By Chua Kong Ho and Chen Shiyin
Jan. 31 (Bloomberg) -- Asian stocks rose on speculation the region's corporate earnings will withstand a slowdown in the U.S. after Honda Motor Co. raised its forecast and Hyundai Heavy Industries Co. reported a record profit.
Honda, Japan's second-largest automaker, climbed to a three- week high. Hyundai Heavy, the world's biggest shipbuilder, surged the most in four weeks. Seiko Epson Corp. and Esprit Holdings Ltd., the Hong Kong-based apparel retailer, both advanced after reporting higher earnings.
``Our strategy is to stay defensive and pick up selective shares that look cheap and whose earnings look resilient,'' said Teo Chon Kiat, who helps manage the equivalent of $16 billion at DBS Asset Management in Singapore. ``Investors are still concerned about a slowdown in the U.S. and the impact on export growth in the region.''
The MSCI Asia Pacific Index gained 1.8 percent to 143.73 at 3:53 p.m. in Tokyo, reversing an earlier loss of 0.6 percent. All 10 of the benchmark's industry groups advanced. The measure has fallen 8.9 percent this year, headed for its biggest monthly decline since September 2001.
The Nikkei 225 Stock Average Index added 1.9 percent to 13,592.47. South Korea's Kospi Index climbed 2.2 percent, the biggest advance in the region. Australia's S&P/ASX 200 Index had its steepest monthly decline since its history began in 1992.
U.S. stocks fell yesterday for the first time this week on concern that bond insurers guaranteeing $2.4 trillion in securities will lose AAA credit ratings, erasing a rally spurred by the Federal Reserve's interest-rate cut of half a percentage point. MBIA Inc., the world's largest bond insurer, posted today its biggest-ever quarterly loss.
Shipping Lines Gain
Korea Line Corp., South Korea's second-biggest bulk carrier, led the country's shipping lines higher after freight rates rose. Seiko Epson, the world's third-largest maker of inkjet printers, surged the most on record after reporting higher profit. Esprit Holdings, the Hong Kong-based apparel retailer, advanced after posting an increase in first-half profit.
Canon Inc., the world's largest camera maker, dropped in Tokyo after its profit forecast missed analyst estimates. Honda climbed 0.6 percent to 3,320 yen and raised its full-year net income forecast by 7.8 percent because of cost-cuts and higher sales of fuel-efficient cars in the U.S. and Asia.
Daihatsu Motor Co., 51 percent owned by Toyota Motor Corp., jumped 10 percent to 1,082 yen, the highest level since Dec. 26. The Japanese carmaker increased its profit forecast by 25 percent yesterday because of higher sales in Indonesia and Malaysia. Toyota climbed 5.4 percent to 5,820 yen.
Shipbuilders, Shipping Lines
Hyundai Heavy gained 9.1 percent to 312,000 won, rebounding from yesterday's biggest decline since Sept. 12, 2001. The South Korean shipyard reported a 79 percent increase in fourth-quarter profit to a record as it built more vessels to meet trade demand from Asia and Europe. Hyundai Mipo Dockyard Co., an affiliate of Hyundai Heavy, advanced 2.3 percent to 175,500 won, snapping a three-day, 29 percent plunge.
Korea Line soared by the exchange-imposed daily limit of 15 percent to 138,000 won. STX Pan Ocean Co., South Korea's biggest bulk carrier, jumped 15 percent to 1,970 won. Hanjin Shipping Co., the nation's No. 1 shipping line, climbed 9 percent to 32,650 won.
The Baltic Dry Index, a measure of shipping costs for commodities, rose 5.1 percent in London yesterday, its biggest gain in almost two years, after BHP Billiton Ltd. and Baosteel Group Corp. signed a 10-year supply contract for an extra 94 million tons of iron ore.
``The contract proves long-term iron-ore demand is still firm, also for the bulk carriers,'' said Ryu Je Hyun, an analyst at Mirae Asset Securities Co. in Hong Kong, who rates Korea Line as a ``buy.''
Canon Drops
Seiko Epson jumped 16 percent to 2,565 yen, the most since its initial share sale in June 2003, after third-quarter profit increased 40 percent. The stock had the biggest percentage gain on the MSCI World Index.
Esprit added 7.3 percent to HK$100.40 after posting a 37 percent increase in first-half profit.
Canon, also Japan's largest office equipment maker, fell 2.4 percent to 4,580 yen, after the company forecast its slowest annual profit growth this decade, citing weaker U.S. demand.
Thursday, January 31, 2008
Sony Lowers Profitability Target as Stronger Yen Erodes Exports
By Hiroshi Suzuki
Jan. 31 (Bloomberg) -- Sony Corp., the world's second- largest consumer-electronics company, cut its operating profit target as a stronger yen and weaker U.S. demand led to lower earnings at the unit that makes televisions and cameras.
Operating profit will be 410 billion yen ($3.85 billion), or 4.6 percent of revenue, in the year ending in March, Tokyo-based Sony said today in a statement. That's less than the 444.7 billion yen average of 19 analyst estimates compiled by Bloomberg and below the 5 percent margin the company had targeted.
Sony joins Canon Inc. in predicting earnings that missed estimates as the fallout from the subprime mortgage market weakens U.S. consumer spending. The company today also lowered its PlayStation 3 shipment target after its game consoles were outsold by Nintendo Co.'s Wii and Microsoft Corp.'s Xbox 360.
``Global economic conditions are going against the whole consumer electronics industry,'' Yasuhiko Hirakawa, who manages $80 billion of assets at DIAM Co. in Tokyo, said before the earnings announcement.
Third-quarter net income rose 25 percent to 200.2 billion yen in the three months ended Dec. 31, from 159.9 billion yen a year earlier, Sony said. Revenue gained 9.6 percent to 2.86 trillion yen.
The company was projected to report third-quarter net income of 190.4 billion yen, according to the median estimate of six analysts surveyed by Bloomberg. Sales exceeded the 2.75 trillion yen median estimated in the survey.
The company raised its full-year net income forecast by 3 percent to 340 billion yen after the games division turned profitable. The annual sales target was left unchanged.
Jan. 31 (Bloomberg) -- Sony Corp., the world's second- largest consumer-electronics company, cut its operating profit target as a stronger yen and weaker U.S. demand led to lower earnings at the unit that makes televisions and cameras.
Operating profit will be 410 billion yen ($3.85 billion), or 4.6 percent of revenue, in the year ending in March, Tokyo-based Sony said today in a statement. That's less than the 444.7 billion yen average of 19 analyst estimates compiled by Bloomberg and below the 5 percent margin the company had targeted.
Sony joins Canon Inc. in predicting earnings that missed estimates as the fallout from the subprime mortgage market weakens U.S. consumer spending. The company today also lowered its PlayStation 3 shipment target after its game consoles were outsold by Nintendo Co.'s Wii and Microsoft Corp.'s Xbox 360.
``Global economic conditions are going against the whole consumer electronics industry,'' Yasuhiko Hirakawa, who manages $80 billion of assets at DIAM Co. in Tokyo, said before the earnings announcement.
Third-quarter net income rose 25 percent to 200.2 billion yen in the three months ended Dec. 31, from 159.9 billion yen a year earlier, Sony said. Revenue gained 9.6 percent to 2.86 trillion yen.
The company was projected to report third-quarter net income of 190.4 billion yen, according to the median estimate of six analysts surveyed by Bloomberg. Sales exceeded the 2.75 trillion yen median estimated in the survey.
The company raised its full-year net income forecast by 3 percent to 340 billion yen after the games division turned profitable. The annual sales target was left unchanged.
Bernanke's Rate Cut, Growth Outlook Align Fed With Investors
By Scott Lanman
Jan. 31 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke and his critics in financial markets may finally be on the same page.
The central bank reduced its benchmark interest rate by half a point to 3 percent yesterday, eight days after an emergency three-quarter point move, the fastest easing of monetary policy since 1990. The Fed left the door open to more cuts by saying in its statement that ``downside risks to growth remain.''
The decisions alleviated some of the criticism investors and economists have directed at the Fed since August, when it was still saying inflation was the ``predominant'' risk. Bernanke, 54, who tomorrow marks the midpoint of his four-year term, played down price increases in this month's statements.
``Now that the language and the moves are coordinated and they're moving very aggressively, it's hard for anyone to say the Fed isn't on top of things,'' said Ethan Harris, chief U.S. economist at Lehman Brothers Holdings Inc. Last year, investors found Bernanke reluctant to lower rates to offset a credit squeeze and found some of his statements confusing, said Harris, a former New York Fed research manager.
The half-point reduction in the target rate for overnight loans between banks matched the forecast of the majority of economists in a Bloomberg News survey.
Traders expect policy makers to reduce the rate to 2.25 percent by mid-year, according to futures contracts quoted on the Chicago Board of Trade.
`Strong Leadership'
``What the Fed is telling us is they have come to recognize that they were behind the curve, that they put more emphasis on inflation than was warranted,'' said former Fed Governor Lyle Gramley, who's now a senior adviser at Stanford Group Co. in Washington. ``This is a case now of Bernanke realizing that he really has to be exercising very strong leadership.''
Bernanke signaled the shift in a Jan. 10 speech, stressing that ``we stand ready to take substantive additional action as needed,'' a message lacking from Federal Open Market Committee statements since September.
Last year, Bernanke opted to tackle a surge in banks' funding costs by lowering the rate on direct loans to banks and introducing a tool to auction funds to lenders, instead of more aggressive cuts in the benchmark rate.
Now, he is using the federal funds rate to address broader, deeper declines in stocks and housing, aiming to avoid the first recession since 2001. The Standard & Poor's 500 Index has fallen 14 percent from its October peak.
`Considerable Stress'
``Financial markets remain under considerable stress, and credit has tightened further for some businesses and households,'' the FOMC said yesterday.
Bernanke now looks ``pre-emptive and ahead of the curve, having cut 125 basis points in two weeks,'' said Steven Einhorn, vice chairman of Omega Advisors Inc., a New York-based hedge fund with about $5 billion under management. Earlier this month, he called the central bank ``tame, timid and tardy.''
The decision came hours after government figures showed growth slowed to an annualized rate of 0.6 percent, down from 4.9 percent in the previous three months.
``This ought to be enough, with any luck at all, to avoid a recession and put us back into fairly solid growth in the latter half of the year,'' said Gramley, who predicted yesterday's rate cut will prove to be the last.
At the same time, Bernanke may have earned himself fresh criticism from some economists who claim he has gone soft on inflation and risks unleashing new asset booms and busts.
`Significant' Inflation
``This Fed hasn't shown the willingness to disappoint financial markets and the expectations of rate cuts,'' John Ryding, chief U.S. economist at Bear Stearns Cos. in New York, said in an interview with Bloomberg Television. ``We are going to be headed towards more significant inflation problems.''
Yesterday's report on gross domestic product showed that consumer prices, excluding food and energy, rose at a 2.7 percent annualized pace last quarter, the second fastest in three years.
``Going forward, the Federal Reserve Board faces difficult decisions, because actions addressing difficulties in the economy and in credit markets could create unwanted problems for an already soft dollar,'' former Treasury Secretary Robert Rubin said late yesterday in a speech in New York.
The dollar fell to within 1 cent of a record low against the euro yesterday, while gold hit a record of $936.61 and crude oil advanced for a fifth day, to $92.33 a barrel.
The FOMC statements this month omitted mentions of risks that consumer prices may climb. Officials yesterday repeated the Jan. 22 language that they expect inflation to ``moderate in coming quarters'' and that they will ``monitor inflation developments carefully.''
The Dec. 11 statement, by contrast, said that ``some inflation risks remain'' because higher fuel and commodity costs ``may put upward pressure'' on prices.
``This is an all-out, no-recession policy with little concern about the inflation consequences,'' said Robert Eisenbeis, a former research director at the Atlanta Fed. ``The focus is on financial markets and credit disruptions.''
Jan. 31 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke and his critics in financial markets may finally be on the same page.
The central bank reduced its benchmark interest rate by half a point to 3 percent yesterday, eight days after an emergency three-quarter point move, the fastest easing of monetary policy since 1990. The Fed left the door open to more cuts by saying in its statement that ``downside risks to growth remain.''
The decisions alleviated some of the criticism investors and economists have directed at the Fed since August, when it was still saying inflation was the ``predominant'' risk. Bernanke, 54, who tomorrow marks the midpoint of his four-year term, played down price increases in this month's statements.
``Now that the language and the moves are coordinated and they're moving very aggressively, it's hard for anyone to say the Fed isn't on top of things,'' said Ethan Harris, chief U.S. economist at Lehman Brothers Holdings Inc. Last year, investors found Bernanke reluctant to lower rates to offset a credit squeeze and found some of his statements confusing, said Harris, a former New York Fed research manager.
The half-point reduction in the target rate for overnight loans between banks matched the forecast of the majority of economists in a Bloomberg News survey.
Traders expect policy makers to reduce the rate to 2.25 percent by mid-year, according to futures contracts quoted on the Chicago Board of Trade.
`Strong Leadership'
``What the Fed is telling us is they have come to recognize that they were behind the curve, that they put more emphasis on inflation than was warranted,'' said former Fed Governor Lyle Gramley, who's now a senior adviser at Stanford Group Co. in Washington. ``This is a case now of Bernanke realizing that he really has to be exercising very strong leadership.''
Bernanke signaled the shift in a Jan. 10 speech, stressing that ``we stand ready to take substantive additional action as needed,'' a message lacking from Federal Open Market Committee statements since September.
Last year, Bernanke opted to tackle a surge in banks' funding costs by lowering the rate on direct loans to banks and introducing a tool to auction funds to lenders, instead of more aggressive cuts in the benchmark rate.
Now, he is using the federal funds rate to address broader, deeper declines in stocks and housing, aiming to avoid the first recession since 2001. The Standard & Poor's 500 Index has fallen 14 percent from its October peak.
`Considerable Stress'
``Financial markets remain under considerable stress, and credit has tightened further for some businesses and households,'' the FOMC said yesterday.
Bernanke now looks ``pre-emptive and ahead of the curve, having cut 125 basis points in two weeks,'' said Steven Einhorn, vice chairman of Omega Advisors Inc., a New York-based hedge fund with about $5 billion under management. Earlier this month, he called the central bank ``tame, timid and tardy.''
The decision came hours after government figures showed growth slowed to an annualized rate of 0.6 percent, down from 4.9 percent in the previous three months.
``This ought to be enough, with any luck at all, to avoid a recession and put us back into fairly solid growth in the latter half of the year,'' said Gramley, who predicted yesterday's rate cut will prove to be the last.
At the same time, Bernanke may have earned himself fresh criticism from some economists who claim he has gone soft on inflation and risks unleashing new asset booms and busts.
`Significant' Inflation
``This Fed hasn't shown the willingness to disappoint financial markets and the expectations of rate cuts,'' John Ryding, chief U.S. economist at Bear Stearns Cos. in New York, said in an interview with Bloomberg Television. ``We are going to be headed towards more significant inflation problems.''
Yesterday's report on gross domestic product showed that consumer prices, excluding food and energy, rose at a 2.7 percent annualized pace last quarter, the second fastest in three years.
``Going forward, the Federal Reserve Board faces difficult decisions, because actions addressing difficulties in the economy and in credit markets could create unwanted problems for an already soft dollar,'' former Treasury Secretary Robert Rubin said late yesterday in a speech in New York.
The dollar fell to within 1 cent of a record low against the euro yesterday, while gold hit a record of $936.61 and crude oil advanced for a fifth day, to $92.33 a barrel.
The FOMC statements this month omitted mentions of risks that consumer prices may climb. Officials yesterday repeated the Jan. 22 language that they expect inflation to ``moderate in coming quarters'' and that they will ``monitor inflation developments carefully.''
The Dec. 11 statement, by contrast, said that ``some inflation risks remain'' because higher fuel and commodity costs ``may put upward pressure'' on prices.
``This is an all-out, no-recession policy with little concern about the inflation consequences,'' said Robert Eisenbeis, a former research director at the Atlanta Fed. ``The focus is on financial markets and credit disruptions.''
Subprime, CDO Bank Losses May Exceed $265 Billion, S&P Says
By Jody Shenn and David Mildenberg
Jan. 31 (Bloomberg) -- Losses from securities linked to subprime mortgages may exceed $265 billion as regional U.S. banks, credit unions and overseas financial institutions write down the value of their holdings, according to Standard & Poor's.
S&P cut or put on review yesterday the ratings on $534 billion of bonds and collateralized debt obligations tied to home loans made to people with poor credit, the most by the New York-based firm in response to rising mortgage delinquencies.
While banks and securities firms such as Citigroup Inc. and Merrill Lynch & Co. accounted for most of the $90 billion in writedowns to date, S&P said the next round will be borne mainly by smaller financial institutions in Europe, Asia, and the U.S. The ratings actions yesterday may create a ``ripple impact'' that further reduces prices of the securities, S&P said.
``There's a lack of confidence in the markets and this exacerbates that,'' said Anthony Davis, a banking analyst at Stifel Nicolaus & Co. in Florham Park, New Jersey. ``This will have a chilling effect on the markets.''
Almost half the subprime bonds rated by S&P in 2006 and early 2007 were cut or placed on review, potentially forcing credit unions and government-sponsored enterprises such as Fannie Mae, Freddie Mac and the 12 Federal Home Loan Banks to write down their holdings, the firm said. The securities represent $270.1 billion of subprime mortgage bonds and $263.9 billion of CDOs. About 35 percent of all CDOs comprised of asset-backed securities were put under review, S&P said.
Widespread `Implications'
``It is difficult to predict the magnitude of any such effect, but we believe it will have implications for trading revenues, general business activity, and liquidity for the banks,'' S&P said in a statement yesterday.
Some of the largest banks have already taken ``significant'' losses related to subprime mortgages and CDOs, and aren't likely to report more writedowns, S&P said. CDOs package assets into new securities with varying degrees of risk, from AAA to unrated classes.
Accounting rules have allowed smaller banks to avoid writing down their holdings until the credit ratings fell if they intended to keep them until maturity. S&P said it will review the ratings of smaller banks that are ``thinly capitalized.'' It didn't name any of the institutions.
The largest U.S. regional banks with the lowest Tier 1 capital ratios as of June 30 were Seattle-based Washington Mutual Inc.; Wachovia Corp. in Charlotte, North Carolina; National City Corp. of Cleveland; Atlanta-based SunTrust Banks Inc.; and Regions Financial Corp. in Birmingham, Alabama. Tier 1 capital measures a company's ability to cover losses.
Spokespeople for the banks either declined to comment or couldn't be reached for comment.
Credit Unions
The nation's biggest credit unions by assets include Navy Federal Credit Union in Vienna, Virginia; State Employees Credit Union in Raleigh, North Carolina; and Pentagon Federal Credit Union in Alexandria, Virginia, according to American Banker. Spokespeople for the credit unions didn't immediately return calls for comment.
Even before the S&P downgrades, analysts at Credit Suisse Group predicted that Washington-based Fannie Mae and Mclean, Virginia-based Freddie Mac, the two largest providers of mortgage financing, would write down their subprime holdings by $16 billion because they could no longer argue the declines would be reversed.
``We expect that the U.S. housing market, especially the subprime sector, will continue to decline before it improves, and we expect housing prices will continue to come under stress,'' S&P said in the report.
Foreclosures Increase
S&P's move came a day after RealtyTrac Inc. said the number of U.S. homeowners entering foreclosure climbed 75 percent in 2007 from a year earlier as mortgages became more difficult to refinance and falling property values made it tougher to sell.
More than 1 percent of U.S. households were in some stage of foreclosure during the year, up from 0.58 percent in 2006, according to RealtyTrac, an Irvine, California-based seller of real estate data. Home prices in 20 U.S. metropolitan areas fell 7.7 percent in November, the 11th consecutive decline, according to the S&P/Case-Shiller home-price index released this week.
The Federal Reserve yesterday cut its target interest rate for overnight loans between banks by half a percentage point to 3 percent, the lowest since June 2005. Lower borrowing costs may help borrowers of subprime loans by reducing the scheduled rate increases on their mortgages, according to reports by analysts at banks including Wachovia and JPMorgan Chase & Co. in New York.
Jan. 31 (Bloomberg) -- Losses from securities linked to subprime mortgages may exceed $265 billion as regional U.S. banks, credit unions and overseas financial institutions write down the value of their holdings, according to Standard & Poor's.
S&P cut or put on review yesterday the ratings on $534 billion of bonds and collateralized debt obligations tied to home loans made to people with poor credit, the most by the New York-based firm in response to rising mortgage delinquencies.
While banks and securities firms such as Citigroup Inc. and Merrill Lynch & Co. accounted for most of the $90 billion in writedowns to date, S&P said the next round will be borne mainly by smaller financial institutions in Europe, Asia, and the U.S. The ratings actions yesterday may create a ``ripple impact'' that further reduces prices of the securities, S&P said.
``There's a lack of confidence in the markets and this exacerbates that,'' said Anthony Davis, a banking analyst at Stifel Nicolaus & Co. in Florham Park, New Jersey. ``This will have a chilling effect on the markets.''
Almost half the subprime bonds rated by S&P in 2006 and early 2007 were cut or placed on review, potentially forcing credit unions and government-sponsored enterprises such as Fannie Mae, Freddie Mac and the 12 Federal Home Loan Banks to write down their holdings, the firm said. The securities represent $270.1 billion of subprime mortgage bonds and $263.9 billion of CDOs. About 35 percent of all CDOs comprised of asset-backed securities were put under review, S&P said.
