By Jacob Greber
Oct. 8 (Bloomberg) -- Australian home-loan approvals declined for a seventh month, supporting the central bank's decision yesterday to cut the benchmark lending rate by one percentage point, the most since a recession in 1992.
The number of loans granted to build or buy homes and apartments fell 2.2 percent from July, when they slid a revised 0.9 percent, the statistics bureau said in Sydney today. The median estimate of 19 economists surveyed by Bloomberg News was for a 1 percent decline.
Demand for new homes may climb in coming months after Reserve Bank of Australia Governor Glenn Stevens cut the overnight cash rate target to 6 percent, the lowest in almost two years, on signs the economy's expansion is slowing more than forecast. Home-buyers have also become less willing to borrow after companies such as Qantas Airways Ltd. and Ford Motor Co. started firing workers.
``Stricter bank lending and general negative sentiment should act to restrain lending,'' Adam Carr, a senior economist at ICAP Australia Ltd. in Sydney, said ahead of today's report.
Australian lenders have taken ``a more cautious attitude to lending'' and tripled provisions for bad debts, according to a Reserve Bank report last month.
The Australian dollar was little changed after today's report. It traded at 71.01 U.S. cents at 11:34 a.m. in Sydney from 70.98 cents when the report was released and 71.50 in late Asian trading yesterday.
Mortgage Payments
House prices declined for the first time in almost three years in the second quarter, the government said on Aug. 4, after banks raised mortgage rates and rationed lending because they faced higher funding costs amid the global credit squeeze.
Yesterday's cut to the benchmark lending rate was twice as much as economists forecast.
``An unusually large movement in the cash rate was appropriate in order to bring about a significant reduction in costs to borrowers,'' Stevens said yesterday.
Australia's four biggest banks, led by Commonwealth Bank of Australia and Westpac Banking Corp., cut their standard variable home loan rates by 80 basis points after the decision.
That will reduce the monthly repayments on an average A$250,000 ($178,000) mortgage by almost A$140. About 90 percent of Australian home buyers have variable interest-rate loans that traditionally move with the central bank's benchmark.
Australia's economy grew 0.3 percent in the three months through June, the slowest quarterly expansion since the end of 2004, as consumer spending contracted for the first time since 1993.
Consumer Confidence
Credit provided by banks and financial institutions to home buyers rose 0.4 percent in August, the smallest monthly increase in 22 years, according to Reserve Bank figures.
A separate report showed house-building approvals fell for a second month.
Australian consumer confidence plunged 11 percent in September, according to a Westpac Banking Corp. survey taken before yesterday's interest-rate cut and released in Sydney today.
Households spent almost 40 percent of their incomes on mortgage payments in the June quarter, the most in the 22 years that the Real Estate Institute has measured affordability.
The total value of lending fell 3 percent to A$17.5 billion in August, today's report showed.
Lending to owner occupiers declined 2.1 percent, while the value of lending to investors who plan to rent or resell homes dropped 5 percent.
To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net
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Wednesday, October 8, 2008
Hong Kong Cuts Base Lending Rate to Boost Liquidity
By James Peng
Oct. 8 (Bloomberg) -- The Hong Kong Monetary Authority cut its benchmark interest rate to help boost bank lending as the city's economy slows.
The base lending rate to banks will drop to 2.5 percent from 3.5 percent from tomorrow, based on the level of the U.S. benchmark target rate plus 50 basis points, down from 150 basis points, Chief Executive Joseph Yam said today. The HKMA tracks the Fed Funds rate, which is now at 2 percent, because Hong Kong's currency is pegged to the dollar.
Australia yesterday cut its benchmark interest rate by one percentage point, the most since a recession in 1992, sparking speculation that other countries will follow to unlock credit markets. Banks around the world have been hoarding cash, driving up lending rates, even as financial authorities pump money into the financial system.
``The monetary authority will be anxious to ease conditions in the face of what they see as a downward spiral in the global economy,'' said David Cohen, an economist at Action Economics in Singapore. ``Around the world, a lot of these traditional formulas have been thrown on their head by this turmoil and panic.''
``Hong Kong's banking system is very stable but we are facing challenges,'' Yam said. His comments were translated by an HKMA official.
To contact the reporter on this story: James Peng in Hong Kong at jpeng7@bloomberg.net;
Read more...
Oct. 8 (Bloomberg) -- The Hong Kong Monetary Authority cut its benchmark interest rate to help boost bank lending as the city's economy slows.
The base lending rate to banks will drop to 2.5 percent from 3.5 percent from tomorrow, based on the level of the U.S. benchmark target rate plus 50 basis points, down from 150 basis points, Chief Executive Joseph Yam said today. The HKMA tracks the Fed Funds rate, which is now at 2 percent, because Hong Kong's currency is pegged to the dollar.
Australia yesterday cut its benchmark interest rate by one percentage point, the most since a recession in 1992, sparking speculation that other countries will follow to unlock credit markets. Banks around the world have been hoarding cash, driving up lending rates, even as financial authorities pump money into the financial system.
``The monetary authority will be anxious to ease conditions in the face of what they see as a downward spiral in the global economy,'' said David Cohen, an economist at Action Economics in Singapore. ``Around the world, a lot of these traditional formulas have been thrown on their head by this turmoil and panic.''
``Hong Kong's banking system is very stable but we are facing challenges,'' Yam said. His comments were translated by an HKMA official.
To contact the reporter on this story: James Peng in Hong Kong at jpeng7@bloomberg.net;
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U.K. Economy Entered a Recession in Third Quarter, Niesr Says
By Svenja O'Donnell
Oct. 8 (Bloomberg) -- The Bank of England should cut the benchmark interest rate by a half point tomorrow after the economy tumbled into a recession in the third quarter, the National Institute for Economic and Social Research said.
Gross domestic product shrank 0.2 percent in the three months through September, the first contraction for a calendar quarter since 1992, the London-based institute, whose clients include the central bank, said today. The International Monetary Fund expects the economy to contract next year, according to a draft of its revised forecasts obtained by Bloomberg News.
``In view of these figures and of the intensifying banking crisis we take the view that the Bank of England should cut the interest rate by half a percentage point at its next meeting,'' Martin Weale, Niesr's director, said in a statement.
Niesr joined lobby groups including the Confederation of British Industry in calling for the biggest interest-rate cut since the aftermath of the Sept. 11 terrorist attacks in 2001. The Bank of England and central banks around the world pumped more than $480 billion into markets yesterday to stem the global financial crisis.
The IMF expects the U.K. economy to contract 0.1 percent next year after forecasting growth of 1.6 percent six months ago, the Washington-based lender said in a report prepared for the Oct. 10 meeting of finance ministers and central bankers. Consumer confidence fell to its lowest level since at least 2004, a separate report by Nationwide Building Society showed.
Crisis Meeting
The Bank of England will cut its benchmark rate by at least a quarter point from the current 5 percent tomorrow, according to 49 economists of 61 economists in a Bloomberg News survey. Six predict a reduction of half a point, including Citigroup Inc. and JPMorgan Chase & Co. Policy makers have left the key interest rate unchanged since April.
Prime Minister Gordon Brown was scheduled to meet Bank of England Governor Mervyn King and Financial Services Authority Chairman Adair Turner late yesterday to discuss the crisis. Brown's government is looking at ``every aspect'' of the market turmoil, his spokesman said yesterday, refusing to rule out any measure to help the economy.
An index of consumer confidence dropped three points to 50, the lowest since the survey started four years ago, while the measure of sentiment about the current economic situation fell seven points to 39, Nationwide said.
A separate survey of job consultancies by KPMG and the Recruitment and Employment Confederation signaled that companies are hiring fewer workers. Demand for temporary staff fell to an 11-year low, the report showed.
``Rising unemployment, falling house prices and the continued turmoil in the financial markets are likely to mean that confidence will take some time to recover,'' Fionnuala Earley, Nationwide's chief economist, said in a statement.
Business confidence is also declining. The British Chambers of Commerce said yesterday that confidence among the 5,100 companies in its quarterly survey plunged to the lowest rate since the data began in 1989. Britain is in a ``worsening recession,'' the report said.
To contact the reporter on this story: Svenja O'Donnell in London at sodonnell@bloomberg.net.
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Italy's Banks May Need Capital Injections, Saccomanni Says
By Svenja O'Donnell and Michele Seghizzi
Oct. 8 (Bloomberg) -- Bank of Italy Director General Fabrizzio Saccomanni said Italian banks may need more capital after UniCredit SpA asked investors for more funds to help it weather the financial crisis
``It's possible, because capitalization is an important part of the situation,'' Saccomanni, when asked if banks will need extra funds in an interview yesterday with Bloomberg Television. ``It's the effect of these tensions that have slightly reduced the value of capital in comparison to what it was a few weeks ago.''
UniCredit, Italy's biggest lender by assets, cut its profit forecast on Oct. 6 and said it will seek to raise 6.6 billion euros ($9 billion) in capital. The crisis led central banks to pump more than $480 billion into money markets yesterday as Iceland's financial system came close to collapse and lending rates soared.
``I maintain that we begin from a basis of adequate capitalization,'' Saccomanni said before an event at the London School of Economics. ``It's all about an effect due to these tensions at the moment, not because of a structural lack of capital.''
UniCredit shares dropped 12 cents, or 4 percent, to 2.8 euros in Milan yesterday. The stock has fallen 51 percent this year, compared with a 43 percent decline in the Bloomberg Europe Banks and Financial Services Index. UniCredit Chief Executive Officer Alessandro Profumo said on Oct. 6 that the bank had underestimated the scale of the global financial crisis.
Capital Ratio
The planned capital increase will boost UniCredit's Tier I capital, a measure of financial strength, to 6.7 percent by the end of the year, making it Italy's most capitalized lender, Chairman Dietr Rampl said on Oct. 5.
``The system, we've always said, is well capitalized and has sufficient liquidity,'' Saccomanni said. ``Naturally we're at a moment of particularly acute tension so we are monitoring the situation with great attention, but we believe that we can resolve the situation calmly.''
Saccomanni said that central banks have fought to thaw money markets by providing funds ``in innovative forms'' and with ``new instruments.''
``There is liquidity but we need to get it more fluid,'' he said. ``We need banks to regain their function of doing a correct evaluation of risks and to regain their role as financial intermediaries.''
``The result of these interventions in the end will be a return to normality,'' Saccomanni said.
To contact the reporters on this story: Svenja O'Donnell in London at sodonnell@bloomberg.net; Michele Seghizzi in London at mseghizzi@bloomberg.net.
Read more...
Oct. 8 (Bloomberg) -- Bank of Italy Director General Fabrizzio Saccomanni said Italian banks may need more capital after UniCredit SpA asked investors for more funds to help it weather the financial crisis
``It's possible, because capitalization is an important part of the situation,'' Saccomanni, when asked if banks will need extra funds in an interview yesterday with Bloomberg Television. ``It's the effect of these tensions that have slightly reduced the value of capital in comparison to what it was a few weeks ago.''
UniCredit, Italy's biggest lender by assets, cut its profit forecast on Oct. 6 and said it will seek to raise 6.6 billion euros ($9 billion) in capital. The crisis led central banks to pump more than $480 billion into money markets yesterday as Iceland's financial system came close to collapse and lending rates soared.
``I maintain that we begin from a basis of adequate capitalization,'' Saccomanni said before an event at the London School of Economics. ``It's all about an effect due to these tensions at the moment, not because of a structural lack of capital.''
UniCredit shares dropped 12 cents, or 4 percent, to 2.8 euros in Milan yesterday. The stock has fallen 51 percent this year, compared with a 43 percent decline in the Bloomberg Europe Banks and Financial Services Index. UniCredit Chief Executive Officer Alessandro Profumo said on Oct. 6 that the bank had underestimated the scale of the global financial crisis.
Capital Ratio
The planned capital increase will boost UniCredit's Tier I capital, a measure of financial strength, to 6.7 percent by the end of the year, making it Italy's most capitalized lender, Chairman Dietr Rampl said on Oct. 5.
``The system, we've always said, is well capitalized and has sufficient liquidity,'' Saccomanni said. ``Naturally we're at a moment of particularly acute tension so we are monitoring the situation with great attention, but we believe that we can resolve the situation calmly.''
