Monday, January 21, 2008
Sing unit seeks to join appeal over en bloc ruling
Sing Holdings – Said its joint venture vehicle is filing an intervention application with the High Court to be added as a party to the appeal made by majority owners of Finland Gardens in Siglap against the ruling that dismissed their en bloc transaction. Finland Gardens Pte Ltd (FGPL) is the 70-30 joint venture between Sing Holdings and Eastern Summer - the wholly-owned unit of US-based fund Forum Asian Realty Income II LP. The Strata Titles Board (STB) threw out the collective sale application of Finland Gardens in Siglap last November after it failed to meet statutory requirements. Sing Holdings said the High Court has adjourned the appeal hearing and the intervention application to Feb 15. Sing Holdings proposed to buy the freehold site in November 2006 for $49.5m. The owners of each unit would stand to reap about $1m to $1.27m, depending on the size of the unit.
E3, Jade buy 49% of Jilin refinery for 241m yuan
E3 Holdings – The company and Jade Technologies are together buying a 49% stake in an oil refinery in China's Jilin province for about RMB241m (S$47.8m). A statement from Jade Technologies said that plans to extend the oil refinery are expected to involve development costs of RMB20bn. Jade said that over a three-year period, its total investment and loan are estimated to be about RMB6.89bn. Venture capitalist Dr Anthony Soh is the controlling shareholder of Jade Technologies and is also the single largest shareholder in E3, formerly known as Ei-Nets Holdings. E3 will take a 15% stake in the oil refinery while Jade will hold 34%, both through wholly owned subsidiaries. The two companies are creating a consortium to acquire the entire refinery, which has an annual capacity of 1m tonnes, and are looking for local partners to take up the remaining 51% stake. Under Chinese law, foreign investors cannot hold more than 49% of an existing refinery.
Sunday, January 20, 2008
US Markets Closing Comments - 17th Jan 2008
Economic Summary:
Stocks opened higher, but soft economic data, disappointing financial news,
and a somber testimony by Fed Chairman Bernanke brought a quick end to the
fledgling rally. The broad equity indexes slid by some 2.5%. Treasury prices
took another step higher, and the dollar fell on the day.
Housing starts plunged 14.2% to a 16-year-low level of 1.006mn in December.
This weaker-than-expected decline followed a net downward revision of 1.1% to
previous months. The drop was concentrated in multi-family starts, but this
does not minimize the weakness in this report. Building permits fell 8.1% to
the lowest level since March 1993. The decline in home construction should
subtract from GDP growth through 2008.
Initial claims for unemployment benefits fell 21k in the latest week, bringing
the 4-week average to 329k from 340k. The improvement is a surprise since
claims had been trending higher through Q4'07. Now claims have fallen steeply
for three weeks from 357k to 301k. The data are volaltile so not too much
should be made of this decline, but for the moment, the data are not
signalling a significant derterioration in labor market conditions.
Asset-backed commercial paper outstanding was up for third consecutive week
(+$26.3bn in week ended January 16), though it is still down 33% from its peak
in the week ended August 8. Total CP outstanding rose $35.5bn in the latest
week.
The Philadelphia Fed manufacturing index plunged to -20.9 in January from -1.6
in December. The consensus was looking for a decidedly less negative reading
of -1.0. January's was the lowest headline level since the -23.2 posted for
October 2001, during the last recession. The report details also signalled a
manufacturing contraction. They pointed to a sub-50 reading on the January
manufacturing ISM index.
In testimony, Fed Chairman Ben Bernanke reiterated the view he expressed last
week that "in light of recent changes in the outlook...for growth, additional
easing may well be necessary." Since a 50bp rate cut now appears to be the
least that the FOMC will do, the possibility of a steeper rate cut, of say
75bp, is open. In addition, Bernanke endorsed the drive for a fiscal stimulus
package that has gripped Washington in recent weeks. Some sort of package in
the next month or two is very likely to be passed by the Congress.
Weekly reserve data showed that daily average borrowing from the discount
window in the week ended January 16 fell to $1.2bn from $1.5bn the previous
week. Borrowing on January 16 alone was $5.6bn, with banks in the New York and
Richmond Fed districts tapping the window for loans. Fed funds did trade as
tight as 5% last night, rising above the current 4.75% discount rate.
Economic Outlook
The preliminary January Consumer Sentiment index will be released at 10:00 on
Friday (Forecast 74.5, Consensus 74.5). Consumer attitudes have been depressed
by tight credit, falling home prices, volatile equities, and elevated food and
energy prices. To these negative factors we can add a rising unemployment rate.
We look for a preliminary January reading of 74.5.
Stocks opened higher, but soft economic data, disappointing financial news,
and a somber testimony by Fed Chairman Bernanke brought a quick end to the
fledgling rally. The broad equity indexes slid by some 2.5%. Treasury prices
took another step higher, and the dollar fell on the day.
Housing starts plunged 14.2% to a 16-year-low level of 1.006mn in December.
This weaker-than-expected decline followed a net downward revision of 1.1% to
previous months. The drop was concentrated in multi-family starts, but this
does not minimize the weakness in this report. Building permits fell 8.1% to
the lowest level since March 1993. The decline in home construction should
subtract from GDP growth through 2008.
Initial claims for unemployment benefits fell 21k in the latest week, bringing
the 4-week average to 329k from 340k. The improvement is a surprise since
claims had been trending higher through Q4'07. Now claims have fallen steeply
for three weeks from 357k to 301k. The data are volaltile so not too much
should be made of this decline, but for the moment, the data are not
signalling a significant derterioration in labor market conditions.
Asset-backed commercial paper outstanding was up for third consecutive week
(+$26.3bn in week ended January 16), though it is still down 33% from its peak
in the week ended August 8. Total CP outstanding rose $35.5bn in the latest
week.
The Philadelphia Fed manufacturing index plunged to -20.9 in January from -1.6
in December. The consensus was looking for a decidedly less negative reading
of -1.0. January's was the lowest headline level since the -23.2 posted for
October 2001, during the last recession. The report details also signalled a
manufacturing contraction. They pointed to a sub-50 reading on the January
manufacturing ISM index.
In testimony, Fed Chairman Ben Bernanke reiterated the view he expressed last
week that "in light of recent changes in the outlook...for growth, additional
easing may well be necessary." Since a 50bp rate cut now appears to be the
least that the FOMC will do, the possibility of a steeper rate cut, of say
75bp, is open. In addition, Bernanke endorsed the drive for a fiscal stimulus
package that has gripped Washington in recent weeks. Some sort of package in
the next month or two is very likely to be passed by the Congress.
Weekly reserve data showed that daily average borrowing from the discount
window in the week ended January 16 fell to $1.2bn from $1.5bn the previous
week. Borrowing on January 16 alone was $5.6bn, with banks in the New York and
Richmond Fed districts tapping the window for loans. Fed funds did trade as
tight as 5% last night, rising above the current 4.75% discount rate.
Economic Outlook
The preliminary January Consumer Sentiment index will be released at 10:00 on
Friday (Forecast 74.5, Consensus 74.5). Consumer attitudes have been depressed
by tight credit, falling home prices, volatile equities, and elevated food and
energy prices. To these negative factors we can add a rising unemployment rate.
We look for a preliminary January reading of 74.5.
Commodities Daily -18th Jan 2008
Spotlight: Crude oil falls to 1-month low on signs U.S. may slip into recession. Corn and soybeans fell for the same reason while wheat, sugar and cocoa rose. Coffee fell to a one-week low. Notably, gold fell to a one-week low, platinum and palladium dropped on concern slowing global economic growth will reduce demand for the metals used. Silver rose.
Energy: Crude oil fell to the lowest in more than a month on concern the U.S. economy may slip into recession, cutting fuel demand in the world's biggest energy consumer. Natural gas fell after a government report showed that U.S. inventories are probably ample for cold-weather heating needs. Heating oil futures also fell for a third day amid concern the U.S. economy may slow, reducing demand for oil products.
Agriculture: Corn and soybeans tumbled on speculation that a slowing U.S. economy will trigger a decline in global demand for fuel, food and animal feed made from crops. Wheat rose on signs of increased overseas demand for U.S. supplies.
Sugar rose to the highest price since October 2006 on speculation investors are boosting stakes in the commodity before a drop in production in India, the world's second-largest source of the sweetener. Cocoa rose $17 a metric ton in New York, on speculation a renewed strike by workers who process bean shipments in Ivory Coast, the world's biggest producer, will halt exports and cut supplies. Coffee fell to a one-week low on renewed concern that global bean production will outpace consumption next year.
Precious Metals: Gold fell to a one-week low as a decline in the cost of oil and gasoline eroded demand for the precious metal as a hedge against inflation. Platinum and palladium declined on concern slowing global economic growth will reduce demand for the metals used in cars. Silver rose.
Energy: Crude oil fell to the lowest in more than a month on concern the U.S. economy may slip into recession, cutting fuel demand in the world's biggest energy consumer. Natural gas fell after a government report showed that U.S. inventories are probably ample for cold-weather heating needs. Heating oil futures also fell for a third day amid concern the U.S. economy may slow, reducing demand for oil products.
Agriculture: Corn and soybeans tumbled on speculation that a slowing U.S. economy will trigger a decline in global demand for fuel, food and animal feed made from crops. Wheat rose on signs of increased overseas demand for U.S. supplies.
Sugar rose to the highest price since October 2006 on speculation investors are boosting stakes in the commodity before a drop in production in India, the world's second-largest source of the sweetener. Cocoa rose $17 a metric ton in New York, on speculation a renewed strike by workers who process bean shipments in Ivory Coast, the world's biggest producer, will halt exports and cut supplies. Coffee fell to a one-week low on renewed concern that global bean production will outpace consumption next year.
Precious Metals: Gold fell to a one-week low as a decline in the cost of oil and gasoline eroded demand for the precious metal as a hedge against inflation. Platinum and palladium declined on concern slowing global economic growth will reduce demand for the metals used in cars. Silver rose.
Financials Daily - 18th Jan 2008
US: Growing conviction that the U.S. is in a recession sent stocks plunging in their worst three-day decline since 2002. Exxon Mobil Corp., General Electric Co. and Bank of America Corp. led the drop after the Federal Reserve said manufacturing in the Philadelphia region slid to a six-year low and Merrill Lynch & Co. posted a loss double analysts' estimates.
Europe: European stocks fell for a third day, led by mining companies and carmakers, after a regional gauge of U.S. manufacturing declined more than forecast.
Asia: Asian stocks outside Japan fell, led by raw-materials companies and food suppliers, on concern China's economic growth will slow at the same time as the U.S. slides into a recession.
Commodities: Crude oil fell to the lowest in more than a month on concern the U.S. economy may slip into recession, cutting fuel demand in the world's biggest energy consumer. Gold fell to a one-week low as a decline in the cost of oil and gasoline eroded demand for the precious metal as a hedge against inflation. Silver rose.
Currencies: The dollar approached a 2 1/2-year-low against the yen after Federal Reserve Chairman Ben S. Bernanke said the bank is ready ``to take substantive additional action'' to help the economy, while a manufacturing index sank.
Europe: European stocks fell for a third day, led by mining companies and carmakers, after a regional gauge of U.S. manufacturing declined more than forecast.
Asia: Asian stocks outside Japan fell, led by raw-materials companies and food suppliers, on concern China's economic growth will slow at the same time as the U.S. slides into a recession.
Commodities: Crude oil fell to the lowest in more than a month on concern the U.S. economy may slip into recession, cutting fuel demand in the world's biggest energy consumer. Gold fell to a one-week low as a decline in the cost of oil and gasoline eroded demand for the precious metal as a hedge against inflation. Silver rose.
Currencies: The dollar approached a 2 1/2-year-low against the yen after Federal Reserve Chairman Ben S. Bernanke said the bank is ready ``to take substantive additional action'' to help the economy, while a manufacturing index sank.
Thursday, January 17, 2008
Merrill Lynch loses $9.8 billion in Q4
Merrill Lynch & Co Inc on Thursday said it took a $14.1 billion write-down in the fourth quarter on bad subprime mortgage bets plus other charges that have forced the brokerage to sell pieces of the company to foreign investors to raise capital.
Merrill Lynch reported a fourth-quarter net loss of $9.8 billion, or $12.01 a share, the largest in the company's history. That eclipses the company's $2.3 billion loss in the previous quarter.
Merrill Lynch reported a fourth-quarter net loss of $9.8 billion, or $12.01 a share, the largest in the company's history. That eclipses the company's $2.3 billion loss in the previous quarter.
Keppel Land International (Keppel Land) and Bellingham Marine Industries partnership
Keppel Land International (Keppel Land) and Bellingham Marine Industries
(Bellingham) have signed a Memorandum of Understanding (MOU) to enter
into a strategic partnership where Bellingham will design and construct premier
marinas within Keppel Land's Waterfront properties in the region, where
appropriate. Under the agreement, Bellingham will provide Keppel Land with design, project management and
construction expertise for world-class marinas, the first being Marina at Keppel Bay, located within the Keppel Bay
Precinct.
(Bellingham) have signed a Memorandum of Understanding (MOU) to enter
into a strategic partnership where Bellingham will design and construct premier
marinas within Keppel Land's Waterfront properties in the region, where
appropriate. Under the agreement, Bellingham will provide Keppel Land with design, project management and
construction expertise for world-class marinas, the first being Marina at Keppel Bay, located within the Keppel Bay
Precinct.
latest news of Cosco
COSCO Corporation announced that its 51%-owned COSCO Shipyard Group
(“CSG”) had signed an investment agreement with Jiangsu Qidong Municipal
Government (Nantong, Jiangsu Province) for the expansion of the offshore
construction base of COSCO (Nantong) Shipyard Co. Ltd (“COSCO
Nantong”), CSG’s subsidiary. The new yard is located at the entrance of
Yangtze River and covers an area of 2 million square meters along 2km of
coastline. It will focus on offshore projects including the construction of oil &
gas related equipments such as semi-submersible rig, jack-up rig and other
floaters.
(“CSG”) had signed an investment agreement with Jiangsu Qidong Municipal
Government (Nantong, Jiangsu Province) for the expansion of the offshore
construction base of COSCO (Nantong) Shipyard Co. Ltd (“COSCO
Nantong”), CSG’s subsidiary. The new yard is located at the entrance of
Yangtze River and covers an area of 2 million square meters along 2km of
coastline. It will focus on offshore projects including the construction of oil &
gas related equipments such as semi-submersible rig, jack-up rig and other
floaters.
Singapore Dollar to Reach 27-Year High on MAS Policy, UBS Says
By Lilian Karunungan and David Yong
Jan. 17 (Bloomberg) -- The Singapore dollar will gain to the strongest in at least 27 years in 2008 as the central bank curbs inflation and investors seek to profit from the city-state's economic growth, according to UBS AG.
The currency will climb 4.2 percent this year to S$1.38 against the U.S. dollar, UBS, the world's second-biggest trader of foreign exchange, forecast in a research report. Singapore's dollar has advanced 2.8 percent since the central bank said in its semi-annual review on Oct. 10 that it would allow ``slightly'' faster appreciation in the currency.
Singapore's inflation reached the highest in 25 years in November as prices of food, housing and transportation costs rose. Fixed-asset investment in Southeast Asia's fourth-largest economy reached a record last year as property developers built new office towers and condominiums and companies such as Exxon Mobil Corp. set up new factories.
Asia's domestic-driven growth stories such as Singapore's will lure global investors to safer assets and boost fund inflows, Chiou Yi Chang, a UBS economist based in Singapore, said in an interview yesterday. ``Expectations of currency appreciation have further incurred strong money inflows.''
The local dollar traded at S$1.4309 against the U.S. currency as of 1 p.m. in Singapore, according to data compiled by Bloomberg. It reached S$1.4263 on Jan. 11, the highest since June 1997. The currency has risen 0.5 percent this year, adding to a 6.7 percent advance in 2007.
Inflation Context
The Monetary Authority of Singapore uses the exchange rate instead of interest rates to guide monetary policy, allowing the local dollar to move within an undisclosed band against a basket of currencies of the island's biggest trading partners.
``In the current context of high inflation, we would be expecting the exchange rate to remain at the top of the policy band until mid-2008,'' UBS said in a Jan. 15 research report.
Singapore's dollar rose 3.4 percent in the three months ended December, the best quarterly gain of 2007, and the second- fastest pace among Southeast Asian currencies following the October MAS review. Only the Philippine peso did better.
The central bank seeks to prevent the dollar from rising or falling outside of the band, raising speculation the MAS buys and sells its currency to control the exchange rate. The currency gained 2.6 percent in October, before slowing to 0.2 percent and 0.6 percent in November and December, respectively.
Singapore has almost $163 billion in foreign-exchange reserves, the seventh-biggest in the Asia-Pacific region and the most among Southeast Asian countries.
Singapore's consumer price index rose 4.2 percent in November from a year earlier, versus 3.6 percent in October, the statistics department said on Dec. 24.
Inflation may accelerate to 5 percent in the first half, before averaging out at 3.5 percent for 2008, Chang said.
Jan. 17 (Bloomberg) -- The Singapore dollar will gain to the strongest in at least 27 years in 2008 as the central bank curbs inflation and investors seek to profit from the city-state's economic growth, according to UBS AG.
The currency will climb 4.2 percent this year to S$1.38 against the U.S. dollar, UBS, the world's second-biggest trader of foreign exchange, forecast in a research report. Singapore's dollar has advanced 2.8 percent since the central bank said in its semi-annual review on Oct. 10 that it would allow ``slightly'' faster appreciation in the currency.
Singapore's inflation reached the highest in 25 years in November as prices of food, housing and transportation costs rose. Fixed-asset investment in Southeast Asia's fourth-largest economy reached a record last year as property developers built new office towers and condominiums and companies such as Exxon Mobil Corp. set up new factories.
Asia's domestic-driven growth stories such as Singapore's will lure global investors to safer assets and boost fund inflows, Chiou Yi Chang, a UBS economist based in Singapore, said in an interview yesterday. ``Expectations of currency appreciation have further incurred strong money inflows.''
The local dollar traded at S$1.4309 against the U.S. currency as of 1 p.m. in Singapore, according to data compiled by Bloomberg. It reached S$1.4263 on Jan. 11, the highest since June 1997. The currency has risen 0.5 percent this year, adding to a 6.7 percent advance in 2007.
Inflation Context
The Monetary Authority of Singapore uses the exchange rate instead of interest rates to guide monetary policy, allowing the local dollar to move within an undisclosed band against a basket of currencies of the island's biggest trading partners.
``In the current context of high inflation, we would be expecting the exchange rate to remain at the top of the policy band until mid-2008,'' UBS said in a Jan. 15 research report.
Singapore's dollar rose 3.4 percent in the three months ended December, the best quarterly gain of 2007, and the second- fastest pace among Southeast Asian currencies following the October MAS review. Only the Philippine peso did better.
The central bank seeks to prevent the dollar from rising or falling outside of the band, raising speculation the MAS buys and sells its currency to control the exchange rate. The currency gained 2.6 percent in October, before slowing to 0.2 percent and 0.6 percent in November and December, respectively.
Singapore has almost $163 billion in foreign-exchange reserves, the seventh-biggest in the Asia-Pacific region and the most among Southeast Asian countries.
Singapore's consumer price index rose 4.2 percent in November from a year earlier, versus 3.6 percent in October, the statistics department said on Dec. 24.
Inflation may accelerate to 5 percent in the first half, before averaging out at 3.5 percent for 2008, Chang said.
SembCorp Marine Ltd: Uncertainty still looms
As of 1 Nov 07, all of SembCorp Marine’s (SMM) forex positions had
been closed. The total potential realized loss announced was US$303m (or
S$439m), of which US$83m had been paid out to an undisclosed bank. On
account of the ongoing investigations, management has not indicated whether
they would be making a provision for forex losses in 2007. This aside, FY07
was an outstanding year for the group due to strong order momentum as well
as the expansion of its operations. The group will be releasing its FY07
results in the coming weeks and we are maintaining our FY07 and FY08
estimates for now.
been closed. The total potential realized loss announced was US$303m (or
S$439m), of which US$83m had been paid out to an undisclosed bank. On
account of the ongoing investigations, management has not indicated whether
they would be making a provision for forex losses in 2007. This aside, FY07
was an outstanding year for the group due to strong order momentum as well
as the expansion of its operations. The group will be releasing its FY07
results in the coming weeks and we are maintaining our FY07 and FY08
estimates for now.
