By Angela Macdonald-Smith
Oct. 11 (Bloomberg) -- Australia's transport safety watchdog said there was ``no evidence'' to suggest the use of portable electronic devices by passengers contributed to a mid- flight plunge by a Qantas Airways Ltd. aircraft.
An initial review of information from the aircraft's flight data recorder indicate some ``issues with some on-board components,'' the Australian Transport Safety Bureau said in a statement on its Web site. Further examination of the auto-pilot system, data sources and flight control computers is needed, it said.
Passengers on board flight QF72 from Singapore to Perth on Oct. 7 were slammed into the cabin ceiling when the Airbus A330- 300 aircraft twice went into a nose-down pitch. Forty-four of the flight's 313 passengers and crew needed hospital treatment for spinal injuries, broken bones, concussion or lacerations. The plane landed safely at a remote airstrip about 1,300 kilometers (800 miles) north of the Western Australian capital.
A team studying the aircraft at Learmonth airport found no structural or wiring defects, while the entire cargo load was property secured, the bureau said in the Oct. 10 statement.
A preliminary report into the incident will be released within about 30 days, the bureau said. Any critical safety issues that may emerge requiring urgent attention will immediately be relayed to the relevant authorities ahead of the release of the report, it said.
Qantas declined comment on the remarks by the bureau, given that the investigation is still under way, said Simon Rushton, the company's Sydney-based media relations manager.
To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net
Read more...
Saturday, October 11, 2008
India's Subbarao Is Ready for `Swift' Steps to Boost Liquidity
By Shobhana Chandra
Oct. 11 (Bloomberg) -- Indian central bank Governor Duvvuri Subbarao said he's prepared to take ``effective'' steps to maintain liquidity in the nation's credit markets and repeated the bank's policy of smoothing swings in the currency.
We ``stand ready to take appropriate, effective and swift action'' to provide liquidity, he told reporters yesterday in Washington, where he was attending a meeting of Group of 20 finance ministers and central bankers. He said India's economy is ``strong'' and its banks are ``sound'' and ``well capitalized.''
India yesterday made the steepest cut since 2001 in the amount of cash lenders must set aside as reserves to kick-start the $1.2 trillion economy, as the rupee plunged to an all-time low and overseas investors dumped emerging-market stocks. The drop in the cash-reserve ratio followed a reduction on Oct. 6.
Subbarao, 59, declined to comment on interest-rate policy, saying that ``all variables are up for review'' at the Reserve Bank of India's Oct. 24 policy meeting. While the latest figures on inflation are ``quite comforting,'' it is ``still too early to let the vigil slip'' on prices, he said.
India's inflation has slowed to a 15-week low of 11.8 percent, according to the latest government figures, though it is still more than double the central bank's target.
Steps taken so far to improve liquidity in the Indian financial system amount to as much as $22 billion, Subbarao said.
The governor also said that in the medium term, India's rupee ``should be determined by market fundamentals.'' The RBI's policy, to ``manage exchange-rate volatility'' rather than take a view on its level, ``should continue to serve us well,'' he said.
`Knock-On Effect'
Indian markets are experiencing a ``knock-on effect'' from the global financial crisis, because the country's banks have no direct exposure to U.S. sub-prime mortgages, Subbarao said. The RBI's priorities include ``managing inflation while maintaining the growth momentum,'' and financial stability has become another objective over the last three months, he said.
Subbarao this week rushed to free up cash after money-market rates surged to an 18-month high and financial stocks slumped. ICICI Bank Ltd., the Indian lender with the biggest losses on overseas investments, dropped by a record on Oct. 10, forcing the bank to reiterate it had sufficient funds.
Some economists predict the RBI may follow central banks worldwide and cut interest rates as inflation pressures ease and the worsening global crisis begins to weaken economic growth.
``India has been cautious in its reaction until now,'' Swaminathan Aiyar, a Cato Institute research fellow with a focus on Asia, said in Washington. ``Subbarao clearly believes in balance'' between the policy objectives of growth and inflation. ``A rate cut is coming.''
Rescue Plans
Subbarao, who took over as RBI governor a month ago, said the problems and perspectives of countries directly affected by the global financial crisis are ``quite different'' from those of nations like India that are affected indirectly.
Relief and rescue plans announced by advanced countries so far don't include components in which peripheral countries such as India could participate, he said.
Still, India would ``hope to be included and involved in the design and implementation'' of such an effort, should there be a need, he said.
To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net
Read more...
Oct. 11 (Bloomberg) -- Indian central bank Governor Duvvuri Subbarao said he's prepared to take ``effective'' steps to maintain liquidity in the nation's credit markets and repeated the bank's policy of smoothing swings in the currency.
We ``stand ready to take appropriate, effective and swift action'' to provide liquidity, he told reporters yesterday in Washington, where he was attending a meeting of Group of 20 finance ministers and central bankers. He said India's economy is ``strong'' and its banks are ``sound'' and ``well capitalized.''
India yesterday made the steepest cut since 2001 in the amount of cash lenders must set aside as reserves to kick-start the $1.2 trillion economy, as the rupee plunged to an all-time low and overseas investors dumped emerging-market stocks. The drop in the cash-reserve ratio followed a reduction on Oct. 6.
Subbarao, 59, declined to comment on interest-rate policy, saying that ``all variables are up for review'' at the Reserve Bank of India's Oct. 24 policy meeting. While the latest figures on inflation are ``quite comforting,'' it is ``still too early to let the vigil slip'' on prices, he said.
India's inflation has slowed to a 15-week low of 11.8 percent, according to the latest government figures, though it is still more than double the central bank's target.
Steps taken so far to improve liquidity in the Indian financial system amount to as much as $22 billion, Subbarao said.
The governor also said that in the medium term, India's rupee ``should be determined by market fundamentals.'' The RBI's policy, to ``manage exchange-rate volatility'' rather than take a view on its level, ``should continue to serve us well,'' he said.
`Knock-On Effect'
Indian markets are experiencing a ``knock-on effect'' from the global financial crisis, because the country's banks have no direct exposure to U.S. sub-prime mortgages, Subbarao said. The RBI's priorities include ``managing inflation while maintaining the growth momentum,'' and financial stability has become another objective over the last three months, he said.
Subbarao this week rushed to free up cash after money-market rates surged to an 18-month high and financial stocks slumped. ICICI Bank Ltd., the Indian lender with the biggest losses on overseas investments, dropped by a record on Oct. 10, forcing the bank to reiterate it had sufficient funds.
Some economists predict the RBI may follow central banks worldwide and cut interest rates as inflation pressures ease and the worsening global crisis begins to weaken economic growth.
``India has been cautious in its reaction until now,'' Swaminathan Aiyar, a Cato Institute research fellow with a focus on Asia, said in Washington. ``Subbarao clearly believes in balance'' between the policy objectives of growth and inflation. ``A rate cut is coming.''
Rescue Plans
Subbarao, who took over as RBI governor a month ago, said the problems and perspectives of countries directly affected by the global financial crisis are ``quite different'' from those of nations like India that are affected indirectly.
Relief and rescue plans announced by advanced countries so far don't include components in which peripheral countries such as India could participate, he said.
Still, India would ``hope to be included and involved in the design and implementation'' of such an effort, should there be a need, he said.
To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net
Read more...
G-7 Commit to `All Necessary Steps' to Stem Global Meltdown
By Simon Kennedy
Oct. 11 (Bloomberg) -- Group of Seven finance chiefs, meeting after stocks plunged and as a global recession looms, vowed to prevent the failure of vital banks while failing to unveil new initiatives for thawing credit markets.
``The current situation calls for urgent and exceptional action,'' the finance ministers and central bankers said in a statement after talks in Washington yesterday. They pledged to ``take all necessary steps to unfreeze credit and money markets'' without detailing how that would be accomplished.
Signaling they would intervene to avoid a repeat of last month's collapse of Lehman Brothers Holdings Inc., the officials promised to ensure major banks have access to cash and are able to tap public funds for capital. By refraining from specific fresh measures such as embracing a U.K. plan to guarantee loans between banks, they still run a risk of disappointing investors.
``They've seen what Lehman did and the repercussions,'' said Jeff Pantages, chief investment officer at Alaska Permanent Capital Management in Anchorage, which oversees $2 billion. ``If you're a bondholder, you've got to feel better. If you're a shareholder, you're not so sure.''
Lehman's downfall precipitated the latest chapter of the 14-month crisis, causing banks to stop lending to each other out of concern they may not get their funds back. The G-7's willingness to now back ``systematically important financial institutions'' may provide some relief for Morgan Stanley, whose stocks and bonds dropped this week on concerns for its health.
Bank Discussions
U.S. Treasury Secretary Henry Paulson said no bank was singled out in the discussions yesterday.
The policy makers from the U.S., Japan, Germany, U.K., France, Canada and Italy convened after stock indexes this month plunged more than 20 percent from Japan to Europe to North America.
The G-7 nations were under pressure to roll out new policies and adopt a united front to quell the panic in markets after their previous steps failed to do so. Instead, they outlined principles for all nations to follow.
Measures taken should protect taxpayers and avoid ``potentially damaging effects on other countries,'' the group said. In the past month, European countries have taken unilateral actions to increase bank-deposit guarantees, spurring concern that savers would drain cash from nations with less protection.
Paulson said it would be ``naive'' to think that different nations in different circumstances could come up with the same policy paths.
Emergency Actions
In the past two weeks, global central banks executed emergency interest-rate cuts and pumped more cash into markets, the Federal Reserve said it would buy commercial paper, European governments bailed out banks and the U.K. and U.S. said they would start taking equity stakes in financial companies.
Money markets remain gridlocked even so, with the three- month London interbank offered rate climbing to 4.82 percent yesterday, a record premium over the Fed's benchmark rate. The seizure spurred British policy makers to propose a program to backstop loans between banks.
G-7 officials shied away from the U.K. idea, which would either turn central banks into clearing houses for banks' loans or have governments back the obligations.
The jump in borrowing costs and restricted access to credit prompted Merrill Lynch & Co. to predict the G-7 economies next year will be the weakest since 1982.
Stock Slump
U.S. stocks fell for an eighth straight day yesterday, with the Dow Jones Industrial Average capping its worst week since 1914. The MSCI World Index of equities in 23 developed countries slid 20 percent this week, the most since records began in 1970.
Policy makers expressed confidence that investors will ultimately recognize the scale of actions under way, including a new U.S. plan to buy stocks in a ``broad array'' of financial companies.
``We have taken a lot of actions,'' European Central Bank President Jean-Claude Trichet said. ``My experience of markets is that it always takes a little time to capture the elements,'' of the decisions taken, he said.
Paulson signaled his top priority is getting his plan to buy financial stocks running as soon as he can. ``This is a plan that I'm quite confident will work,'' he said. The Treasury chief also said ``we have more to do in the liquidity area.''
The American plan follows U.K. Prime Minister Gordon Brown's 50 billion pound ($87 billion) program that will partly nationalize at least eight lenders.
Canadian Plan
Canada's government yesterday moved to shore up its banks by saying it will buy as much as C$25 billion ($21.6 billion) in mortgages from them. German Finance Minister Peer Steinbrueck and Bundesbank President Axel Weber said they're working on a package of measures to rescue banks that'll be revealed before markets open next week.
``The situation in financial markets is demanding unusual and far-reaching decisions from all policy makers,'' Weber told reporters. ``There is no alternative to these measures because banks have come under strong pressure.''
While the joint statement made no mention of currencies, Trichet said the group viewed excess volatility in exchange rates as detrimental and urged China to allow faster gains in the yuan.
Highlighting the stakes facing the world economy, further talks will be held this weekend. The G-7 officials will meet today with President George W. Bush and gather with counterparts from the Group of 20, which includes emerging markets.
European Summit
Trichet will head to Paris for a summit of European leaders tomorrow that French Finance Minister Christine Lagarde said will seek to go ``beyond'' the G-7's agreements.
Rifts within the G-7 were exposed by an unprecedented public split in which Italian Finance Minister Giulio Tremonti rejected a draft statement yesterday for being ``too weak.'' The ultimate text that won his blessing was shorter than the original and aimed at wielding ``a strong psychological impact,'' Lagarde said.
Tremonti after the meeting described the Basel II accord that regulates accounting for banks as ``dead'' and said he will propose a shake-up of global financial architecture today. The G-7 promised to implement ``high-quality accounting standards.''
Earlier, Italian President Silvio Berlusconi sowed confusion by saying governments may close financial markets, only to reverse himself an hour later.
To contact the reporter on this story: Simon Kennedy in Washington at skennedy4@bloomberg.net
Read more...
Oct. 11 (Bloomberg) -- Group of Seven finance chiefs, meeting after stocks plunged and as a global recession looms, vowed to prevent the failure of vital banks while failing to unveil new initiatives for thawing credit markets.
``The current situation calls for urgent and exceptional action,'' the finance ministers and central bankers said in a statement after talks in Washington yesterday. They pledged to ``take all necessary steps to unfreeze credit and money markets'' without detailing how that would be accomplished.
Signaling they would intervene to avoid a repeat of last month's collapse of Lehman Brothers Holdings Inc., the officials promised to ensure major banks have access to cash and are able to tap public funds for capital. By refraining from specific fresh measures such as embracing a U.K. plan to guarantee loans between banks, they still run a risk of disappointing investors.
``They've seen what Lehman did and the repercussions,'' said Jeff Pantages, chief investment officer at Alaska Permanent Capital Management in Anchorage, which oversees $2 billion. ``If you're a bondholder, you've got to feel better. If you're a shareholder, you're not so sure.''
Lehman's downfall precipitated the latest chapter of the 14-month crisis, causing banks to stop lending to each other out of concern they may not get their funds back. The G-7's willingness to now back ``systematically important financial institutions'' may provide some relief for Morgan Stanley, whose stocks and bonds dropped this week on concerns for its health.
Bank Discussions
U.S. Treasury Secretary Henry Paulson said no bank was singled out in the discussions yesterday.
The policy makers from the U.S., Japan, Germany, U.K., France, Canada and Italy convened after stock indexes this month plunged more than 20 percent from Japan to Europe to North America.
The G-7 nations were under pressure to roll out new policies and adopt a united front to quell the panic in markets after their previous steps failed to do so. Instead, they outlined principles for all nations to follow.
Measures taken should protect taxpayers and avoid ``potentially damaging effects on other countries,'' the group said. In the past month, European countries have taken unilateral actions to increase bank-deposit guarantees, spurring concern that savers would drain cash from nations with less protection.
Paulson said it would be ``naive'' to think that different nations in different circumstances could come up with the same policy paths.
Emergency Actions
In the past two weeks, global central banks executed emergency interest-rate cuts and pumped more cash into markets, the Federal Reserve said it would buy commercial paper, European governments bailed out banks and the U.K. and U.S. said they would start taking equity stakes in financial companies.
Money markets remain gridlocked even so, with the three- month London interbank offered rate climbing to 4.82 percent yesterday, a record premium over the Fed's benchmark rate. The seizure spurred British policy makers to propose a program to backstop loans between banks.
G-7 officials shied away from the U.K. idea, which would either turn central banks into clearing houses for banks' loans or have governments back the obligations.
The jump in borrowing costs and restricted access to credit prompted Merrill Lynch & Co. to predict the G-7 economies next year will be the weakest since 1982.
Stock Slump
U.S. stocks fell for an eighth straight day yesterday, with the Dow Jones Industrial Average capping its worst week since 1914. The MSCI World Index of equities in 23 developed countries slid 20 percent this week, the most since records began in 1970.
Policy makers expressed confidence that investors will ultimately recognize the scale of actions under way, including a new U.S. plan to buy stocks in a ``broad array'' of financial companies.
``We have taken a lot of actions,'' European Central Bank President Jean-Claude Trichet said. ``My experience of markets is that it always takes a little time to capture the elements,'' of the decisions taken, he said.
Paulson signaled his top priority is getting his plan to buy financial stocks running as soon as he can. ``This is a plan that I'm quite confident will work,'' he said. The Treasury chief also said ``we have more to do in the liquidity area.''
The American plan follows U.K. Prime Minister Gordon Brown's 50 billion pound ($87 billion) program that will partly nationalize at least eight lenders.
Canadian Plan
Canada's government yesterday moved to shore up its banks by saying it will buy as much as C$25 billion ($21.6 billion) in mortgages from them. German Finance Minister Peer Steinbrueck and Bundesbank President Axel Weber said they're working on a package of measures to rescue banks that'll be revealed before markets open next week.
``The situation in financial markets is demanding unusual and far-reaching decisions from all policy makers,'' Weber told reporters. ``There is no alternative to these measures because banks have come under strong pressure.''
While the joint statement made no mention of currencies, Trichet said the group viewed excess volatility in exchange rates as detrimental and urged China to allow faster gains in the yuan.
Highlighting the stakes facing the world economy, further talks will be held this weekend. The G-7 officials will meet today with President George W. Bush and gather with counterparts from the Group of 20, which includes emerging markets.
European Summit
Trichet will head to Paris for a summit of European leaders tomorrow that French Finance Minister Christine Lagarde said will seek to go ``beyond'' the G-7's agreements.
Rifts within the G-7 were exposed by an unprecedented public split in which Italian Finance Minister Giulio Tremonti rejected a draft statement yesterday for being ``too weak.'' The ultimate text that won his blessing was shorter than the original and aimed at wielding ``a strong psychological impact,'' Lagarde said.
Tremonti after the meeting described the Basel II accord that regulates accounting for banks as ``dead'' and said he will propose a shake-up of global financial architecture today. The G-7 promised to implement ``high-quality accounting standards.''
Earlier, Italian President Silvio Berlusconi sowed confusion by saying governments may close financial markets, only to reverse himself an hour later.
To contact the reporter on this story: Simon Kennedy in Washington at skennedy4@bloomberg.net
Read more...
Berlusconi Roils Stocks With News He Says He Heard on the Radio
By Steve Scherer
Oct. 11 (Bloomberg) -- What Silvio Berlusconi giveth, Silvio Berlusconi taketh away.
In a quick reversal mirroring the financial markets' volatility, Italy's prime minister said world leaders were thinking about shutting down financial markets and then retracted the statement less than an hour later.
``The idea of suspending the markets for the time it takes to rewrite the rules is being discussed,'' Berlusconi said yesterday after a Cabinet meeting in Naples, Italy. A solution to the financial crisis ``can't just be for one country, or even just for Europe, but global,'' he added, just after U.S. trading had begun in New York at 9:30 a.m. in New York.
Less than an hour later, Berlusconi, 72, corrected himself: ``The hypothesis wasn't put forward by any leader, including myself,'' he said. His explanation for the earlier statement: ``I heard it on the radio.''
Berlusconi's comments followed other gaffes he's committed during his political career.
``He can do these things in Italy, but he can't get away with it when he is dealing with something worldwide,'' said James Walston, professor of politics at Rome's American University. ``He is a world leader, but he's out of his depth.''
The White House denied any plan to shutter Wall Street about 55 minutes after Berlusconi's initial comment. Berlusconi's retraction came minutes after that. During that hour, the Dow Jones Industrial Average, which had fallen as much 8.1 percent in early trading, rebounded into positive territory briefly and then went back down again. The index closed down 1.5 percent in New York.
About-Face
The prime minister's about-face came as Group of Seven finance ministers and central bankers prepared to meet in Washington to discuss ways to shore up the international financial system and investor confidence. The U.S. and European countries are bailing out banks to stave off the kind of economic collapse that led to the Great Depression more than 70 years ago. After central banks cut rates globally this week, political leaders are still struggling to come up with a coordinated response.
Italy roiled matters again later in the day, when Finance Minister Giulio Tremonti said it wouldn't endorse the current draft statement drawn up by the G-7.
``The current draft is too weak,'' Tremonti told reporters in Washington before the talks began. ``We won't sign it.''
Not First Time
Berlusconi's misstatements earlier yesterday weren't his first. In 2003, the day he took over the European Union's six- month rotating presidency, Berlusconi likened a German member of the European Parliament, Martin Schulz, to a Nazi concentration camp guard.
The comments strained relations between Berlusconi and then- German Chancellor Gerhard Schroeder. Berlusconi later apologized both to the German leader and to the European Parliament.
At a New York event sponsored by the New York Stock Exchange in 2003, he said people should invest in Italy because its women are pretty.
``We have beautiful ladies and beautiful women, so my suggestion from the bottom of my heart is to try to make investments in Italy,'' Berlusconi said. ``The secretaries are beautiful.''
