By Jamie McGee
July 11 (Bloomberg) -- The following events and economic reports may influence trading in Latin American local bonds and currencies today. Bond yields and exchange rates are from a previous session.
Argentina: The monthly inflation rate likely remained unchanged at 0.6 percent in June from the prior month, according to the median estimate of 11 economists in a Bloomberg survey. Inflation for the 12 months through June accelerated to 9.3 percent, from 9.1 percent in the prior month, according to the median estimate of seven economists in a Bloomberg survey.
The National Institute of Statistics is scheduled to release the data at 3 p.m. New York time.
The peso fell 0.1 percent to 3.017 per dollar.
The yield on the country's inflation-linked peso bonds due December 2033 rose 10 basis points, or 0.1 percentage point, to 10.04 percent, according to Citigroup Inc.'s unit in Argentina.
Brazil: Inflation in the four weeks through July 7 probably quickened by 0.88 percent, according to the median estimate of 13 economists in a Bloomberg survey.
The data is scheduled for release at 4 a.m. New York time.
The real rose 0.3 percent to 1.605 per dollar.
The yield on the country's zero-coupon bonds due January 2010 fell 7 basis points to 15.16 percent, according to Bloomberg pricing.
Mexico: Capital investment rose 10.1 percent in the year through April, from a 4.1 percent decline in the prior month, according to the median estimate of 15 economists in a Bloomberg survey.
The National Institute of Statistics is scheduled to release the fixed investment data at 3:30 p.m. New York time.
The peso was little changed at 10.3022 per dollar.
The yield on Mexico's benchmark 10 percent bonds due December 2024 fell 6 basis points, or 0.06 percentage point, to 9.21 percent, according to Banco Santander SA.
To contact the reporter on this story: Jamie McGee in New York at jmcgee8@bloomberg.net
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Friday, July 11, 2008
U.S. Trade Gap Narrowed 1.2% in May to $59.8 Billion
By Bob Willis
July 11 (Bloomberg) -- The U.S. trade deficit unexpectedly narrowed in May as the cheaper dollar spurred gains in exports, helping make up for the soaring cost of imported oil.
The gap between imports and exports shrank 1.2 percent to $59.8 billion from a revised $60.5 billion in April that was smaller than previously estimated, the Commerce Department said today in Washington.
Growth in overseas markets and a weaker dollar are helping lift exports even as oil prices, which reached a record last week, are pushing up imports. A shrinking trade gap is one of the few economic bright spots remaining as an extended housing slump and cooling consumer spending weigh on the economy.
``We're continuing to see that in foreign demand,'' boosted by a sinking U.S. currency, said Mike Feroli, an economist at JPMorgan Chase & Co. in New York. ``It looks like we'll get yet another quarter where foreign trade will contribute around a percentage point'' to gross domestic product growth, he said.
A separate government report today showed prices of imported goods rose 2.6 percent in June from the previous month, the same as in May. The Labor Department said import prices climbed 20.5 percent from a year before.
Economists' Estimates
The trade gap was forecast to widen to $62.5 billion from an initially reported $60.9 billion in April, according to the median estimate in a Bloomberg News survey of 74 economists. Deficit projections ranged from $59.5 billion to $65 billion.
Exports increased 0.9 percent to $157.5 billion, as sales of foods, aircraft and chemicals strengthened.
Imports rose 0.3 percent to $217.3 billion after increasing 4.6 percent the prior month. The import figures reflected a record $31.2 billion in purchases of foreign crude oil, before seasonal adjustments, as well as higher demand for capital goods and consumer items such as televisions, apparel and toys. Auto imports fell $842 million to $20.6 billion.
The cost of crude oil rose as high as $135.09 a barrel on May 22, according to pricing on the New York Mercantile Exchange, and last week reached a new record of $145.85.
Imports of industrial supplies declined by $332 million to $67.2 billion. Demand for consumer goods from abroad gained $1.5 billion to $41.7 billion.
After eliminating the influence of changes in prices, the trade deficit declined to $43.6 billion, the lowest since October 2002, from $46.7 billion. Those are the numbers used to calculate gross domestic product and may prompt economists to increase their estimates of second-quarter growth.
China Deficit Widens
The trade gap with China widened to $21 billion from $20.2 billion in the prior month. The deficit with the Organization of Petroleum Exporting Countries widened by $2.3 billion to a record $17.9 billion.
The U.S. trade deficits with Canada, Mexico, Japan and the European Union all narrowed, led by a $2.5 billion decline in the shortfall with Japan, to $5 billion. Exports to Canada and the EU reached record levels.
The economy probably grew 1.5 percent in the second quarter, as growing exports helped counter weakness in manufacturing and construction, according to a Bloomberg survey of economists taken the first week of July. The economy grew 1 percent in the first quarter, when net exports contributed 0.8 percentage point to the expansion.
About $78 billion in tax rebates through June probably gave consumer spending a boost in the second quarter, helping to spur purchases of foreign televisions and other consumer goods. Economists surveyed by Bloomberg forecast consumer spending rose 2 percent in the April-to-June period, compared with a 1.1 percent gain in the first quarter.
Growth Overseas
Faster growth overseas is spurring exports of U.S.-made goods, ranging from Boeing Co. aircraft, to mining and construction equipment, steel and grains. China's economy grew 10.6 percent in the first quarter from a year earlier. India's expanded 8.8 percent, Argentina's 8.4 percent and Brazil's 5.8 percent.
In response to growing demand from China, Caterpillar Inc., the world's biggest maker of earthmoving equipment, will build a factory in eastern China to make light hydraulic excavators for the world's largest earthmover market after the U.S.
``Our customers in China are demanding a greater variety of construction equipment,'' Mary Bell, Caterpillar's global vice president for construction machines, said in a statement June 30.
The deficit with China, which makes up the largest share of the U.S. trade gap, remains a political sticking point. Some U.S. lawmakers accuse China of keeping its currency undervalued to boost exports.
Treasury Secretary Henry Paulson on June 18 urged China to let markets play a bigger role in setting the value of the yuan, while acknowledging ``the recent increased pace of appreciation'' of the Chinese currency.
Dollar's Decline
U.S. exporters are also getting a boost from a weaker dollar, which was down 8 percent against a trade-weighted basket of currencies of major trading partners in the 12 months ended in May. The dollar is down by about 27 percent since February 2002, and that has pushed up prices of commodities.
Charlotte, North Carolina-based Nucor Corp., the largest U.S.-based steelmaker by market value, is working to keep up with surging demand from emerging economies, many of them profiting from gains in prices of oil and other commodities, Chief Executive Officer Dan DiMicco said on June 25.
``Because of the global shortage of steel, we have a strong ability to export,'' DiMicco said in an interview in New York. Demand for steel and other commodities is in a ``30-plus-year bull market,'' he said, as emerging economies including China and India expand infrastructure.
To contact the reporters on this story: Bob Willis in Washington at bwillis@bloomberg.net
Read more...
July 11 (Bloomberg) -- The U.S. trade deficit unexpectedly narrowed in May as the cheaper dollar spurred gains in exports, helping make up for the soaring cost of imported oil.
The gap between imports and exports shrank 1.2 percent to $59.8 billion from a revised $60.5 billion in April that was smaller than previously estimated, the Commerce Department said today in Washington.
Growth in overseas markets and a weaker dollar are helping lift exports even as oil prices, which reached a record last week, are pushing up imports. A shrinking trade gap is one of the few economic bright spots remaining as an extended housing slump and cooling consumer spending weigh on the economy.
``We're continuing to see that in foreign demand,'' boosted by a sinking U.S. currency, said Mike Feroli, an economist at JPMorgan Chase & Co. in New York. ``It looks like we'll get yet another quarter where foreign trade will contribute around a percentage point'' to gross domestic product growth, he said.
A separate government report today showed prices of imported goods rose 2.6 percent in June from the previous month, the same as in May. The Labor Department said import prices climbed 20.5 percent from a year before.
Economists' Estimates
The trade gap was forecast to widen to $62.5 billion from an initially reported $60.9 billion in April, according to the median estimate in a Bloomberg News survey of 74 economists. Deficit projections ranged from $59.5 billion to $65 billion.
Exports increased 0.9 percent to $157.5 billion, as sales of foods, aircraft and chemicals strengthened.
Imports rose 0.3 percent to $217.3 billion after increasing 4.6 percent the prior month. The import figures reflected a record $31.2 billion in purchases of foreign crude oil, before seasonal adjustments, as well as higher demand for capital goods and consumer items such as televisions, apparel and toys. Auto imports fell $842 million to $20.6 billion.
The cost of crude oil rose as high as $135.09 a barrel on May 22, according to pricing on the New York Mercantile Exchange, and last week reached a new record of $145.85.
Imports of industrial supplies declined by $332 million to $67.2 billion. Demand for consumer goods from abroad gained $1.5 billion to $41.7 billion.
