Euro Nears $1.50 on Risk Demand; Aussie Hits Year High on Rates

Oct. 20 (Bloomberg) -- The euro climbed toward $1.50 on optimism the global economic recovery is gathering momentum. Australia’s dollar touched a 14-month high after its central bank said “very low” interest rates were no longer necessary.

The euro rallied to the strongest level since August 2008 against the dollar before reports this week that economists said will show the U.S. housing market and German business confidence improved, boosting demand higher-yielding assets. The yen rose against 15 of its 16 major counterparts after Japanese Finance Minister Hirohisa Fujii repeated his reluctance to intervene in the foreign-exchange market to halt the currency’s gains.

“A mood of euphoria is at work as prospects improve for corporate profits and the economy,” said Mitsuru Saito, Tokyo- based chief economist at Tokai Tokyo Securities Co. “Given also the likelihood that the Federal Reserve will maintain its accommodative monetary stance, riskier assets will continue to fare well at the expense of funding currencies.”

The euro rose to $1.4971 as of 6:44 a.m. in London from $1.4965 in New York yesterday. It earlier touched $1.4994, the strongest since August 2008. The yen climbed to 90.14 per dollar from 90.55, and advanced to 134.96 per euro from 135.51.

Australia’s currency climbed to 93.11 cents, the highest since August 2008, before trading at 92.78 U.S. cents from 92.92 cents yesterday. New Zealand’s dollar was at 75.30 U.S. cents from 75.67 cents, after touching 75.76 cents, the strongest since July 2008.

‘Possibly Imprudent’

A “very expansionary setting of policy was no longer necessary, and possibly imprudent,” Reserve Bank of Australia officials said in minutes of their Oct. 6 meeting released today in Sydney. The risks in waiting to raise borrowing costs “had increased,” policy makers said.

Central bank Governor Glenn Stevens and his board raised the benchmark rate by a quarter percentage point to 3.25 percent at the meeting and signaled they may raise rates again as soon as next month.

Benchmark interest rates of 0.1 percent in Japan and as low as zero in the U.S. make the yen and dollar favorite funding currencies for so-called carry trades, in which investors borrow where interest rates are relatively low and buy assets in nations where returns are higher. The risk in such trades is that currency-market moves can erase profits.

The dollar slid as Asian stocks extended a global equity rally, sapping demand for the U.S. currency as a shelter from recession. The MSCI Asia Pacific Index gained 1.1 percent after the Dow Jones Industrial Average climbed 1 percent yesterday.

Corporate Earnings

Analysts surveyed by Bloomberg estimate profits for companies in the Standard & Poor’s 500 Index will rise 65 percent in the last three months of the year after falling for nine quarters, the longest streak since the Great Depression.

Earnings at U.S. companies will probably exceed analysts’ third-quarter estimates, extending a rally in stocks to year-end, Nomura Holdings Inc. wrote in a note dated Oct. 16. Thirty-four of the 41 companies in the S&P 500 that reported since Oct. 7 surpassed analysts’ projections, according to Bloomberg data.

U.S. housing starts rose to an annual rate of 610,000 in September from 598,000 in August, according to a Bloomberg News survey of economists before the Commerce Department report today.

The Ifo institute’s business climate index, based on a survey of 7,000 executives, climbed to 92 in October from 91.3 the previous month, according to a separate survey. The Munich- based institute will release the report Oct. 23.

Fed Signals

Demand for the dollar also weakened after the Federal Reserve signaled in a statement yesterday that it will keep borrowing costs down while assessing ways to drain money from the banking system.

The Fed said it’s working with market participants to assess the use of reverse repurchase agreements to withdraw some of the record amounts of cash it added to the financial system.

“This work is a matter of prudent advance planning by the Federal Reserve, and no inference should be drawn about the timing of monetary-policy tightening,” the statement said.

Gains in the euro were limited on speculation the 16-nation region’s finance ministers will reiterate concern about the currency’s recent strength at a two-day meeting ending today.

Luxembourg Treasury Minister Jean-Claude Juncker, who is leading the meeting, said yesterday the ministers “discussed exchange rates extensively,” adding that “it’s a problem which worries us.” Juncker and European Central Bank President Jean- Claude Trichet will travel to China with European Union Monetary Affairs Commissioner Joaquin Almunia before the end of the year to discuss currencies, Juncker said.

‘Too Strong’

“Policy makers may express worries that the euro is too strong, especially against China’s renminbi,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. Ltd. in Tokyo. “Further euro appreciation will likely hurt the euro- zone’s exports more.”

The euro has gained 16 percent against the dollar and the renminbi in the past six months, making the region’s exports more expensive to overseas buyers and threatening the recovery from the worst recession since World War II.

The yen rose after finance minister Fujii said the devaluation of currencies can hurt the global economy. The recent strength in the currency is due to the weaker dollar, stemming from an accommodative monetary policy, Fujii said today in Tokyo.

Japan’s currency also advanced as exporters bought it to hedge sales generated outside the country, according to Yuki Sakasai, a Tokyo-based foreign exchange strategist at Barclays Bank Plc.

“The yen benefited from exporters’ selling of the currencies of its counterparts, but the underlying bias for the yen to weaken remains intact, given the emerging optimism,” Sakasai said.

Large Japanese manufacturers expected the yen to average 94.50 per dollar in the 12 months to March 2010, according to the Bank of Japan’s quarterly Tankan survey released Oct. 1. The forecast in the previous report was for a rate of 94.85.

To contact the reporters on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.

Last Updated: October 20, 2009 01:47 EDT

European Finance Chiefs Urge Strong Dollar After Euro’s Gains

Oct. 20 (Bloomberg) -- European finance chiefs expressed “worries” about foreign-exchange movements and backed a U.S. commitment to prevent the dollar from sliding too much after the euro rose to a 14-month high against the American currency.

“We discussed exchange rates extensively,” Luxembourg Treasury Minister Jean-Claude Juncker told a press conference late yesterday after leading a meeting of euro-area finance ministers in Luxembourg. “It’s a problem which worries us.”

The euro has gained almost 20 percent against the dollar since February, making the region’s exports more expensive to overseas buyers and threatening the recovery from the worst recession since World War II. U.S. Treasury Secretary Timothy Geithner said on Oct. 3 that it is “very important” for the U.S. to have a strong dollar.

“We all note with considerable attention the statements made by American authorities as regards their support in favor of a strong dollar,” European Central Bank President Jean- Claude Trichet told reporters in Luxembourg after attending the meeting. He also echoed the Group of Seven statement that “excessive volatility and disorganized developments in the exchange market was bad for economic development.”

The dollar traded at $1.4973 per euro as of 9:35 a.m. in Tokyo, compared with $1.4965 in New York yesterday, after earlier declining to $1.4981, the weakest since August 2008.

“We want a strong dollar; we need a strong dollar,” French Finance Minister Christine Lagarde said after the meeting. “We must remain disciplined” on the message, she said.

‘Solid and Stable’

“We reaffirm a shared interest with our partners of the major floating currencies that we have a solid and stable currency system,” Trichet said. “The eurogroup and the ECB will echo this position, which has been recently repeated by the American authorities.”

Trichet and Juncker will travel to China with European Union Monetary Affairs Commissioner Joaquin Almunia before the end of the year to discuss currencies, Juncker said. The trio went to Beijing two years ago to push Chinese leaders for a faster “pace of appreciation” of the yuan, a plea that was rebuffed at the time by Premier Wen Jiabao.

Juncker yesterday said it was too early to talk about what they would say to their Chinese counterparts this time. “We’re not pre-announcing a message,” said Juncker, who also serves as Luxembourg’s prime minister.

Juncker reiterated that the European economy is still too weak to remove record-low interest rates and government spending programs. Governments are spending billions of euros to boost the economy, while the ECB is lending banks as much money as they want for up to a year and purchasing covered bonds in an effort to get credit flowing again.

‘Positive and Negative’

“There are clear signs of recovery, but there’s still a balance between the positive and negative signs,” Juncker said. If new European Commission forecasts due next month show a “genuine recovery,” then stimulus measures should “be gradually withdrawn” starting in 2011, he said.

The euro-area economy barely contracted in the second quarter as Germany and France returned to growth. The region’s gross domestic product will expand 0.3 percent in 2010, the International Monetary Fund forecast on Oct. 1, as it trimmed its estimate for this year’s contraction to 4.2 percent from the 4.8 percent it projected in July.

