By Jacob Greber
Sept. 8 (Bloomberg) -- The Reserve Bank of Australia seeks a ``gradual fall'' in the inflation rate and will cut borrowing costs again when there's room to move, said Governor Glenn Stevens.
``We are probably six months away from seeing clear evidence that inflation has begun to fall and, even then, it has to fall quite some distance,'' Stevens told parliament's economics committee today. ``In the near term, the question will be do we hold here or go down a bit more'' on interest rates.
The central bank lowered borrowing costs last week for the first time in almost seven years amid signs consumers are slashing spending, slowing the economy's growth to the weakest pace since 2004. Stevens said he sees no sign the economy is headed for a ``hard landing'' and noted the nation's companies are in better shape than counterparts in the U.S and Europe.
``These aren't rate-cutting comments. If we get an October cut, that will be it for the year,'' said Adam Carr, an economist at ICAP Australia Ltd. in Sydney. Stevens is ``optimistic on growth, noted that market rates have fallen considerably, and that the outlook for inflation isn't good.''
The Australian dollar traded at 83.11 U.S. cents at 10:30 a.m. in Sydney from 82.85 cents before his testimony began. The local dollar has dropped 14 percent since June 30, the worst performer of the 17 most-active currencies. The two-year government bond yield rose 1 basis point, or 0.01 percentage point, to 5.72 percent.
`Still Restrictive'
Interest rates are ``still well on the restrictive side,'' Stevens said at the half-yearly testimony in Melbourne. Last week's rate cut was because the board thought it prudent to be ``pressing on the brake not quite so vigorously as we were.''
The central bank reduced the key interest rate by a quarter point to 7 percent on Sept. 2, reversing a March increase that took the benchmark to a 12-year high.
``Rather than trying to achieve a larger fall in inflation by pushing it down more quickly, the board's strategy is to seek a gradual fall'' over a longer period, Stevens said. ``If scope continues to increase, I'm sure we'll act accordingly.''
Investors see an 81 percent chance policy makers will lower the benchmark rate at their next meeting on Oct. 7, according to a Credit Suisse Group index based on trading in interest-rate swaps at 8:56 a.m. in Sydney.
``I can't come here and pre-commit and make a forecast about what the board is going to do in coming meetings,'' Stevens said. When asked about investors pricing in expectations of a further rate cut, he replied: ``I don't have any agenda to dissuade them from that or encourage them any further.''
Inflation Forecast
Stevens is charged with keeping annual inflation between 2 percent and 3 percent on average. Consumer prices rose 4.5 percent last quarter from a year earlier.
The central bank forecast last month that the economy will expand 2 percent this year and 2.5 percent in 2009 after growing 4.3 percent in 2007. The bank expects the inflation rate to fall below 3 percent during 2010, after jumping to 5 percent in the fourth quarter of this year.
Stevens said last week's gross domestic product report gives him no reason to revise the central bank's August forecasts.
The economy grew 0.3 percent last quarter from the previous three months, the least since the fourth quarter of 2004. Household spending fell 0.1 percent, the first decline since 1993. Companies including Qantas Airways Ltd. and Ford Motor Co. are firing workers in Australia.
Slower household spending is being offset by a mining boom stoked by China's demand for iron ore and coal. Australia's terms of trade, a measure of export income, surged 13.1 percent in the second quarter, the biggest increase in 35 years, Treasurer Wayne Swan said last week.
Shipments of natural resources are helping Australia's A$1 trillion ($826 billion) economy outpace other developed nations, which are being buffeted by the global credit squeeze that has stifled household borrowing and company expansion.
To contact the reporter for this story: Jacob Greber in Melbourne at jgreber@bloomberg.net.
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Monday, September 8, 2008
China Trade Surplus May Narrow as U.S., European Demand Falter
By Li Yanping
Sept. 8 (Bloomberg) -- China's trade surplus probably fell on faltering demand from the U.S. and Europe, making the central bank more likely to keep slowing the yuan's gains.
The gap narrowed 6.4 percent to $23.55 billion in August from a year earlier, according to the median estimate of 22 economists surveyed by Bloomberg News.
European Central Bank President Jean-Claude Trichet said Sept. 4 that the region's in an ``episode of weak activity,'' while the worst housing recession since the Great Depression is restraining U.S. demand. The yuan has climbed only 0.2 percent against the dollar this quarter after a 6.5 percent advance in the first half, helping toy, shoe and clothes makers by keeping down the prices of their products in overseas markets.
``Exports to Europe will slow for the rest of the year as more ripples from the U.S. subprime crisis hit European economies,'' said Li Wei, an economist at Standard Chartered Bank Plc in Shanghai. ``China can't afford aggressive gains in the yuan given the export outlook.''
Exports may have climbed 20.6 percent, less than July's 26.9 percent. Imports rose 28.7 percent, down from 33.7 percent, according to the survey. The data may come as early as tomorrow.
Policy makers are putting an extra emphasis on sustaining the economy's expansion and protecting jobs, rather than reining in consumer prices, as global growth slows. Inflation probably eased for a fourth month in August to 5.4 percent from 6.3 percent in July, according to 23 economists surveyed by Bloomberg. That number is due Sept. 11.
Inflation Tool
Zhang Xiaojing, a researcher at the government-backed Chinese Academy of Social Sciences, said this month that officials had decided to stop using yuan appreciation to cool inflation because it added to companies' costs and ``quelled momentum for long-term economic growth.''
Still, Chinese exporters pricing goods in euros have been hit by the 11 percent gain by the yuan against that currency this quarter.
``Exporters can't afford the yuan to keep strengthening against the euro -- margins are already thin,'' said Fan Jianping, the chief economist at the State Information Center, a government research agency.
Rising labor and raw-material costs are adding to the pressure on exporters from currency gains and weakening demand. The number of toymakers in Guangdong province, one of China's export hubs, fell more than 70 percent in the seven months through July from a year earlier, as more than 3,600 shut down, according to the official Xinhua News Agency.
Slower Economic Growth
Kingdom Holdings Ltd., China's biggest exporter of linen yarns, said Sept. 5 that it was increasing its focus on the domestic market after making a loss in the first half of the year as the yuan strengthened and demand weakened in the U.S. and Europe.
China's economy expanded 10.1 percent in the second quarter, still the fastest pace of the world's 20 biggest economies, from 10.6 percent in the three months through March.
That was the fourth straight quarter of slower growth. Industrial production grew in July at the weakest pace since February 2007 and manufacturing contracted in August for a second month, according to an official survey, underscoring government concern that an economic slump is possible.
Cooling overseas sales may also discourage investment, a key driver of the world's fastest-growing major economy. Since July, the government has loosened loan quotas, encouraged lending to small businesses and increased export-tax rebates for garments and textiles to boost growth and protect jobs.
Last month, it abolished administrative fees for some small business owners, losing about 20 billion yuan ($2.9 billion) a year in tax revenue, state media said. The government is considering spending an extra 400 billion yuan to boost growth, according to economists and domestic news reports.
``Slowing exports may cool economic growth further to about 9.9 percent for the whole of 2008, but it's a desirable slowdown rather than drastic,'' said Standard Chartered's Li. ``So the government won't panic and hastily implement an economic stimulus package.''
To contact the reporter on this story: Li Yanping in Beijing at yli16@bloomberg.net
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OPEC to Pump at Near Record Level as High Prices Stunt Growth
By Grant Smith and Ayesha Daya
Sept. 8 (Bloomberg) -- OPEC, the supplier of 40 percent of the world's oil, will probably keep producing at a near record pace as $106-a-barrel crude squeezes the global economy.
``Our position is to leave everything unchanged,'' Ecuador's Energy and Mines Minister Galo Chiriboga told reporters as he arrived at his hotel in Vienna yesterday. ``We believe the market is well supplied.''
The 13-nation Organization of Petroleum Exporting Countries will keep production unchanged at a meeting tomorrow in Vienna, according to 29 of 32 energy analysts surveyed by Bloomberg last week. Iran and Venezuela will urge the group to trim supplies to prevent oil prices retreating below $100 a barrel.
``They want to prevent a build-up of crude stocks, which rules out an increase, but don't want to send prices skyrocketing by announcing a cut,'' said Mike Wittner, head of oil research at Societe Generale SA in London. ``OPEC won't take any formal action.''
Oil has plunged $41 a barrel, or 28 percent, from its record $147.27 on July 11 as economies slowed, the dollar halted a three-year slide against the euro and Hurricane Gustav caused almost no damage to U.S. drilling platforms and refineries. Demand for crude will increase 1 percent in 2009, the slowest growth in seven years, according to an Aug. 15 OPEC forecast.
The OPEC members with quotas produced about 592,000 barrels a day more than their official limit of 29.673 million last month, according to Bloomberg estimates. Iraq has no quota. Output from all 13 members slipped 200,000 barrels a day from July's record.
All the countries except Saudi Arabia are pumping at close to capacity to meet rising demand and compensate for declining supplies from Nigeria and Venezuela.
Trim Supply
While leaving quotas unchanged, the group may curtail production to prevent inventories from swelling, said Adam Sieminski, Deutsche Bank AG's chief energy economist in Washington.
``If prices are rising, they will leave production alone, and if they are falling, they will trim a little,'' he said.
Record oil prices spurred European inflation to 4 percent in July and contributed to the first quarterly contraction in the region's economy since the euro was introduced almost a decade ago. In the U.S., gasoline demand fell for 19 consecutive weeks, according to MasterCard Inc., with fuel now near $3.70 a gallon.
The world economy is ``precariously close'' to a recession in 2009, UBS AG said last month as it cut next year's global growth forecast to 2.9 percent. It considers a 2.5 percent rate as one that is consistent with a recession.
Oil Prices
Oil for October delivery fell for a sixth consecutive session on Sept. 5, dropping $1.66 to $106.23 a barrel on the New York Mercantile Exchange, the lowest settlement price for a contract closest to expiration since April 4.
Oil stockpiles in industrialized nations, excluding government reserves, were above average in July and enough to meet 54 days of demand, according to the International Energy Agency.
The agency's executive director, Nobuo Tanaka, recommended in a Sept. 4 interview in Brussels that OPEC maintain output levels, adding that recent price declines reflect ``the slowdown of the economy.''
``If stocks were ballooning then you could see pressure mounting within the cartel for a cut,'' said Harry Tchilinguirian, senior oil analyst at BNP Paribas SA.
Most of OPEC's extra pumping in the past few months has come from Saudi Arabia, the world's largest oil producer, which raised output by 500,000 barrels a day in June and July to calm markets.
Market Surprise
An OPEC production cut would ``surprise'' the market, Jan Stuart, a global oil economist with UBS Securities LLC, said in a Sept. 5 Bloomberg Radio interview from New York.
``Where Saudi Arabia is in this debate is crucially important; that is your linchpin,'' Stuart said. ``We don't know what the Saudis are ready to defend, and we do know the Saudis are the ones that would have to do most of the production cutting.''
Venezuela and Iran, OPEC's second- and third-largest producers, want the group to consider reducing supply. Venezuelan President Hugo Chavez said on Aug. 27 he considers prices of just over $100 a barrel as ``fair.''
``Returning to quotas does not mean a production cut, it's a return to previous output commitments,'' Iranian OPEC Governor Mohammad Ali Khatibi said in a Sept. 1 telephone interview in Tehran. ``The result will be a decrease in output, but it's different from a cut in the ceiling.''
The group meets again Dec. 17 in Algeria.
To contact the reporter on this story: Grant Smith in Vienna at gsmith52@bloomberg.net; Fred Pals in Vienna at fpals@bloomberg.net
Read more...
Sept. 8 (Bloomberg) -- OPEC, the supplier of 40 percent of the world's oil, will probably keep producing at a near record pace as $106-a-barrel crude squeezes the global economy.
``Our position is to leave everything unchanged,'' Ecuador's Energy and Mines Minister Galo Chiriboga told reporters as he arrived at his hotel in Vienna yesterday. ``We believe the market is well supplied.''
