By Chua Kong Ho and Chan Tien Hin
Oct. 14 (Bloomberg) -- Asian stocks surged, driving Japan's Nikkei 225 Stock Average to its biggest gain in 18 years, after the U.S. and European governments agreed to buy stakes in banks.
U.S. futures rose and the dollar advanced against the yen, while Treasuries fell. The Nikkei jumped 12.3 percent, rebounding from its worst week on record. Japanese markets were shut for a holiday yesterday. Sony Corp., Sumitomo Mitsui Financial Group Inc. and Toyota Motor Corp. all soared more than 14 percent. National Australia Bank Ltd. added 9.6 percent in Sydney and Woori Finance Holdings Co. rose 11 percent in Seoul as people briefed on the matter said the U.S. will buy stakes in nine banks.
Governments are ``tackling the root of the problem,'' said Christopher Wong, who helps manage about $25 billion in assets as investment manager at Aberdeen Asset Management Asia Ltd. in Singapore. ``They're putting confidence back into the market by not just adding liquidity but adding strength to the banks that serve main street.''
The MSCI Asia Pacific Index rose 6.7 percent to 94.61 as of 10:11 a.m. in Tokyo, poised for its biggest advance since 1998. Australia's S&P/ASX 200 gained 5.9 percent, the most since October 1997, and extending yesterday's 5.5 percent climb. South Korea's Kospi Index jumped 5.6 percent, bringing its two-day gain to 9.5 percent.
U.S. stocks staged the largest rally yesterday in seven decades. The Standard & Poor's 500 Index rebounded from its worst week in 75 years with an 11.6 percent advance, its steepest since 1939. S&P 500 futures gained 1.9 percent.
Governments across the globe stepped up measures to support banks after global stock markets lost $7 trillion of their value last week, driving the MSCI World Index down 20 percent.
The Bush administration will announce a plan that includes spending about half of a total of $250 billion for stakes in nine banks including Citigroup Inc., Goldman Sachs Group Inc. and Morgan Stanley, said the people.
France, Germany, Spain, the Netherlands and Austria have committed $1.8 trillion to guarantee bank loans and take stakes in lenders. The U.K. agreed to invest 37 billion pounds ($64 billion) in banks including Royal Bank of Scotland Group Plc.
To contact the reporter for this story: Chua Kong Ho in Shanghai at kchua6@bloomberg.net; Chan Tien Hin in Kuala Lumpur at thchan@bloomberg.net
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Tuesday, October 14, 2008
Japanese Stocks Surge on Bank Support Plans; Nikkei Jumps 13%
By Masaki Kondo
Oct. 14 (Bloomberg) -- Japanese stocks surged, driving the Nikkei 225 Stock Average up 13 percent and triggering a halt in futures trading after U.S. and European governments stepped up measures to avert a collapse in the global financial industry.
Sumitomo Trust and Banking Co., Japan's fifth-biggest listed bank, jumped 10 percent as people briefed on the matter said the U.S. will buy stakes in nine banks. Mitsubishi UFJ Financial Group Inc. was set to gain after closing its $9 billion investment in Morgan Stanley. Japanese markets were closed yesterday for a holiday, when global stock markets surged.
``Panic selling that prevailed in the market last week is over,'' said Mamoru Shimode, chief equity strategist at Deutsche Bank AG, in an interview with Bloomberg Television. ``Investors will start assessing the impact of the financial crisis on company earnings.''
The Nikkei 225 Stock Average climbed 1,034.46, or 13 percent, to 9,310.89 as of 9:53 a.m. in Tokyo, set for the biggest advance since Oct. 2, 1990. The broader Topix index rose 102.18, or 12 percent, to 943.04. Last week, the Nikkei tumbled 24 percent and the Topix fell 20 percent, both the biggest weekly drops on record.
Governments across the globe stepped up measures to support banks after global stock markets lost $7 trillion of their value last week, driving the MSCI World Index down by 20 percent.
The Bush administration will announce a plan that includes spending about half of a total of $250 billion for stakes in nine banks including Citigroup Inc., Goldman Sachs Group Inc. and Morgan Stanley, said the people.
France, Germany, Spain, the Netherlands and Austria have committed $1.8 trillion to guarantee bank loans and take stakes in lenders. The U.K. agreed to invest 37 billion pounds ($64 billion) in banks including Royal Bank of Scotland Group Plc.
Sumitomo Trust jumped 12 percent, the most since Sept. 19, to 656. Mitsubishi UFJ, Mizuho Financial Group Inc. and Sumitomo Mitsui Financial Group Inc., Japan's three biggest listed banks, weren't traded because orders to buy outnumbered those to sell. Only 30 stocks on the Nikkei 225 were traded.
The Osaka Securities Exchange, Japan's main derivatives market, halted trading in Nikkei 225 Stock Average futures for 15 minutes until 9:25 a.m. after the stock-market rally triggered circuit breakers.
To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net.
Read more...
Oct. 14 (Bloomberg) -- Japanese stocks surged, driving the Nikkei 225 Stock Average up 13 percent and triggering a halt in futures trading after U.S. and European governments stepped up measures to avert a collapse in the global financial industry.
Sumitomo Trust and Banking Co., Japan's fifth-biggest listed bank, jumped 10 percent as people briefed on the matter said the U.S. will buy stakes in nine banks. Mitsubishi UFJ Financial Group Inc. was set to gain after closing its $9 billion investment in Morgan Stanley. Japanese markets were closed yesterday for a holiday, when global stock markets surged.
``Panic selling that prevailed in the market last week is over,'' said Mamoru Shimode, chief equity strategist at Deutsche Bank AG, in an interview with Bloomberg Television. ``Investors will start assessing the impact of the financial crisis on company earnings.''
The Nikkei 225 Stock Average climbed 1,034.46, or 13 percent, to 9,310.89 as of 9:53 a.m. in Tokyo, set for the biggest advance since Oct. 2, 1990. The broader Topix index rose 102.18, or 12 percent, to 943.04. Last week, the Nikkei tumbled 24 percent and the Topix fell 20 percent, both the biggest weekly drops on record.
Governments across the globe stepped up measures to support banks after global stock markets lost $7 trillion of their value last week, driving the MSCI World Index down by 20 percent.
The Bush administration will announce a plan that includes spending about half of a total of $250 billion for stakes in nine banks including Citigroup Inc., Goldman Sachs Group Inc. and Morgan Stanley, said the people.
France, Germany, Spain, the Netherlands and Austria have committed $1.8 trillion to guarantee bank loans and take stakes in lenders. The U.K. agreed to invest 37 billion pounds ($64 billion) in banks including Royal Bank of Scotland Group Plc.
Sumitomo Trust jumped 12 percent, the most since Sept. 19, to 656. Mitsubishi UFJ, Mizuho Financial Group Inc. and Sumitomo Mitsui Financial Group Inc., Japan's three biggest listed banks, weren't traded because orders to buy outnumbered those to sell. Only 30 stocks on the Nikkei 225 were traded.
The Osaka Securities Exchange, Japan's main derivatives market, halted trading in Nikkei 225 Stock Average futures for 15 minutes until 9:25 a.m. after the stock-market rally triggered circuit breakers.
To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net.
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Australian Stocks Rise Most in 10 Years on U.S. Rescue Measures
By Shani Raja
Oct. 14 (Bloomberg) -- Australian stocks rose the most in more than a decade, led by banks, energy and resources companies, on speculation U.S. measures to rescue the financial system will help revive the global economy.
Australia & New Zealand Banking Group Ltd. led financial stocks higher, surging 8.4 percent. BHP Billiton Ltd., the world's largest mining company, gained 4.7 percent. The U.S. government will announce a plan to rescue frozen credit markets that includes spending about half of a total of $250 billion for stakes in nine major banks, people briefed on the matter said.
``Confidence is returning preemptively,'' said Will Seddon, who helps oversee about $500 million at White Funds Management in Sydney. ``People don't want to be left out if and when there's a rally on the back of these initiatives by governments around the world.''
Australia's benchmark S&P/ASX 200 Index jumped 5.9 percent to 4,426.50 at 10:55 a.m. in Sydney, the most since Oct. 29, 1997, extending yesterday's 5.6 percent rally. The All Ordinaries Index surged 6.1 percent.
U.S. stocks staged the biggest rally in seven decades. The Standard & Poor's 500 Index rebounded from its worst week in 75 years with an 11.6 percent advance, its steepest since 1939.
To contact the reporter on this story: Shani Raja in Sydney at sraja4@bloomberg.net.
Read more...
Oct. 14 (Bloomberg) -- Australian stocks rose the most in more than a decade, led by banks, energy and resources companies, on speculation U.S. measures to rescue the financial system will help revive the global economy.
Australia & New Zealand Banking Group Ltd. led financial stocks higher, surging 8.4 percent. BHP Billiton Ltd., the world's largest mining company, gained 4.7 percent. The U.S. government will announce a plan to rescue frozen credit markets that includes spending about half of a total of $250 billion for stakes in nine major banks, people briefed on the matter said.
``Confidence is returning preemptively,'' said Will Seddon, who helps oversee about $500 million at White Funds Management in Sydney. ``People don't want to be left out if and when there's a rally on the back of these initiatives by governments around the world.''
Australia's benchmark S&P/ASX 200 Index jumped 5.9 percent to 4,426.50 at 10:55 a.m. in Sydney, the most since Oct. 29, 1997, extending yesterday's 5.6 percent rally. The All Ordinaries Index surged 6.1 percent.
U.S. stocks staged the biggest rally in seven decades. The Standard & Poor's 500 Index rebounded from its worst week in 75 years with an 11.6 percent advance, its steepest since 1939.
To contact the reporter on this story: Shani Raja in Sydney at sraja4@bloomberg.net.
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BHP, Cathay Pacific, Posco: Asia Ex-Japan Equity Preview
By Anuchit Nguyen
Oct. 14 (Bloomberg) -- The following companies may have unusual price changes in Asia trading, excluding Japan, today. Stock symbols are in parentheses, and share prices are from the previous close.
BHP Billiton Ltd. (BHP AU): The world's largest mining company declared force majeure allowing the company to miss copper concentrate deliveries from its Escondida mine in Chile, the world's largest, after an equipment failure. Minera Escondida Ltd., the mine manager, announced the force majeure after determining equipment problems at the Laguna Seca concentrator plant would curb output, the company said. BHP jumped A$2.26, or 8.2 percent, to A$30.
PT Bakrieland Development (ELTY IJ): The Indonesian property company, partly owned by U.S. hedge fund Avenue Capital Group, forecast profit this year will increase 37 percent on higher sales of homes and apartments. The Jakarta-based Bakrieland expects profit to rise to 183 billion rupiah ($18.6 million) this year, from 134 billion rupiah in 2007, Corporate Secretary Nurziman Nurdin said at a briefing in Jakarta. The stock dropped 85 rupiah, or 36 percent, to 150.
Cathay Pacific Airways Ltd. (293 HK): Hong Kong's largest carrier posted an 0.7 percent decline in September passenger numbers, the first drop in 20 months, as the credit crunch deterred travelers from taking trips. The airline flew 1.88 million passengers last month, it said in an e-mailed statement. The stock jumped 70 cents, or 7.1 percent, to HK$10.60.
China Southern Airlines Co. (1055 HK): Asia's largest carrier by passenger numbers reported a 1.1 percent decline in traffic last month as the government curbed Beijing flights to cut emissions around the Olympics and Paralympics. The airline flew 4.96 million travelers last month, it said on its Web site. China Southern rose 4 cents, or 3.3 percent, to HK$1.24.
Hyundai Motor Co. (005380 KS): South Korea's largest automaker will spend 214 billion won ($173 million) building an automatic transmission plant in Ulsan, home to its biggest domestic factory. Construction will begin this month and be completed by the end of 2009, the Seoul-based carmaker said in a regulatory filing. The stock dropped 200 won, or 0.3 percent, to 68,400.
Malayan Banking Bhd. (MAY MK): Permodalan Nasional Bhd., a Malaysian state asset manager, bought 1 million shares in the nation's biggest bank, lifting its stake to 271.5 million shares, or 5.6 percent, a stock exchange filing showed. Permodalan bought the shares on Oct. 8, it said in the filing. Maybank has fallen 28 percent in one month. It was unchanged at 5.55 ringgit.
Posco (005490 KS): Posco, Asia's third-biggest steelmaker, Hyundai Heavy Industries Co. and Hanwha Group submitted their final bids for a controlling stake in Daewoo Shipbuilding & Marine Engineering Co.. Posco spokeswoman Ko Min Jin said its joint bid with GS Group was submitted to Korea Development Bank, Daewoo Shipbuilding's biggest creditor. Posco rose 18,500 won, or 5.2 percent, to 376,500. Hyundai Heavy (009540 KS), the world's largest shipbuilder, climbed 4,000 won, or 2 percent, to 201,000. Daewoo Shipbuilding (042660 KS) rose 1,650 won, or 9.2 percent, to 19,500.
Petra Perdana Bhd. (PETR MK): The Malaysian oil and gas services provider said its Petra Marine Australia Pty joint- venture unit signed its first time-charter contract with Murphy Australia Pty. The contract involves Petra providing a vessel for 62 days with an option to extend for a further 30 days, it said in a statement. Petra added 2 sen, or 0.8 percent, to 2.67 ringgit.
Reliance Communications Ltd. (RCOM IN): India's second- largest mobile-phone operator, added 1.76 million subscribers in September, the Mumbai-based company said in a text message. Reliance jumped 43.6 rupees, or 18 percent, to 282.1.
To contact the reporter on this story: Anuchit Nguyen in Bangkok at anguyen@bloomberg.net.
Read more...
Oct. 14 (Bloomberg) -- The following companies may have unusual price changes in Asia trading, excluding Japan, today. Stock symbols are in parentheses, and share prices are from the previous close.
BHP Billiton Ltd. (BHP AU): The world's largest mining company declared force majeure allowing the company to miss copper concentrate deliveries from its Escondida mine in Chile, the world's largest, after an equipment failure. Minera Escondida Ltd., the mine manager, announced the force majeure after determining equipment problems at the Laguna Seca concentrator plant would curb output, the company said. BHP jumped A$2.26, or 8.2 percent, to A$30.
PT Bakrieland Development (ELTY IJ): The Indonesian property company, partly owned by U.S. hedge fund Avenue Capital Group, forecast profit this year will increase 37 percent on higher sales of homes and apartments. The Jakarta-based Bakrieland expects profit to rise to 183 billion rupiah ($18.6 million) this year, from 134 billion rupiah in 2007, Corporate Secretary Nurziman Nurdin said at a briefing in Jakarta. The stock dropped 85 rupiah, or 36 percent, to 150.
Cathay Pacific Airways Ltd. (293 HK): Hong Kong's largest carrier posted an 0.7 percent decline in September passenger numbers, the first drop in 20 months, as the credit crunch deterred travelers from taking trips. The airline flew 1.88 million passengers last month, it said in an e-mailed statement. The stock jumped 70 cents, or 7.1 percent, to HK$10.60.
China Southern Airlines Co. (1055 HK): Asia's largest carrier by passenger numbers reported a 1.1 percent decline in traffic last month as the government curbed Beijing flights to cut emissions around the Olympics and Paralympics. The airline flew 4.96 million travelers last month, it said on its Web site. China Southern rose 4 cents, or 3.3 percent, to HK$1.24.
Hyundai Motor Co. (005380 KS): South Korea's largest automaker will spend 214 billion won ($173 million) building an automatic transmission plant in Ulsan, home to its biggest domestic factory. Construction will begin this month and be completed by the end of 2009, the Seoul-based carmaker said in a regulatory filing. The stock dropped 200 won, or 0.3 percent, to 68,400.
Malayan Banking Bhd. (MAY MK): Permodalan Nasional Bhd., a Malaysian state asset manager, bought 1 million shares in the nation's biggest bank, lifting its stake to 271.5 million shares, or 5.6 percent, a stock exchange filing showed. Permodalan bought the shares on Oct. 8, it said in the filing. Maybank has fallen 28 percent in one month. It was unchanged at 5.55 ringgit.
Posco (005490 KS): Posco, Asia's third-biggest steelmaker, Hyundai Heavy Industries Co. and Hanwha Group submitted their final bids for a controlling stake in Daewoo Shipbuilding & Marine Engineering Co.. Posco spokeswoman Ko Min Jin said its joint bid with GS Group was submitted to Korea Development Bank, Daewoo Shipbuilding's biggest creditor. Posco rose 18,500 won, or 5.2 percent, to 376,500. Hyundai Heavy (009540 KS), the world's largest shipbuilder, climbed 4,000 won, or 2 percent, to 201,000. Daewoo Shipbuilding (042660 KS) rose 1,650 won, or 9.2 percent, to 19,500.
Petra Perdana Bhd. (PETR MK): The Malaysian oil and gas services provider said its Petra Marine Australia Pty joint- venture unit signed its first time-charter contract with Murphy Australia Pty. The contract involves Petra providing a vessel for 62 days with an option to extend for a further 30 days, it said in a statement. Petra added 2 sen, or 0.8 percent, to 2.67 ringgit.
Reliance Communications Ltd. (RCOM IN): India's second- largest mobile-phone operator, added 1.76 million subscribers in September, the Mumbai-based company said in a text message. Reliance jumped 43.6 rupees, or 18 percent, to 282.1.
To contact the reporter on this story: Anuchit Nguyen in Bangkok at anguyen@bloomberg.net.
Read more...
Australian Dollar Posts Record Two-Day Gain on Global Rescues
By Candice Zachariahs
Oct. 14 (Bloomberg) -- The Australian dollar soared, posting its biggest ever two-day gains against the greenback and the yen, after governments worldwide announced measures to stabilize financial systems. New Zealand's currency also rose.
The currencies, favorites for so-called carry trades, advanced after U.S. stocks rallied the most since the 1930s on a government plan to buy stakes in banks. France, Germany, Spain, the Netherlands and Austria committed 1.3 trillion euros ($1.8 trillion) to guarantee loans and buy stakes in lenders.
``The market's been cheered by all the colossal plans announced since the weekend,'' said Sue Trinh, a senior currency strategist at RBC Capital Markets in Sydney. ``How long the recovery is going to last will depend crucially on short-term lending costs. Tentatively, the action plans seem to have helped alleviate some of the money market pressures.''
The Australian dollar jumped 5.1 percent to 70.67 U.S. cents as of 11:11 a.m. in Sydney, from 67.24 cents late in Asian trading yesterday. That extended its two-day advance to 7.1 percent. The currency surged 7.5 percent to 72.61 yen, a two-day gain of 11.2 percent.
New Zealand's dollar gained 2.6 percent to 62.22 U.S. cents from 60.65 cents late in Asia yesterday. It advanced 4.7 percent to 63.82 yen.
Bush Plan
The currencies rose as U.S. stocks staged the biggest rally in seven decades and the Bush administration prepared to announce plans to rescue frozen credit markets. The Standard & Poor's 500 Index rebounded from its worst week in 75 years with an 11.6 percent advance, its steepest since 1939, and the Dow Jones Industrial Average climbed more than 936 points.
The VIX volatility index, a Chicago Board Options Exchange gauge reflecting expectations for stock market price changes and a barometer of risk aversion, dropped from a record to 54.99 yesterday.
Australian stocks rose the most in more than a decade on reports the U.S. government will spend about $125 billion for stakes in nine major banks, according to people briefed on the matter. The institutions include Citigroup Inc., JPMorgan Chase & Co. and Goldman Sachs Group Inc.
``The Australian dollar is oversold,'' said Sonja Marten, a currency strategist at Dresdner Kleinwort in London, during an interview on Bloomberg TV yesterday. ``If risk aversion retreats the currency might appreciate again.''
The Australian currency has lost 27 percent over the past three months, and New Zealand's is down 18.5 percent. Australia's dollar rose the most since it was freely traded in 1983 versus the greenback on Oct. 13 as traders welcomed coordinated rate cuts by central banks worldwide and efforts by governments to unlock credit markets.
Rudd Guarantees
Prime Minister Kevin Rudd said Oct. 12 his government will guarantee all deposits with financial institutions for the next three years to bolster confidence in the banking system. The government will also guarantee all ``term wholesale funding'' by Australian banks operating in international credit markets.
Benchmark interest rates are 6 percent in Australia and 7.5 percent in New Zealand, compared with 0.5 percent in Japan and 1.5 percent in the U.S., luring investors to buy the South Pacific nations' assets using loans in lower-cost currencies. The risk in such carry trades is that exchange-rate fluctuations may erase profits.
Australian government bonds fell for the fourth day. The yield on the benchmark 10-year note rose 4 basis points to 5.590 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 declined 0.331, or A$3.31 per A$1,000 face amount, to 97.338. A basis point is 0.01 percentage point.