After eliminating the influence of changes in prices, the trade deficit declined to $43.6 billion, the lowest since October 2002, from $46.7 billion. Those are the numbers used to calculate gross domestic product and may prompt economists to increase their estimates of second-quarter growth.
China Deficit Widens
The trade gap with China widened to $21 billion from $20.2 billion in the prior month. The deficit with the Organization of Petroleum Exporting Countries widened by $2.3 billion to a record $17.9 billion.
The U.S. trade deficits with Canada, Mexico, Japan and the European Union all narrowed, led by a $2.5 billion decline in the shortfall with Japan, to $5 billion. Exports to Canada and the EU reached record levels.
The economy probably grew 1.5 percent in the second quarter, as growing exports helped counter weakness in manufacturing and construction, according to a Bloomberg survey of economists taken the first week of July. The economy grew 1 percent in the first quarter, when net exports contributed 0.8 percentage point to the expansion.
About $78 billion in tax rebates through June probably gave consumer spending a boost in the second quarter, helping to spur purchases of foreign televisions and other consumer goods. Economists surveyed by Bloomberg forecast consumer spending rose 2 percent in the April-to-June period, compared with a 1.1 percent gain in the first quarter.
Growth Overseas
Faster growth overseas is spurring exports of U.S.-made goods, ranging from Boeing Co. aircraft, to mining and construction equipment, steel and grains. China's economy grew 10.6 percent in the first quarter from a year earlier. India's expanded 8.8 percent, Argentina's 8.4 percent and Brazil's 5.8 percent.
In response to growing demand from China, Caterpillar Inc., the world's biggest maker of earthmoving equipment, will build a factory in eastern China to make light hydraulic excavators for the world's largest earthmover market after the U.S.
``Our customers in China are demanding a greater variety of construction equipment,'' Mary Bell, Caterpillar's global vice president for construction machines, said in a statement June 30.
The deficit with China, which makes up the largest share of the U.S. trade gap, remains a political sticking point. Some U.S. lawmakers accuse China of keeping its currency undervalued to boost exports.
Treasury Secretary Henry Paulson on June 18 urged China to let markets play a bigger role in setting the value of the yuan, while acknowledging ``the recent increased pace of appreciation'' of the Chinese currency.
Dollar's Decline
U.S. exporters are also getting a boost from a weaker dollar, which was down 8 percent against a trade-weighted basket of currencies of major trading partners in the 12 months ended in May. The dollar is down by about 27 percent since February 2002, and that has pushed up prices of commodities.
Charlotte, North Carolina-based Nucor Corp., the largest U.S.-based steelmaker by market value, is working to keep up with surging demand from emerging economies, many of them profiting from gains in prices of oil and other commodities, Chief Executive Officer Dan DiMicco said on June 25.
``Because of the global shortage of steel, we have a strong ability to export,'' DiMicco said in an interview in New York. Demand for steel and other commodities is in a ``30-plus-year bull market,'' he said, as emerging economies including China and India expand infrastructure.
To contact the reporters on this story: Bob Willis in Washington at bwillis@bloomberg.net
Read more...
Citigroup Says Sell Credit Suisse Puts, Buy Deutsche Bank Puts
By Gareth Gore
July 11 (Bloomberg) -- Citigroup Inc. said clients should use put-option spreads on Credit Suisse Group and Deutsche Bank AG to bet that earnings at Switzerland's second-biggest bank will be better than those of its German rival.
The brokerage advised selling Credit Suisse put options expiring in December with a strike price of between 5 and 20 percent below the stock's ``current price.'' Clients should also buy puts on Deutsche Bank expiring in the same month and at a similar range of strike prices, it said.
Credit Suisse shares gained 0.6 percent to 43.28 Swiss francs as of 11:28 a.m. in Zurich. Deutsche Bank declined 1.1 percent to 53.72 euros today in Frankfurt.
``We expect Credit Suisse to show more resilient operating performance than Deutsche Bank and prefer Credit Suisse for its stronger balance sheet and attractive business mix,'' London- based analysts Kiri Vijayarajah and Stuart MacDonnell wrote in a note to clients dated today.
Option prices for the Zurich-based bank trade at a premium to those for Deutsche, the bank said, creating opportunity for profit. The put-spread strategy will be profitable as long as Credit Suisse shares outperform or match those of Deutsche Bank, according to Citigroup calculations.
Put options give the buyer the right -- but not the obligation -- to sell shares at a pre-agreed price on a set date. By selling a put option, the investor is taking the bet the contract won't be exercised, allowing him to keep the premium paid for the option.
`More Conservative'
Deutsche Bank reported its first quarterly loss in five years in April after writing down loans for leveraged buyouts and asset-backed securities by 2.7 billion euros ($4.2 billion). Last week, Anshu Jain, head of global markets at the bank, said the contagion triggered by the U.S. subprime mortgage is ``by no means over.''
In April, Credit Suisse said it was cutting 500 jobs in investment banking and administration after earnings fell for a third straight quarter.
``On markdowns, Credit Suisse seems to have taken a more conservative approach to the valuation of risky assets,'' the Citigroup note said.
For related news: Most-read derivatives news: {MNI DRV } Options news: {NI OPTIONS }
To contact the reporter on this story: Gareth Gore in Madrid ggore1@bloomberg.net
Read more...
July 11 (Bloomberg) -- Citigroup Inc. said clients should use put-option spreads on Credit Suisse Group and Deutsche Bank AG to bet that earnings at Switzerland's second-biggest bank will be better than those of its German rival.
The brokerage advised selling Credit Suisse put options expiring in December with a strike price of between 5 and 20 percent below the stock's ``current price.'' Clients should also buy puts on Deutsche Bank expiring in the same month and at a similar range of strike prices, it said.
Credit Suisse shares gained 0.6 percent to 43.28 Swiss francs as of 11:28 a.m. in Zurich. Deutsche Bank declined 1.1 percent to 53.72 euros today in Frankfurt.
``We expect Credit Suisse to show more resilient operating performance than Deutsche Bank and prefer Credit Suisse for its stronger balance sheet and attractive business mix,'' London- based analysts Kiri Vijayarajah and Stuart MacDonnell wrote in a note to clients dated today.
Option prices for the Zurich-based bank trade at a premium to those for Deutsche, the bank said, creating opportunity for profit. The put-spread strategy will be profitable as long as Credit Suisse shares outperform or match those of Deutsche Bank, according to Citigroup calculations.
Put options give the buyer the right -- but not the obligation -- to sell shares at a pre-agreed price on a set date. By selling a put option, the investor is taking the bet the contract won't be exercised, allowing him to keep the premium paid for the option.
`More Conservative'
Deutsche Bank reported its first quarterly loss in five years in April after writing down loans for leveraged buyouts and asset-backed securities by 2.7 billion euros ($4.2 billion). Last week, Anshu Jain, head of global markets at the bank, said the contagion triggered by the U.S. subprime mortgage is ``by no means over.''
In April, Credit Suisse said it was cutting 500 jobs in investment banking and administration after earnings fell for a third straight quarter.
``On markdowns, Credit Suisse seems to have taken a more conservative approach to the valuation of risky assets,'' the Citigroup note said.
For related news: Most-read derivatives news: {MNI DRV } Options news: {NI OPTIONS }
To contact the reporter on this story: Gareth Gore in Madrid ggore1@bloomberg.net
Read more...
U.S. Stock Futures Drop as Fannie, Freddie Tumble, Oil Rallies
By Adria Cimino and Michael Patterson
July 11 (Bloomberg) -- U.S. stock futures tumbled, indicating the Standard & Poor's 500 Index will extend its longest stretch of weekly losses since 2004, as oil jumped to a record and concern grew that a government takeover of Fannie Mae and Freddie Mac may wipe out shareholders.
Fannie Mae and Freddie Mac, the largest buyers of U.S. home loans, plunged after a person familiar with the discussions said a government takeover of one or both companies is among several options being considered by the White House. Wal-Mart Stores Inc. and Apple Inc. declined after crude futures advanced to a record above $145 a barrel. General Electric Co. climbed, limiting the market's drop, after posting second-quarter profit that matched analysts' estimates.
S&P 500 futures expiring in September lost 12.3, or 1 percent, to 1,242.2 at 8:12 a.m. in New York. Dow Jones Industrial Average futures fell 101 to 11,116 and Nasdaq-100 Index futures slipped 15.75 to 1,828.50. Europe's Dow Jones Stoxx 600 Index lost 1.6 percent. Asian shares rose.
``We're very cautious on the financials and unfortunately we keep finding reasons to stay cautious,'' Jack Caffrey, a New York-based equity strategist at JPMorgan Private Bank, which oversees about $300 billion, said in an interview on Bloomberg Television. ``You have this sector under pressure and it will likely remain under pressure.''
