Wednesday, April 15, 2009

Dollar Trades Near 4-Week High on Prospect U.S. Slump Deepening

By Ron Harui and Oliver Biggadike

April 16 (Bloomberg) -- The dollar traded near a four-week high against the euro before U.S. reports that may show the recession is worsening in the world’s largest economy, boosting demand for the relative safety of the currency.

The euro traded near a two-week low versus the yen on concern a European Union report today will show the region’s industrial production dropped by the most on record in February, supporting the case for policy makers to lower borrowing costs. The yen rose against 15 of the 16 most-active currencies on speculation the global slump will deepen, spurring investors to reduce holdings of higher-yielding assets.

“Worries about the global economy are escalating, hurting investor confidence,” said Danica Hampton, currency strategist at Bank of New Zealand Ltd. in Wellington. “We’d expect ‘safe- haven’ demand to underpin the dollar and weigh on yen crosses like the euro-yen.”

The dollar traded at $1.3206 per euro at 8:15 a.m. in Tokyo from $1.3227 in New York yesterday. It reached $1.3090 on April 10, the highest level since March 18. The greenback was at 99.32 yen from 99.37 yen. The euro bought 131.13 yen from 131.44 yen.

U.S. builders started construction last month on an annualized 540,000 homes, fewer than the 583,000 reported in February, economists in a Bloomberg survey said before the Commerce Department’s report today. Initial jobless claims probably rose to 660,000 in the week ended April 11, a Labor Department report is forecast to show.

Industrial output in the U.S. fell 1.5 percent in March, matching February’s decrease, the Federal Reserve said yesterday. The median forecast of 76 economists surveyed by Bloomberg was for a 0.9 percent decline.

‘Phase of Normalization’

“The dollar is in a phase of normalization right now as the safe-haven flows start to recede very slowly,” said Sebastien Galy, senior currency strategist at BNP Paribas Securities SA in New York, in a Bloomberg Television interview yesterday. “It’s not a very pessimistic outlook for the dollar.”

The Dollar Index, which the ICE uses to track the greenback against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, advanced 0.5 percent to 85.08 after dropping 2.9 percent in March.

The euro may weaken for a third day against the dollar as the European Union’s statistics office in Luxembourg may say today that industrial production fell 18 percent in February from a year earlier, the biggest decline since the data series began in 1986.

Investors raised bets that the ECB will reduce rates at its May 7 meeting. The yield on the three-month Euribor interest- rate futures contract for May delivery fell to 1.285 percent yesterday from 1.305 percent on April 14.

Benchmark interest rates are 1.25 percent in the euro area and 3 percent in Australia and in New Zealand, making assets in the 16-nation region and the South Pacific nations attractive to international investors seeking higher returns. Japan’s benchmark borrowing cost is 0.1 percent and the U.S. rate is between zero and 0.25 percent.

Monday, April 6, 2009

U.S. Markets Wrap: Stocks Drop on Bank Concern, Treasuries Fall

By Rita Nazareth

April 6 (Bloomberg) -- U.S. stocks fell for the first time in five days as Mike Mayo, analyst at Calyon Securities, advised selling bank shares and International Business Machines Corp.’s purchase of Sun Microsystems Inc. collapsed.

SunTrust Banks Inc. and KeyCorp slid more than 7 percent as Mayo said government measures to shore up banks may not help as much as expected and loan losses will exceed levels from the Great Depression. Sun Microsystems sank 23 percent as people familiar with the matter said talks with IBM fell apart. U.S. Steel Corp. and AK Steel Holding Corp. lost at least 2.7 percent as metals fell on concern over the slumping economy.

“Concern about the condition of the financial system will be here for a while, at least for the rest of the year,” said Stanley Nabi, vice chairman of Silvercrest Asset Management Group, which oversees $8 billion in New York. “It will take a while to put the pieces together.”

