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Fed expected to cut rates before its scheduled September meeting in wake of sub-prime woes
Sunday, August 12, 2007
The New York Fed, which carries out the central bank's market operation, announced a three-day repurchase agreement of mortgage backed securities and then two more of the so-called "repo" moves to inject liquidity into the market on Friday. The Fed's maneuvers came after the fed funds rate, the amount banks charge each other for overnight loans, ticked above 6% again Friday -- well above the Fed's target of 5.25% and a sign that credit was becoming harder to obtain.
The Fed added $ 19 billion in liquidity to the market Friday morning, then another $ 16 billion and, finally, $ 3 billion.
In a repo, the Fed arranges to buy securities from dealers, who then deposit the money the Fed has paid them into commercial banks. Analysts say that this is encouraging because it is a proactive step and they are not just focused on the inflation numbers and not ignoring turmoil in the credit market. The Fed's moves Thursday and Friday follow its August meeting Tuesday at which it left short-term interest rates unchanged, as it has done for more than a year. In its statement following the meeting, the bank said its primary concern remains inflation.
But the tumultuousness of the final two sessions of the week, which followed a sharp run-up in the week's first three sessions, has some market observers wondering whether the Fed will need to take added steps to douse some of the credit fears that have gripped the markets. So while some are now calling for a rate cut at the Fed's September meeting or even sooner, others contend investors will in any case first need to gather some confidence that the subprime woes and the credit market tightening aren't lethal for the economy and the markets.
This confidence will be restored over time if the economy and the financial markets are resilient enough to overcome these kinds of announcements and view them in isolation, analysts say, in reference to disclosures such as the one Thursday from French bank BNP Paribas that it was freezing three funds that invested in U.S. subprime mortgages because it was unable to properly value their assets.
But it is premature to forecast a recession, particularly if the Fed is responsive and there is no reason we canot work our way out of this fairly quickly. However, the subprime unease is likely to continue, particularly this fall as a big batch of subprime mortgages written in 2005 and 2006 begin to reset their rates.
Part of the unease over subprime loans -- those made to borrowers with weak credit -- relates to a process known as securitization. Investors bundle together mortgages, including some subprime loans, and sell them off to institutional investors such as hedge funds and mutual funds. These buyers are hoping for the steady flow of income from homeowners making their mortgage payments. The result is that many big investors are finding it difficult to sift through their holdings and take stock of all potential subprime loans that could go bad.
Such loans sour when borrowers with poor credit find themselves unable to make their mortgage payments now that home values aren't rising as fast, or even falling, in much of the country.
Investor confidence worldwide has been shaken by the credit market problems. In Asia, stocks fell Friday after regulators including the Bank of Japan added liquidity. The European Central Bank for the second day added cash to its money markets.
These banks and others around the world haven't worked together to inject liquidity into the markets since the aftermath of the Sept. 11, 2001, attacks. But the measures, intended to keep financial markets well-oiled, also seemed to confirm investor fears of a larger problem in the credit markets that will stall corporate growth -- including the burst of takeover activity that powered stocks higher this year.
U.S. Stocks Recover From Rout; S&P 500 Gains, Led by Oil Shares
Saturday, August 11, 2007
By Michael Patterson
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Trader Michael Naples in the S&P 500 pit in Chicago
Aug. 10 (Bloomberg) -- U.S. stocks recovered from a global sell-off, erasing most of the Dow Jones Industrial Average's 213- point drop, after the Federal Reserve added $38 billion to banks to stem a crisis of confidence in credit markets.
Viacom Inc., Nike Inc. and Gap Inc. led a late-session turnaround in consumer shares. Exxon Mobil Corp. and Chevron Corp. paced gains in energy companies that helped the Standard & Poor's 500 Index bounce back from a 1.6 percent decline to complete its first weekly advance in a month.
The S&P 500 and Dow initially tumbled, following markets in Europe and Asia lower on concern widening losses for banks and hedge funds may hurt economic growth and earnings. The Fed made its biggest injection to the financial system since the 2001 terrorist attacks, joining central banks in Europe, Japan, Australia and Canada in attempting to avert a credit crunch.
The S&P 500 rose 0.55 to 1453.64 after a 3 percent retreat yesterday. The Dow lost 31.14, or 0.2 percent, to 13,239.54. The Nasdaq Composite Index slipped 11.6, or 0.5 percent, to 2544.89.
``One thing that's on your side as an investor is that the two largest printing presses on earth for money, the central bank of Europe and the Fed here, are stepping into the system,'' said James Swanson, chief investment strategist at MFS Investment Management in Boston, which oversees $190 billion.
For the week, the S&P 500 climbed 1.4 percent and the Dow average gained 0.4 percent. The Nasdaq increased 1.3 percent.
Viacom, the owner of MTV and Paramount Pictures, added $1.87 to $38.92. Nike Inc., the world's largest athletic-shoe maker, advanced $1.88 to $55.78. Gap Inc., the biggest U.S. clothing retailer, rose $1.09 to $16.75.
Energy Rally
A gauge of energy shares in the S&P 500 increased 1.2 percent today. Exxon, the world's biggest oil company, added 91 cents to $84.51. Chevron, the No. 2 U.S. oil company, climbed $2.31 to $83.42.
Marathon Oil rose $2.62 to $51.86. Citi Investment Research raised its recommendation on the refiner to ``buy'' from ``hold,'' saying the company's oil and gas reserves may double. Analysts including Doug Leggate also upgraded shares of refiners Tesoro Corp. and Valero Energy Corp., saying the ``sell-off in refining stocks has brought risk-reward back into balance.''
