Wednesday, January 9, 2008

More recession talk and another dividend cut

Goldman Sachs Group Inc. said the U.S. economy is probably slipping into recession and forecast the Federal Reserve to respond by slashing interest rates. Goldman predicts the Fed to cut its benchmark rate to 2.5 percent by the third quarter.

Former U.S. Treasury Secretary Lawrence Summers said in Stockholm today there's a 60 percent or greater chance that the U.S. economy will go into recession this year because of declining home prices and a loss of consumer confidence.

The U.S. will skirt recession as consumer spending slows without collapsing, a survey of economists showed.

The federal funds rate, the Fed's key policy tool, will likely be cut to 3 percent by mid-year, said Gross, chief investment officer of Pacific Investment Management Company.

The risk of European companies defaulting rose to the highest in more than five months after Marks & Spencer Plc, the U.K.'s biggest clothing retailer, said sales unexpectedly declined. U.S. credit-default swaps soared to a record on concern the worst housing slump in 27 years may cause a recession.

MBIA Inc., the world's largest bond insurer, sliced its dividend and said it will raise $1 billion in the sale of notes to help shore up capital and stave off a credit-rating downgrade. The company said it had $2.1 billion of mark-to-market losses on derivative contracts it insures.

Sales of fixed-income securities in the U.S. are expected to decline 15 percent this year, as markets continue to lick their wounds from last year's subprime mortgage turmoil, the Securities Industry and Financial Markets Association, the largest trade group for the fixed-income markets, said Tuesday.

Merrill Lynch & Co., the world's biggest brokerage, fired at least eight bankers in London from a group that sold asset-backed debt and invested the firm's money, people with direct knowledge of the situation said.

There is “no evidence” the US housing market is bottoming out, Hank Paulson, Treasury secretary, said on Tuesday, offering a sober view of US economic prospects.

European Union Monetary Affairs Commissioner Joaquin Almunia said the fallout from the collapse of the U.S. subprime market has created "more difficult conditions'' for Europe's economy, broadcaster EuroNews reported today, citing an interview.

KB Home posted a quarterly loss of nearly $773 million on Tuesday with abandonment and impairment charges as the U.S. housing market continued to decline, and said it expects another tough year for the industry in 2008. New home deliveries fell 22 percent to 8,132 in the quarter from a year earlier and the average selling price fell 11.5 percent to $247,800.

Countrywide Financial Corp., the biggest U.S. mortgage lender, said home loans in December were a better-than-forecast $24 billion. The lender rose 9.7 percent to $6 in early trading.

NYC Office Rents Tick Up in 4Q. Overall rents edged up 3.4 percent to $65.08 per square foot from $62.91 in the previous quarter. The first, second and third quarters averaged a 7.6 percent increase over the prior quarters. Slightly more than 5 million square feet of office space was leased in the fourth quarter, less than each of the year's previous quarters.

Luxury-home prices in London climbed in December at the fastest pace in three months as overseas buyers entered the market. The average price of houses and apartments costing at least 2.5 million pounds ($4.9 million) rose 1 percent last month from November.

The bond market is telling Li Ka-shing, Asia's richest man, he's sitting on a Chinese property bubble that's bigger than the one deflating in the U.S. Bonds of China's Agile Property Holdings Ltd. yield 7.17 percentage points more than U.S. Treasuries, double the premium in July.

DuPont Co., the third-biggest U.S. chemical maker, said 2007 profit rose 11 percent and raised its forecast for this year on higher-than-expected fourth-quarter sales.

E*Trade Financial Corp., the worst performer in the Standard & Poor's 500 Index last year, said it sold an additional $3 billion in mortgage-backed securities and bonds to bolster its finances after losses.

Corporate insiders are more bullish today than they were three months ago. For the eight weeks ending last Friday, in contrast, the Vickers Weekly Insider Report ratio was more bullish 1.47.

European earnings will drop this year for the first time since 2002 and are likely to fall into a "recession,'' according to Morgan Stanley, the region's top- ranked strategists.

German Car Demand Hits New Low as Fuel Costs Rise. New-car registrations dropped 9.2% to just over 3.148 million in 2007, after a plunge of 20% in December, according to data released by KBA, the German motor-vehicles agency.

German Reports Suggest Economic Growth Is Slowing. Production fell 0.9 percent in November from October. Sales abroad, adjusted for working days and seasonal swings, slid 0.5 percent from October and retail sales dropped 1.3 percent.

UK consumer confidence fell to a ten month low as oil prices reach record highs and the housing market continues to slump. The Nationwide survey printed at 85, down a point from the previous month.

Marks & Spencer Group Plc, the U.K.'s biggest clothing retailer, fell the most in at least 19 years in London trading after an unexpected decline in holiday sales. revenue fell 2.2 percent at stores open at least a year in the fiscal third quarter ended Dec. 29, the first same- store sales drop in 2 1/2 years.

Soybean futures in Chicago climbed close to a 34-year peak and corn rose to an 11-year high on speculation higher energy costs and the dollar's weakness will help boost demand for commodities as a hedge against inflation.

TUI AG plans to raise 450 million euros ($663 million) by selling bonds exchangeable for part of its stake in TUI Travel Plc as
lower-rated companies turn to the equity-linked market for funds.

Asia: The Nikkei edged up 0.5% to close at 14,599.16 as bargain-hunters reentered the market following a two-day, 800-point plummet. The Hang Seng rose 1.8% to 27,601.36. Singapore's Straits Times Index was up 0.4% at 3,350.78 and India's Sensitive Index -- which hit a record intraday -- advanced 0.7% to close at 21,021.81.
European stocks dropped, sending the Dow Jones Stoxx 600 Index to the lowest in more than a year, after sales at Marks & Spencer Group Plc missed analysts' estimates and Merrill Lynch & Co. cut its profit outlook for BP Plc. National benchmarks dropped in all 18 western European markets. The U.K.'s FTSE 100 sank 1.7 percent, while Germany's DAX fell 0.8 percent. France's CAC 40 lost 1.2 percent.

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