By Steven Bodzin and Dan Lonkevich
Oct. 10 (Bloomberg) -- Chesapeake Energy Corp. said its chief executive officer, Aubrey McClendon, involuntarily sold ``substantially all'' of his common shares of the company's stock over the past three days to meet margin loan calls.
``These involuntary and unexpected sales were precipitated by the extraordinary circumstances of the worldwide financial crisis,'' McClendon said in today's statement. ``In no way do these sales reflect my view of the company's financial position or my view of Chesapeake's future performance potential.''
McClendon, 49, owned 33.5 million shares, or 5.8 percent of the company's common stock, according to a Sept. 30 filing with the U.S. Securities and Exchange Commission. He was the company's third-largest shareholder.
Chesapeake, this year's worst-performing petroleum producer in the Standard & Poor's 500, fell 6.7 percent in New York trading today amid concern hedging contracts won't protect the company against a plunge in natural-gas prices. McClendon's divestiture was announced after the close of regular trading on U.S. stock markets.
``You have to imagine Aubrey's lost a large portion of his fortune,'' Benjamin Dell, an analyst at Sanford C. Bernstein & Co., said today in a telephone interview. He rates the stock at ``market perform'' and owns none.
More than three-quarters of McClendon's $18.7 million in compensation last year was stock awards. The annual compensation helped boost McClendon to 134th place on the Forbes 400 list of wealthiest Americans this year from 220th place last year.
Price Revealed
Company spokesman Jeff Mobley declined to comment beyond the content of the statement. He said in an interview the company will soon file forms that will show what price McClendon received for his shares.
Investors are concerned that Chesapeake and other U.S. oil and gas producers have hedging contracts with financial firms and other counterparties that won't be able to pay for their output at the agreed-upon prices because of the global credit crisis, said Robert Goodof, who helps manage $25 billion at Loomis Sayles & Co. in Boston.
Oil and gas producers use hedging contracts to lock in prices and ensure adequate returns from their wells and sufficient cash flow to pay off their debt.
McClendon is the second oil chief executive officer in as many days to reveal company stock sales. XTO Energy Inc. Chief Executive Officer Bob Simpson sold more than $101 million of stock, according to an Oct. 8 filing with the Securities and Exchange Commission.
XTO Stock Sale
Simpson, 60, sold shares of the Ft. Worth, Texas-based company at prices ranging from $34.64 a share to more than $39.50 a share, the filing said.
The sales represent about a third of Simpson's stake in XTO. He was the company's tenth-largest shareholder.
Chesapeake also has so-called knockout swap contracts on more than one-third of its 2009 production, and those deals don't obligate the buyers to take gas when prices drop to $6.28 per thousand cubic feet of the heating and power-plant fuel, according to analyst Joseph Allman of JPMorgan Chase & Co. in New York.
Gas futures traded in New York dropped to $6.65 today and have plunged 50 percent since the end of June.
``With natural gas close to $6.60, we think the concern about Chesapeake's knockout swaps is legitimate,'' Allman said in a note to clients. He rates Chesapeake shares ``neutral.''
A portion of the company's hedging positions contain such provisions, Chesapeake said in a separate statement.
Kick out Swaps
``The company has consistently utilized kick out swaps for a portion of its production, and over the past 57 months, only four months have resulted in any portion of the company's hedges being kicked out.''
In response to the lower gas prices, Chesapeake plans to further cut its capital expenditures by about $1.5 billion in 2009 and 2010 through reduced drilling and lower leasehold expenditures.
The company on Sept. 22 lowered its capital expenditure budget by $3 billion through 2010.
To ensure its revolving credit can be fully used during these ``turbulent economic times,'' the company said it borrowed the remaining capacity of its facility at the end of the third quarter. It has invested the cash proceeds in short-term U.S. Treasury and other highly liquid securities.
Lehman Brothers
Chesapeake said it has cash and cash equivalents of about $1.5 billion as of Sept. 30. All 36 lenders that participate in Chesapeake's revolving credit facility fully funded their commitment, except for Lehman Brothers Holdings Inc., which didn't fund its $11 million share of the advance, the company said.
Chesapeake's financial exposure to Lehman Brothers included unpaid gas sales and derivates contracts. Chesapeake said it received cash payment for all natural-gas marketed through a former affiliate of Lehman Brothers. The company estimates a loss on terminated derivate contracts and the net value of hedges with Lehman won't be more than $50 million.
The company said it has hedging arrangements with 19 different counterparties.
To contact the reporter responsible for this story: Dan Lonkevich in New York at dlonkevich@bloomberg.net; Steven Bodzin in New York at sbodzin@bloomberg.net.
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Saturday, October 11, 2008
Brazil's Real Falls as Risk Aversion Outweighs Dollar Sales
By Adriana Brasileiro
Oct. 10 (Bloomberg) -- Brazil's real fell after the central bank sold dollars in the local spot market for a third consecutive day in an effort to reduce losses in the real that amount to 17.7 percent this month.
The real declined 1.3 percent to 2.3130 per dollar at 4:51 p.m. New York time. The central bank sold dollars three times today.
``The central bank moves have eased some of the tension, but people are still scared to step back into our markets,'' said Andre Delben Silva, who helps manage about 620 million reais ($268 million) at Advisor Asset Management in Sao Paulo.
The central bank on Oct. 8 stepped up measures to stem the real's decline by drawing on its record $208 billion of international reserves to sell dollars in the spot market. The auction, the first in five years, came after sales of currency swap contracts since Sept. 19 failed to prop up the real.
Brazilian policy makers said today there are no ``fixed limits'' to the size of the bank's operations in the foreign- exchange market or in money markets for authorities to buy loans.
``The central bank is committed to the good functioning of markets,'' according to an e-mailed statement.
In Mexico, the central bank sold a record $6.4 billion in the foreign exchange market today. Dollar sales by Mexican authorities totaled $8.9 billion in the past three days.
`Some Overshooting'
The unwinding of so-called carry trade positions has exacerbated losses in the real, Marcos Mollica, a currency strategist for Latin America at UBS Pactual in Sao Paulo, said in a conference call yesterday. In carry trades, investors borrow in the currency of a nation where interest rates are low, such as Japan, and use the proceeds to buy assets where interest rates and returns are higher. Brazil's benchmark overnight rate is 13.75 percent.
``There's been some overshooting in the real, and one of the factors is the unwinding of investments in emerging markets,'' Mollica said in the call with investors.
The yen rose against the euro and headed for its biggest weekly gain in a decade against the dollar as a global stock rout prompted investors to sell higher-yielding assets and pay back low-cost loans in Japan.
The real's weakness has started to hurt retailers in Brazil. Supermarkets and food stores have temporarily suspended purchases of imported goods because of the country's falling real, Folha de S. Paulo reported today.
Supermarket chains are negotiating new prices with distributors, Folha said, citing Sussumu Honda, president of the Brazilian Association of Supermarkets.
Additional Powers
The yield on Brazil's overnight futures contract for January 2010 delivery rose 23 basis points, or 0.23 percentage point, to 14.99 percent. The yield on Brazil's zero-coupon bond due in January 2010 gained 15 basis points to 15.05 percent, according to Banco Votorantim.
In another measure, Brazil's monetary council yesterday gave the central bank additional power to participate in the management of banks that may be in trouble.
The central bank will be able to demand that controlling shareholders inject cash into an institution and that they sell assets, according to a statement. Authorities may also block executive salary increases and limit the operations of a bank.
When central bank President Henrique Meirelles announced the measure, he said it was preventive because no banks were in trouble in Brazil.
To contact the reporter on this story: Adriana Brasileiro in Rio de Janeiro at abrasileiro@bloomberg.net
Read more...
Oct. 10 (Bloomberg) -- Brazil's real fell after the central bank sold dollars in the local spot market for a third consecutive day in an effort to reduce losses in the real that amount to 17.7 percent this month.
The real declined 1.3 percent to 2.3130 per dollar at 4:51 p.m. New York time. The central bank sold dollars three times today.
``The central bank moves have eased some of the tension, but people are still scared to step back into our markets,'' said Andre Delben Silva, who helps manage about 620 million reais ($268 million) at Advisor Asset Management in Sao Paulo.
The central bank on Oct. 8 stepped up measures to stem the real's decline by drawing on its record $208 billion of international reserves to sell dollars in the spot market. The auction, the first in five years, came after sales of currency swap contracts since Sept. 19 failed to prop up the real.
Brazilian policy makers said today there are no ``fixed limits'' to the size of the bank's operations in the foreign- exchange market or in money markets for authorities to buy loans.
``The central bank is committed to the good functioning of markets,'' according to an e-mailed statement.
In Mexico, the central bank sold a record $6.4 billion in the foreign exchange market today. Dollar sales by Mexican authorities totaled $8.9 billion in the past three days.
`Some Overshooting'
The unwinding of so-called carry trade positions has exacerbated losses in the real, Marcos Mollica, a currency strategist for Latin America at UBS Pactual in Sao Paulo, said in a conference call yesterday. In carry trades, investors borrow in the currency of a nation where interest rates are low, such as Japan, and use the proceeds to buy assets where interest rates and returns are higher. Brazil's benchmark overnight rate is 13.75 percent.
``There's been some overshooting in the real, and one of the factors is the unwinding of investments in emerging markets,'' Mollica said in the call with investors.
The yen rose against the euro and headed for its biggest weekly gain in a decade against the dollar as a global stock rout prompted investors to sell higher-yielding assets and pay back low-cost loans in Japan.
The real's weakness has started to hurt retailers in Brazil. Supermarkets and food stores have temporarily suspended purchases of imported goods because of the country's falling real, Folha de S. Paulo reported today.
Supermarket chains are negotiating new prices with distributors, Folha said, citing Sussumu Honda, president of the Brazilian Association of Supermarkets.
Additional Powers
The yield on Brazil's overnight futures contract for January 2010 delivery rose 23 basis points, or 0.23 percentage point, to 14.99 percent. The yield on Brazil's zero-coupon bond due in January 2010 gained 15 basis points to 15.05 percent, according to Banco Votorantim.
In another measure, Brazil's monetary council yesterday gave the central bank additional power to participate in the management of banks that may be in trouble.
The central bank will be able to demand that controlling shareholders inject cash into an institution and that they sell assets, according to a statement. Authorities may also block executive salary increases and limit the operations of a bank.
When central bank President Henrique Meirelles announced the measure, he said it was preventive because no banks were in trouble in Brazil.
To contact the reporter on this story: Adriana Brasileiro in Rio de Janeiro at abrasileiro@bloomberg.net
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Mexico Sells Record $6.4 Billion in Bid to Stem Peso's Rout
By Michael J. Moore and Jens Erik Gould
Oct. 10 (Bloomberg) -- Mexico's central bank sold a record $6.4 billion in the currency market today, stepping up its bid to quell a rout in the peso that threatens to bankrupt companies and ignite inflation in Latin America's second-biggest economy.
Banco de Mexico has now sold $8.9 billion in three days, tapping into a near-record $84 billion of foreign reserves, after the peso plummeted to a record low. The peso gained as much as 4.6 percent after today's intervention, reversing an earlier tumble of as much as 6.1 percent. It has plunged 16.4 percent this month as investors sought the safety of dollars amid the worst financial crisis since the Great Depression.
``These are very extreme conditions,'' said Neil Dougall, head of emerging-market research for Dresdner Kleinwort Group in London. Policy makers ``needed to demonstrate very quickly that foreign exchange was available.''
Central bank Governor Guillermo Ortiz and Finance Minister Agustin Carstens are pumping dollars into the market as part of an effort to prevent the global crisis from eroding the finances of local companies. Controladora Comercial Mexicana SAB, the owner of supermarkets and Costco stores in Mexico, filed for bankruptcy reorganization yesterday after taking losses on currency derivatives.
Mexico's Bolsa stock index has lost 21 percent over the past seven days, mirroring the decline in the S&P 500 Index over that time, in part on concern the peso's tumble has saddled other companies with losses. The yield on Mexico's benchmark 10 percent peso bonds due in 2024 jumped 71 basis points, or 0.71 percentage point, this week to 9.11 percent.
1994 Devaluation
The $6.4 billion that Banco de Mexico sold today is the most in a single day, according to estimates by Gabriel Casillas, an economist with Banco UBS Pactual in Mexico City.
Central bankers sold $3 billion in a first auction, $400 million in a second sale and $3 billion in a third auction. They began selling dollars on Oct. 8 after the peso sank as much as 13.8 percent, its biggest intraday decline since the government abandoned a currency peg in 1994. The bank said in a statement late in the day that it ``will take any necessary additional measures to reestablish the normal operation'' of the market.
The peso was up 1 percent to 13.0930 per dollar at 6:15 p.m. New York time today, halting seven straight days of losses. It is down 25 percent from a six-year high reached on Aug. 4.
The global crisis has caused ``panicking in Mexico,'' said Bertrand Delgado, a Latin America economist with New York-based IDEAglobal Inc. ``The peso is just falling too fast.''
`Tequila Crisis'
Mexico was forced to abandon its peg in December 1994 after running low on foreign reserves, leading to a six-week, 45 percent plunge in the peso that became know as the ``Tequila Crisis.''
Reserves have since rebounded, almost tripling this decade amid a six-year rally in oil, the country's biggest export. They still ``aren't high enough to sustain'' the amount of dollars the central bank is selling, said Win Thin, a senior currency analyst with Brown Brothers Harriman & Co. in New York.
``Even during the Tequila Crisis, they weren't under this much pressure,'' Thin said. He said he doesn't expect Ortiz to raise interest rates to try to keep money in the country. ``They're running out of options.''
Brazil stands a better chance to stem its currency's plunge because it has more reserves, a record $208 billion, to draw on, Thin said. Brazilian central bankers have also sold dollars for three straight days. The real fell 1.3 percent today to 2.3130 per dollar. It's down 33 percent from a nine-year high reached on Aug. 1.
`Massive Unwinding'
Higher-yielding currencies throughout emerging markets have been ravaged over the past month as the global credit crisis has led investors to pull out of carry trades. In the carry trade, investors fund themselves with low-cost loans in countries such as Japan and invest in countries with higher interest rates such as Mexico and Brazil. Mexico's benchmark rate is 8.25 percent while Brazil's is 13.75 percent.
The carry trade, along with the rally in commodity prices, had fueled advances in the peso, real and other emerging-market currencies over the past five years.
``There is massive unwinding in the markets and that's putting severe pressure on currencies,'' Dresdner's Dougall said. ``Emerging markets have all been feeling this squeeze.''
Mexico is bracing for an economic slowdown as the financial crisis crimps growth in the U.S., the buyer of 80 percent of its exports. President Felipe Calderon sent this week a revised 2009 budget proposal to congress that lowered the growth forecast to 1.8 percent from 3 percent and cut the oil price estimate to $75 a barrel from $80.30. Oil has sunk 47 percent to $77.99 a barrel in New York from a record high of $147.27 reached on July 11.
`Credit Crunch'
Calderon also proposed a stimulus package worth 1 percent of gross domestic product that includes spending on energy and infrastructure to help offset the impact of the crisis.
Mexico's credit markets may tighten, adding to the economic slump, as companies that can't borrow in the U.S. seek funding in the local market, Deputy Central Bank Governor Guillermo Guemez Garcia said yesterday.
``They will have to go to the Mexican market, and that will cause some sort of credit crunch,'' Guemez said in an interview with Bloomberg Television in New York.
Mexican officials were surprised by the speed of the peso's plunge this week, said Delgado at IDEAglobal.
Calderon, 46, told bankers in New York in late September that he was confident Mexico would be able to ``mitigate'' the effects of the crisis that began in the U.S. mortgage market.
``People say that when the U.S. catches a cold, Mexico gets pneumonia,'' Calderon said at a lunch at the Waldorf-Astoria Hotel on Sept. 25. ``This is not the case today.''
To contact the reporter on this story: Michael J. Moore in New York at mmoore55@bloomberg.net Jens Erik Gould in Mexico City at jgould9@bloomberg.net
Read more...
Oct. 10 (Bloomberg) -- Mexico's central bank sold a record $6.4 billion in the currency market today, stepping up its bid to quell a rout in the peso that threatens to bankrupt companies and ignite inflation in Latin America's second-biggest economy.
