By Aloysius Unditu and Leony Aurora
Nov. 22 (Bloomberg) -- Indonesia seized control of PT Bank Century eight days after the lender delayed meeting a 5 billion rupiah ($413,000) obligation, as its capital has deteriorated.
Century’s capital adequacy ratio, which measures capital against risk-weighted assets and is a gauge of a lender’s health, has fallen to 2.3 percent, below the minimum 8 percent required by the central bank, said Firdaus Djaelani, chairman of Indonesia’s deposit insurance agency, in a telephone interview last night.
“The insurance agency will gradually increase the ratio to at least 8 percent and when it’s healthy we will look for new investors,” Djaelani said.
Indonesia’s deposit insurance agency, which guarantees deposits at banks in Southeast Asia’s biggest economy, will have three years to turn around the firm in Indonesia’s first bailout since the central bank was given more powers to rescue lenders. Bank Indonesia didn’t disclose financial details.
Bank Century will resume operations Nov. 24 after closing on Friday, central bank Governor Boediono said on Nov. 20. Century’s shares were suspended by the Indonesia Stock Exchange yesterday.
Public Confidence
“This is a right move by the government to ensure that the public maintains confidence in Indonesia’s banking system,” said David Chang, a director of PT OUB Kay Hian Securities in Jakarta.
Indonesia’s 13th-largest bank by assets on Nov. 13 failed to provide funds on time because of a “technical problem,” Deddy Triyana, corporate secretary, said then. Banks need to provide funds to a clearing house on a daily basis to ensure matching of debt and credit. The bank settled the obligation later that day.
Indonesia on Nov. 18 enacted a law to allow the central bank to bail out lenders. The new regulations will enable authorities in Indonesia, which spent more than 450 trillion rupiah rescuing lenders in the Asian financial crisis a decade ago, to fund banks in need of liquidity without legal concerns.
“The emergency funding facility, guaranteed by the government, will be given to banks to resolve liquidity problems that may cause systemic problems,” according to the central bank’s Web site. Owners of banks seeking the facility will have to pledge assets as collateral, it said.
Profit at Bank Century, which had assets of 15.2 trillion rupiah at the end of September, fell 7.7 percent to 51.6 billion rupiah in the first nine months of the year.
PT Bank Mandiri, Indonesia’s biggest lender, had assets valued at 318.7 trillion rupiah on Sept. 30.
Bank Century was formed by the merger of PT Bank CIC, PT Bank Pikko and PT Bank Danpac in December 2004. Indonesia has 126 commercial banks.
To contact the reporters on this story: Aloysius Unditu in Jakarta at aunditu@bloomberg.net;
Read more...
Saturday, November 22, 2008
South African Bonds Post Weekly Advance Amid Rate Speculation
By Garth Theunissen
Nov. 22 (Bloomberg) -- South African government bonds rose in the week on bets lower oil prices and slowing growth in the continent's biggest economy will prompt the central bank to cut interest rates.
The gains sent 10-year yields to the lowest level in a year as oil traded near its weakest since May 2005. The Bureau for Economic Research cut its 2009 economic growth forecast on Nov. 20 to 1.9 percent, the slowest pace in more than a decade, as the weakening global economy and commodity prices dent exporters' prospects.
``The bond-market mood has turned very bullish and traders are now discounting a rate cut as early as December,'' said Victor Mphaphuli, a portfolio manager who helps oversee about $45 billion at Stanlib Asset Management in Johannesburg. ``The massive drop in oil is making for a more benevolent inflation outlook at a time when the economy is cooling significantly.''
The yield on South Africa's benchmark 13.5 percent security due September 2015 slipped 13 basis points to 8.28 percent by 5 p.m. in Johannesburg yesterday, leaving it 53 basis points lower in the past week. It dropped to 8.14 percent on Nov. 21, the lowest level since November 2007.
The yield on the 13 percent note maturing in August 2010, which is more sensitive to interest-rate expectations, fell 36 basis points to 8.36 percent, a decline of 89 basis points since Nov. 14. Yields move inversely to bond prices.
A 66 percent drop in oil from a record $147.27 a barrel in July may persuade the South African Reserve Bank to cut interest rates from a five-year high of 12 percent to spur economic growth. Crude slipped below $49 a barrel yesterday.
Slowing Growth
Higher interest rates, record inflation and a drop in exports will probably crimp economic growth to 3 percent in 2009 from an estimated 3.7 percent this year, according to the National Treasury. Pretoria-based Statistics South Africa releases its third-quarter gross domestic product data Nov. 25.
``With most of the world heading for recession, growth in this economy is going to be a lot slower next year than many people are expecting,'' said Mphaphuli. ``Third-quarter GDP numbers next week aren't going to look pretty either.''
Policy makers led by Governor Tito Mboweni raised their key interest rate 10 times since June 2006 to quell price growth that exceeded its 6 percent ceiling for 18 consecutive months. Inflation slowed for the first time in more than a year in September, easing to 13 percent from a record 13.6 percent in August. The central bank will decide on rates Dec. 11.
``Apart from a 50-basis-point cut in December, the market is pricing in a rate cut at every monetary policy meeting next year,'' Mphaphuli said. ``That means we could see cumulative cuts of at least 300 basis points in 2009.''
South African policy makers will hold meetings on interest rates six times next year.
The rand declined in the week, losing 4 percent to 10.5375 per dollar. Against the euro it slipped 4.2 percent in the past five days to 13.2429.
South Africa's currency has fallen 35 percent against the dollar this year as investors sold more than 63 billion rand more than they purchased of the nation's assets amid the worst financial crisis since the Great Depression.
To contact the reporter on this story: Garth Theunissen in Johannesburg gtheunissen@bloomberg.net
Read more...
EUR/USD: Trading the German IFO Business Confidence Survey
| Daily Forex Fundamentals | Written by DailyFX | Nov 22 08 06:43 GMT | | |
| Trading the News: German IFO - Business Climate What's Expected Time of release: 11/24/2008 09:00 GMT, 04:00 EST
October 2008 German IFO - Business Climate Survey The German IFO business confidence survey slipped to a three year low of 92.9 from 94.8 in August as Europe's largest economy teeters on the brink of a recession. Fading demands from around the globe paired with the downturn in the domestic economy has certainly taken a toll on German businesses, and conditions may only get worse as rampant inflation continues to sap purchasing power. Mounting price pressures paired with slowing growth could leave the ECB on the sidelines as they continue to abide by their one and only mandate to ensure price stability, but increased concerns of a recession could push the central bank to lower the benchmark interest before the end of the year.
September 2008 German IFO - Business Climate Survey The German IFO business confidence survey slipped to a three year low of 92.9 from 94.8 in August as Europe's largest economy teeters on the brink of a recession. Fading demands from around the globe paired with the downturn in the domestic economy has certainly taken a toll on German businesses, and conditions may only get worse as rampant inflation continues to sap purchasing power. Mounting price pressures paired with slowing growth could leave the ECB on the sidelines as they continue to abide by their one and only mandate to ensure price stability, but increased concerns of a recession could push the central bank to lower the benchmark interest before the end of the year.