Saccomanni said that central banks have fought to thaw money markets by providing funds ``in innovative forms'' and with ``new instruments.''
``There is liquidity but we need to get it more fluid,'' he said. ``We need banks to regain their function of doing a correct evaluation of risks and to regain their role as financial intermediaries.''
``The result of these interventions in the end will be a return to normality,'' Saccomanni said.
To contact the reporters on this story: Svenja O'Donnell in London at sodonnell@bloomberg.net; Michele Seghizzi in London at mseghizzi@bloomberg.net.
Read more...
U.K., Spain Go Solo on Bailouts as Europe Fights Credit Crunch
By Simon Kennedy and John Fraher
Oct. 8 (Bloomberg) -- The U.K. and Spain raced to buttress their banking systems after European policy makers failed to form a united front to combat the deepening financial crisis.
British Prime Minister Gordon Brown is preparing a package that will include injecting capital into struggling banks, said three people with knowledge of the situation. Spain will spend as much as 50 billion euros ($68 billion) to buy bank assets, the first move by a European nation to copy the U.S. strategy.
The measures are biggest in a series of go-it-alone initiatives by national governments after European Union leaders proved unable to develop a plan acceptable to all its 27 nations. With European Central Bank President Jean-Claude Trichet powerless under legal limits to intervene, more governments may pursue a unilateral approach.
``It has clearly been impossible to have coordinated action,'' Marco Annunziata, chief economist at Unicredit MIB in London, said in an interview. ``Once one country moves ahead, it becomes more difficult for others not to do the same.''
Spain and the U.K. acted after three days of separate EU talks in Paris and Luxembourg fell short of a common approach to the banking crisis that has engulfed their economies. While Italy and France proposed a rescue fund similar to the $700 billion plan now being rolled out in the U.S., Germany balked at the cost and questioned its necessity.
EU Principles
Without a pact to implement, EU finance ministers yesterday agreed to a set of principles that pledged communication and taking account of the cross-border implications of their decisions, while freeing each government to act as it deemed best.
Investors have responded to the division by dumping stocks. The Dow Jones Stoxx 600 Index tumbled yesterday to a four-year low after falling the most since 1987 the previous day.
``Markets would have much preferred a more common approach and something similar to the U.S., but we don't have the same federal system as the U.S.,'' said Mark Wall, an economist in London at Deutsche Bank AG.
Europe is struggling to find a comprehensive approach because power is disseminated through 27 capitals, and there is no single budget for the bloc. That raises the stakes for not having a joint plan in the event a large bank with interests across many borders fails.
No Point Man
The region also lacks a point man akin to U.S. Treasury Secretary Henry Paulson or Federal Reserve Chairman Ben S. Bernanke. While Trichet would be one candidate for such a role, he lacks the Fed chief's legal authority to help bail out banks. That power has enabled Bernanke to extend credit to financial companies such as Bear Stearns Cos. to stave off their collapse. Trichet has had little option but to stand by and watch as governments bicker.
``The mandate and structure of the ECB mean it doesn't have the powers and flexibility of the Fed,'' said Neil Mackinnon, chief economist at ECU Group Plc in London.
Under the 1992 Maastricht Treaty that created it, the ECB can grease the wheels of the banking system, as it has been doing with cash auctions. It doesn't supervise banks and is not required to ensure their financial health.
Trichet himself noted the bank's constraints yesterday at a conference in Evian, France, saying: ``There are limits to what we can do, as we can't intervene with solvency problems.''
The ECB may eventually be awarded greater authority to aid banks that fail across multiple borders, said Klaus Baader, chief European economist at Merrill Lynch & Co. in London. ``Regulation is clearly going to be rewritten and when it is, the ECB's role will be enhanced,'' said Baader.
Heading to Recession
That's unlikely to come soon enough. The lack of a coordinated approach to supporting banks may intensify pressure on a European economy that's already slumping.
Credit Suisse Group and JPMorgan Chase & Co. have declared the first region-wide recession since the single currency began in 1999 and predict the economy will contract over 2009. Credit Suisse says the economy will shrink until next June, resulting in a 0.3 percent decline over the year, compared with 1.4 percent growth in the U.S.
``The outlook for the European economy is grim,'' said Mackinnon.
Under U.K. Prime Minister Gordon Brown's plan in the U.K., lenders including Royal Bank of Scotland Group Plc may be eligible for additional guarantees on customer deposits, immediate cash injections and subsequent payments should credit markets deteriorate, said the people, who declined to be identified because the matter is confidential.
The proposal followed a meeting among Brown, Chancellor of the Exchequer Alistair Darling, Bank of England Governor Mervyn King and the country's financial-services regulator.
U.K. Bailouts
The U.K. government already has stepped in to bail out Bradford & Bingley Plc and broker Lloyds TSB Group Plc's takeover of HBOS Plc. It also nationalized Northern Rock Plc in February after the first run on deposits in more than a century.
In Spain, Prime Minister Jose Luis Rodriguez Zapatero said in Madrid yesterday that the fund will buy assets ``of the highest quality'' from all banks operating in the country. The funds set aside equal almost a third of the proposed 2009 central government budget.
``We don't know what the assets are,'' said Inigo Lecubarri, a manager at Abaco Financials Fund in London. ``I'd guess they're probably mortgage-backed securities of some sort. The key is how much the government pays for them and we don't know that yet.''
To contact the reporters on this story: John Fraher in London at jfraher@bloomberg.net; Simon Kennedy in Paris at skennedy4@bloomberg.net
Read more...
Oct. 8 (Bloomberg) -- The U.K. and Spain raced to buttress their banking systems after European policy makers failed to form a united front to combat the deepening financial crisis.
British Prime Minister Gordon Brown is preparing a package that will include injecting capital into struggling banks, said three people with knowledge of the situation. Spain will spend as much as 50 billion euros ($68 billion) to buy bank assets, the first move by a European nation to copy the U.S. strategy.
The measures are biggest in a series of go-it-alone initiatives by national governments after European Union leaders proved unable to develop a plan acceptable to all its 27 nations. With European Central Bank President Jean-Claude Trichet powerless under legal limits to intervene, more governments may pursue a unilateral approach.
``It has clearly been impossible to have coordinated action,'' Marco Annunziata, chief economist at Unicredit MIB in London, said in an interview. ``Once one country moves ahead, it becomes more difficult for others not to do the same.''
Spain and the U.K. acted after three days of separate EU talks in Paris and Luxembourg fell short of a common approach to the banking crisis that has engulfed their economies. While Italy and France proposed a rescue fund similar to the $700 billion plan now being rolled out in the U.S., Germany balked at the cost and questioned its necessity.
EU Principles
Without a pact to implement, EU finance ministers yesterday agreed to a set of principles that pledged communication and taking account of the cross-border implications of their decisions, while freeing each government to act as it deemed best.
Investors have responded to the division by dumping stocks. The Dow Jones Stoxx 600 Index tumbled yesterday to a four-year low after falling the most since 1987 the previous day.
``Markets would have much preferred a more common approach and something similar to the U.S., but we don't have the same federal system as the U.S.,'' said Mark Wall, an economist in London at Deutsche Bank AG.
Europe is struggling to find a comprehensive approach because power is disseminated through 27 capitals, and there is no single budget for the bloc. That raises the stakes for not having a joint plan in the event a large bank with interests across many borders fails.
No Point Man
The region also lacks a point man akin to U.S. Treasury Secretary Henry Paulson or Federal Reserve Chairman Ben S. Bernanke. While Trichet would be one candidate for such a role, he lacks the Fed chief's legal authority to help bail out banks. That power has enabled Bernanke to extend credit to financial companies such as Bear Stearns Cos. to stave off their collapse. Trichet has had little option but to stand by and watch as governments bicker.
``The mandate and structure of the ECB mean it doesn't have the powers and flexibility of the Fed,'' said Neil Mackinnon, chief economist at ECU Group Plc in London.
Under the 1992 Maastricht Treaty that created it, the ECB can grease the wheels of the banking system, as it has been doing with cash auctions. It doesn't supervise banks and is not required to ensure their financial health.
Trichet himself noted the bank's constraints yesterday at a conference in Evian, France, saying: ``There are limits to what we can do, as we can't intervene with solvency problems.''
The ECB may eventually be awarded greater authority to aid banks that fail across multiple borders, said Klaus Baader, chief European economist at Merrill Lynch & Co. in London. ``Regulation is clearly going to be rewritten and when it is, the ECB's role will be enhanced,'' said Baader.
Heading to Recession
That's unlikely to come soon enough. The lack of a coordinated approach to supporting banks may intensify pressure on a European economy that's already slumping.
Credit Suisse Group and JPMorgan Chase & Co. have declared the first region-wide recession since the single currency began in 1999 and predict the economy will contract over 2009. Credit Suisse says the economy will shrink until next June, resulting in a 0.3 percent decline over the year, compared with 1.4 percent growth in the U.S.
``The outlook for the European economy is grim,'' said Mackinnon.
Under U.K. Prime Minister Gordon Brown's plan in the U.K., lenders including Royal Bank of Scotland Group Plc may be eligible for additional guarantees on customer deposits, immediate cash injections and subsequent payments should credit markets deteriorate, said the people, who declined to be identified because the matter is confidential.
The proposal followed a meeting among Brown, Chancellor of the Exchequer Alistair Darling, Bank of England Governor Mervyn King and the country's financial-services regulator.
U.K. Bailouts
The U.K. government already has stepped in to bail out Bradford & Bingley Plc and broker Lloyds TSB Group Plc's takeover of HBOS Plc. It also nationalized Northern Rock Plc in February after the first run on deposits in more than a century.
In Spain, Prime Minister Jose Luis Rodriguez Zapatero said in Madrid yesterday that the fund will buy assets ``of the highest quality'' from all banks operating in the country. The funds set aside equal almost a third of the proposed 2009 central government budget.
``We don't know what the assets are,'' said Inigo Lecubarri, a manager at Abaco Financials Fund in London. ``I'd guess they're probably mortgage-backed securities of some sort. The key is how much the government pays for them and we don't know that yet.''
To contact the reporters on this story: John Fraher in London at jfraher@bloomberg.net; Simon Kennedy in Paris at skennedy4@bloomberg.net
Read more...
Yen, Indonesian Rupiah, India's Rupee: Asia Currency Preview
By Anoop Agrawal
Oct. 8 (Bloomberg) -- The following events and economic reports may influence trading in Asian currencies today. Exchange rates are from the previous session.
Japanese yen: Chief Cabinet Secretary Takeo Kawamura will hold briefings at 11 a.m. and 4 p.m. in Tokyo. Finance Minister Shoichi Nakagawa is scheduled to meet with the press at 5 p.m. local time.
The yen traded at 101.15 per dollar at 8:58 a.m. in Tokyo.
Indonesian rupiah: The central bank yesterday raised its policy rate yesterday to slow inflation and boost the rupiah after the nation's stock index plunged this week amid the global credit crisis. Governor Boediono and his seven colleagues raised the Bank Indonesia Rate to 9.5 percent from 9.25 percent.
The rupiah traded at 9,595.
Taiwan dollar: Exports fell for the first time in 19 months as demand waned in the island's biggest market mainland China. Overseas shipments declined 1.6 percent in September from a year earlier, the Ministry of Finance said yesterday, a reversal of August's 18.4 percent increase.
The Taiwan dollar traded at NT$32.350.
Indian rupee: The central bank will release on Oct. 10 details of the nation's foreign exchange reserves in the week ended Oct. 3. The reserves declined $153 million to $291.8 billion in the week ended Sept. 26.
The rupee traded at 47.925.
To contact the reporter on this story: Anoop Agrawal in Mumbai at aagrawal8@bloomberg.net.
Read more...
Oct. 8 (Bloomberg) -- The following events and economic reports may influence trading in Asian currencies today. Exchange rates are from the previous session.
Japanese yen: Chief Cabinet Secretary Takeo Kawamura will hold briefings at 11 a.m. and 4 p.m. in Tokyo. Finance Minister Shoichi Nakagawa is scheduled to meet with the press at 5 p.m. local time.
The yen traded at 101.15 per dollar at 8:58 a.m. in Tokyo.
