Thursday, November 29, 2007

Third Quarter GDP revised higher!

A surge in inventory-building and robust exports propelled U.S. economic growth ahead at the fastest rate in four years during the third quarter. Gross domestic product climbed at a revised 4.9 percent annual rate instead of 3.9 percent reported a month ago. Companies built up inventories twice as fast during the third quarter as the government had estimated a month ago - at a $32.9-billion annual rate instead of $15.7 billion. This good economic news contrasts with weekly jobless claims which were up 23k to 352k, higher than expected.

Holiday spending at U.S. retailers climbed 6.5 percent to $20 billion over the Thanksgiving weekend as consumers sought half-off sales and early store openings. Sales on the Sunday following Thanksgiving climbed 4.2 percent to $3.6 billion. Black Friday, the day after Thanksgiving, recorded an 8.3 percent increase to $10.3 billion. sales on retailers' Web sites rose 21 percent to $733 million on Nov. 26.

Sears Holdings Corp., the largest U.S. department-store company by sales, reported quarterly profit that fell more than analysts estimated on lower revenue. The stock declined 9.7 percent in New York.

China Investment Corp., the nation's $200 billion sovereign wealth fund, signaled it may invest in stocks rocked by subprime mortgage defaults, and `" wants to be a stabilizing force in the international capital markets." "The steady stream of sovereign wealth funds buying distressed assets tells us there is a buyer of last resort out there,'' said Robert Rennie, chief currency strategist in Sydney at Westpac Banking Corp., the fourth-largest Australian bank. He said that will encourage investors to buy higher-yielding assets."

ETrade Financial, which is ensnared in the mortgage crisis, said it is getting a $2.55 billion cash infusion from Citadel Investment Group, in a bid to restore confidence and liquidity in the discount brokerage. Chief Executive Officer Mitchell Caplan is stepping down.

Ping An Insurance Group bought a 4.2 percent stake in Fortis, Belgium's biggest financial-services company, for 1.81 billion euros ($2.7 billion) in the largest overseas acquisition by a Chinese insurer.

National Australia Bank Ltd., the nation's largest, agreed to buy U.S.-based Great Western Bancorporation for $798 million. The Omaha-based bank has assets of more than $3.4 billion and about 100 branches in the Midwest agricultural region.

Morgan Stanley is borrowing 225 billion yen ($2 billion) from Citigroup, Shinsei Bank and the Government of Singapore Investment Corp. to fund Japan's largest real estate deal, three people familiar with the transaction said. Citigroup and Shinsei are looking for buyers of the senior loans worth 180 billion yen. "Debt investors have become more demanding in pricing as well.''

Fears are growing that UK bank Alliance & Leicester will resort to a fire sale of assets to shore up its funding position as the credit crisis escalates. One banker said: "All small institutions will have a funding issue. If you haven't got deep pockets it's a very bleak landscape at the moment." The stock jumped 12 percent on Thursday, after saying in a surprise trading update that it had lined up financing for its maturing medium-term funding into the third quarter of 2008.

Companies in Britain and Europe have failed to place a single high-yield bond since the credit crunch kicked off in August. The European Central Bank's October survey of 90 eurozone banks found that lenders had tightened conditions dramatically, both raising interest rates and slashing the maturity of loans. Investment grade bonds in Europe are still finding buyers but the volume has plummeted by half this month to €6.3bn. The closely-watched iTraxx Crossover index measuring spreads on low to mid-grade corporate debt rose above 400 last week for the time since the Summer, but settled at 374 yesterday. The US junk bond market has also ground to a halt after holding up better than Europe in September and early October.

Investors in Europe have suddenly become wary of Italian, Greek, Spanish, and Belgian sovereign bonds, driving spreads over German government bonds to the highest level in six years. The spreads rose to 37 basis points (bp) for Greece, 18bp for Spain, and 14bp for France and 40 for Italy. The spike in Club Med spreads had been offest by a falling bond yields overall, so these countries do not have to pay more to cover their deficits. "The nightmare for Italy is if you get higher spreads and higher yields at the same time,"

European bonds rallied after the Bank of England said it will offer emergency funds with longer repayment terms to stem rising money-market rates, rekindling concern about credit markets and demand for government debt. The safe-haven bid will remain a feature of the fixed- income landscape over the short term.
European Central Bank council member Klaus Liebscher said, "The jump in the October inflation rate to 2.6 percent from 2 percent in September is alarming.'' Germany's Bundesbank, by contrast, said there's a risk economic growth in Europe's biggest economy will slow next year, after oil rose to a record and the U.S. housing slump rattled financial markets.

KfW Group, which organized the bailout of IKB Deutsche Industriebank over subprime losses, said an agreement was reached with German banking associations to cover the lender's remaining risks of about $520 million.

The worldwide slump in credit markets is likely to last for at least another year, triggering a reduction in leveraged buyouts, according to a survey of banks, private-equity managers and hedge funds in Europe. LBOs have fallen to $157 billion so far in the second half of this year, from a record $579 billion in the first half, according to data compiled by Bloomberg.

Bear Stearns will cut 650 jobs, or 4 percent of its global work force, as the investment bank braces to lose money in the fourth quarter due to bad bets on subprime mortgages.

Japan's industrial production rose to a record in October. Production climbed a seasonally adjusted 1.6 percent from a month earlier, when it fell 1.4 percent. Export growth doubled to 13.9 percent in October from a year earlier, as Chinese and Europeans bought more fuel- efficient cars.

European retail sales fell this month by the most since May 2004 after increasing gasoline prices and interest rates hurt consumer spending. A gauge measuring retail sales declined in November for a second month to a seasonally adjusted 45.9 from 48 in October. At teh same time German unemployment fell to 12-year low.

One-month Libor soars as banks seek year-end funding. The London interbank offered rate that banks charge each other for euro loans that only come due after the end of 2007 climbed 64 basis points to 4.81 percent, the British Bankers' Association said. The rate charged for dollars jumped 40 basis points to 5.23 percent. The cost of borrowing dollars for three months rose for the 12th day, climbing 4 basis points to 5.12 percent. The three- month rate for euros increased 3 basis points to 4.78 percent. "The increases we've seen in borrowing costs cannot be simply explained away by year-end pressures; this is a full-on credit crisis,'' said Stuart Thomson, who helps oversee $46 billion in bonds at Resolution Investment in Glasgow, Scotland. ``There's no end in sight either. It's a really unpleasant picture.''

For the most part markets followed WallStreet higher. The Nikkei gained 360 points or 2.4 percent. In Hong Kong the Hang Seng index bounced back and closed 4 percent higher. The Shanghai composite was 200 points higher to close at 5,003 points. The Shanghai Composite Index has fallen 16 percent in November, the most since February 1995. The decline in China compares with a 21 percent decrease in Japan's Topix index from its February record to Nov. 22, the first of the world's 10 biggest stock markets to enter a bear market since the summer's U.S. subprime-mortgage collapse.
European equities traded flat by midday on Thursday, paring earlier gains as renewed worries on banks dampened enthusiasm for global equities triggered by speculation of a cut in U.S. interest rates. By 1150 GMT, the FTSEurofirst 300 index of leading European shares was steady at 1,501.9 points after earlier rising as much as 0.8 percent. The index jumped 2.7 percent on Wednesday when the U.S. Federal Reserve's second-in-command signalled a readiness to cut rates again. The FTSEurofirst has crawled back into positive territory for the year and is up 1.2 percent in 2007. Across Europe, Britain's FTSE 100 index was flat, Germany's DAX rose 0.5 percent and France's CAC 40 edged up 0.3 percent.

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