The 13-nation Organization of Petroleum Exporting Countries will keep production unchanged at a meeting tomorrow in Vienna, according to 29 of 32 energy analysts surveyed by Bloomberg last week. Iran and Venezuela will urge the group to trim supplies to prevent oil prices retreating below $100 a barrel.
``They want to prevent a build-up of crude stocks, which rules out an increase, but don't want to send prices skyrocketing by announcing a cut,'' said Mike Wittner, head of oil research at Societe Generale SA in London. ``OPEC won't take any formal action.''
Oil has plunged $41 a barrel, or 28 percent, from its record $147.27 on July 11 as economies slowed, the dollar halted a three-year slide against the euro and Hurricane Gustav caused almost no damage to U.S. drilling platforms and refineries. Demand for crude will increase 1 percent in 2009, the slowest growth in seven years, according to an Aug. 15 OPEC forecast.
The OPEC members with quotas produced about 592,000 barrels a day more than their official limit of 29.673 million last month, according to Bloomberg estimates. Iraq has no quota. Output from all 13 members slipped 200,000 barrels a day from July's record.
All the countries except Saudi Arabia are pumping at close to capacity to meet rising demand and compensate for declining supplies from Nigeria and Venezuela.
Trim Supply
While leaving quotas unchanged, the group may curtail production to prevent inventories from swelling, said Adam Sieminski, Deutsche Bank AG's chief energy economist in Washington.
``If prices are rising, they will leave production alone, and if they are falling, they will trim a little,'' he said.
Record oil prices spurred European inflation to 4 percent in July and contributed to the first quarterly contraction in the region's economy since the euro was introduced almost a decade ago. In the U.S., gasoline demand fell for 19 consecutive weeks, according to MasterCard Inc., with fuel now near $3.70 a gallon.
The world economy is ``precariously close'' to a recession in 2009, UBS AG said last month as it cut next year's global growth forecast to 2.9 percent. It considers a 2.5 percent rate as one that is consistent with a recession.
Oil Prices
Oil for October delivery fell for a sixth consecutive session on Sept. 5, dropping $1.66 to $106.23 a barrel on the New York Mercantile Exchange, the lowest settlement price for a contract closest to expiration since April 4.
Oil stockpiles in industrialized nations, excluding government reserves, were above average in July and enough to meet 54 days of demand, according to the International Energy Agency.
The agency's executive director, Nobuo Tanaka, recommended in a Sept. 4 interview in Brussels that OPEC maintain output levels, adding that recent price declines reflect ``the slowdown of the economy.''
``If stocks were ballooning then you could see pressure mounting within the cartel for a cut,'' said Harry Tchilinguirian, senior oil analyst at BNP Paribas SA.
Most of OPEC's extra pumping in the past few months has come from Saudi Arabia, the world's largest oil producer, which raised output by 500,000 barrels a day in June and July to calm markets.
Market Surprise
An OPEC production cut would ``surprise'' the market, Jan Stuart, a global oil economist with UBS Securities LLC, said in a Sept. 5 Bloomberg Radio interview from New York.
``Where Saudi Arabia is in this debate is crucially important; that is your linchpin,'' Stuart said. ``We don't know what the Saudis are ready to defend, and we do know the Saudis are the ones that would have to do most of the production cutting.''
Venezuela and Iran, OPEC's second- and third-largest producers, want the group to consider reducing supply. Venezuelan President Hugo Chavez said on Aug. 27 he considers prices of just over $100 a barrel as ``fair.''
``Returning to quotas does not mean a production cut, it's a return to previous output commitments,'' Iranian OPEC Governor Mohammad Ali Khatibi said in a Sept. 1 telephone interview in Tehran. ``The result will be a decrease in output, but it's different from a cut in the ceiling.''
The group meets again Dec. 17 in Algeria.
To contact the reporter on this story: Grant Smith in Vienna at gsmith52@bloomberg.net; Fred Pals in Vienna at fpals@bloomberg.net
Read more...
ConocoPhillips Joins Origin in $8 Billion Gas Venture
By Angela Macdonald-Smith
Sept. 8 (Bloomberg) -- ConocoPhillips, the second-biggest U.S. oil refiner, agreed to pay as much as $8 billion to join Origin Energy Ltd. in a natural gas venture in Queensland, potentially trumping a hostile takeover bid from BG Group Plc.
ConocoPhillips will initially contribute $5 billion to take a 50 percent stake in the venture, which will convert coal-seam gas into liquefied natural gas for export to Asia, Houston-based ConocoPhillips said in a statement distributed on Business Wire. Origin, Australia's biggest producer of gas from coal seams, surged to a record in Sydney trading.
LNG demand is set to increase by 10 percent a year through 2015, more than five times projected gains in crude oil, as power producers switch to cleaner fuels, according to Citigroup Inc. Sydney-based Origin last month short-listed bidders for a coal-seam gas venture, saying this would provide more value for shareholders than BG Group's takeover offer.
``This is a massive deal and the sum that ConocoPhillips is prepared to pay really puts a firm valuation under Origin,'' said Gavin Wendt, a senior resources analyst at Fat Prophets Funds Management in Sydney. ``It makes it impossible now for BG with its current offer.''
Origin rose as much as A$4.34, or 28 percent, to A$19.99. The shares were at A$17.50 at 10:27 a.m. local time. Credit Suisse Group is advising ConocoPhillips on the transaction.
`Decade of Growth'
The venture with ConocoPhillips ``will transform Origin,'' Managing Director Grant King said in a separate statement sent to the exchange. ``We will have the financial strength to fund a decade of growth.''
Origin reiterated its recommendation that shareholders reject BG's offer. An independent expert valued Origin at between A$28.55 and A$30.71 a share, compared with BG's A$15.37 a share bid, it said. Grant Samuel & Associates Pty's value range for Origin's coal-seam gas unit alone is A$18.70 to A$19.49 a share, assuming completion of the ConocoPhillips transaction.
Origin plans to start buying back as much as A$1.275 billion of shares once the transaction is completed. It will also pay an immediate extra dividend to shareholders of 25 cents a share, doubling the 2008 distribution.
The companies plan initially to build two LNG production units, each with a capacity of 3.5 million metric tons a year, with deliveries scheduled to start by 2014. Origin will operate the coal-seam gas production part of the venture, while ConocoPhillips, which already operates an LNG plant in northern Australia, will operate the LNG output.
`Australian LNG Hub'
``With this investment, ConocoPhillips has gained access to the leading coal-bed methane resource in Australia,'' Jim Mulva, chief executive officer of ConocoPhillips, said in the statement. ``The company has enhanced its LNG position with the creation of an additional Australian LNG hub serving Asia-Pacific markets.''
ConocoPhillips will own 50 percent of Origin's gross resource of 42 trillion cubic feet of coal seam gas.
Coal-seam gas, mostly comprising methane, bonds as a thin film on the surface of coal and is released when pressure is reduced, usually after water is removed.
LNG is natural gas that has been chilled to liquid form, reducing it to one-six-hundredth of its original volume at minus 161 degrees Celsius (minus 259 Fahrenheit), for transportation by ship to destinations not connected by pipeline. On arrival, it's turned back into gas for distribution to power plants, factories and households.
To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net
Read more...
Sept. 8 (Bloomberg) -- ConocoPhillips, the second-biggest U.S. oil refiner, agreed to pay as much as $8 billion to join Origin Energy Ltd. in a natural gas venture in Queensland, potentially trumping a hostile takeover bid from BG Group Plc.
ConocoPhillips will initially contribute $5 billion to take a 50 percent stake in the venture, which will convert coal-seam gas into liquefied natural gas for export to Asia, Houston-based ConocoPhillips said in a statement distributed on Business Wire. Origin, Australia's biggest producer of gas from coal seams, surged to a record in Sydney trading.
LNG demand is set to increase by 10 percent a year through 2015, more than five times projected gains in crude oil, as power producers switch to cleaner fuels, according to Citigroup Inc. Sydney-based Origin last month short-listed bidders for a coal-seam gas venture, saying this would provide more value for shareholders than BG Group's takeover offer.
``This is a massive deal and the sum that ConocoPhillips is prepared to pay really puts a firm valuation under Origin,'' said Gavin Wendt, a senior resources analyst at Fat Prophets Funds Management in Sydney. ``It makes it impossible now for BG with its current offer.''
Origin rose as much as A$4.34, or 28 percent, to A$19.99. The shares were at A$17.50 at 10:27 a.m. local time. Credit Suisse Group is advising ConocoPhillips on the transaction.
`Decade of Growth'
The venture with ConocoPhillips ``will transform Origin,'' Managing Director Grant King said in a separate statement sent to the exchange. ``We will have the financial strength to fund a decade of growth.''
Origin reiterated its recommendation that shareholders reject BG's offer. An independent expert valued Origin at between A$28.55 and A$30.71 a share, compared with BG's A$15.37 a share bid, it said. Grant Samuel & Associates Pty's value range for Origin's coal-seam gas unit alone is A$18.70 to A$19.49 a share, assuming completion of the ConocoPhillips transaction.
Origin plans to start buying back as much as A$1.275 billion of shares once the transaction is completed. It will also pay an immediate extra dividend to shareholders of 25 cents a share, doubling the 2008 distribution.
The companies plan initially to build two LNG production units, each with a capacity of 3.5 million metric tons a year, with deliveries scheduled to start by 2014. Origin will operate the coal-seam gas production part of the venture, while ConocoPhillips, which already operates an LNG plant in northern Australia, will operate the LNG output.
`Australian LNG Hub'
``With this investment, ConocoPhillips has gained access to the leading coal-bed methane resource in Australia,'' Jim Mulva, chief executive officer of ConocoPhillips, said in the statement. ``The company has enhanced its LNG position with the creation of an additional Australian LNG hub serving Asia-Pacific markets.''
ConocoPhillips will own 50 percent of Origin's gross resource of 42 trillion cubic feet of coal seam gas.
Coal-seam gas, mostly comprising methane, bonds as a thin film on the surface of coal and is released when pressure is reduced, usually after water is removed.
LNG is natural gas that has been chilled to liquid form, reducing it to one-six-hundredth of its original volume at minus 161 degrees Celsius (minus 259 Fahrenheit), for transportation by ship to destinations not connected by pipeline. On arrival, it's turned back into gas for distribution to power plants, factories and households.
To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net
Read more...
Yen, South Korean Won, Taiwan Dollar: Asia Currency Preview
By Bob Chen
Sept. 8 (Bloomberg) -- The following events and economic reports may influence trading in Asian currencies today.
Exchange rates are from the previous session.
Japanese yen: Chief Cabinet Secretary Nobutaka Machimura will hold briefings at 11 a.m. and 4 p.m. in Tokyo. Vice Finance Minister Kazuyuki Sugimoto is scheduled to give a press conference at 5 p.m.
The yen traded at 108.63 per dollar at 8:40 a.m. in Sydney.
South Korean won: The National Statistics Office will report consumer confidence in August at 1:30 p.m. in Gwacheon. Consumer confidence in July declined to the lowest level in almost eight years as oil and food costs pushed inflation to a decade high and squeezed household budgets.
The won was at 1,117.80.
Taiwan dollar: Inflation slowed to 4.78 percent in August from a 14-year high of 5.92 percent the previous month, the government reported Sept. 5 after local markets closed. That was lower than the 5 percent rate forecast by economists in a Bloomberg News survey.
The Ministry of Finance will report August trade figures at 4 p.m. in Taipei. Exports in August rose 6.5 percent from a year earlier, according to a Bloomberg News survey of economists. That would be the slowest growth since May 2007.
The Taiwan dollar was at NT$31.875.
Indonesian rupiah: The central bank may report as early as today the nation's consumer confidence index for August. The gauge rose to 82.1 in July from a 32-month low of 79.1, according to a Bank Indonesia survey released today. A reading below 100 indicates pessimists outnumber optimists.
The rupiah was at 9,375.
Singapore dollar: The Monetary Authority of Singapore is due to report foreign-exchange reserves for August today. The reserves fell to $175 billion in July from $176.7 billion the previous month.
