By David McIntyre and Stanley White (found on www.bloomsberg.com)
June 5 (Bloomberg) --
The euro rose to a record versus the yen on prospects the European Central Bank will raise interest rates tomorrow, widening the yield differential with Japan.
The yen is the world's worst performer this quarter as the lowest borrowing cost among major economies spurs investors to borrow in Japan to buy higher-yielding assets. The spread between European and Japanese three-month benchmark lending rates reached a five-year high.
``Japanese mutual funds are selling yen and buying currencies like the euro,'' said Takehiko Jimbo, currency manager in Tokyo at Mitsubishi UFJ Trust & Banking Co., a unit of Japan's biggest lender by assets. ``The ECB is set to raise rates tomorrow, and I think President Jean-Claude Trichet will sound hawkish about future policy.''
The euro traded to an all-time high of 164.49 yen and was at 164.43 as of 6 a.m. in London, from 164.27 in New York yesterday. It was at $1.3498 against the dollar from $1.3489. The dollar bought 121.82 yen from 121.77. The single European currency may rise to 164.80 yen and $1.3550 today, Jimbo said.
Japanese rates of 0.5 percent compare with Europe's 3.75 percent and 5.25 percent in the U.S. That gap has caused the yen to decline 4.2 percent against the euro and 3.2 percent versus the dollar this quarter.
The ECB will lift its benchmark rate tomorrow to 4 percent, according to all 52 economists surveyed by Bloomberg News. The advantage of European three-month London interbank offered rates over Japan's is 3.43 percentage points, the most since May 2002.
China Syndrome
Japan's currency may gain for a second day against the dollar as investors may unwind so-called carry trades, borrowing yen for higher returns elsewhere. China's benchmark stock index has tumbled 21 percent from a May 29 peak after the government tripled the tax on share trades.
The CSI 300 Index extended declines today after the government's main business newspaper signaled officials won't try to stop a slide that erased more than $500 billion of market value since May 30.
``The Chinese stock market is falling again,'' said Ryohei Muramatsu, manager of Group Treasury Asia at Commerzbank in Tokyo. ``This could lead to carry trade unwinding and buying of the yen,'' which may advance to 121.52 against the dollar and 164 per euro today, he said.
15-Year Lows
Japan's currency hovered near the lowest in more than 15 years against the Australian and New Zealand dollars, two beneficiaries of the carry trade.
Against the Australian dollar, the yen fell to 101.82, the lowest since April 1992. It dropped to a 17-year low of 91.28 against the New Zealand dollar. Interest rates in both countries are at least 5.75 percentage points higher than those in Japan. The Kiwi, as New Zealand's currency is known, rose to 74.94 U.S. cents, the highest since it was floated in March 1985.
The dollar may be bolstered by speculation Federal Reserve Chairman Ben S. Bernanke today will signal the U.S. economy is resilient and inflation is not yet tamed, adding to expectations the Fed doesn't need to lower interest rates.
``He may say economic growth is picking up and express concern over inflation,'' said Akifumi Uchida, deputy general manager of the marketing unit at Sumitomo Trust & Banking Co. in Tokyo. ``This would be supportive of the dollar,'' which may rise to 122 yen and $1.3450 per euro today, he said.
The U.S. currency may extend a 1.3 percent advance against the yen in the past month as Bernanke will discuss housing and the economy via satellite at an International Monetary Conference at 2:15 p.m. in Cape Town, South Africa. Bank of Japan Governor Toshihiko Fukui and ECB President Trichet will also speak at the conference.
Traders reduced the odds of a Fed rate cut by the end of 2007 to 24 percent from 100 percent at the start of May.
The dollar also may benefit from a drop in yen options volatility to the lowest in almost 11 years. The decline may encourage investors to borrow yen to buy securities denominated in higher-yielding currencies such as the dollar.
Volatility implied by one-month dollar-yen options dropped to 5.85 percent, the lowest since Bloomberg started tracking the data in 1995. Traders quote implied volatility, a measure of expected exchange-rate swings, as part of setting options prices.
To contact the reporter on this story: David McIntyre in Sydney at dmcintyre2@bloomberg.net ; Stanley White in Tokyo at swhite28@bloomberg.net
Tuesday, June 5, 2007
Underwriting ABN
Published: June 4 2007 11:53 Last updated: June 4 2007 22:20 (source www.ft.com)
“Money’s too tight to mention” warbled Simply Red. The consortium bidding for ABN Amro has found the opposite is true. It has faced relentless sniping about the financing of its €71bn offer. It stresses that the capital raisings are “fully underwritten”. But what does that actually mean?
Precise detail remains limited but the broad thrust is that Merrill Lynch would act as the lead underwriter for the rights issues for Fortis and Santander, as well as for Royal Bank of Scotland’s preference shares and Santander’s mandatory convertibles. The rest of the funding – through disposals and debt facilities – cannot be underwritten but accounts for only a small portion of the deal. It is likely, therefore, that Merrill is on the hook for funds in excess of half its market capitalisation.
