By Brian Swint and Craig Stirling
Sept. 15 (Bloomberg) -- Britain's main business lobby said the Bank of England should slash its benchmark interest rate in November by the most in seven years to rescue the U.K. from a recession.
``Our members are having a tough time,'' Richard Lambert, director of the Confederation of British Industry, told reporters in London. ``There's scope for a half-point cut in November,'' assuming the inflation outlook doesn't change. ``We are now almost certainly in a mild recessionary phase.
The Bank of England has kept its main rate at 5 percent since April on concern that the fastest inflation in at least a decade will become embedded in the economy. The European Commission says the U.K. has already entered its first recession since 1991 after growth ground to a halt in the second quarter, ending the longest stretch of uninterrupted expansion in a century.
The central bank, which hasn't cut its key rate by more than a quarter point since the aftermath of the September 2001 terrorist attacks, should reduce its benchmark to 4.5 percent this year and to 4 percent in early 2009, the CBI said.
The economy will contract 0.2 percent in the third quarter and 0.1 percent in the final three months of the year, the CBI said. The lobby cut its full-year projection to 1.1 percent from a forecast of 1.7 percent in June. Growth will slump to 0.3 percent next year, the new forecasts show.
Rate Cuts
The slowdown may nevertheless cool inflation and make it easier for the Bank of England to help the economy, Lambert said. Inflation will reach 5 percent this year before slowing to 2.3 percent by the fourth quarter of 2009, the CBI's forecasts show.
``We hope and believe that this will give the Bank of England scope to cut interest rates,'' said Lambert, who sat on the central bank's Monetary Policy Committee between 2003 and 2006. ``There is a significant risk that in 2010 inflation will actually be undershooting the 2 percent target by quite a way.''
Figures tomorrow will probably force Bank of England Governor Mervyn King to write a letter to Chancellor of the Exchequer Alistair Darling.
Inflation accelerated to 4.6 percent in August from 4.4 percent in the previous month, according to the median of 28 forecasts in a Bloomberg News survey of economists. That would be the fastest pace in at least 11 years. The central bank's mandate requires the governor to write a letter to the chancellor when the rate strays more than 1 percentage point from the target.
King will also release the bank's proposals for changing its money-market operations this week and invite comments from financial institutions and investors. The central bank will introduce a new facility to replace the Special Liquidity Scheme, an emergency lending program for banks which expires in October.
To contact the reporters on this story: Brian Swint in London at bswint@bloomberg.net; Craig Stirling in London at cstirling1@bloomberg.net.
Read more...
Monday, September 15, 2008
Treasuries Show Paulson `Bazooka' Misfire; Bonds Gain
By Daniel Kruger
Sept. 15 (Bloomberg) -- U.S. bond prices show Henry Paulson's ``bazooka'' fired blanks when he took over beleaguered mortgage-finance companies Fannie Mae and Freddie Mac.
Instead of instilling confidence in the credit markets, the Treasury secretary's plan to place the government-sponsored enterprises in conservatorship on Sept. 7 only served to underscore weakness in the world's biggest economy and the plight of U.S. financial institutions. Lehman Brothers Holdings Inc., American International Group Inc., Merrill Lynch & Co. and Washington Mutual Inc. all plunged last week.
For the first time since May, bond investors from New York to Tokyo are piling into Treasuries on speculation the Federal Reserve may need to cut interest rates by year-end.
``They pulled out the bazooka, yet they only got 24 hours of favorable response from the financial markets,'' said Thomas Girard, a money manager who helps oversee $110 billion in fixed- income assets at New York Life Investment Management in New York. ``That's got to be a little bit worrisome.''
Girard said he is taking advantage of any decline in U.S. government debt prices to add to his holdings of the securities.
The yield on the benchmark two-year Treasury fell 12 basis points last week, or 0.12 percentage point, to 2.21 percent, and is down from this year's high of 3.11 percent on June 13. The price of the 2.375 percent note due August 2010 rose 7/32, or $2.19 per $1,000 face value, to 100 10/32, according to BGCantor Market Data.
Treasuries surged today in Asia, sending two-year yields down to 1.87 percent as of 11:19 a.m. in Singapore, as Lehman prepared to file for bankruptcy. It was the biggest decline since January. Bank of America Corp. agreed to buy Merrill, a person with knowledge of the deal said. American International Group Inc., the insurer struggling to avoid credit downgrades, is seeking a $40 billion loan from the Fed, the New York Times reported.
The Fed widened the collateral it accepts for loans to Wall Street bond dealers, while a group of 10 banks that includes JPMorgan Chase & Co., Goldman Sachs Group Inc. and Citigroup Inc. separately formed a $70 billion fund to ensure market liquidity.
`Not Enough'
Interest-rate derivatives imply that banks remain hesitant to lend amid speculation credit losses will increase as the slowdown deepens. It costs banks 1.35 percentage points more than the government to borrow cash for three months. The difference, or TED spread, was 1.04 percentage points on Sept. 5.
``We're still concerned about credit tightening by U.S. banks,'' said Masataka Horii, one of four managers of the $52 billion Kokusai Global Sovereign Open fund in Tokyo. ``The government GSE rescue plan will help, but it is not sufficient.''
Kokusai Global, the second-biggest actively managed bond fund behind the $132 billion Pimco Total Return Fund, increased its Treasury holdings to 27 percent of assets in August, the most since April 2007, from 20 percent in March.
Financial institutions have taken more than $500 billion in writedowns and losses since the start of 2007, according to data compiled by Bloomberg. Renewed concern that losses will increase, further weighing on an economy growing at the slowest pace since 2001, are driving investors to Treasuries.
Ease Speculation
Futures on the Chicago Board of Trade show a 36 percent chance the Fed will cut its 2 percent target rate for overnight lending between banks by at least a quarter-percentage point this year. Not since May have traders put on bets for a reduction in borrowing costs. On Sept. 5, futures were indicating there was no chance policy makers would lower borrowing costs. The Fed meets tomorrow to set interest rates.
Treasuries of all maturities returned 2.3 percent since June 30, compared with an average of 2.06 percent for all types of corporate and mortgage bonds, according to indexes compiled by New York-based Merrill Lynch & Co.
Paulson announced a plan on Sept. 7 to place Washington- based Fannie and Freddie, of McLean, Virginia, in conservatorship as their losses mounted, allowing the government to buy as much as $100 billion of preferred stock in the companies as needed.
Rescue Plans
Just two months earlier, when Paulson sought congressional approval to grant unlimited credit to Fannie and Freddie in times of financial strife, the Treasury secretary indicated that he would unlikely use those powers. Instead, he said the move would bolster confidence in the companies and markets.
``If you have a bazooka in your pocket, and people know you have a bazooka, you may never have to take it out,'' he said at the time.
Past efforts by the government and Fed to jump-start the credit markets only temporarily reduced demand for Treasuries.
Two-year note yields rose 26 basis points to 1.74 percent on March 11, the biggest increase since 1996, after the Fed said it would accept mortgage debt as collateral for as much as $200 billion in Treasuries to be auctioned through a new Term Securities Lending Facility. By March 14, yields had fallen back to their prior levels.
`Stop-Gap Measure'
Three months earlier, on Dec. 12, yields soared 21 basis points to 3.13 percent when the Fed announced a joint effort with foreign central banks to increase their lending programs. Three weeks later, yields were back down to 2.88 percent.
``The whole credit crisis is going to keep a bid in Treasuries for some time to come,'' said Mark MacQueen, a partner and money manager at Austin, Texas-based Sage Advisory Services Ltd., which oversees $6 billion. ``This is more of a stop-gap measure to pass it off to the next administration,'' he said of the takeover of Fannie and Freddie.
Traders in the forward markets, where financial instruments are sold for future delivery, are pricing three-month cash from December to March at 94 basis points over the expected federal funds rate. That's up from 85 basis points at the start of last week and an average of 7 basis points in 2006.
What's different now is that the budget deficit is accelerating, causing the Treasury to step up its borrowing as its supports Fannie and Freddie. Economists at New York-based Goldman Sachs Group Inc. forecast that the shortfall for fiscal 2009 beginning Oct. 1 will reach a record $565 billion. The Bush administration estimated a $490 billion deficit for the period.
`Falling Apart'
The median forecast of 32 economists and strategists is for two-year yields to rise to 2.64 percent by year-end, according to a survey by Bloomberg. If accurate, investors who by the securities now would have a loss of 0.37 percent.
Bond market bulls say the government's takeover of Fannie and Freddie may do little to encourage companies to hire, or for consumers to increase spending. The Commerce Department in Washington said Sept. 12 that sales at retailers fell 0.7 percent in August when excluding automobiles, the most this year. A week earlier, the government said the unemployment rate climbed to a five-year high of 6.1 percent in August.
``While it was a necessary step, it's not a sufficient step to prevent the economy from falling apart,'' said Gary Pollack, who helps oversee $12 billion as head of fixed-income trading at Deutsche Bank AG's Private Wealth Management unit in New York. ``It does not address the fundamental economic backdrop of a weak consumer, declining jobs, a weak global economy and a continued decline in housing prices.''
Buy Treasuries
Pollack said he favors Treasuries maturing in fewer than 10 years. Those securities tend to outperform longer-dated debt when the Fed cuts rates.
``Housing's problems go deeper than just mortgage rates,'' said Carl Lantz, an interest-rate strategist in New York at Credit Suisse Securities USA LLC, one of the 19 primary dealers of U.S. government debt that trade with the Fed. ``The concern was always what happens when unemployment starts rising and people are forced to sell the house.''
Credit Suisse told clients on Sept. 8 they should buy 10- year Treasuries, saying yields may fall to 3.3 percent. The yield on the benchmark 4 percent security due in August 2018 ended last week at 3.72 percent.
To contact the reporter on this story: Daniel Kruger in New York at dkruger1@bloomberg.net
Read more...
Sept. 15 (Bloomberg) -- U.S. bond prices show Henry Paulson's ``bazooka'' fired blanks when he took over beleaguered mortgage-finance companies Fannie Mae and Freddie Mac.
Instead of instilling confidence in the credit markets, the Treasury secretary's plan to place the government-sponsored enterprises in conservatorship on Sept. 7 only served to underscore weakness in the world's biggest economy and the plight of U.S. financial institutions. Lehman Brothers Holdings Inc., American International Group Inc., Merrill Lynch & Co. and Washington Mutual Inc. all plunged last week.
For the first time since May, bond investors from New York to Tokyo are piling into Treasuries on speculation the Federal Reserve may need to cut interest rates by year-end.
``They pulled out the bazooka, yet they only got 24 hours of favorable response from the financial markets,'' said Thomas Girard, a money manager who helps oversee $110 billion in fixed- income assets at New York Life Investment Management in New York. ``That's got to be a little bit worrisome.''
Girard said he is taking advantage of any decline in U.S. government debt prices to add to his holdings of the securities.
The yield on the benchmark two-year Treasury fell 12 basis points last week, or 0.12 percentage point, to 2.21 percent, and is down from this year's high of 3.11 percent on June 13. The price of the 2.375 percent note due August 2010 rose 7/32, or $2.19 per $1,000 face value, to 100 10/32, according to BGCantor Market Data.
Treasuries surged today in Asia, sending two-year yields down to 1.87 percent as of 11:19 a.m. in Singapore, as Lehman prepared to file for bankruptcy. It was the biggest decline since January. Bank of America Corp. agreed to buy Merrill, a person with knowledge of the deal said. American International Group Inc., the insurer struggling to avoid credit downgrades, is seeking a $40 billion loan from the Fed, the New York Times reported.
The Fed widened the collateral it accepts for loans to Wall Street bond dealers, while a group of 10 banks that includes JPMorgan Chase & Co., Goldman Sachs Group Inc. and Citigroup Inc. separately formed a $70 billion fund to ensure market liquidity.
`Not Enough'
Interest-rate derivatives imply that banks remain hesitant to lend amid speculation credit losses will increase as the slowdown deepens. It costs banks 1.35 percentage points more than the government to borrow cash for three months. The difference, or TED spread, was 1.04 percentage points on Sept. 5.
``We're still concerned about credit tightening by U.S. banks,'' said Masataka Horii, one of four managers of the $52 billion Kokusai Global Sovereign Open fund in Tokyo. ``The government GSE rescue plan will help, but it is not sufficient.''
Kokusai Global, the second-biggest actively managed bond fund behind the $132 billion Pimco Total Return Fund, increased its Treasury holdings to 27 percent of assets in August, the most since April 2007, from 20 percent in March.
Financial institutions have taken more than $500 billion in writedowns and losses since the start of 2007, according to data compiled by Bloomberg. Renewed concern that losses will increase, further weighing on an economy growing at the slowest pace since 2001, are driving investors to Treasuries.
Ease Speculation
Futures on the Chicago Board of Trade show a 36 percent chance the Fed will cut its 2 percent target rate for overnight lending between banks by at least a quarter-percentage point this year. Not since May have traders put on bets for a reduction in borrowing costs. On Sept. 5, futures were indicating there was no chance policy makers would lower borrowing costs. The Fed meets tomorrow to set interest rates.
Treasuries of all maturities returned 2.3 percent since June 30, compared with an average of 2.06 percent for all types of corporate and mortgage bonds, according to indexes compiled by New York-based Merrill Lynch & Co.
Paulson announced a plan on Sept. 7 to place Washington- based Fannie and Freddie, of McLean, Virginia, in conservatorship as their losses mounted, allowing the government to buy as much as $100 billion of preferred stock in the companies as needed.
Rescue Plans
Just two months earlier, when Paulson sought congressional approval to grant unlimited credit to Fannie and Freddie in times of financial strife, the Treasury secretary indicated that he would unlikely use those powers. Instead, he said the move would bolster confidence in the companies and markets.
``If you have a bazooka in your pocket, and people know you have a bazooka, you may never have to take it out,'' he said at the time.
Past efforts by the government and Fed to jump-start the credit markets only temporarily reduced demand for Treasuries.
Two-year note yields rose 26 basis points to 1.74 percent on March 11, the biggest increase since 1996, after the Fed said it would accept mortgage debt as collateral for as much as $200 billion in Treasuries to be auctioned through a new Term Securities Lending Facility. By March 14, yields had fallen back to their prior levels.
`Stop-Gap Measure'
Three months earlier, on Dec. 12, yields soared 21 basis points to 3.13 percent when the Fed announced a joint effort with foreign central banks to increase their lending programs. Three weeks later, yields were back down to 2.88 percent.
``The whole credit crisis is going to keep a bid in Treasuries for some time to come,'' said Mark MacQueen, a partner and money manager at Austin, Texas-based Sage Advisory Services Ltd., which oversees $6 billion. ``This is more of a stop-gap measure to pass it off to the next administration,'' he said of the takeover of Fannie and Freddie.
Traders in the forward markets, where financial instruments are sold for future delivery, are pricing three-month cash from December to March at 94 basis points over the expected federal funds rate. That's up from 85 basis points at the start of last week and an average of 7 basis points in 2006.
What's different now is that the budget deficit is accelerating, causing the Treasury to step up its borrowing as its supports Fannie and Freddie. Economists at New York-based Goldman Sachs Group Inc. forecast that the shortfall for fiscal 2009 beginning Oct. 1 will reach a record $565 billion. The Bush administration estimated a $490 billion deficit for the period.
`Falling Apart'
The median forecast of 32 economists and strategists is for two-year yields to rise to 2.64 percent by year-end, according to a survey by Bloomberg. If accurate, investors who by the securities now would have a loss of 0.37 percent.
Bond market bulls say the government's takeover of Fannie and Freddie may do little to encourage companies to hire, or for consumers to increase spending. The Commerce Department in Washington said Sept. 12 that sales at retailers fell 0.7 percent in August when excluding automobiles, the most this year. A week earlier, the government said the unemployment rate climbed to a five-year high of 6.1 percent in August.
``While it was a necessary step, it's not a sufficient step to prevent the economy from falling apart,'' said Gary Pollack, who helps oversee $12 billion as head of fixed-income trading at Deutsche Bank AG's Private Wealth Management unit in New York. ``It does not address the fundamental economic backdrop of a weak consumer, declining jobs, a weak global economy and a continued decline in housing prices.''
Buy Treasuries
Pollack said he favors Treasuries maturing in fewer than 10 years. Those securities tend to outperform longer-dated debt when the Fed cuts rates.
``Housing's problems go deeper than just mortgage rates,'' said Carl Lantz, an interest-rate strategist in New York at Credit Suisse Securities USA LLC, one of the 19 primary dealers of U.S. government debt that trade with the Fed. ``The concern was always what happens when unemployment starts rising and people are forced to sell the house.''
Credit Suisse told clients on Sept. 8 they should buy 10- year Treasuries, saying yields may fall to 3.3 percent. The yield on the benchmark 4 percent security due in August 2018 ended last week at 3.72 percent.
To contact the reporter on this story: Daniel Kruger in New York at dkruger1@bloomberg.net
Read more...
New Zealand Manufacturing Adds to Signs Economy Is in Recession
By Tracy Withers
Sept. 15 (Bloomberg) -- New Zealand manufacturing slowed in the second quarter, adding to signs the economy was in a recession in the first half of the year.
Manufacturing sales, excluding inflation, fell 1 percent from the first quarter when they declined 0.2 percent, Statistics New Zealand said today in Wellington. Economists adjust that number to account for inventory build-up to match the way the statistics bureau reports gross domestic product.
Reserve Bank Governor Alan Bollard has cut the benchmark interest rate by three-quarters of a percentage point the past seven weeks as the economy contracts. The central bank said the economy is probably in a recession for the first time in 10 years.
``Manufacturing was on the soft side and will probably shave a bit off expectations'' for second-quarter GDP, said Craig Ebert, senior markets economist at Bank of New Zealand Ltd. in Wellington.
Ebert estimates the economy contracted 0.4 percent in the second quarter. The GDP report will be published on Sept. 26.
``There are probably risks toward the negative'' around that forecast, he said. Before today, he was expecting a 0.3 percent contraction.
Manufacturing was curbed after a drought slowed milk production and forced farmers to send stock for slaughter earlier than usual. Sales from the meat and dairy industry fell 9.4 percent in the quarter, the statistics agency said.