Shortly after the Sept. 11, 2001, attacks on New York and Washington, Berlusconi said Islamic countries were uncivilized and that Western countries would need to ``conquer'' them in order to bring them into the modern world.
In 2006, during his election campaign against former Premier Romano Prodi, he said people who voted for his rival were ``coglioni,'' a vulgar term for testicles.
``My greatness is without question,'' Berlusconi said in March 2001. ``My human substance, my history, other people dream to have.''
To contact the reporter on this story: Steve Scherer in Rome at scherer@bloomberg.net
Read more...
Oct. 11 (Bloomberg) -- What Silvio Berlusconi giveth, Silvio Berlusconi taketh away.
In a quick reversal mirroring the financial markets' volatility, Italy's prime minister said world leaders were thinking about shutting down financial markets and then retracted the statement less than an hour later.
``The idea of suspending the markets for the time it takes to rewrite the rules is being discussed,'' Berlusconi said yesterday after a Cabinet meeting in Naples, Italy. A solution to the financial crisis ``can't just be for one country, or even just for Europe, but global,'' he added, just after U.S. trading had begun in New York at 9:30 a.m. in New York.
Less than an hour later, Berlusconi, 72, corrected himself: ``The hypothesis wasn't put forward by any leader, including myself,'' he said. His explanation for the earlier statement: ``I heard it on the radio.''
Berlusconi's comments followed other gaffes he's committed during his political career.
``He can do these things in Italy, but he can't get away with it when he is dealing with something worldwide,'' said James Walston, professor of politics at Rome's American University. ``He is a world leader, but he's out of his depth.''
The White House denied any plan to shutter Wall Street about 55 minutes after Berlusconi's initial comment. Berlusconi's retraction came minutes after that. During that hour, the Dow Jones Industrial Average, which had fallen as much 8.1 percent in early trading, rebounded into positive territory briefly and then went back down again. The index closed down 1.5 percent in New York.
About-Face
The prime minister's about-face came as Group of Seven finance ministers and central bankers prepared to meet in Washington to discuss ways to shore up the international financial system and investor confidence. The U.S. and European countries are bailing out banks to stave off the kind of economic collapse that led to the Great Depression more than 70 years ago. After central banks cut rates globally this week, political leaders are still struggling to come up with a coordinated response.
Italy roiled matters again later in the day, when Finance Minister Giulio Tremonti said it wouldn't endorse the current draft statement drawn up by the G-7.
``The current draft is too weak,'' Tremonti told reporters in Washington before the talks began. ``We won't sign it.''
Not First Time
Berlusconi's misstatements earlier yesterday weren't his first. In 2003, the day he took over the European Union's six- month rotating presidency, Berlusconi likened a German member of the European Parliament, Martin Schulz, to a Nazi concentration camp guard.
The comments strained relations between Berlusconi and then- German Chancellor Gerhard Schroeder. Berlusconi later apologized both to the German leader and to the European Parliament.
At a New York event sponsored by the New York Stock Exchange in 2003, he said people should invest in Italy because its women are pretty.
``We have beautiful ladies and beautiful women, so my suggestion from the bottom of my heart is to try to make investments in Italy,'' Berlusconi said. ``The secretaries are beautiful.''
Shortly after the Sept. 11, 2001, attacks on New York and Washington, Berlusconi said Islamic countries were uncivilized and that Western countries would need to ``conquer'' them in order to bring them into the modern world.
In 2006, during his election campaign against former Premier Romano Prodi, he said people who voted for his rival were ``coglioni,'' a vulgar term for testicles.
``My greatness is without question,'' Berlusconi said in March 2001. ``My human substance, my history, other people dream to have.''
To contact the reporter on this story: Steve Scherer in Rome at scherer@bloomberg.net
Read more...
Japanese Bonds Complete Weekly Decline as Investors Raise Cash
By Theresa Barraclough
Oct. 11 (Bloomberg) -- Japanese government bonds completed a weekly decline on speculation investors raised cash as money- market rates climbed to the highest since March 1998.
The 10-year yield yesterday climbed to the highest in more than two months even as the Bank of Japan added 3 trillion yen ($30.3 billion) to the financial system, as coordinated interest-rate cuts by central banks failed to encourage lending. The Tokyo Stock Exchange yesterday temporarily halted trading in bond futures, citing excessive declines before resuming trading.
``It's very difficult for investors to be exposed to the financial markets,'' said Susumu Kato, chief economist in Tokyo at Calyon Securities, one of the 24 primary dealers required to bid at government debt sales. ``The BOJ continued to inject liquidity. However, it hasn't helped.''
The yield on the 1.5 percent bond due September 2018 rose 7.5 basis points this week to 1.52 percent in Tokyo at Japan Bond Trading Co., the nation's largest interdealer debt broker. The price fell 0.651 yen to 99.827 yen on the week. The yield yesterday reached 1.575 percent, the highest since July 28. A basis point is 0.01 percentage point.
Ten-year bond futures for December delivery lost 0.33 this week to 137.35 at the Tokyo Stock Exchange.
Tokyo's three-month interbank rate, or Tibor, increased to 0.878 percent yesterday, according to data compiled by Bloomberg. Japan's overnight call loan rate was at 0.7 percent after the central bank's liquidity injection yesterday, from 0.525 percent on Oct. 9, according to brokerage Tokyo Tanshi Co.
Japan's two-year notes yielded about 3 basis points less than Tibor yesterday, compared with an average of 12 basis points above last year, Bloomberg data shows. Two-year yields added 11.5 basis points this week to 0.845 percent.
Tougher Funding
``The funding environment is sending the two-year rate higher,'' said Tatsuo Ichikawa, a senior strategist in Tokyo at RBS Securities Japan Ltd., another primary dealer. ``Who would buy two-year JGBs below 80 basis points?''
Bond losses were limited yesterday as the Nikkei 225 Stock Average fell under 9,000 for the first time since June 2003 on concern the worst financial crisis since the Great Depression will trigger failures of companies beyond the financial sector.
``Equities look pretty bad, the economy will get worse, which makes it a bond-friendly environment,'' said Tokyo-based Keiko Onogi, a debt strategist at Daiwa Securities SMBC Co., another primary dealer. ``If you want to buy something, you should buy short and intermediate bonds.''
New City Residence, a Tokyo-based real estate investment trust, filed for bankruptcy with liabilities totaling 112.4 billion yen ($1.13 billion). Yamato Mutual Life Insurance Co. also sought protection from creditors yesterday, the Nikkei newspaper said on its online service.
G-7 Meeting
``The failure of the REIT and the fact that Yamato Mutual Life filed for protection is supportive for bonds,'' said Daisuke Uno, chief bond and currency strategist at Sumitomo Mitsui Banking Corp. in Tokyo.
The Nikkei 225 lost 9.6 percent yesterday to 8,276.43. Benchmark bonds have handed investors a return of 1.2 percent so far this year through Oct. 9, according to indexes compiled by Merrill Lynch & Co. The Nikkei has lost 40 percent in the period.
Group of Seven finance ministers and central bankers met in Washington to discuss financial turmoil that has wiped more than $8 trillion off the value of global stocks this month and led to rate cuts and bank bailouts in most of the member nations.
Japan's ruling party called on the U.S. to inject public funds into financial institutions as the credit crisis deepens.
Supply Concerns
Demand for bonds also declined this week on concern Japan's government will issue additional debt after the lower house on Oct. 8 approved a 1.8 trillion yen supplementary budget to fund a fiscal stimulus package.
``Since the economic outlook is gloomy and the tax revenue will decline,'' increasing debt is inevitable, said Takashi Nishimura, an analyst at Mitsubishi UFJ Securities Co., a unit of Japan's largest bank by assets, in Tokyo.
Issuing deficit-covering bonds and construction bonds may be ``unavoidable,'' Liberal Democratic Party Policy Chief Kosuke Hori told reporters in Tokyo on Oct. 9.
Japan already has 778 trillion yen of outstanding debt, which at 147 percent of gross domestic product is the largest among industrialized nations.
To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net.
Read more...
Oct. 11 (Bloomberg) -- Japanese government bonds completed a weekly decline on speculation investors raised cash as money- market rates climbed to the highest since March 1998.
The 10-year yield yesterday climbed to the highest in more than two months even as the Bank of Japan added 3 trillion yen ($30.3 billion) to the financial system, as coordinated interest-rate cuts by central banks failed to encourage lending. The Tokyo Stock Exchange yesterday temporarily halted trading in bond futures, citing excessive declines before resuming trading.
``It's very difficult for investors to be exposed to the financial markets,'' said Susumu Kato, chief economist in Tokyo at Calyon Securities, one of the 24 primary dealers required to bid at government debt sales. ``The BOJ continued to inject liquidity. However, it hasn't helped.''
The yield on the 1.5 percent bond due September 2018 rose 7.5 basis points this week to 1.52 percent in Tokyo at Japan Bond Trading Co., the nation's largest interdealer debt broker. The price fell 0.651 yen to 99.827 yen on the week. The yield yesterday reached 1.575 percent, the highest since July 28. A basis point is 0.01 percentage point.
Ten-year bond futures for December delivery lost 0.33 this week to 137.35 at the Tokyo Stock Exchange.
Tokyo's three-month interbank rate, or Tibor, increased to 0.878 percent yesterday, according to data compiled by Bloomberg. Japan's overnight call loan rate was at 0.7 percent after the central bank's liquidity injection yesterday, from 0.525 percent on Oct. 9, according to brokerage Tokyo Tanshi Co.
Japan's two-year notes yielded about 3 basis points less than Tibor yesterday, compared with an average of 12 basis points above last year, Bloomberg data shows. Two-year yields added 11.5 basis points this week to 0.845 percent.
Tougher Funding
``The funding environment is sending the two-year rate higher,'' said Tatsuo Ichikawa, a senior strategist in Tokyo at RBS Securities Japan Ltd., another primary dealer. ``Who would buy two-year JGBs below 80 basis points?''
Bond losses were limited yesterday as the Nikkei 225 Stock Average fell under 9,000 for the first time since June 2003 on concern the worst financial crisis since the Great Depression will trigger failures of companies beyond the financial sector.
``Equities look pretty bad, the economy will get worse, which makes it a bond-friendly environment,'' said Tokyo-based Keiko Onogi, a debt strategist at Daiwa Securities SMBC Co., another primary dealer. ``If you want to buy something, you should buy short and intermediate bonds.''
New City Residence, a Tokyo-based real estate investment trust, filed for bankruptcy with liabilities totaling 112.4 billion yen ($1.13 billion). Yamato Mutual Life Insurance Co. also sought protection from creditors yesterday, the Nikkei newspaper said on its online service.
G-7 Meeting
``The failure of the REIT and the fact that Yamato Mutual Life filed for protection is supportive for bonds,'' said Daisuke Uno, chief bond and currency strategist at Sumitomo Mitsui Banking Corp. in Tokyo.
The Nikkei 225 lost 9.6 percent yesterday to 8,276.43. Benchmark bonds have handed investors a return of 1.2 percent so far this year through Oct. 9, according to indexes compiled by Merrill Lynch & Co. The Nikkei has lost 40 percent in the period.
Group of Seven finance ministers and central bankers met in Washington to discuss financial turmoil that has wiped more than $8 trillion off the value of global stocks this month and led to rate cuts and bank bailouts in most of the member nations.
Japan's ruling party called on the U.S. to inject public funds into financial institutions as the credit crisis deepens.
Supply Concerns
Demand for bonds also declined this week on concern Japan's government will issue additional debt after the lower house on Oct. 8 approved a 1.8 trillion yen supplementary budget to fund a fiscal stimulus package.
``Since the economic outlook is gloomy and the tax revenue will decline,'' increasing debt is inevitable, said Takashi Nishimura, an analyst at Mitsubishi UFJ Securities Co., a unit of Japan's largest bank by assets, in Tokyo.
Issuing deficit-covering bonds and construction bonds may be ``unavoidable,'' Liberal Democratic Party Policy Chief Kosuke Hori told reporters in Tokyo on Oct. 9.
Japan already has 778 trillion yen of outstanding debt, which at 147 percent of gross domestic product is the largest among industrialized nations.
To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net.
Read more...
Asia Stocks Plunge This Week as Global Credit Crisis Deepens
By Chua Kong Ho
Oct. 11 (Bloomberg) -- Asian stocks plummeted this week, sending the region's benchmark index to its biggest weekly drop on record, as the deepening credit crisis threatened to push more companies into bankruptcy.
Mitsubishi UFJ Financial Group Inc. slumped 20 percent as Asian money-market rates climbed even as the Federal Reserve and other central banks cut borrowing costs to revive credit lending. BHP Billiton Ltd., the world's biggest mining company, sank 8.8 percent, while Toyota Motor Corp. plunged 21 percent on concern a worldwide slowdown will hurt demand for metals and automobiles.
``It's pure panic,'' said Ivan Tham, Singapore-based head of funds management at the state-backed Kuwait Finance House, which has about $24 billion in assets. ``You're seeing companies start to fail because they can't refinance. Good companies are being sold down aggressively with the bad.''
The MSCI Asia Pacific Index fell 18.7, or 17.8 percent, to 86.0. That's the biggest weekly decline since the index was created on Dec. 31, 1987.
Japan's Nikkei 225 Stock Average plunged 24 percent for the biggest weekly decline in its more than 50-year history. Australia's S&P/ASX 200 Index slumped 16 percent, the biggest rout since 1992. Hong Kong's Hang Seng Index fell 16 percent, the most since January 1998.
Singapore's Straits Times Index declined 15 percent as the city-state sank into a recession.
`It's Scary'
More than $6 trillion was erased from global equities this week even as central banks in China, Australia, South Korea, Taiwan and Hong Kong's monetary authority joined a global effort to cut interest rates after the yearlong credit-market seizure stoked concern banks will run short of money.
``It's scary,'' said Prasad Patkar, who helps manage $1.8 billion at Platypus Asset Management in Sydney. ``Equity markets are pricing in a very severe, deep recession as a function of people not getting credit.''
Mitsubishi UFJ fell 20 percent to 710 yen. Babcock & Brown Ltd., an infrastructure assets manager, tumbled 45 percent to A$1.01. ICICI Bank Ltd., the Indian lender with the biggest losses on overseas investments, plunged 10 percent to 504.35 rupees.
Asian money-market rates climbed as the interest-rate cuts and injections of more than $32 billion by Japan and Australia failed to unlock credit. The three-month interbank offered rate in Tokyo climbed to the highest to the highest since March 1998. Hong Kong's three-month rate rose to the highest in a year.
Oil, Copper
DBS Group Holdings Ltd., Singapore's largest bank by assets, fell 15 percent to HK$14. The city-state fell into the first recession since 2002 as manufacturing slumped. Gross domestic product contracted an annualized 6.3 percent in the third quarter from the previous three months, after shrinking a revised 5.7 percent between April and June.
BHP declined 8.8 percent to A$27.74. Mitsui & Co., Japan's second-largest trading company, dropped 13 percent to 1,040 yen. Inpex Corp., Japan's largest oil explorer, declined 14 percent to 657,000 yen.
Oil in New York fell to the lowest in a year and copper traded at its weakest since March 2006 in a week when the Dow Jones Industrial Average dropped below 9,000 on Oct. 9 for the first time since 2003.
Toyota, which gets about half its sales from North America and Europe, sank 21 percent to 3,220 yen. Honda Motor Co. dropped 26 percent to 2,110 yen, while Nissan Motor Co. slumped 25 percent to 464 yen. The yen also posted its biggest weekly gain in a decade against the dollar, hurting the value of automakers' overseas sales.
To contact the reporter on this story: Chua Kong Ho in Shanghai at kchua6@bloomberg.net
Read more...
Oct. 11 (Bloomberg) -- Asian stocks plummeted this week, sending the region's benchmark index to its biggest weekly drop on record, as the deepening credit crisis threatened to push more companies into bankruptcy.
Mitsubishi UFJ Financial Group Inc. slumped 20 percent as Asian money-market rates climbed even as the Federal Reserve and other central banks cut borrowing costs to revive credit lending. BHP Billiton Ltd., the world's biggest mining company, sank 8.8 percent, while Toyota Motor Corp. plunged 21 percent on concern a worldwide slowdown will hurt demand for metals and automobiles.
``It's pure panic,'' said Ivan Tham, Singapore-based head of funds management at the state-backed Kuwait Finance House, which has about $24 billion in assets. ``You're seeing companies start to fail because they can't refinance. Good companies are being sold down aggressively with the bad.''
The MSCI Asia Pacific Index fell 18.7, or 17.8 percent, to 86.0. That's the biggest weekly decline since the index was created on Dec. 31, 1987.
Japan's Nikkei 225 Stock Average plunged 24 percent for the biggest weekly decline in its more than 50-year history. Australia's S&P/ASX 200 Index slumped 16 percent, the biggest rout since 1992. Hong Kong's Hang Seng Index fell 16 percent, the most since January 1998.
Singapore's Straits Times Index declined 15 percent as the city-state sank into a recession.
`It's Scary'
More than $6 trillion was erased from global equities this week even as central banks in China, Australia, South Korea, Taiwan and Hong Kong's monetary authority joined a global effort to cut interest rates after the yearlong credit-market seizure stoked concern banks will run short of money.
``It's scary,'' said Prasad Patkar, who helps manage $1.8 billion at Platypus Asset Management in Sydney. ``Equity markets are pricing in a very severe, deep recession as a function of people not getting credit.''
Mitsubishi UFJ fell 20 percent to 710 yen. Babcock & Brown Ltd., an infrastructure assets manager, tumbled 45 percent to A$1.01. ICICI Bank Ltd., the Indian lender with the biggest losses on overseas investments, plunged 10 percent to 504.35 rupees.
Asian money-market rates climbed as the interest-rate cuts and injections of more than $32 billion by Japan and Australia failed to unlock credit. The three-month interbank offered rate in Tokyo climbed to the highest to the highest since March 1998. Hong Kong's three-month rate rose to the highest in a year.
Oil, Copper
DBS Group Holdings Ltd., Singapore's largest bank by assets, fell 15 percent to HK$14. The city-state fell into the first recession since 2002 as manufacturing slumped. Gross domestic product contracted an annualized 6.3 percent in the third quarter from the previous three months, after shrinking a revised 5.7 percent between April and June.
BHP declined 8.8 percent to A$27.74. Mitsui & Co., Japan's second-largest trading company, dropped 13 percent to 1,040 yen. Inpex Corp., Japan's largest oil explorer, declined 14 percent to 657,000 yen.
Oil in New York fell to the lowest in a year and copper traded at its weakest since March 2006 in a week when the Dow Jones Industrial Average dropped below 9,000 on Oct. 9 for the first time since 2003.
Toyota, which gets about half its sales from North America and Europe, sank 21 percent to 3,220 yen. Honda Motor Co. dropped 26 percent to 2,110 yen, while Nissan Motor Co. slumped 25 percent to 464 yen. The yen also posted its biggest weekly gain in a decade against the dollar, hurting the value of automakers' overseas sales.
To contact the reporter on this story: Chua Kong Ho in Shanghai at kchua6@bloomberg.net
Read more...
Asian Currencies: Indian Rupee, Rupiah, Singapore Dollar Tumble
By David Yong
Oct. 11 (Bloomberg) -- India's rupee tumbled to a record, leading declines in Asian currencies this week, as investors pulled money from stock markets amid concern a deepening credit- market crisis will push the global economy into a recession.
The rupee dropped by the most against the greenback in more than 15 years as the Reserve Bank of India cut the cash reserve ratio for the second time in week amid a surge in lending costs between banks. Singapore's dollar reached a one-year low after the city-state became the first economy in Asia to slip into a recession. Indonesia's rupiah had the worst week since May 2006 after authorities shut the stock market for three days.
``The rupee is among the most vulnerable to the global financial stress because India has welcomed more external financing than many other countries in the region,'' said Sebastien Barbe, a strategist in Hong Kong at Calyon, the investment banking unit of France's Credit Agricole SA.
The rupee traded at 48.385 per dollar in Mumbai, according to data compiled by Bloomberg. The currency fell as much as 4.4 percent from a week ago to an all-time low of 49.26, the biggest loss since March 1993. Singapore's dollar dropped 2 percent to S$1.4797 and the rupiah fell 4.4 percent to 9,860.
Asian stocks completed the worst week on record amid a sell-off that's erased more than $8 trillion of market value from global shares this month.
