By Craig Torres
Oct. 31 (Bloomberg) -- The Federal Reserve cut its benchmark interest rate by a quarter point to 4.5 percent and signaled it's reluctant to lower borrowing costs further.
The second reduction in as many months should help the U.S. economy withstand the fallout from August's credit collapse, the Federal Open Market Committee said in a statement after meeting today in Washington. ``After this action, the upside risks to inflation roughly balance the downside risks to growth.''
The language ``has all the subtlety of a sledgehammer,'' said Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Connecticut. ``The FOMC has just stated unequivocally that `we think we are done easing.' Whether they are or not remains to be seen, but the message is loud and clear.''
Hours earlier, the Commerce Department said economic growth accelerated to an annual pace of 3.9 percent in the third quarter, the fastest in more than a year. The Fed statement also warned that higher energy and commodity prices may spur faster inflation.
Stocks fell in the minutes after the Fed announcement, before resuming their rally. Treasury notes declined and the dollar weakened.
The Fed acknowledged that ``economic growth was solid in the third quarter, and strains in financial markets have eased somewhat on balance.'' At the same time, ``the pace of economic expansion will likely slow in the near term, partly reflecting the intensification of the housing correction.''
Hoenig Dissents
Today's decision wasn't unanimous. Kansas City Fed President Thomas Hoenig preferred no change, the first dissent since December.
The Fed also lowered the discount rate, the cost of direct loans to banks, by 25 basis points to 5 percent, from 5.25 percent. A basis point is 0.01 percentage point.
``Unless the incoming data signal a net increase in downside growth risk, they think they are done,'' said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York. ``Inflation worries -- oil and commodities -- just won't go away.''
Policy makers have now lowered their target rate for overnight loans between banks by 0.75 percentage point in six weeks, the most aggressive easing since the economy was emerging from its last recession in 2001.
Economists and former officials said before the meeting that the central bank would want to preserve leeway to take back the rate cuts should the economy weather the risks from credit and housing markets. Vice Chairman Donald Kohn said Oct. 5 the Fed must be ``nimble in adjusting policy to promote'' both growth and price stability.
Insurance
Chairman Ben S. Bernanke, 53, and other officials in speeches this month have described the importance of taking out insurance to protect the economy from risks when the outlook is difficult to judge.
``Intuition suggests that stronger action by the central bank may be warranted to prevent particularly costly outcomes,'' Bernanke said in an Oct. 19 speech on recent economic research. Chicago Fed President Charles Evans said Oct. 22 that ``at times we may need to adopt a risk management approach to policy'' to guard against threats to growth or inflation.
Consumer-price increases have slowed, while a falling dollar and rising oil costs threaten a renewed acceleration. The Fed's preferred gauge, the personal consumption expenditures price index excluding food and energy, probably rose 1.8 percent in September from a year ago, according to the median forecast. The Commerce Department reports the figures tomorrow.
The index remained below 2 percent from June to August. Bernanke, before taking the Fed's helm, said his ``comfort'' range for the measure was 1 percent to 2 percent.
Faster Expansion
The Commerce Department said today that the expansion picked up in the third quarter, though economists surveyed by Bloomberg predict a slowing this quarter. A private report showed companies hired 106,000 this month after creating 61,000 jobs in September.
The economy grew at a 3.9 percent annual rate in July to September, up from 3.8 percent in the previous three months, Commerce figures showed. It will slow to a 1.8 percent pace in the current period, according to the median estimate in a survey published Oct. 10.
Housing Downturn
Housing figures this month showed the industry has yet to find a bottom. A private survey yesterday showed home values in 20 metropolitan areas slid the most in at least six years. Sales of previously owned homes fell to the lowest level since National Association of Realtors began keeping records in 1999, and government figures recorded a 14-year low for housing starts.
Continued stress in credit markets may lengthen the housing recession and temper business investment plans. The world's largest banks and securities firms announced more than $30 billion of third-quarter charges.
Citigroup Inc. the biggest U.S. bank, said Oct. 15 that earnings fell 57 percent as loan losses increased. Merrill Lynch & Co. last week wrote down the value of subprime mortgages, asset-backed debt and leveraged loans by $8.4 billion.
The benchmark rate is now at the lowest level since January 2006. Bernanke took office the following month, and continued a series of rate increases that lifted the federal funds rate to 5.25 percent by June last year.
Wednesday, October 31, 2007
U.S. Stocks Rise as Economy Expands, Fed Reduces Interest Rates
By Eric Martin
Oct. 31 (Bloomberg) -- U.S. stocks rose, locking in a third straight month of gains, after the economy expanded more than forecast and the Federal Reserve signaled its quarter-point interest-rate cut may be sufficient to sustain growth.
Microsoft Corp., the biggest software maker, and Intel Corp., the largest semiconductor company, led gains on prospects consumers will keep spending. Exxon Mobil Corp., the world's largest energy company, advanced as oil rose to a record $94.74 a barrel. Newmont Mining Corp., the second-largest gold producer, jumped the most in six years after profit doubled.
The Standard & Poor's 500 Index added 18.36, or 1.2 percent, to 1,549.38. The Dow Jones Industrial Average increased 137.54, or 1 percent, to 13,930.01. The Nasdaq Composite Index advanced 42.41, or 1.5 percent, to 2,859.12. Almost four stocks rose for every one that fell on the New York Stock Exchange.
``The Fed may be done here,'' said Jeffrey Kleintop, who helps oversee more than $150 billion as chief market strategist at LPL Financial Services in Boston. ``But we don't need them anymore and the market is taking consolation in that.''
The 3.9 percent growth in third-quarter gross domestic product eased concern that the housing slump and subprime mortgage defaults will drag the nation into a recession. The Fed said the reduction in the Federal funds rate to 4.5 percent should keep credit-market losses from hurting the broader economy.
U.S. stocks have gained in six of the seven weeks since the Fed's first rate reduction in four years on Sept. 18, pushing the S&P 500 Index up 4.9 percent since then. For the month, the S&P 500 added 1.5 percent, the Nasdaq climbed 5.8 percent and the Dow average gained 0.3 percent.
Energy Rally
Energy shares rose after crude oil advanced to a record $94.74 a barrel in New York following an Energy Department report that showed U.S. inventories fell to a two-year low. Oil advanced 16 percent this month.
Exxon climbed 85 cents to $91.99. Hess Corp. jumped $2.85 to $71.61. The fifth-largest U.S. oil company said third-quarter profit rose 33 percent as higher oil prices and production outweighed a narrowing of refining margins.
Microsoft rallied $1.24 to $36.81, its highest price since June 2001, after a Sanford C. Bernstein & Co. analyst said the shares were undervalued because of the company's growth potential. Technology shares increased 1.7 percent as a group.
Raw-materials producers gained the most among 10 industry groups in the S&P 500, climbing 2.5 percent. Newmont Mining, the world's second-largest gold producer, led gains, climbing $4.46 to $50.90. Third-quarter profit before one-time items rose to 57 cents a share, more than double the 25-cent average estimate of 13 analysts surveyed by Bloomberg.
Early Rally
Stocks rose before the Fed's decision after the government said higher exports, consumer spending and business investment boosted gross domestic product by the most since the first three months of 2006. Economists in a Bloomberg survey had forecast growth of 3.1 percent. The Fed's preferred gauge of inflation, which is tied to consumer spending and strips out food and energy costs, advanced at a 1.8 percent annual pace, above the 1.5 percent forecast by economists.
The Fed's decision wasn't unanimous. Kansas City Fed President Thomas Hoenig preferred no change.
``The economy seems to have weathered quite nicely the credit issues we experienced in late summer,'' said Thomas Sowanick, who helps oversee more than $10 billion as chief investment officer of Clearbrook Financial LLC in Princeton, New Jersey. ``We're seeing everything stronger than what we would have expected two months ago. Fourth-quarter earnings will reflect the rebound.''
Kraft Foods
Kraft Foods Inc. increased 81 cents to $33.41. The world's second-biggest food company reported third-quarter earnings before some items of 44 cents a share, beating the 41-cent average of 14 estimates in a Bloomberg survey.
Weyerhaeuser Co. added $1.60 to $75.91. The world's largest lumber company reported profit, excluding one-time items, of 55 cents, more than the 49-cent average estimate by 13 analysts surveyed by Bloomberg.
MasterCard Inc. jumped $32.76, or 21 percent, to $189.91, the biggest gain since its initial public offering in May 2006. The second-biggest credit card company reported earnings that beat analysts' estimates.
McKesson Corp. surged $7.55, or 13 percent, to $66.10, the steepest gain in the S&P 500. The biggest U.S. drug distributor posted fiscal second-quarter profit beat estimates and the company increased its 2007 forecast.
Jones Apparel Group Inc. gained $1.24 to $20.94. The maker of Jones New York clothing and Nine West shoes said profit climbed sixfold, topping analysts' estimates, after it sold its Barneys New York chain.
Business Barometer
Stocks also climbed after a private report from ADP Employer Services showed companies added 106,000 jobs in October, more than economists had forecast.
Another report showed U.S. business activity in October unexpectedly contracted to the lowest level since February as manufacturers restrained production and hiring. The National Association of Purchasing Management-Chicago said its business barometer decreased to 49.7 from 54.2 the prior month. Readings below 50 signal a contraction.
The Russell 2000 Index, a benchmark for companies with a median market value of $655 million, gained 1.5 percent to 828.02. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, rose 1.2 percent to 15,673.36. Based on its advance, the value of stocks increased by $239 billion.
Exxon Mobil Corp. (XOM US)
Garmin Ltd. (GRMN US)
Jones Apparel Group Inc. (JNY US)
Kraft Foods Inc. (KFT US)
MasterCard Inc. (MA US)
McKesson Corp. (MCK US)
Microsoft Corp. (MSFT US)
Newmont Mining Corp. (NEM US)
Weyerhaeuser Co. (WY US)
Oct. 31 (Bloomberg) -- U.S. stocks rose, locking in a third straight month of gains, after the economy expanded more than forecast and the Federal Reserve signaled its quarter-point interest-rate cut may be sufficient to sustain growth.
Microsoft Corp., the biggest software maker, and Intel Corp., the largest semiconductor company, led gains on prospects consumers will keep spending. Exxon Mobil Corp., the world's largest energy company, advanced as oil rose to a record $94.74 a barrel. Newmont Mining Corp., the second-largest gold producer, jumped the most in six years after profit doubled.
The Standard & Poor's 500 Index added 18.36, or 1.2 percent, to 1,549.38. The Dow Jones Industrial Average increased 137.54, or 1 percent, to 13,930.01. The Nasdaq Composite Index advanced 42.41, or 1.5 percent, to 2,859.12. Almost four stocks rose for every one that fell on the New York Stock Exchange.
``The Fed may be done here,'' said Jeffrey Kleintop, who helps oversee more than $150 billion as chief market strategist at LPL Financial Services in Boston. ``But we don't need them anymore and the market is taking consolation in that.''
The 3.9 percent growth in third-quarter gross domestic product eased concern that the housing slump and subprime mortgage defaults will drag the nation into a recession. The Fed said the reduction in the Federal funds rate to 4.5 percent should keep credit-market losses from hurting the broader economy.
U.S. stocks have gained in six of the seven weeks since the Fed's first rate reduction in four years on Sept. 18, pushing the S&P 500 Index up 4.9 percent since then. For the month, the S&P 500 added 1.5 percent, the Nasdaq climbed 5.8 percent and the Dow average gained 0.3 percent.
Energy Rally
Energy shares rose after crude oil advanced to a record $94.74 a barrel in New York following an Energy Department report that showed U.S. inventories fell to a two-year low. Oil advanced 16 percent this month.
Exxon climbed 85 cents to $91.99. Hess Corp. jumped $2.85 to $71.61. The fifth-largest U.S. oil company said third-quarter profit rose 33 percent as higher oil prices and production outweighed a narrowing of refining margins.
Microsoft rallied $1.24 to $36.81, its highest price since June 2001, after a Sanford C. Bernstein & Co. analyst said the shares were undervalued because of the company's growth potential. Technology shares increased 1.7 percent as a group.
Raw-materials producers gained the most among 10 industry groups in the S&P 500, climbing 2.5 percent. Newmont Mining, the world's second-largest gold producer, led gains, climbing $4.46 to $50.90. Third-quarter profit before one-time items rose to 57 cents a share, more than double the 25-cent average estimate of 13 analysts surveyed by Bloomberg.
Early Rally
Stocks rose before the Fed's decision after the government said higher exports, consumer spending and business investment boosted gross domestic product by the most since the first three months of 2006. Economists in a Bloomberg survey had forecast growth of 3.1 percent. The Fed's preferred gauge of inflation, which is tied to consumer spending and strips out food and energy costs, advanced at a 1.8 percent annual pace, above the 1.5 percent forecast by economists.
The Fed's decision wasn't unanimous. Kansas City Fed President Thomas Hoenig preferred no change.
``The economy seems to have weathered quite nicely the credit issues we experienced in late summer,'' said Thomas Sowanick, who helps oversee more than $10 billion as chief investment officer of Clearbrook Financial LLC in Princeton, New Jersey. ``We're seeing everything stronger than what we would have expected two months ago. Fourth-quarter earnings will reflect the rebound.''
Kraft Foods
Kraft Foods Inc. increased 81 cents to $33.41. The world's second-biggest food company reported third-quarter earnings before some items of 44 cents a share, beating the 41-cent average of 14 estimates in a Bloomberg survey.
Weyerhaeuser Co. added $1.60 to $75.91. The world's largest lumber company reported profit, excluding one-time items, of 55 cents, more than the 49-cent average estimate by 13 analysts surveyed by Bloomberg.
MasterCard Inc. jumped $32.76, or 21 percent, to $189.91, the biggest gain since its initial public offering in May 2006. The second-biggest credit card company reported earnings that beat analysts' estimates.
McKesson Corp. surged $7.55, or 13 percent, to $66.10, the steepest gain in the S&P 500. The biggest U.S. drug distributor posted fiscal second-quarter profit beat estimates and the company increased its 2007 forecast.
Jones Apparel Group Inc. gained $1.24 to $20.94. The maker of Jones New York clothing and Nine West shoes said profit climbed sixfold, topping analysts' estimates, after it sold its Barneys New York chain.
Business Barometer
Stocks also climbed after a private report from ADP Employer Services showed companies added 106,000 jobs in October, more than economists had forecast.
Another report showed U.S. business activity in October unexpectedly contracted to the lowest level since February as manufacturers restrained production and hiring. The National Association of Purchasing Management-Chicago said its business barometer decreased to 49.7 from 54.2 the prior month. Readings below 50 signal a contraction.
The Russell 2000 Index, a benchmark for companies with a median market value of $655 million, gained 1.5 percent to 828.02. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, rose 1.2 percent to 15,673.36. Based on its advance, the value of stocks increased by $239 billion.
Exxon Mobil Corp. (XOM US)
Garmin Ltd. (GRMN US)
Jones Apparel Group Inc. (JNY US)
Kraft Foods Inc. (KFT US)
MasterCard Inc. (MA US)
McKesson Corp. (MCK US)
Microsoft Corp. (MSFT US)
Newmont Mining Corp. (NEM US)
Weyerhaeuser Co. (WY US)
U.S. Economy: Growth Unexpectedly Accelerated (Update4)
By Bob Willis
Oct. 31 (Bloomberg) -- Economic growth in the U.S. unexpectedly accelerated in the third quarter as increases in exports, consumer spending and business investment made up for another plunge in home construction.
Gross domestic product grew at an annual rate of 3.9 percent, the most in more than a year, the Commerce Department said today in Washington. The quarter included the period when some mortgage and commercial-borrowing costs jumped to six-year highs, prompting economists to cut their growth forecasts, and some to even warn of recession.
Federal Reserve policy makers today cut the benchmark lending rate by a quarter point to 4.5 percent and signaled they may have already done enough to prevent the economy from stalling. Third-quarter growth was ``solid'' and financial market strains ``eased somewhat,'' the Fed said. Stocks advanced and Treasury notes fell.
``It depends on how the economy unfolds as to whether they'll reduce rates again,'' said Brian Bethune, senior financial economist at Global Insight, a research firm in Lexington, Massachusetts. ``Certainly we got a pretty good GDP report; that is something that influenced them to a neutral position.''
Market Reaction
The yield on the benchmark 10-year note rose to 4.46 percent at 4:06 p.m. in New York, from 4.38 percent late yesterday. The Dow Jones Industrial Average climbed 1 percent to 13,930.01.
The collapse in subprime lending caused the average rate on one-year adjustable mortgages to shoot up to 5.84 percent in late August, the highest since June 2001, according to figures from Freddie Mac. The rate on one-day asset-backed commercial paper rose to the highest since January 2001.
Consequently, home purchases and construction slumped at the end of the quarter. Existing home sales in September fell 8 percent from the prior month, while housing starts declined 10 percent to the lowest since March 1993, reports earlier this month showed.
The National Association of Purchasing Management-Chicago said its business-activity index fell to 49.7 in October, from 54.2 the previous month. Readings below 50 signal a contraction. The median forecast among economists surveyed by Bloomberg News was for a drop to 53.
Job Gain
Companies in the U.S. added 106,000 jobs in October, more than economists had forecast, according to a report today from ADP Employer Services. A report from the Labor Department also showed employment costs rose in the third quarter at a slower pace than in the previous three months, suggesting increases in wages and benefits aren't heating up inflation. Additional figures from the Commerce Department showed construction spending increased last month as the building of factories, hotels and schools compensated for a drop in housing.
The GDP report is the first for the quarter and will be revised in November and December as more information becomes available. The median forecast in a Bloomberg News survey was for an expansion of 3.1 percent.
The Fed's preferred inflation gauge, which is tied to consumer spending and strips out food and energy costs, rose at a 1.8 percent annual pace following a 1.4 percent increase the prior quarter, according to the report.
The gain leaves prices within the 1 percent to 2 percent range policy makers, including Ben S. Bernanke before becoming Fed chairman, have said is their preferred zone.
Price Slowdown
The GDP figures are adjusted for inflation and the acceleration in growth came in part because of the smallest gain in overall prices since 1998. The report's price index rose at a 0.8 percent annual rate after a 2.6 percent second-quarter rise.
Consumer spending grew at a 3 percent pace following a 1.4 percent increase in the prior quarter, contributing the most to the gain in growth. Still, many economists project spending will slow as declining property values turn Americans pessimistic.
``I don't expect we're going to see GDP at all like this in the fourth quarter, but coming from where we've been in mid- 2007, it won't be bad,'' said Richard DeKaser, chief economist at National City Corp. in Cleveland, who forecast growth of 3.8 percent.
The economy will probably expand at a 1.8 percent pace in the current quarter, according to the median forecast of economists surveyed earlier this month.
Investment Increases
Consumers weren't the only ones buying last quarter. Gains in both commercial construction projects and purchases of equipment and software contributed to a 7.9 percent increase in business investment. The 5.9 percent rise in spending on new equipment was the biggest since the first quarter of 2006.
An increase in inventories contributed another 0.4 percentage point to growth.
The economy was also buttressed by a narrowing of the trade deficit that added 0.9 percentage point to the rate of expansion. The gap shrank to $546.2 billion at an annual pace, the smallest since the last three months of 2003.
General Electric Co.'s third-quarter profit rose as large- equipment orders climbed 39 percent amid a surge in demand from countries that are building airports and power grids, the Fairfield, Connecticut-based company said Oct. 12.
``We see orders everywhere around the world,'' GE's Chief Executive Officer Jeffrey Immelt said on a conference call earlier this month. ``That seems to be accelerating, not diminishing.''
Home construction remained the biggest drag on GDP, the report showed. A 20.1 percent plunge in homebuilding, the seventh consecutive decline, subtracted a percentage point from growth.
Oct. 31 (Bloomberg) -- Economic growth in the U.S. unexpectedly accelerated in the third quarter as increases in exports, consumer spending and business investment made up for another plunge in home construction.
Gross domestic product grew at an annual rate of 3.9 percent, the most in more than a year, the Commerce Department said today in Washington. The quarter included the period when some mortgage and commercial-borrowing costs jumped to six-year highs, prompting economists to cut their growth forecasts, and some to even warn of recession.
Federal Reserve policy makers today cut the benchmark lending rate by a quarter point to 4.5 percent and signaled they may have already done enough to prevent the economy from stalling. Third-quarter growth was ``solid'' and financial market strains ``eased somewhat,'' the Fed said. Stocks advanced and Treasury notes fell.
``It depends on how the economy unfolds as to whether they'll reduce rates again,'' said Brian Bethune, senior financial economist at Global Insight, a research firm in Lexington, Massachusetts. ``Certainly we got a pretty good GDP report; that is something that influenced them to a neutral position.''
Market Reaction
The yield on the benchmark 10-year note rose to 4.46 percent at 4:06 p.m. in New York, from 4.38 percent late yesterday. The Dow Jones Industrial Average climbed 1 percent to 13,930.01.
The collapse in subprime lending caused the average rate on one-year adjustable mortgages to shoot up to 5.84 percent in late August, the highest since June 2001, according to figures from Freddie Mac. The rate on one-day asset-backed commercial paper rose to the highest since January 2001.
Consequently, home purchases and construction slumped at the end of the quarter. Existing home sales in September fell 8 percent from the prior month, while housing starts declined 10 percent to the lowest since March 1993, reports earlier this month showed.
