...the main BUSINESS headlines..........
US falls on bail-out concerns
The dollar fell sharply against the euro and stocks and bonds slid on concerns the government’s bail-out proposal will push up the budget deficit, said Bloomberg.com. Worry also centred on the Treasury’s ability to interest foreign investors in further purchases of government bonds. The rescue plan would raise the US debt ceiling by 6.6 per cent to $11.3tr and has increased the likelihood of the Federal Reserve cutting interest rates at its next scheduled meeting on October 29th. The S&P 500 index fell 2.1 per cent.
G7 ministers look to US for lead
The Group of Seven industrialised nations issued an “extraordinary” statement yesterday commending the US Treasury’s $700 billion bank bailout, reported the Daily Telegraph. However many individual finance ministers stopped short of making a commitment to do the same. The German and French ministers said any measures would not replicate the US plan and Japan’s finance minister said that a similar bailout was not necessary. Outside the G7, the central bank for the United Arab Emirates unveiled a £7.3bn facility to help its banks.
Morgan Stanley turning Japanese
Morgan Stanley is planning to sell a stake of between 10 and 20 per cent to Japan’s Mitsubishi UFJ, the country’s biggest bank. Shares in the investment bank rose 9.1 per cent in New York as investors gave the thumbs-up to the deal, which would bolster the group’s position as it makes the transition to a bank. The deal would be the biggest overseas investment by a Japanese financial company and comes after the group’s purchase last month of UnionBanCal in the US and Nomura’s plans to buy Lehman Brothers’ Asian operations.
Japan’s return from financial oblivion 
Oil makes biggest daily gain
Crude oil jumped over $16 per barrel on Monday, its biggest ever one day gain as investors closed out short positions, reported the Financial Times. The jump in the oil price, which hit an intraday high of $130 per barrel, was also helped by the decline of the dollar, weaker supply data from a variety of producers and increasing recent demand from China. The move stimulated a rise in commodity prices across the board, with the Reuters-Jefferies CRB index closing up 3.9 per cent, adding to last week’s 10.8 per cent rise.
Money market funds experience record outflows
Money market funds in the US saw $197 billion of net outflows last week after the oldest, Reserve’s Primary fund, “broke the buck”, said the Financial Times. It was the first time in 14 years that a fund of this type had fallen below its par value of a dollar, and it has resulted in a loss of confidence in the industry, previously seen as a “safe haven” for investors’ funds. Some money market operators are now facing the prospect of having to close funds or “engineering costly bailouts” as these accounts have not been backed by a Federal guarantee.
Investors flee hedge funds
In what has already been a tough year for hedge funds, they face “an unprecedented level” of redemptions this quarter, reported the Independent. Already in 2008 some big names in the industry, including Peloton Partners, Carlyle Capital and Dillon Read, have collapsed, of a total of 51 failures since the credit crisis began. So far the evidence of redemptions is anecdotal, but hedge fund managers are suggesting that levels of investor withdrawals are running at record levels currently. Hard data will be released next month.
...in brief..................
BOE lowers interbank rates and regulator scrutinises City bonuses
The Bank of England’s attempts to boost short-term money markets with £5 billion in interbank funding have been so successful that banks have been finding it more rewarding to place their money in the BOE’s four per cent deposit facility than the lower interbank rate…………
Washington Mutual is under "mounting pressure" from US regulators to make a deal with a prospective buyer, said the Financial Times. If no outright buyer emerges, the authorities may push to split the bank's deposit base and retail branch network between several interested parties............
Building supplies company Wolseley has attempted to reassure investors that it will stay within its banking covenants as it struggles in the face of the slowdown in the US and European housing markets. It said it will make job cuts, disposals and lower capital spending…………
Short sellers in financials, now pushed to the sidelines after the ban by the regulator, are said to have switched into consumer shares, reported the Daily Telegraph. Housebuilders and pub groups were particularly weak, with Taylor Wimpey down 13 per cent and Enterprise Inns off 12 per cent………..
Russian billionaire Mikhail Prokhorov has paid $500 million for a 50 per cent stake in investment bank Renaissance Capital and says he plans to turn it into a global bank. Prokhorov is Russia's fifth-richest man with an estimated fortune of $22.6 billion............
The billions of pounds of City bonuses could increasingly come “with strings attached”, said the Times. The regulator has started to scrutinise bonus schemes to check whether they encourage “reckless behaviour”, and any not up to scratch will have to make changes to their plans…………
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