US Economy | Written by CEP News | Jul 02 08 14:06 GMT |
(CEP News) - The U.S. Census Bureau's factory orders report came in negligibly higher than the consensus forecast on Wednesday, increasing by 0.6% in May to contribute to an annual gain of 5.0%. The prior month's factory orders index was revised to show an increase of 1.3% from the previously reported 1.1% gain.
Economists were expecting a gain of 0.5% in the month.
Factory orders - the full report on manufacturers' shipments, inventories, and orders - is similar to the durable goods report but is larger in scope and includes data on non-durable goods, such as food, clothing and fuel.
New orders excluding transportation improved by 0.4% in the month, new orders ex-defence rose 0.3% and new orders ex-computers rose 0.5%.
Durable goods excluding transportation were upwardly revised to a 0.8% decline from the preliminary 0.9% decrease in last week's estimate in the durable goods report. This follows a downwardly revised gain of 1.9% in April. Annually, the index has moved up 1.4%.
Total orders for durable goods were unrevised from the flat reading in the advance report. In the previous month, new orders fell by 1.0%.
Non-defence capital goods excluding aircraft fell by 0.4% in the factory orders report, following a gain of 3.1% in the previous month.
Inventories increased by 0.5% for the month following a flat reading in April, while shipments advanced 0.1% following a gain of 2.7% in April.
The inventories-to-shipments ratio moved up at 1.23 in May after a downwardly revised 1.22 reading in April.
By Patrick McGee, pmcgee@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it , edited by Stephen Huebl, shuebl@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it
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Wednesday, July 2, 2008
U.S. Preview: U.S. Crude Supplies Expected to Decrease by 700k Barrels
US Economy | Written by CEP News | Jul 02 08 14:04 GMT |
(CEP News) - U.S. crude inventories probably declined by 700k barrels last week, a report from the U.S. Energy Information Administration (EIA) is expected to reveal.
The EIA will release crude, gasoline and distillate inventories at 10:35 a.m. EDT for the week ending June 27.
"Expectations are that U.S. crude oil inventories will show a decline today of 700K barrels, continuing the general downward trajectory in inventories observed over the past month and a half," wrote Sacha Tihanyi, associate currency strategist at Scotia Capital in a note to clients.
Crude prices have rallied to record highs partly because of supply constraints in the United States. A time of year where inventories historically increase, they have declined in five of the past six weeks. The EIA said last week that supplies are constrained and "near the lower boundary of the average range for this time of year."
At the same time, however, U.S. demand has been declining. Nine straight reports have shown year-over-year declines. In last week's report, demand fell to an 18-month low of 20.08 million barrels per day.
On Wednesday, WTI crude prices have traded in a range of $140.31-142.34 per barrel. At 9:57 a.m., WTI is down $0.01 to $140.94 per barrel.
The Bloomberg consensus estimate suggests gasoline inventories will increase by 500k while distillate inventories will increase by 1,500k barrels. Refinery utilization is expected to increase 0.60% to 87.2% of operable capacity.
Gasoline and distillate supplies aren't as tight as crude. The EIA said last week that gasoline supply is in the "lower half of the average range" while distillate inventories are in the middle of the average range.
By Adam Button, abutton@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it , edited by Cristina Markham, cmarkham@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it
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(CEP News) - U.S. crude inventories probably declined by 700k barrels last week, a report from the U.S. Energy Information Administration (EIA) is expected to reveal.
The EIA will release crude, gasoline and distillate inventories at 10:35 a.m. EDT for the week ending June 27.
"Expectations are that U.S. crude oil inventories will show a decline today of 700K barrels, continuing the general downward trajectory in inventories observed over the past month and a half," wrote Sacha Tihanyi, associate currency strategist at Scotia Capital in a note to clients.
Crude prices have rallied to record highs partly because of supply constraints in the United States. A time of year where inventories historically increase, they have declined in five of the past six weeks. The EIA said last week that supplies are constrained and "near the lower boundary of the average range for this time of year."
At the same time, however, U.S. demand has been declining. Nine straight reports have shown year-over-year declines. In last week's report, demand fell to an 18-month low of 20.08 million barrels per day.
On Wednesday, WTI crude prices have traded in a range of $140.31-142.34 per barrel. At 9:57 a.m., WTI is down $0.01 to $140.94 per barrel.
The Bloomberg consensus estimate suggests gasoline inventories will increase by 500k while distillate inventories will increase by 1,500k barrels. Refinery utilization is expected to increase 0.60% to 87.2% of operable capacity.
Gasoline and distillate supplies aren't as tight as crude. The EIA said last week that gasoline supply is in the "lower half of the average range" while distillate inventories are in the middle of the average range.
By Adam Button, abutton@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it , edited by Cristina Markham, cmarkham@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it
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Fed's Lockhart Says Fed Should Act if Inflation Affects Wages
US Economy | Written by CEP News | Jul 02 08 11:14 GMT |
(CEP News) - Speaking at a panel discussion in Washington D.C., Atlanta Fed President Dennis Lockhart (non-voter) said inflation was at uncomfortable levels and that policy would need to react decisively to counter it if it began to affect wages.
"The current circumstances seem to me to be best described as an intersection of three serious and interacting challenges - weakness in the general economy, uncomfortable levels of inflation, and continuing threats to financial stability," said Lockhart in his opening remarks. "Economic weakness is demonstrated in growth rates well below potential and deteriorating unemployment measures."
Although he promised that he was taking price developments seriously, Lockhart said wages have not yet been affected by inflation.
He said the first half of 2009 should see 1% to 2% growth in GDP with little pick up in the second half.
Lockhart also said that some of the "turmoil and dysfunction in financial markets" had receded but not completely ended.
By Erik Kevin Franco, efranco@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it , edited by Stephen Huebl, shuebl@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it
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(CEP News) - Speaking at a panel discussion in Washington D.C., Atlanta Fed President Dennis Lockhart (non-voter) said inflation was at uncomfortable levels and that policy would need to react decisively to counter it if it began to affect wages.
"The current circumstances seem to me to be best described as an intersection of three serious and interacting challenges - weakness in the general economy, uncomfortable levels of inflation, and continuing threats to financial stability," said Lockhart in his opening remarks. "Economic weakness is demonstrated in growth rates well below potential and deteriorating unemployment measures."
Although he promised that he was taking price developments seriously, Lockhart said wages have not yet been affected by inflation.
He said the first half of 2009 should see 1% to 2% growth in GDP with little pick up in the second half.
Lockhart also said that some of the "turmoil and dysfunction in financial markets" had receded but not completely ended.
By Erik Kevin Franco, efranco@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it , edited by Stephen Huebl, shuebl@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it
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Morning Market Recap: Treasuries Rally After Worst ADP Jobs Decline Since 2002
Market Updates | Written by CEP News | Jul 02 08 13:46 GMT |
(CEP News) - Treasury yields fell to session lows and the U.S. dollar declined following the jobs report from private payroll company ADP. Equity markets were pressured by the report but still opened higher.
The report showed U.S. June employment declining by 79,000 jobs against the 20,000 decline expected. U.S. yields were up 2-3 basis points across the curve prior to the data but the worrying report sparked a reversal.
U.S. two-year yields are down 1.6 bps to 2.63%, with five-year yields down 2.1 bps to 3.33%, 10-year yields down 1.2 bps to 3.99% and 30-year yields down 2.0 bps to 4.53%. The Eurodollar September 08 contract is down 2.5 ticks to 97.03. The yield curve is steeper, with the 10/2-year spread up 0.6 bps to 135.85 bps.
The ADP report was the worst since November 2002 and the U.S. dollar sold off in response.
The Canadian dollar is up 0.0063 to 0.9842 against the U.S. dollar (1.0159 USD/CAD) and up 0.72 to 104.55 against the yen.
The U.S. dollar is up 0.09 to 106.22 against the yen and the Dollar Index is down 0.248 to 72.121.
The euro is up 0.0055 to 1.5847 against the U.S. dollar, down 0.0044 to 1.6099 against the Canadian dollar, up 0.0036 to 0.7952 against the pound sterling and is higher by 0.74 to 168.32 against the yen.
The pound sterling is down 0.0020 to 1.9929 against the U.S. dollar and down 0.0145 to 2.0247 against the Canadian dollar.
Equity markets opened higher following the strong close on Monday.
Toronto's S&P/TSX composite index is up 43 points to 14,510, the Dow Jones industrial average up 19 points to 11,401, the S&P 500 up 5 points to 1,290 and the Nasdaq up 7 points to 2,312.
European stock markets are also higher, with the Eurostoxx up 24 points to 2,874, the UK FTSE 100 up 48 points to 5,528 and the German DAX up 46 points to 6,362.
Yields on two-year Canadian government bonds are up 2.4 bps to 3.26%, with five-year yields up 2.6 bps to 3.48%, 10-year yields up 4.6 bps to 3.78% and 30-year yields up 2.9 bps to 4.11%. The Canadian 10-year note is yielding 20.84 bps less than the U.S. 10-year note.
In Germany, returns on two-year German bonds are up 3.4 bps to 4.61%, with five-year yields up 3.7 bps to 4.66%, 10-year yields up 2.9 bps to 4.64% and 30-year yields up 1.1 bps to 4.84%.
Yields on UK two-year bonds are down 7.5 bps to 5.13%, with five-year yields down 6.7 bps to 5.09%, 10-year yields down 4.3 bps to 5.11% and 30-year yields down 6.6 bps to 4.66%.
All data taken at 9:36 a.m. EDT.
By Adam Button, abutton@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it , edited by Cristina Markham, cmarkham@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it
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(CEP News) - Treasury yields fell to session lows and the U.S. dollar declined following the jobs report from private payroll company ADP. Equity markets were pressured by the report but still opened higher.
The report showed U.S. June employment declining by 79,000 jobs against the 20,000 decline expected. U.S. yields were up 2-3 basis points across the curve prior to the data but the worrying report sparked a reversal.
U.S. two-year yields are down 1.6 bps to 2.63%, with five-year yields down 2.1 bps to 3.33%, 10-year yields down 1.2 bps to 3.99% and 30-year yields down 2.0 bps to 4.53%. The Eurodollar September 08 contract is down 2.5 ticks to 97.03. The yield curve is steeper, with the 10/2-year spread up 0.6 bps to 135.85 bps.
The ADP report was the worst since November 2002 and the U.S. dollar sold off in response.
The Canadian dollar is up 0.0063 to 0.9842 against the U.S. dollar (1.0159 USD/CAD) and up 0.72 to 104.55 against the yen.
The U.S. dollar is up 0.09 to 106.22 against the yen and the Dollar Index is down 0.248 to 72.121.
The euro is up 0.0055 to 1.5847 against the U.S. dollar, down 0.0044 to 1.6099 against the Canadian dollar, up 0.0036 to 0.7952 against the pound sterling and is higher by 0.74 to 168.32 against the yen.
The pound sterling is down 0.0020 to 1.9929 against the U.S. dollar and down 0.0145 to 2.0247 against the Canadian dollar.
Equity markets opened higher following the strong close on Monday.
Toronto's S&P/TSX composite index is up 43 points to 14,510, the Dow Jones industrial average up 19 points to 11,401, the S&P 500 up 5 points to 1,290 and the Nasdaq up 7 points to 2,312.
European stock markets are also higher, with the Eurostoxx up 24 points to 2,874, the UK FTSE 100 up 48 points to 5,528 and the German DAX up 46 points to 6,362.
Yields on two-year Canadian government bonds are up 2.4 bps to 3.26%, with five-year yields up 2.6 bps to 3.48%, 10-year yields up 4.6 bps to 3.78% and 30-year yields up 2.9 bps to 4.11%. The Canadian 10-year note is yielding 20.84 bps less than the U.S. 10-year note.
In Germany, returns on two-year German bonds are up 3.4 bps to 4.61%, with five-year yields up 3.7 bps to 4.66%, 10-year yields up 2.9 bps to 4.64% and 30-year yields up 1.1 bps to 4.84%.
Yields on UK two-year bonds are down 7.5 bps to 5.13%, with five-year yields down 6.7 bps to 5.09%, 10-year yields down 4.3 bps to 5.11% and 30-year yields down 6.6 bps to 4.66%.
All data taken at 9:36 a.m. EDT.
By Adam Button, abutton@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it , edited by Cristina Markham, cmarkham@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it
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Overnight News Recap: Trichet & Almunia Worried About Inflation
News Recap | Written by CEP News | Jul 02 08 11:04 GMT |
CEP News) - Comments from European Central Bank President Jean-Claude Trichet and EU Commissioner Joquin Almunia continuing to express inflation concerns headlined the overnight's economic news. The overnight also saw the release of above-forecast producer prices in the euro zone and some hawkish comments from Dallas Fed President Dennis Lockhart (non-voter).
Speaking at the Europlace Conference in Paris, France on Wednesday, European Central Bank President Jean-Claude Trichet said that more efforts would be needed before a single retail banking market could be realized. However, he did acknowledge that substantial efforts had been made towards this goal.
Trichet also mentioned that more international cooperation would be necessary to address the weaknesses in the financial system that had been uncovered during the market crisis. Before beginning his speech, Trichet emphasized that he would not comment on monetary policy ahead of the ECB's council meeting on Thursday and that nothing in his speech at the Europlace conference should be interpreted as a policy signal.
Nevertheless, in an interview with Germany's Die Zeit newspaper to be published on Thursday, Trichet emphasized that inflation could "explode" if the ECB failed to act decisively.
In a Europe 1 radio interview on Wednesday, EU Commissioner for Economic and Financial Affairs, Joaquin Almunia, expressed concern over current inflation levels and said the ECB must follow its price stability mandate. Additionally, Almunia was worried about the economic growth outlook in Europe, as well as the impact of the current financial crisis on the economy.
The Ministry of Labour and Immigration reported that the number of unemployed in Spain rose by 36,849 individuals in June on a monthly basis, up significantly from the 15,100 rise seen in May. In June 2008, a total of 2,390,424 individuals who consider Spain their primary place of residence were unemployed, up 1.57% month-over-month and 21.6% in annualized terms.
The National Institute of Statistics (ISTAT) reported that the Italian government's cumulative net deficit rose to 4.7% of GDP in the first quarter of 2008. The previous quarter had seen the year-to-date deficit reach 1.86% of GDP, revised up from 1.3%. In monetary terms, the Italian government's deficit was recorded at €17.5 billion in Q1. In 2007, the deficit had reached €28.6 billion.
