capital as much as they are now,’
said Charles Geisst, a Wall Street historian. ‘It
poses a number of significant problems.’"
January 16 – Bloomberg (John Glover):
"Bondholders in structured investment vehicles,
caught in the collapse of the subprime mortgage
market, have seen the value of their investments
fall by almost 50%, according to Moody’s… The net
asset value of SIVs, funds that use commercial
paper and medium-term notes to buy higher-yielding
debt, fell to 53% at the end of last year from
100% in July… Investors who own the funds’
lowest-ranking bonds, called capital notes, would
lose an average 47% should the SIVs
be
forced to liquidate."
January 17 – Dow
Jones (Anusha Shrivastava): "Growing worries about
the health of the commercial mortgage bond market
gripped investors Thursday, sending a derivative
index based on those bonds into a tailspin. The
triple-B minus slice of the Markit CMBX 4 series,
which is based largely on deals from early 2007
through the summer of last year, widened by 175
bps…" January 17 – Financial Times (David Oakley):
"Bank and corporate bond issuance has recorded the
worst start to a year since 1997 as growing fears
of a US recession and concerns over company
results weigh on the market. Fundraising in the
debt capital markets stands at $152bn this year,
down 35% compared with the same period last year,
according to Dealogic… This marks the slowest
start to a year since $77.9bn was raised in the
first two weeks of 1997."
January 15 –
Bloomberg (Mark Deen and Kitty Donaldson): "The
U.K. Treasury said it may nationalize Northern
Rock Plc in order to recover more than 25 billion
pounds ($49 billion) in loans it made to the bank
and to protect depositors. ‘Conditions are
difficult,’ Chancellor of the Exchequer Alistair
Darling said… ‘I would like to find a private
sector solution, but all options, including
nationalization, have to be considered.’"
January 15 – Bloomberg (Laura Cochrane):
"Centro Properties Group, the Australian owner of
700 U.S. shopping malls, said Chief Executive
Officer Andrew Scott resigned and asked lenders to
extend a Feb. 15 deadline to refinance A$3.9
billion ($3.5 billion) of debt… Centro fell 30% to
a record in Sydney trading, valuing the company at
A$502 million."
January 16 – Bloomberg
(Patricia Kuo): "The risk of Asian banks
defaulting on their debt rose to a record…
Contracts on Kookmin Bank, South Korea’s largest
by market value, jumped 10 bps to 140 bps…
Credit-default swaps on ICICI Bank Ltd., India’s
biggest, moved out 20 bps to 330 bps, according to
Barclays."
Currency Watch January
17 – Financial Times (Peter Garnham): "The current
turmoil in financial markets has revealed the
extent to which the low-yielding yen has funded
soaring global asset prices in recent years. Last
year, the yen tumbled to multi-year lows against a
raft of currencies as carry trade investors sold
the currency to finance the purchase of riskier,
higher yielding assets elsewhere. But now, as
asset prices falter, the yen is threatening to
climb sharply… The Japanese currency has soared in
recent days as fears of US recession have prompted
a fresh exodus from carry trades. Yesterday it
surged to a 2½-year high…"
January 15 –
Financial Times (Gillian Tett): "The US looks
poised to lose its mantle as the world’s dominant
financial market because of a rapid rise in the
depth and maturity of markets in Europe, a study
suggests. The change may have occurred already,
not least because US markets are beset by credit
woes, according to research by McKinsey Global
Institute… ‘We think the differential growth rates
are so significant that it is quite likely Europe
has overtaken the US," said Diana Farrell, author
of the report. ‘They are now neck and neck, which
means exchange rates are very important. It is a
real change.’"
The dollar index rallied
0.5% this week to 76.50. For the week on the
upside, the Japanese yen increased 1.4%, the
Mexican peso 0.1%, and the Taiwanese dollar 0.1%.
On the downside, the South African rand declined
4.7%, the Norwegian krone 3.9%, the New Zealand
dollar 3.8%, the Brazilian real 3.2%, the Swedish
krona 2.2%, the Australian dollar 2.1%, the Danish
Krone 1.8%, and the Euro 1.7%.
Commodities Watch For the week,
Gold declined 1.2% to $885 and Silver 0.5% to
$16.28. March Copper fell 2.1%. February Crude
slipped $2.13 to $90.56. February Gasoline
declined 0.7%, and January Natural Gas dropped
3.5%. March Wheat bucked the selling, gaining
5.9%. The CRB index fell 1.2%, reducing 2008 gains
to 0.7%. The Goldman Sachs Commodities Index
(GSCI) dropped 1.4%, with a y-t-d decline of 2.1%
(52-week gain 48.3%).