August 2008 German IFO - Business Climate Survey German business confidence fell to a three year low of 94.8 from 97.5 in July, fueling recessionary concerns for Europe's largest economy. Meanwhile, business expectations slipped to a 15 year low of 87.0, which suggests that conditions may only get worse as firms face rising input costs amid fading demands. Economic activity contracted in the second quarter for the first time in almost four years, and may remain subdued for the rest of the year as upward price pressures continues to sap purchasing power. Record high inflation has led the ECB to hold a hawkish bias going forward, but the central bank could be forced to push inflationary concerns to the backburner as Germany is on the brink of a recession.
How To Trade This Event RiskMounting growth fears for Europe's largest economy is expected to weigh on businesses as economists expect the German IFO confidence survey to fall to 89.0 from a five-year low of 90.2 in September. The preliminary GDP reading for the third quarter showed that the economy slipped into a technical recession as economic activity contracted 0.5%, which was followed by a 0.4% decline in the second quarter, and conditions may only get worse as demands from home and abroad deteriorate. Retail spending in September fell 2.3% from the previous month despite expectations for a 1.0% decline, which suggests that economic activity is slowing at an even faster pace throughout the second half of the year. In addition, factory orders slid 8.0% during the same period, which was much greater than the 2.3% decline projected by economists. Moreover, The advanced services PMI reading contracted for the second consecutive month in November as the index slipped to 46.2 from 48.3 in the previous month. Meanwhile, manufacturing activity declined for the fourth straight month as the PMI reading slipped to 36.7 from 42.9. The breakdown of the report showed that new orders plunged to 30.9 from 39.2, while the employment component slipped to 44.3 from 47.1. The data suggests that Europe's largest economic activity may contract even further in the fourth quarter, and conditions may only get worse over the coming months as firms continue to cutback on investments. The dour outlook for Germany has certainly raised expectations that the European Central Bank will ease policy further at the December 4th policy meeting, which could stoke increased selling pressures for the euro over the near-term. As the growth outlook for Germany turns increasingly bleak, we would need a significant recovery in the IFO survey to yield a bullish euro trade for the scheduled event risk. Therefore, a confidence reading above 95.0 will set the stage for a long EURUSD trade, and we will look for a green, five-minute candle following the improved release to confirm an entry on two lots of the euro-dollar. We will place our initial stop at the nearby swing low (or reasonable distance), and this level of risk will determine the target for the first lot. Our second target will be based purely on discretion, and in order to preserve our profits, we will move the stop on the second lot to breakeven once the first trade reaches its target. On the other hand, fading export demands paired with fears of a global recession may lead firms to lower their growth forecasts, which would stoke increased selling pressures for the euro. As a result, an inline print or a confidence reading below 89.0 would favor a short trade for the EURUSD, and we will follow the same setup as the long trade mentioned above, just in reverse.
Disclaimer Investment in the currency exchange is highly speculative and should only be done with risk capital. Prices rise and fall and past performance is no assurance of future performance. This website is an information site only. Accordingly we make no warranties or guarantees in respect of the content. The publications herein do not take into account the investment objectives, financial situation or particular needs of any particular person. Investors should obtain individual financial advice based on their own particular circumstances before making an investment decision on the basis of the recommendations in this website. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. All intellectual property rights are the property of Daily FX. Daily FX and its affiliates, will not be held responsible for the reliability or accuracy of the information available on this site. The content herein is provided in good faith and believed to be accurate, however, there are no explicit or implicit warranties of accuracy or timeliness made by Daily FX or its affiliates. The reader agrees not to hold Daily FX or any of its affiliates liable for decisions that are based on information from this website. Daily FX highly recommends that before making a decision, the reader collects several opinions related to the decision and verifies facts from at least several independent sources. | |
Read more...
US Dollar Backs Down from Resistance, US Holiday May Delay Breakouts Next Week
| Daily Forex Fundamentals | Written by DailyFX | Nov 22 08 06:31 GMT | | |
US Dollar Backs Down from Resistance, US Holiday May Delay Breakouts Next Week The US dollar was not able to make a successful break higher on Friday, as a look at the trade-weighted US dollar index (DXY) shows solid resistance at 88.35. Indeed, we saw that the CBOE's VIX volatility index managed to cool from yesterday's record close, while Treasury yields on two, five, and 10-year notes and 30-year bonds rose from their lowest levels since the Treasury began regular issuance of the securities. The markets appear to be hopeful that President-elect Barack Obama's selection of New York Federal Reserve Governor Timothy Geithner to be the next Treasury Secretary will yield a solution to the credit crisis. Looking ahead to next Monday, the National Association of Realtors (NAR) index of existing homes sales is forecasted to show on Monday that purchases fell 5 percent during October to an annual rate of 5 million from 5.18 million. Other factors to watch within this report including median home prices, which were down 9 percent in September from a year earlier, and supply levels, which had fallen to 9.9 months in September from 10.6 months. Overall, there are downside risks for both the sales and price components, as deteriorating labor markets along with tight credit conditions do not bode well for a recovery in the US housing sector in the near term. Additional key releases for the next week include Q3 GDP revision and consumer confidence on Tuesday along with durable goods orders on Wednesday. It is also worth noting that the US markets will be closed on Thursday for the Thanksgiving holiday and will also close early on Wednesday and Friday. This could lead to lower liquidity, which would normally signal the potential for quiet trading, but since volatility remains so high we could actually see exceptionally choppy price action. Euro, British Pound Consolidations Continue as Euro-zone PMI Signals Deepening Recession The euro continues to consolidate within a narrowing wedge formation that has most recently kept EUR/USD contained to a tight range of 1.2450 - 1.2600. Likewise, the British pound whipped between 1.4700 - 1.5050 over the course of the day with little in the way of fundamental drivers. European economic data released this morning didn't have a big impact, as the euro jumped at 5:00 ET despite the disappointing results of the Euro-zone PMI reports. Indeed, composite PMI showed that the Euro-zone's manufacturing and service sectors contracted at the fastest pace in at least 10 years in November. Euro-zone GDP figures have already reflected recession, as the economy contracted 0.2 percent during both Q2 and Q3. Given the dismal nature of this PMI reports, it seems likely that GDP will probably fall negative during Q4 as well. Looking ahead to Monday, the IFO index of German business confidence is forecasted to show broad declines in sentiment on the business climate (from 90.2 to a 5-year low of 88.7), current economic conditions (from 99.9 to a 3-year low of 96.8), and the outlook for growth (from 81.4 to a record-low of 81.0). However, the November 11 release of the German ZEW survey shows that investor confidence on the economic outlook improved very slightly, while sentiment on current conditions fell further. Overall, businesses, investors, and consumers are likely to hold a cautious view of growth going forward, especially as the Euro-zone tips into recession and financial market instability shows no signs of easing. The release of this indicator at 4:00 ET tends to be a short term market-mover for the euro, though traders shouldn't look for follow-through during the rest of the day. Japanese Yen Pulls Back From Resistance as Dow Gains During Last Hour of Trading, Closes Up 6.55% The Japanese yen tumbled on Friday as a last-minute surge in risk appetite lifted carry trades. Indeed, the Dow Jones Industrial Average ended the day up 6.55 percent at 8,046.66, but all of those gains were made during the final hour of trading. With our latest forex correlations report showing a tight correlation between USD/JPY and the Dow, it's easy to see why the Japanese yen ultimately ended the day down 2.34 percent against the US dollar, over 3 percent versus the British pound and euro, and more than 5 percent against the Australian dollar and New Zealand dollar. In economic news, the Bank of Japan left rates steady at 0.3 percent, as expected, but issued bearish commentary saying, "The outlook remains highly uncertain and given the slowdown in overseas economies and the turmoil in global financial markets, it will likely take some time for the necessary conditions for Japan's economic recovery to be satisfied." However, Bank of Japan Governor Masaaki Shirakawa also suggested that he wanted to avoid a return to Zero Interest Rate Policy (ZIRP), as additional rate cuts "would have many adverse effects on the functioning of the money market." Regardless, we rarely see Japanese interest rate outlooks have a large impact in the forex markets, as risk trends dominate the direction of the Japanese yen. Canadian Dollar Brushes Off Plunge in CPI, Gains Could Accelerate on Canadian Retail Sales The Canadian dollar generally brushed off the weaker-than-expected results of Canadian CPI on Friday, as the currency ended the day up nearly 4 percent versus the greenback. Focusing on the data, Canadian CPI fell by the most since 1959 during the month of October, bringing the annual rate down to a 5-month low of 2.6 percent. The decline was led by gasoline prices, but even the Bank of Canada's core measure of CPI slipped, though the annual rate held steady at 1.7 percent. Nevertheless, the data suggests that inflation in the country is likely to fall below their 2 percent target sooner rather than later, and thus, Credit Suisse overnight index swaps are now close to fully pricing in a full 50bp cut at the BOC's next meeting in December. Looking ahead to next week, Tuesday's release of Canadian retail sales is forecasted to have gained 0.3 percent in September, and excluding autos, retail sales are forecasted to have risen 0.2 percent. However, there is potential for a surprisingly strong reading given the solid employment numbers we've seen lately. In fact, the Canadian economy has added on workers for the past three months, and a record 106.9K in September alone. Furthermore, the September reading of Canadian wholesale sales surprisingly jumped 1.5 percent, and can sometimes serve as a good leading indicator for the headline retail sales report. As a result, this 8:30 ET release has the potential to lead the Canadian dollar higher, though a disappointing figure could weigh the Loonie down.