Tesoro, down 14 percent since June, added $2.30 to $49.30. Valero, down 6.7 percent during the same period, gained $1.35 to $68.90.
Rate-Cut Speculation
The Fed said it provided the $38 billion in reserves and pledged further funds ``as necessary'' to ``facilitate the orderly functioning'' of markets. The European Central Bank loaned 61.05 billion euros ($83.6 billion). Central banks in Japan and Australia also added funds as money-market rates rose around the world.
Fed funds futures indicate traders are betting on a quarter percentage point rate cut at policy makers' next meeting on Sept. 18. JPMorgan Chase & Co., one of the 21 securities firms that trades directly with the Fed, said there's a ``genuine possibility'' the central bank will lower interest rates between meetings if financial markets worsen.
``The stress generated by a repricing of credit risk is testing the resiliency of the global financial system,'' JPMorgan Chief Economist Bruce Kasman wrote in a report today. The third- largest U.S. bank's shares added 8 cents to $44.25.
Fannie Mae climbed 53 cents to $66.46. The biggest U.S. mortgage-finance company requested permission to increase its investments in home loans and mortgage bonds by as much as $72 billion to help provide liquidity in the credit markets, Chief Executive Officer Daniel Mudd said.
After the close of U.S. exchanges, the Office of Federal Housing Enterprise Oversight issued a statement, rejecting the request. Fannie Mae fell $1.46 to $65 in extended trading.
UnitedHealth Gains
Shares of U.S. managed-health companies, led by UnitedHealth Group Inc., gained after an analyst said the stocks were ``undervalued.'' Carl McDonald, an analyst with CIBC World Markets in New York, said that industry shares hadn't traded at so low a multiple of projected earnings since 2004.
UnitedHealth gained $1.15 to $47.48. Aetna Inc. rose $1.74 to $48.69. Cigna Corp. climbed $2.29 to $47.40.
Stocks opened the day lower after Countrywide Financial Corp., the biggest U.S. mortgage lender, said mortgage-market disruptions may crimp profit and it may have difficulty obtaining financing from creditors. Countrywide's shares sank 80 cents to $27.86 after falling as much as $3.95.
Washington Mutual Inc. dropped 81 cents to $35.95. The biggest U.S. savings and loan said in its own filing that liquidity in the market for mortgages made to borrowers below the top credit grade had ``diminished significantly.''
``People are unsure how deep all this goes,'' said Kurt Brunner, who helps manage $1.5 billion at Swarthmore Group Inc. in Philadelphia. ``It's shoot first and ask questions later.''
Brokerages Decline
Goldman Sachs Group Inc., the world's largest securities firm, dropped $1.75 to $180.50. Merrill Lynch & Co., the third- biggest U.S. securities firm, retreated 56 cents to $74.12.
The U.S. Securities and Exchange Commission, concerned that Wall Street firms may have concealed the extent of the subprime- mortgage rout, will examine how the brokerages accounted for the securities as they plummeted, a person with direct knowledge of the inquiry said. Lori Richards, director of the SEC inspections office, didn't reply to a phone call and e-mail seeking comment.
A gauge of U.S. stock market volatility climbed to the highest since April 2003. The Chicago Board Options Exchange Volatility Index gained 6.9 percent to 28.30. Higher readings in the so-called VIX, derived from prices paid for S&P 500 options, indicate traders expect bigger share-price swings in the next 30 days.
Investors said the drop in some shares early in the day may have been exacerbated as hedge funds that borrowed money to fund investments were forced to raise cash to meet margin requirements or repay investors and lenders.
`Forced to Sell'
``We're going to find out that several hedge funds were forced to sell their highest-quality positions,'' said Dan Veru, who helps manage $3 billion at Palisade Capital Management in Fort Lee, New Jersey. ``These funds aren't selling for fundamental reasons, they're selling because they have to.''
James Simons, whose computer-driven $29 billion Renaissance Institutional Equities Fund has fallen 8.7 percent so far in August, said in a letter to investors that other hedge funds have been forced to sell positions, short-circuiting statistical models based on the relationships among securities.
Global Alpha
After the close of U.S. exchanges, people familiar with Goldman Sachs' $8 billion Global Alpha hedge fund said it has fallen 26 percent so far this year. Goldman's shares fell 50 cents to $180 in extended trading.
State Street Corp. declined $2.53 to $68.03. Punk Ziegel & Co. lowered its recommendation on the world's biggest institutional money manager to ``market perform'' from ``buy.'' Analyst Richard Bove said declines in stock, bond and ``alternative investment'' markets will slow earnings growth through 2009.
MGIC Investment Corp. tumbled $5.58, or 13 percent, to $36.21 for the largest drop in the S&P 500. JPMorgan recommended selling shares of the largest U.S. mortgage insurer amid uncertainty over prospects for its purchase of Radian Group Inc, the third-biggest mortgage insurer.
Ambac Financial Group Inc. declined $3.36 to $66.14. The world's second-largest bond insurer said its holdings of collateralized debt obligations, or securities backed by pools of debt, are about $71.1 billion. CDOs package pools of securities backed by collateral that can include mortgages. The value of subprime mortgage assets has slumped in the past two months after defaults on home loans rose to a 10-year high.
Economy Watch
In economic reports, prices of goods imported into the U.S. climbed more than forecast in July on higher oil costs. The 1.5 percent increase, the biggest since March, compares with a rise of 1 percent forecast by economists in a Bloomberg survey. Prices excluding petroleum gained 0.2 percent, the fifth straight advance.