India's central bank yesterday trimmed the reserve ratio to 7.5 percent from 9 percent to infuse cash into the banking system after the overnight call rate that banks charge each other surged to 23 percent from 9 percent last week. Overseas investors turned net sellers of $9.84 billion of the nation's stocks this year through Oct. 7, versus a record purchase of $19.5 billion in 2007, according to the National Stock Exchange.
Bankruptcy, Recession
Eight of Asia's 10 most-active currencies outside of Japan posted weekly declines. Japan's Nikkei 225 Stock Average fell as much as 11 percent yesterday as Yamato Life Insurance Co. filed the first industry bankruptcy since 2001. New City Residence Investment Corp., a real estate investment trust, also failed.
Economists predict the U.S. economy, the world's largest, slipped into recession in the last quarter. Gross domestic product fell at a 0.2 percent annual pace in the three months through September and is expected to drop 0.8 percent this quarter, according to a Bloomberg survey. The International Monetary Fund on Oct. 8 said the global economy is headed for a recession next year.
`Zero Appreciation'
The Monetary Authority of Singapore shifted its currency policy to seek zero appreciation in the trade-weighted band for the city's dollar. It retained the band in which the currency is allowed to trade and will intervene to reduce ``excessive volatility'' if needed, the central bank said in a statement after its semi-annual policy review yesterday.
The city's economy shrank 6.3 percent in the three months through Sept. 30 after a 5.7 percent contraction in the second quarter, according to an advance estimate from the Ministry of Trade & Industry on the same day.
Indonesia's rupiah completed a third weekly loss, breaching the 9,800 level for the first time since January 2006. Stock trading was halted on Oct. 8 after the Jakarta Composite Index plunged 10 percent for the second time in three days. Even with the shortened trading period, this week's 22 percent slide in the benchmark was the steepest in two decades.
``The sudden shut-off of the exchange has chilled investor sentiment toward the Indonesian market,'' said Tetsuo Yoshikoshi, a market analyst at Sumitomo Mitsui Banking Corp. in Singapore. ``There will be a very big plunge in Indonesia stocks and that in turn will prompt the currency to depreciate sharply.''
Won Intervention
South Korea's won had its biggest jump since March 1998 yesterday after a meeting among financial regulators prompted speculation that the government will step up support for the currency.
Deputy Finance Minister Shin Je Yoon said on Oct. 7 that the government will check for speculative forces in the currency market. Key financial institutions will maintain ``close cooperation'' so they can quickly respond to any market changes, the Prime Minister's Office said in a statement yesterday.
``There's no other way to explain the won's rally than intervention,'' said Oh Suk Tae, an economist with Citigroup Inc. in Seoul. ``The hefty intervention worries me rather than gives comfort that the market will stabilize.''
The won rose 5.4 percent to 1,309 versus the dollar, paring this week's decline to 6.5 percent, according to Seoul Money Brokerage Services Ltd. The currency climbed as high as 1,225, after earlier dropping as low as 1,460.
Finance Minister Kang Man Soo said yesterday he will meet his counterparts from Australia and Japan in Washington to discuss cooperation to stem the contagion in financial markets. Global banks have incurred $591 billion in writedowns since the collapse of the U.S. subprime mortgage market in early 2007.
`Feel the Pinch'
Malaysia's ringgit fell 1.2 percent this week to 3.5125 per dollar and touched a one-year low of 3.5171. A government report yesterday showed industrial output grew in August at the slowest pace in 16 months. Growth will be slower than the official estimates of 5.7 percent in 2008 and 5.4 percent in 2009, Second Finance Minister Nor Mohamed Yakcop said in Dubai on Oct. 8.
``More economies will be staring into a recession while stock markets are on a downswing and everyone will feel the pinch,'' said Nor Alfian Din, a senior currency trader in Kuala Lumpur at Maybank Islamic Bhd., a unit of Malaysia's biggest lender. ``Asian currencies will be affected and it'll just be a question of relativity. The ringgit isn't the worst off.''
Elsewhere, the Thai baht declined 0.4 percent this week to 34.33 per dollar and the Philippine peso dropped 1.3 percent to 47.670. China's yuan gained 0.2 percent to 6.8357 and Vietnam's dong was little changed at 16,590. Taiwan's dollar lost 0.8 percent to NT$32.437.
To contact the reporter on this story: David Yong in Singapore at dyong@bloomberg.net.
Read more...
Oct. 11 (Bloomberg) -- India's rupee tumbled to a record, leading declines in Asian currencies this week, as investors pulled money from stock markets amid concern a deepening credit- market crisis will push the global economy into a recession.
The rupee dropped by the most against the greenback in more than 15 years as the Reserve Bank of India cut the cash reserve ratio for the second time in week amid a surge in lending costs between banks. Singapore's dollar reached a one-year low after the city-state became the first economy in Asia to slip into a recession. Indonesia's rupiah had the worst week since May 2006 after authorities shut the stock market for three days.
``The rupee is among the most vulnerable to the global financial stress because India has welcomed more external financing than many other countries in the region,'' said Sebastien Barbe, a strategist in Hong Kong at Calyon, the investment banking unit of France's Credit Agricole SA.
The rupee traded at 48.385 per dollar in Mumbai, according to data compiled by Bloomberg. The currency fell as much as 4.4 percent from a week ago to an all-time low of 49.26, the biggest loss since March 1993. Singapore's dollar dropped 2 percent to S$1.4797 and the rupiah fell 4.4 percent to 9,860.
Asian stocks completed the worst week on record amid a sell-off that's erased more than $8 trillion of market value from global shares this month.
India's central bank yesterday trimmed the reserve ratio to 7.5 percent from 9 percent to infuse cash into the banking system after the overnight call rate that banks charge each other surged to 23 percent from 9 percent last week. Overseas investors turned net sellers of $9.84 billion of the nation's stocks this year through Oct. 7, versus a record purchase of $19.5 billion in 2007, according to the National Stock Exchange.
Bankruptcy, Recession
Eight of Asia's 10 most-active currencies outside of Japan posted weekly declines. Japan's Nikkei 225 Stock Average fell as much as 11 percent yesterday as Yamato Life Insurance Co. filed the first industry bankruptcy since 2001. New City Residence Investment Corp., a real estate investment trust, also failed.
Economists predict the U.S. economy, the world's largest, slipped into recession in the last quarter. Gross domestic product fell at a 0.2 percent annual pace in the three months through September and is expected to drop 0.8 percent this quarter, according to a Bloomberg survey. The International Monetary Fund on Oct. 8 said the global economy is headed for a recession next year.
`Zero Appreciation'
The Monetary Authority of Singapore shifted its currency policy to seek zero appreciation in the trade-weighted band for the city's dollar. It retained the band in which the currency is allowed to trade and will intervene to reduce ``excessive volatility'' if needed, the central bank said in a statement after its semi-annual policy review yesterday.
The city's economy shrank 6.3 percent in the three months through Sept. 30 after a 5.7 percent contraction in the second quarter, according to an advance estimate from the Ministry of Trade & Industry on the same day.
Indonesia's rupiah completed a third weekly loss, breaching the 9,800 level for the first time since January 2006. Stock trading was halted on Oct. 8 after the Jakarta Composite Index plunged 10 percent for the second time in three days. Even with the shortened trading period, this week's 22 percent slide in the benchmark was the steepest in two decades.
``The sudden shut-off of the exchange has chilled investor sentiment toward the Indonesian market,'' said Tetsuo Yoshikoshi, a market analyst at Sumitomo Mitsui Banking Corp. in Singapore. ``There will be a very big plunge in Indonesia stocks and that in turn will prompt the currency to depreciate sharply.''
Won Intervention
South Korea's won had its biggest jump since March 1998 yesterday after a meeting among financial regulators prompted speculation that the government will step up support for the currency.
Deputy Finance Minister Shin Je Yoon said on Oct. 7 that the government will check for speculative forces in the currency market. Key financial institutions will maintain ``close cooperation'' so they can quickly respond to any market changes, the Prime Minister's Office said in a statement yesterday.
``There's no other way to explain the won's rally than intervention,'' said Oh Suk Tae, an economist with Citigroup Inc. in Seoul. ``The hefty intervention worries me rather than gives comfort that the market will stabilize.''
The won rose 5.4 percent to 1,309 versus the dollar, paring this week's decline to 6.5 percent, according to Seoul Money Brokerage Services Ltd. The currency climbed as high as 1,225, after earlier dropping as low as 1,460.
Finance Minister Kang Man Soo said yesterday he will meet his counterparts from Australia and Japan in Washington to discuss cooperation to stem the contagion in financial markets. Global banks have incurred $591 billion in writedowns since the collapse of the U.S. subprime mortgage market in early 2007.
`Feel the Pinch'
Malaysia's ringgit fell 1.2 percent this week to 3.5125 per dollar and touched a one-year low of 3.5171. A government report yesterday showed industrial output grew in August at the slowest pace in 16 months. Growth will be slower than the official estimates of 5.7 percent in 2008 and 5.4 percent in 2009, Second Finance Minister Nor Mohamed Yakcop said in Dubai on Oct. 8.
``More economies will be staring into a recession while stock markets are on a downswing and everyone will feel the pinch,'' said Nor Alfian Din, a senior currency trader in Kuala Lumpur at Maybank Islamic Bhd., a unit of Malaysia's biggest lender. ``Asian currencies will be affected and it'll just be a question of relativity. The ringgit isn't the worst off.''
Elsewhere, the Thai baht declined 0.4 percent this week to 34.33 per dollar and the Philippine peso dropped 1.3 percent to 47.670. China's yuan gained 0.2 percent to 6.8357 and Vietnam's dong was little changed at 16,590. Taiwan's dollar lost 0.8 percent to NT$32.437.
To contact the reporter on this story: David Yong in Singapore at dyong@bloomberg.net.
Read more...
G-7 Commit to `All Necessary Steps' to Stem Crisis
By Simon Kennedy and John Brinsley
Oct. 10 (Bloomberg) -- The Group of Seven nations pledged to prevent the failure of key banks while stopping short of new initiatives to unfreeze credit markets.
``The current situation calls for urgent and exceptional action,'' the G-7's finance ministers and central bankers said in a 266-word statement after talks in Washington. Officials pledged to ``take all necessary steps to unfreeze credit and money markets'' without detailing how that would be accomplished.
With stocks falling and a global recession looming, the officials promised to ensure major banks have access to cash and are able to tap public funds for capital. By refraining from specific new measures, the G-7 fell short of some investors' calls for an agreement to guarantee loans between banks.
``Markets wanted to get a game plan from the G-7 and they haven't got that,'' said Sophia Drossos, a New York-based currency strategist at Morgan Stanley. ``There might be disappointment.''
Treasury Secretary Henry Paulson told reporters after the meeting it would be ``naive'' to think that different nations in different circumstances could come up with the same policy paths. He added that no banks were named in officials' discussions today.
Ministers and central bankers from the U.S., Japan, Germany, U.K., France, Canada and Italy convened after stock indexes this month plunged more than 20 percent from Japan to Europe to North America.
Market Panic
The G-7 was under pressure to roll out new policies to quell the panic in markets after its previous steps failed to do so. Instead, they outlined principles for all nations to follow.
``We commit to continue working together to stabilize financial markets and restore the flow of credit, to support global economic growth,'' officials said.
In the past two weeks alone, global central banks executed emergency interest-rate cuts and pumped more cash into markets, the Federal Reserve said it would buy U.S. commercial paper, European governments bailed out banks and the U.K. and U.S. said they would start taking equity stakes in financial companies.
Money markets remain gridlocked even after those efforts, as banks shun lending to each other for fear they will lose the money or because they need it themselves. The resulting jump in borrowing costs is now strangling consumers and companies, prompting Merrill Lynch & Co. to predict the G-7 economies will be the weakest next year since 1982.
Stocks Slide
U.S. stocks fell for an eighth straight day, with the Dow capping its worst week since 1914. The MSCI World Index of equities in 23 developed countries slid 20 percent this week, the most since records began in 1970.
The G-7 officials shied away from endorsing a U.K. proposal to guarantee lending between banks either by turning central banks into clearing houses for the loans or having governments back them. They vowed to take steps that would give depositors confidence that their savings were safe and to restart secondary markets for mortgages and other securitized assets.
Paulson said the U.S. will buy equity in financial companies to restore market stability and ensure economic growth. He added that ``we have more to do in the liquidity area.''
The Treasury is ``working to develop a standardized program that is open to a broad array of financial institutions,'' Paulson said.
Currencies Message
While the joint statement made no mention of currencies, European Central Bank President Jean-Claude Trichet said the group viewed excess volatility in exchange rates as detrimental and urged China to allow faster gains in the yuan.
Highlighting the stakes facing the world economy, further talks to be held this weekend include a meeting of the G-7 officials with President George W. Bush, a gathering of policy makers from the Group of 20 and a summit of European leaders in Paris. Bush said today that the U.S. ``will continue to act to resolve this crisis and restore stability to our markets.''
Rifts within the G-7 were exposed by an unprecedented public split in which Italian Finance Minister Giulio Tremonti rejected a draft statement for being ``too weak.'' He said the ultimate text was very different from the original.
Earlier, Italian President Silvio Berlusconi sowed confusion by saying governments may close financial markets, only to reverse himself an hour later.
To contact the reporter on this story: Simon Kennedy in Washington at skennedy4@bloomberg.net; John Brinsley in Washington at jbrinsley@bloomberg.net
Read more...
Oct. 10 (Bloomberg) -- The Group of Seven nations pledged to prevent the failure of key banks while stopping short of new initiatives to unfreeze credit markets.
``The current situation calls for urgent and exceptional action,'' the G-7's finance ministers and central bankers said in a 266-word statement after talks in Washington. Officials pledged to ``take all necessary steps to unfreeze credit and money markets'' without detailing how that would be accomplished.
With stocks falling and a global recession looming, the officials promised to ensure major banks have access to cash and are able to tap public funds for capital. By refraining from specific new measures, the G-7 fell short of some investors' calls for an agreement to guarantee loans between banks.
``Markets wanted to get a game plan from the G-7 and they haven't got that,'' said Sophia Drossos, a New York-based currency strategist at Morgan Stanley. ``There might be disappointment.''
Treasury Secretary Henry Paulson told reporters after the meeting it would be ``naive'' to think that different nations in different circumstances could come up with the same policy paths. He added that no banks were named in officials' discussions today.
Ministers and central bankers from the U.S., Japan, Germany, U.K., France, Canada and Italy convened after stock indexes this month plunged more than 20 percent from Japan to Europe to North America.
Market Panic
The G-7 was under pressure to roll out new policies to quell the panic in markets after its previous steps failed to do so. Instead, they outlined principles for all nations to follow.
``We commit to continue working together to stabilize financial markets and restore the flow of credit, to support global economic growth,'' officials said.
In the past two weeks alone, global central banks executed emergency interest-rate cuts and pumped more cash into markets, the Federal Reserve said it would buy U.S. commercial paper, European governments bailed out banks and the U.K. and U.S. said they would start taking equity stakes in financial companies.
Money markets remain gridlocked even after those efforts, as banks shun lending to each other for fear they will lose the money or because they need it themselves. The resulting jump in borrowing costs is now strangling consumers and companies, prompting Merrill Lynch & Co. to predict the G-7 economies will be the weakest next year since 1982.
Stocks Slide
U.S. stocks fell for an eighth straight day, with the Dow capping its worst week since 1914. The MSCI World Index of equities in 23 developed countries slid 20 percent this week, the most since records began in 1970.
The G-7 officials shied away from endorsing a U.K. proposal to guarantee lending between banks either by turning central banks into clearing houses for the loans or having governments back them. They vowed to take steps that would give depositors confidence that their savings were safe and to restart secondary markets for mortgages and other securitized assets.
Paulson said the U.S. will buy equity in financial companies to restore market stability and ensure economic growth. He added that ``we have more to do in the liquidity area.''
The Treasury is ``working to develop a standardized program that is open to a broad array of financial institutions,'' Paulson said.
Currencies Message
While the joint statement made no mention of currencies, European Central Bank President Jean-Claude Trichet said the group viewed excess volatility in exchange rates as detrimental and urged China to allow faster gains in the yuan.
Highlighting the stakes facing the world economy, further talks to be held this weekend include a meeting of the G-7 officials with President George W. Bush, a gathering of policy makers from the Group of 20 and a summit of European leaders in Paris. Bush said today that the U.S. ``will continue to act to resolve this crisis and restore stability to our markets.''
Rifts within the G-7 were exposed by an unprecedented public split in which Italian Finance Minister Giulio Tremonti rejected a draft statement for being ``too weak.'' He said the ultimate text was very different from the original.
Earlier, Italian President Silvio Berlusconi sowed confusion by saying governments may close financial markets, only to reverse himself an hour later.
To contact the reporter on this story: Simon Kennedy in Washington at skennedy4@bloomberg.net; John Brinsley in Washington at jbrinsley@bloomberg.net
Read more...
Paulson Says Will Buy Bank Equity `Soon as We Can'
By John Brinsley and Rebecca Christie
Oct. 10 (Bloomberg) -- U.S. Treasury Secretary Henry Paulson said the U.S. will buy equity ``as soon as we can'' in banks and other financial institutions to restore market stability and revive economic growth.
The Treasury is ``working to develop a standardized program that is open to a broad array of financial institutions,'' Paulson said at a press conference after a meeting in Washington of finance ministers and central bankers from Group of Seven countries.
The injection of equity would be aimed at sustaining banks and other financial institutions through the worst credit crisis in seven decades. Paulson declined to give a timetable or details about the purchases, and signaled that markets may be in for turmoil ahead.
``We're going to do it as soon as we can do it and do it properly and do it effectively and right,'' Paulson said. ``Trust me, we are not wasting time; people are working around the clock to deal with this.''
A drop in home prices and illiquid securities tied to mortgages led to the collapse of some of the country's biggest financial firms and to takeovers by the Treasury of American International Group Inc. and Fannie Mae and Freddie Mac, the largest U.S. mortgage finance companies.
Under the equity purchase program, the Treasury would not be involved in bank management, Paulson said. Equity purchases would take place alongside Treasury's coming program of ``broad'' mortgage asset purchases, he said.
More Capital
``Such a program would be designed to encourage the raising of new private capital to complement public capital,'' Paulson said.
The U.S. Congress a week ago passed legislation allowing the Treasury secretary to spend as much as $700 billion to buy troubled mortgage-related assets and purchase equity in banks.
The International Monetary Fund earlier this week said banks around the world would need $675 billion in fresh capital in the next several years to recover from the credit crisis. The IMF also raised its estimate of losses tied to U.S. loans and securitized assets to $1.4 trillion -- roughly half of which have already been written down or recognized as losses.
Asked about how newly approved funds would be divided between the mortgage-asset and bank equity purchases, Paulson declined to offer specifics.
Market Liquidity
``Any equity the government purchases through a broadly available equity program would be on a non-voting basis, except with respect to the market-standard terms to protect our rights as investors,'' Paulson said.
The G-7 nations are committed to ``an aggressive action plan'' to expand liquidity and stem a credit crisis threatening global economic growth, he said in the statement.
The G-7 will ``provide liquidity to markets, strengthen financial institutions, protect savers and enforce investor protections'' under a ``coherent framework,'' Paulson said. Policy makers will pursue ``robust international partnership and cooperation.''
The Dow Jones Industrial Average posted its biggest weekly drop in the history of the 30-stock average as officials from the U.S., Japan, Germany, U.K., France, Canada and Italy met for the first time since the financial crisis spread last month. Stocks in Europe and Japan had the biggest weekly drop in at least 21 years.
Responding to a question, Paulson said markets may ``have some volatility for a while'' and ``this is about confidence.''
To contact the reporters on this story: John Brinsley in Washington at jbrinsley@bloomberg.net Rebecca Christie in Washington at Rchristie4@bloomberg.net.
Read more...
Oct. 10 (Bloomberg) -- U.S. Treasury Secretary Henry Paulson said the U.S. will buy equity ``as soon as we can'' in banks and other financial institutions to restore market stability and revive economic growth.
The Treasury is ``working to develop a standardized program that is open to a broad array of financial institutions,'' Paulson said at a press conference after a meeting in Washington of finance ministers and central bankers from Group of Seven countries.
The injection of equity would be aimed at sustaining banks and other financial institutions through the worst credit crisis in seven decades. Paulson declined to give a timetable or details about the purchases, and signaled that markets may be in for turmoil ahead.
``We're going to do it as soon as we can do it and do it properly and do it effectively and right,'' Paulson said. ``Trust me, we are not wasting time; people are working around the clock to deal with this.''