Disclaimer Investment in the currency exchange is highly speculative and should only be done with risk capital. Prices rise and fall and past performance is no assurance of future performance. This website is an information site only. Accordingly we make no warranties or guarantees in respect of the content. The publications herein do not take into account the investment objectives, financial situation or particular needs of any particular person. Investors should obtain individual financial advice based on their own particular circumstances before making an investment decision on the basis of the recommendations in this website. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. All intellectual property rights are the property of Daily FX. Daily FX and its affiliates, will not be held responsible for the reliability or accuracy of the information available on this site. The content herein is provided in good faith and believed to be accurate, however, there are no explicit or implicit warranties of accuracy or timeliness made by Daily FX or its affiliates. The reader agrees not to hold Daily FX or any of its affiliates liable for decisions that are based on information from this website. Daily FX highly recommends that before making a decision, the reader collects several opinions related to the decision and verifies facts from at least several independent sources. | |
Read more...
Market Soars on Obama Cabinet Picks
| Daily Forex Fundamentals | Written by GFT | Nov 22 08 06:21 GMT | | |
TODAY'S BIGGEST PERCENTAGE MOVERS
EXPECTATIONS FOR UPCOMING FED MEETINGS
** PERCENTAGES MAY NOT ADD UP TO 100% BECAUSE OF THE PROBABILITY OF LARGER OR SMALLER MOVES BEYOND THOSE SHOWN ON THIS TABLE US DOLLAR: MARKETS SOAR ON OBAMA CABINET PICKSOn a day when the market had nothing to be happy about, the leak of President-elect Barack Obama's Cabinet announcements has erased one major uncertainty for the financial markets, sending equities and currencies soaring. The NY Times reported that Hillary Clinton has accepted the post of Secretary of State and NBC reported that Timothy Geithner will be named Treasury Secretary. None of these reports have been officially confirmed by Obama, but he is expected to announce his economic team on Monday. Timothy Geithner Needs to Hit the Ground Running When compared to the vast experience of Lawrence Summers and Paul Volcker, Geithner is definitely the more spirited choice. In order to command the same respect that Summers and Volcker may have instantly received from Wall Street, Geithner will have to hit the ground running at an unusual pace to reassure investors. The benefit of choosing Geithner is that he has been intimately involved with the current financial crisis from Day 1 and is speculated to have been the architect behind some of Paulson's announcements. With Geithner, there will be continuity and no need for any major transitions. In order for the financial markets to hold onto their gains, Geithner will have to work with Paulson and Bernanke immediately to figure out the best ways of using the second half of the $700B bailout package. Timothy Geithner has been serving as the President and Chief Executive Officer of the Federal Reserve Bank of New York since 2003. Up until the latest financial crisis, he has been relatively unknown especially when compared to Summers and Volcker. However he has been instrumental in helping Hank Paulson resolve the current financial crisis by brokering the JPMorgan Chase acquisition of Bear Stearns. Later on he called for overhauling the regulation in the financial industry, been intimately involved in the government's decision to let Lehman Brothers fail and played a key role in the dispute between Citigroup and Wells Fargo over Wachovia. Geithner is also a protégé of Lawrence Summers and has been involved in the bailouts of Brazil, Mexico, Indonesia, South Korea and Thailand in the 1990s as the Undersecretary of the Treasury. He is a global central banker having lived in Asia and the US. Geithner is credited with warning Wall Street Banks in 2006 and 2007 to figure out what would happen to their portfolios if one their main competitors failed. He was worried about the smoke and mirrors that complex credit derivatives can have on balance sheets. Geithner's only shortfall is that he has worked too closely with Paulson in resolving the current financial crisis which has both strong supporters and critics. Bracing for a Major Decline in GDP With no US economic data released today, the market was focused on the speculation of the possible break-up of Citigroup. CEO Vikram Pandit squashed the speculation mid day when he told employees that he does not plan to sell parts of the company but there are still rumors that Citi may make a big announcement next week. Citi's shares have plummeted with its market capitalization falling from $274B at the end of 2006 to $21 billion this afternoon. Although we are also relieved to hear Obama's Cabinet picks, a lot of economic data will be released in the coming week including growth, housing market and spending data. Traders should brace for a major decline in GDP that should drive the US economy into an official recession. Although a confirmation of a recession should be very negative for a currency, the fact that the Eurozone, New Zealand, Japan, Mexico and Singapore are already in a recession, makes a US recession less remarkable. Be cautious of the rally in equities and currencies because in terms of the economic outlook, nothing has changed yet. However, over the past week, the market was very disappointed to learn that the Bush Administration will not tap the remainder of the $700B bailout fund and now there is hope that the gears may start moving once again. GBP/USD: UK TO OFFICIALLY HOP ON THE RECESSION BANDWAGONLike the US, the UK will be releasing third quarter GDP numbers next week and it is all but certain that they will be officially hopping on the recession bandwagon. The government has already openly admitted that the country is in a recession and the lagging GDP numbers should confirm that. The British pound has sat at 6 year lows this past week as the minutes from the most recent monetary policy meeting reveals that more interest rate cuts are to come. There is a decent chance that we will see another 100bp rate cut by the Bank of England meeting next month, which would take interest rates to 2 percent. In fact, early December will be a busy month as almost every major country will be announcing monumental policy decisions. The only reasons why the British pound recovered today is the sharp rally in equities and the lack of economic data. Since a recession is already priced into the market, the reaction in the pound may be limited. Don't forget that next week is Thanksgiving Holiday in the US, which means that most traders will be taking off Wednesday afternoon. This could lead to unusually quiet trading. EUR/USD: WEAK DATA FORCES ECB TO TALK RATE CUTSThe Purchasing Managers Index continues to pile on the bad news for the Eurozone, as activity in the services and manufacturing sectors weaken substantially. The persistence of such disappointing news shifts all attention to planned ECB policy action for the meeting in December. In fact, ECB President Jean-Claude Trichet made statements today that indicated there is no reason to expect that the central bank will hold things unchanged. In addition, other board officials signaled that the ECB still has plenty of ammunition in the rate cutting arena as the target rate currently hovers at 3.25%. In fact, compared to yields in the U.S., the ECB will have significantly more monetary flexibility. Other reports today indicate that French Consumer Spending has fallen substantially, while Italian Retail Sales show some surprising strength. Monday will reveal the EZ Current Account along with German IFO. Business confidence should suffer from the downturn in the overall economy. On Tuesday we will see German GDP and the French Business Confidence Indicator. German CPI is expected for Wednesday, while Friday we have French PPI and Eurozone CPI. These reports should give further indication as to how