Nvidia Corp. fell $2.14 to $43.99 after the world's second- largest producer of computer-graphics chips said third-quarter sales will increase between 5 percent and 7 percent, with an inventory shortage and limited manufacturing constraining growth. Investors were looking for a forecast of at least 10 percent sales growth, Caris & Co. analyst Nicholas Aberle said.
Wyeth lost $2.99 to $46.59 after U.S. regulators rejected the drugmaker's experimental antipsychotic bifeprunox for schizophrenia. The Food and Drug Administration needs a study showing the drug works before the agency will consider approving the pill, Wyeth said.
Some 2.5 billion shares changed hands on the New York Stock Exchange, 48 percent more than the three-month daily average.
The Russell 2000 Index, a benchmark for companies with a median market value of $639 million, gained 0.5 percent to 788.78. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, was little changed at 14,641.03.
Genpact lowers overseas IPO price
Saturday, August 4, 2007
It was supposed to be India's flagship IPO overseas. But the US market volatility is getting to Genpact - India's largest BPO. Genpact priced its IPO lower than its offer price band and will raise less cash than it wanted to earlier.
The volatility in the US markets seems to have affected the listing of India's largest BPO firm - Genpact. The BPO major priced its IPO at USD 14 a share, lower than its initial price band of USD 16-18 a share. Its peers WNS and EXL are valued at 28.5 times and 25.5 times of their current earnings. WNS and EXL priced their IPOs at USD 20 a share and USD 12 a share respectively.
Genpact says the the price was scaled down due to the current volatility in the US markets. Genpact will now raise about USD 494 million, lower than the USD 631 million it wanted to raise earlier. The BPO wants to use the proceeds to repay debts and pursue acquisitions, one of which could be Citigroup's BPO in India. Genpact says it listed in the US for better visibility in the international financial markets.
China, India Seek Joint Strategy to Counter Global Challenges
Sunday, June 10, 2007
The grouping, which also included Mexico and South Africa, said they can help increase the participation of developing countries in the processes to shape globalization strategies, according to an e-mailed statement issued in Berlin yesterday by the office of Indian Prime Minister Manmohan Singh.
India, Asia's fourth-biggest economy and home to 1.1 billion people, is seeking to assert the developing world's rising economic strength through demands for permanent seats on the United Nations Security Council. The South Asian nation has also said it will snub demands by western nations to cut greenhouse gas emissions as it would impede economic growth.
Leaders of the five countries said that ``developing countries must participate more actively in the consolidation of strategies and initiatives that effectively address the challenges of a globalizing and increasingly interdependent world,'' according to the statement on the talks held on the sidelines of the Group of Eight meeting.
The U.S., the world's biggest greenhouse gas emitter, blocked an attempt to include in a G-8 agreement a pledge to cut global warming pollution in half by 2050, even as the European Union and Japan vowed to go ahead and start their own emission reductions. Instead, the U.S. agreed it would ``consider seriously'' such measures and take part in international talks to craft a new treaty on climate change by 2009, the year President George W. Bush leaves office.
Water, Extinction
A United Nations panel on climate change in April said global warming will result in bigger water shortages, the extinction of more flora and fauna, besides frequent droughts and floods as man- made emissions heat up the earth.
The G-8 meeting offers emerging economies the opportunity to collaborate on climate change, energy, cross-border investments and research, according to the statement by Singh's office.
``The consensus view was that all of these challenges must be addressed from a multilateral, regional and bilateral perspective,'' it said.
A meeting of the G-8 with Brazil, China, India, Mexico and South Africa is being organized today. The countries also participated in the two earlier summits of the G-8.
China this week said it plans to use hydropower, nuclear energy, biomass fuels and gas to help cut 950 million metric tons of so-called greenhouse gas output by 2010 as the country closes in on the U.S. as the biggest producer of harmful emissions.
GLOBAL CUES
Stocks jump after three days of big losses. Chips, steel and lower crude oil power the rally. U.S. Steel jumps on takeover talk. Next week could be volatile. Pimco`s Bill Gross says a booming global economy, not inflation, will boost interest rates.
Stocks staged a powerful afternoon rally Friday, recovering more than a third of the losses the market saw from Tuesday through Thursday.
Call it a relief rally or a bounce, the rebound reignites the debate over whether the put-punching sell-off that staggered investors this week was the start of something big or a mere blip.
At the close, the Dow was up nearly 158 points, 1.2%, to 13,424.39. The Standard & Poor`s 500 Index rose nearly 17 points to 1,507.67, and the Nasdaq Composite Index added 32 points to 2,573.54.
Some recovery was to be expected as traders hoped to recover from this week`s declines, and stocks that did the worst in the selling rebounded sharply. In fact, over the past 10 years, a rally after three days of selling is fairly normal. (Five straight days of pure selling is rare.) The Dow`s gain was its 12th consecutive gain on a Friday, CNBC`s Bob Pisani noted.
But one can`t infer from Friday`s buying that the pullback from highs the Dow and the S&P 500 saw as late as Monday is done. It`s too early to say. Last year`s sell-off started on May 10 and didn`t fully hit a bottom until mid-July.
For the week, the Dow lost 1.8% but is still up 7.7% on the year. The S&P 500 fell nearly 1.9% but remains up 6.3% in 2007. The Nasdaq`s loss for the week was 1.5%; the tech-heavy index is up nearly 6.6% for the year.
The stock market`s volatility could continue next week, and then the market moves into summer, typically its weakest time of the year.
Next week has options expirations that can push stocks higher or lower as investors decide whether to leave options alone or exercise them.
Plus, the government will report wholesale price inflation on June 14 and issue its monthly Consumer Price Index report on June 15. It will also report on retail sales on Wednesday.