A drop in home prices and illiquid securities tied to mortgages led to the collapse of some of the country's biggest financial firms and to takeovers by the Treasury of American International Group Inc. and Fannie Mae and Freddie Mac, the largest U.S. mortgage finance companies.
Under the equity purchase program, the Treasury would not be involved in bank management, Paulson said. Equity purchases would take place alongside Treasury's coming program of ``broad'' mortgage asset purchases, he said.
More Capital
``Such a program would be designed to encourage the raising of new private capital to complement public capital,'' Paulson said.
The U.S. Congress a week ago passed legislation allowing the Treasury secretary to spend as much as $700 billion to buy troubled mortgage-related assets and purchase equity in banks.
The International Monetary Fund earlier this week said banks around the world would need $675 billion in fresh capital in the next several years to recover from the credit crisis. The IMF also raised its estimate of losses tied to U.S. loans and securitized assets to $1.4 trillion -- roughly half of which have already been written down or recognized as losses.
Asked about how newly approved funds would be divided between the mortgage-asset and bank equity purchases, Paulson declined to offer specifics.
Market Liquidity
``Any equity the government purchases through a broadly available equity program would be on a non-voting basis, except with respect to the market-standard terms to protect our rights as investors,'' Paulson said.
The G-7 nations are committed to ``an aggressive action plan'' to expand liquidity and stem a credit crisis threatening global economic growth, he said in the statement.
The G-7 will ``provide liquidity to markets, strengthen financial institutions, protect savers and enforce investor protections'' under a ``coherent framework,'' Paulson said. Policy makers will pursue ``robust international partnership and cooperation.''
The Dow Jones Industrial Average posted its biggest weekly drop in the history of the 30-stock average as officials from the U.S., Japan, Germany, U.K., France, Canada and Italy met for the first time since the financial crisis spread last month. Stocks in Europe and Japan had the biggest weekly drop in at least 21 years.
Responding to a question, Paulson said markets may ``have some volatility for a while'' and ``this is about confidence.''
To contact the reporters on this story: John Brinsley in Washington at jbrinsley@bloomberg.net Rebecca Christie in Washington at Rchristie4@bloomberg.net.
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Chesapeake CEO Sold `All' Stock to Meet Margin Calls
By Steven Bodzin and Dan Lonkevich
Oct. 10 (Bloomberg) -- Chesapeake Energy Corp. said its chief executive officer, Aubrey McClendon, involuntarily sold ``substantially all'' of his common shares of the company's stock over the past three days to meet margin loan calls.
``These involuntary and unexpected sales were precipitated by the extraordinary circumstances of the worldwide financial crisis,'' McClendon said in today's statement. ``In no way do these sales reflect my view of the company's financial position or my view of Chesapeake's future performance potential.''
McClendon, 49, owned 33.5 million shares, or 5.8 percent of the company's common stock, according to a Sept. 30 filing with the U.S. Securities and Exchange Commission. He was the company's third-largest shareholder.
Chesapeake, this year's worst-performing petroleum producer in the Standard & Poor's 500, fell 6.7 percent in New York trading today amid concern hedging contracts won't protect the company against a plunge in natural-gas prices. McClendon's divestiture was announced after the close of regular trading on U.S. stock markets.
``You have to imagine Aubrey's lost a large portion of his fortune,'' Benjamin Dell, an analyst at Sanford C. Bernstein & Co., said today in a telephone interview. He rates the stock at ``market perform'' and owns none.
More than three-quarters of McClendon's $18.7 million in compensation last year was stock awards. The annual compensation helped boost McClendon to 134th place on the Forbes 400 list of wealthiest Americans this year from 220th place last year.
Price Revealed
Company spokesman Jeff Mobley declined to comment beyond the content of the statement. He said in an interview the company will soon file forms that will show what price McClendon received for his shares.
Investors are concerned that Chesapeake and other U.S. oil and gas producers have hedging contracts with financial firms and other counterparties that won't be able to pay for their output at the agreed-upon prices because of the global credit crisis, said Robert Goodof, who helps manage $25 billion at Loomis Sayles & Co. in Boston.
Oil and gas producers use hedging contracts to lock in prices and ensure adequate returns from their wells and sufficient cash flow to pay off their debt.
McClendon is the second oil chief executive officer in as many days to reveal company stock sales. XTO Energy Inc. Chief Executive Officer Bob Simpson sold more than $101 million of stock, according to an Oct. 8 filing with the Securities and Exchange Commission.
XTO Stock Sale
Simpson, 60, sold shares of the Ft. Worth, Texas-based company at prices ranging from $34.64 a share to more than $39.50 a share, the filing said.
The sales represent about a third of Simpson's stake in XTO. He was the company's tenth-largest shareholder.
Chesapeake also has so-called knockout swap contracts on more than one-third of its 2009 production, and those deals don't obligate the buyers to take gas when prices drop to $6.28 per thousand cubic feet of the heating and power-plant fuel, according to analyst Joseph Allman of JPMorgan Chase & Co. in New York.
Gas futures traded in New York dropped to $6.65 today and have plunged 50 percent since the end of June.
``With natural gas close to $6.60, we think the concern about Chesapeake's knockout swaps is legitimate,'' Allman said in a note to clients. He rates Chesapeake shares ``neutral.''
A portion of the company's hedging positions contain such provisions, Chesapeake said in a separate statement.
Kick out Swaps
``The company has consistently utilized kick out swaps for a portion of its production, and over the past 57 months, only four months have resulted in any portion of the company's hedges being kicked out.''
In response to the lower gas prices, Chesapeake plans to further cut its capital expenditures by about $1.5 billion in 2009 and 2010 through reduced drilling and lower leasehold expenditures.
The company on Sept. 22 lowered its capital expenditure budget by $3 billion through 2010.
To ensure its revolving credit can be fully used during these ``turbulent economic times,'' the company said it borrowed the remaining capacity of its facility at the end of the third quarter. It has invested the cash proceeds in short-term U.S. Treasury and other highly liquid securities.
Lehman Brothers
Chesapeake said it has cash and cash equivalents of about $1.5 billion as of Sept. 30. All 36 lenders that participate in Chesapeake's revolving credit facility fully funded their commitment, except for Lehman Brothers Holdings Inc., which didn't fund its $11 million share of the advance, the company said.
Chesapeake's financial exposure to Lehman Brothers included unpaid gas sales and derivates contracts. Chesapeake said it received cash payment for all natural-gas marketed through a former affiliate of Lehman Brothers. The company estimates a loss on terminated derivate contracts and the net value of hedges with Lehman won't be more than $50 million.
The company said it has hedging arrangements with 19 different counterparties.
To contact the reporter responsible for this story: Dan Lonkevich in New York at dlonkevich@bloomberg.net; Steven Bodzin in New York at sbodzin@bloomberg.net.
Read more...
Oct. 10 (Bloomberg) -- Chesapeake Energy Corp. said its chief executive officer, Aubrey McClendon, involuntarily sold ``substantially all'' of his common shares of the company's stock over the past three days to meet margin loan calls.
``These involuntary and unexpected sales were precipitated by the extraordinary circumstances of the worldwide financial crisis,'' McClendon said in today's statement. ``In no way do these sales reflect my view of the company's financial position or my view of Chesapeake's future performance potential.''
McClendon, 49, owned 33.5 million shares, or 5.8 percent of the company's common stock, according to a Sept. 30 filing with the U.S. Securities and Exchange Commission. He was the company's third-largest shareholder.
Chesapeake, this year's worst-performing petroleum producer in the Standard & Poor's 500, fell 6.7 percent in New York trading today amid concern hedging contracts won't protect the company against a plunge in natural-gas prices. McClendon's divestiture was announced after the close of regular trading on U.S. stock markets.
``You have to imagine Aubrey's lost a large portion of his fortune,'' Benjamin Dell, an analyst at Sanford C. Bernstein & Co., said today in a telephone interview. He rates the stock at ``market perform'' and owns none.
More than three-quarters of McClendon's $18.7 million in compensation last year was stock awards. The annual compensation helped boost McClendon to 134th place on the Forbes 400 list of wealthiest Americans this year from 220th place last year.
Price Revealed
Company spokesman Jeff Mobley declined to comment beyond the content of the statement. He said in an interview the company will soon file forms that will show what price McClendon received for his shares.
Investors are concerned that Chesapeake and other U.S. oil and gas producers have hedging contracts with financial firms and other counterparties that won't be able to pay for their output at the agreed-upon prices because of the global credit crisis, said Robert Goodof, who helps manage $25 billion at Loomis Sayles & Co. in Boston.
Oil and gas producers use hedging contracts to lock in prices and ensure adequate returns from their wells and sufficient cash flow to pay off their debt.
McClendon is the second oil chief executive officer in as many days to reveal company stock sales. XTO Energy Inc. Chief Executive Officer Bob Simpson sold more than $101 million of stock, according to an Oct. 8 filing with the Securities and Exchange Commission.
XTO Stock Sale
Simpson, 60, sold shares of the Ft. Worth, Texas-based company at prices ranging from $34.64 a share to more than $39.50 a share, the filing said.
The sales represent about a third of Simpson's stake in XTO. He was the company's tenth-largest shareholder.
Chesapeake also has so-called knockout swap contracts on more than one-third of its 2009 production, and those deals don't obligate the buyers to take gas when prices drop to $6.28 per thousand cubic feet of the heating and power-plant fuel, according to analyst Joseph Allman of JPMorgan Chase & Co. in New York.
Gas futures traded in New York dropped to $6.65 today and have plunged 50 percent since the end of June.
``With natural gas close to $6.60, we think the concern about Chesapeake's knockout swaps is legitimate,'' Allman said in a note to clients. He rates Chesapeake shares ``neutral.''
A portion of the company's hedging positions contain such provisions, Chesapeake said in a separate statement.
Kick out Swaps
``The company has consistently utilized kick out swaps for a portion of its production, and over the past 57 months, only four months have resulted in any portion of the company's hedges being kicked out.''
In response to the lower gas prices, Chesapeake plans to further cut its capital expenditures by about $1.5 billion in 2009 and 2010 through reduced drilling and lower leasehold expenditures.
The company on Sept. 22 lowered its capital expenditure budget by $3 billion through 2010.
To ensure its revolving credit can be fully used during these ``turbulent economic times,'' the company said it borrowed the remaining capacity of its facility at the end of the third quarter. It has invested the cash proceeds in short-term U.S. Treasury and other highly liquid securities.
Lehman Brothers
Chesapeake said it has cash and cash equivalents of about $1.5 billion as of Sept. 30. All 36 lenders that participate in Chesapeake's revolving credit facility fully funded their commitment, except for Lehman Brothers Holdings Inc., which didn't fund its $11 million share of the advance, the company said.
Chesapeake's financial exposure to Lehman Brothers included unpaid gas sales and derivates contracts. Chesapeake said it received cash payment for all natural-gas marketed through a former affiliate of Lehman Brothers. The company estimates a loss on terminated derivate contracts and the net value of hedges with Lehman won't be more than $50 million.
The company said it has hedging arrangements with 19 different counterparties.
To contact the reporter responsible for this story: Dan Lonkevich in New York at dlonkevich@bloomberg.net; Steven Bodzin in New York at sbodzin@bloomberg.net.
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Brazil's Real Falls as Risk Aversion Outweighs Dollar Sales
By Adriana Brasileiro
Oct. 10 (Bloomberg) -- Brazil's real fell after the central bank sold dollars in the local spot market for a third consecutive day in an effort to reduce losses in the real that amount to 17.7 percent this month.
The real declined 1.3 percent to 2.3130 per dollar at 4:51 p.m. New York time. The central bank sold dollars three times today.
``The central bank moves have eased some of the tension, but people are still scared to step back into our markets,'' said Andre Delben Silva, who helps manage about 620 million reais ($268 million) at Advisor Asset Management in Sao Paulo.
The central bank on Oct. 8 stepped up measures to stem the real's decline by drawing on its record $208 billion of international reserves to sell dollars in the spot market. The auction, the first in five years, came after sales of currency swap contracts since Sept. 19 failed to prop up the real.
Brazilian policy makers said today there are no ``fixed limits'' to the size of the bank's operations in the foreign- exchange market or in money markets for authorities to buy loans.
``The central bank is committed to the good functioning of markets,'' according to an e-mailed statement.
In Mexico, the central bank sold a record $6.4 billion in the foreign exchange market today. Dollar sales by Mexican authorities totaled $8.9 billion in the past three days.
`Some Overshooting'
The unwinding of so-called carry trade positions has exacerbated losses in the real, Marcos Mollica, a currency strategist for Latin America at UBS Pactual in Sao Paulo, said in a conference call yesterday. In carry trades, investors borrow in the currency of a nation where interest rates are low, such as Japan, and use the proceeds to buy assets where interest rates and returns are higher. Brazil's benchmark overnight rate is 13.75 percent.
``There's been some overshooting in the real, and one of the factors is the unwinding of investments in emerging markets,'' Mollica said in the call with investors.
The yen rose against the euro and headed for its biggest weekly gain in a decade against the dollar as a global stock rout prompted investors to sell higher-yielding assets and pay back low-cost loans in Japan.
The real's weakness has started to hurt retailers in Brazil. Supermarkets and food stores have temporarily suspended purchases of imported goods because of the country's falling real, Folha de S. Paulo reported today.
Supermarket chains are negotiating new prices with distributors, Folha said, citing Sussumu Honda, president of the Brazilian Association of Supermarkets.
Additional Powers
The yield on Brazil's overnight futures contract for January 2010 delivery rose 23 basis points, or 0.23 percentage point, to 14.99 percent. The yield on Brazil's zero-coupon bond due in January 2010 gained 15 basis points to 15.05 percent, according to Banco Votorantim.
In another measure, Brazil's monetary council yesterday gave the central bank additional power to participate in the management of banks that may be in trouble.
The central bank will be able to demand that controlling shareholders inject cash into an institution and that they sell assets, according to a statement. Authorities may also block executive salary increases and limit the operations of a bank.
When central bank President Henrique Meirelles announced the measure, he said it was preventive because no banks were in trouble in Brazil.
To contact the reporter on this story: Adriana Brasileiro in Rio de Janeiro at abrasileiro@bloomberg.net
Read more...
Oct. 10 (Bloomberg) -- Brazil's real fell after the central bank sold dollars in the local spot market for a third consecutive day in an effort to reduce losses in the real that amount to 17.7 percent this month.
The real declined 1.3 percent to 2.3130 per dollar at 4:51 p.m. New York time. The central bank sold dollars three times today.
``The central bank moves have eased some of the tension, but people are still scared to step back into our markets,'' said Andre Delben Silva, who helps manage about 620 million reais ($268 million) at Advisor Asset Management in Sao Paulo.
The central bank on Oct. 8 stepped up measures to stem the real's decline by drawing on its record $208 billion of international reserves to sell dollars in the spot market. The auction, the first in five years, came after sales of currency swap contracts since Sept. 19 failed to prop up the real.
Brazilian policy makers said today there are no ``fixed limits'' to the size of the bank's operations in the foreign- exchange market or in money markets for authorities to buy loans.
``The central bank is committed to the good functioning of markets,'' according to an e-mailed statement.
In Mexico, the central bank sold a record $6.4 billion in the foreign exchange market today. Dollar sales by Mexican authorities totaled $8.9 billion in the past three days.
`Some Overshooting'
The unwinding of so-called carry trade positions has exacerbated losses in the real, Marcos Mollica, a currency strategist for Latin America at UBS Pactual in Sao Paulo, said in a conference call yesterday. In carry trades, investors borrow in the currency of a nation where interest rates are low, such as Japan, and use the proceeds to buy assets where interest rates and returns are higher. Brazil's benchmark overnight rate is 13.75 percent.
``There's been some overshooting in the real, and one of the factors is the unwinding of investments in emerging markets,'' Mollica said in the call with investors.
The yen rose against the euro and headed for its biggest weekly gain in a decade against the dollar as a global stock rout prompted investors to sell higher-yielding assets and pay back low-cost loans in Japan.
The real's weakness has started to hurt retailers in Brazil. Supermarkets and food stores have temporarily suspended purchases of imported goods because of the country's falling real, Folha de S. Paulo reported today.
Supermarket chains are negotiating new prices with distributors, Folha said, citing Sussumu Honda, president of the Brazilian Association of Supermarkets.
Additional Powers
The yield on Brazil's overnight futures contract for January 2010 delivery rose 23 basis points, or 0.23 percentage point, to 14.99 percent. The yield on Brazil's zero-coupon bond due in January 2010 gained 15 basis points to 15.05 percent, according to Banco Votorantim.
In another measure, Brazil's monetary council yesterday gave the central bank additional power to participate in the management of banks that may be in trouble.
The central bank will be able to demand that controlling shareholders inject cash into an institution and that they sell assets, according to a statement. Authorities may also block executive salary increases and limit the operations of a bank.
When central bank President Henrique Meirelles announced the measure, he said it was preventive because no banks were in trouble in Brazil.
To contact the reporter on this story: Adriana Brasileiro in Rio de Janeiro at abrasileiro@bloomberg.net
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Mexico Sells Record $6.4 Billion in Bid to Stem Peso's Rout
By Michael J. Moore and Jens Erik Gould
Oct. 10 (Bloomberg) -- Mexico's central bank sold a record $6.4 billion in the currency market today, stepping up its bid to quell a rout in the peso that threatens to bankrupt companies and ignite inflation in Latin America's second-biggest economy.
Banco de Mexico has now sold $8.9 billion in three days, tapping into a near-record $84 billion of foreign reserves, after the peso plummeted to a record low. The peso gained as much as 4.6 percent after today's intervention, reversing an earlier tumble of as much as 6.1 percent. It has plunged 16.4 percent this month as investors sought the safety of dollars amid the worst financial crisis since the Great Depression.
``These are very extreme conditions,'' said Neil Dougall, head of emerging-market research for Dresdner Kleinwort Group in London. Policy makers ``needed to demonstrate very quickly that foreign exchange was available.''
Central bank Governor Guillermo Ortiz and Finance Minister Agustin Carstens are pumping dollars into the market as part of an effort to prevent the global crisis from eroding the finances of local companies. Controladora Comercial Mexicana SAB, the owner of supermarkets and Costco stores in Mexico, filed for bankruptcy reorganization yesterday after taking losses on currency derivatives.
Mexico's Bolsa stock index has lost 21 percent over the past seven days, mirroring the decline in the S&P 500 Index over that time, in part on concern the peso's tumble has saddled other companies with losses. The yield on Mexico's benchmark 10 percent peso bonds due in 2024 jumped 71 basis points, or 0.71 percentage point, this week to 9.11 percent.
1994 Devaluation
The $6.4 billion that Banco de Mexico sold today is the most in a single day, according to estimates by Gabriel Casillas, an economist with Banco UBS Pactual in Mexico City.
Central bankers sold $3 billion in a first auction, $400 million in a second sale and $3 billion in a third auction. They began selling dollars on Oct. 8 after the peso sank as much as 13.8 percent, its biggest intraday decline since the government abandoned a currency peg in 1994. The bank said in a statement late in the day that it ``will take any necessary additional measures to reestablish the normal operation'' of the market.
The peso was up 1 percent to 13.0930 per dollar at 6:15 p.m. New York time today, halting seven straight days of losses. It is down 25 percent from a six-year high reached on Aug. 4.
The global crisis has caused ``panicking in Mexico,'' said Bertrand Delgado, a Latin America economist with New York-based IDEAglobal Inc. ``The peso is just falling too fast.''
`Tequila Crisis'
Mexico was forced to abandon its peg in December 1994 after running low on foreign reserves, leading to a six-week, 45 percent plunge in the peso that became know as the ``Tequila Crisis.''
Reserves have since rebounded, almost tripling this decade amid a six-year rally in oil, the country's biggest export. They still ``aren't high enough to sustain'' the amount of dollars the central bank is selling, said Win Thin, a senior currency analyst with Brown Brothers Harriman & Co. in New York.
``Even during the Tequila Crisis, they weren't under this much pressure,'' Thin said. He said he doesn't expect Ortiz to raise interest rates to try to keep money in the country. ``They're running out of options.''
Brazil stands a better chance to stem its currency's plunge because it has more reserves, a record $208 billion, to draw on, Thin said. Brazilian central bankers have also sold dollars for three straight days. The real fell 1.3 percent today to 2.3130 per dollar. It's down 33 percent from a nine-year high reached on Aug. 1.
