By Mark Shenk
Nov. 23 (Bloomberg) -- Crude oil futures rose in New York, reaching a record closing price above $98 a barrel, on concern fuel stockpiles will drop as the heating season gets under way.
Futures have surged 21 percent in the past two months as the dollar fell and U.S. inventories declined. Supplies of crude oil and distillate fuel, a category that includes heating oil and diesel, fell last week, according to an Energy Department report on Nov. 21. Transactions were lighter than usual today as some traders took a long Thanksgiving holiday weekend.
``Most of the issues that brought us here are still around so I think at some point, maybe next week, we will hit $100,'' said Tom Bentz, a broker at BNP Paribas in New York.
Crude oil for January delivery rose 89 cents, or 0.9 percent, to settle at $98.18 a barrel at 1:53 p.m. on the New York Mercantile Exchange. It was a record closing price. Futures climbed to $99.29 on Nov. 21, the highest intraday price since trading began in 1983. Prices are up 66 percent from a year ago.
Floor trading ended an hour early today because of the Thanksgiving holiday. Volume as of 1:30 p.m. was about 100,000 contracts, compared with 468,546 for the session on Nov. 21.
Brent crude oil for January settlement rose $1.26, or 1.3 percent, to $95.76 a barrel on the London-based ICE Futures Europe exchange. Brent reached $96.53 a barrel on Nov. 21, the highest since trading began in 1988.
``I don't think you can read much into the moves today because volume is light,'' said Eric Wittenauer, an analyst at A.G. Edwards & Sons Inc. in St. Louis.
Inventory Gain
Prices fell 0.8 percent on Nov. 21, after the Energy Department reported that crude-oil inventories at Cushing, Oklahoma, the delivery point for New York futures, rose 1.14 million barrels to 14.6 million last week.
The Organization of Petroleum Exporting Countries will load 24.5 million barrels a day onto tankers in the four weeks to Dec. 8, compared with 23.8 million barrels in the month ended Nov. 10, Oil Movements said. It will be OPEC's 14th consecutive increase and the biggest this year, according to the company, which tracks shipments.
OPEC, which produces more than 40 percent of the world's oil, is scheduled to discuss crude-oil production for the first quarter of 2008 at a meeting in Abu Dhabi on Dec. 5.
``It looks like we will need some strong political news or a significant inventory drop to send us above $100'' a barrel, said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``We've tested $100 twice and haven't achieved it, which raises questions about whether we can actually do it.''
Saturday, November 24, 2007
Wednesday, November 21, 2007
Fitch Lowers $30 Billion of Mortgage CDOs; S&P Cuts $5 Billion
By Jody Shenn
Nov. 21 (Bloomberg) -- Fitch Ratings downgraded $29.8 billion of collateralized debt obligations linked to residential mortgage bonds, while Standard & Poor's cut ratings on $5 billion of such assets.
Fitch lowered classes from 74 CDOs that hold structured- finance securities, the New York-based firm said in a statement today. S&P reduced ratings on classes from 28 CDOs, the unit of New York-based McGraw-Hill Cos. said in a release.
S&P, Fitch and Moody's Investors Service have been cutting their CDO assessments after an unprecedented round of downgrades on the underlying mortgage bonds as homeowner defaults rise. Fitch said it completed a review of CDOs that hold mortgage bonds it cut on Oct. 29. The company has now lowered $67 billion of CDOs.
Fitch changed its CDO models in August to ``reflect increased probabilities of default, reduced recovery assumptions and increased correlation'' of the performance among different mortgage bonds, a variable in predicting how likely the most- senior classes of CDOs will lose principal.
Since the start of the third quarter, securities firms and banks including Merrill Lynch & Co., Citigroup Inc., and Morgan Stanley have announced at least $20 billion in writedowns on the value of mortgage-bond CDOs they own.
S&P said today it has downgraded $17.1 billion of CDOs backed either by home-mortgage bonds ``that have seen negative credit migration'' or by debt taken out by real-estate investment trusts, according to the statement.
S&P said it's reviewing $24 billion more of such CDOs. The ratings company has also either downgraded or put on review $5.8 billion of CDOs made up of derivative versions of mortgage bonds. CDOs repackage assets such as mortgage bonds or buyout loans into new securities with varying degrees of risk.
Nov. 21 (Bloomberg) -- Fitch Ratings downgraded $29.8 billion of collateralized debt obligations linked to residential mortgage bonds, while Standard & Poor's cut ratings on $5 billion of such assets.
Fitch lowered classes from 74 CDOs that hold structured- finance securities, the New York-based firm said in a statement today. S&P reduced ratings on classes from 28 CDOs, the unit of New York-based McGraw-Hill Cos. said in a release.
S&P, Fitch and Moody's Investors Service have been cutting their CDO assessments after an unprecedented round of downgrades on the underlying mortgage bonds as homeowner defaults rise. Fitch said it completed a review of CDOs that hold mortgage bonds it cut on Oct. 29. The company has now lowered $67 billion of CDOs.
Fitch changed its CDO models in August to ``reflect increased probabilities of default, reduced recovery assumptions and increased correlation'' of the performance among different mortgage bonds, a variable in predicting how likely the most- senior classes of CDOs will lose principal.
Since the start of the third quarter, securities firms and banks including Merrill Lynch & Co., Citigroup Inc., and Morgan Stanley have announced at least $20 billion in writedowns on the value of mortgage-bond CDOs they own.
S&P said today it has downgraded $17.1 billion of CDOs backed either by home-mortgage bonds ``that have seen negative credit migration'' or by debt taken out by real-estate investment trusts, according to the statement.
S&P said it's reviewing $24 billion more of such CDOs. The ratings company has also either downgraded or put on review $5.8 billion of CDOs made up of derivative versions of mortgage bonds. CDOs repackage assets such as mortgage bonds or buyout loans into new securities with varying degrees of risk.
U.S. Stocks Fall, Wiping Out 2007 Gain for S&P 500; Exxon Drops
By Eric Martin
Nov. 21 (Bloomberg) -- U.S. stocks fell, wiping out this year's gain for the Standard & Poor's 500 Index, after concern that losses from mortgage defaults will spread through the economy pushed down shares of banks and commodities producers.
American Express Co. tumbled to the lowest in 14 months after Morgan Stanley recommended investors sell shares of the third-largest credit-card network. Exxon Mobil Corp., the biggest U.S. oil company, dropped after oil retreated. Circuit City Stores Inc., the second-largest consumer-electronics chain, declined to a four-year low after JPMorgan said it may not find a buyer to turn around its business until next year.
The S&P 500 lost 22.93, or 1.6 percent, to 1,416.77, leaving it with a 0.1 percent loss on the year. The Dow Jones Industrial Average declined 211.1, or 1.6 percent, to 12,799.04 as 29 of its 30 members retreated. The Nasdaq Composite Index dropped 34.66, or 1.3 percent, to 2,562.15. Almost four stocks fell for every one that rose on the New York Stock Exchange.
``It's a very panicky market,'' said John Kattar, who oversees $2 billion as chief investment officer at Eastern Investment Advisors in Boston. ``There's a growing feeling that the problems are unknowable and unquantifiable, and that there's no way of dealing with it except through the passage of time.''
Ten-year Treasury yields fell below 4 percent for the first time in more than two years as investors sought the safety of U.S. government debt. Benchmark stock indexes also declined in Asia and Europe.