The S&P 500, which fell into a bear market for the first time since 2002 this week, is headed for its sixth straight weekly decline. The index has erased a 12 percent rally that was spurred by a government-backed a rescue of Bear Stearns Cos. for less than its market value in March. Surging energy costs, deepening credit losses and rising unemployment threaten to reduce corporate profits even as Federal Reserve officials consider raising interest rates to fight inflation.
Fannie, Freddie
Fannie Mae tumbled $4.56, or 35 percent, to $8.64. Freddie Mac lost $2.10, or 26 percent, to $8. Representative Spencer Bachus, the senior Republican on the House Financial Services Committee, said yesterday that if the government comes to the assistance of Fannie and Freddie, equity investors shouldn't expect the government to halt a tumble in the companies' shares.
Wal-Mart, the world's largest retailer, lost 29 cents to $56.92. Apple, maker of the iPhone and Macintosh computers, declined $1.73 to $174.90
Crude oil rose more than $4 to a record $145.98 a barrel on concern that Israel may be preparing to attack Iran, while a strike in Brazil and renewed militant activity in Nigeria threaten to cut supplies.
GE added 17 cents to $27.81. The company's second-quarter profit fell 3.9 percent, matching analysts' estimates on a per- share basis after a surprise earnings slump in the year's first three months that hurt its stock price.
Chief Executive Officer Jeffrey Immelt repeated the 2008 forecast for $2.20 to $2.30 a share, GE said in a statement.
To contact the reporter on this story: Michael Patterson in New York at mpatterson10@bloomberg.net.
Read more...
July 11 (Bloomberg) -- U.S. stock futures tumbled, indicating the Standard & Poor's 500 Index will extend its longest stretch of weekly losses since 2004, as oil jumped to a record and concern grew that a government takeover of Fannie Mae and Freddie Mac may wipe out shareholders.
Fannie Mae and Freddie Mac, the largest buyers of U.S. home loans, plunged after a person familiar with the discussions said a government takeover of one or both companies is among several options being considered by the White House. Wal-Mart Stores Inc. and Apple Inc. declined after crude futures advanced to a record above $145 a barrel. General Electric Co. climbed, limiting the market's drop, after posting second-quarter profit that matched analysts' estimates.
S&P 500 futures expiring in September lost 12.3, or 1 percent, to 1,242.2 at 8:12 a.m. in New York. Dow Jones Industrial Average futures fell 101 to 11,116 and Nasdaq-100 Index futures slipped 15.75 to 1,828.50. Europe's Dow Jones Stoxx 600 Index lost 1.6 percent. Asian shares rose.
``We're very cautious on the financials and unfortunately we keep finding reasons to stay cautious,'' Jack Caffrey, a New York-based equity strategist at JPMorgan Private Bank, which oversees about $300 billion, said in an interview on Bloomberg Television. ``You have this sector under pressure and it will likely remain under pressure.''
The S&P 500, which fell into a bear market for the first time since 2002 this week, is headed for its sixth straight weekly decline. The index has erased a 12 percent rally that was spurred by a government-backed a rescue of Bear Stearns Cos. for less than its market value in March. Surging energy costs, deepening credit losses and rising unemployment threaten to reduce corporate profits even as Federal Reserve officials consider raising interest rates to fight inflation.
Fannie, Freddie
Fannie Mae tumbled $4.56, or 35 percent, to $8.64. Freddie Mac lost $2.10, or 26 percent, to $8. Representative Spencer Bachus, the senior Republican on the House Financial Services Committee, said yesterday that if the government comes to the assistance of Fannie and Freddie, equity investors shouldn't expect the government to halt a tumble in the companies' shares.
Wal-Mart, the world's largest retailer, lost 29 cents to $56.92. Apple, maker of the iPhone and Macintosh computers, declined $1.73 to $174.90
Crude oil rose more than $4 to a record $145.98 a barrel on concern that Israel may be preparing to attack Iran, while a strike in Brazil and renewed militant activity in Nigeria threaten to cut supplies.
GE added 17 cents to $27.81. The company's second-quarter profit fell 3.9 percent, matching analysts' estimates on a per- share basis after a surprise earnings slump in the year's first three months that hurt its stock price.
Chief Executive Officer Jeffrey Immelt repeated the 2008 forecast for $2.20 to $2.30 a share, GE said in a statement.
To contact the reporter on this story: Michael Patterson in New York at mpatterson10@bloomberg.net.
Read more...
Anheuser-Busch, Fannie Mae, Freddie Mac: U.S. Equity Preview
By Katherine Greene
July 11 (Bloomberg) -- The following companies may have unusual price changes in U.S. markets. Stock symbols are in parentheses after company names, and prices are as of 7:30 a.m. in New York, unless stated otherwise.
Anheuser-Busch Cos. (BUD US) rose 4.1 percent to $63.75. The brewer of Budweiser started friendly talks about a sale to its Belgian rival InBev NV (INBVF US), ending a month of opposition, the New York Times said. Separately, the Wall Street Journal reported that InBev has raised its offer to $70 a share, up from the initial offer of $65 a share.
Chevron Corp. (CVX US) slipped 0.7 percent to $95.50. The second-largest U.S. oil company said oil and natural-gas output fell 3.4 percent during the second quarter and predicted profit from refining to be ``significantly'' lower than the previous quarter.
Deckers Outdoor Corp. (DECK US): The maker of Ugg boots and Teva sandals said it agreed to open retail stores for its Ugg brand in China through a venture with Stella International Holdings. The stock dropped 3.8 percent to $123.30 in regular trading yesterday.
Fannie Mae (FNM US) dropped 27 percent to $9.66. A government takeover of one or both of the largest U.S. mortgage- finance companies is among several options that have been considered by White House officials, according to a person familiar with the discussions who spoke on condition of anonymity. Senior Bush administration officials are considering placing either or both firms in a conservatorship if their problems get worse, the person said.
Freddie Mac (FRE US) plunged 34 percent to $5.31.
Jacobs Engineering Group Inc. (JEC US): Goldman Sachs Group Inc. added the second-largest engineering-services company to its ``conviction buy'' list, saying Jacobs has exceeded estimates the past three quarters. The shares have been oversold, Goldman said.
MasterCard Inc. (MA US) climbed 3.4 percent to $262.01. The world's second-biggest credit-card network will replace Ace Ltd., a Bermuda-based insurer, in the Standard & Poor's 500 Index, S&P said. That may support MasterCard's stock price as fund managers who track the performance of the index buy shares.
Medarex Inc. (MEDX US): The co-developer of an experimental drug for skin cancer predicted 2008 sales as high as $52 million, more than the average analyst estimate of $49.5 million from a Bloomberg survey. The stock increased 5.1 percent to $7.05 in regular trading yesterday.
Wynn Resorts Ltd. (WYNN US) jumped 13.5 percent to $79.35. The casino company founded by billionaire Stephen Wynn said it may repurchase as much as $500 million more of its shares on top of a previously announced $1.2 billion buyback.
To contact the reporter on this story: Katherine Greene in New York at kgreene8@bloomberg.net.
Read more...
July 11 (Bloomberg) -- The following companies may have unusual price changes in U.S. markets. Stock symbols are in parentheses after company names, and prices are as of 7:30 a.m. in New York, unless stated otherwise.
Anheuser-Busch Cos. (BUD US) rose 4.1 percent to $63.75. The brewer of Budweiser started friendly talks about a sale to its Belgian rival InBev NV (INBVF US), ending a month of opposition, the New York Times said. Separately, the Wall Street Journal reported that InBev has raised its offer to $70 a share, up from the initial offer of $65 a share.
Chevron Corp. (CVX US) slipped 0.7 percent to $95.50. The second-largest U.S. oil company said oil and natural-gas output fell 3.4 percent during the second quarter and predicted profit from refining to be ``significantly'' lower than the previous quarter.
Deckers Outdoor Corp. (DECK US): The maker of Ugg boots and Teva sandals said it agreed to open retail stores for its Ugg brand in China through a venture with Stella International Holdings. The stock dropped 3.8 percent to $123.30 in regular trading yesterday.
Fannie Mae (FNM US) dropped 27 percent to $9.66. A government takeover of one or both of the largest U.S. mortgage- finance companies is among several options that have been considered by White House officials, according to a person familiar with the discussions who spoke on condition of anonymity. Senior Bush administration officials are considering placing either or both firms in a conservatorship if their problems get worse, the person said.
Freddie Mac (FRE US) plunged 34 percent to $5.31.
Jacobs Engineering Group Inc. (JEC US): Goldman Sachs Group Inc. added the second-largest engineering-services company to its ``conviction buy'' list, saying Jacobs has exceeded estimates the past three quarters. The shares have been oversold, Goldman said.
MasterCard Inc. (MA US) climbed 3.4 percent to $262.01. The world's second-biggest credit-card network will replace Ace Ltd., a Bermuda-based insurer, in the Standard & Poor's 500 Index, S&P said. That may support MasterCard's stock price as fund managers who track the performance of the index buy shares.
