Dollar Slumps Below 90 Yen as U.S. Auto Bailout Fails in Senate

By Kim-Mai Cutler and Stanley White

Dec. 12 (Bloomberg) -- The dollar slumped below 90 yen for the first time in 13 years after the U.S. Senate rejected a $14 billion bailout for General Motors Corp. and Chrysler LLC.

The U.S. currency headed for a sixth week of declines versus the yen as the automakers failed to obtain the funds they need to survive until next year. The yen rose against all the major currencies as Finance Minister Shoichi Nakagawa told reporters in Tokyo today Japan isn’t considering intervening in currency markets now.

“We’re headed toward 80,” said Bilal Hafeez, the global head of currency strategy in London at Deutsche Bank AG, the world’s biggest foreign-exchange trader. “The dollar’s status as a safe-haven currency is being challenged.”

The dollar weakened to 88.53 yen, the lowest level since August 1995, before trading at 90.35 at 7:12 a.m. in New York, from 91.45 yesterday. The euro fell 1.4 percent to 120.39 yen from 122.09 and 0.2 percent to $1.3323 from $1.3352 as investors pared holdings of higher-yielding currencies.

The dollar fell 19 percent against the yen this year, the most since 1987, as $986 billion of credit-market losses sparked a seizure in money markets and threw the U.S. economy into a recession. The dollar dropped 2.6 percent against the yen this week and 4.6 percent against the euro.

“The yen is doing well not just because of risk aversion,” said David Woo, global head of foreign-exchange strategy at Barclays Capital in London. “One could make the case that Japanese automakers are going to be the big winners from this bailout coming apart.”

Yen’s Gains

Japan’s yen advanced 3.6 percent to 59.32 versus the Australian dollar and 3.4 percent to 8.87 against the South African rand on speculation investors will unwind carry trades, in which they get funds in a country with low borrowing costs and buy assets where returns are higher. Japan’s 0.3 percent target lending rate compares with 11.5 percent in South Africa and 4.25 percent in Australia.

The MSCI World Index lost 1.3 percent, while Standard & Poor’s 500 Index futures weakened 4.4 percent.

“The dollar is dropping like a rock,” said Masahiro Sato, joint general manager of the treasury division in Tokyo at Mizuho Trust & Banking Co., a unit of Japan’s second-largest publicly listed lender. “This is a big blow to confidence in the U.S. economy. Bankruptcy protection for U.S. automakers may be the only option left.”

Japan last intervened on its own when it sold a record 20.4 trillion yen ($227 billion) in 2003 and 14.8 trillion yen in the first quarter of 2004, when the yen rose as high as 103.42 per dollar.

G-7 Intervention

The last time the Group of Seven, which comprises the U.S., Japan, Germany, the U.K., France, Italy and Canada, intervened in the currency market was on Sept. 22, 2000, when they bought the euro after it tumbled 27 percent from its 1999 debut. The G- 7 last propped up the dollar in 1995, when it sank to a post- World War II low of 79.75 yen. Central banks intervene when they buy or sell currencies to influence exchange rates.

The yen’s gain “is raising the risk of intervention, though at the current juncture we think that action is unlikely and right now would be prone to failure” a team of strategists at Societe Generale SA led by Vincent Chaigneau in London wrote in a research report today.

Implied volatility on one-month dollar-yen options rose by the most in seven weeks to 22.53 percent. An increase in volatility makes it more difficult to predict carry-trade profit, increasing risk.

Bailout Rejected

The Senate rejected the legislation late yesterday in Washington after negotiations on an alternative plan collapsed. The bill passed the House on Dec. 10. “I dread looking at Wall Street tomorrow,” Majority Leader Harry Reid said on the Senate floor. “It’s not going to be a pleasant sight.”

Democrat Christopher Dodd said the unresolved issue was a Republican demand that unionized workers accept lower wages next year, rather than later, to match pay at foreign carmakers in the U.S., such as Toyota Motor Corp. President George W. Bush’s administration will evaluate options on aid for U.S. automakers, a White House spokesman said.

The dollar also fell on speculation the Federal Reserve will lower interest rates toward zero to combat a recession, reducing the appeal of the country’s assets.

Futures on the Chicago Board of Trade showed yesterday an 82 percent chance the Fed will trim its 1 percent target lending rate to 0.25 percent at its Dec. 16 meeting, compared with 64 percent odds a week ago. Treasuries rose today, pushing two-year yields to a record low of 0.67 percent.

Dollar Index

The ICE’s Dollar Index, which tracks the greenback against the euro, the yen, the pound, the Canadian dollar, the Swiss franc and Sweden’s krona, fell 0.3 percent to 83.62. It touched 88.463 on Nov. 21, the highest since April 2006.

The greenback may rally in the first half of next year and then underperform most currencies as global growth recovers in the second half of 2009, wrote analysts at Morgan Stanley, led by London-based Stephen Jen.

The dollar may strengthen to $1.10 against the euro by the second quarter of next year and then fall to $1.20 by year-end, according to Morgan Stanley.

The U.S. currency will start “giving back some of its gains in the second half, assuming the global economy bottoms in the summer,” the analysts wrote in a note to clients.

Goldman Sachs Group Inc. lowered its forecast for the dollar against the euro and the yen for 2009, saying the repatriation of overseas assets by U.S. investors and demand for the greenback for funding are “diminishing.”

The dollar will weaken to $1.45 per euro and 90 yen by the end of next year, strategists led by Jens Nordvig in New York wrote in a research note yesterday. The firm previously forecast that the dollar would trade at $1.30 and 105 yen.

To contact the reporters on this story: Kim-Mai Cutler in London at kcutler@bloomberg.net; Stanley White in Tokyo at swhite28@bloomberg.net

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Crude Oil Futures Drop After U.S. Senate Rejects Auto Bailout

By Christian Schmollinger and Grant Smith

Dec. 12 (Bloomberg) -- Crude oil fell below $45 a barrel after the U.S. Senate rejected a bailout plan for automakers, raising concern that a prolonged recession will cut fuel demand.

The failure of the $14 billion rescue package increases the risk General Motors Corp. and Chrysler LLC will file for bankruptcy, worsening job losses and cutting industrial production in the world’s largest oil consumer. Goldman Sachs Group Inc. cut its average oil price forecast for next year and said crude may drop to $30 a barrel in the first quarter.

“We’re talking about hundreds of thousands of jobs, so the whole thing could get much worse if there’s no solution,” said Jochen Hitzfeld, an analyst at UniCredit Markets & Investment Banking in Munich. “Figures point to a reduction in demand that could only be compared with the 1980s.”

Crude oil for January delivery fell as much as $3.13, or 6.5 percent, to $44.85 a barrel in electronic trading on the New York Mercantile Exchange. It was at $44.91 a barrel at 11:05 a.m. London time.

Stocks and U.S. index futures slumped after Senate Republican and Democrat negotiators failed to agree on a proposal in the bill that would require unionized autoworkers to take a pay cut next year rather than later.