The National Association of Purchasing Management-Chicago said its business-activity index fell to 49.7 in October, from 54.2 the previous month. Readings below 50 signal a contraction. The median forecast among economists surveyed by Bloomberg News was for a drop to 53.
Job Gain
Companies in the U.S. added 106,000 jobs in October, more than economists had forecast, according to a report today from ADP Employer Services. A report from the Labor Department also showed employment costs rose in the third quarter at a slower pace than in the previous three months, suggesting increases in wages and benefits aren't heating up inflation. Additional figures from the Commerce Department showed construction spending increased last month as the building of factories, hotels and schools compensated for a drop in housing.
The GDP report is the first for the quarter and will be revised in November and December as more information becomes available. The median forecast in a Bloomberg News survey was for an expansion of 3.1 percent.
The Fed's preferred inflation gauge, which is tied to consumer spending and strips out food and energy costs, rose at a 1.8 percent annual pace following a 1.4 percent increase the prior quarter, according to the report.
The gain leaves prices within the 1 percent to 2 percent range policy makers, including Ben S. Bernanke before becoming Fed chairman, have said is their preferred zone.
Price Slowdown
The GDP figures are adjusted for inflation and the acceleration in growth came in part because of the smallest gain in overall prices since 1998. The report's price index rose at a 0.8 percent annual rate after a 2.6 percent second-quarter rise.
Consumer spending grew at a 3 percent pace following a 1.4 percent increase in the prior quarter, contributing the most to the gain in growth. Still, many economists project spending will slow as declining property values turn Americans pessimistic.
``I don't expect we're going to see GDP at all like this in the fourth quarter, but coming from where we've been in mid- 2007, it won't be bad,'' said Richard DeKaser, chief economist at National City Corp. in Cleveland, who forecast growth of 3.8 percent.
The economy will probably expand at a 1.8 percent pace in the current quarter, according to the median forecast of economists surveyed earlier this month.
Investment Increases
Consumers weren't the only ones buying last quarter. Gains in both commercial construction projects and purchases of equipment and software contributed to a 7.9 percent increase in business investment. The 5.9 percent rise in spending on new equipment was the biggest since the first quarter of 2006.
An increase in inventories contributed another 0.4 percentage point to growth.
The economy was also buttressed by a narrowing of the trade deficit that added 0.9 percentage point to the rate of expansion. The gap shrank to $546.2 billion at an annual pace, the smallest since the last three months of 2003.
General Electric Co.'s third-quarter profit rose as large- equipment orders climbed 39 percent amid a surge in demand from countries that are building airports and power grids, the Fairfield, Connecticut-based company said Oct. 12.
``We see orders everywhere around the world,'' GE's Chief Executive Officer Jeffrey Immelt said on a conference call earlier this month. ``That seems to be accelerating, not diminishing.''
Home construction remained the biggest drag on GDP, the report showed. A 20.1 percent plunge in homebuilding, the seventh consecutive decline, subtracted a percentage point from growth.
Treasuries Fall After Fed Shows Reluctance to Cut Rates Further
By Sandra Hernandez and Elizabeth Stanton
Oct. 31 (Bloomberg) -- Treasuries fell after the Federal Reserve lowered interest rates for a second time in two months and suggested additional reductions may prove unnecessary.
Two-year notes, more sensitive than longer-maturity debt to Fed rate changes, dropped the most since August. Yields touched two-week highs as traders pared bets on more cuts in the central bank's target for the overnight lending rate between banks.
``They're telling you they're on hold, probably through December,'' said Charles Comiskey, head of U.S. government bond trading in New York at HSBC Securities USA Inc., one of the 21 primary dealers that trade directly with the Fed. ``The two-year note needs rate cut after rate cut after rate cut, and is not going to get it.''
The yield on two-year notes climbed 13 basis points to 3.95 percent at 4:36 p.m. in New York, according to bond broker Cantor Fitzgerald LP, the biggest increase since Aug. 22, and the highest since Oct. 17. The price of 3 5/8 percent securities maturing in October 2009 fell 8/32, or $2.50 per $1,000 face amount, to 99 12/32.
The benchmark 10-year note's yield rose almost 9 basis points to 4.47 percent, the biggest increase since Oct. 5 and the highest yield since Oct. 19.
The gap between two- and 10-year yields narrowed for a third straight day to 53 basis points, the smallest since Oct. 16. The differential widened to 64 basis points last month, the biggest in two years, as traders wagered Fed rate cuts would lead to faster economic growth and inflation.
`Help Forestall'
Fed policy makers at a meeting in Washington lowered their target for the overnight lending rate between banks to 4.5 percent from 4.75 percent, as forecast by most economists in a Bloomberg poll.
``Today's action, combined with the policy action taken in September, should help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets,'' the Federal Open Market Committee said in a statement announcing its decision on rates.
At their Sept. 18 meeting, Fed policy makers lowered the target rate a half-percentage point from 5.25 percent, citing the potential for the housing slump to hurt the economy.
The odds of a quarter-percentage-point cut at the Fed's next meeting on Dec. 11 slipped to 40 percent from 66 percent yesterday, based on the prices of federal funds futures contracts listed on the Chicago Board of Trade.
`Upside Risks'
``The Fed doesn't seem to be scared stiff about the direction of economic growth,'' said Michael Materasso, the New York-based co-chair of the fixed-income policy committee at Franklin Templeton Investments, which oversees $130 billion of bonds. ``I see less of an impetus to be massively buying Treasuries.''
Inflation risk also may keep the central bank from lowering rates further, the statement said.
``The Committee judges that, after this action, the upside risks to inflation'' created in part by rising energy and commodity prices ``roughly balance the downside risks to growth,'' it said. Crude oil futures rose to a record $94.74 a barrel in New York today, leading the UBS Bloomberg CMCI Index of 26 commodities to a record.
Inflation expectations rose as measured by the yields on Treasury Inflation Protected Securities, or TIPS.
For the TIPS maturing in July 2017, the 2.09 percent yield trails the 10-year note's yield by 2.36 percentage points. The difference, representing the expected average inflation rate over the life of the securities, compares with 2.18 percentage points on Sept. 10.
A report tomorrow is expected to show the Fed's preferred inflation gauge, an index of prices excluding food and energy items, rose 1.8 percent in September from the previous year. Fed Chairman Ben S. Bernanke and several other policy makers have said their ``comfort zone'' for so-called core inflation is 1 percent to 2 percent.
`This Is It'
``Based on current conditions this is it for the year'' from the Fed, said Alex Li, an interest-rate strategist in New York at Credit Suisse Securities USA LLC, another primary dealer. ``The front end will probably see more room to rise in yield as people price out expectations for an additional rate cut.''
Treasuries fell earlier after reports showed the economy unexpectedly accelerated in the third quarter and companies added more employees to payrolls in October than economists forecast. A Labor Department report on Nov. 2 is forecast by economists to show U.S. employers this month created the fewest jobs since June.
Employment Growth
Companies in the U.S. created 106,000 jobs in October, ADP Employer Services said, compared with a median forecast of 58,000 among economists polled by Bloomberg News. Gains averaged about 90,000 a month from January through July.
The Labor Department's employment report for October, to be released Nov. 2, is forecast to show employers including the government added 80,000 people to payrolls, compared with 110,000 in September. An ADP increase of 106,000 implies total employment growth of 131,000, according to primary dealer RBS Greenwich Capital.
Gross domestic product grew at an annual rate of 3.9 percent in the third quarter, the most since the first three months of 2006, compared with a 3.8 percent pace in the prior quarter, the Commerce Department said. Economists' median forecast was 3.1 percent. The inflation rate for items purchased by consumers, the Federal Reserve's preferred gauge of prices, rose 1.8 percent, compared with 1.4 percent in the second quarter and more than forecast.
Spending by consumers, which accounts for about two-thirds of the economy, grew 3.0 percent, less than forecast, and is projected to slow further in the current quarter as falling real estate values impair confidence.
Respond If Warranted
The median forecast for GDP growth in the current quarter is 1.8 percent, which would be the slowest since the first quarter when the economy grew at a 0.6 percent rate.
The Fed statement acknowledged the potential for slowing growth, saying ``the pace of economic expansion will likely slow in the near term, partly reflecting the intensification of the housing correction.''
``They're giving themselves enough room on either side to go ahead and respond if it's warranted,'' said David Glocke, who manages $32 billion of Treasuries at Vanguard Group Inc. in Valley Forge, Pennsylvania.
Treasuries still are headed for a fourth straight monthly gain as the 10-year yield has declined from 4.59 percent at the end of September. Merrill Lynch & Co.'s Treasury Master Index rose 1.2 percent through yesterday, three times as much as the Standard & Poor's 500 Index including reinvested dividends.
Treasuries returned 6.2 percent this year through yesterday, on pace for their best year since 2002.
Oct. 31 (Bloomberg) -- Treasuries fell after the Federal Reserve lowered interest rates for a second time in two months and suggested additional reductions may prove unnecessary.
Two-year notes, more sensitive than longer-maturity debt to Fed rate changes, dropped the most since August. Yields touched two-week highs as traders pared bets on more cuts in the central bank's target for the overnight lending rate between banks.
``They're telling you they're on hold, probably through December,'' said Charles Comiskey, head of U.S. government bond trading in New York at HSBC Securities USA Inc., one of the 21 primary dealers that trade directly with the Fed. ``The two-year note needs rate cut after rate cut after rate cut, and is not going to get it.''
The yield on two-year notes climbed 13 basis points to 3.95 percent at 4:36 p.m. in New York, according to bond broker Cantor Fitzgerald LP, the biggest increase since Aug. 22, and the highest since Oct. 17. The price of 3 5/8 percent securities maturing in October 2009 fell 8/32, or $2.50 per $1,000 face amount, to 99 12/32.
The benchmark 10-year note's yield rose almost 9 basis points to 4.47 percent, the biggest increase since Oct. 5 and the highest yield since Oct. 19.
The gap between two- and 10-year yields narrowed for a third straight day to 53 basis points, the smallest since Oct. 16. The differential widened to 64 basis points last month, the biggest in two years, as traders wagered Fed rate cuts would lead to faster economic growth and inflation.
`Help Forestall'
Fed policy makers at a meeting in Washington lowered their target for the overnight lending rate between banks to 4.5 percent from 4.75 percent, as forecast by most economists in a Bloomberg poll.
``Today's action, combined with the policy action taken in September, should help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets,'' the Federal Open Market Committee said in a statement announcing its decision on rates.
At their Sept. 18 meeting, Fed policy makers lowered the target rate a half-percentage point from 5.25 percent, citing the potential for the housing slump to hurt the economy.
The odds of a quarter-percentage-point cut at the Fed's next meeting on Dec. 11 slipped to 40 percent from 66 percent yesterday, based on the prices of federal funds futures contracts listed on the Chicago Board of Trade.
`Upside Risks'
``The Fed doesn't seem to be scared stiff about the direction of economic growth,'' said Michael Materasso, the New York-based co-chair of the fixed-income policy committee at Franklin Templeton Investments, which oversees $130 billion of bonds. ``I see less of an impetus to be massively buying Treasuries.''
Inflation risk also may keep the central bank from lowering rates further, the statement said.
``The Committee judges that, after this action, the upside risks to inflation'' created in part by rising energy and commodity prices ``roughly balance the downside risks to growth,'' it said. Crude oil futures rose to a record $94.74 a barrel in New York today, leading the UBS Bloomberg CMCI Index of 26 commodities to a record.
Inflation expectations rose as measured by the yields on Treasury Inflation Protected Securities, or TIPS.
For the TIPS maturing in July 2017, the 2.09 percent yield trails the 10-year note's yield by 2.36 percentage points. The difference, representing the expected average inflation rate over the life of the securities, compares with 2.18 percentage points on Sept. 10.
A report tomorrow is expected to show the Fed's preferred inflation gauge, an index of prices excluding food and energy items, rose 1.8 percent in September from the previous year. Fed Chairman Ben S. Bernanke and several other policy makers have said their ``comfort zone'' for so-called core inflation is 1 percent to 2 percent.
`This Is It'
``Based on current conditions this is it for the year'' from the Fed, said Alex Li, an interest-rate strategist in New York at Credit Suisse Securities USA LLC, another primary dealer. ``The front end will probably see more room to rise in yield as people price out expectations for an additional rate cut.''
Treasuries fell earlier after reports showed the economy unexpectedly accelerated in the third quarter and companies added more employees to payrolls in October than economists forecast. A Labor Department report on Nov. 2 is forecast by economists to show U.S. employers this month created the fewest jobs since June.
Employment Growth
Companies in the U.S. created 106,000 jobs in October, ADP Employer Services said, compared with a median forecast of 58,000 among economists polled by Bloomberg News. Gains averaged about 90,000 a month from January through July.
The Labor Department's employment report for October, to be released Nov. 2, is forecast to show employers including the government added 80,000 people to payrolls, compared with 110,000 in September. An ADP increase of 106,000 implies total employment growth of 131,000, according to primary dealer RBS Greenwich Capital.
Gross domestic product grew at an annual rate of 3.9 percent in the third quarter, the most since the first three months of 2006, compared with a 3.8 percent pace in the prior quarter, the Commerce Department said. Economists' median forecast was 3.1 percent. The inflation rate for items purchased by consumers, the Federal Reserve's preferred gauge of prices, rose 1.8 percent, compared with 1.4 percent in the second quarter and more than forecast.
Spending by consumers, which accounts for about two-thirds of the economy, grew 3.0 percent, less than forecast, and is projected to slow further in the current quarter as falling real estate values impair confidence.
Respond If Warranted
The median forecast for GDP growth in the current quarter is 1.8 percent, which would be the slowest since the first quarter when the economy grew at a 0.6 percent rate.
The Fed statement acknowledged the potential for slowing growth, saying ``the pace of economic expansion will likely slow in the near term, partly reflecting the intensification of the housing correction.''
``They're giving themselves enough room on either side to go ahead and respond if it's warranted,'' said David Glocke, who manages $32 billion of Treasuries at Vanguard Group Inc. in Valley Forge, Pennsylvania.
Treasuries still are headed for a fourth straight monthly gain as the 10-year yield has declined from 4.59 percent at the end of September. Merrill Lynch & Co.'s Treasury Master Index rose 1.2 percent through yesterday, three times as much as the Standard & Poor's 500 Index including reinvested dividends.
Treasuries returned 6.2 percent this year through yesterday, on pace for their best year since 2002.
Oil Rises to Record $94.74 as U.S. Supplies Fall to 2-Year Low
By Mark Shenk
Oct. 31 (Bloomberg) -- Crude oil rose to a record $94.74 barrel in New York after an Energy Department report showed that U.S. inventories fell to a two-year low. Today's 4.6 percent gain was the biggest since Jan. 30.
Stockpiles dropped 3.89 million barrels to 312.7 million barrels last week, the department said. It was the lowest since October 2005. A 400,000 barrel gain was expected, according to a Bloomberg News survey. Supplies at Cushing, Oklahoma, the delivery point for New York futures, fell 17 percent.
``We've lost a lot of oil at a time when we should be building supply for winter,'' said Phil Flynn, a senior trader at Alaron Trading Corp. in Chicago. ``Nearly all the analysts expected inventories to rise, making this an extremely bullish number.''
Crude oil for December delivery rose $4.15 to settle at $94.53 barrel at 2:50 p.m. on the New York Mercantile Exchange. Futures touched $94.74 the highest since trading began in 1983. The exchange reported a high of $94.80 during the session and subsequently canceled the trade.
Oil rose 16 percent in October, the biggest one-month gain since September 2004. Prices are up 61 percent from a year ago.
The futures plunged 3.4 percent yesterday after Goldman Sachs Group Inc., which said in July oil may reach $95 a barrel, told clients it was ``time to take profits.''
``The DOE report was the catalyst for this breakout,'' said John Kilduff, vice president of risk management at MF Global Ltd. in New York. ``Prices are also up because of the falling dollar and strong GDP number, which is a sign that demand will pick up. Economic growth both here and abroad are leaving us vulnerable to the myriad of supply threats out there.''
Economic Growth
Economic growth in the U.S. unexpectedly accelerated in the third quarter as increases in exports, consumer spending and investment made up for another plunge in home construction, a government report today showed. Gross domestic product grew at an annual rate of 3.9 percent in the quarter, the most since the first three months of 2006.
Oil inventories at Cushing, where West Texas Intermediate and other sweet, or low-sulfur, grades of oil are delivered for the futures market, dropped to 15.1 million barrels, the lowest since October 2005. Today's decline was the biggest since November 2004, Energy Department data show.
``There is no reason I can think of for a refiner to buy a single barrel to put a barrel in inventories,'' said Tim Evans, an analyst with Citigroup Global Markets Inc. in New York. ``Crude oil is expensive, refinery margins are weak, product inventories are rising anyway and backwardation makes it very dangerous to hold into oil.''
Backwardation
New York crude oil futures closest to delivery are more expensive than the prices for contracts for later delivery, a condition known as backwardation. During the first half of the year the market was in contango, where oil for future delivery is higher than near-month prices. Contango trading encourages companies to increase stockpiles.
``The bottom line is that there isn't enough sweet crude to meet demand,'' said Ric Navy, a broker at BNP Paribas SA in New York. ``We've almost erased yesterday's correction and may get another leg up if the Fed makes an interest rate cut.''
The Federal Reserve today announced a quarter-point interest rate reduction to bolster economic growth. Crude-oil surged and the dollar plunged after the Federal Reserve cut its benchmark interest rate by half a percentage point on Sept. 18, more than economists had predicted.
Weak Dollar
``When the dollar is weak, a lot of overseas investors seek a safe haven in commodities, such as gold and oil,'' said James Ritterbusch, president of Ritterbusch & Associates in Galena, Illinois. ``Falling interest rates also have bullish implications for demand because it may boost economic growth. A weak dollar also cushions European consumers somewhat against higher prices.''
Brent crude oil for December settlement rose $3.19, or 3.7 percent, to $90.63 a barrel on the London-based ICE Futures Europe exchange, a record close. Brent reached $90.94 a barrel during today's session, a record intraday price.
The Organization of Petroleum Exporting Countries agreed last month to raise output by 500,000 barrels a day starting tomorrow to help ease prices that threaten economic growth. The move failed and prices have jumped 17 percent since the Sept. 11 announcement of the increase.
``Global demand for oil largely exceeds the production of non-OPEC countries and the difference is not matched by OPEC, so there is tension on the market,'' said Harry Tchilinguirian, an analyst at BNP Paribas in London. ``Oil-consuming countries will certainly be putting pressure on OPEC to increase output, but in the short term we don't anticipate a production increase above 500,000 barrels a day.''
Oct. 31 (Bloomberg) -- Crude oil rose to a record $94.74 barrel in New York after an Energy Department report showed that U.S. inventories fell to a two-year low. Today's 4.6 percent gain was the biggest since Jan. 30.
Stockpiles dropped 3.89 million barrels to 312.7 million barrels last week, the department said. It was the lowest since October 2005. A 400,000 barrel gain was expected, according to a Bloomberg News survey. Supplies at Cushing, Oklahoma, the delivery point for New York futures, fell 17 percent.
``We've lost a lot of oil at a time when we should be building supply for winter,'' said Phil Flynn, a senior trader at Alaron Trading Corp. in Chicago. ``Nearly all the analysts expected inventories to rise, making this an extremely bullish number.''
Crude oil for December delivery rose $4.15 to settle at $94.53 barrel at 2:50 p.m. on the New York Mercantile Exchange. Futures touched $94.74 the highest since trading began in 1983. The exchange reported a high of $94.80 during the session and subsequently canceled the trade.
Oil rose 16 percent in October, the biggest one-month gain since September 2004. Prices are up 61 percent from a year ago.
The futures plunged 3.4 percent yesterday after Goldman Sachs Group Inc., which said in July oil may reach $95 a barrel, told clients it was ``time to take profits.''
``The DOE report was the catalyst for this breakout,'' said John Kilduff, vice president of risk management at MF Global Ltd. in New York. ``Prices are also up because of the falling dollar and strong GDP number, which is a sign that demand will pick up. Economic growth both here and abroad are leaving us vulnerable to the myriad of supply threats out there.''
Economic Growth
Economic growth in the U.S. unexpectedly accelerated in the third quarter as increases in exports, consumer spending and investment made up for another plunge in home construction, a government report today showed. Gross domestic product grew at an annual rate of 3.9 percent in the quarter, the most since the first three months of 2006.
Oil inventories at Cushing, where West Texas Intermediate and other sweet, or low-sulfur, grades of oil are delivered for the futures market, dropped to 15.1 million barrels, the lowest since October 2005. Today's decline was the biggest since November 2004, Energy Department data show.
``There is no reason I can think of for a refiner to buy a single barrel to put a barrel in inventories,'' said Tim Evans, an analyst with Citigroup Global Markets Inc. in New York. ``Crude oil is expensive, refinery margins are weak, product inventories are rising anyway and backwardation makes it very dangerous to hold into oil.''
Backwardation
New York crude oil futures closest to delivery are more expensive than the prices for contracts for later delivery, a condition known as backwardation. During the first half of the year the market was in contango, where oil for future delivery is higher than near-month prices. Contango trading encourages companies to increase stockpiles.
``The bottom line is that there isn't enough sweet crude to meet demand,'' said Ric Navy, a broker at BNP Paribas SA in New York. ``We've almost erased yesterday's correction and may get another leg up if the Fed makes an interest rate cut.''
The Federal Reserve today announced a quarter-point interest rate reduction to bolster economic growth. Crude-oil surged and the dollar plunged after the Federal Reserve cut its benchmark interest rate by half a percentage point on Sept. 18, more than economists had predicted.