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BOE May Need to Move Faster on `Sticky` Inflation
The Bank of England, which left interest rates unchanged yesterday, may have to move faster to curb the U.K.`s worst bout of inflation in a decade.
Manufacturers` optimism about their pricing power rose to a 12-year high in May, retailers are confident they can push through their biggest price increases since 1998 and gains in consumer prices have exceeded the bank`s 2 percent target for the past year. That`s fanning concern that inflation is becoming entrenched in the economy even after four rate increases in the past year.
"Inflation is high and sticky," said Alan Clarke, an economist at BNP Paribas in London. "Underlying prices will continue to accelerate throughout this year. The bank is behind the curve."
The bank, led by Governor Mervyn King, faces the biggest test to its record on inflation since winning independence from the government 10 years ago. While it forecasts one more quarter-point rate increase from the current six-year high of 5.5 percent will be enough to push inflation back to target, investors disagree.
The implied rate on the March interest-rate futures contract has risen 29 basis points in the past month to 6.20 percent at 8:30 a.m. in London, suggesting traders expect the Bank of England will have to raise its rate to 6 percent to curb inflation.
The contract settles to the three-month London interbank offered rate for the pound, which averaged about 15 basis points more than the central bank benchmark for the past decade. A basis point is 0.01 percentage point.
Wealth Erosion
U.K. consumers are already feeling their wealth eroded by inflation.
"Prices just look like they`re going to keep going up," said Deepak Patel, 29, who sells gym memberships in the London borough of Islington. "You used to be able to get a decent lunch for three pounds and now it looks more like six or seven. It`s all getting so much more expensive."
The U.K.`s longest stretch of economic growth in 200 years and global inflationary pressures are pushing prices higher across the board. The cost of food rose the most in six years in April and inflation accelerated to 3.1 percent in March, the fastest in a decade, after an increase in energy prices.
"The longer the Bank of England takes to get this burst of inflation under control, the worse the news will get," said Tim Congdon, a professor at Cardiff Business School and a former adviser to the U.K. government on monetary policy. The bank`s benchmark rate may have to exceed 6 percent, he said.
Inflation Battle
Economists forecast the inflation held above target again in May, at 2.5 percent, according to the median of 15 estimates in a Bloomberg News survey. That report will be released by the statistics office on June 12.
The Bank of England is under pressure to clamp down on inflation in line with other central banks. The European Central Bank, the Reserve Bank of New Zealand and South Africa`s central bank raised interest rates this week and investors have abandoned bets the Federal Reserve will cut borrowing costs this year.
The 10-year U.S. Treasury note yield, the benchmark for global bond markets, rose the most in more than three years yesterday after the surprise New Zealand increase stoked concern other central banks will raise borrowing costs to respond to faster growth. Treasures extended losses in Asian trading, pushing the yield to as high as 5.17 percent.
Investors are concerned that inflation expectations will become difficult to dislodge once they take hold. The oil crises of the early 1970s fueled a jump in wages and inflation that U.K. policy makers spent the next two decades trying to quell.
Housing Slowdown?
Inflation expectations among consumers, measured in a quarterly survey published by the Bank of England in March, rose to an eight-year high.
King has so far rejected suggestions that inflation is slipping out of the bank`s control. The central bank`s forecasts show one more rate move will be enough to take inflation to 1.95 percent in the first quarter of 2008.
Some reports suggest that rate increases to date are starting to cool the economy. House prices, which have surged more than 10 percent in the past 12 months, rose at the slowest pace in a year in May, HBOS Plc, the nation`s biggest mortgage lender, said yesterday.
Wage inflation, which King has cited as a risk to the economy, held at 3.5 percent in the quarter through May, matching the reading for the three months through April, Incomes Data Services Ltd. said in a report today.
Price Perceptions
"What stops interest rates from having to go up forever is that housing-led spending will give way, and this is starting to happen now," said Michael Saunders, chief western European economist at Citigroup Inc.
The Bank of England is nevertheless struggling to shake households` perception that the cost of living is rising too much.
Almost 50 percent of retailers reported higher selling prices in May from a year earlier, a survey published by the Confederation of British Industry last month showed. An index of manufacturers` pricing intentions for the next three months rose to 25 in May, the highest since 1995, from 16 in April, the CBI said May 24.
"Prices have been going up," said Anna Cameron, 71, a retired social worker who lives in London. "The Bank of England has been doing a bad job of controlling inflation."
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U.S. Stocks Advance After Bond Yields Retreat, Oil Price Falls
The U.S. stock market rebounded, ending a three-day slump, after bond yields retreated from the highest in five years and oil prices fell.
U.S. Steel Corp., the largest U.S. steelmaker, jumped to a record on speculation the company is a takeover target. National Semiconductor Corp. rose the most since 2000 after the maker of chips for electronic devices posted profit that beat analysts` estimates.
The recovery pared the weekly loss for the Standard & Poor`s 500 Index to 1.9 percent and the decline in the Dow Jones Industrial Average to 1.8 percent. Both were the steepest since February. Ten-year Treasury bonds gained after the biggest slide in three years increased bets among options traders that the Federal Reserve may raise rates this year.
"Reality has come back to the market," said Andy Brooks, head equity trader at T. Rowe Price in Baltimore, which has $350 billion in assets. "The drop and then the bounce back are healthy over the long term. It`s three steps forward and two steps back."
The S&P 500 gained 16.95, or 1.1 percent, to 1507.67 for its best one-day gain since March 21. The Dow average increased 157.66, or 1.2 percent, to 13,424.39. The Nasdaq Composite Index added 32.16, or 1.3 percent, to 2573.54, bringing its loss for the week to 1.5 percent.
