Хронология из DJN Market Talk

By Michael McKee

 

Dec. 14 (Bloomberg) -- A bankruptcy filing by General Motors Corp. or Chrysler LLC would worsen the longest recession since the early 1980s if it led to a shutdown at the companies.

``The economic ramifications of an outright bankruptcy would be severe,'' New York University Professor Nouriel Roubini said in an interview with Bloomberg Television on Dec. 12. The economic slump is already so severe that ``there's not going to be a recovery of growth until 2010,'' he said.

Industry experts say the automakers would close plants, fire tens of thousands of workers and cut production. That would cause many of their suppliers to collapse, triggering more job losses, straining the cities and states where the car and parts companies operate, as well as federal safety-net programs.

It would also deliver another psychological blow to consumers and a major shock to Main Street following the crises on Wall Street.

Economists say it's difficult to estimate the full impact, given the large number of possible scenarios. The outcome hinges on which companies filed for bankruptcy and when, and whether they would be able to continue building cars and trucks while in reorganization -- assuming they don't go into liquidation.

``It would be unprecedented,'' says Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Connecticut. ``So it's hard to say exactly what would happen.''

`Cascade of Failures'

Still, a GM or Chrysler bankruptcy ``would be the start of a cascade of failures,'' says Dennis Virag, president of Automotive Consulting Group in Ann Arbor, Michigan. ``The economy will be in chaos within weeks.''

The Bush administration said last week it will consider using money from the $700 billion bank-bailout fund to prevent GM and Chrysler from ``collapsing.'' On Dec. 11, the Senate rejected a short-term aid package for the two automakers.

The effect of a bankruptcy on growth would be significant, although economists say it won't be as great as in decades past. Gross domestic product fell at a 4.2 percent annual pace in the fourth quarter of 1970 -- when, like today, the U.S. was in a recession -- following a 67-day nationwide strike against GM. Now, auto production accounts for only about 3 percent of GDP, Stanley says.

``It would obviously be a sizeable jolt to the economy,'' he says. ``But the sector is not as important as it was.''

Even so, statistics from the Center for Automotive Research in Ann Arbor show 239,000 people work in the U.S. for GM, Chrysler and Ford Motor Co. The center, which does research for the auto companies, estimates total job losses would reach 2.5 million if GM failed and 3.5 million if all three auto companies went out of business in 2009.

Retail, Manufacturing

That includes 1.4 million people in industries such as retailing that aren't directly tied to manufacturing. Economists say each manufacturing job is responsible for an additional six outside the industry.

While many analysts say the Center for Automotive Research totals are exaggerated, the number of jobs eliminated would still be staggering.

``I don't know that we'd lose all of those folks,'' said Mark Zandi, chief economist at Moody's Corp.'s Economy.com. ``But over a million in the first quarter of `09, I think, would be reasonable to expect.''

The total would depend on whether Americans keep buying cars and trucks. While a Chapter 11 bankruptcy would allow the automakers to continue making vehicles while they restructure, GM, Ford and Chrysler have argued that deliveries would drop precipitously. Customers would baulk at buying anything from a company that might not be around to fix it, they say.

Plunging Sales

U.S. auto sales plunged 37 percent in November to a seasonally adjusted annual rate of 10.2 million -- the lowest level in 26 years, according to Autodata Corp. in Woodcliff Lake, New Jersey -- compared with 16.1 million a year earlier and 10.6 million in October.

Dealerships are already feeling the pinch. The National Automobile Dealers Association, a trade group based in McLean, Virginia, estimates that even without an automaker bankruptcy, 900 dealers will close this year and 1,100 next year, most of them GM, Ford and Chrysler franchises. The association says the three companies have more than 13,000 dealers nationwide, employing more than 700,000 workers.

The ripples of failure would also spread quickly to auto- parts makers. ``There's a fairly large number of suppliers out there very squeezed on cash right now,'' says Jim Gillette, director of supplier analysis for CSM Worldwide, an automotive consulting firm in Northville, Michigan. ``Vehicle volumes are so low, regardless of a bailout, that suppliers are still in trouble.''

Widespread Closures

Because many of these businesses work for all three companies, widespread closures would lead to production problems at Ford, even if it didn't file for bankruptcy protection, officials at the No. 2 U.S. car company have said.