Banco de Mexico has now sold $8.9 billion in three days, tapping into a near-record $84 billion of foreign reserves, after the peso plummeted to a record low. The peso gained as much as 4.6 percent after today's intervention, reversing an earlier tumble of as much as 6.1 percent. It has plunged 16.4 percent this month as investors sought the safety of dollars amid the worst financial crisis since the Great Depression.
``These are very extreme conditions,'' said Neil Dougall, head of emerging-market research for Dresdner Kleinwort Group in London. Policy makers ``needed to demonstrate very quickly that foreign exchange was available.''
Central bank Governor Guillermo Ortiz and Finance Minister Agustin Carstens are pumping dollars into the market as part of an effort to prevent the global crisis from eroding the finances of local companies. Controladora Comercial Mexicana SAB, the owner of supermarkets and Costco stores in Mexico, filed for bankruptcy reorganization yesterday after taking losses on currency derivatives.
Mexico's Bolsa stock index has lost 21 percent over the past seven days, mirroring the decline in the S&P 500 Index over that time, in part on concern the peso's tumble has saddled other companies with losses. The yield on Mexico's benchmark 10 percent peso bonds due in 2024 jumped 71 basis points, or 0.71 percentage point, this week to 9.11 percent.
1994 Devaluation
The $6.4 billion that Banco de Mexico sold today is the most in a single day, according to estimates by Gabriel Casillas, an economist with Banco UBS Pactual in Mexico City.
Central bankers sold $3 billion in a first auction, $400 million in a second sale and $3 billion in a third auction. They began selling dollars on Oct. 8 after the peso sank as much as 13.8 percent, its biggest intraday decline since the government abandoned a currency peg in 1994. The bank said in a statement late in the day that it ``will take any necessary additional measures to reestablish the normal operation'' of the market.
The peso was up 1 percent to 13.0930 per dollar at 6:15 p.m. New York time today, halting seven straight days of losses. It is down 25 percent from a six-year high reached on Aug. 4.
The global crisis has caused ``panicking in Mexico,'' said Bertrand Delgado, a Latin America economist with New York-based IDEAglobal Inc. ``The peso is just falling too fast.''
`Tequila Crisis'
Mexico was forced to abandon its peg in December 1994 after running low on foreign reserves, leading to a six-week, 45 percent plunge in the peso that became know as the ``Tequila Crisis.''
Reserves have since rebounded, almost tripling this decade amid a six-year rally in oil, the country's biggest export. They still ``aren't high enough to sustain'' the amount of dollars the central bank is selling, said Win Thin, a senior currency analyst with Brown Brothers Harriman & Co. in New York.
``Even during the Tequila Crisis, they weren't under this much pressure,'' Thin said. He said he doesn't expect Ortiz to raise interest rates to try to keep money in the country. ``They're running out of options.''
Brazil stands a better chance to stem its currency's plunge because it has more reserves, a record $208 billion, to draw on, Thin said. Brazilian central bankers have also sold dollars for three straight days. The real fell 1.3 percent today to 2.3130 per dollar. It's down 33 percent from a nine-year high reached on Aug. 1.
`Massive Unwinding'
Higher-yielding currencies throughout emerging markets have been ravaged over the past month as the global credit crisis has led investors to pull out of carry trades. In the carry trade, investors fund themselves with low-cost loans in countries such as Japan and invest in countries with higher interest rates such as Mexico and Brazil. Mexico's benchmark rate is 8.25 percent while Brazil's is 13.75 percent.
The carry trade, along with the rally in commodity prices, had fueled advances in the peso, real and other emerging-market currencies over the past five years.
``There is massive unwinding in the markets and that's putting severe pressure on currencies,'' Dresdner's Dougall said. ``Emerging markets have all been feeling this squeeze.''
Mexico is bracing for an economic slowdown as the financial crisis crimps growth in the U.S., the buyer of 80 percent of its exports. President Felipe Calderon sent this week a revised 2009 budget proposal to congress that lowered the growth forecast to 1.8 percent from 3 percent and cut the oil price estimate to $75 a barrel from $80.30. Oil has sunk 47 percent to $77.99 a barrel in New York from a record high of $147.27 reached on July 11.
`Credit Crunch'
Calderon also proposed a stimulus package worth 1 percent of gross domestic product that includes spending on energy and infrastructure to help offset the impact of the crisis.
Mexico's credit markets may tighten, adding to the economic slump, as companies that can't borrow in the U.S. seek funding in the local market, Deputy Central Bank Governor Guillermo Guemez Garcia said yesterday.
``They will have to go to the Mexican market, and that will cause some sort of credit crunch,'' Guemez said in an interview with Bloomberg Television in New York.
Mexican officials were surprised by the speed of the peso's plunge this week, said Delgado at IDEAglobal.
Calderon, 46, told bankers in New York in late September that he was confident Mexico would be able to ``mitigate'' the effects of the crisis that began in the U.S. mortgage market.
``People say that when the U.S. catches a cold, Mexico gets pneumonia,'' Calderon said at a lunch at the Waldorf-Astoria Hotel on Sept. 25. ``This is not the case today.''
To contact the reporter on this story: Michael J. Moore in New York at mmoore55@bloomberg.net Jens Erik Gould in Mexico City at jgould9@bloomberg.net
Read more...
Latin American Currencies: Chile Peso Dives Most Since May 1992
By Drew Benson
Oct. 10 (Bloomberg) -- Chile's peso plunged the most since May 1992 as the global credit crisis deepened, fueling capital flight from Latin America's commodities-dependent countries.
The credit crunch is ``increasingly hitting home'' in the region as increased capital flight, tightening liquidity, ``plummeting commodities prices and collapsing global growth are all combining for a very unsupportive emerging markets landscape,'' RBC Capital Markets economists Nick Chamie, Paul Biszko, Eduardo Suarez and Nigel Rendell said in a research note.
Chile's peso dropped 4.2 percent to 638.25 per dollar. It touched 639.5, its weakest since Aug. 16, 2004, and has fallen 10.6 percent this week.
``Many people are pulling money out of Chile today, looking for safe havens,'' said Ricardo Gomez, head of fixed-income sales and trading at Larrain Vial SA in Santiago. He said speculation is mounting that the central bank will start selling dollars.
Central banks across Latin America have stepped into markets during the past two weeks in a bid to bolster currencies and add cash to local financial systems.
Chile's central bank halted its $50 million daily purchase program late last month, and last week conducted the first of four weekly auctions aimed at injecting a total of $2 billion into the local financial system. The bank yesterday left its benchmark interest rate at 8.25 percent.
Colombian Peso
The yield for a basket of Chile's five-year peso bonds in inflation-linked currency units, known as unidades de fomento, rose 2 basis points to 2.97 percent, according to Bloomberg composite prices.
Colombia's peso slumped 3.5 percent to 2,314 per dollar at 4:45 p.m. New York time, from 2,233.88 yesterday, according to the Colombian foreign-exchange electronic transactions system, known as SET-FX.
The Colombian currency peso tumbled even after the central bank lifted controls this week on foreign borrowing in a bid to shore up the currency. The bank's board said late yesterday it rescinded restrictions that forced 40 percent of some overseas borrowing, such as the financing of imports, to remain in the central bank for six months. A day earlier, the bank lifted similar controls on foreign investment in fixed-income securities.
The yield on Colombia's benchmark 11 percent bonds due in July 2020 climbed 53 basis points, or 0.53 percentage point, to 12.8 percent, according to Colombia's stock exchange.
Argentine Peso
Argentina's peso snapped a 12-day slide, rising 0.3 percent to 3.2235. The peso recovered after falling as much as 1.3 percent earlier to 3.274, its weakest since Jan. 29, 2003. Three currency traders, including Gustavo Quintana of Lopez Leon Brokers in Buenos Aires, said the central bank sold dollars throughout the session to shore up the peso. A central bank spokesman declined to comment.
The yield on Argentina's 5.83 percent peso bonds due in 2033 rose 1 basis point to 13.83 percent, according to Citigroup Inc.'s local unit.
In Peru, the sol was little changed at 3.0775 per dollar, from 3.075 yesterday, amid ``huge demand from local corporates and offshore accounts'' for dollars, said Gonzalo Navarro, a trader with Banco Santander in Lima. The central bank said it sold $354.5 million today to shore up the peso. The bank has sold $2.2466 billion since Sept. 29.
Venezuela's bolivar weakened 1.8 percent to 5.3 per dollar in the unregulated market, its lowest since February, traders said. The government pegs the currency at an official exchange rate of 2.15 per dollar under restrictions imposed in 2003. Venezuelans turn to the parallel market when they can't get government approval to buy dollars at the official rate.
Markets will be closed in Argentina and Colombia Oct. 13 for national holidays.
To contact the reporter on this story: Drew Benson in Buenos Aires at abenson9@bloomberg.net
Read more...
Oct. 10 (Bloomberg) -- Chile's peso plunged the most since May 1992 as the global credit crisis deepened, fueling capital flight from Latin America's commodities-dependent countries.
The credit crunch is ``increasingly hitting home'' in the region as increased capital flight, tightening liquidity, ``plummeting commodities prices and collapsing global growth are all combining for a very unsupportive emerging markets landscape,'' RBC Capital Markets economists Nick Chamie, Paul Biszko, Eduardo Suarez and Nigel Rendell said in a research note.
Chile's peso dropped 4.2 percent to 638.25 per dollar. It touched 639.5, its weakest since Aug. 16, 2004, and has fallen 10.6 percent this week.
``Many people are pulling money out of Chile today, looking for safe havens,'' said Ricardo Gomez, head of fixed-income sales and trading at Larrain Vial SA in Santiago. He said speculation is mounting that the central bank will start selling dollars.
Central banks across Latin America have stepped into markets during the past two weeks in a bid to bolster currencies and add cash to local financial systems.
Chile's central bank halted its $50 million daily purchase program late last month, and last week conducted the first of four weekly auctions aimed at injecting a total of $2 billion into the local financial system. The bank yesterday left its benchmark interest rate at 8.25 percent.
Colombian Peso
The yield for a basket of Chile's five-year peso bonds in inflation-linked currency units, known as unidades de fomento, rose 2 basis points to 2.97 percent, according to Bloomberg composite prices.
Colombia's peso slumped 3.5 percent to 2,314 per dollar at 4:45 p.m. New York time, from 2,233.88 yesterday, according to the Colombian foreign-exchange electronic transactions system, known as SET-FX.
The Colombian currency peso tumbled even after the central bank lifted controls this week on foreign borrowing in a bid to shore up the currency. The bank's board said late yesterday it rescinded restrictions that forced 40 percent of some overseas borrowing, such as the financing of imports, to remain in the central bank for six months. A day earlier, the bank lifted similar controls on foreign investment in fixed-income securities.
The yield on Colombia's benchmark 11 percent bonds due in July 2020 climbed 53 basis points, or 0.53 percentage point, to 12.8 percent, according to Colombia's stock exchange.
Argentine Peso
Argentina's peso snapped a 12-day slide, rising 0.3 percent to 3.2235. The peso recovered after falling as much as 1.3 percent earlier to 3.274, its weakest since Jan. 29, 2003. Three currency traders, including Gustavo Quintana of Lopez Leon Brokers in Buenos Aires, said the central bank sold dollars throughout the session to shore up the peso. A central bank spokesman declined to comment.
The yield on Argentina's 5.83 percent peso bonds due in 2033 rose 1 basis point to 13.83 percent, according to Citigroup Inc.'s local unit.
In Peru, the sol was little changed at 3.0775 per dollar, from 3.075 yesterday, amid ``huge demand from local corporates and offshore accounts'' for dollars, said Gonzalo Navarro, a trader with Banco Santander in Lima. The central bank said it sold $354.5 million today to shore up the peso. The bank has sold $2.2466 billion since Sept. 29.
Venezuela's bolivar weakened 1.8 percent to 5.3 per dollar in the unregulated market, its lowest since February, traders said. The government pegs the currency at an official exchange rate of 2.15 per dollar under restrictions imposed in 2003. Venezuelans turn to the parallel market when they can't get government approval to buy dollars at the official rate.
Markets will be closed in Argentina and Colombia Oct. 13 for national holidays.
To contact the reporter on this story: Drew Benson in Buenos Aires at abenson9@bloomberg.net
Read more...
Yen Posts Biggest Advance in Decade as Carry Trade Evaporates
By Daniel Kruger and Kim-Mai Cutler
Oct. 10 (Bloomberg) -- The yen rose against the euro and posted its biggest weekly gain in a decade against the dollar as a global stock rout prompted investors to sell higher-yielding assets and pay back low-cost loans in Japan.
Japan's currency rallied the most versus the 15-nation euro in any week since its debut in 1999 as an 18 percent drop in the Standard & Poor's 500 Index discouraged carry trades. President George W. Bush said the U.S. is working with global partners to solve the financial crisis as Group of Seven finance ministers and central bankers met in Washington.
``Investors are concerned it could get worse,'' said JensNordvig, a currency strategist at Goldman Sachs Group Inc. in New York. ``Clearly a lot of investors have only one goal, to preserve capital.''
The yen advanced 0.8 percent to 134.79 per euro at 4:21 p.m. in New York, from 135.83 yesterday, increasing 7.1 percent this week and touching 132.24, the strongest level since June 2005. The yen dropped 0.8 percent to 100.58 per dollar from 99.82 after reaching 97.92, the strongest since March 19. The euro fell 1.6 percent to $1.3392 from $1.3604 and was down 2.8 percent for the week.
The U.S. currency decreased 4.4 percent against the yen this week, the most since the period ended Oct. 9, 1998, when the greenback plunged 14 percent as investors shed risk in the wake of the collapse of Long-Term Capital Management LP.
Coordinated interest-rate reductions by central banks in the U.S., Europe and Asia in the past two days failed to revive lending among banks. The cost of borrowing in dollars in London for three months rose to 4.82 percent today, the highest since December, the British Bankers' Association said.
Peso Gains
Mexico's peso increased 1.4 percent to 13.0326 versus the dollar to stem seven straight days of losses after the central bank sold a record $6.4 billion in the currency market, stepping up its bid to quell a rout in the peso that threatens to bankrupt companies and ignite inflation in Latin America's second-biggest economy.
Threatened by the worst economic outlook in a quarter- century, G-7 officials arrived in Washington without a broad- based strategy that investors were seeking. Among options is a proposal by U.K. Chancellor Alistair Darling for nations to guarantee lending between banks, a suggestion U.S. Treasury Secretary Henry Paulson hasn't ruled out.
``I don't think this particular G-7 meeting will rewrite history,'' said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. ``I'm not optimistic anything material will come out.''
G-7 Meetings
Paulson and Federal Reserve Chairman Ben S. Bernanke met today with counterparts of the G-7, which comprises Canada, France, Germany, Italy, the U.K., the U.S. and Japan. Paulson and aides are still considering ways to proceed with a $700 billion bank bailout, including having the government acquire preferred stock, two officials informed of the matter said.
Europe's currency was on course for its second straight weekly decline versus the dollar on speculation the credit crisis in Europe will deepen, prompting the European Central Bank to cut interest rates further. The bank lowered its main refinancing rate two days ago for the first time in five years. The pound fell as much as 1.8 percent to $1.6792, breaching $1.70 for the first time since November 2003.
Investors should buy the dollar while selling the euro and the pound because interest rates in Europe and the U.K. will fall faster than in the U.S., according to Royal Bank of Scotland Group Plc. The dollar could reach $1.25 per euro and $1.58 per pound by the end of next year, the firm forecast in a note to clients today.
`Printing Press'
One risk to that forecast is ``if there's anything akin to using the printing press'' that expands the U.S. money supply, which could lead the currency to depreciate, said Alan Ruskin, head of international currency strategy at RBS Greenwich Capital Markets Inc. in Greenwich, Connecticut.
The Fed has expanded its balance sheet 6.3 percent for the week ended Oct. 8 to $1.59 trillion, and 76 percent since Sept. 5 from $905.7 billion, boosting its ability to act as lender of last resort when banks can't find funding elsewhere.
While the central bank was able to remove a 15 percent increase in its balance sheet quickly after the Sept. 11, 2001, terror attacks and a 7 percent increase following the collapse of Long-Term Capital Management, this expansion has more potential to remain ``because the problems are so systemic,'' Ruskin said.