Indonesian rupiah: The central bank yesterday raised its policy rate yesterday to slow inflation and boost the rupiah after the nation's stock index plunged this week amid the global credit crisis. Governor Boediono and his seven colleagues raised the Bank Indonesia Rate to 9.5 percent from 9.25 percent.
The rupiah traded at 9,595.
Taiwan dollar: Exports fell for the first time in 19 months as demand waned in the island's biggest market mainland China. Overseas shipments declined 1.6 percent in September from a year earlier, the Ministry of Finance said yesterday, a reversal of August's 18.4 percent increase.
The Taiwan dollar traded at NT$32.350.
Indian rupee: The central bank will release on Oct. 10 details of the nation's foreign exchange reserves in the week ended Oct. 3. The reserves declined $153 million to $291.8 billion in the week ended Sept. 26.
The rupee traded at 47.925.
To contact the reporter on this story: Anoop Agrawal in Mumbai at aagrawal8@bloomberg.net.
Read more...
Australian Consumer Confidence Fell Ahead of Rate Cut
By Jacob Greber
Oct. 8 (Bloomberg) -- Australian consumer confidence plunged this month by the most in more than two years, underscoring the need for yesterday's central-bank decision to reduce borrowing costs by the most since a recession in 1992.
The sentiment index tumbled 11 percent from September to 82 points, according to a Westpac Banking Corp. and Melbourne Institute survey released today in Sydney. It is the ninth straight reading of less than 100, showing pessimists outnumber optimists. The survey was taken before yesterday's rate cut.
Central bank Governor Glenn Stevens slashed the overnight cash rate target by 1 percentage point to 6 percent on signs the economy's expansion is slowing more than forecast. Consumers cut quarterly spending in the three months through June for the first time since 1993.
Since the ``stock market crash in 1987, we have had only nine months when the index has fallen by more than 11 percent,'' said Bill Evans, chief economist at Westpac in Sydney, adding that the drop was stoked by turbulence on financial markets.
Australia's S&P/ASX 200 Index of stocks has tumbled more than 30 percent this year as a squeeze on global credit markets worsens. The index was down 4.4 percent to 4417.5 at 10:38 p.m. in Sydney today.
The Australian dollar traded at 70.76 U.S. cents at 10:31 a.m. in Sydney from 20.77 cents just before the report was released. The two-year government bond yield fell 1 basis point, or 0.01 percentage point, to 4.21 percent.
Retail Sales
Westpac's survey of 1,200 consumers was conducted between Sept. 30 and Oct. 5.
Yesterday's cut to the benchmark lending rate was twice as much as economists forecast. ``An unusually large movement in the cash rate was appropriate in order to bring about a significant reduction in costs to borrowers,'' Stevens said yesterday.
Today's survey signals retail sales may slow.
``Of most significance and concern was the question of whether it is a good or bad time to buy a major household item,'' said Westpac's Evans. ``That component fell by an alarming 19.7 percent'' to the lowest level since the survey began in 1975.
``That is sending a chilling message to retailers as we approach the Christmas season.''
The central bank may add to yesterday's interest-rate reduction by another 100 basis points within the next six months, Evans said.
Stevens ``indicated in yesterday's statement that monetary conditions were still in the contractionary range,'' Evans said.
``We expect that unless there is an unexpectedly swift improvement in credit conditions, the Reserve Bank will aim to move financial conditions back to neutral within the next three to six months,'' he added.
To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net
Read more...
Oct. 8 (Bloomberg) -- Australian consumer confidence plunged this month by the most in more than two years, underscoring the need for yesterday's central-bank decision to reduce borrowing costs by the most since a recession in 1992.
The sentiment index tumbled 11 percent from September to 82 points, according to a Westpac Banking Corp. and Melbourne Institute survey released today in Sydney. It is the ninth straight reading of less than 100, showing pessimists outnumber optimists. The survey was taken before yesterday's rate cut.
Central bank Governor Glenn Stevens slashed the overnight cash rate target by 1 percentage point to 6 percent on signs the economy's expansion is slowing more than forecast. Consumers cut quarterly spending in the three months through June for the first time since 1993.
Since the ``stock market crash in 1987, we have had only nine months when the index has fallen by more than 11 percent,'' said Bill Evans, chief economist at Westpac in Sydney, adding that the drop was stoked by turbulence on financial markets.
Australia's S&P/ASX 200 Index of stocks has tumbled more than 30 percent this year as a squeeze on global credit markets worsens. The index was down 4.4 percent to 4417.5 at 10:38 p.m. in Sydney today.
The Australian dollar traded at 70.76 U.S. cents at 10:31 a.m. in Sydney from 20.77 cents just before the report was released. The two-year government bond yield fell 1 basis point, or 0.01 percentage point, to 4.21 percent.
Retail Sales
Westpac's survey of 1,200 consumers was conducted between Sept. 30 and Oct. 5.
Yesterday's cut to the benchmark lending rate was twice as much as economists forecast. ``An unusually large movement in the cash rate was appropriate in order to bring about a significant reduction in costs to borrowers,'' Stevens said yesterday.
Today's survey signals retail sales may slow.
``Of most significance and concern was the question of whether it is a good or bad time to buy a major household item,'' said Westpac's Evans. ``That component fell by an alarming 19.7 percent'' to the lowest level since the survey began in 1975.
``That is sending a chilling message to retailers as we approach the Christmas season.''
The central bank may add to yesterday's interest-rate reduction by another 100 basis points within the next six months, Evans said.
Stevens ``indicated in yesterday's statement that monetary conditions were still in the contractionary range,'' Evans said.
``We expect that unless there is an unexpectedly swift improvement in credit conditions, the Reserve Bank will aim to move financial conditions back to neutral within the next three to six months,'' he added.
To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net
Read more...
Nexus Energy Shares Sink as Sale of Gas Project Stake Collapses
By Angela Macdonald-Smith
Oct. 8 (Bloomberg) -- Nexus Energy Ltd., developer of the proposed $1.2 billion Crux natural gas liquids project off Australia's north, fell the most in a year in Sydney trading after the $255 million sale of a stake in the venture collapsed.
Nexus dropped as much as 21 Australian cents, or 19 percent, to 88 cents, the lowest since April 4, 2007. The shares were at 90 cents at 10:11 a.m. local time.
The proposed buyer for the 25 percent stake in the project in the Timor Sea failed to win board approval for the purchase because of ``global market conditions,'' Melbourne-based Nexus said in a statement sent late yesterday to the Australian stock exchange. Nexus hired Deutsche Bank AG to manage a new sales process.
The other part of the originally proposed transaction, the sale of a 20 percent stake in the AC/P41 exploration permit for $20 million in cash plus drilling costs, was completed to Mitsui & Co.'s Australian unit, Nexus said yesterday.
While Nexus didn't identify Mitsui as the original buyer of the stake in Crux, it said Sept. 10 it had signed an initial accord with one company for the sale of interests in both the project and the exploration permit.
To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net
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Oct. 8 (Bloomberg) -- Nexus Energy Ltd., developer of the proposed $1.2 billion Crux natural gas liquids project off Australia's north, fell the most in a year in Sydney trading after the $255 million sale of a stake in the venture collapsed.
Nexus dropped as much as 21 Australian cents, or 19 percent, to 88 cents, the lowest since April 4, 2007. The shares were at 90 cents at 10:11 a.m. local time.
The proposed buyer for the 25 percent stake in the project in the Timor Sea failed to win board approval for the purchase because of ``global market conditions,'' Melbourne-based Nexus said in a statement sent late yesterday to the Australian stock exchange. Nexus hired Deutsche Bank AG to manage a new sales process.
The other part of the originally proposed transaction, the sale of a 20 percent stake in the AC/P41 exploration permit for $20 million in cash plus drilling costs, was completed to Mitsui & Co.'s Australian unit, Nexus said yesterday.
While Nexus didn't identify Mitsui as the original buyer of the stake in Crux, it said Sept. 10 it had signed an initial accord with one company for the sale of interests in both the project and the exploration permit.
To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net
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Australian Central Bank Will Expand Domestic Market Operations
By Victoria Batchelor
Oct. 8 (Bloomberg) -- The Reserve Bank of Australia will expand its market operations, including relaxing restrictions on the type of securities that can be used as collateral, as the global credit crisis deepens.
``Conditions in global money markets have deteriorated significantly in recent weeks, with flow-on effects to domestic markets,'' the Sydney-based central bank said in an e-mailed statement today.
The Reserve Bank said it will offer six-month and one-year repurchase agreements each day in its market operations.
In repurchase agreements, or repos, central banks typically buy debt securities for a set period, temporarily raising the amount of money available in the banking system.
To contact the reporter on this story: Victoria Batchelor in Wellington at vbatchelor@bloomberg.net.
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Oct. 8 (Bloomberg) -- The Reserve Bank of Australia will expand its market operations, including relaxing restrictions on the type of securities that can be used as collateral, as the global credit crisis deepens.
``Conditions in global money markets have deteriorated significantly in recent weeks, with flow-on effects to domestic markets,'' the Sydney-based central bank said in an e-mailed statement today.
The Reserve Bank said it will offer six-month and one-year repurchase agreements each day in its market operations.
In repurchase agreements, or repos, central banks typically buy debt securities for a set period, temporarily raising the amount of money available in the banking system.
To contact the reporter on this story: Victoria Batchelor in Wellington at vbatchelor@bloomberg.net.
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Copper on the London Metal Exchange Falls 4.4 Percent to $5,380
By Glenys Sim
Oct. 8 (Bloomberg) -- Copper on the London Metal Exchange fell 4.4 percent in Asia as the credit crisis worsened, raising concerns that a global economic slowdown will crimp demand.
Copper for delivery in three months dropped by $250 to $5,380 a metric ton, the lowest intra-day level since February 8, 2007. The metal traded at $5,400 at 8:15 a.m. Singapore time.
To contact the reporter for this story: Glenys Sim in Singapore at gsim4@bloomberg.net
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Oct. 8 (Bloomberg) -- Copper on the London Metal Exchange fell 4.4 percent in Asia as the credit crisis worsened, raising concerns that a global economic slowdown will crimp demand.
Copper for delivery in three months dropped by $250 to $5,380 a metric ton, the lowest intra-day level since February 8, 2007. The metal traded at $5,400 at 8:15 a.m. Singapore time.
To contact the reporter for this story: Glenys Sim in Singapore at gsim4@bloomberg.net
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Yen Near 3-Year High as Stock Slump Spurs Carry Trade Reversal
By Stanley White and Ron Harui
Oct. 8 (Bloomberg) -- The yen traded near a three-year high against the euro on speculation a slide in Asian stocks will prompt investors to reduce holdings of higher-yielding assets financed in Japan, known as carry trades.
The currency was also close to a six-month high against the dollar on concern global economic growth will slow as the credit crisis spreads. The British pound was near the lowest in almost seven years versus the yen after the National Institute for Economic and Social Research said today the U.K economy shrank in the third quarter.
``Lingering fears about the health of financial sectors in the U.S. and Europe and concerns over a global recession should continue to underpin the yen,'' said Danica Hampton, currency strategist at Bank of New Zealand Ltd. in Wellington. ``We're far from out of the woods and any restoration of investor confidence will take time.''
Japan's currency traded at 137.93 per euro at 9:32 a.m. in Tokyo from 137.89 late in New York yesterday. It reached 135.05 on Oct. 6, the strongest since September 2005. The yen was at 177.38 per pound from 177.13. It touched 174.10 on Oct. 6, the highest since November 2001. The currency was quoted at 101.53 against the dollar from 101.47.
The Nikkei 225 Stock Average declined 3.5 percent. The Standard & Poor's 500 Index fell 5.7 percent yesterday, breaking below 1,000 for the first time since 2003.
The U.K.'s gross domestic product shrank 0.2 percent in the three months through September, the London-based institute said. The International Monetary Fund expects the economy to contract next year, according to a draft of its revised forecasts obtained by Bloomberg News.
To contact the reporters on this story: Stanley White in Tokyo at Swhite28@bloomberg.net; Ron Harui in Singapore at Rharui@bloomberg.net
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Oct. 8 (Bloomberg) -- The yen traded near a three-year high against the euro on speculation a slide in Asian stocks will prompt investors to reduce holdings of higher-yielding assets financed in Japan, known as carry trades.
