Daily Forex Fundamentals | Written by KBC Bank | Jul 10 08 07:43 GMT |
Sunrise Market Commentary
* US Treasuries rally and curve steepens on crumbling equities
In absence of eco data or other events, Treasuries looked to equities that sold off heavily on more unsettling news about the financials. So, later in the session Treasuries rallied and the curve steepened. Today, the calendar is busier, but we fear it will again be equities that will decide the direction. Technical pictures Treasuries improved.
* ECB's Draghi says 'upward tendency in financial inflation expectations has halted'
European bonds yesterday had a rather constructive session, as the Bund confirmed the recent break higher above the neckline of a double bottom formation and gained further ground. Given the still elevated inflation rates and the volatility in oil prices, it may however be premature to expect much more gains, especially at the short end of the curve.
* Dollar slightly lower on resurfacing credit woes
The dollar lost moderate ground yesterday on resurfacing credit concerns and risk aversion. However, the losses were again only of intra-day significance. The broader picture remains unchanged with the major (USD) cross rates still locked within the established ranges
The Sunrise Headlines
* US equities hit the skids and posted heavy losses on more bad news about the financial sector, closing down 2% and more. Financials (-5.2%), IT (-3.2%) and consumer discretionary (-2.7%) underperformers. Asian equities trade weak, but not exceptionally weak overnight.
* Fitch puts Merrill on negative credit watch. Merrill considers the sale of its stake in Bloomberg and/or BlackRock, to offset of its Q2 losses.
* Wachovia names new CEO and expects a steeper-than-expected 2.6-to-2.8 billion $ loss in Q2 due mortgage and legal problems.
* Fortis plans to oust CEO Votron, according to newspaper. Board meets tomorrow.
* Fannie Mae & Freddie Mac shares drop again sharply on worries about the need for massive capital injection. Is some government intervention imminent?
* Crude oil closed virtually unchanged yesterday (136.05 $) as an intra-day rally was reversed. A drawback in crude inventories was unable to bring sustainable support. Little change overnight.
* BoE rate decision & ECB and Fed speakers highlights of the calendar today
Currencies: Dollar Slightly Lower On Resurfacing Credit Woes
On Wednesday, the dollar ceded ground against the single currency. However, once again the price action in EUR/USD (and most other major cross rates) was limited, especially when compared to the sharp swings recorded in other markets. The news headlines on Iran testing missiles triggered a brief up-tick in EUR/USD early in the session (even if the reaction in oil was quite moderate) but the gains could not be sustained. Later in the session resurfacing credit concerns (Fitch putting Merrill on rating watch negative, amongst other things) again set the tone for trading and at least for now this kind of news is considered as (slightly) dollar negative, even if the performance of the financial sector in Europe recently was no better as compared to the US. So, EUR/USD trended gradually higher through-out US trading and closed the session close to the intraday highs at 1.5743 (compared to 1.5670 on Wednesday). However, in a longer term perspective, no important technical levels even came within reach.
Today, the European calendar only contains some second tier data. In the US the claims are on the agenda while Mr. Bernanke and Paulson testify on financial market regulation before a House Committee. Bernanke already addressed this item earlier this week, but his appearance still deserves traders' attention.
Already for some time, we have a neutral bias on EUR/USD and assume the pair to extend its sideways trading in the wide 1.6020 to 1.5285 range. The eco fundamentals in the US and Europe are not that much different and both the ECB and the Fed are in a similar deadlock. High inflation prevents both central banks to support their ailing economies and this joined inability to act is also mirrored in the EUR/USD price action. Themes like rising (or declining) oil prices or credit related headlines have some impact on the intraday price action, but at the end of the day, nither the dollar nor the euro is able to take advantage of the current situation.
Technically, EUR/USD tested the 1.5842 area (previous reaction high) last week. However a break could not be sustained and after the (softer) ECB press conference, EUR/USD fell back in the longstanding sideways range. The short-term momentum is still slightly euro positive and the single currency still gets the benefit of the doubt in times of renewed market stress. However, given the deteriorating eco situation in Europe, we doubt whether EUR/USD will be able to regain enough momentum to really challenge/break above the key resistance levels at 1.5909 (last week high) and 1.6020 (all-time high). Oil, and to a lesser extent stocks, (credit related headlines) will set the tone for EUR/USD trading.
EUR/USD: slightly higher, but within established barriers
Support stands at 1.5708 (Reaction low), at 1.5668 (Daily envelope), at 1.5648 (Boll Midline), at 1.5611 (Week low), and at 1.5576 (MT breakup hourly), at 1.5537/27 (Reaction low/MT Break-up + weekly envelope).
Resistance is seen at 1.5752 (Reaction high), at 1.5773 (Breakdown daily), at 1.5795/00 (62% retracement ST/Daily envelope), at 1.5838 (76% retracment) and at 1.5909 (Reaction high).
The pair is in neutral territory.
USD/JPY
On Wednesday, USD/JPY copied the price action in other dollar cross rates (cf. EUR/USD). An early spike lower was reversed on the better stock market performance in Europe but later in the session resurfacing credit woes and the sell-off on the US stock markets caused USD/JPY to make a step backward again. The pair closed the session at 106.76, compared to 107.50 on Tuesday.
This morning, Japanese trade data were slightly better than expected. However, the domestic CGIP (corporate goods prices) again came out higher than expected at 0.8% M/M and 5.6% Y/Y. However, at least for now, those 'inflation pressures' are not yet considered a factor that might change the wait-and-see approach from the BOJ. Japanese/Asian stocks perform rather well this morning, especially if compared to the steep losses in the US yesterday evening and this slows the rebound of the yen.
Recently, we turned neutral on USD/JPY. The rejected test of the 108.58/62 area triggered a correction, but also this move petered out last week. The pair currently is perfectly in the middle of the short-term trading range confined by the 104.99 reaction low and the 108.62 range top. Over the previous days, the pair tried to regain the MTMA (106.83) and the uptrend line from the lows (107.93) but this attempted didn't succeed, which is a slightly disappointing signal from a short-term perspective. For the pair to resume the gradual uptrend beyond the key 108.60 area, an (sustained) easing of global market tensions and/or a material decline in the oil price are needed. These factors are not yet fulfilled and this makes us think that the pair will continue to be locked in the current sideways range. For now we maintain a wait-and-see approach. In a day-to-day perspective, more negative credit headlines might cause the pair to move somewhat lower in the established trading range.
USD/JPY: Tuesday's gains undone
Support stands at 106.66/49 (Reaction low/LTMA), at 106.30/25 (Daily envelope/Week low), at 105.93/69 (Reaction low/ Bollinger bottom) and at 104.99 (Last week low).
Resistance comes in at 107.04/29 (Break-down/daily envelope), at 107.75/77 (107.75/77 (ST high /2nd target double bottom), at 107.93 (Uptrend line), at 108.16 (Weekly envelope), at 108.58/62 (Reaction high/14 Febr. high).
The pair is in (slightly) overbought territory
EUR/GBP
On Wednesday, a poor UK consumer confidence figure initially kept the sterling under pressure and caused EUR/GBP to test bids in the 0.7970 area. However, as already seen several times recently, poor UK figures often only have a shortterm/ intra-day impact on EUR/GBP trading and the pair gave up the early gains later in the session (despite EUR/USD strength). EUR/GBP closed the session at 0.7938 compared to 0.7956 on Tuesday.
Today, the BOE will decide on interest rates but the Bank is widely expected to keep its policy rate at 5.00%. In this case, no policy statement should be expected.
Since mid April, EUR/GBP develops a very uninspiring consolidation pattern (0.7766/0.8098). We turned neutral on EUR/GBP as the pair shows no trading momentum at all. An attempt to move higher the last week again ran into resistance soon and the pair is now again completely paralyzed. A sustained break above 0.8018 is needed to conclude that the pair is able to unlock the current stalemate on the topside. The 0.7766 is the key range bottom that should provide strong support. We have a sterling skeptic bias longer-term, but this attitude obviously is of no help to guide short-term trading for now.
EUR/GBP: deadlock persists
Support comes in at 0.7928/26 (Break-up/MTMA), at 0.7914 (daily envelope), at 0.7900 (ST low) at 0.7885 (Break-up), at 0.7868 (last week low) and at 0.7847/31 (reaction lows).
Resistance stands at 0.7951 (ST break-down), at 0.7969/76 (ST high/Bollinger top), at 0.7980 (Weekly envelope)) and at 0.8003 (Reaction high).
The pair is in neutral territory.
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Thursday, July 10, 2008
Today's Key Points
Daily Forex Fundamentals | Written by Danske Bank | Jul 10 08 07:34 GMT |
* Fear and loathing on the financial markets. Treasury yields down, equities down, EUR/USD up
* Light data calendar in the US and Euroland. Bank of England meeting without rate change to be expected
* In Scandinavia we will see inflation figures. We see upside risks in Sweden and Norway
Markets Overnight
Torn between hope and despair continues to be the theme of the market. And it is also clear that absence of data is no indication of a quiet market. Once again we find 2yr Treasury yields below 2.40% -a level last visited in the wake of speculations on Monday that Freddie Mac and Fannie Mae would have to raise 75bn USD in capital.
Now it seems that although the head of OFHEO has reassured the market that both GSEs are well capitalised the market has its doubts. Yesterday Fannie Mae had to pay 74bp above Treasuries. The highest spread to government bonds since it started issuing 2yr bonds. The Freddie Mac share dropped to 10.26 USD, which is well below the previous low on Monday.
The S&P500 ended yesterday with a 2.3% drop and Nasdaq fell by 2.6%. Asian indices are mostly in negative territory this morning, buy only marginally so.
EUR/USD rose on the back of renewed jitters on the fixed income market and has established itself around 157.7. Both EUR/NOK and EUR/SEK have remained very stable ahead of the inflation data due out today at 8.05 and 9.45 respectively.
Finally, we note that the oil price has picked up somewhat after yesterday's decline and presently trades around 136.5 USD/barrel.
Global Daily
We start yet another day with a light data calendar and will most likely instead take the lead from gyrations resulting from the fears and hopes regarding the fate of the US GSEs. There is, of course, also a rate announcement from Bank of England (unchanged rate), which could offer some further clues as to how central bankers are dealing with the current stagflationary environment, but we expect no fireworks. In the US there will be jobless claims and chain store sales, two tier 2 data sets that could offer some guidance as to the trend in non-farm payrolls and retail sales
Scandi Daily
A lot of interesting data out in Sweden today. Inflation will of course be most important and we are a notch above market expectations and a couple of notches above the Riksbank. The difference is probably due to new information on mortgage interests and fuels (ring a bell, anyone?). In addition we receive the activity index, which is set to come in low, and unemployment statistics from the labour market board, which are expected to rise due to seasonal factors. All in all, the higher than expected inflation should be taken seriously since we see high risks of the Riksbank not just doing what they have said, but also of an additional hike. Swing factors are of course fuel and food, and there is a definitive chance of outcomes higher than what the Riksbank expects. Markets have tended to pay more heed to weak growth over the past few weeks and we think this might be wise - on the longer term. In the short term, markets might be in for some nasty surprises to the upside.
The big event in the Norwegian market today will be the June inflation numbers. We expect the core inflation measure CPI-ATE to rise from 2.3% y/y to 2.5% y/y. In May core inflation dropped surprisingly from 2.4% to 2.3%. However, this was mainly due to a very peculiar drop in airline fares that is expected to reverse in June. In fact, there is a risk that airline ticket prices have risen even more markedly in June due to additional fuel charges.
Food prices are, of course, another uncertain sub-index. We think the risk here is on the upside. We know for sure that wholesale prices rose on 1 July due to a price agreement with the Norwegian farmers. These price rises come on top of the upside price pressure from imported food. Hence, there is certainly a risk that Norwegian food prices have been hiked more in June than we expected. Incidentally, June is one of the months when clothing and shoe sales may blur the picture. We have used the same seasonal drop in prices of 1.7% m/m for this sub-indice as last year. All in all, there is a risk that the core inflation measure may rise to 2.6%. Looking at core inflation in the coming months, we still think it will be at approx. 2.7% for the rest of 2008. Our forecast is 0.2 percentage points above the Norges Bank forecast.
Headline CPI is expected to rise to 3.5% y/y from 3.1%. The main reason is higher petrol prices, whereas electricity prices are expected to stay low. However, also here we might be in for a surprise as the latest price hikes in spot prices might have fed into consumer prices earlier than we expected. The current spot prices point to significantly higher electricity prices in July. Although these prices are not monitored by the central bank, they will add to inflationary pressure in the Norwegian economy.
Also remember that the two alternative indicators of underlying inflation, CPI-Trimmed and CPI Weighted median, will now be published by Norges Bank half an hour later at 10.30 CET (www.norges-bank.no). These indicators were running at 3.3% and 3.0% in May. We have no exact forecast for these indicators, but they are in general expected to rise 0.2 percentage points. The other alternative inflation indicator, CPIEX, is not published today. From a strategic point of view we still recommend to position for wider spreads in the short end of the swap curve, e.g. in the 2 or 3 segments. We still like this view ahead of the CPI release as we see s risk of an upside surprise. Also consider an outright long position in DEC08 NOK 3M FRA or MAR09 3M FRA. An upside risk will certainly favour such a position as it will make it much more likely that we shall see more rate hikes in Norway and the timing for a rate cut should be postponed further
Danske Bank
http://www.danskebank.com/danskeresearch
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* Fear and loathing on the financial markets. Treasury yields down, equities down, EUR/USD up
* Light data calendar in the US and Euroland. Bank of England meeting without rate change to be expected
* In Scandinavia we will see inflation figures. We see upside risks in Sweden and Norway
Markets Overnight
Torn between hope and despair continues to be the theme of the market. And it is also clear that absence of data is no indication of a quiet market. Once again we find 2yr Treasury yields below 2.40% -a level last visited in the wake of speculations on Monday that Freddie Mac and Fannie Mae would have to raise 75bn USD in capital.
Now it seems that although the head of OFHEO has reassured the market that both GSEs are well capitalised the market has its doubts. Yesterday Fannie Mae had to pay 74bp above Treasuries. The highest spread to government bonds since it started issuing 2yr bonds. The Freddie Mac share dropped to 10.26 USD, which is well below the previous low on Monday.
The S&P500 ended yesterday with a 2.3% drop and Nasdaq fell by 2.6%. Asian indices are mostly in negative territory this morning, buy only marginally so.
EUR/USD rose on the back of renewed jitters on the fixed income market and has established itself around 157.7. Both EUR/NOK and EUR/SEK have remained very stable ahead of the inflation data due out today at 8.05 and 9.45 respectively.
Finally, we note that the oil price has picked up somewhat after yesterday's decline and presently trades around 136.5 USD/barrel.
Global Daily
We start yet another day with a light data calendar and will most likely instead take the lead from gyrations resulting from the fears and hopes regarding the fate of the US GSEs. There is, of course, also a rate announcement from Bank of England (unchanged rate), which could offer some further clues as to how central bankers are dealing with the current stagflationary environment, but we expect no fireworks. In the US there will be jobless claims and chain store sales, two tier 2 data sets that could offer some guidance as to the trend in non-farm payrolls and retail sales
Scandi Daily
A lot of interesting data out in Sweden today. Inflation will of course be most important and we are a notch above market expectations and a couple of notches above the Riksbank. The difference is probably due to new information on mortgage interests and fuels (ring a bell, anyone?). In addition we receive the activity index, which is set to come in low, and unemployment statistics from the labour market board, which are expected to rise due to seasonal factors. All in all, the higher than expected inflation should be taken seriously since we see high risks of the Riksbank not just doing what they have said, but also of an additional hike. Swing factors are of course fuel and food, and there is a definitive chance of outcomes higher than what the Riksbank expects. Markets have tended to pay more heed to weak growth over the past few weeks and we think this might be wise - on the longer term. In the short term, markets might be in for some nasty surprises to the upside.
The big event in the Norwegian market today will be the June inflation numbers. We expect the core inflation measure CPI-ATE to rise from 2.3% y/y to 2.5% y/y. In May core inflation dropped surprisingly from 2.4% to 2.3%. However, this was mainly due to a very peculiar drop in airline fares that is expected to reverse in June. In fact, there is a risk that airline ticket prices have risen even more markedly in June due to additional fuel charges.
Food prices are, of course, another uncertain sub-index. We think the risk here is on the upside. We know for sure that wholesale prices rose on 1 July due to a price agreement with the Norwegian farmers. These price rises come on top of the upside price pressure from imported food. Hence, there is certainly a risk that Norwegian food prices have been hiked more in June than we expected. Incidentally, June is one of the months when clothing and shoe sales may blur the picture. We have used the same seasonal drop in prices of 1.7% m/m for this sub-indice as last year. All in all, there is a risk that the core inflation measure may rise to 2.6%. Looking at core inflation in the coming months, we still think it will be at approx. 2.7% for the rest of 2008. Our forecast is 0.2 percentage points above the Norges Bank forecast.
Headline CPI is expected to rise to 3.5% y/y from 3.1%. The main reason is higher petrol prices, whereas electricity prices are expected to stay low. However, also here we might be in for a surprise as the latest price hikes in spot prices might have fed into consumer prices earlier than we expected. The current spot prices point to significantly higher electricity prices in July. Although these prices are not monitored by the central bank, they will add to inflationary pressure in the Norwegian economy.
Also remember that the two alternative indicators of underlying inflation, CPI-Trimmed and CPI Weighted median, will now be published by Norges Bank half an hour later at 10.30 CET (www.norges-bank.no). These indicators were running at 3.3% and 3.0% in May. We have no exact forecast for these indicators, but they are in general expected to rise 0.2 percentage points. The other alternative inflation indicator, CPIEX, is not published today. From a strategic point of view we still recommend to position for wider spreads in the short end of the swap curve, e.g. in the 2 or 3 segments. We still like this view ahead of the CPI release as we see s risk of an upside surprise. Also consider an outright long position in DEC08 NOK 3M FRA or MAR09 3M FRA. An upside risk will certainly favour such a position as it will make it much more likely that we shall see more rate hikes in Norway and the timing for a rate cut should be postponed further
Danske Bank
http://www.danskebank.com/danskeresearch
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Daily Report: Aussie Boosted by Employment, BoE & Bernanke Awaited
Market Overview | Written by AC-Markets | Jul 10 08 06:44 GMT |
Aussie is so far the biggest winner today, boosted by much better than expected employment report. Unemployment rate dropped from 4.3% to 4.2% in Jun. Also, the job market rebounded and showed 29.8k expansion, above consensus of 10k and cancelled out May's unexpected contraction of -25.6k. The job data, which expanded for 19 out of the past 20 months, and last week's strong gain in retail sales, are both showing the underlying robustness in the Aussie economy, particularly so in a climate of significant global uncertainty.
Japanese Domestic CGPI accelerated more than expected from 4.7% yoy to 5.6% yoy in Jun, hitting a 27 year high, driven by surging commodity prices. Trade surplus shrank from 634.7b to 529.4b.
Main focus in the European session today will be BoE rate decision, which is widely expected to keep rates unchanged at 5.00%. Inflation accelerated to 3.3% in May and according to BoE Governor King, inflation could further skyrocket to above 4% this year. That prompted some speculations that the next move from BoE is a hike. Nevertheless, markets generally believe the risk of recession in UK ties up BoE's hands for any rate hike. Indeed. some are speculating that BoE could indeed cut rates once the acceleration in oil and food prices slow down.
Dollar continues to trade with a soft tone today but after all it's still bounded in range against Euro swissy and yen. Traders are awaiting Fed Chairman Bernanke's Testimony to house committee today for hints on Fed's next move. After a series of soft data, traders continue to pare bet on rate hike from Fed with interest rates futures now showing over 30% odds that Fed will be on hold at 2.00% till the end of the year, up from below 10%.
AUD/USD Daily Outlook
Daily Pivots: (S1) 0.9499; (P) 0.9544; (R1) 0.9614; More
AUD/USD's strong rebound from 0.9475 extends further to as high as 0.9617 today. Break of 0.9568 minor resistance indicates that price actions from from 0.9667 has completed with three ways down to 0.9475 already. The corrective nature indicates that it's merely a correction to rise from 0.9372. At this point, intraday bias remains on the upside as long as 0.9544 minor support holds. Further break of 0.9639 resistance will indicate that rise from 0.9327 has likely resumed for next upside target of parity. However, on the downside, below 0.9544 will argue that consolidation in AUD/USD is still in progress and will turn intraday outlook neutral again.
In the bigger picture, with 0.9291 support intact, followed by break of 0.9653 key medium term resistance, the whole up trend from 0.8512 could have resumed. Regardless of the structure, such rally is treated as part of the long term up trend from 0.4773 (01 low) and is still expected to extend further to next medium term target of 100% projection of 0.4773 to 0.8008 from 0.6773 at 1.0008 which overlaps with parity.
However, the upside momentum since making a low at 0.7675 is still far from being convincing. A break below 0.9327 support will be the first alert that rise from 0.9512, as well as that from 0.7675 has completed. This will set the stage for deeper decline back into 0.7675, 0.8870 support zone, with key long term support of 0.8008 lying in between.
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Aussie is so far the biggest winner today, boosted by much better than expected employment report. Unemployment rate dropped from 4.3% to 4.2% in Jun. Also, the job market rebounded and showed 29.8k expansion, above consensus of 10k and cancelled out May's unexpected contraction of -25.6k. The job data, which expanded for 19 out of the past 20 months, and last week's strong gain in retail sales, are both showing the underlying robustness in the Aussie economy, particularly so in a climate of significant global uncertainty.
Japanese Domestic CGPI accelerated more than expected from 4.7% yoy to 5.6% yoy in Jun, hitting a 27 year high, driven by surging commodity prices. Trade surplus shrank from 634.7b to 529.4b.
Main focus in the European session today will be BoE rate decision, which is widely expected to keep rates unchanged at 5.00%. Inflation accelerated to 3.3% in May and according to BoE Governor King, inflation could further skyrocket to above 4% this year. That prompted some speculations that the next move from BoE is a hike. Nevertheless, markets generally believe the risk of recession in UK ties up BoE's hands for any rate hike. Indeed. some are speculating that BoE could indeed cut rates once the acceleration in oil and food prices slow down.
Dollar continues to trade with a soft tone today but after all it's still bounded in range against Euro swissy and yen. Traders are awaiting Fed Chairman Bernanke's Testimony to house committee today for hints on Fed's next move. After a series of soft data, traders continue to pare bet on rate hike from Fed with interest rates futures now showing over 30% odds that Fed will be on hold at 2.00% till the end of the year, up from below 10%.
AUD/USD Daily Outlook
Daily Pivots: (S1) 0.9499; (P) 0.9544; (R1) 0.9614; More
AUD/USD's strong rebound from 0.9475 extends further to as high as 0.9617 today. Break of 0.9568 minor resistance indicates that price actions from from 0.9667 has completed with three ways down to 0.9475 already. The corrective nature indicates that it's merely a correction to rise from 0.9372. At this point, intraday bias remains on the upside as long as 0.9544 minor support holds. Further break of 0.9639 resistance will indicate that rise from 0.9327 has likely resumed for next upside target of parity. However, on the downside, below 0.9544 will argue that consolidation in AUD/USD is still in progress and will turn intraday outlook neutral again.
In the bigger picture, with 0.9291 support intact, followed by break of 0.9653 key medium term resistance, the whole up trend from 0.8512 could have resumed. Regardless of the structure, such rally is treated as part of the long term up trend from 0.4773 (01 low) and is still expected to extend further to next medium term target of 100% projection of 0.4773 to 0.8008 from 0.6773 at 1.0008 which overlaps with parity.
However, the upside momentum since making a low at 0.7675 is still far from being convincing. A break below 0.9327 support will be the first alert that rise from 0.9512, as well as that from 0.7675 has completed. This will set the stage for deeper decline back into 0.7675, 0.8870 support zone, with key long term support of 0.8008 lying in between.
Economic Indicators Update
| GMT | Ccy | Events | Actual | Consensus | Previous | Revised |
|---|---|---|---|---|---|---|
| 23:50 | JPY | Japan Domestic CGPI M/M Jun | 0.80% | 0.60% | 1.10% | 1.20% |
| 23:50 | JPY | Japan Domestic CGPI Y/Y Jun | 5.60% | 5.30% | 4.70% | 4.80% |
| 23:50 | JPY | Japan Trade balance (jpy) May | 529.4B | 500B | 634.7B | |
| 23:50 | JPY | Japan Current account May | 2000B | 1919.2B | 1380.9B | |
| 1:30 | AUD | Australia Unemployment rate Jun | 4.20% | 4.30% | 4.30% | |
| 1:30 | AUD | Australia Employment change Jun | 29.8K | 10K | -19.7K | |
| 8:00 | EUR | ECB Monthly Report (July) | ||||
| 11:00 | GBP | BOE rate decision Jul | 5.00% | 5.00% | ||
| 12:30 | USD | U.S. Jobless claims | 395K | 404K | ||
| 14:00 | USD | Bernanke and Paulson Testify |
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Forex Technical Update
Daily Forex Technicals | Written by Rcpl Forex | Jul 10 08 07:58 GMT |
Euro: Euro traded within 100 pips in yesterday's session as it touched a high of 1.5750. The pair took resistance around 50% of the recent fall yesterday. The 4-hourly stochastic overbought and a fall upto 1.5675 (100 4-hourly EMA & 21 Daily EMA) can be expected. Initiate longs at these levels for 50 pips intraday and stops below 1.9610. (Eur/Usd: 1.5725).
Pound: Pound accelerated to 1.9837 levels (200 Daily EMA) in the US session yesterday. Although the daily stochastic is showing an upside; the 4-hourly is extremely overbought and shows a steep fall. Thus a retracement upto 1.9770 (cluster support) is expected. A decisive break of this could further push cable to the levels of 1.9737 (200 4-hrly EMA). Key focus is the BOE rate decision today, however it is expected that the rates would remain unchanged. (Gbp/Usd: 1.9803).
Yen: USD/JPY pair weakened almost 100 pips in yesterday's session as it plummeted to 106.68 levels. The daily stochastic continue to show a fall while the hourly and 4-hourly shows strong buying pressure and an intraday upside upto 107.60 (Falling trend line) can be expected. (Usd/Jpy: 106.87).
Rupee: Rupee closed about 15 paise higher against USD on Wednesday to close at 43.11 as domestic equity market soared and global oil prices eased and political instability seemed to have waned off. In the forward premia market, the six month closed at 4.6 per cent (4.25 per cent) and the 12-month at 3.67 per cent (3.79 per cent). (Usd/Inr: 43.21).
Swiss Franc: USD/CHF pair receded almost 75 pips from the day's high of 1.0352 (55 daily EMA & 61.8% retracement of recent fall) which continues to remain a strong resistance. The 4-hourly stochastic is oversold whereas the daily and hourly stochastic shows selling pressure and may bring a retracement first upto the cluster support of 1.0275 (55 & 21 4-Hourly, 100 & 200 Hourly EMA). Break of this could further push the pair to 1.0230(50% Retracement of recent rise). (Usd/Chf-1.0295).
Australian Dollar: AUD/USD surged 113 pips as it formed a bullish momentum reversal bar yesterday to touch a high of 0.9590. Aussie continues to surge as it is currently trading around 0.9610 levels. The hourly and 4-hourly stochastic have flattened in the overbought territory and daily charts continue to show buying pressure which can push the pair upto 0.9640 (Horizontal trendline resistance). (Aud/Usd: 0.9608).
Gold: Gold gained strength as it traded within $13 in yesterday's session to surge to a high of $928. The 4-Hourly stochastic is overbought while the daily stochastic shows a further buying pressure which can cause an upmove till $936 level (61.8% Retracement of fall from $1032 to $845). (Gold: $928.80).
Dollar index: Dollar index is currently at 72.90, 37 points lower than previous levels of 73.27. The stochastic are at 41 % and neutrally poised. Medium term target 75.00.