Brent crude oil for January settlement declined as much as $3.21, or 6.8 percent, to $44.18 a barrel on London’s ICE Futures Europe exchange. It was at $44.26 a barrel at 11:04 a.m. London time. It climbed $4.99, or 12 percent, to $47.39 a barrel yesterday, the biggest one-day gain since March 1998.

Shrinking Consumption

Goldman Sachs lowered its average oil price forecast for 2009 to $45 a barrel from $80 after the first simultaneous recession in the U.S., Europe and Japan since World War II caused oil prices to fall 53 percent this year, snapping six years of gains.

The Paris-based International Energy Agency, an adviser to 28 nations, said global oil demand will contract this year for the first time since 1983 and reduced its outlook for 2009.

Consumption worldwide will shrink 200,000 barrels a day, or 0.2 percent, in 2008, the IEA said in a report yesterday. Next year’s growth may be wiped out if the economic slump deepens, the agency said.

“I would expect demand to continue to fall as the global economic environment continues to worsen through the first half of 2009,” said Jonathan Kornafel, a director for Asia at options trader Hudson Capital Energy in Singapore. “Yesterday’s gain was a bit of an overreaction.”

OPEC Output

Oil rose yesterday after the Saudi Arabian oil minister said yesterday he had delivered cuts already promised to OPEC, a sign that world supplies are smaller than traders had estimated.

Saudi Arabia’s oil production was “absolutely” in line with its Organization of Petroleum Exporting Countries’ quota, Minister Ali al-Naimi said in an interview yesterday.

Al-Naimi said the kingdom pumped 8.493 million barrels of oil a day in November, close to its OPEC production quota of 8.477 million barrels a day. That’s 287,000 barrels a day less than estimated by the IEA.

OPEC is set to meet on Dec. 17 in Algeria to discuss further cuts in production. The group agreed to slash output by 1.5 million barrels a day on Oct. 24.

“We think a 1 to 1.5 million-barrel a day cut is quite reasonable,” said UniCredit’s Hitztfeld. “We will also see a sign that Russia is going to co-operate with OPEC.”

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net

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Steelmakers, Miners Decline on Auto Bailout Rejection

By Jean Chua

Dec. 12 (Bloomberg) -- ArcelorMittal, Voestalpine AG and ThyssenKrupp AG dropped in European trading on concern the U.S. Senate’s rejection of a bailout for American automakers will slash demand for steel and worsen a global recession.

Luxembourg-based ArcelorMittal, the world’s biggest steelmaker, fell as much as 10 percent on the Amsterdam Stock Exchange. Metals and mining stocks also declined, with Vedanta Resources Plc down 6 percent, Xstrata Plc losing 4 percent, and Umicore, which makes catalytic converters for cutting pollution, dropping 7 percent. Platinum, used in autocatalysts, tumbled.

The Bloomberg Europe Metals & Mining Index slipped 3 percent as of 9:50 a.m. in London after senators voted down a bill to provide $14 billion of emergency funds for General Motors Corp. and Chrysler LLC. Metals and crude oil prices slumped.

“The U.S. has shown themselves to be sensible enough that they will bail this out some time,” said Angus Murray, chief executive officer of New York-based money manager Castlestone Management Ltd., in an interview with Bloomberg Television in London today. “It doesn’t mean, and this is a terrible thing to say, that General Motors shouldn’t go out of business.”

Steelmakers and mining companies across the world are cutting jobs and production as slowing economies erode demand for the metal from carmakers and builders. ArcelorMittal said Nov. 27 it may slash as many as 9,000 jobs, or 3 percent of its global workforce, to lower costs.

ArcelorMittal Slides

The company fell 1.33 euros to 17.375 euros, cutting its market value to 25 billion euros ($33 billion). ThyssenKrupp, Germany’s largest steelmaker, slid 4.9 percent to 16.25 euros in Frankfurt and Voestalpine dropped 5 percent to 15.51 euros in Vienna.

OAO Novolipetsk Steel, Russia’s biggest steelmaker by market value, today cut its 2008 production estimate by 11 percent and forecast weak demand through at least the first half of next year after a “sharp” drop in sales. The company fell as much as 8.2 percent in Moscow trading.

Platinum for immediate delivery lost as much as $28.50, or 3.4 percent, to $807.50 an ounce and last traded at $823.25 in London. The metal has plunged 46 percent this year.

Platinum miners in South Africa, accounting for almost 80 percent of world supply, need to curb production to shore up prices, Impala Platinum Holdings Ltd. Marketing Director Derek Engelbrecht said in an interview from Johannesburg today.

Auto sales in the U.S. dropped 37 percent in November from a year earlier, with cars and light trucks sold at the lowest annual rate in 26 years. A report yesterday showed initial jobless claims in the country surged to a 26-year high.

To contact the reporter on this story: Jean Chua in London at jchua4@bloomberg.net

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Copper Leads Drop in Metals in London on China, Demand Outlook

By Chanyaporn Chanjaroen

Dec. 12 (Bloomberg) -- Copper fell in London, leading declines in all metals, on concerns demand for commodities in China and the U.S., the biggest metals consumers, will weaken further.

The U.S. Senate rejected a $14 billion bailout plan for carmakers, major users of copper, aluminum, platinum and steel. Retail sales in China advanced at the slowest pace in nine months in November, the National Bureau of Statistics said today.

“It’s not only sentiment, it’s real demand” that drove prices of all raw materials lower, Eugen Weinberg, an analyst at Commerzbank AG in Frankfurt, said today by phone. Investors and traders are concerned about future economic growth, he said.

Copper for delivery in three months dropped $210, or 6.4 percent, to $3,108 a metric ton as of 10:46 a.m. local time, taking the gain in the week to 1.8 percent. Aluminum fell $46, or 2.9 percent, to $1,517 a ton, up 1.7 percent for the week.

Oil, equity markets all tumbled as the global recession is set to deepen, threatening further job losses and shutdown at factories worldwide. China’s economic slide is accelerating and won’t bottom out until after the first quarter of next year, Li Yizhong, head of the Ministry of Industry and Information Technology said today in Beijing.

Demand for copper will drop 3.5 percent next year, and aluminum will be 1.7 percent lower, London-based Goldman Sach Group Inc. analyst Jeffrey Currie said in a report yesterday. Miners and smelters need to cut production even more to counter the demand collapse, he said.

“We expect substantial surpluses across most metals to continue to pressure prices lower from current levels,” the report said. “Fundamentals are strongest for zinc and weakest for aluminum, where inventories are set to climb to extraordinary levels.”

Stockpiles Soar

Aluminum stockpiles tracked by the LME rose 15,725 tons, or 0.8 percent, to 1.92 million tons, the exchange said today, twice as much as last year and at the highest since November 1994.

Copper stockpiles added 3,975 tons, or 1.3 percent, to 306,825 tons, the highest since February 2004.

Pan Pacific Copper Co., Japan’s biggest copper smelter, will cut production 10 percent during January to March, the first output reduction in 14 years as the global economic slowdown reduces demand.