The Standard & Poor’s 500 Index retreated 0.8 percent to 835.48. The Dow Jones Industrial Average slipped 41.74, or 0.5 percent, to 7,975.85. About three stocks fell for each that rose on the New York Stock Exchange. The MSCI World Index of 23 developed nations lost 0.7 percent.

U.S. stocks capped a fourth straight week of gains on April 3, the longest stretch since the bear market began in 2007, as the economy showed signs of improvement, Group of 20 leaders agreed on measures to halt the recession and accounting regulators relaxed rules on so-called fair-value accounting. The S&P 500 has rebounded 23 percent from a 12-year low on March 9.

Europe’s Dow Jones Stoxx 600 Index declined 0.6 percent, erasing a 1.9 percent advance, after Morgan Stanley cut the region’s stocks to “underweight” from “neutral.” The MSCI Asia Pacific Index rose 0.4 percent.

Mayo’s Call to Sell

SunTrust, the Georgia lender that received $4.9 billion in U.S. rescue funds, slid $1.12, or 8.1 percent, to $12.70. KeyCorp, Ohio’s second-largest bank, lost 7 percent to $7.94. Mayo, the former Deutsche Bank AG analyst who gained a reputation for independence, gave “sell” ratings to the two companies as well as BB&T Corp., Fifth Third Bancorp and U.S. Bancorp, all of which fell at least 4.4 percent.

He assigned “underperform” ratings to Bank of America Corp., Citigroup Inc., Comerica Inc., JPMorgan Chase & Co., PNC Financial Services Group Inc. and Wells Fargo & Co, sending all of their shares lower. He cited concern over rising loan losses.

A gauge of financial companies in the S&P 500 slid 2.9 percent for the biggest decline among 10 industry groups. The group of 80 banks, insurers and investment firms is still 55 percent above its March 6 low.

‘Rolling Recession’

“While certain mortgage problems are farther along, other areas are likely to accelerate, reflecting a rolling recession by asset class,” Mayo wrote in a report. “New government actions might not help as much as expected, especially given that loans have been marked down to only 98 cents on the dollar, on average.”

Financial shares pared a drop of as much as 4.4 percent and the S&P 500 trimmed a 2.3 percent decline after Meredith Whitney, founder of the Meredith Whitney Advisory Group, told CNBC the financial sector’s tangible book values and will go higher, and with it share prices, although it may take till mid- next year to get “out of the woods.”

The benchmark index for U.S. stock options rose for the first time in five days, climbing 3.1 percent to 40.93. The VIX, as the Chicago Board Options Exchange Volatility Index is known, ended last week at a two-month low of 39.70.

Treasury Auctions

Treasuries fell as traders shifted focus to this week’s auctions after the Federal Reserve completed its sixth targeted purchase of U.S. securities.

The Treasury will auction $59 billion in coupon securities, including a record $35 billion of three-year notes on April 8, as it sells record amounts of debt to revive economic growth and service deficits. The Fed bought $2.53 billion in notes as part of its effort to lower consumer borrowing costs.

“The battle continues between the Treasury and the Fed,” said Jeffry Feigenwinter, head of Treasury trading at BNP Paribas Securities, one of 16 primary dealers that trade with the central bank. “The Fed is trying to keep rates low while the Treasury needs to fund all these programs and needs to raise a lot of cash.”

The 10-year note yield rose four basis point, or 0.04 percentage point, to 2.93 percent at 2:45 p.m. in New York, according to BGCantor Market Data. The 2.75 percent security due in February 2019 fell 10/32, or $3.13 per $1,000 face amount, to 98 14/32.

Dollar Rises

The yield on the 30-year bond increased 5 basis points to 3.74 percent.

The dollar gained against most major counterparts after the decline in U.S. stocks increased demand for the safety of the world’s main reserve currency. The greenback rose for the first time in five days against the Canadian dollar South Africa’s rand retreated from the strongest level versus the dollar since October.

“It’s back to the dollar being a safe haven,” said Alan Kabbani, a senior currency trader at Wachovia Corp. in Charlotte, North Carolina. “Every time we see some retracement in the equity markets, we see the dollar benefiting.”