The South Korean won surged as much as 11.3 percent to 1,224.95 per dollar after a meeting among financial regulators fueled speculation the government will intervene to support the currency, which reached a decade-low of 1,485.32 yesterday.
The yen gained 20.2 percent this week to 65.01 versus the Australian dollar and 13.7 percent to 60.15 against New Zealand's currency, known as the kiwi, on speculation investors will reverse trades in which they get funds in countries with low borrowing costs and buy assets where returns are higher. Japan's 0.5 percent target lending rate compares with 6 percent in Australia and 7.5 percent in New Zealand.
To contact the reporters on this story: Daniel Kruger in New York at dkruger1@bloomberg.net; Kim-Mai Cutler in London at kcutler@bloomberg.net
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Oct. 10 (Bloomberg) -- The yen rose against the euro and posted its biggest weekly gain in a decade against the dollar as a global stock rout prompted investors to sell higher-yielding assets and pay back low-cost loans in Japan.
Japan's currency rallied the most versus the 15-nation euro in any week since its debut in 1999 as an 18 percent drop in the Standard & Poor's 500 Index discouraged carry trades. President George W. Bush said the U.S. is working with global partners to solve the financial crisis as Group of Seven finance ministers and central bankers met in Washington.
``Investors are concerned it could get worse,'' said JensNordvig, a currency strategist at Goldman Sachs Group Inc. in New York. ``Clearly a lot of investors have only one goal, to preserve capital.''
The yen advanced 0.8 percent to 134.79 per euro at 4:21 p.m. in New York, from 135.83 yesterday, increasing 7.1 percent this week and touching 132.24, the strongest level since June 2005. The yen dropped 0.8 percent to 100.58 per dollar from 99.82 after reaching 97.92, the strongest since March 19. The euro fell 1.6 percent to $1.3392 from $1.3604 and was down 2.8 percent for the week.
The U.S. currency decreased 4.4 percent against the yen this week, the most since the period ended Oct. 9, 1998, when the greenback plunged 14 percent as investors shed risk in the wake of the collapse of Long-Term Capital Management LP.
Coordinated interest-rate reductions by central banks in the U.S., Europe and Asia in the past two days failed to revive lending among banks. The cost of borrowing in dollars in London for three months rose to 4.82 percent today, the highest since December, the British Bankers' Association said.
Peso Gains
Mexico's peso increased 1.4 percent to 13.0326 versus the dollar to stem seven straight days of losses after the central bank sold a record $6.4 billion in the currency market, stepping up its bid to quell a rout in the peso that threatens to bankrupt companies and ignite inflation in Latin America's second-biggest economy.
Threatened by the worst economic outlook in a quarter- century, G-7 officials arrived in Washington without a broad- based strategy that investors were seeking. Among options is a proposal by U.K. Chancellor Alistair Darling for nations to guarantee lending between banks, a suggestion U.S. Treasury Secretary Henry Paulson hasn't ruled out.
``I don't think this particular G-7 meeting will rewrite history,'' said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. ``I'm not optimistic anything material will come out.''
G-7 Meetings
Paulson and Federal Reserve Chairman Ben S. Bernanke met today with counterparts of the G-7, which comprises Canada, France, Germany, Italy, the U.K., the U.S. and Japan. Paulson and aides are still considering ways to proceed with a $700 billion bank bailout, including having the government acquire preferred stock, two officials informed of the matter said.
Europe's currency was on course for its second straight weekly decline versus the dollar on speculation the credit crisis in Europe will deepen, prompting the European Central Bank to cut interest rates further. The bank lowered its main refinancing rate two days ago for the first time in five years. The pound fell as much as 1.8 percent to $1.6792, breaching $1.70 for the first time since November 2003.
Investors should buy the dollar while selling the euro and the pound because interest rates in Europe and the U.K. will fall faster than in the U.S., according to Royal Bank of Scotland Group Plc. The dollar could reach $1.25 per euro and $1.58 per pound by the end of next year, the firm forecast in a note to clients today.
`Printing Press'
One risk to that forecast is ``if there's anything akin to using the printing press'' that expands the U.S. money supply, which could lead the currency to depreciate, said Alan Ruskin, head of international currency strategy at RBS Greenwich Capital Markets Inc. in Greenwich, Connecticut.
The Fed has expanded its balance sheet 6.3 percent for the week ended Oct. 8 to $1.59 trillion, and 76 percent since Sept. 5 from $905.7 billion, boosting its ability to act as lender of last resort when banks can't find funding elsewhere.
While the central bank was able to remove a 15 percent increase in its balance sheet quickly after the Sept. 11, 2001, terror attacks and a 7 percent increase following the collapse of Long-Term Capital Management, this expansion has more potential to remain ``because the problems are so systemic,'' Ruskin said.
The South Korean won surged as much as 11.3 percent to 1,224.95 per dollar after a meeting among financial regulators fueled speculation the government will intervene to support the currency, which reached a decade-low of 1,485.32 yesterday.
The yen gained 20.2 percent this week to 65.01 versus the Australian dollar and 13.7 percent to 60.15 against New Zealand's currency, known as the kiwi, on speculation investors will reverse trades in which they get funds in countries with low borrowing costs and buy assets where returns are higher. Japan's 0.5 percent target lending rate compares with 6 percent in Australia and 7.5 percent in New Zealand.
To contact the reporters on this story: Daniel Kruger in New York at dkruger1@bloomberg.net; Kim-Mai Cutler in London at kcutler@bloomberg.net
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Copper Tumbles, Capping Worst Week Since 1988 as Outlook Dims
By Millie Munshi
Oct. 10 (Bloomberg) -- Copper tumbled 11 percent and capped its worst week in two decades on concern that the deepening financial crisis may choke global growth and commodity demand.
Copper has plunged 20 percent this week, the biggest drop since at least 1988, when the data begins. Tightening credit markets and tumbling equities have reduced investor confidence and spurred speculation that the world economy will sink into recession. The Standard & Poor's 500 Index of shares is heading for its biggest weekly decline ever, losing 23 percent.
``People are scared to death,'' said Michael K. Smith, president of T&K Futures & Options in Port St. Lucie, Florida. ``The fear of a global recession is really hitting copper. People are worried about demand destruction. There's plenty more downside to go.''
Copper futures for December delivery fell 26.15 cents to $2.1445 a pound on the Comex division of the New York Mercantile Exchange, after earlier touching $2.05, the lowest since Jan. 6, 2006.
Last week's drop was 13 percent, the second-biggest decline on record.
Copper has lost about half of its value since touching a record $4.2605 a pound on May 5. The losses have come as the U.S. housing slump deepened. Builders are the biggest users of the metal, accounting for about 46 percent of demand, according to the Copper Development Association.
Demand has fallen ``a lot, with everything that's going on in the construction industry,'' said Jay Richman, owner of E.W. Berger & Brothers Inc., a distributor of plumbing supplies in Weehawken, New Jersey.
Rising Inventories
Copper-tube mills may have rising inventories as use has dropped, said Richman, who buys about 10,000 pounds of the metal a month for plumbers, housing authorities and industrial users.
Morgan Stanley cut its 2009 copper forecast by 22 percent this week, citing an extended ``period of demand weakness for commodities.'' The metal will average $3.20 a pound next year, analysts at the bank estimate.
On the London Metal Exchange, copper for delivery in three months dropped $525, or 9.9 percent, to $4,790 a metric ton ($2.17 a pound).
``We believe copper remains increasingly exposed in an environment of weakening growth and falling equity markets,'' Deutsche Bank AG analysts said in a report today. The price could fall to as low as $3,900 a ton in London, the bank said.
To contact the reporter on this story: Millie Munshi in New York at mmunshi@bloomberg.net.
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Oct. 10 (Bloomberg) -- Copper tumbled 11 percent and capped its worst week in two decades on concern that the deepening financial crisis may choke global growth and commodity demand.
Copper has plunged 20 percent this week, the biggest drop since at least 1988, when the data begins. Tightening credit markets and tumbling equities have reduced investor confidence and spurred speculation that the world economy will sink into recession. The Standard & Poor's 500 Index of shares is heading for its biggest weekly decline ever, losing 23 percent.
``People are scared to death,'' said Michael K. Smith, president of T&K Futures & Options in Port St. Lucie, Florida. ``The fear of a global recession is really hitting copper. People are worried about demand destruction. There's plenty more downside to go.''
Copper futures for December delivery fell 26.15 cents to $2.1445 a pound on the Comex division of the New York Mercantile Exchange, after earlier touching $2.05, the lowest since Jan. 6, 2006.
Last week's drop was 13 percent, the second-biggest decline on record.
Copper has lost about half of its value since touching a record $4.2605 a pound on May 5. The losses have come as the U.S. housing slump deepened. Builders are the biggest users of the metal, accounting for about 46 percent of demand, according to the Copper Development Association.
Demand has fallen ``a lot, with everything that's going on in the construction industry,'' said Jay Richman, owner of E.W. Berger & Brothers Inc., a distributor of plumbing supplies in Weehawken, New Jersey.
Rising Inventories
Copper-tube mills may have rising inventories as use has dropped, said Richman, who buys about 10,000 pounds of the metal a month for plumbers, housing authorities and industrial users.
Morgan Stanley cut its 2009 copper forecast by 22 percent this week, citing an extended ``period of demand weakness for commodities.'' The metal will average $3.20 a pound next year, analysts at the bank estimate.
On the London Metal Exchange, copper for delivery in three months dropped $525, or 9.9 percent, to $4,790 a metric ton ($2.17 a pound).
``We believe copper remains increasingly exposed in an environment of weakening growth and falling equity markets,'' Deutsche Bank AG analysts said in a report today. The price could fall to as low as $3,900 a ton in London, the bank said.
To contact the reporter on this story: Millie Munshi in New York at mmunshi@bloomberg.net.
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Gold Falls as Equity Loss Sparks Metals Sell-Off to Raise Cash
By Pham-Duy Nguyen
Oct. 10 (Bloomberg) -- Gold tumbled from the highest since July as investors sold the metal to cover losses in equity markets. Silver plunged 11 percent.
Global stocks had the biggest drop ever this week, commodities tumbled more than 5 percent today and government bonds fell. Earlier, gold reached $936.30 an ounce, the highest since July 29, on demand for a haven.
``The world is going to cash,'' said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago. ``Investors are selling gold to raise dollars. There's just massive selling across the board.''
Gold futures for December delivery fell $27.50, or 3.1 percent, to $859 on the Comex division of the New York Mercantile Exchange, the biggest decline since Oct. 2. The metal reached a record $1,033.90 on March 17.
Silver futures for December delivery dropped $1.275 to $10.60 an ounce. The metal has dropped 29 percent this year.
The rush for cash may have been fueled by rumors that global markets may close for several days to allow governments to take corrective action. Italian Prime Minister Silvio Berlusconi said earlier today that world leaders were considering such action and later retracted his statement.
``The expectation is that they're going to shut the markets down for five days and people aren't going to have access to funds,'' McGhee said. ``It's just a rumor but it has picked up steam.''
The Standard & Poor's 500 Index headed for the biggest weekly decline ever, tumbling more than 22 percent since Oct. 3. The Reuters/Jefferies CRB Index of 19 raw materials is down 9.9 percent this week. Crude-oil futures fell as much as 9.3 percent today. U.S. Treasuries also fell, partly as some traders sold government securities to raise cash for margin calls.
Relative Value
``Everyone knows we're going into a deflationary recession or depression and historically, everything goes down in price in this environment,'' said Leonard Kaplan, president of Prospector Asset Management in Evanston, Illinois. ``Gold will perhaps do better than anything else but it will still go down. Gold will maintain its relative value.''
Gold, which is priced in dollars, can't rally if the U.S. currency remains strong, analysts at Deutsche Bank AG said today in a report.
Speculative Holdings
``The speculative community continues to hold a sizeable long position in gold, presumably as a hedge against further deterioration in market confidence,'' the analysts said. ``The gold price is trading excessively rich if it is not accompanied by substantial weakening of the U.S. dollar from here. The current level of the euro (is) implying a gold price closer to $760.''
The euro traded as low as $1.3355 today. It reached a record $1.6038 on July 15. Gold priced in euros and pounds rose to all-time highs this week.
Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, reached a record 765.7 metric tons yesterday.
Still, physical demand for gold will remain strong should the credit crisis persist, analysts said.
Londoners today stood in line outside the largest gold coin and bar retailer in the city's West End shopping district, clogging the lobby and trading among themselves as they sought a haven for their money.
``People want something tangible, something they can hold onto, something the banks can't give them,'' said Chris Burrow, the owner of ATS Bullion, the gold dealer in the Strand that traces its roots back to the 17th century. ``There's no time to breathe. We're rushed off our feet. Staff are exhausted.''
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
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Oct. 10 (Bloomberg) -- Gold tumbled from the highest since July as investors sold the metal to cover losses in equity markets. Silver plunged 11 percent.
Global stocks had the biggest drop ever this week, commodities tumbled more than 5 percent today and government bonds fell. Earlier, gold reached $936.30 an ounce, the highest since July 29, on demand for a haven.
``The world is going to cash,'' said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago. ``Investors are selling gold to raise dollars. There's just massive selling across the board.''
Gold futures for December delivery fell $27.50, or 3.1 percent, to $859 on the Comex division of the New York Mercantile Exchange, the biggest decline since Oct. 2. The metal reached a record $1,033.90 on March 17.
Silver futures for December delivery dropped $1.275 to $10.60 an ounce. The metal has dropped 29 percent this year.
The rush for cash may have been fueled by rumors that global markets may close for several days to allow governments to take corrective action. Italian Prime Minister Silvio Berlusconi said earlier today that world leaders were considering such action and later retracted his statement.
``The expectation is that they're going to shut the markets down for five days and people aren't going to have access to funds,'' McGhee said. ``It's just a rumor but it has picked up steam.''
The Standard & Poor's 500 Index headed for the biggest weekly decline ever, tumbling more than 22 percent since Oct. 3. The Reuters/Jefferies CRB Index of 19 raw materials is down 9.9 percent this week. Crude-oil futures fell as much as 9.3 percent today. U.S. Treasuries also fell, partly as some traders sold government securities to raise cash for margin calls.
Relative Value
``Everyone knows we're going into a deflationary recession or depression and historically, everything goes down in price in this environment,'' said Leonard Kaplan, president of Prospector Asset Management in Evanston, Illinois. ``Gold will perhaps do better than anything else but it will still go down. Gold will maintain its relative value.''
Gold, which is priced in dollars, can't rally if the U.S. currency remains strong, analysts at Deutsche Bank AG said today in a report.
Speculative Holdings
``The speculative community continues to hold a sizeable long position in gold, presumably as a hedge against further deterioration in market confidence,'' the analysts said. ``The gold price is trading excessively rich if it is not accompanied by substantial weakening of the U.S. dollar from here. The current level of the euro (is) implying a gold price closer to $760.''
The euro traded as low as $1.3355 today. It reached a record $1.6038 on July 15. Gold priced in euros and pounds rose to all-time highs this week.
Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, reached a record 765.7 metric tons yesterday.
Still, physical demand for gold will remain strong should the credit crisis persist, analysts said.
Londoners today stood in line outside the largest gold coin and bar retailer in the city's West End shopping district, clogging the lobby and trading among themselves as they sought a haven for their money.
``People want something tangible, something they can hold onto, something the banks can't give them,'' said Chris Burrow, the owner of ATS Bullion, the gold dealer in the Strand that traces its roots back to the 17th century. ``There's no time to breathe. We're rushed off our feet. Staff are exhausted.''
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
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Crude Oil Drops Below $78 as Equities Slump on Credit Freeze
By Mark Shenk
Enlarge Image/Details
Oct. 10 (Bloomberg) -- Crude oil fell below $78 for the first time in a year and copper capped its biggest weekly drop in more than two decades on concern that the deepening financial crisis will push the global economy into a recession.
Oil in New York dropped 17 percent this week, the biggest one-week decline since March 2003 when a U.S.-led coalition invaded Iraq. All commodities with the exception of coffee are down on signs that demand for raw materials will drop as the global economy falters.
``No matter where you look, there is bleeding everywhere,'' said Chip Hodge, a managing director at MFC Global Investment Management in Boston, who oversees a $4.5 billion energy-company bond portfolio. ``I don't know where the bottom is. It's clear that we are headed for a painful couple of years.''
