Late-Night Headlines
Bloomberg: The Federal Reserve may need to consider dipping further into its toolbox as Congress tries to revive legislation aimed at rescuing banks. One of the main remaining options for Fed Chairman Ben S. Bernanke to cushion the economy and shore up confidence in financial markets is cutting the benchmark interest rate, economists said. A reduction may be coordinated with other central banks.
- The Reuters/Jefferies CRB Index of 19 commodities plunged 5.9 percent, the biggest drop since record-keeping began in 1956, on concern that a spreading financial crisis may slash demand for raw materials. The CRB has slumped 28 percent from a record on July 3 as tightening credit markets, failing financial institutions and slowing economic growth heightened demand concerns. The drop today was led by crude oil, gasoline and cocoa futures. Crude and gasoline both fell as much as 11 percent. Cocoa
- India's rupee may extend yesterday's drop to a five-year low as the trade deficit swells and overseas investors dump local shares, said treasurers at Larsen & Toubro Ltd., Hero Honda Motors Ltd. and Essar Group. Dwindling capital inflows, elevated oil prices and slowing economic growth will undermine the rupee, said Yeshwant M. Deosthalee, chief financial officer at Mumbai-based Larsen & Toubro, India's biggest engineering company. A weaker currency may also exacerbate an inflation rate near a 16-year high by increasing import costs, said Ravi Sud, chief financial officer at Hero Honda, the nation's largest motorcycle maker. ``The drop in the rupee is unprecedented and never have I seen such a move in my 28-year career, barring the devaluation in 1991,'' said N.S. Paramasivam, who trades an average $200 million a day as head of treasury in Mumbai at Essar, which has businesses in shipping, steel and oil.
- Rice Says US May Engage Syria as Middle East Tensions Ease
- BHP Billiton Ltd.(BHP) fell the most in 21 years in Sydney trading, leading declines in raw material producers after commodities suffered the biggest drop in five decades on concern the credit crisis will reduce demand. BHP, the world's largest mining company, slumped as much as 9.9 percent to A$30.85, the biggest intraday decline since Oct. 23, 1987. ``You're seeing a general flight from commodity players around the world,'' said Sean Fenton, who manages the equivalent of $540 million at Tribeca Investment Partners in Sydney. ``We've had a huge boost to the economy from positive commodity prices. If that starts unwinding, we'll find ourselves with problems.''
- The pound tumbled against the US dollar by the most in 16 years after the U.K. government seized Bradford & Bingley Plc, Britain's biggest lender to landlords, as the credit crisis deepened in Europe.
- Platinum will swing from a deficit to the largest surplus in 10 years as demand declines amid an economic slowdown, said Paul Walker, CEO of London-based research company GFMS Ltd. “Supply has not fallen by as much as people expected,” he said. “Demand in auto catalysts and jewelry, especially in China
- Bain Capital LLC and Hellman & Friedman LLC agreed to buy most of the asset-management unit of bankrupt Lehman Brothers Holdings Inc. in a deal that values the business at $2.15 billion, about half their initial bids.
- Japan's industrial production fell more than economists estimated in August as automakers cut output and exports to the U.S. declined the most on record.
Wall Street Journal: House Republicans blamed the failure of the $700 billion Wall Street rescue plan Monday on House Speaker Nancy Pelosi (D., Calif.), saying that Pelosi had been too partisan in a floor speech prior to the vote. House Minority Leader John Boehner (R., Ohio) said that Pelosi’s speech “poisoned” the Republican caucus and “caused a number of members we thought we could get to go south.” “I do believe that we could have gotten there today, had it not been for the partisan speech that the Speaker gave on the floor of the House,” Boehner said. (video)
- The House of Representatives defeated the White House's historic $700 billion financial-rescue package -- a stunning turn of events that sent the stock market into a tailspin and added to concerns that the U.S. faces a prolonged recession if the legislation isn't revived.
Business Week:
- Wachovia(WB): Just the Plum Citigroup(C) Needed
Reuters:
- The White House said on Monday that President George W. Bush would make a statement on the financial bailout plan on Tuesday at 7:45 a.m. (1145 GMT).
- Federal Reserve monetary policy over the long run must be aimed at maintaining the U.S. dollar's value by focusing on keeping inflation low, Kansas City Fed President Thomas Hoenig said on Monday.
- India’s National Assoc. of Software and Service Companies may lower its growth forecast as the ongoing global financial crisis shrinks business, citing Som Mittal, the grouping’s president.