The currency was also close to a six-month high against the dollar on concern global economic growth will slow as the credit crisis spreads. The British pound was near the lowest in almost seven years versus the yen after the National Institute for Economic and Social Research said today the U.K economy shrank in the third quarter.
``Lingering fears about the health of financial sectors in the U.S. and Europe and concerns over a global recession should continue to underpin the yen,'' said Danica Hampton, currency strategist at Bank of New Zealand Ltd. in Wellington. ``We're far from out of the woods and any restoration of investor confidence will take time.''
Japan's currency traded at 137.93 per euro at 9:32 a.m. in Tokyo from 137.89 late in New York yesterday. It reached 135.05 on Oct. 6, the strongest since September 2005. The yen was at 177.38 per pound from 177.13. It touched 174.10 on Oct. 6, the highest since November 2001. The currency was quoted at 101.53 against the dollar from 101.47.
The Nikkei 225 Stock Average declined 3.5 percent. The Standard & Poor's 500 Index fell 5.7 percent yesterday, breaking below 1,000 for the first time since 2003.
The U.K.'s gross domestic product shrank 0.2 percent in the three months through September, the London-based institute said. The International Monetary Fund expects the economy to contract next year, according to a draft of its revised forecasts obtained by Bloomberg News.
To contact the reporters on this story: Stanley White in Tokyo at Swhite28@bloomberg.net; Ron Harui in Singapore at Rharui@bloomberg.net
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Australian, New Zealand Dollars Slide on Global Growth Concerns
By Candice Zachariahs
Oct. 8 (Bloomberg) -- The Australian dollar dropped for the 11th day and New Zealand's currency also fell as investors dumped higher-yielding assets on concern the credit crunch will stall the global economy.
The currencies also declined for a fifth day against the yen as U.S. stocks tumbled, sending the Standard & Poor's 500 Index below 1,000 for the first time since 2003. The Australian currency pared losses yesterday after the central bank slashed its benchmark rate by 1 percentage point, its biggest cut since 1992.
``People just lost confidence when the equity markets started to fall and as a result we've seen selling in the aussie,'' said Richard Grace, chief currency strategist at Commonwealth Bank of Australia in Sydney, referring to the currency by its nickname. ``The aussie is a barometer of global financial market sentiment so it takes a particularly hard hit.''
The Australian dollar fell 1.1 percent to 70.71 U.S. cents as of 8:21 a.m. in Sydney from 71.50 cents in late Asian trading yesterday. The currency declined 1.6 percent to 71.66 yen, from 72.84 yen.
New Zealand's dollar weakened 0.7 percent to 62.46 U.S. cents from 62.92 cents late in Asia yesterday. It slid 1.2 percent to 63.31 yen.
The currencies slid as U.S. stocks declined sending the S&P and the Dow Jones Industrial Average to the worst yearly retreat since 1937. The S&P 500 Financials Index slumped 12 percent to below its lowest level since 1997 even after Fed Chairman Ben S. Bernanke signaled he is ready to cut interest rates.
The VIX volatility index, a Chicago Board Options Exchange gauge reflecting expectations for stock market price changes and a barometer of risk aversion, rose for the second day to a record 53.68 yesterday.
Australian and New Zealand currencies are favorites of the carry trade, where investors seek higher returns on investments funded in countries with lower borrowing costs. The risk in such trades is that exchange-rate fluctuations erase profits.
Benchmark interest rates are 6 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.
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
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Oct. 8 (Bloomberg) -- The Australian dollar dropped for the 11th day and New Zealand's currency also fell as investors dumped higher-yielding assets on concern the credit crunch will stall the global economy.
The currencies also declined for a fifth day against the yen as U.S. stocks tumbled, sending the Standard & Poor's 500 Index below 1,000 for the first time since 2003. The Australian currency pared losses yesterday after the central bank slashed its benchmark rate by 1 percentage point, its biggest cut since 1992.
``People just lost confidence when the equity markets started to fall and as a result we've seen selling in the aussie,'' said Richard Grace, chief currency strategist at Commonwealth Bank of Australia in Sydney, referring to the currency by its nickname. ``The aussie is a barometer of global financial market sentiment so it takes a particularly hard hit.''
The Australian dollar fell 1.1 percent to 70.71 U.S. cents as of 8:21 a.m. in Sydney from 71.50 cents in late Asian trading yesterday. The currency declined 1.6 percent to 71.66 yen, from 72.84 yen.
New Zealand's dollar weakened 0.7 percent to 62.46 U.S. cents from 62.92 cents late in Asia yesterday. It slid 1.2 percent to 63.31 yen.
The currencies slid as U.S. stocks declined sending the S&P and the Dow Jones Industrial Average to the worst yearly retreat since 1937. The S&P 500 Financials Index slumped 12 percent to below its lowest level since 1997 even after Fed Chairman Ben S. Bernanke signaled he is ready to cut interest rates.
The VIX volatility index, a Chicago Board Options Exchange gauge reflecting expectations for stock market price changes and a barometer of risk aversion, rose for the second day to a record 53.68 yesterday.
Australian and New Zealand currencies are favorites of the carry trade, where investors seek higher returns on investments funded in countries with lower borrowing costs. The risk in such trades is that exchange-rate fluctuations erase profits.
Benchmark interest rates are 6 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.
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
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Korea Won Drops, Nearing 7-Year Low, as Dollar Shortage Deepens
By Kim Kyoungwha
Oct. 8 (Bloomberg) -- South Korea's won fell for a fourth day, approaching a seven-year low, as a seizure in global credit markets forced the nation's banks and companies to meet their dollar needs by selling won.
The won dropped 31 percent this year against the greenback, making it the world's worst-performing major currency, even as the government used the nation's foreign-exchange reserves to stem losses. Deputy Finance Minister Shin Je Yoon said yesterday the government will check for ``speculative forces'' in the currency market.
``The overall tone in the market is bleak with traders extremely cautious about taking won positions in spite of repeated assurances from the government,'' said Kim Sung Soon, a currency dealer with Industrial Bank of Korea in Seoul. ``There's persistent real demand for dollars from companies.''
The won fell 1.5 percent to 1,349.25 against the dollar as of 9:38 a.m. in Seoul, according to Seoul Money Brokerage Services Ltd. It yesterday reached 1,364.05, the lowest since 2001.
The government may delay its plan to further open up the country's foreign-exchange market, the Korea Economic Daily reported, citing a finance ministry official it didn't identify.
The delay is being considered as the local financial market faces a shortage of dollars amid the global credit crunch, the Korean-language newspaper said. The government will announce details about the delay late next month, the report said.
To contact the reporters on this story:
Kim Kyoungwha in Beijing at
kkim19@bloomberg.net;
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Asian Stocks, Index Futures Tumble as Financial Crisis Worsens
By Patrick Rial
Oct. 8 (Bloomberg) -- Asian stocks and index futures slumped on concern global economies will slow as the credit crisis deepens.
Australia & New Zealand Banking Group Ltd., Australia's third-largest, lost 4.2 percent. U.S.-traded receipts of Toyota Motor Corp., the world's second-largest automaker, slumped 6.2 percent after Nikko Citigroup Ltd. cut its rating to ``sell.'' BHP Billiton Ltd. tumbled 5.1 percent after aluminum producer Alcoa Inc. said profit dropped by half last quarter as weak demand sent raw material prices lower.
Australia's S&P/ASX 200 Index fell to the lowest level since November 2005, losing 3.7 percent to 4,448.20. New Zealand's NZX 50 Index, the first market in the Asia-Pacific region to begin trading, slumped 1.9 percent.
Nikkei 225 futures expiring in December closed in Chicago yesterday at 9,820, down from 10,210 earlier in Osaka and 10,160 in Singapore. The Bank of New York Mellon Asia ADR Price Index, which tracks the region's American depositary receipts, plunged 4.1 percent.
``The market is being pounded by worries about both the real economy as well as the financial system,'' Hiroichi Nishi, an equities manager at Tokyo-based Nikko Cordial Securities Inc., said in an interview with Bloomberg TV. ``The ongoing drop in U.S. markets and weakening dollar are pointing to another day of selling here.''
Yesterday, the MSCI Asia Pacific Index fell 1.7 percent to 98.71, the first time the gauge has closed below 100 since July 2005. U.S. shares dropped yesterday, with the Standard & Poor's 500 Index plunging 5.7 percent, led by a rout in financial companies such as Morgan Stanley.
Interest Rate Cut?
Continued efforts by political leaders have done little to assuage concern that the credit crisis is growing more serious. Federal Reserve Chairman Ben S. Bernanke signaled yesterday the central bank is ready to reduce interest rates, which was only able to spark a temporary rebound in U.S. markets.
Meanwhile, the U.K. is preparing a rescue package for British banks which includes cash injections and deposit guarantees, according to three people familiar with the plan. Royal Bank of Scotland Group Plc, the U.K.'s second-biggest bank, plummeted 39 percent yesterday as a downgrade in its credit rating sparked concerns of a run on the bank.
Investors should ``sell'' Toyota's shares, according to Nikko Citigroup's Noriyuki Matsushima. Matsushima had previously maintained a ``buy'' rating on the stock. Operating profit is likely to be 1.1 trillion yen for the year ending in March, according to the analyst, 31 percent below the company's estimate. The Nikkei said the company's operating profit may drop 40 percent this year to 1.3 trillion due to slowing demand for autos.
To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net.
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Crude Oil Falls as Worsening Credit Crisis May Curb Fuel Demand
By Margot Habiby and Samantha Zee
Oct. 8 (Bloomberg) -- Crude oil fell after U.S. equities slumped on speculation banks and real-estate companies are running short of money because of a worsening credit crisis that may curb economic growth and energy demand.
Oil retreated after rising 2.6 percent yesterday, its first rally in a week. The Standard & Poor's 500 Index fell below 1,000 for the first time since 2003. U.S. Federal Reserve Chairman Ben S. Bernanke signaled policymakers are ready to lower interest rates as the credit freeze deepens.
``It really looks like a global financial situation of run to cover, run to cash,'' said Kyle Cooper, an analyst at IAF Advisors in Houston. ``That seems to be the driver. Any type of financial asset is being liquidated to some extent.''
Crude oil for November delivery fell 82 cents, or 0.9 percent, to $89.24 a barrel in electronic trading on the New York Mercantile Exchange at 10:29 a.m. Sydney time.
Futures have declined 39 percent from the record $147.27 reached July 11. Yesterday, crude oil rose $2.25 to $90.06 a barrel in New York.
The stock market malaise has spurred concern that growth will slow and crimp demand for fuels. The S&P 500 slid 60.66 points, or 5.7 percent yesterday, to 996.23, extending its 2008 tumble to 32 percent in the market's worst yearly slump since 1937. The Dow Jones Industrial Average dropped 508.39, or 5.1 percent, to 9,447.11, giving it a 29 percent retreat in 2008 that would also be the worst in 71 years.
OPEC Production
Yesterday, members of OPEC acted to stall the slide in oil prices. Libya's top oil official called for a production cut, and Qatar's oil minister said the country is reducing output in line with quotas. Organization of Petroleum Exporting Countries President Chakib Khelil said earlier this week that the group will take ``appropriate measures'' to stabilize markets.
``It reassures the market that OPEC is paying attention, and they're ready to take action at such a point where they deem it necessary,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``It looks like somewhere around $80, they'll take action.''
Arjun Murti, the Goldman Sachs Group Inc. analyst who predicted a crude ``super spike'' in March 2005, said there is a ``downside'' risk to his forecast that oil may rise to $120 in the fourth-quarter.
``Oil prices increasingly appear unlikely to sustain a rally until global GDP expectations bottom,'' Goldman said in a note. ``While we believe oil supply/demand fundamentals are not as bearish as is sentiment, we recognize that concern continues to mount towards global oil demand growth.''
U.S. Cuts Forecast
The U.S. government cut its forecast for crude oil, gasoline and winter heating fuel prices as global demand slows with the staggering economy.
West Texas Intermediate crude oil, the U.S. benchmark, will average $112 a barrel in 2008, the Energy Department said in its monthly Short-Term Energy Outlook. The forecast is down 3.3 percent from $115.81 a barrel estimated last month, the report from the department's Energy Information Administration showed.