aggressive the ECB will be at their December rate decision meeting. USDJPY: NO RATE CUT FOR BOJThe Japanese Yen crosses have soared on the heels of the sharp rally in US equities. The markets have something to be optimistic about and that is translating into a recovery in risk appetite. The Bank of Japan voted unanimously to hold the bench mark rate of the interest rates at 0.30% last night, which was in line with the market's projections. Unless the BoJ wants to return to ZIRP, they have no room to ease interest rates. Japan's central bank is expected to pump more liquidity into the economy as the recession deepens and exports take a bigger hit. Toyota Motors has already announced that they will slash 3,000 jobs as demand slows. In order to stimulate some sort of spending by Japanese consumers, Prime Minister Taro Aso pledged to give a refund of 12,000 yen for single households. In the coming week, the big day in Japan is their Friday, our Thursday when manufacturing PMI, the jobless rate, consumer prices, industrial production and retail sales are due for release. USD/CAD: CANADIAN CPI DROPS THE MOST SINCE 1949The Australian, New Zealand and Canadian dollars recovered nicely today as the Dow Jones Industrial Average Soars close to 500 points. Commodities also made significant rallies as oil reemerges above $50 and gold rises by more than 6%. Canada reported a 1.0 percent drop in consumer prices, the largest decline in 59 years. This report is a direct confirmation of BoC Governor Carney's concerns that price pressures and growth will slow severely in the coming months. We expect the Bank of Canada to cut interest rates by another 50bp next month and for talk of deflation to surface. In the coming week, the most important release for Canada will be retail sales on Tuesday. For the AUD/USD, it would be a stretch to associate today's gains with the recent RBA intervention. A successful indication for the action will probably not be felt for awhile. No truly important Australian economic releases will be expected in the coming week. New Zealand on the other hand has trade data on Wednesday. EUR/JPY: Currency in Play for the Next 24 HoursThe currency in play for the upcoming Monday will be EUR/USD based on the release of Euro zones Current Account Balance and German IFO survey which are due for release at 9:00AM GMT or 4:00AM EST. The Euro appreciated against the greenback today, as investors are expecting the Fed to cut its interest rates in the near future. Bollinger Bands have narrowed significantly, reflecting the range trading conditions in the EUR/USD, but we still see a clear falling wedge formation. The Euro came close to test the October 28th lows at the price of 1.2328 today, which now represents a key support level, before gaining strength and ending higher. If the long-term support is broken, we can potentially expect a substantial sell-off in the Euro. A perfect order of moving averages still shows negativity in the pair. Nevertheless, a bottom of the falling wedge has proved to be an important support during its formation which holds at 1.2430. The resistance for now is at the top of the wedge, which is also a 10-day SMA at the price of 1.2730. The break of the falling wedge in either direction, will most likely originate a new trend for the pair. The German IFO report could be the potential trigger.
Kathy Lien DISCLAIMER: GFT refers to Global Futures & Forex, Ltd. and all of its divisions, branches and subsidiaries, including Global Forex Trading and GFT Global Markets UK Limited. GFT Global Markets UK Limited is authorized and regulated by the United Kingdom Financial Services Authority. Each investment product is offered only to and from jurisdictions where solicitation and sale are lawful. Trading of foreign exchange contracts, contracts for differences, derivatives and other investment products which are leveraged, can carry a high level of risk, and may not be suitable for all investors. It is possible to lose more than the initial investment. In Australia, GFT means Global Futures & Forex, Ltd. ARBN 103 508 461, AFS Licence 226625. A Product Disclosure Statement (PDS) is available at www.gft.com.au. You should read and consider the PDS before making any decision to deal in GFT products. © 2008 Global Futures & Forex, Ltd. All rights reserved. | |
Read more...
Low Liquidity And A Short Time Frame Shape A Strong EURUSD Range
| Daily Forex Technicals | Written by DailyFX | Nov 22 08 06:36 GMT | | |||||||||||||||||||||||||||||
| Why Would EURUSD Stay in a Range? Levels to Watch:
The currency market has closed with the dominant theme of congestion still intact. However, many pairs have shown the initial signs of breakouts as risk aversion is once against emanating from the credit markets. For EURUSD, volatility and market position make a very strong case for a impending breakout. However, risk appetite has less influence with this pair, though a fully stocked economic calendar may force the final break. Few pairs have as clear a range setup as EURUSD. A descending wedge formation has presented moving targets for extremes. Our primary interest is with resistance. The falling trendline from the Oct 15th (1st?) high is backed up by the 20-day SMA, a 61.8% fib around 1.2675/725. Support is merely a short-lived, but obvious, rising trendline.
Suggested Strategy
Trading Tip - Looking for a range trade in any one pair at this point is essentially a call on overall currency market conditions over the coming week. EURUSD has the most conducive setup for congestion; but at the same time, it also offers the best terms for a breakout. Therefore, we are approaching this pair very cautiously. While there are clear entry points for both a long and a short position in this developed wedge; we will stick only to the dominant trend (bearish) in case of a breakout. Furthermore, the apex of the traditional wedge formation is fast approaching; so we must limit our viable time frame for open orders. Therefore, we will close any floating orders by Monday's close or should EURUSD drop below 1.24 before triggering our entry. What's more, a lot can change during a weekend. Therefore, it is best to monitor price action when liquidity returns in the Asian session Monday morning to ensure that a range trade is not taken when a breakout is clearly developing. Event Risk Euro Zone And USEuro Zone - Euro-related event risk is substantial over the coming week; but is it potent enough to drive a major breakout? Our proposed setup is for one day only; so for entry, our concern is German business confidence. The IFO sentiment gauge for November will give a reading for managers expectations for consumption trends heading into the holiday, which will in turn shape their production and hiring plans going forward - a key driver for growth going forward. Should our orders execute and we are carrying a trade later into the week, there will be a steady stream of data that could influence price action. Tuesday's GfK Consumer confidence report offers expectations for consumption trends going forward (while the trend of past spending habits will be gauged by the German 3Q GDP final numbers due the same day. In the second half of the week, the German CPI and unemployment change numbers for November will give the last few adjustments for interest rate expectations before the ECB meets on December 4th. US - There is a significant amount of scheduled event risk on deck for the US dollar next week; but the most important fundamental angle for the market next week is the Thanksgiving market holiday on Thursday. This will no doubt drain liquidity for the entire week and potentially generate excess volatility which creates an unstable environment for a currency that is already on the edge of major breakouts across the board. As for the indicators populating the calendar, the first revision of 3Q GDP will be particularly interesting as the personal consumption component of expansion is prone to major changes from one measure to the next. Consumer confidence, durable goods orders and home sales activity is all important but largely priced into the already dour outlook that has set in for the US.
