By Ron Harui and Stanley White
Nov. 26 (Bloomberg) -- The yen rose against the euro on speculation declines in Asian stocks prompted investors to pare holdings of higher-yielding assets funded in Japan.
The currency also gained versus the Australian dollar and the British pound on concern that the Federal Reserve’s $800 billion plan to unfreeze credit markets won’t prevent a protracted global slump. The U.S. economy, the world’s biggest, shrank in the third quarter as consumer spending plunged the most in almost three decades, according to figures released yesterday.
“The yen should remain supported,” said Osao Iizuka, head of foreign-exchange trading at Sumitomo Trust & Banking Co. in Tokyo. “There was a bounce in sentiment after the Fed’s announcement of its latest measures. This has faded because there are still a lot of problems to work out.”
The yen rose to 123.82 per euro at 11:10 a.m. in Tokyo from 124.43 late yesterday in New York. It traded at 95.10 versus the dollar from 95.22. The euro fell to $1.3017 from $1.3064. The pound declined to $1.5393 from $1.5472. The yen may rise to 94.80 per dollar today, Iizuka said.
Against the yen, Australia’s dollar fell to 61.49 from 61.82 in New York late yesterday. The pound dropped 0.6 percent to 146.52 yen.
The MSCI Asia Pacific Index of regional shares slid 0.4 percent, while the Nikkei 225 Stock Average fell 1.3 percent.
Japan’s benchmark interest rate of 0.3 percent compares with 5.25 percent in Australia and 3 percent in the U.K.
In a carry trade, investors get funds in a country with low borrowing costs and invest in one with higher interest rates, earning the spread between the two. The risk is that currency market moves erase those profits.
Implied volatility on one-month euro-yen options rose to 34.74 percent today from 34.25 percent yesterday, indicating greater exchange-rate fluctuation risk that may erode profit on carry trades.
‘Fed’s Balance Sheet’
The Fed will purchase as much as $600 billion in debt issued or backed by government-chartered housing-finance companies. It will also set up a program of $200 billion to support consumer and small-business loans, the Fed said in statements yesterday in Washington.
The U.S. currency may weaken should the Fed lose money on the debt and asset-backed securities it plans to buy. The dollar reached a 2 1/2-year high against an index of the currencies of six major U.S. trading partners last week as investors sought refuge from deepening credit losses.
“We may see the Fed’s balance sheet deteriorate because it’s taking on all these assets,” 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 lender. “This is a latent risk for the dollar that could weaken it over the long term.”
OECD Cuts Forecast
The Organization for Economic Cooperation and Development cut its forecast for global growth in 2009. The economies of the organization’s 30 members will contract 0.4 percent next year, after expanding 1.4 percent this year. Gross domestic product in the U.S. shrank at a 0.5 percent annual rate from July through September, the most since the 2001 recession, according to revised figures from the Commerce Department in Washington.
The ICE’s Dollar Index, which tracks the greenback against the euro, the yen, the pound, the Canadian dollar, the Swiss franc and Sweden’s krona, traded at 85.005 from 85.000 yesterday, when it fell 1.3 percent. The index rose to 88.463 on Nov. 21, the highest level since April 2006.
The euro fell, snapping a three-day winning stretch versus the dollar, after a technical chart that some traders use to predict price movements signaled its 4.2 percent gain in the past five days was excessive.
Euro’s Rise ‘Overdone’
“The euro’s surge over the last few days seems overdone, so we may see some selling of the currency,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker.
Europe’s single currency may decline to $1.2950 and 123.30 yen today, Ishikawa said.
The euro’s 14-day stochastic oscillator versus the dollar was around 91, according to data compiled by Bloomberg. A level above 80 suggests a reversal may occur.
Tuesday, November 25, 2008
Sunday, November 23, 2008
Citigroup, Fed Said to Weigh Plan to Limit Losses (Update1)
By Bradley Keoun and Alison Vekshin
Nov. 23 (Bloomberg) -- Citigroup Inc. and U.S. regulators are in talks to limit the bank’s potential losses on more than $100 billion of toxic assets after the stock’s plunge last week sparked concerns about the company’s fate, four people familiar with the matter said.
The Federal Reserve and Treasury Department were locked in discussions with Citigroup and other regulators throughout the weekend and a deal may be reached as soon as today, according to the people, who declined to be identified because the negotiations are confidential. The assets would remain at Citigroup, with the government agreeing to assume losses beyond a specified amount, two of the people said.
The holdings that may be guaranteed are a portion of the $400 billion pile of mortgages, bonds, auto loans and corporate loans that Chief Executive Officer Vikram Pandit pledged in May to shed within three years, the two people said. While the amount to be covered under the plan is under discussion, the talks are focused on about $100 billion to $200 billion of the assets, they said.
“If anybody’s too big to fail from the financial system’s point of view, it’s Citi,’” said Brian Barish, president of Cambiar Investments LLC in Denver, which manages about $6 billion and doesn’t own Citigroup stock. “The government doesn’t need to be in this to make money. If they lose a few bucks on this, but save the system, it’ll be worth it.”
Share Decline
Citigroup lost 60 percent of its market value last week as investor confidence in the New York-based company’s prospects faltered after four consecutive quarterly losses. Unless the bank takes steps to halt the slide, the share-decline may rattle Citigroup’s customers, counterparties and employees, threatening the operations of the second-biggest U.S. bank by assets, according to a report by David Hendler, an analyst at CreditSights Inc. in New York.
“We sense that Citi’s board will also recognize the difficult chain of events which can be brought about by its low stock price, and prefer to take action in the next few days or weeks,” Hendler wrote in the report yesterday.
Federal Reserve Board spokeswoman Michelle Smith and Citigroup spokesman Michael Hanretta declined to comment today. Citigroup Chief Financial Officer Gary Crittenden and Chief Risk Officer Brian Leach are leading the negotiations for the bank, one person familiar with the matter said.
Pandit, 51, told employees on a Nov. 21 conference call that he doesn’t plan to break up the company. He and Crittenden said they don’t expect to sell the Smith Barney brokerage unit, two people who listened to the call said at the time.
Intervention
Citigroup’s board, led by Chairman Win Bischoff and independent director Richard Parsons, met the same day to discuss the bank’s options.
Citigroup issued a statement last week saying the company has “a very strong capital and liquidity position and a unique global franchise.”
The proposal under consideration is a variation on a theme that has played out in government interventions during the past year, including JPMorgan Chase & Co.’s purchase of Bear Stearns Cos., Citigroup’s failed effort to buy Wachovia Corp. and the Swiss government’s rescue financing of UBS AG. In each case, the government required the bank to absorb initial losses and agreed to guarantee deficits beyond that amount.
JPMorgan took the first $1.15 billion of losses on a $30 billion portfolio of Bear Stearns’ devalued assets, with the Federal Reserve agreeing to finance the rest.
Wachovia, UBS
In September, Citigroup agreed to suffer the first $42 billion of losses on Wachovia’s loan porfolio, with the FDIC taking the rest, in a deal that was canceled after Wells Fargo & Co. stepped in to buy Wachovia.
The Swiss government required UBS in October to inject 6 billion Swiss francs ($4.91 billion) into a special purpose vehicle backed with $54 billion of central bank loans to allow the bank to carve off about $60 billion of assets.
To help shore up Citigroup, the Federal Deposit Insurance Corp. could provide loan-loss support or the U.S. Treasury could contribute money from the $700 billion Troubled Asset Relief Program passed by Congress in October, Hendler’s report said.