`Sharply Deteriorating'
American Express dropped $2.66, or 4.7 percent, to $54.34. ``Sharply deteriorating'' consumer credit quality may prove a bigger issue for the company than other card issuers because its lending portfolio has grown ``far and away faster than its peers,'' analysts Kenneth Posner and Charles Murphy wrote in a note to investors.
Exxon Mobil retreated 78 cents to $87.04. Crude oil fell from a record after an Energy Department report showed that inventories at the delivery point for the U.S. benchmark grade increased. Crude oil for January delivery lost 74 cents to $97.29 a barrel. Futures climbed to $99.29 earlier, the highest intraday price since trading began in 1983.
Circuit City, Office Depot
Circuit City shares plunged 32 cents, or 5.6 percent, to $5.45. A ``turnaround likely requires deep pockets -- such as the involvement of a strategic partner (or acquirer),'' wrote JPMorgan analyst Stephen Chick, who cut the stock to ``neutral.'' ``Such a scenario may wait itself out until after the second half'' of 2008.
Office Depot Inc., the world's second-largest office supplies retailer, lost 77 cents, or 4.4 percent, to $16.72.
The holiday sales season may be the grimmest for U.S. chain stores in at least five years as reduced profit forecasts by J.C. Penney Co., Starbucks Inc. and FedEx Corp. show the effects of a slowing economy. The traditional kick-off to the holiday rush, known as Black Friday because the season may determine whether retailers are profitable, is in two days. U.S. exchanges are closed tomorrow for the Thanksgiving holiday.
Freddie Mac declined 74 cents to $26. Goldman, Sachs & Co. cut its price estimate on shares of the second-largest U.S. mortgage-finance company to $24 from $73 and lowered its 2008 earnings estimate by 82 percent.
Freddie Mac might need to raise as much as $6 billion to bolster its capital amid the worst housing slump in at least 16 years, according to analysts at Fox-Pitt Kelton. The government- chartered company dropped 29 percent yesterday after reporting its biggest quarterly loss and saying it may cut its dividend. Freddie said it would seek more reserves in a ``large transaction.''
'Credit Collapse'
``Everybody's focused on Fannie Mae and Freddie Mac,'' said Wayne Wilbanks, who oversees $1.3 billion as chief investment officer at Wilbanks Smith & Thomas Asset Management LLC in Norfolk, Virginia. ``We're going through a good, old-fashioned credit collapse.''
Countrywide Financial Corp., the biggest U.S. mortgage lender, lost 86 cents to $9.42 and Citigroup Inc., the largest U.S. bank by assets, declined 67 cents to $30.73 as financial and mortgage companies resumed their week-long slide. Goldman Sachs Group Inc., the world's biggest securities firm by market value, fell $7.98 to $209.50.
Financial shares in the S&P 500 fell for a sixth straight day, losing 2.2 percent as a group.
A gauge of stock-market volatility rose to the highest level in a week. The Chicago Board Options Exchange Volatility Index, or VIX, rose 7.9 percent to 26.84.
Freeport-McMoRan Copper & Gold Inc. lost $1.79 to $90.06 after Goldman Sachs removed shares of the world's largest publicly traded copper producer from its ``conviction buy'' list.
Economy Watch
The Dow Jones Transportation Average declined for a sixth day to the lowest level since September 2006 as the Dow industrials dropped to the lowest since April. The simultaneous lows signal the start of a bear market to investors who follow ``Dow Theory,'' which views the transportation and industrial gauges as harbingers of economic trends.
The index of leading U.S. economic indicators fell more than forecast in October after a plunge in building permits and an increase in firings. The report added to concern that the economy is slowing after the Federal Reserve cut its forecast for 2008 growth yesterday.
Treasury Secretary Henry Paulson said lenders should move ``aggressively'' to offer new mortgage terms as defaults increase, according to the Wall Street Journal.
Former Federal Reserve Chairman Alan Greenspan said recent signs that a collapse in credit tied to subprime-mortgage lending was ending have proven wrong.
'Come to a Halt'
``The progress has come to a halt'' in recent weeks, Greenspan said at a business forum in Toronto yesterday. ``The reason is increasing recognition that it's going to take a long while to get rid of those excess inventories of homes in the U.S.''
Bear Stearns Cos., the manager of two hedge funds that collapsed in July, fell $2.59 to $91.28. American International Group Inc., the world's largest insurer, dropped $3.11, or 5.7 percent, to $51.33, the steepest decline in the Dow average. Directors and top executives were sued yesterday by investors who claimed they were deceived about each company's subprime- mortgage investments.
AIG, which is based in New York, also has units that originate, insure and invest in home loans.
Biggest Drop in S&P 500
Patterson Cos. led declines in the S&P 500, slumping $8.54, or 23 percent, to $29.08. The distributor of dental, veterinary and rehabilitation supplies reduced its full-year forecast, saying it expects to earn as much as $1.72 a share. The average estimate from analysts in a Bloomberg survey was $1.74.
ACA Capital Holdings Inc. dropped 25 cents, or 23 percent, to 85 cents. The bond insurer under scrutiny by Standard & Poor's may have its credit rating cut, forcing banks to take on $60 billion of collateralized debt obligations, JPMorgan Chase & Co. analyst Andrew Wessel said.
Homebuilders dropped 5.5 percent, led by Pulte Homes Inc., the third-largest U.S. homebuilder by revenue, and Meritage Homes Corp. Home prices fell in one third of U.S. cities last quarter as stricter lending standards caused a 14 percent decline in sales nationwide.
Prices dropped in 54 of 150 metropolitan areas in the third quarter and the median sales price tumbled 2 percent nationwide, the National Association of Realtors said. Home sales, including single-family properties and condominiums, slid to 5.42 million at an annualized pace from 6.29 million a year ago. Pulte fell $1.35, or 13 percent, to $9.25. Meritage dropped 90 cents to $14.20.
GM Gains
Stocks briefly pared their losses after GMAC LLC said it may buy a non-U.S. mortgage firm and General Motors Corp. said it isn't required to inject capital into the home and auto lender it once owned.
GM gained for the first time in six days and was the only member of the Dow average to rise today. Its shares added 10 cents to $26.39 after the largest U.S. automaker said it has ``no further obligation'' to boost GMAC. The November 2006 agreement to sell 51 percent of GMAC to a group led by Cerberus Capital Management LP ended any need to fund GMAC beyond a $1 billion infusion earlier this year, GM's executive director of investor relations, Randy Arickx, said in an interview.
The MSCI World Index lost 1.8 percent, the most since Aug. 9. Europe's Dow Jones Stoxx 600 Index fell 2.6 percent to a 13- month low.
Nov. 21 (Bloomberg) -- U.S. stocks fell, wiping out this year's gain for the Standard & Poor's 500 Index, after concern that losses from mortgage defaults will spread through the economy pushed down shares of banks and commodities producers.
American Express Co. tumbled to the lowest in 14 months after Morgan Stanley recommended investors sell shares of the third-largest credit-card network. Exxon Mobil Corp., the biggest U.S. oil company, dropped after oil retreated. Circuit City Stores Inc., the second-largest consumer-electronics chain, declined to a four-year low after JPMorgan said it may not find a buyer to turn around its business until next year.