The dollar rose for the first time in three days against the euro, advancing 0.6 percent to $1.3409 at 4:11 p.m. in New York, from $1.3486 on April 3. The yen traded at 135.48 per euro, compared with 135.26, after touching 137.41, the weakest level since Oct. 20. The euro will probably fall to 126 yen and $1.31 in the next two weeks, Kabbani predicted. Japan’s currency declined 0.7 percent to 101.02 per dollar, from 100.31 last week, and reached 101.44, the weakest since Oct. 21.


The U.S. currency gained 0.7 percent against the Canadian dollar to C$1.2386 and 0.8 percent to 8.0514 Swedish kronor. The Canadian currency advanced 1.3 percent versus the greenback in March and the krona advanced 9.3 percent on speculation the global economic slump may be ending. South Africa’s rand dropped 0.3 percent to 9.0823 per dollar after touching 8.9647, the strongest level since Oct. 14.

Crude oil fell for a second day in New York as U.S. stocks declined. Qatari Oil Minister Abdullah bin Hamad al-Attiyah said he doesn’t expect prices to rebound to $70 a barrel this year as OPEC implements its biggest-ever supply reduction.

“There’s a lot of nervousness about the equity market,” said Tim Evans, an energy analyst with Citi Futures Perspective in New York. “Until we see declining inventories there won’t be a sustained gain in the oil price.”

$50 a Barrel

Crude oil for May delivery dropped $1.46, or 2.8 percent, to $51.05 a barrel at the 2:30 p.m. close of floor trading on the New York Mercantile Exchange. Oil has risen 14 percent this year and is down 65 percent from a record in July.

“Fifty dollars a barrel is reasonable for the world economy now,” Qatar’s al-Attiyah said.

Copper fell from a five-month high as declining equity markets spurred concern that a recent rally may have been overdone, given the slumping global economy. Last week, copper surged 9 percent as the S&P 500 jumped on speculation that the worst of the global recession had passed.

“People had gotten pretty excited last week about the economy,” said Michael K. Smith, the president of T&K Futures & Options in Port St. Lucie, Florida. “The reality is not that the economy is good. It’s just not as bad as people had feared. We could see copper pull back this week as some of that optimism dies out.”

Worst Since 1975

Copper futures for May delivery fell 4.15 cents, or 2.1 percent, to $1.959 a pound on the New York Mercantile Exchange’s Comex division. Earlier, the price touched $2.037, the highest for a most-active contract since Oct. 30.

Copper usage will drop 9.2 percent in 2009, the most since 1975, as slumps in housing and auto sales reduce demand for wire and pipe made from the metal, according to Macquarie Group Ltd. Copper still is up 39 percent this year on speculation demand would rebound.

Wheat fell from the highest in almost two months on speculation that freezing weather will do little damage to U.S. crops because plant development was already delayed by colder weather last week.

Temperatures averaged 6.7 degrees Fahrenheit below normal in Kansas the past 10 days, delaying the so-called jointing stage when winter-wheat tillers emerge, protecting the plant from potential yield losses from a sudden freeze, said Mike Tannura, meteorologist for T-Storm Weather in Chicago. About 46 percent of the Kansas crop was susceptible to damage on April 1, 2007, when a freeze reduced yields, compared with 13 percent on March 31 this year, Tannura said.

‘Vulnerable to Cold Weather’

“There is less crop that was vulnerable to cold weather,” said Chad Henderson, a market analyst for Prime Agricultural Consultants in Brookfield, Wisconsin. “The market already rallied on the threat of cold last week, so today we are giving back some of those gains.”

Wheat futures for March delivery fell 6.5 cents, or 1.2 percent, to $5.57 a bushel on the Chicago Board of Trade, after earlier reaching $5.7275, the highest since Feb. 9. The most- active contract climbed 11 percent last week, the biggest gain since February 2008.

