By Shinhye Kang
Dec. 1 (Bloomberg) -- South Korea imported less crude oil for a third month in November as fuel demand fell amid worsening outlook for Asia's fourth-largest economy.
Imports dropped to 73 million barrels last month from 78.1 million a year earlier, the Ministry of Knowledge Economy said in an e-mailed statement today. The country's crude oil import bill dropped 21 percent to $5.1 billion.
Goldman Sachs Group Inc. last week cut its 2009 economic- growth forecast for South Korea to 1.8 percent from 3.1 percent previously, citing faltering local and overseas demand. Macquarie Securities Ltd. forecasts the economy will contract 2 percent next year and UBS AG said it will shrink 3 percent.
``Falling global oil prices are failing to revive South Korea's oil demand,'' said Ahn Sang Hee, an analyst at Daishin Securities Co. ``Winter is coming but demand for fuel will be sluggish for a while.''
Oil prices in New York have dropped 64 percent from a record $147.27 a barrel reached on July 11 on concerns that a global economic slowdown and the worst financial crisis since the Great Depression cut fuel demand. The cost of importing a barrel of crude declined 15.4 percent to $70.1 in November, the ministry said.
To contact the reporter on this story: Shinhye Kang in Seoul at skang24@bloomberg.net
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Monday, December 1, 2008
Sinopec Falls in Hong Kong on Goldman Sachs Downgrade
By Wang Ying
Dec. 1 (Bloomberg) -- China Petroleum & Chemical Corp., Asia’s largest refiner, fell the most in more than a week after Goldman Sachs Group Inc. cut its recommendations on the stock because of weaker Chinese demand and a potential fuel-price cut.
The shares of Sinopec, as China Petroleum is known, declined by 2.5 percent in Hong Kong to close at HK$5.02, the biggest drop since Nov. 20. The stock has fallen 57 percent this year, compared with a 49 percent decline in the benchmark Hang Seng Index.
Sinopec had its stock removed from Goldman’s “conviction buy” list and its rating cut to “neutral,” analysts Kelvin Koh and Chris Shiu said in a report today.
“We believe there is downside risk to our China oil demand forecast of 3.5 percent for 2009 as demand has decelerated and inventories appear to be rising especially for gasoline and diesel,” the Goldman analysts wrote. Sinopec may reduce its refineries’ operational rate to 83 percent next year as demand wanes, they wrote.
The Chinese government may lower domestic gasoline and diesel prices by early 2009, according to Koh and Shiu.
To contact the reporter on this story: Wang Ying in Beijing at ywang30@bloomberg.net.
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Australian, New Zealand Dollars Decline on Stocks, Rate Cuts
By Candice Zachariahs
Dec. 1 (Bloomberg) -- The Australian and New Zealand dollars dropped the most in a week as regional stocks fell and economists forecast that the two nations’ central banks will slash borrowing costs this week to boost domestic growth.
Australia’s currency extended declines after an index by TD Securities Ltd. showed inflation cooled to the lowest level in a year, adding to speculation the Reserve Bank of Australia will make a fourth consecutive reduction to its key rate tomorrow. Australian and Japanese equities declined after U.S. stock futures fell on concern a global recession will hurt earnings.
“Foreign-exchange markets are moving lockstep with equities again,” said Sue Trinh, a senior currency strategist with RBC Capital Markets in Sydney. “That’s sending risk proxies lower and the U.S. dollar higher. The RBA tomorrow is the major focus domestically.”
Australia’s currency fell 1.2 percent, the most since Nov. 20, to 64.76 U.S. cents as of 4:38 p.m. in Sydney from 65.54 cents late in New York on Nov. 28. The currency declined 1.4 percent to 61.67 against the Japanese yen.
New Zealand’s dollar slid 1.3 percent, also the most since Nov. 20, to 54.18 U.S. cents from 54.89 cents in New York late last week. It bought 51.60 yen from 52.37.
The RBA will cut by 75 basis points to 4.5 percent, according to the median estimate of 21 economists surveyed by Bloomberg.
Inflation Gauge
The Australian and New Zealand dollars are likely to move within ranges over the next few days, said Tony Morriss, a senior currency strategist at Australia & New Zealand Banking Group in Sydney. The Australian dollar will trade between 64.50 and 66.20 U.S. cents, and New Zealand’s currency between 54 and 55.5 cents, he said.
Demand for Australia’s dollar weakened after a monthly gauge released by TD Securities and the Melbourne Institute in Sydney showed consumer prices rose 3 percent last month from a year earlier, after climbing an annual 3.9 percent in October. Prices fell 0.6 percent from October, when they dropped 0.2 percent.
“The prospect of slowing inflation is supportive of further RBA rate cuts,” Trinh said. “Right now the question is how much.”
Australia’s corporate profit growth slowed in the third quarter as earnings at retailers, transport businesses and manufacturers fell, the Bureau of Statistics said in Sydney today.
Rate Outlook
Australia’s dollar will “outperform” its neighbor and may trade as high as NZ$1.24 over the next week because interest rates will drop more in New Zealand than in Australia, ANZ’s Morriss said.
New Zealand’s central bank will slash its cash rate 150 basis points to 5 percent on Dec. 4, based on a survey of 17 economists. A basis point is 0.01 percentage point.
The Aussie, as Australia’s currency is called, bought NZ$1.1973 from NZ$1.1926 late last week in New York.
Benchmark interest rates are 0.3 percent in Japan and 1 percent in the U.S., attracting investors to the South Pacific nations’ assets through so-called carry trades. The risk in such trades is that currency market moves will erase profits.
Australian government bonds advanced. The yield on the 10- year note fell 7 basis points, or 0.07 percentage point, to 4.53 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 gained 0.584, or A$5.84 per A$1,000 face amount, at 105.875.
New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell to 4.97 percent from 5.08 percent on Nov. 28.
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
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Vietnam's First Refinery to Use Bach Ho Crude Oil, VNA Reports
By Nguyen Dieu Tu Uyen
Dec. 1 (Bloomberg) -- Vietnam's first oil refinery will use 4 million metric tons of crude from Bach Ho field during a one- year test-run, Vietnam News Agency reported, citing state- controlled Vietnam Oil & Gas Group.
Dung Quat refinery, scheduled to start up by February, will produce 3.4 million tons of petroleum products initially and 5.7 million tons by 2010, the report said today. The plant will need about 6.5 million tons of crude annually.
Bach Ho, the country's biggest oil field, has been operated by Vietnam Oil & Gas and Russia's OAO Zarubezhneft for more than two decades. The field produced 4.02 million tons of crude between January and July, according to the joint venture.
To contact the reporter on this story: Nguyen Dieu Tu Uyen in Hanoi at uyen1@bloomberg.net.
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Korean Won to Drop as Surplus ‘Masks’ Woes, Nomura, Goldman Say
By Kim Kyoungwha
Dec. 1 (Bloomberg) -- The South Korean won’s one-week rally from a decade low will end as slowing export growth erodes the nation’s record current-account surplus, according to Nomura International Ltd. and Goldman Sachs Group Inc.
Goldman lowered its year-end won forecast to 1,500 per dollar from a previous prediction of 1,300, Kwon Goohoon, the Seoul-based economist at the company, wrote in a report last week. Korea’s Finance Minister Kang Man Soo said Nov. 28 the current- account surplus will top $1 billion in November after a $4.9 billion surplus in October. Exports fell 18.3 percent last month, the most since December 2001, government data showed today.
“The surplus masked a worsening economy which is suffering from job losses as economic activities shrank fast,” said Kwon Young Sun, a Hong Kong-based economist with Nomura. “Behind the surplus is cooling consumption that led imports to slow faster than exports.”