Crude oil for November delivery fell $8.89, or 10 percent, to $77.70 a barrel at 2:46 p.m. on the New York Mercantile Exchange, the lowest settlement since Sept. 10, 2007. Prices have dropped 47 percent from the record $147.27 a barrel reached on July 11.
Gasoline for November delivery declined 22.03 cents, or 11 percent, to $1.807 a gallon in New York, the lowest settlement since Feb. 26, 2007. Heating oil dropped 20.86 cents, or 8.6 percent, to settle at $2.21 a gallon, the lowest close since Oct. 9, 2007. It was the biggest one-day drop in heating oil since Dec. 27, 2004.
More than $25 trillion has been erased from global equities in 2008. Central banks from London and Frankfurt to Washington and Hong Kong this week were forced to cut interest rates after the yearlong credit-market seizure stoked concern banks will run short of money.
`Moving on Emotion'
``This is a market that is moving on emotion, not the supply and demand picture,'' said Sarah Emerson, managing director of Energy Security Analysis Inc., a consulting firm in Wakefield, Massachusetts. ``We are looking for a landing place, and I have no idea where it is.''
The Reuters/Jefferies CRB Index of 19 commodities had the biggest drop since at least 1956 today. The CRB fell 20.64 to 289.89, the lowest since Jan. 18, 2007. The index has slumped 39 percent from a record on July 3 and declined 20 percent in the past two weeks.
Copper futures for December delivery fell 26.15 cents, or 11 percent, to settle at $2.1445 a pound on the Comex division of the New York Mercantile Exchange. Copper dropped 20 percent this week, the most since 1988, when data begins.
The International Energy Agency, an adviser to 28 nations, cut its forecast for global oil demand next year by 0.5 percent as the worst financial crisis since the 1930s threatens a global recession.
Lower Demand
The IEA lowered its 2009 projection by 440,000 barrels a day to 87.2 million barrels a day, the Paris-based agency said today in its monthly report, citing a weaker economic outlook from the International Monetary Fund. Non-OPEC supply growth this year has been ``largely wiped out'' after hurricanes in the Gulf of Mexico and pipeline disruptions in Azerbaijan.
U.S. fuel demand averaged about 18.7 million barrels a day during the past four weeks, the lowest since June 1999, according to an Energy Department report on Oct. 8. The figure is down 8.6 percent from the year-earlier period.
``Oil is not a safe haven, because you have to use it,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``Gold and putting money in your mattress look like the safest places to put your money.''
Oil companies followed energy futures lower. Exxon Mobil Corp. dropped 8.3 percent to $62.36 after touching $56.51, the lowest since Jan. 3, 2006. Chevron Corp. fell 9.6 percent to $57.83.
Energy Index
The Standard & Poor's Energy Index had the biggest weekly drop in at least 18 years. It was down 25 percent for the week. Among the worst performers were Chesapeake Energy Corp., which fell amid concern hedging contracts won't protect it against a plunge in natural-gas prices, and Tesoro Corp., the largest oil refiner in the U.S. West.
Brent crude oil for November settlement declined $8.57, or 10 percent, to settle at $74.09 a barrel on London's ICE Futures Europe exchange, the lowest settlement since Sept. 4, 2007. The contract dropped 18 percent this week, the biggest one-week decline since March 2003.
Prices may extend their decline next week, according to a Bloomberg News survey. Thirteen of 30 analysts surveyed by Bloomberg News, or 43 percent, said prices will decrease through Oct. 17.
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.
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Enlarge Image/Details
Oct. 10 (Bloomberg) -- Crude oil fell below $78 for the first time in a year and copper capped its biggest weekly drop in more than two decades on concern that the deepening financial crisis will push the global economy into a recession.
Oil in New York dropped 17 percent this week, the biggest one-week decline since March 2003 when a U.S.-led coalition invaded Iraq. All commodities with the exception of coffee are down on signs that demand for raw materials will drop as the global economy falters.
``No matter where you look, there is bleeding everywhere,'' said Chip Hodge, a managing director at MFC Global Investment Management in Boston, who oversees a $4.5 billion energy-company bond portfolio. ``I don't know where the bottom is. It's clear that we are headed for a painful couple of years.''
Crude oil for November delivery fell $8.89, or 10 percent, to $77.70 a barrel at 2:46 p.m. on the New York Mercantile Exchange, the lowest settlement since Sept. 10, 2007. Prices have dropped 47 percent from the record $147.27 a barrel reached on July 11.
Gasoline for November delivery declined 22.03 cents, or 11 percent, to $1.807 a gallon in New York, the lowest settlement since Feb. 26, 2007. Heating oil dropped 20.86 cents, or 8.6 percent, to settle at $2.21 a gallon, the lowest close since Oct. 9, 2007. It was the biggest one-day drop in heating oil since Dec. 27, 2004.
More than $25 trillion has been erased from global equities in 2008. Central banks from London and Frankfurt to Washington and Hong Kong this week were forced to cut interest rates after the yearlong credit-market seizure stoked concern banks will run short of money.
`Moving on Emotion'
``This is a market that is moving on emotion, not the supply and demand picture,'' said Sarah Emerson, managing director of Energy Security Analysis Inc., a consulting firm in Wakefield, Massachusetts. ``We are looking for a landing place, and I have no idea where it is.''
The Reuters/Jefferies CRB Index of 19 commodities had the biggest drop since at least 1956 today. The CRB fell 20.64 to 289.89, the lowest since Jan. 18, 2007. The index has slumped 39 percent from a record on July 3 and declined 20 percent in the past two weeks.
Copper futures for December delivery fell 26.15 cents, or 11 percent, to settle at $2.1445 a pound on the Comex division of the New York Mercantile Exchange. Copper dropped 20 percent this week, the most since 1988, when data begins.
The International Energy Agency, an adviser to 28 nations, cut its forecast for global oil demand next year by 0.5 percent as the worst financial crisis since the 1930s threatens a global recession.
Lower Demand
The IEA lowered its 2009 projection by 440,000 barrels a day to 87.2 million barrels a day, the Paris-based agency said today in its monthly report, citing a weaker economic outlook from the International Monetary Fund. Non-OPEC supply growth this year has been ``largely wiped out'' after hurricanes in the Gulf of Mexico and pipeline disruptions in Azerbaijan.
U.S. fuel demand averaged about 18.7 million barrels a day during the past four weeks, the lowest since June 1999, according to an Energy Department report on Oct. 8. The figure is down 8.6 percent from the year-earlier period.
``Oil is not a safe haven, because you have to use it,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``Gold and putting money in your mattress look like the safest places to put your money.''
Oil companies followed energy futures lower. Exxon Mobil Corp. dropped 8.3 percent to $62.36 after touching $56.51, the lowest since Jan. 3, 2006. Chevron Corp. fell 9.6 percent to $57.83.
Energy Index
The Standard & Poor's Energy Index had the biggest weekly drop in at least 18 years. It was down 25 percent for the week. Among the worst performers were Chesapeake Energy Corp., which fell amid concern hedging contracts won't protect it against a plunge in natural-gas prices, and Tesoro Corp., the largest oil refiner in the U.S. West.
Brent crude oil for November settlement declined $8.57, or 10 percent, to settle at $74.09 a barrel on London's ICE Futures Europe exchange, the lowest settlement since Sept. 4, 2007. The contract dropped 18 percent this week, the biggest one-week decline since March 2003.
Prices may extend their decline next week, according to a Bloomberg News survey. Thirteen of 30 analysts surveyed by Bloomberg News, or 43 percent, said prices will decrease through Oct. 17.
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.
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Coffee Rebounds in N.Y. as Investors, Roasters Buy After Slump
By Yi Tian
Oct. 10 (Bloomberg) -- Coffee rebounded on demand by investors and roasters after the price traded close to the lowest in almost 15 months.
That marked the only gain among 19 raw materials in the Reuters/Jefferies CRB Index. The gauge tumbled by a record 6.6 percent on concern that the widening financial crisis will push the global economy into a recession. On Oct. 8, coffee touched $1.0935 a pound, the lowest since July 16, 2007. The price fell as much as 3.8 percent to $1.103 today.
``Roasters became interested at this price level, and there was also some short-covering,'' said Hernando de la Roche, a director at Hencorp Futures in Miami.
Arabica coffee futures for December delivery rose 0.7 cent, or 0.6 percent, to $1.1535 a pound on ICE Futures U.S. in New York. The most-active contract still dropped 5.5 percent this week after tumbling 9 percent last week.
Coffee has slumped this month partly because exports from Brazil, the world's largest producer, are increasing. The price is down 15 percent this year.
In London, robusta-coffee futures for January delivery declined $35, or 2 percent, to $1,751 a metric ton.
From Oct. 27 to Oct. 31, coffee trading will begin at 3:30 a.m. New York time, an hour later than normal, ICE said in a statement on its Web site.
To contact the reporter on this story: Yi Tian in New York at ytian8@bloomberg.net.
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Oct. 10 (Bloomberg) -- Coffee rebounded on demand by investors and roasters after the price traded close to the lowest in almost 15 months.
That marked the only gain among 19 raw materials in the Reuters/Jefferies CRB Index. The gauge tumbled by a record 6.6 percent on concern that the widening financial crisis will push the global economy into a recession. On Oct. 8, coffee touched $1.0935 a pound, the lowest since July 16, 2007. The price fell as much as 3.8 percent to $1.103 today.
``Roasters became interested at this price level, and there was also some short-covering,'' said Hernando de la Roche, a director at Hencorp Futures in Miami.
Arabica coffee futures for December delivery rose 0.7 cent, or 0.6 percent, to $1.1535 a pound on ICE Futures U.S. in New York. The most-active contract still dropped 5.5 percent this week after tumbling 9 percent last week.
Coffee has slumped this month partly because exports from Brazil, the world's largest producer, are increasing. The price is down 15 percent this year.
In London, robusta-coffee futures for January delivery declined $35, or 2 percent, to $1,751 a metric ton.
From Oct. 27 to Oct. 31, coffee trading will begin at 3:30 a.m. New York time, an hour later than normal, ICE said in a statement on its Web site.
To contact the reporter on this story: Yi Tian in New York at ytian8@bloomberg.net.
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Corn, Soybeans, Wheat Plunge on U.S. Harvest Outlook, Recession
By Jeff Wilson
Oct. 10 (Bloomberg) -- Corn and soybeans fell the exchange limits in Chicago and wheat plunged to a 16-month low after the U.S. forecast rising inventories and the global credit crisis eroded demand for food, animal feed and biofuels.
The Department of Agriculture unexpectedly raised its estimate of the corn and soybean crops and said global wheat inventories will jump 21 percent, after record prices encouraged farmers to plant more. The MSCI World Index fell the most this week since 1970 on concern that the deepening credit crisis will send the global economy into recession.
``The USDA report was a bearish surprise,'' said Dan Manternach, ag services director for Doane Advisory Services in St. Louis. ``The big threat right now is deflation, not inflation.''
Corn futures for December delivery fell the exchange maximum of 30 cents, or 6.8 percent, to $4.0825 a bushel on the Chicago Board of Trade. Corn dropped 10 percent this week, touching $4.07 on Oct. 8, the lowest for the most-active contract since Dec. 4, extending a 16 percent decline last week for the biggest two-week plunge in at least 45 years. The price is 49 percent lower than a record $7.9925 on June 27.
Soybean futures for November delivery fell the 70-cent limit, or 7.1 percent, to $9.10 a bushel in Chicago, the lowest since Sept. 12, 2007. Most-active futures dropped 8.3 percent this week, capping a two-week decline of 22 percent, the most since July 1997. Soybeans have dropped 44 percent from a record $16.3675 on July 3.
Wheat Falls
Wheat futures for December delivery fell 41.25 cents, or 6.8 percent, to $5.635 a bushel in Chicago, after earlier dropping to $5.5775, the lowest since June 12, 2007. The price has dropped 12 percent this week, the most since March 21. Most- active futures have fallen 58 percent from a record $13.495 on Feb. 27.
Index funds that invest in baskets of commodities cut net- long positions, or bets prices will rise, in Chicago corn futures by 6.6 percent to 285,784 contracts in the week ended Oct. 7, down 37 percent from a record 452,568 contracts in April. There were 115,820 net-long positions in soybeans, down 11 percent from a week earlier and 42 percent from a February record.
``The game is still about the financial crisis and reducing leverage,'' said Dale Durchholz, a market analyst for AgriVisor LLC in Bloomington, Illinois. ``The grain markets are facing the same rush to cash as the financial markets.''
Bigger Soybean Harvest
The U.S. soybean harvest this year will be 1.7 percent larger than forecast a month ago, the USDA said today in a report, as increased acreage more than made up for a dry August that reduced yields. Farmers will harvest 2.983 billion bushels this year, up from 2.934 billion projected in September, according to the report.
A crop of that size would be 11 percent bigger than the previous year after farmers planted 19 percent more acres with the oilseed. The average estimate of 20 analysts surveyed by Bloomberg News was for 2.92 billion bushels. About 75.5 million acres will be harvested, the USDA said, up from 73.3 million estimated in September.
U.S. reserve supplies before next year's harvest will total 220 million bushels, up from 135 million forecast last month, the USDA said.
``The markets will have to deal with supplies that are much larger than anyone was expecting,'' Manternach said.
Corn Production
Corn production will total 12.2 billion bushels, up 1.1 percent from 12.072 billion projected a month ago and second only to last year's 13.1 billion-bushel harvest, the USDA said.
The department raised its yield forecast to 154 bushels an acre from 152.3 bushels estimated last month. Farmers harvested 151.1 bushels an acre last year and analysts surveyed by Bloomberg News were expecting 152.2 bushels, on average.
Unsold supplies of U.S. corn before next year's harvest will total 1.154 billion bushels, up 13 percent from 1.018 billion forecast a month ago, the department said. Analysts expected an estimate of 1.12 billion bushels, on average.
U.S. wheat reserves before the next harvest will be 4.7 percent more than forecast a month ago, as increased production more than offsets higher feed use, the USDA said.
About 601 million bushels of unsold wheat will be in storage when the current marketing year ends on May 31, nearly double the 306 million on hand at the start of this year.
Global stockpiles will total 144.4 million tons by May 31, the USDA said. That's up from last month's estimate of 139.9 million and up from 119.8 million tons at the end of last May.
``Even if equities were not down sharply, grains would be anyway, because the USDA gave us surprisingly bigger supply numbers,'' said John Roach, president of Roach Ag Marketing Ltd. in Boca Raton, Florida.
Corn is the biggest U.S. crop, valued at a record $52.1 billion in 2007, with soybeans in second place at $26.8 billion, government figures show. Wheat is the fourth-biggest U.S. crop, valued at a record $13.7 billion in 2007.
The U.S. is the world's largest grower and exporter of corn and soybeans, and it is the largest exporter of wheat.
To contact the reporter on this story: Jeff Wilson in Chicago at jwilson29@bloomberg.net.
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Oct. 10 (Bloomberg) -- Corn and soybeans fell the exchange limits in Chicago and wheat plunged to a 16-month low after the U.S. forecast rising inventories and the global credit crisis eroded demand for food, animal feed and biofuels.
The Department of Agriculture unexpectedly raised its estimate of the corn and soybean crops and said global wheat inventories will jump 21 percent, after record prices encouraged farmers to plant more. The MSCI World Index fell the most this week since 1970 on concern that the deepening credit crisis will send the global economy into recession.
``The USDA report was a bearish surprise,'' said Dan Manternach, ag services director for Doane Advisory Services in St. Louis. ``The big threat right now is deflation, not inflation.''
Corn futures for December delivery fell the exchange maximum of 30 cents, or 6.8 percent, to $4.0825 a bushel on the Chicago Board of Trade. Corn dropped 10 percent this week, touching $4.07 on Oct. 8, the lowest for the most-active contract since Dec. 4, extending a 16 percent decline last week for the biggest two-week plunge in at least 45 years. The price is 49 percent lower than a record $7.9925 on June 27.
Soybean futures for November delivery fell the 70-cent limit, or 7.1 percent, to $9.10 a bushel in Chicago, the lowest since Sept. 12, 2007. Most-active futures dropped 8.3 percent this week, capping a two-week decline of 22 percent, the most since July 1997. Soybeans have dropped 44 percent from a record $16.3675 on July 3.