Brent crude oil for November settlement rose 98 cents, or 1.2 percent, to $84.66 a barrel on London's ICE Futures Europe exchange yesterday.
U.S. fuel supplies probably rose as refineries that shut for hurricanes Gustav and Ike last month resumed output, a Bloomberg News survey of analysts showed. Refineries operated at the lowest rate in at least 19 years after the storms struck the Gulf of Mexico coast. Stockpiles of gasoline in mid-September were the lowest since 1967.
Inventories of the motor fuel probably climbed 1.5 million barrels in the week ended Oct. 3 from 179.6 million barrels the week before, according to the median of nine analyst estimates before an Energy Department report today. Seven of the analysts forecast a gain, one expected a drop and one said there was no change.
To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net; Samantha Zee in Los Angeles at szee@bloomberg.net.
Read more...
Oct. 8 (Bloomberg) -- Crude oil fell after U.S. equities slumped on speculation banks and real-estate companies are running short of money because of a worsening credit crisis that may curb economic growth and energy demand.
Oil retreated after rising 2.6 percent yesterday, its first rally in a week. The Standard & Poor's 500 Index fell below 1,000 for the first time since 2003. U.S. Federal Reserve Chairman Ben S. Bernanke signaled policymakers are ready to lower interest rates as the credit freeze deepens.
``It really looks like a global financial situation of run to cover, run to cash,'' said Kyle Cooper, an analyst at IAF Advisors in Houston. ``That seems to be the driver. Any type of financial asset is being liquidated to some extent.''
Crude oil for November delivery fell 82 cents, or 0.9 percent, to $89.24 a barrel in electronic trading on the New York Mercantile Exchange at 10:29 a.m. Sydney time.
Futures have declined 39 percent from the record $147.27 reached July 11. Yesterday, crude oil rose $2.25 to $90.06 a barrel in New York.
The stock market malaise has spurred concern that growth will slow and crimp demand for fuels. The S&P 500 slid 60.66 points, or 5.7 percent yesterday, to 996.23, extending its 2008 tumble to 32 percent in the market's worst yearly slump since 1937. The Dow Jones Industrial Average dropped 508.39, or 5.1 percent, to 9,447.11, giving it a 29 percent retreat in 2008 that would also be the worst in 71 years.
OPEC Production
Yesterday, members of OPEC acted to stall the slide in oil prices. Libya's top oil official called for a production cut, and Qatar's oil minister said the country is reducing output in line with quotas. Organization of Petroleum Exporting Countries President Chakib Khelil said earlier this week that the group will take ``appropriate measures'' to stabilize markets.
``It reassures the market that OPEC is paying attention, and they're ready to take action at such a point where they deem it necessary,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``It looks like somewhere around $80, they'll take action.''
Arjun Murti, the Goldman Sachs Group Inc. analyst who predicted a crude ``super spike'' in March 2005, said there is a ``downside'' risk to his forecast that oil may rise to $120 in the fourth-quarter.
``Oil prices increasingly appear unlikely to sustain a rally until global GDP expectations bottom,'' Goldman said in a note. ``While we believe oil supply/demand fundamentals are not as bearish as is sentiment, we recognize that concern continues to mount towards global oil demand growth.''
U.S. Cuts Forecast
The U.S. government cut its forecast for crude oil, gasoline and winter heating fuel prices as global demand slows with the staggering economy.
West Texas Intermediate crude oil, the U.S. benchmark, will average $112 a barrel in 2008, the Energy Department said in its monthly Short-Term Energy Outlook. The forecast is down 3.3 percent from $115.81 a barrel estimated last month, the report from the department's Energy Information Administration showed.
Brent crude oil for November settlement rose 98 cents, or 1.2 percent, to $84.66 a barrel on London's ICE Futures Europe exchange yesterday.
U.S. fuel supplies probably rose as refineries that shut for hurricanes Gustav and Ike last month resumed output, a Bloomberg News survey of analysts showed. Refineries operated at the lowest rate in at least 19 years after the storms struck the Gulf of Mexico coast. Stockpiles of gasoline in mid-September were the lowest since 1967.
Inventories of the motor fuel probably climbed 1.5 million barrels in the week ended Oct. 3 from 179.6 million barrels the week before, according to the median of nine analyst estimates before an Energy Department report today. Seven of the analysts forecast a gain, one expected a drop and one said there was no change.
To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net; Samantha Zee in Los Angeles at szee@bloomberg.net.
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Japanese Stocks Tumble a Fifth Day as Financial Crisis Worsens
By Patrick Rial
Oct. 8 (Bloomberg) -- Japanese shares slumped for a fifth consecutive day as the deepening credit crisis slows global economic growth.
Toyota Motor Corp., the world's second-largest automaker, fell 5.1 percent after Nikko Citigroup Ltd. cut its rating to ``sell.'' Mitsubishi UFJ Financial Group Inc., which is investing $9 billion in Morgan Stanley, dropped 2.8 percent after Morgan's shares fell as much as 40 percent yesterday. Elpida Memory Inc., the nation's largest computer memory maker, slumped 7.8 percent.
The Nikkei 225 Stock Average fell 356.66, or 3.5 percent, to 9,799.24 as of 9:28 a.m. in Tokyo. The broader Topix index declined 26.18, or 2.7 percent, to 951.43. The gauge has lost 14 percent over the last five sessions.
``The market is being pounded by worries about both the real economy as well as the financial system,'' Hiroichi Nishi, an equities manager at Tokyo-based Nikko Cordial Securities Inc., said in an interview with Bloomberg TV. ``The ongoing drop in U.S. markets and weakening dollar are pointing to another day of selling here.''
Toyota plunged 5.1 percent to 3,520 yen. Investors should ``sell'' Toyota's shares, according to Nikko Citigroup's Noriyuki Matsushima. Matsushima had previously maintained a ``buy'' rating on the stock. Operating profit is likely to be 1.1 trillion yen ($10.9 billion) for the year ending in March, according to the analyst, 31 percent below the company's estimate.
The Nikkei said the company's operating profit may drop 40 percent this year to 1.3 trillion due to slowing demand for autos.
Interest Rate Cut?
Rival Honda Motor Co., Japan's No. 2 automaker, slid 5.5 percent to 2,430 yen. Hino Motors Ltd., which makes trucks for Toyota, dropped 5.9 percent to 322 yen after Nikko Citigroup also lowered the shares to ``hold'' from ``buy.''
Mitsubishi UFJ, the nation's largest listed bank, fell 2.6 percent to 790 yen. Sumitomo Mitsui Financial Group Inc., Japan's third largest, declined 1.7 percent to 588,000 yen.
Continued efforts by political leaders have done little to assuage concern that the credit crisis is growing more serious. Federal Reserve Chairman Ben S. Bernanke signaled yesterday the central bank is ready to reduce interest rates, which was only able to spark a temporary rebound in U.S. markets.
Meanwhile, the U.K. is preparing a rescue package for British banks including cash injections and deposit guarantees, according to three people familiar with the plan. Royal Bank of Scotland Group Plc, the U.K.'s second-biggest bank, plummeted 39 percent yesterday as a downgrade in its credit rating sparked concerns of a run on the bank.
To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net.
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Oct. 8 (Bloomberg) -- Japanese shares slumped for a fifth consecutive day as the deepening credit crisis slows global economic growth.
Toyota Motor Corp., the world's second-largest automaker, fell 5.1 percent after Nikko Citigroup Ltd. cut its rating to ``sell.'' Mitsubishi UFJ Financial Group Inc., which is investing $9 billion in Morgan Stanley, dropped 2.8 percent after Morgan's shares fell as much as 40 percent yesterday. Elpida Memory Inc., the nation's largest computer memory maker, slumped 7.8 percent.
The Nikkei 225 Stock Average fell 356.66, or 3.5 percent, to 9,799.24 as of 9:28 a.m. in Tokyo. The broader Topix index declined 26.18, or 2.7 percent, to 951.43. The gauge has lost 14 percent over the last five sessions.
``The market is being pounded by worries about both the real economy as well as the financial system,'' Hiroichi Nishi, an equities manager at Tokyo-based Nikko Cordial Securities Inc., said in an interview with Bloomberg TV. ``The ongoing drop in U.S. markets and weakening dollar are pointing to another day of selling here.''
Toyota plunged 5.1 percent to 3,520 yen. Investors should ``sell'' Toyota's shares, according to Nikko Citigroup's Noriyuki Matsushima. Matsushima had previously maintained a ``buy'' rating on the stock. Operating profit is likely to be 1.1 trillion yen ($10.9 billion) for the year ending in March, according to the analyst, 31 percent below the company's estimate.
The Nikkei said the company's operating profit may drop 40 percent this year to 1.3 trillion due to slowing demand for autos.
Interest Rate Cut?
Rival Honda Motor Co., Japan's No. 2 automaker, slid 5.5 percent to 2,430 yen. Hino Motors Ltd., which makes trucks for Toyota, dropped 5.9 percent to 322 yen after Nikko Citigroup also lowered the shares to ``hold'' from ``buy.''
Mitsubishi UFJ, the nation's largest listed bank, fell 2.6 percent to 790 yen. Sumitomo Mitsui Financial Group Inc., Japan's third largest, declined 1.7 percent to 588,000 yen.
Continued efforts by political leaders have done little to assuage concern that the credit crisis is growing more serious. Federal Reserve Chairman Ben S. Bernanke signaled yesterday the central bank is ready to reduce interest rates, which was only able to spark a temporary rebound in U.S. markets.
Meanwhile, the U.K. is preparing a rescue package for British banks including cash injections and deposit guarantees, according to three people familiar with the plan. Royal Bank of Scotland Group Plc, the U.K.'s second-biggest bank, plummeted 39 percent yesterday as a downgrade in its credit rating sparked concerns of a run on the bank.
To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net.
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Australia's S&P/ASX 200 Drops, Extending 3-year Low; Banks Fall
By Shani Raja
Oct. 8 (Bloomberg) -- Australia's benchmark stock index fell, extending a 3-year low, as banks and resources companies tumbled on concern the deepening credit crisis will further slow global economic growth.
National Australia Bank Ltd., the nation's largest lender, dropped 6.6 percent, leading declines among financial companies. BHP Billiton Ltd. slumped 5.8 percent on fears worldwide demand for raw materials will weaken. Woodside Petroleum Ltd. dropped to the lowest in almost eight months.
``People have woken up to the fact this isn't purely a financial issue,'' said Angus Gluskie, who helps oversee $500 million at White Funds Management in Sydney. ``It's one that's impacting significantly on the underlying economy. We're probably looking at 12 to 18 months of global growth slowing.''
The S&P/ASX 200 Index fell 4.2 percent to 4,426.20 at 11:30 a.m. in Sydney, the lowest since Oct. 28, 2005, wiping out yesterday's 1.7 percent gain. The index has lost almost a third of its value this year amid a credit freeze sparked by the U.S. subprime mortgage crisis.
The U.S. Standard & Poor's 500 Index dropped 5.7 percent to below 1,000 for the first time since 2003 yesterday on concern banks and real-estate companies are running short of money.
Babcock & Brown Ltd., a manager of infrastructure assets, slumped 19 percent to A$1.05, its fifth straight loss. BlueScope Steel Ltd., Australia's largest steelmaker, fell 4.3 percent to a two-year-low A$6.46. James Hardie Industries NV, the biggest seller of home siding in the U.S., dropped 2.5 percent to A$4.88, the lowest since Sept. 18.
Alumina Ltd. plunged 12 percent to A$2.61, the lowest in more than nine years, after profit at its venture partner Alcoa Inc. more than halved as aluminum demand slumped.
Alternative Asset
Sino Gold Mining Ltd. was among the winners today. The stock jumped 2 percent to A$4.66 after gold futures rose 1.8 percent to $882 an ounce in New York on speculation central banks around the world will cut borrowing costs, boosting demand for the metal as an alternative asset. Sino and Lihir Gold Ltd. were among the index's five best performers.
The S&P/ASX 200 Index yesterday recovered losses to end the day higher after Australia's central bank cut its benchmark interest rate by one percentage point, the most since a recession in 1992. The nation's biggest banks, led by Commonwealth Bank of Australia and Westpac Banking Corp., followed suit by cutting their standard variable home loan rates by 80 basis points.
