Хронология из DJN Market Talk

 

Nov. 15 (Bloomberg) -- The following is a reformatted version of the full text of the statement released today by the leaders of the Group of 20 developed and emerging-market nations after meeting in Washington:

1. We, the Leaders of the Group of Twenty, held an initial meeting in Washington on November 15, 2008, amid serious challenges to the world economy and financial markets. We are determined to enhance our cooperation and work together to restore global growth and achieve needed reforms in the world’s financial systems.

2. Over the past months our countries have taken urgent and exceptional measures to support the global economy and stabilize financial markets. These efforts must continue. At the same time, we must lay the foundation for reform to help to ensure that a global crisis, such as this one, does not happen again. Our work will be guided by a shared belief that market principles, open trade and investment regimes, and effectively regulated financial markets foster the dynamism, innovation, and entrepreneurship that are essential for economic growth, employment, and poverty reduction.

Root Causes of the Current Crisis

3. During a period of strong global growth, growing capital flows, and prolonged stability earlier this decade, market participants sought higher yields without an adequate appreciation of the risks and failed to exercise proper due diligence. At the same time, weak underwriting standards, unsound risk management practices, increasingly complex and opaque financial products, and consequent excessive leverage combined to create vulnerabilities in the system. Policy- makers, regulators and supervisors, in some advanced countries, did not adequately appreciate and address the risks building up in financial markets, keep pace with financial innovation, or take into account the systemic ramifications of domestic regulatory actions.

4. Major underlying factors to the current situation were, among others, inconsistent and insufficiently coordinated macroeconomic policies, inadequate structural reforms, which led to unsustainable global macroeconomic outcomes. These developments, together, contributed to excesses and ultimately resulted in severe market disruption.

Actions Taken and to Be Taken

5. We have taken strong and significant actions to date to stimulate our economies, provide liquidity, strengthen the capital of financial institutions, protect savings and deposits, address regulatory deficiencies, unfreeze credit markets, and are working to ensure that international financial institutions (IFIs) can provide critical support for the global economy.

6. But more needs to be done to stabilize financial markets and support economic growth. Economic momentum is slowing substantially in major economies and the global outlook has weakened. Many emerging market economies, which helped sustain the world economy this decade, are still experiencing good growth but increasingly are being adversely impacted by the worldwide slowdown.

7. Against this background of deteriorating economic conditions worldwide, we agreed that a broader policy response is needed, based on closer macroeconomic cooperation, to restore growth, avoid negative spillovers and support emerging market economies and developing countries. As immediate steps to achieve these objectives, as well as to address longer-term challenges, we will:

* Continue our vigorous efforts and take whatever further actions are necessary to stabilize the financial system.

* Recognize the importance of monetary policy support, as deemed appropriate to domestic conditions.

* Use fiscal measures to stimulate domestic demand to rapid effect, as appropriate, while maintaining a policy framework conducive to fiscal sustainability.

* Help emerging and developing economies gain access to finance in current difficult financial conditions, including through liquidity facilities and program support. We stress the International Monetary Fund’s (IMF) important role in crisis response, welcome its new short-term liquidity facility, and urge the ongoing review of its instruments and facilities to ensure flexibility.

* Encourage the World Bank and other multilateral development banks (MDBs) to use their full capacity in support of their development agenda, and we welcome the recent introduction of new facilities by the World Bank in the areas of infrastructure and trade finance.

* Ensure that the IMF, World Bank and other MDBs have sufficient resources to continue playing their role in overcoming the crisis.

Common Principles for Reform of Financial Markets

8. In addition to the actions taken above, we will implement reforms that will strengthen financial markets and regulatory regimes so as to avoid future crises. Regulation is first and foremost the responsibility of national regulators who constitute the first line of defense against market instability. However, our financial markets are global in scope, therefore, intensified international cooperation among regulators and strengthening of international standards, where necessary, and their consistent implementation is necessary to protect against adverse cross-border, regional and global developments affecting international financial stability. Regulators must ensure that their actions support market discipline, avoid potentially adverse impacts on other countries, including regulatory arbitrage, and support competition, dynamism and innovation in the marketplace. Financial institutions must also bear their responsibility for the turmoil and should do their part to overcome it including by recognizing losses, improving disclosure and strengthening their governance and risk management practices.

