By Elizabeth Stanton
Oct. 22 (Bloomberg) -- U.S. stocks sank and the Standard & Poor's 500 Index dropped to the lowest level since April 2003 on concern a worsening global economic slump will damp profits.
Exxon Mobil Corp. tumbled 9.7 percent and Freeport-McMoRan Copper & Gold Inc. plunged 18 percent as crude fell more than $5 a barrel and an index of commodity prices dropped to four-year low. Coventry Health Care Inc. tumbled 51 percent as the health insurer's earnings were hurt by bad investments and rising medical costs. SanDisk Corp. sank 32 percent after Samsung Electronics Co. abandoned its takeover bid. European and Asian shares fell, while an index of emerging market stocks slumped 8.3 percent on concern Argentina may default on its debt.
The S&P 500 lost 58.27 points, or 6.1 percent, to 896.78. The Dow Jones Industrial Average plunged 514.45, or 5.7 percent, to 8,519.21 as all 30 of its companies dropped. The Nasdaq Composite Index lost 80.93, or 4.8 percent, 1,615.75. About 24 stocks fell for each that rose on the New York Stock Exchange.
``The question is: Is any money at all flowing towards equities?'' said Jeffrey Coons, co-director of research at Manning & Napier Advisors Inc. in Fairport, New York, which manages $16 billion. ``Dividend yields alone should be providing support for some of these stocks, but if everyone's selling and no one is buying, it's hard to overcome that.''
The S&P 500 extended its 2008 retreat to 39 percent, poised for its worst yearly performance since 1931. The benchmark index for U.S. equities has fallen 43 percent from its peak last October. Companies in the index are paying 3.2 percent of their stock price in dividends, near the highest yield since Bloomberg began tracking the data in 1995.
Economic Concern
Growing concern over the fate of the global economy overshadowed another decrease in money-market rates. The three- month London interbank offered rate for dollars dropped for an eighth straight day to 3.54 percent after the U.S. government's latest initiative to resuscitate bank lending, a $540 billion commitment to buy troubled assets from money-market mutual funds.
The U.S. dollar traded for less than $1.28 against the euro for the first time since November 2006 and the pound tumbled to a five-year low on speculation European central banks will cut interest rates to bolster their economies.
About 1.6 billion shares changed hands on the floor of the NYSE, 6.8 percent more than the three-month daily average.
Credit Concern
Today's drop came as a U.S. House panel released e-mails showing employees at Moody's Investors Service and Standard & Poor's privately questioned the value of some mortgage-backed securities that were given creditworthy ratings. Banks worldwide reported more than $660 billion of mortgage-related writedowns and credit losses in the past year.
Exxon Mobil, the largest oil company, lost $6.93 to $64.57 and helped send the S&P 500 Energy Index to a 10.4 percent tumble, the steepest among 10 industries.
Crude for December delivery declined $5.28, or 7.3 percent, to $66.90 a barrel. Futures touched $66.20, the lowest since June 2007. The Reuters/Jefferies CRB index of 19 metals and chemicals slid 4 percent to 276.4, the lowest since July 2004.
ConocoPhillips slid 9.1 percent to $49.06 despite reporting third-quarter profit that exceeded the average analyst estimate.
Freeport-McMoRan, the largest publicly traded copper producer, lost $5.82 to $26.92 and led a gauge of raw-material companies in the S&P 500 to an 8.3 percent decline. Alcoa Inc., the largest U.S. aluminum producer, slid 13 percent to $10.50 for the biggest drop in the Dow average.
SanDisk tumbled $4.67 to $10.09. South Korea's Samsung withdrew its $26-a-share offer for the world's largest maker of memory cards used in digital cameras, saying losses at the U.S. company may worsen as a glut forces chipmakers to cut prices.
Earnings Watch
Coventry Health slumped $14.56 to $13.93. The insurer said third-quarter profit fell to 58 cents a share. That's half the average analyst estimate of $1.06, according to a Bloomberg survey.
Profits retreated 27 percent on average for the 141 companies in the S&P 500 that released results as of this morning, according to data compiled by Bloomberg. The group has trailed analysts' earnings estimates by an average of 2.6 percent.
Wall Street analysts forecast an 11 percent drop in third- quarter earnings in a Bloomberg survey. That would mark the fifth straight quarter of declining profits.
For the fourth quarter, analysts estimate a 24.2 percent increase in profits. For fiscal 2009, they project growth of 18 percent to a combined $95.70 a share for the S&P 500, according to estimates gathered by Bloomberg.
Inflated Estimates?
``Everyone's got to lower their expectations,'' Keith Wirtz, president and chief investment officer of Fifth Third Asset Management, said on Bloomberg Television. ``This year we're looking at operating earnings somewhere in the mid-$90 range for S&P 500 companies. Who knows what next year might be. It might be somewhere in the mid-$70s.''
Boeing Co., the second-largest maker of commercial airplanes, reported a 38 percent decline in earnings after a strike by machinists shuttered factories and halted deliveries. Net income decreased to $695 million, or 96 cents a share. Analysts had estimated earnings of $1.01 a share. The shares slid $3.49, or 7.5 percent, to $42.91.
AT&T Inc., the largest U.S. phone company, lost $1.95 to $23.78. The company posted third-quarter profit that trailed analysts' projections on costs to subsidize Apple Inc.'s iPhone 3G and declines in corporate spending.
Apple advanced 5.9 percent to $96.87. The company reached a goal of selling 10 million iPhones three months ahead of schedule.
The S&P 500's 23 percent drop so far in October is bigger than any monthly loss since May 1940. It hasn't advanced for two straight days since Sept. 25-26.
`Doesn't Pay to Rush'
``To make people feel better you need at least a couple of consecutive up days,'' said Paul Kandel, a New York-based money manager at Sentinel Asset Management, which oversees $5 billion. ``The market's rotating so quickly that it doesn't pay to rush into anything.''
The S&P 500 has moved more than 1 percent on 13 of the 16 trading days this month, making it the most volatile by that measure since September 1932, according to S&P analyst Howard Silverblatt.
Stocks fell yesterday after companies from Texas Instruments Inc. to Freeport-McMoRan posted results that failed to meet analysts' estimates.
At least 139 S&P 500 companies are scheduled to report third-quarter earnings this week.
Rebound Halted
Yesterday's drop halted a rebound in the S&P 500 from an almost 5 1/2-year low on Oct. 10. The benchmark index for U.S. equities climbed 9.6 percent from that date through Oct. 20 as borrowing costs declined, the government planned to buy stakes in banks and Federal Reserve Chairman Ben S. Bernanke endorsed another economic-stimulus package.
VMware Inc. added 7.1 percent to $20.06. The biggest maker of programs that let computers run multiple operating systems earned 24 cents a share in the third quarter, excluding some items. That topped the average estimate in a Bloomberg survey by 18 percent. EMC Corp., the majority owner of VMware, climbed 3 percent to $9.98.
C.H. Robinson Worldwide Inc. rose 9.5 percent to $43.89. The largest U.S. arranger of freight shipments was raised to ```buy'' from ``neutral'' at Merrill Lynch & Co., which cited increased truckloads in the third quarter.
Yahoo! Inc. gained 2.7 percent to $12.39. The Internet company that rejected a takeover offer from Microsoft Corp. said it plans to cut at least 10 percent of its staff after advertising spending slowed.
Broadcom Corp. climbed 6.5 percent to $14.70. The maker of chips for the iPhone and Nintendo Co.'s Wii game console said third-quarter profit increased almost sixfold, topping estimates, on wireless product sales and a technology royalty payment.
Amazon.com Inc. tumbled 13 percent to $43.28 in trading after U.S. exchanges closed. The world's largest Internet retailer said its full-year forecast for sales and operating income would be lower than it originally projected.
Wednesday, October 22, 2008
Oil Falls to 16-Month Low, Gasoline Tumbles, as Demand Declines
By Mark Shenk
Oct. 22 (Bloomberg) -- Crude oil fell more than $5 a barrel to a 16-month low and gasoline tumbled as weakening fuel consumption outweighed prospects of a production cut by OPEC at a meeting this week.
