HONG KONG (MarketWatch) -- An unidentified Chinese state-run bank has halted foreign-exchange swaps with several European banks, with the suspension believed to include BNP Paribas SA FR:BNP -4.13% BNPQF -15.94% and UBS AG UBS -0.79% , according to reports citing unnamed sources. The Chinese bank involved is the "most active" in the market for trading those products according to Dow Jone Newswires, which reported that the halt began Monday. Societe Generale SA FR:GLE -4.24% SCGLF -5.96% is also included in the ban along with BNP and UBS, according to Reuters.
Market Watch
hostgator coupon 2011
Nervous global investors can't seem to own enough U.S. Treasury debt, yet the Federal Reserve may soon make the bonds even more scarce.
With the U.S. economy struggling, Fed policymakers are expected this week to announce a new bond-buying plan specifically aimed at pulling long-term interest rates lower.
That could help some Americans buy homes or refinance mortgages. But Wall Street doesn't see much hope that the Fed can give a significant boost to the economy.
"Interest rates already are low and it hasn't had any stimulative effect" on most consumers or businesses, said Dan Greenhaus, chief global strategist at brokerage BTIG in New York.
Still, many bond investors believe that the Fed has little choice but to provide what aid it can to the economy, with the Obama administration and Congress battling over fiscal policy.
On Monday, another slump in stocks worldwide helped drive investors back to Treasury bonds as a haven. Traders said some investors also were buying bonds ahead of the Fed's two-day meeting, which begins Tuesday.
The annualized yield on 30-year Treasury bonds dived to 3.22%, down from 3.31% on Friday and the lowest since January 2009 — the depths of the last recession. The 10-year Treasury note yield, a benchmark for mortgage rates, slid to 1.95%, down from 2.05% on Friday and near the generational low of 1.92% reached Sept. 9.
Bond rates fall as the prices of the securities rise.
Treasury yields plummeted for much of August amid a wild rush of buying, as Europe's debt crisis worsened and the U.S. economy showed signs of slowing markedly. Even though credit rating firm Standard & Poor's downgraded the U.S. debt rating in early August for the first time in history, Treasuries kept their status as one of the world's favorite hiding places in times of market turmoil.
As the economic outlook dimmed, Wall Street also began to focus on what else the Fed could do to bolster growth.
Fed Chairman Ben S. Bernanke has signaled that the central bank could resurrect a move it undertook in the 1960s known as Operation Twist: The Fed, which owns $1.6 trillion in Treasuries, could shift that portfolio by selling shorter-term debt and using the proceeds to buy longer-term bonds.
The net effect, the Fed hopes, would be to twist the so-called yield curve, meaning the level of longer-term interest rates compared with short-term rates. In theory, by adding to demand for longer-term Treasury bonds, the Fed could pull those rates down further. That could translate into lower rates on corporate, municipal and mortgage bonds.
Investment bank Credit Suisse expects the Fed to commit to a six-month program of buying $60 billion a month of Treasury debt maturing in seven and 10 years, said Scott Sherman, a Treasury debt strategist at the firm in New York. The Fed would sell bonds maturing in one to three years to finance its purchases of longer-term securities, he said.
Even though the Fed would be selling shorter-term debt in the marketplace, any upward pressure on short-term Treasury interest rates could be limited because the Fed in August said it was likely to keep its benchmark rate near zero through at least mid-2013.
The Treasury bond market isn't showing any fear of higher short-term rates. The two-year T-note yield fell to a new low of 0.16% on Monday from 0.17% on Friday.
If the Fed commits to a new Operation Twist, it would be the third bond-buying program it has launched since November 2008. The last one was a $600-billion purchase program completed in June.
The difference this time is that most analysts believe that the Fed won't print new money to fund its purchases. If the central bank merely swaps shorter-term Treasuries for longer-term securities, the net amount of its holdings won't change.
Bernanke thereby might avoid criticism from Republican leaders, including Texas Gov. Rick Perry, who have said the Fed's efforts to pump more money into the economy could eventually stoke inflation.
"There are certainly political constraints on what the Fed can do now," BTIG's Greenhaus said.