The Singapore dollar was at S$1.4273.
To contact the reporter on this story: Bob Chen in Hong Kong at bchen45@bloomberg.net.
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Sept. 8 (Bloomberg) -- The following events and economic reports may influence trading in Asian currencies today.
Exchange rates are from the previous session.
Japanese yen: Chief Cabinet Secretary Nobutaka Machimura will hold briefings at 11 a.m. and 4 p.m. in Tokyo. Vice Finance Minister Kazuyuki Sugimoto is scheduled to give a press conference at 5 p.m.
The yen traded at 108.63 per dollar at 8:40 a.m. in Sydney.
South Korean won: The National Statistics Office will report consumer confidence in August at 1:30 p.m. in Gwacheon. Consumer confidence in July declined to the lowest level in almost eight years as oil and food costs pushed inflation to a decade high and squeezed household budgets.
The won was at 1,117.80.
Taiwan dollar: Inflation slowed to 4.78 percent in August from a 14-year high of 5.92 percent the previous month, the government reported Sept. 5 after local markets closed. That was lower than the 5 percent rate forecast by economists in a Bloomberg News survey.
The Ministry of Finance will report August trade figures at 4 p.m. in Taipei. Exports in August rose 6.5 percent from a year earlier, according to a Bloomberg News survey of economists. That would be the slowest growth since May 2007.
The Taiwan dollar was at NT$31.875.
Indonesian rupiah: The central bank may report as early as today the nation's consumer confidence index for August. The gauge rose to 82.1 in July from a 32-month low of 79.1, according to a Bank Indonesia survey released today. A reading below 100 indicates pessimists outnumber optimists.
The rupiah was at 9,375.
Singapore dollar: The Monetary Authority of Singapore is due to report foreign-exchange reserves for August today. The reserves fell to $175 billion in July from $176.7 billion the previous month.
The Singapore dollar was at S$1.4273.
To contact the reporter on this story: Bob Chen in Hong Kong at bchen45@bloomberg.net.
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Yen Declines After U.S. Government Takes Over Fannie, Freddie
By Stanley White
Sept. 8 (Bloomberg) -- The yen fell against the euro and the dollar on speculation the U.S. government's takeover of Fannie Mae and Freddie Mac will prompt investors to buy higher- yielding assets funded with Japan's currency.
The yen declined the most against the Australian and New Zealand dollars, two favorites of so-called carry trades, on speculation government support for the two largest U.S. mortgage financiers will stem subprime losses that threatened to damage the global economy. The euro and the British pound were among higher-yielding currencies to rise against the dollar.
``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.''
The yen fell to 155.76 per euro at 9:04 a.m. in Tokyo from 153.67 late in New York on Sept. 5. It declined to 108.60 versus the dollar from 107.73. The euro rose to $1.4341 from $1.4267. The yen may decline to 110 per dollar in the next two weeks, Fukaya forecast. The U.K. pound rose to $1.7828 from $1.7661.
Against the Australian dollar, the yen fell to 89.93 from 87.91 late in New York on Sept. 5. It declined to 73.45 per New Zealand dollar from 72.04.
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 interest rate compares with 2 percent in the U.S., 4.25 percent in Europe, 7 percent in Australia and 8 percent in New Zealand. The risk to carry trades is that currency moves may erase profits.
Government Control
The U.S. government seized control of Fannie Mae and Freddie Mac yesterday after the biggest surge in mortgage defaults in at least three decades threatened to topple the companies making up almost half the U.S. home-loan market.
The Treasury can buy as much as $100 billion of a special class of stock in each company as needed to maintain their positive net worth. It will also provide secured short-term funding to Fannie, Freddie and 12 federal home-loan banks, and purchase mortgage-backed debt in the open market.
Standard & Poor's said yesterday the rescue of Fannie and Freddie won't change its AAA rating for U.S. debt, its highest credit rating.
``The yen is likely to take a hit,'' said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan's largest currency broker. ``A government bailout will certainly stabilize Freddie and Fannie and improve risk appetite for carry trades.''
The yen may decline to 109.20 versus the dollar today, he said.
Futures traders increased their bets that the euro will decline against the U.S. dollar, figures from the Washington- based Commodity Futures Trading Commission show.
The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain -- so-called net shorts -- was 38,623 on Sep. 2, compared with net shorts of 33,778 a week earlier.
To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net
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Asia Commodities Day Ahead: Raw Materials Fall as Economy Slows
Sept. 8 (Bloomberg) -- Copper, soybeans and gasoline led a decline in commodities on speculation a slowing economy will erode raw-material demand. Gold, silver and platinum fell. Orange juice rose the most in more than a week on speculation a hurricane may damage Florida citrus groves.
COMMODITIES INVESTMENT
Copper, Grains Lead Drop in Commodities as Economies Slump
Copper, soybeans and gasoline led a decline in commodities on speculation a slowing global economy will erode demand for raw materials. Some prices extended the drop after the U.S. lost more jobs than forecast in August.
Vote Counting Resumes Amid Western Australian Election Deadlock
Vote counting resumes in Western Australia today after the incumbent Labor Party and the pro-uranium mining Liberal Party both failed to claim enough seats to form a majority government.
AGRICULTURAL COMMODITIES
U.S. Corn, Soybean Crops Will Top USDA Estimates, Informa Says
U.S. farmers will produce more corn and soybeans than the government forecast last month after warm, sunny August weather helped revive Midwest crop development slowed by June flooding, according to Informa Economics Inc.
Corn, Soybeans Decline as Investors Reduce Commodity Assets
Corn and soybeans fell the most in more than three weeks amid speculation slowing global economies will reduce demand for commodities as a hedge against inflation. Corn dropped 16 cents to $5.485 a bushel in Chicago. Soybeans declined 58 cents to $11.77 a bushel.
Wheat Falls to 3-Month Low as Record Crop May Outpace Demand
Wheat plunged to a three-month low on speculation that record global production will outpace demand, boosting grain inventories. Wheat fell 25.5 cents, or 3.3 percent, to $7.515 a bushel in Chicago.
CHEMICALS
Dow Says FTC Wants Additional Information on Rohm & Haas Buyout
Dow Chemical Co., the largest U.S. chemical maker, received a request from the U.S. Federal Trade Commission for additional information regarding its proposed $15.4 billion acquisition of Rohm & Haas Co.
INDUSTRIAL METALS, MINING
Copper Falls, Capping Biggest Weekly Decline Since January 2007
Copper tumbled, capping the biggest weekly drop since January 2007, as climbing stockpiles and slowing global growth signaled demand for the metal may decline. Copper sank 16.75 cents, or 5.1 percent, to $3.0985 a pound in New York.
PRECIOUS METALS, GEMS
Gold Falls as Dollar Strengthens; Silver Drops to One-Year Low
Gold fell as the dollar strengthened, eroding the appeal of precious metals as alternative assets. Gold slid 40 cents to $802.80 an ounce in New York. Silver dropped 61.5 cents, or 4.8 percent, to $12.325 an ounce.
Platinum, Palladium Tumble as Energy Costs Drop, Dollar Gains
Platinum and palladium declined as energy costs dropped, reducing demand for the precious metals as hedges against inflation. Platinum slid $34.40, or 2.5 percent, to $1,367.80 an ounce in New York. Palladium fell $16.90, or 5.8 percent, to $272.90 an ounce.
SOFT COMMODITIES
Orange Juice Rallies on Bets Hurricane Ike May Hit Florida Crop
Orange juice rose the most in more than a week on speculation that Hurricane Ike may hit Florida and batter citrus groves still recovering from previous storms. Orange juice climbed 4.4 cents, or 4.1 percent, to $1.1255 a pound in New York.
Cotton Falls as Slowing Economy, Dollar Gain May Curb Demand
Cotton fell the most in a month on speculation that a slowing global economy will cut demand for the fiber as a stronger dollar dulls the appeal of U.S. exports. Cotton dropped 2.62 cents, or 3.8 percent, to 65.84 cents a pound in New York.
Coffee Slips in N.Y., Heading for Weekly Fall, as Dollar Firms
Coffee dropped the most since early August as the dollar strengthened and traders speculated the slowing economy may reduce demand. Arabica coffee lost 4.1 cents, or 2.8 percent, to $1.4265 a pound in New York. Robusta coffee fell $62, or 2.8 percent, to $2,166 a ton in London.
Sugar Falls in New York as Dollar Gains, Commodities Slide
Sugar fell in New York, declining for a second straight week, as the stronger dollar reduced the appeal of commodities as an inflation hedge. Raw-sugar futures fell 0.11 cent, or 0.9 percent, to 12.54 cents a pound in New York.
Cocoa Falls to 3-Week Low as Dollar Strengthens, Demand Slumps
Cocoa dropped to a three-week low in New York as the dollar strengthened and traders speculated that slowing global growth will pinch demand. Cocoa fell $14, or 0.5 percent, to $2,636 a metric ton.
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COMMODITIES INVESTMENT
Copper, Grains Lead Drop in Commodities as Economies Slump
Copper, soybeans and gasoline led a decline in commodities on speculation a slowing global economy will erode demand for raw materials. Some prices extended the drop after the U.S. lost more jobs than forecast in August.
Vote Counting Resumes Amid Western Australian Election Deadlock
Vote counting resumes in Western Australia today after the incumbent Labor Party and the pro-uranium mining Liberal Party both failed to claim enough seats to form a majority government.
AGRICULTURAL COMMODITIES
U.S. Corn, Soybean Crops Will Top USDA Estimates, Informa Says
U.S. farmers will produce more corn and soybeans than the government forecast last month after warm, sunny August weather helped revive Midwest crop development slowed by June flooding, according to Informa Economics Inc.
Corn, Soybeans Decline as Investors Reduce Commodity Assets
Corn and soybeans fell the most in more than three weeks amid speculation slowing global economies will reduce demand for commodities as a hedge against inflation. Corn dropped 16 cents to $5.485 a bushel in Chicago. Soybeans declined 58 cents to $11.77 a bushel.
Wheat Falls to 3-Month Low as Record Crop May Outpace Demand
Wheat plunged to a three-month low on speculation that record global production will outpace demand, boosting grain inventories. Wheat fell 25.5 cents, or 3.3 percent, to $7.515 a bushel in Chicago.
CHEMICALS
Dow Says FTC Wants Additional Information on Rohm & Haas Buyout
Dow Chemical Co., the largest U.S. chemical maker, received a request from the U.S. Federal Trade Commission for additional information regarding its proposed $15.4 billion acquisition of Rohm & Haas Co.
INDUSTRIAL METALS, MINING
Copper Falls, Capping Biggest Weekly Decline Since January 2007
Copper tumbled, capping the biggest weekly drop since January 2007, as climbing stockpiles and slowing global growth signaled demand for the metal may decline. Copper sank 16.75 cents, or 5.1 percent, to $3.0985 a pound in New York.
PRECIOUS METALS, GEMS
Gold Falls as Dollar Strengthens; Silver Drops to One-Year Low
Gold fell as the dollar strengthened, eroding the appeal of precious metals as alternative assets. Gold slid 40 cents to $802.80 an ounce in New York. Silver dropped 61.5 cents, or 4.8 percent, to $12.325 an ounce.
Platinum, Palladium Tumble as Energy Costs Drop, Dollar Gains
Platinum and palladium declined as energy costs dropped, reducing demand for the precious metals as hedges against inflation. Platinum slid $34.40, or 2.5 percent, to $1,367.80 an ounce in New York. Palladium fell $16.90, or 5.8 percent, to $272.90 an ounce.
SOFT COMMODITIES
Orange Juice Rallies on Bets Hurricane Ike May Hit Florida Crop
Orange juice rose the most in more than a week on speculation that Hurricane Ike may hit Florida and batter citrus groves still recovering from previous storms. Orange juice climbed 4.4 cents, or 4.1 percent, to $1.1255 a pound in New York.
