Chartered Plc said credit losses won't be ``material.''
BP jumped 8 percent after the oil company posted an 83 percent rise in profit. BHP Billiton Ltd. climbed as copper rose above $4,000 a metric ton. Standard Chartered, the U.K.'s third- biggest bank, jumped 14 percent, while Aviva Plc surged 12 percent after the insurer said its capital reserves were ``very strong.''
The FTSE 100 Index jumped 151.99, or 4 percent, to 4,004.58 at 12:10 p.m. in London, as all but 17 stocks advanced. Today's gain trimmed the gauge's loss in October to 18 percent, still the worst decline since October 1987. The FTSE All-Share Index rose 3.7 percent, while Ireland's ISEQ Index increased 2.4 percent.
BP gained 8 percent to 473 pence after the energy company said it is ``well-placed'' to cope with the financial crisis after posting third-quarter profit of $8.05 billion on record crude and higher natural-gas prices.
``The numbers have comfortably surpassed the top end of expectations,'' said Richard Hunter, head of U.K. equities at Hargreaves Lansdown Stockbrokers in London. ``The shares are an outright buy at current levels.''
Oil Stocks
Royal Dutch Shell Plc, Europe's largest oil company, increased 5.8 percent to 1,545 pence. Cairn Energy Plc increased 2.2 percent to 1,205 pence.
BHP led mining shares higher as copper rose for a second day in London on speculation that demand for the metal will strengthen in China. Nickel and Lead also gained.
The world's largest mining company increased 5.4 percent to 891.5 pence. Rio Tinto Group, the world's third-largest, added 6.5 percent to 2,388 pence. Xstrata Plc rose 5.9 percent to 751 pence.
Standard Chartered, which makes the majority of its revenue in Asia, increased 14 percent to 772.5 pence after the bank said credit losses from U.S. financial institutions won't be ``material.'' The bank said its wholesale unit has seen ``strong'' income growth and customer deposits are ``steady.''
Aviva, the U.K.'s biggest insurer by assets, gained 14 percent to 279.75 pence after saying its capital reserves are ``very strong.'' The insurer reported a 12 percent increase in life and pension sales in the first nine months of the year, helped by gains in the U.S.
The following stocks also gained or fell in the U.K. market. Stock symbols are in parentheses.
ARM Holdings Plc (ARM LN) increased 10 pence, or 12 percent, to 90.5 after the U.K. designer of chips used in mobile phones said third-quarter profit soared 38 percent to 11.8 million pounds ($18.5 million), on record sales.
BG Group Plc (BG/ LN) added 45.5 pence, or 6.9 percent, to 709.5 as crude oil rallied for the first time in three days and after the third-biggest U.K. oil and gas producer agreed to pay A$5.2 billion ($3.1 billion) for the rest of Queensland Gas Co. as it seeks to ensure the development of a planned gas export project in Australia.
Carpetright Plc (CPR LN) dropped 11.5 pence, or 2.6 percent, to 428 after the U.K.'s largest carpet retailer reported a 13 percent decline in revenue at U.K. and Irish shops open at least a year in the 25 weeks to Oct. 25. The company also said it's close to taking over a concessionaire that sells beds in 94 stores.
ICAP Plc (IAP LN) dropped 10 pence, or 3.4 percent, to 285.25 after Goldman Sachs Group Inc. added the biggest interbank broker and rival Tullett Prebon Plc (TLPR LN) to its ``sell'' list, citing competition from exchanges amid global market turmoil
Irish companies:
Ryanair Holdings Plc (RYA ID) increased 7.3 cents, or 2.9 percent, to 2.56 after Citigroup Inc. upgraded Europe's largest discount airline to ``buy'' from ``hold.''
To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net.
Read more...
Global Stocks Rise on Valuations; BP, Air France, Alcoa Advance
By Adria Cimino
Oct. 28 (Bloomberg) -- Stocks around the world as the MSCI World Index traded near the cheapest relative to earnings since at least 1995. The Standard & Poor's 500 Index rebounded from its lowest since 2003.
