By Eric Martin
May 21 (Bloomberg) -- U.S. stocks tumbled, sending the Standard & Poor's 500 Index to its biggest two-day drop since March, as the Federal Reserve signaled it is done cutting interest rates and record oil prices threatened to reduce profits at consumer companies.
Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co. sent financial shares to their lowest since April 15. Target Corp. led retailers to their worst decline in a month and an index of airlines slid to an all-time low as crude climbed above $133 a barrel. Moody's Corp. slumped the most since 1999 after the credit ratings company said it is investigating whether it mistakenly assigned Aaa ratings to debt securities that later fell in value.
The S&P 500 lost 22.69 points, or 1.6 percent, to 1,390.71. The Dow Jones Industrial Average slid 227.49, or 1.8 percent, to 12,601.19. The Nasdaq Composite Index fell 43.99, or 1.8 percent, to 2,448.27. Four stocks retreated for every one that rose on the New York Stock Exchange.
``The American market is a bottomless pit right now,'' said Peter Schiff, president of Darien, Connecticut-based brokerage Euro Pacific Capital, which has more than $1 billion in customer accounts. ``The Fed can't cut rates any more. Oil is $132 a barrel and rising. Any company that collects revenues from American consumers is going to have terrible earnings, and share prices are going to fall.''
`Close Call'
All 10 industries in the S&P 500 slid after the minutes from the Fed's April meeting suggested record energy costs and rising public expectations for inflation threatened their ability to continue cutting rates. Policymakers also reduced their projections for economic growth this year by almost a full percentage point and raised their forecasts for inflation amid curtailed bank lending and a record rise in the prices for oil
``Most members viewed the decision to reduce interest rates at this meeting as a close call,'' the minutes said. ``Several members noted that it was unlikely to be appropriate to ease policy in response to information suggesting that the economy was slowing further or even contracting slightly in the near term.''
The S&P 500's 2.5 percent drop over the past two days was the benchmark's biggest decline since the Federal Reserve brokered JPMorgan Chase & Co.'s buyout of Bear Stearns Cos. in March.
Citigroup slid 4.8 percent to $21.06, while Bank of America lost 2.2 percent to $34.63 and JPMorgan fell 2.9 percent to $42.42.
Financials Tumble
The S&P 500 Financials Index slumped for a fourth day, losing 2.3 percent. The index has tumbled 34 percent over the past year, allowing technology companies to surpass the group as the biggest industry in the S&P 500, after global banks and securities firms racked up $379 billion in asset writedowns and credit losses related to the collapse of the subprime mortgage market.
Moody's plunged 16 percent to $36.91. Some senior staff at Moody's were aware in early 2007 that constant proportion debt obligations, funds that used borrowed money to bet on credit- default swaps, should have been ranked four levels lower, the Financial Times said, citing internal Moody's documents. Moody's altered some assumptions to avoid having to assign lower grades after it corrected the error, the paper said.
McGraw-Hill Cos., the owner of Moody's rival Standard & Poor's, tumbled 5.5 percent to $41.18.
Lehman Brothers Holdings Inc. lost 5.8 percent to $39.56 after Merrill Lynch & Co. reduced earnings forecasts. Lehman will probably earn 6 cents a share in the quarter that ends May 30, down from Merrill's earlier estimate of 82 cents. Merrill analyst Guy Moszkowski lowered his full-year estimate to $2.80 per share from $3.88.
Crude's Rally
Target, the second-largest U.S. discount chain, tumbled 2.6 percent to $52.87, leading retailers in the S&P 500 to a 2.5 percent drop as a group.
Crude for July delivery climbed $4.19, or 3.3 percent, $133.17 a barrel after U.S. stockpiles unexpectedly dropped, spurring concern that rising fuel bills will leave consumers with less money to spend elsewhere.
At least five banks raised price forecasts for crude in the past week and options contracts betting that oil will exceed $200 a barrel in December have risen 46 percent this week, as futures for delivery in 2016 topped $141.
Homebuilders fell the most since March 26 and accounted for five of the top 10 declines in the S&P 500 on concern that higher borrowing costs will reduce demand. D.R. Horton Inc., the largest U.S. builder by market value, slumped 6.2 percent to $13.43. Smaller rival Lennar Corp. tumbled 7.4 percent to $17.43.
`Another Hurdle'
``Those who expected the Fed would continue to be able to reduce rates and thus provide a safety net to the economy and consumers who are in trouble are going to have to question that,'' said Michael Barron, chief executive officer of Knott Capital Management in Exton, Pennsylvania, which manages $1 billion. ``It's another hurdle the financial sector has in front of it.''
The AMEX Airline Index slumped 12 percent to an all-time low after Soleil Securities downgraded the industry to ``neutral'' from ``outperform'' and AMR Corp.'s American Airlines said it will slash U.S. capacity as much as 12 percent, retire as many as 85 jets and cut jobs to blunt surging fuel prices and slowing demand.
UAL Corp., parent of United Airlines, lost 30 percent to $8.15. Continental Airlines Inc. slid 13 percent to $14.20. AMR lost 24 percent to $6.22. Boeing Co., the world's second-biggest commercial airplane maker, fell 4.6 percent to $81.19.
Bankruptcy Speculation
``We now expect AMR to have trouble avoiding bankruptcy by sometime in 2009,'' Soleil analyst James M. Higgins wrote in a note to clients.
United spokeswoman Robin Urbanski didn't immediately return calls for comment. AMR spokesman Andy Backover said ``We've done a lot of work in recent years to avoid bankruptcy and to put ourselves in a better position to weather today's uncertainty.''
Medtronic Inc. climbed 3 percent to $50.43. Goldman Sachs Group Inc. upgraded the shares to ``buy'' from ``neutral'' after the company's fiscal fourth-quarter profit beat analysts' estimates yesterday as defibrillator sales recovered from a recall and the heart stent Endeavor began selling in the U.S.
Micron Technology Inc. climbed 1.8 percent to $8.36. The largest U.S. maker of computer-memory chips was upgraded to ``buy'' from ``hold'' at Deutsche Bank AG, which said it expects further price increases for dynamic random access memory.
Intuit Inc. gained the most in a month, rising 93 cents, or 3.4 percent, to $28.14. The world's largest maker of tax- preparation software said third-quarter profit rose 21 percent after more customers used its TurboTax software to file U.S. tax returns. Sales advanced 15 percent, topping analysts' estimates.
The Russell 2000 Index, a benchmark for companies with a median market value 95 percent smaller than the S&P 500's, fell 1.2 percent to 727.11. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, dropped 1.6 percent to 14,084.22. Based on its retreat, the value of stocks decreased by $282 billion.
Wednesday, May 21, 2008
Most Fed Officials Saw April Rate Cut as `Close Call' (Update4)
By Craig Torres
May 21 (Bloomberg) -- Most Federal Reserve officials viewed the decision to cut the benchmark interest rate as ``a close call'' in April, signaling they may hold off from further reductions.
``The risks to growth were now thought to be more closely balanced by the risks to inflation,'' minutes of the April 29-30 Federal Open Market Committee meeting, released in Washington today, said. Several policy makers judged ``it was unlikely to be appropriate'' to lower rates further unless data indicated a ``significant weakening'' in the outlook.