The won climbed 0.6 percent to 1,461.25 as of 11:51 a.m. in Seoul, compared with 1,469.00 at the end of last week, when the currency rose 1.8 percent, according to Seoul Money Brokerage Services Ltd. The won is down 37 percent this year, the worst performance among the 10 most-traded Asian currencies outside of Japan.
Goldman predicts the won will end 2009 at 1,300 to the dollar.
South Korea’s $970 billion economy grew at the slowest pace in four years in the third quarter. Macquarie Securities Ltd. last week forecast gross domestic product will contract 2 percent next year and UBS AG said Nov. 21 the economy will shrink 3 percent.
Imports Decline
Imports fell 14.6 percent last month after increasing 10.4 percent in October and 45.8 percent in September. Export growth shrank from 8.5 percent in October and 28.1 percent the prior month, the finance ministry said in a statement today.
In a sign of weaker growth ahead, factory output dropped for the first time in 13 months in October, data last week showed. Output dropped 2.4 percent from a year earlier after rising 6.2 percent in September, the statistics office said on Nov. 28.
Policy makers in South Korea have cut interest rates at an unprecedented pace, guaranteed lenders’ debts, secured an Oct. 30 agreement from the Federal Reserve to provide $30 billion in U.S. currency and announced an $11 billion stimulus plan. President Lee Myung Bak last week called for more measures to create jobs and spur spending in the ailing economy.
“We expect the Korea economy to register negative growth in the first quarter,” Goldman’s Kwon wrote in a report on Nov. 27. “Our revision entails negative growth for exports.”
Bond, Stock Sales
Further damping demand for the won, the capital account had the largest monthly net outflow on record in October at $27.4 billion, according to central bank figures released last week, as banks made “massive payments” on external debt.
“The risk remains of further large and unexpected net capital outflows,” Nomura’s Kwon said. “We expect foreign capital to eventually return to Korea, but only once global risk aversion recedes and a gradual economic recovery begins, which we believe could be in the second half of 2009.”
Overseas investors pulled $37 billion out of Korean equities this year, according to data compiled by Bloomberg. Foreign investors, who turned net sellers of local bonds for the first time in two years in July, sold 4.2 trillion won ($3.2 billion) more debt than they bought in October after net purchases in the previous two months, data from Financial Supervisory Services shows. As of end-October, funds abroad held a combined 44 trillion won of Korean bonds.
To contact the reporters on this story: Kim Kyoungwha in Beijing at kkim19@bloomberg.net;
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Asian Currencies Weaken After China Says Manufacturing Shrank
By Kim Kyoungwha
Dec. 1 (Bloomberg) -- Asian currencies declined, led by Indonesia’s rupiah and Singapore’s dollar, as a record contraction in China’s manufacturing damped the outlook for the region’s economic growth.
Eight of the 10 most-actively traded Asian currencies outside Japan weakened after China said output, new orders and export orders fell the most on record and a Japanese report showed wages dropped for the first time this year. The rupiah slid for the first time in a week and the Singapore dollar slumped the most in a month.
“The grim manufacturing number is telling us China drags everybody down,” said Irene Cheung, a corporate director for local-markets trading at ABN Amro Bank NV in Singapore. “It’s the start of what will go even worse and set the bearish tone for Asian currencies.”
The rupiah declined 1.5 percent 12,285 per dollar as of 3:32 p.m. in Jakarta, according to data compiled by Bloomberg. It has lost 25.6 percent since the end of June, the worst performance in Asia after the Korean won. The Singapore dollar weakened 1.1 percent to S$1.5253 to the dollar.
The Purchasing Managers’ Index fell to a seasonally adjusted 38.8 in November from 44.6 in October, the China Federation of Logistics and Purchasing said today in an e-mailed statement. China’s economy is deteriorating more quickly than the nation’s top planning agency expected, National Development and Reform Commission Chairman Zhang Ping said last week.
Korea’s exports fell the most in almost seven years in November as shipments to China and the U.S. slumped, a government report showed today. Singapore’s trade ministry on Nov. 21 cut the nation’s growth forecast for a fourth time this year to 2.5 percent and forecast the economy may shrink in 2009.
Korean Exports
The yen rose against the dollar and the euro before U.S. reports this week that may show manufacturing contracted and employers cut jobs by the most since 2001.
The yen strengthened to 94.69 per dollar in Tokyo from 95.52 in New York on Nov. 28. It climbed to 119.75 versus the euro from 121.22 at the end of last week.
China’s yuan fell to a four-month low after the central bank set the reference rate at the weakest since August, signaling it may want to weaken the currency to spur growth.
The yuan dropped 0.68 percent to 6.8815 a dollar, according to the China Foreign Exchange Trade System. Taiwan’s dollar weakened 0.2 percent to NT$33.350, according to Taipei Forex Inc.
‘Steep Decline’
“For Taiwan, what matters is the PMI that came out of China for November, which showed a steep decline,” said Dariusz Kowalczyk, a strategist at CFC Seymour Ltd. in Hong Kong. “There is a major contraction going on in Chinese manufacturing.”
Malaysia’s ringgit extended a four-month slide after the central bank said last week economic growth slowed to 4.7 percent in the three months to Sept. 30, the least in three years. Shipments abroad may have increased at the slowest pace since March, according to a Bloomberg News survey before a report on Dec. 4.
“Global economic deceleration is going to hit Malaysia and the correction in commodity prices will cap the value of exports,” said Sebastien Barbe, a strategist at Calyon in Hong Kong. “Asia-ex Japan currencies, with the exception of the Hong Kong dollar and Chinese yuan, will have to adjust lower.”
The ringgit fell 0.3 percent to 3.6295 per dollar, adding to a 10 percent loss since the end of July. The ringgit will weaken to 3.90 to the dollar by June next year as economic growth slows to zero in 2009, Barbe said.
South Korea’s won rose for a fifth day, erasing a loss, as global investors bought more of the nation’s shares than they sold for a fourth day, increasing demand for the local currency.
The won strengthened 2 percent to 1,440 per dollar, according to Seoul Money Brokerage Services Ltd. It fell as low as 1,478 in early trading.
Elsewhere, the Thai baht fell 0.7 percent to 35.75 versus the dollar. The Vietnamese dong was little changed at 16,972.50. Philippine financial markets were shut today for a holiday.
To contact the reporters on this story: Kim Kyoungwha in Beijing at kkim19@bloomberg.net.
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Danish Mortgage Lenders May Struggle to Sell Notes at Auction
By Bo Nielsen
Dec. 1 (Bloomberg) -- Danish lenders may struggle to sell as much as $67.5 billion of mortgage notes in annual auctions starting today as the global financial turmoil saps investor appetite.
The year’s sales come amid a backdrop of falling house prices, rising foreclosures and an economy that entered a recession before any other in Europe. Interest rates are reset each year for adjustable-rate loans in Denmark’s $363 billion mortgage-bond market, the world’s third-biggest, as investors such as pension funds bid for the securities.
“I just can’t see where the buyers will come from,” said Kim Mikkelsen, who manages about $173 million as chief investment officer at Nordic Asset Management A/S in Copenhagen and whose Aaasgaard Fixed-Income Fund ranked first and fifth among European fixed-income hedge funds in 2007 and 2006, according to HedgeFund Intelligence. “We’re rather tense getting into the auctions.”
Danish mortgage notes lagged behind government bonds since mid-September for the first time in almost three years as investors shunned the debt. About 438 billion kroner ($76 billion) of mortgage bonds expire this year, about 90 billion kroner more than in 2007, according to Danske Bank A/S.
While still the world’s largest after the U.S. and Germany, Denmark’s mortgage market shrank in October to its smallest in more than a year as the fallout from the global credit crisis prompted investors to sell everything but the safest assets. Foreign investors and local mutual funds cut their holdings of Danish mortgages by 13 percent that month, Copenhagen-based Nationalbanken said in a note Nov. 17.