9. We commit to implementing policies consistent with the following common principles for reform.

* Strengthening Transparency and Accountability: We will strengthen financial market transparency, including by enhancing required disclosure on complex financial products and ensuring complete and accurate disclosure by firms of their financial conditions. Incentives should be aligned to avoid excessive risk-taking.

* Enhancing Sound Regulation: We pledge to strengthen our regulatory regimes, prudential oversight, and risk management, and ensure that all financial markets, products and participants are regulated or subject to oversight, as appropriate to their circumstances. We will exercise strong oversight over credit rating agencies, consistent with the agreed and strengthened international code of conduct. We will also make regulatory regimes more effective over the economic cycle, while ensuring that regulation is efficient, does not stifle innovation, and encourages expanded trade in financial products and services. We commit to transparent assessments of our national regulatory systems.

* Promoting Integrity in Financial Markets: We commit to protect the integrity of the world’s financial markets by bolstering investor and consumer protection, avoiding conflicts of interest, preventing illegal market manipulation, fraudulent activities and abuse, and protecting against illicit finance risks arising from non-cooperative jurisdictions. We will also promote information sharing, including with respect to jurisdictions that have yet to commit to international standards with respect to bank secrecy and transparency.

* Reinforcing International Cooperation: We call upon our national and regional regulators to formulate their regulations and other measures in a consistent manner. Regulators should enhance their coordination and cooperation across all segments of financial markets, including with respect to cross-border capital flows. Regulators and other relevant authorities as a matter of priority should strengthen cooperation on crisis prevention, management, and resolution.

* Reforming International Financial Institutions: We are committed to advancing the reform of the Bretton Woods Institutions so that they can more adequately reflect changing economic weights in the world economy in order to increase their legitimacy and effectiveness. In this respect, emerging and developing economies, including the poorest countries, should have greater voice and representation. The Financial Stability Forum (FSF) must expand urgently to a broader membership of emerging economies, and other major standard setting bodies should promptly review their membership. The IMF, in collaboration with the expanded FSF and other bodies, should work to better identify vulnerabilities, anticipate potential stresses, and act swiftly to play a key role in crisis response.

Tasking of Ministers and Experts

10. We are committed to taking rapid action to implement these principles. We instruct our Finance Ministers, as coordinated by their 2009 G-20 leadership (Brazil, UK, Republic of Korea), to initiate processes and a timeline to do so. An initial list of specific measures is set forth in the attached Action Plan, including high priority actions to be completed prior to March 31, 2009.

In consultation with other economies and existing bodies, drawing upon the recommendations of such eminent independent experts as they may appoint, we request our Finance Ministers to formulate additional recommendations, including in the following specific areas:

* Mitigating against pro-cyclicality in regulatory policy;

* Reviewing and aligning global accounting standards, particularly for complex securities in times of stress;

* Strengthening the resilience and transparency of credit derivatives markets and reducing their systemic risks, including by improving the infrastructure of over-the-counter markets;

* Reviewing compensation practices as they relate to incentives for risk taking and innovation;

* Reviewing the mandates, governance, and resource requirements of the IFIs; and

* Defining the scope of systemically important institutions and determining their appropriate regulation or oversight.

11. In view of the role of the G-20 in financial systems reform, we will meet again by April 30, 2009, to review the implementation of the principles and decisions agreed today.

Commitment to an Open Global Economy

12. We recognize that these reforms will only be successful if grounded in a commitment to free market principles, including the rule of law, respect for private property, open trade and investment, competitive markets, and efficient, effectively regulated financial systems. These principles are essential to economic growth and prosperity and have lifted millions out of poverty, and have significantly raised the global standard of living. Recognizing the necessity to improve financial sector regulation, we must avoid over-regulation that would hamper economic growth and exacerbate the contraction of capital flows, including to developing countries.