Parts makers including American Axle & Manufacturing Holdings Inc. and brake and powertrain-system makers ArvinMeritor Inc. and Hayes Lemmerz International Inc. employ 526,000 workers, according to U.S. Labor Department statistics, down more than 300,000 since 2000. Gillette predicts another fifth of them will lose their jobs in the coming year even if the automakers get bridge loans.

That will mean higher unemployment costs for states, which pay an average of $279 a week for benefits for 26 weeks, according to Jennifer Kaplan, a Labor Department economist. The payments can last as long as 39 weeks in some states, including Ohio, where GM has more than 11,000 employees, according to the company's Web site. The jobless rate there was 7.2 percent in September.

Retiree Pensions

Hundreds of thousands of auto retirees who depend on the companies for pensions and health insurance would also be affected. Bankruptcy could throw them into federal government programs -- including the Pension Benefit Guaranty Corporation and Medicare -- just when rescue packages and government market actions are ballooning the federal budget.

The effect would be multiplied by an estimated decline in tax revenue for federal, state and local governments of $108.1 billion over three years if U.S. automakers' operations were cut by 50 percent, the Center for Automotive Research says.

A collapse would quickly spread to financial markets, said Eric Selle, an automotive-credit analyst at JPMorgan Chase & Co. in a research report last month.

GM, Ford, Chrysler and their credit operations comprise 10 percent of the high-yield bond market, he said, and any failure would have major implications for credit-default swaps, asset- backed securities and commercial paper. It would be ``the credit crisis, part II,'' he said.

Less Concern

Federal Reserve Chairman Ben S. Bernanke signaled less concern about the potential impact for the bond market in a Dec. 5 letter to Senate Banking Committee Chairman Christopher Dodd. The automakers' bonds ``already trade at 20 to 40 percent of par value, suggesting that many of the losses that would be associated with a default have probably already been recognized,'' he said.

Even if the automakers get loans to continue operations, the economy is going to take a hit. All three companies have promised to cut workers and close plants as a condition of receiving aid. General Motors said Dec. 12 that it will close 30 plants for at least part of next quarter, cutting production by 250,000 vehicles. Honda Motor Co. said it will eliminate 119,000 vehicles from its North American production plan.

That means ``suppliers are going to go under in the next few months, even if a bridge loan comes in,'' Gillette says. ``The only solution is to sell more cars.''

 

To contact the reporter on this story:

Michael McKee in New York at mmckee@bloomberg.net

 

 

By Bob Willis

 

Dec. 14 (Bloomberg) -- The cost of living in the U.S. probably fell in November by the most in six decades, while slumps in manufacturing and homebuilding worsened, sending the economy deeper into a recession, economists said before reports this week.

Consumer prices probably dropped 1.2 percent last month, the most since records began in 1947, according to the median estimate in a Bloomberg News survey. Builders broke ground on the fewest houses in almost a half century and factory output continued to slide.

Costs of oil and other raw materials plummeted last month as the credit crisis caused consumers to slash spending, prompting automakers to plead for a bailout. Tumbling sales have retailers cutting prices, setting the stage for the Federal Reserve this week to lower its key rate target to its lowest level ever.

“We’re going to have weak demand through most of 2009,” said Robert Dye, a senior economist at PNC Financial Services Group Inc. in Pittsburgh. “It’s going to be a long and severe recession.”

The Labor Department’s consumer-price report is due Dec. 16. Fuel, auto and building-material costs probably dropped last month, economists said, as consumer spending dipped.

A freefall in crude oil costs is feeding through to prices at the pump. A gallon of regular gasoline at the pump plunged 32 percent last month to $2.11, according to AAA.

Recessions and Inflation

“We had a bubble in oil, the bubble has burst,” David Wyss, chief economist at Standard & Poor’s in New York, said in an interview with Bloomberg Television. “One thing recessions are really good at is bringing down inflation.”

Core prices, which exclude food and energy, rose 0.1 percent last month after a 0.1 percent drop the prior month, according to the survey median.

The recession, already a year long, will continue to slow inflation. Consumer prices will probably rise just 0.7 percent in the 12 months ended in September 2009, the smallest year-over- year gain since 1962, according to economists surveyed last week by Bloomberg News.

Consumer spending will fall at a 4 percent annual pace in the current quarter, the most since 1980, and drop 1 percent for all of 2009, the economists forecast.

Weak spending, exacerbated by the worst credit crisis in seven decades, pushed car sales in November to their lowest level since 1982, underscoring calls for a government bailout for General Motors Corp. and Chrysler LLC.

