By Laurence Frost and Adria Cimino
Sept. 8 (Bloomberg) -- The following is a list of companies whose stocks may have unusual price changes in Paris. Symbols are in parentheses after company names and prices are from the last close.
September futures on France's CAC 40 Index surged 181 to 4,377 at 8:17 a.m. in Paris.
The CAC 40 dropped 107.35, or 2.5 percent, to 4,196.66 on Sept. 5. The SBF 120 also declined 2.5 percent.
Air France-KLM Group (AF FP): Europe's biggest airline said August passenger traffic rose 2.8 percent, while cargo traffic fell 4 percent. The stock dropped 37 cents, or 2.2 percent, to 16.67 euros.
BioMerieux (BIM FP): The French maker of tests to diagnose infections such as HIV and hepatitis said first-half profit rose 5.8 percent to 56.5 million euros ($81 million) as higher sales in Latin America. The stock lost 11 cents, or 0.2 percent, to 70.39 euros.
Cap Gemini SA (CAP FP) and Atos Origin SA (ATO FP): Citigroup Inc. cut its recommendation on shares of both companies to ``sell'' from ``hold.'' Shares of Cap Gemini, Europe's biggest computer-services company, dropped 81 cents, or 2.2 percent, to 37.77 euros. Atos Origin, France's second- largest, retreated 17 cents, or 0.5 percent, to 36.38 euros.
CCA International (CCA FP): The call-center and outsourcing-service provider said net income fell to 136,000 euros in the first half from 873,000 euros a year earlier as it closed its German unit. The shares rose 14 cents, or 2.6 percent, to 5.54 euros.
Dassault Systemes SA (DSY FP): Citigroup cut its recommendation on shares of the maker of software used to design the Airbus A380 aircraft to ``sell'' from ``hold.'' The stock declined 1.07 euros, or 2.7 percent, to 39.24.
Electricite de France SA (EDF FP): British Energy Plc was close to agreeing to a 12 billion-pound ($21.2 billion) takeover by EDF after the French company improved its offer, the Guardian and the Sunday Times reported. The shares fell 1.295 euros, or 2.4 percent, to 52.815 euros.
European Aeronautic Defence & Space Co. (EAD FP): GKN Plc, the U.K. auto- and aircraft-part maker, may receive 60 million pounds of British government support to acquire a plant from EADS unit Airbus, the Financial Times said. The shares fell 52.5 cents, or 3.5 percent, to 14.675 euros.
Homair SA (ALHOM FP): The campsite and mobile-home vacation operator said reservations were up 25 percent in the 11 months to Aug. 31, compared with the year-earlier period. The shares fell 5 cents, or 1.3 percent, to 3.70 euros.
International Technologie Selection (ALITS FP): The designer and retailer of portable DVD players appointed Eddy Achour as managing director and Pierre Falovo as chairman of its new board, as it modified its management structure. The shares were unchanged at 28 cents.
Natixis SA (KN FP): The bank's major shareholders, Groupe Banque Populaire and Groupe Caisse d'Epargne, aren't looking for another major investor in Natixis, Les Echos reported, citing an interview with their chairmen. The stock retreated 17 cents, or 4.5 percent, to 3.58 euros.
NYSE Euronext (NYX FP): The world's largest owner of stock exchanges will start a pan-European electronic trading system in November, taking on both traditional bourses and new alternative trading networks. The stock slid 63 cents, or 2.3 percent, to 27.36 euros.
Renault SA (RNO FP): France's second-largest automaker said workers at a Brazilian plant ended a four-day strike that resulted in a production loss of 2,400 vehicles. The shares fell 2.12 euros, or 3.7 percent, to 54.615 euros.
Trilogiq SA (ALTRI FP): The manufacturer of flow racks bought a 70 percent stake in its U.K. distributor, The Tube and Bracket Ltd., for 477,000 pounds. The shares fell 39 cents, or 2.9 percent, to 13.00 euros.
To contact the reporter on this story: Laurence Frost in Paris at lfrost4@bloomberg.net.
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Monday, September 8, 2008
Commerzbank, Deutsche Bank: German Equity Preview
By Sheenagh Matthews
(Corrects Metro item to show that DSG wanted to sell itself.)
Sept. 8 (Bloomberg) -- The following companies may have unusual price changes in Germany. Stock symbols are in parentheses and prices are from the previous close.
DAX Index futures expiring in September dropped 2.6 percent, to 6,123 in Frankfurt. The DAX Index fell 2.4 percent to 6,127.44 on Sept. 5.
Commerzbank AG (CBK GY): The Frankfurt-based bank is still a takeover candidate even after its acquisition of Dresdner Bank AG, Ver.di union board member Uwe Foullong told Handelsblatt.
Separately, Commerzbank aims to win market share from savings banks, or Sparkassen, and expects to have 8 percent to 9 percent of the market for smaller companies by 2012, board member Markus Beumer told Welt am Sonntag. The shares dropped 2.5 percent to 16.82 euros.
Celesio AG (CLS1 GY): Europe's biggest drug wholesaler plans to buy between 30 and 50 pharmacies in Germany within a year of receiving legal approval, Frankfurter Allgemeine Sonntagszeitung said, citing Chief Executive Officer Fritz Oesterle. The stock fell 1.9 percent to 26.51 euros.
Daimler AG (DAI GY): The carmaker's shareholder Cevian Capital AB met with Chief Executive Officer Dieter Zetsche and demanded that the automaker sell its truck business, Focus said, without saying where it got the information.
Separately, Daimler and Robert Bosch GmbH plan to form a joint venture in North America to expand in spare truck parts, Automobilwoche said, citing unidentified spokespeople from both companies. The stock slipped 4.2 percent to 39.69 euros.
Deutsche Bank AG (DBK GY): Germany's biggest bank is back in the bidding process for Deutsche Post AG's Postbank and may buy a minority stake of less than 30 percent, Handelsblatt said, citing unidentified people from the industry. The stock slipped 1.8 percent to 56.69 euros.
Separately, Deutsche Post (DPW GY) has lowered the price it expects to get for Postbank after negotiations over the sale stalled, WirtschaftsWoche said, citing unidentified people from the Federal Ministry of Finance, which controls 30 percent of the logistics company. Deutsche Post declined 2.3 percent to 15.36 euros. Deutsche Postbank (DPB GY) gained 2.1 percent to 43.22 euros.
Deutsche Boerse AG (DB1 GY): The operator of the Frankfurt stock exchange plans to defend itself from a potential breakup by its two biggest shareholders, Frankfurter Allgemeine Sonntagszeitung said, citing an unidentified member of the company's supervisory board. The stock declined 3.6 percent to 62.41 euros.
Fraport AG (FRA GY): Chief Executive Officer Wilhelm Bender said plans to expand the Frankfurt airport aren't in danger of being blocked by lawsuits, according to an interview with Deutsche Presse-Agentur. The shares dropped 3.4 percent to 40.53 euros.
Metro AG (MEO GY): DSG International Plc, the owner of the Currys and PC World electronics chains, approached Metro AG about selling itself, and the German retailer rebuffed the approach, the Financial Times reported.
Separately, Metro may offer a delivery service to customers of its Cash & Carry wholesale grocery stores, WirtschaftsWoche said, citing unidentified company sources. Metro shares fell 1.1 percent to 37.69 euros.
Munich Re (MUV2 GY): The world's biggest reinsurer said capital market turmoil and higher catastrophe claims may halt a two-year decline of reinsurance rates as primary insurers may need to buy more coverage against risks. The shares fell 1.6 percent to 102.88 euros.
RWE AG (RWE GY): Chief Executive Officer Juergen Grossmann is looking for acquisitions in Germany and abroad, though he doesn't see a ``mega-merger'' with a foreign utility of similar size, according to a Frankfurter Rundschau interview. The shares lost 2.3 percent to 67.94 euros.
To contact the reporter on this story: Sheenagh Matthews in Frankfurt at smatthews6@bloomberg.net.
Read more...
(Corrects Metro item to show that DSG wanted to sell itself.)
Sept. 8 (Bloomberg) -- The following companies may have unusual price changes in Germany. Stock symbols are in parentheses and prices are from the previous close.
DAX Index futures expiring in September dropped 2.6 percent, to 6,123 in Frankfurt. The DAX Index fell 2.4 percent to 6,127.44 on Sept. 5.
Commerzbank AG (CBK GY): The Frankfurt-based bank is still a takeover candidate even after its acquisition of Dresdner Bank AG, Ver.di union board member Uwe Foullong told Handelsblatt.
Separately, Commerzbank aims to win market share from savings banks, or Sparkassen, and expects to have 8 percent to 9 percent of the market for smaller companies by 2012, board member Markus Beumer told Welt am Sonntag. The shares dropped 2.5 percent to 16.82 euros.
Celesio AG (CLS1 GY): Europe's biggest drug wholesaler plans to buy between 30 and 50 pharmacies in Germany within a year of receiving legal approval, Frankfurter Allgemeine Sonntagszeitung said, citing Chief Executive Officer Fritz Oesterle. The stock fell 1.9 percent to 26.51 euros.
Daimler AG (DAI GY): The carmaker's shareholder Cevian Capital AB met with Chief Executive Officer Dieter Zetsche and demanded that the automaker sell its truck business, Focus said, without saying where it got the information.
Separately, Daimler and Robert Bosch GmbH plan to form a joint venture in North America to expand in spare truck parts, Automobilwoche said, citing unidentified spokespeople from both companies. The stock slipped 4.2 percent to 39.69 euros.
Deutsche Bank AG (DBK GY): Germany's biggest bank is back in the bidding process for Deutsche Post AG's Postbank and may buy a minority stake of less than 30 percent, Handelsblatt said, citing unidentified people from the industry. The stock slipped 1.8 percent to 56.69 euros.
Separately, Deutsche Post (DPW GY) has lowered the price it expects to get for Postbank after negotiations over the sale stalled, WirtschaftsWoche said, citing unidentified people from the Federal Ministry of Finance, which controls 30 percent of the logistics company. Deutsche Post declined 2.3 percent to 15.36 euros. Deutsche Postbank (DPB GY) gained 2.1 percent to 43.22 euros.
Deutsche Boerse AG (DB1 GY): The operator of the Frankfurt stock exchange plans to defend itself from a potential breakup by its two biggest shareholders, Frankfurter Allgemeine Sonntagszeitung said, citing an unidentified member of the company's supervisory board. The stock declined 3.6 percent to 62.41 euros.
Fraport AG (FRA GY): Chief Executive Officer Wilhelm Bender said plans to expand the Frankfurt airport aren't in danger of being blocked by lawsuits, according to an interview with Deutsche Presse-Agentur. The shares dropped 3.4 percent to 40.53 euros.
Metro AG (MEO GY): DSG International Plc, the owner of the Currys and PC World electronics chains, approached Metro AG about selling itself, and the German retailer rebuffed the approach, the Financial Times reported.
Separately, Metro may offer a delivery service to customers of its Cash & Carry wholesale grocery stores, WirtschaftsWoche said, citing unidentified company sources. Metro shares fell 1.1 percent to 37.69 euros.
Munich Re (MUV2 GY): The world's biggest reinsurer said capital market turmoil and higher catastrophe claims may halt a two-year decline of reinsurance rates as primary insurers may need to buy more coverage against risks. The shares fell 1.6 percent to 102.88 euros.
RWE AG (RWE GY): Chief Executive Officer Juergen Grossmann is looking for acquisitions in Germany and abroad, though he doesn't see a ``mega-merger'' with a foreign utility of similar size, according to a Frankfurter Rundschau interview. The shares lost 2.3 percent to 67.94 euros.
To contact the reporter on this story: Sheenagh Matthews in Frankfurt at smatthews6@bloomberg.net.
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Asian Stocks, U.S. Futures Rally on Fannie, Freddie Takeover
By Patrick Rial and Shani Raja
Sept. 8 (Bloomberg) -- Asian stocks surged the most in eight months and U.S. futures jumped after the U.S. government seized control of Fannie Mae and Freddie Mac, shoring up global financial markets reeling from more than $500 billion in credit losses.