National Semiconductor jumped $3.79, or 15 percent, to $29.58. The company, whose chips manage power in electronic devices, reported fourth-quarter net income fell less than analysts estimated and said sales rose from the preceding three months, a sign that an industry glut may be abating.
Technology Shares Rally
Technology shares climbed 1.5 percent as a group and contributed the most to the S&P 500`s advance.
Texas Instruments Inc., the world`s largest maker of mobile- phone chips, rose $1.58 to $35.97. Intel Corp., the world`s biggest chipmaker, added 52 cents to $21.83.
U.S. Steel jumped $9.25, or 8 percent, to $125.05 for the second-best gain in the S&P 500. ThyssenKrupp AG is interested in buying either U.S. Steel or Russia`s OAO Severstal to expand, Interfax said, citing an unidentified banker. U.S. Steel is the more likely target, the news agency said.
Spokesmen from ThyssenKrupp, U.S. Steel and Severstal declined to comment.
Nucor Corp., the second-largest U.S. steel producer, added $1.81 to $66.61.
Crude oil slid 3.2 percent to $64.76 a barrel in New York after cyclone Gonu weakened. The storm is dissipating after sweeping across coastal Oman and Iran. Oman`s ports opened today for partial operations, Gulf Agency Co. reported.
Weekly Declines
Shares plunged yesterday after 10-year bond yields breached 5 percent for the first time since August, fueling speculation the Federal Reserve will raise interest rates. The yield today declined almost 2 basis points, or 0.02 percent, after earlier rising to as high as 5.25 percent, its highest level since 2002.
The odds of an increase in the Fed`s benchmark interest rate to 5.5 percent rose to as high as 40 percent this week, options on the fed funds rate showed, up from zero a month earlier.
Citigroup Inc., the biggest U.S. bank, and Goldman Sachs Group Inc., the world`s largest securities firm by market value, today led a rally among companies that are the most dependent on debt financing. Citigroup climbed 81 cents to $53.33. Goldman added $5.01 to $225.06.
Citigroup, Goldman
Citigroup`s debt equaled 88 percent of total capital at the end of last year. The ratio is more than twice the 34 percent average for members of the S&P 500, according to data compiled by Bloomberg. Goldman`s debt amounted to 93 percent of total capital. Lower bond yields reduce companies` borrowing costs.
A gauge of homebuilders in S&P indexes rallied 2.3 percent as lower interest rates may boost demand for mortgage loans.
Lennar Corp., the largest U.S. builder by sales, jumped 74 cents to $43.16. D.R. Horton Inc., the second biggest, climbed 43 cents to $21.96.
In economic reports today, the U.S. trade deficit fell 6.2 percent to $58.5 billion in April, the steepest drop in six months, the Commerce Department said. The gap declined even as the shortfall with China widened.
Exports rose 0.2 percent to a record $129.5 billion as sales of foods, plastics and consumer goods such as jewelry improved. Imports slipped 1.9 percent.
Export Share
Non-U.S. sales accounted for 48.6 percent of total revenue for S&P 500 companies last year, based on estimates compiled by S&P.
"A strong global economy is clearly good for earnings," said George Hoguet, who helps manage more than $6 billion as global investment strategist at State Street Global Advisors in Boston. "Stocks continue to be attractive relative to bonds despite the increase in yields."
McDonald`s Corp. gained $1.20 to $51.41 after the world`s largest restaurant chain said sales at U.S. stores open at least 13 months increased 7.4 percent in May, helped by a "Shrek the Third"movie promotion and chicken salads and sandwiches. The growth topped an estimate of 5 percent from RBC Capital Markets Corp. analyst Larry Miller.
Tyco International Ltd. climbed $1.17 to $33.80. The manufacturer said it will spin off its health-care and electronics units to shareholders at the end of the month after winning approval from its board and the U.S. Securities and Exchange Commission.
Utilities Rebound
Utilities in the S&P 500 rebounded 1 percent as a group, snapping a five-day slide that was the steepest since February 2003. The stocks declined this week as rising bond yields made their dividends less attractive. Collectively, the shares have a dividend yield of 3.1 percent, the highest among 10 industries.
Exelon Corp., owner of the largest U.S. fleet of nuclear power plants, added 74 cents to $70.66. Southern Co., the biggest electricity generator, gained 29 cents to $34.60.
Nike Inc. lost $1.14 to $52.96. The world`s biggest athletic-shoe maker was downgraded to "neutral" from "buy" at Banc of America Securities, which cited a slowdown in the U.S. athletic shoe market.
The Russell 2000 Index, a benchmark for companies with a median market value of $664 million, climbed 1.2 percent to 835.31. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, rallied 1.1 percent to 15,233.07. Based on its advance, the value of stocks increased by $203.7 billion.
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DGCX launches Indian Rupee Futures
DGCX creates history by becoming the first exchange in the world to launch Indian Rupee Futures - contracts worth 1.29 bn. Rupees traded !
DGCX added another chapter to the history of financial markets with its launch of Indian Rupee futures contract on Thursday, thus becoming the first and the only futures exchange in the world to trade the Indian currency on an organised exchange platform. Market participants responded enthusiastically trading contracts worth 1.29 billion rupees on the very first day of the launch. Precious metal prices ended sharply lower as higher Treasury yields helped spark a rally in the US dollar, depressing the metal`s investment appeal. The August ’07 delivery gold futures contract on DGCX pared a huge loss of $10.50/troy oz or 1.56% while silver future prices, followed suit, witnessing a decline of 19 cents/troy oz or 1.38%. In the currency markets, the greenback edged higher against the Euro and the Sterling pound, boosted by higher Treasury yields and reports that North Korea might have fired several short-range missiles off its west coast. Treasuries saw a sharp sell off on Thursday, thrusting the benchmark yield above 5% for the first time since August, on the heels of a global sell-off of government bonds triggered by foreign rate hikes.