Widespread `Implications'
``It is difficult to predict the magnitude of any such effect, but we believe it will have implications for trading revenues, general business activity, and liquidity for the banks,'' S&P said in a statement yesterday.
Some of the largest banks have already taken ``significant'' losses related to subprime mortgages and CDOs, and aren't likely to report more writedowns, S&P said. CDOs package assets into new securities with varying degrees of risk, from AAA to unrated classes.
Accounting rules have allowed smaller banks to avoid writing down their holdings until the credit ratings fell if they intended to keep them until maturity. S&P said it will review the ratings of smaller banks that are ``thinly capitalized.'' It didn't name any of the institutions.
The largest U.S. regional banks with the lowest Tier 1 capital ratios as of June 30 were Seattle-based Washington Mutual Inc.; Wachovia Corp. in Charlotte, North Carolina; National City Corp. of Cleveland; Atlanta-based SunTrust Banks Inc.; and Regions Financial Corp. in Birmingham, Alabama. Tier 1 capital measures a company's ability to cover losses.
Spokespeople for the banks either declined to comment or couldn't be reached for comment.
Credit Unions
The nation's biggest credit unions by assets include Navy Federal Credit Union in Vienna, Virginia; State Employees Credit Union in Raleigh, North Carolina; and Pentagon Federal Credit Union in Alexandria, Virginia, according to American Banker. Spokespeople for the credit unions didn't immediately return calls for comment.
Even before the S&P downgrades, analysts at Credit Suisse Group predicted that Washington-based Fannie Mae and Mclean, Virginia-based Freddie Mac, the two largest providers of mortgage financing, would write down their subprime holdings by $16 billion because they could no longer argue the declines would be reversed.
``We expect that the U.S. housing market, especially the subprime sector, will continue to decline before it improves, and we expect housing prices will continue to come under stress,'' S&P said in the report.
Foreclosures Increase
S&P's move came a day after RealtyTrac Inc. said the number of U.S. homeowners entering foreclosure climbed 75 percent in 2007 from a year earlier as mortgages became more difficult to refinance and falling property values made it tougher to sell.
More than 1 percent of U.S. households were in some stage of foreclosure during the year, up from 0.58 percent in 2006, according to RealtyTrac, an Irvine, California-based seller of real estate data. Home prices in 20 U.S. metropolitan areas fell 7.7 percent in November, the 11th consecutive decline, according to the S&P/Case-Shiller home-price index released this week.
The Federal Reserve yesterday cut its target interest rate for overnight loans between banks by half a percentage point to 3 percent, the lowest since June 2005. Lower borrowing costs may help borrowers of subprime loans by reducing the scheduled rate increases on their mortgages, according to reports by analysts at banks including Wachovia and JPMorgan Chase & Co. in New York.
U.K. House Prices Decline for a Third Month, Nationwide Says
By Craig Stirling
Jan. 31 (Bloomberg) -- U.K. home values fell for a third month in January, and the housing market will cool further as demand from property investors wanes, Nationwide Building Society said.
Prices fell 0.1 percent from December, when they dropped 0.4 percent to 180,473 pounds ($359,000), Britain's fourth-biggest mortgage lender, said today. From a year earlier, values rose 4.2 percent, the least in two years.
Home-loan approvals fell to the lowest in at least nine years last month as higher borrowing costs and a curb on lending helped drag out the worst housing slump for more than a decade. A slower market will go ``hand in hand'' with weaker consumer spending, Bank of England Governor Mervyn King said last week.
The mortgage data ``undoubtedly signals a continued cooling in annual house-price inflation,'' Martin Gahbauer, a senior economist at Nationwide, said in a statement. ``New demand from buy-to-let investors is likely to weaken in 2008.''
Consumers, already burdened with record 1.4 trillion pounds of debt, face higher costs for loans after banks around the globe posted at least $133 billion in losses from the collapse of the U.S. subprime mortgage market.
The average rate on a two-year fixed-rate mortgage for 95 percent of a property's value rose to 6.53 percent in December from 6.44 percent the month before, according to the Bank of England. The central bank's credit conditions survey showed banks plan to limit access to all debt in the first quarter.
Weaker Signals
Today's report by Nationwide is the latest to indicate Britain's decade-long housing boom has come to an end. Hometrack Ltd. said on Jan. 28 that home values fell for a fourth month in January. Economists including Roger Bootle at Deloitte & Touche LLP forecast prices may drop 5 percent this year.
All 30 economists in a Bloomberg News survey forecast the Bank of England will cut interest rates a quarter point to 5.25 percent on Feb. 7. Policy makers kept the benchmark rate unchanged at 5.5 percent this month.
Still, King said on Jan. 23 that the central bank faces a ``difficult balancing act'' as higher energy costs mean Britain faces faster inflation as well as slowing growth.
Jan. 31 (Bloomberg) -- U.K. home values fell for a third month in January, and the housing market will cool further as demand from property investors wanes, Nationwide Building Society said.
Prices fell 0.1 percent from December, when they dropped 0.4 percent to 180,473 pounds ($359,000), Britain's fourth-biggest mortgage lender, said today. From a year earlier, values rose 4.2 percent, the least in two years.
Home-loan approvals fell to the lowest in at least nine years last month as higher borrowing costs and a curb on lending helped drag out the worst housing slump for more than a decade. A slower market will go ``hand in hand'' with weaker consumer spending, Bank of England Governor Mervyn King said last week.
The mortgage data ``undoubtedly signals a continued cooling in annual house-price inflation,'' Martin Gahbauer, a senior economist at Nationwide, said in a statement. ``New demand from buy-to-let investors is likely to weaken in 2008.''
Consumers, already burdened with record 1.4 trillion pounds of debt, face higher costs for loans after banks around the globe posted at least $133 billion in losses from the collapse of the U.S. subprime mortgage market.
The average rate on a two-year fixed-rate mortgage for 95 percent of a property's value rose to 6.53 percent in December from 6.44 percent the month before, according to the Bank of England. The central bank's credit conditions survey showed banks plan to limit access to all debt in the first quarter.
Weaker Signals
Today's report by Nationwide is the latest to indicate Britain's decade-long housing boom has come to an end. Hometrack Ltd. said on Jan. 28 that home values fell for a fourth month in January. Economists including Roger Bootle at Deloitte & Touche LLP forecast prices may drop 5 percent this year.
All 30 economists in a Bloomberg News survey forecast the Bank of England will cut interest rates a quarter point to 5.25 percent on Feb. 7. Policy makers kept the benchmark rate unchanged at 5.5 percent this month.
Still, King said on Jan. 23 that the central bank faces a ``difficult balancing act'' as higher energy costs mean Britain faces faster inflation as well as slowing growth.
Tuesday, January 29, 2008
Japan Factory Output Rises Less-Than-Estimated 1.4% (Update2)
By Jason Clenfield
Jan. 30 (Bloomberg) -- Japan's factory output rose less than economists estimated in December and companies said they plan to pare production this month as U.S. economic growth slows.
Industrial production rose 1.4 percent from a month earlier, when it dropped 1.6 percent from a record, the Trade Ministry said today in Tokyo. The median estimate of 45 economists surveyed by Bloomberg News was for a 2 percent increase.
A four-month slump in shipments to the U.S. is taking its toll on an economy that got most of its growth from overseas shipments in the third quarter. Companies said they plan to cut production this month and in February, today's report showed, the most pessimistic they've been in almost three years.
``Today's number were weak, and the forecasts were also much weaker than we had anticipated,'' said Yoshimasa Maruyama, senior economist at BNP Paribas Securities Japan Ltd. in Tokyo. ``Production is slowing globally and Japan is no exception.''
The yen traded at 106.88 per dollar at 10:03 a.m. in Tokyo compared with 107.07 before the report was published. The yield on Japan's 10-year government bond fell 1 basis point to 1.465 percent.
Companies plan to cut output 0.4 percent in January from a month earlier and 2.2 percent in February, today's report showed. The last time companies forecast back-to-back declines in production was for February and March of 2005.
Slumps in output have coincided with three recessions since 1991. The economy contracted in the fourth quarter of 2004 when an inventory glut in electronics parts forced manufacturers to scale back production.
Aren't Strong Enough
Record shipments to Asia haven't been strong enough to counter waning demand from the U.S., Japan's largest market. Exports rose at the slowest pace since 2005 in the three months ended Dec. 31, Bloomberg data show.
``The jury's still out'' on how badly emerging markets will be hit by the U.S. slowdown, said Jan Lambregts, head of Asia research at Rabobank International in Hong Kong. ``If you expect a very negative scenario for the U.S., you're obviously going to have a negative outlook on Japan.''
Goldman Sachs Group Inc. said this week that Japan's economy may have already fallen into a recession as domestic demand wanes. Production has ``peaked out,'' Goldman's chief Japan economist Tetsufumi Yamakawa said. He added that a slowdown in export growth, the engine that drove the economy's third-quarter expansion, is becoming ``more pronounced.''
Reports this month signaled the economy is losing steam, with jobs available to applicants falling to a two-year low and consumer confidence sliding to the lowest level since 2003.
Production rose 1.3 percent last quarter, the ministry said.
Jan. 30 (Bloomberg) -- Japan's factory output rose less than economists estimated in December and companies said they plan to pare production this month as U.S. economic growth slows.
Industrial production rose 1.4 percent from a month earlier, when it dropped 1.6 percent from a record, the Trade Ministry said today in Tokyo. The median estimate of 45 economists surveyed by Bloomberg News was for a 2 percent increase.
A four-month slump in shipments to the U.S. is taking its toll on an economy that got most of its growth from overseas shipments in the third quarter. Companies said they plan to cut production this month and in February, today's report showed, the most pessimistic they've been in almost three years.
``Today's number were weak, and the forecasts were also much weaker than we had anticipated,'' said Yoshimasa Maruyama, senior economist at BNP Paribas Securities Japan Ltd. in Tokyo. ``Production is slowing globally and Japan is no exception.''
The yen traded at 106.88 per dollar at 10:03 a.m. in Tokyo compared with 107.07 before the report was published. The yield on Japan's 10-year government bond fell 1 basis point to 1.465 percent.
Companies plan to cut output 0.4 percent in January from a month earlier and 2.2 percent in February, today's report showed. The last time companies forecast back-to-back declines in production was for February and March of 2005.
Slumps in output have coincided with three recessions since 1991. The economy contracted in the fourth quarter of 2004 when an inventory glut in electronics parts forced manufacturers to scale back production.
Aren't Strong Enough
Record shipments to Asia haven't been strong enough to counter waning demand from the U.S., Japan's largest market. Exports rose at the slowest pace since 2005 in the three months ended Dec. 31, Bloomberg data show.
``The jury's still out'' on how badly emerging markets will be hit by the U.S. slowdown, said Jan Lambregts, head of Asia research at Rabobank International in Hong Kong. ``If you expect a very negative scenario for the U.S., you're obviously going to have a negative outlook on Japan.''
Goldman Sachs Group Inc. said this week that Japan's economy may have already fallen into a recession as domestic demand wanes. Production has ``peaked out,'' Goldman's chief Japan economist Tetsufumi Yamakawa said. He added that a slowdown in export growth, the engine that drove the economy's third-quarter expansion, is becoming ``more pronounced.''
Reports this month signaled the economy is losing steam, with jobs available to applicants falling to a two-year low and consumer confidence sliding to the lowest level since 2003.
Production rose 1.3 percent last quarter, the ministry said.
Asian Stocks Advance for Second Day, Led by Mining Companies
By Chua Kong Ho
Jan. 30 (Bloomberg) -- Asian stocks rose for a second day, led by commodities companies, after metals prices advanced.
BHP Billiton Ltd., the world's largest mining company, climbed to a two-week high and Sumitomo Metal Mining Co., Japan's biggest gold and nickel producer, gained.
The MSCI Asia Pacific Index added 0.4 percent to 143.91 at 9:58 a.m. in Tokyo.
Australia's S&P/ASX 200 Index gained 1.1 percent and South Korea's Kospi Index rose 0.1 percent. Japan's Nikkei 225 Stock Average fell 0.4 percent to 13,427.06.
The U.S. Standard & Poor's 500 Index added 0.6 percent yesterday.
Jan. 30 (Bloomberg) -- Asian stocks rose for a second day, led by commodities companies, after metals prices advanced.
BHP Billiton Ltd., the world's largest mining company, climbed to a two-week high and Sumitomo Metal Mining Co., Japan's biggest gold and nickel producer, gained.
The MSCI Asia Pacific Index added 0.4 percent to 143.91 at 9:58 a.m. in Tokyo.
Australia's S&P/ASX 200 Index gained 1.1 percent and South Korea's Kospi Index rose 0.1 percent. Japan's Nikkei 225 Stock Average fell 0.4 percent to 13,427.06.
The U.S. Standard & Poor's 500 Index added 0.6 percent yesterday.
Yen Rises on Concern Credit-Market Losses to Slow Global Growth
By Ronnie Harui and Kosuke Goto
Jan. 30 (Bloomberg) -- The yen gained against all 16 of the most-active currencies on speculation credit-market losses will prompt investors to sell higher-yielding assets.
The yen rose to 106.92 against the dollar at 9:54 a.m. in Tokyo from 107.11 late in New York yesterday. It also advanced to 157.85 from 158.27.
Jan. 30 (Bloomberg) -- The yen gained against all 16 of the most-active currencies on speculation credit-market losses will prompt investors to sell higher-yielding assets.
The yen rose to 106.92 against the dollar at 9:54 a.m. in Tokyo from 107.11 late in New York yesterday. It also advanced to 157.85 from 158.27.
China Minsheng Banking Plans $2.08 Billion Bond Sale (Update1)
By Jiang Jianguo and Luo Jun
Jan. 30 (Bloomberg) -- China Minsheng Banking Corp., the nation's first privately owned bank, plans to raise as much as 15 billion yuan ($2.08 billion) selling bonds in the country to increase its capital.
The company will sell 10-year bonds attached with call warrants to buy shares, it said in a statement to the Shanghai stock exchange today. Shareholders will vote on the plan on Feb. 18.
China's banks, having raised $23 billion in share sales last year, are making more loans and expanding into wealth management in the world's fastest-growing major economy. Minsheng, founded in 1996 by 59 investors, including pig-feed tycoon Liu Yonghao, has averaged 40 percent annual profit growth since 2002.
Minsheng's capital adequacy ratio, or unimpaired capital as a percentage of risky assets, stood at 10.84 percent as of Sept. 30. The Beijing-based bank also plans to set up a credit card unit for 1.6 billion yuan, today's statement said.
Minsheng's shares have lost 13 percent this year, performing worse than the 11 percent drop in the benchmark CSI 300 Index.
Jan. 30 (Bloomberg) -- China Minsheng Banking Corp., the nation's first privately owned bank, plans to raise as much as 15 billion yuan ($2.08 billion) selling bonds in the country to increase its capital.
The company will sell 10-year bonds attached with call warrants to buy shares, it said in a statement to the Shanghai stock exchange today. Shareholders will vote on the plan on Feb. 18.
China's banks, having raised $23 billion in share sales last year, are making more loans and expanding into wealth management in the world's fastest-growing major economy. Minsheng, founded in 1996 by 59 investors, including pig-feed tycoon Liu Yonghao, has averaged 40 percent annual profit growth since 2002.
Minsheng's capital adequacy ratio, or unimpaired capital as a percentage of risky assets, stood at 10.84 percent as of Sept. 30. The Beijing-based bank also plans to set up a credit card unit for 1.6 billion yuan, today's statement said.
Minsheng's shares have lost 13 percent this year, performing worse than the 11 percent drop in the benchmark CSI 300 Index.
Oil Rises a Fifth Day on Syncrude Shutdown, Potential Rate Cut
By Gavin Evans
Jan. 30 (Bloomberg) -- Crude oil rose to the highest in more than two weeks after cold weather reduced Syncrude Canada Ltd.'s oil-sands production and investors bought commodities, betting the U.S. Federal Reserve will cut interest rates today.
Oil and copper gained the past four days on speculation the half-percentage point interest rate cut forecast by traders and economists will sustain growth in the world's biggest economy. Oil prices jumped post-settlement after the world's biggest oil- sands producer said it may take several days for full production to be restored.
``Supply disruptions are always supportive'' for prices, said Tom Hartmann, commodity analyst at Altavest Worldwide Trading Inc. in Mission Viejo, California. Much of the gains are ``due to the exuberance for commodities,'' he said.
Crude oil for March delivery climbed as much as $1.07, or 1.2 percent, to $92.71 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $92.43 at 11:04 a.m. in Sydney. Prices have risen 6.2 percent in the past five days.
The contract rose 65 cents, or 0.7 percent, to $91.64 yesterday, the highest settlement since Jan. 15. It reached $92.42 in late trade after Syncrude said freezing temperatures shut some units at its plant at Fort McMurray, Alberta.
New York oil futures reached a record $100.09 a barrel on Jan. 3. Prices fell the following three weeks as speculation that the U.S. will fall into a recession pushed global equity markets lower.
Risks
The recent recovery in U.S. stock markets isn't convincing and oil may struggle to get above $94 without a sustained recovery in equity markets, Hartmann said. A seasonal increase in U.S. stockpiles and the likelihood that the Organization of Petroleum Exporting Countries will maintain production levels this week are also bearish.
``If we do get some economic troubles and there's concern about demand, then a decision by OPEC to keep production steady is basically an increase in supply,'' he said.
Brent crude for March settlement rose 62 cents, or 0.7 percent, to close at $92 a barrel on London's ICE Futures Europe exchange yesterday. Brent touched a record $98.50 on Jan. 3.
The Federal Reserve's Open Market Committee will announce its rate decision at about 2:15 p.m. New York time today.
An Energy Department report today will probably show U.S. oil stockpiles rose for a third week, gaining 2 million barrels, according to a survey of analysts. Gasoline inventories probably increased 1.9 million barrels last week, the 12th straight gain.
OPEC nations produce more than 40 percent of the world's oil. Members meet in Vienna on Feb. 1 and are likely to keep the group's output target unchanged at 29.67 million barrels a day, according to 29 of 32 analysts surveyed by Bloomberg.
``OPEC will probably roll over targets on Friday,'' Tim Evans, an energy analyst at Citigroup Global Markets Inc. in New York, said yesterday. ``There's really no reason for them to rush and do anything because they are meeting again on March 5. If the rollover is a mistake they can revisit it in a month.''
Jan. 30 (Bloomberg) -- Crude oil rose to the highest in more than two weeks after cold weather reduced Syncrude Canada Ltd.'s oil-sands production and investors bought commodities, betting the U.S. Federal Reserve will cut interest rates today.
Oil and copper gained the past four days on speculation the half-percentage point interest rate cut forecast by traders and economists will sustain growth in the world's biggest economy. Oil prices jumped post-settlement after the world's biggest oil- sands producer said it may take several days for full production to be restored.
``Supply disruptions are always supportive'' for prices, said Tom Hartmann, commodity analyst at Altavest Worldwide Trading Inc. in Mission Viejo, California. Much of the gains are ``due to the exuberance for commodities,'' he said.
Crude oil for March delivery climbed as much as $1.07, or 1.2 percent, to $92.71 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $92.43 at 11:04 a.m. in Sydney. Prices have risen 6.2 percent in the past five days.
The contract rose 65 cents, or 0.7 percent, to $91.64 yesterday, the highest settlement since Jan. 15. It reached $92.42 in late trade after Syncrude said freezing temperatures shut some units at its plant at Fort McMurray, Alberta.
New York oil futures reached a record $100.09 a barrel on Jan. 3. Prices fell the following three weeks as speculation that the U.S. will fall into a recession pushed global equity markets lower.
Risks
The recent recovery in U.S. stock markets isn't convincing and oil may struggle to get above $94 without a sustained recovery in equity markets, Hartmann said. A seasonal increase in U.S. stockpiles and the likelihood that the Organization of Petroleum Exporting Countries will maintain production levels this week are also bearish.
``If we do get some economic troubles and there's concern about demand, then a decision by OPEC to keep production steady is basically an increase in supply,'' he said.
Brent crude for March settlement rose 62 cents, or 0.7 percent, to close at $92 a barrel on London's ICE Futures Europe exchange yesterday. Brent touched a record $98.50 on Jan. 3.
The Federal Reserve's Open Market Committee will announce its rate decision at about 2:15 p.m. New York time today.
An Energy Department report today will probably show U.S. oil stockpiles rose for a third week, gaining 2 million barrels, according to a survey of analysts. Gasoline inventories probably increased 1.9 million barrels last week, the 12th straight gain.
OPEC nations produce more than 40 percent of the world's oil. Members meet in Vienna on Feb. 1 and are likely to keep the group's output target unchanged at 29.67 million barrels a day, according to 29 of 32 analysts surveyed by Bloomberg.
``OPEC will probably roll over targets on Friday,'' Tim Evans, an energy analyst at Citigroup Global Markets Inc. in New York, said yesterday. ``There's really no reason for them to rush and do anything because they are meeting again on March 5. If the rollover is a mistake they can revisit it in a month.''
Fed May Cut Rate to Below Inflation, Risking New Asset Bubbles
By Craig Torres and Simon Kennedy
Jan. 29 (Bloomberg) -- The Federal Reserve may push interest rates below the pace of inflation this year to avert the first simultaneous decline in U.S. household wealth and income since 1974.
The threat of cascading stock and home values and a weakening labor market will spur the Fed to cut its benchmark rate by half a percentage point tomorrow, traders and economists forecast. That would bring the rate to 3 percent, approaching one measure of price increases monitored by the Fed.
``The Fed is going to have to keep slashing rates, probably below inflation,'' said Robert Shiller, the Yale University economist who co-founded an index of house prices. ``We are starting to see a change in consumer psychology.''
So-called negative real interest rates represent an emergency strategy by Chairman Ben S. Bernanke and are fraught with risks. The central bank would be skewing incentives toward spending, away from saving, typically leading to asset booms and busts that have to be dealt with later.
Negative real rates are ``a substantial danger zone to be in,'' said Marvin Goodfriend, a former senior policy adviser at the Richmond Fed bank. ``The Fed's mistakes have been erring too much on the side of ease, creating circumstances where you had either excessive inflation, or a situation where there is an excessive boom that goes on too long.''
Adjusting Outlook
The Federal Open Market Committee begins its two-day meeting today and will announce its decision at about 2:15 p.m. in Washington tomorrow. Officials will also discuss updates to their three-year economic forecasts at the session.
Bernanke, 54, and his colleagues on Jan. 22 lowered the target rate for overnight loans between banks by three-quarters of a percentage point. The cut was the biggest since the Fed began using the rate as its main policy tool in 1990 and followed a slide in stocks from Hong Kong to London that threatened to send U.S. equities down by more than 5 percent.
The central bank will probably lower the rate to at least 2.25 percent in the first half, according to futures prices quoted on the Chicago Board of Trade. The chance of a half-point cut tomorrow is 88 percent, with 12 percent odds on a quarter- point.
Inflation, as measured by the personal consumption expenditures price index minus food and energy, was a 2.5 percent annual rate in the fourth quarter, economists estimate. The Commerce Department releases the figures tomorrow.
Mortgage Binge
The last time the Fed pushed real rates so low was in 2005, in the middle of the three-year housing bubble, when consumers took on $2.9 trillion in new home-loan debt, the biggest increase of any three-year period on record.
Aggressive rate cuts are justified if there's ``conclusive evidence'' that household income prospects are in danger, said Goodfriend, now a professor at the Tepper School of Business at Carnegie Mellon University in Pittsburgh.
They might be. Real disposable income grew at a 2.1 percent annual pace in November, the slowest in 16 months, as higher food and energy costs eroded paychecks. Home prices in 20 U.S. metropolitan areas fell 6.1 percent in October from a year earlier, the most in at least six years. The Standard & Poor's 500 Index is down 15 percent from its record on Oct. 11.
The last time household real estate, stocks and real incomes all declined in a quarter was during the 1974 recession, according to calculations by Macroeconomic Advisers LLC.
`Losing That Prop'
``Wealth had been rising because of strong home prices'' and stock gains, said Chris Varvares, president of Macroeconomic Advisers in St. Louis. ``Now, we are losing that prop to consumption, so it all comes down to growth in real income.''
Varvares predicted that housing and investment portfolios will add nothing to consumption this year, while incomes, after inflation, may gradually rise ``so long as oil behaves.'' The firm expects the economy to grow at a 1 percent to 2 percent annual pace in the first half.
``A big part of the 75 basis point surprise was to blunt the worsening of financial conditions'' that may reduce employment and hurt income growth, Varvares said. The firm predicts a half-point cut tomorrow.
``That need not be the end,'' Harvard University economist Martin Feldstein, said in an interview. ``They can keep coming back and revisiting it every six weeks.''
Feldstein, a member of the group that dates U.S. economic cycles, said any recession this year ``could be much more painful because of the fragility of the financial sector.''
The Fed incorporates wealth effects, or the impact of changes in household assets on spending, in its economic model. Americans cut spending by about 5 cents for every $1 of decline in their home values or stock portfolios, economists estimate.
``We are likely to see another wave of problems in the consumer-credit side,'' John Thain, chief executive officer of Merrill Lynch & Co., said at the World Economic Forum in Davos, Switzerland, last week. ``This is going to be exacerbated by the rise in unemployment and we have issues with higher energy prices.''
Jan. 29 (Bloomberg) -- The Federal Reserve may push interest rates below the pace of inflation this year to avert the first simultaneous decline in U.S. household wealth and income since 1974.
The threat of cascading stock and home values and a weakening labor market will spur the Fed to cut its benchmark rate by half a percentage point tomorrow, traders and economists forecast. That would bring the rate to 3 percent, approaching one measure of price increases monitored by the Fed.
``The Fed is going to have to keep slashing rates, probably below inflation,'' said Robert Shiller, the Yale University economist who co-founded an index of house prices. ``We are starting to see a change in consumer psychology.''
So-called negative real interest rates represent an emergency strategy by Chairman Ben S. Bernanke and are fraught with risks. The central bank would be skewing incentives toward spending, away from saving, typically leading to asset booms and busts that have to be dealt with later.
Negative real rates are ``a substantial danger zone to be in,'' said Marvin Goodfriend, a former senior policy adviser at the Richmond Fed bank. ``The Fed's mistakes have been erring too much on the side of ease, creating circumstances where you had either excessive inflation, or a situation where there is an excessive boom that goes on too long.''
Adjusting Outlook
The Federal Open Market Committee begins its two-day meeting today and will announce its decision at about 2:15 p.m. in Washington tomorrow. Officials will also discuss updates to their three-year economic forecasts at the session.
Bernanke, 54, and his colleagues on Jan. 22 lowered the target rate for overnight loans between banks by three-quarters of a percentage point. The cut was the biggest since the Fed began using the rate as its main policy tool in 1990 and followed a slide in stocks from Hong Kong to London that threatened to send U.S. equities down by more than 5 percent.
The central bank will probably lower the rate to at least 2.25 percent in the first half, according to futures prices quoted on the Chicago Board of Trade. The chance of a half-point cut tomorrow is 88 percent, with 12 percent odds on a quarter- point.
Inflation, as measured by the personal consumption expenditures price index minus food and energy, was a 2.5 percent annual rate in the fourth quarter, economists estimate. The Commerce Department releases the figures tomorrow.
Mortgage Binge
The last time the Fed pushed real rates so low was in 2005, in the middle of the three-year housing bubble, when consumers took on $2.9 trillion in new home-loan debt, the biggest increase of any three-year period on record.
Aggressive rate cuts are justified if there's ``conclusive evidence'' that household income prospects are in danger, said Goodfriend, now a professor at the Tepper School of Business at Carnegie Mellon University in Pittsburgh.
They might be. Real disposable income grew at a 2.1 percent annual pace in November, the slowest in 16 months, as higher food and energy costs eroded paychecks. Home prices in 20 U.S. metropolitan areas fell 6.1 percent in October from a year earlier, the most in at least six years. The Standard & Poor's 500 Index is down 15 percent from its record on Oct. 11.
The last time household real estate, stocks and real incomes all declined in a quarter was during the 1974 recession, according to calculations by Macroeconomic Advisers LLC.
`Losing That Prop'
``Wealth had been rising because of strong home prices'' and stock gains, said Chris Varvares, president of Macroeconomic Advisers in St. Louis. ``Now, we are losing that prop to consumption, so it all comes down to growth in real income.''
Varvares predicted that housing and investment portfolios will add nothing to consumption this year, while incomes, after inflation, may gradually rise ``so long as oil behaves.'' The firm expects the economy to grow at a 1 percent to 2 percent annual pace in the first half.
``A big part of the 75 basis point surprise was to blunt the worsening of financial conditions'' that may reduce employment and hurt income growth, Varvares said. The firm predicts a half-point cut tomorrow.
``That need not be the end,'' Harvard University economist Martin Feldstein, said in an interview. ``They can keep coming back and revisiting it every six weeks.''
Feldstein, a member of the group that dates U.S. economic cycles, said any recession this year ``could be much more painful because of the fragility of the financial sector.''
The Fed incorporates wealth effects, or the impact of changes in household assets on spending, in its economic model. Americans cut spending by about 5 cents for every $1 of decline in their home values or stock portfolios, economists estimate.
``We are likely to see another wave of problems in the consumer-credit side,'' John Thain, chief executive officer of Merrill Lynch & Co., said at the World Economic Forum in Davos, Switzerland, last week. ``This is going to be exacerbated by the rise in unemployment and we have issues with higher energy prices.''
Yen Rises; U.S. Slowdown Spurs Sales of Higher-Yielding Assets
By Stanley White and Kosuke Goto
Jan. 29 (Bloomberg) -- The yen rose against 12 of the world's 16 most-actively traded currencies on speculation a U.S. economic slump will prompt investors to cut holdings of higher- yielding assets.
The yen gained the most against the Norwegian krone and the Swedish krona before a U.S. report that may show consumer confidence fell to a two-year low, a day after a separate release showed home sales slumped. Japan's benchmark rate of 0.5 percent compares with 5.25 percent in Norway and 4 percent in Sweden.
``Buying back of the yen may continue,'' said Toru Tokoyoda, head of foreign exchange sales in Tokyo at Lehman Brothers Holdings Inc., the fourth-largest U.S. securities firm by market value. ``U.S. housing inventories are going to build up whether or not the Fed cuts rates. There's going to be pain ahead.''
The yen rose to 106.79 against the dollar at 7:35 a.m. in London from 106.90 late yesterday in New York. It may gain to 106.10 today, Tokoyoda forecast. The currency climbed to 157.73 versus the euro from 158.02. It advanced 0.3 percent to 19.5543 per Norwegian krone and strengthened 0.3 percent to 16.678 per Swedish krona.
The yen initially fell as gains in Asian stocks prompted investors to sell lower-yielding currencies. The yen erased those losses as the global growth outlook is still discouraging traders from buying higher-yielding currencies, said Hideki Amikura, deputy general manager of foreign exchange at Nomura Trust & Banking Co. in Tokyo. MSCI's Asia Pacific index of regional stocks, down 9 percent this year, rose 1.3 percent.
Rate Cut
The dollar also fell against the yen before a Federal Reserve meeting tomorrow where the central bank may cut the target for the overnight lending rate between banks by a half- percentage point, making U.S. assets less attractive to international investors. The euro bought $1.4773 from $1.4781, the British pound traded at $1.9873 from $1.9843 and the Swiss franc was little changed at 1.0909.
``Bad housing data will force the Fed to lower rates,'' said Satoshi Tate, a senior currency dealer in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan's second-largest publicly traded bank by assets. ``This will push down U.S. yields further, prompting dollar sales.''
The U.S. currency may fall to $1.4980 against the euro, Tate said.
China's yuan traded at 7.1946, close to the highest since a link to the dollar was scrapped in July 2005 as the nation strives to bring down inflation. The currency may rise more than 10 percent this year against the dollar, allowing Japanese policy makers to accept further gains in the yen, said Eisuke Sakakibara, Japan's former top currency official.
`Significantly'
``Chinese authorities now recognize that they need to appreciate their currency quite significantly for their own sake,'' Sakakibara, 66, currently a professor at Tokyo's Waseda University, said in an interview with Bloomberg Television.
The yuan has strengthened 1.4 percent this year, on course for the biggest monthly advance since the end of the dollar peg. The Group of Seven industrialized nations have called on China to stop keeping the yuan artificially weak to support exports.
``The Chinese now recognize that they can live with a rapidly appreciating yuan and, as a result, they're letting the yuan appreciate more each day,'' said Martin Feldstein, Harvard University economist and head of the National Bureau of Economic Research in Cambridge, Massachusetts.
Futures contracts on the Chicago Board of Trade show 100 percent odds the Fed will cut its 3.5 percent target rate for overnight lending between banks by as much as a half-percentage point tomorrow. An index of U.S. consumer confidence fell to 87 in January from 88.6 the previous month, according to an economist survey by Bloomberg News, before a report due at 10 a.m. New York time.
Yield Premium
German two-year government bonds yield 1.24 percentage points more than similar-maturity U.S. Treasuries, which offered a premium over the European nation's debt before the Fed started cutting rates last year.
The euro may strengthen on speculation European Central Bank council member John Hurley will reiterate concern that inflation will accelerate in a speech in Dublin tomorrow.
Europe's single currency may gain for a second day against the dollar and the yen as traders increased bets that the ECB will lift borrowing costs from 4 percent. The implied yield on the June Euribor interest-rate futures contract, a gauge of the outlook for monetary policy, rose to 4.025 percent today from 4.015 percent yesterday.
``The ECB is still hawkish, signaling there's no intention at all of lowering rates,'' said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. ``As U.S. rates will probably be lowered, the euro will likely be bought.''
The euro may advance to $1.4825 and 158.65 yen today, Soma forecast.
Jan. 29 (Bloomberg) -- The yen rose against 12 of the world's 16 most-actively traded currencies on speculation a U.S. economic slump will prompt investors to cut holdings of higher- yielding assets.
The yen gained the most against the Norwegian krone and the Swedish krona before a U.S. report that may show consumer confidence fell to a two-year low, a day after a separate release showed home sales slumped. Japan's benchmark rate of 0.5 percent compares with 5.25 percent in Norway and 4 percent in Sweden.
``Buying back of the yen may continue,'' said Toru Tokoyoda, head of foreign exchange sales in Tokyo at Lehman Brothers Holdings Inc., the fourth-largest U.S. securities firm by market value. ``U.S. housing inventories are going to build up whether or not the Fed cuts rates. There's going to be pain ahead.''
The yen rose to 106.79 against the dollar at 7:35 a.m. in London from 106.90 late yesterday in New York. It may gain to 106.10 today, Tokoyoda forecast. The currency climbed to 157.73 versus the euro from 158.02. It advanced 0.3 percent to 19.5543 per Norwegian krone and strengthened 0.3 percent to 16.678 per Swedish krona.
The yen initially fell as gains in Asian stocks prompted investors to sell lower-yielding currencies. The yen erased those losses as the global growth outlook is still discouraging traders from buying higher-yielding currencies, said Hideki Amikura, deputy general manager of foreign exchange at Nomura Trust & Banking Co. in Tokyo. MSCI's Asia Pacific index of regional stocks, down 9 percent this year, rose 1.3 percent.
Rate Cut
The dollar also fell against the yen before a Federal Reserve meeting tomorrow where the central bank may cut the target for the overnight lending rate between banks by a half- percentage point, making U.S. assets less attractive to international investors. The euro bought $1.4773 from $1.4781, the British pound traded at $1.9873 from $1.9843 and the Swiss franc was little changed at 1.0909.
``Bad housing data will force the Fed to lower rates,'' said Satoshi Tate, a senior currency dealer in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan's second-largest publicly traded bank by assets. ``This will push down U.S. yields further, prompting dollar sales.''
The U.S. currency may fall to $1.4980 against the euro, Tate said.
China's yuan traded at 7.1946, close to the highest since a link to the dollar was scrapped in July 2005 as the nation strives to bring down inflation. The currency may rise more than 10 percent this year against the dollar, allowing Japanese policy makers to accept further gains in the yen, said Eisuke Sakakibara, Japan's former top currency official.
`Significantly'
``Chinese authorities now recognize that they need to appreciate their currency quite significantly for their own sake,'' Sakakibara, 66, currently a professor at Tokyo's Waseda University, said in an interview with Bloomberg Television.
The yuan has strengthened 1.4 percent this year, on course for the biggest monthly advance since the end of the dollar peg. The Group of Seven industrialized nations have called on China to stop keeping the yuan artificially weak to support exports.
``The Chinese now recognize that they can live with a rapidly appreciating yuan and, as a result, they're letting the yuan appreciate more each day,'' said Martin Feldstein, Harvard University economist and head of the National Bureau of Economic Research in Cambridge, Massachusetts.
Futures contracts on the Chicago Board of Trade show 100 percent odds the Fed will cut its 3.5 percent target rate for overnight lending between banks by as much as a half-percentage point tomorrow. An index of U.S. consumer confidence fell to 87 in January from 88.6 the previous month, according to an economist survey by Bloomberg News, before a report due at 10 a.m. New York time.
Yield Premium
German two-year government bonds yield 1.24 percentage points more than similar-maturity U.S. Treasuries, which offered a premium over the European nation's debt before the Fed started cutting rates last year.
The euro may strengthen on speculation European Central Bank council member John Hurley will reiterate concern that inflation will accelerate in a speech in Dublin tomorrow.
Europe's single currency may gain for a second day against the dollar and the yen as traders increased bets that the ECB will lift borrowing costs from 4 percent. The implied yield on the June Euribor interest-rate futures contract, a gauge of the outlook for monetary policy, rose to 4.025 percent today from 4.015 percent yesterday.
``The ECB is still hawkish, signaling there's no intention at all of lowering rates,'' said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. ``As U.S. rates will probably be lowered, the euro will likely be bought.''
The euro may advance to $1.4825 and 158.65 yen today, Soma forecast.
Nikkei 225 Futures Climb on Speculation Fed to Lower Rates
By Patrick Rial
Jan. 29 (Bloomberg) -- Japan's Nikkei 225 Stock Average futures climbed on speculation the U.S. Federal Reserve will lower interest rates by a half point this week, to prop up the world's biggest economy and Japan's largest export market.
Mizuho Financial Group Inc.'s U.S.-traded receipts surged 4 percent from the closing share price in Tokyo yesterday. Those of Mitsubishi Corp. climbed after prices for commodities including gold and nickel advanced. Nippon Electric Glass Co. may rise today after boosting its profit forecast.
``There really isn't a reason to be as pessimistic as the recent mood in the market has suggested,'' Terunobu Kinoshita, who helps manage $785 million at Fund Creation Co. in Tokyo, said in an interview with Bloomberg Television. ``That being said, we can expect volatile swings to continue.''
U.S. stocks rallied yesterday with the Standard & Poor's 500 Index jumping 1.8 percent.
Nikkei 225 Stock Average futures expiring in December last traded in Chicago at 13,500, up from the close of 13,050 in Osaka, Japan, and 13,035 in Singapore yesterday. The Bank of New York Japan ADR Index, which tracks the region's American depositary receipts, added 0.4 percent.
Stocks may also rise after reports showed Japan's unemployment and consumer spending data were better than forecast.
Mizuho is Japan's third-largest lender by market value. Receipts of Mitsubishi Corp., which generates more than half of its profit from commodities dealing, surged 3.4 percent. Those of Sharp Corp., Japan's largest maker of liquid-crystal display televisions, jumped 3.8 percent.
Fed Funds Futures
Traders see an 86 percent chance the Fed will cut its benchmark lending rate to 3 percent from 3.5 percent on Jan. 30, according to Fed funds futures. That's up from 70 percent on Jan. 25. Lower interest rates may help pull the U.S. economy out of a possible recession sparked by the deteriorating housing market.
Prices for gold, platinum and coal rallied to records yesterday. A measure of six metals traded on the London Metal Exchange, including copper and zinc, added 0.4 percent.
Nippon Electric Glass, the world's No. 3 supplier of glass for LCD televisions, may advance after boosting its net income forecast for the year ending March 31 by 16 percent yesterday.
Fanuc Ltd., the world's largest maker of industrial robots, may gain after saying third-quarter profit jumped 23 percent.
``Our impression of results is slightly positive,'' Teruhiko Nishimura, an analyst at Credit Suisse Group in Tokyo, wrote in a note to clients. ``We forecast the factory automation and robot segments will generate strong auto industry-related sales.''
Japan's unemployment rate held steady at 3.8 percent in December, the government said 30 minutes before the start of trading. Household spending jumped 2.2 percent from the previous year. Economists had forecast the jobless rate to rise and spending to slip in December.
Jan. 29 (Bloomberg) -- Japan's Nikkei 225 Stock Average futures climbed on speculation the U.S. Federal Reserve will lower interest rates by a half point this week, to prop up the world's biggest economy and Japan's largest export market.
Mizuho Financial Group Inc.'s U.S.-traded receipts surged 4 percent from the closing share price in Tokyo yesterday. Those of Mitsubishi Corp. climbed after prices for commodities including gold and nickel advanced. Nippon Electric Glass Co. may rise today after boosting its profit forecast.
``There really isn't a reason to be as pessimistic as the recent mood in the market has suggested,'' Terunobu Kinoshita, who helps manage $785 million at Fund Creation Co. in Tokyo, said in an interview with Bloomberg Television. ``That being said, we can expect volatile swings to continue.''
U.S. stocks rallied yesterday with the Standard & Poor's 500 Index jumping 1.8 percent.
Nikkei 225 Stock Average futures expiring in December last traded in Chicago at 13,500, up from the close of 13,050 in Osaka, Japan, and 13,035 in Singapore yesterday. The Bank of New York Japan ADR Index, which tracks the region's American depositary receipts, added 0.4 percent.
Stocks may also rise after reports showed Japan's unemployment and consumer spending data were better than forecast.
Mizuho is Japan's third-largest lender by market value. Receipts of Mitsubishi Corp., which generates more than half of its profit from commodities dealing, surged 3.4 percent. Those of Sharp Corp., Japan's largest maker of liquid-crystal display televisions, jumped 3.8 percent.
Fed Funds Futures
Traders see an 86 percent chance the Fed will cut its benchmark lending rate to 3 percent from 3.5 percent on Jan. 30, according to Fed funds futures. That's up from 70 percent on Jan. 25. Lower interest rates may help pull the U.S. economy out of a possible recession sparked by the deteriorating housing market.
Prices for gold, platinum and coal rallied to records yesterday. A measure of six metals traded on the London Metal Exchange, including copper and zinc, added 0.4 percent.
Nippon Electric Glass, the world's No. 3 supplier of glass for LCD televisions, may advance after boosting its net income forecast for the year ending March 31 by 16 percent yesterday.
Fanuc Ltd., the world's largest maker of industrial robots, may gain after saying third-quarter profit jumped 23 percent.
``Our impression of results is slightly positive,'' Teruhiko Nishimura, an analyst at Credit Suisse Group in Tokyo, wrote in a note to clients. ``We forecast the factory automation and robot segments will generate strong auto industry-related sales.''
Japan's unemployment rate held steady at 3.8 percent in December, the government said 30 minutes before the start of trading. Household spending jumped 2.2 percent from the previous year. Economists had forecast the jobless rate to rise and spending to slip in December.
Sunday, January 27, 2008
Japan's Nikkei 225 Futures Drop on Concern About Banks' Losses
By Masaki Kondo and Patrick Rial
Jan. 28 (Bloomberg) -- Japan's Nikkei 225 Stock Average futures fell in Chicago on Jan. 25 after an analyst said Fortis may have further writedowns on subprime-related assets, fueling concern banks will incur more credit-market losses.
U.S.-traded receipts of Mitsubishi UFJ Financial Group Inc., Japan's largest bank by market value, fell 2.7 percent from the closing share price in Tokyo on Jan. 25. Mizuho Financial Group Inc., the third-biggest, dropped 2.2 percent.
U.S. stocks fell for the first time in three days on Jan. 25 after Dresdner Kleinwort said Fortis, Belgium's biggest financial-services company, faces further losses this year on mortgage-backed securities and home-equity loans. Separately, China's economic expansion slowed for a second quarter, the government said last week.
``The Japanese market will be pushed back by the drop in the U.S.,'' Yoshifumi Kikuchi, a market analyst at Yutaka Securities Co., said in an interview with Bloomberg Television. ``Market prices have yet to fully reflect the possibility of a U.S. recession and China's slowdown.''
Nikkei 225 futures expiring in March closed in Chicago at 13,470, down from the close of 13,660 in Osaka and 13,670 in Singapore on Jan. 25. The Bank of New York Co.'s Japan ADR Index, which tracks American depositary receipts of Japanese companies, rose 2 percent the same day.
The Nikkei added 4.1 percent to 13,629.16 on Jan. 25, the biggest percentage advance since March 2002. The broader Topix index jumped 4.7 percent to 1,344.77, ending the week with a 0.2 percent gain.
Jan. 28 (Bloomberg) -- Japan's Nikkei 225 Stock Average futures fell in Chicago on Jan. 25 after an analyst said Fortis may have further writedowns on subprime-related assets, fueling concern banks will incur more credit-market losses.
U.S.-traded receipts of Mitsubishi UFJ Financial Group Inc., Japan's largest bank by market value, fell 2.7 percent from the closing share price in Tokyo on Jan. 25. Mizuho Financial Group Inc., the third-biggest, dropped 2.2 percent.
U.S. stocks fell for the first time in three days on Jan. 25 after Dresdner Kleinwort said Fortis, Belgium's biggest financial-services company, faces further losses this year on mortgage-backed securities and home-equity loans. Separately, China's economic expansion slowed for a second quarter, the government said last week.
``The Japanese market will be pushed back by the drop in the U.S.,'' Yoshifumi Kikuchi, a market analyst at Yutaka Securities Co., said in an interview with Bloomberg Television. ``Market prices have yet to fully reflect the possibility of a U.S. recession and China's slowdown.''
Nikkei 225 futures expiring in March closed in Chicago at 13,470, down from the close of 13,660 in Osaka and 13,670 in Singapore on Jan. 25. The Bank of New York Co.'s Japan ADR Index, which tracks American depositary receipts of Japanese companies, rose 2 percent the same day.
The Nikkei added 4.1 percent to 13,629.16 on Jan. 25, the biggest percentage advance since March 2002. The broader Topix index jumped 4.7 percent to 1,344.77, ending the week with a 0.2 percent gain.
Japan's Nikkei 225 Futures Drop on Concern About Banks' Losses
By Masaki Kondo and Patrick Rial
Jan. 28 (Bloomberg) -- Japan's Nikkei 225 Stock Average futures fell in Chicago on Jan. 25 after an analyst said Fortis may have further writedowns on subprime-related assets, fueling concern banks will incur more credit-market losses.
U.S.-traded receipts of Mitsubishi UFJ Financial Group Inc., Japan's largest bank by market value, fell 2.7 percent from the closing share price in Tokyo on Jan. 25. Mizuho Financial Group Inc., the third-biggest, dropped 2.2 percent.
U.S. stocks fell for the first time in three days on Jan. 25 after Dresdner Kleinwort said Fortis, Belgium's biggest financial-services company, faces further losses this year on mortgage-backed securities and home-equity loans. Separately, China's economic expansion slowed for a second quarter, the government said last week.
``The Japanese market will be pushed back by the drop in the U.S.,'' Yoshifumi Kikuchi, a market analyst at Yutaka Securities Co., said in an interview with Bloomberg Television. ``Market prices have yet to fully reflect the possibility of a U.S. recession and China's slowdown.''
Nikkei 225 futures expiring in March closed in Chicago at 13,470, down from the close of 13,660 in Osaka and 13,670 in Singapore on Jan. 25. The Bank of New York Co.'s Japan ADR Index, which tracks American depositary receipts of Japanese companies, rose 2 percent the same day.
The Nikkei added 4.1 percent to 13,629.16 on Jan. 25, the biggest percentage advance since March 2002. The broader Topix index jumped 4.7 percent to 1,344.77, ending the week with a 0.2 percent gain.
Jan. 28 (Bloomberg) -- Japan's Nikkei 225 Stock Average futures fell in Chicago on Jan. 25 after an analyst said Fortis may have further writedowns on subprime-related assets, fueling concern banks will incur more credit-market losses.
U.S.-traded receipts of Mitsubishi UFJ Financial Group Inc., Japan's largest bank by market value, fell 2.7 percent from the closing share price in Tokyo on Jan. 25. Mizuho Financial Group Inc., the third-biggest, dropped 2.2 percent.
U.S. stocks fell for the first time in three days on Jan. 25 after Dresdner Kleinwort said Fortis, Belgium's biggest financial-services company, faces further losses this year on mortgage-backed securities and home-equity loans. Separately, China's economic expansion slowed for a second quarter, the government said last week.
``The Japanese market will be pushed back by the drop in the U.S.,'' Yoshifumi Kikuchi, a market analyst at Yutaka Securities Co., said in an interview with Bloomberg Television. ``Market prices have yet to fully reflect the possibility of a U.S. recession and China's slowdown.''
Nikkei 225 futures expiring in March closed in Chicago at 13,470, down from the close of 13,660 in Osaka and 13,670 in Singapore on Jan. 25. The Bank of New York Co.'s Japan ADR Index, which tracks American depositary receipts of Japanese companies, rose 2 percent the same day.
The Nikkei added 4.1 percent to 13,629.16 on Jan. 25, the biggest percentage advance since March 2002. The broader Topix index jumped 4.7 percent to 1,344.77, ending the week with a 0.2 percent gain.
Japan Bonds May Rise, Ending 3-Day Drop, on Gain in Treasuries
By Theresa Barraclough
Jan. 28 (Bloomberg) -- Japanese bonds may rise, halting a three-day decline, on speculation demand for the nation's exports will weaken as the U.S. economy enters a recession.
Benchmark 10-year securities are likely to follow gains in U.S. Treasuries as traders maintain bets that the Federal Reserve will cut interest rates by as much as a half-percentage point on Jan. 30. The U.S. is Japan's largest overseas market.
``Last week's JGB sell-off will be reversed following the gain in Treasuries,'' said Akihiko Inoue, an analyst at Mizuho Investors Securities Co. in Tokyo. ``Demand may be unstable as investors feel cautious about the high prices.''
Ten-year bond futures for March delivery traded at 137.58 in London from 137.36 at the 3 p.m. close in Tokyo on Jan. 25. The contract will open for trading at 9 a.m. Tokyo time.
The benchmark 10-year bond hasn't traded yet today at Japan Bond Trading Co., the nation's largest interdealer debt broker. The yield on the 1.5 percent bond due in December 2017 rose 9.5 basis points to 1.48 percent on Jan. 25, the highest since Dec. 28. A basis point is 0.01 percentage point.
The Dow Jones Industrial Average lost 1.4 percent and the S&P 500 Index declined 1.6 percent on Jan. 25.
Japan's bonds often move in the same direction as U.S. Treasuries. Benchmark 10-year yields had a correlation of 0.94 with similar-dated U.S. debt in the past month, according to Bloomberg data. A value of 1 means the two moved in lockstep.
The 1.5 percent bond due in December 2017 closed at 100.20 to yield 1.476 percent on Jan. 25, according to the Bloomberg Yen Bond Fixing Price. The level is an average rate set at 6:30 p.m. in Tokyo by Daiwa Securities SMBC Co., Nikko Citigroup Ltd., Mizuho Securities Co. and Mitsubishi UFJ Securities Co.
Jan. 28 (Bloomberg) -- Japanese bonds may rise, halting a three-day decline, on speculation demand for the nation's exports will weaken as the U.S. economy enters a recession.
Benchmark 10-year securities are likely to follow gains in U.S. Treasuries as traders maintain bets that the Federal Reserve will cut interest rates by as much as a half-percentage point on Jan. 30. The U.S. is Japan's largest overseas market.
``Last week's JGB sell-off will be reversed following the gain in Treasuries,'' said Akihiko Inoue, an analyst at Mizuho Investors Securities Co. in Tokyo. ``Demand may be unstable as investors feel cautious about the high prices.''
Ten-year bond futures for March delivery traded at 137.58 in London from 137.36 at the 3 p.m. close in Tokyo on Jan. 25. The contract will open for trading at 9 a.m. Tokyo time.
The benchmark 10-year bond hasn't traded yet today at Japan Bond Trading Co., the nation's largest interdealer debt broker. The yield on the 1.5 percent bond due in December 2017 rose 9.5 basis points to 1.48 percent on Jan. 25, the highest since Dec. 28. A basis point is 0.01 percentage point.
The Dow Jones Industrial Average lost 1.4 percent and the S&P 500 Index declined 1.6 percent on Jan. 25.
Japan's bonds often move in the same direction as U.S. Treasuries. Benchmark 10-year yields had a correlation of 0.94 with similar-dated U.S. debt in the past month, according to Bloomberg data. A value of 1 means the two moved in lockstep.
The 1.5 percent bond due in December 2017 closed at 100.20 to yield 1.476 percent on Jan. 25, according to the Bloomberg Yen Bond Fixing Price. The level is an average rate set at 6:30 p.m. in Tokyo by Daiwa Securities SMBC Co., Nikko Citigroup Ltd., Mizuho Securities Co. and Mitsubishi UFJ Securities Co.
Thursday, January 24, 2008
Microsoft Profit Tops Estimates on Xbox; Shares Rise (Update3)
By Dina Bass
Jan. 24 (Bloomberg) -- Microsoft Corp., the world's largest software maker, posted a second-quarter profit that surpassed analysts' estimates and raised forecasts for the year after selling more Xbox 360 games and Windows programs.
The stock climbed 4.5 percent after Microsoft said net income rose 79 percent to $4.71 billion, or 50 cents a share. That beat the 46-cent average of estimates compiled by Bloomberg. Sales climbed 30 percent to $16.4 billion, exceeding projections.
Better-than-forecast PC sales and a second straight profit in the Xbox unit helped Microsoft top predictions for the second quarter in a row. Chief Executive Officer Steve Ballmer increased the annual sales forecast to as much as $60.5 billion, signaling Microsoft can withstand a slowdown in the U.S. economy.
``They're giving a fairly positive outlook for the remainder of their fiscal year, which really had been a concern,'' Pacific Crest Securities Inc.'s Brendan Barnicle said in an interview. The Portland, Oregon-based analyst expects the shares to outperform their peers.
Microsoft, based in Redmond, Washington, rose $1.49 to $34.74 in late trading after closing at $33.25 on the Nasdaq Stock Market. The shares advanced 19 percent last year.
Net income in the three months ended Dec. 31 was $2.63 billion, or 26 cents, a year ago, the company said in a statement today. Microsoft deferred $1.64 billion in sales in that period, cutting revenue and profit.
Windows and Office benefited from PC demand, growing interest in pricier new versions and inroads against software piracy. Holiday purchases of exclusive Xbox 360 video-games such as ``Halo 3,'' the top-selling game in the U.S. last year, fueled revenue growth and led to more console sales.
Forecast
Microsoft said profit in the year ending June 30 will be $1.85 to $1.88 a share, on sales of $59.9 billion to $60.5 billion, above analysts' average estimate profit of $1.81 and sales of $59.4 billion and an increase from Microsoft's previous forecast.
``There's a lot of concern, and we're not blind to that,'' Chief Financial Officer Chris Liddell said today in an interview. ``But the momentum we have in the second half is extremely good, so we feel optimistic enough to raise our forecast.''
Microsoft's business isn't showing signs of slowing related to the U.S. economy, Liddell said, pointing to PC shipment growth and an unexpected increase in Microsoft's unearned revenue, a marker of future sales. Unearned revenue, which tracks signings of multiyear corporate contracts for Microsoft software, rose $500 million more than Liddell had forecast.
For the current quarter, profit will be 43 cents to 45 cents on sales of $14.3 billion to $14.6 billion, in line with the average analyst estimate for profit of 44 cents and sales of $14.4 billion.
`Remarkable' Growth
``It's remarkable that they're growing as fast as they are for a company so large,'' said Ken Allen, a portfolio manager at T. Rowe Price Associates Inc. in Baltimore. His firm is the 5th- biggest institutional holder of Microsoft shares.
Revenue in the unit that includes Xbox rose 3.1 percent to $3.06 billion, exceeding Microsoft's forecast that it would decline as much as 8 percent. The division posted earnings of $357 million, the first time it has reported profits in back-to- back quarters.
Liddell cited the high number of games sold per Xbox machine for the unit's revenue and profit increases. Consumers on average buy seven titles with each machine, which bolsters earnings because the games are profitable while the consoles usually lose money or break even.
Game Plan
Ballmer has lined up exclusive titles such as ``Halo 3'' and ``Mass Effect,'' named Game of the Year by the New York Times, to win users from Nintendo Co.'s Wii system and achieve the first annual profit in the Xbox unit.
``The games division is doing really well,'' said Avi Cohen, head of research at Boston research firm Avian Securities LLC. ``They are competing well against the Wii and `Halo' is certainly helping.''
Sales in Microsoft's business division, which includes the Office applications and Exchange and SharePoint server software for corporate customers, advanced 37 percent to $4.81 billion. That topped the $4.61 billion estimate of UBS AG analyst Heather Bellini in New York.
The client division, home to Microsoft's Windows software for PCs, posted a 68 percent increase in sales to $4.34 billion. The company gained by persuading PC makers to install pricier versions of its Vista operating system on machines. About 75 percent of the Windows programs sold last quarter were the higher-priced versions, Liddell said.
PC shipments rose 15.5 percent in the quarter, according to Framingham, Massachusetts-based researcher IDC. Microsoft had projected an increase of as much as 13 percent.
Twenty-three analysts suggest buying Microsoft shares, seven recommend holding them and two have ``sell'' ratings, according to data compiled by Bloomberg.
Jan. 24 (Bloomberg) -- Microsoft Corp., the world's largest software maker, posted a second-quarter profit that surpassed analysts' estimates and raised forecasts for the year after selling more Xbox 360 games and Windows programs.
The stock climbed 4.5 percent after Microsoft said net income rose 79 percent to $4.71 billion, or 50 cents a share. That beat the 46-cent average of estimates compiled by Bloomberg. Sales climbed 30 percent to $16.4 billion, exceeding projections.
Better-than-forecast PC sales and a second straight profit in the Xbox unit helped Microsoft top predictions for the second quarter in a row. Chief Executive Officer Steve Ballmer increased the annual sales forecast to as much as $60.5 billion, signaling Microsoft can withstand a slowdown in the U.S. economy.
``They're giving a fairly positive outlook for the remainder of their fiscal year, which really had been a concern,'' Pacific Crest Securities Inc.'s Brendan Barnicle said in an interview. The Portland, Oregon-based analyst expects the shares to outperform their peers.
Microsoft, based in Redmond, Washington, rose $1.49 to $34.74 in late trading after closing at $33.25 on the Nasdaq Stock Market. The shares advanced 19 percent last year.
Net income in the three months ended Dec. 31 was $2.63 billion, or 26 cents, a year ago, the company said in a statement today. Microsoft deferred $1.64 billion in sales in that period, cutting revenue and profit.
Windows and Office benefited from PC demand, growing interest in pricier new versions and inroads against software piracy. Holiday purchases of exclusive Xbox 360 video-games such as ``Halo 3,'' the top-selling game in the U.S. last year, fueled revenue growth and led to more console sales.
Forecast
Microsoft said profit in the year ending June 30 will be $1.85 to $1.88 a share, on sales of $59.9 billion to $60.5 billion, above analysts' average estimate profit of $1.81 and sales of $59.4 billion and an increase from Microsoft's previous forecast.
``There's a lot of concern, and we're not blind to that,'' Chief Financial Officer Chris Liddell said today in an interview. ``But the momentum we have in the second half is extremely good, so we feel optimistic enough to raise our forecast.''
Microsoft's business isn't showing signs of slowing related to the U.S. economy, Liddell said, pointing to PC shipment growth and an unexpected increase in Microsoft's unearned revenue, a marker of future sales. Unearned revenue, which tracks signings of multiyear corporate contracts for Microsoft software, rose $500 million more than Liddell had forecast.
For the current quarter, profit will be 43 cents to 45 cents on sales of $14.3 billion to $14.6 billion, in line with the average analyst estimate for profit of 44 cents and sales of $14.4 billion.
`Remarkable' Growth
``It's remarkable that they're growing as fast as they are for a company so large,'' said Ken Allen, a portfolio manager at T. Rowe Price Associates Inc. in Baltimore. His firm is the 5th- biggest institutional holder of Microsoft shares.
Revenue in the unit that includes Xbox rose 3.1 percent to $3.06 billion, exceeding Microsoft's forecast that it would decline as much as 8 percent. The division posted earnings of $357 million, the first time it has reported profits in back-to- back quarters.
Liddell cited the high number of games sold per Xbox machine for the unit's revenue and profit increases. Consumers on average buy seven titles with each machine, which bolsters earnings because the games are profitable while the consoles usually lose money or break even.
Game Plan
Ballmer has lined up exclusive titles such as ``Halo 3'' and ``Mass Effect,'' named Game of the Year by the New York Times, to win users from Nintendo Co.'s Wii system and achieve the first annual profit in the Xbox unit.
``The games division is doing really well,'' said Avi Cohen, head of research at Boston research firm Avian Securities LLC. ``They are competing well against the Wii and `Halo' is certainly helping.''
Sales in Microsoft's business division, which includes the Office applications and Exchange and SharePoint server software for corporate customers, advanced 37 percent to $4.81 billion. That topped the $4.61 billion estimate of UBS AG analyst Heather Bellini in New York.
The client division, home to Microsoft's Windows software for PCs, posted a 68 percent increase in sales to $4.34 billion. The company gained by persuading PC makers to install pricier versions of its Vista operating system on machines. About 75 percent of the Windows programs sold last quarter were the higher-priced versions, Liddell said.
PC shipments rose 15.5 percent in the quarter, according to Framingham, Massachusetts-based researcher IDC. Microsoft had projected an increase of as much as 13 percent.
Twenty-three analysts suggest buying Microsoft shares, seven recommend holding them and two have ``sell'' ratings, according to data compiled by Bloomberg.
Societe Generale Reports EU4.9 Billion Trading Loss (Update8)
By Gregory Viscusi and Anne-Sylvaine Chassany
Jan. 24 (Bloomberg) -- Societe Generale SA said bets on stock index futures by a rogue trader caused a 4.9 billion-euro ($7.2 billion) trading loss, the largest in banking history.
Jerome Kerviel, 31, was the trader responsible, the Paris- based bank said today. Societe Generale plans to raise 5.5 billion euros from shareholders after the loss and subprime- related writedowns depleted capital. The Bank of France, the country's banking regulator, is investigating the alleged fraud.
The trading loss exceeds the $6.6 billion Amaranth Advisors LLC lost in 2006, and is more than four times the $1.4 billion of losses by Nick Leeson that brought down Barings Plc in 1995. An offer by Chairman Daniel Bouton to resign after the trades were discovered this past weekend was refused by Societe Generale's board, the bank said.
``At first this seemed like a joke,'' said Nicolas Rutsaert, an analyst covering European banks at Dexia SA in Brussels. Societe Generale ``was a leader in derivatives and was considered one of the best risk managers in the world.''
Societe Generale fell 3.27 euros, or 4.1 percent, to 75.81 euros in Paris trading, bringing declines this year to 23 percent and valuing the bank at 35.3 billion euros. The Dow Jones Stoxx 600 Index surged 5.2 percent today to 322.08, its biggest gain since March 2003.
Fake Trades
Societe Generale started unwinding the trading positions linked to European stock index futures on Jan. 21, a day when equity markets in France, Germany and the U.K. fell more than 5 percent. The next day the U.S. Federal Reserve cut interest rates by the most in 23 years as ``financial market conditions continued to deteriorate.''
``It's not possible that our covering operations contributed to the market's fall,'' said Philippe Collas, the head of asset management at the bank.
The trading loss wipes out almost two years of pretax profit at Societe Generale's investment-banking unit, run by Jean-Pierre Mustier. The company said it's suing the trader, who had a salary and bonus of less than 100,000 euros a year and worked at the bank since 2000.
Four to five people will be fired as a result of the loss, Mustier told reporters at a press conference in Paris. Luc Francois, the head of equity markets, is among those who will lose his job, said spokesman Hugues Le Bret. He declined to comment about Kerviel.
``The transactions that were built on the fraud were simple, positions linked to rising stock markets, but they were hidden through extremely sophisticated and varied techniques,'' Bouton, 67, said in a letter posted on the bank's Web site.