Retail Sales
The slowdown in second-quarter manufacturing adds to falling retail sales, construction and exports, suggesting the economy shrank further after it contracted 0.3 percent in the first quarter.
Retail spending slumped 1.5 percent in the three months ended March 31, the biggest drop in at least 13 years. Construction fell 7.3 percent and exports slipped 3.7 percent, according to reports last week.
``Confidence in manufacturing plunged to low levels in the first half,'' said Jane Turner, economist at ASB Bank Ltd. in Auckland. ``Demand has weakened substantially'' and the currency was high early in 2008, which slowed orders, she said.
Bollard cut the official cash rate a quarter point on July 24, his first reduction in five years, saying the weak economy would ease inflation. Last week, he cut by a half point, more than expected by most economists, to 7.5 percent.
Twelve of 15 economists surveyed by Bloomberg News last week expect Bollard to cut the benchmark interest rate by a quarter point at his next review on Oct. 23. Three expect a half-point reduction.
To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.
Read more...
Sept. 15 (Bloomberg) -- New Zealand manufacturing slowed in the second quarter, adding to signs the economy was in a recession in the first half of the year.
Manufacturing sales, excluding inflation, fell 1 percent from the first quarter when they declined 0.2 percent, Statistics New Zealand said today in Wellington. Economists adjust that number to account for inventory build-up to match the way the statistics bureau reports gross domestic product.
Reserve Bank Governor Alan Bollard has cut the benchmark interest rate by three-quarters of a percentage point the past seven weeks as the economy contracts. The central bank said the economy is probably in a recession for the first time in 10 years.
``Manufacturing was on the soft side and will probably shave a bit off expectations'' for second-quarter GDP, said Craig Ebert, senior markets economist at Bank of New Zealand Ltd. in Wellington.
Ebert estimates the economy contracted 0.4 percent in the second quarter. The GDP report will be published on Sept. 26.
``There are probably risks toward the negative'' around that forecast, he said. Before today, he was expecting a 0.3 percent contraction.
Manufacturing was curbed after a drought slowed milk production and forced farmers to send stock for slaughter earlier than usual. Sales from the meat and dairy industry fell 9.4 percent in the quarter, the statistics agency said.
Retail Sales
The slowdown in second-quarter manufacturing adds to falling retail sales, construction and exports, suggesting the economy shrank further after it contracted 0.3 percent in the first quarter.
Retail spending slumped 1.5 percent in the three months ended March 31, the biggest drop in at least 13 years. Construction fell 7.3 percent and exports slipped 3.7 percent, according to reports last week.
``Confidence in manufacturing plunged to low levels in the first half,'' said Jane Turner, economist at ASB Bank Ltd. in Auckland. ``Demand has weakened substantially'' and the currency was high early in 2008, which slowed orders, she said.
Bollard cut the official cash rate a quarter point on July 24, his first reduction in five years, saying the weak economy would ease inflation. Last week, he cut by a half point, more than expected by most economists, to 7.5 percent.
Twelve of 15 economists surveyed by Bloomberg News last week expect Bollard to cut the benchmark interest rate by a quarter point at his next review on Oct. 23. Three expect a half-point reduction.
To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.
Read more...
Europe Shuns U.S.-Style `Active Role' on Economy, Bank Bailouts
By Simon Kennedy and John Rega
Sept. 15 (Bloomberg) -- European finance ministers and central bankers said they had no plans to follow the U.S. in stimulating their economy and failed to agree on ways of rescuing any foundering financial institution.
As U.S. officials in Washington monitored the slide of Lehman Brothers Holdings Inc., European policy makers concluded talks in Nice, France, without breaking new ground on how to share the bailout cost if a bank collapse threatened to spread across the region. They also signaled restraining inflation and budget deficits was a better strategy to revive economic growth than lowering taxes and interest rates.
``U.S. policy makers have generally taken a more active role in supporting the economy and stabilizing financial markets, while the euro zone has opted for a less-interventionist stance,'' said Natacha Valla, a former economist at the European Central Bank and now at Goldman Sachs Group Inc. in Paris.
The transatlantic divide in monetary and fiscal policies may mean the economy of the 15-nation euro region takes longer to rebound after contracting 0.2 percent in the second quarter. The European Commission projects the weakest growth since 2003 this year as Germany and Spain slip into a recession and Italy and France stagnate.
``Europe faces a long-lasting slowdown and only gradual recovery,'' said Dario Perkins, an economist at ABN Amro Holding NV in London.
Cost-Sharing Plan
The lack of a cost-sharing plan means the pain would be even greater should a pan-European financial institution run into troubles similar to those that battered Bear Stearns Cos., Fannie Mae and Freddie Mac in the U.S., said Nicolas Veron, an economist at Bruegel, a Brussels-based research organization.
Ministers have so far agreed only to knit bank supervisors closer together and pledged to cooperate in managing any crisis. Unwilling to commit taxpayer money up front, they resisted calls to devise a plan for splitting the bill should a bailout become necessary to prevent a collapse of the financial system.
``The policy response would be slower and less efficient given the lack of a framework and that would pose a significant cost to the economy if something happened,'' said Veron.
By contrast, the U.S. has been able to step in swiftly to help ailing institutions. The government this month assumed control of Fannie Mae and Freddie Mac, while in March the Federal Reserve helped finance JPMorgan Chase & Co.'s purchase of Bear Stearns.
Biggest Banks
The U.S. has the advantage that the institutions it monitors are largely contained within its borders. Europe's biggest banks held an average of 24 percent of their assets in European countries other than their own in 2006, double the amount of 1997, according to Bruegel.
European policy makers also face more constraints than their U.S. counterparts in responding to weakening growth. One is inflation, which remains above the ECB's 2 percent limit. Governments have their hands tied by EU rules that require budget deficits to be below 3 percent of gross domestic product.
Neither restraint exists in the U.S., allowing the Fed to cut its benchmark rate to 2 percent and President George W. Bush to enact $168 billion of stimulus. Europe's strategy amounts to a bet that expansion can be better revived by controlling inflation and budgets than by pump-priming growth with short-term stimulus that generates higher prices and bigger deficits.
Spending taxpayers' funds on fiscal programs to spark growth would be ``like burning money,'' German Finance Minister Peer Steinbrueck said. Luxembourg Finance Minister Jean-Claude Juncker questioned the success of the U.S. approach, and said declines in the euro and oil price would help Europe.
Fiscal Easing
``This should calm the ECB a bit as it increasingly fears that fiscal easing would oppose the central bank's efforts to bring down inflation over time,'' said Juergen Michels, an economist at Citigroup Inc. in London.
ECB President Jean-Claude Trichet, who has demanded governments control their budgets, said the test would be ``implementation in practice.'' Price stability remains the bank's ``fundamental concern,'' he said.
Rather than driving up deficits, the European officials said they plan to cushion their economy by allowing automatic stabilizers such as higher welfare payments to kick in. They also pledged to make their economies more flexible, increase financial- market transparency and lend more money to small- and medium-sized industries.
``We're not going to sit on our hands,'' French Finance Minister Christine Lagarde said.
Still, slowing growth alone will be enough to end four years of fiscal consolidation with JPMorgan predicting a budget deficit of 2 percent of GDP in the euro area next year, up from 0.6 percent last year.
Jacques Cailloux, chief euro-area economist at Royal Bank of Scotland Plc., predicts an extended period of weak growth may prompt countries such as France and Italy to ``exploit'' a revised rule that allows a temporary breach of the limit in times of weak expansion. Italy, France, Ireland, Portugal and Greece are at risk of breaching the deficit ceiling next year, according to Commerzbank AG.
To contact the reporters on this story: Simon Kennedy in Nice, France, at skennedy4@bloomberg.net. John Rega in Nice, France, at jrega@bloomberg.net.
Read more...
Sept. 15 (Bloomberg) -- European finance ministers and central bankers said they had no plans to follow the U.S. in stimulating their economy and failed to agree on ways of rescuing any foundering financial institution.
As U.S. officials in Washington monitored the slide of Lehman Brothers Holdings Inc., European policy makers concluded talks in Nice, France, without breaking new ground on how to share the bailout cost if a bank collapse threatened to spread across the region. They also signaled restraining inflation and budget deficits was a better strategy to revive economic growth than lowering taxes and interest rates.
``U.S. policy makers have generally taken a more active role in supporting the economy and stabilizing financial markets, while the euro zone has opted for a less-interventionist stance,'' said Natacha Valla, a former economist at the European Central Bank and now at Goldman Sachs Group Inc. in Paris.
The transatlantic divide in monetary and fiscal policies may mean the economy of the 15-nation euro region takes longer to rebound after contracting 0.2 percent in the second quarter. The European Commission projects the weakest growth since 2003 this year as Germany and Spain slip into a recession and Italy and France stagnate.
``Europe faces a long-lasting slowdown and only gradual recovery,'' said Dario Perkins, an economist at ABN Amro Holding NV in London.
Cost-Sharing Plan
The lack of a cost-sharing plan means the pain would be even greater should a pan-European financial institution run into troubles similar to those that battered Bear Stearns Cos., Fannie Mae and Freddie Mac in the U.S., said Nicolas Veron, an economist at Bruegel, a Brussels-based research organization.
Ministers have so far agreed only to knit bank supervisors closer together and pledged to cooperate in managing any crisis. Unwilling to commit taxpayer money up front, they resisted calls to devise a plan for splitting the bill should a bailout become necessary to prevent a collapse of the financial system.
``The policy response would be slower and less efficient given the lack of a framework and that would pose a significant cost to the economy if something happened,'' said Veron.
By contrast, the U.S. has been able to step in swiftly to help ailing institutions. The government this month assumed control of Fannie Mae and Freddie Mac, while in March the Federal Reserve helped finance JPMorgan Chase & Co.'s purchase of Bear Stearns.
Biggest Banks
The U.S. has the advantage that the institutions it monitors are largely contained within its borders. Europe's biggest banks held an average of 24 percent of their assets in European countries other than their own in 2006, double the amount of 1997, according to Bruegel.
European policy makers also face more constraints than their U.S. counterparts in responding to weakening growth. One is inflation, which remains above the ECB's 2 percent limit. Governments have their hands tied by EU rules that require budget deficits to be below 3 percent of gross domestic product.
Neither restraint exists in the U.S., allowing the Fed to cut its benchmark rate to 2 percent and President George W. Bush to enact $168 billion of stimulus. Europe's strategy amounts to a bet that expansion can be better revived by controlling inflation and budgets than by pump-priming growth with short-term stimulus that generates higher prices and bigger deficits.
Spending taxpayers' funds on fiscal programs to spark growth would be ``like burning money,'' German Finance Minister Peer Steinbrueck said. Luxembourg Finance Minister Jean-Claude Juncker questioned the success of the U.S. approach, and said declines in the euro and oil price would help Europe.
Fiscal Easing
``This should calm the ECB a bit as it increasingly fears that fiscal easing would oppose the central bank's efforts to bring down inflation over time,'' said Juergen Michels, an economist at Citigroup Inc. in London.
ECB President Jean-Claude Trichet, who has demanded governments control their budgets, said the test would be ``implementation in practice.'' Price stability remains the bank's ``fundamental concern,'' he said.
Rather than driving up deficits, the European officials said they plan to cushion their economy by allowing automatic stabilizers such as higher welfare payments to kick in. They also pledged to make their economies more flexible, increase financial- market transparency and lend more money to small- and medium-sized industries.
``We're not going to sit on our hands,'' French Finance Minister Christine Lagarde said.
Still, slowing growth alone will be enough to end four years of fiscal consolidation with JPMorgan predicting a budget deficit of 2 percent of GDP in the euro area next year, up from 0.6 percent last year.
Jacques Cailloux, chief euro-area economist at Royal Bank of Scotland Plc., predicts an extended period of weak growth may prompt countries such as France and Italy to ``exploit'' a revised rule that allows a temporary breach of the limit in times of weak expansion. Italy, France, Ireland, Portugal and Greece are at risk of breaching the deficit ceiling next year, according to Commerzbank AG.
To contact the reporters on this story: Simon Kennedy in Nice, France, at skennedy4@bloomberg.net. John Rega in Nice, France, at jrega@bloomberg.net.
Read more...
Europe Shuns U.S.-Style `Active Role' on Economy, Bank Bailouts
By Simon Kennedy and John Rega
Sept. 15 (Bloomberg) -- European finance ministers and central bankers said they had no plans to follow the U.S. in stimulating their economy and failed to agree on ways of rescuing any foundering financial institution.
As U.S. officials in Washington monitored the slide of Lehman Brothers Holdings Inc., European policy makers concluded talks in Nice, France, without breaking new ground on how to share the bailout cost if a bank collapse threatened to spread across the region. They also signaled restraining inflation and budget deficits was a better strategy to revive economic growth than lowering taxes and interest rates.
``U.S. policy makers have generally taken a more active role in supporting the economy and stabilizing financial markets, while the euro zone has opted for a less-interventionist stance,'' said Natacha Valla, a former economist at the European Central Bank and now at Goldman Sachs Group Inc. in Paris.
The transatlantic divide in monetary and fiscal policies may mean the economy of the 15-nation euro region takes longer to rebound after contracting 0.2 percent in the second quarter. The European Commission projects the weakest growth since 2003 this year as Germany and Spain slip into a recession and Italy and France stagnate.
``Europe faces a long-lasting slowdown and only gradual recovery,'' said Dario Perkins, an economist at ABN Amro Holding NV in London.
Cost-Sharing Plan
The lack of a cost-sharing plan means the pain would be even greater should a pan-European financial institution run into troubles similar to those that battered Bear Stearns Cos., Fannie Mae and Freddie Mac in the U.S., said Nicolas Veron, an economist at Bruegel, a Brussels-based research organization.
Ministers have so far agreed only to knit bank supervisors closer together and pledged to cooperate in managing any crisis. Unwilling to commit taxpayer money up front, they resisted calls to devise a plan for splitting the bill should a bailout become necessary to prevent a collapse of the financial system.
``The policy response would be slower and less efficient given the lack of a framework and that would pose a significant cost to the economy if something happened,'' said Veron.
By contrast, the U.S. has been able to step in swiftly to help ailing institutions. The government this month assumed control of Fannie Mae and Freddie Mac, while in March the Federal Reserve helped finance JPMorgan Chase & Co.'s purchase of Bear Stearns.
Biggest Banks
The U.S. has the advantage that the institutions it monitors are largely contained within its borders. Europe's biggest banks held an average of 24 percent of their assets in European countries other than their own in 2006, double the amount of 1997, according to Bruegel.
European policy makers also face more constraints than their U.S. counterparts in responding to weakening growth. One is inflation, which remains above the ECB's 2 percent limit. Governments have their hands tied by EU rules that require budget deficits to be below 3 percent of gross domestic product.
Neither restraint exists in the U.S., allowing the Fed to cut its benchmark rate to 2 percent and President George W. Bush to enact $168 billion of stimulus. Europe's strategy amounts to a bet that expansion can be better revived by controlling inflation and budgets than by pump-priming growth with short-term stimulus that generates higher prices and bigger deficits.
Spending taxpayers' funds on fiscal programs to spark growth would be ``like burning money,'' German Finance Minister Peer Steinbrueck said. Luxembourg Finance Minister Jean-Claude Juncker questioned the success of the U.S. approach, and said declines in the euro and oil price would help Europe.
Fiscal Easing
``This should calm the ECB a bit as it increasingly fears that fiscal easing would oppose the central bank's efforts to bring down inflation over time,'' said Juergen Michels, an economist at Citigroup Inc. in London.
ECB President Jean-Claude Trichet, who has demanded governments control their budgets, said the test would be ``implementation in practice.'' Price stability remains the bank's ``fundamental concern,'' he said.
Rather than driving up deficits, the European officials said they plan to cushion their economy by allowing automatic stabilizers such as higher welfare payments to kick in. They also pledged to make their economies more flexible, increase financial- market transparency and lend more money to small- and medium-sized industries.
``We're not going to sit on our hands,'' French Finance Minister Christine Lagarde said.
Still, slowing growth alone will be enough to end four years of fiscal consolidation with JPMorgan predicting a budget deficit of 2 percent of GDP in the euro area next year, up from 0.6 percent last year.
Jacques Cailloux, chief euro-area economist at Royal Bank of Scotland Plc., predicts an extended period of weak growth may prompt countries such as France and Italy to ``exploit'' a revised rule that allows a temporary breach of the limit in times of weak expansion. Italy, France, Ireland, Portugal and Greece are at risk of breaching the deficit ceiling next year, according to Commerzbank AG.
To contact the reporters on this story: Simon Kennedy in Nice, France, at skennedy4@bloomberg.net. John Rega in Nice, France, at jrega@bloomberg.net.
Read more...
Sept. 15 (Bloomberg) -- European finance ministers and central bankers said they had no plans to follow the U.S. in stimulating their economy and failed to agree on ways of rescuing any foundering financial institution.
As U.S. officials in Washington monitored the slide of Lehman Brothers Holdings Inc., European policy makers concluded talks in Nice, France, without breaking new ground on how to share the bailout cost if a bank collapse threatened to spread across the region. They also signaled restraining inflation and budget deficits was a better strategy to revive economic growth than lowering taxes and interest rates.
``U.S. policy makers have generally taken a more active role in supporting the economy and stabilizing financial markets, while the euro zone has opted for a less-interventionist stance,'' said Natacha Valla, a former economist at the European Central Bank and now at Goldman Sachs Group Inc. in Paris.
The transatlantic divide in monetary and fiscal policies may mean the economy of the 15-nation euro region takes longer to rebound after contracting 0.2 percent in the second quarter. The European Commission projects the weakest growth since 2003 this year as Germany and Spain slip into a recession and Italy and France stagnate.
``Europe faces a long-lasting slowdown and only gradual recovery,'' said Dario Perkins, an economist at ABN Amro Holding NV in London.
Cost-Sharing Plan
The lack of a cost-sharing plan means the pain would be even greater should a pan-European financial institution run into troubles similar to those that battered Bear Stearns Cos., Fannie Mae and Freddie Mac in the U.S., said Nicolas Veron, an economist at Bruegel, a Brussels-based research organization.
Ministers have so far agreed only to knit bank supervisors closer together and pledged to cooperate in managing any crisis. Unwilling to commit taxpayer money up front, they resisted calls to devise a plan for splitting the bill should a bailout become necessary to prevent a collapse of the financial system.