Wheat Falls
Wheat futures for December delivery fell 41.25 cents, or 6.8 percent, to $5.635 a bushel in Chicago, after earlier dropping to $5.5775, the lowest since June 12, 2007. The price has dropped 12 percent this week, the most since March 21. Most- active futures have fallen 58 percent from a record $13.495 on Feb. 27.
Index funds that invest in baskets of commodities cut net- long positions, or bets prices will rise, in Chicago corn futures by 6.6 percent to 285,784 contracts in the week ended Oct. 7, down 37 percent from a record 452,568 contracts in April. There were 115,820 net-long positions in soybeans, down 11 percent from a week earlier and 42 percent from a February record.
``The game is still about the financial crisis and reducing leverage,'' said Dale Durchholz, a market analyst for AgriVisor LLC in Bloomington, Illinois. ``The grain markets are facing the same rush to cash as the financial markets.''
Bigger Soybean Harvest
The U.S. soybean harvest this year will be 1.7 percent larger than forecast a month ago, the USDA said today in a report, as increased acreage more than made up for a dry August that reduced yields. Farmers will harvest 2.983 billion bushels this year, up from 2.934 billion projected in September, according to the report.
A crop of that size would be 11 percent bigger than the previous year after farmers planted 19 percent more acres with the oilseed. The average estimate of 20 analysts surveyed by Bloomberg News was for 2.92 billion bushels. About 75.5 million acres will be harvested, the USDA said, up from 73.3 million estimated in September.
U.S. reserve supplies before next year's harvest will total 220 million bushels, up from 135 million forecast last month, the USDA said.
``The markets will have to deal with supplies that are much larger than anyone was expecting,'' Manternach said.
Corn Production
Corn production will total 12.2 billion bushels, up 1.1 percent from 12.072 billion projected a month ago and second only to last year's 13.1 billion-bushel harvest, the USDA said.
The department raised its yield forecast to 154 bushels an acre from 152.3 bushels estimated last month. Farmers harvested 151.1 bushels an acre last year and analysts surveyed by Bloomberg News were expecting 152.2 bushels, on average.
Unsold supplies of U.S. corn before next year's harvest will total 1.154 billion bushels, up 13 percent from 1.018 billion forecast a month ago, the department said. Analysts expected an estimate of 1.12 billion bushels, on average.
U.S. wheat reserves before the next harvest will be 4.7 percent more than forecast a month ago, as increased production more than offsets higher feed use, the USDA said.
About 601 million bushels of unsold wheat will be in storage when the current marketing year ends on May 31, nearly double the 306 million on hand at the start of this year.
Global stockpiles will total 144.4 million tons by May 31, the USDA said. That's up from last month's estimate of 139.9 million and up from 119.8 million tons at the end of last May.
``Even if equities were not down sharply, grains would be anyway, because the USDA gave us surprisingly bigger supply numbers,'' said John Roach, president of Roach Ag Marketing Ltd. in Boca Raton, Florida.
Corn is the biggest U.S. crop, valued at a record $52.1 billion in 2007, with soybeans in second place at $26.8 billion, government figures show. Wheat is the fourth-biggest U.S. crop, valued at a record $13.7 billion in 2007.
The U.S. is the world's largest grower and exporter of corn and soybeans, and it is the largest exporter of wheat.
To contact the reporter on this story: Jeff Wilson in Chicago at jwilson29@bloomberg.net.
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Mexican Bolsa Boosts Company Disclosure as Peso Sinks
By Fabiola Moura and William Freebairn
Enlarge Image/Details
Oct. 10 (Bloomberg) -- Mexico's stock exchange is demanding companies give investors more information about their finances as the peso's 18 percent tumble in two weeks raises concern businesses will face growing foreign exchange-related losses.
The Bolsa Mexicana de Valores SAB halted trading in shares of more than 30 companies this week in a bid to increase disclosure, the exchange's President Guillermo Prieto Trevino said in an interview in New York. Controladora Comercial Mexicana SAB, a supermarket operator, filed for bankruptcy yesterday after saying foreign-currency costs rose ``significantly.'' The stock tumbled and trading was suspended.
``We are working with all the companies whose trading was halted to make sure they are fully aware that they need to provide information to the market,'' Prieto Trevino said.
Since Mexican President Felipe Calderon said Sept. 25 in New York that his country could weather the global credit-market crisis, the central bank has drawn on near-record foreign reserves to prop up the peso, the benchmark stock index dropped 22 percent and the government unveiled a 65.1 billion-peso ($5 billion) stimulus plan to help tourism, energy and construction industries overcome an economic slowdown.
``People say that when the United States gets a cold, Mexico gets pneumonia,'' Calderon told a gathering of the Economic Club of New York on Sept. 25. ``This is not exactly the case today.''
Stocks Fall
The Bolsa stock index fell 2 percent today to 19,905.27, a seventh straight decline.
The central bank spent $8.9 billion defending the peso the past three days after the currency touched its lowest level since the 1994 devaluation. The peso, which traded at 10.7125 per dollar two weeks ago, rose 1.3 percent today to 13.0452.
Mexico's credit markets will tighten as domestic companies that sought funding in the U.S. begin to search for financing at home, Deputy Central Bank Governor Guillermo Guemez Garcia said in an interview yesterday with Bloomberg Television.
``They will have to go to the Mexican market and that will cause some sort of credit crunch that will increase the cost of credit,'' Guemez said in the interview in New York.
The credit squeeze has also spread to companies in Brazil, where two of the nation's biggest exporters, Aracruz Celulose SA and Sadia SA, lost more than half of their market value since saying last month they made bad currency bets that may cost them a combined $1.2 billion. Aracruz had its long-term foreign currency rating cut to BBB- from BBB today by Standard & Poor's.
`Got to Be More'
``From an investor's standpoint there's got to be more disclosure,'' said Will Landers, who manages $5 billion in Latin American equities at BlackRock Inc. in New York. ``They have to do these things on balance sheet. They shouldn't be done off balance sheet. We need to better regulate this thing.''
Companies in Mexico have rushed to disclose their dollar liabilities as stocks tumbled. Banco Compartamos SAB, a bank that lends to the working poor, said it has no dollar liabilities or derivatives.
Promotora Ambiental SAB, a waste-disposal company, said a third of its 1.04 billion pesos in debt is denominated in dollars and 87 percent of its debt excluding certain projects is hedged through June. Empresas ICA SAB, Mexico's biggest construction company, said the drop in the peso will not have a ``material effect'' on its financial results.
Grupo Industrial Saltillo SAB, a maker of auto parts and building materials, said it took a charge of 600 million pesos in the third quarter because of derivatives, or securities that derive their value from an underlying asset, linked to exchange rates. The stock started trading again yesterday after the company's disclosure, dropping 15 percent to 10 pesos.
Bankruptcy Filing
Controladora Comercial Mexicana's bankruptcy filing came after the company failed to sell commercial paper yesterday that would have allowed it to repay 400 million pesos of debt due yesterday, Moody's Investors Service said. Comercial Mexicana, which said it has $1.08 billion in financial derivatives, and liabilities of $2 billion, fell 75 percent today to 2.16 pesos.
Mexico's exchange halts trading when shares rise or fall more than 15 percent until the company makes a statement about the move, and may suspend them again if the decline continues. Shares also can be suspended when the bourse determines more information is warranted, according to regulations on the exchange's Web site.
``It's important that companies provide enough information so investors can make the adequate decisions,'' Prieto Trevino said.
To contact the reporter on this story: William Freebairn in Mexico City at wfreebairn@bloomberg.net; Fabiola Moura in New York at fdemoura@bloomberg.net
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Enlarge Image/Details
Oct. 10 (Bloomberg) -- Mexico's stock exchange is demanding companies give investors more information about their finances as the peso's 18 percent tumble in two weeks raises concern businesses will face growing foreign exchange-related losses.
The Bolsa Mexicana de Valores SAB halted trading in shares of more than 30 companies this week in a bid to increase disclosure, the exchange's President Guillermo Prieto Trevino said in an interview in New York. Controladora Comercial Mexicana SAB, a supermarket operator, filed for bankruptcy yesterday after saying foreign-currency costs rose ``significantly.'' The stock tumbled and trading was suspended.
``We are working with all the companies whose trading was halted to make sure they are fully aware that they need to provide information to the market,'' Prieto Trevino said.
Since Mexican President Felipe Calderon said Sept. 25 in New York that his country could weather the global credit-market crisis, the central bank has drawn on near-record foreign reserves to prop up the peso, the benchmark stock index dropped 22 percent and the government unveiled a 65.1 billion-peso ($5 billion) stimulus plan to help tourism, energy and construction industries overcome an economic slowdown.
``People say that when the United States gets a cold, Mexico gets pneumonia,'' Calderon told a gathering of the Economic Club of New York on Sept. 25. ``This is not exactly the case today.''
Stocks Fall
The Bolsa stock index fell 2 percent today to 19,905.27, a seventh straight decline.
The central bank spent $8.9 billion defending the peso the past three days after the currency touched its lowest level since the 1994 devaluation. The peso, which traded at 10.7125 per dollar two weeks ago, rose 1.3 percent today to 13.0452.
Mexico's credit markets will tighten as domestic companies that sought funding in the U.S. begin to search for financing at home, Deputy Central Bank Governor Guillermo Guemez Garcia said in an interview yesterday with Bloomberg Television.
``They will have to go to the Mexican market and that will cause some sort of credit crunch that will increase the cost of credit,'' Guemez said in the interview in New York.
The credit squeeze has also spread to companies in Brazil, where two of the nation's biggest exporters, Aracruz Celulose SA and Sadia SA, lost more than half of their market value since saying last month they made bad currency bets that may cost them a combined $1.2 billion. Aracruz had its long-term foreign currency rating cut to BBB- from BBB today by Standard & Poor's.
`Got to Be More'
``From an investor's standpoint there's got to be more disclosure,'' said Will Landers, who manages $5 billion in Latin American equities at BlackRock Inc. in New York. ``They have to do these things on balance sheet. They shouldn't be done off balance sheet. We need to better regulate this thing.''
Companies in Mexico have rushed to disclose their dollar liabilities as stocks tumbled. Banco Compartamos SAB, a bank that lends to the working poor, said it has no dollar liabilities or derivatives.
Promotora Ambiental SAB, a waste-disposal company, said a third of its 1.04 billion pesos in debt is denominated in dollars and 87 percent of its debt excluding certain projects is hedged through June. Empresas ICA SAB, Mexico's biggest construction company, said the drop in the peso will not have a ``material effect'' on its financial results.
Grupo Industrial Saltillo SAB, a maker of auto parts and building materials, said it took a charge of 600 million pesos in the third quarter because of derivatives, or securities that derive their value from an underlying asset, linked to exchange rates. The stock started trading again yesterday after the company's disclosure, dropping 15 percent to 10 pesos.
Bankruptcy Filing
Controladora Comercial Mexicana's bankruptcy filing came after the company failed to sell commercial paper yesterday that would have allowed it to repay 400 million pesos of debt due yesterday, Moody's Investors Service said. Comercial Mexicana, which said it has $1.08 billion in financial derivatives, and liabilities of $2 billion, fell 75 percent today to 2.16 pesos.
Mexico's exchange halts trading when shares rise or fall more than 15 percent until the company makes a statement about the move, and may suspend them again if the decline continues. Shares also can be suspended when the bourse determines more information is warranted, according to regulations on the exchange's Web site.
``It's important that companies provide enough information so investors can make the adequate decisions,'' Prieto Trevino said.
To contact the reporter on this story: William Freebairn in Mexico City at wfreebairn@bloomberg.net; Fabiola Moura in New York at fdemoura@bloomberg.net
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Lear, Chesapeake, New York & Co., Williams: U.S. Equity Preview
By Lu Wang
Oct. 10 (Bloomberg) -- The following companies may have unusual price changes in U.S. trading on Oct. 13. Stock symbols are in parentheses, and share prices are as of 5:30 p.m. in New York, unless otherwise specified.
Standard & Poor's 500 Index futures expiring in December lost 21.50, or 2.4 percent, to 891. Dow Jones Industrial Average futures fell 228, or 2.7 percent, to 8,370. Nasdaq-100 Index futures rose 10.50, or 0.8 percent, to 1,282.50.
Chesapeake Energy Corp. (CHK US): The petroleum producer said Chief Executive Officer Aubrey McClendon involuntarily sold ``substantially'' all of his shares in the company over the past three days to meet margin loan calls. The stock fell 6.7 percent to $16.52 in regular trading.
Group 1 Automotive Inc. (GPI US): The owner of more than 100 car dealerships in the U.S. and U.K. said third-quarter earnings were lower than forecast and said it's reviewing its full-year forecast. The stock lost 0.4 percent to $13.62 in regular trading.
Lear Corp. (LEA US): The world's second-largest maker of automotive seats reduced its 2008 earnings forecast by about 20 percent, citing ``deteriorating and volatile industry and general economic conditions.'' The stock slumped 16 percent to $6.10 in regular trading.
MBIA Inc. (MBI US): Third Avenue Management LLC held 11.3 percent of MBIA's common stock as of Sept. 30, down from 14.3 percent at the end of the previous quarter, according to a regulatory filing. The stock fell 8.1 percent to $5.88 in regular trading.
New York & Co. (NWY US) slumped $1.44, or 20 percent, to $5.81. The women's clothing retailer said it expects a loss of as much as 12 cents a share in the third quarter as sales declined. Analysts, on average, anticipated the company to earn 11 cents a share, according to a Bloomberg survey.
Wells Fargo & Co. (WFC US): The lender's credit rating may be cut by Moody's Investors Service because of increased risk the company faces in acquiring Wachovia Corp. (WB US). The stock rose 3.9 percent to $28.31 in regular trading.
Williams Cos. (WMB US): The pipeline company that gets 15 percent of its revenue from natural gas exploration and production said hurricanes Gustav and Ike reduced third-quarter profit by $50 million to $70 million. The stock fell 7.7 percent to $14.40 in regular trading.
To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net
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Oct. 10 (Bloomberg) -- The following companies may have unusual price changes in U.S. trading on Oct. 13. Stock symbols are in parentheses, and share prices are as of 5:30 p.m. in New York, unless otherwise specified.
Standard & Poor's 500 Index futures expiring in December lost 21.50, or 2.4 percent, to 891. Dow Jones Industrial Average futures fell 228, or 2.7 percent, to 8,370. Nasdaq-100 Index futures rose 10.50, or 0.8 percent, to 1,282.50.
Chesapeake Energy Corp. (CHK US): The petroleum producer said Chief Executive Officer Aubrey McClendon involuntarily sold ``substantially'' all of his shares in the company over the past three days to meet margin loan calls. The stock fell 6.7 percent to $16.52 in regular trading.
Group 1 Automotive Inc. (GPI US): The owner of more than 100 car dealerships in the U.S. and U.K. said third-quarter earnings were lower than forecast and said it's reviewing its full-year forecast. The stock lost 0.4 percent to $13.62 in regular trading.
Lear Corp. (LEA US): The world's second-largest maker of automotive seats reduced its 2008 earnings forecast by about 20 percent, citing ``deteriorating and volatile industry and general economic conditions.'' The stock slumped 16 percent to $6.10 in regular trading.
MBIA Inc. (MBI US): Third Avenue Management LLC held 11.3 percent of MBIA's common stock as of Sept. 30, down from 14.3 percent at the end of the previous quarter, according to a regulatory filing. The stock fell 8.1 percent to $5.88 in regular trading.
New York & Co. (NWY US) slumped $1.44, or 20 percent, to $5.81. The women's clothing retailer said it expects a loss of as much as 12 cents a share in the third quarter as sales declined. Analysts, on average, anticipated the company to earn 11 cents a share, according to a Bloomberg survey.
Wells Fargo & Co. (WFC US): The lender's credit rating may be cut by Moody's Investors Service because of increased risk the company faces in acquiring Wachovia Corp. (WB US). The stock rose 3.9 percent to $28.31 in regular trading.
Williams Cos. (WMB US): The pipeline company that gets 15 percent of its revenue from natural gas exploration and production said hurricanes Gustav and Ike reduced third-quarter profit by $50 million to $70 million. The stock fell 7.7 percent to $14.40 in regular trading.
To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net
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U.S. Stocks Drop in Rollercoaster Day; Dow Swings 1,000 Points
By Lynn Thomasson
Oct. 10 (Bloomberg) -- U.S. stocks fell for an eighth straight day in a whipsaw session that sent the Dow Jones Industrial Average to its biggest point swing ever.