13. We underscore the critical importance of rejecting protectionism and not turning inward in times of financial uncertainty. In this regard, within the next 12 months, we will refrain from raising new barriers to investment or to trade in goods and services, imposing new export restrictions, or implementing World Trade Organization (WTO) inconsistent measures to stimulate exports. Further, we shall strive to reach agreement this year on modalities that leads to a successful conclusion to the WTO’s Doha Development Agenda with an ambitious and balanced outcome. We instruct our Trade Ministers to achieve this objective and stand ready to assist directly, as necessary. We also agree that our countries have the largest stake in the global trading system and therefore each must make the positive contributions necessary to achieve such an outcome.

14. We are mindful of the impact of the current crisis on developing countries, particularly the most vulnerable. We reaffirm the importance of the Millennium Development Goals, the development assistance commitments we have made, and urge both developed and emerging economies to undertake commitments consistent with their capacities and roles in the global economy. In this regard, we reaffirm the development principles agreed at the 2002 United Nations Conference on Financing for Development in Monterrey, Mexico, which emphasized country ownership and mobilizing all sources of financing for development.

15. We remain committed to addressing other critical challenges such as energy security and climate change, food security, the rule of law, and the fight against terrorism, poverty and disease.

16. As we move forward, we are confident that through continued partnership, cooperation, and multilateralism, we will overcome the challenges before us and restore stability and prosperity to the world economy.

Action Plan to Implement Principles for Reform

This Action Plan sets forth a comprehensive work plan to implement the five agreed principles for reform. Our finance ministers will work to ensure that the taskings set forth in this Action Plan are fully and vigorously implemented. They are responsible for the development and implementation of these recommendations drawing on the ongoing work of relevant bodies, including the International Monetary Fund (IMF), an expanded Financial Stability Forum (FSF), and standard setting bodies.

Strengthening Transparency and Accountability

Immediate Actions by March 31, 2009

* The key global accounting standards bodies should work to enhance guidance for valuation of securities, also taking into account the valuation of complex, illiquid products, especially during times of stress.

* Accounting standard setters should significantly advance their work to address weaknesses in accounting and disclosure standards for off-balance sheet vehicles.

* Regulators and accounting standard setters should enhance the required disclosure of complex financial instruments by firms to market participants.

* With a view toward promoting financial stability, the governance of the international accounting standard setting body should be further enhanced, including by undertaking a review of its membership, in particular in order to ensure transparency, accountability, and an appropriate relationship between this independent body and the relevant authorities.

* Private sector bodies that have already developed best practices for private pools of capital and/or hedge funds should bring forward proposals for a set of unified best practices. Finance Ministers should assess the adequacy of these proposals, drawing upon the analysis of regulators, the expanded FSF, and other relevant bodies.

Medium-term actions

* The key global accounting standards bodies should work intensively toward the objective of creating a single high- quality global standard.

* Regulators, supervisors, and accounting standard setters, as appropriate, should work with each other and the private sector on an ongoing basis to ensure consistent application and enforcement of high-quality accounting standards.

* Financial institutions should provide enhanced risk disclosures in their reporting and disclose all losses on an ongoing basis, consistent with international best practice, as appropriate. Regulators should work to ensure that a financial institution’ financial statements include a complete, accurate, and timely picture of the firm’s activities (including off- balance sheet activities) and are reported on a consistent and regular basis.

Enhancing Sound Regulation

Regulatory Regimes

Immediate Actions by March 31, 2009

* The IMF, expanded FSF, and other regulators and bodies should develop recommendations to mitigate pro-cyclicality, including the review of how valuation and leverage, bank capital, executive compensation, and provisioning practices may exacerbate cyclical trends.

Medium-term actions

* To the extent countries or regions have not already done so, each country or region pledges to review and report on the structure and principles of its regulatory system to ensure it is compatible with a modern and increasingly globalized financial system. To this end, all G-20 members commit to undertake a Financial Sector Assessment Program (FSAP) report and support the transparent assessments of countries’ national regulatory systems.