One question Bernanke has to ponder is how much lower longer-term rates can go, even with the Fed pushing on them. Because investors have been betting on a new Operation Twist, bond yields already reflect some of the potential benefit of greater Fed purchases, traders say.
That also happened last fall: The Fed's $600-billion bond purchase program launched in November had been well-telegraphed. The 10-year T-note yield fell as low as 2.38% in October 2010 — then surged to 3.30% by year's end despite the Fed's bond buying.
Los angeles times
hostgator coupon 2011
Investors have pulled more money from U.S. equity funds since the end of April than in the five months after the collapse of Lehman Brothers Holdings Inc., adding to the $2.1 trillion rout in American stocks.
About $75 billion was withdrawn from funds that focus on shares during the past four months, according to data compiled by Bloomberg from the Investment Company Institute, a Washington-based trade group, and EPFR Global, a research firm in Cambridge, Massachusetts. Outflows totaled $72.8 billion from October 2008 through February 2009, following Lehman’s bankruptcy, the data show.
Bears say investors are abandoning stock managers because there’s no end in sight to the decline that pushed the Standard & Poor’s 500 Index within 2.1 percentage points of a bear market in August. Bulls say the retreat by individuals has been a reason to buy since the bull market began in March 2009 and withdrawals mean money is available to buy stocks in the future.
“When we’re getting close to a market bottom, the phone starts ringing off the hook and our clients want us to sell everything,” Bruce McCain, who helps manage $22 billion as chief investment strategist at the private-banking unit of KeyCorp, said in a phone interview on Sept. 14.
“Market bottoms are less about an improvement in the fundamental situation, whether the economy or outlook for earnings, and a lot more about getting rid of all the anxious investors.”
About $177.7 billion has been removed during the past 30 months from mutual and exchange-traded funds that invest in U.S. shares as the benchmark gauge for American equity rallied as much as 102 percent, before falling 17.9 percent through Aug. 8. Investors pumped in $18.7 billion during the first four months of 2011, before removing about four times that amount since, according to the average of data from EPFR and ICI, the money managers’ trade group. The August estimate doesn’t include ETF data from ICI.
Bond funds added $42.3 billion from the end of April through July and started posting weekly outflows last month, according to ICI. Since the bull market began, fixed-income managers have received a net $666.4 billion.
The last time equity fund outflows exceeded $40 billion during a four-month period was in August 2010, the data show. The S&P 500, which completed a 16 percent decline the previous month, went on to gain 13 percent through November. Monthly outflows in the last two years exceeded $10 billion seven different times. The S&P 500 advanced the next month in five of those cases, according to Bloomberg data. S&P 500 futures dropped 1.6 percent to 1,192 at 8:34 a.m. in London today.
AllianceBernstein Holding LP’s assets under management slipped 5 percent to $433 billion in August, “with retail in particular affected by the month’s volatile capital markets,” the New York-based company said in a Sept. 13 statement. Invesco Ltd.’s equity assets fell 7.8 percent to $276.4 billion from July, reflecting the “effects of negative market returns.”
Withdrawals accelerated in September and October 2008 as Lehman’s bankruptcy, the biggest in U.S. history, dragged down shares and spurred the worst financial crisis since the Great Depression. The S&P 500 dropped 30 percent in two months.
Investors never got over that shock, said Walter “Bucky” Hellwig, who helps manage $17 billion at BB&T Wealth Management in Birmingham, Alabama.
Now, concern Greece will default and spur a banking crisis has driven the S&P 500 down 11 percent since April, leaving it trading at 13.3 times reported earnings, 20 percent less than the last trading session before Lehman fell.
“It’s the once burnt, twice shy phenomenon,” Hellwig said in a telephone interview on Sept. 12. “Investors are much less risk tolerant than they have been in the past. You would think that someone would say, I can take a little bit of risk, look at the P/E,’ but they just want to stay on the sidelines.”
The benchmark gauge for U.S. equities advanced 5.4 percent to 1,216.01 last week, the third-biggest rally since 2009, after central bankers said they would provide dollar loans for European lenders and French President Nicolas Sarkozy and German Chancellor Angela Merkel said they’re convinced Greece will remain in the euro area. The index has lost 3.3 percent in 2011 and is now up 80 percent from its March 2009 low.