`In the Money'
His approach was to balance each real trade with a fictitious one, and his ``intimate and perverse'' knowledge of the bank's controls allowed him to avoid detection, co-Chief Executive Officer Philippe Citerne told reporters. He rolled over his real trades before they reached maturity.
By the end of December, he was ``massively in the money,'' said Collas. Since the beginning of the year his trades became unprofitable.
The trades first came to management's attention on the evening of Jan. 18, when a compliance officer found a trade that exceeded the bank's limits, Mustier said. When Societe Generale called the counterparty, they were told the trade didn't exist.
The employee, who moved to the trading floor from the back office in 2006, helped with the investigations throughout the weekend, said Mustier, who didn't identify the trader and said he doesn't know where he is now.
The trader didn't enrich himself from the fraudulent trades, which began in early 2007, and his motivations are unclear, Bouton said at the press conference.
`Breached' Controls
He ``breached five levels of controls,'' Christian Noyer, the governor of the Bank of France, said at a press conference today. He described the trader as ``a computer genius'' and said he was told he was ``on the run.''
Management des Operations de Marche, a business school in Lyon, lists Kerviel as a 2000 graduate.
Societe Generale joins a list of at least five financial firms since the start of the 1990s to suffer losses from unauthorized trades, including Kidder Peabody, Barings, and Allied Irish Banks Plc.
French President Nicolas Sarkozy wouldn't comment on the investigation beyond calling it ``fraud,'' said spokesman David Martinon. Foreign Minister Bernard Kouchner said in an interview at the World Economic Forum in Davos, Switzerland, that he is ``concerned'' about the case.
Takeover Target
The bank said it will post a profit of 600 million euros to 800 million euros for 2007 and pay a dividend equal to 45 percent of its earnings. ``Most of the sectors, in France and abroad, continue to produce good, and sometimes excellent results,'' Bouton said.
Bouton and Citerne won't receive bonuses or stock options for 2007, and will forgo their salaries for the first half of this year. Mustier won't receive a 2007 bonus or stock options.
The company said it plans to raise capital by selling shares in a rights offer underwritten by JPMorgan Chase & Co. and Morgan Stanley. Following the transaction, the bank's Tier 1 ratio, a measure of solvency, will rise to about 8 percent from 6.7 percent at the end of 2007.
Bouton, asked whether the affair made Societe Generale a more likely takeover or merger target, said ``we are not looking for this. Our goal is to have the bank working as well as possible after this incredible accident.''
Bouton said he wasn't seeking capital from sovereign funds, which have invested in banks including Citigroup Inc., Merrill Lynch & Co. and UBS AG in the past two months.
Rogue Traders
``It's a disaster,'' said Guy De Blonay, who helps manage about $41 billion at New Star Asset Management Group Plc in London. Still ``an acquirer could be tempted. You have got a superb franchise here at an attractive price.'' De Blonay said he had bought shares in the bank today.
Societe Generale, founded in 1864, has 120,000 employees in 77 countries and 22 million retail-banking clients, according to information on its Web site.
``Banks, despite the implementation of sophisticated risk management solutions, are still under the threat that an employee with a good understanding of the risk management processes can get round them to hide his losses,'' said Axel Pierron, a senior analyst at Celent, an international financial research firm.
Societe Generale has ranked first or second during the past five years in client surveys of equity derivative firms, according to Risk Magazine. In 2007, it received the award for ``Equity Derivatives House of the Year'' from The Banker, a London-based monthly magazine.
`Mr. Copper'
Societe Generale's report of fraud comes four months after French competitor Credit Agricole SA said an unauthorized proprietary trade at its investment-banking unit in New York cost it 250 million euros.
In 1994, Kidder Peabody, then owned by General Electric Co., took a $210 million charge against first-quarter earnings to reflect what it said were false profits recorded by bond trader Joseph Jett. The allegations and unrelated bond losses led GE to sell most of Kidder to Paine Webber in 1995. UBS AG bought Paine Webber in 2000.
Sumitomo Corp. disclosed a $2.6 billion loss in 1996 on copper trades. The Japanese firm blamed unauthorized trades by its chief copper trader, Yasuo Hamanaka, who was known as ``Mr. Copper'' in the markets because of his aggressive trading. Hamanaka was sentenced to eight years in prison in 1998.
Allied Irish
Allied Irish Banks Plc discovered in 2002 that John Rusnak, a trader at its Allfirst Financial Inc., had amassed and hidden $691 million of losses over more than five years before the company noticed any discrepancies. Rusnak was sentenced to 7 1/2 years in prison. Allied Irish sold the Baltimore-based unit to M&T Bank Corp.
Societe Generale said that it has already closed all the positions set up by the trader, who had used his experience working in the back office to hide his trades through fictitious transactions.
Societe Generale said it's taking 1.1 billion euros of writedowns linked to the U.S. residential real estate market, 550 million euros related to U.S. bond insurers, and 400 million euros on other unspecified risks.
In the third quarter, the bank reported 375 million euros of writedowns and trading losses linked to turmoil in financial markets. The world's biggest financial companies have announced more than $120 billion in writedowns and credit losses as the U.S. housing slump rattles debt markets.
Jan. 24 (Bloomberg) -- Societe Generale SA said bets on stock index futures by a rogue trader caused a 4.9 billion-euro ($7.2 billion) trading loss, the largest in banking history.
Jerome Kerviel, 31, was the trader responsible, the Paris- based bank said today. Societe Generale plans to raise 5.5 billion euros from shareholders after the loss and subprime- related writedowns depleted capital. The Bank of France, the country's banking regulator, is investigating the alleged fraud.
The trading loss exceeds the $6.6 billion Amaranth Advisors LLC lost in 2006, and is more than four times the $1.4 billion of losses by Nick Leeson that brought down Barings Plc in 1995. An offer by Chairman Daniel Bouton to resign after the trades were discovered this past weekend was refused by Societe Generale's board, the bank said.
``At first this seemed like a joke,'' said Nicolas Rutsaert, an analyst covering European banks at Dexia SA in Brussels. Societe Generale ``was a leader in derivatives and was considered one of the best risk managers in the world.''
Societe Generale fell 3.27 euros, or 4.1 percent, to 75.81 euros in Paris trading, bringing declines this year to 23 percent and valuing the bank at 35.3 billion euros. The Dow Jones Stoxx 600 Index surged 5.2 percent today to 322.08, its biggest gain since March 2003.
Fake Trades
Societe Generale started unwinding the trading positions linked to European stock index futures on Jan. 21, a day when equity markets in France, Germany and the U.K. fell more than 5 percent. The next day the U.S. Federal Reserve cut interest rates by the most in 23 years as ``financial market conditions continued to deteriorate.''
``It's not possible that our covering operations contributed to the market's fall,'' said Philippe Collas, the head of asset management at the bank.
The trading loss wipes out almost two years of pretax profit at Societe Generale's investment-banking unit, run by Jean-Pierre Mustier. The company said it's suing the trader, who had a salary and bonus of less than 100,000 euros a year and worked at the bank since 2000.
Four to five people will be fired as a result of the loss, Mustier told reporters at a press conference in Paris. Luc Francois, the head of equity markets, is among those who will lose his job, said spokesman Hugues Le Bret. He declined to comment about Kerviel.
``The transactions that were built on the fraud were simple, positions linked to rising stock markets, but they were hidden through extremely sophisticated and varied techniques,'' Bouton, 67, said in a letter posted on the bank's Web site.
`In the Money'
His approach was to balance each real trade with a fictitious one, and his ``intimate and perverse'' knowledge of the bank's controls allowed him to avoid detection, co-Chief Executive Officer Philippe Citerne told reporters. He rolled over his real trades before they reached maturity.
By the end of December, he was ``massively in the money,'' said Collas. Since the beginning of the year his trades became unprofitable.
The trades first came to management's attention on the evening of Jan. 18, when a compliance officer found a trade that exceeded the bank's limits, Mustier said. When Societe Generale called the counterparty, they were told the trade didn't exist.
The employee, who moved to the trading floor from the back office in 2006, helped with the investigations throughout the weekend, said Mustier, who didn't identify the trader and said he doesn't know where he is now.
The trader didn't enrich himself from the fraudulent trades, which began in early 2007, and his motivations are unclear, Bouton said at the press conference.
`Breached' Controls
He ``breached five levels of controls,'' Christian Noyer, the governor of the Bank of France, said at a press conference today. He described the trader as ``a computer genius'' and said he was told he was ``on the run.''
Management des Operations de Marche, a business school in Lyon, lists Kerviel as a 2000 graduate.
Societe Generale joins a list of at least five financial firms since the start of the 1990s to suffer losses from unauthorized trades, including Kidder Peabody, Barings, and Allied Irish Banks Plc.
French President Nicolas Sarkozy wouldn't comment on the investigation beyond calling it ``fraud,'' said spokesman David Martinon. Foreign Minister Bernard Kouchner said in an interview at the World Economic Forum in Davos, Switzerland, that he is ``concerned'' about the case.
Takeover Target
The bank said it will post a profit of 600 million euros to 800 million euros for 2007 and pay a dividend equal to 45 percent of its earnings. ``Most of the sectors, in France and abroad, continue to produce good, and sometimes excellent results,'' Bouton said.
Bouton and Citerne won't receive bonuses or stock options for 2007, and will forgo their salaries for the first half of this year. Mustier won't receive a 2007 bonus or stock options.
The company said it plans to raise capital by selling shares in a rights offer underwritten by JPMorgan Chase & Co. and Morgan Stanley. Following the transaction, the bank's Tier 1 ratio, a measure of solvency, will rise to about 8 percent from 6.7 percent at the end of 2007.
Bouton, asked whether the affair made Societe Generale a more likely takeover or merger target, said ``we are not looking for this. Our goal is to have the bank working as well as possible after this incredible accident.''
Bouton said he wasn't seeking capital from sovereign funds, which have invested in banks including Citigroup Inc., Merrill Lynch & Co. and UBS AG in the past two months.
Rogue Traders
``It's a disaster,'' said Guy De Blonay, who helps manage about $41 billion at New Star Asset Management Group Plc in London. Still ``an acquirer could be tempted. You have got a superb franchise here at an attractive price.'' De Blonay said he had bought shares in the bank today.
Societe Generale, founded in 1864, has 120,000 employees in 77 countries and 22 million retail-banking clients, according to information on its Web site.
``Banks, despite the implementation of sophisticated risk management solutions, are still under the threat that an employee with a good understanding of the risk management processes can get round them to hide his losses,'' said Axel Pierron, a senior analyst at Celent, an international financial research firm.
Societe Generale has ranked first or second during the past five years in client surveys of equity derivative firms, according to Risk Magazine. In 2007, it received the award for ``Equity Derivatives House of the Year'' from The Banker, a London-based monthly magazine.
`Mr. Copper'
Societe Generale's report of fraud comes four months after French competitor Credit Agricole SA said an unauthorized proprietary trade at its investment-banking unit in New York cost it 250 million euros.
In 1994, Kidder Peabody, then owned by General Electric Co., took a $210 million charge against first-quarter earnings to reflect what it said were false profits recorded by bond trader Joseph Jett. The allegations and unrelated bond losses led GE to sell most of Kidder to Paine Webber in 1995. UBS AG bought Paine Webber in 2000.
Sumitomo Corp. disclosed a $2.6 billion loss in 1996 on copper trades. The Japanese firm blamed unauthorized trades by its chief copper trader, Yasuo Hamanaka, who was known as ``Mr. Copper'' in the markets because of his aggressive trading. Hamanaka was sentenced to eight years in prison in 1998.
Allied Irish
Allied Irish Banks Plc discovered in 2002 that John Rusnak, a trader at its Allfirst Financial Inc., had amassed and hidden $691 million of losses over more than five years before the company noticed any discrepancies. Rusnak was sentenced to 7 1/2 years in prison. Allied Irish sold the Baltimore-based unit to M&T Bank Corp.
Societe Generale said that it has already closed all the positions set up by the trader, who had used his experience working in the back office to hide his trades through fictitious transactions.
Societe Generale said it's taking 1.1 billion euros of writedowns linked to the U.S. residential real estate market, 550 million euros related to U.S. bond insurers, and 400 million euros on other unspecified risks.
In the third quarter, the bank reported 375 million euros of writedowns and trading losses linked to turmoil in financial markets. The world's biggest financial companies have announced more than $120 billion in writedowns and credit losses as the U.S. housing slump rattles debt markets.
Japan's Inflation Rate Doubles to 0.8% as Oil Surges (Update1)
By Mayumi Otsuma
Jan. 25 (Bloomberg) -- Japan's consumer prices rose at the fastest pace in more than nine years in December, as oil and commodity costs surged.
Core consumer prices, which exclude fresh food, climbed 0.8 percent from a year earlier, double November's increase, the statistics bureau said today in Tokyo. The median estimate of 44 economists surveyed by Bloomberg News was for a 0.6 percent gain.
Inflation driven by rising costs is hurting consumers, whose wages are falling, just as the country's export-led economy is losing steam. Bank of Japan Governor Toshihiko Fukui said price gains will accelerate in coming months because crude oil costs will remain high.
``The global economy is slowing while prices of food and energy keep advancing,'' said Hiroshi Shiraishi, an economist at Lehman Brothers in Tokyo, who expects the central bank to keep interest rates on hold this year. ``That's the worst combination for the Japanese economy, which depends on exports and has stagnating domestic demand.''
The yen traded at 107.17 per dollar at 8:41 a.m. in Tokyo from 107.12 before the report was released.
The central bank this week kept the benchmark overnight lending rate at 0.5 percent, the lowest among major economies. Investors predict it may need to lower the rate to prevent the economy from slipping into recession. There is a 67 percent chance of a cut by July, according to calculations by JPMorgan Chase & Co. using overnight interest-rate swaps.
Consumer Confidence
Consumer confidence fell to a four-year low in December and wages only rose in two of the first 11 months of last year.
Core consumer prices were unchanged in 2007, today's report showed. Prices started rising in October after falling for eight months. Even before then, they either hovered near zero or fell since March 1998, when an increase in the country's sales tax pushed gains to 1.8 percent.
``Japan's consumer prices may rise as much as 0.8 percent toward April, but most of those gains will be from oil,'' said Masaaki Kanno, a former central bank official and now chief economist at JPMorgan Securities in Tokyo. ``Unless oil prices gain further momentum, core prices will resume falling toward the end of the year.''
Tokyo's core prices, a harbinger of the nationwide index, rose 0.4 percent in January from a year earlier, following a 0.3 percent gain in December.
Excluding energy as well as food, nationwide consumer prices fell 0.1 percent in December. By that measure, they've failed to rise for nine years.
Oil, Commodities
Crude oil rose to a record $100 a barrel this month. A UBS Bloomberg index of 26 commodities that tracks the prices of oil, industrial metals, agriculture and livestock climbed to a record on Jan. 14 after surging 22 percent last year.
Central bank policy makers said this week that growth in the year ending March will probably be slower than the 1.8 percent they forecast three months ago. Board members said consumer prices will probably rise faster than they had anticipated in October, when they said inflation would be flat this year.
Japan's top breweries -- Kirin Holdings Co., Asahi Breweries Ltd. and Sapporo Holdings Ltd. -- plan to raise beer prices in the next three months to cover higher malt costs. Nisshin Foods Inc., Japan's biggest macaroni maker, will increase pasta prices as wheat costs soar.
The biggest reason for an economic slowdown is that companies, particularly small ones, remain unable to pass on costs out of concern that sales may decrease, said Ryutaro Kono, chief economist at BNP Paribas in Tokyo.
``Some companies, worrying that worsening performance may force them to go bankrupt, started to raise prices,'' Kono said. ``But without wage increases, higher prices will only hurt households' purchasing power and choke off spending.''
Jan. 25 (Bloomberg) -- Japan's consumer prices rose at the fastest pace in more than nine years in December, as oil and commodity costs surged.
Core consumer prices, which exclude fresh food, climbed 0.8 percent from a year earlier, double November's increase, the statistics bureau said today in Tokyo. The median estimate of 44 economists surveyed by Bloomberg News was for a 0.6 percent gain.
Inflation driven by rising costs is hurting consumers, whose wages are falling, just as the country's export-led economy is losing steam. Bank of Japan Governor Toshihiko Fukui said price gains will accelerate in coming months because crude oil costs will remain high.
``The global economy is slowing while prices of food and energy keep advancing,'' said Hiroshi Shiraishi, an economist at Lehman Brothers in Tokyo, who expects the central bank to keep interest rates on hold this year. ``That's the worst combination for the Japanese economy, which depends on exports and has stagnating domestic demand.''
The yen traded at 107.17 per dollar at 8:41 a.m. in Tokyo from 107.12 before the report was released.
The central bank this week kept the benchmark overnight lending rate at 0.5 percent, the lowest among major economies. Investors predict it may need to lower the rate to prevent the economy from slipping into recession. There is a 67 percent chance of a cut by July, according to calculations by JPMorgan Chase & Co. using overnight interest-rate swaps.
Consumer Confidence
Consumer confidence fell to a four-year low in December and wages only rose in two of the first 11 months of last year.
Core consumer prices were unchanged in 2007, today's report showed. Prices started rising in October after falling for eight months. Even before then, they either hovered near zero or fell since March 1998, when an increase in the country's sales tax pushed gains to 1.8 percent.
``Japan's consumer prices may rise as much as 0.8 percent toward April, but most of those gains will be from oil,'' said Masaaki Kanno, a former central bank official and now chief economist at JPMorgan Securities in Tokyo. ``Unless oil prices gain further momentum, core prices will resume falling toward the end of the year.''
Tokyo's core prices, a harbinger of the nationwide index, rose 0.4 percent in January from a year earlier, following a 0.3 percent gain in December.
Excluding energy as well as food, nationwide consumer prices fell 0.1 percent in December. By that measure, they've failed to rise for nine years.
Oil, Commodities
Crude oil rose to a record $100 a barrel this month. A UBS Bloomberg index of 26 commodities that tracks the prices of oil, industrial metals, agriculture and livestock climbed to a record on Jan. 14 after surging 22 percent last year.
Central bank policy makers said this week that growth in the year ending March will probably be slower than the 1.8 percent they forecast three months ago. Board members said consumer prices will probably rise faster than they had anticipated in October, when they said inflation would be flat this year.
Japan's top breweries -- Kirin Holdings Co., Asahi Breweries Ltd. and Sapporo Holdings Ltd. -- plan to raise beer prices in the next three months to cover higher malt costs. Nisshin Foods Inc., Japan's biggest macaroni maker, will increase pasta prices as wheat costs soar.
The biggest reason for an economic slowdown is that companies, particularly small ones, remain unable to pass on costs out of concern that sales may decrease, said Ryutaro Kono, chief economist at BNP Paribas in Tokyo.
``Some companies, worrying that worsening performance may force them to go bankrupt, started to raise prices,'' Kono said. ``But without wage increases, higher prices will only hurt households' purchasing power and choke off spending.''
Bush, Lawmakers Say Accord Reached on Stimulus Plan (Update6)
By Laura Litvan and Roger Runningen
Jan. 24 (Bloomberg) -- The Bush administration and House lawmakers announced agreement on an economic stimulus package that would distribute rebate checks to 117 million families and give businesses incentives to invest in equipment.
``The stimulus package will put money in the hands of hardworking Americans,'' House Speaker Nancy Pelosi said at a press conference with House Republican Leader John Boehner and Treasury Secretary Henry Paulson at the Capitol.
Lawmakers are racing to enact a stimulus measure to try to counter escalating risks of a recession. The Federal Reserve this week made an emergency cut in its benchmark overnight lending rate, lowering it three-quarters of a point to 3.5 percent.
President George W. Bush, in a statement at the White House, said the U.S. economy faces short-term disruptions in the housing market and rising energy prices.
``The country needs this boost to the economy now,'' Bush said. The agreement will result in ``higher consumer spending and increased business investment this year.''
Under the plan, individuals would receive rebates of up to $600 and couples could receive $1,200, plus $300 per child, Paulson said. Rebates would be phased out for individuals earning more than $75,000 and couples earning more than $150,000. Individuals must earn at least $3,000 to get a $300 rebate.
Paulson said the rebate checks may be mailed 60 days after the proposal becomes law, possibly in May.
`Fast Track'
``This is on a fast track,'' Paulson said.
The accord also seeks to address the growing number of housing foreclosures by including a provision allowing Fannie Mae and Freddie Mac, the largest U.S. mortgage finance companies, to temporarily buy mortgages of as much as $729,750, exceeding a $417,000 federal limit.
Some lawmakers protested that the measure doesn't include more spending. Democrats sought to extend unemployment benefits or provide additional food-stamp aid.
Representative Charles Rangel, a New York Democrat who heads the tax-writing House Ways and Means Committee, said he did ``not understand, and cannot accept'' the dropping of an extension of unemployment benefits from the final stimulus package.
``These are the families we need to protect in times of recession as they struggle to put food on their tables, clothes on their backs and keep a roof over their heads,'' Rangel said in a statement. Rangel added, however, that he wouldn't block the legislation from ``moving forward.''
Business Incentives
Two business incentives were included in the measure. One would allow large businesses to deduct more of the price of new equipment they purchase this year. Small businesses would be allowed to deduct twice the current limit of $112,000 for new equipment purchases.
Senate Democratic leaders, while praising the House agreement today, said the measure will be amended in that chamber.
Senate Republican Leader Mitch McConnell called for quick action.
``We can all agree that we must act soon if we want to provide timely relief to American families and job creators, and boost our fundamentally strong economy,'' he said in a prepared statement.