Weak Dollar
``When the dollar is weak, a lot of overseas investors seek a safe haven in commodities, such as gold and oil,'' said James Ritterbusch, president of Ritterbusch & Associates in Galena, Illinois. ``Falling interest rates also have bullish implications for demand because it may boost economic growth. A weak dollar also cushions European consumers somewhat against higher prices.''
Brent crude oil for December settlement rose $3.19, or 3.7 percent, to $90.63 a barrel on the London-based ICE Futures Europe exchange, a record close. Brent reached $90.94 a barrel during today's session, a record intraday price.
The Organization of Petroleum Exporting Countries agreed last month to raise output by 500,000 barrels a day starting tomorrow to help ease prices that threaten economic growth. The move failed and prices have jumped 17 percent since the Sept. 11 announcement of the increase.
``Global demand for oil largely exceeds the production of non-OPEC countries and the difference is not matched by OPEC, so there is tension on the market,'' said Harry Tchilinguirian, an analyst at BNP Paribas in London. ``Oil-consuming countries will certainly be putting pressure on OPEC to increase output, but in the short term we don't anticipate a production increase above 500,000 barrels a day.''
Tuesday, October 30, 2007
Merrill Ousts O'Neal, Names Cribiore Interim Chairman (Update7)
By Bradley Keoun
Oct. 30 (Bloomberg) -- Merrill Lynch & Co. ousted Stan O'Neal as chairman and chief executive officer and said it will begin a search for his successor, leaving the world's biggest brokerage without a leader.
Co-Presidents Gregory Fleming and Ahmass Fakahany will run the firm, reporting to board member Alberto Cribiore, who will be a non-executive chairman until O'Neal's replacement is found, New York-based Merrill said in a statement today.
Merrill fell as much as 4.6 percent in New York trading after the firm didn't name a new CEO. O'Neal lost the confidence of investors and directors after delivering a $2.24 billion third-quarter loss, six times what the firm forecast just three weeks earlier. Merrill has declined almost 30 percent this year, the second-worst performance after Bear Stearns Cos. among the five largest U.S. securities firms.
``They have to move fast,'' said Mark Batty, who helps manage about $77 billion including Merrill shares as an analyst at PNC Wealth Management in Philadelphia. ``They have risk management issues that need to be tackled quickly.''
O'Neal, 56, and the board of directors ``agreed that a change in leadership would best enable Merrill Lynch to move forward,'' the company said in the statement announcing O'Neal's retirement after 21 years at the firm. The board will consider internal and external candidates, the company said.
List of Candidates
Contenders may include Laurence Fink, 54, who sold almost 50 percent of the BlackRock Inc. money management firm to Merrill last year, and Fleming, 44, who has spent most of his career as an investment banker at the firm. Another candidate is Robert McCann, 49, who heads Merrill's wealth-management division, including the firm's network of 16,600 brokers.
Merrill lost $1.92 to $65.50 in 4:01 p.m. New York Stock Exchange composite trading. The stock climbed 11 percent in the past two days on speculation O'Neal would go and the company might be a takeover target. Deutsche Bank AG analyst Mike Mayo estimates the firm may be worth $120 a share in an acquisition.
``Some investors were probably too optimistic, expecting a quick resolution,'' said Benjamin Wallace, who helps manage $750 million, including Merrill shares, at Grimes & Co. in Westborough, Massachusetts.
The company said today that Fleming and Fakahany will stay in their jobs as co-presidents and chief operating officers. Cribiore, founder of New York-based private-equity firm Brera Capital, has been a Merrill board member since 2003.
Divided Roles
Fleming will lead the ``integrated businesses'' of the company while Fakahany will lead global support, finance and human resources, Merrill said in the statement. Mayo interpreted that as more responsibility for Fleming.
McCann, who previously reported to Fakahany and Fleming, will now report only to Fleming. Chief Financial Officer Jeffrey Edwards, who reported to O'Neal, will report to Fakahany on financial matters and Fleming on risk-management.
``Whoever they're going to ask to be CEO is going to be in a very strong bargaining position,'' said Henry Higdon, managing partner of recruiter Higdon Partners LLC in New York. ``It's a mess and it's not going to be reversed overnight.''
Fink is probably Merrill's first choice, ``and I don't think there's a close second,'' Higdon said, adding Fink may not feel the same. ``He's not going to say, `Thank you very much, this is a job I've always wanted.' He's going to say, `Let's talk about terms.' '' BlackRock spokesman Brian Beades said the firm won't comment on ``market rumors or speculation.''
No Severance
The last time a major Wall Street chief was ousted -- Morgan Stanley's Phil Purcell, in June 2005 -- it took two weeks for the board to name his replacement, John Mack.
O'Neal won't receive a severance package, spokeswoman Jessica Oppenheim said. He'll keep restricted stock and options awarded in previous years that required vesting, she said.
Merrill said in a regulatory filing today that O'Neal won't get a bonus for 2007, and that he can't join certain competitors for 18 months. The value of his retained stock awards and benefits was approximately $161.5 million as of Oct. 29, the filing said. He'll get an office and an executive assistant for up to three years, the filing said.
BlackRock said in a separate statement that O'Neal had quit its 16-member board, which also includes Fleming and David Komansky, Merrill's chief before O'Neal.
Merrill's new boss will need to staunch an exodus of its best people, said William Fitzpatrick, a financial services analyst at Johnson Asset Management in Racine, Wisconsin, which oversees $1.7 billion and doesn't own Merrill shares.
Talent Hunt
``A lot of competitors are going to come in and they're going to grab Merrill's best talent,'' Fitzpatrick said. As for the rest, ``They're going to be giving out pink slips this year, not bonuses. All the bankers know that.''
Merrill reported an $8.4 billion writedown for subprime mortgages, asset-backed bonds and loans gone bad last week, the biggest quarterly debacle ever in the securities industry.
The loss followed O'Neal's $1.3 billion acquisition in December of mortgage lender First Franklin Financial Corp., the 10th-largest U.S. originator of subprime mortgages, which are made to people with the weakest credit. The takeover contributed to losses as the housing market suffered its worst slump since the 1991 recession.
First Franklin was embarrassing for O'Neal since he had criticized acquisitions made by Komansky, whose expansion culminated in a $1.7 billion charge in the fourth quarter of 2001. That's now dwarfed by O'Neal's third-quarter loss. Merrill may have to write down another $4 billion in the fourth quarter, said Meredith Whitney, a New York-based analyst at CIBC World Markets, in a note sent to clients last week.
Less Equity
``The truth is there's probably an additional writedown coming in the fourth quarter,'' said Fitzpatrick. ``Until we get a little more color on that, it's probably a good time to be sitting on the sidelines.''
Merrill's $8.4 billion writedown may have wiped out a fifth of shareholders equity, leaving the firm with $38.8 billion of assets minus liabilities. The probability of Merrill defaulting on debt within five years more than doubled since June 30, rising to 7 percent yesterday from 3 percent, according to credit- default swap traders.
Losing ``20 percent of shareholders' equity in one fell swoop is a serious blow,'' said Robert Willens, the accounting analyst at Lehman Brothers Holdings Inc. in New York. ``It might take them two to three years to earn that capital back.''
Angry Board
O'Neal angered the board by approaching Wachovia Corp. Chairman and CEO Kennedy Thompson earlier this month about a possible merger without consulting Merrill directors, the New York Times reported Oct. 26, citing people with knowledge of the matter. The board has discussed replacing O'Neal with candidates, including Fink and NYSE Euronext CEO John Thain, the Times said.
The board includes Flagler Development Group CEO Armando M. Codina and Judith Mayhew Jonas, former provost of Kings College at the University of Cambridge, England, who will serve as directors until next year.
Merrill shares had risen 55 percent since O'Neal took over on Dec. 2, 2002, while the 12-member Amex Broker/Dealer Index surged 161 percent and New York-based Goldman Sachs Group Inc., the biggest securities firm by market value, tripled.
O'Neal joins a growing list of investment bank executives who have lost their jobs because of losses in the fixed-income markets. UBS AG, the biggest Swiss bank, dismissed CEO Peter Wuffli in July and said earlier this month that finance chief Clive Standish and investment-banking head Huw Jenkins were stepping down. Others ousted include Bear Stearns Co-President Warren Spector and Citigroup Inc. trading head Thomas Maheras.
O'Neal, who earned his way through college by working at a General Motors Corp. assembly plant in Georgia, got a master's degree from Harvard Business School in 1978 and worked as a finance executive at General Motors before joining Merrill as an investment banker in 1986. He was promoted to president in July 2001.
A Merrill investor, Life Enrichment Foundation, sued the firm today in Manhattan federal court for misleading investors about the extent of its CDO investments. The suit, which requests class-action, or group status, seeks unspecified damages.
``The suit has no merit,'' Merrill spokesman Mark Herr said. ``We reported our financial data accurately.''
Merrill is a passive minority investor in Bloomberg LP, the parent of Bloomberg News.
Oct. 30 (Bloomberg) -- Merrill Lynch & Co. ousted Stan O'Neal as chairman and chief executive officer and said it will begin a search for his successor, leaving the world's biggest brokerage without a leader.
Co-Presidents Gregory Fleming and Ahmass Fakahany will run the firm, reporting to board member Alberto Cribiore, who will be a non-executive chairman until O'Neal's replacement is found, New York-based Merrill said in a statement today.
Merrill fell as much as 4.6 percent in New York trading after the firm didn't name a new CEO. O'Neal lost the confidence of investors and directors after delivering a $2.24 billion third-quarter loss, six times what the firm forecast just three weeks earlier. Merrill has declined almost 30 percent this year, the second-worst performance after Bear Stearns Cos. among the five largest U.S. securities firms.
``They have to move fast,'' said Mark Batty, who helps manage about $77 billion including Merrill shares as an analyst at PNC Wealth Management in Philadelphia. ``They have risk management issues that need to be tackled quickly.''
O'Neal, 56, and the board of directors ``agreed that a change in leadership would best enable Merrill Lynch to move forward,'' the company said in the statement announcing O'Neal's retirement after 21 years at the firm. The board will consider internal and external candidates, the company said.
List of Candidates
Contenders may include Laurence Fink, 54, who sold almost 50 percent of the BlackRock Inc. money management firm to Merrill last year, and Fleming, 44, who has spent most of his career as an investment banker at the firm. Another candidate is Robert McCann, 49, who heads Merrill's wealth-management division, including the firm's network of 16,600 brokers.
Merrill lost $1.92 to $65.50 in 4:01 p.m. New York Stock Exchange composite trading. The stock climbed 11 percent in the past two days on speculation O'Neal would go and the company might be a takeover target. Deutsche Bank AG analyst Mike Mayo estimates the firm may be worth $120 a share in an acquisition.
``Some investors were probably too optimistic, expecting a quick resolution,'' said Benjamin Wallace, who helps manage $750 million, including Merrill shares, at Grimes & Co. in Westborough, Massachusetts.
The company said today that Fleming and Fakahany will stay in their jobs as co-presidents and chief operating officers. Cribiore, founder of New York-based private-equity firm Brera Capital, has been a Merrill board member since 2003.
Divided Roles
Fleming will lead the ``integrated businesses'' of the company while Fakahany will lead global support, finance and human resources, Merrill said in the statement. Mayo interpreted that as more responsibility for Fleming.
McCann, who previously reported to Fakahany and Fleming, will now report only to Fleming. Chief Financial Officer Jeffrey Edwards, who reported to O'Neal, will report to Fakahany on financial matters and Fleming on risk-management.
``Whoever they're going to ask to be CEO is going to be in a very strong bargaining position,'' said Henry Higdon, managing partner of recruiter Higdon Partners LLC in New York. ``It's a mess and it's not going to be reversed overnight.''
Fink is probably Merrill's first choice, ``and I don't think there's a close second,'' Higdon said, adding Fink may not feel the same. ``He's not going to say, `Thank you very much, this is a job I've always wanted.' He's going to say, `Let's talk about terms.' '' BlackRock spokesman Brian Beades said the firm won't comment on ``market rumors or speculation.''
No Severance
The last time a major Wall Street chief was ousted -- Morgan Stanley's Phil Purcell, in June 2005 -- it took two weeks for the board to name his replacement, John Mack.
O'Neal won't receive a severance package, spokeswoman Jessica Oppenheim said. He'll keep restricted stock and options awarded in previous years that required vesting, she said.
Merrill said in a regulatory filing today that O'Neal won't get a bonus for 2007, and that he can't join certain competitors for 18 months. The value of his retained stock awards and benefits was approximately $161.5 million as of Oct. 29, the filing said. He'll get an office and an executive assistant for up to three years, the filing said.
BlackRock said in a separate statement that O'Neal had quit its 16-member board, which also includes Fleming and David Komansky, Merrill's chief before O'Neal.
Merrill's new boss will need to staunch an exodus of its best people, said William Fitzpatrick, a financial services analyst at Johnson Asset Management in Racine, Wisconsin, which oversees $1.7 billion and doesn't own Merrill shares.
Talent Hunt
``A lot of competitors are going to come in and they're going to grab Merrill's best talent,'' Fitzpatrick said. As for the rest, ``They're going to be giving out pink slips this year, not bonuses. All the bankers know that.''
Merrill reported an $8.4 billion writedown for subprime mortgages, asset-backed bonds and loans gone bad last week, the biggest quarterly debacle ever in the securities industry.
The loss followed O'Neal's $1.3 billion acquisition in December of mortgage lender First Franklin Financial Corp., the 10th-largest U.S. originator of subprime mortgages, which are made to people with the weakest credit. The takeover contributed to losses as the housing market suffered its worst slump since the 1991 recession.
First Franklin was embarrassing for O'Neal since he had criticized acquisitions made by Komansky, whose expansion culminated in a $1.7 billion charge in the fourth quarter of 2001. That's now dwarfed by O'Neal's third-quarter loss. Merrill may have to write down another $4 billion in the fourth quarter, said Meredith Whitney, a New York-based analyst at CIBC World Markets, in a note sent to clients last week.
Less Equity
``The truth is there's probably an additional writedown coming in the fourth quarter,'' said Fitzpatrick. ``Until we get a little more color on that, it's probably a good time to be sitting on the sidelines.''
Merrill's $8.4 billion writedown may have wiped out a fifth of shareholders equity, leaving the firm with $38.8 billion of assets minus liabilities. The probability of Merrill defaulting on debt within five years more than doubled since June 30, rising to 7 percent yesterday from 3 percent, according to credit- default swap traders.
Losing ``20 percent of shareholders' equity in one fell swoop is a serious blow,'' said Robert Willens, the accounting analyst at Lehman Brothers Holdings Inc. in New York. ``It might take them two to three years to earn that capital back.''
Angry Board
O'Neal angered the board by approaching Wachovia Corp. Chairman and CEO Kennedy Thompson earlier this month about a possible merger without consulting Merrill directors, the New York Times reported Oct. 26, citing people with knowledge of the matter. The board has discussed replacing O'Neal with candidates, including Fink and NYSE Euronext CEO John Thain, the Times said.
The board includes Flagler Development Group CEO Armando M. Codina and Judith Mayhew Jonas, former provost of Kings College at the University of Cambridge, England, who will serve as directors until next year.
Merrill shares had risen 55 percent since O'Neal took over on Dec. 2, 2002, while the 12-member Amex Broker/Dealer Index surged 161 percent and New York-based Goldman Sachs Group Inc., the biggest securities firm by market value, tripled.
O'Neal joins a growing list of investment bank executives who have lost their jobs because of losses in the fixed-income markets. UBS AG, the biggest Swiss bank, dismissed CEO Peter Wuffli in July and said earlier this month that finance chief Clive Standish and investment-banking head Huw Jenkins were stepping down. Others ousted include Bear Stearns Co-President Warren Spector and Citigroup Inc. trading head Thomas Maheras.
O'Neal, who earned his way through college by working at a General Motors Corp. assembly plant in Georgia, got a master's degree from Harvard Business School in 1978 and worked as a finance executive at General Motors before joining Merrill as an investment banker in 1986. He was promoted to president in July 2001.
A Merrill investor, Life Enrichment Foundation, sued the firm today in Manhattan federal court for misleading investors about the extent of its CDO investments. The suit, which requests class-action, or group status, seeks unspecified damages.
``The suit has no merit,'' Merrill spokesman Mark Herr said. ``We reported our financial data accurately.''
Merrill is a passive minority investor in Bloomberg LP, the parent of Bloomberg News.
U.S. Economy: Confidence Weakens, Home Prices Slide (Update1)
By Shobhana Chandra and Courtney Schlisserman
Oct. 30 (Bloomberg) -- Consumer confidence in the U.S. fell more than forecast and home prices dropped the most in at least six years, strengthening the case for the Federal Reserve to lower interest rates tomorrow.
The Conference Board's gauge of confidence declined to 95.6, the lowest since October 2005, from 99.5 in September, the New York-based group said today. Home values in 20 U.S. metropolitan areas slid 4.4 percent in the 12 months that ended in August, according to the S&P/Case-Shiller home-price index.
The figures heighten concern that consumers will put a brake on spending, which accounts for more than two-thirds of the economy. Fed policy makers will need to cut the target rate for overnight loans between banks tomorrow by a quarter point to 4.5 percent to prevent the housing recession from triggering a broader economic decline, some analysts said.
``Housing is clearly the root of the problem,'' said Carl Riccadonna, an economist in New York at Deutsche Bank Securities Inc. who predicted a drop in confidence. ``If consumer spending falls apart, the Fed will have much bigger problems to contend with.''
The benchmark 10-year Treasury note reached its highs of the day after the reports and the dollar pared gains. Treasuries maturing in 2017 yielded 4.38 percent at 11:29 a.m. in New York, from as high as 4.40 percent earlier. The dollar was at $1.4427 per euro, compared with the day's high of $1.4374.
Consumer confidence was forecast to drop to 99, from an originally reported 99.8 for September, according to the median estimate in a Bloomberg News survey of 70 economists. Projections ranged from 95 to 102.
Less Optimistic
The Conference Board's measure of present conditions dropped to 118.8 from 121.1 the prior month. The gauge of expectations for the next six months decreased to 80.1 from 85.
Compared with other sentiment gauges, the Conference Board's index tends to be more influenced by attitudes about the state of the labor market, economists said.
Today's report showed the share of consumers who said jobs are plentiful fell to 24.1 percent in October from 25.6 percent the prior month. The proportion of people who said jobs are hard to get rose to 22.6 percent from 22.4 percent. The 1.5-point difference is the smallest since December 2005.
The decline in home prices reinforce the view among Fed officials and Treasury Secretary Henry Paulson that the housing slump has further to go. Near-record inventory levels suggest sellers will continue to lower prices, posing a threat to consumer spending because homeowners will have less equity to borrow against.
`Number-One Risk'
``This is really the number-one risk: a sustained, sharp decrease in home prices really squeezing consumers,'' said Meny Grauman, an economist at Scotia Capital Inc. in Toronto.
Compared with July, home prices in the 20-city index fell 0.7 percent after a 0.4 percent decline the month before. The figures aren't seasonally adjusted, so economists prefer to focus on the year-over-year change.
``The fall in home prices is showing no real signs of a slowdown or turnaround,'' said Robert Shiller, chief economist at MacroMarkets LLC and a professor at Yale University, in a statement. ``There is really no positive news in today's report.''
Fifteen cities showed a year-over-year decline in prices, led by a 10 percent drop in Tampa, Florida, and a 9 percent decline in Detroit. The area showing the biggest gain was Seattle with a 5.7 percent increase.
Paulson said today it's too soon to call an end to the housing slump.
Paulson on Housing
``We haven't hit the bottom yet in housing,'' Paulson said at a conference in New Delhi. Still, he added ``there is enough strength in the economy that we can grow through this.''
Rising prices for food and home-heating fuel combined with the decline in property values may already be prompting consumers to turn more frugal. The International Council of Shopping Centers and UBS Securities LLC last week reduced their October chain-store sales forecast as merchants dropped prices to attract buyers.
The group now estimates sales rose 2 percent, down from a prior forecast of 2.5 percent. Target Corp. last week lowered its October sales forecast and Wal-Mart Stores Inc., the world's largest retailer, cut prices on 15,000 items for the holidays.
``The outlook for sales heading into the holiday season looks gloomier than a year ago,'' said David Resler, chief economist at Nomura Securities International Inc. in New York. ``With the surge in oil prices likely to soon push up gasoline and home-heating oil prices, more consumers are likely to be forced to curb their holiday shopping.''
Oct. 30 (Bloomberg) -- Consumer confidence in the U.S. fell more than forecast and home prices dropped the most in at least six years, strengthening the case for the Federal Reserve to lower interest rates tomorrow.
The Conference Board's gauge of confidence declined to 95.6, the lowest since October 2005, from 99.5 in September, the New York-based group said today. Home values in 20 U.S. metropolitan areas slid 4.4 percent in the 12 months that ended in August, according to the S&P/Case-Shiller home-price index.
The figures heighten concern that consumers will put a brake on spending, which accounts for more than two-thirds of the economy. Fed policy makers will need to cut the target rate for overnight loans between banks tomorrow by a quarter point to 4.5 percent to prevent the housing recession from triggering a broader economic decline, some analysts said.
``Housing is clearly the root of the problem,'' said Carl Riccadonna, an economist in New York at Deutsche Bank Securities Inc. who predicted a drop in confidence. ``If consumer spending falls apart, the Fed will have much bigger problems to contend with.''