“The FDIC does not comment on open and operating institutions,” Andrew Gray, a spokesman for the agency, said in an e-mailed statement today.
Citigroup’s debt remains on review for downgrade by both Moody’s Investors Service and Standard & Poor’s. Moody’s rates Citigroup’s senior unsecured debt Aa3, while S&P has an AA- rating. A downgrade to A1 by Moody’s or to A+ by S&P is possible as the bank’s falling stock price could be deemed to hamper the company’s “financial flexibility,” the report said.
A single-A rating at the parent-company level should be manageable as long as the company’s banking subsidiaries maintain double-A ratings, CreditSights said. JPMorgan, now the biggest U.S. bank by assets, managed to endure with single-A ratings earlier in the decade, the report notes.
Nov. 23 (Bloomberg) -- Citigroup Inc. and U.S. regulators are in talks to limit the bank’s potential losses on more than $100 billion of toxic assets after the stock’s plunge last week sparked concerns about the company’s fate, four people familiar with the matter said.
The Federal Reserve and Treasury Department were locked in discussions with Citigroup and other regulators throughout the weekend and a deal may be reached as soon as today, according to the people, who declined to be identified because the negotiations are confidential. The assets would remain at Citigroup, with the government agreeing to assume losses beyond a specified amount, two of the people said.
The holdings that may be guaranteed are a portion of the $400 billion pile of mortgages, bonds, auto loans and corporate loans that Chief Executive Officer Vikram Pandit pledged in May to shed within three years, the two people said. While the amount to be covered under the plan is under discussion, the talks are focused on about $100 billion to $200 billion of the assets, they said.
“If anybody’s too big to fail from the financial system’s point of view, it’s Citi,’” said Brian Barish, president of Cambiar Investments LLC in Denver, which manages about $6 billion and doesn’t own Citigroup stock. “The government doesn’t need to be in this to make money. If they lose a few bucks on this, but save the system, it’ll be worth it.”
Share Decline
Citigroup lost 60 percent of its market value last week as investor confidence in the New York-based company’s prospects faltered after four consecutive quarterly losses. Unless the bank takes steps to halt the slide, the share-decline may rattle Citigroup’s customers, counterparties and employees, threatening the operations of the second-biggest U.S. bank by assets, according to a report by David Hendler, an analyst at CreditSights Inc. in New York.
“We sense that Citi’s board will also recognize the difficult chain of events which can be brought about by its low stock price, and prefer to take action in the next few days or weeks,” Hendler wrote in the report yesterday.
Federal Reserve Board spokeswoman Michelle Smith and Citigroup spokesman Michael Hanretta declined to comment today. Citigroup Chief Financial Officer Gary Crittenden and Chief Risk Officer Brian Leach are leading the negotiations for the bank, one person familiar with the matter said.
Pandit, 51, told employees on a Nov. 21 conference call that he doesn’t plan to break up the company. He and Crittenden said they don’t expect to sell the Smith Barney brokerage unit, two people who listened to the call said at the time.
Intervention
Citigroup’s board, led by Chairman Win Bischoff and independent director Richard Parsons, met the same day to discuss the bank’s options.
Citigroup issued a statement last week saying the company has “a very strong capital and liquidity position and a unique global franchise.”
The proposal under consideration is a variation on a theme that has played out in government interventions during the past year, including JPMorgan Chase & Co.’s purchase of Bear Stearns Cos., Citigroup’s failed effort to buy Wachovia Corp. and the Swiss government’s rescue financing of UBS AG. In each case, the government required the bank to absorb initial losses and agreed to guarantee deficits beyond that amount.
JPMorgan took the first $1.15 billion of losses on a $30 billion portfolio of Bear Stearns’ devalued assets, with the Federal Reserve agreeing to finance the rest.
Wachovia, UBS
In September, Citigroup agreed to suffer the first $42 billion of losses on Wachovia’s loan porfolio, with the FDIC taking the rest, in a deal that was canceled after Wells Fargo & Co. stepped in to buy Wachovia.
The Swiss government required UBS in October to inject 6 billion Swiss francs ($4.91 billion) into a special purpose vehicle backed with $54 billion of central bank loans to allow the bank to carve off about $60 billion of assets.
To help shore up Citigroup, the Federal Deposit Insurance Corp. could provide loan-loss support or the U.S. Treasury could contribute money from the $700 billion Troubled Asset Relief Program passed by Congress in October, Hendler’s report said.
“The FDIC does not comment on open and operating institutions,” Andrew Gray, a spokesman for the agency, said in an e-mailed statement today.
Citigroup’s debt remains on review for downgrade by both Moody’s Investors Service and Standard & Poor’s. Moody’s rates Citigroup’s senior unsecured debt Aa3, while S&P has an AA- rating. A downgrade to A1 by Moody’s or to A+ by S&P is possible as the bank’s falling stock price could be deemed to hamper the company’s “financial flexibility,” the report said.
A single-A rating at the parent-company level should be manageable as long as the company’s banking subsidiaries maintain double-A ratings, CreditSights said. JPMorgan, now the biggest U.S. bank by assets, managed to endure with single-A ratings earlier in the decade, the report notes.
Thursday, November 20, 2008
U.S. Economy: Jobless Claims Near Highest Since 1982 (Update1)
By Bob Willis and Shobhana Chandra
Nov. 20 (Bloomberg) -- The number of Americans filing for unemployment benefits approached a 26-year high, and a gauge of the economy's future performance dropped, sending yields on benchmark Treasuries to record lows.
Initial jobless claims climbed to a higher-than-forecast 542,000 in the week ended Nov. 15, the Labor Department said today in Washington. The Conference Board's index of leading economic indicators declined 0.8 percent, and a measure of manufacturing in the Philadelphia region fell to an 18-year low.
The U.S. stock market's benchmark index headed for its biggest annual decline on record, and yields on two-, five- and 30-year Treasuries posted historic lows as confidence in the economic outlook evaporated. The turmoil may intensify pressure on the Federal Reserve and incoming President Barack Obama's administration to take fresh steps to shore up the economy.
``The economic contraction appears to be worsening,'' said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. ``The stock markets are plunging, people are retrenching and manufacturing activity is virtually falling off a cliff. The increase in layoffs can only worsen the economic downturn.''
First-time jobless claims last week were the highest since 1982, with the exception of a one-week jump in filings in July 1992 caused by temporary layoffs at General Motors Corp. The number of people staying on benefit rolls rose to 4.012 million, the most since December 1982, in the week to Nov. 8.
Economists' Forecasts
Economists surveyed by Bloomberg News had anticipated a reading of 505,000 for last week, based on the median of 40 projections. Claims for the prior week were revised to 515,000 from 516,000.
``This is a reflection of the level of caution that hit the economy in October,'' said Jonathan Basile, an economist at Credit Suisse Holdings Inc. in New York. He added that payroll losses, already totaling 1.2 million this year, will likely ``get worse before they get better.''
The Standard & Poor's 500 Stock Index plunged 6.7 percent to close at 752.44, its lowest level in 11 years, extending its decline for the year to 49 percent. Ten-year Treasury yields dropped to 2.99 percent, a record low, from 3.32 percent late yesterday, and two-year yields slid below 1 percent.