Falling Prices, Foreclosures
The Danish economy will shrink 0.2 percent this year and 1.4 percent in 2009, according to Deutsche Bank AG. House prices fell for three consecutive quarters and an annual 5.2 percent in the three months through September, the Association of Danish Mortgage Banks said Oct. 23. Foreclosures jumped 17 percent to a 12-year high in October, according to Statistics Denmark.
To shore up the market before the auction, the government agreed last month to let pension funds change the way they calculate future obligations. In response, the state-controlled Sociale Pensionsfond said it would invest as much as $3.8 billion in one-year non-convertible mortgage bonds, the central bank said on Nov. 3. Pension funds hold about 25 percent of Denmark’s outstanding mortgage debt.
Though demand for Danish mortgage bonds slackened this year, they haven’t defaulted since they were introduced following the great fire in Copenhagen in 1795. Billionaire George Soros wrote in an Oct. 10 article in the Wall Street Journal the market “remains the best-performing in Europe during the current crisis.”
‘Done Enough’
“The government has done enough to ensure that prices will be stable at the auction,” said Jens Peter Soerensen, a Copenhagen-based chief fixed-income analyst with Danske Bank, whose Realkredit Danmark A/S unit will start the auctions today. “The buyers will be there.”
For Nordic Asset Management’s Mikkelsen, who plans to buy mortgages at the auction, the yield on the one-year mortgage note may rise to about 100 basis points above the benchmark Danish swap rate as investors demand higher compensation to hold the securities.
The yield on the benchmark 4 percent non-callable mortgage note maturing 2010 surged to 5.95 percent on Oct. 28, the highest since at least April, 2002, from 5.05 percent at the start of the month, according to Danske Bank. It plunged to 4.367 percent after the government rescue package was announced Oct. 31. It was at 5.106 percent at the end of last week, 68 basis points above the swap rate.
‘No Longer Nervous’
Mortgage lenders including Nykredit Realkredit A/S and BRFkredit A/S will issue up to $56.2 billion in kroner- denominated bonds maturing 2010, 2012 and 2014 at the auction and about $11.6 billion in euro-denominated mortgages, Soerensen said in a Nov. 25 note.
“Until the end of October we were a bit nervous about this auction but we’re not anymore,” said Jacob Skinhoej, chief fixed-income analyst in Copenhagen for Nordea Bank AB, Scandinavia’s biggest bank, which will also sell notes at the auction. Foreign and domestic investors may buy $5 billion less of the notes than at prior auctions, he said.
Denmark’s central bank will cut its benchmark interest rate by 0.75 percentage points to 4.25 percent on Dec. 4, mirroring the European Central Bank, in an attempt to buoy the economy, according to Danske Bank. Policy makers unexpectedly raised the key rate twice in October, lifting it to an eight-year high of 5.5 percent, to protect the krone’s peg to the euro.
The three-month Copenhagen Interbank Offered rate, or Cibor, was 214 basis points more than the euro interbank offered rate, or Euribor, on Nov. 28. The spread widened 188 basis points since the end of September.
To contact the reporter on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net
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Switzerland Feels Iceland’s Pain With Banks’ Vanishing Credit
By James G. Neuger, Joshua Gallu and Simone Meier
Dec. 1 (Bloomberg) -- An isolated European country with an economy geared toward finance and winter sports is no longer a monetary bastion as credit evaporates around the globe. Banks teeter, the once-impregnable currency depreciates and a proudly independent people question whether a centuries-old go-it-alone strategy can survive.
Even Switzerland is wondering if it’s immune to the forces ravaging Iceland.
The drama playing out in the Nordic nation, whose economy the International Monetary Fund says may shrink about 10 percent next year, offers a cautionary tale for the no less fiercely independent Swiss. While they are in far better shape, their status as custodians of the world’s wealth is under threat by a global economic upheaval they can’t control and miscues by the banks that made them great.
“The Swiss model of isolationism is not an advantage” in the current environment, says Michael Baer, 46, the great- grandson of Julius Baer, founder of Switzerland’s largest independent wealth manager. “Switzerland is absolutely not immune to global developments, especially not as regards the financial crisis and the economy.”
Baer -- scion of a legendary family in one of the world’s oldest financial centers -- has moved his own business to one of the youngest: In 2006, he set up Baer Capital Partners in Dubai to tap Middle Eastern wealth.
For the 7.6 million Swiss, signs of stress are evident amid a cataclysm in world markets that has besieged them with reasons to doubt a splendid isolation dating back to medieval times.
Europe’s Biggest Losses
While the Swiss Market Index has outperformed the Nasdaq Composite Index this year, it has still lost 31 percent of its value. Zurich-based UBS AG, Switzerland’s flagship bank, amassed Europe’s biggest losses in the credit crunch, forcing the government and central bank to offer a $59 billion helping hand. The franc has tumbled against the dollar. And the banking secrecy that attracts offshore wealth is drawing more fire than ever.
Slowly, the pain on Zurich’s Bahnhofstrasse -- the boutique- and bank-lined promenade through Switzerland’s largest city -- is trickling through to main streets countrywide.
Switzerland’s economy will shrink 0.2 percent next year after expanding 1.9 percent in 2008, the Organization for Economic Cooperation and Development said on Nov.25. While the 2.6 percent jobless rate is low by global standards, unemployment rose for the first time in five years in September and is heading higher. UBS and Zurich-based Credit Suisse Group AG, the No. 2 bank -- whose combined balance sheets equal seven times the Swiss gross domestic product -- were once a calling card for Swiss economic power; now, they are hurting.
Reeling
UBS has seen its shares dive 67 percent this year. Credit Suisse, reeling from a 1.3 billion-franc ($1.1 billion) loss in the third quarter, opted out of Swiss government aid, raising 10 billion francs from investors including Qatar Holding LLC and Tel Aviv-based Koor Industries Ltd., adding to concerns that control of the country’s banks is moving out of Swiss hands.
“I think we will see a move to more protectionism,” says Baer. “If the crisis lasts longer and the real economy cools further, we will soon see social problems, strikes, unrest.”
A grass-roots backlash is already under way. Protesters barricaded UBS’s private-banking branch in Zurich in October, demanding that executives pay back bonuses. A banner at another demonstration labeled the bank “United Bandits of Switzerland.”
The greatest menace may be a series of probes in the U.S. that puts the nation’s tradition of banking secrecy at risk. Former UBS banker Bradley Birkenfeld in June admitted scheming to help American clients hide $20 billion and dodge taxes. On Nov. 6, a grand jury in Fort Lauderdale, Florida, indicted Raoul Weil, 49, chairman of global wealth management at UBS in Zurich, on a charge of conspiring to help 20,000 wealthy Americans stash assets out of sight of the Internal Revenue Service. Weil, who the bank is replacing on an interim basis, denies the charges.
Blacklist
Meanwhile, German Finance Minister Peer Steinbrueck is pressing for Switzerland to be added to a blacklist of tax havens being prepared by the Paris-based OECD.
Switzerland’s hush-hush tradition “may well break down under pressure from the rest of the world,” says Edwin Truman, a former head of the Federal Reserve’s international-finance division. “There’s less and less mileage for being different.”
The Swiss franc, long seen as a safe haven in the world’s financial riptides, is increasingly being swept up in them. “From a relative-value perspective, the Swiss franc is still among the top performers,” says Paresh Upadhyaya, who helps manage $50 billion at Putnam Investments in Boston: Since July, the franc has advanced against 12 of 16 major currencies, including a 4.5 percent rise against the euro.