`Massive Unwinding'
Higher-yielding currencies throughout emerging markets have been ravaged over the past month as the global credit crisis has led investors to pull out of carry trades. In the carry trade, investors fund themselves with low-cost loans in countries such as Japan and invest in countries with higher interest rates such as Mexico and Brazil. Mexico's benchmark rate is 8.25 percent while Brazil's is 13.75 percent.
The carry trade, along with the rally in commodity prices, had fueled advances in the peso, real and other emerging-market currencies over the past five years.
``There is massive unwinding in the markets and that's putting severe pressure on currencies,'' Dresdner's Dougall said. ``Emerging markets have all been feeling this squeeze.''
Mexico is bracing for an economic slowdown as the financial crisis crimps growth in the U.S., the buyer of 80 percent of its exports. President Felipe Calderon sent this week a revised 2009 budget proposal to congress that lowered the growth forecast to 1.8 percent from 3 percent and cut the oil price estimate to $75 a barrel from $80.30. Oil has sunk 47 percent to $77.99 a barrel in New York from a record high of $147.27 reached on July 11.
`Credit Crunch'
Calderon also proposed a stimulus package worth 1 percent of gross domestic product that includes spending on energy and infrastructure to help offset the impact of the crisis.
Mexico's credit markets may tighten, adding to the economic slump, as companies that can't borrow in the U.S. seek funding in the local market, Deputy Central Bank Governor Guillermo Guemez Garcia said yesterday.
``They will have to go to the Mexican market, and that will cause some sort of credit crunch,'' Guemez said in an interview with Bloomberg Television in New York.
Mexican officials were surprised by the speed of the peso's plunge this week, said Delgado at IDEAglobal.
Calderon, 46, told bankers in New York in late September that he was confident Mexico would be able to ``mitigate'' the effects of the crisis that began in the U.S. mortgage market.
``People say that when the U.S. catches a cold, Mexico gets pneumonia,'' Calderon said at a lunch at the Waldorf-Astoria Hotel on Sept. 25. ``This is not the case today.''
To contact the reporter on this story: Michael J. Moore in New York at mmoore55@bloomberg.net Jens Erik Gould in Mexico City at jgould9@bloomberg.net
Read more...
Oct. 10 (Bloomberg) -- Mexico's central bank sold a record $6.4 billion in the currency market today, stepping up its bid to quell a rout in the peso that threatens to bankrupt companies and ignite inflation in Latin America's second-biggest economy.
Banco de Mexico has now sold $8.9 billion in three days, tapping into a near-record $84 billion of foreign reserves, after the peso plummeted to a record low. The peso gained as much as 4.6 percent after today's intervention, reversing an earlier tumble of as much as 6.1 percent. It has plunged 16.4 percent this month as investors sought the safety of dollars amid the worst financial crisis since the Great Depression.
``These are very extreme conditions,'' said Neil Dougall, head of emerging-market research for Dresdner Kleinwort Group in London. Policy makers ``needed to demonstrate very quickly that foreign exchange was available.''
Central bank Governor Guillermo Ortiz and Finance Minister Agustin Carstens are pumping dollars into the market as part of an effort to prevent the global crisis from eroding the finances of local companies. Controladora Comercial Mexicana SAB, the owner of supermarkets and Costco stores in Mexico, filed for bankruptcy reorganization yesterday after taking losses on currency derivatives.
Mexico's Bolsa stock index has lost 21 percent over the past seven days, mirroring the decline in the S&P 500 Index over that time, in part on concern the peso's tumble has saddled other companies with losses. The yield on Mexico's benchmark 10 percent peso bonds due in 2024 jumped 71 basis points, or 0.71 percentage point, this week to 9.11 percent.
1994 Devaluation
The $6.4 billion that Banco de Mexico sold today is the most in a single day, according to estimates by Gabriel Casillas, an economist with Banco UBS Pactual in Mexico City.
Central bankers sold $3 billion in a first auction, $400 million in a second sale and $3 billion in a third auction. They began selling dollars on Oct. 8 after the peso sank as much as 13.8 percent, its biggest intraday decline since the government abandoned a currency peg in 1994. The bank said in a statement late in the day that it ``will take any necessary additional measures to reestablish the normal operation'' of the market.
The peso was up 1 percent to 13.0930 per dollar at 6:15 p.m. New York time today, halting seven straight days of losses. It is down 25 percent from a six-year high reached on Aug. 4.
The global crisis has caused ``panicking in Mexico,'' said Bertrand Delgado, a Latin America economist with New York-based IDEAglobal Inc. ``The peso is just falling too fast.''
`Tequila Crisis'
Mexico was forced to abandon its peg in December 1994 after running low on foreign reserves, leading to a six-week, 45 percent plunge in the peso that became know as the ``Tequila Crisis.''
Reserves have since rebounded, almost tripling this decade amid a six-year rally in oil, the country's biggest export. They still ``aren't high enough to sustain'' the amount of dollars the central bank is selling, said Win Thin, a senior currency analyst with Brown Brothers Harriman & Co. in New York.
``Even during the Tequila Crisis, they weren't under this much pressure,'' Thin said. He said he doesn't expect Ortiz to raise interest rates to try to keep money in the country. ``They're running out of options.''
Brazil stands a better chance to stem its currency's plunge because it has more reserves, a record $208 billion, to draw on, Thin said. Brazilian central bankers have also sold dollars for three straight days. The real fell 1.3 percent today to 2.3130 per dollar. It's down 33 percent from a nine-year high reached on Aug. 1.
`Massive Unwinding'
Higher-yielding currencies throughout emerging markets have been ravaged over the past month as the global credit crisis has led investors to pull out of carry trades. In the carry trade, investors fund themselves with low-cost loans in countries such as Japan and invest in countries with higher interest rates such as Mexico and Brazil. Mexico's benchmark rate is 8.25 percent while Brazil's is 13.75 percent.
The carry trade, along with the rally in commodity prices, had fueled advances in the peso, real and other emerging-market currencies over the past five years.
``There is massive unwinding in the markets and that's putting severe pressure on currencies,'' Dresdner's Dougall said. ``Emerging markets have all been feeling this squeeze.''
Mexico is bracing for an economic slowdown as the financial crisis crimps growth in the U.S., the buyer of 80 percent of its exports. President Felipe Calderon sent this week a revised 2009 budget proposal to congress that lowered the growth forecast to 1.8 percent from 3 percent and cut the oil price estimate to $75 a barrel from $80.30. Oil has sunk 47 percent to $77.99 a barrel in New York from a record high of $147.27 reached on July 11.
`Credit Crunch'
Calderon also proposed a stimulus package worth 1 percent of gross domestic product that includes spending on energy and infrastructure to help offset the impact of the crisis.
Mexico's credit markets may tighten, adding to the economic slump, as companies that can't borrow in the U.S. seek funding in the local market, Deputy Central Bank Governor Guillermo Guemez Garcia said yesterday.
``They will have to go to the Mexican market, and that will cause some sort of credit crunch,'' Guemez said in an interview with Bloomberg Television in New York.
Mexican officials were surprised by the speed of the peso's plunge this week, said Delgado at IDEAglobal.
Calderon, 46, told bankers in New York in late September that he was confident Mexico would be able to ``mitigate'' the effects of the crisis that began in the U.S. mortgage market.
``People say that when the U.S. catches a cold, Mexico gets pneumonia,'' Calderon said at a lunch at the Waldorf-Astoria Hotel on Sept. 25. ``This is not the case today.''
To contact the reporter on this story: Michael J. Moore in New York at mmoore55@bloomberg.net Jens Erik Gould in Mexico City at jgould9@bloomberg.net
Read more...
Latin American Currencies: Chile Peso Dives Most Since May 1992
By Drew Benson
Oct. 10 (Bloomberg) -- Chile's peso plunged the most since May 1992 as the global credit crisis deepened, fueling capital flight from Latin America's commodities-dependent countries.
The credit crunch is ``increasingly hitting home'' in the region as increased capital flight, tightening liquidity, ``plummeting commodities prices and collapsing global growth are all combining for a very unsupportive emerging markets landscape,'' RBC Capital Markets economists Nick Chamie, Paul Biszko, Eduardo Suarez and Nigel Rendell said in a research note.
Chile's peso dropped 4.2 percent to 638.25 per dollar. It touched 639.5, its weakest since Aug. 16, 2004, and has fallen 10.6 percent this week.
``Many people are pulling money out of Chile today, looking for safe havens,'' said Ricardo Gomez, head of fixed-income sales and trading at Larrain Vial SA in Santiago. He said speculation is mounting that the central bank will start selling dollars.
Central banks across Latin America have stepped into markets during the past two weeks in a bid to bolster currencies and add cash to local financial systems.
Chile's central bank halted its $50 million daily purchase program late last month, and last week conducted the first of four weekly auctions aimed at injecting a total of $2 billion into the local financial system. The bank yesterday left its benchmark interest rate at 8.25 percent.
Colombian Peso
The yield for a basket of Chile's five-year peso bonds in inflation-linked currency units, known as unidades de fomento, rose 2 basis points to 2.97 percent, according to Bloomberg composite prices.
Colombia's peso slumped 3.5 percent to 2,314 per dollar at 4:45 p.m. New York time, from 2,233.88 yesterday, according to the Colombian foreign-exchange electronic transactions system, known as SET-FX.
The Colombian currency peso tumbled even after the central bank lifted controls this week on foreign borrowing in a bid to shore up the currency. The bank's board said late yesterday it rescinded restrictions that forced 40 percent of some overseas borrowing, such as the financing of imports, to remain in the central bank for six months. A day earlier, the bank lifted similar controls on foreign investment in fixed-income securities.
The yield on Colombia's benchmark 11 percent bonds due in July 2020 climbed 53 basis points, or 0.53 percentage point, to 12.8 percent, according to Colombia's stock exchange.
Argentine Peso
Argentina's peso snapped a 12-day slide, rising 0.3 percent to 3.2235. The peso recovered after falling as much as 1.3 percent earlier to 3.274, its weakest since Jan. 29, 2003. Three currency traders, including Gustavo Quintana of Lopez Leon Brokers in Buenos Aires, said the central bank sold dollars throughout the session to shore up the peso. A central bank spokesman declined to comment.
The yield on Argentina's 5.83 percent peso bonds due in 2033 rose 1 basis point to 13.83 percent, according to Citigroup Inc.'s local unit.
In Peru, the sol was little changed at 3.0775 per dollar, from 3.075 yesterday, amid ``huge demand from local corporates and offshore accounts'' for dollars, said Gonzalo Navarro, a trader with Banco Santander in Lima. The central bank said it sold $354.5 million today to shore up the peso. The bank has sold $2.2466 billion since Sept. 29.
Venezuela's bolivar weakened 1.8 percent to 5.3 per dollar in the unregulated market, its lowest since February, traders said. The government pegs the currency 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.
Markets will be closed in Argentina and Colombia Oct. 13 for national holidays.
To contact the reporter on this story: Drew Benson in Buenos Aires at abenson9@bloomberg.net
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Oct. 10 (Bloomberg) -- Chile's peso plunged the most since May 1992 as the global credit crisis deepened, fueling capital flight from Latin America's commodities-dependent countries.
The credit crunch is ``increasingly hitting home'' in the region as increased capital flight, tightening liquidity, ``plummeting commodities prices and collapsing global growth are all combining for a very unsupportive emerging markets landscape,'' RBC Capital Markets economists Nick Chamie, Paul Biszko, Eduardo Suarez and Nigel Rendell said in a research note.
Chile's peso dropped 4.2 percent to 638.25 per dollar. It touched 639.5, its weakest since Aug. 16, 2004, and has fallen 10.6 percent this week.
``Many people are pulling money out of Chile today, looking for safe havens,'' said Ricardo Gomez, head of fixed-income sales and trading at Larrain Vial SA in Santiago. He said speculation is mounting that the central bank will start selling dollars.
Central banks across Latin America have stepped into markets during the past two weeks in a bid to bolster currencies and add cash to local financial systems.
Chile's central bank halted its $50 million daily purchase program late last month, and last week conducted the first of four weekly auctions aimed at injecting a total of $2 billion into the local financial system. The bank yesterday left its benchmark interest rate at 8.25 percent.
Colombian Peso
The yield for a basket of Chile's five-year peso bonds in inflation-linked currency units, known as unidades de fomento, rose 2 basis points to 2.97 percent, according to Bloomberg composite prices.
Colombia's peso slumped 3.5 percent to 2,314 per dollar at 4:45 p.m. New York time, from 2,233.88 yesterday, according to the Colombian foreign-exchange electronic transactions system, known as SET-FX.
The Colombian currency peso tumbled even after the central bank lifted controls this week on foreign borrowing in a bid to shore up the currency. The bank's board said late yesterday it rescinded restrictions that forced 40 percent of some overseas borrowing, such as the financing of imports, to remain in the central bank for six months. A day earlier, the bank lifted similar controls on foreign investment in fixed-income securities.
The yield on Colombia's benchmark 11 percent bonds due in July 2020 climbed 53 basis points, or 0.53 percentage point, to 12.8 percent, according to Colombia's stock exchange.
Argentine Peso
Argentina's peso snapped a 12-day slide, rising 0.3 percent to 3.2235. The peso recovered after falling as much as 1.3 percent earlier to 3.274, its weakest since Jan. 29, 2003. Three currency traders, including Gustavo Quintana of Lopez Leon Brokers in Buenos Aires, said the central bank sold dollars throughout the session to shore up the peso. A central bank spokesman declined to comment.
The yield on Argentina's 5.83 percent peso bonds due in 2033 rose 1 basis point to 13.83 percent, according to Citigroup Inc.'s local unit.
In Peru, the sol was little changed at 3.0775 per dollar, from 3.075 yesterday, amid ``huge demand from local corporates and offshore accounts'' for dollars, said Gonzalo Navarro, a trader with Banco Santander in Lima. The central bank said it sold $354.5 million today to shore up the peso. The bank has sold $2.2466 billion since Sept. 29.
Venezuela's bolivar weakened 1.8 percent to 5.3 per dollar in the unregulated market, its lowest since February, traders said. The government pegs the currency 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.
Markets will be closed in Argentina and Colombia Oct. 13 for national holidays.
To contact the reporter on this story: Drew Benson in Buenos Aires at abenson9@bloomberg.net
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Yen Posts Biggest Advance in Decade as Carry Trade Evaporates
By Daniel Kruger and Kim-Mai Cutler
Oct. 10 (Bloomberg) -- The yen rose against the euro and posted its biggest weekly gain in a decade against the dollar as a global stock rout prompted investors to sell higher-yielding assets and pay back low-cost loans in Japan.
Japan's currency rallied the most versus the 15-nation euro in any week since its debut in 1999 as an 18 percent drop in the Standard & Poor's 500 Index discouraged carry trades. President George W. Bush said the U.S. is working with global partners to solve the financial crisis as Group of Seven finance ministers and central bankers met in Washington.
``Investors are concerned it could get worse,'' said JensNordvig, a currency strategist at Goldman Sachs Group Inc. in New York. ``Clearly a lot of investors have only one goal, to preserve capital.''
The yen advanced 0.8 percent to 134.79 per euro at 4:21 p.m. in New York, from 135.83 yesterday, increasing 7.1 percent this week and touching 132.24, the strongest level since June 2005. The yen dropped 0.8 percent to 100.58 per dollar from 99.82 after reaching 97.92, the strongest since March 19. The euro fell 1.6 percent to $1.3392 from $1.3604 and was down 2.8 percent for the week.
The U.S. currency decreased 4.4 percent against the yen this week, the most since the period ended Oct. 9, 1998, when the greenback plunged 14 percent as investors shed risk in the wake of the collapse of Long-Term Capital Management LP.
Coordinated interest-rate reductions by central banks in the U.S., Europe and Asia in the past two days failed to revive lending among banks. The cost of borrowing in dollars in London for three months rose to 4.82 percent today, the highest since December, the British Bankers' Association said.
Peso Gains
Mexico's peso increased 1.4 percent to 13.0326 versus the dollar to stem seven straight days of losses after the central bank sold a record $6.4 billion in the currency market, stepping up its bid to quell a rout in the peso that threatens to bankrupt companies and ignite inflation in Latin America's second-biggest economy.
Threatened by the worst economic outlook in a quarter- century, G-7 officials arrived in Washington without a broad- based strategy that investors were seeking. Among options is a proposal by U.K. Chancellor Alistair Darling for nations to guarantee lending between banks, a suggestion U.S. Treasury Secretary Henry Paulson hasn't ruled out.
``I don't think this particular G-7 meeting will rewrite history,'' said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. ``I'm not optimistic anything material will come out.''
G-7 Meetings
Paulson and Federal Reserve Chairman Ben S. Bernanke met today with counterparts of the G-7, which comprises Canada, France, Germany, Italy, the U.K., the U.S. and Japan. Paulson and aides are still considering ways to proceed with a $700 billion bank bailout, including having the government acquire preferred stock, two officials informed of the matter said.
Europe's currency was on course for its second straight weekly decline versus the dollar on speculation the credit crisis in Europe will deepen, prompting the European Central Bank to cut interest rates further. The bank lowered its main refinancing rate two days ago for the first time in five years. The pound fell as much as 1.8 percent to $1.6792, breaching $1.70 for the first time since November 2003.
Investors should buy the dollar while selling the euro and the pound because interest rates in Europe and the U.K. will fall faster than in the U.S., according to Royal Bank of Scotland Group Plc. The dollar could reach $1.25 per euro and $1.58 per pound by the end of next year, the firm forecast in a note to clients today.
`Printing Press'
One risk to that forecast is ``if there's anything akin to using the printing press'' that expands the U.S. money supply, which could lead the currency to depreciate, said Alan Ruskin, head of international currency strategy at RBS Greenwich Capital Markets Inc. in Greenwich, Connecticut.
The Fed has expanded its balance sheet 6.3 percent for the week ended Oct. 8 to $1.59 trillion, and 76 percent since Sept. 5 from $905.7 billion, boosting its ability to act as lender of last resort when banks can't find funding elsewhere.
While the central bank was able to remove a 15 percent increase in its balance sheet quickly after the Sept. 11, 2001, terror attacks and a 7 percent increase following the collapse of Long-Term Capital Management, this expansion has more potential to remain ``because the problems are so systemic,'' Ruskin said.
The South Korean won surged as much as 11.3 percent to 1,224.95 per dollar after a meeting among financial regulators fueled speculation the government will intervene to support the currency, which reached a decade-low of 1,485.32 yesterday.
The yen gained 20.2 percent this week to 65.01 versus the Australian dollar and 13.7 percent to 60.15 against New Zealand's currency, known as the kiwi, on speculation investors will reverse trades in which they get funds in countries with low borrowing costs and buy assets where returns are higher. Japan's 0.5 percent target lending rate compares with 6 percent in Australia and 7.5 percent in New Zealand.
To contact the reporters on this story: Daniel Kruger in New York at dkruger1@bloomberg.net; Kim-Mai Cutler in London at kcutler@bloomberg.net
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Oct. 10 (Bloomberg) -- The yen rose against the euro and posted its biggest weekly gain in a decade against the dollar as a global stock rout prompted investors to sell higher-yielding assets and pay back low-cost loans in Japan.
Japan's currency rallied the most versus the 15-nation euro in any week since its debut in 1999 as an 18 percent drop in the Standard & Poor's 500 Index discouraged carry trades. President George W. Bush said the U.S. is working with global partners to solve the financial crisis as Group of Seven finance ministers and central bankers met in Washington.
``Investors are concerned it could get worse,'' said JensNordvig, a currency strategist at Goldman Sachs Group Inc. in New York. ``Clearly a lot of investors have only one goal, to preserve capital.''
The yen advanced 0.8 percent to 134.79 per euro at 4:21 p.m. in New York, from 135.83 yesterday, increasing 7.1 percent this week and touching 132.24, the strongest level since June 2005. The yen dropped 0.8 percent to 100.58 per dollar from 99.82 after reaching 97.92, the strongest since March 19. The euro fell 1.6 percent to $1.3392 from $1.3604 and was down 2.8 percent for the week.
The U.S. currency decreased 4.4 percent against the yen this week, the most since the period ended Oct. 9, 1998, when the greenback plunged 14 percent as investors shed risk in the wake of the collapse of Long-Term Capital Management LP.
Coordinated interest-rate reductions by central banks in the U.S., Europe and Asia in the past two days failed to revive lending among banks. The cost of borrowing in dollars in London for three months rose to 4.82 percent today, the highest since December, the British Bankers' Association said.