The finance ministers’ meeting was delayed and then displaced by farmers demonstrating against agricultural policies at the usual meeting venue in Luxembourg. The meeting was moved to a chateau about 10 kilometers (6 miles) away after at least 1,500 farmers and about 400 tractors marched through Luxembourg’s streets to the conference center where the officials normally meet.

The protests were aimed at a meeting of agriculture ministers that took place at the same conference center before the finance chiefs were scheduled to meet. The agriculture officials, whose meeting wasn’t disrupted, agreed to extend the period for intervention buying of butter and skimmed-milk powder until the end of February to bolster milk prices.

To contact the reporters on this story: Brian Swint in London at bswint@bloomberg.net; Stephanie Bodoni in Luxembourg at sbodoni@bloomberg.net.

Last Updated: October 20, 2009 00:15 EDT

Are gold prices the start of a Bull or Bubble?

Actual Link
By Nico Isaac
Mon, 12 Oct 2009 11:30:00 ET

When prices in a financial market go from Sea Level to Outer Space in a relatively brief time, two scenarios are at work -- and they both start with the letters “B-U.”

When a precious metal goes from being a popular long-term investment of buy-and-holders to the quick, get-away “vehicle” of day-traders, two scenarios are at work -- and they both start with letters “B-U.”

And when the majority of mainstream pundits see a "new paradigm" in which prices continue to rise indefinitely, two scenarios are at work – and, you guessed it, they both start with the letters “B-U.”

Enter: the recent Gold Rush of 2009, when ALL of the above conditions apply. Everyone from hedge funds to housewives now hustle to hitch their asset wagon to the rising gold star. Which begs this question: Which of the possible two scenarios are at work: B-U-ll

--- Or B-U-bble?

Here’s the difference: A genuine bull market is driven by a self-sustaining internal dynamic that's reflected by a host of technical indicators. A Bubble, on the other hand, is the result of untenable psychology that could shift at any moment and bring prices plummeting down.

It goes without saying into which category the mainstream experts put Gold: namely, a new bull market that has years, if not decades more to soar. “Gold Will Hit $2,000 an ounce,” reads an October 8 Market Watch. And -- “Gold Has More Upside… The metal’s bull run is just getting started,” adds a same day Barron’s.

(Is Gold A Safe Haven? The current Financial Forecast Service takes the precious metal rally apart piece by piece to see whether a genuine bull exists underneath. Get the entire story today, absolutely risk-free)

I found hundreds of news items which agree about the long-term potential for gold’s uptrend. But not a single one could tell me why the rally would continue, other than because the experts say so.

To know whether a diamond is real, it must cut glass. And, to know whether the bull market in gold is real, it must encompass at least one of these FOUR traits:

1. A surge in demand that outpaces supply
2. A falling stock market, which raises the “safe haven” appeal of precious metals.
3. A real (not imagined) threat of inflation
4. An increase in value relative to major foreign currencies

Right now, the Gold market can NOT check off a single one of these items. Case in point:

Supply: Demand for gold from jewelry makers – which comprises 60%-70% of the market – has plummeted to its lowest level in 20 years.

“Safe haven” appeal: From its March 2009 bottom, the U.S. stock market has soared 50% right alongside rallying gold prices.

Inflation: As the October 2009 Elliott Wave Financial Forecast (EWFF) notes: An increase in money supply is only inflationary if it is used to RAISE the total amount of credit. This is NOT happening, as both bank credit and consumer credit levels are contracting for the first time since World War II.

A gold rally in other currencies: Again, the October 2009 EWFFpresents the following close-up of Spot Gold prices VERSUS Gold denominated in foreign currencies such as the Canadian dollar, the Australian dollar, the euro, franc, pound, and yen since 2007.

Asian Central Banks Intervene as US Dollar Sags

Published: Thursday, 8 Oct 2009 | 7:29 PM ET

By: Reuters

Asian central banks bought U.S. dollars early in the global session on Thursday to weaken their own currencies, traders said, as the slumping greenback threatens smaller export-driven economies.

Asian central banks said to be intervening in currency markets overnight by buying dollars included South Korea, Hong Kong, Taiwan, Thailand, the Philippines and possibly, Indonesia, according to analysts.

Emerging market Asian nations, already struggling with the tepid U.S. recovery and weak demand for their exports from the world's largest economy, have been doubly hurt because their currencies appreciated against the dollar, prompting repeated intervention.

"Stronger currency hurts exports and growth, and so emerging market policymakers are doing their best to prevent excessive gains" in their currencies, said Win Thin, senior currency strategist at Brown Brothers Harriman & Co.

"If (their currencies have) too much strength and the U.S. recovery falters, it's bad for emerging market growth."

There was also an indication that Russia bought as much as $4 billion this week, including $1.4 billion overnight, several market participants said.

Russia was reportedly one of "at least six central banks buying dollars,"said Michael Woolfolk, senior currency strategist at BNY Mellon.

Despite the apparent buying, the ICE Futures U.S. dollar index, a measure of the greenback against six other major currencies, fell 0.9 percent to 75.798, a 14-month low. It retraced some of its losses during the morning before falling again.

Reaction in individual pairs was mixed. At current prices, the dollar is down 0.6 percent against the Russian rouble, 0.2 percent against the Thai baht and 0.3 percent against the Korean won.

The dollar was up 0.1 percent against the Taiwanese dollar and Indonesian rupiah but
remained flat against the Phillipine peso and Hong Kong dollar.

Chatter about Russia and other central banks buying dollars to depreciate their own currencies is nothing new. Asian central banks have been rumored to be buying dollars for several months. The interventions or central bank concerns were reported by Reuters overnight.

"Central banks are keeping policies loose to ensure themselves against the risk of a double-dip recession, and each one of them would prefer its currency to weaken, as insurance against a local double-dip," said Marco Annunziata, chief economist at UniCredit Group in London.

The difference is that while some banks such as Russia had been actively converting those dollars to euros to build up alternative reserves, for now, most banks seem comfortable holding greenbacks.

• Slideshow: Countries with More Foreign Investment

Analysts say the moves are also protection against a double dip global recession, which would only compound the problems for countries loath to see their currencies appreciate further.

Though some confirmation may come next week with the release of the Treasury International Capital flows report for August, most investors appeared to accept that central bank dollar buying is rational, if only as a hedge against more expensive safe haven flows at a later date.

The risk of course, is that the dollar loses value, making purchases now a bad bet.

"If the U.S. returns to recession after the third or fourth quarters, the dollar will become even cheaper," said Joseph Trevisani, senior market analyst at New Jersey-based FX Solutions from Kuwait City.

"A second recession means prolonged low American interest rates, a weak U.S. economy, perhaps further Federal Reserve market support -- all of which are detrimental to the dollar."

Dollar Rises After Bernanke Says Fed Ready to ‘Tighten’ Policy

By Yoshiaki and Ron Harui

Oct. 9 (Bloomberg) -- The dollar rose against the yen for the first time in five days after Federal Reserve Chairman Ben S. Bernanke said the U.S. central bank is ready to “tighten” monetary policy, increasing the appeal of U.S. assets.

The euro advanced against the yen after European Central Bank President Jean-Claude Trichet said yesterday the region’s economy is emerging from a period of “free fall,” damping demand for Japan’s currency as a refuge. The Australian dollar headed for its biggest weekly gain since May amid wagers the central bank will raise interest rates twice more this year after a surprise increase on Oct. 6.

“Bernanke is shifting to a hawkish tone in terms of the timing of exit strategy following moves by other central banks, especially the Reserve Bank of Australia,” said Takeshi Tokita, vice president of foreign exchange sales at Mizuho Corporate Bank Ltd. in Tokyo. “That’s benefiting the dollar.”

The U.S. currency strengthened to 88.74 yen as of 9:31 a.m. in Tokyo from 88.39 yen in New York yesterday. The dollar climbed to $1.4765 per euro from $1.4794. Europe’s single currency rose to 131.01 yen from 130.76 yen.

Australia’s dollar traded at 90.42 U.S. cents from 90.62 cents in New York yesterday when it touched 90.90 cents, the strongest level since Aug. 7, 2008. The currency bought 80.21 yen from 80.10 yen.

The dollar gained against 13 of its 16 most-traded counterparts after Bernanke said in prepared remarks at a conference in Washington “when the economic outlook has improved sufficiently, we will be prepared to tighten.”

Bernanke’s comments echoed those by Kansas City Fed President Thomas Hoenig, who on Oct. 6 said raising interest rates wouldn’t derail the U.S. economic recovery.