Running Out of Ammunition
Still, the currency, which reached 0.9638 per dollar on March 17 -- the strongest since at least 1971 -- has since fallen to 1.2140, and it won’t recover through 2009, according to the median of 48 analyst forecasts compiled by Bloomberg. And the Swiss National Bank is running out of ammunition to buoy currency and the economy.
The central bank has cut its main interest rate three times since early October to 1 percent, and lowered the one-week repurchase rate to as low as 0.1 percent. Since Oct. 20, the bank has been forced to team with the European Central Bank to supply francs to borrowers outside Switzerland in an effort to bring three-month rates in line with its target.
The franc is “likely to remain weaker” as investors keep selling overseas holdings in favor of dollar-based assets, according to UBS. “The safe-haven status has shifted away from the Swiss,” says Matthew Strauss, a senior foreign-exchange strategist at RBC Capital Markets in Toronto.
Two Pathways
As pressures grow, two pathways lie open for the 26-canton federation that traces its origins to 1291 and has officially styled itself neutral for some 500 years. One is to turn inward -- an ages-old temptation in a country that wouldn’t even join the United Nations until 2002. The other is to embrace the wider world by becoming a member of the European Union.
“We can’t afford to stay outside the EU any longer,” says Hans-Juerg Fehr, 60, a Social Democratic lawmaker and former chief of the country’s second-biggest political party. The assault on the banks, he says, “wouldn’t be as great if Switzerland had the EU covering its back.”
With a GDP of around $420 billion, Switzerland is on a par with Belgium and Sweden, two middle-ranking economies in the 27- nation EU. Exports account for more than half of GDP, and sales to the EU -- facilitated by trade pacts dating back to a 1967 accord on cheese tariffs and a 1974 deal on clocks and watches - - make up more than 60 percent of exports, intertwining Switzerland’s and Europe’s economic fates.
Web of Agreements
Undetected by many Swiss, a web of agreements on everything from goods inspections to air transport has already saddled Switzerland with the bulk of the EU’s business rules. Yet the Swiss don’t have a seat at the table when EU officials gather in Brussels to set the regulations.
The Swiss are “stuck with that,” says Clive Church, a retired professor of Swiss and European politics at the University of Kent in the U.K. “All the pressures are going to put them further into alignment with Europe.”
The next step, backed by Swiss voters in 2005, comes on Dec. 12 when the landlocked stronghold opens its frontiers to travelers from the 24 countries in the EU’s passport-free zone. The disappearance of border-control officers will bind Switzerland more closely to the EU than even Britain and Ireland, two EU countries that maintain passport checks.
Still, the question of outright EU membership -- rejected by Swiss voters in 1992 -- is far enough off the agenda that the Bern-based GfS research institute hasn’t asked the question since 2005. A survey then found 54 percent against, 37 percent in favor and 9 percent undecided.
Aiding Eastern Europe
Pro-EU campaigners who seize on current economic woes as a reason to join have to reckon with a vast, far from silent majority that fears the costs and loss of sovereignty. The Swiss got a glimpse of the price tag in 2006, when the government was cajoled into making a 1 billion-franc payment over 10 years to aid the eastern European countries that entered the EU in 2004.
“We’d have to pay a lot,” says Bernadette Bachmann, 50, a mother of one from the Zurich region. “I don’t think we’d be better off in the EU. You can reach a deal with someone without getting married.”
Looming in the mists of the North Atlantic is the worst- case scenario of Iceland, which emulated Switzerland by hitching its fortunes to the financial industry. Unlike Switzerland, Iceland had little else to fall back on when its top three banks crashed and a $4.6 billion rescue loan made it a ward of the IMF.
“The good news is that Switzerland isn’t Iceland,” says Truman, the former Fed official who is now a senior fellow at the Peterson Institute for International Economics in Washington. “The problem is: What does Switzerland do? The crisis is truly global. No country can hide from it. As a small, open economy --even if it’s high-income, highly industrialized - - it’s going to have problems.”
To contact the reporters on this story: Simone Meier in Frankfurt at smeier@bloomberg.net; Joshua Gallu in Zurich at jgallu@bloomberg.net; James G. Neuger in Brussels at jneuger@bloomberg.net
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America Exports Unemployment as Slump Shrinks Consumer Demand
By Matthew Benjamin
Dec. 1 (Bloomberg) -- The U.S. once exported jobs. Now, it is exporting unemployment.
America’s deepening recession, which has cost 1.2 million jobs so far this year, is taking a heavy toll overseas. Shrinking consumer demand for imports and less need for outsourcing by U.S. companies are idling workers at Germany’s Porsche SE and Chinese businesses that make toys for Mattel Inc.
Economists say worldwide unemployment may increase to a two-decade high as trade and investment ties that have developed during 20 years of globalization magnify the impact of the U.S. contraction. Without buoyant economies elsewhere in the world to act as buffers, a longer, deeper slump in the labor market is likely.
“In the same way that we were supporting economic activity when we were growing rapidly, the recession in the U.S. is going to be a drag on the global economy and is going to reduce employment in our trading partners,” says Lewis Alexander, chief economist at Citigroup Inc. in New York.
The U.S. Department of Labor may report Dec. 5 that the jobless rate jumped in November to a 15-year high of 6.8 percent and employers reduced payrolls by 320,000, according to economists surveyed by Bloomberg News.
That would bring job losses for 2008 to 1.5 million. “Millions” more may follow in 2009 “if we do not act swiftly and act boldly,” President-elect Barack Obama said at a Nov. 24 press conference. He aims to create 2.5 million new jobs in his first two years in office.
Not Just U.S.
“This is by no means simply a U.S. story,” says David Hensley, director of global economic coordination at JPMorgan Chase & Co. in New York, who expects unemployment to increase in both developed and emerging-market nations.
Worldwide, the jobless rate may rise above 7 percent by 2010 after remaining between 5 percent and 7 percent for two decades, says Kathleen Stephansen, chief global economist for Credit Suisse Holdings USA Inc. in New York.
“The global pie is shrinking rapidly, and when that happens, there is simply not enough business to keep everyone employed,” she says.
Unemployment in Germany, the world’s largest exporter, may start to creep higher after declining for 32 consecutive months, the longest slide since reunification in 1990.
“Improvements in the German labor market will come to an end in 2009 at the latest,” Michael Huether, head of the Cologne-based Institut der Deutschen Wirtschaft, a business- sponsored economic institute, told reporters in Berlin Nov. 24.
German Job Losses
Germany’s BASF SE last month announced plans to idle 80 factories around the globe after customers in the auto, construction and textile industries reduced orders. The world’s largest chemical company, which gets a fifth of its revenue from North America, plans to eliminate more than 1,000 jobs and reduce work hours for 20,000 employees, about one-fifth of its labor force.
Heidelberger Druckmaschinen AG, the world’s largest printing-press maker, plans to cut as many as 2,500 jobs, or 13 percent of its workforce, to offset declining demand. The Heidelberg-based company gets about half its sales from outside Europe, including 16 percent from North America.
Volkswagen AG and Porsche said last week they are each temporarily suspending production at their largest plants in coming weeks. Porsche said in a Nov. 26 statement that sales of its trademark 911 sports car in the U.S., the model’s largest market, “can hardly be reliably calculated.”
Euro Region
Unemployment in the 15-nation euro region rose to 7.7 percent in October from a low of 7.2 percent in February. It will reach 8.3 percent next year, the International Monetary Fund forecasts.
The Organization for Economic Cooperation and Development, which includes the world’s richest economies, said in a report last week that it expects the number of people out of work in its 30 member nations will rise to 42 million in 2010 from 34 million now as “the financial turmoil that erupted in the United States” has “rapidly spread to the rest of the world.”