The benchmark 10-year Treasury note reached its highs of the day after the reports and the dollar pared gains. Treasuries maturing in 2017 yielded 4.38 percent at 11:29 a.m. in New York, from as high as 4.40 percent earlier. The dollar was at $1.4427 per euro, compared with the day's high of $1.4374.
Consumer confidence was forecast to drop to 99, from an originally reported 99.8 for September, according to the median estimate in a Bloomberg News survey of 70 economists. Projections ranged from 95 to 102.
Less Optimistic
The Conference Board's measure of present conditions dropped to 118.8 from 121.1 the prior month. The gauge of expectations for the next six months decreased to 80.1 from 85.
Compared with other sentiment gauges, the Conference Board's index tends to be more influenced by attitudes about the state of the labor market, economists said.
Today's report showed the share of consumers who said jobs are plentiful fell to 24.1 percent in October from 25.6 percent the prior month. The proportion of people who said jobs are hard to get rose to 22.6 percent from 22.4 percent. The 1.5-point difference is the smallest since December 2005.
The decline in home prices reinforce the view among Fed officials and Treasury Secretary Henry Paulson that the housing slump has further to go. Near-record inventory levels suggest sellers will continue to lower prices, posing a threat to consumer spending because homeowners will have less equity to borrow against.
`Number-One Risk'
``This is really the number-one risk: a sustained, sharp decrease in home prices really squeezing consumers,'' said Meny Grauman, an economist at Scotia Capital Inc. in Toronto.
Compared with July, home prices in the 20-city index fell 0.7 percent after a 0.4 percent decline the month before. The figures aren't seasonally adjusted, so economists prefer to focus on the year-over-year change.
``The fall in home prices is showing no real signs of a slowdown or turnaround,'' said Robert Shiller, chief economist at MacroMarkets LLC and a professor at Yale University, in a statement. ``There is really no positive news in today's report.''
Fifteen cities showed a year-over-year decline in prices, led by a 10 percent drop in Tampa, Florida, and a 9 percent decline in Detroit. The area showing the biggest gain was Seattle with a 5.7 percent increase.
Paulson said today it's too soon to call an end to the housing slump.
Paulson on Housing
``We haven't hit the bottom yet in housing,'' Paulson said at a conference in New Delhi. Still, he added ``there is enough strength in the economy that we can grow through this.''
Rising prices for food and home-heating fuel combined with the decline in property values may already be prompting consumers to turn more frugal. The International Council of Shopping Centers and UBS Securities LLC last week reduced their October chain-store sales forecast as merchants dropped prices to attract buyers.
The group now estimates sales rose 2 percent, down from a prior forecast of 2.5 percent. Target Corp. last week lowered its October sales forecast and Wal-Mart Stores Inc., the world's largest retailer, cut prices on 15,000 items for the holidays.
``The outlook for sales heading into the holiday season looks gloomier than a year ago,'' said David Resler, chief economist at Nomura Securities International Inc. in New York. ``With the surge in oil prices likely to soon push up gasoline and home-heating oil prices, more consumers are likely to be forced to curb their holiday shopping.''
Greenspan Says China's Stock-Market Bubble May Burst (Update2)
By Scott Lanman and Sree Vidya Bhaktavatsalam
Oct. 30 (Bloomberg) -- Former Federal Reserve Chairman Alan Greenspan said China's stock market is a speculative bubble that will burst.
Asked if China was in a state of ``irrational exuberance,'' a phrase Greenspan made famous in 1996, the former chairman said, ``I think so,'' speaking to a conference of insurance executives in Boston today. ``When you don't expect it, it breaks,'' Greenspan said of the bubble.
His comments reprise remarks from May, when Greenspan said he was concerned Chinese equities might undergo a ``dramatic contraction'' after its main stock index at the time had jumped more than 90 percent since the start of the year.
Greenspan's latest words of concern come at a time when investors are increasing bets on Chinese equities. Yesterday, PetroChina Co. and Alibaba.com Ltd. sold stock valued at more than $10 billion.
PetroChina, the world's second-largest company by market value, raised 66.8 billion yuan ($8.9 billion) in the biggest stock sale this year. Alibaba, the operator of China's largest trading Web site for companies, sold $1.5 billion of shares in the second-biggest initial public offering of an Internet company after Google Inc., said two people with knowledge of the matter.
China's benchmark CSI 300 Index has surged 170 percent this year as the country's households invest more of their $2.3 trillion of savings in equities. The rally has given China more of the world's 10 largest companies than the U.S. for the first time and prompted billionaire investor Warren Buffett to warn that prices have risen too fast.
`Carried Away'
China's stock market value is $3.7 trillion, compared with $18.7 trillion for the U.S.
``It's easy to be carried away in the stock market when things are going very well,'' Buffett said Oct. 24. ``We at Berkshire never buy stocks when we see prices soaring.''
Greenspan also said the view of many analysts that the U.S. current-account deficit will cause further declines in the dollar isn't valid.
``We are likely to see a long-term erosion of the dollar,'' in part because ``others are doing much better,'' he said.
Greenspan said Oct. 24 that the dollar's decline to a record against the euro also reflects on a widening interest- rate gap between the U.S. and the euro region.
Oct. 30 (Bloomberg) -- Former Federal Reserve Chairman Alan Greenspan said China's stock market is a speculative bubble that will burst.
Asked if China was in a state of ``irrational exuberance,'' a phrase Greenspan made famous in 1996, the former chairman said, ``I think so,'' speaking to a conference of insurance executives in Boston today. ``When you don't expect it, it breaks,'' Greenspan said of the bubble.
His comments reprise remarks from May, when Greenspan said he was concerned Chinese equities might undergo a ``dramatic contraction'' after its main stock index at the time had jumped more than 90 percent since the start of the year.
Greenspan's latest words of concern come at a time when investors are increasing bets on Chinese equities. Yesterday, PetroChina Co. and Alibaba.com Ltd. sold stock valued at more than $10 billion.
PetroChina, the world's second-largest company by market value, raised 66.8 billion yuan ($8.9 billion) in the biggest stock sale this year. Alibaba, the operator of China's largest trading Web site for companies, sold $1.5 billion of shares in the second-biggest initial public offering of an Internet company after Google Inc., said two people with knowledge of the matter.
China's benchmark CSI 300 Index has surged 170 percent this year as the country's households invest more of their $2.3 trillion of savings in equities. The rally has given China more of the world's 10 largest companies than the U.S. for the first time and prompted billionaire investor Warren Buffett to warn that prices have risen too fast.
`Carried Away'
China's stock market value is $3.7 trillion, compared with $18.7 trillion for the U.S.
``It's easy to be carried away in the stock market when things are going very well,'' Buffett said Oct. 24. ``We at Berkshire never buy stocks when we see prices soaring.''
Greenspan also said the view of many analysts that the U.S. current-account deficit will cause further declines in the dollar isn't valid.
``We are likely to see a long-term erosion of the dollar,'' in part because ``others are doing much better,'' he said.
Greenspan said Oct. 24 that the dollar's decline to a record against the euro also reflects on a widening interest- rate gap between the U.S. and the euro region.
Monday, October 29, 2007
Asian Stocks Fall; Takeda Pharmaceutical, Kookmin Bank Decline
By Hanny Wan
Oct. 30 (Bloomberg) -- Asian stocks fell, dragging a regional benchmark from a record. Takeda Pharmaceutical Co., Japan's biggest drugmaker, led declines on concern one of its experimental medicines will be delayed.
Kookmin Bank, South Korea's largest lender, had its biggest decrease in two weeks after the company reported profit that was short of analysts' estimates. BHP Billiton Ltd. paced declines among miners after metals prices slipped. Toshiba Corp. fell after brokerages including UBS AG cut their ratings on the stock.
The Morgan Stanley Capital International Asia-Pacific Index slid 0.2 percent to 171.46 as of 9:57 a.m. in Tokyo, with six of 10 industry groups declining. Japan's Nikkei 225 Stock Average fell 0.5 percent to 16,614.83.
South Korea's Kospi index slipped 0.4 percent. Key stock indexes in all Asian markets open for trading in the region declined.
Oct. 30 (Bloomberg) -- Asian stocks fell, dragging a regional benchmark from a record. Takeda Pharmaceutical Co., Japan's biggest drugmaker, led declines on concern one of its experimental medicines will be delayed.
Kookmin Bank, South Korea's largest lender, had its biggest decrease in two weeks after the company reported profit that was short of analysts' estimates. BHP Billiton Ltd. paced declines among miners after metals prices slipped. Toshiba Corp. fell after brokerages including UBS AG cut their ratings on the stock.
The Morgan Stanley Capital International Asia-Pacific Index slid 0.2 percent to 171.46 as of 9:57 a.m. in Tokyo, with six of 10 industry groups declining. Japan's Nikkei 225 Stock Average fell 0.5 percent to 16,614.83.
South Korea's Kospi index slipped 0.4 percent. Key stock indexes in all Asian markets open for trading in the region declined.
Crude Oil Falls Below $93 on Speculation Stockpiles May Rise
By Christian Schmollinger
Oct. 30 (Bloomberg) -- Crude oil fell from a record on speculation that a U.S. government report this week will show an increase in stockpiles in the world's largest energy consumer.
Crude oil for December delivery declined as much as 68 cents, or 0.7 percent, to $92.85 a barrel in after-hours trading on the New York Mercantile Exchange. It was at $92.87 at 9:08 a.m. Singapore time.
Brent crude oil for December settlement dropped as much as 60 cents, 0.7 percent, to $89.72 a barrel on the London-based ICE Futures Europe exchange. It was at $89.83 at 8:58 a.m. Singapore time.
Oct. 30 (Bloomberg) -- Crude oil fell from a record on speculation that a U.S. government report this week will show an increase in stockpiles in the world's largest energy consumer.
Crude oil for December delivery declined as much as 68 cents, or 0.7 percent, to $92.85 a barrel in after-hours trading on the New York Mercantile Exchange. It was at $92.87 at 9:08 a.m. Singapore time.
Brent crude oil for December settlement dropped as much as 60 cents, 0.7 percent, to $89.72 a barrel on the London-based ICE Futures Europe exchange. It was at $89.83 at 8:58 a.m. Singapore time.
Japan Household Spending Gains for Second Month (Update1)
By Jason Clenfield
Oct. 30 (Bloomberg) -- Japan's households increased spending for a second month in September as lingering summer heat spurred demand for cold drinks and two long weekends prompted drivers to fill their gas tanks and go on vacation.
Spending climbed 3.2 percent from the same month a year earlier, the statistics bureau said today in Tokyo. The number benefits from being compared with a 6 percent drop, the most in almost five years, in September 2006. The median estimate of 32 economists surveyed by Bloomberg was for a 1.4 percent increase.
``Last year's number was extraordinarily weak, that's why we're seeing this rebound,'' Masamichi Adachi, an economist at JPMorgan Securities Japan Co., said before the figures were released. ``You can argue that spending isn't faltering, but it would be better to say it's still weak.''
The unemployment rate rose to 4 percent last month from 3.8 percent, a separate report showed. The number of jobs on offer to each applicant slipped to 1.05 last month from 1.06 in August, the Labor Ministry said today. There have been more positions available than job seekers for almost two years.
``The wage recovery is lagging behind, but we do not see any change in the pattern of job growth underpinning the personal consumption recovery,'' Tetsufumi Yamakawa, chief economist at Goldman Sachs Japan Co., said before the reports.
The yen traded at 114.69 per dollar at 8:50 a.m. in Tokyo from 114.68 before the reports were published.
Retail Sales
Retail sales rose for a second month in September, a report showed yesterday. The Trade Ministry attributed the gain to the hot weather and three-day weekends.
Japan's export-driven recovery is generating jobs at home, putting money into more people's pockets. The number of workers has grown by 1.5 percent this year, helping households to increase spending in eight of the past nine months even as average wages of individuals fell.
Bridgestone Corp., the country's biggest tiremaker, said this month it will more than double capacity at a factory in Kitakyushu, southern Japan, scheduled to open in 2009. The expansion will ``certainly'' require adding employees to the 100 people currently slotted to work at the plant, according to company spokeswoman Tamaki Torikae.
Regional projects like the Bridgestone plant may have an economic benefit that outweighs similar developments in the main cities, said JPMorgan's Adachi.
``First you have the hiring, then you have to have the housing and all of the services that support those people,'' Adachi said. ``The impact can be quite big.''
Still, the increase in employment has yet to translate into higher pay. Wages fell in the first seven months of 2007 and dropped 10 percent in the past decade. The end of tax breaks in June and higher prices of gas and staples such as bread and instant noodles have eroded disposable income and damped sentiment, which is near a three-year low.
The Labor Ministry releases its monthly wages report tomorrow at 10:30 a.m. in Tokyo.
Oct. 30 (Bloomberg) -- Japan's households increased spending for a second month in September as lingering summer heat spurred demand for cold drinks and two long weekends prompted drivers to fill their gas tanks and go on vacation.
Spending climbed 3.2 percent from the same month a year earlier, the statistics bureau said today in Tokyo. The number benefits from being compared with a 6 percent drop, the most in almost five years, in September 2006. The median estimate of 32 economists surveyed by Bloomberg was for a 1.4 percent increase.
``Last year's number was extraordinarily weak, that's why we're seeing this rebound,'' Masamichi Adachi, an economist at JPMorgan Securities Japan Co., said before the figures were released. ``You can argue that spending isn't faltering, but it would be better to say it's still weak.''
The unemployment rate rose to 4 percent last month from 3.8 percent, a separate report showed. The number of jobs on offer to each applicant slipped to 1.05 last month from 1.06 in August, the Labor Ministry said today. There have been more positions available than job seekers for almost two years.
``The wage recovery is lagging behind, but we do not see any change in the pattern of job growth underpinning the personal consumption recovery,'' Tetsufumi Yamakawa, chief economist at Goldman Sachs Japan Co., said before the reports.
The yen traded at 114.69 per dollar at 8:50 a.m. in Tokyo from 114.68 before the reports were published.
Retail Sales
Retail sales rose for a second month in September, a report showed yesterday. The Trade Ministry attributed the gain to the hot weather and three-day weekends.
Japan's export-driven recovery is generating jobs at home, putting money into more people's pockets. The number of workers has grown by 1.5 percent this year, helping households to increase spending in eight of the past nine months even as average wages of individuals fell.
Bridgestone Corp., the country's biggest tiremaker, said this month it will more than double capacity at a factory in Kitakyushu, southern Japan, scheduled to open in 2009. The expansion will ``certainly'' require adding employees to the 100 people currently slotted to work at the plant, according to company spokeswoman Tamaki Torikae.
Regional projects like the Bridgestone plant may have an economic benefit that outweighs similar developments in the main cities, said JPMorgan's Adachi.
``First you have the hiring, then you have to have the housing and all of the services that support those people,'' Adachi said. ``The impact can be quite big.''
Still, the increase in employment has yet to translate into higher pay. Wages fell in the first seven months of 2007 and dropped 10 percent in the past decade. The end of tax breaks in June and higher prices of gas and staples such as bread and instant noodles have eroded disposable income and damped sentiment, which is near a three-year low.
The Labor Ministry releases its monthly wages report tomorrow at 10:30 a.m. in Tokyo.
Japan Household Spending Gains for Second Month (Update1)
By Jason Clenfield
Oct. 30 (Bloomberg) -- Japan's households increased spending for a second month in September as lingering summer heat spurred demand for cold drinks and two long weekends prompted drivers to fill their gas tanks and go on vacation.
Spending climbed 3.2 percent from the same month a year earlier, the statistics bureau said today in Tokyo. The number benefits from being compared with a 6 percent drop, the most in almost five years, in September 2006. The median estimate of 32 economists surveyed by Bloomberg was for a 1.4 percent increase.
``Last year's number was extraordinarily weak, that's why we're seeing this rebound,'' Masamichi Adachi, an economist at JPMorgan Securities Japan Co., said before the figures were released. ``You can argue that spending isn't faltering, but it would be better to say it's still weak.''
The unemployment rate rose to 4 percent last month from 3.8 percent, a separate report showed. The number of jobs on offer to each applicant slipped to 1.05 last month from 1.06 in August, the Labor Ministry said today. There have been more positions available than job seekers for almost two years.
``The wage recovery is lagging behind, but we do not see any change in the pattern of job growth underpinning the personal consumption recovery,'' Tetsufumi Yamakawa, chief economist at Goldman Sachs Japan Co., said before the reports.
The yen traded at 114.69 per dollar at 8:50 a.m. in Tokyo from 114.68 before the reports were published.
Retail Sales
Retail sales rose for a second month in September, a report showed yesterday. The Trade Ministry attributed the gain to the hot weather and three-day weekends.
Japan's export-driven recovery is generating jobs at home, putting money into more people's pockets. The number of workers has grown by 1.5 percent this year, helping households to increase spending in eight of the past nine months even as average wages of individuals fell.
Bridgestone Corp., the country's biggest tiremaker, said this month it will more than double capacity at a factory in Kitakyushu, southern Japan, scheduled to open in 2009. The expansion will ``certainly'' require adding employees to the 100 people currently slotted to work at the plant, according to company spokeswoman Tamaki Torikae.
Regional projects like the Bridgestone plant may have an economic benefit that outweighs similar developments in the main cities, said JPMorgan's Adachi.
``First you have the hiring, then you have to have the housing and all of the services that support those people,'' Adachi said. ``The impact can be quite big.''
Still, the increase in employment has yet to translate into higher pay. Wages fell in the first seven months of 2007 and dropped 10 percent in the past decade. The end of tax breaks in June and higher prices of gas and staples such as bread and instant noodles have eroded disposable income and damped sentiment, which is near a three-year low.
The Labor Ministry releases its monthly wages report tomorrow at 10:30 a.m. in Tokyo.
Oct. 30 (Bloomberg) -- Japan's households increased spending for a second month in September as lingering summer heat spurred demand for cold drinks and two long weekends prompted drivers to fill their gas tanks and go on vacation.
Spending climbed 3.2 percent from the same month a year earlier, the statistics bureau said today in Tokyo. The number benefits from being compared with a 6 percent drop, the most in almost five years, in September 2006. The median estimate of 32 economists surveyed by Bloomberg was for a 1.4 percent increase.
``Last year's number was extraordinarily weak, that's why we're seeing this rebound,'' Masamichi Adachi, an economist at JPMorgan Securities Japan Co., said before the figures were released. ``You can argue that spending isn't faltering, but it would be better to say it's still weak.''
The unemployment rate rose to 4 percent last month from 3.8 percent, a separate report showed. The number of jobs on offer to each applicant slipped to 1.05 last month from 1.06 in August, the Labor Ministry said today. There have been more positions available than job seekers for almost two years.
``The wage recovery is lagging behind, but we do not see any change in the pattern of job growth underpinning the personal consumption recovery,'' Tetsufumi Yamakawa, chief economist at Goldman Sachs Japan Co., said before the reports.
The yen traded at 114.69 per dollar at 8:50 a.m. in Tokyo from 114.68 before the reports were published.
Retail Sales
Retail sales rose for a second month in September, a report showed yesterday. The Trade Ministry attributed the gain to the hot weather and three-day weekends.
Japan's export-driven recovery is generating jobs at home, putting money into more people's pockets. The number of workers has grown by 1.5 percent this year, helping households to increase spending in eight of the past nine months even as average wages of individuals fell.
Bridgestone Corp., the country's biggest tiremaker, said this month it will more than double capacity at a factory in Kitakyushu, southern Japan, scheduled to open in 2009. The expansion will ``certainly'' require adding employees to the 100 people currently slotted to work at the plant, according to company spokeswoman Tamaki Torikae.
Regional projects like the Bridgestone plant may have an economic benefit that outweighs similar developments in the main cities, said JPMorgan's Adachi.
``First you have the hiring, then you have to have the housing and all of the services that support those people,'' Adachi said. ``The impact can be quite big.''
Still, the increase in employment has yet to translate into higher pay. Wages fell in the first seven months of 2007 and dropped 10 percent in the past decade. The end of tax breaks in June and higher prices of gas and staples such as bread and instant noodles have eroded disposable income and damped sentiment, which is near a three-year low.
The Labor Ministry releases its monthly wages report tomorrow at 10:30 a.m. in Tokyo.
Euro Falls as Credit Market Losses Erode European Bank Earnings
By Kosuke Goto
Oct. 30 (Bloomberg) -- The euro snapped five days of gains versus the dollar on speculation credit market losses at European financial companies will weaken the case for the central bank to raise interest rates.
Europe's single currency fell before UBS AG reports third- quarter results today and Deutsche Bank AG tomorrow. UBS, Europe's largest bank by assets, said yesterday a slumping U.S. housing market and defaults on mortgages to borrowers with poor credit histories may lead to further writedowns.
``European firms' earnings could reignite concern over subprime-related losses,'' said Yuuki Sakurai, investment planning manager in Tokyo at Fukoku Mutual Life Insurance Co., which manages the equivalent of $41.5 billion in assets. ``The euro has a downside event risk and some investors even may sell it before the actual announcements to lock in profits.''
The euro declined to $1.4390 at 9:56 a.m. in Tokyo from $1.4425 late in New York yesterday. It also dropped to 164.87 yen from 165.38 yen. Europe's single currency may weaken to $1.4350 against the dollar today, Sakurai said.
UBS yesterday reiterated an estimate that it recorded a third-quarter loss of between 600 million francs ($516 million) to 800 million related to defaults in U.S. subprime mortgages. It will release detailed third-quarter results today.
