* Hang Seng Bank extends slide on WaMu exposure
* Energy stocks beaten on oil price drop
* China Resource Logic jumps on expansion plans
HONG KONG, Oct 3 (Reuters) - Hong Kong shares fell 2.1 percent on Friday as lower prices hammered energy stocks while local lender Hang Seng Bank extended its slide as investors fretted over its exposure to failed U.S. lender Washington Mutual WMPUQ.PK.
But China Resources Logic dodged the downdraft to soar 25 percent after it told Reuters it would buy 22 urban gas projects from its parent and seek to invest in an industry rival after it acquires China Resources Gas this month.
The benchmark Hang Seng Index .HSI ended the morning session down 386.31 points at 17,824.80.
Mainboard turnover fell to HK$28 billion ($3.59 billion) from HK$35.9 billion at mid-day on Thursday.
Investors stayed on the sidelines ahead of the U.S. House of Representatives vote on the $700 billion financial bailout package, which lawmakers had rejected on Monday.
Worries persisted that the rescue package would not do enough to prevent a recession in the world's largest economy after data showed that jobless claims rose to a seven-year high and factory orders declined to their lowest rate in two years.
"With the latest global financial market turmoil adding a negative shock to an already fragile environment, we believe there is no doubt that the Hong Kong economy will face increasing difficulties in coming quarters," said Qian Wang, analyst with JP Morgan.
"With the G3 economies expected to contract modestly and China's economy likely moderating to near-trend growth in coming quarters, we expect the Hong Kong economy to slide into a mild recession."
Energy and metal stocks tumbled on Friday after commodity prices fell overnight on fears the global economic slowdown will hurt demand.
Asia's largest oil & gas producer Petrochina dropped 4.2 percent while offshore oil specialist CNOOC (0883.HK: Quote, Profile, Research, Stock Buzz) gave up 4.6 percent.
China Shenhua Energy , the world's most valuable coal miner, lost 4.5 percent.
The China Enterprises Index .HSCE of top locally listed mainland Chinese firms fell 2.5 percent to 9,096.74.
Shares in PICC Property & Casualty jumped 4 percent after Credit Suisse upgraded China's top non-life insurer to outperform from neutral, saying pricing pressure should ease as capacity had been severely impacted by weak investment markets.
Credit Suisse also raised its target price to HK$ 5.8 per share from HK$5.5. PICC's 70 percent share price decline make it the worst performing insurance stock in Asia this year, it said.
Chinese property stocks extended Thursday's winning streak as regional governments in China announced measures, including subsidies to home buyers, to prop up the beaten-down sector.
China Overseas Land Investment (0688.HK: Quote, Profile, Research, Stock Buzz) gained 3.4 percent while Country Garden advanced 1.2 percent.
Cathay Pacific dropped 5.2 percent after Deutsche Bank downgraded the stock to sell from hold citing slowing demand from its premium customers amid a slowdown in the Hong Kong and Chinese economies.
Cathay's traffic growth has declined to 7 percent year-on-year in August 2008 from 20 percent in December 2007, Deutsche Bank said.
Shares in BYD Electronics , which have surged more than 2.5 times in value since billionaire investor Warren Buffett's Berkshire Hathaway picked up a 10 percent atke in its parent, slid 14.7 percent as investors moved in to lock in gains. Deutsche bank downgraded the stock to hold from buy purely on valuation grounds after its dream run.
Parent BYD Co (1211.HK: Quote, Profile, Research, Stock Buzz) dropped 10.8 percent. (US$1=HK$7.8) (Reporting by Parvathy Ullatil; Editing by Clarence Fernandez)
Read more...
Friday, October 3, 2008
GLOBAL MARKETS-Stocks drop, focus on US bailout vote
(Repeats to wider coding, with no changes to text)
* Nikkei at 3-year closing low
* Funding squeeze pushes up dollar
* Commodity prices tumble on view of slower global growth
* Bailout vote uncertain in House of Representatives (Updates prices, adds European outlook)
By Kevin Plumberg
HONG KONG, Oct 3 (Reuters) - Asian stocks fell and gold prices rose on Friday on fears a $700 billion financial rescue bill still needing final U.S. congressional approval may not be enough to keep the global economy from falling into recession.
The Senate has passed the measure, but political brinkmanship continued in Washington after the House of Representatives shook markets earlier this week by rejecting the bill, and passage on Friday was not guaranteed.
European stock market futures STXEc1 pointed to a slightly higher open, ahead of the vote. A second rejection by the House would likely kill the plan and probably unleash panic selling of global equities, blow out credit spreads and drag government bond yields lower.
The flow of credit remained practically frozen in money markets, leading to a scramble for U.S. dollar funding that has the currency on track for its biggest weekly gain in 16 years against a basket of major currencies.
Raw materials prices tumbled on expectations that demand from big consumers such as the United States and China will fall, while a preference for stability pushed up gold by more than 1 percent. Copper prices MCU3 were on track for a record decline this week, down around 14 percent, and oil was down 12.7 percent for the week, its biggest 5-day drop since December 2004.
"Japan's economy isn't good, America isn't good, Europe isn't good. The next to be hit may be emerging economies -- and this will just increase worries for an export-dependent economy like Japan's," said Hiroaki Osakabe, a fund manager at Chibagin Asset Management in Tokyo.
Japan's Nikkei share average finished down 1.9 percent -- its worst close in three years -- with shares of car makers Honda Motor Co and Toyota Motor Corp among the heaviest drags following a big drop in U.S. sales for September.
The MSCI index of Asia-Pacific stocks outside Japan slipped 0.8 percent .MIAPJ0000PUS and lost 6.9 percent on the week. Regional equity markets have outperformed the All-Country World Index, which sank 8.8 percent this week to the lowest in three years .MIWD00000PUS.
Hong Kong's Hang Seng index .HSI dropped 2.6 percent, dragged lower by bank stocks as tight lending conditions spread fears that one of Asia's main financial hubs would be hit hard.
STRESS AND DISARRAY
Credit markets in the Asia-Pacific region reflected stress and disarray as longer-term interbank rates continued to climb and squeeze the financial sector.
The bid on the iTRAXX Asia ex-Japan 5-year credit default index, essentially protection against default, rose about 20 basis points to 655 bps. However, the offer was 700, signalling thin trading and a struggle for price discovery.
"Asia and emerging markets are seeing collateral damage to interbank markets as dollar liquidity evaporates. While equities are inexpensive against bonds, investors should prepare for a hard landing for earnings," said Sean Darby, chief Asia strategist with Nomura in Hong Kong in a note.
Darby believes Asian stocks are oversold but investors should postpone buying until the credit situation clears up.
The euro rebounded after dropping to a 13-month low against the dollar on Thursday on indications the European Central Bank is leaning toward cutting interest rates after bank failures threatened the euro zone economy.
The euro was up 0.3 percent to 145.95 yen after earlier slipping below 144.88 yen to the lowest in two years.
This week investors have continued to find refuge in the yen and the Swiss franc.
The dollar was steady at 105.30 yen and was down 0.3 percent to 1.1320 Swiss francs . The euro rose 0.3 percent to $1.3865 after dropping to around $1.3750 on Thursday.
The main focus on Friday would likely be the vote in the House of Representatives on a White House plan to buy up illiquid securities from battered financial firms.
However, the September U.S. employment report will also be released. Investors expect payrolls shrank by 50,000 jobs.
Government debt was still the favourite bet for investors increasingly intolerant of having risk in their portfolios.
The 10-year Japanese government bond future 2JGBv1 was up 0.6 point at 137.89, rising for a second day.
The 10-year U.S. Treasury note slipped 7/32 in price, for a yield of 3.65 percent, up from 3.63 percent late on Thursday in New York. The highly liquid bills market, which investors have been using as an alternative source of short-term investment, saw solid demand.
The 1-month bill yield, which moves in the opposite direction of the price, slipped 3 bps to 0.22 percent.
Spot gold climbed 0.8 percent to $842 an ounce but is well off a 2-month high of $920 an ounce earlier this week.
The November U.S. light crude contract CLc1 fell 75 cents to $93.22 a barrel, creeping toward a 7-month low of $90.51 hit on Sept. 16.
Read more...
* Nikkei at 3-year closing low
* Funding squeeze pushes up dollar
* Commodity prices tumble on view of slower global growth
* Bailout vote uncertain in House of Representatives (Updates prices, adds European outlook)
By Kevin Plumberg
HONG KONG, Oct 3 (Reuters) - Asian stocks fell and gold prices rose on Friday on fears a $700 billion financial rescue bill still needing final U.S. congressional approval may not be enough to keep the global economy from falling into recession.
The Senate has passed the measure, but political brinkmanship continued in Washington after the House of Representatives shook markets earlier this week by rejecting the bill, and passage on Friday was not guaranteed.
European stock market futures STXEc1 pointed to a slightly higher open, ahead of the vote. A second rejection by the House would likely kill the plan and probably unleash panic selling of global equities, blow out credit spreads and drag government bond yields lower.
The flow of credit remained practically frozen in money markets, leading to a scramble for U.S. dollar funding that has the currency on track for its biggest weekly gain in 16 years against a basket of major currencies.
Raw materials prices tumbled on expectations that demand from big consumers such as the United States and China will fall, while a preference for stability pushed up gold by more than 1 percent. Copper prices MCU3 were on track for a record decline this week, down around 14 percent, and oil was down 12.7 percent for the week, its biggest 5-day drop since December 2004.
"Japan's economy isn't good, America isn't good, Europe isn't good. The next to be hit may be emerging economies -- and this will just increase worries for an export-dependent economy like Japan's," said Hiroaki Osakabe, a fund manager at Chibagin Asset Management in Tokyo.
Japan's Nikkei share average finished down 1.9 percent -- its worst close in three years -- with shares of car makers Honda Motor Co and Toyota Motor Corp among the heaviest drags following a big drop in U.S. sales for September.
The MSCI index of Asia-Pacific stocks outside Japan slipped 0.8 percent .MIAPJ0000PUS and lost 6.9 percent on the week. Regional equity markets have outperformed the All-Country World Index, which sank 8.8 percent this week to the lowest in three years .MIWD00000PUS.
Hong Kong's Hang Seng index .HSI dropped 2.6 percent, dragged lower by bank stocks as tight lending conditions spread fears that one of Asia's main financial hubs would be hit hard.
STRESS AND DISARRAY
Credit markets in the Asia-Pacific region reflected stress and disarray as longer-term interbank rates continued to climb and squeeze the financial sector.
The bid on the iTRAXX Asia ex-Japan 5-year credit default index
"Asia and emerging markets are seeing collateral damage to interbank markets as dollar liquidity evaporates. While equities are inexpensive against bonds, investors should prepare for a hard landing for earnings," said Sean Darby, chief Asia strategist with Nomura in Hong Kong in a note.
Darby believes Asian stocks are oversold but investors should postpone buying until the credit situation clears up.
The euro rebounded after dropping to a 13-month low against the dollar on Thursday on indications the European Central Bank is leaning toward cutting interest rates after bank failures threatened the euro zone economy.
The euro was up 0.3 percent to 145.95 yen
This week investors have continued to find refuge in the yen and the Swiss franc.
The dollar was steady at 105.30 yen
The main focus on Friday would likely be the vote in the House of Representatives on a White House plan to buy up illiquid securities from battered financial firms.
However, the September U.S. employment report will also be released. Investors expect payrolls shrank by 50,000 jobs.
Government debt was still the favourite bet for investors increasingly intolerant of having risk in their portfolios.
The 10-year Japanese government bond future 2JGBv1 was up 0.6 point at 137.89, rising for a second day.
The 10-year U.S. Treasury note slipped 7/32 in price, for a yield of 3.65 percent
The 1-month bill yield
Spot gold
The November U.S. light crude contract CLc1 fell 75 cents to $93.22 a barrel, creeping toward a 7-month low of $90.51 hit on Sept. 16.
Read more...
Forex Technical Update
Daily Forex Technicals | Written by India Forex | Oct 03 08 06:55 GMT |
Euro: The pair lost around 250 pips in yesterday's trading session from the highs of 1.4026 to test 1.3746. Although, the ECB kept interest rates unchanged yesterday; the approval of the bailout package in US helped the USD appreciate against EUR. We expect a good support for the pair to come in at the 200 weekly EMA (1.3560) on the downside. The overall scenario still remains bearish for the pair. However, the Non Farm Payrolls today can take euro upwards, where sell should be incorporated. (Eur/Usd:1.3860).
Pound: Cable was dragged to 1.7550 levels yesterday before recovering mildly. Currently cable is trading around 1.7720 levels (55 hourly EMA) with hourly and 4-hourly stochastic reaching the overbought region. Immediate resistance comes around 1.78 levels (21 4-hourly EMA). However, with the non farm payrolls expected to tumble, Cable may surge upto 1.7850 and beyond in the US session supported by the extremely oversold daily stochastic. Alternatively, the overall sentiment remains bearish and selling is recommended at higher levels. (Gbp/Usd: 1.7724)
Yen : Usd/Jpy pair shed about 120 pips yesterday touching the lows of 105.08. The 4-Hourly stochastic is indicating an upside whereas the hourly and daily is indicating some selling pressure. Immediate resistance for the pair comes around 105.80 levels (cluster resistance) which if broken decisively can push the pair upto 106.80 levels (55 & 100 Daily EMA). Initiate longs around 103.60 - 104.00 levels. (Usd/Jpy 105.27)
Rupee: Rupee made a fresh 5-year low by touching 47.30 in the early morning session today but immediately made a comeback as the banks sold dollars heavily bringing rupee to 47 levels. It closed at 46.63 on Wednesday while Thursday was the Indian bank holiday. The rupee remains under pressure from the growing international risk-aversion in the financial space along with widening Indian trade deficit. (Usd/Inr: 46.87)
Swiss Franc: Usd/Chf pair rallied around 200 pips touching 1.1412 levels from the lows of 1.1233. We expect support for the pair at the 21 4-hourly EMA around 1.1220 with the 4-hourly stochastic also reaching the oversold region. A buy position at 1.1240 levels could be taken targeting upto 70 pips on the upside. Immediate resistance for the pair is seen at the previous high of 1.1412 where shorts for 80 pips can also be targeted. (Usd/Chf: 1.1315)
Australian Dollar: AUD lost around 240 pips from the days high of 0.7942 and made a new low of 2008 at 0.7688. Immediate resistance for the pair is seen at the 55 hourly EMA at 0.7860. The hourly stochastic is also trading in the overbought region. We recommend a short position around 0.7860 levels targeting around 50-60 pips. Contrarily, the daily and 4-hourly charts is reaching the oversold region so on the downside support could be traced at the 100 monthly EMA around 0.7480 levels. (Aud/Usd-0.7800).
Gold: Gold plummeted $46 yesterday to touch the low of $829.80 (50% Retracement) before closing at $836.20. The hourly stochastic is highly overbought whereas the 4-hourly & daily charts are oversold. The immediate cluster resistance can be seen at $859.21 (21 4-hourly EMA & 200 daily EMA) whereas the support comes around $829 levels where cautious longs can be considered. (Gold: $844.65).
Dollar index : Dollar index that measures dollar's value against a basket of six major currencies further strengthened and is trading above 80 levels. However, the stochastic is overbought at 85.92%.
India Forex
http://www.indiaforex.in
DISCLAIMER
These views/ forecasts/ suggestions, though proferred with the best of intentions, are based on our reading of the market at the time of writing. They are subject to change without notice.Though the information sources are believed to be reliable, the information is not guaranteed for accuracy. Those acting in the market on the basis of these are themselves responsible for any profits or losses that might occur, without recourse to us. World financial markets, and especially the Foreign Exchange markets, are inherently risky and it is assumed that those who trade these markets are fully aware of the risk of real loss involved.
Read more...
Euro: The pair lost around 250 pips in yesterday's trading session from the highs of 1.4026 to test 1.3746. Although, the ECB kept interest rates unchanged yesterday; the approval of the bailout package in US helped the USD appreciate against EUR. We expect a good support for the pair to come in at the 200 weekly EMA (1.3560) on the downside. The overall scenario still remains bearish for the pair. However, the Non Farm Payrolls today can take euro upwards, where sell should be incorporated. (Eur/Usd:1.3860).
Pound: Cable was dragged to 1.7550 levels yesterday before recovering mildly. Currently cable is trading around 1.7720 levels (55 hourly EMA) with hourly and 4-hourly stochastic reaching the overbought region. Immediate resistance comes around 1.78 levels (21 4-hourly EMA). However, with the non farm payrolls expected to tumble, Cable may surge upto 1.7850 and beyond in the US session supported by the extremely oversold daily stochastic. Alternatively, the overall sentiment remains bearish and selling is recommended at higher levels. (Gbp/Usd: 1.7724)
Yen : Usd/Jpy pair shed about 120 pips yesterday touching the lows of 105.08. The 4-Hourly stochastic is indicating an upside whereas the hourly and daily is indicating some selling pressure. Immediate resistance for the pair comes around 105.80 levels (cluster resistance) which if broken decisively can push the pair upto 106.80 levels (55 & 100 Daily EMA). Initiate longs around 103.60 - 104.00 levels. (Usd/Jpy 105.27)
Rupee: Rupee made a fresh 5-year low by touching 47.30 in the early morning session today but immediately made a comeback as the banks sold dollars heavily bringing rupee to 47 levels. It closed at 46.63 on Wednesday while Thursday was the Indian bank holiday. The rupee remains under pressure from the growing international risk-aversion in the financial space along with widening Indian trade deficit. (Usd/Inr: 46.87)
Swiss Franc: Usd/Chf pair rallied around 200 pips touching 1.1412 levels from the lows of 1.1233. We expect support for the pair at the 21 4-hourly EMA around 1.1220 with the 4-hourly stochastic also reaching the oversold region. A buy position at 1.1240 levels could be taken targeting upto 70 pips on the upside. Immediate resistance for the pair is seen at the previous high of 1.1412 where shorts for 80 pips can also be targeted. (Usd/Chf: 1.1315)
Australian Dollar: AUD lost around 240 pips from the days high of 0.7942 and made a new low of 2008 at 0.7688. Immediate resistance for the pair is seen at the 55 hourly EMA at 0.7860. The hourly stochastic is also trading in the overbought region. We recommend a short position around 0.7860 levels targeting around 50-60 pips. Contrarily, the daily and 4-hourly charts is reaching the oversold region so on the downside support could be traced at the 100 monthly EMA around 0.7480 levels. (Aud/Usd-0.7800).
Gold: Gold plummeted $46 yesterday to touch the low of $829.80 (50% Retracement) before closing at $836.20. The hourly stochastic is highly overbought whereas the 4-hourly & daily charts are oversold. The immediate cluster resistance can be seen at $859.21 (21 4-hourly EMA & 200 daily EMA) whereas the support comes around $829 levels where cautious longs can be considered. (Gold: $844.65).
Dollar index : Dollar index that measures dollar's value against a basket of six major currencies further strengthened and is trading above 80 levels. However, the stochastic is overbought at 85.92%.