‘Depression Levels’

“Sales are at depression levels,” Mike Jackson, chief executive officer at AutoNation Inc., the largest car dealer in the U.S., said in a Bloomberg Television interview from Fort Lauderdale, Florida, last week. “What’s needed is a restoration of credit” and a “stimulus package for the economy, including incentives for the auto industry and a bridge loan” for the automakers.

Cutbacks in auto production probably pushed down manufacturing output last month, economists said a report from the Fed tomorrow may show. Overall industrial production, which includes factories, mines and utilities, fell 0.9 percent in November, according to economists surveyed.

A report from the New York Fed the same day may show manufacturing in the state contracted in December at the fastest pace since records began in 2001. A similar report from the Philadelphia Fed on Dec. 18 may show regional activity shrank for a 12th time in 13 months.

Fed Action

The Fed on Dec. 16 is forecast to cut its overnight lending rate by a half percentage point to 0.5 percent, according to economists surveyed. The Fed, struggling to shore up credit markets and arrest the freefall in economic data, has slashed rates from 4.25 percent in December 2007, while using a host of unconventional methods to pump added cash into money markets.

The housing recession that triggered the credit crisis and the ensuing recession show no signs of abating. New-home starts in November dropped to a 730,000 annual pace, the lowest level since records began in 1959, the Commerce Department is forecast to report the day of the Fed decision.

“More needs to be done” to stop the cascade of foreclosures that is deepening the housing crisis, Fed Chairman Ben S. Bernanke said in a speech in Washington on Dec. 4. “Policy initiatives to reduce the number of preventable foreclosures should be high on the agenda.”

A gauge of the economy’s course will point to continued weakness, economists project a private report on Dec. 18 will show. The New York-based Conference Board’s index of leading economic indicators probably fell 0.4 percent in November after declining 0.8 percent in October.

 

 

 

 

 

 

To contact the report responsible for this story:

Bob Willis in Washington at bwillis@bloomberg.net

 

 

By Brian Parkin

 

Dec. 14 (Bloomberg) -- Chancellor Angela Merkel called on German industry to help her government come up with ways of strengthening Europe’s biggest economy in preparation for a worsening of the economic outlook next year.

Merkel, who is hosting talks of her key ministers with industry leaders and economic experts at the chancellery in Berlin today, said the meeting is the first of a series of consultations aimed at assessing the impact on Germany of the global recession.

“We need to act together,” Merkel said going into the talks. “This is the common responsibility of politics, industry, unions and the banking sector.” The government “can’t support the economy on its own.”

Merkel faces persistent calls for more action to bolster Europe’s biggest economy going into 2009, an election year, as the global recession hurts demand for German exports. Paul Krugman, the Nobel Prize-winning economist, joined the critics, saying in an interview with Der Spiegel magazine that Merkel and Finance Minister Peer Steinbrueck are “misjudging the severity” of the crisis and “wasting precious time.”

Krugman’s warning follows economic data suggesting that the downturn may be accelerating in Germany, the world’s biggest exporter, where one in three jobs relies on foreign trade.

The Munich-based Ifo institute forecast on Dec. 11 that the economy will shrink 2.2 percent next year, the second assessment in as many days to predict the worst recession since World War II. The Essen-based RWI institute forecast a contraction of 2 percent on Dec. 10, forcing the government to reiterate its own outlook for next year of 0.2 percent growth.

‘Flashing Red’

“Signals for the German economy are flashing red for 2009,” Ifo said. The Ifo and RWI institutes are both members of a group that advise the government.

Economy Minister Michael Glos today denied as “pure speculation” a Spiegel report that the government already concedes that the economy will contract 2 percent next year as Germany enters a “deep recession.” Glos is scheduled to review the economic outlook on Jan. 15.

Merkel has scheduled a further meeting on Dec. 18 with representatives of Germany’s 16 states, she said. Those talks will focus on public infrastructure projects that are ready to roll out, as well as the coordination of action between the federal government and the states “in these extraordinary times,” she told the newspaper Bild and Sonntag today.

Schools Investment

Foreign Minister and Vice Chancellor Frank-Walter Steinmeier told Bild that renovating schools, better equipping kindergartens and modernizing sports grounds would all be means of securing jobs while “investing in the future.” Steinmeier will lead the Social Democratic Party, part of the governing grand coalition, against Merkel’s Christian Democratic Union at the national election in September 2009.

“Our aim is to preserve jobs,” Steinmeier told reporters outside the chancellery. “Yet every euro that we spend must be spent sensibly.”