Cotton Falls as Slowing Economy, Dollar Gain May Curb Demand
Cotton fell the most in a month on speculation that a slowing global economy will cut demand for the fiber as a stronger dollar dulls the appeal of U.S. exports. Cotton dropped 2.62 cents, or 3.8 percent, to 65.84 cents a pound in New York.
Coffee Slips in N.Y., Heading for Weekly Fall, as Dollar Firms
Coffee dropped the most since early August as the dollar strengthened and traders speculated the slowing economy may reduce demand. Arabica coffee lost 4.1 cents, or 2.8 percent, to $1.4265 a pound in New York. Robusta coffee fell $62, or 2.8 percent, to $2,166 a ton in London.
Sugar Falls in New York as Dollar Gains, Commodities Slide
Sugar fell in New York, declining for a second straight week, as the stronger dollar reduced the appeal of commodities as an inflation hedge. Raw-sugar futures fell 0.11 cent, or 0.9 percent, to 12.54 cents a pound in New York.
Cocoa Falls to 3-Week Low as Dollar Strengthens, Demand Slumps
Cocoa dropped to a three-week low in New York as the dollar strengthened and traders speculated that slowing global growth will pinch demand. Cocoa fell $14, or 0.5 percent, to $2,636 a metric ton.
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Rudd to Retain Ban on Uranium Sales to India, Australian Says
By Angela Macdonald-Smith
Sept. 8 (Bloomberg) -- Australia will retain a ban on uranium exports to India even after supplier nations decided to end a 34-year embargo on sales to the South Asian country, the Australian reported, citing Trade Minister Simon Crean.
The 45 states in the Nuclear Suppliers Group on Sept. 6 endorsed a waiver of its rules for India, which refuses to sign the nuclear Non-Proliferation Treaty, the newspaper said. Australia will continue to ban yellowcake sales to India as long as it refuses to sign the treaty, it said, citing Crean.
To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net
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Sept. 8 (Bloomberg) -- Australia will retain a ban on uranium exports to India even after supplier nations decided to end a 34-year embargo on sales to the South Asian country, the Australian reported, citing Trade Minister Simon Crean.
The 45 states in the Nuclear Suppliers Group on Sept. 6 endorsed a waiver of its rules for India, which refuses to sign the nuclear Non-Proliferation Treaty, the newspaper said. Australia will continue to ban yellowcake sales to India as long as it refuses to sign the treaty, it said, citing Crean.
To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net
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South Korea May Provide Food Aid to North Korea, Daily Reports
By Sungwoo Park
Sept. 8 (Bloomberg) -- South Korea is considering providing food aid to North Korea, the Seoul Economic Daily reported, citing unidentified government officials.
The government will decide when to offer aid around early October after reviewing North Korea's crop conditions, the Korean-language newspaper reported.
North Korea's worst food shortage in a decade may continue until next year's harvest as poor availability of fuel and fertilizer threaten to lower production in the current growing season, the United Nations said on July 30.
To contact the reporter on this story: Sungwoo Park in Seoul at spark47@bloomberg.net.
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Sept. 8 (Bloomberg) -- South Korea is considering providing food aid to North Korea, the Seoul Economic Daily reported, citing unidentified government officials.
The government will decide when to offer aid around early October after reviewing North Korea's crop conditions, the Korean-language newspaper reported.
North Korea's worst food shortage in a decade may continue until next year's harvest as poor availability of fuel and fertilizer threaten to lower production in the current growing season, the United Nations said on July 30.
To contact the reporter on this story: Sungwoo Park in Seoul at spark47@bloomberg.net.
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Oil Rises From Five-Month Low as Hurricane Nears, Dollar Eases
By Gavin Evans
Sept. 8 (Bloomberg) -- Crude oil rose from a five-month low in New York as the approach of Hurricane Ike delayed the restoration of production in the Gulf of Mexico.
Oil gained for the first time in seven sessions as producers including Royal Dutch Shell Plc evacuated workers from platforms in the Gulf or kept staff onshore who were moved from the path of Hurricane Gustav last month. Prices also rose after the U.S. government's seizure of Fannie Mae and Freddie Mac, backers of about half the nation's home loans, slowed a rally in the dollar.
``We've already gone a full week and a half with production shut in from Hurricane Gustav,'' Stephen Schork, president of Schork Group Inc., told Bloomberg television. ``Now everything has to be shut down again for at least another week.''
Crude oil for October delivery rose as much as $2.52, or 2.4 percent, to $108.75 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $108.07 at 9:31 a.m. in Sydney.
The contract fell $1.66, or 1.5 percent, to $106.23 on Sept. 5, the lowest close since April 4 and its sixth straight decline. Oil fell 8 percent last week as Hurricane Gustav passed west of New Orleans with less strength than earlier forecast, and the euro dropped against the U.S. currency, reducing the appeal of dollar-priced commodities.
Gustav shut all the oil production and most of the gas output in the Gulf of Mexico, the biggest offshore producing region in the U.S. About 79.8 percent of the oil output and 70 percent of the gas was still shut-in yesterday, the U.S. Minerals Management Service said in a statement.
Ike Nears Gulf
Hurricane Ike has winds of almost 120 miles (195 kilometers) an hour and was about 75 miles north-northeast of Guantanamo, Cuba, as of 5 p.m. New York time, the National Hurricane center said. The Category 3 hurricane is projected to move west across Cuba and into the Gulf during the next two days on a path that may take it toward southern Texas.
Brent crude oil for October settlement rose $1.77, or 1.7 percent, to $105.86 a barrel on London's ICE Futures Europe exchange. The contract fell 2.1 percent to $104.09 on Sept. 5, the lowest settlement since April 3.
Oil reached a record in July as the falling dollar encouraged investors to buy commodities as a hedge against inflation. Brent has fallen 22 percent the past two months as slowing economies in Europe pulled the euro to a 10-month low against the dollar.
Oil's direction from here will depend on whether investors are worried or relieved by the U.S. rescue of Freddie Mac and Fannie Mae, Schork said.
``There is an inextricable link between the dollar and crude oil,'' he said. ``It all depends on how the market wants to value the dollar now and how the market interprets this move by the U.S. government.''
The dollar fell 0.5 percent in an index against six other major currencies at 8 a.m. in Tokyo, the first decline in eight sessions. It was at $1.4348 against the euro and 108.46 to the yen, from $1.4267 and 107.73 late in New York Sept. 5.
To contact the reporter on this story: Gavin Evans in Wellington at gavinevans@bloomberg.net
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Sept. 8 (Bloomberg) -- Crude oil rose from a five-month low in New York as the approach of Hurricane Ike delayed the restoration of production in the Gulf of Mexico.
Oil gained for the first time in seven sessions as producers including Royal Dutch Shell Plc evacuated workers from platforms in the Gulf or kept staff onshore who were moved from the path of Hurricane Gustav last month. Prices also rose after the U.S. government's seizure of Fannie Mae and Freddie Mac, backers of about half the nation's home loans, slowed a rally in the dollar.
``We've already gone a full week and a half with production shut in from Hurricane Gustav,'' Stephen Schork, president of Schork Group Inc., told Bloomberg television. ``Now everything has to be shut down again for at least another week.''
Crude oil for October delivery rose as much as $2.52, or 2.4 percent, to $108.75 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $108.07 at 9:31 a.m. in Sydney.
The contract fell $1.66, or 1.5 percent, to $106.23 on Sept. 5, the lowest close since April 4 and its sixth straight decline. Oil fell 8 percent last week as Hurricane Gustav passed west of New Orleans with less strength than earlier forecast, and the euro dropped against the U.S. currency, reducing the appeal of dollar-priced commodities.
Gustav shut all the oil production and most of the gas output in the Gulf of Mexico, the biggest offshore producing region in the U.S. About 79.8 percent of the oil output and 70 percent of the gas was still shut-in yesterday, the U.S. Minerals Management Service said in a statement.
Ike Nears Gulf
Hurricane Ike has winds of almost 120 miles (195 kilometers) an hour and was about 75 miles north-northeast of Guantanamo, Cuba, as of 5 p.m. New York time, the National Hurricane center said. The Category 3 hurricane is projected to move west across Cuba and into the Gulf during the next two days on a path that may take it toward southern Texas.
Brent crude oil for October settlement rose $1.77, or 1.7 percent, to $105.86 a barrel on London's ICE Futures Europe exchange. The contract fell 2.1 percent to $104.09 on Sept. 5, the lowest settlement since April 3.
Oil reached a record in July as the falling dollar encouraged investors to buy commodities as a hedge against inflation. Brent has fallen 22 percent the past two months as slowing economies in Europe pulled the euro to a 10-month low against the dollar.
Oil's direction from here will depend on whether investors are worried or relieved by the U.S. rescue of Freddie Mac and Fannie Mae, Schork said.
``There is an inextricable link between the dollar and crude oil,'' he said. ``It all depends on how the market wants to value the dollar now and how the market interprets this move by the U.S. government.''
The dollar fell 0.5 percent in an index against six other major currencies at 8 a.m. in Tokyo, the first decline in eight sessions. It was at $1.4348 against the euro and 108.46 to the yen, from $1.4267 and 107.73 late in New York Sept. 5.
To contact the reporter on this story: Gavin Evans in Wellington at gavinevans@bloomberg.net
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Economic Calendar Eco Data 9/8/08
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Australia Stocks Update: S&P/ASX 200 Rises 50.50 to 4,927.60
By Darren Boey
Sep. 8 (Bloomberg) -- Australia's benchmark stock index, the S&P/ASX 200 Index, rose 1.04 percent at 10:05 a.m.
The index of 200 companies traded on the Australian Stock Exchange rose 50.50 to 4,927.60. Among the stocks in the index, 84 rose, 30 fell and 86 were unchanged.
Gains in the S&P/ASX 200 Index were led by Commonwealth Bank Of Australia, Australia & New Zealand Banking Group Ltd and Macquarie Group Ltd. About 56.98 million shares changed hands on the Australian Stock Exchange.
Bhp Billiton Ltd, which rose 12 cents to A$37.12, was the most active stock by value in Australia.
The next most-active issues were Australia & New Zealand Banking Group Ltd, which rose 80 cents to A$17.06, and Commonwealth Bank Of Australia, which rose A$1.77 to A$43.36.
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Sep. 8 (Bloomberg) -- Australia's benchmark stock index, the S&P/ASX 200 Index, rose 1.04 percent at 10:05 a.m.
The index of 200 companies traded on the Australian Stock Exchange rose 50.50 to 4,927.60. Among the stocks in the index, 84 rose, 30 fell and 86 were unchanged.
Gains in the S&P/ASX 200 Index were led by Commonwealth Bank Of Australia, Australia & New Zealand Banking Group Ltd and Macquarie Group Ltd. About 56.98 million shares changed hands on the Australian Stock Exchange.
Bhp Billiton Ltd, which rose 12 cents to A$37.12, was the most active stock by value in Australia.
The next most-active issues were Australia & New Zealand Banking Group Ltd, which rose 80 cents to A$17.06, and Commonwealth Bank Of Australia, which rose A$1.77 to A$43.36.