The cuts will reduce production in the sixth months ending March 31 to 295,000 metric tons of copper, down 5 percent from its October estimate.

Among other LME-traded metals, nickel slipped $420, or 3.8 percent, to $10,700 a ton, lead lost $20, or 2 percent, to $1,000 a ton and zinc fell $30.50, or 2.8 percent, to $1,075 a ton. Tin declined $350, or 2.9 percent, to $11,750 a ton.

To contact the reporter on this story: Chanyaporn Chanjaroen in London at cchanjaroen@bloomberg.net

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Platinum Declines in London as Auto Plan Rejected; Gold Drops

By Nicholas Larkin

Dec. 12 (Bloomberg) -- Platinum dropped in London after the U.S. Senate rejected a bailout plan for carmakers, threatening to deepen a global recession and sap demand for the metal used mainly in autocatalysts to cut exhaust fumes. Gold also fell.

Commodities and stocks slid after senators voted down a bill to provide $14 billion of emergency funds for General Motors Corp. and Chrysler LLC, which may run out of cash early next year. Automakers make up about half of world platinum and palladium demand, according to estimates by Johnson Matthey Plc.

“The news of the bailout failure is bearish for platinum group metals,” Walter de Wet, an analyst at Standard Bank Ltd. in Johannesburg, said by phone today. “We’ve seen a massive fall in metals demand” because of the economic downturn, he said.

Platinum for immediate delivery lost as much as $28.50, or 3.4 percent, to $807.50 an ounce and traded at $811.50 by 10:51 a.m. London time. The metal has plunged 65 percent from its March record of $2,301.50 and is down 47 percent this year.

Auto sales in the U.S. dropped 37 percent in November from a year earlier, with cars and light trucks sold at the lowest annual rate in 26 years. A report yesterday showed initial jobless claims in the country surged to a 26-year high.

Platinum miners in South Africa, accounting for almost 80 percent of world supply, need to cut production to raise prices, according to Impala Platinum Holdings Ltd. Without cut backs from South Africa, “the agony will continue in 2010,” said the company’s marketing director Derek Engelbrecht.

“While the news from the U.S. automakers may generate some bearish sentiment, the ongoing downgrading of production forecasts should see the metal remain near equilibrium,” and “for the time being” trade at $780 to $880, James Moore, an analyst at TheBullionDesk.com, wrote in a note.

Gold Slips

Gold slipped from its highest in more than two weeks. Bullion for immediate delivery declined $7.52, or 0.9 percent, to $813.83 an ounce in London. Futures for December were $12.80, or 1.6 percent, lower at $813.80 in electronic trading on the Comex division of the New York Mercantile Exchange.

The yellow metal, still heading for a weekly gain of 7.6 percent, fell to $813.75 in the morning “fixing” in London used by some mining companies to sell production, from $827.75 at the afternoon fixing yesterday.

Goldman Sachs Group Inc. yesterday raised its 12-month forecast for gold to $795 an ounce, from $710, because the dollar will resume its decline, boosting gold’s appeal as an alternative investment to the U.S. currency.

“If we see more dollar weakness it should support gold,” De Wet said. “People are buying on dips and selling on highs. They’re not willing to take major positions as year end nears.”

Inflation Hedge

The dollar today snapped two days of declines against the euro, adding 0.3 percent. Gold may also have been helped lower as crude oil slid 6 percent to $45.09 a barrel in New York. Some investors buy gold as a hedge against inflation.

Gold in the SPDR Gold Trust, the largest exchange-traded fund backed by bullion, expanded by more than 4 metric tons to 762.17 tons, according to the company’s Web site. The fund was at a record 770.64 tons Oct. 13, overtaking Japan as the world’s seventh-largest gold holding. Bullion assets held in exchange- traded funds managed by ETF Securities Ltd. rose to 1.739 million ounces, from 1.708 million ounces on Dec. 4.

Platinum holdings declined to 166,044 ounces, from 166,158 ounces, ETF Securities’ Web site showed. Palladium and silver assets were also lower.

Among other metals for immediate delivery, silver lost 2 percent to $10.1475 an ounce and palladium was $6, or 3.3 percent, lower at $175 an ounce.

To contact the reporter on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net

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Ivorian Cocoa Exports From Abidjan Blocked by Strike

By Pauline Bax

Dec. 12 (Bloomberg) -- Cocoa exports from Ivory Coast’s main international port of Abidjan have been blocked by a strike by dock workers, a labor union said.

“The dockers are on strike because we want our salaries to be reviewed,” Jean Landry Atse, president of the National Dockers’ Association, said by phone from the city today. The dock workers are also demanding the release of 11 of their colleagues who were arrested earlier this week over a pay dispute, Atse said.

Abidjan accounts for 40 percent of cocoa shipments from Ivory Coast, while the second and smaller port of San Pedro ships about 60 percent of the crop.

Ivory Coast is the world’s biggest cocoa grower, producing 39 percent of global annual output, according to the Web site of the Food and Agricultural Organization.

To contact the reporters on this story: Pauline Bax in Abidjan via Johannesburg at abolleursa@bloomberg.net.

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European Options Surge as U.S. Senate Rejects Carmaker Rescue

By Gareth Gore

Dec. 12 (Bloomberg) -- The benchmark for European options climbed for the first time in five days as stocks plummeted on concern the Senate’s rejection of a $14 billion rescue plan for U.S. carmakers will deepen the global recession.

The VStoxx Index rallied 11 percent to 54.35 as of 11:34 a.m. in Frankfurt, the steepest gain since Dec. 1. The benchmark measures the cost of using options as insurance against a decline in the Dow Jones Euro Stoxx 50 Index, which retreated as much as 5 percent today.

The Senate last night voted against the plan to shore up carmakers after talks failed in a dispute over how quickly union wages should be cut. That raised concern the U.S. government may instead choose to tap money from the $700 billion bank-rescue fund as it seeks to salvage the auto industry.

“Nobody expected this,” said Ignacio Sanchez-Junco, who manages about $16 million in equities at Credit Suisse Group AG’s asset management arm in Madrid. “There are going to be more job losses, now we just have to see how deep this crisis will be.”

Today’s most-active options on the Euro Stoxx 50 were put options expiring in December at a strike level of 2,300 points. European-style puts such as those traded on the index give the buyer the right to sell at a pre-agreed level on a set date.

Options are derivatives, or securities that derive their value from an underlying asset, and can be used to protect against a decline or to speculate on the asset’s future value.

To contact the reporter on this story: Gareth Gore in Madrid ggore1@bloomberg.net

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Global Stocks, Dollar Tumble as Auto Bailout Fails; GM Slumps

By Chen Shiyin and Adam Haigh

Dec. 12 (Bloomberg) -- Stocks tumbled around the world and the dollar slumped after the Senate rejected a bailout for American automakers, threatening to deepen the global recession. Treasuries rallied and yields fell to record lows.