Disclaimer Investment in the currency exchange is highly speculative and should only be done with risk capital. Prices rise and fall and past performance is no assurance of future performance. This website is an information site only. Accordingly we make no warranties or guarantees in respect of the content. The publications herein do not take into account the investment objectives, financial situation or particular needs of any particular person. Investors should obtain individual financial advice based on their own particular circumstances before making an investment decision on the basis of the recommendations in this website. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. All intellectual property rights are the property of Daily FX. Daily FX and its affiliates, will not be held responsible for the reliability or accuracy of the information available on this site. The content herein is provided in good faith and believed to be accurate, however, there are no explicit or implicit warranties of accuracy or timeliness made by Daily FX or its affiliates. The reader agrees not to hold Daily FX or any of its affiliates liable for decisions that are based on information from this website. Daily FX highly recommends that before making a decision, the reader collects several opinions related to the decision and verifies facts from at least several independent sources. | |||||||||||||||||||||||||||||
Read more...
Nissan Leads Car Shares Lower on U.S. Economy Outlook
By Makiko Kitamura
Nov. 21 (Bloomberg) -- Nissan Motor Co., Japan's third- largest carmaker, led auto shares lower in Tokyo after U.S. unemployment claims surged to the highest since 1992, worsening the outlook for exports.
Nissan dropped as much as 24 yen, or 7.3 percent, the most in two weeks, to 303 yen, and traded at 322 yen as of 1:03 p.m. The shares have plunged 74 percent this year. Toyota Motor Corp., Japan's biggest carmaker, fell as much as 3.6 percent to 2,840 yen, bringing its market capitalization below 10 trillion yen for the first time since 2003.
Japan's three biggest carmakers traditionally earn at least half of their operating profit in the U.S., the world's largest auto market. Industrywide car sales are headed for the worst year since 1991 as banks cut back on lending and unemployment rises.
``It doesn't look like car sales will improve as the economy is getting worse,'' said Mitsuo Shimizu, a market analyst at Cosmo Securities Co. in Tokyo.
``Drowning in Debt''
Initial jobless claims climbed to a higher-than-forecast 542,000 in the week ended Nov. 15, the Labor Department said yesterday in Washington. The Conference Board's index of leading economic indicators declined 0.8 percent, and a measure of manufacturing in the Philadelphia region fell to an 18-year low.
Bank of America Corp. Chief Executive Officer Kenneth Lewis, who heads the biggest U.S. retail bank, said yesterday the nation is ``drowning in debt.''
A stronger yen is also eroding the value of the carmakers' overseas sales. Japan's currency headed for a third weekly gain against the dollar, trading at 94.16 yen against the U.S. currency.
Japanese carmakers are cutting jobs and output as sales decline. Honda Motor Co., Japan's second-largest carmaker, said yesterday it is trimming production plans at U.S. factories by an additional 18,000 units. Honda has cut a total of 50,000 units from its U.S. plans since August.
Honda declined 1.9 percent to 1,869 yen. Daihatsu Motor Co. Japan's largest minicar-maker, fell as much as 7.1 percent. Mazda Motor Corp. dropped as much as 6.8 percent.
To contact the reporter on this story: Makiko Kitamura in Tokyo at mkitamura1@bloomberg.net.
Read more...
Asia’s Currencies Decline on Week, Led by Korean Won, Rupiah
By Judy Chen and Ron Harui
Nov. 22 (Bloomberg) -- Asian currencies fell this week, led by South Korea’s won and Indonesia’s rupiah, as investors fled emerging-market assets to avoid risk from a deepening global economic slump.
Nine of the 10 most-active currencies in Asia dropped over the five days as the MSCI Asia Pacific Index slumped 6.8 percent, the biggest drop since the period ended Oct. 24. The rupiah fell to a decade low yesterday after Bank Indonesia Governor Boediono said the deposit guarantee agency will take over the operations of PT Bank Century, the nation’s 13th-biggest lender by market value, to provide more security for customers.
South Korea’s won declined 6.4 percent this week to 1,495 per dollar, according to Seoul Money Brokerage Services Ltd. It touched 1,525 a dollar yesterday, the weakest since March 1998. Indonesia’s rupiah dropped 4.3 percent for the week to 12,100 per dollar. It plunged as much as 6.5 percent yesterday to 13,150, the lowest level since August 1998.
“Sentiment is likely to remain negative on Asian currencies and equity markets, given concerns over the duration and depth of a global recession,” said Jimmy Koh, head of treasury research at United Overseas Bank Ltd. in Singapore.
U.S. stocks declined for the week, with the Standard & Poor’s 500 Index dropping 6.7 percent on Nov. 20 to the lowest in 11 years, as economic data pointed to a worsening recession and lawmakers postponed a vote on a plan to salvage the nation’s largest auto makers.
Worst Performer
The rupiah is Asia’s worst performer in the past month, sliding 18 percent, as overseas investors sold more Indonesian shares than they bought every day in November except five. Foreign ownership of the nation’s bonds declined to 90 trillion rupiah ($7.44 billion) on Nov. 18, from 106.66 trillion rupiah in August, the finance ministry said.
“The U.S. markets are down sharply and that means there’s more risk aversion for emerging markets and the rupiah will be one of those badly hit,” said Euben Paracuelles, a Singapore- based economist at Royal Bank of Scotland Group Plc.
Paracuelles said he’s looking to revise his forecast for the rupiah, which he had estimated would touch 11,700 by the first quarter of next year.
Central bank Governor Boediono said yesterday the central bank will defend the rupiah as the Jakarta Composite Index of shares dropped 9 percent this week, extending its loss this year to 58 percent.
Non-deliverable forward contracts show traders are betting Indonesia’s currency will weaken to 13,350 in a month. Forwards are agreements in which assets are bought and sold at current prices for delivery at a later specified time and date.
Korean Economy
South Korea’s economy will shrink 3 percent in 2009, UBS AG forecast yesterday, revising an earlier projection for 1.1 percent growth. Policy makers have cut interest rates at an unprecedented pace, guaranteed banks’ debt and announced a 14 trillion won ($9.3 billion) stimulus package to spur expansion.
“The upward pressure on the dollar is still there as global stocks falter,” said Ko Yun Jin, a currency dealer at Kookmin Bank in Seoul. “With the exchange rate above 1,500, investors are watchful that the authorities may intervene.”
Korean President Lee Myung Bak cautioned against intervention in the currency market, on-line newswire Edaily reported yesterday. “Foreign exchange should be left alone,” Lee told reporters at a meeting of the 21-member Asia-Pacific Economic Cooperation in Lima, the Korean-language report said.
Central banks intervene in currency markets by arranging purchases or sales of foreign exchange. The won rose 0.1 percent yesterday, after falling as much as 1.8 percent.
Yen Gains
The yen rose for a third week against the dollar and the euro on speculation the slump in global stocks will prompt investors to sell higher-yielding assets and pay back loans made in Japan’s currency.