Financials Daily - 17th Jan 2008
US: Technology and energy shares sent the Standard & Poor's 500 Index to its lowest level in 14 months on Intel Corp.'s worse-than-estimated sales forecast and a drop in oil prices.
Europe: European stocks slumped, led by commodity producers and chipmakers, for the biggest two-day decline since August after oil and metals prices fell and Intel Corp. forecast sales that missed analysts' estimates.
Asia: Asian stocks fell, extending a global rout, after an unexpected drop in U.S. retail sales added to concern the world's largest economy will enter a recession.
Commodities: Crude oil fell to a four-week low after a U.S. Energy Department report showed that supplies rose more than expected. Gold futures tumbled the most in almost nine weeks after prospects for an emergency interest-rate cut by the Federal Reserve faded, reducing the appeal of the precious metal as hedge against inflation. Silver also declined.
Europe: European stocks slumped, led by commodity producers and chipmakers, for the biggest two-day decline since August after oil and metals prices fell and Intel Corp. forecast sales that missed analysts' estimates.
Asia: Asian stocks fell, extending a global rout, after an unexpected drop in U.S. retail sales added to concern the world's largest economy will enter a recession.
Commodities: Crude oil fell to a four-week low after a U.S. Energy Department report showed that supplies rose more than expected. Gold futures tumbled the most in almost nine weeks after prospects for an emergency interest-rate cut by the Federal Reserve faded, reducing the appeal of the precious metal as hedge against inflation. Silver also declined.
Wednesday, January 16, 2008
Inflation Accelerated Last Year, but Jump Is Unlikely to Deter Fed
NEWS ALERT
from The Wall Street Journal
Jan. 16, 2008
The consumer price index rose 0.3% in December, the Labor Department said, as higher energy, food and medical bills took a toll on consumers. The core CPI, which excludes volatile food and energy prices, advanced 0.2%. Consumer prices soared at their fastest rate in almost two decades last year, rising 4.1% from a year earlier. Underlying prices crept 2.4% higher for 2007, suggesting some spillover from food and energy. Still, the inflation data aren't alarming enough to prevent the Fed from carrying out a fourth straight interest-rate reduction later this month amid signs that the housing slump has spread to the broader economy.
from The Wall Street Journal
Jan. 16, 2008
The consumer price index rose 0.3% in December, the Labor Department said, as higher energy, food and medical bills took a toll on consumers. The core CPI, which excludes volatile food and energy prices, advanced 0.2%. Consumer prices soared at their fastest rate in almost two decades last year, rising 4.1% from a year earlier. Underlying prices crept 2.4% higher for 2007, suggesting some spillover from food and energy. Still, the inflation data aren't alarming enough to prevent the Fed from carrying out a fourth straight interest-rate reduction later this month amid signs that the housing slump has spread to the broader economy.
Dollar Declines to 2 1/2-Year Low Against Yen on Credit Losses
By Lukanyo Mnyanda and Ron Harui
. 16 (Bloomberg) -- The dollar fell to a 2 1/2-year low against the yen as losses in credit markets widened and the U.S. showed more signs of sinking into recession.
The U.S. currency fell the most versus the yen and the Swiss franc on expectations Merrill Lynch & Co. and JPMorgan Chase & Co. will follow Citigroup Inc. in writing down the value of investments linked to U.S. mortgages. The yen climbed against Canadian dollar and the South Korean won as a slump in global stocks prompted investors to repay loans in the currency used to buy higher-yielding assets.
``Further weakness is in store for the dollar as financial companies underperform,'' said Kamal Sharma, a London-based currency strategist at Bank of America Corp. ``The equity markets are shaky and the yen should remain robust.''
The dollar dropped to 106.11 yen as of 9:35 a.m. in London, from 106.78 yesterday in New York. It touched 105.97, its first time below 106 since May 2005. The U.S. currency also traded at $1.4816 per euro from $1.4804 yesterday, when the euro reached $1.4922, the strongest since the record high of $1.4967 in November. The Swiss franc reached an all-time high of 1.0838 per dollar.
The yen rose to 157.21 per euro after reaching 157.20, the strongest since Sept. 11, from 158.08 yesterday. It also climbed 0.8 percent to 93.32 versus Australia's dollar and 1.25 percent to 81.93 against New Zealand's dollar. The MSCI Asia-Pacific Index of regional shares fell 3.6 percent.
Merrill will post a fourth-quarter loss of $3.23 billion tomorrow, while JPMorgan will report today a 29 percent drop in earnings to $3.21 billion, analysts estimate.
Fed Rate Bets
Bank of America Corp. lowered its forecast for the dollar in a research note yesterday because of market expectations for a recession. The second-largest U.S. bank cut its outlook for March 31 to $1.48 from $1.45 previously and to 109 yen from 112.
Fed funds futures contracts on the Chicago Board of Trade show a 100 percent likelihood the Fed will lower the target overnight lending rate between banks by at least a half- percentage point to 3.75 percent on Jan. 30. The chance of a cut to 3.5 percent is 40 percent, compared with zero a week ago.
The Fed may say today that industrial production fell 0.2 percent in December, after a 0.3 percent increase in November, according to a Bloomberg News survey of economists before the report due at 9:15 a.m. in Washington.
The Japanese currency reached the highest in four months versus the euro as rising volatility spurred investors to sell higher-yielding assets. Japan's benchmark interest rate of 0.5 percent compares with 4 percent in the 15-nation euro region and 8.25 percent in New Zealand.
`Cutting Foreign Assets'
``Investors don't want to take risks at this stage, with some of them probably cutting foreign assets,'' said Seiichiro Muta, director of foreign exchange in Tokyo at UBS AG, the world's second-largest currency trader. The yen may advance to 157 per euro today, he forecast.
Volatility implied by one-month dollar-yen options rose to 14.75 percent, the highest since Nov. 27, from 13.65 percent yesterday. An increase in volatility may discourage carry trades as it implies greater exchange-rate fluctuation risk.
In carry trades, investors borrow in countries with lower interest rates and invest in those with higher borrowing costs, earning the spread between the two.
The euro extended this month's gain versus the dollar to 1.6 percent before a European report that may show inflation stayed at the highest in more than six years in December, backing the European Central Bank's case for higher interest rates.
ECB `Hawkish'
``The commentary from ECB officials in the past week has clearly been on the hawkish side,'' said John Horner, a currency strategist at Deutsche Bank AG in Sydney, in an interview with Bloomberg television. ``The risk that they see is rates may need to go up further. That should push the euro against the dollar through the $1.50 mark.''
The European Union's statistics office will say at 11 a.m. in Luxembourg the inflation rate in the euro area was 3.1 percent in December, unchanged from the preliminary estimate, according to a Bloomberg News survey of economists.
. 16 (Bloomberg) -- The dollar fell to a 2 1/2-year low against the yen as losses in credit markets widened and the U.S. showed more signs of sinking into recession.
The U.S. currency fell the most versus the yen and the Swiss franc on expectations Merrill Lynch & Co. and JPMorgan Chase & Co. will follow Citigroup Inc. in writing down the value of investments linked to U.S. mortgages. The yen climbed against Canadian dollar and the South Korean won as a slump in global stocks prompted investors to repay loans in the currency used to buy higher-yielding assets.
``Further weakness is in store for the dollar as financial companies underperform,'' said Kamal Sharma, a London-based currency strategist at Bank of America Corp. ``The equity markets are shaky and the yen should remain robust.''
The dollar dropped to 106.11 yen as of 9:35 a.m. in London, from 106.78 yesterday in New York. It touched 105.97, its first time below 106 since May 2005. The U.S. currency also traded at $1.4816 per euro from $1.4804 yesterday, when the euro reached $1.4922, the strongest since the record high of $1.4967 in November. The Swiss franc reached an all-time high of 1.0838 per dollar.
The yen rose to 157.21 per euro after reaching 157.20, the strongest since Sept. 11, from 158.08 yesterday. It also climbed 0.8 percent to 93.32 versus Australia's dollar and 1.25 percent to 81.93 against New Zealand's dollar. The MSCI Asia-Pacific Index of regional shares fell 3.6 percent.
Merrill will post a fourth-quarter loss of $3.23 billion tomorrow, while JPMorgan will report today a 29 percent drop in earnings to $3.21 billion, analysts estimate.
Fed Rate Bets
Bank of America Corp. lowered its forecast for the dollar in a research note yesterday because of market expectations for a recession. The second-largest U.S. bank cut its outlook for March 31 to $1.48 from $1.45 previously and to 109 yen from 112.
Fed funds futures contracts on the Chicago Board of Trade show a 100 percent likelihood the Fed will lower the target overnight lending rate between banks by at least a half- percentage point to 3.75 percent on Jan. 30. The chance of a cut to 3.5 percent is 40 percent, compared with zero a week ago.
The Fed may say today that industrial production fell 0.2 percent in December, after a 0.3 percent increase in November, according to a Bloomberg News survey of economists before the report due at 9:15 a.m. in Washington.
The Japanese currency reached the highest in four months versus the euro as rising volatility spurred investors to sell higher-yielding assets. Japan's benchmark interest rate of 0.5 percent compares with 4 percent in the 15-nation euro region and 8.25 percent in New Zealand.
`Cutting Foreign Assets'
``Investors don't want to take risks at this stage, with some of them probably cutting foreign assets,'' said Seiichiro Muta, director of foreign exchange in Tokyo at UBS AG, the world's second-largest currency trader. The yen may advance to 157 per euro today, he forecast.
Volatility implied by one-month dollar-yen options rose to 14.75 percent, the highest since Nov. 27, from 13.65 percent yesterday. An increase in volatility may discourage carry trades as it implies greater exchange-rate fluctuation risk.
In carry trades, investors borrow in countries with lower interest rates and invest in those with higher borrowing costs, earning the spread between the two.
The euro extended this month's gain versus the dollar to 1.6 percent before a European report that may show inflation stayed at the highest in more than six years in December, backing the European Central Bank's case for higher interest rates.
ECB `Hawkish'
``The commentary from ECB officials in the past week has clearly been on the hawkish side,'' said John Horner, a currency strategist at Deutsche Bank AG in Sydney, in an interview with Bloomberg television. ``The risk that they see is rates may need to go up further. That should push the euro against the dollar through the $1.50 mark.''
The European Union's statistics office will say at 11 a.m. in Luxembourg the inflation rate in the euro area was 3.1 percent in December, unchanged from the preliminary estimate, according to a Bloomberg News survey of economists.
STX Pan jumps on news of share migration
Shares of South Korean shipping firm STX Pan Ocean <028670.KS> rose as much as 13.1 percent to S$2.77 with 49.4 million shares traded after the company announced details on the migration of its shares between Singapore and Seoul.
Shares of STX Pan Ocean, which is also listed on the Seoul exchange, is trading in Singapore at around a 34 percent discount to its Korean counterpart.
By 0425 GMT, STX Pan Ocean shares were trading down 2.77 percent on the Korea Exchange, at 2,455 won.
A STX Pan Ocean spokeswoman said she could not give an exact timeline for the migration of shares, but a local dealer told Reuters it will take about two weeks.
Shares of STX Pan Ocean, which is also listed on the Seoul exchange, is trading in Singapore at around a 34 percent discount to its Korean counterpart.
By 0425 GMT, STX Pan Ocean shares were trading down 2.77 percent on the Korea Exchange, at 2,455 won.
A STX Pan Ocean spokeswoman said she could not give an exact timeline for the migration of shares, but a local dealer told Reuters it will take about two weeks.
SGX FALLS ON NEGATIVE BROKER CALLS
Shares of Singapore Exchange (SGX) tumbled as much as 7 percent to S$9.30, its lowest level in four and a half months, with 1.4 million traded after brokers downgraded the stock citing a potential slowdown in the market's turnover value.
Morgan Stanley has cut the target price for shares of SGX to S$10.50 from S$15, keeping its "equal weight" rating on the stock.
Goldman Sachs lowered its target share price to S$15.30 from S$18.40 and Macquarie Research cut the stock's target price to S$10.20 from S$11.10, but raised investor rating to "neutral" from "underperform".
"We believe a murkier U.S. outlook will likely dampen sentiment/turnover in the near term and lower the supportable valuation of SGX," Goldman Sachs analyst Darwin Lam wrote in a research note.
Singapore Exchange said its quarterly net profit almost doubled to beat expectations on a surge in stock and derivative trading, and said it will continue focusing on foreign listings in the city-state.
Morgan Stanley has cut the target price for shares of SGX to S$10.50 from S$15, keeping its "equal weight" rating on the stock.
Goldman Sachs lowered its target share price to S$15.30 from S$18.40 and Macquarie Research cut the stock's target price to S$10.20 from S$11.10, but raised investor rating to "neutral" from "underperform".
"We believe a murkier U.S. outlook will likely dampen sentiment/turnover in the near term and lower the supportable valuation of SGX," Goldman Sachs analyst Darwin Lam wrote in a research note.
Singapore Exchange said its quarterly net profit almost doubled to beat expectations on a surge in stock and derivative trading, and said it will continue focusing on foreign listings in the city-state.
Financials Daily-16th Jan 2008
US: The U.S. stock market resumed its January tumble after Citigroup Inc. reported a record loss, retail sales unexpectedly dropped and falling oil prices dragged down energy shares.
Europe: European stocks declined the most in almost eight weeks after Tesco Plc reported sales that trailed estimates, Hypo Real Estate Holding AG's profit dropped and reports signaled slowing regional and U.S. economic growth.
Asia: Asian stocks fell, led by Toyota Motor Corp. and Honda Motor Co., after the yen strengthened to the highest in seven weeks, eroding the value of the Japanese carmakers' overseas sales when converted into their home currency.
Commodities: Crude oil fell more than $2 a barrel in New York after a U.S. government report showed that retail sales unexpectedly declined last month and Saudi Arabia's oil minister said OPEC is ready to increase production. Gold futures fell from a record after the dollar rebounded against the euro and energy costs eased, reducing the appeal of the precious metal as an alternative investment. Silver also declined.
Currencies: The dollar fell to the lowest level since 2005 against the yen after U.S. retail sales dropped in December, bolstering speculation the economy is headed for recession.
Europe: European stocks declined the most in almost eight weeks after Tesco Plc reported sales that trailed estimates, Hypo Real Estate Holding AG's profit dropped and reports signaled slowing regional and U.S. economic growth.
Asia: Asian stocks fell, led by Toyota Motor Corp. and Honda Motor Co., after the yen strengthened to the highest in seven weeks, eroding the value of the Japanese carmakers' overseas sales when converted into their home currency.
Commodities: Crude oil fell more than $2 a barrel in New York after a U.S. government report showed that retail sales unexpectedly declined last month and Saudi Arabia's oil minister said OPEC is ready to increase production. Gold futures fell from a record after the dollar rebounded against the euro and energy costs eased, reducing the appeal of the precious metal as an alternative investment. Silver also declined.
Currencies: The dollar fell to the lowest level since 2005 against the yen after U.S. retail sales dropped in December, bolstering speculation the economy is headed for recession.
Tuesday, January 15, 2008
U.S. Retail Sales Unexpectedly Declined in December (Update)
By Bob Willis
Jan. 15 (Bloomberg) -- Sales at U.S. retailers unexpectedly fell in December, capping the weakest year since 2002.
Sales dropped 0.4 percent, the first decline since June, following a revised 1 percent gain in November, the Commerce Department said today in Washington. Purchases excluding automobiles also decreased 0.4 percent.
Treasury notes rose and stock-index futures dropped as the figures underscored Federal Reserve Chairman Ben S. Bernanke's concern that risks to growth are intensifying. A sustained slump in consumer spending brought on by falling property values and rising unemployment would mean the end of the six-year expansion, economists say.
``Consumer spending slowed down pretty dramatically'' in the fourth quarter, said Brian Bethune, director of financial economics at Global Insight Inc. in Lexington, Massachusetts, who correctly forecast the drop in sales. ``We are kind of flying very close to a stall speed.''
Economists forecast retail sales would be unchanged, according to the median of 74 estimates. Projections ranged from a decline of 0.8 percent to a gain of 0.5 percent.
Yields on benchmark 10-year notes dropped to 3.72 percent at 8:55 a.m. in New York, from 3.77 percent late yesterday. Futures contracts on the Standard & Poor's 500 stock index expiring in March declined 1.1 percent to 1,404.40.
Producer Prices
Producer prices in the U.S. also dropped in December, against economists' forecasts for an increase. Wholesale prices fell 0.1 percent after a 3.2 percent surge in November that was the biggest in 34 years, a Labor Department report showed.
For all of 2007, retailers posted a 4.2 percent sales increase, the smallest in five years. Purchases rose 5.9 percent in 2006.
``Growth stalled out at the end of the fourth quarter and into the new year,'' Joshua Feinman, chief U.S. economist at Deutsche Asset Management in New York, said before the report. ``The economy will narrowly be able to avoid recession.''
Sales excluding automobiles were forecast to decrease 0.1 percent from the prior month, according to the survey median.
The drop in sales was led by a 2.9 percent decline at building-material stores, the biggest since February 2003, reflecting the slump in housing. Sales at clothing, electronics and sporting-goods stores were among those that also decreased.
Gas Stations
Purchases at service stations dropped 1.7 percent, which economists said reflected lower gasoline prices. The price of a gallon of regular gasoline in December averaged $3.01, down from $3.07 the previous month, according to AAA, a group representing motorists. Excluding gas, retail sales fell 0.2 percent.
Auto dealers saw a 0.4 percent decline in sales.
AutoNation Inc., the largest publicly traded U.S. car dealer, doesn't expect the nation's auto market to pull out of its slump until 2009, Chief Executive Officer Michael Jackson said from Fort Lauderdale, Florida.
The drop in housing and the slowing economy usually take ``30 to 40 months to work through,'' Jackson said in a Bloomberg Radio interview yesterday. ``So we've had declines in 2006, 2007 and 2008, but I'm feeling pretty good about 2009.''
Excluding autos, gasoline and building materials, the figures the government uses to calculate gross domestic product, sales increased 0.1 percent, following a 0.7 percent gain the month before. The government uses data from other sources to calculate the contribution from the three categories excluded.
Spending Outlook
Consumer spending, which accounts for more than two-thirds of the economy, is likely to cool rather than collapse in coming months as the housing slump worsens and hiring slows, according to the median estimate of economists surveyed by Bloomberg News earlier this month.
Spending will grow at an annual rate of 1.6 percent this quarter, down from an estimated 2.6 percent pace in the last three months of 2007, according to the median estimate of economists surveyed by Bloomberg News this month. Spending expanded at an average 3.5 percent pace per quarter over the past decade.
The continued gains, together with increasing exports, will help the economy avoid recession, economists said. Fed rate cuts will ensure a short downturn should one occur, they said.
Bernanke on Jan. 10 pledged ``substantive additional action'' to insure against ``downside risks'' to the economic expansion.
Investors are certain the Fed will lower the benchmark interest rate by at least a half percentage point following two days of meetings of Jan. 29-30.
Wal-Mart
Discount retailers are benefiting as Americans rein in spending. Wal-Mart Stores Inc., the world's largest retailer, said Jan. 10 that its December sales were within its forecast after it lured shoppers with price cuts on more holiday items.
Purchases at chain stores in November-December rose at the slowest pace in five years, according to the International Council of Shopping Centers.
An early Thanksgiving boosted holiday shopping in November at the expense of December sales, economists such as Peter Kretzmer of Bank of America Corp. said. Additionally, gift cards bought over the last two months won't be reflected in the sales figures until they're redeemed in January or later.