``The policy response would be slower and less efficient given the lack of a framework and that would pose a significant cost to the economy if something happened,'' said Veron.
By contrast, the U.S. has been able to step in swiftly to help ailing institutions. The government this month assumed control of Fannie Mae and Freddie Mac, while in March the Federal Reserve helped finance JPMorgan Chase & Co.'s purchase of Bear Stearns.
Biggest Banks
The U.S. has the advantage that the institutions it monitors are largely contained within its borders. Europe's biggest banks held an average of 24 percent of their assets in European countries other than their own in 2006, double the amount of 1997, according to Bruegel.
European policy makers also face more constraints than their U.S. counterparts in responding to weakening growth. One is inflation, which remains above the ECB's 2 percent limit. Governments have their hands tied by EU rules that require budget deficits to be below 3 percent of gross domestic product.
Neither restraint exists in the U.S., allowing the Fed to cut its benchmark rate to 2 percent and President George W. Bush to enact $168 billion of stimulus. Europe's strategy amounts to a bet that expansion can be better revived by controlling inflation and budgets than by pump-priming growth with short-term stimulus that generates higher prices and bigger deficits.
Spending taxpayers' funds on fiscal programs to spark growth would be ``like burning money,'' German Finance Minister Peer Steinbrueck said. Luxembourg Finance Minister Jean-Claude Juncker questioned the success of the U.S. approach, and said declines in the euro and oil price would help Europe.
Fiscal Easing
``This should calm the ECB a bit as it increasingly fears that fiscal easing would oppose the central bank's efforts to bring down inflation over time,'' said Juergen Michels, an economist at Citigroup Inc. in London.
ECB President Jean-Claude Trichet, who has demanded governments control their budgets, said the test would be ``implementation in practice.'' Price stability remains the bank's ``fundamental concern,'' he said.
Rather than driving up deficits, the European officials said they plan to cushion their economy by allowing automatic stabilizers such as higher welfare payments to kick in. They also pledged to make their economies more flexible, increase financial- market transparency and lend more money to small- and medium-sized industries.
``We're not going to sit on our hands,'' French Finance Minister Christine Lagarde said.
Still, slowing growth alone will be enough to end four years of fiscal consolidation with JPMorgan predicting a budget deficit of 2 percent of GDP in the euro area next year, up from 0.6 percent last year.
Jacques Cailloux, chief euro-area economist at Royal Bank of Scotland Plc., predicts an extended period of weak growth may prompt countries such as France and Italy to ``exploit'' a revised rule that allows a temporary breach of the limit in times of weak expansion. Italy, France, Ireland, Portugal and Greece are at risk of breaching the deficit ceiling next year, according to Commerzbank AG.
To contact the reporters on this story: Simon Kennedy in Nice, France, at skennedy4@bloomberg.net. John Rega in Nice, France, at jrega@bloomberg.net.
Read more...
World May Face `Japan-Like' Economic Stagnation, GIC's Tan Says
By Shamim Adam
Sept. 15 (Bloomberg) -- The world may face ``Japan-like'' economic stagnation as turmoil in financial markets weighs on growth and challenges the ability of policy makers to manage the crisis, Government of Singapore Investment Corp. said.
Global growth will probably be weak in the next few years, and protectionist and populist policies are likely to emerge, said Tony Tan, deputy chairman of GIC, in a speech in Geneva yesterday. The sovereign fund, which oversees more than $100 billion, has pumped billions into UBS AG and Citigroup Inc. after they posted writedowns linked to U.S. subprime mortgages.
``Policy responses so far have tried to minimize the likelihood of a Japan-like deflationary spiral but the adjustment could take a couple of years and be very painful,'' Tan said. ``Over the near term, debt deflation and deleveraging in the U.S. and other major developed economies will exert downward pressure on growth in many economies.''
An asset-price bubble in Japan burst in the early 1990s, triggering a property and stock market collapse that heralded a decade of stagnation in the world's second-largest economy. Financial institutions worldwide have reported more than $500 billion in losses and writedowns since the beginning of 2007 and the credit-market collapse erased $11 trillion from global stocks in the past year.
The worst U.S. housing slump since the 1930s is showing little sign of abating and more than 10 lenders in the world's largest economy have collapsed this year. The U.S. Treasury Department and the Federal Housing Finance Agency this month seized control of Fannie Mae and Freddie Mac after the biggest surge in mortgage defaults in at least three decades threatened to topple the companies.
`More Severe'
``If house-price declines are significantly greater than expected, larger financial institutions could become insolvent, the credit crunch would be more severe and economic growth could weaken considerably,'' Tan said. ``A vicious deflationary cycle with falling house prices, failing financial institutions and weaker growth could then ensue.''
Lehman Brothers Holdings Inc. is preparing to file for bankruptcy after Barclays Plc and Bank of America Corp. abandoned talks to buy the U.S. securities firm, according to a person with direct knowledge of the firm's plans.
Goldman Sachs Group Inc. last month estimated that half of the world economy already faces recession, with richer nations faring the worst as emerging markets continue to expand. The global economy faces a 25 percent chance of recession in the next year, according to UBS AG economists.
Emerging Markets
Japan's economy shrank 3 percent last quarter, the steepest decline since 2001, while the euro-area economy contracted 0.2 percent in the same period. The U.S. economy, which expanded at a 3.3 percent annual pace in the second quarter, has lost 605,000 jobs in the first eight months of the year.
Emerging markets will account for more than half of the world's growth in the next decade, from about a fifth in 2000, Tan predicts.
``Growth in emerging markets can be expected to remain relatively robust,'' he said. ``Emerging economies will displace the G-7 as the world's largest economies over the next two to three decades.''
A rising ``middle-class'' in emerging markets will also increase demand for commodities and increase supply constraints that may spur competition for resources, he said.
Natural Resources
``International tensions could rise as countries compete for natural resources, especially food, energy and water,'' Tan said. ``Commodity-producing countries are likely to exert stronger control over their natural resources, potentially exacerbating supply concerns. Countries that are reliant on imports of commodities could be more aggressive in their pursuit of supplies.''
Weaker employment and income growth could lead to a rise in protectionist policies, especially in the U.S. and Europe, Tan said. Governments need to increase conflict-resolution mechanisms and boost cooperation to solve issues amid the emergence of new major economies, he said, citing the World Trade Organization Doha Round of talks as an example.
Trade ministers have tried and failed to reach a breakthrough in the so-called Doha Round talks in each of the past three years. A nine-day summit at the WTO in Geneva collapsed on July 29 after India and the U.S. disagreed over how poor nations could increase duties to protect their economies from surging farm imports.
``Significant stagnation as well as inflation risks suggest that challenges and potential conflicts arising from both protectionism as well as resource nationalism could seriously jeopardize globalization of production and markets,'' Tan said.
To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net
Read more...
Sept. 15 (Bloomberg) -- The world may face ``Japan-like'' economic stagnation as turmoil in financial markets weighs on growth and challenges the ability of policy makers to manage the crisis, Government of Singapore Investment Corp. said.
Global growth will probably be weak in the next few years, and protectionist and populist policies are likely to emerge, said Tony Tan, deputy chairman of GIC, in a speech in Geneva yesterday. The sovereign fund, which oversees more than $100 billion, has pumped billions into UBS AG and Citigroup Inc. after they posted writedowns linked to U.S. subprime mortgages.
``Policy responses so far have tried to minimize the likelihood of a Japan-like deflationary spiral but the adjustment could take a couple of years and be very painful,'' Tan said. ``Over the near term, debt deflation and deleveraging in the U.S. and other major developed economies will exert downward pressure on growth in many economies.''
An asset-price bubble in Japan burst in the early 1990s, triggering a property and stock market collapse that heralded a decade of stagnation in the world's second-largest economy. Financial institutions worldwide have reported more than $500 billion in losses and writedowns since the beginning of 2007 and the credit-market collapse erased $11 trillion from global stocks in the past year.
The worst U.S. housing slump since the 1930s is showing little sign of abating and more than 10 lenders in the world's largest economy have collapsed this year. The U.S. Treasury Department and the Federal Housing Finance Agency this month seized control of Fannie Mae and Freddie Mac after the biggest surge in mortgage defaults in at least three decades threatened to topple the companies.
`More Severe'
``If house-price declines are significantly greater than expected, larger financial institutions could become insolvent, the credit crunch would be more severe and economic growth could weaken considerably,'' Tan said. ``A vicious deflationary cycle with falling house prices, failing financial institutions and weaker growth could then ensue.''
Lehman Brothers Holdings Inc. is preparing to file for bankruptcy after Barclays Plc and Bank of America Corp. abandoned talks to buy the U.S. securities firm, according to a person with direct knowledge of the firm's plans.
Goldman Sachs Group Inc. last month estimated that half of the world economy already faces recession, with richer nations faring the worst as emerging markets continue to expand. The global economy faces a 25 percent chance of recession in the next year, according to UBS AG economists.
Emerging Markets
Japan's economy shrank 3 percent last quarter, the steepest decline since 2001, while the euro-area economy contracted 0.2 percent in the same period. The U.S. economy, which expanded at a 3.3 percent annual pace in the second quarter, has lost 605,000 jobs in the first eight months of the year.
Emerging markets will account for more than half of the world's growth in the next decade, from about a fifth in 2000, Tan predicts.
``Growth in emerging markets can be expected to remain relatively robust,'' he said. ``Emerging economies will displace the G-7 as the world's largest economies over the next two to three decades.''
A rising ``middle-class'' in emerging markets will also increase demand for commodities and increase supply constraints that may spur competition for resources, he said.
Natural Resources
``International tensions could rise as countries compete for natural resources, especially food, energy and water,'' Tan said. ``Commodity-producing countries are likely to exert stronger control over their natural resources, potentially exacerbating supply concerns. Countries that are reliant on imports of commodities could be more aggressive in their pursuit of supplies.''
Weaker employment and income growth could lead to a rise in protectionist policies, especially in the U.S. and Europe, Tan said. Governments need to increase conflict-resolution mechanisms and boost cooperation to solve issues amid the emergence of new major economies, he said, citing the World Trade Organization Doha Round of talks as an example.
Trade ministers have tried and failed to reach a breakthrough in the so-called Doha Round talks in each of the past three years. A nine-day summit at the WTO in Geneva collapsed on July 29 after India and the U.S. disagreed over how poor nations could increase duties to protect their economies from surging farm imports.
``Significant stagnation as well as inflation risks suggest that challenges and potential conflicts arising from both protectionism as well as resource nationalism could seriously jeopardize globalization of production and markets,'' Tan said.
To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net
Read more...
Thai Political Crisis Derailing Growth, Surapong Says
By Bernard Lo and Suttinee Yuvejwattana
Sept. 15 (Bloomberg) -- Thai Finance Minister Surapong Suebwonglee, a contender to become the nation's next prime minister, said economic growth may be derailed this year and next as political turmoil paralyses government spending.
``If we cannot solve the political conflict in the very short term, GDP may be below 5 percent'' this year, Surapong, 51, said in an interview in Bangkok today. ``We still hope that we can achieve 5.5 percent.''
Thailand has been without a prime minister since Samak Sundaravej was forced to resign by a Sept. 9 court ruling that he violated the constitution. The central bank has said political instability has overtaken inflation as the biggest threat to Southeast Asia's second-largest economy, which slowed for the first time in two years in the second quarter.
``Most of the political observers think the new government may not last longer than a couple months,'' Surapong said. ``Political turmoil is a very crucial factor for the economy.''
The government's economic advisory agency on Aug. 25 said expansion may be as much as 5.7 percent this year. That compares with Merrill Lynch & Co.'s 5.1 percent estimate. Gross domestic product expanded 4.8 percent last year.
`Cloudy' Outlook
``For Thailand, there is more downside risk than upside,'' said Song Seng-Wun, an economist at CIMB-GK Securities Pte in Singapore. ``Even a nomination of a prime minister this week may not resolve anything. This kind of risk continues to weigh down on sentiment. Next year may be even more cloudy.''
Surapong, a medical doctor, is secretary-general of the People Power Party, which controls 315 of 480 lower-house parliamentary seats in a six-party coalition. The former spokesman for Thaksin Shinawatra, the premier ousted in a 2006 coup, will be a contender in a party vote today to decide on the next prime minister.
The government had been counting on domestic consumption to buoy the economy this year amid an expected slowdown in exports, which account for 70 percent of GDP. Shipments were buoyed by rubber and rice in the second quarter amid record commodity prices, which have since fallen.
The Bank of Thailand forecasts the nation's economy will grow between 4.3 percent and 5.8 percent next year. Merrill Lynch estimates a 4.7 percent pace.
Slowing Exports
Export growth may slow to 16.5 percent this year from 17.3 percent last year, according to the government's economic adviser. Deepening global financial market turmoil may cool demand from the nation's key markets -- the U.S., Europe and Japan, according to a Sept. 11 Merrill Lynch report.
Goldman Sachs Group Inc. last month estimated that half of the world economy already faces recession, with richer nations faring the worst as emerging markets continue to expand. The global economy faces a 25 percent chance of recession in the next year, according to UBS AG economists.
A state of emergency imposed in Bangkok on Sept. 2 after deadly clashes between pro- and anti-government demonstrators was lifted yesterday. More than 10,000 mostly middle-class Bangkok protesters who have occupied Government House since Aug. 26 say they will stay put. Parliament is due to vote on a new prime minister on Sept. 17 after lawmakers boycotted a Sept. 12 session.
Other People Power Party candidates include acting Prime Minister Somchai Wongsawat, 61, a former judge and Thaksin's brother-in-law, and Justice Minister Sompong Amornvivat.
`Uncertainty'
``I don't think an appointment of any three of them will be seen as a huge improvement,'' said Han Sia Yeo, a currency strategist at Bank of America Corp. in Singapore, adding investors may not get a full picture of economic policies for ``a few months. There's still so much uncertainty.''
Consumer confidence in August fell to the lowest this year. The SET Index of stocks has sunk 26 percent since May 25, when the protesters began calling for Samak's ouster. The baht is close to its weakest level per dollar in more than a year on concern that the political impasse will drag on.
Fitch Ratings last week said politics have affected the nation's economic policies, posing a negative risk for the sovereign rating. The rating agency ranks Thailand's long-term debt as BBB+, the eighth-highest investment grade. Moody's Investors Service earlier this month kept its stable outlook on the nation's Baa1 credit rating, indicating it's disinclined to change it.
``We are getting more concerned about political risk,'' said James McCormack, Hong Kong-based head of Fitch's Asian sovereign ratings. ``There is no evidence so far where the resolution will come from.''
Credit Suisse warned Sept. 3 that Thailand risks becoming ``ungovernable'' as the political situation ``remains far from reaching anything resembling equilibrium.''
Thaksin was ousted in a 2006 military coup that followed street protests led by the same group behind the campaign against Samak. The so-called People's Alliance for Democracy says the government contains too many allies of Thaksin, the People Party's patron, and is calling for a mostly appointed House of Representatives to replace the fully elected body.
To contact the reporters on this story: Suttinee Yuvejwattana in Bangkok at Suttinee1@bloomberg.net; Bernard Lo in Hong Kong at blo2@bloomberg.net
Read more...
Sept. 15 (Bloomberg) -- Thai Finance Minister Surapong Suebwonglee, a contender to become the nation's next prime minister, said economic growth may be derailed this year and next as political turmoil paralyses government spending.
``If we cannot solve the political conflict in the very short term, GDP may be below 5 percent'' this year, Surapong, 51, said in an interview in Bangkok today. ``We still hope that we can achieve 5.5 percent.''
Thailand has been without a prime minister since Samak Sundaravej was forced to resign by a Sept. 9 court ruling that he violated the constitution. The central bank has said political instability has overtaken inflation as the biggest threat to Southeast Asia's second-largest economy, which slowed for the first time in two years in the second quarter.
``Most of the political observers think the new government may not last longer than a couple months,'' Surapong said. ``Political turmoil is a very crucial factor for the economy.''
The government's economic advisory agency on Aug. 25 said expansion may be as much as 5.7 percent this year. That compares with Merrill Lynch & Co.'s 5.1 percent estimate. Gross domestic product expanded 4.8 percent last year.
`Cloudy' Outlook
``For Thailand, there is more downside risk than upside,'' said Song Seng-Wun, an economist at CIMB-GK Securities Pte in Singapore. ``Even a nomination of a prime minister this week may not resolve anything. This kind of risk continues to weigh down on sentiment. Next year may be even more cloudy.''
Surapong, a medical doctor, is secretary-general of the People Power Party, which controls 315 of 480 lower-house parliamentary seats in a six-party coalition. The former spokesman for Thaksin Shinawatra, the premier ousted in a 2006 coup, will be a contender in a party vote today to decide on the next prime minister.
The government had been counting on domestic consumption to buoy the economy this year amid an expected slowdown in exports, which account for 70 percent of GDP. Shipments were buoyed by rubber and rice in the second quarter amid record commodity prices, which have since fallen.
The Bank of Thailand forecasts the nation's economy will grow between 4.3 percent and 5.8 percent next year. Merrill Lynch estimates a 4.7 percent pace.
Slowing Exports
Export growth may slow to 16.5 percent this year from 17.3 percent last year, according to the government's economic adviser. Deepening global financial market turmoil may cool demand from the nation's key markets -- the U.S., Europe and Japan, according to a Sept. 11 Merrill Lynch report.
Goldman Sachs Group Inc. last month estimated that half of the world economy already faces recession, with richer nations faring the worst as emerging markets continue to expand. The global economy faces a 25 percent chance of recession in the next year, according to UBS AG economists.
A state of emergency imposed in Bangkok on Sept. 2 after deadly clashes between pro- and anti-government demonstrators was lifted yesterday. More than 10,000 mostly middle-class Bangkok protesters who have occupied Government House since Aug. 26 say they will stay put. Parliament is due to vote on a new prime minister on Sept. 17 after lawmakers boycotted a Sept. 12 session.
Other People Power Party candidates include acting Prime Minister Somchai Wongsawat, 61, a former judge and Thaksin's brother-in-law, and Justice Minister Sompong Amornvivat.
