By Rebecca Christie and Simon Kennedy
Oct. 9 (Bloomberg) -- Treasury Secretary Henry Paulson signaled the government may invest in banks as the next step in trying to resolve the deepening credit crisis.
Paulson told reporters in Washington yesterday that legislation Congress passed last week to rescue financial institutions gave him broad authority that he intends to use, beyond just buying mortgage-related assets on banks' balance sheets. He indicated that an option available may be boosting companies' capital with cash infusions.
``It is the policy of the federal government to use all resources at its disposal to make our financial system stronger,'' Paulson said. ``We will use all of the tools we've been given to maximum effectiveness, including strengthening the capitalization of financial institutions of every size.''
Banks worldwide aren't raising enough capital to offset losses: while posting $592 billion of writedowns and losses during the crisis, they have added just $442.5 billion of new capital, according to data compiled by Bloomberg. The International Monetary Fund anticipates losses will more than double to $1.4 trillion.
In a sign that potential costs to taxpayers from any government aid to financial companies could be higher than at first foreseen, the Federal Reserve yesterday increased its lending to American International Group Inc.
AIG Aid
The Fed set up a new program to extend up to $37.8 billion to AIG by borrowing securities from units of the insurer. The fresh aid comes just three weeks after the central bank took control of AIG with an $85 billion loan.
Paulson spoke two days before officials from the Group of Seven industrial nations gather in Washington for their first meeting since the financial meltdown accelerated last month. Hours earlier, the Federal Reserve, European Central Bank and four other central banks lowered interest rates in an unprecedented coordinated effort to ease the economic effects of the credit freeze.
Paulson didn't rule out new programs following the meeting, while noting that it might ``not make sense to have identical policies'' because each countries' circumstances are different. U.K. Prime Minister Gordon Brown has suggested authorities act to guarantee lending in the interbank market. Brown also opted yesterday to spend 50 billion pounds ($87 billion) to partly nationalize at least eight British banks.
Paulson stressed the U.S. rescue plan won't save all firms.
Firms to Fail
``One thing we must recognize -- even with the new Treasury authorities, some financial institutions will fail,'' Paulson said. Instead, regulators will take measures to limit the systemic risk from any single bank failure, he said.
President George W. Bush's working group on financial markets, which is headed by Paulson and includes the Fed, Securities and Exchange Commission and Commodity Futures Trading Commission, said Oct. 6 the Treasury will move quickly to implement the financial bailout. The plan also allows for guarantees.
The law, approved by Congress Oct. 3, gives the government power to buy assets, provide guarantees and ``address capital raising,'' the working group said.
Beyond the G-7 talks, Treasury Undersecretary David McCormick said this weekend would feature a ``special meeting'' of finance officials from the Group of 20, which combines developed and emerging economies. ``We're reflecting a reality of the global economy,'' he said of the talks.
Rescue Plan
President Bush signed into law on Oct. 3 a measure that gives Paulson the authority to purchase as much as $700 billion in mortgage-related assets and other securities from financial institutions saddled with illiquid debt.
Since then, the Standard & Poor's 500 Index has dropped about 10 percent and credit markets have tightened further.
``Patience is also needed because the turmoil will not end quickly and significant challenges remain ahead,'' Paulson said. ``Neither passage of this new law nor the implementation of these initiatives will bring an immediate end to current difficulties.''
The Treasury this week is recruiting asset managers and other staff to carry out the rescue plan, which will be administered by a newly formed Office of Financial Stability in the Treasury's headquarters in Washington. Pacific Investment Management Co. and BlackRock Inc. submitted bids to manage troubled mortgage-backed assets as part of the program, people familiar with the matter said.
`Major Downturn'
The global economy is headed for a ``major downturn,'' the IMF said in its World Economic Outlook released yesterday.
Global growth is projected at 3 percent next year, down from 3.9 percent this year, the IMF said. In April, the IMF predicted a 25 percent chance of worldwide growth at or below 3 percent, which it said was ``equivalent to a global recession.''
``The turmoil is a global phenomenon,'' McCormick said in a statement. ``We are all affected by it, and strengthened international collaboration is needed now more than ever to find collective solutions to achieve stable and efficient financial markets and restore health to the world economy.''
To contact the reporters on this story: Simon Kennedy in Washington at skennedy4@bloomberg.net; Rebecca Christie in Washington at Rchristie4@bloomberg.net.
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Thursday, October 9, 2008
U.S. Wholesale Stockpiles Rise More Than Forecast
By Bob Willis
Oct. 9 (Bloomberg) -- Inventories at U.S. wholesalers rose twice as much as forecast in August as sales dropped by the most in more than a year, indicating companies will need to pare orders as demand slows.
The 0.8 percent gain in the value of stockpiles followed a revised increase of 1.5 percent in July, the Commerce Department said today in Washington. Sales dropped 1 percent, the most since January 2007, led by declines at auto and hardware distributors.
Wholesalers had enough goods on hand to last 1.1 months at the current sales pace, the highest level since February. Middlemen will need to reduce stocks as the credit crunch and mounting job losses cause consumer spending to falter, signaling manufacturing and the economy will keep weakening.
``We're building up too many inventories, and that implies production cutbacks,'' Nigel Gault, chief U.S. economist at Global Insight Inc. in Lexington, Massachusetts, said in a Bloomberg Television interview. ``We know businesses will clearly be more cautious about their own spending.''
Economists forecast wholesale inventories would rise 0.4 percent, according to the median of 32 estimates in a Bloomberg News survey. Projections ranged from a decline of 0.2 percent to a gain of 1 percent.
By almost all accounts, the U.S. is now in a recession, according to economists surveyed by Bloomberg News this month.
In a Recession
The economy will shrink at a 0.2 percent annual pace in the third quarter and 0.8 percent in the last three months of 2008, according to the median estimate of 52 economists surveyed Oct. 3 to Oct. 8. Growth forecasts were slashed by more than a percentage point for the third and fourth quarters of this year and for the first three months of 2009.
Stocks dropped for a seventh day, led by a slump in financial shares, and Treasury securities also fell. The Standard & Poor's 500 index fell 1 percent to 975.2 at 10:42 a.m. in New York. The yield on the benchmark 10-year note rose to 3.76 percent from 3.64 percent late yesterday.
Fewer Americans filed first-time applications for unemployment benefits last week as job losses related to the Gulf Coast hurricanes subsided, the Labor Department reported today. Initial jobless claims declined by 20,000 to 478,000 in the week that ended Oct. 4. The total number of people on benefit rolls climbed in the prior week to the highest level in five years, indicating the labor market continues to deteriorate.
Breakdown
Wholesalers account for about a quarter of all business stockpiles. Factory inventories, which make up about a third of the total, rose 0.6 percent in August, the government said on Oct. 2. Retail stockpiles, which make up the rest, will be included in the Oct. 15 business inventories report.
The increase in wholesale stockpiles was led by a 1.2 percent rise in the value of automobile stocks as sales dropped 2.2 percent. The inventory-to-sales ratio at auto distributors jumped to 1.77 months, the highest since March 1993.
U.S. sales of light vehicles fell to a 12.5 annualized pace in August, the weakest since March 1993, according to industry data. Ford Co. sales excluding Volvo in September were the lowest since 1981, according to Autodata.
``An already weak economy compounded by very tight credit conditions has created an atmosphere of caution,'' Jim Farley, Ford's worldwide marketing chief, said in a statement on Oct. 1.
Inventories at metals, hardware, electrical and petroleum distributors also increased.
Inventories of durable goods increased 1.4 percent and those of non-durable products dropped 0.1 percent, perhaps reflecting the drop in commodity prices.
Crude Oil Drops
The average price of a barrel of crude oil in August fell to $116.69 from $133.48 the prior month, according to trading on the New York Mercantile Exchange. It reached a record of $147.27 on July 11.
Companies pared inventories in the second quarter at a $50.6 billion annual pace, subtracting 1.5 percentage points from overall growth, the Commerce Department reported Sept. 26 in its quarterly growth estimate.
Even as falling inventories pared growth in the second quarter, the economy grew at a 2.8 percent annual rate, propelled by surging exports. That followed 0.9 percent growth in the prior three months and a 0.2 percent contraction in the last three months of 2007, the Commerce Department said.
For Related News: For stories on U.S. manufacturing: TNI US HOM For stories on the U.S. economy: TNI US ECO To search for home foreclosures: NSE HOME FORECLOSURE
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Oct. 9 (Bloomberg) -- Inventories at U.S. wholesalers rose twice as much as forecast in August as sales dropped by the most in more than a year, indicating companies will need to pare orders as demand slows.
The 0.8 percent gain in the value of stockpiles followed a revised increase of 1.5 percent in July, the Commerce Department said today in Washington. Sales dropped 1 percent, the most since January 2007, led by declines at auto and hardware distributors.
Wholesalers had enough goods on hand to last 1.1 months at the current sales pace, the highest level since February. Middlemen will need to reduce stocks as the credit crunch and mounting job losses cause consumer spending to falter, signaling manufacturing and the economy will keep weakening.
``We're building up too many inventories, and that implies production cutbacks,'' Nigel Gault, chief U.S. economist at Global Insight Inc. in Lexington, Massachusetts, said in a Bloomberg Television interview. ``We know businesses will clearly be more cautious about their own spending.''
Economists forecast wholesale inventories would rise 0.4 percent, according to the median of 32 estimates in a Bloomberg News survey. Projections ranged from a decline of 0.2 percent to a gain of 1 percent.
By almost all accounts, the U.S. is now in a recession, according to economists surveyed by Bloomberg News this month.
In a Recession
The economy will shrink at a 0.2 percent annual pace in the third quarter and 0.8 percent in the last three months of 2008, according to the median estimate of 52 economists surveyed Oct. 3 to Oct. 8. Growth forecasts were slashed by more than a percentage point for the third and fourth quarters of this year and for the first three months of 2009.
Stocks dropped for a seventh day, led by a slump in financial shares, and Treasury securities also fell. The Standard & Poor's 500 index fell 1 percent to 975.2 at 10:42 a.m. in New York. The yield on the benchmark 10-year note rose to 3.76 percent from 3.64 percent late yesterday.
Fewer Americans filed first-time applications for unemployment benefits last week as job losses related to the Gulf Coast hurricanes subsided, the Labor Department reported today. Initial jobless claims declined by 20,000 to 478,000 in the week that ended Oct. 4. The total number of people on benefit rolls climbed in the prior week to the highest level in five years, indicating the labor market continues to deteriorate.
Breakdown
Wholesalers account for about a quarter of all business stockpiles. Factory inventories, which make up about a third of the total, rose 0.6 percent in August, the government said on Oct. 2. Retail stockpiles, which make up the rest, will be included in the Oct. 15 business inventories report.
The increase in wholesale stockpiles was led by a 1.2 percent rise in the value of automobile stocks as sales dropped 2.2 percent. The inventory-to-sales ratio at auto distributors jumped to 1.77 months, the highest since March 1993.
U.S. sales of light vehicles fell to a 12.5 annualized pace in August, the weakest since March 1993, according to industry data. Ford Co. sales excluding Volvo in September were the lowest since 1981, according to Autodata.
``An already weak economy compounded by very tight credit conditions has created an atmosphere of caution,'' Jim Farley, Ford's worldwide marketing chief, said in a statement on Oct. 1.
Inventories at metals, hardware, electrical and petroleum distributors also increased.
Inventories of durable goods increased 1.4 percent and those of non-durable products dropped 0.1 percent, perhaps reflecting the drop in commodity prices.
Crude Oil Drops
The average price of a barrel of crude oil in August fell to $116.69 from $133.48 the prior month, according to trading on the New York Mercantile Exchange. It reached a record of $147.27 on July 11.
Companies pared inventories in the second quarter at a $50.6 billion annual pace, subtracting 1.5 percentage points from overall growth, the Commerce Department reported Sept. 26 in its quarterly growth estimate.
Even as falling inventories pared growth in the second quarter, the economy grew at a 2.8 percent annual rate, propelled by surging exports. That followed 0.9 percent growth in the prior three months and a 0.2 percent contraction in the last three months of 2007, the Commerce Department said.
For Related News: For stories on U.S. manufacturing: TNI US HOM
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Valero Extinguishes `Small Fire' at Houston Refinery
By Aaron Clark
Oct. 9 (Bloomberg) -- Valero Energy Corp., the largest U.S. refiner, said a fire extinguished at its Houston, Texas, refinery while starting a unit will not delay the plant's restart from a shutdown because of Hurricane Ike.
``This was a small, smoldering fire with no visible flames, and it was immediately extinguished by refinery personnel,'' Bill Day, a Valero spokesman, said in an e-mail. ``There were no injuries, no environmental impacts, and no damage to the unit. The restart of the FCC was not affected, and it is proceeding as planned.''
Yesterday Valero said it planned to begin returning units to service at the refinery, which was shut because of Hurricane Ike.
To contact the reporter on this story: Aaron Clark in New York at aclark27@bloomberg.net
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Oct. 9 (Bloomberg) -- Valero Energy Corp., the largest U.S. refiner, said a fire extinguished at its Houston, Texas, refinery while starting a unit will not delay the plant's restart from a shutdown because of Hurricane Ike.
``This was a small, smoldering fire with no visible flames, and it was immediately extinguished by refinery personnel,'' Bill Day, a Valero spokesman, said in an e-mail. ``There were no injuries, no environmental impacts, and no damage to the unit. The restart of the FCC was not affected, and it is proceeding as planned.''
Yesterday Valero said it planned to begin returning units to service at the refinery, which was shut because of Hurricane Ike.
To contact the reporter on this story: Aaron Clark in New York at aclark27@bloomberg.net
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Libya Halts Oil Sales to Switzerland Refiner Tamoil
By Gianluca Baratti
Oct. 9 (Bloomberg) -- Libya halted oil supplies to its Swiss refining unit Tamoil SA, a decision that will cut deliveries to the European country by about 2 million metric tons a year, Switzerland's Oil Association said.
``This is a political decision, not an economic one,'' said Rolf Hartl of Association de L'industrie Petroliere Suisse in a telephone interview today. ``The whole of Tamoil's business in Switzerland is at risk.''
Switzerland will be able to cover its shortfall by buying supplies in the spot market, Hartl said. Tamoil spokesman Laurent Paoliello confirmed the halt in an article carried by the Tribune de Geneve newspaper today. A Tamoil spokeswoman in Geneva referred Bloomberg to the newspaper confirmation, without commenting further.
Libya supplies approximately 20 percent of Switzerland's annual oil demand. Tamoil imports crude into the port of Genoa, Italy, then sends it by pipeline to its 50,000 barrel-a-day Collombey refinery. The company also operates more than 300 gasoline service stations in the country and a heating oil business.
Hannibal Qaddafi, Libyan leader Muammar Qaddafi's youngest son, and his wife were arrested in a Geneva hotel on July 15 after two of their employees filed a complaint accusing them of mistreatment. The couple were detained for two days, then allowed to return to Libya. The servants dropped their charges last month.
Tensions between the two countries had escalated in late July when Libya ordered Swiss companies to close offices in the country. Libya's state-run oil tanker company said July 24 it would stop carrying oil destined for Switzerland, though it later backtracked on the threat.
To contact the reporter on this story: Gianluca Baratti in Madrid gbaratti@bloomberg.net
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Oct. 9 (Bloomberg) -- Libya halted oil supplies to its Swiss refining unit Tamoil SA, a decision that will cut deliveries to the European country by about 2 million metric tons a year, Switzerland's Oil Association said.
``This is a political decision, not an economic one,'' said Rolf Hartl of Association de L'industrie Petroliere Suisse in a telephone interview today. ``The whole of Tamoil's business in Switzerland is at risk.''
Switzerland will be able to cover its shortfall by buying supplies in the spot market, Hartl said. Tamoil spokesman Laurent Paoliello confirmed the halt in an article carried by the Tribune de Geneve newspaper today. A Tamoil spokeswoman in Geneva referred Bloomberg to the newspaper confirmation, without commenting further.
Libya supplies approximately 20 percent of Switzerland's annual oil demand. Tamoil imports crude into the port of Genoa, Italy, then sends it by pipeline to its 50,000 barrel-a-day Collombey refinery. The company also operates more than 300 gasoline service stations in the country and a heating oil business.
Hannibal Qaddafi, Libyan leader Muammar Qaddafi's youngest son, and his wife were arrested in a Geneva hotel on July 15 after two of their employees filed a complaint accusing them of mistreatment. The couple were detained for two days, then allowed to return to Libya. The servants dropped their charges last month.
Tensions between the two countries had escalated in late July when Libya ordered Swiss companies to close offices in the country. Libya's state-run oil tanker company said July 24 it would stop carrying oil destined for Switzerland, though it later backtracked on the threat.
To contact the reporter on this story: Gianluca Baratti in Madrid gbaratti@bloomberg.net
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E.ON Leads Declining Utilities as Worst Performers on Stoxx 600
By Nicholas Comfort and Paul Dobson
Oct. 9 (Bloomberg) -- E.ON AG, Germany's largest utility, led declines among European rivals on concern the Russian market may hamper growth and as Belgium proposed power price regulation.
Dusseldorf-based E.ON, the largest weighted in the Dow Jones Europe STOXX Utilities Index, fell as much as 2.75 euros, or 8.7 percent, to 28.90 euros in Frankfurt trading. It was down at 29.26 euros as of 12:32 p.m. local time. GDF Suez SA, which is Belgium's biggest power supplier and holds second place in the index, tumbled as much as 7 percent in Paris.
E.ON is having ``serious'' problems integrating its Russian unit, OAO OGK-4, and is replacing several management figures, Handelsblatt reported today, citing unidentified people familiar with the matter. Belgian Energy Minister Paul Magnette has suggested a plan that would fix maximum power prices based on production costs and profit margins, curbing earnings at GDF's unit in the country, Le Soir reported, citing an interview.
``Those people who were surprised by difficulties in Russia are pulling their rip cords,'' said Thomas Deser, who helps manages about 600 million euros, including shares of E.ON and GDF at Union Investment GmbH in Frankfurt. ``News from Belgium suggests governments may try to bolster their budgets with windfall taxes on sectors like utilities that are still doing alright.''
Russian Asset
UniCredit cut E.ON's price target to 41 euros from 44 euros, reflecting adjustments in the value of its stakes in OAO Gazprom and OAO OGK-4, analyst Karin Brinkmann said today in a note to investors. The utility swapped part of its holding in Gazprom last week, while OGK-4's share price has fallen 65 percent since E.ON bought its first stake in the power generator in September last year.