New Zealand's two-year swap rate, a fixed payment made to receive floating rates, rose to 6.50 percent today from 6.47 yesterday.
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
Read more...
Oct. 14 (Bloomberg) -- The Australian dollar soared, posting its biggest ever two-day gains against the greenback and the yen, after governments worldwide announced measures to stabilize financial systems. New Zealand's currency also rose.
The currencies, favorites for so-called carry trades, advanced after U.S. stocks rallied the most since the 1930s on a government plan to buy stakes in banks. France, Germany, Spain, the Netherlands and Austria committed 1.3 trillion euros ($1.8 trillion) to guarantee loans and buy stakes in lenders.
``The market's been cheered by all the colossal plans announced since the weekend,'' said Sue Trinh, a senior currency strategist at RBC Capital Markets in Sydney. ``How long the recovery is going to last will depend crucially on short-term lending costs. Tentatively, the action plans seem to have helped alleviate some of the money market pressures.''
The Australian dollar jumped 5.1 percent to 70.67 U.S. cents as of 11:11 a.m. in Sydney, from 67.24 cents late in Asian trading yesterday. That extended its two-day advance to 7.1 percent. The currency surged 7.5 percent to 72.61 yen, a two-day gain of 11.2 percent.
New Zealand's dollar gained 2.6 percent to 62.22 U.S. cents from 60.65 cents late in Asia yesterday. It advanced 4.7 percent to 63.82 yen.
Bush Plan
The currencies rose as U.S. stocks staged the biggest rally in seven decades and the Bush administration prepared to announce plans to rescue frozen credit markets. The Standard & Poor's 500 Index rebounded from its worst week in 75 years with an 11.6 percent advance, its steepest since 1939, and the Dow Jones Industrial Average climbed more than 936 points.
The VIX volatility index, a Chicago Board Options Exchange gauge reflecting expectations for stock market price changes and a barometer of risk aversion, dropped from a record to 54.99 yesterday.
Australian stocks rose the most in more than a decade on reports the U.S. government will spend about $125 billion for stakes in nine major banks, according to people briefed on the matter. The institutions include Citigroup Inc., JPMorgan Chase & Co. and Goldman Sachs Group Inc.
``The Australian dollar is oversold,'' said Sonja Marten, a currency strategist at Dresdner Kleinwort in London, during an interview on Bloomberg TV yesterday. ``If risk aversion retreats the currency might appreciate again.''
The Australian currency has lost 27 percent over the past three months, and New Zealand's is down 18.5 percent. Australia's dollar rose the most since it was freely traded in 1983 versus the greenback on Oct. 13 as traders welcomed coordinated rate cuts by central banks worldwide and efforts by governments to unlock credit markets.
Rudd Guarantees
Prime Minister Kevin Rudd said Oct. 12 his government will guarantee all deposits with financial institutions for the next three years to bolster confidence in the banking system. The government will also guarantee all ``term wholesale funding'' by Australian banks operating in international credit markets.
Benchmark interest rates are 6 percent in Australia and 7.5 percent in New Zealand, compared with 0.5 percent in Japan and 1.5 percent in the U.S., luring investors to buy the South Pacific nations' assets using loans in lower-cost currencies. The risk in such carry trades is that exchange-rate fluctuations may erase profits.
Australian government bonds fell for the fourth day. The yield on the benchmark 10-year note rose 4 basis points to 5.590 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 declined 0.331, or A$3.31 per A$1,000 face amount, to 97.338. A basis point is 0.01 percentage point.
New Zealand's two-year swap rate, a fixed payment made to receive floating rates, rose to 6.50 percent today from 6.47 yesterday.
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
Read more...
U.K. Home Sales Fall to Lowest Since at Least 1978, RICS Says
By Svenja O'Donnell
Oct. 14 (Bloomberg) -- U.K. home sales fell in September to the lowest level in at least three decades, led by London, as the financial crisis prompted price drops across the nation, the Royal Institution of Chartered Surveyors said.
Estate agents and surveyors sold an average of 11.5 homes last month, the lowest level recorded since the series began in 1978, RICS said in an e-mailed report today. In London, the figure was 8.3. The number of residential property agents and surveyors saying prices fell exceeded those reporting gains by 84, compared with 82 in August.
The global crisis sapped confidence among investors and consumers, pushed mortgage lending to the lowest since at least 1999 and provoked the worst weekly drop for the U.K. FTSE 100 benchmark stock index since 1987. Bank of England policy maker Andrew Sentance said yesterday that the economy may already be in a recession.
``London continues to occupy bottom place in the activity league'' for home sales, the report said. ``Further price falls in the near term are likely.''
Prices declined further in London, Wales, the North, the North West and the East Midlands, and the price balance fell to the lowest on record in Scotland, RICS said.
Prime Minister Gordon Brown said yesterday that the government will take stakes in Royal Bank of Scotland Group Plc and other banks in exchange for 37 billion pounds ($64 billion) in cash. Financial firms have reported $635 billion in losses and writedowns from U.S. mortgage-related investments since the beginning of last year.
Stock Slump
Those losses froze credit markets and prompted fears of a recession which helped push the FTSE 100 down 21 percent last week as global stock markets slid.
The Bank of England cut the benchmark interest rate by half a point to 4.5 percent on Oct. 8, a day before its scheduled monetary policy decision, the biggest reduction in seven years. It joined other banks including the European Central bank and the U.S. Federal Reserve.
``As expected, the financial crises have had a dire effect on the property market this month,'' said Kim Turner, a real- estate agent at Bective Leslie Marsh in London's exclusive Kensington district. ``Buyers are incredibly wary of the market and prices.''
Consumers have pared spending as weakening house prices and the slowing economy squeezes incomes. Sales in U.K. shops open at least a year fell an annual 1.5 percent in September, the British Retail Consortium, which represents 80 percent of stores, said in a separate report today. Clothing, footwear, furniture and household goods led the drop.
Economic growth stalled in the second quarter, ending the longest stretch of uninterrupted expansion in a century. The International Monetary Fund predicts the U.K. economy will contract 0.1 percent next year after forecasting growth of 1.6 percent six months ago.
To contact the reporter on this story: Svenja O'Donnell in London at sodonnell@bloomberg.net.
Read more...
Oct. 14 (Bloomberg) -- U.K. home sales fell in September to the lowest level in at least three decades, led by London, as the financial crisis prompted price drops across the nation, the Royal Institution of Chartered Surveyors said.
Estate agents and surveyors sold an average of 11.5 homes last month, the lowest level recorded since the series began in 1978, RICS said in an e-mailed report today. In London, the figure was 8.3. The number of residential property agents and surveyors saying prices fell exceeded those reporting gains by 84, compared with 82 in August.
The global crisis sapped confidence among investors and consumers, pushed mortgage lending to the lowest since at least 1999 and provoked the worst weekly drop for the U.K. FTSE 100 benchmark stock index since 1987. Bank of England policy maker Andrew Sentance said yesterday that the economy may already be in a recession.
``London continues to occupy bottom place in the activity league'' for home sales, the report said. ``Further price falls in the near term are likely.''
Prices declined further in London, Wales, the North, the North West and the East Midlands, and the price balance fell to the lowest on record in Scotland, RICS said.
Prime Minister Gordon Brown said yesterday that the government will take stakes in Royal Bank of Scotland Group Plc and other banks in exchange for 37 billion pounds ($64 billion) in cash. Financial firms have reported $635 billion in losses and writedowns from U.S. mortgage-related investments since the beginning of last year.
Stock Slump
Those losses froze credit markets and prompted fears of a recession which helped push the FTSE 100 down 21 percent last week as global stock markets slid.
The Bank of England cut the benchmark interest rate by half a point to 4.5 percent on Oct. 8, a day before its scheduled monetary policy decision, the biggest reduction in seven years. It joined other banks including the European Central bank and the U.S. Federal Reserve.
``As expected, the financial crises have had a dire effect on the property market this month,'' said Kim Turner, a real- estate agent at Bective Leslie Marsh in London's exclusive Kensington district. ``Buyers are incredibly wary of the market and prices.''
Consumers have pared spending as weakening house prices and the slowing economy squeezes incomes. Sales in U.K. shops open at least a year fell an annual 1.5 percent in September, the British Retail Consortium, which represents 80 percent of stores, said in a separate report today. Clothing, footwear, furniture and household goods led the drop.
Economic growth stalled in the second quarter, ending the longest stretch of uninterrupted expansion in a century. The International Monetary Fund predicts the U.K. economy will contract 0.1 percent next year after forecasting growth of 1.6 percent six months ago.
To contact the reporter on this story: Svenja O'Donnell in London at sodonnell@bloomberg.net.
Read more...
New Zealand May Need to Guarantee Wholesale Bank Deposits
By Tracy Withers
Oct. 14 (Bloomberg) -- New Zealand is facing calls to guarantee wholesale deposits at banks to ensure local institutions can compete for credit against global rivals getting similar backing.
The government on Oct. 12 said it will guarantee retail deposits by consumers and businesses at New Zealand banks and other institutions. Unlike a plan announced the same day in Australia, there is no guarantee of wholesale deposits from fund managers and financial institutions.
New Zealand banks rely on wholesale deposits for between 30 percent and 50 percent of their funds. Lenders are concerned that the difference between the New Zealand and Australian plans may make it more difficult to raise funds when credit markets reopen, which may hinder the economy's recovery.
``There are different risk profiles around the system and in that environment, wholesale funding providers may go offshore,'' said Stephen Toplis, head of research at Bank of New Zealand Ltd. in Wellington. ``It could become more difficult to fund investment in the economy and that would be the king hit.''
The Reserve Bank, which regulates banks, said it is comfortable the plan has been designed for New Zealand circumstances. Last week, it said it will accept residential mortgage-backed securities as collateral from banks to meet short-term funding requirements.
``We have announced various measures which have been in place to ensure our banks can meet their immediate funding needs and we will continue to monitor that situation,'' central bank spokesman Mike Hannah said in an e-mailed response to questions.
``The Reserve Bank has set up a number of arrangements with our banks that mean if they go to the markets and the markets are closed, then our banks can certainly continue,'' Bill English, finance spokesman for the main opposition National Party, told Radio New Zealand.
The National Party leads the governing Labour Party in opinion polls ahead of the Nov. 8 general election.
``The bottom line is whether or not leaving out the international loans to New Zealand banks from the guarantee is going to constrain our banks in providing credit,'' English said.
To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.
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Oct. 14 (Bloomberg) -- New Zealand is facing calls to guarantee wholesale deposits at banks to ensure local institutions can compete for credit against global rivals getting similar backing.
The government on Oct. 12 said it will guarantee retail deposits by consumers and businesses at New Zealand banks and other institutions. Unlike a plan announced the same day in Australia, there is no guarantee of wholesale deposits from fund managers and financial institutions.
New Zealand banks rely on wholesale deposits for between 30 percent and 50 percent of their funds. Lenders are concerned that the difference between the New Zealand and Australian plans may make it more difficult to raise funds when credit markets reopen, which may hinder the economy's recovery.
``There are different risk profiles around the system and in that environment, wholesale funding providers may go offshore,'' said Stephen Toplis, head of research at Bank of New Zealand Ltd. in Wellington. ``It could become more difficult to fund investment in the economy and that would be the king hit.''
The Reserve Bank, which regulates banks, said it is comfortable the plan has been designed for New Zealand circumstances. Last week, it said it will accept residential mortgage-backed securities as collateral from banks to meet short-term funding requirements.
``We have announced various measures which have been in place to ensure our banks can meet their immediate funding needs and we will continue to monitor that situation,'' central bank spokesman Mike Hannah said in an e-mailed response to questions.
``The Reserve Bank has set up a number of arrangements with our banks that mean if they go to the markets and the markets are closed, then our banks can certainly continue,'' Bill English, finance spokesman for the main opposition National Party, told Radio New Zealand.
The National Party leads the governing Labour Party in opinion polls ahead of the Nov. 8 general election.
``The bottom line is whether or not leaving out the international loans to New Zealand banks from the guarantee is going to constrain our banks in providing credit,'' English said.
To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.
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Australian September Business Confidence Holds Near 7-Year Low
By Jacob Greber and Gemma Daley
Oct. 14 (Bloomberg) -- Australian business confidence held close to the lowest level in seven years last month, adding to signs the economy is slowing.
The sentiment index fell 1 point in September to minus 8, according to a National Australia Bank Ltd. survey of more than 400 companies.
Concern that the deepening global financial crunch is hurting even ``creditworthy'' borrowers was a key reason central bank Governor Glenn Stevens cut Australia's benchmark lending rate this month by 1 percentage point to 6 percent, the biggest reduction since a recession in 1992. Companies such as Qantas Airways Ltd., the nation's biggest carrier, are already firing workers, pushing the unemployment rate higher.
``The recent tightening in domestic financial conditions, lower asset prices and rising oil and commodity prices as well as global financial turbulence have taken a heavy toll on confidence,'' said Alan Oster, chief economist at National Australia Bank in Melbourne.
``At the same time, actual business outcomes have turned poor,'' Oster said.
The sentiment index posted a ninth straight reading of less than zero, which indicates companies expecting their industry will deteriorate outnumber those seeing an improvement.
The survey's business conditions gauge, a measure of hiring sales and profits, rose in September to minus 1 from minus 3.
To contact the reporter on this story: Gemma Daley in Canberra at gdaley@bloomberg.net
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Oct. 14 (Bloomberg) -- Australian business confidence held close to the lowest level in seven years last month, adding to signs the economy is slowing.
The sentiment index fell 1 point in September to minus 8, according to a National Australia Bank Ltd. survey of more than 400 companies.
Concern that the deepening global financial crunch is hurting even ``creditworthy'' borrowers was a key reason central bank Governor Glenn Stevens cut Australia's benchmark lending rate this month by 1 percentage point to 6 percent, the biggest reduction since a recession in 1992. Companies such as Qantas Airways Ltd., the nation's biggest carrier, are already firing workers, pushing the unemployment rate higher.
``The recent tightening in domestic financial conditions, lower asset prices and rising oil and commodity prices as well as global financial turbulence have taken a heavy toll on confidence,'' said Alan Oster, chief economist at National Australia Bank in Melbourne.
``At the same time, actual business outcomes have turned poor,'' Oster said.
The sentiment index posted a ninth straight reading of less than zero, which indicates companies expecting their industry will deteriorate outnumber those seeing an improvement.
The survey's business conditions gauge, a measure of hiring sales and profits, rose in September to minus 1 from minus 3.
To contact the reporter on this story: Gemma Daley in Canberra at gdaley@bloomberg.net
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Australia Dollar to Fall as Rates May Halve to 3%, TD Says
By Candice Zachariahs
Oct. 14 (Bloomberg) -- Australia's dollar may drop 8.5 percent to 64 U.S. cents in the first half of 2009 as the country's central bank slashes interest rates to counter a global recession, TD Securities said.
The Reserve Bank of Australia probably will slash borrowing costs 2 percentage points from 6 percent to lower the burden on households as unemployment rises and inflation eases , London- based Stephen Koukoulas, global strategist at TD Securities, wrote yesterday in a research note. The RBA cut its benchmark 1 percentage point on Oct. 7, the most since a recession in 1992.
Australia's ``terms of trade are collapsing, the global economy is in recession and the banking system still does not operate efficiently,'' Koukoulas wrote. ``The risks to this forecast favor a cash rate even lower, perhaps towards 3 percent.''
The country's 17-year economic boom is slowing as prices plunge for commodities that account for 60 percent of Australia's exports. Lower revenue from raw materials and a drop in interest rates may push the Australian currency to 64 U.S. cents by June next year, from an expected 70 cents at the end of 2008, TD Securities said.
``The risks to the Australian dollar are toward 55 cents,'' Koukoulas wrote.
The currency jumped 3.8 percent to 69.78 U.S. cents as of 9:08 a.m. in Sydney, from 67.24 cents late in Asian trading yesterday. The Australian dollar plunged 28 percent the past three months, the worst performance among the 16 most-traded currencies against the greenback.
Traders expect the RBA to lower its cash rate by 1 percentage point over the next year, according to a Credit Suisse index based on overnight swaps. JPMorgan Chase & Co said yesterday it expects the RBA to bring rates down to 4.5 percent by 2009.
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
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Oct. 14 (Bloomberg) -- Australia's dollar may drop 8.5 percent to 64 U.S. cents in the first half of 2009 as the country's central bank slashes interest rates to counter a global recession, TD Securities said.
The Reserve Bank of Australia probably will slash borrowing costs 2 percentage points from 6 percent to lower the burden on households as unemployment rises and inflation eases , London- based Stephen Koukoulas, global strategist at TD Securities, wrote yesterday in a research note. The RBA cut its benchmark 1 percentage point on Oct. 7, the most since a recession in 1992.
Australia's ``terms of trade are collapsing, the global economy is in recession and the banking system still does not operate efficiently,'' Koukoulas wrote. ``The risks to this forecast favor a cash rate even lower, perhaps towards 3 percent.''
The country's 17-year economic boom is slowing as prices plunge for commodities that account for 60 percent of Australia's exports. Lower revenue from raw materials and a drop in interest rates may push the Australian currency to 64 U.S. cents by June next year, from an expected 70 cents at the end of 2008, TD Securities said.
``The risks to the Australian dollar are toward 55 cents,'' Koukoulas wrote.
The currency jumped 3.8 percent to 69.78 U.S. cents as of 9:08 a.m. in Sydney, from 67.24 cents late in Asian trading yesterday. The Australian dollar plunged 28 percent the past three months, the worst performance among the 16 most-traded currencies against the greenback.
Traders expect the RBA to lower its cash rate by 1 percentage point over the next year, according to a Credit Suisse index based on overnight swaps. JPMorgan Chase & Co said yesterday it expects the RBA to bring rates down to 4.5 percent by 2009.
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
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Japan's Wholesale Inflation Growth Eases as Crude Oil Declines
By Mayumi Otsuma
Oct. 14 (Bloomberg) -- Japan's wholesale inflation rate slowed for a second month, adding to evidence that cost increases driven by oil and commodities have peaked.
Producer prices, the costs companies pay for energy and raw materials, climbed 6.8 percent from a year earlier after a 7.2 percent increase in August, the Bank of Japan said in Tokyo today. The median estimate of 24 economists surveyed by Bloomberg News was for 6.6 percent.
Slower wholesale inflation will provide some respite for companies whose profits have been eroded by soaring energy prices in the past year. That may not mean Japan will be able to dodge a recession as fallout from a global financial crisis becomes a bigger risk for the world's second-largest economy.
``Japan's producer prices seem to have peaked in July,'' said Taisuke Nakamoto, an economist at Dai-Ichi Life Research Institute in Tokyo. ``We will probably observe a drastic slowdown in producer prices in coming months.''
Producer prices fell 0.4 percent in September from August, the second monthly decline.
Crude oil prices have fallen more than a third since exceeding $147 a barrel for the first time on July 11. Soybeans, corn and wheat have slumped after climbing to records this year.
The Bank of Japan's overseas commodity index, which shows changes in costs including oil, steel, copper and wheat, rose 7.9 percent in September from a year earlier, slowing from a 42.1 percent increase in August.
Stronger Yen
``Japan's producer prices are already in a decelerating phase, which will continue for one year or so,'' said Kyohei Morita, chief economist at Barclays Capital in Tokyo. ``We also have to pay attention to the stronger yen's impact on producer prices.''
Japan's currency has risen 6.3 percent against the dollar this month, making imports cheaper. The yen's exchange rate against the dollar averaged 106.75 yen in September, 7 percent stronger than a year earlier, pushing down producer prices by 0.35 percentage point, Morita estimates.
The world's advanced economies next year will grow at the slowest pace since 1982 and inflationary pressures will ease, the International Monetary Fund said this week.
Inflationary pressures ``have started to moderate in a number of countries, partly reflecting a marked decline in energy and other commodity prices,'' central banks of the U.S., Europe and other economies that cut interest rates on Oct. 8 said in a joint statement.
Japan's consumer-price inflation, which has been driven by commodity costs, may be also peaking because of cheaper oil. Core consumer prices, which exclude fresh food, rose 2.4 percent in August from a year earlier, the fastest pace in 11 years.
``Japan's core consumer prices probably peaked in the July- September period and are expected to gradually moderate toward 2009,'' said Mamoru Yamazaki, chief Japan economist at RBS Securities Japan Ltd. in Tokyo.
To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net
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Oct. 14 (Bloomberg) -- Japan's wholesale inflation rate slowed for a second month, adding to evidence that cost increases driven by oil and commodities have peaked.
Producer prices, the costs companies pay for energy and raw materials, climbed 6.8 percent from a year earlier after a 7.2 percent increase in August, the Bank of Japan said in Tokyo today. The median estimate of 24 economists surveyed by Bloomberg News was for 6.6 percent.
