By Toru Fujioka
Enlarge Image/Details
Sept. 30 (Bloomberg) -- Japan's unemployment rate rose to 4.2 percent in August, the highest in two years, and households cut spending, signaling consumers are unlikely to support the faltering economy.
The jobless rate climbed from 4 percent in July, the statistics bureau said today in Tokyo. Household spending fell 4 percent from a year earlier, the sixth straight decline, the bureau said.
Weakening demand at home and abroad has prompted some economists to say the world's second-largest economy is already in a recession. Sentiment among large manufacturers fell to a five-year low this month, a central bank survey is expected to show tomorrow, worsening prospects for wages and hiring.
``The priority of companies is to save costs, not to hire or to increase wages, given that the economy is in a recession,'' said Yoshiki Shinke, a senior economist at Dai-Ichi Life Research Institute in Tokyo. ``It'll probably take until the second quarter of next year before the labor market and consumer spending show clear improvements.''
The ratio of jobs available to each applicant fell for a seventh month to 0.86, the lowest since September 2004, the Labor Ministry said today. Consumer prices excluding fresh food climbed 2.4 percent in August, matching July's increase as the fastest since October 1997, and household confidence slumped to a record low. Wages grew the least this year in July.
Seiyu Ltd., the Japanese unit of Wal-Mart Stores Inc., will cut 350 jobs and close about 20 of its 390 stores, the Tokyo- based company said yesterday.
`Rapidly Shrinking'
``I can't be optimistic as we can hardly find companies being positive and aggressive,'' Kazuhiko Kamata, head of Intelligence Ltd., a Tokyo-based recruiter, said in an interview on Sept. 9. ``It's very clear demand for labor is rapidly shrinking as companies become more cautious about hiring.''
The number of job advertisements fell 14 percent last month, according to the Association of Job Journals of Japan. The average hourly wage advertised fell 0.9 percent from a year earlier, Intelligence reported yesterday on its Web site.
Rising bankruptcies are also putting people out of work. Companies that went out of business in August had a total of 13,704 employees, the most since February 2004 and 43 percent more than bankrupted firms a year ago, according to Tokyo Shoko Research Ltd. At least 60 percent of those workers will lose their jobs, the researcher said.
-- With reporting by Motoko Kakizaki and Shizuka Muragishi in Tokyo. Editors: Russell Ward, Lily Nonomiya
To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net
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Tuesday, September 30, 2008
Japan Aug. Preliminary Industrial Production Summary: (Table)
By Minh Bui
Sept. 30 (Bloomberg) -- Following is a summary of preliminary industrial output from the Ministry of Economy, Trade and Industry in Tokyo. Index: 2005=100
NOTE: Month-on-month changes are based on seasonally adjusted data. Year-on-year changes are based on unadjusted data.
Source: Ministry of Economy, Trade and Industry.
To contact the reporter on this story: Minh Bui in Tokyo at mbui@bloomberg.net
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Sept. 30 (Bloomberg) -- Following is a summary of preliminary industrial output from the Ministry of Economy, Trade and Industry in Tokyo. Index: 2005=100
===============================================================================
Aug. July June May April March Feb. Jan.
2008 2008 2008 2008 2008 2008 2008 2008
===============================================================================
------------------Month-on-Month Percent Change---------------
production -3.5% 1.3% -2.2% 2.8% -0.2% -3.4% 1.6% -0.5%
shipments -3.8% 1.9% -3.0% 2.0% 0.9% -3.9% 1.2% -0.5%
inventories -0.2% -0.1% 1.1% 0.5% -1.2% 0.1% 0.1% -0.2%
inventory ratio 7.4% -3.6% 3.8% 0.0% -3.9% 7.1% -1.4% -1.6%
--------------------Three Month Moving Average----------------
Production -0.7% 0.5% -0.8% -1.7% -0.9% -0.7% 0.5% -0.5%
Shipments -1.4% -0.1% -1.0% -2.0% -1.0% -0.5% 1.3% 0.3%
Inventories 0.9% 0.4% -0.4% -0.6% -0.5% 0.0% 0.4% 1.2%
Inventory ratio 2.3% 0.9% 1.4% 2.8% 0.9% 0.6% -1.4% 0.0%
-------------------Year-on-Year Percent Change----------------
Production -6.9% 2.4% 0.0% 1.1% 1.9% -0.7% 5.1% 2.9%
===============================================================================
Aug. July June May April March Feb. Jan.
2008 2008 2008 2008 2008 2008 2008 2008
===============================================================================
Shipments -6.9% 3.1% -0.6% 1.7% 2.8% 0.1% 5.8% 3.9%
Inventories 1.8% 2.2% 2.7% 1.5% 1.0% 2.1% 2.3% 1.9%
Inventory ratio 9.3% 1.3% 4.0% 2.3% 0.4% 4.4% -1.1% 0.6%
-----------------Seasonally Adjusted Index Level--------------
Production 104.5 108.3 106.9 109.3 106.3 106.5 110.2 108.5
Shipments 104.8 108.9 106.9 110.2 108.0 107.0 111.3 110.0
Inventories 105.6 105.8 105.9 104.7 104.2 105.5 105.4 105.3
Inventory ratio 108.7 101.2 105.0 101.2 101.2 105.3 98.3 99.7
-----------------------Undjusted Index Level-------------------
Production 95.8 110.7 108.9 102.4 104.3 116.5 108.9 101.4
Shipments 96.2 110.5 108.7 101.7 104.1 121.9 109.4 102.0
Inventories 106.6 107.2 106.2 104.9 101.7 100.7 108.5 107.6
Inventory ratio 115.6 102.2 103.0 106.1 99.2 89.9 103.3 111.3
===============================================================================
NOTE: Month-on-month changes are based on seasonally adjusted data. Year-on-year changes are based on unadjusted data.
Source: Ministry of Economy, Trade and Industry.
To contact the reporter on this story: Minh Bui in Tokyo at mbui@bloomberg.net
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Korean Won Set for Worst Quarter Since 1997; U.S. Plan Rejected
By Bob Chen
Sept. 30 (Bloomberg) -- South Korea's won dropped to its lowest level in more than five years after the House of Representatives rejected a $700 billion U.S. financial rescue plan to bail out the banking system.
The won fell for a sixth day, headed for its worst quarterly performance since the Asian financial crisis in 1997, after Lehman Brothers Holdings Inc. collapsed, American International Group Inc. was nationalized and Merrill Lynch & Co. was acquired by Bank of America Corp. Korea's Kospi index of shares declined by the most in two weeks.
``We'll see broad-based Asian currency weakness,'' said Mitul Kotecha, global head of foreign-exchange strategy at Calyon in Hong Kong. ``The weakness in equities results in further outflows from equity markets among foreign investors.''
The won slumped 2.4 percent to 1,217.85 versus the dollar as of 10 a.m. local time, according to Seoul Money Brokerage Services Ltd. The currency touched 1,235.00, the weakest level since April 2003, and is down more than 14 percent this quarter.
The U.S. House rejection of the biggest government intervention in the markets since the Great Depression dealt another blow to government efforts to contain a lending crisis.
Citigroup Inc. agreed to buy the banking operations of Wachovia Corp. for about $2.16 billion in a deal that the Federal Deposit Insurance Corp. helped broker.
To contact the reporter on this story: Bob Chen in Hong Kong at bchen45@bloomberg.net.
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Sept. 30 (Bloomberg) -- South Korea's won dropped to its lowest level in more than five years after the House of Representatives rejected a $700 billion U.S. financial rescue plan to bail out the banking system.
The won fell for a sixth day, headed for its worst quarterly performance since the Asian financial crisis in 1997, after Lehman Brothers Holdings Inc. collapsed, American International Group Inc. was nationalized and Merrill Lynch & Co. was acquired by Bank of America Corp. Korea's Kospi index of shares declined by the most in two weeks.
``We'll see broad-based Asian currency weakness,'' said Mitul Kotecha, global head of foreign-exchange strategy at Calyon in Hong Kong. ``The weakness in equities results in further outflows from equity markets among foreign investors.''
The won slumped 2.4 percent to 1,217.85 versus the dollar as of 10 a.m. local time, according to Seoul Money Brokerage Services Ltd. The currency touched 1,235.00, the weakest level since April 2003, and is down more than 14 percent this quarter.
The U.S. House rejection of the biggest government intervention in the markets since the Great Depression dealt another blow to government efforts to contain a lending crisis.
Citigroup Inc. agreed to buy the banking operations of Wachovia Corp. for about $2.16 billion in a deal that the Federal Deposit Insurance Corp. helped broker.
To contact the reporter on this story: Bob Chen in Hong Kong at bchen45@bloomberg.net.
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Indian Rupee's `Unprecedented' Decline Not Over, Treasurers Say
By Sam Nagarajan and Anoop Agrawal
Sept. 30 (Bloomberg) -- India's rupee may extend yesterday's drop to a five-year low as the trade deficit swells and overseas investors dump local shares, said treasurers at Larsen & Toubro Ltd., Hero Honda Motors Ltd. and Essar Group.
Dwindling capital inflows, elevated oil prices and slowing economic growth will undermine the rupee, said Yeshwant M. Deosthalee, chief financial officer at Mumbai-based Larsen & Toubro, India's biggest engineering company. A weaker currency may also exacerbate an inflation rate near a 16-year high by increasing import costs, said Ravi Sud, chief financial officer at Hero Honda, the nation's largest motorcycle maker.
``The drop in the rupee is unprecedented and never have I seen such a move in my 28-year career, barring the devaluation in 1991,'' said N.S. Paramasivam, who trades an average $200 million a day as head of treasury in Mumbai at Essar, which has businesses in shipping, steel and oil. ``The downside risk to the rupee is mostly emanating from lack of dollar supply.''
The rupee has dropped 16 percent this year, heading for its worst annual performance since 1991, when India devalued the currency as a balance-of-payments crisis forced it to pawn gold from its reserves. Exporters and importers alike are struggling to cope with as the exchange rate has swung between a decade- high and a 26-month low within a year.
Price Swings
The rupee touched 47.115 a dollar yesterday, the lowest level since June 3, 2003, after reaching 39.185 on Nov. 7 last year, its strongest since February 1998. Essar's Paramasivam predicts the currency, which was at 46.955 late yesterday in Mumbai, will trade between 45 and 47.50 over the next six months.
India's current-account deficit may widen by $12 billion in the financial year ending March 31, 2009, after reaching a record $17.7 billion the previous year, he said. Imports exceeded exports by $10.8 billion in July, the most ever.
Implied volatility on one-month dollar-rupee options reached 17.25 percent on Sept. 19, the highest in at least nine years, after credit-market losses led to the collapse of Lehman Brothers Holdings Inc. and U.S. government takeovers of Fannie Mae, Freddie Mac and American International Group Inc.
``The magnitude and timing of the crisis has taken everyone by surprise,'' said Deosthalee. ``Such sharp depreciation is not desirable. It's been very challenging for us'' to manage risks related to the rupee's fluctuations.
Larsen's dollar borrowing costs may climb by as much as 1.5 percentage points this fiscal year as credit-market turmoil makes banks less willing to lend, he said. The company has $800 million of overseas debt and the increase would boost financing costs by $15,000 a year for every $1 million of new loans taken out.
Selling Shares
Overseas investors sold $9.2 billion more Indian shares than they bought this year, following a record $17.2 billion of net purchases in 2007, according to data provided by the Securities & Exchange Board of India.
The currency ``isn't likely to turn around at least for six months,'' said Prabal Banerji, Mumbai-based chief financial officer at Hinduja Group, which has businesses in banking, automobiles and entertainment. ``Inflation will stay elevated as oil will stay around $100 a barrel.''
India imports almost three-quarters of the oil it needs. The front-month crude futures contract was recently at $96.11 a barrel in New York, 6 percent higher than the seven-month low of $90.51 reached on Sept. 16. The price touched a record $147.27 on July 11.
The Reserve Bank of India will stem rupee losses and may halt the currency's slide at about 47 per dollar, according to Larsen's Deosthalee and Essar's Paramasivam. A steeper drop would draw speculators, possibly causing the rupee to spiral down into a ``bottomless pit,'' Paramasivam said.
A surge in commodity prices this year propelled India's wholesale-price inflation to 12.63 percent in August, the fastest since June 1992.
Central Bank Reserves
``A weaker rupee is the last thing the central bank wants at a time when inflation is in double digits,'' Sud said.
India's foreign-currency reserves were $282.8 billion as of Sept. 19, down from a record $316.2 billion four months earlier, central bank figures show. The drop indicates policy makers sold dollars to bolster the rupee.
The rupee may ``limp back'' to 43 a dollar in six months or more should global investors' risk appetite improve, Hinduja's Banerji said.
The risk of a recession in the U.S., Europe and Japan may slow growth in India, adding pressure on the rupee to weaken, according to Hinduja's Banerji, Larsen's Deosthalee and Hero Honda's Sud. The central bank predicts the $1.2 trillion economy will expand 8 percent in the 12 months through March 31, the slowest pace in six years.
Domestic Demand
Domestic demand in the world's second-most populous country will help temper the rupee's losses, said S.K. Joshi, Director of Finance at Bharat Petroleum Corp., the nation's second- biggest state-run refiner. Exports account for about 30 percent of India's gross domestic product.
``India still is a domestic-demand driven economy,'' he said. ``That will soothe sentiment sooner or later.''
To contact the reporters on this story: Sam Nagarajan in New Delhi at snagarajan@bloomberg.net; Anoop Agrawal in Mumbai at aagrawal8@bloomberg.net.
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Sept. 30 (Bloomberg) -- India's rupee may extend yesterday's drop to a five-year low as the trade deficit swells and overseas investors dump local shares, said treasurers at Larsen & Toubro Ltd., Hero Honda Motors Ltd. and Essar Group.
Dwindling capital inflows, elevated oil prices and slowing economic growth will undermine the rupee, said Yeshwant M. Deosthalee, chief financial officer at Mumbai-based Larsen & Toubro, India's biggest engineering company. A weaker currency may also exacerbate an inflation rate near a 16-year high by increasing import costs, said Ravi Sud, chief financial officer at Hero Honda, the nation's largest motorcycle maker.
``The drop in the rupee is unprecedented and never have I seen such a move in my 28-year career, barring the devaluation in 1991,'' said N.S. Paramasivam, who trades an average $200 million a day as head of treasury in Mumbai at Essar, which has businesses in shipping, steel and oil. ``The downside risk to the rupee is mostly emanating from lack of dollar supply.''
The rupee has dropped 16 percent this year, heading for its worst annual performance since 1991, when India devalued the currency as a balance-of-payments crisis forced it to pawn gold from its reserves. Exporters and importers alike are struggling to cope with as the exchange rate has swung between a decade- high and a 26-month low within a year.
Price Swings
The rupee touched 47.115 a dollar yesterday, the lowest level since June 3, 2003, after reaching 39.185 on Nov. 7 last year, its strongest since February 1998. Essar's Paramasivam predicts the currency, which was at 46.955 late yesterday in Mumbai, will trade between 45 and 47.50 over the next six months.
India's current-account deficit may widen by $12 billion in the financial year ending March 31, 2009, after reaching a record $17.7 billion the previous year, he said. Imports exceeded exports by $10.8 billion in July, the most ever.
Implied volatility on one-month dollar-rupee options reached 17.25 percent on Sept. 19, the highest in at least nine years, after credit-market losses led to the collapse of Lehman Brothers Holdings Inc. and U.S. government takeovers of Fannie Mae, Freddie Mac and American International Group Inc.
``The magnitude and timing of the crisis has taken everyone by surprise,'' said Deosthalee. ``Such sharp depreciation is not desirable. It's been very challenging for us'' to manage risks related to the rupee's fluctuations.
Larsen's dollar borrowing costs may climb by as much as 1.5 percentage points this fiscal year as credit-market turmoil makes banks less willing to lend, he said. The company has $800 million of overseas debt and the increase would boost financing costs by $15,000 a year for every $1 million of new loans taken out.
Selling Shares
Overseas investors sold $9.2 billion more Indian shares than they bought this year, following a record $17.2 billion of net purchases in 2007, according to data provided by the Securities & Exchange Board of India.
The currency ``isn't likely to turn around at least for six months,'' said Prabal Banerji, Mumbai-based chief financial officer at Hinduja Group, which has businesses in banking, automobiles and entertainment. ``Inflation will stay elevated as oil will stay around $100 a barrel.''
India imports almost three-quarters of the oil it needs. The front-month crude futures contract was recently at $96.11 a barrel in New York, 6 percent higher than the seven-month low of $90.51 reached on Sept. 16. The price touched a record $147.27 on July 11.
The Reserve Bank of India will stem rupee losses and may halt the currency's slide at about 47 per dollar, according to Larsen's Deosthalee and Essar's Paramasivam. A steeper drop would draw speculators, possibly causing the rupee to spiral down into a ``bottomless pit,'' Paramasivam said.
A surge in commodity prices this year propelled India's wholesale-price inflation to 12.63 percent in August, the fastest since June 1992.