E.ON won't write down the value of its 76 percent interest in OGK-4, even though it paid a 1.75 billion-euro premium for the company, Handelsblatt reported earlier, citing Lutz Feldmann, the board member responsible for Russia. The company still forecasts earnings before interest, tax, depreciation and amortization at the unit of 1 billion euros in 2011, he told the newspaper.
UniCredit doesn't anticipate E.ON will need to write down the value of its stake and kept a ``hold'' recommendation on the utility's stock, Brinkmann said.
In a separate report, Dresdner Kleinwort said U.K. natural- gas prices will follow oil prices lower, cutting profits for coal-fed power plant operators including Drax Group Plc and ending the need for retail price increases by Centrica Plc.
U.K. Prices
``U.K. gas and power prices are trading at a 30 percent premium to levels justified by global commodity prices,'' London-based Dresdner analyst Martin Brough said in a note yesterday. He lowered his recommendation for Scottish & Southern Energy Plc and Drax to ``sell'' from ``hold,'' and advised buying shares of Centrica, the U.K.'s biggest energy supplier.
International Power Plc, the U.K. utility that generates electricity in 20 countries, was cut to ``reduce'' from ``buy,'' because ``the global slowdown will have an impact on perceived earnings and the company's cost of equity,'' according to the note. ``Despite expecting earnings growth we believe that the low rating on the shares will worsen before it improves,'' Brough wrote.
Dresdner raised National Grid Plc to ``buy'' from ``add'' because the owner of gas and power networks in Britain and the U.S. is ``well-placed'' to deliver on its dividend estimate of 8 percent nominal growth a year through its 2012 fiscal year.
Scottish & Southern fell 3.9 percent to 1,245 pence as of 11:46 a.m. in London, the lowest in more than two years. International Power declined 3.1 percent. Centrica fell 0.6 percent to 288 pence and Drax fell 2.5 percent to 667 pence. National Grid fell 5.6 percent to 627.5 pence.
To contact the reporters on this story: Nicholas Comfort in Frankfurt at ncomfort1@bloomberg.net
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Oct. 9 (Bloomberg) -- E.ON AG, Germany's largest utility, led declines among European rivals on concern the Russian market may hamper growth and as Belgium proposed power price regulation.
Dusseldorf-based E.ON, the largest weighted in the Dow Jones Europe STOXX Utilities Index, fell as much as 2.75 euros, or 8.7 percent, to 28.90 euros in Frankfurt trading. It was down at 29.26 euros as of 12:32 p.m. local time. GDF Suez SA, which is Belgium's biggest power supplier and holds second place in the index, tumbled as much as 7 percent in Paris.
E.ON is having ``serious'' problems integrating its Russian unit, OAO OGK-4, and is replacing several management figures, Handelsblatt reported today, citing unidentified people familiar with the matter. Belgian Energy Minister Paul Magnette has suggested a plan that would fix maximum power prices based on production costs and profit margins, curbing earnings at GDF's unit in the country, Le Soir reported, citing an interview.
``Those people who were surprised by difficulties in Russia are pulling their rip cords,'' said Thomas Deser, who helps manages about 600 million euros, including shares of E.ON and GDF at Union Investment GmbH in Frankfurt. ``News from Belgium suggests governments may try to bolster their budgets with windfall taxes on sectors like utilities that are still doing alright.''
Russian Asset
UniCredit cut E.ON's price target to 41 euros from 44 euros, reflecting adjustments in the value of its stakes in OAO Gazprom and OAO OGK-4, analyst Karin Brinkmann said today in a note to investors. The utility swapped part of its holding in Gazprom last week, while OGK-4's share price has fallen 65 percent since E.ON bought its first stake in the power generator in September last year.
E.ON won't write down the value of its 76 percent interest in OGK-4, even though it paid a 1.75 billion-euro premium for the company, Handelsblatt reported earlier, citing Lutz Feldmann, the board member responsible for Russia. The company still forecasts earnings before interest, tax, depreciation and amortization at the unit of 1 billion euros in 2011, he told the newspaper.
UniCredit doesn't anticipate E.ON will need to write down the value of its stake and kept a ``hold'' recommendation on the utility's stock, Brinkmann said.
In a separate report, Dresdner Kleinwort said U.K. natural- gas prices will follow oil prices lower, cutting profits for coal-fed power plant operators including Drax Group Plc and ending the need for retail price increases by Centrica Plc.
U.K. Prices
``U.K. gas and power prices are trading at a 30 percent premium to levels justified by global commodity prices,'' London-based Dresdner analyst Martin Brough said in a note yesterday. He lowered his recommendation for Scottish & Southern Energy Plc and Drax to ``sell'' from ``hold,'' and advised buying shares of Centrica, the U.K.'s biggest energy supplier.
International Power Plc, the U.K. utility that generates electricity in 20 countries, was cut to ``reduce'' from ``buy,'' because ``the global slowdown will have an impact on perceived earnings and the company's cost of equity,'' according to the note. ``Despite expecting earnings growth we believe that the low rating on the shares will worsen before it improves,'' Brough wrote.
Dresdner raised National Grid Plc to ``buy'' from ``add'' because the owner of gas and power networks in Britain and the U.S. is ``well-placed'' to deliver on its dividend estimate of 8 percent nominal growth a year through its 2012 fiscal year.
Scottish & Southern fell 3.9 percent to 1,245 pence as of 11:46 a.m. in London, the lowest in more than two years. International Power declined 3.1 percent. Centrica fell 0.6 percent to 288 pence and Drax fell 2.5 percent to 667 pence. National Grid fell 5.6 percent to 627.5 pence.
To contact the reporters on this story: Nicholas Comfort in Frankfurt at ncomfort1@bloomberg.net
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ECB Steps Up `Fight,' Offers Banks Unlimited Cash
By Christian Vits
Oct. 9 (Bloomberg) -- The European Central Bank brought forward plans to lend banks unlimited cash and pumped a record $100 billion in overnight funds into the financial system after an interest-rate cut failed to soothe tensions in money markets.
The Frankfurt-based ECB lent banks an additional 24.7 billion euros for six days, filling all bids at its new benchmark rate of 3.75 percent under new auction rules it had intended to introduce next week. The Frankfurt-based central bank yesterday lowered its key rate from 4.25 percent.
The U.S. Federal Reserve and the ECB led a global round of rate cuts in an effort to shore up confidence in a financial system roiled by a wave of banking collapses. The cost of borrowing in euros for three months nevertheless held at a record high today.
The ``ECB looks keen to take up the fight,'' said Christoph Rieger, a fixed-income strategist at Dresdner Kleinwort in Frankfurt. ``After cutting borrowing costs, the last thing central banks want is for market rates to remain steady or, even worse, rise further.''
The rate that banks charge for three-month euro loans was unchanged at 5.39 percent, according to the British Bankers' Association. The cost of borrowing in dollars for three months jumped to the highest level since December, the BBA said.
Commercial banks are refusing to lend to each other after the U.S. housing slump caused the collapse of New York-based Lehman Brothers Holdings Inc. That's pushed market interest rates to records even as the ECB and other central banks injected billions of euros and dollars into the banking system.
Dollar Injection
The ECB today raised the amount of dollars it lends banks overnight to $100 billion from $70 billion yesterday and $50 billion the day before.
In changes to its auctions announced last night, the ECB said it will lend banks as much cash as they can provide collateral for at the benchmark rate, rather than at a higher rate determined by demand. The new rules were originally to be introduced on Oct. 15.
The ECB yesterday also narrowed the corridor around its key rate to 100 basis points from 200 points. That means it reduced the cost of emergency overnight cash to 4.25 percent from 4.75 percent and raised the rate it pays banks for overnight deposits to 3.25 percent from 2.75 percent.
The moves by the ECB come as the 15-nation euro-region teeters on the brink of a recession and banks reel from the shortage of credit. Governments in Germany, France, Belgium, and Luxembourg have been forced to step in and rescue ailing banks.
To contact the reporter on this story: Christian Vits in Frankfurt at cvits@bloomberg.net
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Oct. 9 (Bloomberg) -- The European Central Bank brought forward plans to lend banks unlimited cash and pumped a record $100 billion in overnight funds into the financial system after an interest-rate cut failed to soothe tensions in money markets.
The Frankfurt-based ECB lent banks an additional 24.7 billion euros for six days, filling all bids at its new benchmark rate of 3.75 percent under new auction rules it had intended to introduce next week. The Frankfurt-based central bank yesterday lowered its key rate from 4.25 percent.
The U.S. Federal Reserve and the ECB led a global round of rate cuts in an effort to shore up confidence in a financial system roiled by a wave of banking collapses. The cost of borrowing in euros for three months nevertheless held at a record high today.
The ``ECB looks keen to take up the fight,'' said Christoph Rieger, a fixed-income strategist at Dresdner Kleinwort in Frankfurt. ``After cutting borrowing costs, the last thing central banks want is for market rates to remain steady or, even worse, rise further.''
The rate that banks charge for three-month euro loans was unchanged at 5.39 percent, according to the British Bankers' Association. The cost of borrowing in dollars for three months jumped to the highest level since December, the BBA said.
Commercial banks are refusing to lend to each other after the U.S. housing slump caused the collapse of New York-based Lehman Brothers Holdings Inc. That's pushed market interest rates to records even as the ECB and other central banks injected billions of euros and dollars into the banking system.
Dollar Injection
The ECB today raised the amount of dollars it lends banks overnight to $100 billion from $70 billion yesterday and $50 billion the day before.
In changes to its auctions announced last night, the ECB said it will lend banks as much cash as they can provide collateral for at the benchmark rate, rather than at a higher rate determined by demand. The new rules were originally to be introduced on Oct. 15.
The ECB yesterday also narrowed the corridor around its key rate to 100 basis points from 200 points. That means it reduced the cost of emergency overnight cash to 4.25 percent from 4.75 percent and raised the rate it pays banks for overnight deposits to 3.25 percent from 2.75 percent.
The moves by the ECB come as the 15-nation euro-region teeters on the brink of a recession and banks reel from the shortage of credit. Governments in Germany, France, Belgium, and Luxembourg have been forced to step in and rescue ailing banks.
To contact the reporter on this story: Christian Vits in Frankfurt at cvits@bloomberg.net
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LNG Is Becoming a Buyer's Market as Oil Drops, Says RBS Sempra
By Ben Farey
Oct. 9 (Bloomberg) -- Liquefied natural gas is becoming a buyer's market as the cost of crude oil slumps and a global recession looms, according to RBS Sempra Commodities LLP.
``We're entering into a new cycle, a buyer's market,'' Stephane Caudron, head of LNG at RBS Sempra Commodities, a trading venture between Royal Bank of Scotland Group Plc and Sempra Energy, said at a conference in Amsterdam today.
There are already ``stranded'' cargoes of the super-cooled fuel that have no destination and were bought when LNG spot prices peaked at about $25 a million British thermal units.
There's a mismatch between sellers' expectations and market prices for LNG, Caudron said in later interview. Sellers were hoping to get $16 or $17 a million Btus for spot LNG cargoes this month and next. ``They won't find buyers for that.''
The world economy is entering a ``brutal'' recession that may depress energy demand, he said. Buyers may have the upper hand for the next few years, the executive predicted. The U.S. gas market is ``loaded'' with domestic production while nuclear power disruptions in Japan, which boosted LNG imports by 8 billion cubic meters to the world's biggest market for the fuel, may soon be solved.
New supplies from delayed production projects in Qatar, the world's biggest producer of the fuel, are expected to reach the market soon, according to Caudron.
Market Turnaround
In the latter part of August and early September, the LNG spot market turned from there being a ``huge appetite'' from the Far East for spare cargoes to one in which traders waited for prices to drop, he said. LNG spot prices are unlikely to exceed the cost of crude oil this winter, Caudron added.
``No Far East buyer is willing to buy a spot cargo now at desperate prices. This time is over,'' he said. Asian stocks of the fuel are high as air-conditioning demand was low during the summer.
``When the U.S. has finished digesting its new domestic production, maybe there will be room for imports again,'' he said.
The U.K. has a ``good chance'' of attracting LNG cargoes in futures markets, he said.
LNG is gas that's cooled to a liquid to aid transportation and storage.
To contact the reporter on this story: Ben Farey in London at bfarey@bloomberg.net
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Oct. 9 (Bloomberg) -- Liquefied natural gas is becoming a buyer's market as the cost of crude oil slumps and a global recession looms, according to RBS Sempra Commodities LLP.
``We're entering into a new cycle, a buyer's market,'' Stephane Caudron, head of LNG at RBS Sempra Commodities, a trading venture between Royal Bank of Scotland Group Plc and Sempra Energy, said at a conference in Amsterdam today.
There are already ``stranded'' cargoes of the super-cooled fuel that have no destination and were bought when LNG spot prices peaked at about $25 a million British thermal units.
There's a mismatch between sellers' expectations and market prices for LNG, Caudron said in later interview. Sellers were hoping to get $16 or $17 a million Btus for spot LNG cargoes this month and next. ``They won't find buyers for that.''
The world economy is entering a ``brutal'' recession that may depress energy demand, he said. Buyers may have the upper hand for the next few years, the executive predicted. The U.S. gas market is ``loaded'' with domestic production while nuclear power disruptions in Japan, which boosted LNG imports by 8 billion cubic meters to the world's biggest market for the fuel, may soon be solved.
New supplies from delayed production projects in Qatar, the world's biggest producer of the fuel, are expected to reach the market soon, according to Caudron.
Market Turnaround
In the latter part of August and early September, the LNG spot market turned from there being a ``huge appetite'' from the Far East for spare cargoes to one in which traders waited for prices to drop, he said. LNG spot prices are unlikely to exceed the cost of crude oil this winter, Caudron added.
``No Far East buyer is willing to buy a spot cargo now at desperate prices. This time is over,'' he said. Asian stocks of the fuel are high as air-conditioning demand was low during the summer.
``When the U.S. has finished digesting its new domestic production, maybe there will be room for imports again,'' he said.
The U.K. has a ``good chance'' of attracting LNG cargoes in futures markets, he said.
LNG is gas that's cooled to a liquid to aid transportation and storage.
To contact the reporter on this story: Ben Farey in London at bfarey@bloomberg.net
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Libor Holds Central Banks Hostage as Credit Freezes
By Gavin Finch and Ben Sills
Oct. 9 (Bloomberg) -- Danilo Coronacion oversees 15 percent of global coconut oil production at CIIF Oil Mills Group in the Philippines. These days, he spends a lot of time worrying about events half a world away in London. The name of his pain? Libor.
CIIF has more than $60 million of debt, or 70 percent of its working capital, linked to London interbank offered rates that have soared since Lehman Brothers Holdings Inc. collapsed on Sept. 15. The cost of borrowing in dollars for three-months in London jumped 23 basis points today to 4.75 percent, the highest level since December.
Rising Libor, set each day in the center of international finance, means higher payments on financial contracts valued at $360 trillion -- or $53,500 for each person worldwide -- including mortgages in Britain, student loans in the U.S. and the debt of companies like CIIF in Makati City, the Philippines.
``You can't afford to be caught in the wrong position at any given time,'' said Coronacion, chief executive officer of CIIF, which generally pays 1 to 2 percentage points more than Libor.
Central banks from the U.S. to England and China cut interest rates yesterday in an attempt to restart the flow of credit and prevent a global recession. The moves came after they had funneled trillions of dollars into money markets in a failed bid to end the blockage. South Korea, Taiwan and Hong Kong lowered their benchmark rates today.
`Fear and Panic'
The process of setting Libor is overseen by the British Bankers' Association, putting it outside the domain of central bank policymakers. The overnight dollar rate fell 29 basis points to 5.09 percent. That's still 359 basis points more than the U.S. Federal Reserve's benchmark rate.
Libor, a gauge of bank funding costs, continued to rise even after Spain and the U.K. acted to strengthen their banking systems and the U.S. Congress approved a $700 billion financial bailout. Even the Fed's decision Monday to double emergency cash auctions failed to unlock short-term lending. The European Central Bank today offered banks as much cash as they need for six days at its benchmark rate of 3.75 percent, bringing forward new measures to soothe money markets.
``You get to a situation where fear and panic take hold,'' said Peter Dixon, a London-based economist at Commerzbank AG, Germany's second-biggest bank. ``This is the eye of the storm.''
Mysterious Acronym
Still, the jargony acronym Libor mystifies most people. While U.S. presidential candidates John McCain and Barack Obama have sparred over the economy and the mortgage crisis in America, neither has braved a public discussion of Libor.
Banks aren't lending because they're worried any borrower may become the next victim and they'll be left with losses as the credit freeze deepens.
Late on Oct. 7, as U.S. stock indexes tumbled to their biggest annual declines since 1937, AXA Investment Managers, a unit of Paris-based Axa SA, sent out an updated list of acceptable counterparties to about 50 of the firm's most senior investors and traders.
The memo, obtained by Bloomberg News, barred all new trading with Royal Bank of Scotland Group Plc and ABN Amro Holding NV, even if the dealings were backed by collateral.
`Speed of Light'
Money managers were also told to look for ways of cutting credit risk. Trading was also suspended ``even on a collateralized basis'' with banks including Goldman Sachs Group Inc., Morgan Stanley, Merrill Lynch & Co., American Insurance Group Inc. and Macquarie Group Ltd.
Axa Investment Managers CEO Dominique Carrel-Billiard yesterday said the memo was out of date.
``At any given point in time, there are buy lists, sell lists, inclusion lists and exclusion lists,'' any one list will not tell you much, he said. ``In the current environment, those snapshots age at the speed of light.''
Former Bank of England policy maker Willem Buiter said one way to stimulate lending may be for governments to guarantee interbank lending or act as the universal counterparty between banks borrowing for longer than overnight.
``It's quite possible, indeed likely, that unsecured lending will not return on any significant scale -- ever,'' he wrote on his blog on Oct. 6.
Money-market rates signaled the severity of the credit crisis 14 months ago when Libor began to diverge from central bank policy rates. That happened after Paris-based BNP Paribas SA halted withdrawals from three investment funds because it couldn't value assets tainted by the collapsing U.S. subprime mortgage market.
Aug. 9, 2007
On Aug. 9, 2007, the three-month dollar rate surged to 40 basis points more than the overnight index swap rate, a measure of what traders expect the federal funds rate to average. It had averaged 11 basis points, or 0.11 of a percentage point, between December 2001 and July 2007.
``If you had asked me 13 months ago, I'd have said we'd be over the worst by now,'' said Stuart Thomson, a money manager at Glasgow, Scotland-based Resolution Investment Management Ltd., which oversees about $46 billion in bonds.