The S&P 500 lost 22.93, or 1.6 percent, to 1,416.77, leaving it with a 0.1 percent loss on the year. The Dow Jones Industrial Average declined 211.1, or 1.6 percent, to 12,799.04 as 29 of its 30 members retreated. The Nasdaq Composite Index dropped 34.66, or 1.3 percent, to 2,562.15. Almost four stocks fell for every one that rose on the New York Stock Exchange.
``It's a very panicky market,'' said John Kattar, who oversees $2 billion as chief investment officer at Eastern Investment Advisors in Boston. ``There's a growing feeling that the problems are unknowable and unquantifiable, and that there's no way of dealing with it except through the passage of time.''
Ten-year Treasury yields fell below 4 percent for the first time in more than two years as investors sought the safety of U.S. government debt. Benchmark stock indexes also declined in Asia and Europe.
`Sharply Deteriorating'
American Express dropped $2.66, or 4.7 percent, to $54.34. ``Sharply deteriorating'' consumer credit quality may prove a bigger issue for the company than other card issuers because its lending portfolio has grown ``far and away faster than its peers,'' analysts Kenneth Posner and Charles Murphy wrote in a note to investors.
Exxon Mobil retreated 78 cents to $87.04. Crude oil fell from a record after an Energy Department report showed that inventories at the delivery point for the U.S. benchmark grade increased. Crude oil for January delivery lost 74 cents to $97.29 a barrel. Futures climbed to $99.29 earlier, the highest intraday price since trading began in 1983.
Circuit City, Office Depot
Circuit City shares plunged 32 cents, or 5.6 percent, to $5.45. A ``turnaround likely requires deep pockets -- such as the involvement of a strategic partner (or acquirer),'' wrote JPMorgan analyst Stephen Chick, who cut the stock to ``neutral.'' ``Such a scenario may wait itself out until after the second half'' of 2008.
Office Depot Inc., the world's second-largest office supplies retailer, lost 77 cents, or 4.4 percent, to $16.72.
The holiday sales season may be the grimmest for U.S. chain stores in at least five years as reduced profit forecasts by J.C. Penney Co., Starbucks Inc. and FedEx Corp. show the effects of a slowing economy. The traditional kick-off to the holiday rush, known as Black Friday because the season may determine whether retailers are profitable, is in two days. U.S. exchanges are closed tomorrow for the Thanksgiving holiday.
Freddie Mac declined 74 cents to $26. Goldman, Sachs & Co. cut its price estimate on shares of the second-largest U.S. mortgage-finance company to $24 from $73 and lowered its 2008 earnings estimate by 82 percent.
Freddie Mac might need to raise as much as $6 billion to bolster its capital amid the worst housing slump in at least 16 years, according to analysts at Fox-Pitt Kelton. The government- chartered company dropped 29 percent yesterday after reporting its biggest quarterly loss and saying it may cut its dividend. Freddie said it would seek more reserves in a ``large transaction.''
'Credit Collapse'
``Everybody's focused on Fannie Mae and Freddie Mac,'' said Wayne Wilbanks, who oversees $1.3 billion as chief investment officer at Wilbanks Smith & Thomas Asset Management LLC in Norfolk, Virginia. ``We're going through a good, old-fashioned credit collapse.''
Countrywide Financial Corp., the biggest U.S. mortgage lender, lost 86 cents to $9.42 and Citigroup Inc., the largest U.S. bank by assets, declined 67 cents to $30.73 as financial and mortgage companies resumed their week-long slide. Goldman Sachs Group Inc., the world's biggest securities firm by market value, fell $7.98 to $209.50.
Financial shares in the S&P 500 fell for a sixth straight day, losing 2.2 percent as a group.
A gauge of stock-market volatility rose to the highest level in a week. The Chicago Board Options Exchange Volatility Index, or VIX, rose 7.9 percent to 26.84.
Freeport-McMoRan Copper & Gold Inc. lost $1.79 to $90.06 after Goldman Sachs removed shares of the world's largest publicly traded copper producer from its ``conviction buy'' list.
Economy Watch
The Dow Jones Transportation Average declined for a sixth day to the lowest level since September 2006 as the Dow industrials dropped to the lowest since April. The simultaneous lows signal the start of a bear market to investors who follow ``Dow Theory,'' which views the transportation and industrial gauges as harbingers of economic trends.
The index of leading U.S. economic indicators fell more than forecast in October after a plunge in building permits and an increase in firings. The report added to concern that the economy is slowing after the Federal Reserve cut its forecast for 2008 growth yesterday.
Treasury Secretary Henry Paulson said lenders should move ``aggressively'' to offer new mortgage terms as defaults increase, according to the Wall Street Journal.
Former Federal Reserve Chairman Alan Greenspan said recent signs that a collapse in credit tied to subprime-mortgage lending was ending have proven wrong.
'Come to a Halt'
``The progress has come to a halt'' in recent weeks, Greenspan said at a business forum in Toronto yesterday. ``The reason is increasing recognition that it's going to take a long while to get rid of those excess inventories of homes in the U.S.''
Bear Stearns Cos., the manager of two hedge funds that collapsed in July, fell $2.59 to $91.28. American International Group Inc., the world's largest insurer, dropped $3.11, or 5.7 percent, to $51.33, the steepest decline in the Dow average. Directors and top executives were sued yesterday by investors who claimed they were deceived about each company's subprime- mortgage investments.
AIG, which is based in New York, also has units that originate, insure and invest in home loans.
Biggest Drop in S&P 500
Patterson Cos. led declines in the S&P 500, slumping $8.54, or 23 percent, to $29.08. The distributor of dental, veterinary and rehabilitation supplies reduced its full-year forecast, saying it expects to earn as much as $1.72 a share. The average estimate from analysts in a Bloomberg survey was $1.74.
ACA Capital Holdings Inc. dropped 25 cents, or 23 percent, to 85 cents. The bond insurer under scrutiny by Standard & Poor's may have its credit rating cut, forcing banks to take on $60 billion of collateralized debt obligations, JPMorgan Chase & Co. analyst Andrew Wessel said.
Homebuilders dropped 5.5 percent, led by Pulte Homes Inc., the third-largest U.S. homebuilder by revenue, and Meritage Homes Corp. Home prices fell in one third of U.S. cities last quarter as stricter lending standards caused a 14 percent decline in sales nationwide.
Prices dropped in 54 of 150 metropolitan areas in the third quarter and the median sales price tumbled 2 percent nationwide, the National Association of Realtors said. Home sales, including single-family properties and condominiums, slid to 5.42 million at an annualized pace from 6.29 million a year ago. Pulte fell $1.35, or 13 percent, to $9.25. Meritage dropped 90 cents to $14.20.
GM Gains
Stocks briefly pared their losses after GMAC LLC said it may buy a non-U.S. mortgage firm and General Motors Corp. said it isn't required to inject capital into the home and auto lender it once owned.
GM gained for the first time in six days and was the only member of the Dow average to rise today. Its shares added 10 cents to $26.39 after the largest U.S. automaker said it has ``no further obligation'' to boost GMAC. The November 2006 agreement to sell 51 percent of GMAC to a group led by Cerberus Capital Management LP ended any need to fund GMAC beyond a $1 billion infusion earlier this year, GM's executive director of investor relations, Randy Arickx, said in an interview.
The MSCI World Index lost 1.8 percent, the most since Aug. 9. Europe's Dow Jones Stoxx 600 Index fell 2.6 percent to a 13- month low.
Treasuries Rally as Stocks Drop; Ten-Year Yield Falls Below 4%
By Daniel Kruger and Lydia Thew
Nov. 21 (Bloomberg) -- Treasuries rallied, sending 10-year note yields below 4 percent for the first time since 2005, as a decline in global stocks spurred demand for the safety of government debt.
``Treasury yields are based on the fear gauge of the day, and fear is at high levels,'' said Andrew Harding, who helps manage $16 billion as chief investment officer for fixed income in Cleveland at Allegiant Asset Management.
Bonds rose as U.S. equities fell and oil increased to within 71 cents of $100 a barrel before dropping. The spread, or difference in yield, between two- and 10-year notes widened to the most since early 2005 on speculation the Federal Reserve may have to lower interest rates even as inflation accelerates.
The yield on the 10-year note fell 8 basis points, or 0.08 percentage point, to 4.01 percent at 4:53 p.m. in New York, according to bond broker Cantor Fitzgerald. It touched 3.98 percent, the lowest since July 2005. The price of the 4 1/4 percent security due in November 2017 rose 23/32, or $7.19 per $1,000 face amount, to 101 31/32.
Yields on two-year notes decreased 18 basis points to 2.99 percent after touching 2.96 percent, the lowest since December 2004. They yielded 102 basis points less than 10-year notes, the most since January 2005. Yields move inversely to bond prices.
The steepening of the so-called yield curve suggests investors are buying shorter-maturity debt in anticipation of interest-rate reductions by the Fed.
Three-month Treasury bill yields have dropped 33 basis points this week to 3.08 percent, while the four-week bill yield has declined 48 basis points to 3.35 percent.
Fiscal Year-End
Traders speculated that some brokerages bought Treasuries to put the safest assets on their balance sheets before the end of their fiscal year next week.
``In the long run this isn't sustainable, but you have quarter-end and year-end for broker dealers coming up,'' said Matthew Moore, an interest-rate strategist in New York at Banc of America Securities LLC, one of the 21 primary dealers required to bid at Treasury auctions. Treasuries could continue to rally ``if these credit fears are sustained.''
Abbey National Plc, the U.K. mortgage lender owned by Banco Santander SA in Madrid, became the third company to cancel plans to sell covered bonds within a week. Covered bonds are AAA rated securities popular in Europe that use assets on an issuer's balance sheet as collateral, providing investors with a stronger likelihood for recovery and the borrower with a top debt rating.
Chrysler LLC's bankers failed to sell $4 billion of loans that backed the purchase of the automaker by Cerberus Capital Management LP, according to investors briefed on the decision.
`Positions to Hedge'
``This market is about the professionals who have got funding needs, positions to hedge, margin calls,'' said David Ader, head of U.S. government bond strategy in Greenwich, Connecticut, at RBS Greenwich Capital, also a primary dealer.
U.S., European and Asian stocks sank, with the Standard & Poor's 500 Index dropping 1.6 percent. Gold appreciated as oil's earlier surge prompted investors to buy the precious metal as a hedge against inflation.
Two-year note yields have moved in the same direction as the S&P 500 index 81 percent of the time since Nov. 1, compared with 57 percent since the start of the year.
The Fed said in the minutes of its Oct. 31 meeting released yesterday that there's ``uncertainty'' about the outlook for U.S. economic growth, fueling speculation it will cut borrowing costs again when policy makers meet next month. The minutes pushed the U.S. currency to a record low of $1.4856 per euro.
Futures contracts on the Chicago Board of Trade showed an 86 percent chance that the Fed will lower its target rate a quarter-percentage point to 4.25 percent on Dec. 11 and 75 percent odds of a cut to 4 percent in late January. The central bank cut its benchmark rate to 4.5 percent in October.
Libor Increases
The amount banks charge each other to borrow in dollars for three months rose for a sixth day. The London interbank offered rate, or Libor, climbed 2 basis points today to 5.02 percent. That's 52 basis points more than the Fed's benchmark rate, the biggest difference since Sept. 18, when U.S. policy makers cut the benchmark rate a half-percentage point.
Three-month Libor for dollars has increased to 1.93 percentage points more than Treasury bill yields of the same maturity. The ``TED'' spread, as it's known, is the widest since Aug. 20 and up from 0.94 percentage point on Oct. 15. A wider gap is a sign that investors are concerned that credit-market losses will increase.
``The liquidity problems are almost insurmountable,'' said Sean Murphy, a Treasury trader and strategist in New York at RBC Capital Markets, the investment-banking arm of Canada's biggest bank. ``You're getting all sorts of unwinds.''
The Securities Industry and Financial Markets Association recommended trading of Treasuries close at 2 p.m. New York time and stay shut tomorrow for Thanksgiving. It also recommended trading close at 2 p.m. New York time on Nov. 23.
Nov. 21 (Bloomberg) -- Treasuries rallied, sending 10-year note yields below 4 percent for the first time since 2005, as a decline in global stocks spurred demand for the safety of government debt.
``Treasury yields are based on the fear gauge of the day, and fear is at high levels,'' said Andrew Harding, who helps manage $16 billion as chief investment officer for fixed income in Cleveland at Allegiant Asset Management.
Bonds rose as U.S. equities fell and oil increased to within 71 cents of $100 a barrel before dropping. The spread, or difference in yield, between two- and 10-year notes widened to the most since early 2005 on speculation the Federal Reserve may have to lower interest rates even as inflation accelerates.
The yield on the 10-year note fell 8 basis points, or 0.08 percentage point, to 4.01 percent at 4:53 p.m. in New York, according to bond broker Cantor Fitzgerald. It touched 3.98 percent, the lowest since July 2005. The price of the 4 1/4 percent security due in November 2017 rose 23/32, or $7.19 per $1,000 face amount, to 101 31/32.
Yields on two-year notes decreased 18 basis points to 2.99 percent after touching 2.96 percent, the lowest since December 2004. They yielded 102 basis points less than 10-year notes, the most since January 2005. Yields move inversely to bond prices.
The steepening of the so-called yield curve suggests investors are buying shorter-maturity debt in anticipation of interest-rate reductions by the Fed.
Three-month Treasury bill yields have dropped 33 basis points this week to 3.08 percent, while the four-week bill yield has declined 48 basis points to 3.35 percent.
Fiscal Year-End
Traders speculated that some brokerages bought Treasuries to put the safest assets on their balance sheets before the end of their fiscal year next week.
``In the long run this isn't sustainable, but you have quarter-end and year-end for broker dealers coming up,'' said Matthew Moore, an interest-rate strategist in New York at Banc of America Securities LLC, one of the 21 primary dealers required to bid at Treasury auctions. Treasuries could continue to rally ``if these credit fears are sustained.''
Abbey National Plc, the U.K. mortgage lender owned by Banco Santander SA in Madrid, became the third company to cancel plans to sell covered bonds within a week. Covered bonds are AAA rated securities popular in Europe that use assets on an issuer's balance sheet as collateral, providing investors with a stronger likelihood for recovery and the borrower with a top debt rating.
Chrysler LLC's bankers failed to sell $4 billion of loans that backed the purchase of the automaker by Cerberus Capital Management LP, according to investors briefed on the decision.
`Positions to Hedge'
``This market is about the professionals who have got funding needs, positions to hedge, margin calls,'' said David Ader, head of U.S. government bond strategy in Greenwich, Connecticut, at RBS Greenwich Capital, also a primary dealer.
U.S., European and Asian stocks sank, with the Standard & Poor's 500 Index dropping 1.6 percent. Gold appreciated as oil's earlier surge prompted investors to buy the precious metal as a hedge against inflation.
Two-year note yields have moved in the same direction as the S&P 500 index 81 percent of the time since Nov. 1, compared with 57 percent since the start of the year.
The Fed said in the minutes of its Oct. 31 meeting released yesterday that there's ``uncertainty'' about the outlook for U.S. economic growth, fueling speculation it will cut borrowing costs again when policy makers meet next month. The minutes pushed the U.S. currency to a record low of $1.4856 per euro.
Futures contracts on the Chicago Board of Trade showed an 86 percent chance that the Fed will lower its target rate a quarter-percentage point to 4.25 percent on Dec. 11 and 75 percent odds of a cut to 4 percent in late January. The central bank cut its benchmark rate to 4.5 percent in October.
Libor Increases
The amount banks charge each other to borrow in dollars for three months rose for a sixth day. The London interbank offered rate, or Libor, climbed 2 basis points today to 5.02 percent. That's 52 basis points more than the Fed's benchmark rate, the biggest difference since Sept. 18, when U.S. policy makers cut the benchmark rate a half-percentage point.
Three-month Libor for dollars has increased to 1.93 percentage points more than Treasury bill yields of the same maturity. The ``TED'' spread, as it's known, is the widest since Aug. 20 and up from 0.94 percentage point on Oct. 15. A wider gap is a sign that investors are concerned that credit-market losses will increase.
``The liquidity problems are almost insurmountable,'' said Sean Murphy, a Treasury trader and strategist in New York at RBC Capital Markets, the investment-banking arm of Canada's biggest bank. ``You're getting all sorts of unwinds.''
The Securities Industry and Financial Markets Association recommended trading of Treasuries close at 2 p.m. New York time and stay shut tomorrow for Thanksgiving. It also recommended trading close at 2 p.m. New York time on Nov. 23.
U.S. Economy: Leading Index Fell More Than Forecast (Update2)
By Courtney Schlisserman and Joe Richter
Nov. 21 (Bloomberg) -- The U.S. economy may continue to slow into 2008, according to a measure of its performance over the next three to six months.
The Conference Board's index of leading economic indicators fell 0.5 percent in October after a 0.1 percent increase that was smaller than previously estimated, the New York-based group said today. A separate report showed consumer confidence weakened this month.
The figures, coming a day after the Federal Reserve lowered its growth forecast for next year, add to concern that the credit collapse is causing consumers and businesses to cut spending. The deepening housing recession will constrain the expansion again this quarter, slicing growth to about 1 percent, from around 5 percent in the previous three months, economists predict.
``There is a definite pattern of weakening here,'' said Edward McKelvey, a senior economist at Goldman Sachs Group Inc. in New York, who correctly forecast the decline in the leading index. ``It's all consistent with deceleration in the economy and that includes some deceleration in the labor market.''
Economists forecast the Conference Board's index would decline 0.3 percent, after an initially reported 0.3 percent gain in September, according to the median of 60 estimates in a Bloomberg News survey. Projections ranged from no change to a 1 percent drop.
``The data are pointing to a continued slow economy,'' Ken Goldstein, a Conference Board economist, said in a statement. ``It might even slow a little more after the holidays.''
Hit to Retailers
Target Corp., the second-largest U.S. discount chain and Limited Brands Inc. reported lower-than-forecast earnings this week as consumers pull back on spending. Home-improvement chain Lowe's Cos. also cut its profit outlook, while department-store chain Kohl's Corp. warned last week it would be ``very conservative'' in sales planning for next year.
Treasury securities rallied before the reports as investors sought a haven amid the weakening outlook for growth. Yields on benchmark 10-year notes fell below 4 percent for the first time since 2005. The Standard & Poor's 500 stock index fell 15.02, or 1 percent, to 1,424.68 at 11:42 a.m. in New York.
Rising fuel costs and the housing slump spurred a drop in the Reuters/University of Michigan final sentiment index to 76.1 in November, the lowest level since October 2005, following Hurricane Katrina. The index was at 80.9 in October.
Government figures today also showed that initial claims for unemployment insurance held at a level that indicates a softening job market. The Labor Department said claims decreased by 11,000 to 330,000 in the week that ended Nov. 17, matching economists' forecasts.
Annual Drop
The leading economic indicator index is down at an annual pace of 1 percent over the last six months, short of the approximate 4 percent drop that Conference Board economists have said is required to signal recession.
Seven of the index's 10 components declined, led by the 6.6 percent slump in building permits that was reported by the Commerce Department yesterday. The drop subtracted 0.18 percentage point from the leading index.
Initial jobless claims averaged 327,500 in October, up from 313,100 the prior month, and subtracted 0.14 percentage point. A report today from the Labor Department showed initial claims last week dropped to 330,000 from a seven-month high of 341,000 the prior week.
A drop in the Reuters/University of Michigan's consumer expectations gauge last month cut 0.11 percentage point from the leading economic indicators. The gauge, which some economists consider a harbinger of future spending, dropped again this month, according to a report today.
Holiday Forecast
Rising energy prices, increasing unemployment and continued weakness in housing concern Americans and may lead to the weakest holiday sales season in five years, according a forecast by the National Retail Federation, a Washington-based trade group.
``Spending is going to slow because of rising gasoline prices and tighter credit conditions,'' said David Sloan, senior economist at 4Cast Inc. in New York, who correctly projected the LEI result.
J.C. Penney Co., Starbucks Inc. and FedEx Corp. are among companies that have recently lowered profit forecasts.
``We're going to have a mediocre holiday season as consumer spending is a bit hemmed by rising gasoline and falling home values,'' said Stuart Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburgh.
Seven of the components of the leading economic indicators index are known before the report: initial jobless claims, consumer expectations, building permits, supplier deliveries, the yield curve, stock prices and factory hours.
Money Supply
The Conference Board estimates money supply adjusted for inflation, new orders for consumer goods and orders for non- defense capital goods.
The economy is projected to grow at a 1.5 percent annual rate this quarter after expanding at a 3.9 percent pace in the previous three months, according to a Bloomberg News survey taken earlier this month.
Fed policy makers lowered their growth forecasts in October and worried about credit-market losses, according to the minutes of their Oct. 31 meeting issued yesterday. The decision to reduce the benchmark interest rate target by a quarter percentage-point was described as a ``close call.''
The records of the gathering were accompanied by estimates and language that highlighted risks to growth. Traders anticipate the central bank will be forced to trim borrowing costs again next month.
Cisco Orders
Cisco Systems Inc., the world's largest maker of networking equipment, said earlier this month that declining orders from automobile and financial companies are curbing growth.
``The U.S. economy, to most of my customers, felt like we were coming in a soft landing,'' John Chambers, chief executive officer of Cisco, said on a conference call Nov. 7. An ``air of conservatism'' is ``affecting their purchasing.''
The Conference Board's index of coincident indicators, a gauge of current economic activity, was unchanged in October after increasing 0.2 percent in September. The index tracks payrolls, incomes, sales and production.
The gauge of lagging indicators rose 0.3 percent after a 0.4 percent gain in September. The index measures business lending, length of unemployment, service prices and ratios of labor costs, inventories and consumer credit.