Europe and Japan “are at the beginning stages of what we think will be a severe labor-market adjustment,” says JPMorgan’s Hensley.
In Japan, the slump is hurting part-time and contract employees, a growing class of workers who don’t benefit from Japan’s lifetime-employment contracts.
Temporary Workers
Toyota Motor Corp. will cut half its 6,000 temporary workers by the end of March in response to the global decline, which drove U.S. sales for Asia’s largest auto company down 23 percent in October. Electronics-maker Sharp Corp. said last week it’s considering cutting temporary workers at a plant that makes parts for digital cameras and televisions.
Japan’s jobless rate will jump to 4.4 percent in 2009 from 4 percent, the OECD forecasts. Japanese unemployment peaked at 5.5 percent in 2003, when the country was emerging from its last recession.
Also feeling the fallout from the U.S. downturn are manufacturers in low-cost countries such as China, where American companies have turned for manufacturing.
“China’s economy has acutely felt the impact of the financial crisis,” Yin Weimin, head of the Ministry of Human Resources and Social Security, said on Nov 20. “Some enterprises, particularly labor-intensive small and medium-size enterprises, have gone bankrupt or partially shut down their production capacity and, as a result, many people have lost their jobs.”
Toy Exporters
Smart Union Group Holdings Ltd., a toymaker that supplies Mattel and Hasbro Inc., shut last month, putting 7,000 people in Dongguan, in Guangdong province, out of work. Half the nation’s toy exporters have closed this year, and 67,000 enterprises filed for bankruptcy in the first six months, according to government figures.
China’s urban unemployment may rise to 4.5 percent by the end of the year from about 4 percent now and “worsen” next year, according to Yin. The figure doesn’t measure job losses among an estimated 200 million migrant workers who have left their hometowns in the countryside to work in the cities.
“U.S. multinationals are facing harder times and scaling back production in the rest of the world, and at the same time there’s a straightforward contraction of imports into the U.S.,” says Marco Annunziata, chief economist at Unicredit MIB in London. “All this means more job losses, as we’re seeing a slowdown in U.S. growth that will impact everywhere.”
Not since the 1930s have unemployment and economic decline been more closely linked across international borders, says Nobel laureate economist Robert Solow, 84, a professor at the Massachusetts Institute of Technology in Cambridge.
“Normally, business cycles are not in synch around the world, and that helps keep them relatively mild,” he says. Now, “there’s a lot more synchronization, and that contributes to the likely depth of the recession.”
To contact the reporter on this story: Matthew Benjamin in Washington at mbenjamin2@bloomberg.net
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U.S. Manufacturing Probably Shrank at Fastest Pace in 26 Years
By Timothy R. Homan
Dec. 1 (Bloomberg) -- Manufacturing in the U.S. probably contracted in November at the fastest pace in 26 years as consumers and companies worldwide cut spending, economists said before reports today.
The Institute for Supply Management’s factory index dropped to 37 last month, the lowest level since 1982, from 38.9 in October, according to the median estimate in a Bloomberg News survey. A reading of 50 is the dividing line between expansion and contraction.
The financial crisis has spiraled into a global economic downturn that’s hurt sales here and abroad, forcing manufacturers to pare production as orders plunge. Economists increasingly are projecting that the U.S. recession will be one of the most severe in the postwar era.
“With financial turmoil spreading internationally, the likelihood of a recovery in the manufacturing sector is slim,” said Peter Kretzmer, a senior economist at Bank of America Corp. in New York.
The Tempe, Arizona-based ISM’s factory report is due at 10 a.m. New York time. Forecasts of the 53 economists surveyed range from 33.5 to 40.
A report from the Commerce Department at the same time may show spending on construction projects fell 1 percent in October, according to economists surveyed, marking the 10th decline in the last 13 months. Residential and commercial projects are being scaled back as financing dries up.
Slump to Accelerate
The U.S. economy shrank at a 0.5 percent pace in the third quarter, with business spending on equipment and software declining at a 5.7 percent rate, the biggest drop since the first quarter of 2002. Economists at Goldman Sachs Group Inc. and Morgan Stanley in New York are among those projecting the economy will contract at a 5 percent pace this quarter.
Automakers are among the hardest hit by the slump in demand. Industry figures due tomorrow are forecast to show November auto sales dropped to a 10.5 million annualized rate, the weakest pace since April 1991, a Bloomberg survey shows.
“We are all expecting the year 2009 to be a very low year in terms of demand, not only in the United States, but globally,” Carlos Ghosn, chief executive officer of Nissan Motor Co., said in a Nov. 19 interview on Bloomberg Television. “We may be facing a couple of difficult years, with very low demand.”
Regional Reports
Regional reports have already signaled that the decline in manufacturing accelerated in November. Factory activity in the Philadelphia area shrank at the fastest pace in 18 years last month, while manufacturing in New York contracted the most since record-keeping began in 2001, according to reports from the Federal Reserve.
Figures from the Institute for Supply Management-Chicago last week showed business activity for November declined the most since 1982.
The credit crisis that intensified in mid-September has worsened the outlook. Companies are cutting payrolls and investments after consumer spending in the third quarter plunged by 3.7 percent, the most in 28 years.
Fleetwood Enterprises Inc., the third-largest U.S. maker of recreational vehicles, last week said its second-quarter net loss widened as tight credit and a weak economy eroded demand for motor homes.
“Consumers are hesitant to spend given current economic circumstances, and at the same time those that wish to buy are having extraordinary difficulty obtaining loans,” Fleetwood Chief Executive Officer Elden Smith said in a statement. “We do not expect market conditions to improve in the near future and we are planning accordingly.”
The company said Nov. 24 it will eliminate about 760 jobs -- 13 percent of the 5,700 positions it had at the end of August.
Manufacturers may have cut 80,000 jobs in November, after a loss of 90,000 the month before, according to the median forecast ahead of the Labor Department’s jobs report due Dec. 5. Companies have axed approximately 1.2 million jobs so far this year.
Bloomberg Survey
=============================================
ISM ISM
Manu Prices
Index Index
=============================================
Date of Release 12/01 12/01
Observation Period Nov. Nov.
---------------------------------------------
Median 37.0 32.0
Average 37.1 33.4
High Forecast 40.0 45.0
Low Forecast 33.5 30.0
Number of Participants 53 16
Previous 38.9 37.0
---------------------------------------------
4CAST Ltd. 37.0 ---
Action Economics 38.0 45.0
Aletti Gestielle SGR 40.0 35.0
Ameriprise Financial Inc 37.5 32.0
Argus Research Corp. 40.0 ---
Banc of America Securitie 36.5 ---
Bank of Tokyo- Mitsubishi 36.9 ---
Barclays Capital 37.0 ---
BMO Capital Markets 37.0 32.0
BNP Paribas 36.0 ---
ClearView Economics 35.0 ---
Commerzbank AG 38.0 ---
Credit Suisse 36.0 30.0
Danske Bank 38.1 33.0
DekaBank 35.0 42.0
Desjardins Group 38.0 ---
Deutsche Bank Securities 36.0 ---
Deutsche Postbank AG 37.0 ---
Dresdner Kleinwort 38.0 35.0
DZ Bank 38.0 ---
First Trust Advisors 37.1 ---
Fortis 40.0 ---
Helaba 39.0 ---
HSBC Markets 36.0 30.0
IDEAglobal 38.0 33.0
IHS Global Insight 35.0 ---
Informa Global Markets 39.5 ---
ING Financial Markets 36.5 30.0
Insight Economics 35.0 ---
Intesa-SanPaulo 37.0 ---
J.P. Morgan Chase 36.0 ---
Landesbank Berlin 39.0 ---
Landesbank BW 38.5 ---
Moody’s Economy.com 37.5 ---
Morgan Stanley & Co. 36.5 30.0
National Bank Financial 38.0 ---
Natixis 37.4 ---
Nomura Securities Intl. 36.5 32.0
RBS Greenwich Capital 36.0 ---
Schneider Trading Associa 36.5 31.0
Scotia Capital 36.0 ---
Societe Generale 38.0 ---
Standard Chartered 34.0 30.0
Stone & McCarthy Research 34.0 ---
TD Securities 36.0 ---
Thomson Financial/IFR 33.5 ---
UBS Securities LLC 37.5 34.0
Unicredit MIB 37.0 ---
University of Maryland 38.0 ---
Wachovia Corp. 38.8 ---
WestLB AG 38.0 ---
Westpac Banking Co. 38.2 ---
Wrightson Associates 36.0 ---
==============================================
To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net
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Yuan Declines Before Paulson Visit as China Supports Economy
By Judy Chen
Dec. 1 (Bloomberg) -- China’s yuan fell by the most in seven weeks, three days before U.S. Treasury Secretary Henry Paulson visits Beijing for trade talks, on speculation the central bank wants to weaken the currency to spur the economy.