The biggest housing recession in 16 years is reverberating across the economy as access to credit tightens, consumer and corporate demand weaken and job growth slows. Unemployment rose to 5 percent in December, a 0.3 point jump from November and a highest in two years, according to Labor Department figures.
The magnitude of the gain from a recent 4.4 percent trough prompted economists including Jan Hatzius of Goldman Sachs Group Inc. to warn that the economy may have already entered a recession.
``Recession has now arrived, or will very shortly,'' Hatzius wrote in a note to clients last week.
Jan. 15 (Bloomberg) -- Sales at U.S. retailers unexpectedly fell in December, capping the weakest year since 2002.
Sales dropped 0.4 percent, the first decline since June, following a revised 1 percent gain in November, the Commerce Department said today in Washington. Purchases excluding automobiles also decreased 0.4 percent.
Treasury notes rose and stock-index futures dropped as the figures underscored Federal Reserve Chairman Ben S. Bernanke's concern that risks to growth are intensifying. A sustained slump in consumer spending brought on by falling property values and rising unemployment would mean the end of the six-year expansion, economists say.
``Consumer spending slowed down pretty dramatically'' in the fourth quarter, said Brian Bethune, director of financial economics at Global Insight Inc. in Lexington, Massachusetts, who correctly forecast the drop in sales. ``We are kind of flying very close to a stall speed.''
Economists forecast retail sales would be unchanged, according to the median of 74 estimates. Projections ranged from a decline of 0.8 percent to a gain of 0.5 percent.
Yields on benchmark 10-year notes dropped to 3.72 percent at 8:55 a.m. in New York, from 3.77 percent late yesterday. Futures contracts on the Standard & Poor's 500 stock index expiring in March declined 1.1 percent to 1,404.40.
Producer Prices
Producer prices in the U.S. also dropped in December, against economists' forecasts for an increase. Wholesale prices fell 0.1 percent after a 3.2 percent surge in November that was the biggest in 34 years, a Labor Department report showed.
For all of 2007, retailers posted a 4.2 percent sales increase, the smallest in five years. Purchases rose 5.9 percent in 2006.
``Growth stalled out at the end of the fourth quarter and into the new year,'' Joshua Feinman, chief U.S. economist at Deutsche Asset Management in New York, said before the report. ``The economy will narrowly be able to avoid recession.''
Sales excluding automobiles were forecast to decrease 0.1 percent from the prior month, according to the survey median.
The drop in sales was led by a 2.9 percent decline at building-material stores, the biggest since February 2003, reflecting the slump in housing. Sales at clothing, electronics and sporting-goods stores were among those that also decreased.
Gas Stations
Purchases at service stations dropped 1.7 percent, which economists said reflected lower gasoline prices. The price of a gallon of regular gasoline in December averaged $3.01, down from $3.07 the previous month, according to AAA, a group representing motorists. Excluding gas, retail sales fell 0.2 percent.
Auto dealers saw a 0.4 percent decline in sales.
AutoNation Inc., the largest publicly traded U.S. car dealer, doesn't expect the nation's auto market to pull out of its slump until 2009, Chief Executive Officer Michael Jackson said from Fort Lauderdale, Florida.
The drop in housing and the slowing economy usually take ``30 to 40 months to work through,'' Jackson said in a Bloomberg Radio interview yesterday. ``So we've had declines in 2006, 2007 and 2008, but I'm feeling pretty good about 2009.''
Excluding autos, gasoline and building materials, the figures the government uses to calculate gross domestic product, sales increased 0.1 percent, following a 0.7 percent gain the month before. The government uses data from other sources to calculate the contribution from the three categories excluded.
Spending Outlook
Consumer spending, which accounts for more than two-thirds of the economy, is likely to cool rather than collapse in coming months as the housing slump worsens and hiring slows, according to the median estimate of economists surveyed by Bloomberg News earlier this month.
Spending will grow at an annual rate of 1.6 percent this quarter, down from an estimated 2.6 percent pace in the last three months of 2007, according to the median estimate of economists surveyed by Bloomberg News this month. Spending expanded at an average 3.5 percent pace per quarter over the past decade.
The continued gains, together with increasing exports, will help the economy avoid recession, economists said. Fed rate cuts will ensure a short downturn should one occur, they said.
Bernanke on Jan. 10 pledged ``substantive additional action'' to insure against ``downside risks'' to the economic expansion.
Investors are certain the Fed will lower the benchmark interest rate by at least a half percentage point following two days of meetings of Jan. 29-30.
Wal-Mart
Discount retailers are benefiting as Americans rein in spending. Wal-Mart Stores Inc., the world's largest retailer, said Jan. 10 that its December sales were within its forecast after it lured shoppers with price cuts on more holiday items.
Purchases at chain stores in November-December rose at the slowest pace in five years, according to the International Council of Shopping Centers.
An early Thanksgiving boosted holiday shopping in November at the expense of December sales, economists such as Peter Kretzmer of Bank of America Corp. said. Additionally, gift cards bought over the last two months won't be reflected in the sales figures until they're redeemed in January or later.
The biggest housing recession in 16 years is reverberating across the economy as access to credit tightens, consumer and corporate demand weaken and job growth slows. Unemployment rose to 5 percent in December, a 0.3 point jump from November and a highest in two years, according to Labor Department figures.
The magnitude of the gain from a recent 4.4 percent trough prompted economists including Jan Hatzius of Goldman Sachs Group Inc. to warn that the economy may have already entered a recession.
``Recession has now arrived, or will very shortly,'' Hatzius wrote in a note to clients last week.
Citigroup cuts dividend, and is raising $14.5 bln
Citigroup Inc on Tuesday cut its quarterly dividend 41 percent, and said it is raising $14.5 billion from offerings of convertible preferred securities.
The bank also posted its first quarterly loss since its creation in 1998, hurt by $18.1 billion of write-downs for exposure to subprime mortgages and other risky debt. The net loss for the largest U.S. bank totaled $9.83 billion, or $1.99 per share.
Citigroup reduced its quarterly dividend to 32 cents per share from 54 cents.
(Reporting by Jonathan Stempel; Editing by Derek Caney)
The bank also posted its first quarterly loss since its creation in 1998, hurt by $18.1 billion of write-downs for exposure to subprime mortgages and other risky debt. The net loss for the largest U.S. bank totaled $9.83 billion, or $1.99 per share.
Citigroup reduced its quarterly dividend to 32 cents per share from 54 cents.
(Reporting by Jonathan Stempel; Editing by Derek Caney)
Merrill Gets Capital Injections From Foreign Investors
NEWS ALERT
from The Wall Street Journal
Jan. 15, 2008
Merrill Lynch reached agreements for investments totaling $6.6 billion from investors including Korea Investment Corp., Kuwait Investment Authority, and Japan's Mizuho Corporate Bank. Merrill is only the latest Wall Street firm to seek funding from big, well-capitalized sources overseas. Citigroup, Morgan Stanley, Bear Stearns and Switzerland's UBS have each received cash injections from foreign investors.
"One of my main priorities over the last several weeks has been to ensure Merrill Lynch's balance sheet is strong, and these transactions make certain that Merrill Lynch is well-capitalized," said Merrill CEO John Thain.
from The Wall Street Journal
Jan. 15, 2008
Merrill Lynch reached agreements for investments totaling $6.6 billion from investors including Korea Investment Corp., Kuwait Investment Authority, and Japan's Mizuho Corporate Bank. Merrill is only the latest Wall Street firm to seek funding from big, well-capitalized sources overseas. Citigroup, Morgan Stanley, Bear Stearns and Switzerland's UBS have each received cash injections from foreign investors.
"One of my main priorities over the last several weeks has been to ensure Merrill Lynch's balance sheet is strong, and these transactions make certain that Merrill Lynch is well-capitalized," said Merrill CEO John Thain.
Commodities Daily 15th Jan 2008
Spotlight: Gold reached yet another record high as a declining dollar and expectations of further interest rate cuts spurred buying. Corn rose to the highest ever in Chicago while soybeans and feeder cattle fell. U.S. steel prices may rise more quickly than anticipated to $600 a ton. Cocoa rose to the highest price since 2003.
Energy: Crude oil rose for the first time in four days after the dollar fell to within a cent of its all-time low against the euro, prompting investors to buy energy and metals futures as an inflation hedge. The euro settled at 1.4869 against the dollar yesterday. A 2 percent gain in heating prices also prompted traders to buy oil as colder weather shut schools and cancelled flights in Boston. In a survey of analysts, crude oil inventories probably gained 1.3 million barrels last week as refiners reduced output from a four-month high and imports rose. Gasoline and distillate inventories also gained, according to the survey.
Agriculture: Corn soared to record high levels yesterday as investors bought on speculation that global demand for feed and biofuel will exceed production for the seventh time in the past eight years. Corn futures for the active month March settled at 512 cents a bushel, up 17 cents from the previous limit-up session on Friday. Wheat futures ended slightly higher as traders continue to buy the new crop months July, narrowing the old/new crop spread. March wheat rose 7.75 cents to 917 cents a bushel while July limit-up for a second straight session, settling at 836 cents a bushel. Soybeans fell from a record high as U.S. and South American farmers increased sales to benefit from prices that rose 78 percent last year.
Precious Metals: Gold futures set new record highs yesterday, reaching a high of $915.90 an ounce before settling lower in earlier trade as a declining dollar increased demand for precious metals. The dollar fell as traders increased bets that the Federal Reserve will lower U.S. interest rates to avoid a recession. Fed funds futures contracts on the Chicago Board of Trade show 54 percent odds the Fed will cut its 4.25 percent target rate for overnight bank loans to 3.75 percent at its Jan. 30 meeting.
Industrial Metals: Copper rose for a second straight session as a weaker dollar increased the demand for raw materials as a hedge against inflation. Copper however, remains weighed down by increasing stockpiles and a stabilizing U.S. demand. Stockpiles monitored by the Comex have plunged 61 percent in the last year. Inventories tallied by the London Metal Exchange have dropped 0.4 percent in the past 12 months.
Energy: Crude oil rose for the first time in four days after the dollar fell to within a cent of its all-time low against the euro, prompting investors to buy energy and metals futures as an inflation hedge. The euro settled at 1.4869 against the dollar yesterday. A 2 percent gain in heating prices also prompted traders to buy oil as colder weather shut schools and cancelled flights in Boston. In a survey of analysts, crude oil inventories probably gained 1.3 million barrels last week as refiners reduced output from a four-month high and imports rose. Gasoline and distillate inventories also gained, according to the survey.
Agriculture: Corn soared to record high levels yesterday as investors bought on speculation that global demand for feed and biofuel will exceed production for the seventh time in the past eight years. Corn futures for the active month March settled at 512 cents a bushel, up 17 cents from the previous limit-up session on Friday. Wheat futures ended slightly higher as traders continue to buy the new crop months July, narrowing the old/new crop spread. March wheat rose 7.75 cents to 917 cents a bushel while July limit-up for a second straight session, settling at 836 cents a bushel. Soybeans fell from a record high as U.S. and South American farmers increased sales to benefit from prices that rose 78 percent last year.
Precious Metals: Gold futures set new record highs yesterday, reaching a high of $915.90 an ounce before settling lower in earlier trade as a declining dollar increased demand for precious metals. The dollar fell as traders increased bets that the Federal Reserve will lower U.S. interest rates to avoid a recession. Fed funds futures contracts on the Chicago Board of Trade show 54 percent odds the Fed will cut its 4.25 percent target rate for overnight bank loans to 3.75 percent at its Jan. 30 meeting.
Industrial Metals: Copper rose for a second straight session as a weaker dollar increased the demand for raw materials as a hedge against inflation. Copper however, remains weighed down by increasing stockpiles and a stabilizing U.S. demand. Stockpiles monitored by the Comex have plunged 61 percent in the last year. Inventories tallied by the London Metal Exchange have dropped 0.4 percent in the past 12 months.
Economic Outlook 15th Jan 2008
Better-than-anticipated earnings news from IBM got equities off to a strong
start today. Optimism that the Fed will not let inflation fears keep it from
easing added fuel to the stock rally. Treasuries were mixed and little changed,
while the dollar took another step lower versus the euro and the yen.
Retail Sales and sales ex-autos for December will be released at 8:30
(Forecast +0.2%/+0.2%, Consensus unch/-0.1%). Retail sales surprised to the
upside in November, jumping 1.2% overall and 1.8% excluding autos. We estimate
the gains in December were much more modest, with the pace of holiday spending
petering out as the season progressed. We put December retail sales up 0.2%
both with and without motor vehicles. Gasoline sales are not likely to be a
large factor; we see the same 0.2% gain when gasoline is excluded.
The December Producer Price Index and core PPI are also due out at 8:30
(Forecast +0.1%/+0.1%, Consensus +0.2%/+0.2%). The December PPI should look
nothing like November's, when the index posted an energy-related rise of 3.2%.
Wholesale energy prices, which surged by 14.1% in November, probably edged up
only 0.2% last month. We put the headline December PPI at +0.1%. Excluding
food and energy, the core PPI should also be contained, rising an estimated 0.
1% in December after November's 0.4% gain. This would leave the core PPI
unchanged at +2.0% YoY through December.
January's Empire State Manufacturing Survey is also scheduled for 8:30
(Forecast +7.0, Consensus +10.0). This survey of manufacturers from the New
York region fell to 10.3 in December after posting strong readings above 25 in
five of the previous six months. Its average for all of 2007 was +17.1. For
January, we look for a further deterioration in the index to a nine-month low
of +7.0.
Business Inventories for November are due out at 10:00 (Forecast +0.4%,
Consensus +0.4%). Factory inventories jumped 0.8% in November, and we estimate
wholesale inventories rose 0.4%. We put retail inventories up 0.2% for the
month. These estimates leave us with an expected increase of 0.4% for total
business inventories in November. Looking forward, slowing inventory
accumulation is expected to subtract from GDP growth throughout the first half
of 2008.
start today. Optimism that the Fed will not let inflation fears keep it from
easing added fuel to the stock rally. Treasuries were mixed and little changed,
while the dollar took another step lower versus the euro and the yen.
Retail Sales and sales ex-autos for December will be released at 8:30
(Forecast +0.2%/+0.2%, Consensus unch/-0.1%). Retail sales surprised to the
upside in November, jumping 1.2% overall and 1.8% excluding autos. We estimate
the gains in December were much more modest, with the pace of holiday spending
petering out as the season progressed. We put December retail sales up 0.2%
both with and without motor vehicles. Gasoline sales are not likely to be a
large factor; we see the same 0.2% gain when gasoline is excluded.
The December Producer Price Index and core PPI are also due out at 8:30
(Forecast +0.1%/+0.1%, Consensus +0.2%/+0.2%). The December PPI should look
nothing like November's, when the index posted an energy-related rise of 3.2%.
Wholesale energy prices, which surged by 14.1% in November, probably edged up
only 0.2% last month. We put the headline December PPI at +0.1%. Excluding
food and energy, the core PPI should also be contained, rising an estimated 0.
1% in December after November's 0.4% gain. This would leave the core PPI
unchanged at +2.0% YoY through December.
January's Empire State Manufacturing Survey is also scheduled for 8:30
(Forecast +7.0, Consensus +10.0). This survey of manufacturers from the New
York region fell to 10.3 in December after posting strong readings above 25 in
five of the previous six months. Its average for all of 2007 was +17.1. For
January, we look for a further deterioration in the index to a nine-month low
of +7.0.
Business Inventories for November are due out at 10:00 (Forecast +0.4%,
Consensus +0.4%). Factory inventories jumped 0.8% in November, and we estimate
wholesale inventories rose 0.4%. We put retail inventories up 0.2% for the
month. These estimates leave us with an expected increase of 0.4% for total
business inventories in November. Looking forward, slowing inventory
accumulation is expected to subtract from GDP growth throughout the first half
of 2008.
Financials Daily 15th Jan 2008
US: U.S. stocks rallied, sending the Dow Jones Industrial Average and Nasdaq Composite Index to their biggest gains this year, after International Business Machines Corp.'s earnings beat forecasts.
Europe: European stocks rose for the first time in four days, led by technology companies, after sales for SAP AG and International Business Machines Corp. topped analysts' estimates.
Asia: Asian stocks fell to a three-week low, led by shipbuilders and oil producers, after Goldman Sachs Group Inc. cut its forecasts for regional growth on expectations the U.S. will fall into recession.
Commodities: Crude oil rose for the first time in four days after the dollar fell to within a cent of its all-time low against the euro, prompting investors to buy energy and metals futures as an inflation hedge. Gold and platinum rose to records and cotton and corn surged as a declining dollar increased demand for precious metals and farm products as alternatives to stocks and bonds.
Currencies: The dollar fell to within a cent of its all-time low versus the euro on speculation U.S. interest rates will drop below those of the 15 nations that share the single European currency for the first time in three years.
Europe: European stocks rose for the first time in four days, led by technology companies, after sales for SAP AG and International Business Machines Corp. topped analysts' estimates.
Asia: Asian stocks fell to a three-week low, led by shipbuilders and oil producers, after Goldman Sachs Group Inc. cut its forecasts for regional growth on expectations the U.S. will fall into recession.
Commodities: Crude oil rose for the first time in four days after the dollar fell to within a cent of its all-time low against the euro, prompting investors to buy energy and metals futures as an inflation hedge. Gold and platinum rose to records and cotton and corn surged as a declining dollar increased demand for precious metals and farm products as alternatives to stocks and bonds.
Currencies: The dollar fell to within a cent of its all-time low versus the euro on speculation U.S. interest rates will drop below those of the 15 nations that share the single European currency for the first time in three years.
Citigroup Is Expected to Slash Dividend, Announce Write-Down
Citigroup is expected to announce a sizable dividend cut, cash infusion of at least $10 billion and write-down of as much as $20 billion in mortgage-related investments as part of its fourth-quarter earnings report, people familiar with the plans said.
Monday, January 14, 2008
Citigroup's Deal With China Development Bank May Be in Jeopardy
Citigroup Inc.'s plans to raise capital by selling a stake of about $2 billion to China Development Bank could be in jeopardy because of opposition from China's government, according to a person familiar with the situation. Citigroup is hoping to announce a capital injection from investors when it reports fourth-quarter earnings Tuesday.
Wall Street's $35 Billion Writedown Puts Squeeze on '08 Profits
By Bradley Keoun and Elizabeth Hester
Jan. 14 (Bloomberg) -- Citigroup Inc., Bank of America Corp. and Merrill Lynch & Co. may report their worst-ever quarter, beset by $35 billion of writedowns that threaten to crimp profit through 2008.
The losses have depleted the banks' capital, forcing New York-based Citigroup and Merrill to seek more than $13 billion from foreign investors, and hobbled their ability to make new loans. Other sources of fees, including credit cards, are also in jeopardy as the U.S. economy slows, said CreditSights Inc. analyst David Hendler, who estimates Citigroup, Bank of America and Merrill won't earn more this year than they did in 2006.
``The banks are already operating like they're in a recession,'' by ratcheting back on trading and lending, said Adam Compton, who helps oversee $150 billion at San Francisco- based RCM Capital, which holds shares of Citigroup, Bank of America and Merrill. ``Everybody has tightened up tremendously.''
Citigroup may report a fourth-quarter loss tomorrow of $4 billion, the first for the largest U.S. bank since its commercial real estate holdings plummeted in value during the early 1990s, according to a survey of 8 analysts by Bloomberg. The company also may announce that it received a new cash infusion of as much as $10 billion from investors in China and the Middle East, the Wall Street Journal reported on Jan. 11, citing people familiar with the matter.
Merrill, the world's biggest brokerage, probably will post a loss of $3.23 billion on Jan. 17, topping the record $2.24 billion loss reported in the third quarter, Stan O'Neal's last as chief executive officer, analysts estimate.
New CEOs
John Thain, O'Neal's replacement, may use the quarter's earnings to write down most remaining investments infected by subprime defaults, said Sandler O'Neill & Partners analyst Jeffrey Harte. Citigroup replaced CEO Charles O. ``Chuck'' Prince III with Vikram Pandit, who turns 51 today, a former investment banker with a Ph.D. in finance who has formed a dedicated task force to mitigate losses in the bank's subprime investments.