China
Watch January 16 – The Wall Street Journal
(Andrew Batson): "China’s government moved to
exert further control over increases in some food
prices, signaling a heightened political concern
over the high inflation that is threatening to
erode the meager incomes of the nation’s rural
majority. Under temporary measures announced
yesterday, large producers of some food products
-- including dairy, pork, mutton and eggs -- must
now seek government approval before increasing
prices. Wholesalers and retailers of those food
products don’t have to seek permission for raising
prices, but most notify the government when the
gains cross certain thresholds."
January
16 – Bloomberg (Li Yanping and Nipa
Piboontanasawat): "China ordered banks to set
aside larger reserves and imposed price curbs on
grain, meat and eggs to try to prevent inflation
at an 11-year high from triggering civil unrest.
Lenders must park 15% of deposits with the central
bank from Jan. 25, the People’s Bank of China
said… up from 14.5%. The ratio is the highest in
at least 20 years. ‘Significant price increases of
some key commodities over the past few months have
affected people’s lives, especially low-income
households,’ the National Development and Reform
Commission said… Inflation helped trigger the
Tiananmen Square protests and crackdown of 1989
and stampedes for discounted food have injured and
killed Chinese citizens over the past year."
January 15 – Bloomberg (Michele
Batchelor): "China, the world’s biggest user and
producer of coal, increased purchases of the fuel
from overseas by 34% last year as its economy
expanded."
January 15 – Bloomberg (Wang
Ying and Ying Lou): "China has shut down more than
6% of the power generating capacity in its
southern provinces because of a coal shortage,
with the region bracing for the worst electricity
shortage in at least five years… ‘The problem is
serious,’ Xiao Peng, vice president of China
Southern Power Grid Co., said. ‘We have sent an
urgent request to the central government to
address the issue,’ he said… China burns coal to
generate about 78% of its electricity."
January 16 - China Knowledge: "Due to the
upcoming Chinese New Year…China’s major liquor
producers have started increasing their liquor and
spirits prices in succession… In response to the
rising market demand, Kweichow Moutai, China’s
leading spirit company, announced last Friday that
it would increase the spirits prices by 20% on
average, which would be the company’s second time
to raise the producer prices since last March."
Japan Watch January 16 –
Financial Times (Lindsay Whipp): "Japanese
producer prices jumped at their fastest pace in a
year in December mainly because of higher oil and
food costs, a burden companies may have to force
their customers to bear to protect profits.
Consumers are already paying higher oil and food
costs even though most are not receiving higher
wages, leaving them less to spend on items other
than daily necessities such as petrol and noodles.
Wednesday’s 2.6% increase in producer prices will
only add to the burden. Oil and coal costs surged
24.4%..."
Asian Bubble
Watch January 17 – Financial Times (John
Aglionby): "Indonesia was yesterday forced to take
emergency action to calm street protests over
record soyabean prices. The record prices were
triggered by US farmers opting to grow corn to
supply the biofuel industry over soyabeans. Rising
Chinese demand for soyabeans and bad harvests in
Argentina and Brazil have also contributed to the
jump, which saw Indonesia suffer the biggest
food-related protests since last year’s Mexican
tortilla crisis. Susilo Bambang Yudhoyono,
Indonesian president, was forced yesterday to
announce measures to boost local soyabean supply.
The move came a day after 10,000 people took to
the streets in Jakarta to complain about the
rising cost of one of the country’s staple foods."
Unbalanced Global Economy
Watch January 16 – Bloomberg (Alan
Purkiss): "European economies may suffer from
‘stagflation’ this year, with growth slowing even
as inflation quickens, the Wall Street Journal
reported. European Central Bank staff projections
indicate that inflation in countries that have
adopted the euro wll be about 2.5%, compared with
the bank’s 2% target…"
January 16 –
Bloomberg (Gabi Thesing and Chris Malpass):
"German inflation accelerated last year to the
fastest pace since records began in 1996… Consumer
prices rose 2.3% in 2007…"
January 15 –
Bloomberg (Gabi Thesing): "Investor confidence in
Germany fell to the lowest in 15 years on concern
that a U.S. recession will deepen the slowdown in
Europe’s largest economy."
January 15 –
Bloomberg (Balazs Penz): "Hungarian inflation
accelerated in December as oil prices advanced,
making it more difficult for the central bank to
reduce the European Union’s second-highest
benchmark interest rate. The inflation rate
climbed for a third month to 7.4%..."
January 16 – Bloomberg (Tracy Withers):
"New Zealand’s inflation rate accelerated in the
fourth quarter… Consumer prices rose 1.2% from the
third quarter… From a year earlier, prices rose
3.2%."
January 17 – Associated Press (Riaz
Khan and Ashraf Khan): "When the delivery truck
finally arrives, laborer Sher Nawaz joins about
400 Pakistanis scrambling to buy a sack of wheat
flour. He
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
