Late-Night Headlines
Bloomberg:
Central banks worldwide must work together in cutting interest rates to help their economies recover from a global recession, fund manager Barton Biggs said. ``Short-term rates are too high around the world, but particularly in the U.S. and Europe,'' Biggs said in an interview on Bloomberg Television. ``A synchronized rate cut would make sense'' and be a ``big help.'' Biggs said he is buying ``high quality'' U.S. stocks that he didn't name. ``You buy into this thing on a gradual, steady basis,'' he said. ``You certainly don't sell on panic here.''
- Australian stocks rallied after the nation's central bank cut its benchmark interest rate by one percentage point, the biggest reduction since 1992.
- The Federal Reserve may have cut borrowing costs today without actually saying so. The central bank used authority granted under last week's financial-rescue legislation to effectively set a floor under its main interest rate that's lower than the 2 percent target set by policy makers last month. The Fed may now pay interest on bank reserves while it floods financial markets with liquidity, pushing down the overnight lending rate by about 0.75 percentage point to 1.25 percent. ``Absolutely, it's a stealth easing,'' said John Ryding, founder and chief economist of RDQ Economics LLC in New York and a former Fed researcher.
- Copper, zinc and aluminum plunged by the exchange-imposed daily limit for a second day in Shanghai. Copper on the London Metal Exchange tumbled as much as 9.1 percent yesterday, and futures in New York slumped as much as 13 percent on concern the deepening credit crisis will stifle global growth and reduce metals demand.
- The cost of protecting investors from Australian corporate bond defaults increased to a record on concern the U.S. government's bank rescue package won't do enough to unlock global money markets as the credit crisis spreads. ``Credit markets remain extremely weak and fragile around the globe, with the developments in Europe the major contributor for the recent weakness,'' Gus Medeiros, a credit analyst at Deutsche Bank AG in Sydney, wrote in a research note today. The Markit iTraxx Australia index rose 34 basis points to 245 at 8:39 a.m. in Sydney, according to prices from Citigroup Inc. The price of the contracts, tied to the debt of 25 companies including Qantas Airways Ltd. and BHP Billiton Ltd., is the highest since the iTraxx benchmarks started in 2004.
- Advanced Micro Devices Inc.(AMD), the money-losing chipmaker struggling to compete with Intel Corp.(INTC), will spin off its manufacturing plants as part of an $8.4 billion investment from the Abu Dhabi government.
- Bank of America Corp.(BAC), the bank that bought Countrywide Financial Corp., halved its dividend and plans to sell $10 billion in common shares after third-quarter profit fell 68 percent. The stock declined 10.3% in late trading.
- UBS AG lowered its price forecasts for copper, aluminum and most bulk commodities amid concern a slowing global economy will dent demand from builders and automakers. Copper will average $2.50 a pound in 2009, down 38% from a previous estimate. Aluminum was cut 28% to $1.15 a pound next year. The bank cut nickel estimates 32% to $7.50 a pound next year. Zinc may average 20% below the previous forecast at 80 cents a pound next year. Iron ore prices may fall 15% in 2009. Coking coal will average $250 a metric ton next year, down 17%, UBS said.
Wall Street Journal: Europe Needs A United Approach To the Credit Crunch. Not long ago most European analysts and policy makers viewed the credit crisis as a primarily American problem, with unpleasant but limited spillover to European and other financial markets. European banks like UBS, Northern Rock, Société Générale, IKB, WestLB and several other publicly owned German banks that were hit by the crisis or even collapsed in the course of it were regarded as exceptions that had foolishly exposed themselves to the U.S. subprime market. That view sure has changed.
- After years of putting a strain on world energy supplies, Asia is expected to significantly increase its own oil production next year, a development that could add to downward pressure on prices. The International Energy Agency in Paris expects China, Vietnam, Malaysia and other Asian-Pacific nations to increase production by almost 300,000 barrels of oil a day in 2009, the region's biggest annual increase since at least the 1990s. When contributions from Central Asian nations such as Kazakhstan are added, the total increased production rises to about 500,000 barrels per day, analysts say. Overall, non-OPEC world production is only expected to grow about 760,000 barrels a day in 2009, the IEA says.
MarketWatch.com: No capitulation among gold timers at mid-September low
NY Times: European governments pledged Monday to safeguard bank deposits in a bid to stem financial panic, but they stopped short of a coordinated strategy to break the grip of a credit crisis that now threatens to set off a protracted recession across the Continent, sending markets tumbling on both sides of the Atlantic. The lack of orchestration — despite pledges to the contrary from European Union officials Monday and a plea from the head of the International Monetary Fund to step forward with concrete plans — raised the prospect that the European Central Bank would need to help mop up the mess by cutting interest rates, a move hinted at by the E.C.B.’s president, Jean-Claude Trichet, last week.
- As pressure built in the credit markets and stocks spiraled lower around the world on Monday, the Federal Reserve was considering a radical new plan to jump-start the engine of the financial system.