Prince, 58, resigned in early November when the bank said it might have $8 billion to $11 billion of subprime writedowns, based on a slide in prices for mortgage-related securities during October.
In a Nov. 15 interview, Thain, 52, said that in many market declines, ``asset prices tend to go much lower than they ultimately are worth, and it takes longer to work out of them than people think.''
Writedown Estimates
The loss at Citigroup may include almost $19 billion of writedowns on holdings of mortgage-related securities known as collateralized debt obligations, according to Goldman Sachs Group Inc. analyst William Tanona. Merrill was battered by $11.5 billion of writedowns, Tanona estimates.
Bank of America's fourth-quarter net income probably fell 79 percent to $1.08 billion, the biggest drop in at least a decade, according to a Bloomberg survey. Sanford C. Bernstein & Co. analyst Howard Mason estimates the bank had $5.5 billion of writedowns on mortgage-related securities.
Earnings per share would be 23 cents, the lowest since the Charlotte, North Carolina-based company was formed from the 1998 merger of BankAmerica and NationsBank, according to analysts' estimates. Citigroup was put together the same year through the combination of Travelers Group Inc. and Citicorp.
Bank of America, the second-biggest U.S. bank, increased its bet on the U.S. housing market last week when it agreed to acquire unprofitable mortgage lender Countrywide Financial Corp. of Calabasas, California, for about $4 billion.
JPMorgan's Outlook
Bank of America, led by 60-year-old CEO Ken Lewis, may face writedowns caused by the declining value of Countrywide's loan portfolio, said Sean Egan, managing director of Egan-Jones Rating Co. in Philadelphia. A 5 percent writedown on the portfolio would be more than $10 billion, or about half of Bank of America's 2006 profit of $21 billion, he said.
Even New York-based JPMorgan Chase & Co., the least damaged by the subprime losses, faces ``a challenging credit environment mired by further asset write-offs'' of $3.4 billion, Tanona wrote in a Dec. 26 report. JPMorgan's fourth-quarter earnings may drop 29 percent to $3.21 billion, the first decline in three years, analysts estimate.
JPMorgan fell 15 percent during the past 12 months in New York Stock Exchange composite trading, compared with Citigroup's 47 percent, Bank of America's 28 percent and Merrill's 43 percent.
Great Depression
Banks haven't lost this much money, in relative terms, since the Great Depression, said Richard Sylla, a professor of the history of financial institutions and markets at New York University's Stern School of Business.
U.S. banks, insurers and real-estate companies earned about $1 billion a year during the 1920s until the stock market crash of October 1929. The industry lost about $500 million in 1930, $1.7 billion in 1931, and $2 billion in 1932, Sylla said.
Within days of being inaugurated in March 1933, President Franklin Roosevelt issued an emergency order declaring a ``bank holiday'' to stem a run on deposits. About 7,000 banks, or a third of the U.S. total, failed and financial companies didn't return to profitability until 1936, Sylla said.
Last year's collapse of the subprime mortgage market was worse than the third-world debt crisis of the early 1980s, when soaring oil prices and surging interest rates pushed Mexico and other developing countries into default on their loans, said Charles Geisst, a finance professor at Manhattan College in Riverdale, New York, and author of ``100 Years of Wall Street.''
Abu Dhabi
``This is the classic credit crunch,'' Geisst said. ``It might not have gotten to credit cards, it might not have gotten to car loans, but it's coming.''
Citigroup, Bank of America and Merrill probably were profitable in 2007, earning about $23 billion on a combined basis, even after the second-half writedowns, according to Bloomberg data. The banks earned about $50 billion in 2006. They may earn $44.8 billion this year, analyst surveys by Bloomberg show.
Citigroup, which in November had to seek a $7.5 billion capital infusion from the ruling family of oil-rich Middle Eastern emirate Abu Dhabi, may have to cut shareholder dividends to maintain the capital cushion it keeps to absorb loan losses, Tanona wrote in a Dec. 26 note.
Even with the Abu Dhabi investment, Citigroup's so-called Tier 1 capital ratio, which regulators monitor to assess banks' ability to withstand loan losses, may fall to 7 percent by the end of this year, he estimated. While above the 6 percent needed to maintain its ``well-capitalized'' status from federal regulators, the capital ratio is below Citigroup's own target of 7.5 percent.
Fed Data
Bank of America's Tier 1 ratio fell to 8.22 percent in the third quarter, from 8.52 percent in the second quarter and 8.48 percent a year earlier. JPMorgan's ratio was 8.4 percent in the third quarter, down from 8.6 percent a year earlier.
The resulting tightfistedness at the banks may help push the U.S. economy toward recession, RCM's Compton said. In the third quarter, less than a tenth of U.S. bank loan officers witnessed ``substantially'' higher demand for commercial loans, down from more than 50 percent in the second quarter of 2005, CreditSights reported, citing data from the Federal Reserve.
The banks' ``willingness and ability to lend remain the leading issues for the risk and extent to which current turmoil in the financial credit markets spreads to the broader economy,'' wrote Jeffrey Rosenberg, Bank of America's senior debt-investing analyst, in a Dec. 20 report.
Loss Ratios
Profits may suffer as banks set aside higher reserves for bad loans, Sanford Bernstein's Mason wrote in a Dec. 31 report. Bank of America's net loss ratio on commercial loans this year may average 0.7 percent, compared with 0.42 percent in the third quarter and more than triple the rate of the fourth quarter of 2006, Mason estimated. Citigroup's losses on credit-card loans may climb to $7.6 billion this year from $6.4 billion last year and $5.8 billion in 2006.
``A lot of these banks have large consumer portfolios in addition to the subprime side,'' said Malcolm Polley, who helps oversee $1 billion at Stewart Capital Advisors in Pittsburgh, including Bank of America shares. ``As we sink closer to recession, consumer delinquencies are going to tick up.''
U.S. construction loans that were 30 days to 89 days overdue represented 0.7 percent of those outstanding in the third quarter, more than double the rate of a year earlier, according to analysts at Arlington, Virginia-based Friedman, Billings, Ramsey & Co. Delinquent commercial loans climbed to 0.36 percent from 0.3 percent in the same period.
Default Rates
The default rate on U.S. junk-grade corporate loans may reach 2 percent to 3 percent this year, compared with about 0.9 percent in 2007, according to Bank of America's Rosenberg.
``Credit deterioration will continue to pressure industry valuations well into 2008,'' Friedman Billings analysts James Abbott, David Rochester and Scott Cottrell wrote in the Jan. 3 report. ``Even modest upticks in delinquencies can drive lower returns.''
The banks misjudged how bad the home-loan market would get, and they accumulated more than $100 billion of AAA-rated securities they thought were safe. This quarter's writedowns may acknowledge that prices for mortgage bonds and collateralized debt obligations, which repackage assets such as buyout loans and mortgage bonds into new debt with varying risks, probably won't recover anytime soon, RCM's Compton said.
Asset Markdowns
Under U.S. accounting rules, banks and other financial firms have to take losses to ``mark'' the value of tradeable securities to current market prices. Morgan Stanley marked down some AAA-rated securities last month to as little as 30 cents on the dollar, while Zurich-based UBS AG, Switzerland's biggest bank, took marks as low as 22 cents, Credit Suisse analyst Susan Roth Katzke said in a Jan. 3 report.
Any holdings remaining after the fourth quarter may have to be written down further, said Andrew Seibert, who helps oversee $400 million at Nextier Wealth Management in Pittsburgh. He sold his bank stocks during the first half of 2007. Even after writing down subprime holdings by $11.5 billion in the fourth quarter, Merrill would have about $8 billion left, Tanona said.
``I don't think these guys actually know the total of the losses they have on the books,'' Seibert said. ``They're still digging through it all trying to figure out what's there.''
Jan. 14 (Bloomberg) -- Citigroup Inc., Bank of America Corp. and Merrill Lynch & Co. may report their worst-ever quarter, beset by $35 billion of writedowns that threaten to crimp profit through 2008.
The losses have depleted the banks' capital, forcing New York-based Citigroup and Merrill to seek more than $13 billion from foreign investors, and hobbled their ability to make new loans. Other sources of fees, including credit cards, are also in jeopardy as the U.S. economy slows, said CreditSights Inc. analyst David Hendler, who estimates Citigroup, Bank of America and Merrill won't earn more this year than they did in 2006.
``The banks are already operating like they're in a recession,'' by ratcheting back on trading and lending, said Adam Compton, who helps oversee $150 billion at San Francisco- based RCM Capital, which holds shares of Citigroup, Bank of America and Merrill. ``Everybody has tightened up tremendously.''
Citigroup may report a fourth-quarter loss tomorrow of $4 billion, the first for the largest U.S. bank since its commercial real estate holdings plummeted in value during the early 1990s, according to a survey of 8 analysts by Bloomberg. The company also may announce that it received a new cash infusion of as much as $10 billion from investors in China and the Middle East, the Wall Street Journal reported on Jan. 11, citing people familiar with the matter.
Merrill, the world's biggest brokerage, probably will post a loss of $3.23 billion on Jan. 17, topping the record $2.24 billion loss reported in the third quarter, Stan O'Neal's last as chief executive officer, analysts estimate.
New CEOs
John Thain, O'Neal's replacement, may use the quarter's earnings to write down most remaining investments infected by subprime defaults, said Sandler O'Neill & Partners analyst Jeffrey Harte. Citigroup replaced CEO Charles O. ``Chuck'' Prince III with Vikram Pandit, who turns 51 today, a former investment banker with a Ph.D. in finance who has formed a dedicated task force to mitigate losses in the bank's subprime investments.
Prince, 58, resigned in early November when the bank said it might have $8 billion to $11 billion of subprime writedowns, based on a slide in prices for mortgage-related securities during October.
In a Nov. 15 interview, Thain, 52, said that in many market declines, ``asset prices tend to go much lower than they ultimately are worth, and it takes longer to work out of them than people think.''
Writedown Estimates
The loss at Citigroup may include almost $19 billion of writedowns on holdings of mortgage-related securities known as collateralized debt obligations, according to Goldman Sachs Group Inc. analyst William Tanona. Merrill was battered by $11.5 billion of writedowns, Tanona estimates.
Bank of America's fourth-quarter net income probably fell 79 percent to $1.08 billion, the biggest drop in at least a decade, according to a Bloomberg survey. Sanford C. Bernstein & Co. analyst Howard Mason estimates the bank had $5.5 billion of writedowns on mortgage-related securities.
Earnings per share would be 23 cents, the lowest since the Charlotte, North Carolina-based company was formed from the 1998 merger of BankAmerica and NationsBank, according to analysts' estimates. Citigroup was put together the same year through the combination of Travelers Group Inc. and Citicorp.
Bank of America, the second-biggest U.S. bank, increased its bet on the U.S. housing market last week when it agreed to acquire unprofitable mortgage lender Countrywide Financial Corp. of Calabasas, California, for about $4 billion.
JPMorgan's Outlook
Bank of America, led by 60-year-old CEO Ken Lewis, may face writedowns caused by the declining value of Countrywide's loan portfolio, said Sean Egan, managing director of Egan-Jones Rating Co. in Philadelphia. A 5 percent writedown on the portfolio would be more than $10 billion, or about half of Bank of America's 2006 profit of $21 billion, he said.
Even New York-based JPMorgan Chase & Co., the least damaged by the subprime losses, faces ``a challenging credit environment mired by further asset write-offs'' of $3.4 billion, Tanona wrote in a Dec. 26 report. JPMorgan's fourth-quarter earnings may drop 29 percent to $3.21 billion, the first decline in three years, analysts estimate.
JPMorgan fell 15 percent during the past 12 months in New York Stock Exchange composite trading, compared with Citigroup's 47 percent, Bank of America's 28 percent and Merrill's 43 percent.
Great Depression
Banks haven't lost this much money, in relative terms, since the Great Depression, said Richard Sylla, a professor of the history of financial institutions and markets at New York University's Stern School of Business.
U.S. banks, insurers and real-estate companies earned about $1 billion a year during the 1920s until the stock market crash of October 1929. The industry lost about $500 million in 1930, $1.7 billion in 1931, and $2 billion in 1932, Sylla said.
Within days of being inaugurated in March 1933, President Franklin Roosevelt issued an emergency order declaring a ``bank holiday'' to stem a run on deposits. About 7,000 banks, or a third of the U.S. total, failed and financial companies didn't return to profitability until 1936, Sylla said.
Last year's collapse of the subprime mortgage market was worse than the third-world debt crisis of the early 1980s, when soaring oil prices and surging interest rates pushed Mexico and other developing countries into default on their loans, said Charles Geisst, a finance professor at Manhattan College in Riverdale, New York, and author of ``100 Years of Wall Street.''
Abu Dhabi
``This is the classic credit crunch,'' Geisst said. ``It might not have gotten to credit cards, it might not have gotten to car loans, but it's coming.''
Citigroup, Bank of America and Merrill probably were profitable in 2007, earning about $23 billion on a combined basis, even after the second-half writedowns, according to Bloomberg data. The banks earned about $50 billion in 2006. They may earn $44.8 billion this year, analyst surveys by Bloomberg show.
Citigroup, which in November had to seek a $7.5 billion capital infusion from the ruling family of oil-rich Middle Eastern emirate Abu Dhabi, may have to cut shareholder dividends to maintain the capital cushion it keeps to absorb loan losses, Tanona wrote in a Dec. 26 note.
Even with the Abu Dhabi investment, Citigroup's so-called Tier 1 capital ratio, which regulators monitor to assess banks' ability to withstand loan losses, may fall to 7 percent by the end of this year, he estimated. While above the 6 percent needed to maintain its ``well-capitalized'' status from federal regulators, the capital ratio is below Citigroup's own target of 7.5 percent.
Fed Data
Bank of America's Tier 1 ratio fell to 8.22 percent in the third quarter, from 8.52 percent in the second quarter and 8.48 percent a year earlier. JPMorgan's ratio was 8.4 percent in the third quarter, down from 8.6 percent a year earlier.
The resulting tightfistedness at the banks may help push the U.S. economy toward recession, RCM's Compton said. In the third quarter, less than a tenth of U.S. bank loan officers witnessed ``substantially'' higher demand for commercial loans, down from more than 50 percent in the second quarter of 2005, CreditSights reported, citing data from the Federal Reserve.
The banks' ``willingness and ability to lend remain the leading issues for the risk and extent to which current turmoil in the financial credit markets spreads to the broader economy,'' wrote Jeffrey Rosenberg, Bank of America's senior debt-investing analyst, in a Dec. 20 report.
Loss Ratios
Profits may suffer as banks set aside higher reserves for bad loans, Sanford Bernstein's Mason wrote in a Dec. 31 report. Bank of America's net loss ratio on commercial loans this year may average 0.7 percent, compared with 0.42 percent in the third quarter and more than triple the rate of the fourth quarter of 2006, Mason estimated. Citigroup's losses on credit-card loans may climb to $7.6 billion this year from $6.4 billion last year and $5.8 billion in 2006.
``A lot of these banks have large consumer portfolios in addition to the subprime side,'' said Malcolm Polley, who helps oversee $1 billion at Stewart Capital Advisors in Pittsburgh, including Bank of America shares. ``As we sink closer to recession, consumer delinquencies are going to tick up.''
U.S. construction loans that were 30 days to 89 days overdue represented 0.7 percent of those outstanding in the third quarter, more than double the rate of a year earlier, according to analysts at Arlington, Virginia-based Friedman, Billings, Ramsey & Co. Delinquent commercial loans climbed to 0.36 percent from 0.3 percent in the same period.
Default Rates
The default rate on U.S. junk-grade corporate loans may reach 2 percent to 3 percent this year, compared with about 0.9 percent in 2007, according to Bank of America's Rosenberg.
``Credit deterioration will continue to pressure industry valuations well into 2008,'' Friedman Billings analysts James Abbott, David Rochester and Scott Cottrell wrote in the Jan. 3 report. ``Even modest upticks in delinquencies can drive lower returns.''
The banks misjudged how bad the home-loan market would get, and they accumulated more than $100 billion of AAA-rated securities they thought were safe. This quarter's writedowns may acknowledge that prices for mortgage bonds and collateralized debt obligations, which repackage assets such as buyout loans and mortgage bonds into new debt with varying risks, probably won't recover anytime soon, RCM's Compton said.
Asset Markdowns
Under U.S. accounting rules, banks and other financial firms have to take losses to ``mark'' the value of tradeable securities to current market prices. Morgan Stanley marked down some AAA-rated securities last month to as little as 30 cents on the dollar, while Zurich-based UBS AG, Switzerland's biggest bank, took marks as low as 22 cents, Credit Suisse analyst Susan Roth Katzke said in a Jan. 3 report.
Any holdings remaining after the fourth quarter may have to be written down further, said Andrew Seibert, who helps oversee $400 million at Nextier Wealth Management in Pittsburgh. He sold his bank stocks during the first half of 2007. Even after writing down subprime holdings by $11.5 billion in the fourth quarter, Merrill would have about $8 billion left, Tanona said.
``I don't think these guys actually know the total of the losses they have on the books,'' Seibert said. ``They're still digging through it all trying to figure out what's there.''
Oil Trades Near 3-Week Low as Slowing Economies May Cut Demand
By Gavin Evans
Jan. 14 (Bloomberg) -- Crude oil traded near a three-week low in New York on concern slowing global economic growth will trim demand.
Oil dropped 5.3 percent last week as U.S. stocks posted their longest losing streak since August and reports from China, the world's second-biggest energy consumer, showed rising interest rates slowed growth in exports and money supply last month. A U.S. Commerce Department report tomorrow will probably show retail sales growth stalled last month.
``With the stock market falling, it's really very hard to make much of an argument that there's going to be enough demand further out'' to support prices, said Rowan Menzies, strategist at Commodity Warrants Australia Pty in Sydney.
Crude oil for February delivery was at $92.67 a barrel, down 2 cents, in after-hours electronic trading on the New York Mercantile Exchange at 10:55 a.m. in Singapore.
The contract fell $1.02, or 1.1 percent, to $92.69 on Jan. 11, the lowest close since Dec. 20. Prices today are 7.4 percent lower than the record $100.09 a barrel reached on Jan. 3.
Brent crude for February settlement traded at $91.21 a barrel, up 14 cents, on London's ICE Futures Europe exchange at 10:53 a.m. Singapore time. On Jan. 11, the contract fell $1.15, or 1.3 percent, to close at $91.07 a barrel.
Oil Consumers
The U.S., China and Japan, the three biggest oil consumers, are responsible for almost 40 percent of global demand. Last week, Goldman Sachs Group Inc. said the U.S. and Japan are at risk of recession.
While the demand outlook is poor, near-term prices are likely to be supported by the weak U.S. dollar and a flow of investment into rising commodities, Menzies said.
``There just seems to be an enormous amount of fresh capital to allocate into these markets,'' he said.
Hedge fund managers and other large speculators have increased their bets on rising oil prices the past three weeks, according to U.S. Commodity Futures Trading Commission data.
The net-long position in New York oil futures, the difference between contracts to buy and sell the commodity, rose 9 percent to 94,923 contracts in the week ended Jan. 8, the commission said last week.
Open interest in oil contracts reached 1.41 million contracts the same date, the highest since mid-November.
Jan. 14 (Bloomberg) -- Crude oil traded near a three-week low in New York on concern slowing global economic growth will trim demand.
Oil dropped 5.3 percent last week as U.S. stocks posted their longest losing streak since August and reports from China, the world's second-biggest energy consumer, showed rising interest rates slowed growth in exports and money supply last month. A U.S. Commerce Department report tomorrow will probably show retail sales growth stalled last month.
``With the stock market falling, it's really very hard to make much of an argument that there's going to be enough demand further out'' to support prices, said Rowan Menzies, strategist at Commodity Warrants Australia Pty in Sydney.