Lawmakers passed the government’s 32 billion-euro ($43 billion) stimulus package on Dec. 5 in the face of opposition from Merkel’s Bavarian allies in the Christian Social Union, the sister party to Merkel’s CDU. The CSU demanded income-tax cuts on top of the measures on construction investment and tax relief included in the plan.

Forty-eight percent of respondents to a poll by FG Wahlen for ZDF television published Dec. 12 said that the stimulus package doesn’t go far enough. Twenty-six percent said it was sufficient, while 10 percent said it went too far, according to the poll of 1,286 voters conducted Dec. 9-11.

Merkel has set a deadline of a Jan. 5 coalition meeting before announcing any new measures.

“Germany is a strong country,” Merkel said. “I am deeply convinced that we Germans can overcome these challenges.”

 

To contact the reporter on this story:

Brian Parkin in Berlin at bparkin@bloomberg.net.

 

 

 

 

 

 

 

By Mark Pittman

 

Dec. 12 (Bloomberg) -- The Federal Reserve refused a request by Bloomberg News to disclose the recipients of more than $2 trillion of emergency loans from U.S. taxpayers and the assets the central bank is accepting as collateral.

Bloomberg filed suit Nov. 7 under the U.S. Freedom of Information Act requesting details about the terms of 11 Fed lending programs, most created during the deepest financial crisis since the Great Depression.

The Fed responded Dec. 8, saying it’s allowed to withhold internal memos as well as information about trade secrets and commercial information. The institution confirmed that a records search found 231 pages of documents pertaining to some of the requests.

“If they told us what they held, we would know the potential losses that the government may take and that’s what they don’t want us to know,” said Carlos Mendez, a senior managing director at New York-based ICP Capital LLC, which oversees $22 billion in assets.

The Fed stepped into a rescue role that was the original purpose of the Treasury’s $700 billion Troubled Asset Relief Program. The central bank loans don’t have the oversight safeguards that Congress imposed upon the TARP.

 

‘Been Bamboozled’

Congress is demanding more transparency from the Fed and Treasury on bailout, most recently during Dec. 10 hearings by the House Financial Services committee when Representative David Scott, a Georgia Democrat, said Americans had “been bamboozled.”

Bloomberg News, a unit of New York-based Bloomberg LP, on May 21 asked the Fed to provide data on collateral posted from April 4 to May 20. The central bank said on June 19 that it needed until July 3 to search documents and determine whether it would make them public. Bloomberg didn’t receive a formal response that would let it file an appeal within the legal time limit.

On Oct. 25, Bloomberg filed another request, expanding the range of when the collateral was posted. It filed suit Nov. 7.

In response to Bloomberg’s request, the Fed said the U.S. is facing “an unprecedented crisis” in which “loss in confidence in and between financial institutions can occur with lightning speed and devastating effects.”

Data Provider

The Fed supplied copies of three e-mails in response to a request that it disclose the identities of those supplying data on collateral as well as their contracts.

While the senders and recipients of the messages were revealed, the contents were erased except for two phrases identifying a vendor as “IDC.” One of the e-mails’ subject lines refers to “Interactive Data -- Auction Rate Security Advisory May 1, 2008.”

Brian Willinsky, a spokesman for Bedford, Massachusetts- based Interactive Data Corp., a seller of fixed-income securities information, declined to comment.

“Notwithstanding calls for enhanced transparency, the Board must protect against the substantial, multiple harms that might result from disclosure,” Jennifer J. Johnson, the secretary for the Fed’s Board of Governors, said in a letter e-mailed to Bloomberg News.

 

‘Dangerous Step’

“In its considered judgment and in view of current circumstances, it would be a dangerous step to release this otherwise confidential information,” she wrote.

New York-based Citigroup Inc., which is shrinking its global workforce of 352,000 through asset sales and job cuts, is among the nine biggest banks receiving $125 billion in capital from the TARP since it was signed into law Oct. 3. More than 170 regional lenders are seeking an additional $74 billion.

Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson said in September they would meet congressional demands for transparency in a $700 billion bailout of the banking system.

The Freedom of Information Act obliges federal agencies to make government documents available to the press and public. The Bloomberg lawsuit, filed in New York, doesn’t seek money damages.

 

‘Right to Know’

“There has to be something they can tell the public because we have a right to know what they are doing,” said Lucy Dalglish, executive director of the Arlington, Virginia-based Reporters Committee for Freedom of the Press.

