(Bloomberg) -- Former Federal Reserve Chairman Alan Greenspan signaled that the financial crisis has yet to end even as borrowing costs tumble, warning that U.S. banks must raise “large” amounts of money.
“There is still a very large unfunded capital requirement in the commercial banking system in the United States and that’s got to be funded,” Greenspan said in an interview yesterday in Washington. He also said that “until the price of homes flattens out we still have a very serious potential mortgage crisis.”
Greenspan’s comments suggest he sees a bigger capital shortfall in the banking system than reflected in regulators’ stress tests on the 19 biggest U.S. lenders. Treasury Secretary Timothy Geithner told lawmakers yesterday that banks have issued more than $56 billion in new stock or debt since the tests found 10 firms needed to raise about $75 billion.
A lack of capital at banks may inhibit lending to consumers and businesses, tempering any economic recovery. The former Fed chief, who left the central bank in 2006, said that the continued slump in home prices is putting at risk millions of borrowers.
“We’re on the edge and if this thing doesn’t get resolved quickly I’m worried,” he said before a meeting with House of Representatives members on financial regulation that was organized by the Washington-based Bipartisan Policy Center.
Home prices will only start to stabilize once the “liquidation” rate of single-family homes has peaked, he said. “I don’t think we’re there yet.”
‘Remarkable’ Improvement
More broadly, “things have unquestionably improved” across the economy and financial markets, he said. “They’ve improved everywhere in the world. It’s remarkable.”
The London interbank offered rate, or Libor, for three- month dollar loans fell 3 basis points yesterday to 0.75 percent, the British Bankers’ Association said, the 35th straight drop. The Libor-OIS spread, a gauge of banks’ reluctance to lend, narrowed to 55 basis points, the least since February 2008. It was as high as 364 basis points in October.
That’s an “extraordinary improvement,” said Greenspan, who last year said that the credit crisis would be at an end once the Libor-OIS spread narrowed past 25 basis points. “Virtually all of the various credit spreads not only in the U.S. but globally have come down.”
Alan Blinder, a former Fed vice chairman, also said on Capitol Hill that “if there are no more reversals, history will judge that by May 2009 we will have passed the worst of the crisis.”
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Wednesday, May 20, 2009
Yen Gains to 8-Week High After Fed Projects a Deeper Recession
(Bloomberg) -- The yen rose to an eight-week high against the dollar after the U.S. Federal Reserve projected a deeper recession, boosting demand for the Japanese currency as a refuge from the global slump.
The dollar fell for a third day versus the yen after minutes of the latest Fed meeting released yesterday showed policy makers may buy more assets to spur a revival in the world’s largest economy. The euro approached a four-month high against the dollar before a European manufacturing and services report that may back the case for the region’s central bank to keep interest rates unchanged. South Korea’s won rose toward a seven-month high against the dollar.
“The Fed’s downgrade of growth forecasts, occurring amid an optimistic mood, shocked markets,” said Ryohei Muramatsu, manager of Group Treasury Asia in Tokyo at Commerzbank AG, Germany’s second-largest bank. “This is leading to buying of the yen.”
The yen strengthened to 94.47 per dollar as of 11:44 a.m. in Tokyo from 94.88 yesterday in New York after climbing to 94.29, the highest level since March 20. Japan’s currency advanced to 130.34 per euro from 130.77. The euro rose to $1.3801 from $1.3780 yesterday, when it reached $1.3830, the strongest level since Jan. 5.
The dollar declined to $1.5817 versus the British pound, the weakest since Nov. 10, before trading at $1.5797 from $1.5755. South Korea’s won strengthened 0.2 percent to 1,248.60 per dollar, after touching 1,225.97 on May 11, the strongest since Oct. 15.
Dollar Index
The Dollar Index fell for a fourth day after minutes of the Fed’s April 28-29 meeting released yesterday showed some policy makers said “a further increase” in the total amount of asset purchases may be needed to speed a U.S. economic recovery.
Fed governors and district-bank presidents also cut their projections for economic growth in quarterly forecasts submitted at the meeting, the minutes showed. They foresaw a deeper contraction in 2009 and a weaker recovery next year, with the unemployment rate projected to remain at 9 percent or higher.
“The Fed may expand its asset-purchase program, which would increase the supply of greenbacks in the market,” said Yuji Saito, head of the foreign-exchange group in Tokyo at Societe Generale SA, France’s third-largest bank. “This could undermine the value of the dollar and spur investors in the U.S. to put their funds overseas.”
The Dollar Index, used by the ICE to track the U.S. currency versus the euro, yen, pound, Swiss franc, Canadian dollar and Swedish krona, declined to 80.931 after yesterday dropping to 80.91, the lowest level since Dec. 31.