‘Incremental Increases’

“Even if we were to start immediately, much time would pass before incremental increases could be considered tight or even neutral policy,” Hoenig said in Denver. “I would not support a tight monetary policy in the current environment, but my experience tells me that we will need to remove our very accommodative policy sooner rather than later.”

Trichet signaled the ECB will keep interest rates at a record low to spur growth.

“The current rates remain appropriate,” Trichet said at a press conference in Venice after policy makers left the main refinancing rate at 1 percent. “Excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability,” he said, reiterating the Group of Seven’s statement on currencies.

Australia Rates

The yen dropped against 15 of its 16 major counterparts as the Nikkei 225 Stock Average rose 0.5 percent, following a 0.8 percent increase in the Standard & Poor’s 500 Index in New York yesterday.

Investors are certain Reserve Bank of Australia Governor Glenn Stevens will raise the overnight cash rate target on Nov. 3 by a quarter percentage point, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange.

They’re wagering on a 96 percent chance he follows with another increase in December to end the year with a cash rate at 3.75 percent.

To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.

Last Updated: October 8, 2009 20:33 EDT

U.S. dollar loses strength vs. majors

Posted 08 October 2009 @ 10:04 am ET

The dollar depreciated in markets, as a result of optimism within markets; while we see that the dollar index, which shows the strength of the dollar versus a basked of currencies, dipping to its weakest level in 14 months. Also, as the U.S. economy released its first-time claims for jobless benefits, declining to the lowest since the first month of this year, thus further increasing optimism in markets. The ECB announced its interest rate, in which they agreed to leave steady at 1.00%; while Chairman of the central bank is worried that the volatility in markets concerning the euro probable impact on exports. The euro, after its climb, is currently seen losing ground as by his talks; therefore meaning he was not favoring the high euro, yet the labor market is projected to deteriorate lower than expected. The EUR/USD is being traded at 1.4743, while recording a high of 1.4799 and a low of 1.4681, the momentum indicators on the one-hour chart are providing us with a downwards trend, while the pair is traded between the support of 1.4711 and the resistance of 1.4774. The Bank of England today announced its rate decision, in which they decided to leave them steady at 0.50%; while they will continue with their APF program that is scheduled to be finished by next month. The pound, as a result of the announcement, climbed versus the dollar while the pair currently trades at 1.6064 between the support of 1.6017 and the resistance of 1.6095, while recording a high of 1.6092 and a low of 1.5946. The dollar versus yen is seen trading between the support of 88.20 and the resistance of 88.70 at 88.49. The pair recorded a high of 1.6092 and a low of 1.5946. The momentum indicators on the one-hour chart are showing us there is an upside trend.

Gold Jumps to Record; Oil, Copper Gain on Dollar Drop

Oct. 8 (Bloomberg) -- Gold climbed to a record for a third day and crude oil, copper and rubber all advanced as the dollar’s slump prompted investors to buy commodities as a hedge against potential inflation.

Bullion is heading for a ninth annual gain as the Dollar Index, a six-currency gauge of the dollar’s value, has shed 6.5 percent this year. Oil has gained 57 percent since the start of the year on concern that record government spending to combat the global recession will devalue currencies, spurring inflation.

“There is such a premium in crude right now that comes down to the inflation hedge,” said Jonathan Kornafel, a director at options traders Hudson Capital Energy in Singapore. “There has been more focus on the dollar this week.”

Crude oil for November delivery gained as much as 83 cents, or 1.2 percent, to $70.40 a barrel in electronic trading on the New York Mercantile Exchange. It was at $70.14 at 12:21 p.m. Singapore time. Yesterday, the contract dropped $1.31.

Gold for immediate delivery climbed as high as $1,051.51 an ounce and was at $1,050.32 an ounce at 12:21 p.m. in Singapore. It has risen 16 percent over the past year. Gold for December delivery in New York gained as much as 0.8 percent to $1,052.50 an ounce, also a record.

$2,000 Gold

Gold may top $2,000 an ounce in the next decade, according to investor Jim Rogers. “People are printing money, gold is going up,” Rogers said in an interview, adding that he may increase his holdings. “There are plenty of reasons to buy gold when the time is right,” he said.

“Bullish gold gave support to the price of other commodities, including rubber,” said Kazuhiko Saito, chief analyst at Tokyo-based broker Fujitomi Co. Rubber futures gained as much as 2.1 percent.

Three-month copper on the London Metal Exchange advanced as much as 1.4 percent to $6,180 a ton, as lead, nickel, tin and zinc also climbed. Wheat futures rose 1 percent. “The fear of inflation is telling people to go buy commodities,” including the grain, Darrell Holaday, president of Advanced Market Concepts, said yesterday.

President Barack Obama has increased U.S. marketable debt to a record as he borrows to reignite growth in the world’s biggest economy. That’s boosted speculation the increased money supply will debase the currency and spur inflation. The printing of money and “abandonment of the dollar have taken the smart people over to precious metals,” according to Philip Gotthelf, president of Equidex Brokerage Group Inc.

Federal Reserve

The dollar traded at $1.4762 against the euro at 11:20 a.m. in Singapore, from $1.4691 yesterday. The U.S. currency fell earlier this week on concern the Federal Reserve will be slower to raise interest rates than policy makers in other nations.

A further blow to the dollar came after an Oct. 6 report in Britain’s Independent newspaper said that Arab states may switch to a basket of currencies to set oil prices over the next nine years. The Saudi Central Bank Governor Muhammad al-Jasser denied such a move is being considered.

Australia’s central bank unexpectedly raised its overnight cash rate target to 3.25 percent on Oct. 6, the first Group of 20 nation to boost lending costs since the height of the global financial crisis. The country today reported an unexpected gain in employment, leading to an increase in speculation of a further climb in the benchmark.

Brent crude oil for November settlement gained as much as 88 cents, or 1.3 percent, to $68.08 a barrel on the London-based ICE Futures Europe exchange. It was at $67.85 at 12:23 p.m. in Singapore. Yesterday, the contract fell 2 percent.

To contact the reporters on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net; Kyoungwha Kim in Singapore at Kkim19@bloomberg.net

Last Updated: October 8, 2009 00:28 EDT

Dollar Falls Versus Yen on Speculation Fed Will Keep Rates Low

Sept. 30 (Bloomberg) -- The dollar fell against the yen, reversing early gains, on speculation a Federal Reserve official will reiterate today that record-low interest rates will be unchanged for an extended period.

The U.S. currency headed for a quarterly decline against 14 of 16 major counterparts as Asian stocks rose and before a report this week forecast to show American employers cut fewer jobs, boosting demand for higher-yielding assets. Australia’s dollar climbed to a 13-month high against the greenback on better-than-forecast retail sales, bolstering speculation the Reserve Bank of Australia will raise rates as early as November.

“Fed policy makers will probably keep low borrowing costs unchanged until next summer, weighing on the dollar,” said Akira Hoshino, chief manager of the foreign-exchange trading department in Tokyo at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan’s largest lender.

The dollar dropped to 89.79 yen as of 1:07 p.m. in Tokyo from 90.09 yen in New York yesterday. It fell to as low as 88.24 yen on Sept. 28, the weakest level since Jan. 23. For the quarter, the dollar has declined 6.8 percent against the yen.

The euro advanced to $1.4617 from $1.4587. Yesterday, it touched $1.4527, the lowest level since Sept. 14. The euro has risen 4 percent against the dollar this quarter.

Japan’s currency fetched 131.25 per euro from 131.40 in New York yesterday. The yen has gained 3 percent against the euro this quarter. The MSCI Asia Pacific Index of regional shares added 0.5 percent.

Fed’s Kohn

The dollar retreated from near a two-week high against the euro before Fed Vice Chairman Donald Kohn speaks on a panel in Washington about the central bank’s exit policies. Kohn earlier this month said a swift increase in U.S. interest rates is unlikely.

“With the global economy quite weak and inflation low, a large and rapid rise seems quite improbable,” Kohn said at the Brookings Institution in Washington on Sept. 10.

The Bank of Japan may decide as soon as next month to let its emergency corporate-debt buying programs expire as businesses regain access to private funding, people with direct knowledge of the discussions said.

The decision would echo steps by central banks to pare back unprecedented measures to unfreeze credit as the financial industry stabilizes. At the same time, because Japan’s economic recovery is threatened by rising unemployment and deflation, policy makers are likely to keep the benchmark interest rate target near zero into next year, analysts said.