The People’s Bank of China set its daily reference rate at the weakest level since August, after resisting pressure for the currency to appreciate since the end of July. Two reports showed China’s manufacturing contracted by a record last month as recessions in the U.S., Europe and Japan curbed demand for Chinese products.
China’s policy makers have shifted focus from stemming inflation to sustaining growth after the economy expanded at its weakest pace since 2003 in the third quarter. The yuan has gained 0.4 percent against the dollar since the two governments last held trade talks in mid June, after it advanced 6.6 percent in the first half of 2008.
“Today’s reference rate is totally unexpected,” said Yang Lindong, a foreign-exchange trader at Shenzhen Development Bank Co. in Shenzhen. “The central bank may want to test the market’s response to the possibility of a weaker yuan, but most likely it will keep the currency stable till the end of this year.”
The yuan slid 0.3 percent to 6.8570 a dollar, the weakest since Oct. 27, before trading at 6.8563 as of 2:24 p.m. in Shanghai, from 6.8349 late last week, according to the China Foreign Exchange Trade System. Today’s drop is the biggest since Oct. 10.
The central bank fixed the reference rate for yuan trading at 6.8505 today, the lowest since Aug. 21. The currency is allowed to trade by up to 0.5 percent against the dollar either side of the reference rate, which has stayed between 6.8240 and 6.8369 in October and November.
Paulson Talks
The fifth round of the U.S.-China Strategic Economic Dialogue will be in Beijing on Dec. 4 and 5 before President- elect Barack Obama’s inauguration next month. The previous round was in Annapolis, Maryland in mid-June. Obama on Oct. 24 called for an end to manipulation of the yuan.
“Paulson may call for more yuan gains, but certainly China will determine its exchange-rate policy based on economic fundamentals,” said Liu Dongliang, a Shenzhen-based foreign- exchange analyst at China Merchants Bank Co., the country’s sixth largest lender. “As the economy may deteriorate, risks of depreciation are piling up.”
The yuan has appreciated 21 percent since a peg against the dollar was scrapped in July 2005, making Chinese shipments less attractive and eroding exporters’ profits. Two-thirds of China’s small toy exporters shut down in the first nine months of this year, the customs bureau said in a report on Nov. 24.
Manufacturing Index
The Purchasing Managers’ Index fell to a seasonally adjusted 38.8 in November from 44.6 in October, the China Federation of Logistics and Purchasing said today in an e-mailed statement. Export orders, output and new orders all contracted by the most since the survey began in 2005. A survey conducted by CLSA Asia-Pacific Markets also showed a record contraction.
China’s economy, the world’s fourth largest, expanded 9 percent in the third quarter from a year earlier. The CSI 300 Index of stocks has fallen 69 percent from a record in October last year and President Hu Jintao describes the economic situation as a test of the Communist Party’s ability to govern.
Non-deliverable forwards contracts show traders are betting that the yuan will depreciate 4.9 percent to 7.2066 per dollar in a year, the weakest in more than one month.
Forwards are agreements in which assets are bought and sold at current prices for settlement at a later-specified time. Non- deliverable forwards are settled in dollars rather than the underlying asset.
Economists are more bullish on the currency later next year. The yuan will strengthen 2.3 percent to 6.7 by the end of 2009, according to a Bloomberg survey of 28 analysts. They forecast the currency will end this year at 6.81.
Short-Term Bonds Gain
China’s government bonds due in five years and less rose on speculation investors have more funds for debt investment after the central bank last week cut benchmark interest rates and lowered requirements on banks’ deposit reserves.
The People’s Bank reduced the one-year lending and deposit rates by 1.08 percentage points Nov. 26. The lending rate fell to 5.58 percent and the deposit rate to 2.52 percent. It also reduced the reserve ratio for major commercial banks by 1 percentage point, effective Dec. 5.
Bonds maturing in more than five years dropped on concerns their yields have little room for further declines.
“Investors are expecting liquidity will continue to increase later this year after the rate cut last week, driving up the demand for short-term debt,” said He Xiuhong, a fixed- income analyst at GF Securities Co. in Guangzhou, the nation’s third-largest brokerage by revenue. “By contrast, people are more cautious about bonds with long maturities as there are more uncertainties in the longer run.”
The yield on the 3.34 percent note due September 2009 dropped 1.1 basis point to 1.8 percent, according to the China Interbank Bond Market. The price of the security rose to 101.15 per 100 yuan face amount.
To contact the reporters on this story: Judy Chen in Shanghai at xchen45@bloomberg.net
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GM, Ford, Chrysler CEO Jobs May Hinge on Credible Bailout Plan
By Jeff Green
Dec. 1 (Bloomberg) -- General Motors Corp. Chief Executive Officer Rick Wagoner and his counterparts at Ford Motor Co. and Chrysler LLC will put their jobs on the line this week when they try to convince Congress they can save their companies.
U.S. House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid on Nov. 21 criticized Wagoner, Ford CEO Alan Mulally and Chrysler CEO Robert Nardelli for being unprepared after two days of Congressional hearings failed to convince lawmakers the automakers should get $25 billion to avoid an industry collapse. Congress ordered that new plans be presented tomorrow.
“Reid and Pelosi gave them a pretty clear plan for what they expect, and their focus had better be on coming in with a solid plan and looking contrite,” said Clint Currie, a Washington-based transportation analyst at Stanford Group. “If I had to guess, I’d say top management is gone, I don’t think they can survive this situation.”
GM’s board met in Detroit to consider the rescue plan that may determine Wagoner’s fate. The directors started reviewing the automaker’s proposals yesterday in a 10-hour meeting and will continue today, people familiar with the plans said. GM will prepare a 10- to 12-page public document and a private, more detailed plan of about 80 pages with background material, the people said.
While Republican detractors such as Senator Richard Shelby from Alabama have said the auto chiefs were “arrogant” and that management changes might be needed, neither the government nor GM’s board has yet signaled Wagoner will need to leave to get an agreement, people familiar with those discussions said.
Public Pressure
So far, the public pressure for changing management, as the government did in the bailout of mortgage lenders Fannie Mae and Freddie Mac and insurer American International Group Inc., has come mostly from outside critics and Republican lawmakers who oppose the automaker bailout. The auto chiefs weren’t directly threatened with removal during the hearings two weeks ago.
Still, Democratic Senator Christopher J. Dodd, chairman of the Senate Banking Committee, said Nov. 28 that Congress may demand executive changes from auto companies as part of the bailout.
“Certainly I would never support writing a check to them without conditionality,” Dodd said during an interview on PBS’s Charlie Rose show, when asked if he might demand executive changes.