Nov. 21 (Bloomberg) -- The U.S. economy may continue to slow into 2008, according to a measure of its performance over the next three to six months.
The Conference Board's index of leading economic indicators fell 0.5 percent in October after a 0.1 percent increase that was smaller than previously estimated, the New York-based group said today. A separate report showed consumer confidence weakened this month.
The figures, coming a day after the Federal Reserve lowered its growth forecast for next year, add to concern that the credit collapse is causing consumers and businesses to cut spending. The deepening housing recession will constrain the expansion again this quarter, slicing growth to about 1 percent, from around 5 percent in the previous three months, economists predict.
``There is a definite pattern of weakening here,'' said Edward McKelvey, a senior economist at Goldman Sachs Group Inc. in New York, who correctly forecast the decline in the leading index. ``It's all consistent with deceleration in the economy and that includes some deceleration in the labor market.''
Economists forecast the Conference Board's index would decline 0.3 percent, after an initially reported 0.3 percent gain in September, according to the median of 60 estimates in a Bloomberg News survey. Projections ranged from no change to a 1 percent drop.
``The data are pointing to a continued slow economy,'' Ken Goldstein, a Conference Board economist, said in a statement. ``It might even slow a little more after the holidays.''
Hit to Retailers
Target Corp., the second-largest U.S. discount chain and Limited Brands Inc. reported lower-than-forecast earnings this week as consumers pull back on spending. Home-improvement chain Lowe's Cos. also cut its profit outlook, while department-store chain Kohl's Corp. warned last week it would be ``very conservative'' in sales planning for next year.
Treasury securities rallied before the reports as investors sought a haven amid the weakening outlook for growth. Yields on benchmark 10-year notes fell below 4 percent for the first time since 2005. The Standard & Poor's 500 stock index fell 15.02, or 1 percent, to 1,424.68 at 11:42 a.m. in New York.
Rising fuel costs and the housing slump spurred a drop in the Reuters/University of Michigan final sentiment index to 76.1 in November, the lowest level since October 2005, following Hurricane Katrina. The index was at 80.9 in October.
Government figures today also showed that initial claims for unemployment insurance held at a level that indicates a softening job market. The Labor Department said claims decreased by 11,000 to 330,000 in the week that ended Nov. 17, matching economists' forecasts.
Annual Drop
The leading economic indicator index is down at an annual pace of 1 percent over the last six months, short of the approximate 4 percent drop that Conference Board economists have said is required to signal recession.
Seven of the index's 10 components declined, led by the 6.6 percent slump in building permits that was reported by the Commerce Department yesterday. The drop subtracted 0.18 percentage point from the leading index.
Initial jobless claims averaged 327,500 in October, up from 313,100 the prior month, and subtracted 0.14 percentage point. A report today from the Labor Department showed initial claims last week dropped to 330,000 from a seven-month high of 341,000 the prior week.
A drop in the Reuters/University of Michigan's consumer expectations gauge last month cut 0.11 percentage point from the leading economic indicators. The gauge, which some economists consider a harbinger of future spending, dropped again this month, according to a report today.
Holiday Forecast
Rising energy prices, increasing unemployment and continued weakness in housing concern Americans and may lead to the weakest holiday sales season in five years, according a forecast by the National Retail Federation, a Washington-based trade group.
``Spending is going to slow because of rising gasoline prices and tighter credit conditions,'' said David Sloan, senior economist at 4Cast Inc. in New York, who correctly projected the LEI result.
J.C. Penney Co., Starbucks Inc. and FedEx Corp. are among companies that have recently lowered profit forecasts.
``We're going to have a mediocre holiday season as consumer spending is a bit hemmed by rising gasoline and falling home values,'' said Stuart Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburgh.
Seven of the components of the leading economic indicators index are known before the report: initial jobless claims, consumer expectations, building permits, supplier deliveries, the yield curve, stock prices and factory hours.
Money Supply
The Conference Board estimates money supply adjusted for inflation, new orders for consumer goods and orders for non- defense capital goods.
The economy is projected to grow at a 1.5 percent annual rate this quarter after expanding at a 3.9 percent pace in the previous three months, according to a Bloomberg News survey taken earlier this month.
Fed policy makers lowered their growth forecasts in October and worried about credit-market losses, according to the minutes of their Oct. 31 meeting issued yesterday. The decision to reduce the benchmark interest rate target by a quarter percentage-point was described as a ``close call.''
The records of the gathering were accompanied by estimates and language that highlighted risks to growth. Traders anticipate the central bank will be forced to trim borrowing costs again next month.
Cisco Orders
Cisco Systems Inc., the world's largest maker of networking equipment, said earlier this month that declining orders from automobile and financial companies are curbing growth.
``The U.S. economy, to most of my customers, felt like we were coming in a soft landing,'' John Chambers, chief executive officer of Cisco, said on a conference call Nov. 7. An ``air of conservatism'' is ``affecting their purchasing.''
The Conference Board's index of coincident indicators, a gauge of current economic activity, was unchanged in October after increasing 0.2 percent in September. The index tracks payrolls, incomes, sales and production.
The gauge of lagging indicators rose 0.3 percent after a 0.4 percent gain in September. The index measures business lending, length of unemployment, service prices and ratios of labor costs, inventories and consumer credit.
Japan's Topix Falls 20% From 2007 High, Signaling Bear Market
By Elizabeth Stanton
Nov. 22 (Bloomberg) -- Japan became the first of the world's 10 biggest stock markets to enter a bear market when the Topix index declined 20 percent from its 2007 peak.
The 39-year-old Topix, the broadest gauge of equity prices in the world's second-largest economy, fell 2.1 percent yesterday to 1,438.72, the lowest since October 2005 and down 20.8 percent from its 2007 high of 1,816.97 on Feb. 26.
Japanese companies are struggling with slowing economic growth in the U.S., their largest market for exports, the yen's appreciation and record crude oil prices. The Topix decline from a 15-year high in February signals the government's efforts to revive the economy from more than a decade of inconsistent growth, have hit a snag, investors said.
``Performance potential is limited by a deteriorating economic outlook, both foreign and domestic,'' said Florence Barjou, Paris-based strategist at Lyxor Asset Management, which oversees $100 billion.
The Nikkei-225 Stock Average, created in 1949, is just short of bear market territory. It fell 2.5 percent yesterday to 14,837.66, the lowest since July 2006 and down 18.8 percent from a six-year high of 18,261.98, also on Feb. 26.
The Nikkei is a price-weighted average of 225 Japanese companies including Toyota Motor Corp, Mitsubishi UFJ Financial Group and NTT Docomo Inc. with a median market value of 748.9 billion yen ($6.89 billion). The Topix is a capitalization- weighted index of 1,719 companies with a median market value of 469.8 trillion yen.
Less Than Stellar
The Topix decline ``would be an official bear market so to speak, but Japan hasn't been an area of stellar growth for 10 years,'' said Paul Hickey, managing partner at Bespoke Investment Group LLC in Harrison, New York.
Most stock markets have fallen this month, with the U.S. Standard & Poor's 500 Index down 8.6 percent, on pace for its worst month since September 2002. The declines reflect expectations that investment losses created by the biggest slump in housing since 1991 are curbing growth in the world's largest economy.
The MSCI World Index of developed-country shares is down 7.9 percent from a record on Oct. 31, and the MSCI Emerging Markets Index has fallen 11 percent from its high on Oct. 29.