`Uncertainty'
``I don't think an appointment of any three of them will be seen as a huge improvement,'' said Han Sia Yeo, a currency strategist at Bank of America Corp. in Singapore, adding investors may not get a full picture of economic policies for ``a few months. There's still so much uncertainty.''
Consumer confidence in August fell to the lowest this year. The SET Index of stocks has sunk 26 percent since May 25, when the protesters began calling for Samak's ouster. The baht is close to its weakest level per dollar in more than a year on concern that the political impasse will drag on.
Fitch Ratings last week said politics have affected the nation's economic policies, posing a negative risk for the sovereign rating. The rating agency ranks Thailand's long-term debt as BBB+, the eighth-highest investment grade. Moody's Investors Service earlier this month kept its stable outlook on the nation's Baa1 credit rating, indicating it's disinclined to change it.
``We are getting more concerned about political risk,'' said James McCormack, Hong Kong-based head of Fitch's Asian sovereign ratings. ``There is no evidence so far where the resolution will come from.''
Credit Suisse warned Sept. 3 that Thailand risks becoming ``ungovernable'' as the political situation ``remains far from reaching anything resembling equilibrium.''
Thaksin was ousted in a 2006 military coup that followed street protests led by the same group behind the campaign against Samak. The so-called People's Alliance for Democracy says the government contains too many allies of Thaksin, the People Party's patron, and is calling for a mostly appointed House of Representatives to replace the fully elected body.
To contact the reporters on this story: Suttinee Yuvejwattana in Bangkok at Suttinee1@bloomberg.net; Bernard Lo in Hong Kong at blo2@bloomberg.net
Read more...
U.S. Dollar Weakens on Concern Lehman to File for Bankruptcy
By Ron Harui and Candice Zachariahs
Sept. 15 (Bloomberg) -- The U.S. dollar fell against the euro on concern Lehman Brothers Holdings Inc. may file for bankruptcy after potential buyers abandoned talks and the government said it won't step in with funds.
The greenback dropped to its lowest in almost two months against the yen after Barclays Plc and Bank of America Corp. pulled out of discussions with the U.S. securities firm, spurring investors to reduce holdings of higher-yielding assets financed in Japan. U.S. stock futures and Asian shares slumped, while Treasuries rallied, as the prospect of liquidation at Lehman prompted investors to shun riskier assets.
``It will really be a battle between U.S. dollar weakness and carry-trade unwind, and add to that very thin liquidity with Tokyo and Hong Kong out'' because of public holidays, said Sue Trinh, a senior currency strategist at RBC Capital Markets in Sydney. ``The U.S. dollar is likely to continue to weaken.''
The dollar fell to $1.4481, the lowest since Sept. 4, before trading at $1.4448 per euro at 12:32 p.m. in Tokyo, from $1.4224 in New York late last week. It touched $1.3882 on Sept. 11, the strongest since Sept. 18, 2007. It may weaken to $1.45 per euro over the next couple of days, Trinh said.
The U.S. currency dropped 2.1 percent to 105.64 yen. It earlier reached 105.27 yen, the lowest since July 17. The currency is headed for the biggest one-day decline since Aug. 16. 2007, when a global stocks rout prompted investors to reduce so- called carry trades.
Rate Cut Speculation
The greenback weakened as stock-index futures tumbled on concern a potential Lehman bankruptcy will add to banks' $514 billion of subprime-related losses. The Standard & Poor's 500 Index futures expiring in December snapped three days of gains, sliding 3.7 percent. The MSCI Asia-Pacific Index of regional shares excluding Japan declined 1.1 percent and two-year Treasuries gained the most since January.
Markets in China, Hong Kong, Japan and South Korea are all shut for holidays today.
The dollar also declined on rising speculation the Federal Reserve will cut interest rates when policy makers meet tomorrow. Futures on the Chicago Board of Trade showed late last week a 12 percent chance that the Fed will lower its 2 percent target rate for overnight lending between banks by a quarter-percentage point compared with 10 percent odds on Sept. 11.
``It's highly likely that the Fed will have to cut interest rates again,'' said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors, where he is responsible for A$17 billion ($14 billion) in assets. ``In general, that's quite negative for the U.S. dollar.''
Risk Aversion
The dollar had gained about 11 percent through to the end of last week since touching an all-time low of $1.6038 per euro on July 15.
The yen advanced against all of the 16 most-active currencies as investors reduced so-called carry trades, in which funds are borrowed in a country with low interest rates and used to buy assets where returns are higher, earning the spread between the two. The risk is that currency market moves erase those profits.
``We have been very bearish dollar-yen and we're projecting dollar-yen to 100 by year-end because of these risk aversion reasons,'' said Boris Schlossberg, director of currency research in New York at online currency trader GFT Forex, in a Bloomberg News interview.
Benchmark interest rates are 0.5 percent in Japan and 2 percent in the U.S., compared with 7 percent in Australia and 7.5 percent in New Zealand, making them favorite targets for the carry trade.
Carry Trades
The Australian and New Zealand dollars approached two-year lows against the yen. Barclays, which had emerged as a leading candidate to acquire Lehman, pulled out of negotiations first, contending it couldn't obtain guarantees from the government or other Wall Street firms to protect against potential losses on Lehman's assets. Bank of America withdrew about three hours later, according to a person with knowledge of the talks.
Australia's dollar fell 2.2 percent to 86.90 yen from 88.88 yen late in New York on Sept. 12, when it reached 84.09 yen, the lowest since June 2006. New Zealand's dollar declined 2.1 percent to 70.63 yen. It touched 68.57 yen on Sept. 12, the weakest since May 2006.
Implied volatility on one-month U.S. dollar options against the yen climbed to 13.50 percent from 12.67 percent late in New York on Sept. 12. Higher volatility may discourage carry trades as it indicates a larger risk of exchange-rate fluctuations.
Futures traders reversed their bets that the yen 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 an advance in the yen compared with those on a drop -- so-called net longs -- was 14,821 on Sept. 9, compared with net shorts of 5,020 a week earlier.
To contact the reporter on this story: Ron Harui in Tokyo at rharui@bloomberg.net; Candice Zachariahs in Sydney at Czachariahs2@bloomberg.net
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Sept. 15 (Bloomberg) -- The U.S. dollar fell against the euro on concern Lehman Brothers Holdings Inc. may file for bankruptcy after potential buyers abandoned talks and the government said it won't step in with funds.
The greenback dropped to its lowest in almost two months against the yen after Barclays Plc and Bank of America Corp. pulled out of discussions with the U.S. securities firm, spurring investors to reduce holdings of higher-yielding assets financed in Japan. U.S. stock futures and Asian shares slumped, while Treasuries rallied, as the prospect of liquidation at Lehman prompted investors to shun riskier assets.
``It will really be a battle between U.S. dollar weakness and carry-trade unwind, and add to that very thin liquidity with Tokyo and Hong Kong out'' because of public holidays, said Sue Trinh, a senior currency strategist at RBC Capital Markets in Sydney. ``The U.S. dollar is likely to continue to weaken.''
The dollar fell to $1.4481, the lowest since Sept. 4, before trading at $1.4448 per euro at 12:32 p.m. in Tokyo, from $1.4224 in New York late last week. It touched $1.3882 on Sept. 11, the strongest since Sept. 18, 2007. It may weaken to $1.45 per euro over the next couple of days, Trinh said.
The U.S. currency dropped 2.1 percent to 105.64 yen. It earlier reached 105.27 yen, the lowest since July 17. The currency is headed for the biggest one-day decline since Aug. 16. 2007, when a global stocks rout prompted investors to reduce so- called carry trades.
Rate Cut Speculation
The greenback weakened as stock-index futures tumbled on concern a potential Lehman bankruptcy will add to banks' $514 billion of subprime-related losses. The Standard & Poor's 500 Index futures expiring in December snapped three days of gains, sliding 3.7 percent. The MSCI Asia-Pacific Index of regional shares excluding Japan declined 1.1 percent and two-year Treasuries gained the most since January.
Markets in China, Hong Kong, Japan and South Korea are all shut for holidays today.
The dollar also declined on rising speculation the Federal Reserve will cut interest rates when policy makers meet tomorrow. Futures on the Chicago Board of Trade showed late last week a 12 percent chance that the Fed will lower its 2 percent target rate for overnight lending between banks by a quarter-percentage point compared with 10 percent odds on Sept. 11.
``It's highly likely that the Fed will have to cut interest rates again,'' said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors, where he is responsible for A$17 billion ($14 billion) in assets. ``In general, that's quite negative for the U.S. dollar.''
Risk Aversion
The dollar had gained about 11 percent through to the end of last week since touching an all-time low of $1.6038 per euro on July 15.
The yen advanced against all of the 16 most-active currencies as investors reduced so-called carry trades, in which funds are borrowed in a country with low interest rates and used to buy assets where returns are higher, earning the spread between the two. The risk is that currency market moves erase those profits.
``We have been very bearish dollar-yen and we're projecting dollar-yen to 100 by year-end because of these risk aversion reasons,'' said Boris Schlossberg, director of currency research in New York at online currency trader GFT Forex, in a Bloomberg News interview.
Benchmark interest rates are 0.5 percent in Japan and 2 percent in the U.S., compared with 7 percent in Australia and 7.5 percent in New Zealand, making them favorite targets for the carry trade.
Carry Trades
The Australian and New Zealand dollars approached two-year lows against the yen. Barclays, which had emerged as a leading candidate to acquire Lehman, pulled out of negotiations first, contending it couldn't obtain guarantees from the government or other Wall Street firms to protect against potential losses on Lehman's assets. Bank of America withdrew about three hours later, according to a person with knowledge of the talks.
Australia's dollar fell 2.2 percent to 86.90 yen from 88.88 yen late in New York on Sept. 12, when it reached 84.09 yen, the lowest since June 2006. New Zealand's dollar declined 2.1 percent to 70.63 yen. It touched 68.57 yen on Sept. 12, the weakest since May 2006.
Implied volatility on one-month U.S. dollar options against the yen climbed to 13.50 percent from 12.67 percent late in New York on Sept. 12. Higher volatility may discourage carry trades as it indicates a larger risk of exchange-rate fluctuations.
Futures traders reversed their bets that the yen 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 an advance in the yen compared with those on a drop -- so-called net longs -- was 14,821 on Sept. 9, compared with net shorts of 5,020 a week earlier.
To contact the reporter on this story: Ron Harui in Tokyo at rharui@bloomberg.net; Candice Zachariahs in Sydney at Czachariahs2@bloomberg.net
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Swinging Real, Won Point to More Pain as Economies Recouple
By Liz Capo McCormick
Sept. 15 (Bloomberg) -- Swings in emerging-market currencies may foreshadow further losses for traders already suffering from the broadest declines this decade.
Volatility in options covering currencies from the Brazilian real to the South Korean won is rising at a faster rate than those for the euro and pound, according JPMorgan Chase & Co. indexes. Rising volatility was an element of past financial market upheavals, including the global slump in stock markets from 2000 through 2002 after the technology bubble burst.
The trigger this time is speculation that developing nations can no longer withstand a simultaneous slowdown in the economies of the U.S., Europe and Japan and the resulting lower appetite for high-risk assets. The 26 emerging-market currencies tracked by Bloomberg are down an average 5.5 percent since June, compared with an increase of 2.2 percent in the first half of 2008.
``Anyone who still believes strongly in the decoupling theory on an economics basis has to throw that book out the window now,'' Mike Moran, senior currency strategist at Standard Chartered Bank in New York, said. ``This has been a second awakening for the currency markets, with the first being that the secular dollar weakness the past couple years has clearly come to an end.''
Morgan Stanley, the second-biggest U.S. securities firm, is advising clients to sell emerging currencies in Asia, Latin America, Eastern Europe and the Middle East, and buy the dollar. Stock valuations suggest that earnings in emerging markets will drop as much as in 2001-2002, when profits fell 18 percent from their peak, New York-based Morgan Stanley estimated.
`Getting Worse'
``Any of these emerging currencies could move down another 5 percent to 10 percent,'' said Stephen Jen, the global head of currency research at Morgan Stanley in London. ``This is a three-month story already, and it's getting worse and worse. What we are dealing with is the aftermath of an energy shock and a credit crunch that is hitting every single economy.''
The global economy will expand 2.8 percent in 2009, just 0.3 percentage point above the pace deemed a worldwide recession and last witnessed in 2001, according to a report released by Zurich-based UBS AG on Sept. 11. Back then, emerging-market currencies fell an average of 6.8 percent.
The biggest losers since June in emerging markets have been the Iceland krona, Czech koruna and Bulgarian lev. Each has fallen more than 10 percent. Only China's yuan has appreciated, gaining 0.15 percent.
Sell Rupee, Won
India's rupee and South Korea's won may decline the most because the ability to buy and sell financial assets such as stocks is easier for foreign investors in those countries than in most other developing nations, Jen said.
The rupee slid last week to 45.715 per dollar, the weakest since October 2006, and has weakened 5.85 percent since mid- year. The won, down 5.66 percent to 1108.85 per dollar since July, is trading near its lowest level since October 2004.
Now, rising volatility may extend declines in emerging- market currencies. Traders use implied volatility to gauge expectations for currency swings and in setting options prices.
Volatility was an element of past upheavals, including the global slump in stock markets from 2000 through 2002 after the technology bubble burst. Swings in developing-nation exchange- rates then outpaced those of the major economies by almost 6 percentage points, according to New York-based JPMorgan indexes.
`Driving Factor'
``Movements in implied volatility are better than any backward looking indicator,'' said Gordian Kemen, a fixed-income strategist at Lehman Brothers Inc. in New York. ``It's very forward looking. When volatility goes up it many times becomes a driving factor on its own.''
Options indicate traders expect the currencies to fluctuate at an annualized rate of 11.9 percent, compared with 8.71 percent on July 25. That's just below the peak of 12.5 percent going back through 2000, when JPMorgan began tracking the data.
What's more, volatility implied from emerging-market options surpassed that of major currencies this month for the first time since June.
JPMorgan's implied volatility index for emerging economies three-month options, stands at 11.9 percent; while its index for developed nations is 11.6 percent. That's a switch from the past year, when volatility in developed nations averaged 1 percentage point more than emerging markets as investors bet a rise in commodity prices produced in places like Brazil, India and Russia would allow their economies to weather a U.S.-led slowdown.
Reserves Bolstered
One-month implied volatility on options for the won has more than doubled to almost 23 percent, the highest since 1999, from 10 percent in July. Implied volatility on the rupee has more than tripled to about 13 percent from 4 percent in February.
The rise in commodities prices has bolstered the reserves of many emerging markets, meaning they may fare better now than in prior bouts of economic weakness, according to Alex Patelis, head of international economics for Merrill Lynch & Co.
``Yes, it's not pleasant, but it's not as bad as it used to be,'' Patelis said in a Bloomberg Radio interview. ``The reason is the shock is emanating from the United States this time around, rather than from emerging markets themselves.''
Foreign-exchange reserves in Brazil have risen 27 percent over the past year, compared with the 43 percent in Russia, 36 percent in China and 25 percent in India, according to data compiled by Bloomberg.
Snap-Back
The potential for a snap-back in stock markets may limit any declines in exchange rates.
Declines in oil, nickel and wheat from records have pushed the MSCI Emerging Market Index down by more than a third since October, leaving the index 25 percent below its 200-day moving average. Over the past two decades, the difference grew this wide only in the aftermath of Sept. 11, the $40 billion Russian default and Mexico's currency devaluation in 1994. Each time, the index rallied 20 percent or more in the next three months.
While the International Monetary Fund expects growth in emerging markets may slow to 6.7 percent next year from 6.9 percent in 2008, that's better than advanced economies, which are likely to decelerate to 1.4 percent from 1.7 percent.
And though volatility is rising, some strategists still anticipate gains in emerging markets. The rupee is forecast to rebound to 43.53 per dollar, while the won will trade at 1109 per dollar by year-end, according to estimates of at least 24 contributors surveyed by Bloomberg.
Brazilian Real
Working against emerging-market currencies is an easing of inflation pressures as commodities including gold and oil decline, meaning central banks have scope to leave interest rates unchanged, or even cut them, said Standard Chartered's Moran.
Brazil's real fell to the lowest level since February on Sept. 11, weakening to 1.8374 per dollar, after central bankers split on whether to raise borrowing costs further. The currency is little changed versus the dollar since December, after almost doubling in the previous five years.
``Emerging market volatility is playing catch-up,'' said Naomi Fink, a Tokyo-based strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. ``There is going to be a further re-pricing of risk that will affect emerging markets. Credit was plentiful in the emerging market countries too.''
To contact the reporters on this story: Liz Capo McCormick in New York at emccormick7@bloomberg.net
Read more...
Sept. 15 (Bloomberg) -- Swings in emerging-market currencies may foreshadow further losses for traders already suffering from the broadest declines this decade.
Volatility in options covering currencies from the Brazilian real to the South Korean won is rising at a faster rate than those for the euro and pound, according JPMorgan Chase & Co. indexes. Rising volatility was an element of past financial market upheavals, including the global slump in stock markets from 2000 through 2002 after the technology bubble burst.
The trigger this time is speculation that developing nations can no longer withstand a simultaneous slowdown in the economies of the U.S., Europe and Japan and the resulting lower appetite for high-risk assets. The 26 emerging-market currencies tracked by Bloomberg are down an average 5.5 percent since June, compared with an increase of 2.2 percent in the first half of 2008.
``Anyone who still believes strongly in the decoupling theory on an economics basis has to throw that book out the window now,'' Mike Moran, senior currency strategist at Standard Chartered Bank in New York, said. ``This has been a second awakening for the currency markets, with the first being that the secular dollar weakness the past couple years has clearly come to an end.''
Morgan Stanley, the second-biggest U.S. securities firm, is advising clients to sell emerging currencies in Asia, Latin America, Eastern Europe and the Middle East, and buy the dollar. Stock valuations suggest that earnings in emerging markets will drop as much as in 2001-2002, when profits fell 18 percent from their peak, New York-based Morgan Stanley estimated.
`Getting Worse'
``Any of these emerging currencies could move down another 5 percent to 10 percent,'' said Stephen Jen, the global head of currency research at Morgan Stanley in London. ``This is a three-month story already, and it's getting worse and worse. What we are dealing with is the aftermath of an energy shock and a credit crunch that is hitting every single economy.''