The National Board of Customs reported that the Finnish trade balance surplus rose to €951 million in April from March's €300 million. However, in annual terms, the surplus declined 29% from April 2007's €1.3 billion level. In April 2008, Finland exported €6.4 billion in goods and services, while importing €5.4 billion worth.
According to a Eurostat press release, euro zone producer price inflation reached 1.2% in May on a monthly basis, up from the 0.9% growth rate expected and recorded in the previous month. April's figure was revised up from 0.8%. Excluding the costs of energy, producer prices increased 0.3% in monthly terms. Energy sector prices rose 4.1% in May.
Year-over-year, euro zone PPI jumped by a record high of 7.1%. Economists had only expected a 6.7% rise, up from the previous month's 6.2% increase. April's growth rate was revised up slightly from 6.1%.
According to the Bank of England, housing equity withdrawals fell to £5.04 billion in the first quarter of 2008, its lowest level in seven years. Economists had expected housing equity withdrawals to decline to £5.3 billion after slipping to £7.4 billion in the previous period. Q4 2007's reading was revised up from an initial figure of £7.3 billion.
According to data released by Markit Economics on Wednesday, the UK purchasing managers' index for construction fell to 38.8 in June, lower than both the previous month's 43.9 reading and the 43.1 figure expected. June's PMI figure marks the lowest reading in more than 11 years.
Speaking at a panel discussion in Washington D.C., Atlanta Fed President Dennis Lockhart (non-voter) said inflation was at uncomfortable levels and that policy would need to react decisively to counter it if it began to affect wages. Although he promised that he was taking price developments seriously, Lockhart said wages had not yet been affected by inflation. He also said the first half of 2009 should see 1% to 2% growth in GDP with not much pickup in the second half.
The Australian Bureau of Statistics (ABS) announced that the seasonally-adjusted estimate of turnover for the Australian Retail and Hospitality/Services industries increased 0.7% in May 2008. This follows a revised decrease of -0.1% in April and a revised increase of 0.3% in March. The consensus was expecting a 0.1% increase.
According to the Australian Department of Employment and Workplace Relations, skilled vacancies declined by 0.1% month-over-month in June compared to a downwardly revised 0.5% fall in May.
The Australian Bureau of Statistics said building approvals for May declined by 6.5% month-over-month, further than forecasts for a 3.4% decline. In April, approvals expanded by a revised 5.4%. In annualized terms, approvals rose by 0.2% despite forecasts for a 7.2% increase and the previous month's revised 5.2% increase.
JN Monetary Base (Y/Y) June +0.4% vs. Prior: -0.9%
AU DEWR Skilled Vacancies (M/M) June -0.1% vs. Revised: -0.5% Prior: -0.1%
AU Retail Sales May +0.7% vs. Exp: +0.1% Revised: -0.1% Prior: -0.2%
AU Building Approvals (M/M) May -6.5% vs. Exp: -3.4% Revised: +5.4% Prior: +7.8%
AU Building Approvals (Y/Y) May +0.2% vs. Exp: +7.2% Revised: +2.8% Prior: +5.2%
EU ECB's Trichet Speaks at Europlace Conference in Paris
IT Deficit to GDP (year to date) Q1 +4.7% vs. Revised: +1.9% Prior: +1.3%
GB PMI Construction June 38.8 vs. Exp:43.1 Prior: 43.9
GB BoE Housing Equity Withdrawal Q1 £5.0B vs. Exp: £5.3B Revised: £7.4B Prior: £7.3B
EU Euro-Zone PPI (M/M) May +1.2% vs. Exp:+0.9% Revised: +0.9% Prior: +0.8%
EU Euro-Zone PPI (Y/Y) May +7.1% vs. Exp:+6.7% Revised: +6.2% Prior:+6.1%
By Erik Kevin Franco, efranco@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it and Todd Wailoo, twailoo@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it with contributions from Tim Stackpool, tstackpool@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it , edited by Stephen Huebl, shuebl@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it
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CEP News) - Comments from European Central Bank President Jean-Claude Trichet and EU Commissioner Joquin Almunia continuing to express inflation concerns headlined the overnight's economic news. The overnight also saw the release of above-forecast producer prices in the euro zone and some hawkish comments from Dallas Fed President Dennis Lockhart (non-voter).
Speaking at the Europlace Conference in Paris, France on Wednesday, European Central Bank President Jean-Claude Trichet said that more efforts would be needed before a single retail banking market could be realized. However, he did acknowledge that substantial efforts had been made towards this goal.
Trichet also mentioned that more international cooperation would be necessary to address the weaknesses in the financial system that had been uncovered during the market crisis. Before beginning his speech, Trichet emphasized that he would not comment on monetary policy ahead of the ECB's council meeting on Thursday and that nothing in his speech at the Europlace conference should be interpreted as a policy signal.
Nevertheless, in an interview with Germany's Die Zeit newspaper to be published on Thursday, Trichet emphasized that inflation could "explode" if the ECB failed to act decisively.
In a Europe 1 radio interview on Wednesday, EU Commissioner for Economic and Financial Affairs, Joaquin Almunia, expressed concern over current inflation levels and said the ECB must follow its price stability mandate. Additionally, Almunia was worried about the economic growth outlook in Europe, as well as the impact of the current financial crisis on the economy.
The Ministry of Labour and Immigration reported that the number of unemployed in Spain rose by 36,849 individuals in June on a monthly basis, up significantly from the 15,100 rise seen in May. In June 2008, a total of 2,390,424 individuals who consider Spain their primary place of residence were unemployed, up 1.57% month-over-month and 21.6% in annualized terms.
The National Institute of Statistics (ISTAT) reported that the Italian government's cumulative net deficit rose to 4.7% of GDP in the first quarter of 2008. The previous quarter had seen the year-to-date deficit reach 1.86% of GDP, revised up from 1.3%. In monetary terms, the Italian government's deficit was recorded at €17.5 billion in Q1. In 2007, the deficit had reached €28.6 billion.
The National Board of Customs reported that the Finnish trade balance surplus rose to €951 million in April from March's €300 million. However, in annual terms, the surplus declined 29% from April 2007's €1.3 billion level. In April 2008, Finland exported €6.4 billion in goods and services, while importing €5.4 billion worth.
According to a Eurostat press release, euro zone producer price inflation reached 1.2% in May on a monthly basis, up from the 0.9% growth rate expected and recorded in the previous month. April's figure was revised up from 0.8%. Excluding the costs of energy, producer prices increased 0.3% in monthly terms. Energy sector prices rose 4.1% in May.
Year-over-year, euro zone PPI jumped by a record high of 7.1%. Economists had only expected a 6.7% rise, up from the previous month's 6.2% increase. April's growth rate was revised up slightly from 6.1%.
According to the Bank of England, housing equity withdrawals fell to £5.04 billion in the first quarter of 2008, its lowest level in seven years. Economists had expected housing equity withdrawals to decline to £5.3 billion after slipping to £7.4 billion in the previous period. Q4 2007's reading was revised up from an initial figure of £7.3 billion.
According to data released by Markit Economics on Wednesday, the UK purchasing managers' index for construction fell to 38.8 in June, lower than both the previous month's 43.9 reading and the 43.1 figure expected. June's PMI figure marks the lowest reading in more than 11 years.
Speaking at a panel discussion in Washington D.C., Atlanta Fed President Dennis Lockhart (non-voter) said inflation was at uncomfortable levels and that policy would need to react decisively to counter it if it began to affect wages. Although he promised that he was taking price developments seriously, Lockhart said wages had not yet been affected by inflation. He also said the first half of 2009 should see 1% to 2% growth in GDP with not much pickup in the second half.
The Australian Bureau of Statistics (ABS) announced that the seasonally-adjusted estimate of turnover for the Australian Retail and Hospitality/Services industries increased 0.7% in May 2008. This follows a revised decrease of -0.1% in April and a revised increase of 0.3% in March. The consensus was expecting a 0.1% increase.
According to the Australian Department of Employment and Workplace Relations, skilled vacancies declined by 0.1% month-over-month in June compared to a downwardly revised 0.5% fall in May.
The Australian Bureau of Statistics said building approvals for May declined by 6.5% month-over-month, further than forecasts for a 3.4% decline. In April, approvals expanded by a revised 5.4%. In annualized terms, approvals rose by 0.2% despite forecasts for a 7.2% increase and the previous month's revised 5.2% increase.
JN Monetary Base (Y/Y) June +0.4% vs. Prior: -0.9%
AU DEWR Skilled Vacancies (M/M) June -0.1% vs. Revised: -0.5% Prior: -0.1%
AU Retail Sales May +0.7% vs. Exp: +0.1% Revised: -0.1% Prior: -0.2%
AU Building Approvals (M/M) May -6.5% vs. Exp: -3.4% Revised: +5.4% Prior: +7.8%
AU Building Approvals (Y/Y) May +0.2% vs. Exp: +7.2% Revised: +2.8% Prior: +5.2%
EU ECB's Trichet Speaks at Europlace Conference in Paris
IT Deficit to GDP (year to date) Q1 +4.7% vs. Revised: +1.9% Prior: +1.3%
GB PMI Construction June 38.8 vs. Exp:43.1 Prior: 43.9
GB BoE Housing Equity Withdrawal Q1 £5.0B vs. Exp: £5.3B Revised: £7.4B Prior: £7.3B
EU Euro-Zone PPI (M/M) May +1.2% vs. Exp:+0.9% Revised: +0.9% Prior: +0.8%
EU Euro-Zone PPI (Y/Y) May +7.1% vs. Exp:+6.7% Revised: +6.2% Prior:+6.1%
By Erik Kevin Franco, efranco@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it and Todd Wailoo, twailoo@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it with contributions from Tim Stackpool, tstackpool@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it , edited by Stephen Huebl, shuebl@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it
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Forex Market Issues and Risks
Daily Forex Fundamentals | Written by AC-Markets | Jul 02 08 09:14 GMT |
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Dollar fell in volatile market ahead of ECB rate outlook
News and Events:
The Dollar fell against the Euro and was little changed against the Yen on Tuesday in a volatile session as investors debated the outlook for the US economy while anticipating a rate hike from the European Central Bank later this week.
The ECB is widely expected to raise interest rates by a 25bp to 4.25% on Thursday, bolstering demand for Euro-denominated assets. Markets have begun to take the view that the Federal Reserve has little scope to tighten U.S. monetary policy aggressively to fight inflation given the sluggish economy.
US stocks retraced earlier losses after General Motors reported stronger-than-expected June sales, keeping the Dollar off session lows. A rise in US factory activity also helped the Dollar. The Institute for Supply Management said its index of national factory activity rose in June to 50.2 from 49.6 in May after four straight months of contraction. In Europe, data showed euro zone manufacturing activity contracted for the first time in three years in June and output prices matched April's year high. But analysts said Tuesday's data will not prevent the ECB raising rates.
Yesterday, EurUsd rose 0.2% at 1.5791. UsdJpy traded 0.12% up at 106.18, well off the session low of 105.23. EurJpy gained 0.33% to 167.65. UsdChf was unchanged at 1.0208 recovering from intraday 1.0139 low. GbpUsd rose 0.06% to 1.9943 retracing from intraday 2.0007 high.
Today Key Issues:
- 09:00 EUR June Euro-zone Producer Prices 0.9% vs 0.8% (MoM)
- 09:00 EUR June Euro-zone Producer Prices 6.7% vs 6.1% (YoY)
- 12:15 USD June ADP National Employment -20k vs 40k
- 12:30 CAD April GDP 0.3% vs -0.2% (MoM)
- 14:00 USD May Durable goods orders (revision) 0% vs 0%
- 14:00 USD May Factory orders 0.4% vs 1.1%
- 14:00 DKK June Currency reserves 161.9B v 161.9B
The Risk Today:
EurUsd Market is testing top of the current 1.5400-1.5800 range. Yesterday high 1.5827 is putting further upside in sight. Initial resistance holds 1.5844 June 9th high. A break up there would reopen the way up to 1.6000 Pivot point resistance ahead of key resistance 1.6200 market target. On the downtrend, weakness below 1.5400 will put the current light 2-month uptrend on hold. This may open way down to 1.5000 key level. Support holds 1.5304 13th June low.
GbpUsd Cable hit 2.0000 psychological level. But reversed gains and closed at 1.9943. On the upside, psychological 2.0000 level stays into focus. On the downside, a reversal below 1.9600 might bring again focus on 1.9337 January low and 1.9105 (50% retracement of 1.7049 - 2.1162 advance). Initial support holds 1.9800 former range resistance. Strong support holds 1.9363 20th February and 14th May low.
UsdJpy Market broke down lower 3-month trendline at 106.30. Current 3-month uptrend failed to overtop 108.59 16th June high. More profit taking would bring the market lower than 105 and maybe back to 100 - 104 consolidation trading range. Initial support hold 105.86 Friday low. Renewed advance to mid-June 108.59 would put 110.10 strong resistance (Trendline) into focus and mid January double top ahead of 111.92 early January high.
UsdChf Market couldn't hold 1.0200 lower support last Friday. Strong support holds 1.0148 June 9th low. Initial support holds 1.0166 Friday low. Further weakness may open the way toward 0.9637 17th March low. June 13th 1.0541 high holds initial resistance. A return over 1.0200 would bring back consolidation 1.0200 - 1.0600 range.
| EURUSD | GBPUSD | USDJPY | USDCHF | ||||
| 1.6200 | T | 2.0100 | P | 111.92 | K | 1.1191 | K |
| 1.6000 | K | 1.9800 | S | 110.10 | T | 1.0625 | T |
| 1.5844 | M | 1.9967 | M | 108.39 | M | 1.0200 | M |
| 1.5815 | 1.9910 | 106.15 | 1.0180 | ||||
| 1.5304 | M | 1.9880 | S | 105.86 | S | 1.0148 | M |
| 1.5285 | S | 1.9337 | T | 104.44 | M | 1.0000 | P |
| 1.5000 | K | 1.9105 | K | 100.00 | P | 0.9637 | K |
| S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot | |||||||
Disclaimer: This report has been prepared by AC Markets (thereof ACM) and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by Salesperson or Traders of ACM at any given time. ACM is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment.
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ECB in Uncharted Waters
Daily Forex Fundamentals | Written by KBC Bank | Jul 02 08 07:53 GMT
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- ECB to hike rates at a time economic growth is faltering
- Persistent upward pressure on food and energy prices drives inflation expectations higher
- Increasing signs of second round effects in the labour market and the services sector
- Global recession needed to bring inflation down?