Hog futures fell for the first time in three sessions on speculation that ham demand is declining after U.S. meatpackers filled orders for the Easter holiday. Cattle prices rose.

The wholesale price of ham, a traditional food for Easter meals, dropped 11 percent in the week ended April 3, U.S. Department of Agriculture data show. The average cash-market hog price was 55.79 cents a pound at the end of last week, down 0.4 percent from a week earlier. Most Christians will celebrate Easter on April 12 this year.

“We have the Easter holiday right in front of us, and packers can drop cash prices here for a few days beforehand, because there will be a little less need for the hogs,” said Rich Nelson, a broker at Allendale Inc. in McHenry, Illinois.

Hog futures for June settlement fell 0.9 cent, or 1.2 percent, to 72.75 cents a pound on the Chicago Mercantile Exchange. The contract climbed 3.2 percent last week, the biggest weekly gain since Feb. 13.

U.S. Jobs Index Dropped to 90.1 in March, Indicating More Cuts

By Timothy R. Homan

April 6 (Bloomberg) -- A measure of U.S. job prospects fell in March for a 14th straight month, indicating the labor market will deteriorate further, a private report showed.

The Conference Board’s Employment Trends Index last month decreased 2.3 percent to 90.1, the lowest since February 1994, from a revised 92.2 in February, the New York-based research group said today. The index declined 22 percent from a year earlier.

Payroll employment is likely to keep dropping as companies cut costs to ride out the recession, now in its second year. About 5.1 million jobs have been lost since the start of the slump, the worst in the postwar era. Recent reports indicate it will be tough for President Barack Obama to follow through on his pledge to save or create 3.5 million jobs.

“The most intense stage of job losses may be behind us,” Gad Levanon, a senior economist at the Conference Board, said in a statement. “However, the drops in each of the eight components of the ETI in March signal that many more jobs will disappear over the next several months.”

The index aggregates eight labor-market indicators to forecast short-term hiring trends. On average, the employment trends gauge can predict job declines six to nine months in advance and can signal a rebound in hiring as many as three months before the fact, the Conference Board said.

Employers cut 663,000 workers in March and the jobless rate surged to 8.5 percent, the highest level in more than a quarter century, the Labor Department reported on April 3.

U.S. companies are stepping up firings as demand weakens. Job cuts have been spreading from manufacturers such as Johnson Controls Inc. and Dana Holding Corp. to service providers like International Business Machines Corp. and even the U.S. Postal Service.

Thursday, April 2, 2009

Stocks, Commodities Gain on Economy; Yen, Treasuries Decline

By Daniel Hauck

April 2 (Bloomberg) -- Stocks rallied around the world, oil and metals rose and the yen dropped as Group of 20 leaders met to discuss stimulus plans amid mounting evidence the worst of the global recession may be over.

Europe’s Dow Jones Stoxx 600 Index advanced 4 percent and futures on the Standard & Poor’s 500 Index climbed 2.4 percent. The MSCI Asia Pacific Index rallied 4.5 percent, the biggest gain this year, and Hong Kong’s Hang Seng Index surged 7.4 percent to erase its 2009 loss. Crude added 5.4 percent to $51 a barrel in New York and copper gained for a third day, leading industrial metals higher with a 1.9 percent advance on the London Metals Exchange.

The yen weakened the most against commodities exporters, losing 2.3 percent versus the Australian dollar, 1.9 percent against the New Zealand dollar, and 2.3 percent compared with the South African rand. The cost of insuring European corporate debt from default fell for the first time in five days.

“What is most encouraging for the G-20 leaders summit in London today is the building evidence that the Lehman-related collapse in global demand seems to be coming to an end,” Derek Halpenny, London-based European head of global currency research at Bank of Tokyo-Mitsubishi UFJ Ltd., said in a report today. There is “hope that this shock is now ending,” he wrote.