Sumitomo Mitsui Financial Group Inc. posted its biggest rise ever and Macquarie Group Ltd. climbed 15 percent, driving a measure of financial shares to the largest gain in 10 years, after the takeover of the two-biggest U.S. mortgage guarantors cut credit risk. Origin Energy Ltd. jumped to a record after ConocoPhillips said it will join Origin's natural gas venture. Toyota Motor Corp. added 4 percent after the yen weakened following the largest measure yet taken by officials to limit the credit crisis's fallout.
``It draws a line under the recent problems,'' said Nader Naeimi, a Sydney-based senior investment strategist at AMP Capital Investors, which manages about $108 billion. ``It's very positive for the banking sector in particular, which has been beaten down quite badly.''
The MSCI Asia Pacific Index climbed 4.5 percent, the most since January, to 122.05 as of 3:36 p.m. in Tokyo, with financial companies accounting for almost half of that gain. The measure on Friday closed at its lowest level since June 13, 2006.
Japan's Nikkei 225 Stock Average rose 3.4 percent to 12,624.46, led by Toyota and robot-maker Fanuc Ltd.
Taiwan's Taiex Index jumped 5.6 percent, the biggest gain in Asia and the gauge's steepest rally since October 2002, after the government said it may take action to boost stock prices and spending. Li & Fung Ltd. led Hong Kong equities higher after selling a stake to Singapore's Temasek Holdings Pte.
Futures Rally
More than $17 trillion in global equity value has been wiped out since October as the credit crisis and U.S. housing recession dragged economies worldwide. Investors had worried failures by Fannie and Freddie, which hold more than $1.5 trillion in assets and almost the same amount of debt, would spark further losses at financial institutions around the world.
S&P 500 futures expiring in September climbed 2.7 percent to 1,275.00, the steepest advance since April 1.
Sumitomo Mitsui, Japan's third-biggest listed bank, rallied 15 percent to 674,000 yen, the steepest advance since listing in 2002. Macquarie, Australia's biggest investment bank which has lost half its value since its 2007-peak, rose 15 percent to A$48.31. Woori Finance Holdings Co., which control's South Korea's second-largest bank, advanced 15 percent to 15,000 won, the biggest gain on record.
``The market likes less uncertainty and this takes care of that,'' said E. William Stone, who oversees $66 billion as chief investment strategist at PNC Wealth Management in Philadelphia. ``If this helps re-stabilize the housing situation it's got to be looked at as a positive.''
Lower Risk
The cost to protect Asia-Pacific corporate bonds from default fell by the most in about five months, credit-default swaps show. MSCI's Asia Pacific financial stock index jumped 6.7 percent, poised for its biggest gain since October 1998.
Nomura Holdings Inc., Japan's No. 1 investment bank, advanced 9.7 percent to 1,501 yen after the Yomiuri newspaper said on Sept. 6 the company may bid for a stake in Lehman Brothers Holdings Inc. Orix Corp., Japan's largest leasing company, rallied 15 percent for the biggest gain since 1986 to 13,700 yen, paring its loss for the year to 28 percent.
Fannie and Freddie, which make up almost half the U.S. home- loan market, were seized after the biggest surge in mortgage defaults in at least three decades, Treasury Secretary Henry Paulson said in Washington. Shares in both companies fell more than 80 percent since the start of the year.
Exporters Climb
``Had the U.S. mortgage-financing companies failed, it would have triggered a substantial financial crisis across the globe,'' said Naoki Fujiwara, who oversees about $720 million as chief fund manager at Tokyo-based Shinkin Asset Management Co. The takeovers ``have eliminated concerns among investors and boosted confidence the financial market will stabilize.''
Toyota climbed 4 percent to 4,940 yen. The world's No. 2 automaker also rose after the yen weakened against the dollar and the euro. Samsung Electronics Co., the biggest computer-memory maker, added 4.4 percent to 543,000 won.
Raw materials producers jumped as the takeover of Fannie and Freddie lifted confidence global growth will be sustained, supporting commodities prices. Citic Resources Holdings Ltd., a Chinese metal producer turned oil supplier, surged 15 percent to HK$1.66. Fortescue Metals Group Ltd., Australia's third-largest iron ore producer, rallied 11 percent to A$7.10.
Origin, Australia's biggest producer of gas from coal seams, gained 13 percent to A$17.65 after ConocoPhillips, the second- biggest U.S. oil refiner, agreed to pay as much as $8 billion to join a natural gas venture in Queensland.
Li & Fung, which sells clothes, toys and home furniture to Wal-Mart Stores Inc., surged 10 percent to HK$24.90 after Temasek, Singapore's government-owned investment company, agreed to pay HK$3.88 billion ($497 million) for new shares in the company.
To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net; Shani Raja in Sydney at sraja4@bloomberg.net.
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Cap, Contax, Cresud, Ecopetrol, Invermar: Latin Equity Preview
By William Freebairn and James Attwood
Sept. 8 (Bloomberg) -- The following companies may have unusual price changes today in Latin America trading. Stock symbols are in parentheses, and share prices are from the previous close. Preferred shares are usually the most-traded class of stock in Brazil.
The MSCI Latin America Index fell 1.9 percent Sept. 5 to 3,566.14.
Argentina
Cresud SACIF y A (CRES AF): The Argentine agricultural and real-estate company had a ``buy'' rating reiterated by Raymond James & Associates. The stock probably will rise to 4.30 pesos in six months on ``impressive'' earnings growth prospects, analysts including Francisco Schumacher wrote in a Sept. 5 research note. Cresud fell 0.9 percent to 3.35 pesos.
Brazil
Abyara Planejamento Imobiliario SA (ABYA3 BS): The homebuilder that sold its brokerage unit to Brasil Broker Participacoes last month was cut to ``hold'' from ``buy'' at Banco Santander SA. The builder is likely to reduce the number of projects it begins because of its quick use of cash, analyst Marcello Milman wrote in a Sept. 5 note. Abyara fell 1 percent to 5.05 reais.
Contax Participacoes SA (CTAX4 BS): The Brazilian provider of call-center services will buy back as much as 2 percent of its voting shares and as much as 10 percent of preferred, non-voting shares during the next year, Contax said in a Sept. 5 filing posted on Brazil's securities regulator Web site. Contax preferred shares rose 0.3 percent to 43.50 reais.
Chile
Cap SA (CAP CC): Chile's biggest producer of steel and iron ore will pay an interim dividend of 100 pesos a share on Oct. 15 to shareholders of record Oct. 9, it wrote in a Sept. 5 regulatory filing. That compares with a payment of 80 pesos in the year-ago period, according to Bloomberg records. Cap fell 2.7 percent to 15,766 pesos.
Multiexport Foods SA (MULTIFOO CC) and Invertec Pesquera Mar de Chiloe SA (INVERMAR CC): Chilean salmon farmers said a virus that affects the country's production may be worsening, afternoon daily La Segunda newspaper reported, citing Cesar Barros, president of a group representing Chilean producers. The number of cases has increased, said Alvaro Jimenez, chief executive of Marine Harvest Chile SA, the newspaper reported on Sept. 5. Multiexport, the world's sixth-largest salmon producer, dropped 1.9 percent to 126.38 pesos. Invermar, a rival producer, fell 6.4 percent to 252.77 pesos.
Colombia
Ecopetrol SA (ECOPETL CB): Colombia's state oil company's new Arrayan-1 well is cable of producing 860 barrels a day of oil and 175,000 cubic feet of natural gas, the company said in a statement Sept. 5. Ecopetrol fell 0.6 percent to 2,600 pesos.
Mexico
Alsea SAB (ALSEA* MM): The operator of Domino's Pizza and Starbucks coffee shops in Mexico had six net store openings in August. The company opened four Domino's Pizza units and closed one in the month, Alsea said in a statement e-mailed Sept. 5. Alsea fell 2.8 percent to 10.89 pesos.
Fomento Economico Mexicano SAB (FEMSAUBD MM): Latin America's largest beverage company expects sales at its Jugos del Valle unit to more than double in the next five years, Chief Executive Officer Jose Antonio Fernandez said in an interview Sept. 5. Fomento Economico's soft drink unit and Coca-Cola Co. bought Jugos del Valle for $370 million last year. Femsa, as the beverage company is known, declined 1.2 percent to 46.47 pesos.
IXE Grupo Financiero SA (IXEGFO MM): The Mexican financial services company's banking subsidiary plans to start a joint venture with a unit of JPMorgan Chase & Co. to issue and service credit cards in Mexico. The new company will be equally owned by IXE Banco SA and CMC Holding Delaware Inc., IXE said in a statement Sept. 5. IXE rose 0.6 percent to 16 pesos when it last traded Sept. 3.
To contact the reporter on this story: William Freebairn in Mexico City at wfreebairn@bloomberg.net; James Attwood in Santiago at jattwood3@bloomberg.net.
Read more...
Sept. 8 (Bloomberg) -- The following companies may have unusual price changes today in Latin America trading. Stock symbols are in parentheses, and share prices are from the previous close. Preferred shares are usually the most-traded class of stock in Brazil.
The MSCI Latin America Index fell 1.9 percent Sept. 5 to 3,566.14.
Argentina
Cresud SACIF y A (CRES AF): The Argentine agricultural and real-estate company had a ``buy'' rating reiterated by Raymond James & Associates. The stock probably will rise to 4.30 pesos in six months on ``impressive'' earnings growth prospects, analysts including Francisco Schumacher wrote in a Sept. 5 research note. Cresud fell 0.9 percent to 3.35 pesos.
Brazil
Abyara Planejamento Imobiliario SA (ABYA3 BS): The homebuilder that sold its brokerage unit to Brasil Broker Participacoes last month was cut to ``hold'' from ``buy'' at Banco Santander SA. The builder is likely to reduce the number of projects it begins because of its quick use of cash, analyst Marcello Milman wrote in a Sept. 5 note. Abyara fell 1 percent to 5.05 reais.
Contax Participacoes SA (CTAX4 BS): The Brazilian provider of call-center services will buy back as much as 2 percent of its voting shares and as much as 10 percent of preferred, non-voting shares during the next year, Contax said in a Sept. 5 filing posted on Brazil's securities regulator Web site. Contax preferred shares rose 0.3 percent to 43.50 reais.
Chile
Cap SA (CAP CC): Chile's biggest producer of steel and iron ore will pay an interim dividend of 100 pesos a share on Oct. 15 to shareholders of record Oct. 9, it wrote in a Sept. 5 regulatory filing. That compares with a payment of 80 pesos in the year-ago period, according to Bloomberg records. Cap fell 2.7 percent to 15,766 pesos.
Multiexport Foods SA (MULTIFOO CC) and Invertec Pesquera Mar de Chiloe SA (INVERMAR CC): Chilean salmon farmers said a virus that affects the country's production may be worsening, afternoon daily La Segunda newspaper reported, citing Cesar Barros, president of a group representing Chilean producers. The number of cases has increased, said Alvaro Jimenez, chief executive of Marine Harvest Chile SA, the newspaper reported on Sept. 5. Multiexport, the world's sixth-largest salmon producer, dropped 1.9 percent to 126.38 pesos. Invermar, a rival producer, fell 6.4 percent to 252.77 pesos.
Colombia
Ecopetrol SA (ECOPETL CB): Colombia's state oil company's new Arrayan-1 well is cable of producing 860 barrels a day of oil and 175,000 cubic feet of natural gas, the company said in a statement Sept. 5. Ecopetrol fell 0.6 percent to 2,600 pesos.
Mexico
Alsea SAB (ALSEA* MM): The operator of Domino's Pizza and Starbucks coffee shops in Mexico had six net store openings in August. The company opened four Domino's Pizza units and closed one in the month, Alsea said in a statement e-mailed Sept. 5. Alsea fell 2.8 percent to 10.89 pesos.
Fomento Economico Mexicano SAB (FEMSAUBD MM): Latin America's largest beverage company expects sales at its Jugos del Valle unit to more than double in the next five years, Chief Executive Officer Jose Antonio Fernandez said in an interview Sept. 5. Fomento Economico's soft drink unit and Coca-Cola Co. bought Jugos del Valle for $370 million last year. Femsa, as the beverage company is known, declined 1.2 percent to 46.47 pesos.