Stocks tumbled after the report stoked speculation Chairman Ben S. Bernanke and his colleagues are finished lowering borrowing costs as the threat of inflation rises. Questions about whether to lower the rate last month came even as officials cut their 2008 growth estimate by almost 1 percentage point.
``The Fed is wary about the economy, but cautious to act due to high inflation,'' said Christopher Low, chief economist at FTN Financial in New York. The report ``reinforced the idea of a pause'' from rate reductions, he said.
Investors anticipate officials will keep the rate at 2 percent when they next meet June 24-25. Fed officials cut the benchmark lending rate by a quarter point on April 30. The 2.25 percentage points of reductions this year were the fastest in almost two decades.
Warsh Remarks
Two district-bank presidents dissented from the April rate cut, while Fed Governor Kevin Warsh said today that central bankers should be ``inclined to resist'' calls for further moves ``even if the economy were to weaken somewhat further.'' Warsh made the remarks in a Washington speech.
The Standard and Poor's 500 Index dropped 1.6 percent to 1,390.71 at the close of New York trading. Treasury prices fell, raising yields on benchmark 10-year notes to 3.82 percent from 3.78 percent late yesterday.
In their April 30 statement, officials dropped previous language referring to ``downside'' risks to economic growth remaining even after the rate cut.
``The committee felt that it was no longer appropriate for the statement to emphasize the downside risks to growth,'' the minutes said today. Officials judged that the risk of another round of financial disruptions hobbling the economy had ``receded'' since their March meeting.
Growth Forecast
Fed officials lowered their 2008 economic growth projections to 0.3 percent to 1.2 percent from a January forecast of 1.3 percent to 2 percent. The figures represent the median estimates of the five current Fed governors and 12 district-bank presidents. Next year, the panel sees an expansion rate of 2 percent to 2.8 percent.
The group raised its expectations for inflation, excluding food and energy, to 2.2 percent to 2.4 percent this year, from 2 percent to 2.2 percent. The Commerce Department's so-called core personal consumption expenditures price index is seen rising 1.9 percent to 2.1 percent next year.
The April 30 statement said that ``substantial'' rate cuts over the past 12 months ``should help promote moderate growth over time.''
``Although downside risks to growth remained, members were also concerned about the upside risks to the inflation outlook, given the continued increases in oil and commodity prices and that fact that some indicators suggested that inflation expectations had risen in recent months,'' the minutes said.
`Calibrated' Stance
Fed Vice Chairman Donald Kohn said yesterday that ``monetary policy appears to be appropriately calibrated for now to promote both rising employment and moderating inflation of the medium term.'' He also said the recovery in growth into next year may be ``relatively moderate'' as it will take time for investors to regain confidence and for housing demand to rise.
Traders see a 90 percent chance the FOMC will keep its target rate for overnight loans between banks at 2 percent when they next meet June 24-25, according to futures prices quoted on the Chicago Board of Trade. The contracts indicate a 23 percent likelihood officials will raise the rate in September.
``Most members viewed the decision to reduce interest rates at this meeting as a close call,'' the minutes said today, referring to the April 29-30 meeting.
Policy makers lowered their growth forecasts after economic figures showed a continued decline in housing and slump in consumer confidence to the weakest since 1980. Businesses have also cut payrolls for five consecutive months.
`A Crawl'
``Growth in consumer spending appeared to have slowed to a crawl in recent months and consumer sentiment had fallen sharply,'' the minutes aid. ``The outlook for business spending remained decidedly downbeat.''
Construction of U.S. single-family houses in April dropped to the lowest level in 17 years, the Commerce Department said last week. Residential investment, a component of gross domestic product, has declined for nine consecutive quarters.
Fed officials are also contending with a surge in oil prices that has both depressed confidence and spending on other items and pushed up inflation.
Crude oil surpassed $133 a barrel today for the first time and has climbed about 37 percent this year. Food prices rose at a 6.1 percent annual rate for the three months ending April, according to the Bureau of Labor Statistics.
The Labor Department's gauge of consumer prices rose 3.9 percent in the 12 months ending in April, the sixth straight month that the rate exceeded 3.5 percent.
``Participants expected the recent increases in oil and food prices to continue to boost overall consumer price inflation in the near term,'' the minutes said.
The Reuters/University of Michigan Survey of households showed inflation expectations for the coming 12 months rose to 5.2 percent in May, the highest level since 1982. Consumers' estimate for price gains over the next five years increased to 3.3 percent, the fastest since 1996.
May 21 (Bloomberg) -- Most Federal Reserve officials viewed the decision to cut the benchmark interest rate as ``a close call'' in April, signaling they may hold off from further reductions.
``The risks to growth were now thought to be more closely balanced by the risks to inflation,'' minutes of the April 29-30 Federal Open Market Committee meeting, released in Washington today, said. Several policy makers judged ``it was unlikely to be appropriate'' to lower rates further unless data indicated a ``significant weakening'' in the outlook.
Stocks tumbled after the report stoked speculation Chairman Ben S. Bernanke and his colleagues are finished lowering borrowing costs as the threat of inflation rises. Questions about whether to lower the rate last month came even as officials cut their 2008 growth estimate by almost 1 percentage point.
``The Fed is wary about the economy, but cautious to act due to high inflation,'' said Christopher Low, chief economist at FTN Financial in New York. The report ``reinforced the idea of a pause'' from rate reductions, he said.
Investors anticipate officials will keep the rate at 2 percent when they next meet June 24-25. Fed officials cut the benchmark lending rate by a quarter point on April 30. The 2.25 percentage points of reductions this year were the fastest in almost two decades.
Warsh Remarks
Two district-bank presidents dissented from the April rate cut, while Fed Governor Kevin Warsh said today that central bankers should be ``inclined to resist'' calls for further moves ``even if the economy were to weaken somewhat further.'' Warsh made the remarks in a Washington speech.
The Standard and Poor's 500 Index dropped 1.6 percent to 1,390.71 at the close of New York trading. Treasury prices fell, raising yields on benchmark 10-year notes to 3.82 percent from 3.78 percent late yesterday.
In their April 30 statement, officials dropped previous language referring to ``downside'' risks to economic growth remaining even after the rate cut.
``The committee felt that it was no longer appropriate for the statement to emphasize the downside risks to growth,'' the minutes said today. Officials judged that the risk of another round of financial disruptions hobbling the economy had ``receded'' since their March meeting.
Growth Forecast
Fed officials lowered their 2008 economic growth projections to 0.3 percent to 1.2 percent from a January forecast of 1.3 percent to 2 percent. The figures represent the median estimates of the five current Fed governors and 12 district-bank presidents. Next year, the panel sees an expansion rate of 2 percent to 2.8 percent.
The group raised its expectations for inflation, excluding food and energy, to 2.2 percent to 2.4 percent this year, from 2 percent to 2.2 percent. The Commerce Department's so-called core personal consumption expenditures price index is seen rising 1.9 percent to 2.1 percent next year.
The April 30 statement said that ``substantial'' rate cuts over the past 12 months ``should help promote moderate growth over time.''
``Although downside risks to growth remained, members were also concerned about the upside risks to the inflation outlook, given the continued increases in oil and commodity prices and that fact that some indicators suggested that inflation expectations had risen in recent months,'' the minutes said.