India Forex
http://www.indiaforex.in
DISCLAIMER
These views/ forecasts/ suggestions, though proferred with the best of intentions, are based on our reading of the market at the time of writing. They are subject to change without notice.Though the information sources are believed to be reliable, the information is not guaranteed for accuracy. Those acting in the market on the basis of these are themselves responsible for any profits or losses that might occur, without recourse to us. World financial markets, and especially the Foreign Exchange markets, are inherently risky and it is assumed that those who trade these markets are fully aware of the risk of real loss involved.
Read more...
Technical Analysis for Crosses
Daily Forex Technicals | Written by Crown Forex | Oct 03 08 06:56 GMT |
EUR/JPY
The Euro also fell against the Japanese Yen with the pair seemingly heading towards the 38.2% correctional level at 138.99 for the long term upside wave which ended back in July, the momentum indicators however were showing the pair was being traded within an oversold area on intraday basis and that led the pair to rise back, yet as long as it remains trading below the 150.85 the pair will still be targeting the downside.
Support: 145.94, 145.54, 145.02, 144.62, 144.28
Resistance: 146.23, 146.60, 146.93, 147.39, 147.84
GBP/JPY
The Pound fell yesterday against the Japanese Yen as the pair failed to rise back above the 186.59 resistance which pushed the pair back to the downside yet today the pair bounced back since it was being traded within an oversold area according to the momentum indicators, the pair seems to be attempting to breach the 186.59 in order to acquire the next target at 187.64.
Support: 186.02, 185.55, 185.11, 184.65, 183.93
Resistance: 186.59, 187.08, 187.52, 188.04, 188.49
EUR/GBP
The Euro fell against the British Pound as the pair breached the support level at 0.7843 which provided the pair with further downside momentum, however the support level at 0.7809 was able to stop the downside wave and provided the pair with some momentum to rise back, the pair might continue its downside wave given it remains trading below 0.7843 and the target for this downside wave will be set at 0.7767.
Support: 0.7828, 0.7820, 0.7809, 0.7795, 0.7780
Resistance: 0.7843, 0.7852, 0.7865, 0.7878, 0.7899
Crown Forex
disclaimer:The above may contain information for investors/traders and is not a recommendation to buy or sell currencies, gold, silver & energies, nor an offer to buy or sell currencies, gold, silver & energies. The information provided is obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. I am not liable for any losses or damages, monetary or otherwise that result. I recommend that anyone trading currencies, gold, silver & energies should do so with caution and consult with a broker before doing so. Prior performance may not be indicative of future performance. Currencies, gold, silver &energies presented should be considered speculative with a high degree of volatility and risk.
Read more...
EUR/JPY
The Euro also fell against the Japanese Yen with the pair seemingly heading towards the 38.2% correctional level at 138.99 for the long term upside wave which ended back in July, the momentum indicators however were showing the pair was being traded within an oversold area on intraday basis and that led the pair to rise back, yet as long as it remains trading below the 150.85 the pair will still be targeting the downside.
Support: 145.94, 145.54, 145.02, 144.62, 144.28
Resistance: 146.23, 146.60, 146.93, 147.39, 147.84
GBP/JPY
The Pound fell yesterday against the Japanese Yen as the pair failed to rise back above the 186.59 resistance which pushed the pair back to the downside yet today the pair bounced back since it was being traded within an oversold area according to the momentum indicators, the pair seems to be attempting to breach the 186.59 in order to acquire the next target at 187.64.
Support: 186.02, 185.55, 185.11, 184.65, 183.93
Resistance: 186.59, 187.08, 187.52, 188.04, 188.49
EUR/GBP
The Euro fell against the British Pound as the pair breached the support level at 0.7843 which provided the pair with further downside momentum, however the support level at 0.7809 was able to stop the downside wave and provided the pair with some momentum to rise back, the pair might continue its downside wave given it remains trading below 0.7843 and the target for this downside wave will be set at 0.7767.
Support: 0.7828, 0.7820, 0.7809, 0.7795, 0.7780
Resistance: 0.7843, 0.7852, 0.7865, 0.7878, 0.7899
Crown Forex
disclaimer:The above may contain information for investors/traders and is not a recommendation to buy or sell currencies, gold, silver & energies, nor an offer to buy or sell currencies, gold, silver & energies. The information provided is obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. I am not liable for any losses or damages, monetary or otherwise that result. I recommend that anyone trading currencies, gold, silver & energies should do so with caution and consult with a broker before doing so. Prior performance may not be indicative of future performance. Currencies, gold, silver &energies presented should be considered speculative with a high degree of volatility and risk.
Read more...
Financial-Rescue Bill Gains Support Before U.S. Congress Vote
By Laura Litvan and Brian Faler
Oct. 3 (Bloomberg) -- Lawmakers in the U.S. House of Representatives who helped defeat a financial-market rescue package this week are reconsidering their votes amid signs the crisis on Wall Street is spreading.
At least eight lawmakers, including Republican Zach Wamp of Tennessee and Democrat Emanuel Cleaver of Missouri, now say they would support the measure. Four others say they may switch their ballots before the House votes again, at about 12:30 p.m. today on the bill, which failed by a dozen votes on Sept. 29.
The legislation allows the government to buy troubled assets from financial institutions rocked by record home foreclosures. It contains provisions favored by House Republicans, including $149 billion in tax breaks, a higher limit on federal bank-deposit insurance and changes in securities law.
It also reiterates securities regulators' authority to suspend asset-valuing rules that corporate executives blame for fueling the crisis. The Senate on Wednesday night approved the $700 billion bill, in a 74-25 vote.
``I feel very comfortable about where we stand,'' House Majority Whip James Clyburn, the Democrats' top vote-counter, told reporters last night. ``Of course, I felt very comfortable on Monday.''
Swaying Gerlach
The add-ons may help sway lawmakers such as Jim Gerlach, as did phone calls from his suburban Philadelphia constituents. Many of his supporters shifted from opposing the bailout to backing it following the record 778-point drop in the Dow Jones Industrial Average after the House's 228-205 defeat of the bill.
Asian stocks fell today. The MSCI Asia Pacific Index declined 1.8 percent to 105.29 as of 11:17 a.m. in Tokyo. The measure is set to slump 7.5 percent this week to the lowest level since August 2005.
Lawmakers planning to switch their votes to yes from no also include Democrats Shelley Berkley of Nevada and Gabrielle Giffords of Arizona and Republicans Ileana Ros-Lehtinen of Florida, John Shadegg of Arizona and Jim Ramstad of Minnesota. At least three other Republicans, Gerlach and Tim Murphy of Pennsylvania and Patrick Tiberi of Ohio, and Democrat Bill Pascrell of New Jersey, may vote yes on the measure.
At a meeting of Democrats last night, Representative John Lewis of Georgia announced to the caucus that he would switch his vote to yes and urged others to help boost the flagging economy, a Democratic aide who spoke on condition of anonymity said.
Hoyer, Blunt
House Majority Leader Steny Hoyer spoke by phone last night with Republican Whip Roy Blunt to see if there were enough votes to pass the measure. Both agreed to go ahead with the vote, according to Stacey Bernards, a spokeswoman for Hoyer. Clyburn, Blunt's Democratic counterpart, said Democrats have more votes for the legislation than the 140 they garnered in the failed bill.
``There is a broad feeling that the economy is at risk and that average Americans will be badly hurt if the economy continues to go downhill, and that action is necessary,'' Hoyer said.
Debate will begin at 9 a.m. today or perhaps earlier, said House Rules Committee Chairwoman Louise Slaughter, a New York Democrat.
Minority Leader John Boehner said the rescue plan won't come up for a vote until leaders are confident it will pass. ``We're getting there, one at a time,'' said Boehner, declining to say whether he had the votes yet.
Republicans cited the economy as the main reason they were switching their vote.
Credit `Breakdown'
Shadegg said on Bloomberg Television that he'll now support the measure, citing a ``breakdown'' in credit markets that makes it difficult for small businesses to pay employees. Ros-Lehtinen said in a statement she'll back the bailout because it boosts Federal Deposit Insurance Corp. limits and adds tax breaks for families.
Companies are also pushing Congress to pass the measure, saying the curtailment of credit may result in job cuts.
Automakers said tougher loan standards partly accounted for a 27 percent plunge in U.S. auto sales last month.
The market for commercial paper, short-term borrowing by businesses, suffered the biggest one-week drop on record, the Federal Reserve said yesterday. The amount of commercial paper outstanding fell by $94.9 billion, or 5.6 percent, during the week ended Oct. 1.
Deficit Worries
Yet the addition of the tax cuts and special breaks for companies such as an Oregon-based maker of wooden arrows and Virgin Islands rum-makers may turn off some deficit-wary Democrats.
Representative Mike Ross, an Arkansas Democrat who supported the original bailout measure, said he didn't know how the so-called Blue Dog coalition of fiscally conservative Democrats would vote on the version with the Senate's add-ons.
``I don't even know what I'll do,'' Ross said.
So far, Democrats who may be put off by the added tax cuts haven't said they're switching positions. In all, 140 Democrats backed the bill along with 65 Republicans.
Two dozen of the 44 Blue Dogs voted for the bailout on Sept. 29. Four said this week they'll continue to back the bill, even though their caucus derided the Senate's tax measures as irresponsible. Another, Allen Boyd of Florida, said yesterday he was undecided after voting for the measure earlier this week.
`A Travesty'
The extra spending on federal projects is also repelling some Republicans.
Representative Spencer Bachus, an Alabama Republican who supported the earlier bailout plan, called the Senate version ``a travesty,'' saying in an interview that he is ``strongly considering'' voting against it.
About a dozen Republicans were seeking to amend the measure to allow the Treasury to spend $250 billion immediately and require a separate vote by Congress before any more of the $700 billion can be used to buy troubled assets. The amendment would have taken out special tax breaks.
The Democratic-controlled Rules Committee said no amendments would be allowed.
Some of the 133 Republicans who opposed the measure aren't budging.
``The bill that they are going to send back is the same bill that I voted against,'' Representative Joe Barton of Texas told Bloomberg Television.
To contact the reporters on this story: Laura Litvan in Washington at llitvan@bloomberg.net; Brian Faler in Washington at faler@bloomberg.net.
Read more...
Oct. 3 (Bloomberg) -- Lawmakers in the U.S. House of Representatives who helped defeat a financial-market rescue package this week are reconsidering their votes amid signs the crisis on Wall Street is spreading.
At least eight lawmakers, including Republican Zach Wamp of Tennessee and Democrat Emanuel Cleaver of Missouri, now say they would support the measure. Four others say they may switch their ballots before the House votes again, at about 12:30 p.m. today on the bill, which failed by a dozen votes on Sept. 29.
The legislation allows the government to buy troubled assets from financial institutions rocked by record home foreclosures. It contains provisions favored by House Republicans, including $149 billion in tax breaks, a higher limit on federal bank-deposit insurance and changes in securities law.
It also reiterates securities regulators' authority to suspend asset-valuing rules that corporate executives blame for fueling the crisis. The Senate on Wednesday night approved the $700 billion bill, in a 74-25 vote.
``I feel very comfortable about where we stand,'' House Majority Whip James Clyburn, the Democrats' top vote-counter, told reporters last night. ``Of course, I felt very comfortable on Monday.''
Swaying Gerlach
The add-ons may help sway lawmakers such as Jim Gerlach, as did phone calls from his suburban Philadelphia constituents. Many of his supporters shifted from opposing the bailout to backing it following the record 778-point drop in the Dow Jones Industrial Average after the House's 228-205 defeat of the bill.
Asian stocks fell today. The MSCI Asia Pacific Index declined 1.8 percent to 105.29 as of 11:17 a.m. in Tokyo. The measure is set to slump 7.5 percent this week to the lowest level since August 2005.
Lawmakers planning to switch their votes to yes from no also include Democrats Shelley Berkley of Nevada and Gabrielle Giffords of Arizona and Republicans Ileana Ros-Lehtinen of Florida, John Shadegg of Arizona and Jim Ramstad of Minnesota. At least three other Republicans, Gerlach and Tim Murphy of Pennsylvania and Patrick Tiberi of Ohio, and Democrat Bill Pascrell of New Jersey, may vote yes on the measure.
At a meeting of Democrats last night, Representative John Lewis of Georgia announced to the caucus that he would switch his vote to yes and urged others to help boost the flagging economy, a Democratic aide who spoke on condition of anonymity said.
Hoyer, Blunt
House Majority Leader Steny Hoyer spoke by phone last night with Republican Whip Roy Blunt to see if there were enough votes to pass the measure. Both agreed to go ahead with the vote, according to Stacey Bernards, a spokeswoman for Hoyer. Clyburn, Blunt's Democratic counterpart, said Democrats have more votes for the legislation than the 140 they garnered in the failed bill.
``There is a broad feeling that the economy is at risk and that average Americans will be badly hurt if the economy continues to go downhill, and that action is necessary,'' Hoyer said.
Debate will begin at 9 a.m. today or perhaps earlier, said House Rules Committee Chairwoman Louise Slaughter, a New York Democrat.
Minority Leader John Boehner said the rescue plan won't come up for a vote until leaders are confident it will pass. ``We're getting there, one at a time,'' said Boehner, declining to say whether he had the votes yet.
Republicans cited the economy as the main reason they were switching their vote.
Credit `Breakdown'
Shadegg said on Bloomberg Television that he'll now support the measure, citing a ``breakdown'' in credit markets that makes it difficult for small businesses to pay employees. Ros-Lehtinen said in a statement she'll back the bailout because it boosts Federal Deposit Insurance Corp. limits and adds tax breaks for families.
Companies are also pushing Congress to pass the measure, saying the curtailment of credit may result in job cuts.
Automakers said tougher loan standards partly accounted for a 27 percent plunge in U.S. auto sales last month.
The market for commercial paper, short-term borrowing by businesses, suffered the biggest one-week drop on record, the Federal Reserve said yesterday. The amount of commercial paper outstanding fell by $94.9 billion, or 5.6 percent, during the week ended Oct. 1.
Deficit Worries
Yet the addition of the tax cuts and special breaks for companies such as an Oregon-based maker of wooden arrows and Virgin Islands rum-makers may turn off some deficit-wary Democrats.
Representative Mike Ross, an Arkansas Democrat who supported the original bailout measure, said he didn't know how the so-called Blue Dog coalition of fiscally conservative Democrats would vote on the version with the Senate's add-ons.
``I don't even know what I'll do,'' Ross said.
So far, Democrats who may be put off by the added tax cuts haven't said they're switching positions. In all, 140 Democrats backed the bill along with 65 Republicans.
Two dozen of the 44 Blue Dogs voted for the bailout on Sept. 29. Four said this week they'll continue to back the bill, even though their caucus derided the Senate's tax measures as irresponsible. Another, Allen Boyd of Florida, said yesterday he was undecided after voting for the measure earlier this week.
`A Travesty'
The extra spending on federal projects is also repelling some Republicans.
Representative Spencer Bachus, an Alabama Republican who supported the earlier bailout plan, called the Senate version ``a travesty,'' saying in an interview that he is ``strongly considering'' voting against it.
About a dozen Republicans were seeking to amend the measure to allow the Treasury to spend $250 billion immediately and require a separate vote by Congress before any more of the $700 billion can be used to buy troubled assets. The amendment would have taken out special tax breaks.
The Democratic-controlled Rules Committee said no amendments would be allowed.
Some of the 133 Republicans who opposed the measure aren't budging.
``The bill that they are going to send back is the same bill that I voted against,'' Representative Joe Barton of Texas told Bloomberg Television.
To contact the reporters on this story: Laura Litvan in Washington at llitvan@bloomberg.net; Brian Faler in Washington at faler@bloomberg.net.
Read more...
Forex Market Update: USD Reaches New Highs Yesterday But Eases Back Ahead Of Potentially Gruesome US Employment Report. No Signs Of Hope Yet
Daily Forex Fundamentals | Written by Saxo Bank | Oct 03 08 06:31 GMT |
Key test for market sentiment today with TARP vote up in the House and after US equities touched recent lows yesterday.
MAJOR HEADLINES
* US Aug. Factory Orders fell -4.0% vs. -3.0% expected
* Australia Sep. AiG Performance of Service Industries rose to 44.9 from 39.3 in Aug.
* Switzerland Sep. CPI out at +0.1% vs. -0.1% expected
THEMES TO WATCH - UPCOMING SESSION
* Norway Sep. PMI (0700)
* Germany Final Sep. Services PMI (0755)
* EuroZone Final Sep. Services PMI (0800)
* UK Sep. Services PMI (0830)
* EuroZone Aug. Retail Sales (0900)
* US Sep. Change in Nonfarm Payrolls (1230)
* US Sep. Unemployment Rate (1230)
* US Sep. ISM Non-manufacturing (1400)
Market Comments
EURUSD plummeted to a new 12-month low yesterday as Trichet brought absolutely nothing new to the table and essentially highlighted what everyone is already worrying about: that Europe is incapable of the kind of unified US response to a systemic banking crisis. The clear message after the expected 'no change' decision on rates at Trichet's press conference was that the ECB is looking to ease rates at the next meeting. We think they will have eased at least 50 basis points by the end of the year. Mr. Trichet changed his language on perceived inflation risks and had a more dour view on growth in line with what is now painfully obvious in the rear-view mirror for the EuroZone economy. In the background, IG Metall is looking for an 8% pay increase just as Germany is performing a spectacular crash landing...it will be interesting to see what kind of agreement emerges for these workers on the other side of negotiations.
It was almost humorous to see the plunge in EURUSD accelerating most when it crossed the wires that a 'rate cut had been discussed'. Shock! Awe! Really, folks - if Trichet and company hadn't at least discussed a rate cut, then you would have to wonder if they lived on the same planet as the rest of us. While EURUSD did post new lows on the day, the action later in the day quieted and overnight EURUSD was even rallying up toward the first key resistance area at 1.3885, the old low and the approximate spot where the huge rising trendline from 2002 was broken.
The market fear level remains very high as evidenced by the various credit spreads and other indicators that simply aren't coming down yet. It's rather scary to be headed to another weekend of uncertainty with the TARP vote today (we assume it will be passed - big question is of course the reaction) and a probably very ugly US employment report. Unfortunately, the US employment indicator is a terribly lagging one - with the accelerating weakness already in the pipeline, we fear US unemployment could reach toward 8% next year - which would be the worst since the early 1980's, when the US was still emerging from stagflation. Research report after research report discusses the self-reinforcing aspects of the enormous web of credit dependencies in this situation, including everything from consumer financing to especially local government funding. The basic message is that the latest tightness will cause cutbacks, cutbacks, cutbacks. And every day that credit markets remain so dysfunctional, the belt tightens another notch.
The FX market will likely move along the axis of fear as it has consistently been doing lately. More fear and credit tightness likely equates to a stronger USD and JPY and any dramatic easing in fear levels means that we should all buy EURJPY. Those looking for a lottery ticket might look for a Monday expiry low-delta EURJPY or AUDJPY call if fear spikes even higher after the US employment report...more as an expression of hope that things won't simply continue to get worse in an unmitigated straight line than anything else....we find little reason to hope for positive outcomes here in the short term - but sometimes it's best to fade the fear. Of course, you can also embrace the fear with Monday low-delta EURJPY/AUDJPY puts on any rallies in risk appetite this morning. The spot market should be played with low leverage. Our basic ATR indicator shows that EURUSD is more than 3 x more volatile than it was in July of last year just before the Bear Stearns funds blowup kicked this whole credit crisis in motion.