IXE Grupo Financiero SA (IXEGFO MM): The Mexican financial services company's banking subsidiary plans to start a joint venture with a unit of JPMorgan Chase & Co. to issue and service credit cards in Mexico. The new company will be equally owned by IXE Banco SA and CMC Holding Delaware Inc., IXE said in a statement Sept. 5. IXE rose 0.6 percent to 16 pesos when it last traded Sept. 3.
To contact the reporter on this story: William Freebairn in Mexico City at wfreebairn@bloomberg.net; James Attwood in Santiago at jattwood3@bloomberg.net.
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South Korea's Kospi Gains Most in a Year, Led by Woori Finance
By Saeromi Shin and Kyung Bok Cho
Sept. 8 (Bloomberg) -- South Korea's Kospi index rose the most in more than a year, led by Woori Finance Holdings Co., on speculation the U.S. government's takeover of Fannie Mae and Freddie Mac will stabilize financial markets.
Woori, which has the most U.S. mortgage-related investments among South Korean banks, jumped by the daily limit on speculation related losses will decline. Industrial Bank of Korea climbed 8.9 percent after credit risks decreased. Stocks also rose after a gain in the won eased concerns that foreign investors will pull out of Korean holdings when $6.7 billion in government bonds mature this month.
``Support by the U.S. government, which came earlier than expected at a politically sensitive time, reduces concerns about the global financial sector,'' said Im Jeong Jae, a fund manager at Shinhan BNP Paribas Investment Trust Management Co. in Seoul, which has the equivalent of $825 million in equities. ``Local investors realize foreigners are less likely to leave after the government bonds mature this month.''
The Kospi rose 74.76, or 5.3 percent, to 1,479.14 as of 2:18 p.m. in Seoul, the most since Aug. 20, 2007, when it gained 5.7 percent. All but three of the benchmark's 19 industry groups advanced.
Program trading of Kospi-listed shares was halted according to exchange rules for 5 minutes from 1:35 p.m. after Kospi 200 futures gained more than 5 percent for more than 1 minute.
Woori rose 15 percent to 15,050 won, a record jump. Industrial Bank, the nation's largest lender to smaller businesses, gained 8.9 percent to 16,450 won, the most since July 21.
The Kospi's Financial Industry index, which advanced 8.4 percent, was the biggest contributor to the broader gauge's climb.
Strengthening Won
Fannie and Freddie, which make up almost half the U.S. home- loan market, were taken over after the biggest surge in mortgage defaults in at least three decades, Treasury Secretary Henry Paulson said yesterday in Washington. Investors had worried failures by the companies, which hold more than $1.5 trillion in assets and almost the same amount of debt, would spark further losses at financial institutions.
The Markit iTraxx Asia index, a gauge of credit risk, fell 17 basis points to 157.5, according to prices from ICAP Plc. A basis point, or 0.01 percentage point, is worth $1,000 on a swap that protects $10 million of debt from default.
Samsung Electronics Co., South Korea's biggest company by market value, advanced 5.8 percent to 550,000, in its steepest climb since July 13, 2007. LG Electronics Inc., Asia's second- largest handset maker, added 6.2 percent to 100,500 won, the most since March 5.
The won gained 2.4 percent to 1,090.50 to the dollar as of 2 p.m., according to Seoul Money Brokerage Services Ltd. About $6.7 billion in government debt held by overseas investors is set to mature this month, triggering concern that capital outflows will further drive down the won, Asia's worst performing currency this year.
Separately, Samsung's possible acquisition of SanDisk Corp. could be ``strategically positive'' as it will reduce earnings volatility in the company's NAND flash business and save royalty payments, Goldman, Sachs & Co. said in a report.
To contact the reporter on this story: Saeromi Shin in Seoul at sshin15@bloomberg.net; Kyung Bok Cho in Seoul at kcho7@bloomberg.net.
Read more...
Sept. 8 (Bloomberg) -- South Korea's Kospi index rose the most in more than a year, led by Woori Finance Holdings Co., on speculation the U.S. government's takeover of Fannie Mae and Freddie Mac will stabilize financial markets.
Woori, which has the most U.S. mortgage-related investments among South Korean banks, jumped by the daily limit on speculation related losses will decline. Industrial Bank of Korea climbed 8.9 percent after credit risks decreased. Stocks also rose after a gain in the won eased concerns that foreign investors will pull out of Korean holdings when $6.7 billion in government bonds mature this month.
``Support by the U.S. government, which came earlier than expected at a politically sensitive time, reduces concerns about the global financial sector,'' said Im Jeong Jae, a fund manager at Shinhan BNP Paribas Investment Trust Management Co. in Seoul, which has the equivalent of $825 million in equities. ``Local investors realize foreigners are less likely to leave after the government bonds mature this month.''
The Kospi rose 74.76, or 5.3 percent, to 1,479.14 as of 2:18 p.m. in Seoul, the most since Aug. 20, 2007, when it gained 5.7 percent. All but three of the benchmark's 19 industry groups advanced.
Program trading of Kospi-listed shares was halted according to exchange rules for 5 minutes from 1:35 p.m. after Kospi 200 futures gained more than 5 percent for more than 1 minute.
Woori rose 15 percent to 15,050 won, a record jump. Industrial Bank, the nation's largest lender to smaller businesses, gained 8.9 percent to 16,450 won, the most since July 21.
The Kospi's Financial Industry index, which advanced 8.4 percent, was the biggest contributor to the broader gauge's climb.
Strengthening Won
Fannie and Freddie, which make up almost half the U.S. home- loan market, were taken over after the biggest surge in mortgage defaults in at least three decades, Treasury Secretary Henry Paulson said yesterday in Washington. Investors had worried failures by the companies, which hold more than $1.5 trillion in assets and almost the same amount of debt, would spark further losses at financial institutions.
The Markit iTraxx Asia index, a gauge of credit risk, fell 17 basis points to 157.5, according to prices from ICAP Plc. A basis point, or 0.01 percentage point, is worth $1,000 on a swap that protects $10 million of debt from default.
Samsung Electronics Co., South Korea's biggest company by market value, advanced 5.8 percent to 550,000, in its steepest climb since July 13, 2007. LG Electronics Inc., Asia's second- largest handset maker, added 6.2 percent to 100,500 won, the most since March 5.
The won gained 2.4 percent to 1,090.50 to the dollar as of 2 p.m., according to Seoul Money Brokerage Services Ltd. About $6.7 billion in government debt held by overseas investors is set to mature this month, triggering concern that capital outflows will further drive down the won, Asia's worst performing currency this year.
Separately, Samsung's possible acquisition of SanDisk Corp. could be ``strategically positive'' as it will reduce earnings volatility in the company's NAND flash business and save royalty payments, Goldman, Sachs & Co. said in a report.
To contact the reporter on this story: Saeromi Shin in Seoul at sshin15@bloomberg.net; Kyung Bok Cho in Seoul at kcho7@bloomberg.net.
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Taiwan Shares Gain Most in 6 Years on Possible Support Measures
By Tim Culpan and Chinmei Sung
Sept. 8 (Bloomberg) -- Taiwan stocks climbed, driving the benchmark index to its biggest gain in six years, after the government said it may take action to boost equities.
Cathay Financial Holding Co. and Fubon Financial Holding Co., Taiwan's two largest financial-services companies, led banking stocks to the largest advance in 14 years as the U.S. government's takeover of Fannie Mae and Freddie Mac eased concern that losses at financial companies this year will widen.
``It's obvious the government is working hard to raise investor confidence by suggesting they will make some moves,'' said Bevan Yeh, who helps manage the equivalent of $1.2 billion at Prudential Financial Securities Investment Trust Enterprise in Taipei. ``Freddie and Fannie are also giving fund managers a reason to buy in.''
Taiwan's Taiex index added 351.41 points, or 5.6 percent, to 6,658.69 at the close of trade. The advance was the largest since Oct. 15, 2002, and the most among Asian benchmark measures today. The 35-member Financials and Insurance sub-index surged 6.8 percent, the most since Jan. 17, 1994.
A decline in global stock markets this year has dragged the Taiex down by 22 percent. The Taiwan government may propose measures to boost stock prices and consumer demand at its weekly meeting Sept. 11, Carolina Lin, a secretary at the Government Information Office, said Sept. 6.
Taiwan's Financial Supervisory Commission also plans to ease rules on stock buybacks for financial-services companies, lifting to 12 from five the number of companies allowed to participate in buyback programs.
Cathay added NT$3.70, or 6.9 percent, to NT$57.60. Fubon surged NT$1.70, or 6.9 percent, to NT$26.30. At least 12 of the 35 members in the Taiex's financials sub-index surged by their daily limits.
The U.S. Treasury Department will buy up to $100 billion of senior-preferred stock in Fannie Mae and Freddie Mac, the biggest U.S. mortgage lenders. Taiwan companies owned $20 billion in securities linked to Freddie and Fannie when they reported their holdings in July.
The following stocks rose or fell. Stock symbols are in brackets after company names.
Formosa Plastics Corp. (1301 TT) added NT$1.80, or 3.1 percent, to NT$59.90. The company will spend NT$200 billion ($6.3 billion) to expand its petrochemical and energy plants in western Taiwan, the Economic Daily News reported.
HTC Corp. (2498 TT) added NT$36, or 6.9 percent, to NT$560 after the company, Taiwan's largest cellphone vendor, posted a 34 percent climb in August sales to NT$12.71 billion.
Taiwan Semiconductor Manufacturing Co. (2330 TT), the world's largest custom-chip maker, climbed NT$3.70, or its 7 percent limit, to NT$56.70, the most since Jan. 13, 2003. SinoPac Financial Holdings Co. upgraded the stock to ``outperform'' from ``in-line,'' in anticipation of a rebound in orders next year.
To contact the reporter on this story: Tim Culpan in Taipei at tculpan1@bloomberg.net.
Read more...
Sept. 8 (Bloomberg) -- Taiwan stocks climbed, driving the benchmark index to its biggest gain in six years, after the government said it may take action to boost equities.
Cathay Financial Holding Co. and Fubon Financial Holding Co., Taiwan's two largest financial-services companies, led banking stocks to the largest advance in 14 years as the U.S. government's takeover of Fannie Mae and Freddie Mac eased concern that losses at financial companies this year will widen.
``It's obvious the government is working hard to raise investor confidence by suggesting they will make some moves,'' said Bevan Yeh, who helps manage the equivalent of $1.2 billion at Prudential Financial Securities Investment Trust Enterprise in Taipei. ``Freddie and Fannie are also giving fund managers a reason to buy in.''
Taiwan's Taiex index added 351.41 points, or 5.6 percent, to 6,658.69 at the close of trade. The advance was the largest since Oct. 15, 2002, and the most among Asian benchmark measures today. The 35-member Financials and Insurance sub-index surged 6.8 percent, the most since Jan. 17, 1994.
A decline in global stock markets this year has dragged the Taiex down by 22 percent. The Taiwan government may propose measures to boost stock prices and consumer demand at its weekly meeting Sept. 11, Carolina Lin, a secretary at the Government Information Office, said Sept. 6.
Taiwan's Financial Supervisory Commission also plans to ease rules on stock buybacks for financial-services companies, lifting to 12 from five the number of companies allowed to participate in buyback programs.
Cathay added NT$3.70, or 6.9 percent, to NT$57.60. Fubon surged NT$1.70, or 6.9 percent, to NT$26.30. At least 12 of the 35 members in the Taiex's financials sub-index surged by their daily limits.
The U.S. Treasury Department will buy up to $100 billion of senior-preferred stock in Fannie Mae and Freddie Mac, the biggest U.S. mortgage lenders. Taiwan companies owned $20 billion in securities linked to Freddie and Fannie when they reported their holdings in July.
The following stocks rose or fell. Stock symbols are in brackets after company names.
Formosa Plastics Corp. (1301 TT) added NT$1.80, or 3.1 percent, to NT$59.90. The company will spend NT$200 billion ($6.3 billion) to expand its petrochemical and energy plants in western Taiwan, the Economic Daily News reported.
HTC Corp. (2498 TT) added NT$36, or 6.9 percent, to NT$560 after the company, Taiwan's largest cellphone vendor, posted a 34 percent climb in August sales to NT$12.71 billion.
Taiwan Semiconductor Manufacturing Co. (2330 TT), the world's largest custom-chip maker, climbed NT$3.70, or its 7 percent limit, to NT$56.70, the most since Jan. 13, 2003. SinoPac Financial Holdings Co. upgraded the stock to ``outperform'' from ``in-line,'' in anticipation of a rebound in orders next year.