Medarex Inc. (MEDX US): The co-developer of an experimental drug for skin cancer predicted 2008 sales as high as $52 million, more than the average analyst estimate of $49.5 million from a Bloomberg survey. The stock increased 5.1 percent to $7.05 in regular trading yesterday.
Wynn Resorts Ltd. (WYNN US) jumped 13.5 percent to $79.35. The casino company founded by billionaire Stephen Wynn said it may repurchase as much as $500 million more of its shares on top of a previously announced $1.2 billion buyback.
To contact the reporter on this story: Katherine Greene in New York at kgreene8@bloomberg.net.
Read more...
Mid-Day Report: Dollar Plunges as Oil Hits New Record High
Market Overview | Written by ActionForex.com | Jul 11 08 12:37 GMT | Volatile prices actions are seen leading into US session. On the one hand, the greenback is hit hard as oil high near record high neat $146 a barrel on worries that Israel may attack Iran, renewed militant activities in Nigeria and a strike in Brazil next week. Yen and Swissy are boost propelled higher on risk aversion on falling European stock markets and an expected sharp lower open in US stock markets. The technical development so far is in line with the view that dollar's recovery has already completed earlier and further weakness is expected across the board except versus the Canadian dollar. Aussie continues to lead the way and made new 25 years high at 0.9677
The Loonie, on the other hand, is sold off after disappointing employment report which showed the job markets shrank by -5k in Jun versus expectation of 10k growth. Unemployment rate also unexpectedly climbed from 6.1% to 6.2%. While BoC is widely expected to leave rates unchanged at 3.00% next week, today's report raises some speculations that if the job market deteriorates further, BoC may opt to resume it's policy easing sooner or later.
Other data released in US session saw US trade deficit in Jun narrower than expected at -59.8b. Import price index rose 2.0% mom, while export price index rose 1.0% mom in May. Canadian housing price index was flat in May. Trader surplus came in wider than expected at 5.54b in May. U of Michigan survey will be released later and is expected to hit 28 year low of 55.5 in Jul.
Released earlier, Japanese industrial production rose 2.8% mom, 1.1% yoy. capacity utilization rose 2.2% in May. Consumer confidence dropped less than expected to 32.9 in Jun. Germany wholesale price index climbed 0.9% mom, 8.9% in June, inline with consensus.
EUR/USD Mid-Day Outlook
Daily Pivots: (S1) 1.5718; (P) 1.5759; (R1) 1.5829;
EUR/USD's rally extends further as expected and reaches as high as 1.5868 so far. With correction from 1.5908 completed at 1.5611, rise from there is expected to continue further to retest 1.5908 high first. Break will confirm that rally from 1.5302 has resumed for retesting 1.6019 record high. On the downside, though, below 1.5763 will turn intraday outlook neutral first. But another rally is sitll expected as long as downside is contained by 1.5611 support.
In the bigger picture, a medium term top is in place at 1.6019 after meeting 1.6 psychological resistance. As mentioned before, break of 1.5843 indicates that such consolidation has likely completed at 1.5302 already. Further decisive break of 1.6019 will confirm this case and bring rise to 61.8% projection of 1.4309 to 1.6019 from 1.5284 at 1.6341 first. On the downside, however, below 1.5468 support will mix up the picture by firstly suggesting that rise from 1.5302 has completed. Secondly, it will revive the case that consolidation from 1.6019 is still in progress. Retest of 1.5302 support could be seen in such case.
Economic Indicators Update
| GMT | Ccy | Events | Actual | Consensus | Previous | Revised |
|---|---|---|---|---|---|---|
| 04:30 | JPY | Japan Industrial prod'n M/M May | 2.80% | 2.90% | 2.90% | |
| 04:30 | JPY | Japan Industrial prod'n Y/Y May | 1.10% | N/A | 1.20% | |
| 04:30 | JPY | Japan Capacity utilisation May | 2.20% | N/A | -0.70% | |
| 05:00 | JPY | Japan Consumer confidence Jun | 32.9 | 31.5 | 34.1 | |
| 06:00 | EUR | Germany WPI M/M Jun | 0.90% | 0.90% | 1.40% | |
| 06:00 | EUR | Germany WPI Y/Y Jun | 8.90% | 8.90% | 8.10% | |
| 11:00 | CAD | Canada Unemployment rate Jun | 6.20% | 6.10% | 6.10% | |
| 11:00 | CAD | Canada Employment change Jun | -5K | 10k | 8.4k | |
| 12:30 | CAD | Canada New housing price index May | 0.00% | 0.10% | 0.00% | |
| 12:30 | CAD | Canada Trade balance (cad) May | 5.54B | 5.2B | 5.11B | |
| 12:30 | USD | U.S. Trade balance (usd) May | -59.8B | -62.1B | -60.9B | -60.5B |
| 12:30 | USD | U.S. Import price index M/M Jun | 2.00% | 2.00% | 2.30% | 2.60% |
| 12:30 | USD | U.S. Export price index Y/Y Jun | 1.00% | 0.40% | 0.30% | |
| 14:00 | USD | U.S. U. Michigan survey Prel. Jul | 55.5 | 56.4 | ||
| 18:00 | USD | U.S. Fed budget | 33.0B | 27.48B |
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CanWest, Ithaca, Lockerbie & Hole, Magna: Canada Equity Preview
By John Kipphoff
July 11 (Bloomberg) -- The following companies may have unusual price changes in Canadian trading today. Stock symbols are in parentheses, and share prices are from the previous close.
The Standard & Poor's/TSX Composite Index rose 1 percent to 13,743.88 yesterday in Toronto. Canada's stock benchmark is poised for a fifth-straight weekly drop, the longest such streak in six years.
CanWest Global Communications Corp. (CGS CN): Canada's biggest media company may say that third-quarter profit before one-time items was 6 cents a share, the average estimate of six analysts in a Bloomberg survey. The shares fell 1.5 percent to C$2.02 and have dropped 72 in 2008.
Ithaca Energy Inc. (IAE CN): The oil and gas producer operating in the North Sea received bank financing totaling $240 million (C$243.1 million) to support the acquisition of the Beatrice oilfield. The shares fell 3.7 percent to C$2.60.
Lockerbie & Hole Inc. (LH CN): The 110-year-old construction company said first-quarter net income rose to C$5.02 million, or 18 cents a share, from C$4.87 million, as sales increased 51 percent. The shares fell 1.5 percent to C$13.73.
Magna International Inc. (MG/A CN): North America's largest auto-parts supplier was added by Goldman Sachs Group Inc. to its ``conviction sell'' list. Analysts led by Patrick Archambault in New York cut their six-month share-price estimate by 23 percent to C$50.65 ($50), citing a negative outlook for the U.S. auto and auto parts sector. Magna fell 3.3 percent to C$56.64.
To contact the reporter on this story: John Kipphoff in Toronto at jkipphoff@bloomberg.net.
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July 11 (Bloomberg) -- The following companies may have unusual price changes in Canadian trading today. Stock symbols are in parentheses, and share prices are from the previous close.
The Standard & Poor's/TSX Composite Index rose 1 percent to 13,743.88 yesterday in Toronto. Canada's stock benchmark is poised for a fifth-straight weekly drop, the longest such streak in six years.
CanWest Global Communications Corp. (CGS CN): Canada's biggest media company may say that third-quarter profit before one-time items was 6 cents a share, the average estimate of six analysts in a Bloomberg survey. The shares fell 1.5 percent to C$2.02 and have dropped 72 in 2008.
Ithaca Energy Inc. (IAE CN): The oil and gas producer operating in the North Sea received bank financing totaling $240 million (C$243.1 million) to support the acquisition of the Beatrice oilfield. The shares fell 3.7 percent to C$2.60.
Lockerbie & Hole Inc. (LH CN): The 110-year-old construction company said first-quarter net income rose to C$5.02 million, or 18 cents a share, from C$4.87 million, as sales increased 51 percent. The shares fell 1.5 percent to C$13.73.
Magna International Inc. (MG/A CN): North America's largest auto-parts supplier was added by Goldman Sachs Group Inc. to its ``conviction sell'' list. Analysts led by Patrick Archambault in New York cut their six-month share-price estimate by 23 percent to C$50.65 ($50), citing a negative outlook for the U.S. auto and auto parts sector. Magna fell 3.3 percent to C$56.64.
To contact the reporter on this story: John Kipphoff in Toronto at jkipphoff@bloomberg.net.
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London Session Recap
Daily Forex Fundamentals | Written by Forex.com | Jul 11 08 12:07 GMT |
Crude oil prices surged to within pennies of the all time high in the London session and helped push the greenback lower against the majors. Oil rose just over $3 to $145.02/bbl in the span, and is now up nearly $9 in the last 24 hours. The push higher was seemingly due to news of potential supply disruptions out of Brazil (workers’ strike) and Nigeria (end of cease-fire). Tensions in the Middle East did not help matters either, as Iran continued on its missile test firing campaign overnight.