Companies are trimming staff as consumer spending is forecast to fall through at least March, according to economists surveyed by Bloomberg early this month. Banks, faced with mounting losses and write-offs as the financial crisis spread over the past year, have been sacking thousands of workers.
Citigroup Losses
Citigroup Inc., the fourth-largest U.S. bank, will eliminate 52,000 jobs over the next year, twice the target announced last month, as loan losses surge and the economy shrinks, the company said Nov. 17. The company's shares today reached the lowest level since 1994.
``We thought last year the bottom had been reached, but it hasn't,'' Citigroup Chairman Win Bischoff said in a conference in Dubai. ``Most responsible companies are getting into a planning cycle with more pessimistic budgets than they have been in the past.''
Carmakers are also firing workers. Ford Motor Co. plans temporary shutdowns at nine North American plants this quarter, idling as many as 23,000 workers, as it slashes production after an 18 percent drop in U.S. sales this year, the company said Nov. 12.
Forty-three states and territories reported an increase in new claims, while 10 reported a decrease. The unemployment rate among people eligible for benefits, which tends to track the jobless rate, rose to 3 percent, the highest since June 2003. These data are reported with a one-week lag.
Initial jobless claims averaged 416,000 a week during the last recession, from March 2001 to November 2001.
Philadelphia Index
The Federal Reserve Bank of Philadelphia's general economic index was minus 39.3 this month, weaker than forecast and the lowest reading since October 1990, from minus 37.5 in October, the bank said today. Negative readings signal contraction. The index averaged 5.1 last year.
The deepening credit crisis and economic slump are forcing companies to trim payrolls, investment and production. Slowing global demand is weighing on manufacturing, which accounts for about 12 percent of the U.S. economy.
``Manufacturers are getting hit by several different forces,'' Dean Maki, co-chief global economist at Barclays Capital Markets in New York, said in an interview with Bloomberg Television. ``Exports are being hit pretty hard because the slowdown is heading abroad as well.''
Component Measures
Six of the 10 indicators in today's Conference Board report dragged the index down, led by plunging stock prices, which subtracted 0.89 percentage point. The Standard & Poor's 500 index dropped 20 percent last month from September.
The index was forecast to decline 0.6 percent, according to the median of 56 forecasts. The reading for September was revised to a gain of 0.1 percent, less than the 0.3 percent increase previously reported.
The index is also made up of jobless claims, building permits, consumer expectations, the yield curve, factory hours and supplier delivery times, new orders for consumer goods, bookings for capital goods and money supply adjusted for inflation.
Housing subtracted 0.35 percentage point from the index in October. The pace of housing starts and building permits, a sign of future construction, both plunged to record lows last month, indicating the industry's downturn may extend into a fourth year.
Lowe's Cos., the second-largest home-improvement retailer, reduced its full-year profit forecast following a slowdown in remodeling projects.
Federal Reserve policy makers ``generally expected the economy to contract moderately in the second half of 2008 and the first half of 2009 and agreed that the downside risks to growth had increased,'' according to minutes of their Oct. 28-29 meeting released yesterday.
The economy contracted 0.3 percent in the third quarter and economists surveyed by Bloomberg forecast negative growth of about 1 percent for the next six months.
Nov. 20 (Bloomberg) -- The number of Americans filing for unemployment benefits approached a 26-year high, and a gauge of the economy's future performance dropped, sending yields on benchmark Treasuries to record lows.
Initial jobless claims climbed to a higher-than-forecast 542,000 in the week ended Nov. 15, the Labor Department said today in Washington. The Conference Board's index of leading economic indicators declined 0.8 percent, and a measure of manufacturing in the Philadelphia region fell to an 18-year low.
The U.S. stock market's benchmark index headed for its biggest annual decline on record, and yields on two-, five- and 30-year Treasuries posted historic lows as confidence in the economic outlook evaporated. The turmoil may intensify pressure on the Federal Reserve and incoming President Barack Obama's administration to take fresh steps to shore up the economy.
``The economic contraction appears to be worsening,'' said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. ``The stock markets are plunging, people are retrenching and manufacturing activity is virtually falling off a cliff. The increase in layoffs can only worsen the economic downturn.''
First-time jobless claims last week were the highest since 1982, with the exception of a one-week jump in filings in July 1992 caused by temporary layoffs at General Motors Corp. The number of people staying on benefit rolls rose to 4.012 million, the most since December 1982, in the week to Nov. 8.
Economists' Forecasts
Economists surveyed by Bloomberg News had anticipated a reading of 505,000 for last week, based on the median of 40 projections. Claims for the prior week were revised to 515,000 from 516,000.
``This is a reflection of the level of caution that hit the economy in October,'' said Jonathan Basile, an economist at Credit Suisse Holdings Inc. in New York. He added that payroll losses, already totaling 1.2 million this year, will likely ``get worse before they get better.''
The Standard & Poor's 500 Stock Index plunged 6.7 percent to close at 752.44, its lowest level in 11 years, extending its decline for the year to 49 percent. Ten-year Treasury yields dropped to 2.99 percent, a record low, from 3.32 percent late yesterday, and two-year yields slid below 1 percent.
Companies are trimming staff as consumer spending is forecast to fall through at least March, according to economists surveyed by Bloomberg early this month. Banks, faced with mounting losses and write-offs as the financial crisis spread over the past year, have been sacking thousands of workers.
Citigroup Losses
Citigroup Inc., the fourth-largest U.S. bank, will eliminate 52,000 jobs over the next year, twice the target announced last month, as loan losses surge and the economy shrinks, the company said Nov. 17. The company's shares today reached the lowest level since 1994.
``We thought last year the bottom had been reached, but it hasn't,'' Citigroup Chairman Win Bischoff said in a conference in Dubai. ``Most responsible companies are getting into a planning cycle with more pessimistic budgets than they have been in the past.''
Carmakers are also firing workers. Ford Motor Co. plans temporary shutdowns at nine North American plants this quarter, idling as many as 23,000 workers, as it slashes production after an 18 percent drop in U.S. sales this year, the company said Nov. 12.
Forty-three states and territories reported an increase in new claims, while 10 reported a decrease. The unemployment rate among people eligible for benefits, which tends to track the jobless rate, rose to 3 percent, the highest since June 2003. These data are reported with a one-week lag.
Initial jobless claims averaged 416,000 a week during the last recession, from March 2001 to November 2001.
Philadelphia Index
The Federal Reserve Bank of Philadelphia's general economic index was minus 39.3 this month, weaker than forecast and the lowest reading since October 1990, from minus 37.5 in October, the bank said today. Negative readings signal contraction. The index averaged 5.1 last year.
The deepening credit crisis and economic slump are forcing companies to trim payrolls, investment and production. Slowing global demand is weighing on manufacturing, which accounts for about 12 percent of the U.S. economy.
``Manufacturers are getting hit by several different forces,'' Dean Maki, co-chief global economist at Barclays Capital Markets in New York, said in an interview with Bloomberg Television. ``Exports are being hit pretty hard because the slowdown is heading abroad as well.''
Component Measures
Six of the 10 indicators in today's Conference Board report dragged the index down, led by plunging stock prices, which subtracted 0.89 percentage point. The Standard & Poor's 500 index dropped 20 percent last month from September.
The index was forecast to decline 0.6 percent, according to the median of 56 forecasts. The reading for September was revised to a gain of 0.1 percent, less than the 0.3 percent increase previously reported.