At its monetary policy meeting on Thursday, the ECB governing council is virtually certain to hike rates for the first time since June last year to 4.25%. At its early June press conference, ECB's Trichet surprised friend and foe by openly hinting at a 25 bps increase at their next meeting in July. With inflation remaining high for a more protracted period than previously thought, rising inflation expectations and possible signs of second round effects in the labour market and the services sector, the ECB said it had moved to 'a state of heightened alertness'. Hence, a majority of the ECB governing council concluded that a forceful signal was needed to defend the ECB's inflation-fighting credibility.
If a rate rise this Thursday seems inevitable, than the main question is what will happen next. Will one rate hike be sufficient to bring inflation down in the medium term or will more follow. Until now, the ECB has repeatedly argued that this is 'not the beginning of a series of rate increases', but as inflation is expected to rise further over the summer, markets currently expect rates to rise again at the end of this year and in the first quarter of next year.
The problem for the ECB and for European borrowers is that price pressures seem to be increasing while the economy is heading in the opposite directions. Indeed, rising food and energy prices threaten to push inflation above the magic 4% level over the coming months, despite increasing signs that the euro zone economy is faltering. In June, the PMI surveys both in the manufacturing and services fell below the 50 mark, which suggests that economic activity is contracting in the euro zone. Historically, these low levels of business confidence corresponded with an easing policy of the ECB (see graph) and as such highlight the extreme situation we're currently in.
Recent weak eco data however don't appear to have softened the ECB's concerns on inflation. During his testimony before EU parliament last week, Trichet sounded increasingly concerned about the risk that current elevated inflation rates will become entrenched in private inflation expectations and lead to second-round effects in price and wage setting behaviour. He went on saying that the 'risk of triggering such an inflationary wage-price spiral is particularly acute, especially in countries where nominal wage indexation schemes exist'. These phrases will probably be repeated in the introductory statement on Thursday and emphasize the risk that one small rate hike in July won't be sufficient to bring inflation back below the 2% level.
High inflation levels force the ECB to hike rates in an economic environment it previously cut rates.
In its annual report, the Bank for International Settlements (BIS) discusses the current policy dilemma of central bankers and concludes that although 'a deeper and more protracted global downturn' can be expected, inflationary forces do still support 'a global bias towards monetary tightening'. The strength and stickiness of these forces will largely depend on the 'behaviour of wages'.
Within the euro zone, the ECB has signalled its concern about the recent pick-up in the ECB negotiated wages indicator. In the first quarter of 2008, the annual growth rate of negotiated wages stood at 2.7% compared with an average of 2.2% in 2007, the strongest acceleration recorded by this indicator since the early 1990s. Combined with rising inflation rates and inflation expectations, this will keep the threat of a wage-price spiral alive, even though leading labour market indicators suggest that the labour market has turned in the euro zone.
Surging oil prices (red line) drive inflation expectations (black line) higher, despite the deteriorating growth outlook and the expected rate hike of the ECB.
The close relationship between oil prices and inflation/ inflation expectations (see graph) suggests that the question whether such a wage-price spiral will materialize in the euro zone does also largely depend on the policy response in the rest of the world. Indeed, the recent period indicates that the global economic picture is becoming increasingly important, as it is global demand and supply that determines the price of food and energy products. In this context, it's very remarkable that at a time the US economy barely grows and the UK and euro zone economy are slowing rapidly that food and energy prices are rising so strongly. Unless speculation is driving prices higher, these figures suggest that the growth performance of Asia has become a dominant force in the pricesetting of commodities.
Over the past month, several Asian countries, including Taiwan, India, Indonesia and the Philippines have raised rates to fight inflation, but overall policy is still too lax compared to the surge in inflation and the high growth levels. A further tightening of monetary policy in Asia can be expected and should slow growth, ease demand for commodities and as such temper the current surge in commodity prices and inflation. It remains however very hard to predict from what point the slowdown of the world economy will start to affect commodity prices and consequently the inflation outlook.
Regarding Thursday's ECB meeting, a rate hike is widely expected and although some have raised the risk that the ECB may still back away from the rate hike due to renewed strains in the financial sector, just like they did in August last year. This risk appears very remote in our view given the potential credibility loss for the ECB. Unless they would be aware of major further problems yet to emerge in the financial sector, rates seem set to rise.
Concluding, as long as there is no clear sign available that inflation has peaked in the euro zone, the threat of higher rates will remain a clear and present danger in the euro zone. This threat will keep yields under upward pressure for now. But as two more rate hikes following the July hike are already discounted, the upside has become more limited. The technical picture supports this view, as government yields failed to break decisively above last year highs over the past weeks. Therefore, a further consolidation of yields within the recent ranges between 4.40% and 4.80% in 2- year yields and 4.50% and 4.70% in 10-year yields is the most likely scenario over the coming month.
With regard to 2009, a sharp slowing of global economy along with receding global inflationary pressures is becoming increasingly likely and can still bring ECB rate cuts back on the table. However, for the moment this is a too distant prospect to drive the market.
German 2-year yields in sideways trading range
Disclaimer: This non-exhaustive information is based on short-term forecasts for expected developments on the financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a KBC judgment as of the data of the report and are subject to change without notice.
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Today's Key Points
Daily Forex Fundamentals | Written by Danske Bank | Jul 02 08 07:44 GMT |
Today's Key Points
* The ISM index once again proved more resilient than expected
* This lifted equities and bond yields a little in an otherwise nervous market
* EUR/USD climbs above 1.58 ahead of ECB meeting Thursday
Markets Overnight
In June the ISM index rose to 50.2 from 49.2, once again proving more resilient than expected and continuing to indicate that the US manufacturing sector is holding up quite well compared to other sectors of the economy. The price index rose further to 91.5 in June (the highest reading since 1979) from 87.0 in May, reflecting intensifying price pressures in raw material markets.
This supported most US equities and drove US bond yields a few basis points higher in an otherwise nervous market.
In FX markets EUR/USD has moved above the 1.58 mark ahead of the ECB meeting tomorrow. In Emerging Markets the Turkish lira looks very fragile in the current environment further enhanced by increasing political tensions in Turkey. We are looking for further upside in EUR/TRY in the coming days.
Global Daily
Today global markets will have a very thin calendar for its guidance. In Euroland the markets will be awaiting the ECB decision tomorrow. Although Trichet is scheduled for a speech in Paris at 09:15, which bears watching, he is not expected to provide any change of tone this close the ECB meeting. In the US the ADP employment report, released at 14:15, could provide the markets with some hint about tomorrow's payroll figure. That said the ADP report has lately been a poor guide to the monthly payroll figures over-predicting job growth by an average of 91K in the previous seven months. Hence, the outcome should be taken with a grain of salt and is not likely to move the markets substantially. Later today, at 18:00, the speech from Federal Reserve Board Member Mishkin (dove, voter) could prove interesting.
With markets awaiting the ECB meeting and the US labour market report for June bond yields are left with the general sentiment in equity and credit markets in what looks to become a relatively uneventful day.
Danske Bank
http://www.danskebank.com/danskeresearch
Disclaimer
This publication has been prepared by Danske Markets for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Markets´ research analysts are not permitted to invest in securities under coverage in their research sector. This publication is not intended for private customers in the UK or any person in the US. Danske Markets is a division of Danske Bank A/S, which is regulated by FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange. Copyright (©) Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.
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Today's Key Points
* The ISM index once again proved more resilient than expected
* This lifted equities and bond yields a little in an otherwise nervous market
* EUR/USD climbs above 1.58 ahead of ECB meeting Thursday
Markets Overnight
In June the ISM index rose to 50.2 from 49.2, once again proving more resilient than expected and continuing to indicate that the US manufacturing sector is holding up quite well compared to other sectors of the economy. The price index rose further to 91.5 in June (the highest reading since 1979) from 87.0 in May, reflecting intensifying price pressures in raw material markets.
This supported most US equities and drove US bond yields a few basis points higher in an otherwise nervous market.
In FX markets EUR/USD has moved above the 1.58 mark ahead of the ECB meeting tomorrow. In Emerging Markets the Turkish lira looks very fragile in the current environment further enhanced by increasing political tensions in Turkey. We are looking for further upside in EUR/TRY in the coming days.
Global Daily
Today global markets will have a very thin calendar for its guidance. In Euroland the markets will be awaiting the ECB decision tomorrow. Although Trichet is scheduled for a speech in Paris at 09:15, which bears watching, he is not expected to provide any change of tone this close the ECB meeting. In the US the ADP employment report, released at 14:15, could provide the markets with some hint about tomorrow's payroll figure. That said the ADP report has lately been a poor guide to the monthly payroll figures over-predicting job growth by an average of 91K in the previous seven months. Hence, the outcome should be taken with a grain of salt and is not likely to move the markets substantially. Later today, at 18:00, the speech from Federal Reserve Board Member Mishkin (dove, voter) could prove interesting.
With markets awaiting the ECB meeting and the US labour market report for June bond yields are left with the general sentiment in equity and credit markets in what looks to become a relatively uneventful day.
Danske Bank
http://www.danskebank.com/danskeresearch
Disclaimer
This publication has been prepared by Danske Markets for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Markets´ research analysts are not permitted to invest in securities under coverage in their research sector. This publication is not intended for private customers in the UK or any person in the US. Danske Markets is a division of Danske Bank A/S, which is regulated by FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange. Copyright (©) Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.
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Daily Forex Analysis
Daily Forex Technicals | Written by FOREXYARD | Jul 02 08 08:47 GMT |
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Headlines
- Peak Crude Oil Prices Enhances Bearishness in USD
USD
Yesterday the USD saw bearish trends against most of its major currency counterparts. The USD fell 34 points vs. the Euro, setting the EUR\USD rate at 1.5794. The USD also depreciated against the GBP, and underwent a volatile session against the JPY.
A bundle of data was delivered from the U.S economy yesterday. The most influential indicator was the Institute of Supply Management (ISM) Manufacturing Index. This indicator measures the activity level of purchasing managers in the manufacturing sector, while a reading above 50 indicating expansion. The index rose from a 49.6 to 50.2 reading, well above the expectation of 48.6. The ISM Manufacturing Prices, which measures the monthly inflation experienced by manufacturers, also increased, rising from 87.0 to 91.5 in the month of June. Additional indicators that released yesterday were the Monthly Construction Spending that fell by 0.4%, and the Domestic Vehicle Sales that descended to 9.7M, following last month's printing of 10.3M. Yet these indicators had little effect on the USD.
Today is going to be another significant day for the US dollar. The very important Nonfarm Employment Change is expected to depreciate by 20K. Such a result, if it occurs, may definitely result in falling trends for the USD. U.S Factory Orders are forecasted to drop to the 0.4% level in May, following a 1.1% increase in the previous month. Crude Oil Inventories might also reach the -0.1M level, after last week's printing of 0.8M. the last event today will take place at 16:00 GMT as US Federal Reserve Governor Frederic Mishkin will deliver a speech titled 'The Global Financial Disruption and the World Economy' at the Caesarea Forum of the Israel Democracy Institute in Eilat. Clues regarding U.S future monetary policy might be scattered. Traders are advised to follow carefully today's financial news, and keep an eye open on Crude Oil prices, as it seems to have large influence on USD pairs.
EUR
Yesterday, the EUR underwent volatile session against most of its major currency rivals. The EUR rose against the USD; however it mainly fluctuated against the GBP and the JPY.
Yesterday, the main news for the Euro came from the German Economy, the strongest economy in the Euro zone. German Retail Sales rose 1.3% from April, up 0.7% year-on-year. The German Unemployment Change has fallen by 38K as opposed to the last month. Other indicators published yesterday were the European Manufacturing Purchasing Manager's Index (PMI) that slightly rose to 49.2 from 49.1 in May. The PMI remained at its lowest level since May 2005, indicating that the sector is still contracting. The European Unemployment Rate has remained at 7.2% in May, unchanged from the rate in April. Even though yesterday's data failed to deliver positive figures for the European economy, the EUR has appreciated against the USD, mainly because the European Central Bank (ECB) is widely expected to raise Interest rates by a quarter percentage point to 4.25% on Thursday, increasing demands for Euro dominated assets and Euros to buy them with.
Today, ECB President Jean-Claude Trichet will deliver a speech at the 15th edition of the Rencontres Finacueres Internationales, in Paris. Traders should follow his speech carefully as any clues regarding future Interest Rate manipulations might generate increased volatility in the market. Today, the sole indicator that will be published from the Euro zone is the Producer Price Index, which measures the change in the price of finished goods and services sold by producers. The index is forecasted by analysts to rise by 0.9% in May, following the 0.8% growth rate observed in April, and is expected to have increased 6.7% from the previous year at the same month. Traders should also follow the leading indicators published from the U.S economy, as they should play the main role in today's trading session.
JPY
Yesterday, the JPY saw mixed results versus its major currency counterparts. The JPY first broadly rose against the USD, benefiting from growing risk aversion in global stocks as heightened fears regarding further losses in the banking sector motivated investors to buy Yens. The JPY tends to gain support when heightened risk aversion occurs, as investors reverse trades financed by borrowing the JPY at low interest rates. However, the USD\JPY rose back, mainly as a result of the positive U.S ISM reports. Also yesterday, the Japanese Average Cash Earnings rose by 0.2% from the previous year, lower than the expected 0.7%, yet it was the fifth straight monthly increase and followed a 0.8% rise in April. The average basic salary in Japan has increased by 0.3%, rising for the seventh straight month. Late in the night, the Japanese Monetary Base, which measures the value of all currency and liquid cash assets held by the public, rose by 0.4% in June from the previous year, marking the first increase in four months. Today, the JPY will be absent from the economic calendar and traders are advised to follow global financial news, especially from the U.S economy.
Oil
Oil at peak prices isn't fringe anymore - it's going mainstream. By 2015, developing country's Oil demand will outstrip the rich world's. They're already in the driver's seat: 90% of the demand growth over the next five years will come from Asia, the Middle East, and Latin America, the IEA said.
The Crude Oil prices seem to consolidate around $142 per barrel for a couple of days now. The market appears to be overbought, but the Oil price might become even more overbought during the day, before reversing. Be prepared.
Technical News
EUR/USD
The pair has been range trading with high volatility for a while now, and it appears that the bearish price movement might be back. However on the 4 hour chart local bullish correction is taking place. Going long with tight stops could be a good strategy today.
GBP/USD
After quite a long period of a distinct bullish correction, the pair has made its bearish breach, and appears to have established a starting point for a relatively strong downtrend. The Slow Stochastic of the daily chart confirms the bearish momentum, and being on the sell side appears to be the right choice today.
USD/JPY
The daily chart is showing flat consolidation around the 106.00 level with no distinct price direction. The 4 hour chart is showing mixed signals, and the daily chart is dwelling in neutral territory. Traders are advised to wait for a clear signal on any direction or keep out of that one today.
USD/CHF
After bottoming out at the 1.0130 level, the pair is showing signs of a corrective move on the daily chart. The Slow Stochastic indication on the 4 hour chart is showing no crosses and the RSI suggests the constitution of the correction. It appears that a test of the key Fibonacci level 1.0350 might be quite imminent.
The Wild Card
Crude Oil
The very important resistance level of 144.00 is looming and the bullish move might revalidate as can be seen on the daily chart. Forex traders have a great opportunity to join this strong key breach and enjoy the rest of the bullish momentum.
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Sterling knocked by diving housing shares
Wed Jul 2, 2008 9:09am BST
LONDON (Reuters) - The pound fell broadly Wednesday as tumbling housing shares and a profit warning from iconic retailer Marks and Spencer cast a further shadow over the already slowing economy.
Confidence in the housing sector was knocked after Taylor Wimpey (TW.L: Quote, Profile, Research) failed to complete a capital raising. Taylor Wimpey shares fell more than 50 percent at one point, leading others south -- including Barratt Developments (BDEV.L: Quote, Profile, Research).
Separately, shares in Marks and Spencer (MKS.L: Quote, Profile, Research) hit a 7-year low after the clothes, food and homewares group issued a shock profit warning, adding that others were likely to follow suit in a deepening consumer downturn.
Analysts said sterling was feeling the pinch of deteriorating economic conditions, set against the impact of rising price pressures.
"Sterling had been doing far too well in the last few days and maybe today's information is going to push it down. All the news we are receiving from the housing sector is really catastrophic at the moment," said Russell Jones, head of fixed income an currencies global research at RBC Capital Markets.
"It's further evidence that the economy is in deep trouble...and that doesn't inspire confidence in currency markets."
By 8:46 a.m., the pound was down 0.2 percent at $1.9902, having hit a 2-month high above the key $2 mark on Tuesday.
The euro was up 0.45 percent at 79.50 pence.
The euro was gaining broader traction, having earlier hit a 2-month high versus the dollar just shy of $1.5850 as markets anticipated a well-telegraphed European Central Bank interest rate hike to 4.25 percent on Thursday.
Analysts also cited jitters ahead of Thursday's U.S. employment report.
(Additional reporting by Toni Vorobyova)
(Reporting by Veronica Brown; Editing by Chris Pizzey)
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LONDON (Reuters) - The pound fell broadly Wednesday as tumbling housing shares and a profit warning from iconic retailer Marks and Spencer cast a further shadow over the already slowing economy.
Confidence in the housing sector was knocked after Taylor Wimpey (TW.L: Quote, Profile, Research) failed to complete a capital raising. Taylor Wimpey shares fell more than 50 percent at one point, leading others south -- including Barratt Developments (BDEV.L: Quote, Profile, Research).
Separately, shares in Marks and Spencer (MKS.L: Quote, Profile, Research) hit a 7-year low after the clothes, food and homewares group issued a shock profit warning, adding that others were likely to follow suit in a deepening consumer downturn.
Analysts said sterling was feeling the pinch of deteriorating economic conditions, set against the impact of rising price pressures.
"Sterling had been doing far too well in the last few days and maybe today's information is going to push it down. All the news we are receiving from the housing sector is really catastrophic at the moment," said Russell Jones, head of fixed income an currencies global research at RBC Capital Markets.
"It's further evidence that the economy is in deep trouble...and that doesn't inspire confidence in currency markets."
By 8:46 a.m., the pound was down 0.2 percent at $1.9902, having hit a 2-month high above the key $2 mark on Tuesday.
The euro was up 0.45 percent at 79.50 pence.
The euro was gaining broader traction, having earlier hit a 2-month high versus the dollar just shy of $1.5850 as markets anticipated a well-telegraphed European Central Bank interest rate hike to 4.25 percent on Thursday.
Analysts also cited jitters ahead of Thursday's U.S. employment report.
(Additional reporting by Toni Vorobyova)
(Reporting by Veronica Brown; Editing by Chris Pizzey)
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Yen Sales by Tokyo Individual Investors at Highest Since August
By Kosuke Goto
July 2 (Bloomberg) -- Yen sales by Japanese individual investors on the Tokyo Financial Exchange reached the highest since August yesterday as they bet the currency will extend its worst quarterly loss against the U.S. dollar since December 2001.
Housewives, pensioners and businessmen accelerated purchases of foreign currencies as this week's gain in Japan's currency provided an opportunity to buy higher-yielding assets in Australia and New Zealand at cheaper levels. The highest yen sales in almost 11 months came as a Bank of Japan business confidence survey raised speculation the central bank will need to keep its benchmark interest rate at 0.5 percent this year.
``Japanese individuals, with a money glut, are increasing risk appetite and prompting yen-selling,'' said Tomoko Fujii, head of economics and strategy for Japan at Bank of America Corp., the second-largest U.S. bank. ``They know Japan's ultra- low interest rates will go nowhere anytime soon. Their yen sales contribute to stem any sharp appreciation of the yen.''
Net short positions on the yen against seven major currencies, including the U.S. and Australian dollars, rose to 334,369 contracts among so-called mom-and-pop traders yesterday, the highest since Aug. 15, data showed.
Record Longs
Investors increased net long positions on Australia's currency to a record 79,920 contracts and on New Zealand's currency to an all-time high of 148,249. A short position is one that bets on a currency falling while a long position is a bet that an asset price will rise.
The yen traded at 106.05 per dollar at 7:58 a.m. in London from 106.13 in New York yesterday. The currency, which declined 6 percent in the second quarter, may fall to 108 a dollar by the end of September, Fujii forecast.
The Japanese currency fell to 102.07 against the Australian dollar from 101.35 yesterday, when it climbed to 100.25, the strongest level since June 4. Against the New Zealand dollar, the yen traded at 80.40 from 80.39.
Japan's benchmark rate is the lowest among major economies, making assets outside of the country more attractive to domestic investors. Australia's interest rate is 7.25 percent and New Zealand's 8.25 percent, making the nations' currencies favorite targets for so-called carry trades.
The exchange's data signals Japan's individual investors may be resuming carry trades after reducing their positions as some higher-yielding currencies depreciated in the past year due to the U.S. subprime crisis.
In carry trades, investors secure funds in countries with low borrowing costs, and buy assets in countries with higher rates earning the spread between the two. The risk is that currency moves erase those profits.
So-called margin trading of currencies in Japan using borrowed funds rose 86 percent in the first quarter to a record 213 trillion yen ($2 billion), figures from the Financial Futures Association of Japan showed in May.
Japanese households have 1,490 trillion yen in financial assets, according to the Bank of Japan.
``This foreign-exchange margin trading industry is still growing,'' Bank of America's Fujii said.
To contact the reporters on this story: Kosuke Goto in Tokyo at kgoto2@bloomberg.net
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July 2 (Bloomberg) -- Yen sales by Japanese individual investors on the Tokyo Financial Exchange reached the highest since August yesterday as they bet the currency will extend its worst quarterly loss against the U.S. dollar since December 2001.
Housewives, pensioners and businessmen accelerated purchases of foreign currencies as this week's gain in Japan's currency provided an opportunity to buy higher-yielding assets in Australia and New Zealand at cheaper levels. The highest yen sales in almost 11 months came as a Bank of Japan business confidence survey raised speculation the central bank will need to keep its benchmark interest rate at 0.5 percent this year.
``Japanese individuals, with a money glut, are increasing risk appetite and prompting yen-selling,'' said Tomoko Fujii, head of economics and strategy for Japan at Bank of America Corp., the second-largest U.S. bank. ``They know Japan's ultra- low interest rates will go nowhere anytime soon. Their yen sales contribute to stem any sharp appreciation of the yen.''
Net short positions on the yen against seven major currencies, including the U.S. and Australian dollars, rose to 334,369 contracts among so-called mom-and-pop traders yesterday, the highest since Aug. 15, data showed.
Record Longs
Investors increased net long positions on Australia's currency to a record 79,920 contracts and on New Zealand's currency to an all-time high of 148,249. A short position is one that bets on a currency falling while a long position is a bet that an asset price will rise.
The yen traded at 106.05 per dollar at 7:58 a.m. in London from 106.13 in New York yesterday. The currency, which declined 6 percent in the second quarter, may fall to 108 a dollar by the end of September, Fujii forecast.
The Japanese currency fell to 102.07 against the Australian dollar from 101.35 yesterday, when it climbed to 100.25, the strongest level since June 4. Against the New Zealand dollar, the yen traded at 80.40 from 80.39.
Japan's benchmark rate is the lowest among major economies, making assets outside of the country more attractive to domestic investors. Australia's interest rate is 7.25 percent and New Zealand's 8.25 percent, making the nations' currencies favorite targets for so-called carry trades.
The exchange's data signals Japan's individual investors may be resuming carry trades after reducing their positions as some higher-yielding currencies depreciated in the past year due to the U.S. subprime crisis.
In carry trades, investors secure funds in countries with low borrowing costs, and buy assets in countries with higher rates earning the spread between the two. The risk is that currency moves erase those profits.
So-called margin trading of currencies in Japan using borrowed funds rose 86 percent in the first quarter to a record 213 trillion yen ($2 billion), figures from the Financial Futures Association of Japan showed in May.
Japanese households have 1,490 trillion yen in financial assets, according to the Bank of Japan.
``This foreign-exchange margin trading industry is still growing,'' Bank of America's Fujii said.
To contact the reporters on this story: Kosuke Goto in Tokyo at kgoto2@bloomberg.net
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Aracruz, Durango, Masisa, Petrobras: Latin Equity Preview
By Paulo Winterstein and James Attwood
July 2 (Bloomberg) -- The following stocks may have significant gains or losses in Latin American markets. Symbols are in parentheses after company names, and stock prices are from the last session.
The MSCI index of Latin American shares fell 2.6 percent to 4,626.33 yesterday. In Brazil, preferred shares are the most commonly traded class of stock.
Brazil
Aracruz Celulose SA (ARCZ6 BS): The world's biggest maker of eucalyptus pulp said its board approved the acquisition of Boise Cascade Co.'s Brazilian unit for $47.1 million to increase its forestry supplies. The purchase includes 15,400 hectares (38,054 acres) of land in southern Brazil, Aracruz said yesterday in an e-mailed statement. About 10,200 hectares of the land is planted with eucalyptus, the Aracruz, Brazil-based company said. Aracruz fell 1.9 percent to 11.50 reais.
Cosan SA Industria & Comercio (CSAN3 BS) and Sao Martinho SA (SMTO3 BS): U.S. Senator Richard Lugar is scheduled to speak at the American Enterprise Institute's conference on global food prices today. The Indiana senator will recommend that the U.S. lift its 54-cents-a-gallon tariff on ethanol imports from Brazil, the world's biggest exporter, according to the Wall Street Journal. Cosan, the world's biggest sugarcane processor, added 1.8 percent to 28.19 reais. Sao Martinho, the second-biggest Brazilian maker of sugar and ethanol by market value, fell 0.9 percent to 25.67 reais.
Petroleo Brasileiro SA (PETR4 BS): Brazil's state-controlled oil company will start production of oil in the pre-salt Jubarte field in September, instead of October, Reuters said yesterday, citing president Luiz Inacio Lula da Silva. The pre-salt Jubarte field should produce up to 15,000 barrels of oil in the first week of September, Reuters cited Lula saying. Petrobras, as the Rio de Janeiro-based company is known, fell 0.3 percent to 46.09 reais.
Rede Empresas de Energia Eletrica SA (REDE3 BS): Fitch Ratings may raise the credit rating one level to B+, four levels below investment grade, for the electric company that recently swapped assets with EDP Energias do Brasil. Better operating performance and ``improving prospects of the group's financial profile'' led analyst Pagsi Jimenez to raise the ratings outlook to positive, according to a statement e-mailed yesterday. Rede fell 2.6 percent to 6.09 reais.
Chile
Masisa SA (MASISA CC): Chile's biggest maker of wooden boards used in construction will retain ownership of Forestal Argentina SA after an agreement to sell a stake in the company expired. Masisa failed to get regulatory approval by the June 30 deadline, the company wrote in a regulatory filing yesterday. Masisa agreed last year to sell a 90 percent stake in the company known as Fasa to a unit of Diversified International Timber Holdings LLC and Chile's GrupoNueva SA. Masisa fell 0.8 percent to 90.1 pesos.
Colombia
Almacenes Exito SA (EXITO CB): Brokerage Bolsa y Renta SA advised clients to buy shares in Colombia's biggest retailer, saying in a note yesterday that its decline has been ``excessive.'' Exito fell 3.2 percent to 12,300 pesos, extending a loss this year to 28 percent.
Mexico
Corporacion Durango SAB (CODUSA* MM): Mexico's largest paper producer had its credit rating cut three levels to CCC+ by Standard & Poor's, seven levels below investment grade. The rating cut reflects concern about Durango's ``inability to fully pass on increasing raw material and energy costs,'' analyst Marcela Duenas wrote in a note. Durango fell 3.6 percent to 7 pesos.
Peru
Southern Copper Corp. (PCU/C PE) and Cia. de Minas Buenaventura SA (BVN PE): A national strike by Peruvian mine workers, which enters a third day today, will continue until Congress sets a date for a vote on new industry legislation, Luis Castillo, general secretary of the Mining Federation, said yesterday in a telephone interview. Southern Copper, the world's seventh-largest copper producer, fell 1.9 percent to $105.45. Buenaventura, the world's seventh-largest gold producer, gained 0.9 percent to $66.
To contact the reporter on this story: Paulo Winterstein in Sao Paulo at pwinterstein@bloomberg.net; James Attwood in Santiago at jattwood3@bloomberg.net.
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July 2 (Bloomberg) -- The following stocks may have significant gains or losses in Latin American markets. Symbols are in parentheses after company names, and stock prices are from the last session.
The MSCI index of Latin American shares fell 2.6 percent to 4,626.33 yesterday. In Brazil, preferred shares are the most commonly traded class of stock.
Brazil
Aracruz Celulose SA (ARCZ6 BS): The world's biggest maker of eucalyptus pulp said its board approved the acquisition of Boise Cascade Co.'s Brazilian unit for $47.1 million to increase its forestry supplies. The purchase includes 15,400 hectares (38,054 acres) of land in southern Brazil, Aracruz said yesterday in an e-mailed statement. About 10,200 hectares of the land is planted with eucalyptus, the Aracruz, Brazil-based company said. Aracruz fell 1.9 percent to 11.50 reais.
Cosan SA Industria & Comercio (CSAN3 BS) and Sao Martinho SA (SMTO3 BS): U.S. Senator Richard Lugar is scheduled to speak at the American Enterprise Institute's conference on global food prices today. The Indiana senator will recommend that the U.S. lift its 54-cents-a-gallon tariff on ethanol imports from Brazil, the world's biggest exporter, according to the Wall Street Journal. Cosan, the world's biggest sugarcane processor, added 1.8 percent to 28.19 reais. Sao Martinho, the second-biggest Brazilian maker of sugar and ethanol by market value, fell 0.9 percent to 25.67 reais.
Petroleo Brasileiro SA (PETR4 BS): Brazil's state-controlled oil company will start production of oil in the pre-salt Jubarte field in September, instead of October, Reuters said yesterday, citing president Luiz Inacio Lula da Silva. The pre-salt Jubarte field should produce up to 15,000 barrels of oil in the first week of September, Reuters cited Lula saying. Petrobras, as the Rio de Janeiro-based company is known, fell 0.3 percent to 46.09 reais.
Rede Empresas de Energia Eletrica SA (REDE3 BS): Fitch Ratings may raise the credit rating one level to B+, four levels below investment grade, for the electric company that recently swapped assets with EDP Energias do Brasil. Better operating performance and ``improving prospects of the group's financial profile'' led analyst Pagsi Jimenez to raise the ratings outlook to positive, according to a statement e-mailed yesterday. Rede fell 2.6 percent to 6.09 reais.
Chile
Masisa SA (MASISA CC): Chile's biggest maker of wooden boards used in construction will retain ownership of Forestal Argentina SA after an agreement to sell a stake in the company expired. Masisa failed to get regulatory approval by the June 30 deadline, the company wrote in a regulatory filing yesterday. Masisa agreed last year to sell a 90 percent stake in the company known as Fasa to a unit of Diversified International Timber Holdings LLC and Chile's GrupoNueva SA. Masisa fell 0.8 percent to 90.1 pesos.
Colombia
Almacenes Exito SA (EXITO CB): Brokerage Bolsa y Renta SA advised clients to buy shares in Colombia's biggest retailer, saying in a note yesterday that its decline has been ``excessive.'' Exito fell 3.2 percent to 12,300 pesos, extending a loss this year to 28 percent.
Mexico
Corporacion Durango SAB (CODUSA* MM): Mexico's largest paper producer had its credit rating cut three levels to CCC+ by Standard & Poor's, seven levels below investment grade. The rating cut reflects concern about Durango's ``inability to fully pass on increasing raw material and energy costs,'' analyst Marcela Duenas wrote in a note. Durango fell 3.6 percent to 7 pesos.
Peru
Southern Copper Corp. (PCU/C PE) and Cia. de Minas Buenaventura SA (BVN PE): A national strike by Peruvian mine workers, which enters a third day today, will continue until Congress sets a date for a vote on new industry legislation, Luis Castillo, general secretary of the Mining Federation, said yesterday in a telephone interview. Southern Copper, the world's seventh-largest copper producer, fell 1.9 percent to $105.45. Buenaventura, the world's seventh-largest gold producer, gained 0.9 percent to $66.
To contact the reporter on this story: Paulo Winterstein in Sao Paulo at pwinterstein@bloomberg.net; James Attwood in Santiago at jattwood3@bloomberg.net.
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European Stocks Erase Losses; U.S. Futures, Asian Shares Fall
By Sarah Jones
July 2 (Bloomberg) -- European stocks erased losses. AstraZeneca Plc led drugmakers higher after a U.S. court upheld a patent for its second-best selling product. U.S. index futures and Asian shares declined.
UBS AG, Switzerland's biggest bank, advanced after signaling it didn't need fresh capital.
Europe's Dow Jones Stoxx 600 Index added 0.2 percent to 283.45 at 8:36 a.m. in London, reversing earlier losses of as much as 0.5 percent. Futures on the Standard & Poor's 500 Index slipped 0.1 percent. The MSCI Asia Pacific Index decreased 1.2 percent.
AstraZeneca, the U.K.'s second-largest drugmaker, rallied 6.2 percent to 2,262 pence after a U.S. court upheld a patent on Seroquel antipsychotic.
U.S. District Judge Joel Pisano in Trenton, New Jersey, yesterday rejected claims by Teva Pharmaceutical Industries Ltd. and Novartis AG that AstraZeneca failed to include key information during the application process before the U.S. Patent and Trademark Office.
GlaxoSmithKline Plc, the world's second-largest drugmaker, gained 2.1 percent to 1126.6 pence. France's Sanofi-Aventis SA added 1.5 percent to 42.35 euros.
UBS rose 2.8 percent to 20.86 francs after Chairman Peter Kurer told Finanz & Wirtschaft in an interview that the bank won't need fresh capital.
He declined to comment on second-quarter earnings, or on speculation that that the bank may be a takeover target, the newspaper said.
To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net.
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July 2 (Bloomberg) -- European stocks erased losses. AstraZeneca Plc led drugmakers higher after a U.S. court upheld a patent for its second-best selling product. U.S. index futures and Asian shares declined.
UBS AG, Switzerland's biggest bank, advanced after signaling it didn't need fresh capital.
Europe's Dow Jones Stoxx 600 Index added 0.2 percent to 283.45 at 8:36 a.m. in London, reversing earlier losses of as much as 0.5 percent. Futures on the Standard & Poor's 500 Index slipped 0.1 percent. The MSCI Asia Pacific Index decreased 1.2 percent.
AstraZeneca, the U.K.'s second-largest drugmaker, rallied 6.2 percent to 2,262 pence after a U.S. court upheld a patent on Seroquel antipsychotic.
U.S. District Judge Joel Pisano in Trenton, New Jersey, yesterday rejected claims by Teva Pharmaceutical Industries Ltd. and Novartis AG that AstraZeneca failed to include key information during the application process before the U.S. Patent and Trademark Office.
GlaxoSmithKline Plc, the world's second-largest drugmaker, gained 2.1 percent to 1126.6 pence. France's Sanofi-Aventis SA added 1.5 percent to 42.35 euros.
UBS rose 2.8 percent to 20.86 francs after Chairman Peter Kurer told Finanz & Wirtschaft in an interview that the bank won't need fresh capital.
He declined to comment on second-quarter earnings, or on speculation that that the bank may be a takeover target, the newspaper said.
To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net.
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Germany Stocks Update: DAX Index Rises 26.76 to 6,342.70
By Daniel Hauck
July 2 (Bloomberg) -- Germany's benchmark stock index, the DAX Index, rose 0.42 percent at 9:05 a.m.
The index of 30 companies traded on the Frankfurt Stock Exchange rose 26.76 to 6,342.70. Among the stocks in the index, 23 rose and 7 fell.
Gains in the DAX were led by Deutsche Bank Ag, Allianz Se and Daimler Ag. About 4.86 million shares traded in the DAX.
Last Updated: July 2, 2008 03:05 EDT
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July 2 (Bloomberg) -- Germany's benchmark stock index, the DAX Index, rose 0.42 percent at 9:05 a.m.
The index of 30 companies traded on the Frankfurt Stock Exchange rose 26.76 to 6,342.70. Among the stocks in the index, 23 rose and 7 fell.
Gains in the DAX were led by Deutsche Bank Ag, Allianz Se and Daimler Ag. About 4.86 million shares traded in the DAX.
Last Updated: July 2, 2008 03:05 EDT
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French Stocks: Credit Agricole, Danone, France Telecom, Zodiac
By Adria Cimino
July 2 (Bloomberg) -- France's CAC 40 Index gained 17.60, or 0.4 percent, to 4,358.81 at 9:37 a.m. in Paris, rising for the second time this week. The SBF 120 Index added 0.6 percent.
The following stocks rose or fell in Paris. Stock symbols are in parentheses.
Credit Agricole SA (ACA FP) added 21 cents, or 1.7 percent, to 12.58 euros, climbing for the first time this week. France's third-largest bank by market value raised 5.9 billion euros ($9.3 billion) in a rights offering to replenish capital after writedowns on subprime-infected assets.
Groupe Danone SA (BN FP) sank 2.66 euros, or 6 percent, to 41.59, retreating for a fifth day. Morgan Stanley cut its recommendation on shares of the world's biggest yogurt maker to ``equal weight'' from ``overweight.'' Cheuvreux lowered its recommendation to ``underperform'' from ``country selected.''
France Telecom SA (FTE FP), Europe's third-largest phone company, climbed 26 cents, or 1.4 percent, to 19.42 euros, gaining for a third day. HSBC Holdings Plc raised its recommendation on the shares to ``overweight'' from ``neutral.''
Renault SA (RNO FP) increased 87 cents, or 1.7 percent, to 51.92 euros, rising for a second time this week. Citigroup Inc. lifted its recommendation on shares of France's second-largest automaker to ``buy'' from ``hold.''
Sodexo (SW FP) advanced 64 cents, or 1.6 percent, to 41.59 euros, rising for the first day this week. The world's second- largest catering company said nine-month sales rose 2.5 percent to 10.5 billion euros, matching analysts estimates.
Zodiac SA (ZC FP) slid 68 cents, or 2.4 percent, to 27.31 euros, dropping for a fifth day. UBS AG cut its recommendation on the supplier of aircraft seats and escape chutes to Airbus SAS to ``neutral'' from ``buy.'' Oddo Securities downgraded the shares to ``add'' from ``buy.''
To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.
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July 2 (Bloomberg) -- France's CAC 40 Index gained 17.60, or 0.4 percent, to 4,358.81 at 9:37 a.m. in Paris, rising for the second time this week. The SBF 120 Index added 0.6 percent.
The following stocks rose or fell in Paris. Stock symbols are in parentheses.
Credit Agricole SA (ACA FP) added 21 cents, or 1.7 percent, to 12.58 euros, climbing for the first time this week. France's third-largest bank by market value raised 5.9 billion euros ($9.3 billion) in a rights offering to replenish capital after writedowns on subprime-infected assets.
Groupe Danone SA (BN FP) sank 2.66 euros, or 6 percent, to 41.59, retreating for a fifth day. Morgan Stanley cut its recommendation on shares of the world's biggest yogurt maker to ``equal weight'' from ``overweight.'' Cheuvreux lowered its recommendation to ``underperform'' from ``country selected.''
France Telecom SA (FTE FP), Europe's third-largest phone company, climbed 26 cents, or 1.4 percent, to 19.42 euros, gaining for a third day. HSBC Holdings Plc raised its recommendation on the shares to ``overweight'' from ``neutral.''
Renault SA (RNO FP) increased 87 cents, or 1.7 percent, to 51.92 euros, rising for a second time this week. Citigroup Inc. lifted its recommendation on shares of France's second-largest automaker to ``buy'' from ``hold.''
Sodexo (SW FP) advanced 64 cents, or 1.6 percent, to 41.59 euros, rising for the first day this week. The world's second- largest catering company said nine-month sales rose 2.5 percent to 10.5 billion euros, matching analysts estimates.
Zodiac SA (ZC FP) slid 68 cents, or 2.4 percent, to 27.31 euros, dropping for a fifth day. UBS AG cut its recommendation on the supplier of aircraft seats and escape chutes to Airbus SAS to ``neutral'' from ``buy.'' Oddo Securities downgraded the shares to ``add'' from ``buy.''
To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.
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Asian Stocks Drop; Cathay Pacific, Nippon Yusen Lead Declines
By Chen Shiyin and Kevin Cho
July 2 (Bloomberg) -- Asian stocks declined, led by airlines and shipping companies, after record oil prices drove up costs and curbed spending. Japan's Nikkei 225 Stock Average completed its longest losing streak in 43 years.
Cathay Pacific Airways Ltd., Hong Kong's largest airline, tumbled the most since October 2001 after saying earnings will be ``disappointing.'' Nippon Yusen K.K., Japan's biggest shipping line, fell on concern this year's 48 percent jump in oil will reduce trade. Toyota Motor Corp. retreated in Tokyo after its U.S. sales slumped 21 percent last month.
``Nobody wants to hold on to stocks right now,'' said Choi Min Jai, who helps manage about $5 billion at KTB Asset Management Co. in Seoul. ``The slowdown in the global economy is being felt. There is rising concern higher oil prices will mean higher inflation, which means lower demand.''
The MSCI Asia Pacific Index lost 1.3 percent to 134.13 at 4:52 p.m. in Tokyo, dropping for the ninth time in 10 days. Almost three stocks fell for each that gained, as all but one of the index's 10 industry groups declined.
Japan's Nikkei 225 sank 1.3 percent to 13,286.37, capping a 10 day, 8.1 percent slump. The retreat is the longest since 1965, when the Vietnam War was escalating, Japan was in a recession and the central bank had to bail out two brokerages.
MSCI's Asian index fell 13 percent in the first half of this year, the worst start since 1992. Concern that surging commodity prices will fuel inflation and derail growth today dragged the benchmark to the lowest since March, when turmoil in credit markets pushed up borrowing costs and led to the forced sale of Bear Stearns Cos. to JPMorgan Chase & Co.
In the U.S., futures on the Standard & Poor's 500 Index fell 0.1 percent.
Korea Stocks Drop
LG Electronics Inc. paced declines in South Korea after JPMorgan cut its share-price target. The Kospi Index lost 2.6 percent, the biggest slump since March 13 and the region's biggest drop. Korean Air Lines Co. plunged the most in 11 months after an analyst said the carrier may report a loss. The government said today economic growth will slow this year as inflation quickens to the fastest pace in a decade.
Cathay Pacific plummeted 7.1 percent to HK$13.80. The airline said the spot price for jet fuel is 93 percent higher than last year's average. Korean Air, the nation's largest, dropped 8.3 percent to 44,000 won, the most since Aug. 16. Korea Investment & Securities Co. said the company will likely post its first operating loss since 2003 because of fuel costs.[bn:WBTKR=QAN:AU]
Qantas Airways Ltd. [], Australia's biggest airline, dropped 2.8 percent to A$3.15 as oil climbed for a second day. Crude for August delivery rose as much as 1.1 percent to $142.45 a barrel in New York today, near June 30's record of $143.67.
Shipping Lines
Nippon Yusen dropped 4.6 percent to 981 yen. Mitsui O.S.K. Lines Ltd., Japan's second-largest shipping line by sales, fell 3.8 percent to 1,437 yen. STX Pan Ocean Co., South Korea's largest operator of vessels that transport coal, iron ore and other commodities, plunged 5.5 percent to 1,900 won.