The U.S. didn’t require management changes in the bailout last week of Citigroup Inc. and other banks’ executives have kept jobs after getting bailout money.
‘A Day Late’
Wagoner, head of the biggest U.S. automaker and the executive with the longest tenure of the three executives, has borne the brunt of criticism.
“Rick Wagoner does not deserve to be the head of GM,” said Maryann Keller, an independent automotive analyst and consultant in Greenwich, Connecticut. “I don’t know that Congress could make that decision, but Wagoner has evidenced so many times that it’s a day late and a dollar short with this guy.”
A GM spokesman, Steve Harris, declined to comment on what may be included in the Detroit-based automaker’s plan or the board discussions. Ford and Chrysler said last week that they also would present plans to prove their future viability and detail their use of the loans.
“Chrysler LLC is fine-tuning its original plan to meet the recent request from Congressional leadership, leading up to Tuesday’s submission,” Chrysler’s Lori McTavish, a spokeswoman, said in an e-mailed statement last night.
Mark Truby, a Ford spokesman, wouldn’t comment on specifics of Ford’s plan to Congress.
The Senate is scheduled to conduct a hearing Dec. 4 and the House will follow on Dec. 5 before a possible vote the week of Dec. 8.
Cutting Debt
GM wants to cut debt -- probably through an exchange with current debt holders -- and change union rules that pay workers when their plants are closed as part of an effort to ensure its future viability, people familiar with the plan said last week. The largest U.S. automaker also may ask to delay a $7 billion payment to a union retiree health-care fund and drop more brands, said the people.
Pelosi and Reid told the automakers in a Nov. 21 letter that they must provide “a forthright, documented assessment” of their operating cash positions, short-term liquidity needs “and how they will meet the financing needs associated with the plan to ensure the companies’ long-term viability.”
“It shouldn’t come as a surprise that the companies will have to show that the loans will be repaid and in three to five years the companies will have to be profitable,” said former Michigan Governor Jim Blanchard, who worked on a federal loan program for Chrysler LLC in the late 1970s.
Life Support
“What Congress really wants to insist on is a realistic plan for payment of loans and a viable path to profitability,” Blanchard said.
Wagoner said during hearings that automakers would like action before President-elect Barack Obama takes over, because a global credit crunch that has slammed sales in the U.S. is spreading to global auto markets.
“A bailout is more like putting someone on life support when what they really need is a new heart,” said Bill George, former CEO of medical-devices maker Medtronic Inc. and professor of management practices at Harvard Business School. “The only way to save GM is a massive restructuring, to tear the company in half and make it much smaller.”
At the very least, Obama should appoint an “auto czar” to oversee the way the money is used, George said.
“GM needs a new management, and maybe a new headquarters city,” he said. “It’s got to have a different culture. In fairness to Rick Wagoner, he was dealt a bad hand.”
To contact the reporter on this story: Jeff Green in Southfield, Michigan at jgreen16@bloomberg.net;
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Yen Gains on Concern Recession Will Spur Repatriation of Funds
By Stanley White and Ron Harui
Dec. 1 (Bloomberg) -- The yen rose against the dollar and euro on speculation a global recession will encourage domestic investors to bring back overseas earnings.
The currency also advanced versus the British pound and the Australian dollar after reports showed slumping South Korean exports, shrinking Chinese factory orders and falling Japanese wages. The dollar fell against the yen before U.S. reports this week that economists predict will show manufacturing shrank and employers cut jobs by the most since 2001.
“When the economic climate is poor, Japanese investors tend to repatriate capital during periods of risk aversion,” said Joseph Capurso, a currency strategist at Commonwealth Bank of Australia in Sydney.
The yen climbed 0.2 percent to 120.93 per euro at 7:33 a.m. in London from 121.22 late in New York on Nov. 28. It advanced to 95.29 versus the dollar from 95.52. The euro fell to $1.2692 from $1.2691.
The pound lost 0.6 percent to 146.07 yen, the Australian dollar slid 1.4 percent to 61.68 yen, and the New Zealand dollar declined 1.7 percent to 51.49 yen.
The MSCI Asia Pacific Index of regional shares fell 0.5 percent, snapping a four-day gain, while the Nikkei 225 Stock Average dropped 1.4 percent. Shares in Inpex Corp., Japan’s biggest oil explorer, lost 4.4 percent on speculation China’s contraction in manufacturing will reduce demand for commodities.
Japanese Investors
Japan’s benchmark interest rate of 0.3 percent compares with 5.25 percent in Australia, 6.5 percent in New Zealand, 4 percent in South Korea and 3 percent in the U.K. A global recession may make investing in higher-yielding overseas assets more risky for Japanese investors.
China’s purchasing Managers’ Index fell to a seasonally adjusted 38.8 in November from 44.6 in October, the China Federation of Logistics and Purchasing said today. South Korean exports tumbled 18.3 percent in November from a year earlier.
A recession in Japan deepened last month as manufacturers planned the sharpest production cuts in 35 years and consumers cut spending. Japanese companies plan to fire about 30,000 temporary and part-time workers before the end of the business year in March, the ministry said last week. Monthly wages, including overtime and bonuses, fell 0.1 percent in October to 274,751 yen ($2,883) from a year earlier, the Labor Ministry said in Tokyo.
Emergency Meeting
The Bank of Japan will hold an emergency meeting this week to consider accepting a broader range of collateral from lenders as a way to help companies obtain funding, public broadcaster NHK said without citing anyone.
Since the opening of Japan’s first national tourism agency on Oct. 1 to attract more Asian travelers, the yen has risen 36 percent against Korea’s won, 35 percent versus Australia’s dollar and 15 percent to Taiwan’s currency, making it more expensive for overseas tourists to visit.
The number of travelers from South Korea, the biggest visitors to Japan, fell 21 percent in September from a year earlier. Tourists from Taiwan, which ranks second, declined 13 percent, according to the Japan National Tourist Organization, an industry-backed group.
The dollar has declined 3.2 percent versus the yen in the past month. U.S. nonfarm payrolls shrank by 320,000 in November following a decline of 240,000 the previous month, according to a Bloomberg News survey before the Labor Department’s Dec. 5 report. The jobless rate may have jumped to 6.8 percent, the highest level since 1993, a separate Bloomberg survey showed.
‘Dollar Depreciation’
“People may look more closely at the U.S. economy, so there’s some scope for dollar depreciation,” said Akio Shimizu, chief manager of foreign-exchange trading in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan’s largest publicly listed lender. “Higher-yielding currencies are losing their appeal because the interest-rate differential isn’t working in their favor.”
The Institute for Supply Management may say manufacturing contracted in November for a fourth month, according to another Bloomberg survey. The Tempe, Arizona-based Institute releases the data at 10 a.m. in New York.
The euro declined against the dollar and the yen as traders bet the European Central Bank will reduce borrowing costs this week in response to the recession.
Europe’s inflation rate fell to 2.1 percent in November from 3.2 percent the previous month, a Nov. 28 report showed, giving policy makers more room to lower borrowing costs when they meet Dec. 4.
‘Increasingly Rapid’
“European data continue to deteriorate at an increasingly rapid pace and the recent easing of inflation pressures means there is scope for a bold cut by the ECB,” said Danica Hampton, currency strategist at Bank of New Zealand Ltd. in Wellington. “For euro-dollar, this suggests a visit to the recent lows of between $1.2300 and $1.2400 is likely.”
Producer prices in Europe fell 0.3 percent in October from the previous month, after a 0.2 percent decline in September, according to a Bloomberg survey of economists before the report tomorrow. Retail sales dropped 0.4 percent in October from the prior month, after a 0.2 percent decline in September, a separate Bloomberg survey shows. The report is due Dec. 3.