Investors are betting the European Central Bank will raise its benchmark rate from 4 percent this year, interest-rate futures show. The implied yield on the December Euribor contract was at 4.505 percent yesterday. The contract settles to the three-month interbank offered rate for the euro, which has averaged about 18 basis points above the ECB's key rate.
Oct. 30 (Bloomberg) -- The euro snapped five days of gains versus the dollar on speculation credit market losses at European financial companies will weaken the case for the central bank to raise interest rates.
Europe's single currency fell before UBS AG reports third- quarter results today and Deutsche Bank AG tomorrow. UBS, Europe's largest bank by assets, said yesterday a slumping U.S. housing market and defaults on mortgages to borrowers with poor credit histories may lead to further writedowns.
``European firms' earnings could reignite concern over subprime-related losses,'' said Yuuki Sakurai, investment planning manager in Tokyo at Fukoku Mutual Life Insurance Co., which manages the equivalent of $41.5 billion in assets. ``The euro has a downside event risk and some investors even may sell it before the actual announcements to lock in profits.''
The euro declined to $1.4390 at 9:56 a.m. in Tokyo from $1.4425 late in New York yesterday. It also dropped to 164.87 yen from 165.38 yen. Europe's single currency may weaken to $1.4350 against the dollar today, Sakurai said.
UBS yesterday reiterated an estimate that it recorded a third-quarter loss of between 600 million francs ($516 million) to 800 million related to defaults in U.S. subprime mortgages. It will release detailed third-quarter results today.
Investors are betting the European Central Bank will raise its benchmark rate from 4 percent this year, interest-rate futures show. The implied yield on the December Euribor contract was at 4.505 percent yesterday. The contract settles to the three-month interbank offered rate for the euro, which has averaged about 18 basis points above the ECB's key rate.
Japan's Nikkei Falls, Led by Sony; Topix Is Little Changed
By Patrick Rial
Oct. 30 (Bloomberg) -- Japan's Nikkei 225 Stock Average fell 44.06, or 0.3 percent, to 16,654.02 at 9:02 a.m. in Tokyo. The broader Topix index was little changed at 1,606.08.
Sony Corp. and Astellas Pharma Inc. led the declines.
Oct. 30 (Bloomberg) -- Japan's Nikkei 225 Stock Average fell 44.06, or 0.3 percent, to 16,654.02 at 9:02 a.m. in Tokyo. The broader Topix index was little changed at 1,606.08.
Sony Corp. and Astellas Pharma Inc. led the declines.
Sunday, October 28, 2007
Japanese Stocks Advance on Nissan, Central JR Earnings Reports
By Patrick Rial
Oct. 29 (Bloomberg) -- Japanese stocks rose, led by Nissan Motor Co., which reported profit that beat analysts' estimates, and Central Japan Railway Co. after it boosted its full-year earnings forecast.
Nissan surged the most in more than seven years.
``We're going to increasingly see companies with strong earnings attract buying, while the opposite is true for those who don't produce positive results,'' Norihiro Fujito, a senior strategist at Mitsubishi UFJ Securities Co. in Tokyo. ``There's no clear trend of certain industries doing well, so we have to look at each company individually.''
Advantest Corp., the world's biggest maker of equipment used to test computer memory chips, tumbled after profit fell and it slashed its full-year forecast.
Exporters including Canon Inc. and banks such as Mizuho Financial Group Inc. gained after Countrywide Financial Corp., the largest U.S. mortgage lender, predicted a return to profit in the current quarter, increasing speculation the worst may be over from the U.S. subprime mortgage problem.
The Nikkei 225 Stock Average rose 181.44, or 1.1 percent, to 16,687.07 as of 9:40 a.m. in Tokyo. The broader Topix index gained 28.28, or 1.8 percent, to 1,602.25, gaining the most since Sept. 27.
Nissan soared 115 yen, or 10 percent, to 1,239, the biggest jump since Sept. 29, 2000. Japan's No. 3 automaker said net income in the latest quarter totaled 120 billion yen ($1.1 billion), beating analyst estimates by 5.2 percent.
Nomura Holdings Inc. lifted its recommendation on Nissan to ``strong buy'' from ``buy,'' while Mitsubishi UFJ Securities Co. also increased its recommendation on the stock.
Countrywide Earnings
Central Japan Railway rose 10,000 yen, or 0.9 percent, to 1.19 million. Japan's No. 2 railway operator raised its full- year net income forecast 9.8 percent to 146 billion yen ($1.28 billion) on better-than-expected revenue.
Companies including Nippon Yusen K.K., the nation's biggest shipping line operator, and Mitsubishi Electric Corp., a maker of electronics ranging from refrigerators to medical devices, will report first-half earnings during trading hours today.
Advantest slumped 140 yen, or 4.1 percent, to 3,320. The company said on Oct. 26 first-half profit fell 24 percent after memory chip companies scaled back spending. The company also reduced its full-year forecast by 21 percent.
Canon, the world's largest seller of digital cameras and copiers, jumped 140 yen, or 2.5 percent, to 5,860. Toyota Motor Corp., the world's largest automaker by value, gained 180 yen, or 2.9 percent, to 6,420. Mizuho, Japan's No. 2 publicly traded bank, climbed 17,000 yen, or 2.8 percent, to 622,000.
Federal Reserve Meeting
Countrywide Financial said last week a $1.2 billion loss in the third quarter was the ``earnings trough'' and that it expects a return on equity of between 10 percent and 15 percent in 2008, without giving a profit forecast.
Mortgage defaults by people with poor credit histories triggered a worldwide rout in debt and stock markets in July and August, spurring losses for investment banks and sending the U.S. housing market deeper into recession.
During the last three months, lenders have been the worst performers among the 33 industry groups included in the Topix index.
Nintendo Co., Japan's second-largest video-game maker, rose 1,700 yen, or 2.5 percent, to 69,400. The company faces ``overwhelming'' demand for its Wii game console, Reginald Fils- Aime, president of Nintendo of America, said in an interview with the San Francisco Chronicle. Elsewhere, the Nikkei newspaper said on Oct. 27 Nintendo will start selling the Wii in China and South Korea next year.
Stocks also got a boost on increased expectations the Federal Reserve will cut U.S. interest rates at its meeting on Oct. 31. Futures contracts tied to interest rates indicate a 92 percent chance the central bank will reduce rates by a quarter percent point and an 8 percent chance it will slash rates by a half percent point. There were no expectations for a half-point cut a week ago.
Nikkei futures expiring in December jumped 1.3 percent to 16,700 in Osaka and Singapore.
In other Asian markets open for trading, Australia's S&P/ASX 200 Index rose 1 percent to a record and South Korea's Kospi index jumped 1.4 percent.
Oct. 29 (Bloomberg) -- Japanese stocks rose, led by Nissan Motor Co., which reported profit that beat analysts' estimates, and Central Japan Railway Co. after it boosted its full-year earnings forecast.
Nissan surged the most in more than seven years.
``We're going to increasingly see companies with strong earnings attract buying, while the opposite is true for those who don't produce positive results,'' Norihiro Fujito, a senior strategist at Mitsubishi UFJ Securities Co. in Tokyo. ``There's no clear trend of certain industries doing well, so we have to look at each company individually.''
Advantest Corp., the world's biggest maker of equipment used to test computer memory chips, tumbled after profit fell and it slashed its full-year forecast.
Exporters including Canon Inc. and banks such as Mizuho Financial Group Inc. gained after Countrywide Financial Corp., the largest U.S. mortgage lender, predicted a return to profit in the current quarter, increasing speculation the worst may be over from the U.S. subprime mortgage problem.
The Nikkei 225 Stock Average rose 181.44, or 1.1 percent, to 16,687.07 as of 9:40 a.m. in Tokyo. The broader Topix index gained 28.28, or 1.8 percent, to 1,602.25, gaining the most since Sept. 27.
Nissan soared 115 yen, or 10 percent, to 1,239, the biggest jump since Sept. 29, 2000. Japan's No. 3 automaker said net income in the latest quarter totaled 120 billion yen ($1.1 billion), beating analyst estimates by 5.2 percent.
Nomura Holdings Inc. lifted its recommendation on Nissan to ``strong buy'' from ``buy,'' while Mitsubishi UFJ Securities Co. also increased its recommendation on the stock.
Countrywide Earnings
Central Japan Railway rose 10,000 yen, or 0.9 percent, to 1.19 million. Japan's No. 2 railway operator raised its full- year net income forecast 9.8 percent to 146 billion yen ($1.28 billion) on better-than-expected revenue.
Companies including Nippon Yusen K.K., the nation's biggest shipping line operator, and Mitsubishi Electric Corp., a maker of electronics ranging from refrigerators to medical devices, will report first-half earnings during trading hours today.
Advantest slumped 140 yen, or 4.1 percent, to 3,320. The company said on Oct. 26 first-half profit fell 24 percent after memory chip companies scaled back spending. The company also reduced its full-year forecast by 21 percent.
Canon, the world's largest seller of digital cameras and copiers, jumped 140 yen, or 2.5 percent, to 5,860. Toyota Motor Corp., the world's largest automaker by value, gained 180 yen, or 2.9 percent, to 6,420. Mizuho, Japan's No. 2 publicly traded bank, climbed 17,000 yen, or 2.8 percent, to 622,000.
Federal Reserve Meeting
Countrywide Financial said last week a $1.2 billion loss in the third quarter was the ``earnings trough'' and that it expects a return on equity of between 10 percent and 15 percent in 2008, without giving a profit forecast.
Mortgage defaults by people with poor credit histories triggered a worldwide rout in debt and stock markets in July and August, spurring losses for investment banks and sending the U.S. housing market deeper into recession.
During the last three months, lenders have been the worst performers among the 33 industry groups included in the Topix index.
Nintendo Co., Japan's second-largest video-game maker, rose 1,700 yen, or 2.5 percent, to 69,400. The company faces ``overwhelming'' demand for its Wii game console, Reginald Fils- Aime, president of Nintendo of America, said in an interview with the San Francisco Chronicle. Elsewhere, the Nikkei newspaper said on Oct. 27 Nintendo will start selling the Wii in China and South Korea next year.
Stocks also got a boost on increased expectations the Federal Reserve will cut U.S. interest rates at its meeting on Oct. 31. Futures contracts tied to interest rates indicate a 92 percent chance the central bank will reduce rates by a quarter percent point and an 8 percent chance it will slash rates by a half percent point. There were no expectations for a half-point cut a week ago.
Nikkei futures expiring in December jumped 1.3 percent to 16,700 in Osaka and Singapore.
In other Asian markets open for trading, Australia's S&P/ASX 200 Index rose 1 percent to a record and South Korea's Kospi index jumped 1.4 percent.
Crude Oil Rises to Record on Turkey-Iraq Tensions, Nigeria
By Angela Macdonald-Smith
Oct. 29 (Bloomberg) -- Crude oil rose to a record $92.40 a barrel in New York after Turkey's Foreign Minister said his government is considering ``all options'' including military action to deal with Kurdish rebels operating from Iraq.
``Our patience has come to an end,'' Ali Babacan said yesterday in Tehran following talks with his Iranian counterpart Manouchehr Mottaki. In Nigeria, Italy's Eni SpA said armed men seized six of its workers in an attack on a supply ship, heightening concerns about potential supply disruptions.
``There are still negotiations involving Turkey, the U.S. and Iraq,'' said David Moore, a commodity strategist at Commonwealth Bank of Australia in Sydney. ``There are also reports of the seizure of a number of oil workers in Nigeria. At a time when everything is going right for the oil price this can only add fuel to the fire.''
Crude oil for December delivery rose as much as 54 cents, or 0.6 percent, to an all-time high in after-hours electronic trading on the New York Mercantile Exchange. The contract was at $92.35 at 6:53 a.m. Singapore time.
On Oct. 26 the contract gained $1.40, or 1.6 percent, to settle at a record $91.86 a barrel after reaching $92.22 earlier in the session, the previous record high. The December contract rose 5.6 percent last week. Oil is up 58 percent from a year ago.
Turkey can use different tools for fighting the Kurdistan Workers' Party, or PKK, including diplomacy, economic and military means as a last resort, Babacan told reporters. ``All options are on the table.''
Attack Threat
Turkish Prime Minister Recep Tayyip Erdogan warned Oct. 27 that his country may order wider military attacks against the group's camps if needed, according to Turkish media. Turkey said it bombed PKK units in northern Iraq last week and sent troops across the border in pursuit of the militants.
Tensions over Iran, holder of the world's second-biggest oil reserves, are helping drive record oil prices, Moore said. On Oct. 26 the U.S. accused Iran's military of supporting terrorism and announced new sanctions on the country. The U.S. wants Iran to halt uranium enrichment that is suspects is a cover for developing nuclear weapons.
Iran is still ``at least a few years away'' from being able to build a nuclear bomb, and there is time for diplomacy to head off a military confrontation, the head of the United Nations nuclear watchdog agency said yesterday.
International Atomic Energy Agency chief Mohamed ElBaradei said on CNN's ``Late Edition'' program he hasn't seen ``any concrete evidence'' of a secret Iranian weapons program.
Brent crude oil for December settlement on Oct. 26 rose $1.21, or 1.4 percent, to a record $88.69 a barrel on the London- based ICE Futures Europe exchange. Brent reached $89.30 during the session, the highest since trading began in 1988.
Oct. 29 (Bloomberg) -- Crude oil rose to a record $92.40 a barrel in New York after Turkey's Foreign Minister said his government is considering ``all options'' including military action to deal with Kurdish rebels operating from Iraq.
``Our patience has come to an end,'' Ali Babacan said yesterday in Tehran following talks with his Iranian counterpart Manouchehr Mottaki. In Nigeria, Italy's Eni SpA said armed men seized six of its workers in an attack on a supply ship, heightening concerns about potential supply disruptions.
``There are still negotiations involving Turkey, the U.S. and Iraq,'' said David Moore, a commodity strategist at Commonwealth Bank of Australia in Sydney. ``There are also reports of the seizure of a number of oil workers in Nigeria. At a time when everything is going right for the oil price this can only add fuel to the fire.''
Crude oil for December delivery rose as much as 54 cents, or 0.6 percent, to an all-time high in after-hours electronic trading on the New York Mercantile Exchange. The contract was at $92.35 at 6:53 a.m. Singapore time.
On Oct. 26 the contract gained $1.40, or 1.6 percent, to settle at a record $91.86 a barrel after reaching $92.22 earlier in the session, the previous record high. The December contract rose 5.6 percent last week. Oil is up 58 percent from a year ago.
Turkey can use different tools for fighting the Kurdistan Workers' Party, or PKK, including diplomacy, economic and military means as a last resort, Babacan told reporters. ``All options are on the table.''
Attack Threat
Turkish Prime Minister Recep Tayyip Erdogan warned Oct. 27 that his country may order wider military attacks against the group's camps if needed, according to Turkish media. Turkey said it bombed PKK units in northern Iraq last week and sent troops across the border in pursuit of the militants.
Tensions over Iran, holder of the world's second-biggest oil reserves, are helping drive record oil prices, Moore said. On Oct. 26 the U.S. accused Iran's military of supporting terrorism and announced new sanctions on the country. The U.S. wants Iran to halt uranium enrichment that is suspects is a cover for developing nuclear weapons.
Iran is still ``at least a few years away'' from being able to build a nuclear bomb, and there is time for diplomacy to head off a military confrontation, the head of the United Nations nuclear watchdog agency said yesterday.
International Atomic Energy Agency chief Mohamed ElBaradei said on CNN's ``Late Edition'' program he hasn't seen ``any concrete evidence'' of a secret Iranian weapons program.
Brent crude oil for December settlement on Oct. 26 rose $1.21, or 1.4 percent, to a record $88.69 a barrel on the London- based ICE Futures Europe exchange. Brent reached $89.30 during the session, the highest since trading began in 1988.
Dollar Falls to Record Low Versus Euro Before Fed Rate Meeting
By Kosuke Goto
Oct. 29 (Bloomberg) -- The dollar fell to a record low against the euro on speculation the Federal Reserve will cut interest rates this week as a U.S. housing slump reverberates through the economy.
The U.S. currency also slid to its lowest in 23 years versus Australia's dollar as prospects the Fed will lower its 4.75 percent overnight lending rate between banks by at least a quarter-percentage point on Oct. 31 prompted investors to seek higher-yielding assets overseas. Yields on two-year Treasuries are near the lowest since September 2005.
``I remain bearish on the dollar,'' said Greg Gibbs, a currency strategist at ABN Amro Holding NV in Sydney. ``The U.S. has the lowest yields of all other major countries except Japan and Switzerland. This is sending people into a whole range of higher-yielding currencies.''
The dollar fell as low as $1.4426 per euro, the weakest since the introduction of the 13-nation common currency in 1999, before trading at $1.4408 as of 9:41 a.m. in Tokyo from $1.4393 in late New York on Oct. 26. It may drop as low as $1.4530 this week, Gibbs said.
The U.S. currency fell against 10 of the 16 most-actively traded currencies, declining the most against the higher- yielding dollars of New Zealand and Australia. It slid to 76.95 cents versus New Zealand's from 76.62 late last week and as low as 92.15 cents against Australia's dollar, the weakest since May 1984, before buying 92.07 from 91.84 on Oct. 26.
The U.S. dollar was at 114.25 yen from 114.19 yen.
`Alternative Investments'
``We will start to see some of these Middle Eastern countries, large holders of U.S. dollar funds, start to look at other alternative investment to seek higher returns,'' said Tobias Davis, senior currency dealer at Custom House Global Foreign Exchange in Sydney. ``Yield differentials are just too large.''
The dollar's 8 percent loss against the euro this year has prompted some politicians including French President Nicolas Sarkozy to warn that exports from the $10 trillion euro-region economy may suffer. At the same time, the cheaper dollar has buoyed U.S. shipments overseas. The nation's trade deficit in August narrowed to $57.6 billion, the least since January, the Commerce Department said Oct. 11.
Interest-Rate Futures
Interest-rate futures traded on the Chicago Board of Trade show a 92 percent chance the Fed will lower its benchmark overnight rate a quarter-percentage point to 4.50 percent this week, after reducing the rate a half-point on Sept. 18 in its first cut since 2003. Futures show an 8 percent chance of a half-point reduction on Oct. 31.
The European Central Bank will keep its key rate at 4 percent at a Nov. 8 meeting, according to the median forecast in a Bloomberg News survey. The Reserve Bank of Australia will increase its rate a quarter-percentage point to 6.75 percent on Nov. 7, a separate Bloomberg survey of economists shows. New Zealand's central bank held its rate at 8.25 percent last week.
The dollar also weakened on concern rising oil prices will hamper the U.S. economy, the world's biggest importer of the commodity. Oil rose to a record $92.43 a barrel in New York after Turkey's Foreign Minister yesterday said his government is considering ``all options'' including military action to deal with Kurdish rebels operating from Iraq.
``The tension is running high, pushing up oil prices,'' said Koichi Yoshikawa, head of foreign-exchange trading at BNP Paribas in Tokyo. ``This could make oil-producing nations independent of the dollar,'' which may fall to $1.45 a euro this year, he said.
A U.S. government report Oct. 31 may show growth in gross domestic product slowed to an annualized 3.1 percent rate last quarter, from 3.8 percent in the previous three months, according to the median estimate in a Bloomberg News survey.
Yen Carry Trade
The yen weakened against 14 of the 16 most-actively traded currencies, falling the most against the New Zealand and Australian dollars, as a stock rally spurred investors to buy higher-yielding assets financed by loans in Japan.
Japanese stocks followed gains in U.S. equities on Oct. 26, suggesting investors may increase so-called carry trades, by buying riskier assets funded with yen.
``A rise in stock prices means improvement in investors' risk appetite,'' said Junya Tanase, a currency strategist at JPMorgan Chase & Co. in Tokyo. ``Should stocks continue to advance, the yen will remain weak.''
Japan's currency may trade between 113 and 115 per dollar this week, Tanase said.
The yen fell to 164.79 per euro, the weakest since Oct. 19, from 164.34 in New York on Oct. 29.
Japan's Nikkei 225 Stock Average rose 1.1 percent today and the broader Topix index gained 1.8 percent.
The Japanese currency fell 0.4 percent to 87.85 versus the New Zealand dollar. It also declined to 105.09 against the Australian dollar, from 104.88.
In the carry trade,, investors borrow in countries with low interest rates and invest where rates are higher. Japan's benchmark overnight lending rate is 0.5 percent.
Oct. 29 (Bloomberg) -- The dollar fell to a record low against the euro on speculation the Federal Reserve will cut interest rates this week as a U.S. housing slump reverberates through the economy.
The U.S. currency also slid to its lowest in 23 years versus Australia's dollar as prospects the Fed will lower its 4.75 percent overnight lending rate between banks by at least a quarter-percentage point on Oct. 31 prompted investors to seek higher-yielding assets overseas. Yields on two-year Treasuries are near the lowest since September 2005.
``I remain bearish on the dollar,'' said Greg Gibbs, a currency strategist at ABN Amro Holding NV in Sydney. ``The U.S. has the lowest yields of all other major countries except Japan and Switzerland. This is sending people into a whole range of higher-yielding currencies.''
The dollar fell as low as $1.4426 per euro, the weakest since the introduction of the 13-nation common currency in 1999, before trading at $1.4408 as of 9:41 a.m. in Tokyo from $1.4393 in late New York on Oct. 26. It may drop as low as $1.4530 this week, Gibbs said.