Peso Gains
Mexico's peso increased 1.4 percent to 13.0326 versus the dollar to stem seven straight days of losses after the central bank sold a record $6.4 billion in the currency market, stepping up its bid to quell a rout in the peso that threatens to bankrupt companies and ignite inflation in Latin America's second-biggest economy.
Threatened by the worst economic outlook in a quarter- century, G-7 officials arrived in Washington without a broad- based strategy that investors were seeking. Among options is a proposal by U.K. Chancellor Alistair Darling for nations to guarantee lending between banks, a suggestion U.S. Treasury Secretary Henry Paulson hasn't ruled out.
``I don't think this particular G-7 meeting will rewrite history,'' said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. ``I'm not optimistic anything material will come out.''
G-7 Meetings
Paulson and Federal Reserve Chairman Ben S. Bernanke met today with counterparts of the G-7, which comprises Canada, France, Germany, Italy, the U.K., the U.S. and Japan. Paulson and aides are still considering ways to proceed with a $700 billion bank bailout, including having the government acquire preferred stock, two officials informed of the matter said.
Europe's currency was on course for its second straight weekly decline versus the dollar on speculation the credit crisis in Europe will deepen, prompting the European Central Bank to cut interest rates further. The bank lowered its main refinancing rate two days ago for the first time in five years. The pound fell as much as 1.8 percent to $1.6792, breaching $1.70 for the first time since November 2003.
Investors should buy the dollar while selling the euro and the pound because interest rates in Europe and the U.K. will fall faster than in the U.S., according to Royal Bank of Scotland Group Plc. The dollar could reach $1.25 per euro and $1.58 per pound by the end of next year, the firm forecast in a note to clients today.
`Printing Press'
One risk to that forecast is ``if there's anything akin to using the printing press'' that expands the U.S. money supply, which could lead the currency to depreciate, said Alan Ruskin, head of international currency strategy at RBS Greenwich Capital Markets Inc. in Greenwich, Connecticut.
The Fed has expanded its balance sheet 6.3 percent for the week ended Oct. 8 to $1.59 trillion, and 76 percent since Sept. 5 from $905.7 billion, boosting its ability to act as lender of last resort when banks can't find funding elsewhere.
While the central bank was able to remove a 15 percent increase in its balance sheet quickly after the Sept. 11, 2001, terror attacks and a 7 percent increase following the collapse of Long-Term Capital Management, this expansion has more potential to remain ``because the problems are so systemic,'' Ruskin said.
The South Korean won surged as much as 11.3 percent to 1,224.95 per dollar after a meeting among financial regulators fueled speculation the government will intervene to support the currency, which reached a decade-low of 1,485.32 yesterday.
The yen gained 20.2 percent this week to 65.01 versus the Australian dollar and 13.7 percent to 60.15 against New Zealand's currency, known as the kiwi, on speculation investors will reverse trades in which they get funds in countries with low borrowing costs and buy assets where returns are higher. Japan's 0.5 percent target lending rate compares with 6 percent in Australia and 7.5 percent in New Zealand.
To contact the reporters on this story: Daniel Kruger in New York at dkruger1@bloomberg.net; Kim-Mai Cutler in London at kcutler@bloomberg.net
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Copper Tumbles, Capping Worst Week Since 1988 as Outlook Dims
By Millie Munshi
Oct. 10 (Bloomberg) -- Copper tumbled 11 percent and capped its worst week in two decades on concern that the deepening financial crisis may choke global growth and commodity demand.
Copper has plunged 20 percent this week, the biggest drop since at least 1988, when the data begins. Tightening credit markets and tumbling equities have reduced investor confidence and spurred speculation that the world economy will sink into recession. The Standard & Poor's 500 Index of shares is heading for its biggest weekly decline ever, losing 23 percent.
``People are scared to death,'' said Michael K. Smith, president of T&K Futures & Options in Port St. Lucie, Florida. ``The fear of a global recession is really hitting copper. People are worried about demand destruction. There's plenty more downside to go.''
Copper futures for December delivery fell 26.15 cents to $2.1445 a pound on the Comex division of the New York Mercantile Exchange, after earlier touching $2.05, the lowest since Jan. 6, 2006.
Last week's drop was 13 percent, the second-biggest decline on record.
Copper has lost about half of its value since touching a record $4.2605 a pound on May 5. The losses have come as the U.S. housing slump deepened. Builders are the biggest users of the metal, accounting for about 46 percent of demand, according to the Copper Development Association.
Demand has fallen ``a lot, with everything that's going on in the construction industry,'' said Jay Richman, owner of E.W. Berger & Brothers Inc., a distributor of plumbing supplies in Weehawken, New Jersey.
Rising Inventories
Copper-tube mills may have rising inventories as use has dropped, said Richman, who buys about 10,000 pounds of the metal a month for plumbers, housing authorities and industrial users.
Morgan Stanley cut its 2009 copper forecast by 22 percent this week, citing an extended ``period of demand weakness for commodities.'' The metal will average $3.20 a pound next year, analysts at the bank estimate.
On the London Metal Exchange, copper for delivery in three months dropped $525, or 9.9 percent, to $4,790 a metric ton ($2.17 a pound).
``We believe copper remains increasingly exposed in an environment of weakening growth and falling equity markets,'' Deutsche Bank AG analysts said in a report today. The price could fall to as low as $3,900 a ton in London, the bank said.
To contact the reporter on this story: Millie Munshi in New York at mmunshi@bloomberg.net.
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Oct. 10 (Bloomberg) -- Copper tumbled 11 percent and capped its worst week in two decades on concern that the deepening financial crisis may choke global growth and commodity demand.
Copper has plunged 20 percent this week, the biggest drop since at least 1988, when the data begins. Tightening credit markets and tumbling equities have reduced investor confidence and spurred speculation that the world economy will sink into recession. The Standard & Poor's 500 Index of shares is heading for its biggest weekly decline ever, losing 23 percent.
``People are scared to death,'' said Michael K. Smith, president of T&K Futures & Options in Port St. Lucie, Florida. ``The fear of a global recession is really hitting copper. People are worried about demand destruction. There's plenty more downside to go.''
Copper futures for December delivery fell 26.15 cents to $2.1445 a pound on the Comex division of the New York Mercantile Exchange, after earlier touching $2.05, the lowest since Jan. 6, 2006.
Last week's drop was 13 percent, the second-biggest decline on record.
Copper has lost about half of its value since touching a record $4.2605 a pound on May 5. The losses have come as the U.S. housing slump deepened. Builders are the biggest users of the metal, accounting for about 46 percent of demand, according to the Copper Development Association.
Demand has fallen ``a lot, with everything that's going on in the construction industry,'' said Jay Richman, owner of E.W. Berger & Brothers Inc., a distributor of plumbing supplies in Weehawken, New Jersey.
Rising Inventories
Copper-tube mills may have rising inventories as use has dropped, said Richman, who buys about 10,000 pounds of the metal a month for plumbers, housing authorities and industrial users.
Morgan Stanley cut its 2009 copper forecast by 22 percent this week, citing an extended ``period of demand weakness for commodities.'' The metal will average $3.20 a pound next year, analysts at the bank estimate.
On the London Metal Exchange, copper for delivery in three months dropped $525, or 9.9 percent, to $4,790 a metric ton ($2.17 a pound).
``We believe copper remains increasingly exposed in an environment of weakening growth and falling equity markets,'' Deutsche Bank AG analysts said in a report today. The price could fall to as low as $3,900 a ton in London, the bank said.
To contact the reporter on this story: Millie Munshi in New York at mmunshi@bloomberg.net.
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Gold Falls as Equity Loss Sparks Metals Sell-Off to Raise Cash
By Pham-Duy Nguyen
Oct. 10 (Bloomberg) -- Gold tumbled from the highest since July as investors sold the metal to cover losses in equity markets. Silver plunged 11 percent.
Global stocks had the biggest drop ever this week, commodities tumbled more than 5 percent today and government bonds fell. Earlier, gold reached $936.30 an ounce, the highest since July 29, on demand for a haven.
``The world is going to cash,'' said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago. ``Investors are selling gold to raise dollars. There's just massive selling across the board.''
Gold futures for December delivery fell $27.50, or 3.1 percent, to $859 on the Comex division of the New York Mercantile Exchange, the biggest decline since Oct. 2. The metal reached a record $1,033.90 on March 17.
Silver futures for December delivery dropped $1.275 to $10.60 an ounce. The metal has dropped 29 percent this year.
The rush for cash may have been fueled by rumors that global markets may close for several days to allow governments to take corrective action. Italian Prime Minister Silvio Berlusconi said earlier today that world leaders were considering such action and later retracted his statement.
``The expectation is that they're going to shut the markets down for five days and people aren't going to have access to funds,'' McGhee said. ``It's just a rumor but it has picked up steam.''
The Standard & Poor's 500 Index headed for the biggest weekly decline ever, tumbling more than 22 percent since Oct. 3. The Reuters/Jefferies CRB Index of 19 raw materials is down 9.9 percent this week. Crude-oil futures fell as much as 9.3 percent today. U.S. Treasuries also fell, partly as some traders sold government securities to raise cash for margin calls.
Relative Value
``Everyone knows we're going into a deflationary recession or depression and historically, everything goes down in price in this environment,'' said Leonard Kaplan, president of Prospector Asset Management in Evanston, Illinois. ``Gold will perhaps do better than anything else but it will still go down. Gold will maintain its relative value.''
Gold, which is priced in dollars, can't rally if the U.S. currency remains strong, analysts at Deutsche Bank AG said today in a report.
Speculative Holdings
``The speculative community continues to hold a sizeable long position in gold, presumably as a hedge against further deterioration in market confidence,'' the analysts said. ``The gold price is trading excessively rich if it is not accompanied by substantial weakening of the U.S. dollar from here. The current level of the euro (is) implying a gold price closer to $760.''
The euro traded as low as $1.3355 today. It reached a record $1.6038 on July 15. Gold priced in euros and pounds rose to all-time highs this week.
Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, reached a record 765.7 metric tons yesterday.
Still, physical demand for gold will remain strong should the credit crisis persist, analysts said.
Londoners today stood in line outside the largest gold coin and bar retailer in the city's West End shopping district, clogging the lobby and trading among themselves as they sought a haven for their money.
``People want something tangible, something they can hold onto, something the banks can't give them,'' said Chris Burrow, the owner of ATS Bullion, the gold dealer in the Strand that traces its roots back to the 17th century. ``There's no time to breathe. We're rushed off our feet. Staff are exhausted.''
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
Read more...
Oct. 10 (Bloomberg) -- Gold tumbled from the highest since July as investors sold the metal to cover losses in equity markets. Silver plunged 11 percent.
Global stocks had the biggest drop ever this week, commodities tumbled more than 5 percent today and government bonds fell. Earlier, gold reached $936.30 an ounce, the highest since July 29, on demand for a haven.
``The world is going to cash,'' said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago. ``Investors are selling gold to raise dollars. There's just massive selling across the board.''
Gold futures for December delivery fell $27.50, or 3.1 percent, to $859 on the Comex division of the New York Mercantile Exchange, the biggest decline since Oct. 2. The metal reached a record $1,033.90 on March 17.
Silver futures for December delivery dropped $1.275 to $10.60 an ounce. The metal has dropped 29 percent this year.
The rush for cash may have been fueled by rumors that global markets may close for several days to allow governments to take corrective action. Italian Prime Minister Silvio Berlusconi said earlier today that world leaders were considering such action and later retracted his statement.
``The expectation is that they're going to shut the markets down for five days and people aren't going to have access to funds,'' McGhee said. ``It's just a rumor but it has picked up steam.''
The Standard & Poor's 500 Index headed for the biggest weekly decline ever, tumbling more than 22 percent since Oct. 3. The Reuters/Jefferies CRB Index of 19 raw materials is down 9.9 percent this week. Crude-oil futures fell as much as 9.3 percent today. U.S. Treasuries also fell, partly as some traders sold government securities to raise cash for margin calls.
Relative Value
``Everyone knows we're going into a deflationary recession or depression and historically, everything goes down in price in this environment,'' said Leonard Kaplan, president of Prospector Asset Management in Evanston, Illinois. ``Gold will perhaps do better than anything else but it will still go down. Gold will maintain its relative value.''
Gold, which is priced in dollars, can't rally if the U.S. currency remains strong, analysts at Deutsche Bank AG said today in a report.
Speculative Holdings
``The speculative community continues to hold a sizeable long position in gold, presumably as a hedge against further deterioration in market confidence,'' the analysts said. ``The gold price is trading excessively rich if it is not accompanied by substantial weakening of the U.S. dollar from here. The current level of the euro (is) implying a gold price closer to $760.''
The euro traded as low as $1.3355 today. It reached a record $1.6038 on July 15. Gold priced in euros and pounds rose to all-time highs this week.
Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, reached a record 765.7 metric tons yesterday.
Still, physical demand for gold will remain strong should the credit crisis persist, analysts said.
Londoners today stood in line outside the largest gold coin and bar retailer in the city's West End shopping district, clogging the lobby and trading among themselves as they sought a haven for their money.
``People want something tangible, something they can hold onto, something the banks can't give them,'' said Chris Burrow, the owner of ATS Bullion, the gold dealer in the Strand that traces its roots back to the 17th century. ``There's no time to breathe. We're rushed off our feet. Staff are exhausted.''
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
Read more...
Crude Oil Drops Below $78 as Equities Slump on Credit Freeze
By Mark Shenk
Enlarge Image/Details
Oct. 10 (Bloomberg) -- Crude oil fell below $78 for the first time in a year and copper capped its biggest weekly drop in more than two decades on concern that the deepening financial crisis will push the global economy into a recession.
Oil in New York dropped 17 percent this week, the biggest one-week decline since March 2003 when a U.S.-led coalition invaded Iraq. All commodities with the exception of coffee are down on signs that demand for raw materials will drop as the global economy falters.
``No matter where you look, there is bleeding everywhere,'' said Chip Hodge, a managing director at MFC Global Investment Management in Boston, who oversees a $4.5 billion energy-company bond portfolio. ``I don't know where the bottom is. It's clear that we are headed for a painful couple of years.''
Crude oil for November delivery fell $8.89, or 10 percent, to $77.70 a barrel at 2:46 p.m. on the New York Mercantile Exchange, the lowest settlement since Sept. 10, 2007. Prices have dropped 47 percent from the record $147.27 a barrel reached on July 11.
Gasoline for November delivery declined 22.03 cents, or 11 percent, to $1.807 a gallon in New York, the lowest settlement since Feb. 26, 2007. Heating oil dropped 20.86 cents, or 8.6 percent, to settle at $2.21 a gallon, the lowest close since Oct. 9, 2007. It was the biggest one-day drop in heating oil since Dec. 27, 2004.
More than $25 trillion has been erased from global equities in 2008. Central banks from London and Frankfurt to Washington and Hong Kong this week were forced to cut interest rates after the yearlong credit-market seizure stoked concern banks will run short of money.
`Moving on Emotion'
``This is a market that is moving on emotion, not the supply and demand picture,'' said Sarah Emerson, managing director of Energy Security Analysis Inc., a consulting firm in Wakefield, Massachusetts. ``We are looking for a landing place, and I have no idea where it is.''
The Reuters/Jefferies CRB Index of 19 commodities had the biggest drop since at least 1956 today. The CRB fell 20.64 to 289.89, the lowest since Jan. 18, 2007. The index has slumped 39 percent from a record on July 3 and declined 20 percent in the past two weeks.
Copper futures for December delivery fell 26.15 cents, or 11 percent, to settle at $2.1445 a pound on the Comex division of the New York Mercantile Exchange. Copper dropped 20 percent this week, the most since 1988, when data begins.
The International Energy Agency, an adviser to 28 nations, cut its forecast for global oil demand next year by 0.5 percent as the worst financial crisis since the 1930s threatens a global recession.
Lower Demand
The IEA lowered its 2009 projection by 440,000 barrels a day to 87.2 million barrels a day, the Paris-based agency said today in its monthly report, citing a weaker economic outlook from the International Monetary Fund. Non-OPEC supply growth this year has been ``largely wiped out'' after hurricanes in the Gulf of Mexico and pipeline disruptions in Azerbaijan.
U.S. fuel demand averaged about 18.7 million barrels a day during the past four weeks, the lowest since June 1999, according to an Energy Department report on Oct. 8. The figure is down 8.6 percent from the year-earlier period.
``Oil is not a safe haven, because you have to use it,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``Gold and putting money in your mattress look like the safest places to put your money.''
Oil companies followed energy futures lower. Exxon Mobil Corp. dropped 8.3 percent to $62.36 after touching $56.51, the lowest since Jan. 3, 2006. Chevron Corp. fell 9.6 percent to $57.83.
Energy Index
The Standard & Poor's Energy Index had the biggest weekly drop in at least 18 years. It was down 25 percent for the week. Among the worst performers were Chesapeake Energy Corp., which fell amid concern hedging contracts won't protect it against a plunge in natural-gas prices, and Tesoro Corp., the largest oil refiner in the U.S. West.
Brent crude oil for November settlement declined $8.57, or 10 percent, to settle at $74.09 a barrel on London's ICE Futures Europe exchange, the lowest settlement since Sept. 4, 2007. The contract dropped 18 percent this week, the biggest one-week decline since March 2003.
Prices may extend their decline next week, according to a Bloomberg News survey. Thirteen of 30 analysts surveyed by Bloomberg News, or 43 percent, said prices will decrease through Oct. 17.
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.
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Enlarge Image/Details
Oct. 10 (Bloomberg) -- Crude oil fell below $78 for the first time in a year and copper capped its biggest weekly drop in more than two decades on concern that the deepening financial crisis will push the global economy into a recession.
Oil in New York dropped 17 percent this week, the biggest one-week decline since March 2003 when a U.S.-led coalition invaded Iraq. All commodities with the exception of coffee are down on signs that demand for raw materials will drop as the global economy falters.
``No matter where you look, there is bleeding everywhere,'' said Chip Hodge, a managing director at MFC Global Investment Management in Boston, who oversees a $4.5 billion energy-company bond portfolio. ``I don't know where the bottom is. It's clear that we are headed for a painful couple of years.''
Crude oil for November delivery fell $8.89, or 10 percent, to $77.70 a barrel at 2:46 p.m. on the New York Mercantile Exchange, the lowest settlement since Sept. 10, 2007. Prices have dropped 47 percent from the record $147.27 a barrel reached on July 11.
Gasoline for November delivery declined 22.03 cents, or 11 percent, to $1.807 a gallon in New York, the lowest settlement since Feb. 26, 2007. Heating oil dropped 20.86 cents, or 8.6 percent, to settle at $2.21 a gallon, the lowest close since Oct. 9, 2007. It was the biggest one-day drop in heating oil since Dec. 27, 2004.
More than $25 trillion has been erased from global equities in 2008. Central banks from London and Frankfurt to Washington and Hong Kong this week were forced to cut interest rates after the yearlong credit-market seizure stoked concern banks will run short of money.
`Moving on Emotion'
``This is a market that is moving on emotion, not the supply and demand picture,'' said Sarah Emerson, managing director of Energy Security Analysis Inc., a consulting firm in Wakefield, Massachusetts. ``We are looking for a landing place, and I have no idea where it is.''
The Reuters/Jefferies CRB Index of 19 commodities had the biggest drop since at least 1956 today. The CRB fell 20.64 to 289.89, the lowest since Jan. 18, 2007. The index has slumped 39 percent from a record on July 3 and declined 20 percent in the past two weeks.
Copper futures for December delivery fell 26.15 cents, or 11 percent, to settle at $2.1445 a pound on the Comex division of the New York Mercantile Exchange. Copper dropped 20 percent this week, the most since 1988, when data begins.
The International Energy Agency, an adviser to 28 nations, cut its forecast for global oil demand next year by 0.5 percent as the worst financial crisis since the 1930s threatens a global recession.
Lower Demand
The IEA lowered its 2009 projection by 440,000 barrels a day to 87.2 million barrels a day, the Paris-based agency said today in its monthly report, citing a weaker economic outlook from the International Monetary Fund. Non-OPEC supply growth this year has been ``largely wiped out'' after hurricanes in the Gulf of Mexico and pipeline disruptions in Azerbaijan.
U.S. fuel demand averaged about 18.7 million barrels a day during the past four weeks, the lowest since June 1999, according to an Energy Department report on Oct. 8. The figure is down 8.6 percent from the year-earlier period.
``Oil is not a safe haven, because you have to use it,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``Gold and putting money in your mattress look like the safest places to put your money.''