The global economy will expand 2.8 percent in 2009, just 0.3 percentage point above the pace deemed a worldwide recession and last witnessed in 2001, according to a report released by Zurich-based UBS AG on Sept. 11. Back then, emerging-market currencies fell an average of 6.8 percent.
The biggest losers since June in emerging markets have been the Iceland krona, Czech koruna and Bulgarian lev. Each has fallen more than 10 percent. Only China's yuan has appreciated, gaining 0.15 percent.
Sell Rupee, Won
India's rupee and South Korea's won may decline the most because the ability to buy and sell financial assets such as stocks is easier for foreign investors in those countries than in most other developing nations, Jen said.
The rupee slid last week to 45.715 per dollar, the weakest since October 2006, and has weakened 5.85 percent since mid- year. The won, down 5.66 percent to 1108.85 per dollar since July, is trading near its lowest level since October 2004.
Now, rising volatility may extend declines in emerging- market currencies. Traders use implied volatility to gauge expectations for currency swings and in setting options prices.
Volatility was an element of past upheavals, including the global slump in stock markets from 2000 through 2002 after the technology bubble burst. Swings in developing-nation exchange- rates then outpaced those of the major economies by almost 6 percentage points, according to New York-based JPMorgan indexes.
`Driving Factor'
``Movements in implied volatility are better than any backward looking indicator,'' said Gordian Kemen, a fixed-income strategist at Lehman Brothers Inc. in New York. ``It's very forward looking. When volatility goes up it many times becomes a driving factor on its own.''
Options indicate traders expect the currencies to fluctuate at an annualized rate of 11.9 percent, compared with 8.71 percent on July 25. That's just below the peak of 12.5 percent going back through 2000, when JPMorgan began tracking the data.
What's more, volatility implied from emerging-market options surpassed that of major currencies this month for the first time since June.
JPMorgan's implied volatility index for emerging economies three-month options, stands at 11.9 percent; while its index for developed nations is 11.6 percent. That's a switch from the past year, when volatility in developed nations averaged 1 percentage point more than emerging markets as investors bet a rise in commodity prices produced in places like Brazil, India and Russia would allow their economies to weather a U.S.-led slowdown.
Reserves Bolstered
One-month implied volatility on options for the won has more than doubled to almost 23 percent, the highest since 1999, from 10 percent in July. Implied volatility on the rupee has more than tripled to about 13 percent from 4 percent in February.
The rise in commodities prices has bolstered the reserves of many emerging markets, meaning they may fare better now than in prior bouts of economic weakness, according to Alex Patelis, head of international economics for Merrill Lynch & Co.
``Yes, it's not pleasant, but it's not as bad as it used to be,'' Patelis said in a Bloomberg Radio interview. ``The reason is the shock is emanating from the United States this time around, rather than from emerging markets themselves.''
Foreign-exchange reserves in Brazil have risen 27 percent over the past year, compared with the 43 percent in Russia, 36 percent in China and 25 percent in India, according to data compiled by Bloomberg.
Snap-Back
The potential for a snap-back in stock markets may limit any declines in exchange rates.
Declines in oil, nickel and wheat from records have pushed the MSCI Emerging Market Index down by more than a third since October, leaving the index 25 percent below its 200-day moving average. Over the past two decades, the difference grew this wide only in the aftermath of Sept. 11, the $40 billion Russian default and Mexico's currency devaluation in 1994. Each time, the index rallied 20 percent or more in the next three months.
While the International Monetary Fund expects growth in emerging markets may slow to 6.7 percent next year from 6.9 percent in 2008, that's better than advanced economies, which are likely to decelerate to 1.4 percent from 1.7 percent.
And though volatility is rising, some strategists still anticipate gains in emerging markets. The rupee is forecast to rebound to 43.53 per dollar, while the won will trade at 1109 per dollar by year-end, according to estimates of at least 24 contributors surveyed by Bloomberg.
Brazilian Real
Working against emerging-market currencies is an easing of inflation pressures as commodities including gold and oil decline, meaning central banks have scope to leave interest rates unchanged, or even cut them, said Standard Chartered's Moran.
Brazil's real fell to the lowest level since February on Sept. 11, weakening to 1.8374 per dollar, after central bankers split on whether to raise borrowing costs further. The currency is little changed versus the dollar since December, after almost doubling in the previous five years.
``Emerging market volatility is playing catch-up,'' said Naomi Fink, a Tokyo-based strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. ``There is going to be a further re-pricing of risk that will affect emerging markets. Credit was plentiful in the emerging market countries too.''
To contact the reporters on this story: Liz Capo McCormick in New York at emccormick7@bloomberg.net
Read more...
Malaysia's Ringgit Falls on Arrests, Lehman Crisis; Bonds Gain
By David Yong
Sept. 15 (Bloomberg) -- Malaysia's ringgit dropped on speculation domestic political tension will escalate and global financial turmoil will deter investors from buying regional assets. Bonds advanced.
The government on Sept. 13 ordered the arrest of an opposition lawmaker, a political blogger and a local newspaper reporter as racial tensions flared. The Kuala Lumpur Composite Index of shares tumbled 1.3 percent as Lehman Brothers Holdings Inc. prepared a bankruptcy filing after Barclays Plc and Bank of America Corp. pulled out from buying the U.S. securities firm.
``Offshore funds are not going to be enticed, they will probably wait for lower levels with the market turmoil in the backdrop,'' said Suresh Kumar Ramanathan, a rates and currency strategist at CIMB Investment Bank Bhd. in Kuala Lumpur. ``Political risks have risen a few notches and that will likely exert pressure on the ringgit market,''
The ringgit fell 0.1 percent to 3.4475 per dollar as of 11:38 a.m. in Kuala Lumpur, according to data compiled by Bloomberg. The currency has slumped 5.1 percent in the past three months, Southeast Asia's second-worst performer.
Last week's arrests, under a law allowing detention without trial, came as Opposition Leader Anwar Ibrahim seeks to persuade government-aligned lawmakers to defect to him, aiming to topple Prime Minister Abdullah Ahmad Badawi's government as early as this week. Anwar needs at least 30 of 222 lawmakers from Abdullah's coalition to control parliament.
Bonds Gain
The government released the reporter after a 20-hour detention. The arrests may only have a short-term impact on the economy, Second Finance Minister Nor Mohamed Yakcop said, according to a Sept. 13 report from state news agency Bernama.
Ten-year notes advanced for a third day, pushing yields to near the lowest in three weeks, as the government sold more debt to private investors to avoid flooding the market.
The yield on the 4.24 percent note maturing in February 2018 fell 10 basis points to 4.68 percent, according to Bursa Malaysia Bhd. The price jumped 0.7, or 7 ringgit per 1,000 ringgit face amount, to 96.65. A basis point is 0.01 percentage point.
The government today sold 2 billion ringgit ($580 million) of September 2028 bonds in a private sale, without disclosing the buyer or yield. It sold the same securities via an auction at an average yield of 5.248 percent on Sept. 12.
To contact the reporter on this story: David Yong in Singapore at dyong@bloomberg.net.
Read more...
Sept. 15 (Bloomberg) -- Malaysia's ringgit dropped on speculation domestic political tension will escalate and global financial turmoil will deter investors from buying regional assets. Bonds advanced.
The government on Sept. 13 ordered the arrest of an opposition lawmaker, a political blogger and a local newspaper reporter as racial tensions flared. The Kuala Lumpur Composite Index of shares tumbled 1.3 percent as Lehman Brothers Holdings Inc. prepared a bankruptcy filing after Barclays Plc and Bank of America Corp. pulled out from buying the U.S. securities firm.
``Offshore funds are not going to be enticed, they will probably wait for lower levels with the market turmoil in the backdrop,'' said Suresh Kumar Ramanathan, a rates and currency strategist at CIMB Investment Bank Bhd. in Kuala Lumpur. ``Political risks have risen a few notches and that will likely exert pressure on the ringgit market,''
The ringgit fell 0.1 percent to 3.4475 per dollar as of 11:38 a.m. in Kuala Lumpur, according to data compiled by Bloomberg. The currency has slumped 5.1 percent in the past three months, Southeast Asia's second-worst performer.
Last week's arrests, under a law allowing detention without trial, came as Opposition Leader Anwar Ibrahim seeks to persuade government-aligned lawmakers to defect to him, aiming to topple Prime Minister Abdullah Ahmad Badawi's government as early as this week. Anwar needs at least 30 of 222 lawmakers from Abdullah's coalition to control parliament.
Bonds Gain
The government released the reporter after a 20-hour detention. The arrests may only have a short-term impact on the economy, Second Finance Minister Nor Mohamed Yakcop said, according to a Sept. 13 report from state news agency Bernama.
Ten-year notes advanced for a third day, pushing yields to near the lowest in three weeks, as the government sold more debt to private investors to avoid flooding the market.
The yield on the 4.24 percent note maturing in February 2018 fell 10 basis points to 4.68 percent, according to Bursa Malaysia Bhd. The price jumped 0.7, or 7 ringgit per 1,000 ringgit face amount, to 96.65. A basis point is 0.01 percentage point.
The government today sold 2 billion ringgit ($580 million) of September 2028 bonds in a private sale, without disclosing the buyer or yield. It sold the same securities via an auction at an average yield of 5.248 percent on Sept. 12.
To contact the reporter on this story: David Yong in Singapore at dyong@bloomberg.net.
Read more...
Philippine Peso Declines as Overseas Investors May Sell Stocks
By Karl Lester M. Yap
Sept. 15 (Bloomberg) -- The Philippine peso fell on speculation overseas investors will step up sales of the nation's stocks.
The local currency extended a seven-week slide on concern global funds will shun emerging-market assets as Lehman Brothers Holdings Inc. neared bankruptcy after potential buyers abandoned talks. Foreign funds sold more Philippine shares than they bought everyday this month, according to data compiled by Bloomberg.
``If Lehman declares bankruptcy, people will tend to avoid additional risks and emerging-market assets are considered risky,'' said Rafael Algarra, treasurer at Security Bank Corp. in Manila.
The local currency fell 0.1 percent to 46.96 per dollar as of 10:06 a.m. in Manila, according to Tullett Prebon Plc.
Bank of America Corp. agreed to buy Merrill Lynch & Co. for about $44 billion, a person with knowledge of the deal said, after shares of the third-biggest U.S. securities firm fell by more than 35 percent last week.
To contact the reporter for this story: Karl Lester M. Yap in Manila at kyap5@bloomberg.net.
Read more...
Sept. 15 (Bloomberg) -- The Philippine peso fell on speculation overseas investors will step up sales of the nation's stocks.
The local currency extended a seven-week slide on concern global funds will shun emerging-market assets as Lehman Brothers Holdings Inc. neared bankruptcy after potential buyers abandoned talks. Foreign funds sold more Philippine shares than they bought everyday this month, according to data compiled by Bloomberg.
``If Lehman declares bankruptcy, people will tend to avoid additional risks and emerging-market assets are considered risky,'' said Rafael Algarra, treasurer at Security Bank Corp. in Manila.
The local currency fell 0.1 percent to 46.96 per dollar as of 10:06 a.m. in Manila, according to Tullett Prebon Plc.
Bank of America Corp. agreed to buy Merrill Lynch & Co. for about $44 billion, a person with knowledge of the deal said, after shares of the third-biggest U.S. securities firm fell by more than 35 percent last week.
To contact the reporter for this story: Karl Lester M. Yap in Manila at kyap5@bloomberg.net.
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Australian, N.Z. Dollars Slip on Lehman Bankruptcy Concerns
By Candice Zachariahs
Sept. 15 (Bloomberg) -- The Australian and New Zealand dollars approached two-year lows against the yen as concern Lehman Brother Holding Inc. will file for bankruptcy damped investor appetite for higher-yielding assets.
The currencies, favorites of so-called carry trades, fell after Barclays Plc and Bank of America Corp. pulled out of talks with the U.S. securities firm. The local dollars weakened as banks and brokers began consolidating trades in which Lehman is involved to minimize the impact of a possible liquidation.
``With the Lehman bankruptcy news, risk appetite is going to be very weak,'' said Greg Gibbs, a currency strategist at ABN Amro Holdings NV in Sydney. ``The Aussie and Kiwi should be soft today,'' he said, referring to the currencies by their nicknames.
The Australian dollar dropped 1.7 percent to 87.33 yen at 12:25 p.m. in Sydney, from 88.88 in New York late last week. It fell to 82.27 U.S. cents from 82.36 cents late last week.
The New Zealand dollar slid 1.4 percent to 71.13 yen from 72.12 on Sept. 12. It bought 67.01 U.S. cents from 66.82 cents.
U.S. stock-index futures tumbled on concern a potential Lehman bankruptcy will add to banks' $514 billion of subprime- related losses.
``It's probably likely that a Lehman bankruptcy will weigh on equity markets, risk-appetite and high-yielding currencies such as the Australian dollar,'' John Kyriakopoulos, a currency strategist at National Australia Bank Ltd. in Sydney, wrote in a research note today.
Talks Over
Barclays, which had emerged as a leading candidate to acquire Lehman, pulled out first, contending it couldn't obtain guarantees from the government or other Wall Street firms to protect against potential losses on Lehman's assets. Bank of America withdrew about three hours later, according to a person with knowledge of the talks.
Lehman has lost 94 percent of its market value this year after record losses from investments tied to mortgages.
In carry trades, investors get funds in a country with low borrowing costs and invest in another with higher interest rates, earning the spread between the two. The risk is that currency market moves can erase those profits.
Benchmark interest rates are 7 percent in Australia and 7.5 percent in New Zealand, compared with 2 percent in the U.S. and 0.5 percent in Japan.
Australian government bonds gained. The yield on the 10-year note fell 8 basis points, or 0.08 percentage point, to 5.595 percent. The price of the 5.25 percent bond maturing in March 2019 rose 0.649, or A$6.49 per A$1,000 face amount, to 97.289. Bond yields move inversely to prices.
New Zealand's government debt rose. The yield on the 10- year benchmark bond fell 3 basis points to 5.975 percent. The price of the 6 percent security due in December 2017 increased 0.225, or NZ$2.25 per NZ$1,000 face amount, to 101.441.
To contact the reporter on this story: Candice Zachariahs in Sydney at Czachariahs2@bloomberg.net
Read more...
Sept. 15 (Bloomberg) -- The Australian and New Zealand dollars approached two-year lows against the yen as concern Lehman Brother Holding Inc. will file for bankruptcy damped investor appetite for higher-yielding assets.
The currencies, favorites of so-called carry trades, fell after Barclays Plc and Bank of America Corp. pulled out of talks with the U.S. securities firm. The local dollars weakened as banks and brokers began consolidating trades in which Lehman is involved to minimize the impact of a possible liquidation.
``With the Lehman bankruptcy news, risk appetite is going to be very weak,'' said Greg Gibbs, a currency strategist at ABN Amro Holdings NV in Sydney. ``The Aussie and Kiwi should be soft today,'' he said, referring to the currencies by their nicknames.
The Australian dollar dropped 1.7 percent to 87.33 yen at 12:25 p.m. in Sydney, from 88.88 in New York late last week. It fell to 82.27 U.S. cents from 82.36 cents late last week.
The New Zealand dollar slid 1.4 percent to 71.13 yen from 72.12 on Sept. 12. It bought 67.01 U.S. cents from 66.82 cents.
U.S. stock-index futures tumbled on concern a potential Lehman bankruptcy will add to banks' $514 billion of subprime- related losses.
``It's probably likely that a Lehman bankruptcy will weigh on equity markets, risk-appetite and high-yielding currencies such as the Australian dollar,'' John Kyriakopoulos, a currency strategist at National Australia Bank Ltd. in Sydney, wrote in a research note today.
Talks Over
Barclays, which had emerged as a leading candidate to acquire Lehman, pulled out first, contending it couldn't obtain guarantees from the government or other Wall Street firms to protect against potential losses on Lehman's assets. Bank of America withdrew about three hours later, according to a person with knowledge of the talks.
Lehman has lost 94 percent of its market value this year after record losses from investments tied to mortgages.
In carry trades, investors get funds in a country with low borrowing costs and invest in another with higher interest rates, earning the spread between the two. The risk is that currency market moves can erase those profits.
Benchmark interest rates are 7 percent in Australia and 7.5 percent in New Zealand, compared with 2 percent in the U.S. and 0.5 percent in Japan.
Australian government bonds gained. The yield on the 10-year note fell 8 basis points, or 0.08 percentage point, to 5.595 percent. The price of the 5.25 percent bond maturing in March 2019 rose 0.649, or A$6.49 per A$1,000 face amount, to 97.289. Bond yields move inversely to prices.
New Zealand's government debt rose. The yield on the 10- year benchmark bond fell 3 basis points to 5.975 percent. The price of the 6 percent security due in December 2017 increased 0.225, or NZ$2.25 per NZ$1,000 face amount, to 101.441.
To contact the reporter on this story: Candice Zachariahs in Sydney at Czachariahs2@bloomberg.net
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Australian Canola Crop May Reach 1.65 Million Tons, Group Says
By Madelene Pearson
Sept. 15 (Bloomberg) -- Australia, the world's third-largest canola exporter, may produce 1.65 million metric tons this harvest, the Australian Oilseeds Federation said.
``Favorable spring conditions are required to realize the potential, with some upside possible if conditions are good,'' the group said in an e-mailed report.
Today's forecast compares with its August estimate of 1.68 million tons and last year's harvest of 1.07 million tons.
To contact the reporter on this story: Madelene Pearson in Melbourne on mpearson1@bloomberg.net
Read more...
Sept. 15 (Bloomberg) -- Australia, the world's third-largest canola exporter, may produce 1.65 million metric tons this harvest, the Australian Oilseeds Federation said.
``Favorable spring conditions are required to realize the potential, with some upside possible if conditions are good,'' the group said in an e-mailed report.
Today's forecast compares with its August estimate of 1.68 million tons and last year's harvest of 1.07 million tons.
To contact the reporter on this story: Madelene Pearson in Melbourne on mpearson1@bloomberg.net
Read more...
Vietnam Seeks Overseas Investment in Agriculture, Thoi Bao Says
By Van Nguyen
Sept. 15 (Bloomberg) -- Vietnam plans to attract $350 million in development aid and overseas investment next year to boost agricultural output, Thoi Bao Kinh Te Vietnam reported, citing an unidentified official of the Ministry of Agriculture.