“Money is flowing back to funding currencies like the yen,” said Hideki Amikura, deputy general manager of foreign exchange in Tokyo at Nomura Trust and Banking Co., a unit of Japan’s largest brokerage. “It’s difficult to change the trend of stock declines pushing up the yen. Until we reach a conclusion on U.S. automakers, risk is off the table.”
The yen traded at 95.94 per dollar in New York, versus 97.14 a week ago. Japan’s currency was at 120.71 per euro from 122.39 on Nov. 14.
The Philippine peso weakened past 50 a dollar for the first time in two years yesterday after a report that showed U.S. jobless claims climbed to the highest since 1982 raised concern remittances from overseas Filipino workers will decrease. The peso fell 0.9 percent this week to 49.82 per dollar, after touching 50.17.
Elsewhere, India’s rupee slumped 1.9 percent this week to 50.0675 a dollar. Taiwan’s dollar dropped 0.8 percent to NT$33.079 and Singapore dollar weakened 0.9 percent to S$1.5301. Thailand’s baht fell 0.5 percent to 35.22 and Vietnam’s dong was little changed at 16,972.
-- With reporting by Clarissa Batino in Manila, David Yong, Lilian Karunungan, Ron Harui in Singapore, Stanley White in Tokyo and Kim Kyoungwha in Beijing. Editors: Sam Nagarajan, Nicholas Reynolds
To contact the reporters on this story: Judy Chen in Shanghai at xchen45@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.
Read more...
Japan’s Bonds Complete Second Weekly Gain on Deflation Concerns
By Theresa Barraclough
Nov. 22 (Bloomberg) -- Japan’s 10-year government bonds completed a second week of gains as speculation increased that a worsening recession will lead to deflation.
Benchmark debt advanced for a third day yesterday as Bank of Japan policy makers unanimously decided to keep interest rates unchanged at 0.3 percent and said they will consider pumping more money into the financial system to prop up an economy that fell into a recession last quarter. Inflation- linked bonds worldwide are yielding more than conventional debt, signaling investors expect deflation to deepen.
If inflation “falls enough it becomes deflation and that is what triggered this bull flattening,” said Guthrie Williamson, portfolio manager in Sydney at Principal Global Investors, which manages $244.9 billion in assets globally.
The yield on the 1.5 percent bond due September 2018 fell 10 basis points this week to 1.4 percent at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price rose 0.862 yen to 100.862 yen. The yield yesterday touched 1.375 percent, the lowest level since Oct. 8.
Ten-year bond futures for December delivery gained 0.93 this week to 139.30 on the Tokyo Stock Exchange. The contracts yesterday reached 140.10, the highest since Sept. 16, the day after Lehman Brothers Holdings Inc. filed for bankruptcy.
Ten-year U.S. Treasury yields declined 54 basis points for the week to 3.20 percent. The yield advantage over Japan’s bonds narrowed to 1.57 percentage points on Nov. 20, the least since at least April 1999, according to data compiled by Bloomberg. A basis point is 0.01 percentage point.
Deflation Risks
Crude oil slid to the lowest since May 2005 as recessions in the U.S., Europe and Japan cut global energy consumption.
“The sharp drop in oil has increased deflationary concerns,” said Eiji Dohke, chief strategist at UBS Securities Japan Ltd. in Tokyo.
The extra yield 10-year conventional Japanese bonds offer over similar-maturity inflation-linked debt, known as the breakeven rate, was at minus 171 basis points yesterday, according to data compiled by Bloomberg.
The U.S. five-year breakeven rate was minus 77 basis points and the three-year U.K. breakeven spread was minus 124 basis points yesterday. A negative breakeven inflation rate reflects investor expectations for declining consumer prices over the life of the security.
U.S. consumer prices plunged 1 percent last month, more than forecast and the most since records began in 1947, a Labor Department report showed on Nov. 20. A Japanese report on Nov. 28 is estimated by economists to show inflation slowed to 1.9 percent in October.
Bond Supportive
“Global deflation has become the main theme,” said Kazuhiko Sano, chief strategist in Tokyo at Nikko Citigroup Ltd., the Japanese unit of the second-largest U.S. bank by assets. Ten-year yields are likely to decline toward 1.35 percent by the end of March, he said.
The Bank of Japan held its key rate at zero from 2001 to 2006 and flooded the banking system with extra cash to encourage lending, spur growth and overcome deflation. Policy makers reduced the target rate to 0.3 percent from 0.5 percent on Oct. 31, the first cut since 2001.
“The emergence of deflation risk and prospects for another BOJ rate cut should be supportive for the JGB market in the next several months,” Tomoko Fujii, head of Japan economics and strategy at Bank of America Corp., wrote in a report on Nov. 20.
There was a 28 percent chance yesterday the central bank will lower interest rates by the end of March, according to calculations by JPMorgan Chase & Co. using overnight interest- rate swaps.
To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net.
Read more...
Asian Stocks Fall for Second Week as Global Recession Deepens
By Chua Kong Ho
Nov. 22 (Bloomberg) -- Asian stocks fell for a second week, led by financial companies and commodity producers, as a global recession and plunge in oil prices heightened concern demand and profits will be hurt.
Tokio Marine Holdings Inc. slumped 36 percent after Japan’s biggest insurers slashed their profit forecasts. Woodside Petroleum Ltd. fell to the lowest since July 2005 as oil dipped below $50 a barrel. Babcock & Brown Ltd. plunged 48 percent as it sought to resolve a dispute with one of its bankers. PT Bumi Resources tumbled 39 percent as investors who borrowed to buy the stock of the Indonesian coal producer sold to cover losses. Oz Minerals Ltd. plunged 32 percent after saying lower metal prices may cut profit.
“Markets are progressively pricing in a deeper and more prolonged recession,” said Prasad Patkar, who helps manage about $800 million at Platypus Asset Management in Sydney. “A depression is too ugly to contemplate. It’s an ultra-low probability, but not zero probability.”
The MSCI Asia Pacific Index fell 6.8 percent to 77.42 this week. Nine of the 10 industry groups declined on the index this week. The measure rose yesterday on speculation governments will step up efforts to revive economies and after the Wall Street Journal reported Citigroup Inc. may be sold.
Nikkei, Hang Seng
Japan’s Nikkei 225 Stock Average declined 6.5 percent to 7,910.79, after the world’s second-largest economy slipped into recession for the first time since 2001. Hong Kong’s Hang Seng Index retreated 6.5 percent as the city entered its first recession since the outbreak of a deadly epidemic in 2003. Taiwan and Singapore forecast deeper contractions. All markets in the region declined this week.
MSCI’s Asian index has plunged 51 percent in 2008 as global financial companies’ losses and writedowns from the collapse of the U.S. subprime-mortgage market neared $1 trillion. Rallies have fizzled -- most recently a 25 percent gain posted in the seven trading days following Oct. 27 -- as the economies of the U.S., Japan and the euro zone entered recession.
Shares on the MSCI gauge are now valued at 9.5 times trailing earnings after falling to as low as 8.2 times last month. That compares with 19.5 times on Nov. 11, 2007, when the measure hit a peak of 172.32. Prior to the current market turmoil, the price-earnings ratio never dropped below 10, according to Bloomberg data.
Fear, Greed
“Fear has well and truly taken over from greed,” said Rob Patterson, who manages about $2 billion at Argo Investments Ltd. in Adelaide. “We’re seeing undisciplined selling. There’s definitely an element of irrationality to all this.”
