Wednesday, January 23, 2008

Central Banks divided

European Central Bank President Jean- Claude Trichet said he's committed to fighting inflation even after stock markets plunged and the U.S. Federal Reserve cut interest rates to avert a recession.

Central banks shouldn't use monetary policy to stimulate economies systematically and thereby risk compromising price stability, Juergen Stark, member of the European Central Bank's executive board, said Tuesday.

The Bank of England's governor Mervyn King gave a clear hint that UK interest rates will be reduced in February, but provided no steers that he will match the aggressive posture of the US Federal Reserve in the months to come.

BoE governer King predicted the series of billion-dollar write-downs at Western banks would continue, along with more lending curbs.

The Federal Reserve chairman, who normally tries to avoid reacting directly to financial markets, saw global markets in free fall, and yesterday abruptly orchestrated the single deepest cut in the Fed's main interest-rate target in more than two decades.

The federal funds rate should reach 2.0% by year-end, said HSBC economist Ian Morris, who cut his target to from 3% Tuesday on the rising risk of a long recession.

Republican presidential contender Mitt Romney said on Tuesday U.S. markets were distressed and raised the possibility of a solvency crisis at U.S. banks.

MBIA and Ambac Financial Group, the biggest bond insurers, are likely to be bailed out to avert worsening credit-market turmoil, according to analysts at UniCredit SpA."A kind of bailout supported by monetary authorities or governments is the only chance for the industry to survive.''

The largest U.S. housing finance companies, Freddie Mac and Fannie Mae, may report $16 billion in write-downs for the fourth quarter due to the falling value of their subprime mortgage investments, according to Credit Suisse analysts.

The financial turmoil is like an elephant in a dark room. One view is that this crisis is a product of a fundamentally defective financial system.

Recession across the world's biggest economies is the main concern of chief executive officers gathering today in the Swiss ski resort of Davos.

Top-rated, two-year municipal bonds rose the most in more than three years yesterday, sending the average tax-exempt yield down 16 basis points to 2.66 percent, based on data from Municipal Market Advisors.

The value of Irish pension funds fell 10% in 2008 due to volatility on world stock markets, after decreasing 4% in 2007, Mercer Consulting said Tuesday. This equates to around EUR10 billion being wiped off.

Rosneft, Russia's biggest oil producer, is seeking $2 billion of loans from Deutsche Bank AG and Societe Generale SA to refinance debt used to buy the assets of Yukos. Rosneft may pay interest of 0.95 percentage point above LIBOR.

Lack of demand forced at least five Spanish financial institutions, to cancel mortgage-backed bond sales between August and November, and no bank in the country has done a deal since then, data compiled by Bloomberg show.

Fitch lowered WestLB's individual rating to F from D/E yesterday, saying the lender would've defaulted without rescue measures announced on Monday.

Spanish banks almost tripled borrowings from the European Central Bank to a record 52.3 billion euros between July and December, the biggest increase of any of the 15 member countries. They're now the second-largest users of ECB credit lines after German banks, accounting for 14 percent of borrowing, up from 4 percent in July.

Apple on Tuesday forecast fiscal second-quarter earnings far below Wall Street expectations, sending its shares down about 10 percent AH. IPhone sales were 2.32 million for the quarter.

General Dynamics Corp., the largest maker of armored vehicles for the U.S. military, said fourth- quarter earnings surged 42 percent on higher sales of trucks and troop transports for the war in Iraq.

Coach, the largest U.S. maker of luxury leather handbags, said second-quarter profit rose 11 percent, the smallest gain in at least eight years as sales at its own stores fell. Sales at Coach's North American stores open at least a year fell 1.1 percent, compared with a 21 percent gain a year earlier.

Cie. Financiere Richemont SA, the world's largest jewelry maker, said third-quarter sales growth slowed after wealthy Americans and Japanese bought fewer Cartier necklaces and Piaget watches. Sales rose 8 percent to 1.67 billion euros ($2.4 billion) in the three months through December. That was below the first half's 11 percent gain.

Swiss Reinsurance Co., the world's biggest reinsurer, rose the most in more than four years in Zurich trading after billionaire investor Warren Buffett's Berkshire Hathaway Inc. bought a 3 percent stake.

Prudential Plc, the largest U.K. insurer, rose in London trading following a report that Ping An Insurance (Group) Co. may spend 100 billion yuan ($13.8 billion) to buy a stake.

Voestalpine AG, Austria's biggest steelmaker, gained as much as 5.9 percent after raising its forecast for full-year earnings and saying there were no signs that demand was weakening for its products.

Hochtief AG, Germany's largest construction company, met its full-year target for net income of more than 100 million euros ($146 million) as its U.S. business remained unaffected by the subprime lending crisis.

BASF AG, the world's largest chemicals maker, confirmed its profit forecast for 2007, rejecting market speculation that the company would say earnings didn't meet its projections.

Precision Castparts Corp., which makes metal components for the aerospace and automotive markets, said Tuesday its fiscal 2008 third-quarter profit jumped 55 percent, boosted by strong sales across all major segments. "Right now, we are facing very high levels of demand in all of our major end markets," said Mark Donegan, chairman and chief executive, in a release.

Richard Lambert, the director general of the CBI, predicts a "soft landing" in the UK with some growth this year, despite the recent market turbulence.

Goldman Sachs’ Abby Joseph Cohen chief U.S. portfolio strategist continues to forecast a Dow return of 11% by year-end. She sees the Dow at 14,750 by year-end

The U.K. economy grew at the slowest pace in more than a year during the fourth quarter after a jump in credit costs hampered brokerage and computer services. Gross domestic product increased 0.6 percent.

European Services Expand at Slowest Pace Since 2003. Royal Bank of Scotland Group Plc's preliminary estimate of its services index dropped to 52, the lowest since August 2003, from 53.1 in December.

French consumer spending on manufactured goods climbed more than economists forecast in December as shoppers rushed to buy cars to beat a "green tax'' on high-polluting vehicles that took effect Jan. 1. Spending, which accounts for about 15 percent of the economy, rose 2 percent, the most since August 2006.

The Reserve Bank of Australia's core inflation rate accelerated to a 16-year high of 3.8 percent in Q4, which may only lead the central bank to maintain their hawkish bias even as the US slashes rates in an attempt to stave off a recession.

Billionaire investor George Soros said the fallout from the U.S. subprime crisis will bring about the end of the dollar's status as the world's reserve currency.

Japanese stocks rebounded from the worst two-day drop in 17 years after the U.S. Federal Reserve cut its benchmark interest rate to revive growth in the world's biggest economy. A rout in shares globally wiped out as much as $7.3 trillion in market value this year. The Nikkei average gained 256.01, or 2 percent, to 12,829.06 at the close in Tokyo. Over the previous two sessions, the Nikkei dropped 9.3 percent and the Topix fell 9.1 percent, the biggest two-day decline for both since 1990. Hang Seng: +10.7%. Shanghai: +3.1%. BSE Sensex: +5.2%.
European stocks and U.S. index futures declined after European Central Bank President Jean- Claude Trichet said he's committed to fighting inflation. National benchmarks declined in all 18 markets in western Europe except Luxembourg. The U.K.'s FTSE 100 slipped 2.6 percent. France's CAC 40 lost 3.9 percent. Germany's DAX Index fell 4.3 percent.

U.S. overnight and premarket:

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