The Dow posted the steepest weekly slide in the history of the 30-stock average and the Standard & Poor's 500 Index capped its worst week since 1933, as concern the financial crisis will drag the economy into a recession pushed Morgan Stanley and CBS Corp. down more than 20 percent and Exxon Mobil Corp. more than 8 percent. The Dow recovered from a 697-point tumble and rose as much as 322 points in the last hour as an industry group said the bankruptcy auction of Lehman Brothers Holdings Inc.'s debt won't worsen credit losses.
``At this point, investors are just focusing on getting through the day,'' said Alan Gayle, the Richmond, Virginia-based senior strategist at Ridgeworth Investments, which oversees about $70 billion. ``The markets are being driven by emotion and rumor.''
The S&P 500 slipped 10.7 points, or 1.2 percent, to 899.22. The Dow lost 128 points, or 1.5 percent, to 8,451.19. Both gauges extended their weekly drops to 18.2 percent and closed at the lowest levels in 5 1/2 years. The Nasdaq Composite Index added 4.39 points to 1,649.51. Eleven stocks fell for every 10 that rose on the New York Stock Exchange.
Global Rout
European and Asian benchmark indexes posted their worst weekly retreats on record as exchanges in Russia, Indonesia and Ukraine suspended trading in an effort to halt a global rout that has wiped out $25 trillion from global equities this year.
Developing country stocks also posted a record weekly plunge, with the MSCI Emerging Market Index losing 21 percent, led by a 20 percent slide in Brazil's benchmark index and a 16 percent retreat in India.
Comments from President George W. Bush and Italian Prime Minister Silvio Berlusconi did nothing to restore confidence in financial markets and slow the global rout. Officials from the Group of Seven nations gathered for talks in Washington this weekend to discuss the crisis.
The Dow twice recovered from drops of 500 points or more, first in the opening hour and again after 2 p.m. The afternoon rally pushed the 30-stock index as high as 8,901.28 before the gains were surrendered in the final minutes.
The Dow had one bigger weekly retreat in its 112-year history, a 23 percent tumble in 1914 before the average was expanded to 30 stocks in 1928.
Eight-Day Streak
The S&P 500's eight-day losing streak is its longest since 1996. This week's declines pushed both the S&P 500 and Dow down more than 40 percent from their peaks last October. The S&P 500 ended the week trading for 17 times reported earnings of its companies, the cheapest valuation in more than a year.
The market's ``fear gauge,'' as the Chicago Board Options Exchange Volatility Index is known, climbed to a fifth- consecutive record. The measure, which gauges the cost of using options as insurance against further stock declines, has tripled since the beginning of September.
Almost 3 billion shares changed hands on the floor of the NYSE, more than twice the three-month daily average and the third-highest level since Bloomberg began compiling the data in 1988.
The S&P 500 Energy Index, once the year's best-performing group, slumped 8 percent and lost 19 percent over the past two days. Oil fell below $80 a barrel for the first time in a year on concern the weakening economy will crimp demand.
Energy Slump
Exxon Mobil was the biggest drag on the S&P 500, losing 8.3 percent to $62.36. Chevron Corp. and ConocoPhillips were the second and third biggest drags, losing more than 9 percent each.
Newmont Mining Co., the largest U.S. gold producer, slid 14 percent to $29.23 as bullion tumbled and copper lost 11 percent to cap its worst week in two decades.
Morgan Stanley sank $2.77, or 22 percent, to a 12-year low of $9.68, while Goldman Sachs Group Inc. fell $12.55, or 12 percent, to $88.80 after their credit outlooks were cut to negative by Moody's Investors Service. The review of Morgan Stanley's A1 long-term credit rating affects about $200 billion of debt, Moody's said. The ratings assessor affirmed its Prime-1 grade for Morgan Stanley's short-term debt.
The negative outlook for Goldman Aa3 long-term rating affects $175 billion of debt, and the company's short-term ratings were also affirmed at Prime-1.
Credit Freeze
Credit markets stayed frozen as the cost of borrowing in dollars in London for three months rose for a fourth consecutive day. The London interbank offered rate, or Libor, that banks charge each other for such loans climbed 7 basis points to 4.82 percent today, a high for the year, the British Bankers' Association said.
The late-day rally in financial shares came after the International Swaps and Derivatives Association Inc. said Lehman's debt had ``little or no'' unanticipated costs and didn't cause any firms to fail. Sellers of credit-default protection on bankrupt Lehman's debt will have to pay holders more than 91 cents on the dollar after an auction today, setting up the biggest-ever payout in the $55 trillion market.
Citigroup Inc. climbed 9.1 percent to $14.11 paring its decline this week to 23 percent. Bank of America Corp. added 6.3 percent to $20.87 and JPMorgan Chase & Co. rose 14 percent to $41.64.
The S&P 500 Financials Index added 7 percent, reversing a drop of the same size and paring its weekly loss to 11 percent.
Macy's, CBS
Macy's Inc. slid $1.54, or 13 percent, to $9.92. The second-biggest U.S. department-store company cut its annual profit forecast, citing the weakened economy and diminished consumer confidence. Earnings per share this year may decline to $1.30 to $1.50, compared with its earlier projection of $1.70 to $1.85, the retailer said.
CBS Corp. fell the most in at least 17 years, tumbling 20 percent to $8.10. The producer of television and radio shows reported a decrease in third-quarter profit on weakening advertising sales and said it's planning to take a $14 billion charge to reflect the declining value of its assets.
``This is still a Category 4 hurricane,'' said Scott Black, founder and president of Delphi Management Inc. in Boston, which has about $1.4 billion under management. ``I don't really think the market is going to zero, but for people who have cash on the sidelines, they can wait until the storm passes.''
Regionals Rally
Regional banks in the S&P 500 climbed 9.5 percent as a group in early trading and led the market higher for about 10 minutes in early trading on speculation mergers will accelerate and they will gain market shares from larger rivals hit worse by the credit crisis.
M&T Bank Corp. helped paced the gains as Robert W. Baird & Co. raised its rating on the lender whose second-largest shareholder is Berkshire Hathaway Inc. and said the shares are more attractive following a plunge that erased almost a third of the stock's value.
M&T Bank increased 12 percent to $72.75. Marshall & Ilsley Corp., PNC Financial Services Group Inc. and Zions Bancorporation each climbed more than 13 percent.
The New York Stock Exchange and Nasdaq Stock Market may propose a temporary ban on short sales for individual stocks that plunge as regulators seek to rein in short-selling, according to three people who have seen a draft of the rule. The plan, which may be submitted as soon as today, would require a stock that closes down more than 20 percent be protected from short sellers for the following three days, the people said.
Earnings Slump
Analysts expect a 7.5 percent drop in third-quarter profit at S&P 500 companies, according to a Bloomberg survey published today. Last week, the consensus was for a decline of 5.6 percent. Earnings at financial companies are forecast to slump 74 percent on average in the period.
Europe's Stoxx 600 slumped 7.5 percent, extending this week's decline to 22 percent, the most since records began in January 1987.
The gauge trades at 8.5 times profit, the cheapest since 1981.
``The problem is the rules of valuation no longer exist,'' said Pierre-Yves Gauthier, founding partner of Alphavalue SAS in Paris. ``It's best to remain cautious. The economic slowdown is here. A recession could be heavy.''
To contact the reporter for this story: Lynn Thomasson in New York at lthomasson@bloomberg.net;
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Oct. 10 (Bloomberg) -- U.S. stocks fell for an eighth straight day in a whipsaw session that sent the Dow Jones Industrial Average to its biggest point swing ever.
The Dow posted the steepest weekly slide in the history of the 30-stock average and the Standard & Poor's 500 Index capped its worst week since 1933, as concern the financial crisis will drag the economy into a recession pushed Morgan Stanley and CBS Corp. down more than 20 percent and Exxon Mobil Corp. more than 8 percent. The Dow recovered from a 697-point tumble and rose as much as 322 points in the last hour as an industry group said the bankruptcy auction of Lehman Brothers Holdings Inc.'s debt won't worsen credit losses.
``At this point, investors are just focusing on getting through the day,'' said Alan Gayle, the Richmond, Virginia-based senior strategist at Ridgeworth Investments, which oversees about $70 billion. ``The markets are being driven by emotion and rumor.''
The S&P 500 slipped 10.7 points, or 1.2 percent, to 899.22. The Dow lost 128 points, or 1.5 percent, to 8,451.19. Both gauges extended their weekly drops to 18.2 percent and closed at the lowest levels in 5 1/2 years. The Nasdaq Composite Index added 4.39 points to 1,649.51. Eleven stocks fell for every 10 that rose on the New York Stock Exchange.
Global Rout
European and Asian benchmark indexes posted their worst weekly retreats on record as exchanges in Russia, Indonesia and Ukraine suspended trading in an effort to halt a global rout that has wiped out $25 trillion from global equities this year.
Developing country stocks also posted a record weekly plunge, with the MSCI Emerging Market Index losing 21 percent, led by a 20 percent slide in Brazil's benchmark index and a 16 percent retreat in India.
Comments from President George W. Bush and Italian Prime Minister Silvio Berlusconi did nothing to restore confidence in financial markets and slow the global rout. Officials from the Group of Seven nations gathered for talks in Washington this weekend to discuss the crisis.
The Dow twice recovered from drops of 500 points or more, first in the opening hour and again after 2 p.m. The afternoon rally pushed the 30-stock index as high as 8,901.28 before the gains were surrendered in the final minutes.
The Dow had one bigger weekly retreat in its 112-year history, a 23 percent tumble in 1914 before the average was expanded to 30 stocks in 1928.
Eight-Day Streak
The S&P 500's eight-day losing streak is its longest since 1996. This week's declines pushed both the S&P 500 and Dow down more than 40 percent from their peaks last October. The S&P 500 ended the week trading for 17 times reported earnings of its companies, the cheapest valuation in more than a year.
The market's ``fear gauge,'' as the Chicago Board Options Exchange Volatility Index is known, climbed to a fifth- consecutive record. The measure, which gauges the cost of using options as insurance against further stock declines, has tripled since the beginning of September.
Almost 3 billion shares changed hands on the floor of the NYSE, more than twice the three-month daily average and the third-highest level since Bloomberg began compiling the data in 1988.
The S&P 500 Energy Index, once the year's best-performing group, slumped 8 percent and lost 19 percent over the past two days. Oil fell below $80 a barrel for the first time in a year on concern the weakening economy will crimp demand.
Energy Slump
Exxon Mobil was the biggest drag on the S&P 500, losing 8.3 percent to $62.36. Chevron Corp. and ConocoPhillips were the second and third biggest drags, losing more than 9 percent each.
Newmont Mining Co., the largest U.S. gold producer, slid 14 percent to $29.23 as bullion tumbled and copper lost 11 percent to cap its worst week in two decades.
Morgan Stanley sank $2.77, or 22 percent, to a 12-year low of $9.68, while Goldman Sachs Group Inc. fell $12.55, or 12 percent, to $88.80 after their credit outlooks were cut to negative by Moody's Investors Service. The review of Morgan Stanley's A1 long-term credit rating affects about $200 billion of debt, Moody's said. The ratings assessor affirmed its Prime-1 grade for Morgan Stanley's short-term debt.
The negative outlook for Goldman Aa3 long-term rating affects $175 billion of debt, and the company's short-term ratings were also affirmed at Prime-1.
Credit Freeze
Credit markets stayed frozen as the cost of borrowing in dollars in London for three months rose for a fourth consecutive day. The London interbank offered rate, or Libor, that banks charge each other for such loans climbed 7 basis points to 4.82 percent today, a high for the year, the British Bankers' Association said.
The late-day rally in financial shares came after the International Swaps and Derivatives Association Inc. said Lehman's debt had ``little or no'' unanticipated costs and didn't cause any firms to fail. Sellers of credit-default protection on bankrupt Lehman's debt will have to pay holders more than 91 cents on the dollar after an auction today, setting up the biggest-ever payout in the $55 trillion market.
Citigroup Inc. climbed 9.1 percent to $14.11 paring its decline this week to 23 percent. Bank of America Corp. added 6.3 percent to $20.87 and JPMorgan Chase & Co. rose 14 percent to $41.64.
The S&P 500 Financials Index added 7 percent, reversing a drop of the same size and paring its weekly loss to 11 percent.
Macy's, CBS
Macy's Inc. slid $1.54, or 13 percent, to $9.92. The second-biggest U.S. department-store company cut its annual profit forecast, citing the weakened economy and diminished consumer confidence. Earnings per share this year may decline to $1.30 to $1.50, compared with its earlier projection of $1.70 to $1.85, the retailer said.
CBS Corp. fell the most in at least 17 years, tumbling 20 percent to $8.10. The producer of television and radio shows reported a decrease in third-quarter profit on weakening advertising sales and said it's planning to take a $14 billion charge to reflect the declining value of its assets.
``This is still a Category 4 hurricane,'' said Scott Black, founder and president of Delphi Management Inc. in Boston, which has about $1.4 billion under management. ``I don't really think the market is going to zero, but for people who have cash on the sidelines, they can wait until the storm passes.''
Regionals Rally
Regional banks in the S&P 500 climbed 9.5 percent as a group in early trading and led the market higher for about 10 minutes in early trading on speculation mergers will accelerate and they will gain market shares from larger rivals hit worse by the credit crisis.
M&T Bank Corp. helped paced the gains as Robert W. Baird & Co. raised its rating on the lender whose second-largest shareholder is Berkshire Hathaway Inc. and said the shares are more attractive following a plunge that erased almost a third of the stock's value.
M&T Bank increased 12 percent to $72.75. Marshall & Ilsley Corp., PNC Financial Services Group Inc. and Zions Bancorporation each climbed more than 13 percent.
The New York Stock Exchange and Nasdaq Stock Market may propose a temporary ban on short sales for individual stocks that plunge as regulators seek to rein in short-selling, according to three people who have seen a draft of the rule. The plan, which may be submitted as soon as today, would require a stock that closes down more than 20 percent be protected from short sellers for the following three days, the people said.
Earnings Slump
Analysts expect a 7.5 percent drop in third-quarter profit at S&P 500 companies, according to a Bloomberg survey published today. Last week, the consensus was for a decline of 5.6 percent. Earnings at financial companies are forecast to slump 74 percent on average in the period.
Europe's Stoxx 600 slumped 7.5 percent, extending this week's decline to 22 percent, the most since records began in January 1987.
The gauge trades at 8.5 times profit, the cheapest since 1981.
``The problem is the rules of valuation no longer exist,'' said Pierre-Yves Gauthier, founding partner of Alphavalue SAS in Paris. ``It's best to remain cautious. The economic slowdown is here. A recession could be heavy.''