`Calibrated' Stance
Fed Vice Chairman Donald Kohn said yesterday that ``monetary policy appears to be appropriately calibrated for now to promote both rising employment and moderating inflation of the medium term.'' He also said the recovery in growth into next year may be ``relatively moderate'' as it will take time for investors to regain confidence and for housing demand to rise.
Traders see a 90 percent chance the FOMC will keep its target rate for overnight loans between banks at 2 percent when they next meet June 24-25, according to futures prices quoted on the Chicago Board of Trade. The contracts indicate a 23 percent likelihood officials will raise the rate in September.
``Most members viewed the decision to reduce interest rates at this meeting as a close call,'' the minutes said today, referring to the April 29-30 meeting.
Policy makers lowered their growth forecasts after economic figures showed a continued decline in housing and slump in consumer confidence to the weakest since 1980. Businesses have also cut payrolls for five consecutive months.
`A Crawl'
``Growth in consumer spending appeared to have slowed to a crawl in recent months and consumer sentiment had fallen sharply,'' the minutes aid. ``The outlook for business spending remained decidedly downbeat.''
Construction of U.S. single-family houses in April dropped to the lowest level in 17 years, the Commerce Department said last week. Residential investment, a component of gross domestic product, has declined for nine consecutive quarters.
Fed officials are also contending with a surge in oil prices that has both depressed confidence and spending on other items and pushed up inflation.
Crude oil surpassed $133 a barrel today for the first time and has climbed about 37 percent this year. Food prices rose at a 6.1 percent annual rate for the three months ending April, according to the Bureau of Labor Statistics.
The Labor Department's gauge of consumer prices rose 3.9 percent in the 12 months ending in April, the sixth straight month that the rate exceeded 3.5 percent.
``Participants expected the recent increases in oil and food prices to continue to boost overall consumer price inflation in the near term,'' the minutes said.
The Reuters/University of Michigan Survey of households showed inflation expectations for the coming 12 months rose to 5.2 percent in May, the highest level since 1982. Consumers' estimate for price gains over the next five years increased to 3.3 percent, the fastest since 1996.
Oil Rises Above $134 on U.S. Supply Drop, Bank Price Forecasts
By Mark Shenk
May 22 (Bloomberg) -- Crude oil rose to a record above $134 a barrel in New York as U.S. stockpiles unexpectedly dropped and banks raised price forecasts because of supply constraints and demand growth.
Inventories fell 5.32 million barrels to 320.4 million last week, the biggest drop in four months, the Energy Department said yesterday. Oil for December 2016 delivery rose more than $20 a barrel, or 17 percent, after Goldman Sachs Group Inc. on May 16 raised its outlook to $141 a barrel for the second-half of the year.
``What we have here is a situation where essentially higher prices aren't generating any more supply,'' Paul Sankey, an analyst at Deutsche Bank Securities in New York, said in an interview with Bloomberg radio. ``What we have to do is keep pricing the commodity higher until demand starts falling,'' which ``is around $150 a barrel.''
Crude oil for July delivery rose $1, or 0.8 percent, to $134.17 a barrel at 9:04 a.m. in Sydney in after-hours trading on the New York Mercantile Exchange. It touched $134.42, the highest since trading began in 1983. Prices have more than doubled in the past year.
Yesterday, crude oil for July delivery rose $4.19, or 3.3 percent, to settle at $133.17 a barrel.
Gasoline futures advanced to a record $3.4234 a gallon. Gasoline for June delivery rose 2.15 cents, or 0.6 percent, to $3.4180 a gallon at 8:25 a.m. Sydney time. Yesterday, it rose 9.21 cents, or 2.8 percent, to settle at $3.3965 a gallon.
Higher Pump Prices
Heating oil for June delivery rose 3.91 cents, or 1 percent, to $3.9475 a gallon, after touching an all-time high of $3.9504. Yesterday, it increased 13.34 cents, or 3.5 percent, to close at $3.9084 a gallon.
Pump prices are following futures higher. Regular gasoline, averaged nationwide, rose 0.7 cent to a record $3.807 a gallon, AAA, the nation's largest motorist organization, said yesterday on its Web site.
An inventory increase of 300,000 barrels was forecast, according to the median of responses by 15 analysts surveyed by Bloomberg News before the inventory report's release.
The supply decline left stockpiles 0.9 percent below the five-year average for the week, the Energy Department said. Supplies were 0.8 percent above normal a week earlier.
Imports fell 7 percent to 9.24 million barrels a day, the report showed. Imports have averaged 9.86 million barrels a day so far this year, down 0.9 percent from the same period last year, according to department figures.
Refiners Cut Imports
``In this high-priced environment we are seeing refiners cut back on imports,'' said Antoine Halff, head of energy research at New York-based Newedge USA LLC. ``High prices and credit tightness are making it much harder to build supply.''
Brent crude oil for July settlement rose $4.86, or 3.8 percent, to $132.70 a barrel on London's ICE Futures Europe exchange yesterday. The contract touched $133.34, the highest since trading began in 1988.
The crude-oil market is ``well supplied,'' Libya's top oil official Shokri Ghanem said yesterday, rejecting calls for the Organization of Petroleum Exporting Countries to increase production to curb prices. OPEC, which pumps more than 40 percent of the world's oil, isn't planning to meet before its next scheduled conference in September to review production, he said.
``OPEC is playing with fire,'' said Rick Mueller, director of oil practice at Energy Security Analysis Inc. in Wakefield, Massachusetts. ``While they may be right from a fundamental standpoint about crude supplies, at this time it will take more than words from them to bring prices down. We will need to see more gestures like the Saudis made, to lower prices.''
Saudi Increase
Saudi Oil Minister Ali al-Naimi told reporters on May 16 that the kingdom is planning a 300,000 barrel-a-day output increase, to bring June production to 9.45 million barrels a day.
``Once prices hit $150 or $200 like our friends at Goldman are saying, we are looking at $5 or $6 gasoline, which will really hurt demand and cause a recession,'' Mueller said.
Goldman analyst Arjun N. Murti said in a May 16 report that ``the possibility of $150-$200 per barrel seems increasingly likely over the next six-24 months.'' Murti first wrote of a ``super spike'' in March 2005, predicting crude may trade between $50 and $105 a barrel through 2009.
U.S. oil-company executives told Congress oil prices should be between $35 and $90 a barrel. Representatives of the five largest publicly traded oil companies appeared before the Senate Judiciary Committee to testify on record energy prices. Appearing yesterday were representatives of BP Plc, ConocoPhillips, Chevron Corp., Exxon Mobil Corp. and Royal Dutch Shell Plc.
Strategic Reserve
The price of oil should be ``somewhere between $35 and $65 a barrel,'' John Hofmeister, president of Shell Oil Co., the Houston-based subsidiary of Royal Dutch Shell, said at the hearing yesterday. Other executives said prices should be as much as $90 a barrel.
Congress last week approved legislation to halt deliveries to the Strategic Petroleum Reserve in an effort to respond to record prices.
Airlines have been hit by higher jet fuel costs. The price of the fuel, the largest expense at many airlines, has climbed 88 percent in the past year and traded at a record $4.0592 a gallon in New York Harbor yesterday.