Coronacion from CIIF Oil Mills, whose products are used to make cooking oil, beauty creams and biodiesel, says he remembers waking up to a more difficult world that morning.
`On Your Toes'
``We were already in a volatile market at that time, and the rising Libor made our business even more complicated so that you have to be on your toes all the time,'' he said. ``Our finance people had to work very closely with our traders, or it could have spelled disaster for us.''
CIIF's three treasury employees work in shifts around the clock with its three traders to monitor Libor, foreign currency exchange rates and coconut oil prices, which have been falling.
``We're all getting squeezed,'' Coronacion said.
Libor is set through a daily survey by the London-based British Bankers' Association. As many as 16 banks, including UBS AG, Citigroup Inc. and Bank of America Corp., report the rates they think they can borrow at in 10 currencies and maturities ranging from overnight to one year.
The concept of a centralized dollar rate set outside the U.S. emerged in the 1970s when the Soviet Union and Arab oil producers invested export revenue in London to prevent it from being confiscated by U.S. authorities, said Chris Golden, who worked for Credit Suisse White Field at the time and went on to head bond research for Lehman and Nomura International Plc.
Thatcher
The measure started as a series of rates quoted by four banks as a reference for floating-rate notes and syndicated loans, Golden said.
The BBA began producing the unified rates known as Libor in 1986, an association spokesman said. That made Libor the natural benchmark when then-Prime Minister Margaret Thatcher abolished many restrictions on trading in the U.K., leading to an explosion in the range of products on offer, said David Clark, former head of funding at European Investment Bank, the European Union's Luxembourg-based development bank.
While the estimates that go into Libor used to be based on actual transactions between banks, they have become little more than guesswork since credit markets froze, according to three people with knowledge of how interbank rates are set. They spoke on condition of anonymity because they weren't authorized to discuss rate setting.
`I Don't Know'
``Whatever answer you give is by definition wrong,'' said Meyrick Chapman, a strategist at UBS in London. ``There is no interbank lending, so the only proper answer to where could you fund yourself is `I don't know' or `I can't.'''
BNP Paribas's decision to halt withdrawals from the three funds in August 2007 crystallized investor concerns that events such as Merrill Lynch's seizure of collateral from two Bear Stearns Cos. hedge funds and Germany's bailout of IKB Deutsche Industriebank AG were part of a wider breakdown.
Libor rose as banks became wary that their counterparts might be holding subprime assets, and lending between institutions started freezing up.
That took its toll on Northern Rock Plc. The Bank of England bailed out the Newcastle, England-based mortgage lender in September of last year, after rising credit costs left it unable to borrow from its peers and depositors lined up to close their accounts.
Tensions in the credit markets eased in late December after the Fed joined forces with central banks around the world to pump hundreds of billions of dollars into the money markets to relieve a year-end funding squeeze. The respite proved temporary.
`Defensive Crouch'
Libor jumped again on March 17, after New York-based Bear Stearns collapsed when clients pulled $17 billion from the securities firm in two days and creditors stopped renewing loans.
Everything accelerated with the Sept. 15 bankruptcy of Lehman Brothers. The cost of borrowing in dollars for three- months has surged 1.7 percentage points in the past three weeks.
``It shows you again that people have gone into a defensive crouch,'' Federal Reserve Bank of Dallas President Richard Fisher said Oct. 6.
The difference between what banks and the U.S. Treasury pay to borrow money for three months widened to a record 413 basis points today. The so-called TED spread, which reflects perceptions of how risky it is to lend to banks, averaged 41 basis points in the 17 years to July 2007.
By comparison, on Oct. 20, 1987, when stocks collapsed globally on what became known as Black Monday, the spread was at 300 basis points. It peaked at 160 basis points after the hedge fund Long-Term Capital Management LP imploded in 1998.
Giving Up Cable TV
The spread charts and financial acronyms mean real pain for people like Maureen McNally of Trenton, Florida. The monthly payments on her Libor-linked mortgage from Countrywide Financial Corp. have climbed to $769 from about $500.
``I had to give up my cable television, I had to give up my house phones, because I had to cut back completely,'' said the 53-year-old gift processor at the University of Florida in Gainesville. ``I am so disgusted with this whole mortgage thing I never want to own a home again.''
McNally says she's had her house on the market for nine months without an offer.
Martin Zorn, the chief financial officer of Integra Bank Corp., said he's never seen so much volatility.
The Evansville, Indiana-based bank, which has branches in Indiana, Illinois, Kentucky and Ohio, is finding that rate quotes for loan proposals are now good only for the day they are made, not for two weeks as in the past, Zorn said. Half of Integra's loans and all of its deposit rates are tied to Libor.
`Very, Very Panicked'
``Everyone is very, very panicked,'' he said. ``A bunch of people are putting money in the mattress, which worries me.''
Central bank efforts to tame Libor have had little impact because instead of lending the extra cash, banks are holding it on deposit with the ECB at a loss. On Oct. 6, banks borrowed 13.6 billion euros from the ECB at its emergency rate, which then stood at 5.25 percent. At the same time, they deposited 42.6 billion euros overnight at 3.25 percent.
``Libor rates are now more or less meaningless because everyone is just doing business with the European Central Bank,'' said Jan Misch, a money-market trader at Landesbank Baden-Wuerttemberg, Germany's biggest state-owned bank.
ECB President Jean-Claude Trichet said banks are probably over-assessing the risks they are taking.
``They are going too far in the other direction,'' he said at an Oct. 2 press conference in Frankfurt. ``I call upon them to keep their composure.''
So far his calls have fallen on deaf ears.
To contact the reporters on this story: Gavin Finch in London at gfinch@bloomberg.net Ben Sills in Madrid at bsills@bloomberg.net
Read more...
Oct. 9 (Bloomberg) -- Danilo Coronacion oversees 15 percent of global coconut oil production at CIIF Oil Mills Group in the Philippines. These days, he spends a lot of time worrying about events half a world away in London. The name of his pain? Libor.
CIIF has more than $60 million of debt, or 70 percent of its working capital, linked to London interbank offered rates that have soared since Lehman Brothers Holdings Inc. collapsed on Sept. 15. The cost of borrowing in dollars for three-months in London jumped 23 basis points today to 4.75 percent, the highest level since December.
Rising Libor, set each day in the center of international finance, means higher payments on financial contracts valued at $360 trillion -- or $53,500 for each person worldwide -- including mortgages in Britain, student loans in the U.S. and the debt of companies like CIIF in Makati City, the Philippines.
``You can't afford to be caught in the wrong position at any given time,'' said Coronacion, chief executive officer of CIIF, which generally pays 1 to 2 percentage points more than Libor.
Central banks from the U.S. to England and China cut interest rates yesterday in an attempt to restart the flow of credit and prevent a global recession. The moves came after they had funneled trillions of dollars into money markets in a failed bid to end the blockage. South Korea, Taiwan and Hong Kong lowered their benchmark rates today.
`Fear and Panic'
The process of setting Libor is overseen by the British Bankers' Association, putting it outside the domain of central bank policymakers. The overnight dollar rate fell 29 basis points to 5.09 percent. That's still 359 basis points more than the U.S. Federal Reserve's benchmark rate.
Libor, a gauge of bank funding costs, continued to rise even after Spain and the U.K. acted to strengthen their banking systems and the U.S. Congress approved a $700 billion financial bailout. Even the Fed's decision Monday to double emergency cash auctions failed to unlock short-term lending. The European Central Bank today offered banks as much cash as they need for six days at its benchmark rate of 3.75 percent, bringing forward new measures to soothe money markets.
``You get to a situation where fear and panic take hold,'' said Peter Dixon, a London-based economist at Commerzbank AG, Germany's second-biggest bank. ``This is the eye of the storm.''
Mysterious Acronym
Still, the jargony acronym Libor mystifies most people. While U.S. presidential candidates John McCain and Barack Obama have sparred over the economy and the mortgage crisis in America, neither has braved a public discussion of Libor.
Banks aren't lending because they're worried any borrower may become the next victim and they'll be left with losses as the credit freeze deepens.
Late on Oct. 7, as U.S. stock indexes tumbled to their biggest annual declines since 1937, AXA Investment Managers, a unit of Paris-based Axa SA, sent out an updated list of acceptable counterparties to about 50 of the firm's most senior investors and traders.
The memo, obtained by Bloomberg News, barred all new trading with Royal Bank of Scotland Group Plc and ABN Amro Holding NV, even if the dealings were backed by collateral.
`Speed of Light'
Money managers were also told to look for ways of cutting credit risk. Trading was also suspended ``even on a collateralized basis'' with banks including Goldman Sachs Group Inc., Morgan Stanley, Merrill Lynch & Co., American Insurance Group Inc. and Macquarie Group Ltd.
Axa Investment Managers CEO Dominique Carrel-Billiard yesterday said the memo was out of date.
``At any given point in time, there are buy lists, sell lists, inclusion lists and exclusion lists,'' any one list will not tell you much, he said. ``In the current environment, those snapshots age at the speed of light.''
Former Bank of England policy maker Willem Buiter said one way to stimulate lending may be for governments to guarantee interbank lending or act as the universal counterparty between banks borrowing for longer than overnight.
``It's quite possible, indeed likely, that unsecured lending will not return on any significant scale -- ever,'' he wrote on his blog on Oct. 6.
Money-market rates signaled the severity of the credit crisis 14 months ago when Libor began to diverge from central bank policy rates. That happened after Paris-based BNP Paribas SA halted withdrawals from three investment funds because it couldn't value assets tainted by the collapsing U.S. subprime mortgage market.
Aug. 9, 2007
On Aug. 9, 2007, the three-month dollar rate surged to 40 basis points more than the overnight index swap rate, a measure of what traders expect the federal funds rate to average. It had averaged 11 basis points, or 0.11 of a percentage point, between December 2001 and July 2007.
``If you had asked me 13 months ago, I'd have said we'd be over the worst by now,'' said Stuart Thomson, a money manager at Glasgow, Scotland-based Resolution Investment Management Ltd., which oversees about $46 billion in bonds.
Coronacion from CIIF Oil Mills, whose products are used to make cooking oil, beauty creams and biodiesel, says he remembers waking up to a more difficult world that morning.
`On Your Toes'
``We were already in a volatile market at that time, and the rising Libor made our business even more complicated so that you have to be on your toes all the time,'' he said. ``Our finance people had to work very closely with our traders, or it could have spelled disaster for us.''
CIIF's three treasury employees work in shifts around the clock with its three traders to monitor Libor, foreign currency exchange rates and coconut oil prices, which have been falling.
``We're all getting squeezed,'' Coronacion said.
Libor is set through a daily survey by the London-based British Bankers' Association. As many as 16 banks, including UBS AG, Citigroup Inc. and Bank of America Corp., report the rates they think they can borrow at in 10 currencies and maturities ranging from overnight to one year.
The concept of a centralized dollar rate set outside the U.S. emerged in the 1970s when the Soviet Union and Arab oil producers invested export revenue in London to prevent it from being confiscated by U.S. authorities, said Chris Golden, who worked for Credit Suisse White Field at the time and went on to head bond research for Lehman and Nomura International Plc.
Thatcher
The measure started as a series of rates quoted by four banks as a reference for floating-rate notes and syndicated loans, Golden said.
The BBA began producing the unified rates known as Libor in 1986, an association spokesman said. That made Libor the natural benchmark when then-Prime Minister Margaret Thatcher abolished many restrictions on trading in the U.K., leading to an explosion in the range of products on offer, said David Clark, former head of funding at European Investment Bank, the European Union's Luxembourg-based development bank.
While the estimates that go into Libor used to be based on actual transactions between banks, they have become little more than guesswork since credit markets froze, according to three people with knowledge of how interbank rates are set. They spoke on condition of anonymity because they weren't authorized to discuss rate setting.
`I Don't Know'
``Whatever answer you give is by definition wrong,'' said Meyrick Chapman, a strategist at UBS in London. ``There is no interbank lending, so the only proper answer to where could you fund yourself is `I don't know' or `I can't.'''
BNP Paribas's decision to halt withdrawals from the three funds in August 2007 crystallized investor concerns that events such as Merrill Lynch's seizure of collateral from two Bear Stearns Cos. hedge funds and Germany's bailout of IKB Deutsche Industriebank AG were part of a wider breakdown.
Libor rose as banks became wary that their counterparts might be holding subprime assets, and lending between institutions started freezing up.
That took its toll on Northern Rock Plc. The Bank of England bailed out the Newcastle, England-based mortgage lender in September of last year, after rising credit costs left it unable to borrow from its peers and depositors lined up to close their accounts.
Tensions in the credit markets eased in late December after the Fed joined forces with central banks around the world to pump hundreds of billions of dollars into the money markets to relieve a year-end funding squeeze. The respite proved temporary.
`Defensive Crouch'
Libor jumped again on March 17, after New York-based Bear Stearns collapsed when clients pulled $17 billion from the securities firm in two days and creditors stopped renewing loans.
Everything accelerated with the Sept. 15 bankruptcy of Lehman Brothers. The cost of borrowing in dollars for three- months has surged 1.7 percentage points in the past three weeks.
``It shows you again that people have gone into a defensive crouch,'' Federal Reserve Bank of Dallas President Richard Fisher said Oct. 6.
The difference between what banks and the U.S. Treasury pay to borrow money for three months widened to a record 413 basis points today. The so-called TED spread, which reflects perceptions of how risky it is to lend to banks, averaged 41 basis points in the 17 years to July 2007.
By comparison, on Oct. 20, 1987, when stocks collapsed globally on what became known as Black Monday, the spread was at 300 basis points. It peaked at 160 basis points after the hedge fund Long-Term Capital Management LP imploded in 1998.
Giving Up Cable TV
The spread charts and financial acronyms mean real pain for people like Maureen McNally of Trenton, Florida. The monthly payments on her Libor-linked mortgage from Countrywide Financial Corp. have climbed to $769 from about $500.
``I had to give up my cable television, I had to give up my house phones, because I had to cut back completely,'' said the 53-year-old gift processor at the University of Florida in Gainesville. ``I am so disgusted with this whole mortgage thing I never want to own a home again.''
McNally says she's had her house on the market for nine months without an offer.
Martin Zorn, the chief financial officer of Integra Bank Corp., said he's never seen so much volatility.
The Evansville, Indiana-based bank, which has branches in Indiana, Illinois, Kentucky and Ohio, is finding that rate quotes for loan proposals are now good only for the day they are made, not for two weeks as in the past, Zorn said. Half of Integra's loans and all of its deposit rates are tied to Libor.
`Very, Very Panicked'
``Everyone is very, very panicked,'' he said. ``A bunch of people are putting money in the mattress, which worries me.''
Central bank efforts to tame Libor have had little impact because instead of lending the extra cash, banks are holding it on deposit with the ECB at a loss. On Oct. 6, banks borrowed 13.6 billion euros from the ECB at its emergency rate, which then stood at 5.25 percent. At the same time, they deposited 42.6 billion euros overnight at 3.25 percent.
``Libor rates are now more or less meaningless because everyone is just doing business with the European Central Bank,'' said Jan Misch, a money-market trader at Landesbank Baden-Wuerttemberg, Germany's biggest state-owned bank.
ECB President Jean-Claude Trichet said banks are probably over-assessing the risks they are taking.
``They are going too far in the other direction,'' he said at an Oct. 2 press conference in Frankfurt. ``I call upon them to keep their composure.''
So far his calls have fallen on deaf ears.
To contact the reporters on this story: Gavin Finch in London at gfinch@bloomberg.net Ben Sills in Madrid at bsills@bloomberg.net
Read more...
Iceland's Krona Currency Trading Halts as Kaupthing Taken Over
By Bo Nielsen
Enlarge Image/Details
Oct. 9 (Bloomberg) -- Trading in the Icelandic krona came to a halt after the government seized control of Kaupthing Bank hf, the nation's biggest lender, as the financial crisis deepens.
There haven't been any so-called krona spot trades today, or transactions in which currency must be exchanged immediately, according to Stockholm-based Nordea Bank AB and TD Securities Ltd. in London. The last spot trade was at 340 krona per euro, Nordea said. Regulators earlier this week took over Iceland's second- and third-largest lenders, Glitnir Bank hf and Landsbanki Islands hf, which acted as krona clearing houses.
``Effectively the krona can't be traded at the moment because there are no more banks to clear the trade,'' said Mick Ankjaer, a foreign-exchange dealer in Copenhagen at Nordea, Scandinavia's biggest lender.
The bid/ask spread for the krona against the euro, or the price at which traders are willing to buy or sell, was 225 per euro to 400 per euro as of 11:52 a.m. in Reykjavik, according to Antje Praefcke, a currency analyst in Frankfurt at Commerzbank AG, Germany's second-largest lender.
The krona plummeted to 350 per euro this week in trading between banks outside of Iceland, Praefcke said. Icelandic banks may still be trading with each other, she said.
``Foreign banks have cut credit lines with Icelandic banks so they can't settle trades,'' Praefcke said.
The Reykjavik-based central bank, Sedlabanki, yesterday abandoned a peg to the euro after just a day when it became unable to defend the rate of 131 krona per euro. Fitch Ratings yesterday downgraded Iceland's foreign and local-currency debt ratings to BBB- and A-, respectively.
No Confidence
``Nobody wants to hold the currency unless they have to,'' said Beat Siegenthaler, the London-based chief strategist for emerging markets at TD Securities Ltd. ``Something has to be done to restore a minimum level of confidence in the currency.''
Iceland will start talks with Russia on Oct. 14 to secure a loan of as much as 4 billion euros ($5.48 billion), Prime Minister Geir Haarde said yesterday. The government hasn't asked the International Monetary Fund for a standby loan or an economic program, he said.
Moody's Investors Service yesterday lowered the government's credit rating three steps to A1.
To contact the reporter on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net
Read more...
Enlarge Image/Details
Oct. 9 (Bloomberg) -- Trading in the Icelandic krona came to a halt after the government seized control of Kaupthing Bank hf, the nation's biggest lender, as the financial crisis deepens.
There haven't been any so-called krona spot trades today, or transactions in which currency must be exchanged immediately, according to Stockholm-based Nordea Bank AB and TD Securities Ltd. in London. The last spot trade was at 340 krona per euro, Nordea said. Regulators earlier this week took over Iceland's second- and third-largest lenders, Glitnir Bank hf and Landsbanki Islands hf, which acted as krona clearing houses.
``Effectively the krona can't be traded at the moment because there are no more banks to clear the trade,'' said Mick Ankjaer, a foreign-exchange dealer in Copenhagen at Nordea, Scandinavia's biggest lender.