U.S. fuel demand during the past four weeks was down 8.5 percent from a year ago, an Energy Department report today showed. The financial crisis that's curbed the nation's energy use is spreading to emerging markets. OPEC will decide on Oct. 24 to lower output by at least 1 million barrels a day, according to a Bloomberg News survey.
``The market is more concerned about the economy than anything else,'' said Tom Bentz, senior energy analyst at BNP Paribas in New York. ``Until there is a recovery of the financial system and the economic picture, oil will trend lower, even if OPEC makes a cut of 1 million barrels plus.''
Crude oil for December delivery declined $5.43, or 7.5 percent, to $66.75 a barrel at 2:42 p.m. on the New York Mercantile Exchange, the lowest settlement since June 13, 2007. Prices, which have tumbled 55 percent since reaching a record $147.27 on July 11, are down 24 percent from a year ago.
Gasoline for November delivery declined 12.1 cents, or 7.2 percent, to $1.5709 a gallon in New York, the lowest settlement since Feb. 12, 2007.
Pump prices are following futures lower. Regular gasoline, averaged nationwide, declined 3.1 cents to $2.858 a gallon, AAA, the nation's largest motorist organization, said today on its Web site. Pump prices have tumbled 31 percent from the record $4.114 a gallon reached on July 17.
Emerging Markets
Argentina's planned seizure of $29 billion of private pension funds stoked concern the nation is heading for its second default in a decade. President Cristina Fernandez de Kirchner's decision hurt markets already reeling from slumping commodity prices and slower growth.
China's gross domestic product increased 9 percent in the third quarter from a year earlier, the weakest pace in five years, as the global slowdown saps demand for Chinese products. China is the world's biggest oil consumer, after the U.S.
``I think the economic news from Asia is knocking the last leg from under the bulls,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``We're now getting evidence that China isn't immune to the financial crisis after all.''
Energy prices also fell because the euro sank to almost a two-year low against the dollar as stock markets declined around the world. The euro dropped 1.8 percent to $1.2831 from $1.3063 yesterday, after touching $1.2743, the lowest since Nov. 7, 2006.
U.S. Fuel Consumption
Fuel demand in the U.S. averaged about 18.7 million barrels a day during the four weeks ended Oct. 17, according to today's Energy Department report. Consumption in the four weeks ended Oct. 10 was the lowest since June 1999.
``The projections of a deep economic slowdown are scary,'' said Rick Mueller, director of oil markets at Energy Security Analysis Inc. in Wakefield, Massachusetts. ``Demand for every segment of the oil barrel is going to take a hit.''
U.S. gasoline demand averaged 8.8 million barrels a day over the past four weeks, down 4.3 percent from the same period last year, the report showed. Consumption of distillate fuel, a category that includes heating oil and diesel, averaged 3.9 million barrels a day, down 5.8 percent.
``The industrial slowdown will reduce use of diesel, people will cut back on discretionary driving, hitting gasoline demand, there will be less travel, hitting jet fuel demand, and there will be less shipping, which hits bunker-fuel demand,'' Mueller said.
Stockpile Increase
Crude oil inventories rose 3.18 million barrels to 311.4 million barrels, the report showed. It was the fourth-straight increase. A gain of 2.65 million barrels was forecast, according to the median of responses in a Bloomberg News survey. Supplies of gasoline and distillate fuel also rose.
The Organization of Petroleum Exporting Countries may disregard pleas from oil-consuming nations on the brink of recession and cut output this week, a Bloomberg survey showed.
``The question of reduction has to be discussed,'' Algerian Oil Minister and OPEC President Chakib Khelil said in Vienna. ``Stocks are very high, there is excess of supply, some of us are not able to sell their crude.''
Thirty of 33 analysts surveyed this week forecast that OPEC will lower production by 1 million barrels a day or more at the meeting, which was brought forward from November. That's more oil than Australia consumes. OPEC also may signal plans for an additional reduction by early 2009.
Brent crude oil for December settlement fell $5.20, or 7.5 percent, to $64.52 a barrel on London's ICE Futures Europe exchange, the lowest settlement since May 7, 2007.
Airlines Benefit
Energy stocks are tumbling as airlines rally because of falling energy futures. Exxon Mobil Corp., the world's largest oil company, dropped $6.93 to $64.57. Chevron Corp., the second- largest U.S. oil company, fell $5.06 to $61.74.
American Airlines parent AMR Corp. rose 84 cents to $11.97. United Airlines parent UAL Corp. increased 85 cents to $14.65.
Oct. 22 (Bloomberg) -- Crude oil fell more than $5 a barrel to a 16-month low and gasoline tumbled as weakening fuel consumption outweighed prospects of a production cut by OPEC at a meeting this week.
U.S. fuel demand during the past four weeks was down 8.5 percent from a year ago, an Energy Department report today showed. The financial crisis that's curbed the nation's energy use is spreading to emerging markets. OPEC will decide on Oct. 24 to lower output by at least 1 million barrels a day, according to a Bloomberg News survey.
``The market is more concerned about the economy than anything else,'' said Tom Bentz, senior energy analyst at BNP Paribas in New York. ``Until there is a recovery of the financial system and the economic picture, oil will trend lower, even if OPEC makes a cut of 1 million barrels plus.''
Crude oil for December delivery declined $5.43, or 7.5 percent, to $66.75 a barrel at 2:42 p.m. on the New York Mercantile Exchange, the lowest settlement since June 13, 2007. Prices, which have tumbled 55 percent since reaching a record $147.27 on July 11, are down 24 percent from a year ago.
Gasoline for November delivery declined 12.1 cents, or 7.2 percent, to $1.5709 a gallon in New York, the lowest settlement since Feb. 12, 2007.
Pump prices are following futures lower. Regular gasoline, averaged nationwide, declined 3.1 cents to $2.858 a gallon, AAA, the nation's largest motorist organization, said today on its Web site. Pump prices have tumbled 31 percent from the record $4.114 a gallon reached on July 17.
Emerging Markets
Argentina's planned seizure of $29 billion of private pension funds stoked concern the nation is heading for its second default in a decade. President Cristina Fernandez de Kirchner's decision hurt markets already reeling from slumping commodity prices and slower growth.
China's gross domestic product increased 9 percent in the third quarter from a year earlier, the weakest pace in five years, as the global slowdown saps demand for Chinese products. China is the world's biggest oil consumer, after the U.S.
``I think the economic news from Asia is knocking the last leg from under the bulls,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``We're now getting evidence that China isn't immune to the financial crisis after all.''
Energy prices also fell because the euro sank to almost a two-year low against the dollar as stock markets declined around the world. The euro dropped 1.8 percent to $1.2831 from $1.3063 yesterday, after touching $1.2743, the lowest since Nov. 7, 2006.
U.S. Fuel Consumption
Fuel demand in the U.S. averaged about 18.7 million barrels a day during the four weeks ended Oct. 17, according to today's Energy Department report. Consumption in the four weeks ended Oct. 10 was the lowest since June 1999.
``The projections of a deep economic slowdown are scary,'' said Rick Mueller, director of oil markets at Energy Security Analysis Inc. in Wakefield, Massachusetts. ``Demand for every segment of the oil barrel is going to take a hit.''
U.S. gasoline demand averaged 8.8 million barrels a day over the past four weeks, down 4.3 percent from the same period last year, the report showed. Consumption of distillate fuel, a category that includes heating oil and diesel, averaged 3.9 million barrels a day, down 5.8 percent.
``The industrial slowdown will reduce use of diesel, people will cut back on discretionary driving, hitting gasoline demand, there will be less travel, hitting jet fuel demand, and there will be less shipping, which hits bunker-fuel demand,'' Mueller said.
Stockpile Increase
Crude oil inventories rose 3.18 million barrels to 311.4 million barrels, the report showed. It was the fourth-straight increase. A gain of 2.65 million barrels was forecast, according to the median of responses in a Bloomberg News survey. Supplies of gasoline and distillate fuel also rose.