Financial Times: Hedge funds are braced for massive withdrawals by wealthy clients as the sector's worst year prompts a flight to the safety of cash, according to investors and managers. Even hedge funds that have ridden out the crises are facing redemptions, several managers said, as big investors in the sector tried to raise cash to meet withdrawals from their clients. "The whole industry is bracing itself," said one hedge fund executive. "No one is going to be immune to fund of fund redemptions." Today is the final day for investors in many hedge funds to file requests to get their money back by the end of December. According to one large London hedge fund, the restrictions on short selling are adding to the flight of money, as investors worry that temporary bans could become permanent - killing the business model. "A lot of the underlying funds are already cashed up," said the head of investing at a large fund of hedge funds. According to managers and investors, withdrawals are coming mainly from wealthy individuals, who had put money with funds of hedge funds, often in Switzerland. These fund of funds have this year been demanding cash from the underlying hedge funds in which they invested, forcing many to limit withdrawals or even close down. Institutional investors such as pension funds and university endowments have proven more stable so far, managers said, but many question how loyal these investors will remain.
- Indian iron ore exporters on Monday warned that demand from steel mills in China had fallen sharply over the past month and that Chinese buyers were defaulting on contracts with suppliers. With coal reportedly piling up in China's eastern ports, the news of steel defaults will fuel concerns about the likely impact on global commodity prices of a slowing Chinese economy. Analysts say smaller Chinese steel mills are losing money on their output because of weak steel demand and the hefty prices they paid for ore and coal ahead of the Beijing Olympics in August. China's status as a pivotal source of demand for many commodities means even a mild slowing of its economy - which has been growing at double-digit rates for years - has serious implications for global prices. Michael Lewis, head of commodities research at Deutsche Bank, said that China was expected to account for more than 40 per cent of global demand growth for nickel, oil, copper, steel, iron ore and aluminum during 2009."Any downturn in Chinese growth, industrial production and fixed asset investment growth will therefore have important implications for underlying commodity demand," Mr Lewis said. Xu Zhongbo, head of Beijing Metal Consulting, said that steel production was falling in response to weak exports of products that use the metal and declining orders from domestic sectors such as the previously apparently unstoppable motor industry. Car sales could be further hit if would-be buyers take fright at plans by Beijing to launch a six-month trial of restrictions on car use, under which most vehicles would be banned from the roads every fifth day. The Reuters-Jefferies CRB index, a global benchmark of commodities prices, was on Monday heading for its worst quarterly fall in more than 50 years on concerns that a global slowdown would cut raw materials consumption. The index has fallen 21.2 per cent since the end of June, its worst fall in any quarter since 1956, when the index was first published.
- Freddie Mac(FRE) and Fannie Mae (FNM) , the US mortgage financiers seized by the government, have received subpoenas from federal prosecutors for documents related to accounting and disclosure, the companies said on Monday.
Telegraph:
- The global credit crisis has slammed into Europe with stunning violence over the last two days, triggering five major bank rescues and a near total shut-down of the region’s credit markets. Analysts say German finance minister Peer Steinbrueck may have spoken too soon when he crowed last week that the US would lose its status as a superpower as a result of this crisis. Germany - over-leveraged to Asian demand for machine tools, and Mid-East and Russian demand for luxury cars - is perhaps in equally deep trouble, though of a different kind. Carsten Brzenski, chief economist at ING in Brussels, said the global crisis was now engulfing Europe with devastating speed. The Europeans thought the sub-prime crisis was just American rubbish that the US should clean up itself, but now they are finding out that it is their rubbish too," he said. Data from the IMF shows that European banks hold 75pc as much exposure to toxic US housing debt as US banks themselves. Moreover they have mounting bad debts from the British, Spanish, French, Dutch, Scandinavian, and East European housing markets, where property bubbles reached even more extreme levels that in the US. Bond traders warn that the spreads are starting to reflect a serious risk of EMU break-up and could spiral out of control in a self-feeding effect. As the eurozone slides into recession, the ECB is coming under intense criticism for keeping monetary policy too tight. The decision to raise rates into the teeth of the crisis in July has been slammed as overkill by the political leaders in France, Spain, and Italy.
Ming Pao Daily:
- Hong Kong property prices will decline faster-than-expected and may fall 35% more in the primary market before the end of 2009, citing research by Goldman Sachs Group Inc.(GS). Secondary home prices are also expected to fall about 25% in the same period, citing Goldman research.
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9:45 am EST
- The Chicago Purchasing Manager Index for September is estimated to fall to 53.0 from 57.9 in August.
10:00 am EST
- Consumer Confidence for September is estimated at 55.0 versus 56.9 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 equities to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 75% net long heading into the day.
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