As always, be careful out there...
Chart: EURGBP
The EUR weakness has become so pronounced that it is now even moving decisively lower versus the British pound, where so much pain had already been priced in. The relative strength in GBP is most likely a result of a deleveraging environment (taking off existing GBP shorts and EUR longs broadly speaking) rather than an expression of confidence in the UK economy, which is a study in slowly unfolding train wrecks. Nonetheless, if the support area just below 0.7800 gives way (this is the flatline support - the 200-day moving average comes in already close to current levels), we wonder if this could open up for a significant test lower toward 0.7600.
Saxobank
Analysis Disclosure & Disclaimer
SaxBank A/S shall not be responsible for any loss arising from any investment based on any recommendation, forecast or other information herein contained. The contents of this publication should not be construed as an express or implied promise, guarantee or implication by SaxBank that clients will profit from the strategies herein or that losses in connection therewith can or will be limited. Trades in accordance with the recommendations in an analysis, especially leveraged investments such as foreign exchange trading and investment in derivatives, can be very speculative and may result in losses as well as profits, in particular if the conditions mentioned in the analysis dnot occur as anticipated.
SaxBank utilizes financial information providers and information from such providers may form the basis for an analysis. SaxBank accepts nresponsibility for the accuracy or completeness of any information herein contained.
Any recommendations and other comments in SaxBanks analysis derive from objective fundamental macreconomical and company specific calculations, statistical and technical analysis, and subjective general market assessment.
If an analysis contains recommendations tbuy or sell a specific financial instrument, such recommendation should be seen as SaxBanks opinion that the specific instrument will respectively outperform the relevant market or underperform compared tthe market. SaxBanks recommendations should statistically correspond tan even distribution between buy and sell recommendations.
The recommendations may expire promptly due tmarket volatility and in general, SaxBank does not anticipate its recommendations tbe valid more than one month. An analysis will be updated if and only if a market development or other issues relevant tthe analysis render a new analysis on the same topic relevant. SaxBanks analysis does not cover any specific financial product over time but only products which SaxBanks strategy team finds it important tcover at any given point in time.
In order tprevent conflicts of interest, SaxBank has established appropriate business procedures, incl. procedures applicable tresearch and analysis tensure objective research reports. SaxBanks research reports have not been discussed with the parties, e.g. issuers of securities, mentioned in the analysis.
SaxBank is under supervision by the Danish Financial Supervisory Authority. SaxBank does not engage in corporate finance activities and accordingly, SaxBanks employees, incl. the persons responsible for an analysis, dnot receive remuneration associated with investment banking transactions.
Read more...
Key test for market sentiment today with TARP vote up in the House and after US equities touched recent lows yesterday.
MAJOR HEADLINES
* US Aug. Factory Orders fell -4.0% vs. -3.0% expected
* Australia Sep. AiG Performance of Service Industries rose to 44.9 from 39.3 in Aug.
* Switzerland Sep. CPI out at +0.1% vs. -0.1% expected
THEMES TO WATCH - UPCOMING SESSION
* Norway Sep. PMI (0700)
* Germany Final Sep. Services PMI (0755)
* EuroZone Final Sep. Services PMI (0800)
* UK Sep. Services PMI (0830)
* EuroZone Aug. Retail Sales (0900)
* US Sep. Change in Nonfarm Payrolls (1230)
* US Sep. Unemployment Rate (1230)
* US Sep. ISM Non-manufacturing (1400)
Market Comments
EURUSD plummeted to a new 12-month low yesterday as Trichet brought absolutely nothing new to the table and essentially highlighted what everyone is already worrying about: that Europe is incapable of the kind of unified US response to a systemic banking crisis. The clear message after the expected 'no change' decision on rates at Trichet's press conference was that the ECB is looking to ease rates at the next meeting. We think they will have eased at least 50 basis points by the end of the year. Mr. Trichet changed his language on perceived inflation risks and had a more dour view on growth in line with what is now painfully obvious in the rear-view mirror for the EuroZone economy. In the background, IG Metall is looking for an 8% pay increase just as Germany is performing a spectacular crash landing...it will be interesting to see what kind of agreement emerges for these workers on the other side of negotiations.
It was almost humorous to see the plunge in EURUSD accelerating most when it crossed the wires that a 'rate cut had been discussed'. Shock! Awe! Really, folks - if Trichet and company hadn't at least discussed a rate cut, then you would have to wonder if they lived on the same planet as the rest of us. While EURUSD did post new lows on the day, the action later in the day quieted and overnight EURUSD was even rallying up toward the first key resistance area at 1.3885, the old low and the approximate spot where the huge rising trendline from 2002 was broken.
The market fear level remains very high as evidenced by the various credit spreads and other indicators that simply aren't coming down yet. It's rather scary to be headed to another weekend of uncertainty with the TARP vote today (we assume it will be passed - big question is of course the reaction) and a probably very ugly US employment report. Unfortunately, the US employment indicator is a terribly lagging one - with the accelerating weakness already in the pipeline, we fear US unemployment could reach toward 8% next year - which would be the worst since the early 1980's, when the US was still emerging from stagflation. Research report after research report discusses the self-reinforcing aspects of the enormous web of credit dependencies in this situation, including everything from consumer financing to especially local government funding. The basic message is that the latest tightness will cause cutbacks, cutbacks, cutbacks. And every day that credit markets remain so dysfunctional, the belt tightens another notch.
The FX market will likely move along the axis of fear as it has consistently been doing lately. More fear and credit tightness likely equates to a stronger USD and JPY and any dramatic easing in fear levels means that we should all buy EURJPY. Those looking for a lottery ticket might look for a Monday expiry low-delta EURJPY or AUDJPY call if fear spikes even higher after the US employment report...more as an expression of hope that things won't simply continue to get worse in an unmitigated straight line than anything else....we find little reason to hope for positive outcomes here in the short term - but sometimes it's best to fade the fear. Of course, you can also embrace the fear with Monday low-delta EURJPY/AUDJPY puts on any rallies in risk appetite this morning. The spot market should be played with low leverage. Our basic ATR indicator shows that EURUSD is more than 3 x more volatile than it was in July of last year just before the Bear Stearns funds blowup kicked this whole credit crisis in motion.
As always, be careful out there...
Chart: EURGBP
The EUR weakness has become so pronounced that it is now even moving decisively lower versus the British pound, where so much pain had already been priced in. The relative strength in GBP is most likely a result of a deleveraging environment (taking off existing GBP shorts and EUR longs broadly speaking) rather than an expression of confidence in the UK economy, which is a study in slowly unfolding train wrecks. Nonetheless, if the support area just below 0.7800 gives way (this is the flatline support - the 200-day moving average comes in already close to current levels), we wonder if this could open up for a significant test lower toward 0.7600.
Saxobank
Analysis Disclosure & Disclaimer
SaxBank A/S shall not be responsible for any loss arising from any investment based on any recommendation, forecast or other information herein contained. The contents of this publication should not be construed as an express or implied promise, guarantee or implication by SaxBank that clients will profit from the strategies herein or that losses in connection therewith can or will be limited. Trades in accordance with the recommendations in an analysis, especially leveraged investments such as foreign exchange trading and investment in derivatives, can be very speculative and may result in losses as well as profits, in particular if the conditions mentioned in the analysis dnot occur as anticipated.
SaxBank utilizes financial information providers and information from such providers may form the basis for an analysis. SaxBank accepts nresponsibility for the accuracy or completeness of any information herein contained.
Any recommendations and other comments in SaxBanks analysis derive from objective fundamental macreconomical and company specific calculations, statistical and technical analysis, and subjective general market assessment.
If an analysis contains recommendations tbuy or sell a specific financial instrument, such recommendation should be seen as SaxBanks opinion that the specific instrument will respectively outperform the relevant market or underperform compared tthe market. SaxBanks recommendations should statistically correspond tan even distribution between buy and sell recommendations.
The recommendations may expire promptly due tmarket volatility and in general, SaxBank does not anticipate its recommendations tbe valid more than one month. An analysis will be updated if and only if a market development or other issues relevant tthe analysis render a new analysis on the same topic relevant. SaxBanks analysis does not cover any specific financial product over time but only products which SaxBanks strategy team finds it important tcover at any given point in time.
In order tprevent conflicts of interest, SaxBank has established appropriate business procedures, incl. procedures applicable tresearch and analysis tensure objective research reports. SaxBanks research reports have not been discussed with the parties, e.g. issuers of securities, mentioned in the analysis.
SaxBank is under supervision by the Danish Financial Supervisory Authority. SaxBank does not engage in corporate finance activities and accordingly, SaxBanks employees, incl. the persons responsible for an analysis, dnot receive remuneration associated with investment banking transactions.
Read more...
U.S. Economy Probably Lost Jobs in September for Ninth Month
By Shobhana Chandra
Oct. 3 (Bloomberg) -- The U.S. probably lost jobs in September for a ninth month as the credit crisis deepened the economic slump, economists said before a government report today.
Payrolls fell by 105,000 last month, the biggest decline in five years, according to the median estimate of economists surveyed by Bloomberg News. The Labor Department report, the last before the presidential election, may also show the unemployment rate was unchanged at a five-year high of 6.1 percent.
The world's largest economy may be headed for bigger job losses as the worst financial meltdown since the Great Depression causes consumers and companies to retrench. A sinking labor market and rising borrowing costs raise the odds Federal Reserve policy makers will cut interest rates by the Oct. 28-29 meeting.
``The domestic economy is in a recession, and things deteriorated during the month,'' said Jonathan Basile, an economist at Credit Suisse Holdings Inc. in New York. ``A bad jobs number would solidify the market's expectations of a Fed rate cut sooner than the meeting.''
The payroll report is due at 8:30 a.m. in Washington. Estimates in the Bloomberg survey of 76 economists ranged from declines of 156,000 to 60,000. The job count dropped by 84,000 in August. Forecasts for the unemployment rate ranged from 6 percent to 6.3 percent.
The misery index, which adds the unemployment and inflation rates, surged to 11.7 percent in August, the highest level since 1991.
Past Elections
At 6.1 percent, the jobless rate would be up 1.4 percentage points from September 2007. Since World War II, the rate has only risen twice during similar periods before presidential elections. In both cases -- when Bill Clinton defeated George H. W. Bush in 1992 and when Ronald Reagan beat Jimmy Carter in 1980 -- the incumbent party lost the election.
The October employment report is scheduled for publication three days after Americans go to the polls on Nov. 4.
``Voters are extremely angry, and they want someone to blame,'' said Scott Anderson, senior economist at Wells Fargo & Co. in Minneapolis.
Democratic presidential nominee Barack Obama has opened up a lead over Republican rival John McCain in the aftermath of their first debate and amid growing concerns about the economy, according to a Pew Research Center survey taken Sept. 27-29. A mid-September poll from Washington-based Pew had shown the candidates in a statistical dead heat.
Obama, Polls
Earlier in September, a Bloomberg/Los Angeles Times poll showed more respondents said Obama would do a better job handling the financial crisis than McCain, and almost half of the voters believed he had better ideas to strengthen the economy than his rival.
In the past month, Hewlett-Packard Co., the world's largest personal-computer maker, announced it will cut 24,600 jobs, and auto-parts maker Federal-Mogul Corp. said it would eliminate 4,000 positions globally.
The Senate passed a $700 billion rescue package for the financial industry earlier this week and the House of Representatives may vote on it today.
Marriott International Inc., the world's largest hotel chain, yesterday reported third-quarter profit fell 28 percent as U.S. companies and consumers cut back on travel.
``Without action, the resulting credit squeeze could threaten businesses,'' Chief Financial Officer Arne Sorenson said on a conference call. There are ``tens of thousands of jobs at stake in our company alone, and we are typical.''
Spending Forecast
Mounting job cuts will further limit consumer spending, which accounts for more than two-thirds of the economy. A Bloomberg survey in September predicted spending will be unchanged this quarter, the weakest performance since 1991.
New research from the Fed Bank of New York showed the jobs report is one of only two data releases that have a significant effect on the price of bonds, stocks, or currencies.
Fed economists looked at minute-by-minute trading after the release of 13 economic indicators from January 1998 to July 2007. Only the employment and Institute for Supply Management's manufacturing reports regularly moved markets more than random chance and for a lengthy period during the trading day.
``With jobs, the effects are large and persist through the end of the day,'' said economist Linda Goldberg, one of the researchers and a vice president in the New York Fed's international research department.
Manufacturing Contracts
An ISM index on Oct. 1 showed manufacturing shrank in September at the fastest pace since the last recession in 2001. The odds the central bank will lower its benchmark rate by a half percentage point, to 1.5 percent, later this month rose to 34 percent that day, compared with no chance a week earlier, according to futures trading.
The probability jumped to over 90 percent yesterday as stocks tumbled and borrowing costs surged.
The Labor Department today will also publish its preliminary estimate for the annual benchmark revisions to payrolls.
Currently, government data show 521,000 jobs were created during the 12 months that ended in March 2008. That figure may be cut almost in half, economists at Goldman Sachs Group Inc. in New York estimated. The final revision will be issued in February.
Bloomberg Survey
To contact the reporter on this story: Shobhana Chandra in Washington schandra1@bloomberg.net
Read more...
Oct. 3 (Bloomberg) -- The U.S. probably lost jobs in September for a ninth month as the credit crisis deepened the economic slump, economists said before a government report today.
Payrolls fell by 105,000 last month, the biggest decline in five years, according to the median estimate of economists surveyed by Bloomberg News. The Labor Department report, the last before the presidential election, may also show the unemployment rate was unchanged at a five-year high of 6.1 percent.
The world's largest economy may be headed for bigger job losses as the worst financial meltdown since the Great Depression causes consumers and companies to retrench. A sinking labor market and rising borrowing costs raise the odds Federal Reserve policy makers will cut interest rates by the Oct. 28-29 meeting.
``The domestic economy is in a recession, and things deteriorated during the month,'' said Jonathan Basile, an economist at Credit Suisse Holdings Inc. in New York. ``A bad jobs number would solidify the market's expectations of a Fed rate cut sooner than the meeting.''
The payroll report is due at 8:30 a.m. in Washington. Estimates in the Bloomberg survey of 76 economists ranged from declines of 156,000 to 60,000. The job count dropped by 84,000 in August. Forecasts for the unemployment rate ranged from 6 percent to 6.3 percent.
The misery index, which adds the unemployment and inflation rates, surged to 11.7 percent in August, the highest level since 1991.
Past Elections
At 6.1 percent, the jobless rate would be up 1.4 percentage points from September 2007. Since World War II, the rate has only risen twice during similar periods before presidential elections. In both cases -- when Bill Clinton defeated George H. W. Bush in 1992 and when Ronald Reagan beat Jimmy Carter in 1980 -- the incumbent party lost the election.
The October employment report is scheduled for publication three days after Americans go to the polls on Nov. 4.
``Voters are extremely angry, and they want someone to blame,'' said Scott Anderson, senior economist at Wells Fargo & Co. in Minneapolis.
Democratic presidential nominee Barack Obama has opened up a lead over Republican rival John McCain in the aftermath of their first debate and amid growing concerns about the economy, according to a Pew Research Center survey taken Sept. 27-29. A mid-September poll from Washington-based Pew had shown the candidates in a statistical dead heat.
Obama, Polls
Earlier in September, a Bloomberg/Los Angeles Times poll showed more respondents said Obama would do a better job handling the financial crisis than McCain, and almost half of the voters believed he had better ideas to strengthen the economy than his rival.
In the past month, Hewlett-Packard Co., the world's largest personal-computer maker, announced it will cut 24,600 jobs, and auto-parts maker Federal-Mogul Corp. said it would eliminate 4,000 positions globally.
The Senate passed a $700 billion rescue package for the financial industry earlier this week and the House of Representatives may vote on it today.
Marriott International Inc., the world's largest hotel chain, yesterday reported third-quarter profit fell 28 percent as U.S. companies and consumers cut back on travel.
``Without action, the resulting credit squeeze could threaten businesses,'' Chief Financial Officer Arne Sorenson said on a conference call. There are ``tens of thousands of jobs at stake in our company alone, and we are typical.''
Spending Forecast
Mounting job cuts will further limit consumer spending, which accounts for more than two-thirds of the economy. A Bloomberg survey in September predicted spending will be unchanged this quarter, the weakest performance since 1991.
New research from the Fed Bank of New York showed the jobs report is one of only two data releases that have a significant effect on the price of bonds, stocks, or currencies.
Fed economists looked at minute-by-minute trading after the release of 13 economic indicators from January 1998 to July 2007. Only the employment and Institute for Supply Management's manufacturing reports regularly moved markets more than random chance and for a lengthy period during the trading day.
``With jobs, the effects are large and persist through the end of the day,'' said economist Linda Goldberg, one of the researchers and a vice president in the New York Fed's international research department.
Manufacturing Contracts
An ISM index on Oct. 1 showed manufacturing shrank in September at the fastest pace since the last recession in 2001. The odds the central bank will lower its benchmark rate by a half percentage point, to 1.5 percent, later this month rose to 34 percent that day, compared with no chance a week earlier, according to futures trading.
The probability jumped to over 90 percent yesterday as stocks tumbled and borrowing costs surged.
The Labor Department today will also publish its preliminary estimate for the annual benchmark revisions to payrolls.
Currently, government data show 521,000 jobs were created during the 12 months that ended in March 2008. That figure may be cut almost in half, economists at Goldman Sachs Group Inc. in New York estimated. The final revision will be issued in February.
Bloomberg Survey
================================================================
Nonfarm Unemploy Manu Hourly
Payrolls Rate Payrolls Earnings
,000's % ,000's MOM%
================================================================
Date of Release 10/03 10/03 10/03 10/03
Observation Period Sept. Sept. Sept. Sept.