Slower wholesale inflation will provide some respite for companies whose profits have been eroded by soaring energy prices in the past year. That may not mean Japan will be able to dodge a recession as fallout from a global financial crisis becomes a bigger risk for the world's second-largest economy.
``Japan's producer prices seem to have peaked in July,'' said Taisuke Nakamoto, an economist at Dai-Ichi Life Research Institute in Tokyo. ``We will probably observe a drastic slowdown in producer prices in coming months.''
Producer prices fell 0.4 percent in September from August, the second monthly decline.
Crude oil prices have fallen more than a third since exceeding $147 a barrel for the first time on July 11. Soybeans, corn and wheat have slumped after climbing to records this year.
The Bank of Japan's overseas commodity index, which shows changes in costs including oil, steel, copper and wheat, rose 7.9 percent in September from a year earlier, slowing from a 42.1 percent increase in August.
Stronger Yen
``Japan's producer prices are already in a decelerating phase, which will continue for one year or so,'' said Kyohei Morita, chief economist at Barclays Capital in Tokyo. ``We also have to pay attention to the stronger yen's impact on producer prices.''
Japan's currency has risen 6.3 percent against the dollar this month, making imports cheaper. The yen's exchange rate against the dollar averaged 106.75 yen in September, 7 percent stronger than a year earlier, pushing down producer prices by 0.35 percentage point, Morita estimates.
The world's advanced economies next year will grow at the slowest pace since 1982 and inflationary pressures will ease, the International Monetary Fund said this week.
Inflationary pressures ``have started to moderate in a number of countries, partly reflecting a marked decline in energy and other commodity prices,'' central banks of the U.S., Europe and other economies that cut interest rates on Oct. 8 said in a joint statement.
Japan's consumer-price inflation, which has been driven by commodity costs, may be also peaking because of cheaper oil. Core consumer prices, which exclude fresh food, rose 2.4 percent in August from a year earlier, the fastest pace in 11 years.
``Japan's core consumer prices probably peaked in the July- September period and are expected to gradually moderate toward 2009,'' said Mamoru Yamazaki, chief Japan economist at RBS Securities Japan Ltd. in Tokyo.
To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net
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Yuan, South Korean Won, Indonesia Rupiah: Asia Currency Preview
By Bob Chen
Oct. 14 (Bloomberg) -- The following events and economic reports may influence trading in Asian currencies today. Exchange rates are from the previous session.
Japanese yen: Finance Minister Shoichi Nakagawa, Economic and Fiscal Policy Minister Kaoru Yosano and Chief Cabinet Secretary Takeo Kawamura will hold briefings after a cabinet meeting this morning in Tokyo. Kawamura will hold a second briefing at 4 p.m.
The yen traded at 101.96 at 7:48 a.m. in Sydney.
Chinese yuan: The People's Bank of China may report foreign-exchange reserves for September as early as today. Reserves grew 35.7 percent from a year earlier to a record of $1.81 trillion at the end of June.
The yuan was at 6.8258.
Indonesian rupiah: Bank Indonesia may report growth in wholesale prices for August as early as today. Prices rose 35 percent from a year earlier in July, the fastest pace in more than two years.
The rupiah was at 9,701.
Singapore dollar: The Statistics Department will report August retail sales tomorrow. Sales rose 4.3 percent from a year earlier, economists forecast in a Bloomberg News survey. That compares to 11.8 percent growth for the previous month, the fastest in more than a year, as consumers increased purchases of vehicles and spent more at gasoline stations and department stores.
The Singapore dollar was at 1.4618.
To contact the reporter on this story: Bob Chen in Hong Kong at bchen45@bloomberg.net.
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Oct. 14 (Bloomberg) -- The following events and economic reports may influence trading in Asian currencies today. Exchange rates are from the previous session.
Japanese yen: Finance Minister Shoichi Nakagawa, Economic and Fiscal Policy Minister Kaoru Yosano and Chief Cabinet Secretary Takeo Kawamura will hold briefings after a cabinet meeting this morning in Tokyo. Kawamura will hold a second briefing at 4 p.m.
The yen traded at 101.96 at 7:48 a.m. in Sydney.
Chinese yuan: The People's Bank of China may report foreign-exchange reserves for September as early as today. Reserves grew 35.7 percent from a year earlier to a record of $1.81 trillion at the end of June.
The yuan was at 6.8258.
Indonesian rupiah: Bank Indonesia may report growth in wholesale prices for August as early as today. Prices rose 35 percent from a year earlier in July, the fastest pace in more than two years.
The rupiah was at 9,701.
Singapore dollar: The Statistics Department will report August retail sales tomorrow. Sales rose 4.3 percent from a year earlier, economists forecast in a Bloomberg News survey. That compares to 11.8 percent growth for the previous month, the fastest in more than a year, as consumers increased purchases of vehicles and spent more at gasoline stations and department stores.
The Singapore dollar was at 1.4618.
To contact the reporter on this story: Bob Chen in Hong Kong at bchen45@bloomberg.net.
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Yen Extends Decline as Treasury Said to Invest in U.S. Banks
By Stanley White and Ye Xie
Oct. 14 (Bloomberg) -- The yen fell for a second day on speculation the U.S. Treasury will stabilize the financial system by investing $125 billion in U.S. banks, spurring investors to buy high-yielding assets funded in Japan's currency.
The yen also weakened against the Australian and New Zealand dollars, two favorites of so-called carry trades, after U.S. stocks yesterday gained the most in seven decades. European countries committed $1.8 trillion to guarantee bank loans and the Federal Reserve led efforts to flood money markets with dollars yesterday to prevent a financial system collapse.
``Policy makers are gradually restoring confidence in banks and credit markets,'' said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan's largest currency broker. ``This promotes risk-taking activity that is likely to weaken the yen.''
The yen fell to 139.51 per euro at 8:36 a.m. in Tokyo from 138.57 late yesterday in New York. Japan's currency touched 132.24 on Oct. 10, the strongest since June 2005. Against the dollar, it was at 102.36 from 102.01. It advanced to 97.92 on Oct. 10, the strongest since March 19. The euro bought $1.3626 from $1.3581. The yen may fall to 139.60 per euro and 102.60 versus the dollar today, Ishikawa forecast.
Against the Australian dollar, the yen declined to 72.11 from 67.57 late yesterday in Asia. Japan's currency fell 3.9 percent versus the New Zealand dollar to 63.32.
Stock Rally
The Standard & Poor's 500 Index rose 11.6 percent yesterday, encouraging investors to sell the Japanese currency to buy high- yielding assets in carry trades. Japan's 0.5 percent benchmark interest rate is the lowest among developed nations.
Japan's currency has gained 17 percent versus the Australian dollar and 12 percent against the New Zealand dollar this month as credit-market losses prompted investors to reduce carry trades.
``The yen is probably getting near an end of its strong run that we've seen recently,'' said Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York, in an interview on Bloomberg Television. ``It's a case where everyone goes all out to do whatever they can. As we get to some successful resolution, we'll see some weakness in the yen.''
The Bush administration will announce a plan to rescue frozen credit markets that includes spending about half of a total of $250 billion for stakes in nine major banks, according to people briefed on the matter.
The banks are Citigroup Inc., Wells Fargo & Co., JPMorgan Chase & Co., Bank of America Corp., Goldman Sachs Group Inc., Morgan Stanley, State Street Corp., and Bank of New York Mellon Corp., said the people. One of the people also said Merrill Lynch & Co. will receive an investment.
U.S. Plan
The move by policy makers ``is not going to avoid a sharp global recession, but it's averting something a lot worse,'' said Alan Ruskin, head of international currency strategy in North America at RBS Greenwich Capital Markets Inc. in Greenwich, Connecticut. ``Risky assets are performing well today. I won't fight it.''
Losses in the dollar accelerated after the Fed said yesterday the European Central Bank, the Bank of England and the Swiss National Bank will offer financial institutions unlimited funds in the U.S. currency, providing easier access to dollars in response to demand for loans.
``This decision is a further step toward alleviating dollar funding pressures outside the U.S., which may have played a key role in creating substantial U.S. dollar upside pressure in foreign-exchange markets,'' Thomas Stolper, an economist at Goldman Sachs Group Inc. in London, wrote in a research note yesterday.
`Significant Downturn'
Non-U.S. banks have about $12 trillion in dollar- denominated liabilities, Stolper wrote, citing data from the Bank for International Settlements.
``The net impact of this banking crisis is likely to be a significant downturn in global growth, but it is not entirely clear who will emerge from this as a longer-term winner,'' said Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto. ``The dollar is overbought in the short-term. Europe certainly has its own challenges.''
To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.netYe Xie in New York at yxie6@bloomberg.net
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Oct. 14 (Bloomberg) -- The yen fell for a second day on speculation the U.S. Treasury will stabilize the financial system by investing $125 billion in U.S. banks, spurring investors to buy high-yielding assets funded in Japan's currency.
The yen also weakened against the Australian and New Zealand dollars, two favorites of so-called carry trades, after U.S. stocks yesterday gained the most in seven decades. European countries committed $1.8 trillion to guarantee bank loans and the Federal Reserve led efforts to flood money markets with dollars yesterday to prevent a financial system collapse.
``Policy makers are gradually restoring confidence in banks and credit markets,'' said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan's largest currency broker. ``This promotes risk-taking activity that is likely to weaken the yen.''
The yen fell to 139.51 per euro at 8:36 a.m. in Tokyo from 138.57 late yesterday in New York. Japan's currency touched 132.24 on Oct. 10, the strongest since June 2005. Against the dollar, it was at 102.36 from 102.01. It advanced to 97.92 on Oct. 10, the strongest since March 19. The euro bought $1.3626 from $1.3581. The yen may fall to 139.60 per euro and 102.60 versus the dollar today, Ishikawa forecast.
Against the Australian dollar, the yen declined to 72.11 from 67.57 late yesterday in Asia. Japan's currency fell 3.9 percent versus the New Zealand dollar to 63.32.
Stock Rally
The Standard & Poor's 500 Index rose 11.6 percent yesterday, encouraging investors to sell the Japanese currency to buy high- yielding assets in carry trades. Japan's 0.5 percent benchmark interest rate is the lowest among developed nations.
Japan's currency has gained 17 percent versus the Australian dollar and 12 percent against the New Zealand dollar this month as credit-market losses prompted investors to reduce carry trades.
``The yen is probably getting near an end of its strong run that we've seen recently,'' said Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York, in an interview on Bloomberg Television. ``It's a case where everyone goes all out to do whatever they can. As we get to some successful resolution, we'll see some weakness in the yen.''
The Bush administration will announce a plan to rescue frozen credit markets that includes spending about half of a total of $250 billion for stakes in nine major banks, according to people briefed on the matter.
The banks are Citigroup Inc., Wells Fargo & Co., JPMorgan Chase & Co., Bank of America Corp., Goldman Sachs Group Inc., Morgan Stanley, State Street Corp., and Bank of New York Mellon Corp., said the people. One of the people also said Merrill Lynch & Co. will receive an investment.
U.S. Plan
The move by policy makers ``is not going to avoid a sharp global recession, but it's averting something a lot worse,'' said Alan Ruskin, head of international currency strategy in North America at RBS Greenwich Capital Markets Inc. in Greenwich, Connecticut. ``Risky assets are performing well today. I won't fight it.''
Losses in the dollar accelerated after the Fed said yesterday the European Central Bank, the Bank of England and the Swiss National Bank will offer financial institutions unlimited funds in the U.S. currency, providing easier access to dollars in response to demand for loans.
``This decision is a further step toward alleviating dollar funding pressures outside the U.S., which may have played a key role in creating substantial U.S. dollar upside pressure in foreign-exchange markets,'' Thomas Stolper, an economist at Goldman Sachs Group Inc. in London, wrote in a research note yesterday.
`Significant Downturn'
Non-U.S. banks have about $12 trillion in dollar- denominated liabilities, Stolper wrote, citing data from the Bank for International Settlements.
``The net impact of this banking crisis is likely to be a significant downturn in global growth, but it is not entirely clear who will emerge from this as a longer-term winner,'' said Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto. ``The dollar is overbought in the short-term. Europe certainly has its own challenges.''
To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.netYe Xie in New York at yxie6@bloomberg.net
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Australian, New Zealand Dollars Gain on Global Rescue Plans
By Candice Zachariahs
Oct. 14 (Bloomberg) -- The Australian and New Zealand currencies rose for a second day as markets rallied after governments worldwide announced measures to stabilize financial systems, prompting investors to buy higher-yielding assets.
The currencies, favorites for so-called carry trades, rose against the dollar and the yen after U.S. stocks rallied on a government plan to buy stakes in banks and a Federal Reserve-led push to flood the global system with dollars. France, Germany, Spain, the Netherlands and Austria committed 1.3 trillion euros ($1.8 trillion) to guarantee loans and buy stakes in lenders.
``The market's been cheered by all the colossal plans announced since the weekend,'' said Sue Trinh, a senior currency strategist at RBC Capital Markets in Sydney. ``How long the recovery is going to last will depend crucially on short-term lending costs. Tentatively, the action plans seem to have helped alleviate some of the money market pressures.''
The Australian dollar jumped 4.1 percent to 69.96 U.S. cents as of 7:30 a.m. in Sydney, from 67.24 cents late in Asian trading yesterday. The currency rose 5.3 percent to 71.11 yen, from 67.57.
New Zealand's dollar gained 1.7 percent to 61.69 U.S. cents from 60.65 cents late in Asia yesterday. It bought 62.95 yen.
The currencies rose as U.S. stocks staged the biggest rally in seven decades. The Standard & Poor's 500 Index rebounded from its worst week in 75 years with an 11.6 percent advance, its steepest since 1939, and the Dow Jones Industrial Average climbed more than 936 points.
The VIX volatility index, a Chicago Board Options Exchange gauge reflecting expectations for stock market price changes and a barometer of risk aversion, dropped from a record to 54.99 yesterday.
Benchmark interest rates are 6 percent in Australia and 7.5 percent in New Zealand, compared with 0.5 percent in Japan and 1.5 percent in the U.S., luring investors to buy the South Pacific nations' assets using loans in lower-cost currencies. The risk in such carry trades is that exchange-rate fluctuations may erase profits.
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
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Oct. 14 (Bloomberg) -- The Australian and New Zealand currencies rose for a second day as markets rallied after governments worldwide announced measures to stabilize financial systems, prompting investors to buy higher-yielding assets.
The currencies, favorites for so-called carry trades, rose against the dollar and the yen after U.S. stocks rallied on a government plan to buy stakes in banks and a Federal Reserve-led push to flood the global system with dollars. France, Germany, Spain, the Netherlands and Austria committed 1.3 trillion euros ($1.8 trillion) to guarantee loans and buy stakes in lenders.
``The market's been cheered by all the colossal plans announced since the weekend,'' said Sue Trinh, a senior currency strategist at RBC Capital Markets in Sydney. ``How long the recovery is going to last will depend crucially on short-term lending costs. Tentatively, the action plans seem to have helped alleviate some of the money market pressures.''
The Australian dollar jumped 4.1 percent to 69.96 U.S. cents as of 7:30 a.m. in Sydney, from 67.24 cents late in Asian trading yesterday. The currency rose 5.3 percent to 71.11 yen, from 67.57.
New Zealand's dollar gained 1.7 percent to 61.69 U.S. cents from 60.65 cents late in Asia yesterday. It bought 62.95 yen.
The currencies rose as U.S. stocks staged the biggest rally in seven decades. The Standard & Poor's 500 Index rebounded from its worst week in 75 years with an 11.6 percent advance, its steepest since 1939, and the Dow Jones Industrial Average climbed more than 936 points.
The VIX volatility index, a Chicago Board Options Exchange gauge reflecting expectations for stock market price changes and a barometer of risk aversion, dropped from a record to 54.99 yesterday.
Benchmark interest rates are 6 percent in Australia and 7.5 percent in New Zealand, compared with 0.5 percent in Japan and 1.5 percent in the U.S., luring investors to buy the South Pacific nations' assets using loans in lower-cost currencies. The risk in such carry trades is that exchange-rate fluctuations may erase profits.
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
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Oil Rises for Second Day as Governments Move to Support Banks
By Mark Shenk
Oct. 14 (Bloomberg) -- Crude oil rose for a second day, rebounding from last week's 17 percent plunge, as governments in the U.S. and Europe acted to stem the worst financial crisis since the 1930s.
Oil followed stock markets higher after the Federal Reserve led a push by central banks to flood the financial system with dollars to restore confidence. The International Energy Agency last week said global oil demand this year will grow at the slowest pace since 1993 as economies slide into a recession.
``We've moved from a complete lack of confidence to a modicum of confidence, which is allowing energy markets to rebound,'' said John Kilduff, senior vice president of risk management at MF Global Inc. in New York. ``The economic action of the weekend won't be enough to ease the recessionary outlook, helping to keep a lid on prices.''
Crude oil for November delivery rose $1.05, or 1.3 percent, to $82.24 a barrel at 9:30 a.m. Sydney time on the New York Mercantile Exchange. Prices, which are down 2.1 percent from a year ago, have dropped 44 percent from the record $147.27 a barrel reached on July 11.
Futures climbed $3.49, or 4.5 percent, to $81.19 a barrel yesterday, the biggest one-day percentage increase since Sept. 22.
Stocks rallied worldwide as the MSCI World Index rebounded from its worst week on record, and the euro rose against the dollar because of the efforts to support the financial system.
`Restoration of Optimism'
``The restoration of optimism in markets in general has spread to commodities,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``Traders are thinking that demand will not be as stricken as they feared last week.''
Raymond James & Associates Inc. cut its forecast for crude oil prices for the fourth quarter and for 2009. Oil in New York will average $95 a barrel this quarter, down from a forecast of $120, Raymond James analysts, including Marshall Adkins in Houston, wrote in a note yesterday. Oil will average $90 a barrel in 2009, down from the previous forecast of $130.
Natixis Bleichroeder Inc. cut its forecast for oil prices in the fourth quarter to $75 a barrel from $130 and its 2009 projection to $80 a barrel from $142.50, according to Houston- based analysts Roger Read and Jeff Spittel.
``There is very much a financial focus here in the energy markets,'' said Tim Evans, an energy analyst for Citi Futures Perspective in New York. ``Prices plunged last week because people were worried about the banking sector, the falling stock market,'' and a recession. Strength in the stock market ``is allowing oil to rebound.''
Recession Concerns
New York oil futures dropped 17 percent last week, the biggest one-week decline since the U.S.-led invasion of Iraq in March 2003. Copper, nickel and aluminum also decreased as equity markets plunged and the International Monetary Fund warned the world was on the cusp of a recession.
Brent crude oil for November settlement rose $3.37, or 4.5 percent, to settle at $77.46 a barrel yesterday on London's ICE Futures Europe exchange.
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.
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Oct. 14 (Bloomberg) -- Crude oil rose for a second day, rebounding from last week's 17 percent plunge, as governments in the U.S. and Europe acted to stem the worst financial crisis since the 1930s.
Oil followed stock markets higher after the Federal Reserve led a push by central banks to flood the financial system with dollars to restore confidence. The International Energy Agency last week said global oil demand this year will grow at the slowest pace since 1993 as economies slide into a recession.
``We've moved from a complete lack of confidence to a modicum of confidence, which is allowing energy markets to rebound,'' said John Kilduff, senior vice president of risk management at MF Global Inc. in New York. ``The economic action of the weekend won't be enough to ease the recessionary outlook, helping to keep a lid on prices.''
Crude oil for November delivery rose $1.05, or 1.3 percent, to $82.24 a barrel at 9:30 a.m. Sydney time on the New York Mercantile Exchange. Prices, which are down 2.1 percent from a year ago, have dropped 44 percent from the record $147.27 a barrel reached on July 11.
Futures climbed $3.49, or 4.5 percent, to $81.19 a barrel yesterday, the biggest one-day percentage increase since Sept. 22.
Stocks rallied worldwide as the MSCI World Index rebounded from its worst week on record, and the euro rose against the dollar because of the efforts to support the financial system.
`Restoration of Optimism'
``The restoration of optimism in markets in general has spread to commodities,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``Traders are thinking that demand will not be as stricken as they feared last week.''
Raymond James & Associates Inc. cut its forecast for crude oil prices for the fourth quarter and for 2009. Oil in New York will average $95 a barrel this quarter, down from a forecast of $120, Raymond James analysts, including Marshall Adkins in Houston, wrote in a note yesterday. Oil will average $90 a barrel in 2009, down from the previous forecast of $130.
Natixis Bleichroeder Inc. cut its forecast for oil prices in the fourth quarter to $75 a barrel from $130 and its 2009 projection to $80 a barrel from $142.50, according to Houston- based analysts Roger Read and Jeff Spittel.