The Baltic Dry Index, which tracks the price of shipping bulk commodities, declined 2.2 percent yesterday, the largest loss since June 23.
Finance ministers from the Group of Eight nations said last month surging food and fuel prices have replaced the credit squeeze as the biggest threat to the world economy. The Bank for International Settlements, which lends to central banks, said on June 30 interest rates should be raised globally to curb price rises.
``Inflation remains a very big threat to economic growth and earnings with the oil price at such high levels,'' said Nicole Sze, a Singapore-based investment analyst at Bank Julius Baer & Co., which manages $350 billion in assets worldwide. ``Equity markets are likely to remain choppy.''
Cheaper Stocks
MSCI's Asian index is valued at 14 times earnings, down from about 18 times at the start of 2008. China's CSI 300 Index has lost 50 percent this year, joining India and Vietnam among the world's 10 worst performing stock indexes, Bloomberg data shows.
Toyota, Japan's biggest carmaker, dropped 1.4 percent to 4,940 yen, its lowest close since April 16. North America accounts for a third of the company's total sales.
Vehicle sales plunged 18 percent in the U.S. last month, the steepest slump in almost six years. Honda Motor Co., Japan's second-largest automaker, lost 1.1 percent to 3,600 yen.
LG Electronics, Asia's second-largest mobile-phone maker, fell 4.6 percent to 114,500 won, its lowest close since March 26. JPMorgan cut its share-price forecast by 28 percent to 115,000 won, citing lower earnings prospects.
Just Group Ltd., Australia's biggest specialty clothing retailer, slumped 13 percent to A$2.78 in Sydney, the largest drop since May 2005. The company cut its full-year earnings forecast today.
BHP Billiton Ltd., the world's sixth-largest producer of primary aluminum, fell 3.4 percent to A$42.89 after Credit Suisse Group cut its earnings estimate for Alcoa Inc. and Century Aluminum Co. Analysts said profits will be hurt by higher energy and materials costs and a lower average price for the metal.
To contact the reporter for this story: Chen Shiyin in Singapore at schen37@bloomberg.net.
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Malaysia Stocks Fall to 1-Year Low on Political Woes, Inflation
By Chan Tien Hin
July 2 (Bloomberg) -- Malaysia's key stock index slumped to its lowest in more than a year on concern political turmoil and accelerating inflation will curb economic growth.
Guocoland Malaysia Bhd. tumbled the most in four months, leading property stocks lower. Bumiputra-Commerce Holdings Bhd. led declines by banks, sliding to its lowest in almost two years.
About 10,000 people rallied in a Kuala Lumpur suburb last night to support Malaysian opposition leader Anwar Ibrahim, who is facing a new sodomy allegation. He has denied the claims and has accused the government of a conspiracy.
``It's a very lethal cocktail: You've got inflation, you've got politics, you've got global markets seizing up again,'' said Patrick Chang, who helps manage the equivalent of $4.5 billion as vice president of equities at CIMB-Principal Asset Management Bhd. in Kuala Lumpur. ``It's doesn't look good.''
The Kuala Lumpur Composite Index fell for a fifth day, dropping 19.87, or 1.7 percent, to 1,157.96 at the 12:30 a.m. local time break, set for its lowest since March 7, 2007. Only four stocks rose on the 100-member benchmark index. The July stock index futures slid 0.7 percent to 1,144.50. The MSCI World Index fell 8.1 percent in June.
Guocoland dropped 12 sen, or 8.9 percent, to 1.23 ringgit, the biggest decliner on the Composite Index. Sunrise Bhd., Malaysia's biggest developer of high-end condominiums, sank 14 sen, or 9 percent, to 1.42 ringgit, its fifth day of declines.
Bumiputra-Commerce, Malaysia's second-biggest bank, dropped 15 sen, or 2 percent, to 7.45 ringgit, headed for its lowest close since November 2006.
`Complete Fabrication'
Anwar said on June 29 a police report by a former aide accusing him of sodomy is a ``complete fabrication'' designed to halt his challenge to the government in the same way a 1998 charge led to his imprisonment.
The former Deputy Prime Minister sought refuge at the Turkish Ambassador to Malaysia's residence earlier this week because he feared for his life after police said they were investigating him for sodomy.
The sodomy charge follows the ruling coalition's worst-ever election result in March that raised doubt over Prime Minister Abdullah Ahmad Badawi and his public spending program. On March 10, a day after the polls result, the Composite Index plunged 9.5 percent, the steepest drop in a decade.
Last month, the government raised gasoline prices by 41 percent and electricity prices were increased at the beginning of this month. The central bank in June raised its 2008 average inflation forecast to 4.2 percent from a March estimate of as much as 3 percent.
To contact the reporter on this story: Chan Tien Hin in Kuala Lumpur thchan@bloomberg.net
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July 2 (Bloomberg) -- Malaysia's key stock index slumped to its lowest in more than a year on concern political turmoil and accelerating inflation will curb economic growth.
Guocoland Malaysia Bhd. tumbled the most in four months, leading property stocks lower. Bumiputra-Commerce Holdings Bhd. led declines by banks, sliding to its lowest in almost two years.
About 10,000 people rallied in a Kuala Lumpur suburb last night to support Malaysian opposition leader Anwar Ibrahim, who is facing a new sodomy allegation. He has denied the claims and has accused the government of a conspiracy.
``It's a very lethal cocktail: You've got inflation, you've got politics, you've got global markets seizing up again,'' said Patrick Chang, who helps manage the equivalent of $4.5 billion as vice president of equities at CIMB-Principal Asset Management Bhd. in Kuala Lumpur. ``It's doesn't look good.''
The Kuala Lumpur Composite Index fell for a fifth day, dropping 19.87, or 1.7 percent, to 1,157.96 at the 12:30 a.m. local time break, set for its lowest since March 7, 2007. Only four stocks rose on the 100-member benchmark index. The July stock index futures slid 0.7 percent to 1,144.50. The MSCI World Index fell 8.1 percent in June.
Guocoland dropped 12 sen, or 8.9 percent, to 1.23 ringgit, the biggest decliner on the Composite Index. Sunrise Bhd., Malaysia's biggest developer of high-end condominiums, sank 14 sen, or 9 percent, to 1.42 ringgit, its fifth day of declines.
Bumiputra-Commerce, Malaysia's second-biggest bank, dropped 15 sen, or 2 percent, to 7.45 ringgit, headed for its lowest close since November 2006.
`Complete Fabrication'
Anwar said on June 29 a police report by a former aide accusing him of sodomy is a ``complete fabrication'' designed to halt his challenge to the government in the same way a 1998 charge led to his imprisonment.
The former Deputy Prime Minister sought refuge at the Turkish Ambassador to Malaysia's residence earlier this week because he feared for his life after police said they were investigating him for sodomy.
The sodomy charge follows the ruling coalition's worst-ever election result in March that raised doubt over Prime Minister Abdullah Ahmad Badawi and his public spending program. On March 10, a day after the polls result, the Composite Index plunged 9.5 percent, the steepest drop in a decade.
Last month, the government raised gasoline prices by 41 percent and electricity prices were increased at the beginning of this month. The central bank in June raised its 2008 average inflation forecast to 4.2 percent from a March estimate of as much as 3 percent.
To contact the reporter on this story: Chan Tien Hin in Kuala Lumpur thchan@bloomberg.net
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China Stocks Not Cheap Enough Yet for KBC Goldstate, CIO Says
By Chua Kong Ho
July 2 (Bloomberg) -- China's stocks, trading at the lowest valuations in almost two years, still aren't cheap enough for KBC-Goldstate Fund Management Co. to raise its equity holdings because inflation may erode company profits.
KBC-Goldstate, a venture between Belgium's KBC Asset Management NV, China's Goldstate Securities Co. and Capital Airport Holding Co., has cut the holding of equities in its $609 million Momentum Investment Fund to less than 11 percent, said Chief Investment Officer Lode Vermeersch. He declined to be specific about the fund's assets, which include bonds and cash.
``We're searching for answers,'' Vermeersch said in an interview today, when asked whether his Shanghai-based company will increase its stock holdings. ``At this moment, there's a need for a lot of consideration before we take a position.''
The CSI 300 Index, which tracks yuan-denominated stocks in Shanghai and Shenzhen, has slumped 49 percent this year, the most among benchmark indexes in the world's 20 biggest equity markets, amid concern government measures to curb inflation will hurt company profits.
The tumble followed a sixfold surge in the two years through 2007 that took valuations to 53 times reported earnings on October 16, when the CSI 300 closed at a record. The ratio has since declined to 20 times, the lowest since August 2006.
``Of course valuations are attractive compared to October,'' Vermeersch, 44, said. ``Are they attractive enough? That's hard to answer.''
KBC Goldstate as of March 31 had 11 percent of the $609 million Momentum Investment Fund in stocks 45 percent in bonds and 44 percent in cash, according to its quarterly fund report.
Inflation, which climbed to 8.1 percent in the first five months of this year compared with 4.8 percent for all of 2007, could affect the ability of companies to pass on higher costs, Vermeersch said. Slowing global growth will also cut demand for Chinese exports, while consumption could decline if wages can't keep up with price increases.
``Most investors are waiting for the quarterly earnings reports to come out to give some indicator whether profits have worsened or are in line,'' Vermeersch said.
To contact the reporter responsible for this story: Chua Kong Ho in Shanghai at Kchua6@bloomberg.net
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July 2 (Bloomberg) -- China's stocks, trading at the lowest valuations in almost two years, still aren't cheap enough for KBC-Goldstate Fund Management Co. to raise its equity holdings because inflation may erode company profits.
KBC-Goldstate, a venture between Belgium's KBC Asset Management NV, China's Goldstate Securities Co. and Capital Airport Holding Co., has cut the holding of equities in its $609 million Momentum Investment Fund to less than 11 percent, said Chief Investment Officer Lode Vermeersch. He declined to be specific about the fund's assets, which include bonds and cash.
``We're searching for answers,'' Vermeersch said in an interview today, when asked whether his Shanghai-based company will increase its stock holdings. ``At this moment, there's a need for a lot of consideration before we take a position.''
The CSI 300 Index, which tracks yuan-denominated stocks in Shanghai and Shenzhen, has slumped 49 percent this year, the most among benchmark indexes in the world's 20 biggest equity markets, amid concern government measures to curb inflation will hurt company profits.
The tumble followed a sixfold surge in the two years through 2007 that took valuations to 53 times reported earnings on October 16, when the CSI 300 closed at a record. The ratio has since declined to 20 times, the lowest since August 2006.
``Of course valuations are attractive compared to October,'' Vermeersch, 44, said. ``Are they attractive enough? That's hard to answer.''
KBC Goldstate as of March 31 had 11 percent of the $609 million Momentum Investment Fund in stocks 45 percent in bonds and 44 percent in cash, according to its quarterly fund report.
Inflation, which climbed to 8.1 percent in the first five months of this year compared with 4.8 percent for all of 2007, could affect the ability of companies to pass on higher costs, Vermeersch said. Slowing global growth will also cut demand for Chinese exports, while consumption could decline if wages can't keep up with price increases.
``Most investors are waiting for the quarterly earnings reports to come out to give some indicator whether profits have worsened or are in line,'' Vermeersch said.
To contact the reporter responsible for this story: Chua Kong Ho in Shanghai at Kchua6@bloomberg.net
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GM's Sales Growth in China Slows on Increasing Competition
By Tian Ying
July 2 (Bloomberg) -- General Motors Corp., the biggest overseas automaker in China, said sales growth in the country slowed in the first half as rising competition curbed demand.
GM boosted sales by about 14 percent from a year earlier in China over the past six months to more than 590,000 vehicles, Joseph Lau, vice president for GM China, said in a telephone interview today, citing preliminary data. That compares with a growth rate of 19 percent last year.
GM, which hasn't had a yearly profit since 2004, is counting on growth in China and India as demand in North America plunges. Competition in the Chinese market has been rising with Volkswagen AG, Toyota Motor Corp. and other automakers adding new models to fight for a bigger share of the market.
``Shanghai GM has been facing difficulties by relying on existing models to compete with rivals that have added new ones,'' said Lau. Shanghai General Motors Co. is GM's sole car venture in China.
Demand in China has made Asia Detroit-based GM's second- most profitable market. It earned $286 million before taxes in the region in the first quarter compared with a $812 million loss in North America.
The slowdown comes as the company's sales in the U.S. plunge. GM's U.S. sales dropped 16 percent in the first half, outpacing the overall market's 10 percent decline.
New Buick Model
GM, which added three revamped models in the first half, will start selling its first hybrid car in China, a locally made version of the Buick Lacrosse sedan, around late July or early August, Lau said. It will be their sole brand new model in the market this year, according to Lau.
Prices for regular gasoline rose 16 percent to 6.2 yuan a liter ($3.42 a gallon) in Beijing on June 20th after the government raised wholesale fuel prices.
``GM is going through a downturn in China this year because of a lack of popular new models,'' said Yi Junfeng, an analyst at Changjiang Securities Co. in Shanghai. ``Given the rising fuel prices, GM will find it even harder to expand sales in the second half.''
The company plans to add a new Buick sedan in China in the first quarter of 2009 to challenge Toyota's Camry and Volkswagen's Magotan, said Lau. The model will be produced in Shanghai.
Volkswagen, Toyota
Volkswagen started building at least six new or revamped models in China in the first half. It added the Lavida compact car last month.
Toyota boosted sales in China 62 percent last year to 500,000 on the popularity of Camry and Corolla sedans and aims to lift sales 40 percent this year. The Camry was the country's fourth-bestselling car last year following Volkswagen's Santana and Jetta and GM's Excelle.
GM plans to invest as much as $5 billion in China over five years through 2012 to expand its share of the world's fastest growing major vehicle market, Kevin Wale, president of GM's China unit said in December.
The company plans to spend about $1 billion a year on car and engine development, production facilities, technical and after-sales support and infrastructure, according to the company.
``GM is optimistic about demand in the Chinese market and will actively keep on investing in China over the next five years,'' said Lau.
To contact the reporters on this story: Tian Ying in Beijing on ytian@bloomberg.net
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July 2 (Bloomberg) -- General Motors Corp., the biggest overseas automaker in China, said sales growth in the country slowed in the first half as rising competition curbed demand.
GM boosted sales by about 14 percent from a year earlier in China over the past six months to more than 590,000 vehicles, Joseph Lau, vice president for GM China, said in a telephone interview today, citing preliminary data. That compares with a growth rate of 19 percent last year.