* The appropriate bodies should review the differentiated nature of regulation in the banking, securities, and insurance sectors and provide a report outlining the issue and making recommendations on needed improvements. A review of the scope of financial regulation, with a special emphasis on institutions, instruments, and markets that are currently unregulated, along with ensuring that all systemically-important institutions are appropriately regulated, should also be undertaken.

* National and regional authorities should review resolution regimes and bankruptcy laws in light of recent experience to ensure that they permit an orderly wind-down of large complex cross-border financial institutions.

* Definitions of capital should be harmonized in order to achieve consistent measures of capital and capital adequacy.

Prudential Oversight

Immediate Actions by March 31, 2009

* Regulators should take steps to ensure that credit rating agencies meet the highest standards of the international organization of securities regulators and that they avoid conflicts of interest, provide greater disclosure to investors and to issuers, and differentiate ratings for complex products. This will help ensure that credit rating agencies have the right incentives and appropriate oversight to enable them to perform their important role in providing unbiased information and assessments to markets.

* The international organization of securities regulators should review credit rating agencies’ adoption of the standards and mechanisms for monitoring compliance.

* Authorities should ensure that financial institutions maintain adequate capital in amounts necessary to sustain confidence. International standard setters should set out strengthened capital requirements for banks’ structured credit and securitization activities.

* Supervisors and regulators, building on the imminent launch of central counterparty services for credit default swaps (CDS) in some countries, should: speed efforts to reduce the systemic risks of CDS and over-the-counter (OTC) derivatives transactions; insist that market participants support exchange traded or electronic trading platforms for CDS contracts; expand OTC derivatives market transparency; and ensure that the infrastructure for OTC derivatives can support growing volumes.

Medium-term actions

* Credit Ratings Agencies that provide public ratings should be registered.

* Supervisors and central banks should develop robust and internationally consistent approaches for liquidity supervision of, and central bank liquidity operations for, cross-border banks.

Risk Management

Immediate Actions by March 31, 2009

* Regulators should develop enhanced guidance to strengthen banks’ risk management practices, in line with international best practices, and should encourage financial firms to reexamine their internal controls and implement strengthened policies for sound risk management.

* Regulators should develop and implement procedures to ensure that financial firms implement policies to better manage liquidity risk, including by creating strong liquidity cushions.

* Supervisors should ensure that financial firms develop processes that provide for timely and comprehensive measurement of risk concentrations and large counterparty risk positions across products and geographies.

* Firms should reassess their risk management models to guard against stress and report to supervisors on their efforts.

* The Basel Committee should study the need for and help develop firms’ new stress testing models, as appropriate.

* Financial institutions should have clear internal incentives to promote stability, and action needs to be taken, through voluntary effort or regulatory action, to avoid compensation schemes which reward excessive short-term returns or risk taking.

* Banks should exercise effective risk management and due diligence over structured products and securitization.

Medium -term actions

* International standard setting bodies, working with a broad range of economies and other appropriate bodies, should ensure that regulatory policy makers are aware and able to respond rapidly to evolution and innovation in financial markets and products.

* Authorities should monitor substantial changes in asset prices and their implications for the macroeconomy and the financial system.

Promoting Integrity in Financial Markets

Immediate Actions by March 31, 2009

* Our national and regional authorities should work together to enhance regulatory cooperation between jurisdictions on a regional and international level.

* National and regional authorities should work to promote information sharing about domestic and cross-border threats to market stability and ensure that national (or regional, where applicable) legal provisions are adequate to address these threats.

* National and regional authorities should also review business conduct rules to protect markets and investors, especially against market manipulation and fraud and strengthen their cross-border cooperation to protect the international financial system from illicit actors. In case of misconduct, there should be an appropriate sanctions regime.

Medium -term actions

* National and regional authorities should implement national and international measures that protect the global financial system from uncooperative and non-transparent jurisdictions that pose risks of illicit financial activity.

* The Financial Action Task Force should continue its important work against money laundering and terrorist financing, and we support the efforts of the World Bank - UN Stolen Asset Recovery (StAR) Initiative.

* Tax authorities, drawing upon the work of relevant bodies such as the Organization for Economic Cooperation and Development (OECD), should continue efforts to promote tax information exchange. Lack of transparency and a failure to exchange tax information should be vigorously addressed.