Lehman Collapse

Some reports from the U.S., China and U.K. suggest the pace of economic decline may be easing and credit markets are showing signs of recovering after the September bankruptcy of New York- based Lehman Brothers Holdings Inc., the biggest in American history. Auto sales in the U.S. rebounded from a 27-year low this month, while durable-goods orders and home sales rose in February. Chinese urban investment surged 26.5 percent in the first two months of the year.

U.S. Treasury Secretary Timothy Geithner said yesterday in a Bloomberg Television interview that there are “encouraging signs” that financial markets are recovering as mortgage rates and interest costs fall and the government takes steps to restart lending for students, small businesses and cars.

The difference between yields on 30-year, fixed-rate mortgages and 10-year Treasury notes narrowed to 2.35 percentage points from a high of 3.05 percentage points at the end of last year, according to data compiled by Bloomberg. The average gap over the past 10 years is 1.55 points.

‘Comforting the Market’

“Investors are relieved,” said Bruno Ducros, a fund manager at Cardif Asset Management in Paris, which oversees about $2.6 billion in stocks. “Production is recovering and that’s supporting the market. The G-20 is showing a certain mobilization by politicians. All of these elements are comforting the market.”

U.S. financial shares rose before a vote today by the Financial Accounting Standards Board on an overhaul of accounting rules that may increase profits at banks by more than 20 percent. Changes proposed on March 16 to fair-value accounting would allow companies to use “significant judgment” in valuing assets and reduce the amount of writedowns they must take on so-called impaired investments, including mortgage- backed securities.

Citigroup Inc., based in New York, climbed 9 percent, while Charlotte, North Carolina-based Bank of America Corp. added 7.5 percent in pre-market trading.

The European Central Bank may cut its key interest rate to a record low of 1 percent today, according to a Bloomberg survey of 55 economists.

The pound strengthened 0.7 percent to $1.4568 after an industry report showed U.K. house prices unexpectedly rose in March for the first time since October 2007.

Gilts, Treasuries

U.K. gilts fell as the government sold 2.25 billion pounds ($3.29 billion) of 30-year bonds, the longest-dated securities offered since the Treasury was unable to find enough buyers at an auction of 40-year debt last week. The bonds were sold at an average yield of 4.257 percent and investors bid for 1.59 times the amount of securities sold.

Treasuries slid for the first time in four days, sending the 10-year note’s yield four basis points higher to 2.70 percent, as gains in equities damped demand for the relative safety of government assets. Investors may require higher yields to keep buying U.S. debt as President Barack Obama’s government borrows record amounts to try to end the U.S. recession, Goldman Sachs Group Inc. said in a report yesterday.

The U.S. needs to borrow $3.25 trillion for the fiscal year ending Sept. 30, including sales to replace maturing securities, according to Goldman.

Russia, Eastern Europe

Investors are buying Russian corporate bonds and Polish and Czech stocks.

Russia’s biggest company, OAO Gazprom, is selling the first international corporate bond from the country since July, according to data compiled by Bloomberg. Gazprom, which supplies a quarter of Europe’s gas, will sell more than 200 million Swiss francs ($174 million) of two-year notes, according to bankers involved in the sale.

The MSCI Emerging Markets Index rose 4.2 percent to a three-month high on speculation more countries may follow Mexico in taking advantage of new loan conditions from the International Monetary Fund.

Poland’s WIG 20 Index rallied 4 percent, the Czech PX Index jumped 5.3 percent and Russia’s Micex Index rose 4.4 percent.

Mexico asked for a $47 billion credit line from the IMF yesterday, the most since the so-called Tequila Crisis in 1995. The IMF said last month it would relax loan conditions for developing countries that have low inflation, moderate levels of foreign debt and sound public finances.

Contracts on the Markit iTraxx Crossover Index of 45 companies with mostly high-risk, high-yield credit ratings dropped 19 basis points to 943, according to JPMorgan Chase & Co. prices at 8:20 a.m. in London.

Credit-default swaps, contracts to protect bondholders against default, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements.