Comments »Investors cool on US bonds and equities
By Sarah O’Connor in Washington
Published: June 16 2009 00:52 | Last updated: June 16 2009 00:52
Foreign governments and private investors dramatically reduced their purchases of US assets such as Treasuries in April, choosing instead to make riskier investments elsewhere.
Investors rushed to buy US government debt this year as the global economy teetered and they sought a safe place to park their money. That drove down Treasury yields which in turn reduced the interest rate on mortgages and helped stabilise the country’s collapsing housing market.
But as conditions have started to improve, the appetite for risk has risen, spurring governments and other investors to move their money into higher-yielding assets outside the US.
This was particularly the case for short-term securities such as Treasury bills, which mature in less than a year. Foreign holdings of Treasury bills fell $44.5bn in April according to data released on Monday by the US Treasury; they rose by almost $50bn in the previous month.
“With the global economy pulling back from the perceived precipice in early 2009, relative risk perceptions changed dramatically in favour of equities, particularly emerging market equities, and [this] report for the most part reflects these rapid changes in investor preferences,” said Brian Bethune, chief financial economist at IHS Global Insight.
Net overseas purchases of long-term US securities such as long-dated Treasuries and equities dropped from $56.4bn in March to $34.3bn in April. Of that, foreign governments reduced their purchases from a net $26.4bn in March to $16bn in April.
China, the largest holder of Treasuries, decreased its stockpile of US government bonds by more than $4bn to $763.5bn, while Japan and Russia also reduced their holdings slightly.
The move away from US Treasuries has reversed the virtuous circle that developed this year. Waning demand has forced yields higher and pushed up mortgage rates, which could snuff out the flickers of improvement in the housing market. This is in spite of the Federal Reserve’s efforts to keep rates low by buying up Treasuries.
US investors have been sending their money abroad, too. US residents bought a net $23bn in long-term foreign securities in April, up from just $1bn the previous month.
Alan Ruskin, economist at RBS Greenwich Capital, said the data helped explain why the US dollar had slid in value as the global economy’s prospects brightened. “By now, the likely stock adjustment out of Treasury bills into riskier assets is probably reasonably well advanced, but even then it is still likely to act as a significant US dollar headwind,” he said.
Joined Feb 3, 2009
1,759 Blog Posts
CPI: Prior 0% / Mkt Expects 0.3% / Actual +0.1% … Core CPI: Prior 0.3% / Mkt Expects 0% / Actual +0.1% …Plus Mortgage Applications Plunge to 7 Month Lows
Mortgage Applications & jumbo loans not so hot hot
Comments »U.S. mortgage applications fell for a fourth consecutive week, with overall demand plunging to its lowest level in nearly seven months, data from an industry group showed on Wednesday.
The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended June 12 decreased 15.8 percent to 514.4, the lowest since the week ended Nov. 21, 2008.
A rise in mortgage rates in recent weeks had sapped demand, particularly for home loan refinancing, but the direction of rates reversed course last week.
Cameron Findlay, chief economist at LendingTree.com based in Charlotte, North Carolina, said borrowers who are considering refinancing their current mortgage are now reevaluating their decision, given the swift and sharp rise in mortgage rates over the past few weeks.
“When rates move in volatile swings like this, it is critical (that) borrowers look for competitive rates — competition in this environment keeps mortgage companies honest,” he said.
Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 5.50 percent, down 0.07 percentage point from the previous week, but significantly higher than the all-time low of 4.61 percent set in the week ended March 27.
The survey has been conducted weekly since 1990.
Interest rates, however, were well below year-ago levels of 6.57 percent. Thirty-year mortgage rates had mostly been on a downward trend since the Fed unveiled its plan to buy mortgage-backed debt in late November. But the Fed has recently met resistance in the bond market.
Treasury yields, which are linked to mortgage rates, rose sharply earlier this month, with mortgage rates responding in kind. Treasury yields have come down recently, allowing rates to fall.
The plunge in demand for home loans may help gauge how the hard-hit U.S. housing market is faring this spring, the peak home buying season.