Reinforcing International Cooperation

Immediate Actions by March 31, 2009

* Supervisors should collaborate to establish supervisory colleges for all major cross-border financial institutions, as part of efforts to strengthen the surveillance of cross-border firms. Major global banks should meet regularly with their supervisory college for comprehensive discussions of the firm’s activities and assessment of the risks it faces.

* Regulators should take all steps necessary to strengthen cross-border crisis management arrangements, including on cooperation and communication with each other and with appropriate authorities, and develop comprehensive contact lists and conduct simulation exercises, as appropriate.

Medium -term actions

* Authorities, drawing especially on the work of regulators, should collect information on areas where convergence in regulatory practices such as accounting standards, auditing, and deposit insurance is making progress, is in need of accelerated progress, or where there may be potential for progress.

* Authorities should ensure that temporary measures to restore stability and confidence have minimal distortions and are unwound in a timely, well-sequenced and coordinated manner.

Reforming International Financial Institutions

Immediate Actions by March 31, 2009

* The FSF should expand to a broader membership of emerging economies.

* The IMF, with its focus on surveillance, and the expanded FSF, with its focus on standard setting, should strengthen their collaboration, enhancing efforts to better integrate regulatory and supervisory responses into the macro- prudential policy framework and conduct early warning exercises.

* The IMF, given its universal membership and core macro- financial expertise, should, in close coordination with the FSF and others, take a leading role in drawing lessons from the current crisis, consistent with its mandate.

* We should review the adequacy of the resources of the IMF, the World Bank Group and other multilateral development banks and stand ready to increase them where necessary. The IFIs should also continue to review and adapt their lending instruments to adequately meet their members’ needs and revise their lending role in the light of the ongoing financial crisis.

* We should explore ways to restore emerging and developing countries’ access to credit and resume private capital flows which are critical for sustainable growth and development, including ongoing infrastructure investment.

* In cases where severe market disruptions have limited access to the necessary financing for counter-cyclical fiscal policies, multilateral development banks must ensure arrangements are in place to support, as needed, those countries with a good track record and sound policies.

Medium -term actions

* We underscored that the Bretton Woods Institutions must be comprehensively reformed so that they can more adequately reflect changing economic weights in the world economy and be more responsive to future challenges. Emerging and developing economies should have greater voice and representation in these institutions.

* The IMF should conduct vigorous and even-handed surveillance reviews of all countries, as well as giving greater attention to their financial sectors and better integrating the reviews with the joint IMF/World Bank financial sector assessment programs. On this basis, the role of the IMF in providing macro-financial policy advice would be strengthened.

* Advanced economies, the IMF, and other international organizations should provide capacity-building programs for emerging market economies and developing countries on the formulation and the implementation of new major regulations, consistent with international standards.

 

 

 

 

 

 

By Bob Willis

 

Nov. 16 (Bloomberg) -- The cost of living in the U.S. probably fell in October by the most in almost sixty years, while manufacturing and homebuilding sank deeper into a recession, economists said before reports this week.

 

Consumer prices probably dropped 0.8 percent last month, the most since 1949, according to the median estimate in a Bloomberg News survey. Builders broke ground on the fewest houses in at least a half century and factory output weakened further, other reports may show.

Commodity costs plunged in October when the economy, which descended last quarter, went into freefall as credit and financial markets collapsed. Slumping sales are forcing retailers to lower prices, giving the Federal Reserve scope to keep cutting interest rates to limit the damage.

``Tumbling energy and commodity prices have altered the inflation landscape,'' said Ryan Sweet, a senior economist at Moody's Economy.com in West Chester, Pennsylvania. ``More rate cuts are needed as the economy is sinking deeper into recession.''

The Labor Department's consumer-price report is due Nov. 19. Fuel, clothing and auto costs probably dropped last month as sales at U.S. retailers fell 2.8 percent, the most since records began in 1992, economists said.

The slump in crude oil is feeding through to prices at the pump. The average cost of a gallon of regular gasoline plunged 17 percent last month to $3.08, according to AAA.