Bears say the withdrawals foreshadow more declines. Stocks have fallen four straight months, losing 5.7 percent in August after economists lowered forecasts for global economic growth, manufacturing in the Philadelphia region contracted by the most in more than two years and a debate in Congress over the budget deficit prompted S&P to strip the U.S. of its AAA credit rating.
“The average investor is less financially and psychologically prepared for this increased volatility,” Jason Brady, a managing director at Thornburg Investment Management Inc, who helps oversee about $76 billion from Santa Fe, New Mexico, said in a Sept. 15 telephone interview. “They’re staying out and there’s something of a secular move to a demand for income and safety.”
Chances the global economy enters a recession have risen to 1-in-2, Nobel-prize winning economist Paul Krugman said Sept. 8. JPMorgan Chase & Co. sees the chance of the second recession since 2007 at 40 percent, according to a Sept. 7 note.
Bigger stock swings are leading individuals to sell shares, Brady said.
The VIX, the benchmark measure of U.S. equity derivatives, surged 50 percent to 48 on Aug. 8 for the biggest increase since February 2007 after S&P lowered its rating on U.S. long-term debt to AA+. The VIX has averaged 20.43 over its 21-year history.
“The individual investor is very frustrated and at their wits’ end with the equity market, and it’s hard to blame them,” Walter Todd, who helps manage $940 million at Greenwood Capital in Greenwood, South Carolina, said in a Sept. 16 telephone interview. “It’s certainly not going to help push the market higher if you’ve got that constant drain.”
While BNY Mellon Wealth Management’s Leo Grohowski says he understands the aversion to equity price swings, valuations are too low to justify more selling. Of the 500 companies in the benchmark equity index, 331 had price-earnings ratios at the end of August lower than they were when the year began, data compiled by Bloomberg show.
“There is this lack of confidence in equities as an asset class just due to the volatility,” Grohowski, the chief investment officer for BNY Mellon, which oversees $171 billion, said in a telephone interview on Sept. 15. “But for investors who are long term and intermediate term, the market is undervalued. Now would not be a wise time to be reducing equity exposure because there’s an awful lot of bad news or expectations already priced in to the market.”
Outflows following September 2008 lasted through March 2009. During the last three months of 2008, companies were reporting their fourth quarter of shrinking earnings and the U.S. jobless rate was halfway through its climb to the highest level since 1983. Gross domestic product slid 5.1 percent from the fourth quarter of 2007 to the second quarter of 2009, the most of any recession since the 1930s, according to Commerce Department data.
Now, investors are withdrawing funds after companies beat profit estimates for 10 straight quarters. The world’s largest economy posted two years of growth and economists are calling for GDP to expand 1.6 percent in 2011 and 2.2 percent in 2012, according to the median estimates compiled by Bloomberg.
Corporations have been hoarding cash and paying down borrowings. The S&P 500’s net debt to earnings before interest, tax, depreciation and amortization ratio is down to 2.5 from 5 in the second quarter of 2008, data compiled by Bloomberg show. This year’s earnings will increase 18 percent to a record $99.57 a share and break $100 next year, according to the data.
DirecTV in El Segundo, California, is trading at 14.4 times reported earnings, a valuation 14 percent below the level at the end of 2008. Since the third quarter of 2009, profits at the largest U.S. satellite-television provider increased an average 64 percent each quarter. They’re forecast to rise 26 percent next year, according to analyst estimates compiled by Bloomberg.
Earnings at Dow Chemical Co. retreated during the financial crisis. While profits more than doubled in every quarter of 2010, the shares are down 17 percent this year. The largest U.S. chemical maker fired workers, shut plants and sold assets to bolster earnings. Since 2009, the Midland, Michigan-based company has posted better-than-estimated sales in all but one period.
When fund flows show investors bailing out of stocks at the rate they are now, it’s usually bullish, Brian Barish, the Denver-based president of Cambiar Investors LLC, which oversees about $8 billion, wrote in a Sept. 15 e-mail.