The member of the Association of Southeast Asian Nations will promote free-trade talks with South Korea, India, Japan and Australia next year to increase farm exports, the report said.
To contact the reporter on this story: Van Nguyen in Ho Chi Minh City at vnguyen23@bloomberg.net
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Sept. 15 (Bloomberg) -- Vietnam plans to attract $350 million in development aid and overseas investment next year to boost agricultural output, Thoi Bao Kinh Te Vietnam reported, citing an unidentified official of the Ministry of Agriculture.
The member of the Association of Southeast Asian Nations will promote free-trade talks with South Korea, India, Japan and Australia next year to increase farm exports, the report said.
To contact the reporter on this story: Van Nguyen in Ho Chi Minh City at vnguyen23@bloomberg.net
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Corn, Soybeans May Rise as Remnants of Ike Drench U.S. Crops
By Jeff Wilson
Sept. 15 (Bloomberg) -- Corn and soybeans may rise for a second straight week on speculation excessive rains and winds from Hurricane Ike may damage the two biggest U.S. crops.
Twenty-one of 32 traders, advisers and grain merchants surveyed Sept. 12 from Beijing to Chicago said corn would rise, and 21 of 33 respondents said to buy soybeans. Corn rose 2.7 percent last week to $5.6325 a bushel on the Chicago Board of Trade, the first gain in the last three weeks. Soybeans rose 2.1 percent to $12.02 a bushel. On Sept. 9, soybeans touched $11.57, the lowest since April 1.
Last week's gains were a surprise to the majority of respondents surveyed Sept. 5. Since 2004, 57 percent of the surveys were correct for corn and 60 percent for soybeans.
Weekly results: Bullish on corn: 21 Bullish on soybeans: 21 Bearish on corn: 11 Bearish on soybeans: 12
To contact the reporter on this story: Jeff Wilson in Chicago at jwilson29@bloomberg.net.
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Sept. 15 (Bloomberg) -- Corn and soybeans may rise for a second straight week on speculation excessive rains and winds from Hurricane Ike may damage the two biggest U.S. crops.
Twenty-one of 32 traders, advisers and grain merchants surveyed Sept. 12 from Beijing to Chicago said corn would rise, and 21 of 33 respondents said to buy soybeans. Corn rose 2.7 percent last week to $5.6325 a bushel on the Chicago Board of Trade, the first gain in the last three weeks. Soybeans rose 2.1 percent to $12.02 a bushel. On Sept. 9, soybeans touched $11.57, the lowest since April 1.
Last week's gains were a surprise to the majority of respondents surveyed Sept. 5. Since 2004, 57 percent of the surveys were correct for corn and 60 percent for soybeans.
Weekly results: Bullish on corn: 21 Bullish on soybeans: 21 Bearish on corn: 11 Bearish on soybeans: 12
To contact the reporter on this story: Jeff Wilson in Chicago at jwilson29@bloomberg.net.
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Gold Prices May Rebound on Demand for Alternative to Dollar
By Pham-Duy Nguyen
Sept. 15 (Bloomberg) -- Gold may rebound on speculation that the dollar's rally against the euro will stall, boosting demand for the precious metal as an alternative investment.
Fifteen of 28 traders, investors and analysts surveyed from Mumbai to Chicago on Sept. 11 and Sept. 12 advised buying gold, which fell 4.8 percent last week to $764.50 an ounce in New York. Nine said to sell, and four were neutral.
Gold generally moves in the opposite direction of the U.S. currency. The metal reached a record $1,033.90 in March as the dollar weakened to the lowest ever against the euro in July.
Gold's loss last week surprised most analysts surveyed Sept. 4 and Sept. 5. The survey has forecast prices accurately in 136 of 228 weeks, or 60 percent of the time.
This week's survey results: Bullish: 15 Bearish: 9 Neutral: 4
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
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Sept. 15 (Bloomberg) -- Gold may rebound on speculation that the dollar's rally against the euro will stall, boosting demand for the precious metal as an alternative investment.
Fifteen of 28 traders, investors and analysts surveyed from Mumbai to Chicago on Sept. 11 and Sept. 12 advised buying gold, which fell 4.8 percent last week to $764.50 an ounce in New York. Nine said to sell, and four were neutral.
Gold generally moves in the opposite direction of the U.S. currency. The metal reached a record $1,033.90 in March as the dollar weakened to the lowest ever against the euro in July.
Gold's loss last week surprised most analysts surveyed Sept. 4 and Sept. 5. The survey has forecast prices accurately in 136 of 228 weeks, or 60 percent of the time.
This week's survey results: Bullish: 15 Bearish: 9 Neutral: 4
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
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Copper Gains as U.S. Dollar Drops on Financial System Concerns
By Glenys Sim
Sept. 15 (Bloomberg) -- Copper gained in Asia after the U.S. dollar slipped as the financial industry braced for a Lehman Brothers Holdings Inc. bankruptcy filing after Barclays Plc and Bank of America Corp. abandoned talks to buy it.
Bank of America Corp. meanwhile agreed to buy Merrill Lynch & Co. for about $44 billion, and the Federal Reserve widened the collateral it accepts for loans to Wall Street bond dealers.
``There will be worries about stresses in the U.S. financial system and how this will tie in with economic growth,'' David Moore, commodity strategist at Commonwealth Bank of Australia in Sydney, said by phone today. ``Base metals do best when the world economy is strong.''
Copper for delivery in three months climbed 0.4 percent to $7,150 a metric ton on the London Metal Exchange at 10:07 a.m. Singapore time, after falling as much as 1.4 percent earlier.
The Shanghai Futures Exchange is closed today for the Mid- Autumn Festival holiday.
Dollar-denominated metals tend to rise when the dollar falls as they become cheaper for holders of other currencies. The dollar traded at $1.4342 per euro from $1.4224 in New York late last week. It stood at 106.13 yen at 10:03 a.m. in Singapore, from 107.94 last week.
Among other LME-traded metals, aluminum was unchanged at $2,665 a ton, zinc slipped 0.6 percent to $1,875, and nickel was down 1.3 percent at $19,000. Lead and tin had not traded as of 10:06 a.m. in Singapore.
To contact the reporter for this story: Glenys Sim in Singapore at gsim4@bloomberg.net
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Sept. 15 (Bloomberg) -- Copper gained in Asia after the U.S. dollar slipped as the financial industry braced for a Lehman Brothers Holdings Inc. bankruptcy filing after Barclays Plc and Bank of America Corp. abandoned talks to buy it.
Bank of America Corp. meanwhile agreed to buy Merrill Lynch & Co. for about $44 billion, and the Federal Reserve widened the collateral it accepts for loans to Wall Street bond dealers.
``There will be worries about stresses in the U.S. financial system and how this will tie in with economic growth,'' David Moore, commodity strategist at Commonwealth Bank of Australia in Sydney, said by phone today. ``Base metals do best when the world economy is strong.''
Copper for delivery in three months climbed 0.4 percent to $7,150 a metric ton on the London Metal Exchange at 10:07 a.m. Singapore time, after falling as much as 1.4 percent earlier.
The Shanghai Futures Exchange is closed today for the Mid- Autumn Festival holiday.
Dollar-denominated metals tend to rise when the dollar falls as they become cheaper for holders of other currencies. The dollar traded at $1.4342 per euro from $1.4224 in New York late last week. It stood at 106.13 yen at 10:03 a.m. in Singapore, from 107.94 last week.
Among other LME-traded metals, aluminum was unchanged at $2,665 a ton, zinc slipped 0.6 percent to $1,875, and nickel was down 1.3 percent at $19,000. Lead and tin had not traded as of 10:06 a.m. in Singapore.
To contact the reporter for this story: Glenys Sim in Singapore at gsim4@bloomberg.net
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Centro Shares Slump After Buyer Pulls Out of U.S. Asset Sale
By Robert Fenner
Sept. 15 (Bloomberg) -- Centro Properties Group, the shopping mall owner facing a Sept. 30 deadline to repay some of its debt, slumped to a record low after a planned U.S. asset sale fell through.
Centro shares fell 18 percent to 8.6 Australian cents at 10:13 a.m. in Sydney. A private real estate investment adviser decided against buying a 46.65 percent stake in the Centro America Fund for $714 million after examining the unit's books, Melbourne-based Centro Properties said today in a statement.
Chief Executive Officer Glenn Rufrano, 58, is trying to sell assets and raise cash. The collapse of the sale comes two weeks after Centro failed to find a buyer for its Bankstown mall in Sydney's western suburbs.
The planned U.S. deal, at a 10 percent discount to book value, was a first step toward Centro repaying debt it was unable to refinance when the seizure in global credit markets shut its funding avenues.
Centro Properties, which owns and manages more than A$24 billion of shopping malls in the U.S., Australia and New Zealand, has plunged more than 98 percent since Dec. 17 when the company said it was struggling to repay debt. That's slashed its market value to less than A$75 million ($62 million), from a peak of A$8.5 billion in May 2007.
Mitchell Brown, a spokesman for Centro, wasn't immediately available to comment.
To contact the reporter on this story: Robert Fenner in Melbourne rfenner@bloomberg.net
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Sept. 15 (Bloomberg) -- Centro Properties Group, the shopping mall owner facing a Sept. 30 deadline to repay some of its debt, slumped to a record low after a planned U.S. asset sale fell through.
Centro shares fell 18 percent to 8.6 Australian cents at 10:13 a.m. in Sydney. A private real estate investment adviser decided against buying a 46.65 percent stake in the Centro America Fund for $714 million after examining the unit's books, Melbourne-based Centro Properties said today in a statement.
Chief Executive Officer Glenn Rufrano, 58, is trying to sell assets and raise cash. The collapse of the sale comes two weeks after Centro failed to find a buyer for its Bankstown mall in Sydney's western suburbs.
The planned U.S. deal, at a 10 percent discount to book value, was a first step toward Centro repaying debt it was unable to refinance when the seizure in global credit markets shut its funding avenues.
Centro Properties, which owns and manages more than A$24 billion of shopping malls in the U.S., Australia and New Zealand, has plunged more than 98 percent since Dec. 17 when the company said it was struggling to repay debt. That's slashed its market value to less than A$75 million ($62 million), from a peak of A$8.5 billion in May 2007.
Mitchell Brown, a spokesman for Centro, wasn't immediately available to comment.
To contact the reporter on this story: Robert Fenner in Melbourne rfenner@bloomberg.net
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Toro, Energy Rise as State Set to Allow Uranium Mines
By Jason Scott
Sept. 15 (Bloomberg) -- Toro Energy Ltd. and Energy & Minerals Australia Ltd. led gains in shares of Western Australian uranium explorers as the Liberal Party, which has indicated it will allow mining of the fuel in the state, won the right to govern.
Toro rose as much as 49 percent in Sydney trading, the most since March 2006, and was up 35 percent to 29 Australian cents at 11:46 a.m. Energy & Minerals surged as much as 33 percent, the most in a week. Uranex NL gained 28 percent, the biggest jump since April 2006.
The Liberals want to open the state, which accounts for more than a third of the nation's exports, to uranium miners such as Cameco Corp., the world's biggest producer, and BHP Billiton Ltd. Western Australia has as much as 10 percent of the world's known uranium reserves, worth about A$40 billion ($32 billion), according to an estimate from the federal government last year.
``Projects are now going to be developed, which they couldn't before, and there will be a flurry of interest in the sector,'' said Gavin Wendt, senior resources analyst at Fat Prophets Funds Management in Sydney. ``Whilst they will be given the green light politically, they still have to be developed on sound economics.''
Mulga Rocks
The election result means Adelaide-based Toro will work on enhancing its Wiluna project, which includes the Lake Way and Centipede deposits east of Meekatharra, it said in a statement.
``We can now focus on enhancing the resource, environmental, economics, health and technical analysis of Wiluna to ensure its project economics provide the right value for the Company's shareholders and for potential development,'' Toro Energy Managing Director Greg Hall said in the statement today.
Perth-Based Energy & Minerals wants to mine uranium at its Mulga Rocks Deposits, 250 kilometers (155 miles) east-northeast of Kalgoorlie.
``Based on past exploration, which includes 1,600 drill holes, Mulga Rocks represents Australia's largest uranium deposit not controlled by either BHP Billiton Ltd. or Rio Tinto Group,'' Energy & Minerals said in a Sept. 12 statement.
Uranex, also based in the Western Australian capital, has deposits at Thatcher Soak, 130 kilometers northeast of Laverton.
Paladin Energy Ltd., a Perth-based producer of uranium in Africa, is also benefiting from the change of government in Western Australia, where it owns the Manyingee and Oobagooma uranium resource sites. Paladin rose as much as 7.4 percent and were trading 3.6 percent higher at A$4.89.
Cameco, BHP
Cameco, based in Saskatoon, Canada, agreed in July to buy a majority stake in the Kintyre exploration project in Western Australia from Rio Tinto Group for $346.5 million.
BHP's Yeelirrie resource and Toro Energy's project are probably the most advanced in the state, according to analyst John Wilson at Sydney-based Resource Capital Research Pty. Uranex and Energy & Minerals have earlier-stage projects, he said.
BHP rose as much as 2.8 percent and were trading 0.8 percent higher at A$36.28.
Crossland Uranium Mines Ltd. today said it will intensify exploration at its Crossland Creek site in Western Australia due to the election result.
``Crossland, with its Canadian-listed joint venture partner Pancontinental Uranium Corp., will be allocating additional resources to our Crossland Creek project in the West Kimberley region now that there will be a Western Australian government that says it will not impose a ban on uranium mining,'' Chief Executive Officer Geoff Eupene said in a statement today.
The Sydney-based company's shares rose 13 percent to 9 cents.
Liberal leader Colin Barnett will take over from Labor's Alan Carpenter as the state's new premier, ending a week of political gridlock after a Sept. 6 poll failed to produce a clear winner.
To contact the reporters on this story: Jason Scott in Perth at Jscott14@bloomberg.net;
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Sept. 15 (Bloomberg) -- Toro Energy Ltd. and Energy & Minerals Australia Ltd. led gains in shares of Western Australian uranium explorers as the Liberal Party, which has indicated it will allow mining of the fuel in the state, won the right to govern.
Toro rose as much as 49 percent in Sydney trading, the most since March 2006, and was up 35 percent to 29 Australian cents at 11:46 a.m. Energy & Minerals surged as much as 33 percent, the most in a week. Uranex NL gained 28 percent, the biggest jump since April 2006.
The Liberals want to open the state, which accounts for more than a third of the nation's exports, to uranium miners such as Cameco Corp., the world's biggest producer, and BHP Billiton Ltd. Western Australia has as much as 10 percent of the world's known uranium reserves, worth about A$40 billion ($32 billion), according to an estimate from the federal government last year.
``Projects are now going to be developed, which they couldn't before, and there will be a flurry of interest in the sector,'' said Gavin Wendt, senior resources analyst at Fat Prophets Funds Management in Sydney. ``Whilst they will be given the green light politically, they still have to be developed on sound economics.''
Mulga Rocks
The election result means Adelaide-based Toro will work on enhancing its Wiluna project, which includes the Lake Way and Centipede deposits east of Meekatharra, it said in a statement.
``We can now focus on enhancing the resource, environmental, economics, health and technical analysis of Wiluna to ensure its project economics provide the right value for the Company's shareholders and for potential development,'' Toro Energy Managing Director Greg Hall said in the statement today.
Perth-Based Energy & Minerals wants to mine uranium at its Mulga Rocks Deposits, 250 kilometers (155 miles) east-northeast of Kalgoorlie.
``Based on past exploration, which includes 1,600 drill holes, Mulga Rocks represents Australia's largest uranium deposit not controlled by either BHP Billiton Ltd. or Rio Tinto Group,'' Energy & Minerals said in a Sept. 12 statement.
Uranex, also based in the Western Australian capital, has deposits at Thatcher Soak, 130 kilometers northeast of Laverton.
Paladin Energy Ltd., a Perth-based producer of uranium in Africa, is also benefiting from the change of government in Western Australia, where it owns the Manyingee and Oobagooma uranium resource sites. Paladin rose as much as 7.4 percent and were trading 3.6 percent higher at A$4.89.
Cameco, BHP
Cameco, based in Saskatoon, Canada, agreed in July to buy a majority stake in the Kintyre exploration project in Western Australia from Rio Tinto Group for $346.5 million.
BHP's Yeelirrie resource and Toro Energy's project are probably the most advanced in the state, according to analyst John Wilson at Sydney-based Resource Capital Research Pty. Uranex and Energy & Minerals have earlier-stage projects, he said.
BHP rose as much as 2.8 percent and were trading 0.8 percent higher at A$36.28.
Crossland Uranium Mines Ltd. today said it will intensify exploration at its Crossland Creek site in Western Australia due to the election result.
``Crossland, with its Canadian-listed joint venture partner Pancontinental Uranium Corp., will be allocating additional resources to our Crossland Creek project in the West Kimberley region now that there will be a Western Australian government that says it will not impose a ban on uranium mining,'' Chief Executive Officer Geoff Eupene said in a statement today.
The Sydney-based company's shares rose 13 percent to 9 cents.
Liberal leader Colin Barnett will take over from Labor's Alan Carpenter as the state's new premier, ending a week of political gridlock after a Sept. 6 poll failed to produce a clear winner.
To contact the reporters on this story: Jason Scott in Perth at Jscott14@bloomberg.net;
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Singapore Stocks: Keppel, Singapore Exchange, Singapore Telecom
By Simeon Bennett and Chen Shiyin
Sept. 15 (Bloomberg) -- Singapore's Straits Times Index declined 37.31, or 1.5 percent, to 2,533.36 as of 9:21 a.m., on course for its lowest since September 2006. Just two of the benchmark gauge's 30 constituents advanced.
The following companies rose or dropped in Singapore trading. Stock symbols are in parentheses.
Singapore banks: DBS Group Holdings Ltd. (DBS SP), the city's biggest bank, fell 32 cents, or 1.9 percent, to S$16.70, its fifth straight day of losses. United Overseas Bank Ltd. (UOB SP), Singapore's No. 2 bank, declined 30 cents, or 1.6 percent, to S$18.26. Oversea-Chinese Banking Corp. (OCBC SP), Singapore's third-largest, lost 16 cents, or 2.1 percent, to S$7.53.