Alcoa Inc. gained 5.3 percent after the stock traded at the lowest price-to-earnings ratio on record. BP Plc rallied 8.6 percent as Europe's second-biggest oil company said profit rose 83 percent in the third quarter. Volkswagen AG surged as much as 93 percent to become the world's biggest company by market value. Money-market rates extended declines today.
``Valuations are interesting,'' said Vincent Juvyns, a strategist at ING Investment Management in Brussels, which oversees $537 billion. ``Good earnings reports are giving a bit of cheer to the market and allowing investors to look at the fundamentals.''
The MSCI World Index added 3.4 percent to 862.15 at 1:32 p.m. in London, snapping a two-day, 8.4 percent drop. The S&P 500 rallied 2.8 percent.
Europe's Dow Jones Stoxx 600 Index advanced 3.4 percent, with Air France-KLM Group, the region's biggest airline, and SAS Group gaining more than 5 percent as Citigroup Inc. recommended the stocks.
Toyota Motor Corp. climbed 7.8 percent in Tokyo and Hynix Semiconductor Inc. soared 15 percent in Seoul, helping to lift the MSCI Asia Pacific Index 3.6 percent.
More than $12 trillion was erased from the market value of equities this month, accounting for about one-third of the total value wiped off stocks this year, as almost $680 billion of writedowns and losses by banks triggered a freeze in credit markets.
Borrowing Costs
Central banks and governments worldwide have cut borrowing costs and bailed out banks to shore up the financial system. Still, concern that such efforts won't prevent a global recession has pushed stocks lower in October, sending the MSCI World down 28 percent this month. The decline has left the index of 23 developed countries trading at 10.5 times the reported earnings of its companies, near its lowest since 1995 when Bloomberg started following the data.
Money-market rates in London show signs the paralysis among lenders is easing. The London interbank offered rate, or Libor, that banks charge each other for three-month loans in dollars fell 4 basis points to 3.47 percent today, its 12th straight drop, according to the British Bankers' Association.
The Libor-OIS spread, a measure of cash scarcity, narrowed 5 basis points to 258 basis points today, down from 345 basis points two weeks ago. It was at 87 points before Lehman Brothers Holdings Inc. collapsed last month.
Rate Outlook
Central banks are expected to keep lowering borrowing costs. European Central Bank President Jean-Claude Trichet said yesterday the bank may cut rates next week as the financial crisis damps inflation.
Futures on the Chicago Board of Trade show 100 percent odds the Federal Reserve will reduce its target rate by at least a half-percentage point tomorrow. The chances of a 0.75 point reduction rose to 38 percent from 34 percent yesterday.
The Fed started buying commercial paper yesterday, and in coming weeks it will lend as much as $540 billion to money- market mutual funds. Other cash loans to banks and financial institutions totaled $700 billion last week, up from almost nothing a year ago.
The Treasury, meanwhile, is buying equity stakes in banks as a way to inject capital into the struggling financial system. Nine of the nation's biggest banks may receive $125 billion from the $700 billion Troubled Asset Relief Program as soon as this week, and a growing number of regional lenders have announced preliminary approval to take part in the program.
Alcoa, BP
Alcoa, the largest U.S. aluminum producer, added 5.3 percent to $9.52. A 75 percent drop this year left the stock valued at 4.86 times earnings as of yesterday, the cheapest on record.
BP climbed 8.6 percent to 475.5 pence. Profit rose 83 percent to $8.05 billion in the third quarter as record crude and higher natural-gas prices outweighed production setbacks in Azerbaijan and the Gulf of Mexico.
Excluding one-time items and gains or losses from inventories, profit was expected to climb 62 percent to $6.82 billion, according to the median estimate of 10 analysts surveyed by Bloomberg News.
Earnings for Stoxx 600 companies will decline 5.2 percent in 2008, down from 11 percent growth predicted the start of the year, according to estimates compiled by Bloomberg. Profits for companies in the S&P 500 will drop 6.8 percent, down from 15 percent growth expected at the beginning of the year.
Europe's Stoxx 600 is down 21 percent in October, headed for its biggest monthly decline since the October 1987 crash. The measure closed yesterday valued at 7.9 times profit, the lowest since at least January 2002. The S&P 500 for U.S. equities traded at 18.5 times profit yesterday.