The bid/ask spread for the krona against the euro, or the price at which traders are willing to buy or sell, was 225 per euro to 400 per euro as of 11:52 a.m. in Reykjavik, according to Antje Praefcke, a currency analyst in Frankfurt at Commerzbank AG, Germany's second-largest lender.
The krona plummeted to 350 per euro this week in trading between banks outside of Iceland, Praefcke said. Icelandic banks may still be trading with each other, she said.
``Foreign banks have cut credit lines with Icelandic banks so they can't settle trades,'' Praefcke said.
The Reykjavik-based central bank, Sedlabanki, yesterday abandoned a peg to the euro after just a day when it became unable to defend the rate of 131 krona per euro. Fitch Ratings yesterday downgraded Iceland's foreign and local-currency debt ratings to BBB- and A-, respectively.
No Confidence
``Nobody wants to hold the currency unless they have to,'' said Beat Siegenthaler, the London-based chief strategist for emerging markets at TD Securities Ltd. ``Something has to be done to restore a minimum level of confidence in the currency.''
Iceland will start talks with Russia on Oct. 14 to secure a loan of as much as 4 billion euros ($5.48 billion), Prime Minister Geir Haarde said yesterday. The government hasn't asked the International Monetary Fund for a standby loan or an economic program, he said.
Moody's Investors Service yesterday lowered the government's credit rating three steps to A1.
To contact the reporter on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net
Read more...
Brazilian Real Gains the Most Since 2002 as Risk Aversion Eases
By Adriana Brasileiro
Oct. 9 (Bloomberg) -- Brazil's real strengthened the most since August 2002 as aversion to high-yielding assets eased amid a rebound in global equities and as the central bank drew on foreign reserves to support the currency.
The real rose 7.1 percent to 2.1790 per dollar at 10:10 a.m. New York time, from 2.3342 yesterday. The currency had lost 18 percent in the past six days as financial institutions around the world started to falter under the weight of the global credit crisis.
``Today is a day of relief because sentiment in global markets has improved,'' said Roberto Padovani, Banco WestLB do Brasil's chief economist in Sao Paulo. ``We are not safe from volatility yet; investors still lack parameters so we can have more rollercoaster days.''
Asian, European and U.S. stocks rose, with the Standard & Poor's 500 Index recovering from its worst six-day plunge since 1987. The S&P rose 0.8 percent, while MSCI World Index rose 0.9 percent and Brazil's benchmark Bovespa Index climbed 3.8 perent.
Brazil's central bank yesterday stepped up measures to stem the real's slide, the worst among all currencies in the past week, by drawing on its record $208 billion of international reserves to sell U.S. dollars for the first time in five years. The real yesterday lost as much as 9 percent and pared losses after the sale of U.S. currency in the spot market.
The bank yesterday sold dollars three times after having auctioned currency swap contracts several times since Sept. 19. It sold dollars again today.
Reserve Requirements
Monetary policy makers yesterday also eased rules on reserve requirements that banks must keep at the central bank for a third time in two weeks. The measures will add 23.2 billion reais ($10 billion) in cash to the financial system by Oct. 13, the bank said.
The yield on Brazil's overnight futures contract for January 2010 delivery fell for the first time in four days, sliding 17 basis points, or 0.17 percentage point, to 14.76 percent.
The yield on Brazil's zero-coupon bond due in January 2010 fell 10 basis points to 14.82 percent, according to Banco Votorantim.
To contact the reporter on this story: Adriana Brasileiro in Rio de Janeiro at abrasileiro@bloomberg.net
Read more...
Oct. 9 (Bloomberg) -- Brazil's real strengthened the most since August 2002 as aversion to high-yielding assets eased amid a rebound in global equities and as the central bank drew on foreign reserves to support the currency.
The real rose 7.1 percent to 2.1790 per dollar at 10:10 a.m. New York time, from 2.3342 yesterday. The currency had lost 18 percent in the past six days as financial institutions around the world started to falter under the weight of the global credit crisis.
``Today is a day of relief because sentiment in global markets has improved,'' said Roberto Padovani, Banco WestLB do Brasil's chief economist in Sao Paulo. ``We are not safe from volatility yet; investors still lack parameters so we can have more rollercoaster days.''
Asian, European and U.S. stocks rose, with the Standard & Poor's 500 Index recovering from its worst six-day plunge since 1987. The S&P rose 0.8 percent, while MSCI World Index rose 0.9 percent and Brazil's benchmark Bovespa Index climbed 3.8 perent.
Brazil's central bank yesterday stepped up measures to stem the real's slide, the worst among all currencies in the past week, by drawing on its record $208 billion of international reserves to sell U.S. dollars for the first time in five years. The real yesterday lost as much as 9 percent and pared losses after the sale of U.S. currency in the spot market.
The bank yesterday sold dollars three times after having auctioned currency swap contracts several times since Sept. 19. It sold dollars again today.
Reserve Requirements
Monetary policy makers yesterday also eased rules on reserve requirements that banks must keep at the central bank for a third time in two weeks. The measures will add 23.2 billion reais ($10 billion) in cash to the financial system by Oct. 13, the bank said.
The yield on Brazil's overnight futures contract for January 2010 delivery fell for the first time in four days, sliding 17 basis points, or 0.17 percentage point, to 14.76 percent.
The yield on Brazil's zero-coupon bond due in January 2010 fell 10 basis points to 14.82 percent, according to Banco Votorantim.
To contact the reporter on this story: Adriana Brasileiro in Rio de Janeiro at abrasileiro@bloomberg.net
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Latin American Banks Use Reserves to Save Currencies
By Adriana Brasileiro and Andre Soliani
Oct. 9 (Bloomberg) -- Latin American central banks are being forced to draw on record foreign reserves built up during the six-year commodities rally to stop their currencies from sinking in the worst financial crisis since the Great Depression.
Brazil sold dollars for the first time in five years and Mexico sold $2.5 billion in the spot market between yesterday and today, helping their currencies pare losses. Chile may follow suit, Barclays Capital analyst Rodrigo Valdes said.
The worst currency meltdown in Latin America since the emerging-market economic crises of the 1990s is causing companies' dollar debts to swell as well as sparking derivatives losses, and may stoke inflation. The decision to intervene came after central banks in the U.S., Europe and Canada cut interest rates in a coordinated effort to boost confidence.
``For a long time, these central banks said their reserve buildup strategy was like an insurance policy,'' said Felipe Pianetti, a strategist at the JPMorgan Emerging Markets team in New York. ``Now is the time to use them.''
Brazilian international reserves increased more than five- fold to a record $208 billion since January 2003, helped by rising revenue from soybeans, iron ore and sugar exports. In Mexico, Latin America's No. 2 oil producer, reserves almost doubled to $83.6 billion in the period. Chilean reserves rose to a record $22.4 billion in August, helped by copper sales.
Brazil's real gained 7 percent to 2.182 to the dollar at 10:21 a.m. New York time after tumbling yesterday as much as 9 percent. Yesterday's drop was the biggest since the central bank abandoned a currency peg in January 1999 after burning through more than $30 billion of reserves in nine months.
29% Decline
The real is down 29 percent since reaching a high of 1.5545 per dollar Aug. 1. Brazil's central bank didn't say how much it sold in the four dollar auctions it has held since yesterday.
The Mexican peso fell 0.3 percent to 12.3589 to the dollar. Yesterday the peso at one point fell the most since 1994, when President Ernesto Zedillo was forced to devalue to avoid depleting the country's reserves. The currency pared losses after the central bank auctioned dollars. The plan includes dollar sales of $400 million starting tomorrow if the peso falls more than 2 percent.
``In extraordinary situations, Banco de Mexico has been willing to intervene in the currency market,'' said Gray Newman, chief Latin America economist at Morgan Stanley in New York. ``This constitutes an extraordinary situation.''
The Chilean peso gained 1.4 percent to 606.35 to the dollar after dropping as much as 4 percent yesterday, the most since November 1992, to the weakest since October 2004.
Effect on Companies
While governments in Brazil, Mexico and Chile used the commodity boom of the past few years to reduce dollar debt, some companies are suffering as the currencies plunge.
Two of Brazil's biggest exporters, Aracruz Celulose SA and Sadia SA, lost about half of their market value since saying Sept. 26 they made bad currency bets that may cost them a combined $1.2 billion.
Controladora Comercial Mexicana SAB, the owner of supermarkets and Costco stores in Mexico, fell 44 percent yesterday after saying the peso's plunge increased the cost of its foreign debt ``significantly.'' Grupo Industrial Saltillo SAB, the Mexican auto parts and building materials company, asked the local exchange to suspend trading of its shares before announcing it will take a $48.5 million charge related to derivatives.
The currency meltdown may also stoke inflation that has exceeded or is about to top targets set by policy makers in the region.
Interest Rates
``Intervening in the currency when there is an excessive devaluation is the natural thing within an inflation-targeting system,'' Barclays's Valdes said.
Brazil's central bank last month raised the benchmark overnight rate for a fourth time since April to rein in inflation, which quickened to 6.25 percent in September. The target is 4.5 percent plus or minus two percentage points.
Mexico and Chile already busted their targets. Chilean consumer prices rose 9.2 percent last month from a year earlier, more than triple the bank's target of 3 percent. Inflation in Mexico quickened to 5.57 percent in August, above the 4 percent upper end of the target band.
Still, economists expect central bank policy makers will slow the pace of rate increases in response to sluggish global economic expansion and falling commodity prices.
The global credit crunch may put an end to Latin America's fastest economic expansion in 30 years. Morgan Stanley cut on Oct. 6 its 2009 economic growth forecast for the region by more than half to 1.5 percent, down from 3.5 percent.
Intervention
Brazil and Mexico join Argentina and Peru in selling dollars. Central banks in Chile and Colombia have so far used derivatives contracts to arrest the decline of their currencies, without touching reserves.
``There's a very high chance'' that the Chilean central bank will intervene to strengthen the peso, said Gabriel Casillas, an economist with UBS Pactual in Mexico City. The bank ``will be feeling quite uncomfortable with the peso at this level.''
To contact the reporter on this story: Adriana Brasileiro in Rio de Janeiro at abrasileiro@bloomberg.netAndre Soliani in Brasilia at at asoliani@bloomberg.net:
Read more...
Oct. 9 (Bloomberg) -- Latin American central banks are being forced to draw on record foreign reserves built up during the six-year commodities rally to stop their currencies from sinking in the worst financial crisis since the Great Depression.
Brazil sold dollars for the first time in five years and Mexico sold $2.5 billion in the spot market between yesterday and today, helping their currencies pare losses. Chile may follow suit, Barclays Capital analyst Rodrigo Valdes said.
The worst currency meltdown in Latin America since the emerging-market economic crises of the 1990s is causing companies' dollar debts to swell as well as sparking derivatives losses, and may stoke inflation. The decision to intervene came after central banks in the U.S., Europe and Canada cut interest rates in a coordinated effort to boost confidence.
``For a long time, these central banks said their reserve buildup strategy was like an insurance policy,'' said Felipe Pianetti, a strategist at the JPMorgan Emerging Markets team in New York. ``Now is the time to use them.''
Brazilian international reserves increased more than five- fold to a record $208 billion since January 2003, helped by rising revenue from soybeans, iron ore and sugar exports. In Mexico, Latin America's No. 2 oil producer, reserves almost doubled to $83.6 billion in the period. Chilean reserves rose to a record $22.4 billion in August, helped by copper sales.
Brazil's real gained 7 percent to 2.182 to the dollar at 10:21 a.m. New York time after tumbling yesterday as much as 9 percent. Yesterday's drop was the biggest since the central bank abandoned a currency peg in January 1999 after burning through more than $30 billion of reserves in nine months.
29% Decline
The real is down 29 percent since reaching a high of 1.5545 per dollar Aug. 1. Brazil's central bank didn't say how much it sold in the four dollar auctions it has held since yesterday.
The Mexican peso fell 0.3 percent to 12.3589 to the dollar. Yesterday the peso at one point fell the most since 1994, when President Ernesto Zedillo was forced to devalue to avoid depleting the country's reserves. The currency pared losses after the central bank auctioned dollars. The plan includes dollar sales of $400 million starting tomorrow if the peso falls more than 2 percent.
``In extraordinary situations, Banco de Mexico has been willing to intervene in the currency market,'' said Gray Newman, chief Latin America economist at Morgan Stanley in New York. ``This constitutes an extraordinary situation.''
The Chilean peso gained 1.4 percent to 606.35 to the dollar after dropping as much as 4 percent yesterday, the most since November 1992, to the weakest since October 2004.
Effect on Companies
While governments in Brazil, Mexico and Chile used the commodity boom of the past few years to reduce dollar debt, some companies are suffering as the currencies plunge.
Two of Brazil's biggest exporters, Aracruz Celulose SA and Sadia SA, lost about half of their market value since saying Sept. 26 they made bad currency bets that may cost them a combined $1.2 billion.
Controladora Comercial Mexicana SAB, the owner of supermarkets and Costco stores in Mexico, fell 44 percent yesterday after saying the peso's plunge increased the cost of its foreign debt ``significantly.'' Grupo Industrial Saltillo SAB, the Mexican auto parts and building materials company, asked the local exchange to suspend trading of its shares before announcing it will take a $48.5 million charge related to derivatives.
The currency meltdown may also stoke inflation that has exceeded or is about to top targets set by policy makers in the region.
Interest Rates
``Intervening in the currency when there is an excessive devaluation is the natural thing within an inflation-targeting system,'' Barclays's Valdes said.
Brazil's central bank last month raised the benchmark overnight rate for a fourth time since April to rein in inflation, which quickened to 6.25 percent in September. The target is 4.5 percent plus or minus two percentage points.
Mexico and Chile already busted their targets. Chilean consumer prices rose 9.2 percent last month from a year earlier, more than triple the bank's target of 3 percent. Inflation in Mexico quickened to 5.57 percent in August, above the 4 percent upper end of the target band.
Still, economists expect central bank policy makers will slow the pace of rate increases in response to sluggish global economic expansion and falling commodity prices.
The global credit crunch may put an end to Latin America's fastest economic expansion in 30 years. Morgan Stanley cut on Oct. 6 its 2009 economic growth forecast for the region by more than half to 1.5 percent, down from 3.5 percent.
Intervention
Brazil and Mexico join Argentina and Peru in selling dollars. Central banks in Chile and Colombia have so far used derivatives contracts to arrest the decline of their currencies, without touching reserves.
``There's a very high chance'' that the Chilean central bank will intervene to strengthen the peso, said Gabriel Casillas, an economist with UBS Pactual in Mexico City. The bank ``will be feeling quite uncomfortable with the peso at this level.''
To contact the reporter on this story: Adriana Brasileiro in Rio de Janeiro at abrasileiro@bloomberg.netAndre Soliani in Brasilia at at asoliani@bloomberg.net:
Read more...
Canada's Dollar Gains for First Time in a Week on U.S. Weakness
By Chris Fournier
Oct. 9 (Bloomberg) -- Canada's currency rose for the first time in more than a week, snapping its longest losing streak in almost two months, as its U.S. counterpart fell versus most of the world's major currencies.
The Canadian dollar ``was just unwinding a little bit too quickly,'' said David Watt, a senior currency strategist at RBC Capital Markets in Toronto, a unit of Canada's biggest bank by assets. ``It looks like the Canadian dollar got caught up in some of the fear aspect.''
The Canadian dollar rose as much as 0.8 percent to C$1.1188 per U.S. dollar, from C$1.1281 yesterday. It last traded at C$1.1259 at 9:38 a.m. in Toronto. One Canadian dollar buys 88.82 U.S. cents. The currency declined eight straight days through Aug. 11.
Watt predicts Canada's dollar will strengthen to C$1.10 by year-end. The loonie, as Canada's currency is known because of the aquatic bird on the one-dollar coin, has dropped 8.3 percent since Sept. 26.
``Although we have been bullish the greenback against the loonie, we see this move as too far too fast,'' Marc Chandler, head of currency strategy with Brown Brothers Harriman & Co. in New York, wrote in a note to clients. ``Some technical signs suggest a deeper U.S. dollar pullback is possible.''
Canada's currency will slip to C$1.13 against the U.S. dollar by the end of 2009, according to the median forecast in a Bloomberg News survey of economists.
Two-Year Yield
The yield on the two-year government bond rose as much as 6 basis points, or 0.06 percentage point, to 2.23 percent, from 2.17 percent yesterday, the lowest since Bloomberg began tracking the data in 1989. It last traded at 2.22 percent. The price of the 2.75 percent security due in December 2010 dropped 11 cents to C$101.11.
The 10-year note's yield climbed 8 basis points to 3.66 percent. The price of the 4.25 percent security maturing in June 2018 dropped 64 cents to C$104.75.
The 10-year bond yielded 144 basis points more than the two- year security, from 142 basis points yesterday. The so-called yield curve is the steepest since December 2004.
The two-year bond's yield will rise to 2.96 percent by the end of this year, while the 10-year bond's yield will climb to 3.85 percent, according to the median forecasts of economists surveyed by Bloomberg News.
To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net
Read more...
Oct. 9 (Bloomberg) -- Canada's currency rose for the first time in more than a week, snapping its longest losing streak in almost two months, as its U.S. counterpart fell versus most of the world's major currencies.
The Canadian dollar ``was just unwinding a little bit too quickly,'' said David Watt, a senior currency strategist at RBC Capital Markets in Toronto, a unit of Canada's biggest bank by assets. ``It looks like the Canadian dollar got caught up in some of the fear aspect.''
The Canadian dollar rose as much as 0.8 percent to C$1.1188 per U.S. dollar, from C$1.1281 yesterday. It last traded at C$1.1259 at 9:38 a.m. in Toronto. One Canadian dollar buys 88.82 U.S. cents. The currency declined eight straight days through Aug. 11.
Watt predicts Canada's dollar will strengthen to C$1.10 by year-end. The loonie, as Canada's currency is known because of the aquatic bird on the one-dollar coin, has dropped 8.3 percent since Sept. 26.
``Although we have been bullish the greenback against the loonie, we see this move as too far too fast,'' Marc Chandler, head of currency strategy with Brown Brothers Harriman & Co. in New York, wrote in a note to clients. ``Some technical signs suggest a deeper U.S. dollar pullback is possible.''
Canada's currency will slip to C$1.13 against the U.S. dollar by the end of 2009, according to the median forecast in a Bloomberg News survey of economists.