Oil companies followed energy futures lower. Exxon Mobil Corp. dropped 8.3 percent to $62.36 after touching $56.51, the lowest since Jan. 3, 2006. Chevron Corp. fell 9.6 percent to $57.83.
Energy Index
The Standard & Poor's Energy Index had the biggest weekly drop in at least 18 years. It was down 25 percent for the week. Among the worst performers were Chesapeake Energy Corp., which fell amid concern hedging contracts won't protect it against a plunge in natural-gas prices, and Tesoro Corp., the largest oil refiner in the U.S. West.
Brent crude oil for November settlement declined $8.57, or 10 percent, to settle at $74.09 a barrel on London's ICE Futures Europe exchange, the lowest settlement since Sept. 4, 2007. The contract dropped 18 percent this week, the biggest one-week decline since March 2003.
Prices may extend their decline next week, according to a Bloomberg News survey. Thirteen of 30 analysts surveyed by Bloomberg News, or 43 percent, said prices will decrease through Oct. 17.
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.
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Coffee Rebounds in N.Y. as Investors, Roasters Buy After Slump
By Yi Tian
Oct. 10 (Bloomberg) -- Coffee rebounded on demand by investors and roasters after the price traded close to the lowest in almost 15 months.
That marked the only gain among 19 raw materials in the Reuters/Jefferies CRB Index. The gauge tumbled by a record 6.6 percent on concern that the widening financial crisis will push the global economy into a recession. On Oct. 8, coffee touched $1.0935 a pound, the lowest since July 16, 2007. The price fell as much as 3.8 percent to $1.103 today.
``Roasters became interested at this price level, and there was also some short-covering,'' said Hernando de la Roche, a director at Hencorp Futures in Miami.
Arabica coffee futures for December delivery rose 0.7 cent, or 0.6 percent, to $1.1535 a pound on ICE Futures U.S. in New York. The most-active contract still dropped 5.5 percent this week after tumbling 9 percent last week.
Coffee has slumped this month partly because exports from Brazil, the world's largest producer, are increasing. The price is down 15 percent this year.
In London, robusta-coffee futures for January delivery declined $35, or 2 percent, to $1,751 a metric ton.
From Oct. 27 to Oct. 31, coffee trading will begin at 3:30 a.m. New York time, an hour later than normal, ICE said in a statement on its Web site.
To contact the reporter on this story: Yi Tian in New York at ytian8@bloomberg.net.
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Oct. 10 (Bloomberg) -- Coffee rebounded on demand by investors and roasters after the price traded close to the lowest in almost 15 months.
That marked the only gain among 19 raw materials in the Reuters/Jefferies CRB Index. The gauge tumbled by a record 6.6 percent on concern that the widening financial crisis will push the global economy into a recession. On Oct. 8, coffee touched $1.0935 a pound, the lowest since July 16, 2007. The price fell as much as 3.8 percent to $1.103 today.
``Roasters became interested at this price level, and there was also some short-covering,'' said Hernando de la Roche, a director at Hencorp Futures in Miami.
Arabica coffee futures for December delivery rose 0.7 cent, or 0.6 percent, to $1.1535 a pound on ICE Futures U.S. in New York. The most-active contract still dropped 5.5 percent this week after tumbling 9 percent last week.
Coffee has slumped this month partly because exports from Brazil, the world's largest producer, are increasing. The price is down 15 percent this year.
In London, robusta-coffee futures for January delivery declined $35, or 2 percent, to $1,751 a metric ton.
From Oct. 27 to Oct. 31, coffee trading will begin at 3:30 a.m. New York time, an hour later than normal, ICE said in a statement on its Web site.
To contact the reporter on this story: Yi Tian in New York at ytian8@bloomberg.net.
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Corn, Soybeans, Wheat Plunge on U.S. Harvest Outlook, Recession
By Jeff Wilson
Oct. 10 (Bloomberg) -- Corn and soybeans fell the exchange limits in Chicago and wheat plunged to a 16-month low after the U.S. forecast rising inventories and the global credit crisis eroded demand for food, animal feed and biofuels.
The Department of Agriculture unexpectedly raised its estimate of the corn and soybean crops and said global wheat inventories will jump 21 percent, after record prices encouraged farmers to plant more. The MSCI World Index fell the most this week since 1970 on concern that the deepening credit crisis will send the global economy into recession.
``The USDA report was a bearish surprise,'' said Dan Manternach, ag services director for Doane Advisory Services in St. Louis. ``The big threat right now is deflation, not inflation.''
Corn futures for December delivery fell the exchange maximum of 30 cents, or 6.8 percent, to $4.0825 a bushel on the Chicago Board of Trade. Corn dropped 10 percent this week, touching $4.07 on Oct. 8, the lowest for the most-active contract since Dec. 4, extending a 16 percent decline last week for the biggest two-week plunge in at least 45 years. The price is 49 percent lower than a record $7.9925 on June 27.
Soybean futures for November delivery fell the 70-cent limit, or 7.1 percent, to $9.10 a bushel in Chicago, the lowest since Sept. 12, 2007. Most-active futures dropped 8.3 percent this week, capping a two-week decline of 22 percent, the most since July 1997. Soybeans have dropped 44 percent from a record $16.3675 on July 3.
Wheat Falls
Wheat futures for December delivery fell 41.25 cents, or 6.8 percent, to $5.635 a bushel in Chicago, after earlier dropping to $5.5775, the lowest since June 12, 2007. The price has dropped 12 percent this week, the most since March 21. Most- active futures have fallen 58 percent from a record $13.495 on Feb. 27.
Index funds that invest in baskets of commodities cut net- long positions, or bets prices will rise, in Chicago corn futures by 6.6 percent to 285,784 contracts in the week ended Oct. 7, down 37 percent from a record 452,568 contracts in April. There were 115,820 net-long positions in soybeans, down 11 percent from a week earlier and 42 percent from a February record.
``The game is still about the financial crisis and reducing leverage,'' said Dale Durchholz, a market analyst for AgriVisor LLC in Bloomington, Illinois. ``The grain markets are facing the same rush to cash as the financial markets.''
Bigger Soybean Harvest
The U.S. soybean harvest this year will be 1.7 percent larger than forecast a month ago, the USDA said today in a report, as increased acreage more than made up for a dry August that reduced yields. Farmers will harvest 2.983 billion bushels this year, up from 2.934 billion projected in September, according to the report.
A crop of that size would be 11 percent bigger than the previous year after farmers planted 19 percent more acres with the oilseed. The average estimate of 20 analysts surveyed by Bloomberg News was for 2.92 billion bushels. About 75.5 million acres will be harvested, the USDA said, up from 73.3 million estimated in September.
U.S. reserve supplies before next year's harvest will total 220 million bushels, up from 135 million forecast last month, the USDA said.
``The markets will have to deal with supplies that are much larger than anyone was expecting,'' Manternach said.
Corn Production
Corn production will total 12.2 billion bushels, up 1.1 percent from 12.072 billion projected a month ago and second only to last year's 13.1 billion-bushel harvest, the USDA said.
The department raised its yield forecast to 154 bushels an acre from 152.3 bushels estimated last month. Farmers harvested 151.1 bushels an acre last year and analysts surveyed by Bloomberg News were expecting 152.2 bushels, on average.
Unsold supplies of U.S. corn before next year's harvest will total 1.154 billion bushels, up 13 percent from 1.018 billion forecast a month ago, the department said. Analysts expected an estimate of 1.12 billion bushels, on average.
U.S. wheat reserves before the next harvest will be 4.7 percent more than forecast a month ago, as increased production more than offsets higher feed use, the USDA said.
About 601 million bushels of unsold wheat will be in storage when the current marketing year ends on May 31, nearly double the 306 million on hand at the start of this year.
Global stockpiles will total 144.4 million tons by May 31, the USDA said. That's up from last month's estimate of 139.9 million and up from 119.8 million tons at the end of last May.
``Even if equities were not down sharply, grains would be anyway, because the USDA gave us surprisingly bigger supply numbers,'' said John Roach, president of Roach Ag Marketing Ltd. in Boca Raton, Florida.
Corn is the biggest U.S. crop, valued at a record $52.1 billion in 2007, with soybeans in second place at $26.8 billion, government figures show. Wheat is the fourth-biggest U.S. crop, valued at a record $13.7 billion in 2007.
The U.S. is the world's largest grower and exporter of corn and soybeans, and it is the largest exporter of wheat.
To contact the reporter on this story: Jeff Wilson in Chicago at jwilson29@bloomberg.net.
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Oct. 10 (Bloomberg) -- Corn and soybeans fell the exchange limits in Chicago and wheat plunged to a 16-month low after the U.S. forecast rising inventories and the global credit crisis eroded demand for food, animal feed and biofuels.
The Department of Agriculture unexpectedly raised its estimate of the corn and soybean crops and said global wheat inventories will jump 21 percent, after record prices encouraged farmers to plant more. The MSCI World Index fell the most this week since 1970 on concern that the deepening credit crisis will send the global economy into recession.
``The USDA report was a bearish surprise,'' said Dan Manternach, ag services director for Doane Advisory Services in St. Louis. ``The big threat right now is deflation, not inflation.''
Corn futures for December delivery fell the exchange maximum of 30 cents, or 6.8 percent, to $4.0825 a bushel on the Chicago Board of Trade. Corn dropped 10 percent this week, touching $4.07 on Oct. 8, the lowest for the most-active contract since Dec. 4, extending a 16 percent decline last week for the biggest two-week plunge in at least 45 years. The price is 49 percent lower than a record $7.9925 on June 27.
Soybean futures for November delivery fell the 70-cent limit, or 7.1 percent, to $9.10 a bushel in Chicago, the lowest since Sept. 12, 2007. Most-active futures dropped 8.3 percent this week, capping a two-week decline of 22 percent, the most since July 1997. Soybeans have dropped 44 percent from a record $16.3675 on July 3.
Wheat Falls
Wheat futures for December delivery fell 41.25 cents, or 6.8 percent, to $5.635 a bushel in Chicago, after earlier dropping to $5.5775, the lowest since June 12, 2007. The price has dropped 12 percent this week, the most since March 21. Most- active futures have fallen 58 percent from a record $13.495 on Feb. 27.
Index funds that invest in baskets of commodities cut net- long positions, or bets prices will rise, in Chicago corn futures by 6.6 percent to 285,784 contracts in the week ended Oct. 7, down 37 percent from a record 452,568 contracts in April. There were 115,820 net-long positions in soybeans, down 11 percent from a week earlier and 42 percent from a February record.
``The game is still about the financial crisis and reducing leverage,'' said Dale Durchholz, a market analyst for AgriVisor LLC in Bloomington, Illinois. ``The grain markets are facing the same rush to cash as the financial markets.''
Bigger Soybean Harvest
The U.S. soybean harvest this year will be 1.7 percent larger than forecast a month ago, the USDA said today in a report, as increased acreage more than made up for a dry August that reduced yields. Farmers will harvest 2.983 billion bushels this year, up from 2.934 billion projected in September, according to the report.
A crop of that size would be 11 percent bigger than the previous year after farmers planted 19 percent more acres with the oilseed. The average estimate of 20 analysts surveyed by Bloomberg News was for 2.92 billion bushels. About 75.5 million acres will be harvested, the USDA said, up from 73.3 million estimated in September.
U.S. reserve supplies before next year's harvest will total 220 million bushels, up from 135 million forecast last month, the USDA said.
``The markets will have to deal with supplies that are much larger than anyone was expecting,'' Manternach said.
Corn Production
Corn production will total 12.2 billion bushels, up 1.1 percent from 12.072 billion projected a month ago and second only to last year's 13.1 billion-bushel harvest, the USDA said.
The department raised its yield forecast to 154 bushels an acre from 152.3 bushels estimated last month. Farmers harvested 151.1 bushels an acre last year and analysts surveyed by Bloomberg News were expecting 152.2 bushels, on average.
Unsold supplies of U.S. corn before next year's harvest will total 1.154 billion bushels, up 13 percent from 1.018 billion forecast a month ago, the department said. Analysts expected an estimate of 1.12 billion bushels, on average.
U.S. wheat reserves before the next harvest will be 4.7 percent more than forecast a month ago, as increased production more than offsets higher feed use, the USDA said.
About 601 million bushels of unsold wheat will be in storage when the current marketing year ends on May 31, nearly double the 306 million on hand at the start of this year.
Global stockpiles will total 144.4 million tons by May 31, the USDA said. That's up from last month's estimate of 139.9 million and up from 119.8 million tons at the end of last May.
``Even if equities were not down sharply, grains would be anyway, because the USDA gave us surprisingly bigger supply numbers,'' said John Roach, president of Roach Ag Marketing Ltd. in Boca Raton, Florida.
Corn is the biggest U.S. crop, valued at a record $52.1 billion in 2007, with soybeans in second place at $26.8 billion, government figures show. Wheat is the fourth-biggest U.S. crop, valued at a record $13.7 billion in 2007.
The U.S. is the world's largest grower and exporter of corn and soybeans, and it is the largest exporter of wheat.
To contact the reporter on this story: Jeff Wilson in Chicago at jwilson29@bloomberg.net.
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Mexican Bolsa Boosts Company Disclosure as Peso Sinks
By Fabiola Moura and William Freebairn
Enlarge Image/Details
Oct. 10 (Bloomberg) -- Mexico's stock exchange is demanding companies give investors more information about their finances as the peso's 18 percent tumble in two weeks raises concern businesses will face growing foreign exchange-related losses.
The Bolsa Mexicana de Valores SAB halted trading in shares of more than 30 companies this week in a bid to increase disclosure, the exchange's President Guillermo Prieto Trevino said in an interview in New York. Controladora Comercial Mexicana SAB, a supermarket operator, filed for bankruptcy yesterday after saying foreign-currency costs rose ``significantly.'' The stock tumbled and trading was suspended.
``We are working with all the companies whose trading was halted to make sure they are fully aware that they need to provide information to the market,'' Prieto Trevino said.
Since Mexican President Felipe Calderon said Sept. 25 in New York that his country could weather the global credit-market crisis, the central bank has drawn on near-record foreign reserves to prop up the peso, the benchmark stock index dropped 22 percent and the government unveiled a 65.1 billion-peso ($5 billion) stimulus plan to help tourism, energy and construction industries overcome an economic slowdown.
``People say that when the United States gets a cold, Mexico gets pneumonia,'' Calderon told a gathering of the Economic Club of New York on Sept. 25. ``This is not exactly the case today.''
Stocks Fall
The Bolsa stock index fell 2 percent today to 19,905.27, a seventh straight decline.
The central bank spent $8.9 billion defending the peso the past three days after the currency touched its lowest level since the 1994 devaluation. The peso, which traded at 10.7125 per dollar two weeks ago, rose 1.3 percent today to 13.0452.
Mexico's credit markets will tighten as domestic companies that sought funding in the U.S. begin to search for financing at home, Deputy Central Bank Governor Guillermo Guemez Garcia said in an interview yesterday with Bloomberg Television.
``They will have to go to the Mexican market and that will cause some sort of credit crunch that will increase the cost of credit,'' Guemez said in the interview in New York.
The credit squeeze has also spread to companies in Brazil, where two of the nation's biggest exporters, Aracruz Celulose SA and Sadia SA, lost more than half of their market value since saying last month they made bad currency bets that may cost them a combined $1.2 billion. Aracruz had its long-term foreign currency rating cut to BBB- from BBB today by Standard & Poor's.
`Got to Be More'
``From an investor's standpoint there's got to be more disclosure,'' said Will Landers, who manages $5 billion in Latin American equities at BlackRock Inc. in New York. ``They have to do these things on balance sheet. They shouldn't be done off balance sheet. We need to better regulate this thing.''
Companies in Mexico have rushed to disclose their dollar liabilities as stocks tumbled. Banco Compartamos SAB, a bank that lends to the working poor, said it has no dollar liabilities or derivatives.
Promotora Ambiental SAB, a waste-disposal company, said a third of its 1.04 billion pesos in debt is denominated in dollars and 87 percent of its debt excluding certain projects is hedged through June. Empresas ICA SAB, Mexico's biggest construction company, said the drop in the peso will not have a ``material effect'' on its financial results.
Grupo Industrial Saltillo SAB, a maker of auto parts and building materials, said it took a charge of 600 million pesos in the third quarter because of derivatives, or securities that derive their value from an underlying asset, linked to exchange rates. The stock started trading again yesterday after the company's disclosure, dropping 15 percent to 10 pesos.
Bankruptcy Filing
Controladora Comercial Mexicana's bankruptcy filing came after the company failed to sell commercial paper yesterday that would have allowed it to repay 400 million pesos of debt due yesterday, Moody's Investors Service said. Comercial Mexicana, which said it has $1.08 billion in financial derivatives, and liabilities of $2 billion, fell 75 percent today to 2.16 pesos.
Mexico's exchange halts trading when shares rise or fall more than 15 percent until the company makes a statement about the move, and may suspend them again if the decline continues. Shares also can be suspended when the bourse determines more information is warranted, according to regulations on the exchange's Web site.
``It's important that companies provide enough information so investors can make the adequate decisions,'' Prieto Trevino said.
To contact the reporter on this story: William Freebairn in Mexico City at wfreebairn@bloomberg.net; Fabiola Moura in New York at fdemoura@bloomberg.net
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Enlarge Image/Details
Oct. 10 (Bloomberg) -- Mexico's stock exchange is demanding companies give investors more information about their finances as the peso's 18 percent tumble in two weeks raises concern businesses will face growing foreign exchange-related losses.
The Bolsa Mexicana de Valores SAB halted trading in shares of more than 30 companies this week in a bid to increase disclosure, the exchange's President Guillermo Prieto Trevino said in an interview in New York. Controladora Comercial Mexicana SAB, a supermarket operator, filed for bankruptcy yesterday after saying foreign-currency costs rose ``significantly.'' The stock tumbled and trading was suspended.
``We are working with all the companies whose trading was halted to make sure they are fully aware that they need to provide information to the market,'' Prieto Trevino said.
Since Mexican President Felipe Calderon said Sept. 25 in New York that his country could weather the global credit-market crisis, the central bank has drawn on near-record foreign reserves to prop up the peso, the benchmark stock index dropped 22 percent and the government unveiled a 65.1 billion-peso ($5 billion) stimulus plan to help tourism, energy and construction industries overcome an economic slowdown.
``People say that when the United States gets a cold, Mexico gets pneumonia,'' Calderon told a gathering of the Economic Club of New York on Sept. 25. ``This is not exactly the case today.''
Stocks Fall
The Bolsa stock index fell 2 percent today to 19,905.27, a seventh straight decline.
The central bank spent $8.9 billion defending the peso the past three days after the currency touched its lowest level since the 1994 devaluation. The peso, which traded at 10.7125 per dollar two weeks ago, rose 1.3 percent today to 13.0452.
Mexico's credit markets will tighten as domestic companies that sought funding in the U.S. begin to search for financing at home, Deputy Central Bank Governor Guillermo Guemez Garcia said in an interview yesterday with Bloomberg Television.
``They will have to go to the Mexican market and that will cause some sort of credit crunch that will increase the cost of credit,'' Guemez said in the interview in New York.
The credit squeeze has also spread to companies in Brazil, where two of the nation's biggest exporters, Aracruz Celulose SA and Sadia SA, lost more than half of their market value since saying last month they made bad currency bets that may cost them a combined $1.2 billion. Aracruz had its long-term foreign currency rating cut to BBB- from BBB today by Standard & Poor's.
`Got to Be More'
``From an investor's standpoint there's got to be more disclosure,'' said Will Landers, who manages $5 billion in Latin American equities at BlackRock Inc. in New York. ``They have to do these things on balance sheet. They shouldn't be done off balance sheet. We need to better regulate this thing.''
Companies in Mexico have rushed to disclose their dollar liabilities as stocks tumbled. Banco Compartamos SAB, a bank that lends to the working poor, said it has no dollar liabilities or derivatives.
Promotora Ambiental SAB, a waste-disposal company, said a third of its 1.04 billion pesos in debt is denominated in dollars and 87 percent of its debt excluding certain projects is hedged through June. Empresas ICA SAB, Mexico's biggest construction company, said the drop in the peso will not have a ``material effect'' on its financial results.
Grupo Industrial Saltillo SAB, a maker of auto parts and building materials, said it took a charge of 600 million pesos in the third quarter because of derivatives, or securities that derive their value from an underlying asset, linked to exchange rates. The stock started trading again yesterday after the company's disclosure, dropping 15 percent to 10 pesos.