To contact the reporter on this story: Tim Culpan in Taipei at tculpan1@bloomberg.net.
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Taiwan Shares Gain Most in 6 Years on Possible Support Measures
By Tim Culpan and Chinmei Sung
Sept. 8 (Bloomberg) -- Taiwan stocks climbed, driving the benchmark index to its biggest gain in six years, after the government said it may take action to boost equities.
Cathay Financial Holding Co. and Fubon Financial Holding Co., Taiwan's two largest financial-services companies, led banking stocks to the largest advance in 14 years as the U.S. government's takeover of Fannie Mae and Freddie Mac eased concern that losses at financial companies this year will widen.
``It's obvious the government is working hard to raise investor confidence by suggesting they will make some moves,'' said Bevan Yeh, who helps manage the equivalent of $1.2 billion at Prudential Financial Securities Investment Trust Enterprise in Taipei. ``Freddie and Fannie are also giving fund managers a reason to buy in.''
Taiwan's Taiex index added 351.41 points, or 5.6 percent, to 6,658.69 at the close of trade. The advance was the largest since Oct. 15, 2002, and the most among Asian benchmark measures today. The 35-member Financials and Insurance sub-index surged 6.8 percent, the most since Jan. 17, 1994.
A decline in global stock markets this year has dragged the Taiex down by 22 percent. The Taiwan government may propose measures to boost stock prices and consumer demand at its weekly meeting Sept. 11, Carolina Lin, a secretary at the Government Information Office, said Sept. 6.
Taiwan's Financial Supervisory Commission also plans to ease rules on stock buybacks for financial-services companies, lifting to 12 from five the number of companies allowed to participate in buyback programs.
Cathay added NT$3.70, or 6.9 percent, to NT$57.60. Fubon surged NT$1.70, or 6.9 percent, to NT$26.30. At least 12 of the 35 members in the Taiex's financials sub-index surged by their daily limits.
The U.S. Treasury Department will buy up to $100 billion of senior-preferred stock in Fannie Mae and Freddie Mac, the biggest U.S. mortgage lenders. Taiwan companies owned $20 billion in securities linked to Freddie and Fannie when they reported their holdings in July.
The following stocks rose or fell. Stock symbols are in brackets after company names.
Formosa Plastics Corp. (1301 TT) added NT$1.80, or 3.1 percent, to NT$59.90. The company will spend NT$200 billion ($6.3 billion) to expand its petrochemical and energy plants in western Taiwan, the Economic Daily News reported.
HTC Corp. (2498 TT) added NT$36, or 6.9 percent, to NT$560 after the company, Taiwan's largest cellphone vendor, posted a 34 percent climb in August sales to NT$12.71 billion.
Taiwan Semiconductor Manufacturing Co. (2330 TT), the world's largest custom-chip maker, climbed NT$3.70, or its 7 percent limit, to NT$56.70, the most since Jan. 13, 2003. SinoPac Financial Holdings Co. upgraded the stock to ``outperform'' from ``in-line,'' in anticipation of a rebound in orders next year.
To contact the reporter on this story: Tim Culpan in Taipei at tculpan1@bloomberg.net.
Read more...
Sept. 8 (Bloomberg) -- Taiwan stocks climbed, driving the benchmark index to its biggest gain in six years, after the government said it may take action to boost equities.
Cathay Financial Holding Co. and Fubon Financial Holding Co., Taiwan's two largest financial-services companies, led banking stocks to the largest advance in 14 years as the U.S. government's takeover of Fannie Mae and Freddie Mac eased concern that losses at financial companies this year will widen.
``It's obvious the government is working hard to raise investor confidence by suggesting they will make some moves,'' said Bevan Yeh, who helps manage the equivalent of $1.2 billion at Prudential Financial Securities Investment Trust Enterprise in Taipei. ``Freddie and Fannie are also giving fund managers a reason to buy in.''
Taiwan's Taiex index added 351.41 points, or 5.6 percent, to 6,658.69 at the close of trade. The advance was the largest since Oct. 15, 2002, and the most among Asian benchmark measures today. The 35-member Financials and Insurance sub-index surged 6.8 percent, the most since Jan. 17, 1994.
A decline in global stock markets this year has dragged the Taiex down by 22 percent. The Taiwan government may propose measures to boost stock prices and consumer demand at its weekly meeting Sept. 11, Carolina Lin, a secretary at the Government Information Office, said Sept. 6.
Taiwan's Financial Supervisory Commission also plans to ease rules on stock buybacks for financial-services companies, lifting to 12 from five the number of companies allowed to participate in buyback programs.
Cathay added NT$3.70, or 6.9 percent, to NT$57.60. Fubon surged NT$1.70, or 6.9 percent, to NT$26.30. At least 12 of the 35 members in the Taiex's financials sub-index surged by their daily limits.
The U.S. Treasury Department will buy up to $100 billion of senior-preferred stock in Fannie Mae and Freddie Mac, the biggest U.S. mortgage lenders. Taiwan companies owned $20 billion in securities linked to Freddie and Fannie when they reported their holdings in July.
The following stocks rose or fell. Stock symbols are in brackets after company names.
Formosa Plastics Corp. (1301 TT) added NT$1.80, or 3.1 percent, to NT$59.90. The company will spend NT$200 billion ($6.3 billion) to expand its petrochemical and energy plants in western Taiwan, the Economic Daily News reported.
HTC Corp. (2498 TT) added NT$36, or 6.9 percent, to NT$560 after the company, Taiwan's largest cellphone vendor, posted a 34 percent climb in August sales to NT$12.71 billion.
Taiwan Semiconductor Manufacturing Co. (2330 TT), the world's largest custom-chip maker, climbed NT$3.70, or its 7 percent limit, to NT$56.70, the most since Jan. 13, 2003. SinoPac Financial Holdings Co. upgraded the stock to ``outperform'' from ``in-line,'' in anticipation of a rebound in orders next year.
To contact the reporter on this story: Tim Culpan in Taipei at tculpan1@bloomberg.net.
Read more...
Japan's Stocks Surge Most in 5 Months on U.S. Lender Takeovers
By Masaki Kondo
Sept. 8 (Bloomberg) -- Japan's stocks jumped the most in five months, led by banks, after the U.S. government took control of mortgage lenders Fannie Mae and Freddie Mac, boosting confidence turmoil in global financial markets will ease.
Mitsubishi UFJ Financial Group Inc. and Mizuho Financial Group Inc., Japan's biggest listed banks, jumped more than 12 percent, leading a gauge of banks to the sharpest gain in 16 years. Smaller rival Resona Holdings Inc. surged 11 percent after saying it will buy back shares. Brokerage Nomura Holdings Inc. climbed 9.7 percent on a newspaper report it may bid for a stake in U.S. brokerage Lehman Brothers Holdings Inc.
The Nikkei 225 Stock Average climbed 412.23, or 3.4 percent, to close at 12,624.46 in Tokyo. The broader Topix index added 45.57, or 3.9 percent, to 1,216.41. Both indexes rose the most since April 2, and all but three of 33 Topix industry groups rose.
The Treasury Department will buy up to $100 billion of senior-preferred stock in Fannie Mae and Freddie Mac, the biggest U.S. mortgage lenders, to maintain their positive net worth.
``Had the U.S. mortgage-financing companies failed, it would have triggered a substantial financial crisis across the globe,'' said Naoki Fujiwara, who oversees about $720 million as chief fund manager at Tokyo-based Shinkin Asset Management Co. The takeovers ``have eliminated concerns among investors and boosted confidence the financial market will stabilize.''
The credit crisis has wiped out more than $17 trillion in equity value globally as the U.S. housing recession crimped worldwide economic growth. Investors worried a collapse of Fannie and Freddie, which hold more than $1.5 trillion in assets and almost the same amount of debt, would spark further losses at financial institutions.
Japan's three biggest banks held a total of 4.7 trillion yen ($43 billion) in debt securities issued by U.S. government- related mortgage financers including Fannie Mae and Freddie Mac as of March 31, according to the banks. Banks and consumer lenders, the worst-performing groups since the Topix's June 4 high this year, were today's biggest winners.
Nikkei futures expiring in September added 3.4 percent to 12,620 in Osaka and gained 3.9 percent to 12,630 in Singapore.
To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net.
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Asian Stocks Rally, Treasuries Drop on Fannie, Freddie Takeover
By Richard Frost and Kyung Bok Cho
Sept. 8 (Bloomberg) -- Asian stocks rallied the most in seven months and Treasuries tumbled as the takeover of Fannie Mae and Freddie Mac buoyed confidence the U.S. will prevent the global credit crisis from deepening.
Standard & Poor's 500 Index futures jumped 3 percent and the MSCI Asia Pacific Index surged 4 percent, Mizuho Financial Group Inc. Yields on the benchmark 10-year Treasury note advanced the most in two months. The yen fell against the euro as investors favored higher-yielding currencies.
``The markets considered Fannie and Freddie to be in too deep to save themselves,'' said Kwon Hyeuk Boo, head of investment strategy at Daishin Investment Trust Management Co. in Seoul, which has about $2.7 billion in assets. ``The U.S. government has shown its firm intention to fix the problem, and this will help ease the credit crunch.''
The government is taking over Fannie Mae and Freddie Mac after the biggest surge in mortgage defaults in three decades threatened to bring down the companies, which make up almost half of the U.S. home-loan market. Investors had worried failures by Fannie and Freddie, which hold more than $1.5 trillion in assets and almost the same amount of debt, would spark further losses at financial institutions around the world.
Mizuho, Japan's biggest bank by assets, and Macquarie Group Ltd., Australia's largest investment bank, rose more than 10 percent, driving a measure of Asian financial stocks up 6.7 percent, the most since October 1998.
U.S. S&P 500 futures expiring in September gained 36.9 points, or 3 percent, to 1,278. More than $17 trillion in global equity value has been wiped out since October as the collapse of the subprime debt market and a U.S. housing recession slowed global economies.
`Confidence Boost'
The dollar dropped against the euro before reports this week on home sales and retail spending, which economists forecast will show declines. The U.S. currency fell to $1.4406 per euro from $1.4267. It rose to 108.78 yen from 107.73 as the Japanese currency slumped.
Treasury Secretary Henry Paulson and Federal Housing Finance Agency Director James Lockhart yesterday put Fannie Mae and Freddie Mac in a government-operated conservatorship, removing their chief executives and eliminating their dividends. The Treasury may buy as much as $200 billion of stock in the firms to ensure they stay solvent.
The cost to protect Asia-Pacific corporate bonds from default fell. The Markit iTraxx Japan index declined 17 basis points to 129, the most since April 2, according to prices from Morgan Stanley.
``This may be the jolt that will help restore long-term confidence among credit investors and it shows the government is willing to do what is necessary to keep the markets functioning,'' said Jon Pratt, Merrill Lynch & Co.'s head of Asia debt origination in Hong Kong.
Bonds Decline
Credit-default swaps protect bonds against default and traders use them to speculate on changes in credit quality. They pay the buyer face value in exchange for the underlying securities should a company fail to adhere to debt agreements.
Treasuries slumped because the takeover gives investors less reason to favor the relative safety of government debt.
The yield on the benchmark 10-year note rose 10 basis points to 3.81 percent, according to bond broker BGCantor Market Data. The price of the 4 percent security due in August 2018 fell 26/32, or $8.13 per $1,000 face amount, to 101 10/32. The last time the yield rose that much was July 25.
``There's a chance that 10-year yields will rise to 4 percent within a month or two,'' said Akira Takei, general manager for international bonds at Mizuho Asset Management Co. in Tokyo, who correctly predicted the advance in bonds in 2007. ``I have a little bit of a bearish view.''
`Bearish View'
Takei, who helps oversee the equivalent of $36.9 billion at the unit of Japan's second-largest bank, swapped longer maturities for shorter ones at the end of August.
In Japan, the 10-year yield rose 9 basis points to 1.525 percent. The yield on the similar-maturity Australian note rose 15 basis points to 5.77 percent.
The yen declined on speculation easier credit-market conditions will encourage so-called carry trades. The yen fell 1.9 percent to 156.71 per euro in Tokyo from 153.67 late in New York on Sept. 5.