EUR/USD was bid on the developments, rising from an open near 1.5770 to a close just above the 1.5800 mark. The only piece of relevant data out of the Eurozone was German wholesale prices and they came in as expected, rising 0.9% on the month after a 1.4% result the prior. This result was welcomed as inflation numbers of late in the EU had been blowing away expectations and creating a stir at the ECB.
USD/CAD was bid near the end of the London session as Canadian employment data for June were disappointing. Payrolls fell -5.0K after an 8.4K add the prior month while the unemployment rate rose to 6.2% from 6.1%. The market was expecting an increase in payrolls of 8.0K and for the unemployment rate to remain steady at 6.1%, so the results were disconcerting. USD/CAD opened London trading near 1.0100 and was trading near 1.0150 after the number (currently around 1.0165/70). That said, the rally in USD/CAD looks a touch overdone given that the increase in oil prices should be CAD supportive and offset some of the negative employment data.
The NY session should see some price action as we get the US trade balance data for May and the University of Michigan consumer sentiment numbers for June (preliminary). The confidence survey will be closely watched for any increase/decrease in inflation expectations, which could impact Fed rate hike expectations. The futures market is currently pricing in one 25 bps rate hike by the Fed by the end of this year. This should shift around quite a bit if inflation expectations continue to become unmoored.
Upcoming Economic Data Releases (NY Session) Prior Estimate
* 7/11 12:30 CA Int'l Merchandise Trade MAY C$5.1 C$5.0
* 7/11 12:30 CA New Housing Price Index MoM MAY 0.0% 0.1%
* 7/11 12:30 US Trade Balance MAY -$60.9B -$62.4B
* 7/11 12:30 US Import Price Index (MoM) JUN 2.3% 2.0%
* 7/11 12:30 US Import Price Index (YoY) JUN 17.8% 18.6%
* 7/11 14:00 US U. of Michigan Confidence JUL P 56.4 55.5
Forex.com
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Crude oil prices surged to within pennies of the all time high in the London session and helped push the greenback lower against the majors. Oil rose just over $3 to $145.02/bbl in the span, and is now up nearly $9 in the last 24 hours. The push higher was seemingly due to news of potential supply disruptions out of Brazil (workers’ strike) and Nigeria (end of cease-fire). Tensions in the Middle East did not help matters either, as Iran continued on its missile test firing campaign overnight.
EUR/USD was bid on the developments, rising from an open near 1.5770 to a close just above the 1.5800 mark. The only piece of relevant data out of the Eurozone was German wholesale prices and they came in as expected, rising 0.9% on the month after a 1.4% result the prior. This result was welcomed as inflation numbers of late in the EU had been blowing away expectations and creating a stir at the ECB.
USD/CAD was bid near the end of the London session as Canadian employment data for June were disappointing. Payrolls fell -5.0K after an 8.4K add the prior month while the unemployment rate rose to 6.2% from 6.1%. The market was expecting an increase in payrolls of 8.0K and for the unemployment rate to remain steady at 6.1%, so the results were disconcerting. USD/CAD opened London trading near 1.0100 and was trading near 1.0150 after the number (currently around 1.0165/70). That said, the rally in USD/CAD looks a touch overdone given that the increase in oil prices should be CAD supportive and offset some of the negative employment data.
The NY session should see some price action as we get the US trade balance data for May and the University of Michigan consumer sentiment numbers for June (preliminary). The confidence survey will be closely watched for any increase/decrease in inflation expectations, which could impact Fed rate hike expectations. The futures market is currently pricing in one 25 bps rate hike by the Fed by the end of this year. This should shift around quite a bit if inflation expectations continue to become unmoored.
Upcoming Economic Data Releases (NY Session) Prior Estimate
* 7/11 12:30 CA Int'l Merchandise Trade MAY C$5.1 C$5.0
* 7/11 12:30 CA New Housing Price Index MoM MAY 0.0% 0.1%
* 7/11 12:30 US Trade Balance MAY -$60.9B -$62.4B
* 7/11 12:30 US Import Price Index (MoM) JUN 2.3% 2.0%
* 7/11 12:30 US Import Price Index (YoY) JUN 17.8% 18.6%
* 7/11 14:00 US U. of Michigan Confidence JUL P 56.4 55.5
Forex.com
http://www.forex.com
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Canadian Economy Loses 5,000 Jobs, As Growth Outlook Dims
Daily Forex Fundamentals | Written by DailyFX | Jul 11 08 11:35 GMT |
The Canadian economy lost 5,000 jobs in June, which was the first time since December 2007, pushing the unemployment rate to 6.2%. The economy has started to whither from the headwinds of the U.S. slowdown and the financial crisis. The recent commodity boom has propped up the economy, but the declining manufacturing sector and slowing domestic growth have led employers to cut jobs. June also saw the recent trend of replacing fulltime workers (-39,200) for part-timers (+34,200) continue, as the growth outlook dims. Despite the slowing economy some industries remain strong with professional and scientific services adding 37,100 jobs, but that couldn’t prevent the overall service sector from losing 5,400 jobs. Governor Carney surprised markets at the last monetary policy meeting by holding rates steady, as headline inflation rising to 2.2% has become a concern for the central bank. However, if job losses continue to mount the MPC may need to return to their easing policy.
DailyFX
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The Canadian economy lost 5,000 jobs in June, which was the first time since December 2007, pushing the unemployment rate to 6.2%. The economy has started to whither from the headwinds of the U.S. slowdown and the financial crisis. The recent commodity boom has propped up the economy, but the declining manufacturing sector and slowing domestic growth have led employers to cut jobs. June also saw the recent trend of replacing fulltime workers (-39,200) for part-timers (+34,200) continue, as the growth outlook dims. Despite the slowing economy some industries remain strong with professional and scientific services adding 37,100 jobs, but that couldn’t prevent the overall service sector from losing 5,400 jobs. Governor Carney surprised markets at the last monetary policy meeting by holding rates steady, as headline inflation rising to 2.2% has become a concern for the central bank. However, if job losses continue to mount the MPC may need to return to their easing policy.
DailyFX
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Currency Technical Report
Daily Forex Technicals | Written by FX Greece | Jul 11 08 12:04 GMT |
EUR/USD
Resistance: 1,5800/ 1,5825-35/ 1,5850-55/ 1,5885/ ,5910
Support : 1,5765-70/ 1,5740/ 1,5710/ 1,5670/ 1,5620
Comment: Euro moved above the resistance level, which sets the ranges for the short term consolidation, and that led the pair to 1.5800. Retracements from 1.5800 area were weak and it is possible, according to yesterday's picture, that the pair may reach these levels again or move higher.
First important resistance above yesterday's highs is the area of 1,5820-30, where we have set our positions and ranges for our scenario, that the downward move from 1.5900 tops is a downward part within the consolidation.
A move above 1.5830-35, could lead to 1.5855-60 area or even the previous tops at 1.5900-10. In the current phase, euro should not move higher than 1.5900-10 area. According to the daily chart, the short term ranges should be limited at 1,5950-60 area….
An upward move to 1.5820-30 and a quick retracement below 1.5750, would be a sign of weakness. In such case, our next target will be at 1.5660-70, bringing the area of 1.5450-70 back in the game…
TRADING EUR/USD
SWING TRADING: Yesterday's rise and daily close, make us cautious regarding the immediate resumption of the decline, as the double top scenario or a move higher is back in the game. A clear break of 1.5830-35 could lead to a position reduction, which could be tried again in the area of 1.5900-10 or 1.5950-70, with stops above all time highs….
INTRADAY TRADING : We will use any reaction to 1.5825-32 and 1.5855 area for sell positions with stops above 1.5875. If the second orders are not triggered, out target will be at 1.5760 area. If the pair reaches 1.5850-60 area, our target will be at 1.5800….
Sell positions for a quick move could be tried in the first reach of 1.5800 area and the upper Bollinger in the hourly chart…
GBP/USD
Resistance : 1,9750-70/ 1,9800/ 1,9850/ 1,9890
Support: 1,9680-00/ 1,9650/ 1,9625/ 1,9580/ 1,9550
Comment : The pound is clearly weaker than euro, and yesterday's reaction proved to be a corrective move. First intraday resistance is found at 1.9800-10, followed by the area of 1.9850, which is more important. As long as these levels hold as resistance, the base of 1.9650 or a move towards 1.9570-00, would be possible targets.