Aviva, Air France
Aviva Plc climbed 15 percent to 281.75 pence. The U.K.'s biggest insurer by assets said its capital reserves are ``strong,'' as it reported a 12 percent increase in life and pension sales in the first nine months of the year, helped by gains in the U.S.
Air France, Europe's largest airline, increased 6.5 percent to 11.08 euros, and SAS Group, owner of Scandinavian Airlines, climbed 5.8 percent to 32.80 kronor. Ryanair Holdings Plc, the region's biggest discount carrier, added 4.2 percent to 2.59 euros.
The carriers' stocks were raised to ``buy'' from ``hold'' at Citigroup, which cited ``record low'' valuations. The Stoxx 600 travel index is trading at 8.3 times earnings, the lowest since at least 2004 when Bloomberg began tracking the data.
ARM Holdings Inc. gained 13 percent to 91.25 pence after the U.K. designer of semiconductors used in Apple Inc.'s iPhone said third-quarter profit jumped 38 percent on record sales.
Volkswagen, Alcoa
Volkswagen soared 47 percent to 765 euros, after touching 1,005.01 euros earlier. The automaker's shares rallied after Porsche SE announced plans to raise its stake in the German carmaker to 75 percent, triggering demand from short-sellers. Porsche said it will increase its holding from 42.6 percent, prompting some short-sellers to buy from a shrinking pool of stock to end their bets.
Toyota, Japan's largest automaker, rose 7.8 percent to 3,170 yen, halting a four-day, 22 percent drop. Hynix, the world's second-biggest memory chip-maker, soared 15 percent to 9,330 won, rebounding from a five-day, 47 percent slump.
British Sky Broadcasting Group Plc gained 3.2 percent to 363.25 pence. The U.K.'s biggest pay-television provider was upgraded to ``buy'' from ``hold'' at Citigroup.
To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.
Read more...
Oct. 28 (Bloomberg) -- Stocks around the world as the MSCI World Index traded near the cheapest relative to earnings since at least 1995. The Standard & Poor's 500 Index rebounded from its lowest since 2003.
Alcoa Inc. gained 5.3 percent after the stock traded at the lowest price-to-earnings ratio on record. BP Plc rallied 8.6 percent as Europe's second-biggest oil company said profit rose 83 percent in the third quarter. Volkswagen AG surged as much as 93 percent to become the world's biggest company by market value. Money-market rates extended declines today.
``Valuations are interesting,'' said Vincent Juvyns, a strategist at ING Investment Management in Brussels, which oversees $537 billion. ``Good earnings reports are giving a bit of cheer to the market and allowing investors to look at the fundamentals.''
The MSCI World Index added 3.4 percent to 862.15 at 1:32 p.m. in London, snapping a two-day, 8.4 percent drop. The S&P 500 rallied 2.8 percent.
Europe's Dow Jones Stoxx 600 Index advanced 3.4 percent, with Air France-KLM Group, the region's biggest airline, and SAS Group gaining more than 5 percent as Citigroup Inc. recommended the stocks.
Toyota Motor Corp. climbed 7.8 percent in Tokyo and Hynix Semiconductor Inc. soared 15 percent in Seoul, helping to lift the MSCI Asia Pacific Index 3.6 percent.
More than $12 trillion was erased from the market value of equities this month, accounting for about one-third of the total value wiped off stocks this year, as almost $680 billion of writedowns and losses by banks triggered a freeze in credit markets.
Borrowing Costs
Central banks and governments worldwide have cut borrowing costs and bailed out banks to shore up the financial system. Still, concern that such efforts won't prevent a global recession has pushed stocks lower in October, sending the MSCI World down 28 percent this month. The decline has left the index of 23 developed countries trading at 10.5 times the reported earnings of its companies, near its lowest since 1995 when Bloomberg started following the data.
Money-market rates in London show signs the paralysis among lenders is easing. The London interbank offered rate, or Libor, that banks charge each other for three-month loans in dollars fell 4 basis points to 3.47 percent today, its 12th straight drop, according to the British Bankers' Association.