Tokio Marine tumbled 36 percent to 2,015 yen, after cutting its profit forecast by 72 percent. Mitsui Sumitomo Insurance Co. and Sompo Japan Insurance Inc., two insurers that reduced their earnings projections, dropped 30 percent and 28 percent respectively.
Babcock & Brown, the worst-performing stock on MSCI’s Asian gauge this year, tumbled 48 percent to A$0.25 before trading in its shares was halted on Wednesday, as the company sought the release of a deposit held by a bank. Babcock didn’t identify the bank or provide further details.
Oil and mining companies declined as prices of their commodities retreated on concern a global recession will curb demand for energy and industrial metals.
Woodside Petroleum declined 21 percent to A$29. Cnooc Ltd., China’s largest offshore oil explorer, retreated 16 percent to HK$5.06. Oz Minerals, the world’s second-largest zinc mining company, fell 33 percent to A$0.595, after saying it may also have to write down the value of stakes in two companies following a plunge in share prices.
Bumi Tumbles
Bumi Resources tumbled 39 percent to 710 rupiah. The shares have declined 60 percent since Nov. 6, when they resumed trading after a one-month halt, as investors who had borrowed to buy the stock, known as margin trading, sold to cover losses. The price drop threatens plans by investment company PT Bakrie & Brothers to sell its 35 percent stake in Bumi to an Indonesian affiliate of U.S. buyout firm TPG for $1.3 billion.
Oil fell below $50 a barrel on the New York Mercantile Exchange on Thursday, down almost $100 a barrel below its peak of $147.27 on July 11. The Reuters/Jeffries CRB Index of 19 raw materials fell more than 50 percent from a record in July.
“There are tremendous amounts of economic distress,” said Michael Pento, who helps oversee $1.5 billion at Delta Global Advisors Inc. in Holmdel, New Jersey. “Everywhere you look, there are horrible economic numbers from now to as far as the eye can see.”
Winners
Among stocks that gained, Aozora Bank Ltd. surged 35 percent to 107 yen for the biggest percentage gain on MSCI’s Asian gauge. The Japanese bank began a plan to buy back as much as 20 billion yen ($210 million) of its own shares.
Macquarie Group Ltd., Australia’s biggest securities firm, gained 19 percent to A$27.06 after posting a smaller-than- expected drop in profit and saying earnings may withstand the credit crunch.
To contact the reporter responsible for this story: Chua Kong Ho in Shanghai at kchua6@bloomberg.net
Read more...
BHP, Vale to Close Brazil Pellet Plants, Cut Output
By Jesse Riseborough and Diana Kinch
Nov. 22 (Bloomberg) -- BHP Billiton Ltd., the world’s largest mining company, and Cia. Vale do Rio Doce will cut output of iron-ore pellets from their Samarco venture in Brazil by 65 percent on weakening demand for the steelmaking material.
The companies will temporarily close the older two of the three plants operated by their Samarco Mineracao SA venture from the end of this month until mid-January, when they will reassess market conditions, Melbourne-based BHP said today in an e-mailed statement. Total pellet capacity will decline to 7.6 million metric tons from 21.6 million tons, it said.
A deepening global financial crisis has reduced demand for steel, prompting makers in Asia, Europe and North America to slash output, curbing their need for iron ore and pellets. Samarco is the world’s second-largest exporter of pellets, and BHP reported $279 million profit from its 50 percent share of the operation last fiscal year.
“It’s clearly a confirmation that market conditions are slowing and it has been well flagged with steel production cutbacks,” Mark Pervan, a senior commodity strategist at Australia and New Zealand Banking Group Ltd. in Melbourne, said today by phone. “These major producers are cutting higher-cost capacity first and trying to reduce costs. This will be the first step in pellet closures.”
BHP rose 3.8 percent to A$21.90 yesterday on the Australian stock exchange. Vale declined 7.8 percent to 20.75 reais in Sao Paulo trading yesterday.
‘Substantial Uncertainty’
BHP, the world’s third-biggest exporter of iron ore, has so for resisted cutting ore output. Vale and Rio Tinto Group, the two-biggest exporters, announced cuts this month. BHP, which is seeking to buy Rio in a $55 billion hostile takeover, said on Nov. 14 some customers had requested deferral of ore shipments equal to 5 percent of its budget for 2008.
“There is no doubt that these are very challenging times across the whole industry, and there is substantial uncertainty around the short-term outlook,” said Marcus Randolph, chief executive officer of BHP’s ferrous and coal units. “We will continue to monitor the situation and Samarco is also working closely with its customers through this period.”
Samarco, located in southeast Brazil’s Espirito Santo state, completed construction of its third pellet plant, the only one to remain operating from next month, for $1.5 billion in April. It won an 87 percent price increase in annual contract prices to about $150 a ton from Asian customers in March.
58% Price Slump
The company was seeking to boost output to 19.7 million tons this year, Chief Operating Officer Ricardo Vescovi said in April. About 100 million tons of iron-ore pellets are traded annually on seaborne markets. Pellets trade at a premium to ore in the form of lumps or fines, as they’re processed to better suit some steel mills.
Cash prices for iron ore delivered to China, the world’s biggest buyer, slumped 58 percent this half, prompting producers to curb output. The decline has led analysts to slash forecasts for 2009 contracts, and ANZ’s Pervan this week predicted prices will halve from this year’s record.
“This is very much now a consumer-led market so the consumers are going to be in no rush, they can potentially see conditions getting weaker,” Pervan said today. “January will be the earliest and you will probably find it will be protracted,” before Samarco reopens the two closed plants, he said.
Samarco started an 18-month study into building a fourth pellet plant in April. Customers in the Middle East and Africa take 23 percent of Samarco’s production. Sales to China total 21 percent, the rest of Asia gets 22 percent, Europe 20 percent and the Americas 14 percent.
Vale plans to cut 140 jobs at its port, rail and pellet operations at Tubarao, Espirito Santo, a trade union said yesterday.
To contact the reporters on this story: Diana Kinch in Rio de Janeiro at dkinch1@bloomberg.net; Jesse Riseborough in Melbourne at jriseborough@bloomberg.net.
Read more...
Shirakawa to `Dodge' Zero Rates, Focus on Funding for Companies
By Mayumi Otsuma
Nov. 22 (Bloomberg) -- Bank of Japan Governor Masaaki Shirakawa indicated that the central bank wants to avoid cutting interest rates to zero and will instead focus on pumping cash into the financial system to buoy the economy.
``An additional rate cut would have many adverse effects on the functioning of the money market,'' Shirakawa told reporters after his policy board left the benchmark rate at 0.3 percent yesterday, three weeks after the first reduction in seven years.
Shirakawa instructed his staff to study new ways of making money available for lending, such as accepting corporate debt as collateral, on concern that businesses are struggling to obtain funds. The bank could be forced to follow the Federal Reserve and the European Central Bank in trimming borrowing costs anyway, should the global financial turmoil prolong Japan's recession.
``Governor Shirakawa's comments strongly reveal that he wants to dodge zero rates and the central bank will seek more ways to add liquidity,'' said Seiji Adachi, a senior economist at Deutsche Securities Inc. in Tokyo. ``Even so, the bank may be forced to make another rate cut should the economy deteriorate rapidly and other central banks make deeper cuts.''