``There is very much a financial focus here in the energy markets,'' said Tim Evans, an energy analyst for Citi Futures Perspective in New York. ``Prices plunged last week because people were worried about the banking sector, the falling stock market,'' and a recession. Strength in the stock market ``is allowing oil to rebound.''
Recession Concerns
New York oil futures dropped 17 percent last week, the biggest one-week decline since the U.S.-led invasion of Iraq in March 2003. Copper, nickel and aluminum also decreased as equity markets plunged and the International Monetary Fund warned the world was on the cusp of a recession.
Brent crude oil for November settlement rose $3.37, or 4.5 percent, to settle at $77.46 a barrel yesterday on London's ICE Futures Europe exchange.
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.
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Caribbean Tropical Depression May Move Away From Gulf
By Brian K. Sullivan
Oct. 13 (Bloomberg) -- A tropical depression that formed in the Caribbean south of Puerto Rico today may move into the Atlantic and away from oil and gas facilities in the Gulf of Mexico, the National Hurricane Center said.
The center of the depression was about 570 kilometers (355 miles) southwest of San Juan, Puerto Rico, according to the advisory released shortly before 5 p.m. Miami time. Computer models show the storm tracking eastward into the open ocean, according to center maps.
Tropical storm watches were issued for Puerto Rico, the U.S. Virgin Islands and the British Virgin Islands as well as the extreme eastern portion of the Dominican Republic.
``This track should bring the cyclone very close to Puerto Rico between 48 and 72 hours and over the open Atlantic thereafter,'' the center said.
The Gulf of Mexico is home to about one-quarter of all U.S. oil production.
If the storm further intensifies, it would become the 15th named storm of the 2008 hurricane season that began in June 1 and ends on Nov. 30. The storm would be called Omar.
Forecasters predicted this season would have an above- average number of storms. Colorado State University researchers predicted at least 17 major storms, including nine hurricanes, and the National Oceanic and Atmospheric Administration's Climate Prediction Center said there would be 14 to 18 named storms.
Gustav, Ike
The U.S. has been struck by a series of powerful storms this season, including Hurricane Gustav, which forced the largest evacuation in Louisiana before it struck on Sept. 1, and Hurricane Ike, which came ashore on Sept. 11 near Galveston, Texas, flooding much of the coast, knocking out power to millions and destroying homes.
Elsewhere, the NHC said a low-pressure system in the southwestern Caribbean about 160 kilometers east-southeast of Puerto Cabezas, Nicaragua, may become a tropical depression in the next two days.
Further east in the Atlantic, Tropical Storm Nina was downgraded to a depression. It was moving west-northwest at 11 kph and located 1,850 kilometers west of the Cape Verde islands and could dissipate tonight, according to a center advisory.
To contact the reporter on this story: Brian K. Sullivan in New Orleans at bsullivan10@bloomberg.net.
Read more...
Oct. 13 (Bloomberg) -- A tropical depression that formed in the Caribbean south of Puerto Rico today may move into the Atlantic and away from oil and gas facilities in the Gulf of Mexico, the National Hurricane Center said.
The center of the depression was about 570 kilometers (355 miles) southwest of San Juan, Puerto Rico, according to the advisory released shortly before 5 p.m. Miami time. Computer models show the storm tracking eastward into the open ocean, according to center maps.
Tropical storm watches were issued for Puerto Rico, the U.S. Virgin Islands and the British Virgin Islands as well as the extreme eastern portion of the Dominican Republic.
``This track should bring the cyclone very close to Puerto Rico between 48 and 72 hours and over the open Atlantic thereafter,'' the center said.
The Gulf of Mexico is home to about one-quarter of all U.S. oil production.
If the storm further intensifies, it would become the 15th named storm of the 2008 hurricane season that began in June 1 and ends on Nov. 30. The storm would be called Omar.
Forecasters predicted this season would have an above- average number of storms. Colorado State University researchers predicted at least 17 major storms, including nine hurricanes, and the National Oceanic and Atmospheric Administration's Climate Prediction Center said there would be 14 to 18 named storms.
Gustav, Ike
The U.S. has been struck by a series of powerful storms this season, including Hurricane Gustav, which forced the largest evacuation in Louisiana before it struck on Sept. 1, and Hurricane Ike, which came ashore on Sept. 11 near Galveston, Texas, flooding much of the coast, knocking out power to millions and destroying homes.
Elsewhere, the NHC said a low-pressure system in the southwestern Caribbean about 160 kilometers east-southeast of Puerto Cabezas, Nicaragua, may become a tropical depression in the next two days.
Further east in the Atlantic, Tropical Storm Nina was downgraded to a depression. It was moving west-northwest at 11 kph and located 1,850 kilometers west of the Cape Verde islands and could dissipate tonight, according to a center advisory.
To contact the reporter on this story: Brian K. Sullivan in New Orleans at bsullivan10@bloomberg.net.
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Treasury to Invest in `Healthy' Banks, Kashkari Says
By Rebecca Christie and Robert Schmidt
Oct. 13 (Bloomberg) -- Neel Kashkari, the U.S. Treasury official overseeing the $700 billion rescue of the financial system, said government equity injections will be aimed at ``healthy'' firms.
``We are designing a standardized program to purchase equity in a broad array of financial institutions,'' Kashkari, who heads the department's Troubled Asset Relief Program, said in a speech in Washington. ``The equity purchase program will be voluntary and designed with attractive terms to encourage participation from healthy institutions.''
U.S. officials are hurrying to address frozen credit markets that led France, Germany, Spain, the Netherlands and Austria to agree to commit $1.8 trillion to guarantee interbank loans and take equity stakes in banks. Buying shares of financial institutions has become the latest focus of Treasury Secretary Henry Paulson's rescue plan.
``While the U.S. tends to shy away from nationalizing or even partially nationalizing its financial institutions, it would appear that it has no choice but to follow suit,'' Win Thin, a senior currency analyst with Brown Brothers Harriman & Co. in New York, said in a research note today.
Paulson and Federal Reserve officials met today with executives from financial companies to discuss the government plan to restore confidence in credit markets, the Treasury said. The Standard & Poor's 500 Index soared 11.6 percent, the biggest rally in seven decades.
`Multiple Directions'
Kashkari said the Treasury will ``attack'' bad debt clogging financial markets from ``multiple directions.'' His remarks gave the first detailed progress report on the operations of the financial rescue plan since President George W. Bush signed it into law on Oct. 3.
Three firms are finalists to be the Treasury's ``master custodian,'' to be announced in 24 hours to serve as the prime contractor, Kashkari said. The Treasury has tapped law firm Simpson Thacher & Bartlett LLP and investment consultants Chicago-based Ennis Knupp & Associates for roles in the program. More selections are expected in coming days, he said.
``We are working around the clock to make it happen,'' Kashkari told the Institute of International Bankers.
Kashkari, 35, is a former Goldman Sachs vice president who has been one of Paulson's key aides on housing issues since July 2006. He currently serves as an assistant secretary for international economic issues, although his responsibilities have been delegated to another assistant secretary, Clay Lowery, while Kashkari works on the program, called TARP.
Bernanke's Oversight
Paulson has said Kashkari will serve as the interim head of the program while the Treasury searches for a permanent executive. In the speech, Kashkari said Fed Chairman Ben S. Bernanke will lead TARP's oversight board. That panel, which met for the first time last week, also includes Paulson and the heads of the Securities and Exchange Commission, the Federal Housing Finance Agency and the Department of Housing and Urban Development.
In addition to the stock-buying effort, other components of TARP include a whole loan purchase program, a mortgage-backed securities purchase program and an insurance program for those securities.
He outlined three possible scenarios: ``One, an auction purchase of troubled assets; two, a broad equity or direct purchase program; and three, a case of an intervention to prevent the impending failure of a systemically significant institution,'' he said.
Kashkari said the Treasury plans to use its broad powers under the new law. ``Treasury worked hard with Congress to build in this flexibility because the one constant throughout the credit crisis has been its unpredictability,'' he said.
Debt Guarantees
Kashkari did not mention debt guarantees in his speech. Paulson's team also is speeding up consideration of guaranteeing debt issued by banks after a similar move by European policy makers, according to a U.S. official briefed on the matter.
Executive compensation restrictions, required by Congress for participating firms, will take different forms depending on how financial institutions use the program, Kashkari said.
Oversight and compliance efforts already have started, Kashkari said. The Treasury is working with the Government Accountability Office and looking for a special inspector general, as required by the law.
Firms that bid on TARP program jobs will have to disclose and address their potential conflicts of interest, Kashkari said. The Treasury will conduct an independent evaluation before making its financial decision, he said.
Conflicts of Interest
``Taking aggressive steps to manage potential conflicts of interest is essential because firms with the relevant financial expertise may also hold assets that become eligible for sale into the TARP,'' Kashkari said.
The Treasury has received hundreds of applications from firms seeking to be the asset managers for securities and whole loans. For both categories, the Treasury expects to make a selection within the next few days, Kashkari said. Two accounting firms will be selected in coming weeks, he said.
Paulson has tapped an interim leadership team for the rescue program while permanent staff are recruited, Kashkari said, naming five of the new hires.
Reuben Jeffery, undersecretary of State for economic affairs, will be the TARP's chief investment officer. Jeffery spent 18 years at Goldman Sachs.
Jonathan Fiechter, deputy director of the International Monetary Fund's monetary and capital markets director, will be interim chief risk officer for the new program.
Donald Hammond, a former Treasury career official who is now deputy director of the Fed's payments division, will be interim chief compliance officer.
Thomas Bloom, on loan from the Office of the Comptroller of the Currency, will be interim chief financial officer.
Donna Gambrell, head of the Treasury's Community Development Financial Institutions Fund, will lead the program's efforts to preserve homeownership.
To contact the reporter on this story: Rebecca Christie in Washington at Rchristie4@bloomberg.net.
Read more...
Oct. 13 (Bloomberg) -- Neel Kashkari, the U.S. Treasury official overseeing the $700 billion rescue of the financial system, said government equity injections will be aimed at ``healthy'' firms.
``We are designing a standardized program to purchase equity in a broad array of financial institutions,'' Kashkari, who heads the department's Troubled Asset Relief Program, said in a speech in Washington. ``The equity purchase program will be voluntary and designed with attractive terms to encourage participation from healthy institutions.''
U.S. officials are hurrying to address frozen credit markets that led France, Germany, Spain, the Netherlands and Austria to agree to commit $1.8 trillion to guarantee interbank loans and take equity stakes in banks. Buying shares of financial institutions has become the latest focus of Treasury Secretary Henry Paulson's rescue plan.
``While the U.S. tends to shy away from nationalizing or even partially nationalizing its financial institutions, it would appear that it has no choice but to follow suit,'' Win Thin, a senior currency analyst with Brown Brothers Harriman & Co. in New York, said in a research note today.
Paulson and Federal Reserve officials met today with executives from financial companies to discuss the government plan to restore confidence in credit markets, the Treasury said. The Standard & Poor's 500 Index soared 11.6 percent, the biggest rally in seven decades.
`Multiple Directions'
Kashkari said the Treasury will ``attack'' bad debt clogging financial markets from ``multiple directions.'' His remarks gave the first detailed progress report on the operations of the financial rescue plan since President George W. Bush signed it into law on Oct. 3.
Three firms are finalists to be the Treasury's ``master custodian,'' to be announced in 24 hours to serve as the prime contractor, Kashkari said. The Treasury has tapped law firm Simpson Thacher & Bartlett LLP and investment consultants Chicago-based Ennis Knupp & Associates for roles in the program. More selections are expected in coming days, he said.
``We are working around the clock to make it happen,'' Kashkari told the Institute of International Bankers.
Kashkari, 35, is a former Goldman Sachs vice president who has been one of Paulson's key aides on housing issues since July 2006. He currently serves as an assistant secretary for international economic issues, although his responsibilities have been delegated to another assistant secretary, Clay Lowery, while Kashkari works on the program, called TARP.
Bernanke's Oversight
Paulson has said Kashkari will serve as the interim head of the program while the Treasury searches for a permanent executive. In the speech, Kashkari said Fed Chairman Ben S. Bernanke will lead TARP's oversight board. That panel, which met for the first time last week, also includes Paulson and the heads of the Securities and Exchange Commission, the Federal Housing Finance Agency and the Department of Housing and Urban Development.
In addition to the stock-buying effort, other components of TARP include a whole loan purchase program, a mortgage-backed securities purchase program and an insurance program for those securities.
He outlined three possible scenarios: ``One, an auction purchase of troubled assets; two, a broad equity or direct purchase program; and three, a case of an intervention to prevent the impending failure of a systemically significant institution,'' he said.
Kashkari said the Treasury plans to use its broad powers under the new law. ``Treasury worked hard with Congress to build in this flexibility because the one constant throughout the credit crisis has been its unpredictability,'' he said.
Debt Guarantees
Kashkari did not mention debt guarantees in his speech. Paulson's team also is speeding up consideration of guaranteeing debt issued by banks after a similar move by European policy makers, according to a U.S. official briefed on the matter.
Executive compensation restrictions, required by Congress for participating firms, will take different forms depending on how financial institutions use the program, Kashkari said.
Oversight and compliance efforts already have started, Kashkari said. The Treasury is working with the Government Accountability Office and looking for a special inspector general, as required by the law.
Firms that bid on TARP program jobs will have to disclose and address their potential conflicts of interest, Kashkari said. The Treasury will conduct an independent evaluation before making its financial decision, he said.
Conflicts of Interest
``Taking aggressive steps to manage potential conflicts of interest is essential because firms with the relevant financial expertise may also hold assets that become eligible for sale into the TARP,'' Kashkari said.
The Treasury has received hundreds of applications from firms seeking to be the asset managers for securities and whole loans. For both categories, the Treasury expects to make a selection within the next few days, Kashkari said. Two accounting firms will be selected in coming weeks, he said.
Paulson has tapped an interim leadership team for the rescue program while permanent staff are recruited, Kashkari said, naming five of the new hires.
Reuben Jeffery, undersecretary of State for economic affairs, will be the TARP's chief investment officer. Jeffery spent 18 years at Goldman Sachs.
Jonathan Fiechter, deputy director of the International Monetary Fund's monetary and capital markets director, will be interim chief risk officer for the new program.
Donald Hammond, a former Treasury career official who is now deputy director of the Fed's payments division, will be interim chief compliance officer.
Thomas Bloom, on loan from the Office of the Comptroller of the Currency, will be interim chief financial officer.
Donna Gambrell, head of the Treasury's Community Development Financial Institutions Fund, will lead the program's efforts to preserve homeownership.
To contact the reporter on this story: Rebecca Christie in Washington at Rchristie4@bloomberg.net.
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U.S. Treasury Said to Invest in Nine Major U.S. Banks
By Robert Schmidt and Peter Cook
More Photos/Details
Oct. 13 (Bloomberg) -- The Bush administration will announce a plan to rescue frozen credit markets that includes spending about half of a total of $250 billion for preferred shares of nine major banks, people briefed on the matter said.
The companies are Citigroup Inc., Wells Fargo & Co., JPMorgan Chase & Co., Bank of America Corp., Goldman Sachs Group Inc., Morgan Stanley, State Street Corp., and Bank of New York Mellon Corp., the people said. One of the people also said Merrill Lynch & Co. will receive an investment.
The injections represent a new approach for Treasury Secretary Henry Paulson's attempts to prevent a financial market meltdown from sending the U.S. economy into a prolonged recession. He's following similar interventions by European leaders and using broad powers Congress gave him earlier this month to save the country's banking system.
``They've decided they need to do something drastic and this is drastic,'' said Gerard Cassidy, a bank analyst at RBC Capital Markets in Portland, Maine.
None of banks getting government money was given a choice about it, said one of the people familiar with the plans. All of the banks involved will have to submit to compensation restrictions, said the person.
The government will also guarantee the banks' newly issued senior unsecured debt, making it easier for them to refinance their liabilities, the person said.
Allocating Money
The Treasury plans to spend $25 billion each for stakes in Citigroup and JPMorgan, people said. Another $25 billion will be divided between Bank of America and Merrill, which agreed last month to be acquired by Bank of America. Goldman and Morgan Stanley will each get $10 billion, while State Street and Bank of New York will get injections of about $3 billion each, people said.
Financial institutions are struggling to regain the confidence of investors, counterparties and clients after bad loans caused more than $635 billion of writedowns across the industry. Falling share prices have made it harder to raise equity while surging borrowing costs have made debt refinancing harder.
Paulson, Federal Reserve Chairman Ben S. Bernanke and FDIC Chairman Sheila Bair scheduled at 8:30 a.m. press conference tomorrow in Washington. Paulson's initiative follows an announcement in Europe that France, Germany, Spain, the Netherlands and Austria committed $1.8 trillion to guarantee bank loans and take stakes in lenders.
The press conference at Treasury will address ``a series of comprehensive actions to strengthen public confidence in our financial institutions and restore functioning of our credit markets,'' the department said in a e-mailed statement.
Chief executive officers of major U.S. banks met with Paulson to discuss the options for helping markets. Stocks in the U.S. earlier today rallied the most in seven decades, pushing the Standard & Poor's 500 Index up 11.6 percent.
To contact the reporter on this story: Robert Schmidt in Washington at rschmidt5@bloomberg.net.
Read more...
More Photos/Details
Oct. 13 (Bloomberg) -- The Bush administration will announce a plan to rescue frozen credit markets that includes spending about half of a total of $250 billion for preferred shares of nine major banks, people briefed on the matter said.
The companies are Citigroup Inc., Wells Fargo & Co., JPMorgan Chase & Co., Bank of America Corp., Goldman Sachs Group Inc., Morgan Stanley, State Street Corp., and Bank of New York Mellon Corp., the people said. One of the people also said Merrill Lynch & Co. will receive an investment.
The injections represent a new approach for Treasury Secretary Henry Paulson's attempts to prevent a financial market meltdown from sending the U.S. economy into a prolonged recession. He's following similar interventions by European leaders and using broad powers Congress gave him earlier this month to save the country's banking system.
``They've decided they need to do something drastic and this is drastic,'' said Gerard Cassidy, a bank analyst at RBC Capital Markets in Portland, Maine.
None of banks getting government money was given a choice about it, said one of the people familiar with the plans. All of the banks involved will have to submit to compensation restrictions, said the person.
The government will also guarantee the banks' newly issued senior unsecured debt, making it easier for them to refinance their liabilities, the person said.
Allocating Money
The Treasury plans to spend $25 billion each for stakes in Citigroup and JPMorgan, people said. Another $25 billion will be divided between Bank of America and Merrill, which agreed last month to be acquired by Bank of America. Goldman and Morgan Stanley will each get $10 billion, while State Street and Bank of New York will get injections of about $3 billion each, people said.
Financial institutions are struggling to regain the confidence of investors, counterparties and clients after bad loans caused more than $635 billion of writedowns across the industry. Falling share prices have made it harder to raise equity while surging borrowing costs have made debt refinancing harder.
Paulson, Federal Reserve Chairman Ben S. Bernanke and FDIC Chairman Sheila Bair scheduled at 8:30 a.m. press conference tomorrow in Washington. Paulson's initiative follows an announcement in Europe that France, Germany, Spain, the Netherlands and Austria committed $1.8 trillion to guarantee bank loans and take stakes in lenders.
The press conference at Treasury will address ``a series of comprehensive actions to strengthen public confidence in our financial institutions and restore functioning of our credit markets,'' the department said in a e-mailed statement.
Chief executive officers of major U.S. banks met with Paulson to discuss the options for helping markets. Stocks in the U.S. earlier today rallied the most in seven decades, pushing the Standard & Poor's 500 Index up 11.6 percent.
To contact the reporter on this story: Robert Schmidt in Washington at rschmidt5@bloomberg.net.
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Global Stocks Climb, Oil Rises on Bailout Plan; Banks Advance
By Lynn Thomasson and Adria Cimino
Oct. 13 (Bloomberg) -- Stocks rallied worldwide, with the Standard & Poor's 500 Index gaining the most since 1939, and oil climbed from a 13-month low after governments in Europe, the U.S. and Asia agreed to support banks.
Morgan Stanley surged 87 percent after changing terms of its $9 billion investment from Mitsubishi UFJ Financial Group Inc. UBS AG and ING Groep NV jumped more than 12 percent in Europe after the region's leaders said they would guarantee bank debt. The euro rose the most in three weeks against the dollar and yen on speculation the bailout may prevent more bank failures.
``They brought out the heavy artillery,'' said Aurore Wannesson-Raynaud, a strategist at Axa Investment Managers in Paris, which oversees about $830 billion. ``It's possible that the worst is behind us. We should see better days ahead.''
The S&P 500 rose 104.13 points to 1,003.35, rebounding from its worst week in 75 years. The Dow Jones Industrial Average increased 936.42, or 11 percent, to 9,387.61, eclipsing its previous record 499-point gain in March 2000 and posting its best percentage advance since March 1933. Both gauges tumbled 18 percent last week. Europe's Dow Jones Stoxx 600 Index advanced 9.9 percent for the biggest daily gain, reflecting record increases in France and Germany, while the MSCI Asia Pacific excluding Japan Index jumped 7.4 percent.