Crude oil for February delivery was at $92.67 a barrel, down 2 cents, in after-hours electronic trading on the New York Mercantile Exchange at 10:55 a.m. in Singapore.
The contract fell $1.02, or 1.1 percent, to $92.69 on Jan. 11, the lowest close since Dec. 20. Prices today are 7.4 percent lower than the record $100.09 a barrel reached on Jan. 3.
Brent crude for February settlement traded at $91.21 a barrel, up 14 cents, on London's ICE Futures Europe exchange at 10:53 a.m. Singapore time. On Jan. 11, the contract fell $1.15, or 1.3 percent, to close at $91.07 a barrel.
Oil Consumers
The U.S., China and Japan, the three biggest oil consumers, are responsible for almost 40 percent of global demand. Last week, Goldman Sachs Group Inc. said the U.S. and Japan are at risk of recession.
While the demand outlook is poor, near-term prices are likely to be supported by the weak U.S. dollar and a flow of investment into rising commodities, Menzies said.
``There just seems to be an enormous amount of fresh capital to allocate into these markets,'' he said.
Hedge fund managers and other large speculators have increased their bets on rising oil prices the past three weeks, according to U.S. Commodity Futures Trading Commission data.
The net-long position in New York oil futures, the difference between contracts to buy and sell the commodity, rose 9 percent to 94,923 contracts in the week ended Jan. 8, the commission said last week.
Open interest in oil contracts reached 1.41 million contracts the same date, the highest since mid-November.
Goldman Sachs Cuts Asia Growth Forecast on Slowing U.S. Economy
By Shamim Adam
Jan. 14 (Bloomberg) -- An expected recession in the U.S. this year will curb economic growth in Asia excluding Japan, according to Goldman Sachs Group Inc., which reduced its forecasts for the region's expansion.
The economies will grow 8.3 percent in 2008, down from an earlier estimate of 8.6 percent, Hong Kong-based economist Michael Buchanan said in a report today. Next year's growth will be 8.5 percent, compared with a prior prediction of 8.6 percent.
Goldman Sachs last week joined Morgan Stanley and Merrill Lynch & Co. in forecasting that the world's largest economy will slip into recession this year for the first time since 2001 amid fallout from the subprime mortgage crisis. The U.S. is the biggest market for most of Asia's export-dependent economies.
``There could be a `tipping point' at which the U.S. slowdown has a more significant impact on Asia than before,'' Buchanan wrote. ``The further deterioration in the U.S. economy comes as Japan is also teetering on the edge of recession.''
Goldman is predicting a 50 percent chance of a recession in Japan, the world's second-largest economy. It lowered its growth forecasts for all 10 Asian economies that it covered in the report, including reductions to China and India.
East Asia's exports are forecast to climb 15.2 percent this year, after jumping 17.8 percent in 2007, the World Bank said in its Global Economic Prospects 2008 report released last week.
The region is almost twice as reliant on exports as the rest of the world, with 60 percent of shipments abroad ultimately destined for the U.S., Europe and Japan.
China will expand 10 percent this year, from an earlier forecast of 10.3 percent, Goldman predicted. It cut Indian's growth estimate to 7.8 percent from 8 percent.
``Overall, these forecast reductions are meaningful but not disastrous,'' Buchanan said. ``The impact on currencies is in general likely to be contained, although equity markets could be in for more volatility.''
Jan. 14 (Bloomberg) -- An expected recession in the U.S. this year will curb economic growth in Asia excluding Japan, according to Goldman Sachs Group Inc., which reduced its forecasts for the region's expansion.
The economies will grow 8.3 percent in 2008, down from an earlier estimate of 8.6 percent, Hong Kong-based economist Michael Buchanan said in a report today. Next year's growth will be 8.5 percent, compared with a prior prediction of 8.6 percent.
Goldman Sachs last week joined Morgan Stanley and Merrill Lynch & Co. in forecasting that the world's largest economy will slip into recession this year for the first time since 2001 amid fallout from the subprime mortgage crisis. The U.S. is the biggest market for most of Asia's export-dependent economies.
``There could be a `tipping point' at which the U.S. slowdown has a more significant impact on Asia than before,'' Buchanan wrote. ``The further deterioration in the U.S. economy comes as Japan is also teetering on the edge of recession.''
Goldman is predicting a 50 percent chance of a recession in Japan, the world's second-largest economy. It lowered its growth forecasts for all 10 Asian economies that it covered in the report, including reductions to China and India.
East Asia's exports are forecast to climb 15.2 percent this year, after jumping 17.8 percent in 2007, the World Bank said in its Global Economic Prospects 2008 report released last week.
The region is almost twice as reliant on exports as the rest of the world, with 60 percent of shipments abroad ultimately destined for the U.S., Europe and Japan.
China will expand 10 percent this year, from an earlier forecast of 10.3 percent, Goldman predicted. It cut Indian's growth estimate to 7.8 percent from 8 percent.
``Overall, these forecast reductions are meaningful but not disastrous,'' Buchanan said. ``The impact on currencies is in general likely to be contained, although equity markets could be in for more volatility.''
Hang Seng may see rebound in afternoon trading...
Broke downtrend resistance of 26844.32 on 5 min chart.
Watch out for rebound.
Get ready my bullets to short at high price later on Uniasia, ChinaAElec and China HongXing.
Missed the first 2 counters earlier when they are coming down, due to slow response of CFD.
Cannot miss them this time.
Watch out for rebound.
Get ready my bullets to short at high price later on Uniasia, ChinaAElec and China HongXing.
Missed the first 2 counters earlier when they are coming down, due to slow response of CFD.
Cannot miss them this time.
Friday, January 11, 2008
Commodities daily 11th Jan 2008
Spotlight: Crude oil fell for the first time in more than two weeks after Goldman Sachs said Japan is at risk of recession. Cotton dropped the most since August on slowing U.S. exports. Cocoa closed at the highest price since February 2003. Gold rose to a new record high, silver advances to the highest in 27 years. Copper fell.
Energy: Crude oil fell below $94 fort the first time in more than two weeks after Goldman Sachs Group said Japan is at risk of recession, cutting energy consumption. JPMorgan raised its 2008 oil prices forecast by 12 percent to $76.50 a barrel on expectations investments in commodities will increase.
Agriculture: Wheat fell on speculation that a government report will show U.S. farmers planted more than forecast to benefit from a three-year rally that drove pries to a record. Besides, corn fell the most this month as U.S. farmers increased sales of last year’s record harvest to profit from the highest prices for Chicago futures in 11 years. Notably. Soybeans also fell on signs that a price rally to a 34-year high is reducing overseas demand for U.S. supplies.
Precious Metals: Gold rose to a record high of $893.60 an ounce in New York, and silver reached the highest in 27 years to $16.275 an ounce as the slumping dollar boosted the appeal of precious metals as alternative investments. Besides, demand for Platinum surged after Federal Reserve Chairman Ben S. Bernanke suggested more interest-rate cuts may be made. However, Palladium falls.
Industrial Metals: Copper fell for a second straight day on speculation that declining consumption will lead to a surplus of the metal used.
(Source: Bloomberg)
Energy: Crude oil fell below $94 fort the first time in more than two weeks after Goldman Sachs Group said Japan is at risk of recession, cutting energy consumption. JPMorgan raised its 2008 oil prices forecast by 12 percent to $76.50 a barrel on expectations investments in commodities will increase.
Agriculture: Wheat fell on speculation that a government report will show U.S. farmers planted more than forecast to benefit from a three-year rally that drove pries to a record. Besides, corn fell the most this month as U.S. farmers increased sales of last year’s record harvest to profit from the highest prices for Chicago futures in 11 years. Notably. Soybeans also fell on signs that a price rally to a 34-year high is reducing overseas demand for U.S. supplies.
Precious Metals: Gold rose to a record high of $893.60 an ounce in New York, and silver reached the highest in 27 years to $16.275 an ounce as the slumping dollar boosted the appeal of precious metals as alternative investments. Besides, demand for Platinum surged after Federal Reserve Chairman Ben S. Bernanke suggested more interest-rate cuts may be made. However, Palladium falls.
Industrial Metals: Copper fell for a second straight day on speculation that declining consumption will lead to a surplus of the metal used.
(Source: Bloomberg)
Market Highlights 11th Jan 2008
US: U.S. stocks posted their first back-to-back gains of the year after Federal Reserve Chairman Ben S. Bernanke signaled he may cut interest rates further and investors speculated Countrywide Financial Corp. will be bought.
Europe: European stocks declined for the sixth time in seven days, led by chemical makers, metal producers and engineering companies, on speculation inflation may keep central banks from cutting interest rates.
Asia: Asian stocks fell for the first time in three days, led by developers and banks, on concern U.S. credit-market losses will spread.
Commodities: Crude oil fell below $94 for the first time in more than two weeks after Goldman Sachs Group Inc. said Japan is at risk of recession, cutting energy consumption. Gold rose to a record, and silver reached the highest in 27 years as the slumping dollar boosted the appeal of precious metals as alternative investments.
Currencies: The dollar fell the most against the euro in almost two months after Federal Reserve Chairman Ben S. Bernanke signaled the central bank may cut borrowing costs this month to offset ``downside risks'' to U.S. economic expansion.
Source: Bloomberg
Europe: European stocks declined for the sixth time in seven days, led by chemical makers, metal producers and engineering companies, on speculation inflation may keep central banks from cutting interest rates.
Asia: Asian stocks fell for the first time in three days, led by developers and banks, on concern U.S. credit-market losses will spread.
Commodities: Crude oil fell below $94 for the first time in more than two weeks after Goldman Sachs Group Inc. said Japan is at risk of recession, cutting energy consumption. Gold rose to a record, and silver reached the highest in 27 years as the slumping dollar boosted the appeal of precious metals as alternative investments.
Currencies: The dollar fell the most against the euro in almost two months after Federal Reserve Chairman Ben S. Bernanke signaled the central bank may cut borrowing costs this month to offset ``downside risks'' to U.S. economic expansion.
Source: Bloomberg
Gold Reaches Record, Silver 27-Year High on Declining Dollar
By Glenys Sim
Jan. 11 (Bloomberg) -- Gold rose to a record and silver matched its highest level since 1980 as a weakening dollar increased the allure of the metals as alternative investments.
The dollar was headed for a third weekly loss against the euro on bets benchmark borrowing costs in the U.S. will fall below those in Europe for the first time in more than three years this month. The currency declined after Federal Reserve Chairman Ben S. Bernanke suggested policy makers will have to cut interest rates to counter risks to the economy.
``The lift in the gold price followed a softening of the U.S. dollar against major currencies, after both the Bank of England and the ECB decided to leave interest rates unchanged,'' David Moore, a commodity strategist at Commonwealth Bank of Australia, said by e-mail from Sydney.
Gold climbed 31 percent in 2007, its seventh straight year of gains and the longest rally since at least the end of World War II. Prices soared as record oil costs drove up inflation and supplies from South Africa, the world's biggest producer, dropped to the lowest in 84 years.
Investors are switching to gold because of credit market turmoil. The market for collateralized debt obligations, loans packaged into new securities, dried up after surging subprime mortgage defaults led to rating downgrades and convinced many investors to buy only the safest debt.
The world's biggest financial institutions have written off about $100 billion in subprime losses.
More Gains
Bullion for immediate delivery climbed as much as $4.60, or 0.5 percent, to a record $897.90 an ounce today, and traded at $891.22 at 10:02 a.m. Singapore time.
Gold for February delivery rose as much as $6.30, or 0.7 percent, to $899.90 an ounce in after-hours trading on the Comex division of the New York Mercantile Exchange, its highest ever. The contract traded at $893.10 an ounce at the same time.
The $900 level for gold is a psychological round number that investors are aiming for, said Burg.
``We may see some selling as it approaches $900, which may bring prices back down, but gold definitely has the potential to cross that mark on the euro-dollar relationship, a weakening U.S. economy and oil prices,'' he said.
Rising energy costs have fueled the rally as the metal is traditionally viewed as a hedge against inflation, Gerard Burg, minerals and energy consultant at National Australia Bank Ltd., said by phone from Melbourne.
Oil Prices
Oil rose 59 cents, or 0.6 percent, to $94.30 a barrel in after-hours trading on the New York Mercantile Exchange at 10:03 a.m. in Singapore. The dollar fell the most against the euro in almost two months yesterday and traded at $1.4790 per euro at 10:05 a.m. in Singapore after $1.4804 late yesterday in New York.
Silver for immediate delivery rose as much as 10 cents, or 0.6 percent, to $16.24 an ounce, to match its highest level since December 1980, according to Bloomberg data. The metal traded at $16.13 an ounce at 10:05 a.m. in Singapore.
Jan. 11 (Bloomberg) -- Gold rose to a record and silver matched its highest level since 1980 as a weakening dollar increased the allure of the metals as alternative investments.
The dollar was headed for a third weekly loss against the euro on bets benchmark borrowing costs in the U.S. will fall below those in Europe for the first time in more than three years this month. The currency declined after Federal Reserve Chairman Ben S. Bernanke suggested policy makers will have to cut interest rates to counter risks to the economy.
``The lift in the gold price followed a softening of the U.S. dollar against major currencies, after both the Bank of England and the ECB decided to leave interest rates unchanged,'' David Moore, a commodity strategist at Commonwealth Bank of Australia, said by e-mail from Sydney.
Gold climbed 31 percent in 2007, its seventh straight year of gains and the longest rally since at least the end of World War II. Prices soared as record oil costs drove up inflation and supplies from South Africa, the world's biggest producer, dropped to the lowest in 84 years.
Investors are switching to gold because of credit market turmoil. The market for collateralized debt obligations, loans packaged into new securities, dried up after surging subprime mortgage defaults led to rating downgrades and convinced many investors to buy only the safest debt.
The world's biggest financial institutions have written off about $100 billion in subprime losses.
More Gains
Bullion for immediate delivery climbed as much as $4.60, or 0.5 percent, to a record $897.90 an ounce today, and traded at $891.22 at 10:02 a.m. Singapore time.
Gold for February delivery rose as much as $6.30, or 0.7 percent, to $899.90 an ounce in after-hours trading on the Comex division of the New York Mercantile Exchange, its highest ever. The contract traded at $893.10 an ounce at the same time.
The $900 level for gold is a psychological round number that investors are aiming for, said Burg.
``We may see some selling as it approaches $900, which may bring prices back down, but gold definitely has the potential to cross that mark on the euro-dollar relationship, a weakening U.S. economy and oil prices,'' he said.
Rising energy costs have fueled the rally as the metal is traditionally viewed as a hedge against inflation, Gerard Burg, minerals and energy consultant at National Australia Bank Ltd., said by phone from Melbourne.
Oil Prices
Oil rose 59 cents, or 0.6 percent, to $94.30 a barrel in after-hours trading on the New York Mercantile Exchange at 10:03 a.m. in Singapore. The dollar fell the most against the euro in almost two months yesterday and traded at $1.4790 per euro at 10:05 a.m. in Singapore after $1.4804 late yesterday in New York.
Silver for immediate delivery rose as much as 10 cents, or 0.6 percent, to $16.24 an ounce, to match its highest level since December 1980, according to Bloomberg data. The metal traded at $16.13 an ounce at 10:05 a.m. in Singapore.
Crude Oil Rises in New York on Threats of Attacks in Nigeria
By Angela Macdonald-Smith
Jan. 11 (Bloomberg) -- Crude oil rose for the first day in three in New York on heightened concern about the threat of attacks on facilities in Nigeria that may cut supplies from Africa's biggest producer.
The Movement for the Emancipation of the Niger Delta yesterday threatened fresh assaults after claiming it backed fighters that attacked oil vessels the previous day. Militant action has halted as much as 20 percent of the nation's crude production since early 2006.
``It looks as if Nigeria is warming up again,'' said Rowan Menzies, a commodity market analyst at Commodity Warrants Australia Pty in Sydney. ``The militants are angry their wealth is being taken away, and if oil has doubled in price in the last year maybe they're twice as angry.''
Crude oil for February delivery rose as much as 62 cents, or 0.7 percent, to $94.33 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $94.23 at 8:20 a.m. in Singapore.
Yesterday prices fell $1.96, or 2.1 percent, to $93.71 a barrel, falling below $94 for the first time in two weeks after Goldman Sachs Group Inc. said Japan is at risk of recession. Futures reached a record $100.09 a barrel on Jan. 3. Prices are up 82 percent from a year ago.
Brent crude for February settlement yesterday fell $2.15, or 2.3 percent, to $92.22 a barrel on London's ICE Futures Europe exchange, the lowest close since Dec. 20. Futures touched $98.50 on Jan. 3, the highest intraday price since trading began in 1988.
While a slowdown in economic growth could hurt demand, it could also spur investment in commodities as a hedge against inflation and a weak dollar, JPMorgan analyst Katherine Spector said in a report in which she raised her 2008 oil forecast by 12 percent to $76.50 a barrel.
``One lingering risk to our view is that investor allocations to commodities broadly and oil specifically could exceed expectations,'' Spector said in the Jan. 9 report.
Jan. 11 (Bloomberg) -- Crude oil rose for the first day in three in New York on heightened concern about the threat of attacks on facilities in Nigeria that may cut supplies from Africa's biggest producer.
The Movement for the Emancipation of the Niger Delta yesterday threatened fresh assaults after claiming it backed fighters that attacked oil vessels the previous day. Militant action has halted as much as 20 percent of the nation's crude production since early 2006.
``It looks as if Nigeria is warming up again,'' said Rowan Menzies, a commodity market analyst at Commodity Warrants Australia Pty in Sydney. ``The militants are angry their wealth is being taken away, and if oil has doubled in price in the last year maybe they're twice as angry.''
Crude oil for February delivery rose as much as 62 cents, or 0.7 percent, to $94.33 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $94.23 at 8:20 a.m. in Singapore.
Yesterday prices fell $1.96, or 2.1 percent, to $93.71 a barrel, falling below $94 for the first time in two weeks after Goldman Sachs Group Inc. said Japan is at risk of recession. Futures reached a record $100.09 a barrel on Jan. 3. Prices are up 82 percent from a year ago.
Brent crude for February settlement yesterday fell $2.15, or 2.3 percent, to $92.22 a barrel on London's ICE Futures Europe exchange, the lowest close since Dec. 20. Futures touched $98.50 on Jan. 3, the highest intraday price since trading began in 1988.
While a slowdown in economic growth could hurt demand, it could also spur investment in commodities as a hedge against inflation and a weak dollar, JPMorgan analyst Katherine Spector said in a report in which she raised her 2008 oil forecast by 12 percent to $76.50 a barrel.
``One lingering risk to our view is that investor allocations to commodities broadly and oil specifically could exceed expectations,'' Spector said in the Jan. 9 report.
Bernanke Says More Interest-Rate Cuts May Be Needed (Update)
By Craig Torres and Scott Lanman
(Bloomberg) -- Federal Reserve Board Chairman Ben S. Bernanke said more interest-rate cuts ``may well be necessary'' after 1 percentage point of reductions since September to buttress economic growth.
``We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks,'' Bernanke said today in his first speech on the economy since the Fed's Dec. 11 meeting. Recent figures suggested the outlook for ``2008 has worsened and the downside risks to growth have become more pronounced,'' he said.
The comments increased speculation that the Federal Open Market Committee will cut its benchmark rate by half a percentage point, to 3.75 percent, this month. Wall Street analysts say the odds of a recession have increased after a report last week showed a jump in unemployment.
``A number of factors, including higher oil prices, lower equity prices, and softening home values, seem likely to weigh on consumer spending'' this year, Bernanke said in remarks to the Women in Housing and Finance and Exchequer Club in Washington.
The Fed isn't forecasting a recession, the Fed chief said in response to a question after the speech. ``We are forecasting slow growth, but there are downside risks,'' he added. ``It is important to take substantive action against those risks.''
Bigger Reduction
``From the tone of the speech, a 50-basis point cut seems likely,'' Lawrence Lindsey, a former economic adviser to President George W. Bush and ex-Fed governor, said from New York. Though it's ``unlikely'' the U.S. is in recession, Bernanke ``is quite right to take precautionary measures right now,'' he said.