In carry trades, investors get funds in a country with low borrowing costs and buy assets where returns are higher. Japan's 0.5 percent benchmark rate compares with 2 percent in the U.S., 4.25 percent in Europe and 7 percent in Australia. The risk to carry trades is that currency moves erase profits.
`Risk Appetite'
``The yen is likely to weaken further,'' said Koji Fukaya, senior currency strategist at the Tokyo unit of Deutsche Bank AG, the world's largest currency trader. ``This is a big release of stress on the global financial system that will help improve risk appetite.''
Crude oil rose from a five-month low on the dollar dropped and the approach of Hurricane Ike delayed Gulf of Mexico production from restarting. Crude oil for October delivery rose as much as 2.6 percent to $108.95 a barrel in after-hours electronic trading on the New York Mercantile Exchange.
To contact the reporters for this story: Richard Frost at rfrost4@bloomberg.net; Kyung Bok Cho; in Seoul at kcho7@bloomberg.net
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Forex Exchange Morning Report
| Daily Forex Fundamentals | Written by Westpac Institutional Bank | Sep 08 08 01:15 GMT | | |||||||||||||||||||||||||||||||||||||||||||||
News And ViewsThe sharp rise in US unemployment in Aug produced volatile price action on the US dollar, ultimately leaving it little changed. While the headline payrolls reading was worse than expected (-84K), especially given downward revisions, there were rumours that the 6.1% jobless rate (forecast 5.7%) was an error. USD also recovered after its payrolls sell-off with help from a steady DJIA rally from its NY morning lows around -145pts to a 33pt gain at the close. Oil prices were volatile, NYMEX crude whipping around $105.15-108.10/bbl, finishing in the low $106s. The New Zealand dollar licked its wounds after Thursday's slide, trading a 0.6618 - 0.6709 range. AUD/USD hit its 0.8028 low very briefly amid the post-NFP whipsaw trade but mostly printed above 0.8100 and closed at 0.8159. EUR/USD was subdued ahead of payrolls then ignited into a 125 pip range (high 1.4349), easing back to 1.4267 at the close. USD/JPY slipped as low as 105.53 but generally traded higher as Wall St recovered and caught a late bid on the WSJ report that Treasury was close to finalizing its plan to support FNM and FRE. US payrolls jobs down 84k in Aug. Total payrolls were down 84k but revisions to June and July shaved another 58k off the bottom line, though 52k of that revision was to government jobs (the reverse of last month when 37k of the 26k upward revision to May-June was in government jobs). The separate household survey identified 342k job losers, and with another 250k people joining the labour force, unemployment rose 592k, enough to push the jobless rate up from 5.7% to 6.1%, its highest since late 2003. Payrolls job losses have been very broad-based in recent months. Apart from non-cyclical education & health and government, no other industry sector has posted any jobs growth whatsoever since April. In August, construction job losses were mild at just 8k, well below the recent 3 month average loss of 26k, whereas factory jobs slumped 61k, (compared to 48k average). Within services, retail and business services including temps recorded above average jobs losses. One minor August bright spot was a 0.4% increase in hourly earnings, on top of a similar gain in July. But hours worked were down 0.1% in the month and a steep 1.8% annualised in the three months to August which will tend to constrain household income growth, just as the tax rebates wind down. US impaired mortgage data showed 6.4% of loans in default: sub-prime defaults may have peaked in Q1 but prime defaults continued to rise in Q2 and foreclosures, which lag delinquencies, rose across the board. Japanese Q2 GDP will be revised down heavily. The MOF's quarterly enterprise survey showed a sharp retrenchment in capital spending in Q2. That will flow straight through to an even weaker bottom line for non-residential investment in the second estimate of GDP. The economy likely contracted 1% in the quarter rather than the preliminary estimate of -0.6%. Non-manufacturing firms were more aggressive in their cutbacks. German industrial production down 1.8% in July. More evidence that the German economy is losing steam. Factory output turned negative in annual terms for the first time in almost five years, falling 0.6% yr, adding to the chances of an eventual ECB rate cut, in 2009. Canadian employment up 15k in Aug, only partially reversing its steep July plunge although the make-up of the gain was favourable, with private sector/full-time jobs, including in factories and construction, bouncing back while public sector jobs declined. Even so, the trend in jobs is now negative and if it weren't for the still low jobless rate we would be ascribing a higher probability to the chance of a further rate cut before year-end. Separately, the Aug Ivey PMI fell to 51.5 from 65.5 in July. It is not seasonally adjusted but the August result looks weak. OutlookWe are broadly neutral NZD/USD but bearish NZD vs AUD ahead of the expected RBNZ rate cut on 11 Sep. Events Today
Westpac Institutional Bank Disclaimer All customers please note that this information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs. Australian customers can obtain Westpac's financial services guide by calling +612 9284 8372, visiting www.westpac.com.au or visiting any Westpac Branch. The information may contain material provided directly by third parties, and while such material is published with permission, Westpac accepts no responsibility for the accuracy or completeness of any such material. Except where contrary to law, Westpac intends by this notice to exclude liability for the information. The information is subject to change without notice and Westpac is under no obligation to update the information or correct any inaccuracy which may become apparent at a later date. Westpac Banking Corporation is regulated for the conduct of investment business in the United Kingdom by the Financial Services Authority. © 2004 Westpac Banking Corporation. Past performance is not a reliable indicator of future performance. The forecasts given in this document are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The ultimate outcomes may differ substantially from these forecasts. | |||||||||||||||||||||||||||||||||||||||||||||
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US government takes over mortgage giants
Updated: 2008-09-08 06:32
The companies, which together own or guarantee about $5 trillion in home loans, about half the nation's total, have lost $14 billion in the last year and are likely to pile up billions more in losses until the housing market begins to recover.
Democratic presidential nominee Barack Obama issued a statement agreeing that some form of intervention was necessary, and promised, "I will be reviewing the details of the Treasury plan and monitoring its impact to determine whether it achieves the key benchmarks I believe are necessary to address this crisis."
On Saturday, Republican vice presidential nominee Sarah Palin said Fannie and Freddie "have gotten too big and too expensive to the taxpayers. The McCain-Palin administration will make them smaller and smarter and more effective for homeowners who need help."
Both companies were placed into a government conservatorship that will be run by the Federal Housing Finance Agency, the new agency created by Congress this summer to regulate Fannie and Freddie.
The executives and board of directors of both institutions are being replaced. Herb Allison, a former vice chairman of Merrill Lynch, was selected to head Fannie Mae, and David Moffett, a former vice chairman of US Bancorp, was picked to head Freddie Mac.
Paulson was careful not to blame Daniel Mudd, the outgoing CEO of Fannie Mae, or Freddie Mac's departing CEO Richard Syron for the companies' current problems. While both men are being removed as the top executives, they have been asked to remain for an unspecified period to help with the transition.
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WASHINGTON -- The Bush administration seized control Sunday of troubled mortgage giants Fannie Mae and Freddie Mac, aiming to stabilize the housing market turmoil that is threatening financial markets and the overall economy.
Treasury Secretary Henry Paulson is betting that providing fresh capital to the two firms will eventually lead to lower mortgage rates, spur homebuying demand and slow the plunge in home prices that has ravaged many areas of the country.
The huge potential liabilities facing each company, as a result of soaring mortgage defaults, could cost taxpayers tens of billions of dollars, but Paulson stressed that the financial impacts if the two companies had been allowed to fail would be far more serious.
 Treasury Secretary Henry Paulson, Jr. speaks during a news conference in Washington, Sunday, Sept. 7, 2008 on the bailout of mortgage giants Fannie Mae and Freddie Mac. [Agencies] |
"A failure would affect the ability of Americans to get home loans, auto loans and other consumer credit and business finance," Paulson said.
But more importantly, "Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe," he added in a televised announcement.
The companies, which together own or guarantee about $5 trillion in home loans, about half the nation's total, have lost $14 billion in the last year and are likely to pile up billions more in losses until the housing market begins to recover.
Democratic presidential nominee Barack Obama issued a statement agreeing that some form of intervention was necessary, and promised, "I will be reviewing the details of the Treasury plan and monitoring its impact to determine whether it achieves the key benchmarks I believe are necessary to address this crisis."
On Saturday, Republican vice presidential nominee Sarah Palin said Fannie and Freddie "have gotten too big and too expensive to the taxpayers. The McCain-Palin administration will make them smaller and smarter and more effective for homeowners who need help."
Both companies were placed into a government conservatorship that will be run by the Federal Housing Finance Agency, the new agency created by Congress this summer to regulate Fannie and Freddie.
The executives and board of directors of both institutions are being replaced. Herb Allison, a former vice chairman of Merrill Lynch, was selected to head Fannie Mae, and David Moffett, a former vice chairman of US Bancorp, was picked to head Freddie Mac.
Paulson was careful not to blame Daniel Mudd, the outgoing CEO of Fannie Mae, or Freddie Mac's departing CEO Richard Syron for the companies' current problems. While both men are being removed as the top executives, they have been asked to remain for an unspecified period to help with the transition.
The Treasury Department said it will immediately be issued $1 billion in senior preferred stock, paying 10 percent interest, from each company, but eventually could be required to put up as much as $100 billion for each over time if the funds are needed to keep the companies afloat as losses mount. The government also will receive warrants representing ownership stakes of 79.9 percent in each.
Officials defended this approach by saying it underscores the importance of the trillions in mortgage debt that each company either holds or guarantees and the need to make sure that investors in this country and overseas keep buying this debt.
 In this May 2, 2007 file photo, the Fannie Mae building in Washington is seen. The Bush administration, acting to avert the potential for major financial turmoil, on Sunday, Sept. 7, 2008 announced that the federal government was taking control of mortgage giants Fannie Mae and Freddie Mac. [Agencies] |
The impact on existing common and preferred shares, which have slumped in value in the last year, will depend on how investors react to Paulson's assertion that they must absorb the cost of further losses first. Under the plan, dividends on both common and preferred stock would be eliminated, saving about $2 billion a year.
After the Treasury Department's announcement, credit rating agency Standard & Poor's downgraded Fannie and Freddie's preserved stock to junk-bond status, but reaffirmed the US government's triple-A rating.
The Federal Reserve and other federal banking regulators said in a joint statement Sunday that "a limited number of smaller institutions" have significant holdings of common or preferred stock shares in Fannie and Freddie, and that regulators were "prepared to work with these institutions to develop capital-restoration plans."
The two companies had nearly $36 billion in preferred shares outstanding as of June 30, according to filings with the Securities and Exchange Commission.
Under government control, the companies will be allowed to expand their support for the mortgage market over the next year by boosting their holdings of mortgage securities they hold on their books from a combined $1.5 trillion to $1.7 trillion.
Starting in 2010, though, they are required to drop their holdings by 10 percent annually until they reach a combined $500 billion.
In addition, officials said the Treasury Department plans to purchase $5 billion in mortgage-backed issued by the two companies later this month.
Paulson said that it would be up to Congress and the next president to figure out the two companies' ultimate structure and the conflicting goals they operated under -- maximizing returns for shareholders while also being required to encourage home buying for low- and moderate-income Americans.
"There is a consensus today ... that they cannot continue in their current form," he said.
Paulson and James Lockhart, director of the Federal Housing Finance Agency, stressed that their actions were designed to strengthen the role of the two mortgage giants in supporting the nation's housing market. Both companies do that by buying mortgage loans from banks and packaging those loans into securities that they either hold or sell to US and foreign investors.
He said that all lobbying activities of both companies would stop immediately. Both companies over the years made extensive efforts to lobby members of Congress in an effort to keep the benefits they enjoyed as government-sponsored enterprises.
Sunday's actions followed a series of meetings Paulson had with President Bush and other top administration economic officials with Bush relying heavily on the judgment of Paulson, who was the head of investment giant Goldman Sachs before he joined the Cabinet in 2006.
"It is really an assent to Hank's direction, guidance and judgment. The president was going to support Hank's judgment on this," said a senior administration official, who spoke on condition of anonymity to discuss behind-the-scenes deliberations.
This official said that Paulson kept Bush updated on the worsening situation at Fannie and Freddie on a regular basis starting in late July when Congress approved expanding the amount of federal support the institutions could receive.