The Organization of Petroleum Exporting Countries may disregard pleas from oil-consuming nations on the brink of recession and cut output this week, a Bloomberg survey showed.
``The question of reduction has to be discussed,'' Algerian Oil Minister and OPEC President Chakib Khelil said in Vienna. ``Stocks are very high, there is excess of supply, some of us are not able to sell their crude.''
Thirty of 33 analysts surveyed this week forecast that OPEC will lower production by 1 million barrels a day or more at the meeting, which was brought forward from November. That's more oil than Australia consumes. OPEC also may signal plans for an additional reduction by early 2009.
Brent crude oil for December settlement fell $5.20, or 7.5 percent, to $64.52 a barrel on London's ICE Futures Europe exchange, the lowest settlement since May 7, 2007.
Airlines Benefit
Energy stocks are tumbling as airlines rally because of falling energy futures. Exxon Mobil Corp., the world's largest oil company, dropped $6.93 to $64.57. Chevron Corp., the second- largest U.S. oil company, fell $5.06 to $61.74.
American Airlines parent AMR Corp. rose 84 cents to $11.97. United Airlines parent UAL Corp. increased 85 cents to $14.65.
New Zealand Cuts Key Rate By 100 Basis Points to 6.5% (Update2)
By Tracy Withers
Oct. 23 (Bloomberg) -- New Zealand's central bank cut its benchmark interest rate by a record 1 percentage point to 6.5 percent and foreshadowed further reductions to limit damage from the worldwide financial crisis and a slump in the global economy.
``Economic activity will be further constrained by these international developments,'' Reserve Bank Governor Alan Bollard said in a statement in Wellington today. ``Should the outlook for inflation evolve as projected, we would expect to lower the rate further.''
Central banks have cut rates worldwide in an attempt to unfreeze credit markets as the financial meltdown threatens to spark a global recession. Bollard, who began lowering borrowing costs in July as the economy contracted, has scope for further reductions as spending slows and inflation declines.
``We expect further reductions in the cash rate, there will be a 50 basis point cut in December and more after that,'' said Helen Kevans, an economist at JPMorgan Chase & Co. in Sydney. ``Interest rates are still very high and we see it at 4.75 percent in mid-2009.''
Today's cut is the largest since the Reserve Bank began using the official cash rate in 1999. Nine of 11 economists surveyed by Bloomberg News forecast the move. Two expected a three-quarter point reduction.
Bollard said the market shouldn't expect future rate cuts to be of a similar size.
Currency Bounce
The central bank, which is required to keep average price gains between 1 percent and 3 percent, forecasts the inflation rate will be back in its target range within a year.
New Zealand's dollar fell to 58.14 U.S. cents immediately before the statement amid expectations Bollard may have cut by more. It bought 59.50 cents at 10:20 a.m. in Wellington.
``With market chatter prior to the meeting of a more than 100-point cut, the decision has seen the New Zealand dollar bounce,'' said Stephen Halmarick, co-head of economic and market analysis at Citigroup Inc. in Sydney.
The Reserve Bank of Australia cut its benchmark rate by 1 percentage point to 6 percent on Oct. 7. India this week cut its rate for the first time since 2004. Canada reduced its benchmark to the lowest since 2004 and foreshadowed more reductions to come.
Bollard cut the rate by a quarter point in July and a half point to 7.5 percent on Sept. 11 as New Zealand entered its first recession in 10 years, contracting 0.2 percent in the second quarter after shrinking in the three months to March.
Export Outlook
He forecast another contraction in the third quarter. Companies also expect sales will shrink in the final three months of the year, according to a survey by the New Zealand Institute of Economic Research Inc.
``Economic activity will be further constrained relative to outlook presented in September,'' Bollard said today. Last month, he forecast the economy would grow 0.6 percent this year and 1.5 percent in 2009.
``New Zealand can expect to face lower demand for exports and credit is likely to be less readily available,'' he said. ``Consumers and businesses are likely to be more cautious and curtail spending.''
While the economy contracts, high fuel and food prices have driven faster inflation. Consumer prices rose at the quickest pace in 18 years in the 12 months ended Sept. 30, Statistics New Zealand said this week.
``With weaker short-term growth and sharply lower oil prices we now expect that annual inflation will return to the target band around the middle of 2009,'' Bollard said. He didn't provide detailed forecasts.
Consumer Confidence
Still, the central bank has concerns that domestic inflation remains ``stubbornly high,'' led by property taxes, electricity prices and construction costs, Bollard said.
The economy has contracted amid a slump in consumer confidence and a plunge in the housing market. Exports, which make up 30 percent of the economy, are slowing as a drought curbs farm production and world butter and cheese prices decline.
House prices dropped 6.1 percent in September from a year earlier. Home sales are close to a 16-year low.
The slowdown in consumer spending will be offset by the New Zealand dollar's decline, lower fuel prices and tax cuts, Bollard said today.
The collapse of Lehman Brother Holdings Inc. last month sparked a crisis of confidence in financial markets, sending stock markets into a freefall and prompting governments around the world to cut borrowing costs and boost capital for banks.
Global Rates
The Federal Reserve, the European Central Bank and counterparts in London, Sweden and Canada cut their benchmark interest rates by half a point in a coordinated move on Oct. 8 to restore confidence and limit damage to their economies.
``The timing and extent of reductions over the coming months will depend on evidence of actual reductions in domestic cost pressures as well as how the global financial developments play out,'' Bollard said today.
Bollard will cut the rate to 6 percent at his next review on Dec. 4, according to the economists surveyed by Bloomberg. The rate will be 5.5 percent by March, the lowest level since April 2004, they forecast.
Oct. 23 (Bloomberg) -- New Zealand's central bank cut its benchmark interest rate by a record 1 percentage point to 6.5 percent and foreshadowed further reductions to limit damage from the worldwide financial crisis and a slump in the global economy.
``Economic activity will be further constrained by these international developments,'' Reserve Bank Governor Alan Bollard said in a statement in Wellington today. ``Should the outlook for inflation evolve as projected, we would expect to lower the rate further.''
Central banks have cut rates worldwide in an attempt to unfreeze credit markets as the financial meltdown threatens to spark a global recession. Bollard, who began lowering borrowing costs in July as the economy contracted, has scope for further reductions as spending slows and inflation declines.
``We expect further reductions in the cash rate, there will be a 50 basis point cut in December and more after that,'' said Helen Kevans, an economist at JPMorgan Chase & Co. in Sydney. ``Interest rates are still very high and we see it at 4.75 percent in mid-2009.''
Today's cut is the largest since the Reserve Bank began using the official cash rate in 1999. Nine of 11 economists surveyed by Bloomberg News forecast the move. Two expected a three-quarter point reduction.
Bollard said the market shouldn't expect future rate cuts to be of a similar size.
Currency Bounce
The central bank, which is required to keep average price gains between 1 percent and 3 percent, forecasts the inflation rate will be back in its target range within a year.
New Zealand's dollar fell to 58.14 U.S. cents immediately before the statement amid expectations Bollard may have cut by more. It bought 59.50 cents at 10:20 a.m. in Wellington.
``With market chatter prior to the meeting of a more than 100-point cut, the decision has seen the New Zealand dollar bounce,'' said Stephen Halmarick, co-head of economic and market analysis at Citigroup Inc. in Sydney.
The Reserve Bank of Australia cut its benchmark rate by 1 percentage point to 6 percent on Oct. 7. India this week cut its rate for the first time since 2004. Canada reduced its benchmark to the lowest since 2004 and foreshadowed more reductions to come.
Bollard cut the rate by a quarter point in July and a half point to 7.5 percent on Sept. 11 as New Zealand entered its first recession in 10 years, contracting 0.2 percent in the second quarter after shrinking in the three months to March.
Export Outlook
He forecast another contraction in the third quarter. Companies also expect sales will shrink in the final three months of the year, according to a survey by the New Zealand Institute of Economic Research Inc.