U.S. Payrolls

The U.S. Labor Department is forecast to report payrolls fell by 180,000 workers in September, the smallest drop since August 2008, according to the median estimate of economists in a Bloomberg News survey. The data is due on Oct. 2.

The Australian currency rose against all of its 16 major counterparts as retail sales climbed 0.9 percent in August after dropping 0.9 percent in July, the Bureau of Statistics said today. The median forecast of economists surveyed by Bloomberg News was for a 0.5 percent gain.

“The market’s focus was on the retail sales number which had a very strong result,” said Jonathan Cavenagh, a currency strategist at Westpac Banking Corp. in Sydney.

The Australian dollar rose 1 percent to 87.88 U.S. cents. It earlier touched 87.99, the highest since August 2008. Australia’s currency gained 9 percent against its U.S. counterpart this quarter.

To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.
Last Updated: September 30, 2009 00:13 EDT

Trichet Says Strong Dollar Is ‘Extremely Important’ (Update1)

By Gabi Thesing and Christian Vits

Sept. 28 (Bloomberg) -- European Central Bank President Jean-Claude Trichet said a strong dollar is “extremely important” for the world economy and it’s too early for the ECB to unwind emergency stimulus measures.

“In the present situation it is extremely important that we can have in the framework at the level of global finance and the global economy a strong dollar, as the authorities in the U.S. are saying,” Trichet told lawmakers in Brussels today. “The solidity of the dollar is very important.”

Trichet’s comments come after a 15 percent slide in the dollar against the euro since February that’s threatening to hamper Europe’s recovery from the worst recession since World War II. With the Group of 20 nations pledging to rebalance the global economy away from a trade deficit in the U.S., the risk for the ECB is that its economy feels the pain of further dollar adjustment.

The euro fell from $1.4661 to as low as 1.4627 after Trichet’s remarks.

“It would be premature to declare the crisis over,” Trichet said. “Now is not the time” for the ECB to unwind its stimulus measures. “However, at some point in time an exit strategy will have to be implemented. The ECB has an exit strategy and stands ready to put it into action when the time comes.”

Non-Standard Measures

The Frankfurt-based central bank has lowered its benchmark lending rate to a record low of 1 percent to fight Europe’s worst recession since World War II. It is also employing “non- standard measures” to get credit flowing through the economy again, lending banks as much money as they need at the benchmark rate and buying covered bonds.

“The euro-area economy shows signs of stabilization,” Trichet said. “In the period ahead we expect to see a very gradual recovery.”

The ECB this month predicted economic growth in the 16- nation euro region of about 0.2 percent in 2010, revising a June forecast for a 0.3 percent contraction. In 2009, the economy will shrink about 4.1 percent, less than the 4.6 percent contraction predicted three months earlier.

G-20 leaders concluded a summit in Pittsburgh on Sept. 25 promising to pursue policies that bring the world economy into greater balance. That initiative may require the dollar to fall further so as to narrow the U.S. trade deficit, according to economists at Morgan Stanley.

Dollar’s Dominance

Trichet’s comments came the same day that World Bank President Robert Zoellick said the U.S. dollar’s dominance as the world’s main reserve currency will be challenged as the financial crisis reshapes the global economy.

“There is every reason to believe that the euro’s acceptability could grow,” Zoellick said. “Of course, the U.S. dollar is and will remain a major currency. But the greenback’s fortunes will depend heavily on U.S. choices” on inflation, the budget deficit and financial oversight, he said.

U.S. Treasury Secretary Timothy Geithner last week defended the dollar’s role as the world’s reserve currency. The U.S. has a “special responsibility” to preserve confidence in its financial system and “sustain the dollar’s role as the principal reserve currency in the international financial system,” he said Sept. 24 in Pittsburgh.

Trichet also urged banks to accelerate lending to their economies. The global recession has made banks reluctant to lend and also eroded demand for debt. In Europe, loans to the private sector rose 0.1 percent in August from a year earlier, the slowest growth since records began in 1991, the ECB said last week.

There’s a “gradual improvement in financing conditions which is expected to support demand for credit in the period ahead,” Trichet said. “It is for this reason that the Governing Council continues to regard ECB interest rates as appropriate.”

“Our message to banks is clear: do your job,” he added.

To contact the reporters on this story: Gabi Thesing in Frankfurt at gthesing@bloomberg.net; Christian Vits in Frankfurt at cvits@bloomberg.net
Last Updated: September 28, 2009 12:48 EDT

Yen Falls Versus Euro on Stocks Rally, Europe Economy Optimism

By Yoshiaki Nohara

Sept. 29 (Bloomberg) -- The yen fell against the euro for the first time in six days as Asian stocks rebounded and before a report forecast to show European confidence in the economy improved, damping demand for Japan’s currency as a refuge.

Japan’s currency declined against the dollar as Japanese Trade Minister Masayuki Naoshima asked for a probe into how a stronger yen will hurt exporters, stoking speculation Japan may intervene in currency markets. The dollar traded near a two-week high against the euro after European Central Bank President Jean-Claude Trichet said it’s “extremely important” to have a strong greenback.

“Economic fundamentals are improving, boosting demand for risk taking,” said Koji Fukaya, a senior currency strategist in Tokyo at Deutsche Bank AG. “Japan’s policy makers can’t just let the yen rise, which will hurt companies’ profits and reduce jobs.”

The yen dropped to 131.45 per euro as of 9:52 a.m. in Tokyo from 131.06 in New York yesterday. The yen declined to 90.01 per dollar from 89.63 yesterday, when it touched 88.24, the strongest level since Jan. 23. The dollar was at $1.4606 per euro from $1.4622. Yesterday it touched $1.4565 per euro, the highest level since Sept. 15.

The yen declined against all of its 16 major counterparts as Asian shares followed gains by U.S. equities. Japan’s Nikkei 225 Stock Average rose 0.8 percent, rebounding from yesterday’s 2.5 percent tumble, after the U.S.’s Standard & Poor’s 500 Index added 1.8 percent. MSCI’s Asian Pacific Index increased 0.3 percent.

Risk Appetite

“Risk appetite has improved because of the big bounce in U.S. equities,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. “Speculators who have been betting on the yen’s strength should probably start reconsidering whether they should still be long on the yen.”

The European Commission in Brussels will report today that economic confidence in the euro zone gained to 82.7 this month from 80.6 in August, according to the median estimate of economists in a Bloomberg News survey. That would be the highest since September 2008.

Naoshima asked bureaucrats to investigate the yen’s effect on Japanese exporters, Yosuke Kondo, parliamentary secretary for the Trade Ministry, told reporters in Tokyo yesterday.

Fujii Comments

Japanese companies said they can remain profitable as long as the yen trades at 97.33 per dollar or weaker, according to a Cabinet survey released on April 22. Exports account for 12 percent of Japan’s economy, compared with 6 percent in the U.S.

The yen pared gains versus the dollar yesterday after Finance Minister Hirohisa Fujii said at a forum co-hosted by Bloomberg that he “never said I will leave the yen to strengthen” and that he didn’t necessarily accept gains in the currency.

Fujii earlier said he didn’t support a “weak yen,” fueling speculation the government won’t act to stem the currency’s 16 percent appreciation against the dollar in the past year. Central banks intervene in foreign-exchange markets by selling and buying currencies.

Yen Momentum

“The yen’s recent gains, fueled by market interpretation of Fujii’s comments, are losing momentum,” said Masato Mori, senior manager of the business and marketing department at NTT SmartTrade Inc. a unit of Nippon Telegraph & Telephone Corp.

A strong currency reduces the value of overseas profits for Japanese companies. Large Japanese manufacturers forecast the yen would average 94.85 per dollar in the 12 months to March 2010, according to the Bank of Japan’s quarterly Tankan survey released July 1.

The dollar rose against the euro after Trichet told lawmakers in Brussels the “solidity of the dollar is very important.” The euro reached a one-year high of $1.4844 on Sept. 23, making European exports more expensive.

To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net.
Last Updated: September 28, 2009 21:08 EDT

US Dollar Plunges To 7-month Low Against Japanese Yen

33 minutes ago
(RTTNews) - During early Asian deals on Friday, the US dollar plunged to a 7-month low against the Japanese yen and 1-month low versus the British pound. The dollar also edged down against the European currency and the Swiss franc.

The U.S. Labor Department revealed yesterday that initial jobless claims came in at 550,000 for the week ended September 5th, which was down 26,000 from the previous week's revised total of 576,000. Economists had expected jobless claims to come in at around 560,000.