The index is also made up of jobless claims, building permits, consumer expectations, the yield curve, factory hours and supplier delivery times, new orders for consumer goods, bookings for capital goods and money supply adjusted for inflation.
Housing subtracted 0.35 percentage point from the index in October. The pace of housing starts and building permits, a sign of future construction, both plunged to record lows last month, indicating the industry's downturn may extend into a fourth year.
Lowe's Cos., the second-largest home-improvement retailer, reduced its full-year profit forecast following a slowdown in remodeling projects.
Federal Reserve policy makers ``generally expected the economy to contract moderately in the second half of 2008 and the first half of 2009 and agreed that the downside risks to growth had increased,'' according to minutes of their Oct. 28-29 meeting released yesterday.
The economy contracted 0.3 percent in the third quarter and economists surveyed by Bloomberg forecast negative growth of about 1 percent for the next six months.
Wednesday, November 19, 2008
BOE Saw Need for Rate Reduction of More Than 2 Points (Update2)
By Svenja O'Donnell
Nov. 19 (Bloomberg) -- Bank of England policy makers considered an even bigger reduction in the benchmark interest rate than the 1.5 percentage-point cut announced on Nov. 6 as their forecasts pointed to a deepening recession.
The possible need for a cut to less than 2.5 percent was discussed at the Monetary Policy Committee's meeting, according to minutes published today by the central bank in London. Governor Mervyn King and his colleagues vote 9-0 to lower the rate to 3 percent from 4.5 percent.
The U.K.'s inflation rate had the biggest drop in at least 11 years in October as the economy shrank, data showed yesterday. King said last week that Britain probably faces a recession and the central bank is ready to cut the interest rate as much as needed to prevent deflation from taking hold.
``The projections in the inflation report implied that a very significant reduction in bank rate -- possibly in excess of 200 basis points -- might be required in order to meet the inflation target in the medium term,'' the committee said.
Policy makers limited the reduction to 1.5 percentage points because they wanted to wait for details of government tax plans and see the effects of the state rescue of financial institutions.
Inflation Credibility
They also said that a bigger cut may surprise financial markets and damage the credibility of their inflation target. Some policy makers said that limiting the reduction gave room for further cuts to bolster confidence in future, the minutes showed.
``The facts have changed to such a degree that, not only did we require 150 basis points, but more is in the pipeline,'' said Philip Shaw, chief economist at Investec Securities in London. ``They clearly believe more aggressive action on interest rates is likely to be required.''
Consumer prices rose 4.5 percent from a year earlier, compared with 5.2 percent the previous month, the statistics office said yesterday. The slowing economy is fuelling concerns of deflation, as manufacturers' raw material costs and output prices fell at the fastest pace in 22 years last month.
Policy maker Timothy Besley said yesterday that the weakness of the pound, which has dropped more than 24 percent against the dollar this year, probably won't be enough to prevent inflation from slowing below the 2 percent target in 2009. The pound traded at $1.5006 as of 10:29 a.m. in London today.
``Inflation is likely to fall below target next year, notwithstanding upward pressure on inflation from the continued fall in the value of the pound,'' Besley said in a speech at the Royal Economic Society in London.
King said on Nov. 12 the bank is ``prepared to cut bank rate to whatever level is necessary,'' to keep inflation at the target and didn't rule out putting the benchmark at zero. The Bank of England's forecasts, published on Nov. 12, show inflation may slow ``well below'' the 2 percent goal in 2009.
Nov. 19 (Bloomberg) -- Bank of England policy makers considered an even bigger reduction in the benchmark interest rate than the 1.5 percentage-point cut announced on Nov. 6 as their forecasts pointed to a deepening recession.
The possible need for a cut to less than 2.5 percent was discussed at the Monetary Policy Committee's meeting, according to minutes published today by the central bank in London. Governor Mervyn King and his colleagues vote 9-0 to lower the rate to 3 percent from 4.5 percent.
The U.K.'s inflation rate had the biggest drop in at least 11 years in October as the economy shrank, data showed yesterday. King said last week that Britain probably faces a recession and the central bank is ready to cut the interest rate as much as needed to prevent deflation from taking hold.
``The projections in the inflation report implied that a very significant reduction in bank rate -- possibly in excess of 200 basis points -- might be required in order to meet the inflation target in the medium term,'' the committee said.
Policy makers limited the reduction to 1.5 percentage points because they wanted to wait for details of government tax plans and see the effects of the state rescue of financial institutions.
Inflation Credibility
They also said that a bigger cut may surprise financial markets and damage the credibility of their inflation target. Some policy makers said that limiting the reduction gave room for further cuts to bolster confidence in future, the minutes showed.
``The facts have changed to such a degree that, not only did we require 150 basis points, but more is in the pipeline,'' said Philip Shaw, chief economist at Investec Securities in London. ``They clearly believe more aggressive action on interest rates is likely to be required.''
Consumer prices rose 4.5 percent from a year earlier, compared with 5.2 percent the previous month, the statistics office said yesterday. The slowing economy is fuelling concerns of deflation, as manufacturers' raw material costs and output prices fell at the fastest pace in 22 years last month.
Policy maker Timothy Besley said yesterday that the weakness of the pound, which has dropped more than 24 percent against the dollar this year, probably won't be enough to prevent inflation from slowing below the 2 percent target in 2009. The pound traded at $1.5006 as of 10:29 a.m. in London today.
``Inflation is likely to fall below target next year, notwithstanding upward pressure on inflation from the continued fall in the value of the pound,'' Besley said in a speech at the Royal Economic Society in London.
King said on Nov. 12 the bank is ``prepared to cut bank rate to whatever level is necessary,'' to keep inflation at the target and didn't rule out putting the benchmark at zero. The Bank of England's forecasts, published on Nov. 12, show inflation may slow ``well below'' the 2 percent goal in 2009.
Tuesday, November 18, 2008
U.S. Stocks Rally, Led by Energy, Computer Shares; Exxon Gains
By Eric Martin
Nov. 18 (Bloomberg) -- U.S. stocks gained in the last hour of trading as a rally in energy and technology shares overpowered earlier declines spurred by a drop in homebuilder confidence to the lowest level on record.
Hewlett-Packard Co. jumped 14 percent as earnings topped analysts' estimates, while Exxon Mobil Corp. climbed more than 4 percent. The advance in equities accelerated near the close as investors tracking the Standard & Poor's 500 Index bought shares to replace Anheuser-Busch Cos., which was removed from the gauge following its takeover by InBev NV.
The S&P 500 added 1 percent to 859.12, the first advance in three days. The Dow Jones Industrial Average increased 151.17 points, or 1.8 percent, to 8,424.75. The Nasdaq Composite Index rose less than 0.1 percent to 1,483.27. About six stocks retreated for every five that advanced on the New York Stock Exchange.
``A number of industries' and sectors' stocks have fallen by huge percentages over the past year and appear to be at pretty attractive valuations based on historical measures,'' said Dean Gulis, part of a group that manages about $2.5 billion for Loomis Sayles & Co. in Bloomfield Hills, Michigan. ``There can be some small-scale buying done in this market environment.''
The S&P 500 earlier slid below its lowest closing level since 2003 after the National Association of Home Builders/Wells Fargo index of builder confidence decreased to a worse-than- forecast reading of 9, the lowest level since record-keeping began in 1985.