Thursday’s session began on a subdued note as the DGCX August 2007 delivery gold futures contract opened at its previous closing level of $675.20/troy oz. Prices, then, rose to an intraday high of $677.90 before declining to a session low of $663.30. The contract finally concluded the day at $664.70, churning in a loss of $10.50/troy oz or 1.56%. Open positions in the August futures edged higher by 650 contracts and ended the session at 2861. DGCX Gold futures for October delivery pared a loss of $9.30/troy oz or 1.37% and settled for the day at $671.50. Mirroring the slump in the yellow metal, the DGCX July 2007 silver futures contract ended the day at $13.60/troy oz, logging in a loss of 19 cents/troy oz or 1.38%.
In the Forex market segment, the DGCX Euro contract for June started trading for the session at $1.3515/Euro, which incidentally remained its highest traded level for the day. The contract declined to an intraday low of $1.3429 before finally ending the session at $1.3433/Euro, registering a loss of 0.51%. June ’07 dated DGCX GBP contract opened at $1.9933/GBP and jumped to an intraday high of $1.9940 before plummeting to a session low of $1.9750. Prices finally settled at $1.9770/GBP, logging in a huge loss of 0.78%. DGCX Yen futures maturing in June edged higher by 0.01% and settled for the day at a rate of $0.8276 for 100 Yen.
In the options market, DGO July 2007 – 670, 680, 690 & 710 strike call along with 660 & 670 strike put options witnessed active trading.
DGCX Fujairah Fuel Oil contract for July 2007 delivery shed 50 cents from its previous close and closed for the day at of $345.90/metric ton.
In the US energy markets, crude oil rose to its highest level in more than a month, due to reports of a delay in oil tanker loadings at Oman, as well as a possible slowdown at US refineries. July crude oil futures closed up 97 cents at $66.93 a barrel.
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Morgan Stanley puts triple sell on Europe
Sell signals are flashing in Europe following Wednesday’s interest rate hike by the European Central Bank (ECB). Top brokerage house Morgan Stanley has advised clients to slash exposures to European stocks after three key warning indicators began flashing a “Full House” sell signal for the first time since the dotcom bust.
Europe’s Dow Jones Stoxx 600 Index fell for a fourth day, the longest rout since the first week of March. The measure slid the most in two months on Wednesday on speculation the ECB will keep raising borrowing costs, says a Bloomberg report. But while investors may be packing their bags from Europe, not many of them are likely to land on the Konkan coast anytime soon. This much was evident from the second consecutive day of decline in the Indian market, with the Sensex losing 69 points to end at 14,186. Foreign institutional investors (FIIs) continued to be net sellers in Indian equities, selling Rs 287 crore on Thursday, according to provisional figures.
The BSE benchmark saw a high degree of volatility, swinging 200 points before settling with what appeared to be a marginal loss. Weakness was also attributed to the BoE’s meeting today on interest rates. Selling pressure was seen in auto, banking and FMCG stocks while shares from the IT sector saw buying as the rupee stabilised against the dollar.
“Money may move out of European equities into emerging markets. But this need not necessarily come into Indian equities,”said R Rajagopal, head, equities, DBS Chola Asset Management.
“It may go to Brazil or Argentina as they understand these markets better. I don’t read too much into it,” Rajagopal said about the likely impact of investors pulling out of Europe.
Teun Draaisma, chief European equities strategist for Morgan Stanley, was quoted as saying the triple sell warning was a “very powerful” signal that had been triggered just five times since 1980. “Interest rates are rising and reaching critical levels. This matters more than growth for equities, so we think the mid-cycle rally is over. Our model is forecasting a 14% correction over the next six months, but it could be more serious,” he said. Draaisma said the MSCI index of 600 European and British equities had dropped by an average of 15.2% over six months after each “Full House” signal, with falls of 25.2% after September, 1987, and /R 26.2% after April, 2002. “We prefer to be on the right side of these odds,” he said.
In India, strong hands stayed away from the markets, especially since there is some uncertainty about what the Reserve Bank will do on rates. While some bankers have been predicting a cash reserve ratio hike, others say that won’t happen now as June is anyway a month of tight liquidity due to advance tax outflows.
“The market volatility was more due to the absence of buyers rather than any selling pressure. Buyers simply stayed away from the market, refusing to take positions due to uncertainties on the interest rate front,” said Ajay Pandey, equity analyst at Mehta Equities.
There are concerns that investors may pull out funds from the secondary market to invest in IPOs, which are scheduled to hit the market in the near term. Realty major DLF is mopping up between Rs 8,750 crore and Rs 9,625 crore at the proposed price band of Rs 500-550 per share. DLF’s IPO opens for subscription on June 11, 2007, and ends on June 14, 2007. ICICI Bank is also planning a jumbo IPO to raise around Rs 5,000 crore from the domestic market.
The market is now waiting for Friday’s inflation numbers and further cues from the central bank to decide on its future course of action. “People may be wary about taking positions in a volatile market. But I expect a sideways to flat opening on Friday. Once the inflation numbers are out, and if we don’t see any nasty surprises from the RBI, we should consolidate around 4,100 on the Nifty or 14,050-14,100 on the Sensex,” says Gaurang Shah, chief manager, client servicing, Geojit Securities.