Stocks climbed after the U.S. Federal Reserve said central banks will offer financial institutions unlimited dollar funds and Europe pledged to guarantee bank debt and permit governments to buy stakes and recapitalize some distressed financial companies. All 10 S&P 500 industries gained more than 7.3 percent.
Money-Market Rates
Money-market rates declined following the central banks' dollar measures. The London interbank offered rate, or Libor, for three-month dollar loans fell to 4.75 percent from 4.82 percent, the British Bankers' Association said.
The TED spread, the difference between what the U.S. government and banks pay for three-month dollars, narrowed 7 basis points to 457 basis points. The Libor-OIS spread, a gauge of cash scarcity among banks, narrowed 2 basis points to 362 basis points.
Morgan Stanley surged $8.42 to $18.10. Mitsubishi UFJ will receive preferred stock that pays a 10 percent dividend instead of common stock. Japan's biggest lender will get 21 percent of the New York-based company as previously agreed.
``This is a good day to buy,'' said Louis Navellier, who oversees $4.3 billion as chief executive officer of Navellier & Associates in West Palm Beach, Florida. ``I'm very, very comfortable we're at or near the bottom here.''
Alcoa Inc., Johnson & Johnson and Chevron Corp. rallied the most in at least 20 years, since Bloomberg began tracking the data. The stocks added more than 12 percent.
Valuations
The S&P 500, the benchmark for American equities, began today's trading valued at 18.2 times earnings of companies in the index, the cheapest in more than a year. Today's rally pushed its price-to-earnings ratio to 19.23. The MSCI World Index traded at 12.03 times the earnings of its 1,730 companies. Europe's Stoxx 600 was valued at 9.2 times profit, the lowest level since at least 2002, prior to the advance today.
The U.K.'s FTSE 100 jumped 8.3 percent as BHP Billiton Ltd. and Royal Dutch Shell Plc rose. Germany's DAX and France's CAC 40 rallied the most on record, advancing 11 percent.
The MSCI Latin America Index surged 17 percent, the most ever, as stock benchmarks in Mexico, Brazil, Chile and Peru increased more than 11 percent. Lojas Americanas SA, Brazil's biggest discount retailer, surged 19 percent to 5.95 reais after Morgan Stanley said the only economic growth next year will come from emerging markets. The MSCI Emerging Markets Index added 7.9 percent for the steepest advance in three weeks.
Default Protection
The cost of protecting bank bonds from default fell after the U.K. pledged 37 billion pounds ($64 billion) for Royal Bank of Scotland Group Plc, HBOS Plc and Lloyds TSB Group Plc.
Germany will provide as much as 500 billion euros ($681 billion) in loan guarantees and capital to bolster the banking system, the Finance Ministry said. Combined, France, Germany and Spain committed $1.3 trillion to secure interbank loans.
``There's a certain sense of relief,'' said Benoit de Broissia, an equity analyst at KBL Richelieu Gestion in Paris, which oversees $5.5 billion. ``The banking system is the lung of the economy, so it has to be supported.''
Equity injections for U.S. firms will be voluntary, designed with attractive terms and aimed at ``healthy'' firms, said Neel Kashkari, the Treasury official overseeing the $700 billion rescue of the financial system, in a speech in Washington.
Mexico's peso rose the most since 1995 and Brazil's real had its biggest gain in six years as demand for higher-yielding assets climbed. The peso increased 5.4 percent to 12.4173 per dollar, stemming a three-week rout. Brazil's real gained 6.8 percent to 2.1667 per dollar.
Euro Gains
The euro rose as much as 2 percent, the most since Sept. 22, to $1.3682. It advanced 1.4 percent to 136.83 yen.
The MSCI World Index is poised for its worst annual performance ever after plunging 37 percent this year on concern frozen credit markets will trigger a recession. The decline in equities from Hong Kong to Lima erased about $28 trillion in value from the world's stock markets. Financial firms have reported $635 billion in losses and writedowns from mortgage- related investments since the beginning of last year.
``We were on the brink of an implosion,'' said Jacques- Antoine Bretteil, who manages about $312 million at International Capital Gestion in Paris. ``We've avoided the worst, but that doesn't mean all of the problems are over.''
Crude for November delivery rose 4.5 percent to $81.16 a barrel on the New York Mercantile Exchange. Copper, silver and natural gas also advanced.
BHP, Apple Advance
Exxon Mobil Corp. rose the most since October 1987, soaring 17 percent to $73.08. The world's largest oil company was raised to ``buy'' from ``neutral'' at Goldman Sachs Group Inc.
Petroleo Brasileiro SA, Brazil's state-controlled oil producer, gained 10 percent to 26.44 reais for the steepest gain in three weeks. Chevron surged 21 percent to $69.89.
BHP Billiton, the world's biggest mining company, jumped 9.1 percent to 1,041 pence, while Rio Tinto Group, the third-largest, climbed 15 percent to 2,797 pence. Freeport-McMoRan Copper & Gold Inc. added 25 percent to $45.37 as copper prices jumped the most in two years.
General Motors Corp. and Ford Motor Co., the largest U.S. automakers, surged more than 20 percent. GM, which posted the biggest advance in the Dow average today, held talks with Chrysler LLC about a possible merger, five people with knowledge of the talks told Bloomberg News.
Apple Inc. rose 14 percent to $110.26, the most since October 1999. Sanford C. Bernstein & Co. analyst Toni Sacconaghi upgraded the maker of Macintosh computers and the iPhone to ``outperform'' from ``market perform,'' saying the shares are ``overly discounted'' after plunging 46 percent in two months.
UBS, ING
UBS, the European bank hardest hit by subprime-related losses, surged 12 percent to 19.1 francs. ING, the largest Dutch financial-services provider, gained 27 percent to 13.26 euros. Deutsche Bank AG, Germany's biggest, surged 12 percent to 35.4 euros for the steepest increase since Sept. 19.
Goldman Sachs Group Inc. raised its recommendation on European banks to ``neutral'' from ``underweight,'' citing the recent decline in valuations and central bank action to reduce risks for the industry.
Barclays Plc gained for the first time in five days, adding 3.7 percent to 215.25 pence. The U.K.'s second-biggest bank plans to sell more than 6.5 billion pounds ($11 billion) of shares to private investors without turning to the government for help. Barclays won't pay a final dividend for 2008, the company said today.
Cede Control
Royal Bank of Scotland fell 8.4 percent to 65.7 pence, and HBOS dropped 28 percent to 90 pence. In exchange for the bailout, Royal Bank of Scotland and HBOS will cede majority control to the government, give Prime Minister Gordon Brown seats on their boards, the right to fix dividends, and power to set executives' pay.
Still, the unprecedented government actions around the world to prop up lenders and stabilize credit markets may not signal the end of the crisis, according to investor Marc Faber, who predicted the 1987 stock-market crash.
``The next shoe to drop is more in the real economy, in corporate profits and in commercial real estate,'' Faber, managing director of Marc Faber Ltd. and publisher of the Gloom, Boom & Doom report, told Bloomberg Television. ``A global economic slump is unavoidable.''
Profits Miss
Alcoa, the biggest U.S. aluminum producer, and Bank of America Corp., the second-largest U.S. bank, posted the steepest retreats in more than two decades last week after third-quarter profits missed predictions by 28 percent and 69 percent. For the fourth quarter, analysts say companies in the S&P 500 will earn about $241 billion, the most ever.
Investors who are expecting a rebound after almost $7 trillion was erased from U.S. equity markets this year may be disappointed as earnings fail to match forecasts. S&P 500 companies that earned less than analysts estimated in the past year dropped 13 times more than the index's average decline, data compiled by Bespoke Investment Group LLC show.
Iceland suspended stock trading for a third day after the government seized Kaupthing Bank hf, the country's biggest bank. Pakistan stocks were little changed today as the Karachi Stock Exchange kept trading restrictions in force and the police surrounded the bourse to thwart violence by investors demanding a halt in trade.
To contact the reporters on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net; Adria Cimino in Paris at acimino1@bloomberg.net.
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Oct. 13 (Bloomberg) -- Stocks rallied worldwide, with the Standard & Poor's 500 Index gaining the most since 1939, and oil climbed from a 13-month low after governments in Europe, the U.S. and Asia agreed to support banks.
Morgan Stanley surged 87 percent after changing terms of its $9 billion investment from Mitsubishi UFJ Financial Group Inc. UBS AG and ING Groep NV jumped more than 12 percent in Europe after the region's leaders said they would guarantee bank debt. The euro rose the most in three weeks against the dollar and yen on speculation the bailout may prevent more bank failures.
``They brought out the heavy artillery,'' said Aurore Wannesson-Raynaud, a strategist at Axa Investment Managers in Paris, which oversees about $830 billion. ``It's possible that the worst is behind us. We should see better days ahead.''
The S&P 500 rose 104.13 points to 1,003.35, rebounding from its worst week in 75 years. The Dow Jones Industrial Average increased 936.42, or 11 percent, to 9,387.61, eclipsing its previous record 499-point gain in March 2000 and posting its best percentage advance since March 1933. Both gauges tumbled 18 percent last week. Europe's Dow Jones Stoxx 600 Index advanced 9.9 percent for the biggest daily gain, reflecting record increases in France and Germany, while the MSCI Asia Pacific excluding Japan Index jumped 7.4 percent.
Stocks climbed after the U.S. Federal Reserve said central banks will offer financial institutions unlimited dollar funds and Europe pledged to guarantee bank debt and permit governments to buy stakes and recapitalize some distressed financial companies. All 10 S&P 500 industries gained more than 7.3 percent.
Money-Market Rates
Money-market rates declined following the central banks' dollar measures. The London interbank offered rate, or Libor, for three-month dollar loans fell to 4.75 percent from 4.82 percent, the British Bankers' Association said.
The TED spread, the difference between what the U.S. government and banks pay for three-month dollars, narrowed 7 basis points to 457 basis points. The Libor-OIS spread, a gauge of cash scarcity among banks, narrowed 2 basis points to 362 basis points.
Morgan Stanley surged $8.42 to $18.10. Mitsubishi UFJ will receive preferred stock that pays a 10 percent dividend instead of common stock. Japan's biggest lender will get 21 percent of the New York-based company as previously agreed.
``This is a good day to buy,'' said Louis Navellier, who oversees $4.3 billion as chief executive officer of Navellier & Associates in West Palm Beach, Florida. ``I'm very, very comfortable we're at or near the bottom here.''
Alcoa Inc., Johnson & Johnson and Chevron Corp. rallied the most in at least 20 years, since Bloomberg began tracking the data. The stocks added more than 12 percent.
Valuations
The S&P 500, the benchmark for American equities, began today's trading valued at 18.2 times earnings of companies in the index, the cheapest in more than a year. Today's rally pushed its price-to-earnings ratio to 19.23. The MSCI World Index traded at 12.03 times the earnings of its 1,730 companies. Europe's Stoxx 600 was valued at 9.2 times profit, the lowest level since at least 2002, prior to the advance today.
The U.K.'s FTSE 100 jumped 8.3 percent as BHP Billiton Ltd. and Royal Dutch Shell Plc rose. Germany's DAX and France's CAC 40 rallied the most on record, advancing 11 percent.
The MSCI Latin America Index surged 17 percent, the most ever, as stock benchmarks in Mexico, Brazil, Chile and Peru increased more than 11 percent. Lojas Americanas SA, Brazil's biggest discount retailer, surged 19 percent to 5.95 reais after Morgan Stanley said the only economic growth next year will come from emerging markets. The MSCI Emerging Markets Index added 7.9 percent for the steepest advance in three weeks.
Default Protection
The cost of protecting bank bonds from default fell after the U.K. pledged 37 billion pounds ($64 billion) for Royal Bank of Scotland Group Plc, HBOS Plc and Lloyds TSB Group Plc.
Germany will provide as much as 500 billion euros ($681 billion) in loan guarantees and capital to bolster the banking system, the Finance Ministry said. Combined, France, Germany and Spain committed $1.3 trillion to secure interbank loans.
``There's a certain sense of relief,'' said Benoit de Broissia, an equity analyst at KBL Richelieu Gestion in Paris, which oversees $5.5 billion. ``The banking system is the lung of the economy, so it has to be supported.''
Equity injections for U.S. firms will be voluntary, designed with attractive terms and aimed at ``healthy'' firms, said Neel Kashkari, the Treasury official overseeing the $700 billion rescue of the financial system, in a speech in Washington.
Mexico's peso rose the most since 1995 and Brazil's real had its biggest gain in six years as demand for higher-yielding assets climbed. The peso increased 5.4 percent to 12.4173 per dollar, stemming a three-week rout. Brazil's real gained 6.8 percent to 2.1667 per dollar.
Euro Gains
The euro rose as much as 2 percent, the most since Sept. 22, to $1.3682. It advanced 1.4 percent to 136.83 yen.
The MSCI World Index is poised for its worst annual performance ever after plunging 37 percent this year on concern frozen credit markets will trigger a recession. The decline in equities from Hong Kong to Lima erased about $28 trillion in value from the world's stock markets. Financial firms have reported $635 billion in losses and writedowns from mortgage- related investments since the beginning of last year.
``We were on the brink of an implosion,'' said Jacques- Antoine Bretteil, who manages about $312 million at International Capital Gestion in Paris. ``We've avoided the worst, but that doesn't mean all of the problems are over.''
Crude for November delivery rose 4.5 percent to $81.16 a barrel on the New York Mercantile Exchange. Copper, silver and natural gas also advanced.
BHP, Apple Advance
Exxon Mobil Corp. rose the most since October 1987, soaring 17 percent to $73.08. The world's largest oil company was raised to ``buy'' from ``neutral'' at Goldman Sachs Group Inc.
Petroleo Brasileiro SA, Brazil's state-controlled oil producer, gained 10 percent to 26.44 reais for the steepest gain in three weeks. Chevron surged 21 percent to $69.89.
BHP Billiton, the world's biggest mining company, jumped 9.1 percent to 1,041 pence, while Rio Tinto Group, the third-largest, climbed 15 percent to 2,797 pence. Freeport-McMoRan Copper & Gold Inc. added 25 percent to $45.37 as copper prices jumped the most in two years.
General Motors Corp. and Ford Motor Co., the largest U.S. automakers, surged more than 20 percent. GM, which posted the biggest advance in the Dow average today, held talks with Chrysler LLC about a possible merger, five people with knowledge of the talks told Bloomberg News.
Apple Inc. rose 14 percent to $110.26, the most since October 1999. Sanford C. Bernstein & Co. analyst Toni Sacconaghi upgraded the maker of Macintosh computers and the iPhone to ``outperform'' from ``market perform,'' saying the shares are ``overly discounted'' after plunging 46 percent in two months.
UBS, ING
UBS, the European bank hardest hit by subprime-related losses, surged 12 percent to 19.1 francs. ING, the largest Dutch financial-services provider, gained 27 percent to 13.26 euros. Deutsche Bank AG, Germany's biggest, surged 12 percent to 35.4 euros for the steepest increase since Sept. 19.
Goldman Sachs Group Inc. raised its recommendation on European banks to ``neutral'' from ``underweight,'' citing the recent decline in valuations and central bank action to reduce risks for the industry.
Barclays Plc gained for the first time in five days, adding 3.7 percent to 215.25 pence. The U.K.'s second-biggest bank plans to sell more than 6.5 billion pounds ($11 billion) of shares to private investors without turning to the government for help. Barclays won't pay a final dividend for 2008, the company said today.
Cede Control
Royal Bank of Scotland fell 8.4 percent to 65.7 pence, and HBOS dropped 28 percent to 90 pence. In exchange for the bailout, Royal Bank of Scotland and HBOS will cede majority control to the government, give Prime Minister Gordon Brown seats on their boards, the right to fix dividends, and power to set executives' pay.
Still, the unprecedented government actions around the world to prop up lenders and stabilize credit markets may not signal the end of the crisis, according to investor Marc Faber, who predicted the 1987 stock-market crash.
``The next shoe to drop is more in the real economy, in corporate profits and in commercial real estate,'' Faber, managing director of Marc Faber Ltd. and publisher of the Gloom, Boom & Doom report, told Bloomberg Television. ``A global economic slump is unavoidable.''
Profits Miss
Alcoa, the biggest U.S. aluminum producer, and Bank of America Corp., the second-largest U.S. bank, posted the steepest retreats in more than two decades last week after third-quarter profits missed predictions by 28 percent and 69 percent. For the fourth quarter, analysts say companies in the S&P 500 will earn about $241 billion, the most ever.
Investors who are expecting a rebound after almost $7 trillion was erased from U.S. equity markets this year may be disappointed as earnings fail to match forecasts. S&P 500 companies that earned less than analysts estimated in the past year dropped 13 times more than the index's average decline, data compiled by Bespoke Investment Group LLC show.
Iceland suspended stock trading for a third day after the government seized Kaupthing Bank hf, the country's biggest bank. Pakistan stocks were little changed today as the Karachi Stock Exchange kept trading restrictions in force and the police surrounded the bourse to thwart violence by investors demanding a halt in trade.
To contact the reporters on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net; Adria Cimino in Paris at acimino1@bloomberg.net.
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World May Be Lucky to Get Worst Recession Since 1983
By Rich Miller
Oct. 13 (Bloomberg) -- The world may be heading for its worst recession in a quarter of a century -- if it's lucky.
A steep slump looks likely as the credit squeeze crunches economies from the U.S. to Singapore and panic engulfs global financial markets.
``It's certainly going to be the worst since the 1980s,'' says Bradford DeLong, an economics professor at the University of California at Berkeley who worked at the U.S. Treasury Department from 1993 to 1995. ``The hope is that it won't become the worst unemployment business cycle since the Great Depression.''
Of special concern: The two big bulwarks of the global economy in recent years -- U.S. consumer spending and the rapid growth of emerging markets -- may be finally giving way in the face of the 14-month-old financial turmoil.
That raises the odds that the coming economic decline will be long and deep, despite U.S. Treasury Secretary Henry Paulson's $700 billion financial rescue plan, similar efforts by European leaders and the coordinated interest-rate cuts engineered by Federal Reserve Chairman Ben S. Bernanke and other central bankers last week.
``This is the worst crisis I've seen in my 50-year career,'' William Rhodes, senior vice chairman of Citigroup Inc. in New York, told fellow bankers in Washington yesterday. ``We still have to deal with the effects on the real economy here and elsewhere.''
Slowing Growth
The International Monetary Fund's World Economic Outlook last week forecast that global growth will slow to 3 percent in 2009, from 3.9 percent this year and 5 percent in 2007. That would mean a world recession under the fund's informal definition -- growth of 3 percent or less -- although current IMF chief economist Olivier Blanchard declined to describe it as such.
One of his predecessors wasn't so shy. ``It's hard to imagine it not being the worst recession in at least 25 years,'' says Kenneth Rogoff, who is now a professor at Harvard University in Cambridge, Massachusetts.
``You can take most of the official forecasts for 2009 and knock two'' percentage points off of them, he adds. That would make it the worst slump since 1982, when the world economy grew 0.9 percent.
``We're heading into a global recession,'' Simon Johnson, also a former IMF chief economist and now a senior fellow at the Peterson Institute for International Economics in Washington, said last month.
Rate-Cut Pressures
Stocks rallied worldwide today after European governments announced measures to shore up financial institutions and central banks pumped unlimited dollar funds into the money markets. The Standard & Poor's 500 Index rebounded from its worst week in 75 years with an 11.6 percent advance, its steepest since 1939.
Even if the financial markets settle down soon, the deepening decline will put pressure on central bankers to cut interest rates further and on finance ministers to reduce taxes and boost spending.
``There will be more cuts out of all of the central banks,'' says Ethan Harris, economist at Barclays Capital Inc. in New York. ``We are looking at a global recession, and it isn't going to turn quickly.''
U.S. lawmakers, who already enacted one economic-stimulus package this year, will reconvene after the Nov. 4 presidential and congressional elections to consider another.
Stimulus
``We are going to do a stimulus,'' House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, said yesterday on the ABC News television program ``This Week.''
The U.S., where the 2 1/2 year-old nosedive in the housing market is now taking down the rest of the economy, is the epicenter of the global slump. Gross domestic product contracted in the third quarter and is set to shrink further in the fourth, according to a survey of 52 economists by Bloomberg News this month.
Consumer spending, after growing uninterruptedly since 1991, finally gave way last quarter in the face of rising unemployment, declining wealth and tightening credit.