----------------------------------------------------------------
Median -105 6.1% -57 0.3%
Average -109 6.1% -54 0.3%
High Forecast -60 6.3% -30 0.4%
Low Forecast -156 6.0% -70 0.1%
Number of Participants 76 74 17 55
Previous -84 6.1% -61 0.4%
----------------------------------------------------------------
4CAST Ltd. -60 6.1% --- 0.3%
Action Economics -100 6.2% -70 0.3%
Aletti Gestielle SGR -100 6.1% -45 ---
Allianz Dresdner Economic -85 6.1% --- 0.3%
Argus Research Corp. -75 6.0% --- ---
Banc of America Securitie -100 6.1% --- 0.3%
Bank of Tokyo- Mitsubishi -96 6.1% --- 0.3%
Bantleon Bank AG -110 6.1% --- ---
Barclays Capital -110 6.1% --- 0.3%
BBVA -90 6.2% --- 0.3%
BMO Capital Markets -100 6.1% --- 0.3%
BNP Paribas -100 6.2% --- 0.3%
Briefing.com -90 6.1% --- 0.3%
Calyon -80 6.1% --- 0.3%
CIBC World Markets -120 6.0% --- 0.3%
Commerzbank AG -90 6.2% --- 0.3%
Credit Suisse -100 6.1% --- 0.2%
Daiwa Securities America -100 6.1% --- ---
Danske Bank -90 6.1% --- ---
DekaBank -110 6.1% --- 0.2%
Desjardins Group -105 6.1% --- 0.3%
Deutsche Bank Securities -150 6.1% --- 0.3%
Dresdner Kleinwort -130 6.0% -50 0.3%
DZ Bank -100 6.1% --- ---
First Trust Advisors -80 6.0% -60 0.3%
Fortis -75 6.0% --- ---
FTN Financial -110 6.2% --- ---
Global Insight Inc. -110 6.1% --- 0.3%
Goldman, Sachs & Co. -150 6.2% --- 0.3%
H&R Block Financial Advis -100 6.2% -60 0.3%
Helaba -110 6.1% --- 0.3%
High Frequency Economics -100 6.1% --- 0.3%
HSBC Markets -150 6.2% --- 0.3%
IDEAglobal -100 6.1% -60 0.3%
Informa Global Markets -115 6.1% -60 0.2%
ING Financial Markets -150 6.2% --- 0.3%
Insight Economics -110 6.0% --- 0.2%
Intesa-SanPaulo -100 6.1% --- 0.3%
J.P. Morgan Chase -105 6.2% --- 0.3%
Janney Montgomery Scott L -118 6.3% --- ---
JPMorgan Private Client -125 6.1% -30 0.3%
Landesbank Berlin -120 6.2% --- 0.1%
Landesbank BW -120 6.1% --- ---
Lehman Brothers -125 6.1% --- 0.3%
Lloyds TSB -90 6.0% --- 0.4%
Maria Fiorini Ramirez Inc -105 6.1% --- 0.3%
Merk Investments -105 6.2% -50 0.3%
Merrill Lynch -100 6.2% --- 0.2%
MFC Global Investment Man -120 6.2% -65 0.2%
Moody's Economy.com -125 6.0% -50 0.3%
Morgan Keegan & Co. -113 6.1% --- ---
Morgan Stanley & Co. -150 6.0% --- 0.3%
National City Corporation -156 6.1% --- 0.2%
Natixis -115 6.1% --- 0.3%
Newedge -105 6.1% -60 ---
Nomura Securities Intl. -130 6.1% -60 0.3%
Okasan Securities -120 6.2% --- ---
PNC Bank -100 6.1% -50 0.3%
RBS Greenwich Capital -125 6.1% --- 0.3%
Ried, Thunberg & Co. -100 6.1% --- ---
Schneider Trading Associa -118 6.1% -57 0.2%
Scotia Capital -150 6.3% --- 0.3%
Societe Generale -110 6.1% --- ---
Standard Chartered -100 6.1% --- ---
Stone & McCarthy Research -105 6.1% -40 0.3%
TD Securities -100 --- --- ---
Thomson Financial/IFR -90 6.2% --- 0.3%
Tullett Prebon -130 --- --- 0.3%
UBS Securities LLC -100 6.0% --- 0.3%
Unicredit MIB -85 6.1% --- ---
University of Maryland -80 6.1% -50 0.3%
Wachovia Corp. -150 6.0% --- ---
Wells Fargo & Co. -100 6.2% --- ---
WestLB AG -90 6.1% --- 0.3%
Westpac Banking Co. -125 6.0% --- ---
Wrightson Associates -100 6.1% --- 0.3%
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To contact the reporter on this story: Shobhana Chandra in Washington schandra1@bloomberg.net
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Two Fed Bank Chiefs Signal They're Unready to Back Rate Cut
By Vivien Lou Chen and Steve Matthews
Oct. 3 (Bloomberg) -- Two Federal Reserve district bank presidents signaled they're not prepared to back an interest- rate cut even after the biggest disruption to the U.S. financial industry in seven decades.
``Lowering the rate right now maybe isn't the right response'' because of an ``inflation problem,'' St. Louis Fed President James Bullard said after a speech in Bloomington, Indiana, late yesterday. Thomas Hoenig, his Kansas City counterpart, said in Albuquerque, New Mexico, that ``there is very strong stimulus in the economy'' already.
The remarks underscore a gap between investors' expectations of further rate reductions and the sentiment among some regional Fed officials that more cuts may not aid the economy at a time of elevated inflation. Five of the 12 district-bank chiefs dissented on rate decisions since policy makers started lowering borrowing costs in September last year.
Traders may look to Fed Chairman Ben S. Bernanke's Oct. 7 speech on the economy for clues on whether the Federal Open Market Committee is open to a cut even before its Oct. 28-29 meeting. Bullard and Hoenig aren't voters on the FOMC this year.
Interest-rate futures indicate 94 percent odds of a half- point cut in the Fed's benchmark 2 percent rate at or before this month's meeting. A month ago, futures showed no chance of any reduction.
Financial Carnage
Expectations shifted after the turmoil that brought down Lehman Brothers Holdings Inc. last month and caused government takeovers of Fannie Mae, Freddie Mac and American International Group Inc., along with forced mergers or asset sales by Merrill Lynch & Co., Wachovia Corp. and Washington Mutual Inc.
Banks are hoarding cash as the crisis deepens. The London interbank offered rate that banks charge each other for three- month loans rose for a fourth day yesterday to 4.21 percent, the highest since Jan. 11.
``When the markets freeze up, and people become afraid and don't trust one another and are not willing to lend to one another, then of course the ability for monetary policy to work is more complicated and more difficult and less immediately effective,'' Hoenig said in responding to questions yesterday.
Still, he said the Fed's challenge would be to take back some of the seven rate cuts implemented from September 2007 to April this year.
``One of the most difficult tasks ahead for the central bank is to remove that accommodation, remove that liquidity, in a timely manner,'' Hoenig said at a forum sponsored by his bank late yesterday. ``If you do it too quickly, too rapidly, then we may staunch the recovery that we're trying to achieve.''
Hoenig's Tenure
Hoenig, 62, took office in October 1991 and is the second- longest serving of the district bank presidents, after Minneapolis's Gary Stern.
Five presidents serve on the FOMC, which also includes the seven governors on the Fed's board; one governorship slot is currently vacant. The New York Fed chief is permanent FOMC vice chairman, with four other presidents rotating on an annual basis.
Bullard, 47, took the St. Louis Fed's helm in April after serving as the bank's research director. He stressed his concern about inflation dangers yesterday.
``You've got this brewing inflation problem that could get out of control if we don't keep our eye on it,'' he said. ``The key concern for me is that we don't get so wrapped up in trying to solve the financial crisis that we create a new problem, a new inflation problem.''
Both Bullard and Hoenig said the financial crisis is taking its toll on the U.S. economy.
Job Market
``Financial market turmoil has recently been severe, and the consequences of this turmoil on real economic performance entail clear downside risk,'' Bullard said in his speech. ``The things that have given me the most concern are the labor market data and the sharp rise in the unemployment rate'' and jobless claims that are ``at recession levels,'' he said afterward.
Hoenig said that the U.S. economic situation is ``very serious,'' with consumers likely to rein in spending and increase savings amid the financial tumult.
The Kansas City Fed official said he was ``very concerned'' about the economy, while reiterating his confidence that the U.S. will ``see its way through this.'' Growth will be ``very modest'' this quarter, with a chance of improvement by the second quarter of 2009, he said.
The central bank said yesterday it had extended a record total of $410 billion of loans to commercial banks, securities dealers and AIG as of Oct. 1 in its efforts to help buttress liquidity.
House of Representatives lawmakers today may vote on a $700 billion rescue plan to help shore up the financial industry, after the Senate approved a modified version of legislation the House originally rejected.
Manufacturing in the U.S. contracted in September at the fastest pace since the last recession as sales slowed, and orders to U.S. factories fell in August by the most in almost two years, according to figures released this week.
The U.S. probably lost jobs in September for the ninth consecutive month, economists said before a report that will be released today. Payrolls probably fell by 105,000, according to the median estimate in a Bloomberg News survey.
To contact the reporter on this story: Vivien Lou Chen in San Francisco at vchen1@bloomberg.net
Read more...
Oct. 3 (Bloomberg) -- Two Federal Reserve district bank presidents signaled they're not prepared to back an interest- rate cut even after the biggest disruption to the U.S. financial industry in seven decades.
``Lowering the rate right now maybe isn't the right response'' because of an ``inflation problem,'' St. Louis Fed President James Bullard said after a speech in Bloomington, Indiana, late yesterday. Thomas Hoenig, his Kansas City counterpart, said in Albuquerque, New Mexico, that ``there is very strong stimulus in the economy'' already.
The remarks underscore a gap between investors' expectations of further rate reductions and the sentiment among some regional Fed officials that more cuts may not aid the economy at a time of elevated inflation. Five of the 12 district-bank chiefs dissented on rate decisions since policy makers started lowering borrowing costs in September last year.
Traders may look to Fed Chairman Ben S. Bernanke's Oct. 7 speech on the economy for clues on whether the Federal Open Market Committee is open to a cut even before its Oct. 28-29 meeting. Bullard and Hoenig aren't voters on the FOMC this year.
Interest-rate futures indicate 94 percent odds of a half- point cut in the Fed's benchmark 2 percent rate at or before this month's meeting. A month ago, futures showed no chance of any reduction.
Financial Carnage
Expectations shifted after the turmoil that brought down Lehman Brothers Holdings Inc. last month and caused government takeovers of Fannie Mae, Freddie Mac and American International Group Inc., along with forced mergers or asset sales by Merrill Lynch & Co., Wachovia Corp. and Washington Mutual Inc.
Banks are hoarding cash as the crisis deepens. The London interbank offered rate that banks charge each other for three- month loans rose for a fourth day yesterday to 4.21 percent, the highest since Jan. 11.
``When the markets freeze up, and people become afraid and don't trust one another and are not willing to lend to one another, then of course the ability for monetary policy to work is more complicated and more difficult and less immediately effective,'' Hoenig said in responding to questions yesterday.
Still, he said the Fed's challenge would be to take back some of the seven rate cuts implemented from September 2007 to April this year.
``One of the most difficult tasks ahead for the central bank is to remove that accommodation, remove that liquidity, in a timely manner,'' Hoenig said at a forum sponsored by his bank late yesterday. ``If you do it too quickly, too rapidly, then we may staunch the recovery that we're trying to achieve.''
Hoenig's Tenure
Hoenig, 62, took office in October 1991 and is the second- longest serving of the district bank presidents, after Minneapolis's Gary Stern.
Five presidents serve on the FOMC, which also includes the seven governors on the Fed's board; one governorship slot is currently vacant. The New York Fed chief is permanent FOMC vice chairman, with four other presidents rotating on an annual basis.
Bullard, 47, took the St. Louis Fed's helm in April after serving as the bank's research director. He stressed his concern about inflation dangers yesterday.
``You've got this brewing inflation problem that could get out of control if we don't keep our eye on it,'' he said. ``The key concern for me is that we don't get so wrapped up in trying to solve the financial crisis that we create a new problem, a new inflation problem.''
Both Bullard and Hoenig said the financial crisis is taking its toll on the U.S. economy.
Job Market
``Financial market turmoil has recently been severe, and the consequences of this turmoil on real economic performance entail clear downside risk,'' Bullard said in his speech. ``The things that have given me the most concern are the labor market data and the sharp rise in the unemployment rate'' and jobless claims that are ``at recession levels,'' he said afterward.
Hoenig said that the U.S. economic situation is ``very serious,'' with consumers likely to rein in spending and increase savings amid the financial tumult.
The Kansas City Fed official said he was ``very concerned'' about the economy, while reiterating his confidence that the U.S. will ``see its way through this.'' Growth will be ``very modest'' this quarter, with a chance of improvement by the second quarter of 2009, he said.
The central bank said yesterday it had extended a record total of $410 billion of loans to commercial banks, securities dealers and AIG as of Oct. 1 in its efforts to help buttress liquidity.
House of Representatives lawmakers today may vote on a $700 billion rescue plan to help shore up the financial industry, after the Senate approved a modified version of legislation the House originally rejected.
Manufacturing in the U.S. contracted in September at the fastest pace since the last recession as sales slowed, and orders to U.S. factories fell in August by the most in almost two years, according to figures released this week.
The U.S. probably lost jobs in September for the ninth consecutive month, economists said before a report that will be released today. Payrolls probably fell by 105,000, according to the median estimate in a Bloomberg News survey.
To contact the reporter on this story: Vivien Lou Chen in San Francisco at vchen1@bloomberg.net
Read more...
Paulson-Bernanke Steps Created `Big Ripples,' Leading to Rescue
By Craig Torres and Eric Martin
Oct. 3 (Bloomberg) -- The $700 billion rescue that the U.S. House considers today reflects the unintended consequences of decisions made by Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke since March.
Beginning with the orchestrated purchase of Bear Stearns Cos. by JPMorgan Chase & Co., each step was a bold effort to forestall a collapse of the financial system. The economy grew in the first two quarters of this year, and financial distress eased for a while after the Bear Stearns rescue. Still, each decision to bail out or not created more instability, leading to further runs on securities firms, banks and insurers.
``Every time you tinker with this delicate system even small changes can create big ripples,'' said Dino Kos, former head of the New York Fed's open-market operations and now a managing director at Portales Partners LLC in New York. ``This is the impossible situation they are in. The risks are that the government's $700 billion purchase of assets disturbs markets even more.''
Paulson and Bernanke insist that the program to buy troubled mortgages and other securities is needed to revive lending and restore stability to markets. What they haven't discussed is the risk that they inadvertently make matters worse. By creating a government pool of distressed real-estate and bad debt, they could depress the housing market further. Risk may become even more concentrated through a wave of bank mergers that, if unsuccessful, would stick taxpayers with an even higher bill.
Conference Call
The decision to launch the biggest bailout in history came on a Sept. 17 conference call, when Bernanke and Paulson pulled the trigger on a proposal etched out over several months. Over the previous two days, they let Lehman Brothers Holdings Inc. fail and seized American International Group Inc. The reaction to their visible hand: a rout in financial stocks, paralysis in the trillion dollar inter-bank loan market, and flight from money market mutual funds.
Treasury and Fed officials had long been uncomfortable with the way the safety net had to be expanded to catch Bear Stearns. Not a single creditor had suffered a default as the company was swept into JPMorgan Chase & Co. with the help of a $29 billion Fed loan. Stock investors received about $10 each.
Their decision to pull back and let shareholders get wiped out in Fannie Mae, Freddie Mac, and then Lehman ``sent shivers through investors,'' said Peter Kovalski, who oversees financial-services stocks for Alpine Woods Capital Investors LLC's $12 billion portfolio. ``Everybody kind of backed off and said if this is the way the government is going to play the game, we don't want to risk our capital.''
Assumptions Thrown Out
Lehman's bankruptcy toppled other assumptions that investors had made. Bear Stearns, deemed too big to fail by the Fed and Treasury, had $399 billion in total assets. Lehman Brothers had $639 billion in total assets, possibly posing a bigger systemic risk than Bear.
``There was a perception, right or wrong, that after Bear Stearns, that in any firm as big, the senior debt holders would be okay,'' said Karl Haeling, head of debt distribution at Landesbank Baden-Wuerttemberg, New York, Germany's largest state-owned bank. ``Obviously, that was the wrong bet.''
Bernanke and Paulson began their discussions at the end of the day on Sept. 17, when the Standard & Poor's 500 Financials Index fell 8.9 percent.
Investors concluded after the AIG takeover -- the price of an $85 billion loan -- that any future federal aid would come at a similar cost, and they fled.
`Oh, My God'
``Are we imploding right here?'' Joseph Saluzzi, co-head of Themis Trading LLC in Chatham, New Jersey, and his colleagues asked each other on Sept. 17. Shares of Goldman Sachs Group Inc. were down 21 percent at noon and Morgan Stanley lost 36 percent. ``People thought, `Oh, my God, if Goldman's going out, we've got a real problem.'''
Lehman's collapse caused the Reserve Primary Fund, the oldest U.S. money-market fund, to write off $785 million of debt issued by the investment bank, forcing the fund to break the buck, meaning its net asset value fell below $1 a share.
The run on money funds, prompted in part by the government's decision to let Lehman fail, caused yet another extension of the safety net by the Treasury and Fed.
On Sept. 19, invoking Depression-era authority, the Fed's Board of Governors authorized its Boston branch to provide emergency loans to commercial banks to purchase asset-backed commercial paper from money mutual funds to help them meet shareholder redemptions.
Paulson's Goal
The Treasury is gambling that the $700 billion plan now being debated in Congress will kick-start capital markets and lending. If the government is a buyer of mortgage securities, they will trade higher, Paulson told Congress. If the banks are cleansed of bad assets, they will find new capital and the cycle of lending will start again.
Investors say once again the government's big-footing in the financial markets could create more problems than it solves.
Officials ``have designed a financial bailout plan that is not only misdirected, but may further exacerbate problems in the housing market,'' says Eric Hovde, chief investment officer at Hovde Capital LLC, which manages $1 billion in financial services stocks. ``Just as foreclosure sales are pressuring housing prices today, government sales will only make matters worse.''
To contact the reporters on this story: Craig Torres in Washington at ctorres3@bloomberg.net; Eric Martin in New York at emartin21@bloomberg.net.
Read more...
Oct. 3 (Bloomberg) -- The $700 billion rescue that the U.S. House considers today reflects the unintended consequences of decisions made by Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke since March.
Beginning with the orchestrated purchase of Bear Stearns Cos. by JPMorgan Chase & Co., each step was a bold effort to forestall a collapse of the financial system. The economy grew in the first two quarters of this year, and financial distress eased for a while after the Bear Stearns rescue. Still, each decision to bail out or not created more instability, leading to further runs on securities firms, banks and insurers.
``Every time you tinker with this delicate system even small changes can create big ripples,'' said Dino Kos, former head of the New York Fed's open-market operations and now a managing director at Portales Partners LLC in New York. ``This is the impossible situation they are in. The risks are that the government's $700 billion purchase of assets disturbs markets even more.''
Paulson and Bernanke insist that the program to buy troubled mortgages and other securities is needed to revive lending and restore stability to markets. What they haven't discussed is the risk that they inadvertently make matters worse. By creating a government pool of distressed real-estate and bad debt, they could depress the housing market further. Risk may become even more concentrated through a wave of bank mergers that, if unsuccessful, would stick taxpayers with an even higher bill.
Conference Call
The decision to launch the biggest bailout in history came on a Sept. 17 conference call, when Bernanke and Paulson pulled the trigger on a proposal etched out over several months. Over the previous two days, they let Lehman Brothers Holdings Inc. fail and seized American International Group Inc. The reaction to their visible hand: a rout in financial stocks, paralysis in the trillion dollar inter-bank loan market, and flight from money market mutual funds.
Treasury and Fed officials had long been uncomfortable with the way the safety net had to be expanded to catch Bear Stearns. Not a single creditor had suffered a default as the company was swept into JPMorgan Chase & Co. with the help of a $29 billion Fed loan. Stock investors received about $10 each.
Their decision to pull back and let shareholders get wiped out in Fannie Mae, Freddie Mac, and then Lehman ``sent shivers through investors,'' said Peter Kovalski, who oversees financial-services stocks for Alpine Woods Capital Investors LLC's $12 billion portfolio. ``Everybody kind of backed off and said if this is the way the government is going to play the game, we don't want to risk our capital.''