Toyota, the Japanese company with the largest market value, fell 2.8 percent yesterday to a 16-month low amid concern U.S. sales will slow. Toyota is the second-biggest auto seller in the U.S. behind General Motors Corp.
Rising Yen
The yen has strengthened against all 16 major currencies since mid-year, making Japanese products more expensive in other countries. Against the dollar it has gained 9.8 percent, reaching a more than two-year high of 108.51 per dollar yesterday.
Losses in global credit-markets are fueling the yen's rise by spurring investors to sell higher-yielding assets that were purchased with yen borrowed at low interest rates and sold. The Bank of Japan's overnight call rate, the main rate at which banks lend to one another, is 0.5 percent, the lowest among the major economies.
Record crude oil prices, a problem for all manufacturing economies, are a particular disadvantage in Japan, which imports almost all of the oil it uses. Crude oil futures touched a record $99.29 a barrel in New York Mercantile Exchange trading yesterday, and are up 62 percent in the past year.
The Bank of Japan on Oct. 31 cut its growth estimate for the year ending in March to 1.8 percent from 2.1 percent. Reflecting reduced expectations for economic growth, the yield on 10-year Japanese government bonds yesterday fell to a 23-month low of 1.439 percent.
Investors in Japan's stock market have experienced worse over the past two decades than the drop from this year's peaks. In 1990, the Topix lost almost 40 percent of its value and the Nikkei lost almost 39 percent.
Nov. 22 (Bloomberg) -- Japan became the first of the world's 10 biggest stock markets to enter a bear market when the Topix index declined 20 percent from its 2007 peak.
The 39-year-old Topix, the broadest gauge of equity prices in the world's second-largest economy, fell 2.1 percent yesterday to 1,438.72, the lowest since October 2005 and down 20.8 percent from its 2007 high of 1,816.97 on Feb. 26.
Japanese companies are struggling with slowing economic growth in the U.S., their largest market for exports, the yen's appreciation and record crude oil prices. The Topix decline from a 15-year high in February signals the government's efforts to revive the economy from more than a decade of inconsistent growth, have hit a snag, investors said.
``Performance potential is limited by a deteriorating economic outlook, both foreign and domestic,'' said Florence Barjou, Paris-based strategist at Lyxor Asset Management, which oversees $100 billion.
The Nikkei-225 Stock Average, created in 1949, is just short of bear market territory. It fell 2.5 percent yesterday to 14,837.66, the lowest since July 2006 and down 18.8 percent from a six-year high of 18,261.98, also on Feb. 26.
The Nikkei is a price-weighted average of 225 Japanese companies including Toyota Motor Corp, Mitsubishi UFJ Financial Group and NTT Docomo Inc. with a median market value of 748.9 billion yen ($6.89 billion). The Topix is a capitalization- weighted index of 1,719 companies with a median market value of 469.8 trillion yen.
Less Than Stellar
The Topix decline ``would be an official bear market so to speak, but Japan hasn't been an area of stellar growth for 10 years,'' said Paul Hickey, managing partner at Bespoke Investment Group LLC in Harrison, New York.
Most stock markets have fallen this month, with the U.S. Standard & Poor's 500 Index down 8.6 percent, on pace for its worst month since September 2002. The declines reflect expectations that investment losses created by the biggest slump in housing since 1991 are curbing growth in the world's largest economy.
The MSCI World Index of developed-country shares is down 7.9 percent from a record on Oct. 31, and the MSCI Emerging Markets Index has fallen 11 percent from its high on Oct. 29.
Toyota, the Japanese company with the largest market value, fell 2.8 percent yesterday to a 16-month low amid concern U.S. sales will slow. Toyota is the second-biggest auto seller in the U.S. behind General Motors Corp.
Rising Yen
The yen has strengthened against all 16 major currencies since mid-year, making Japanese products more expensive in other countries. Against the dollar it has gained 9.8 percent, reaching a more than two-year high of 108.51 per dollar yesterday.
Losses in global credit-markets are fueling the yen's rise by spurring investors to sell higher-yielding assets that were purchased with yen borrowed at low interest rates and sold. The Bank of Japan's overnight call rate, the main rate at which banks lend to one another, is 0.5 percent, the lowest among the major economies.
Record crude oil prices, a problem for all manufacturing economies, are a particular disadvantage in Japan, which imports almost all of the oil it uses. Crude oil futures touched a record $99.29 a barrel in New York Mercantile Exchange trading yesterday, and are up 62 percent in the past year.
The Bank of Japan on Oct. 31 cut its growth estimate for the year ending in March to 1.8 percent from 2.1 percent. Reflecting reduced expectations for economic growth, the yield on 10-year Japanese government bonds yesterday fell to a 23-month low of 1.439 percent.
Investors in Japan's stock market have experienced worse over the past two decades than the drop from this year's peaks. In 1990, the Topix lost almost 40 percent of its value and the Nikkei lost almost 39 percent.
Tuesday, November 20, 2007
Fed Pares Growth Forecast, Calls October Cut `Close' (Update4)
By Craig Torres and Scott Lanman
Nov. 20 (Bloomberg) -- Federal Reserve policy makers lowered their growth forecast in October and expressed concern about credit-market losses, even as they described the interest- rate cut as a ``close call.''
``Most members saw substantial downside risks to the economic outlook and judged that a rate reduction at this meeting would provide valuable additional insurance against an unexpectedly severe weakening in economic activity,'' according to minutes of the Federal Open Market Committee's Oct. 30-31 meeting. ``Many members noted that this policy decision was a close call.''
Records of the gathering, which buttressed speculation that the Fed will reduce borrowing costs again next month, were accompanied by estimates and phrases that highlighted risks to growth. The language contrasted with the October statement, which said the dangers of a slower expansion and faster inflation were ``roughly'' equal.
``This does not sound like a close call to us, more of a no-brainer,'' said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York. ``We can be pretty sure that if the outlook continues to deteriorate and markets remained distressed, they'll be easing again soon enough.''
Federal funds futures quoted on the Chicago Board of Trade at 5 p.m. in New York indicated an 82 percent chance of a quarter-point rate cut on Dec. 11, and 70 percent odds of a further move on Jan. 30.
Stocks Gain
Ten-year Treasury notes yielded 4.10 percent, from 4.07 percent late yesterday, while the dollar remained lower. Stocks rebounded from three-month lows, led by oil and technology companies. The Standard & Poor's 500 Index added 6.43, or 0.5 percent, to 1,439.70.
FOMC members predicted growth could slow next year to as low as 1.8 percent, according to the middle range of forecasts. The numbers are ``notably below'' the 2.5 percent to 2.75 percent anticipated in June, the Fed said.
Inflation, as measured by the personal consumption expenditures price index excluding food and energy, will be 1.7 percent to 1.9 percent, down from 1.75 percent to 2 percent.
``Most participants judged that the uncertainty attending their October projections for real gross domestic product growth was above typical levels seen in the past,'' the Fed said. ``In contrast, the uncertainty attached to participants' inflation projections was generally viewed as being broadly in line with past experience.''
Forecasting Overhaul
The projections, provided as an addendum to the minutes, are the product of a 1 1/2-year review of Fed communication that Chairman Ben S. Bernanke initiated to improve the public's understanding of policy makers' objectives.