RCPL FOREX
www.rcplforex.com
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Euro: Euro traded within 100 pips in yesterday's session as it touched a high of 1.5750. The pair took resistance around 50% of the recent fall yesterday. The 4-hourly stochastic overbought and a fall upto 1.5675 (100 4-hourly EMA & 21 Daily EMA) can be expected. Initiate longs at these levels for 50 pips intraday and stops below 1.9610. (Eur/Usd: 1.5725).
Pound: Pound accelerated to 1.9837 levels (200 Daily EMA) in the US session yesterday. Although the daily stochastic is showing an upside; the 4-hourly is extremely overbought and shows a steep fall. Thus a retracement upto 1.9770 (cluster support) is expected. A decisive break of this could further push cable to the levels of 1.9737 (200 4-hrly EMA). Key focus is the BOE rate decision today, however it is expected that the rates would remain unchanged. (Gbp/Usd: 1.9803).
Yen: USD/JPY pair weakened almost 100 pips in yesterday's session as it plummeted to 106.68 levels. The daily stochastic continue to show a fall while the hourly and 4-hourly shows strong buying pressure and an intraday upside upto 107.60 (Falling trend line) can be expected. (Usd/Jpy: 106.87).
Rupee: Rupee closed about 15 paise higher against USD on Wednesday to close at 43.11 as domestic equity market soared and global oil prices eased and political instability seemed to have waned off. In the forward premia market, the six month closed at 4.6 per cent (4.25 per cent) and the 12-month at 3.67 per cent (3.79 per cent). (Usd/Inr: 43.21).
Swiss Franc: USD/CHF pair receded almost 75 pips from the day's high of 1.0352 (55 daily EMA & 61.8% retracement of recent fall) which continues to remain a strong resistance. The 4-hourly stochastic is oversold whereas the daily and hourly stochastic shows selling pressure and may bring a retracement first upto the cluster support of 1.0275 (55 & 21 4-Hourly, 100 & 200 Hourly EMA). Break of this could further push the pair to 1.0230(50% Retracement of recent rise). (Usd/Chf-1.0295).
Australian Dollar: AUD/USD surged 113 pips as it formed a bullish momentum reversal bar yesterday to touch a high of 0.9590. Aussie continues to surge as it is currently trading around 0.9610 levels. The hourly and 4-hourly stochastic have flattened in the overbought territory and daily charts continue to show buying pressure which can push the pair upto 0.9640 (Horizontal trendline resistance). (Aud/Usd: 0.9608).
Gold: Gold gained strength as it traded within $13 in yesterday's session to surge to a high of $928. The 4-Hourly stochastic is overbought while the daily stochastic shows a further buying pressure which can cause an upmove till $936 level (61.8% Retracement of fall from $1032 to $845). (Gold: $928.80).
Dollar index: Dollar index is currently at 72.90, 37 points lower than previous levels of 73.27. The stochastic are at 41 % and neutrally poised. Medium term target 75.00.
RCPL FOREX
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U.S. Economy to Stall at Year-End as `Perfect Storm Returns'
By Bob Willis and Kristy Scheuble
July 10 (Bloomberg) -- The U.S. economic expansion may slow to the weakest pace in six years in the fourth quarter, after the impact of federal tax rebates fades, according to a Bloomberg News survey.
The world's largest economy will slow to a 0.5 percent annualized growth rate from October to December, down from a 1 percent estimate last month, according to the median forecast of 63 economists surveyed from June 30 to July 9. Analysts anticipate consumer spending will rise 0.2 percent next quarter, the smallest gain since 1991.
Federal Reserve policy makers will forgo raising interest rates until next year as the expansion stalls, the survey shows. That contrasts with traders, who estimate 68 percent odds of at least a quarter point rate increase by year-end.
``Consumers are poised to pull back'' as the ``perfect storm returns,'' said Richard Berner, co-head of global economics at Morgan Stanley in New York. He cited the credit crunch, record energy costs and declines in payrolls and house prices.
Berner and his team this week shifted their forecast for the start of a recession to the fourth quarter, postponing it from the first half of the year because of the fiscal stimulus.
Tax rebates, totaling more than $100 billion, will be enough to keep the expansion going at a 1.4 percent pace this quarter, after a 1.5 percent expansion the previous three months, before the effect subsides, the survey shows.
Bernanke, Paulson
Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson may be questioned on the economic outlook in a House Financial Services Committee hearing on financial regulation today. They testify from 10 a.m. in Washington. Bernanke said last month the danger of a ``substantial downturn'' had receded.
A 0.2 percent gain in consumer spending next quarter would be the worst since a decline was recorded for the final three months of 1991. Last month, analysts predicted a 0.5 percent increase. Economists see spending rising 1.5 percent this quarter at an annualized rate, compared with average gains over the past decade of 3.4 percent.
The economy will continue to teeter on the edge of a downturn, the survey shows. The odds of a recession occurring within the next 12 months are 50 percent, the same as last month, after climbing as high as 70 percent in the April survey.
``We don't have a recession in our forecast, but it'll sure feel like a recession to many folks,'' said Jay Bryson, chief global economist at Wachovia Corp. in Charlotte, North Carolina.
Unemployment Rate
The survey indicates the U.S. unemployment rate will rise to 5.8 percent by the end of 2008, from 5.5 percent currently. The economy in June lost jobs for a sixth month, for a total of 438,000 job cuts so far this year.
Pier 1 Imports Inc., the biggest U.S. retailer of imported furniture, clothing-store chain Men's Wearhouse Inc. and Office Depot Inc. are among companies this week reporting weaker sales or plans to close stores.
Slower growth may help alleviate inflation. Consumer prices will rise 3.9 percent in the fourth quarter from a year before, down from a 4.5 percent pace in July through September. That's still up from projections of 3.4 percent and 4.1 percent in the June survey.
Consumer price gains have been led by the surge in fuel and other commodity costs. Crude oil reached a record of $145.85 on July 3. Regular unleaded gasoline prices touched a high of $4.11 a gallon last week, according to AAA.
Confidence Slides
Rising costs contributed to a slump in consumer confidence to a 28-year low in June, according to the University of Michigan/Reuters survey. Sentiment also deteriorated after home values in 20 major metropolitan areas fell for 16 straight months through April. The S&P/Case-Shiller index of house prices dropped 15 percent in April from a year before.
Consumers are seeking out bargains. Cincinnati-based Kroger Co., the biggest U.S. grocery chain, on June 24 said sales at stores open at least 15 months may climb as much as 5.5 percent as buyers are drawn to cheaper prices.
``Customers are responding to offers that really hit home with them,'' Kroger Chief Executive Officer David Dillon said on a conference call.
The Fed will keep its benchmark interest rate at 2 percent through March 2009, before raising it by a half point by the end of June, according to the survey. That compares with a quarter- point increase in the second quarter of 2009 projected last month.
Investors see a 63 percent chance of a Fed rate boost at the Oct. 28-29 Fed meeting, according to futures quoted on the Chicago Board of Trade.
Economists also anticipate little rebound in growth next year, with the expansion picking up to just 1.7 percent from a 1.5 percent pace for 2008 as a whole.
``The recession is hiding behind the tax rebate checks,'' Roger Kubarych, chief global economist at Unicredit Research in New York, said in an interview with Bloomberg Radio.
To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net
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Singapore's Growth Slows, Signaling Weaker Expansion in Asia
By Shamim Adam
July 10 (Bloomberg) -- Singapore's economy expanded at the slowest pace in five years in the second quarter as inflation accelerated to a 26-year high and U.S. demand slumped, heralding weaker growth across the region.
Gross domestic product increased 1.9 percent from a year earlier, after expanding a revised 6.9 percent in the first three months of 2008, the trade ministry said in a statement today. That was lower than the 3.2 percent median estimate of 18 economists in a Bloomberg News survey.
Asian governments are torn between efforts to rein in surging prices and the need to shore up growth. Singapore Finance Minister Tharman Shanmugaratnam yesterday warned there is a limit to how much the country's dollar can gain to fight inflation, as any ``dramatic strengthening'' of Asia's third best performing currency this year may hurt exports ``badly.''
``The sharp decline in Singapore's GDP growth suggests that other Asia ex-Japan economies will likely report declining second-quarter growth in the weeks to come,'' said Sun Mingchun, an economist at Lehman Brothers Holdings Inc. in Hong Kong. Singapore's policy of allowing the currency to strengthen to cool inflation ``is now hurting the export sector.''
The benchmark Straits Times Index fell 1 percent to 2,887.4 as of 11:30 a.m. today. The Singapore dollar rose 0.2 percent to S$1.3605 against its U.S. counterpart.
Philippine Economic Planning Secretary Augusto Santos said yesterday the government may lower its 2008 growth target a second time amid the fastest inflation in 14 years. In Malaysia, Governor Zeti Akhtar Aziz said consumer prices probably gained the most in a decade in June, as the central bank prepares to revise its growth estimates for Southeast Asia's third-largest economy later this month.
Fighting Inflation
Bank Indonesia, which has raised interest rates for three consecutive months, yesterday said it may impose extra non-cash reserve requirements on lenders to slow inflation running at the fastest pace in 21 months.
``Inflation expectations may take the wind out of the still-resilient Asian economies,'' said Song Seng-Wun, an economist at CIMB-GK Securities Pte. in Singapore, before today's release. ``If more is spent on food, there will be less for other economic activities.''
Standard Chartered Plc and Oversea-Chinese Banking Corp. reduced their estimates for Singapore's expansion this year after today's report. Standard Chartered expects 2008 growth of 3.5 percent from an earlier prediction of 4.5 percent, while Oversea-Chinese, Singapore's third-largest bank, cut its forecast to 4.8 percent from 5.6 percent.
Consumer Prices
The economy shrank an annualized 6.6 percent in the three months to June, contracting for the second time in three quarters. It grew a revised 15.6 percent in the first quarter.
``Our export-oriented sectors, especially manufacturing, are being hit by deteriorating economic conditions in the U.S. and Europe,'' Shanmugaratnam said yesterday. ``This is likely to continue in the coming months and the weakness in manufacturing will act as a drag on overall GDP growth.''
The island's manufacturing industry contracted 5.6 percent last quarter from a year earlier, compared with a revised 12.7 percent gain in the first three months of the year. Electronics exports have declined for 16 consecutive months, and pharmaceutical shipments slumped in April and May.
The Semiconductor Industry Association last month cut its global semiconductor sales-growth forecast this year to 4.3 percent from 7.7 percent. Companies such as Singapore-based Creative Technology Ltd., which makes accessories for Apple Inc.'s iPod music player, have cut their revenue estimates.
Export Reliant
Asia's developing nations are almost twice as reliant on exports as the rest of the world, with 60 percent of their sales abroad ultimately destined for the U.S., Europe and Japan.
``The U.S. remains a very important source of demand for Asian economies,'' said Tai Hui, head of Southeast Asian economic research at Standard Chartered in Singapore. ``The risk remains on the downside for the manufacturing sector given that demand remains fairly weak.''
The growth figures today are computed from data for April and May. Revised numbers will be released next month.
To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net
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China's Exports Cool, Add Pressure to Slow Yuan Gains
By Li Yanping and Nipa Piboontanasawat
July 10 (Bloomberg) -- China's export growth cooled in June, putting the government under more pressure to slow gains by the yuan to protect manufacturers.
Overseas shipments grew 17.6 percent from a year earlier, after gaining 28.1 percent in May, the customs bureau said on its Web site today. That was less than the 22 percent median estimate of 23 economists surveyed by Bloomberg News.
China has more than doubled the pace of the yuan's appreciation versus the dollar this year, helping to restrain the fastest inflation since 1996. Premier Wen Jiabao can't satisfy both manufacturers complaining about a profit squeeze and trading partners who deem the yuan undervalued and a cause of global trade imbalances.
``Faster currency gains hurt exporters already squeezed by raw-material and labor costs and taxes,'' said Sun Mingchun, an economist at Lehman Brothers Holdings Inc. in Hong Kong. ``The government needs to sustain growth and create jobs -- it's an issue of social stability.'' He expects the yuan's appreciation versus the dollar to slow to 2 percent for the rest of the year after a 6.6 percent increase so far.
The trade surplus narrowed 20.6 percent to $21.4 billion from a year earlier, according to the government, the third straight reduction. Imports climbed 31 percent from a year earlier, after a 40 percent increase in May.
Export growth is down from last year's 25.7 percent increase. The weaker performance ``is closely linked to the global economic slowdown, led by the U.S. economy,'' Wang Tao, a Beijing-based economist with UBS AG, said in a July 2 report.
U.S. Slowdown
The World Bank forecasts the U.S. economy will expand in 2008 at half the pace of last year and global economic growth will slow to 2.7 percent from 3.7 percent.
Standard Chartered Plc said in a report last month that ``worries about exports'' were fueling opposition within the government to yuan appreciation, which makes exporters' products more expensive and less attractive overseas.
Wen and Vice Premier Wang Qishan last week visited exporters in Jiangsu, Shanghai and Shandong, urging them to become more competitive, the state-run Xinhua News Agency said. Tax rebates on textile and garment exports may increase this month to help companies cope with currency gains and weakening demand, the China Securities Journal reported yesterday.
The yuan has gained 21 percent against the dollar since a fixed exchange rate was scrapped in 2005. It has risen 14 percent against the yen and fallen 7 percent versus the euro.
`Obviously' Undervalued
International Monetary Fund Managing Director Dominique Strauss-Kahn this week described the yuan as ``obviously substantially undervalued,'' while the Group of Eight nations signaled that they're seeking gains in currencies of countries with trade surpluses.
China's economy has slowed each quarter since expanding 11.9 percent, the fastest pace in 12 years, between April and June last year. Second-quarter gross domestic product is due to be announced July 17 after a 10.6 percent expansion in the first three months. Inflation was 7.7 percent in May.
``Growth is likely to outweigh inflation as the top priority toward the end of the year, leading the government to loosen monetary policy,'' said Lehman's Sun. ``The outlook for exports is darker for the rest of the year and the decline in economic growth will become steeper.''