Worst Year Since '31
The benchmark index for U.S. equities is down more than 41 percent in 2008, poised for its worst year since 1931, as credit losses and asset writedowns at global financial firms approach $1 trillion. Profits slumped 17 percent on average at companies in the index that have reported third-quarter results, according to Bloomberg data. Analysts expect an 8.5 percent drop in full-year earnings, based on estimates compiled by Bloomberg.
The S&P 500 erased a drop of as much as 2.8 percent in the final hour of the trading session as managers of funds that mimic the index prepared for the replacement of Anheuser-Busch by Stericycle Inc. Anheuser-Busch, with a market value of about $50 billion, was set to be removed following the close of its acquisition by InBev NV of Belgium.
Index funds, which represent about 10 percent of the stock market, ``got $5 billion from owning BUD,'' said Michael Buek, a principal at Vanguard Group Inc. in Valley Forge, Pennsylvania, manager of the biggest S&P 500 index fund. BUD is the ticker symbol for Anheuser-Busch, brewer of Budweiser beer.
`Put to Work'
``The stock that was added was a $500 million weight, so about $4.5 billion has to be put to work,'' said Buek. ``That money was spent across the other 499 names. To perfectly track the close, you'd want to put the $4.5 billion to work on the close.''
The earlier retreat in the S&P 500 pushed its dividend yield above the yield on 10-year Treasury notes for the first time since 1958 today, according to data compiled by Bloomberg and Peter Bernstein, the financial author and president of Peter L. Bernstein Inc. Dividends paid by S&P 500 companies were 3.57 percent of the index's price as of 1:13 p.m., compared with the 10-year note's yield of 3.54 percent.
``It's something I've been watching for quite some time,'' said Fritz Meyer, the Denver-based senior market strategist at Invesco Aim, which manages about $358 billion. ``It speaks to the opportunity in stocks. By comparison to Treasuries, every asset class is on sale.''
Tech Rally
Hewlett-Packard added $4.25, or 14 percent, to $33.59. The computer maker reported fourth-quarter earnings of $1.03 a share, excluding reorganizing expenses and other costs, exceeding the $1 average analyst estimate. The results signal Hewlett-Packard is withstanding an economic crisis that has sapped sales at other technology companies, including Cisco Systems Inc. and Intel Corp.
Hewlett-Packard led the S&P 500 Information Technology Index to a 1.9 percent advance. The gains came after the group's valuation slid to less than 12 times earnings, the cheapest since Bloomberg began tracking the data in 1995.
Yahoo! Inc. jumped 8.7 percent to $11.55 after Chief Executive Officer Jerry Yang agreed to step down, opening the door for a fresh bid from Microsoft Corp. The company's market value has dropped by more than $20 billion since Yang took over as CEO in June 2007 as discussions with Microsoft ended in failure, an ad partnership with Google Inc. was derailed and talks with Time Warner Inc.'s AOL stalled. Yahoo ``might be worth $21'' a share to an acquirer, Goldman Sachs Group Inc. said.
Energy companies climbed 3.3 percent as a group, the most among 10 industries in the S&P 500, as they also traded close to their lowest price-to-earnings valuation on record. Exxon Mobil Corp., the largest U.S. energy company, gained $2.95, or 4 percent, to $76.33.
Home Depot Beats
Home Depot Inc., the world's largest home-improvement retailer, added 71 cents, or 3.6 percent, to $20.71 after profit declined less than analysts estimated and the company repeated its earnings forecast for the year. As U.S. consumers cut back on renovations and cabinet purchases, Home Depot has slashed corporate expenses and closed stores to help remain profitable.
Walt Disney Co. gained 4.7 percent to $20.67 for the biggest jump in the Dow average after Hewlett-Packard. The biggest theme- park operator was raised to ``buy'' from ``neutral'' by Pali Capital LLC, which predicted a ``modest positive'' rebound in attendance at the company's resorts in 2010.
Citigroup, CIT Tumble
Citigroup Inc. dropped 53 cents, or 6 percent, to $8.36 and traded below $8 for the first time since 1995. The bank that yesterday announced plans to cut 52,000 jobs may post a loss of 30 cents per share next year, compared with a previous estimate of a $1.50 profit, Deutsche Bank AG analyst Mike Mayo wrote in a note.
CIT Group Inc. fell the most in the S&P 500, losing 89 cents, or 26 percent, to $2.60. The commercial lender's stock- price forecast was reduced to $11 from $13 by Barclays Plc, which said its share sale will dilute earnings.
Corning Inc. declined 62 cents, or 6.9 percent, to $8.39. The biggest maker of glass for flat-panel televisions said fourth-quarter sales will miss its forecast as demand for TVs and computer monitors wanes.
Medtronic Inc. dropped $4.82, or 13 percent, to $31.60. The world's second-biggest maker of medical devices said fiscal second-quarter profit fell 14 percent, missing analysts' estimates, on legal costs.
`Far From Normal'
The cost of borrowing in dollars for three months in London fell for the first time in four days ahead of Congressional testimony from Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson. The London interbank offered rate, or Libor, that banks say they charge each other for three- month loans declined two basis points to 2.22 percent today, according to the British Bankers' Association.
Bernanke said lending in the U.S. is ``still far from normal,'' even after emergency federal programs helped reduce interest rates for some borrowers.
``There are some signs that credit markets, while still quite strained, are improving,'' Bernanke told the House Financial Services Committee. ``However, overall, credit conditions are still far from normal.''
Nov. 18 (Bloomberg) -- U.S. stocks gained in the last hour of trading as a rally in energy and technology shares overpowered earlier declines spurred by a drop in homebuilder confidence to the lowest level on record.
Hewlett-Packard Co. jumped 14 percent as earnings topped analysts' estimates, while Exxon Mobil Corp. climbed more than 4 percent. The advance in equities accelerated near the close as investors tracking the Standard & Poor's 500 Index bought shares to replace Anheuser-Busch Cos., which was removed from the gauge following its takeover by InBev NV.
The S&P 500 added 1 percent to 859.12, the first advance in three days. The Dow Jones Industrial Average increased 151.17 points, or 1.8 percent, to 8,424.75. The Nasdaq Composite Index rose less than 0.1 percent to 1,483.27. About six stocks retreated for every five that advanced on the New York Stock Exchange.
``A number of industries' and sectors' stocks have fallen by huge percentages over the past year and appear to be at pretty attractive valuations based on historical measures,'' said Dean Gulis, part of a group that manages about $2.5 billion for Loomis Sayles & Co. in Bloomfield Hills, Michigan. ``There can be some small-scale buying done in this market environment.''
The S&P 500 earlier slid below its lowest closing level since 2003 after the National Association of Home Builders/Wells Fargo index of builder confidence decreased to a worse-than- forecast reading of 9, the lowest level since record-keeping began in 1985.
Worst Year Since '31
The benchmark index for U.S. equities is down more than 41 percent in 2008, poised for its worst year since 1931, as credit losses and asset writedowns at global financial firms approach $1 trillion. Profits slumped 17 percent on average at companies in the index that have reported third-quarter results, according to Bloomberg data. Analysts expect an 8.5 percent drop in full-year earnings, based on estimates compiled by Bloomberg.
The S&P 500 erased a drop of as much as 2.8 percent in the final hour of the trading session as managers of funds that mimic the index prepared for the replacement of Anheuser-Busch by Stericycle Inc. Anheuser-Busch, with a market value of about $50 billion, was set to be removed following the close of its acquisition by InBev NV of Belgium.