The U.S. currency fell against 10 of the 16 most-actively traded currencies, declining the most against the higher- yielding dollars of New Zealand and Australia. It slid to 76.95 cents versus New Zealand's from 76.62 late last week and as low as 92.15 cents against Australia's dollar, the weakest since May 1984, before buying 92.07 from 91.84 on Oct. 26.
The U.S. dollar was at 114.25 yen from 114.19 yen.
`Alternative Investments'
``We will start to see some of these Middle Eastern countries, large holders of U.S. dollar funds, start to look at other alternative investment to seek higher returns,'' said Tobias Davis, senior currency dealer at Custom House Global Foreign Exchange in Sydney. ``Yield differentials are just too large.''
The dollar's 8 percent loss against the euro this year has prompted some politicians including French President Nicolas Sarkozy to warn that exports from the $10 trillion euro-region economy may suffer. At the same time, the cheaper dollar has buoyed U.S. shipments overseas. The nation's trade deficit in August narrowed to $57.6 billion, the least since January, the Commerce Department said Oct. 11.
Interest-Rate Futures
Interest-rate futures traded on the Chicago Board of Trade show a 92 percent chance the Fed will lower its benchmark overnight rate a quarter-percentage point to 4.50 percent this week, after reducing the rate a half-point on Sept. 18 in its first cut since 2003. Futures show an 8 percent chance of a half-point reduction on Oct. 31.
The European Central Bank will keep its key rate at 4 percent at a Nov. 8 meeting, according to the median forecast in a Bloomberg News survey. The Reserve Bank of Australia will increase its rate a quarter-percentage point to 6.75 percent on Nov. 7, a separate Bloomberg survey of economists shows. New Zealand's central bank held its rate at 8.25 percent last week.
The dollar also weakened on concern rising oil prices will hamper the U.S. economy, the world's biggest importer of the commodity. Oil rose to a record $92.43 a barrel in New York after Turkey's Foreign Minister yesterday said his government is considering ``all options'' including military action to deal with Kurdish rebels operating from Iraq.
``The tension is running high, pushing up oil prices,'' said Koichi Yoshikawa, head of foreign-exchange trading at BNP Paribas in Tokyo. ``This could make oil-producing nations independent of the dollar,'' which may fall to $1.45 a euro this year, he said.
A U.S. government report Oct. 31 may show growth in gross domestic product slowed to an annualized 3.1 percent rate last quarter, from 3.8 percent in the previous three months, according to the median estimate in a Bloomberg News survey.
Yen Carry Trade
The yen weakened against 14 of the 16 most-actively traded currencies, falling the most against the New Zealand and Australian dollars, as a stock rally spurred investors to buy higher-yielding assets financed by loans in Japan.
Japanese stocks followed gains in U.S. equities on Oct. 26, suggesting investors may increase so-called carry trades, by buying riskier assets funded with yen.
``A rise in stock prices means improvement in investors' risk appetite,'' said Junya Tanase, a currency strategist at JPMorgan Chase & Co. in Tokyo. ``Should stocks continue to advance, the yen will remain weak.''
Japan's currency may trade between 113 and 115 per dollar this week, Tanase said.
The yen fell to 164.79 per euro, the weakest since Oct. 19, from 164.34 in New York on Oct. 29.
Japan's Nikkei 225 Stock Average rose 1.1 percent today and the broader Topix index gained 1.8 percent.
The Japanese currency fell 0.4 percent to 87.85 versus the New Zealand dollar. It also declined to 105.09 against the Australian dollar, from 104.88.
In the carry trade,, investors borrow in countries with low interest rates and invest where rates are higher. Japan's benchmark overnight lending rate is 0.5 percent.
Boral Annual Profit to Fall on Currency, U.S. Housing (Update2)
By Tim Smith
Oct. 29 (Bloomberg) -- Boral Ltd., Australia's biggest seller of building materials, forecast profit to decline 15 percent as a strong local currency and weak U.S. housing market crimp earnings.
Forecasts for U.S. housing starts have been cut 30 percent for the current year, the Sydney-based company said today in a statement to the Australian Stock Exchange. A 15 percent fall will lower net profit to about A$253.3 million ($233 million) in the 12 months ending June 30, 2008, compared with A$298 million in fiscal 2007.
Boral forecast profit to decline a fourth consecutive year as the Australian dollar trades near a 23-year high and the U.S. housing market, which generates about 20 percent of sales, is mired in its worst slump in 16 years. Sales of previously owned U.S. homes tumbled 8 percent in September, the fewest since the National Association of Realtors began keeping records in 1999, indicating the worst housing slump since 1991 is deepening.
``We anticipate that U.S. housing starts could fall to 1.1 million in fiscal 2008, which is 30 percent below the prior year,'' Managing director Rod Pearse told the company's annual general meeting in Sydney. ``If this occurs and if the Australian dollar exchange rate remains at around 90 U.S. cents, Boral's profit after tax will be around 15 percent below last year.''
Shares of Boral fell 8 cents, or 1.2 percent, to A$6.74 at 10:37 a.m. in Sydney, extending this year's decline to 11.7 percent.
The Australian dollar climbed to a 23-year high of 92.15 U.S. cents today and is trading at 92.07 at 10:31 a.m. in Sydney.
Oct. 29 (Bloomberg) -- Boral Ltd., Australia's biggest seller of building materials, forecast profit to decline 15 percent as a strong local currency and weak U.S. housing market crimp earnings.
Forecasts for U.S. housing starts have been cut 30 percent for the current year, the Sydney-based company said today in a statement to the Australian Stock Exchange. A 15 percent fall will lower net profit to about A$253.3 million ($233 million) in the 12 months ending June 30, 2008, compared with A$298 million in fiscal 2007.
Boral forecast profit to decline a fourth consecutive year as the Australian dollar trades near a 23-year high and the U.S. housing market, which generates about 20 percent of sales, is mired in its worst slump in 16 years. Sales of previously owned U.S. homes tumbled 8 percent in September, the fewest since the National Association of Realtors began keeping records in 1999, indicating the worst housing slump since 1991 is deepening.
``We anticipate that U.S. housing starts could fall to 1.1 million in fiscal 2008, which is 30 percent below the prior year,'' Managing director Rod Pearse told the company's annual general meeting in Sydney. ``If this occurs and if the Australian dollar exchange rate remains at around 90 U.S. cents, Boral's profit after tax will be around 15 percent below last year.''
Shares of Boral fell 8 cents, or 1.2 percent, to A$6.74 at 10:37 a.m. in Sydney, extending this year's decline to 11.7 percent.
The Australian dollar climbed to a 23-year high of 92.15 U.S. cents today and is trading at 92.07 at 10:31 a.m. in Sydney.
Merrill's Former Chief Tully Calls Losses `Sickening' (Update1)
By Bradley Keoun
Oct. 28 (Bloomberg) -- Daniel Tully, who tripled Merrill Lynch & Co.'s stock price during his tenure as chief executive officer in the 1990s, said the firm should rein in risk-taking after a record third-quarter loss he described as ``sickening.''
Tully, who served as chairman for four years before retiring a decade ago, said in an interview yesterday that he has spoken with current and former employees of New York-based Merrill who share his views. He declined to comment on whether CEO Stan O'Neal should be replaced, saying the board must decide. The New York Times, citing people briefed on the discussions, said on its Web site today Merrill's board has reached a ``broad consensus'' that O'Neal will not remain in his position.
``With the help of God this too shall pass, and the firm will continue to do extraordinarily well, but without the excessive risk that apparently was taken,'' Tully, 75, said in a telephone interview from his home in Florida. ``This company is bigger than any one of us, and it is a tremendous franchise.''
Merrill last week disclosed $8.4 billion of writedowns on loans and mortgage-linked bonds, leading to the biggest quarterly loss of its 93-year history. O'Neal, 56, is facing pressure to resign as investors, angered by a 29 percent drop in the stock price this year, question his ability to police risks. Merrill directors met Oct. 26 to discuss his potential departure, the Wall Street Journal reported.
`It's Awful'
The third-quarter net loss of $2.24 billion, or $2.82 a share, was six times bigger than the firm forecast just three weeks earlier. Merrill's shares have fallen the most of the five biggest U.S. securities firms. All of them have dropped except Goldman Sachs Group Inc., the largest and most profitable.
``I've been in touch with many, many of our fellow employees and ex-employees and they're sick, everyone is sick about it, as I am too,'' Tully said. ``It's awful. You hate like hell to see the firm, the headlines in the New York Times and Barron's today. It's sickening.''
Merrill Lynch spokesman Michael O'Looney declined to comment.
The New York Times reported that brewing unhappiness within the firm, and expressions of discontent from employees, suggest how quickly the board may feel the need to move. It said details remain to be worked out, including who will take over and what the timing of O'Neal's departure will be.
The newspaper said Laurence Fink, CEO of money manager BlackRock Inc., is a leading candidate to replace O'Neal.
`Pales by Comparison'
Tully, who started out as a stockbroker and spent four decades helping build Merrill into what is now the third-biggest U.S. securities firm by market value, faced mortgage-related losses along the way. In 1987, when he was president and chief operating officer, one of the firm's mortgage traders was accused of unauthorized transactions that led to a $377 million loss.
That figure ``kind of pales by comparison'' to Merrill's third-quarter writedowns, said Tully, who served as CEO from 1992 through 1996. ``We had a situation which at that time was really god-awful, and this is a multiple of that.''
Tully retired as chairman in 1997. His successor, David Komansky, 68, served as CEO until December 2002, when O'Neal took over.
Tully said he didn't think Merrill should sell itself to a larger bank while the stock is trading at a depressed price. Selling assets in a ``fire sale'' would also be a mistake, he said.
Asset Sales
O'Neal said in an Oct. 24 conference call that he would consider divesting ``non-core assets,'' without being specific. Merrill's holdings include a 49.8 percent stake in BlackRock, and a passive, 20 percent stake in Bloomberg LP, the parent of Bloomberg News.
The New York Times reported Oct. 26 that O'Neal initiated talks about a possible merger with the Charlotte, North Carolina- based bank Wachovia Corp. prior to broaching the matter with the board. Merrill Lynch officials declined to comment on the reports.
Tully said he didn't have firsthand knowledge of any such talks.
``You sure as hell don't want to sell something on a bailout,'' he said. ``And if you were thinking of that, you would sure as hell discuss it with the finance committee and the entire board'' in advance.
Oct. 28 (Bloomberg) -- Daniel Tully, who tripled Merrill Lynch & Co.'s stock price during his tenure as chief executive officer in the 1990s, said the firm should rein in risk-taking after a record third-quarter loss he described as ``sickening.''
Tully, who served as chairman for four years before retiring a decade ago, said in an interview yesterday that he has spoken with current and former employees of New York-based Merrill who share his views. He declined to comment on whether CEO Stan O'Neal should be replaced, saying the board must decide. The New York Times, citing people briefed on the discussions, said on its Web site today Merrill's board has reached a ``broad consensus'' that O'Neal will not remain in his position.
``With the help of God this too shall pass, and the firm will continue to do extraordinarily well, but without the excessive risk that apparently was taken,'' Tully, 75, said in a telephone interview from his home in Florida. ``This company is bigger than any one of us, and it is a tremendous franchise.''
Merrill last week disclosed $8.4 billion of writedowns on loans and mortgage-linked bonds, leading to the biggest quarterly loss of its 93-year history. O'Neal, 56, is facing pressure to resign as investors, angered by a 29 percent drop in the stock price this year, question his ability to police risks. Merrill directors met Oct. 26 to discuss his potential departure, the Wall Street Journal reported.
`It's Awful'
The third-quarter net loss of $2.24 billion, or $2.82 a share, was six times bigger than the firm forecast just three weeks earlier. Merrill's shares have fallen the most of the five biggest U.S. securities firms. All of them have dropped except Goldman Sachs Group Inc., the largest and most profitable.
``I've been in touch with many, many of our fellow employees and ex-employees and they're sick, everyone is sick about it, as I am too,'' Tully said. ``It's awful. You hate like hell to see the firm, the headlines in the New York Times and Barron's today. It's sickening.''
Merrill Lynch spokesman Michael O'Looney declined to comment.
The New York Times reported that brewing unhappiness within the firm, and expressions of discontent from employees, suggest how quickly the board may feel the need to move. It said details remain to be worked out, including who will take over and what the timing of O'Neal's departure will be.
The newspaper said Laurence Fink, CEO of money manager BlackRock Inc., is a leading candidate to replace O'Neal.
`Pales by Comparison'
Tully, who started out as a stockbroker and spent four decades helping build Merrill into what is now the third-biggest U.S. securities firm by market value, faced mortgage-related losses along the way. In 1987, when he was president and chief operating officer, one of the firm's mortgage traders was accused of unauthorized transactions that led to a $377 million loss.
That figure ``kind of pales by comparison'' to Merrill's third-quarter writedowns, said Tully, who served as CEO from 1992 through 1996. ``We had a situation which at that time was really god-awful, and this is a multiple of that.''
Tully retired as chairman in 1997. His successor, David Komansky, 68, served as CEO until December 2002, when O'Neal took over.
Tully said he didn't think Merrill should sell itself to a larger bank while the stock is trading at a depressed price. Selling assets in a ``fire sale'' would also be a mistake, he said.
Asset Sales
O'Neal said in an Oct. 24 conference call that he would consider divesting ``non-core assets,'' without being specific. Merrill's holdings include a 49.8 percent stake in BlackRock, and a passive, 20 percent stake in Bloomberg LP, the parent of Bloomberg News.
The New York Times reported Oct. 26 that O'Neal initiated talks about a possible merger with the Charlotte, North Carolina- based bank Wachovia Corp. prior to broaching the matter with the board. Merrill Lynch officials declined to comment on the reports.
Tully said he didn't have firsthand knowledge of any such talks.
``You sure as hell don't want to sell something on a bailout,'' he said. ``And if you were thinking of that, you would sure as hell discuss it with the finance committee and the entire board'' in advance.
U.S. Stocks Advance as Microsoft, Apple Allay Recession Concern
By Eric Martin
Oct. 27 (Bloomberg) -- U.S. stocks advanced for the sixth time in seven weeks after earnings from Microsoft Corp. and Apple Inc. bolstered speculation that the economy is growing enough to sustain profits.
Microsoft shares soared to the highest since July 2001 after Windows Vista and the ``Halo 3'' video game helped the world's largest software maker report higher-than-expected sales. Apple gained after profit increased more than analysts estimated, propelled by record Macintosh computer sales and rising demand for iPods and iPhones.
``The earnings were very, very good,'' said Richard Sichel, who helps manage about $1.5 billion as chief investment officer at Philadelphia Trust Co. in Philadelphia. ``Technology earnings have offset, to some extent, the financial worries that continue.''
Computer-related companies in the Standard & Poor's 500 Index increased profit by 11 percent last quarter, according to a Bloomberg analysis of reported results. Analysts forecast 9 percent growth three weeks ago. S&P 500 members that have released results so far posted a 0.8 percent decline in profit.
The S&P 500 gained 2.3 percent this week to 1,535.28. The Dow Jones Industrial Average climbed 2.1 percent to 13,806.70. The Nasdaq Composite Index rose 2.9 percent to 2,804.19.
25 Years
The market recovered from the steepest weekly drop since July, a decline caused by speculation the housing slump's toll on the economy and earnings at banks and brokerages had deepened. Countrywide Financial Corp. fueled gains after the largest U.S. mortgage lender said profit will rebound from its first quarterly loss in 25 years. Yesterday, Countrywide shares surged the most since at least 1982.
Yields on U.S. Treasury two-year notes fell for the second- straight week, slipping 0.01 point to 3.78 percent, on speculation the Federal Reserve will cut borrowing costs next week to support the economy. The 10-year note's yield increased 0.01 point to 4.40 percent.
Trading in futures contracts implies 92 percent odds that Fed policy makers will reduce their benchmark lending rate by 0.25 point to 4.50 percent on Oct. 31. They shifted from 5.25 percent last month.
Microsoft soared 16 percent, the most for a week since October 2000, to $35.03. That helped a gauge of software companies in the S&P 500 advance 7.2 percent, the biggest rally in five years.
Vista, Halo 3
Microsoft's fiscal first-quarter sales beat the average analyst estimate by $1 billion. The company lured customers to pricier versions of Vista and won new Xbox users with ``Halo 3,'' allaying concern that growth depends on cracking Google Inc.'s dominance in Internet advertising.
Apple gained 8.4 percent to $184.70. Fourth-quarter profit jumped 67 percent to $1.01 a share, beating the 85-cent average analyst estimate. Apple's forecast for sales and profit this quarter also beat predictions. Annual sales increased to $24 billion, exceeding $20 billion for the first time in Apple's 31- year history.
Countrywide surged 14 percent to $17.30. The company that provides one out of every five U.S. mortgages plans to cut jobs and tighten lending standards, allowing it to earn 25 cents to 75 cents a share in the fourth quarter and return to profitability next year, the company said.
Merrill Lynch & Co. lost 17 cents to $66.09 after the shares fell the most in one day since April 2002, then jumped the most for one day in five years at week's end.
93-Year History
The brokerage reported the biggest quarterly loss in its 93-year history on $8.4 billion of writedowns. Two days later, the shares rallied on speculation Chairman and Chief Executive Officer Stan O'Neal will be ousted and Merrill will become a takeover target.
``It will be an extended period of price adjustment, unfortunately, for many of the financial stocks,'' said John Carey, a portfolio manager at Pioneer Investment Management in Boston, which manages about $70 billion in U.S. assets. ``We're going to see many more write-offs over the next couple of quarters.''
Tesoro Corp. surged 25 percent to $64.48, the steepest gain in the S&P 500. Kirk Kerkorian's Tracinda Corp. plans a $1.4 billion tender offer to acquire a 16 percent stake in Tesoro, a U.S. refiner whose profit jumped 10-fold in the past four years as gasoline demand and prices climbed.
Crude oil rose above $92 a barrel for the first time in New York this week after the U.S. accused Iran's military of supporting terrorism and announced new sanctions on the country that has the world's second-biggest oil reserves.
Biggest Oil Company
Exxon, the world's biggest oil company, rose 0.1 percent to $92.21. Exxon and two other members of the Dow average, Procter & Gamble Co. and Verizon Communications Inc., release quarterly results next week.
Smaller employment gains and slower growth signal the two- year U.S. housing slump is reverberating through the economy, economists said before economic reports next week.
Employers added 80,000 workers to payrolls this month following an increase of 110,000 in September, based on the median forecast in a Bloomberg News survey of economists before a Nov. 2 government report. Figures two days earlier may show the economy expanded at a slower pace in the third quarter.
Oct. 27 (Bloomberg) -- U.S. stocks advanced for the sixth time in seven weeks after earnings from Microsoft Corp. and Apple Inc. bolstered speculation that the economy is growing enough to sustain profits.
Microsoft shares soared to the highest since July 2001 after Windows Vista and the ``Halo 3'' video game helped the world's largest software maker report higher-than-expected sales. Apple gained after profit increased more than analysts estimated, propelled by record Macintosh computer sales and rising demand for iPods and iPhones.
``The earnings were very, very good,'' said Richard Sichel, who helps manage about $1.5 billion as chief investment officer at Philadelphia Trust Co. in Philadelphia. ``Technology earnings have offset, to some extent, the financial worries that continue.''
Computer-related companies in the Standard & Poor's 500 Index increased profit by 11 percent last quarter, according to a Bloomberg analysis of reported results. Analysts forecast 9 percent growth three weeks ago. S&P 500 members that have released results so far posted a 0.8 percent decline in profit.
The S&P 500 gained 2.3 percent this week to 1,535.28. The Dow Jones Industrial Average climbed 2.1 percent to 13,806.70. The Nasdaq Composite Index rose 2.9 percent to 2,804.19.
25 Years
The market recovered from the steepest weekly drop since July, a decline caused by speculation the housing slump's toll on the economy and earnings at banks and brokerages had deepened. Countrywide Financial Corp. fueled gains after the largest U.S. mortgage lender said profit will rebound from its first quarterly loss in 25 years. Yesterday, Countrywide shares surged the most since at least 1982.
Yields on U.S. Treasury two-year notes fell for the second- straight week, slipping 0.01 point to 3.78 percent, on speculation the Federal Reserve will cut borrowing costs next week to support the economy. The 10-year note's yield increased 0.01 point to 4.40 percent.
Trading in futures contracts implies 92 percent odds that Fed policy makers will reduce their benchmark lending rate by 0.25 point to 4.50 percent on Oct. 31. They shifted from 5.25 percent last month.
Microsoft soared 16 percent, the most for a week since October 2000, to $35.03. That helped a gauge of software companies in the S&P 500 advance 7.2 percent, the biggest rally in five years.
Vista, Halo 3
Microsoft's fiscal first-quarter sales beat the average analyst estimate by $1 billion. The company lured customers to pricier versions of Vista and won new Xbox users with ``Halo 3,'' allaying concern that growth depends on cracking Google Inc.'s dominance in Internet advertising.
Apple gained 8.4 percent to $184.70. Fourth-quarter profit jumped 67 percent to $1.01 a share, beating the 85-cent average analyst estimate. Apple's forecast for sales and profit this quarter also beat predictions. Annual sales increased to $24 billion, exceeding $20 billion for the first time in Apple's 31- year history.