The MSCI World Index lost 2 percent to 874.91 as of 11:16 a.m. in London after senators voted down a bill to provide $14 billion of emergency funds for General Motors Corp. and Chrysler LLC. GM plunged 37 percent in Germany, while Honda Motor Co. and Daimler AG sank more than 8 percent. The dollar fell to a 13-year low against the yen and the cost of protecting corporate bonds against default soared. Metals and crude oil slumped.

“The markets are still guided by fear,” said Robert Drijkoningen, The Hague-based head of the multi-asset group at ING Investment Management, which has $488 billion under management. “The markets are in a very dire situation and are in a very risk- averse situation. The short-term is bleak,” he said on Bloomberg Television.

Standard & Poor’s 500 Index futures sank 4.7 percent, indicating the benchmark for U.S. equities will extend yesterday’s 2.9 percent drop. Europe’s Dow Jones Stoxx 600 Index lost 4.7 percent, while the MSCI Asia Pacific Index fell 3.8 percent.

“It’s over with,” Senate Majority Leader Harry Reid said on the Senate floor in Washington last night. “I dread looking at Wall Street tomorrow. It’s not going to be a pleasant sight.”

‘Betrayed Again’

The MSCI Emerging Markets Index lost 3.4 percent, extending its 2008 drop to 56 percent. China’s CSI 300 Index sank 4.2 percent after a government official said growth will slow more sharply next quarter.

The MSCI World Index of 23 developed markets has slid 45 percent this year as almost $1 trillion in bank losses and writedowns froze credit markets and pushed the U.S., Europe and Japan into the first simultaneous recessions since World War II. Spending plans by governments from the U.S. to Australia spurred a 13 percent rally in the index since Nov. 20.

The S&P 500 earlier this week had marked a technical end to a 14-month bear market, extending its rebound from an 11-year low last month to as much as 21 percent, as President-elect Barack Obama stepped up efforts to pull the economy out of a recession.

“Investors have been betrayed again by U.S. politicians,” said Yasuhiro Miyata, who helps manage about $109 billion at DIAM Co. in Tokyo. “Even with the knowledge that we are in the midst of a crisis, they were unable to come to an agreement and investors have decided to abandon ship.”

GM, Ford, BMW

GM slid 37 percent to $2.60, while Ford Motor Co. lost 13 percent to $2.51. Daimler sank 8.5 percent to 22.97 euros and Bayerische Motoren Werke AG fell 4.4 percent to 21.46 euros.

The U.S. is the No. 1 market for BMW and the second-biggest for Daimler’s Mercedes-Benz. Both carmakers have factories there, and while they and other German brands control about 7 percent of the American market, they compete more with each other than with GM and Ford.

A collapse of GM and Chrysler “is worrisome for the U.S. in particular, but we are in a synchronized world so it will have an impact elsewhere,” said Franz Wenzel, Paris-based deputy director for investment strategy at Axa Investment Managers, which oversees $770 billion. “It puts into question any chance of a U.S. recovery that we had expected from mid-2009 onwards.”

Nokian Renkaat Oyj slumped 14 percent to 7.88 euros. The Nordic region’s biggest tiremaker said fourth-quarter sales have been weaker than expected.

Honda, Japan’s second-largest automaker, tumbled 12 percent to 1,921 yen, the largest drop since Oct. 31. Hyundai Motor Co., South Korea’s No. 1 automaker, fell 9.3 percent to 42,000 won.

‘Potential Failure’

“A potential failure in U.S. automakers will have immediate reverberations throughout the U.S. economy, which will affect demand for Asian products and add to recessionary pressures,” said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors, which has $81 billion.

Denso Corp., the world’s biggest listed auto-parts maker, plunged 12 percent to 1,430 yen. Aisin Seiki Co., Japan’s largest maker of car transmissions, sank 13 percent to 1,116 yen.

The U.S. dollar weakened to 88.53 against the yen, the lowest since Aug. 2, 1995, before trading at 89.65 in London. Credit- default swaps, contracts conceived to protect bondholders against default, on the Markit iTraxx Europe index of 125 companies with investment-grade ratings increased 12.5 basis points to 212, according to JPMorgan Chase & Co. prices in London. That’s up from about 50 basis points at the start of the year.

Platinum, Oil

Platinum, used to make catalytic converters for car and truck exhaust systems, fell as much as 3.4 percent in London, while gold slipped from its highest in more than two weeks. Crude oil dropped as much as 5.9 percent, trimming yesterday’s 10 percent rally.

Yields on 10-year Treasury notes declined to 2.48 percent, the lowest level since 1954.

“Treasuries are clearly showing signs of flight to quality as people generally expected the bailout to succeed,” said Kevin Yang, who helps oversee about $1 billion of U.S. bonds in Taipei at Shinkong Life Insurance Co. “Yields will go lower in the very short-term as stocks test new lows.”

Canon Inc., the world’s biggest digital-camera maker, declined 5.8 percent to 2,590 yen. The number of Americans filing first-time claims for unemployment benefits surged to the highest level since November 1982, a report showed yesterday.

“If you lose your job, you don’t spend. If you see others lose their jobs, you don’t spend either,” said Daphne Roth, the Singapore-based head of equity research at ABN Amro Private Bank, which manages about $27 billion of Asian assets.

China’s growth will slow more sharply in the first quarter of 2009 before stabilizing and then recovering, Liu He, vice minister of the Central Leading Group on Financial and Economic Affairs said in Beijing today. China Mobile, the world’s biggest phone company by value, lost 4.7 percent to HK$78.50.

Valuations, HBOS

Today’s drop left the MSCI World trading at 11.4 times the earnings of its 1,694 companies, compared with this decade’s average ratio of 26.5. The worst global financial crisis since the Great Depression pushed the gauge’s value down to 10.5 times profit on Oct. 27, the cheapest in at least 13 years, data compiled by Bloomberg show.

The S&P 500 currently trades at 18.9 times earnings, while the Stoxx 600 is valued at 8.9.

Bank stocks led today’s drop in the European benchmark, losing 7.4 percent. HBOS Plc slumped 17 percent to 72.6 pence after the U.K. bank that is being taken over by Lloyds TSB Group Plc said this year’s charge for bad loans rose to 5 billion pounds ($7.5 billion), led by an increase in corporate delinquencies that was worse than analysts forecast. Lloyds decreased 18 percent to 129.9 pence.

To contact the reporters for this story: Chen Shiyin in Singapore at schen37@bloomberg.net; Adam Haigh in London at ahaigh1@bloomberg.net.

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Danaher, Equitable, Ford, GM, Lear, Waters: U.S. Equity Preview

By Lynn Thomasson

Dec. 12 (Bloomberg) -- The following companies may have unusual price changes in U.S. trading. Stock symbols are in parentheses, and share prices are as of 6 a.m. in New York, unless otherwise specified.

Bank of America Corp. (BAC US) fell 3 percent to $14.46 in Germany. The third-largest U.S. bank said it plans to eliminate as much as 12 percent of its workforce over the next three years as a weak economy guts the financial-services industry.

Danaher Corp. (DHR US) slumped 5.6 percent to $46.91 in Germany. The maker of Craftsman tools said next year may be "difficult" and estimated 2009 profit as low as $3.70 a share, compared with the average analyst estimate of $4.07 in a Bloomberg survey.