Above 1.9850, next resistance level emerges at 1.9880-00 and the double top scenario will be back in the game…
TRADING GBP/USD :
SWING TRADING : The scenario remains the same. " The retracement at 1.9830-50 area, allowed us to try sell positions according to our basic scenario. We keep our stops above 1.9900 or we move them to the levels, where our positions were opened…
INTRADAY TRADING : We keep our positions small and try sell positions at 1.9790-9810 and 1.9840-50 area, with stops above 1.9885…
USD/JPY
USD/CHF
FX Greece
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EUR/USD
Resistance: 1,5800/ 1,5825-35/ 1,5850-55/ 1,5885/ ,5910
Support : 1,5765-70/ 1,5740/ 1,5710/ 1,5670/ 1,5620
Comment: Euro moved above the resistance level, which sets the ranges for the short term consolidation, and that led the pair to 1.5800. Retracements from 1.5800 area were weak and it is possible, according to yesterday's picture, that the pair may reach these levels again or move higher.
First important resistance above yesterday's highs is the area of 1,5820-30, where we have set our positions and ranges for our scenario, that the downward move from 1.5900 tops is a downward part within the consolidation.
A move above 1.5830-35, could lead to 1.5855-60 area or even the previous tops at 1.5900-10. In the current phase, euro should not move higher than 1.5900-10 area. According to the daily chart, the short term ranges should be limited at 1,5950-60 area….
An upward move to 1.5820-30 and a quick retracement below 1.5750, would be a sign of weakness. In such case, our next target will be at 1.5660-70, bringing the area of 1.5450-70 back in the game…
TRADING EUR/USD
SWING TRADING: Yesterday's rise and daily close, make us cautious regarding the immediate resumption of the decline, as the double top scenario or a move higher is back in the game. A clear break of 1.5830-35 could lead to a position reduction, which could be tried again in the area of 1.5900-10 or 1.5950-70, with stops above all time highs….
INTRADAY TRADING : We will use any reaction to 1.5825-32 and 1.5855 area for sell positions with stops above 1.5875. If the second orders are not triggered, out target will be at 1.5760 area. If the pair reaches 1.5850-60 area, our target will be at 1.5800….
Sell positions for a quick move could be tried in the first reach of 1.5800 area and the upper Bollinger in the hourly chart…
GBP/USD
Resistance : 1,9750-70/ 1,9800/ 1,9850/ 1,9890
Support: 1,9680-00/ 1,9650/ 1,9625/ 1,9580/ 1,9550
Comment : The pound is clearly weaker than euro, and yesterday's reaction proved to be a corrective move. First intraday resistance is found at 1.9800-10, followed by the area of 1.9850, which is more important. As long as these levels hold as resistance, the base of 1.9650 or a move towards 1.9570-00, would be possible targets.
Above 1.9850, next resistance level emerges at 1.9880-00 and the double top scenario will be back in the game…
TRADING GBP/USD :
SWING TRADING : The scenario remains the same. " The retracement at 1.9830-50 area, allowed us to try sell positions according to our basic scenario. We keep our stops above 1.9900 or we move them to the levels, where our positions were opened…
INTRADAY TRADING : We keep our positions small and try sell positions at 1.9790-9810 and 1.9840-50 area, with stops above 1.9885…
USD/JPY
USD/CHF
FX Greece
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India Rating May Be Cut on Fiscal Concerns, S&P Says
By Kartik Goyal and Cherian Thomas
July 11 (Bloomberg) -- India's credit rating may be cut to ``speculative grade'' if faster inflation and higher government spending ahead of next year's election impair the budget deficit, Standard & Poor's said.
India's long-term local currency debt is rated BBB- by S&P, the lowest investment grade. A one-notch drop in its ranking would place Asia's third-largest economy on par with Indonesia, El Salvador and Guatemala.
``Political compulsions may make it difficult for the government to take timely measures to staunch fiscal or monetary slippages,'' S&P analyst Takahira Ogawa said in an e-mailed statement today. ``Failure to respond adequately to negative developments could point to a sustained deterioration in macroeconomic stability and increase the probability that the government's ratings could be lowered to speculative grade.''
The risk of a downgrade comes just 18 months after India was lifted to the investment category by S&P for the first time since 2002. A lower rating may deter foreign investors and make it more expensive for Indian companies to raise money, slowing growth in the $912 billion economy.
``A rating downgrade on India will be detrimental for companies' investment plans,'' said Amandeep Chopra, who helps manage the equivalent of $6.3 billion of stocks and bonds at UTI Asset Management in Mumbai. ``It will further widen the cost of borrowing for companies.''
To contact the reporters on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net. Cherian Thomas in New Delhi at cthomas1@bloomberg.net
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July 11 (Bloomberg) -- India's credit rating may be cut to ``speculative grade'' if faster inflation and higher government spending ahead of next year's election impair the budget deficit, Standard & Poor's said.
India's long-term local currency debt is rated BBB- by S&P, the lowest investment grade. A one-notch drop in its ranking would place Asia's third-largest economy on par with Indonesia, El Salvador and Guatemala.
``Political compulsions may make it difficult for the government to take timely measures to staunch fiscal or monetary slippages,'' S&P analyst Takahira Ogawa said in an e-mailed statement today. ``Failure to respond adequately to negative developments could point to a sustained deterioration in macroeconomic stability and increase the probability that the government's ratings could be lowered to speculative grade.''
The risk of a downgrade comes just 18 months after India was lifted to the investment category by S&P for the first time since 2002. A lower rating may deter foreign investors and make it more expensive for Indian companies to raise money, slowing growth in the $912 billion economy.
``A rating downgrade on India will be detrimental for companies' investment plans,'' said Amandeep Chopra, who helps manage the equivalent of $6.3 billion of stocks and bonds at UTI Asset Management in Mumbai. ``It will further widen the cost of borrowing for companies.''
To contact the reporters on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net. Cherian Thomas in New Delhi at cthomas1@bloomberg.net
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BOJ May Keep Rate at 0.5% as Costs Weaken Spending
By Mayumi Otsuma
July 11 (Bloomberg) -- The Bank of Japan will probably keep interest rates on hold next week as rising energy and commodity costs erode incomes and discourage spending by businesses and households in the world's second-largest economy.
Governor Masaaki Shirakawa and his six colleagues will leave the overnight lending rate at 0.5 percent at a two-day meeting ending July 15, according to all 39 economists surveyed by Bloomberg. The rate, doubled in February 2007, is the lowest among major economies.
Shirakawa says the risk that record commodity prices discourages spending and derails growth is more pressing than tackling inflation. Consumer sentiment is at a six-year low and companies predict profits will fall for the first time in seven years.
``The Bank of Japan is being forced to focus on the economy's downside risks,'' said Kazuhiko Sano, chief strategist at Nikko Citigroup in Tokyo. ``Still, a rate cut could fan inflationary expectations and is out of the question.''
Japan's economy probably shrank last quarter on slower exports and consumer spending, the drivers of the expansion in the first quarter, according to economists surveyed by Bloomberg last month. The central bank lowered its assessment of consumer spending in all of Japan's nine regions in its quarterly regional economic report this week.
`Risk Materializing'
``Growth probably won't make the Bank of Japan's prediction,'' for the year ending March 2009, said Mamoru Yamazaki, chief Japan economist at RBS Securities in Tokyo.
Large companies expect profits to decline 7 percent in fiscal 2008, the first drop since the 2001 recession, the bank's Tankan survey showed July 1.
``A drop in corporate profits, the source for the economy's positive cycle, will definitely discourage companies from making new investment, raising wages and hiring more workers,'' said Yasunari Ueno, chief market economist at Mizuho Securities in Tokyo. ``There's no way the bank will raise rates when incomes are being eroded and domestic demand is worsening.''
Only two of 33 economists who gave predictions through December expect a rate increase this year. The remaining 31 forecast no change. The central bank shelved in April its policy calling for higher interest rates.
April Prediction
The bank will probably say next week that the economy won't expand as much as it predicted in April while consumer inflation will be faster than projected, economists said. Policy makers will review its semi-annual outlook report published in April on July 15 at 3 p.m.
``The bank may have to push back its prediction for when the economy regains momentum,'' said Seiji Shiraishi, chief economist at HSBC Securities in Tokyo.
In April, board members predicted the economy would expand 1.5 percent in the year ending March 2009 and consumer prices excluding fresh food would climb 1.1 percent. The bank doesn't typically release new forecasts in its mid-term review, only describing how the economy and prices have performed since its last semi-annual report.
Core consumer prices rose 1.5 percent in May from a year earlier. Inflation by that measure will surge to about 2.4 percent in the third quarter, said Ryutaro Kono chief economist at BNP Paribas in Tokyo. The central bank regards prices as stable when they are between zero and 2 percent.
``Even if core prices surpass the range, that would be temporary and wouldn't trigger rate action by the bank,'' Kono said.
Shirakawa will hold a news conference at 3:30 p.m.
