Wednesday, December 5, 2007

Will they cut?

European Central Bank policy makers signaled growing concern that surging credit costs will hobble the euro-region economy, suggesting they may soon back a cut in interest rates. ECB council member Christian Noyer said yesterday there's a ``question mark'' over initial hopes Europe would dodge the fallout from the U.S. housing slump.

Australia's central bank said credit market turmoil may contain inflation and slow global economic growth, driving down the nation's currency as investors bet the bank will hold off raising interest rates early next year. Governor Glenn Stevens left the overnight cash rate target at an 11-year high of 6.75 percent in Sydney today.

China will shift its monetary policy "from prudent to tight" in 2008, state media said Wednesday, to prevent its already hot economy from overheating and to try to contain accelerating inflation that threatens social stability. China's sizzling economy is expected to grow by 11.5 percent this year, with a government think tank recently predicting just a marginal slowing next year to about 10.8 percent. The consumer price index, meanwhile, hit 6.5 percent in October, tying the highest rate in a decade, and well above the government's target of 3 percent.

The political tensions over the US subprime mortgage meltdown rose on Tuesday as the chairman of the powerful Senate banking committee questioned the role of treasury secretary Hank Paulson in the crisis. "It is in the best interest of resolving this crisis if Secretary Paulson . . . addresses the concerns. Failure to do so may be cause for a more formal investigation."

New York state prosecutors have sent subpoenas to Wall Street firms seeking information related to the packaging and selling of debt tied to high-risk mortgages, the Wall Street Journal reported, citing people familiar with the matter.

Fannie Mae said on Tuesday it will sell $7 billion of preferred stock and slash its dividend 30 percent to shore up its capital base through 2008 as the U.S. housing slump worsens.

Orange Country joins a growing list of state and local governments at risk of losing money from investments sold as high-yielding havens that have been contaminated by the collapse of the subprime mortgage market. Florida, Connecticut, Massachusetts, Montana, Maine and King County, Washington also have disclosed investments in SIVs.

Whistlejacket Capital Ltd., the structured investment vehicle managed by Standard Chartered Ltd., has sold assets to reduce the fund by 40 percent to $10.8 billion since August. Whistlejacket is among $105 billion of SIVs that Moody's Investors Service is considering downgrading.

The world economy will soon "recouple'' with the U.S. after proving immune to its slowdown this year, according to economists at Goldman Sachs. Goldman's outlook differs from that of the economists at Merrill Lynch, who yesterday released a report saying they "remain optimistic that the global economy remains resilient in the face of a U.S. slowdown.''

AIG CEO Sullivan said duringan investor confreence the possibility that its AIG financial products unit would sustain a loss was "close to zero."

OPEC ministers said Wednesday they wouldn't open petroleum spigots any wider, a move that was expected after a recent slide in prices relieved pressure on the cartel to pump more crude. In London trading, Nymex light, sweet crude futures rose $1.93 to $90.25 a barrel and Brent was up $2.04 at $91.57 a barrel.

Mizuho Financial Group Inc., Japan's second-biggest bank by assets, said it will invest 150 billion yen ($1.4 billion) in its investment banking unit to cover losses from failed U.S. home loans. The combined profit of Japan's six biggest banks fell by about half to 948 billion yen in the six months to Sept. 30, on writedowns and weak lending growth.

Overnight in Asia the Nikkei 225 finiched up 128.69 points (0.83%). In Hong Kong the Hang Seng jumped higher by 465.86 points (1.61%). On the mainland the Shanghai Composite also finished stronger up 126.765 (2.58%). In afternoon trading in Europe the CAC 40 was up 81.38 points (1.47%), the DAX was up 106.63 points (1.37%) and the FTSE 100 was up 110.40 points (1.75%).

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