Jan. 24 (Bloomberg) -- The Bush administration and House lawmakers announced agreement on an economic stimulus package that would distribute rebate checks to 117 million families and give businesses incentives to invest in equipment.
``The stimulus package will put money in the hands of hardworking Americans,'' House Speaker Nancy Pelosi said at a press conference with House Republican Leader John Boehner and Treasury Secretary Henry Paulson at the Capitol.
Lawmakers are racing to enact a stimulus measure to try to counter escalating risks of a recession. The Federal Reserve this week made an emergency cut in its benchmark overnight lending rate, lowering it three-quarters of a point to 3.5 percent.
President George W. Bush, in a statement at the White House, said the U.S. economy faces short-term disruptions in the housing market and rising energy prices.
``The country needs this boost to the economy now,'' Bush said. The agreement will result in ``higher consumer spending and increased business investment this year.''
Under the plan, individuals would receive rebates of up to $600 and couples could receive $1,200, plus $300 per child, Paulson said. Rebates would be phased out for individuals earning more than $75,000 and couples earning more than $150,000. Individuals must earn at least $3,000 to get a $300 rebate.
Paulson said the rebate checks may be mailed 60 days after the proposal becomes law, possibly in May.
`Fast Track'
``This is on a fast track,'' Paulson said.
The accord also seeks to address the growing number of housing foreclosures by including a provision allowing Fannie Mae and Freddie Mac, the largest U.S. mortgage finance companies, to temporarily buy mortgages of as much as $729,750, exceeding a $417,000 federal limit.
Some lawmakers protested that the measure doesn't include more spending. Democrats sought to extend unemployment benefits or provide additional food-stamp aid.
Representative Charles Rangel, a New York Democrat who heads the tax-writing House Ways and Means Committee, said he did ``not understand, and cannot accept'' the dropping of an extension of unemployment benefits from the final stimulus package.
``These are the families we need to protect in times of recession as they struggle to put food on their tables, clothes on their backs and keep a roof over their heads,'' Rangel said in a statement. Rangel added, however, that he wouldn't block the legislation from ``moving forward.''
Business Incentives
Two business incentives were included in the measure. One would allow large businesses to deduct more of the price of new equipment they purchase this year. Small businesses would be allowed to deduct twice the current limit of $112,000 for new equipment purchases.
Senate Democratic leaders, while praising the House agreement today, said the measure will be amended in that chamber.
Senate Republican Leader Mitch McConnell called for quick action.
``We can all agree that we must act soon if we want to provide timely relief to American families and job creators, and boost our fundamentally strong economy,'' he said in a prepared statement.
Japan's Nikkei 225 Futures Rise on U.S. Economic Stimulus Plan
By Masaki Kondo and Patrick Rial
Jan. 25 (Bloomberg) -- Japan's Nikkei 225 Stock Average futures rose in Chicago after U.S. lawmakers agreed on a plan to pay tax rebates to families to boost consumer spending.
U.S.-traded receipts of Sony Corp., the world's second- biggest maker of consumer electronics, advanced 2 percent from the closing price in Tokyo on speculation the plan will support earnings for Japan's exporters. Toyota Motor Corp., the nation's largest automaker, climbed 1.9 percent after the yen weakened against the dollar, increasing the value of its U.S. sales.
The Bush administration and House lawmakers yesterday announced agreement on a stimulus package that will give families rebates of as much as $600 for individuals and includes incentives intended to spur business investment in equipment.
``Investors will continue buying back into the market,'' Mamoru Shimode, a chief equity strategist at Deutsche Securities said in an interview with Bloomberg Television. ``The focus is on how fast the U.S. will introduce additional policies to help the economy.''
Nikkei 225 Stock Average futures expiring in March last traded at 13,325 in Chicago, up from the close of 13,060 in Osaka and 13,050 in Singapore yesterday. The Bank of New York Co.'s Japan ADR Index, which tracks American depositary receipts of Japanese companies, rose 2.1 percent.
The yen weakened to as low as 107.24 against the dollar from 106.52 yesterday, boosting the local value of Japanese companies' export earnings.
Trading companies including Mitsubishi Corp. and Mitsui & Co. may advance after copper gained. Inpex Holdings Inc., the nation's largest oil explorer, may rise as crude oil climbed the most in three weeks.
The Nikkei added 2.1 percent to 13,092.78 yesterday, for a two-day, 4.1 percent gain, the biggest since Jun. 30, 2006. The broader Topix index jumped 2.8 percent, to 1,284.45.
Copper, Oil
Copper futures for March delivery rose 3.2 percent, the biggest advance since Jan. 8, to $3.1715 a pound on the Comex division of the New York Mercantile Exchange. Crude oil for March delivery added 2.8 percent to settle at $89.41 a barrel.
Nintendo Co., the world's biggest maker of handheld game players, may gain after raising its annual forecast for operating profit by 9.5 percent to 460 billion yen. The Kyoto-based company also lifted its sales target for the Wii game machine by 5.7 percent.
Profit will probably exceed the company's target by 20 billion to 30 billion yen, Shunsuke Tsuchiya, an analyst for UBS AG in Tokyo, wrote in a note to clients dated today. He maintained his ``buy'' rating on the stock.
Mizuho Financial Group Inc., Japan's third-largest bank market value, may rise after the Nikkei newspaper said the company and the State Bank of India will today announce an alliance to offer financial services to Japanese businesses investing in India. The Japanese-language newspaper didn't say where it obtained the information.
Nidec Corp., the world's biggest maker of motors for hard- disk drives, may jump after the Nikkei newspaper reported the company may say April-December operating profit climbed 16 percent to a record on increased sales.
Jan. 25 (Bloomberg) -- Japan's Nikkei 225 Stock Average futures rose in Chicago after U.S. lawmakers agreed on a plan to pay tax rebates to families to boost consumer spending.
U.S.-traded receipts of Sony Corp., the world's second- biggest maker of consumer electronics, advanced 2 percent from the closing price in Tokyo on speculation the plan will support earnings for Japan's exporters. Toyota Motor Corp., the nation's largest automaker, climbed 1.9 percent after the yen weakened against the dollar, increasing the value of its U.S. sales.
The Bush administration and House lawmakers yesterday announced agreement on a stimulus package that will give families rebates of as much as $600 for individuals and includes incentives intended to spur business investment in equipment.
``Investors will continue buying back into the market,'' Mamoru Shimode, a chief equity strategist at Deutsche Securities said in an interview with Bloomberg Television. ``The focus is on how fast the U.S. will introduce additional policies to help the economy.''
Nikkei 225 Stock Average futures expiring in March last traded at 13,325 in Chicago, up from the close of 13,060 in Osaka and 13,050 in Singapore yesterday. The Bank of New York Co.'s Japan ADR Index, which tracks American depositary receipts of Japanese companies, rose 2.1 percent.
The yen weakened to as low as 107.24 against the dollar from 106.52 yesterday, boosting the local value of Japanese companies' export earnings.
Trading companies including Mitsubishi Corp. and Mitsui & Co. may advance after copper gained. Inpex Holdings Inc., the nation's largest oil explorer, may rise as crude oil climbed the most in three weeks.
The Nikkei added 2.1 percent to 13,092.78 yesterday, for a two-day, 4.1 percent gain, the biggest since Jun. 30, 2006. The broader Topix index jumped 2.8 percent, to 1,284.45.
Copper, Oil
Copper futures for March delivery rose 3.2 percent, the biggest advance since Jan. 8, to $3.1715 a pound on the Comex division of the New York Mercantile Exchange. Crude oil for March delivery added 2.8 percent to settle at $89.41 a barrel.
Nintendo Co., the world's biggest maker of handheld game players, may gain after raising its annual forecast for operating profit by 9.5 percent to 460 billion yen. The Kyoto-based company also lifted its sales target for the Wii game machine by 5.7 percent.
Profit will probably exceed the company's target by 20 billion to 30 billion yen, Shunsuke Tsuchiya, an analyst for UBS AG in Tokyo, wrote in a note to clients dated today. He maintained his ``buy'' rating on the stock.
Mizuho Financial Group Inc., Japan's third-largest bank market value, may rise after the Nikkei newspaper said the company and the State Bank of India will today announce an alliance to offer financial services to Japanese businesses investing in India. The Japanese-language newspaper didn't say where it obtained the information.
Nidec Corp., the world's biggest maker of motors for hard- disk drives, may jump after the Nikkei newspaper reported the company may say April-December operating profit climbed 16 percent to a record on increased sales.
Bank of America Sells $12 Billion of Perpetual Preferred Stock
By Bryan Keogh and David Mildenberg
Jan. 24 (Bloomberg) -- Bank of America Corp., the second- biggest U.S. bank, raised $12 billion in its largest offering of preferred shares, attracting investors with some of the highest yields in 15 years.
Bank of America sold $6 billion of perpetual preferred shares at a yield of 8 percent, according to data compiled by Bloomberg. The bank also sold $6 billion of convertible preferred stock. The overall sale's size, which was doubled, received ``strong investor interest,'' according to a company statement.
The bank, based in Charlotte, North Carolina, is rebuilding its capital after spending $24.3 billion to acquire U.S. Trust Corp. and LaSalle Bank last year and agreeing this month to buy Countrywide Financial Corp. for $4 billion. Bank of America joins Citigroup Inc. and other banks shoring up capital after reporting $133 billion in asset writedowns and credit losses tied to last year's collapse of the U.S. subprime mortgage market.
``They definitely need the capital,'' said Chris Hagedorn, a portfolio manager at Fifth Third Asset Management, which has $22 billion under management.
The convertible shares, which yield 7.25 percent, carry a conversion price of $50 per common share, according to the statement.
Bank of America fell 67 cents, or 1.7 percent, to $39.90 in composite trading on the New York Stock Exchange.
Capital Ratio
Bank of America on Jan. 22 said its fourth-quarter earnings dropped 95 percent after $5.28 billion of mortgage-related writedowns and higher provisions for future loan losses. Chief Executive Officer Kenneth Lewis said he wants to rebuild the bank's Tier 1 capital ratio, which measures its ability to cover losses, to 8 percent of assets.
The ratio is ``expected to approach management's target'' of 8 percent as a result of the offering, according to the statement.
The ratio was 6.87 percent as of Dec. 31, compared with 8.64 percent at the end of 2006. With Bank of America's $1.7 trillion in assets, increasing Tier 1 capital by 1 percentage point equals $17 billion.
Bank of America in December 1992 sold $237.5 million of perpetual preferred shares with a dividend of 8.5 percent, according to data compiled by Bloomberg.
New York-based Citigroup, the biggest U.S. bank, last week sold $18.65 billion of debt, including $3.25 billion of perpetual preferred stock at a yield of 8.125 percent.
Jan. 24 (Bloomberg) -- Bank of America Corp., the second- biggest U.S. bank, raised $12 billion in its largest offering of preferred shares, attracting investors with some of the highest yields in 15 years.
Bank of America sold $6 billion of perpetual preferred shares at a yield of 8 percent, according to data compiled by Bloomberg. The bank also sold $6 billion of convertible preferred stock. The overall sale's size, which was doubled, received ``strong investor interest,'' according to a company statement.
The bank, based in Charlotte, North Carolina, is rebuilding its capital after spending $24.3 billion to acquire U.S. Trust Corp. and LaSalle Bank last year and agreeing this month to buy Countrywide Financial Corp. for $4 billion. Bank of America joins Citigroup Inc. and other banks shoring up capital after reporting $133 billion in asset writedowns and credit losses tied to last year's collapse of the U.S. subprime mortgage market.
``They definitely need the capital,'' said Chris Hagedorn, a portfolio manager at Fifth Third Asset Management, which has $22 billion under management.
The convertible shares, which yield 7.25 percent, carry a conversion price of $50 per common share, according to the statement.
Bank of America fell 67 cents, or 1.7 percent, to $39.90 in composite trading on the New York Stock Exchange.
Capital Ratio
Bank of America on Jan. 22 said its fourth-quarter earnings dropped 95 percent after $5.28 billion of mortgage-related writedowns and higher provisions for future loan losses. Chief Executive Officer Kenneth Lewis said he wants to rebuild the bank's Tier 1 capital ratio, which measures its ability to cover losses, to 8 percent of assets.
The ratio is ``expected to approach management's target'' of 8 percent as a result of the offering, according to the statement.
The ratio was 6.87 percent as of Dec. 31, compared with 8.64 percent at the end of 2006. With Bank of America's $1.7 trillion in assets, increasing Tier 1 capital by 1 percentage point equals $17 billion.
Bank of America in December 1992 sold $237.5 million of perpetual preferred shares with a dividend of 8.5 percent, according to data compiled by Bloomberg.
New York-based Citigroup, the biggest U.S. bank, last week sold $18.65 billion of debt, including $3.25 billion of perpetual preferred stock at a yield of 8.125 percent.
U.S. Stocks Advance on Earnings, Government Stimulus Package
By Elizabeth Stanton
Jan. 24 (Bloomberg) -- U.S. stocks staged their biggest two- day rally since November after Xerox Corp. and Lockheed Martin Corp. reported profit that topped analysts' estimates and lawmakers agreed on a plan to pay tax rebates to families.
Xerox climbed the most in two years after the world's largest maker of high-speed color printers increased revenue by introducing new products. Lockheed Martin, the biggest defense company, posted its steepest advance since 2003 on higher sales of computer services to the government. Freeport-McMoRan Copper & Gold Inc., Exxon Mobil Corp. and Alcoa Inc. led gains in commodities producers after China's economy posted a fourth- straight quarter of growth above 11 percent.
The Standard & Poor's 500 Index climbed 13.47, or 1 percent, to 1,352.07, paring its decline this year to 7.9 percent. The Dow Jones Industrial Average, which yesterday fell 326 points before ending the day 299 points higher, added 108.44, or 0.9 percent, to 12,378.61. The 30-stock gauge is still down 6.7 percent in 2008. The Nasdaq Composite Index climbed 44.51, or 1.9 percent, to 2,360.92, still off 11 percent in 2008.
``The earnings that have been reported for the fourth quarter have been better than expected, outside of the financial companies,'' said Tom Wirth, senior investment officer at Chemung Canal Trust Co., which manages $1.8 billion in Elmira, New York. ``Our economy, though it's slowed, is still in a growth trajectory. We don't expect a recession.''
Earnings Beat
So far, 61 percent of the S&P 500 companies that reported fourth-quarter earnings have topped analysts' estimates, according to Bloomberg data. Profits beat estimates at 28 of the 39 members of the index that released results either after the market's close yesterday or this morning.
Stocks also advanced after the Bush administration and House lawmakers announced an agreement on an economic stimulus plan that would distribute rebate checks to 117 million families and give businesses incentives to invest in equipment. The proposal also aims to stem mortgage-market losses by temporarily allowing Fannie Mae and Freddie Mac to buy home loans of up to $625,000, exceeding a $417,000 federal limit.
Xerox rose $1.08, or 8.2 percent, to $14.33 on the New York Stock Exchange. Fourth-quarter earnings climbed 79 percent after the company sold new devices that print, copy, fax and scan. The company also expanded document-management services in the financial and health-care industries and increased its share buyback program by $1 billion.
Xerox, Lockheed
Lockheed Martin climbed $4.21, or 4.1 percent, to $105.90. The company beat analysts' fourth-quarter profit estimate by 19 cents a share and increased its forecast for 2008 as sales of government computer services offset a drop in aircraft deliveries.
Union Pacific led railroad companies higher, advancing $3.95, or 3.4 percent, to $120.96. The largest U.S. railroad's fourth-quarter profit topped estimates on increased revenue from shipping farm products, chemicals and coal.
The Labor Department reported an unexpected drop in first- time claims for unemployment benefits to 301,000 last week, easing concern that the fallout from the collapse of the subprime mortgage market will drag the U.S. into recession.
'A Little Extra Cash'
Investors also said the government's stimulus package, which will pay rebates of $600 to eligible individuals and $1,200 to couples, may boost growth.
``It's going to put a little extra cash in a whole lot of pockets and probably a good portion of that will feed its way through to the economy,'' said Jeff Layman, chief investment officer at BKD Wealth Advisors, which manages about $1.5 billion in Springfield, Missouri. ``The more lasting impact will be if it improves people's outlooks.''
Freeport-McMoRan, the world's second-biggest copper miner, added $6.13 to $83.43, its steepest advance since June 2006, after copper prices gained the most in two weeks. Newmont Mining Co., the second-largest gold producer, rallied $2.47 to $52.97 as gold prices topped $900 an ounce for the first time in a week. Alcoa Inc., the world's third-largest aluminum producer, rose 5.6 percent, the most in the Dow average, to $30.81
Exxon Mobil, the largest U.S. energy company, rose $2.55 to $86, its biggest advance since November. Crude rose from a three- month low, gaining $2.42 to $89.41 a barrel in New York.
China's 11.2 percent economic expansion in the three months ended Dec. 31 bolstered expectations that demand at companies that produce energy and metals will remain strong even as growth in the U.S. cools.
Commodity, Tech Shares Rally
Energy companies in the S&P 500 climbed 3.2 percent as a group, the steepest advance among 10 industries. Technology companies increased 3 percent and producers of raw materials rallied 2.9 percent for the second- and third-biggest gains.
Qualcomm Inc., the second-biggest maker of chips that run mobile phones, increased $3.78, or 10 percent, to $40.41 on the Nasdaq Stock Market, its biggest gain in four years. Revenue may rise as high as $10 billion this year, more than the $9.9 billion previously forecast, the company said last night after the close of U.S. exchanges.
LSI Corp., the maker of computer-storage chips for Seagate Technology, and Teradyne Inc., a maker of semiconductor-testing equipment, also advanced after earnings topped analysts' estimates.
LSI surged 84 cents, or 21 percent, to $4.85, the biggest gain in the S&P 500. Teradyne added $1.01, or 11 percent, to $10.18.
Makers of computer hard-disk drives rallied after Western Digital Corp. posted earnings that more than doubled on its expansion into markets for video recorders and laptops. Western Digital advanced $1.97 to $26.91.
EBay Slumps
EBay Inc. retreated $1.76 to $27.18. The largest Internet auctioneer projected full-year profit of $1.63 to $1.67 a share, compared with the average estimate of $1.67 in a Bloomberg survey. EBay said sales in 2008 will be as much as $8.75 billion, less than the $9.04 billion estimated by analysts. The company also said John Donahoe will succeed Meg Whitman as chief executive officer.
MBIA Inc. and Ambac Financial Group Inc., the biggest U.S. bond insurers, tumbled after New York State's insurance regulator said a rescue of bond guarantors will ``take some time.''
The possible bailout of bond insurers yesterday helped send the U.S. stock market to its biggest rally in two months.
Ambac lost its AAA credit rating from Fitch Ratings last week and Moody's Investors Service and Standard & Poor's are reviewing Ambac and MBIA for downgrades, casting doubt on the $2.4 trillion of bonds the industry insures.
Ambac lost $2.37, or 17 percent, to $11.33. MBIA fell $2.21, or 13 percent, to $14.40.
Credit Downgrade
Fitch revoked its AAA bond insurer grade on Security Capital Assurance Ltd. today, cutting the Hamilton, Bermuda-based company's XL Capital Assurance and XL Financial Assurance ratings five levels to A. The downgrade threw the rankings of at least $154.2 billion of securities in doubt. The SCA units guarantee municipal and corporate bonds.
SCA lost $1.16, or 31 percent, to $2.63, the biggest drop in its two years as a public company.
Traders pared bets that the Federal Reserve will cut its benchmark interest rate by half a percentage point when policy makers meet next week. The odds of a 0.5 percentage point reduction in the target rate for overnight loans between banks fell to 68 percent from 76 percent yesterday, futures trading showed. Traders priced in a 32 percent chance for a quarter-point cut to 3.25 percent.
The Dow Jones Stoxx 600 Index of European companies rallied 5.2 percent, its biggest gain since March 2003, while the MSCI World Index of 23 developed markets climbed 3.1 percent, the most since October 2002.
The Russell 2000 Index, a benchmark for companies with a median market value of $523 million, dropped 0.1 percent to 692.72. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, rose 1 percent to 13,608.44. Based on its advance, the value of stocks increased by $169.1 billion.
About five stocks advanced for every four that fell on the NYSE.
Jan. 24 (Bloomberg) -- U.S. stocks staged their biggest two- day rally since November after Xerox Corp. and Lockheed Martin Corp. reported profit that topped analysts' estimates and lawmakers agreed on a plan to pay tax rebates to families.
Xerox climbed the most in two years after the world's largest maker of high-speed color printers increased revenue by introducing new products. Lockheed Martin, the biggest defense company, posted its steepest advance since 2003 on higher sales of computer services to the government. Freeport-McMoRan Copper & Gold Inc., Exxon Mobil Corp. and Alcoa Inc. led gains in commodities producers after China's economy posted a fourth- straight quarter of growth above 11 percent.
The Standard & Poor's 500 Index climbed 13.47, or 1 percent, to 1,352.07, paring its decline this year to 7.9 percent. The Dow Jones Industrial Average, which yesterday fell 326 points before ending the day 299 points higher, added 108.44, or 0.9 percent, to 12,378.61. The 30-stock gauge is still down 6.7 percent in 2008. The Nasdaq Composite Index climbed 44.51, or 1.9 percent, to 2,360.92, still off 11 percent in 2008.
``The earnings that have been reported for the fourth quarter have been better than expected, outside of the financial companies,'' said Tom Wirth, senior investment officer at Chemung Canal Trust Co., which manages $1.8 billion in Elmira, New York. ``Our economy, though it's slowed, is still in a growth trajectory. We don't expect a recession.''