National Australia today fell 6.6 percent to A$24.29, the most since July 25. BHP dropped 5.8 percent to A$29.87, while Woodside declined 4.1 percent to A$45.14.
The following were among stocks that rose of fell today on the Australian stock exchange.
Nexus Energy Ltd. (NXS AU), developer of the proposed $1.2 billion Crux natural gas liquids project off Australia's north, tumbled 22 cents, or 20 percent, to 87 cents, the most in a year, after the $255 million sale of a stake in the venture collapsed.
Stockland (SGP AU), Australia's largest housing developer, dived 49 cents, or 8.6 percent, to A$5.21, the lowest since Sept. 15. The company said it raised A$300 million in a placement of 56.6 million shares to institutional investors, and that it's planning a retail offer.
To contact the reporter on this story: Shani Raja in Sydney at sraja4@bloomberg.net.
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IMF Says World Economy Heading for `Major Downturn'
By Christopher Swann
Oct. 7 (Bloomberg) -- The global economy is headed for a recession next year, as U.S. gross domestic product grinds close to a halt, the International Monetary Fund said in reports ahead of a Group of Seven meeting this week.
``The global economy is entering a major downturn,'' the fund said in a staff report, dated Oct. 4 and obtained by Bloomberg News. ``Many advanced economies are now close to recession, while emerging economies are also slowing rapidly.''
Growth is slowing from China to Switzerland as policy makers struggle to contain the worst financial crisis since the Great Depression. The Dow Jones Industrial Average dropped below 10,000 for the first time in four years yesterday and Federal Reserve Chairman Ben S. Bernanke said today that ``the downside risks'' for growth have increased.
The U.S. will expand 0.1 percent in 2009, after growth of 1.6 percent this year, the IMF said in a draft of its World Economic Outlook scheduled for release tomorrow and also obtained by Bloomberg. In the WEO released in April, the IMF said the U.S. economy would grow 0.5 percent this year and 0.6 percent in 2009.
The global economy will expand 3 percent next year, lower than the IMF's forecast in April of 3.7 percent and down from 3.9 percent this year, according to the latest WEO. In April, the IMF predicted a 25 percent chance of worldwide growth at or below 3 percent, which it said was ``equivalent to a global recession.''
The IMF staff report suggested that the European Central Bank has scope to reduce borrowing costs to help limit economic damage from the financial market crisis.
`Mild Recession'
``All the advanced economies are stagnant or in mild recession now,'' John Lipsky, the IMF's first deputy managing director, in a Bloomberg Television interview. The slowdown is removing ``inflationary dangers,'' making it appropriate for central banks in some countries to respond with lower interest rates, he said.
The Washington-based lender said in the staff note that the dollar is ``in line'' with economic fundamentals, the euro is ``on the strong side'' and the yen is ``undervalued'' in the medium term.
IMF spokeswoman Conny Lotze declined to comment on the figures.
The IMF staff report said growth will be ``particularly weak'' in the G-7 countries -- the U.S., Japan, Germany, France, the U.K., Canada and Italy.
`Looming Recession'
A recession in the U.S. is ``looming,'' growth in western Europe is ``weakening markedly,'' activity in Japan is ``cooling rapidly'' and emerging countries ``have not decoupled from this downturn'' the staff report said.
Of advanced economies, the IMF made its steepest reduction in the growth prediction for U.K., which the fund predicted will contract by 0.1 percent next year, the WEO said. Six months ago, the IMF forecast U.K. growth 1.6 percent in 2009.
Italy's economy will contract 0.2 percent, the IMF predicted, a reduction from its April forecast for 0.3 percent, the report said.
The fastest-growing G-7 country will be Canada, where GDP is forecast to increase 1.2 percent, the IMF report said, after a 2 percent outlook in April.
The IMF report showed Germany's is expected to post zero growth next year, compared with a prediction in April of a 1 percent expansion. France's economy will register 0.2 percent growth, down from a 1.3 percent forecast six months ago, the report said.
Central Banks
In the U.S., the Fed's ``monetary policy is already highly accommodative,'' the IMF staff report said. Bernanke said today the central bank ``will need to consider whether the current stance of policy remains appropriate.''
The Bank of Japan's interest-rate policy stance ``remains accommodative and should remain so given that the economy has weakened and that underlying price pressures are well contained,'' it said.
For the ECB, ``monetary conditions are now quite tight,'' the report said. ``In light of this, there is now scope to ease monetary policy.''
To contact the reporter responsible for this story: Christopher Swann in Washington at cswann1@bloomberg.net
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Mexican Peso Falls to a Record on Outlook for Economy, Rates
By Michael J. Moore
Oct. 7 (Bloomberg) -- Mexico's peso fell to a record low on speculation the global credit crisis will stall domestic growth, forcing the central bank to cut borrowing costs.
The peso was the second-worst performer against the dollar today among Latin America's most-active currencies after the Brazilian real. The peso has dropped 12 percent since Sept. 30, its worst five-day stretch since March 1995, when Mexico was in the midst of a financial crisis caused by the peso's devaluation.
``What we've seen with the Mexican peso and most Latin American currencies is that fear imposes a lot of pressure on exchange rates,'' said Alfredo Coutino, a Latin America economist at Moody's Economy.com in West Chester, Pennsylvania. ``Investors are contaminated by global fear.''
The peso dropped 4.1 percent to 12.3146 per dollar at 4:15 p.m. New York time, from 11.8050 yesterday. The currency touched 12.3669, the weakest since 1993, when the government introduced a new peso equivalent to 1,000 old pesos. It was the second straight day the currency dropped to a record.
President Felipe Calderon is preparing an economic package with the Finance Ministry to soften the impact of the global credit crisis, Central Bank Governor Guillermo Ortiz said today in an interview on Radio Formula. The currency won't continue to weaken like it has so far this week and won't depreciate like it did during the 1995 banking crisis, when it fell 51 percent over a three-month period, he said.
Mexico will still see ``high'' inflation in the next several months, while the U.S. inflation rate will slow more than expected, Ortiz said.
No Growth
The global credit crisis has already reduced some expectations for growth in Mexico, curbing demand for pesos. The slowdown in the U.S. will hold growth in Mexico to zero next year, wrote Gray Newman, chief Latin America economist at Morgan Stanley in New York, in a research note yesterday. The firm cut its 2009 economic growth forecast for Latin America to 1.5 percent from 3.5 percent, citing reduced demand for the region's commodities.
Slower growth will lead Mexico's central bank to reduce its 8.25 percent target lending rate by 2.25 percentage points over the next year, starting with a quarter-point cut in November, analysts at Citigroup Inc.'s Banamex unit led by Sergio Luna Martinez wrote in a research note yesterday. The gap between Mexican and U.S. rates is 6.25 percentage points, the widest since 2005.
Bolsa Tumbles
Economists cut the 2009 growth forecast for Mexico to 2.5 percent from 2.9 percent, according to the average of 33 estimates in a central bank survey released Oct. 1.
The finance ministry will revise its forecasts for economic growth, inflation and the assumed export price for oil in its 2009 budget proposal before Oct. 20, Deputy Finance Minister Jose Antonio Meade Kuribrena said today. The Mexican government currently forecasts the economy will expand 3 percent in 2009.
Mexico's Bolsa stock index dropped 4.0 percent today while the yield on the benchmark government peso bond due in 2024 jumped 5 basis points to 8.62 percent. A basis point equals 0.01 percentage point.
The Federal Reserve will create a special fund to purchase U.S. commercial paper after the credit crunch threatened to cut off a key source of funding for corporations. The U.S. is the biggest buyer of Mexican exports.
To contact the reporter on this story: Michael J. Moore in New York at mmoore55@bloomberg.net
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Oct. 7 (Bloomberg) -- Mexico's peso fell to a record low on speculation the global credit crisis will stall domestic growth, forcing the central bank to cut borrowing costs.
The peso was the second-worst performer against the dollar today among Latin America's most-active currencies after the Brazilian real. The peso has dropped 12 percent since Sept. 30, its worst five-day stretch since March 1995, when Mexico was in the midst of a financial crisis caused by the peso's devaluation.
``What we've seen with the Mexican peso and most Latin American currencies is that fear imposes a lot of pressure on exchange rates,'' said Alfredo Coutino, a Latin America economist at Moody's Economy.com in West Chester, Pennsylvania. ``Investors are contaminated by global fear.''
The peso dropped 4.1 percent to 12.3146 per dollar at 4:15 p.m. New York time, from 11.8050 yesterday. The currency touched 12.3669, the weakest since 1993, when the government introduced a new peso equivalent to 1,000 old pesos. It was the second straight day the currency dropped to a record.
President Felipe Calderon is preparing an economic package with the Finance Ministry to soften the impact of the global credit crisis, Central Bank Governor Guillermo Ortiz said today in an interview on Radio Formula. The currency won't continue to weaken like it has so far this week and won't depreciate like it did during the 1995 banking crisis, when it fell 51 percent over a three-month period, he said.
Mexico will still see ``high'' inflation in the next several months, while the U.S. inflation rate will slow more than expected, Ortiz said.
No Growth
The global credit crisis has already reduced some expectations for growth in Mexico, curbing demand for pesos. The slowdown in the U.S. will hold growth in Mexico to zero next year, wrote Gray Newman, chief Latin America economist at Morgan Stanley in New York, in a research note yesterday. The firm cut its 2009 economic growth forecast for Latin America to 1.5 percent from 3.5 percent, citing reduced demand for the region's commodities.
Slower growth will lead Mexico's central bank to reduce its 8.25 percent target lending rate by 2.25 percentage points over the next year, starting with a quarter-point cut in November, analysts at Citigroup Inc.'s Banamex unit led by Sergio Luna Martinez wrote in a research note yesterday. The gap between Mexican and U.S. rates is 6.25 percentage points, the widest since 2005.
Bolsa Tumbles
Economists cut the 2009 growth forecast for Mexico to 2.5 percent from 2.9 percent, according to the average of 33 estimates in a central bank survey released Oct. 1.
The finance ministry will revise its forecasts for economic growth, inflation and the assumed export price for oil in its 2009 budget proposal before Oct. 20, Deputy Finance Minister Jose Antonio Meade Kuribrena said today. The Mexican government currently forecasts the economy will expand 3 percent in 2009.
Mexico's Bolsa stock index dropped 4.0 percent today while the yield on the benchmark government peso bond due in 2024 jumped 5 basis points to 8.62 percent. A basis point equals 0.01 percentage point.
The Federal Reserve will create a special fund to purchase U.S. commercial paper after the credit crunch threatened to cut off a key source of funding for corporations. The U.S. is the biggest buyer of Mexican exports.
To contact the reporter on this story: Michael J. Moore in New York at mmoore55@bloomberg.net
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Fed to Purchase U.S. Commercial Paper to Ease Crunch
By Craig Torres
Oct. 7 (Bloomberg) -- The Federal Reserve will create a special fund to buy U.S. commercial paper, seeking to unblock the financing tool that drives everyday commerce for American businesses.
The Treasury will make a deposit with the Fed's New York district bank to help set up the new unit. The central bank will also lend to the program at policy makers' target rate for overnight loans between banks, the central bank said in a statement released in Washington. Fed officials said they intend to set up the fund soon, while declining to specify a date.
``Disruptions in the commercial paper market and tightening of bank lending standards have made it more difficult for businesses to obtain the working capital they need,'' Fed Chairman Ben S. Bernanke said today in remarks before the National Association for Business Economics in Washington. The central bank ``will continue to use the tools at its disposal to improve market functioning and liquidity.''
Today's action follows a slide in the commercial-paper market to a three-year low of $1.6 trillion last week as investors fled even companies with few links to the subprime mortgage crisis. Companies from newspaper firm Gannett Co. to electricity producer Southern Co. have been forced to tap credit lines or forego raising debt because of the market's disruption.
Stemming Panic
The Fed's efforts are aimed at ``stemming the bank-run-like panic,'' said Mark Gertler, a New York University economist and research co-author with Fed Chairman Ben S. Bernanke. ``The immediate threat to the real economy is that large corporations are having difficulty obtaining funds via the commercial paper market.''