“The five months after Lehman were an epic buying opportunity, yet investors liquidated en masse,” Barish said. “Retail unfortunately tends to time things poorly. I don’t expect the current situation to be all that different.”
Bloomberg.com
hostgator coupon 2011
(Reuters) - Standard and Poor's rocked the euro and bond markets on Tuesday with a one-notch cut in Italy's credit rating that added fuel to opposition calls for Prime Minister Silvio Berlusconi to resign and increased pressure on the debt-stressed euro zone.
S&P's cut its ratings on the euro zone's third largest economy to A/A-1 from A+/A-1+, judging it less creditworthy than Slovakia, and kept its outlook on negative, warning of a deteriorating growth outlook and damaging political uncertainty.
The euro fell more than half a cent against the dollar before picking up following some reassuring signs from Greece, but bond yields hovered within sight of levels which prompted the European Central Bank to step into the market and buy Italian bonds.
"This is not just more negative news coming out of the euro zone," said Nicholas Spiro, managing director of London-based consultancy Spiro Sovereign Strategy. "This is a confirmation that the world's third-largest bond market, and the euro zone's third-largest economy, is in danger of succumbing to a self-fulfilling loss of confidence."
S&P, which put Italy on review for downgrade in May, said that the outlook for growth was worsening and Prime Minister Silvio Berlusconi's fractious centre-right government had not shown it could respond effectively.
Under mounting pressure to cut its 1.9 trillion euro (1.66 trillion pound) debt pile -- 120 percent of gross domestic product -- the government pushed a 59.8 billion euro austerity plan through parliament last week, pledging to balance its budget by 2013.
But there has been little confidence that the much-revised package of tax hikes and spending cuts, agreed only after repeated chopping and changing, will do anything to address Italy's underlying problem of persistent stagnant growth.
"We believe the reduced pace of Italy's economic activity to date will make the government's revised fiscal targets difficult to achieve," S&P's said in a statement.
"Furthermore, what we view as the Italian government's tentative policy response to recent market pressures suggests continuing future political uncertainty about the means of addressing Italy's economic challenges," it said.
Italy has had one of the euro zone's most sluggish economies for a decade and sources said on Monday the government was preparing to cut its growth forecast to 0.7 percent in 2011 from a previous 1.1 percent and for 2012 to "1 percent or below."
"POLITICAL CONSIDERATIONS"
Berlusconi's coalition has been plagued by infighting and policy disagreements and the prime minister himself has been battling a widening prostitution scandal which has distracted the government and badly damaged his personal credibility.
But he lashed out at S&P, saying its move seemed influenced by "political considerations." He said his government had a secure parliamentary majority and was preparing measures to boost growth which would bear fruit in the short to medium term.
"The assessments by Standard & Poor's seem dictated more by newspaper stories than by reality," he said in a statement.
S&P rejected the suggestion that its decision was politically motivated, saying it was based on a detailed analysis of the economy.
The agency said budgetary savings may not be possible because the government is relying heavily on revenue increases in a country that already has a high tax burden and is facing weakening economic growth prospects. In addition, market interest rates are expected to rise, it said.
Berlusconi has been under increasing pressure as the crisis has intensified with groups ranging from business associations to mainstream newspapers and the centre-left opposition saying he must act immediately or step down.
Emma Marcegaglia, head of Confindustria, Italy's main employers federation, said business was tired of being treated as an "international laughing stock."
"The government must either adopt immediate, serious and also unpopular reforms or else, I am not afraid to say it, it must pack its bags and resign," she said.
Italy's Economy Minister Giulio Tremonti was holding talks at the treasury following the agency's decision. S&P will host a conference call to explain the move later on Tuesday.
RATINGS "DICTATORSHIP"
S&P's move drew a mixed response from Italy's European partners with French Foreign Minister Alain Juppe repeating longstanding criticisms of the international ratings agencies.
"We should not cave in under this dictatorship of ratings agencies, whose transparency is in serious need of improvement," he told Europe 1 radio.
However, Peter Altmaier, a senior parliamentarian in Chancellor Angela Merkel's centre-right coalition saying it demonstrated the need for governments to show responsibility.