“It would really be a shame if we have to find this out 10 years from now after some really nasty class-action suit and our financial system has completely collapsed,” she said.

The Fed’s five-page response to Bloomberg may be “unprecedented” because the board usually doesn’t go into such detail about its position, said Lee Levine, a partner at Levine Sullivan Koch & Schulz LLP in Washington.

“This is uncharted territory,” said Levine during an interview from his New York office. “The Freedom of Information Act wasn’t built to anticipate this situation and that’s evident from the way the Fed tried to shoehorn their argument into the trade-secrets exemption.”

The Fed lent cash and government bonds to banks that handed over collateral including stocks and subprime and structured securities such as collateralized debt obligations, according to the Fed Web site.

Borrowers include the now-bankrupt Lehman Brothers Holdings Inc., Citigroup and New York-based JPMorgan Chase & Co., the country’s biggest bank by assets.

Banks oppose any release of information because that might signal weakness and spur short-selling or a run by depositors, Scott Talbott, senior vice president of government affairs for the Financial Services Roundtable, a Washington trade group, said in an interview last month.

 

‘Complete Truth’

“Americans don’t want to get blindsided anymore,” Mendez said in an interview. “They don’t want it sugarcoated or whitewashed. They want the complete truth. The truth is we can’t take all the pain right now.”

The Bloomberg lawsuit said the collateral lists “are central to understanding and assessing the government’s response to the most cataclysmic financial crisis in America since the Great Depression.”

In response, the Fed argued that the trade-secret exemption could be expanded to include potential harm to any of the central bank’s customers, said Bruce Johnson, a lawyer at Davis Wright Tremaine LLP in Seattle. That expansion is not contained in the freedom-of-information law, Johnson said.

“I understand where they are coming from bureaucratically, but that means it’s all the more necessary for taxpayers to know what exactly is going on because of all the money that is being hurled at the banking system,” Johnson said.

The Bloomberg lawsuit is Bloomberg LP v. Board of Governors of the Federal Reserve System, 08-CV-9595, U.S. District Court, Southern District of New York (Manhattan).

 

To contact the reporters on this story:

Mark Pittman in New York at mpittman@bloomberg.net;

 

 

 

 

 

 

By Cordell Eddings and Dakin Campbell

 

Dec. 12 (Bloomberg) -- Treasuries advanced for a sixth week, pushing yields to record lows, as U.S. automakers flirted with bankruptcy, renewing concern the recession is deepening.

Yields plunged after the Senate late yesterday rejected a bailout of General Motors Corp. and Chrysler LLC. The Bush administration later said it may aid the companies, possibly using the Troubled Asset Relief Program.

“Investors haven’t forgotten about the underpinnings of the economy,” said James Caron, head of U.S. interest-rate strategy at Morgan Stanley in New York, one of the 17 primary dealers that trade directly with the Fed. “It still leaves a bad taste in people’s mouths.”

The yield on the 10-year note fell four basis points, or 0.04 percentage point, to 2.57 percent at 4:48 p.m. in New York, according to BGCantor Market Data. It touched 2.4777 percent, the lowest since 1954. The price of the 3.75 percent security due in November 2018 gained 10/32, or $3.13 per $1,000 face amount, to 110 8/32. For the week, the yield was down 14 basis points.

Rates on three- and one-month bills, which fell below zero percent this week for the first time, were at 0.01 percent. Both were unchanged for the week.

Treasuries are headed for the best year since 2000, returning 12.2 percent, according to Merrill Lynch & Co.’s U.S. Treasury Master Index.

 

‘Risk of Deflation’

“Yields just keep going down because of the continued flight to quality and the risk of deflation,” said Jay Mueller, who manages about $3 billion of bonds at Wells Fargo Capital Management in Milwaukee. “The only way you can make sense of these yields is to say that the market is expecting meaningful deflation for some period of time. The big questions are how much and for how long.”

Traders’ expectations for inflation over the next decade fell to the lowest in almost three weeks. The difference in yield between 10-year Treasury Inflation Protected Securities, or TIPS, and conventional notes touched 14 basis points, the smallest gap since Nov. 24, when it was seven basis points. It was 231 basis points a year ago.

Retail sales declined 1.8 percent last month, the Commerce Department said, compared with a 2 percent decrease estimated in a Bloomberg News survey.