In the first six months, exports grew 21.9 percent and imports rose 30.6 percent from a year earlier. The first-half trade surplus fell 11.8 percent to $99 billion from a year earlier.
May's surge in overseas shipments may have been because a shortened holiday added three working days to the month compared with a year earlier.
To contact the reporters on this story: Li Yanping in Beijing at yli16@bloomberg.net
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Australia Adds Three Times as Many Jobs as Expected
By Victoria Batchelor
July 10 (Bloomberg) -- Australia added three times as many jobs as economists forecast in June as mining companies, led by BHP Billiton Ltd. and Rio Tinto Group, expanded to meet Chinese demand for commodities.
Employers hired 29,800 workers following May's 25,600 decline that ended a record 18 months of job gains, the statistics bureau said in Sydney today. The jobless rate fell to 4.2 percent from 4.3 percent.
The local currency rose on optimism the nation will weather a global slump that has sent New Zealand and the U.K. to the brink of recession. Record exports are underpinning Australia's economy as consumers cut spending in the face of the highest interest rates in 12 years and rising fuel prices.
``This is a clear sign the economy still has life in it, buoyed by a resources boom,'' said Sally Auld, co-head of economics at Australia & New Zealand Banking Group Ltd. in Sydney. ``If it wasn't for mining, Australia's economy could be in as bad shape as New Zealand and the U.K.''
The Australian dollar climbed to 96.92 U.S. cents at 1:07 p.m. in Sydney from 95.55 cents before the report was released. The two-year government bond yield fell to 6.65 percent from 6.69 percent yesterday.
The median estimate of 25 economists surveyed by Bloomberg News was for a 10,000 jobs increase in June.
The number of full-time positions increased 24,000 and part-time jobs rose 5,800. About half of the nation's 21 million people are employed.
IMF Report
The International Monetary Fund said today the strength of the mining industry will add to pressure on consumer prices. The fund said the central bank should be prepared to raise interest rates ``quickly'' if domestic demand doesn't slow enough.
The Reserve Bank of Australia raised its benchmark rate to 7.25 percent in March, the fourth increase since August 2007. Eighteen of 25 economists surveyed on June 30 said the bank will keep borrowing costs unchanged this year as economic growth cools and helps damp the fastest inflation since 1991.
``Today's firm employment report underlines it's premature to be talking about interest-rate cuts, but it doesn't build the case for another increase,'' said Matthew Johnson, senior economist at ICAP Australia Ltd. in Sydney. ``The economy is slowing, so I suspect we'll see soft employment numbers over coming months.''
Reports yesterday showed consumer confidence slumped in July to the lowest level since 1992 and home-loan approvals fell by the most in eight years in May. Those figures sent the Australian dollar to the lowest level in almost three weeks.
Rate Expectations
Traders have assigned 24 percent odds on the Reserve Bank raising its benchmark rate by a quarter point in the next 12 months, according to a Credit Suisse Group index based on trading in interest-rate swaps. The probabilities were 28 percent yesterday and 72 percent a week ago.
Prior to the May jobs decline, employers had added extra workers every month from October 2006, the longest run of gains since the government began publishing monthly figures in 1978. The nation's jobless rate fell to 4 percent in February, the lowest in more than three decades.
Australia, the world's largest shipper of coal, iron ore and wool, may earn 12 percent more this financial year from commodity exports than forecast three months earlier because of higher prices, the government said on June 23.
BHP Billiton, the world's largest mining company, approved a $1.9 billion expansion in May of its Worsley alumina project in Western Australia. Rio Tinto plans to boost output by 26 percent at its Queensland Alumina Ltd. refinery.
Job Cuts
Some companies are shedding workers to cut expenses.
Insurance Australia, an auto and home insurer, announced yesterday it would cut 600 jobs to help lower annual costs by A$130 million. The Sydney-based company also said it will report the first loss in six years and sell businesses in the U.K.
Goodyear Tire & Rubber Co., the U.S.-based tire maker, said last month it will close a Melbourne factory and fire 600 workers.
The participation rate, which measures the labor force as a percentage of the population aged over 15, rose to 65.3 percent in June from 65.2 percent in May, today's report showed.
To contact the reporter on this story: Victoria Batchelor in Sydney at vbatchelor@bloomberg.net.
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Paulson Loses Closest Wall Street Adviser After Steel Quits
By Brendan Murray and Rebecca Christie
July 10 (Bloomberg) -- The resignation of Robert Steel as the U.S. Treasury's top domestic finance official leaves Secretary Henry Paulson without his closest Wall Street adviser as the economy struggles to rebound and credit turmoil deepens.
Steel, a former vice chairman to Paulson at Goldman Sachs Group Inc., quit yesterday to lead Wachovia Corp., the fourth- biggest U.S. bank. The former undersecretary led talks with bankers and securities firms in the past year as the Treasury orchestrated the administration's reaction to the credit crisis.
The departure may leave the Bush administration with diminished clout with Wall Street just as Treasury officials are pushing securities dealers away from reliance on government help. The announcement came on the eve of Paulson's testimony to Congress on overhauling financial regulations, an initiative Steel's department had led.
``Losing him will be a great blow,'' said Joseph Mason, a banking professor at Louisiana State University, in Baton Rouge who used to work at the Treasury's Office of the Comptroller of the Currency, one of five federal bank regulators. ``Right now you want somebody like Steel, who's well known and who carries more of a reputation with the Street.''
The Treasury said in a statement that Anthony Ryan, who worked under Steel as assistant secretary for financial markets, will take on a ``broader role,'' and other aides will also take on more duties.
Wachovia Loss
Steel, 56, joined the Treasury in October 2006. He worked at Goldman for three decades, departing as a vice chairman. He takes charge at Charlotte, North Carolina-based Wachovia after Chairman Lanty Smith, 65, ousted Kennedy Thompson on June 2 following the lender's surprise first-quarter loss.
``I know he will excel in his future endeavors,'' Paulson, 62, said in a statement. ``I have great confidence in the abilities of the domestic finance team at Treasury to adjust to this change and not miss a beat.''
The Treasury chief is scheduled to testify at the House Financial Services Committee today at 10 a.m. in Washington. Paulson may reprise his proposals for increased ``market discipline'' among financial firms, a wider supervisory role for the Federal Reserve and a liquidation procedure for failing investment banks.
``The secretary is in full gear,'' Steel said in an interview yesterday, adding that the hearing is in part a result of the ``blueprint'' for changes the Treasury laid out in March.
Paulson said in a July 2 speech in London that ``it is imperative that market participants not have the expectation that lending from the Fed or any other government support is readily available.'' Fed Chairman Ben S. Bernanke also testifies at today's hearing.
Ryan Steps Up
Ryan, 45, started at the Treasury in 2006, and previously was a portfolio manager at PanAgora Asset Management and State Street Corp.
Steel's position required Senate confirmation. Finding a permanent replacement may be difficult because the Democratic- majority Senate may not rush to confirm any nominee by President George W. Bush, who's term ends Jan. 20. The Senate has already failed to act for more than a year on two of Bush's three candidates for the Fed Board.
``With the confirmation process on hold until the election, the Treasury, like the Fed, will be increasingly short-handed as the year goes on,'' said Louis Crandall, chief economist at Wrightson ICAP LLC, a Jersey City, New Jersey-based research firm. The elections are in November.
Worst Crisis
Steel tapped his experience and contacts from Goldman years to become the secretary's eyes and ears on Wall Street, during a financial crisis former Fed Chairman Alan Greenspan has called the worst since World War II.
Like Paulson, he resisted calls in Congress for a taxpayer bailout of homeowners stuck with mortgages they can't afford, while helping advise on the Fed's lending to Bear Stearns Cos. that secured the firm's takeover by JPMorgan Chase & Co.
The Treasury, concerned at the so-called moral hazard of aiding an investment bank, advised a cheaper purchase price for the collapsing firm. Moral hazard is the danger of firms taking on more risk in anticipation of government assistance should their bets go wrong.
JPMorgan initially agreed to pay $2 a share, later raised to $10. The company's stock reached a high of $172.61 in January 2007.
Regulatory `Blueprint'
At the end of March, the Treasury announced its ``blueprint'' for overhauling financial regulators. Steel helped lead the effort, which pre-dated the credit crisis. He had campaigned to end what he called a ``patchwork quilt'' of regulation that had developed over decades and left unclear lines between one supervisor and another.
Analysts anticipate that legislation enacting regulatory changes won't come until next year, once a new administration takes office.
``Nothing that this Treasury produces at this point is going to become statutory policy,'' said William Black, a former deputy director of the Federal Savings and Loan Insurance Corp. and now an associate professor of economics and law at the University of Missouri in Kansas City. ``They're not going to get any substantive legislation passed.''
Steel received a bachelor's degree from Duke University and a master's degree in business administration from the University of Chicago.
To contact the reporters on this story: Brendan Murray at brmurray@bloomberg.net
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Bank of Korea Holds Key Rate as Inflation Accelerates
By William Sim
July 10 (Bloomberg) -- The Bank of Korea kept interest rates unchanged at the highest level in seven years, saying it expects inflation to accelerate and economic growth to cool.
Governor Lee Seong Tae and his colleagues left the seven-day repurchase rate at 5 percent in Seoul today, as forecast by all but two of 21 economists surveyed by Bloomberg News. They last adjusted the rate in August with a quarter-point increase.
Record fuel prices and a weaker won are driving the fastest inflation in almost 10 years, which in turn is taking its toll on consumers and businesses. A 5 percent gain in the won this week after a government pledge to take stern measures to halt its drop may have eased pressure on the central bank to raise rates.
``It seems clear the government is trying to cool inflation by supporting a stronger won,'' said Lim Ji Won, an economist at JPMorgan Chase & Co. in Seoul. ``The government is helping the central bank by giving it more time to resolve the dilemma between growth and inflation.''
The yield on the five-year government bond fell one basis point to 6.05 percent as of 12:40 p.m.
Consumer prices jumped 5.5 percent in June from a year earlier, breaching the central bank's target range for an eighth straight month. The bank aims to keep inflation between 2.5 percent and 3.5 percent, on average, for the three years to 2009.
``It would be difficult for inflation to fall back quickly to about 3 percent next year,'' Lee said in Seoul after the decision. ``We are concerned about the so-called secondary effect that inflationary expectations will rise further and put pressure on wages to climb.''
Won's Gain
The won gained 0.6 percent to 998.5 won against the dollar at 12:40 p.m., leaving it down 6.6 percent for the year. The currency dropped as much as 11 percent against the dollar this year, reaching a closing low for 2008 on July 4.
The government this week indicated it backs a stronger won, saying it would take ``stern action'' on the currency's decline.
The Bank of Korea has probably spent more than $12 billion since the end of May to boost the value of the currency, said Jung Chan Ho, a currency dealer at Shinhan Bank in Seoul.
``The government has repeatedly expressed concerns about inflation and vowed to focus on controlling prices,'' said Oh Suk Tae, economist at Citibank Korea Inc. in Seoul. ``It's about time the central bank takes some policy response to contain inflation, otherwise, it will be too late.''
The Bank of Korea on July 1 raised its 2008 inflation forecast to 4.8 percent from December's prediction of 3.3 percent. Economic growth will slow to 4.6 percent this year from 5 percent in 2007, it forecast.
Export Growth
Export growth is likely to accelerate this month from June because of rising demand from emerging markets and a weaker currency, the Ministry of Strategy and Finance said today.
Asia-Pacific central banks are battling to balance the fallout from slowing economic growth against a pickup in inflation. Central banks in Indonesia, India and Taiwan all raised borrowing costs in the past month.
President Lee Myung Bak has shifted his priority to fighting inflation from spurring economic growth as his popularity slumps amid public anger over soaring living costs and his decision to lift a ban on U.S. beef imports.
South Korea's economy expanded at the slowest pace in more than a year in the first quarter from the previous three months as consumers and businesses cut spending. The latest data suggest growth will slow further.
Industrial production rose the least in six months in May. Exports, which powered almost all of the economy's first-quarter expansion, had the smallest gain in five months in June.
Hyundai Motor Co., South Korea's biggest carmaker, on July 6 lowered its 2008 domestic sales target by 6 percent as rising oil costs and a weakening economy damp demand.
To contact the reporter on this story: William Sim in Seoul at wsim2@bloomberg.net.
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July 10 (Bloomberg) -- The Bank of Korea kept interest rates unchanged at the highest level in seven years, saying it expects inflation to accelerate and economic growth to cool.
Governor Lee Seong Tae and his colleagues left the seven-day repurchase rate at 5 percent in Seoul today, as forecast by all but two of 21 economists surveyed by Bloomberg News. They last adjusted the rate in August with a quarter-point increase.
Record fuel prices and a weaker won are driving the fastest inflation in almost 10 years, which in turn is taking its toll on consumers and businesses. A 5 percent gain in the won this week after a government pledge to take stern measures to halt its drop may have eased pressure on the central bank to raise rates.
``It seems clear the government is trying to cool inflation by supporting a stronger won,'' said Lim Ji Won, an economist at JPMorgan Chase & Co. in Seoul. ``The government is helping the central bank by giving it more time to resolve the dilemma between growth and inflation.''
The yield on the five-year government bond fell one basis point to 6.05 percent as of 12:40 p.m.
Consumer prices jumped 5.5 percent in June from a year earlier, breaching the central bank's target range for an eighth straight month. The bank aims to keep inflation between 2.5 percent and 3.5 percent, on average, for the three years to 2009.
``It would be difficult for inflation to fall back quickly to about 3 percent next year,'' Lee said in Seoul after the decision. ``We are concerned about the so-called secondary effect that inflationary expectations will rise further and put pressure on wages to climb.''
Won's Gain
The won gained 0.6 percent to 998.5 won against the dollar at 12:40 p.m., leaving it down 6.6 percent for the year. The currency dropped as much as 11 percent against the dollar this year, reaching a closing low for 2008 on July 4.
The government this week indicated it backs a stronger won, saying it would take ``stern action'' on the currency's decline.