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| Daily Forex Fundamentals | Written by Westpac Institutional Bank | Sep 08 08 01:15 GMT | | |||||||||||||||||||||||||||||||||||||||||||||
Forex Exchange Morning ReportNews And ViewsThe sharp rise in US unemployment in Aug produced volatile price action on the US dollar, ultimately leaving it little changed. While the headline payrolls reading was worse than expected (-84K), especially given downward revisions, there were rumours that the 6.1% jobless rate (forecast 5.7%) was an error. USD also recovered after its payrolls sell-off with help from a steady DJIA rally from its NY morning lows around -145pts to a 33pt gain at the close. Oil prices were volatile, NYMEX crude whipping around $105.15-108.10/bbl, finishing in the low $106s. The New Zealand dollar licked its wounds after Thursday's slide, trading a 0.6618 - 0.6709 range. AUD/USD hit its 0.8028 low very briefly amid the post-NFP whipsaw trade but mostly printed above 0.8100 and closed at 0.8159. EUR/USD was subdued ahead of payrolls then ignited into a 125 pip range (high 1.4349), easing back to 1.4267 at the close. USD/JPY slipped as low as 105.53 but generally traded higher as Wall St recovered and caught a late bid on the WSJ report that Treasury was close to finalizing its plan to support FNM and FRE. US payrolls jobs down 84k in Aug. Total payrolls were down 84k but revisions to June and July shaved another 58k off the bottom line, though 52k of that revision was to government jobs (the reverse of last month when 37k of the 26k upward revision to May-June was in government jobs). The separate household survey identified 342k job losers, and with another 250k people joining the labour force, unemployment rose 592k, enough to push the jobless rate up from 5.7% to 6.1%, its highest since late 2003. Payrolls job losses have been very broad-based in recent months. Apart from non-cyclical education & health and government, no other industry sector has posted any jobs growth whatsoever since April. In August, construction job losses were mild at just 8k, well below the recent 3 month average loss of 26k, whereas factory jobs slumped 61k, (compared to 48k average). Within services, retail and business services including temps recorded above average jobs losses. One minor August bright spot was a 0.4% increase in hourly earnings, on top of a similar gain in July. But hours worked were down 0.1% in the month and a steep 1.8% annualised in the three months to August which will tend to constrain household income growth, just as the tax rebates wind down. US impaired mortgage data showed 6.4% of loans in default: sub-prime defaults may have peaked in Q1 but prime defaults continued to rise in Q2 and foreclosures, which lag delinquencies, rose across the board. Japanese Q2 GDP will be revised down heavily. The MOF's quarterly enterprise survey showed a sharp retrenchment in capital spending in Q2. That will flow straight through to an even weaker bottom line for non-residential investment in the second estimate of GDP. The economy likely contracted 1% in the quarter rather than the preliminary estimate of -0.6%. Non-manufacturing firms were more aggressive in their cutbacks. German industrial production down 1.8% in July. More evidence that the German economy is losing steam. Factory output turned negative in annual terms for the first time in almost five years, falling 0.6% yr, adding to the chances of an eventual ECB rate cut, in 2009. Canadian employment up 15k in Aug, only partially reversing its steep July plunge although the make-up of the gain was favourable, with private sector/full-time jobs, including in factories and construction, bouncing back while public sector jobs declined. Even so, the trend in jobs is now negative and if it weren't for the still low jobless rate we would be ascribing a higher probability to the chance of a further rate cut before year-end. Separately, the Aug Ivey PMI fell to 51.5 from 65.5 in July. It is not seasonally adjusted but the August result looks weak. OutlookWe are broadly neutral NZD/USD but bearish NZD vs AUD ahead of the expected RBNZ rate cut on 11 Sep. Events Today
Westpac Institutional Bank Disclaimer All customers please note that this information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs. Australian customers can obtain Westpac's financial services guide by calling +612 9284 8372, visiting www.westpac.com.au or visiting any Westpac Branch. The information may contain material provided directly by third parties, and while such material is published with permission, Westpac accepts no responsibility for the accuracy or completeness of any such material. Except where contrary to law, Westpac intends by this notice to exclude liability for the information. The information is subject to change without notice and Westpac is under no obligation to update the information or correct any inaccuracy which may become apparent at a later date. Westpac Banking Corporation is regulated for the conduct of investment business in the United Kingdom by the Financial Services Authority. © 2004 Westpac Banking Corporation. Past performance is not a reliable indicator of future performance. The forecasts given in this document are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The ultimate outcomes may differ substantially from these forecasts. | |||||||||||||||||||||||||||||||||||||||||||||
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The Daily Forecaster: AUDUSD
| Daily Forex Technicals | Written by FX-Forecaster | Sep 08 08 01:27 GMT | | |||||||||||||||||||||||||||||||||||||||||||||||
| Price: 0.8126
ELLIOTT WAVE COMMENTS5th September: The downside has retained an aggressive tone pushing to lower and lower limits. Whether this is the end of a 5 wave move lower or a triple three is unclear although the move is so deep it may well be a full 5 wave move from 0.9849. If so then it is possible to derive targets at 0.8033 (61.8%), 0.7972 (66.7%) and at 0.7855 (76.4%). Matching these with the implications of projections in Wave (c) we can derive a 223.6% projection at the 0.7979 target and a 261.8% at the 0.7855 target. 8th September: The minimum 0.8033 target has been seen but I suspect extension to 0.7972-79. Take care here as I feel there is a growing likelihood of a base here.
Ian Copsey Legal disclaimer and risk disclosure The Daily Forecaster is an analytical tool only and is not intended to replace individual research. The service is offered as an opinion on the current state of the market with anticipated trading signals but not recommendations. The information provided in The Daily Forecaster should not be relied on as a substitute for extensive independent research before making your trading/investment decisions. Ian Copsey is merely providing this service for your general information. No representation is being made that any view or opinion will guarantee profits or not result in losses from trading. In addition any projections or views of the market provided may not prove to be accurate. The opinions are subject to change without notice. Opinions or views expressed in The Daily Forecaster are not meant to be either investment advice or a solicitation or recommendation to establish market positions. Ian Copsey will not be responsible for any losses incurred on investments made by readers and clients as a result of any information contained in this service. The information contained is private and may not be distributed or shared. | |||||||||||||||||||||||||||||||||||||||||||||||
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Russian GDP Probably Grew 7.6% in Second Quarter: Week Ahead
By Maria Levitov
Sept. 8 (Bloomberg) -- Russia's economy expanded at a slower pace in the second quarter as industrial output faltered, the Federal Statistics Service may say this week.
Gross domestic product rose 7.6 percent, compared with 8.5 percent in the previous period, according to the median forecast of 10 economists surveyed by Bloomberg. The economy grew 8.1 percent in the second quarter of 2007, according to the statistics office, which does not adjust the figures for seasonal variations. The GDP data will probably be released on Sept. 10 or 11.
``A higher cost of credit slowed investment growth as the global credit crunch began to affect Russia,'' said Vladimir Osakovsky, an economist at UniCredit SpA in Moscow. ``An influx of imports also hit producers'' because a strong ruble made it harder for them to compete, he said.
Growth may slip to 7.8 percent this year from 8.1 percent in 2007, according to the Economy Ministry, as rising consumer prices sap domestic demand and erode gains in average wages. Industrial output rose in June at the slowest pace in 5 1/2 years and a gauge of manufacturing output compiled by VTB Bank Europe declined in each of the three months of the second quarter.
The ruble gained 5.22 percent against the U.S. dollar this year through July 1, according to Bloomberg data. Foreign direct investment totaled $11.1 billion in the first half, a 30 percent decline from last year, according to the statistics office.
Still, the rate of economic growth ``is still high,'' Osakovsky said, and the recent decline of the ruble will help domestic producers. UniCredit's forecast is for 7.7 percent growth in the second quarter.
Support for Ruble
Russia's central bank sold foreign currency last week to prop up the ruble, which was slumping because of investors pulling money out after the conflict with Georgia, the dollar's rally and a drop in commodities prices. Net capital outflow reached $4.6 billion in August, according to the central bank's preliminary estimates.
In corporate news, Wal-Mart Stores Inc., Carrefour SA, Finland's Kesko Oyj and Croatia's Agrokor Group may submit their final bids for OOO Lenta, Russia's third-largest food retailer by sales, on Sept. 8.
OAO Sitronics, a technology unit of Russia's billionaire Vladimir Yevtushenkov's holding company AFK Sistema, will report second quarter earnings on Sept. 9.
OAO Norilsk Nickel's board may discuss on Sept. 10 spinning off its energy assets into a separate company after shareholders blocked a prior plan last year.
Markets
The ruble-denominated Micex stock index sank 3.7 percent to 1,234.71 on Friday, extending its weekly decline to 8.5 percent. That marked the index's lowest level since June 2006, and its intraday decline of 9 percent was also the broadest since June 2006. The dollar-denominated RTS index retreated 3.8 percent to 1,469.15 on Friday, bringing its weekly slide to 11 percent.
The ruble fell against the dollar-euro basket used to manage its volatility last week as investors sold off the currency following Russia's military intervention in Georgia, a drop in commodity prices and a rise of the dollar.
The managed currency slipped 3.4 percent against the dollar and weakened 0.5 percent against the euro last week. Those movements meant it weakened about 1.9 percent to 30.3792 against the basket, which is calculated by multiplying the rate to the dollar by 0.55 and the euro rate by 0.45, then adding the two numbers together.
The following is a list of events in Russia this week:
OOO Lenta final bids Sept. 8
OAO Sitronics 2Q earnings Sept. 9
Norilsk board meeting Sept. 10
Weekly inflation Sept. 10
Russian 2Q GDP Sept. 10 or later
Trade surplus from central bank Sept. 11
Weekly currency reserves Sept. 11
Money supply Sept. 12
To contact the reporter on this story: Maria Levitov in Moscow at mlevitov@bloomberg.net
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N.Z. Construction Declines, Subtracting From Economic Growth
By Tracy Withers
Sept. 8 (Bloomberg) -- New Zealand construction work contracted for a second straight quarter, adding to signs the economy was in a recession as record-high interest rates slowed domestic demand.
Construction adjusted for inflation fell 5.8 percent from the first quarter, Statistics New Zealand said in a report released in Wellington today. Residential building declined 7.3 percent and commercial construction dropped 3.6 percent.
House prices are falling and property sales reached a 16- year low in June as high credit costs and fuel prices eroded consumer confidence. The slowing economy prompted Reserve Bank Governor Alan Bollard to cut the benchmark interest rate for the first time in five years in July, and he will follow with a second reduction this week, according to all 14 economists surveyed by Bloomberg News.
``Residential construction has borne the brunt of the current economic slowdown and has now fallen for three consecutive quarters,'' said Jane Turner, an economist at ASB Bank Ltd. in Auckland. The figures ``suggest some downside risk to our current forecast for a 0.3 percent decline in gross domestic product.''
The government publishes its second-quarter GDP report on Sept. 26. The economy shrank 0.3 percent in the first quarter, putting the nation on the brink of its first recession in 10 years. At least nine of 13 economists surveyed by Bloomberg News expect the economy contracted in the three months to June.
Retail sales fell the most in at least 13 years in the second quarter. Economists are awaiting reports the next week on net exports and manufacturing production before completing their economic growth forecasts.
House Prices
New Zealand house prices fell 4.5 percent in August from a year earlier, Quotable Value New Zealand Ltd., the government valuation agency, said in Wellington today. That followed a 2.2 percent drop in July, the first decline since the series began in February 2005.
House prices are falling and the number of sales is declining as sellers either take their homes off the market or are forced to accept less than they first expected, Quotable Value said.
Residential construction fell 13 percent from the same quarter a year earlier, the statistics agency said today. Construction decreased 6.9 percent in the first quarter and 2.2 percent in the three months ended Dec. 31.
To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.
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Sept. 8 (Bloomberg) -- New Zealand construction work contracted for a second straight quarter, adding to signs the economy was in a recession as record-high interest rates slowed domestic demand.
Construction adjusted for inflation fell 5.8 percent from the first quarter, Statistics New Zealand said in a report released in Wellington today. Residential building declined 7.3 percent and commercial construction dropped 3.6 percent.