Focus on Economy

“You still have weak consumer spending, inflation expectation very low, you have concerns about the U.S. dollar and a loss of foreign investment,” said Suvrat Prakash, an interest-rate strategist at BNP Paribas Securities Corp. in New York, another primary dealer. “These are all issues in past recessions, and have people focusing back on the economy.”

A gauge of momentum used by traders to predict a change in price direction indicates 30-year bonds are at so-called overbought levels. The 14-day relative-strength index for the March 30-year note futures contract reached 80. Readings above 70 indicate prices are likely to fall, while those below 30 indicate they’re likely to rise.

The Fed bought $3 billion of Fannie Mae, Freddie Mac and Federal Home Loan Bank debt today in the second week of its new program aimed at reducing mortgage costs. It acquired bonds with maturities between December 2012 and November 2017, according to the New York Fed’s Web site.

Fed Debt

Efforts to thaw credit markets during the worst financial crisis since the Great Depression have swelled the Fed’s balance sheet to $2.13 trillion and created excess reserves at commercial banks that jumped to $559 billion at the end of November from $1.7 billion a year earlier. Fed debt would compete with Treasury borrowing needs that may reach $2 trillion in the fiscal year that ends in September 2009.

 

 

To contact the reporters on this story:

Cordell Eddings in New York at ceddings@bloomberg.net;

Dakin Campbell in New York at dcampbell27@bloomberg.net.

 

 

 

 

 

 

 

By Mark Shenk

 

Dec. 12 (Bloomberg) -- Crude oil pared losses after the Bush administration said it may tap the $700 billion bank-rescue fund to prevent an auto-industry collapse, easing concern that a prolonged recession will cut fuel demand.

Oil climbed more than $3 from the day’s lows as the administration’s willingness to give short-term help to General Motors Corp. and Chrysler LLC eased speculation that the companies will collapse. Goldman Sachs Group Inc. lowered its average oil price forecast for next year and said crude may drop to $30 a barrel in the first quarter.

“If there were finance companies that were too big to fail, there are certainly automobile companies that are,” said Christopher Edmonds, the managing principal of FIG Partners Energy Research & Capital Group in Atlanta. “There will probably be congressional or legislative action to bail the automakers out.”

Goldman Sachs cut its price forecast for 2009 to $45 a barrel from $80 after the first simultaneous recession in the U.S., Europe and Japan since World War II caused oil to fall 52 percent this year, snapping six years of gains.

Saudi Comments

Oil rose yesterday after the Saudi Arabian oil minister said he had delivered cuts already promised to OPEC, a sign that world supplies are smaller than traders had estimated. Prices are up 13 percent since Dec. 5, the biggest one-week gain in four years.

Saudi Arabia’s oil production was “absolutely” in line with its Organization of Petroleum Exporting Countries quota, Minister Ali al-Naimi said in an interview yesterday. The desert kingdom is the world’s biggest oil producer and OPEC’s most influential member.

“There is some uncertainty as to what al-Naimi meant yesterday, but the bottom line is that he thinks prices are too low,” said Lawrence Eagles, global head of commodities research at JPMorgan Chase & Co. in New York.

OPEC plans to meet on Dec. 17 in Algeria to discuss further cuts in production. The group agreed to slash output by 1.5 million barrels a day on Oct. 24.

“There’s a lot of uncertainty about what will happen next week,” Eagles said. “A majority of OPEC members want to be seen as responsible suppliers, especially when everyone is trying to boost the economy. Although they think prices have fallen too far, they will be cautious about pushing prices too high.”

Russian Supplies

World oil output must “correspond” to falling demand, Russian Trade and Industry Minister Viktor Khristenko told reporters today in Stockholm, as the country considers cutting production alongside OPEC. President Dmitry Medvedev said yesterday that Russia, the world’s second-biggest producer, may join OPEC and reduce output to support prices.

Volume in electronic trading on the exchange was 506,979 contracts, as of 2:57 p.m. in New York. Volume totaled 672,226 contracts yesterday, up 36% from the average over the past 3 months. Open interest yesterday was 1.16 million contracts. The exchange has a one-day delay in reporting open interest and full volume data.

Bets that oil for January delivery will fall below $38 a barrel were the most active options contracts in electronic trading today in New York.

January $38 puts rose 7 cents to 15 cents, or $150 a contract, as of 12:43 p.m. in electronic trading on the New York Mercantile Exchange. The contract traded 407 lots. One contract is for 1,000 barrels of oil. January options expire Dec. 16.