Vijay Bhambwani, CEO of BSPLIndia.com, said not much should be read into the follow-on market fall on Thursday. He said 4,150 still remained a critical support level for the Nifty and any upward move will come only if the market crosses 4,300. It is likely to take one or two weeks, as corrections of this magnitude take time to pullback.”
Retail Investors Are All-In
Saturday, June 2, 2007
In 1999, lawyers and doctors quit their jobs to trade stocks at day trading firms.
In 2007, Chinese are quitting their jobs to trade stocks. Over 27 million brokerage accounts have been opened in 2006, bringing the total to well over 100 million.
From Chinadaily.com...
Xiao Feng, a former investment consultant at a futures company in Nanjing, put his three apartments and two vehicles - worth 5 million yuan - up as collateral days ago to get a 10 million yuan loan to invest in the stock market.
But the cost of borrowing is high - with an annual interest rate of 25 percent, he`ll have to pay the lender 2.5 million yuan in interest at the end of the year, reported the Nanjing Morning Post on Wednesday.
In addition, the lender will monitor his stock trading account. If the value of Xiao`s portfolio drops below 8 million yuan, the lender will liquidate his stock holdings to prevent a further decrease in the principal, spelling a loss of two million for Xiao.
When the 2.5-million interest payment is also taken into account, Xiao Feng will lose what he has worked for in the past 10 years - all his collateral.
Then why take such a risk? "Maybe it is the lure of the stock market. If an investment in a stock triples, or quadruples in a short period, then why not try?" he replied.
No wonder the Chinese government is so concerned. The road to capitalism will get much more bumpy if people actually start getting a sense of risk and lose money. It will be an in vitiation for more, not less, government intervention - if that`s even possible in a communist country.
So, three out of four on the Bubble Top Checklist are definitely confirmed, and one is not. That`s probably close enough to call for a significant "correction". Soon, I`ll take a look at how US investors might be able to make some money off of the China stock bubble "correction".
Greenspan promises surprises in September book
Greenspan, who can still move markets with the slightest word, said he would bring to bear the lessons learned steering the world`s biggest economy to discuss his views on the future in the book to be published in September.
He said the prevalence of low interest rates throughout the world was one of the things that surprised him as he came to the conclusion of his book, "The Age of Turbulence."
The former Fed chief admitted he wrote much of the book in the bath tub in long-hand notes that were dutifully transcribed from damp sheets of paper by an assistant.
The book, to be published by Penguin on September 17, will examine his 18-1/2 years at the helm of the U.S. central bank.
"I`m not holding back in the book," he said at a publishing convention in New York. "There are a lot of surprises in the book."
Greenspan said he set out to write a memoir, from childhood to his time as adviser to Presidents Richard Nixon and Ronald Reagan and then as the world`s most influential economist, but ended up writing an analytical book about both the past and the future.
"When I got to look at the future there were very unusual things going on now," said Greenspan.
"Interest rates in the United States are low, but they are low all over the world, including developing nations which never saw single-digit interest rates," he added, answering a question from NBC correspondent Andrea Mitchell, who is also his wife and who conducted the on-stage interview.
FAN OF SARKOZY
Greenspan said he was particularly encouraged about the outlook for Europe amid a political changing of the guard.
Of France`s newly elected president, Nicolas Sarkozy, Greenspan said, "He struck me as very smart, very French and, I thought, pro-American." He said he had known Sarkozy from his tenure as French finance minister.
"Pro-American in the sense that I think he admires the American economy and what we`ve accomplished," Greenspan said.
He spoke warmly of Sarkozy, German Chancellor Angela Merkel and Britain`s finance minister, Gordon Brown, who is due to take over from Prime Minister Tony Blair on June 27.
"I think we`re going to find the three of them hold a very great deal in common, which is going to mold a new Europe that is going to move in a more vibrant way," Greenspan said.
"It`s the first good sign I`ve seen about the long-term future of Europe."
Commenting on his past as Fed chief, Greenspan gave unusual insights into the often opaque style of communication that became his trademark in testimony before Congress.
"I got people asking questions that I couldn`t and shouldn`t answer because there are certain answers no matter how you phrase them and what you do have a market effect," he said.
"I found that where I got a question and got myself into a position where I didn`t, couldn`t and was not going to answer, I fell back into lapsed syntax and all sorts of ways in which the senator or congressman would think I was saying something terribly profound and think I answered his question."
He also said he proposed to his wife, Mitchell, five times before she realized what he was asking her.
Greenspan said one of the most important lessons he learned came after the September 11 attacks.
Though the U.S. economy stumbled, it proved to be "far more flexible" than he had thought it was.
"Because we can`t forecast crises or events like the stock market crash in 1987 or 9/11, we must be prepared and capable of absorbing shocks," Greenspan said.
Penguin has not disclosed the terms of its contract with Greenspan, but when it was announced in March 2006, publishing industry sources said bids from top publishers had topped $8 million.
China to pump in $39bn in US, UK equity market
China has provided the Western world with one more reason to feel beholden to it despite uneasiness over a variety of issues, including human rights. In the latest move, Chinese insurance companies have been allowed to spend a whopping $35 billion to buy up equities, bonds and derivatives in the London and New York market.
The Chinese fund tap might eventually result in a capital outflow exceeding $100 billion into the world’s financial markets as the nation’s banks are preparing to invest a portion of their assets overseas.
The first signal has already come from the China Banking Regulatory Commission, which recently allowed domestic banks to invest in Hong Kong stocks on behalf of their wealthy clients. CBRC also dangled a carrot at the world markets by announcing that it will let the banks invest in other foreign markets as long as the concerned regulators signed a cooperation agreement with it.