Assumptions Thrown Out
Lehman's bankruptcy toppled other assumptions that investors had made. Bear Stearns, deemed too big to fail by the Fed and Treasury, had $399 billion in total assets. Lehman Brothers had $639 billion in total assets, possibly posing a bigger systemic risk than Bear.
``There was a perception, right or wrong, that after Bear Stearns, that in any firm as big, the senior debt holders would be okay,'' said Karl Haeling, head of debt distribution at Landesbank Baden-Wuerttemberg, New York, Germany's largest state-owned bank. ``Obviously, that was the wrong bet.''
Bernanke and Paulson began their discussions at the end of the day on Sept. 17, when the Standard & Poor's 500 Financials Index fell 8.9 percent.
Investors concluded after the AIG takeover -- the price of an $85 billion loan -- that any future federal aid would come at a similar cost, and they fled.
`Oh, My God'
``Are we imploding right here?'' Joseph Saluzzi, co-head of Themis Trading LLC in Chatham, New Jersey, and his colleagues asked each other on Sept. 17. Shares of Goldman Sachs Group Inc. were down 21 percent at noon and Morgan Stanley lost 36 percent. ``People thought, `Oh, my God, if Goldman's going out, we've got a real problem.'''
Lehman's collapse caused the Reserve Primary Fund, the oldest U.S. money-market fund, to write off $785 million of debt issued by the investment bank, forcing the fund to break the buck, meaning its net asset value fell below $1 a share.
The run on money funds, prompted in part by the government's decision to let Lehman fail, caused yet another extension of the safety net by the Treasury and Fed.
On Sept. 19, invoking Depression-era authority, the Fed's Board of Governors authorized its Boston branch to provide emergency loans to commercial banks to purchase asset-backed commercial paper from money mutual funds to help them meet shareholder redemptions.
Paulson's Goal
The Treasury is gambling that the $700 billion plan now being debated in Congress will kick-start capital markets and lending. If the government is a buyer of mortgage securities, they will trade higher, Paulson told Congress. If the banks are cleansed of bad assets, they will find new capital and the cycle of lending will start again.
Investors say once again the government's big-footing in the financial markets could create more problems than it solves.
Officials ``have designed a financial bailout plan that is not only misdirected, but may further exacerbate problems in the housing market,'' says Eric Hovde, chief investment officer at Hovde Capital LLC, which manages $1 billion in financial services stocks. ``Just as foreclosure sales are pressuring housing prices today, government sales will only make matters worse.''
To contact the reporters on this story: Craig Torres in Washington at ctorres3@bloomberg.net; Eric Martin in New York at emartin21@bloomberg.net.
Read more...
Indian Oil's Import Bill to Reach $40 Billion, Chairman Says
By Archana Chaudhary
Oct. 3 (Bloomberg) -- Indian Oil Corp., the nation's biggest refiner, said it will spend $40 billion this year to import crude oil, up from $34 billion in the previous year.
The refiner will buy as much as 47 million tons this year, up from 40 million tons last year, Chairman Sarthak Behuria told reporters in New Delhi.
A global credit squeeze is making fundraising ``tougher,'' Behuria said. The refiner is borrowing as much as 70 billion rupees every month to fund its day-to-day operations, he said.
Indian Oil has up to 40 percent of its debt denominated in U.S. dollars, he said.
To contact the reporter on this story: Archana Chaudhary in Mumbai at achaudhary2@bloomberg.net.
Read more...
Oct. 3 (Bloomberg) -- Indian Oil Corp., the nation's biggest refiner, said it will spend $40 billion this year to import crude oil, up from $34 billion in the previous year.
The refiner will buy as much as 47 million tons this year, up from 40 million tons last year, Chairman Sarthak Behuria told reporters in New Delhi.
A global credit squeeze is making fundraising ``tougher,'' Behuria said. The refiner is borrowing as much as 70 billion rupees every month to fund its day-to-day operations, he said.
Indian Oil has up to 40 percent of its debt denominated in U.S. dollars, he said.
To contact the reporter on this story: Archana Chaudhary in Mumbai at achaudhary2@bloomberg.net.
Read more...
Oil May Fall as Slowing Economy Curbs Fuel Demand, Survey Shows
By Mark Shenk
Oct. 3 (Bloomberg) -- Crude oil may fall next week on concern that lower economic growth will curb fuel demand in the U.S., the world's biggest energy consuming country.
Seventeen of 31 analysts surveyed by Bloomberg News, or 55 percent, said prices will decrease through Oct. 10, the most bearish response since the week ended June 6. Seven respondents, or 23 percent, said oil will rise and seven said prices will be little changed. Last week 48 percent expected futures to decline.
The U.S. may fall into a recession, the International Monetary Fund said yesterday in its most pessimistic outlook for the world's largest economy since the credit crisis began last year. The nation's fuel demand averaged 19 million barrels a day during the past four weeks, the lowest since October 2001, the Energy Department said in an Oct. 1 report.
``There are three reasons oil prices are going lower,'' said Adam Sieminski, Deutsche Bank's chief energy economist, in Washington. ``The economy, the economy and the economy.''
Crude oil for November delivery fell $12.92, or 12 percent, to $93.97 a barrel so far this week on the New York Mercantile Exchange. Futures have fallen 36 percent since touching $147.27 a barrel on July 11, the highest since trading began in 1983.
The oil survey has correctly predicted the direction of futures 49 percent of the time since its start in April 2004.
Bloomberg's survey of oil analysts and traders, conducted
each Thursday, asks for an assessment of whether crude oil
futures are likely to rise, fall or remain neutral in the coming
week. The results were:
RISE NEUTRAL FALL
7 7 17
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.
Read more...
Oct. 3 (Bloomberg) -- Crude oil may fall next week on concern that lower economic growth will curb fuel demand in the U.S., the world's biggest energy consuming country.
Seventeen of 31 analysts surveyed by Bloomberg News, or 55 percent, said prices will decrease through Oct. 10, the most bearish response since the week ended June 6. Seven respondents, or 23 percent, said oil will rise and seven said prices will be little changed. Last week 48 percent expected futures to decline.
The U.S. may fall into a recession, the International Monetary Fund said yesterday in its most pessimistic outlook for the world's largest economy since the credit crisis began last year. The nation's fuel demand averaged 19 million barrels a day during the past four weeks, the lowest since October 2001, the Energy Department said in an Oct. 1 report.
``There are three reasons oil prices are going lower,'' said Adam Sieminski, Deutsche Bank's chief energy economist, in Washington. ``The economy, the economy and the economy.''
Crude oil for November delivery fell $12.92, or 12 percent, to $93.97 a barrel so far this week on the New York Mercantile Exchange. Futures have fallen 36 percent since touching $147.27 a barrel on July 11, the highest since trading began in 1983.
The oil survey has correctly predicted the direction of futures 49 percent of the time since its start in April 2004.
Bloomberg's survey of oil analysts and traders, conducted
each Thursday, asks for an assessment of whether crude oil
futures are likely to rise, fall or remain neutral in the coming
week. The results were:
RISE NEUTRAL FALL
7 7 17
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.
Read more...
Market Turmoil Mustn't Curb Carbon Work, Garnaut Says
By Angela Macdonald-Smith
Oct. 3 (Bloomberg) -- The world needs to push forward on targets to reduce greenhouse gas emissions even as turmoil grips financial markets, said Ross Garnaut, the Australian government's climate-change adviser.
Global warming is a long-term problem that will remain after the current economic downturn is past, Garnaut said today in an address in Sydney. Nations need to be careful not be to ``knocked off course'' by ``short-term'' economic issues.
The U.S. House of Representatives is set to vote later today on a $700 billion financial-rescue package to help boost the flagging economy. Faltering growth and rising unemployment in the U.S. are coinciding with efforts to reach a global agreement on how to limit carbon dioxide output. Almost 200 countries have just over a year before a pact must be signed in Copenhagen to replace the Kyoto Protocol.
``It would be a really serious mistake if we saw the financial crisis as a reason for going slow,'' Garnaut said. ``If we were negotiating an international agreement this week, then it would be a major problem, but financial crises are very damaging, hugely damaging, but they pass.''
The position adopted by the U.S. leadership after next month's elections will be ``tremendously important'' for the direction the world takes on climate change, Garnaut said.
`More Difficult'
``One question is, will the U.S. be preoccupied by its financial sector broaches?'' he said. ``I think it need not knock U.S. policy off course.''
The financial turmoil is making talks on a new climate accord ``more difficult,'' German Foreign Minister Frank-Walter Steinmeier said in Berlin on Sept. 30.
The credit crunch will also make it more difficult for the Australian government to introduce its planned carbon trading system, due to start in 2010, said Gary Cox, manager of environmental derivatives at the Australian unit of broker Newedge Group.
``The question of the environment seems to pale into insignificance when economic survival is at stake,'' Sydney-based Cox said.
Industry, which has already argued the plan will be expensive, now faces a financial crisis, he said. ``Companies will be saying, `This is not a good time to be starting emissions trading'.''
`Fair Share'
Earlier this week, Garnaut said that Australia's $1 trillion economy can manage cutting carbon emissions 10 percent by 2020, or potentially as much as 25 percent, as part of a global agreement. The targets would cost the economy between 0.1 and 0.2 percent of annual economic growth to 2020, he said.
The 10 percent reduction would be Australia's ``fair share'' of a global agreement to stabilize CO2 concentrations in the atmosphere to 550 parts per million, while the 25 percent target would be its share of a more ambitious agreement for 450 parts per million concentrations.
The 450 parts per million target leaves about a 50 percent chance of limiting the global mean temperature increase to 2 degrees Celsius above pre-industrial levels, according to Garnaut's report released Sept. 30.
To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net
Read more...
Oct. 3 (Bloomberg) -- The world needs to push forward on targets to reduce greenhouse gas emissions even as turmoil grips financial markets, said Ross Garnaut, the Australian government's climate-change adviser.
Global warming is a long-term problem that will remain after the current economic downturn is past, Garnaut said today in an address in Sydney. Nations need to be careful not be to ``knocked off course'' by ``short-term'' economic issues.
The U.S. House of Representatives is set to vote later today on a $700 billion financial-rescue package to help boost the flagging economy. Faltering growth and rising unemployment in the U.S. are coinciding with efforts to reach a global agreement on how to limit carbon dioxide output. Almost 200 countries have just over a year before a pact must be signed in Copenhagen to replace the Kyoto Protocol.
``It would be a really serious mistake if we saw the financial crisis as a reason for going slow,'' Garnaut said. ``If we were negotiating an international agreement this week, then it would be a major problem, but financial crises are very damaging, hugely damaging, but they pass.''
The position adopted by the U.S. leadership after next month's elections will be ``tremendously important'' for the direction the world takes on climate change, Garnaut said.
`More Difficult'
``One question is, will the U.S. be preoccupied by its financial sector broaches?'' he said. ``I think it need not knock U.S. policy off course.''
The financial turmoil is making talks on a new climate accord ``more difficult,'' German Foreign Minister Frank-Walter Steinmeier said in Berlin on Sept. 30.
The credit crunch will also make it more difficult for the Australian government to introduce its planned carbon trading system, due to start in 2010, said Gary Cox, manager of environmental derivatives at the Australian unit of broker Newedge Group.
``The question of the environment seems to pale into insignificance when economic survival is at stake,'' Sydney-based Cox said.
Industry, which has already argued the plan will be expensive, now faces a financial crisis, he said. ``Companies will be saying, `This is not a good time to be starting emissions trading'.''
`Fair Share'
Earlier this week, Garnaut said that Australia's $1 trillion economy can manage cutting carbon emissions 10 percent by 2020, or potentially as much as 25 percent, as part of a global agreement. The targets would cost the economy between 0.1 and 0.2 percent of annual economic growth to 2020, he said.
The 10 percent reduction would be Australia's ``fair share'' of a global agreement to stabilize CO2 concentrations in the atmosphere to 550 parts per million, while the 25 percent target would be its share of a more ambitious agreement for 450 parts per million concentrations.
The 450 parts per million target leaves about a 50 percent chance of limiting the global mean temperature increase to 2 degrees Celsius above pre-industrial levels, according to Garnaut's report released Sept. 30.
To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net
Read more...
NW Shelf Venture Starts Up A$1.6 Billion Angel Gas Project
By Angela Macdonald-Smith
Oct. 3 (Bloomberg) -- Australia's North West Shelf venture started operating the A$1.6 billion ($1.2 billion) Angel natural gas production platform off the northwest coast, underpinning an expansion of fuel exports into northern Asia.
The platform, about 120 kilometers (75 miles) northwest of Karratha, has a daily production capacity of 800 million cubic feet of gas and as much as 50,000 barrels of condensates, a type of light oil, Woodside Petroleum Ltd., the venture operator, said today in a statement to the Australian stock exchange. The project was completed on time and under budget, it said.
The A$25 billion North West Shelf venture, Australia's largest resources project, in December 2005 approved the development of the Angel project to support the expansion of liquefied natural gas output at Karratha. The venture started up its fifth LNG production unit last month.
The Angel project includes a new 50-kilometer underwater pipeline. The platform, which will be operated remotely, is connected to the existing North Rankin platform. The venture's LNG expansion also required a second tanker loading berth at Karratha, which was completed earlier this year.
Perth-based Woodside is a one-sixth owner of the North West Shelf venture, as are BHP Billiton Ltd., BP Plc, Chevron Corp., Woodside's 34 percent shareholder Royal Dutch Shell Plc and a venture between Mitsubishi Corp. and Mitsui & Co.
To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net
Read more...
Oct. 3 (Bloomberg) -- Australia's North West Shelf venture started operating the A$1.6 billion ($1.2 billion) Angel natural gas production platform off the northwest coast, underpinning an expansion of fuel exports into northern Asia.
The platform, about 120 kilometers (75 miles) northwest of Karratha, has a daily production capacity of 800 million cubic feet of gas and as much as 50,000 barrels of condensates, a type of light oil, Woodside Petroleum Ltd., the venture operator, said today in a statement to the Australian stock exchange. The project was completed on time and under budget, it said.
The A$25 billion North West Shelf venture, Australia's largest resources project, in December 2005 approved the development of the Angel project to support the expansion of liquefied natural gas output at Karratha. The venture started up its fifth LNG production unit last month.
The Angel project includes a new 50-kilometer underwater pipeline. The platform, which will be operated remotely, is connected to the existing North Rankin platform. The venture's LNG expansion also required a second tanker loading berth at Karratha, which was completed earlier this year.
Perth-based Woodside is a one-sixth owner of the North West Shelf venture, as are BHP Billiton Ltd., BP Plc, Chevron Corp., Woodside's 34 percent shareholder Royal Dutch Shell Plc and a venture between Mitsubishi Corp. and Mitsui & Co.
To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net
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India Wants to Start Working on Nuclear Energy Projects in 2009
By Archana Chaudhary and Viola Gienger
Oct. 3 (Bloomberg) -- India aims to start final negotiations next week with General Electric Co., Areva SA and Westinghouse Electric Co. on building reactors as early as next year, after U.S. approval of a nuclear accord with the South Asian nation.
``The dream is to start work next year,'' said S.K. Jain, chairman of state-owned Nuclear Power Corp. of India, the nation's monopoly atomic energy utility, in a telephone interview today. ``But there's a full set of procedures to be followed after the companies agree.''
U.S. Secretary of State Condoleezza Rice will mark the final approval of the nuclear-energy agreement with India on her second trip in office to the subcontinent starting today. India had been waiting for U.S. approval before starting talks with companies.
The nuclear agreement, passed by the Senate Oct. 1 by a vote of 86-13, allows U.S. nuclear suppliers to trade with India for the first time since it tested an atomic bomb in 1974. The Bush administration made the accord a top foreign-policy priority as a way to lock in potential political and economic links far beyond the nuclear-energy industry.
``We will begin focused negotiations with the four short- listed companies, GE, Areva, Westinghouse and Rosatom Corp., starting next week,'' Jain said. Getting the projects started, ``can take anywhere between three to eight months. The hesitation is over.''
Nuclear Power will also seek to buy nuclear fuel to power the reactors that it's planning to set up.
``We are also looking to buy more nuclear fuel or yellow cake by year-end and plan to start work at two sites, in Jaitapur in Maharashtra and Kudankulam in Tamil Nadu,'' Jain said.
Rice Visit
Rice will meet officials including Prime Minister Manmohan Singh, Foreign Minister L.K. Advani and opposition leader L.K. Advani in New Delhi, State Department spokesman Sean McCormack told reporters in Washington yesterday. The secretary of state will also visit Kazakhstan during her Oct. 3-5 trip, he said.
``The agreement bolsters our partnership with the world's largest democracy and a growing economic power, and will provide economic and job opportunities for our economy,'' Rice has said. ``The initiative will help India's population of more than 1 billion to meet its rapidly increasing energy needs in an environmentally responsible way.''
Rice will discuss a ``wide range of issues'' with Indian officials other than the agreement, including trade, counterterrorism, human rights, religious freedom and education, McCormack said.
``India is going to play a very important role, along with a number of other countries in that region, in the South Asia region, whether it's politics or economics or energy,'' he said.
Kazakhstan Visit
In Kazakhstan, Rice will meet with officials including President Nursultan Nazarbayev, Prime Minister Karim Massimov and Foreign Minister Marat Tazhin.
The talks will touch on security and energy issues, political and economic reforms and Kazakhstan's ``role as a regional leader,'' McCormack said.
Kazakhstan, the second-largest oil producer in the former Soviet Union after Russia, will hold the chairmanship of the Organization for Security and Cooperation in Europe in 2010. The inter-governmental group focuses on security and human rights.
Rice will press Kazakhstan, which has been the target of criticism by human rights groups, for further reforms in areas such as free speech and political rights, McCormack said.
``They have taken some steps,'' he said. ``There are many more that they need to take.''
Nazarbayev has instituted a plan for changes in a wide range of areas called the ``Road to Europe,'' Tazhin said Oct. 1 in a speech at the Carnegie Endowment for International Peace in Washington.
The country is seeking to continue its economic growth of 9 percent to 10 percent annually, and to provide assurances to business partners, especially since most of the oil Kazakhstan extracts will be exported, he said.
``Kazakhstan understands its role and importance as a supplier of hydrocarbons to the world market, and we'll be a responsible and reliable international partner,'' Tazhin said.
To contact the reporters on this story: Archana Chaudhary in Mumbai at achaudhary2@bloomberg.net; Viola Gienger in Washington at vgienger@bloomberg.net.
Read more...
Oct. 3 (Bloomberg) -- India aims to start final negotiations next week with General Electric Co., Areva SA and Westinghouse Electric Co. on building reactors as early as next year, after U.S. approval of a nuclear accord with the South Asian nation.
``The dream is to start work next year,'' said S.K. Jain, chairman of state-owned Nuclear Power Corp. of India, the nation's monopoly atomic energy utility, in a telephone interview today. ``But there's a full set of procedures to be followed after the companies agree.''
U.S. Secretary of State Condoleezza Rice will mark the final approval of the nuclear-energy agreement with India on her second trip in office to the subcontinent starting today. India had been waiting for U.S. approval before starting talks with companies.
