By Eric Martin
April 28 (Bloomberg) -- Most U.S. stocks rose for a fourth day after billionaire Warren Buffett financed the $23 billion takeover of Wm. Wrigley Jr. Co. and investor Kirk Kerkorian bought a stake in Ford Motor Co.
Wrigley, the world's biggest maker of chewing gum, jumped the most since at least 1980 after Mars Inc., backed by Buffett, agreed to acquire the company for 28 percent more than its closing price last week. Ford rallied after Kerkorian said he bought 4.7 percent of the second-largest U.S. automaker and plans to buy more. Microsoft Corp. slumped for a second day, helping drag the Standard & Poor's 500 Index and Dow Jones Industrial Average lower, on speculation the world's largest software company will have to increase its bid to acquire Yahoo! Inc.
About five stocks gained for every four that fell on the New York Stock Exchange. The S&P 500 slipped 1.47 points, or 0.1 percent, to 1,396.37. The Dow decreased 20.11, or 0.2 percent, to 12,871.75. The Nasdaq Composite Index added 1.47, or 0.1 percent, to 2,424.4. The Russell 2000 Index, a measure of companies with a median market capitalization of $535 million, gained 0.5 percent for its fourth consecutive advance.
``These announcements are providing some support to the market and encouragement to investors that there are good underlying values behind stocks trading at discounts,'' said John Carey, who oversees $13 billion, including Wrigley shares, at Pioneer Investment Management in Boston. ``If you have the patience and the time to look at individual companies one by one, this is a great time to be investing.''
Earnings, Fed
The S&P 500 has climbed almost 10 percent since closing at a 19-month low March 10, helped by earnings from Google Inc., Intel Corp., Boeing Co. and American Express Co. Earnings have topped analysts' estimates at 69 percent of the 240 companies in the index that have reported fist-quarter results so far, according to data compiled by Bloomberg. Companies in the index trade for an average 15.1 times their estimated profit in the next 12 months, the lowest compared with historical earnings since 1990.
Traders increased bets the Federal Reserve will cut its benchmark interest rate at its meeting on April 30. They are now pricing in 80 percent odds of a reduction, up from 78 percent odds on April 25. The rest of the bets are for the central bank to maintain its target for overnight lending at 2.25 percent, according to Fed funds futures. The dollar was little changed against the euro amid speculation the Fed will signal it's close to finished cutting rates.
Wrigley rallied $14.46, or 23 percent, to $76.91, leading gains in companies that sell household goods. Mars agreed to purchase Wrigley with financing from Buffett's Berkshire Hathaway Inc. Mars will pay $80 a share in cash, 28 percent more than Wrigley's closing share price on April 25.
Ford, GM Climb
Ford climbed 71 cents, or 9.5 percent, to $8.21. Kerkorian, the billionaire investor who tried to overhaul General Motors Corp. three years ago, holds 100 million shares in Ford and seeks an additional 20 million, according to a statement.
GM had the steepest gain in the Dow average, rising 2.6 percent to $21.94.
``With a number of companies having their stocks being depressed in this environment, the strongest players are looking to take advantage of that, to come out of this downturn in a better strategic position than when they went in,'' Stefan Selig, the global head of mergers at Bank of America Corp., said in an interview with Bloomberg Television. ``There are a number of factors that will cause M&A activity to pick up.''
Some energy companies gained after oil rose to a record $119.93 a barrel in New York on the shutdown of a North Sea pipeline and as a strike and militant attacks reduced output from Nigeria.
ConocoPhillips, the third-largest U.S. oil company, climbed 87 cents to $84.44. Valero Energy Corp., the largest U.S. refiner, added $1.08, or 2.1 percent, to $52.93.
`Huge Risk'
There is a ``huge risk'' that oil prices will continue to rise until demand collapses because additional supplies are limited and alternative fuels are decades away from replacing crude, Deutsche Bank AG said.
Airlines climbed for a third day, led by US Airways Group Inc. The airline is in merger talks with UAL Corp.'s United Airlines after United was rejected as a suitor by Continental Airlines Inc., five people familiar with the discussions said.
A merger may help United stem two straight quarterly losses and compete against the combination of Delta Air Lines Inc. and Northwest Airlines Corp. United had to shift gears yesterday after Continental said it would stay independent.
US Airways surged $1.46, or 20 percent, to $8.62. AMR Corp., the parent of American Airlines, added 31 cents, or 4.2 percent, to $7.74. UAL dropped 40 cents, or 2.6 percent, to $14.81.
Visa Earnings
Visa Inc. added 53 cents to $75.63 in regular trading. The shares were rated ``overweight'' in new coverage at JPMorgan Chase & Co. and HSBC Holdings Plc, while UBS AG and Goldman Sachs Group Inc. placed ``buy'' recommendations on the stock. The company ``will enjoy above-average growth,'' JPMorgan analysts including Tien-tsin Huang wrote in a research note today.
Visa lost 3.9 percent to $72.71 in extended trading even after the company's earnings topped analysts' estimates. Second- quarter profit was 39 cents a share. Earnings excluding some items were 52 cents a share, beating the 45-cent estimate of analysts surveyed Bloomberg.
Verizon Communications Inc., the second-largest U.S. phone company, rose 2.5 percent to $37.95. First-quarter profit jumped 9.8 percent as mobile-phone customers spent more on text messages and wireless Internet browsing. Sales rose 5.5 percent to $23.8 billion, meeting the average estimate of analysts in a Bloomberg survey.
Sysco Corp., North America's largest distributor of food to restaurants, rose the most in more than six years in New York trading. Third-quarter profit increased 9 percent, beating analysts' estimates, after the company raised prices for customers including restaurants, hotels and schools. Sysco gained $2.38, or 8.5 percent, to $30.50.
`Further Rally'
Lehman Brothers Holdings Inc. strategist Ian Scott, who advised investors to buy global stocks before the past month's rebound, said better-than-expected earnings will pave the way for a bigger rally.
``The market was priced in for a substantial `miss,''' Scott, managing director for global equity strategy at Lehman, wrote in the note dated April 25. ``This has patently not happened. These first-quarter numbers ought to provide the fuel for a further rally in the market.''
Tenet, Clear Channel
Tenet Healthcare Corp. climbed for a second day, helping lead health-care companies higher. The hospital chain was raised to ``outperform'' on April 25 by Credit Suisse Group analyst Ken Weakley, who also boosted his target price to $8 from $6. Tenet gained 8.2 percent to $6.70.
Clear Channel Communications Inc. gained 34 cents to $30.04. A New York state judge dropped the largest U.S. radio broadcaster from a lawsuit filed by six banks that were sued for allegedly refusing to fund a $19.5 billion acquisition of the company by buyout firms Bain Capital LLC and Thomas H. Lee Partners LP.
Reports this week will probably show the U.S. lost jobs for a fourth month as the slump in construction and a slowdown in Consumer spending almost stalled growth, according to the average estimates of economists surveyed by Bloomberg.
``If we are in a recession, it is not a recession for all industries, and there remain opportunities to play on the pockets of our economy that are in this environment thriving,'' said Lawrence Creatura, who helps manage $2.6 billion at Clover Capital Management Inc. in Rochester, New York. ``The stock market has been quite strong recently. It remains at low valuations.''
Microsoft Slumps
Microsoft fell for a second day and posted the steepest decline in the Dow average, losing 2.8 percent to $28.99. Chief Executive Officer Steve Ballmer is weighing a fight to oust Yahoo's board and pave the way for a takeover, after the Internet company let his deadline pass without agreeing to a deal. Microsoft fell 6.2 percent on April 25 after saying sales slumped, casting doubt on whether PC demand can hold up in a slowing economy.
RadioShack Corp., the third-largest U.S. electronics retailer, fell the most in the S&P 500, losing 14 percent to $15.13. First-quarter profit declined 9.5 percent, more than analysts estimated, on slowing sales of wireless-telephone plans.
Medarex Inc. dropped 66 cents, or 8.2 percent, to $7.35. The co-developer of an experimental drug for skin cancer with Bristol-Myers Squibb Co. disclosed a delay in seeking U.S. approval for the treatment.
About 1.21 billion shares changed hands on the NYSE, 21 percent less than the three-month daily average. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, dropped 1.35 points to 14,087.86.
Monday, April 28, 2008
Dollar Slide Drives Budget as Japan Shuns Treasuries (Update2)
By Wes Goodman
April 28 (Bloomberg) -- Add another ailment to the U.S. misery index of soaring gasoline and wheat costs and falling home values: a federal deficit that is burgeoning as foreign investors led by the Japanese recoil from the slumping dollar.
The Japanese, who own $586.6 billion, or 12 percent of U.S. government debt, had their worst quarter in Treasuries this decade, losing 7 percent in the first three months of the year as the dollar fell to the lowest since 1995 versus the yen, Merrill Lynch & Co. indexes show. Dai-ichi Mutual Life Insurance Co., Meiji Yasuda Life Insurance Co. and Sumitomo Life Insurance Co., three of the nation's four-biggest insurers, would rather accept the world's lowest bond yields in Japan than buy U.S. debt.
``It's too early to say the dollar will stop falling,'' said Masataka Horii, head of the investment team in Tokyo for the $53.1 billion Kokusai Global Sovereign Open, Asia's biggest bond fund. ``The U.S. economy will be slow for a while.''
Japan owns more Treasuries than any other nation. After raising their holdings by $9.2 billion to $620.6 billion between March and July 2007, Japanese investors trimmed that stake by $34 billion through February, the Treasury said April 15.
America relies on foreign investors, who own more than half the U.S. government debt outstanding, to finance a deficit that New York-based Goldman Sachs Group Inc. predicts will expand to a record $500 billion for the year ending Sept. 30, after a $163 billion gap last year. Without their support, long-term interest rates would be 0.9 percentage point higher, a 2006 Federal Reserve study found.
Diminishing Returns
The yield on the benchmark 3 1/2 percent Treasury due February 2018 rose 16 basis points last week to 3.87 percent, according to bond broker BGCantor Market Data. The yield is up from 3.28 percent on March 17, the lowest since June 2003. The note's price declined 1 9/32, or $12.81 per $1,000 face amount, to $97. It was 3.83 percent today in New York.
Ten-year Treasury yields fell to within 2.03 percentage points of similar-maturity Japanese government bonds on March 17, the narrowest margin in more than a decade. Japan's 1.65 percent 10-year yield is the lowest of 31 bond markets tracked by Bloomberg and compares with 4.18 percent for German bunds.
A survey of Japanese funds investing overseas found 58 percent favor euro-denominated bonds, up from 20 percent a year ago, Barclays Capital Japan Ltd., a unit of the world's fifth- biggest currency trader, said in an April 24 report. Kokusai cut its U.S. fixed income holdings to a record-low 20 percent in March, from 32 percent two years ago.
European Debt
``European debt is more attractive than Treasuries,'' said Nobuto Yamazaki, executive fund manager at Diam Asset Management in Tokyo, which runs an $8.55 billion bond fund that is Japan's third-biggest. The euro, which gained 14.5 percent in the past year against the dollar, ``will continue to be strong,'' he said.
Japanese investors have lost 4 percent over the past year after converting interest income and any capital gains into yen, Merrill Lynch indexes show. That compares with a profit of 1.5 percent in Japanese debt and 4.5 percent in German bunds.
The dollar may be rebounding. It appreciated 9 percent to 104.37 yen on April 25 from the 12-year low of 95.76 on March 17. The U.S. currency fell 0.2 percent today to 104.24.
Nippon Life Insurance Co., Japan's largest, is willing to bet on the currency and plans to increase holdings of foreign bonds not hedged against swings in exchange rates by 200 billion yen ($1.91 billion) in the fiscal year that started April 1.
``The dollar at 100 yen is attractive,'' said Tomiji Akabayashi, investment manager at Nippon Life, which has the equivalent of $488 billion in assets.
Fed Concerns
Nippon Life is the only one of the four biggest life insurers willing to take the risk. Meiji Yasuda Life, the third- largest, started hedging dollar-denominated bonds in January and won't be putting new funds into overseas debt, said Yasuharu Takamatsu, head of the investment department. No. 2 Dai-ichi Mutual said it plans to focus on Japanese debt this year.
Investors are concerned Treasuries will fall as the Fed stops cutting its target rate for overnight loans because of faster inflation, said Naka Matsuzawa, chief strategist in Tokyo at Nomura Securities Co., a unit of Japan's biggest securities firm. The cost of wheat and crude oil has almost doubled in less than 12 months, helping push the annual inflation rate to 4 percent in March from 2.8 percent a year earlier.
``There's a high chance the yen will appreciate against the dollar,'' said Hirofumi Miyahara, deputy general manager of investment planning at Osaka-based Sumitomo Life Insurance, the fourth-largest. ``We're cautious on Treasuries,'' said Miyahara, whose firm is increasing purchases of Japanese debt.
No `Charm'
Asian investors outside Japan are also pulling back. Money managers in China, the second-biggest overseas holder of Treasuries, with $486.9 billion, and South Korea say they favor debt in Europe, equities or commodities.
Beijing-based ICBC Credit Suisse Asset Management Co., controlled by China's biggest bank, said last week Treasuries are ``not attractive'' because of currency risks. South Korea's $220 billion National Pension Service in Seoul said yields on the debt have lost their ``charm.''
U.S. borrowing costs will rise in the ``longer term'' because central banks may slowly cut their holdings of dollars to about 30 percent of their reserves in 15 years, from less than 60 percent now, said Kenneth Rogoff, a former chief economist at the International Monetary Fund in Washington.
``The dollar's primacy in the international financial system is being eroded,'' said Rogoff, a professor at Harvard University in Cambridge, Massachusetts. ``Foreign investors have done very poorly in U.S. Treasuries.''
Indirect bidders, a group of investors that includes foreign central banks, bought 29 percent of the $19 billion in five-year notes the Treasury sold April 24, down from 34 percent in March.
``I wouldn't jump into U.S. Treasuries,'' said Hao Kang, who manages a $443 million fund at ICBC Credit Suisse in Beijing. ``I am not so confident about the currency.''
April 28 (Bloomberg) -- Add another ailment to the U.S. misery index of soaring gasoline and wheat costs and falling home values: a federal deficit that is burgeoning as foreign investors led by the Japanese recoil from the slumping dollar.
The Japanese, who own $586.6 billion, or 12 percent of U.S. government debt, had their worst quarter in Treasuries this decade, losing 7 percent in the first three months of the year as the dollar fell to the lowest since 1995 versus the yen, Merrill Lynch & Co. indexes show. Dai-ichi Mutual Life Insurance Co., Meiji Yasuda Life Insurance Co. and Sumitomo Life Insurance Co., three of the nation's four-biggest insurers, would rather accept the world's lowest bond yields in Japan than buy U.S. debt.
``It's too early to say the dollar will stop falling,'' said Masataka Horii, head of the investment team in Tokyo for the $53.1 billion Kokusai Global Sovereign Open, Asia's biggest bond fund. ``The U.S. economy will be slow for a while.''
Japan owns more Treasuries than any other nation. After raising their holdings by $9.2 billion to $620.6 billion between March and July 2007, Japanese investors trimmed that stake by $34 billion through February, the Treasury said April 15.
America relies on foreign investors, who own more than half the U.S. government debt outstanding, to finance a deficit that New York-based Goldman Sachs Group Inc. predicts will expand to a record $500 billion for the year ending Sept. 30, after a $163 billion gap last year. Without their support, long-term interest rates would be 0.9 percentage point higher, a 2006 Federal Reserve study found.
Diminishing Returns
The yield on the benchmark 3 1/2 percent Treasury due February 2018 rose 16 basis points last week to 3.87 percent, according to bond broker BGCantor Market Data. The yield is up from 3.28 percent on March 17, the lowest since June 2003. The note's price declined 1 9/32, or $12.81 per $1,000 face amount, to $97. It was 3.83 percent today in New York.
Ten-year Treasury yields fell to within 2.03 percentage points of similar-maturity Japanese government bonds on March 17, the narrowest margin in more than a decade. Japan's 1.65 percent 10-year yield is the lowest of 31 bond markets tracked by Bloomberg and compares with 4.18 percent for German bunds.
A survey of Japanese funds investing overseas found 58 percent favor euro-denominated bonds, up from 20 percent a year ago, Barclays Capital Japan Ltd., a unit of the world's fifth- biggest currency trader, said in an April 24 report. Kokusai cut its U.S. fixed income holdings to a record-low 20 percent in March, from 32 percent two years ago.
European Debt
``European debt is more attractive than Treasuries,'' said Nobuto Yamazaki, executive fund manager at Diam Asset Management in Tokyo, which runs an $8.55 billion bond fund that is Japan's third-biggest. The euro, which gained 14.5 percent in the past year against the dollar, ``will continue to be strong,'' he said.
Japanese investors have lost 4 percent over the past year after converting interest income and any capital gains into yen, Merrill Lynch indexes show. That compares with a profit of 1.5 percent in Japanese debt and 4.5 percent in German bunds.
The dollar may be rebounding. It appreciated 9 percent to 104.37 yen on April 25 from the 12-year low of 95.76 on March 17. The U.S. currency fell 0.2 percent today to 104.24.
Nippon Life Insurance Co., Japan's largest, is willing to bet on the currency and plans to increase holdings of foreign bonds not hedged against swings in exchange rates by 200 billion yen ($1.91 billion) in the fiscal year that started April 1.
``The dollar at 100 yen is attractive,'' said Tomiji Akabayashi, investment manager at Nippon Life, which has the equivalent of $488 billion in assets.
Fed Concerns
Nippon Life is the only one of the four biggest life insurers willing to take the risk. Meiji Yasuda Life, the third- largest, started hedging dollar-denominated bonds in January and won't be putting new funds into overseas debt, said Yasuharu Takamatsu, head of the investment department. No. 2 Dai-ichi Mutual said it plans to focus on Japanese debt this year.
Investors are concerned Treasuries will fall as the Fed stops cutting its target rate for overnight loans because of faster inflation, said Naka Matsuzawa, chief strategist in Tokyo at Nomura Securities Co., a unit of Japan's biggest securities firm. The cost of wheat and crude oil has almost doubled in less than 12 months, helping push the annual inflation rate to 4 percent in March from 2.8 percent a year earlier.
``There's a high chance the yen will appreciate against the dollar,'' said Hirofumi Miyahara, deputy general manager of investment planning at Osaka-based Sumitomo Life Insurance, the fourth-largest. ``We're cautious on Treasuries,'' said Miyahara, whose firm is increasing purchases of Japanese debt.
No `Charm'
Asian investors outside Japan are also pulling back. Money managers in China, the second-biggest overseas holder of Treasuries, with $486.9 billion, and South Korea say they favor debt in Europe, equities or commodities.
Beijing-based ICBC Credit Suisse Asset Management Co., controlled by China's biggest bank, said last week Treasuries are ``not attractive'' because of currency risks. South Korea's $220 billion National Pension Service in Seoul said yields on the debt have lost their ``charm.''
U.S. borrowing costs will rise in the ``longer term'' because central banks may slowly cut their holdings of dollars to about 30 percent of their reserves in 15 years, from less than 60 percent now, said Kenneth Rogoff, a former chief economist at the International Monetary Fund in Washington.
``The dollar's primacy in the international financial system is being eroded,'' said Rogoff, a professor at Harvard University in Cambridge, Massachusetts. ``Foreign investors have done very poorly in U.S. Treasuries.''
Indirect bidders, a group of investors that includes foreign central banks, bought 29 percent of the $19 billion in five-year notes the Treasury sold April 24, down from 34 percent in March.
``I wouldn't jump into U.S. Treasuries,'' said Hao Kang, who manages a $443 million fund at ICBC Credit Suisse in Beijing. ``I am not so confident about the currency.''
Sunday, April 27, 2008
Payrolls Probably Shrank, Growth Slowed: U.S. Economy Preview
By Courtney Schlisserman
April 27 (Bloomberg) -- The U.S. probably lost jobs for a fourth month as the collapse in construction and a slowdown in consumer spending almost stalled growth, economists said before reports this week.
Payrolls fell by 78,000 in April, based on the median forecast in a Bloomberg News survey before the Labor Department's May 2 report. Figures two days earlier may show the economy expanded at a 0.4 percent annual pace from January through March, the smallest gain in five years.