Continuing claims, which measure the number of people receiving ongoing unemployment help, fell 159,000 to 6.088 million in the week ended August 29th.

Separately, the Commerce Department released a report showing that the U.S. trade deficit widened by much more than expected in July, with the value of imports increasing at a much faster pace than the value of exports.

The report showed that the trade deficit widened to $32.0 billion in July from a revised $27.5 billion in June. The deficit was much wider than the estimates of economists, who had expected a deficit of $27.3 billion.

Against the European currency, the US dollar edged down during early Asian deals on Friday. At 10:45 pm ET, the dollar touched a low of 1.4614 versus the euro, compared to 1.4583 hit late New York Thursday. The next downside target level for the dollar is seen around 1.457.

The US currency that closed Thursday's North American session at 1.6653 against the British pound declined to a 1-month low of 1.6709 during today's early Asian deals. If the US dollar falls further, 1.690 is seen as the next target level.

Yesterday, the Bank of England decided to maintain its interest rate for the sixth consecutive month and also voted to continue the GBP 175 billion asset purchase programme using central bank reserves.

As expected, the Monetary Policy Committee of the central bank decided to hold the official Bank Rate paid on commercial bank reserves at 0.5%. The rate now stands at the lowest level since the central bank was established in 1694. The previous change in the rate was a reduction of 0.5 percentage points in March 2009.

The MPC expects the asset purchase programme to take another two months to complete. The scale of the programme will be kept under review, the bank said in a statement.

Initially, the central bank introduced a GBP 75 billion programme of asset purchases financed by the issuance of central bank reserves on March 5. Later, the size of the quantitative easing was raised to GBP 125 billion on May 7 and again to GBP 175 billion on August 6.

Against the Swiss franc, the greenback traded down during Friday's early Asian trading. At 10:45 pm ET, the dollar-franc pair slipped to 1.0364, compared to Thursday's closing value of 1.0387. The pair is currently trading at 1.0369 with 1.032 seen as the next target level.

The US dollar plunged to 91.36 against the Japanese yen during early Asian deals on Friday. This set the lowest point for the dollar since February 13, 2009. On the downside, 90.2 is seen as the next target level for the U.S. currency. The dollar-yen pair closed Thursday's New York deals at 91.75.

Japan's economy grew in the April-to-June quarter, but not by as much as originally reported, a government report showed today.

Japan's gross domestic product increased 0.6 percent from the preceding quarter or 2.3 percent in annualized terms. The growth reported by the Cabinet office was below the preliminary estimate of 0.9 percent on-quarter growth and 3.7 percent annualized growth.

Capital spending was downwardly revised to 4.8 percent on quarter from the initial report of a 4.3 percent decline.

Looking ahead, Japan is set to release its consumer confidence data for August at 1:00 am ET Friday. The consumer confidence index is expected to come in at 40.2, up from 39.7 and the household consumer confidence is called at 40.5, up from 39.4.

In the European session today, the Italian industrial production data and the U.K. PPI reports are due for release.

Turning to the U.S., the Department of Commerce will release its import and export price reports for August at 8:30 am ET.

At 10:00 am ET, the Commerce Department is due to release its wholesale inventories report. Economists expect wholesale inventories at the end of July to show a 0.1% decline.

The preliminary reading of the University of Michigan's consumer sentiment index for September is due to be released at the same time. The report is expected to show that the consumer sentiment index rose to 67.5 in the month.

For comments and feedback: contact editorial@rttnews.com

Copyright(c) 2009 RTTNews.com, Inc. All Rights Reserved

Tokyo FX volume falls as hedge funds leave

20-08-2009 - 10:55

By Shinji Kitamura

TOKYO (Reuters) - Foreign exchange trading volume in Japan has fallen 16 percent this year after many hedge funds closed out investments during the global financial crisis, and Tokyo's turnover in spot trading now lags behind Singapore.

But steady turnover in FX swaps has helped Tokyo remain ahead of Singapore, its key rival as Asia's dominant FX trading hub, in overall foreign exchange product trading, data on traditional FX instruments from the Bank of Japan showed.

Average daily volume in spot, FX swaps, forwards and FX options traded in Japan fell 16 percent in April 2009 from a year ago to $254 billion (153.5 billion pounds), according to a Tokyo Foreign Exchange Market Committee Survey released last month.

But Tokyo's daily volume in spot FX trading alone slumped 33 percent to $70.2 billion from the same month last year, trailing behind Singapore's daily volume of $88.1 billion, where the decrease was only 6 percent.

The drop also exceeded falls in spot in other big FX centres, with New York volume falling 25 percent and London 20 percent.

Market players said hedge funds have slowly returned to the financial markets as global markets have stabilised this year, but Tokyo has failed to attract funds back for trading and this contributed to the particularly big drop in Tokyo's spot volume.

"Hedge funds are rebuilding 'risk-on' positions after stock markets hit their bottom in March. But they have been skipping the Tokyo market due to low liquidity," said Akira Hoshino, chair of the Tokyo Foreign Exchange Market Committee.

The world's largest forex trading centre remains London with total average daily turnover of $1.3 trillion, followed by New York with $527 billion in over-the-counter currency instruments. However both saw overall daily volume dropping by a quarter year-on-year.

According to the Bank for International Settlements' 2007 triennial survey, which used a different reporting methodology from the Tokyo committee, Japan was the fourth largest FX trading centre, with Switzerland ranked third and Singapore fifth.

Even though Hong Kong and Singapore are popular business locations for many hedge funds, their currency trading activity has tended to pick up during the European and U.S. day, prompting some market players to joke that the world's richest investors are asleep in Asian hours.

Market players say not only hedge funds but also Japanese institutional investors and investment trusts now often choose to trade in markets with better liquidity than Tokyo, such as London.

"In addition to the fact that activity by Japanese exporters fell due to a drop in exporting business, we did not see much action by domestic investors either," said Hoshino, who is also a chief manager of forex trading at the Bank of Tokyo-Mitsubishi UFJ.

In FX swaps, however, Tokyo was second behind London's $662.0 billion, with average daily volume of $158.9 billion and overtaking New York at $142 billion.

The drop in FX swaps was a much smaller 0.5 percent for Tokyo, compared with New York's 28 percent drop and London's 27 percent slide on the year, BOJ data shows.

Market players attributed this divergence to high foreign demand for the yen as a funding currency for trading or investments.

In April, Japanese banks were active in FX swaps to procure dollar funds, while foreign banks used them to borrow yen, market players said.

(Reporting by Shinji Kitamura; writing by Satomi Noguchi; Edited by Joseph Radford)

OLGBBUSReuters UK Online Report Business News20090820T085529+0000

FF calendar meets China

Today we launch our coverage of key Chinese economic data. The following events will now be reported on the Forex Factory calendar:

* GDP q/y
* Industrial Production y/y
* Trade Balance
* Manufacturing PMI
* CLSA Manufacturing PMI
* CPI y/y
* PPI y/y
* CGPI y/y
* Fixed Asset Investment ytd/y
* More Coming Soon

As you may have noticed, Chinese data releases are gradually having a more pronounced impact on the currency markets. Presently their influence can rival high-profile G7 indicators, especially in regard to the yen and commodity currencies. It has long been evident that we needed to add the Chinese yuan (CNY) to the calendar, and early this year the Forex Factory economists set out to tackle the project.

The sources for Chinese data are far less transparent and less reliable than we are used to dealing with on the calendar, which is why we had avoided CNY for so long. It took our team five months of research, source gathering, release monitoring, and beta-testing to report the data with the same quality and reliability that we strive for on the calendar.

We cannot change how Chinese sources release and schedule data, but we can implement procedures that will bring clarity and consistency to our coverage. We have made several ‘FF Notes’ (see the Detail View by clicking the icon) to inform you of special circumstances you might expect to see, and we created a new set of ‘FF Alerts’ (see the inside the Detail View, where applicable) that will be used keep you abreast of scheduling issues as they happen. For the least reliable release schedules we opted to set the event’s default time to ‘Tentative’ to make you aware that we don’t know the exact release time. With all CNY data you should be prepared to see surprise early releases, leaked data later retracted, and data being delayed for days - we will do our best to inform you of these issues with the FF Alert function. Finally, we ask that you be slightly more forgiving of our mistakes as we become further acquainted with the new coverage.

We will report our first live CNY data, GDP q/y, in about 24 hours… see you there!