The dollar extended declines and shorter-dated Treasuries rallied after Bernanke's remarks, while stocks initially rose before dropping. Yields on two-year Treasuries fell to 2.65 percent at 2:13 p.m. in New York, from 2.72 percent late yesterday. The dollar dropped 0.9 percent to $1.48 per euro.
``The committee must remain exceptionally alert and flexible, prepared to act in a decisive and timely manner and, in particular, to counter any adverse dynamics that might threaten economic or financial stability,'' Bernanke said.
Futures prices indicate the odds of a half-point rate cut on Jan. 30 jumped to 90 percent today from 76 percent yesterday and 34 percent a week ago. Futures show a 100 percent chance of at least a quarter-point reduction.
`Clear Signal'
``It is a clear signal of a changing economic forecast at the Federal Reserve,'' said Richard Hoey, chief economist at Bank of New York Mellon Corp.
The FOMC has cut the benchmark rate 1 percentage point to 4.25 percent since September to offset the drag from tighter lending conditions and prolonged housing slump.
Goldman Sachs Group Inc. economists yesterday predicted the Fed will lower the rate to 2.5 percent by year-end. The bank joined Merrill Lynch & Co. and Morgan Stanley in projecting a recession.
Residential investment has declined for seven consecutive quarters, and Fed officials say it may take at least six more months before housing markets turn. Delinquency rates on subprime mortgages climbed to 16.3 percent in the third quarter, the highest in at least a decade.
``The demand for housing seems to have weakened further, in part reflecting ongoing problems in mortgage markets,'' Bernanke said. ``We also see considerable evidence that banks have come more restrictive in their lending to firms and households.''
Unemployment Rises
Payrolls rose by 18,000 last month, capping the worst year for job creation since 2003. The unemployment rate rose to 5 percent from 4.7 percent the previous month.
Bernanke called the December jobs report ``disappointing,'' while cautioning that it would be ``a mistake to read too much into any one report.''
``However, should the labor market deteriorate, the risks to consumer spending would rise,'' he added.
Bernanke said the Fed's new tool to alleviate bank funding strains may be made permanent. The Fed last month introduced the so-called Term Auction Facility to auction funds to banks beyond the overnight horizon in the federal funds market. The central bank sold $40 billion in two auctions last month and plans $60 billion in two operations in January.
The TAF may ``become a useful permanent addition to the Fed's toolbox,'' Bernanke said. He also said the TAF operations and the ``passage'' of a jump in year-end funding demands caused financial strains to ease ``significantly,'' though spreads remain above the levels before August.
Inflation Pressure
The Fed chairman said higher oil costs were likely to lift inflation measures, including those excluding food and fuel.
The Fed's preferred gauge of consumer prices rose 2.2 percent in November from a year before, the most since March.
Inflation expectations measured by yield differences on 10- year Treasuries and government inflation-indexed bonds have remained between 2.2 percent and 2.4 percent over the past year, a sign that investors have confidence the central bank will maintain price stability.
``Any tendency of inflation expectations to become unmoored or for the Fed's inflation-fighting credibility to be eroded could greatly complicate the task of sustaining price stability and reduce the central bank's policy flexibility to counter shortfalls in growth in the future,'' Bernanke said.
Fed officials predict the personal consumption expenditures price index, minus food and energy, to rise 1.7 percent to 1.9 percent this year. Crude oil futures reached a record $100.09 barrel on Jan. 3. Oil prices are up 72 percent from a year ago.
(Bloomberg) -- Federal Reserve Board Chairman Ben S. Bernanke said more interest-rate cuts ``may well be necessary'' after 1 percentage point of reductions since September to buttress economic growth.
``We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks,'' Bernanke said today in his first speech on the economy since the Fed's Dec. 11 meeting. Recent figures suggested the outlook for ``2008 has worsened and the downside risks to growth have become more pronounced,'' he said.
The comments increased speculation that the Federal Open Market Committee will cut its benchmark rate by half a percentage point, to 3.75 percent, this month. Wall Street analysts say the odds of a recession have increased after a report last week showed a jump in unemployment.
``A number of factors, including higher oil prices, lower equity prices, and softening home values, seem likely to weigh on consumer spending'' this year, Bernanke said in remarks to the Women in Housing and Finance and Exchequer Club in Washington.
The Fed isn't forecasting a recession, the Fed chief said in response to a question after the speech. ``We are forecasting slow growth, but there are downside risks,'' he added. ``It is important to take substantive action against those risks.''
Bigger Reduction
``From the tone of the speech, a 50-basis point cut seems likely,'' Lawrence Lindsey, a former economic adviser to President George W. Bush and ex-Fed governor, said from New York. Though it's ``unlikely'' the U.S. is in recession, Bernanke ``is quite right to take precautionary measures right now,'' he said.
The dollar extended declines and shorter-dated Treasuries rallied after Bernanke's remarks, while stocks initially rose before dropping. Yields on two-year Treasuries fell to 2.65 percent at 2:13 p.m. in New York, from 2.72 percent late yesterday. The dollar dropped 0.9 percent to $1.48 per euro.
``The committee must remain exceptionally alert and flexible, prepared to act in a decisive and timely manner and, in particular, to counter any adverse dynamics that might threaten economic or financial stability,'' Bernanke said.
Futures prices indicate the odds of a half-point rate cut on Jan. 30 jumped to 90 percent today from 76 percent yesterday and 34 percent a week ago. Futures show a 100 percent chance of at least a quarter-point reduction.
`Clear Signal'
``It is a clear signal of a changing economic forecast at the Federal Reserve,'' said Richard Hoey, chief economist at Bank of New York Mellon Corp.
The FOMC has cut the benchmark rate 1 percentage point to 4.25 percent since September to offset the drag from tighter lending conditions and prolonged housing slump.
Goldman Sachs Group Inc. economists yesterday predicted the Fed will lower the rate to 2.5 percent by year-end. The bank joined Merrill Lynch & Co. and Morgan Stanley in projecting a recession.
Residential investment has declined for seven consecutive quarters, and Fed officials say it may take at least six more months before housing markets turn. Delinquency rates on subprime mortgages climbed to 16.3 percent in the third quarter, the highest in at least a decade.
``The demand for housing seems to have weakened further, in part reflecting ongoing problems in mortgage markets,'' Bernanke said. ``We also see considerable evidence that banks have come more restrictive in their lending to firms and households.''
Unemployment Rises
Payrolls rose by 18,000 last month, capping the worst year for job creation since 2003. The unemployment rate rose to 5 percent from 4.7 percent the previous month.
Bernanke called the December jobs report ``disappointing,'' while cautioning that it would be ``a mistake to read too much into any one report.''
``However, should the labor market deteriorate, the risks to consumer spending would rise,'' he added.
Bernanke said the Fed's new tool to alleviate bank funding strains may be made permanent. The Fed last month introduced the so-called Term Auction Facility to auction funds to banks beyond the overnight horizon in the federal funds market. The central bank sold $40 billion in two auctions last month and plans $60 billion in two operations in January.
The TAF may ``become a useful permanent addition to the Fed's toolbox,'' Bernanke said. He also said the TAF operations and the ``passage'' of a jump in year-end funding demands caused financial strains to ease ``significantly,'' though spreads remain above the levels before August.
Inflation Pressure
The Fed chairman said higher oil costs were likely to lift inflation measures, including those excluding food and fuel.
The Fed's preferred gauge of consumer prices rose 2.2 percent in November from a year before, the most since March.
Inflation expectations measured by yield differences on 10- year Treasuries and government inflation-indexed bonds have remained between 2.2 percent and 2.4 percent over the past year, a sign that investors have confidence the central bank will maintain price stability.
``Any tendency of inflation expectations to become unmoored or for the Fed's inflation-fighting credibility to be eroded could greatly complicate the task of sustaining price stability and reduce the central bank's policy flexibility to counter shortfalls in growth in the future,'' Bernanke said.
Fed officials predict the personal consumption expenditures price index, minus food and energy, to rise 1.7 percent to 1.9 percent this year. Crude oil futures reached a record $100.09 barrel on Jan. 3. Oil prices are up 72 percent from a year ago.
Economic Summary 11th Jan 2008
Strong signals from Fed Chairman Bernanke that the FOMC will be cutting rates
further propelled equities into positive territory while simultaneously
boosting short-term Treasuries. Longer-term Treasuries and the dollar sold off
on the chairman's remarks.
Initial claims for unemployment insurance for the week ended January 5 fell by
a sharper-than-expected 15k to 322k. Continuing claims, while still a concern,
did turn lower. Continuing claims fell 52k in the week ended December 29 after
a combined 161k jump higher in the previous four weeks. The continuing claims
data still bear watching as their four-week average of 2.7mn is the highest
seen since mid November 2005.
Commercial paper outstanding for the week ended January 9 rose by $14.5bn, its
largest gain since late July. Asset-backed CP outstanding rose $4.8bn,
building upon a $26.3bn jump the previous week. These were the first gains in
ABCP since the subprime mortgage-related credit crisis hit full force in early
August.
Annual revisions to Philadelphia Fed index seasonal factors were released this
morning. With the new seasonals, the December index was revised up to -1.6
from -5.7. November was revised down to +7.5 from +8.2. January's Philadelphia
Fed index is scheduled for release next Thursday, January 17.
Little attention was paid to the stronger-than-expected 0.6% gain in November
wholesale inventories. The consensus forecast was +0.4%. In general, inventory
accumulation probably provided less of a boost to GDP growth in Q4 than it did
in Q3, and we forecast it will subtract from growth throughout the first half
of 2008.
In a speech today, Fed Chairman Bernanke all but announced that more easing is
on the way. The chairman, well aware that markets had already priced in
several fed funds rate cuts over the next few months, used strong language in
his prepared text that validated the markets' expectations. Moreover, he
suggested that the additional policy moves could be aggressive: "...we stand
ready to take substantive additional action as needed to support growth and to
provide adequate insurance against downside risks." Before the speech, we were
forecasting another 100bp in rate cuts by mid-year, bringing the funds target
to 3.25%. The chairman's speech raised the likelihood that the bulk of the
easing moves will be front-loaded into Q1.
Weekly reserve data showed that daily average borrowing from the discount
window in the week ended January 9 fell to $1.5bn from $5.8bn the previous
week. Borrowing on January 9 alone was $1.0bn, split between the New York and
San Francisco districts.
Economic Outlook
The December Import Price Index will be released at 8:30 on Friday (Forecast
-0.4%, Consensus +0.1%). A drop in petroleum prices in December probably
tipped the entire import price index into negative territory that month. We
estimate prices of imported goods fell 0.4% in December after their 2.7%
petroleum-related surge in November. The imported petroleum index increased by
9.8% in November, and we estimate it fell back by 2.0% in December. Excluding
all imported fuel prices, including those for natural gas, we estimate import
prices rose by 0.1% after a 0.5% jump in November.
further propelled equities into positive territory while simultaneously
boosting short-term Treasuries. Longer-term Treasuries and the dollar sold off
on the chairman's remarks.
Initial claims for unemployment insurance for the week ended January 5 fell by
a sharper-than-expected 15k to 322k. Continuing claims, while still a concern,
did turn lower. Continuing claims fell 52k in the week ended December 29 after
a combined 161k jump higher in the previous four weeks. The continuing claims
data still bear watching as their four-week average of 2.7mn is the highest
seen since mid November 2005.
Commercial paper outstanding for the week ended January 9 rose by $14.5bn, its
largest gain since late July. Asset-backed CP outstanding rose $4.8bn,
building upon a $26.3bn jump the previous week. These were the first gains in
ABCP since the subprime mortgage-related credit crisis hit full force in early
August.
Annual revisions to Philadelphia Fed index seasonal factors were released this
morning. With the new seasonals, the December index was revised up to -1.6
from -5.7. November was revised down to +7.5 from +8.2. January's Philadelphia
Fed index is scheduled for release next Thursday, January 17.
Little attention was paid to the stronger-than-expected 0.6% gain in November
wholesale inventories. The consensus forecast was +0.4%. In general, inventory
accumulation probably provided less of a boost to GDP growth in Q4 than it did
in Q3, and we forecast it will subtract from growth throughout the first half
of 2008.
In a speech today, Fed Chairman Bernanke all but announced that more easing is
on the way. The chairman, well aware that markets had already priced in
several fed funds rate cuts over the next few months, used strong language in
his prepared text that validated the markets' expectations. Moreover, he
suggested that the additional policy moves could be aggressive: "...we stand
ready to take substantive additional action as needed to support growth and to
provide adequate insurance against downside risks." Before the speech, we were
forecasting another 100bp in rate cuts by mid-year, bringing the funds target
to 3.25%. The chairman's speech raised the likelihood that the bulk of the
easing moves will be front-loaded into Q1.
Weekly reserve data showed that daily average borrowing from the discount
window in the week ended January 9 fell to $1.5bn from $5.8bn the previous
week. Borrowing on January 9 alone was $1.0bn, split between the New York and
San Francisco districts.
Economic Outlook
The December Import Price Index will be released at 8:30 on Friday (Forecast
-0.4%, Consensus +0.1%). A drop in petroleum prices in December probably
tipped the entire import price index into negative territory that month. We
estimate prices of imported goods fell 0.4% in December after their 2.7%
petroleum-related surge in November. The imported petroleum index increased by
9.8% in November, and we estimate it fell back by 2.0% in December. Excluding
all imported fuel prices, including those for natural gas, we estimate import
prices rose by 0.1% after a 0.5% jump in November.
Thursday, January 10, 2008
Bernanke May Be Forced to Lower Interest Rates by Half Point
By Scott Lanman
Jan. 10 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke may be forced to reduce interest rates by half a percentage point this month, validating investor concern that he hasn't been aggressive enough to avert recession.
Economists lowered growth forecasts and traders doubled the size of the rate cut they anticipate after reports showed a decline in manufacturing and a jump in unemployment. A cut in the benchmark rate to 3.75 percent from 4.25 percent would mean Fed officials setting aside inflation concerns from higher oil and food prices.
``In hindsight, if we're moving into a recessionary period or in one, it certainly would suggest the Fed's been too tight for too long,'' said Keith Hembre, who helps oversee $105 billion as chief economist at FAF Advisors Inc. in Minneapolis.
Bernanke, 54, will give fresh clues to the Fed's thinking today in a speech in Washington. Goldman Sachs Group Inc., JPMorgan Chase & Co. and Barclays Capital Inc. are all predicting a reduction in the main rate to 3.75 percent this month, largely because the U.S. jobless rate jumped to 5 percent in December from 4.7 percent in November.
The word ``recession'' is increasingly rolling off the tongues of prominent economists: Goldman, Merrill Lynch & Co. and Morgan Stanley are among large banks whose research teams are predicting an end to the U.S. expansion, now in its seventh year. At the same time, crude oil is trading near $100 a barrel and inflation is above the comfort level of many Fed officials.
Overcoming Reluctance
While some Fed officials may be reluctant to approve such a move, they would ``happily'' vote for it if they were convinced a recession was imminent, said Bank of America Corp. economist Peter Kretzmer, a former Fed staffer who this week predicted an even chance of a half-point or quarter-point rate cut on Jan. 30.
``They don't want to be backed into a corner by the markets,' said Stephen Cecchetti, a professor at Brandeis University in Waltham, Massachusetts, and former head of research at the Fed's New York branch. At the same time, ``why do something that's halfway? You want to make sure that consumer and business confidence doesn't tank.''
The last time Bernanke spoke, the Fed used the speech to signal a change in the central bank's views, Vice Chairman Donald Kohn said last week.
Bernanke said Nov. 29 that market ``turbulence'' had ``importantly affected'' the economic outlook. He declined to repeat the Federal Open Market Committee's October statement that inflation and growth risks were about equal.
Script Changes
The Fed then cut rates on Dec. 11, replacing its ``balance of risks'' with a line saying ``uncertainty'' had increased. Minutes of the meeting showed that Fed officials said economic growth in 2008 would fall short of their own forecasts, reflecting weaker consumer spending and a deeper housing slump.
Since the Fed met Dec. 11, reports have indicated a rising threat of recession. The unemployment rate rose 0.3 percentage point in December, a magnitude that has historically augured economic contractions. The Institute of Supply Management said Jan. 2 its index of manufacturing fell to the lowest level since April 2003.
The reports spurred traders to bet on deeper rate cuts. Futures prices indicate a 78 percent chance of a half-point move, with 100 percent odds of at least a quarter-point reduction.
``Additional evidence of a weaker economy makes a stronger case to take bolder actions than they have so far,'' said David Resler, chief economist at Nomura Securities International Inc. in New York. He forecasts a 3.5 percent federal funds rate by the end of March. ``Conditions have changed more than the Fed may have expected.''
Risks to Growth
Four Fed officials so far this week flagged risks to economic growth, without directly indicating their preference for this month's rate decision.
Prospects of a recession might not be the only problem for the Fed. When officials come to the next meeting on Jan. 29-30 with revised forecasts, the second iteration of the Fed's expanded quarterly economic projections, they will lack some key tools, said Henry Kaufman, the former chief economist at Salomon Brothers Inc. who is now president of Henry Kaufman & Co. in New York.
Instead, the Fed should provide an ``assessment of developments for the next three years'' as well as the change in interest rates required to achieve economic goals, Kaufman wrote Jan. 3 in the Wall Street Journal.
``The Fed would have keener insight as to what's going on in the financial markets and in financial institutions,'' Kaufman said in an interview. ``Eventually that would bring back a somewhat more stable environment, rather than a volatile environment which we've had up to now.''
Central bankers rejected one of Kaufman's proposals as part of their communications review last year that ended in the decision to expand forecasts. Fed officials decided not to report members' assumptions of the ``appropriate'' path of interest rates because of concern that investors would ``infer more of a commitment to following the implied path than would be appropriate for good policy,'' Kohn said Jan. 5.
Jan. 10 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke may be forced to reduce interest rates by half a percentage point this month, validating investor concern that he hasn't been aggressive enough to avert recession.
Economists lowered growth forecasts and traders doubled the size of the rate cut they anticipate after reports showed a decline in manufacturing and a jump in unemployment. A cut in the benchmark rate to 3.75 percent from 4.25 percent would mean Fed officials setting aside inflation concerns from higher oil and food prices.
``In hindsight, if we're moving into a recessionary period or in one, it certainly would suggest the Fed's been too tight for too long,'' said Keith Hembre, who helps oversee $105 billion as chief economist at FAF Advisors Inc. in Minneapolis.
Bernanke, 54, will give fresh clues to the Fed's thinking today in a speech in Washington. Goldman Sachs Group Inc., JPMorgan Chase & Co. and Barclays Capital Inc. are all predicting a reduction in the main rate to 3.75 percent this month, largely because the U.S. jobless rate jumped to 5 percent in December from 4.7 percent in November.
The word ``recession'' is increasingly rolling off the tongues of prominent economists: Goldman, Merrill Lynch & Co. and Morgan Stanley are among large banks whose research teams are predicting an end to the U.S. expansion, now in its seventh year. At the same time, crude oil is trading near $100 a barrel and inflation is above the comfort level of many Fed officials.
Overcoming Reluctance
While some Fed officials may be reluctant to approve such a move, they would ``happily'' vote for it if they were convinced a recession was imminent, said Bank of America Corp. economist Peter Kretzmer, a former Fed staffer who this week predicted an even chance of a half-point or quarter-point rate cut on Jan. 30.
``They don't want to be backed into a corner by the markets,' said Stephen Cecchetti, a professor at Brandeis University in Waltham, Massachusetts, and former head of research at the Fed's New York branch. At the same time, ``why do something that's halfway? You want to make sure that consumer and business confidence doesn't tank.''
The last time Bernanke spoke, the Fed used the speech to signal a change in the central bank's views, Vice Chairman Donald Kohn said last week.
Bernanke said Nov. 29 that market ``turbulence'' had ``importantly affected'' the economic outlook. He declined to repeat the Federal Open Market Committee's October statement that inflation and growth risks were about equal.