Further Weakness
Further weakness seems to be in store. The jobless rate, already at a five-year high of 6.1 percent, may rise to 8 percent, says Jan Hatzius, chief U.S. economist at Goldman Sachs Group in New York. That would bring the cumulative increase in unemployment during the recession to 3.5 percentage points, second in the post-World War II era only to the 4.1- point increase recorded in the mid-1970s.
Household finances are also being pinched. The steep decline in U.S. stock prices last week alone wiped some $2.16 trillion from investors' wealth. And banks are getting stingier with credit: Borrowing by U.S. consumers fell in August by the most on record as lenders shut access to loans, according to data from the Fed.
The consumer pullback is already sending ripples throughout the economy. Vacancies at U.S. neighborhood and community shopping centers rose to a 14-year-high in the third quarter, New York-based real-estate research firm Reis says.
A sharp reduction in household spending could turn what is shaping up to be the biggest contraction since the early 1980s into something worse, Bruce Kasman, chief economist at JPMorgan Chase & Co. told a meeting of the Institute for International Finance in Washington yesterday.
`Fairly Significant'
The U.S. economy is headed for a ``fairly significant recession,'' and unemployment may peak at more than 9 percent, Microsoft Corp. founder Bill Gates III said at the Harvard Business School in Boston today.
Cracks are also showing up in the emerging markets, until now the dynamos of the world economy. The MSCI Emerging Markets Index fell 20 percent last week as global investors yanked money from countries such as Brazil and Russia.
Michael Mussa, another former IMF chief economist now with the Peterson Institute, says he has cut his forecast for emerging-market and developing-country growth next year to below 5 percent from 5.7 percent just two weeks ago. That would be the slowest since the Asian financial crisis in 1998 and would compare with an IMF projection of 6.9 percent growth for this year.
Emerging Markets
``The credit crunch has taken hold in emerging markets, particularly in central Europe and now in Latin America,'' Mexican central bank Governor Guillermo Ortiz told the IIF yesterday. ``This has happened in a few weeks, even days.''
Brazilian Budget Minister Paulo Bernardo said in an interview published yesterday by O Globo newspaper that the government may cut spending and postpone social programs as the financial crisis takes its toll on the economy.
Asia is also feeling the impact. Indian central banker Rakesh Mohan says his country's economy faces ``downside risks'' as global investors turn more cautious.
Even China is feeling the effects, as its exporters are pinched by slowing demand from the U.S. and elsewhere. Yi Gan, the deputy governor of the People's Bank of China, sees growth slowing to 9 percent next year from 10.4 percent this year and 11.9 percent in 2007.
``The financial crisis really has an impact everywhere in the world,'' he told investors in Washington yesterday.
That impact will grow the longer the crisis drags on. In a bid to restore calm to the markets, European leaders agreed yesterday to guarantee bank borrowing and use government money to prevent big lenders from going under. The Fed announced today an unprecedented push by central banks to flood the financial system with dollars.
``Time is of crucial importance,'' JPMorgan Chase's Kasman says. ``The longer we wait to implement the strategies, the more damage we can do to the world economy.''
To contact the reporter on this story: Rich Miller in Washington at rmiller28@bloomberg.net
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Oct. 13 (Bloomberg) -- The world may be heading for its worst recession in a quarter of a century -- if it's lucky.
A steep slump looks likely as the credit squeeze crunches economies from the U.S. to Singapore and panic engulfs global financial markets.
``It's certainly going to be the worst since the 1980s,'' says Bradford DeLong, an economics professor at the University of California at Berkeley who worked at the U.S. Treasury Department from 1993 to 1995. ``The hope is that it won't become the worst unemployment business cycle since the Great Depression.''
Of special concern: The two big bulwarks of the global economy in recent years -- U.S. consumer spending and the rapid growth of emerging markets -- may be finally giving way in the face of the 14-month-old financial turmoil.
That raises the odds that the coming economic decline will be long and deep, despite U.S. Treasury Secretary Henry Paulson's $700 billion financial rescue plan, similar efforts by European leaders and the coordinated interest-rate cuts engineered by Federal Reserve Chairman Ben S. Bernanke and other central bankers last week.
``This is the worst crisis I've seen in my 50-year career,'' William Rhodes, senior vice chairman of Citigroup Inc. in New York, told fellow bankers in Washington yesterday. ``We still have to deal with the effects on the real economy here and elsewhere.''
Slowing Growth
The International Monetary Fund's World Economic Outlook last week forecast that global growth will slow to 3 percent in 2009, from 3.9 percent this year and 5 percent in 2007. That would mean a world recession under the fund's informal definition -- growth of 3 percent or less -- although current IMF chief economist Olivier Blanchard declined to describe it as such.
One of his predecessors wasn't so shy. ``It's hard to imagine it not being the worst recession in at least 25 years,'' says Kenneth Rogoff, who is now a professor at Harvard University in Cambridge, Massachusetts.
``You can take most of the official forecasts for 2009 and knock two'' percentage points off of them, he adds. That would make it the worst slump since 1982, when the world economy grew 0.9 percent.
``We're heading into a global recession,'' Simon Johnson, also a former IMF chief economist and now a senior fellow at the Peterson Institute for International Economics in Washington, said last month.
Rate-Cut Pressures
Stocks rallied worldwide today after European governments announced measures to shore up financial institutions and central banks pumped unlimited dollar funds into the money markets. The Standard & Poor's 500 Index rebounded from its worst week in 75 years with an 11.6 percent advance, its steepest since 1939.
Even if the financial markets settle down soon, the deepening decline will put pressure on central bankers to cut interest rates further and on finance ministers to reduce taxes and boost spending.
``There will be more cuts out of all of the central banks,'' says Ethan Harris, economist at Barclays Capital Inc. in New York. ``We are looking at a global recession, and it isn't going to turn quickly.''
U.S. lawmakers, who already enacted one economic-stimulus package this year, will reconvene after the Nov. 4 presidential and congressional elections to consider another.
Stimulus
``We are going to do a stimulus,'' House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, said yesterday on the ABC News television program ``This Week.''
The U.S., where the 2 1/2 year-old nosedive in the housing market is now taking down the rest of the economy, is the epicenter of the global slump. Gross domestic product contracted in the third quarter and is set to shrink further in the fourth, according to a survey of 52 economists by Bloomberg News this month.
Consumer spending, after growing uninterruptedly since 1991, finally gave way last quarter in the face of rising unemployment, declining wealth and tightening credit.
Further Weakness
Further weakness seems to be in store. The jobless rate, already at a five-year high of 6.1 percent, may rise to 8 percent, says Jan Hatzius, chief U.S. economist at Goldman Sachs Group in New York. That would bring the cumulative increase in unemployment during the recession to 3.5 percentage points, second in the post-World War II era only to the 4.1- point increase recorded in the mid-1970s.
Household finances are also being pinched. The steep decline in U.S. stock prices last week alone wiped some $2.16 trillion from investors' wealth. And banks are getting stingier with credit: Borrowing by U.S. consumers fell in August by the most on record as lenders shut access to loans, according to data from the Fed.
The consumer pullback is already sending ripples throughout the economy. Vacancies at U.S. neighborhood and community shopping centers rose to a 14-year-high in the third quarter, New York-based real-estate research firm Reis says.
A sharp reduction in household spending could turn what is shaping up to be the biggest contraction since the early 1980s into something worse, Bruce Kasman, chief economist at JPMorgan Chase & Co. told a meeting of the Institute for International Finance in Washington yesterday.
`Fairly Significant'
The U.S. economy is headed for a ``fairly significant recession,'' and unemployment may peak at more than 9 percent, Microsoft Corp. founder Bill Gates III said at the Harvard Business School in Boston today.
Cracks are also showing up in the emerging markets, until now the dynamos of the world economy. The MSCI Emerging Markets Index fell 20 percent last week as global investors yanked money from countries such as Brazil and Russia.
Michael Mussa, another former IMF chief economist now with the Peterson Institute, says he has cut his forecast for emerging-market and developing-country growth next year to below 5 percent from 5.7 percent just two weeks ago. That would be the slowest since the Asian financial crisis in 1998 and would compare with an IMF projection of 6.9 percent growth for this year.
Emerging Markets
``The credit crunch has taken hold in emerging markets, particularly in central Europe and now in Latin America,'' Mexican central bank Governor Guillermo Ortiz told the IIF yesterday. ``This has happened in a few weeks, even days.''
Brazilian Budget Minister Paulo Bernardo said in an interview published yesterday by O Globo newspaper that the government may cut spending and postpone social programs as the financial crisis takes its toll on the economy.
Asia is also feeling the impact. Indian central banker Rakesh Mohan says his country's economy faces ``downside risks'' as global investors turn more cautious.
Even China is feeling the effects, as its exporters are pinched by slowing demand from the U.S. and elsewhere. Yi Gan, the deputy governor of the People's Bank of China, sees growth slowing to 9 percent next year from 10.4 percent this year and 11.9 percent in 2007.
``The financial crisis really has an impact everywhere in the world,'' he told investors in Washington yesterday.
That impact will grow the longer the crisis drags on. In a bid to restore calm to the markets, European leaders agreed yesterday to guarantee bank borrowing and use government money to prevent big lenders from going under. The Fed announced today an unprecedented push by central banks to flood the financial system with dollars.
``Time is of crucial importance,'' JPMorgan Chase's Kasman says. ``The longer we wait to implement the strategies, the more damage we can do to the world economy.''
To contact the reporter on this story: Rich Miller in Washington at rmiller28@bloomberg.net
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Emerging-Market Stocks Rebound on Bailout Plans; Brazil Rallies
By Denis Maternovsky and James Attwood
Oct. 13 (Bloomberg) -- Emerging-market stocks rebounded from their worst week in at least a decade as world leaders agreed to support banks, easing concern that the credit crisis will stifle developing economies. Bonds declined.
The benchmark index rose the most in almost a month after losing a fifth of its value last week. Banco do Brasil SA led a rally in Brazilian banks after the government eased reserve requirements for the fourth time in a month to unfreeze lending. ICICI Bank, which has suffered the biggest losses on overseas investments among Indian banks, climbed to a record.
``Things got way oversold so there's some bargain hunting going on,'' said Greg Lesko, who helps manage $1 billion at Deltec Asset Management in New York. Emerging-market earnings growth will slow next year ``but it's going to be positive growth and stocks were pricing in a worse scenario than that.''
The MSCI Emerging Markets Index rose 7.9 percent to 638.83 points as the Latin American benchmark jumped 19 percent, the most since at least 1987. Brazil's Bovespa gained 15 percent after the government injected as much as $46 billion into the financial system. China's CSI 300 Index climbed 4.1 percent to 1,985.49, the first gain for the benchmark index in six days. Persian Gulf shares rose, driving benchmark indexes in Dubai and Abu Dhabi to their biggest gains in at least four years, as the United Arab Emirates said it will guarantee bank deposits.
The Federal Reserve, European Central Bank and the Bank of England will offer financial institutions unlimited dollar funds for the first time in an attempt to break the squeeze in money markets.
`Maximum Overweight'
Morgan Stanley raised its allocation of emerging-market stocks to ``maximum overweight'' based on forecasts for stronger economic growth.
``We believe the world economy is in a painful transition to becoming emerging market-led,'' strategist Jonathan F. Garner wrote in a report today. All gross domestic product growth in 2009 will come from countries such as China, Russia and Brazil, he said.
The extra yield investors demand to own developing nations' bonds instead of U.S. Treasuries rose 78 basis points to 6.49 percentage points, the highest spread since April 2003, according to JPMorgan Chase & Co.'s EMBI+ index. European leaders agreed this weekend to guarantee new bank refinancing and use government money to prevent lenders collapsing.
``Global investor risk sentiment has improved,'' Neil Shearing, an emerging markets economist at Capital Economics in London, said in a phone interview. ``There seems to be some kind of hope that a complete financial meltdown has been avoided.''
Banco do Brasil, Latin America's largest lender by assets, jumped 21 percent to 16.90 reais in the steepest gain since Bloomberg records began in January 1995. Petroleo Brasileiro SA, Brazil's state-run oil company, advanced the most in a year, climbing 12 percent to 26.90 reais as oil rebounded from a 13- month low.
Russia Declines
India's Sensex Index jumped 7.4 percent, its biggest one-day surge in more than four years, after ICICI Bank Ltd. Chief Executive Officer K.V. Kamath said the Mumbai-based lender has sufficient funds. ICICI Bank climbed 17 percent to 425.15 rupees.
South Korea's Kospi Index rose 3.8 percent to 1,288.53, the index's biggest increase since Sept. 19.
Indexes in Europe also gained, with the exception of Russia. The nation's Micex Index dropped 4.9 percent to 666.37. The measure was halted for an hour at 3:08 p.m. local time after a technical index declined more than 5 percent, Interfax reported. The dollar-denominated RTS Index slid 6.3 percent to 791.2. Trading in both indexes was suspended Oct. 10.
``The movements in Russian stocks still seem to be driven by fear and panic,'' Shearing said. ``They can't keep halting trading because once it's ingrained in investors' minds that they will halt once it starts to fall it just exacerbates the problem as they try to get rid of assets.''
Gulf Shares Advance
Poland's WIG20 Index gained 1.2 percent to 2,015.39 in Warsaw. Romania's Bucharest Trading Index added 8.5 percent to 3,458.38. The Czech Republic's benchmark PX Index advanced 10 percent to 981.50.
The Dubai Financial Market General Index jumped 11 percent to 3,343.56, its biggest one-day surge since Bloomberg began tracking the index in December 2003. The measure has still declined 19 percent this month. The Abu Dhabi Securities Exchange General Index soared 6.9 percent, the largest gain since at least September 2001, according to data compiled by Bloomberg.
The U.A.E. will guarantee the deposits of local and foreign banks operating in the country for three years, the state news agency reported today.
To contact the reporters on this story: James Attwood in Santiago at jattwood3@bloomberg.net
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Oct. 13 (Bloomberg) -- Emerging-market stocks rebounded from their worst week in at least a decade as world leaders agreed to support banks, easing concern that the credit crisis will stifle developing economies. Bonds declined.
The benchmark index rose the most in almost a month after losing a fifth of its value last week. Banco do Brasil SA led a rally in Brazilian banks after the government eased reserve requirements for the fourth time in a month to unfreeze lending. ICICI Bank, which has suffered the biggest losses on overseas investments among Indian banks, climbed to a record.
``Things got way oversold so there's some bargain hunting going on,'' said Greg Lesko, who helps manage $1 billion at Deltec Asset Management in New York. Emerging-market earnings growth will slow next year ``but it's going to be positive growth and stocks were pricing in a worse scenario than that.''
The MSCI Emerging Markets Index rose 7.9 percent to 638.83 points as the Latin American benchmark jumped 19 percent, the most since at least 1987. Brazil's Bovespa gained 15 percent after the government injected as much as $46 billion into the financial system. China's CSI 300 Index climbed 4.1 percent to 1,985.49, the first gain for the benchmark index in six days. Persian Gulf shares rose, driving benchmark indexes in Dubai and Abu Dhabi to their biggest gains in at least four years, as the United Arab Emirates said it will guarantee bank deposits.
The Federal Reserve, European Central Bank and the Bank of England will offer financial institutions unlimited dollar funds for the first time in an attempt to break the squeeze in money markets.
`Maximum Overweight'
Morgan Stanley raised its allocation of emerging-market stocks to ``maximum overweight'' based on forecasts for stronger economic growth.
``We believe the world economy is in a painful transition to becoming emerging market-led,'' strategist Jonathan F. Garner wrote in a report today. All gross domestic product growth in 2009 will come from countries such as China, Russia and Brazil, he said.
The extra yield investors demand to own developing nations' bonds instead of U.S. Treasuries rose 78 basis points to 6.49 percentage points, the highest spread since April 2003, according to JPMorgan Chase & Co.'s EMBI+ index. European leaders agreed this weekend to guarantee new bank refinancing and use government money to prevent lenders collapsing.
``Global investor risk sentiment has improved,'' Neil Shearing, an emerging markets economist at Capital Economics in London, said in a phone interview. ``There seems to be some kind of hope that a complete financial meltdown has been avoided.''
Banco do Brasil, Latin America's largest lender by assets, jumped 21 percent to 16.90 reais in the steepest gain since Bloomberg records began in January 1995. Petroleo Brasileiro SA, Brazil's state-run oil company, advanced the most in a year, climbing 12 percent to 26.90 reais as oil rebounded from a 13- month low.
Russia Declines
India's Sensex Index jumped 7.4 percent, its biggest one-day surge in more than four years, after ICICI Bank Ltd. Chief Executive Officer K.V. Kamath said the Mumbai-based lender has sufficient funds. ICICI Bank climbed 17 percent to 425.15 rupees.
South Korea's Kospi Index rose 3.8 percent to 1,288.53, the index's biggest increase since Sept. 19.
Indexes in Europe also gained, with the exception of Russia. The nation's Micex Index dropped 4.9 percent to 666.37. The measure was halted for an hour at 3:08 p.m. local time after a technical index declined more than 5 percent, Interfax reported. The dollar-denominated RTS Index slid 6.3 percent to 791.2. Trading in both indexes was suspended Oct. 10.
``The movements in Russian stocks still seem to be driven by fear and panic,'' Shearing said. ``They can't keep halting trading because once it's ingrained in investors' minds that they will halt once it starts to fall it just exacerbates the problem as they try to get rid of assets.''
Gulf Shares Advance
Poland's WIG20 Index gained 1.2 percent to 2,015.39 in Warsaw. Romania's Bucharest Trading Index added 8.5 percent to 3,458.38. The Czech Republic's benchmark PX Index advanced 10 percent to 981.50.
The Dubai Financial Market General Index jumped 11 percent to 3,343.56, its biggest one-day surge since Bloomberg began tracking the index in December 2003. The measure has still declined 19 percent this month. The Abu Dhabi Securities Exchange General Index soared 6.9 percent, the largest gain since at least September 2001, according to data compiled by Bloomberg.
The U.A.E. will guarantee the deposits of local and foreign banks operating in the country for three years, the state news agency reported today.
To contact the reporters on this story: James Attwood in Santiago at jattwood3@bloomberg.net
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VIX Has Record Point Drop as Fed Boosts Lending, Stocks Rally
By Jeff Kearns
Oct. 13 (Bloomberg) -- The benchmark index for U.S. stock options had the largest one-day point drop in its 18-year history after the Federal Reserve led an unprecedented effort to prop up banks and stocks rallied the most in seven decades.
The VIX, as the Chicago Board Options Exchange Volatility Index is known, fell 14.96, or 21 percent, to 54.99 for the biggest percentage decline since November. It was still the fourth-highest close on record.
The VIX measures the cost of using options as insurance against declines in the Standard & Poor's 500 Index, which jumped 11.6 percent for the biggest gain in almost seven decades. Stocks rallied worldwide after the Fed said central banks will offer financial institutions unlimited dollar funds and Europe pledged to guarantee bank debt issues and permit governments to buy stakes and recapitalize some distressed financial companies.
``It's the lending effort that's giving people some comfort,'' said Neil Davies, a volatility trader and head of structured equity products at SunTrust Robinson Humphrey Capital Markets in Atlanta. ``Until there's further clarity you're going to see the VIX remain high. The fact it's still there tells you people are still a little nervous.''
Volatility benchmarks in the U.S. and Europe soared to records last week on concern the freeze in credit markets will spread from banks to consumer companies and energy producers, triggering a global recession.
Triple the Average
The VIX surged 55 percent last week and reached an intraday record of 76.94 on Oct. 10, more than triple the 24.77 average over the last year. The VIX had never exceeded 50 before Oct. 6.
``Though it's come down 15 points from where it was Friday we're still at record levels,'' Michael James, a managing director at Wedbush Morgan Securities in Los Angeles, said in an interview with Bloomberg Radio. ``There's continued nervousness, as there should be, but the effect from the European banks makes it easier for people to feel a little better about the stability of the financial system.''
Of today's eight most-active options tied to the VIX, only the October 50 puts advanced, adding 14 percent to $4.20. November VIX futures lost 5.9 percent to 36.07. January futures fell 5.9 percent to 30.52.
The gap between the VIX and the CBOE's RVX, a similar index that tracks options on the Russell 2000 Index, widened to 10.55, the most since August 2006. The RVX fell 7.3 percent to 65.54, while the benchmark for small U.S. stocks added 9.3 percent.
Nasdaq-100
The CBOE's NDX Volatility Index, based on prices paid for options on the Nasdaq-100 Index, fell 16 percent to 60.27. The Nasdaq-100, which gets 61 percent of its value from technology companies, jumped 13 percent as all but one company advanced.
In Europe, the benchmark gauge of stock-market volatility fell the most in three years. The VStoxx Index, which measures the cost of protecting against a decline in shares on the Dow Jones Euro Stoxx 50 Index, retreated 17 percent to 67.05, the second-highest close in its eight-year history. The Euro Stoxx 50 rose 11 percent.