Central Bank Reserves
``A weaker rupee is the last thing the central bank wants at a time when inflation is in double digits,'' Sud said.
India's foreign-currency reserves were $282.8 billion as of Sept. 19, down from a record $316.2 billion four months earlier, central bank figures show. The drop indicates policy makers sold dollars to bolster the rupee.
The rupee may ``limp back'' to 43 a dollar in six months or more should global investors' risk appetite improve, Hinduja's Banerji said.
The risk of a recession in the U.S., Europe and Japan may slow growth in India, adding pressure on the rupee to weaken, according to Hinduja's Banerji, Larsen's Deosthalee and Hero Honda's Sud. The central bank predicts the $1.2 trillion economy will expand 8 percent in the 12 months through March 31, the slowest pace in six years.
Domestic Demand
Domestic demand in the world's second-most populous country will help temper the rupee's losses, said S.K. Joshi, Director of Finance at Bharat Petroleum Corp., the nation's second- biggest state-run refiner. Exports account for about 30 percent of India's gross domestic product.
``India still is a domestic-demand driven economy,'' he said. ``That will soothe sentiment sooner or later.''
To contact the reporters on this story: Sam Nagarajan in New Delhi at snagarajan@bloomberg.net; Anoop Agrawal in Mumbai at aagrawal8@bloomberg.net.
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Dollar Falls for Third Day Versus Yen as Rescue Plan Voted Down
By Stanley White and Daniel Kruger
Sept. 30 (Bloomberg) -- The dollar fell for a third day against the yen after a majority in the U.S. House of Representatives voted against a $700 billion rescue of the financial industry.
The yen gained against the Australian and New Zealand dollars as investors pared so-called carry trades on speculation the U.S. stock market sell off will spread to Asia. The pound extended declines against the dollar after its biggest intraday drop in 16 years yesterday and the euro fell for a second day as European governments bailed out banks.
``There could be panic selling of the dollar against the yen,'' said Mitsuru Sahara, senior currency sales manager at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan's biggest publicly traded lender. ``There are still a lot of unstable U.S. banks, so time is of the essence for this bill. Traders are sure to bail out of higher-yielding currencies and put their money back into the yen.''
The dollar fell to 103.77 yen as of 8:29 a.m. in Tokyo from 104.18 late yesterday in New York. The euro was at 149.24 yen from 150.38 yen. The euro fell to $1.4376 from $1.4434. The pound declined to $1.8012 from $1.8086. The dollar may weaken to 103 yen today, Sahara forecast.
The Australian dollar tumbled 4.4 percent to 82.73 yen from late yesterday in Asia, while the New Zealand dollar slid 3.4 percent to 69.36 yen. In carry trades, investors get funds in countries with low borrowing costs and buy assets where returns are higher. Japan's 0.5 percent target lending rate compares with 7 percent in Australia and 7.5 percent in New Zealand. The risk is currency moves erase profits.
Stock Futures
Nikkei 225 Stock Average futures expiring in December closed at 11,215 in Chicago, down 4.8 percent from the Osaka close and 5 percent below the Singapore close, after the Standard & Poor's 500 Index tumbled the most since 1987.
The House voted 228 to 205 against the measure to authorize the biggest government intervention in the markets since the Great Depression. The legislation would have given Treasury Secretary Henry Paulson broad authority to buy troubled assets from financial companies. Federal Reserve Chairman Ben S. Bernanke warned of ``grave threats'' to the financial system if Congress rejected the plan.
``This is the worst of all outcomes,'' said Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto. ``It sows the seeds of more uncertainty. We may hit new lows in the dollar-yen.''
Fortis
The euro extended declines against the dollar and the yen after Belgium, the Netherlands and Luxembourg gave an 11.2 billion euro ($16.1 billion) lifeline yesterday to Fortis, the largest Belgian financial-services company. The pound fell after the U.K. Treasury seized Bradford & Bingley Plc yesterday, the nation's biggest lender to landlords.
``There's still a lot of lingering issues out there,'' said David Watt, a senior currency strategist in Toronto at RBC Capital Markets, Canada's biggest bank by assets. ``Do you really want to go into the euro right now? Do you really want to go into the British pound given the events that happened there over the weekend?''
Futures on the Chicago Board of Trade indicated yesterday a 66 percent chance that the Fed would reduce its 2 percent target lending rate by a half-percentage point by its Oct. 29 meeting, compared with zero odds a week ago. There was a 34 percent chance policy makers would cut by a quarter-point.
Currency Swaps
The Fed increased its existing currency swaps with foreign central banks to $620 billion from $290 billion to make more dollars available worldwide. The European Central Bank, the Bank of England and the Bank of Japan are among the participating authorities.
Citigroup Inc., the biggest U.S. bank by assets, agreed to acquire the banking operations of Wachovia Corp. for more than $2 billion in stock, rescuing the Charlotte, North Carolina- based lender beset by mortgage losses.
Traders raised bets the ECB would lower borrowing costs in the months ahead to revive the 15-nation economy. The implied yield on the Euribor futures contract expiring in March fell 34 basis points to 4.33 percent yesterday. Policy makers will keep the benchmark rate at 4.25 percent when they meet Oct. 2, according to all 58 economists surveyed by Bloomberg News.
Implied volatility on one-month euro-dollar options rose yesterday to 15.88 percent, the highest in almost eight years. On Sept. 18, it reached 15.55 percent, the same level that triggered the Group of Seven nations to buy euros in 2000 to halt the 27 percent slide from its 1999 debut.
To contact the reporters on this story: Stanley White in Tokyo at swhite28@bloomberg.net; Daniel Kruger in New York at dkruger1@bloomberg.net.
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Sept. 30 (Bloomberg) -- The dollar fell for a third day against the yen after a majority in the U.S. House of Representatives voted against a $700 billion rescue of the financial industry.
The yen gained against the Australian and New Zealand dollars as investors pared so-called carry trades on speculation the U.S. stock market sell off will spread to Asia. The pound extended declines against the dollar after its biggest intraday drop in 16 years yesterday and the euro fell for a second day as European governments bailed out banks.
``There could be panic selling of the dollar against the yen,'' said Mitsuru Sahara, senior currency sales manager at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan's biggest publicly traded lender. ``There are still a lot of unstable U.S. banks, so time is of the essence for this bill. Traders are sure to bail out of higher-yielding currencies and put their money back into the yen.''
The dollar fell to 103.77 yen as of 8:29 a.m. in Tokyo from 104.18 late yesterday in New York. The euro was at 149.24 yen from 150.38 yen. The euro fell to $1.4376 from $1.4434. The pound declined to $1.8012 from $1.8086. The dollar may weaken to 103 yen today, Sahara forecast.
The Australian dollar tumbled 4.4 percent to 82.73 yen from late yesterday in Asia, while the New Zealand dollar slid 3.4 percent to 69.36 yen. In carry trades, investors get funds in countries with low borrowing costs and buy assets where returns are higher. Japan's 0.5 percent target lending rate compares with 7 percent in Australia and 7.5 percent in New Zealand. The risk is currency moves erase profits.
Stock Futures
Nikkei 225 Stock Average futures expiring in December closed at 11,215 in Chicago, down 4.8 percent from the Osaka close and 5 percent below the Singapore close, after the Standard & Poor's 500 Index tumbled the most since 1987.
The House voted 228 to 205 against the measure to authorize the biggest government intervention in the markets since the Great Depression. The legislation would have given Treasury Secretary Henry Paulson broad authority to buy troubled assets from financial companies. Federal Reserve Chairman Ben S. Bernanke warned of ``grave threats'' to the financial system if Congress rejected the plan.
``This is the worst of all outcomes,'' said Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto. ``It sows the seeds of more uncertainty. We may hit new lows in the dollar-yen.''
Fortis
The euro extended declines against the dollar and the yen after Belgium, the Netherlands and Luxembourg gave an 11.2 billion euro ($16.1 billion) lifeline yesterday to Fortis, the largest Belgian financial-services company. The pound fell after the U.K. Treasury seized Bradford & Bingley Plc yesterday, the nation's biggest lender to landlords.
``There's still a lot of lingering issues out there,'' said David Watt, a senior currency strategist in Toronto at RBC Capital Markets, Canada's biggest bank by assets. ``Do you really want to go into the euro right now? Do you really want to go into the British pound given the events that happened there over the weekend?''
Futures on the Chicago Board of Trade indicated yesterday a 66 percent chance that the Fed would reduce its 2 percent target lending rate by a half-percentage point by its Oct. 29 meeting, compared with zero odds a week ago. There was a 34 percent chance policy makers would cut by a quarter-point.
Currency Swaps
The Fed increased its existing currency swaps with foreign central banks to $620 billion from $290 billion to make more dollars available worldwide. The European Central Bank, the Bank of England and the Bank of Japan are among the participating authorities.
Citigroup Inc., the biggest U.S. bank by assets, agreed to acquire the banking operations of Wachovia Corp. for more than $2 billion in stock, rescuing the Charlotte, North Carolina- based lender beset by mortgage losses.
Traders raised bets the ECB would lower borrowing costs in the months ahead to revive the 15-nation economy. The implied yield on the Euribor futures contract expiring in March fell 34 basis points to 4.33 percent yesterday. Policy makers will keep the benchmark rate at 4.25 percent when they meet Oct. 2, according to all 58 economists surveyed by Bloomberg News.
Implied volatility on one-month euro-dollar options rose yesterday to 15.88 percent, the highest in almost eight years. On Sept. 18, it reached 15.55 percent, the same level that triggered the Group of Seven nations to buy euros in 2000 to halt the 27 percent slide from its 1999 debut.
To contact the reporters on this story: Stanley White in Tokyo at swhite28@bloomberg.net; Daniel Kruger in New York at dkruger1@bloomberg.net.
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Oil Is Steady After Dropping as Financial Rescue Plan Defeated
By Mark Shenk
Sept. 30 (Bloomberg) -- Crude oil was little changed after dropping the most in almost seven years yesterday as the U.S. House of Representatives rejected a $700 billion financial- rescue plan and stocks plummeted.
Oil slumped more than $10, helping send the Reuters/Jefferies CRB Index of 19 commodities to the biggest drop since at least 1956, after the House voted 228 to 205 against the measure. Commodities also dropped as the pound and the euro weakened against the dollar after European banks were bailed out.
``At this point, economic prospects can only be characterized as dim,'' said John Kilduff, senior vice president of risk management at MF Global Inc. in New York. ``With the financial crisis engulfing Europe, one has to wonder whether Asian demand can be maintained, which was the last hope for energy bulls.''
Crude oil for November delivery fell 22 cents, or 0.2 percent, to $96.15 a barrel at 8:37 a.m. Sydney time on the New York Mercantile Exchange. Prices are down 35 percent from the record $147.27 a barrel reached on July 11 and are heading for the first quarterly drop since the end of 2006.
Yesterday, oil fell $10.52, or 9.8 percent, to $96.37 a barrel, the biggest drop in percentage terms since Nov. 15, 2001, and the largest dollar decline since Jan. 17, 1991, when U.S.- led forces expelled Iraq from Kuwait.
Stocks Plunge
U.S. stocks plunged and the Standard & Poor's 500 Index tumbled the most since the 1987 crash after House rejected the bailout package. The Dow Jones Industrial Average slid 778 points for its biggest point drop ever as $1.2 trillion in market value was erased from U.S. equities.
``Liquidity is also being reduced, and commodities, as an investment, are clearly a casualty,'' Kilduff said. ``I don't see triple-digit crude oil being maintained in the aftermath of the financial crisis.''
Gasoline for October delivery declined 26.81 cents, or 10 percent, to settle at $2.397 a gallon in New York, the biggest drop since the ethanol-based contract began trading in October 2005. Heating oil dropped 23.45 cents, or 7.8 percent, to $2.7604 a gallon.
U.S. fuel demand averaged 19.5 million barrels a day in the four weeks ended Sept. 19, the lowest since October 2003, according to Energy Department data.
Fortis Lifeline
A 12 percent drop shown for the crude oil contract closest to delivery on Sept. 23 reflected the price change between the October futures contract, which expired Sept. 22, and November futures, which became the front-month contract on Sept. 23. The November contract fell 2.5 percent on Sept. 23.
The euro and pound dropped against the dollar after Belgium, the Netherlands and Luxembourg extended an 11.2 billion-euro ($16.3 billion) lifeline to Fortis, the largest Belgian financial-services firm, and the U.K. Treasury seized Bradford & Bingley Plc, the nation's biggest lender to landlords.
The dollar strengthened 1 percent to $1.4469 per euro at 3:47 p.m. New York time, and the pound lost 1.8 percent to $1.8115.
A stronger dollar makes commodities more expensive for buyers outside the U.S., potentially weakening demand.
``The spread of credit problems to Europe is raising concerns that demand will begin to drop off as it already has in the U.S.,'' said Addison Armstrong, director of market research at TFS Energy LLC in Stamford, Connecticut. ``The dollar is on a tear against the euro and pound because of the rescue of a number of European banks over the weekend.''
Forecast Slashed
Deutsche Bank AG slashed its 2009 New York oil price forecast by 23 percent to $92.50 a barrel on concern the financial crisis may curb global economic growth, weakening fuel demand. ``Commodities will be unable to escape the contagion,'' Deutsche analysts Adam Sieminski in Washington and Michael Lewis in London said in a report yesterday.
The CRB Index tumbled 21.35 to 343.22, the biggest drop in data going back to 1956. The index has slumped 28 percent from a record on July 3.
``Six months ago people thought the downturn would be contained within the U.S.,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``Increasingly it looks like this is spreading to both Europe and Asia.''
Brent crude oil for November settlement declined $9.56, or 9.2 percent, to settle at $93.98 a barrel 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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Sept. 30 (Bloomberg) -- Crude oil was little changed after dropping the most in almost seven years yesterday as the U.S. House of Representatives rejected a $700 billion financial- rescue plan and stocks plummeted.
Oil slumped more than $10, helping send the Reuters/Jefferies CRB Index of 19 commodities to the biggest drop since at least 1956, after the House voted 228 to 205 against the measure. Commodities also dropped as the pound and the euro weakened against the dollar after European banks were bailed out.
``At this point, economic prospects can only be characterized as dim,'' said John Kilduff, senior vice president of risk management at MF Global Inc. in New York. ``With the financial crisis engulfing Europe, one has to wonder whether Asian demand can be maintained, which was the last hope for energy bulls.''
Crude oil for November delivery fell 22 cents, or 0.2 percent, to $96.15 a barrel at 8:37 a.m. Sydney time on the New York Mercantile Exchange. Prices are down 35 percent from the record $147.27 a barrel reached on July 11 and are heading for the first quarterly drop since the end of 2006.
Yesterday, oil fell $10.52, or 9.8 percent, to $96.37 a barrel, the biggest drop in percentage terms since Nov. 15, 2001, and the largest dollar decline since Jan. 17, 1991, when U.S.- led forces expelled Iraq from Kuwait.
Stocks Plunge
U.S. stocks plunged and the Standard & Poor's 500 Index tumbled the most since the 1987 crash after House rejected the bailout package. The Dow Jones Industrial Average slid 778 points for its biggest point drop ever as $1.2 trillion in market value was erased from U.S. equities.
``Liquidity is also being reduced, and commodities, as an investment, are clearly a casualty,'' Kilduff said. ``I don't see triple-digit crude oil being maintained in the aftermath of the financial crisis.''
Gasoline for October delivery declined 26.81 cents, or 10 percent, to settle at $2.397 a gallon in New York, the biggest drop since the ethanol-based contract began trading in October 2005. Heating oil dropped 23.45 cents, or 7.8 percent, to $2.7604 a gallon.
U.S. fuel demand averaged 19.5 million barrels a day in the four weeks ended Sept. 19, the lowest since October 2003, according to Energy Department data.
Fortis Lifeline
A 12 percent drop shown for the crude oil contract closest to delivery on Sept. 23 reflected the price change between the October futures contract, which expired Sept. 22, and November futures, which became the front-month contract on Sept. 23. The November contract fell 2.5 percent on Sept. 23.
The euro and pound dropped against the dollar after Belgium, the Netherlands and Luxembourg extended an 11.2 billion-euro ($16.3 billion) lifeline to Fortis, the largest Belgian financial-services firm, and the U.K. Treasury seized Bradford & Bingley Plc, the nation's biggest lender to landlords.
The dollar strengthened 1 percent to $1.4469 per euro at 3:47 p.m. New York time, and the pound lost 1.8 percent to $1.8115.
A stronger dollar makes commodities more expensive for buyers outside the U.S., potentially weakening demand.
``The spread of credit problems to Europe is raising concerns that demand will begin to drop off as it already has in the U.S.,'' said Addison Armstrong, director of market research at TFS Energy LLC in Stamford, Connecticut. ``The dollar is on a tear against the euro and pound because of the rescue of a number of European banks over the weekend.''
Forecast Slashed
Deutsche Bank AG slashed its 2009 New York oil price forecast by 23 percent to $92.50 a barrel on concern the financial crisis may curb global economic growth, weakening fuel demand. ``Commodities will be unable to escape the contagion,'' Deutsche analysts Adam Sieminski in Washington and Michael Lewis in London said in a report yesterday.