Financial markets had been expecting rival agency Moody's to move first, after it put Italy on review in June. It said last week it would decide within a month whether to cut its rating but declined to comment on Tuesday.
S&P's rating is now three notches below Moody's and puts Italy below Slovakia and level with Malta.
"The rating downgrade was not totally unexpected, even though it came from the agency we didn't expect," said Paola Biraschi, banking analyst at RBS in London.
"To me it seems like a competition between rating agencies to publish the downgrade first," she said.
Italy's stock market weakened initially but turned positive as other European markets headed higher on short-covering after heavy losses on Monday and as some dealers said markets had already priced in the downgrade.
Italian 10-year government bond yields rose to more than 5.6 percent while spreads over German bunds widened to more than 386 basis points.
The cost of insuring against an Italian default has also risen sharply, with Italian 5-year credit default swaps above the psychologically important 500 level at 508 basis points on Tuesday morning, according to monitor Markit.
Only the European Central Bank, which has been buying Italian bonds to prop up the market, has kept Rome's borrowing costs from spiralling out of control, but yields have crept back up steadily since the ECB stepped into the market in August.
"Italy is now struck in a self-fulfilling downward spiral from which it is unlikely to be able to extract itself without external help," said Sony Kapoor, of Brussels-based think tank Re-Define.
"Without full confidence in the credit-worthiness of Italy, it's impossible to have full confidence in the solvency of the European banking system," he said.
hostgator coupon 2011
RALEIGH, North Carolina (Reuters) - The regulator for Fannie Mae and Freddie Mac said on Monday he is considering some reform scenarios that include higher costs for mortgages backed by the government and sharing more risk with the private sector.
"A series of periodic, gradual price increases makes more sense than or two large price adjustments," said Edward DeMarco, acting director of the Federal Housing Finance Agency.
Speaking at a mortgage conference sponsored by the North Carolina Mortgage Bankers Association, DeMarco said the goal is to lessen the long-term exposure to risk for the two government-sponsored enterprises.
The increased guarantee fees will "not happen immediately but should be expected in 2012," he added.
Fannie and Freddie, seized three years ago amid fears the two were at risk of failing, have so far cost taxpayers more than $140 billion.
DeMarco also said the regulator will look at a number of ways to dampen the two firms' exposure to risk, including expanding the use of mortgage insurance and securities structures that allow for greater private-sector risk sharing.
"These types of risk-sharing alternatives have an added benefit of providing feedback into the Enterprises' guarantee fee pricing decisions," DeMarco said.
hostgator coupon 2011
WASHINGTON (AP) -- The U.S. homebuilders' outlook worsened in September, as foreclosures and anxious buyers hurt construction and sales activity.
The National Association of Home Builders said Monday that its index of builder sentiment in September fell to 14 from 15. The index has been below 20 for all but one month during the past two years.
Any reading below 50 indicates negative sentiment about the housing market. It hasn't reached 50 since April 2006, the peak of the housing boom.
Last year, the number of people who bought new homes fell to its lowest level dating back nearly a half-century. Sales this year haven't fared much better.
Builders are struggling to compete with foreclosures, which have made the price of re-sale homes more competitive. Many buyers are having difficulty obtaining loans or meeting higher down payment requirements. Low appraisals are scuttling some deals after contracts have been signed and some would-buyers who want to purchase a new home can't sell their old one.
David Crowe, the group's chief economist, said a weakening U.S. economy and high unemployment has made the short-term prospects for the homebuilding industry "fairly bleak." The low indexes reflect "builders' awareness that many consumers are simply unwilling or unable to move forward with a home purchase in today's uncertain economic climate."
While new homes make up a small portion of sales, they have an outsize impact on the economy. The builders' trade group says each new home built creates an average of three jobs for a year and generates about $90,000 in taxes.
Separate gauges of current single-family home sales and foot traffic of prospective buyers each fell two points, to 17 and 11, respectively.
An index of builders' outlook in the Midwest rose one point to 11. In the Northeast and South, the index fell two points to 15 and in the West it fell three points to 12.
hostgator coupon 2011
