credit update 04 10 07

Due to increased risk of defaults from slump in the home prices, Fitch Ratings cut the credit ratings of $18.4 bn of bonds backed by subprime mortgages issued last year. The downgrade represents 11% of the entire $173 bn of securities from 2006 that were rated by Fitch. This comes in the wake of criticisms that ratings agencies had been remiss in the subprime episode.

US Mortgage Bankers Association said that mortgage applications volume fell by 2.7% in the week ended Sep 28, reflecting a drop in demand for refinancing loans.

Most economists believe that the Bank of England will keep its key interest rate pegged at 5.75%. BOE will be announcing its decision at noon of London today.

Deutsche Bank announced that it expected to write-down $3.1 bn in loans and mortgage-backed assets. The losses will dampen third-quarter performance but added that it's still on track to achieve its profits target for the fiscal year.

Led by technology companies, US stocks tumbled with the S&P down 0.5% and Dow Jones down 0.6%, after Morgan Stanley told investors to sell shares of Intel Corp and Advanced Micro Devices, adding that a glut may lead to a price war between the two biggest producers of computer processor.

Vietnam delivers a blow to the dollar when it announced its plan to cut its purchases of US Treasuries and other dollar bonds, in a move to gradually move to a floating currency. With inflation hitting 8.8%, it will abandon its policy of holding down the domestic currency through large purchases of dollars. But Vietnam's $40 bn reserves is not what worries some economists but Asia's $3.58 trillion, $1.34 tn of which is held by China, should the other Asian countries should follow suit.

There are lots of cross currents resulting in optimism some days and frenetic sell offs on other days and one could literally pick one set of data to be either.