Dollar dips on rising U.S. stocks

NEW YORK, July 13 (Xinhua) -- The dollar fell slightly against most major currencies on Monday as financial stocks jumped and drove the entire market up.

U.S. bank stocks rise after Meredith Whitney, founder of Meredith Whitney Advisory Group LLC, gave positive comments on Goldman Sachs and Bank of America. Rising stocks improved risk appetite in currency trading, driving the dollar lower.

Investors are waiting for some governmental economic reports and quarterly results of major U.S. banks, including Citigroup, Goldman Sachs, JP Morgan & Chase and Bank of America. Results of Intel and Johnson & Johnson are also due later this week.

Risk appetite in currency trading has been rising in the previous weeks, helped by some positive economic data. But a worse-than-expected non-farm payroll report and consumer sentiment report released recently sparked fresh worries over economic recovery. The market is looking for trading clues from new economic data and profit results.

The euro bought 1.3977 dollars in late New York trading compared with 1.3947 dollars it bought late Friday. The pound rose to 1.6211 dollars from 1.6192 dollars.

The dollar fell to 1.1532 Canadian dollars from 1.1631 Canadian dollars, and fell to 1.0831 Swiss francs from 1.0845 Swiss francs. It rose to 92.82 Japanese yen from 92.34 Japanese yen.

Forex Daily Analysis

The Yen and the Dollar strengthen as stock start the week with a decline

Japan to diversify its currency holdings and the prospect of national elections in the country

The greenback probably won’t be affected by calls for Japan to diversify its currency holdings and the prospect of national elections in the country, UBS AG said. “These developments are unlikely to be a catalyst of U.S. dollar weakness, but rather accentuate U.S. dollar weakness in the event that it does start to structurally weaken, something we expect to occur through the course of 2010,” Ashley Davies, a strategist in Singapore, wrote in a research report today. “We continue to expect the dollar to recover some lost ground over the summer months as risk appetite falters.” The USD/JPY is currently trading at 92.21 as of 8:48am, London Time.

The European Central Bank and euro zone central banks have bought 43 million Euros more in covered bonds, the ECB said on Monday, taking the total amount purchased to 66 million Euros. The ECB kept its interest rates on hold this month, having narrowed the gap between its main policy rates to 75 basis points from 100 basis points on May 13. The headline rate is at a record low of 1.0 percent. Banks currently receive 0.25 percent interest on overnight deposits and pay 1.75 percent to borrow overnight. Overnight deposits at the ECB rose slightly, data also showed on Monday, with banks still holding on to much of the near half trillion injection of 12 month liquidity. The EUR/USD is currently trading at $1.3950 as of 9:00am, London Time.


The British Pound fell to a five-week low against the euro on Monday as the UK currency came under broad selling pressure as struggling share prices suggested ongoing risk aversion, while the euro remained fairly supported. Data on Wednesday also showed a slight fall in UK house prices in June, but they had limited impact on the market as their reversal from a jump the previous month was muted. Traders largely brushed off UK government proposals for banking sector reforms, as they were largely known to the market already. The GBP/USD is currently trading at $1.6090 as of 9:16am, London Time.

Euro Loses Ground on Talks of IMF Credit Deal

Friday, 10 July 2009 08:11:39 GMT

EUR-USD traded defensively after losing its hold above 1.4000 in Asia. It started the European session at 1.3960 and traded in to 1.3905 lows as European interbank names favored short positions on negative European news. The focus was on Eastern European credit concerns noted in the Handesblatt that said at least 10 states are negotiating with the IMF for credit. European indices headed lower in line with easier S&P futures and this also encouraged EUR-JPY offers and it fell from 130.00 to 128.74 lows. There was some disappointment that the Japanese investment trust launch overnight only saw a 10% take up, which dampened expectations of heavy Japanese investment overseas. EUR-JPY has scope for further weakness if equities sustain softer levels, while EUR-USD could retest support in to the mid-1.38s if stop losses are triggered below 1.3870.

US Dollar to Rise Against Forex Majors on Demand for Safety

Article

The US Dollar is likely to see gains in the days and weeks ahead as stock markets reverse lower, boosting demand for the safety-linked currency. The Dow Jones Industrial Average looks to have broken support at the neckline of a Head and Shoulders topping chart formation, hinting a bearish reversal is ahead:

Dow Jones Industrial Average (daily)

US Dollar, Japanese Yen Surge as DJIA, S&P 500 Tumble to Key Levels - G8 Summit Adds to Event Risk

Tuesday, 07 July 2009 22:08:33 GMT

The US dollar and Japanese yen both saw extremely choppy price action, and ultimately ended the day up against the majors as risk aversion drove FX carry trades and equities lower. However, where the S&P 500 and DJIA closed leave very mixed signals, as daily charts of both indices show head and shoulders patterns, but the former ended the day just above its neckline of 880, while the latter made a bearish break below its neckline at 8260. This leaves Wednesday’s price action as being quite critical for the outlook for equities and FX carry trade alike. Personal suspicions sit on the bearish side of the fence, as global economic outlooks may be a bit too rosy for reality, which could ultimately disappointing corporate earnings down the road (and thus, declines in equities).



While there are no major US economic indicators due out on Wednesday, there will be lingering event risk stemming for the upcoming Group of Eight (G8) meeting from July 8 - July 10. According to a program outline on the G8 Summit site, participating government leaders will discuss the world economy, global issues, international issues, development policies, futures sources of growth, and the impact of the crisis on Africa. In between all of these meetings, there will also be a variety of press conferences, leaving ample room open for market-moving commentary.

EURUSD

EURUSD

The Euro was unable to push back above the 1.40 level against the dollar in Asian trading on Monday and had a significantly weaker tone in Europe. The Euro-zone Sentix index was weaker than expected with a deterioration to -31.3 for June from -27.0 the previous month which reinforced fears that any improvement in the economy would stall quickly. In addition, there were renewed fears over the regional banking sector following larger than expected losses at the German IKB bank.

The Chinese Foreign Ministry offering further reassurance on the dollar which helped underpin the currency, although comments from Russian and Indian officials were less supportive and the debate will remain a very important issue. Markets will also remain on alert for comments from G8 officials ahead of meetings this week which start on Wednesday.

The US ISM index for the non-manufacturing index strengthened to 47.0 from 44.0 the previous month and this was above market expectations. Most components improved, although employment was still at a very low level. The data will offer some degree of reassurance over the economy and helped stabilise risk appetite.

As confidence improved, the Euro found support and pushed back to the 1.3980 region from a low near 1.3875 ahead of the US open and with no major data releases due on Tuesday.

Stocks, Oil, Metals Drop on Economy Concern; Yen, Dollar Gain

http://www.bloomberg.com/apps/news?pid=20601087&sid=a_jQ.efsacwk

By Daniel Hauck

July 6 (Bloomberg) -- Stocks fell, pushing the MSCI World Index lower for a third day, and oil and industrial metals retreated on concern the global economic recovery is faltering.

The MSCI World Index of 23 developed countries slipped 0.8 percent at 1:32 p.m. in London, extending its decline since reaching a high for the year on June 2 to 6.1 percent. Germany’s DAX Index retreated, bringing its drop from its 2009 high to 10 percent, the common definition of a correction. Nickel decreased for a third day on the London Metal Exchange, while oil slumped to its lowest level in five weeks. The yen rose against all 16 most-traded currencies tracked by Bloomberg.

Standard & Poor’s 500 Index futures declined 0.8 percent before the U.S. earnings season begins with Alcoa Inc.’s results on July 8. Profits at S&P 500 companies dropped last quarter and will contract in the three months ending in September, extending the stretch of declines to a record nine quarters, according to analysts’ estimates compiled by Bloomberg. The Institute for Supply Management’s index today may show U.S. service industries contracted for a ninth straight month in June.

“The reassessment of the global economic outlook is likely to continue this week,” a team of Citigroup Inc. strategists, including Todd Elmer in New York, wrote in a research report today. “As a result, an extension of the recent bout of risk aversion may lie in store.”

Volkswagen, Porsche

The Dow Jones Stoxx 600 Index of European shares slid 1.5 percent, led by commodity producers and automakers. Germany’s DAX slipped as much as 2.1 percent as Volkswagen AG retreated 2.9 percent. Porsche SE decreased 3.2 percent after the carmaker was cut to “sell” from “neutral” by UBS AG, which cited growing debt and a likelihood that the company will sell its Volkswagen stake.