Countrywide surged 14 percent to $17.30. The company that provides one out of every five U.S. mortgages plans to cut jobs and tighten lending standards, allowing it to earn 25 cents to 75 cents a share in the fourth quarter and return to profitability next year, the company said.
Merrill Lynch & Co. lost 17 cents to $66.09 after the shares fell the most in one day since April 2002, then jumped the most for one day in five years at week's end.
93-Year History
The brokerage reported the biggest quarterly loss in its 93-year history on $8.4 billion of writedowns. Two days later, the shares rallied on speculation Chairman and Chief Executive Officer Stan O'Neal will be ousted and Merrill will become a takeover target.
``It will be an extended period of price adjustment, unfortunately, for many of the financial stocks,'' said John Carey, a portfolio manager at Pioneer Investment Management in Boston, which manages about $70 billion in U.S. assets. ``We're going to see many more write-offs over the next couple of quarters.''
Tesoro Corp. surged 25 percent to $64.48, the steepest gain in the S&P 500. Kirk Kerkorian's Tracinda Corp. plans a $1.4 billion tender offer to acquire a 16 percent stake in Tesoro, a U.S. refiner whose profit jumped 10-fold in the past four years as gasoline demand and prices climbed.
Crude oil rose above $92 a barrel for the first time in New York this week after the U.S. accused Iran's military of supporting terrorism and announced new sanctions on the country that has the world's second-biggest oil reserves.
Biggest Oil Company
Exxon, the world's biggest oil company, rose 0.1 percent to $92.21. Exxon and two other members of the Dow average, Procter & Gamble Co. and Verizon Communications Inc., release quarterly results next week.
Smaller employment gains and slower growth signal the two- year U.S. housing slump is reverberating through the economy, economists said before economic reports next week.
Employers added 80,000 workers to payrolls this month following an increase of 110,000 in September, based on the median forecast in a Bloomberg News survey of economists before a Nov. 2 government report. Figures two days earlier may show the economy expanded at a slower pace in the third quarter.
Friday, October 26, 2007
Oil Rises to Record Above $92 as U.S. Pressures Iran's Military
By Angela Macdonald-Smith and Christian Schmollinger
Oct. 26 (Bloomberg) -- Crude oil rose above $92 a barrel for the first time in New York after the U.S. accused the Iranian military of supporting terrorism and stepped up pressure on foreign companies to cut ties with the Middle East oil producer.
Oil soared to a record as Turkey warned of a wider military assault into northern Iraq and called on the U.S. to join the fight. Turkey's army shelled suspected militant camps on the Iraqi side of the border.
``Even if the Iran and Iraq situations were resolved overnight, you still have the fundamental problem that demand for oil is continuing to strengthen, '' said Gavin Wendt, senior resources analyst at Fat Prophets in Sydney. ``Only a couple of months away you've got the northern hemisphere winter and the market is nervous about whether there is enough oil.''
Crude oil for December delivery rose as much as $1.76, or 2 percent, to $92.22 a barrel in after-hours electronic trading on the New York Mercantile Exchange, the highest since trading began in 1983. It traded at $92.18 at 2:46 p.m. Singapore time. Prices are 51 percent higher than a year ago.
Yesterday the contract jumped $3.36, or 3.9 percent, to $90.46 a barrel, a record close. It was the biggest one-day gain since April 23.
Record oil prices are raising concerns that inflation will rise and lower growth in the global economy. The Group of Seven industrial nations said in a statement last week that high crude levels will moderate growth going forward.
Singapore Airlines
Brent crude oil for December settlement rose as much as $1.82, or 2.1 percent, to a record $89.30 a barrel on the London-based ICE Futures Europe exchange. It was at $89.25 at 2:47 p.m. Singapore time. The contract, the benchmark for two- thirds of global supplies, closed yesterday up $3.11, or 3.7 percent, at $87.48 a barrel.
The Bush administration yesterday announced new sanctions against Iran that designate the Iranian Revolutionary Guard Corps as a proliferator of weapons of mass destruction and its Quds force as a supporter of terrorism.
Secretary of State Condoleezza Rice, who joined Treasury Secretary Henry Paulson in announcing the sanctions, said the steps were designed ``to increase the costs to Iran of its irresponsible behavior.''
The U.S. is trying to get Iran to halt uranium enrichment that it suspects is aimed at developing nuclear weapons. Iran, which holds the world's second-largest oil and natural gas reserves, says it wants to enrich uranium to produce electricity. The dispute has bolstered oil prices since January 2006 because of concern that oil shipments from the country might be cut.
Turkey Warning
Turkey warned of a wider military assault into northern Iraq and called on the U.S. to join the fight as the army shelled suspected militant camps over the Iraqi border.
Turkey won't stand by after Iraq allowed members of the Kurdistan Workers' Party, or PKK, to use bases on Iraqi territory for attacks that left 42 Turks dead this month, President Abdullah Gul said yesterday in Ankara. Shelling by Turkish artillery of the Iraqi side of the border continued yesterday, CNN Turk reported.
``The U.S. sanctions against Iran seem to be pushing things to some sort of confrontation,'' said Fat Prophet's Wendt. ``When you're talking Iran and Iraq, two of the biggest holders of oil reserves, no wonder markets are nervous.''
Dollar Effect
The dollar approached a record low against the euro after reports showed U.S. orders for durable goods fell unexpectedly and initial jobless claims were higher than forecast, signaling economic growth may weaken. Slower growth supports the argument for the Federal Reserve to cut interest rates next week.
China yesterday said its economy, the biggest contributor to global growth, expanded 11.5 percent in the third quarter from a year earlier.
``The currency is really holding up commodities market generally,'' ANZ Bank's Pervan said. ``Dovetailing that with strong Chinese growth yesterday, it's enough to give oil that extra momentum.''
OPEC `Surprising'
The Organization of Petroleum Exporting Countries, supplier of about 40 percent of the world's oil, doesn't plan additional output even with record oil prices, Venezuelan Energy Minister Rafael Ramirez told reporters in Caracas yesterday.
``There is enough oil in the market,'' Ramirez said. OPEC is ``not planning to increase production.''
OPEC's refusal to consider an increase is surprising, said Gerard Burg, a minerals and energy economist at National Australia Bank Ltd. in Melbourne.
``I wouldn't have thought that the majority of producers would be happy with prices above $90,'' Burg said. ``I would have thought that the force of Saudi Arabia and its more dovish supporters might have brought a bit more oil on.''
``There seems to be a consensus view that there's enough oil in the market, it's really just concerns that are driving it,'' Burg said.
Oct. 26 (Bloomberg) -- Crude oil rose above $92 a barrel for the first time in New York after the U.S. accused the Iranian military of supporting terrorism and stepped up pressure on foreign companies to cut ties with the Middle East oil producer.
Oil soared to a record as Turkey warned of a wider military assault into northern Iraq and called on the U.S. to join the fight. Turkey's army shelled suspected militant camps on the Iraqi side of the border.
``Even if the Iran and Iraq situations were resolved overnight, you still have the fundamental problem that demand for oil is continuing to strengthen, '' said Gavin Wendt, senior resources analyst at Fat Prophets in Sydney. ``Only a couple of months away you've got the northern hemisphere winter and the market is nervous about whether there is enough oil.''
Crude oil for December delivery rose as much as $1.76, or 2 percent, to $92.22 a barrel in after-hours electronic trading on the New York Mercantile Exchange, the highest since trading began in 1983. It traded at $92.18 at 2:46 p.m. Singapore time. Prices are 51 percent higher than a year ago.
Yesterday the contract jumped $3.36, or 3.9 percent, to $90.46 a barrel, a record close. It was the biggest one-day gain since April 23.
Record oil prices are raising concerns that inflation will rise and lower growth in the global economy. The Group of Seven industrial nations said in a statement last week that high crude levels will moderate growth going forward.
Singapore Airlines
Brent crude oil for December settlement rose as much as $1.82, or 2.1 percent, to a record $89.30 a barrel on the London-based ICE Futures Europe exchange. It was at $89.25 at 2:47 p.m. Singapore time. The contract, the benchmark for two- thirds of global supplies, closed yesterday up $3.11, or 3.7 percent, at $87.48 a barrel.
The Bush administration yesterday announced new sanctions against Iran that designate the Iranian Revolutionary Guard Corps as a proliferator of weapons of mass destruction and its Quds force as a supporter of terrorism.
Secretary of State Condoleezza Rice, who joined Treasury Secretary Henry Paulson in announcing the sanctions, said the steps were designed ``to increase the costs to Iran of its irresponsible behavior.''
The U.S. is trying to get Iran to halt uranium enrichment that it suspects is aimed at developing nuclear weapons. Iran, which holds the world's second-largest oil and natural gas reserves, says it wants to enrich uranium to produce electricity. The dispute has bolstered oil prices since January 2006 because of concern that oil shipments from the country might be cut.
Turkey Warning
Turkey warned of a wider military assault into northern Iraq and called on the U.S. to join the fight as the army shelled suspected militant camps over the Iraqi border.
Turkey won't stand by after Iraq allowed members of the Kurdistan Workers' Party, or PKK, to use bases on Iraqi territory for attacks that left 42 Turks dead this month, President Abdullah Gul said yesterday in Ankara. Shelling by Turkish artillery of the Iraqi side of the border continued yesterday, CNN Turk reported.
``The U.S. sanctions against Iran seem to be pushing things to some sort of confrontation,'' said Fat Prophet's Wendt. ``When you're talking Iran and Iraq, two of the biggest holders of oil reserves, no wonder markets are nervous.''
Dollar Effect
The dollar approached a record low against the euro after reports showed U.S. orders for durable goods fell unexpectedly and initial jobless claims were higher than forecast, signaling economic growth may weaken. Slower growth supports the argument for the Federal Reserve to cut interest rates next week.
China yesterday said its economy, the biggest contributor to global growth, expanded 11.5 percent in the third quarter from a year earlier.
``The currency is really holding up commodities market generally,'' ANZ Bank's Pervan said. ``Dovetailing that with strong Chinese growth yesterday, it's enough to give oil that extra momentum.''
OPEC `Surprising'
The Organization of Petroleum Exporting Countries, supplier of about 40 percent of the world's oil, doesn't plan additional output even with record oil prices, Venezuelan Energy Minister Rafael Ramirez told reporters in Caracas yesterday.
``There is enough oil in the market,'' Ramirez said. OPEC is ``not planning to increase production.''
OPEC's refusal to consider an increase is surprising, said Gerard Burg, a minerals and energy economist at National Australia Bank Ltd. in Melbourne.
``I wouldn't have thought that the majority of producers would be happy with prices above $90,'' Burg said. ``I would have thought that the force of Saudi Arabia and its more dovish supporters might have brought a bit more oil on.''
``There seems to be a consensus view that there's enough oil in the market, it's really just concerns that are driving it,'' Burg said.
Dollar Falls to Record Low Versus Euro as Bets on Fed Cut Mount
By Stanley White and Kosuke Goto
Oct. 26 (Bloomberg) -- The dollar fell to a record low against the euro on speculation a slowing U.S. economy and finance industry losses will prompt the Federal Reserve to lower interest rates on Oct. 31.
The dollar headed for a third weekly decline versus the single European currency after reports showed an unexpected drop in U.S. durable goods orders and a worsening slump in housing. American International Group Inc.'s shares yesterday fell the most since August on speculation the world's largest insurer will write down assets linked to subprime mortgages.
``The market is now building in the chance of further Fed cuts beyond next week, so from that perspective it is certainly very bearish for the dollar,'' said Sue Trinh, a currency strategist at RBC Capital Markets in Sydney.
The U.S. currency declined to an all-time low of $1.4364 per euro at 7:30 a.m. in London from $1.4324 late yesterday in New York. The dollar is down 0.4 percent against the euro this week. It has lost 8 percent this year. It will drop to $1.45 by year- end, Trinh forecast.
The dollar was at 114.42 yen, a 0.1 percent loss from Oct. 19, and fell as low as 91.25 cents against Australia's dollar, the weakest since May 1984, poised for a 2.4 percent weekly decline. It headed for a 2.5 percent loss against the New Zealand dollar.
Consumer Sentiment
A Reuters/University of Michigan index of consumer sentiment, due to be issued at 10 a.m. in New York, will probably confirm confidence was the weakest this month since August 2006.
Interest-rate futures traded on the Chicago Board of Trade show an 86 percent chance the Fed will lower its rate a quarter- percentage point to 4.50 percent on Oct. 31. The odds were 70 percent a week ago. Traders see a 14 percent chance of a half- point cut. The European Central bank kept its benchmark rate at 4 percent on Oct. 4.
The U.S. currency fell against the Singapore dollar to a 10- year low of S$1.4537, down 0.6 percent for the week. The worst housing slump in 16 years has deepened as the riskiest borrowers default on home loans at a record pace, causing losses at Wall Street firms.
``With the numbers of unsold houses rising, the U.S. won't be able to break out of its housing slump for one year,'' said Yuji Kameoka, a senior economist and currency analyst at Daiwa Institute of Research in Tokyo. ``This will depress consumer confidence, adversely affecting the real economy and the dollar,'' which may fall to 112 yen by year-end, he said.
Deflation, BOJ
The yen headed for a 2 percent decline against the Australian and New Zealand dollars this week after government data showed Japan's consumer prices fell for an eighth consecutive month, damping the outlook for an increase in interest rates.
Core consumer prices, which exclude fresh food, dropped 0.1 percent in September from a year earlier, matching economists' forecasts. Industrial production fell 1.4 percent in September from a month earlier, more than the median estimate for a 1.2 percent decline.
The end of Japan's battle to escape deflation has been ``delayed,'' Economic and Fiscal Policy Minister Hiroko Ota said at a briefing after the data.
The yen has fallen against 12 of the 16 most-active currencies in the past year as investors borrowed in Japan to purchase higher-yielding currencies in so-called carry trades. The Bank of Japan may leave its benchmark rate unchanged at 0.5 percent and lower its growth and inflation forecasts when it meets Oct. 31, according to economists.
``Weak consumer price numbers will encourage yen carry trades,'' said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. ``The BOJ may lower its forecasts next week, making it unreasonable to expect a rate hike soon.''
The yen traded at 164.24 against the euro, the lowest since Oct. 19, from 163.54 yesterday.
In a carry trade, investors get funds in a country with low borrowing costs and invest in one with higher interest rates, earning the spread between the borrowing and lending rate. The risk is that currency market moves erase those profits.
Oct. 26 (Bloomberg) -- The dollar fell to a record low against the euro on speculation a slowing U.S. economy and finance industry losses will prompt the Federal Reserve to lower interest rates on Oct. 31.
The dollar headed for a third weekly decline versus the single European currency after reports showed an unexpected drop in U.S. durable goods orders and a worsening slump in housing. American International Group Inc.'s shares yesterday fell the most since August on speculation the world's largest insurer will write down assets linked to subprime mortgages.
``The market is now building in the chance of further Fed cuts beyond next week, so from that perspective it is certainly very bearish for the dollar,'' said Sue Trinh, a currency strategist at RBC Capital Markets in Sydney.
The U.S. currency declined to an all-time low of $1.4364 per euro at 7:30 a.m. in London from $1.4324 late yesterday in New York. The dollar is down 0.4 percent against the euro this week. It has lost 8 percent this year. It will drop to $1.45 by year- end, Trinh forecast.
The dollar was at 114.42 yen, a 0.1 percent loss from Oct. 19, and fell as low as 91.25 cents against Australia's dollar, the weakest since May 1984, poised for a 2.4 percent weekly decline. It headed for a 2.5 percent loss against the New Zealand dollar.
Consumer Sentiment
A Reuters/University of Michigan index of consumer sentiment, due to be issued at 10 a.m. in New York, will probably confirm confidence was the weakest this month since August 2006.
Interest-rate futures traded on the Chicago Board of Trade show an 86 percent chance the Fed will lower its rate a quarter- percentage point to 4.50 percent on Oct. 31. The odds were 70 percent a week ago. Traders see a 14 percent chance of a half- point cut. The European Central bank kept its benchmark rate at 4 percent on Oct. 4.
The U.S. currency fell against the Singapore dollar to a 10- year low of S$1.4537, down 0.6 percent for the week. The worst housing slump in 16 years has deepened as the riskiest borrowers default on home loans at a record pace, causing losses at Wall Street firms.
``With the numbers of unsold houses rising, the U.S. won't be able to break out of its housing slump for one year,'' said Yuji Kameoka, a senior economist and currency analyst at Daiwa Institute of Research in Tokyo. ``This will depress consumer confidence, adversely affecting the real economy and the dollar,'' which may fall to 112 yen by year-end, he said.
Deflation, BOJ
The yen headed for a 2 percent decline against the Australian and New Zealand dollars this week after government data showed Japan's consumer prices fell for an eighth consecutive month, damping the outlook for an increase in interest rates.
Core consumer prices, which exclude fresh food, dropped 0.1 percent in September from a year earlier, matching economists' forecasts. Industrial production fell 1.4 percent in September from a month earlier, more than the median estimate for a 1.2 percent decline.
The end of Japan's battle to escape deflation has been ``delayed,'' Economic and Fiscal Policy Minister Hiroko Ota said at a briefing after the data.
The yen has fallen against 12 of the 16 most-active currencies in the past year as investors borrowed in Japan to purchase higher-yielding currencies in so-called carry trades. The Bank of Japan may leave its benchmark rate unchanged at 0.5 percent and lower its growth and inflation forecasts when it meets Oct. 31, according to economists.
``Weak consumer price numbers will encourage yen carry trades,'' said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. ``The BOJ may lower its forecasts next week, making it unreasonable to expect a rate hike soon.''
The yen traded at 164.24 against the euro, the lowest since Oct. 19, from 163.54 yesterday.
In a carry trade, investors get funds in a country with low borrowing costs and invest in one with higher interest rates, earning the spread between the borrowing and lending rate. The risk is that currency market moves erase those profits.
Wednesday, October 24, 2007
ANZ, Insulated From Credit Crisis, Has Record Profit (Update2)
By Stuart Kelly
Oct. 25 (Bloomberg) -- Australia & New Zealand Banking Group Ltd. posted record second-half profit as the fastest revenue growth in seven years and increased deposits insulated the bank from higher global funding costs.
Net income at Australia's third-largest bank climbed 11 percent to A$2.08 billion ($1.88 billion) in the six months ended Sept. 30, from A$1.88 billion a year earlier, the Melbourne-based bank said in a statement today.
Deposits surged 17 percent at ANZ for the full year, stoking a 10 percent gain in revenue. Australian banks are drawing on customers' savings to help fund the quickest lending growth in 18 years while non-bank companies such as Rams Home Loans Group struggle to finance mortgages in debt markets.
``If anything, the big banks like ANZ are set to benefit as subprime shakes out the competition from non-bank lenders,'' said Atul Lele, who helps manage the equivalent of $380 million, including ANZ shares, at White Funds Management in Sydney before the result. ``I'm very enthusiastic that we'll keep seeing stronger earnings.''
ANZ Bank's results may herald increased earnings at National Australia Bank Ltd., the nation's biggest, and Westpac Banking Corp., which report in coming weeks. Westpac, the fourth-largest, bought Rams's 92 outlets this month after the lender failed to refinance more than A$6 billion of loans.
Bank Stocks
ANZ shares fell 87 cents, or 2.8 percent, to A$30.24 at 10:57 a.m. in Sydney after full-year cash profit of A$3.92 billion missed some analysts estimates and the company failed to provide an earnings forecast. The stock has risen 7.2 percent this year, compared with a 12 percent gain in Australia's eight-member S&P/ASX 200 Banks Index. The 24-member KBW Banks Index in the U.S. dropped 14 percent this year as subprime lending losses dented investor confidence.
The bank trades at 14.8 times estimated 2008 earnings, compared with 11.1 times for Citigroup Inc., the biggest U.S. bank, and 10.5 times for Bank of America Corp., the No. 2.
ANZ's full-year profit rose 13 percent to A$4.18 billion, or A$2.24 per share. The bank opened 39 branches and increased staff by 9 percent in 2007.
Chief Executive Officer Michael Smith, who joined the bank this month from HSBC Holdings Plc, forecast continued revenue growth as the bank estimated Australia's economy will expand for a 17th year.
``Banks have been absorbing the increased cost of funding,'' Smith said. ``We expect income growth to outstretch cost growth in the foreseeable future.''
Subprime Impact
Australian banks' lending to households and businesses rose 16.2 percent in the 12 months ended Aug. 31, the fastest annual pace since Oct. 1989, according to central bank data.
Limited investment in the U.S. subprime mortgage market, the small size of the local non-bank home loan industry and lower bad debts relative to global peers enabled Australian banks to shrug off most of the effects of the worst credit-market shakeout since 1998, the central bank said last month.
``The growth in lending and deposits is going to be a feature of the reporting season, and will put large banks like ANZ in a pretty good position to weather most of the effects of the credit slump,'' said Jason Teh, who helps manage the equivalent of about $5.4 billion, including ANZ shares, at Investors Mutual in Sydney. ``We'll see banks gradually passing on higher funding costs to consumers and stealing market share from the smaller non-bank lenders.''
Asian Expansion
Smith joined ANZ Oct. 1 from HSBC to spearhead the company's expansion in Asia, where the bank has more investments than its local rivals.
Profit from Asian businesses jumped 37 percent for the full year, outpacing other regions. Earnings from the Australian business rose 16 percent, while New Zealand profit climbed 10 percent.
ANZ last month completed a $263 million purchase of a 19.9 percent stake in Shanghai Rural Commercial Bank. It has operated in China for 21 years and was the first Australian lender to open an office in the country in 1986.