``Economic activity will be further constrained relative to outlook presented in September,'' Bollard said today. Last month, he forecast the economy would grow 0.6 percent this year and 1.5 percent in 2009.
``New Zealand can expect to face lower demand for exports and credit is likely to be less readily available,'' he said. ``Consumers and businesses are likely to be more cautious and curtail spending.''
While the economy contracts, high fuel and food prices have driven faster inflation. Consumer prices rose at the quickest pace in 18 years in the 12 months ended Sept. 30, Statistics New Zealand said this week.
``With weaker short-term growth and sharply lower oil prices we now expect that annual inflation will return to the target band around the middle of 2009,'' Bollard said. He didn't provide detailed forecasts.
Consumer Confidence
Still, the central bank has concerns that domestic inflation remains ``stubbornly high,'' led by property taxes, electricity prices and construction costs, Bollard said.
The economy has contracted amid a slump in consumer confidence and a plunge in the housing market. Exports, which make up 30 percent of the economy, are slowing as a drought curbs farm production and world butter and cheese prices decline.
House prices dropped 6.1 percent in September from a year earlier. Home sales are close to a 16-year low.
The slowdown in consumer spending will be offset by the New Zealand dollar's decline, lower fuel prices and tax cuts, Bollard said today.
The collapse of Lehman Brother Holdings Inc. last month sparked a crisis of confidence in financial markets, sending stock markets into a freefall and prompting governments around the world to cut borrowing costs and boost capital for banks.
Global Rates
The Federal Reserve, the European Central Bank and counterparts in London, Sweden and Canada cut their benchmark interest rates by half a point in a coordinated move on Oct. 8 to restore confidence and limit damage to their economies.
``The timing and extent of reductions over the coming months will depend on evidence of actual reductions in domestic cost pressures as well as how the global financial developments play out,'' Bollard said today.
Bollard will cut the rate to 6 percent at his next review on Dec. 4, according to the economists surveyed by Bloomberg. The rate will be 5.5 percent by March, the lowest level since April 2004, they forecast.
Thursday, October 9, 2008
U.S. Stocks Tumble, Sending Dow Below 9,000; GM, Insurers Slide
By Lynn Thomasson and Jeff Kearns
Oct. 9 (Bloomberg) -- U.S. stocks slid and the Dow Jones Industrial Average fell below 9,000 for the first time since 2003 as higher borrowing costs and slower consumer spending spurred concern carmakers, insurers and energy companies will be the next victims of the credit crisis.
General Motors Corp. tumbled 31 percent to a 58-year low and Ford Motor Co. slumped 22 percent as the outlook for car sales worsened. XL Capital Ltd. lost 54 percent and led a gauge of insurers to a 13-year low on concern investment losses will curb results. Exxon Mobil Corp.'s biggest drop in 21 years accelerated the Dow's decline in the final hour of trading as oil retreated below $85 a barrel. Morgan Stanley plunged 26 percent as short sellers returned to the market after a three- week ban.
``People have lost faith in everything,'' said Philip Orlando, who helps manage $350 billion as chief equity market strategist at Federated Investors Inc. in New York. ``We're dealing with an investment community of atheists right now. Valuations no longer matter.''
The Standard & Poor's 500 Index retreated for a seventh day, losing 75.02 points, or 7.6 percent, to 909.92 to cap its longest streak of daily declines since 1996. The Dow Jones Industrial Average declined 678.91, or 7.3 percent, to 8,579.19. The Nasdaq Composite Index decreased 5.5 percent to 1,645.12. Twenty stocks fell for each that rose on the New York Stock Exchange.
`Contagion of Fear'
The S&P 500 extended its 2008 tumble to 38 percent and is poised for its worst yearly performance since 1937. Its valuation slid to 10.9 times estimated earnings, the cheapest versus reported earnings since 1985. The Dow's 35 percent tumble in 2008 puts it on course for its worst year since 1931.
``This is what happens when the contagion of fear spreads,'' said Quincy Krosby, who helps manage about $380 billion as chief investment strategist at the Hartford in Hartford, Connecticut. ``No one is paying attention to fundamentals. People are very, very scared. Ultimately investors decide to sell.''
All 10 industry groups in the S&P 500 tumbled at least 3.4 percent. Technology companies fell the least after International Business Machines Corp. posted higher-than-estimated profit and said the financial crisis will not hold up earnings. IBM rose as much as 5.3 percent in the morning before following the market lower and closing down 1.7 percent at $89.
Stocks rose in the first hour of trading as investors snapped up shares of technology and commodity companies trading at their cheapest price-to-earnings valuations since Bloomberg began tracking the data in 1995.
`Completely Overshot'
``There are problems out there, I know that, but stocks have completely overshot on the downside,'' Kevin Rendino, who manages $10 billion at BlackRock Inc., told Bloomberg Television in an interview taped before stocks began their retreat. ``There are a number of companies that offer unbelievable risk-reward potential.''
Almost $900 billion was wiped off the value of U.S. equities today. About 2 billion shares changed hands on the NYSE, 42 percent more than the same time last week. The Chicago Board Options Exchange Volatility Index, which measures the cost of using options as insurances against further declines in the S&P 500, jumped 11 percent to a record 63.92.
GM, Ford Tumble
GM lost $2.15 to $4.76, while Ford slumped 58 cents to $2.08. Market researcher J.D. Power & Associates today estimated that car and light-truck sales will fall to 13.6 million this year and 13.2 million in 2009. The total was 16.1 million last year and hasn't been as low as the 2009 projection since 1992. S&P said it may cut the automakers' debt rating deeper into junk.
XL Capital plunged $4.67 to $4.01 for the steepest decline in the S&P 500. UBS AG estimated the company's investment losses were $1.1 billion in the third quarter. The shares were removed from Goldman Sachs Group Inc.'s ``conviction buy'' list yesterday on ``concern regarding the quality of XL's investment portfolio.''
Prudential Financial Inc. tumbled $10.02, or 23 percent, to $33.27 for the biggest drop since becoming publicly traded in 2001. The second-biggest U.S. life insurer said operating profit at its financial services businesses fell in the third quarter amid turmoil in financial markets. The company suspended its buyback.
Insurers in the S&P 500 slumped 13 percent to the lowest level since November 1995. Lincoln National Corp. sank 35 percent to $18.31, while Unum Group declined 30 percent to $14.77.
Shorts Return
Morgan Stanley slid $4.35 to $12.45. John Mack, Morgan Stanley's chief executive officer, last month lobbied the Securities and Exchange Commission to ban short-selling, arguing that it was driving down the company's stock. Short sellers borrow stock and sell it, hoping to buy it back at a lower price and profit from the difference. The temporary ban imposed by the SEC ended last night.
A gauge of 969 stocks on the SEC's no-short list lost almost 10 percent today. The group tumbled 25.8 percent since the ban was imposed on Sept. 19, compared with a 24.6 percent slide in the S&P 500.
`Watching Libor'
The S&P 500 Financials Index tumbled 12 percent to its lowest level since October 1996. Bank of America Corp. and Citigroup Inc. tumbled more than 10 percent each, while JPMorgan Chase & Co. lost 6.7 percent.
The London interbank offered rate, or Libor, for three- month loans rose to 4.75 percent today, the highest level since Dec. 28.
``Everyone's watching the Libor, looking for the credit market to thaw and it's not there yet,'' said Alec Young, a New York-based equity strategist at Standard & Poor's. ``Until you get some convincing thawing in the credit markets, the threat of a global recession and a global profits recession remains and it's going to be difficult for stocks to build momentum.''
Investors pulled a record $72 billion from U.S.-managed stock and bond mutual funds in September, seeking the safety of government-insured bank deposits as the financial crisis worsened, according to data compiled by TrimTabs Investment Research in Sausalito, California. The exodus continued in the first week of October, with an additional $49.3 billion of outflows.
LBO Loans
Banks also slid as the value of high-risk, high-yield loans used to fund leveraged buyouts tumbled amid speculation that more than 1 billion euros ($1.4 billion) of debt is being offered for sale, including assets seized from Iceland's banks. Iceland's government seized control of Kaupthing Bank hf, the nation's biggest bank, completing the takeover of a financial industry that collapsed under the weight of foreign debt.