Financial stocks fell across Asia after Barclays Plc and Bank of America Corp. abandoned talks to buy Lehman Brothers Holdings Inc. and Wall Street prepared for a possible liquidation of the U.S. securities firm.
Cosco Corp. Singapore Ltd. (COS SP), the shipbuilding and repair unit of China's biggest shipping company, tumbled 14 cents, or 8.3 percent, to S$1.55, on course for its lowest since April 1999. The shares have plunged 73 percent this year, the biggest decline on the Straits Times Index. Merrill Lynch & Co. and DBS Vickers Securities last week cut their share-price estimates for the stock, citing concern about slowing orders.
Keppel Corp. (KEP SP), the world's largest builder of shallow-water oil rigs, declined 7 cents, or 0.8 percent, to S$8.57. Keppel has won the right to buy an incineration plant from the Singapore government after a bid of S$462 million ($323 million) and will set up a trust for the facility, the company said.
Singapore Exchange Ltd. (SGX SP), the operator of the city- state's securities and derivatives markets, slumped 15 cents, or 2.5 percent, to S$5.97, sliding to the lowest in more than a week. Citigroup Inc. cut its share-price estimate by 27 percent to S$4.70 and reiterated its ``sell'' rating on the stock, saying a looming recession will weigh on turnover.
Singapore Petroleum Co. (SPC SP), the city-state's only publicly traded refiner and explorer, fell 8 cents, or 1.8 percent, to S$4.47, set for its lowest since March 2007. The company cut fuel prices at its service stations by 5 Singapore cents per liter, it said in a Sept. 12 statement after the close of trading.
Singapore Telecommunications Ltd. (ST SP), Southeast Asia's largest phone company, fell 7 cents, or 2.1 percent, to S$3.29, retreating for the fourth time in five days. The company will review a decision of the Indonesian Supreme Court to uphold a ruling that Temasek Holdings Pte breached the nation's anti- monopoly laws before deciding its course of action, Singapore Telecommunications said.
The court upheld a ruling Sept. 12 by the competition regulator, which said Temasek breached antitrust laws by using indirect stakes in PT Telekomunikasi Selular, known as Telkomsel, and PT Indosat to fix prices.
To contact the reporters on this story: Simeon Bennett in Singapore at sbennett9@bloomberg.net; Chen Shiyin in Singapore at schen37@bloomberg.net.
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Sept. 15 (Bloomberg) -- Singapore's Straits Times Index declined 37.31, or 1.5 percent, to 2,533.36 as of 9:21 a.m., on course for its lowest since September 2006. Just two of the benchmark gauge's 30 constituents advanced.
The following companies rose or dropped in Singapore trading. Stock symbols are in parentheses.
Singapore banks: DBS Group Holdings Ltd. (DBS SP), the city's biggest bank, fell 32 cents, or 1.9 percent, to S$16.70, its fifth straight day of losses. United Overseas Bank Ltd. (UOB SP), Singapore's No. 2 bank, declined 30 cents, or 1.6 percent, to S$18.26. Oversea-Chinese Banking Corp. (OCBC SP), Singapore's third-largest, lost 16 cents, or 2.1 percent, to S$7.53.
Financial stocks fell across Asia after Barclays Plc and Bank of America Corp. abandoned talks to buy Lehman Brothers Holdings Inc. and Wall Street prepared for a possible liquidation of the U.S. securities firm.
Cosco Corp. Singapore Ltd. (COS SP), the shipbuilding and repair unit of China's biggest shipping company, tumbled 14 cents, or 8.3 percent, to S$1.55, on course for its lowest since April 1999. The shares have plunged 73 percent this year, the biggest decline on the Straits Times Index. Merrill Lynch & Co. and DBS Vickers Securities last week cut their share-price estimates for the stock, citing concern about slowing orders.
Keppel Corp. (KEP SP), the world's largest builder of shallow-water oil rigs, declined 7 cents, or 0.8 percent, to S$8.57. Keppel has won the right to buy an incineration plant from the Singapore government after a bid of S$462 million ($323 million) and will set up a trust for the facility, the company said.
Singapore Exchange Ltd. (SGX SP), the operator of the city- state's securities and derivatives markets, slumped 15 cents, or 2.5 percent, to S$5.97, sliding to the lowest in more than a week. Citigroup Inc. cut its share-price estimate by 27 percent to S$4.70 and reiterated its ``sell'' rating on the stock, saying a looming recession will weigh on turnover.
Singapore Petroleum Co. (SPC SP), the city-state's only publicly traded refiner and explorer, fell 8 cents, or 1.8 percent, to S$4.47, set for its lowest since March 2007. The company cut fuel prices at its service stations by 5 Singapore cents per liter, it said in a Sept. 12 statement after the close of trading.
Singapore Telecommunications Ltd. (ST SP), Southeast Asia's largest phone company, fell 7 cents, or 2.1 percent, to S$3.29, retreating for the fourth time in five days. The company will review a decision of the Indonesian Supreme Court to uphold a ruling that Temasek Holdings Pte breached the nation's anti- monopoly laws before deciding its course of action, Singapore Telecommunications said.
The court upheld a ruling Sept. 12 by the competition regulator, which said Temasek breached antitrust laws by using indirect stakes in PT Telekomunikasi Selular, known as Telkomsel, and PT Indosat to fix prices.
To contact the reporters on this story: Simeon Bennett in Singapore at sbennett9@bloomberg.net; Chen Shiyin in Singapore at schen37@bloomberg.net.
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Australia Stocks: BHP, Macquarie, Newcrest, OZ Minerals, Santos
By Shani Raja and Ian C. Sayson
Sept. 15 (Bloomberg) -- The S&P/ASX 200 Index fell 104.40 points, or 2.1 percent, to 4,799.40 as of 12:02 p.m. in Sydney. The S&P/ASX 200 Index futures contract due in September lost 1.7 percent to 4,840. The All Ordinaries Index decreased 1.2 percent to 4,897.30.
The following is a list of companies whose shares were actively traded in Australia. Stocks symbols are in parentheses after company names.
Financial stocks: Macquarie Group Ltd. (MQG AU), Australia's biggest securities company, dropped A$3.24, or 7.4 percent, to A$40.77, heading for its lowest close since Nov. 10, 2004 after Lehman Brothers Holdings Inc. moved closer to filing for bankruptcy in the U.S. National Australia Bank (NAB AU) sank 86 cents, or 3.6 percent, to A$23.10, the lowest since April 2000.
Barclays Plc and Bank of America Corp. abandoned talks to buy Lehman Brothers and Wall Street prepared for possible liquidation of the U.S. securities firm.
Mining shares: Minara Resources Ltd. (MRE AU), Australia's second-largest nickel producer, gained 8 cents, or 8.1 percent, to A$1.14, the second-best performer on the index. OZ Minerals Ltd. (OZL AU), the world's second-largest zinc mining company, had its biggest gain since Aug. 22, rising 9 cents, or 6.7 percent, to A$1.44.
A measure of six metals traded on the London Metal Exchange advanced 2.9 percent, with zinc climbing 5.1 percent and copper 2.8 percent.
Newcrest Mining Ltd. (NCM AU), Australia's biggest gold producer, advanced A$1.40. or 7.2 percent, to A$20.90, the most since June 27 and the benchmark's third-biggest gainer. Lihir Gold Ltd. (LGL AU), the second-largest producer of the metal on the Australian stock exchange, was the best performer, surging 17 cents, or 9.4 percent, to A$1.98, the most since January.
Fifteen of 28 traders, investors and analysts surveyed from Mumbai to Chicago on Sept. 11 and Sept. 12 advised buying gold, on speculation the dollar's rally against the euro will stall, boosting demand for the precious metal as an alternative investment.
Babcock & Brown Ltd. (BNB AU), the Australian infrastructure manager that's lost most of its market value this year, slumped 15 percent to A$1.62, a record low. Director Phil Green formally resigned from the board, the company said in a statement today.
Centro Properties Group (CNP AU), the shopping mall owner facing a Sept. 30 deadline to repay some of its debt, slumped 2 cents, or 19 percent, to a record low 9 cents, after a planned U.S. asset sale fell through.
Energy & Minerals Australia Ltd. (EMA AU) rallied 10 cents, or 22 percent, to 55 cents, the highest since July 24. Shares of Western Australian uranium explorers gained as the Liberal Party, which has indicated it will allow mining of the nuclear fuel in the state, won the right to govern.
Santos Ltd. (STO AU), Australia's third-biggest oil and gas producer, fell 83 cents, or 4.3 percent, to A$18.54, the most since Sept. 3. The company faces a blow-out in the clean-up bill from a mud flow in East Java that started in 2006 and affects 75,000 people, the Australian Financial Review said. Santos's share of the mitigation cost could be as high as A$830 million, nearly 10 times more than the company has disclosed to the market, the newspaper reported.
To contact the reporter on this story: Ian C. Sayson in Manila at isayson@bloomberg.netShani Raja in Sydney at sraja4@bloomberg.net.
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Sept. 15 (Bloomberg) -- The S&P/ASX 200 Index fell 104.40 points, or 2.1 percent, to 4,799.40 as of 12:02 p.m. in Sydney. The S&P/ASX 200 Index futures contract due in September lost 1.7 percent to 4,840. The All Ordinaries Index decreased 1.2 percent to 4,897.30.
The following is a list of companies whose shares were actively traded in Australia. Stocks symbols are in parentheses after company names.
Financial stocks: Macquarie Group Ltd. (MQG AU), Australia's biggest securities company, dropped A$3.24, or 7.4 percent, to A$40.77, heading for its lowest close since Nov. 10, 2004 after Lehman Brothers Holdings Inc. moved closer to filing for bankruptcy in the U.S. National Australia Bank (NAB AU) sank 86 cents, or 3.6 percent, to A$23.10, the lowest since April 2000.
Barclays Plc and Bank of America Corp. abandoned talks to buy Lehman Brothers and Wall Street prepared for possible liquidation of the U.S. securities firm.
Mining shares: Minara Resources Ltd. (MRE AU), Australia's second-largest nickel producer, gained 8 cents, or 8.1 percent, to A$1.14, the second-best performer on the index. OZ Minerals Ltd. (OZL AU), the world's second-largest zinc mining company, had its biggest gain since Aug. 22, rising 9 cents, or 6.7 percent, to A$1.44.
A measure of six metals traded on the London Metal Exchange advanced 2.9 percent, with zinc climbing 5.1 percent and copper 2.8 percent.
Newcrest Mining Ltd. (NCM AU), Australia's biggest gold producer, advanced A$1.40. or 7.2 percent, to A$20.90, the most since June 27 and the benchmark's third-biggest gainer. Lihir Gold Ltd. (LGL AU), the second-largest producer of the metal on the Australian stock exchange, was the best performer, surging 17 cents, or 9.4 percent, to A$1.98, the most since January.
Fifteen of 28 traders, investors and analysts surveyed from Mumbai to Chicago on Sept. 11 and Sept. 12 advised buying gold, on speculation the dollar's rally against the euro will stall, boosting demand for the precious metal as an alternative investment.
Babcock & Brown Ltd. (BNB AU), the Australian infrastructure manager that's lost most of its market value this year, slumped 15 percent to A$1.62, a record low. Director Phil Green formally resigned from the board, the company said in a statement today.
Centro Properties Group (CNP AU), the shopping mall owner facing a Sept. 30 deadline to repay some of its debt, slumped 2 cents, or 19 percent, to a record low 9 cents, after a planned U.S. asset sale fell through.
Energy & Minerals Australia Ltd. (EMA AU) rallied 10 cents, or 22 percent, to 55 cents, the highest since July 24. Shares of Western Australian uranium explorers gained as the Liberal Party, which has indicated it will allow mining of the nuclear fuel in the state, won the right to govern.
Santos Ltd. (STO AU), Australia's third-biggest oil and gas producer, fell 83 cents, or 4.3 percent, to A$18.54, the most since Sept. 3. The company faces a blow-out in the clean-up bill from a mud flow in East Java that started in 2006 and affects 75,000 people, the Australian Financial Review said. Santos's share of the mitigation cost could be as high as A$830 million, nearly 10 times more than the company has disclosed to the market, the newspaper reported.
To contact the reporter on this story: Ian C. Sayson in Manila at isayson@bloomberg.netShani Raja in Sydney at sraja4@bloomberg.net.
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Daily Technical Analysis
Daily Forex Technicals | Written by FX Instructor | Sep 15 08 03:22 GMT |
EURUSD Outlook
The EURUSD recovered on Friday, topped at 1.4232 and closed at 1.4228. Early today in Asian market the pair continued it's bullish momentum, traded around 1.4340 at the time I wrote this comment. From a broader view, we are in an important phase as the pair is now testing a major resistance level at 1.4357 (red line on the chart). A break from that level could trigger further bullish scenario towards 1.5000 area, while a failure would keep bearish scenario intact. My model is mixed with upside bias. CCI just cross -100 line up on daily chart suggesting a potential bullish view.
EURUSD Daily Supports and Resistances:
S1= 1.4056
S2= 1.3884
S3= 1.3796
R1= 1.4316
R2= 1.4404
R3= 1.4576
GBPUSD Outlook
The Sterling continued to recover against Greenback on Friday. The pair topped at 1.7959 and closed at 1.7939. Early today in Asian market the pair is traded higher, around 1.8025 at the time I wrote this comment. My model is mixed with upside bias. Immediate support is seen at 1.7950. Initial resistance at 1.8085. CCI just cross -100 line up on daily chart, suggesting a potential bullish view.
GBPUSD Daily Supports and Resistances:
S1= 1.7667
S2= 1.7395
S3= 1.7249
R1= 1.8085
R2= 1.8231
R3= 1.8503
USDJPY Outlook
The USDJPY was traded higher on Friday, topped at 107.97 and closed at 107.93. However we have huge gap of 196 pips in Asian market opening today as the pair was opened at 105.97 and traded around 106.15 at the time I wrote this comment. My model is mixed with downside bias. Immediate resistance is seen at 106.86. Initial support at 105.50. CCI just cross -100 line down on daily chart suggesting a potential bearish view.
USDJPY Daily Supports and Resistances:
S1= 107.10
S2= 106.27
S3= 105.84
R1= 108.36
R2= 108.79
R3= 109.62
USDCHF Outlook
The USDCHF was corrected lower on Friday. The pair bottomed at 1.1290 and closed at 1.1298. I am expecting further bearish scenario today. My model is mixed with downside bias. Immediate resistance is seen at 1.1220. Initial support at 1.1127 followed by 1.1080. CCI just cross -100 down on daily chart suggesting a potential bearish view.
USDCHF Daily Supports and Resistances:
S1= 1.1259
S2= 1.1220
S3= 1.1150
R1= 1.1368
R2= 1.1438
R3= 1.1477
FX Instructor LLC
www.fxinstructor.com
The information has been prepared for information purposes only. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. This information contained herein is derived from sources we believe to be reliable, but of which we have not independently verified. FXInstructor LLC assumes no responsibilities for errors, inaccuracies or omissions in these materials, nor shall it be liable for damages arising out of any person's reliance upon this information. FXInstructor LLC does not warrant the accuracy or completeness of the information, text, graphics, links or other items contained within these materials. FXInstructor LLC shall not be liable for any indirect, incidental, or consequential damages including without limitation losses, lost revenues or lost profits that may result from these materials. Opinions and estimates constitute our judgment and are subject to change without notice. Past performance is not indicative of future results
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EURUSD Outlook
The EURUSD recovered on Friday, topped at 1.4232 and closed at 1.4228. Early today in Asian market the pair continued it's bullish momentum, traded around 1.4340 at the time I wrote this comment. From a broader view, we are in an important phase as the pair is now testing a major resistance level at 1.4357 (red line on the chart). A break from that level could trigger further bullish scenario towards 1.5000 area, while a failure would keep bearish scenario intact. My model is mixed with upside bias. CCI just cross -100 line up on daily chart suggesting a potential bullish view.
EURUSD Daily Supports and Resistances:
S1= 1.4056
S2= 1.3884
S3= 1.3796
R1= 1.4316
R2= 1.4404
R3= 1.4576
GBPUSD Outlook
The Sterling continued to recover against Greenback on Friday. The pair topped at 1.7959 and closed at 1.7939. Early today in Asian market the pair is traded higher, around 1.8025 at the time I wrote this comment. My model is mixed with upside bias. Immediate support is seen at 1.7950. Initial resistance at 1.8085. CCI just cross -100 line up on daily chart, suggesting a potential bullish view.
GBPUSD Daily Supports and Resistances:
S1= 1.7667
S2= 1.7395
S3= 1.7249
R1= 1.8085
R2= 1.8231
R3= 1.8503
USDJPY Outlook
The USDJPY was traded higher on Friday, topped at 107.97 and closed at 107.93. However we have huge gap of 196 pips in Asian market opening today as the pair was opened at 105.97 and traded around 106.15 at the time I wrote this comment. My model is mixed with downside bias. Immediate resistance is seen at 106.86. Initial support at 105.50. CCI just cross -100 line down on daily chart suggesting a potential bearish view.
USDJPY Daily Supports and Resistances:
S1= 107.10
S2= 106.27
S3= 105.84
R1= 108.36
R2= 108.79
R3= 109.62
USDCHF Outlook
The USDCHF was corrected lower on Friday. The pair bottomed at 1.1290 and closed at 1.1298. I am expecting further bearish scenario today. My model is mixed with downside bias. Immediate resistance is seen at 1.1220. Initial support at 1.1127 followed by 1.1080. CCI just cross -100 down on daily chart suggesting a potential bearish view.