To contact the reporter for this story: Lynn Thomasson in New York at lthomasson@bloomberg.net;
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Friday, October 10, 2008
Short Squeeze Triggers Sharp Volatility in Stocks, FX Traders Look for Buying Opportunity
| Daily Forex Fundamentals | Written by GFT | Oct 10 08 15:14 GMT | | |
| For the first time since March 2003, the Dow Jones Industrial Average broke 8000 at the open of the US markets. However just as quickly as stocks dropped 600 points, it recovered more than half of its losses in the first 15 minutes of trading and actually moved into positive territory 35 minutes into the trading session. The capitulation followed by the major short squeeze suggests that we may have seen a near term bottom. This type of volatility drove the VIX index to a record high of 70. Currency Traders Waiting for the Buying Opportunity Interestingly enough, we have not seen much of a reaction in the currency market. This suggests that the capitulation is only in stocks and traders are waiting for the bounce to get in. The day is early so many things can change and equities could sell off again, but for the time being, it appears that the buyers of EUR/USD, GBP/USD and USD/JPY are sitting on the sidelines waiting to get in. If stocks start bottoming out, carry trades could actually bounce today. No one will want to be short carry ahead of the G7 and G20 meeting this weekend - we expect a bounce. Pessimism in Uncharted Territories Pessimism in the market has hit uncharted territories with the TED spread reaching another record high. This indicates that liquidity remains a problem and unfortunately confidence in the markets is tied to liquidity. Lehman has a CDS auction today and the rumor in the markets is that governments could resort to temporarily shutting down equity trading. This seems nearly impossible by theory, but it is certainly becoming a growing possibility. There is nothing more coveted than cash right now and the continued hemorrhaging will force the G7 and G20 into action. It will be another long weekend for US Treasury Secretary Paulson and Federal Reserve Chairman Ben Bernanke. There is even talk that the US is considering a guarantee of bank debt. G7 Meeting - Most Significant Since 1985 Plaza Accord Finance Ministers have arrived in Washington for the G7 meeting while the G20 meeting is scheduled for the weekend. This will be the most significant G7 / G20 meeting since the 1985 Plaza Accord which marked a major turning point for the US dollar. The consequences of inaction are severe, so we expect a big announcement this weekend if not sooner. In 1985, the 5 nations attending the event agreed to intervene in the currency markets and to sell US dollars to reduce the US current account deficit and to pull the US economy out of a serious recession. FX intervention is still on the table, but it remains to be seen whether even that step will enough to surprise the markets. How Low Can Stocks Go? The Dow Jones Industrial Average has fallen to the lowest level in 5 years. Since its peak in October 2007, the Dow has fallen close to 40 percent. The worst financial crisis prior to the current one was the Wall Street Crash of 1929, which led to the Great Depression. Stocks started selling off in October 1929 with the big crash happening on October 29th of that year. Equities did not bottom out until July 1932, after the Dow lost 89 percent of its value. These are scary figures but it provides a perspective on how bad things have gotten in the past. We sincerely hope that this doesn't happen, but the lower equities fall, the greater the decline in USD/JPY and carry trades. Kathy Lien DISCLAIMER: GFT refers to Global Futures & Forex, Ltd. and all of its divisions, branches and subsidiaries, including Global Forex Trading and GFT Global Markets UK Limited. GFT Global Markets UK Limited is authorized and regulated by the United Kingdom Financial Services Authority. Each investment product is offered only to and from jurisdictions where solicitation and sale are lawful. Trading of foreign exchange contracts, contracts for differences, derivatives and other investment products which are leveraged, can carry a high level of risk, and may not be suitable for all investors. It is possible to lose more than the initial investment. In Australia, GFT means Global Futures & Forex, Ltd. ARBN 103 508 461, AFS Licence 226625. A Product Disclosure Statement (PDS) is available at www.gft.com.au. You should read and consider the PDS before making any decision to deal in GFT products. © 2008 Global Futures & Forex, Ltd. All rights reserved. | |
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FX Performance Since the Storm
| Daily Forex Fundamentals | Written by Ashraf Laidi | Oct 10 08 15:16 GMT | | |
| The charts below show the performance of major currencies as measured against gold and each other, since September 2-- two weeks before the makets' plunge. The relationship between slumping world equities, record high TED spreads (LIBOR minus T-bill) and multi-year highs in low-yielding currencies is bolstered by a break in confidence across the equity, credit and foreign exchange markets. Our Thursday morning piece sent to clients titled "Sterling Still the Major Loser" preceded further losses in the currency as GBPUSD broke to 5-year lows at $1.6784. Sterling also slumped against the Swiss franc, hitting 12-year lows at 1.900 as the Swiss franc also flexed its low yielding safe haven muscle alongside the Japanese yen. But the yen fared exceedingly better than the Franc, hitting 3-year highs against the franc at 86.53 yen, a 7% rise for the yen this week and an 18% increase from its June record low. Aside from favoring JPY and CHF against GBP, AUD and NZD, using USD as a low yielding play against GBP and AUD remains the preferred short-term play especially as a hedging short USDJPY positions. Dissecting Currency Performance Since September 2nd
The charts show the Japanese yen as the best performing currency since September 2, which is about 2 weeks before the surge in volatility. The left chart shows currencies performance as measured against gold, with the yen showing the least decline at -4% and the Aussie the greatest decline at an astounding 44% loss against the metal. The yen is followed by the dollar and Swiss franc, while the worst performing Aussie is followed by the New Zealand dollar and the Canadian dollar, all of which are typical commodity currencies. The chart on the right shows the returns of each currency against an aggregate of 7 other currencies, also showing similar performance. The reason the dollar has outpaced the lower yielding Swiss franc in overall performance partly reflects the unwinding of dollar-selling positions accumulated over since mid September, as well as funds disposal of positions in emerging market assets. The complete break in the once positive correlation between gold and the Aussie owes to the escalation in the unwinding of carry trades at the expense of high yielding currencies, which coincided with a refuge to the safe haven metal. Thus, unlike in past conditions of strengthening economic fundamentals when rising gold moved in tandem with the metal-dependent Aussie, todays conditions are characterized by reduced risk appetite, money flowing out of high yielding currencies to the benefit of safe haven yen, Swiss franc and gold. Equity markets are increasingly being dominated by liquidators as fund managers accelerate selling to meet or avoid margin calls and hedge funds clients pile on their redemption requests. In an environment where 5%-8% daily losses in major indices are a back-to-back occurrence, the modus operandi mainly is characterized by players seeking an exit, or speculators buying volatility, rather than traders seeking value. Ashraf Laidi | |
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U.S. August Trade Balance: Statistical Summary (Table)
By Kristy Scheuble
Oct. 10 (Bloomberg) -- Following is a summary of the U.S. trade balance report from the Commerce Department.
=============================================================================
Aug. July June May April Year
2008 2008 2008 2008 2008 Ago
=============================================================================
-----------------Billions of Dollars-----------------
Total trade balance -$59.138 -$61.305 -$58.835 -$60.208 -$61.508 -$55.333
3-mo. average -$59.759 -$60.116 -$60.184 -$59.560 -$59.969 -$59.037
MoM % change -3.5% 4.2% -2.3% -2.1% 8.0% n/a
Ex-petroleum -$23.530 -$18.355 -$21.499 -$27.371 -$26.734 -$30.920
Exports $164.715 $168.089 $162.788 $156.935 $155.094 $142.113
Imports $223.853 $229.393 $221.624 $217.143 $216.602 $197.446
-----------------------------------------------------------------------------
Goods -$70.901 -$74.116 -$71.267 -$72.111 -$72.950 -$66.672
Exports $117.642 $120.834 $116.255 $110.998 $110.059 $98.524
Imports $188.543 $194.949 $187.523 $183.109 $183.009 $165.196
-----------------------------------------------------------------------------
=============================================================================
Aug. July June May April Year
2008 2008 2008 2008 2008 Ago
=============================================================================
Services $11.763 $12.811 $12.432 $11.903 $11.442 $11.339
Exports $47.073 $47.255 $46.533 $45.937 $45.035 $43.589
Imports $35.310 $34.444 $34.101 $34.034 $33.593 $32.250
-----------------------------------------------------------------------------
Real $ goods balance -$38.992 -$40.926 -$40.149 -$43.529 -$46.925 -$51.972
Ex-petroleum -$35.592 -$32.678 -$34.566 -$39.439 -$38.708 -$44.130
-------------------MOM%------------------- -YOY%-
Total exports -2.0% 3.3% 3.7% 1.2% 3.6% 15.9%
Goods -2.6% 3.9% 4.7% 0.9% 4.8% 19.4%
Capital goods 2.0% 2.2% 2.9% -1.7% 6.0% 11.1%
Semiconductors 0.5% -0.2% 6.2% 0.0% -1.7% 14.5%
Computer access. -7.6% 6.9% -0.6% -1.2% 8.7% 4.1%
Telecom equipment -5.8% 0.5% -1.9% 0.2% -5.7% -8.4%
Civilian aircraft 31.9% 5.7% -8.2% 7.8% 23.5% 22.6%
Indust. supplies -3.2% 4.2% 7.4% 4.4% 3.7% 35.4%
Consumer goods -5.9% 5.3% 5.3% 0.0% 6.7% 12.5%
Automotive -13.8% 12.6% 5.7% 1.9% 6.2% 1.9%
=============================================================================
Aug. July June May April Year
2008 2008 2008 2008 2008 Ago
=============================================================================
Food & beverage -2.1% -0.4% 7.6% -2.0% 2.8% 35.1%
Real $ goods -0.2% 2.0% 3.6% 0.9% 4.9% 10.9%
Services -0.4% 1.6% 1.3% 2.0% 0.8% 8.0%
---------------------Level Change--------------------
Total exports -$3.374 $5.301 $5.853 $1.841 $5.388 $22.602
Goods -$3.192 $4.579 $5.257 $0.939 $5.030 $19.118
Capital goods $0.827 $0.903 $1.158 -$0.672 $2.280 $4.219
Semiconductors $0.020 -$0.008 $0.259 $0.001 -$0.073 $0.564
Computer access. -$0.211 $0.179 -$0.015 -$0.031 $0.212 $0.101
Telecom equipment -$0.160 $0.013 -$0.054 $0.006 -$0.169 -$0.238
Civilian aircraft $1.334 $0.227 -$0.352 $0.313 $0.760 $1.014
Indust. supplies -$1.230 $1.556 $2.535 $1.454 $1.175 $9.674
Consumer goods -$0.883 $0.750 $0.712 -$0.004 $0.840 $1.561
Automotive -$1.683 $1.364 $0.578 $0.186 $0.590 $0.195
Food & beverage -$0.222 -$0.039 $0.739 -$0.201 $0.265 $2.636
Real $ goods -$0.150 $1.821 $3.220 $0.793 $4.201 $9.353
Services -$0.182 $0.722 $0.596 $0.902 $0.358 $3.484
=============================================================================
Aug. July June May April Year
2008 2008 2008 2008 2008 Ago
=============================================================================
Total imports MoM% -2.4% 3.5% 2.1% 0.2% 4.8% 13.4%
Goods -3.3% 4.0% 2.4% 0.1% 5.5% 14.1%
Ex-petroleum 0.9% 1.0% -1.3% 1.2% 3.7% 5.7%
Capital goods -2.0% 1.5% -3.4% 1.7% 3.2% 2.6%
Semiconductors -7.0% 5.1% -6.2% -0.2% 4.2% -9.2%
Computer access. -3.9% -3.8% -2.0% 3.3% -2.1% -0.9%
Telecom equipment 1.0% 0.2% -0.9% 1.5% 4.8% 6.6%
Civilian aircraft -16.5% -15.5% 19.4% -23.8% -6.5% -26.2%
Indust. supplies -7.8% 8.9% 9.4% -0.6% 9.7% 37.7%
Crude oil -15.5% 17.8% 13.2% -0.4% 13.9% 74.7%
Consumer goods 5.6% -0.6% -1.2% 4.1% 1.7% 10.5%
Pharmaceuticals 23.4% -16.8% 26.6% -1.8% -13.3% 40.3%
Apparel 10.2% -1.3% -7.8% 7.5% -2.2% -2.0%
Automotive -6.0% -0.4% 0.3% -4.7% 5.8% -12.4%
Food & beverage 3.2% 0.6% -1.8% 3.5% 4.1% 11.8%
Real $ goods -1.5% 1.9% -0.1% -1.9% 3.0% -2.6%
Services 2.5% 1.0% 0.2% 1.3% 1.1% 9.5%
=============================================================================
Aug. July June May April Year
2008 2008 2008 2008 2008 Ago
=============================================================================
---------------------Level Change--------------------
Total imports -$5.540 $7.769 $4.481 $0.541 $9.932 $26.407
Goods -$6.406 $7.426 $4.414 $0.100 $9.577 $23.347
Ex-petroleum $1.314 $1.347 -$1.927 $1.639 $5.052 $7.737
Capital goods -$0.768 $0.571 -$1.341 $0.670 $1.230 $0.961
Semiconductors -$0.157 $0.110 -$0.141 -$0.004 $0.093 -$0.211
Computer access. -$0.207 -$0.209 -$0.111 $0.178 -$0.119 -$0.048
Telecom equipment $0.039 $0.006 -$0.034 $0.058 $0.176 $0.241
Civilian aircraft -$0.153 -$0.170 $0.178 -$0.287 -$0.084 -$0.274
Indust. supplies -$6.205 $6.494 $6.296 -$0.435 $5.981 $20.169
Crude oil -$6.137 $5.973 $3.930 -$0.134 $3.634 $14.302
Consumer goods $2.293 -$0.258 -$0.509 $1.646 $0.663 $4.135
Pharmaceuticals $1.479 -$1.275 $1.592 -$0.112 -$0.939 $2.239
Apparel $0.399 -$0.053 -$0.336 $0.302 -$0.091 -$0.088
Automotive -$1.232 -$0.087 $0.058 -$1.002 $1.175 -$2.717
Food & beverage $0.242 $0.044 -$0.140 $0.261 $0.291 $0.823
Real $ goods -$2.084 $2.599 -$0.161 -$2.603 $3.910 -$3.628
=============================================================================
Aug. July June May April Year
2008 2008 2008 2008 2008 Ago
=============================================================================
Services $0.866 $0.343 $0.067 $0.441 $0.355 $3.060
---------Imports of energy related petroleum--------
Total petro products
Barrels (millions) 388.679 424.467 382.675 373.287 388.145 414.665
Value (billions) $46.013 $52.814 $45.207 $40.360 $38.186 $28.898
Crude petroleum
Barrels (millions) 308.38 342.024 297.532 293.995 303.05 317.585
Barrels per day(mln) 9.948 11.033 9.918 9.484 10.102 10.245
Value (billions) $37.001 $42.638 $34.850 $31.245 $29.340 $21.648
Price per barrel $119.99 $124.66 $117.13 $106.28 $96.81 $68.16
------------Advanced Technology Products------------
Balance -$3.212 -$7.084 -$3.876 -$3.546 -$5.311 -$4.650
Exports $25.122 $23.311 $25.037 $24.078 $23.423 $23.247
Imports $28.334 $30.395 $28.912 $27.624 $28.734 $27.897
-----Balance by Country---Year ago YTD 2008 YTD 2007
Canada -$7.417 -$8.243 -$7.233 -$5.524 -$54.395 -$46.309
Mexico -$5.880 -$5.456 -$5.689 -$6.812 -$47.037 -$46.799
=============================================================================
Aug. July June Year YTD YTD
2008 2008 2008 Ago 2008 2007
=============================================================================
Europe -$8.993 -$12.817 -$10.716 -$10.759 -$71.902 -$78.984
France -$0.988 -$1.714 -$1.537 -$1.388 -$9.725 -$9.044
Germany -$3.188 -$4.601 -$3.899 -$4.155 -$30.480 -$29.976
Ireland -$1.706 -$1.991 -$1.722 -$1.973 -$14.325 -$15.253
Italy -$1.925 -$2.462 -$1.536 -$2.114 -$14.569 -$14.061
Netherlands $1.871 $1.690 $0.967 $1.025 $13.136 $10.540
United Kingdom -$1.301 -$0.809 -$0.042 -$0.898 -$2.089 -$3.188
Pacific Rim -$30.825 -$32.572 -$26.596 -$31.634 -$223.841 -$238.862
China -$25.334 -$24.877 -$21.430 -$22.542 -$167.673 -$163.799
Japan -$4.766 -$6.328 -$6.127 -$6.899 -$50.788 -$54.947
Malaysia -$1.336 -$1.614 -$1.366 -$1.926 -$12.481 -$13.805
NICS $0.650 $0.198 $2.213 $0.048 $6.181 -$4.247
Korea -$0.749 -$1.335 -$0.482 -$0.808 -$8.045 -$9.574
Taiwan -$1.076 -$0.489 -$0.625 -$0.841 -$5.578 -$7.736
South/Central America -$1.646 -$4.504 -$2.753 -$2.596 -$19.338 -$18.925
OPEC countries -$19.199 -$24.184 -$18.098 -$11.366 -$137.932 -$78.050
Africa -$8.470 -$10.243 -$9.309 -$6.349 -$65.152 -$44.408
=============================================================================
NOTE: All dollar figures are in billions. All figures are seasonally
adjusted except for country balances and energy related petroleum
imports.
SOURCE: U.S. Commerce Department.
To contact the reporter on this story: Kristy Scheuble in Washington kmckeaney@bloomberg.net
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King Must Stop Morality `Lessons' on U.K. Banking, Minford Says
By Svenja O'Donnell
Oct. 10 (Bloomberg) -- Bank of England Governor Mervyn King should stop giving banks ``lessons in morality'' and focus on preventing financial collapse, said Patrick Minford, a former adviser to Margaret Thatcher.