Traders increased bets the ECB will cut its 3.25 percent benchmark rate. The implied yield on Euribor futures contracts expiring in June declined to 2.42 percent on Nov. 28 from 2.44 percent on Nov. 27.
-- With reporting by Toshiro Hasegawa and Shintaro Inkyo in Tokyo. Editors: Simon Harvey, Nicholas Reynolds
To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.
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Palm Oil Rises on Expectation Output May Fall, Demand May Rise
By Feiwen Rong
Dec. 1 (Bloomberg) -- Palm oil futures rose after gaining for the first month in five amid expectations that seasonal production may decline while demand from China may rise.
Palm oil production may fall from December to March during the annual low-output period, Vince Ng, analyst at Kaf-Seagroatt & Campbell Bhd., said today from Kuala Lumpur. Demand from China, the world’s largest buyer of palm oil, may rise ahead of the Lunar New Year in January, he added.
“The plantation companies that we talked to recently said they are seeing signs that production will slow down in the next couple of months,” Ng said. “Chinese demand is expected to pick up ahead of their largest festival.”
Palm oil for February delivery traded at 1,634 ringgit ($450) a metric ton on the Malaysia Derivatives Exchange at the 12:30 p.m. local time break after earlier gaining as much as 2.6 percent to 1,675 ringgit. It advanced 7.7 percent in November.
Soybean oil traded in Chicago fell as much as 0.9 percent to 32.61 cents a pound and was at 32.74 cents at 12:47 p.m. Singapore time in after-hours trading. Soybean oil is at a 62 percent premium to palm oil, Bloomberg data show.
Still, crude oil for January delivery in New York fell 2 percent to $53.36 a barrel at 12:58 p.m. Singapore time, dimming the allure of biofuels made from vegetable oils.
Sellers of palm oil also expressed concern that the ongoing credit crisis may affect buyers’ ability to get trade financing, Ng said.
“Palm oil may have some room to fall further,” Ng added.
To contact the reporter on this story: Feiwen Rong in Beijing at at frong2@bloomberg.net
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Shanghai Copper Futures Decline as China Manufacturing Shrinks
By Glenys Sim
Dec. 1 (Bloomberg) -- Copper fell for a second day in Shanghai after China’s manufacturing contracted by the most on record, signaling the growing risk of a slump in the world’s biggest consumer of the metal.
Prices declined after the Purchasing Managers’ Index fell to a seasonally adjusted 38.8 in November from 44.6 in October, the China Federation of Logistics and Purchasing said today.
“With demand deteriorating, we’re going to continue seeing stockpiles rise and prices go down,” Lin Yuhui, research manager at China International Futures Co., said today from Shenzhen.
Copper for February delivery on the Shanghai Futures Exchange dropped as much as 2.2 percent to 27,260 yuan ($3,978) a metric ton, and traded at 27,370 yuan at 10:36 a.m. Singapore time. Benchmark copper futures fell 11 percent last month, marking the fifth straight monthly decline.
London Metal Exchange copper fell 0.4 percent to $3,605 a ton, and March-delivery copper on the Comex division of the New York Mercantile Exchange slipped 0.3 percent to $1.6450 a pound.
Inventories monitored by the London Metal Exchange climbed to 291,650 tons on Nov. 28, the most since February 2004. The metal used in electrical wiring and pipes is down 46 percent this year as LME stockpiles have nearly doubled.
Among other LME-traded metals, zinc was 0.8 percent lower at $1,200 a ton, lead rose 3.4 percent to $1,140, and tin slipped 1.6 percent to $12,100. Aluminum was down 0.5 percent at $1,764 a ton, and nickel declined 2 percent to $10,000 a ton as of 9:54 a.m. in Singapore.
To contact the reporter for this story: Glenys Sim in Singapore at gsim4@bloomberg.net
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BHP, Rio May Have to Cut Coking Coal Prices 33%, Analysts Say
By Jesse Riseborough
Dec. 1 (Bloomberg) -- BHP Billiton Ltd., partner in the world’s biggest coking coal exporter, and Rio Tinto Group may have to cut contract prices by a third next year because of slumping demand from steelmakers, according to a survey of analysts.
Prices may drop to $200 a metric ton in the year starting April 1, from $300 a ton this year, according to the median forecast of nine analysts surveyed by Bloomberg. The forecasts ranged between $140 and $305.
A deepening global financial crisis has reduced demand for steel, prompting mills in Asia, Europe and North America to slash output. Marius Kloppers, chief executive officer of BHP, said last week protracted cutbacks would affect its coking coal production.
“Conditions in the steel market have considerably worsened over the last few months,” Gerard Burg, an energy and minerals economist at National Australia Bank Ltd. in Melbourne, said today. “We are seeing something in the line of halving of pricing, which is certainly possible.”
BHP, which last week scrapped a $66 billion hostile bid for Rio Tinto, fell 3.5 percent to A$29.91 at 12:04 p.m. Sydney time on the Australian stock exchange. Rio Tinto, the world’s third- largest mining company, dropped 4.9 percent to A$44.30.
BHP and Mitsubishi Corp. operate the BHP Billiton Mitsubishi Alliance venture, which owns mines in Australia. The nation is estimated by the government commodity forecaster to export about $44 billion of coking coal in the year ending June 30.
“This downturn is taking place in every single region of the world, highlighting the global synchronized nature of the slowdown and has been devastating for the raw materials suppliers to the steel industry,” Macquarie Group Ltd. analysts led by London- based Jim Lennon said today in a report. “Demand has crashed everywhere and for every product.”
53% Drop?
The rapid retreat in demand for coking coal and iron ore forced analysts to slash forecasts last month. Coking coal prices may drop 53 percent to $140 a ton, Macquarie said today, reiterating a Nov. 17 forecast. ABN Amro Holding NV said Nov. 26 prices will drop 34 percent, from an earlier forecast for an 8 percent gain.
“Producers of steel feedstock face the position of rapid declines in demand, a build up of mine stocks, and a weak position going into the 2009-10 contract negotiations,” ABN Amro’s Melbourne-based analysts, led by Warren Edney said.
To be sure, Credit Suisse Group AG has forecast prices to rise to $305 a ton.
Contract price talks are held annually between producers and mills, usually beginning in late January. Suppliers have signaled an outcome of the talks is unlikely for many, many months, Macquarie said in the report.
Prices Tripled
Prices tripled to a record this year after floods disrupted mining in Australia’s Queensland state, forcing at least 6 producers to delay shipments from a region responsible for about two-thirds of global exports. Nippon Steel Corp., the world’s second-biggest steel mill, agreed in April to accept BHP and Mitsubishi’s demand for a record annual increase in prices.
“We expect this year’s negotiation period to drag on because it is not in the interests of producers to rush to settlement in the current environment,” Fraser Phillips, an analyst at RBC Capital Markets in Toronto, said in a Nov. 27 report. “We believe many will try to delay through Queensland’s rainy season, which starts next month, in case last year’s floods are repeated.”
ArcelorMittal, the world’s biggest steelmaker, last month said it would slash production by as much as 35 percent in the U.S. and 30 percent in Europe as demand slumps. Toyota Motor Corp., the world’s second-largest carmaker, has forecast the biggest drop in profit in at least 18 years as a global slump cripples auto demand.
“It’s a little too early to see how the European steel mill cutbacks are going to flow into that market against the backdrop of Japanese steel mills still going well,” BHP’s Kloppers said Nov. 27. “Steel mills normally need to keep their coking batteries running. We will be impacted if this persists for a long period of time.”
Steel production in China, the biggest maker of the alloy, has slumped 17 percent so far this year, curbing demand for raw materials, Kloppers said.
To contact the reporter on this story: Jesse Riseborough in Melbourne at jriseborough@bloomberg.net
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