The MBA’s seasonally adjusted purchase index fell 3.5 percent to 261.2. The four-week moving average of mortgage applications, which smoothes the volatile weekly figures, was down 13.5 percent.
Weekly Refinancing Activity Plunges
The U.S. housing market is in the worst downturn since the Great Depression and its impact has rippled through the recession-hit economy, as well as the rest of the world.
Economists contend that the economy might not emerge from its slump unless the housing market stabilizes.
The Mortgage Bankers seasonally adjusted index of refinancing applications decreased 23.3 percent to 1,998.1, also the lowest since the week ended Nov. 21, 2008.
Kevin Walker, CEO of MortgageReport.com in Newton, Massachusetts, a new resource for homeowners, said the impact of higher interest rates on mortgages is moderate because a large number of consumers did refinance over the past several months, and therefore most holders of conforming mortgages took advantage of low rates.
However, many holders of non-conforming loans, might not have been able to refinance and those borrowers with adjustable-rate mortgages might now be sweating it out because their impending re-set dates are approaching just as rates are trending higher, he said.
“So it’s a mixed bag: positive for those who did lock in low rates, but still unsettling for many millions of additional mortgage holders,” he said.
The refinance share of applications decreased to 54.1 percent from 59.4 percent the previous week. The adjustable-rate mortgage share of activity increased to 4.3 percent in the latest week, up from 3.4 percent the previous week.
Fixed 15-year mortgage rates averaged 4.99 percent, down from 5.10 percent the previous week. Rates on one-year ARMs decreased to 6.54 percent from 6.75 percent the prior week.
World Markets Continue Slide on Evaluation Worries
Comments »LONDON (AP) — World stock markets were mostly lower Wednesday ahead of an expected flat opening on Wall Street as investors remained cautious about whether the current pace of economic recovery, particularly in the U.S., justifies the rally seen in stocks since March.
In Europe, the FTSE 100 index of leading British shares was down 32.39 points, or 0.8 percent, at 4,296.18 while Germany’s DAX fell 38.17 points, or 0.8 percent, to 4,852.55. The CAC-40 in France was 24.12 points, or 0.8 percent, lower at 3,189.83.
Wall Street was expected to open steady at the open. Dow futures were 17 points lower at 8,497 while the broader Standard & Poor’s 500 futures were up 0.1 points at 907.90. On Tuesday, the Dow Jones industrial average fell 1.3 percent to 8,504.67, while the S&P dropped 1.3 percent to 911.97.
With some indexes up more than 50 percent since March on expectations of an economic turnaround this year, markets have begun to stumble amid worries stock prices have gotten too far ahead of economic fundamentals.
News that American industrial production fell by a bigger-than-expected 1.1 percent last month gave investors even more reason to hold back. It marked the seventh straight monthly drop and distracted traders from more upbeat figures on home construction, building permits and inflation.
The stock market rally since March’s lows has been fueled by hopes that the U.S. economy in particular will recover from recession sooner than previously anticipated. As equities usually start rising 6 to 9 months before actual recovery emerges in the official data, this suggests investors believed the massive sell-off in markets during the most acute phase of the financial crisis was overdone. Some of the world’s major equity indexes are now in positive territory for 2009.
That optimism has dissipated in recent days, however. Rising interest rates on U.S. government bonds and higher oil prices have combined to worry investors that any recovery around the world could be choked off at birth.
“Further falls in stock markets is suggestive of more risk being taken off the table today as the market worries about the strength of the ‘green shoots’ of recovery,” said Jane Foley, research director at Forex.com.
Investors, it seems, are awaiting signs that the rally since March wasn’t just misplaced euphoria. They now want to see clear evidence that the world economy and company earnings are recovering so that current stock valuations make sense. In March, many investors, awash with cash after bailing out from a sliding market, saw valuations around the world as particularly cheap.
Neil Mackinnon, chief economist at ECU Group, noted that the S&P 500 in the U.S. is “not cheap” at the moment at 16 times earnings and that the 925 level “is starting to falter.”