The CRB Index tumbled 21.35 to 343.22, the biggest drop in data going back to 1956. The index has slumped 28 percent from a record on July 3.
``Six months ago people thought the downturn would be contained within the U.S.,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``Increasingly it looks like this is spreading to both Europe and Asia.''
Brent crude oil for November settlement declined $9.56, or 9.2 percent, to settle at $93.98 a barrel on London's ICE Futures Europe exchange.
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.
Read more...
Japan's Topix May Drop Below 950 on U.S. Turmoil, Nomura Says
By Patrick Rial and Toshiro Hasegawa
Sept. 30 (Bloomberg) -- Japan's Topix index could fall below 950 points, 16 percent below yesterday's close, after U.S. lawmakers rejected a $700 billion bank-rescue plan, according to Nomura Holdings Inc.
``The voting down of the relief package means that risks to the financial system have intensified,'' Seiichiro Iwasawa, Nomura's chief strategist in Tokyo, wrote in a note to clients today. ``Financial markets are breaking into crisis mode. There were hopes that the government would move swiftly to deal with the problem, but it's not happening.''
The Topix could fall below 950, Iwasawa said, after closing yesterday at 1,127.87. A reading of 950 would bring the gauge to its lowest level since August 2003. The Nikkei 225 Stock Average may slip under 10,000, 15 percent less than yesterday's close.
The U.S. House of Representatives yesterday rejected the rescue plan, sending the Standard & Poor's 500 Index to its worst slide since the 1987 ``Black Monday'' market crash.
To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net; Toshiro Hasegawa in Tokyo at thasegawa6@bloomberg.net.
Read more...
Sept. 30 (Bloomberg) -- Japan's Topix index could fall below 950 points, 16 percent below yesterday's close, after U.S. lawmakers rejected a $700 billion bank-rescue plan, according to Nomura Holdings Inc.
``The voting down of the relief package means that risks to the financial system have intensified,'' Seiichiro Iwasawa, Nomura's chief strategist in Tokyo, wrote in a note to clients today. ``Financial markets are breaking into crisis mode. There were hopes that the government would move swiftly to deal with the problem, but it's not happening.''
The Topix could fall below 950, Iwasawa said, after closing yesterday at 1,127.87. A reading of 950 would bring the gauge to its lowest level since August 2003. The Nikkei 225 Stock Average may slip under 10,000, 15 percent less than yesterday's close.
The U.S. House of Representatives yesterday rejected the rescue plan, sending the Standard & Poor's 500 Index to its worst slide since the 1987 ``Black Monday'' market crash.
To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net; Toshiro Hasegawa in Tokyo at thasegawa6@bloomberg.net.
Read more...
Asia Stocks Fall in Worst Rout for 21 Years as Bailout Rejected
By Kyung Bok Cho and Shani Raja
Sept. 30 (Bloomberg) -- Asian stocks dropped, extending the worst global sell-off in 21 years, after the rejection of a $700 billion plan to rescue the financial system by U.S. lawmakers exacerbated concern more banks will fail.
Australia & New Zealand Banking Group Ltd. and Woori Finance Holdings Co. slumped more than 7 percent after Wachovia Corp. was sold to Citigroup Inc. as its shares collapsed under the weight of overdue mortgages. BHP Billiton Ltd. and SK Energy Co. declined after oil fell the most in almost seven years on speculation the global economy will slide into recession, and after U.S. stocks yesterday tumbled the most since the 1987 crash.
``Volatility in the market has been notched up to a new high,'' said Prasad Patkar, who helps manage $1.8 billion at Platypus Asset Management in Sydney. ``This package is critical and it seems to be getting bogged down for political reasons. Credit markets are dysfunctional at the moment and if they aren't normalized quickly we have a serious problem.''
The MSCI Asia Pacific Index retreated 0.8 percent to 110.42 as of 9:06 a.m. in Tokyo. Japan's Nikkei 225 Stock Average lost 3 percent to 11,395.88. Benchmark indexes in Australia and South Korea declined more than 3 percent.
The regional gauge has fallen 30 percent this year as credit turmoil has caused the world's financial institutions to report more than $590 billion in losses and writedowns.
The Standard & Poor's 500 Index tumbled 8.8 percent yesterday, while the MSCI World Index of 23 developed markets slid 6.9 percent, the biggest loss in 21 years. S&P 500 futures lost 0.1 percent in after-hours trading.
The U.S. House of Representatives yesterday voted down the financial-rescue proposal that President George W. Bush said is needed to prevent the world's largest economy from slipping into a recession.
To contact the reporter for this story: Kyung Bok Cho in Seoul at kcho7@bloomberg.net; Shani Raja in Sydney at sraja4@bloomberg.net.
Read more...
Sept. 30 (Bloomberg) -- Asian stocks dropped, extending the worst global sell-off in 21 years, after the rejection of a $700 billion plan to rescue the financial system by U.S. lawmakers exacerbated concern more banks will fail.
Australia & New Zealand Banking Group Ltd. and Woori Finance Holdings Co. slumped more than 7 percent after Wachovia Corp. was sold to Citigroup Inc. as its shares collapsed under the weight of overdue mortgages. BHP Billiton Ltd. and SK Energy Co. declined after oil fell the most in almost seven years on speculation the global economy will slide into recession, and after U.S. stocks yesterday tumbled the most since the 1987 crash.
``Volatility in the market has been notched up to a new high,'' said Prasad Patkar, who helps manage $1.8 billion at Platypus Asset Management in Sydney. ``This package is critical and it seems to be getting bogged down for political reasons. Credit markets are dysfunctional at the moment and if they aren't normalized quickly we have a serious problem.''
The MSCI Asia Pacific Index retreated 0.8 percent to 110.42 as of 9:06 a.m. in Tokyo. Japan's Nikkei 225 Stock Average lost 3 percent to 11,395.88. Benchmark indexes in Australia and South Korea declined more than 3 percent.
The regional gauge has fallen 30 percent this year as credit turmoil has caused the world's financial institutions to report more than $590 billion in losses and writedowns.
The Standard & Poor's 500 Index tumbled 8.8 percent yesterday, while the MSCI World Index of 23 developed markets slid 6.9 percent, the biggest loss in 21 years. S&P 500 futures lost 0.1 percent in after-hours trading.
The U.S. House of Representatives yesterday voted down the financial-rescue proposal that President George W. Bush said is needed to prevent the world's largest economy from slipping into a recession.
To contact the reporter for this story: Kyung Bok Cho in Seoul at kcho7@bloomberg.net; Shani Raja in Sydney at sraja4@bloomberg.net.
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Japan's Stocks Plunge After U.S. Bank Rescue Plan Rejected
By Masaki Kondo
Sept. 30 (Bloomberg) -- Japan's stocks plunged after a U.S. bank-rescue package was rejected by lawmakers, deepening concern global credit turmoil will worsen.
Sumitomo Mitsui Financial Group Inc., Japan's third-biggest listed bank, wasn't traded as orders to sell exceeded those to buy. Inpex Holdings Inc., the nation's biggest oil and gas explorer, was set to tumble after crude fell the most in seven years. The Standard & Poor's 500 Index lost 8.8 percent in New York yesterday, the most since October 1987.
``Nobody anticipated this in the market,'' said Mitsushige Akino, who oversees about $468 million at Ichiyoshi Investment Management Co. in Tokyo. ``The global financial market is nearing the brink of collapse, and the only real choice investors have right now is to sell stocks and hold cash.''
The Nikkei 225 Stock Average declined 347.73, or 3 percent, to 11,395.88 as of 9:06 a.m. in Tokyo. The broader Topix index fell 31.67, or 2.8 percent, to 1,096.20. About half of the Topix's shares hadn't yet traded.
The U.S. House of Representatives voted 228 to 205 to reject the biggest government intervention into markets since the Great Depression. Treasury Secretary Henry Paulson said he'll work ``as quickly as possible'' to salvage the rescue plan that would give him the authority to buy bad loans from financial companies.
Crude oil for November delivery yesterday fell the most since November 2001 to $96.37 a barrel on dimmer prospects for the global economy. The yen appreciated against the dollar to as much as 103.56 from 106.33 at the close of stock trading in Tokyo, reducing the value of repatriated sales at Japanese companies.
Nikkei futures expiring in December retreated 5.7 percent to 11,110 in Osaka and slumped 5.9 percent to 11,105 in Singapore.
To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net.
Read more...
Sept. 30 (Bloomberg) -- Japan's stocks plunged after a U.S. bank-rescue package was rejected by lawmakers, deepening concern global credit turmoil will worsen.
Sumitomo Mitsui Financial Group Inc., Japan's third-biggest listed bank, wasn't traded as orders to sell exceeded those to buy. Inpex Holdings Inc., the nation's biggest oil and gas explorer, was set to tumble after crude fell the most in seven years. The Standard & Poor's 500 Index lost 8.8 percent in New York yesterday, the most since October 1987.
``Nobody anticipated this in the market,'' said Mitsushige Akino, who oversees about $468 million at Ichiyoshi Investment Management Co. in Tokyo. ``The global financial market is nearing the brink of collapse, and the only real choice investors have right now is to sell stocks and hold cash.''
The Nikkei 225 Stock Average declined 347.73, or 3 percent, to 11,395.88 as of 9:06 a.m. in Tokyo. The broader Topix index fell 31.67, or 2.8 percent, to 1,096.20. About half of the Topix's shares hadn't yet traded.
The U.S. House of Representatives voted 228 to 205 to reject the biggest government intervention into markets since the Great Depression. Treasury Secretary Henry Paulson said he'll work ``as quickly as possible'' to salvage the rescue plan that would give him the authority to buy bad loans from financial companies.
Crude oil for November delivery yesterday fell the most since November 2001 to $96.37 a barrel on dimmer prospects for the global economy. The yen appreciated against the dollar to as much as 103.56 from 106.33 at the close of stock trading in Tokyo, reducing the value of repatriated sales at Japanese companies.
Nikkei futures expiring in December retreated 5.7 percent to 11,110 in Osaka and slumped 5.9 percent to 11,105 in Singapore.
To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net.
Read more...
Australian Stock Futures, Dollar Plunge as U.S. Bailout Falters
By Shani Raja
Sept. 30 (Bloomberg) -- Australian stock futures and the local dollar tumbled after the U.S. House of Representatives rejected a $700 billion plan to rescue the financial system.
American depositary receipts of BHP Billiton Ltd., the world's largest mining company, dived 14 percent. U.S. traded shares of Westpac Banking Corp., Australia's second-biggest by market value, fell 9.1 percent.
The S&P/ASX 200 Index futures contract due in December plunged 7 percent to 4,510 at 6:56 a.m. in Sydney and the Australian currency fell 2.3 percent.
``Volatility in the market has been notched up to a new high,'' said Prasad Patkar, who helps manage $1.8 billion at Platypus Asset Management in Sydney. ``This package is critical and it seems to be getting bogged down for political reasons. Credit markets are dysfunctional at the moment and if they aren't normalized quickly we have a serious problem.''
The Standard & Poor's 500 Index tumbled the most since the 1987 crash yesterday and the Dow Jones Industrial Average slid 778 points for its biggest point drop ever as $1.2 trillion in value was erased from American equities. The MSCI World Index of 23 developed markets slid 6.9 percent, the most in 21 years.
Australia's benchmark S&P/ASX 200 Index slumped 97.40 points, or 2 percent, to 4,807.40 yesterday. The index has tumbled 30 percent from its November 2007 record as global credit markets seized up amid the U.S. subprime mortgage crisis.
The Australian dollar fell 2.3 percent to 79.65 U.S. cents from 81.50 cents in late Asian trading yesterday.
Tighter Credit
Australian banks' funding costs jumped as money markets tightened. The spread between one-year interbank rates and the one-year Australian government bond rose 12.6 basis points, or 0.126 percentage point, to 1.28 percentage point at 8:32 a.m. in Sydney, the widest since April 17, based on Bloomberg data.
The following is a list of companies whose shares may rise or fall in Australia. This preview includes news announced after markets closed yesterday. Prices are from yesterday's close unless otherwise stated.
Mining shares: A measure of six metals traded on the London Metal Exchange dropped 4 percent. Zinc fell 4.4 percent and copper 4.9 percent and nickel 3.5 percent.
American depositary receipts of BHP Billiton Ltd. (BHP AU), the world's largest mining company, dived 14 percent to the equivalent of A$31.67 a share in New York, A$2.57 lower than the A$34.24 close in Sydney.
Rio Tinto Group (RIO AU) declined A$5.50, or 5.5 percent, to A$95.50.
Oil companies: Crude oil for November delivery fell $10.52, or 9.8 percent, to settle at $96.37 a barrel at 2:42 p.m. on the New York Mercantile Exchange. The drop was the biggest in percentage terms since Nov. 15, 2001, and the largest dollar decline since Jan.
Woodside Petroleum Ltd. (WPL AU), operator of Australia's A$25 billion ($20 billion) North West Shelf liquefied natural gas venture, declined A$1.25, or 2.2 percent, to A$54.55.
To contact the reporter on this story: Shani Raja in Sydney at sraja4@bloomberg.net.
Read more...
Sept. 30 (Bloomberg) -- Australian stock futures and the local dollar tumbled after the U.S. House of Representatives rejected a $700 billion plan to rescue the financial system.
American depositary receipts of BHP Billiton Ltd., the world's largest mining company, dived 14 percent. U.S. traded shares of Westpac Banking Corp., Australia's second-biggest by market value, fell 9.1 percent.
The S&P/ASX 200 Index futures contract due in December plunged 7 percent to 4,510 at 6:56 a.m. in Sydney and the Australian currency fell 2.3 percent.
``Volatility in the market has been notched up to a new high,'' said Prasad Patkar, who helps manage $1.8 billion at Platypus Asset Management in Sydney. ``This package is critical and it seems to be getting bogged down for political reasons. Credit markets are dysfunctional at the moment and if they aren't normalized quickly we have a serious problem.''
The Standard & Poor's 500 Index tumbled the most since the 1987 crash yesterday and the Dow Jones Industrial Average slid 778 points for its biggest point drop ever as $1.2 trillion in value was erased from American equities. The MSCI World Index of 23 developed markets slid 6.9 percent, the most in 21 years.
Australia's benchmark S&P/ASX 200 Index slumped 97.40 points, or 2 percent, to 4,807.40 yesterday. The index has tumbled 30 percent from its November 2007 record as global credit markets seized up amid the U.S. subprime mortgage crisis.
The Australian dollar fell 2.3 percent to 79.65 U.S. cents from 81.50 cents in late Asian trading yesterday.
Tighter Credit
Australian banks' funding costs jumped as money markets tightened. The spread between one-year interbank rates and the one-year Australian government bond rose 12.6 basis points, or 0.126 percentage point, to 1.28 percentage point at 8:32 a.m. in Sydney, the widest since April 17, based on Bloomberg data.
The following is a list of companies whose shares may rise or fall in Australia. This preview includes news announced after markets closed yesterday. Prices are from yesterday's close unless otherwise stated.
Mining shares: A measure of six metals traded on the London Metal Exchange dropped 4 percent. Zinc fell 4.4 percent and copper 4.9 percent and nickel 3.5 percent.
American depositary receipts of BHP Billiton Ltd. (BHP AU), the world's largest mining company, dived 14 percent to the equivalent of A$31.67 a share in New York, A$2.57 lower than the A$34.24 close in Sydney.
Rio Tinto Group (RIO AU) declined A$5.50, or 5.5 percent, to A$95.50.
Oil companies: Crude oil for November delivery fell $10.52, or 9.8 percent, to settle at $96.37 a barrel at 2:42 p.m. on the New York Mercantile Exchange. The drop was the biggest in percentage terms since Nov. 15, 2001, and the largest dollar decline since Jan.
Woodside Petroleum Ltd. (WPL AU), operator of Australia's A$25 billion ($20 billion) North West Shelf liquefied natural gas venture, declined A$1.25, or 2.2 percent, to A$54.55.
To contact the reporter on this story: Shani Raja in Sydney at sraja4@bloomberg.net.
Read more...
National Bank Regulators Would Get Enhanced Power Under EU Plan
By John Rega and Meera Louis
Sept. 30 (Bloomberg) -- Regulators in individual European Union countries would get enhanced authority to police banks' foreign subsidiaries under a draft proposal before the EU.
Conceived in the months before the worsening of the current financial crisis, the plan is intended to make it easier for regulators to identify troubled banks earlier by giving the authorities a broader overview of lenders' financial health.
Each bank's home country regulators would have the power to set overall capital requirements for lenders headquartered within their borders, according to the draft, obtained by Bloomberg News. Currently, foreign subsidiaries are the primary province of the country in which they operate.
Government-led bailouts this week of three European lenders -- Brussels- and Amsterdam-based Fortis, U.K.-based Bradford & Bingley Plc and Germany's Hypo Real Estate Holding AG -- add urgency to the plan. Those actions prompted fears that the crisis that bankrupted Lehman Brothers Holdings Inc. and prompted a proposed $700 billion U.S. bank rescue will engulf Europe.