House prices are falling and property sales reached a 16- year low in June as high credit costs and fuel prices eroded consumer confidence. The slowing economy prompted Reserve Bank Governor Alan Bollard to cut the benchmark interest rate for the first time in five years in July, and he will follow with a second reduction this week, according to all 14 economists surveyed by Bloomberg News.
``Residential construction has borne the brunt of the current economic slowdown and has now fallen for three consecutive quarters,'' said Jane Turner, an economist at ASB Bank Ltd. in Auckland. The figures ``suggest some downside risk to our current forecast for a 0.3 percent decline in gross domestic product.''
The government publishes its second-quarter GDP report on Sept. 26. The economy shrank 0.3 percent in the first quarter, putting the nation on the brink of its first recession in 10 years. At least nine of 13 economists surveyed by Bloomberg News expect the economy contracted in the three months to June.
Retail sales fell the most in at least 13 years in the second quarter. Economists are awaiting reports the next week on net exports and manufacturing production before completing their economic growth forecasts.
House Prices
New Zealand house prices fell 4.5 percent in August from a year earlier, Quotable Value New Zealand Ltd., the government valuation agency, said in Wellington today. That followed a 2.2 percent drop in July, the first decline since the series began in February 2005.
House prices are falling and the number of sales is declining as sellers either take their homes off the market or are forced to accept less than they first expected, Quotable Value said.
Residential construction fell 13 percent from the same quarter a year earlier, the statistics agency said today. Construction decreased 6.9 percent in the first quarter and 2.2 percent in the three months ended Dec. 31.
To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.
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Borrowing Binge Weakens Europe's Companies as Recession Looms
By Simon Kennedy
Sept. 8 (Bloomberg) -- European companies may be living on borrowed time.
A decade of investing more than they've earned in profits has loaded corporations in the 15-nation euro area with debt, leaving them a thinner cushion than their U.S. and Japanese counterparts as the world economy slumps. Companies including France's Renault SA and Thomson SA are under pressure to curtail hiring and capital spending to meet rising interest payments as weaker growth squeezes their profits.
That increases the threat of a prolonged slowdown for the euro-area economy, which contracted in the second quarter for the first time since the single currency began trading in 1999. Economists at Deutsche Bank AG predict investment will shrink in 2009 for the first time in seven years, leaving the economy to grow just 0.1 percent for the year while the U.S. expands 1 percent.
``The size of the debt imbalances makes it very difficult to envisage a strong euro-zone economy over the next year or so,'' says David Owen, chief economist at Dresdner Kleinwort Group Ltd. in London. ``It increases the risk of recession.''
For Europe's non-financial corporations, the gap between profits and investment rose to 4.5 percent of annual output last year, compared with 3.6 percent for their counterparts in the U.S., Citigroup Inc. estimates. Exclude companies in Germany, where earnings still outstrip investment, and the gap swells to 6.6 percent.
Burdened With Debt
The result: Europe's non-financial companies are burdened with 5.3 trillion euros ($7.6 trillion) of debt, equal to about 57 percent of the euro-zone economy. That's up from 48 percent before the 2001 slowdown and compares with 46 percent in the U.S., according to data from the Federal Reserve and the European Central Bank.
U.S. companies such as San Jose, California-based network- equipment maker Cisco Systems Inc. entered the slowdown with more than half a trillion dollars in cash they accumulated earlier in the decade by reducing debt, controlling spending and keeping inventories in check. That means they are under less pressure now to cut payrolls and investment.
Japanese firms may be even healthier after ridding themselves of idle factories and excess workers. Robot-maker Fanuc Ltd. amassed $5 billion in cash this decade after paying off $8 billion in long-term debt between 1995 and 1999. Mizuho Research Institute Ltd. forecasts corporate spending will help Japan's economy, which shrank in the last quarter, rebound faster than Europe's or America's.
Cheap Credit
European companies, on the other hand, took advantage of cheap credit to increase borrowing, allowing them to make acquisitions and boost investment for 20 straight quarters. French drugmaker Sanofi-Aventis SA, for example, took out a 16 billion-euro loan in 2004 to pay for the merger that formed the company.
Corporations in all sectors accelerated their borrowing in 2005-2007, adding 1.8 trillion euros to their debt, mostly in bank loans, according to Mark Wall, an economist with Deutsche Bank in London.
Now, he says, those companies are ``under attack from both sides'' as they attempt to manage their financing costs. Their profit margins are squeezed by slowing demand, record fuel costs and rising wages. At the same time, banks, trying to rebuild their own balance sheets, are tightening standards and demanding higher interest rates to make new loans or refinance current ones.
Borrowing Costs
The cost of borrowing in euros for three months -- a benchmark that determines the rate on bank loans such as Sanofi- Aventis's -- has jumped about 66 basis points, or 0.66 percentage point, since the beginning of August 2007 and stands near the highest level since December 2000. Banks told the ECB this quarter that they expect to tighten lending standards further.
Germany has already been down the path that economists foresee elsewhere in Europe. Having sunk money into the technology bubble of the 1990s, German companies were forced to slash spending in the 2001-2004 period as growth slowed, leaving Europe's largest economy lagging behind the subsequent recovery elsewhere in the euro region.
That means German companies are less burdened with debt now and less in need of curtailing their borrowing, says Jacques Cailloux, an economist at Royal Bank of Scotland Group Plc in London. ``Germany is bucking the trend,'' he says.
Most in Hock
This time, Spain's companies are the most in hock after their debt doubled since 2000 to 129 percent of the country's GDP amid a housing boom, according to Standard & Poor's.
In the bust that followed, property developer Martinsa- Fadesa SA became Europe's largest bankruptcy in five years in July when it defaulted on 5.2 billion euros of debt. Its biggest rival, Metrovacesa SA, said last month it will increase asset sales to reduce the 7.5 billion euros it owes.
One sign of growing concern about the ability of companies to handle their debt: So far this year, Moody's Investors Service has cut long-term credit ratings on 216 European companies, including Hanover, Germany-based tiremaker Continental AG and vodka producer Belvedere SA, in Beaune, France, while raising grades on just 81. In the same period last year, it lowered 237 and increased 497.
Belvedere obtained protection from creditors in July. Harsher terms for companies that are restructuring what they owe may lead to a quadrupling of defaults on high-risk loans in Europe to 5.8 percent by June 2009 from 1.55 percent in the same month this year, S&P said last week.
Rating Cut
In August, S&P cut the credit rating for Thomson, the world's largest provider of television set-top boxes, by one grade to B+, partly because the company's 1.3 billion-euro debt left it with ``high leverage'' after its biggest half-year loss since 2005, S&P said. Thomson is seeking to reduce expenses by 50 million euros this year.
Other businesses are retrenching as well: Capital spending grew at an annual rate of 0.8 percent in the first half of this year, compared with 4.2 percent in the prior six months, according to JPMorgan Chase & Co. Confidence among manufacturers dropped in August to its lowest level since May 2005, and production expectations were the weakest in almost seven years, a European Commission survey showed. A poll of 5,000 executives by Markit Economics found that firms cut employment for a third month in August.
`Increasing Uncertainty'
Renault is eliminating up to 6,000 jobs and trimming output. S&P cut its outlook for Europe's second-largest automaker to negative in July, amid ``increasing uncertainty on Renault's ability to maintain sound cash generation.''
Also feeling a pinch is Helios Domzale d.d., a Slovenian paintmaker. Its first-half profit fell as orders weakened and debt costs increased. ``We've had to reassess investment plans and postpone some for next year,'' Chief Executive Officer Uros Slavinec said in an interview last month.
``More pain probably lies ahead,'' says Michael Saunders, chief European economist at Citigroup in London. ``Worsening corporate finances add to downside risks to growth.''
To contact the reporters on this story: Simon Kennedy in Paris at skennedy4@bloomberg.net
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Sept. 8 (Bloomberg) -- European companies may be living on borrowed time.
A decade of investing more than they've earned in profits has loaded corporations in the 15-nation euro area with debt, leaving them a thinner cushion than their U.S. and Japanese counterparts as the world economy slumps. Companies including France's Renault SA and Thomson SA are under pressure to curtail hiring and capital spending to meet rising interest payments as weaker growth squeezes their profits.
That increases the threat of a prolonged slowdown for the euro-area economy, which contracted in the second quarter for the first time since the single currency began trading in 1999. Economists at Deutsche Bank AG predict investment will shrink in 2009 for the first time in seven years, leaving the economy to grow just 0.1 percent for the year while the U.S. expands 1 percent.
``The size of the debt imbalances makes it very difficult to envisage a strong euro-zone economy over the next year or so,'' says David Owen, chief economist at Dresdner Kleinwort Group Ltd. in London. ``It increases the risk of recession.''
For Europe's non-financial corporations, the gap between profits and investment rose to 4.5 percent of annual output last year, compared with 3.6 percent for their counterparts in the U.S., Citigroup Inc. estimates. Exclude companies in Germany, where earnings still outstrip investment, and the gap swells to 6.6 percent.
Burdened With Debt
The result: Europe's non-financial companies are burdened with 5.3 trillion euros ($7.6 trillion) of debt, equal to about 57 percent of the euro-zone economy. That's up from 48 percent before the 2001 slowdown and compares with 46 percent in the U.S., according to data from the Federal Reserve and the European Central Bank.
U.S. companies such as San Jose, California-based network- equipment maker Cisco Systems Inc. entered the slowdown with more than half a trillion dollars in cash they accumulated earlier in the decade by reducing debt, controlling spending and keeping inventories in check. That means they are under less pressure now to cut payrolls and investment.
Japanese firms may be even healthier after ridding themselves of idle factories and excess workers. Robot-maker Fanuc Ltd. amassed $5 billion in cash this decade after paying off $8 billion in long-term debt between 1995 and 1999. Mizuho Research Institute Ltd. forecasts corporate spending will help Japan's economy, which shrank in the last quarter, rebound faster than Europe's or America's.
Cheap Credit
European companies, on the other hand, took advantage of cheap credit to increase borrowing, allowing them to make acquisitions and boost investment for 20 straight quarters. French drugmaker Sanofi-Aventis SA, for example, took out a 16 billion-euro loan in 2004 to pay for the merger that formed the company.
Corporations in all sectors accelerated their borrowing in 2005-2007, adding 1.8 trillion euros to their debt, mostly in bank loans, according to Mark Wall, an economist with Deutsche Bank in London.
Now, he says, those companies are ``under attack from both sides'' as they attempt to manage their financing costs. Their profit margins are squeezed by slowing demand, record fuel costs and rising wages. At the same time, banks, trying to rebuild their own balance sheets, are tightening standards and demanding higher interest rates to make new loans or refinance current ones.
Borrowing Costs
The cost of borrowing in euros for three months -- a benchmark that determines the rate on bank loans such as Sanofi- Aventis's -- has jumped about 66 basis points, or 0.66 percentage point, since the beginning of August 2007 and stands near the highest level since December 2000. Banks told the ECB this quarter that they expect to tighten lending standards further.
Germany has already been down the path that economists foresee elsewhere in Europe. Having sunk money into the technology bubble of the 1990s, German companies were forced to slash spending in the 2001-2004 period as growth slowed, leaving Europe's largest economy lagging behind the subsequent recovery elsewhere in the euro region.
That means German companies are less burdened with debt now and less in need of curtailing their borrowing, says Jacques Cailloux, an economist at Royal Bank of Scotland Group Plc in London. ``Germany is bucking the trend,'' he says.
Most in Hock
This time, Spain's companies are the most in hock after their debt doubled since 2000 to 129 percent of the country's GDP amid a housing boom, according to Standard & Poor's.
In the bust that followed, property developer Martinsa- Fadesa SA became Europe's largest bankruptcy in five years in July when it defaulted on 5.2 billion euros of debt. Its biggest rival, Metrovacesa SA, said last month it will increase asset sales to reduce the 7.5 billion euros it owes.
One sign of growing concern about the ability of companies to handle their debt: So far this year, Moody's Investors Service has cut long-term credit ratings on 216 European companies, including Hanover, Germany-based tiremaker Continental AG and vodka producer Belvedere SA, in Beaune, France, while raising grades on just 81. In the same period last year, it lowered 237 and increased 497.