Index funds, which represent about 10 percent of the stock market, ``got $5 billion from owning BUD,'' said Michael Buek, a principal at Vanguard Group Inc. in Valley Forge, Pennsylvania, manager of the biggest S&P 500 index fund. BUD is the ticker symbol for Anheuser-Busch, brewer of Budweiser beer.
`Put to Work'
``The stock that was added was a $500 million weight, so about $4.5 billion has to be put to work,'' said Buek. ``That money was spent across the other 499 names. To perfectly track the close, you'd want to put the $4.5 billion to work on the close.''
The earlier retreat in the S&P 500 pushed its dividend yield above the yield on 10-year Treasury notes for the first time since 1958 today, according to data compiled by Bloomberg and Peter Bernstein, the financial author and president of Peter L. Bernstein Inc. Dividends paid by S&P 500 companies were 3.57 percent of the index's price as of 1:13 p.m., compared with the 10-year note's yield of 3.54 percent.
``It's something I've been watching for quite some time,'' said Fritz Meyer, the Denver-based senior market strategist at Invesco Aim, which manages about $358 billion. ``It speaks to the opportunity in stocks. By comparison to Treasuries, every asset class is on sale.''
Tech Rally
Hewlett-Packard added $4.25, or 14 percent, to $33.59. The computer maker reported fourth-quarter earnings of $1.03 a share, excluding reorganizing expenses and other costs, exceeding the $1 average analyst estimate. The results signal Hewlett-Packard is withstanding an economic crisis that has sapped sales at other technology companies, including Cisco Systems Inc. and Intel Corp.
Hewlett-Packard led the S&P 500 Information Technology Index to a 1.9 percent advance. The gains came after the group's valuation slid to less than 12 times earnings, the cheapest since Bloomberg began tracking the data in 1995.
Yahoo! Inc. jumped 8.7 percent to $11.55 after Chief Executive Officer Jerry Yang agreed to step down, opening the door for a fresh bid from Microsoft Corp. The company's market value has dropped by more than $20 billion since Yang took over as CEO in June 2007 as discussions with Microsoft ended in failure, an ad partnership with Google Inc. was derailed and talks with Time Warner Inc.'s AOL stalled. Yahoo ``might be worth $21'' a share to an acquirer, Goldman Sachs Group Inc. said.
Energy companies climbed 3.3 percent as a group, the most among 10 industries in the S&P 500, as they also traded close to their lowest price-to-earnings valuation on record. Exxon Mobil Corp., the largest U.S. energy company, gained $2.95, or 4 percent, to $76.33.
Home Depot Beats
Home Depot Inc., the world's largest home-improvement retailer, added 71 cents, or 3.6 percent, to $20.71 after profit declined less than analysts estimated and the company repeated its earnings forecast for the year. As U.S. consumers cut back on renovations and cabinet purchases, Home Depot has slashed corporate expenses and closed stores to help remain profitable.
Walt Disney Co. gained 4.7 percent to $20.67 for the biggest jump in the Dow average after Hewlett-Packard. The biggest theme- park operator was raised to ``buy'' from ``neutral'' by Pali Capital LLC, which predicted a ``modest positive'' rebound in attendance at the company's resorts in 2010.
Citigroup, CIT Tumble
Citigroup Inc. dropped 53 cents, or 6 percent, to $8.36 and traded below $8 for the first time since 1995. The bank that yesterday announced plans to cut 52,000 jobs may post a loss of 30 cents per share next year, compared with a previous estimate of a $1.50 profit, Deutsche Bank AG analyst Mike Mayo wrote in a note.
CIT Group Inc. fell the most in the S&P 500, losing 89 cents, or 26 percent, to $2.60. The commercial lender's stock- price forecast was reduced to $11 from $13 by Barclays Plc, which said its share sale will dilute earnings.
Corning Inc. declined 62 cents, or 6.9 percent, to $8.39. The biggest maker of glass for flat-panel televisions said fourth-quarter sales will miss its forecast as demand for TVs and computer monitors wanes.
Medtronic Inc. dropped $4.82, or 13 percent, to $31.60. The world's second-biggest maker of medical devices said fiscal second-quarter profit fell 14 percent, missing analysts' estimates, on legal costs.
`Far From Normal'
The cost of borrowing in dollars for three months in London fell for the first time in four days ahead of Congressional testimony from Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson. The London interbank offered rate, or Libor, that banks say they charge each other for three- month loans declined two basis points to 2.22 percent today, according to the British Bankers' Association.
Bernanke said lending in the U.S. is ``still far from normal,'' even after emergency federal programs helped reduce interest rates for some borrowers.
``There are some signs that credit markets, while still quite strained, are improving,'' Bernanke told the House Financial Services Committee. ``However, overall, credit conditions are still far from normal.''
Sunday, November 16, 2008
Pound to Plummet 13% to Lowest Level Since 1985, JPMorgan Says
By Candice Zachariahs
Nov. 17 (Bloomberg) -- The pound will drop 13 percent against the dollar and 8 percent versus the euro as U.K. banks shrink foreign borrowings and the country's policy makers favor a weaker currency, JPMorgan & Chase Co. said.
The pound will ``trough'' at $1.28, a level not seen since 1985, and sink to a record low of 92 pence per euro in early 2009 as Britain's banks shrink foreign currency borrowings and demand for safety strengthens the U.S. dollar, JPMorgan said. U.K. banks' total foreign-currency borrowings equaled 276 percent of gross domestic product as of June 30, JPMorgan said.
``The U.K. may not be Iceland but the temperature is certainly dropping,'' wrote London-based Paul Meggyesi, a currency strategist at JPMorgan, in a research note dated Nov. 14. ``We take an axe to our pound forecasts to reflect the risk of continued bank deleveraging.''
The pound fell for a sixth day to $1.4682 as of 10:04 a.m. in Tokyo from $1.4740 on Nov. 14. It traded at 85.31 pence per euro, after a record decline last week.
The median estimate of 30 analysts in a Bloomberg News survey is for the pound to trade at $1.56 and at 80 pence per euro in the first quarter. JPMorgan had previously said the pound would bottom at $1.48 and in ``the low 0.80s'' against the euro.
Foreign Borrowings
Britain's banks had gross foreign borrowings of $6 trillion at the end of the second quarter of 2008, Meggyesi wrote. Their net exposure was $381 billion, or 18 percent of GDP, with U.S. dollar and yen borrowings making up the largest share, he wrote.
The Bank of England is expected to cut interest rates after forecasting on Nov. 12 that the U.K. economy will contract by an annual 1.8 percent in the first three months of next year.
``We are certainly prepared to cut the bank rate if that proves to be necessary,'' Bank of England Governor Mervyn King said that day.
The BOE slashed rates by an unexpected 150 basis points to the lowest since 1955 on Nov. 6. The U.K. central bank will bring the main rate to 2 percent from the current 3 percent at the next scheduled decision on Dec. 4, BNP Paribas SA, Barclays Capital and JPMorgan said in e-mailed notes on Nov. 12.
``In welcoming the boost to growth and downplaying the inflationary consequences of a falling exchange rate, the Bank confirmed that the authorities regard currency weakness as a net economic benefit,'' Meggyesi wrote on Nov. 14.
Nov. 17 (Bloomberg) -- The pound will drop 13 percent against the dollar and 8 percent versus the euro as U.K. banks shrink foreign borrowings and the country's policy makers favor a weaker currency, JPMorgan & Chase Co. said.