AMR Corp.'s American Airlines, the world's largest carrier, said it will cut ``thousands'' of jobs as it responds to high fuel prices and slowing demand.
May 22 (Bloomberg) -- Crude oil rose to a record above $134 a barrel in New York as U.S. stockpiles unexpectedly dropped and banks raised price forecasts because of supply constraints and demand growth.
Inventories fell 5.32 million barrels to 320.4 million last week, the biggest drop in four months, the Energy Department said yesterday. Oil for December 2016 delivery rose more than $20 a barrel, or 17 percent, after Goldman Sachs Group Inc. on May 16 raised its outlook to $141 a barrel for the second-half of the year.
``What we have here is a situation where essentially higher prices aren't generating any more supply,'' Paul Sankey, an analyst at Deutsche Bank Securities in New York, said in an interview with Bloomberg radio. ``What we have to do is keep pricing the commodity higher until demand starts falling,'' which ``is around $150 a barrel.''
Crude oil for July delivery rose $1, or 0.8 percent, to $134.17 a barrel at 9:04 a.m. in Sydney in after-hours trading on the New York Mercantile Exchange. It touched $134.42, the highest since trading began in 1983. Prices have more than doubled in the past year.
Yesterday, crude oil for July delivery rose $4.19, or 3.3 percent, to settle at $133.17 a barrel.
Gasoline futures advanced to a record $3.4234 a gallon. Gasoline for June delivery rose 2.15 cents, or 0.6 percent, to $3.4180 a gallon at 8:25 a.m. Sydney time. Yesterday, it rose 9.21 cents, or 2.8 percent, to settle at $3.3965 a gallon.
Higher Pump Prices
Heating oil for June delivery rose 3.91 cents, or 1 percent, to $3.9475 a gallon, after touching an all-time high of $3.9504. Yesterday, it increased 13.34 cents, or 3.5 percent, to close at $3.9084 a gallon.
Pump prices are following futures higher. Regular gasoline, averaged nationwide, rose 0.7 cent to a record $3.807 a gallon, AAA, the nation's largest motorist organization, said yesterday on its Web site.
An inventory increase of 300,000 barrels was forecast, according to the median of responses by 15 analysts surveyed by Bloomberg News before the inventory report's release.
The supply decline left stockpiles 0.9 percent below the five-year average for the week, the Energy Department said. Supplies were 0.8 percent above normal a week earlier.
Imports fell 7 percent to 9.24 million barrels a day, the report showed. Imports have averaged 9.86 million barrels a day so far this year, down 0.9 percent from the same period last year, according to department figures.
Refiners Cut Imports
``In this high-priced environment we are seeing refiners cut back on imports,'' said Antoine Halff, head of energy research at New York-based Newedge USA LLC. ``High prices and credit tightness are making it much harder to build supply.''
Brent crude oil for July settlement rose $4.86, or 3.8 percent, to $132.70 a barrel on London's ICE Futures Europe exchange yesterday. The contract touched $133.34, the highest since trading began in 1988.
The crude-oil market is ``well supplied,'' Libya's top oil official Shokri Ghanem said yesterday, rejecting calls for the Organization of Petroleum Exporting Countries to increase production to curb prices. OPEC, which pumps more than 40 percent of the world's oil, isn't planning to meet before its next scheduled conference in September to review production, he said.
``OPEC is playing with fire,'' said Rick Mueller, director of oil practice at Energy Security Analysis Inc. in Wakefield, Massachusetts. ``While they may be right from a fundamental standpoint about crude supplies, at this time it will take more than words from them to bring prices down. We will need to see more gestures like the Saudis made, to lower prices.''
Saudi Increase
Saudi Oil Minister Ali al-Naimi told reporters on May 16 that the kingdom is planning a 300,000 barrel-a-day output increase, to bring June production to 9.45 million barrels a day.
``Once prices hit $150 or $200 like our friends at Goldman are saying, we are looking at $5 or $6 gasoline, which will really hurt demand and cause a recession,'' Mueller said.
Goldman analyst Arjun N. Murti said in a May 16 report that ``the possibility of $150-$200 per barrel seems increasingly likely over the next six-24 months.'' Murti first wrote of a ``super spike'' in March 2005, predicting crude may trade between $50 and $105 a barrel through 2009.
U.S. oil-company executives told Congress oil prices should be between $35 and $90 a barrel. Representatives of the five largest publicly traded oil companies appeared before the Senate Judiciary Committee to testify on record energy prices. Appearing yesterday were representatives of BP Plc, ConocoPhillips, Chevron Corp., Exxon Mobil Corp. and Royal Dutch Shell Plc.
Strategic Reserve
The price of oil should be ``somewhere between $35 and $65 a barrel,'' John Hofmeister, president of Shell Oil Co., the Houston-based subsidiary of Royal Dutch Shell, said at the hearing yesterday. Other executives said prices should be as much as $90 a barrel.
Congress last week approved legislation to halt deliveries to the Strategic Petroleum Reserve in an effort to respond to record prices.
Airlines have been hit by higher jet fuel costs. The price of the fuel, the largest expense at many airlines, has climbed 88 percent in the past year and traded at a record $4.0592 a gallon in New York Harbor yesterday.
AMR Corp.'s American Airlines, the world's largest carrier, said it will cut ``thousands'' of jobs as it responds to high fuel prices and slowing demand.
Monday, May 19, 2008
Oil Trades Above $127 on Skepticism Saudi Move Will Cut Prices
By Mark Shenk
May 20 (Bloomberg) -- Crude oil was little changed amid skepticism that Saudi Arabia's decision to increase output by 300,000 barrels a day will be sufficient to reduce prices.
Saudi Arabia will boost production by about 3.3 percent to 9.45 million barrels a day in June, Oil Minister Ali al-Naimi said in Riyadh on May 16. The gain won't subdue prices because they have been driven higher by the weak U.S. dollar and not supply, OPEC President Chakib Khelil said yesterday.
``OPEC seems pretty happy with production where it is,'' said Tom Bentz, a broker at BNP Paribas in New York. ``The Saudi announcement of a 300,000 barrel-a-day production gain is not enough to send prices lower, it's not a huge amount.''
Crude oil for June delivery rose 20 cents to $127.25 a barrel at 8:25 a.m. in Sydney in after-hours trading on the New York Mercantile Exchange. Yesterday, the contract rose 76 cents, or 0.6 percent, to $127.05 a barrel, a record close. Prices are 92 percent higher than a year ago. Crude touched $127.82 on May 16, the highest price since trading began in 1983.
The Saudi announcement followed a meeting between President George W. Bush and King Abdullah. The desert kingdom is the world's largest oil exporter and the most influential member of the Organization of Petroleum Exporting Countries.
Khelil said the output increase represented a ``sovereign decision'' on the part of Saudi Arabia, rather than an agreement that had the backing of OPEC. Khelil spoke in an interview in Algiers where he is attending a conference.
OPEC Meeting
``OPEC could increase production at the Sept. 9 meeting if there is need in the market,'' Khelil said. ``Non-OPEC countries did not reach their expected production.''