``It makes sense to have one set of regulations about capital, and to talk to one regulator about it,'' said David Green, the former head of international policy at the U.K. Financial Services Authority. ``The trick is to get the balance between coherent decision-making and the interests of the home regulators, and their stakeholders.''
The plan by EU Financial Services Commissioner Charlie McCreevy, which will be released Oct. 1, seeks to close gaps in the EU's diffuse regulatory system by giving home-country regulators more of an overview of multinational banks. McCreevy said yesterday that the financial turmoil of the past year may affect growth and lead to further pressure on public finances.
`Preserve Control'
``We have been for a long number of years trying to get some kind of European supervisory authority for those institutions that have cross-border reach,'' McCreevy said in an interview with RTE Radio in Dublin. ``It is particularly difficult to get agreement among member states who want to preserve control of supervision within their own member states.''
Oliver Drewes, a spokesman for McCreevy, declined to comment on the plan.
The shift may draw resistance from smaller and Eastern European countries where banks based in Frankfurt, London, Paris and other financial centers hold large market shares.
Regulatory Friction
It could also cause friction between larger regulators, Green said. Spain's Banco Santander SA has bought U.K. banks including Abbey National, Bradford & Bingley and Alliance & Leicester Plc.
``If I am, say, the FSA, I might be uncomfortable with leaving all of Abbey's regulation to Spain because Santander owns Abbey,'' Green said.
The plan, which may still be revised by EU commissioners at an Oct. 1 meeting, must be approved by national governments and the European Parliament. Both policy-making bodies must agree for the package to become law, which would take effect at the start of 2011.
The legislation also seeks to boost capital requirements for asset-backed securities, set stricter limits for how much risk a banks can take on from any one source and harmonize rules for what type of ``hybrid securities'' count as stock capital. The rules would update the EU's implementation of the global standards known as Basel II.
EU finance ministers have lined up behind McCreevy's plan to mandate ``colleges'' of regulators for each multinational bank, to bolster cooperation and speed up information sharing, especially in the case of a crisis.
Home-Country Authority
The draft commission proposal may advance the idea by giving the home-country authority greater say within the college over how much total capital banks must hold to guard against losses. An initial plan in June kept largely within the current responsibilities, with the EU's Committee of European Banking Supervisors in London mediating disputes between regulators.
``The challenge ahead is to maintain this momentum to deliver the full principle of consolidated supervision,'' the European Banking Federation in Brussels said in a statement. The group said it ``strongly welcomes the planned amendments'' to supervisory arrangements.
The commission also may ease proposed restrictions on bank investments in asset-backed bonds, according to the draft. The draft reduces the amount that the sellers of such securities would have to hold, to 5 percent from 10 percent, in order for EU lenders to be able to freely buy the instruments.
McCreevy is pushing the idea to make lenders more cautious and better able to reduce risk.
To contact the reporters on this story: John Rega in Brussels at jrega@bloomberg.net; Meera Louis in Brussels at mlouis1@bloomberg.net.
Read more...
Sept. 30 (Bloomberg) -- Regulators in individual European Union countries would get enhanced authority to police banks' foreign subsidiaries under a draft proposal before the EU.
Conceived in the months before the worsening of the current financial crisis, the plan is intended to make it easier for regulators to identify troubled banks earlier by giving the authorities a broader overview of lenders' financial health.
Each bank's home country regulators would have the power to set overall capital requirements for lenders headquartered within their borders, according to the draft, obtained by Bloomberg News. Currently, foreign subsidiaries are the primary province of the country in which they operate.
Government-led bailouts this week of three European lenders -- Brussels- and Amsterdam-based Fortis, U.K.-based Bradford & Bingley Plc and Germany's Hypo Real Estate Holding AG -- add urgency to the plan. Those actions prompted fears that the crisis that bankrupted Lehman Brothers Holdings Inc. and prompted a proposed $700 billion U.S. bank rescue will engulf Europe.
``It makes sense to have one set of regulations about capital, and to talk to one regulator about it,'' said David Green, the former head of international policy at the U.K. Financial Services Authority. ``The trick is to get the balance between coherent decision-making and the interests of the home regulators, and their stakeholders.''
The plan by EU Financial Services Commissioner Charlie McCreevy, which will be released Oct. 1, seeks to close gaps in the EU's diffuse regulatory system by giving home-country regulators more of an overview of multinational banks. McCreevy said yesterday that the financial turmoil of the past year may affect growth and lead to further pressure on public finances.
`Preserve Control'
``We have been for a long number of years trying to get some kind of European supervisory authority for those institutions that have cross-border reach,'' McCreevy said in an interview with RTE Radio in Dublin. ``It is particularly difficult to get agreement among member states who want to preserve control of supervision within their own member states.''
Oliver Drewes, a spokesman for McCreevy, declined to comment on the plan.
The shift may draw resistance from smaller and Eastern European countries where banks based in Frankfurt, London, Paris and other financial centers hold large market shares.
Regulatory Friction
It could also cause friction between larger regulators, Green said. Spain's Banco Santander SA has bought U.K. banks including Abbey National, Bradford & Bingley and Alliance & Leicester Plc.
``If I am, say, the FSA, I might be uncomfortable with leaving all of Abbey's regulation to Spain because Santander owns Abbey,'' Green said.
The plan, which may still be revised by EU commissioners at an Oct. 1 meeting, must be approved by national governments and the European Parliament. Both policy-making bodies must agree for the package to become law, which would take effect at the start of 2011.
The legislation also seeks to boost capital requirements for asset-backed securities, set stricter limits for how much risk a banks can take on from any one source and harmonize rules for what type of ``hybrid securities'' count as stock capital. The rules would update the EU's implementation of the global standards known as Basel II.
EU finance ministers have lined up behind McCreevy's plan to mandate ``colleges'' of regulators for each multinational bank, to bolster cooperation and speed up information sharing, especially in the case of a crisis.
Home-Country Authority
The draft commission proposal may advance the idea by giving the home-country authority greater say within the college over how much total capital banks must hold to guard against losses. An initial plan in June kept largely within the current responsibilities, with the EU's Committee of European Banking Supervisors in London mediating disputes between regulators.
``The challenge ahead is to maintain this momentum to deliver the full principle of consolidated supervision,'' the European Banking Federation in Brussels said in a statement. The group said it ``strongly welcomes the planned amendments'' to supervisory arrangements.
The commission also may ease proposed restrictions on bank investments in asset-backed bonds, according to the draft. The draft reduces the amount that the sellers of such securities would have to hold, to 5 percent from 10 percent, in order for EU lenders to be able to freely buy the instruments.
McCreevy is pushing the idea to make lenders more cautious and better able to reduce risk.
To contact the reporters on this story: John Rega in Brussels at jrega@bloomberg.net; Meera Louis in Brussels at mlouis1@bloomberg.net.
Read more...
Paulson to Use All Tools to Protect Financial Markets
By John Brinsley
Sept. 29 (Bloomberg) -- U.S. Treasury Secretary Henry Paulson will use ``all the tools at our disposal'' to protect financial markets after the House of Representatives rejected his $700 billion rescue plan, his spokeswoman said.
``The Secretary will be consulting with the President, the Chairman of the Federal Reserve, and Congressional leaders on next steps,'' Treasury spokeswoman Michele Davis said in a statement released in Washington. ``In the meantime, we stand ready to work with fellow regulators and use all the tools at our disposal, as we have over the last several months, to protect our financial markets and our economy.''
The House voted 228 to 205 against giving Paulson the authority to buy troubled assets from financial companies, in what would have been the biggest government intervention in the markets since the Great Depression. The Treasury chief on Sept. 23 warned it would be ``a grave mistake'' for Congress to curtail or delay the legislation.
U.S. stocks plummeted and Treasury bonds rose the most in two weeks after the House vote. The Standard & Poor's 500 Index fell as much as 8.3 percent and the Dow Jones Industrial Average dropped as much as 735.8 points or 6.6 percent.
About an hour after the vote failed, Paulson arrived at the White House to talk with President George W. Bush, who had personally lobbied lawmakers to support the measure.
To contact the reporters on this story: John Brinsley in Washington at jbrinsley@bloomberg.net
Read more...
Sept. 29 (Bloomberg) -- U.S. Treasury Secretary Henry Paulson will use ``all the tools at our disposal'' to protect financial markets after the House of Representatives rejected his $700 billion rescue plan, his spokeswoman said.
``The Secretary will be consulting with the President, the Chairman of the Federal Reserve, and Congressional leaders on next steps,'' Treasury spokeswoman Michele Davis said in a statement released in Washington. ``In the meantime, we stand ready to work with fellow regulators and use all the tools at our disposal, as we have over the last several months, to protect our financial markets and our economy.''
The House voted 228 to 205 against giving Paulson the authority to buy troubled assets from financial companies, in what would have been the biggest government intervention in the markets since the Great Depression. The Treasury chief on Sept. 23 warned it would be ``a grave mistake'' for Congress to curtail or delay the legislation.
U.S. stocks plummeted and Treasury bonds rose the most in two weeks after the House vote. The Standard & Poor's 500 Index fell as much as 8.3 percent and the Dow Jones Industrial Average dropped as much as 735.8 points or 6.6 percent.
About an hour after the vote failed, Paulson arrived at the White House to talk with President George W. Bush, who had personally lobbied lawmakers to support the measure.
To contact the reporters on this story: John Brinsley in Washington at jbrinsley@bloomberg.net
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U.S. House Rejects $700 Billion Financial-Rescue Plan
By Alison Vekshin and Laura Litvan
Enlarge Image/Details
Sept. 29 (Bloomberg) -- The financial-rescue plan intended to restore confidence in the U.S. banking system collapsed in partisan wrangling as the House of Representatives voted down the proposal backed by the Bush administration and congressional leaders of both parties.
Markets plunged as the House rejected, by a vote of 228 to 205, the $700 billion measure to authorize the biggest government intervention in the markets since the Great Depression. The Dow Jones Industrial Average fell 778 points, or 6.98 percent to 10,365, the biggest point drop ever. The Standard & Poor's 500 Index fell 8.4 percent, the most since Oct. 26, 1987.
The legislation's defeat set off a scramble among the plan's backers for additional support before another vote. Majority Leader Steny Hoyer said the House may take up the measure again this week, possibly after Senate action.
``The Republicans killed this,'' said House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat. Republicans blamed Democratic House Speaker Nancy Pelosi of California.
Representative Adam Putnam of Florida, the No. 3 House Republican, said Pelosi's ``speech cost us votes'' because it set a ``partisan tone,'' a reference to her comment before the vote blaming Bush administration policies for the crisis.
Democrats voted 140 to 95 in favor of the legislation, while just 65 Republicans backed the bill and 133 opposed it.
Broad Authority
The legislation would have given Treasury Secretary Henry Paulson broad authority to buy troubled assets from financial companies to help ease a lending crunch triggered by the decline of the housing market.
President George W. Bush said he's ``very disappointed'' by the defeat in the House of his $700 billion plan.
``Our strategy is to continue to address this economic situation head-on,'' Bush told reporters before he met with his economic advisers. Paulson arrived at the White House minutes before the president's comment.
The Treasury secretary told reporters that lawmakers ``need to work as quickly as possible'' to pass a bailout package.
``The markets around the world are under stress,'' he said. ``Our toolkit is substantial but insufficient'' to fix the crisis and legislation is needed.
Paulson will consult with Federal Reserve Chairman Ben S. Bernanke and congressional leaders, as well as Bush, Michele Davis said.
Not Leaving Town
Senate Banking Committee Chairman Christopher Dodd, appearing before reporters with Senator Judd Gregg, a New Hampshire Republican, said a bailout plan could still pass Congress.
``We don't intend to leave here without the job being done,'' said Dodd, a Connecticut Democrat. ``While it may take another few days, we're confident that can happen.''
Barack Obama, the Democratic presidential candidate, called for calm after the House vote and said a rescue package would eventually pass.
``It's important for the American public and for the markets to stay calm,'' Obama said at a rally in Westminster, Colorado. ``There are going to be some bumps and trials and tribulations and ups and downs before we get this rescue package done.''
`Unnecessary Partisanship'
Republican presidential nominee John McCain told reporters, ``Senator Obama and his allies in Congress infused unnecessary partisanship into the process.''
Opponents said the measure was too risky and too costly.
``I fear that ultimately it may not work,'' Representative Jeb Hensarling, a Texas Republican, said before the vote. The plan may put the U.S. on the ``slippery slope to socialism,'' he said.
Lawmakers were reluctant to support the measure a month before congressional elections because some voters viewed it as ``bailing out Wall Street,'' Frank said.
``The American people rejected this bailout and now Congress did likewise,'' said Republican Representative Mike Pence of Indiana.
House appropriations committee chairman David Obey scoffed at assertions that Pelosi's speech turned Republicans against the package, sinking the bill. ``Do they really think it's credible to say that they changed their mind on how they were going to vote because of a speech?'' he said. ``If they're that tenderhearted, they don't belong in this place.''
`Anything-Goes Mentality'
In her speech before the vote, Pelosi said the Bush administration's policies were ``built on budgetary recklessness, on an anything-goes mentality, with no regulation, no supervision and no discipline in the system.''
The final plan considered by the House would have given Paulson an immediate $250 billion to buy bad loans from financial companies, with the rest to be doled out in stages.
He and Bernanke proposed the rescue plan to revive lending and restore the flow of credit to the U.S. economy. Opposition to their Sept. 20 proposal for almost unfettered authority to purchase assets has been strongest in the House, particularly among Republicans who balked at its cost and pressed for more taxpayer protections.
Compromise legislation reached yesterday included a proposal by House Republicans that provides for government insurance for mortgage-backed securities. The plan included a bipartisan oversight board to monitor the purchase and sale of assets, and imposed limits on the compensation of executives at participating companies.
Whipping Up Support
House Republican leaders today, in speeches on the House floor, urged their colleagues to support a bipartisan House and Senate compromise crafted over several days.
Still, lingering opposition from many Republicans prompted Democratic leaders, including Pelosi and Majority Whip James Clyburn, to circulate among Democrats on the House floor this morning to seek more support.
House Minority Whip Roy Blunt said the drop in the markets would pressure Congress to return to the issue.
``The reality of the impact this can have on the markets will have a big impact in getting people back to wanting to work together and get this problem solved,'' Blunt, a Missouri Republican, said at a press conference after the failed vote.
To contact the reporters on this story: Laura Litvan Washington at jarowley@bloomberg.netAlison Vekshin in Washington at avekshin@bloomberg.net
Read more...
Enlarge Image/Details
Sept. 29 (Bloomberg) -- The financial-rescue plan intended to restore confidence in the U.S. banking system collapsed in partisan wrangling as the House of Representatives voted down the proposal backed by the Bush administration and congressional leaders of both parties.
Markets plunged as the House rejected, by a vote of 228 to 205, the $700 billion measure to authorize the biggest government intervention in the markets since the Great Depression. The Dow Jones Industrial Average fell 778 points, or 6.98 percent to 10,365, the biggest point drop ever. The Standard & Poor's 500 Index fell 8.4 percent, the most since Oct. 26, 1987.
The legislation's defeat set off a scramble among the plan's backers for additional support before another vote. Majority Leader Steny Hoyer said the House may take up the measure again this week, possibly after Senate action.
``The Republicans killed this,'' said House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat. Republicans blamed Democratic House Speaker Nancy Pelosi of California.
Representative Adam Putnam of Florida, the No. 3 House Republican, said Pelosi's ``speech cost us votes'' because it set a ``partisan tone,'' a reference to her comment before the vote blaming Bush administration policies for the crisis.
Democrats voted 140 to 95 in favor of the legislation, while just 65 Republicans backed the bill and 133 opposed it.
Broad Authority
The legislation would have given Treasury Secretary Henry Paulson broad authority to buy troubled assets from financial companies to help ease a lending crunch triggered by the decline of the housing market.
President George W. Bush said he's ``very disappointed'' by the defeat in the House of his $700 billion plan.
``Our strategy is to continue to address this economic situation head-on,'' Bush told reporters before he met with his economic advisers. Paulson arrived at the White House minutes before the president's comment.
The Treasury secretary told reporters that lawmakers ``need to work as quickly as possible'' to pass a bailout package.
``The markets around the world are under stress,'' he said. ``Our toolkit is substantial but insufficient'' to fix the crisis and legislation is needed.
Paulson will consult with Federal Reserve Chairman Ben S. Bernanke and congressional leaders, as well as Bush, Michele Davis said.
Not Leaving Town
Senate Banking Committee Chairman Christopher Dodd, appearing before reporters with Senator Judd Gregg, a New Hampshire Republican, said a bailout plan could still pass Congress.
``We don't intend to leave here without the job being done,'' said Dodd, a Connecticut Democrat. ``While it may take another few days, we're confident that can happen.''
Barack Obama, the Democratic presidential candidate, called for calm after the House vote and said a rescue package would eventually pass.