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RBNZ September MPS Preview: OCR to be cut 25bp to 7.75%
| Daily Forex Fundamentals | Written by Westpac Institutional Bank | Sep 07 08 12:30 GMT | | |
| Taking it to the limit
A lot has changed since the June Monetary Policy Statement. And there has been one big change in particular: after taking great pains in June to signal a cautious approach to easing, the Reserve Bank cut the OCR in July and left the door wide open for further cuts over the rest of the year. What appears to have tipped the balance in July was a fear that higher funding costs, due to the global squeeze in credit markets, would lead to a de facto tightening in the absence of an official rate cut. Those fears didn't quite pan out - in fact the most popular fixed-term mortgage rates were actually cut in line with the drop in the OCR. But the RBNZ faces a similar issue this time: current market interest rates are predicated on a series of OCR cuts over the rest of this year, so a pause at this stage could send rates higher again. As a result, next week's decision looks relatively straightforward for the RBNZ: deliver the 25bp cut that the market is pricing in. The more difficult question is how the RBNZ proceeds from there. The domestic economy appears to be bottoming out, albeit at a lower level than expected. The RBNZ is counting on softer activity to reduce the pressure on inflation over the next few years, but they don't have a lot of room for error. As usual, in our discussion below we consider the key developments since June in terms of what they mean for inflation. Inflationary developmentsLower NZD: The RBNZ's comment in July that further rate cuts are likely on the condition that “there is no excessive exchange rate depreciation” was like a red rag to a bull for markets. The NZD has plunged more than 10% against the USD since then, fuelled by expectations of lower interest rates here and in Australia, concerns about the slowing global economy, and liquidation by Asian retail investors. The trade-weighted index is currently tracking about 4% below the RBNZ's projections, which will add to near-term inflation pressures. Oil prices: Calling oil an inflationary risk may seem odd when crude prices are more than 25% off their peak, but bear with us. In June, the RBNZ assumed that the Dubai crude price would average US$117 per barrel over the September quarter. Since then, it has been as high as $141 and as low as $103, but the average so far this quarter has been $121 (Figure 1). So despite the recent volatility in prices, oil is no lower than the RBNZ expected in US dollar terms - and certainly higher in NZD terms.
Even if the fall in world oil prices continues, cheaper fuel is not as disinflationary as it might seem. The New Zealand economy, like the rest of the world, has suffered a major cost shock as well as a slowdown in demand. The speed of the rise in fuel prices has severely curtailed households' purchasing power, and businesses haven't been able to fully pass on the increase in costs. So it follows that a reversal of the oil 'shock' could see activity bounce back much faster than the market expects. Petrol below $2/litre is something to cheer about only in a relative sense, but the impact is already showing up in surveys of consumer and business confidence. Strictly speaking, the RBNZ's forecasting model is neutral on oil, as lower prices reduce inflation in the near term but stronger activity adds to inflation further down the track. But the RBNZ is already counting on weak growth to take care of inflation for them over the medium term, so a sudden return to growth would be inconvenient from their point of view. Higher inflation peak: In June the RBNZ expected annual inflation to peak in the September quarter at 4.7%; in the July statement this was revised up to “about 5%”. Even with the fall in oil prices, we think their September forecast will still be around 5% - the upside surprise to the June CPI will have added 0.2% to their forecast, and the weaker currency has eroded most of the benefit of lower world oil prices. As always, the RBNZ has the ability to look through a nearterm inflation spike, but they need to address the second-round effects of higher inflation expectations. And that's where the problem lies: years of above-target inflation outcomes have seen expectations creep all the way up to the top of the 1-3% target range (Figure 2). The RBNZ has made a judgement that the passthrough from actual to expected inflation will be less than usual, due to the weaker growth picture. But they are taking a big risk if that judgement turns out to be wrong.
Labour market: Employment rose by 1.2% in the June quarter, reversing a 1.3% drop in the March quarter. The fall in Q1 had always looked strange at this stage of the cycle, and the RBNZ seems to have treated only half of it as genuine. But they would have been wary of the risk that the jobs market had turned much faster than usual. The latest figures have removed that risk - while employment was effectively flat in the first half of this year, it has been an orderly slowdown rather than the catastrophic one that the Q1 figures implied. Meanwhile, wage pressures have actually intensified. The June quarter Labour Cost Index record a 3.5% annual rise in wages, the fastest pace in the history of the series. The details showed that an increasing number of workers have been able to secure cost-of-living adjustments, and anecdotes suggest that skilled workers are successfully negotiating even more on top of that. Disinflationary developmentsGDP lower: In June the RBNZ expected GDP to grow 0.2% in Q2, following a 0.3% drop in Q1. But all of the indicators since then have suggested that Q2 was at least as tough as Q1 - we now expect the RBNZ to match our forecast of -0.5%. While this is 'history' in a sense, it means a lower starting point for activity than previously thought, and therefore less inflation pressure over the medium term. World growth weaker: Consensus forecasts for growth in New Zealand's major trading partners have been revised down further - especially for Australia, which the RBNZ has singled out in recent statements as a key pillar of support for New Zealand. The latest forecasts for world growth for calendar years 2008 and 2009 stand at 2.9% and 2.7% respectively, compared to 3.0% and 3.1% at the time of the June MPS. On top of this, markets are becoming more nervous about the prospect of a rapid slowdown in Asia. It's not clear if these economies are genuinely coming unstuck, or are just moderating after unsustainably rapid growth in recent years. The importance of this channel is difficult to judge. As in New Zealand, much of the slowdown in global growth can be traced to the food and energy price 'shock' hitting consumers and businesses. Indeed, Consensus forecasts of world inflation have been revised upward massively since June. We don't have a sense of how much influence this will have on the RBNZ's forecasts - it's simply never been an issue before. Weaker global growth may not reduce NZ inflation, if that weaker growth has been caused by inflation. Credit crunch: Global credit markets have shown no signs of improvement in recent months, and the premium paid for offshore funding remains unusually high. The RBNZ's data, as originally published in July, suggested that banks' average funding costs had risen an alarming 20bp in the space of two months, independently of any official rate changes (Figure 3). The data also indicated that lending margins had been squeezed to record lows, implying that lenders had yet to pass on the latest increase in funding costs.
But here the plot thickens. The corrected figures published in August tell a different story: the sharp rise in the cost of funding has been virtually revised away! Funding costs have certainly risen since the credit crunch began last year, but there has been no real deterioration since January - ditto for lending margins. So this raises an intriguing question: did Dr Bollard get a bum steer in July? Forecast detailsThe RBNZ's growth forecasts for this year will be weaker than in the June MPS, mostly due to the shortfall in Q2 growth. Consumers were already projected to be flat on their backs for several years, and that's where the RBNZ wants them to be in order to ease domestic inflation pressures. If anything, growth forecasts for 2009 and beyond could be a touch higher. Despite the weaker near-term growth outlook, the inflation profile could be at least as high as in June. The RBNZ doesn't have much wiggle room around the upper edge of their inflation target, but recent comments suggest that they intend to use it all. Their June projections had inflation remaining above 3% until 2010, and only reaching 2.6% by the end of their forecast window three years ahead - a margin that they described as “comfortable” (Figure 4). But the July statement dropped the word “comfortable”, and in a radio interview Dr Bollard said that he expected to “only just” meet his inflation target. Admittedly these statements were made when oil was closer to $130 a barrel, but there's no reason why oil prices today should have any bearing on inflation forecasts three years ahead. It seems instead that the RBNZ has decided to stretch their definition of price stability to its very limit, in order to deliver rate cuts now. It's worth noting that some of the RBNZ's previous inflation bugbears are starting to rear their heads again. Recent signs are that the costs of the Emissions Trading Scheme may be substantially higher than the RBNZ has budgeted for, and there are indications of even more fiscal slippage after the election later this year. All up, this points to a significant change to the 90-day rate projections. The June MPS implied a gradual pace of easing, no more than one cut every quarter at first, with more in the later years once the RBNZ could be more confident that inflation was returning to the target band. But the fact that they have already started cutting means that the timing of the easing cycle will need to be brought well forward. We estimate that the developments since June are worth an additional 25bp of easing in the RBNZ's forecasting model - and this was already delivered in July. The 90-day rate projections will be revised to incorporate an earlier easing cycle, but not necessarily a deeper one. SummaryWe expect the RBNZ will broadly endorse market expectations of further rate cuts this year, without committing themselves to cuts at every review. We don't think that the condition of “no excessive exchange rate depreciation” has been breached yet - though if the currency continues to fall at its recent pace, a pause at the October or December reviews is certainly on the cards. The RBNZ still faces a difficult balance between slow growth and high inflation - and markets clearly have no intention of making life easier for them. We don't share the RBNZ's confidence that softer growth will take care of the inflation problem, and as signs of growth start to emerge going into 2009 - it will be grumpy growth, with some sectors benefiting far earlier than others, but growth nevertheless - the RBNZ is going to have to return to tackling inflation head-on. We still expect the OCR to be reduced to 7.00% by early next year, a much higher 'trough' than in previous easing cycles.
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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Economic Calendar Summary 9/7 - 9/12
Sunday, Sep 7, 2008
Monday, Sep 8, 2008
Tuesday, Sep 9, 2008
Wednesday, Sep 10, 2008
Thursday, Sep 11, 2008
Friday, Sep 12, 2008
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Saturday, September 6, 2008
Hanna Heads Toward U.S. East Coast as Hurricane Ike Looms
By Demian McLean
Sept. 6 (Bloomberg) -- Tropical Storm Hanna neared hurricane strength and threatened to batter the U.S. East Coast with heavy winds and rain, while Hurricane Ike charted a path from open sea toward the Caribbean.
Hanna, with winds of 70 miles (113 kilometers) per hour, was centered 60 miles east-southeast of Charleston, South Carolina, the U.S. National Hurricane Center said at 11 p.m. Miami time yesterday.
``People have battened down things that could get blown around,'' said Mark Kruea, a spokesman for the City of Myrtle Beach, South Carolina. ``It's a good tune-up to ward off complacency about other storms, including Ike, which has the potential to be really scary.''
Hanna is expected to move across eastern North Carolina early today, then move along the mid-atlantic coast later, dumping as much as 7 inches (18 centimeters) of rain by tonight on New York City and Washington, where a tropical storm warnings have been issued.
Although no significant change in strength is forecast before landfall, it would only take a small increase in wind speed for Hanna to become a hurricane, the center said. Weakening is expected after landfall and Hanna should become an extratropical storm early tomorrow.
Hanna devastated Haiti, which was also hit by Hurricane Gustav and Tropical Storm Fay in the past month. The latest storm killed about 495 people, MSNBC News said on its Web site yesterday, citing Haiti's police commissioner.
Up to 600,000 people may need assistance in Haiti, according to the United Nations humanitarian affairs chief John Holmes.
Stockpiling Food
Across the border, North Carolina Governor Mike Easley declared a state of emergency in preparation for Hanna and Hurricane Ike, which is forecast to hit the U.S. East Coast within a week. North Carolina put 12 water-rescue crews, 270 members of the National Guard and 144 Highway Patrol troopers on standby.
The state's Department of Crime Control and Public Safety in Raleigh was advising people to store three to five days' worth of food and water, and to stay off the roads during the storm.
Amtrak canceled some East Coast rail service as the storm approached. New York urged construction sites to halt crane operations and asked residents to bring in lawn furniture and remove satellite dishes.
A tropical-storm warning stretched from Georgia to New Jersey, the National Weather Service said. Winds may blow at 39 mph or faster amid heavy rains.
Nascar Postpones Race
Nascar postponed its race at Richmond International Raceway in the top Sprint Cup Series until at least Sept. 7 because Hanna is threatening the central Virginia track. The track will be shut until then, Richmond International Raceway president Doug Fritz said at a press conference.
More than 110,000 people were expected to attend tomorrow's Sprint Cup event. The 800-acre complex has more than 1,000 camping spots that were filled with everything from tents to the $1 million-plus motor coaches used by the race teams. Recreational vehicles will be allowed to remain on the site, Fritz said.
Fans camped in tents were undeterred by the prospect of rain or flooding.
``We're here for the duration,'' said David Soule, a 39- year-old fast-food worker who drove 12 hours from Dansville, Michigan, for the race. ``We're used to snow and sleet. This rain and wind is nothing.''
Ike Churns at Sea
Out at sea, Ike churned as a Category 3 hurricane, the middle of the five-step Saffir-Simpson scale, with sustained winds of 115 mph and higher gusts.
The system was about 360 miles east-northeast of Grand Turk Island, and moving toward the west-southwest. On that track, the center predicts Ike will pass near or over the Turks and Caicos Islands and the southeast Bahamas later today or early tomorrow. Ike is expected to be a major hurricane as it nears the Bahamas.
Hanna ripped shingles from roofs and flooded streets as it blew through the Bahamas this week with winds of 65 mph, said Stephen Russell, commander of the National Emergency Management Agency.
``We're mindful that what's coming is twice as strong'' as Hanna, Russell said by phone from Nassau. ``We know the devastation hurricanes such as Ike can bring.''