The VDAX-New, the benchmark gauge of German stock-market volatility, slid 4.6 percent to 61.27 in Frankfurt. The measure is derived from prices paid for options on the DAX Index, which rallied 11 percent for the biggest jump since its creation two decades ago.
Investors use options to guard against fluctuations in the price of securities they own, speculate on share-price moves or bet that volatility, or stock swings, will increase or decrease.
To contact the reporter on this story: Jeff Kearns in New York at jkearns3@bloomberg.net.
Read more...
Oct. 13 (Bloomberg) -- The benchmark index for U.S. stock options had the largest one-day point drop in its 18-year history after the Federal Reserve led an unprecedented effort to prop up banks and stocks rallied the most in seven decades.
The VIX, as the Chicago Board Options Exchange Volatility Index is known, fell 14.96, or 21 percent, to 54.99 for the biggest percentage decline since November. It was still the fourth-highest close on record.
The VIX measures the cost of using options as insurance against declines in the Standard & Poor's 500 Index, which jumped 11.6 percent for the biggest gain in almost seven decades. Stocks rallied worldwide after the Fed said central banks will offer financial institutions unlimited dollar funds and Europe pledged to guarantee bank debt issues and permit governments to buy stakes and recapitalize some distressed financial companies.
``It's the lending effort that's giving people some comfort,'' said Neil Davies, a volatility trader and head of structured equity products at SunTrust Robinson Humphrey Capital Markets in Atlanta. ``Until there's further clarity you're going to see the VIX remain high. The fact it's still there tells you people are still a little nervous.''
Volatility benchmarks in the U.S. and Europe soared to records last week on concern the freeze in credit markets will spread from banks to consumer companies and energy producers, triggering a global recession.
Triple the Average
The VIX surged 55 percent last week and reached an intraday record of 76.94 on Oct. 10, more than triple the 24.77 average over the last year. The VIX had never exceeded 50 before Oct. 6.
``Though it's come down 15 points from where it was Friday we're still at record levels,'' Michael James, a managing director at Wedbush Morgan Securities in Los Angeles, said in an interview with Bloomberg Radio. ``There's continued nervousness, as there should be, but the effect from the European banks makes it easier for people to feel a little better about the stability of the financial system.''
Of today's eight most-active options tied to the VIX, only the October 50 puts advanced, adding 14 percent to $4.20. November VIX futures lost 5.9 percent to 36.07. January futures fell 5.9 percent to 30.52.
The gap between the VIX and the CBOE's RVX, a similar index that tracks options on the Russell 2000 Index, widened to 10.55, the most since August 2006. The RVX fell 7.3 percent to 65.54, while the benchmark for small U.S. stocks added 9.3 percent.
Nasdaq-100
The CBOE's NDX Volatility Index, based on prices paid for options on the Nasdaq-100 Index, fell 16 percent to 60.27. The Nasdaq-100, which gets 61 percent of its value from technology companies, jumped 13 percent as all but one company advanced.
In Europe, the benchmark gauge of stock-market volatility fell the most in three years. The VStoxx Index, which measures the cost of protecting against a decline in shares on the Dow Jones Euro Stoxx 50 Index, retreated 17 percent to 67.05, the second-highest close in its eight-year history. The Euro Stoxx 50 rose 11 percent.
The VDAX-New, the benchmark gauge of German stock-market volatility, slid 4.6 percent to 61.27 in Frankfurt. The measure is derived from prices paid for options on the DAX Index, which rallied 11 percent for the biggest jump since its creation two decades ago.
Investors use options to guard against fluctuations in the price of securities they own, speculate on share-price moves or bet that volatility, or stock swings, will increase or decrease.
To contact the reporter on this story: Jeff Kearns in New York at jkearns3@bloomberg.net.
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Cardiac, Morgan Stanley, Rackable, Wynn: U.S. Equity Preview
By Lu Wang
Oct. 13 (Bloomberg) -- The following companies may have unusual price changes in U.S. trading tomorrow. Stock symbols are in parentheses, and share prices are as of 5:40 p.m. in New York, unless otherwise specified.
Standard & Poor's 500 Index futures expiring in December gained 125.70, or 14 percent, to 1,016.70. Dow Jones Industrial Average futures rose 1,138, or 14 percent, to 9,508. Nasdaq-100 Index futures climbed 176, or 14 percent, to 1,458.50.
Cardiac Science Corp. (CSCX US): The company said it was fixing potentially faulty software in about 24,000 automated external defibrillators made from August 2006 to March 2007. The stock rose 2.4 percent to $9.50 in regular trading.
Ciber Inc. (CBR US): The U.S. computer consultant said its third-quarter revenue was $300 million, the bottom end of its previous forecast range. The stock rose 6.2 percent to $4.78 in regular trading.
Morgan Stanley (MS US) fell 25 cents, or 1.5 percent, to $17.85. The bank had its credit rating lowered two grades by Fitch Ratings, which said ``stresses'' remain after a $9 billion investment sparked an 87 percent jump in the stock.
Rackable Systems Inc. (RACK US) sank $1.25, or 14 percent, to $7.49. The maker of high-density computer servers said that, excluding some items, it expects a loss of as much as 16 cents a share this year. Analysts, on average, anticipated profit of 10 cents, according to a Bloomberg survey.
Wynn Resorts Ltd. (WYNN US) fell $3.37, or 5.3 percent, to $60. The casino company founded by billionaire Stephen Wynn said its third-quarter results will be worse than a year earlier after it increased its bad debt reserve because of ``the current global economic uncertainty.''
To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net
Read more...
Oct. 13 (Bloomberg) -- The following companies may have unusual price changes in U.S. trading tomorrow. Stock symbols are in parentheses, and share prices are as of 5:40 p.m. in New York, unless otherwise specified.
Standard & Poor's 500 Index futures expiring in December gained 125.70, or 14 percent, to 1,016.70. Dow Jones Industrial Average futures rose 1,138, or 14 percent, to 9,508. Nasdaq-100 Index futures climbed 176, or 14 percent, to 1,458.50.
Cardiac Science Corp. (CSCX US): The company said it was fixing potentially faulty software in about 24,000 automated external defibrillators made from August 2006 to March 2007. The stock rose 2.4 percent to $9.50 in regular trading.
Ciber Inc. (CBR US): The U.S. computer consultant said its third-quarter revenue was $300 million, the bottom end of its previous forecast range. The stock rose 6.2 percent to $4.78 in regular trading.
Morgan Stanley (MS US) fell 25 cents, or 1.5 percent, to $17.85. The bank had its credit rating lowered two grades by Fitch Ratings, which said ``stresses'' remain after a $9 billion investment sparked an 87 percent jump in the stock.
Rackable Systems Inc. (RACK US) sank $1.25, or 14 percent, to $7.49. The maker of high-density computer servers said that, excluding some items, it expects a loss of as much as 16 cents a share this year. Analysts, on average, anticipated profit of 10 cents, according to a Bloomberg survey.
Wynn Resorts Ltd. (WYNN US) fell $3.37, or 5.3 percent, to $60. The casino company founded by billionaire Stephen Wynn said its third-quarter results will be worse than a year earlier after it increased its bad debt reserve because of ``the current global economic uncertainty.''
To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net
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EU Nations Commit 1.3 Trillion Euros to Bank Bailouts
By Gregory Viscusi
Oct. 13 (Bloomberg) -- France, Germany, Spain, the Netherlands and Austria committed 1.3 trillion euros ($1.8 trillion) to guarantee bank loans and take stakes in lenders, racing to prevent the collapse of the financial system.
The announcements came as Britain took majority stakes today in Royal Bank of Scotland Group Plc and HBOS Plc. The coordinated steps followed a pledge yesterday by European leaders to bolster market confidence as the global economy slides toward recession.
``What it should do is stabilize the banking system,'' said Peter Hahn, a fellow at London's Cass Business School and former managing director at Citigroup Inc. ``Will it stop us from having a recession? No, nothing is going to stop us from having a recession.''
The agreement among heads of the 15 countries using the euro helped trigger a rally in stocks and the euro after a market rout. The Dow Jones Stoxx 600 Index rebounded a record 10 percent today, after slumping 22 percent to the worst drop in its two-decade history last week. The currency had its biggest gain in three weeks, climbing 0.9 percent to $1.3526.
In Germany, Chancellor Angela Merkel pledged to guarantee up to 400 billion euros of lending between banks and set aside 20 billion euros to cover potential losses. It will also provide as much as 80 billion euros to recapitalize banks, about 3.2 percent of the German economy, based on 2008 gross domestic product figures from the International Monetary Fund.
The U.S.'s $700 billion package to buy toxic bank debt and possibly recapitalize banks, is 4.9 percent of its GDP.
French Plan
In France, President Nicolas Sarkozy said the state will guarantee 320 billion euros of bank debt and set up a fund allowed to spend up to 40 billion euros, or 2 percent of GDP, to recapitalize banks.
``The greatest risk is in inertia,'' Sarkozy said today.
The French government has already taken steps to protect banks caught up by the credit squeeze. France, along with Belgium and Luxembourg, last week guaranteed the borrowings of Dexia SA, extending a 6.4 billion-euro bailout of the world's largest lender to local governments.
Banks in France may be holding up better than most U.S. and European rivals. BNP Paribas SA, France's largest bank, last week agreed to take control of Fortis in Belgium and Luxembourg for 14.5 billion euros, completing a breakup of what was once Belgium's largest financial-services company.
Spanish Measures
Spain's cabinet today approved measures to guarantee up to 100 billion euros of bank debt this year and authorized the government to buy shares in banks in need of capital. Prime Minister Jose Luis Rodriguez Zapatero told a news conference in Madrid that no banks needed recapitalizing now and the measure was ``preventative and precautionary.''
Before Europe forged a common response to the crisis, Spain was one of the countries to produce unilateral measures to shore up banks, pledging to buy up to 50 billion euros of assets.
The Austrian government will set up an 85 billion-euro clearinghouse run by the Austrian Kontrollbank to provide cash by holding illiquid bank assets as collateral. Austria also pledged to buy banking shares if and when domestic financial institutions seek to sell new stock.
The Dutch government will guarantee up to 200 billion euros of interbank loans, it said in a letter to parliament.
Italy will guarantee some bank debt and buy preferred stock in banks if necessary, Finance Minister Giulio Tremonti said in Rome, without providing any figures.
Tremonti said Italy would put forward ``as much is necessary'' to shore up the country's banking system.
`Case-by-Case' in Italy
``It's not a fund,'' he said. ``It will be done on a case- by-case basis, if there is a case.''
Italy's biggest bank, UniCredit SpA, announced a 6.6- billion-euro capital increase last week. Prime Minister Silvio Berlusconi said yesterday that no other Italian banks were facing cash problems.
Britain wasn't part of last night's agreement because it doesn't use the euro, although Prime Minister Gordon Brown sat through the start of the meeting and presented measures already underway in Britain. Royal Bank of Scotland, HBOS, and Lloyds TSB Group Plc will get an unprecedented 37 billion-pound ($64 billion) bailout from the U.K. government, equal to 2.5 percent of the economy.
In exchange, Royal Bank of Scotland and HBOS will cede majority control to the government; give Brown seats on their boards; the right to halt dividends and power to limit executives' bonuses. RBS Chief Executive Officer Fred Goodwin and HBOS CEO Andy Hornby will also step down.
Money Markets
The collective European announcements contrast with the European Union's failure a week ago to agree on Europe-wide measures. Yesterday's accord left each country free to formulate individual plans to take into account differing legal systems, and so that any eventual bank rescues aren't held up by the need to get the approval of other EU governments.
``The key factor to look at is what happens now to interbank lending rates, because it's only by reigniting bank lending that we can soften the blow of this crisis,'' said Isabelle Job, an economist at Credit Agricole in Paris. ``There will be collateral damage on the real economy, we'll just have to follow the indicators.''
Yesterday's accord, combined with the Federal Reserve's promise today of unlimited dollar funding, helped nudge money- market rates lower. The London interbank offered rate, or Libor, for three-month dollar loans dropped 7 basis points to 4.75 percent today, tied for the largest drop since March 17, the British Bankers' Association said.
To contact the reporters on this story: Gregory Viscusi in Paris at gviscusi@bloomberg.net.
Read more...
Oct. 13 (Bloomberg) -- France, Germany, Spain, the Netherlands and Austria committed 1.3 trillion euros ($1.8 trillion) to guarantee bank loans and take stakes in lenders, racing to prevent the collapse of the financial system.
The announcements came as Britain took majority stakes today in Royal Bank of Scotland Group Plc and HBOS Plc. The coordinated steps followed a pledge yesterday by European leaders to bolster market confidence as the global economy slides toward recession.
``What it should do is stabilize the banking system,'' said Peter Hahn, a fellow at London's Cass Business School and former managing director at Citigroup Inc. ``Will it stop us from having a recession? No, nothing is going to stop us from having a recession.''
The agreement among heads of the 15 countries using the euro helped trigger a rally in stocks and the euro after a market rout. The Dow Jones Stoxx 600 Index rebounded a record 10 percent today, after slumping 22 percent to the worst drop in its two-decade history last week. The currency had its biggest gain in three weeks, climbing 0.9 percent to $1.3526.
In Germany, Chancellor Angela Merkel pledged to guarantee up to 400 billion euros of lending between banks and set aside 20 billion euros to cover potential losses. It will also provide as much as 80 billion euros to recapitalize banks, about 3.2 percent of the German economy, based on 2008 gross domestic product figures from the International Monetary Fund.
The U.S.'s $700 billion package to buy toxic bank debt and possibly recapitalize banks, is 4.9 percent of its GDP.
French Plan
In France, President Nicolas Sarkozy said the state will guarantee 320 billion euros of bank debt and set up a fund allowed to spend up to 40 billion euros, or 2 percent of GDP, to recapitalize banks.
``The greatest risk is in inertia,'' Sarkozy said today.
The French government has already taken steps to protect banks caught up by the credit squeeze. France, along with Belgium and Luxembourg, last week guaranteed the borrowings of Dexia SA, extending a 6.4 billion-euro bailout of the world's largest lender to local governments.
Banks in France may be holding up better than most U.S. and European rivals. BNP Paribas SA, France's largest bank, last week agreed to take control of Fortis in Belgium and Luxembourg for 14.5 billion euros, completing a breakup of what was once Belgium's largest financial-services company.
Spanish Measures
Spain's cabinet today approved measures to guarantee up to 100 billion euros of bank debt this year and authorized the government to buy shares in banks in need of capital. Prime Minister Jose Luis Rodriguez Zapatero told a news conference in Madrid that no banks needed recapitalizing now and the measure was ``preventative and precautionary.''
Before Europe forged a common response to the crisis, Spain was one of the countries to produce unilateral measures to shore up banks, pledging to buy up to 50 billion euros of assets.
The Austrian government will set up an 85 billion-euro clearinghouse run by the Austrian Kontrollbank to provide cash by holding illiquid bank assets as collateral. Austria also pledged to buy banking shares if and when domestic financial institutions seek to sell new stock.
The Dutch government will guarantee up to 200 billion euros of interbank loans, it said in a letter to parliament.
Italy will guarantee some bank debt and buy preferred stock in banks if necessary, Finance Minister Giulio Tremonti said in Rome, without providing any figures.
Tremonti said Italy would put forward ``as much is necessary'' to shore up the country's banking system.
`Case-by-Case' in Italy
``It's not a fund,'' he said. ``It will be done on a case- by-case basis, if there is a case.''
Italy's biggest bank, UniCredit SpA, announced a 6.6- billion-euro capital increase last week. Prime Minister Silvio Berlusconi said yesterday that no other Italian banks were facing cash problems.
Britain wasn't part of last night's agreement because it doesn't use the euro, although Prime Minister Gordon Brown sat through the start of the meeting and presented measures already underway in Britain. Royal Bank of Scotland, HBOS, and Lloyds TSB Group Plc will get an unprecedented 37 billion-pound ($64 billion) bailout from the U.K. government, equal to 2.5 percent of the economy.
In exchange, Royal Bank of Scotland and HBOS will cede majority control to the government; give Brown seats on their boards; the right to halt dividends and power to limit executives' bonuses. RBS Chief Executive Officer Fred Goodwin and HBOS CEO Andy Hornby will also step down.
Money Markets
The collective European announcements contrast with the European Union's failure a week ago to agree on Europe-wide measures. Yesterday's accord left each country free to formulate individual plans to take into account differing legal systems, and so that any eventual bank rescues aren't held up by the need to get the approval of other EU governments.
``The key factor to look at is what happens now to interbank lending rates, because it's only by reigniting bank lending that we can soften the blow of this crisis,'' said Isabelle Job, an economist at Credit Agricole in Paris. ``There will be collateral damage on the real economy, we'll just have to follow the indicators.''
Yesterday's accord, combined with the Federal Reserve's promise today of unlimited dollar funding, helped nudge money- market rates lower. The London interbank offered rate, or Libor, for three-month dollar loans dropped 7 basis points to 4.75 percent today, tied for the largest drop since March 17, the British Bankers' Association said.
To contact the reporters on this story: Gregory Viscusi in Paris at gviscusi@bloomberg.net.
Read more...
U.S. Stocks Rally Most Since 1930s on Bank Plan; Dow Gains 936
By Elizabeth Stanton
Enlarge Image/Details
Oct. 13 (Bloomberg) -- U.S. stocks staged the biggest rally in seven decades on a government plan to buy stakes in banks and a Federal Reserve-led push to flood the global financial system with dollars.
The Standard & Poor's 500 Index rebounded from its worst week in 75 years with an 11.6 percent advance, its steepest since 1939, and the Dow Jones Industrial Average climbed more than 936 points. Morgan Stanley soared 87 percent after sealing a $9 billion investment from Japan's Mitsubishi UFJ Financial Group Inc. Alcoa Inc., Johnson & Johnson, Chevron Corp. and Prudential Financial Inc. posted their biggest gains since Bloomberg began tracking the data. Europe's benchmark index climbed 10 percent, its best jump ever, and Asia's added 3.1 percent.
``The worst of the immediate danger is past,'' said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland, which manages $30 billion. ``It's always easier when you've got markets going up and you're not having to talk clients back in off the ledge.''
The S&P 500 rose 104.13 points to 1,003.35. The Dow increased 936.42, or 11 percent, to 9,387.61, eclipsing its previous record 499-point gain in March 2000 and posting its best percentage advance since 1933. The Nasdaq Composite Index climbed 194.74, or 12 percent, to 1,844.25. Sixteen stocks gained for each that fell on the New York Stock Exchange.
The S&P 500 halted an eight-day losing streak, its longest since 1996. Last week's 18 percent declines pushed both the S&P 500 and Dow down more than 40 percent from their peaks last October. The S&P 500 ended last week trading for 17 times reported earnings of its companies, the cheapest valuation in more than a year.
Global Rally
Today's rally boosted the index's price-to-earnings ratio to 19.2. The S&P 500 is still down 32 percent in 2008, poised for its worst yearly loss since 1937.
All 10 industries in the S&P 500 added more than 7 percent. The rally from Tokyo to New York sent the MSCI World Index up 9.5 percent, the biggest gain since the gauge was created in 1970.
Some 1.5 billion shares changed hands on the floor of the NYSE, less than 1 percent more than the three-month daily average. The bond market was closed for the Columbus Day holiday. The dollar fell the most in three weeks against the euro.
Neel Kashkari, the U.S. Treasury official overseeing the $700 billion rescue of the financial system, said government equity injections will be aimed at ``healthy'' firms, will be voluntary and have attractive terms to encourage participation. As part of the Fed-led plan, the European Central Bank, the Bank of England and the Swiss central bank will auction unlimited dollar funds. Previous swap arrangements between the Fed and other central banks were capped.
Morgan Stanley
Morgan Stanley, the investment bank that last month turned itself into a bank holding company after investors lost confidence in firms that depend on the bond market for financing, rose $8.42 to $18.10. Morgan Stanley agreed to change the terms of its $9 billion investment from Misubishi UFJ, providing the Japanese bank with preferred stock that pays a 10 percent dividend instead of common stock.
Mitsubishi UFJ, Japan's biggest lender, will get 21 percent of the New York-based company as previously agreed, the two firms said today in a joint statement. The terms were renegotiated after the tumble in Morgan Stanley's shares last week.
Equity Stakes
The S&P 500 Financials Index added 10 percent after the gauge of banks, insurers and investment firms sank 22 percent last week, paced by Morgan Stanley's 60 percent plunge after Moody's Investors Service said it may reduce the company's credit rating on concern the financial crisis threatens earnings and investor confidence.
Goldman Sachs Group Inc. rallied 25 percent today to $111 after dropping 31 percent to $88.80 last week. Bank of America Corp. climbed 9.2 percent, while Citigroup Inc. added 12 percent.
