Tuesday, September 30, 2008

Today's Headlines

- The euro fell the most against the dollar since the introduction of the shared currency in 1999 after France and Belgium led a state-backed rescue of Dexia SA, as the widening financial crisis forces governments to prop up financial institutions across Europe. The 15-nation currency also weakened against the British pound after Belgian Prime Minister Yves Leterme said Dexia, the world's biggest lender to local governments, will receive about $9.2 billion to shore up its capital. The dollar rose against the yen on speculation the U.S. Senate will salvage a $700 billion bank-bailout plan as early as tomorrow after Congress rejected it yesterday.

- The ruble fell against the dollar and was headed for its biggest monthly drop versus Russia's currency basket since its introduction in 2005, as stocks slid after U.S. lawmakers rejected a $700 billion bank bailout. The currency dropped as Russia's benchmark Micex stock index declined 2.7 percent, after trading was halted for two hours. ``There has been a change in the mood among investors toward Russia and all these people have unwound their long ruble positions,'' said Gaelle Blanchard, an emerging-markets currency strategist in London at Societe Generale SA. ``We're in the worst-case scenario for Russia now, from everything being OK to a very, very black picture.''

- The perceived risk of a bond default by Ireland surged to a record after the government said it will guarantee the deposits and borrowings of six lenders. Credit-default swaps on Ireland's government bonds jumped 27 basis points to 60, according to CMA Datavision prices at 6:10 p.m. in London, after earlier reaching an all-time high.

- Copper will average $5,000 a metric ton in the first quarter, about a fifth less than today, and betting against the metal is one of the lowest-risk trades in commodities right now, Barclays Capital said.

- Corn dropped for a fourth day and is set for a record quarterly loss. Before today, corn had lost 32 percent in the quarter, soybeans had the worst slide since June 2004 and wheat marked the largest quarterly decline since March 1986.

- There is a “decent chance” that European central banks will enact “emergency” interest-rate cuts as soon as this week to calm financial markets and spur economic growth, Citigroup Inc. economists said.

- South Korea, Taiwan and Indonesia placed bans on short selling as declines in global stock markets deepened.

- The U.K.'s securities markets regulator will investigate short-selling of British banks and financial-services companies to determine whether any illegal market abuse occurred, a person close to the planned probe said. The Financial Services Authority will examine whether false rumors or leaks were spread in the weeks before the London agency temporarily banned short-selling of U.K. financial institutions on Sept. 18, the person said.

- President George W. Bush and Senate leaders vowed today to revive a $700 billion financial rescue plan amid evidence voters and lawmakers regretted yesterday's U.S. House vote to kill the bailout.

- Crude oil futures are heading for their biggest quarterly decline since 1991 amid concern that slowing economic growth will curtail global demand and as the dollar advanced. ``Had you told me July 11 that we've got two hurricanes coming, one that will hit Louisiana and one that will hit Texas, we've got an OPEC cut coming, we've got Russia going into Georgia and a number of attacks into Nigeria, I would have said without a second's hesitation that we would have been over $200, no question,'' he said. U.S. gasoline stockpiles fell to an 18-year low in the week ended Sept. 12 after the hurricanes struck Texas and Louisiana, according to the U.S. Energy Department. U.S. refiners operated at 66.7 percent of capacity in the week ended Sept. 19, the lowest since at least 1989, because of storm damage.

- The Federal Deposit Insurance Corp. will ask Congress for permission to increase deposit insurance limits, House Financial Services Committee Chairman Barney Frank said in a memorandum to members of his panel.

Wall Street Journal:

- Don't Panic. By throwing out a deeply flawed bailout plan, the House may have created an opportunity to craft a more effective response to the financial crisis.

- Hedge Funds May See Key Employees Walk.