BHP Billiton Ltd., the world’s biggest mining company, lost 3.8 percent. Rio Tinto Group, the third-largest, decreased 4.4 percent as nickel slid 4.5 percent to $15,480 a metric ton on the LME, while copper for three-month delivery fell 2.4 percent to $4,860 a ton. Gold for immediate delivery slipped 0.9 percent to $923.86 an ounce.

Brent crude for August settlement fell 2.5 percent to $63.95 a barrel on London’s ICE Futures Europe exchange. Oil retreated on concern that a faltering economic recovery will curb fuel demand, and as the dollar strengthened against the euro, limiting investor appetite for commodities as a hedge against inflation.

‘Misread’ by Obama

U.S. Vice President Joe Biden said yesterday on the ABC News program “This Week” that the Obama administration “misread the economy” when it forecast unemployment would peak at 8 percent if Congress enacted a $787 billion fiscal stimulus. Unemployment reached 9.5 percent last month, the Labor Department said July 2.

Biden also said it was premature to discuss crafting another economic stimulus measure because the administration has paid out only about $120 billion of the funds approved for road and school construction and other job-creating projects in February.

Emerging-market stocks fell the most in nine days as benchmark equity indexes in India and Russia recorded the world’s steepest declines.

The Bombay Stock Exchange Sensitive Index tumbled 5.8 percent after Finance Minister Pranab Mukherjee said the nation’s fiscal deficit may grow to the widest since 1994, fueling concern that more government borrowing will drive up interest rates for companies and consumers.

Russian Stocks, Yen

Russia’s Micex Index sank 3.8 percent as falling commodity prices dragged down OAO Rosneft, the nation’s biggest oil producer, and OAO GMK Norilsk Nickel, the largest mining company. The MSCI Emerging Markets Index lost 1.7 percent for the steepest slide since June 23.

The yen gained 1.3 percent against the euro as investors sought the Japanese currency as a refuge. The dollar dropped 0.7 percent versus the yen after French Finance Minister Christine Lagarde said the global exchange-rate system should be improved, adding to growing calls for an alternative to the dollar as the world’s reserve currency.

Russian President Dmitry Medvedev said in an interview with Corriere della Sera published yesterday the dollar system is “flawed,” and Suresh Tendulkar, an economic adviser to Indian Prime Minister Manmohan Singh, said July 3 he is urging his nation to diversify its foreign holdings away from the U.S. currency. The comments come as leaders of the Group of Eight countries meet in Italy with counterparts from China and India.

Pound, Gilts

The pound tumbled and gilt prices jumped to their highest level this month after the Sunday Times said yesterday the Bank of England may increase its program of asset purchases by 25 billion pounds ($40 billion) as the recovery in Europe’s second- largest economy shows signs of petering out.

Britain’s currency weakened 1.1 percent against the dollar and 0.6 percent versus the euro. The yield on the 10-year gilt fell five basis points to 3.67 percent.

“Sterling is coming under increasing pressure as the market focuses on this week’s MPC announcement and the potential expansion of the quantitative easing program,” Paul Day, chief market analyst at MIG Investments SA in Neuchatel, Switzerland, wrote in an e-mail today. “I continue to favor sterling to underperform after its recent good run.”

Two-year Treasury notes rose for a third day, driving the yield two basis points lower to 0.96 percent, as the Federal Reserve prepared to buy securities maturing between 2013 and 2016 today as part of its $300 billion program of asset purchases.

Treasury Sales

The Treasury Department plans to sell $8 billion of 10-year inflation-linked notes today, $35 billion of conventional three- year notes tomorrow, $19 billion of 10-year securities July 8 and $11 billion of 30-year bonds on July 9.

The cost of protecting European corporate bonds in the credit-default swap market rose to the highest in almost two weeks, according to JPMorgan Chase & Co. prices for Markit Group Ltd. indexes. Default swaps on the high-yield Markit iTraxx Crossover Index climbed 26 basis points to 760, the highest level since June 23, indicating a deterioration in perceptions of credit quality.

Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. A basis point on a contract protecting 10 million euros ($14 million) of debt from default for five years is equivalent to 1,000 euros a year.


Last Updated: July 6, 2009 08:36 EDT

Interest Rates

Yen Strengthens on Concern Credit Losses May Increase in Europe

July 6 (Bloomberg) -- The yen strengthened against the euro and the dollar on concern credit-market losses will keep increasing in Europe, spurring demand for the relative safety of Japan’s currency.

The yen gained versus all of the 16 most-active currencies on speculation Asian stocks will drop, prompting investors to cut holdings of higher-yield assets. The euro and the dollar fell after Russian President Dmitry Medvedev said the world is too reliant on the currencies, damping the appeal of European and U.S. assets. Germany’s IKB Deutsche Industriebank AG said it lost 580 million euros ($809 million) in the fiscal year ending March 31 as the value of its investments fell.

“The IKB news is a reminder there are still financial problems in Europe that imply the region may not be so safe” for investments, said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “It’s a negative for the euro and a positive for the yen.”

The yen advanced to 133.85 per euro as of 8:50 a.m. in Tokyo from 134.26 last week in New York. Japan’s currency rose to 95.90 per dollar from 96.04. The dollar traded at $1.3957 per euro from $1.3980.

The yen may strengthen to 133.58 per euro and 95.50 against the dollar today, Soma said.

Last Updated: July 5, 2009 19:54 EDT

Earnings Drop Worldwide as Job Losses Hurt Consumers

http://www.bloomberg.com/apps/news?pid=20601087&sid=apzVRyR2Nbp0

July 6 (Bloomberg) -- Earnings at such companies as Ford Motor Co. and ArcelorMittal may continue to decline in the next three months as the highest unemployment in a quarter-century keeps consumers from spending.

The year-over-year profit slide for Standard & Poor’s 500 Index members may narrow to 21 percent from July through September, after declines of an estimated 34 percent in the second quarter and about 60 percent in the year’s first three months, according to data compiled by S&P and Bloomberg. Earnings may rise by year-end based on comparisons to late 2008, which was roiled by the meltdown in financial markets.

Consumers in the U.S., the world’s largest economy, remain concerned about jobs after unemployment reached a 26-year high in June, analysts and investors said. Until Americans start spending again on cars, cell phones and clothes, most U.S., Asian and European companies may keep squeezing out costs.

“So long as unemployment keeps rising, the consumer will continue to be very conservative,” said Walter “Bucky” Hellwig, who helps manage $30 billion at Morgan Asset Management in Birmingham, Alabama. “Any improvement will come from cost cutting, and that’s not sustainable. If you have no anticipation of top-line growth -- it will be a little tougher to generate that enthusiasm into the fourth quarter.”

Consumer Confidence

U.S. consumer confidence slipped unexpectedly in June, reflecting unemployment that rose to 9.5 percent and wealth destruction triggered partly by a drop in property values. U.S. employers slashed 467,000 jobs last month, and about 6 million jobs have been eliminated since the recession began in December 2007. June’s jobless rate was the highest since August 1983.

Almost 67 percent of S&P 500 members topped analysts’ estimates for first-quarter earnings after eliminating jobs and closing plants, Bloomberg data shows. That helped the S&P 500 index rally 15 percent in the second quarter, the most since 1998.

The benchmark MSCI Asia Pacific Index surged 28 percent in the quarter, the largest gain since the gauge started in 1988, while Europe’s Dow Jones Stoxx 600 Index rose 17 percent, the biggest advance since 1999.

The second-quarter earnings barrage begins in the U.S. on July 8 with aluminum producer Alcoa Inc., the first member of the Dow Jones Industrial Average to report results. Alcoa is based in New York.

‘What’s Your Potential?’

“The analysts will probably lowball things once again and the companies will be able to jump over it again,” said Charles Smith, chief investment officer for Fort Pitt Capital Group Inc. The Cleveland-based firm has $800 million assets under management. “If the teacher expected you to get a “C-” and you get a ‘C,’ then the question is: what’s your potential as a student?”

Railcar shipments and other U.S. shipping data provide scant hope that manufacturers are gearing up for increased demand, said Mark Demos, a Minneapolis-based portfolio manager who helps manage $21 billion at Fifth Third Asset Management. Railcar shipments are down 19 percent so far this year and 18 percent in the week ended June 20.

Demand is best described by the title of the 1966 novel, “Been Down So Long It Looks Like Up to Me,” said Andrew Bartels, an analyst at Cambridge, Massachusetts-based Forrester Research Inc. Technology purchases in the U.S. will decline 5.1 percent this year, with a recovery in the fourth quarter, he said in a report last month.