(read the rest of this article at www.ft.com)
“Money’s too tight to mention” warbled Simply Red. The consortium bidding for ABN Amro has found the opposite is true. It has faced relentless sniping about the financing of its €71bn offer. It stresses that the capital raisings are “fully underwritten”. But what does that actually mean?
Precise detail remains limited but the broad thrust is that Merrill Lynch would act as the lead underwriter for the rights issues for Fortis and Santander, as well as for Royal Bank of Scotland’s preference shares and Santander’s mandatory convertibles. The rest of the funding – through disposals and debt facilities – cannot be underwritten but accounts for only a small portion of the deal. It is likely, therefore, that Merrill is on the hook for funds in excess of half its market capitalisation.
(read the rest of this article at www.ft.com)
Banks profit from asset-backed securities
By Paul J Davies in London
Published: June 3 2007 22:00 Last updated: June 3 2007 22:00
Investment banks are increasingly reliant on the business of turning mortgages and other kinds of debt into complex bond-like products to generate a significant share of their profits, according to research to be published Monday.
Banks globally saw revenues of almost $30bn from asset-backed securities business in 2006, which analysts at JPMorgan estimate is as big as the revenues generated by equity derivatives or cash equities trading.
Read the rest of this article at www.ft.com
Published: June 3 2007 22:00 Last updated: June 3 2007 22:00
Investment banks are increasingly reliant on the business of turning mortgages and other kinds of debt into complex bond-like products to generate a significant share of their profits, according to research to be published Monday.
Banks globally saw revenues of almost $30bn from asset-backed securities business in 2006, which analysts at JPMorgan estimate is as big as the revenues generated by equity derivatives or cash equities trading.
Read the rest of this article at www.ft.com
Shanghai shares suffer further losses
By Jamil Anderlini in Hong Kong (www.ft.com)
Published: June 5 2007 06:03 Last updated: June 5 2007 06:03
Chinese shares closed down 5.7 per cent Tuesday morning as investors continued to dump stocks on fears the market correction will go on.
By the close of morning trade, the Shanghai Composite Index had fallen to 3,462.52 points, roughly the same level it was at two weeks ago.
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Some 100 companies, including Air China and Shanghai International Port, fell the daily limit of 10 per cent. Just 57 of the 1,400-odd companies listed in Shanghai and Shenzhen ended the morning up.
The Shenzhen Composite Index fell 6.5 per cent to end the morning at 976.38.
The falls in Shenzhen and Shanghai were exacerbated by fund managers liquidating holdings in response to massive redemptions by retail investors, who tend to trade mutual funds in the same speculative way as individual stocks.
The government sought to reassure investors again Tuesday with another round of soothing front-page articles in the main financial papers saying the current correction is a temporary phenomenon that will not effect the wider bull market.
The fall on Tuesday morning extends a slide that began last Wednesday after the government tripled the stamp duty on stock transactions to 0.3 per cent.
The Shanghai market has dropped 20 per cent in a week from the record high of 4,334.92 points it reached last Tuesday.
Published: June 5 2007 06:03 Last updated: June 5 2007 06:03
Chinese shares closed down 5.7 per cent Tuesday morning as investors continued to dump stocks on fears the market correction will go on.
By the close of morning trade, the Shanghai Composite Index had fallen to 3,462.52 points, roughly the same level it was at two weeks ago.
ADVERTISEMENT
Some 100 companies, including Air China and Shanghai International Port, fell the daily limit of 10 per cent. Just 57 of the 1,400-odd companies listed in Shanghai and Shenzhen ended the morning up.
The Shenzhen Composite Index fell 6.5 per cent to end the morning at 976.38.
The falls in Shenzhen and Shanghai were exacerbated by fund managers liquidating holdings in response to massive redemptions by retail investors, who tend to trade mutual funds in the same speculative way as individual stocks.
The government sought to reassure investors again Tuesday with another round of soothing front-page articles in the main financial papers saying the current correction is a temporary phenomenon that will not effect the wider bull market.
The fall on Tuesday morning extends a slide that began last Wednesday after the government tripled the stamp duty on stock transactions to 0.3 per cent.
The Shanghai market has dropped 20 per cent in a week from the record high of 4,334.92 points it reached last Tuesday.
Sarkozy appeals to ‘outmoded’ Brown
By John Thornhill in Paris (source www.ft.com)
Published: June 4 2007 22:09 Last updated: June 4 2007 22:09
Nicolas Sarkozy, France’s president, has urged Gordon Brown to leave behind his “outmoded” views on the European Union when he takes over as British prime minister next month.