``Despite our forecast for positive growth in the first quarter, we believe the economy has formally slipped into a recession,'' said Ethan Harris, chief U.S. economist at Lehman Brothers Holdings Inc. in New York. ``Given the headwinds from the housing and credit markets, we expect spending to remain weak through the end of 2009.'' Harris projects a 0.7 percent growth rate for the first three months of the year.
Economists forecast spending rose last quarter at the slowest pace in 13 years as the loss of jobs, increase in food and energy costs, and drop in property values hurt confidence. The Federal Reserve may lower the benchmark interest rate by a quarter-point to try to stem further erosion in the growth.
The Labor Department's employment report may also show the jobless rate rose to 5.2 percent this month, the highest level in three years.
Factory payrolls fell by 35,000, according to the survey median. Construction firms, retailers and financial-service businesses may also have cut jobs.
Job Losses
Wall Street banks and securities firms, hit by $309 billion in mortgage losses and writedowns, have slashed 48,000 jobs in the past 10 months, led by cuts at Citigroup Inc., Merrill Lynch & Co., Lehman Brothers and Bank of America Corp, according to the Securities Industry and Financial Markets Association.
Merrill Lynch, the third-biggest U.S. securities firm, said April 17 it would cut about 3,000 more jobs after the credit- market crisis forced it to write down about $6.5 billion in debt.
``The employment report will clearly show the economy is in recession,'' said James O'Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut. While a positive reading on first-quarter growth will stoke debate, ``ultimately, what will determine whether we're in a recession or not is payrolls,'' O'Sullivan said.
A build-up in inventories as demand slowed and record exports helped to keep gross domestic product growing. While foreign demand will probably continue to be strong, the increase in stockpiles may mean companies will slow production and spending in coming months, hurting growth.
Contraction Ahead
Merrill Lynch economists last week forecast the economy would shrink at a 2.3 percent annual pace from April through June as consumer spending continues to slow, forcing companies to slash inventories.
``Contrary to popular opinion, the incoming data are, on net, getting worse, not better,'' Merrill's Chief North American Economist David Rosenberg said in an April 24 note to clients.
Fed policy makers are scheduled to meet on April 29-30 to discuss the economy and interest rates. So far this year, central bankers have cut the overnight lending rate between banks by 2 percentage points to 2.25 percent.
``The economy's gone soft, we know that, and the Fed is easing,'' said Kevin Logan, a senior market economist at Dresdner Kleinwort in New York.
Investors have been increasing bets in recent weeks that policy makers will pause after this week's cut, according to Bloomberg data, as concerns over inflation mount.
Spending Slowdown
Consumer spending in the first quarter probably rose at a 0.7 percent annual pace, the smallest gain since the first three months of 1995, according to the median forecast. The Commerce Department's estimate is due April 30 as part of its GDP report.
Manufacturing has also cooled as spending slowed. The Institute for Supply Management's factory index, due May 1, fell to 48 this month from 48.6 in March, the survey showed. A reading of 50 is the dividing line between expansion and contraction.
While down, manufacturing has so far performed better during this slowdown than in previous contractions as demand from overseas continues to grow. In February 2001, a month before the last recession, the institute's index was 42.1.
Other reports this week are forecast to show home prices continued to fall, consumer confidence sank, income gains slowed and spending on construction projects dropped.
Bloomberg Survey
================================================================
Release Period Prior Median
Indicator Date Value Forecast
================================================================
Case Shiller Monthly YO 4/29 Feb. -10.7% -12.0%
Consumer Conf Index 4/29 April 64.5 61.5
GDP Annual QOQ% 4/30 1Q A 0.6% 0.4%
Personal Consump. QOQ% 4/30 1Q A 2.3% 0.7%
GDP Prices QOQ% 4/30 1Q A 2.4% 3.0%
Core PCE Prices QOQ% 4/30 1Q A 2.5% 2.1%
Employ Costs QOQ% 4/30 1Q 0.8% 0.8%
Chicago PM Index 4/30 April 48.2 47.5
Pers Inc MOM% 5/1 March 0.5% 0.4%
Pers Spend MOM% 5/1 March 0.1% 0.2%
Initial Claims ,000's 5/1 27-Apr 342 363
Cont. Claims ,000's 5/1 20-Apr 2934 2950
ISM Manu Index 5/1 April 48.6 48.0
Construct Spending MOM% 5/1 March -0.3% -0.7%
Nonfarm Payrolls ,000's 5/2 April -80 -78
Unemploy Rate % 5/2 April 5.1% 5.2%
Manu Payrolls ,000's 5/2 April -48 -35
Factory Orders MOM% 5/2 Jan. -1.3% 0.2%
================================================================
April 27 (Bloomberg) -- The U.S. probably lost jobs for a fourth month as the collapse in construction and a slowdown in consumer spending almost stalled growth, economists said before reports this week.
Payrolls fell by 78,000 in April, based on the median forecast in a Bloomberg News survey before the Labor Department's May 2 report. Figures two days earlier may show the economy expanded at a 0.4 percent annual pace from January through March, the smallest gain in five years.
``Despite our forecast for positive growth in the first quarter, we believe the economy has formally slipped into a recession,'' said Ethan Harris, chief U.S. economist at Lehman Brothers Holdings Inc. in New York. ``Given the headwinds from the housing and credit markets, we expect spending to remain weak through the end of 2009.'' Harris projects a 0.7 percent growth rate for the first three months of the year.
Economists forecast spending rose last quarter at the slowest pace in 13 years as the loss of jobs, increase in food and energy costs, and drop in property values hurt confidence. The Federal Reserve may lower the benchmark interest rate by a quarter-point to try to stem further erosion in the growth.
The Labor Department's employment report may also show the jobless rate rose to 5.2 percent this month, the highest level in three years.
Factory payrolls fell by 35,000, according to the survey median. Construction firms, retailers and financial-service businesses may also have cut jobs.
Job Losses
Wall Street banks and securities firms, hit by $309 billion in mortgage losses and writedowns, have slashed 48,000 jobs in the past 10 months, led by cuts at Citigroup Inc., Merrill Lynch & Co., Lehman Brothers and Bank of America Corp, according to the Securities Industry and Financial Markets Association.
Merrill Lynch, the third-biggest U.S. securities firm, said April 17 it would cut about 3,000 more jobs after the credit- market crisis forced it to write down about $6.5 billion in debt.
``The employment report will clearly show the economy is in recession,'' said James O'Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut. While a positive reading on first-quarter growth will stoke debate, ``ultimately, what will determine whether we're in a recession or not is payrolls,'' O'Sullivan said.
A build-up in inventories as demand slowed and record exports helped to keep gross domestic product growing. While foreign demand will probably continue to be strong, the increase in stockpiles may mean companies will slow production and spending in coming months, hurting growth.
Contraction Ahead
Merrill Lynch economists last week forecast the economy would shrink at a 2.3 percent annual pace from April through June as consumer spending continues to slow, forcing companies to slash inventories.
``Contrary to popular opinion, the incoming data are, on net, getting worse, not better,'' Merrill's Chief North American Economist David Rosenberg said in an April 24 note to clients.
Fed policy makers are scheduled to meet on April 29-30 to discuss the economy and interest rates. So far this year, central bankers have cut the overnight lending rate between banks by 2 percentage points to 2.25 percent.
``The economy's gone soft, we know that, and the Fed is easing,'' said Kevin Logan, a senior market economist at Dresdner Kleinwort in New York.
Investors have been increasing bets in recent weeks that policy makers will pause after this week's cut, according to Bloomberg data, as concerns over inflation mount.
Spending Slowdown
Consumer spending in the first quarter probably rose at a 0.7 percent annual pace, the smallest gain since the first three months of 1995, according to the median forecast. The Commerce Department's estimate is due April 30 as part of its GDP report.
Manufacturing has also cooled as spending slowed. The Institute for Supply Management's factory index, due May 1, fell to 48 this month from 48.6 in March, the survey showed. A reading of 50 is the dividing line between expansion and contraction.
While down, manufacturing has so far performed better during this slowdown than in previous contractions as demand from overseas continues to grow. In February 2001, a month before the last recession, the institute's index was 42.1.
Other reports this week are forecast to show home prices continued to fall, consumer confidence sank, income gains slowed and spending on construction projects dropped.
Bloomberg Survey
================================================================
Release Period Prior Median
Indicator Date Value Forecast
================================================================
Case Shiller Monthly YO 4/29 Feb. -10.7% -12.0%
Consumer Conf Index 4/29 April 64.5 61.5
GDP Annual QOQ% 4/30 1Q A 0.6% 0.4%
Personal Consump. QOQ% 4/30 1Q A 2.3% 0.7%
GDP Prices QOQ% 4/30 1Q A 2.4% 3.0%
Core PCE Prices QOQ% 4/30 1Q A 2.5% 2.1%
Employ Costs QOQ% 4/30 1Q 0.8% 0.8%
Chicago PM Index 4/30 April 48.2 47.5
Pers Inc MOM% 5/1 March 0.5% 0.4%
Pers Spend MOM% 5/1 March 0.1% 0.2%
Initial Claims ,000's 5/1 27-Apr 342 363
Cont. Claims ,000's 5/1 20-Apr 2934 2950
ISM Manu Index 5/1 April 48.6 48.0
Construct Spending MOM% 5/1 March -0.3% -0.7%
Nonfarm Payrolls ,000's 5/2 April -80 -78
Unemploy Rate % 5/2 April 5.1% 5.2%
Manu Payrolls ,000's 5/2 April -48 -35
Factory Orders MOM% 5/2 Jan. -1.3% 0.2%
================================================================
Oil Rises to Record on U.K. Pipeline Shutdown, Nigeria Attack
By Gavin Evans
April 28 (Bloomberg) -- Crude oil rose to a record after BP Plc shut a North Sea pipeline and gunmen attacked a police station in Bonny Island, the site of one of Nigeria's largest oil and gas export terminals.
BP closed the Forties Pipeline System, carrying 40 percent of the U.K.'s oil output, after a strike at the Grangemouth refinery cut power supplies to the network. The refinery will re-start tomorrow morning local time. Five Nigerian police were killed and guns and ammunition seized in yesterday's attack on their station, Niger Delta police officials said.
Crude oil for June delivery rose as much as $1.41, or 1.2 percent, to $119.93 a barrel in after-hours electronic trading on the New York Mercantile Exchange, the highest since the futures began trading in 1983. It was at $119.31 at 8:56 a.m. in Sydney.
The contract gained 2.1 percent at $118.52 a barrel on April 25 when the refinery strike and pipeline closure were announced.
Brent crude for June settlement rose 66 cents, or 0.6 percent, to $117 a barrel London's ICE Futures Europe exchange. It reached a record $117.56 on April 25.
New York oil futures are 79 percent higher than a year ago, with almost a quarter of that gain booked this month as the falling dollar and declining U.S. gasoline stockpiles spurred fund managers to invest in fuel and crude oil.
Hedge Funds
Hedge fund managers and other large speculators increased their bets on rising oil prices a third time in the week ended April 22, according to U.S. Commodity Futures Trading Commission data. Net-long positions, the difference between orders to buy and sell the commodity, rose 6 percent to 70,562 contracts, the commission said April 25.
Oil grades from the North Sea and Nigeria, Africa's biggest producer, are low in sulfur and favored by refiners.
U.S. refineries usually bolster output in May as they prepare for the peak-demand summer driving season in the world's biggest oil consumer. Gasoline deliveries usually peak June through August.
Nigeria is losing about 50 percent of its oil production because of a strike at Exxon Mobil Corp.'s operations in the country and militant attacks on a Royal Dutch Shell Plc pipeline, the country's oil minister H. Odein Ajumogobia said April 25.
Nigeria, Africa's leading oil producer, pumped 1.96 million barrels a day in March, according to Bloomberg estimates. Recent attacks on Shell-run pipelines, including the latest one, is cutting oil flows by about 140,000 barrels a day, Ajumogobia said. The Exxon Mobil strike is halting about 765,000 barrels a day, according to union estimates.
April 28 (Bloomberg) -- Crude oil rose to a record after BP Plc shut a North Sea pipeline and gunmen attacked a police station in Bonny Island, the site of one of Nigeria's largest oil and gas export terminals.
BP closed the Forties Pipeline System, carrying 40 percent of the U.K.'s oil output, after a strike at the Grangemouth refinery cut power supplies to the network. The refinery will re-start tomorrow morning local time. Five Nigerian police were killed and guns and ammunition seized in yesterday's attack on their station, Niger Delta police officials said.
Crude oil for June delivery rose as much as $1.41, or 1.2 percent, to $119.93 a barrel in after-hours electronic trading on the New York Mercantile Exchange, the highest since the futures began trading in 1983. It was at $119.31 at 8:56 a.m. in Sydney.
The contract gained 2.1 percent at $118.52 a barrel on April 25 when the refinery strike and pipeline closure were announced.
Brent crude for June settlement rose 66 cents, or 0.6 percent, to $117 a barrel London's ICE Futures Europe exchange. It reached a record $117.56 on April 25.
New York oil futures are 79 percent higher than a year ago, with almost a quarter of that gain booked this month as the falling dollar and declining U.S. gasoline stockpiles spurred fund managers to invest in fuel and crude oil.
Hedge Funds
Hedge fund managers and other large speculators increased their bets on rising oil prices a third time in the week ended April 22, according to U.S. Commodity Futures Trading Commission data. Net-long positions, the difference between orders to buy and sell the commodity, rose 6 percent to 70,562 contracts, the commission said April 25.
Oil grades from the North Sea and Nigeria, Africa's biggest producer, are low in sulfur and favored by refiners.
U.S. refineries usually bolster output in May as they prepare for the peak-demand summer driving season in the world's biggest oil consumer. Gasoline deliveries usually peak June through August.
Nigeria is losing about 50 percent of its oil production because of a strike at Exxon Mobil Corp.'s operations in the country and militant attacks on a Royal Dutch Shell Plc pipeline, the country's oil minister H. Odein Ajumogobia said April 25.
Nigeria, Africa's leading oil producer, pumped 1.96 million barrels a day in March, according to Bloomberg estimates. Recent attacks on Shell-run pipelines, including the latest one, is cutting oil flows by about 140,000 barrels a day, Ajumogobia said. The Exxon Mobil strike is halting about 765,000 barrels a day, according to union estimates.
Thursday, April 24, 2008
Dollar May Extend Gain Against Euro on Fed Rate Expectations
By Bo Nielsen
April 25 (Bloomberg) -- The dollar may extend its rally against the euro as traders increase speculation that the Federal Reserve will stop cutting interest rates.
The euro plummeted yesterday the most against the dollar since December after reports showed business confidence fell in Germany and France this month. The U.S. currency increased as orders for durable goods excluding transportation equipment increased more than forecast in March, indicating parts of the economy are weathering the housing slump.
``People are starting to believe that the Fed is near the end of its rate-cutting cycle,'' said Win Thin, a currency strategist at Brown Brothers Harriman & Co. in New York. ``Underlying fundamentals are definitely more dollar- supportive.''
The dollar traded at $1.5681 per euro at 6:03 a.m. in Tokyo, after increasing 1.3 percent yesterday. The 15-nation currency reached $1.6019 on April 22, the highest level since its 1999 debut. The dollar traded at 104.24 yen after rising 0.9 percent. The euro traded at 163.47 yen, following a 0.5 percent decline.
Futures on the Chicago Board of Trade showed yesterday an 18 percent chance the U.S. central bank will hold the target lending rate at 2.25 percent on April 30, compared with no chance a week ago. There's an 82 percent likelihood of a cut to 2 percent. The yield on the two-year Treasury note increased 0.19 percentage point to 2.38 percent on speculation the Fed is close to the end of its interest-rate reductions.
Swiss Franc
The Swiss franc fell yesterday against all of the major currencies as rising U.S. stocks persuaded investors to sell the currency to buy higher-yielding assets outside Switzerland. The Standard & Poor's 500 Index rose 0.6 percent.
Switzerland's target lending rate is 2.75 percent, one of the lowest among the major economies, making the franc a favored source of funding. The currency dropped 2 percent against the dollar to 1.0355 yesterday.
The euro weakened against the dollar yesterday as the Munich-based Ifo institute said its German business climate index, based on a survey of 7,000 executives, fell to 102.4 this month, from 104.8 in March. An index of sentiment among 4,000 French manufacturers slid to 106 from a revised 108, the Paris- based national statistics office said yesterday.
French President Nicolas Sarkozy said in a nationally televised interview yesterday on TF1 and France 2 that the euro has reached an ``incredible'' level against the dollar.
Euro and Oil
The euro versus the dollar has had a correlation of 0.96 with the price of crude oil over the past 12 months, according to data compiled by Bloomberg. A reading of 1 would mean they move in lockstep. Crude for June delivery rose to a record $119.90 on April 22 and dropped to $115.86 a barrel yesterday.
``The euro and energy prices are the two primary factors contributing to the breakdown in the Ifo,'' said Michael Malpede, a senior currency analyst in Chicago at MF Global Ltd., the world's largest broker of exchange-traded futures and options contracts. ``The euro represents a pretty significant threat to the European economy.''
A 1 percentage point increase in the euro's real exchange rate reduces growth in the region's exports by 0.6 percent within a year, according to a note this month from Deutsche Bank AG, the biggest currency trader. The 15-nation euro has risen 9.8 percent over the past year against a basket of currencies, according to an index from the Bank of England that's adjusted for inflation.
Trichet on Economy
European Central Bank President Jean-Claude Trichet told reporters at a conference in Frankfurt yesterday that the bank is concerned that the euro's recent surge to a record against the dollar may hurt Europe's economy. The euro has appreciated 7 percent this year against the dollar on speculation inflation will discourage the ECB from lowering borrowing costs from a six-year high of 4 percent.
The dollar extended its gain versus the euro yesterday as the Commerce Department said bookings increased 1.5 percent for goods meant to last several years, outside of cars and planes, following a 2.1 percent decline for February. Total orders fell 0.3 percent, restrained by a drop in defense-related hardware.
The Labor Department reported that the number of Americans filing first-time claims for unemployment benefits unexpectedly fell last week to a two-month low, a sign some companies have put firing plans on hold.
The euro may weaken to $1.53 after breaking below $1.5825, wrote Goldman Sachs Group Inc. analyst Kevin Edgeley in a note to clients yesterday.
April 25 (Bloomberg) -- The dollar may extend its rally against the euro as traders increase speculation that the Federal Reserve will stop cutting interest rates.
The euro plummeted yesterday the most against the dollar since December after reports showed business confidence fell in Germany and France this month. The U.S. currency increased as orders for durable goods excluding transportation equipment increased more than forecast in March, indicating parts of the economy are weathering the housing slump.
``People are starting to believe that the Fed is near the end of its rate-cutting cycle,'' said Win Thin, a currency strategist at Brown Brothers Harriman & Co. in New York. ``Underlying fundamentals are definitely more dollar- supportive.''
The dollar traded at $1.5681 per euro at 6:03 a.m. in Tokyo, after increasing 1.3 percent yesterday. The 15-nation currency reached $1.6019 on April 22, the highest level since its 1999 debut. The dollar traded at 104.24 yen after rising 0.9 percent. The euro traded at 163.47 yen, following a 0.5 percent decline.
Futures on the Chicago Board of Trade showed yesterday an 18 percent chance the U.S. central bank will hold the target lending rate at 2.25 percent on April 30, compared with no chance a week ago. There's an 82 percent likelihood of a cut to 2 percent. The yield on the two-year Treasury note increased 0.19 percentage point to 2.38 percent on speculation the Fed is close to the end of its interest-rate reductions.
Swiss Franc
The Swiss franc fell yesterday against all of the major currencies as rising U.S. stocks persuaded investors to sell the currency to buy higher-yielding assets outside Switzerland. The Standard & Poor's 500 Index rose 0.6 percent.
Switzerland's target lending rate is 2.75 percent, one of the lowest among the major economies, making the franc a favored source of funding. The currency dropped 2 percent against the dollar to 1.0355 yesterday.