- Emerging markets took one of their biggest collective tumbles in a decade Monday as stock markets from Mexico to Indonesia to Russia were gripped by fears of a collapse of Europe’s banking system and concern that a global recession could drag down the price of commodities, forcing a steep slowdown in emerging-market growth.
CNNMoney.com: September was the worst month on record for hedge fund performance, but for one legendary player what's going on in the markets now must seem like its coming straight from the gates of hell. Tontine Associates, a $10 billion Greenwich, Conn.-based fund, told investors on Friday that it expected to show a 2008 loss through Sept. 30 of 65%, according to two people familiar with the fund's performance. Lately, Gendell has wagered on a worldwide economic boom, investing heavily in global energy services and infrastructure companies.
Reuters:
- One top U.S. Federal Reserve official on Monday warned against another interest rate cut to offset the credit crisis, but a second policy-maker who has defied cuts all year said inflation was receding as a concern. "I'm not as worried as I was before that we might, when the financial system was repaired, have ... inflationary pressure," Dallas Federal Reserve President Richard Fisher told a community bankers in Wichita Falls, Texas.
- The U.S. Interior Department will designate within two years protected areas of the Arctic that are considered critical habitat for polar bears and cannot be harmed by oil development as part of a legal settlement with environmental groups on Monday.
Financial Times:
Several of China's largest steelmakers are expected to cut output by about 20 per cent this month in a bid to support falling steel prices at a time of weakening demand. Steel mills in northern China, including Shougang Steel, Shandong Iron and Steel, Hebei Iron and Steel, and Angang Steel met last week to discuss cuts that could total 20m tonnes, according to the state-run Xinhua news agency. Shares of Angang Steel fell by their 10 per cent daily limit in Shanghai trading in response to the reports of output cuts. "The sharp slowdown in the property market is having a severe impact on Chinese steel producers," she said, noting that the property sector accounted for 38 per cent of steel industry demand. She quoted Xu Lejiang, the Baosteel chairman, as telling a recent industry conference that the era of rapid steel industry growth "will soon be remembered as history". Chinese steel consumption rose 16 per cent in the first half of 2008. Since then, the three main industries that consume steel in China - construction, household appliances and the car industry - have all shown signs of a slowdown, say industry sources.
- Russia's benchmark RTS index suffered its sharpest fall in its 13-year history yesterday as investor jitters intensified over global financial turmoil, falling oil and commodity prices and overleveraged oligarchs at home. The dollar-denominated RTS closed 19.1 per cent down, while the rouble denominated Micex fell 18.7 per cent, in spite of brief trading suspensions on both exchanges in an attempt to minimise the steep falls. The central bank spent an estimated $5bn to prevent the rouble weakening beyond the 30.41 mark against the euro-dollar basket. Weighing heavily on investor sentiment were fears that Russia's richest oligarchs could be dumping shares on the market if they faced margin calls on tens of billions of dollars in loans.
TimesOnline: The UK government is considering injecting $69 billion to $87.2 billion of capital into retail banks by buying shares to revive investors confidence. The government may end up with stakes in Barclays Plc, Royal Bank of Scotland Group Plc, Lloyds TSB Group Plc and HBOS Plc in return for so-called preference shares that gives holders more rights than common stockholders.
Daily Telegraph:
- Confederation of British Industry urged the Bank of England to deliver a sharp interest rate cut this week amid warnings from economists that a recession might be deeper and longer than initially thought, citing CBI. CBI want the BOE’s Monetary Policy Committee to bring in a 50-basis-point cut in order to stabilize confidence for markets, businesses and consumers. The committee will make its rate decision Oct. 9.
Korea Economic Daily:
- Hyundai Motor Co. plans to sell plug-in electric cars from 2012, earlier than its initial schedule of 2014 to meet growing demand.
China Daily:
- Property transactions in China's major cities hit a record low over the past National Day holiday as more potential homebuyers adopted a wait-and-see attitude. Statistics from the Beijing Real Estate Transaction website revealed that the average number of daily deals over the holiday week fell 72 percent year-on-year in the capital to 69 units, making it the worst period so far this year for the property sector. Shanghai Autumn Real Estate Expo, regarded as a barometer of the industry, attracted 130,000 visitors from Oct 1 to 4. Although this was the same number as 2006, its transaction volume fell 37 percent over the same period. The situation is equally gloomy in Shenzhen, where a five-day real estate expo was held over the National Day holiday. While 20,000 sq m of property was changing hands every day at the fair in 2006, the daily amount ranged from 4,000 to 9,000 sq m this year. Luo Yuan, general manager of Beijing-based Sunrun Real Estate Agencies, said one of the reasons for the sluggish market was that property prices still remain beyond the reach of many potential buyers.
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BOTTOM LINE: Asian indices are mostly lower, weighed down by automaker and commodity stocks in the region. I expect US equities to open modestly higher and to maintain gains into the afternoon. The Portfolio is 75% net long heading into the day.
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