Exxon, Chevron Corp. and ConocoPhillips were among the seven biggest drags on the S&P 500. Exxon lost 12 percent to $68, while Chevron fell 12 percent to $64 and ConocoPhillips retreated 13 percent to $53.83. Energy producers in the S&P 500 slumped 11 percent as a group, the biggest retreat since the gauge was created in 1989.
Crude oil for November delivery fell 2.7 percent to $86.59 a barrel on concern demand will weaken as the economy slows. The U.S., which consumes 24 percent of the world's oil, is now in a recession, according to a Bloomberg News survey of economists.
`Forced to Sell'
Stocks with the most hedge-fund ownership dropped 7 percent today, bringing their monthly decline to 29 percent, according to data compiled by Goldman Sachs and Bloomberg. Goldman's Hedge Fund VIP Basket was dragged lower by a 21 percent tumble in Chesapeake Energy Corp. and an 18 percent drop in SLM Corp.
``Sellers are being forced to sell,'' said James Barrow, 68, president of Barrow Hanley Mewhinney & Strauss in Dallas, which manages $60 billion. ``You're unraveling the hedge-fund community completely, to the point that I assume 60 percent of them will fail.''
Analysts expect a 5.6 percent drop in third-quarter profit at S&P 500 companies, according to Bloomberg data. Alcoa Inc., the biggest U.S. aluminum producer, kicked off the earnings season this week with lower-than-estimated profit, saying net income slid by more than half.
Financial companies led the S&P 500's retreat from its record a year ago today, losing 57 percent as a group through yesterday as Lehman Brothers Holdings Inc. filed for bankruptcy, American International Group Inc. was seized by the government and Bear Stearns Cos. and Merrill Lynch & Co. were forced into emergency takeovers.
Yearlong Bear
Telephone companies had the second-steepest decline among 10 groups in the S&P 500, dropping 44 percent over the past year. Indexes of each of the other eight industries plunged at least 25 percent, except for companies that sell consumer staples, which lost only 10 percent.
Four companies in the benchmark index for U.S. equities tumbled more than 90 percent over the past year through yesterday: AIG, National City Corp., General Growth Properties Inc. and Wachovia Corp.
The three biggest gains in the bear market came from tobacco, beer and hospital companies: UST Inc., Tenet Healthcare Corp. and Anheuser-Busch Cos. each climbed more than 22 percent in the year since the S&P 500's record.
Oct. 9 (Bloomberg) -- U.S. stocks slid and the Dow Jones Industrial Average fell below 9,000 for the first time since 2003 as higher borrowing costs and slower consumer spending spurred concern carmakers, insurers and energy companies will be the next victims of the credit crisis.
General Motors Corp. tumbled 31 percent to a 58-year low and Ford Motor Co. slumped 22 percent as the outlook for car sales worsened. XL Capital Ltd. lost 54 percent and led a gauge of insurers to a 13-year low on concern investment losses will curb results. Exxon Mobil Corp.'s biggest drop in 21 years accelerated the Dow's decline in the final hour of trading as oil retreated below $85 a barrel. Morgan Stanley plunged 26 percent as short sellers returned to the market after a three- week ban.
``People have lost faith in everything,'' said Philip Orlando, who helps manage $350 billion as chief equity market strategist at Federated Investors Inc. in New York. ``We're dealing with an investment community of atheists right now. Valuations no longer matter.''
The Standard & Poor's 500 Index retreated for a seventh day, losing 75.02 points, or 7.6 percent, to 909.92 to cap its longest streak of daily declines since 1996. The Dow Jones Industrial Average declined 678.91, or 7.3 percent, to 8,579.19. The Nasdaq Composite Index decreased 5.5 percent to 1,645.12. Twenty stocks fell for each that rose on the New York Stock Exchange.
`Contagion of Fear'
The S&P 500 extended its 2008 tumble to 38 percent and is poised for its worst yearly performance since 1937. Its valuation slid to 10.9 times estimated earnings, the cheapest versus reported earnings since 1985. The Dow's 35 percent tumble in 2008 puts it on course for its worst year since 1931.
``This is what happens when the contagion of fear spreads,'' said Quincy Krosby, who helps manage about $380 billion as chief investment strategist at the Hartford in Hartford, Connecticut. ``No one is paying attention to fundamentals. People are very, very scared. Ultimately investors decide to sell.''
All 10 industry groups in the S&P 500 tumbled at least 3.4 percent. Technology companies fell the least after International Business Machines Corp. posted higher-than-estimated profit and said the financial crisis will not hold up earnings. IBM rose as much as 5.3 percent in the morning before following the market lower and closing down 1.7 percent at $89.
Stocks rose in the first hour of trading as investors snapped up shares of technology and commodity companies trading at their cheapest price-to-earnings valuations since Bloomberg began tracking the data in 1995.
`Completely Overshot'
``There are problems out there, I know that, but stocks have completely overshot on the downside,'' Kevin Rendino, who manages $10 billion at BlackRock Inc., told Bloomberg Television in an interview taped before stocks began their retreat. ``There are a number of companies that offer unbelievable risk-reward potential.''
Almost $900 billion was wiped off the value of U.S. equities today. About 2 billion shares changed hands on the NYSE, 42 percent more than the same time last week. The Chicago Board Options Exchange Volatility Index, which measures the cost of using options as insurances against further declines in the S&P 500, jumped 11 percent to a record 63.92.
GM, Ford Tumble
GM lost $2.15 to $4.76, while Ford slumped 58 cents to $2.08. Market researcher J.D. Power & Associates today estimated that car and light-truck sales will fall to 13.6 million this year and 13.2 million in 2009. The total was 16.1 million last year and hasn't been as low as the 2009 projection since 1992. S&P said it may cut the automakers' debt rating deeper into junk.
XL Capital plunged $4.67 to $4.01 for the steepest decline in the S&P 500. UBS AG estimated the company's investment losses were $1.1 billion in the third quarter. The shares were removed from Goldman Sachs Group Inc.'s ``conviction buy'' list yesterday on ``concern regarding the quality of XL's investment portfolio.''
Prudential Financial Inc. tumbled $10.02, or 23 percent, to $33.27 for the biggest drop since becoming publicly traded in 2001. The second-biggest U.S. life insurer said operating profit at its financial services businesses fell in the third quarter amid turmoil in financial markets. The company suspended its buyback.
Insurers in the S&P 500 slumped 13 percent to the lowest level since November 1995. Lincoln National Corp. sank 35 percent to $18.31, while Unum Group declined 30 percent to $14.77.
Shorts Return
Morgan Stanley slid $4.35 to $12.45. John Mack, Morgan Stanley's chief executive officer, last month lobbied the Securities and Exchange Commission to ban short-selling, arguing that it was driving down the company's stock. Short sellers borrow stock and sell it, hoping to buy it back at a lower price and profit from the difference. The temporary ban imposed by the SEC ended last night.
A gauge of 969 stocks on the SEC's no-short list lost almost 10 percent today. The group tumbled 25.8 percent since the ban was imposed on Sept. 19, compared with a 24.6 percent slide in the S&P 500.
`Watching Libor'
The S&P 500 Financials Index tumbled 12 percent to its lowest level since October 1996. Bank of America Corp. and Citigroup Inc. tumbled more than 10 percent each, while JPMorgan Chase & Co. lost 6.7 percent.
The London interbank offered rate, or Libor, for three- month loans rose to 4.75 percent today, the highest level since Dec. 28.
``Everyone's watching the Libor, looking for the credit market to thaw and it's not there yet,'' said Alec Young, a New York-based equity strategist at Standard & Poor's. ``Until you get some convincing thawing in the credit markets, the threat of a global recession and a global profits recession remains and it's going to be difficult for stocks to build momentum.''