Earlier in Asia, Hong Kong’s Hang Seng index dropped 80.90 points, or 0.5 percent, to 18,084.60, though Japan’s Nikkei bucked the downward trend, gaining 87.97 points, or 0.9 percent, to 9,840.85.
Elsewhere in Asia, South Korea’s Kospi shed 0.6 percent to 1,391.17 while Australia’s benchmark fell 1.5 percent
Shanghai’s stock measure recovered the session’s losses to close higher by 1.2 percent, as investors found encouragement in comments from President Hu Jintao. Hu said Tuesday that Beijing’s stimulus is showing results and China is determined to take the lead in emerging from the global economic crisis.
Investors were wary after the Chinese government last week reported conflicting data showing exports falling but consumer spending and investment rising.
“Investors have opposite interpretations on the data, but the president’s speech made it clear to those fence-sitters and it’s a boost to the market,” said Tang Yonggang, an analyst for Hongyuan Securities in Beijing.
Oil prices were slightly softer, with benchmark crude for July delivery down 26 cents to $70.21. On Tuesday, the contract fell 15 cents.
In currencies, the dollar was up 0.3 percent at 96.42 yen while the euro rose 0.3 percent to $1.3847.
AP Business Writer Jeremiah Marquez in Hong Kong contributed to this report.
FDX Guides Lower As Revenues & Profits Drop Like A Stone
June 17 (Bloomberg) — Fedex Corp. forecast first-quarter earnings per share of 30 cents to 45 cents, below the consensus estimate of 70 cents.
By John Ittner
Comments »NEW YORK (MarketWatch) — FedEx Corp. /quotes/comstock/13*!fdx/quotes/nls/fdx (FDX 50.11, -1.31, -2.55%) said today it lost $876 million, or $2.82 per share for the fourth quarter , including $3.46 a share of previously disclosed charges. In the same period a year ago, FedEx lost $241 million, or 78 cents a share. Excluding these charges, earnings were 64 cents a share. These charges, approximately $1.2 billion, result from the impairment of goodwill related to the acquisitions of Kinko’s Inc. and Watkins Motor Lines. Revenue was $7.85 billion, down 20%. Analysts polled by FactSet Research estimated, on average, adjusted earnings of 51 cents and sales of $8.4 billion. FedEx sees earnings of 30 cents to 45 cents a share in the first quarter, compared to $1.23 a year ago. “At this time we do not have enough visibility into the economic recovery and jet fuel prices to provide a meaningful annual earnings forecast,” said Chief Financial Officer Alan Graf, Jr.
BRIC’s Call For “Fairer World Order”
Question is will the dollar tank and the hard asset rally continue ?
Leaders from the world’s top emerging economic powers have delivered a warning-shot to the domination of the US dollar as their new forum flexed its muscle at a first ever summit.
The leaders of Brazil, Russia, India and China — dubbed the BRIC nations — called for a “more diversified” currency system after a meeting that came amid growing talk over the dollar’s future as the global reserve unit of choice.
Russian President Dmitry Medvedev hailed the meeting in Russia’s central city of Yekaterinburg as “historic” and said it had met the expectations of his colleagues.
“The summit must create the conditions for a fairer world order,” he added in a final statement read out alongside Presidents Hu Jintao of China, Luiz Inacio Lula da Silva of Brazil and Indian Prime Minister Manmohan Singh.
Their final communique said it “is very necessary to have a stable, predictable and more diversified currency system,” and that the leaders were “committed to advance the reform of international financial institutions, so as to reflect changes in the world economy.”
Medvedev earlier reaffirmed his doubts about the future of the US dollar as the world’s standard reserve currency and called for a major shift in attitude worldwide.
“The current set of reserve currencies and the main reserve currency — the US dollar — have not managed to perform their functions,” he said.
Following the BRIC summit the dollar slid from a month high against the euro in trading in New York, with the euro buying 1.3838 dollars at 2100 GMT compared to 1.3793 dollars late on Monday.
China has backed Russia’s moves for a revamp of the global financial system, saying there is a need for a new supra-national currency besides the dollar to prevent a repeat of the global economic crisis.