``It's important for the American public and for the markets to stay calm,'' Obama said at a rally in Westminster, Colorado. ``There are going to be some bumps and trials and tribulations and ups and downs before we get this rescue package done.''
`Unnecessary Partisanship'
Republican presidential nominee John McCain told reporters, ``Senator Obama and his allies in Congress infused unnecessary partisanship into the process.''
Opponents said the measure was too risky and too costly.
``I fear that ultimately it may not work,'' Representative Jeb Hensarling, a Texas Republican, said before the vote. The plan may put the U.S. on the ``slippery slope to socialism,'' he said.
Lawmakers were reluctant to support the measure a month before congressional elections because some voters viewed it as ``bailing out Wall Street,'' Frank said.
``The American people rejected this bailout and now Congress did likewise,'' said Republican Representative Mike Pence of Indiana.
House appropriations committee chairman David Obey scoffed at assertions that Pelosi's speech turned Republicans against the package, sinking the bill. ``Do they really think it's credible to say that they changed their mind on how they were going to vote because of a speech?'' he said. ``If they're that tenderhearted, they don't belong in this place.''
`Anything-Goes Mentality'
In her speech before the vote, Pelosi said the Bush administration's policies were ``built on budgetary recklessness, on an anything-goes mentality, with no regulation, no supervision and no discipline in the system.''
The final plan considered by the House would have given Paulson an immediate $250 billion to buy bad loans from financial companies, with the rest to be doled out in stages.
He and Bernanke proposed the rescue plan to revive lending and restore the flow of credit to the U.S. economy. Opposition to their Sept. 20 proposal for almost unfettered authority to purchase assets has been strongest in the House, particularly among Republicans who balked at its cost and pressed for more taxpayer protections.
Compromise legislation reached yesterday included a proposal by House Republicans that provides for government insurance for mortgage-backed securities. The plan included a bipartisan oversight board to monitor the purchase and sale of assets, and imposed limits on the compensation of executives at participating companies.
Whipping Up Support
House Republican leaders today, in speeches on the House floor, urged their colleagues to support a bipartisan House and Senate compromise crafted over several days.
Still, lingering opposition from many Republicans prompted Democratic leaders, including Pelosi and Majority Whip James Clyburn, to circulate among Democrats on the House floor this morning to seek more support.
House Minority Whip Roy Blunt said the drop in the markets would pressure Congress to return to the issue.
``The reality of the impact this can have on the markets will have a big impact in getting people back to wanting to work together and get this problem solved,'' Blunt, a Missouri Republican, said at a press conference after the failed vote.
To contact the reporters on this story: Laura Litvan Washington at jarowley@bloomberg.netAlison Vekshin in Washington at avekshin@bloomberg.net
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Japanese Yen, Korean Won, Indian Rupee: Asia Currency Preview
By Bob Chen
Sept. 30 (Bloomberg) -- The following events and economic reports may influence trading in Asian currencies today.
Exchange rates are from the previous session.
Japanese yen: The government will release monthly unemployment and household spending data at 8:30 a.m. and industrial production data at 8:50 a.m. in Tokyo.
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. local time
The yen traded at 104.09 at 6:25 a.m. in Tokyo.
South Korean won: The Bank of Korea will report its current-account balance at 8 a.m. in Seoul. South Korea posted a current-account deficit of $2.45 billion in July, the largest in six months, following a surplus of $1.82 billion in June.
The won was at 1,188.80.
Thai baht: The Bank of Thailand will report figures for exports, imports and the total trade and current-account balances for August at 2:30 p.m. in Bangkok. The trade balance showed a deficit of $762 million in July, after a surplus of $926 million the previous month. The current-account deficit widened to $750 million in August from $555 million the previous month, economists forecast in a Bloomberg News survey.
The baht was at 34.04.
Indian rupee: The Reserve Bank of India will report the second-quarter current-account balance at 3 p.m. in Mumbai. The deficit widened to $11.45 billion, from $1.04 billion in the first quarter, according to a Bloomberg survey.
The rupee was at 46.985.
To contact the reporter on this story: Bob Chen in Hong Kong at bchen45@bloomberg.net.
Read more...
Sept. 30 (Bloomberg) -- The following events and economic reports may influence trading in Asian currencies today.
Exchange rates are from the previous session.
Japanese yen: The government will release monthly unemployment and household spending data at 8:30 a.m. and industrial production data at 8:50 a.m. in Tokyo.
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. local time
The yen traded at 104.09 at 6:25 a.m. in Tokyo.
South Korean won: The Bank of Korea will report its current-account balance at 8 a.m. in Seoul. South Korea posted a current-account deficit of $2.45 billion in July, the largest in six months, following a surplus of $1.82 billion in June.
The won was at 1,188.80.
Thai baht: The Bank of Thailand will report figures for exports, imports and the total trade and current-account balances for August at 2:30 p.m. in Bangkok. The trade balance showed a deficit of $762 million in July, after a surplus of $926 million the previous month. The current-account deficit widened to $750 million in August from $555 million the previous month, economists forecast in a Bloomberg News survey.
The baht was at 34.04.
Indian rupee: The Reserve Bank of India will report the second-quarter current-account balance at 3 p.m. in Mumbai. The deficit widened to $11.45 billion, from $1.04 billion in the first quarter, according to a Bloomberg survey.
The rupee was at 46.985.
To contact the reporter on this story: Bob Chen in Hong Kong at bchen45@bloomberg.net.
Read more...
Australia, N.Z. Dollars Drop as Bailout Stalls, Commodities Dip
By Tracy Withers and Candice Zachariahs
Sept. 30 (Bloomberg) -- The Australian and New Zealand dollars dropped to the lowest in more than a week after U.S. lawmakers rejected the $700 billion rescue for the financial sector, prompting investors to sell higher-yielding assets.
Australia's currency slid the most in three weeks versus the yen as the Dow Jones Industrial Average tumbled to its biggest point drop ever, curbing investor appetite for buying the nation's assets with funds from Japan. The Australian and New Zealand currencies also fell against the U.S. dollar as prices of commodities the two nations export dropped.
``Heavy losses in financial stocks sent global equities sharply lower and the rejection of the proposed banking bailout plan simply exacerbated the losses,'' said Danica Hampton, currency strategist at Bank of New Zealand Ltd. in Wellington. ``As investors bailed out of risky assets, growth-sensitive currencies were sold heavily.''
The Australian dollar fell 2.1 percent to 79.76 U.S. cents at 7:43 a.m. in Sydney, the lowest since Sept. 19, from 81.50 cents in late Asian trading yesterday. The currency tumbled 3.7 percent to 83.40 yen.
New Zealand's dollar slid 1.2 percent to 66.77 cents from 67.60 cents yesterday. It dropped 3 percent to 69.66 yen.
Rescue Plan Vote
The currencies tumbled as the U.S. House of Representatives voted 228 to 205 against authorizing the biggest government intervention in the markets since the Great Depression. The legislation would have given Treasury Secretary Henry Paulson broad powers to buy troubled assets from financial companies.
The Standard & Poor's 500 Index slid the most since the 1987 crash. The VIX volatility index, a Chicago Board Options Exchange gauge reflecting expectations for stock market price changes and a barometer of risk aversion, rose to 46.72 yesterday, its highest close since October 1998.
The Reserve Bank of Australia and the Federal Reserve agreed to expand swap lines to boost the availability of U.S. dollars amid the global credit crunch. The Fed will pump $20 billion through the RBA to ``address year-end funding issues,'' Australia's central bank said in a statement on its Web site today. The funding is in addition to $10 billion injected last week.
The Australian and New Zealand dollars also fell after prices weakened for commodities the nations export on concern that the U.S. financial crisis will stall global growth. The UBS Bloomberg Constant Maturity Commodity index of 26 raw materials dropped by a record. Crude oil, Australia's fourth most-valuable raw material export, fell the most in almost seven years in New York yesterday.
Raw materials account for 60 percent of Australia's exports, and sales of commodities such as lumber make up 70 percent of New Zealand's overseas shipments.
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
Read more...
Sept. 30 (Bloomberg) -- The Australian and New Zealand dollars dropped to the lowest in more than a week after U.S. lawmakers rejected the $700 billion rescue for the financial sector, prompting investors to sell higher-yielding assets.
Australia's currency slid the most in three weeks versus the yen as the Dow Jones Industrial Average tumbled to its biggest point drop ever, curbing investor appetite for buying the nation's assets with funds from Japan. The Australian and New Zealand currencies also fell against the U.S. dollar as prices of commodities the two nations export dropped.
``Heavy losses in financial stocks sent global equities sharply lower and the rejection of the proposed banking bailout plan simply exacerbated the losses,'' said Danica Hampton, currency strategist at Bank of New Zealand Ltd. in Wellington. ``As investors bailed out of risky assets, growth-sensitive currencies were sold heavily.''
The Australian dollar fell 2.1 percent to 79.76 U.S. cents at 7:43 a.m. in Sydney, the lowest since Sept. 19, from 81.50 cents in late Asian trading yesterday. The currency tumbled 3.7 percent to 83.40 yen.
New Zealand's dollar slid 1.2 percent to 66.77 cents from 67.60 cents yesterday. It dropped 3 percent to 69.66 yen.
Rescue Plan Vote
The currencies tumbled as the U.S. House of Representatives voted 228 to 205 against authorizing the biggest government intervention in the markets since the Great Depression. The legislation would have given Treasury Secretary Henry Paulson broad powers to buy troubled assets from financial companies.
The Standard & Poor's 500 Index slid the most since the 1987 crash. The VIX volatility index, a Chicago Board Options Exchange gauge reflecting expectations for stock market price changes and a barometer of risk aversion, rose to 46.72 yesterday, its highest close since October 1998.
The Reserve Bank of Australia and the Federal Reserve agreed to expand swap lines to boost the availability of U.S. dollars amid the global credit crunch. The Fed will pump $20 billion through the RBA to ``address year-end funding issues,'' Australia's central bank said in a statement on its Web site today. The funding is in addition to $10 billion injected last week.
The Australian and New Zealand dollars also fell after prices weakened for commodities the nations export on concern that the U.S. financial crisis will stall global growth. The UBS Bloomberg Constant Maturity Commodity index of 26 raw materials dropped by a record. Crude oil, Australia's fourth most-valuable raw material export, fell the most in almost seven years in New York yesterday.
Raw materials account for 60 percent of Australia's exports, and sales of commodities such as lumber make up 70 percent of New Zealand's overseas shipments.
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
Read more...
Less Demand for Foreign Assets Limits Yen Losses, JPMorgan Says
By Ye Xie
Sept. 30 (Bloomberg) -- Japanese individuals' demand for foreign assets is ``receding,' as the global economy slows, making the yen less likely to depreciate, according to JPMorgan Chase & Co.
Japanese investors sold a net 66 billion yen ($630 million) of overseas stocks and bonds in the week ended Sept. 19, according to JPMorgan's data tracking 40 largest Japanese trust funds that exclusively invest in foreign assets. That was the second largest weekly net outflow since JPMorgan started to track the data in 2005. Net purchases of so-called Uridashi bonds, or debts denominated in foreign currency sold to Japanese investors, fell in August to lowest level this year.
``The appetite of Japanese retail investors for foreign assets appears to be receding across various asset classes,'' Junya Tanase, a currency strategist at JPMorgan Chase & Co. in Tokyo, wrote in a research note on Sept. 26. ``Continued softness in Japanese retail buying of foreign assets could start to limit'' downside risk of the yen, he wrote.
The yen rose 4.4 percent this month to 104.05 per dollar as growing U.S. mortgage losses prompted investors to reduce carry trades where they buy high-yielding assets funded by low- interest-rate loan made in Japan. The Japanese currency has gained 20 percent versus the Brazil real, 10 percent versus the Australian dollar and 8.1 percent versus the New Zealand dollar this month.
Mutual Funds
Japanese mutual funds boosted purchases of overseas assets to 36.89 trillion yen by the end of last year, from 3.06 trillion yen by the end of 2000, according to Japan's Investment Trust Association. The outflow helped push the yen 70 percent weaker versus the real since the end of 2002, 28 percent lower against the Aussie dollar and 22 percent versus the euro. Japan's 0.5 percent benchmark rate compares with 4.25 percent in European Central Bank, 13.75 percent in Brazil and 7 percent in Australia.
Japanese investors are turning ``cool'' on foreign assets also because wider price swings in foreign exchanges threaten the return on interest-rate spread, Tanase wrote. Implied volatility on one-month dollar-yen options rose to 18 percent yesterday. The gauge of price fluctuation averaged 12.60 percent this year.
``Risk-adjust return on yen carry trades has deteriorated sharply,'' Tanase wrote.
The yen will fall to 108 per dollar by year-end and decline to 111 by the end of next year, according to the median forecast of 41 analysts surveyed by Bloomberg News.
To contact the reporter on this story: Ye Xie in New York at yxie6@bloomberg.net;
Read more...
Sept. 30 (Bloomberg) -- Japanese individuals' demand for foreign assets is ``receding,' as the global economy slows, making the yen less likely to depreciate, according to JPMorgan Chase & Co.
Japanese investors sold a net 66 billion yen ($630 million) of overseas stocks and bonds in the week ended Sept. 19, according to JPMorgan's data tracking 40 largest Japanese trust funds that exclusively invest in foreign assets. That was the second largest weekly net outflow since JPMorgan started to track the data in 2005. Net purchases of so-called Uridashi bonds, or debts denominated in foreign currency sold to Japanese investors, fell in August to lowest level this year.
``The appetite of Japanese retail investors for foreign assets appears to be receding across various asset classes,'' Junya Tanase, a currency strategist at JPMorgan Chase & Co. in Tokyo, wrote in a research note on Sept. 26. ``Continued softness in Japanese retail buying of foreign assets could start to limit'' downside risk of the yen, he wrote.
The yen rose 4.4 percent this month to 104.05 per dollar as growing U.S. mortgage losses prompted investors to reduce carry trades where they buy high-yielding assets funded by low- interest-rate loan made in Japan. The Japanese currency has gained 20 percent versus the Brazil real, 10 percent versus the Australian dollar and 8.1 percent versus the New Zealand dollar this month.
Mutual Funds
Japanese mutual funds boosted purchases of overseas assets to 36.89 trillion yen by the end of last year, from 3.06 trillion yen by the end of 2000, according to Japan's Investment Trust Association. The outflow helped push the yen 70 percent weaker versus the real since the end of 2002, 28 percent lower against the Aussie dollar and 22 percent versus the euro. Japan's 0.5 percent benchmark rate compares with 4.25 percent in European Central Bank, 13.75 percent in Brazil and 7 percent in Australia.
Japanese investors are turning ``cool'' on foreign assets also because wider price swings in foreign exchanges threaten the return on interest-rate spread, Tanase wrote. Implied volatility on one-month dollar-yen options rose to 18 percent yesterday. The gauge of price fluctuation averaged 12.60 percent this year.
``Risk-adjust return on yen carry trades has deteriorated sharply,'' Tanase wrote.
The yen will fall to 108 per dollar by year-end and decline to 111 by the end of next year, according to the median forecast of 41 analysts surveyed by Bloomberg News.
To contact the reporter on this story: Ye Xie in New York at yxie6@bloomberg.net;
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Dollar May Fall Third Day Versus Yen as Rescue Plan Voted Down
By Daniel Kruger and Ye Xie
Sept. 30 (Bloomberg) -- The dollar may fall against the yen for a third consecutive day after a majority in the House of Representatives voted against the $700 billion rescue of the U.S. financial industry.
The yen and the Swiss franc gained yesterday against all the other major currencies as stocks plunged, encouraging investors to sell higher-yielding assets and pay back low-cost loans in Japan. The pound had its biggest intraday drop against the dollar in 16 years and the euro fell as European governments bailed out banks.
``It's unbelievable,'' said John Taylor, chairman of New York-based FX Concepts Inc., the world's biggest currency hedge fund company. ``Nobody wants to be stuck with the fact they're voting on something the average voter hates. It's going to be a catastrophe.''
The dollar traded at 104.05 yen at 6:09 a.m. in Tokyo, after falling 1.7 percent yesterday. The euro was at 150.08 yen, following a 2.9 percent decline. The U.S. currency traded at $1.4421 per euro, after paring yesterday's increase to 1.2 percent.
The House voted 228 to 205 against the measure to authorize the biggest government intervention in the markets since the Great Depression. The legislation would have given Treasury Secretary Henry Paulson broad authority to buy troubled assets from financial companies. Federal Reserve Chairman Ben S. Bernanke warned of ``grave threats'' to the financial system if Congress rejected the plan.
`More Uncertainty'
``This is the worst of all outcomes,'' said Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto. ``It sows the seeds of more uncertainty. We may hit new lows in the dollar-yen.''
The euro dropped against the dollar and the yen yesterday after Belgium, the Netherlands and Luxembourg extended an 11.2 billion euro ($16.2 billion) lifeline to Fortis, the largest Belgian financial-services firm. The pound dropped as much as 2.6 percent to $1.7959 and 3.8 percent to 188.11 yen as the U.K. Treasury seized Bradford & Bingley Plc, the nation's biggest lender to landlords. It was sterling's biggest intraday drop versus the dollar since September 1992.