Record Loss
The dollar dropped a record 3.4 percent versus the euro on March 18, when the Fed announced plans to buy up to $300 billion in U.S. government debt to keep interest rates low and stimulate the economy, a measure known as quantitative easing.
The yen advanced versus all 16 of the most-traded currencies as a survey published by Barclays Capital today showed Japan’s money managers judge the market’s outlook for the U.S. economy to be too optimistic.
About 82 percent of 55 Japanese institutional investors who responded to the poll this week described the market’s outlook as either “extremely” or “somewhat” optimistic, while only 13 percent called it “appropriate.”
“The majority of Japanese investors believe the outlook for the economy currently factored into the U.S. markets is overly optimistic,” Yoshio Takahashi, head strategist for non- Japanese debt in Tokyo at Barclays Capital, wrote in a research note today.
Yen Call Options
Traders are paying a larger premium for yen call options against the dollar, which grant the right to buy Japan’s currency, over puts that provide the right to sell it. The dollar-yen’s one-month 25-delta risk-reversal rate widened to minus 2.44 percent today from minus 2.22 percent yesterday.
The euro gained for a fourth day versus the dollar before a European report that may show the region’s manufacturing and services contracted at the slowest pace in seven months.
A composite index of activity in both industries rose to 42 in May from 41.1 in April, according to the median estimate in a Bloomberg survey of economists.
“We could see PMIs come in higher than expected, highlighting the improved sentiment in the region,” analysts at Standard Chartered Bank led by Callum Henderson, Singapore-based global head of currency research, wrote in a research note today. “It looks likely the euro-dollar could establish new highs for 2009 beyond January’s $1.406 high.”
Read more here
The dollar fell for a third day versus the yen after minutes of the latest Fed meeting released yesterday showed policy makers may buy more assets to spur a revival in the world’s largest economy. The euro approached a four-month high against the dollar before a European manufacturing and services report that may back the case for the region’s central bank to keep interest rates unchanged. South Korea’s won rose toward a seven-month high against the dollar.
“The Fed’s downgrade of growth forecasts, occurring amid an optimistic mood, shocked markets,” said Ryohei Muramatsu, manager of Group Treasury Asia in Tokyo at Commerzbank AG, Germany’s second-largest bank. “This is leading to buying of the yen.”
The yen strengthened to 94.47 per dollar as of 11:44 a.m. in Tokyo from 94.88 yesterday in New York after climbing to 94.29, the highest level since March 20. Japan’s currency advanced to 130.34 per euro from 130.77. The euro rose to $1.3801 from $1.3780 yesterday, when it reached $1.3830, the strongest level since Jan. 5.
The dollar declined to $1.5817 versus the British pound, the weakest since Nov. 10, before trading at $1.5797 from $1.5755. South Korea’s won strengthened 0.2 percent to 1,248.60 per dollar, after touching 1,225.97 on May 11, the strongest since Oct. 15.
Dollar Index
The Dollar Index fell for a fourth day after minutes of the Fed’s April 28-29 meeting released yesterday showed some policy makers said “a further increase” in the total amount of asset purchases may be needed to speed a U.S. economic recovery.
Fed governors and district-bank presidents also cut their projections for economic growth in quarterly forecasts submitted at the meeting, the minutes showed. They foresaw a deeper contraction in 2009 and a weaker recovery next year, with the unemployment rate projected to remain at 9 percent or higher.
“The Fed may expand its asset-purchase program, which would increase the supply of greenbacks in the market,” said Yuji Saito, head of the foreign-exchange group in Tokyo at Societe Generale SA, France’s third-largest bank. “This could undermine the value of the dollar and spur investors in the U.S. to put their funds overseas.”
The Dollar Index, used by the ICE to track the U.S. currency versus the euro, yen, pound, Swiss franc, Canadian dollar and Swedish krona, declined to 80.931 after yesterday dropping to 80.91, the lowest level since Dec. 31.
Record Loss
The dollar dropped a record 3.4 percent versus the euro on March 18, when the Fed announced plans to buy up to $300 billion in U.S. government debt to keep interest rates low and stimulate the economy, a measure known as quantitative easing.
The yen advanced versus all 16 of the most-traded currencies as a survey published by Barclays Capital today showed Japan’s money managers judge the market’s outlook for the U.S. economy to be too optimistic.
About 82 percent of 55 Japanese institutional investors who responded to the poll this week described the market’s outlook as either “extremely” or “somewhat” optimistic, while only 13 percent called it “appropriate.”
“The majority of Japanese investors believe the outlook for the economy currently factored into the U.S. markets is overly optimistic,” Yoshio Takahashi, head strategist for non- Japanese debt in Tokyo at Barclays Capital, wrote in a research note today.