Two-Year Yield
The yield on the two-year government bond rose as much as 6 basis points, or 0.06 percentage point, to 2.23 percent, from 2.17 percent yesterday, the lowest since Bloomberg began tracking the data in 1989. It last traded at 2.22 percent. The price of the 2.75 percent security due in December 2010 dropped 11 cents to C$101.11.
The 10-year note's yield climbed 8 basis points to 3.66 percent. The price of the 4.25 percent security maturing in June 2018 dropped 64 cents to C$104.75.
The 10-year bond yielded 144 basis points more than the two- year security, from 142 basis points yesterday. The so-called yield curve is the steepest since December 2004.
The two-year bond's yield will rise to 2.96 percent by the end of this year, while the 10-year bond's yield will climb to 3.85 percent, according to the median forecasts of economists surveyed by Bloomberg News.
To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net
Read more...
Yen Tumbles as Global Interest-Rate Cuts Revive Risk Appetite
By Ye Xie and Kim-Mai Cutler
Oct. 9 (Bloomberg) -- The yen fell the most in three weeks against the euro as a flurry of central bank interest-rate cuts helped arrest a slump in global stocks, curbing sales of higher- yielding assets funded in Japan.
Japan's currency also tumbled versus the U.S., Australian and New Zealand dollars as equities in the U.S., Asia and Europe rebounded. The Mexican peso and the Brazilian real rose for the first time this month, one day after their central banks drew on their foreign reserves to defend the currencies.
``The central banks broke the fear dynamic and the market is settling down a bit,'' said David Watt, a senior currency strategist at RBC Capital Markets in Toronto, a unit of Canada's biggest bank by assets. ``The hope is we may have reached the peak of the crisis. When things cool down, we are seeing some weakness in the yen.''
Japan's currency fell 2.2 percent to 138.35 versus the euro at 9:40 a.m. in New York, from 135.39 yesterday when it touched 134.96, the strongest since August 2005. It earlier fell as much as 3.2 percent, the biggest drop since Jan. 11, 2001. The yen declined 2.1 percent to 101.23 per dollar. It touched 98.61 yesterday, the strongest since March 27. The euro rose 0.1 percent to $1.3672.
Brazil's real jumped as much as 7.4 percent to 2.16 per dollar, the biggest one-day gain since August 2002. Brazil's central bank sold dollars for the first time in five years yesterday when the currency fell to 2.55, the lowest since April 2005.
Mexico's peso rose 2.6 percent to 12.0051 per dollar. Mexico offered $2.5 billion in the spot market yesterday after the peso tumbled as much as 16 percent, the most since 1994.
Carry Trades
Japan's yen weakened 6.9 percent to 70.76 against the Australian dollar and dropped 4.8 percent to 62.41 per New Zealand dollar. Yesterday, the yen jumped to 63.78 versus the Aussie and 57.31 against the kiwi, the highest levels since September 2002.
The Standard & Poor's 500 Index rose 1.4 percent. The MSCI World Index rose 0.9 percent. It lost 15 percent in the past five days, the biggest drop since October 1987 on concern the global economy is headed for a recession as credit markets to seize up.
The yen has surged 19 percent versus the Australian dollar, 14 percent against New Zealand's currency and 8 percent against the euro this month as investors pared so called carry trades, in which investors get funds in nations such as Japan that have low borrowing costs and buy assets where returns are higher. Japan's benchmark rate is 0.5 percent, compared with 6 percent in Australia and 7.5 percent in New Zealand.
G-7 Meeting
Investors are reluctant to buy the yen before Group-of- Seven ministers meeting tomorrow as the currency's gain may be ``starting to breach the comfort zone'' of the officials, said Akio Shimizu, chief manager of foreign-exchange trading in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan's largest publicly traded bank.
G-7 finance ministers and central bankers will meet for two- days in Washington to discuss the financial crisis, which has already led to bank bailouts in most of the member nations. The group comprises Canada, France, Germany, Italy, the U.K., the U.S. and Japan.
Technical indicators suggested the yen was poised to fall, after reaching a three-year high against the euro yesterday. The 14-day relative strength index for the Japanese currency was at 82 yesterday, above the level of 70 that signals a reversal may occur. It was at 74 today. In technical analysis, investors and analysts study charts of trading patterns and prices to forecast price changes in a currency.
`One-Sidedly Positioned'
The dollar's one-month 25-delta risk-reversal rate against the yen was 6.7 percent today, the most since March 17, signaling traders demand a greater premium for yen calls, which allow for purchases, over puts, which grant the right to sell. Against the Australian dollar, the risk reversal rate was 8.3 percent.
``The options market is very one-sidedly positioned, so it's not surprising with some risk aversion carefully fading'' to see the yen fall, said Michael Klawitter, a currency strategist at Dresdner Kleinwort in Frankfurt.
Implied volatility on one-month dollar-yen options, a measure of expectations for future currency moves, fell to 20.09 percent from 25.05 percent yesterday, when it reached 26.42 percent, the highest since Oct. 20, 1998. Lower volatility may encourage carry trades as it indicates a smaller risk of exchange-rate fluctuations.
Krona Crumbles
The Federal Reserve reduced its target lending rate by a half-percentage point to 1.5 percent yesterday, while the European Central Bank and counterparts from the U.K., Canada, Sweden and Switzerland also announced cuts. Central banks in China, Hong Kong and Taiwan lowered their key rates and the Bank of Korea cut its benchmark for the first time in four years.
Trading in the Icelandic krona came to a halt after the government seized control of Kaupthing Bank hf, the nation's biggest lender, as the financial crisis deepens.
There haven't been any so-called krona spot trades today, or transactions in which currency must be exchanged immediately, according to Stockholm-based Nordea Bank AB and TD Securities Ltd. in London. The last spot trade was at 340 krona per euro, Nordea said.
To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Kim-Mai Cutler in London at kcutler@bloomberg.net;
Read more...
Oct. 9 (Bloomberg) -- The yen fell the most in three weeks against the euro as a flurry of central bank interest-rate cuts helped arrest a slump in global stocks, curbing sales of higher- yielding assets funded in Japan.
Japan's currency also tumbled versus the U.S., Australian and New Zealand dollars as equities in the U.S., Asia and Europe rebounded. The Mexican peso and the Brazilian real rose for the first time this month, one day after their central banks drew on their foreign reserves to defend the currencies.
``The central banks broke the fear dynamic and the market is settling down a bit,'' said David Watt, a senior currency strategist at RBC Capital Markets in Toronto, a unit of Canada's biggest bank by assets. ``The hope is we may have reached the peak of the crisis. When things cool down, we are seeing some weakness in the yen.''
Japan's currency fell 2.2 percent to 138.35 versus the euro at 9:40 a.m. in New York, from 135.39 yesterday when it touched 134.96, the strongest since August 2005. It earlier fell as much as 3.2 percent, the biggest drop since Jan. 11, 2001. The yen declined 2.1 percent to 101.23 per dollar. It touched 98.61 yesterday, the strongest since March 27. The euro rose 0.1 percent to $1.3672.
Brazil's real jumped as much as 7.4 percent to 2.16 per dollar, the biggest one-day gain since August 2002. Brazil's central bank sold dollars for the first time in five years yesterday when the currency fell to 2.55, the lowest since April 2005.
Mexico's peso rose 2.6 percent to 12.0051 per dollar. Mexico offered $2.5 billion in the spot market yesterday after the peso tumbled as much as 16 percent, the most since 1994.
Carry Trades
Japan's yen weakened 6.9 percent to 70.76 against the Australian dollar and dropped 4.8 percent to 62.41 per New Zealand dollar. Yesterday, the yen jumped to 63.78 versus the Aussie and 57.31 against the kiwi, the highest levels since September 2002.
The Standard & Poor's 500 Index rose 1.4 percent. The MSCI World Index rose 0.9 percent. It lost 15 percent in the past five days, the biggest drop since October 1987 on concern the global economy is headed for a recession as credit markets to seize up.
The yen has surged 19 percent versus the Australian dollar, 14 percent against New Zealand's currency and 8 percent against the euro this month as investors pared so called carry trades, in which investors get funds in nations such as Japan that have low borrowing costs and buy assets where returns are higher. Japan's benchmark rate is 0.5 percent, compared with 6 percent in Australia and 7.5 percent in New Zealand.
G-7 Meeting
Investors are reluctant to buy the yen before Group-of- Seven ministers meeting tomorrow as the currency's gain may be ``starting to breach the comfort zone'' of the officials, said Akio Shimizu, chief manager of foreign-exchange trading in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan's largest publicly traded bank.
G-7 finance ministers and central bankers will meet for two- days in Washington to discuss the financial crisis, which has already led to bank bailouts in most of the member nations. The group comprises Canada, France, Germany, Italy, the U.K., the U.S. and Japan.
Technical indicators suggested the yen was poised to fall, after reaching a three-year high against the euro yesterday. The 14-day relative strength index for the Japanese currency was at 82 yesterday, above the level of 70 that signals a reversal may occur. It was at 74 today. In technical analysis, investors and analysts study charts of trading patterns and prices to forecast price changes in a currency.
`One-Sidedly Positioned'
The dollar's one-month 25-delta risk-reversal rate against the yen was 6.7 percent today, the most since March 17, signaling traders demand a greater premium for yen calls, which allow for purchases, over puts, which grant the right to sell. Against the Australian dollar, the risk reversal rate was 8.3 percent.
``The options market is very one-sidedly positioned, so it's not surprising with some risk aversion carefully fading'' to see the yen fall, said Michael Klawitter, a currency strategist at Dresdner Kleinwort in Frankfurt.
Implied volatility on one-month dollar-yen options, a measure of expectations for future currency moves, fell to 20.09 percent from 25.05 percent yesterday, when it reached 26.42 percent, the highest since Oct. 20, 1998. Lower volatility may encourage carry trades as it indicates a smaller risk of exchange-rate fluctuations.
Krona Crumbles
The Federal Reserve reduced its target lending rate by a half-percentage point to 1.5 percent yesterday, while the European Central Bank and counterparts from the U.K., Canada, Sweden and Switzerland also announced cuts. Central banks in China, Hong Kong and Taiwan lowered their key rates and the Bank of Korea cut its benchmark for the first time in four years.
Trading in the Icelandic krona came to a halt after the government seized control of Kaupthing Bank hf, the nation's biggest lender, as the financial crisis deepens.
There haven't been any so-called krona spot trades today, or transactions in which currency must be exchanged immediately, according to Stockholm-based Nordea Bank AB and TD Securities Ltd. in London. The last spot trade was at 340 krona per euro, Nordea said.
To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Kim-Mai Cutler in London at kcutler@bloomberg.net;
Read more...
Mexico Peso Rises, Stemming Six-Day Rout, on Dollar Sale Plan
By Michael J. Moore
Oct. 9 (Bloomberg) -- Mexico's peso strengthened for the first time in seven days after the central bank dumped the most dollars in the foreign exchange market in a decade yesterday.
The peso rose 1.8 percent to 12.1079 per dollar at 8:43 a.m. New York time. The currency fell as much as 13.8 percent yesterday, its biggest intraday drop since the government abandoned a currency peg in 1994, and touched a record low before the central bank said it would sell dollars.
Banco de Mexico sold $998 million yesterday and said it will offer another $1.5 million today. The central bank also said it will sell $400 million in coming days when the peso weakens more than 2 percent. The bank is tapping into a near-record $84.1 billion of foreign reserves that were built up during a six-year rally in oil, the country's biggest export.
To contact the reporter on this story: Michael J. Moore in New York at mmoore55@bloomberg.net
Read more...
Oct. 9 (Bloomberg) -- Mexico's peso strengthened for the first time in seven days after the central bank dumped the most dollars in the foreign exchange market in a decade yesterday.
The peso rose 1.8 percent to 12.1079 per dollar at 8:43 a.m. New York time. The currency fell as much as 13.8 percent yesterday, its biggest intraday drop since the government abandoned a currency peg in 1994, and touched a record low before the central bank said it would sell dollars.
Banco de Mexico sold $998 million yesterday and said it will offer another $1.5 million today. The central bank also said it will sell $400 million in coming days when the peso weakens more than 2 percent. The bank is tapping into a near-record $84.1 billion of foreign reserves that were built up during a six-year rally in oil, the country's biggest export.
To contact the reporter on this story: Michael J. Moore in New York at mmoore55@bloomberg.net
Read more...
Platinum, Palladium Gain in N.Y. as Rate Cuts Spur Speculation
By Halia Pavliva
Oct. 9 (Bloomberg) -- Platinum and palladium climbed in New York on speculation that demand for the metals used in car parts and jewelry will rise after more central banks around the world cut interest rates to unlock lending and sustain economic growth.
Commodities and equities gained after central banks in South Korea, Taiwan and Hong Kong joined counterparts in the U.S. and Europe in cutting interest rates. The Federal Reserve and the European Central Bank, joined by the U.K., Canada, Sweden and Switzerland, reduced borrowing costs yesterday. Indonesia said today it will lower minimum capital reserves for banks.
``The mood in most markets is better this morning, as more central banks and governments are joining the push to loosen money,'' Edward Meir, an analyst at MF Global Ltd. in Darien, Connecticut, said today in a note to clients. ``U.S. stocks are called sharply higher this morning. The dollar is weaker for the second day running.''
Platinum futures for January delivery rose $26.50, or 2.6 percent, to $1,038.60 an ounce at 9:27 a.m. on the New York Mercantile Exchange.
Platinum will gain on tight supplies, BlackRock Investment Management Managing Director Graham Birch said. The metal is becoming harder to mine because of a shortage of available deposits, a lack of power supplies and political instability in key regions, Birch said today at a conference in London.
``Platinum is one of my favorites,'' he said.
Most-active futures fell to $940, the lowest since November 2005, on Oct. 6, down 59 percent from a record $2,308.80 on March 4. Prices collapsed partly because auto sales have plunged in the U.S., the world's biggest market, and most platinum consumption is for parts used to sift pollutants from engine exhaust gases.
Sinking Auto Sales
Sales of light vehicles in the U.S. fell the most last month since January 1991. Platinum lost 50 percent in the third quarter and 31 percent last month, the worst monthly decline since at least 1986.
Automakers account for more than 60 percent of global platinum use, according to London-based metals trader Johnson Matthey Plc.
Car sales have fallen as a financial crisis sparked by rising subprime-mortgage defaults spread from Wall Street investment banks to Europe and Asia, clogging credit markets and spurring coordinated central-bank rate cuts yesterday.
Palladium futures for December delivery rose $4.30, or 2.2 percent, to $204 an ounce in New York. The price plummeted 56 percent in the third quarter and 34 percent last month, also the biggest declines since at least 1986. Most-active futures have dropped 47 percent this year before today.
To contact the reporter on this story: Halia Pavliva in New York at hpavliva@bloomberg.net.
Read more...
Oct. 9 (Bloomberg) -- Platinum and palladium climbed in New York on speculation that demand for the metals used in car parts and jewelry will rise after more central banks around the world cut interest rates to unlock lending and sustain economic growth.
Commodities and equities gained after central banks in South Korea, Taiwan and Hong Kong joined counterparts in the U.S. and Europe in cutting interest rates. The Federal Reserve and the European Central Bank, joined by the U.K., Canada, Sweden and Switzerland, reduced borrowing costs yesterday. Indonesia said today it will lower minimum capital reserves for banks.
``The mood in most markets is better this morning, as more central banks and governments are joining the push to loosen money,'' Edward Meir, an analyst at MF Global Ltd. in Darien, Connecticut, said today in a note to clients. ``U.S. stocks are called sharply higher this morning. The dollar is weaker for the second day running.''
Platinum futures for January delivery rose $26.50, or 2.6 percent, to $1,038.60 an ounce at 9:27 a.m. on the New York Mercantile Exchange.
Platinum will gain on tight supplies, BlackRock Investment Management Managing Director Graham Birch said. The metal is becoming harder to mine because of a shortage of available deposits, a lack of power supplies and political instability in key regions, Birch said today at a conference in London.
``Platinum is one of my favorites,'' he said.
Most-active futures fell to $940, the lowest since November 2005, on Oct. 6, down 59 percent from a record $2,308.80 on March 4. Prices collapsed partly because auto sales have plunged in the U.S., the world's biggest market, and most platinum consumption is for parts used to sift pollutants from engine exhaust gases.
Sinking Auto Sales
Sales of light vehicles in the U.S. fell the most last month since January 1991. Platinum lost 50 percent in the third quarter and 31 percent last month, the worst monthly decline since at least 1986.
Automakers account for more than 60 percent of global platinum use, according to London-based metals trader Johnson Matthey Plc.
Car sales have fallen as a financial crisis sparked by rising subprime-mortgage defaults spread from Wall Street investment banks to Europe and Asia, clogging credit markets and spurring coordinated central-bank rate cuts yesterday.
Palladium futures for December delivery rose $4.30, or 2.2 percent, to $204 an ounce in New York. The price plummeted 56 percent in the third quarter and 34 percent last month, also the biggest declines since at least 1986. Most-active futures have dropped 47 percent this year before today.
To contact the reporter on this story: Halia Pavliva in New York at hpavliva@bloomberg.net.
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Shanghai Exchange to Resume Trading Copper Contracts
By Li Xiaowei
Oct. 9 (Bloomberg) -- The Shanghai Futures Exchange will resume trading tomorrow in copper contracts which were suspended today after plunging the daily limit for three straight sessions, the bourse said.
Daily price fluctuation limits will be set back at 4 percent, it said in a statement on its Web site today. Margins for trading most copper contracts will be set at 7 percent. Those for trading the front-month contract will be 20 percent and 10 percent for the November delivery contract.
The exchange ordered profitable short sellers to close positions with buyers who had requested to square on Oct. 8, the exchange said. Speculative short-sellers bet that prices will fall.
The measure comes after the Dalian Commodity Exchange yesterday ordered speculative short sellers to cover profitable positions after soybeans, palm oil, soybean oil and soybean meal dropped the trading limit for three days.
To contact the reporter for this story: Li Xiaowei in Shanghai at Xli12@bloomberg.net
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Oct. 9 (Bloomberg) -- The Shanghai Futures Exchange will resume trading tomorrow in copper contracts which were suspended today after plunging the daily limit for three straight sessions, the bourse said.
Daily price fluctuation limits will be set back at 4 percent, it said in a statement on its Web site today. Margins for trading most copper contracts will be set at 7 percent. Those for trading the front-month contract will be 20 percent and 10 percent for the November delivery contract.
The exchange ordered profitable short sellers to close positions with buyers who had requested to square on Oct. 8, the exchange said. Speculative short-sellers bet that prices will fall.