The euro weakened against the dollar yesterday as the Munich-based Ifo institute said its German business climate index, based on a survey of 7,000 executives, fell to 102.4 this month, from 104.8 in March. An index of sentiment among 4,000 French manufacturers slid to 106 from a revised 108, the Paris- based national statistics office said yesterday.
French President Nicolas Sarkozy said in a nationally televised interview yesterday on TF1 and France 2 that the euro has reached an ``incredible'' level against the dollar.
Euro and Oil
The euro versus the dollar has had a correlation of 0.96 with the price of crude oil over the past 12 months, according to data compiled by Bloomberg. A reading of 1 would mean they move in lockstep. Crude for June delivery rose to a record $119.90 on April 22 and dropped to $115.86 a barrel yesterday.
``The euro and energy prices are the two primary factors contributing to the breakdown in the Ifo,'' said Michael Malpede, a senior currency analyst in Chicago at MF Global Ltd., the world's largest broker of exchange-traded futures and options contracts. ``The euro represents a pretty significant threat to the European economy.''
A 1 percentage point increase in the euro's real exchange rate reduces growth in the region's exports by 0.6 percent within a year, according to a note this month from Deutsche Bank AG, the biggest currency trader. The 15-nation euro has risen 9.8 percent over the past year against a basket of currencies, according to an index from the Bank of England that's adjusted for inflation.
Trichet on Economy
European Central Bank President Jean-Claude Trichet told reporters at a conference in Frankfurt yesterday that the bank is concerned that the euro's recent surge to a record against the dollar may hurt Europe's economy. The euro has appreciated 7 percent this year against the dollar on speculation inflation will discourage the ECB from lowering borrowing costs from a six-year high of 4 percent.
The dollar extended its gain versus the euro yesterday as the Commerce Department said bookings increased 1.5 percent for goods meant to last several years, outside of cars and planes, following a 2.1 percent decline for February. Total orders fell 0.3 percent, restrained by a drop in defense-related hardware.
The Labor Department reported that the number of Americans filing first-time claims for unemployment benefits unexpectedly fell last week to a two-month low, a sign some companies have put firing plans on hold.
The euro may weaken to $1.53 after breaking below $1.5825, wrote Goldman Sachs Group Inc. analyst Kevin Edgeley in a note to clients yesterday.
Japan Consumer Prices Rise at Fastest Pace in Decade (Update2)
By Mayumi Otsuma
April 25 (Bloomberg) -- Japan's consumer prices rose at the fastest pace in a decade in March as companies foisted higher costs of energy and grains onto households to protect profits.
Core consumer prices, which exclude fruit, fish and vegetables, climbed 1.2 percent from a year earlier after gaining 1 percent in February, the statistics bureau said in Tokyo today. That matched the median estimate of 39 economists surveyed by Bloomberg News.
Costlier oil and commodities are squeezing companies and households, smothering growth in the world's second-largest economy just as a U.S. slowdown hits the country's export-led expansion. The Bank of Japan may discard language calling for higher interest rates in its twice-yearly outlook next week even as it raises the inflation forecast.
``Inflation spurred by rising costs will keep discouraging companies and consumers from spending,'' said Takehiro Sato, chief Japan economist at Morgan Stanley in Tokyo. ``The Bank of Japan probably thinks now's not the time to push forward with a rate-hike campaign.''
The yield on Japan's 10-year bond rose 5 basis points to 1.53 percent at 9:25 a.m. in Tokyo. The yen traded at 104.36 per dollar from 104.34 before the report was released.
Food accounted for a third of the gains in core prices, and energy contributed more than half. Excluding food and energy, prices rose 0.1 percent, the first increase since August 1998.
Fruit Drinks
Kagome Co. said this week it will raise prices of vegetable and fruit drinks to reflect higher costs of ingredients and packaging materials.
While the prospect of slower growth may prompt the central bank to keep borrowing costs on hold this year, faster inflation makes a cut less likely. Expectations that the bank will lower the benchmark rate from 0.5 percent evaporated in the past month.
Investors see a 56 percent chance of a rate increase by December compared with 38 percent before today's report, according to JPMorgan Chase & Co. calculations. As recently as March 20, traders priced in a 71 percent likelihood of a cut. Goldman Sachs Group Inc. this week dropped its prediction for a reduction this year.
The central bank will probably lower its growth forecast from 2.1 percent for the year ending March 2009 and raise its projection for core-price increases from 0.4 percent, according to economists. The bank will publish the outlook on April 30.
Inflation Forecast
``The Bank of Japan will raise its inflation forecast on expectations food and energy prices will keep rising,'' said Izuru Kato, chief market economist at Totan Research Co. in Tokyo. ``The bank may address the risk that price increases will fuel consumers' inflationary expectations.''
Japan's wholesale prices rose at the fastest pace in 27 years in March. Crude oil has doubled in three years, and reached a record $119.90 a barrel this week.
Economic and Fiscal Policy Minister Hiroko Ota said Japan's inflation ``isn't at all a good thing'' because it's being driven by higher energy prices rather than demand. The country is still struggling to stamp out deflation, she said today.
Core consumer prices resumed rising in October after declining for eight months. 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.
Stagnant wages are containing inflation and have made consumers reluctant to accept higher prices. Wages fell at the fastest pace in three years in 2007.
BOJ `Reasonably Relaxed'
The Bank of Japan ``seems reasonably relaxed about the inflation numbers because there's no sign it's feeding into wages demand and creating an inflationary spiral,'' said Richard Jerram, chief Japan economist at Macquarie Securities Ltd. in Tokyo. The bank ``isn't going to be doing anything for the remainder of this year.''
Core prices rose 0.3 percent in the year ended March 31, the government said, the fastest pace in a decade.
Tokyo's core prices, a harbinger of the nationwide index, rose 0.7 percent in April from a year earlier, following a 0.6 percent gain in March. Inflation in the capital accelerated even after the expiry of a gasoline tax made the fuel cheaper.
The government will reinstall the tax on May 1, the Yomiuri newspaper reported today, citing a government official it didn't identify by name.
April 25 (Bloomberg) -- Japan's consumer prices rose at the fastest pace in a decade in March as companies foisted higher costs of energy and grains onto households to protect profits.
Core consumer prices, which exclude fruit, fish and vegetables, climbed 1.2 percent from a year earlier after gaining 1 percent in February, the statistics bureau said in Tokyo today. That matched the median estimate of 39 economists surveyed by Bloomberg News.
Costlier oil and commodities are squeezing companies and households, smothering growth in the world's second-largest economy just as a U.S. slowdown hits the country's export-led expansion. The Bank of Japan may discard language calling for higher interest rates in its twice-yearly outlook next week even as it raises the inflation forecast.
``Inflation spurred by rising costs will keep discouraging companies and consumers from spending,'' said Takehiro Sato, chief Japan economist at Morgan Stanley in Tokyo. ``The Bank of Japan probably thinks now's not the time to push forward with a rate-hike campaign.''
The yield on Japan's 10-year bond rose 5 basis points to 1.53 percent at 9:25 a.m. in Tokyo. The yen traded at 104.36 per dollar from 104.34 before the report was released.
Food accounted for a third of the gains in core prices, and energy contributed more than half. Excluding food and energy, prices rose 0.1 percent, the first increase since August 1998.
Fruit Drinks
Kagome Co. said this week it will raise prices of vegetable and fruit drinks to reflect higher costs of ingredients and packaging materials.
While the prospect of slower growth may prompt the central bank to keep borrowing costs on hold this year, faster inflation makes a cut less likely. Expectations that the bank will lower the benchmark rate from 0.5 percent evaporated in the past month.
Investors see a 56 percent chance of a rate increase by December compared with 38 percent before today's report, according to JPMorgan Chase & Co. calculations. As recently as March 20, traders priced in a 71 percent likelihood of a cut. Goldman Sachs Group Inc. this week dropped its prediction for a reduction this year.
The central bank will probably lower its growth forecast from 2.1 percent for the year ending March 2009 and raise its projection for core-price increases from 0.4 percent, according to economists. The bank will publish the outlook on April 30.
Inflation Forecast
``The Bank of Japan will raise its inflation forecast on expectations food and energy prices will keep rising,'' said Izuru Kato, chief market economist at Totan Research Co. in Tokyo. ``The bank may address the risk that price increases will fuel consumers' inflationary expectations.''
Japan's wholesale prices rose at the fastest pace in 27 years in March. Crude oil has doubled in three years, and reached a record $119.90 a barrel this week.
Economic and Fiscal Policy Minister Hiroko Ota said Japan's inflation ``isn't at all a good thing'' because it's being driven by higher energy prices rather than demand. The country is still struggling to stamp out deflation, she said today.
Core consumer prices resumed rising in October after declining for eight months. 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.
Stagnant wages are containing inflation and have made consumers reluctant to accept higher prices. Wages fell at the fastest pace in three years in 2007.
BOJ `Reasonably Relaxed'
The Bank of Japan ``seems reasonably relaxed about the inflation numbers because there's no sign it's feeding into wages demand and creating an inflationary spiral,'' said Richard Jerram, chief Japan economist at Macquarie Securities Ltd. in Tokyo. The bank ``isn't going to be doing anything for the remainder of this year.''
Core prices rose 0.3 percent in the year ended March 31, the government said, the fastest pace in a decade.
Tokyo's core prices, a harbinger of the nationwide index, rose 0.7 percent in April from a year earlier, following a 0.6 percent gain in March. Inflation in the capital accelerated even after the expiry of a gasoline tax made the fuel cheaper.
The government will reinstall the tax on May 1, the Yomiuri newspaper reported today, citing a government official it didn't identify by name.
Tuesday, April 22, 2008
Crude Oil Rises to All-Time High Above $119 on Record Euro
By Mark Shenk
April 22 (Bloomberg) -- Crude oil rose to a record $119.90 a barrel in New York as the dollar dropped to an all-time low against the euro, prompting investors to purchase commodities as an inflation hedge.
Oil gained as the dollar touched $1.60 per euro for the first time after European Central Bank policy makers signaled they may raise interest rates because of inflation. Crude's 24 percent surge this year pulled gasoline and diesel to records, weighing on an economy already reeling from a credit crisis.
``This market defies gravity,'' said Tom Bentz, a broker at BNP Paribas in New York. The falling dollar ``provided us with the push we needed to make a new record,'' he said.
Crude oil for May delivery advanced $1.89, or 1.6 percent, to settle at $119.37 a barrel at 2:43 p.m. on the New York Mercantile Exchange, a record close. Futures reached $119.90 today, the highest intraday price since trading began in 1983. Prices are up 88 percent from a year ago.
The May contract expired today. The more-active June futures rose $1.12, or 1 percent, to settle at $118.07 a barrel.
Brent crude for June settlement gained $1.52, or 1.3 percent, to close at a record $115.95 a barrel on London's ICE Futures Europe exchange. The contract touched $116.75 today, an all-time intraday high.
Regular gasoline, averaged nationwide, gained 0.8 cent to a record $3.511 a gallon, AAA, the nation's largest motorist organization, said today on its Web site. Diesel advanced to $4.204 a gallon.
``We are starting to see a lot of economic pain as a result of these prices,'' said Antoine Halff, head of energy research at New York-based Newedge USA LLC. ``This is going to have an impact on demand.''
Record Gasoline Futures
Gasoline futures for May delivery jumped 3.73 cents, or 1.3 percent, to close at a record $3.0164 a gallon in New York after reaching an intraday record of $3.025 a barrel.
Heating oil for May delivery rose 0.55 cent to a record settlement price of $3.3169 a gallon. The contract reached $3.35, the highest since trading began in 1978. Some traders use heating-oil futures to hedge their diesel and jet-fuel purchases. All three are classed as distillate fuels.
The falling dollar and higher global demand for raw materials have led to records this year for commodities including gold, corn, soybeans and rice. The UBS Bloomberg Constant Maturity Commodity Index, which tracks 26 raw materials, gained 1.2 percent to 1521.008 today, up 37 percent from a year ago.
Euro Gains
The euro rose to $1.5998 at 3:10 p.m. in New York, up from $1.5912 yesterday, and touched $1.6019, the highest since the European single currency was introduced in 1999.
Crossing $1.60 per euro means ``there will be a lot of commodity buying, especially oil,'' said Addison Armstrong, director of market research at TFS Energy LLC in Stamford, Connecticut.
The dollar extended its drop against the euro after a U.S. industry report showed sales of previously owned homes fell in March. Falling house prices and rising mortgage delinquencies have slowed U.S. economic growth.
Oil also gained on a Nigerian supply disruption and a U.K. refinery strike threat.
Royal Dutch Shell Plc said yesterday it would declare a force majeure on oil exports after 169,000 barrels of daily output in Nigeria was suspended because of rebel attacks. Force majeure is a clause that allows companies to miss deliveries because of circumstances beyond their control.
Nigerian Disruptions
``It will be very bullish if the rebels expand their campaign and succeed in disrupting more production,'' said Rick Mueller, director of oil practice at Energy Security Analysis Inc. in Wakefield, Massachusetts. ``This is very sweet crude that refiners are going to need as the summer approaches.''
Crude from Nigeria, Africa's biggest producer, is low in sulfur, or sweet, and is prized by U.S. refiners because of the proportion of high-value gasoline it yields.
Ineos Group Holdings Plc and union negotiators failed to resolve a labor dispute that may cause a two-day strike at the 200,000 barrel-a-day Grangemouth refinery in Scotland. Talks will resume tomorrow.
The plant takes crude from BP Plc's Forties Pipeline System, which transfers oil from more than 50 North Sea fields.
ConocoPhillips's Humber plant in northern England is partially shut for maintenance, two people with knowledge of the project said. That may further reduce U.K. fuel supplies.
April 22 (Bloomberg) -- Crude oil rose to a record $119.90 a barrel in New York as the dollar dropped to an all-time low against the euro, prompting investors to purchase commodities as an inflation hedge.
Oil gained as the dollar touched $1.60 per euro for the first time after European Central Bank policy makers signaled they may raise interest rates because of inflation. Crude's 24 percent surge this year pulled gasoline and diesel to records, weighing on an economy already reeling from a credit crisis.
``This market defies gravity,'' said Tom Bentz, a broker at BNP Paribas in New York. The falling dollar ``provided us with the push we needed to make a new record,'' he said.
Crude oil for May delivery advanced $1.89, or 1.6 percent, to settle at $119.37 a barrel at 2:43 p.m. on the New York Mercantile Exchange, a record close. Futures reached $119.90 today, the highest intraday price since trading began in 1983. Prices are up 88 percent from a year ago.
The May contract expired today. The more-active June futures rose $1.12, or 1 percent, to settle at $118.07 a barrel.
Brent crude for June settlement gained $1.52, or 1.3 percent, to close at a record $115.95 a barrel on London's ICE Futures Europe exchange. The contract touched $116.75 today, an all-time intraday high.
Regular gasoline, averaged nationwide, gained 0.8 cent to a record $3.511 a gallon, AAA, the nation's largest motorist organization, said today on its Web site. Diesel advanced to $4.204 a gallon.
``We are starting to see a lot of economic pain as a result of these prices,'' said Antoine Halff, head of energy research at New York-based Newedge USA LLC. ``This is going to have an impact on demand.''
Record Gasoline Futures
Gasoline futures for May delivery jumped 3.73 cents, or 1.3 percent, to close at a record $3.0164 a gallon in New York after reaching an intraday record of $3.025 a barrel.
Heating oil for May delivery rose 0.55 cent to a record settlement price of $3.3169 a gallon. The contract reached $3.35, the highest since trading began in 1978. Some traders use heating-oil futures to hedge their diesel and jet-fuel purchases. All three are classed as distillate fuels.
The falling dollar and higher global demand for raw materials have led to records this year for commodities including gold, corn, soybeans and rice. The UBS Bloomberg Constant Maturity Commodity Index, which tracks 26 raw materials, gained 1.2 percent to 1521.008 today, up 37 percent from a year ago.
Euro Gains
The euro rose to $1.5998 at 3:10 p.m. in New York, up from $1.5912 yesterday, and touched $1.6019, the highest since the European single currency was introduced in 1999.
Crossing $1.60 per euro means ``there will be a lot of commodity buying, especially oil,'' said Addison Armstrong, director of market research at TFS Energy LLC in Stamford, Connecticut.
The dollar extended its drop against the euro after a U.S. industry report showed sales of previously owned homes fell in March. Falling house prices and rising mortgage delinquencies have slowed U.S. economic growth.
Oil also gained on a Nigerian supply disruption and a U.K. refinery strike threat.
Royal Dutch Shell Plc said yesterday it would declare a force majeure on oil exports after 169,000 barrels of daily output in Nigeria was suspended because of rebel attacks. Force majeure is a clause that allows companies to miss deliveries because of circumstances beyond their control.
Nigerian Disruptions
``It will be very bullish if the rebels expand their campaign and succeed in disrupting more production,'' said Rick Mueller, director of oil practice at Energy Security Analysis Inc. in Wakefield, Massachusetts. ``This is very sweet crude that refiners are going to need as the summer approaches.''
Crude from Nigeria, Africa's biggest producer, is low in sulfur, or sweet, and is prized by U.S. refiners because of the proportion of high-value gasoline it yields.
Ineos Group Holdings Plc and union negotiators failed to resolve a labor dispute that may cause a two-day strike at the 200,000 barrel-a-day Grangemouth refinery in Scotland. Talks will resume tomorrow.
The plant takes crude from BP Plc's Forties Pipeline System, which transfers oil from more than 50 North Sea fields.
ConocoPhillips's Humber plant in northern England is partially shut for maintenance, two people with knowledge of the project said. That may further reduce U.K. fuel supplies.
Monday, April 21, 2008
Dollar Drop Slows With G-7 Blessing; Shows No Endgame (Update3)
By Anchalee Worrachate
April 21 (Bloomberg) -- Traders betting on intervention by the Group of Seven nations to stem the dollar's 7.7 percent decline against the euro this year may be disappointed.
Finance ministers are less concerned about the currency's relative value than the risks from ``sharp fluctuations'' in exchange rates, their April 11 statement shows. Those swings, as measured by JPMorgan Chase & Co.'s index of implied volatility on dollar options, are abating. Finance ministers object to rising volatility because it complicates the assessment of economies, interferes with monetary policy and gives companies little time to adjust by cutting costs.
Deutsche Bank AG and UBS AG, the two biggest currency traders, say the decline in volatility means the likelihood of buying or selling currencies in concert to halt the dollar's slide has diminished even with the greenback at record lows. Before the G-7 meeting in Washington, strategists including Stephen Jen, head of currency research at Morgan Stanley, speculated that the world's richest nations might intervene.
``It's not about levels but the volatility,'' said Geoffrey Yu, a foreign-exchange strategist in Zurich at UBS. ``If the dollar drops in a gradual fashion, they are unlikely to act. There's not really a meeting of minds as to when intervention is needed.''
Implied volatility on options for the dollar fell to 11.28 percent after the G-7 meeting on April 11. It was 14.5 percent on March 17, the same level at which the G-7 stepped into the market in 1995 to influence prices.
`Tolerating' the Euro
The dollar was at $1.5846 against the euro by 10:13 a.m. in London, from $1.5817 on April 18. It traded little changed at 103.66 yen.
A stronger euro benefits Europe by helping to temper inflation. Maintaining price stability is ``of paramount importance,'' European Central Bank President Jean-Claude Trichet said in Frankfurt on April 15. Inflation in the 15-nation euro region accelerated to 3.6 percent last month, the fastest in almost 16 years.
ECB policy makers will have to ``tolerate a stronger euro'' or raise interest rates if they want to bring inflation down, said Thomas Mayer, the London-based chief European economist at Deutsche Bank.
``Is there a level of a euro where the economy falls apart?'' he said. ``No, it's a gradual process.''
Boosting Exports
A weaker dollar benefits the U.S. by giving a boost to exports, which increased 2 percent to a record $151.4 billion in February, according to the Commerce Department. Google Inc. said April 17 that first-quarter international sales, which jumped 55 percent, would have been $202 million lower without the benefit of a depreciating dollar.
While Treasury Secretary Henry Paulson has said he is a ``very strong'' supporter of a ``strong dollar,'' one of his predecessors, Paul O'Neill, described that policy as ``vacuous'' in a Bloomberg Television interview last week.