Residents in the southeast Bahamas -- where Ike is expected to land -- were warned to watch for storm surges, which could measure 18 feet (5.4 meters), he said. Shelters, emptied after Hanna's departure, will be reopened.
Andrew, a Category 5 hurricane, killed at least four people and caused $250 million in damage when it tore through island country in 1992. Storm winds topped 155 mph.
To the east of Ike, Tropical Storm Josephine weakened Further to a tropical depression, with sustained winds of 35 mph. It was about 785 miles west of the west of the Cape Verde Islands and moving west-northwest.
FEMA and American Red Cross officials said they will be able to respond effectively to Hanna, Ike and Josephine.
To contact the reporter on this story: Demian McLean in Washington at dmclean8@bloomberg.net.
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Sept. 6 (Bloomberg) -- Tropical Storm Hanna neared hurricane strength and threatened to batter the U.S. East Coast with heavy winds and rain, while Hurricane Ike charted a path from open sea toward the Caribbean.
Hanna, with winds of 70 miles (113 kilometers) per hour, was centered 60 miles east-southeast of Charleston, South Carolina, the U.S. National Hurricane Center said at 11 p.m. Miami time yesterday.
``People have battened down things that could get blown around,'' said Mark Kruea, a spokesman for the City of Myrtle Beach, South Carolina. ``It's a good tune-up to ward off complacency about other storms, including Ike, which has the potential to be really scary.''
Hanna is expected to move across eastern North Carolina early today, then move along the mid-atlantic coast later, dumping as much as 7 inches (18 centimeters) of rain by tonight on New York City and Washington, where a tropical storm warnings have been issued.
Although no significant change in strength is forecast before landfall, it would only take a small increase in wind speed for Hanna to become a hurricane, the center said. Weakening is expected after landfall and Hanna should become an extratropical storm early tomorrow.
Hanna devastated Haiti, which was also hit by Hurricane Gustav and Tropical Storm Fay in the past month. The latest storm killed about 495 people, MSNBC News said on its Web site yesterday, citing Haiti's police commissioner.
Up to 600,000 people may need assistance in Haiti, according to the United Nations humanitarian affairs chief John Holmes.
Stockpiling Food
Across the border, North Carolina Governor Mike Easley declared a state of emergency in preparation for Hanna and Hurricane Ike, which is forecast to hit the U.S. East Coast within a week. North Carolina put 12 water-rescue crews, 270 members of the National Guard and 144 Highway Patrol troopers on standby.
The state's Department of Crime Control and Public Safety in Raleigh was advising people to store three to five days' worth of food and water, and to stay off the roads during the storm.
Amtrak canceled some East Coast rail service as the storm approached. New York urged construction sites to halt crane operations and asked residents to bring in lawn furniture and remove satellite dishes.
A tropical-storm warning stretched from Georgia to New Jersey, the National Weather Service said. Winds may blow at 39 mph or faster amid heavy rains.
Nascar Postpones Race
Nascar postponed its race at Richmond International Raceway in the top Sprint Cup Series until at least Sept. 7 because Hanna is threatening the central Virginia track. The track will be shut until then, Richmond International Raceway president Doug Fritz said at a press conference.
More than 110,000 people were expected to attend tomorrow's Sprint Cup event. The 800-acre complex has more than 1,000 camping spots that were filled with everything from tents to the $1 million-plus motor coaches used by the race teams. Recreational vehicles will be allowed to remain on the site, Fritz said.
Fans camped in tents were undeterred by the prospect of rain or flooding.
``We're here for the duration,'' said David Soule, a 39- year-old fast-food worker who drove 12 hours from Dansville, Michigan, for the race. ``We're used to snow and sleet. This rain and wind is nothing.''
Ike Churns at Sea
Out at sea, Ike churned as a Category 3 hurricane, the middle of the five-step Saffir-Simpson scale, with sustained winds of 115 mph and higher gusts.
The system was about 360 miles east-northeast of Grand Turk Island, and moving toward the west-southwest. On that track, the center predicts Ike will pass near or over the Turks and Caicos Islands and the southeast Bahamas later today or early tomorrow. Ike is expected to be a major hurricane as it nears the Bahamas.
Hanna ripped shingles from roofs and flooded streets as it blew through the Bahamas this week with winds of 65 mph, said Stephen Russell, commander of the National Emergency Management Agency.
``We're mindful that what's coming is twice as strong'' as Hanna, Russell said by phone from Nassau. ``We know the devastation hurricanes such as Ike can bring.''
Residents in the southeast Bahamas -- where Ike is expected to land -- were warned to watch for storm surges, which could measure 18 feet (5.4 meters), he said. Shelters, emptied after Hanna's departure, will be reopened.
Andrew, a Category 5 hurricane, killed at least four people and caused $250 million in damage when it tore through island country in 1992. Storm winds topped 155 mph.
To the east of Ike, Tropical Storm Josephine weakened Further to a tropical depression, with sustained winds of 35 mph. It was about 785 miles west of the west of the Cape Verde Islands and moving west-northwest.
FEMA and American Red Cross officials said they will be able to respond effectively to Hanna, Ike and Josephine.
To contact the reporter on this story: Demian McLean in Washington at dmclean8@bloomberg.net.
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Paulson Plans to Bring Fannie, Freddie Under Government Control
By Alison Vekshin and Dawn Kopecki
Sept. 6 (Bloomberg) -- Treasury Secretary Henry Paulson is preparing to announce plans to bring Fannie Mae and Freddie Mac under government control, seeking to halt the crisis of confidence in the companies that make up almost half the U.S. mortgage market.
Paulson met with Fannie Mae Chief Executive Officer Daniel Mudd and Freddie Mac CEO Richard Syron yesterday to brief them on the decision to put the companies into a conservatorship, where they would be removed from their jobs, according to a person briefed on the discussions. A public announcement is expected this weekend, the person said.
The decision follows the Treasury chief's repeated comments to lawmakers in July that he wasn't likely to use taxpayer funds to prop up the federally chartered, shareholder-owned firms hit by $14.9 billion in losses the past year. The shares of both companies slid since Paulson won powers to inject unlimited funds in the companies, and their borrowing costs rose.
Pacific Investment Management Co., manager of the world's biggest bond fund, and other large investors may put in their own money once the Treasury decides to inject government funds, said Newport Beach, California-based Pimco fund manager Bill Gross, in a Bloomberg Television interview.
``They have to open their wallet,'' Gross said, predicting that the Treasury will act this weekend before the Federal Housing Finance Agency releases an assessment of Fannie's and Freddie's capital.
Briefing Campaigns
Paulson gathered with Federal Reserve Chairman Ben S. Bernanke, FHFA director James Lockhart, Syron and Mudd in Washington. The Treasury plans to brief Democratic presidential candidate Barack Obama's campaign team today and has contacted Republican contender John McCain's staff about its intentions.
The meetings come a month after Paulson hired Morgan Stanley to advise on any use of taxpayer funds to recapitalize Fannie and Freddie, which account for almost half of the $12 trillion mortgage market. A government takeover would be the latest attempt to blunt the impact of the yearlong credit crisis, after the Fed provided financing for Bear Stearns Cos.'s takeover by JPMorgan Chase & Co.
Washington-based Fannie and Freddie dropped in after-hours trading. Fannie fell $2.25, or 32 percent, to $4.79 at 5:50 p.m. in New York Stock Exchange trading and Freddie slumped $1.40, or 27 percent, to $3.70.
Shareholder Fate
The Washington Post reported that the government would make quarterly injections of funds as the companies' losses warranted, avoiding a large up-front taxpayer cost, citing sources it didn't name. Debt and preferred shares would be protected, and common stock would be diluted while not wiped out, the Post said.
The New York Times said most or all of both the common and preferred shares would be worth little or nothing.
``We are making progress on our work with Morgan Stanley, FHFA and the Fed,'' Treasury spokeswoman Brookly Mclaughlin said yesterday in Washington, declining to comment on any specific plans. FHFA spokeswoman Stefanie Mullin declined to comment, as did Mark Lake at Morgan Stanley.
Bernanke participated in yesterday's meetings because the central bank was given a consultative role in overseeing Fannie's and Freddie's capital under legislation approved in July. Paulson's decision won the approval of Bernanke and Lockhart, the person briefed on the discussions said.
The FHFA has the authority to place Fannie or Freddie into conservatorships or receiverships under the law. The legislation that President George W. Bush signed July 30 also gave the Treasury the power through the end of next year to extend unlimited credit to or make equity purchases in the firms.
Conserve Assets
Under a conservatorship, the authorities would aim to preserve Fannie and Freddie assets, rather than dispose of them, the law says.
The FHFA was scheduled to release its assessment of the companies' capital levels as early as this week as part of a quarterly appraisal of their finances.
Analysts have speculated that the Treasury would wipe out common shareholders, while seeking to shield preferred stockowners from total loss. Fannie and Freddie preferred shares are typically owned by banks and insurance companies. Their $5.2 trillion of debt outstanding is held by investors including Asian central banks, and would probably be guaranteed, analysts said.
``Treasury's main concern is the debt markets, and if it was to say that it will do whatever is necessary to keep Fannie and Freddie running, the better it is for their funding,'' said Alex Pollock, fellow at the American Enterprise Institute in Washington and former president of the Chicago Federal Home Loan Bank.
The two companies need to sell billions of dollars of bonds each month to pay off maturing debt, and have continued to issue securities this week.
Losses Mount
Fannie and Freddie have reported $14.9 billion in net losses for the past four quarters as loan delinquencies rose. Fannie had $47 billion of capital as of June 30, according to company filings. The company is required by its regulator to hold $37.5 billion. Freddie's capital stood at $37.1 billion, compared with a requirement of $34.5 billion, filings show.
Mudd was accompanied in his meetings at FHFA yesterday by Fannie General Counsel Beth Wilkinson and Chairman Stephen Ashley. Last week, he shook up the company's management in an effort to restore investor confidence, replacing three top deputies.
The market capitalizations of Fannie and Freddie slid with their shares this year as investors lost confidence in their ability to offset losses. Fannie's is now $7.6 billion, down from $38.9 billion at the end of last year. Freddie's has fallen to $3.3 billion, from $22 billion over the same period.
Fannie Mae was created in 1938 as part of President Franklin D. Roosevelt's New Deal plan. With the Vietnam War pressuring the federal budget, Fannie Mae was split from the government in 1968, and shares in the company were sold to the public. Freddie Mac was created in 1970 to provide competition for Fannie Mae.
To contact the reporter on this story: John Brinsley in Washington at jbrinsley@bloomberg.net; Dawn Kopecki in Washington at dkopecki@bloomberg.net.
Read more...
Sept. 6 (Bloomberg) -- Treasury Secretary Henry Paulson is preparing to announce plans to bring Fannie Mae and Freddie Mac under government control, seeking to halt the crisis of confidence in the companies that make up almost half the U.S. mortgage market.
Paulson met with Fannie Mae Chief Executive Officer Daniel Mudd and Freddie Mac CEO Richard Syron yesterday to brief them on the decision to put the companies into a conservatorship, where they would be removed from their jobs, according to a person briefed on the discussions. A public announcement is expected this weekend, the person said.
The decision follows the Treasury chief's repeated comments to lawmakers in July that he wasn't likely to use taxpayer funds to prop up the federally chartered, shareholder-owned firms hit by $14.9 billion in losses the past year. The shares of both companies slid since Paulson won powers to inject unlimited funds in the companies, and their borrowing costs rose.
Pacific Investment Management Co., manager of the world's biggest bond fund, and other large investors may put in their own money once the Treasury decides to inject government funds, said Newport Beach, California-based Pimco fund manager Bill Gross, in a Bloomberg Television interview.
``They have to open their wallet,'' Gross said, predicting that the Treasury will act this weekend before the Federal Housing Finance Agency releases an assessment of Fannie's and Freddie's capital.
Briefing Campaigns
Paulson gathered with Federal Reserve Chairman Ben S. Bernanke, FHFA director James Lockhart, Syron and Mudd in Washington. The Treasury plans to brief Democratic presidential candidate Barack Obama's campaign team today and has contacted Republican contender John McCain's staff about its intentions.