USDCHF Daily Supports and Resistances:
S1= 1.1259
S2= 1.1220
S3= 1.1150
R1= 1.1368
R2= 1.1438
R3= 1.1477
FX Instructor LLC
www.fxinstructor.com
The information has been prepared for information purposes only. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. This information contained herein is derived from sources we believe to be reliable, but of which we have not independently verified. FXInstructor LLC assumes no responsibilities for errors, inaccuracies or omissions in these materials, nor shall it be liable for damages arising out of any person's reliance upon this information. FXInstructor LLC does not warrant the accuracy or completeness of the information, text, graphics, links or other items contained within these materials. FXInstructor LLC shall not be liable for any indirect, incidental, or consequential damages including without limitation losses, lost revenues or lost profits that may result from these materials. Opinions and estimates constitute our judgment and are subject to change without notice. Past performance is not indicative of future results
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Pink Floyd's Money Travels Long Way to Mongolia: William Pesek
Commentary by William Pesek
Sept. 15 (Bloomberg) -- Everyone has globalization moments, those surreal intersections of foreign influences and familiar rhythms. This one involves Pink Floyd and Mongolia.
Last Friday, Air China 902 was packed with more white faces than you would typically see on flights from Ulaanbaatar to Beijing. It was carrying many of the 200 international financiers attending a EuroMoney conference on investing in Mongolia.
As they shuffled aboard, Pink Floyd's ``Money'' was playing overhead. It was impossible to miss the irony of a diatribe against capitalism serving as a soundtrack of sorts to the gold- rush dynamic in one of Asia's most impoverished nations. Thanks to underground riches like copper and gold, Mongolia is on the cusp of a huge influx of money.
That's where the trouble begins.
It's not hard to find Mongolia's poverty. As more of the nation's 2.7 million people cluster around cities such as Ulaanbaatar, many in this traditionally nomadic country can't find jobs. More than half of those in Ulaanbaatar live in yurts or other types of temporary housing.
Mongolia's future is about to be dug out of the ground. Its nascent mining boom is the quickest route to prosperity. Some analysts say it will boost gross domestic product by more than 30 percent within a few years. The official estimate for growth in 2008 is almost 9 percent.
You would think observers of a place where average incomes are less than $200 a month would be rather enthused about all this. In the case of economists such as Tserenpuntsag Batbold, who works in New York for the United Nations Secretariat's Financing for Development Office, you would be mistaken.
Resources and Poverty
As a Mongolian, Batbold understands his nation is holding a winning lottery ticket. His concern is the strong correlation between poverty and countries with natural resources such as gold, oil or diamonds. Resource wealth tends to breed corruption and tunnel vision among leaders.
``There is no question about the potential for Mongolia, and I'm quite optimistic,'' Batbold says. ``But we need to make sure we do better than other nations have done with their riches.''
Adds Graeme Hancock, the World Bank's senior Mongolia mining specialist: ``The question is how Mongolia avoids being overwhelmed by its resources -- how the people derive value from them.''
Investors complain the government is dragging its feet on revised laws dictating how mining proceeds will be divided. Companies Rio Tinto Group and Ivanhoe Mines Ltd., which invested more than four years seeking approval for a $3 billion project to develop Mongolia's Oyu Tolgoi deposits of gold and copper, are left wondering what gives.
Doing Right Thing
An argument can be made that Mongolia needs to act faster to allow miners to do their thing. There's a better one for Mongolia to take its time to make sure it gets these decisions right.
From Nigeria to Indonesia to Sierra Leone, history has too many examples of governments mishandling resources. Politicians and the well-connected get wealthy, while the needs of broader populations are ignored. Contracts are handed out with little transparency, ensuring profits are concentrated among the elite.
The sudden appearance of vast resources gives governments less incentive to create other viable industries. Why bother to nurture manufacturing, agriculture or textile industries that would employ much of the population when the real money is in minerals and energy?
``Mongolia is at such a vital crossroads today,'' says Chuluundorj Khashchuluun, director of economics at the National University of Mongolia. ``We will look back in 10 years and be wealthier because of decisions made today, or wondering how things went very wrong.''
Political Will
Political will is the key variable. One of Batbold's concerns is ``institutional weakness'' in a democracy as young as Mongolia's. At the early stages of any resources boom, it's necessary to have independent lawmakers, regulators and courts making sure the people benefit. Here, Mongolia has a way to go.
``It's important to see whether the government is ready to enforce what it needs to,'' says Bert van der Toorn, Singapore- based managing director at ING Wholesale Banking.
Mongolia has a number of comparative advantages. For example, 30 percent of its people are younger than 15. Proximity to fast-growing China is another. The catch is that the government has to do the right things, striking a careful balance between maximizing its take of resources and not spooking foreign investors. It also must spread the benefits of the coming surge in GDP growth to those who need it most.
There's reason to think Mongolia will get it right, and its financial community is a case in point. Officials have been traveling the globe soaking up intelligence from stock- and bond- market experts. They are gaining insights and using them to make Mongolia's stock market international.
Similar fact-finding efforts are afoot on the mining front. With so many examples of what not to do, officials may be able to steer away from the so-called oil curse.
That way, it won't only be foreigners who, as Pink Floyd sang 35 years ago, ``grab that cash in both hands and make a stash.'' Mongolians will, too.
(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)
To contact the writer of this column: William Pesek in Ulaanbaatar, Mongolia at wpesek@bloomberg.net
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Sept. 15 (Bloomberg) -- Everyone has globalization moments, those surreal intersections of foreign influences and familiar rhythms. This one involves Pink Floyd and Mongolia.
Last Friday, Air China 902 was packed with more white faces than you would typically see on flights from Ulaanbaatar to Beijing. It was carrying many of the 200 international financiers attending a EuroMoney conference on investing in Mongolia.
As they shuffled aboard, Pink Floyd's ``Money'' was playing overhead. It was impossible to miss the irony of a diatribe against capitalism serving as a soundtrack of sorts to the gold- rush dynamic in one of Asia's most impoverished nations. Thanks to underground riches like copper and gold, Mongolia is on the cusp of a huge influx of money.
That's where the trouble begins.
It's not hard to find Mongolia's poverty. As more of the nation's 2.7 million people cluster around cities such as Ulaanbaatar, many in this traditionally nomadic country can't find jobs. More than half of those in Ulaanbaatar live in yurts or other types of temporary housing.
Mongolia's future is about to be dug out of the ground. Its nascent mining boom is the quickest route to prosperity. Some analysts say it will boost gross domestic product by more than 30 percent within a few years. The official estimate for growth in 2008 is almost 9 percent.
You would think observers of a place where average incomes are less than $200 a month would be rather enthused about all this. In the case of economists such as Tserenpuntsag Batbold, who works in New York for the United Nations Secretariat's Financing for Development Office, you would be mistaken.
Resources and Poverty
As a Mongolian, Batbold understands his nation is holding a winning lottery ticket. His concern is the strong correlation between poverty and countries with natural resources such as gold, oil or diamonds. Resource wealth tends to breed corruption and tunnel vision among leaders.
``There is no question about the potential for Mongolia, and I'm quite optimistic,'' Batbold says. ``But we need to make sure we do better than other nations have done with their riches.''
Adds Graeme Hancock, the World Bank's senior Mongolia mining specialist: ``The question is how Mongolia avoids being overwhelmed by its resources -- how the people derive value from them.''
Investors complain the government is dragging its feet on revised laws dictating how mining proceeds will be divided. Companies Rio Tinto Group and Ivanhoe Mines Ltd., which invested more than four years seeking approval for a $3 billion project to develop Mongolia's Oyu Tolgoi deposits of gold and copper, are left wondering what gives.
Doing Right Thing
An argument can be made that Mongolia needs to act faster to allow miners to do their thing. There's a better one for Mongolia to take its time to make sure it gets these decisions right.
From Nigeria to Indonesia to Sierra Leone, history has too many examples of governments mishandling resources. Politicians and the well-connected get wealthy, while the needs of broader populations are ignored. Contracts are handed out with little transparency, ensuring profits are concentrated among the elite.
The sudden appearance of vast resources gives governments less incentive to create other viable industries. Why bother to nurture manufacturing, agriculture or textile industries that would employ much of the population when the real money is in minerals and energy?
``Mongolia is at such a vital crossroads today,'' says Chuluundorj Khashchuluun, director of economics at the National University of Mongolia. ``We will look back in 10 years and be wealthier because of decisions made today, or wondering how things went very wrong.''
Political Will
Political will is the key variable. One of Batbold's concerns is ``institutional weakness'' in a democracy as young as Mongolia's. At the early stages of any resources boom, it's necessary to have independent lawmakers, regulators and courts making sure the people benefit. Here, Mongolia has a way to go.
``It's important to see whether the government is ready to enforce what it needs to,'' says Bert van der Toorn, Singapore- based managing director at ING Wholesale Banking.
Mongolia has a number of comparative advantages. For example, 30 percent of its people are younger than 15. Proximity to fast-growing China is another. The catch is that the government has to do the right things, striking a careful balance between maximizing its take of resources and not spooking foreign investors. It also must spread the benefits of the coming surge in GDP growth to those who need it most.
There's reason to think Mongolia will get it right, and its financial community is a case in point. Officials have been traveling the globe soaking up intelligence from stock- and bond- market experts. They are gaining insights and using them to make Mongolia's stock market international.
Similar fact-finding efforts are afoot on the mining front. With so many examples of what not to do, officials may be able to steer away from the so-called oil curse.
That way, it won't only be foreigners who, as Pink Floyd sang 35 years ago, ``grab that cash in both hands and make a stash.'' Mongolians will, too.
(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)
To contact the writer of this column: William Pesek in Ulaanbaatar, Mongolia at wpesek@bloomberg.net
Read more...
OPEC Says `Thank You' as Dollar Tempers Oil Drop: Chart of Day
By Alexander Kwiatkowski
Sept. 15 (Bloomberg) -- OPEC members' dismay at the 30 percent plunge in oil from July's record has been tempered by the rising value of their dollar revenues from selling crude.
The CHART OF THE DAY plots the drop in the price of October crude oil futures since reaching a record $148.13 on July 11. The upper line shows the oil price adjusted to reflect the 13 percent increase in purchasing power delivered by the dollar's gain against the euro in the same period.
``Despite all the rhetoric, with the rally in the dollar index, OPEC is still saying `thank you very much,''' Olivier Jakob, managing director of Petromatrix Gmbh in Zug, Switzerland, said. ``For OPEC, $80 now is the same as $100 two months ago.''
The Organization of Petroleum Exporting Countries' oil revenues will rise to a record $1.23 trillion this year, almost double 2007's level, the U.S. Department of Energy said on Sept. 11. Saudi Arabian oil minister Ali al-Naimi, who sets energy policy in OPEC's largest exporter, said last week that the rising dollar was compensating producers for lower prices.
To contact the reporter on this story: Alexander Kwiatkowski in London at akwiatkowsk2@bloomberg.net
Read more...
Sept. 15 (Bloomberg) -- OPEC members' dismay at the 30 percent plunge in oil from July's record has been tempered by the rising value of their dollar revenues from selling crude.
The CHART OF THE DAY plots the drop in the price of October crude oil futures since reaching a record $148.13 on July 11. The upper line shows the oil price adjusted to reflect the 13 percent increase in purchasing power delivered by the dollar's gain against the euro in the same period.
``Despite all the rhetoric, with the rally in the dollar index, OPEC is still saying `thank you very much,''' Olivier Jakob, managing director of Petromatrix Gmbh in Zug, Switzerland, said. ``For OPEC, $80 now is the same as $100 two months ago.''
The Organization of Petroleum Exporting Countries' oil revenues will rise to a record $1.23 trillion this year, almost double 2007's level, the U.S. Department of Energy said on Sept. 11. Saudi Arabian oil minister Ali al-Naimi, who sets energy policy in OPEC's largest exporter, said last week that the rising dollar was compensating producers for lower prices.
To contact the reporter on this story: Alexander Kwiatkowski in London at akwiatkowsk2@bloomberg.net
Read more...
Daily Forex Market Commentary
Daily Forex Technicals | Written by Global Forex Trading | Sep 15 08 01:21 GMT |
The dollar collapsed on Friday versus all majors except the yen on expectations that it recovered as much as it could for the time being. The soft retail sales didn't help, and the market, while obsessed with the resolve of Lehman Brothers, cannot ignore the risk of other big names in trouble, such as Wa Mu. With the oil prices bouncing from $100/brl, commodities should bounce today as well. Since the uptrend of the dollar remains intact, take your cues from the reaction of the market to the Lehman outcome at the end of weekend.
Euro/dollar
Euro/dollar surged on Friday to recover part of last week's losses that hit to a near 2 ½ year-low on Thursday. My model went long on profit taking. The pair must close above 1.4262 to signal a more sustained recovery.
Above 1.4262, strong resistance is seen between 1.4385 and 1.4395. Above 1.4450, distant resistance is at 1.4625.
Immediate support is at 1.4150. Below 1.4085, support is at 1.4010.
Oscillators are mixed
NEAR-TERM: Bullish
MEDIUM-TERM: Bearish
LONG-TERM: Bearish
Dollar/yen
Dollar/yen has been alternating up and down days for four days and Friday was an up day. My model went long, but it's not all that exciting.
Immediate resistance remains at 107.95 from a 50-point pivot, which targets 107.45 and 108.45. Above 108.70, resistance remains at 109.15 from another 50-point pivot, which targets 109.65 and 108.65. Distant resistance is at 110.35 from a 50-point pivot, which targets 109.85 and 110.85.
Initial support is at 106.75 from a 50-point pivot, which targets 106.25 and 107.25. A pivot low is at 105.53.
Oscillators are mixed.
NEAR-TERM: Mixed
MEDIUM-TERM: Mixed
LONG-TERM: Mixed
Sterling/dollar
Sterling/dollar surged impressively on Friday and turned my model long. The short term is bullish, but the medium-term outlook remains bearish.
Initial resistance is at 1.7975. Above the strong level at 1.8000, further resistance is seen at 1.8100 and 1.8190.
Below 1.7840, strong support is at 1.7732. Below 1.7672, a pivot low is at 1.7448
Oscillators are mixed.
NEAR-TERM: Slightly bullish
MEDIUM-TERM: Bearish
LONG-TERM: Bearish
Dollar/Swiss franc
Dollar/Swiss franc fell sharply enough on Friday to turn my model short. The initial bias is lower, but the uptrend remains in place.
Immediate support is at 1.1240. Below 1.1144, support is pegged at 1.1090. This is still followed by 1.1010.
Initial resistance comes at 1.1360. Above 1.1417 there is a pivot high at 1.1605.
Oscillators are mixed.
NEAR-TERM: Slightly bearish
MEDIUM-TERM: Bullish
LONG-TERM: Bullish
Cornelius Luca
Global Forex Trading
http://www.gftforex.com
DISCLAIMER: This forum and the information provided here should not be relied on as a substitute for extensive independent research before making your investment decisions. Global Forex Trading is merely providing this column for your general information. The views of the author are not necessarily those of Global Forex Trading, its owners, officers, agents or employees. In addition, any projections or views of the market provided by the author may not prove to be accurate. Global Forex Trading and Cornelius Luca will not be responsible for any losses incurred on investments made by readers and clients as a result of any information contained in this column. Global Forex Trading and Cornelius Luca do not render investment, legal, accounting, tax, or other professional advice. If investment, legal, tax, or other expert assistance is required, the services of a competent professional should be sought.
Read more...
The dollar collapsed on Friday versus all majors except the yen on expectations that it recovered as much as it could for the time being. The soft retail sales didn't help, and the market, while obsessed with the resolve of Lehman Brothers, cannot ignore the risk of other big names in trouble, such as Wa Mu. With the oil prices bouncing from $100/brl, commodities should bounce today as well. Since the uptrend of the dollar remains intact, take your cues from the reaction of the market to the Lehman outcome at the end of weekend.
Euro/dollar
Euro/dollar surged on Friday to recover part of last week's losses that hit to a near 2 ½ year-low on Thursday. My model went long on profit taking. The pair must close above 1.4262 to signal a more sustained recovery.
Above 1.4262, strong resistance is seen between 1.4385 and 1.4395. Above 1.4450, distant resistance is at 1.4625.
Immediate support is at 1.4150. Below 1.4085, support is at 1.4010.
Oscillators are mixed
NEAR-TERM: Bullish
MEDIUM-TERM: Bearish
LONG-TERM: Bearish
Dollar/yen
Dollar/yen has been alternating up and down days for four days and Friday was an up day. My model went long, but it's not all that exciting.
Immediate resistance remains at 107.95 from a 50-point pivot, which targets 107.45 and 108.45. Above 108.70, resistance remains at 109.15 from another 50-point pivot, which targets 109.65 and 108.65. Distant resistance is at 110.35 from a 50-point pivot, which targets 109.85 and 110.85.
Initial support is at 106.75 from a 50-point pivot, which targets 106.25 and 107.25. A pivot low is at 105.53.
Oscillators are mixed.
NEAR-TERM: Mixed
MEDIUM-TERM: Mixed
LONG-TERM: Mixed
Sterling/dollar
Sterling/dollar surged impressively on Friday and turned my model long. The short term is bullish, but the medium-term outlook remains bearish.
Initial resistance is at 1.7975. Above the strong level at 1.8000, further resistance is seen at 1.8100 and 1.8190.
Below 1.7840, strong support is at 1.7732. Below 1.7672, a pivot low is at 1.7448
Oscillators are mixed.
NEAR-TERM: Slightly bullish
MEDIUM-TERM: Bearish
LONG-TERM: Bearish
Dollar/Swiss franc
Dollar/Swiss franc fell sharply enough on Friday to turn my model short. The initial bias is lower, but the uptrend remains in place.
Immediate support is at 1.1240. Below 1.1144, support is pegged at 1.1090. This is still followed by 1.1010.
Initial resistance comes at 1.1360. Above 1.1417 there is a pivot high at 1.1605.
Oscillators are mixed.
NEAR-TERM: Slightly bearish
MEDIUM-TERM: Bullish
LONG-TERM: Bullish
Cornelius Luca
Global Forex Trading
http://www.gftforex.com
DISCLAIMER: This forum and the information provided here should not be relied on as a substitute for extensive independent research before making your investment decisions. Global Forex Trading is merely providing this column for your general information. The views of the author are not necessarily those of Global Forex Trading, its owners, officers, agents or employees. In addition, any projections or views of the market provided by the author may not prove to be accurate. Global Forex Trading and Cornelius Luca will not be responsible for any losses incurred on investments made by readers and clients as a result of any information contained in this column. Global Forex Trading and Cornelius Luca do not render investment, legal, accounting, tax, or other professional advice. If investment, legal, tax, or other expert assistance is required, the services of a competent professional should be sought.
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