Script Changes
The Fed then cut rates on Dec. 11, replacing its ``balance of risks'' with a line saying ``uncertainty'' had increased. Minutes of the meeting showed that Fed officials said economic growth in 2008 would fall short of their own forecasts, reflecting weaker consumer spending and a deeper housing slump.
Since the Fed met Dec. 11, reports have indicated a rising threat of recession. The unemployment rate rose 0.3 percentage point in December, a magnitude that has historically augured economic contractions. The Institute of Supply Management said Jan. 2 its index of manufacturing fell to the lowest level since April 2003.
The reports spurred traders to bet on deeper rate cuts. Futures prices indicate a 78 percent chance of a half-point move, with 100 percent odds of at least a quarter-point reduction.
``Additional evidence of a weaker economy makes a stronger case to take bolder actions than they have so far,'' said David Resler, chief economist at Nomura Securities International Inc. in New York. He forecasts a 3.5 percent federal funds rate by the end of March. ``Conditions have changed more than the Fed may have expected.''
Risks to Growth
Four Fed officials so far this week flagged risks to economic growth, without directly indicating their preference for this month's rate decision.
Prospects of a recession might not be the only problem for the Fed. When officials come to the next meeting on Jan. 29-30 with revised forecasts, the second iteration of the Fed's expanded quarterly economic projections, they will lack some key tools, said Henry Kaufman, the former chief economist at Salomon Brothers Inc. who is now president of Henry Kaufman & Co. in New York.
Instead, the Fed should provide an ``assessment of developments for the next three years'' as well as the change in interest rates required to achieve economic goals, Kaufman wrote Jan. 3 in the Wall Street Journal.
``The Fed would have keener insight as to what's going on in the financial markets and in financial institutions,'' Kaufman said in an interview. ``Eventually that would bring back a somewhat more stable environment, rather than a volatile environment which we've had up to now.''
Central bankers rejected one of Kaufman's proposals as part of their communications review last year that ended in the decision to expand forecasts. Fed officials decided not to report members' assumptions of the ``appropriate'' path of interest rates because of concern that investors would ``infer more of a commitment to following the implied path than would be appropriate for good policy,'' Kohn said Jan. 5.
Bernanke May Be Forced to Lower Interest Rates by Half Point
By Scott Lanman
Jan. 10 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke may be forced to reduce interest rates by half a percentage point this month, validating investor concern that he hasn't been aggressive enough to avert recession.
Economists lowered growth forecasts and traders doubled the size of the rate cut they anticipate after reports showed a decline in manufacturing and a jump in unemployment. A cut in the benchmark rate to 3.75 percent from 4.25 percent would mean Fed officials setting aside inflation concerns from higher oil and food prices.
``In hindsight, if we're moving into a recessionary period or in one, it certainly would suggest the Fed's been too tight for too long,'' said Keith Hembre, who helps oversee $105 billion as chief economist at FAF Advisors Inc. in Minneapolis.
Bernanke, 54, will give fresh clues to the Fed's thinking today in a speech in Washington. Goldman Sachs Group Inc., JPMorgan Chase & Co. and Barclays Capital Inc. are all predicting a reduction in the main rate to 3.75 percent this month, largely because the U.S. jobless rate jumped to 5 percent in December from 4.7 percent in November.
The word ``recession'' is increasingly rolling off the tongues of prominent economists: Goldman, Merrill Lynch & Co. and Morgan Stanley are among large banks whose research teams are predicting an end to the U.S. expansion, now in its seventh year. At the same time, crude oil is trading near $100 a barrel and inflation is above the comfort level of many Fed officials.
Overcoming Reluctance
While some Fed officials may be reluctant to approve such a move, they would ``happily'' vote for it if they were convinced a recession was imminent, said Bank of America Corp. economist Peter Kretzmer, a former Fed staffer who this week predicted an even chance of a half-point or quarter-point rate cut on Jan. 30.
``They don't want to be backed into a corner by the markets,' said Stephen Cecchetti, a professor at Brandeis University in Waltham, Massachusetts, and former head of research at the Fed's New York branch. At the same time, ``why do something that's halfway? You want to make sure that consumer and business confidence doesn't tank.''
The last time Bernanke spoke, the Fed used the speech to signal a change in the central bank's views, Vice Chairman Donald Kohn said last week.
Bernanke said Nov. 29 that market ``turbulence'' had ``importantly affected'' the economic outlook. He declined to repeat the Federal Open Market Committee's October statement that inflation and growth risks were about equal.
Script Changes
The Fed then cut rates on Dec. 11, replacing its ``balance of risks'' with a line saying ``uncertainty'' had increased. Minutes of the meeting showed that Fed officials said economic growth in 2008 would fall short of their own forecasts, reflecting weaker consumer spending and a deeper housing slump.
Since the Fed met Dec. 11, reports have indicated a rising threat of recession. The unemployment rate rose 0.3 percentage point in December, a magnitude that has historically augured economic contractions. The Institute of Supply Management said Jan. 2 its index of manufacturing fell to the lowest level since April 2003.
The reports spurred traders to bet on deeper rate cuts. Futures prices indicate a 78 percent chance of a half-point move, with 100 percent odds of at least a quarter-point reduction.
``Additional evidence of a weaker economy makes a stronger case to take bolder actions than they have so far,'' said David Resler, chief economist at Nomura Securities International Inc. in New York. He forecasts a 3.5 percent federal funds rate by the end of March. ``Conditions have changed more than the Fed may have expected.''
Risks to Growth
Four Fed officials so far this week flagged risks to economic growth, without directly indicating their preference for this month's rate decision.
Prospects of a recession might not be the only problem for the Fed. When officials come to the next meeting on Jan. 29-30 with revised forecasts, the second iteration of the Fed's expanded quarterly economic projections, they will lack some key tools, said Henry Kaufman, the former chief economist at Salomon Brothers Inc. who is now president of Henry Kaufman & Co. in New York.
Instead, the Fed should provide an ``assessment of developments for the next three years'' as well as the change in interest rates required to achieve economic goals, Kaufman wrote Jan. 3 in the Wall Street Journal.
``The Fed would have keener insight as to what's going on in the financial markets and in financial institutions,'' Kaufman said in an interview. ``Eventually that would bring back a somewhat more stable environment, rather than a volatile environment which we've had up to now.''
Central bankers rejected one of Kaufman's proposals as part of their communications review last year that ended in the decision to expand forecasts. Fed officials decided not to report members' assumptions of the ``appropriate'' path of interest rates because of concern that investors would ``infer more of a commitment to following the implied path than would be appropriate for good policy,'' Kohn said Jan. 5.
Jan. 10 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke may be forced to reduce interest rates by half a percentage point this month, validating investor concern that he hasn't been aggressive enough to avert recession.
Economists lowered growth forecasts and traders doubled the size of the rate cut they anticipate after reports showed a decline in manufacturing and a jump in unemployment. A cut in the benchmark rate to 3.75 percent from 4.25 percent would mean Fed officials setting aside inflation concerns from higher oil and food prices.
``In hindsight, if we're moving into a recessionary period or in one, it certainly would suggest the Fed's been too tight for too long,'' said Keith Hembre, who helps oversee $105 billion as chief economist at FAF Advisors Inc. in Minneapolis.
Bernanke, 54, will give fresh clues to the Fed's thinking today in a speech in Washington. Goldman Sachs Group Inc., JPMorgan Chase & Co. and Barclays Capital Inc. are all predicting a reduction in the main rate to 3.75 percent this month, largely because the U.S. jobless rate jumped to 5 percent in December from 4.7 percent in November.
The word ``recession'' is increasingly rolling off the tongues of prominent economists: Goldman, Merrill Lynch & Co. and Morgan Stanley are among large banks whose research teams are predicting an end to the U.S. expansion, now in its seventh year. At the same time, crude oil is trading near $100 a barrel and inflation is above the comfort level of many Fed officials.
Overcoming Reluctance
While some Fed officials may be reluctant to approve such a move, they would ``happily'' vote for it if they were convinced a recession was imminent, said Bank of America Corp. economist Peter Kretzmer, a former Fed staffer who this week predicted an even chance of a half-point or quarter-point rate cut on Jan. 30.
``They don't want to be backed into a corner by the markets,' said Stephen Cecchetti, a professor at Brandeis University in Waltham, Massachusetts, and former head of research at the Fed's New York branch. At the same time, ``why do something that's halfway? You want to make sure that consumer and business confidence doesn't tank.''
The last time Bernanke spoke, the Fed used the speech to signal a change in the central bank's views, Vice Chairman Donald Kohn said last week.
Bernanke said Nov. 29 that market ``turbulence'' had ``importantly affected'' the economic outlook. He declined to repeat the Federal Open Market Committee's October statement that inflation and growth risks were about equal.
Script Changes
The Fed then cut rates on Dec. 11, replacing its ``balance of risks'' with a line saying ``uncertainty'' had increased. Minutes of the meeting showed that Fed officials said economic growth in 2008 would fall short of their own forecasts, reflecting weaker consumer spending and a deeper housing slump.
Since the Fed met Dec. 11, reports have indicated a rising threat of recession. The unemployment rate rose 0.3 percentage point in December, a magnitude that has historically augured economic contractions. The Institute of Supply Management said Jan. 2 its index of manufacturing fell to the lowest level since April 2003.
The reports spurred traders to bet on deeper rate cuts. Futures prices indicate a 78 percent chance of a half-point move, with 100 percent odds of at least a quarter-point reduction.
``Additional evidence of a weaker economy makes a stronger case to take bolder actions than they have so far,'' said David Resler, chief economist at Nomura Securities International Inc. in New York. He forecasts a 3.5 percent federal funds rate by the end of March. ``Conditions have changed more than the Fed may have expected.''
Risks to Growth
Four Fed officials so far this week flagged risks to economic growth, without directly indicating their preference for this month's rate decision.
Prospects of a recession might not be the only problem for the Fed. When officials come to the next meeting on Jan. 29-30 with revised forecasts, the second iteration of the Fed's expanded quarterly economic projections, they will lack some key tools, said Henry Kaufman, the former chief economist at Salomon Brothers Inc. who is now president of Henry Kaufman & Co. in New York.
Instead, the Fed should provide an ``assessment of developments for the next three years'' as well as the change in interest rates required to achieve economic goals, Kaufman wrote Jan. 3 in the Wall Street Journal.
``The Fed would have keener insight as to what's going on in the financial markets and in financial institutions,'' Kaufman said in an interview. ``Eventually that would bring back a somewhat more stable environment, rather than a volatile environment which we've had up to now.''
Central bankers rejected one of Kaufman's proposals as part of their communications review last year that ended in the decision to expand forecasts. Fed officials decided not to report members' assumptions of the ``appropriate'' path of interest rates because of concern that investors would ``infer more of a commitment to following the implied path than would be appropriate for good policy,'' Kohn said Jan. 5.
Market Highlights 10th Jan 2008
Spotlight: Wheat fell on speculation of increased plantings. Copper fell on concern of an economic slump. Oil fell after the weekly energy report showed that distillate and gasoline stockpiles increased last week. Gold rose on speculation of a weakening dollar.
Energy: Crude oil fell after an Energy Department report showed that U.S. fuel stockpiles surged last week as refineries bolstered operating rates. Gasoline inventories rose 5.22 million barrels to 213.1 million barrels, the Energy Department said yesterday, the biggest gain since December 2006 and three-times the increase forecast by analysts in a Bloomberg News survey. Crude oil supplies in the world's largest energy consumer fell 6.74 million barrels to 282.8 million on Jan. 4, having shed 31.8 million barrels in the past eight weeks, the report showed. Supplies fell as refiners increased operating rates to 91.3 percent of their plant capacity, the highest since August. Distillate fuel stockpiles, including heating oil and diesel, rose 1.52 million barrels to 128.7 million.
Agriculture: Wheat fell, erasing earlier gains, as hedge-fund and index-fund managers bet corn and soybeans will outperform the grain this year after farmers sowed more wheat to capitalize on higher prices. About 48.5 million acres of winter wheat were planted from September through November, as prices rose toward a record in December, according to a Bloomberg survey of analysts and traders. That's almost an 8 percent increase from the previous year and the most in 12 years.
Coffee output in Brazil, the world's biggest producer and exporter of the commodity, will fall short of demand this year, driving up prices, a research agency said. Domestic and overseas demand for Brazilian coffee will likely reach 46 million bags in 2008, exceeding estimated output of 41.2 million to 44.1 million bags, the University of Sao Paulo's agricultural commodities research agency, known as Cepea,
Precious Metals: Gold rose on speculation the Federal Reserve will continue to cut interest rates, weakening the dollar and boosting the investment appeal of the precious metal. Interest-rate futures show a 78 percent chance the Fed will lower the overnight lending rate 0.5 percentage point to 3.75 percent by Jan. 30, compared with a 24 percent chance a week ago.
Industrial Metals: Copper declined from a two-month high on renewed concern the U.S. economy will slump, slowing global growth and curbing metals demand. The U.S. is probably slipping into a recession, Goldman Sachs Group Inc. said. Global economic growth will slow for a second straight year in 2008, the World Bank said.
(Source: Bloomberg)
(Source: Bloomberg)
Energy: Crude oil fell after an Energy Department report showed that U.S. fuel stockpiles surged last week as refineries bolstered operating rates. Gasoline inventories rose 5.22 million barrels to 213.1 million barrels, the Energy Department said yesterday, the biggest gain since December 2006 and three-times the increase forecast by analysts in a Bloomberg News survey. Crude oil supplies in the world's largest energy consumer fell 6.74 million barrels to 282.8 million on Jan. 4, having shed 31.8 million barrels in the past eight weeks, the report showed. Supplies fell as refiners increased operating rates to 91.3 percent of their plant capacity, the highest since August. Distillate fuel stockpiles, including heating oil and diesel, rose 1.52 million barrels to 128.7 million.
Agriculture: Wheat fell, erasing earlier gains, as hedge-fund and index-fund managers bet corn and soybeans will outperform the grain this year after farmers sowed more wheat to capitalize on higher prices. About 48.5 million acres of winter wheat were planted from September through November, as prices rose toward a record in December, according to a Bloomberg survey of analysts and traders. That's almost an 8 percent increase from the previous year and the most in 12 years.
Coffee output in Brazil, the world's biggest producer and exporter of the commodity, will fall short of demand this year, driving up prices, a research agency said. Domestic and overseas demand for Brazilian coffee will likely reach 46 million bags in 2008, exceeding estimated output of 41.2 million to 44.1 million bags, the University of Sao Paulo's agricultural commodities research agency, known as Cepea,
Precious Metals: Gold rose on speculation the Federal Reserve will continue to cut interest rates, weakening the dollar and boosting the investment appeal of the precious metal. Interest-rate futures show a 78 percent chance the Fed will lower the overnight lending rate 0.5 percentage point to 3.75 percent by Jan. 30, compared with a 24 percent chance a week ago.
Industrial Metals: Copper declined from a two-month high on renewed concern the U.S. economy will slump, slowing global growth and curbing metals demand. The U.S. is probably slipping into a recession, Goldman Sachs Group Inc. said. Global economic growth will slow for a second straight year in 2008, the World Bank said.
(Source: Bloomberg)
(Source: Bloomberg)
Goldman Says Japan Recession Risk at `Danger Level' (Update)
By Jason Clenfield
Jan. 10 (Bloomberg) -- Goldman Sachs Group said there's a 50 percent chance Japan will slip into recession and cut its 2008 growth estimate for the world's second-largest economy.
``We estimate the probability of a recession in Japan has risen to the `danger level,''' Tetsufumi Yamakawa, chief Japan economist at Goldman, said in a report to clients today. ``We project weaker-than-expected growth in Japan especially in the first half of 2008 owing to an inevitable, moderate slowdown among emerging economies.''
Bank of Japan Deputy Governor Toshiro Muto said today he expects the economy to keep slowing ``for the time being'' and the central bank will conduct policy ``with discretion.'' Goldman said yesterday the U.S. economy is falling into recession.
Yamakawa cut his 2008 growth estimate to 1 percent from 1.2 percent and said the central bank may have to forego raising rates this year.
Sluggish spending by consumers has left Japan more dependant on overseas markets, just as cooling U.S. demand threatens to spread to Asia, where Japan sells half its exports.
Stocks including Mitsubishi Estate Co. declined today after Credit Suisse Group said the defaults in U.S. subprime mortgages may prompt overseas investors to sell their property holdings in Japan.
Losing Momentum
The cycle of rising corporate profits feeding into wages and consumer spending is losing momentum, Muto said today.
``The greatest challenge for the Japanese economy, needless to say, is a recovery in personal consumption, which has remained in an extended slump,'' Goldman's Yamakawa said. ``Innumerable obstacles stand in the way.''
Falling wages, which have dropped about 10 percent in the last decade, and rising food and energy prices have sent consumer confidence to a near four-year low. Paychecks are unlikely to rise this year as rising oil prices crimp profits.
With domestic consumption flat, the economy is more dependent on foreign demand. Exports contributed almost of Japan's growth in the third quarter, as demand from Asia helped make up for slowing orders from the U.S.
The risk is that demand from Asia will also dry up.
``A U.S. slowdown affects Asia, beginning with China, and via that route it affects Japan,'' Ota said this week. ``The extent to which Japan is hurt depends on the severity of the U.S. slowdown.''
Jan. 10 (Bloomberg) -- Goldman Sachs Group said there's a 50 percent chance Japan will slip into recession and cut its 2008 growth estimate for the world's second-largest economy.
``We estimate the probability of a recession in Japan has risen to the `danger level,''' Tetsufumi Yamakawa, chief Japan economist at Goldman, said in a report to clients today. ``We project weaker-than-expected growth in Japan especially in the first half of 2008 owing to an inevitable, moderate slowdown among emerging economies.''
Bank of Japan Deputy Governor Toshiro Muto said today he expects the economy to keep slowing ``for the time being'' and the central bank will conduct policy ``with discretion.'' Goldman said yesterday the U.S. economy is falling into recession.
Yamakawa cut his 2008 growth estimate to 1 percent from 1.2 percent and said the central bank may have to forego raising rates this year.
Sluggish spending by consumers has left Japan more dependant on overseas markets, just as cooling U.S. demand threatens to spread to Asia, where Japan sells half its exports.
Stocks including Mitsubishi Estate Co. declined today after Credit Suisse Group said the defaults in U.S. subprime mortgages may prompt overseas investors to sell their property holdings in Japan.
Losing Momentum
The cycle of rising corporate profits feeding into wages and consumer spending is losing momentum, Muto said today.
``The greatest challenge for the Japanese economy, needless to say, is a recovery in personal consumption, which has remained in an extended slump,'' Goldman's Yamakawa said. ``Innumerable obstacles stand in the way.''
Falling wages, which have dropped about 10 percent in the last decade, and rising food and energy prices have sent consumer confidence to a near four-year low. Paychecks are unlikely to rise this year as rising oil prices crimp profits.
With domestic consumption flat, the economy is more dependent on foreign demand. Exports contributed almost of Japan's growth in the third quarter, as demand from Asia helped make up for slowing orders from the U.S.
The risk is that demand from Asia will also dry up.
``A U.S. slowdown affects Asia, beginning with China, and via that route it affects Japan,'' Ota said this week. ``The extent to which Japan is hurt depends on the severity of the U.S. slowdown.''
Asian Stocks Fall for First Time in Three Days; Developers Drop
By Chen Shiyin and Patrick Rial
Jan. 10 (Bloomberg) -- Asian stocks fell for the first time in three days led by developers and banks on concern U.S. credit- market losses will spread.
Mitsubishi Estate Co. declined after Credit Suisse Group said defaults on U.S. subprime mortgages may prompt overseas investors to sell their property holdings in Japan. Commonwealth Bank of Australia led the drop among banks after Morgan Stanley cut the stock's rating.
``Global investors are reducing their real-estate investments across the board,'' said Hitoshi Yamamoto, who manages the equivalent of $5.5 billion in Japanese equities as chief executive officer of Fortis Asset Management in Tokyo.