Bankruptcy Filing
Controladora Comercial Mexicana's bankruptcy filing came after the company failed to sell commercial paper yesterday that would have allowed it to repay 400 million pesos of debt due yesterday, Moody's Investors Service said. Comercial Mexicana, which said it has $1.08 billion in financial derivatives, and liabilities of $2 billion, fell 75 percent today to 2.16 pesos.
Mexico's exchange halts trading when shares rise or fall more than 15 percent until the company makes a statement about the move, and may suspend them again if the decline continues. Shares also can be suspended when the bourse determines more information is warranted, according to regulations on the exchange's Web site.
``It's important that companies provide enough information so investors can make the adequate decisions,'' Prieto Trevino said.
To contact the reporter on this story: William Freebairn in Mexico City at wfreebairn@bloomberg.net; Fabiola Moura in New York at fdemoura@bloomberg.net
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Lear, Chesapeake, New York & Co., Williams: U.S. Equity Preview
By Lu Wang
Oct. 10 (Bloomberg) -- The following companies may have unusual price changes in U.S. trading on Oct. 13. Stock symbols are in parentheses, and share prices are as of 5:30 p.m. in New York, unless otherwise specified.
Standard & Poor's 500 Index futures expiring in December lost 21.50, or 2.4 percent, to 891. Dow Jones Industrial Average futures fell 228, or 2.7 percent, to 8,370. Nasdaq-100 Index futures rose 10.50, or 0.8 percent, to 1,282.50.
Chesapeake Energy Corp. (CHK US): The petroleum producer said Chief Executive Officer Aubrey McClendon involuntarily sold ``substantially'' all of his shares in the company over the past three days to meet margin loan calls. The stock fell 6.7 percent to $16.52 in regular trading.
Group 1 Automotive Inc. (GPI US): The owner of more than 100 car dealerships in the U.S. and U.K. said third-quarter earnings were lower than forecast and said it's reviewing its full-year forecast. The stock lost 0.4 percent to $13.62 in regular trading.
Lear Corp. (LEA US): The world's second-largest maker of automotive seats reduced its 2008 earnings forecast by about 20 percent, citing ``deteriorating and volatile industry and general economic conditions.'' The stock slumped 16 percent to $6.10 in regular trading.
MBIA Inc. (MBI US): Third Avenue Management LLC held 11.3 percent of MBIA's common stock as of Sept. 30, down from 14.3 percent at the end of the previous quarter, according to a regulatory filing. The stock fell 8.1 percent to $5.88 in regular trading.
New York & Co. (NWY US) slumped $1.44, or 20 percent, to $5.81. The women's clothing retailer said it expects a loss of as much as 12 cents a share in the third quarter as sales declined. Analysts, on average, anticipated the company to earn 11 cents a share, according to a Bloomberg survey.
Wells Fargo & Co. (WFC US): The lender's credit rating may be cut by Moody's Investors Service because of increased risk the company faces in acquiring Wachovia Corp. (WB US). The stock rose 3.9 percent to $28.31 in regular trading.
Williams Cos. (WMB US): The pipeline company that gets 15 percent of its revenue from natural gas exploration and production said hurricanes Gustav and Ike reduced third-quarter profit by $50 million to $70 million. The stock fell 7.7 percent to $14.40 in regular trading.
To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net
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Oct. 10 (Bloomberg) -- The following companies may have unusual price changes in U.S. trading on Oct. 13. Stock symbols are in parentheses, and share prices are as of 5:30 p.m. in New York, unless otherwise specified.
Standard & Poor's 500 Index futures expiring in December lost 21.50, or 2.4 percent, to 891. Dow Jones Industrial Average futures fell 228, or 2.7 percent, to 8,370. Nasdaq-100 Index futures rose 10.50, or 0.8 percent, to 1,282.50.
Chesapeake Energy Corp. (CHK US): The petroleum producer said Chief Executive Officer Aubrey McClendon involuntarily sold ``substantially'' all of his shares in the company over the past three days to meet margin loan calls. The stock fell 6.7 percent to $16.52 in regular trading.
Group 1 Automotive Inc. (GPI US): The owner of more than 100 car dealerships in the U.S. and U.K. said third-quarter earnings were lower than forecast and said it's reviewing its full-year forecast. The stock lost 0.4 percent to $13.62 in regular trading.
Lear Corp. (LEA US): The world's second-largest maker of automotive seats reduced its 2008 earnings forecast by about 20 percent, citing ``deteriorating and volatile industry and general economic conditions.'' The stock slumped 16 percent to $6.10 in regular trading.
MBIA Inc. (MBI US): Third Avenue Management LLC held 11.3 percent of MBIA's common stock as of Sept. 30, down from 14.3 percent at the end of the previous quarter, according to a regulatory filing. The stock fell 8.1 percent to $5.88 in regular trading.
New York & Co. (NWY US) slumped $1.44, or 20 percent, to $5.81. The women's clothing retailer said it expects a loss of as much as 12 cents a share in the third quarter as sales declined. Analysts, on average, anticipated the company to earn 11 cents a share, according to a Bloomberg survey.
Wells Fargo & Co. (WFC US): The lender's credit rating may be cut by Moody's Investors Service because of increased risk the company faces in acquiring Wachovia Corp. (WB US). The stock rose 3.9 percent to $28.31 in regular trading.
Williams Cos. (WMB US): The pipeline company that gets 15 percent of its revenue from natural gas exploration and production said hurricanes Gustav and Ike reduced third-quarter profit by $50 million to $70 million. The stock fell 7.7 percent to $14.40 in regular trading.
To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net
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U.S. Stocks Drop in Rollercoaster Day; Dow Swings 1,000 Points
By Lynn Thomasson
Oct. 10 (Bloomberg) -- U.S. stocks fell for an eighth straight day in a whipsaw session that sent the Dow Jones Industrial Average to its biggest point swing ever.
The Dow posted the steepest weekly slide in the history of the 30-stock average and the Standard & Poor's 500 Index capped its worst week since 1933, as concern the financial crisis will drag the economy into a recession pushed Morgan Stanley and CBS Corp. down more than 20 percent and Exxon Mobil Corp. more than 8 percent. The Dow recovered from a 697-point tumble and rose as much as 322 points in the last hour as an industry group said the bankruptcy auction of Lehman Brothers Holdings Inc.'s debt won't worsen credit losses.
``At this point, investors are just focusing on getting through the day,'' said Alan Gayle, the Richmond, Virginia-based senior strategist at Ridgeworth Investments, which oversees about $70 billion. ``The markets are being driven by emotion and rumor.''
The S&P 500 slipped 10.7 points, or 1.2 percent, to 899.22. The Dow lost 128 points, or 1.5 percent, to 8,451.19. Both gauges extended their weekly drops to 18.2 percent and closed at the lowest levels in 5 1/2 years. The Nasdaq Composite Index added 4.39 points to 1,649.51. Eleven stocks fell for every 10 that rose on the New York Stock Exchange.
Global Rout
European and Asian benchmark indexes posted their worst weekly retreats on record as exchanges in Russia, Indonesia and Ukraine suspended trading in an effort to halt a global rout that has wiped out $25 trillion from global equities this year.
Developing country stocks also posted a record weekly plunge, with the MSCI Emerging Market Index losing 21 percent, led by a 20 percent slide in Brazil's benchmark index and a 16 percent retreat in India.
Comments from President George W. Bush and Italian Prime Minister Silvio Berlusconi did nothing to restore confidence in financial markets and slow the global rout. Officials from the Group of Seven nations gathered for talks in Washington this weekend to discuss the crisis.
The Dow twice recovered from drops of 500 points or more, first in the opening hour and again after 2 p.m. The afternoon rally pushed the 30-stock index as high as 8,901.28 before the gains were surrendered in the final minutes.
The Dow had one bigger weekly retreat in its 112-year history, a 23 percent tumble in 1914 before the average was expanded to 30 stocks in 1928.
Eight-Day Streak
The S&P 500's eight-day losing streak is its longest since 1996. This week's declines pushed both the S&P 500 and Dow down more than 40 percent from their peaks last October. The S&P 500 ended the week trading for 17 times reported earnings of its companies, the cheapest valuation in more than a year.
The market's ``fear gauge,'' as the Chicago Board Options Exchange Volatility Index is known, climbed to a fifth- consecutive record. The measure, which gauges the cost of using options as insurance against further stock declines, has tripled since the beginning of September.
Almost 3 billion shares changed hands on the floor of the NYSE, more than twice the three-month daily average and the third-highest level since Bloomberg began compiling the data in 1988.
The S&P 500 Energy Index, once the year's best-performing group, slumped 8 percent and lost 19 percent over the past two days. Oil fell below $80 a barrel for the first time in a year on concern the weakening economy will crimp demand.
Energy Slump
Exxon Mobil was the biggest drag on the S&P 500, losing 8.3 percent to $62.36. Chevron Corp. and ConocoPhillips were the second and third biggest drags, losing more than 9 percent each.
Newmont Mining Co., the largest U.S. gold producer, slid 14 percent to $29.23 as bullion tumbled and copper lost 11 percent to cap its worst week in two decades.
Morgan Stanley sank $2.77, or 22 percent, to a 12-year low of $9.68, while Goldman Sachs Group Inc. fell $12.55, or 12 percent, to $88.80 after their credit outlooks were cut to negative by Moody's Investors Service. The review of Morgan Stanley's A1 long-term credit rating affects about $200 billion of debt, Moody's said. The ratings assessor affirmed its Prime-1 grade for Morgan Stanley's short-term debt.
The negative outlook for Goldman Aa3 long-term rating affects $175 billion of debt, and the company's short-term ratings were also affirmed at Prime-1.
Credit Freeze
Credit markets stayed frozen as the cost of borrowing in dollars in London for three months rose for a fourth consecutive day. The London interbank offered rate, or Libor, that banks charge each other for such loans climbed 7 basis points to 4.82 percent today, a high for the year, the British Bankers' Association said.
The late-day rally in financial shares came after the International Swaps and Derivatives Association Inc. said Lehman's debt had ``little or no'' unanticipated costs and didn't cause any firms to fail. Sellers of credit-default protection on bankrupt Lehman's debt will have to pay holders more than 91 cents on the dollar after an auction today, setting up the biggest-ever payout in the $55 trillion market.
Citigroup Inc. climbed 9.1 percent to $14.11 paring its decline this week to 23 percent. Bank of America Corp. added 6.3 percent to $20.87 and JPMorgan Chase & Co. rose 14 percent to $41.64.
The S&P 500 Financials Index added 7 percent, reversing a drop of the same size and paring its weekly loss to 11 percent.
Macy's, CBS
Macy's Inc. slid $1.54, or 13 percent, to $9.92. The second-biggest U.S. department-store company cut its annual profit forecast, citing the weakened economy and diminished consumer confidence. Earnings per share this year may decline to $1.30 to $1.50, compared with its earlier projection of $1.70 to $1.85, the retailer said.
CBS Corp. fell the most in at least 17 years, tumbling 20 percent to $8.10. The producer of television and radio shows reported a decrease in third-quarter profit on weakening advertising sales and said it's planning to take a $14 billion charge to reflect the declining value of its assets.
``This is still a Category 4 hurricane,'' said Scott Black, founder and president of Delphi Management Inc. in Boston, which has about $1.4 billion under management. ``I don't really think the market is going to zero, but for people who have cash on the sidelines, they can wait until the storm passes.''
Regionals Rally
Regional banks in the S&P 500 climbed 9.5 percent as a group in early trading and led the market higher for about 10 minutes in early trading on speculation mergers will accelerate and they will gain market shares from larger rivals hit worse by the credit crisis.
M&T Bank Corp. helped paced the gains as Robert W. Baird & Co. raised its rating on the lender whose second-largest shareholder is Berkshire Hathaway Inc. and said the shares are more attractive following a plunge that erased almost a third of the stock's value.
M&T Bank increased 12 percent to $72.75. Marshall & Ilsley Corp., PNC Financial Services Group Inc. and Zions Bancorporation each climbed more than 13 percent.
The New York Stock Exchange and Nasdaq Stock Market may propose a temporary ban on short sales for individual stocks that plunge as regulators seek to rein in short-selling, according to three people who have seen a draft of the rule. The plan, which may be submitted as soon as today, would require a stock that closes down more than 20 percent be protected from short sellers for the following three days, the people said.
Earnings Slump
Analysts expect a 7.5 percent drop in third-quarter profit at S&P 500 companies, according to a Bloomberg survey published today. Last week, the consensus was for a decline of 5.6 percent. Earnings at financial companies are forecast to slump 74 percent on average in the period.
Europe's Stoxx 600 slumped 7.5 percent, extending this week's decline to 22 percent, the most since records began in January 1987.
The gauge trades at 8.5 times profit, the cheapest since 1981.
``The problem is the rules of valuation no longer exist,'' said Pierre-Yves Gauthier, founding partner of Alphavalue SAS in Paris. ``It's best to remain cautious. The economic slowdown is here. A recession could be heavy.''
To contact the reporter for this story: Lynn Thomasson in New York at lthomasson@bloomberg.net;
Read more...
Oct. 10 (Bloomberg) -- U.S. stocks fell for an eighth straight day in a whipsaw session that sent the Dow Jones Industrial Average to its biggest point swing ever.
The Dow posted the steepest weekly slide in the history of the 30-stock average and the Standard & Poor's 500 Index capped its worst week since 1933, as concern the financial crisis will drag the economy into a recession pushed Morgan Stanley and CBS Corp. down more than 20 percent and Exxon Mobil Corp. more than 8 percent. The Dow recovered from a 697-point tumble and rose as much as 322 points in the last hour as an industry group said the bankruptcy auction of Lehman Brothers Holdings Inc.'s debt won't worsen credit losses.
``At this point, investors are just focusing on getting through the day,'' said Alan Gayle, the Richmond, Virginia-based senior strategist at Ridgeworth Investments, which oversees about $70 billion. ``The markets are being driven by emotion and rumor.''
The S&P 500 slipped 10.7 points, or 1.2 percent, to 899.22. The Dow lost 128 points, or 1.5 percent, to 8,451.19. Both gauges extended their weekly drops to 18.2 percent and closed at the lowest levels in 5 1/2 years. The Nasdaq Composite Index added 4.39 points to 1,649.51. Eleven stocks fell for every 10 that rose on the New York Stock Exchange.
Global Rout
European and Asian benchmark indexes posted their worst weekly retreats on record as exchanges in Russia, Indonesia and Ukraine suspended trading in an effort to halt a global rout that has wiped out $25 trillion from global equities this year.
Developing country stocks also posted a record weekly plunge, with the MSCI Emerging Market Index losing 21 percent, led by a 20 percent slide in Brazil's benchmark index and a 16 percent retreat in India.
Comments from President George W. Bush and Italian Prime Minister Silvio Berlusconi did nothing to restore confidence in financial markets and slow the global rout. Officials from the Group of Seven nations gathered for talks in Washington this weekend to discuss the crisis.
The Dow twice recovered from drops of 500 points or more, first in the opening hour and again after 2 p.m. The afternoon rally pushed the 30-stock index as high as 8,901.28 before the gains were surrendered in the final minutes.
The Dow had one bigger weekly retreat in its 112-year history, a 23 percent tumble in 1914 before the average was expanded to 30 stocks in 1928.
Eight-Day Streak
The S&P 500's eight-day losing streak is its longest since 1996. This week's declines pushed both the S&P 500 and Dow down more than 40 percent from their peaks last October. The S&P 500 ended the week trading for 17 times reported earnings of its companies, the cheapest valuation in more than a year.
The market's ``fear gauge,'' as the Chicago Board Options Exchange Volatility Index is known, climbed to a fifth- consecutive record. The measure, which gauges the cost of using options as insurance against further stock declines, has tripled since the beginning of September.
Almost 3 billion shares changed hands on the floor of the NYSE, more than twice the three-month daily average and the third-highest level since Bloomberg began compiling the data in 1988.
The S&P 500 Energy Index, once the year's best-performing group, slumped 8 percent and lost 19 percent over the past two days. Oil fell below $80 a barrel for the first time in a year on concern the weakening economy will crimp demand.
Energy Slump
Exxon Mobil was the biggest drag on the S&P 500, losing 8.3 percent to $62.36. Chevron Corp. and ConocoPhillips were the second and third biggest drags, losing more than 9 percent each.
Newmont Mining Co., the largest U.S. gold producer, slid 14 percent to $29.23 as bullion tumbled and copper lost 11 percent to cap its worst week in two decades.
Morgan Stanley sank $2.77, or 22 percent, to a 12-year low of $9.68, while Goldman Sachs Group Inc. fell $12.55, or 12 percent, to $88.80 after their credit outlooks were cut to negative by Moody's Investors Service. The review of Morgan Stanley's A1 long-term credit rating affects about $200 billion of debt, Moody's said. The ratings assessor affirmed its Prime-1 grade for Morgan Stanley's short-term debt.
The negative outlook for Goldman Aa3 long-term rating affects $175 billion of debt, and the company's short-term ratings were also affirmed at Prime-1.
Credit Freeze
Credit markets stayed frozen as the cost of borrowing in dollars in London for three months rose for a fourth consecutive day. The London interbank offered rate, or Libor, that banks charge each other for such loans climbed 7 basis points to 4.82 percent today, a high for the year, the British Bankers' Association said.
The late-day rally in financial shares came after the International Swaps and Derivatives Association Inc. said Lehman's debt had ``little or no'' unanticipated costs and didn't cause any firms to fail. Sellers of credit-default protection on bankrupt Lehman's debt will have to pay holders more than 91 cents on the dollar after an auction today, setting up the biggest-ever payout in the $55 trillion market.
Citigroup Inc. climbed 9.1 percent to $14.11 paring its decline this week to 23 percent. Bank of America Corp. added 6.3 percent to $20.87 and JPMorgan Chase & Co. rose 14 percent to $41.64.
The S&P 500 Financials Index added 7 percent, reversing a drop of the same size and paring its weekly loss to 11 percent.
Macy's, CBS
Macy's Inc. slid $1.54, or 13 percent, to $9.92. The second-biggest U.S. department-store company cut its annual profit forecast, citing the weakened economy and diminished consumer confidence. Earnings per share this year may decline to $1.30 to $1.50, compared with its earlier projection of $1.70 to $1.85, the retailer said.
CBS Corp. fell the most in at least 17 years, tumbling 20 percent to $8.10. The producer of television and radio shows reported a decrease in third-quarter profit on weakening advertising sales and said it's planning to take a $14 billion charge to reflect the declining value of its assets.
``This is still a Category 4 hurricane,'' said Scott Black, founder and president of Delphi Management Inc. in Boston, which has about $1.4 billion under management. ``I don't really think the market is going to zero, but for people who have cash on the sidelines, they can wait until the storm passes.''
Regionals Rally
Regional banks in the S&P 500 climbed 9.5 percent as a group in early trading and led the market higher for about 10 minutes in early trading on speculation mergers will accelerate and they will gain market shares from larger rivals hit worse by the credit crisis.
M&T Bank Corp. helped paced the gains as Robert W. Baird & Co. raised its rating on the lender whose second-largest shareholder is Berkshire Hathaway Inc. and said the shares are more attractive following a plunge that erased almost a third of the stock's value.
M&T Bank increased 12 percent to $72.75. Marshall & Ilsley Corp., PNC Financial Services Group Inc. and Zions Bancorporation each climbed more than 13 percent.
The New York Stock Exchange and Nasdaq Stock Market may propose a temporary ban on short sales for individual stocks that plunge as regulators seek to rein in short-selling, according to three people who have seen a draft of the rule. The plan, which may be submitted as soon as today, would require a stock that closes down more than 20 percent be protected from short sellers for the following three days, the people said.
Earnings Slump
Analysts expect a 7.5 percent drop in third-quarter profit at S&P 500 companies, according to a Bloomberg survey published today. Last week, the consensus was for a decline of 5.6 percent. Earnings at financial companies are forecast to slump 74 percent on average in the period.
Europe's Stoxx 600 slumped 7.5 percent, extending this week's decline to 22 percent, the most since records began in January 1987.
The gauge trades at 8.5 times profit, the cheapest since 1981.
``The problem is the rules of valuation no longer exist,'' said Pierre-Yves Gauthier, founding partner of Alphavalue SAS in Paris. ``It's best to remain cautious. The economic slowdown is here. A recession could be heavy.''
To contact the reporter for this story: Lynn Thomasson in New York at lthomasson@bloomberg.net;
Read more...
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