``The bank has been detached and not got the point that we have serious disarray in financial markets,'' Minford, who is now an economics professor at Cardiff University, said today in an interview. ``Its role is to get in there and sort it out, not make quasi-regulatory moralistic noises at this stage of the game.''
King will next week unveil a planned revamp of money-market operations to help the banking system weather the crisis. The Bank of England, which joined a global round of surprise rate cuts this week, has yet to reduce the penalty on emergency loans and the mortgage securities it accepts as collateral must have the highest credit rating.
``I think the bank has performed so badly it's asking a lot for people to trust them,'' said Minford. ``The banks themselves must feel really let down. For the Bank of England to offer extra help in giving banks a good spanking is really offensive.''
The U.K. central bank has so far refrained from lowering the margin at which they set the so-called penalty rate. The European Central Bank halved the margin it charges banks hours after the coordinated rate cuts. The Bank of England's penalty rate is set at one percentage above the benchmark rate, currently 4.5 percent, double the margin set by the ECB.
`Lessons in Morality'
``It is really not King's job to read us lessons in morality at this stage,'' Minford said. ``It's to get behind the banking system and avoid the consequences of collapse. That involves a scheme, very broadly drawn in terms of acceptable assets, the broadest range of assets to be accepted by the bank.''
The bank's emergency lending program accepts as collateral residential mortgage-backed securities issued in the U.K. or European Economic Area rated AAA, the highest level. On such securities with a maturity date more than a decade away, it will lend only 78 pounds ($134) for every 100 pounds in loan value, a ``haircut'' of 22 percent, its strictest terms. The comparable discount for government debt of similar maturity is 5.5 percent, while government agency debt is discounted by 14 percent.
``The special liquidity scheme has one major flaw: they charge a huge fee to provide liquidity,'' Minford said. ``They have been feeding the problem. They need liquidity at base rate, plus a small penalty rate.''
The U.S. Federal Reserve and other central banks on Oct. 8 delivered a coordinated round of interest-rate reductions to protect economies from the worst financial market crisis since the Great Depression. The Bank of England cut its rate by half a point after keeping it unchanged at 5 percent since April.
`Kicking and Screaming'
``The Bank of England's behavior has been a major contributor to the crisis,'' Minford said. ``They've been dragged kicking and screaming into the role they've been forced to undertake.''
Former Bank of England policy makers have said more rate cuts will be needed. Christopher Allsopp, a member of the monetary policy committee from 2000 to 2003, said that the bank will probably need to follow the rate cut with ``another big one.''
``The Bank of England is now faced with possible meltdown and deflation,'' said Minford. ``The central bank needs to get behind the banking system and avoid the consequences of collapse.''
To contact the reporter on this story: Svenja O'Donnell in London at sodonnell@bloomberg.net.
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Oct. 10 (Bloomberg) -- Bank of England Governor Mervyn King should stop giving banks ``lessons in morality'' and focus on preventing financial collapse, said Patrick Minford, a former adviser to Margaret Thatcher.
``The bank has been detached and not got the point that we have serious disarray in financial markets,'' Minford, who is now an economics professor at Cardiff University, said today in an interview. ``Its role is to get in there and sort it out, not make quasi-regulatory moralistic noises at this stage of the game.''
King will next week unveil a planned revamp of money-market operations to help the banking system weather the crisis. The Bank of England, which joined a global round of surprise rate cuts this week, has yet to reduce the penalty on emergency loans and the mortgage securities it accepts as collateral must have the highest credit rating.
``I think the bank has performed so badly it's asking a lot for people to trust them,'' said Minford. ``The banks themselves must feel really let down. For the Bank of England to offer extra help in giving banks a good spanking is really offensive.''
The U.K. central bank has so far refrained from lowering the margin at which they set the so-called penalty rate. The European Central Bank halved the margin it charges banks hours after the coordinated rate cuts. The Bank of England's penalty rate is set at one percentage above the benchmark rate, currently 4.5 percent, double the margin set by the ECB.
`Lessons in Morality'
``It is really not King's job to read us lessons in morality at this stage,'' Minford said. ``It's to get behind the banking system and avoid the consequences of collapse. That involves a scheme, very broadly drawn in terms of acceptable assets, the broadest range of assets to be accepted by the bank.''
The bank's emergency lending program accepts as collateral residential mortgage-backed securities issued in the U.K. or European Economic Area rated AAA, the highest level. On such securities with a maturity date more than a decade away, it will lend only 78 pounds ($134) for every 100 pounds in loan value, a ``haircut'' of 22 percent, its strictest terms. The comparable discount for government debt of similar maturity is 5.5 percent, while government agency debt is discounted by 14 percent.
``The special liquidity scheme has one major flaw: they charge a huge fee to provide liquidity,'' Minford said. ``They have been feeding the problem. They need liquidity at base rate, plus a small penalty rate.''
The U.S. Federal Reserve and other central banks on Oct. 8 delivered a coordinated round of interest-rate reductions to protect economies from the worst financial market crisis since the Great Depression. The Bank of England cut its rate by half a point after keeping it unchanged at 5 percent since April.
`Kicking and Screaming'
``The Bank of England's behavior has been a major contributor to the crisis,'' Minford said. ``They've been dragged kicking and screaming into the role they've been forced to undertake.''
Former Bank of England policy makers have said more rate cuts will be needed. Christopher Allsopp, a member of the monetary policy committee from 2000 to 2003, said that the bank will probably need to follow the rate cut with ``another big one.''
``The Bank of England is now faced with possible meltdown and deflation,'' said Minford. ``The central bank needs to get behind the banking system and avoid the consequences of collapse.''
To contact the reporter on this story: Svenja O'Donnell in London at sodonnell@bloomberg.net.
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G-7 `Against the Wall,' Weighs Loan-Guarantee Plan
By Simon Kennedy
Oct. 10 (Bloomberg) -- Finance ministers and central bankers from the Group of Seven nations meet today facing a breakdown in investor confidence in their ability to end the credit freeze endangering the global economy.
Threatened by the worst economic outlook in a quarter century, officials arrived in Washington still without the broad-based strategy that investors were seeking, raising the risk of further turmoil if their remedies disappoint. Among the options: a proposal by U.K. Chancellor Alistair Darling for nations to guarantee lending between banks, a suggestion that U.S. Treasury Secretary Henry Paulson hasn't ruled out.
Unprecedented interest-rate cuts and bank bailouts failed to quell panic in markets, putting the officials under pressure to pull even more policy levers. The MSCI World Index of stocks is recording its worst week in more than three decades and credit markets remained frozen.
``Global policy makers have their backs against the wall -- they have nowhere to run, nowhere to hide,'' said Marco Annunziata, chief economist at Unicredit MIB in London. ``Do not underestimate how hard they are going to fight back now.''
The officials from the U.S., Japan, Germany, U.K., France, Canada and Italy are gathering for the first time since the financial crisis intensified last month and spread more virulently beyond U.S. borders.
Emergency Meeting
The International Monetary Fund, which activated an emergency-financing mechanism to aid countries that run into trouble, and the Financial Stability Forum held emergency talks yesterday with officials from 27 nations to discuss responses to the turbulence. Paulson helped lead the meeting.
G-7 officials are scheduled to release a joint statement at about 6 p.m. in Washington.
``This is an opportunity to make sure that they're all on the same track,'' said former Federal Reserve Chairman Paul Volcker. He urged that ``all of them now admit or all of them own up to the fact their own banks are going to need support,'' in an interview with PBS Television's Charlie Rose show.
Reflecting the seriousness of the crisis, President George W. Bush will meet with the G-7 in an echo of predecessor Bill Clinton's gathering with the group during a 1998 financial crisis. Officials from the broader Group of 20 will convene for a special meeting tomorrow.
Borrowing Costs
The G-7's dilemma is that even after a battery of policy actions, money markets remain gridlocked as banks shun lending to each other for fear they will lose the money or because they need it themselves. The cost of borrowing dollars for three months in London today rose to its highest this year and the rate in Tokyo jumped to the most since 1998.
``Mistrust is set to persist,'' said Nick Stamenkovic, a fixed-income strategist in Edinburgh at RIA Capital Markets. ``While measures are moving in the right direction, reaction has been lukewarm at best.''
Policy makers are lining up more initiatives, yet run the risk that their new proposals appear piecemeal or lacking in ambition rather than providing the comprehensive and coordinated solution that investors want. Even as he sought an international approach in a news conference two days ago, Paulson said it might ``not make sense to have identical policies'' because each nation's circumstances differ.
``Governments must act now and decisively to restore confidence otherwise we are in for serious trouble and a long- run recession,'' said Moorad Choudhry, head of treasury at Europe Arab Bank Plc in London.
U.K. Plan
Darling wants countries to guarantee lending between banks, either by turning central banks into clearing houses for the loans or having governments back them. That would ``be an effective way of easing the crisis,'' said Marc Chandler, head of currency strategy at Brown Brothers Harriman & Co. in New York.
U.S. officials have played down the idea without dismissing it outright, expressing concern that the step would be biased against financial institutions outside the banking sector. ``We received the U.K. proposal and we're reviewing it,'' White House spokesman Tony Fratto said.
For its part, France questions the need to adopt Darling's plan, according to a French official.
Bank Stakes
The U.S. already plans to follow Darling in another way by purchasing stakes in a wide range of banks within weeks, tapping authority included in the $700 billion rescue package passed by Congress last week.
Paulson and advisers were yesterday considering options on how the purchases would work, including having the government acquire preferred stock, two officials informed of the matter said.
Separately, the Federal Deposit Insurance Corp. said today it has ``significant latitude'' to take further steps to support banks and their depositors using emergency powers. The U.S. is weighing a proposal to insure all U.S. bank deposits, the Wall Street Journal reported today.
While the Treasury still aims to buy troubled mortgage- backed securities from financial institutions, a direct capital injection would offer more immediate relief by giving banks quick access to funds they could then lend out.
The U.K. is already engineering a 50 billion pound ($87 billion) strategy to partly nationalize at least eight British banks. Japanese lawmakers are also considering reviving a law that expired in March that would allow them to inject public money into regional financial companies.
Capital Needs
``The financial system doesn't need more liquidity it needs more capital,'' said Jim Bianco, president of Bianco Research LLC in Chicago.
Other G-7 nations are wary of taking either step, with German Finance Minister Peer Steinbrueck arguing Germany's banks are sound. He has proposed the G-7 focus on overhauling regulations on executive pay, liquidity buffers at banks and complex financial instruments.
Japan's Finance Minister Shoichi Nakagawa said he will tell his counterparts that his country is ready to help the IMF enhance its lending program during the crisis.
Still, central banks may have more work to do having already executed emergency rate cuts this week. New York University professor Nouriel Roubini recommended they pare interest rates by at least 1.5 percentage points to avert a depression. Jacques Cailloux, an economist at Royal Bank of Scotland Group Plc in London, said today the European Central Bank will cut again before its governing council is next scheduled to meet Nov. 6.
``While a coordinated government response in the coming days through the G-7 is possible, it might not be sufficient to boost confidence in the system sufficiently quickly,'' said Cailloux.
In a report published yesterday, University of California Berkeley economist Barry Eichengreen warned against a disjointed approach. ``The policy response needs to be decisive,'' he said. ``It needs to be global. The stakes could not be higher.''
To contact the reporters on this story: Simon Kennedy in Washington at skennedy4@bloomberg.net;
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IMF Speeds Access to Funds as Emerging Markets Buckle
By Christopher Swann
Oct. 10 (Bloomberg) -- The International Monetary Fund will use a ``rapid-fire'' emergency-loan program to lend hundreds of billions of dollars to emerging markets as the credit squeeze threatens to hobble nations that until this year were weaning themselves off the fund's aid.
Dominique Strauss-Kahn, the IMF's managing director, said yesterday he has activated the program, which could distribute a record amount of cash. The move comes as the cost of protecting bonds issued by a number of developing countries has climbed sharply, and nations such as Brazil, Mexico and Peru have sold dollars to shore up their currencies.
The financial turmoil may restore the Washington-based lender to a central role in the global economy. Demand for IMF assistance has collapsed in the past few years as buoyant capital markets and rising commodity prices allowed many developing nations to raise funds on their own and build up currency reserves. Now central banks around the world are drawing on those reserves as the credit crisis spreads.
``The IMF had been written off as increasingly irrelevant,'' said Claudio Loser, a scholar at Inter-American Dialogue, a policy-analysis center in Washington, and former director of the IMF's Western Hemisphere department. ``Now we could see a renaissance at the fund. Countries that had hoped never to need the fund again may be forced to ask for help as the normal sources of finance dry up.''
Less Burdensome
Strauss-Kahn, 59, announced the plan on the eve of the fund's annual meeting this weekend in Washington. The program will allow the fund's 184 member nations to get loans in 10 days or less, rather than the usual several weeks it takes to process requests. Conditions the fund typically requires, such as cutting government spending, will also be less burdensome.
The IMF had $110.2 billion in outstanding loans at its peak as of Dec. 31, 2003. That had fallen to $17 billion as of September 30.
``The fund did not lend a lot during the last five or six years,'' Strauss-Kahn said. ``We have hundreds of billions of dollars which are likely to be used in one year, and even more if we go over this period.''
Stocks tumbled today, driving the MSCI World Index to its worst week in more than three decades. The index lost 3.7 percent to 922.27 at 12:23 p.m. in London.
Russian stock exchanges delayed the opening of trading today and Indonesia extended a two-day halt. Iceland yesterday suspended equity trading today until Oct. 13 after the government seized Kaupthing hf, the country's biggest bank.
Iceland `Option'
Iceland's Prime Minister Geir Haarde said Oct. 8 an IMF loan is ``definitely an option,'' and a mission from the fund was on the island yesterday. The government has taken control of the country's three biggest banks after they collapsed under the weight of debt.
Win Thin, a senior currency strategist at Brown Brothers Harriman & Co. in New York, said in an Oct. 7 report that Eastern European nations are among the most at risk, because of large current-account deficits and high levels of external debt.
Estonia's current-account deficit -- the broadest measure of trade because it includes transfer payments and investment income -- is equal to 16 percent of the country's $28.6 billion gross domestic product. Its short-term debt is $10 billion, more than twice its $4 billion in foreign-exchange reserves, according to data compiled by Brown Brothers Harriman.
Bulgarian Debt
The data show Bulgaria's $14 billion in short-term debt equals three-quarters of foreign-exchange reserves, and its $12 billion current-account deficit is 25 percent of GDP.
Brazil sold dollars this week for the first time in five years, and Mexico sold $2.5 billion in the spot market Oct. 8 and 9, helping their currencies pare losses. Last month, Peru's central bank was forced to pour record sums into the foreign- exchange market to support its ailing currency.
The cost of default protection suggests other developing countries that may need help. Credit-default swaps for Kazakhstan imply a 52 percent chance the country won't meet its debt obligations in the next five years, according to Bloomberg data. Swaps for Pakistan indicate an 86 percent chance of default.
The IMF has been at the center of some of the biggest financial bailouts of the past three decades, helping broker solutions to the Latin American debt crisis in the 1980s and rescues for Mexico, Russia, Brazil and Asia in the 1990s.
Mexican Peso
The fund established its rapid loan program in the wake of the so-called Mexican peso crisis of December 1994, when the country was forced to abandon its currency peg to avoid depleting its reserves. During the next six weeks the Mexican peso plunged 45 percent, prompting a $17.8 billion loan from the IMF -- at the time, the fund's largest.
In 1997 and 1998, the IMF extended credit lines of more than $80 billion to Indonesia, Thailand and South Korea to help them avoid default after a decline in their currencies pushed up the cost of foreign-debt payments.
Even a modest pickup in loans would help stem financial losses at the IMF that totaled $165 million in 2007. The fund's first shortfall since 1985 led Strauss-Kahn to announce an 11 percent, or $100 million, cut in operating costs that included eliminating at least 380 of the IMF's 2,900 jobs. Even with the cuts, the fund is expected to lose $135 million in 2008.
``If there are no fires, then the fire department does not have much to do, and after a while people start to wonder whether they need a fire department at all,'' said Michael Mussa, the IMF's chief economist from 1991 to 2001. ``This has been the position for the fund in recent years, but things have changed in just a few weeks.''
To contact the reporter responsible for this story: Christopher Swann in Washington at cswann1@bloomberg.net
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