The Bank of Korea has probably spent more than $12 billion since the end of May to boost the value of the currency, said Jung Chan Ho, a currency dealer at Shinhan Bank in Seoul.
``The government has repeatedly expressed concerns about inflation and vowed to focus on controlling prices,'' said Oh Suk Tae, economist at Citibank Korea Inc. in Seoul. ``It's about time the central bank takes some policy response to contain inflation, otherwise, it will be too late.''
The Bank of Korea on July 1 raised its 2008 inflation forecast to 4.8 percent from December's prediction of 3.3 percent. Economic growth will slow to 4.6 percent this year from 5 percent in 2007, it forecast.
Export Growth
Export growth is likely to accelerate this month from June because of rising demand from emerging markets and a weaker currency, the Ministry of Strategy and Finance said today.
Asia-Pacific central banks are battling to balance the fallout from slowing economic growth against a pickup in inflation. Central banks in Indonesia, India and Taiwan all raised borrowing costs in the past month.
President Lee Myung Bak has shifted his priority to fighting inflation from spurring economic growth as his popularity slumps amid public anger over soaring living costs and his decision to lift a ban on U.S. beef imports.
South Korea's economy expanded at the slowest pace in more than a year in the first quarter from the previous three months as consumers and businesses cut spending. The latest data suggest growth will slow further.
Industrial production rose the least in six months in May. Exports, which powered almost all of the economy's first-quarter expansion, had the smallest gain in five months in June.
Hyundai Motor Co., South Korea's biggest carmaker, on July 6 lowered its 2008 domestic sales target by 6 percent as rising oil costs and a weakening economy damp demand.
To contact the reporter on this story: William Sim in Seoul at wsim2@bloomberg.net.
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Japan's Wholesale Inflation Rises to a 27-Year High
By Mayumi Otsuma
July 10 (Bloomberg) -- Japan's wholesale inflation rate rose to a 27-year high in June as companies raised prices to counter record oil and commodity costs.
Producer prices climbed 5.6 percent from a year earlier, after a revised 4.8 percent gain in May, the Bank of Japan said in Tokyo today. The median estimate of 36 economists surveyed by Bloomberg News was for 5.3 percent.
Oil, wheat and soybean costs have almost doubled in the past year, forcing companies to charge more and fanning the fastest consumer-price inflation in a decade. Costs are gaining faster than firms can raise prices, prompting businesses to predict the first profit decline in seven years, a report last week showed.
``Producer prices are rising so rapidly that companies can't absorb them,'' said Junko Nishioka, an economist at RBS Securities Japan Ltd. in Tokyo. ``Higher prices are squeezing profits to the point where companies have no choice but to pass costs onto consumers.''
The yen traded at 106.91 per dollar at 9:55 a.m. in Tokyo from 106.84 before the report was published.
Crude oil rose to a record $145.85 a barrel on July 3 and retail gasoline prices have risen more than 18 percent this year to 181.5 a liter ($6.40 a gallon). The Bank of Japan's overseas commodity index soared 70.9 percent in June from a year earlier.
`So Rapid'
Japan's current-account surplus narrowed for a third month in May as oil prices pushed up the import bill, a separate report released today showed.
``The pace of raw-material price increases is so rapid that companies' attempts to pass costs are failing to catch up with cost surges,'' Masahiro Samejima, who heads the central bank's Osaka branch, told reporters on July 7.
Nisshin Oillio Group Ltd., J-Oil Mills Inc. and Showa Sangyo Co., the country's three largest edible oil makers, raised their prices this month. Ajinomoto Co. increased mayonnaise prices and QP Corp. plans to follow suit in August. Kagome Co., a maker of ketchup and canned food, increased tomato juice prices by 10 percent.
Consumers are starting to be squeezed as companies raise prices. Higher costs are forcing consumers to pare spending, which probably caused the economy to contract last quarter, according to economists surveyed by Bloomberg News last month.
The gain in producer prices matched the 5.6 percent increase recorded in February 1981. Prices rose 0.8 percent from May, slowing from a revised 1.2 percent increase.
Consumer Prices
Higher producer costs are feeding into consumer prices, and inflation excluding fresh food will probably exceed 2 percent as soon as next month, according to Azusa Kato, an economist at BNP Paribas in Tokyo. The Bank of Japan regards prices as stable when they are between zero and 2 percent.
Kato said the price increases won't prompt the central bank to raise its benchmark interest rate from 0.5 percent because higher prices are crimping growth in the world's second-largest economy.
``Japan's inflation rate is relatively calm compared with other countries', and there are no signs that costlier oil will trigger wage increases,'' Kato said. Rising prices ``won't lead to interest rate hike discussions at the central bank.''
Core consumer prices rose 1.5 percent in May from a year earlier, less than half the pace of gains in the euro zone and lower than the 2.3 percent inflation in the U.S. Wages rose 0.2 percent in the month, the slowest increase this year.
Price increases are spreading beyond energy and food to industries such as automakers, which have so far avoided charging more through cost cutting and improving productivity. Hino Motors Ltd., Japan's largest maker of heavy trucks, and Nissan Diesel Motor Co. this month raised prices of vehicles for the first time in almost 17 years to absorb costs.
Costlier steel, rubber and aluminum costs are ``practically impossible to absorb,'' Nissan Motor Co. Chief Executive Officer Carlos Ghosn told shareholders last month.
To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net
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July 10 (Bloomberg) -- Japan's wholesale inflation rate rose to a 27-year high in June as companies raised prices to counter record oil and commodity costs.
Producer prices climbed 5.6 percent from a year earlier, after a revised 4.8 percent gain in May, the Bank of Japan said in Tokyo today. The median estimate of 36 economists surveyed by Bloomberg News was for 5.3 percent.
Oil, wheat and soybean costs have almost doubled in the past year, forcing companies to charge more and fanning the fastest consumer-price inflation in a decade. Costs are gaining faster than firms can raise prices, prompting businesses to predict the first profit decline in seven years, a report last week showed.
``Producer prices are rising so rapidly that companies can't absorb them,'' said Junko Nishioka, an economist at RBS Securities Japan Ltd. in Tokyo. ``Higher prices are squeezing profits to the point where companies have no choice but to pass costs onto consumers.''
The yen traded at 106.91 per dollar at 9:55 a.m. in Tokyo from 106.84 before the report was published.
Crude oil rose to a record $145.85 a barrel on July 3 and retail gasoline prices have risen more than 18 percent this year to 181.5 a liter ($6.40 a gallon). The Bank of Japan's overseas commodity index soared 70.9 percent in June from a year earlier.
`So Rapid'
Japan's current-account surplus narrowed for a third month in May as oil prices pushed up the import bill, a separate report released today showed.
``The pace of raw-material price increases is so rapid that companies' attempts to pass costs are failing to catch up with cost surges,'' Masahiro Samejima, who heads the central bank's Osaka branch, told reporters on July 7.
Nisshin Oillio Group Ltd., J-Oil Mills Inc. and Showa Sangyo Co., the country's three largest edible oil makers, raised their prices this month. Ajinomoto Co. increased mayonnaise prices and QP Corp. plans to follow suit in August. Kagome Co., a maker of ketchup and canned food, increased tomato juice prices by 10 percent.
Consumers are starting to be squeezed as companies raise prices. Higher costs are forcing consumers to pare spending, which probably caused the economy to contract last quarter, according to economists surveyed by Bloomberg News last month.
The gain in producer prices matched the 5.6 percent increase recorded in February 1981. Prices rose 0.8 percent from May, slowing from a revised 1.2 percent increase.
Consumer Prices
Higher producer costs are feeding into consumer prices, and inflation excluding fresh food will probably exceed 2 percent as soon as next month, according to Azusa Kato, an economist at BNP Paribas in Tokyo. The Bank of Japan regards prices as stable when they are between zero and 2 percent.
Kato said the price increases won't prompt the central bank to raise its benchmark interest rate from 0.5 percent because higher prices are crimping growth in the world's second-largest economy.
``Japan's inflation rate is relatively calm compared with other countries', and there are no signs that costlier oil will trigger wage increases,'' Kato said. Rising prices ``won't lead to interest rate hike discussions at the central bank.''
Core consumer prices rose 1.5 percent in May from a year earlier, less than half the pace of gains in the euro zone and lower than the 2.3 percent inflation in the U.S. Wages rose 0.2 percent in the month, the slowest increase this year.
Price increases are spreading beyond energy and food to industries such as automakers, which have so far avoided charging more through cost cutting and improving productivity. Hino Motors Ltd., Japan's largest maker of heavy trucks, and Nissan Diesel Motor Co. this month raised prices of vehicles for the first time in almost 17 years to absorb costs.
Costlier steel, rubber and aluminum costs are ``practically impossible to absorb,'' Nissan Motor Co. Chief Executive Officer Carlos Ghosn told shareholders last month.
To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net
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Philippine Export Growth Slows as Electronics Decline
By Francisco Alcuaz Jr. and Clarissa Batino
July 10 (Bloomberg) -- Philippine exports rose at a slower pace in May as slowing global growth damped orders for the country's disk drives and mobile-phone chips.
Shipments abroad rose 2.3 percent from a year earlier to $4.22 billion, compared with a 4.9 percent gain in April, according to preliminary figures released by the National Statistics Office in Manila today. The median estimate of 13 economists in a Bloomberg survey was for a 4.5 percent increase.
``The global headwinds are undeniable and it's making the export sector quite vulnerable,'' said Vishnu Varathan, a regional economist at Forecast Singapore Pte. ``Demand for electronics isn't looking good.''
Asian nations face weaker economic expansion this year as a slowdown in the U.S. hurts demand for electronics produced by Intel Corp., Texas Instruments Inc. and other manufacturers in the region. The Philippine government said yesterday it may cut its 2008 growth target for the second time this year.
Overseas sales account for about two-fifths of the Philippines' $118 billion economy, which grew at the slowest pace in six quarters in the first three months of the year. The International Monetary Fund forecast in April that world growth would ease to 3.7 percent this year from 4.9 percent in 2007.
``Growth in the U.S. has weakened, slowing demand for products and we're seeing the same slack in orders from Japan and Europe,'' said George Worthington, chief Asia-Pacific economist at Thomson IFR in Sydney.
Electronics Sales
Estimates for May exports in the Bloomberg survey ranged from a decline of 2 percent to growth of as much as 9 percent.
Sales of electronics, which make up two-thirds of the Philippines' total exports, fell 3.4 percent to $2.47 billion in May from a year earlier.
Exports to the U.S., the Philippines' biggest overseas market, advanced 2.7 percent to $676 million. Shipments to Japan, the No. 2 destination, added 22 percent to $665 million.
Shipments to China climbed 8.6 percent in May from a year earlier to $502 million. Exports to Hong Kong fell 23 percent to $396 million.
To contact the reporters for this story: Francisco Alcuaz Jr. in Manila at falcuaz@bloomberg.net; Clarissa Batino in Manila at cbatino@bloomberg.net
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July 10 (Bloomberg) -- Philippine exports rose at a slower pace in May as slowing global growth damped orders for the country's disk drives and mobile-phone chips.
Shipments abroad rose 2.3 percent from a year earlier to $4.22 billion, compared with a 4.9 percent gain in April, according to preliminary figures released by the National Statistics Office in Manila today. The median estimate of 13 economists in a Bloomberg survey was for a 4.5 percent increase.
``The global headwinds are undeniable and it's making the export sector quite vulnerable,'' said Vishnu Varathan, a regional economist at Forecast Singapore Pte. ``Demand for electronics isn't looking good.''
Asian nations face weaker economic expansion this year as a slowdown in the U.S. hurts demand for electronics produced by Intel Corp., Texas Instruments Inc. and other manufacturers in the region. The Philippine government said yesterday it may cut its 2008 growth target for the second time this year.
Overseas sales account for about two-fifths of the Philippines' $118 billion economy, which grew at the slowest pace in six quarters in the first three months of the year. The International Monetary Fund forecast in April that world growth would ease to 3.7 percent this year from 4.9 percent in 2007.
``Growth in the U.S. has weakened, slowing demand for products and we're seeing the same slack in orders from Japan and Europe,'' said George Worthington, chief Asia-Pacific economist at Thomson IFR in Sydney.
Electronics Sales
Estimates for May exports in the Bloomberg survey ranged from a decline of 2 percent to growth of as much as 9 percent.
Sales of electronics, which make up two-thirds of the Philippines' total exports, fell 3.4 percent to $2.47 billion in May from a year earlier.
Exports to the U.S., the Philippines' biggest overseas market, advanced 2.7 percent to $676 million. Shipments to Japan, the No. 2 destination, added 22 percent to $665 million.
Shipments to China climbed 8.6 percent in May from a year earlier to $502 million. Exports to Hong Kong fell 23 percent to $396 million.
To contact the reporters for this story: Francisco Alcuaz Jr. in Manila at falcuaz@bloomberg.net; Clarissa Batino in Manila at cbatino@bloomberg.net
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Chile's De Gregorio May Raise Rate to 7.25% to Stem Price Rises
By Sebastian Boyd
July 10 (Bloomberg) -- Chile's central bank President Jose De Gregorio will probably raise the benchmark rate to a nine- year high today in a bid to slow inflation to policy makers' target within the next year.
Twenty of the 22 economists surveyed by Bloomberg expect the bank to raise the reference rate, including 15 who forecast a half percentage-point increase to 7.25 percent. Two economists expect the bank to keep the rate unchanged at 6.75 percent and two expect a quarter-point increase.
Policy makers have raised the overnight rate six times in the last year, including a half-point increase last month, as they seek to slow the fastest inflation in Chile in more than a decade to their target of 2 percent to 4 percent.
``The inflation numbers were really bad and the bank has already signaled it is concerned,'' said Rodrigo Valdes, chief Latin American economist at Barclays Capital in New York. ``They have to save some bullets for later, so what I would expect is 50 basis points and a strong statement for the future.''
Consumer prices in the $173 billion economy rose 9.5 percent in the year through June, the fastest pace since 1994, and almost triple the 3.2 percent rate of June 2007.