The pound will ``trough'' at $1.28, a level not seen since 1985, and sink to a record low of 92 pence per euro in early 2009 as Britain's banks shrink foreign currency borrowings and demand for safety strengthens the U.S. dollar, JPMorgan said. U.K. banks' total foreign-currency borrowings equaled 276 percent of gross domestic product as of June 30, JPMorgan said.
``The U.K. may not be Iceland but the temperature is certainly dropping,'' wrote London-based Paul Meggyesi, a currency strategist at JPMorgan, in a research note dated Nov. 14. ``We take an axe to our pound forecasts to reflect the risk of continued bank deleveraging.''
The pound fell for a sixth day to $1.4682 as of 10:04 a.m. in Tokyo from $1.4740 on Nov. 14. It traded at 85.31 pence per euro, after a record decline last week.
The median estimate of 30 analysts in a Bloomberg News survey is for the pound to trade at $1.56 and at 80 pence per euro in the first quarter. JPMorgan had previously said the pound would bottom at $1.48 and in ``the low 0.80s'' against the euro.
Foreign Borrowings
Britain's banks had gross foreign borrowings of $6 trillion at the end of the second quarter of 2008, Meggyesi wrote. Their net exposure was $381 billion, or 18 percent of GDP, with U.S. dollar and yen borrowings making up the largest share, he wrote.
The Bank of England is expected to cut interest rates after forecasting on Nov. 12 that the U.K. economy will contract by an annual 1.8 percent in the first three months of next year.
``We are certainly prepared to cut the bank rate if that proves to be necessary,'' Bank of England Governor Mervyn King said that day.
The BOE slashed rates by an unexpected 150 basis points to the lowest since 1955 on Nov. 6. The U.K. central bank will bring the main rate to 2 percent from the current 3 percent at the next scheduled decision on Dec. 4, BNP Paribas SA, Barclays Capital and JPMorgan said in e-mailed notes on Nov. 12.
``In welcoming the boost to growth and downplaying the inflationary consequences of a falling exchange rate, the Bank confirmed that the authorities regard currency weakness as a net economic benefit,'' Meggyesi wrote on Nov. 14.
Crude Oil Falls as Global Slowdown Cuts Demand in China, Japan
By Gavin Evans and Christian Schmollinger
Nov. 17 (Bloomberg) -- Oil fell for a second day in New York on signs the global slowdown is limiting demand in China and Japan, the world's second- and third-largest crude users.
Japan entered the first recession since 2001 as its gross domestic product fell an annualized 0.1 percent in the three months ended Sept. 30 after shrinking 3.7 percent in the previous period. China National Petroleum Corp., the country's biggest oil producer, said demand has contracted ``sharply'' since September because of the global credit crisis.
``There doesn't seem to be much out there to stop the fall in prices,'' said Toby Hassall, research analyst at Commodity Warrants Pty in Sydney. ``Weak demand and a pretty bleak demand outlook'' may push oil prices as low as $50 this week, he said.
Crude oil for December delivery dropped as much as $1.44, or 2.5 percent, to $55.60 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $55.73 at 9:35 a.m. in Singapore.
The contract slumped 2.1 percent to settle at $57.04 on Nov. 14, having touched $54.67 the previous day, the lowest since Jan. 30, 2007. Prices declined 6.6 percent last week as world equity markets dropped, Germany entered its worst recession in 12 years and U.S. retail sales fell for a fourth straight month.
Economists had predicted Japan's economy would rebound 0.1 percent in the September quarter. Japan used 5.1 million barrels a day in 2007, according to the BP Statistical Review of Energy. China used 7.9 million barrels a day.
IEA Cuts Forecast
The slowdown in demand because of the credit crisis caused stockpiles in the country to increase ``significantly,'' China National Petroleum said in a statement on its Web site.
``As the impact of the financial crisis on China's economy deepens, the company's operations have also been affected adversely,'' the statement said.
The International Energy Agency last week slashed its global oil consumption forecast for 2009 by 670,000 barrels a day. Demand will rise 0.4 percent to 86.5 million barrels a day, with growth in emerging nations partly offsetting a 1.6 percent contraction in fuel use in developed economies, the Paris-based agency said.
Brent crude oil for January settlement fell as much as 99 cents, or 1.8 percent, to $53.25 a barrel on London's ICE Futures Europe exchange. It was at $53.32 a barrel at 9:37 a.m. Singapore time. The contract fell 3.6 percent to $54.24 a barrel on Nov. 14.
Traders Net-Short
Hedge-fund managers and other large speculators increased their net-short position in New York crude-oil futures in the week ended Nov. 11, according to U.S. Commodity Futures Trading Commission data.
Speculative short positions, or bets prices will fall, outnumbered long positions by 52,984 contracts on the New York Mercantile Exchange, the Washington-based commission said in its Commitments of Traders report. Net-short positions rose by 42,441 contracts, or 403 percent, from a week earlier.
OPEC is likely to wait until December before cutting output again, the group's president, Chakib Khelil, said in Algeria yesterday.
Saudi Arabia, the world's biggest oil producer and the largest member in OPEC, will help alleviate global financial stress by maintaining stable oil markets, King Abdullah said after a meeting of Group of 20 leaders in Washington Nov. 15.
Iran Seeks Cuts
Iran, OPEC's second-largest producer, may seek a production cut of as much as 1.5 million barrels a day when the group meets in Cairo later this month, the Associated Press reported Nov. 15, citing televised comments by the nation's OPEC Governor Mohammad Ali Khatibi.
The group, which pumps about 40 percent of the world's oil, cut output by 1.5 million barrels a day last month. It will have more information on which to make a decision on further cuts at the Dec. 17 meeting in Oran, Algeria, Khelil said yesterday.
``We have yet to see the full cut from the previous meeting implemented at this stage,'' Commodity Warrants' Hassall said. ``Compliance is always going to be an issue.''
Nov. 17 (Bloomberg) -- Oil fell for a second day in New York on signs the global slowdown is limiting demand in China and Japan, the world's second- and third-largest crude users.
Japan entered the first recession since 2001 as its gross domestic product fell an annualized 0.1 percent in the three months ended Sept. 30 after shrinking 3.7 percent in the previous period. China National Petroleum Corp., the country's biggest oil producer, said demand has contracted ``sharply'' since September because of the global credit crisis.
``There doesn't seem to be much out there to stop the fall in prices,'' said Toby Hassall, research analyst at Commodity Warrants Pty in Sydney. ``Weak demand and a pretty bleak demand outlook'' may push oil prices as low as $50 this week, he said.
Crude oil for December delivery dropped as much as $1.44, or 2.5 percent, to $55.60 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $55.73 at 9:35 a.m. in Singapore.
The contract slumped 2.1 percent to settle at $57.04 on Nov. 14, having touched $54.67 the previous day, the lowest since Jan. 30, 2007. Prices declined 6.6 percent last week as world equity markets dropped, Germany entered its worst recession in 12 years and U.S. retail sales fell for a fourth straight month.
Economists had predicted Japan's economy would rebound 0.1 percent in the September quarter. Japan used 5.1 million barrels a day in 2007, according to the BP Statistical Review of Energy. China used 7.9 million barrels a day.
IEA Cuts Forecast
The slowdown in demand because of the credit crisis caused stockpiles in the country to increase ``significantly,'' China National Petroleum said in a statement on its Web site.
``As the impact of the financial crisis on China's economy deepens, the company's operations have also been affected adversely,'' the statement said.