The nuclear agreement, passed by the Senate Oct. 1 by a vote of 86-13, allows U.S. nuclear suppliers to trade with India for the first time since it tested an atomic bomb in 1974. The Bush administration made the accord a top foreign-policy priority as a way to lock in potential political and economic links far beyond the nuclear-energy industry.
``We will begin focused negotiations with the four short- listed companies, GE, Areva, Westinghouse and Rosatom Corp., starting next week,'' Jain said. Getting the projects started, ``can take anywhere between three to eight months. The hesitation is over.''
Nuclear Power will also seek to buy nuclear fuel to power the reactors that it's planning to set up.
``We are also looking to buy more nuclear fuel or yellow cake by year-end and plan to start work at two sites, in Jaitapur in Maharashtra and Kudankulam in Tamil Nadu,'' Jain said.
Rice Visit
Rice will meet officials including Prime Minister Manmohan Singh, Foreign Minister L.K. Advani and opposition leader L.K. Advani in New Delhi, State Department spokesman Sean McCormack told reporters in Washington yesterday. The secretary of state will also visit Kazakhstan during her Oct. 3-5 trip, he said.
``The agreement bolsters our partnership with the world's largest democracy and a growing economic power, and will provide economic and job opportunities for our economy,'' Rice has said. ``The initiative will help India's population of more than 1 billion to meet its rapidly increasing energy needs in an environmentally responsible way.''
Rice will discuss a ``wide range of issues'' with Indian officials other than the agreement, including trade, counterterrorism, human rights, religious freedom and education, McCormack said.
``India is going to play a very important role, along with a number of other countries in that region, in the South Asia region, whether it's politics or economics or energy,'' he said.
Kazakhstan Visit
In Kazakhstan, Rice will meet with officials including President Nursultan Nazarbayev, Prime Minister Karim Massimov and Foreign Minister Marat Tazhin.
The talks will touch on security and energy issues, political and economic reforms and Kazakhstan's ``role as a regional leader,'' McCormack said.
Kazakhstan, the second-largest oil producer in the former Soviet Union after Russia, will hold the chairmanship of the Organization for Security and Cooperation in Europe in 2010. The inter-governmental group focuses on security and human rights.
Rice will press Kazakhstan, which has been the target of criticism by human rights groups, for further reforms in areas such as free speech and political rights, McCormack said.
``They have taken some steps,'' he said. ``There are many more that they need to take.''
Nazarbayev has instituted a plan for changes in a wide range of areas called the ``Road to Europe,'' Tazhin said Oct. 1 in a speech at the Carnegie Endowment for International Peace in Washington.
The country is seeking to continue its economic growth of 9 percent to 10 percent annually, and to provide assurances to business partners, especially since most of the oil Kazakhstan extracts will be exported, he said.
``Kazakhstan understands its role and importance as a supplier of hydrocarbons to the world market, and we'll be a responsible and reliable international partner,'' Tazhin said.
To contact the reporters on this story: Archana Chaudhary in Mumbai at achaudhary2@bloomberg.net; Viola Gienger in Washington at vgienger@bloomberg.net.
Read more...
Commodities Head for Biggest Weekly Decline in Over 50 Years
By Glenys Sim
Oct. 3 (Bloomberg) -- Copper, corn and silver drove commodities toward their biggest weekly decline in more than 50 years on concern that the worst financial crisis since the Great Depression will push the U.S. into recession.
Commodities, as measured by the Reuters/Jefferies CRB Index of 19 raw materials, have tumbled 9.9 percent this week, the most since at least 1956. Manufacturing declined to a 7-year low in the U.S. and contracted at the fastest pace in 16 years in the U.K. last month. Initial jobless claims rose to the highest since 2001, the U.S. Labor Department said yesterday.
``The string of poor U.S. and EU economic data and fears of a weakening Chinese housing market gave further tangible support to increased bearish sentiment as markets seem to be pricing in a much slower growth forecast for the global economy,'' Hussein Allidina, commodity research analyst at Morgan Stanley said in an e-mail today.
The UBS Bloomberg CMCI Index of 26 raw materials is having its worst week since at least 1997 amid skepticism that a U.S. government $700 billion bank bailout plan won't be enough to stimulate economic growth and demand for commodities. BHP Billiton Ltd., the world's biggest mining company, fell as much as 5.6 percent to the lowest in 18 months today.
Copper is heading for its biggest weekly loss in over two decades, after reaching a record high earlier this year and silver plunged 18 percent this week, the most since 1983.
Jobs Eliminated
U.S. employers probably eliminated 105,000 jobs last month, according to the median forecast of economists surveyed by Bloomberg News. The Labor Department's report is due at 8:30 a.m. in Washington. The unemployment rate held at a five-year high of 6.1 percent, according to a separate survey.
A ``very weak'' non-farm payrolls number could see commodities ``remain under pressure,'' Walter de Wet, Standard Bank Group Ltd. analyst in Johannesburg, said in an e-mail late yesterday.
Commodities also fell as the euro headed for its largest ever weekly decline against the U.S. currency amid signs that Europe's economy is slowing.
``The rapid deterioration in the U.S. and then European financial markets brought panic into the broader markets and also drove the U.S. dollar higher, both negative for the commodity space,'' said Allidina.
Crude oil dropped for a third day, heading for its biggest weekly decline since 2004, on concerns a global economic slowdown will crimp fuel demand.
U.S. lawmakers who helped defeat the financial-market rescue package this week are reconsidering their votes amid signs the crisis on Wall Street is spreading. The legislation to be voted on by the House of Representatives later today allows the government to buy troubled assets from financial institutions rocked by record home foreclosures.
To contact the reporter on this story: Glenys Sim in Singapore at gsim4@bloomberg.net
Read more...
Oct. 3 (Bloomberg) -- Copper, corn and silver drove commodities toward their biggest weekly decline in more than 50 years on concern that the worst financial crisis since the Great Depression will push the U.S. into recession.
Commodities, as measured by the Reuters/Jefferies CRB Index of 19 raw materials, have tumbled 9.9 percent this week, the most since at least 1956. Manufacturing declined to a 7-year low in the U.S. and contracted at the fastest pace in 16 years in the U.K. last month. Initial jobless claims rose to the highest since 2001, the U.S. Labor Department said yesterday.
``The string of poor U.S. and EU economic data and fears of a weakening Chinese housing market gave further tangible support to increased bearish sentiment as markets seem to be pricing in a much slower growth forecast for the global economy,'' Hussein Allidina, commodity research analyst at Morgan Stanley said in an e-mail today.
The UBS Bloomberg CMCI Index of 26 raw materials is having its worst week since at least 1997 amid skepticism that a U.S. government $700 billion bank bailout plan won't be enough to stimulate economic growth and demand for commodities. BHP Billiton Ltd., the world's biggest mining company, fell as much as 5.6 percent to the lowest in 18 months today.
Copper is heading for its biggest weekly loss in over two decades, after reaching a record high earlier this year and silver plunged 18 percent this week, the most since 1983.
Jobs Eliminated
U.S. employers probably eliminated 105,000 jobs last month, according to the median forecast of economists surveyed by Bloomberg News. The Labor Department's report is due at 8:30 a.m. in Washington. The unemployment rate held at a five-year high of 6.1 percent, according to a separate survey.
A ``very weak'' non-farm payrolls number could see commodities ``remain under pressure,'' Walter de Wet, Standard Bank Group Ltd. analyst in Johannesburg, said in an e-mail late yesterday.
Commodities also fell as the euro headed for its largest ever weekly decline against the U.S. currency amid signs that Europe's economy is slowing.
``The rapid deterioration in the U.S. and then European financial markets brought panic into the broader markets and also drove the U.S. dollar higher, both negative for the commodity space,'' said Allidina.
Crude oil dropped for a third day, heading for its biggest weekly decline since 2004, on concerns a global economic slowdown will crimp fuel demand.
U.S. lawmakers who helped defeat the financial-market rescue package this week are reconsidering their votes amid signs the crisis on Wall Street is spreading. The legislation to be voted on by the House of Representatives later today allows the government to buy troubled assets from financial institutions rocked by record home foreclosures.
To contact the reporter on this story: Glenys Sim in Singapore at gsim4@bloomberg.net
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Asian Currencies: Ringgit, Baht Set for Weekly Loss on Slowdown
By Lilian Karunungan and David Yong
Oct. 3 (Bloomberg) -- Malaysia's ringgit and the Thai baht headed for weekly losses on concern the deepening credit-market crisis will push the U.S. economy into a recession and damp demand for Asian exports.
The Philippine peso and the Singapore dollar also declined as regional stocks headed for their worst week in 13 months. The ringgit was set for its biggest weekly loss in four as overseas investors pulled almost 26 billion ringgit ($7.48 billion) from the nation's debt market since April, according to data from the central bank.
``Some markets are going to be affected more than others and Malaysia relies a lot on the U.S. for electronic exports,'' said Joanna Tan, a regional economist at Forecast Pte in Singapore. The ringgit is falling because ``investors are shunning markets that are deemed riskier.''
The ringgit fell 1.2 percent this week to 3.4762 per dollar as of 12:33 p.m. in Kuala Lumpur, its biggest decline since the five days ended Sept. 5, according to data compiled by Bloomberg. It dropped 1 percent today. The baht declined 0.7 percent this week to 34.18, according to data compiled by Bloomberg.
The MSCI Asia Pacific Index of regional stocks slumped 2 percent today, extending its decline this week to 7.7 percent.
Global funds cut their investments in Malaysian debt for a third month in July, according to data published by Bank Negara Malaysia on its Web site. They reduced their holdings to 100.6 billion ringgit from 104.9 billion ringgit in June and a peak of 126.5 billion ringgit in April, the data show.
Growth Target
Malaysia may revise its economic growth forecast this year due to deepening global financial turmoil, Finance Minister Najib Razak said this week. The government ``will reevaluate its targets'' if the global financial crisis leads to a significant downturn, he said in Kuala Lumpur on Sept. 30.
The Thai baht headed for its first weekly loss in three on speculation Prime Minister Somchai Wongsawat will call elections soon, possibly leading to more political demonstrations. Anti- government protesters have occupied Government House in Bangkok since Aug. 26 and are calling for a new parliament.
``The global macroeconomic backdrop is hardly conducive for Asian currencies, including the baht,'' said Han Sia Yeo, a currency strategist at Bank of America Corp in Singapore. ``On top of that you have the domestic political uncertainties with the big question now on whether Somchai will call for elections and when.''
The baht is the third-worst performer of Asia's 10 most- active traded currencies this year after the South Korean won and Indian rupee.
Exports Slow
Thai exports rose at the slowest pace in five months in August and Commerce Minister Chaiya Sasomsup said yesterday overseas sales will probably increase no more than 20 percent this year, down from a previous estimate of 25 percent.
The government last month cut its 2008 economic growth forecast to 5.1 percent, from 5.6 percent, and said the economy will slow to between 4 percent and 5 percent next year as political uncertainty and turbulent global markets curb spending, investment and exports.
The Singapore dollar was poised for its worst week in more than a month. Daiwa SB Investments Ltd. and Aberdeen Asset Management Asia Ltd. are selling the currency on speculation the central bank will limit its advance as the economy teeters on the brink of recession.
Policy Meeting
The Monetary Authority of Singapore will slow the pace of appreciation at its biannual foreign-exchange policy meeting on Oct. 10, according to seven of 14 strategists surveyed by Bloomberg News. Four expect gains to be halted, two expect a shift down in the range for the currency's moves and only one predicts no change.
The Singapore dollar has fallen 1.4 percent this week to S$1.4478, according to data compiled by Bloomberg.
The Philippine peso headed for its second weekly loss as the rising cost of borrowing dollars spurred local companies to sell pesos to get the U.S. currency.
The peso fell for the fifth time in six days as local stocks dropped 1.8 percent, the most in more than two weeks.
``There is a lack of liquidity for dollars so companies and banks who need dollars have to sell pesos to get it,'' said Marcelo Ayes, senior vice president for Treasury at Rizal Commercial Banking Corp. in Manila.
The peso declined 1 percent this week to 47.18, extending its losses this year to 12.6 percent, according to Tullett Prebon Plc.
Elsewhere, the Taiwan dollar lost 0.4 percent this week to NT$32.16 and Vietnam's dong dropped 0.1 percent to 16,615. Financial markets were closed today in South Korea, China and Indonesia for public holidays.
To contact the reporter on this story: Lilian Karunungan in Singapore at lkarunungan@blooomberg.net; David Yong in Singapore at dyong@bloomberg.net.
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Oct. 3 (Bloomberg) -- Malaysia's ringgit and the Thai baht headed for weekly losses on concern the deepening credit-market crisis will push the U.S. economy into a recession and damp demand for Asian exports.
The Philippine peso and the Singapore dollar also declined as regional stocks headed for their worst week in 13 months. The ringgit was set for its biggest weekly loss in four as overseas investors pulled almost 26 billion ringgit ($7.48 billion) from the nation's debt market since April, according to data from the central bank.
``Some markets are going to be affected more than others and Malaysia relies a lot on the U.S. for electronic exports,'' said Joanna Tan, a regional economist at Forecast Pte in Singapore. The ringgit is falling because ``investors are shunning markets that are deemed riskier.''
The ringgit fell 1.2 percent this week to 3.4762 per dollar as of 12:33 p.m. in Kuala Lumpur, its biggest decline since the five days ended Sept. 5, according to data compiled by Bloomberg. It dropped 1 percent today. The baht declined 0.7 percent this week to 34.18, according to data compiled by Bloomberg.
The MSCI Asia Pacific Index of regional stocks slumped 2 percent today, extending its decline this week to 7.7 percent.
Global funds cut their investments in Malaysian debt for a third month in July, according to data published by Bank Negara Malaysia on its Web site. They reduced their holdings to 100.6 billion ringgit from 104.9 billion ringgit in June and a peak of 126.5 billion ringgit in April, the data show.
Growth Target
Malaysia may revise its economic growth forecast this year due to deepening global financial turmoil, Finance Minister Najib Razak said this week. The government ``will reevaluate its targets'' if the global financial crisis leads to a significant downturn, he said in Kuala Lumpur on Sept. 30.
The Thai baht headed for its first weekly loss in three on speculation Prime Minister Somchai Wongsawat will call elections soon, possibly leading to more political demonstrations. Anti- government protesters have occupied Government House in Bangkok since Aug. 26 and are calling for a new parliament.
``The global macroeconomic backdrop is hardly conducive for Asian currencies, including the baht,'' said Han Sia Yeo, a currency strategist at Bank of America Corp in Singapore. ``On top of that you have the domestic political uncertainties with the big question now on whether Somchai will call for elections and when.''
The baht is the third-worst performer of Asia's 10 most- active traded currencies this year after the South Korean won and Indian rupee.
Exports Slow
Thai exports rose at the slowest pace in five months in August and Commerce Minister Chaiya Sasomsup said yesterday overseas sales will probably increase no more than 20 percent this year, down from a previous estimate of 25 percent.
The government last month cut its 2008 economic growth forecast to 5.1 percent, from 5.6 percent, and said the economy will slow to between 4 percent and 5 percent next year as political uncertainty and turbulent global markets curb spending, investment and exports.
The Singapore dollar was poised for its worst week in more than a month. Daiwa SB Investments Ltd. and Aberdeen Asset Management Asia Ltd. are selling the currency on speculation the central bank will limit its advance as the economy teeters on the brink of recession.
Policy Meeting
The Monetary Authority of Singapore will slow the pace of appreciation at its biannual foreign-exchange policy meeting on Oct. 10, according to seven of 14 strategists surveyed by Bloomberg News. Four expect gains to be halted, two expect a shift down in the range for the currency's moves and only one predicts no change.
The Singapore dollar has fallen 1.4 percent this week to S$1.4478, according to data compiled by Bloomberg.
The Philippine peso headed for its second weekly loss as the rising cost of borrowing dollars spurred local companies to sell pesos to get the U.S. currency.
The peso fell for the fifth time in six days as local stocks dropped 1.8 percent, the most in more than two weeks.
``There is a lack of liquidity for dollars so companies and banks who need dollars have to sell pesos to get it,'' said Marcelo Ayes, senior vice president for Treasury at Rizal Commercial Banking Corp. in Manila.
The peso declined 1 percent this week to 47.18, extending its losses this year to 12.6 percent, according to Tullett Prebon Plc.
Elsewhere, the Taiwan dollar lost 0.4 percent this week to NT$32.16 and Vietnam's dong dropped 0.1 percent to 16,615. Financial markets were closed today in South Korea, China and Indonesia for public holidays.
To contact the reporter on this story: Lilian Karunungan in Singapore at lkarunungan@blooomberg.net; David Yong in Singapore at dyong@bloomberg.net.
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Aberdeen, Daiwa SB Sell Singapore Dollar as MAS Meets
By Lilian Karunungan
Oct. 3 (Bloomberg) -- Daiwa SB Investments Ltd. and Aberdeen Asset Management Asia Ltd. are selling Singapore dollars on speculation the central bank will curb the currency's advance as the economy teeters on the brink of recession.
The Monetary Authority of Singapore will slow the pace of appreciation at its biannual foreign-exchange policy meeting on Oct. 10, according to seven of 14 strategists surveyed by Bloomberg News. Four expect gains to be halted, two expect a shift down in the range for the currency's moves and only one predicts no change.
Investors are reducing their holdings in Singapore after exports fell for a fourth month in August, the number of tourists dropped the most since 2003, and the city-state's gross domestic product contracted in two of the three quarters through June. Singapore's benchmark stock index is down 33 percent in 2008, headed for its biggest annual decline so far this decade.
``I reduced exposure to the Singapore dollar,'' said Kei Katayama, a senior fund manager who heads the foreign fixed- income group in Tokyo at Daiwa SB Investments, a unit of Japan's second-largest brokerage with $4 billion in non-yen funds. ``The U.S. slowdown is spreading to Asia and Europe.''
Singapore's central bank, with about $170 billion of reserves, uses the exchange rate instead of interest rates to control monetary policy. The local dollar is allowed to trade within an undisclosed band against a basket of currencies of the city's major trading partners.
Economists See Recession
MAS policy makers opted for a one-time strengthening of the Singapore dollar at their last meeting in April, when inflation was running at a 26-year high of 7.5 percent. The rate dropped to 6.4 percent in August, easing pressure on the central bank to use currency gains to keep import costs in check.
The currency weakened 7.1 percent, to S$1.4478 per dollar as of 12:20 p.m. in Singapore, from a record high of S$1.3450 on July 16, partly reflecting the greenback's 15 percent rally against the euro and 7 percent gain versus the Malaysian ringgit. The Singapore dollar declined 6.3 percent since the central bank last met on April 10, after rising 8 percent from the previous policy decision.
Analysts predict gains will be limited. The local currency will trade at S$1.43 per U.S. dollar at the end of March, according to the median forecast of 21 estimates in a Bloomberg survey.
DBS Group Holdings Ltd. and United Overseas Bank Ltd., the nation's two-biggest lenders, said Singapore probably slipped into recession in the third quarter for the first time since 2002. The government will release advance estimates for economic growth on the same day that MAS issues its policy statement.