==============================================================================
As of 07/11/08 BOJ BOJ BOJ BOJ BOJ BOJ
Rates Rates Rates Rates Rates Rates
==============================================================================
Date of Release 07/15 08/19 09/17 10/07 10/31 11/21
Time period 2008 2008 2008 2008 2008 2008
Measure % % % % % %
------------------------------------------------------------------------------
# of replies 39 33 33 33 33 33
Median Forecast 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
% Forecast at Median 100.0% 100.0% 100.0% 100.0% 100.0% 97.0%
Average Forecast 0.50% 0.50% 0.50% 0.50% 0.50% 0.51%
Expected change 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
High Forecast 0.50% 0.50% 0.50% 0.50% 0.50% 0.75%
Low Forecast 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Previous forecast 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
==============================================================================
Action Economics 0.50% --- --- --- --- ---
Aletti Gestielle 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
BNP Paribas 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Bank of America 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Barclays Capital 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
CFC Seymour 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
CPR Asset Management 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Capital Economics 0.50% 0.50% 0.50% 0.50% 0.50% 0.75%
Credit Suisse 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
DBS Group 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
DZ Bank 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Dai-Ichi Life Resrch 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Daiwa Research Inst. 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Daiwa Sec SMBC 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Deutsche Bank 0.50% --- --- --- --- ---
HSBC 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Intesa Sanpaolo 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Investec 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
J.P. Morgan 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Lehman Brothers 0.50% --- --- --- --- ---
Lloyd's TSB 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
M.M. Warburg & Co. 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Macquarie Securities 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Merrill Lynch 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Mitsubishi UFJ Sec 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Mizuho Securities 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Morgan Stanley 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Nikko Citigroup 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Nomura Securities 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Norinchukin Research 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
RBS Securities 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Shinkin Asset 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Shinshu Univeristy 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Stone & McCarthy 0.50% --- --- --- --- ---
Tapiola Insurance 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Totan Research 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Unicredit MIB 0.50% --- --- --- --- ---
WestLB 0.50% --- --- --- --- ---
Westpac 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
==============================================================================
To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net
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India's Inflation Accelerates to Fastest in More Than 13 Years
By Kartik Goyal
July 11 (Bloomberg) -- India's inflation accelerated to the fastest pace since 1995, raising concerns the central bank will increase borrowing costs for a third time this year.
Wholesale prices rose 11.89 percent in the week to June 28, after gaining 11.63 percent in the previous week, commerce ministry spokesman Rajeev Jain told Bloomberg News in an interview today. Economists expected an 11.75 percent increase.
To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net.
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July 11 (Bloomberg) -- India's inflation accelerated to the fastest pace since 1995, raising concerns the central bank will increase borrowing costs for a third time this year.
Wholesale prices rose 11.89 percent in the week to June 28, after gaining 11.63 percent in the previous week, commerce ministry spokesman Rajeev Jain told Bloomberg News in an interview today. Economists expected an 11.75 percent increase.
To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net.
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New Zealanders' Net Wealth Posts Biggest Decline in 10 Years
By Tracy Withers
July 11 (Bloomberg) -- The average net wealth of New Zealand consumers posted the biggest fall in almost 10 years as house prices and stocks declined while rising interest rates increased debt.
Net wealth, which includes the value of homes, investments and bank deposits less debt, dropped 1.6 percent in the first quarter, according to a report released today by Auckland-based financial adviser Spicers. The value of stocks and pension funds fell 1.8 percent while debt increased 2.2 percent.
Falling net wealth adds to signs household spending may slow, curbing economic growth. Consumer confidence fell to a 17- year low in the first quarter and the economy contracted 0.3 percent, putting the economy on the brink of a recession.
As well as the decline in the value of investments, house prices are falling, Spicers said in the report e-mailed to Bloomberg News. Housing makes up about 80 percent of total assets owned by households.
``We expect the value of housing assets to remain under pressure for the foreseeable future,'' Spicers said. ``Houses are taking longer to sell, prices continue to come under pressure and household budgets are straining.''
Household debt is rising at a slower pace as consumers take a more cautious approach to borrowing, Spicers said. Households no longer have the safety net of rapidly rising house prices to give them comfort when they borrow, it said.
Average net wealth has increased 95 percent the past 10 years.
To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.
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Foreign Direct Investment in China Jumps 45.6 Percent
By Li Yanping and Nipa Piboontanasawat
July 11 (Bloomberg) -- Foreign direct investment in China rose 45.6 percent in the first half from a year earlier, swelling inflows of cash that may stoke inflation in the world's fastest-growing major economy.
Spending by overseas companies increased to $52.4 billion, the Ministry of Commerce said today on its Web site.
China is adding controls to try to stem inflows of speculative capital from investors attracted by a strengthening yuan and interest rates at a decade high. So-called hot money inflows may have reached more than $200 billion in the first five months of this year, according to Michael Pettis, a finance professor at Peking University.
``Foreign direct investment has been one of the major channels for hot money since the beginning of 2007,'' said Shi Lei, an analyst at Bank of China Ltd. in Beijing. ``Speculators can always find a way to circumvent government rules.''
Besides the risk of stoking inflation that reached a 12- year high in February, hot money puts the nation at risk of ``massive outflows'' if expectations for currency gains reverse, according to a central bank report last month.
The yuan has gained 6.9 percent versus the dollar this year and 21 percent since a fixed exchange rate was scrapped in 2005. The key one-year lending rate is 7.47 percent, and the deposit rate is 4.14 percent.
Trade Surplus
The cash from foreign direct investment adds to the $21.4 billion pumped into the economy last month by the trade surplus.
China's foreign-exchange reserves, the world's largest, surged 40 percent to a record $1.68 trillion in March from a year earlier, according to the latest official data. The increase through June may be announced as early as today.
``As long as the yuan continues to appreciate and the economy outperforms other countries, China will remain an attractive destination for funds,'' said Zhu Baoliang, chief economist at State Information Center in Beijing, an affiliate of China's top economic planning agency.
The government is adding measures to try to stop investors from circumventing capital controls.
The State Administration of Foreign Exchange said last week that it will inspect exporters' foreign-exchange settlements from July 14 to try to prevent sham transactions that let hot money in.
China is also drafting regulations to control cross-border payments for services, with the same aim, according to an official at the regulator, who wouldn't be identified.
To contact the reporter on this story: Li Yanping in Beijing at yli16@bloomberg.net; Nipa Piboontanasawat in Hong Kong at npiboontanas@bloomberg.net
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July 11 (Bloomberg) -- Foreign direct investment in China rose 45.6 percent in the first half from a year earlier, swelling inflows of cash that may stoke inflation in the world's fastest-growing major economy.
Spending by overseas companies increased to $52.4 billion, the Ministry of Commerce said today on its Web site.
China is adding controls to try to stem inflows of speculative capital from investors attracted by a strengthening yuan and interest rates at a decade high. So-called hot money inflows may have reached more than $200 billion in the first five months of this year, according to Michael Pettis, a finance professor at Peking University.
``Foreign direct investment has been one of the major channels for hot money since the beginning of 2007,'' said Shi Lei, an analyst at Bank of China Ltd. in Beijing. ``Speculators can always find a way to circumvent government rules.''
Besides the risk of stoking inflation that reached a 12- year high in February, hot money puts the nation at risk of ``massive outflows'' if expectations for currency gains reverse, according to a central bank report last month.
The yuan has gained 6.9 percent versus the dollar this year and 21 percent since a fixed exchange rate was scrapped in 2005. The key one-year lending rate is 7.47 percent, and the deposit rate is 4.14 percent.
Trade Surplus
The cash from foreign direct investment adds to the $21.4 billion pumped into the economy last month by the trade surplus.
China's foreign-exchange reserves, the world's largest, surged 40 percent to a record $1.68 trillion in March from a year earlier, according to the latest official data. The increase through June may be announced as early as today.
``As long as the yuan continues to appreciate and the economy outperforms other countries, China will remain an attractive destination for funds,'' said Zhu Baoliang, chief economist at State Information Center in Beijing, an affiliate of China's top economic planning agency.
The government is adding measures to try to stop investors from circumventing capital controls.
The State Administration of Foreign Exchange said last week that it will inspect exporters' foreign-exchange settlements from July 14 to try to prevent sham transactions that let hot money in.
China is also drafting regulations to control cross-border payments for services, with the same aim, according to an official at the regulator, who wouldn't be identified.
To contact the reporter on this story: Li Yanping in Beijing at yli16@bloomberg.net; Nipa Piboontanasawat in Hong Kong at npiboontanas@bloomberg.net
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India's Industrial Production Grows at Slowest Pace in 6 Years
By Kartik Goyal
July 11 (Bloomberg) -- India's industrial production grew at the slowest pace in more than six years in May as spiraling prices prompted consumers to cut back on purchases of cars, fridges and other manufactured goods.
Production at factories, utilities and mines rose 3.8 percent from a year earlier after gaining a revised 6.2 percent in April, the statistics office said in New Delhi today. Economists expected a 6.5 percent increase.