GM, which hasn't had a yearly profit since 2004, is counting on growth in China and India as demand in North America plunges. Competition in the Chinese market has been rising with Volkswagen AG, Toyota Motor Corp. and other automakers adding new models to fight for a bigger share of the market.
``Shanghai GM has been facing difficulties by relying on existing models to compete with rivals that have added new ones,'' said Lau. Shanghai General Motors Co. is GM's sole car venture in China.
Demand in China has made Asia Detroit-based GM's second- most profitable market. It earned $286 million before taxes in the region in the first quarter compared with a $812 million loss in North America.
The slowdown comes as the company's sales in the U.S. plunge. GM's U.S. sales dropped 16 percent in the first half, outpacing the overall market's 10 percent decline.
New Buick Model
GM, which added three revamped models in the first half, will start selling its first hybrid car in China, a locally made version of the Buick Lacrosse sedan, around late July or early August, Lau said. It will be their sole brand new model in the market this year, according to Lau.
Prices for regular gasoline rose 16 percent to 6.2 yuan a liter ($3.42 a gallon) in Beijing on June 20th after the government raised wholesale fuel prices.
``GM is going through a downturn in China this year because of a lack of popular new models,'' said Yi Junfeng, an analyst at Changjiang Securities Co. in Shanghai. ``Given the rising fuel prices, GM will find it even harder to expand sales in the second half.''
The company plans to add a new Buick sedan in China in the first quarter of 2009 to challenge Toyota's Camry and Volkswagen's Magotan, said Lau. The model will be produced in Shanghai.
Volkswagen, Toyota
Volkswagen started building at least six new or revamped models in China in the first half. It added the Lavida compact car last month.
Toyota boosted sales in China 62 percent last year to 500,000 on the popularity of Camry and Corolla sedans and aims to lift sales 40 percent this year. The Camry was the country's fourth-bestselling car last year following Volkswagen's Santana and Jetta and GM's Excelle.
GM plans to invest as much as $5 billion in China over five years through 2012 to expand its share of the world's fastest growing major vehicle market, Kevin Wale, president of GM's China unit said in December.
The company plans to spend about $1 billion a year on car and engine development, production facilities, technical and after-sales support and infrastructure, according to the company.
``GM is optimistic about demand in the Chinese market and will actively keep on investing in China over the next five years,'' said Lau.
To contact the reporters on this story: Tian Ying in Beijing on ytian@bloomberg.net
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Australia's Retail Sales Rise More-Than-Forecast 0.7%
By Jacob Greber
July 2 (Bloomberg) -- Australian retail sales rose in May at the fastest pace in six months, sending the currency higher on speculation the central bank will boost borrowing costs again this year.
Sales climbed 0.7 percent from April, when they fell a revised 0.1 percent, the Bureau of Statistics said in Sydney today. The increase beat the median estimate of 24 economists surveyed by Bloomberg News for a 0.1 percent gain.
Spending has increased on food, recreational goods, cosmetics and jewelry, suggesting households are weathering 12- year high interest rates and record gasoline prices. Tax cuts introduced yesterday that boost average incomes by A$20 ($19) a week may drive spending in coming months, increasing pressure on central bank Governor Glenn Stevens to cool the economy further.
``We're calling another rate hike this year, probably in November,'' said Matthew Johnson, a senior economist at ICAP Australia Ltd. in Sydney. ``If consumers can increase discretionary spending when fuel prices are high, then they will most probably spend the tax cuts.''
The Australian dollar climbed to 95.85 U.S. cents at 12:33 p.m. in Sydney from 95.47 cents before the figures were released. The two-year government bond yield rose 7 basis points, or 0.07 percentage point, to 6.93 percent.
Spending at recreational goods retailers gained 2.2 percent in May, while food sales increased 1 percent, the report showed.
Rate Increases
Australia's central bank has been trying to curb consumer spending, which accounts for about 60 percent of the economy, to cool inflation that has accelerated above its target range of between 2 percent and 3 percent.
Stevens and his board left the benchmark interest rate at 7.25 percent yesterday, saying the economy will moderate this year. The bank increased rates in March, February, November and August.
Last month, Stevens signaled that the bank is prepared to boost borrowing costs again if consumer and business spending rebounds.
Today's report suggests hiring by mining companies such as BHP Billiton Ltd., which is expanding to meet demand from China for iron ore and coal, is shoring up spending. The jobless rate was 4.3 percent in May, close to the lowest in more than three decades.
Export Boom
The central bank expects Australia's terms of trade, a measure of income from overseas sales, to surge 20 percent this year. The increase ``will add substantially to national income and ability to spend,'' Stevens said yesterday.
Also, some A$33 billion ($32 billion) in income-tax cuts over four years took effect from yesterday.
Households also appear to be weathering this year's surge in the price of crude oil, which hit a record $143.67 a barrel this week.
``So much for higher petrol prices affecting households discretionary spending,'' said Katie Dean, a senior economist at Australia & New Zealand Banking Group Ltd. in Melbourne. ``Today's data raises doubts over the Reserve Bank's apparent view that household spending was slowing abruptly.''
The surge in retail spending means an August increase in the central bank's cash rate target can't be ruled out, Dean added.
Conflicting Reports
Investors increased bets on the size of future increases in borrowing costs after today's report. Stevens will boost the benchmark rate by 25 basis points in the next 12 months, according to a Credit Suisse Group index based on trading in interest-rate swaps. Yesterday, they forecast 19 basis points of gains.
Still, some economic reports signal household spending will slow in coming months. Consumer confidence slumped to the lowest level in almost 16 years in June, and a separate release today showed home-building approvals fell 6.5 percent May, the fourth decline in the first five months of this year.
Just Group Ltd., Australia's largest specialty clothing retailer, cut earnings forecasts today because of a ``further weakening in consumer sentiment.''
``Anecdotes about spending remain very weak,'' said Brian Redican, a senior economist at Macquarie Group Ltd. in Sydney. ``For that reason, we think policy makers will view today's retail sales report with a large dose of salt.''
To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net
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Manhattan Second-Quarter Apartment Sales Drop Most Since 1998
By Sharon L. Lynch
July 2 (Bloomberg) -- Manhattan apartment sales dropped the most for a second quarter since 1998 and unsold inventory approached an eight-year record, two signs prices may be poised to drop in the nation's most expensive urban housing market.
Sales fell 22 percent from a year earlier and inventory rose 31 percent to 6,869 units, New York-based real estate appraiser Miller Samuel Inc. and broker Prudential Douglas Elliman Real Estate said in a report today. The median price of a co-operative or condominium apartment increased almost 15 percent to a record $1.03 million, lifted by new developments.
Transactions are declining as financial firms have announced plans to cut almost 90,000 jobs after taking more than $400 billion in mortgage-related losses and writedowns. Those companies may lose as many as 175,000 employees by next June, according to executive recruiters such as New York's Gerson Group, casting a pall on a property market driven by Wall Street compensation.
``People are asking: `Am I going to have a job?''' said Pamela Liebman, chief executive officer of the Corcoran Group, a Manhattan-based real estate brokerage that also issued a price report today. ``There is a lot of uncertainty and uncertainty puts people on the sidelines.''
The U.S. housing slump started in mid-2005 when sales of new and existing homes began to drop, bringing a five-year boom to a close. Prices for existing homes started falling last July and finished the year below 2006 levels, the first annual decline since the Great Depression, according to the National Association of Realtors in Chicago.
Longer Selling Time
While prices in New York City are holding up for now, buyers remain wary and apartments are taking longer to sell. The average time spent on the market rose 15 percent to 135 days, according to Miller Samuel. At the end of May, there were 7,320 housing units for sale in Manhattan, the second-highest number for the month since Miller began keeping records in 2001.
``There is sort of the anticipation, the expectation that the other shoe is going to drop,'' Miller Samuel President Jonathan Miller said. ``I think for this quarter, it hasn't.''
All four reports issued today show price increases. Corcoran, owned by Apollo Management LP, and the New York-based brokers Brown Harris Stevens and Halstead Property LLC, owned by Terra Holdings LLC, produced reports in addition to Miller's. The figures vary in part because the brokers include some of their own sales that have yet to show up in the city's public records database.
Manhattan apartment prices rose 3.6 percent in 2007, according to Miller Samuel.
Luxury Sales
About a third of second-quarter closings were new condominiums, some of which went into contract before turmoil hit the credit markets last August and September, said Gregory Heym, chief economist for Terra Holdings.
Many of the units closing now are multimillion dollar condominiums at the recently converted Plaza and at architect Robert A.M. Stern's 15 Central Park West.
Those properties helped drive the median condominium price up almost 22 percent to $1.3 million in the three months ended in June and contributed more than three percentage points to the city's overall increase in median price, according to Miller. Without them, the median rose 11.2 percent, Miller said.
Goldman Sachs Group Inc. Chairman Lloyd Blankfein, former Citigroup Inc. Chairman Sanford Weill and rock star Sting have bought units at 15 Central Park West, where the apartments have heated bathroom floors, Vermont marble countertops and six-burner Thermador ranges.
Future Bonuses
Other buyers there include Nascar Inc. Chairman Brian France, who paid $10.7 million, and Mitchell Julis, co-founder of the asset management firm Canyon Partners LLC, who paid $10.2 million, according to city records.
Once the remaining units in Stern's building and the Plaza close, average prices may drop as much as $200,000, Heym said.
``I don't expect to see any dramatic price change before the end of the year,'' Heym said. ``The real telling thing will be Wall Street bonuses and how the city looks going into 2009.''
Prices of two-bedroom apartments rose 18 percent to $1.65 million, the biggest increase for any size category. Studios rose almost 12 percent to $480,000, one bedrooms increased 11 percent to $778,961, three bedrooms by 3 percent to $3.7 million and apartments with four or more bedrooms climbed 11 percent to a median of $7.35 million, Miller's data show.
`Kiss the Ground'
The top end of the residential market remained the strongest as wealthy buyers bought condominiums with amenities such as gym and spa services, hotel-style room service and swimming pools.
The median price of a luxury apartment rose almost 38 percent to $4.95 million in the Miller Samuel survey and 35 percent to $4.88 million, according to Corcoran. Both companies consider apartments of more than $3.1 million as luxury.
``Real estate markets go up and down, and when it comes to New York City, it's an island. There's not a lot of land, and it'll survive,'' said Dottie Herman, chief executive officer of Prudential Douglas Elliman. ``I think we need to kiss the ground because we live in New York.''
To contact the reporter on this story: Sharon L. Lynch in New York at sllynch@bloomberg.net
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South Korea to Freeze Public Charges, Stabilize Won
By Seyoon Kim
July 2 (Bloomberg) -- South Korea's government plans to freeze prices on some public services and stabilize the currency to help contain an inflation rate that has accelerated to a 10- year high.
``The economy is likely to continue to have difficulties in the second half and we will place utmost priority on stabilizing prices,'' the Ministry of Strategy and Finance said in its semiannual policy report, released today in Gwacheon.
The government has shifted its focus from stoking the economy's expansion to controlling inflation after President Lee Myung Bak's approval rating plunged by more than half amid voter resentment at paying record fuel and food costs. Consumer prices will climb 4.5 percent in 2008, the most in a decade, the ministry said today, up from its March prediction of 3.3 percent.
``The government is trying to show it's serious about tackling inflation but in fact there are not many policy tools they can use,'' said Kim Jae Eun, an economist at Hana Daetoo Securities Co. in Seoul. ``In the longer term, tackling inflation may help restore confidence,'' aiding the economy's expansion.
Economic growth will slow to 4.7 percent this year as businesses and consumers curtail extra spending, the ministry forecast. That's weaker than last year's 5 percent pace and falls short of the government's earlier 6 percent target.
South Korea will look at freezing train fares, water fees and highway tolls in the second half, it said today.
Currency Concerns
Policy makers aim to prevent ``drastic movements'' in South Korea's currency, which has dropped more than 11 percent against the dollar this year, the ministry said.
Authorities are stepping up their ``verbal intervention on the won,'' said Go You Sun, an economist at Daewoo Securities Co. in Seoul. ``That could slow the decline in the won somewhat, but it'll be hard to reverse the trend.''
A weaker won, Asia's second-worst performing currency in 2008, adds to inflation pressures by raising the cost of imports.
South Korea has bought about $7 billion worth of won since the end of May to help stem its decline, JoongAng Ilbo newspaper reported yesterday.
``The won's significant weakness adds to inflation concerns in Korea,'' said Oh Suk Tae, a Seoul-based economist at Citigroup Inc. He expects the Bank of Korea will have to increase its benchmark interest rate 50 basis points to 5.5 percent by September.
Interest Rates
Asia-Pacific central banks are battling to balance fallout from slowing economic growth against a pickup in inflation. Central banks in Indonesia, India, Taiwan and the Philippines all raised borrowing costs in the past month. In contrast, Japan and South Korea have kept rates unchanged in 2008.
Consumer prices in Korea surged 5.5 percent in June from a year earlier, breaching the central bank's target for an eighth straight month, according to figures released yesterday.
The government today reaffirmed a plan to give 10.5 trillion won ($10 billion) in tax rebates and subsidies to aid consumers and businesses. The measures were announced on June 8.
About 13,500 truck drivers went on strike in June to protest rising fuel costs, while thousands of South Koreans took to the streets in the capital Seoul last month to oppose the government's plan to resume U.S. beef imports.
Popularity Drops
Approval of President Lee slumped to 21 percent during his first 100 days in office, a decline of more than half since February, according to a survey by newspaper Chosun Ilbo, which gave a margin of error of plus or minus 3 percentage points.
Inflation was the second biggest reason for the decline after the perception that Lee didn't listen to public opinion.
The government said today it will step up monitoring South Korean financial companies' lending, to help ``control'' an increase in liquidity that has added to inflation pressures.
It will review cutting income taxes, and it will limit corporate lending to large conglomerates that try to borrow money for mergers and acquisitions.
Bank lending to South Korean households advanced for a fourth month in May. The broadest measure of money supply, M2, climbed 15 percent in May from a year earlier.
To contact the reporter on this story: Seyoon Kim in Seoul at skim7@bloomberg.net
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Asian Currencies: Malaysian Ringgit and Won Fall on Oil, Stocks
By Lilian Karunungan and David Yong
July 2 (Bloomberg) -- Malaysia's ringgit led losses in Asian currencies on concern record oil prices will slow growth as inflation hurts consumer spending and erodes profit margins.