Zero Appreciation
Electronics account for about 29 percent of manufacturing and financial services make up 12 percent of the economy, government figures show. GDP dropped 6 percent in the second quarter from the previous three months, the statistics office said on Aug. 11.
The economic data ``makes us far less positive on the currency when taken together with the fact that inflationary pressures are easing,'' said Kenneth Akintewe, a money manager at Aberdeen Asset Management in Singapore, with $9.6 billion in Asian fixed-income assets.
The MAS may slow currency gains this month and then move to zero appreciation at its April meeting, said Thomas Harr, the senior currency strategist in the city at Standard Chartered Plc, which earns three-quarters of its profit in Asia.
The last time the central bank halted gains was in 2003 when the spread of the deadly severe acute respiratory syndrome virus, or SARS, brought the economy to a standstill and inflation slowed to less than 1 percent.
Inflation Too Fast
Inflation is too fast for the central bank to stop the advance, said Mark Tan, a Hong Kong-based economist at Goldman Sachs Group Inc.
``If you look at previous episodes when they reduced all the way to zero, inflation was running below 1 percent so it's a much different scenario right now,'' he said.
Goldman Sachs estimated in August that half of the world economy faces recession, with richer nations faring the worst.
``Singapore is more exposed because it not only has a huge financial sector, it's also a very open economy,'' said Standard Chartered's Harr.
The pain is apparent in Singapore's real estate. Home prices fell for the first time in more than four years in the third quarter. Shares of CapitaLand Ltd., the nation's largest developer, slumped to a three-year low this week.
`Prolonged Slump'
Zeng Yushan, 24, an agent at HSR Property Consultants Pte, Singapore's biggest real-estate agency, said she's struggling to find buyers for luxury apartments.
``I used to sell last year four to five properties a month,'' said Zeng. ``I can now only close one a month or none at all.''
The outlook may prompt the central bank to opt for zero currency appreciation this month, known as a neutral position, according to Kit Wei Zheng, a Singapore-based economist at Citigroup Inc.
``There's a good chance we may be entering a deeper and more prolonged slump than what many people have been expecting,'' said Kit.
To contact the reporter on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net
Read more...
Oct. 3 (Bloomberg) -- Daiwa SB Investments Ltd. and Aberdeen Asset Management Asia Ltd. are selling Singapore dollars on speculation the central bank will curb the currency's advance as the economy teeters on the brink of recession.
The Monetary Authority of Singapore will slow the pace of appreciation at its biannual foreign-exchange policy meeting on Oct. 10, according to seven of 14 strategists surveyed by Bloomberg News. Four expect gains to be halted, two expect a shift down in the range for the currency's moves and only one predicts no change.
Investors are reducing their holdings in Singapore after exports fell for a fourth month in August, the number of tourists dropped the most since 2003, and the city-state's gross domestic product contracted in two of the three quarters through June. Singapore's benchmark stock index is down 33 percent in 2008, headed for its biggest annual decline so far this decade.
``I reduced exposure to the Singapore dollar,'' said Kei Katayama, a senior fund manager who heads the foreign fixed- income group in Tokyo at Daiwa SB Investments, a unit of Japan's second-largest brokerage with $4 billion in non-yen funds. ``The U.S. slowdown is spreading to Asia and Europe.''
Singapore's central bank, with about $170 billion of reserves, uses the exchange rate instead of interest rates to control monetary policy. The local dollar is allowed to trade within an undisclosed band against a basket of currencies of the city's major trading partners.
Economists See Recession
MAS policy makers opted for a one-time strengthening of the Singapore dollar at their last meeting in April, when inflation was running at a 26-year high of 7.5 percent. The rate dropped to 6.4 percent in August, easing pressure on the central bank to use currency gains to keep import costs in check.
The currency weakened 7.1 percent, to S$1.4478 per dollar as of 12:20 p.m. in Singapore, from a record high of S$1.3450 on July 16, partly reflecting the greenback's 15 percent rally against the euro and 7 percent gain versus the Malaysian ringgit. The Singapore dollar declined 6.3 percent since the central bank last met on April 10, after rising 8 percent from the previous policy decision.
Analysts predict gains will be limited. The local currency will trade at S$1.43 per U.S. dollar at the end of March, according to the median forecast of 21 estimates in a Bloomberg survey.
DBS Group Holdings Ltd. and United Overseas Bank Ltd., the nation's two-biggest lenders, said Singapore probably slipped into recession in the third quarter for the first time since 2002. The government will release advance estimates for economic growth on the same day that MAS issues its policy statement.
Zero Appreciation
Electronics account for about 29 percent of manufacturing and financial services make up 12 percent of the economy, government figures show. GDP dropped 6 percent in the second quarter from the previous three months, the statistics office said on Aug. 11.
The economic data ``makes us far less positive on the currency when taken together with the fact that inflationary pressures are easing,'' said Kenneth Akintewe, a money manager at Aberdeen Asset Management in Singapore, with $9.6 billion in Asian fixed-income assets.
The MAS may slow currency gains this month and then move to zero appreciation at its April meeting, said Thomas Harr, the senior currency strategist in the city at Standard Chartered Plc, which earns three-quarters of its profit in Asia.
The last time the central bank halted gains was in 2003 when the spread of the deadly severe acute respiratory syndrome virus, or SARS, brought the economy to a standstill and inflation slowed to less than 1 percent.
Inflation Too Fast
Inflation is too fast for the central bank to stop the advance, said Mark Tan, a Hong Kong-based economist at Goldman Sachs Group Inc.
``If you look at previous episodes when they reduced all the way to zero, inflation was running below 1 percent so it's a much different scenario right now,'' he said.
Goldman Sachs estimated in August that half of the world economy faces recession, with richer nations faring the worst.
``Singapore is more exposed because it not only has a huge financial sector, it's also a very open economy,'' said Standard Chartered's Harr.
The pain is apparent in Singapore's real estate. Home prices fell for the first time in more than four years in the third quarter. Shares of CapitaLand Ltd., the nation's largest developer, slumped to a three-year low this week.
`Prolonged Slump'
Zeng Yushan, 24, an agent at HSR Property Consultants Pte, Singapore's biggest real-estate agency, said she's struggling to find buyers for luxury apartments.
``I used to sell last year four to five properties a month,'' said Zeng. ``I can now only close one a month or none at all.''
The outlook may prompt the central bank to opt for zero currency appreciation this month, known as a neutral position, according to Kit Wei Zheng, a Singapore-based economist at Citigroup Inc.
``There's a good chance we may be entering a deeper and more prolonged slump than what many people have been expecting,'' said Kit.
Firm October 2008 Policy April 2009 Policy
Morgan Stanley Lower pace of appreciation No change
DBS Neutral No change
Aberdeen No change Neutral
BNP Paribas Re-center band downwards No change
Standard Chartered Lower pace of appreciation Neutral
UBS Lower pace of appreciation Neutral
ING Neutral No change
UOB Lower pace of appreciation No change
OCBC Neutral No change
Barclays Lower pace of appreciation Neutral
Citibank Neutral No change
Goldman Sachs Lower pace of appreciation Not available
Forecast Singapore Lower pace of appreciation Neutral
Credit Suisse Re-center band downwards Flatten slope
To contact the reporter on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net
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Australia Dollar Set for Worst Week Since 1985; Growth May Slow
By Candice Zachariahs
Oct. 3 (Bloomberg) -- The Australian dollar fell by the most this week since 1985 against the U.S. currency as investors cut holdings of higher-yielding assets on speculation the global economy won't avoid a recession.
New Zealand's currency dropped versus the yen this week as did its Australian counterpart as investors reduced so-called carry trades, where they borrow money in countries with low interest rates and put the money elsewhere to reap bigger returns. Asian stocks slumped this week and traders started to bet central banks in the U.S., Europe and Japan will cut interest rates.
``The Aussie has been at the mercy of firstly a risk aversion mentality and secondly good demand for U.S. dollars,'' said Paul Milton, chief foreign-exchange dealer at Societe Generale SA in Sydney. ``There's still potential for Aussie to trade lower.''
The Australian dollar fell to 77.96 U.S. cents as of 3 p.m. in Sydney, taking the loss to 6.2 percent from late in New York on Sept. 26. It touched 77 cents in Asian trade today, the weakest since August 2007.
New Zealand's dollar weakened 3.3 percent this week to 66.32 U.S. cents from 68.60 a week ago.
Against the yen, the Australian dollar declined 6.9 percent this week to 82.04 yen from 87.21 on Sept. 26. It dropped to 81.01 yen, the lowest since May 2005. The New Zealand currency lost 4 percent to 69.82 yen from 72.11.
Australia's currency may fall as low as 75 U.S. cents next week as the passage of a U.S. $700 billion rescue package for the financial sector will drive demand for the U.S. dollar, said Milton. ``I don't think there's any good reason to buy the Aussie at the moment.''
Volatility Index
The currencies fell as the VIX volatility index, a Chicago Board Options Exchange gauge reflecting expectations for stock market price changes and a barometer of risk aversion, rose to 45.26 yesterday, near the highest close since October 1998.
The MSCI Asia Pacific Index of regional shares slumped 7.5 percent this week, the most since August 2007.
Benchmark interest rates are 7 percent in Australia and 7.5 percent in New Zealand, compared with 0.5 percent in Japan and 2 percent in the U.S., luring investors to the South Pacific nations' assets. The risk in carry trades is that exchange-rate fluctuations erase profits.
The Reserve Bank of Australia may reduce interest rates by 50 basis points to 6.5 percent on Oct. 7, according to the median estimate of 19 economists surveyed by Bloomberg News. Ten forecast a half-point cut and the rest 25 basis points.
Bonds, Commodities
The Australian and New Zealand dollars also fell as the price of gold, Australia's third most-valuable raw material export, and crude oil, its fourth, slid. Lumber, one of New Zealand's biggest export earners, plunged to a 17-year low in New York. Raw materials account for 60 percent of Australia's exports, and 70 percent of New Zealand's.
Australian government bonds rose. The yield on the 10-year note fell 8 basis points, or 0.08 percentage point, to 5.271 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 rose 0.656, or A$6.56 per A$1,000 face amount, to 99.829.
New Zealand's two-year swap rate, a fixed payment made to receive floating rates, fell to 6.83 percent today from 6.87 yesterday.
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
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Oct. 3 (Bloomberg) -- The Australian dollar fell by the most this week since 1985 against the U.S. currency as investors cut holdings of higher-yielding assets on speculation the global economy won't avoid a recession.
New Zealand's currency dropped versus the yen this week as did its Australian counterpart as investors reduced so-called carry trades, where they borrow money in countries with low interest rates and put the money elsewhere to reap bigger returns. Asian stocks slumped this week and traders started to bet central banks in the U.S., Europe and Japan will cut interest rates.
``The Aussie has been at the mercy of firstly a risk aversion mentality and secondly good demand for U.S. dollars,'' said Paul Milton, chief foreign-exchange dealer at Societe Generale SA in Sydney. ``There's still potential for Aussie to trade lower.''
The Australian dollar fell to 77.96 U.S. cents as of 3 p.m. in Sydney, taking the loss to 6.2 percent from late in New York on Sept. 26. It touched 77 cents in Asian trade today, the weakest since August 2007.
New Zealand's dollar weakened 3.3 percent this week to 66.32 U.S. cents from 68.60 a week ago.
Against the yen, the Australian dollar declined 6.9 percent this week to 82.04 yen from 87.21 on Sept. 26. It dropped to 81.01 yen, the lowest since May 2005. The New Zealand currency lost 4 percent to 69.82 yen from 72.11.
Australia's currency may fall as low as 75 U.S. cents next week as the passage of a U.S. $700 billion rescue package for the financial sector will drive demand for the U.S. dollar, said Milton. ``I don't think there's any good reason to buy the Aussie at the moment.''
Volatility Index
The currencies fell as the VIX volatility index, a Chicago Board Options Exchange gauge reflecting expectations for stock market price changes and a barometer of risk aversion, rose to 45.26 yesterday, near the highest close since October 1998.
The MSCI Asia Pacific Index of regional shares slumped 7.5 percent this week, the most since August 2007.
Benchmark interest rates are 7 percent in Australia and 7.5 percent in New Zealand, compared with 0.5 percent in Japan and 2 percent in the U.S., luring investors to the South Pacific nations' assets. The risk in carry trades is that exchange-rate fluctuations erase profits.
The Reserve Bank of Australia may reduce interest rates by 50 basis points to 6.5 percent on Oct. 7, according to the median estimate of 19 economists surveyed by Bloomberg News. Ten forecast a half-point cut and the rest 25 basis points.
Bonds, Commodities
The Australian and New Zealand dollars also fell as the price of gold, Australia's third most-valuable raw material export, and crude oil, its fourth, slid. Lumber, one of New Zealand's biggest export earners, plunged to a 17-year low in New York. Raw materials account for 60 percent of Australia's exports, and 70 percent of New Zealand's.
Australian government bonds rose. The yield on the 10-year note fell 8 basis points, or 0.08 percentage point, to 5.271 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 rose 0.656, or A$6.56 per A$1,000 face amount, to 99.829.
New Zealand's two-year swap rate, a fixed payment made to receive floating rates, fell to 6.83 percent today from 6.87 yesterday.
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
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Chile, Mexico, Argentina: Latin American Currency, Bond Preview
By Drew Benson
Oct. 3 (Bloomberg) -- The following events and economic reports may influence trading in Latin American local bonds and currencies today. Bond yields and exchange rates are from the previous day's session.
Argentina: Tax revenue probably reached $23.3 billion last month, down from $24 billion, according to the median estimate of a Bloomberg News survey of 10 economists. The government is expected to release the data today.
Argentina's peso weakened 0.3 percent to 3.1432 per dollar, from 3.1345 yesterday.
The yield on Argentina's inflation-linked peso bonds due in December 2033 jumped 57 basis points, or 0.57 basis points, to 11.93 percent, according to Citigroup Inc.'s local unit.
Chile: The consumer price index during September likely rose by 9 percent from the year before, according to the median forecast of 17 economists in a Bloomberg News survey. The National Statistics Agency is to release the data at 8 a.m. New York time.
The peso dropped 1.8 percent to 569.38 per dollar from 559.45 yesterday.
The yield for a basket of Chile's five-year peso bonds in inflation-linked currency units, known as unidades de fomento, fell 5 basis points to 3.2 percent, according to Bloomberg composite prices.
Mexico: The consumer confidence index likely fell in September to 89 from 89.6 in the prior month, according to the median of nine economists' estimates surveyed by Bloomberg. The data pegs January 2003 at 100. The data is to be released at 3:30 p.m. New York time.
The peso fell 0.1 percent to 11.2083 per dollar.
The yield on Mexico's 10 percent bond due in December 2024 fell 1 basis point, or 0.01 percentage point, to 8.39 percent.
Other closing prices:
Brazil's real slumped 5.4 percent to 2.0206 per dollar. The yield on the zero-coupon, real-denominated bond due in January 2010 rose 11 basis points to 14.6 percent, according to Banco Votorantim.
Peru's sol declined 0.4 percent to 2.9815 per dollar. The yield on the 8.6 percent sol-denominated bond due in August 2017 rose 1 basis point to 8.63 percent, according to Citibank Peru.
To contact the reporter on this story: Drew Benson in Buenos Aires at Abenson9@bloomberg.net.
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Oct. 3 (Bloomberg) -- The following events and economic reports may influence trading in Latin American local bonds and currencies today. Bond yields and exchange rates are from the previous day's session.
Argentina: Tax revenue probably reached $23.3 billion last month, down from $24 billion, according to the median estimate of a Bloomberg News survey of 10 economists. The government is expected to release the data today.
Argentina's peso weakened 0.3 percent to 3.1432 per dollar, from 3.1345 yesterday.
The yield on Argentina's inflation-linked peso bonds due in December 2033 jumped 57 basis points, or 0.57 basis points, to 11.93 percent, according to Citigroup Inc.'s local unit.
Chile: The consumer price index during September likely rose by 9 percent from the year before, according to the median forecast of 17 economists in a Bloomberg News survey. The National Statistics Agency is to release the data at 8 a.m. New York time.
The peso dropped 1.8 percent to 569.38 per dollar from 559.45 yesterday.
The yield for a basket of Chile's five-year peso bonds in inflation-linked currency units, known as unidades de fomento, fell 5 basis points to 3.2 percent, according to Bloomberg composite prices.
Mexico: The consumer confidence index likely fell in September to 89 from 89.6 in the prior month, according to the median of nine economists' estimates surveyed by Bloomberg. The data pegs January 2003 at 100. The data is to be released at 3:30 p.m. New York time.
The peso fell 0.1 percent to 11.2083 per dollar.
The yield on Mexico's 10 percent bond due in December 2024 fell 1 basis point, or 0.01 percentage point, to 8.39 percent.
Other closing prices:
Brazil's real slumped 5.4 percent to 2.0206 per dollar. The yield on the zero-coupon, real-denominated bond due in January 2010 rose 11 basis points to 14.6 percent, according to Banco Votorantim.
Peru's sol declined 0.4 percent to 2.9815 per dollar. The yield on the 8.6 percent sol-denominated bond due in August 2017 rose 1 basis point to 8.63 percent, according to Citibank Peru.
To contact the reporter on this story: Drew Benson in Buenos Aires at Abenson9@bloomberg.net.
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Corporate America Protests Credit Swaps Show Fear, Not Reality
By Gillian Wee
Oct. 3 (Bloomberg) -- National Rural Utilities Cooperative Finance Corp. and Hartford Financial Services Group Inc. say widening credit default swaps show a disconnect between the health of their balance sheets and investor behavior.
``It's all attributable to the overall marketplace and nothing really specific to National Rural's credit,'' Chief Financial Officer Steven Lilly said in a telephone interview. ``Our credit remains strong as evidenced by the ratings and positive outlooks that we have.''
Credit-default swaps on Herndon, Virginia-based National Rural almost doubled since Sept. 22 to 164.7 basis points yesterday, CMA Datavision prices show. The company continues ``to successfully access the marketplace when we need to at the levels that are appropriate for the credit rating of the company,'' Lilly said. Moody's Investors Service rates its senior secured debt at A1 and senior unsecured debt at A2.
An increase in the contracts, used to hedge against losses or to speculate on creditworthiness, represents a decline in investor confidence. The cost to protect against corporate bond defaults has risen on concern that the credit-market crisis may engulf even some of the best-financed companies in the world, including General Electric Co. and Boeing Co.
The cost to protect against default by Hartford, Prudential Financial Inc. and MetLife Inc. soared to records and shares fell yesterday on speculation that turmoil in financial markets may be spreading to insurance companies.
``The Hartford's core operating businesses are performing well and our liquidity remains strong,'' said Shannon Lapierre, spokeswoman for the Connecticut-based insurer. ``We are confident in our financial strength and in our ability to meet our commitments to customers.''
Hartford Contracts
Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company's ability to repay debt. They were conceived to protect bondholders against default and pay the buyer face value in exchange for the underlying securities should the company fail to adhere to its debt agreements.
One basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.
For Hartford, credit-default swap traders started demanding upfront payments to protect against a default yesterday as the contracts headed toward distressed levels.