Where the U.S. gains from a falling dollar, Europe loses. European exports to the U.S. fell in 2007 for the first time in four years as the U.S. currency's decline made goods from the region more expensive for Americans.
Siemens AG Chief Executive Officer Peter Loescher said on March 4 that the currency's level is ``not easy'' for the company. MTU Aero Engines Holding AG, the largest independent provider of jet-engine maintenance, said this month the dollar's decline will reduce profit this year.
Oil Factor
``Since our last meeting, there have been at times sharp fluctuations in major currencies, and we are concerned about their possible implications for economic and financial stability,'' the G-7's finance ministers and central bankers said in a statement after the talks in Washington on April 11.
The statement contained no reference that ``exchange rates should reflect economic fundamentals,'' a phrase included in every G-7 statement since 2003 where it mentioned currencies.
With oil at a record high, betting against intervention might prove unwise for traders, said Jim O'Neill, chief economist at Goldman Sachs Group Inc. in London. The U.S. may have consented to the change in the G-7 language because the falling dollar is pushing up the price of oil, threatening foreign investment in U.S. stocks and other assets, he said.
Oil climbed to $117.05 a barrel in New York, the highest since futures began trading in 1983.
Intervention History
The last time the G-7, which comprises the U.S., Japan, Germany, Britain, France, Italy and Canada, intervened was Sept. 22, 2000. It bought euros after that currency tumbled 27 percent from its 1999 debut. The G-7 last propped up the dollar in 1995, when it sank almost 20 percent in four months against the Japanese yen to a post-World War II low of 79.95 yen.
The dollar has declined 14 percent against the euro and has fallen 12 percent versus the yen in the past 12 months.
``You'll need a quicker and more disorderly decline,'' said David Simmonds, head of currency strategy at Royal Bank of Scotland Group Plc in London. ``A fall in bond prices, for example, would change the picture completely. But that's not what we are seeing.''
The dollar will weaken to $1.62 or 1.63 per euro this quarter even after the G-7 statement, according to Simmonds. He declined to speculate on what level might bring G-7 intervention.
The dollar will probably have to depreciate by 1 percent for three to four consecutive days before policy makers consider intervening, said Ricardo Zulliger, global head of currency sales in London at Dresdner Kleinwort. The investment bank is owned by Allianz SE, Europe's largest insurer.
``That would raise the alarm bells and increase the likelihood of them acting,'' said Zulliger. ``The problem is that the fundamentals do not justify an intervention. If it weren't for the exchange rate, the ECB would have had to raise interest rates.''
April 21 (Bloomberg) -- Traders betting on intervention by the Group of Seven nations to stem the dollar's 7.7 percent decline against the euro this year may be disappointed.
Finance ministers are less concerned about the currency's relative value than the risks from ``sharp fluctuations'' in exchange rates, their April 11 statement shows. Those swings, as measured by JPMorgan Chase & Co.'s index of implied volatility on dollar options, are abating. Finance ministers object to rising volatility because it complicates the assessment of economies, interferes with monetary policy and gives companies little time to adjust by cutting costs.
Deutsche Bank AG and UBS AG, the two biggest currency traders, say the decline in volatility means the likelihood of buying or selling currencies in concert to halt the dollar's slide has diminished even with the greenback at record lows. Before the G-7 meeting in Washington, strategists including Stephen Jen, head of currency research at Morgan Stanley, speculated that the world's richest nations might intervene.
``It's not about levels but the volatility,'' said Geoffrey Yu, a foreign-exchange strategist in Zurich at UBS. ``If the dollar drops in a gradual fashion, they are unlikely to act. There's not really a meeting of minds as to when intervention is needed.''
Implied volatility on options for the dollar fell to 11.28 percent after the G-7 meeting on April 11. It was 14.5 percent on March 17, the same level at which the G-7 stepped into the market in 1995 to influence prices.
`Tolerating' the Euro
The dollar was at $1.5846 against the euro by 10:13 a.m. in London, from $1.5817 on April 18. It traded little changed at 103.66 yen.
A stronger euro benefits Europe by helping to temper inflation. Maintaining price stability is ``of paramount importance,'' European Central Bank President Jean-Claude Trichet said in Frankfurt on April 15. Inflation in the 15-nation euro region accelerated to 3.6 percent last month, the fastest in almost 16 years.
ECB policy makers will have to ``tolerate a stronger euro'' or raise interest rates if they want to bring inflation down, said Thomas Mayer, the London-based chief European economist at Deutsche Bank.
``Is there a level of a euro where the economy falls apart?'' he said. ``No, it's a gradual process.''
Boosting Exports
A weaker dollar benefits the U.S. by giving a boost to exports, which increased 2 percent to a record $151.4 billion in February, according to the Commerce Department. Google Inc. said April 17 that first-quarter international sales, which jumped 55 percent, would have been $202 million lower without the benefit of a depreciating dollar.
While Treasury Secretary Henry Paulson has said he is a ``very strong'' supporter of a ``strong dollar,'' one of his predecessors, Paul O'Neill, described that policy as ``vacuous'' in a Bloomberg Television interview last week.
Where the U.S. gains from a falling dollar, Europe loses. European exports to the U.S. fell in 2007 for the first time in four years as the U.S. currency's decline made goods from the region more expensive for Americans.
Siemens AG Chief Executive Officer Peter Loescher said on March 4 that the currency's level is ``not easy'' for the company. MTU Aero Engines Holding AG, the largest independent provider of jet-engine maintenance, said this month the dollar's decline will reduce profit this year.
Oil Factor
``Since our last meeting, there have been at times sharp fluctuations in major currencies, and we are concerned about their possible implications for economic and financial stability,'' the G-7's finance ministers and central bankers said in a statement after the talks in Washington on April 11.
The statement contained no reference that ``exchange rates should reflect economic fundamentals,'' a phrase included in every G-7 statement since 2003 where it mentioned currencies.
With oil at a record high, betting against intervention might prove unwise for traders, said Jim O'Neill, chief economist at Goldman Sachs Group Inc. in London. The U.S. may have consented to the change in the G-7 language because the falling dollar is pushing up the price of oil, threatening foreign investment in U.S. stocks and other assets, he said.
Oil climbed to $117.05 a barrel in New York, the highest since futures began trading in 1983.
Intervention History
The last time the G-7, which comprises the U.S., Japan, Germany, Britain, France, Italy and Canada, intervened was Sept. 22, 2000. It bought euros after that currency tumbled 27 percent from its 1999 debut. The G-7 last propped up the dollar in 1995, when it sank almost 20 percent in four months against the Japanese yen to a post-World War II low of 79.95 yen.
The dollar has declined 14 percent against the euro and has fallen 12 percent versus the yen in the past 12 months.
``You'll need a quicker and more disorderly decline,'' said David Simmonds, head of currency strategy at Royal Bank of Scotland Group Plc in London. ``A fall in bond prices, for example, would change the picture completely. But that's not what we are seeing.''
The dollar will weaken to $1.62 or 1.63 per euro this quarter even after the G-7 statement, according to Simmonds. He declined to speculate on what level might bring G-7 intervention.
The dollar will probably have to depreciate by 1 percent for three to four consecutive days before policy makers consider intervening, said Ricardo Zulliger, global head of currency sales in London at Dresdner Kleinwort. The investment bank is owned by Allianz SE, Europe's largest insurer.
``That would raise the alarm bells and increase the likelihood of them acting,'' said Zulliger. ``The problem is that the fundamentals do not justify an intervention. If it weren't for the exchange rate, the ECB would have had to raise interest rates.''
Bank of England Swaps Bonds to Revive Bank Lending (Update6)
By Jennifer Ryan and Brian Swint
April 21 (Bloomberg) -- The Bank of England offered to swap government bonds for mortgage securities to kick-start bank lending, with Governor Mervyn King pledging to meet demand even if it exceeds an estimate of 50 billion pounds ($100 billion.)
``There is no arbitrary limit on this so it could well go higher,'' King told reporters in London today. He said the plan aims to restore confidence to the banking system and the most important aspect of the scheme is that ``everyone needs to know this is there for them to access as needed.''
The banks will retain responsibility for losses from the assets they loan to the Bank of England. The swaps will be for a period of one year, renewable for up to three years. Only assets existing at the end of 2007 can be used in the swap.
The measures, backed by Prime Minister Gordon Brown's government, mimic a similar swap of $200 billion of securities by the U.S. Federal Reserve last month. Policy makers are attempting to encourage lending after a surge in borrowing costs prompted British institutions to withdraw their best mortgage offers, threatening to exacerbate the worst housing downturn since 1992.
``We will make sure there is enough liquidity in the economy to make sure people can buy their own houses,'' Brown said in a speech today in Inverness, Scotland. ``We can get markets working again in a way that we can ensure that jobs.''
U.K. government bonds rose and the pound fell after the announcement, which some economists said leaves the way open for the Bank of England to cut interest rates again to stave off an economic slowdown.
Market Reaction
The pound fell to $1.9825 by 11:20 a.m. in London, from $1.9979 at the end of last week, when it climbed 1.5 percent. Gilts rose, depressing the yield on two-year notes by 6 basis points to 4.27 percent. The central bank cut its key rate three times since December to 5 percent.
``Our guess is today's measures will help spreads to normalize'' between market lending rates and the bank's benchmark, said Peter Dixon, an economist at Commerzbank AG. That ``will allow the Monetary Policy Committee to use interest rates to tackle economic issues rather than market problems.''
The plan is a change of approach by the Bank of England after its interest-rate cuts failed to ease the logjam. The European Central Bank, the first central bank to react to the credit crisis in August, has extended the maturity of money auctions to help cash-strapped institutions.
The swap is double the value of loans King extended in September to prop up Northern Rock Plc. The government in February nationalized the mortgage lender, the first U.K. bank to fall victim to the credit freeze stemming from the collapse of the U.S. subprime market.
BBA Reaction
``The collateral swap arrangement is an innovative and unique policy response,'' the British Bankers Association said in a statement. ``The banks are participating in this arrangement and expect it to make a significant contribution to alleviating the pressures in the U.K. money markets. Restoring confidence in the wholesale funding market will strengthen the financial system and the stability of our economy.''
European banks sold 25.7 billion euros ($41 billion) of mortgage-backed securities so far this year, down from 91.2 billion euros in the same period last year, according to Deutsche Bank AG.
Investors are demanding yields as high as 155 basis points above the interbank lending rate to hold the top-rated bonds backed by U.K. mortgages, up from 65 basis points at the end of last year, according to Dresdner Kleinwort on Friday. Bonds backed by U.K. credit cards are trading at about 205 basis points, up from 80 basis points at the end of last year.
`Right Thing to Do'
``If we didn't do this there was a risk that the situation would have become worse,'' Chancellor of the Exchequer Alistair Darling said today in an interview with Sky News. ``This is the right thing to do to stabilize the situation. At the moment there is little or no market for assets backed by mortgages.''
Darling will speak to Parliament in London about the decision at 3:30 p.m. today. Darling will meet members of the U.K. Council of Mortgage Lenders tomorrow, aiming to agree measures to help borrowers who fall into arrears on loans.
The banks will be able to enter into a swap at any time over the next six months. Assets that can be used must have the top AAA ratings. They will include mortgage debt and credit card debt. ``Raw mortgages'' and derivatives are excluded.
``The length of these transactions will provide banks with the certainty about liquidity that is needed to boost confidence,'' the bank said in a statement.
Plan Goals
The central bank's move allows financial institutions to add government bonds to their inventory of liquid assets and make it easier for them to both raise cash and lend, especially to consumers seeking home loans. In return, the government will hold the riskier mortgage-backed assets as security.
``With markets for many securities currently closed, banks have on their balance sheets an 'overhang' of these assets, which they cannot sell or pledge as security to raise funds,'' the bank's statement said. ``Their financial position has been stretched by this overhang, so banks have been reluctant to make new loans, even to each other.''
To date, the Bank of England has widened its collateral requirements just for three-month lending. It accepts only top- rated government securities at its weekly auctions.
The bank said the public is exposed to a loss only if a lender participating in the program defaults and the assets they have placed with the central bank are insufficient to cover the value of the Treasury bills in the swap. That's why the bank is asking for collateral of greater value than the Treasury bills it lends.
`Punitive' Measures
``The BOE's actions do seem to be quite punitive, in that there is a significant haircut and there's a fee against the libor,'' said James Nixon, a director of Societe Generale SA in London. ``The sense yet again from the Bank of England, is that it will provide an absolute backstop to the financial system, but won't make any effort to ease the market's liquidity.''
The U.S. Federal Reserve last month made up to $200 billion available to banks in return for debt including mortgage-backed securities. The European Central Bank, the first central bank to react to the credit crisis in August, has extended the maturity of money auctions to help cash-strapped institutions.
Former Bank of England policy maker Willem Buiter, now a London School of Economics professor, said on April 18 the plan's success ``all depends on the scale.''
Size Matters
``In total, they would have to do -- not in one big go --at least 100 billion for it to really actually make a difference to the liquidity position of banks, but also act as the catalyst for getting that market going again,'' he said.
The risk is that a slide in house prices worsens, undermining support for Brown's government. Mortgage lenders including HBOS Plc and Lloyds TSB Group Plc have raised the cost of loans, even after three, quarter-point rate cuts by the Bank of England to 5 percent.
House prices dropped 2.5 percent in March from a month earlier, the biggest drop since 1992, HBOS, the country's largest mortgage lender, said April 8. Brown's approval rating dropped faster than for any U.K. leader on record as support for the opposition rose to the highest in 16 years, a poll published on April 13 showed.
``It might just free up a bit more liquidity,'' Simon Rubinsohn, an economist at the Royal Institution of Chartered Surveyors, said in an interview on Bloomberg Television. ``It's not going to turn things round in the housing market.''
April 21 (Bloomberg) -- The Bank of England offered to swap government bonds for mortgage securities to kick-start bank lending, with Governor Mervyn King pledging to meet demand even if it exceeds an estimate of 50 billion pounds ($100 billion.)
``There is no arbitrary limit on this so it could well go higher,'' King told reporters in London today. He said the plan aims to restore confidence to the banking system and the most important aspect of the scheme is that ``everyone needs to know this is there for them to access as needed.''
The banks will retain responsibility for losses from the assets they loan to the Bank of England. The swaps will be for a period of one year, renewable for up to three years. Only assets existing at the end of 2007 can be used in the swap.
The measures, backed by Prime Minister Gordon Brown's government, mimic a similar swap of $200 billion of securities by the U.S. Federal Reserve last month. Policy makers are attempting to encourage lending after a surge in borrowing costs prompted British institutions to withdraw their best mortgage offers, threatening to exacerbate the worst housing downturn since 1992.
``We will make sure there is enough liquidity in the economy to make sure people can buy their own houses,'' Brown said in a speech today in Inverness, Scotland. ``We can get markets working again in a way that we can ensure that jobs.''
U.K. government bonds rose and the pound fell after the announcement, which some economists said leaves the way open for the Bank of England to cut interest rates again to stave off an economic slowdown.
Market Reaction
The pound fell to $1.9825 by 11:20 a.m. in London, from $1.9979 at the end of last week, when it climbed 1.5 percent. Gilts rose, depressing the yield on two-year notes by 6 basis points to 4.27 percent. The central bank cut its key rate three times since December to 5 percent.
``Our guess is today's measures will help spreads to normalize'' between market lending rates and the bank's benchmark, said Peter Dixon, an economist at Commerzbank AG. That ``will allow the Monetary Policy Committee to use interest rates to tackle economic issues rather than market problems.''
The plan is a change of approach by the Bank of England after its interest-rate cuts failed to ease the logjam. The European Central Bank, the first central bank to react to the credit crisis in August, has extended the maturity of money auctions to help cash-strapped institutions.
The swap is double the value of loans King extended in September to prop up Northern Rock Plc. The government in February nationalized the mortgage lender, the first U.K. bank to fall victim to the credit freeze stemming from the collapse of the U.S. subprime market.
BBA Reaction
``The collateral swap arrangement is an innovative and unique policy response,'' the British Bankers Association said in a statement. ``The banks are participating in this arrangement and expect it to make a significant contribution to alleviating the pressures in the U.K. money markets. Restoring confidence in the wholesale funding market will strengthen the financial system and the stability of our economy.''
European banks sold 25.7 billion euros ($41 billion) of mortgage-backed securities so far this year, down from 91.2 billion euros in the same period last year, according to Deutsche Bank AG.
Investors are demanding yields as high as 155 basis points above the interbank lending rate to hold the top-rated bonds backed by U.K. mortgages, up from 65 basis points at the end of last year, according to Dresdner Kleinwort on Friday. Bonds backed by U.K. credit cards are trading at about 205 basis points, up from 80 basis points at the end of last year.
`Right Thing to Do'
``If we didn't do this there was a risk that the situation would have become worse,'' Chancellor of the Exchequer Alistair Darling said today in an interview with Sky News. ``This is the right thing to do to stabilize the situation. At the moment there is little or no market for assets backed by mortgages.''
Darling will speak to Parliament in London about the decision at 3:30 p.m. today. Darling will meet members of the U.K. Council of Mortgage Lenders tomorrow, aiming to agree measures to help borrowers who fall into arrears on loans.
The banks will be able to enter into a swap at any time over the next six months. Assets that can be used must have the top AAA ratings. They will include mortgage debt and credit card debt. ``Raw mortgages'' and derivatives are excluded.
``The length of these transactions will provide banks with the certainty about liquidity that is needed to boost confidence,'' the bank said in a statement.
Plan Goals
The central bank's move allows financial institutions to add government bonds to their inventory of liquid assets and make it easier for them to both raise cash and lend, especially to consumers seeking home loans. In return, the government will hold the riskier mortgage-backed assets as security.
``With markets for many securities currently closed, banks have on their balance sheets an 'overhang' of these assets, which they cannot sell or pledge as security to raise funds,'' the bank's statement said. ``Their financial position has been stretched by this overhang, so banks have been reluctant to make new loans, even to each other.''
To date, the Bank of England has widened its collateral requirements just for three-month lending. It accepts only top- rated government securities at its weekly auctions.
The bank said the public is exposed to a loss only if a lender participating in the program defaults and the assets they have placed with the central bank are insufficient to cover the value of the Treasury bills in the swap. That's why the bank is asking for collateral of greater value than the Treasury bills it lends.
`Punitive' Measures
``The BOE's actions do seem to be quite punitive, in that there is a significant haircut and there's a fee against the libor,'' said James Nixon, a director of Societe Generale SA in London. ``The sense yet again from the Bank of England, is that it will provide an absolute backstop to the financial system, but won't make any effort to ease the market's liquidity.''
The U.S. Federal Reserve last month made up to $200 billion available to banks in return for debt including mortgage-backed securities. The European Central Bank, the first central bank to react to the credit crisis in August, has extended the maturity of money auctions to help cash-strapped institutions.
Former Bank of England policy maker Willem Buiter, now a London School of Economics professor, said on April 18 the plan's success ``all depends on the scale.''
Size Matters
``In total, they would have to do -- not in one big go --at least 100 billion for it to really actually make a difference to the liquidity position of banks, but also act as the catalyst for getting that market going again,'' he said.
The risk is that a slide in house prices worsens, undermining support for Brown's government. Mortgage lenders including HBOS Plc and Lloyds TSB Group Plc have raised the cost of loans, even after three, quarter-point rate cuts by the Bank of England to 5 percent.
House prices dropped 2.5 percent in March from a month earlier, the biggest drop since 1992, HBOS, the country's largest mortgage lender, said April 8. Brown's approval rating dropped faster than for any U.K. leader on record as support for the opposition rose to the highest in 16 years, a poll published on April 13 showed.
``It might just free up a bit more liquidity,'' Simon Rubinsohn, an economist at the Royal Institution of Chartered Surveyors, said in an interview on Bloomberg Television. ``It's not going to turn things round in the housing market.''
Sunday, April 20, 2008
Bank of England Will Unveil Swap to Ease Loan Market (Update1)
By John Fraher and Brian Swint
April 20 (Bloomberg) -- The Bank of England will tomorrow announce a plan to swap about 50 billion pounds ($100 billion) of government bonds for mortgage-backed securities to ease credit costs, people familiar with the matter said.