Among South American economies, Venezuela, Ecuador and Bolivia have higher inflation rates. Argentina in May registered annual inflation of 9.1 percent, though some analysts and former Economy Minister Roberto Lavagna dispute the number and say the real rate is more than twice that amount.
Consensus
Food prices in Chile rose 2.3 percent in June, compared with a 1.9 percent climb in May, pushing the annual rate for food to 19.5 percent. Food accounts for about a quarter of Chile's consumer price index.
Record global oil prices have led to a surge in transport costs because Chile imports almost all of its petroleum needs. Transport prices rose 3.6 percent and 2.3 percent in June and May respectively.
Core inflation, which strips out more volatile food and energy prices, rose 8.7 percent in the 12 months through June.
Faster inflation will prompt the central bank to raise its target interest rate by half a percentage point tomorrow and by a further half point before the end of the year, according to a monthly central bank survey of economists published yesterday.
The median of 36 forecasts in the bank's July 2-8 survey showed that economists expect a year-end inflation rate of 7.5 percent, compared with 5.5 percent in the bank's June survey.
New York-based Credit Suisse economist Alonso Cervera on July 8 raised his year-end inflation forecast to 7.7 percent, up from 5.4 percent.
`Do Something'
De Gregorio warned on July 2 that he couldn't rule out further rises and that inflation would be faster than the bank had forecast in May. Expectations of price rises fed into price and salary adjustments, creating further inflation, he said.
``They have to do something about inflation expectations,'' said Julio Espinoza, an economist at Banco Bice in Santiago, who expects a half-point increase.
Two analysts in Bloomberg's survey of economists expect the bank to raise the benchmark rate by three-quarters of a percentage point to 7.50 percent tomorrow, while Leonardo Suarez, an economist at Larrain Vial SA in Santiago, expects the bank to raise by a full percentage point.
``The question is whether a half-point increase is enough, or should they accelerate,'' said Alberto Ramos, an economist at Goldman Sachs Group Inc. in New York.
To contact the reporter on this story: Sebastian Boyd in Santiago at sboyd9@bloomberg.net
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July 10 (Bloomberg) -- Chile's central bank President Jose De Gregorio will probably raise the benchmark rate to a nine- year high today in a bid to slow inflation to policy makers' target within the next year.
Twenty of the 22 economists surveyed by Bloomberg expect the bank to raise the reference rate, including 15 who forecast a half percentage-point increase to 7.25 percent. Two economists expect the bank to keep the rate unchanged at 6.75 percent and two expect a quarter-point increase.
Policy makers have raised the overnight rate six times in the last year, including a half-point increase last month, as they seek to slow the fastest inflation in Chile in more than a decade to their target of 2 percent to 4 percent.
``The inflation numbers were really bad and the bank has already signaled it is concerned,'' said Rodrigo Valdes, chief Latin American economist at Barclays Capital in New York. ``They have to save some bullets for later, so what I would expect is 50 basis points and a strong statement for the future.''
Consumer prices in the $173 billion economy rose 9.5 percent in the year through June, the fastest pace since 1994, and almost triple the 3.2 percent rate of June 2007.
Among South American economies, Venezuela, Ecuador and Bolivia have higher inflation rates. Argentina in May registered annual inflation of 9.1 percent, though some analysts and former Economy Minister Roberto Lavagna dispute the number and say the real rate is more than twice that amount.
Consensus
Food prices in Chile rose 2.3 percent in June, compared with a 1.9 percent climb in May, pushing the annual rate for food to 19.5 percent. Food accounts for about a quarter of Chile's consumer price index.
Record global oil prices have led to a surge in transport costs because Chile imports almost all of its petroleum needs. Transport prices rose 3.6 percent and 2.3 percent in June and May respectively.
Core inflation, which strips out more volatile food and energy prices, rose 8.7 percent in the 12 months through June.
Faster inflation will prompt the central bank to raise its target interest rate by half a percentage point tomorrow and by a further half point before the end of the year, according to a monthly central bank survey of economists published yesterday.
The median of 36 forecasts in the bank's July 2-8 survey showed that economists expect a year-end inflation rate of 7.5 percent, compared with 5.5 percent in the bank's June survey.
New York-based Credit Suisse economist Alonso Cervera on July 8 raised his year-end inflation forecast to 7.7 percent, up from 5.4 percent.
`Do Something'
De Gregorio warned on July 2 that he couldn't rule out further rises and that inflation would be faster than the bank had forecast in May. Expectations of price rises fed into price and salary adjustments, creating further inflation, he said.
``They have to do something about inflation expectations,'' said Julio Espinoza, an economist at Banco Bice in Santiago, who expects a half-point increase.
Two analysts in Bloomberg's survey of economists expect the bank to raise the benchmark rate by three-quarters of a percentage point to 7.50 percent tomorrow, while Leonardo Suarez, an economist at Larrain Vial SA in Santiago, expects the bank to raise by a full percentage point.
``The question is whether a half-point increase is enough, or should they accelerate,'' said Alberto Ramos, an economist at Goldman Sachs Group Inc. in New York.
To contact the reporter on this story: Sebastian Boyd in Santiago at sboyd9@bloomberg.net
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Japan's June Corporate Goods Price Index: Summary (Table)
By Harumi Ichikura
July 10 (Bloomberg) -- Following is the summary table for the Corporate Goods Price Index from the Bank of Japan in Tokyo. (Index 2005=100)
===============================================================================SOURCE: Bank of Japan http://www.boj.or/jp/en
June May April March Feb. Jan. Dec.
2008 2008 2008 2008 2008 2008 2007
===============================================================================
-------------Month-on-Month Percent Change-------------
Corporate goods prices 0.8% 1.2% 0.7% 0.6% 0.5% 0.2% 0.4%
export prices 2.7% 1.8% 2.4% -3.0% 0.4% -2.4% 0.5%
import prices 7.4% 4.3% 4.9% -2.7% 1.6% -2.3% 4.1%
---------------Year-on-Year Percent Change--------------
Corporate goods prices 5.6% 4.8% 3.9% 3.9% 3.5% 3.0% 2.7%
Export prices -4.2% -5.6% -5.9% -6.8% -5.2% -5.7% -2.0%
Import prices 17.0% 10.8% 10.0% 8.3% 11.0% 7.1% 12.8%
------------------------Yen level-----------------------
Yen 106.9 104.2 102.5 101.0 107.2 107.7 112.4
MoM percent change 2.6% 1.6% 1.6% -5.9% -0.4% -4.2% 1.0%
===============================================================================
To contact the reporter on this story: Harumi Ichikura in Tokyo at hichikura@bloomberg.net
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Ito Says Japan Should Make $33 Billion Sovereign Fund
By Ron Harui and Liza Lin
July 10 (Bloomberg) -- Japan should start a sovereign wealth fund with about $33 billion in assets, using interest earned on its $1 trillion of foreign reserves, said Takatoshi Ito, a member of a government advisory committee.
The fund would invest in higher-yielding assets overseas including equities, Ito said in a Bloomberg Television interview in Singapore. It needs to be set up ``as soon as possible'' to avoid exchange-rate fluctuations that may hurt the reserves, which are second only to those of China, he added.
Ito has scaled back his plan since suggesting a $700 billion fund a year ago because of opposition from the Ministry of Finance. Since then the value of the $592 billion that Japanese investors hold in U.S. Treasuries has been eroded by the dollar's 12 percent drop against the yen. Japan has also lagged behind China, which set up a fund to manage $200 billion of its $1.68 trillion of reserves in September.
``My proposal is to take interest income separate from foreign reserves, accumulate it and manage it more actively,'' said Ito, a member of Prime Minister Yasuo Fukuda's key economic panel. ``The reserves are very exposed to currency and interest- rate risks in the future, so this is not desirable.''
He estimates that the government receives interest payments of about 3.5 trillion yen ($33 billion) a year on the reserves, which are held in highly-liquid assets such as Treasuries.
Assets managed by sovereign wealth funds will triple to more than $10 trillion by 2015, International Financial Services London said in March.
Funds' Rising Influence
The funds invested $58 billion in the first quarter, more than they spent from 2000 to 2005, according to a report by Cambridge, Massachusetts-based Grail Research, a unit of consulting firm Monitor Group.
The funds' rising influence has caused U.S. and European lawmakers to call for greater transparency about their investments and motives. The U.S. Senate Banking Committee held a hearing last month on concerns that the funds may be buying stakes in American companies for political reasons. The European Commission in February called for an international accord to limit the political influence of the funds.
Finance Minister Fukushiro Nukaga said in March the ministry focuses on liquidity and safety in managing the reserves. His ministry has said the money should be used in case Japan needs to intervene in the currency markets.
`Huge Carry Trade'
The finance ministry is ``opposed to doing anything about foreign reserves,'' said Ito, who described the current investment strategy as ``basically a huge carry trade.''
In such trades, investors get funds in a country with low borrowing costs and invest in one with higher interest rates, earning the spread between the borrowing and lending rate. The risk is that currency market moves erase those profits. The benchmark interest rate is 0.5 percent in Japan, compared with 2 percent in the U.S., 8.25 percent in New Zealand and 12.25 percent in Brazil.
The yen has risen against 12 of the 16 most-active currencies in the past year as deepening credit-market losses prompted investors to cut carry trades. The currency traded at 106.83 per dollar as of 10:10 a.m. in Tokyo from 106.76 late in New York yesterday. It reached 95.76 on March 17, the strongest since Aug. 15, 1996.
To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net; Liza Lin in Singapore at llin15@bloomberg.net
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Asian Currencies: Korean Won Gains on Intervention Speculation
By Aaron Pan and Kim Kyoungwha
July 10 (Bloomberg) -- Asian currencies advanced, led by South Korea's won, on speculation the government is intervening to strengthen the currency and curb inflation.
The won rose for a fourth day as Finance Minister Kang Man Soo pledged again today the government will tackle risks stemming from higher oil costs, accelerating inflation and turmoil in financial markets. The Bank of Korea kept interest rates on hold at 5 percent today. Six of the 10 most-traded Asian currencies outside of Japan rose.
``There's been around-the-clock intervention from the government to propel the won higher,'' said Kim Sung Soon, a currency dealer at Industrial Bank of Korea in Seoul. ``It's a blanket policy from spot to forward markets.''
South Korea's currency gained 0.5 percent to 999.75 against the dollar as of 1:09 p.m. local time, according to Seoul Money Brokerage Services Ltd. The government's won buying amounted to at least $5 billion yesterday alone, Kim said.
As part of efforts to support the won, South Korea may allow foreign banks operating in the nation to borrow more from overseas and help increase dollar inflows, the Herald Business newspaper reported yesterday.
Elsewhere, the Singapore dollar added 0.2 percent to S$1.3607, the Taiwan dollar was little changed at NT$30.401 and Thailand's baht fell 0.1 percent to 33.67 versus the dollar. Vietnam's dong traded at 16,846.50 from 16,845.50 yesterday.
Indonesia's rupiah advanced to the highest level in three months on speculation the central bank wants a stronger currency to help temper inflation.
`Still Aggressive'
The currency rose 0.5 percent in the past five days as a decline in oil prices from last week's record $145.85 a barrel eased concern that state finances will deteriorate. Bank Indonesia Governor Boediono said yesterday his focus was on maintaining economic stability rather than growth and he would use exchange and interest rates to tame inflation.
``Even if the rupiah is strengthening, our central bank is still aggressive to defend the rupiah, to make the currency stronger,'' said Iwan Ridwan Gunandar, a currency dealer at PT Bank Niaga in Jakarta. ``Government finances will also be better if oil prices go down.''
The currency rose as high as 9,161 per dollar, the strongest since April 8, before trading at 9,167 from 9,173 late yesterday, according to data compiled by Bloomberg. The rupiah may trade between 9,150 and 9,200 today, Gunandar said.
Malaysia's ringgit
Malaysia's ringgit gained as investors shunned the U.S. currency on concern a deepening housing-market slowdown will lead to more losses at mortgage-finance companies.
The ringgit rose for a sixth day after U.S. stocks tumbled yesterday, pushing the Standard & Poor's 500 Index into a bear market for the first time since 2002. The currency also advanced on speculation Asian central banks will buy their currencies, emulating South Korea, to help stem inflation.
``The broad dollar-weakness is coming back again and it's supportive of the ringgit trades,'' said Yahya Mohd Nor, head of currency trading at Affin Bank Bhd. in Kuala Lumpur. ``Korea's moves to intervene are giving some optimism'' that other central banks will do the same, he said.
The ringgit traded at 3.2425 per dollar versus 3.2432 late yesterday, according to data compiled by Bloomberg. The currency may advance to 3.2350 today, Yahya said.
Malaysia's currency is headed for the longest winning streak since April 2007 on speculation Bank Negara will raise its overnight policy rate this month after saying consumer prices may have climbed more than 6 percent in June, the most in 10 years.
To contact the reporters on this story: Aaron Pan in Hong Kong at apan8@bloomberg.net; Kim Kyoungwha in Beijing at kkim19@bloomberg.net.
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July 10 (Bloomberg) -- Asian currencies advanced, led by South Korea's won, on speculation the government is intervening to strengthen the currency and curb inflation.
The won rose for a fourth day as Finance Minister Kang Man Soo pledged again today the government will tackle risks stemming from higher oil costs, accelerating inflation and turmoil in financial markets. The Bank of Korea kept interest rates on hold at 5 percent today. Six of the 10 most-traded Asian currencies outside of Japan rose.
``There's been around-the-clock intervention from the government to propel the won higher,'' said Kim Sung Soon, a currency dealer at Industrial Bank of Korea in Seoul. ``It's a blanket policy from spot to forward markets.''
South Korea's currency gained 0.5 percent to 999.75 against the dollar as of 1:09 p.m. local time, according to Seoul Money Brokerage Services Ltd. The government's won buying amounted to at least $5 billion yesterday alone, Kim said.
As part of efforts to support the won, South Korea may allow foreign banks operating in the nation to borrow more from overseas and help increase dollar inflows, the Herald Business newspaper reported yesterday.