The meetings come a month after Paulson hired Morgan Stanley to advise on any use of taxpayer funds to recapitalize Fannie and Freddie, which account for almost half of the $12 trillion mortgage market. A government takeover would be the latest attempt to blunt the impact of the yearlong credit crisis, after the Fed provided financing for Bear Stearns Cos.'s takeover by JPMorgan Chase & Co.
Washington-based Fannie and Freddie dropped in after-hours trading. Fannie fell $2.25, or 32 percent, to $4.79 at 5:50 p.m. in New York Stock Exchange trading and Freddie slumped $1.40, or 27 percent, to $3.70.
Shareholder Fate
The Washington Post reported that the government would make quarterly injections of funds as the companies' losses warranted, avoiding a large up-front taxpayer cost, citing sources it didn't name. Debt and preferred shares would be protected, and common stock would be diluted while not wiped out, the Post said.
The New York Times said most or all of both the common and preferred shares would be worth little or nothing.
``We are making progress on our work with Morgan Stanley, FHFA and the Fed,'' Treasury spokeswoman Brookly Mclaughlin said yesterday in Washington, declining to comment on any specific plans. FHFA spokeswoman Stefanie Mullin declined to comment, as did Mark Lake at Morgan Stanley.
Bernanke participated in yesterday's meetings because the central bank was given a consultative role in overseeing Fannie's and Freddie's capital under legislation approved in July. Paulson's decision won the approval of Bernanke and Lockhart, the person briefed on the discussions said.
The FHFA has the authority to place Fannie or Freddie into conservatorships or receiverships under the law. The legislation that President George W. Bush signed July 30 also gave the Treasury the power through the end of next year to extend unlimited credit to or make equity purchases in the firms.
Conserve Assets
Under a conservatorship, the authorities would aim to preserve Fannie and Freddie assets, rather than dispose of them, the law says.
The FHFA was scheduled to release its assessment of the companies' capital levels as early as this week as part of a quarterly appraisal of their finances.
Analysts have speculated that the Treasury would wipe out common shareholders, while seeking to shield preferred stockowners from total loss. Fannie and Freddie preferred shares are typically owned by banks and insurance companies. Their $5.2 trillion of debt outstanding is held by investors including Asian central banks, and would probably be guaranteed, analysts said.
``Treasury's main concern is the debt markets, and if it was to say that it will do whatever is necessary to keep Fannie and Freddie running, the better it is for their funding,'' said Alex Pollock, fellow at the American Enterprise Institute in Washington and former president of the Chicago Federal Home Loan Bank.
The two companies need to sell billions of dollars of bonds each month to pay off maturing debt, and have continued to issue securities this week.
Losses Mount
Fannie and Freddie have reported $14.9 billion in net losses for the past four quarters as loan delinquencies rose. Fannie had $47 billion of capital as of June 30, according to company filings. The company is required by its regulator to hold $37.5 billion. Freddie's capital stood at $37.1 billion, compared with a requirement of $34.5 billion, filings show.
Mudd was accompanied in his meetings at FHFA yesterday by Fannie General Counsel Beth Wilkinson and Chairman Stephen Ashley. Last week, he shook up the company's management in an effort to restore investor confidence, replacing three top deputies.
The market capitalizations of Fannie and Freddie slid with their shares this year as investors lost confidence in their ability to offset losses. Fannie's is now $7.6 billion, down from $38.9 billion at the end of last year. Freddie's has fallen to $3.3 billion, from $22 billion over the same period.
Fannie Mae was created in 1938 as part of President Franklin D. Roosevelt's New Deal plan. With the Vietnam War pressuring the federal budget, Fannie Mae was split from the government in 1968, and shares in the company were sold to the public. Freddie Mac was created in 1970 to provide competition for Fannie Mae.
To contact the reporter on this story: John Brinsley in Washington at jbrinsley@bloomberg.net; Dawn Kopecki in Washington at dkopecki@bloomberg.net.
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Asian Currencies Fall in Week, Led by Won, on Capital Outflows
By Anil Varma and Kim Kyoungwha
Sept. 6 (Bloomberg) -- Asian currencies had a weekly decline, led by South Korea's won and Indonesia's rupiah, on signs investors are dumping emerging-market assets as a deepening U.S. slowdown threatens to damp global growth.
The won fell for a sixth week, the longest losing streak since 2001, as global funds sold local stocks and a central bank report confirmed yesterday that Asia's fourth-biggest economy expanded at the slowest pace in more than a year.
``Market players are cautious about unrest in global financial markets, which is strengthening sentiment for the dollar,'' said Kim Sung Soon, a currency dealer with Industrial Bank of Korea in Seoul. ``Importers' deals and stock sales are knocking the wind out of the won.''
The currency fell 2.6 percent to 1,117.80 per dollar this week in Seoul, according to Seoul Money Brokerage Services Ltd. It rose 1 percent yesterday. It is the worst performer among the 10 most-active Asian currencies outside of Japan this year, with a 16.6 percent loss.
The won's slide this year, the steepest since at least 2000, sparked speculation South Korea may witness a repeat of 1997, when the currency lost half its value and the country turned to the International Monetary Fund to help companies repay debt. UBS AG and ABN Amro Bank NV this week predicted investors will continue selling the currency, betting the economy will falter.
Enough Reserves
``There is no need to be dispirited by assuming a very bad scenario,'' Bank of Korea Governor Lee Seong Tae told lawmakers on Sept. 4, adding the credit crunch is a ``global phenomenon.'' Lee said the central bank has enough foreign-currency reserves to help protect the economy from external shocks.
Gross domestic product grew 4.8 percent in the second quarter from a year earlier, the central bank said yesterday.
The currency extended a rebound from near a four-year low yesterday on speculation the Bank of Korea bought the won to stem losses. Central banks intervene in currency markets by arranging sales or purchase of foreign exchange.
Indonesia's rupiah had its worst week since June 2007 as the Jakarta Composite Index plunged to a one-year low yesterday. Foreigners were net sellers of Indonesian equities this month. The Philippine peso completed a sixth weekly loss as the local benchmark stock index declined 1.1 percent yesterday, the biggest drop since Aug. 19.
Paring Holdings
``Risk aversion is making investors pare holdings of commodities and stocks and cutting down exposures to emerging markets,'' said Enrico Tanuwidjaja, an economist at Oversea- Chinese Banking Corp. in Singapore.
The rupiah weakened 1.3 percent yesterday and 2.4 percent through the week to 9,375 to the dollar, according to data compiled by Bloomberg. The peso fell 2 percent this week to 46.833 in Manila, according to Tullett Prebon Plc. It weakened 0.7 percent yesterday.
Malaysia's ringgit fell to the lowest level in almost a year as investors reduced their holdings of local assets on signs an economic slowdown is spreading beyond the U.S.
The currency completed its worst week in 15 months as the MSCI Asia-Pacific Index of shares fell for a fifth day and political turmoil in Malaysia and Thailand escalated.
``The political-risk premium has increased in the region, so that's not helping,'' said Suresh Kumar Ramanathan, a strategist at CIMB Investment Bank Bhd. in Kuala Lumpur.
The ringgit fell 1.9 percent this week to 3.4595 per dollar in Kuala Lumpur, Bloomberg data show. It dropped 0.8 percent yesterday. The Thai baht weakened 1 percent to 34.59 in Bangkok, with yesterday's loss at 0.5 percent.
Protests, Referendum
Malaysian Prime Minister Abdullah Ahmad Badawi said on Sept. 4 the ringgit's decline hasn't ``reached a worrying level.''
Thailand plans to hold a referendum on how to end an impasse after protesters seeking to oust Prime Minister Samak Sundaravej occupied Government House in Bangkok. Samak said on Sept. 4 he won't step down. Malaysian opposition leader Anwar Ibrahim has pledged to topple Abdullah's government by Sept. 16 through defections by lawmakers.
Elsewhere, the Singapore dollar declined 1.7 percent this week to S$1.4382 against the U.S. currency and the Taiwan dollar slid 1.1 percent to NT$31.875. India's rupee weakened 1.7 percent to 44.66 and Vietnam's dong slipped 0.4 percent to 16,595.
To contact the reporter on this story: Anil Varma in Mumbai at avarma3@bloomberg.net; Kim Kyoungwha in Beijing at kkim19@bloomberg.net
Read more...
Sept. 6 (Bloomberg) -- Asian currencies had a weekly decline, led by South Korea's won and Indonesia's rupiah, on signs investors are dumping emerging-market assets as a deepening U.S. slowdown threatens to damp global growth.
The won fell for a sixth week, the longest losing streak since 2001, as global funds sold local stocks and a central bank report confirmed yesterday that Asia's fourth-biggest economy expanded at the slowest pace in more than a year.
``Market players are cautious about unrest in global financial markets, which is strengthening sentiment for the dollar,'' said Kim Sung Soon, a currency dealer with Industrial Bank of Korea in Seoul. ``Importers' deals and stock sales are knocking the wind out of the won.''
The currency fell 2.6 percent to 1,117.80 per dollar this week in Seoul, according to Seoul Money Brokerage Services Ltd. It rose 1 percent yesterday. It is the worst performer among the 10 most-active Asian currencies outside of Japan this year, with a 16.6 percent loss.
The won's slide this year, the steepest since at least 2000, sparked speculation South Korea may witness a repeat of 1997, when the currency lost half its value and the country turned to the International Monetary Fund to help companies repay debt. UBS AG and ABN Amro Bank NV this week predicted investors will continue selling the currency, betting the economy will falter.
Enough Reserves
``There is no need to be dispirited by assuming a very bad scenario,'' Bank of Korea Governor Lee Seong Tae told lawmakers on Sept. 4, adding the credit crunch is a ``global phenomenon.'' Lee said the central bank has enough foreign-currency reserves to help protect the economy from external shocks.
Gross domestic product grew 4.8 percent in the second quarter from a year earlier, the central bank said yesterday.
The currency extended a rebound from near a four-year low yesterday on speculation the Bank of Korea bought the won to stem losses. Central banks intervene in currency markets by arranging sales or purchase of foreign exchange.
Indonesia's rupiah had its worst week since June 2007 as the Jakarta Composite Index plunged to a one-year low yesterday. Foreigners were net sellers of Indonesian equities this month. The Philippine peso completed a sixth weekly loss as the local benchmark stock index declined 1.1 percent yesterday, the biggest drop since Aug. 19.
Paring Holdings
``Risk aversion is making investors pare holdings of commodities and stocks and cutting down exposures to emerging markets,'' said Enrico Tanuwidjaja, an economist at Oversea- Chinese Banking Corp. in Singapore.
The rupiah weakened 1.3 percent yesterday and 2.4 percent through the week to 9,375 to the dollar, according to data compiled by Bloomberg. The peso fell 2 percent this week to 46.833 in Manila, according to Tullett Prebon Plc. It weakened 0.7 percent yesterday.
Malaysia's ringgit fell to the lowest level in almost a year as investors reduced their holdings of local assets on signs an economic slowdown is spreading beyond the U.S.
The currency completed its worst week in 15 months as the MSCI Asia-Pacific Index of shares fell for a fifth day and political turmoil in Malaysia and Thailand escalated.
``The political-risk premium has increased in the region, so that's not helping,'' said Suresh Kumar Ramanathan, a strategist at CIMB Investment Bank Bhd. in Kuala Lumpur.
The ringgit fell 1.9 percent this week to 3.4595 per dollar in Kuala Lumpur, Bloomberg data show. It dropped 0.8 percent yesterday. The Thai baht weakened 1 percent to 34.59 in Bangkok, with yesterday's loss at 0.5 percent.
Protests, Referendum
Malaysian Prime Minister Abdullah Ahmad Badawi said on Sept. 4 the ringgit's decline hasn't ``reached a worrying level.''