Commodity Deflation

``We are seeing the fallout of global recession on inflation,'' said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts. ``In commodity prices, it's leading to deflation.''

Core prices, which exclude food and energy, rose 0.2 percent last month after a 0.1 percent gain the prior month, according to the survey median.

A report from the Labor Department on Nov. 18 may foreshadow the drop in retail costs. Wholesale prices fell 1.8 percent last month, the most since records began in 1947, according to economists surveyed.

As sales fall, manufacturers are cutting output and firing workers. Ford Motor Co. plans temporary shutdowns at nine North American plants this quarter after an 18 percent drop in U.S. sales this year, Angie Kozleski, a spokeswoman for the Dearborn, Michigan-based automaker, said last week.

Auto cutbacks 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, rose 0.2 percent in October, led by a resumption of work at Gulf Coast refineries after Hurricane Ike shut down oil rigs the prior month, economists forecast.

Hurricane Rebound

A report from the New York Fed the same day may show manufacturing in the state contracted this month at the fastest pace since at least 2001. A similar report from the Philadelphia Fed on Nov. 20 may show regional activity shrank for an 11th time in 12 months.

The economic slump will intensify this quarter and persist into the first three months of 2009, making it the longest downturn since 1974-75, according to economists surveyed this month.

The housing recession at the heart of the economic downturn shows no signs of letting up. New-home starts in October dropped to a 780,000 annual pace, the lowest level since records began in 1959, the Commerce Department is forecast to report Nov. 19.

Outlook Dims

A gauge of the economy's course will point to continued weakness, economists project a private report on Nov. 20 will show. The New York-based Conference Board's index of leading economic indicators probably fell 0.6 percent after increasing 0.3 percent in September.

Central bankers are battling to cushion the economy from the worst financial crisis in seven decades.

``Policy makers will remain in close contact, monitor developments closely and stand ready to take additional steps should conditions warrant,'' Fed Chairman Ben S. Bernanke said Nov. 14 at a panel discussion in Frankfurt hosted by the European Central Bank.

Heads of state of the Group of 20, which represents almost 90 percent of world output, met in Washington Saturday to lay the framework for coordinated actions to stem the global recession.

 

To contact the report responsible for this story:

Bob Willis in Washington at bwillis@bloomberg.net

 

 

 

 

 

 

By Dakin Campbell and Cordell Eddings

 

Nov. 15 (Bloomberg) -- Treasuries rose for a second straight week, with two-year note yields touching the lowest in five years, as economic growth worsened and Treasury Secretary Henry Paulson changed the terms of the financial-rescue plan.

The yield difference between two- and 10-year notes widened to a five-year high as traders increased bets the Federal Reserve will cut interest rates and focused on short-maturity debt as the Treasury sold the most longer-term securities since 1990. Paulson said the government would no longer buy troubled mortgage assets and would instead focus on relieving pressures in consumer-credit markets.

``There will be a short-term mentality in the Treasury market,'' said Paul Horrmann, a strategist in Jersey City, New Jersey, at ICAP Plc, the world's largest inter-dealer broker. ``The atmosphere is still risk averse and will probably stay this way until the negative news gets better.''

The two-year note yield fell 12 basis points, or 0.12 percentage point, on the week to 1.22 percent, according to BGCantor Market Data. It touched a five-year low of 1.14 percent on Nov. 13. The 1.5 percent security due in October 2010 rose 7/32, or $2.19 per $1,000 face amount, to 100 17/32. The 10-year note's yield dropped 6 basis points to 3.74 percent. It touched 3.63 percent, the lowest in more than two weeks.

Rates on one-month Treasury bills, viewed as a haven in times of turmoil, fell 4 basis points to 0.05 percent on the week. They touched a record low of 0.04 percent Nov. 13.

Rescue Package

The government sold $55 billion of three-, 10- and 30-year securities at its so-called quarterly refunding during the week to pay for the $700 billion financial-rescue plan and fund a widening budget deficit.

Treasuries will fall over the next six months as the U.S. increases borrowing to bail out its financial system, while government debt in Europe, Asia and Latin America rallies, a monthly survey of Bloomberg users showed.