Investors pulled a record $72 billion from U.S.-managed stock and bond mutual funds in September, seeking the safety of government-insured bank deposits as the financial crisis worsened, according to data compiled by TrimTabs Investment Research in Sausalito, California. The exodus continued in the first week of October, with an additional $49.3 billion of outflows.
LBO Loans
Banks also slid as the value of high-risk, high-yield loans used to fund leveraged buyouts tumbled amid speculation that more than 1 billion euros ($1.4 billion) of debt is being offered for sale, including assets seized from Iceland's banks. Iceland's government seized control of Kaupthing Bank hf, the nation's biggest bank, completing the takeover of a financial industry that collapsed under the weight of foreign debt.
Exxon, Chevron Corp. and ConocoPhillips were among the seven biggest drags on the S&P 500. Exxon lost 12 percent to $68, while Chevron fell 12 percent to $64 and ConocoPhillips retreated 13 percent to $53.83. Energy producers in the S&P 500 slumped 11 percent as a group, the biggest retreat since the gauge was created in 1989.
Crude oil for November delivery fell 2.7 percent to $86.59 a barrel on concern demand will weaken as the economy slows. The U.S., which consumes 24 percent of the world's oil, is now in a recession, according to a Bloomberg News survey of economists.
`Forced to Sell'
Stocks with the most hedge-fund ownership dropped 7 percent today, bringing their monthly decline to 29 percent, according to data compiled by Goldman Sachs and Bloomberg. Goldman's Hedge Fund VIP Basket was dragged lower by a 21 percent tumble in Chesapeake Energy Corp. and an 18 percent drop in SLM Corp.
``Sellers are being forced to sell,'' said James Barrow, 68, president of Barrow Hanley Mewhinney & Strauss in Dallas, which manages $60 billion. ``You're unraveling the hedge-fund community completely, to the point that I assume 60 percent of them will fail.''
Analysts expect a 5.6 percent drop in third-quarter profit at S&P 500 companies, according to Bloomberg data. Alcoa Inc., the biggest U.S. aluminum producer, kicked off the earnings season this week with lower-than-estimated profit, saying net income slid by more than half.
Financial companies led the S&P 500's retreat from its record a year ago today, losing 57 percent as a group through yesterday as Lehman Brothers Holdings Inc. filed for bankruptcy, American International Group Inc. was seized by the government and Bear Stearns Cos. and Merrill Lynch & Co. were forced into emergency takeovers.
Yearlong Bear
Telephone companies had the second-steepest decline among 10 groups in the S&P 500, dropping 44 percent over the past year. Indexes of each of the other eight industries plunged at least 25 percent, except for companies that sell consumer staples, which lost only 10 percent.
Four companies in the benchmark index for U.S. equities tumbled more than 90 percent over the past year through yesterday: AIG, National City Corp., General Growth Properties Inc. and Wachovia Corp.
The three biggest gains in the bear market came from tobacco, beer and hospital companies: UST Inc., Tenet Healthcare Corp. and Anheuser-Busch Cos. each climbed more than 22 percent in the year since the S&P 500's record.
Tuesday, October 7, 2008
Bernanke Signals Fed May Cut Rates as Crisis Deepens (Update3)
Bernanke Signals Fed May Cut Rates as Crisis Deepens (Update3)
By Scott Lanman
Enlarge Image/Details
Oct. 7 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke signaled policy makers are ready to lower interest rates as the credit freeze poses an escalating danger to the economy.
The world financial system is under ``extraordinary stress'' and history shows that severe instability ``can take a heavy toll on the broader economy if left unchecked,'' Bernanke said in a speech in Washington. ``The Federal Reserve will need to consider whether the current stance of policy remains appropriate.''
Today's remarks indicate the central bank's record loans to unblock credit markets are insufficient to prevent a deeper economic downturn. Investors increased bets the Fed will cut its main rate by as much as three-quarters of a point this month after stock indexes slumped to four-year lows and premiums on loans between banks climbed to a record.
``It would be unwise to wait'' after ``such a clear message'' from Bernanke, former San Francisco Fed President Robert Parry said in an interview with Bloomberg Television. A reduction by 1 percentage point would be the ``appropriate amount,'' though the Fed may not go that far, he said.
Stocks slid after Bernanke's remarks failed to assuage investors' concerns about deteriorating financial markets, with the Standard & Poor's 500 Stock Index falling 5.7 percent to the lowest close in five years.
Minutes of the Federal Open Market Committee's Sept. 16 meeting, released in Washington today, showed that some officials then saw a need for a rate cut should there be a ``significant worsening of the growth outlook.''
Fed Meeting
The FOMC, which next gathers Oct. 28-29, cut its target rate for overnight loans between banks by 3.25 percentage points from September to April, then left it unchanged at 2 percent for three meetings.
``With financial markets in such turmoil the odds of an inter-meeting cut are now above 50/50,'' said former Fed governor Lyle Gramley, now senior economic adviser at the Stanford Group Co. in Washington.
Traders see about 40 percent odds of a three-quarter-point cut in rates at or before this month's meeting, futures prices showed as of 4:09 p.m. in New York. The probability of at least a half-point cut remained at 100 percent.
Since Bernanke's last public address, on Sept. 24 to Congress, the Standard & Poor's 500 Stock Index has lost 14 percent, the three-month London interbank offered rate climbed 0.84 percentage point to 4.32 percent and government figures showed U.S. payrolls slid by the most in five years last month.
Change in Assessment
``The combination of the incoming data and recent financial developments suggests that the outlook for economic growth has worsened and that the downside risks to growth have increased,'' Bernanke said at a conference of the National Association for Business Economics today. ``At the same time, the outlook for inflation has improved somewhat, though it remains uncertain.''
The economic slowdown has now ``spread outside the housing sector,'' and consumer spending has ``contracted significantly'' since May when adjusting for inflation, the Fed chief said.
Even households with ``good credit histories'' are finding it harder to get home loans, and disruptions in the commercial paper market have made it more difficult for companies to get working capital, Bernanke said today.
Dangers posed by the intensifying credit crisis have justified the Fed and Treasury taking unprecedented actions in recent weeks, Bernanke said.
``We have learned from historical experience with severe financial crises that if government intervention comes only at a point at which many or most financial institutions are insolvent or nearly so, the costs of restoring the system are greatly increased,'' said Bernanke, 54, a scholar of the Great Depression and former Princeton University economist.
Pumping Cash
The Fed is pumping more than $1 trillion of short-term cash loans into the banking system to head off the global liquidity squeeze. Earlier today, Bernanke moved to backstop the short-term corporate debt market.
The Fed said today it would start buying three-month commercial paper, after the market slid to a three-year low of $1.6 trillion last week as investors fled even companies with few links to the subprime mortgage crisis. The effort comes on top of an expansion yesterday of the central bank's auctions of cash to banks to as much as $900 billion.
Also this week, the Treasury is putting in place its plan to inject as much as $700 billion into the financial system through purchases of distressed assets or potential direct investments into companies.
`Continued Efforts'
The Treasury program should, ``with time,'' help make credit flow and revive economic growth, Bernanke said today. ``Continued efforts to stabilize the financial markets are essential,'' and the central bank ``will continue to use the tools at its disposal to improve market functioning and liquidity,'' he added.
The Fed chief also reviewed the central bank's decisions to forego a rescue of Lehman Brothers Holdings Inc. last month, and its move days later to take over American International Group Inc. In March, the Fed agreed to buy $29 billion of Bear Stearns Cos. assets to prevent its failure and secure its takeover by JPMorgan Chase & Co.
Policy makers had limited choices as Lehman approached bankruptcy, even though the firm's collapse would contribute to ``extraordinarily turbulent conditions'' in financial markets, Bernanke said.
Lehman Risk
A government-facilitated sale, or outright support, would have required ``a sizable injection of public funds'' into Lehman and ``would have involved the assumption by taxpayers of billions of dollars of expected losses.'' Bernanke said that neither the Treasury nor the Fed had the authority to ``commit public money in that way.''
Bernanke has pushed the limits of the Fed's powers to create an array of unprecedented lending programs as the credit crisis spread from banks to securities firms, mutual funds, the biggest U.S. insurer and now corporate America.