Members of OPEC, who pump more than 40 percent of the world's oil, have kept production targets unchanged at the group's past three meetings, on March 5, Feb. 1 and Dec. 5.
The U.S. Energy Department last week said it won't proceed with plans to increase deliveries of oil to the Strategic Petroleum Reserve. The department is currently filling the reserve at a rate of about 68,000 barrels a day.
``Some people thought the Saudi announcement that they were increasing output and the Energy Department saying that deliveries to the SPR will end might be enough to calm the market,'' said Eric Wittenauer, an energy analyst at Wachovia Securities in St. Louis. ``It doesn't look like that's the case.''
Brent oil for July settlement rose 7 cents to close at a record $125.06 a barrel on London's ICE Futures Europe exchange yesterday. The contract touched a $126.34 on May 16, an intraday high.
A Norwegian airport strike threatens to cut access to North Sea oil platforms. Unions shut six airports, including Bergen and Kristiansund, the two biggest bases for helicopter transport to and from oil platforms on the Norwegian continental shelf. The strike may extend today to Stavanger's Sola airport amid a labor dispute with Avinor AS, which operates 46 airports.
ConocoPhillips said it may have to cut output from the Ekofisk field if a strike spreads to Stavanger. Ekofisk pumps about 400,000 barrels of oil a day.
May 20 (Bloomberg) -- Crude oil was little changed amid skepticism that Saudi Arabia's decision to increase output by 300,000 barrels a day will be sufficient to reduce prices.
Saudi Arabia will boost production by about 3.3 percent to 9.45 million barrels a day in June, Oil Minister Ali al-Naimi said in Riyadh on May 16. The gain won't subdue prices because they have been driven higher by the weak U.S. dollar and not supply, OPEC President Chakib Khelil said yesterday.
``OPEC seems pretty happy with production where it is,'' said Tom Bentz, a broker at BNP Paribas in New York. ``The Saudi announcement of a 300,000 barrel-a-day production gain is not enough to send prices lower, it's not a huge amount.''
Crude oil for June delivery rose 20 cents to $127.25 a barrel at 8:25 a.m. in Sydney in after-hours trading on the New York Mercantile Exchange. Yesterday, the contract rose 76 cents, or 0.6 percent, to $127.05 a barrel, a record close. Prices are 92 percent higher than a year ago. Crude touched $127.82 on May 16, the highest price since trading began in 1983.
The Saudi announcement followed a meeting between President George W. Bush and King Abdullah. The desert kingdom is the world's largest oil exporter and the most influential member of the Organization of Petroleum Exporting Countries.
Khelil said the output increase represented a ``sovereign decision'' on the part of Saudi Arabia, rather than an agreement that had the backing of OPEC. Khelil spoke in an interview in Algiers where he is attending a conference.
OPEC Meeting
``OPEC could increase production at the Sept. 9 meeting if there is need in the market,'' Khelil said. ``Non-OPEC countries did not reach their expected production.''
Members of OPEC, who pump more than 40 percent of the world's oil, have kept production targets unchanged at the group's past three meetings, on March 5, Feb. 1 and Dec. 5.
The U.S. Energy Department last week said it won't proceed with plans to increase deliveries of oil to the Strategic Petroleum Reserve. The department is currently filling the reserve at a rate of about 68,000 barrels a day.
``Some people thought the Saudi announcement that they were increasing output and the Energy Department saying that deliveries to the SPR will end might be enough to calm the market,'' said Eric Wittenauer, an energy analyst at Wachovia Securities in St. Louis. ``It doesn't look like that's the case.''
Brent oil for July settlement rose 7 cents to close at a record $125.06 a barrel on London's ICE Futures Europe exchange yesterday. The contract touched a $126.34 on May 16, an intraday high.
A Norwegian airport strike threatens to cut access to North Sea oil platforms. Unions shut six airports, including Bergen and Kristiansund, the two biggest bases for helicopter transport to and from oil platforms on the Norwegian continental shelf. The strike may extend today to Stavanger's Sola airport amid a labor dispute with Avinor AS, which operates 46 airports.
ConocoPhillips said it may have to cut output from the Ekofisk field if a strike spreads to Stavanger. Ekofisk pumps about 400,000 barrels of oil a day.
Saturday, May 17, 2008
Dollar Falls Most Against Euro in Seven Weeks on Sentiment, Oil
By Ye Xie and Bo Nielsen
May 17 (Bloomberg) -- The dollar fell the most against the euro since March as a drop in consumer confidence and record crude oil prices raised concern U.S. economic growth will slow.
The dollar's second consecutive weekly decline against the euro pared its increase from the all-time low reached last month to 2.7 percent. The Australian dollar rose to the strongest level against the greenback since 1984 as oil pushed up prices of other commodities. Mexico's peso rose to a five-year high, while the Brazilian real strengthened to the most since 1999.
``The economic backdrop in the U.S. argues against the continuing gains in the dollar,'' said Nick Bennenbroek, head of currency strategy at Wells Fargo Bank in New York.
The dollar fell 0.6 percent to $1.5577 per euro this week, from $1.5482 on May 9. It touched the record low of $1.6019 per euro on April 22. The yen declined 1.2 percent to 104.04 per dollar this week, from 102.87. Japan's currency fell 1.8 percent to 162.27 per euro, from 159.21, the biggest decline since the week ended April 18.
Crude oil rallied to the all-time high of $127.82 a barrel yesterday as Goldman Sachs Group Inc. raised its forecast for the second half of this year to an average of $141 a barrel, citing supply constraints.
The correlation coefficient between oil and the euro-dollar exchange rate has been 0.95 for the past year, indicating they have moved in the same direction 95 percent of the time. The correlation is calculated based on the price changes of oil and the currencies.
`Higher' Oil
``There is no fresh catalyst to mount a successful rally in the U.S. dollar,'' said Michael Woolfolk, a senior currency strategist in New York at Bank of New York Mellon Corp. ``Oil prices are significantly higher.''
The Australian dollar increased 1.1 percent this week and touched 95.60 U.S. cents yesterday, the highest level since 1984, on higher commodity prices. Exports of raw materials, such as iron ore, account for 17 percent of Australia's economy. The Brazilian real rose to the nine-year high of 1.6402 versus the dollar, while Mexico's peso appreciated to 10.3912 the strongest in almost five years.
Iceland's krona was the best performer against the dollar among emerging-market currencies, increasing 6.9 percent to 74.69 after the central banks of Denmark, Sweden and Norway pledged as much as 1.5 billion euros ($2.3 billion) in emergency funds yesterday. The krona jumped 3.5 percent to 116.17 per euro. Before yesterday, it had slumped 24 percent against the euro this year.
Weaker Yen
Japan's currency fell against all of the major currencies this week as global stock gains and lower volatility increased carry trades, in which investors borrow funds in countries with low interest rates and buy assets where returns are higher.
The yen fell 4.9 percent to 13.95 against South Africa's rand and 4 percent to 63.48 against Brazil's real. The Bank of Japan is forecast by 35 economists surveyed by Bloomberg to hold the target lending rate at 0.5 percent next week. That compares with 11.75 percent in Brazil and 11.5 percent in South Africa.