Yen Call Options
Traders are paying a larger premium for yen call options against the dollar, which grant the right to buy Japan’s currency, over puts that provide the right to sell it. The dollar-yen’s one-month 25-delta risk-reversal rate widened to minus 2.44 percent today from minus 2.22 percent yesterday.
The euro gained for a fourth day versus the dollar before a European report that may show the region’s manufacturing and services contracted at the slowest pace in seven months.
A composite index of activity in both industries rose to 42 in May from 41.1 in April, according to the median estimate in a Bloomberg survey of economists.
“We could see PMIs come in higher than expected, highlighting the improved sentiment in the region,” analysts at Standard Chartered Bank led by Callum Henderson, Singapore-based global head of currency research, wrote in a research note today. “It looks likely the euro-dollar could establish new highs for 2009 beyond January’s $1.406 high.”
Read more here
Asian Stocks Decline on Yen Strength, Fed Economy Prediction
(Bloomberg) -- Asian stocks retreated, dragging the MSCI Asia Pacific Index from a seven-month high, as the stronger yen diminished earnings prospects in Japan and the U.S. Federal Reserve projected a deeper recession.
Toyota Motor Corp., which got 31 percent of its revenue in North America last fiscal year, lost 2.2 percent. Department store operator Takashimaya Co. lost 3.4 percent in Tokyo as the first cases of swine flu were confirmed in the city. Rio Tinto Group, the world’s No. 3 mining company, rose 2.4 percent after the Sydney Morning Herald reported Aluminum Corp. of China may accept a lower stake to win approval for an investment.
The MSCI Asia Pacific Index fell 0.6 percent to 99.64 as of 12:21 p.m. in Tokyo. The gauge closed at its highest level since Oct. 6 yesterday, driving stock valuations to the most expensive since 2003.
“We need to see economic fundamentals improve to match the recovery in equity markets,” said Chong Yoon Chou, Singapore- based investment director at Aberdeen Asset Management Asia Ltd., which has $27 billion of assets. “An economic recovery will take some time.”
Japan’s Nikkei 225 Stock Average declined 1.2 percent to 9,235.15. China’s Shanghai Composite Index lost 1.6 percent as a Credit Suisse Group AG report said a rebound in economic growth won’t be as “strong as many recently have hoped.” Markets in Asia fell except in Malaysia and Vietnam.
Brokerage Downgrade
Ibiden Co., which makes components for memory chips, slumped 2.5 percent after Nikko Citigroup Ltd. recommended selling the stock, citing weak profit growth. Chi Mei Optoelectronics Corp., Taiwan’s No. 2 maker of liquid-crystal displays, surged for a second day after China said it will widen subsidies to include home appliances. Online retailer Rakuten Inc. jumped 3.9 percent on speculation an outbreak of swine flu will push consumers to shop from home.
Futures on the U.S. Standard & Poor’s 500 Index lost 0.4 percent. The gauge sank 0.5 percent yesterday as American Express Co. said legislation to curb credit-card fees may reduce lending to consumers.
Fed policy makers projected a fourth-quarter U.S. contraction of 1.3 percent to 2 percent from a year earlier, according to minutes of an April 28-29 meeting released yesterday. That compares with January projections for a contraction of 0.5 percent to 1.3 percent.
U.S. unemployment surged to 8.9 percent in April, a level not seen since 1983.
Yen Strength
The yen strengthened versus the dollar to as much as 94.29 today from 95.52 at the 3 p.m. close of stock trading in Tokyo yesterday, as the Fed said it considered buying more assets, a move that could devalue the U.S. dollar. A stronger local currency diminishes the value of overseas sales for Japanese manufacturers.
“Should the yen continue to strengthen, people will likely start doubting whether companies’ rather optimistic outlooks are justified,” said Mitsushige Akino, who oversees about $632 million at Ichiyoshi Investment Management Co. in Tokyo.
Toyota sank 2.2 percent to 3,580 yen. Sony Corp., the maker of the PlayStation 3 game console, declined 1.6 percent to 2,465 yen even after the company said it plans to reduce procurement costs by a fifth.
The MSCI Asia benchmark rallied as much as 42 percent from a more-than five year low reached on March 9. Stocks included in the MSCI gauge now trade at 43 times trailing earnings, the most expensive since 2003.
Oil, Copper
Rio gained 2.4 percent to A$66.37. Aluminum Corp., known as Chinalco, is open to letting Rio sell convertible bonds to other shareholders and would be prepared to accept a stake of 15 percent, the Sydney Morning Herald said. That would potentially avoid a breach of foreign ownership limits.
Commodity producers also climbed as crude oil for July delivery jumped 3.2 percent to $62.04 a barrel in New York yesterday, the highest settlement since Nov. 10. Copper futures added 1.8 percent. Both prices fell today.
Takashimaya slipped 3.4 percent to 575 yen. Aeon Co., Japan’s second-largest retailer, declined 3.1 percent to 856 yen. Rakuten jumped 3.9 percent to 52,800 yen.