The Libor-OIS spread, a measure of cash scarcity, narrowed 5 basis points to 258 basis points today, down from 345 basis points two weeks ago. It was at 87 points before Lehman Brothers Holdings Inc. collapsed last month.
Rate Outlook
Central banks are expected to keep lowering borrowing costs. European Central Bank President Jean-Claude Trichet said yesterday the bank may cut rates next week as the financial crisis damps inflation.
Futures on the Chicago Board of Trade show 100 percent odds the Federal Reserve will reduce its target rate by at least a half-percentage point tomorrow. The chances of a 0.75 point reduction rose to 38 percent from 34 percent yesterday.
The Fed started buying commercial paper yesterday, and in coming weeks it will lend as much as $540 billion to money- market mutual funds. Other cash loans to banks and financial institutions totaled $700 billion last week, up from almost nothing a year ago.
The Treasury, meanwhile, is buying equity stakes in banks as a way to inject capital into the struggling financial system. Nine of the nation's biggest banks may receive $125 billion from the $700 billion Troubled Asset Relief Program as soon as this week, and a growing number of regional lenders have announced preliminary approval to take part in the program.
Alcoa, BP
Alcoa, the largest U.S. aluminum producer, added 5.3 percent to $9.52. A 75 percent drop this year left the stock valued at 4.86 times earnings as of yesterday, the cheapest on record.
BP climbed 8.6 percent to 475.5 pence. Profit rose 83 percent to $8.05 billion in the third quarter as record crude and higher natural-gas prices outweighed production setbacks in Azerbaijan and the Gulf of Mexico.
Excluding one-time items and gains or losses from inventories, profit was expected to climb 62 percent to $6.82 billion, according to the median estimate of 10 analysts surveyed by Bloomberg News.
Earnings for Stoxx 600 companies will decline 5.2 percent in 2008, down from 11 percent growth predicted the start of the year, according to estimates compiled by Bloomberg. Profits for companies in the S&P 500 will drop 6.8 percent, down from 15 percent growth expected at the beginning of the year.
Europe's Stoxx 600 is down 21 percent in October, headed for its biggest monthly decline since the October 1987 crash. The measure closed yesterday valued at 7.9 times profit, the lowest since at least January 2002. The S&P 500 for U.S. equities traded at 18.5 times profit yesterday.
Aviva, Air France
Aviva Plc climbed 15 percent to 281.75 pence. The U.K.'s biggest insurer by assets said its capital reserves are ``strong,'' as it reported a 12 percent increase in life and pension sales in the first nine months of the year, helped by gains in the U.S.
Air France, Europe's largest airline, increased 6.5 percent to 11.08 euros, and SAS Group, owner of Scandinavian Airlines, climbed 5.8 percent to 32.80 kronor. Ryanair Holdings Plc, the region's biggest discount carrier, added 4.2 percent to 2.59 euros.
The carriers' stocks were raised to ``buy'' from ``hold'' at Citigroup, which cited ``record low'' valuations. The Stoxx 600 travel index is trading at 8.3 times earnings, the lowest since at least 2004 when Bloomberg began tracking the data.
ARM Holdings Inc. gained 13 percent to 91.25 pence after the U.K. designer of semiconductors used in Apple Inc.'s iPhone said third-quarter profit jumped 38 percent on record sales.
Volkswagen, Alcoa
Volkswagen soared 47 percent to 765 euros, after touching 1,005.01 euros earlier. The automaker's shares rallied after Porsche SE announced plans to raise its stake in the German carmaker to 75 percent, triggering demand from short-sellers. Porsche said it will increase its holding from 42.6 percent, prompting some short-sellers to buy from a shrinking pool of stock to end their bets.
Toyota, Japan's largest automaker, rose 7.8 percent to 3,170 yen, halting a four-day, 22 percent drop. Hynix, the world's second-biggest memory chip-maker, soared 15 percent to 9,330 won, rebounding from a five-day, 47 percent slump.
British Sky Broadcasting Group Plc gained 3.2 percent to 363.25 pence. The U.K.'s biggest pay-television provider was upgraded to ``buy'' from ``hold'' at Citigroup.
To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.
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