Slow Profit Growth

Mountain View, California-based Google Inc., the biggest Internet advertising company, may post its second-slowest rate of profit growth since selling shares to the public. Chief Executive Officer Eric Schmidt said June 30 the economy is bottoming and will be better in a month.

Microsoft Corp., based in Redmond, Washington, may report its second straight sales drop, according to a Bloomberg survey of 22 analysts. Prior to the quarter ended in March, sales at the world’s largest software maker had never declined.

Mobile-phone users are trading down toward lower-priced phone plans that don’t require buying a new handset, said Andreas Mark, a Frankfurt-based fund manager at Union Investment GmbH with about 30 billion euros ($42 billion) of equity assets under management.

Espoo, Finland-based Nokia Oyj, the world’s biggest handset maker, may report a 67 percent slide in net income, analysts estimate, as customers concerned about losing their jobs postponed phone upgrades.

“Companies are laying off people and not hiring them back,” said Roger Kubarych, chief U.S. economist at Unicredit Global Research in New York, who forecast payrolls would decline by 450,000. “This leaves us with a weak, irregular recovery.”

Rising unemployment in Europe is trimming as much as 10 percent of industry sales, said Amsterdam-based Simon van Veen, who helps manage a global portfolio of 2.2 billion euros at the Fortis Global High Income Equity Fund.

‘Sluggish’ Consumer Spending

“The outlook for electronics companies isn’t clearing,” said Tetsuro Ii, president of Commons Asset Management Inc. in Tokyo. “Consumer spending continues to be sluggish in the U.S. and elsewhere, pressuring prices.”

Global sales still will bolster results at U.S. multinational companies, said Michael Williams, managing director of New York-based Genesis Asset Management, which has assets of about $2 billion. “The struggling U.S. consumer will be more than offset by the massive number of people in China, Brazil, Russia and India that are moving up the consumption ladder,” he said.

Chinese Economic Growth

China’s Purchasing Managers’ Index climbed for a fourth month in June, the latest sign the country’s 4-trillion yuan ($585 billion) stimulus is reviving its economy. China’s economy is forecast to grow 7.8 percent this year, according to a Bloomberg survey. That compares with a decline of 2.7 percent in the U.S. and 4.3 percent in Europe’s 16-nation euro zone.

PetroChina Co., the world’s largest company by market value, and China Petroleum & Chemical Corp., or Sinopec, may post increased second-quarter profit after oil prices rebounded from December lows and China’s economy grew, said Gordon Kwan, head of energy research at Mirae Asset Securities in Hong Kong.

Second-quarter earnings at Exxon Mobil, Chevron Corp. and ConocoPhillips, the largest U.S. oil companies, probably fell after the recession sapped fuel demand, causing crude-oil prices to drop by half from the record set last July.

At Irving, Texas-based Exxon Mobil, net income may drop 64 percent from a year earlier to $4.21 billion, according to analyst estimates compiled by Bloomberg. The profit would be the company’s smallest for any quarter since 2003.

‘Excess Production’

“There’s a lot of excess production and not that much demand,” said Barry R. James, who holds Exxon Mobil, Chevron and ConocoPhillips shares among the almost $2 billion in investments he manages at the James Advantage Funds in Dayton, Ohio. “We don’t see much of a recovery.”

Toyota Motor Corp., Honda Motor Co., Nissan Motor Co., Japan’s three largest automakers, will likely post losses in the three months ended June 30 because of the lower demand in the U.S., traditionally their most profitable market, according to three analysts surveyed by Bloomberg. Honda and Nissan are based in Tokyo, and Toyota in Aichi prefecture in central Japan.

“The numbers will look really ugly,” said Mamoru Kato, an analyst at Tokai Tokyo Research Center in Nagoya, who expects Toyota to post a loss comparable to the 766 billion yen ($8 billion) loss in the quarter ended in March.

Ford Motor Co., the only major U.S. automaker that hasn’t filed bankruptcy, is gaining market share from its distressed domestic rivals, said Brian Johnson, a Chicago-based auto analyst for Barclays Capital.

No One ‘Sneering Anymore’

Ford, based in Dearborn, Michigan, is boosting third- quarter output 16 percent to meet rising demand. Detroit-based General Motors Corp., which filed for Chapter 11 bankruptcy protection June 1, is selling controlling interest in its European operations. Chrysler LLC, which filed Chapter 11 on April 30, has emerged from bankruptcy as Chrysler Group LLC, 20 percent owned by Italy’s Fiat SpA.

“People used to sneer at me for owning Ford, but no one is sneering anymore,” said Bernie McGinn, president of McGinn Investment Management of Alexandria, Virginia, which owns about 300,000 Ford shares. “The market is rewarding them for not going to the government to get money.”

Ford, which had a 33 percent decline in U.S. auto sales through June, may lose $718.3 million in the second quarter, an improvement from an $8.7 billion loss a year earlier, according to the mean estimate of four analysts surveyed by Bloomberg.

U.S. Air Carriers

The nine biggest U.S. air carriers, including Delta Air Lines Inc., American Airlines parent AMR Corp. and United Airlines parent UAL Corp., may have a combined quarterly loss of $1 billion, estimated Michael Derchin, an analyst at FTN Equity Capital in New York. Derchin said he previously expected a $600 million loss. AMR is headquartered in Forth Worth, Texas, and UAL in Chicago.

Delta, based in Atlanta, and American Airlines both plan to trim additional flights when the peak travel season ends after the Labor Day holiday. U.S. carriers have eliminated 31,700 jobs and parked more than 500 jets since the start of 2008 as air travel plummeted amid job losses and tighter credit.

Large banks in general will report lower earnings than in the first quarter, though analysts said companies such as Charlotte, North Carolina-based Bank of America Corp. and New York-based Goldman Sachs Group Inc. will still post profits. Credit losses will offset some gains in trading and underwriting, said Rochdale Securities LLC analyst Richard Bove.

‘Difficult to Decipher’

“You’re going to get a quarter that is going to be very difficult to decipher,” Bove said. “If people look at operating earnings, they’re going to be tremendously pleased with everything associated with the capital markets area, but you also have these losses in the retail banking area.”

Earnings per share will likely decline as many banks sold shares, including Bank of America’s $13.5 billion total, after the government’s stress tests determined 10 of the biggest lenders needed more capital to withstand a prolonged recession. The 19 largest lenders have announced plans to raise more than $100 billion since the stress tests were completed.

In retail, discounters such as Wal-Mart Stores Inc., based in Bentonville, Arkansas, have fared better than higher-priced competitors.

Luxury retailers such as Saks Inc. and Nordstrom Inc. have been among the hardest-hit by the slowdown in consumer spending, said Sarah Henry, an analyst with MFC Global Investment Management. “People are shopping for value, and Wal-Mart’s message is very resonant right now,” she said.

Raw Materials

Sliding consumer demand from the retail sector to manufacturing has ultimately affected raw-materials providers, leaving producers of commodities such as aluminum and chemicals struggling to remain profitable.

Steelmakers are grappling with prices that have yet to rebound after demand plunged the most since World War II. Luxembourg-based ArcelorMittal, the world’s largest steelmaker, may report its third consecutive loss before returning to profit in the third quarter, analysts estimate.

Melbourne, Australia-based BHP Billiton Ltd., the world’s biggest mining company, may report its first profit decline in nine years for the 12 months ended June 30, because of a drop in commodity prices, according to analyst estimates. The Reuters/Jefferies CRB Index of 19 materials has plunged 46 percent in 12 months.

Dow Chemical Co., the largest U.S. chemical maker, may report a second-quarter loss and a 94 percent profit decline in the current quarter, according to analysts’ estimates, as falling demand for paints and plastics prompt the industry to shut factories. The Midland, Michigan-based company announced three plant closures and 2,500 job cuts on July 1.

“There is no pricing power in chemicals,” Fifth Third’s Demos said. “That area is a disaster.”

Last Updated: July 5, 2009 11:01 EDT

Overnight Interest Rate Update - July 09

Current		Yesterday
USD	0.27750		0.26375
GBP	0.55250		0.55000
EUR	0.30875		0.28938
JPY	0.13000		0.13125
CHF	0.09833		0.10667
AUD	3.12500		3.14500
CAD	0.21000		0.18667
NZD	2.45000		2.50000

Rate cuts loom while investors seek the light.

Financial Times/ Week Ahead/ Feb 2- 8 2009
Economic Outlook Pg 20