Gasoline Prices

Fuel prices have followed the decline in crude oil. Gasoline for January delivery fell 0.09 cent to settle at $1.0777 a gallon in New York.

Regular gasoline at the pump, averaged nationwide, fell 0.8 cent to $1.656 a gallon, AAA, the largest U.S. motorist organization, said on its Web site today. The fuel has dropped 60 percent from the record $4.114 a gallon reached on July 17.

The Paris-based International Energy Agency, an adviser to 28 nations, said global oil demand will contract this year for the first time since 1983, and reduced its outlook for 2009.

Consumption worldwide will shrink 200,000 barrels a day, or 0.2 percent, in 2008, the IEA said in a report yesterday. Next year’s growth may be wiped out if the economic slump deepens, the agency said.

Brent Premium

Brent oil for January settlement on London’s ICE Futures Europe exchange cost 13 cents more than Nymex crude today, the first time since July it’s been priced higher. New York oil was 59 cents more than Brent yesterday.

Brent declined 98 cents, or 2.1 percent, to settle at $46.41 a barrel on London’s ICE Futures Europe exchange.

Twenty of 38 analysts surveyed by Bloomberg News yesterday, or 53 percent, said crude prices will increase through Dec. 19. Thirteen respondents, or 34 percent, forecast oil will be little changed and five said there will be a decline. Last week 49 percent expected futures to drop.

“If OPEC follows through and makes its expected cuts, there is every reason to expect prices to rally next week,” said Peter Beutel, president Cameron Hanover Inc., an energy consulting company in New Canaan, Connecticut.

 

To contact the reporter on this story:

Mark Shenk in New York at mshenk1@bloomberg.net.

 

 

By Jamie McGee and Michael J. Moore

 

Dec. 13 (Bloomberg) -- The dollar fell to a 13-year low against the yen on concern General Motors Corp. and Chrysler LLC will collapse into bankruptcy without a rescue from the Bush administration.

Japan’s yen also pared its gain against major currencies on speculation investors will curb so-called carry trades and after Finance Minister Shoichi Nakagawa said the country isn’t considering foreign-exchange intervention. The euro posted its biggest weekly gain against the dollar since the currency’s 1999 debut on bets the Federal Reserve will lower borrowing costs to near zero next week while European Central Bank officials suggested they may be approaching the end of interest-rate cuts.

“We would expect the yen to remain strong,” Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York, said in an interview on Bloomberg Television. “The auto situation adds to that.”

The dollar fell 1.8 percent this week to 91.21 yen, from 92.83 on Dec. 5. It touched 88.53 yesterday, the lowest level since August 1995. The U.S. currency’s six weeks of declines is the longest stretch of losses since December 2004.

The euro increased 5.1 percent to $1.3369 from $1.2718, a record weekly gain. The euro advanced 3 percent to 121.83 yen from 118.18.

Won, Sterling

The South Korean won was the biggest gainer versus the dollar this week, climbing 7.5 percent to 1,372.45. South Korea agreed on bilateral currency swap accords with Japan and China to protect financial stability in Asia.

Sterling fell to 89.97 pence per euro, the weakest since the European currency began trading. HBOS Plc said this year’s charge for bad loans rose to 5 billion pounds ($7.5 billion).

The ICE’s Dollar Index, which tracks the greenback against the euro, the yen, the pound, the Canadian dollar, the Swiss franc and Sweden’s krona, fell 4 percent to 83.644. It touched 88.464 on Nov. 21, the highest since April 2006.

“The dollar’s status as a safe-haven currency is being challenged,” said Bilal Hafeez, global head of currency strategy in London at Deutsche Bank AG.

GM and Chrysler won a reprieve until January after the Bush administration said yesterday it may finance an industry rescue with funds set aside for banks. The White House’s reversal on tapping the Troubled Asset Relief Program for short-term aid followed the Senate’s rejection of a short-term loan package for GM and Cerberus Capital Management LP’s Chrysler.

U.S. retail sales fell in November for a record fifth consecutive month, led by slumping auto dealers and service stations. The 1.8 percent decrease reported yesterday by the Commerce Department extended the longest stretch of declines since records began in 1992.

Rate Expectations

Traders expect the Fed to cut borrowing costs to the lowest ever at its Dec. 16 meeting. Futures on the Chicago Board of Trade show a 74 percent chance the central bank will lower the 1 percent target rate to 0.25 percent. The rest of the bets are for a reduction to 0.5 percent.