Describing him as one of Europe’s great finance ministers, Mr Sarkozy said: “Gordon Brown has advanced and modernised the British economy over 10 years. I hope that in moving from Number 11 to Number 10 Downing Street he understands that Europe is not outmoded.”
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His comments underline the deep unease a number of EU leaders feel about the European policy Mr Brown will pursue. As UK chancellor, he largely limited himself to demanding economic reform in Europe and has often seemed keen to distance himself from Brussels for domestic political purposes.
Appealing to Mr Brown to accept the need for a simplified institutional treaty, Mr Sarkozy told the Financial Times and selected foreign journalists: “Europe has need of the UK and the UK has need of Europe.”
Since being elected last month, Mr Sarkozy has been pushing a rapid relaunch of the European Union, arguing for a pared-down constitutional treaty that could be adopted by parliamentary vote. There is concern in several European capitals about how far Mr Brown is prepared to go to overhaul the EU’s machinery and decision making rules.
Mr Sarkozy has struck up a warm relationship with Tony Blair, Britain’s outgoing prime minister, who was the first European leader to visit the president-elect in Paris. Mr Sarkozy has hinted that Mr Blair is prepared to do a deal on a new treaty at the Brussels summit later this month. “I have spoken to Blair about this and I don’t think that one country will carry the risk of blocking Europe,” he said.
The French president said Europe’s leaders accepted the need for a new, short and simplified institutional treaty. He had great confidence in Angela Merkel, Germany’s chancellor and holder of the EU’s rotating presidency, who has been leading attempts to broker a deal.
However, Mr Brown has been notably cooler than Mr Blair about the need for a new European treaty. Mr Sarkozy, a former finance minister, dealt with Mr Brown at meetings with his European counterparts.
Mr Sarkozy defended France’s commitment to agriculture, saying that the security of Europe’s food supplies was vital.
The president also criticised the EU’s trade policy for being excessively liberal and suggested that Peter Mandelson, the British trade commissioner, should be stripped of this responsibility.
Although he described Mr Mandelson as a man of “remarkable intelligence,” he said that such an important dossier should be entrusted to the president of the European commission, José Manuel Barroso. Asked whether he thought Mr Brown shared his vision on trade, Mr Sarkozy said: “No. I don’t think that everybody shares my opinion. I don’t have this arrogant vision. He is more liberal than I am.”
Published: June 4 2007 22:09 Last updated: June 4 2007 22:09
Nicolas Sarkozy, France’s president, has urged Gordon Brown to leave behind his “outmoded” views on the European Union when he takes over as British prime minister next month.
Describing him as one of Europe’s great finance ministers, Mr Sarkozy said: “Gordon Brown has advanced and modernised the British economy over 10 years. I hope that in moving from Number 11 to Number 10 Downing Street he understands that Europe is not outmoded.”
ADVERTISEMENT
His comments underline the deep unease a number of EU leaders feel about the European policy Mr Brown will pursue. As UK chancellor, he largely limited himself to demanding economic reform in Europe and has often seemed keen to distance himself from Brussels for domestic political purposes.
Appealing to Mr Brown to accept the need for a simplified institutional treaty, Mr Sarkozy told the Financial Times and selected foreign journalists: “Europe has need of the UK and the UK has need of Europe.”
Since being elected last month, Mr Sarkozy has been pushing a rapid relaunch of the European Union, arguing for a pared-down constitutional treaty that could be adopted by parliamentary vote. There is concern in several European capitals about how far Mr Brown is prepared to go to overhaul the EU’s machinery and decision making rules.
Mr Sarkozy has struck up a warm relationship with Tony Blair, Britain’s outgoing prime minister, who was the first European leader to visit the president-elect in Paris. Mr Sarkozy has hinted that Mr Blair is prepared to do a deal on a new treaty at the Brussels summit later this month. “I have spoken to Blair about this and I don’t think that one country will carry the risk of blocking Europe,” he said.
The French president said Europe’s leaders accepted the need for a new, short and simplified institutional treaty. He had great confidence in Angela Merkel, Germany’s chancellor and holder of the EU’s rotating presidency, who has been leading attempts to broker a deal.
However, Mr Brown has been notably cooler than Mr Blair about the need for a new European treaty. Mr Sarkozy, a former finance minister, dealt with Mr Brown at meetings with his European counterparts.
Mr Sarkozy defended France’s commitment to agriculture, saying that the security of Europe’s food supplies was vital.
The president also criticised the EU’s trade policy for being excessively liberal and suggested that Peter Mandelson, the British trade commissioner, should be stripped of this responsibility.
Although he described Mr Mandelson as a man of “remarkable intelligence,” he said that such an important dossier should be entrusted to the president of the European commission, José Manuel Barroso. Asked whether he thought Mr Brown shared his vision on trade, Mr Sarkozy said: “No. I don’t think that everybody shares my opinion. I don’t have this arrogant vision. He is more liberal than I am.”
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