Implied volatility on one-month dollar-yen options fell to 11.26 percent yesterday, from 12.70 percent on May 9, approaching the lowest since Feb. 27. Lower volatility tends to encourage carry trades by making it easier to predict profit. The Standard & Poor's 500 Index rose 2.6 percent this week, the biggest gain since mid-April.
The dollar weakened yesterday as a report showed confidence among U.S. consumers fell in May to the lowest level in almost 28 years. The Reuters/University of Michigan consumer sentiment index dropped to 59.5 this month, from 62.6 in April.
Sales of previously owned homes probably dropped in April to an annual rate of 4.85 million, the all-time low, according to the median forecast of 46 economists surveyed by Bloomberg News. The National Association of Realtors is scheduled to release the report on May 22.
Fed Rate Outlook
Futures on the Chicago Board of Trade yesterday showed 88 percent odds that the Fed will hold the target lending rate at 2 percent at its next meeting on June 25. The balance of bets is for a reduction of a quarter-percentage point. There's a 21 percent chance of an increase to 2.25 percent in September.
The euro got a boost on May 15 as the European Union's statistics office said gross domestic product in the 15 countries that use the currency increased to 0.7 percent in the first quarter. The pace exceeded the 0.5 percent estimate of 32 economists surveyed by Bloomberg News. Germany's 1.5 percent expansion from the previous quarter was more than double what economists had expected.
European Central Bank President Jean-Claude Trichet said yesterday the bank can't relax in its fight against inflation.
``There is no place for complacency,'' he said in a speech in Brussels. ``Price stability in the medium term has to be'' ensured. It's ``a necessary condition to sustain economic growth, job creation and social cohesion.''
The ECB has held its main refinancing rate at a six-year high of 4 percent since last June to control inflation, which accelerated to the fastest pace in 16 years in March.
May 17 (Bloomberg) -- The dollar fell the most against the euro since March as a drop in consumer confidence and record crude oil prices raised concern U.S. economic growth will slow.
The dollar's second consecutive weekly decline against the euro pared its increase from the all-time low reached last month to 2.7 percent. The Australian dollar rose to the strongest level against the greenback since 1984 as oil pushed up prices of other commodities. Mexico's peso rose to a five-year high, while the Brazilian real strengthened to the most since 1999.
``The economic backdrop in the U.S. argues against the continuing gains in the dollar,'' said Nick Bennenbroek, head of currency strategy at Wells Fargo Bank in New York.
The dollar fell 0.6 percent to $1.5577 per euro this week, from $1.5482 on May 9. It touched the record low of $1.6019 per euro on April 22. The yen declined 1.2 percent to 104.04 per dollar this week, from 102.87. Japan's currency fell 1.8 percent to 162.27 per euro, from 159.21, the biggest decline since the week ended April 18.
Crude oil rallied to the all-time high of $127.82 a barrel yesterday as Goldman Sachs Group Inc. raised its forecast for the second half of this year to an average of $141 a barrel, citing supply constraints.
The correlation coefficient between oil and the euro-dollar exchange rate has been 0.95 for the past year, indicating they have moved in the same direction 95 percent of the time. The correlation is calculated based on the price changes of oil and the currencies.
`Higher' Oil
``There is no fresh catalyst to mount a successful rally in the U.S. dollar,'' said Michael Woolfolk, a senior currency strategist in New York at Bank of New York Mellon Corp. ``Oil prices are significantly higher.''
The Australian dollar increased 1.1 percent this week and touched 95.60 U.S. cents yesterday, the highest level since 1984, on higher commodity prices. Exports of raw materials, such as iron ore, account for 17 percent of Australia's economy. The Brazilian real rose to the nine-year high of 1.6402 versus the dollar, while Mexico's peso appreciated to 10.3912 the strongest in almost five years.
Iceland's krona was the best performer against the dollar among emerging-market currencies, increasing 6.9 percent to 74.69 after the central banks of Denmark, Sweden and Norway pledged as much as 1.5 billion euros ($2.3 billion) in emergency funds yesterday. The krona jumped 3.5 percent to 116.17 per euro. Before yesterday, it had slumped 24 percent against the euro this year.
Weaker Yen
Japan's currency fell against all of the major currencies this week as global stock gains and lower volatility increased carry trades, in which investors borrow funds in countries with low interest rates and buy assets where returns are higher.
The yen fell 4.9 percent to 13.95 against South Africa's rand and 4 percent to 63.48 against Brazil's real. The Bank of Japan is forecast by 35 economists surveyed by Bloomberg to hold the target lending rate at 0.5 percent next week. That compares with 11.75 percent in Brazil and 11.5 percent in South Africa.
Implied volatility on one-month dollar-yen options fell to 11.26 percent yesterday, from 12.70 percent on May 9, approaching the lowest since Feb. 27. Lower volatility tends to encourage carry trades by making it easier to predict profit. The Standard & Poor's 500 Index rose 2.6 percent this week, the biggest gain since mid-April.
The dollar weakened yesterday as a report showed confidence among U.S. consumers fell in May to the lowest level in almost 28 years. The Reuters/University of Michigan consumer sentiment index dropped to 59.5 this month, from 62.6 in April.
Sales of previously owned homes probably dropped in April to an annual rate of 4.85 million, the all-time low, according to the median forecast of 46 economists surveyed by Bloomberg News. The National Association of Realtors is scheduled to release the report on May 22.
Fed Rate Outlook
Futures on the Chicago Board of Trade yesterday showed 88 percent odds that the Fed will hold the target lending rate at 2 percent at its next meeting on June 25. The balance of bets is for a reduction of a quarter-percentage point. There's a 21 percent chance of an increase to 2.25 percent in September.
The euro got a boost on May 15 as the European Union's statistics office said gross domestic product in the 15 countries that use the currency increased to 0.7 percent in the first quarter. The pace exceeded the 0.5 percent estimate of 32 economists surveyed by Bloomberg News. Germany's 1.5 percent expansion from the previous quarter was more than double what economists had expected.
European Central Bank President Jean-Claude Trichet said yesterday the bank can't relax in its fight against inflation.
``There is no place for complacency,'' he said in a speech in Brussels. ``Price stability in the medium term has to be'' ensured. It's ``a necessary condition to sustain economic growth, job creation and social cohesion.''
The ECB has held its main refinancing rate at a six-year high of 4 percent since last June to control inflation, which accelerated to the fastest pace in 16 years in March.
Thursday, May 15, 2008
Bernanke Urges `Hunkering' Banks to Raise Capital (Update4)
By Steve Matthews and Scott Lanman
May 15 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke pushed banks to keep raising capital in the aftermath of losses from the credit crisis to avert deeper damage to the U.S. economy.
``Firms are hunkering down,'' Bernanke said at a conference in Chicago today. ``They have at least partially replaced the losses with new capital raising, but not entirely. They are being rather conservative in making new loans, which has implications for the broader economy.''
Bernanke's remarks reflect concerns he and other Fed officials expressed this week that financial markets have yet to return to normal. The Fed chief also said the central bank is considering strengthening its guidance to banks on how they manage risk after ``weaknesses'' that contributed to the crisis.
While banks and securities companies have raised about $244 billion of capital since July, they may have further to go after writedowns and credit losses in excess of $333 billion. Bernanke and Treasury Secretary Henry Paulson have repeatedly said firms should keep increasing their funds, seeking to alleviate the impact of the credit crunch.