The measure comes after the Dalian Commodity Exchange yesterday ordered speculative short sellers to cover profitable positions after soybeans, palm oil, soybean oil and soybean meal dropped the trading limit for three days.
To contact the reporter for this story: Li Xiaowei in Shanghai at Xli12@bloomberg.net
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Gold, Silver Drop on Bets Global Slump to Cut Commodity Demand
By Pham-Duy Nguyen
Oct. 9 (Bloomberg) -- Gold fell for the first time this week on speculation that a global economic slump will reduce demand for commodities. Silver also declined.
Morgan Stanley cut its forecast for gold prices by 5 percent, estimating that the metal will average $900 an ounce this year and $950 in 2009. Before today, gold gained 8.8 percent this week as investors sought a haven from plummeting equities.
``A lot of the speculative money is off to the sidelines,'' said Marty McNeill, a trader at R.F. Lafferty Inc. in New York. ``Gold is a victim of deleveraging. Eventually, it will do better than other commodities because it will hold its value.''
Gold futures for December delivery fell $17, or 1.9 percent, to $889.50 at 9:55 a.m. on the Comex division of the New York Mercantile Exchange. The price rose to a record $1,033.90 on March 17.
Silver futures for December delivery dropped 8.7 cents, or 0.7 percent, to $11.685 an ounce. Before today, the price dropped 21 percent this year.
The Reuters/Jefferies CRB Index of 19 raw materials has dropped 34 percent from a record in July as energy, agricultural and industrial-metal prices slid.
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
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Oct. 9 (Bloomberg) -- Gold fell for the first time this week on speculation that a global economic slump will reduce demand for commodities. Silver also declined.
Morgan Stanley cut its forecast for gold prices by 5 percent, estimating that the metal will average $900 an ounce this year and $950 in 2009. Before today, gold gained 8.8 percent this week as investors sought a haven from plummeting equities.
``A lot of the speculative money is off to the sidelines,'' said Marty McNeill, a trader at R.F. Lafferty Inc. in New York. ``Gold is a victim of deleveraging. Eventually, it will do better than other commodities because it will hold its value.''
Gold futures for December delivery fell $17, or 1.9 percent, to $889.50 at 9:55 a.m. on the Comex division of the New York Mercantile Exchange. The price rose to a record $1,033.90 on March 17.
Silver futures for December delivery dropped 8.7 cents, or 0.7 percent, to $11.685 an ounce. Before today, the price dropped 21 percent this year.
The Reuters/Jefferies CRB Index of 19 raw materials has dropped 34 percent from a record in July as energy, agricultural and industrial-metal prices slid.
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
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Oil Falls on Signs Rate Cuts May Not Bolster Economic Growth
By Mark Shenk
Oct. 9 (Bloomberg) -- Crude oil fell on concern that the coordinated cut of interest rates by central banks yesterday may be insufficient to prevent a prolonged global recession.
Oil prices have plunged since reaching a record in July on signs that fuel demand will drop because of the weak economy. The Federal Reserve, the European Central Bank and the Bank of England cut rates to spur an economic rebound. The U.S., the world's biggest oil-consuming country, is now in a recession, according to economists surveyed by Bloomberg News.
``The main driver of the market has been concern that the global economy will contract,'' said Michael Fitzpatrick, vice president for energy risk management at MF Global Ltd. in New York. ``There's been a lot of trading on emotion because of the recent headlines.''
Crude oil for November delivery fell 87 cents, or 1 percent, to $88.08 a barrel at 10:12 a.m. on the New York Mercantile Exchange. Futures touched $86.05 yesterday, the lowest since Dec. 6. Prices, which are up 9.7 percent from a year ago, have dropped 42 percent from the record $147.27 a barrel reached on July 11.
``We held at important support around $86 yesterday,'' said Tom Bentz, senior energy analyst at BNP Paribas in New York. ``If we are able to break through, prices are going to fall to the lower $80s and maybe the high $70s.''
Brent crude oil for November settlement declined 86 cents, or 1 percent, to $83.50 a barrel on London's ICE Futures Europe exchange.
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.
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Oct. 9 (Bloomberg) -- Crude oil fell on concern that the coordinated cut of interest rates by central banks yesterday may be insufficient to prevent a prolonged global recession.
Oil prices have plunged since reaching a record in July on signs that fuel demand will drop because of the weak economy. The Federal Reserve, the European Central Bank and the Bank of England cut rates to spur an economic rebound. The U.S., the world's biggest oil-consuming country, is now in a recession, according to economists surveyed by Bloomberg News.
``The main driver of the market has been concern that the global economy will contract,'' said Michael Fitzpatrick, vice president for energy risk management at MF Global Ltd. in New York. ``There's been a lot of trading on emotion because of the recent headlines.''
Crude oil for November delivery fell 87 cents, or 1 percent, to $88.08 a barrel at 10:12 a.m. on the New York Mercantile Exchange. Futures touched $86.05 yesterday, the lowest since Dec. 6. Prices, which are up 9.7 percent from a year ago, have dropped 42 percent from the record $147.27 a barrel reached on July 11.
``We held at important support around $86 yesterday,'' said Tom Bentz, senior energy analyst at BNP Paribas in New York. ``If we are able to break through, prices are going to fall to the lower $80s and maybe the high $70s.''
Brent crude oil for November settlement declined 86 cents, or 1 percent, to $83.50 a barrel on London's ICE Futures Europe exchange.
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.
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Mobius Looking at Brazil, China, Russia After Slump
By Daniela Silberstein and John Dawson
Oct. 9 (Bloomberg) -- Mark Mobius said he sees bargains in Russia, China, Brazil, India, Turkey and South Africa and is ready to start buying after a record plunge in emerging-market stocks.
``We now have too many things to look at so we are picking the ones that are most down,'' Mobius, who oversees about $30 billion in emerging-market equities at Templeton Asset Management Ltd., said in a Bloomberg television interview from Rome. ``If you look at valuations, you can see these stocks are at a point where maximum pessimism is playing a big role. I think we'll be very happy a year or two from now.''
Russia, China and Brazil have led this year's 49 percent plunge in the MSCI Emerging Markets Index, on speculation that the global credit crisis will spur a slowdown in demand for the commodities that drive developing nations' economies. The biggest annual slump on record dating back to 1987 left the gauge for developing markets valued at 8.7 times their average earnings, the cheapest since October 1998, according to data compiled by Bloomberg.
Templeton's Emerging Markets Fund lost 52 percent in 2008, in line with the drop in the MSCI gauge of developing markets.
Emerging Markets Rebound
The MSCI Emerging Markets Index added 4.3 percent today as of 2:12 p.m. in London, snapping a six-day streak of declines, after central banks in South Korea, Taiwan and Hong Kong joined the U.S., Europe and China in cutting rates to stem the credit crisis. Russia's Micex Index jumped 12 percent after a suspension yesterday caused by a 14 percent plunge.
The Micex has lost 62 percent of its value this year, compared with a 63 percent drop for China's CSI 300 Index and a 37 percent slump for the Bovespa in Brazil. The Micex yesterday was valued at 3.9 times the earnings of its companies, the cheapest of any European market tracked by Bloomberg.
Investors pulled about $74 billion out of Russia since the war with Georgia in August in a selloff exacerbated by falling oil prices and global bank collapses, according to BNP Paribas SA data.
China's CSI 300 last month traded at 13.5 times profit, the lowest level since Bloomberg began tracking the data in 2005. The Bovespa yesterday was valued at 9.5 times earnings, the cheapest since July 2005.
To contact the reporter on this story: Daniela Silberstein in Zurich at dsilberstei2@bloomberg.net; John Dawson in London at hepburn@bloomberg.net.
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Oct. 9 (Bloomberg) -- Mark Mobius said he sees bargains in Russia, China, Brazil, India, Turkey and South Africa and is ready to start buying after a record plunge in emerging-market stocks.
``We now have too many things to look at so we are picking the ones that are most down,'' Mobius, who oversees about $30 billion in emerging-market equities at Templeton Asset Management Ltd., said in a Bloomberg television interview from Rome. ``If you look at valuations, you can see these stocks are at a point where maximum pessimism is playing a big role. I think we'll be very happy a year or two from now.''
Russia, China and Brazil have led this year's 49 percent plunge in the MSCI Emerging Markets Index, on speculation that the global credit crisis will spur a slowdown in demand for the commodities that drive developing nations' economies. The biggest annual slump on record dating back to 1987 left the gauge for developing markets valued at 8.7 times their average earnings, the cheapest since October 1998, according to data compiled by Bloomberg.
Templeton's Emerging Markets Fund lost 52 percent in 2008, in line with the drop in the MSCI gauge of developing markets.
Emerging Markets Rebound
The MSCI Emerging Markets Index added 4.3 percent today as of 2:12 p.m. in London, snapping a six-day streak of declines, after central banks in South Korea, Taiwan and Hong Kong joined the U.S., Europe and China in cutting rates to stem the credit crisis. Russia's Micex Index jumped 12 percent after a suspension yesterday caused by a 14 percent plunge.
The Micex has lost 62 percent of its value this year, compared with a 63 percent drop for China's CSI 300 Index and a 37 percent slump for the Bovespa in Brazil. The Micex yesterday was valued at 3.9 times the earnings of its companies, the cheapest of any European market tracked by Bloomberg.
Investors pulled about $74 billion out of Russia since the war with Georgia in August in a selloff exacerbated by falling oil prices and global bank collapses, according to BNP Paribas SA data.
China's CSI 300 last month traded at 13.5 times profit, the lowest level since Bloomberg began tracking the data in 2005. The Bovespa yesterday was valued at 9.5 times earnings, the cheapest since July 2005.
To contact the reporter on this story: Daniela Silberstein in Zurich at dsilberstei2@bloomberg.net; John Dawson in London at hepburn@bloomberg.net.
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ALL, Aracruz, BM&FBovespa, Cosan, Vale: Brazilian Equity Movers
By Paulo Winterstein
Oct. 9 (Bloomberg) -- The following companies are having unusual price changes in Brazil trading. Stock symbols are in parentheses, and share prices are as of 9:21 a.m. New York time. Preferred shares are usually the most-traded class of stock.
The Bovespa index jumped 3.7 percent to 40,028.57.
ALL America Latina Logistica (ALLL11 BS) gained 7.3 percent to 10.57 reais, the most in almost three weeks. Latin America's biggest railroad operator reported preliminary third-quarter results that ``positively surprised'' Itau Corretora analyst Paula Kovarsky.
Aracruz Celulose SA (ARCZ6 BS) gained 7.6 percent to 3.55 reais, the biggest gain in three weeks. The pulp producer that said last week it may lose almost $1 billion on bad currency bets gained for the first time in six sessions after the real rose the most since August 2002.
BM&FBovespa SA (BVMF3 BS) jumped 6.4 percent to 7.93 reais, the most in a week. Latin America's biggest stock exchange said it registered a record number of trades yesterday, surpassing the previous high reached in May. Traded volume reached 7.4 billion reais in more than 409,000 trades, the exchange said in a statement e-mailed yesterday.
Cia. Vale do Rio Doce (VALE5 BS) jumped 5 percent to 27.10 reais, the first gain in seven sessions. The world's biggest iron-ore producer is ``extremely cheap,'' UBS AG analyst Edmo Chagas wrote in a note today.
Cosan SA Industria e Comercio (CSAN3 BS) gained 4.3 percent to 12.85 reais. The world's second-biggest sugar-cane processor forecast net revenue will rise more than 30 percent in the 2009 fiscal year, more than expected previously, because of the decline in the Brazilian currency.
To contact the reporter on this story: Paulo Winterstein in Sao Paulo at pwinterstein@bloomberg.net.
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Oct. 9 (Bloomberg) -- The following companies are having unusual price changes in Brazil trading. Stock symbols are in parentheses, and share prices are as of 9:21 a.m. New York time. Preferred shares are usually the most-traded class of stock.
The Bovespa index jumped 3.7 percent to 40,028.57.
ALL America Latina Logistica (ALLL11 BS) gained 7.3 percent to 10.57 reais, the most in almost three weeks. Latin America's biggest railroad operator reported preliminary third-quarter results that ``positively surprised'' Itau Corretora analyst Paula Kovarsky.
Aracruz Celulose SA (ARCZ6 BS) gained 7.6 percent to 3.55 reais, the biggest gain in three weeks. The pulp producer that said last week it may lose almost $1 billion on bad currency bets gained for the first time in six sessions after the real rose the most since August 2002.
BM&FBovespa SA (BVMF3 BS) jumped 6.4 percent to 7.93 reais, the most in a week. Latin America's biggest stock exchange said it registered a record number of trades yesterday, surpassing the previous high reached in May. Traded volume reached 7.4 billion reais in more than 409,000 trades, the exchange said in a statement e-mailed yesterday.
Cia. Vale do Rio Doce (VALE5 BS) jumped 5 percent to 27.10 reais, the first gain in seven sessions. The world's biggest iron-ore producer is ``extremely cheap,'' UBS AG analyst Edmo Chagas wrote in a note today.
Cosan SA Industria e Comercio (CSAN3 BS) gained 4.3 percent to 12.85 reais. The world's second-biggest sugar-cane processor forecast net revenue will rise more than 30 percent in the 2009 fiscal year, more than expected previously, because of the decline in the Brazilian currency.
To contact the reporter on this story: Paulo Winterstein in Sao Paulo at pwinterstein@bloomberg.net.
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Global Stocks Climb as IBM, Dexia, BHP Advance; Yen Declines
By Sarah Thompson
Oct. 9 (Bloomberg) -- Stocks climbed around the world after a five-day tumble sent the MSCI World Index to its cheapest level in more than a decade and International Business Machines Corp.'s earnings topped analysts' estimates. The yen and Treasuries fell.
IBM, the world's biggest computer-services company, jumped 4.6 percent. Dexia SA surged 27 percent after Belgium, France and Luxembourg agreed to provide guarantees on borrowings of the world's largest lender to local governments. The yen dropped as low as 139.70 against the euro, the steepest decline in almost eight years after central banks from Hong Kong to Frankfurt and Washington cut interest rates in the past two days.
``Valuations look attractive,'' said Espen Furnes, an Oslo- based fund manager at Storebrand Asset Management, which has the equivalent of $48 billion. ``It's time for a rebound, the stock market has just fallen too rapidly. IBM's numbers show that it's not all doom and gloom out there.''
The MSCI World added 1.2 percent to 1,015.94 at 2:31 p.m. in London. The Standard & Poor's 500 Index gained 1.3 percent.
Central banks were forced to lower borrowing costs after the yearlong credit market seizure stoked concern banks will run short of money. The MSCI World sank 15 percent in the previous five days, the biggest such drop since October 1987, when stocks collapsed globally on what became known as Black Monday.
Industrial & Commercial Bank of China Ltd. and South Korea's LG Electronics Inc. climbed more than 4 percent. BHP Billiton Ltd. led mining shares higher, jumping 10 percent as copper rallied from the lowest in 2 1/2 years.
Yields on two-year notes increased 17 basis points to 1.73 percent, according to BGCantor Market Data.
`Long Road Ahead'
``The coordination involved in yesterday's rate cuts was impressive but there is a long road ahead and the terrible state of the global economy will dominate market activity until confidence returns,'' said Jason McNab, who helps manage $2 billion at Duet Asset Management Ltd. in London.
The European Central Bank offered banks as much cash as they need for six days, bringing forward new auction measures as policy makers step up efforts to unlock credit markets.
The cost of borrowing in dollars for three months jumped to the highest level since December, the British Bankers' Association said today.
Iceland suspended trading today until Oct. 13 after the government seized Kaupthing hf, the country's biggest.
Europe's Dow Jones Stoxx 600 Index advanced 2 percent, while the MSCI Asia Pacific Index rose 0.9 percent.
Emerging Markets
Russia's Micex Index rallied 13 percent, leading gains in developing countries. The MSCI Emerging Markets Index rose 3.3 percent to 624.07, the most in three weeks.
Emerging-market stocks are a ``wonderful opportunity'' for investors after their record slump, said Mark Mobius, executive chairman of Templeton Asset Management Ltd.
``There are bargains on almost every single market around the world,'' Singapore-based Mobius said in a Bloomberg Television interview from Rome.
The MSCI World was valued at 12.01 times the reported earnings of companies in the index yesterday, the cheapest since at least 1995. Europe's Stoxx 600 was valued at 9.44 times profit, the cheapest since Bloomberg began compiling the data in January 2002. The S&P 500 traded at 18.82 times earnings.
IBM climbed $4.17 to $94.72 after saying profit for the year will be at least $8.75 a share, reaffirming a previous forecast. Earnings last quarter increased to $2.05 a share, excluding some items, the company said. That topped the $2.01 average estimate of analysts in a Bloomberg survey.
Reassuring Investors
Cap Gemini SA, Europe's largest computer-services company, climbed 5.1 percent to 26.535 euros. Logica Plc, the Anglo-Dutch computer-services provider, advanced 4.4 percent to 89 pence.
``IBM's statement provides some reassurance to investors,'' said Jesper Kruger, a fund manager in Copenhagen at ATP, which has about $64 billion. ``Not only does IBM have a broad exposure across the tech sector, but financial services makes up around 28 percent of its business.''
BHP Billiton, the world's largest mining company, rallied 12 percent to 1,089 pence. Rio Tinto Group, the third-biggest, climbed 11 percent to 2,918 pence. Copper, lead and zinc gained in London.
Dexia jumped 1.34 euros to 6.33 after Belgium, France and Luxembourg said they will back the company's new borrowings. The governments threw Dexia a 6.4 billion-euro ($8.8 billion) lifeline last week to prevent the company's collapse. Belgium said today the nation's other banks will be eligible for the same guarantee on borrowings.
Trichet on Rates
KBC Group NV, Belgium's biggest financial-services company by market value, climbed 2.6 percent to 44.11 euros.
Banks also rallied after European Central Bank President Jean-Claude Trichet said yesterday he can't rule out further rate cuts. ECB council member Erkki Liikanen said today the bank is seeing signs that inflation expectations are settling close to its 2 percent target.
UBS AG, the European bank hardest hit by credit losses, rose 7.1 percent to 19.51 francs. Deutsche Bank AG, Germany's biggest bank, climbed 8.3 percent to 42.165 euros.
Royal Bank of Scotland Group Plc jumped 18 percent to 106.9 pence after Citigroup Inc. upgraded shares of U.K. banks, citing ``underperformance'' and actions by central banks and the government yesterday. RBS is down 43 percent so far this week.