The Fed Board invoked emergency powers to set up the unit, the central bank said. Fed officials in a conference call with reporters didn't say how much top-rated commercial paper will be purchased. Companies use commercial paper, or debt maturing in nine months or less, as a form of IOU to pay for day-to-day activities such as payrolls and rent.
The central bank's special purpose vehicle will be big enough to backstop the entire market, one official said on condition of anonymity.
Issuers will be able to sell commercial paper to the Fed up to the average amount they had outstanding in August, an official said.
Short Time Frame
Policy makers began considering buying commercial paper several weeks ago as the market began to seize up, with borrowers increasingly only able to raise funds on a short timeframe, even just overnight, officials said.
Bernanke, U.S. Treasury Secretary Henry Paulson, European Central Bank President Jean-Claude Trichet and their Group of Seven major-nation counterparts plan to meet on Oct. 10 in Washington.
The Fed's new unit will buy three-month dollar-denominated commercial paper at a spread over the three-month overnight- indexed swap rate, which is a measure of traders' expectations for the Fed's benchmark rate. The purchases should help issuers extend the maturity of their borrowing, an official said.
``While we have continued to fund without disruption, the Fed announcement today is an important development that will help restore confidence in the market and facilitate more lending,'' General Electric Co. spokesman Russell Wilkerson said. ``This is a positive move and we applaud the Fed's decisive action.'' The company is the biggest U.S. commercial paper issuer through its GE Capital finance unit.
Yields Down
Fed officials anticipate that yields will come down significantly as a result of their initiative.
Yields on top-rated overnight U.S. commercial paper dropped 0.74 percentage point today to 2.94 percent, according to data compiled by Bloomberg. Borrowing for seven days increased 1.25 percentage points to 4 percent.
The Treasury's deposit with the Fed's special purpose vehicle will be substantial, officials said. The funds won't come from the $700 billion rescue plan authorized by Congress last week.
Stocks initially climbed and Treasuries sank after the Fed's announcement, while shares later fell. The Standard & Poor's 500 Stock Index tumbled 5.7 percent in New York. Yields on benchmark 10-year notes climbed to 3.51 percent from 3.45 percent late yesterday.
Fed officials on the conference call indicated that they would like the facility to be a backstop, which would suggest the special vehicle's rate would be set at a slight penalty to normal market rates. They declined to answer a specific question as to whether the rate would be set above current rates, or below, which would constitute a subsidy for borrowers.
`Funding Backstop'
``The Federal Reserve will consult with market participants regarding appropriate spreads that are consistent with the facility serving as a funding backstop under more normal market conditions,'' the Fed said.
Commercial paper purchased by the vehicle must be rated at least A1/P1/F1, the Fed said. Issuers will pay the unit an upfront fee based on the commercial paper initially sold to the vehicle. The vehicle will cease buying commercial paper on April 30, 2009, unless the Board of Governors agrees to extend it.
The Fed will cap the amount of commercial paper each company may sell to the central bank.
The Fed yesterday said it will double its cash auctions to banks to as much as $900 billion, and telegraphed today's announcement by saying it was looking for other ways to alleviate liquidity strains.
The Fed's move is ``very unusual, very aggressive and a very bold step,'' said Chris Varvares, president of St. Louis-based Macroeconomic Advisers LLC, a forecasting firm. Assuring that corporations can fund their short-term cash needs ``is absolutely essential.''
To contact the reporters on this story: Craig Torres in Washington at ctorres3@bloomberg.net.
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Latin America Currencies: Colombia Peso Slides as Crisis Builds
By Drew Benson
Oct. 7 (Bloomberg) -- Colombia's peso declined on concern the global credit crisis won't abate soon.
The central bank sold $180 million in dollar options and suspended a daily dollar purchase program in an effort to shore up the peso. It dropped 1.2 percent to 2,283 per dollar at 4 p.m. New York time, from 2,255.55 yesterday, according to the Colombian foreign-exchange electronic transactions system, known as SET-FX. The peso touched 2,287.35 per dollar, its weakest point since December 2006.
The peso declined 4 percent yesterday, triggering the $180 million dollar option auction today, said a central bank spokeswoman. The program to buy $20 million a day has been suspended until further notice, the spokeswoman said by telephone from Bogota. The central bank reported later that it bought $440 million during September, bringing the total for the year to $2.3 billion.
Today's options auction aims ``to add some liquidity and keep the peso from weakening so much,'' said Daniel Arguelles, a senior foreign exchange trader at the Bogota-based brokerage Corredores Asociados. ``Still, the market remains very risk averse, and we're pretty much going tick by tick with whatever is going on in Brazil and with the stock indexes.''
Brazil's real declined 5.7 percent, while the Standard & Poor's 500 Index fell 4.8 percent.
``There is so much uncertainty with respect with global growth and the impact a slowdown will have on the region,'' said Aryam Vazquez, an emerging markets economist with Wells Fargo in New York. ``Latin America is going to get hit even though the fundamentals in the region remain fairly positive.''
Peru's Dollar Sales
The yield on Colombia's benchmark 11 percent bonds due July 2020 rose 4 basis points, or 0.04 percentage point, to 12.1 percent in New York, according to Colombia's stock exchange. The bonds' price slid 0.232 centavos to 93.170 centavos per peso.
Latin American central banks have pumped cash into interbank markets in a bid to temper the global credit freeze.
In Peru, the central bank sold $249 million in the currency market after selling $393 million yesterday. The sol dropped the most since March, declining 1.9 percent to 3.1055 per dollar after touching 3.11, its weakest point since Sept. 26, 2007.
Chile's peso slid 1.2 percent to 594.84 per dollar from 587.88 yesterday. The peso touched 595, its weakest point since December 2004. Chile's central bank has also canceled daily purchases, of $50 million of dollars, and instead began a swap program that aims to inject $2 billion into the system through four weekly auctions. The first of the auctions was held last week.
`Rebuilding Liquidity'
The yield for a basket of five-year peso bonds in inflation- linked currency units, known as unidades de fomento, rose 9 basis points to 3.18 percent, according to Bloomberg composite prices.
Argentina's peso slid 0.6 percent to 3.215 per dollar, from 3.197 yesterday, after touching 3.2190, its lowest point since January 2003.
``The central bank puts a priority on strengthening demand for pesos and rebuilding liquidity,'' central bank President Martin Redrado said during a speech in Buenos Aires. Yesterday the central bank raised interest rates on repurchase agreements by 75 basis points in a bid to make peso deposits more attractive. The bank raised the rate on one-day repos rose to 12.5 percent and to 14.75 percent for 60-day repos.
The yield on the country's inflation-linked peso bonds due in December 2033 was little changed at a record-high 12.31 percent, according to Citigroup Inc.'s unit in Argentina.
Venezuela's bolivar slid 3.2 percent to 4.65 per dollar in unregulated trading, traders said. The government pegs the bolivar at an official exchange rate of 2.15 per dollar under restrictions imposed in 2003. Venezuelans turn to the parallel market when they can't get government approval to buy dollars at the official rate.
To contact the reporters on this story: Drew Benson in Buenos Aires at abenson9@bloomberg.net
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Oct. 7 (Bloomberg) -- Colombia's peso declined on concern the global credit crisis won't abate soon.
The central bank sold $180 million in dollar options and suspended a daily dollar purchase program in an effort to shore up the peso. It dropped 1.2 percent to 2,283 per dollar at 4 p.m. New York time, from 2,255.55 yesterday, according to the Colombian foreign-exchange electronic transactions system, known as SET-FX. The peso touched 2,287.35 per dollar, its weakest point since December 2006.
The peso declined 4 percent yesterday, triggering the $180 million dollar option auction today, said a central bank spokeswoman. The program to buy $20 million a day has been suspended until further notice, the spokeswoman said by telephone from Bogota. The central bank reported later that it bought $440 million during September, bringing the total for the year to $2.3 billion.
Today's options auction aims ``to add some liquidity and keep the peso from weakening so much,'' said Daniel Arguelles, a senior foreign exchange trader at the Bogota-based brokerage Corredores Asociados. ``Still, the market remains very risk averse, and we're pretty much going tick by tick with whatever is going on in Brazil and with the stock indexes.''
Brazil's real declined 5.7 percent, while the Standard & Poor's 500 Index fell 4.8 percent.
``There is so much uncertainty with respect with global growth and the impact a slowdown will have on the region,'' said Aryam Vazquez, an emerging markets economist with Wells Fargo in New York. ``Latin America is going to get hit even though the fundamentals in the region remain fairly positive.''
Peru's Dollar Sales
The yield on Colombia's benchmark 11 percent bonds due July 2020 rose 4 basis points, or 0.04 percentage point, to 12.1 percent in New York, according to Colombia's stock exchange. The bonds' price slid 0.232 centavos to 93.170 centavos per peso.
Latin American central banks have pumped cash into interbank markets in a bid to temper the global credit freeze.
In Peru, the central bank sold $249 million in the currency market after selling $393 million yesterday. The sol dropped the most since March, declining 1.9 percent to 3.1055 per dollar after touching 3.11, its weakest point since Sept. 26, 2007.
Chile's peso slid 1.2 percent to 594.84 per dollar from 587.88 yesterday. The peso touched 595, its weakest point since December 2004. Chile's central bank has also canceled daily purchases, of $50 million of dollars, and instead began a swap program that aims to inject $2 billion into the system through four weekly auctions. The first of the auctions was held last week.
`Rebuilding Liquidity'
The yield for a basket of five-year peso bonds in inflation- linked currency units, known as unidades de fomento, rose 9 basis points to 3.18 percent, according to Bloomberg composite prices.
Argentina's peso slid 0.6 percent to 3.215 per dollar, from 3.197 yesterday, after touching 3.2190, its lowest point since January 2003.
``The central bank puts a priority on strengthening demand for pesos and rebuilding liquidity,'' central bank President Martin Redrado said during a speech in Buenos Aires. Yesterday the central bank raised interest rates on repurchase agreements by 75 basis points in a bid to make peso deposits more attractive. The bank raised the rate on one-day repos rose to 12.5 percent and to 14.75 percent for 60-day repos.
The yield on the country's inflation-linked peso bonds due in December 2033 was little changed at a record-high 12.31 percent, according to Citigroup Inc.'s unit in Argentina.
Venezuela's bolivar slid 3.2 percent to 4.65 per dollar in unregulated trading, traders said. The government pegs the bolivar at an official exchange rate of 2.15 per dollar under restrictions imposed in 2003. Venezuelans turn to the parallel market when they can't get government approval to buy dollars at the official rate.
To contact the reporters on this story: Drew Benson in Buenos Aires at abenson9@bloomberg.net
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U.S. Stocks Drop; S&P 500, Dow Post Worst Retreats Since 1937
By Elizabeth Stanton and Eric Martin
Oct. 7 (Bloomberg) -- U.S. stocks fell, sending the Standard & Poor's 500 Index below 1,000 for the first time since 2003, on speculation banks and real-estate companies are running short of money as the credit crisis worsens.
Bank of America Corp. tumbled 26 percent after cutting its dividend in half and saying it plans to sell $10 billion in common stock to brace for a recession. Morgan Stanley, KeyCorp and JPMorgan Chase & Co. slid more than 10 percent as investors shrugged off signs the Federal Reserve will reduce interest rates. General Growth Properties Inc., a mall owner, plunged 42 percent on concern it won't be able to repay debt.
The S&P 500 slid 60.66 points, or 5.7 percent, to 996.23, extending its 2008 tumble to 32 percent in the market's worst yearly slump since 1937. The Dow Jones Industrial Average dropped 508.39, or 5.1 percent, to 9,447.11, giving it a 29 percent retreat in 2008 that would also be the worst in 71 years. The Nasdaq Composite Index lost 5.8 percent to 1,754.88.
``We've approached the edge of the cliff,'' Leon Cooperman, 65, who manages $6 billion at hedge fund Omega Advisors Inc., said at the Value Investing Congress in New York. ``Do we go over the cliff or begin to recede? History says we recede, but there's no guarantee. This is the most difficult financial environment I've lived through.''
The S&P 500 Financials Index slumped 12 percent to below its lowest level since 1997 even after Fed Chairman Ben S. Bernanke signaled he is ready to cut interest rates. The S&P 500's 15 percent retreat since Sept. 30 is the third-steepest five-day drop on record, according to Bespoke Investment Group LLC, a Harrison, New York-based research firm. The bigger slumps occurred in 1932.