The Malaysian currency touched a five-month low as investors reduced holdings of local stocks and bonds last quarter on heightened political risks after Prime Minister Abdullah Ahmad Badawi rejected calls for his resignation. Seven out of 10 most-active Asian currencies outside of Japan fell after crude oil traded above $140 a barrel, extending six quarters of increases. Investors also sold regional stocks, which dropped for the ninth time in 10 days.
``Inflationary risks that includes higher oil prices are undermining asset prices,'' said Patrick Bennett, a currency strategist with Societe Generale SA in Hong Kong. ``Equities are under quite broad pressure. That coupled with slowing external demand is really a difficult combination for Asian currencies.''
The ringgit traded at 3.2743 versus the dollar as of 11:35 a.m. in Kuala Lumpur, versus 3.2665 late yesterday, according to data compiled by Bloomberg. It earlier fell to 3.2825, the weakest since Jan. 24. The won fell 0.2 percent to 1,048.50 in Seoul, according to Seoul Money Brokerage Services Ltd.
``There are fundamental issues about inflation, consumer spending and earnings visibility, resulting in recent market liquidation,'' said Pankaj Kumar, who manages $540 million of assets as chief investment officer at Kurnia Insurans Bhd. in Petaling Jaya, near Kuala Lumpur. ``Some of the foreign hot money is getting out and the odds are also against the ringgit appreciating sooner.''
Political Risks
Crude oil for August delivery rose 1.1 percent to $142.07 a barrel, after reaching an all-time high of $143.67 on June 30. Malaysia has raised retail fuel prices seven times since May 2004 to reduce the amount it pays in fuel subsidies, pushing inflation to a 22-month high in May.
Some 10,000 Malaysians rallied in Kuala Lumpur yesterday to support opposition leader Anwar Ibrahim, who is facing a new sodomy allegation he rejected as an attempt to derail his political comeback.
``The political climate has certainly risen several notches over the last couple of days,'' said Tricia Yeoh, a director at the Center for Public Policy Studies in Kuala Lumpur. ``Even politicians are thrown into shock and disarray.''
South Korea's won fell for a fourth day on speculation soaring oil prices will increase import costs, boosting demand for the dollar.
Six-Week Low
The won traded near a six-week low as crude oil rose for a second day. Korea imports almost all of its energy needs. Demand for the currency also weakened after global funds sold more local shares than they bought for an 18th day.
``With a spike in raw material prices and stock sales by foreigners, demand for the dollar is only intensifying,'' said Kim Sung Soon, a currency dealer with Industrial Bank of Korea in Seoul. ``The market is still fearful that the authorities might step in to shore up the local currency.''
The won has declined 11 percent this year, making it Asia's worst performer after the Thai baht.
The won's losses may be limited because the current-account deficit will narrow, Bank of Korea Deputy Governor Rhee Gwang-Ju said in an interview yesterday.
The deficit, the broadest measure of international trade, will shrink to $2.5 billion in the second half from $6.5 billion in the first six months, Rhee, the central bank's head of international affairs, said.
``There will be no convincing reasons that the won will depreciate further,'' said Rhee, 57. ``The won has depreciated since early March but the trend is not likely to continue for the rest of the year.''
Risk Aversion
The Philippine peso dropped for a fourth day on concern rising oil prices will add to inflation and widen the nation's trade deficit.
The peso fell to near a nine-month low before a government report on July 4 that economists said will show inflation accelerated to 10 percent in June from a year earlier, after a 9.6 percent gain in May.
``You have inflation, risk aversion, a widening trade deficit and stocks falling,'' said Catherine Tan, head of regional foreign exchange at Thomson Financial Asia. ``The story is the same across the region except that in the peso, it seems the central bank appears not so keen on intervening.''
The currency lost 0.3 percent to 45.16 per dollar in Manila, according to Tullett Prebon Plc.
The peso may drop to 47 this quarter should oil prices rise and economic growth in the U.S., the nation's biggest export market and largest source of remittances, continue to slow, Thomson's Tan said.
Trade Deficit
The Philippine trade deficit may widen to $11.5 billion this year from $8.6 billion last year on higher oil and rice prices, the central bank said last week. The nation imports almost all its oil needs and is the biggest buyer of rice.
Elsewhere, the Indonesian rupiah dropped 0.1 percent to 9,233 per dollar and Taiwan's dollar was little changed at NT$30.370. Singapore's dollar declined 0.1 percent to S$1.3625 while the Thai baht was at 33.40. Vietnam's dong was at 16,846.50 versus 16,844.50 yesterday.
To contact the reporters on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net; David Yong in Singapore at dyong@bloomberg.net.
Last Updated: July 2, 2008 00:16 EDT
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July 2 (Bloomberg) -- Malaysia's ringgit led losses in Asian currencies on concern record oil prices will slow growth as inflation hurts consumer spending and erodes profit margins.
The Malaysian currency touched a five-month low as investors reduced holdings of local stocks and bonds last quarter on heightened political risks after Prime Minister Abdullah Ahmad Badawi rejected calls for his resignation. Seven out of 10 most-active Asian currencies outside of Japan fell after crude oil traded above $140 a barrel, extending six quarters of increases. Investors also sold regional stocks, which dropped for the ninth time in 10 days.
``Inflationary risks that includes higher oil prices are undermining asset prices,'' said Patrick Bennett, a currency strategist with Societe Generale SA in Hong Kong. ``Equities are under quite broad pressure. That coupled with slowing external demand is really a difficult combination for Asian currencies.''
The ringgit traded at 3.2743 versus the dollar as of 11:35 a.m. in Kuala Lumpur, versus 3.2665 late yesterday, according to data compiled by Bloomberg. It earlier fell to 3.2825, the weakest since Jan. 24. The won fell 0.2 percent to 1,048.50 in Seoul, according to Seoul Money Brokerage Services Ltd.
``There are fundamental issues about inflation, consumer spending and earnings visibility, resulting in recent market liquidation,'' said Pankaj Kumar, who manages $540 million of assets as chief investment officer at Kurnia Insurans Bhd. in Petaling Jaya, near Kuala Lumpur. ``Some of the foreign hot money is getting out and the odds are also against the ringgit appreciating sooner.''
Political Risks
Crude oil for August delivery rose 1.1 percent to $142.07 a barrel, after reaching an all-time high of $143.67 on June 30. Malaysia has raised retail fuel prices seven times since May 2004 to reduce the amount it pays in fuel subsidies, pushing inflation to a 22-month high in May.
Some 10,000 Malaysians rallied in Kuala Lumpur yesterday to support opposition leader Anwar Ibrahim, who is facing a new sodomy allegation he rejected as an attempt to derail his political comeback.
``The political climate has certainly risen several notches over the last couple of days,'' said Tricia Yeoh, a director at the Center for Public Policy Studies in Kuala Lumpur. ``Even politicians are thrown into shock and disarray.''
South Korea's won fell for a fourth day on speculation soaring oil prices will increase import costs, boosting demand for the dollar.
Six-Week Low
The won traded near a six-week low as crude oil rose for a second day. Korea imports almost all of its energy needs. Demand for the currency also weakened after global funds sold more local shares than they bought for an 18th day.
``With a spike in raw material prices and stock sales by foreigners, demand for the dollar is only intensifying,'' said Kim Sung Soon, a currency dealer with Industrial Bank of Korea in Seoul. ``The market is still fearful that the authorities might step in to shore up the local currency.''
The won has declined 11 percent this year, making it Asia's worst performer after the Thai baht.
The won's losses may be limited because the current-account deficit will narrow, Bank of Korea Deputy Governor Rhee Gwang-Ju said in an interview yesterday.
The deficit, the broadest measure of international trade, will shrink to $2.5 billion in the second half from $6.5 billion in the first six months, Rhee, the central bank's head of international affairs, said.
``There will be no convincing reasons that the won will depreciate further,'' said Rhee, 57. ``The won has depreciated since early March but the trend is not likely to continue for the rest of the year.''
Risk Aversion
The Philippine peso dropped for a fourth day on concern rising oil prices will add to inflation and widen the nation's trade deficit.
The peso fell to near a nine-month low before a government report on July 4 that economists said will show inflation accelerated to 10 percent in June from a year earlier, after a 9.6 percent gain in May.
``You have inflation, risk aversion, a widening trade deficit and stocks falling,'' said Catherine Tan, head of regional foreign exchange at Thomson Financial Asia. ``The story is the same across the region except that in the peso, it seems the central bank appears not so keen on intervening.''
The currency lost 0.3 percent to 45.16 per dollar in Manila, according to Tullett Prebon Plc.
The peso may drop to 47 this quarter should oil prices rise and economic growth in the U.S., the nation's biggest export market and largest source of remittances, continue to slow, Thomson's Tan said.
Trade Deficit
The Philippine trade deficit may widen to $11.5 billion this year from $8.6 billion last year on higher oil and rice prices, the central bank said last week. The nation imports almost all its oil needs and is the biggest buyer of rice.
Elsewhere, the Indonesian rupiah dropped 0.1 percent to 9,233 per dollar and Taiwan's dollar was little changed at NT$30.370. Singapore's dollar declined 0.1 percent to S$1.3625 while the Thai baht was at 33.40. Vietnam's dong was at 16,846.50 versus 16,844.50 yesterday.
To contact the reporters on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net; David Yong in Singapore at dyong@bloomberg.net.
Last Updated: July 2, 2008 00:16 EDT
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Vietnam Shouldn't Waste Cash Ending Twin Rate, World Bank Says
By Patricia Lui
July 2 (Bloomberg) -- Vietnam's central bank shouldn't use up its supply of dollars with intervention because the black market rate for the dong won't converge with the official one until the currency trades freely, a World Bank economist said.
The exchange rate offered by illicit traders in Hanoi fell to as low as 10 percent below the rate allowed by the central bank last month on concerns that an overheating economy and the widening trade deficit will trigger a currency crisis, Noritaka Akamatsu, a Hanoi-based economist for the World Bank said in an interview. The central bank allows the dong to trade up to 2 percent on either side of a reference rate it sets daily.
The State Bank of Vietnam should not exhaust its currency reserves of $22 billion by intervening in the market and selling dollars indiscriminately, said Akamatsu, who is the World Bank's regional advisor for capital market development for East Asia and the Pacific region. Vietnamese people are seeking dollars to invest overseas and to hedge against inflation, he said.
``The black market and the official rates will never fully converge unless the dong is floated,'' he said. ``The central bank has been supplying dollars but only to the targeted market of importers and exporters. It shouldn't go beyond that as it could result in a flight of dollars if they supply too much.''
The dong gained as much as 0.1 percent to 16,824.5 a dollar before trading at 16,846.50 as of 10:24 a.m. in Hanoi, versus 16,844.50 yesterday, according to data compiled by Bloomberg. It fell 1.35 percent last week after the central bank widened the official trading band from 1 percent on June 27. The State Bank of Vietnam fixed the daily reference rate at 16,519 a dollar, compared with 16,517 yesterday, according to its Web site.
The black market rate for the dong rose to as high as 19,500 last month, Akamatsu said. It has since recovered to 18,000 after last week's band widening, he said. That is 7 percent weaker than the reference rate.
Currency Reserves
Vietnam isn't facing a similar predicament to Thailand during the Asian financial crisis because investment by short- term portfolio funds is limited and most cash is ``in closed-end funds which don't liquidate quickly,'' he said. Closed-end funds are publicly traded and investors withdraw cash by selling their shares rather than through redemptions.
``What they did with the expanded trading band and a slight depreciation in the reference rate is good as the dong is now at a more realistic rate,'' he said. ``Right now, there could be some pressure on the dong and a shortage of dollars but it is managing O.K.''
Vietnam's economy expanded 6.5 percent in the first half, the slowest pace in at least seven years, as slumps in the stock and property markets prompted builders to halt projects. The inflation rate reached 26.8 percent in June, prompting the government to curb lending.
The outlook on the dong will depend on inflation in the coming months, Akamatsu said, adding that ``the government's policy is working but it remains to be seen how effectively.''
To contact the reporter on this story:
Last Updated: July 2, 2008 00:31 EDT
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July 2 (Bloomberg) -- Vietnam's central bank shouldn't use up its supply of dollars with intervention because the black market rate for the dong won't converge with the official one until the currency trades freely, a World Bank economist said.
The exchange rate offered by illicit traders in Hanoi fell to as low as 10 percent below the rate allowed by the central bank last month on concerns that an overheating economy and the widening trade deficit will trigger a currency crisis, Noritaka Akamatsu, a Hanoi-based economist for the World Bank said in an interview. The central bank allows the dong to trade up to 2 percent on either side of a reference rate it sets daily.
The State Bank of Vietnam should not exhaust its currency reserves of $22 billion by intervening in the market and selling dollars indiscriminately, said Akamatsu, who is the World Bank's regional advisor for capital market development for East Asia and the Pacific region. Vietnamese people are seeking dollars to invest overseas and to hedge against inflation, he said.
``The black market and the official rates will never fully converge unless the dong is floated,'' he said. ``The central bank has been supplying dollars but only to the targeted market of importers and exporters. It shouldn't go beyond that as it could result in a flight of dollars if they supply too much.''
The dong gained as much as 0.1 percent to 16,824.5 a dollar before trading at 16,846.50 as of 10:24 a.m. in Hanoi, versus 16,844.50 yesterday, according to data compiled by Bloomberg. It fell 1.35 percent last week after the central bank widened the official trading band from 1 percent on June 27. The State Bank of Vietnam fixed the daily reference rate at 16,519 a dollar, compared with 16,517 yesterday, according to its Web site.
The black market rate for the dong rose to as high as 19,500 last month, Akamatsu said. It has since recovered to 18,000 after last week's band widening, he said. That is 7 percent weaker than the reference rate.
Currency Reserves
Vietnam isn't facing a similar predicament to Thailand during the Asian financial crisis because investment by short- term portfolio funds is limited and most cash is ``in closed-end funds which don't liquidate quickly,'' he said. Closed-end funds are publicly traded and investors withdraw cash by selling their shares rather than through redemptions.
``What they did with the expanded trading band and a slight depreciation in the reference rate is good as the dong is now at a more realistic rate,'' he said. ``Right now, there could be some pressure on the dong and a shortage of dollars but it is managing O.K.''
Vietnam's economy expanded 6.5 percent in the first half, the slowest pace in at least seven years, as slumps in the stock and property markets prompted builders to halt projects. The inflation rate reached 26.8 percent in June, prompting the government to curb lending.
The outlook on the dong will depend on inflation in the coming months, Akamatsu said, adding that ``the government's policy is working but it remains to be seen how effectively.''
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Last Updated: July 2, 2008 00:31 EDT
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