The plan will ``unfreeze the situation we've got at the moment,'' Chancellor of the Exchequer Alistair Darling said in an interview with the BBC, without saying how much it would make available. ``What the Bank of England will do is in effect lend the banks that money. In the meantime, the Bank of England will take a security.''
Prime Minister Gordon Brown's government is trying to promote lending after a surge in borrowing costs prompted banks to pull back their best mortgages, threatening to exacerbate the worst housing downturn since 1992. The plan shows a change of approach after three interest-rate cuts since December by the Bank of England failed to stimulate loan provision.
``It's been a long time coming but what's important is that the bank is recognizing commercial banks' problems,'' said Philip Shaw, chief economist at Investec Securities in London. Success may depend on credit ratings of the securities that the Bank of England accepts and the duration of the plan, he said.
The swap is double the value of loans and guarantees Governor Mervyn King extended in September to prop up Northern Rock Plc. The government in February nationalized the mortgage lender, the first U.K. bank to fall victim to the credit freeze stemming from the collapse of the U.S. subprime market.
Statement to Lawmakers
Darling will speak in Parliament tomorrow around 3.30 p.m. and will also update lawmakers on the progress of the Bank Act, which would give British authorities power to seize control of failing banks.
The central bank announced its last measure to tackle the credit crisis at 9 a.m. on March 20, when it said it would extend additional emergency funds. The Bank of England wouldn't comment on the timing of the swap announcement or give further details of the plan.
Investec's Shaw said the central bank may provide the funds on a rolling basis as needed by financial institutions. The British Broadcasting Corporation reported on April 18 that the offer may total 50 billion pounds.
The central bank's move allows financial institutions to add government bonds to their inventory of liquid assets and make it easier for them to both raise cash and lend, especially to consumers seeking home loans. In return, the government will hold the riskier mortgage-backed assets as security.
`Essential' Step
``This is an essential initial step in trying to get the financial market stabilized and that in turn will help the mortgage market,'' Darling said. ``We can re-open the financial markets, because that is an essential pre-condition for the provision of mortgages.''
To date, the Bank of England has widened its collateral requirements just for three-month lending. It only accepts top- rated government securities at its weekly auctions.
The U.S. Federal Reserve last month made up to $200 billion available to banks in return for debt including mortgage-backed securities. The European Central Bank, the first central bank to react to the credit crisis in August, has extended the maturity of money auctions to help cash-strapped institutions.
Investec's Shaw says the term of the Bank of England's swaps may need to be longer than those under the terms of the Fed's program, maybe as long as a year. The U.S. central bank lends Treasuries for 28-day periods.
Collateral Rules
The Bank of England will accept only British and European mortgages and credit-card loans as collateral as part of the plan, the Sunday Telegraph reported today, citing unidentified people with knowledge of the program.
Former Bank of England policy maker Willem Buiter, now a London School of Economics professor, said on April 18 the plan's success ``all depends on the scale'' and the central bank could offer assistance on a rolling basis.
``In total, they would have to do -- not in one big go -- at least 100 billion for it to really actually make a difference to the liquidity position of banks, but also act as the catalyst for getting that market going again,'' he said.
The risk is that a slide in house prices worsens, undermining support for Brown's government. Mortgage lenders including HBOS Plc and Lloyds TSB Group Plc have raised the cost of loans, even after three quarter-point rate cuts by the Bank of England to 5 percent.
House prices dropped 2.5 percent in March from a month earlier, the biggest drop since 1992, HBOS, the country's largest mortgage lender, said April 8. Brown's approval rating dropped faster than for any U.K. leader on record as support for the opposition rose to the highest in 16 years, a poll published on April 13 showed.
Darling urged patience, saying the credit crunch partly needs time to work itself out. He said one analogy was to someone with a dose of food poisoning which ``just has to work its way through the system.''
April 20 (Bloomberg) -- The Bank of England will tomorrow announce a plan to swap about 50 billion pounds ($100 billion) of government bonds for mortgage-backed securities to ease credit costs, people familiar with the matter said.
The plan will ``unfreeze the situation we've got at the moment,'' Chancellor of the Exchequer Alistair Darling said in an interview with the BBC, without saying how much it would make available. ``What the Bank of England will do is in effect lend the banks that money. In the meantime, the Bank of England will take a security.''
Prime Minister Gordon Brown's government is trying to promote lending after a surge in borrowing costs prompted banks to pull back their best mortgages, threatening to exacerbate the worst housing downturn since 1992. The plan shows a change of approach after three interest-rate cuts since December by the Bank of England failed to stimulate loan provision.
``It's been a long time coming but what's important is that the bank is recognizing commercial banks' problems,'' said Philip Shaw, chief economist at Investec Securities in London. Success may depend on credit ratings of the securities that the Bank of England accepts and the duration of the plan, he said.
The swap is double the value of loans and guarantees Governor Mervyn King extended in September to prop up Northern Rock Plc. The government in February nationalized the mortgage lender, the first U.K. bank to fall victim to the credit freeze stemming from the collapse of the U.S. subprime market.
Statement to Lawmakers
Darling will speak in Parliament tomorrow around 3.30 p.m. and will also update lawmakers on the progress of the Bank Act, which would give British authorities power to seize control of failing banks.
The central bank announced its last measure to tackle the credit crisis at 9 a.m. on March 20, when it said it would extend additional emergency funds. The Bank of England wouldn't comment on the timing of the swap announcement or give further details of the plan.
Investec's Shaw said the central bank may provide the funds on a rolling basis as needed by financial institutions. The British Broadcasting Corporation reported on April 18 that the offer may total 50 billion pounds.
The central bank's move allows financial institutions to add government bonds to their inventory of liquid assets and make it easier for them to both raise cash and lend, especially to consumers seeking home loans. In return, the government will hold the riskier mortgage-backed assets as security.
`Essential' Step
``This is an essential initial step in trying to get the financial market stabilized and that in turn will help the mortgage market,'' Darling said. ``We can re-open the financial markets, because that is an essential pre-condition for the provision of mortgages.''
To date, the Bank of England has widened its collateral requirements just for three-month lending. It only accepts top- rated government securities at its weekly auctions.
The U.S. Federal Reserve last month made up to $200 billion available to banks in return for debt including mortgage-backed securities. The European Central Bank, the first central bank to react to the credit crisis in August, has extended the maturity of money auctions to help cash-strapped institutions.
Investec's Shaw says the term of the Bank of England's swaps may need to be longer than those under the terms of the Fed's program, maybe as long as a year. The U.S. central bank lends Treasuries for 28-day periods.
Collateral Rules
The Bank of England will accept only British and European mortgages and credit-card loans as collateral as part of the plan, the Sunday Telegraph reported today, citing unidentified people with knowledge of the program.
Former Bank of England policy maker Willem Buiter, now a London School of Economics professor, said on April 18 the plan's success ``all depends on the scale'' and the central bank could offer assistance on a rolling basis.
``In total, they would have to do -- not in one big go -- at least 100 billion for it to really actually make a difference to the liquidity position of banks, but also act as the catalyst for getting that market going again,'' he said.
The risk is that a slide in house prices worsens, undermining support for Brown's government. Mortgage lenders including HBOS Plc and Lloyds TSB Group Plc have raised the cost of loans, even after three quarter-point rate cuts by the Bank of England to 5 percent.
House prices dropped 2.5 percent in March from a month earlier, the biggest drop since 1992, HBOS, the country's largest mortgage lender, said April 8. Brown's approval rating dropped faster than for any U.K. leader on record as support for the opposition rose to the highest in 16 years, a poll published on April 13 showed.
Darling urged patience, saying the credit crunch partly needs time to work itself out. He said one analogy was to someone with a dose of food poisoning which ``just has to work its way through the system.''
U.S. Home Sales May Have Fallen: U.S. Economy Preview (Update1)
By Courtney Schlisserman
April 20 (Bloomberg) -- The collapse in U.S. home sales showed no sign of ending in March, while orders from overseas helped manufacturing stabilize, economists said before reports this week.
Combined sales of new and existing homes dropped 2.5 percent last month, according to the median estimate of economists surveyed by Bloomberg News. Orders for durable goods, products meant to last several years, were probably unchanged.
The deterioration in housing that is at the center of the current credit crisis has brought the economy to a standstill and perhaps a recession. Factories, which often feel the brunt of economic contractions, have been able to keep assembly lines moving because of gains in exports.
Housing is ``the weakest part of the economy,'' said David Resler, chief economist at Nomura Securities International Inc. in New York. ``With the overseas economies doing better than ours, we'll probably see decent growth'' in goods orders.
The National Association of Realtors is scheduled to release the existing-home sales report on April 22. Economists forecast sales would decline to a 4.9 million pace from 5.03 million in February, according to the survey median.
Two days later, the Commerce Department is forecast to report that sales of new houses dropped to an annual pace of 580,000, a 13-year low.
Declining sales are prompting builders to slash construction and cut prices. Work began on 947,000 homes at an annual rate in March, less than forecast and the fewest in 17 years, the Commerce Department reported last week.
Housing's Influence
Residential building has subtracted from economic growth since the first three months of 2006, culminating in a 25 percent decline last year that was the biggest since 1980.
As property values tumble and the borrowing costs on adjustable-rate mortgages reset higher, more Americans are walking away from their homes. Foreclosure filings jumped 57 percent and bank repossessions more than doubled in March from a year earlier, Irvine, California-based RealtyTrac Inc., a seller of default data, said April 14.
The report on durable goods, also due from the Commerce Department on April 24, is projected to show that orders excluding transportation equipment rose 0.2 percent, according to the Bloomberg survey.
Manufacturing reports so far this month have sent contradictory signals, with companies and regions that export faring better than those that don't.
Overseas Sales
Caterpillar Inc., the world's largest maker of bulldozers and excavators, said on April 18 that first-quarter profit exceeded analysts' forecasts as sales to Asia, the Middle East and emerging markets grew.
Overseas demand helped Peoria, Illinois-based Caterpillar even as North America was in the midst of what Chief Executive Officer Jim Owens called ``a recessionary storm.''
Industrial production improved in March, reflecting increases in output of equipment such as computers, the Federal Reserve reported last week. The gain indicated business investment may not be slowing as much as previously thought.
``No other part of the industrial sector is as hot as technology, which tells you how the tables have turned'' since the 2001 recession when capital spending plunged, David Rosenberg, chief North American economist at Merrill Lynch & Co. said in an April 16 note to clients. ``Anything related to housing and the consumer remains in downsizing mode.''
Fed View
The Fed last week said economic growth slowed in nine of 12 districts since February, hurt by ``anemic'' real estate markets and a slowdown in consumer spending, according to its regional business survey known as the Beige Book.
Policy makers have lowered the benchmark overnight lending rate between banks by 2 percentage points so far this year to keep the economy from falling into a recession.
The two-year Treasury yield rose 39 basis points, or 0.39 percentage point, to 2.14 percent last week, according to bond broker BGCantor Market Data, their biggest weekly increase since 2001, as surging stocks and signs of quickening inflation reduced the appeal of government debt.
Other reports this week are forecast to show that the number of Americans applying for jobless benefits remained elevated last week and consumer sentiment this month sank to a 26-year low.
Bloomberg Survey
===============================================================
Release Period Prior Median
Indicator Date Value Forecast
===============================================================
Exist Homes Mlns 4/22 March 5.03 4.90
Exist Homes MOM% 4/22 March 2.9% -2.6%
Durables Orders MOM% 4/24 March -1.1% 0.0%
Durables Ex-Trans MOM% 4/24 March -2.4% 0.2%
Initial Claims ,000's 4/24 20-Apr 372 375
Cont. Claims ,000's 4/24 13-Apr 2984 2985
New Home Sales ,000's 4/24 March 590 580
New Home Sales MOM% 4/24 March -1.8% -1.7%
U of Mich Conf. Index 4/25 April F 69.5 63.3
================================================================
============
April 20 (Bloomberg) -- The collapse in U.S. home sales showed no sign of ending in March, while orders from overseas helped manufacturing stabilize, economists said before reports this week.
Combined sales of new and existing homes dropped 2.5 percent last month, according to the median estimate of economists surveyed by Bloomberg News. Orders for durable goods, products meant to last several years, were probably unchanged.
The deterioration in housing that is at the center of the current credit crisis has brought the economy to a standstill and perhaps a recession. Factories, which often feel the brunt of economic contractions, have been able to keep assembly lines moving because of gains in exports.
Housing is ``the weakest part of the economy,'' said David Resler, chief economist at Nomura Securities International Inc. in New York. ``With the overseas economies doing better than ours, we'll probably see decent growth'' in goods orders.
The National Association of Realtors is scheduled to release the existing-home sales report on April 22. Economists forecast sales would decline to a 4.9 million pace from 5.03 million in February, according to the survey median.
Two days later, the Commerce Department is forecast to report that sales of new houses dropped to an annual pace of 580,000, a 13-year low.
Declining sales are prompting builders to slash construction and cut prices. Work began on 947,000 homes at an annual rate in March, less than forecast and the fewest in 17 years, the Commerce Department reported last week.
Housing's Influence
Residential building has subtracted from economic growth since the first three months of 2006, culminating in a 25 percent decline last year that was the biggest since 1980.
As property values tumble and the borrowing costs on adjustable-rate mortgages reset higher, more Americans are walking away from their homes. Foreclosure filings jumped 57 percent and bank repossessions more than doubled in March from a year earlier, Irvine, California-based RealtyTrac Inc., a seller of default data, said April 14.
The report on durable goods, also due from the Commerce Department on April 24, is projected to show that orders excluding transportation equipment rose 0.2 percent, according to the Bloomberg survey.
Manufacturing reports so far this month have sent contradictory signals, with companies and regions that export faring better than those that don't.
Overseas Sales
Caterpillar Inc., the world's largest maker of bulldozers and excavators, said on April 18 that first-quarter profit exceeded analysts' forecasts as sales to Asia, the Middle East and emerging markets grew.
Overseas demand helped Peoria, Illinois-based Caterpillar even as North America was in the midst of what Chief Executive Officer Jim Owens called ``a recessionary storm.''
Industrial production improved in March, reflecting increases in output of equipment such as computers, the Federal Reserve reported last week. The gain indicated business investment may not be slowing as much as previously thought.
``No other part of the industrial sector is as hot as technology, which tells you how the tables have turned'' since the 2001 recession when capital spending plunged, David Rosenberg, chief North American economist at Merrill Lynch & Co. said in an April 16 note to clients. ``Anything related to housing and the consumer remains in downsizing mode.''
Fed View
The Fed last week said economic growth slowed in nine of 12 districts since February, hurt by ``anemic'' real estate markets and a slowdown in consumer spending, according to its regional business survey known as the Beige Book.
Policy makers have lowered the benchmark overnight lending rate between banks by 2 percentage points so far this year to keep the economy from falling into a recession.
The two-year Treasury yield rose 39 basis points, or 0.39 percentage point, to 2.14 percent last week, according to bond broker BGCantor Market Data, their biggest weekly increase since 2001, as surging stocks and signs of quickening inflation reduced the appeal of government debt.
Other reports this week are forecast to show that the number of Americans applying for jobless benefits remained elevated last week and consumer sentiment this month sank to a 26-year low.
Bloomberg Survey
===============================================================
Release Period Prior Median
Indicator Date Value Forecast
===============================================================
Exist Homes Mlns 4/22 March 5.03 4.90
Exist Homes MOM% 4/22 March 2.9% -2.6%
Durables Orders MOM% 4/24 March -1.1% 0.0%
Durables Ex-Trans MOM% 4/24 March -2.4% 0.2%
Initial Claims ,000's 4/24 20-Apr 372 375
Cont. Claims ,000's 4/24 13-Apr 2984 2985
New Home Sales ,000's 4/24 March 590 580
New Home Sales MOM% 4/24 March -1.8% -1.7%
U of Mich Conf. Index 4/25 April F 69.5 63.3
================================================================
============
Thursday, April 17, 2008
Most U.S. Stocks Fall on Earnings Reports, Manufacturing Slump
By Elizabeth Stanton
April 17 (Bloomberg) -- Most U.S. stocks fell after Pfizer Inc.'s earnings trailed estimates and Philadelphia-area manufacturing slumped, overshadowing better-than-forecast results at International Business Machines Corp.
Pfizer, the world's largest drugmaker, tumbled to a 10-year low as competition from generic medicines reduced revenue. Motorola Inc., the biggest U.S. cell-phone maker, retreated the most in a week on profit at rival Nokia Oyj that trailed analysts' estimates. IBM climbed to the highest since 2002, leading gains in the Dow Jones Industrial Average, after the world's largest computer-services company said 2008 earnings will top its previous projection.
Seven stocks dropped for every five that rose on the New York Stock Exchange. The Standard & Poor's 500 Index added 0.85 point, or less than 0.1 percent, to 1,365.56. The Dow advanced 1.22 points to 12,620.49. The Nasdaq Composite Index decreased 8.28, or 0.4 percent, to 2,341.83.
``Analysts are expecting a pretty dour earnings season, and so are portfolio managers,'' Charles Reinhard, director of portfolio strategy at Neuberger Berman, a unit of Lehman Brothers Holdings Inc. that manages $129 billion, said in a Bloomberg Television interview. ``The market is discounting a lot.''
Profits have slumped 26 percent on average for the 61 companies in the S&P 500 that have released first-quarter results so far, according to Bloomberg data. Financial firms have fared the worst, with earnings falling an average 67 percent at the 26 companies that have reported.
Profit Concern
While the S&P 500 has rebounded 7.2 percent from a 19-month low on March 10, the benchmark for American equities is still down 7 percent in 2008. Investors are bracing for what is forecast to be the third straight quarter of declining profits, with analysts projecting a 12.3 percent decrease. Goldman Sachs Group Inc. strategists said April 14 that the earnings season got off to an ``awful'' start and Morgan Stanley said profits may fall ``a long way.''
Google Inc. jumped $53.12, or 12 percent, to $502.66 in trading after the close of U.S. exchanges. The most-popular search engine reported a 30 percent increase in first- quarter profit, topping estimates, as international expansion countered a slowdown in U.S. advertising spending.
Pfizer lost 70 cents, or 3.3 percent, to $20.40 for the biggest drop in the Dow average. Profit fell 18 percent, missing analysts' estimates, on generic competition to its cholesterol pill Lipitor and blood pressure drug Norvasc.
Motorola, EBay Slip
Motorola retreated 15 cents to $9.05. Nokia, the world's biggest maker of mobile phones, reported first-quarter profit that missed analysts' estimates and said the value of the global handset market will shrink in euro terms this year.
Nokia American depositary receipts lost $4.74 to $28.95.
EBay Inc. fell $1.11 to $31.01 after saying the slowing U.S. economy may hurt earnings, even after the world's largest Internet auctioneer posted first-quarter profit that rose more than analysts estimated on higher-selling fees and increased revenue from its PayPal payment service.
Harley-Davidson Inc. fell 70 cents to $36.09. The biggest U.S. motorcycle maker predicted 2008 earnings per share will drop as much as 20 percent as it cuts jobs and reduces shipments to dealers amid declining sales. In January, Harley had forecast per-share profit would rise as much as 7 percent for the year.
United Technologies Corp. led a decline in industrial companies, falling $1.84 to $70.79. The maker of Pratt & Whitney jet-engines and Carrier air conditioners said there were some ``early signs of moderating'' commercial-construction growth in the U.S. and some European countries.
Economy Watch
Industrial companies also retreated after the Federal Reserve Bank of Philadelphia's monthly gauge of factory activity fell to minus 24.9 for April, a seven-year low and below economists' minus-15 forecast. Separately the Labor Department said the number of people collecting unemployment insurance benefits climbed to a four-year high of 2.98 million in the week ended April 5.
IBM added $2.61, or 2.2 percent, to $123.08. The company's first-quarter profit and full-year forecast topped analysts' estimates as U.S. sales increased 6 percent in the latest period, triple the pace of the previous first quarter, while overseas sales surged 16 percent as a drop in the dollar boosted their value.