U.K. Banks
Citigroup raised its recommendation on U.K. banks to ``neutral'' from ``underweight.'' The government yesterday announced a 50 billion-pound ($87 billion) rescue package for the nation's banks.
ICBC, China's largest bank, gained 6.6 percent to HK$4.05 in Hong Kong. LG Electronics, Asia's second-biggest mobile-phone maker, rose 4.8 percent to 109,500 won in Seoul.
China, South Korea, Hong Kong and Taiwan lowered borrowing costs. The cuts followed coordinated rate reductions yesterday by the Federal Reserve, ECB, Bank of England, Bank of Canada and Sweden's Riksbank.
Aviva Plc surged 8.8 percent to 445.75 pence after the U.K.'s biggest insurer said it has a ``strong'' capital position following the turmoil in global financial markets. The insurer has surplus capital to meet regulatory requirements of 1.9 billion pounds, the company said.
Nokian Renkaat Oyj climbed 4.6 percent to 14 euros after Merrill Lynch & Co. recommended shares of the world's most profitable publicly traded tiremaker. Shares of the tiremaker have dropped more than 60 percent from highs reached in May and June, Merrill analyst Thomas Besson wrote in a research note dated today.
Johnson Matthey
Johnson Matthey Plc rallied 6.1 percent to 1,156 pence after the maker of a third of all autocatalysts to control vehicle pollution was raised to ``buy'' from ``neutral'' at UBS on its underlying financial strength.
Johnson Matthey has a ``solid balance sheet with little financial risk'' and is ``trading at historical trough multiples,'' London-based analysts Laurent Favre, Thomas Gilbert and Jim Varas wrote in a note dated today.
To contact the reporter on this story: Sarah Thompson in London at sthompson17@bloomberg.net.
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Oct. 9 (Bloomberg) -- Stocks climbed around the world after a five-day tumble sent the MSCI World Index to its cheapest level in more than a decade and International Business Machines Corp.'s earnings topped analysts' estimates. The yen and Treasuries fell.
IBM, the world's biggest computer-services company, jumped 4.6 percent. Dexia SA surged 27 percent after Belgium, France and Luxembourg agreed to provide guarantees on borrowings of the world's largest lender to local governments. The yen dropped as low as 139.70 against the euro, the steepest decline in almost eight years after central banks from Hong Kong to Frankfurt and Washington cut interest rates in the past two days.
``Valuations look attractive,'' said Espen Furnes, an Oslo- based fund manager at Storebrand Asset Management, which has the equivalent of $48 billion. ``It's time for a rebound, the stock market has just fallen too rapidly. IBM's numbers show that it's not all doom and gloom out there.''
The MSCI World added 1.2 percent to 1,015.94 at 2:31 p.m. in London. The Standard & Poor's 500 Index gained 1.3 percent.
Central banks were forced to lower borrowing costs after the yearlong credit market seizure stoked concern banks will run short of money. The MSCI World sank 15 percent in the previous five days, the biggest such drop since October 1987, when stocks collapsed globally on what became known as Black Monday.
Industrial & Commercial Bank of China Ltd. and South Korea's LG Electronics Inc. climbed more than 4 percent. BHP Billiton Ltd. led mining shares higher, jumping 10 percent as copper rallied from the lowest in 2 1/2 years.
Yields on two-year notes increased 17 basis points to 1.73 percent, according to BGCantor Market Data.
`Long Road Ahead'
``The coordination involved in yesterday's rate cuts was impressive but there is a long road ahead and the terrible state of the global economy will dominate market activity until confidence returns,'' said Jason McNab, who helps manage $2 billion at Duet Asset Management Ltd. in London.
The European Central Bank offered banks as much cash as they need for six days, bringing forward new auction measures as policy makers step up efforts to unlock credit markets.
The cost of borrowing in dollars for three months jumped to the highest level since December, the British Bankers' Association said today.
Iceland suspended trading today until Oct. 13 after the government seized Kaupthing hf, the country's biggest.
Europe's Dow Jones Stoxx 600 Index advanced 2 percent, while the MSCI Asia Pacific Index rose 0.9 percent.
Emerging Markets
Russia's Micex Index rallied 13 percent, leading gains in developing countries. The MSCI Emerging Markets Index rose 3.3 percent to 624.07, the most in three weeks.
Emerging-market stocks are a ``wonderful opportunity'' for investors after their record slump, said Mark Mobius, executive chairman of Templeton Asset Management Ltd.
``There are bargains on almost every single market around the world,'' Singapore-based Mobius said in a Bloomberg Television interview from Rome.
The MSCI World was valued at 12.01 times the reported earnings of companies in the index yesterday, the cheapest since at least 1995. Europe's Stoxx 600 was valued at 9.44 times profit, the cheapest since Bloomberg began compiling the data in January 2002. The S&P 500 traded at 18.82 times earnings.
IBM climbed $4.17 to $94.72 after saying profit for the year will be at least $8.75 a share, reaffirming a previous forecast. Earnings last quarter increased to $2.05 a share, excluding some items, the company said. That topped the $2.01 average estimate of analysts in a Bloomberg survey.
Reassuring Investors
Cap Gemini SA, Europe's largest computer-services company, climbed 5.1 percent to 26.535 euros. Logica Plc, the Anglo-Dutch computer-services provider, advanced 4.4 percent to 89 pence.
``IBM's statement provides some reassurance to investors,'' said Jesper Kruger, a fund manager in Copenhagen at ATP, which has about $64 billion. ``Not only does IBM have a broad exposure across the tech sector, but financial services makes up around 28 percent of its business.''
BHP Billiton, the world's largest mining company, rallied 12 percent to 1,089 pence. Rio Tinto Group, the third-biggest, climbed 11 percent to 2,918 pence. Copper, lead and zinc gained in London.
Dexia jumped 1.34 euros to 6.33 after Belgium, France and Luxembourg said they will back the company's new borrowings. The governments threw Dexia a 6.4 billion-euro ($8.8 billion) lifeline last week to prevent the company's collapse. Belgium said today the nation's other banks will be eligible for the same guarantee on borrowings.
Trichet on Rates
KBC Group NV, Belgium's biggest financial-services company by market value, climbed 2.6 percent to 44.11 euros.
Banks also rallied after European Central Bank President Jean-Claude Trichet said yesterday he can't rule out further rate cuts. ECB council member Erkki Liikanen said today the bank is seeing signs that inflation expectations are settling close to its 2 percent target.
UBS AG, the European bank hardest hit by credit losses, rose 7.1 percent to 19.51 francs. Deutsche Bank AG, Germany's biggest bank, climbed 8.3 percent to 42.165 euros.
Royal Bank of Scotland Group Plc jumped 18 percent to 106.9 pence after Citigroup Inc. upgraded shares of U.K. banks, citing ``underperformance'' and actions by central banks and the government yesterday. RBS is down 43 percent so far this week.
U.K. Banks
Citigroup raised its recommendation on U.K. banks to ``neutral'' from ``underweight.'' The government yesterday announced a 50 billion-pound ($87 billion) rescue package for the nation's banks.
ICBC, China's largest bank, gained 6.6 percent to HK$4.05 in Hong Kong. LG Electronics, Asia's second-biggest mobile-phone maker, rose 4.8 percent to 109,500 won in Seoul.
China, South Korea, Hong Kong and Taiwan lowered borrowing costs. The cuts followed coordinated rate reductions yesterday by the Federal Reserve, ECB, Bank of England, Bank of Canada and Sweden's Riksbank.
Aviva Plc surged 8.8 percent to 445.75 pence after the U.K.'s biggest insurer said it has a ``strong'' capital position following the turmoil in global financial markets. The insurer has surplus capital to meet regulatory requirements of 1.9 billion pounds, the company said.
Nokian Renkaat Oyj climbed 4.6 percent to 14 euros after Merrill Lynch & Co. recommended shares of the world's most profitable publicly traded tiremaker. Shares of the tiremaker have dropped more than 60 percent from highs reached in May and June, Merrill analyst Thomas Besson wrote in a research note dated today.
Johnson Matthey
Johnson Matthey Plc rallied 6.1 percent to 1,156 pence after the maker of a third of all autocatalysts to control vehicle pollution was raised to ``buy'' from ``neutral'' at UBS on its underlying financial strength.
Johnson Matthey has a ``solid balance sheet with little financial risk'' and is ``trading at historical trough multiples,'' London-based analysts Laurent Favre, Thomas Gilbert and Jim Varas wrote in a note dated today.
To contact the reporter on this story: Sarah Thompson in London at sthompson17@bloomberg.net.
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Hedge Funds May Cut Volatility as Short-Sale Ban Ends
By Eric Martin and Whitney Kisling
Oct. 9 (Bloomberg) -- The end of a three-week ban on short selling financial stocks may reduce the market's record price swings as hedge funds increase trading.
Since the Securities and Exchange Commission started the rule Sept. 19, volume on the New York Stock Exchange dropped 35 percent and the Chicago Board Options Exchange Volatility Index surged to 57.53 yesterday, its third straight record. Options on the VIX, as the volatility gauge is known, imply it will fall 44 percent in the next two weeks after the rule expired last night.
``Lifting the short ban restores the balance in the marketplace,'' said Peter Sorrentino, a money manager at Huntington Asset Advisors in Cincinnati, which oversees $16.5 billion. ``It should bring liquidity back into the market, which will cap some of the volatility we've seen lately.''
The SEC barred short sales of almost 1,000 finance-related stocks in a bid to curb speculation after the chief executive officers of Lehman Brothers Holdings Inc. and Morgan Stanley accused hedge funds of driving down prices. Companies on the SEC's list slid 18 percent on average during the ban, compared with 24 percent drop for all financial companies in the Standard & Poor's 500 Index.
Bank and brokerage shares led the S&P 500's 33 percent tumble this year, losing 47 percent as a group after almost $600 billion in losses tied to subprime mortgages spurred concern the U.S. economy is headed for a recession. The S&P 500 decreased 1.1 percent to 984.94 yesterday, its sixth consecutive retreat.
Lower Volume
In a short sale, a trader tries to profit from a decline by selling borrowed shares in the hope of repaying the loan with cheaper stock.
The VIX slipped 8.2 percent to 52.8 as of 9:53 a.m. today in New York. U.S. stocks rose, sending the S&P 500 up 1.6 percent to 1,000.78, after profit at International Business Machines Corp. topped estimates.
NYSE Euronext Chief Executive Officer Duncan Niederauer said Oct. 1 that the ban slowed stock trading and contributed to wider swings in prices. Average daily volume of shares on the New York Stock Exchange was 2.31 billion in the week the ban was adopted, compared with 1.5 billion in the 13 trading days since.
The restriction made stock trading more uneven because it ``substantially'' widened the gap between prices sought by buyers and sellers, Credit Suisse Group AG equity strategist Ana Avramovic wrote in a Sept. 30 report. The bid-ask spread on Goldman Sachs Group Inc. increased to $1.20 on Sept. 22, the highest since March 2007, according to data compiled by Bloomberg.
Better Quotes
``Typically, with more participants vying for a trade, they will keep bettering the quote in order to get their fill,'' New York-based Avramovic wrote in a note to clients. ``However, as we've seen that volumes are lower, there are fewer bids and offers in the market which means less quote competition.''
Hedge funds often protect against drops when they purchase stocks and bonds by making the opposite wager. Investors who wanted to buy financial stocks and also hedge the trade with a short sale couldn't while the ban was in effect.
``There's a lot of long-short asset management programs out there and a lot of them have struggled since the elimination of short selling,'' said James Paulsen, who helps oversee $220 billion as chief investment strategist at Wells Capital Management Inc. in Minneapolis. ``It's hard to find stuff to short. You can't find it or you legally can't.''
`Storm of Fear'
The SEC took on short selling after John Mack, CEO of New York-based Morgan Stanley, and Senator Charles Schumer, a New York Democrat, blamed the practice for driving companies toward collapse. Richard Fuld, CEO of New York-based Lehman, blamed short selling in testimony before Congress on Oct. 6 for stoking a ``storm of fear'' that drove the securities firm into bankruptcy last month.
Investors are betting that volatility will decrease. Options on the CBOE Volatility Index, which measures the cost of insurance against S&P 500 declines, imply it may drop 44 percent in two weeks. The cost of an options ``straddle,'' a strategy that involves buying a call and a put of the same price and maturity, is $10 for this month's 42.50 contracts, which expire Oct. 22. The VIX ranged between 16.30 and 57.53 in 2008.
``You could see the VIX back below 40 next week,'' said Jeremy Wien, a VIX options trader at Societe Generale in New York. ``There aren't any illusions about starting a bull market in the next two weeks, but volatility could come in because it's so high.''
Restoring short selling may improve market stability by reopening a venue for investors with negative opinions on companies to bet against them, said James Dunigan, managing executive of investments at PNC Wealth Management in Philadelphia.
``With the absence of the one side of that trade, that has caused some dislocations,'' said Dunigan, who helps oversee $66 billion. ``Having the ability to implement strategies, including short selling, will lessen the volatility that we're seeing.''
To contact the reporters on this story: Eric Martin in New York at emartin21@bloomberg.net; Whitney Kisling in New York at wkisling@bloomberg.net.
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Oct. 9 (Bloomberg) -- The end of a three-week ban on short selling financial stocks may reduce the market's record price swings as hedge funds increase trading.
Since the Securities and Exchange Commission started the rule Sept. 19, volume on the New York Stock Exchange dropped 35 percent and the Chicago Board Options Exchange Volatility Index surged to 57.53 yesterday, its third straight record. Options on the VIX, as the volatility gauge is known, imply it will fall 44 percent in the next two weeks after the rule expired last night.
``Lifting the short ban restores the balance in the marketplace,'' said Peter Sorrentino, a money manager at Huntington Asset Advisors in Cincinnati, which oversees $16.5 billion. ``It should bring liquidity back into the market, which will cap some of the volatility we've seen lately.''
The SEC barred short sales of almost 1,000 finance-related stocks in a bid to curb speculation after the chief executive officers of Lehman Brothers Holdings Inc. and Morgan Stanley accused hedge funds of driving down prices. Companies on the SEC's list slid 18 percent on average during the ban, compared with 24 percent drop for all financial companies in the Standard & Poor's 500 Index.
Bank and brokerage shares led the S&P 500's 33 percent tumble this year, losing 47 percent as a group after almost $600 billion in losses tied to subprime mortgages spurred concern the U.S. economy is headed for a recession. The S&P 500 decreased 1.1 percent to 984.94 yesterday, its sixth consecutive retreat.
Lower Volume
In a short sale, a trader tries to profit from a decline by selling borrowed shares in the hope of repaying the loan with cheaper stock.
The VIX slipped 8.2 percent to 52.8 as of 9:53 a.m. today in New York. U.S. stocks rose, sending the S&P 500 up 1.6 percent to 1,000.78, after profit at International Business Machines Corp. topped estimates.
NYSE Euronext Chief Executive Officer Duncan Niederauer said Oct. 1 that the ban slowed stock trading and contributed to wider swings in prices. Average daily volume of shares on the New York Stock Exchange was 2.31 billion in the week the ban was adopted, compared with 1.5 billion in the 13 trading days since.
The restriction made stock trading more uneven because it ``substantially'' widened the gap between prices sought by buyers and sellers, Credit Suisse Group AG equity strategist Ana Avramovic wrote in a Sept. 30 report. The bid-ask spread on Goldman Sachs Group Inc. increased to $1.20 on Sept. 22, the highest since March 2007, according to data compiled by Bloomberg.
Better Quotes
``Typically, with more participants vying for a trade, they will keep bettering the quote in order to get their fill,'' New York-based Avramovic wrote in a note to clients. ``However, as we've seen that volumes are lower, there are fewer bids and offers in the market which means less quote competition.''
Hedge funds often protect against drops when they purchase stocks and bonds by making the opposite wager. Investors who wanted to buy financial stocks and also hedge the trade with a short sale couldn't while the ban was in effect.
``There's a lot of long-short asset management programs out there and a lot of them have struggled since the elimination of short selling,'' said James Paulsen, who helps oversee $220 billion as chief investment strategist at Wells Capital Management Inc. in Minneapolis. ``It's hard to find stuff to short. You can't find it or you legally can't.''
`Storm of Fear'
The SEC took on short selling after John Mack, CEO of New York-based Morgan Stanley, and Senator Charles Schumer, a New York Democrat, blamed the practice for driving companies toward collapse. Richard Fuld, CEO of New York-based Lehman, blamed short selling in testimony before Congress on Oct. 6 for stoking a ``storm of fear'' that drove the securities firm into bankruptcy last month.
Investors are betting that volatility will decrease. Options on the CBOE Volatility Index, which measures the cost of insurance against S&P 500 declines, imply it may drop 44 percent in two weeks. The cost of an options ``straddle,'' a strategy that involves buying a call and a put of the same price and maturity, is $10 for this month's 42.50 contracts, which expire Oct. 22. The VIX ranged between 16.30 and 57.53 in 2008.
``You could see the VIX back below 40 next week,'' said Jeremy Wien, a VIX options trader at Societe Generale in New York. ``There aren't any illusions about starting a bull market in the next two weeks, but volatility could come in because it's so high.''
Restoring short selling may improve market stability by reopening a venue for investors with negative opinions on companies to bet against them, said James Dunigan, managing executive of investments at PNC Wealth Management in Philadelphia.
``With the absence of the one side of that trade, that has caused some dislocations,'' said Dunigan, who helps oversee $66 billion. ``Having the ability to implement strategies, including short selling, will lessen the volatility that we're seeing.''
To contact the reporters on this story: Eric Martin in New York at emartin21@bloomberg.net; Whitney Kisling in New York at wkisling@bloomberg.net.
Read more...
Canada Stocks Rise, Led By RIM, Potash, Suncor, T-D Bank
By John Kipphoff
Oct. 9 (Bloomberg) -- Canadian stocks rallied for a second day, led by Research In Motion Ltd., after International Business Machines Corp.'s earnings and forecast bolstered optimism for economic growth.
Potash Corp. of Saskatchewan Inc. and Suncor Energy Inc. gained, as prices of grains and industrial metals rose and the country's main index, which is dominated by commodity producers and financial shares, traded at the cheapest level in 13 years.
Barrick Gold Corp. slid along with the price of the precious metal today after jumping the most in 21 years yesterday.
The Standard & Poor's/TSX Composite Index gained 3.1 percent to 10,368.30 at 9:55 a.m. in Toronto, extending to a second day a rebound from a five-day plunge that sent it to a three-year low.