Paulson said on Nov. 12 that buying ``illiquid'' mortgage- related assets under the rescue plan conceived for that purpose ``is not the most effective'' use of funds. Instead, he proposed shifting the focus to relieving pressures on automobile, credit card, and consumer loans.

The Group of 20 heads of state are meeting in Washington this weekend amid Europe's first recession in 15 years. The region's gross domestic product shrank 0.2 percent last quarter from the previous three months, when it also contracted 0.2 percent, the European Union's statistics office said Nov. 14.

`Flight-to-Quality Bid'

The U.S., Japan, the U.K. and the euro region are headed for their first simultaneous recessions since World War II, according to the International Monetary Fund.

Sales at U.S. retailers dropped 2.8 percent last month, the Commerce Department said yesterday. It was the fourth consecutive drop and the biggest since records began in 1992. Initial claims for unemployment insurance rose last week to the highest level since September 2001, when the economy was last in a recession.

``We are not getting a lot of warm and fuzzy numbers about the economy,'' said David Coard, head of fixed-income trading in New York at Williams Capital Group, a brokerage for institutional investors. ``The weaker-than-expected retail sales number and another equity sell-off are supporting the flight-to- quality bid into the Treasuries.''

U.S. stocks retreated for a second straight week, with the Standard & Poor's 500 Index falling 6.2 percent.

Futures on the Chicago Board of Trade showed an 84 percent chance the Fed will lower its 1 percent target rate for overnight bank lending by 50 basis points at its Dec. 16 meeting. The odds were 64 percent a week ago.

Week's Theme

Two-year notes, more sensitive to monetary policy than longer-maturity securities, outperformed 10-year notes and pushed the gap between the two to 2.62 percent on Nov. 13.

``The essential steepening of the yield curve has been the theme of the week, led by two-year notes,'' said Carl Lantz, an interest-rate strategist in New York at Credit Suisse Securities USA LLC, one of the 17 primary dealers that trade with the Fed. ``The market is still expecting weak data to continue and more from the Fed in terms of liquidity.''

Yields indicate banks are less willing to make loans to each other even as Paulson said it was ``very important'' for banks to lend. The difference between what they and the Treasury pay to borrow money for three months, the so-called TED spread, widened to 2.10 percentage points, from 2.01 percentage points Nov. 7.

Banks' borrowing costs for dollars rose in the past two days after falling for 23 straight days. The London interbank offered rate for three-month funding increased 9 basis points to 2.24 percent, the British Bankers' Association said.

Uncompleted Transactions

An industry group that advises the Treasury on trading in government debt recommended measures to reduce the record level of uncompleted transactions that have plagued the bond market in the past two months as the credit crunch worsened. The Treasury Market Practices Group urged changes in market practices ranging from financial penalties on failed trades to margining and bilateral cash settlement of failing transactions.

 

To contact the reporter on this story:

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

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

 

 

 

 

 

 

By Mark Shenk

 

Nov. 14 (Bloomberg) -- Crude oil fell more than $1 a barrel, and gasoline tumbled, as the global economic slowdown cut demand in the largest energy-consuming countries.

China Petroleum & Chemical Corp., supplier of more than half the fuel to the Asian nation, is slashing processing rates by 10 percent from July’s record. U.S. retail sales in October dropped the most on record and Europe fell into its first recession in 15 years, reports showed today.

“This is a headline-driven market and that’s giving the sellers plenty of ammunition,” said Peter Beutel, president of energy consultant Cameron Hanover Inc. in New Canaan, Connecticut. “Everyone is looking for recessionary numbers. The retail numbers were even worse than expected.”

China Petroleum, or Sinopec, will process about 15 million metric tons a month, or 3.65 million barrels a day, starting in November, said three refinery officials, who declined to be named because of internal rules. China is the world’s second-biggest oil-consuming country.

Falling Sales

‘Significant Lag’

“OPEC may well announce additional production cuts, but there will be a significant lag effect, with any cuts coming well into next year,” said Paul Crovo, a Philadelphia-based oil analyst with PNC Capital Advisors. Compliance from members may not be in line with announced reductions, producing a “muted impact,” he said.