Citigroup Inc. and JPMorgan Chase & Co. are among companies raising capital this quarter. IndyMac Bancorp Inc., the second- biggest independent U.S. home lender, said this week it may raise a ``slug'' of money from outside investors.
`Proactive' Efforts
``I strongly urge financial institutions to remain proactive in their capital-raising efforts,'' Bernanke said in the text of his speech. ``Doing so not only helps the broader economy but positions firms to take advantage of new profit opportunities as conditions in the financial markets and the economy improve.''
The Fed said in a weekly report today that its direct lending to banks rose to a record $14.4 billion in the week to May 14. Policy makers have increased the attractiveness of the resource by lowering the rate on the funds and extending the term.
Bernanke said that senior bank executives need to take a leadership role in strengthening risk management. The strongest banks didn't rely on credit-rating companies and took into account the danger of a slump in access to funds, he said.
``I have been encouraged by the recently demonstrated ability of many financial institutions, large and small, to raise capital,'' Bernanke said at the Chicago Fed conference on credit markets.
Rate Outlook
Bernanke didn't discuss the path of interest rates or the outlook for the economy. The Federal Open Market Committee next meets June 24-25. Investors anticipate the central bank's next move will be to raise, rather than lower, the benchmark rate from 2 percent, according to futures prices.
Bernanke said the credit crisis continues to confound the economy. ``Events continue to unfold,'' he said, adding that ``the financial stress we continue to experience'' stemmed from a separation of lending and distribution of credit to investors.
Sovereign wealth funds have contributed as much as a third of the capital banks have raised, which has been ``very positive,'' Bernanke said in response to questions. ``It has been very constructive to have this source of funding coming into our banking system,'' he said.
Banks are likely to heed the chairman's advice, said David Resler, chief economist at Nomura Securities International in New York.
`Wood to Cut'
Bernanke is ``just reminding us there's more wood to cut here,'' he said. ``They're going to continue to float new debt or equity into a market that's going to be a little more receptive to it because they see this as part of a process that's putting the problems behind them.''
The flight from risk since August has made financial institutions reluctant to lend to each other, driving up banks' borrowing costs. That has increased the threat to economic growth already posed by the worst housing recession in a quarter century.
``Bernanke and the Fed have a systemic interest in growth and getting credit moving again,'' said Joe Belew, president of the Consumer Bankers Association in Arlington, Virginia, whose members include Citigroup and Wachovia Corp. ``That is all important. But underwriting has tightened and will remain tight until we work our way through existing portfolios.''
The Fed has created three new types of loans to financial companies since December to alleviate credit strains, including direct lending to firms other than commercial banks for the first time since the Great Depression.
Bernanke said the Fed was also conducting a review of how supervisors approach bank examinations.
``Supervisors must redouble their efforts to help organizations improve their risk-management practices,'' Bernanke said.
May 15 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke pushed banks to keep raising capital in the aftermath of losses from the credit crisis to avert deeper damage to the U.S. economy.
``Firms are hunkering down,'' Bernanke said at a conference in Chicago today. ``They have at least partially replaced the losses with new capital raising, but not entirely. They are being rather conservative in making new loans, which has implications for the broader economy.''
Bernanke's remarks reflect concerns he and other Fed officials expressed this week that financial markets have yet to return to normal. The Fed chief also said the central bank is considering strengthening its guidance to banks on how they manage risk after ``weaknesses'' that contributed to the crisis.
While banks and securities companies have raised about $244 billion of capital since July, they may have further to go after writedowns and credit losses in excess of $333 billion. Bernanke and Treasury Secretary Henry Paulson have repeatedly said firms should keep increasing their funds, seeking to alleviate the impact of the credit crunch.
Citigroup Inc. and JPMorgan Chase & Co. are among companies raising capital this quarter. IndyMac Bancorp Inc., the second- biggest independent U.S. home lender, said this week it may raise a ``slug'' of money from outside investors.
`Proactive' Efforts
``I strongly urge financial institutions to remain proactive in their capital-raising efforts,'' Bernanke said in the text of his speech. ``Doing so not only helps the broader economy but positions firms to take advantage of new profit opportunities as conditions in the financial markets and the economy improve.''
The Fed said in a weekly report today that its direct lending to banks rose to a record $14.4 billion in the week to May 14. Policy makers have increased the attractiveness of the resource by lowering the rate on the funds and extending the term.
Bernanke said that senior bank executives need to take a leadership role in strengthening risk management. The strongest banks didn't rely on credit-rating companies and took into account the danger of a slump in access to funds, he said.
``I have been encouraged by the recently demonstrated ability of many financial institutions, large and small, to raise capital,'' Bernanke said at the Chicago Fed conference on credit markets.
Rate Outlook
Bernanke didn't discuss the path of interest rates or the outlook for the economy. The Federal Open Market Committee next meets June 24-25. Investors anticipate the central bank's next move will be to raise, rather than lower, the benchmark rate from 2 percent, according to futures prices.
Bernanke said the credit crisis continues to confound the economy. ``Events continue to unfold,'' he said, adding that ``the financial stress we continue to experience'' stemmed from a separation of lending and distribution of credit to investors.
Sovereign wealth funds have contributed as much as a third of the capital banks have raised, which has been ``very positive,'' Bernanke said in response to questions. ``It has been very constructive to have this source of funding coming into our banking system,'' he said.
Banks are likely to heed the chairman's advice, said David Resler, chief economist at Nomura Securities International in New York.
`Wood to Cut'
Bernanke is ``just reminding us there's more wood to cut here,'' he said. ``They're going to continue to float new debt or equity into a market that's going to be a little more receptive to it because they see this as part of a process that's putting the problems behind them.''
The flight from risk since August has made financial institutions reluctant to lend to each other, driving up banks' borrowing costs. That has increased the threat to economic growth already posed by the worst housing recession in a quarter century.
``Bernanke and the Fed have a systemic interest in growth and getting credit moving again,'' said Joe Belew, president of the Consumer Bankers Association in Arlington, Virginia, whose members include Citigroup and Wachovia Corp. ``That is all important. But underwriting has tightened and will remain tight until we work our way through existing portfolios.''
The Fed has created three new types of loans to financial companies since December to alleviate credit strains, including direct lending to firms other than commercial banks for the first time since the Great Depression.
Bernanke said the Fed was also conducting a review of how supervisors approach bank examinations.
``Supervisors must redouble their efforts to help organizations improve their risk-management practices,'' Bernanke said.
Wednesday, May 14, 2008
Dollar Bears Turn Bullish With Fed Near End of Cuts (Update1)
By Bo Nielsen
May 14 (Bloomberg) -- The U.S. dollar will strengthen against most major currencies in the next six months as the Federal Reserve stops reducing interest rates, a survey of Bloomberg users showed.
The end of rate cuts will boost the allure of American assets for international investors, according to U.S. respondents in the monthly Bloomberg Professional Global Confidence Index, which questioned 3,447 users from Chicago to London to Hong Kong. While users in the U.S. grew optimistic about the greenback, participants in Germany and France became pessimistic about the euro for the first time since the survey started in November.