Altera Corp. climbed $1.66 to $20.86, a five-month high. The second-biggest maker of programmable semiconductors said demand for phone-equipment chips fueled a 10 percent increase in sales during the first quarter, resulting in profit that beat analyst estimates.
Hair-Care Slump
Procter & Gamble Co. dropped the most in almost three months, declining $1.71, or 2.5 percent, to $67.56. The largest U.S. consumer goods producer was downgraded to ``hold'' from ``buy'' at Deutsche Bank AG. Analyst Bill Schmitz Jr. cited the potential for slower growth in hair-care products based on results reported yesterday by L'Oreal SA of France, the world's biggest cosmetics maker. L'Oreal posted the slowest sales growth in three years.
International Game Technology fell $2.31, or 6.1 percent, to $35.70 for the biggest drop in the S&P 500. The world's largest manufacturer of slot machines reported second-quarter profit that dropped more than analysts estimated as casinos delayed purchases amid declining gambling revenue.
Danaher Corp. fell the most five months, losing $2.72, or 3.5 percent, to $74.16. The maker of measurement devices and Craftsman tools said sales to consumers slowed in the first quarter.
Financials Gain
MGIC Investment Corp. rose the most since its 1991 initial public offering, climbing $1.99, or 19 percent, to $12.49 for the biggest gain in the S&P 500. The largest U.S. mortgage insurer reported a quarterly loss narrower than the average analyst estimate.
Merrill Lynch & Co. advanced even after posting its third straight quarterly loss and writing down at least $6.5 billion of debt. Merrill, the third-biggest U.S. securities firm, climbed $1.82 to $46.71, paring its decline over the past year to 48 percent.
``We're not seeing major sell-offs on the types of companies that were expected to have lousy numbers,'' said Eric Green, director of research at Penn Capital Management in Cherry Hill, New Jersey, which oversees about $4.5 billion. ``That's a really good sign. Investors want to buy stocks.''
Citigroup Asset Sale
Citigroup Inc. rose 59 cents, or 2.5 percent, to $24.03. The biggest U.S. bank by assets sold most of a commercial lending and leasing unit to General Electric Co. Terms weren't disclosed for the sale of seven North American equipment-financing lines, Citigroup's latest move to replenish capital depleted by mortgage-related losses.
Also today, AmeriCredit Corp., a lender to car buyers with blemished credit records that's lost more than half its market value in the past year, sold $2 billion of securities backed by the loans to Deutsche Bank AG. AmeriCredit climbed $1 to $10.95
Leggett & Platt Inc. climbed $2.10, or 15 percent, to $16.45 for the second-biggest gain in the S&P 500. The maker of lumbar supports for car seats and mattress springs said first-quarter profit declined less than analysts estimated.
The Russell 2000 Index, a benchmark for companies with a median market value 95 percent smaller than the S&P 500's, dropped 0.8 percent to 708. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, fell 9.8 points, or about 0.1 percent, to 13,777.04. Based on its decline, the value of stocks decreased by $12.25 billion.
April 17 (Bloomberg) -- Most U.S. stocks fell after Pfizer Inc.'s earnings trailed estimates and Philadelphia-area manufacturing slumped, overshadowing better-than-forecast results at International Business Machines Corp.
Pfizer, the world's largest drugmaker, tumbled to a 10-year low as competition from generic medicines reduced revenue. Motorola Inc., the biggest U.S. cell-phone maker, retreated the most in a week on profit at rival Nokia Oyj that trailed analysts' estimates. IBM climbed to the highest since 2002, leading gains in the Dow Jones Industrial Average, after the world's largest computer-services company said 2008 earnings will top its previous projection.
Seven stocks dropped for every five that rose on the New York Stock Exchange. The Standard & Poor's 500 Index added 0.85 point, or less than 0.1 percent, to 1,365.56. The Dow advanced 1.22 points to 12,620.49. The Nasdaq Composite Index decreased 8.28, or 0.4 percent, to 2,341.83.
``Analysts are expecting a pretty dour earnings season, and so are portfolio managers,'' Charles Reinhard, director of portfolio strategy at Neuberger Berman, a unit of Lehman Brothers Holdings Inc. that manages $129 billion, said in a Bloomberg Television interview. ``The market is discounting a lot.''
Profits have slumped 26 percent on average for the 61 companies in the S&P 500 that have released first-quarter results so far, according to Bloomberg data. Financial firms have fared the worst, with earnings falling an average 67 percent at the 26 companies that have reported.
Profit Concern
While the S&P 500 has rebounded 7.2 percent from a 19-month low on March 10, the benchmark for American equities is still down 7 percent in 2008. Investors are bracing for what is forecast to be the third straight quarter of declining profits, with analysts projecting a 12.3 percent decrease. Goldman Sachs Group Inc. strategists said April 14 that the earnings season got off to an ``awful'' start and Morgan Stanley said profits may fall ``a long way.''
Google Inc. jumped $53.12, or 12 percent, to $502.66 in trading after the close of U.S. exchanges. The most-popular search engine reported a 30 percent increase in first- quarter profit, topping estimates, as international expansion countered a slowdown in U.S. advertising spending.
Pfizer lost 70 cents, or 3.3 percent, to $20.40 for the biggest drop in the Dow average. Profit fell 18 percent, missing analysts' estimates, on generic competition to its cholesterol pill Lipitor and blood pressure drug Norvasc.
Motorola, EBay Slip
Motorola retreated 15 cents to $9.05. Nokia, the world's biggest maker of mobile phones, reported first-quarter profit that missed analysts' estimates and said the value of the global handset market will shrink in euro terms this year.
Nokia American depositary receipts lost $4.74 to $28.95.
EBay Inc. fell $1.11 to $31.01 after saying the slowing U.S. economy may hurt earnings, even after the world's largest Internet auctioneer posted first-quarter profit that rose more than analysts estimated on higher-selling fees and increased revenue from its PayPal payment service.
Harley-Davidson Inc. fell 70 cents to $36.09. The biggest U.S. motorcycle maker predicted 2008 earnings per share will drop as much as 20 percent as it cuts jobs and reduces shipments to dealers amid declining sales. In January, Harley had forecast per-share profit would rise as much as 7 percent for the year.
United Technologies Corp. led a decline in industrial companies, falling $1.84 to $70.79. The maker of Pratt & Whitney jet-engines and Carrier air conditioners said there were some ``early signs of moderating'' commercial-construction growth in the U.S. and some European countries.
Economy Watch
Industrial companies also retreated after the Federal Reserve Bank of Philadelphia's monthly gauge of factory activity fell to minus 24.9 for April, a seven-year low and below economists' minus-15 forecast. Separately the Labor Department said the number of people collecting unemployment insurance benefits climbed to a four-year high of 2.98 million in the week ended April 5.
IBM added $2.61, or 2.2 percent, to $123.08. The company's first-quarter profit and full-year forecast topped analysts' estimates as U.S. sales increased 6 percent in the latest period, triple the pace of the previous first quarter, while overseas sales surged 16 percent as a drop in the dollar boosted their value.
Altera Corp. climbed $1.66 to $20.86, a five-month high. The second-biggest maker of programmable semiconductors said demand for phone-equipment chips fueled a 10 percent increase in sales during the first quarter, resulting in profit that beat analyst estimates.
Hair-Care Slump
Procter & Gamble Co. dropped the most in almost three months, declining $1.71, or 2.5 percent, to $67.56. The largest U.S. consumer goods producer was downgraded to ``hold'' from ``buy'' at Deutsche Bank AG. Analyst Bill Schmitz Jr. cited the potential for slower growth in hair-care products based on results reported yesterday by L'Oreal SA of France, the world's biggest cosmetics maker. L'Oreal posted the slowest sales growth in three years.
International Game Technology fell $2.31, or 6.1 percent, to $35.70 for the biggest drop in the S&P 500. The world's largest manufacturer of slot machines reported second-quarter profit that dropped more than analysts estimated as casinos delayed purchases amid declining gambling revenue.
Danaher Corp. fell the most five months, losing $2.72, or 3.5 percent, to $74.16. The maker of measurement devices and Craftsman tools said sales to consumers slowed in the first quarter.
Financials Gain
MGIC Investment Corp. rose the most since its 1991 initial public offering, climbing $1.99, or 19 percent, to $12.49 for the biggest gain in the S&P 500. The largest U.S. mortgage insurer reported a quarterly loss narrower than the average analyst estimate.
Merrill Lynch & Co. advanced even after posting its third straight quarterly loss and writing down at least $6.5 billion of debt. Merrill, the third-biggest U.S. securities firm, climbed $1.82 to $46.71, paring its decline over the past year to 48 percent.
``We're not seeing major sell-offs on the types of companies that were expected to have lousy numbers,'' said Eric Green, director of research at Penn Capital Management in Cherry Hill, New Jersey, which oversees about $4.5 billion. ``That's a really good sign. Investors want to buy stocks.''
Citigroup Asset Sale
Citigroup Inc. rose 59 cents, or 2.5 percent, to $24.03. The biggest U.S. bank by assets sold most of a commercial lending and leasing unit to General Electric Co. Terms weren't disclosed for the sale of seven North American equipment-financing lines, Citigroup's latest move to replenish capital depleted by mortgage-related losses.
Also today, AmeriCredit Corp., a lender to car buyers with blemished credit records that's lost more than half its market value in the past year, sold $2 billion of securities backed by the loans to Deutsche Bank AG. AmeriCredit climbed $1 to $10.95
Leggett & Platt Inc. climbed $2.10, or 15 percent, to $16.45 for the second-biggest gain in the S&P 500. The maker of lumbar supports for car seats and mattress springs said first-quarter profit declined less than analysts estimated.
The Russell 2000 Index, a benchmark for companies with a median market value 95 percent smaller than the S&P 500's, dropped 0.8 percent to 708. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, fell 9.8 points, or about 0.1 percent, to 13,777.04. Based on its decline, the value of stocks decreased by $12.25 billion.
FBI's Mueller Says Subprime Fraud Probe May Lead to Hedge Funds
By Robert Schmidt
April 17 (Bloomberg) -- FBI Director Robert Mueller said the agency's investigations into the subprime loan meltdown may uncover financial crimes committed by hedge funds and private equity firms.
Federal Bureau of Investigation agents have opened 19 criminal probes of companies in connection with the lending crisis, focusing on accounting fraud, insider trading and allegations of deceptive sales practices. Mueller, speaking today to an American Bar Association group in Washington, said he expects more to come as housing prices continue to fall.
``These investigations may well lead to other instances of fraud, from investment banks and private equity firms to hedge funds,'' Mueller said. ``We do not take these investigations lightly.''
The collapse in the credit markets has shaken Wall Street and forced people from their homes. Mueller told Congress yesterday that the FBI has seen a ``tremendous surge'' in fraud cases related to subprime loans, which are made to borrowers with poor credit.
Mueller didn't name any companies or hedge funds. A person familiar with the matter has said the FBI is probing Countrywide Financial Corp., the U.S.'s largest mortgage lender, for possible accounting fraud.
On hedge funds and private equity firms, the FBI is primarily looking into potential insider trading by investment managers. The agency is also reviewing whether hedge funds, either on their own or on behalf of investment banks, improperly hid losses on securities tied to subprime loans.
Speaking with reporters after his speech today, Mueller said the bureau is stretched for resources as it works to handle the onslaught of cases. It shifted about 2,000 agents from criminal to terrorism investigations after the Sept. 11 attacks.
Still, Mueller said the agency will be able to combat the mortgage problem.
``We'll put whatever agents onto this as necessary to address it,'' he said.
April 17 (Bloomberg) -- FBI Director Robert Mueller said the agency's investigations into the subprime loan meltdown may uncover financial crimes committed by hedge funds and private equity firms.
Federal Bureau of Investigation agents have opened 19 criminal probes of companies in connection with the lending crisis, focusing on accounting fraud, insider trading and allegations of deceptive sales practices. Mueller, speaking today to an American Bar Association group in Washington, said he expects more to come as housing prices continue to fall.
``These investigations may well lead to other instances of fraud, from investment banks and private equity firms to hedge funds,'' Mueller said. ``We do not take these investigations lightly.''
The collapse in the credit markets has shaken Wall Street and forced people from their homes. Mueller told Congress yesterday that the FBI has seen a ``tremendous surge'' in fraud cases related to subprime loans, which are made to borrowers with poor credit.
Mueller didn't name any companies or hedge funds. A person familiar with the matter has said the FBI is probing Countrywide Financial Corp., the U.S.'s largest mortgage lender, for possible accounting fraud.
On hedge funds and private equity firms, the FBI is primarily looking into potential insider trading by investment managers. The agency is also reviewing whether hedge funds, either on their own or on behalf of investment banks, improperly hid losses on securities tied to subprime loans.
Speaking with reporters after his speech today, Mueller said the bureau is stretched for resources as it works to handle the onslaught of cases. It shifted about 2,000 agents from criminal to terrorism investigations after the Sept. 11 attacks.
Still, Mueller said the agency will be able to combat the mortgage problem.
``We'll put whatever agents onto this as necessary to address it,'' he said.
Tuesday, April 15, 2008
German Investor Confidence Unexpectedly Fell in April (Update1)
By Gabi Thesing
April 15 (Bloomberg) -- Investor confidence in Germany unexpectedly fell in April on concern faster inflation, a stronger euro and fallout from the U.S. housing recession will hurt company earnings.
The ZEW Center for European Economic Research said its index of investor and analyst expectations declined to minus 40.7 from minus 32 in March. Economists expected a gain to minus 30, according to the median of 41 forecasts in a Bloomberg News survey. The gauge reached a 15-year low of minus 41.6 in January.
Germany's benchmark DAX share index has dropped 19 percent this year, the biggest decline among major European stock markets. While growth in Europe's largest economy is holding up, the outlook is deteriorating as record food and oil prices sap consumers' purchasing power, the U.S. teeters on the brink of a recession and the euro's gain hurts export competitiveness.
``News flow over the past month has been getting worse,'' said Stefan Bielmeier, an economist at Deutsche Bank AG in Frankfurt. ``Investors worry about company margins as the economic outlook deteriorates, the euro surges and inflation boosts their bills and hurts consumer spending.''
The euro dropped more than half a cent to $1.5828 at 11:06 a.m. in Frankfurt after the report was released. The DAX index retreated as much as 25 points to an intra-day low of 6532.76.
Raw Material Costs
Siemens AG, Europe's biggest engineering company, said March 17 that rising raw material costs will hurt earnings. Hochtief AG, the country's largest construction company, said March 26 it doesn't expect profit to grow this year as orders slow.
The International Monetary Fund last week cut its prediction for German economic growth this year to 1.4 percent from 1.6 percent. The IMF recommended the European Central Bank start cutting interest rates.
Defaults on U.S. subprime mortgages have caused about $245 billion in asset writedowns and credit losses so far at the world's biggest banks and securities firms. That's made banks reluctant to lend, pushing up borrowing costs globally.
A third of medium-sized German companies are already finding it more difficult to get loans, the Creditreform agency said April 1. The cost of borrowing euros for three months rose to 4.75 percent yesterday, the highest level since Dec. 27.
Companies and consumers are also grappling with higher energy and food prices, which drove Germany's inflation rate to 3.2 percent last month. Crude oil prices have climbed 76 percent over the past year, reaching a record $112.48 today.
Export Boom
Still, moderate wage accords and an export boom have helped shore up investment, which together with higher employment will sustain economic growth this year, the Organization for Economic Cooperation and Development said April 9. It kept its forecast for German growth this year unchanged at 2.1 percent.
German companies ``still find themselves in a good position to expand investment and jobs, even if the global credit crisis and rising commodity prices will slow the pace'' of expansion, the OECD said.
The economy is ``more robust than the U.S.,'' German Finance Minister Peer Steinbrueck said April 11, adding he sees no need to ``correct our growth expectation'' for 2008 of 1.7 percent.
The economy had a ``good'' first quarter, Bundesbank President and ECB council member Axel Weber said April 11. ``I don't share the International Monetary Fund's pessimistic view.''
April 15 (Bloomberg) -- Investor confidence in Germany unexpectedly fell in April on concern faster inflation, a stronger euro and fallout from the U.S. housing recession will hurt company earnings.
The ZEW Center for European Economic Research said its index of investor and analyst expectations declined to minus 40.7 from minus 32 in March. Economists expected a gain to minus 30, according to the median of 41 forecasts in a Bloomberg News survey. The gauge reached a 15-year low of minus 41.6 in January.
Germany's benchmark DAX share index has dropped 19 percent this year, the biggest decline among major European stock markets. While growth in Europe's largest economy is holding up, the outlook is deteriorating as record food and oil prices sap consumers' purchasing power, the U.S. teeters on the brink of a recession and the euro's gain hurts export competitiveness.
``News flow over the past month has been getting worse,'' said Stefan Bielmeier, an economist at Deutsche Bank AG in Frankfurt. ``Investors worry about company margins as the economic outlook deteriorates, the euro surges and inflation boosts their bills and hurts consumer spending.''
The euro dropped more than half a cent to $1.5828 at 11:06 a.m. in Frankfurt after the report was released. The DAX index retreated as much as 25 points to an intra-day low of 6532.76.
Raw Material Costs
Siemens AG, Europe's biggest engineering company, said March 17 that rising raw material costs will hurt earnings. Hochtief AG, the country's largest construction company, said March 26 it doesn't expect profit to grow this year as orders slow.
The International Monetary Fund last week cut its prediction for German economic growth this year to 1.4 percent from 1.6 percent. The IMF recommended the European Central Bank start cutting interest rates.
Defaults on U.S. subprime mortgages have caused about $245 billion in asset writedowns and credit losses so far at the world's biggest banks and securities firms. That's made banks reluctant to lend, pushing up borrowing costs globally.
A third of medium-sized German companies are already finding it more difficult to get loans, the Creditreform agency said April 1. The cost of borrowing euros for three months rose to 4.75 percent yesterday, the highest level since Dec. 27.
Companies and consumers are also grappling with higher energy and food prices, which drove Germany's inflation rate to 3.2 percent last month. Crude oil prices have climbed 76 percent over the past year, reaching a record $112.48 today.
Export Boom
Still, moderate wage accords and an export boom have helped shore up investment, which together with higher employment will sustain economic growth this year, the Organization for Economic Cooperation and Development said April 9. It kept its forecast for German growth this year unchanged at 2.1 percent.
German companies ``still find themselves in a good position to expand investment and jobs, even if the global credit crisis and rising commodity prices will slow the pace'' of expansion, the OECD said.
The economy is ``more robust than the U.S.,'' German Finance Minister Peer Steinbrueck said April 11, adding he sees no need to ``correct our growth expectation'' for 2008 of 1.7 percent.
The economy had a ``good'' first quarter, Bundesbank President and ECB council member Axel Weber said April 11. ``I don't share the International Monetary Fund's pessimistic view.''
Oil Rises to Record on Nigeria, Mexico Losses, Chinese Demand
By Grant Smith and Christian Schmollinger
April 15 (Bloomberg) -- Crude oil rose to a record in New York on supply disruptions in Nigeria and Mexico and rising fuel demand in China.
Oil climbed to $112.85 a barrel on the New York Mercantile Exchange, the highest since futures began trading in 1983. Mexico, the U.S.'s third-largest crude supplier, shut its fourth export terminal yesterday, while Eni SpA halted output in Nigeria. China said today diesel imports surged 49 percent in March.
``The predominant market view is that the emerging economies will overcompensate for any possible demand slump in OECD countries,'' said Eugen Weinberg, an analyst at Commerzbank AG in Frankfurt.
Crude oil for May traded at $112.79 a barrel, up $1.03, at 11:54 a.m. in London. Prices have gained 77 percent in a year. Futures yesterday rose $1.62, or 1.5 percent, to settle at $111.76 a barrel, the highest close.
Record oil prices are crimping profits at airlines, boosting food costs and contributing to rising inflation across the globe.
Eni's Nigerian venture halted production at some oil wells following explosions on April 12 near the Beniboye area in Delta state, the company said yesterday. The shutdown, blamed on ``sabotage,'' has cost Eni about 5,000 barrels a day in output, the Rome-based company said in a statement posted on its Web site.
