HK / BLR - The Hong Kong Monetary Authority cut its benchmark interest rate to help boost bank lending as the city's economy slows amid a global credit squeeze. The base rate for banks will drop to 2.5 percent from 3.5 percent Thursday, based on the level of the US benchmark target rate plus 50 basis points, down from 150 basis points, chief executive Joseph Yam said. The HKMA tracks the Fed Funds rate, which is now at 2 percent, because Hong Kong's currency is pegged to the dollar. Australia cut its benchmark interest rate on Tuesday by one percentage point, the most since a recession in 1992, sparking speculation that other countries will follow to unlock credit markets.
China / Steel - Four big Chinese steelmakers have agreed to cut production until steel prices stabilise, which could mean the rest of this year, said Zou Jian, chairman of the China Metallurgical Mines Association. "The steel price declined a lot, so the steel companies decided to cut production until steel prices are stable,'' he told Reuters. He said Shougang Group, Hebei Iron & Steel Group, Anyang Iron & Steel and Shandong Iron & Steel agreed earlier this week to cut output by between 10 percent and 20 percent. He said the agreement involved steelmakers in Hebei province, which encircles Beijing, but other firms were also affected by the low prices.
US / Budget Deficit - The US government's budget deficit ballooned in fiscal 2008 to US$438 billion (HK$3.41 trillion), or 3.1 percent of GDP, as the economic downturn began to bite, the Congressional Budget Office said. The estimate compares to the US$162 billion shortfall that represented 1.2 percent of GDP in fiscal 2007, said the CBO, which monitors federal spending on behalf of the Senate and House of Representatives. "That is about US$31 billion higher than the US$407 billion deficit CBO projected this summer, primarily due to lower-than-projected revenues and higher-than-expected spending for defense and deposit insurance,'' it said. In its Monthly Budget Review, the CBO said corporate income taxes fell by around US$65 billion during fiscal 2008, which ended September 30.
US / Consumer Debt - U.S. consumers reduced their debt load by a record amount in August, the Federal Reserve reported Tuesday. Total seasonally adjusted consumer debt dropped by US$7.9 billion, or a 3.7% annual rate, in August to US$2.58 trillion. This was the first decline since January 1998. Consumer credit rose 2.4% in July. Non-revolving credit - such as auto loans, personal loans and student loans - dropped sharply by US$7.3 billion, or 5.4%, to US$1.61 trillion, after rising 0.9% in July. Credit-card debt dropped by US$612 million, or 0.8%, in August to US$969 billion.
UK / Banks - The U.K. government said Wednesday that it will pump as much as 50 billion pounds (US$87 billion) of capital into the country's main banks as part of a rescue package designed to shore up the struggling sector. The cash injection, which will be exchanged for a stake in the banks, is part of a package that also includes plans to provide short-term liquidity and ensure the sector has enough funds to maintain lending. Combined, these institutions have agreed to increase their total Tier 1 capital by 25 billion pounds before the end of the year. The government said it will make the money available to be drawn on, if desired, as preference share capital or permanent interest-bearing shares and is also willing to assist in the raising of ordinary equity. It's also ready to provide an incremental minimum of 25 billion pounds of further support for all eligible firms. Details of how much will be provided to each bank are still to be hammered out. But the cash is likely to come with a string of conditions. Treasury said it will take into account dividend policies and executive pay packages and will also require that banks continue to support lending to small businesses and home buyers. Other U.K. banks, and the U.K. subsidiaries of foreign institutions, can also apply for inclusion. Shares in the sector were mixed in early trading, with RBS jumping 13%, Lloyds up 8.7% and HBOS rising around 28%.
Meanwhile Barclays fell 3.5% and HSBC dropped 3.1%.
ECB / Liquidity & USD - The European Central Bank pumped US$50 billion into money markets today and said it will double to 50 billion euros the amount of the single European currency it would lend for six months as it tried to ease a tightening credit crunch. In a separate statement, the ECB said it would also lend another US$20 billion to banks for almost three months in an operation that generated demand for more than four times that amount. On a day when currency injection announcements followed each other at a breakneck pace, the ECB, US Federal Reserve and other central banks appeared determined to reassure stressed financial markets that money was no object. The European Central Bank pumped US$50 billion into money markets today and said it will double to 50 billion euros the amount of the single European currency it would lend for six months as it tried to ease a tightening credit crunch. In a separate statement, the ECB said it would also lend another US$20 billion to banks for almost three months in an operation that generated demand for more than four times that amount.
The European Central Bank has announced a schedule for new coordinated action it will take with other central banks to expand the provision of US dollars to cash-strapped commercial banks. "In response to continued strains in short-term funding markets, central banks recently announced coordinated actions to expand the provision of US dollar liquidity,'' an ECB statement said. "Today, the central banks are announcing schedules for term and forward auctions of US dollar liquidity during the fourth quarter of this year.''
China / Yuan - The yuan rose the most in seven months, erasing a record loss posted in the run-up to last week's break in trading, after the central bank said it wants a stable currency. The People's Bank of China will focus on "maintaining the stability of the currency when applying macro-economic controls to the financial sector and formulating monetary policy,'' said central bank governor Zhou Xiaochuan. The currency rose 0.38 percent to 6.8169 a dollar as of 5:30 pm in Shanghai, according to the China Foreign Exchange Trade System. A 0.08 percent gain yesterday followed a 0.46 percent slide on September 26, the biggest drop since a dollar peg ended in July 2005. China's financial markets were closed last week for a public holiday.
Russia / Banks - Russia's government should lend the country's biggest banks 950 billion rubles (US$36bn) for at least five years to help unfreeze credit markets, President Dmitry Medvedev said. State-run OAO Sberbank and VTB Group, should get 500 billion rubles and 200 billion rubles respectively, Medvedev said at a meeting with senior finance officials in the Kremlin. "What we can decide on today is, first of all, giving subordinated loans to banks of as much as 950 billion rubles for no less than five years,'' Medvedev said.
Comments: The move to restore liquidity and confidence is well underway. Volatility will be high and the central banks will not stop until they get a proper hold of the markets. Its like a group of priests trying to calm down a child being exorcised, the reckless-financial-child's head is turning around and around and spewing green stuff (thought to be mashed up greenbacks) ... the exorcism continues...
p/s photos: Ayumi Lee
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