ANZ will pay a second-half dividend of 74 cents a share, up from 69 cents a year earlier.
Oct. 25 (Bloomberg) -- Australia & New Zealand Banking Group Ltd. posted record second-half profit as the fastest revenue growth in seven years and increased deposits insulated the bank from higher global funding costs.
Net income at Australia's third-largest bank climbed 11 percent to A$2.08 billion ($1.88 billion) in the six months ended Sept. 30, from A$1.88 billion a year earlier, the Melbourne-based bank said in a statement today.
Deposits surged 17 percent at ANZ for the full year, stoking a 10 percent gain in revenue. Australian banks are drawing on customers' savings to help fund the quickest lending growth in 18 years while non-bank companies such as Rams Home Loans Group struggle to finance mortgages in debt markets.
``If anything, the big banks like ANZ are set to benefit as subprime shakes out the competition from non-bank lenders,'' said Atul Lele, who helps manage the equivalent of $380 million, including ANZ shares, at White Funds Management in Sydney before the result. ``I'm very enthusiastic that we'll keep seeing stronger earnings.''
ANZ Bank's results may herald increased earnings at National Australia Bank Ltd., the nation's biggest, and Westpac Banking Corp., which report in coming weeks. Westpac, the fourth-largest, bought Rams's 92 outlets this month after the lender failed to refinance more than A$6 billion of loans.
Bank Stocks
ANZ shares fell 87 cents, or 2.8 percent, to A$30.24 at 10:57 a.m. in Sydney after full-year cash profit of A$3.92 billion missed some analysts estimates and the company failed to provide an earnings forecast. The stock has risen 7.2 percent this year, compared with a 12 percent gain in Australia's eight-member S&P/ASX 200 Banks Index. The 24-member KBW Banks Index in the U.S. dropped 14 percent this year as subprime lending losses dented investor confidence.
The bank trades at 14.8 times estimated 2008 earnings, compared with 11.1 times for Citigroup Inc., the biggest U.S. bank, and 10.5 times for Bank of America Corp., the No. 2.
ANZ's full-year profit rose 13 percent to A$4.18 billion, or A$2.24 per share. The bank opened 39 branches and increased staff by 9 percent in 2007.
Chief Executive Officer Michael Smith, who joined the bank this month from HSBC Holdings Plc, forecast continued revenue growth as the bank estimated Australia's economy will expand for a 17th year.
``Banks have been absorbing the increased cost of funding,'' Smith said. ``We expect income growth to outstretch cost growth in the foreseeable future.''
Subprime Impact
Australian banks' lending to households and businesses rose 16.2 percent in the 12 months ended Aug. 31, the fastest annual pace since Oct. 1989, according to central bank data.
Limited investment in the U.S. subprime mortgage market, the small size of the local non-bank home loan industry and lower bad debts relative to global peers enabled Australian banks to shrug off most of the effects of the worst credit-market shakeout since 1998, the central bank said last month.
``The growth in lending and deposits is going to be a feature of the reporting season, and will put large banks like ANZ in a pretty good position to weather most of the effects of the credit slump,'' said Jason Teh, who helps manage the equivalent of about $5.4 billion, including ANZ shares, at Investors Mutual in Sydney. ``We'll see banks gradually passing on higher funding costs to consumers and stealing market share from the smaller non-bank lenders.''
Asian Expansion
Smith joined ANZ Oct. 1 from HSBC to spearhead the company's expansion in Asia, where the bank has more investments than its local rivals.
Profit from Asian businesses jumped 37 percent for the full year, outpacing other regions. Earnings from the Australian business rose 16 percent, while New Zealand profit climbed 10 percent.
ANZ last month completed a $263 million purchase of a 19.9 percent stake in Shanghai Rural Commercial Bank. It has operated in China for 21 years and was the first Australian lender to open an office in the country in 1986.
ANZ will pay a second-half dividend of 74 cents a share, up from 69 cents a year earlier.
Bank of America Cuts 3,000 Jobs, Shakes Up Management (Update3)
By David Mildenberg
Oct. 24 (Bloomberg) -- Bank of America Corp., the second- largest U.S. bank, will eliminate 3,000 jobs and replace the head of global corporate and investment banking after the unit's third-quarter profit plunged 93 percent.
Brian Moynihan, head of wealth management at the Charlotte, North Carolina-based company, will succeed Gene Taylor as head of the 20,000-person division, according to a statement. Most of the jobs will be cut from the investment bank, spokesman Robert Stickler said in an interview.
Chief Executive Officer Ken Lewis said Oct. 18 he would scale back the investment bank following about $4 billion of trading losses, defaults and writedowns at the company in the third quarter. Lewis blamed the losses mostly on the bank's own mistakes, as well as turmoil in credit markets.
``These cuts are higher than what I was anticipating,'' Jefferson Harralson, an analyst in Atlanta at KBW Inc., said in an interview. ``Ken Lewis was clearly disappointed by the performance and the bank's risk management. He is moving quickly to boost earnings for next year.''
The job cuts represent less than 2 percent of the total workforce and involve business lending, treasury services, capital markets and advisory service employees, the bank said.
Bank of America fell 30 cents to $47.48 in New York Stock Exchange composite transactions and dropped as low as $47.20 in extended trading. The shares have lost 11 percent this year. Third-quarter profit fell 32 percent to $3.7 billion, the bank said last week.
Strategic Review
``While some of these changes are a direct result of our underperformance, others have been contemplated for a number of months as we looked at how we could operate more effectively,'' Lewis said in the statement.
The bank has started a review of the investment bank to make it more effective, the statement said. The study is likely to be complete by early next year, Chief Financial Officer Joe Price said last week.
Moynihan, 48, joined the bank in 2004 when it acquired Boston-based FleetBoston Financial, where he led the brokerage and wealth management business. He joined Fleet Financial Group in 1993 as deputy general counsel. He is a graduate of Brown University and Notre Dame Law School.
Classmates in Training
Taylor, 60, became head of corporate and investment banking in 2005. He joined the former NCNB Corp. in 1969 and was in the same training class as Lewis. Taylor was president of Florida banking operations for most of the 1990s. After the 1998 merger with BankAmerica, he moved to San Francisco to run consumer and commercial banking in the California-based bank's territory. He returned to Charlotte as president of the consumer and commercial bank in 2001.
Keith Banks, 51, president of the bank's asset management organization, Columbia Management, will succeed Moynihan as president of global wealth and investment management. He will be based in Boston
Oct. 24 (Bloomberg) -- Bank of America Corp., the second- largest U.S. bank, will eliminate 3,000 jobs and replace the head of global corporate and investment banking after the unit's third-quarter profit plunged 93 percent.
Brian Moynihan, head of wealth management at the Charlotte, North Carolina-based company, will succeed Gene Taylor as head of the 20,000-person division, according to a statement. Most of the jobs will be cut from the investment bank, spokesman Robert Stickler said in an interview.
Chief Executive Officer Ken Lewis said Oct. 18 he would scale back the investment bank following about $4 billion of trading losses, defaults and writedowns at the company in the third quarter. Lewis blamed the losses mostly on the bank's own mistakes, as well as turmoil in credit markets.
``These cuts are higher than what I was anticipating,'' Jefferson Harralson, an analyst in Atlanta at KBW Inc., said in an interview. ``Ken Lewis was clearly disappointed by the performance and the bank's risk management. He is moving quickly to boost earnings for next year.''
The job cuts represent less than 2 percent of the total workforce and involve business lending, treasury services, capital markets and advisory service employees, the bank said.
Bank of America fell 30 cents to $47.48 in New York Stock Exchange composite transactions and dropped as low as $47.20 in extended trading. The shares have lost 11 percent this year. Third-quarter profit fell 32 percent to $3.7 billion, the bank said last week.
Strategic Review
``While some of these changes are a direct result of our underperformance, others have been contemplated for a number of months as we looked at how we could operate more effectively,'' Lewis said in the statement.
The bank has started a review of the investment bank to make it more effective, the statement said. The study is likely to be complete by early next year, Chief Financial Officer Joe Price said last week.
Moynihan, 48, joined the bank in 2004 when it acquired Boston-based FleetBoston Financial, where he led the brokerage and wealth management business. He joined Fleet Financial Group in 1993 as deputy general counsel. He is a graduate of Brown University and Notre Dame Law School.
Classmates in Training
Taylor, 60, became head of corporate and investment banking in 2005. He joined the former NCNB Corp. in 1969 and was in the same training class as Lewis. Taylor was president of Florida banking operations for most of the 1990s. After the 1998 merger with BankAmerica, he moved to San Francisco to run consumer and commercial banking in the California-based bank's territory. He returned to Charlotte as president of the consumer and commercial bank in 2001.
Keith Banks, 51, president of the bank's asset management organization, Columbia Management, will succeed Moynihan as president of global wealth and investment management. He will be based in Boston
Japan's Commodities Shares Rise on Expectations of Fed Rate Cut
By Patrick Rial
Oct. 25 (Bloomberg) -- Japanese commodities-related shares such as Mitsui & Co. advanced on speculation the U.S. Federal Reserve will lower interest rates at its next meeting.
Mitsui & Co., the nation's second-biggest trading house, surged 3.4 percent. Lower interest rates will boost liquidity and many investors and strategists are predicting that the newly available money will be used to purchase commodities, bolstering prices.
Mizuho Financial Group Inc. led financial stocks lower after Merrill Lynch & Co. reported its biggest quarterly loss ever and U.S. existing home sales plunged, increasing concern the subprime crisis is worsening.
Mortgage defaults by people with poor credit histories have triggered a worldwide rout in debt and stock markets, spurring losses for investment banks and sending the U.S. housing market into recession.
The U.S. earnings and economic reports prompted speculation that the Federal Reserve will lower interest rates at its meeting next week to bolster the economy.
``As long as the U.S. is in turmoil, gains will be hard to come by over here,'' said Juichi Wako, a strategist at Nomura Securities Co. in Tokyo. ``We could see some support from the heightened rate cut expectations, but we've got to watch out for the stronger yen.''
The Topix index fell 6.54 point, or 0.4 percent, to 1,557.32 as of 9:19 a.m. in Tokyo. The Nikkei 225 Stock Average rose 28.74, or 0.2 percent, to 16,387.13.
Nikkei futures expiring in December rose 0.3 percent to 16,420 in Osaka and gained 0.2 percent to 16,415 in Singapore.
In other Asian markets open for trading, Australia's S&P/ASX 200 Index rose 0.2 percent and South Korea's Kospi index jumped 2.2 percent.
Oct. 25 (Bloomberg) -- Japanese commodities-related shares such as Mitsui & Co. advanced on speculation the U.S. Federal Reserve will lower interest rates at its next meeting.
Mitsui & Co., the nation's second-biggest trading house, surged 3.4 percent. Lower interest rates will boost liquidity and many investors and strategists are predicting that the newly available money will be used to purchase commodities, bolstering prices.
Mizuho Financial Group Inc. led financial stocks lower after Merrill Lynch & Co. reported its biggest quarterly loss ever and U.S. existing home sales plunged, increasing concern the subprime crisis is worsening.
Mortgage defaults by people with poor credit histories have triggered a worldwide rout in debt and stock markets, spurring losses for investment banks and sending the U.S. housing market into recession.
The U.S. earnings and economic reports prompted speculation that the Federal Reserve will lower interest rates at its meeting next week to bolster the economy.
``As long as the U.S. is in turmoil, gains will be hard to come by over here,'' said Juichi Wako, a strategist at Nomura Securities Co. in Tokyo. ``We could see some support from the heightened rate cut expectations, but we've got to watch out for the stronger yen.''
The Topix index fell 6.54 point, or 0.4 percent, to 1,557.32 as of 9:19 a.m. in Tokyo. The Nikkei 225 Stock Average rose 28.74, or 0.2 percent, to 16,387.13.
Nikkei futures expiring in December rose 0.3 percent to 16,420 in Osaka and gained 0.2 percent to 16,415 in Singapore.
In other Asian markets open for trading, Australia's S&P/ASX 200 Index rose 0.2 percent and South Korea's Kospi index jumped 2.2 percent.
New Zealand Leaves Key Interest Rate at Record High (Update2)
By Tracy Withers
Oct. 25 (Bloomberg) -- New Zealand's central bank left its benchmark interest rate unchanged at 8.25 percent, saying record-high borrowing costs haven't yet stemmed inflation.
``The labor market remains tight, domestic income growth continues to expand on the back of strong commodity prices and core inflationary pressures persist,'' Reserve Bank Governor Alan Bollard said in a statement released in Wellington today.
Bollard, who raised interest rates four times between March and July, predicts inflation will be at the top of the 1 percent-to-3 percent band he targets until late 2009. Keeping rates high helps underpin demand for the New Zealand dollar, a favorite for the carry trade where funds are borrowed cheaply in yen and invested in higher-yielding currencies.
``It's a case of the Reserve Bank being still worried about inflation, not panicking yet, but certainly easing is a long way off,'' said Khoon Goh, economist at ANZ National Bank Ltd. in Wellington. ``Ultimately the yield remains very supportive of the currency, there's no doubt about that.''
The New Zealand dollar bought 75.47 U.S. cents at 9:45 a.m. in Wellington from 75.42 cents immediately before the statement.
The currency has gained 14 percent against the U.S. dollar and 9.4 percent versus the yen in the past 12 months. New Zealand's benchmark is 7.75 percentage points higher than Japan's and 3.5 points above the Federal Reserve's target.
``The New Zealand dollar remains relatively high, restraining the externally focused sector of the economy,'' Bollard said today.
Exports such as dairy products, meat and wool make up 30 percent of the $102 billion economy. Tourism accounts for about 10 percent.
Fiscal Policy
The current benchmark rate is consistent with the inflation target, Bollard said. Still, government spending or tax cuts, rising world food prices and the direct effects of a proposed emissions trading plan are risks to inflation, he said.
``Despite ongoing surpluses in the government's operating balance, fiscal policy is contributing to inflationary pressure,'' Bollard said. ``Any further easing in fiscal policy beyond that already announced will add further upside risks to medium-term inflation.''
Finance Minister Michael Cullen runs a budget surplus which he says drains demand from the economy. He has increased payments to families, provided tax incentives to save and will cut company taxes from April 1.
Tax Cuts
On Oct. 10, Cullen said there was ``headroom'' in the government's budgets to cut income taxes before next year's general election.
Last month, Bollard forecast annual inflation will accelerate to 3 percent by the end of 2007 and be 3.1 percent a year later. Inflation will slow to 2.6 percent by the end of 2009, he predicted.
Consumer prices rose 1.8 percent in the year ended Sept. 30, held down by a slump in gasoline prices late last year and government policies which cut the cost of childcare and visits to doctors.
The outlook for the economy and interest rates is ``broadly consistent'' with the September outlook, Bollard said today.
Record fuel and commodity prices are underpinning inflation, and the New Zealand dollar's 6.4 percent fall against the U.S. dollar the past three months makes imports even more expensive.
Milk Soars
World dairy prices have more than doubled the past year, prompting suppliers to raise the price of cheese and butter in local stores. Egg and bacon prices are rising as the cost of feed increases. Gasoline prices have jumped 9.8 percent this year as crude oil reached a record last week.
New Zealand's jobless rate fell to 3.6 percent in the second quarter, and could drop further. About 44 percent of firms surveyed by the New Zealand Institute of Economic Research last month said it was harder to find skilled workers, adding to signs that wages may increase to attract and retain staff.
Record-high world prices for products such as milk powder, cheese and yoghurt will also buoy the incomes of dairy farmers, which may fan spending.
Auckland-based Fonterra Cooperative Group Ltd., the world's biggest exporter of dairy products, will pay its 10,900 farmers about NZ$2.6 billion ($2 billion) more for milk this season.
All 15 economists surveyed by Bloomberg News forecast today's decision. Twelve expect no change in rates until at least July, two forecast a cut and one predicts two increases.
Central Banks
Central banks around the world have been reluctant to raise borrowing costs as they assess whether the U.S. subprime mortgage rout will derail global economic growth.
The Reserve Bank of Australia kept its benchmark rate at 6.5 percent. The Federal Reserve cut its benchmark by 0.5 percentage points to 4.75 percent and may cut by another quarter point on Oct. 31, according to futures markets.
``Considerable uncertainty remains'' in world markets, Bollard said. ``This poses a downside risk for our key trading partner economies.''
Evidence is mounting that consumer spending and housing demand are slowing as home-loan interest rates increase. The rate on a two-year mortgage averaged 9.2 percent in August from 8.1 percent a year earlier, according to central bank figures.
``There are signs the housing market is moderating,'' Bollard said.
House sales had their biggest annual decline in more than nine years in September, according to the Real Estate Institute.
Retail sales rose in August at the half the pace expected. Annual immigration was at a 19-month low in September, which may further curb demand.
Oct. 25 (Bloomberg) -- New Zealand's central bank left its benchmark interest rate unchanged at 8.25 percent, saying record-high borrowing costs haven't yet stemmed inflation.
``The labor market remains tight, domestic income growth continues to expand on the back of strong commodity prices and core inflationary pressures persist,'' Reserve Bank Governor Alan Bollard said in a statement released in Wellington today.
Bollard, who raised interest rates four times between March and July, predicts inflation will be at the top of the 1 percent-to-3 percent band he targets until late 2009. Keeping rates high helps underpin demand for the New Zealand dollar, a favorite for the carry trade where funds are borrowed cheaply in yen and invested in higher-yielding currencies.
``It's a case of the Reserve Bank being still worried about inflation, not panicking yet, but certainly easing is a long way off,'' said Khoon Goh, economist at ANZ National Bank Ltd. in Wellington. ``Ultimately the yield remains very supportive of the currency, there's no doubt about that.''
The New Zealand dollar bought 75.47 U.S. cents at 9:45 a.m. in Wellington from 75.42 cents immediately before the statement.
The currency has gained 14 percent against the U.S. dollar and 9.4 percent versus the yen in the past 12 months. New Zealand's benchmark is 7.75 percentage points higher than Japan's and 3.5 points above the Federal Reserve's target.
``The New Zealand dollar remains relatively high, restraining the externally focused sector of the economy,'' Bollard said today.
Exports such as dairy products, meat and wool make up 30 percent of the $102 billion economy. Tourism accounts for about 10 percent.
Fiscal Policy
The current benchmark rate is consistent with the inflation target, Bollard said. Still, government spending or tax cuts, rising world food prices and the direct effects of a proposed emissions trading plan are risks to inflation, he said.
``Despite ongoing surpluses in the government's operating balance, fiscal policy is contributing to inflationary pressure,'' Bollard said. ``Any further easing in fiscal policy beyond that already announced will add further upside risks to medium-term inflation.''
Finance Minister Michael Cullen runs a budget surplus which he says drains demand from the economy. He has increased payments to families, provided tax incentives to save and will cut company taxes from April 1.
Tax Cuts
On Oct. 10, Cullen said there was ``headroom'' in the government's budgets to cut income taxes before next year's general election.
Last month, Bollard forecast annual inflation will accelerate to 3 percent by the end of 2007 and be 3.1 percent a year later. Inflation will slow to 2.6 percent by the end of 2009, he predicted.
Consumer prices rose 1.8 percent in the year ended Sept. 30, held down by a slump in gasoline prices late last year and government policies which cut the cost of childcare and visits to doctors.
The outlook for the economy and interest rates is ``broadly consistent'' with the September outlook, Bollard said today.
Record fuel and commodity prices are underpinning inflation, and the New Zealand dollar's 6.4 percent fall against the U.S. dollar the past three months makes imports even more expensive.
Milk Soars
World dairy prices have more than doubled the past year, prompting suppliers to raise the price of cheese and butter in local stores. Egg and bacon prices are rising as the cost of feed increases. Gasoline prices have jumped 9.8 percent this year as crude oil reached a record last week.
New Zealand's jobless rate fell to 3.6 percent in the second quarter, and could drop further. About 44 percent of firms surveyed by the New Zealand Institute of Economic Research last month said it was harder to find skilled workers, adding to signs that wages may increase to attract and retain staff.
Record-high world prices for products such as milk powder, cheese and yoghurt will also buoy the incomes of dairy farmers, which may fan spending.
Auckland-based Fonterra Cooperative Group Ltd., the world's biggest exporter of dairy products, will pay its 10,900 farmers about NZ$2.6 billion ($2 billion) more for milk this season.
All 15 economists surveyed by Bloomberg News forecast today's decision. Twelve expect no change in rates until at least July, two forecast a cut and one predicts two increases.
Central Banks
Central banks around the world have been reluctant to raise borrowing costs as they assess whether the U.S. subprime mortgage rout will derail global economic growth.
The Reserve Bank of Australia kept its benchmark rate at 6.5 percent. The Federal Reserve cut its benchmark by 0.5 percentage points to 4.75 percent and may cut by another quarter point on Oct. 31, according to futures markets.
``Considerable uncertainty remains'' in world markets, Bollard said. ``This poses a downside risk for our key trading partner economies.''
Evidence is mounting that consumer spending and housing demand are slowing as home-loan interest rates increase. The rate on a two-year mortgage averaged 9.2 percent in August from 8.1 percent a year earlier, according to central bank figures.
``There are signs the housing market is moderating,'' Bollard said.
House sales had their biggest annual decline in more than nine years in September, according to the Real Estate Institute.
Retail sales rose in August at the half the pace expected. Annual immigration was at a 19-month low in September, which may further curb demand.
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