The FOMC reduced the benchmark rate by a quarter-point on Oct. 31, to 4.5 percent, after a half-point move in September. Kansas City Federal Reserve Bank President Thomas Hoenig dissented, preferring no change. The minutes say Hoenig felt ``that policy needed to be slightly firm to better hold inflation in check.''
Fed officials have faced a challenge from financial markets on their neutral outlook for policy.
Traders are betting that year-end funding strains among banks and brokers will curtail lending and slow growth. Analysts predict that writedowns by banks and securities firms, already $50 billion worldwide, will continue to rise as losses mount on securities linked with subprime U.S. mortgages.
``Credit is shutting down to many sectors of the economy,'' said James Glassman, senior economist at JPMorgan Chase & Co. in New York. ``The Fed needs to adopt an accommodative stance.''
Financial Stability
The minutes contain several references to policy makers' concerns about financial stability, which they said could affect the outlook for growth.
``Participants generally viewed financial markets as still fragile and were concerned that an adverse shock -- such as a sharp deterioration in credit quality or disclosure of unusually large and unanticipated losses -- could further dent investor confidence and significantly increase the downside risks to the economy,'' the minutes said.
Yields on two-year Treasury notes touched 3.12 percent yesterday, the lowest since January 2005, as investors sought a haven in government debt.
The minutes showed that policy makers paying close attention to surveys and anecdotes that might indicate a turn in sentiment. Consumer spending should ``continue to advance at a moderate rate'' supported by income gains, the minutes said, while there was a risk that weaker home prices could ``further sap consumer confidence.''
Construction Slump
Fed officials have said they expect job growth, record exports and business spending will help sustain the expansion through the recession in housing. Government figures today showed no sign of a bottom for homebuilding, as residential construction permits slumped to their lowest level since 1993.
Bernanke told congressional lawmakers at a Nov. 8 hearing the Fed expected ``a more reasonable growth pace'' by the U.S. spring of next year. Fed Governor Randall Kroszner said Nov. 16 that data confirming a ``rough patch during the next year'' would not ``by themselves suggest to me that the current stance of monetary policy is inappropriate.''
Fed policy makers have sought to limit the risks to growth while preventing a jump in expectations for inflation. The central bank's preferred gauge of consumer prices, which excludes food and energy costs, rose 1.8 percent in September from a year ago. Officials are wary of any pass-through from soaring energy and commodity costs and a falling dollar.
``The easing of policy at this meeting seemed unlikely to affect adversely the outlook for inflation,'' the minutes said. ``A number of members noted that the recent policy moves could readily be reversed if circumstances evolved in a manner that would warrant such action.''
Nov. 20 (Bloomberg) -- Federal Reserve policy makers lowered their growth forecast in October and expressed concern about credit-market losses, even as they described the interest- rate cut as a ``close call.''
``Most members saw substantial downside risks to the economic outlook and judged that a rate reduction at this meeting would provide valuable additional insurance against an unexpectedly severe weakening in economic activity,'' according to minutes of the Federal Open Market Committee's Oct. 30-31 meeting. ``Many members noted that this policy decision was a close call.''
Records of the gathering, which buttressed speculation that the Fed will reduce borrowing costs again next month, were accompanied by estimates and phrases that highlighted risks to growth. The language contrasted with the October statement, which said the dangers of a slower expansion and faster inflation were ``roughly'' equal.
``This does not sound like a close call to us, more of a no-brainer,'' said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York. ``We can be pretty sure that if the outlook continues to deteriorate and markets remained distressed, they'll be easing again soon enough.''
Federal funds futures quoted on the Chicago Board of Trade at 5 p.m. in New York indicated an 82 percent chance of a quarter-point rate cut on Dec. 11, and 70 percent odds of a further move on Jan. 30.
Stocks Gain
Ten-year Treasury notes yielded 4.10 percent, from 4.07 percent late yesterday, while the dollar remained lower. Stocks rebounded from three-month lows, led by oil and technology companies. The Standard & Poor's 500 Index added 6.43, or 0.5 percent, to 1,439.70.
FOMC members predicted growth could slow next year to as low as 1.8 percent, according to the middle range of forecasts. The numbers are ``notably below'' the 2.5 percent to 2.75 percent anticipated in June, the Fed said.
Inflation, as measured by the personal consumption expenditures price index excluding food and energy, will be 1.7 percent to 1.9 percent, down from 1.75 percent to 2 percent.
``Most participants judged that the uncertainty attending their October projections for real gross domestic product growth was above typical levels seen in the past,'' the Fed said. ``In contrast, the uncertainty attached to participants' inflation projections was generally viewed as being broadly in line with past experience.''
Forecasting Overhaul
The projections, provided as an addendum to the minutes, are the product of a 1 1/2-year review of Fed communication that Chairman Ben S. Bernanke initiated to improve the public's understanding of policy makers' objectives.
The FOMC reduced the benchmark rate by a quarter-point on Oct. 31, to 4.5 percent, after a half-point move in September. Kansas City Federal Reserve Bank President Thomas Hoenig dissented, preferring no change. The minutes say Hoenig felt ``that policy needed to be slightly firm to better hold inflation in check.''
Fed officials have faced a challenge from financial markets on their neutral outlook for policy.
Traders are betting that year-end funding strains among banks and brokers will curtail lending and slow growth. Analysts predict that writedowns by banks and securities firms, already $50 billion worldwide, will continue to rise as losses mount on securities linked with subprime U.S. mortgages.
``Credit is shutting down to many sectors of the economy,'' said James Glassman, senior economist at JPMorgan Chase & Co. in New York. ``The Fed needs to adopt an accommodative stance.''
Financial Stability
The minutes contain several references to policy makers' concerns about financial stability, which they said could affect the outlook for growth.
``Participants generally viewed financial markets as still fragile and were concerned that an adverse shock -- such as a sharp deterioration in credit quality or disclosure of unusually large and unanticipated losses -- could further dent investor confidence and significantly increase the downside risks to the economy,'' the minutes said.
Yields on two-year Treasury notes touched 3.12 percent yesterday, the lowest since January 2005, as investors sought a haven in government debt.
The minutes showed that policy makers paying close attention to surveys and anecdotes that might indicate a turn in sentiment. Consumer spending should ``continue to advance at a moderate rate'' supported by income gains, the minutes said, while there was a risk that weaker home prices could ``further sap consumer confidence.''
Construction Slump
Fed officials have said they expect job growth, record exports and business spending will help sustain the expansion through the recession in housing. Government figures today showed no sign of a bottom for homebuilding, as residential construction permits slumped to their lowest level since 1993.
Bernanke told congressional lawmakers at a Nov. 8 hearing the Fed expected ``a more reasonable growth pace'' by the U.S. spring of next year. Fed Governor Randall Kroszner said Nov. 16 that data confirming a ``rough patch during the next year'' would not ``by themselves suggest to me that the current stance of monetary policy is inappropriate.''
Fed policy makers have sought to limit the risks to growth while preventing a jump in expectations for inflation. The central bank's preferred gauge of consumer prices, which excludes food and energy costs, rose 1.8 percent in September from a year ago. Officials are wary of any pass-through from soaring energy and commodity costs and a falling dollar.
``The easing of policy at this meeting seemed unlikely to affect adversely the outlook for inflation,'' the minutes said. ``A number of members noted that the recent policy moves could readily be reversed if circumstances evolved in a manner that would warrant such action.''
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