Elsewhere, the Singapore dollar added 0.2 percent to S$1.3607, the Taiwan dollar was little changed at NT$30.401 and Thailand's baht fell 0.1 percent to 33.67 versus the dollar. Vietnam's dong traded at 16,846.50 from 16,845.50 yesterday.
Indonesia's rupiah advanced to the highest level in three months on speculation the central bank wants a stronger currency to help temper inflation.
`Still Aggressive'
The currency rose 0.5 percent in the past five days as a decline in oil prices from last week's record $145.85 a barrel eased concern that state finances will deteriorate. Bank Indonesia Governor Boediono said yesterday his focus was on maintaining economic stability rather than growth and he would use exchange and interest rates to tame inflation.
``Even if the rupiah is strengthening, our central bank is still aggressive to defend the rupiah, to make the currency stronger,'' said Iwan Ridwan Gunandar, a currency dealer at PT Bank Niaga in Jakarta. ``Government finances will also be better if oil prices go down.''
The currency rose as high as 9,161 per dollar, the strongest since April 8, before trading at 9,167 from 9,173 late yesterday, according to data compiled by Bloomberg. The rupiah may trade between 9,150 and 9,200 today, Gunandar said.
Malaysia's ringgit
Malaysia's ringgit gained as investors shunned the U.S. currency on concern a deepening housing-market slowdown will lead to more losses at mortgage-finance companies.
The ringgit rose for a sixth day after U.S. stocks tumbled yesterday, pushing the Standard & Poor's 500 Index into a bear market for the first time since 2002. The currency also advanced on speculation Asian central banks will buy their currencies, emulating South Korea, to help stem inflation.
``The broad dollar-weakness is coming back again and it's supportive of the ringgit trades,'' said Yahya Mohd Nor, head of currency trading at Affin Bank Bhd. in Kuala Lumpur. ``Korea's moves to intervene are giving some optimism'' that other central banks will do the same, he said.
The ringgit traded at 3.2425 per dollar versus 3.2432 late yesterday, according to data compiled by Bloomberg. The currency may advance to 3.2350 today, Yahya said.
Malaysia's currency is headed for the longest winning streak since April 2007 on speculation Bank Negara will raise its overnight policy rate this month after saying consumer prices may have climbed more than 6 percent in June, the most in 10 years.
To contact the reporters on this story: Aaron Pan in Hong Kong at apan8@bloomberg.net; Kim Kyoungwha in Beijing at kkim19@bloomberg.net.
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Yuan's Advance May Slow in Fourth Quarter, Bank of China Says
By Judy Chen
July 10 (Bloomberg) -- The yuan's gains will slow in the fourth quarter as authorities rely more on interest rates and less on currency appreciation to cool inflation, according to Bank of China Ltd., the nation's largest foreign-exchange trader.
The central bank will shift its policy later this year because a stronger currency will risk hurting exports, Shi Lei, a foreign-exchange analyst at Bank of China, wrote in a report dated yesterday. The yuan has strengthened 6.5 percent versus the dollar this year, almost matching the advance in all of 2007, as China seeks to lower import costs and stem inflation stoked by record oil prices.
``The yuan's appreciation can only curb a 20 percent gain in oil prices,'' Beijing-based Shi said. ``The side effects are a sharp drop in exports and a steep rise in imports, crippling China's manufacturers.''
The currency may rise 2 percent to 6.72 per dollar by the end of this quarter, and a further 1 percent in the fourth quarter to end the year at 6.65, Shi forecast. The currency closed at 6.857 in Shanghai yesterday, according to data compiled by Bloomberg.
Premier Wen Jiabao and Vice Premier Wang Qishan last week visited exporters in Jiangsu, Shanghai and Shandong, listening to their concerns about a decline in global demand, the state- run Xinhua news agency reported on July 5 and 6.
Exports may have risen 22.4 percent in June from a year earlier after gaining 28.1 percent in May, according to the median estimate of economists surveyed by Bloomberg News before the government reports the data by July 15. Imports increased 37.1 percent, according to a separate Bloomberg survey, as a stronger yuan boosted the spending power of Chinese consumers and companies.
`Rate Hike'
``The central bank will turn to rate hikes in the fourth quarter as inflationary pressure increases,'' Shi said in an interview yesterday, confirming the contents of the report. ``A rate hike may hurt exporters less than the yuan's rise.''
Non-deliverable forward contracts show traders have pared bets on the extent of the yuan's appreciation in the next 12 months. The currency will rise 5.7 percent to an implied rate of 6.49 a dollar in the next year, versus a prediction of 6.2755 on April 7, Bloomberg data show.
China has refrained from raising interest rates this year following six increases in 2007. It allowed the yuan to strengthen to curb the price of imports, and also ordered banks to set aside more deposits as reserves five times this year. Inflation quickened to 8.1 percent in the first five months, exceeding the government's target of 4.8 percent for this year.
The yuan was the best performer against the dollar in the past three months of the 10 most-active Asian currencies excluding the yen.
To contact the reporters on this story: Judy Chen in Shanghai at xchen45@bloomberg.net.
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Gilts to Beat U.S., German Debt After Worst Quarter in 14 Years
By Agnes Lovasz
July 10 (Bloomberg) -- U.K. government bonds are poised to rebound from their worst quarter in more than 14 years, beating U.S. and European debt, as the slowest economic growth since 1992 keeps the Bank of England from raising interest rates.
The slumping economy will drive 10-year gilt yields down to 4.74 percent by year-end, from about 4.87 percent yesterday, according to the median estimate of 13 strategists surveyed by Bloomberg. Pacific Investment Management Co., manager of the world's largest bond fund, says U.K. debt looks ``attractive.'' Invesco Asset Management is going ``overweight'' gilts, meaning it plans to hold a greater percentage of the debt than the benchmark indexes it uses to measure performance.
``The U.K. economy will do pretty badly and this will support the bond market,'' said Axel Blase, a Frankfurt-based fund manager at Invesco, which holds about $160 billion in fixed- income assets.
The worst property slump in 30 years, the highest mortgage rates since 2000 and rising fuel and food costs in Europe's second-biggest economy are stoking demand for the safest assets. The economy will expand 1.7 percent in 2008, according to the median estimate of 31 strategists surveyed by Bloomberg, down from 3 percent last year. The risk of a recession is ``serious,'' the British Chambers of Commerce said July 8.
The slump is likely to keep the Bank of England from raising its key interest rate from 5 percent at a meeting today even after inflation accelerated in May to 3.3 percent, the fastest pace in more than a decade. All but one of 49 economists surveyed by Bloomberg predict the bank will leave rates unchanged.
`Extremely Weak'
The housing market will be ``extremely weak'' and policy makers won't ``overreact'' to inflation, central bank Governor Mervyn King said in testimony to Parliament on June 26. The European Central Bank lifted its main rate to 4.25 percent on July 3, its first increase in a year.
``The U.K. looks attractive against Europe,'' said Myles Bradshaw, a fund manager at Pimco in London. ``In terms of rate expectations they are pretty similar but the difference is that the U.K. has got a much weaker growth outlook than Europe. Our sense is that the BOE won't need to raise rates as the weakness in growth will pull inflation down.''
The yield on the 10-year gilt fell 2 basis points to 4.87 percent yesterday. The 4.75 percent security due March 2018 rose 0.17, or 1.7 pounds per 1,000-pound ($1,981) face amount, to 100.98. The two-year yield was little changed at 4.88 percent.
Inflation Threat
The 17 basis-point decline in the 10-year yield forecast in the Bloomberg survey would give an investor buying $10 million of the securities today a profit of about $336,000 by Dec. 31. Ten- year bund yields will drop 11 basis points, producing a gain of $287,000 on the same amount invested, while 10-year Treasury yields will rise 13 basis points for a profit of $68,000, based on Bloomberg surveys.
Yields have further to rise because inflation will accelerate as fuel and food prices increase, according to Philipp Brugger, a fixed-income manager in Frankfurt at DWS Investment GmbH. The firm oversees about $52 billion.
``I don't want to enter the market now because in the short term high inflation numbers will limit a rally in gilts,'' he said. ``They'll get cheaper and cheaper.''
Expectations for inflation over the next decade have risen to the highest level since April 1997, according to the difference in yield, or spread, between the 10-year gilt and its index-linked counterpart. The so-called breakeven rate was at 3.97 percent today, from 3.69 percent on May 26.
Second-Quarter Losses
Bonds around the world fell in the second quarter as crude oil rose to records, stoking speculation that central banks would have to raise borrowing costs to quell inflation. Oil climbed 35 percent in the three months through June, the biggest quarterly gain in nine years, and traded at an all-time high of $145.85 a barrel on July 3.
Investors holding U.K. government debt lost 3.9 percent in the three months through June 30, the worst return since the second quarter of 1994, according to Merrill Lynch & Co.'s U.K. Gilts Index. U.S. bonds lost 2.1 percent, according to Merrill's Treasury Master Index, and euro-region debt tumbled 3 percent, Merrill Lynch's EMU Direct Government Index showed.
The prospect of rising rates pushed the yield on U.K. two- year notes to 5.57 percent on June 16, the highest level since August, just as the global credit markets started to seize up and investors sought the safety of government debt.
Traders pared bets on rate increases, with the implied yield on the September short-sterling futures contact falling 28 basis points to 5.94 percent since June 16. Policy makers will reduce rates by 25 basis points to 4.75 percent by year-end, according to the median estimate of 16 economists surveyed by Bloomberg.
``The Bank of England would like to avoid any rate hike due to the dismal growth outlook,'' said Martin Hochstein, a fund manager in Frankfurt at Cominvest Asset Management, which oversees about $27 billion of bonds. He also said gilts are ``looking attractive.''
To contact the reporter on this story: Agnes Lovasz in London at alovasz@bloomberg.net
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July 10 (Bloomberg) -- U.K. government bonds are poised to rebound from their worst quarter in more than 14 years, beating U.S. and European debt, as the slowest economic growth since 1992 keeps the Bank of England from raising interest rates.
The slumping economy will drive 10-year gilt yields down to 4.74 percent by year-end, from about 4.87 percent yesterday, according to the median estimate of 13 strategists surveyed by Bloomberg. Pacific Investment Management Co., manager of the world's largest bond fund, says U.K. debt looks ``attractive.'' Invesco Asset Management is going ``overweight'' gilts, meaning it plans to hold a greater percentage of the debt than the benchmark indexes it uses to measure performance.
``The U.K. economy will do pretty badly and this will support the bond market,'' said Axel Blase, a Frankfurt-based fund manager at Invesco, which holds about $160 billion in fixed- income assets.
The worst property slump in 30 years, the highest mortgage rates since 2000 and rising fuel and food costs in Europe's second-biggest economy are stoking demand for the safest assets. The economy will expand 1.7 percent in 2008, according to the median estimate of 31 strategists surveyed by Bloomberg, down from 3 percent last year. The risk of a recession is ``serious,'' the British Chambers of Commerce said July 8.
The slump is likely to keep the Bank of England from raising its key interest rate from 5 percent at a meeting today even after inflation accelerated in May to 3.3 percent, the fastest pace in more than a decade. All but one of 49 economists surveyed by Bloomberg predict the bank will leave rates unchanged.
`Extremely Weak'
The housing market will be ``extremely weak'' and policy makers won't ``overreact'' to inflation, central bank Governor Mervyn King said in testimony to Parliament on June 26. The European Central Bank lifted its main rate to 4.25 percent on July 3, its first increase in a year.
``The U.K. looks attractive against Europe,'' said Myles Bradshaw, a fund manager at Pimco in London. ``In terms of rate expectations they are pretty similar but the difference is that the U.K. has got a much weaker growth outlook than Europe. Our sense is that the BOE won't need to raise rates as the weakness in growth will pull inflation down.''
The yield on the 10-year gilt fell 2 basis points to 4.87 percent yesterday. The 4.75 percent security due March 2018 rose 0.17, or 1.7 pounds per 1,000-pound ($1,981) face amount, to 100.98. The two-year yield was little changed at 4.88 percent.
Inflation Threat
The 17 basis-point decline in the 10-year yield forecast in the Bloomberg survey would give an investor buying $10 million of the securities today a profit of about $336,000 by Dec. 31. Ten- year bund yields will drop 11 basis points, producing a gain of $287,000 on the same amount invested, while 10-year Treasury yields will rise 13 basis points for a profit of $68,000, based on Bloomberg surveys.
Yields have further to rise because inflation will accelerate as fuel and food prices increase, according to Philipp Brugger, a fixed-income manager in Frankfurt at DWS Investment GmbH. The firm oversees about $52 billion.
``I don't want to enter the market now because in the short term high inflation numbers will limit a rally in gilts,'' he said. ``They'll get cheaper and cheaper.''
Expectations for inflation over the next decade have risen to the highest level since April 1997, according to the difference in yield, or spread, between the 10-year gilt and its index-linked counterpart. The so-called breakeven rate was at 3.97 percent today, from 3.69 percent on May 26.
Second-Quarter Losses
Bonds around the world fell in the second quarter as crude oil rose to records, stoking speculation that central banks would have to raise borrowing costs to quell inflation. Oil climbed 35 percent in the three months through June, the biggest quarterly gain in nine years, and traded at an all-time high of $145.85 a barrel on July 3.
Investors holding U.K. government debt lost 3.9 percent in the three months through June 30, the worst return since the second quarter of 1994, according to Merrill Lynch & Co.'s U.K. Gilts Index. U.S. bonds lost 2.1 percent, according to Merrill's Treasury Master Index, and euro-region debt tumbled 3 percent, Merrill Lynch's EMU Direct Government Index showed.
The prospect of rising rates pushed the yield on U.K. two- year notes to 5.57 percent on June 16, the highest level since August, just as the global credit markets started to seize up and investors sought the safety of government debt.
Traders pared bets on rate increases, with the implied yield on the September short-sterling futures contact falling 28 basis points to 5.94 percent since June 16. Policy makers will reduce rates by 25 basis points to 4.75 percent by year-end, according to the median estimate of 16 economists surveyed by Bloomberg.