Earnings Beat
So far, 61 percent of the S&P 500 companies that reported fourth-quarter earnings have topped analysts' estimates, according to Bloomberg data. Profits beat estimates at 28 of the 39 members of the index that released results either after the market's close yesterday or this morning.
Stocks also advanced after the Bush administration and House lawmakers announced an agreement on an economic stimulus plan that would distribute rebate checks to 117 million families and give businesses incentives to invest in equipment. The proposal also aims to stem mortgage-market losses by temporarily allowing Fannie Mae and Freddie Mac to buy home loans of up to $625,000, exceeding a $417,000 federal limit.
Xerox rose $1.08, or 8.2 percent, to $14.33 on the New York Stock Exchange. Fourth-quarter earnings climbed 79 percent after the company sold new devices that print, copy, fax and scan. The company also expanded document-management services in the financial and health-care industries and increased its share buyback program by $1 billion.
Xerox, Lockheed
Lockheed Martin climbed $4.21, or 4.1 percent, to $105.90. The company beat analysts' fourth-quarter profit estimate by 19 cents a share and increased its forecast for 2008 as sales of government computer services offset a drop in aircraft deliveries.
Union Pacific led railroad companies higher, advancing $3.95, or 3.4 percent, to $120.96. The largest U.S. railroad's fourth-quarter profit topped estimates on increased revenue from shipping farm products, chemicals and coal.
The Labor Department reported an unexpected drop in first- time claims for unemployment benefits to 301,000 last week, easing concern that the fallout from the collapse of the subprime mortgage market will drag the U.S. into recession.
'A Little Extra Cash'
Investors also said the government's stimulus package, which will pay rebates of $600 to eligible individuals and $1,200 to couples, may boost growth.
``It's going to put a little extra cash in a whole lot of pockets and probably a good portion of that will feed its way through to the economy,'' said Jeff Layman, chief investment officer at BKD Wealth Advisors, which manages about $1.5 billion in Springfield, Missouri. ``The more lasting impact will be if it improves people's outlooks.''
Freeport-McMoRan, the world's second-biggest copper miner, added $6.13 to $83.43, its steepest advance since June 2006, after copper prices gained the most in two weeks. Newmont Mining Co., the second-largest gold producer, rallied $2.47 to $52.97 as gold prices topped $900 an ounce for the first time in a week. Alcoa Inc., the world's third-largest aluminum producer, rose 5.6 percent, the most in the Dow average, to $30.81
Exxon Mobil, the largest U.S. energy company, rose $2.55 to $86, its biggest advance since November. Crude rose from a three- month low, gaining $2.42 to $89.41 a barrel in New York.
China's 11.2 percent economic expansion in the three months ended Dec. 31 bolstered expectations that demand at companies that produce energy and metals will remain strong even as growth in the U.S. cools.
Commodity, Tech Shares Rally
Energy companies in the S&P 500 climbed 3.2 percent as a group, the steepest advance among 10 industries. Technology companies increased 3 percent and producers of raw materials rallied 2.9 percent for the second- and third-biggest gains.
Qualcomm Inc., the second-biggest maker of chips that run mobile phones, increased $3.78, or 10 percent, to $40.41 on the Nasdaq Stock Market, its biggest gain in four years. Revenue may rise as high as $10 billion this year, more than the $9.9 billion previously forecast, the company said last night after the close of U.S. exchanges.
LSI Corp., the maker of computer-storage chips for Seagate Technology, and Teradyne Inc., a maker of semiconductor-testing equipment, also advanced after earnings topped analysts' estimates.
LSI surged 84 cents, or 21 percent, to $4.85, the biggest gain in the S&P 500. Teradyne added $1.01, or 11 percent, to $10.18.
Makers of computer hard-disk drives rallied after Western Digital Corp. posted earnings that more than doubled on its expansion into markets for video recorders and laptops. Western Digital advanced $1.97 to $26.91.
EBay Slumps
EBay Inc. retreated $1.76 to $27.18. The largest Internet auctioneer projected full-year profit of $1.63 to $1.67 a share, compared with the average estimate of $1.67 in a Bloomberg survey. EBay said sales in 2008 will be as much as $8.75 billion, less than the $9.04 billion estimated by analysts. The company also said John Donahoe will succeed Meg Whitman as chief executive officer.
MBIA Inc. and Ambac Financial Group Inc., the biggest U.S. bond insurers, tumbled after New York State's insurance regulator said a rescue of bond guarantors will ``take some time.''
The possible bailout of bond insurers yesterday helped send the U.S. stock market to its biggest rally in two months.
Ambac lost its AAA credit rating from Fitch Ratings last week and Moody's Investors Service and Standard & Poor's are reviewing Ambac and MBIA for downgrades, casting doubt on the $2.4 trillion of bonds the industry insures.
Ambac lost $2.37, or 17 percent, to $11.33. MBIA fell $2.21, or 13 percent, to $14.40.
Credit Downgrade
Fitch revoked its AAA bond insurer grade on Security Capital Assurance Ltd. today, cutting the Hamilton, Bermuda-based company's XL Capital Assurance and XL Financial Assurance ratings five levels to A. The downgrade threw the rankings of at least $154.2 billion of securities in doubt. The SCA units guarantee municipal and corporate bonds.
SCA lost $1.16, or 31 percent, to $2.63, the biggest drop in its two years as a public company.
Traders pared bets that the Federal Reserve will cut its benchmark interest rate by half a percentage point when policy makers meet next week. The odds of a 0.5 percentage point reduction in the target rate for overnight loans between banks fell to 68 percent from 76 percent yesterday, futures trading showed. Traders priced in a 32 percent chance for a quarter-point cut to 3.25 percent.
The Dow Jones Stoxx 600 Index of European companies rallied 5.2 percent, its biggest gain since March 2003, while the MSCI World Index of 23 developed markets climbed 3.1 percent, the most since October 2002.
The Russell 2000 Index, a benchmark for companies with a median market value of $523 million, dropped 0.1 percent to 692.72. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, rose 1 percent to 13,608.44. Based on its advance, the value of stocks increased by $169.1 billion.
About five stocks advanced for every four that fell on the NYSE.
U.S. Stocks Advance on Earnings, Government Stimulus Package
By Elizabeth Stanton
Jan. 24 (Bloomberg) -- U.S. stocks staged their biggest two- day rally since November after Xerox Corp. and Lockheed Martin Corp. reported profit that topped analysts' estimates and lawmakers agreed on a plan to pay tax rebates to families.
Xerox climbed the most in two years after the world's largest maker of high-speed color printers increased revenue by introducing new products. Lockheed Martin, the biggest defense company, posted its steepest advance since 2003 on higher sales of computer services to the government. Freeport-McMoRan Copper & Gold Inc., Exxon Mobil Corp. and Alcoa Inc. led gains in commodities producers after China's economy posted a fourth- straight quarter of growth above 11 percent.
The Standard & Poor's 500 Index climbed 13.47, or 1 percent, to 1,352.07, paring its decline this year to 7.9 percent. The Dow Jones Industrial Average, which yesterday fell 326 points before ending the day 299 points higher, added 108.44, or 0.9 percent, to 12,378.61. The 30-stock gauge is still down 6.7 percent in 2008. The Nasdaq Composite Index climbed 44.51, or 1.9 percent, to 2,360.92, still off 11 percent in 2008.
``The earnings that have been reported for the fourth quarter have been better than expected, outside of the financial companies,'' said Tom Wirth, senior investment officer at Chemung Canal Trust Co., which manages $1.8 billion in Elmira, New York. ``Our economy, though it's slowed, is still in a growth trajectory. We don't expect a recession.''
Earnings Beat
So far, 61 percent of the S&P 500 companies that reported fourth-quarter earnings have topped analysts' estimates, according to Bloomberg data. Profits beat estimates at 28 of the 39 members of the index that released results either after the market's close yesterday or this morning.
Stocks also advanced after the Bush administration and House lawmakers announced an agreement on an economic stimulus plan that would distribute rebate checks to 117 million families and give businesses incentives to invest in equipment. The proposal also aims to stem mortgage-market losses by temporarily allowing Fannie Mae and Freddie Mac to buy home loans of up to $625,000, exceeding a $417,000 federal limit.
Xerox rose $1.08, or 8.2 percent, to $14.33 on the New York Stock Exchange. Fourth-quarter earnings climbed 79 percent after the company sold new devices that print, copy, fax and scan. The company also expanded document-management services in the financial and health-care industries and increased its share buyback program by $1 billion.
Xerox, Lockheed
Lockheed Martin climbed $4.21, or 4.1 percent, to $105.90. The company beat analysts' fourth-quarter profit estimate by 19 cents a share and increased its forecast for 2008 as sales of government computer services offset a drop in aircraft deliveries.
Union Pacific led railroad companies higher, advancing $3.95, or 3.4 percent, to $120.96. The largest U.S. railroad's fourth-quarter profit topped estimates on increased revenue from shipping farm products, chemicals and coal.
The Labor Department reported an unexpected drop in first- time claims for unemployment benefits to 301,000 last week, easing concern that the fallout from the collapse of the subprime mortgage market will drag the U.S. into recession.
'A Little Extra Cash'
Investors also said the government's stimulus package, which will pay rebates of $600 to eligible individuals and $1,200 to couples, may boost growth.
``It's going to put a little extra cash in a whole lot of pockets and probably a good portion of that will feed its way through to the economy,'' said Jeff Layman, chief investment officer at BKD Wealth Advisors, which manages about $1.5 billion in Springfield, Missouri. ``The more lasting impact will be if it improves people's outlooks.''
Freeport-McMoRan, the world's second-biggest copper miner, added $6.13 to $83.43, its steepest advance since June 2006, after copper prices gained the most in two weeks. Newmont Mining Co., the second-largest gold producer, rallied $2.47 to $52.97 as gold prices topped $900 an ounce for the first time in a week. Alcoa Inc., the world's third-largest aluminum producer, rose 5.6 percent, the most in the Dow average, to $30.81
Exxon Mobil, the largest U.S. energy company, rose $2.55 to $86, its biggest advance since November. Crude rose from a three- month low, gaining $2.42 to $89.41 a barrel in New York.
China's 11.2 percent economic expansion in the three months ended Dec. 31 bolstered expectations that demand at companies that produce energy and metals will remain strong even as growth in the U.S. cools.
Commodity, Tech Shares Rally
Energy companies in the S&P 500 climbed 3.2 percent as a group, the steepest advance among 10 industries. Technology companies increased 3 percent and producers of raw materials rallied 2.9 percent for the second- and third-biggest gains.
Qualcomm Inc., the second-biggest maker of chips that run mobile phones, increased $3.78, or 10 percent, to $40.41 on the Nasdaq Stock Market, its biggest gain in four years. Revenue may rise as high as $10 billion this year, more than the $9.9 billion previously forecast, the company said last night after the close of U.S. exchanges.
LSI Corp., the maker of computer-storage chips for Seagate Technology, and Teradyne Inc., a maker of semiconductor-testing equipment, also advanced after earnings topped analysts' estimates.
LSI surged 84 cents, or 21 percent, to $4.85, the biggest gain in the S&P 500. Teradyne added $1.01, or 11 percent, to $10.18.
Makers of computer hard-disk drives rallied after Western Digital Corp. posted earnings that more than doubled on its expansion into markets for video recorders and laptops. Western Digital advanced $1.97 to $26.91.
EBay Slumps
EBay Inc. retreated $1.76 to $27.18. The largest Internet auctioneer projected full-year profit of $1.63 to $1.67 a share, compared with the average estimate of $1.67 in a Bloomberg survey. EBay said sales in 2008 will be as much as $8.75 billion, less than the $9.04 billion estimated by analysts. The company also said John Donahoe will succeed Meg Whitman as chief executive officer.
MBIA Inc. and Ambac Financial Group Inc., the biggest U.S. bond insurers, tumbled after New York State's insurance regulator said a rescue of bond guarantors will ``take some time.''
The possible bailout of bond insurers yesterday helped send the U.S. stock market to its biggest rally in two months.
Ambac lost its AAA credit rating from Fitch Ratings last week and Moody's Investors Service and Standard & Poor's are reviewing Ambac and MBIA for downgrades, casting doubt on the $2.4 trillion of bonds the industry insures.
Ambac lost $2.37, or 17 percent, to $11.33. MBIA fell $2.21, or 13 percent, to $14.40.
Credit Downgrade
Fitch revoked its AAA bond insurer grade on Security Capital Assurance Ltd. today, cutting the Hamilton, Bermuda-based company's XL Capital Assurance and XL Financial Assurance ratings five levels to A. The downgrade threw the rankings of at least $154.2 billion of securities in doubt. The SCA units guarantee municipal and corporate bonds.
SCA lost $1.16, or 31 percent, to $2.63, the biggest drop in its two years as a public company.
Traders pared bets that the Federal Reserve will cut its benchmark interest rate by half a percentage point when policy makers meet next week. The odds of a 0.5 percentage point reduction in the target rate for overnight loans between banks fell to 68 percent from 76 percent yesterday, futures trading showed. Traders priced in a 32 percent chance for a quarter-point cut to 3.25 percent.
The Dow Jones Stoxx 600 Index of European companies rallied 5.2 percent, its biggest gain since March 2003, while the MSCI World Index of 23 developed markets climbed 3.1 percent, the most since October 2002.
The Russell 2000 Index, a benchmark for companies with a median market value of $523 million, dropped 0.1 percent to 692.72. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, rose 1 percent to 13,608.44. Based on its advance, the value of stocks increased by $169.1 billion.
About five stocks advanced for every four that fell on the NYSE.
Jan. 24 (Bloomberg) -- U.S. stocks staged their biggest two- day rally since November after Xerox Corp. and Lockheed Martin Corp. reported profit that topped analysts' estimates and lawmakers agreed on a plan to pay tax rebates to families.
Xerox climbed the most in two years after the world's largest maker of high-speed color printers increased revenue by introducing new products. Lockheed Martin, the biggest defense company, posted its steepest advance since 2003 on higher sales of computer services to the government. Freeport-McMoRan Copper & Gold Inc., Exxon Mobil Corp. and Alcoa Inc. led gains in commodities producers after China's economy posted a fourth- straight quarter of growth above 11 percent.
The Standard & Poor's 500 Index climbed 13.47, or 1 percent, to 1,352.07, paring its decline this year to 7.9 percent. The Dow Jones Industrial Average, which yesterday fell 326 points before ending the day 299 points higher, added 108.44, or 0.9 percent, to 12,378.61. The 30-stock gauge is still down 6.7 percent in 2008. The Nasdaq Composite Index climbed 44.51, or 1.9 percent, to 2,360.92, still off 11 percent in 2008.
``The earnings that have been reported for the fourth quarter have been better than expected, outside of the financial companies,'' said Tom Wirth, senior investment officer at Chemung Canal Trust Co., which manages $1.8 billion in Elmira, New York. ``Our economy, though it's slowed, is still in a growth trajectory. We don't expect a recession.''
Earnings Beat
So far, 61 percent of the S&P 500 companies that reported fourth-quarter earnings have topped analysts' estimates, according to Bloomberg data. Profits beat estimates at 28 of the 39 members of the index that released results either after the market's close yesterday or this morning.
Stocks also advanced after the Bush administration and House lawmakers announced an agreement on an economic stimulus plan that would distribute rebate checks to 117 million families and give businesses incentives to invest in equipment. The proposal also aims to stem mortgage-market losses by temporarily allowing Fannie Mae and Freddie Mac to buy home loans of up to $625,000, exceeding a $417,000 federal limit.
Xerox rose $1.08, or 8.2 percent, to $14.33 on the New York Stock Exchange. Fourth-quarter earnings climbed 79 percent after the company sold new devices that print, copy, fax and scan. The company also expanded document-management services in the financial and health-care industries and increased its share buyback program by $1 billion.
Xerox, Lockheed
Lockheed Martin climbed $4.21, or 4.1 percent, to $105.90. The company beat analysts' fourth-quarter profit estimate by 19 cents a share and increased its forecast for 2008 as sales of government computer services offset a drop in aircraft deliveries.
Union Pacific led railroad companies higher, advancing $3.95, or 3.4 percent, to $120.96. The largest U.S. railroad's fourth-quarter profit topped estimates on increased revenue from shipping farm products, chemicals and coal.
The Labor Department reported an unexpected drop in first- time claims for unemployment benefits to 301,000 last week, easing concern that the fallout from the collapse of the subprime mortgage market will drag the U.S. into recession.
'A Little Extra Cash'
Investors also said the government's stimulus package, which will pay rebates of $600 to eligible individuals and $1,200 to couples, may boost growth.
``It's going to put a little extra cash in a whole lot of pockets and probably a good portion of that will feed its way through to the economy,'' said Jeff Layman, chief investment officer at BKD Wealth Advisors, which manages about $1.5 billion in Springfield, Missouri. ``The more lasting impact will be if it improves people's outlooks.''
Freeport-McMoRan, the world's second-biggest copper miner, added $6.13 to $83.43, its steepest advance since June 2006, after copper prices gained the most in two weeks. Newmont Mining Co., the second-largest gold producer, rallied $2.47 to $52.97 as gold prices topped $900 an ounce for the first time in a week. Alcoa Inc., the world's third-largest aluminum producer, rose 5.6 percent, the most in the Dow average, to $30.81
Exxon Mobil, the largest U.S. energy company, rose $2.55 to $86, its biggest advance since November. Crude rose from a three- month low, gaining $2.42 to $89.41 a barrel in New York.
China's 11.2 percent economic expansion in the three months ended Dec. 31 bolstered expectations that demand at companies that produce energy and metals will remain strong even as growth in the U.S. cools.
Commodity, Tech Shares Rally
Energy companies in the S&P 500 climbed 3.2 percent as a group, the steepest advance among 10 industries. Technology companies increased 3 percent and producers of raw materials rallied 2.9 percent for the second- and third-biggest gains.
Qualcomm Inc., the second-biggest maker of chips that run mobile phones, increased $3.78, or 10 percent, to $40.41 on the Nasdaq Stock Market, its biggest gain in four years. Revenue may rise as high as $10 billion this year, more than the $9.9 billion previously forecast, the company said last night after the close of U.S. exchanges.
LSI Corp., the maker of computer-storage chips for Seagate Technology, and Teradyne Inc., a maker of semiconductor-testing equipment, also advanced after earnings topped analysts' estimates.
LSI surged 84 cents, or 21 percent, to $4.85, the biggest gain in the S&P 500. Teradyne added $1.01, or 11 percent, to $10.18.
Makers of computer hard-disk drives rallied after Western Digital Corp. posted earnings that more than doubled on its expansion into markets for video recorders and laptops. Western Digital advanced $1.97 to $26.91.
EBay Slumps
EBay Inc. retreated $1.76 to $27.18. The largest Internet auctioneer projected full-year profit of $1.63 to $1.67 a share, compared with the average estimate of $1.67 in a Bloomberg survey. EBay said sales in 2008 will be as much as $8.75 billion, less than the $9.04 billion estimated by analysts. The company also said John Donahoe will succeed Meg Whitman as chief executive officer.
MBIA Inc. and Ambac Financial Group Inc., the biggest U.S. bond insurers, tumbled after New York State's insurance regulator said a rescue of bond guarantors will ``take some time.''
The possible bailout of bond insurers yesterday helped send the U.S. stock market to its biggest rally in two months.
Ambac lost its AAA credit rating from Fitch Ratings last week and Moody's Investors Service and Standard & Poor's are reviewing Ambac and MBIA for downgrades, casting doubt on the $2.4 trillion of bonds the industry insures.
Ambac lost $2.37, or 17 percent, to $11.33. MBIA fell $2.21, or 13 percent, to $14.40.
Credit Downgrade
Fitch revoked its AAA bond insurer grade on Security Capital Assurance Ltd. today, cutting the Hamilton, Bermuda-based company's XL Capital Assurance and XL Financial Assurance ratings five levels to A. The downgrade threw the rankings of at least $154.2 billion of securities in doubt. The SCA units guarantee municipal and corporate bonds.
SCA lost $1.16, or 31 percent, to $2.63, the biggest drop in its two years as a public company.
Traders pared bets that the Federal Reserve will cut its benchmark interest rate by half a percentage point when policy makers meet next week. The odds of a 0.5 percentage point reduction in the target rate for overnight loans between banks fell to 68 percent from 76 percent yesterday, futures trading showed. Traders priced in a 32 percent chance for a quarter-point cut to 3.25 percent.
The Dow Jones Stoxx 600 Index of European companies rallied 5.2 percent, its biggest gain since March 2003, while the MSCI World Index of 23 developed markets climbed 3.1 percent, the most since October 2002.
The Russell 2000 Index, a benchmark for companies with a median market value of $523 million, dropped 0.1 percent to 692.72. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, rose 1 percent to 13,608.44. Based on its advance, the value of stocks increased by $169.1 billion.
About five stocks advanced for every four that fell on the NYSE.
Wednesday, January 23, 2008
Banks, New York Regulator Meet on Bond Insurer Rescue (Update3)
By Erik Holm and Jesse Westbrook
Jan. 23 (Bloomberg) -- New York State's insurance regulators met today with U.S. banks to discuss raising new capital for bond insurers, said a department spokesman.
Talks in New York with the unnamed banks are part of Insurance Superintendent Eric Dinallo's effort to stabilize the bond guarantors and bolster the market's finances, said agency spokesman Andrew Mais in an interview. Insurers MBIA Inc. gained 33 percent in New York trading and Ambac Financial Group Inc. soared 72 percent.