Medvedev’s chief economic aide, Arkady Dvorkovich, said Russia could consider investing its reserves not only in the United States and European countries but also in the financial instruments traded by BRIC states.
“This would be absolutely logical, if our partners agreed to place part of their reserves in our Russian instruments.”
But he also emphasized that Moscow did not want to see a sudden plunge in the dollar’s value.
“There is an understanding that the last thing we need now is turmoil on financial markets,” Dvorkovich said. “No one wants to ruin the dollar, including us.”
He also suggested the International Monetary Fund (IMF) should revise the basket of currencies used to value its financial products to include the Russian ruble and the Chinese yuan.
The idea for the BRIC grouping was spawned after research by US investment bank Goldman Sachs suggested the four economies were developing at such a pace they could be world leaders by 2050.
However the quartet has yet to create a more official format for the grouping and Russian Deputy Foreign Minister Sergei Ryabkov described the group as “a baby (that) has just been born, essentially it’s only in a crib yet.”
Elena Sharipova, analyst at Renaissance Capital in Moscow, said the group’s “transformation into a real international structure is a long way off, but BRIC is clearly emerging as a new power centre.”
She cautioned that “it is hard to imagine” serious action being taken to shake up the world currency system in the foreseeable future.
The BRIC states are expected to be major buyers of the first bonds that the International Monetary Fund (IMF) is working to issue.
China has said it is considering buying up to 50 billion dollars’ (36 billion euros’) worth of the new instruments, while Russia and Brazil could buy up to 10 billion dollars each.
But among the four economies, China is seen as having the best shot at eclipsing the United States as the world’s largest market.
China’s Hu flaunted his country’s influence, saying Beijing would extend a 10 billion dollar credit to member states of the Shanghai Cooperation Organization (SCO) to help them overcome the financial crisis.
Poorer members Uzbekistan, Kyrgyzstan and Tajikistan have been hit hard by the crisis and analysts believe China is seeking to increase its influence in impoverished but highly strategic region.
Comments »Gold Fever
Comments »By James Wilson in Frankfurt and Javier Blas in London
Published: June 16 2009 22:02 | Last updated: June 16 2009 22:02
Long attracted to the safety of solid gold, Germans will soon be able to sate their appetite for the yellow metal as easily as buying a chocolate bar after plans were announced on Tuesday to install gold vending machines in airports and railway stations across the country.
The venture by the TG-Gold-Super-Markt company, based near Stuttgart, aims to build on soaring retail interest in gold purchases after a loss in confidence in a range of other investments as a result of the financial crisis.
“German investors have always preferred to hold a lot of personal wealth in gold, for historical reasons. They have twice lost everything,” said Thomas Geissler, the owner of the company, who hopes to install “Gold to go” machines in 500 locations in German-speaking countries this year.
“Gold is a good thing to have in your pocket in uncertain times.”
A prototype vending machine on display in Frankfurt Airport on Tuesday appeared to be a converted version of the dispensers typically used to sell snacks. For €30 airport shoppers could buy a 1g wafer of gold, with a larger 10g bar priced yesterday at €245 and gold coins also on sale.
When the Financial Times bought the cheapest product it was dispensed in an oblong metal box labelled “My Golden Treasure”, with a certificate of authenticity signed by Mr Geissler but no receipt and the wrong change. Mr Geissler said he hoped to have a more advanced prototype available this month.
Gold prices from the machines – about 30 per cent higher than market prices for the cheapest product – will be updated every few minutes.
A camera on the machine monitors transactions for money laundering controls, Mr Geissler said.
Interest in gold has soared during the financial crisis and Germany was last year the “star performer” in retail physical investment in gold – coins and bars – according to GFMS, the London-based precious metals consultancy. Retail demand reached an estimated 108 tonnes in 2008, up from 36 tonnes in 2007 and 28 tonnes in 2006.
Jens Willenbockel, an investment banker who saw the machine while passing through the airport, said he believed there could be a market. “Because of the crisis there is a lot of awareness of gold,” he said. “It is also a great gift for children – for them getting gold is like a fairytale.”