Petroleos Mexicanos, the third-largest supplier of crude to the U.S., shut its crude oil export terminal on the Pacific coast yesterday, the fourth terminal to close since April 13.
Terminal Closure
The terminal at the port of Salina Cruz closed today, Mexico's Merchant Marine reported in a weather bulletin posted on its Web site. The three Gulf of Mexico terminals at the ports of Pajaritos, Dos Bocas and Cayo Arcas remain shut.
Brent crude for May settlement rose as much as $1.27, or 1.2 percent, to $111.11 a barrel, an all-time intraday high, on London's ICE Futures Europe exchange. It traded for that price at 11:56 a.m. local time. The contract yesterday gained $1.09, or 1 percent, to close at a record $109.84.
Oil has risen 37 percent and the dollar has dropped 12 percent against the euro since the Federal Reserve began lowering interest rates Sept. 18. The euro traded at $1.5844 versus the dollar as of 11:23 a.m. in London from $1.5832 late in New York yesterday.
April 15 (Bloomberg) -- Crude oil rose to a record in New York on supply disruptions in Nigeria and Mexico and rising fuel demand in China.
Oil climbed to $112.85 a barrel on the New York Mercantile Exchange, the highest since futures began trading in 1983. Mexico, the U.S.'s third-largest crude supplier, shut its fourth export terminal yesterday, while Eni SpA halted output in Nigeria. China said today diesel imports surged 49 percent in March.
``The predominant market view is that the emerging economies will overcompensate for any possible demand slump in OECD countries,'' said Eugen Weinberg, an analyst at Commerzbank AG in Frankfurt.
Crude oil for May traded at $112.79 a barrel, up $1.03, at 11:54 a.m. in London. Prices have gained 77 percent in a year. Futures yesterday rose $1.62, or 1.5 percent, to settle at $111.76 a barrel, the highest close.
Record oil prices are crimping profits at airlines, boosting food costs and contributing to rising inflation across the globe.
Eni's Nigerian venture halted production at some oil wells following explosions on April 12 near the Beniboye area in Delta state, the company said yesterday. The shutdown, blamed on ``sabotage,'' has cost Eni about 5,000 barrels a day in output, the Rome-based company said in a statement posted on its Web site.
Petroleos Mexicanos, the third-largest supplier of crude to the U.S., shut its crude oil export terminal on the Pacific coast yesterday, the fourth terminal to close since April 13.
Terminal Closure
The terminal at the port of Salina Cruz closed today, Mexico's Merchant Marine reported in a weather bulletin posted on its Web site. The three Gulf of Mexico terminals at the ports of Pajaritos, Dos Bocas and Cayo Arcas remain shut.
Brent crude for May settlement rose as much as $1.27, or 1.2 percent, to $111.11 a barrel, an all-time intraday high, on London's ICE Futures Europe exchange. It traded for that price at 11:56 a.m. local time. The contract yesterday gained $1.09, or 1 percent, to close at a record $109.84.
Oil has risen 37 percent and the dollar has dropped 12 percent against the euro since the Federal Reserve began lowering interest rates Sept. 18. The euro traded at $1.5844 versus the dollar as of 11:23 a.m. in London from $1.5832 late in New York yesterday.
Sunday, April 13, 2008
Dollar Rises After Group of Seven Expresses Concern on Slide
By Stanley White and Bo Nielsen
April 14 (Bloomberg) -- The dollar rose the most in two weeks against the euro after Group of Seven officials expressed concern that swings in exchange rates will disrupt the global economy and financial markets.
The U.S. currency also gained the most in a week versus the yen after the G-7 said in a statement released late on April 11 in Washington that policy makers are concerned about ``sharp fluctuations,'' the first significant change in its view of currencies since February 2004. The finance ministers and central bankers didn't mention the dollar or suggest any plans to intervene in foreign-exchange markets.
``In the short-term the G-7 communiqué will be quite significant,'' said Sue Trinh, a currency strategist in Sydney at RBC Capital Markets, the global investment banking unit of Royal Bank of Canada. ``We don't think intervention is imminent but certainly a step-up in rhetoric is to be expected. I expect to see this underpinning the U.S. dollar in coming weeks.''
The dollar rose to $1.5719 per euro at 8:39 a.m. in Tokyo, from $1.5808 late in New York on April 11, after dropping 0.6 percent last week. It earlier reached, $1.56 a euro, the strongest level since April 3. It strengthened to 101.21 yen from 100.95 yen. The yen traded at 159.09 per euro from 159.55.
The U.S. currency reached a record low of $1.5913 per euro last week even as traders speculated that finance leaders would voice support for the dollar. It may advance beyond $1.55 this week as investors buy the dollar to cover their wrong way bets, Trinh said.
``Since our last meeting, there have been at times sharp fluctuations in major currencies, and we are concerned about their possible implications for economic and financial stability,'' the G-7 statement said. ``We continue to monitor exchange markets closely, and cooperate as appropriate.''
Dollar Index
The Dollar Index, which measures the currency against six of its main counterparts, has tumbled the past two months amid concern that credit-market losses will push the U.S. economy into a recession. The index is down 6.4 percent in 2008, after dropping 8.3 percent in each of the past two years.
``Traders will be more reluctant to push the dollar lower, even if there are factors that suggest it should fall,'' said Akio Shimizu, chief manager of foreign exchange trading in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan's largest publicly listed bank. ``The G-7 statement may prompt some to give up on their bets for further dollar weakness.''
The dollar may rise to 102.20 yen and $1.56 per euro today, he said.
Futures Traders
Futures traders decreased their bets that the yen will gain against the dollar, figures from the Washington-based Commodity Futures Trading Commission show.
The difference in the number of wagers by hedge funds and other large speculators on an advance in the yen compared with those on a drop -- so-called net longs -- was 43,067 on April 8, compared with net longs of 52,298 a week earlier.
The last time the G-7, which comprises the U.S., Japan, Germany, the U.K., France, Italy and Canada, intervened in the currency market was on Sept. 22, 2000, when they bought the euro after it tumbled 27 percent from its 1999 debut. The G-7 last propped up the dollar in 1995, when it sank to a post-World War II low of 79.75 yen.
The G-7 downgraded its outlook for the world economy from that of two months ago, blaming the U.S. housing recession, credit-market turmoil, high commodity prices and inflation pressures.
Gains in the dollar may be limited before a Commerce Department report today that may show retail sales in the U.S. stagnated in March after dropping 0.6 percent in February, according to the median estimate of economists surveyed by Bloomberg News.
`Growth Differentials'
``There's a strong possibility that we'll soon test $1.60 again'' versus the euro, said Samarjit Shankar, director of global strategy for the foreign-exchange group in Boston at Bank of New York Mellon, the world's largest custodial bank, with more than $20 trillion in assets under administration. ``Growth differentials are still stacked up against the dollar and since there's no sign whatsoever that the group is about to intervene, that clears the way for further dollar weakness.''
The euro failed to push through $1.60 as European Central Bank President Jean-Claude Trichet said at the press conference in Frankfurt on April 10 that financial-market tension may have ``a broader than currently expected impact on the real economy.'' Trichet spoke after the bank held the main refinancing rate at a six-year high of 4 percent.
Carry Trades
Losses in the yen and Swiss franc may be curtailed should a drop in stocks spur investors to reduce so-called carry trades.
Both currencies rose against most of the major currencies last week as investors reduced carry trades, in which they borrow funds in a country with low borrowing costs and buy assets where returns are higher. The risk is currency fluctuations erase the profits between the two rates.
The Bank of Japan held its target lending rate at 0.5 percent on April 9, the lowest among industrialized countries. The benchmark rates are 2.75 percent in Switzerland, 7.25 percent in Australia and 8.25 percent in New Zealand.
April 14 (Bloomberg) -- The dollar rose the most in two weeks against the euro after Group of Seven officials expressed concern that swings in exchange rates will disrupt the global economy and financial markets.
The U.S. currency also gained the most in a week versus the yen after the G-7 said in a statement released late on April 11 in Washington that policy makers are concerned about ``sharp fluctuations,'' the first significant change in its view of currencies since February 2004. The finance ministers and central bankers didn't mention the dollar or suggest any plans to intervene in foreign-exchange markets.
``In the short-term the G-7 communiqué will be quite significant,'' said Sue Trinh, a currency strategist in Sydney at RBC Capital Markets, the global investment banking unit of Royal Bank of Canada. ``We don't think intervention is imminent but certainly a step-up in rhetoric is to be expected. I expect to see this underpinning the U.S. dollar in coming weeks.''
The dollar rose to $1.5719 per euro at 8:39 a.m. in Tokyo, from $1.5808 late in New York on April 11, after dropping 0.6 percent last week. It earlier reached, $1.56 a euro, the strongest level since April 3. It strengthened to 101.21 yen from 100.95 yen. The yen traded at 159.09 per euro from 159.55.
The U.S. currency reached a record low of $1.5913 per euro last week even as traders speculated that finance leaders would voice support for the dollar. It may advance beyond $1.55 this week as investors buy the dollar to cover their wrong way bets, Trinh said.
``Since our last meeting, there have been at times sharp fluctuations in major currencies, and we are concerned about their possible implications for economic and financial stability,'' the G-7 statement said. ``We continue to monitor exchange markets closely, and cooperate as appropriate.''
Dollar Index
The Dollar Index, which measures the currency against six of its main counterparts, has tumbled the past two months amid concern that credit-market losses will push the U.S. economy into a recession. The index is down 6.4 percent in 2008, after dropping 8.3 percent in each of the past two years.
``Traders will be more reluctant to push the dollar lower, even if there are factors that suggest it should fall,'' said Akio Shimizu, chief manager of foreign exchange trading in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan's largest publicly listed bank. ``The G-7 statement may prompt some to give up on their bets for further dollar weakness.''
The dollar may rise to 102.20 yen and $1.56 per euro today, he said.
Futures Traders
Futures traders decreased their bets that the yen will gain against the dollar, figures from the Washington-based Commodity Futures Trading Commission show.
The difference in the number of wagers by hedge funds and other large speculators on an advance in the yen compared with those on a drop -- so-called net longs -- was 43,067 on April 8, compared with net longs of 52,298 a week earlier.
The last time the G-7, which comprises the U.S., Japan, Germany, the U.K., France, Italy and Canada, intervened in the currency market was on Sept. 22, 2000, when they bought the euro after it tumbled 27 percent from its 1999 debut. The G-7 last propped up the dollar in 1995, when it sank to a post-World War II low of 79.75 yen.
The G-7 downgraded its outlook for the world economy from that of two months ago, blaming the U.S. housing recession, credit-market turmoil, high commodity prices and inflation pressures.
Gains in the dollar may be limited before a Commerce Department report today that may show retail sales in the U.S. stagnated in March after dropping 0.6 percent in February, according to the median estimate of economists surveyed by Bloomberg News.
`Growth Differentials'
``There's a strong possibility that we'll soon test $1.60 again'' versus the euro, said Samarjit Shankar, director of global strategy for the foreign-exchange group in Boston at Bank of New York Mellon, the world's largest custodial bank, with more than $20 trillion in assets under administration. ``Growth differentials are still stacked up against the dollar and since there's no sign whatsoever that the group is about to intervene, that clears the way for further dollar weakness.''
The euro failed to push through $1.60 as European Central Bank President Jean-Claude Trichet said at the press conference in Frankfurt on April 10 that financial-market tension may have ``a broader than currently expected impact on the real economy.'' Trichet spoke after the bank held the main refinancing rate at a six-year high of 4 percent.
Carry Trades
Losses in the yen and Swiss franc may be curtailed should a drop in stocks spur investors to reduce so-called carry trades.
Both currencies rose against most of the major currencies last week as investors reduced carry trades, in which they borrow funds in a country with low borrowing costs and buy assets where returns are higher. The risk is currency fluctuations erase the profits between the two rates.
The Bank of Japan held its target lending rate at 0.5 percent on April 9, the lowest among industrialized countries. The benchmark rates are 2.75 percent in Switzerland, 7.25 percent in Australia and 8.25 percent in New Zealand.
Dollar Rises After Group of Seven Expresses Concern on Slide
By Stanley White and Bo Nielsen
April 14 (Bloomberg) -- The dollar rose the most in two weeks against the euro after Group of Seven officials expressed concern that swings in exchange rates will disrupt the global economy and financial markets.
The U.S. currency also gained the most in a week versus the yen after the G-7 said in a statement released late on April 11 in Washington that policy makers are concerned about ``sharp fluctuations,'' the first significant change in its view of currencies since February 2004. The finance ministers and central bankers didn't mention the dollar or suggest any plans to intervene in foreign-exchange markets.
``In the short-term the G-7 communiqué will be quite significant,'' said Sue Trinh, a currency strategist in Sydney at RBC Capital Markets, the global investment banking unit of Royal Bank of Canada. ``We don't think intervention is imminent but certainly a step-up in rhetoric is to be expected. I expect to see this underpinning the U.S. dollar in coming weeks.''
The dollar rose to $1.5719 per euro at 8:39 a.m. in Tokyo, from $1.5808 late in New York on April 11, after dropping 0.6 percent last week. It earlier reached, $1.56 a euro, the strongest level since April 3. It strengthened to 101.21 yen from 100.95 yen. The yen traded at 159.09 per euro from 159.55.
The U.S. currency reached a record low of $1.5913 per euro last week even as traders speculated that finance leaders would voice support for the dollar. It may advance beyond $1.55 this week as investors buy the dollar to cover their wrong way bets, Trinh said.
``Since our last meeting, there have been at times sharp fluctuations in major currencies, and we are concerned about their possible implications for economic and financial stability,'' the G-7 statement said. ``We continue to monitor exchange markets closely, and cooperate as appropriate.''
Dollar Index
The Dollar Index, which measures the currency against six of its main counterparts, has tumbled the past two months amid concern that credit-market losses will push the U.S. economy into a recession. The index is down 6.4 percent in 2008, after dropping 8.3 percent in each of the past two years.
``Traders will be more reluctant to push the dollar lower, even if there are factors that suggest it should fall,'' said Akio Shimizu, chief manager of foreign exchange trading in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan's largest publicly listed bank. ``The G-7 statement may prompt some to give up on their bets for further dollar weakness.''
The dollar may rise to 102.20 yen and $1.56 per euro today, he said.
Futures Traders
Futures traders decreased their bets that the yen will gain against the dollar, figures from the Washington-based Commodity Futures Trading Commission show.
The difference in the number of wagers by hedge funds and other large speculators on an advance in the yen compared with those on a drop -- so-called net longs -- was 43,067 on April 8, compared with net longs of 52,298 a week earlier.
The last time the G-7, which comprises the U.S., Japan, Germany, the U.K., France, Italy and Canada, intervened in the currency market was on Sept. 22, 2000, when they bought the euro after it tumbled 27 percent from its 1999 debut. The G-7 last propped up the dollar in 1995, when it sank to a post-World War II low of 79.75 yen.
The G-7 downgraded its outlook for the world economy from that of two months ago, blaming the U.S. housing recession, credit-market turmoil, high commodity prices and inflation pressures.
Gains in the dollar may be limited before a Commerce Department report today that may show retail sales in the U.S. stagnated in March after dropping 0.6 percent in February, according to the median estimate of economists surveyed by Bloomberg News.
`Growth Differentials'
``There's a strong possibility that we'll soon test $1.60 again'' versus the euro, said Samarjit Shankar, director of global strategy for the foreign-exchange group in Boston at Bank of New York Mellon, the world's largest custodial bank, with more than $20 trillion in assets under administration. ``Growth differentials are still stacked up against the dollar and since there's no sign whatsoever that the group is about to intervene, that clears the way for further dollar weakness.''
The euro failed to push through $1.60 as European Central Bank President Jean-Claude Trichet said at the press conference in Frankfurt on April 10 that financial-market tension may have ``a broader than currently expected impact on the real economy.'' Trichet spoke after the bank held the main refinancing rate at a six-year high of 4 percent.
Carry Trades
Losses in the yen and Swiss franc may be curtailed should a drop in stocks spur investors to reduce so-called carry trades.
Both currencies rose against most of the major currencies last week as investors reduced carry trades, in which they borrow funds in a country with low borrowing costs and buy assets where returns are higher. The risk is currency fluctuations erase the profits between the two rates.
The Bank of Japan held its target lending rate at 0.5 percent on April 9, the lowest among industrialized countries. The benchmark rates are 2.75 percent in Switzerland, 7.25 percent in Australia and 8.25 percent in New Zealand.
April 14 (Bloomberg) -- The dollar rose the most in two weeks against the euro after Group of Seven officials expressed concern that swings in exchange rates will disrupt the global economy and financial markets.
The U.S. currency also gained the most in a week versus the yen after the G-7 said in a statement released late on April 11 in Washington that policy makers are concerned about ``sharp fluctuations,'' the first significant change in its view of currencies since February 2004. The finance ministers and central bankers didn't mention the dollar or suggest any plans to intervene in foreign-exchange markets.
``In the short-term the G-7 communiqué will be quite significant,'' said Sue Trinh, a currency strategist in Sydney at RBC Capital Markets, the global investment banking unit of Royal Bank of Canada. ``We don't think intervention is imminent but certainly a step-up in rhetoric is to be expected. I expect to see this underpinning the U.S. dollar in coming weeks.''
The dollar rose to $1.5719 per euro at 8:39 a.m. in Tokyo, from $1.5808 late in New York on April 11, after dropping 0.6 percent last week. It earlier reached, $1.56 a euro, the strongest level since April 3. It strengthened to 101.21 yen from 100.95 yen. The yen traded at 159.09 per euro from 159.55.
The U.S. currency reached a record low of $1.5913 per euro last week even as traders speculated that finance leaders would voice support for the dollar. It may advance beyond $1.55 this week as investors buy the dollar to cover their wrong way bets, Trinh said.
``Since our last meeting, there have been at times sharp fluctuations in major currencies, and we are concerned about their possible implications for economic and financial stability,'' the G-7 statement said. ``We continue to monitor exchange markets closely, and cooperate as appropriate.''
Dollar Index
The Dollar Index, which measures the currency against six of its main counterparts, has tumbled the past two months amid concern that credit-market losses will push the U.S. economy into a recession. The index is down 6.4 percent in 2008, after dropping 8.3 percent in each of the past two years.
``Traders will be more reluctant to push the dollar lower, even if there are factors that suggest it should fall,'' said Akio Shimizu, chief manager of foreign exchange trading in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan's largest publicly listed bank. ``The G-7 statement may prompt some to give up on their bets for further dollar weakness.''
The dollar may rise to 102.20 yen and $1.56 per euro today, he said.
Futures Traders
Futures traders decreased their bets that the yen will gain against the dollar, figures from the Washington-based Commodity Futures Trading Commission show.
The difference in the number of wagers by hedge funds and other large speculators on an advance in the yen compared with those on a drop -- so-called net longs -- was 43,067 on April 8, compared with net longs of 52,298 a week earlier.
The last time the G-7, which comprises the U.S., Japan, Germany, the U.K., France, Italy and Canada, intervened in the currency market was on Sept. 22, 2000, when they bought the euro after it tumbled 27 percent from its 1999 debut. The G-7 last propped up the dollar in 1995, when it sank to a post-World War II low of 79.75 yen.
The G-7 downgraded its outlook for the world economy from that of two months ago, blaming the U.S. housing recession, credit-market turmoil, high commodity prices and inflation pressures.
Gains in the dollar may be limited before a Commerce Department report today that may show retail sales in the U.S. stagnated in March after dropping 0.6 percent in February, according to the median estimate of economists surveyed by Bloomberg News.
`Growth Differentials'
``There's a strong possibility that we'll soon test $1.60 again'' versus the euro, said Samarjit Shankar, director of global strategy for the foreign-exchange group in Boston at Bank of New York Mellon, the world's largest custodial bank, with more than $20 trillion in assets under administration. ``Growth differentials are still stacked up against the dollar and since there's no sign whatsoever that the group is about to intervene, that clears the way for further dollar weakness.''
The euro failed to push through $1.60 as European Central Bank President Jean-Claude Trichet said at the press conference in Frankfurt on April 10 that financial-market tension may have ``a broader than currently expected impact on the real economy.'' Trichet spoke after the bank held the main refinancing rate at a six-year high of 4 percent.