The contracts were quoted at a mid-price of 9 percentage points up front in addition to 5 percentage points a year, according to Credit Suisse Group AG, meaning it would cost $900,000 initially and $500,000 a year to protect $10 million of the companies' bonds from default for five years. That compared with $525,000 a year and no upfront payment the previous day.
Insurance Stocks Fall
Stock prices yesterday plunged 32 percent for Hartford, 15 percent for MetLife and 11 percent for Prudential on concern that the companies face losses as the value of fixed-income assets plunge amid the worst financial crisis since the Great Depression.
Part of the concern may stem from the collapse of American International Group Inc., which used a subsidiary to sell credit- default swap protection on securities linked to U.S. home loans before much of the market collapsed. AIG was seized after ratings downgrades triggered more than $13 billion in collateral calls.
``Everyone's shell-shocked and has the mentality that if this can happen to AIG, it can happen to anybody,'' said Rob Haines, an analyst at independent fixed-income research firm CreditSights Inc. in New York. ``It's completely not reflective of fundamentals.''
Boeing
Boeing, whose credit default swaps widened 50 points in the past week to 145 basis points, said there's no reason for the market to question its liquidity. Contracts on Boeing Capital Corp., Boeing's financing arm, jumped 74 basis points to a record 185 basis points, CMA data show.
``If what is driving this is the fear that Boeing Capital will have to suddenly finance a whole host of deliveries, that is unfounded concern,'' because customers with aircraft deliveries scheduled for at least the next year and a half have already identified non-Boeing financing, said Todd Blecher, a spokesman at the Chicago-based company.
The world's second-largest maker of commercial planes had $5.6 billion in cash and $4.6 billion in marketable securities as of June 30.
General Motors
For some companies, the situation may make it easier to see why swaps are rising.
General Motors Corp. saw its credit default swaps rise to a record after the automaker said Sept. 19 it was going to draw down the remainder of a $4.5 billion revolving credit line to preserve cash because of the instability in the financial markets. Detroit-based GM, the largest U.S. carmaker, has lost almost $70 billion since 2004.
``Maintaining strong liquidity is the top priority for the company,'' said GM spokesman Randy Arickx, who declined to comment specifically on trading activity. GM said July 15 that it would cut costs, sell assets and seek new debt to increase liquidity by $15 billion by the end of next year.
GM was added last month to the U.S. Securities and Exchange Commission's list of stocks temporarily protected against short sales.
To contact the reporters on this story: Gillian Wee in New York at gwee3@bloomberg.net
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Oct. 3 (Bloomberg) -- National Rural Utilities Cooperative Finance Corp. and Hartford Financial Services Group Inc. say widening credit default swaps show a disconnect between the health of their balance sheets and investor behavior.
``It's all attributable to the overall marketplace and nothing really specific to National Rural's credit,'' Chief Financial Officer Steven Lilly said in a telephone interview. ``Our credit remains strong as evidenced by the ratings and positive outlooks that we have.''
Credit-default swaps on Herndon, Virginia-based National Rural almost doubled since Sept. 22 to 164.7 basis points yesterday, CMA Datavision prices show. The company continues ``to successfully access the marketplace when we need to at the levels that are appropriate for the credit rating of the company,'' Lilly said. Moody's Investors Service rates its senior secured debt at A1 and senior unsecured debt at A2.
An increase in the contracts, used to hedge against losses or to speculate on creditworthiness, represents a decline in investor confidence. The cost to protect against corporate bond defaults has risen on concern that the credit-market crisis may engulf even some of the best-financed companies in the world, including General Electric Co. and Boeing Co.
The cost to protect against default by Hartford, Prudential Financial Inc. and MetLife Inc. soared to records and shares fell yesterday on speculation that turmoil in financial markets may be spreading to insurance companies.
``The Hartford's core operating businesses are performing well and our liquidity remains strong,'' said Shannon Lapierre, spokeswoman for the Connecticut-based insurer. ``We are confident in our financial strength and in our ability to meet our commitments to customers.''
Hartford Contracts
Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company's ability to repay debt. They were conceived to protect bondholders against default and pay the buyer face value in exchange for the underlying securities should the company fail to adhere to its debt agreements.
One basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.
For Hartford, credit-default swap traders started demanding upfront payments to protect against a default yesterday as the contracts headed toward distressed levels.
The contracts were quoted at a mid-price of 9 percentage points up front in addition to 5 percentage points a year, according to Credit Suisse Group AG, meaning it would cost $900,000 initially and $500,000 a year to protect $10 million of the companies' bonds from default for five years. That compared with $525,000 a year and no upfront payment the previous day.
Insurance Stocks Fall
Stock prices yesterday plunged 32 percent for Hartford, 15 percent for MetLife and 11 percent for Prudential on concern that the companies face losses as the value of fixed-income assets plunge amid the worst financial crisis since the Great Depression.
Part of the concern may stem from the collapse of American International Group Inc., which used a subsidiary to sell credit- default swap protection on securities linked to U.S. home loans before much of the market collapsed. AIG was seized after ratings downgrades triggered more than $13 billion in collateral calls.
``Everyone's shell-shocked and has the mentality that if this can happen to AIG, it can happen to anybody,'' said Rob Haines, an analyst at independent fixed-income research firm CreditSights Inc. in New York. ``It's completely not reflective of fundamentals.''
Boeing
Boeing, whose credit default swaps widened 50 points in the past week to 145 basis points, said there's no reason for the market to question its liquidity. Contracts on Boeing Capital Corp., Boeing's financing arm, jumped 74 basis points to a record 185 basis points, CMA data show.
``If what is driving this is the fear that Boeing Capital will have to suddenly finance a whole host of deliveries, that is unfounded concern,'' because customers with aircraft deliveries scheduled for at least the next year and a half have already identified non-Boeing financing, said Todd Blecher, a spokesman at the Chicago-based company.
The world's second-largest maker of commercial planes had $5.6 billion in cash and $4.6 billion in marketable securities as of June 30.
General Motors
For some companies, the situation may make it easier to see why swaps are rising.
General Motors Corp. saw its credit default swaps rise to a record after the automaker said Sept. 19 it was going to draw down the remainder of a $4.5 billion revolving credit line to preserve cash because of the instability in the financial markets. Detroit-based GM, the largest U.S. carmaker, has lost almost $70 billion since 2004.
``Maintaining strong liquidity is the top priority for the company,'' said GM spokesman Randy Arickx, who declined to comment specifically on trading activity. GM said July 15 that it would cut costs, sell assets and seek new debt to increase liquidity by $15 billion by the end of next year.
GM was added last month to the U.S. Securities and Exchange Commission's list of stocks temporarily protected against short sales.
To contact the reporters on this story: Gillian Wee in New York at gwee3@bloomberg.net
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Sell Euro, Pound Versus Yen as Europe Weak, Morgan Stanley Says
By Candice Zachariahs
Oct. 3 (Bloomberg) -- Investors should sell the euro and the British pound and buy Japanese yen after the European Central Bank signaled it may lower borrowing costs for the first time in five years, Morgan Stanley said.
European Central Bank President Jean-Claude Trichet indicated yesterday the bank is poised to cut interest rates from a seven-year high of 4.25 percent. The U.K. economy grew at the weakest annual pace since 1992 in the second quarter, prompting Barclays Plc to forecast a quarter-point rate cut by the Bank of England to 4.75 percent when it meets Oct. 9.
``Growth prospects in the Eurozone are dimming quickly and may force the ECB's easing hand sooner rather than later,'' wrote New York-based Sophia Drossos and Yilin Nie, strategists at Morgan Stanley, in a research note dated Oct. 2.
Investors should sell the euro at 145 yen with a target of 135 yen. They should exit the trade if Japan's currency weakens to 150 yen per euro. The euro weakened against the yen for the sixth day, trading at 145.3 yen at 8:27 a.m. in Tokyo, from 145.6 yen yesterday.
Morgan Stanley also advised investors to sell Britain's pound at 185 yen with a target of 165 yen. They should exit the trade if the yen falls to 190.50 per British pound. The pound bought 185.7 yen, from 185.8 yesterday.
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
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Oct. 3 (Bloomberg) -- Investors should sell the euro and the British pound and buy Japanese yen after the European Central Bank signaled it may lower borrowing costs for the first time in five years, Morgan Stanley said.
European Central Bank President Jean-Claude Trichet indicated yesterday the bank is poised to cut interest rates from a seven-year high of 4.25 percent. The U.K. economy grew at the weakest annual pace since 1992 in the second quarter, prompting Barclays Plc to forecast a quarter-point rate cut by the Bank of England to 4.75 percent when it meets Oct. 9.
``Growth prospects in the Eurozone are dimming quickly and may force the ECB's easing hand sooner rather than later,'' wrote New York-based Sophia Drossos and Yilin Nie, strategists at Morgan Stanley, in a research note dated Oct. 2.
Investors should sell the euro at 145 yen with a target of 135 yen. They should exit the trade if Japan's currency weakens to 150 yen per euro. The euro weakened against the yen for the sixth day, trading at 145.3 yen at 8:27 a.m. in Tokyo, from 145.6 yen yesterday.
Morgan Stanley also advised investors to sell Britain's pound at 185 yen with a target of 165 yen. They should exit the trade if the yen falls to 190.50 per British pound. The pound bought 185.7 yen, from 185.8 yesterday.
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
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Dollar Falls Against Euro Before U.S. Nonfarm Payrolls Report
By Stanley White
Enlarge Image/Details
Oct. 3 (Bloomberg) -- The dollar fell against the euro, paring its weekly gain, before a government report that will probably show a deepening credit crunch contributed to the biggest drop in employment in more than five years.
The currency headed for a third weekly loss against the yen on speculation the U.S. economy will weaken regardless of whether lawmakers pass a bill to buy troubled assets from banks in a vote today. The dollar retreated from the highest in more than a year against the currencies of six major trading partners.
``The dollar will go lower against the yen because U.S. economic fundamentals are weak and no bailout package will change that right away,'' said Hideki Amikura, deputy general manager of foreign exchange in Tokyo at Nomura Trust & Banking Co., a unit of Japan's largest brokerage.
The dollar fell to $1.3866 per euro at 7:38 a.m. in London from $1.3819 late yesterday, when it touched a one-year high of $1.3748. It traded at 105.29 yen from 105.33. The euro was at 146.10 yen from 145.55 yen, after touching 144.57, the lowest level since June 2006. The dollar may decline to 104.20 yen, Amikura said. For the week, the dollar declined 0.7 percent against the yen.
The New Zealand dollar rose the most against the greenback today, gaining 1.1 percent to 66.38 U.S. cents from late yesterday in New York. The Australian dollar advanced 0.9 percent to 77.82 U.S. cents. The South African rand climbed 0.7 percent to 8.4555 per U.S. dollar. The Canadian dollar rose to C$1.0765 from C$1.0791, the Swiss franc gained to 1.1316 from 1.1357 and the British pound advanced to $1.7713 from $1.7639.
Nonfarm Payrolls
U.S. employers probably eliminated 105,000 jobs last month, after slashing 84,000 in August, according to the median forecast of economists surveyed by Bloomberg News. The Labor Department's report is due at 8:30 a.m. in Washington. The unemployment rate held at a five-year high of 6.1 percent, according to a separate survey.
``There's a high chance the dollar falls against the yen,'' Masafumi Yamamoto, head of foreign-exchange strategy for Japan at Royal Bank of Scotland in Tokyo and a former Bank of Japan currency trader, wrote in a research note today. ``The market is likely to price in bad jobs numbers and the chance of a Fed rate cut. We're in the middle of a string of disappointing economic data.''
Futures on the Chicago Board of Trade yesterday showed a 94 percent chance the Fed would cut its 2 percent target rate for overnight lending between banks by a half-percentage point on Oct. 29, with the balance of bets on a quarter-point reduction. Futures showed no chance of lower rates a month ago.
The U.S. Dollar Index traded on ICE futures in New York slipped to 80.332 from 80.439 yesterday, when it reached 80.794, the highest since Sept. 5, 2007.
U.S. Bank Bill
The U.S. House of Representatives will vote on the latest version of a $700 billion bank rescue plan at about 12:30 p.m. in Washington. The Senate voted 74-25 on Oct. 1 in favor of legislation that links the rescue of the financial industry to an increase in bank-deposit insurance limits and tax breaks after the House rejected an earlier version of the bill.
The euro was still set for a record weekly drop against the greenback after European Central Bank President Jean-Claude Trichet said policy makers discussed cutting the benchmark interest rate before holding it at 4.25 percent. The currency declined 5.1 percent versus the dollar, the biggest weekly drop since the 15-nation currency's debut in January 1999. It fell 5.8 percent against the yen, the biggest weekly decline since March 2000.
Investors should sell the euro at 145 yen with a target of 135 yen after the ECB signaled it may lower borrowing costs for the first time in five years, Morgan Stanley said.
``Growth prospects in the eurozone are dimming quickly and may force the ECB's easing hand sooner rather than later,'' New York-based Sophia Drossos and Yilin Nie, strategists at Morgan Stanley, wrote in a research note yesterday.
European Bailouts
European economies face ``increasing downside risks,'' Trichet said at a Frankfurt press conference following the decision to keep borrowing costs on hold. Five European banks including Dexia SA, the world's biggest lender to local governments, and Fortis, Belgium's largest financial-services firm, have accepted state-backed bailouts this week.
The implied yield on the Euribor futures contract expiring in March fell to 4.18 percent yesterday, from 4.77 percent a month ago. The euribor contract has been an average of 44 basis points, or 0.44 percentage point, higher than the ECB's overnight target during the past two years, Bloomberg data show.
European Rates
``The euro is likely to depreciate further against the yen,'' said Toru Umemoto, chief currency analyst in Tokyo at Barclays Capital, Britain's third-biggest lender. ``The ECB may begin easing policy next month. The focus is moving to European financial instability.''
Implied volatility on one-month euro options against the yen was at 19.81 percent, near the highest in more than eight years on concern the credit-market crisis will deepen. Volatility reached 21.04 percent, the most since March 2000. Higher volatility may discourage so-called carry trades as it indicates a larger risk of exchange-rate fluctuations.
In a carry trade, investors get funds in a country with low borrowing costs and invest in one with higher interest rates, earning the spread between the two. The risk is that currency market moves erase those profits.
To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net;
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Enlarge Image/Details
Oct. 3 (Bloomberg) -- The dollar fell against the euro, paring its weekly gain, before a government report that will probably show a deepening credit crunch contributed to the biggest drop in employment in more than five years.
The currency headed for a third weekly loss against the yen on speculation the U.S. economy will weaken regardless of whether lawmakers pass a bill to buy troubled assets from banks in a vote today. The dollar retreated from the highest in more than a year against the currencies of six major trading partners.
``The dollar will go lower against the yen because U.S. economic fundamentals are weak and no bailout package will change that right away,'' said Hideki Amikura, deputy general manager of foreign exchange in Tokyo at Nomura Trust & Banking Co., a unit of Japan's largest brokerage.
The dollar fell to $1.3866 per euro at 7:38 a.m. in London from $1.3819 late yesterday, when it touched a one-year high of $1.3748. It traded at 105.29 yen from 105.33. The euro was at 146.10 yen from 145.55 yen, after touching 144.57, the lowest level since June 2006. The dollar may decline to 104.20 yen, Amikura said. For the week, the dollar declined 0.7 percent against the yen.
The New Zealand dollar rose the most against the greenback today, gaining 1.1 percent to 66.38 U.S. cents from late yesterday in New York. The Australian dollar advanced 0.9 percent to 77.82 U.S. cents. The South African rand climbed 0.7 percent to 8.4555 per U.S. dollar. The Canadian dollar rose to C$1.0765 from C$1.0791, the Swiss franc gained to 1.1316 from 1.1357 and the British pound advanced to $1.7713 from $1.7639.
Nonfarm Payrolls
U.S. employers probably eliminated 105,000 jobs last month, after slashing 84,000 in August, according to the median forecast of economists surveyed by Bloomberg News. The Labor Department's report is due at 8:30 a.m. in Washington. The unemployment rate held at a five-year high of 6.1 percent, according to a separate survey.
``There's a high chance the dollar falls against the yen,'' Masafumi Yamamoto, head of foreign-exchange strategy for Japan at Royal Bank of Scotland in Tokyo and a former Bank of Japan currency trader, wrote in a research note today. ``The market is likely to price in bad jobs numbers and the chance of a Fed rate cut. We're in the middle of a string of disappointing economic data.''
Futures on the Chicago Board of Trade yesterday showed a 94 percent chance the Fed would cut its 2 percent target rate for overnight lending between banks by a half-percentage point on Oct. 29, with the balance of bets on a quarter-point reduction. Futures showed no chance of lower rates a month ago.
The U.S. Dollar Index traded on ICE futures in New York slipped to 80.332 from 80.439 yesterday, when it reached 80.794, the highest since Sept. 5, 2007.
U.S. Bank Bill
The U.S. House of Representatives will vote on the latest version of a $700 billion bank rescue plan at about 12:30 p.m. in Washington. The Senate voted 74-25 on Oct. 1 in favor of legislation that links the rescue of the financial industry to an increase in bank-deposit insurance limits and tax breaks after the House rejected an earlier version of the bill.
The euro was still set for a record weekly drop against the greenback after European Central Bank President Jean-Claude Trichet said policy makers discussed cutting the benchmark interest rate before holding it at 4.25 percent. The currency declined 5.1 percent versus the dollar, the biggest weekly drop since the 15-nation currency's debut in January 1999. It fell 5.8 percent against the yen, the biggest weekly decline since March 2000.
Investors should sell the euro at 145 yen with a target of 135 yen after the ECB signaled it may lower borrowing costs for the first time in five years, Morgan Stanley said.
``Growth prospects in the eurozone are dimming quickly and may force the ECB's easing hand sooner rather than later,'' New York-based Sophia Drossos and Yilin Nie, strategists at Morgan Stanley, wrote in a research note yesterday.
European Bailouts
European economies face ``increasing downside risks,'' Trichet said at a Frankfurt press conference following the decision to keep borrowing costs on hold. Five European banks including Dexia SA, the world's biggest lender to local governments, and Fortis, Belgium's largest financial-services firm, have accepted state-backed bailouts this week.
The implied yield on the Euribor futures contract expiring in March fell to 4.18 percent yesterday, from 4.77 percent a month ago. The euribor contract has been an average of 44 basis points, or 0.44 percentage point, higher than the ECB's overnight target during the past two years, Bloomberg data show.
European Rates
``The euro is likely to depreciate further against the yen,'' said Toru Umemoto, chief currency analyst in Tokyo at Barclays Capital, Britain's third-biggest lender. ``The ECB may begin easing policy next month. The focus is moving to European financial instability.''
Implied volatility on one-month euro options against the yen was at 19.81 percent, near the highest in more than eight years on concern the credit-market crisis will deepen. Volatility reached 21.04 percent, the most since March 2000. Higher volatility may discourage so-called carry trades as it indicates a larger risk of exchange-rate fluctuations.
In a carry trade, investors get funds in a country with low borrowing costs and invest in one with higher interest rates, earning the spread between the two. The risk is that currency market moves erase those profits.
To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net;
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