Over the past week the Fed announced plans to pump an additional $1 trillion into the global financial system through auctions of cash loans to banks. That's on top of its $147 billion in loans to Wall Street bond dealers and $152 billion in lending to backstop money market mutual funds as of Oct. 1.
By Scott Lanman
Enlarge Image/Details
Oct. 7 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke signaled policy makers are ready to lower interest rates as the credit freeze poses an escalating danger to the economy.
The world financial system is under ``extraordinary stress'' and history shows that severe instability ``can take a heavy toll on the broader economy if left unchecked,'' Bernanke said in a speech in Washington. ``The Federal Reserve will need to consider whether the current stance of policy remains appropriate.''
Today's remarks indicate the central bank's record loans to unblock credit markets are insufficient to prevent a deeper economic downturn. Investors increased bets the Fed will cut its main rate by as much as three-quarters of a point this month after stock indexes slumped to four-year lows and premiums on loans between banks climbed to a record.
``It would be unwise to wait'' after ``such a clear message'' from Bernanke, former San Francisco Fed President Robert Parry said in an interview with Bloomberg Television. A reduction by 1 percentage point would be the ``appropriate amount,'' though the Fed may not go that far, he said.
Stocks slid after Bernanke's remarks failed to assuage investors' concerns about deteriorating financial markets, with the Standard & Poor's 500 Stock Index falling 5.7 percent to the lowest close in five years.
Minutes of the Federal Open Market Committee's Sept. 16 meeting, released in Washington today, showed that some officials then saw a need for a rate cut should there be a ``significant worsening of the growth outlook.''
Fed Meeting
The FOMC, which next gathers Oct. 28-29, cut its target rate for overnight loans between banks by 3.25 percentage points from September to April, then left it unchanged at 2 percent for three meetings.
``With financial markets in such turmoil the odds of an inter-meeting cut are now above 50/50,'' said former Fed governor Lyle Gramley, now senior economic adviser at the Stanford Group Co. in Washington.
Traders see about 40 percent odds of a three-quarter-point cut in rates at or before this month's meeting, futures prices showed as of 4:09 p.m. in New York. The probability of at least a half-point cut remained at 100 percent.
Since Bernanke's last public address, on Sept. 24 to Congress, the Standard & Poor's 500 Stock Index has lost 14 percent, the three-month London interbank offered rate climbed 0.84 percentage point to 4.32 percent and government figures showed U.S. payrolls slid by the most in five years last month.
Change in Assessment
``The combination of the incoming data and recent financial developments suggests that the outlook for economic growth has worsened and that the downside risks to growth have increased,'' Bernanke said at a conference of the National Association for Business Economics today. ``At the same time, the outlook for inflation has improved somewhat, though it remains uncertain.''
The economic slowdown has now ``spread outside the housing sector,'' and consumer spending has ``contracted significantly'' since May when adjusting for inflation, the Fed chief said.
Even households with ``good credit histories'' are finding it harder to get home loans, and disruptions in the commercial paper market have made it more difficult for companies to get working capital, Bernanke said today.
Dangers posed by the intensifying credit crisis have justified the Fed and Treasury taking unprecedented actions in recent weeks, Bernanke said.
``We have learned from historical experience with severe financial crises that if government intervention comes only at a point at which many or most financial institutions are insolvent or nearly so, the costs of restoring the system are greatly increased,'' said Bernanke, 54, a scholar of the Great Depression and former Princeton University economist.
Pumping Cash
The Fed is pumping more than $1 trillion of short-term cash loans into the banking system to head off the global liquidity squeeze. Earlier today, Bernanke moved to backstop the short-term corporate debt market.
The Fed said today it would start buying three-month commercial paper, after the market slid to a three-year low of $1.6 trillion last week as investors fled even companies with few links to the subprime mortgage crisis. The effort comes on top of an expansion yesterday of the central bank's auctions of cash to banks to as much as $900 billion.
Also this week, the Treasury is putting in place its plan to inject as much as $700 billion into the financial system through purchases of distressed assets or potential direct investments into companies.
`Continued Efforts'
The Treasury program should, ``with time,'' help make credit flow and revive economic growth, Bernanke said today. ``Continued efforts to stabilize the financial markets are essential,'' and the central bank ``will continue to use the tools at its disposal to improve market functioning and liquidity,'' he added.
The Fed chief also reviewed the central bank's decisions to forego a rescue of Lehman Brothers Holdings Inc. last month, and its move days later to take over American International Group Inc. In March, the Fed agreed to buy $29 billion of Bear Stearns Cos. assets to prevent its failure and secure its takeover by JPMorgan Chase & Co.
Policy makers had limited choices as Lehman approached bankruptcy, even though the firm's collapse would contribute to ``extraordinarily turbulent conditions'' in financial markets, Bernanke said.
Lehman Risk
A government-facilitated sale, or outright support, would have required ``a sizable injection of public funds'' into Lehman and ``would have involved the assumption by taxpayers of billions of dollars of expected losses.'' Bernanke said that neither the Treasury nor the Fed had the authority to ``commit public money in that way.''
Bernanke has pushed the limits of the Fed's powers to create an array of unprecedented lending programs as the credit crisis spread from banks to securities firms, mutual funds, the biggest U.S. insurer and now corporate America.
Over the past week the Fed announced plans to pump an additional $1 trillion into the global financial system through auctions of cash loans to banks. That's on top of its $147 billion in loans to Wall Street bond dealers and $152 billion in lending to backstop money market mutual funds as of Oct. 1.
Monday, October 6, 2008
Australia, N.Z. Dollars Slide to 5-Year Lows on Growth Concern
By Candice Zachariahs
Oct. 7 (Bloomberg) -- The Australian and New Zealand dollars plunged to five-year lows against the yen as frozen credit markets heightened concern global economic growth will slump, spurring investors to dump higher-yielding assets.
The U.S. dollar climbed to a four-year high against the Australian currency and its strongest in two years against New Zealand's as the crunch fed demand for the greenback as a safe haven. The Australian dollar may recoup some of it losses as some traders judge the currency's 25 percent drop in the past three months excessive.
``We've got to be around the lows,'' for the Australian dollar, said Greg Gibbs, a currency strategist with ABN Amro Australia. ``Some of the pessimism in terms of risk aversion and the excessive demand for the U.S. dollar will ease and provide a case for strength in the aussie,'' he said, referring to the currency by its nickname.
The Australian dollar fell 4.8 percent to 73.08 yen at 12:29 p.m. in Sydney from 76.74 yen in late Asian trading yesterday. It earlier dropped to 70.32, the weakest since March 2003. The currency was 3.4 percent weaker at 71.96 U.S. cents, from 74.47 cents yesterday. It fell as low as 69.90, the lowest since September 2004.
New Zealand's currency slid 3.9 percent to 63.99 yen from 66.60 yen late in Asia yesterday. It touched 62.06 yen, the weakest since January 2003. The currency fell to 61.77 U.S. cents, the lowest since August 2006, before trading at 63.04 cents.
Gibbs expects Australia's currency to strengthen to between 75 and 78 U.S. cents and said that the current lows were a buying opportunity.
Stocks Slide
The two South Pacific currencies tumbled as global stocks slumped. The Dow Jones Industrial Average fell below 10,000 for the first time in four years. Europe's Dow Jones Stoxx 600 Index dipped 7.6 percent, its steepest decline since 1987, and the MSCI Asia-Pacific Index is down 6 percent this week.
The VIX volatility index, a Chicago Board Options Exchange gauge reflecting expectations for stock market price changes and a barometer of risk aversion, rose to a record 52.05 yesterday.
Benchmark interest rates are 7 percent in Australia and 7.5 percent in New Zealand, compared with 0.5 percent in Japan and 2 percent in the U.S., luring investors to the South Pacific nations' assets. The risk in such trades is that exchange-rate fluctuations erase profits.