Equitable Resources Inc. (EQT US) gained 3.3 percent to $32.15 in extended trading yesterday. The producer of oil and natural gas was picked to replace Transocean Inc. (RIG US) in the Standard & Poor’s 500 Index, S&P said. Transocean slid 4.6 percent to $55.43. The world’s offshore oil driller plans to switch its incorporation to Switzerland, making it ineligible for the index.

Esterline Technologies Corp. (ESL US) gained 4.4 percent to $33.40. The manufacturer of jet-engine parts reported fourth- quarter profit excluding some items of $1.38 a share, or 30 percent more than the average analyst estimate in a Bloomberg survey.

Furniture Brands International Inc. (FBN US): The maker of Broyhill and Thomasville chairs and tables said it’s cutting 1,400 jobs, or about 15 percent of its U.S. workforce, because of "continuing soft retail-market conditions."

General Motors Corp. (GM US) plunged 39 percent to $2.53. The biggest U.S. automaker may be in bankruptcy within weeks, followed shortly by Chrysler LLC, after the Senate rejected a $14 billion rescue and the companies’ options for survival dwindled.

Ford Motor Co. (F US), the nation’s second-largest automaker, slumped 10 percent to $2.60. Lear Corp. (LEA US) retreated 3.1 percent to $1.87 in Germany.

Legg Mason Inc. (LM US): The mutual-fund operator booked a $517 million loss on the sale of debt issued by Axon Financial Funding Ltd., cutting its holdings in structured investment vehicles by 43 percent.

Waters Corp. (WAT US) tumbled 8.6 percent to $38.29. The maker of equipment for chemical analysis said fourth-quarter profit excluding some items may be as low as 94 cents a share, or 13 percent less than the average analyst estimate in a Bloomberg survey.

To contact the reporter on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net.

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U.S. Stock-Index Futures Decline; GM, Ford, Wal-Mart Retreat

By Adria Cimino

Dec. 12 (Bloomberg) -- U.S. stock futures fell, indicating the Standard & Poor’s 500 Index may extend its weekly decline, as the Senate’s rejection of a $14 billion plan to rescue automakers deepened concern the country is facing a prolonged recession.

General Motors Corp., the biggest U.S. carmaker, plunged 38 percent in Europe and Ford Motor Co. slid 13 percent. The Senate’s decision ends congressional efforts to aid GM and Chrysler LLC, which may run out of cash early next year. Wal-Mart Stores Inc. slipped 1.6 percent before a report that might show retail sales dropped in November for a fifth straight month as a deteriorating labor market caused consumers to retrench.

Futures on the S&P 500 expiring in March sank 4.7 percent to 833.1 as of 11:21 a.m. in London. The index has lost 0.3 percent this week. Dow Jones Industrial Average futures fell 3.8 percent to 8,245 and Nasdaq-100 Index futures decreased 4.1 percent to 1,141.75. Shares in Asia and Europe tumbled.

“We’re in a crisis without precedent and there’s a lot of turbulence still to come,” said Charles Dautresme, a strategist at Axa Investment Managers in Paris, which oversees about $770 billion. Automakers “are big employers. That’s the problem. This isn’t helping the market,” he said.

Europe’s Dow Jones Stoxx 600 Index slid 4.7 percent and the MSCI Asia Pacific Index lost 3.8 percent, snapping five days of gains. The dollar slumped below 90 yen for the first time in 13 years, while Treasuries rallied, sending yields to record lows.

Jobless Claims

U.S. stocks yesterday declined the most in five days as the Labor Department reported a bigger-than-estimated increase in initial jobless claims last week to the highest level since November 1982.

The S&P 500 earlier this week had marked a technical end to a 14-month bear market, extending its rebound from an 11-year low last month to as much as 21 percent, as President-elect Barack Obama stepped up efforts to pull the economy out of a recession.

The measure is on course for a 41 percent loss this year, the steepest such slump since 1931, as writedowns and credit losses neared $1 trillion amid the worsening financial crisis.

GM plunged 38 percent to $2.57 in Germany while Ford, the second-largest carmaker in the U.S., tumbled 13 percent to $2.52. Deutsche Bank AG lowered its recommendation for Ford to “sell.”

The brokerage also downgraded Lear Corp., the world’s second-biggest maker of automotive seats, to “sell.” The stock slid 3.1 percent to $1.87 in Germany.

The Senate thwarted the bailout plan when a bid to cut off debate on the bill the House passed yesterday fell short of the required 60 votes. The Bush administration will “evaluate our options in light of the breakdown in Congress,” spokesman Tony Fratto said.

‘Chain Reaction’

“There will be a chain reaction” throughout the market, said Pierre-Yves Gauthier, founding partner of Alphavalue SAS in Paris. “The market is reacting violently because of the surprise factor. Acceptance of the plan was almost a given,” he told Bloomberg Television.

Wal-Mart, the world’s biggest retailer, lost 1.6 percent to $53.89 in Germany. Bed Bath & Beyond Inc., the largest U.S. home- furnishings retailer, decreased 3.4 percent to $23.45.

Purchases probably declined 2 percent last month, extending the longest drop since record-keeping began in 1992, according to the median estimate in a Bloomberg News survey of economists. Other reports today may show wholesale prices slumped, led by plummeting commodity costs, and consumer sentiment sank to a 28- year low.

Exxon Mobil Corp., the world’s largest company, sank 3.2 percent to $77.43 in Germany. Crude oil for January delivery declined as much as 6.8 percent to $44.70 a barrel on the New York Mercantile Exchange.

Metals Slump

Alcoa Inc., the biggest U.S. aluminum producer, retreated 3.2 percent to $9.66 in German trading. The metal slid along with copper, lead and nickel in London on concern demand for commodities in China and the U.S. will weaken further.

American Express Co. lost 6.9 percent to $18.74 in Germany. The stock was rated “sell” in new coverage at Deutsche Bank, saying the credit-card company will “likely be challenged by the weakest consumer spending in decades and possibly the highest credit losses in history.”

The brokerage also rated Capital One Financial Corp., a credit-card lender and bank, “sell” in new coverage.

Waters Corp., the 50-year-old maker of equipment used in chemical analysis, may move after Deutsche Bank cut its recommendation to “hold” from “buy.”

Capital One and Waters shares didn’t trade in Europe.

To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.

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GLOBAL MARKETS-Stocks tumble, yen surges as auto bailout fails

* MSCI world equity index down 1.8 percent at 217.60

* Oil falls 5 pct, yen hits 13-year high vs dollar

* Sterling hits record lows, US 10-yr Treasury yields fall

By Natsuko Waki

LONDON, Dec 12 (Reuters) - World stocks tumbled and oil fell 5 percent on Friday while the yen hit a 13-year high against the dollar after the collapse of a $14 billion rescue plan for U.S. automakers.

In a classic flight from risky assets, the U.S. 10-year Treasury yield hit its lowest in more than five decades while sterling hit record lows against the euro and on a trade-weighted basis.

