Companies showed signs on Tuesday of shrugging off the caution that has enveloped the world economy since a credit crisis broke, while weaker US economic data bolstered the likelihood of a Federal Reserve rate cut.
Sony Corp said it would list shares of its financial unit on the Tokyo Stock Exchange next month, raising up to 361 billion yen ($3 billion) in Japan's largest initial public offering this year.
There had been speculation it might delay the IPO because of market upheaval, as banks world-wide scrambled to calculate their exposure to mass defaults on subprime US mortgages offered mainly to poor people. In Germany, the European country hit hardest by the turbulence, its largest bank Deutsche said it was optimistic about the current quarter and saw signs the market was stabilising.
Chief Executive Josef Ackermann told a banking conference the violent market conditions of August had affected his bank. But he added: "I am optimistic about the environment globally for financial institutions."
Two Germans lenders, IKB and SachsenLB, almost sank when investments linked to the US home loan market turned sour, and several more have detailed billions of euros in exposure. Despite the optimistic noises, analysts say it is strong expectations of a near-term US rate cut that are doing most to keep further financial market tremors at bay.
To that end, the Institute for Supply Management's factory activity index showing US manufacturing expanded at a slower pace in August, together with a surprise drop in July US construction spending, heightened expectations of a Federal Reserve rate cut at its September 18 meeting or even before.
"I think it was a distinct disappointment. It certainly makes it more probable that the Fed will cut rates, and maybe before the September 18 meeting," said Michael Metz, chief investment strategist at Oppenheimer & Co in New York. Fed Chairman Ben Bernanke said last week he would take any steps needed to shelter the economy from a global credit squeeze. But he also made clear the central bank was not there to bail out investors who had made mistakes.
The European Central Bank is expected to keep rates at 4 percent on Thursday due to uncertain market conditions. A few weeks ago, a rate hike had been viewed as a racing certainty. Liquidity problems persisted in the money markets. The London interbank offered rate for three-month sterling deposits hit a fresh 8-1/2 year high on Tuesday, while dollar rates for the same period set a 6-1/2 year peak, reflecting consistently strong cash demand from banks.
In a similar vein, Australia's central bank gave banks more cash than expected to combat a sharp rise in bank bill rates. But news from lenders and corporate investors struck a largely more positive tone. US mortgage lender Thornburg, which was forced to sell more than 35 percent of its assets and reduce borrowing to cut its risks, said it had completed the securitisation of $1.44 billion in prime loans, which will help up its pace of lending.
Some investors now see opportunities in the fallout from the US mortgage chaos. Dubai government-owned Istithmar said on Monday it was considering buying into two US companies hit by their exposure to high-risk mortgages. The agency said one of its targets was a financial services firm with potential to expand abroad.
A survey by the Nikkei business daily, meanwhile, underlined the relatively limited direct exposure of Japanese banks. Japan's 109 regional banks collectively face about 5.4 billion yen ($47 million) in losses from products tied to US subprime loans. Combined losses disclosed by Japan's eight big banks have so far been limited to 20 billion yen, Nikkei said.
Manufacturers and other non-financial borrowers are right to feel quietly confident despite the credit turmoil, experts said. "Companies by and large are in reasonable shape, balance sheets are strong, liquidity's good," said David Meade, head of credit research at asset manager Fidelity International.
PTT PCL, Thailand's top energy firm, said it had delayed a plan to sell $400 million of bonds overseas as a result of global financial upheaval. Undeterred, Trafigura, the world's third-largest independent oil trading firm, will raise $400 million from Asian and Middle East capital markets next month, a senior executive said.
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