Late-Night Headlines
Bloomberg:
The Markit LCDX, a benchmark credit- default swap index used to hedge against losses on leveraged loans, fell to a record low as banks tried to sell holdings of the debt. The index fell 3.35 percentage points, its biggest drop ever, to a mid-price of 85.50 of face value, according to Goldman Sachs Group Inc. The index falls as credit risk increases. It's the lowest price since the index was introduced in May. Prices of leveraged loans have tumbled to record lows as hedge funds seek to sell assets in the wake of the worst monthly performance in 10 years, the failure of Lehman Brothers Holdings Inc. in New York and the takeover of Kaupthing Bank hf by the Icelandic government today.
- The currencies of emerging economies including Brazil and India will slump as the U.S. dollar strengthens and investors pare back growth expectations amid signs of a global recession, Morgan Stanley said. Brazil's real plunged 30 percent over the past three months, Poland's zloty is down 22 percent and India's rupee 10 percent as so-called carry trades are unwound and domestic importers and exporters reassess currencies. Slowing global growth will cut capital flows to emerging markets to between $400 billion and $450 billion from $750 billion in 2007-08, Morgan Stanley said. ``The violent sell-offs in some emerging market currencies in recent weeks mark only the beginning of what is likely to be a multimonth process,'' wrote a team of London-based Morgan Stanley currency economists led by Stephen Jen. ``We are likely to see a global EM currency `moment' in contrast to history, which is marked by regional currency crises.''
- The perceived risk of Asia-Pacific companies and governments defaulting on their debt rose after interbank lending rates jumped. Australia's benchmark for credit risk traded at a record. The Markit iTraxx Australia index climbed as much as 47 basis points to 270, according to Credit Suisse Group AG data. The Markit iTraxx Asia index of 20 high-risk, high-yield borrowers outside Japan advanced 150 basis points to 950, data from Barclays show. The region's benchmark of 50 investment- grade borrowers rose 46 to 322.
- Russian billionaires from aluminum magnate Oleg Deripaska to soccer-club owner Roman Abramovich lost more than $230 billion in five months during the nation's worst financial crisis since the 1998 default on its debt. The combined wealth of Forbes magazine's 25 richest Russians tumbled 62 percent between May 19 and Oct. 6, based on declines in the equity value of traded companies and analysts' estimates of closely held assets they own. The loss is four times larger than the fortune of the world's wealthiest man, Warren Buffett. The global financial crisis has hurt the commodities industry in South Korea, Asia's fourth-largest economy, as banks reduce financing and the currency tumbles to the lowest in a decade. ``It's getting worse and worse as import costs are surging everyday because of the plunging won and expensive credit,'' Lee Won Jae, an analyst with SK Securities Co., said by phone from Seoul today. ``Local banks are reluctant to provide new financing for imports.''
- Copper dropped by the daily limit in Shanghai after resuming trading following one-day suspension amid concerns that rate cuts by central banks aren't enough to boost world economies and improve demand for industrial metals.
- Crude oil tumbled to the lowest in a year and copper fell as demand dropped and global stock markets plunged on concern a global credit crisis will push countries including the U.S. into a recession. ``OPEC has to be cautious and may only make moderate cuts as they won't want to be seen as exacerbating any economic slowdown.'' U.S. fuel demand averaged about 18.7 million barrels a day during the past four weeks, the lowest since June 1999, according to an Energy Department report on Oct. 8. The figure is down 8.6 percent from the year-earlier period.
- Investors pulled a record $52.1 billion from U.S.-managed stock and bond mutual funds in the past week, seeking the safety of government-insured bank deposits as the financial crisis worsened. Shareholders took $43.3 billion from stock funds and $8.8 billion from bond funds in the week ended Oct. 8, according to data compiled by TrimTabs Investment Research in Sausalito, California. The exodus followed $72.3 billion of outflows in September, the most in a single month. Investors deposited $185.5 billion into bank accounts last month through Sept. 22, TrimTabs said, citing U.S. Federal Reserve data.
- International Business Machines Corp.(IBM) raised $4 billion in the biggest U.S. bond sale in five weeks after the company said its profit this year will hold up against the worst financial crisis since the Great Depression.
- Citigroup Inc.(C) walked away from its attempt to buy Wachovia Corp.(WB), handing victory to Wells Fargo & Co.(WFC) in a struggle for the nation's sixth-biggest bank.
- It took the European Union almost three decades to agree on what could legitimately be called chocolate. That doesn't bode well for its handling of the worst financial crisis in its history. The club of 27 governments has been relegated to bit-player status in the drama as global central banks coordinate rate cuts and individual European nations move unilaterally to fortify their own banking systems.