``The Bank of England would like to avoid any rate hike due to the dismal growth outlook,'' said Martin Hochstein, a fund manager in Frankfurt at Cominvest Asset Management, which oversees about $27 billion of bonds. He also said gilts are ``looking attractive.''
To contact the reporter on this story: Agnes Lovasz in London at alovasz@bloomberg.net
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King's Hands `Tied' as U.K. Economy Edges Closer to a Recession
By Brian Swint and Jennifer Ryan
July 10 (Bloomberg) -- Bank of England Governor Mervyn King may have little option other than to stand by and watch as the U.K. edges closer to its first recession in a generation.
Inflation accelerated to the fastest pace in more than a decade in May, making it harder for King to cut interest rates and help an economy threatened by falling house prices, record oil costs and tighter credit. Policy makers will probably leave the key rate at 5 percent today, according to all but one of the 49 economists in a Bloomberg News survey.
``Their hands are tied,'' said Amit Kara, an economist at UBS AG in London. ``The outlook for growth has clearly deteriorated, but on the flip side inflation is set to get worse. It's hard to see them doing anything other than holding rates unchanged.''
Prime Minister Gordon Brown's popularity is waning as the deteriorating economy erodes consumer confidence and companies including homebuilder Persimmon Plc and Barclays Plc cut jobs. King, chairing the first rate decision of his second term today, has already signaled that Britons should brace themselves for a decline in living standards.
Inflation accelerated to 3.3 percent in May, exceeding the government's upper 3 percent limit for only the second time in a decade. At the same time, surveys show services and manufacturing industries contracted in June, billionaire investor George Soros says a recession is ``likely'' and Lehman Brothers Holdings Inc. says the economy may start to contract this quarter.
``I know that some families will find it particularly difficult,'' said King, who doesn't expect a recession, on June 19. ``These changes to our spending power and to the housing market are real shifts that, although not easy to accept, we cannot side-step.''
Voter Confidence
Brown is losing Britons' confidence as growth slows. Seventy- two percent of respondents said they're not satisfied with his performance since he succeeded Tony Blair last year, according to a poll by Populus Ltd. published July 7. A separate poll last week showed voters are more concerned about inflation now than at any time since 1990.
Consumer confidence fell to the lowest in 18 years last month, GfK NOP Ltd. says. Marks & Spencer Group Plc lost a quarter of its value on July 2 after saying trading conditions won't improve for two years. Persimmon, the U.K.'s second-biggest homebuilder, said July 8 it's eliminating 1,100 jobs.
``A recession could really put the bank into a tough position,'' said Peter Newland, an economist at Lehman.
Raising Rates
For now, King and his colleagues on the nine-member Monetary Policy Committee are signaling they're more likely to follow the European Central Bank and raise rates rather than cut them. At least four policy makers have said they considered increasing borrowing costs last month and King said June 26 that inflation may exceed 4 percent this year.
The ECB last week raised its benchmark lending rate to a seven-year high of 4.25 percent. The Federal Reserve's benchmark stands at 2 percent.
``The bank isn't in a position where it feels it can cut rates,'' said David Page, an economist at Investec Securities in London. ``They're going to have to leave rates on hold until next year.''
U.K. borrowing costs are rising independently of monetary policy as the credit squeeze deepens. Brown was forced to nationalize Northern Rock in February and Bradford & Bingley Plc, the biggest lender to U.K. landlords, was last week unable to complete a rights offer to boost capital.
`Grave Concern'
Banks are also refusing to pass on the Bank of England's three rate cuts since December, threatening to exacerbate the housing slowdown. The rate on a home loan fixed for two years rose to 6.63 percent in June, the highest since February 2000, the Bank of England said yesterday.
Labour Party Deputy Leader Harriet Harman, standing in for Brown in Parliament yesterday, said ``the current state of the U.K. housing market is of grave cause for concern.''
``We are at a dangerous point when businesses are starting to act like a recession is due,'' said Adam Lent, head of economics at the Trades Union Congress, which represents 7 million workers and is calling for a rate cut today. ``The MPC needs to send a clear message that it is doing all it can to ease the credit crunch.''
While King says a sharp slowdown could push inflation below its central 2 percent target, giving them room to ease policy, economists including Lehman's Newland say a contraction would create as many problems as it would solve.
``Once people feel like the economy is in a downward spiral it becomes harder to get the economy back on an even keel,'' said Newlannd. ``No one wants one.''
To contact the reporters on this story: Brian Swint in London at bswint@bloomberg.net; Jennifer Ryan in London at Jryan13@bloomberg.net
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Dollar Is Little Changed Before Bernanke, Paulson Testimony
By Stanley White and Kosuke Goto
July 10 (Bloomberg) -- The dollar was little changed against the euro before Federal Reserve Chairman Ben S. Bernanke and U.S. Treasury Secretary Henry Paulson address U.S. lawmakers on their response to widening credit-market losses.
The U.S. dollar fell against Australia's currency as traders increased bets the Fed will keep interest rates on hold through 2008, boosting the appeal of higher-yielding assets. The British pound declined on speculation the Bank of England will keep interest rates unchanged today to curb inflation, increasing the risk that the economy will enter a recession.
``Bernanke may mention the downside risk of the U.S. economy,'' said Masafumi Yamamoto, head of foreign-exchange strategy in Tokyo at Royal Bank of Scotland Group Plc, the world's fifth-largest currency trader. ``That would reduce expectations of the Fed's rate increases this year and be a catalyst for dollar-selling.''
The dollar traded at $1.5725 per euro at 12:38 p.m. in Tokyo from $1.5743 yesterday in New York. The U.S. currency bought 106.87 yen from 106.76. The yen was at 168.04 per euro from 168.06.
The pound fell to $1.9815 from $1.9832. Against the euro, it was little changed at 79.36 pence.
The Australian dollar rose to 95.90 U.S. cents from 95.70 cents after data showed employment climbed by 29,800 in June, more than the median estimate in a Bloomberg News survey. The currency also advanced to 102.51 yen from 102.16 on speculation the Reserve Bank of Australia will keep interest rates at 7.25 percent this year, compared with benchmark rates of 0.5 percent in Japan and 2 percent in the U.S.
Congressional Testimony
Bernanke and Paulson are scheduled to testify before Congress at 10 a.m. in Washington. The Fed may extend securities dealers' access to direct loans from the central bank into next year, the central bank head said on July 8, as the collapse of the U.S. subprime mortgage market made banks reluctant to lend.
The dollar has fallen 11 percent against the euro since September, when the Fed made the first of seven reductions in its target lending rate to avert a recession. Futures contracts on the Chicago Board of Trade show the odds that policy makers will keep borrowing costs unchanged this year rose to 32 percent from 7 percent a month ago.
Fannie Mae, one of the two-largest U.S. mortgage finance companies, said it sold $3 billion of two-year debt yesterday at record yield spreads over benchmark rates on concern that the company doesn't have enough capital to see out the credit crunch.
Dollar Selling
Global banks and securities firms have reported losses of more than $400 billion as the subprime mortgage market collapsed.
``Fannie Mae could be the catalyst for further dollar declines,'' said Hideki Amikura, deputy general manager of foreign exchange in Tokyo at Nomura Trust and Banking Co., a unit of Japan's largest brokerage. ``The U.S. financial sector isn't healthy. Things are likely to get worse, and that isn't fully reflected in the value of the dollar.''
The U.S. currency may fall to $1.58 per euro and 106 yen today, he forecast.
U.K. inflation accelerated to the fastest pace in more than a decade in May, making it harder for the BOE to cut rates. The central bank will leave the key rate at 5 percent today, according to all but one of the 49 economists in a Bloomberg survey before the decision at noon in London.
``We remain short in pound-dollar,'' BNP Paribas SA analysts led by Hans-Guenter Redeker wrote in a research note yesterday. ``Inflation should continue to push higher in the near term while the growth outlook continues to deteriorate.''
ECB on Inflation
A short is a bet a currency will fall. Investors should sell the pound as long as it is below $1.9890 with a target of $1.95, according to the report.
European Central Bank President Jean-Claude Trichet told the European Parliament in Strasbourg, France, yesterday that the level of inflation is ``worrying.'' He also said it's important for the U.S. to repeat support for a strong currency.
Traders yesterday increased bets the ECB will raise borrowing costs again to curtail 4 percent annual inflation that is twice the central bank's 2 percent target. The implied rate on the December Euribor interest-rate futures contract rose 0.02 percentage point to 5.12 percent.
``The ECB will have no choice but to raise rates later on this fall,'' Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon, said in an interview with Bloomberg Television. ``You'll see the euro-dollar break back above $1.60.''
Technical Analysis
The euro may rise to $1.5909 against the dollar should it stay above its five-day moving average, said Masashi Hashimoto, a senior currency analyst at Bank of Tokyo-Mitsubishi UFJ Ltd.
The five-day moving average, currently at $1.5715, will provide a level of so-called support for the euro, Tokyo-based Hashimoto said, citing technical charts traders use to predict price movements. The target of $1.5909 will match a two-month high set by Europe's single currency on July 3. Support is an area where buy orders may be clustered.
``Should the euro break through its five-day moving average completely, it will likely challenge its July 3 high,'' said Hashimoto at the unit of Japan's largest publicly traded financial group.
To contact the reporters on this story: Stanley White in Tokyo at swhite28@bloomberg.net; Kosuke Goto in Tokyo at kgoto2@bloomberg.net
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July 10 (Bloomberg) -- The dollar was little changed against the euro before Federal Reserve Chairman Ben S. Bernanke and U.S. Treasury Secretary Henry Paulson address U.S. lawmakers on their response to widening credit-market losses.
The U.S. dollar fell against Australia's currency as traders increased bets the Fed will keep interest rates on hold through 2008, boosting the appeal of higher-yielding assets. The British pound declined on speculation the Bank of England will keep interest rates unchanged today to curb inflation, increasing the risk that the economy will enter a recession.
``Bernanke may mention the downside risk of the U.S. economy,'' said Masafumi Yamamoto, head of foreign-exchange strategy in Tokyo at Royal Bank of Scotland Group Plc, the world's fifth-largest currency trader. ``That would reduce expectations of the Fed's rate increases this year and be a catalyst for dollar-selling.''
The dollar traded at $1.5725 per euro at 12:38 p.m. in Tokyo from $1.5743 yesterday in New York. The U.S. currency bought 106.87 yen from 106.76. The yen was at 168.04 per euro from 168.06.
The pound fell to $1.9815 from $1.9832. Against the euro, it was little changed at 79.36 pence.
The Australian dollar rose to 95.90 U.S. cents from 95.70 cents after data showed employment climbed by 29,800 in June, more than the median estimate in a Bloomberg News survey. The currency also advanced to 102.51 yen from 102.16 on speculation the Reserve Bank of Australia will keep interest rates at 7.25 percent this year, compared with benchmark rates of 0.5 percent in Japan and 2 percent in the U.S.
Congressional Testimony
Bernanke and Paulson are scheduled to testify before Congress at 10 a.m. in Washington. The Fed may extend securities dealers' access to direct loans from the central bank into next year, the central bank head said on July 8, as the collapse of the U.S. subprime mortgage market made banks reluctant to lend.
The dollar has fallen 11 percent against the euro since September, when the Fed made the first of seven reductions in its target lending rate to avert a recession. Futures contracts on the Chicago Board of Trade show the odds that policy makers will keep borrowing costs unchanged this year rose to 32 percent from 7 percent a month ago.
Fannie Mae, one of the two-largest U.S. mortgage finance companies, said it sold $3 billion of two-year debt yesterday at record yield spreads over benchmark rates on concern that the company doesn't have enough capital to see out the credit crunch.
Dollar Selling
Global banks and securities firms have reported losses of more than $400 billion as the subprime mortgage market collapsed.
``Fannie Mae could be the catalyst for further dollar declines,'' said Hideki Amikura, deputy general manager of foreign exchange in Tokyo at Nomura Trust and Banking Co., a unit of Japan's largest brokerage. ``The U.S. financial sector isn't healthy. Things are likely to get worse, and that isn't fully reflected in the value of the dollar.''
The U.S. currency may fall to $1.58 per euro and 106 yen today, he forecast.
U.K. inflation accelerated to the fastest pace in more than a decade in May, making it harder for the BOE to cut rates. The central bank will leave the key rate at 5 percent today, according to all but one of the 49 economists in a Bloomberg survey before the decision at noon in London.
``We remain short in pound-dollar,'' BNP Paribas SA analysts led by Hans-Guenter Redeker wrote in a research note yesterday. ``Inflation should continue to push higher in the near term while the growth outlook continues to deteriorate.''
ECB on Inflation
A short is a bet a currency will fall. Investors should sell the pound as long as it is below $1.9890 with a target of $1.95, according to the report.
European Central Bank President Jean-Claude Trichet told the European Parliament in Strasbourg, France, yesterday that the level of inflation is ``worrying.'' He also said it's important for the U.S. to repeat support for a strong currency.
Traders yesterday increased bets the ECB will raise borrowing costs again to curtail 4 percent annual inflation that is twice the central bank's 2 percent target. The implied rate on the December Euribor interest-rate futures contract rose 0.02 percentage point to 5.12 percent.
``The ECB will have no choice but to raise rates later on this fall,'' Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon, said in an interview with Bloomberg Television. ``You'll see the euro-dollar break back above $1.60.''
Technical Analysis
The euro may rise to $1.5909 against the dollar should it stay above its five-day moving average, said Masashi Hashimoto, a senior currency analyst at Bank of Tokyo-Mitsubishi UFJ Ltd.
The five-day moving average, currently at $1.5715, will provide a level of so-called support for the euro, Tokyo-based Hashimoto said, citing technical charts traders use to predict price movements. The target of $1.5909 will match a two-month high set by Europe's single currency on July 3. Support is an area where buy orders may be clustered.
``Should the euro break through its five-day moving average completely, it will likely challenge its July 3 high,'' said Hashimoto at the unit of Japan's largest publicly traded financial group.
To contact the reporters on this story: Stanley White in Tokyo at swhite28@bloomberg.net; Kosuke Goto in Tokyo at kgoto2@bloomberg.net
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