The group decided at a meeting in Vienna last month to lower the production target for 11 of the group’s members by 1.5 million barrels a day, from 28.8 million barrels a day.

Brent crude oil for January settlement fell $2, or 3.6 percent, to settle at $54.24 a barrel on London’s ICE Futures Europe exchange.

Seventeen of 31 analysts surveyed by Bloomberg News, or 55 percent, said prices will decline through Nov. 21. Eleven respondents, or 35 percent, said oil will rise and three forecast markets will be little changed.

 

To contact the reporter on this story:

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

 

 

By Daniel Kruger and Michael J. Moore

 

Nov. 15 (Bloomberg) -- The yen rose against the euro and the dollar for a second week as falling stock market prices prompted speculation investors will sell higher-yielding assets and pay back low-cost loans in Japan's currency.

The greenback appreciated versus an index of the currencies of six major U.S. trading partners as investors sought the safety of dollar-denominated assets. The pound recorded its biggest loss against the euro since the 15-nation currency's 1999 debut on mounting evidence Britain's economy has fallen into a recession.

``Euro-dollar and euro-yen were highly leveraged plays over the last several years,'' said John McCarthy, director of currency trading at ING Financial Markets LLC in New York. ``We continue to see unwinding of that.''

Canadian Dollar

The Canadian dollar fell 4 percent to C$1.2372 against the dollar and the Norwegian krone declined 0.7 percent to 6.9539 as the price of crude oil for December delivery plunged 7.4 percent this week. Oil accounted for one-tenth of Canada's export revenue last year, while Norway is the world's fifth-largest oil supplier.

Japan's currency advanced 4.9 percent to 62.95 against the Australian dollar and 7.4 percent to 53.79 versus the New Zealand dollar this week on bets investors will unwind carry trades, in which they get funds in countries with low borrowing costs and buy assets where returns are higher. Japan's 0.3 percent target lending rate compares with 1 percent in the U.S., 5.25 percent in Australia and 6.5 percent in New Zealand.

Stock markets in the U.S., Europe and Asia fell this week as reports showed the global economic slowdown deepened. The Standard & Poor's 500 Index fell 6.2 percent, the Dow Jones Stoxx Index of European equities retreated 6.3 percent and the MSCI Asia Pacific Index lost 5.7 percent.

U.S. Retail

Sales at U.S. retailers fell 2.8 percent in October, the biggest drop since records began in 1992, the Commerce Department reported in Washington. The Reuters/University of Michigan preliminary index of consumer sentiment unexpectedly rose to 57.9 this month from 57.6 in October.

Europe's economy fell into its first recession in 15 years in the third quarter. Gross domestic product in the euro nations shrank 0.2 percent from the previous three months, when it also contracted 0.2 percent, the European Union's Luxembourg-based statistics office said.

U.K. unemployment rose the most in 16 years last month, and Bank of England Governor Mervyn King said policy makers are ``certainly prepared'' to cut the 3 percent target lending rate.

Volatility implied by dollar-yen options expiring in one month rose to 28.55 percent on Nov. 13, the highest in almost two weeks. Heightened fluctuations in currencies can discourage carry trades by making profits harder to predict.

`Choppy' Markets

``The markets are extremely choppy, illiquid and subject to extremely wide swings on virtual air,'' said Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto. ``I wouldn't suggest the markets are trading on economics as much as on equity flows at this moment.''

Leaders of G-20 countries convened in Washington to debate proposals ranging from curbing executive pay and restraining hedge funds to raising capital requirements for banks after financial institutions worldwide lost $958 billion on securities tied to U.S. mortgages.

``The continuing volatility of markets and recent indicators of economic performance confirm that challenges remain,'' Federal Reserve Chairman Ben S. Bernanke said yesterday at a panel discussion hosted by the ECB in Frankfurt. ``For this reason, policy makers will remain in close contact, monitor developments closely and stand ready to take additional steps should conditions warrant.''

To contact the reporters on this story:

Daniel Kruger in New York at dkruger1@bloomberg.net;

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