The Treasury Department will take equity stakes in banks using authority it was granted under the $700 billion bank rescue plan enacted two weeks ago, Treasury Secretary Henry Paulson said over the weekend.
New Approach
``We're talking about making investments in these banks in a way that doesn't necessarily punish existing shareholders,'' Charles Bobrinskoy, vice chairman of Ariel Investments, which manages $13 billion, said on Bloomberg Television. ``Most of the bank actions to date in the U.S. have been good for bondholders but terrible for common stockholders.''
Government actions this year to prevent bankruptcies at investment bank Bear Stearns Cos., mortgage lenders Fannie Mae and Freddie Mac and insurer American International Group Inc. resulted in near-total losses for the firms' shareholders.
The collapse of New York-based Lehman Brothers Holdings Inc. on Sept. 15 precipitated the latest chapter of the 14-month-old credit crisis, causing banks to stop lending to each other out of concern they may not get their money back.
Insurance companies in the S&P 500, which slumped 28 percent last week as a group on concern the credit crisis will reduce the value of their investments, rebounded 18 percent today for their biggest advance since S&P created the group in 1989. Genworth Financial Inc. rallied a record 81 percent to $6.32 and Prudential Financial added 38 percent to $49.95.
XL Capital Ltd., the Bermuda-based business insurer whose stock is down 85 percent this year, jumped 37 percent to $7.43 after an analyst at Fox-Pitt Kelton Cochran Caronia Waller said the company may have to consider a sale.
Energy Rally
Exxon Mobil Corp., the world's largest oil company, climbed 17 percent to $73.08 after a 20 percent tumble last week, helping to lead the S&P 500 Energy Index to a record 18 percent rally. Chevron, the second-largest U.S. oil producer after Exxon, rose $12.06, or 21 percent, to $69.89. Crude oil gained 4.5 percent to $81.19 a barrel today, rebounding from a 13-month low.
General Motors Corp. jumped 33 percent to $6.51, the biggest gain in the Dow average, and Ford Motor Co. added 20 percent to $2.39. GM, the largest U.S. automaker, is in talks with Cerberus Capital Management LP's Chrysler LLC about a merger or partnership, five people with direct knowledge of the discussions said. Ford, the second-largest, is considering selling its controlling stake in Japan's Mazda Motor Corp., a person familiar with the matter said.
Freeport-McMoRan Copper & Gold Inc. added 25 percent to $45.37 as copper on the London Metal Exchange rebounded from a 33-month low. Alcoa, the largest U.S. aluminum producer, gained $2.57, or 23 percent, to $13.82.
`Opportunity of a Generation'
Apple Inc. jumped 14 percent to $110.26, its biggest gain in nine years. Sanford C. Bernstein & Co. analyst Toni Sacconaghi upgraded the maker of Macintosh computers and the iPhone to ``outperform'' from ``market perform,'' saying the shares are ``overly discounted'' after plunging 46 percent in two months.
Abbott Laboratories rose 9.6 percent to $54.21. The maker of drug-coated heart stents said it will spend as much as $5 billion to buy back shares. Johnson & Johnson, the world's largest maker of health-care products, increased $6.83, or 12 percent, to $62.68.
``This could be the buying opportunity of a generation,'' Kevin Divney, chief investment officer at Putnam Investments in Boston, said on Bloomberg Television. ``The real catalyst is the levels of valuation,'' Divney said. Putnam manages $137 billion.
General Electric Co. was the only member of the Dow average to decline, after JPMorgan Chase & Co. analyst C. Stephen Tusa said his forecast for profit of $1.80 a share next year may be too high.
VIX Retreats
The benchmark index for U.S. stock options declined 21 percent for its first drop in six days and steepest retreat in almost a year. The VIX, as the Chicago Board Options Exchange Volatility Index is known, measures the cost of using options as insurance against declines in the S&P 500. It averaged 59.43 last week, almost triple the 22.39 average in its 18-year history.
Goldman cut its forecast for the S&P 500 by 29 percent to 1,000, while saying the benchmark index is set for a potential ``strong'' year-end rally starting in late November, according to a note from strategists led by David Kostin.
Europe's Stoxx 600 advanced a record 9.9 percent, clawing back more than a third of last week's 22 percent slump.
Billionaire investor George Soros said the European agreement is a ``positive'' step that may help stabilize global financial markets.
``In the last 72 hours, I think the European governments got religion and realized that this is a serious problem,'' Soros said in Washington. ``People are looking for some leadership and finally they are getting it.''
To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net
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Enlarge Image/Details
Oct. 13 (Bloomberg) -- U.S. stocks staged the biggest rally in seven decades on a government plan to buy stakes in banks and a Federal Reserve-led push to flood the global financial system with dollars.
The Standard & Poor's 500 Index rebounded from its worst week in 75 years with an 11.6 percent advance, its steepest since 1939, and the Dow Jones Industrial Average climbed more than 936 points. Morgan Stanley soared 87 percent after sealing a $9 billion investment from Japan's Mitsubishi UFJ Financial Group Inc. Alcoa Inc., Johnson & Johnson, Chevron Corp. and Prudential Financial Inc. posted their biggest gains since Bloomberg began tracking the data. Europe's benchmark index climbed 10 percent, its best jump ever, and Asia's added 3.1 percent.
``The worst of the immediate danger is past,'' said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland, which manages $30 billion. ``It's always easier when you've got markets going up and you're not having to talk clients back in off the ledge.''
The S&P 500 rose 104.13 points to 1,003.35. The Dow increased 936.42, or 11 percent, to 9,387.61, eclipsing its previous record 499-point gain in March 2000 and posting its best percentage advance since 1933. The Nasdaq Composite Index climbed 194.74, or 12 percent, to 1,844.25. Sixteen stocks gained for each that fell on the New York Stock Exchange.
The S&P 500 halted an eight-day losing streak, its longest since 1996. Last week's 18 percent declines pushed both the S&P 500 and Dow down more than 40 percent from their peaks last October. The S&P 500 ended last week trading for 17 times reported earnings of its companies, the cheapest valuation in more than a year.
Global Rally
Today's rally boosted the index's price-to-earnings ratio to 19.2. The S&P 500 is still down 32 percent in 2008, poised for its worst yearly loss since 1937.
All 10 industries in the S&P 500 added more than 7 percent. The rally from Tokyo to New York sent the MSCI World Index up 9.5 percent, the biggest gain since the gauge was created in 1970.
Some 1.5 billion shares changed hands on the floor of the NYSE, less than 1 percent more than the three-month daily average. The bond market was closed for the Columbus Day holiday. The dollar fell the most in three weeks against the euro.
Neel Kashkari, the U.S. Treasury official overseeing the $700 billion rescue of the financial system, said government equity injections will be aimed at ``healthy'' firms, will be voluntary and have attractive terms to encourage participation. As part of the Fed-led plan, the European Central Bank, the Bank of England and the Swiss central bank will auction unlimited dollar funds. Previous swap arrangements between the Fed and other central banks were capped.
Morgan Stanley
Morgan Stanley, the investment bank that last month turned itself into a bank holding company after investors lost confidence in firms that depend on the bond market for financing, rose $8.42 to $18.10. Morgan Stanley agreed to change the terms of its $9 billion investment from Misubishi UFJ, providing the Japanese bank with preferred stock that pays a 10 percent dividend instead of common stock.
Mitsubishi UFJ, Japan's biggest lender, will get 21 percent of the New York-based company as previously agreed, the two firms said today in a joint statement. The terms were renegotiated after the tumble in Morgan Stanley's shares last week.
Equity Stakes
The S&P 500 Financials Index added 10 percent after the gauge of banks, insurers and investment firms sank 22 percent last week, paced by Morgan Stanley's 60 percent plunge after Moody's Investors Service said it may reduce the company's credit rating on concern the financial crisis threatens earnings and investor confidence.
Goldman Sachs Group Inc. rallied 25 percent today to $111 after dropping 31 percent to $88.80 last week. Bank of America Corp. climbed 9.2 percent, while Citigroup Inc. added 12 percent.
The Treasury Department will take equity stakes in banks using authority it was granted under the $700 billion bank rescue plan enacted two weeks ago, Treasury Secretary Henry Paulson said over the weekend.
New Approach
``We're talking about making investments in these banks in a way that doesn't necessarily punish existing shareholders,'' Charles Bobrinskoy, vice chairman of Ariel Investments, which manages $13 billion, said on Bloomberg Television. ``Most of the bank actions to date in the U.S. have been good for bondholders but terrible for common stockholders.''
Government actions this year to prevent bankruptcies at investment bank Bear Stearns Cos., mortgage lenders Fannie Mae and Freddie Mac and insurer American International Group Inc. resulted in near-total losses for the firms' shareholders.
The collapse of New York-based Lehman Brothers Holdings Inc. on Sept. 15 precipitated the latest chapter of the 14-month-old credit crisis, causing banks to stop lending to each other out of concern they may not get their money back.
Insurance companies in the S&P 500, which slumped 28 percent last week as a group on concern the credit crisis will reduce the value of their investments, rebounded 18 percent today for their biggest advance since S&P created the group in 1989. Genworth Financial Inc. rallied a record 81 percent to $6.32 and Prudential Financial added 38 percent to $49.95.
XL Capital Ltd., the Bermuda-based business insurer whose stock is down 85 percent this year, jumped 37 percent to $7.43 after an analyst at Fox-Pitt Kelton Cochran Caronia Waller said the company may have to consider a sale.
Energy Rally
Exxon Mobil Corp., the world's largest oil company, climbed 17 percent to $73.08 after a 20 percent tumble last week, helping to lead the S&P 500 Energy Index to a record 18 percent rally. Chevron, the second-largest U.S. oil producer after Exxon, rose $12.06, or 21 percent, to $69.89. Crude oil gained 4.5 percent to $81.19 a barrel today, rebounding from a 13-month low.
General Motors Corp. jumped 33 percent to $6.51, the biggest gain in the Dow average, and Ford Motor Co. added 20 percent to $2.39. GM, the largest U.S. automaker, is in talks with Cerberus Capital Management LP's Chrysler LLC about a merger or partnership, five people with direct knowledge of the discussions said. Ford, the second-largest, is considering selling its controlling stake in Japan's Mazda Motor Corp., a person familiar with the matter said.
Freeport-McMoRan Copper & Gold Inc. added 25 percent to $45.37 as copper on the London Metal Exchange rebounded from a 33-month low. Alcoa, the largest U.S. aluminum producer, gained $2.57, or 23 percent, to $13.82.
`Opportunity of a Generation'
Apple Inc. jumped 14 percent to $110.26, its biggest gain in nine years. Sanford C. Bernstein & Co. analyst Toni Sacconaghi upgraded the maker of Macintosh computers and the iPhone to ``outperform'' from ``market perform,'' saying the shares are ``overly discounted'' after plunging 46 percent in two months.
Abbott Laboratories rose 9.6 percent to $54.21. The maker of drug-coated heart stents said it will spend as much as $5 billion to buy back shares. Johnson & Johnson, the world's largest maker of health-care products, increased $6.83, or 12 percent, to $62.68.
``This could be the buying opportunity of a generation,'' Kevin Divney, chief investment officer at Putnam Investments in Boston, said on Bloomberg Television. ``The real catalyst is the levels of valuation,'' Divney said. Putnam manages $137 billion.
General Electric Co. was the only member of the Dow average to decline, after JPMorgan Chase & Co. analyst C. Stephen Tusa said his forecast for profit of $1.80 a share next year may be too high.
VIX Retreats
The benchmark index for U.S. stock options declined 21 percent for its first drop in six days and steepest retreat in almost a year. The VIX, as the Chicago Board Options Exchange Volatility Index is known, measures the cost of using options as insurance against declines in the S&P 500. It averaged 59.43 last week, almost triple the 22.39 average in its 18-year history.
Goldman cut its forecast for the S&P 500 by 29 percent to 1,000, while saying the benchmark index is set for a potential ``strong'' year-end rally starting in late November, according to a note from strategists led by David Kostin.
Europe's Stoxx 600 advanced a record 9.9 percent, clawing back more than a third of last week's 22 percent slump.
Billionaire investor George Soros said the European agreement is a ``positive'' step that may help stabilize global financial markets.
``In the last 72 hours, I think the European governments got religion and realized that this is a serious problem,'' Soros said in Washington. ``People are looking for some leadership and finally they are getting it.''
To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net
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Monday, October 13, 2008
Mid-Day Report: Markets Further Stabilized by Government Interventions
Market Overview | Written by ActionForex.com | Oct 13 08 14:12 GMT |
The global financial markets continue to show positive reactions to the Eurozone's rescue plan and UK's bailout plan as well as dollar injection from major central banks. Some further actions are announced from Germany, Austria and France following the agreement made yesterday by Eurozone leaders. Dow soars over 400 points in early US session following broad based rally in the European stock markets. Dollar index dropped further and is now pressing 81 level while crude oil rebounds to above $80 level.
Germany Chancellor Merkel said the cabinet has passed the bank rescue package which includes up to 400b euros in bank guarantees, 5% provision of losses and recapitalization funds up to 80b euros. French Preside Sarkozy said an entity will be created to assist banks and guarantee limit will be up to 320b euros. Austrian Chancellor Gusenbauer also said that Austria will implement a 100b euros rescue plan which provide support to the banking system mainly via guarantees while the government is also allowed to buy shares in Austrian banks.
The Eurozone rescue plan includes state guarantees on bank debts until the end of 2009 with maturities up to five years. The governments are allowed to recapitalize financial institutions by buying bank stakes with preference shares or other instruments. ECB also pledged to look at enlarging access to the system of guarantees to include commercial paper even though it doesn't have the legal power to do so yet.
UK Government also said earlier today that it will invest 37B pounds in banks, including RBS, HBOS and Lloyds TSB, to boost their so called Tier One capital ratio to more than 9%. Australian government said it will guarantee all deposit with financial institutions for the next three years and all "term wholesale funding" by Australian banks operating in international credit markets. New Zealand government said it will guarantee retail deposits in New Zealand-registered banks, building societies, credit unions and deposit taking finance companies.
Fed said that ECB, BoE and SNB will conduct dollar auctions at maturities of 7, 28, 84 days at a fixed interest rate to offer financial institutions unlimited funds in response to demand on dollar loans.
Technically speaking, GBP/USD's break of 1.7398 minor resistance serves as an early indication that markets are further stabilizing. Though, further rally in Dow as well as retreat in dollar and yen are needed to confirm.
On the data front, New Zealand retail sales rose 0.4% mom in Aug. Swiss combined PPI dropped more than expected by -0.5% mom in Sep, yoy rate moderated to 3.7% versus expectation of 3.9%. UK PPI input slowed to 24.5% yoy versus expectation of 19.8%. PPI output slowed to 8.5% yoy comparing to expectation of 8.8%. Core PPI slowed to 5.4% yoy versus consensus of 6.0%.
GBP/USD Mid-Day Outlook
Daily Pivots: (S1) 1.6831; (P) 1.7005; (R1) 1.7221; More
GBP/USD's break of 1.7398 resistance indicates that a short term bottom is in place. Intraday bias is now on the upside as long as 1.7108 minor support holds. Further rise could now be seen to test next resistance of 1.7843. On the downside, below 1.7108 will firstly flip intraday bias back to the downside for retesting 1.6786 low. Secondly it will argue that decline from 1.8668 is still in progress for 61.8% retracement of 1.3680 to 2.1161 at 1.6538.
In the bigger picture, a long term top is in place at 2.1161 and down trend from there is still in progress. Next medium term target is 61.8% retracement of 1.3680 to 2.1161 at 1.6538. The impulsive nature and the scale of the fall from 2.1161 also provides strong evidence to the case of the start of a long term down trend. Sustained break of 1.6538 will target 1.3680 (01 low).
On the upside, however, above 1.7398 resistance will also be the first signal that fall from 1.8668 has completed. Further break of 1.7843 will add more credence to this case. Also, this will argue that the five wave decline from 2.1161 has completed too. In such case, medium term outlook in GBP/USD will be turned neutral and expect some consolidation between 1.6786 and 1.8668 before resuming the long term down trend. Nevertheless, upside of the consolidation should be limited by 1.8668 resistance.
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The global financial markets continue to show positive reactions to the Eurozone's rescue plan and UK's bailout plan as well as dollar injection from major central banks. Some further actions are announced from Germany, Austria and France following the agreement made yesterday by Eurozone leaders. Dow soars over 400 points in early US session following broad based rally in the European stock markets. Dollar index dropped further and is now pressing 81 level while crude oil rebounds to above $80 level.
Germany Chancellor Merkel said the cabinet has passed the bank rescue package which includes up to 400b euros in bank guarantees, 5% provision of losses and recapitalization funds up to 80b euros. French Preside Sarkozy said an entity will be created to assist banks and guarantee limit will be up to 320b euros. Austrian Chancellor Gusenbauer also said that Austria will implement a 100b euros rescue plan which provide support to the banking system mainly via guarantees while the government is also allowed to buy shares in Austrian banks.
The Eurozone rescue plan includes state guarantees on bank debts until the end of 2009 with maturities up to five years. The governments are allowed to recapitalize financial institutions by buying bank stakes with preference shares or other instruments. ECB also pledged to look at enlarging access to the system of guarantees to include commercial paper even though it doesn't have the legal power to do so yet.
UK Government also said earlier today that it will invest 37B pounds in banks, including RBS, HBOS and Lloyds TSB, to boost their so called Tier One capital ratio to more than 9%. Australian government said it will guarantee all deposit with financial institutions for the next three years and all "term wholesale funding" by Australian banks operating in international credit markets. New Zealand government said it will guarantee retail deposits in New Zealand-registered banks, building societies, credit unions and deposit taking finance companies.
Fed said that ECB, BoE and SNB will conduct dollar auctions at maturities of 7, 28, 84 days at a fixed interest rate to offer financial institutions unlimited funds in response to demand on dollar loans.
Technically speaking, GBP/USD's break of 1.7398 minor resistance serves as an early indication that markets are further stabilizing. Though, further rally in Dow as well as retreat in dollar and yen are needed to confirm.
On the data front, New Zealand retail sales rose 0.4% mom in Aug. Swiss combined PPI dropped more than expected by -0.5% mom in Sep, yoy rate moderated to 3.7% versus expectation of 3.9%. UK PPI input slowed to 24.5% yoy versus expectation of 19.8%. PPI output slowed to 8.5% yoy comparing to expectation of 8.8%. Core PPI slowed to 5.4% yoy versus consensus of 6.0%.
GBP/USD Mid-Day Outlook
Daily Pivots: (S1) 1.6831; (P) 1.7005; (R1) 1.7221; More
GBP/USD's break of 1.7398 resistance indicates that a short term bottom is in place. Intraday bias is now on the upside as long as 1.7108 minor support holds. Further rise could now be seen to test next resistance of 1.7843. On the downside, below 1.7108 will firstly flip intraday bias back to the downside for retesting 1.6786 low. Secondly it will argue that decline from 1.8668 is still in progress for 61.8% retracement of 1.3680 to 2.1161 at 1.6538.
In the bigger picture, a long term top is in place at 2.1161 and down trend from there is still in progress. Next medium term target is 61.8% retracement of 1.3680 to 2.1161 at 1.6538. The impulsive nature and the scale of the fall from 2.1161 also provides strong evidence to the case of the start of a long term down trend. Sustained break of 1.6538 will target 1.3680 (01 low).
On the upside, however, above 1.7398 resistance will also be the first signal that fall from 1.8668 has completed. Further break of 1.7843 will add more credence to this case. Also, this will argue that the five wave decline from 2.1161 has completed too. In such case, medium term outlook in GBP/USD will be turned neutral and expect some consolidation between 1.6786 and 1.8668 before resuming the long term down trend. Nevertheless, upside of the consolidation should be limited by 1.8668 resistance.
Economic Indicators Update
GMT Ccy Events Actual Consensus Previous Revised
21:45 NZD New Zealand Retail sales M/M Aug 0.40% N/A -0.80% -0.70%
7:15 CHF Swiss Combined PPI M/M Sep -0.50% -0.30% -0.50%
7:15 CHF Swiss Combined PPI Y/Y Sep 3.70% 3.90% 4.00%
8:30 GBP U.K. PPI core M/M Sep -0.10% 0.10% -0.10%
8:30 GBP U.K. PPI core Y/Y Sep 5.40% 6.00% 6.30%
8:30 GBP U.K. PPI input M/M Sep -1.20% -1.50% -2.00%
8:30 GBP U.K. PPI input Y/Y Sep 24.50% 19.80% 26.20% 28.80%
8:30 GBP U.K. PPI output M/M Sep -0.30% -0.40% -0.60% -0.70%
8:30 GBP U.K. PPI output Y/Y Sep 8.50% 8.80% 9.70% 9.10%
U.S.; Canada; Japan Market holiday
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