``There's still a lot of lingering issues out there,'' said David Watt, a senior currency strategist in Toronto at RBC Capital Markets, Canada's biggest bank by assets. ``Do you really want to go into the euro right now? Do you really want to go into the British pound given the events that happened there over the weekend?''
Surging Yen
The yen rose 7.9 percent to 52.95 versus the Brazilian real while the franc increased 4 percent to 7.70 South African rand on speculation an 8.8 percent drop in the Standard & Poor's 500 Index yesterday will reduce trades in which investors get funds in countries with low borrowing costs and buy assets where returns are higher. Japan's target rate of 0.5 percent and Switzerland's 2.75 percent benchmark compare with 13.75 percent in Brazil and 12 percent in South Africa.
Futures on the Chicago Board of Trade indicated yesterday a 70 percent chance that the Fed would reduce the 2 percent target lending rate by a half-percentage point by its Oct. 29 meeting, compared with zero odds a week ago. There was a 30 percent chance policy makers would cut by a quarter-point.
The Fed increased its existing currency swaps with foreign central banks to $620 billion from $290 billion to make more dollars available worldwide. The European Central Bank, the Bank of England and the Bank of Japan are among the participating authorities.
Wachovia Deal
Citigroup Inc., the biggest U.S. bank by assets, agreed to acquire the banking operations of Wachovia Corp. for more than $2 billion in stock, rescuing the Charlotte, North Carolina- based lender beset by mortgage losses.
Traders raised bets the ECB would lower borrowing costs in the months ahead to revive the 15-nation economy. The implied yield on the Euribor futures contract expiring in March fell 34 basis points to 4.33 percent yesterday. Policy makers will keep the benchmark rate at 4.25 percent when they meet Oct. 2, according to all 58 economists surveyed by Bloomberg News.
An index of European executive and consumer sentiment dropped to 87.7 this month from 88.5 in August, the European Commission said yesterday in Brussels. That's the lowest since the index fell to 86.6 in November 2001. Economists had forecast the indicator would drop to 87.3 this month, according to the median estimate of 33 economists surveyed by Bloomberg News.
Implied volatility on one-month euro-dollar options rose yesterday to 15.88 percent, the highest in almost eight years. On Sept. 18, it reached 15.55 percent, the same level that triggered the Group of Seven nations to buy euros in 2000 to halt the 27 percent slide from its 1999 debut.
To contact the reporters on this story: Daniel Kruger in New York at dkruger1@bloomberg.net; Ye Xie in New York at yxie6@bloomberg.net
Read more...
Sept. 30 (Bloomberg) -- The dollar may fall against the yen for a third consecutive day after a majority in the House of Representatives voted against the $700 billion rescue of the U.S. financial industry.
The yen and the Swiss franc gained yesterday against all the other major currencies as stocks plunged, encouraging investors to sell higher-yielding assets and pay back low-cost loans in Japan. The pound had its biggest intraday drop against the dollar in 16 years and the euro fell as European governments bailed out banks.
``It's unbelievable,'' said John Taylor, chairman of New York-based FX Concepts Inc., the world's biggest currency hedge fund company. ``Nobody wants to be stuck with the fact they're voting on something the average voter hates. It's going to be a catastrophe.''
The dollar traded at 104.05 yen at 6:09 a.m. in Tokyo, after falling 1.7 percent yesterday. The euro was at 150.08 yen, following a 2.9 percent decline. The U.S. currency traded at $1.4421 per euro, after paring yesterday's increase to 1.2 percent.
The House voted 228 to 205 against the measure to authorize the biggest government intervention in the markets since the Great Depression. The legislation would have given Treasury Secretary Henry Paulson broad authority to buy troubled assets from financial companies. Federal Reserve Chairman Ben S. Bernanke warned of ``grave threats'' to the financial system if Congress rejected the plan.
`More Uncertainty'
``This is the worst of all outcomes,'' said Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto. ``It sows the seeds of more uncertainty. We may hit new lows in the dollar-yen.''
The euro dropped against the dollar and the yen yesterday after Belgium, the Netherlands and Luxembourg extended an 11.2 billion euro ($16.2 billion) lifeline to Fortis, the largest Belgian financial-services firm. The pound dropped as much as 2.6 percent to $1.7959 and 3.8 percent to 188.11 yen as the U.K. Treasury seized Bradford & Bingley Plc, the nation's biggest lender to landlords. It was sterling's biggest intraday drop versus the dollar since September 1992.
``There's still a lot of lingering issues out there,'' said David Watt, a senior currency strategist in Toronto at RBC Capital Markets, Canada's biggest bank by assets. ``Do you really want to go into the euro right now? Do you really want to go into the British pound given the events that happened there over the weekend?''
Surging Yen
The yen rose 7.9 percent to 52.95 versus the Brazilian real while the franc increased 4 percent to 7.70 South African rand on speculation an 8.8 percent drop in the Standard & Poor's 500 Index yesterday will reduce trades in which investors get funds in countries with low borrowing costs and buy assets where returns are higher. Japan's target rate of 0.5 percent and Switzerland's 2.75 percent benchmark compare with 13.75 percent in Brazil and 12 percent in South Africa.
Futures on the Chicago Board of Trade indicated yesterday a 70 percent chance that the Fed would reduce the 2 percent target lending rate by a half-percentage point by its Oct. 29 meeting, compared with zero odds a week ago. There was a 30 percent chance policy makers would cut by a quarter-point.
The Fed increased its existing currency swaps with foreign central banks to $620 billion from $290 billion to make more dollars available worldwide. The European Central Bank, the Bank of England and the Bank of Japan are among the participating authorities.
Wachovia Deal
Citigroup Inc., the biggest U.S. bank by assets, agreed to acquire the banking operations of Wachovia Corp. for more than $2 billion in stock, rescuing the Charlotte, North Carolina- based lender beset by mortgage losses.
Traders raised bets the ECB would lower borrowing costs in the months ahead to revive the 15-nation economy. The implied yield on the Euribor futures contract expiring in March fell 34 basis points to 4.33 percent yesterday. Policy makers will keep the benchmark rate at 4.25 percent when they meet Oct. 2, according to all 58 economists surveyed by Bloomberg News.
An index of European executive and consumer sentiment dropped to 87.7 this month from 88.5 in August, the European Commission said yesterday in Brussels. That's the lowest since the index fell to 86.6 in November 2001. Economists had forecast the indicator would drop to 87.3 this month, according to the median estimate of 33 economists surveyed by Bloomberg News.
Implied volatility on one-month euro-dollar options rose yesterday to 15.88 percent, the highest in almost eight years. On Sept. 18, it reached 15.55 percent, the same level that triggered the Group of Seven nations to buy euros in 2000 to halt the 27 percent slide from its 1999 debut.
To contact the reporters on this story: Daniel Kruger in New York at dkruger1@bloomberg.net; Ye Xie in New York at yxie6@bloomberg.net
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New York Session Recap
Daily Forex Fundamentals | Written by Forex.com | Sep 29 08 22:12 GMT |
US stocks were annihilated as the US House of Representatives failed to pass legislation on the mortgage bailout. The Dow Jones Industrials plunged -7% or -780 points while the S&P 500 was down a whopping -107 points or nearly -9% -- the sharpest one day decline since the 1987 crash. The flight to safe assets was palpable as US bonds rallied hard. The 2-year note saw its yield down -44 bps to 1.66%. Gold rallied $28 to $907/oz while oil plunged -$11 to $95/bbl on fears that an economic downturn will continue to hurt demand.
Given the flight away from risk, the price action was most prevalent in JPY crosses. USD/JPY fell about -200 pips in the span to a close near 106.10 while EUR/JPY plunged about -220 pips into the 150.10/15 zone. We would expect follow-through into Asian and European stock markets to see further pressure on JPY crosses overnight.
Broadly speaking, the USD was pretty resilient as the fallout from the failure to pass the bailout has negative consequences for Europe as well. EUR/USD pared earlier losses and jumped 130 pips in NY towards 1.4430, but was lower on the day nonetheless. It was the same story for GBP/USD which rose 40 pips into the 1.8070 zone in NY, but was still down nearly four big figures (-400 pips) from the Friday close.
Global stock markets will be the focus over the next few days as tomorrow brings quarter-end with the potential for more liquidation of equity holdings. Then on Thursday we have the short-sale ban on financial stocks expiring. These coupled with the failure to pass the TARP legislation today is a perfect storm for further losses in stocks and continued downside pressure on JPY crosses.
Upcoming Economic Data Releases (Asia Session) Prior Estimate
* 9/29/2008 21:45 GMT NZ Building Permits MoM AUG 4.70% - -
* 9/29/2008 23:01 GMT UK GfK Consumer Confidence Survey SEP -36 -40
* 9/29/2008 23:15 GMT JN Nomura/JMMA Manufacturing PMI SEP 46.9 - -
* 9/29/2008 23:30 GMT JN Jobless Rate AUG 4.00% 4.10%
* 9/29/2008 23:30 GMT JN Job-To-Applicant Ratio AUG 0.89 0.88
* 9/29/2008 23:30 GMT JN Household Spending (YoY) AUG -0.50% -1.30%
* 9/29/2008 23:50 GMT JN Industrial Production (MoM) AUG P 1.30% -2.40%
* 9/29/2008 23:50 GMT JN Industrial Production (YoY) AUG P 2.40% -6.30%
* 9/30/2008 0:45 GMT US Fed's Hoenig Speaks in Gering, Nebraska, on Economy, Policy 30-Sep
* 9/30/2008 1:30 GMT AU Private Sector Credit MoM% AUG 0.50% 0.50%
* 9/30/2008 1:30 GMT AU Private Sector Credit YoY% AUG 11.20% 10.30%
* 9/30/2008 1:30 GMT AU Building Approvals (MoM) AUG -2.30% -1.00%
* 9/30/2008 1:30 AU Retail Sales Trend (MoM) AUG 0.10% 0.10%
* 9/30/2008 1:30 AU Building Approvals (YoY) AUG -3.70% -4.50%
* 9/30/2008 3:00 NZ NBNZ Business Confidence SEP -20.5 - -
Forex.com
http://www.forex.com
DISCLAIMER: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase of sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
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US stocks were annihilated as the US House of Representatives failed to pass legislation on the mortgage bailout. The Dow Jones Industrials plunged -7% or -780 points while the S&P 500 was down a whopping -107 points or nearly -9% -- the sharpest one day decline since the 1987 crash. The flight to safe assets was palpable as US bonds rallied hard. The 2-year note saw its yield down -44 bps to 1.66%. Gold rallied $28 to $907/oz while oil plunged -$11 to $95/bbl on fears that an economic downturn will continue to hurt demand.
Given the flight away from risk, the price action was most prevalent in JPY crosses. USD/JPY fell about -200 pips in the span to a close near 106.10 while EUR/JPY plunged about -220 pips into the 150.10/15 zone. We would expect follow-through into Asian and European stock markets to see further pressure on JPY crosses overnight.
Broadly speaking, the USD was pretty resilient as the fallout from the failure to pass the bailout has negative consequences for Europe as well. EUR/USD pared earlier losses and jumped 130 pips in NY towards 1.4430, but was lower on the day nonetheless. It was the same story for GBP/USD which rose 40 pips into the 1.8070 zone in NY, but was still down nearly four big figures (-400 pips) from the Friday close.
Global stock markets will be the focus over the next few days as tomorrow brings quarter-end with the potential for more liquidation of equity holdings. Then on Thursday we have the short-sale ban on financial stocks expiring. These coupled with the failure to pass the TARP legislation today is a perfect storm for further losses in stocks and continued downside pressure on JPY crosses.
Upcoming Economic Data Releases (Asia Session) Prior Estimate
* 9/29/2008 21:45 GMT NZ Building Permits MoM AUG 4.70% - -
* 9/29/2008 23:01 GMT UK GfK Consumer Confidence Survey SEP -36 -40
* 9/29/2008 23:15 GMT JN Nomura/JMMA Manufacturing PMI SEP 46.9 - -
* 9/29/2008 23:30 GMT JN Jobless Rate AUG 4.00% 4.10%
* 9/29/2008 23:30 GMT JN Job-To-Applicant Ratio AUG 0.89 0.88
* 9/29/2008 23:30 GMT JN Household Spending (YoY) AUG -0.50% -1.30%
* 9/29/2008 23:50 GMT JN Industrial Production (MoM) AUG P 1.30% -2.40%
* 9/29/2008 23:50 GMT JN Industrial Production (YoY) AUG P 2.40% -6.30%
* 9/30/2008 0:45 GMT US Fed's Hoenig Speaks in Gering, Nebraska, on Economy, Policy 30-Sep
* 9/30/2008 1:30 GMT AU Private Sector Credit MoM% AUG 0.50% 0.50%
* 9/30/2008 1:30 GMT AU Private Sector Credit YoY% AUG 11.20% 10.30%
* 9/30/2008 1:30 GMT AU Building Approvals (MoM) AUG -2.30% -1.00%
* 9/30/2008 1:30 AU Retail Sales Trend (MoM) AUG 0.10% 0.10%
* 9/30/2008 1:30 AU Building Approvals (YoY) AUG -3.70% -4.50%
* 9/30/2008 3:00 NZ NBNZ Business Confidence SEP -20.5 - -
Forex.com
http://www.forex.com
DISCLAIMER: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase of sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
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Monday, September 29, 2008
Australia Stocks Update: S&P/ASX 200 Falls 130.60 to 4,676.80
By Darren Boey
Sep. 30 (Bloomberg) -- Australia's benchmark stock index, the S&P/ASX 200 Index, fell 2.72 percent at 10:05 a.m.
The index of 200 companies traded on the Australian Stock Exchange fell 130.60 to 4,676.80. Among the stocks in the index, 3 rose, 75 fell and 122 were unchanged.
Declines in the S&P/ASX 200 Index were led by Bhp Billiton Ltd, Commonwealth Bank Of Australia and Australia & New Zealand Banking Group Ltd. About 77.74 million shares changed hands on the Australian Stock Exchange.
Bhp Billiton Ltd, which fell A$2.94 to A$31.30, was the most active stock by value in Australia.
The next most-active issues were Bhp Billiton Plc, which fell A$1.71 to A$29.70, and Australia & New Zealand Banking Group Ltd, which fell A$1.18 to A$17.61.
Read more...
Sep. 30 (Bloomberg) -- Australia's benchmark stock index, the S&P/ASX 200 Index, fell 2.72 percent at 10:05 a.m.
The index of 200 companies traded on the Australian Stock Exchange fell 130.60 to 4,676.80. Among the stocks in the index, 3 rose, 75 fell and 122 were unchanged.
Declines in the S&P/ASX 200 Index were led by Bhp Billiton Ltd, Commonwealth Bank Of Australia and Australia & New Zealand Banking Group Ltd. About 77.74 million shares changed hands on the Australian Stock Exchange.
Bhp Billiton Ltd, which fell A$2.94 to A$31.30, was the most active stock by value in Australia.
The next most-active issues were Bhp Billiton Plc, which fell A$1.71 to A$29.70, and Australia & New Zealand Banking Group Ltd, which fell A$1.18 to A$17.61.
Read more...
BSkyB to learn ITV stake fate Monday
LONDON, Sept 29 (Reuters) - Pay-TV firm BSkyB will learn on Monday whether it has won the right to keep its 17.9 percent stake in free-to-air broadcaster ITV .
BSkyB has challenged a ruling by the Competition Commission that it had to reduce the stake to below 7.5 percent, and the Competition Appeal Tribunal said on its website it would hand down its judgment at 1545 GMT on Monday.
BSkyB, with its then Chief Executive James Murdoch in charge, bought the stake in 2006 at 135 pence a share or 940 million pounds in a deal which effectively blocked cable group NTL -- now named Virgin Media -- from buying ITV.
Analysts believe BSkyB will try to hold on to the stake for as long as possible in the hope its value will rise and it could appeal against the ruling if it loses.
Shares in ITV, Britain's biggest terrestrial broadcaster, were trading down 1.7 percent at 43-1/4 pence at 0900 GMT, dragged down by economic concerns and the impact this will have on the advertising market.
"We believe that should the CAT rule against BSkyB, as we expect, then BSkyB will continue to appeal," said Numis.
"It has the right of appeal to the Court of Appeal (on a point of law), House of Lords (with permission) and the European Court of Justice. Further appeals could give time for ITV shares to recover."
Shares in ITV had edged higher in recent weeks as the impending CAT ruling sparked speculation that a sale of the stake could prompt a bid for the whole company.
Analysts at UBS said BSkyB would likely be given between 6 to 12 months to sell the stake, and also suggested that the group could place the stake in some sort of warehousing structure to retain some economic exposure to the stake.
"We believe Sky will not be in a hurry to crystallise a loss and that it will look to hold on in the hope that regulatory and macro visibility improves for the better for ITV," they said in a note.