New capital may help preserve the top credit ratings for the bond guarantors such as MBIA, the industry's largest, and halt any erosion of investor confidence in the $2.4 trillion of assets they guarantee. Ambac, MBIA's biggest rival, lost its AAA grade from Fitch Ratings this month on concerns that losses tied to subprime mortgages may increase.
``The market is obviously viewing it as positive news,'' said Kathleen Shanley, an analyst with bond research firm Gimme Credit LLC in Chicago. ``Shareholders and holding company creditors should keep in mind, however, that the insurance department's primary mandate is to protect policyholders, not to boost the share price.''
Federal Reserve Bank of New York President Timothy Geithner has taken a central role among federal regulators monitoring the financial health of bond insurers since October, according to an official familiar with the matter. Geithner has been speaking frequently to bank executives who do business with the insurers and requesting government data on Wall Street's involvement, said the official, who wasn't authorized to speak publicly. New York Fed officials didn't participate in today's meeting.
Cash Infusion
The infusion may be as much as $15 billion, the Financial Times reported. MBIA rose $4.08 to $16.61 in New York Stock Exchange composite trading, while Ambac added $5.73 to $13.70.
News of the meeting helped spur a rally in U.S. stocks, which slid Jan. 18 after Fitch lowered the rating of Ambac. The Standard & Poor's 500 Index halted a five-day slide, rising 2.1 percent to 1,338.60 after losing as much as 3 percent earlier.
``Clearly the market likes it,'' said Gregory Peters, credit strategist at Morgan Stanley in New York. ``But it's not an easy situation to fix. The intent is good but we need the details; the details matter.''
Moody's Investors Service and Standard & Poor's are reviewing Ambac and MBIA, both based in New York state, for possible downgrades. Insured municipal bonds usually carry the debt rating of the insurer rather than the underlying debt.
Falling Values
Downgrades may force sales by investors who are required to hold only the highest-rated bonds and cut profit for banks that have already posted more than $130 billion of writedowns and credit losses tied to the falling value of mortgage securities.
Ambac and MBIA have suffered losses because of guarantees they sold for structured investments such as collateralized debt obligations backed by mortgages. The industry collectively guaranteed $127 billion of CDOs linked to mortgages that were given to borrowers with poor credit.
The securities have plunged in value as defaults by borrowers soared to a record in the third quarter of last year, according to the Mortgage Bankers Association.
A message for Ambac spokesman Peter Poillon wasn't immediately returned. An e-mail message sent to Michael Sitrick, spokesman for MBIA, wasn't immediately returned.
Paulson's Role
Treasury Secretary Henry Paulson this week said he's monitoring the situation, although he declined to characterize the role his department is playing.
``We obviously have been looking at the monoline insurers carefully for some time now and we're actively engaged in watching that sector and talking with other policy makers about that sector,'' Paulson said Jan. 22, when asked after a speech in Washington.
Ajit Jain, who heads a new bond insurer started last month by Warren Buffett's Berkshire Hathaway Inc. to compete with MBIA, Ambac and others, said in a Jan. 9 interview that Berkshire was ``looking at ways to support the existing insurers in terms of reinsurance and capital.''
Jain, who also heads up the units that sell coverage for catastrophes and other large risks, declined to comment today.
Credit-default swaps tied to the bonds of MBIA plunged to 825 basis points a year, down from 22 percent upfront and 500 basis points a year yesterday, according to CMA Datavision. That means the cost to protect $10 million in MBIA bonds for five years fell to $825,000 a year from $2.2 million upfront and $500,000 annually yesterday. Contracts on Ambac fell to 900 basis points from 22 percent upfront and 500 basis points a year, CMA prices show.
Jan. 23 (Bloomberg) -- New York State's insurance regulators met today with U.S. banks to discuss raising new capital for bond insurers, said a department spokesman.
Talks in New York with the unnamed banks are part of Insurance Superintendent Eric Dinallo's effort to stabilize the bond guarantors and bolster the market's finances, said agency spokesman Andrew Mais in an interview. Insurers MBIA Inc. gained 33 percent in New York trading and Ambac Financial Group Inc. soared 72 percent.
New capital may help preserve the top credit ratings for the bond guarantors such as MBIA, the industry's largest, and halt any erosion of investor confidence in the $2.4 trillion of assets they guarantee. Ambac, MBIA's biggest rival, lost its AAA grade from Fitch Ratings this month on concerns that losses tied to subprime mortgages may increase.
``The market is obviously viewing it as positive news,'' said Kathleen Shanley, an analyst with bond research firm Gimme Credit LLC in Chicago. ``Shareholders and holding company creditors should keep in mind, however, that the insurance department's primary mandate is to protect policyholders, not to boost the share price.''
Federal Reserve Bank of New York President Timothy Geithner has taken a central role among federal regulators monitoring the financial health of bond insurers since October, according to an official familiar with the matter. Geithner has been speaking frequently to bank executives who do business with the insurers and requesting government data on Wall Street's involvement, said the official, who wasn't authorized to speak publicly. New York Fed officials didn't participate in today's meeting.
Cash Infusion
The infusion may be as much as $15 billion, the Financial Times reported. MBIA rose $4.08 to $16.61 in New York Stock Exchange composite trading, while Ambac added $5.73 to $13.70.
News of the meeting helped spur a rally in U.S. stocks, which slid Jan. 18 after Fitch lowered the rating of Ambac. The Standard & Poor's 500 Index halted a five-day slide, rising 2.1 percent to 1,338.60 after losing as much as 3 percent earlier.
``Clearly the market likes it,'' said Gregory Peters, credit strategist at Morgan Stanley in New York. ``But it's not an easy situation to fix. The intent is good but we need the details; the details matter.''
Moody's Investors Service and Standard & Poor's are reviewing Ambac and MBIA, both based in New York state, for possible downgrades. Insured municipal bonds usually carry the debt rating of the insurer rather than the underlying debt.
Falling Values
Downgrades may force sales by investors who are required to hold only the highest-rated bonds and cut profit for banks that have already posted more than $130 billion of writedowns and credit losses tied to the falling value of mortgage securities.
Ambac and MBIA have suffered losses because of guarantees they sold for structured investments such as collateralized debt obligations backed by mortgages. The industry collectively guaranteed $127 billion of CDOs linked to mortgages that were given to borrowers with poor credit.
The securities have plunged in value as defaults by borrowers soared to a record in the third quarter of last year, according to the Mortgage Bankers Association.
A message for Ambac spokesman Peter Poillon wasn't immediately returned. An e-mail message sent to Michael Sitrick, spokesman for MBIA, wasn't immediately returned.
Paulson's Role
Treasury Secretary Henry Paulson this week said he's monitoring the situation, although he declined to characterize the role his department is playing.
``We obviously have been looking at the monoline insurers carefully for some time now and we're actively engaged in watching that sector and talking with other policy makers about that sector,'' Paulson said Jan. 22, when asked after a speech in Washington.
Ajit Jain, who heads a new bond insurer started last month by Warren Buffett's Berkshire Hathaway Inc. to compete with MBIA, Ambac and others, said in a Jan. 9 interview that Berkshire was ``looking at ways to support the existing insurers in terms of reinsurance and capital.''
Jain, who also heads up the units that sell coverage for catastrophes and other large risks, declined to comment today.
Credit-default swaps tied to the bonds of MBIA plunged to 825 basis points a year, down from 22 percent upfront and 500 basis points a year yesterday, according to CMA Datavision. That means the cost to protect $10 million in MBIA bonds for five years fell to $825,000 a year from $2.2 million upfront and $500,000 annually yesterday. Contracts on Ambac fell to 900 basis points from 22 percent upfront and 500 basis points a year, CMA prices show.
U.S. Stocks Rise, Erasing Decline, as Financial Companies Gain
By Elizabeth Stanton and Michael Patterson
Jan. 23 (Bloomberg) -- U.S. stocks rallied the most in two months on speculation lower borrowing costs and a plan to bail out bond insurers will restore confidence in the financial system.
Citigroup Inc., JPMorgan Chase & Co. and Bank of America Corp., the largest U.S. banks, helped the Dow Jones Industrial Average erase a 326-point loss and sparked the biggest advance in financial shares in five years. Centex Corp. and D.R. Horton Inc. led a gauge of homebuilders to its steepest gain since at least 1994 on expectations the Federal Reserve's surprise 0.75 percentage point rate cut yesterday will spur construction.
The Standard & Poor's 500 Index added 28.08, or 2.1 percent, to 1,338.58, its first advance in six days. The Dow average rose 298.98, or 2.5 percent, to 12,270.17. The 30-stock gauge climbed 632 points from its low of the day to its high, marking its biggest swing since July 2002. The Nasdaq Composite Index increased 24.14, or 1.1 percent, to 2,316.41.
``The volatility will continue,'' said Dan Genter, who helps manage $2.8 billion as president of RNC Genter Capital Management in Los Angeles. ``People are trying to digest that we're in an earnings recession, but they're also realizing it's not the end of the world and we're probably going to come out of this.''
Ambac Financial Group Inc. and MBIA Inc., the two largest U.S. bond insurers, posted the biggest gains in the S&P 500 after New York State regulators met with banks to discuss raising new capital for the insurers. Benchmark indexes posted a rally in the final hour of trading that erased declines spurred by forecasts of slowing sales at Apple Inc. and Motorola Inc.
Banks Surge
JPMorgan increased $4.86, or 12 percent, to $45.72, its steepest gain since 2002. Bank of America added $3.18, or 8.5 percent, to $40.57, its biggest rally in eight years. Citigroup advanced the most since October 2002, climbing $1.96 to $26.36. Bear Stearns Cos. recommended investors buy shares of large banks, which historically have outperformed during periods of aggressive Fed rate cuts.
New capital may help preserve the top credit ratings for the bond guarantors such as MBIA, the industry's largest, and boost investor confidence in the $2 trillion of assets they guarantee.
Ambac Financial, MBIA's biggest rival, lost its AAA grade from Fitch Ratings this month on concern about rising defaults tied to subprime mortgages.
Ambac rallied $5.73, or 72 percent, to $13.70. MBIA increased $4.08, or 33 percent, to $16.61.
Financial shares in the S&P 500, which lost 21 percent last year as the subprime mortgage market collapsed, gained 6.8 percent today for their biggest advance since October 2002.
Citigroup is still 52 percent below its highest closing price in the past year, set on May 30. Bank of America is 25 percent below its 52-week high on Feb. 14, while JPMorgan is 14 percent lower than its May 9 high.
`Free Money'
The Fed's latest rate cut ``is delivering free money to banks,'' said Wayne Wilbanks, who manages about $1.2 billion at Wilbanks Smith & Thomas Asset Management in Norfolk, Virginia. ``If you look at any of these financials, they are blown-out-of- the-water oversold.''
Centex, the third-largest homebuilder by revenue, climbed $4.55, or 20 percent, to $27.22. D.R. Horton, the fourth-biggest, added $1.55, or 12 percent, to $14.45.
A gauge of homebuilders in S&P indexes climbed 15 percent, its biggest gain since Bloomberg began tracking the data in 1994, as all 15 of its members advanced.
Tyco International Ltd. climbed $2.68, or 8 percent, to $36.40. The world's biggest maker of security and fire systems raised its 2008 forecast on higher sales at its ADT and valve units and said first-quarter revenue and margins topped previous projections.
United Technologies, EBay
United Technologies Corp. climbed $3.74, or 5.6 percent, to $70.98 for the biggest rise since April 2006. The maker of Otis elevators, Pratt & Whitney jet engines and Sikorsky helicopters said fourth-quarter profit rose 23 percent as it benefited from overseas demand for aircraft parts and elevators.
EBay Inc. advanced $1.81, or 6.7 percent, to $28.94. The largest Internet auction site gave up all of those gains in extended trading after forecasting 2008 sales and profit that trailed some analysts' estimates.
Despite today's gains, the S&P 500 is still down 8.9 percent in 2008 and the Dow is 7.5 percent lower on concern that fallout from the collapse of the subprime mortgage market will drag the economy into a recession.
'Bear' Markets
The Nasdaq Composite, which has retreated 13 percent this year, has tumbled 19 percent from its almost seven-year peak last October. The Dow average has dropped 13 percent from its Oct. 9 record and the S&P 500 has decreased 14 percent from its all-time high on the same day.
Global concern about an economic slowdown has sent 46 of the world's 68 markets with at least $10 billion in value into so- called bear markets, which are marked by declines of at least 20 percent.
Today's gain left the MSCI World Index of 23 developed markets down 12 percent in 2008, which represents about $7.3 trillion in lost value.
Apple tumbled $16.64, or 11 percent, to $139, its biggest drop since July 2002. Chief Executive Officer Steve Jobs spooked investors by failing to meet the most optimistic projections for first-quarter profit and forecasting slower sales growth. IPod sales were little changed in the U.S., signaling that demand for consumer electronics is waning.
UBS AG and Bank of America Corp. lowered their price estimates on the stock.
'In the Crosshairs'
Motorola retreated $2.31, or 19 percent, to $10.01 in its biggest loss since 2002. The company forecast a loss for the first quarter after posting an 84 percent drop in fourth-quarter profit as customers fled to phones made by competitors. Fourth- quarter net income fell to $100 million, or 4 cents a share, while sales declined 18 percent to $9.65 billion.
``Worldwide we're seeing concern about consumer spending, particularly U.S. consumer spending, and these guys are in the crosshairs of that,'' Doug Peta, market strategist at J.&W. Seligman & Co. in New York, said of Apple and Motorola. Seligman manages $20 billion.
The S&P 500 fell as much as 3.1 percent before the last-hour rally and all 10 industry groups posted declines at some point during the day. Only two industries, technology and health-care, ended the day lower.
The Chicago Board Options Exchange Volatility Index, or VIX, climbed as much as 11 percent to the highest intraday level since October 9, 2002, when the S&P 500 reached the lowest point of its last bear market decline. Almost three stocks closed higher for every one that fell on the New York Stock Exchange.
Earnings Slump
Google Inc. slumped $35.73, or 6.1 percent, to $548.62 for the biggest decline since February 2006. UBS AG said it was ``cautious'' on the company's fourth-quarter earnings and sees little reason for sales to top its projection of 14.7 percent growth. Google is scheduled to report results after markets close on January 31.
Analysts estimate fourth-quarter earnings at S&P 500 companies declined 17 percent from a year earlier, according to data compiled by Bloomberg as of Jan. 18. A week earlier, estimates pointed to a year-on-year drop of 10 percent. As recently as Nov. 30, S&P 500 earnings were expected to increase.
Freeport-McMoRan Copper & Gold Inc., the world's second- biggest copper miner, declined $4.22 to $77.30 after fourth- quarter profit fell 2.8 percent on increased costs associated with its acquisition of Phelps Dodge Corp.
Jan. 23 (Bloomberg) -- U.S. stocks rallied the most in two months on speculation lower borrowing costs and a plan to bail out bond insurers will restore confidence in the financial system.
Citigroup Inc., JPMorgan Chase & Co. and Bank of America Corp., the largest U.S. banks, helped the Dow Jones Industrial Average erase a 326-point loss and sparked the biggest advance in financial shares in five years. Centex Corp. and D.R. Horton Inc. led a gauge of homebuilders to its steepest gain since at least 1994 on expectations the Federal Reserve's surprise 0.75 percentage point rate cut yesterday will spur construction.
The Standard & Poor's 500 Index added 28.08, or 2.1 percent, to 1,338.58, its first advance in six days. The Dow average rose 298.98, or 2.5 percent, to 12,270.17. The 30-stock gauge climbed 632 points from its low of the day to its high, marking its biggest swing since July 2002. The Nasdaq Composite Index increased 24.14, or 1.1 percent, to 2,316.41.
``The volatility will continue,'' said Dan Genter, who helps manage $2.8 billion as president of RNC Genter Capital Management in Los Angeles. ``People are trying to digest that we're in an earnings recession, but they're also realizing it's not the end of the world and we're probably going to come out of this.''
Ambac Financial Group Inc. and MBIA Inc., the two largest U.S. bond insurers, posted the biggest gains in the S&P 500 after New York State regulators met with banks to discuss raising new capital for the insurers. Benchmark indexes posted a rally in the final hour of trading that erased declines spurred by forecasts of slowing sales at Apple Inc. and Motorola Inc.
Banks Surge
JPMorgan increased $4.86, or 12 percent, to $45.72, its steepest gain since 2002. Bank of America added $3.18, or 8.5 percent, to $40.57, its biggest rally in eight years. Citigroup advanced the most since October 2002, climbing $1.96 to $26.36. Bear Stearns Cos. recommended investors buy shares of large banks, which historically have outperformed during periods of aggressive Fed rate cuts.
New capital may help preserve the top credit ratings for the bond guarantors such as MBIA, the industry's largest, and boost investor confidence in the $2 trillion of assets they guarantee.
Ambac Financial, MBIA's biggest rival, lost its AAA grade from Fitch Ratings this month on concern about rising defaults tied to subprime mortgages.
Ambac rallied $5.73, or 72 percent, to $13.70. MBIA increased $4.08, or 33 percent, to $16.61.
Financial shares in the S&P 500, which lost 21 percent last year as the subprime mortgage market collapsed, gained 6.8 percent today for their biggest advance since October 2002.
Citigroup is still 52 percent below its highest closing price in the past year, set on May 30. Bank of America is 25 percent below its 52-week high on Feb. 14, while JPMorgan is 14 percent lower than its May 9 high.
`Free Money'
The Fed's latest rate cut ``is delivering free money to banks,'' said Wayne Wilbanks, who manages about $1.2 billion at Wilbanks Smith & Thomas Asset Management in Norfolk, Virginia. ``If you look at any of these financials, they are blown-out-of- the-water oversold.''
Centex, the third-largest homebuilder by revenue, climbed $4.55, or 20 percent, to $27.22. D.R. Horton, the fourth-biggest, added $1.55, or 12 percent, to $14.45.
A gauge of homebuilders in S&P indexes climbed 15 percent, its biggest gain since Bloomberg began tracking the data in 1994, as all 15 of its members advanced.
Tyco International Ltd. climbed $2.68, or 8 percent, to $36.40. The world's biggest maker of security and fire systems raised its 2008 forecast on higher sales at its ADT and valve units and said first-quarter revenue and margins topped previous projections.
United Technologies, EBay
United Technologies Corp. climbed $3.74, or 5.6 percent, to $70.98 for the biggest rise since April 2006. The maker of Otis elevators, Pratt & Whitney jet engines and Sikorsky helicopters said fourth-quarter profit rose 23 percent as it benefited from overseas demand for aircraft parts and elevators.
EBay Inc. advanced $1.81, or 6.7 percent, to $28.94. The largest Internet auction site gave up all of those gains in extended trading after forecasting 2008 sales and profit that trailed some analysts' estimates.
Despite today's gains, the S&P 500 is still down 8.9 percent in 2008 and the Dow is 7.5 percent lower on concern that fallout from the collapse of the subprime mortgage market will drag the economy into a recession.
'Bear' Markets
The Nasdaq Composite, which has retreated 13 percent this year, has tumbled 19 percent from its almost seven-year peak last October. The Dow average has dropped 13 percent from its Oct. 9 record and the S&P 500 has decreased 14 percent from its all-time high on the same day.
Global concern about an economic slowdown has sent 46 of the world's 68 markets with at least $10 billion in value into so- called bear markets, which are marked by declines of at least 20 percent.
Today's gain left the MSCI World Index of 23 developed markets down 12 percent in 2008, which represents about $7.3 trillion in lost value.
Apple tumbled $16.64, or 11 percent, to $139, its biggest drop since July 2002. Chief Executive Officer Steve Jobs spooked investors by failing to meet the most optimistic projections for first-quarter profit and forecasting slower sales growth. IPod sales were little changed in the U.S., signaling that demand for consumer electronics is waning.
UBS AG and Bank of America Corp. lowered their price estimates on the stock.
'In the Crosshairs'
Motorola retreated $2.31, or 19 percent, to $10.01 in its biggest loss since 2002. The company forecast a loss for the first quarter after posting an 84 percent drop in fourth-quarter profit as customers fled to phones made by competitors. Fourth- quarter net income fell to $100 million, or 4 cents a share, while sales declined 18 percent to $9.65 billion.
``Worldwide we're seeing concern about consumer spending, particularly U.S. consumer spending, and these guys are in the crosshairs of that,'' Doug Peta, market strategist at J.&W. Seligman & Co. in New York, said of Apple and Motorola. Seligman manages $20 billion.
The S&P 500 fell as much as 3.1 percent before the last-hour rally and all 10 industry groups posted declines at some point during the day. Only two industries, technology and health-care, ended the day lower.
The Chicago Board Options Exchange Volatility Index, or VIX, climbed as much as 11 percent to the highest intraday level since October 9, 2002, when the S&P 500 reached the lowest point of its last bear market decline. Almost three stocks closed higher for every one that fell on the New York Stock Exchange.
Earnings Slump
Google Inc. slumped $35.73, or 6.1 percent, to $548.62 for the biggest decline since February 2006. UBS AG said it was ``cautious'' on the company's fourth-quarter earnings and sees little reason for sales to top its projection of 14.7 percent growth. Google is scheduled to report results after markets close on January 31.
Analysts estimate fourth-quarter earnings at S&P 500 companies declined 17 percent from a year earlier, according to data compiled by Bloomberg as of Jan. 18. A week earlier, estimates pointed to a year-on-year drop of 10 percent. As recently as Nov. 30, S&P 500 earnings were expected to increase.
Freeport-McMoRan Copper & Gold Inc., the world's second- biggest copper miner, declined $4.22 to $77.30 after fourth- quarter profit fell 2.8 percent on increased costs associated with its acquisition of Phelps Dodge Corp.
Subscribe to:
Posts (Atom)