European Central Bank council member Axel Weber said on Dec. 11 he “would like to avoid” lowering the euro zone’s interest rate below 2 percent. The ECB reduced the main refinancing rate by 0.75 percentage point to 2.5 percent, the most in its history.

The U.S. currency fell 18 percent against the yen this year, the most since 1987, as $986 billion of credit-market losses at the world’s largest financial companies since the start of 2007 sparked a seizure in money markets and threw the U.S. economy into a recession.

Yen Strength

“We still think there is room for the yen to strengthen,” said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York. “Market volatility will likely remain high and will contribute to yen strength.” The yen will appreciate to below 90 per dollar again in coming weeks, he forecasts.

Nakagawa told reporters in Tokyo yesterday that Japan isn’t considering currency intervention right now. Japan last intervened on its own when it sold a record 20.4 trillion yen ($227 billion) in 2003 and 14.8 trillion yen in the first quarter of 2004, when the yen gained to 103.42 per dollar.

Governments intervene in currency markets when they buy or sell currencies to influence exchange rates.

The pound weakened after HBOS, which agreed to a takeover by Lloyds TSB Group Plc, said bad loans will keep rising as credit conditions deteriorate, signaling the U.K. economic slump is intensifying. The implied yield on the March short-sterling futures contract fell as traders increased bets the Bank of England will keep cutting interest rates to revive the economy.

The Bank of England cut its interest rate to 2 percent on Dec. 4, from 5.5 percent at the start of the year, as policy makers tried to limit the fallout from the global financial crisis.

 

To contact the reporters on this story:

Jamie McGee in New York at jmcgee8@bloomberg.net;

Michael J. Moore in New York at mmoore55@bloomberg.net

 

 

By Chris Fournier

 

Dec. 12 (Bloomberg) -- Canada’s currency fell for the first time in three days after the U.S. Senate blocked a bailout for General Motors Corp. and Chrysler LLC, pushing the U.S. currency higher and crude oil back below $45 a barrel.

“News about the automakers is not good for Canada or for the Canadian dollar,” said Aaron Fennell, a Toronto-based futures and currency broker at MF Global Canada Co., a unit of MF Global Ltd., the world’s largest broker of exchange-traded futures and options. “If we’re not selling goods to the U.S., that undermines the value of the Canadian dollar.”

The Canadian dollar fell 1 percent to C$1.2488 per U.S. dollar at 4:48 p.m. in Toronto, from C$1.2365 yesterday. One Canadian dollar buys 80.07 U.S. cents. Gains were briefly pared after the U.S. Treasury said it is willing to provide financing to the automakers until Congress reconvenes.

The U.S. dollar rose against most of the 16 major currencies tracked by Bloomberg including the Canadian dollar. The exceptions were the yen, euro, Swiss franc and Danish krone.

“News about the U.S. carmakers has raised the level of risk aversion on the markets,” said Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London. “The dollar is rallying but it’s rallying against weaker currencies more.”

The Canadian currency may weaken beyond C$1.30 per U.S. dollar in the next quarter if oil makes a “a sustained break below $40 a barrel,” Gallo said.

Fennell predicts the loonie, as Canada’s dollar is known, will strengthen next year to at least C$1.11 because Canada’s economy is in better shape than that of the U.S.

Job Losses

U.S. automakers, which make more vehicles in Ontario than in Michigan, already cut employment by 40 percent between 2002 and 2007. Job losses are spreading beyond the auto factories in Ontario to parts suppliers, reducing the industry’s total employment to about 181,000 last year, down 18 percent from the high in 2002, according to the Conference Board of Canada.

Crude oil for January delivery fell as much as 9.7 percent, to $43.32 a barrel on the New York Mercantile Exchange, before paring its loss to 1.4 percent. Oil is the largest component of the Bank of Canada’s Commodity Price Index, accounting for 21 percent.

Canadian industrial capacity -- a measure of the share of plants in use -- fell to the lowest since at least 1987, when records started, Statistics Canada said today in Ottawa.

The two-year government bond’s yield fell two basis points, or 0.02 percentage point, to 1.48 percent in Toronto. The yield touched 1.466 percent on Dec. 5, the lowest since Bloomberg began compiling the data in 1989. The price of the 2.75 percent security due in December 2010 rose 3 cents to C$102.44.

 

To contact the reporter on this story:

Chris Fournier in Montreal at cfournier3@bloomberg.net