"ITV is very highly geared to the ad market (1 percent change in advertising = around 9 percent change to earnings per share). The outlook for the UK economy is difficult at best -- as such there can be limited visibility over ITV's cashflow." (Reporting by Kate Holton; Editing by Quentin Bryar)
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BSkyB has challenged a ruling by the Competition Commission that it had to reduce the stake to below 7.5 percent, and the Competition Appeal Tribunal said on its website it would hand down its judgment at 1545 GMT on Monday.
BSkyB, with its then Chief Executive James Murdoch in charge, bought the stake in 2006 at 135 pence a share or 940 million pounds in a deal which effectively blocked cable group NTL -- now named Virgin Media -- from buying ITV.
Analysts believe BSkyB will try to hold on to the stake for as long as possible in the hope its value will rise and it could appeal against the ruling if it loses.
Shares in ITV, Britain's biggest terrestrial broadcaster, were trading down 1.7 percent at 43-1/4 pence at 0900 GMT, dragged down by economic concerns and the impact this will have on the advertising market.
"We believe that should the CAT rule against BSkyB, as we expect, then BSkyB will continue to appeal," said Numis.
"It has the right of appeal to the Court of Appeal (on a point of law), House of Lords (with permission) and the European Court of Justice. Further appeals could give time for ITV shares to recover."
Shares in ITV had edged higher in recent weeks as the impending CAT ruling sparked speculation that a sale of the stake could prompt a bid for the whole company.
Analysts at UBS said BSkyB would likely be given between 6 to 12 months to sell the stake, and also suggested that the group could place the stake in some sort of warehousing structure to retain some economic exposure to the stake.
"We believe Sky will not be in a hurry to crystallise a loss and that it will look to hold on in the hope that regulatory and macro visibility improves for the better for ITV," they said in a note.
"ITV is very highly geared to the ad market (1 percent change in advertising = around 9 percent change to earnings per share). The outlook for the UK economy is difficult at best -- as such there can be limited visibility over ITV's cashflow." (Reporting by Kate Holton; Editing by Quentin Bryar)
Read more...
Shares hit as banking crisis bites in Europe
* MSCI world equity index down 1.9 pct at 305.48
* B&B, Fortis bailouts shove European shares, euro lower
* TARP overshadowed as investors fret on banking contagion
By Veronica Brown
LONDON, Sept 29 (Reuters) - European shares fell heavily on Monday as fallout from the credit crisis hit the region's banking sector, forcing partial nationalisation of two banks and leaving investors to ponder the impact of a U.S. bailout plan.
The euro and sterling fell in the wake of share prices sliding, while safe-haven government bond prices rose.
Money markets remained frozen with banks refusing to lend to one another for all but the shortest periods, prompting the European Central Bank to offer additional funds.
The hard-fought U.S. proposal to establish a $700 billion fund to buy illiquid securities will be sent for a Congressional vote later on Monday after days of tense negotiations and compromises.
But European worries threatened to overshadow the proposal after the Belgian, Dutch and Luxembourg governments were forced to rescue financial firm Fortis over the weekend to prevent a domino-like spread of failure.
In addition, the UK government said that lender Bradford & Bingley's branch network will be sold to Spanish bank Santander and the remainder of the group would be nationalised.
"The nationalisations have an incredibly negative read across for the sector," said Mark Sartori, head of European sales trading at Fox-Pitt, Kelton.
"The contagion is spreading to mainland Europe and everyone's asking: who's next?" he added.
By 0830 GMT, MSCI main world equity index fell 1.9 percent .MIWD00000PUS, a 1-1/2 week low. The FTSEurofirst 300 Index was down 2.7 percent at 1073.97 , while a measure of banking stocks tanked 5 percent to 267.76 .
European shares followed a lead set in Asia overnight with Japan's Nikkei share average .N225 posting a 1.3 percent decline, erasing earlier gains.
The December U.S. S&P 500 future was down 2 percent SPc1, reversing initial gains on news the plan was set for a vote in the House of Representatives.
EURO FEELS THE HEAT
Currency markets also felt the pinch of banking sector contagion, with the euro falling more 2 percent to a 10-day low of $1.4310. A fall of 2.1 percent or more would be the biggest 1-day fall since Jan 2001, while a fall of 2.3 percent or more would be the biggest since its launch in 1999.
In addition, sterling dropped almost 2 percent to $1.8085.
"The crisis has taken on a more international complexion with B&B and Fortis ... There is a worry whether there is the ability or the willingness within Europe for a U.S.-style response," Calyon senior currency strategist Daragh Maher said.
The dollar was well-bid elsewhere on hopes of smooth legislative passing of the $700 billion proposal, rising 1.3 percent versus the Swiss franc. The high-yielding Australian and New Zealand dollars fell 1.7 and 1.3 percent respectively.
December Bund futures FGBLZ8 were 88 ticks higher at 114.68. Two-year bond yields fell to their lowest since mid-April, while 10-year yields were just under 16 basis points lower at 4.155 percent.
Two-year swap spreads, indicating the strains in the market, rose as high as 120 basis points from 113 bps late on Friday.
In early London trade on Monday the interbank cost of borrowing dollars for three months was indicated as high as 5.27 percent, the highest this year, according to Reuters data.
The closely-watched TED spread, or the difference between these market-based dollar rates and three-month U.S. government borrowing rates, fluctuated in a wide range of around 280 to 440 basis points.
SAFETY VS RISK
Washington's bailout package, though unpopular with the public and viewed sceptically by some analysts, is the biggest effort yet by the U.S. government to ease the worst global financial crisis since the Great Depression.
Yet it alone has not been enough to reverse a powerful move by global investors to purge their portfolios of risk.
"The package will improve liquidity in the system. But I don't think lenders are going to go out carte blanche and provide new capital to the market in an aggressive way," said Leigh Gardner, head of equities distribution for ABN AMRO in Australia. (Additional reporting by Kevin Plumberg in Hong Kong, Jessica Mortimer and Joanne Frearson in London) (Editing by Stephen Nisbet)
Read more...
* B&B, Fortis bailouts shove European shares, euro lower
* TARP overshadowed as investors fret on banking contagion
By Veronica Brown
LONDON, Sept 29 (Reuters) - European shares fell heavily on Monday as fallout from the credit crisis hit the region's banking sector, forcing partial nationalisation of two banks and leaving investors to ponder the impact of a U.S. bailout plan.
The euro and sterling fell in the wake of share prices sliding, while safe-haven government bond prices rose.
Money markets remained frozen with banks refusing to lend to one another for all but the shortest periods, prompting the European Central Bank to offer additional funds.
The hard-fought U.S. proposal to establish a $700 billion fund to buy illiquid securities will be sent for a Congressional vote later on Monday after days of tense negotiations and compromises.
But European worries threatened to overshadow the proposal after the Belgian, Dutch and Luxembourg governments were forced to rescue financial firm Fortis over the weekend to prevent a domino-like spread of failure.
In addition, the UK government said that lender Bradford & Bingley's branch network will be sold to Spanish bank Santander and the remainder of the group would be nationalised.
"The nationalisations have an incredibly negative read across for the sector," said Mark Sartori, head of European sales trading at Fox-Pitt, Kelton.
"The contagion is spreading to mainland Europe and everyone's asking: who's next?" he added.
By 0830 GMT, MSCI main world equity index fell 1.9 percent .MIWD00000PUS, a 1-1/2 week low. The FTSEurofirst 300 Index was down 2.7 percent at 1073.97 , while a measure of banking stocks tanked 5 percent to 267.76 .
European shares followed a lead set in Asia overnight with Japan's Nikkei share average .N225 posting a 1.3 percent decline, erasing earlier gains.
The December U.S. S&P 500 future was down 2 percent SPc1, reversing initial gains on news the plan was set for a vote in the House of Representatives.
EURO FEELS THE HEAT
Currency markets also felt the pinch of banking sector contagion, with the euro falling more 2 percent to a 10-day low of $1.4310
In addition, sterling dropped almost 2 percent to $1.8085
"The crisis has taken on a more international complexion with B&B and Fortis ... There is a worry whether there is the ability or the willingness within Europe for a U.S.-style response," Calyon senior currency strategist Daragh Maher said.
The dollar was well-bid elsewhere on hopes of smooth legislative passing of the $700 billion proposal, rising 1.3 percent versus the Swiss franc
December Bund futures FGBLZ8 were 88 ticks higher at 114.68. Two-year bond yields
Two-year swap spreads, indicating the strains in the market, rose as high as 120 basis points from 113 bps late on Friday.
In early London trade on Monday the interbank cost of borrowing dollars for three months was indicated as high as 5.27 percent
The closely-watched TED spread, or the difference between these market-based dollar rates and three-month U.S. government borrowing rates, fluctuated in a wide range of around 280 to 440 basis points.
SAFETY VS RISK
Washington's bailout package, though unpopular with the public and viewed sceptically by some analysts, is the biggest effort yet by the U.S. government to ease the worst global financial crisis since the Great Depression.
Yet it alone has not been enough to reverse a powerful move by global investors to purge their portfolios of risk.
"The package will improve liquidity in the system. But I don't think lenders are going to go out carte blanche and provide new capital to the market in an aggressive way," said Leigh Gardner, head of equities distribution for ABN AMRO in Australia. (Additional reporting by Kevin Plumberg in Hong Kong, Jessica Mortimer and Joanne Frearson in London) (Editing by Stephen Nisbet)
Read more...
U.S. economy worsening, small business survey says
CHICAGO, Sept 29 (Reuters) - Three out of four owners of small businesses say the U.S. economy is getting worse, that it is harder to get loans and that the economic environment had reduced the amount of money they take home, according to a survey released on Monday.
The Discover Small Business Watch also found that the economy was the top issue on the minds of small business owners ahead of the upcoming U.S. presidential elections in November and the Discover Small Business Watch index of economic confidence fell 12.3 points to 74.6 in September, its second lowest level since the survey was launched in August 2006.
Throughout this year small business owners have increasingly expressed dissatisfaction over the performance of the world's largest economy.
"This is further evidence that we are in a prolonged period where small business owners feel the economy is not getting any better," said Ryan Scully, director of the Discover business credit card.
In the survey, 73 percent of respondents said economic conditions in the United States were getting worse compared with just 8 percent who said they were getting better.
Seventy-two percent of respondents said it had become harder to borrow money, compared with 8 percent who said it had become easier. Also 72 percent said they had been forced to take home less money compared with 21 percent who said they had not.
"American business owners are full of independent spirit and do whatever it takes to stay afloat," Scully said. "Right now they're having a hard time doing that."
Fifty-two percent of respondents said the economy was the most important issue for them ahead of the presidential elections, compared with 11 percent who said national security and 10 percent who cited the war in Iraq. (Reporting by Nick Carey, editing by Carol Bishopric)
Read more...
The Discover Small Business Watch also found that the economy was the top issue on the minds of small business owners ahead of the upcoming U.S. presidential elections in November and the Discover Small Business Watch index of economic confidence fell 12.3 points to 74.6 in September, its second lowest level since the survey was launched in August 2006.
Throughout this year small business owners have increasingly expressed dissatisfaction over the performance of the world's largest economy.
"This is further evidence that we are in a prolonged period where small business owners feel the economy is not getting any better," said Ryan Scully, director of the Discover business credit card.
In the survey, 73 percent of respondents said economic conditions in the United States were getting worse compared with just 8 percent who said they were getting better.
Seventy-two percent of respondents said it had become harder to borrow money, compared with 8 percent who said it had become easier. Also 72 percent said they had been forced to take home less money compared with 21 percent who said they had not.
"American business owners are full of independent spirit and do whatever it takes to stay afloat," Scully said. "Right now they're having a hard time doing that."
Fifty-two percent of respondents said the economy was the most important issue for them ahead of the presidential elections, compared with 11 percent who said national security and 10 percent who cited the war in Iraq. (Reporting by Nick Carey, editing by Carol Bishopric)
Read more...
U.K. August Lending to Individuals: Summary (Table)
By Mark Evans
Sept. 29 (Bloomberg) -- Following is a summary of lending to individuals for August from the Bank of England in London:
Note: All levels (except approvals 000's) are in millions of pounds.
To contact the reporter on this story: Mark Evans in London at mevans8@bloomberg.net
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Sept. 29 (Bloomberg) -- Following is a summary of lending to individuals for August from the Bank of England in London:
=============================================================================
Aug. July June May April
2008 2008 2008 2008 2008
=============================================================================
Total Net Lending to Individuals 1,379 4,049 3,732 4,943 6,622
Mortgage Lending 143 2,998 2,563 3,690 5,604
Total Value of Approvals 13,612 14,554 16,455 18,056 22,283
No. of Applications (000's) 32 33 35 40 55
Consumer Credit 1,236 1,051 1,169 1,253 1,018
------------- Growth rates -----------------
Total Net Lending to Individuals
1 month 0.1% 0.3% 0.3% 0.3% 0.5%
3 month annualized 2.6% 3.6% 4.3% 5.6% 6.8%
12 month 6.2% 6.9% 7.4% 8.0% 8.4%
=============================================================================
Aug. July June May April
2008 2008 2008 2008 2008
=============================================================================
Mortgage Lending
1 month 0.0% 0.2% 0.2% 0.3% 0.5%
3 month annualized 1.9% 3.1% 4.0% 5.3% 6.5%
12 month 6.0% 6.9% 7.5% 8.1% 8.7%
Consumer Credit
1 month 0.5% 0.5% 0.5% 0.5% 0.4%
3 month annualized 6.1% 6.2% 6.1% 6.9% 8.1%
12 month 6.8% 6.9% 6.9% 7.0% 6.8%
=============================================================================
Note: All levels (except approvals 000's) are in millions of pounds.
To contact the reporter on this story: Mark Evans in London at mevans8@bloomberg.net
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Canada's Harper Says Financial Crisis Caused by U.S. Policies
By Theophilos Argitis
Sept. 29 (Bloomberg) -- Canadian Prime Minister Stephen Harper, vying for re-election on Oct. 14, signaled his government can do little to help resolve the financial crisis that he and his Group of Seven colleagues say was caused by U.S. policies.
Poor oversight, cheap credit and a tax structure that may encourage housing bubbles are among the reasons for the turmoil roiling U.S. markets, Harper said in an interview. Canada has stronger regulation than the U.S. and its financial institutions are ``strongly capitalized,'' Harper said.
``A lot of things have gone wrong here and, by the way, there were a lot of warning signs. This should not be a huge surprise,'' Harper, 49, said aboard his campaign plane. ``I certainly had expressed my concerns about some of these things to my American counterparts in the time leading up to this.''
Harper joined a growing chorus of criticism within the Group of Seven industrialized nations over the way the financial system has been managed in the world's biggest economy, highlighting the U.S.'s isolation as it seeks to stop the rout. Canada is the biggest U.S. trading partner and one of its closest G-7 allies.
French President Nicolas Sarkozy, speaking at the United Nations on Sept. 23, urged a November summit of the world's major economies to deal with the ``mad system'' that he says produced the meltdown. German Finance Minister Peer Steinbrueck used a speech last week to say the ``Anglo-Saxon'' model of banking has ``an exaggerated fixation on returns.''
`New rules'
Sarkozy told reporters his proposed meeting should establish ``principles and new rules'' to regulate financial markets and punish those who ``jeopardize people's savings.'' Leaders should focus on excessive executive salaries that reward success without penalizing failure, he said.
U.S. allies have refused to back Treasury Secretary Henry Paulson's $700 billion rescue plan. Earlier, Paulson had said he was confident that several nations would take steps comparable to his measure, under which the government would buy up mortgage-related securities to stem the financial crisis.
Asked whether there was anything more that Canada might be able to do to help restore stability in global markets, Harper said: ``Not that comes to mind.''
Playing Catch-Up
While there may be ``legislative steps'' in the future to bolster regulation, Harper said Canada has better rules than the U.S. and its financial system is dominated by commercial banks with ``clear asset bases,'' not institutions involved in the ``merchant banking, money manager'' area that are more vulnerable.
``Far more preferable to properly regulate and manage the system than to have to step in later,'' Harper said. Stronger oversight in Canada means ``right now, we're avoiding having to go in and be the underwriter of private financial industries.''
Harper said one factor behind the U.S. crisis is ``over- deregulation'' and regulators that often are grasping to play ``catch-up'' with increasingly complex financial instruments. There is also an ``inherent bias'' in the U.S. tax code that gives homeowners incentives to take on too much debt, he said.
U.S. taxpayers are allowed to deduct the interest on their home mortgages, something not permitted in Canada.
``Some of it may be regulation, some of it may be, and this would be something not popular to say if I were an American politician, mortgage interest deductibility,'' Harper said. ``There is an inherent bias in the tax code for people over-leveraging.''
Mismanagement
He also cited ``mismanagement'' of housing lenders Freddie Mac and Fannie Mae, which were taken over earlier this month, and indications the Federal Reserve may have kept borrowing costs too low. ``Interest rates had gone down too far'' in the U.S., Harper said.
The Bank of Canada's reluctance to tame the country's currency by cutting interest rates may have helped Canada avoid being in a similar position, Harper said. The gap between Canadian and U.S. benchmark interest rates widened to the most since June 2004 earlier this year, keeping Canada's currency close to parity with the U.S. dollar which hurt exports.