After dropping more than a third from its June 18 record on concern that U.S. bank failures and the resulting credit crunch would trigger a global recession, the S&P/TSX traded this week at 12.6 times members' per-share profits in the past 12 months, the lowest price-to-earnings multiple since October 1995.
Research In Motion rose 7.6 percent to C$69.06. IBM, the largest computer-services company reported third-quarter earnings that beat analysts' estimates and reiterated its annual forecast.
Potash Corp., the largest maker of crop nutrients, gained 11 percent to C$122.16. Teck Cominco Ltd., Canada's biggest diversified mining company, added 7.1 percent to C$22.70.
Suncor Energy, the second-largest oil-sands mining company, climbed 7.1 percent to C$31.54. EnCana Corp., Canada's largest energy company by market value, added 4.2 percent to C$54.40.
Financial shares also rose for a second day after the Canadian government said that it's looking at ``additional steps'' it could take to ensure markets continue to function amid the credit freeze that threatens to hurt growth. Yesterday, the Bank of Canada joined the U.S. Federal Reserve and European central banks in a coordinated half percentage-point cut of interest rates.
Toronto-Dominion Bank, Canada's second-largest lender, rose 3.1 percent to C$57.86. Bank of Montreal gained 4.9 percent to C$40.95.
Barrick Gold, the biggest bullion mining company, fell 2.1 percent to C$39.20, after rising 19 percent yesterday.
To contact the reporter on this story: John Kipphoff in Montreal at jkipphoff@bloomberg.net.
Read more...
Oct. 9 (Bloomberg) -- Canadian stocks rallied for a second day, led by Research In Motion Ltd., after International Business Machines Corp.'s earnings and forecast bolstered optimism for economic growth.
Potash Corp. of Saskatchewan Inc. and Suncor Energy Inc. gained, as prices of grains and industrial metals rose and the country's main index, which is dominated by commodity producers and financial shares, traded at the cheapest level in 13 years.
Barrick Gold Corp. slid along with the price of the precious metal today after jumping the most in 21 years yesterday.
The Standard & Poor's/TSX Composite Index gained 3.1 percent to 10,368.30 at 9:55 a.m. in Toronto, extending to a second day a rebound from a five-day plunge that sent it to a three-year low.
After dropping more than a third from its June 18 record on concern that U.S. bank failures and the resulting credit crunch would trigger a global recession, the S&P/TSX traded this week at 12.6 times members' per-share profits in the past 12 months, the lowest price-to-earnings multiple since October 1995.
Research In Motion rose 7.6 percent to C$69.06. IBM, the largest computer-services company reported third-quarter earnings that beat analysts' estimates and reiterated its annual forecast.
Potash Corp., the largest maker of crop nutrients, gained 11 percent to C$122.16. Teck Cominco Ltd., Canada's biggest diversified mining company, added 7.1 percent to C$22.70.
Suncor Energy, the second-largest oil-sands mining company, climbed 7.1 percent to C$31.54. EnCana Corp., Canada's largest energy company by market value, added 4.2 percent to C$54.40.
Financial shares also rose for a second day after the Canadian government said that it's looking at ``additional steps'' it could take to ensure markets continue to function amid the credit freeze that threatens to hurt growth. Yesterday, the Bank of Canada joined the U.S. Federal Reserve and European central banks in a coordinated half percentage-point cut of interest rates.
Toronto-Dominion Bank, Canada's second-largest lender, rose 3.1 percent to C$57.86. Bank of Montreal gained 4.9 percent to C$40.95.
Barrick Gold, the biggest bullion mining company, fell 2.1 percent to C$39.20, after rising 19 percent yesterday.
To contact the reporter on this story: John Kipphoff in Montreal at jkipphoff@bloomberg.net.
Read more...
Russian Stocks Soar 17%, Leading Rally for Emerging Markets
By Denis Maternovsky
Oct. 9 (Bloomberg) -- Russia's Micex Index rallied as much as 17 percent and emerging market stocks rose the most in three weeks as coordinated central bank rate cuts spurred investors to start buying shares at the cheapest valuations in a decade.
Russia's Micex Stock Exchange recovered from a 14 percent drop yesterday that reduced the value of companies to 3.9 times annual earnings, the lowest level of any European market tracked by Bloomberg. The MSCI Emerging Markets Index rose 2.8 percent to 622.86, after losing 23 percent this month.
South Korea, Taiwan and Hong Kong today joined the Federal Reserve, European Central Bank and China in an emergency bid to stem the worst financial meltdown since the Great Depression through a sudden reduction in interest rates. Emerging markets shares have lost half their value this year, the biggest annual slump recorded in more than two decades by the MSCI index.
``There are bargains on almost every single market around the world,'' Mark Mobius, who manages $30 billion as executive chairman of Templeton Asset Management Ltd., said in a Bloomberg television interview today. Mobius, 72, said he's looking to buy stocks in the markets that fell the most, including Russia, China, Brazil, Turkey, South Africa and India.
Investors pulled about $74 billion out of Russia since the war with Georgia in August in a selloff exacerbated by falling oil prices and global bank collapses, according to BNP Paribas SA data. The Micex Index dropped as much as 50 percent.
``Investors were skinned alive,'' said James Fenkner, managing director at Red Star Asset Management LP in Moscow. ``The extreme pessimism has lifted,'' though it may be months before confidence is fully restored.
Cash for Banks
Russian President Dmitry Medvedev said on Oct. 7 that the government will channel a further 950 billion rubles ($36 billion) into the country's biggest banks. Some of the money will come from currency reserves, the world's third largest, and add to $150 billion in loans, cash auctions and tax cuts to counter the credit squeeze.
The government will start delivering cash to banks in ``the next few days'' to ``calm the markets,'' Medvedev's senior economic aide, Arkady Dvorkovich, said in a Bloomberg Television interview in Moscow today.
The ruble strengthened to its highest level in four days against the dollar, rising 0.3 percent to 26.0422. Russia's central bank supported the currency with as much as $12.8 billion this week and about $5.7 billion last week, according to Mikhail Galkin, head of fixed-income and credit research at MDM Bank in Moscow.
Oil Producers
OAO Rosneft, Russia's biggest oil company, was 16 percent higher at 4 p.m. in Moscow, having gained as much as 25 percent, while the Micex was up 13 percent. Crude oil for November delivery climbed as much as 87 cents to $89.82 a barrel in electronic trading on the New York Mercantile Exchange.
OAO Sberbank, Russia's largest lender, rose 4.1 percent after earlier jumping as much as 14 percent.
The cost of protecting Russian government debt against nonpayment using credit-default swaps fell from the highest in more than four years to 325 basis points from 348. Contracts on OAO Gazprom, Russia's biggest company, declined 9 basis from a record 527, according to CMA Datavision prices.
The MSCI Emerging Markets Index declined 18 percent last month, valuing the 789 constituent companies at 8.7 times their average annual earnings, the cheapest since 1998, according to data compiled by Bloomberg.
Romania to Oman
Oman's Muscat Securities Market Index rose 8.3 percent today, the biggest one-day gain since 1997. Lithuania's OMX Vilnius Index jumped 11.6 percent, heading for its biggest one- day gain since the index began in 2000. Egypt's Hermes Index rose 4.4 percent today, after falling by a record 22 percent in the last two days.
Romania's leu climbed as much as 2.5 percent against the euro today to 3.8069, the best performer among European currencies, recovering from an almost four-year low after dropping 7.7 percent against the euro in the past month.
China's CSI 300 Index of shares fell 1.4 percent after earlier rising as much as 2 percent. South Korea's Kospi Index advanced 0.6 percent. Indonesia's exchange remained closed for a second day after stocks plummeted yesterday.
Bond prices fell as the extra yield investors demand to own developing nations' bonds instead of U.S. Treasuries rose 12 basis points to 5.27 percentage points, the highest spread since May 2004, according to JPMorgan Chase & Co.'s EMBI+ index.
Credit-default swaps on Ukraine climbed 42 basis points to 1075, the highest in Europe, after President Viktor Yuschenko called an early parliamentary election.
Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company's or a country's ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. An increase indicates a deterioration in the perception of credit quality.
A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.
To contact the reporter on this story: Denis Maternovsky in Moscow at dmaternovsky@bloomberg.net
Read more...
Oct. 9 (Bloomberg) -- Russia's Micex Index rallied as much as 17 percent and emerging market stocks rose the most in three weeks as coordinated central bank rate cuts spurred investors to start buying shares at the cheapest valuations in a decade.
Russia's Micex Stock Exchange recovered from a 14 percent drop yesterday that reduced the value of companies to 3.9 times annual earnings, the lowest level of any European market tracked by Bloomberg. The MSCI Emerging Markets Index rose 2.8 percent to 622.86, after losing 23 percent this month.
South Korea, Taiwan and Hong Kong today joined the Federal Reserve, European Central Bank and China in an emergency bid to stem the worst financial meltdown since the Great Depression through a sudden reduction in interest rates. Emerging markets shares have lost half their value this year, the biggest annual slump recorded in more than two decades by the MSCI index.
``There are bargains on almost every single market around the world,'' Mark Mobius, who manages $30 billion as executive chairman of Templeton Asset Management Ltd., said in a Bloomberg television interview today. Mobius, 72, said he's looking to buy stocks in the markets that fell the most, including Russia, China, Brazil, Turkey, South Africa and India.
Investors pulled about $74 billion out of Russia since the war with Georgia in August in a selloff exacerbated by falling oil prices and global bank collapses, according to BNP Paribas SA data. The Micex Index dropped as much as 50 percent.
``Investors were skinned alive,'' said James Fenkner, managing director at Red Star Asset Management LP in Moscow. ``The extreme pessimism has lifted,'' though it may be months before confidence is fully restored.
Cash for Banks
Russian President Dmitry Medvedev said on Oct. 7 that the government will channel a further 950 billion rubles ($36 billion) into the country's biggest banks. Some of the money will come from currency reserves, the world's third largest, and add to $150 billion in loans, cash auctions and tax cuts to counter the credit squeeze.
The government will start delivering cash to banks in ``the next few days'' to ``calm the markets,'' Medvedev's senior economic aide, Arkady Dvorkovich, said in a Bloomberg Television interview in Moscow today.
The ruble strengthened to its highest level in four days against the dollar, rising 0.3 percent to 26.0422. Russia's central bank supported the currency with as much as $12.8 billion this week and about $5.7 billion last week, according to Mikhail Galkin, head of fixed-income and credit research at MDM Bank in Moscow.
Oil Producers
OAO Rosneft, Russia's biggest oil company, was 16 percent higher at 4 p.m. in Moscow, having gained as much as 25 percent, while the Micex was up 13 percent. Crude oil for November delivery climbed as much as 87 cents to $89.82 a barrel in electronic trading on the New York Mercantile Exchange.
OAO Sberbank, Russia's largest lender, rose 4.1 percent after earlier jumping as much as 14 percent.
The cost of protecting Russian government debt against nonpayment using credit-default swaps fell from the highest in more than four years to 325 basis points from 348. Contracts on OAO Gazprom, Russia's biggest company, declined 9 basis from a record 527, according to CMA Datavision prices.
The MSCI Emerging Markets Index declined 18 percent last month, valuing the 789 constituent companies at 8.7 times their average annual earnings, the cheapest since 1998, according to data compiled by Bloomberg.
Romania to Oman
Oman's Muscat Securities Market Index rose 8.3 percent today, the biggest one-day gain since 1997. Lithuania's OMX Vilnius Index jumped 11.6 percent, heading for its biggest one- day gain since the index began in 2000. Egypt's Hermes Index rose 4.4 percent today, after falling by a record 22 percent in the last two days.
Romania's leu climbed as much as 2.5 percent against the euro today to 3.8069, the best performer among European currencies, recovering from an almost four-year low after dropping 7.7 percent against the euro in the past month.
China's CSI 300 Index of shares fell 1.4 percent after earlier rising as much as 2 percent. South Korea's Kospi Index advanced 0.6 percent. Indonesia's exchange remained closed for a second day after stocks plummeted yesterday.
Bond prices fell as the extra yield investors demand to own developing nations' bonds instead of U.S. Treasuries rose 12 basis points to 5.27 percentage points, the highest spread since May 2004, according to JPMorgan Chase & Co.'s EMBI+ index.
Credit-default swaps on Ukraine climbed 42 basis points to 1075, the highest in Europe, after President Viktor Yuschenko called an early parliamentary election.
Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company's or a country's ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. An increase indicates a deterioration in the perception of credit quality.
A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.
To contact the reporter on this story: Denis Maternovsky in Moscow at dmaternovsky@bloomberg.net
Read more...
U.S. Stocks Advance After IBM Profit Tops Estimates; Banks Gain
By Lynn Thomasson
Oct. 9 (Bloomberg) -- U.S. stocks rose and the Standard & Poor's 500 Index rebounded from its worst six-day plunge since 1987 as better-than-estimated profit at International Business Machines Corp. spurred speculation earnings will weather the financial crisis.
IBM, the largest computer-services company, climbed as much as 5.3 percent. Intel Corp., the biggest chipmaker, gained 2.5 percent. Bank of America Corp., JPMorgan Chase & Co. and Alcoa Inc. climbed more than 4 percent. The MSCI World Index rose for the first time since Oct. 1 after falling to its cheapest valuation in more than a decade.
The S&P 500 added 12.63, or 1.3 percent, to 997.57 at 9:41 a.m. in New York. The Dow Jones Industrial Average gained 141.3, or 1.5 percent, to 9,399.4 and the Nasdaq Composite Index increased 28.2, or 1.6 percent, to 1,768.53. Five stocks rose for every two that fell on the New York Stock Exchange.
``There are problems out there, I know that, but stocks have completely overshot on the downside and are now discounting some bad economic conditions,'' Kevin Rendino, who manages $10 billion at BlackRock Inc. in Plainsboro, New Jersey, told Bloomberg Television. ``There are a number of companies that offer unbelievable risk-reward potential.''
U.S. stocks fell yesterday after Treasury Secretary Henry Paulson said more banks may collapse and unprecedented global interest-rate cuts failed to convince investors the economy will avoid a recession. Paulson signaled the government may invest in banks as the next step in trying to resolve the deepening credit crisis.
Still, the cost of borrowing in dollars for three months in London soared to the highest level this year, according to the British Bankers' Association, indicating government actions to ease market turmoil haven't revived lending among banks for any longer than a day.
Six-Day Losing Streak
The S&P 500's losing streak this month was the longest since 2002 and the steepest plunge over six days since 1987. Its year-to-date slump of 32.9 percent through yesterday is the worst since 1974 and the second-biggest drop ever compared with previous returns through Oct. 8, according to Harrison, New York-based research firm Bespoke Investment Group LLC.
The 37 percent decline from its record close of 1,565.15 exactly a year ago left the measure valued at less than 19 times the reported earnings of its companies at the start of trading, the cheapest since February. Europe's Dow Jones Stoxx 600 Index trades at 9.59 times profit, while the MSCI World is valued at 12.07 times the reported earnings of companies in the index, according to Bloomberg data.
IBM Rallies
IBM jumped $3.56 to $94.11. Profit for the year will be at least $8.75 a share, IBM said, reaffirming a previous forecast. Earnings last quarter increased to $2.05 a share, excluding some items, the company said. That topped the $2.01 average estimate of analysts in a Bloomberg survey.
Analysts expect a 5.6 percent drop in third-quarter profit at S&P 500 companies, according to a Bloomberg survey. IBM's results came after Alcoa Inc., the biggest U.S. aluminum producer, kicked off the earnings season with lower-than- estimated profit, saying net income slid by more than half.
To contact the reporter for this story: Lynn Thomasson in New York at lthomasson@bloomberg.net.
Read more...
Oct. 9 (Bloomberg) -- U.S. stocks rose and the Standard & Poor's 500 Index rebounded from its worst six-day plunge since 1987 as better-than-estimated profit at International Business Machines Corp. spurred speculation earnings will weather the financial crisis.
IBM, the largest computer-services company, climbed as much as 5.3 percent. Intel Corp., the biggest chipmaker, gained 2.5 percent. Bank of America Corp., JPMorgan Chase & Co. and Alcoa Inc. climbed more than 4 percent. The MSCI World Index rose for the first time since Oct. 1 after falling to its cheapest valuation in more than a decade.
The S&P 500 added 12.63, or 1.3 percent, to 997.57 at 9:41 a.m. in New York. The Dow Jones Industrial Average gained 141.3, or 1.5 percent, to 9,399.4 and the Nasdaq Composite Index increased 28.2, or 1.6 percent, to 1,768.53. Five stocks rose for every two that fell on the New York Stock Exchange.
``There are problems out there, I know that, but stocks have completely overshot on the downside and are now discounting some bad economic conditions,'' Kevin Rendino, who manages $10 billion at BlackRock Inc. in Plainsboro, New Jersey, told Bloomberg Television. ``There are a number of companies that offer unbelievable risk-reward potential.''
U.S. stocks fell yesterday after Treasury Secretary Henry Paulson said more banks may collapse and unprecedented global interest-rate cuts failed to convince investors the economy will avoid a recession. Paulson signaled the government may invest in banks as the next step in trying to resolve the deepening credit crisis.
Still, the cost of borrowing in dollars for three months in London soared to the highest level this year, according to the British Bankers' Association, indicating government actions to ease market turmoil haven't revived lending among banks for any longer than a day.
Six-Day Losing Streak
The S&P 500's losing streak this month was the longest since 2002 and the steepest plunge over six days since 1987. Its year-to-date slump of 32.9 percent through yesterday is the worst since 1974 and the second-biggest drop ever compared with previous returns through Oct. 8, according to Harrison, New York-based research firm Bespoke Investment Group LLC.
The 37 percent decline from its record close of 1,565.15 exactly a year ago left the measure valued at less than 19 times the reported earnings of its companies at the start of trading, the cheapest since February. Europe's Dow Jones Stoxx 600 Index trades at 9.59 times profit, while the MSCI World is valued at 12.07 times the reported earnings of companies in the index, according to Bloomberg data.
IBM Rallies
IBM jumped $3.56 to $94.11. Profit for the year will be at least $8.75 a share, IBM said, reaffirming a previous forecast. Earnings last quarter increased to $2.05 a share, excluding some items, the company said. That topped the $2.01 average estimate of analysts in a Bloomberg survey.
Analysts expect a 5.6 percent drop in third-quarter profit at S&P 500 companies, according to a Bloomberg survey. IBM's results came after Alcoa Inc., the biggest U.S. aluminum producer, kicked off the earnings season with lower-than- estimated profit, saying net income slid by more than half.
To contact the reporter for this story: Lynn Thomasson in New York at lthomasson@bloomberg.net.
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