Two 16-year-old high school students have been confirmed as the first cases of swine flu in the Tokyo area, according to statements from the Tokyo and Kawasaki city governments. Japan said 234 people have the virus, which has sickened more than 10,000 people worldwide.
“Retail, restaurant and leisure businesses will be affected,” Ichiyoshi’s Akino said. “As people are likely to stay in their house, online retailers and mail-order companies will benefit.”
Read more here
Toyota Motor Corp., which got 31 percent of its revenue in North America last fiscal year, lost 2.2 percent. Department store operator Takashimaya Co. lost 3.4 percent in Tokyo as the first cases of swine flu were confirmed in the city. Rio Tinto Group, the world’s No. 3 mining company, rose 2.4 percent after the Sydney Morning Herald reported Aluminum Corp. of China may accept a lower stake to win approval for an investment.
The MSCI Asia Pacific Index fell 0.6 percent to 99.64 as of 12:21 p.m. in Tokyo. The gauge closed at its highest level since Oct. 6 yesterday, driving stock valuations to the most expensive since 2003.
“We need to see economic fundamentals improve to match the recovery in equity markets,” said Chong Yoon Chou, Singapore- based investment director at Aberdeen Asset Management Asia Ltd., which has $27 billion of assets. “An economic recovery will take some time.”
Japan’s Nikkei 225 Stock Average declined 1.2 percent to 9,235.15. China’s Shanghai Composite Index lost 1.6 percent as a Credit Suisse Group AG report said a rebound in economic growth won’t be as “strong as many recently have hoped.” Markets in Asia fell except in Malaysia and Vietnam.
Brokerage Downgrade
Ibiden Co., which makes components for memory chips, slumped 2.5 percent after Nikko Citigroup Ltd. recommended selling the stock, citing weak profit growth. Chi Mei Optoelectronics Corp., Taiwan’s No. 2 maker of liquid-crystal displays, surged for a second day after China said it will widen subsidies to include home appliances. Online retailer Rakuten Inc. jumped 3.9 percent on speculation an outbreak of swine flu will push consumers to shop from home.
Futures on the U.S. Standard & Poor’s 500 Index lost 0.4 percent. The gauge sank 0.5 percent yesterday as American Express Co. said legislation to curb credit-card fees may reduce lending to consumers.
Fed policy makers projected a fourth-quarter U.S. contraction of 1.3 percent to 2 percent from a year earlier, according to minutes of an April 28-29 meeting released yesterday. That compares with January projections for a contraction of 0.5 percent to 1.3 percent.
U.S. unemployment surged to 8.9 percent in April, a level not seen since 1983.
Yen Strength
The yen strengthened versus the dollar to as much as 94.29 today from 95.52 at the 3 p.m. close of stock trading in Tokyo yesterday, as the Fed said it considered buying more assets, a move that could devalue the U.S. dollar. A stronger local currency diminishes the value of overseas sales for Japanese manufacturers.
“Should the yen continue to strengthen, people will likely start doubting whether companies’ rather optimistic outlooks are justified,” said Mitsushige Akino, who oversees about $632 million at Ichiyoshi Investment Management Co. in Tokyo.
Toyota sank 2.2 percent to 3,580 yen. Sony Corp., the maker of the PlayStation 3 game console, declined 1.6 percent to 2,465 yen even after the company said it plans to reduce procurement costs by a fifth.
The MSCI Asia benchmark rallied as much as 42 percent from a more-than five year low reached on March 9. Stocks included in the MSCI gauge now trade at 43 times trailing earnings, the most expensive since 2003.
Oil, Copper
Rio gained 2.4 percent to A$66.37. Aluminum Corp., known as Chinalco, is open to letting Rio sell convertible bonds to other shareholders and would be prepared to accept a stake of 15 percent, the Sydney Morning Herald said. That would potentially avoid a breach of foreign ownership limits.
Commodity producers also climbed as crude oil for July delivery jumped 3.2 percent to $62.04 a barrel in New York yesterday, the highest settlement since Nov. 10. Copper futures added 1.8 percent. Both prices fell today.
Takashimaya slipped 3.4 percent to 575 yen. Aeon Co., Japan’s second-largest retailer, declined 3.1 percent to 856 yen. Rakuten jumped 3.9 percent to 52,800 yen.
Two 16-year-old high school students have been confirmed as the first cases of swine flu in the Tokyo area, according to statements from the Tokyo and Kawasaki city governments. Japan said 234 people have the virus, which has sickened more than 10,000 people worldwide.
“Retail, restaurant and leisure businesses will be affected,” Ichiyoshi’s Akino said. “As people are likely to stay in their house, online retailers and mail-order companies will benefit.”
Read more here
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