``The Bank of Canada deserves to be complimented,'' Harper said. ``Some of us were skeptical at the time about, you know, that we were allowing the differential to widen and seeing the dollar going up.''
The U.S. now has few options but to bail out investors, Harper said, adding he's optimistic Paulson's plan will help.
``The first objective right now is stability of the financial system, Harper said.
Polls show Harper's Conservatives are poised for their first back-to-back victories in two decades, largely because of the party's perceived superiority on economic issues. An Ipsos Reid poll on Sept. 22 showed 26 percent of Canadians say the economy is their top campaign issue, compared with 11 percent for the environment.
Harper, Canada's first elected Conservative prime minister since Brian Mulroney served from 1984 to 1993, ended 13 years of Liberal rule when he won power in 2006. He had to govern with 27 seats short of a majority in the 308-member Parliament, meaning he needed rival parties' help to pass legislation.
To contact the reporter on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net.
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Sept. 29 (Bloomberg) -- Canadian Prime Minister Stephen Harper, vying for re-election on Oct. 14, signaled his government can do little to help resolve the financial crisis that he and his Group of Seven colleagues say was caused by U.S. policies.
Poor oversight, cheap credit and a tax structure that may encourage housing bubbles are among the reasons for the turmoil roiling U.S. markets, Harper said in an interview. Canada has stronger regulation than the U.S. and its financial institutions are ``strongly capitalized,'' Harper said.
``A lot of things have gone wrong here and, by the way, there were a lot of warning signs. This should not be a huge surprise,'' Harper, 49, said aboard his campaign plane. ``I certainly had expressed my concerns about some of these things to my American counterparts in the time leading up to this.''
Harper joined a growing chorus of criticism within the Group of Seven industrialized nations over the way the financial system has been managed in the world's biggest economy, highlighting the U.S.'s isolation as it seeks to stop the rout. Canada is the biggest U.S. trading partner and one of its closest G-7 allies.
French President Nicolas Sarkozy, speaking at the United Nations on Sept. 23, urged a November summit of the world's major economies to deal with the ``mad system'' that he says produced the meltdown. German Finance Minister Peer Steinbrueck used a speech last week to say the ``Anglo-Saxon'' model of banking has ``an exaggerated fixation on returns.''
`New rules'
Sarkozy told reporters his proposed meeting should establish ``principles and new rules'' to regulate financial markets and punish those who ``jeopardize people's savings.'' Leaders should focus on excessive executive salaries that reward success without penalizing failure, he said.
U.S. allies have refused to back Treasury Secretary Henry Paulson's $700 billion rescue plan. Earlier, Paulson had said he was confident that several nations would take steps comparable to his measure, under which the government would buy up mortgage-related securities to stem the financial crisis.
Asked whether there was anything more that Canada might be able to do to help restore stability in global markets, Harper said: ``Not that comes to mind.''
Playing Catch-Up
While there may be ``legislative steps'' in the future to bolster regulation, Harper said Canada has better rules than the U.S. and its financial system is dominated by commercial banks with ``clear asset bases,'' not institutions involved in the ``merchant banking, money manager'' area that are more vulnerable.
``Far more preferable to properly regulate and manage the system than to have to step in later,'' Harper said. Stronger oversight in Canada means ``right now, we're avoiding having to go in and be the underwriter of private financial industries.''
Harper said one factor behind the U.S. crisis is ``over- deregulation'' and regulators that often are grasping to play ``catch-up'' with increasingly complex financial instruments. There is also an ``inherent bias'' in the U.S. tax code that gives homeowners incentives to take on too much debt, he said.
U.S. taxpayers are allowed to deduct the interest on their home mortgages, something not permitted in Canada.
``Some of it may be regulation, some of it may be, and this would be something not popular to say if I were an American politician, mortgage interest deductibility,'' Harper said. ``There is an inherent bias in the tax code for people over-leveraging.''
Mismanagement
He also cited ``mismanagement'' of housing lenders Freddie Mac and Fannie Mae, which were taken over earlier this month, and indications the Federal Reserve may have kept borrowing costs too low. ``Interest rates had gone down too far'' in the U.S., Harper said.
The Bank of Canada's reluctance to tame the country's currency by cutting interest rates may have helped Canada avoid being in a similar position, Harper said. The gap between Canadian and U.S. benchmark interest rates widened to the most since June 2004 earlier this year, keeping Canada's currency close to parity with the U.S. dollar which hurt exports.
``The Bank of Canada deserves to be complimented,'' Harper said. ``Some of us were skeptical at the time about, you know, that we were allowing the differential to widen and seeing the dollar going up.''
The U.S. now has few options but to bail out investors, Harper said, adding he's optimistic Paulson's plan will help.
``The first objective right now is stability of the financial system, Harper said.
Polls show Harper's Conservatives are poised for their first back-to-back victories in two decades, largely because of the party's perceived superiority on economic issues. An Ipsos Reid poll on Sept. 22 showed 26 percent of Canadians say the economy is their top campaign issue, compared with 11 percent for the environment.
Harper, Canada's first elected Conservative prime minister since Brian Mulroney served from 1984 to 1993, ended 13 years of Liberal rule when he won power in 2006. He had to govern with 27 seats short of a majority in the 308-member Parliament, meaning he needed rival parties' help to pass legislation.
To contact the reporter on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net.
Read more...
Paulson Must Make $700 Billion Rescue for Banks Work
By Scott Lanman and Christopher Stern
Enlarge Image/Details
Sept. 29 (Bloomberg) -- Treasury Secretary Henry Paulson and congressional Democrats hammered out a consensus on spending up to $700 billion to rescue the financial industry. There isn't consensus on whether it would work.
Lawmakers reached agreement yesterday as House Republican leaders backed away from opposition to the proposal after it included plans to create insurance for mortgage-backed securities. The House and Senate are scheduled to vote on the bill early this week, although it wasn't clear last night that it has sufficient votes to pass the House.
Giving Treasury authority to buy so many distressed securities from lenders is without precedent, and it's unclear how the government will pay prices that strike a balance between protecting taxpayers and preventing more bank failures.
``This has a reasonable chance of pulling back from the brink and having some success, but it's far from certain that will be the case,'' said former Fed Governor Laurence Meyer, now vice chairman of consultant Macroeconomic Advisers LLC in Washington.
``The markets are going to love it because it's a massive subsidy of shareholders and unsecured creditors,'' said Nouriel Roubini, chairman of Roubini Global Economics and economics professor at New York University. ``But you're not resolving the two fundamental issues: You still have to recapitalize the banking system, and household debt is going to stay high.''
U.S. stock futures fell on concern that plan won't avert more failures, with the S&P 500 future for December delivery down 2.1 percent to 1189.30 at 10:35 a.m. in Paris. The dollar gained 1.9 percent against the euro to $1.4342 and treasuries also gained.
Immediate Cash
The bill gives Paulson $250 billion at the start to buy assets, increasing the amount to $350 billion upon ``written certification'' from the president that the secretary is ``exercising the authority'' to buy assets. The Treasury chief, or whoever succeeds him, may use the remaining $350 billion if Congress fails to reject a request for it within 15 days.
The proposed law lets Paulson buy assets ``at the lowest price that the Secretary determines to be consistent with the purposes of this Act.'' The bill doesn't require any specific method for the purchases beyond saying mechanisms such as auctions or reverse auctions should be used ``when appropriate.'' Treasury officials declined to discuss how the plan will be implemented.
Democratic and Republican leaders trust that Paulson can avert a collapse after Lehman Brothers Holdings Inc. filed for bankruptcy and the government was forced to take over American International Group Inc. Success hinges on whether he can help banks raise capital after $556 billion in writedowns and losses, and get credit flowing through the economy.
`Far Worse Pain'
``We have clearly seen a run of failures of financial institutions not like anything we've seen since the Great Depression,'' House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, told reporters yesterday. ``If we didn't do this, there would be far worse pain in the sense of the lending freezing up.''
``It's a fragile situation,'' Paulson said in an interview on CBS television's ``60 Minutes'' program broadcast yesterday. ``It's gotta do it, and we're going to make this work.''
The draft legislation was posted on the House Financial Services Committee's Web site yesterday. It includes a provision to give taxpayers equity stakes in the companies that benefit from the plan.
The bill has a section aimed at limiting the pay of executives at companies that take advantage of assistance by prohibiting tax deductions for officials that exceed $500,000, which is half the normal deductible limit. It also allows ``clawbacks'' of money already paid to executives at troubled companies and forbids so-called golden parachutes.
Community Banks
The legislation takes steps to let some 800 community banks that held preferred stock in Fannie Mae and Freddie Mac before the mortgage giants were taken over by the federal government on Sept. 7, make better use of losses for tax purposes than they would otherwise be allowed.
House Republicans offered early resistance to the Paulson plan. They complained that it put the country on the road to socialism and instead argued that elimination of the capital gains tax would spur a wave of investment that would render the bailout plan unnecessary.
House Minority Leader John Boehner of Ohio commissioned Virginia Representative Eric Cantor to draft a rival plan without telling Democrats or Paulson. The plan, which depended on self- funded insurance premiums, was abandoned after Democrats lashed out at Republicans at a White House meeting Sept. 25.
Limited Insurance
Ultimately, Republicans got none of the tax breaks they sought, though the bill includes a limited self-funded insurance program for companies that benefit from the bailout. Last night Boehner, the top House Republican, urged his colleagues to support the bailout plan.
Some House Republicans, such as Representative Mike Pence of Indiana, are still holding out. ``We now have a deal that promises to bring near-term stability to our financial turmoil, but at what price?'' Pence said in a letter to colleagues.
Pence called the plan ``the largest corporate bailout in American history'' and that it would ``nationalize almost every bad mortgage in America.''
Paulson, the 62-year-old former Goldman Sachs Group Inc. chairman, said such a strategy is necessary to stabilize financial markets. ``We will have turbulence and turmoil in our financial system for some time, but I believe that this is going to work,'' he said on ``60 Minutes.''
`Some Doubts'
Yet as members of Congress and their staffs worked late nights over the past week negotiating and writing compromise legislation, money markets failed to improve. ``It just raised some doubts in my mind whether this was going to be sufficient,'' said Meyer, who was on the Fed board when the Asian financial crisis struck in 1997.
Should the plan fail, ``there may have to be a more substantial participation by the federal government to buy mortgages,'' Frank said last night. Any alternative proposal would involve ``significant purchases directly of the foreclosed mortgages.''
Paulson and Federal Reserve Chairman Ben S. Bernanke, who will be on a five-member oversight board for the program, have signaled that their priority is shoring up the nation's banks even if it means they don't get taxpayers the cheapest prices for the devalued assets the government buys.
The proposal also sets the stage for an overhaul of financial regulation next year, something Frank is already planning. The draft bill requires the Treasury secretary to report to Congress and make recommendations by April 30 on whether to regulate additional participants in the financial markets.
``It'll give us some temporary respite from the earlier pressures,'' said Joseph Mason, a Louisiana State University finance professor who formerly worked in the bank-research division of the Office of the Comptroller of the Currency. ``If we don't use that respite to design more permanent policy, we will find ourselves back in the same place.''
To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net; Christopher Stern in Washington at cstern3@bloomberg.net.
Read more...
Enlarge Image/Details
Sept. 29 (Bloomberg) -- Treasury Secretary Henry Paulson and congressional Democrats hammered out a consensus on spending up to $700 billion to rescue the financial industry. There isn't consensus on whether it would work.
Lawmakers reached agreement yesterday as House Republican leaders backed away from opposition to the proposal after it included plans to create insurance for mortgage-backed securities. The House and Senate are scheduled to vote on the bill early this week, although it wasn't clear last night that it has sufficient votes to pass the House.
Giving Treasury authority to buy so many distressed securities from lenders is without precedent, and it's unclear how the government will pay prices that strike a balance between protecting taxpayers and preventing more bank failures.
``This has a reasonable chance of pulling back from the brink and having some success, but it's far from certain that will be the case,'' said former Fed Governor Laurence Meyer, now vice chairman of consultant Macroeconomic Advisers LLC in Washington.
``The markets are going to love it because it's a massive subsidy of shareholders and unsecured creditors,'' said Nouriel Roubini, chairman of Roubini Global Economics and economics professor at New York University. ``But you're not resolving the two fundamental issues: You still have to recapitalize the banking system, and household debt is going to stay high.''
U.S. stock futures fell on concern that plan won't avert more failures, with the S&P 500 future for December delivery down 2.1 percent to 1189.30 at 10:35 a.m. in Paris. The dollar gained 1.9 percent against the euro to $1.4342 and treasuries also gained.
Immediate Cash
The bill gives Paulson $250 billion at the start to buy assets, increasing the amount to $350 billion upon ``written certification'' from the president that the secretary is ``exercising the authority'' to buy assets. The Treasury chief, or whoever succeeds him, may use the remaining $350 billion if Congress fails to reject a request for it within 15 days.
The proposed law lets Paulson buy assets ``at the lowest price that the Secretary determines to be consistent with the purposes of this Act.'' The bill doesn't require any specific method for the purchases beyond saying mechanisms such as auctions or reverse auctions should be used ``when appropriate.'' Treasury officials declined to discuss how the plan will be implemented.
Democratic and Republican leaders trust that Paulson can avert a collapse after Lehman Brothers Holdings Inc. filed for bankruptcy and the government was forced to take over American International Group Inc. Success hinges on whether he can help banks raise capital after $556 billion in writedowns and losses, and get credit flowing through the economy.
`Far Worse Pain'
``We have clearly seen a run of failures of financial institutions not like anything we've seen since the Great Depression,'' House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, told reporters yesterday. ``If we didn't do this, there would be far worse pain in the sense of the lending freezing up.''
``It's a fragile situation,'' Paulson said in an interview on CBS television's ``60 Minutes'' program broadcast yesterday. ``It's gotta do it, and we're going to make this work.''
The draft legislation was posted on the House Financial Services Committee's Web site yesterday. It includes a provision to give taxpayers equity stakes in the companies that benefit from the plan.
The bill has a section aimed at limiting the pay of executives at companies that take advantage of assistance by prohibiting tax deductions for officials that exceed $500,000, which is half the normal deductible limit. It also allows ``clawbacks'' of money already paid to executives at troubled companies and forbids so-called golden parachutes.
Community Banks
The legislation takes steps to let some 800 community banks that held preferred stock in Fannie Mae and Freddie Mac before the mortgage giants were taken over by the federal government on Sept. 7, make better use of losses for tax purposes than they would otherwise be allowed.
House Republicans offered early resistance to the Paulson plan. They complained that it put the country on the road to socialism and instead argued that elimination of the capital gains tax would spur a wave of investment that would render the bailout plan unnecessary.
House Minority Leader John Boehner of Ohio commissioned Virginia Representative Eric Cantor to draft a rival plan without telling Democrats or Paulson. The plan, which depended on self- funded insurance premiums, was abandoned after Democrats lashed out at Republicans at a White House meeting Sept. 25.
Limited Insurance
Ultimately, Republicans got none of the tax breaks they sought, though the bill includes a limited self-funded insurance program for companies that benefit from the bailout. Last night Boehner, the top House Republican, urged his colleagues to support the bailout plan.
Some House Republicans, such as Representative Mike Pence of Indiana, are still holding out. ``We now have a deal that promises to bring near-term stability to our financial turmoil, but at what price?'' Pence said in a letter to colleagues.
Pence called the plan ``the largest corporate bailout in American history'' and that it would ``nationalize almost every bad mortgage in America.''
Paulson, the 62-year-old former Goldman Sachs Group Inc. chairman, said such a strategy is necessary to stabilize financial markets. ``We will have turbulence and turmoil in our financial system for some time, but I believe that this is going to work,'' he said on ``60 Minutes.''
`Some Doubts'
Yet as members of Congress and their staffs worked late nights over the past week negotiating and writing compromise legislation, money markets failed to improve. ``It just raised some doubts in my mind whether this was going to be sufficient,'' said Meyer, who was on the Fed board when the Asian financial crisis struck in 1997.
Should the plan fail, ``there may have to be a more substantial participation by the federal government to buy mortgages,'' Frank said last night. Any alternative proposal would involve ``significant purchases directly of the foreclosed mortgages.''
Paulson and Federal Reserve Chairman Ben S. Bernanke, who will be on a five-member oversight board for the program, have signaled that their priority is shoring up the nation's banks even if it means they don't get taxpayers the cheapest prices for the devalued assets the government buys.
The proposal also sets the stage for an overhaul of financial regulation next year, something Frank is already planning. The draft bill requires the Treasury secretary to report to Congress and make recommendations by April 30 on whether to regulate additional participants in the financial markets.
``It'll give us some temporary respite from the earlier pressures,'' said Joseph Mason, a Louisiana State University finance professor who formerly worked in the bank-research division of the Office of the Comptroller of the Currency. ``If we don't use that respite to design more permanent policy, we will find ourselves back in the same place.''
To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net; Christopher Stern in Washington at cstern3@bloomberg.net.
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