Belvedere obtained protection from creditors in July. Harsher terms for companies that are restructuring what they owe may lead to a quadrupling of defaults on high-risk loans in Europe to 5.8 percent by June 2009 from 1.55 percent in the same month this year, S&P said last week.
Rating Cut
In August, S&P cut the credit rating for Thomson, the world's largest provider of television set-top boxes, by one grade to B+, partly because the company's 1.3 billion-euro debt left it with ``high leverage'' after its biggest half-year loss since 2005, S&P said. Thomson is seeking to reduce expenses by 50 million euros this year.
Other businesses are retrenching as well: Capital spending grew at an annual rate of 0.8 percent in the first half of this year, compared with 4.2 percent in the prior six months, according to JPMorgan Chase & Co. Confidence among manufacturers dropped in August to its lowest level since May 2005, and production expectations were the weakest in almost seven years, a European Commission survey showed. A poll of 5,000 executives by Markit Economics found that firms cut employment for a third month in August.
`Increasing Uncertainty'
Renault is eliminating up to 6,000 jobs and trimming output. S&P cut its outlook for Europe's second-largest automaker to negative in July, amid ``increasing uncertainty on Renault's ability to maintain sound cash generation.''
Also feeling a pinch is Helios Domzale d.d., a Slovenian paintmaker. Its first-half profit fell as orders weakened and debt costs increased. ``We've had to reassess investment plans and postpone some for next year,'' Chief Executive Officer Uros Slavinec said in an interview last month.
``More pain probably lies ahead,'' says Michael Saunders, chief European economist at Citigroup in London. ``Worsening corporate finances add to downside risks to growth.''
To contact the reporters on this story: Simon Kennedy in Paris at skennedy4@bloomberg.net
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Treasuries Beating U.S. Assets Vindicate Bernanke, Not Gross
By Sandra Hernandez and Daniel Kruger
Sept. 8 (Bloomberg) -- Maxwell Bublitz got a lot of grief when he said Treasuries would rebound from the worst bear market in four years as inflation abated and economic growth slowed.
``People over the last five months have been saying, `you're out of your mind,''' said Bublitz, 53, who oversees $3.5 billion in fixed-income assets as the chief strategist at San Francisco-based SCM Advisors LLC.
While Bublitz predicted on June 25 that two-year notes would gain, Bill Gross of Pacific Investment Management Co., Colin Lundgren at RiverSource Institutional Advisors, and Thomas Atteberry of First Pacific Advisors, who together run about $1 trillion, said the slump would worsen. They cited surging commodity prices and the minimal assurance offered by Federal Reserve Chairman Ben S. Bernanke that inflation would slow.
Instead, U.S. debt of all maturities returned 2.6 percent since June 30 as crude oil tumbled 27 percent from a record high and the credit crisis that followed the collapse of the subprime-mortgage market entered its second year. So far this quarter, Treasuries beat the returns of 2 percent on debt sold by AAA-rated corporations and the 1.7 percent gain on government-sponsored agencies, according to indexes compiled by Merrill Lynch & Co. The Standard & Poor's 500 Index slumped 2.5 percent in the same period.
The rebound provides some vindication for Bernanke, who cut the Fed's target rate for overnight loans seven times to 2 percent to keep the economy growing even as commodities had their best first half in 35 years and inflation soared to a 17- year high. Bublitz says tumbling oil prices, a slumping housing market and $507.1 billion in credit-related losses will send two-year yields to 2 percent within two months.
Second-Quarter Slump
Yields on the benchmark notes maturing in August 2010 fell 11 basis points to 2.24 percent last week, according to BGCantor Market Data. They last dropped below 2 percent on April 17. The price of the 2.375 percent security rose 7/32, or $2.19 per $1,000 face value, to 100 1/4.
As recently as June, investors dumped Treasuries on expectations that quickening inflation would prompt the Fed to raise rates, eclipsing concern that five straight months of job losses and a 15 percent decline in home prices would drag the economy into a recession. U.S. debt of all maturities lost 2.1 percent in the second quarter, the worst slump since 2004.
Treasuries rebounded in July and August as shares of Fannie Mae and Freddie Mac, which own or guarantee about 42 percent of the $12 trillion in U.S. home loans, plunged on concern they lacked the capital to survive the worst housing slump since the Great Depression.
Treasury Secretary Henry Paulson decided to take control of Fannie and Freddie after review found the beleaguered mortgage- finance companies used accounting methods that inflated their capital, according to people with knowledge of the decision.
`Two Steps Back'
Wan-Chong Kung, who helps oversee $76 billion in bonds as a fund manager at FAF Advisors in Minneapolis, the asset- management arm of U.S. Bancorp, is less inclined to sell Treasuries during rallies as she comes to grips with the halting nature of the recovery.
``It continues to be a case of one step forward, two steps back,'' Kung said. ``As the financial market mess remains alive and with us, the need and desire for quality and safety and Treasuries continues.''
Gross, who said Treasuries were ``overvalued'' in a July 21 interview because their yields were too low, still prefers agency debt. Even so, he called for the U.S. government to start using more of its money to support markets to stem a burgeoning ``financial tsunami'' in a commentary posted on Newport Beach, California-based Pimco's Web site on Sept. 4.
Pimco and other large investors may put in their own money into agency debt once the Treasury decides to inject government funds, Gross said Sept. 5 in a Bloomberg Television interview.
`Still Too Low'
``Over the last six weeks it has gotten into people's minds that the credit crisis is not over yet,'' said Jamie Jackson, who oversees government debt trading at Minneapolis-based RiverSource. His colleague Lundgren wasn't available for comment.
Jackson still finds Treasuries too expensive. Ten-year notes yield 1.8 percentage points less than the inflation rate, the lowest so-called real yield since 1980.
``There's a growing consensus the economy's gotten weaker,'' said First Pacific's Atteberry. That said, ``yields are still too low'' to buy Treasuries. Government debt has gained because ``people are still fearful of problems in the financial system and that's given them a flight to quality.''
The Treasury plans to put Fannie and Freddie into a so- called conservatorship and pump capital into the companies, House Financial Services Committee Chairman Barney Frank said in an interview on Sept. 6.
Insurance Policy
Traders' expectations for inflation over the next decade fell to a five-year low last week, yields on Treasury Inflation Protected Securities show. TIPS due in 10 years yielded 1.97 percentage points less than notes of similar maturity, the smallest gap since 2003. The difference reflects the average inflation rate expected over the life of the securities. Oil fell to a five-month low of $105.13 on Sept. 5 on speculation slowing growth will curb demand.
Payrolls fell in August for an eighth month, by 84,000, the Labor Department said Sept. 5.
``It's just drip, drip, drip,'' said Bublitz, who is profiled in the 2000 book ``When Genius Failed'' as one of the first money managers to resist investing in the failed hedge fund Long Term Capital Management while head of Conseco Capital Management Inc. in the 1990s. ``While most people aren't there yet, they're saying, `as an insurance policy maybe I should own more Treasuries.'''
To contact the reporter on this story: Sandra Hernandez in New York at shernandez4@bloomberg.net; Daniel Kruger in New York at dkruger1@bloomberg.net
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Sept. 8 (Bloomberg) -- Maxwell Bublitz got a lot of grief when he said Treasuries would rebound from the worst bear market in four years as inflation abated and economic growth slowed.
``People over the last five months have been saying, `you're out of your mind,''' said Bublitz, 53, who oversees $3.5 billion in fixed-income assets as the chief strategist at San Francisco-based SCM Advisors LLC.
While Bublitz predicted on June 25 that two-year notes would gain, Bill Gross of Pacific Investment Management Co., Colin Lundgren at RiverSource Institutional Advisors, and Thomas Atteberry of First Pacific Advisors, who together run about $1 trillion, said the slump would worsen. They cited surging commodity prices and the minimal assurance offered by Federal Reserve Chairman Ben S. Bernanke that inflation would slow.
Instead, U.S. debt of all maturities returned 2.6 percent since June 30 as crude oil tumbled 27 percent from a record high and the credit crisis that followed the collapse of the subprime-mortgage market entered its second year. So far this quarter, Treasuries beat the returns of 2 percent on debt sold by AAA-rated corporations and the 1.7 percent gain on government-sponsored agencies, according to indexes compiled by Merrill Lynch & Co. The Standard & Poor's 500 Index slumped 2.5 percent in the same period.
The rebound provides some vindication for Bernanke, who cut the Fed's target rate for overnight loans seven times to 2 percent to keep the economy growing even as commodities had their best first half in 35 years and inflation soared to a 17- year high. Bublitz says tumbling oil prices, a slumping housing market and $507.1 billion in credit-related losses will send two-year yields to 2 percent within two months.
Second-Quarter Slump
Yields on the benchmark notes maturing in August 2010 fell 11 basis points to 2.24 percent last week, according to BGCantor Market Data. They last dropped below 2 percent on April 17. The price of the 2.375 percent security rose 7/32, or $2.19 per $1,000 face value, to 100 1/4.
As recently as June, investors dumped Treasuries on expectations that quickening inflation would prompt the Fed to raise rates, eclipsing concern that five straight months of job losses and a 15 percent decline in home prices would drag the economy into a recession. U.S. debt of all maturities lost 2.1 percent in the second quarter, the worst slump since 2004.
Treasuries rebounded in July and August as shares of Fannie Mae and Freddie Mac, which own or guarantee about 42 percent of the $12 trillion in U.S. home loans, plunged on concern they lacked the capital to survive the worst housing slump since the Great Depression.
Treasury Secretary Henry Paulson decided to take control of Fannie and Freddie after review found the beleaguered mortgage- finance companies used accounting methods that inflated their capital, according to people with knowledge of the decision.
`Two Steps Back'
Wan-Chong Kung, who helps oversee $76 billion in bonds as a fund manager at FAF Advisors in Minneapolis, the asset- management arm of U.S. Bancorp, is less inclined to sell Treasuries during rallies as she comes to grips with the halting nature of the recovery.
``It continues to be a case of one step forward, two steps back,'' Kung said. ``As the financial market mess remains alive and with us, the need and desire for quality and safety and Treasuries continues.''
Gross, who said Treasuries were ``overvalued'' in a July 21 interview because their yields were too low, still prefers agency debt. Even so, he called for the U.S. government to start using more of its money to support markets to stem a burgeoning ``financial tsunami'' in a commentary posted on Newport Beach, California-based Pimco's Web site on Sept. 4.
Pimco and other large investors may put in their own money into agency debt once the Treasury decides to inject government funds, Gross said Sept. 5 in a Bloomberg Television interview.
`Still Too Low'
``Over the last six weeks it has gotten into people's minds that the credit crisis is not over yet,'' said Jamie Jackson, who oversees government debt trading at Minneapolis-based RiverSource. His colleague Lundgren wasn't available for comment.
Jackson still finds Treasuries too expensive. Ten-year notes yield 1.8 percentage points less than the inflation rate, the lowest so-called real yield since 1980.
``There's a growing consensus the economy's gotten weaker,'' said First Pacific's Atteberry. That said, ``yields are still too low'' to buy Treasuries. Government debt has gained because ``people are still fearful of problems in the financial system and that's given them a flight to quality.''
The Treasury plans to put Fannie and Freddie into a so- called conservatorship and pump capital into the companies, House Financial Services Committee Chairman Barney Frank said in an interview on Sept. 6.
Insurance Policy
Traders' expectations for inflation over the next decade fell to a five-year low last week, yields on Treasury Inflation Protected Securities show. TIPS due in 10 years yielded 1.97 percentage points less than notes of similar maturity, the smallest gap since 2003. The difference reflects the average inflation rate expected over the life of the securities. Oil fell to a five-month low of $105.13 on Sept. 5 on speculation slowing growth will curb demand.
Payrolls fell in August for an eighth month, by 84,000, the Labor Department said Sept. 5.
``It's just drip, drip, drip,'' said Bublitz, who is profiled in the 2000 book ``When Genius Failed'' as one of the first money managers to resist investing in the failed hedge fund Long Term Capital Management while head of Conseco Capital Management Inc. in the 1990s. ``While most people aren't there yet, they're saying, `as an insurance policy maybe I should own more Treasuries.'''
To contact the reporter on this story: Sandra Hernandez in New York at shernandez4@bloomberg.net; Daniel Kruger in New York at dkruger1@bloomberg.net
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