Carry Trades
Losses in the yen and Swiss franc may be curtailed should a drop in stocks spur investors to reduce so-called carry trades.
Both currencies rose against most of the major currencies last week as investors reduced carry trades, in which they borrow funds in a country with low borrowing costs and buy assets where returns are higher. The risk is currency fluctuations erase the profits between the two rates.
The Bank of Japan held its target lending rate at 0.5 percent on April 9, the lowest among industrialized countries. The benchmark rates are 2.75 percent in Switzerland, 7.25 percent in Australia and 8.25 percent in New Zealand.
Thursday, April 10, 2008
U.S. Stocks Gain, Led by Retailers, Technology; Wal-Mart Rises
By Eric Martin
April 10 (Bloomberg) -- U.S. stocks rose for the first time in three days on improved forecasts for technology company earnings and higher sales at discount retailers.
Intel Corp., the world's largest chipmaker, led semiconductor shares to a two-month high after analysts said the company will boost profitability and buy back more stock. Cisco Systems Inc., the biggest maker of computer-networking equipment, rallied after Morgan Stanley said revenue may top estimates. Wal- Mart Stores Inc. and Costco Wholesale Corp. advanced as consumers sought discounts on food and electronics.
The Standard & Poor's 500 Index added 6.06, or 0.5 percent, to 1,360.55. The Dow Jones Industrial Average rose 54.72, or 0.4 percent, to 12,581.98. The Nasdaq Composite Index increased 29.58, or 1.3 percent, to 2,351.7. Two stocks gained for every one that fell on the New York Stock Exchange.
``We're overweight technology, we're starting to look at some of the beaten-down consumer discretionary stocks,'' Michael Chren, who helps oversee about $1.5 billion as managing director at Allegiant Asset Management Co. in Palm Beach Gardens, Florida, said in an interview with Bloomberg Television. ``The market will lift off before we get any signs that earnings have troughed. You want to be prepared for that move.''
Shares also gained today after the government said jobless claims decreased last week more than economists had forecast. The S&P 500 has rebounded 6.9 percent from a 19-month low on March 10, with all 10 of its industry groups advancing, after the Federal Reserve cut interest rates and pumped more money into the banking system.
Earnings Watch
Earnings at companies in the index are expected to fall 11.3 percent in the first quarter and 3.5 percent in the second before rebounding to increase 13.9 percent and 54.5 percent in the year's final two quarters of 2008, according to analyst estimates compiled by Bloomberg.
Wal-Mart gained 52 cents to $54.66. March sales advanced 0.7 percent and the company increased its forecast for first-quarter earnings to a range of 74 cents to 76 cents a share, compared with an earlier forecast of 70 to 74 cents.
Costco, the largest U.S. warehouse-club chain, rose 49 cents to $66.52 after March sales at stores open at least a year increased 7 percent.
Cisco climbed 51 cents to $24.04, helping lead technology stocks in the S&P 500 to a 1.5 percent advance. Morgan Stanley said Cisco may beat analysts' revenue estimates in its fiscal third quarter.
``Mid-quarter checks with resellers, distributors, and component suppliers suggest that end-demand held up through the end of March,'' New York-based Morgan Stanley analyst Scott Coleman wrote in a report.
Intel Gains
Intel gained the most among the 30 stocks in the Dow average, adding 66 cents, or 3.1 percent, to $22.08. The world's largest chipmaker was raised to ``buy'' from ``neutral'' at Bank of America Corp., which said the stock may climb more than 26 percent from yesterday's close as the company wins customers from rivals, boosts profitability and buys back more of its own stock.
Earnings for companies in the S&P 500 outside the financial industry are forecast to have grown 6.5 percent in the first quarter, according to the average estimate of analysts surveyed by Bloomberg.
LSI Corp., the maker of chips for companies such as Seagate Technology, increased 27 cents, or 5.1 percent, to $5.61 after Bank of America lifted its rating to ``neutral'' from ``sell.'' Analyst Sumit Dhanda said competition and a slowing economy are already reflected in the stock price.
`Closer to the End'
Financial stocks pared declines after Goldman Sachs Group Inc. Chief Executive Officer Lloyd Blankfein said the crisis that's forced almost $250 billion in credit losses and writedowns at the world's biggest finance companies may be approaching an end.
``We're closer to the end than the beginning,'' Blankfein said today at the company's annual meeting in New York. ``We're maybe at the end of the third quarter, or the beginning of the fourth.''
Citigroup Inc., the largest U.S. bank, added 13 cents to $23.71 after earlier falling as much as 2 percent. Wachovia Corp., the fourth-biggest, jumped $1.25, or 4.7 percent, to $27.87. Goldman, the world's largest securities firm, slipped $3.59 to $170.55.
Blankfein's assessment ``reassures the market of the potential degree of surprises that might come out,'' said Robert Stimpson, a portfolio manager at Oak Associates in Akron, Ohio, which manages $1.2 billion, including Goldman shares. ``If we're closer to the end, the probability of unexpected large write-offs or a potential bankruptcy is a lot lower.''
Lehman
Lehman Brothers Holdings Inc. lost 29 cents to $40.25. The biggest underwriter of U.S. bonds backed by home loans said yesterday it liquidated three investment funds because of ``market disruptions.'' The bank may write down $2 billion in the second quarter and will face ``difficult'' market conditions this year, Deutsche Bank AG analyst Mike Mayo said.
Lehman also bailed out five of its short-term debt funds, joining a growing list of securities firms and asset managers that have propped up investment vehicles crippled by frozen credit markets.
Yahoo! Inc. gained 82 cents, or 3 percent, to $28.59. The owner of the most-visited U.S. Web site, resisting a $44.6 billion takeover by Microsoft Corp., may wring a higher offer out of the software maker after finding an alternate suitor in Time Warner Inc.'s AOL unit.
The New York Times said that News Corp., the media company controlled by Rupert Murdoch, may join Microsoft's offer. Microsoft gained 22 cents to $29.11. News Corp. Class A shares lost 5 cents to $18.89 and Time Warner rose 18 cents to $14.61.
DuPont, Lexmark
DuPont Co. gained 60 cents to $49.64. First-quarter earnings climbed to about $1.29 a share, topping company forecasts, as record crop prices boosted sales of seeds and pesticides to farmers.
Lexmark International Inc., the second-largest U.S. printer maker, rallied $2.55 to $32.91 after Lehman said profit may top analysts' projections. Analyst Caroline Sabbagha boosted her first-quarter earnings forecast to 96 cents a share from 82 cents.
CIT Group Inc., the commercial finance company trying to escape a cash squeeze, fell 70 cents, or 5.4 percent, to $12.36 on concern that first-quarter earnings may be worse than expected. CIT said April 3 that its money-losing student-lending unit stopped making government-guaranteed loans.
Millennium Pharmaceuticals Inc. gained the most since its 1996 initial public offering, soaring $7.99, or 49 percent, to $24.34. Takeda Pharmaceutical Co., Japan's largest drugmaker, agreed to buy the company for $8.8 billion, or $25 a share.
The Russell 2000 Index, a benchmark for companies with a median market value 95 percent smaller than those in the S&P 500, climbed 1.3 percent to 707.42. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, rose 0.6 percent to 13,731.74. Based on its advance, the value of stocks increased by $94 billion.
April 10 (Bloomberg) -- U.S. stocks rose for the first time in three days on improved forecasts for technology company earnings and higher sales at discount retailers.
Intel Corp., the world's largest chipmaker, led semiconductor shares to a two-month high after analysts said the company will boost profitability and buy back more stock. Cisco Systems Inc., the biggest maker of computer-networking equipment, rallied after Morgan Stanley said revenue may top estimates. Wal- Mart Stores Inc. and Costco Wholesale Corp. advanced as consumers sought discounts on food and electronics.
The Standard & Poor's 500 Index added 6.06, or 0.5 percent, to 1,360.55. The Dow Jones Industrial Average rose 54.72, or 0.4 percent, to 12,581.98. The Nasdaq Composite Index increased 29.58, or 1.3 percent, to 2,351.7. Two stocks gained for every one that fell on the New York Stock Exchange.
``We're overweight technology, we're starting to look at some of the beaten-down consumer discretionary stocks,'' Michael Chren, who helps oversee about $1.5 billion as managing director at Allegiant Asset Management Co. in Palm Beach Gardens, Florida, said in an interview with Bloomberg Television. ``The market will lift off before we get any signs that earnings have troughed. You want to be prepared for that move.''
Shares also gained today after the government said jobless claims decreased last week more than economists had forecast. The S&P 500 has rebounded 6.9 percent from a 19-month low on March 10, with all 10 of its industry groups advancing, after the Federal Reserve cut interest rates and pumped more money into the banking system.
Earnings Watch
Earnings at companies in the index are expected to fall 11.3 percent in the first quarter and 3.5 percent in the second before rebounding to increase 13.9 percent and 54.5 percent in the year's final two quarters of 2008, according to analyst estimates compiled by Bloomberg.
Wal-Mart gained 52 cents to $54.66. March sales advanced 0.7 percent and the company increased its forecast for first-quarter earnings to a range of 74 cents to 76 cents a share, compared with an earlier forecast of 70 to 74 cents.
Costco, the largest U.S. warehouse-club chain, rose 49 cents to $66.52 after March sales at stores open at least a year increased 7 percent.
Cisco climbed 51 cents to $24.04, helping lead technology stocks in the S&P 500 to a 1.5 percent advance. Morgan Stanley said Cisco may beat analysts' revenue estimates in its fiscal third quarter.
``Mid-quarter checks with resellers, distributors, and component suppliers suggest that end-demand held up through the end of March,'' New York-based Morgan Stanley analyst Scott Coleman wrote in a report.
Intel Gains
Intel gained the most among the 30 stocks in the Dow average, adding 66 cents, or 3.1 percent, to $22.08. The world's largest chipmaker was raised to ``buy'' from ``neutral'' at Bank of America Corp., which said the stock may climb more than 26 percent from yesterday's close as the company wins customers from rivals, boosts profitability and buys back more of its own stock.
Earnings for companies in the S&P 500 outside the financial industry are forecast to have grown 6.5 percent in the first quarter, according to the average estimate of analysts surveyed by Bloomberg.
LSI Corp., the maker of chips for companies such as Seagate Technology, increased 27 cents, or 5.1 percent, to $5.61 after Bank of America lifted its rating to ``neutral'' from ``sell.'' Analyst Sumit Dhanda said competition and a slowing economy are already reflected in the stock price.
`Closer to the End'
Financial stocks pared declines after Goldman Sachs Group Inc. Chief Executive Officer Lloyd Blankfein said the crisis that's forced almost $250 billion in credit losses and writedowns at the world's biggest finance companies may be approaching an end.
``We're closer to the end than the beginning,'' Blankfein said today at the company's annual meeting in New York. ``We're maybe at the end of the third quarter, or the beginning of the fourth.''
Citigroup Inc., the largest U.S. bank, added 13 cents to $23.71 after earlier falling as much as 2 percent. Wachovia Corp., the fourth-biggest, jumped $1.25, or 4.7 percent, to $27.87. Goldman, the world's largest securities firm, slipped $3.59 to $170.55.
Blankfein's assessment ``reassures the market of the potential degree of surprises that might come out,'' said Robert Stimpson, a portfolio manager at Oak Associates in Akron, Ohio, which manages $1.2 billion, including Goldman shares. ``If we're closer to the end, the probability of unexpected large write-offs or a potential bankruptcy is a lot lower.''
Lehman
Lehman Brothers Holdings Inc. lost 29 cents to $40.25. The biggest underwriter of U.S. bonds backed by home loans said yesterday it liquidated three investment funds because of ``market disruptions.'' The bank may write down $2 billion in the second quarter and will face ``difficult'' market conditions this year, Deutsche Bank AG analyst Mike Mayo said.
Lehman also bailed out five of its short-term debt funds, joining a growing list of securities firms and asset managers that have propped up investment vehicles crippled by frozen credit markets.
Yahoo! Inc. gained 82 cents, or 3 percent, to $28.59. The owner of the most-visited U.S. Web site, resisting a $44.6 billion takeover by Microsoft Corp., may wring a higher offer out of the software maker after finding an alternate suitor in Time Warner Inc.'s AOL unit.
The New York Times said that News Corp., the media company controlled by Rupert Murdoch, may join Microsoft's offer. Microsoft gained 22 cents to $29.11. News Corp. Class A shares lost 5 cents to $18.89 and Time Warner rose 18 cents to $14.61.
DuPont, Lexmark
DuPont Co. gained 60 cents to $49.64. First-quarter earnings climbed to about $1.29 a share, topping company forecasts, as record crop prices boosted sales of seeds and pesticides to farmers.
Lexmark International Inc., the second-largest U.S. printer maker, rallied $2.55 to $32.91 after Lehman said profit may top analysts' projections. Analyst Caroline Sabbagha boosted her first-quarter earnings forecast to 96 cents a share from 82 cents.
CIT Group Inc., the commercial finance company trying to escape a cash squeeze, fell 70 cents, or 5.4 percent, to $12.36 on concern that first-quarter earnings may be worse than expected. CIT said April 3 that its money-losing student-lending unit stopped making government-guaranteed loans.
Millennium Pharmaceuticals Inc. gained the most since its 1996 initial public offering, soaring $7.99, or 49 percent, to $24.34. Takeda Pharmaceutical Co., Japan's largest drugmaker, agreed to buy the company for $8.8 billion, or $25 a share.
The Russell 2000 Index, a benchmark for companies with a median market value 95 percent smaller than those in the S&P 500, climbed 1.3 percent to 707.42. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, rose 0.6 percent to 13,731.74. Based on its advance, the value of stocks increased by $94 billion.
Wednesday, April 9, 2008
Commodities Rise Most in 2 Weeks; Oil, Fuel, Corn Hit Records
By Millie Munshi
April 9 (Bloomberg) -- Commodities jumped the most in two weeks as crude oil, gasoline and corn surged to records following U.S. government reports signaling demand for energy and grain still outpacing supplies.
The UBS Bloomberg Constant Maturity Index of 26 commodities rose 2.7 percent to 1,519.18, marking the biggest gain since March 25. The gauge reached a record 1,573.84 on Feb. 29.
Rising food and fuel costs have triggered protests in countries around the world. Crude oil jumped as high as $112.21 a barrel today as a Department of Energy report showed petroleum inventories unexpectedly fell last week. Corn rose to a record $6.16 a bushel as stockpiles dropped more than anticipated.
``Supplies for a lot of different commodities are dwindling as demand has gained globally,'' said Michael Pento, a senior market strategist at Delta Global Advisors in Huntington Beach, California, which manages about $1.5 billion. ``I'm bullish on all commodities.''
Protests may spread as falling supplies caused by crop failures and greater use of grains for biofuels stoke inflation globally, the United Nations Food and Agriculture Organization said today. The World Bank says 33 countries from Mexico to Yemen may face social unrest because of surging food prices.
``We have seen riots around the world, and there's risk that these will spread because of rising prices in countries where 50 percent to 60 percent of incomes go to foods,'' FAO Director General Jacques Diouf said in New Delhi today. ``The problem is serious.''
Rice, Wheat Double
Rice and wheat prices have doubled in the past year. Global food prices jumped 57 percent in March, according to the FOA. Higher energy prices also will stoke inflation, analysts said.
``Demand around the world is not slowing down,'' said Zachary Oxman, a senior trader at Wisdom Financial Inc. in Newport Beach, California. ``The world has proven that even with a slowdown in the U.S., there's still a huge demand for all commodities.''
Commodities also climbed as the dollar slumped, sparking demand for raw materials as a hedge against inflation.
The UBS Bloomberg index has surged 19 percent this year as the dollar dropped 6.4 percent against a weighted basket of the euro, yen, pound and three other major currencies.
The Standard & Poor's 500 Index fell as much as 1 percent today. The equity gauge is down 7.8 percent this year.
``People are still buying commodities in a flight to quality in this inflationary environment,'' Oxman said. ``What do you do when you want to protect your assets from inflation? You buy commodities. Prices will keep going higher from here.''
Dollar's Slump
Consumer prices in the U.S. climbed 4.1 percent last year, the fastest pace since 1990. The Federal Reserve's six interest- rate cuts since September will continue to depress the dollar and spur inflation, Pento of Delta Global Advisors said.
The UBS Bloomberg index rose 13 percent in the first quarter following a six-year rally. Demand in China, the world's fastest-growing major economy, helped trigger the surge.
Gasoline futures, which reflect wholesale costs, rose to a record $2.8228 a gallon. Copper futures closed at $4 a pound, the highest settlement price ever. Gold and silver rose more than 2 percent.
Natural gas topped $10 per million British thermal units and is up 34 percent this year. Rice yesterday jumped to the highest ever, and soybeans rose to a record last month.
Global investments in raw materials rose by more than a fifth in the first quarter to $400 billion, Citigroup Inc. said on April 7. A ``tidal wave of investment flows into commodity markets has further boosted prices,'' the bank said.
April 9 (Bloomberg) -- Commodities jumped the most in two weeks as crude oil, gasoline and corn surged to records following U.S. government reports signaling demand for energy and grain still outpacing supplies.
The UBS Bloomberg Constant Maturity Index of 26 commodities rose 2.7 percent to 1,519.18, marking the biggest gain since March 25. The gauge reached a record 1,573.84 on Feb. 29.
Rising food and fuel costs have triggered protests in countries around the world. Crude oil jumped as high as $112.21 a barrel today as a Department of Energy report showed petroleum inventories unexpectedly fell last week. Corn rose to a record $6.16 a bushel as stockpiles dropped more than anticipated.
``Supplies for a lot of different commodities are dwindling as demand has gained globally,'' said Michael Pento, a senior market strategist at Delta Global Advisors in Huntington Beach, California, which manages about $1.5 billion. ``I'm bullish on all commodities.''
Protests may spread as falling supplies caused by crop failures and greater use of grains for biofuels stoke inflation globally, the United Nations Food and Agriculture Organization said today. The World Bank says 33 countries from Mexico to Yemen may face social unrest because of surging food prices.
``We have seen riots around the world, and there's risk that these will spread because of rising prices in countries where 50 percent to 60 percent of incomes go to foods,'' FAO Director General Jacques Diouf said in New Delhi today. ``The problem is serious.''
Rice, Wheat Double
Rice and wheat prices have doubled in the past year. Global food prices jumped 57 percent in March, according to the FOA. Higher energy prices also will stoke inflation, analysts said.
``Demand around the world is not slowing down,'' said Zachary Oxman, a senior trader at Wisdom Financial Inc. in Newport Beach, California. ``The world has proven that even with a slowdown in the U.S., there's still a huge demand for all commodities.''
Commodities also climbed as the dollar slumped, sparking demand for raw materials as a hedge against inflation.
The UBS Bloomberg index has surged 19 percent this year as the dollar dropped 6.4 percent against a weighted basket of the euro, yen, pound and three other major currencies.
The Standard & Poor's 500 Index fell as much as 1 percent today. The equity gauge is down 7.8 percent this year.
``People are still buying commodities in a flight to quality in this inflationary environment,'' Oxman said. ``What do you do when you want to protect your assets from inflation? You buy commodities. Prices will keep going higher from here.''
Dollar's Slump
Consumer prices in the U.S. climbed 4.1 percent last year, the fastest pace since 1990. The Federal Reserve's six interest- rate cuts since September will continue to depress the dollar and spur inflation, Pento of Delta Global Advisors said.
The UBS Bloomberg index rose 13 percent in the first quarter following a six-year rally. Demand in China, the world's fastest-growing major economy, helped trigger the surge.
Gasoline futures, which reflect wholesale costs, rose to a record $2.8228 a gallon. Copper futures closed at $4 a pound, the highest settlement price ever. Gold and silver rose more than 2 percent.
Natural gas topped $10 per million British thermal units and is up 34 percent this year. Rice yesterday jumped to the highest ever, and soybeans rose to a record last month.
Global investments in raw materials rose by more than a fifth in the first quarter to $400 billion, Citigroup Inc. said on April 7. A ``tidal wave of investment flows into commodity markets has further boosted prices,'' the bank said.
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