Negotiators in western countries dealing with Beijing have increasingly become aware that China controls one of the major taps of global capital flows emanating both from its industrial and financial industries. The Chinese government has indicated it is keen on financial investments in world markets as a means of extending its influence beyond world governments and into the markets. It recently set up an investment company, which announced plans to invest $3 billion in the US based private equity firm, Blackstone.
In the latest move, the China Insurance Regulatory Commission has permitted local insurance companies to put their money in equity, bond and derivative markets overseas. To begin with, the regulator will permit them to invest in “mature markets’’ like London and New York later this year before letting the insurers to explore other markets in the world. Insurers would be allowed to invest 15% of their total assets, which stood at $2,574 billion by 2006- end, in overseas financial products.
The decision will lead to the release of $39 billion for investment in London and New York. Most insurers are expected to avail of this golden opportunity as they have been hamstrung by limited investment opportunities and consequently low return on investment at home.
CAPITAL CONTROL
The China Insurance Regulatory Commission has permitted local insurance companies to put their money in equity, bond and derivative markets overseas
Insurers would be allowed to invest 15% of their total assets, which stood at $2,574 billion by 2006- end, in overseas financial products.
TOI
China’s Inflation Heats Up, Most in 2 Years
Thursday, April 26, 2007
A spokesman for the National Bureau of Statistics stated that, "If this type of fast growth continues, there is the possibility of shifting from fast growth to overheating. That is the risk."
China's consumer price index in March reportedly rose at a 3.3 percent annual rate, above the government's 3 percent target. That's the country's highest CPI since hitting 3.9 percent in February 2005.
A statement posted on the State Council's Web site said the government will work to "reduce the country's large trade surplus, limit rapid growth in house prices and maintain basic price stability."
Beijing has already raised interest rates three times in the past years, news sources reports. The country has also imposed investment curbs on real estate, the auto industry and other market segments.
Inflation in the first quarter hit a 2.7 percent annual rate, up 1.5 points compared with the same period last year.
China has reportedly said it wants to keep inflation under 3 percent for the entire year after it increased 1.5 percent in 2006.
A Hong Kong-based analyst stated that, "The stronger-than-expected data suggest that the government will likely introduce another round of tightening measures very soon which, on top of a rate hike, may include further hikes in the reserve requirement ratio" and other measures to cool investments.
According to one news source, investors in China and around the region are concerned that steps to restrain investment would hurt business prospects.
Last year, the U.S. reported a record $232.5 billion trade deficit with China.
Siemens Chairman Quits, as $ 500 mn bribing scandal rages
Saturday, April 21, 2007
The corruption scandals at Siemens, the German industrial giant, claimed one of the nation's most prominent industrialists late Thursday, as the company said its chairman, Heinrich von Pierer, would resign next week. In a statement, Mr. von Pierer said that he was leaving out of a duty to Siemens and its more than 400,000 employees, not because of any involvement in the accusations of bribery that have roiled the company.
Mr. von Pierer's departure is not a total surprise. He had been under mounting pressure to leave, even from other members of the company's supervisory board. But his resignation is sure to reverberate through German corporate circles, where he has long been a distinguished figure.
Mr. von Pierer's position on the board eroded in recent weeks because he had been chief executive during the period when the company is accused of bribes and other corporate corruption.
Prosecutors in
Current and former executives are also being investigated in two other bribery cases — one involving an Italian energy company, the other a German labor leader who represented Siemens workers.
The accusations are among the most far-reaching in corporate history in
In the statement, released around
"I assume that electing a new chairman of the supervisory board will also make a contribution toward taking our company out of the headlines and bringing it back into calmer waters."
Given the breadth of the accusations facing Siemens, Mr. von Pierer's departure is unlikely the settle the questions surrounding its senior management.
Last month, prosecutors arrested a top executive, Johannes Feldmayer, on suspicion that he was involved in bribing the head of a group that represents Siemens employees.
It is unclear, analysts who follow the company say, how the shake-up will affect the current chief executive, Klaus Kleinfeld. He has not been implicated in any corruption, and has responded to the accusations by hiring a law firm and anticorruption specialists to advise management.
By leaving, an official with ties to the company said, Mr. von Pierer may give Mr. Kleinfeld a freer hand to clean up Siemens, without fear of crossing his former boss.
On the other hand, Mr. Kleinfeld was a protégé of Mr. von Pierer's, anointed by him as his successor when Mr. Kleinfeld was 46.
In a statement, Mr. Kleinfeld said: "I have always associated the greatest honesty and exemplary behavior with Heinrich von Pierer. That was always the case, and it is particularly so in these difficult times."
A lawyer from northern
When he relinquished the top job to Mr. Kleinfeld in January 2005, Mr. von Pierer was regarded as a sort of dean among German executives. He advised the former chancellor, Gerhard Schröder, on economic policy, and now advises Chancellor Angela Merkel.
As is the custom at many German companies — and a cause of concern for some corporate watchdogs — Mr. von Pierer ascended to the chairmanship of Siemens, presiding over a supervisory board composed equally of shareholder representatives and representatives of employees.
He also sits on the boards of other leading German companies, including Deutsche Bank and Volkswagen.
As accusations about how Siemens conducted business overseas began to seep out last fall, Mr. von Pierer's legacy came under question. To some extent, Siemens is a victim of a changing ethical code in
While Mr. von Pierer has steadfastly denied any personal involvement in bribery, the fact that so much of it appears to have occurred under his watch has raised questions about his management.
Siemens said Mr. von Pierer would be succeeded temporarily by another board member, Gerhard Cromme, the chairman of Thyssen- Krupp, the German steel maker. A new chairman is expected to be elected in
Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.