Thailand plans to hold a referendum on how to end an impasse after protesters seeking to oust Prime Minister Samak Sundaravej occupied Government House in Bangkok. Samak said on Sept. 4 he won't step down. Malaysian opposition leader Anwar Ibrahim has pledged to topple Abdullah's government by Sept. 16 through defections by lawmakers.
Elsewhere, the Singapore dollar declined 1.7 percent this week to S$1.4382 against the U.S. currency and the Taiwan dollar slid 1.1 percent to NT$31.875. India's rupee weakened 1.7 percent to 44.66 and Vietnam's dong slipped 0.4 percent to 16,595.
To contact the reporter on this story: Anil Varma in Mumbai at avarma3@bloomberg.net; Kim Kyoungwha in Beijing at kkim19@bloomberg.net
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Taiwan Cabinet Plans Stock-Boosting Measures, United Daily Says
By Yu-huay Sun
Sept. 6 (Bloomberg) -- Taiwan's Cabinet will propose measures to boost stocks at its next weekly meeting on Sept. 11, the United Daily News reported, citing Vice Premier Paul Chiu.
Possible steps include cutting the securities transaction tax, narrowing the permitted range for daily stock-price fluctuations, and increasing government subsidies on some mortgage loans, the Taipei-based, Chinese-language newspaper said, without saying where it obtained the information.
Taiwan's Taiex index declined 1.6 percent yesterday, falling for a fifth day to its lowest since July 19, 2006. The measure has dropped 26 percent this year.
To contact the reporter on the story: Yu-huay Sun in Taipei ysun7@bloomberg.net
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Sept. 6 (Bloomberg) -- Taiwan's Cabinet will propose measures to boost stocks at its next weekly meeting on Sept. 11, the United Daily News reported, citing Vice Premier Paul Chiu.
Possible steps include cutting the securities transaction tax, narrowing the permitted range for daily stock-price fluctuations, and increasing government subsidies on some mortgage loans, the Taipei-based, Chinese-language newspaper said, without saying where it obtained the information.
Taiwan's Taiex index declined 1.6 percent yesterday, falling for a fifth day to its lowest since July 19, 2006. The measure has dropped 26 percent this year.
To contact the reporter on the story: Yu-huay Sun in Taipei ysun7@bloomberg.net
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Asian Stocks Post Biggest Weekly Slump in 13 Months; BHP Drops
By Chen Shiyin
Sept. 6 (Bloomberg) -- Asian stocks fell, driving the region's benchmark index to its largest weekly drop in 13 months, on concern that slowing global economic growth will dent demand for raw materials and other goods.
BHP Billiton Ltd. and Cnooc Ltd. plunged more than 10 percent this week after metal and crude oil prices tumbled. LG Electronics Inc., the world's No. 3 television maker, dropped 7.4 percent after a slump in South Korea's overseas shipments sparked fears of an economic slowdown. Hon Hai Precision Industry Co. lost 11 percent, leading technology companies lower, following its first earnings decrease in seven years and as U.S. consumer spending waned and jobless claims increased.
``It's been a painful last couple of months,'' said Ivan Leung, Hong Kong-based chief investment strategist at JPMorgan Private Bank, which oversees $400 billion in assets globally. ``The economic uncertainty means there'll be massive pressure on commodity stocks in the short term.''
The MSCI Asia Pacific Index dropped 6.7 percent to 116.85, the biggest slump since the five days ended Aug. 17, 2007. All 10 industry groups retreated, with measures tracking energy and mining companies posting the biggest losses.
The regional gauge has dropped 26 percent this year to the lowest since June 13, 2006, as soaring fuel prices damped consumer spending and eroded corporate profits, while writedowns and credit losses at the world's largest financial companies topped $500 billion.
Japan's Nikkei 200 Stock Average fell 6.6 percent to 12,212.23, while the Kospi index dropped 4.7 percent in South Korea. Hong Kong's Hang Seng Index plunged 6.3 percent to close below 20,000 for the first time since April 2007. Thailand's SET Index tumbled 5.7 percent after Prime Minister Samak Sundaravej declared a state of emergency.
Metals, Oil
BHP, the world's largest mining company, tumbled 11 percent to A$37, its largest weekly loss since the five days ended March 21. Rio Tinto Group, the third-biggest mining company, retreated 14 percent to A$110.80.
A measure of six metals traded on the London Metal Exchange dropped 6.5 percent as the slowdown in the OECD deepened, adding to speculation that world demand will ease. Meanwhile, crude oil for October delivery retreated 8.0 percent this week to $106.23 a barrel in New York, the lowest since April 4.
Cnooc, China's largest offshore oil explorer, lost 13 percent to HK$10.44 in Hong Kong. Inpex Holdings Inc., Japan's biggest oil explorer, declined 13 percent to 1.03 million yen.
No Place to Hide
``There no place to hide within Asia right now,'' said Beat Lenherr, who oversees more than $20 billion of assets as Singapore-based chief global strategist at LGT Capital Management. ``We're cautious on the commodities sector given there is an intermediate peak in oil prices, which will put a lid on energy-related stocks.''
LG Electronics fell 6.8 percent to 94,600 won, its third straight weekly retreat. South Korean exports, which make up more than half of gross domestic product, rose 20.6 percent in August from a year earlier, missing the 23.3 percent median estimate of economists surveyed by Bloomberg News.
Speculation that investors are avoiding the nation's assets as economic growth falters sent South Korea's won down by 2.6 percent this week, its biggest weekly loss since August 1998. The rout in share prices and the currency prompted finance ministry officials to say that rumors the country is facing a financial crisis are groundless.
Kookmin Bank, South Korea's largest bank, fell 6.5 percent to 56,000 won. Woori Finance Holdings Co., which controls the nation's second-largest bank, plunged 9.3 percent to 13,100 won.
Hon Hai, Elpida
Hon Hai, the world's largest contract manufacturer for customers including Apple Inc. and Dell Inc., tumbled 11 percent to NT$143, its biggest weekly loss since a similar period ended Dec. 14. Second-quarter profit fell 24 percent from a year earlier and missed all eight analyst estimates in a Bloomberg News survey, prompting analysts at Goldman Sachs Group Inc., Merrill Lynch & Co. and Morgan Stanley to cut their price estimates for the stock.
The shares also fell after the U.S. Commerce Department said last week that consumer purchases rose in July at a third of the previous month's pace, while prices surged the most in 17 years.
The number of people staying on jobless rolls rose to 3.435 million in the U.S., the highest since November 2003, in the week ended Aug. 23, the Labor Department said on Sept. 4. European central bank President Jean-Claude Trichet said on the same day the economy is undergoing an ``episode of weak activity.''
Elpida Memory Inc., Japan's largest memory-chip maker, plunged 19 percent to 1,934 yen, a record low. Nomura Securities Co. cut on Sept. 2 its rating for the shares to ``neutral'' from ``buy'' on concern a slump in demand for the devices will be longer than expected.
Bangkok Bank Pcl fell in Thailand after anti-government demonstrators defied the emergency decree and continued their occupation of the prime minister's office. Samak said this week he would not resign to end the impasse.
Shares of Bangkok Bank, the nation's biggest lender, fell 6 percent to 110 baht.
To contact the reporter for this story: Chen Shiyin in Singapore at schen37@bloomberg.net.
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Sept. 6 (Bloomberg) -- Asian stocks fell, driving the region's benchmark index to its largest weekly drop in 13 months, on concern that slowing global economic growth will dent demand for raw materials and other goods.
BHP Billiton Ltd. and Cnooc Ltd. plunged more than 10 percent this week after metal and crude oil prices tumbled. LG Electronics Inc., the world's No. 3 television maker, dropped 7.4 percent after a slump in South Korea's overseas shipments sparked fears of an economic slowdown. Hon Hai Precision Industry Co. lost 11 percent, leading technology companies lower, following its first earnings decrease in seven years and as U.S. consumer spending waned and jobless claims increased.
``It's been a painful last couple of months,'' said Ivan Leung, Hong Kong-based chief investment strategist at JPMorgan Private Bank, which oversees $400 billion in assets globally. ``The economic uncertainty means there'll be massive pressure on commodity stocks in the short term.''
The MSCI Asia Pacific Index dropped 6.7 percent to 116.85, the biggest slump since the five days ended Aug. 17, 2007. All 10 industry groups retreated, with measures tracking energy and mining companies posting the biggest losses.
The regional gauge has dropped 26 percent this year to the lowest since June 13, 2006, as soaring fuel prices damped consumer spending and eroded corporate profits, while writedowns and credit losses at the world's largest financial companies topped $500 billion.
Japan's Nikkei 200 Stock Average fell 6.6 percent to 12,212.23, while the Kospi index dropped 4.7 percent in South Korea. Hong Kong's Hang Seng Index plunged 6.3 percent to close below 20,000 for the first time since April 2007. Thailand's SET Index tumbled 5.7 percent after Prime Minister Samak Sundaravej declared a state of emergency.
Metals, Oil
BHP, the world's largest mining company, tumbled 11 percent to A$37, its largest weekly loss since the five days ended March 21. Rio Tinto Group, the third-biggest mining company, retreated 14 percent to A$110.80.
A measure of six metals traded on the London Metal Exchange dropped 6.5 percent as the slowdown in the OECD deepened, adding to speculation that world demand will ease. Meanwhile, crude oil for October delivery retreated 8.0 percent this week to $106.23 a barrel in New York, the lowest since April 4.
Cnooc, China's largest offshore oil explorer, lost 13 percent to HK$10.44 in Hong Kong. Inpex Holdings Inc., Japan's biggest oil explorer, declined 13 percent to 1.03 million yen.
No Place to Hide
``There no place to hide within Asia right now,'' said Beat Lenherr, who oversees more than $20 billion of assets as Singapore-based chief global strategist at LGT Capital Management. ``We're cautious on the commodities sector given there is an intermediate peak in oil prices, which will put a lid on energy-related stocks.''
LG Electronics fell 6.8 percent to 94,600 won, its third straight weekly retreat. South Korean exports, which make up more than half of gross domestic product, rose 20.6 percent in August from a year earlier, missing the 23.3 percent median estimate of economists surveyed by Bloomberg News.
Speculation that investors are avoiding the nation's assets as economic growth falters sent South Korea's won down by 2.6 percent this week, its biggest weekly loss since August 1998. The rout in share prices and the currency prompted finance ministry officials to say that rumors the country is facing a financial crisis are groundless.
Kookmin Bank, South Korea's largest bank, fell 6.5 percent to 56,000 won. Woori Finance Holdings Co., which controls the nation's second-largest bank, plunged 9.3 percent to 13,100 won.
Hon Hai, Elpida
Hon Hai, the world's largest contract manufacturer for customers including Apple Inc. and Dell Inc., tumbled 11 percent to NT$143, its biggest weekly loss since a similar period ended Dec. 14. Second-quarter profit fell 24 percent from a year earlier and missed all eight analyst estimates in a Bloomberg News survey, prompting analysts at Goldman Sachs Group Inc., Merrill Lynch & Co. and Morgan Stanley to cut their price estimates for the stock.
The shares also fell after the U.S. Commerce Department said last week that consumer purchases rose in July at a third of the previous month's pace, while prices surged the most in 17 years.
The number of people staying on jobless rolls rose to 3.435 million in the U.S., the highest since November 2003, in the week ended Aug. 23, the Labor Department said on Sept. 4. European central bank President Jean-Claude Trichet said on the same day the economy is undergoing an ``episode of weak activity.''
Elpida Memory Inc., Japan's largest memory-chip maker, plunged 19 percent to 1,934 yen, a record low. Nomura Securities Co. cut on Sept. 2 its rating for the shares to ``neutral'' from ``buy'' on concern a slump in demand for the devices will be longer than expected.
Bangkok Bank Pcl fell in Thailand after anti-government demonstrators defied the emergency decree and continued their occupation of the prime minister's office. Samak said this week he would not resign to end the impasse.
Shares of Bangkok Bank, the nation's biggest lender, fell 6 percent to 110 baht.
To contact the reporter for this story: Chen Shiyin in Singapore at schen37@bloomberg.net.
Read more...
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