The British economy is viewed as particularly vulnerable.

The U.S. Senate failed to reach a last-ditch compromise to bail out automakers on Thursday, effectively killing any chance of congressional action this year which many say is necessary to prevent a further downturn in the already contracting economy.

"The failure of the auto bill has caused a turbulent session in Asia ... and there is a flight back into safe haven assets," said Investec's chief economist Philip Shaw. MSCI world equity index .MIWD00000PUS fell 1.8 percent, having hit a one-month high on Thursday. The FTSEurofirst 300 index of leading European shares .FTEU3 lost 3.6 percent. Asian shares .MIAP0000PUS were down 5.6 percent.

News that Bank of America (BAC.N: Quote, Profile, Research, Stock Buzz) would cut up to 35,000 jobs and UK bank HBOS took a 8 billion pound hit on bad debts and other charges this year, and a warning from JP Morgan (JPM.N: Quote, Profile, Research, Stock Buzz) on fourth-quarter performance, hit the banking sector, the epicentre of the credit crisis which began in August 2007.

Bank of America, HBOS (HBOS.L: Quote, Profile, Research, Stock Buzz) and JP Morgan (JPM.F: Quote, Profile, Research, Stock Buzz) shares fell 9 percent in Europe. JP Morgan's chief executive Jamie Dimon said on Thursday the bank has had a "terrible" November and December.

Emerging stocks .MSCIEF fell 3.2 percent.

U.S. crude oil CLc1 fell 5 percent to $45.57 a barrel as concerns grew over energy demand in the slowing global economy.

In Asia, the benchmark 10-year U.S. Treasury yield fell as low as 2.48 percent , its lowest in more than five decades, as capital chased safer government bonds.

The December Bund futures FGBLc1 rose 91 ticks.

"Who pressed the self destruct?" French bank Calyon said in a note to clients. "If an automaker does fold this could have a severe impact on the labour market amongst other things."

The low-yielding yen rose as high as around 88.40 per dollar according to Reuters data . Sterling hit record lows against the euro and on a trade-weighted basis. It fell to 89.29 pence per euro .

The dollar .DXY rose 0.3 percent against a basket of major currencies. (Additional reporting by Kirsten Donovan, editing by Mike Peacock)

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December Nikkei futures settled at 8,427.29

TOKYO, Dec 12 (Reuters) - Nikkei futures and options contracts expiring in December settled at 8,427.29, the Osaka Securities Exchange said on Friday, confirming earlier estimates by local brokerages.

The closely watched settlement price, known in Japan as the special quotation or "SQ", is calculated from the opening prices of the 225 shares in the Nikkei average .N225 on the second Friday of the month.

It is calculated monthly for options and every three months for futures. (Reporting by Aiko Hayashi)

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HK shares slump as U.S. auto bailout fails

HONG KONG, Dec 12 (Reuters) - Hong Kong shares slumped 5.9 percent on Friday, as investors dumped Li & Fung (0494.HK: Quote, Profile, Research, Stock Buzz) and other export-oriented firms after the U.S. Senate rejected the $14 billion bailout of the auto industry.

The benchmark Hang Seng Index .HSI unofficially closed down 921.11 points at 14,692.79.

The China Enterprises Index of top locally listed mainland Chinese firms .HSCE had fallen 7.3 percent to 7,867.75.

Li & Fung, which supplies consumer goods to U.S. retailers, tumbled 11.8 percent, after one of its buyers, KB Toys Inc, filed for bankruptcy on Thursday. KB Toys owes Li & Fung about $27.2 million. [ID:nN11389069]

(Reporting by Jun Ebias; Editing by Jonathan Hopfner)

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Europe stock futures signal drop as car bailout crashes

PARIS, Dec 12 (Reuters) - European stock index futures pointed to a sharp drop on Friday, after the U.S. Senate failed to approve a rescue plan for the troubled auto sector and as JPMorgan (JPM.N: Quote, Profile, Research, Stock Buzz) CEO warned of a "terrible" fourth quarter.

At 0701 GMT, futures for the Eurostoxx 50 STXEc1, Germany's DAX FDXc1 and the French CAC 40 FCEc1 were down between 4.4 and 4.9 percent.

Senate negotiators failed late on Thursday to reach a compromise deal to bail out the embattled U.S. automakers, effectively killing any chance of congressional action this year.

The news sent shares of Asian automakers tumbling, with Toyota Motor Corp (7203.T: Quote, Profile, Research, Stock Buzz) down 10 percent, and Nissan (7201.T: Quote, Profile, Research, Stock Buzz) -- in which France's Renault (RENA.PA: Quote, Profile, Research, Stock Buzz) has a significant stake -- down 11 percent.

Heavyweight energy and mining shares will be in the spotlight as the news of the failed bailout knocked metal and oil prices lower. (Reporting by Blaise Robinson)

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FTSE falls 2.9% after US auto rescue collapse

* Commodities hit by U.S. auto bailout collapse

* Banks fall; HBOS takes 8 bln stg hit

* JPMorgan CEO warns of "terrible" Q4; BoA cuts jobs

By Dominic Lau

LONDON, Dec 12 (Reuters) - Britain's top share index was down 2.9 percent early on Friday, led by commodity stocks and banks after the U.S. Senate failed to reach a deal to bail out automakers and after UK bank HBOS reported a sharp rise in bad debts in the last two months.

By 0832 GMT the FTSE 100 .FTSE was down 126.14 points at 4,262.55. The UK benchmark is down 34 percent for the year on fears of a long and painful global recession.

Senate negotiators failed late on Thursday to reach a compromise deal to bail out the embattled U.S. automakers, effectively killing any chance of congressional action this year.

The news sent prices of crude oil CLc1 and metal lower, and weighed heavily on commodity stocks, making them the main drag of the UK index.

BP (BP.L: Quote, Profile, Research, Stock Buzz), Royal Dutch Shell (RDSa.L: Quote, Profile, Research, Stock Buzz), BG Group (BG.L: Quote, Profile, Research, Stock Buzz) and Tullow Oil (TLW.L: Quote, Profile, Research, Stock Buzz) shed between 2.1 and 4 percent.

In the mining sector, BHP Billiton (BLT.L: Quote, Profile, Research, Stock Buzz), Rio Tinto (RIO.L: Quote, Profile, Research, Stock Buzz), Xstrata (XTA.L: Quote, Profile, Research, Stock Buzz), Vedanta Resources (VED.L: Quote, Profile, Research, Stock Buzz), Anglo American (AAL.L: Quote, Profile, Research, Stock Buzz), Antofagasta (ANTO.L: Quote, Profile, Research, Stock Buzz) and Kazakhmys (KAZ.L: Quote, Profile, Research, Stock Buzz) sank 2.9 to 6.5 percent.

"The U.S. economy like the other developed economies is going to contract in 2009 and that makes the first half of 2009 quite problematic for equity markets," said Darren Winder, equity strategist at Cazenove.