Reports this week showed the world's second-largest economy slid into a recession last quarter and exports tumbled the most in seven years in October as the global downturn choked sales of automobiles and electronics. Japan will probably shrink this year and next in the first back-to-back contractions in a decade, according to economists surveyed by Bloomberg News.
The credit crunch that hobbled lending in the U.S. and Europe has spread to Japan, as the nation's banks hoard cash on concern companies won't be able to repay debt.
Strains Reach Japan
``Strains in global financial markets are reaching Japan and investors are increasingly avoiding risks,'' Shirakawa said. ``Conditions for businesses to borrow from markets are worsening'' as credit spreads widen and companies have to cancel sales of bonds and commercial paper, he said.
The balance of commercial paper, which companies use for short-term funding, fell to 12.8 trillion yen ($135 billion) last month, the lowest since March 2002. The Tokyo three-month interbank offered rate rose to 0.839 percent yesterday, posting its biggest weekly advance since February 2007.
Shirakawa told the central bank to ``swiftly'' look at ``possible changes in the treatment of corporate debt as collateral, as well as possible ways to enhance flexibility in funds-supplying operations collateralized by corporate debt,'' according to a statement yesterday.
`Supportive Stance'
``The Bank of Japan's board showed a pretty supportive stance toward companies to help them borrow,'' said Mari Iwashita, chief market economist at Daiwa Securities SMBC Co. in Tokyo. ``The central bank will probably try to accommodate the financial market's need for liquidity.''
Economic and Fiscal Policy Minister Kaoru Yosano, speaking after his ministry downgraded the assessment of the economy for the second straight month, said he welcomed the bank's efforts to improve companies' access to credit.
The nation's corporate bond market has closed to all but the top-ranked companies, such as Tokyo Electric Power Co. No issuer ranked below the top four investment grades has sold bullet bonds since Sumitomo Mitsui Banking Corp. on Sept. 12.
Resuming the 2001-2006 policy of keeping interest rates near zero percent may have the perverse effect of stifling the flow of cash, rather than promoting it, by making returns so low that it becomes unprofitable for banks to lend to each other.
Rates that are too low would sap interest income to ``a level insufficient to cover various transaction fees,'' Shirakawa said on Nov. 6. That ``may reduce the volume of transactions in the market and bring about a reduction in market liquidity,'' he said.
To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net
Read more...
Temasek’s Managers to Lead Companywide Pay Cut Amid Recession
By Chen Shiyin
Nov. 22 (Bloomberg) -- Temasek Holdings Pte, Singapore’s state-owned investment company, said its key managers will lead a companywide pay cut1 and that a global recession may extend beyond 2009.
The firm, which oversees $130 billion, said senior management has volunteered to take a 15 percent to 25 percent pay cut. The key managers will provide almost 90 percent of the savings from the companywide cut, it said in an e-mailed response yesterday to a Bloomberg News query.
“The point on the shaky economic outlook is certainly valid as we see the cutbacks by financial institutions around the world,” said David Cohen, an economist at Action Economics. “The opportunistic view is things will bottom out by the middle of next year, but there’s a lot of uncertainty clouding the outlook.”
Temasek, led by Chief Executive Officer Ho Ching, is seeking to cut costs amid a slump in financial markets that has wiped out more than $33 trillion in global stocks this year, hurting the value of its investments. It bought stakes in Merrill Lynch & Co. and Barclays Plc after the credit crisis led to about $966 billion of writedowns and credit losses and more than 170,000 financial job losses worldwide.
‘Short-Term Challenge’
“As a long-term investor, we believe this current crisis will throw up tremendous opportunities,” Robert Chong, Temasek’s managing director of human resources, said in the e- mail. “Yet, we also recognize the short-term challenges and will adjust our actions appropriately.”
Singapore lowered its growth forecast for a fourth time this year and said yesterday the economy may contract in 2009, prompting policy makers to implement more measures to avoid a prolonged slowdown.
Temasek has a controlling stake in six of the city’s 10 biggest publicly traded companies by value, including Singapore Telecommunications Ltd. and Singapore Airlines Ltd. Singapore makes up about a third of Temasek’s assets.
“We anticipate a global recession in 2009 and possibly beyond,” Chong said.
The company, which is wholly owned by the Singapore Finance Ministry, also aims to expand its workforce by 15 percent in the next two years, he added. That’s part of a longer-term plan to have about 500 employees, he said.
Administrative expenses for the group, which includes Temasek’s share of the companies it invests in, rose 6.4 percent to S$8.6 million in the year ended March, making up 10 percent of revenue. Profit doubled for the year to S$18.2 billion ($12 billion) as sales of energy and Chinese banking assets countered slowing returns from stock market investments, Temasek said in its annual report released on Aug. 26.
To contact the reporter on this story: Chen Shiyin in Singapore at schen37@bloomberg.net.
Read more...
Citigroup Said to Offer Japan's Nikko Workers Early Retirement
By Takahiko Hyuga
Nov. 22 (Bloomberg) -- Citigroup Inc., which this week said it's shedding 52,000 jobs, is seeking to reduce its workforce at its Japanese brokerage unit by offering earlier retirement to some employees, two people familiar with the situation said.
Nikko Cordial Securities Inc., which employs about 7,000 in Japan, made the proposal to employees over the age of 40 in a memo from President Eiji Watanabe yesterday, the people said, declining to be identified because a public announcement hasn't been made. The offer also includes about two years of pay, the people said.
Citigroup is cutting its workforce at businesses in Japan, including investment banking and consumer finance. The New York- based firm is reviewing global operations after reporting $65.7 billion of credit losses and writedowns from investments linked to the U.S. subprime mortgage crisis, according to data compiled by Bloomberg.
``Some talented employees may leave the firm, yet people who underperformed may stick to the company as the job market is extremely tight now,'' said Makoto Haga, president of Wing Asset Management Co., a Tokyo-based hedge fund. ``Citigroup cannot avoid a massive redundancy here in Japan as the global financial market is worsening further.''
The employees who want to accept the offer are to respond by Dec. 8, the people said.
More Effective
The Tokyo-based brokerage, which has 111 branches in Japan, holds 28.2 trillion yen ($294 billion) of client assets as of September. Citigroup acquired the brokerage, Japan's third- biggest, last year.
``Citi in Japan is always looking for ways to make our organization more efficient and effective,'' Citigroup said in a statement yesterday in response to a query by Bloomberg News. ``We also continue to carefully manage our head count levels as we reengineer the company in line with its stated goal and market realities.''
Nikko Citigroup Ltd., the investment banking unit of Citigroup in Japan, started shedding 160 positions, two people familiar with the matter said in October.
Nikko Citigroup cut 16 positions in its equity research department, including four analysts and strategists, according to four people with direct knowledge of the measures. The department stopped covering about 40 companies, according to documents distributed to clients and obtained by Bloomberg News.
In June, Citigroup offered all 1,350 employees at its Japanese consumer-finance unit early retirement with two months salary as the company withdraws from the business, according to a memo distributed to employees. More than 500 employees accepted the offer.
Nikko Cordial, which was formed in 1944, said on Oct. 27 it posted 12.1 billion yen of profit for the six months ended Sept. 30, compared with 20.2 billion yen a year earlier.
To contact the reporter on this story: Takahiko Hyuga in Tokyo at thyuga@bloomberg.net
Read more...
Subscribe to:
Posts (Atom)
Posts