The MSCI Asia Pacific Index fell 0.5 percent to 154.16 as of 12:05 p.m. in Tokyo, snapping a two-day, 1.3 percent advance. A measure of financial stocks including property developers and banks was the biggest drag on the benchmark.
Japan's Nikkei 225 Stock Average lost 0.8 percent to 14,482.22. Australia's S&P/ASX 200 Index retreated 0.6 percent, paced by BHP Billiton Ltd., after Alumina Ltd. reported profit that missed its own forecast and the price of metals and crude oil declined.
U.S. stocks rose yesterday, helping the Standard & Poor's 500 Index to its biggest gain in more than two weeks. Hewlett- Packard Co., the largest personal-computer maker, climbed after predicting that its earnings will withstand an economic slowdown.
Property Shares Fall
Mitsubishi Estate, Japan's biggest property developer by market value, fell 3.2 percent to 2,390 yen. Sumitomo Realty & Development Co., Japan's third-largest developer, slumped 4.4 percent to 2,505 yen. Urban Corp., which specializes in real estate securitization, dropped 4.8 percent to 1,376 yen.
``Foreign investors who actively invested in Japanese real estate could decide to sell their Japanese real estate holdings,'' Yoji Otani, an analyst at Credit Suisse, wrote in a note to clients. ``In 2008, we are likely to see a situation in which only real estate firms with a genuine understanding of real estate survive.''
Centro Properties Group, the Australian owner of U.S. malls, plunged after the Australian newspaper said the country's securities regulator questioned the company about accounting for its debt.
The stock dropped 19 percent to A$0.90, the biggest decliner on the MSCI World Index by percentage.
Cheung Kong (Holdings) Ltd., Hong Kong's second-biggest developer by market value, slipped 3.7 percent to HK$140.60, set for its biggest drop since Dec. 17. Shareholders are seeking to sell 33.5 million shares at HK$140.50 apiece, according to an e- mail from UBS AG, the sale's arranger.
Commonwealth Bank
Commonwealth Bank, Australia's second-largest bank, declined 1.2 percent to A$56.16. Richard Wiles, an analyst at Morgan Stanley, cut the stock to ``equal-weight'' from ``overweight.''
The stock also fell after the Australian newspaper said Commonwealth Bank and three other banks in the nation invested A$850 million ($750 million) in Countrywide Financial Corp., the biggest U.S. mortgage lender. Countrywide's shares have slumped in New York after the company denied speculation it will file for bankruptcy amid a rise in foreclosures and late payments.
National Australia Bank Ltd., the country's second-biggest provider of mortgages, lost 1 percent to A$35.24. Westpac Banking Corp., declined 1.3 percent to A$26.62, while Australia & New Zealand Banking Group Ltd. slid 0.6 percent to A$26.20.
Declining Commodity Prices
BHP Billiton, the world's biggest mining company and Australia's largest oil producer, slid 0.7 percent to A$38.92. Rio Tinto Group, the No. 3 mining company, declined 0.3 percent, its fourth straight drop.
Alumina, partner in the world's biggest producer of the material used to make aluminum, said full-year profit excluding one-time items fell to A$405 million, compared with its July forecast of about A$490 million. The stock dropped 2.4 percent to A$6.16.
Copper declined 0.5 percent yesterday from a two-month high in New York on concern slowing global economic growth will curb demand for metals. Crude oil slipped 0.7 percent yesterday to $95.67 a barrel.
Korea Zinc Co., the world's second-biggest zinc refiner, dropped 4.4 percent to 141,500 won, snapping a five-day, 20 percent surge. The company said yesterday it expects net income of 311.9 billion won this year as the price of zinc may fall by a third. The projection is 30 percent lower than analysts' estimates for 2007 profit.
In Tokyo, shares of Casio Computer Co. surged 7.2 percent to 1,272 yen after Mizuho Securities Co. raised its rating on the stock to ``buy'' from ``neutral,'' saying earnings will recover next fiscal year.
Jan. 10 (Bloomberg) -- Asian stocks fell for the first time in three days led by developers and banks on concern U.S. credit- market losses will spread.
Mitsubishi Estate Co. declined after Credit Suisse Group said defaults on U.S. subprime mortgages may prompt overseas investors to sell their property holdings in Japan. Commonwealth Bank of Australia led the drop among banks after Morgan Stanley cut the stock's rating.
``Global investors are reducing their real-estate investments across the board,'' said Hitoshi Yamamoto, who manages the equivalent of $5.5 billion in Japanese equities as chief executive officer of Fortis Asset Management in Tokyo.
The MSCI Asia Pacific Index fell 0.5 percent to 154.16 as of 12:05 p.m. in Tokyo, snapping a two-day, 1.3 percent advance. A measure of financial stocks including property developers and banks was the biggest drag on the benchmark.
Japan's Nikkei 225 Stock Average lost 0.8 percent to 14,482.22. Australia's S&P/ASX 200 Index retreated 0.6 percent, paced by BHP Billiton Ltd., after Alumina Ltd. reported profit that missed its own forecast and the price of metals and crude oil declined.
U.S. stocks rose yesterday, helping the Standard & Poor's 500 Index to its biggest gain in more than two weeks. Hewlett- Packard Co., the largest personal-computer maker, climbed after predicting that its earnings will withstand an economic slowdown.
Property Shares Fall
Mitsubishi Estate, Japan's biggest property developer by market value, fell 3.2 percent to 2,390 yen. Sumitomo Realty & Development Co., Japan's third-largest developer, slumped 4.4 percent to 2,505 yen. Urban Corp., which specializes in real estate securitization, dropped 4.8 percent to 1,376 yen.
``Foreign investors who actively invested in Japanese real estate could decide to sell their Japanese real estate holdings,'' Yoji Otani, an analyst at Credit Suisse, wrote in a note to clients. ``In 2008, we are likely to see a situation in which only real estate firms with a genuine understanding of real estate survive.''
Centro Properties Group, the Australian owner of U.S. malls, plunged after the Australian newspaper said the country's securities regulator questioned the company about accounting for its debt.
The stock dropped 19 percent to A$0.90, the biggest decliner on the MSCI World Index by percentage.
Cheung Kong (Holdings) Ltd., Hong Kong's second-biggest developer by market value, slipped 3.7 percent to HK$140.60, set for its biggest drop since Dec. 17. Shareholders are seeking to sell 33.5 million shares at HK$140.50 apiece, according to an e- mail from UBS AG, the sale's arranger.
Commonwealth Bank
Commonwealth Bank, Australia's second-largest bank, declined 1.2 percent to A$56.16. Richard Wiles, an analyst at Morgan Stanley, cut the stock to ``equal-weight'' from ``overweight.''
The stock also fell after the Australian newspaper said Commonwealth Bank and three other banks in the nation invested A$850 million ($750 million) in Countrywide Financial Corp., the biggest U.S. mortgage lender. Countrywide's shares have slumped in New York after the company denied speculation it will file for bankruptcy amid a rise in foreclosures and late payments.
National Australia Bank Ltd., the country's second-biggest provider of mortgages, lost 1 percent to A$35.24. Westpac Banking Corp., declined 1.3 percent to A$26.62, while Australia & New Zealand Banking Group Ltd. slid 0.6 percent to A$26.20.
Declining Commodity Prices
BHP Billiton, the world's biggest mining company and Australia's largest oil producer, slid 0.7 percent to A$38.92. Rio Tinto Group, the No. 3 mining company, declined 0.3 percent, its fourth straight drop.
Alumina, partner in the world's biggest producer of the material used to make aluminum, said full-year profit excluding one-time items fell to A$405 million, compared with its July forecast of about A$490 million. The stock dropped 2.4 percent to A$6.16.
Copper declined 0.5 percent yesterday from a two-month high in New York on concern slowing global economic growth will curb demand for metals. Crude oil slipped 0.7 percent yesterday to $95.67 a barrel.
Korea Zinc Co., the world's second-biggest zinc refiner, dropped 4.4 percent to 141,500 won, snapping a five-day, 20 percent surge. The company said yesterday it expects net income of 311.9 billion won this year as the price of zinc may fall by a third. The projection is 30 percent lower than analysts' estimates for 2007 profit.
In Tokyo, shares of Casio Computer Co. surged 7.2 percent to 1,272 yen after Mizuho Securities Co. raised its rating on the stock to ``buy'' from ``neutral,'' saying earnings will recover next fiscal year.
Economic Summary 10th Jan 2008
In another day with no major economic releases, the markets spent a good part
of the trading session worrying about just how bad next week's Q4 earnings
reports will look. But equities turned higher in the middle of the afternoon,
encouraged in part by Berkshire Hathaway's announcement that it may invest in
municipal bond insurers. Treasuries peaked about the same time equities
bottomed out and closed the day with losses across the board. The foreign
exchange value of the dollar rose.
The Mortgage Bankers Association's weekly mortgage applications index for the
week ended January 4 surged by some 32%, breaking a three-week string of
declines. The purchase index rose 15%, and the refinancing index shot up by
54%. Mortgage applications probably overstate the underlying demand for
housing since mortgage brokers are submitting multiple applications in the
face of tight lending standards. Also, these data, while seasonally adjusted,
are particularly volatile around the holidays.
Economic Outlook
Initial claims for unemployment insurance for the week ended January 5 are due
out at 8:30 (Consensus 340k). While initial claims are slowly trending higher,
continuing claims for unemployment insurance are particularly concerning. The
latest four-week average reading of 2.7mn was the highest for continuing
claims in over two years. The data suggest that those who are already laid off
are having trouble finding new jobs.
Little attention will likely be paid to the November wholesale inventories
release at 10:00 (Consensus +0.4%). Wholesale inventories are a componenet of
business inventories, which will be released on January 15. In general,
inventory accumulation probably provided less of a boost to GDP growth in Q4
than it did in Q3, and we forecast it will subtract from growth throughout the
first half of 2008.
Market Summary
St. Louis Fed President Poole, a nonvoting member of the FOMC this year, said
that "the uncertainties are probably greater" for growth than for inflation,
and he added the risks of a recession are "high enough to worry about."
Tomorrow, Fed Chairman Bernanke will speak at 1:00 about the economic outlook.
We expect that his comments will also signal the Fed's concern about a more
pronounced slowdown in growth than expected.
of the trading session worrying about just how bad next week's Q4 earnings
reports will look. But equities turned higher in the middle of the afternoon,
encouraged in part by Berkshire Hathaway's announcement that it may invest in
municipal bond insurers. Treasuries peaked about the same time equities
bottomed out and closed the day with losses across the board. The foreign
exchange value of the dollar rose.
The Mortgage Bankers Association's weekly mortgage applications index for the
week ended January 4 surged by some 32%, breaking a three-week string of
declines. The purchase index rose 15%, and the refinancing index shot up by
54%. Mortgage applications probably overstate the underlying demand for
housing since mortgage brokers are submitting multiple applications in the
face of tight lending standards. Also, these data, while seasonally adjusted,
are particularly volatile around the holidays.
Economic Outlook
Initial claims for unemployment insurance for the week ended January 5 are due
out at 8:30 (Consensus 340k). While initial claims are slowly trending higher,
continuing claims for unemployment insurance are particularly concerning. The
latest four-week average reading of 2.7mn was the highest for continuing
claims in over two years. The data suggest that those who are already laid off
are having trouble finding new jobs.
Little attention will likely be paid to the November wholesale inventories
release at 10:00 (Consensus +0.4%). Wholesale inventories are a componenet of
business inventories, which will be released on January 15. In general,
inventory accumulation probably provided less of a boost to GDP growth in Q4
than it did in Q3, and we forecast it will subtract from growth throughout the
first half of 2008.
Market Summary
St. Louis Fed President Poole, a nonvoting member of the FOMC this year, said
that "the uncertainties are probably greater" for growth than for inflation,
and he added the risks of a recession are "high enough to worry about."
Tomorrow, Fed Chairman Bernanke will speak at 1:00 about the economic outlook.
We expect that his comments will also signal the Fed's concern about a more
pronounced slowdown in growth than expected.
Revamped Straits Times Index (STI)
The revamped Straits Times Index (STI) as well as the other 18 new indices of the FTSE ST Index Series, expected to go live on 10 January 2008, will not be displayed on the poems internet platform with effect from 10 January 2008 until further notice. This is the same for all local broking houses in Singapore.
The reasons:
a) SGX will stop disseminating the STI through its normal Price Feed wef 10 January 2008.
b) The infrastructure required to distribute the STI through the trading system (industry-wide) will not be ready by 10 January 2008.
Meanwhile, the FTSE STI data can be obtained from other sources such as Reuters, Bloomberg, Nextview and the SGX website. Will update you on further development.
The reasons:
a) SGX will stop disseminating the STI through its normal Price Feed wef 10 January 2008.
b) The infrastructure required to distribute the STI through the trading system (industry-wide) will not be ready by 10 January 2008.
Meanwhile, the FTSE STI data can be obtained from other sources such as Reuters, Bloomberg, Nextview and the SGX website. Will update you on further development.
Wednesday, January 9, 2008
LIAN BENG TO PARTNER LASALLE INVESTMENT IN S$148M EMERALD HILL PROJECT
LIAN BENG TO PARTNER LASALLE INVESTMENT IN
S$148M EMERALD HILL PROJECT
Group awarded S$34m construction contract, and will hold 10% of development
SINGAPORE, 9 January 2008 – Singapore’s major homegrown construction firm, Lian
Beng Group Ltd (“Lian Beng” or “the Group”), today announced a second strategic
partnership with LaSalle Investment Management (“LaSalle”) to jointly purchase and
redevelop a freehold luxury residential site at Emerald Hill Road in District 9.
The 29,811 sq ft site which is presently occupied by Emerald Mansion, was purchased for
S$148m. Based on a gross floor area of approximately 78,689 sq ft, the purchase price of
the site works out to about S$1,880 psf per plot ratio.
Under the terms of agreement, LaSalle will acquire a 85% interest while LB Land Pte.
Ltd. (“LB Land”), a subsidiary of Lian Beng will take up the remaining 15% equity stake.
With 67% interest in the capital of LB Land, Lian Beng effectively holds a 10% equity
stake in this project.
Leveraging its expertise and experience in its core business of building construction, Lian
Beng will be the main contractor for this project, which is worth approximately S$34
million. Work is expected to commence in April 2008 and is due to be completed by
September 2010.
Mr Ong Pang Aik, Managing Director of Lian Beng Group Limited said, “Our strengths in
building construction will complement LaSalle’s strengths in property development and
marketing. We are very excited about this second joint-venture with LaSalle, and we look
forward to building a successful partnership with them.”
S$148M EMERALD HILL PROJECT
Group awarded S$34m construction contract, and will hold 10% of development
SINGAPORE, 9 January 2008 – Singapore’s major homegrown construction firm, Lian
Beng Group Ltd (“Lian Beng” or “the Group”), today announced a second strategic
partnership with LaSalle Investment Management (“LaSalle”) to jointly purchase and
redevelop a freehold luxury residential site at Emerald Hill Road in District 9.
The 29,811 sq ft site which is presently occupied by Emerald Mansion, was purchased for
S$148m. Based on a gross floor area of approximately 78,689 sq ft, the purchase price of
the site works out to about S$1,880 psf per plot ratio.
Under the terms of agreement, LaSalle will acquire a 85% interest while LB Land Pte.
Ltd. (“LB Land”), a subsidiary of Lian Beng will take up the remaining 15% equity stake.
With 67% interest in the capital of LB Land, Lian Beng effectively holds a 10% equity
stake in this project.
Leveraging its expertise and experience in its core business of building construction, Lian
Beng will be the main contractor for this project, which is worth approximately S$34
million. Work is expected to commence in April 2008 and is due to be completed by
September 2010.
Mr Ong Pang Aik, Managing Director of Lian Beng Group Limited said, “Our strengths in
building construction will complement LaSalle’s strengths in property development and
marketing. We are very excited about this second joint-venture with LaSalle, and we look
forward to building a successful partnership with them.”
Monday, January 7, 2008
Market Highlights
US: U.S. stocks had the steepest weekly loss since July after unemployment increased to a two-year high and manufacturing declined, bolstering speculation that a recession will stymie profit growth.
Europe: European stocks had their worst week in five months after reports showed U.S. hiring and manufacturing slowed the most since 2003, deepening concern the region's largest trading partner may slide into recession.
Asia: Asian stocks fell this week, led by exporters such as Toyota Motor Corp. and Samsung Electronics Co., after reports showed that some Asian countries' growth and the U.S. economy are slowing.
Commodities: Crude oil fell more than $1 a barrel in New York after a government report showed U.S. unemployment jumped to a two-year high, raising concern of a recession that would curb energy demand. Gold futures fell in New York on speculation a rally to the highest price since 1980 was overdone.
Currencies: The dollar posted its biggest decline against the yen in almost two months as a slowdown in hiring raised concern that U.S. economic weakness will spread globally.
Source: Bloomberg
Europe: European stocks had their worst week in five months after reports showed U.S. hiring and manufacturing slowed the most since 2003, deepening concern the region's largest trading partner may slide into recession.
Asia: Asian stocks fell this week, led by exporters such as Toyota Motor Corp. and Samsung Electronics Co., after reports showed that some Asian countries' growth and the U.S. economy are slowing.
Commodities: Crude oil fell more than $1 a barrel in New York after a government report showed U.S. unemployment jumped to a two-year high, raising concern of a recession that would curb energy demand. Gold futures fell in New York on speculation a rally to the highest price since 1980 was overdone.
Currencies: The dollar posted its biggest decline against the yen in almost two months as a slowdown in hiring raised concern that U.S. economic weakness will spread globally.
Source: Bloomberg
Saturday, January 5, 2008
STI resistants and supports
Resistance*
3908.70
3685.28
3547.06
3397.06
3323.64
3185.43
2962.01
Support*
Think can cover long/ short positions at / near these points.
3908.70
3685.28
3547.06
3397.06
3323.64
3185.43
2962.01
Support*
Think can cover long/ short positions at / near these points.
Friday, January 4, 2008
Cosco Corporation Expanding capacity with new Shipyard at Lianyungang
DBS Vickers
Story: Cosco has entered into a 60/40 joint venture to operate a new
shipyard at Lianyungang, with an investment outlay of only S$21m for its
stake, funded internally.
Point: The shipyard, ready since last year, will have 3 berths and a 80Kdwt
floating dock, land area 220k sq m. Although small, this yard is well
located in Jiangsu region and is poised to be eventually developed into a
major shiprepair yard for the group. We expect the yard to initially
contribute Rmb500m, in sales, similar to Guangzhou’s shiprepair sales, or
10% of group shiprepair sales. Located close to Nantong, this shiprepair
and conversion yard will free up capacity at Nantong allowing it to focus
on oil and gas, offshore projects.
Relevance: Stock price has declined 30% from its peak due to the weak
market and overhang on the share price arising from SembCorp Marine’s
recent placement of Cosco shares. At current price, the stock is trading
at P/E of 22.7x(FY08) and 16.3x(FY09) vs CAGR of 54%. Maintain BUY, target
price $9.50.
Story: Cosco has entered into a 60/40 joint venture to operate a new
shipyard at Lianyungang, with an investment outlay of only S$21m for its
stake, funded internally.
Point: The shipyard, ready since last year, will have 3 berths and a 80Kdwt
floating dock, land area 220k sq m. Although small, this yard is well
located in Jiangsu region and is poised to be eventually developed into a
major shiprepair yard for the group. We expect the yard to initially
contribute Rmb500m, in sales, similar to Guangzhou’s shiprepair sales, or
10% of group shiprepair sales. Located close to Nantong, this shiprepair
and conversion yard will free up capacity at Nantong allowing it to focus
on oil and gas, offshore projects.
Relevance: Stock price has declined 30% from its peak due to the weak
market and overhang on the share price arising from SembCorp Marine’s
recent placement of Cosco shares. At current price, the stock is trading
at P/E of 22.7x(FY08) and 16.3x(FY09) vs CAGR of 54%. Maintain BUY, target
price $9.50.
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