"But in the second half of the year we should see signs of more progress. Sentiment is very negative at the moment and there is nothing in the macro level going to shift those sentiments any time soon."

The banking sector was another standout loser on the FTSE 100 after HBOS (HBOS.L: Quote, Profile, Research, Stock Buzz) said bad debts and other charges so far this year jumped 66 percent in the last two months alone, to 8 billion pounds ($11.9 billion), [ID:nLC153330] and after the chief executive of JPMorgan Chase & Co (JPM.N: Quote, Profile, Research, Stock Buzz) said the U.S. bank has had a "terrible" November and December.

Adding to the gloom, Bank of America (BAC.N: Quote, Profile, Research, Stock Buzz) said it plans to eliminate 30,000 to 35,000 jobs over three years, as the ecnomic slowdown dampens its business activity. [ID:nN11396219]

HBOS (HBOS.L: Quote, Profile, Research, Stock Buzz) sank nearly 11 percent, while Barclays (BARC.L: Quote, Profile, Research, Stock Buzz), HSBC (HSBA.L: Quote, Profile, Research, Stock Buzz), Royal Bank of Scotland (RBS.L: Quote, Profile, Research, Stock Buzz), Lloyds TSB (LLOY.L: Quote, Profile, Research, Stock Buzz) and Standard Chartered (STAN.L: Quote, Profile, Research, Stock Buzz) were down between 3.3 and 10.9 percent.

With the grim economic news and fears of a weak Christmas sales, retailers also came under severe pressure. Marks & Spencer (MKS.L: Quote, Profile, Research, Stock Buzz) dropped 3.1 percent, fashion retailer Next (NXT.L: Quote, Profile, Research, Stock Buzz) lost 3.8 percent and home improvement retailer Kingfisher (KGF.L: Quote, Profile, Research, Stock Buzz) fell 3.2 percent.

Drugmakers Shire (SHP.L: Quote, Profile, Research, Stock Buzz) and GlaxoSmithKline (GSK.L: Quote, Profile, Research, Stock Buzz), insurer Old Mutual (OML.L: Quote, Profile, Research, Stock Buzz) and aerospace and defence firm Cobham (COB.L: Quote, Profile, Research, Stock Buzz) were the only two gainers on the index. (Editing by Greg Mahlich)

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Hardest Hit Currencies Are AUD And CAD On The News. Time To Buy USDCAD Again?

Daily Forex Fundamentals | Written by Saxo Bank | Dec 12 08 08:23 GMT |

EURUSD rally hit 200-week moving average - more to come? US Retail Sales report on tap today likely to add to bad vibes. LATEST HEADLINES New Zealand Oct. Retail Sales out at -1.3% vs. 0.0% expected, but ex Autos rose 0.8% as expected China Nov. Retail Sales rose 20.8% vs. 20.5% expected Japan Nov. Consumer Confidence fell to 28.7 vs. 28.0 expected THEMES TO WATCH - UPCOMING SESSION EuroZone Oct. Industrial Production (1000) Canada Q3 Capacity Utilization (1330) US Nov. PPI (1330) US Nov. Advance Retail Sales (1330) US Dec. preliminary University of Michigan Confidence (1500) Market Comments Markets have moved swiftly into near panic mode overnight on the failure in the US Senate to pass the $14 billion bailout plan for US automakers. The sticking point was a Republican request that the unions take a paycut next year to bring their wages in line with wages at non-union plants elsewhere in the nation. The fate of GM and Chrysler is now very uncertain. (Our guess is that the lawmakers move to some kind of bankruptcy arrangement that allows the companies to fall into Chapter 11, but that does not let them fall into total liquidation - Americans may be able to stand their most iconic beer brand Budweiser sold to foreigners (Belgian InBev), but they unlikely to be able to stand the idea of their large car brand disappearing forever, with the possible exception of Chrysler. The collapse of the bailout plan took the JPY to dramatic new highs against the USD as global equities plummeted, with USDJPY spiking below 90 for the first time since 1995. EURUSD was higher yesterday, but has dropped slightly since the news broke. Hardest hit have been the commodity currencies, with AUDUSD reversing yesterday's sharp gains and USDCAD already 250+ pips off yesterday's lows (crude spiked higher, then faded and the bailout package failure is considered especially bearish for CAD as auto parts are one of Canada's chief exports to the US.) These latest events are a hard test for the EURUSD rally, which seems to have had a lot to do with the jump in commodities, tremors created. The USD weakened especially sharply yesterday when Russia announced that it was ready to coordinate cuts in oil production with OPEC at a special meeting on December 17. While this created a knee-jerk rally, we should really view this announcement as a measure of desperation and weakness more than anything else. OPEC is a toothless organization in the face of this scary vortex of declining demand worldwide. Still, the long term problem is that the collapse in energy prices is choking off investment in future capacity that will cause tremendous price pressures once oil demand stabilizes and begins to grow again. Right now, demand growth prospects are very far off in the hazy mists of the future. The EURUSD rally yesterday was accelerated by the technical break and especially by events in energy markets and possibly also the Russian ruble situation. Most uncomfortably for our view of the markets, it also seemed to be catching a bid on risk appetite as evidenced by rallying emerging market currencies (complacency makes no sense to us at this phase of the game when things just seem to be getting worse and worse). It is increasingly evident that the ruble will collapse and the Russian central bank seems to be moving into a damage control mode with a stepwise devaluation after having burned through a large portion of its foreign reserves in just a few months. Rumors are swirling about whether Russia may be buying EUR while it lets the Ruble down and the huge bid in gold over the last couple of days may also have has something to do with the ruble unwind, as Russians are apparently out en masse buying jewelry and foreign currency. EURUSD has met the fairly modest upside technical targets we set out for it yesterday (1.3280 Fibo and 200-week moving average at 1.3360) and we now move our view to neutral in light of the market events. It will be interesting to watch whether a new equity meltdown materializes here, and if so, how EUR fares in the equation. It certainly has reached very elevated levels across the broader market, except for EURJPY, which saw a sharp reversal in the Asian session (more on that below). Equities have taken a beating overnight after recently doing an amazing job of showing resilience lately in the face of some very ugly data, but it appears that last nights bailout package failure is serving as a reality check. Note the weekly initial jobless claims number out of the US yesterday, which, at 573k shows an alarming further acceleration in job losses from already elevated levels. Today we have US Retail Sales and the news will inevitably be bad there (expectations already looking for only slightly better than last month's near record drop). Seems like the complacency in the market has been shaken a bit here and we risk larger moves again in currency-land - beware the volatility and stay careful out there. Charts: USDCAD and EURJPY USDCAD: CAD could be at the epicenter of market activity today due to CAD's sensitivity to the US auto industry. Yesterday saw the technical capitulation below the very clear 1.2450 line of support, but now we've already back above that level again this morning. We'd still like to see the pair close today back above the 1.2550 level to call a full reversal here, but the way winds are blowing at the moment, we may be setting up for a test of 1.3000+ here soon if the mood across markets remains sour. Energy prices are another variable worth watching in this equation. EURJPY: reversed sharply after breaking recent resistance levels. This may be the signal that the downtrend is ready to resume. The next key support area that must fall is the 116.50/116.00 are that proved so resilient the last time around. Analysis Disclosure & Disclaimer SaxBank A/S shall not be responsible for any loss arising from any investment based on any recommendation, forecast or other information herein contained. The contents of this publication should not be construed as an express or implied promise, guarantee or implication by SaxBank that clients will profit from the strategies herein or that losses in connection therewith can or will be limited. Trades in accordance with the recommendations in an analysis, especially leveraged investments such as foreign exchange trading and investment in derivatives, can be very speculative and may result in losses as well as profits, in particular if the conditions mentioned in the analysis dnot occur as anticipated. SaxBank utilizes financial information providers and information from such providers may form the basis for an analysis. SaxBank accepts nresponsibility for the accuracy or completeness of any information herein contained. Any recommendations and other comments in SaxBanks analysis derive from objective fundamental macreconomical and company specific calculations, statistical and technical analysis, and subjective general market assessment. If an analysis contains recommendations tbuy or sell a specific financial instrument, such recommendation should be seen as SaxBanks opinion that the specific instrument will respectively outperform the relevant market or underperform compared tthe market. SaxBanks recommendations should statistically correspond tan even distribution between buy and sell recommendations. The recommendations may expire promptly due tmarket volatility and in general, SaxBank does not anticipate its recommendations tbe valid more than one month. An analysis will be updated if and only if a market development or other issues relevant tthe analysis render a new analysis on the same topic relevant. SaxBanks analysis does not cover any specific financial product over time but only products which SaxBanks strategy team finds it important tcover at any given point in time. In order tprevent conflicts of interest, SaxBank has established appropriate business procedures, incl. procedures applicable tresearch and analysis tensure objective research reports. SaxBanks research reports have not been discussed with the parties, e.g. issuers of securities, mentioned in the analysis. SaxBank is under supervision by the Danish Financial Supervisory Authority. SaxBank does not engage in corporate finance activities and accordingly, SaxBanks employees, incl. the persons responsible for an analysis, dnot receive remuneration associated with investment banking transactions.