- It seems Friday is a bad day to hold a debate. Last week’s presidential debate between John McCain and Barack Obama was the least watched televised debate in modern history, according to Nielsen Media Research. Just 52.4 million people tuned in to watch the first presidential debate. The second lowest was the 1976 debate between Gerald Ford and Jimmy Carter—and even they nabbed 62.7 million viewers. The highest was the 1980 debate between Ronald Reagan and Jimmy Carter with 80.6 million viewers. There were no televised debates in 1972, 1968, and 1964.

Lloyd’s List:

- Ships that were scheduled to be demolished because of their age are being “pressed” to continue hauling cargoes as falling prices for scrap metal cut margins for companies that break up such vessels. Indian and Bangladeshi buyers are prepared to pay $570 per lightweight ton for ships for demolition, down from a record $750 a ton previously, the report said.

LA Times:
- No more wondering where your hamburger came from, or where your lettuce and tomatoes were grown: Starting this week, shoppers will see lots more foods labeled with the country of origin. It's a federal law years in the making but timely, as China's milk scandal and the recent salmonella-tainted Mexican peppers have prompted concern over the safety of imported foods.


- After making the rounds of the morning cable news shows, McCain held an economic roundtable this morning and reiterated his call on the Bush administration for immediate action. “Inaction is not an option,” McCain said. “In light of the House’s failure to act, this morning, I spoke to the president about two things that the administration has not done, but should do following the inaction of Congress.”

Gold held by New York's SPDR Gold Trust GLD, the world's largest gold-backed exchange-traded fund, jumped by nearly 30 tonnes on Monday, the World Gold Council confirmed on Tuesday. Total holdings jumped to a new record high of 752.2 tonnes -- about one third of global gold mine output -- and have climbed around 130 tonnes since mid-month as investors flock to bullion for security as the financial crisis threatens to worsen.

- Investments betting that commodity futures prices will move higher have drastically diminished over the past two months due to the global credit crisis, according to data released on Monday. The amount of so-called long-only money has shrunk by as much as $50 billion, with the sharpest drops in agricultural futures and oil markets. "The tidal wave of investment into commodities which occurred in the first quarter has collapsed," CitiGroup said in a research note on Monday. It said that since July, the net long position has collapsed from $58 billion to $8 billion. While investor interest in U.S. crude oil has hit its lowest level in more than two years, Swiss bank UBS noted that some of the sharpest fund outflows have thus far been money invested in agricultural futures through commodity indexes. "Large outflows from agricultural index investments continue, this past week amounting to $1.44 billion," UBS said, basing its estimate on data released by the U.S. Commodity Futures Trading Commission, or CFTC. "Over the past quarter, index investors have sold $9.1 billion worth of agricultural index positions, reversing the inflows of 2007 and 2008," UBS said. The CFTC had estimated at the end of June that there was a total of $200 billion tied to index-related commodity investments. CitiGroup estimated on Monday that total positions on commodities indexes had dropped to around $100 billion. Not all commodities saw an exodus in long money, however. Gold, regarded a safe-haven investment in times of trouble, saw a jump of 38,361 net long contracts held by speculators, who include those with index exposure, over the last two weeks. That accounted for a 46 percent rise since September 16.

- The Financial Accounting Standards Board, which sets U.S. accounting rules, is in discussions with the U.S. Securities and Exchange Commission about whether more guidance on fair value accounting rules is needed, a person familiar with the matter said.

- "The credit crisis is definitely kicking in for the hedge fund industry now," said Andrew Shrimpton, the former head of hedge fund regulation at the Financial Services Authority (FSA), who now runs a consultancy, Kinetic. "We are being approached by hedge funds considering voluntary fund liquidations on a weekly basis," he said. "The number of funds that are worried about redemptions is higher than it's ever been." Several hedge fund managers reported that companies running funds of hedge funds were particularly vulnerable as nervous high net worth individual investors move to invest their capital in areas such as cash or gold that are perceived to be less risky. One manager at a London hedge fund, one of the most successful in its field last year, said: "Investors are scared, they want cash. We are not going to be immune from that."

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