After declining 15 percent in the previous 12 months to a record low 70.698 on March 17, the Dollar Index traded on ICE Futures in New York that compares the currency to those of six trading partners has risen 3.8 percent to 73.399. The median estimate of 54 economists surveyed by Bloomberg is for the Fed to keep its target rate for overnight loans between banks at 2 percent through March, while the European Central Bank lowers its main rate by half a percentage point to 3.5 percent.
``The broad-based dollar weakness, which has been the trend the last few years, has ended,'' said Paresh Upadhyaya, who helps oversee about $50 billion in currency assets at Putnam Investments in Boston and participated in the survey.
The index of expectations on the dollar for U.S. users rose to 57.6 for May from 42.87 in April and 30.3 in March. The measure is a diffusion index, meaning a reading above 50 indicates participants expect the currency to appreciate. Users in Germany registered 46.3, down from 56.25 in April and 61.85 the prior month.
Interest Rate Expectations
The Fed cut rates a quarter-percentage point to 2 percent on April 30 and said ``substantial'' easing since September would help foster economic growth.
``What we needed to see for the U.S. dollar to rally was the end in sight of the Fed easing cycle,'' said Camilla Sutton, co-head of currency strategy at Scotia Capital Inc. in Toronto, who has participated in past surveys.
Users in the U.S. are starting to anticipate that the federal funds rate will increase, with a reading of 51.3, compared with 27.74 in April. Their view on the U.S. economy improved to 15.69 from 10.55 in April.
Participants in Germany continued to forecast ECB rate cuts. The index that measures expectations for borrowing costs was little changed at 38.1 from 37.38 last month.
Treasuries, Bunds
The dollar gained 3.5 percent versus the euro since reaching a record low of $1.6019 on April 22 as the advantage in yields on two-year German bund over Treasuries of similar maturity narrowed 0.43 percentage point to 1.41 percent from 1.84 percent on March 31. The U.S. currency traded at $1.5460 at 3:17 p.m. in New York, from $1.5474 yesterday.
Participants in Brazil are the most bullish on their currency, at 71.54. The real has increased 22 percent this year versus the dollar and is the biggest gainer among the 16 most actively traded currencies. The real fell 0.4 percent to 1.6630 per dollar, from 1.6557 yesterday.
Brazil received an investment grade credit rating on April 30 for the first time from Standard & Poor's, sending the Bovespa stock index to a record high and yields on dollar- denominated bonds to an all-time low.
Yen Outlook Cools
Users in Japan were less optimistic about the yen, with a reading of 51.96, down from 61.39 in April. The currency traded at 105.27 yen per dollar after reaching 95.76 on March 21, the strongest in 13 years. It was little changed at 162.74 against the euro.
The Japanese currency gained 6.1 percent against the dollar in the last six months, fueled by losses in U.S. credit markets. Investors reduced so-called carry trades by selling high- yielding assets around the world financed with loans in Japan, which has the lowest interest rates among the Group of Seven countries. Speculators need to buy yen to end the trades.
``There's some caution still about carry,'' said Michael Metcalfe, the London-based head of macro strategy at State Street Global Markets, a unit of the world's largest money manager for institutions. ``If risk appetite proves durable, carry will come back.''
Japanese users were less optimistic about the yen than currency analysts. The median estimate of 40 strategists in a Bloomberg survey is for the yen to strengthen to 101 against the dollar and to 150 per euro by the end of March.
May 14 (Bloomberg) -- The U.S. dollar will strengthen against most major currencies in the next six months as the Federal Reserve stops reducing interest rates, a survey of Bloomberg users showed.
The end of rate cuts will boost the allure of American assets for international investors, according to U.S. respondents in the monthly Bloomberg Professional Global Confidence Index, which questioned 3,447 users from Chicago to London to Hong Kong. While users in the U.S. grew optimistic about the greenback, participants in Germany and France became pessimistic about the euro for the first time since the survey started in November.
After declining 15 percent in the previous 12 months to a record low 70.698 on March 17, the Dollar Index traded on ICE Futures in New York that compares the currency to those of six trading partners has risen 3.8 percent to 73.399. The median estimate of 54 economists surveyed by Bloomberg is for the Fed to keep its target rate for overnight loans between banks at 2 percent through March, while the European Central Bank lowers its main rate by half a percentage point to 3.5 percent.
``The broad-based dollar weakness, which has been the trend the last few years, has ended,'' said Paresh Upadhyaya, who helps oversee about $50 billion in currency assets at Putnam Investments in Boston and participated in the survey.
The index of expectations on the dollar for U.S. users rose to 57.6 for May from 42.87 in April and 30.3 in March. The measure is a diffusion index, meaning a reading above 50 indicates participants expect the currency to appreciate. Users in Germany registered 46.3, down from 56.25 in April and 61.85 the prior month.
Interest Rate Expectations
The Fed cut rates a quarter-percentage point to 2 percent on April 30 and said ``substantial'' easing since September would help foster economic growth.
``What we needed to see for the U.S. dollar to rally was the end in sight of the Fed easing cycle,'' said Camilla Sutton, co-head of currency strategy at Scotia Capital Inc. in Toronto, who has participated in past surveys.
Users in the U.S. are starting to anticipate that the federal funds rate will increase, with a reading of 51.3, compared with 27.74 in April. Their view on the U.S. economy improved to 15.69 from 10.55 in April.
Participants in Germany continued to forecast ECB rate cuts. The index that measures expectations for borrowing costs was little changed at 38.1 from 37.38 last month.
Treasuries, Bunds
The dollar gained 3.5 percent versus the euro since reaching a record low of $1.6019 on April 22 as the advantage in yields on two-year German bund over Treasuries of similar maturity narrowed 0.43 percentage point to 1.41 percent from 1.84 percent on March 31. The U.S. currency traded at $1.5460 at 3:17 p.m. in New York, from $1.5474 yesterday.
Participants in Brazil are the most bullish on their currency, at 71.54. The real has increased 22 percent this year versus the dollar and is the biggest gainer among the 16 most actively traded currencies. The real fell 0.4 percent to 1.6630 per dollar, from 1.6557 yesterday.
Brazil received an investment grade credit rating on April 30 for the first time from Standard & Poor's, sending the Bovespa stock index to a record high and yields on dollar- denominated bonds to an all-time low.
Yen Outlook Cools
Users in Japan were less optimistic about the yen, with a reading of 51.96, down from 61.39 in April. The currency traded at 105.27 yen per dollar after reaching 95.76 on March 21, the strongest in 13 years. It was little changed at 162.74 against the euro.
The Japanese currency gained 6.1 percent against the dollar in the last six months, fueled by losses in U.S. credit markets. Investors reduced so-called carry trades by selling high- yielding assets around the world financed with loans in Japan, which has the lowest interest rates among the Group of Seven countries. Speculators need to buy yen to end the trades.
``There's some caution still about carry,'' said Michael Metcalfe, the London-based head of macro strategy at State Street Global Markets, a unit of the world's largest money manager for institutions. ``If risk appetite proves durable, carry will come back.''
Japanese users were less optimistic about the yen than currency analysts. The median estimate of 40 strategists in a Bloomberg survey is for the yen to strengthen to 101 against the dollar and to 150 per euro by the end of March.
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