Rate Cut
RBA Governor Glenn Stevens will lower the overnight cash rate target to 6.5 percent from 7 percent at 2:30 p.m. in Sydney today, according to 16 of 21 economists surveyed by Bloomberg News. Five forecast a quarter-point cut. The central bank will reduce borrowing costs by nearly 2 percentage points over the next 12 months, according to a Credit Suisse index based on overnight swaps trading.
``Certainly our longer-term differential has come down,'' said John Honan, chief economist at Ausbil Dexia Ltd. in Sydney, who helps oversee A$9.5 billion in funds. ``But nowhere near the extent of the volatility on the currency.'' The currency has fallen 17 percent against the greenback since the beginning of the year and 25 percent versus the yen.
The Australian dollar's relative strength index was recently at 20 against both the dollar and the yen. A reading below 30 typically signals a change in price direction is imminent.
Australian government bonds rose. The yield on the benchmark 10-year note fell 5 basis points to 5.069 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 advanced 0.395, or A$3.95 per A$1,000 face amount, to 101.448. A basis point is 0.01 percentage point.
New Zealand's two-year swap rate, a fixed payment made to receive floating rates, dropped to 6.725 percent today from 6.810 yesterday.
Oct. 7 (Bloomberg) -- The Australian and New Zealand dollars plunged to five-year lows against the yen as frozen credit markets heightened concern global economic growth will slump, spurring investors to dump higher-yielding assets.
The U.S. dollar climbed to a four-year high against the Australian currency and its strongest in two years against New Zealand's as the crunch fed demand for the greenback as a safe haven. The Australian dollar may recoup some of it losses as some traders judge the currency's 25 percent drop in the past three months excessive.
``We've got to be around the lows,'' for the Australian dollar, said Greg Gibbs, a currency strategist with ABN Amro Australia. ``Some of the pessimism in terms of risk aversion and the excessive demand for the U.S. dollar will ease and provide a case for strength in the aussie,'' he said, referring to the currency by its nickname.
The Australian dollar fell 4.8 percent to 73.08 yen at 12:29 p.m. in Sydney from 76.74 yen in late Asian trading yesterday. It earlier dropped to 70.32, the weakest since March 2003. The currency was 3.4 percent weaker at 71.96 U.S. cents, from 74.47 cents yesterday. It fell as low as 69.90, the lowest since September 2004.
New Zealand's currency slid 3.9 percent to 63.99 yen from 66.60 yen late in Asia yesterday. It touched 62.06 yen, the weakest since January 2003. The currency fell to 61.77 U.S. cents, the lowest since August 2006, before trading at 63.04 cents.
Gibbs expects Australia's currency to strengthen to between 75 and 78 U.S. cents and said that the current lows were a buying opportunity.
Stocks Slide
The two South Pacific currencies tumbled as global stocks slumped. The Dow Jones Industrial Average fell below 10,000 for the first time in four years. Europe's Dow Jones Stoxx 600 Index dipped 7.6 percent, its steepest decline since 1987, and the MSCI Asia-Pacific Index is down 6 percent this week.
The VIX volatility index, a Chicago Board Options Exchange gauge reflecting expectations for stock market price changes and a barometer of risk aversion, rose to a record 52.05 yesterday.
Benchmark interest rates are 7 percent in Australia and 7.5 percent in New Zealand, compared with 0.5 percent in Japan and 2 percent in the U.S., luring investors to the South Pacific nations' assets. The risk in such trades is that exchange-rate fluctuations erase profits.
Rate Cut
RBA Governor Glenn Stevens will lower the overnight cash rate target to 6.5 percent from 7 percent at 2:30 p.m. in Sydney today, according to 16 of 21 economists surveyed by Bloomberg News. Five forecast a quarter-point cut. The central bank will reduce borrowing costs by nearly 2 percentage points over the next 12 months, according to a Credit Suisse index based on overnight swaps trading.
``Certainly our longer-term differential has come down,'' said John Honan, chief economist at Ausbil Dexia Ltd. in Sydney, who helps oversee A$9.5 billion in funds. ``But nowhere near the extent of the volatility on the currency.'' The currency has fallen 17 percent against the greenback since the beginning of the year and 25 percent versus the yen.
The Australian dollar's relative strength index was recently at 20 against both the dollar and the yen. A reading below 30 typically signals a change in price direction is imminent.
Australian government bonds rose. The yield on the benchmark 10-year note fell 5 basis points to 5.069 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 advanced 0.395, or A$3.95 per A$1,000 face amount, to 101.448. A basis point is 0.01 percentage point.
New Zealand's two-year swap rate, a fixed payment made to receive floating rates, dropped to 6.725 percent today from 6.810 yesterday.
Thursday, October 2, 2008
Australia, New Zealand Dollars Drop as Commodities, Stocks Fall
By Candice Zachariahs
Oct. 3 (Bloomberg) -- The Australian dollar fell to a 14- month low against the greenback and traded at the lowest since 2005 versus the yen as concerns over slowing growth sent prices tumbling for commodities the nation exports. New Zealand's currency also fell.
Australia's currency fell for an eighth day as the UBS Bloomberg Constant Maturity Commodity index of 26 raw materials dropped. The Australian and New Zealand dollars slid against the yen as U.S. stocks dropped for a second day, reducing demand for higher-yielding assets.
``The pressure on the aussie and the kiwi will remain throughout the day,'' said John Body, head of financial markets at ANZ National Bank Ltd. in Auckland, referring to the currencies by their nicknames. The Australian dollar will trade between 77 and 77.80 U.S. cents and the kiwi will buy between 65.25 and 65.80 U.S. cents through the day, he said.
The Australian dollar fell 1.4 percent to 77.34 U.S. cents as of 7:43 a.m. in Sydney from 78.43 cents in late Asian trading yesterday. It touched 77 cents, the weakest since August 2007. The currency dropped to 81.01 yen, the lowest since March 2005, before trading at 81.44 yen from 82.75 yesterday.
New Zealand's dollar weakened 1.5 percent to 65.72 U.S. cents from 66.74 cents late in Asia yesterday. It dropped 1.7 percent to 69.24 yen.
The Australian and New Zealand dollars fell as the price of gold, Australia's third most-valuable raw material export, and crude oil, its fourth most-valuable, slid in New York. Lumber, one of New Zealand's biggest export earners, plunged to a 17- year low on speculation slowing growth will limit demand for building materials.
Raw materials account for 60 percent of Australia's exports, and 70 percent of New Zealand's.
Oct. 3 (Bloomberg) -- The Australian dollar fell to a 14- month low against the greenback and traded at the lowest since 2005 versus the yen as concerns over slowing growth sent prices tumbling for commodities the nation exports. New Zealand's currency also fell.
Australia's currency fell for an eighth day as the UBS Bloomberg Constant Maturity Commodity index of 26 raw materials dropped. The Australian and New Zealand dollars slid against the yen as U.S. stocks dropped for a second day, reducing demand for higher-yielding assets.
``The pressure on the aussie and the kiwi will remain throughout the day,'' said John Body, head of financial markets at ANZ National Bank Ltd. in Auckland, referring to the currencies by their nicknames. The Australian dollar will trade between 77 and 77.80 U.S. cents and the kiwi will buy between 65.25 and 65.80 U.S. cents through the day, he said.
The Australian dollar fell 1.4 percent to 77.34 U.S. cents as of 7:43 a.m. in Sydney from 78.43 cents in late Asian trading yesterday. It touched 77 cents, the weakest since August 2007. The currency dropped to 81.01 yen, the lowest since March 2005, before trading at 81.44 yen from 82.75 yesterday.
New Zealand's dollar weakened 1.5 percent to 65.72 U.S. cents from 66.74 cents late in Asia yesterday. It dropped 1.7 percent to 69.24 yen.
The Australian and New Zealand dollars fell as the price of gold, Australia's third most-valuable raw material export, and crude oil, its fourth most-valuable, slid in New York. Lumber, one of New Zealand's biggest export earners, plunged to a 17- year low on speculation slowing growth will limit demand for building materials.
Raw materials account for 60 percent of Australia's exports, and 70 percent of New Zealand's.
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