The International Energy Agency last week slashed its global oil consumption forecast for 2009 by 670,000 barrels a day. Demand will rise 0.4 percent to 86.5 million barrels a day, with growth in emerging nations partly offsetting a 1.6 percent contraction in fuel use in developed economies, the Paris-based agency said.
Brent crude oil for January settlement fell as much as 99 cents, or 1.8 percent, to $53.25 a barrel on London's ICE Futures Europe exchange. It was at $53.32 a barrel at 9:37 a.m. Singapore time. The contract fell 3.6 percent to $54.24 a barrel on Nov. 14.
Traders Net-Short
Hedge-fund managers and other large speculators increased their net-short position in New York crude-oil futures in the week ended Nov. 11, according to U.S. Commodity Futures Trading Commission data.
Speculative short positions, or bets prices will fall, outnumbered long positions by 52,984 contracts on the New York Mercantile Exchange, the Washington-based commission said in its Commitments of Traders report. Net-short positions rose by 42,441 contracts, or 403 percent, from a week earlier.
OPEC is likely to wait until December before cutting output again, the group's president, Chakib Khelil, said in Algeria yesterday.
Saudi Arabia, the world's biggest oil producer and the largest member in OPEC, will help alleviate global financial stress by maintaining stable oil markets, King Abdullah said after a meeting of Group of 20 leaders in Washington Nov. 15.
Iran Seeks Cuts
Iran, OPEC's second-largest producer, may seek a production cut of as much as 1.5 million barrels a day when the group meets in Cairo later this month, the Associated Press reported Nov. 15, citing televised comments by the nation's OPEC Governor Mohammad Ali Khatibi.
The group, which pumps about 40 percent of the world's oil, cut output by 1.5 million barrels a day last month. It will have more information on which to make a decision on further cuts at the Dec. 17 meeting in Oran, Algeria, Khelil said yesterday.
``We have yet to see the full cut from the previous meeting implemented at this stage,'' Commodity Warrants' Hassall said. ``Compliance is always going to be an issue.''
Sunday, November 2, 2008
New Zealand Wages Rise 3.5% as Fuel, Food Costs Soar (Update1)
By Tracy Withers
Nov. 3 (Bloomberg) -- New Zealand wages rose at a record pace in the year ended Sept. 30 as workers demanded pay increases to meet rising food and fuel costs.
Wages for non-government workers, excluding overtime, increased 3.5 percent in the 12 months to September, according to Statistics New Zealand's labor cost index released in Wellington today. Wages rose 1.2 percent from the second quarter.
About 43 percent of companies surveyed said they increased wages because of a higher cost of living as fuel and food costs soared. Annual wage inflation may slow as consumer spending and business investment decline after the economy fell into its first recession since 1998.
``The vast majority of workers are secure in their jobs and worried about the spiraling cost of living,'' Brendan O'Donovan, chief economist at Westpac Banking Corp. in Wellington, said before the report was released. Still, ``the cracks in New Zealand's strong labor market are widening.''
The median estimate of 11 economists surveyed by Bloomberg News was for wages to rise 0.8 percent in the quarter and 3.4 percent from a year earlier. Wages also rose 3.5 percent in the year to June.
The agriculture and mining industries posted record quarterly increases, the statistics agency said. Both sectors said the main reason was to reflect the higher cost of living.
Including overtime, wages for non-government workers rose 1.1 percent from the second quarter, for a record annual increase of 3.7 percent, today's report showed.
Recession
The economy contracted in the first half of this year and probably shrank in the third quarter, the central bank and Treasury Department said in forecasts published in September.
Reserve Bank Governor Alan Bollard has reduced the benchmark interest rate by 1.75 percentage points since July and will probably cut another half point in early December, according to eight of 10 economists surveyed by Bloomberg.
Wages may slow as unemployment rises, increasing the supply of workers. Company hiring intentions slumped to a 20- year low in October, according to a survey by ANZ National Bank Ltd.
Business confidence fell by the most on record as an inability to obtain credit made firms unwilling to hire workers or start new projects.
The jobless rate probably rose to 4.3 percent in the third quarter, the highest since 2003, according to a survey of 12 economists. The employment report is published on Nov. 6.
Hourly Wage Rate
A separate series based on reported salary and ordinary- time wage rates of non-government workers rose 1.5 percent in the third quarter and 5.4 percent from a year earlier, Statistics New Zealand said.
Average hourly ordinary time wages of non-government workers climbed 1.1 percent in the quarter for an annual gain of 5.2 percent.
Statistics New Zealand also released indicators showing the demand for labor slowed in the third quarter.
The number of full-time equivalent employees declined 0.9 percent from the second quarter. The number of total filled jobs fell 0.6 percent.
Total paid hours fell 0.3 percent, seasonally adjusted, from the second quarter.
Nov. 3 (Bloomberg) -- New Zealand wages rose at a record pace in the year ended Sept. 30 as workers demanded pay increases to meet rising food and fuel costs.
Wages for non-government workers, excluding overtime, increased 3.5 percent in the 12 months to September, according to Statistics New Zealand's labor cost index released in Wellington today. Wages rose 1.2 percent from the second quarter.
About 43 percent of companies surveyed said they increased wages because of a higher cost of living as fuel and food costs soared. Annual wage inflation may slow as consumer spending and business investment decline after the economy fell into its first recession since 1998.
``The vast majority of workers are secure in their jobs and worried about the spiraling cost of living,'' Brendan O'Donovan, chief economist at Westpac Banking Corp. in Wellington, said before the report was released. Still, ``the cracks in New Zealand's strong labor market are widening.''
The median estimate of 11 economists surveyed by Bloomberg News was for wages to rise 0.8 percent in the quarter and 3.4 percent from a year earlier. Wages also rose 3.5 percent in the year to June.
The agriculture and mining industries posted record quarterly increases, the statistics agency said. Both sectors said the main reason was to reflect the higher cost of living.
Including overtime, wages for non-government workers rose 1.1 percent from the second quarter, for a record annual increase of 3.7 percent, today's report showed.
Recession
The economy contracted in the first half of this year and probably shrank in the third quarter, the central bank and Treasury Department said in forecasts published in September.
Reserve Bank Governor Alan Bollard has reduced the benchmark interest rate by 1.75 percentage points since July and will probably cut another half point in early December, according to eight of 10 economists surveyed by Bloomberg.
Wages may slow as unemployment rises, increasing the supply of workers. Company hiring intentions slumped to a 20- year low in October, according to a survey by ANZ National Bank Ltd.
Business confidence fell by the most on record as an inability to obtain credit made firms unwilling to hire workers or start new projects.
The jobless rate probably rose to 4.3 percent in the third quarter, the highest since 2003, according to a survey of 12 economists. The employment report is published on Nov. 6.
Hourly Wage Rate
A separate series based on reported salary and ordinary- time wage rates of non-government workers rose 1.5 percent in the third quarter and 5.4 percent from a year earlier, Statistics New Zealand said.
Average hourly ordinary time wages of non-government workers climbed 1.1 percent in the quarter for an annual gain of 5.2 percent.
Statistics New Zealand also released indicators showing the demand for labor slowed in the third quarter.
The number of full-time equivalent employees declined 0.9 percent from the second quarter. The number of total filled jobs fell 0.6 percent.
Total paid hours fell 0.3 percent, seasonally adjusted, from the second quarter.
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