Levkovich Cuts Forecast
The slump that pushed the S&P 500 to an almost five-year low yesterday prompted Tobias Levkovich, chief U.S. equity strategist at Citigroup Inc., to lower his year-end forecast for the index by 19 percent to 1,200. His previous target of 1,475 had been the most bullish of nine forecasts in a Bloomberg survey.
Bank of America plunged $8.45 to $23.77 after the lender slashed its dividend to 32 cents and announced plans to raise at least $10 billion in common stock as it braces for an extended recession. Chief Executive Officer Kenneth Lewis said the U.S. economy slowed in the past 45 days with little prospect for immediate improvement.
The bank also released its third-quarter earnings two weeks early. Profit declined 68 percent to $1.18 billion, or 15 cents a share. Analysts predicted earnings of 61 cents a share for the quarter, according to the average of 20 estimates compiled by Bloomberg.
`Credit Deterioration'
``The market is responding to the fact that there was credit deterioration in their businesses,'' Erick Maronak, the New York- based chief investment officer at Victory Capital Management, said of Bank of America. Victory Capital oversees $66 billion.
Merrill Lynch & Co., which is being acquired by Bank of America, sank 26 percent to $18 for the steepest decline since October 1987. JPMorgan lost 11 percent to $39.32, and KeyCorp tumbled 10 percent to $10.61.
Morgan Stanley declined as much as 40 percent on concern its sale of a stake to Japan's Mitsubishi UFJ Financial Group Inc. would fall through. The stock pared that drop, falling 25 percent to $17.65 at the close, after Morgan Stanley spokesman Mark Lane said the deal is still ``on track.''
Goldman Sachs Group Inc.'s index of stocks with high hedge fund ownership dropped 7.1 percent to the lowest level since August 2003. All 49 companies in the measure declined, giving the index a 38 percent loss for 2008.
Disney Declines
Walt Disney Co. retreated 6 percent to $26.57, the lowest price since February 2006, after Merrill Lynch downgraded the world's biggest theme-park operator to ``underperform'' from ``neutral,'' citing concern ``about the risk to earnings estimates in the current economic climate.''
General Growth Properties Inc. led an index of real-estate investment trusts in the S&P 500 to a 8.9 percent drop, sending the group to a four-year low. The mall owner at risk of not being able to refinance debt coming due this year fell 42 percent to $4.50, extending its slide over the past year to 92 percent.
Apartment Investment & Management Co., a REIT specializing in apartments, fell 27 percent to $25.50.
Tomorrow is the last day of a Securities and Exchange Commission rule banning short sales in more than 980 financial companies. Since it was announced Sept. 18, companies covered by the rule are down an average of 16 percent, according to data compiled by Bloomberg. The S&P 500 lost 17 percent during the period, while commercial banks in the gauge are down 23 percent.
GM, Ford Slump
General Motors Corp. fell 11 percent to $7.56, the lowest price since the 1950s. The automaker's European unit plans to reduce production by about 40,000 vehicles by the end of the year as credit-market turmoil causes a drop in car sales.
Ford Motor Co., the second-largest U.S. automaker after GM, tumbled 21 percent to $2.92, the lowest price since April 1983.
Advanced Micro Devices Inc., the chipmaker struggling to compete with Intel Corp., jumped 8.5 percent to $4.59 after saying Abu Dhabi will pay $700 million for a stake in a new company that will own two plants in Germany and build another in New York. The new company, which will assume $1.2 billion of AMD's debt, will receive as much as $6 billion from Abu Dhabi to expand the factories and get $1.4 billion in operating capital. Abu Dhabi will also pay $314 million to double its stake in AMD to 19 percent.
Commercial Paper Fund
Stocks opened higher after the Federal Reserve invoked emergency powers to create a special fund to buy commercial paper, which is short-term debt issued by corporations to fund operations.
American Express Co., the largest U.S. credit-card company by purchases, dropped 6.1 percent to $28.25. It had surged as much as 8.1 percent after the Fed's announcement. General Electric Co., whose businesses include jet engines, health care and television programming, added as much as 5.9 percent before closing down 5.1 percent at $20.30.
Both American Express and GE are among the biggest U.S. direct issuers of commercial paper. In the three weeks ended Oct. 1, finance-company commercial paper outstanding fell 16 percent to $683.4 billion, Fed data show.
``A connection is being made between the freeze-up in the credit markets and the drop-off in economic activity we've seen,'' said Robert Stimpson, a money manager at Oak Associates Inc. in Akron, Ohio. ``A step to loosen credit practices and allow companies to borrow again might forestall the economic weakness we've seen flow through'' to employment.
Earnings Watch
Earnings at S&P 500 companies probably dropped on average of 5.6 percent in the third quarter, according to analysts' estimates compiled by Bloomberg.
Financial companies are forecast to lead the drop in profits with a 64 percent decrease, followed by an 11 percent slide in earnings at retailers, hoteliers, restaurant chains and other so- called consumer discretionary companies.
The S&P 500 has tumbled 36 percent from its record a year ago. Based on estimated profit, the S&P 500's price-to-earnings ratio is 11.9.
``On very conservative earnings expectations for the next 12 months this market at minimum is starting to look reasonably valued,'' Leo Grohowski, chief investment officer for the wealth management unit of Bank of New York Mellon Corp., told Bloomberg Television. The unit manages $162 billion. ``Times when it feels almost irresponsible to shore up equities, they tend to be good buying opportunities historically.''
To contact the reporters on this story: Elizabeth Stanton in New York at estanton@bloomberg.net; Eric Martin in New York at emartin21@bloomberg.net.
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Alcoa, Legg Mason, Sealy, Stewart, YRC: U.S. Equity Preview
By Lu Wang
Oct. 7 (Bloomberg) -- The following companies may have unusual price changes in U.S. trading tomorrow. Stock symbols are in parentheses, and share prices are as of 5:35 p.m. in New York, unless otherwise specified.
Standard & Poor's 500 Index futures expiring in December lost 47.50, or 4.5 percent, to 1,005.80. Dow Jones Industrial Average futures fell 426, or 4.3 percent, to 9,538. Nasdaq-100 Index futures slipped 70, or 5 percent, to 1,336.50.
Alcoa Inc. (AA US) fell 62 cents, or 3.7 percent, to $16.09. The largest U.S. aluminum producer said third-quarter profit excluding some items was 37 cents a share. That missed the average analyst estimate by 28 percent, according to a Bloomberg survey.
Legg Mason Inc. (LM US): The money manager's debt rating was lowered one level to A3 by Moody's Investors Service because of expenses to support money-market funds and outflows from its stock and bond funds. The stock dropped 15 percent to $29.01 in regular trading.
Sealy Corp. (ZZ US): The world's largest bedding manufacturer reported third-quarter sales of $405 million, topping the average analyst estimate by 3.9 percent, according to a Bloomberg survey. The stock fell 18 percent to $4.05 in regular trading.
Stewart Enterprises Inc. (STEI US) slumped $2.11, or 30 percent, to $4.98. Service Corp. International (SCI US), the biggest U.S. funeral-home and cemetery owner, said it withdrew its proposal to buy Stewart because of ``unacceptable'' pre- conditions.
YRC Worldwide Inc. (YRCW US) rose 66 cents, or 13 percent, to $5.64. The biggest U.S. trucking company by sales said it expects to remain in full compliance with the terms of its credit agreement, with ``positive free cash flow'' coming in the third and fourth quarters.
To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net
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Cooperman Says Stocks May Rise After `Bulk of Damage'
By Eric Martin
Oct. 7 (Bloomberg) -- The stock market is ``not as bad as some portray'' because shares have already suffered the worst of a U.S. recession and will rally before the economy emerges from its decline next June, hedge fund manager Leon Cooperman said.
``The bulk of the damage is done, the healing process will take time, but excellent opportunities are developing in the market,'' Cooperman, 65, who manages $6 billion as chairman and chief executive officer of hedge fund Omega Advisors Inc., said at the Value Investing Congress in New York. ``This is the most difficult financial environment I've lived through. Every recession sows seeds of the next recovery.''
Cooperman said the drop in home prices should be over by the end of the year and stocks are ``quite reasonable'' based on price-to-earnings ratios. The Federal Reserve will probably support the slowing economy with interest rate cuts, he added.
The S&P 500 has tumbled 36 percent from its record last October. The gauge is valued at 11.9 times estimated earnings of its companies over the next 12 months.
Trading in fed funds futures imply that a rate cut of at least half a percentage point at the central bank's next meeting is certain, while the odds of a 0.75 percentage point reduction are 32 percent. The Fed's target rate for overnight loans between banks is 2 percent.
Earnings Decline
Stock advances may be limited until the market fully reflects the slowdown in earnings, Cooperman said. Profits at S&P 500 companies fell 5.6 percent in the third quarter from a year earlier, according to analyst estimates compiled by Bloomberg. That would be the fifth straight quarterly decline and match a streak ended in March 2002.
``The best evidence that the correct economic scenario is discounted in the market is when individual stocks don't go down in response to earnings disappointments,'' Cooperman said. ``We're not seeing very much of that at all.''
Cooperman told Barron's in its July 28 edition that the stock market may be near its low. The S&P 500 has dropped 21 percent since then.
Cooperman founded Omega in 1991 after working at Goldman Sachs Group Inc. for 25 years.
To contact the reporter on this story: Eric Martin in New York at emartin21@bloomberg.net.
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Cattle Rebound on Signs U.S. Beef Supply May Shrink; Hogs Rise
By Whitney McFerron
Oct. 7 (Bloomberg) -- Cattle rose for the first time in four sessions on signs that U.S. beef supplies are shrinking as ranchers sell animals sooner to slaughterhouses to avoid the risk of lower prices. Hogs gained after a 10-session slide.
The average weight of a steer sold to processors in the first two days of this week was down 6.3 percent from the same period last week, government data show. Cattle prices had dropped 9.1 percent since Sept. 24, and wholesale beef slid to a five-month low on Oct. 3 on concern a slumping economy would reduce meat demand.
``When the psychology is down like this, guys sell cattle early, since they think it's going to be worse in two or three weeks,'' said Lane Broadbent, a vice president at KIS Futures Inc. in Oklahoma City. ``You have people not overfeeding cattle.''
Cattle futures for December delivery rose 0.325 cent, or 0.3 percent, to 95.1 cents a pound on the Chicago Mercantile Exchange. Yesterday, the price fell by the exchange's limit of 3 cents to 94.775 cents, the lowest since May 9.
The average weight of a live steer sold to meatpackers was 1,288 pounds (584 kilograms) in the first two days of this week, down from 1,374 pounds in the same period a week earlier, according to the U.S. Department of Agriculture.
Beef Supply
Producers tend to feed animals more to fatten them longer, boosting the overall beef supply, when profit margins are better, Broadbent said.
``If a steer is on feed for 10 extra days, and it gains 3 pounds per day, that's 30 extra pounds of meat per head,'' Broadbent said. ``So it puts a lot more tonnage of meat on the market.''
Wholesale choice beef dropped 1.1 cents, or 0.7 percent, to $1.5506 a pound today, USDA data show. On Oct. 3, the price touched $1.5242, the lowest since April 18.
Feeder-cattle futures for November delivery rose 0.85 cent, or 0.9 percent, to 98.65 cents a pound. The price has dropped 13 percent in the past year.
Hogs rose for the first time since Sept. 22 on speculation that the lowest U.S. pork prices in five months spurred buying from overseas.
Wholesale pork fell 0.57 cent, or 0.8 percent, to 72.33 cents a pound today, USDA data show. That marked the lowest since April 24. The price has gained 20 percent in the past year.
``Export demand the previous two weeks had been slow, but there may have been a little pickup now just because the price is better,'' said Joe Kropf, an analyst at Joe Kropf & Sid Love Consulting Services Inc. in Overland Park, Kansas.
Hog futures for December settlement increased 1.6 cents to 61.425 cents a pound, ending the longest slide since Nov. 1. The 2.7 percent gain was the biggest for a most-active contract since Aug. 6. The price has climbed 6.1 percent this year.
To contact the reporter on this story: Whitney McFerron in Chicago at wmcferron1@bloomberg.net.
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