- Morgan Stanley's(MS) credit rating may be cut by Moody's Investors Service, which said the financial market slump may hurt profit at the U.S. securities firm next year. Moody's put Morgan Stanley's A1 long-term credit rating on review for a possible downgrade, according to an e-mailed statement. The ratings assessor also said it cut its outlook for Goldman Sachs Group Inc.'s Aa3 long-term rating to negative.
Wall Street Journal:
Federal regulators are meeting with market participants Friday to find a quick way to unclog the credit-default-swap market, where trading is choking up, insurance costs are soaring and banks are wary about trading with one another. The gathering comes on the same day as an auction that will determine payouts on swaps tied to the debt of failed Lehman Brothers Holdings Inc., which is expected to saddle many swaps sellers with losses.
- The Treasury Department has begun canvassing financial executives to gauge their interest in participating in a program that would inject capital into banks, highlighting how quickly officials are shifting gears as the financial turmoil deepens. Treasury is trying to determine how to structure capital infusions into healthy banks so that the institutions can begin lending again. One possible option is to take equity stakes, such as buying preferred stock, under terms that are favorable to the institution.
- Gasoline prices here have tumbled even more than in most places, to less than $3 a gallon, but drivers say they still aren't filling up their tanks and zooming down the highways. Instead, the sour economy is prompting them to stick to their new fuel-efficient ways, a pattern that is likely to hold across the country even if gas gets cheaper. This means demand for oil will probably continue to slacken, putting more pressure on petroleum prices.
NY Times: Nations Weigh Global Action to Crisis. The United States and Britain appear to be converging on a similar blueprint for stemming the financial chaos sweeping the world, one day before a crucial meeting of leaders begins in Washington that the White House hopes will result in a more coordinated response.
CNNMoney.com: Bank stocks sank across the board Thursday, leading the broader market in a frenzied sell-off. Some market watchers blamed the drop on the expiration of the short selling ban on financial stocks. Morgan tumbled 26% as the investment bank continued to be plagued by rumors that Japan's Mitsubishi UFJ agreement to buy a 20% stake in Morgan was in jeopardy. A Morgan spokesman dismissed such rumors, saying the deal will close this coming Tuesday under the same terms announced earlier this week. Mitsubishi also said in a statement Wednesday morning that the rumors are not true and that it expects the deal to close next Tuesday. A source familiar with the Morgan-Mitsubishi deal blamed the slide in Morgan Stanley's stock Thursday on the expiration of the short selling ban. Frank Barkocy, director of research with Mendon Capital Advisors, an investment firm that specializes in bank stocks, also blamed the decline across the financial sector on short selling.
Hollywood Reporter:
- Barack Obama will broadcast a half-hour primetime special on Oct. 29 at 8 pm after purchasing airtime on CBS. Obama’s campaign is also talking about buying airtime from NBC and Fox.
Reuters:
- The month-long strike by Boeing Co's (BA) aircraft workers is starting to spoil airlines' expansion plans and eat into the profits of parts suppliers and metals makers around the world. The strike has been pushed out of the headlines by the global financial crisis, but its effects are slowly gathering force and may cause serious disruptions if no resolution is reached by the end of the year, which some analysts fear.
Financial Times: Europeans are repeating the mistakes made by Asian governments during the 1997 financial crisis, Francois Godement, senior fellow of the European Council on Foreign Relations, wrote. Just as each Asian country decided to help itself and not work collectively to solve the problem, European countries are doing the same. Financial rescues by individual governments and their re-nationalization of banking systems weakens trust in the euro and European Union, he said.
Xinhua:
- China's Ministry of Commerce on Thursday said the prices of iron ore and steel products have further room to slide following recent retreats.
The Economic Times:
- Even as Japanese investment bank Nomura extended a lifeline by agreeing to buy the India operations of Lehman Brothers(LEH), the bankrupt US investment bank is holding on to its stake in many Indian companies, especially in infrastructure. However, its peer Morgan Stanley(MS), which decided to convert itself into a bank holding company following US financial crisis, is selling stakes big time. An analysis of select stocks show that apart from Morgan, Merrill Lynch(MER), Citigroup(C) and Goldman Sachs(GS) too have been selling stakes in Indian companies.
South China Morning Post:
- Shipping rates between Asia and Europe dropped 61% this month to a 10-year low as the global financial turmoil discourages spending. Freight rates on the Asia-Europe trade route slipped to $350 per 20-foot standard container this month from $900 a year earlier. Vessel utilization has fallen to as much as 70%, capered with 90% last year, it said.
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- The Trade Deficit for August is estimated to shrink to -$59.0 billion versus -$62.2 billion in July.
- The Import Price Index for September is estimated to fall by -2.8% versus a -3.7% decline in August.
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BOTTOM LINE: Asian indices are sharply lower, weighed down by financial and commodity stocks in the region. I expect US
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