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Wakeup Call: Automaker Bailout Plan Rejected In Senate Vote. Equities Turn Sour

Daily Forex Fundamentals | Written by Saxo Bank | Dec 12 08 08:20 GMT |

Yesterday evening The U.S. Senate voted against the bailout plan for U.S. automakers and which turned Asian equity markets sour and this will spill over into European equity markets as well Calendar Economic Data Releases Country Name Time (GMT) Expectation Prior Comment US Producer Price Index YoY (NOV) 13:30 0.2% 5.2% US Advance Retail Sales (NOV) 13:30 -2.0% -2.8% US U. of Michigan Confidence (DEC) 15:00 54.5 55.3 What's going on? The Senate rejected the $14 billion bailout plan for U.S. automakers – GM and Chrysler could run out of cash early next year. Stocks were massively down in Asia and Europe is set to open in very negative territory. Our CDS index for the top 100 US stocks is still at elevated levels at 130. Crude Oil extended losses after the majority of the U.S. senate failed to agree on bailout plan for the auto industry. USDJPY falls as U.S auto bailout fils in senate. AUDUSD and NZDJPY also drops on the back of this. US Treasuries rose, pushing yields to record lows, after the failure of the U.S senate to approve the bailout plan. FX FX Daily stance Comment EURUSD 0 Can it hold rally in equity meltdown? 1.3250 break first sign of weakness, then 1.3080. EURJPY 0/- Sell upticks for 116.00 test again. 120.00 is resistance area. USDJPY 0/- Has already fallen a lot…worth selling rallies for retest of lows GBPUSD 0/- Rally not convincing, prefer selling up against 1.5000 to see if 1.4880 falls again. USDCAD + Big sell-off now reversed and in rally mode. 1.2375 support. Looking for 1.3000 again Equities Equities Daily stance Comment DAX - Sell rallies towards 4586 with a stop above 4648 for a test of 4490. FTSE - Sell rallies towards 4266. Keep a stop above 4329 and target 4165. S&P500 - Nasdaq100 - Nikkei225 - Futures Commodities Daily Stance Comment Gold (XAUUSD) - Sell rallies towards 46.50 with a stop above 47.50 for a test toward 43.00 Silver (XAGUSD) 0 Key resistance again at 835. Needs 825 to look like a rally danger again. Support is 800 Oil (CLF9) - Quick sell for test below 10.00 on USD strength. Stop above 10.30 Options FX-Options Comment EURUSD Risk Reversals offered across the curve with much interest to buy low delta EUR call/USD puts. Option market believe in a weaker dollar. EURGBP Int. in upside EURUSD and still selling int. in upside GBPUSD make us believe mkt is short EURUSD and long GBPUSD. Gamma traders make EURUSD move higher than GBPUSD. Bullish EURGBP. USDJPY Vols up throughout the curve after USDJPY broke 90.00. Vols should come off and USDJPY back to range trading because of BOJ and exporters different interests. Analysis Disclosure & Disclaimer Saxo Bank A/S shall not be responsible for any loss arising from any investment based on any recommendation, forecast or other information herein contained. The contents of this publication should not be construed as an express or implied promise, guarantee or implication by Saxo Bank that clients will profit from the strategies herein or that losses in connection therewith can or will be limited. Trades in accordance with the recommendations in an analysis, especially leveraged investments such as foreign exchange trading and investment in derivatives, can be very speculative and may result in losses as well as profits, in particular if the conditions mentioned in the analysis do not occur as anticipated. Saxo Bank utilizes financial information providers and information from such providers may form the basis for an analysis. Saxo Bank accepts no responsibility for the accuracy or completeness of any information herein contained. Any recommendations and other comments in Saxo Bank's analysis derive from objective fundamental macro economical and company specific calculations, statistical and technical analysis, and subjective general market assessment. If an analysis contains recommendations to buy or sell a specific financial instrument, such recommendation should be seen as Saxo Bank's opinion that the specific instrument will respectively outperform the relevant market or underperform compared to the market. Saxo Bank's recommendations should statistically correspond to an even distribution between buy and sell recommendations. The recommendations may expire promptly due to market volatility and in general, Saxo Bank does not anticipate its recommendations to be valid more than one month. An analysis will be updated if and only if a market development or other issues relevant to the analysis render a new analysis on the same topic relevant. Saxo Bank's analysis does not cover any specific financial product over time but only products which Saxo Bank's strategy team finds it important to cover at any given point in time. In order to prevent conflicts of interest, Saxo Bank has established appropriate business procedures, incl. procedures applicable to research and analysis to ensure objective research reports. Saxo Bank's research reports have not been discussed with the parties, e.g. issuers of securities, mentioned in the analysis. Saxo Bank is under supervision by the Danish Financial Supervisory Authority. Saxo Bank does not engage in corporate finance activities and accordingly, Saxo Bank's employees, incl. the persons responsible for an analysis, do not receive remuneration associated with investment banking transactions.

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