Manufacturing output may weaken further as the fastest inflation since 1995 dents spending and makes it more likely the central bank will raise interest rates for a third time this year. Maruti Suzuki India Ltd., which produces half the cars sold in Asia's third-largest economy, and truck maker Tata Motors Ltd. trimmed output in May as higher borrowing costs discouraged buyers.
``With continued interest rate hikes, weakening foreign demand and rising costs of production, we are becoming more concerned about the outlook for industrial output,'' said Sonal Varma, an economist with Lehman Brothers Inc. in Mumbai. ``We expect production to moderate this year.''
Accelerating inflation, fuelled by soaring oil and commodities prices, and weaker global demand are hurting industrial production across Asia. Manufacturing in Singapore posted its biggest fall in two years in May. South Korea's output increased 8.3 percent in the same month, easing from a 10.4 percent gain in April.
Concern over weaker industrial output has contributed to a 31 percent decline in the Bombay Stock Exchange's benchmark Sensitive Index this year. Higher interest rates are also damping investor confidence.
Interest Rates
The Reserve Bank of India last month raised its benchmark interest rate twice to a six-year high of 8.5 percent and lifted its cash reserve ratio to 8.75 percent, aiming to tame inflation that reached 11.89 percent last month.
The increased cost of funds prompted lenders such as State Bank of India Ltd., the nation's biggest, ICICI Bank Ltd. and HDFC Bank Ltd. to raise lending rates. Higher borrowing costs may discourage consumer borrowing in a country where the majority of automobiles and apartments are bought on loans.
Maruti, Ford India Private Ltd. and Honda Siel Cars India Ltd. produced fewer cars in May, according to the Society of Indian Automobile Manufacturers. Ford produced 3,414 cars in May, about four times less from a year ago. Honda Siel Cars made 43 percent fewer vehicles.
`Tremendous Pressure'
``Profit margins of automakers are under tremendous pressure,'' said Sugato Sen, director of the Society of Indian Automobile Manufacturers. ``Production may decline in the coming months on higher interest rates and record inflation.''
Manufacturing, which accounts for about 80 percent of India's industrial production, gained 3.9 percent in May. Electricity output rose 2 percent, mining grew 5.5 percent. Consumer-goods production increased 7.2 percent.
Cement sales by companies such as Grasim Industries Ltd., India Cements Ltd. and other producers grew 4 percent in May, less than April's 7.2 percent gain, according to the Cement Manufacturer's Association.
A slowdown in exports of Indian clothes, steel and electronics goods may also have contributed to the drop in factory output. India's overseas sales rose 13 percent in May from a year ago, less than half of April's 31.5 percent growth.
To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net.
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July 11 (Bloomberg) -- India's industrial production grew at the slowest pace in more than six years in May as spiraling prices prompted consumers to cut back on purchases of cars, fridges and other manufactured goods.
Production at factories, utilities and mines rose 3.8 percent from a year earlier after gaining a revised 6.2 percent in April, the statistics office said in New Delhi today. Economists expected a 6.5 percent increase.
Manufacturing output may weaken further as the fastest inflation since 1995 dents spending and makes it more likely the central bank will raise interest rates for a third time this year. Maruti Suzuki India Ltd., which produces half the cars sold in Asia's third-largest economy, and truck maker Tata Motors Ltd. trimmed output in May as higher borrowing costs discouraged buyers.
``With continued interest rate hikes, weakening foreign demand and rising costs of production, we are becoming more concerned about the outlook for industrial output,'' said Sonal Varma, an economist with Lehman Brothers Inc. in Mumbai. ``We expect production to moderate this year.''
Accelerating inflation, fuelled by soaring oil and commodities prices, and weaker global demand are hurting industrial production across Asia. Manufacturing in Singapore posted its biggest fall in two years in May. South Korea's output increased 8.3 percent in the same month, easing from a 10.4 percent gain in April.
Concern over weaker industrial output has contributed to a 31 percent decline in the Bombay Stock Exchange's benchmark Sensitive Index this year. Higher interest rates are also damping investor confidence.
Interest Rates
The Reserve Bank of India last month raised its benchmark interest rate twice to a six-year high of 8.5 percent and lifted its cash reserve ratio to 8.75 percent, aiming to tame inflation that reached 11.89 percent last month.
The increased cost of funds prompted lenders such as State Bank of India Ltd., the nation's biggest, ICICI Bank Ltd. and HDFC Bank Ltd. to raise lending rates. Higher borrowing costs may discourage consumer borrowing in a country where the majority of automobiles and apartments are bought on loans.
Maruti, Ford India Private Ltd. and Honda Siel Cars India Ltd. produced fewer cars in May, according to the Society of Indian Automobile Manufacturers. Ford produced 3,414 cars in May, about four times less from a year ago. Honda Siel Cars made 43 percent fewer vehicles.
`Tremendous Pressure'
``Profit margins of automakers are under tremendous pressure,'' said Sugato Sen, director of the Society of Indian Automobile Manufacturers. ``Production may decline in the coming months on higher interest rates and record inflation.''
Manufacturing, which accounts for about 80 percent of India's industrial production, gained 3.9 percent in May. Electricity output rose 2 percent, mining grew 5.5 percent. Consumer-goods production increased 7.2 percent.
Cement sales by companies such as Grasim Industries Ltd., India Cements Ltd. and other producers grew 4 percent in May, less than April's 7.2 percent gain, according to the Cement Manufacturer's Association.
A slowdown in exports of Indian clothes, steel and electronics goods may also have contributed to the drop in factory output. India's overseas sales rose 13 percent in May from a year ago, less than half of April's 31.5 percent growth.
To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net.
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Nukaga Says Japan to Increase Pension Burden on Time
By Keiko Ujikane
July 11 (Bloomberg) -- The Japanese government will increase its contribution to the national pension program as scheduled, Finance Minister Fukushiro Nukaga said, after the Nikkei newspaper reported it may postpone the plans.
``The government is not thinking of delaying its promise for now,'' Nukaga said at a press conference in Tokyo today. Japan has pledged to increase its contribution to the program to half from the current third by the year starting April 1.
The Nikkei said the plan may be postponed by at least six months because of opposition to raising the sales tax to fund it, citing Hiroyuki Sonoda, deputy policy chief of the ruling Liberal Democratic Party. The government estimates it may need 2.3 trillion yen to raise the contribution, equivalent to revenue earned by a 1 percentage-point increase in the sales tax.
``The LDP would have to have a political death wish to increase the consumption tax at this time,'' John Richards, head of debt markets strategy at RBS Securities Japan Ltd. in Tokyo, wrote in a report today. ``A cigarette tax hike is now more likely than a consumption tax hike to fund increased government contributions to the public pension fund.''
Prime Minister Yasuo Fukuda said last month that he will consider whether to raise the 5 percent sales tax ``over the next two to three years.'' Fukuda's popularity has slumped since he took office last September, and his LDP-led coalition must defend its two-thirds majority in lower house elections due by September 2009.
Cigarette Tax
Lawmakers from ruling and opposition parties began meeting last month to discuss raising tobacco taxes. Hidenao Nakagawa, a former LDP secretary-general, wants the government to consider tripling the retail price of a pack of cigarettes to 1,000 yen to help fund rising social welfare costs.
Richards of RBS Securities said a 200 yen increase ``would produce enough revenue to more than cover the required pension contribution, since the demand for cigarettes is highly inelastic.''
Economic and Fiscal Policy Minister Hiroko Ota also told reporters today that the government wasn't discussing delaying the plan to increase the pension burden.
Nukaga said the government has promised the public that it will secure stable funding based on the assumption it will raise the government's pension contribution from April 2009.
To contact the reporters on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net
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July 11 (Bloomberg) -- The Japanese government will increase its contribution to the national pension program as scheduled, Finance Minister Fukushiro Nukaga said, after the Nikkei newspaper reported it may postpone the plans.
``The government is not thinking of delaying its promise for now,'' Nukaga said at a press conference in Tokyo today. Japan has pledged to increase its contribution to the program to half from the current third by the year starting April 1.
The Nikkei said the plan may be postponed by at least six months because of opposition to raising the sales tax to fund it, citing Hiroyuki Sonoda, deputy policy chief of the ruling Liberal Democratic Party. The government estimates it may need 2.3 trillion yen to raise the contribution, equivalent to revenue earned by a 1 percentage-point increase in the sales tax.
``The LDP would have to have a political death wish to increase the consumption tax at this time,'' John Richards, head of debt markets strategy at RBS Securities Japan Ltd. in Tokyo, wrote in a report today. ``A cigarette tax hike is now more likely than a consumption tax hike to fund increased government contributions to the public pension fund.''
Prime Minister Yasuo Fukuda said last month that he will consider whether to raise the 5 percent sales tax ``over the next two to three years.'' Fukuda's popularity has slumped since he took office last September, and his LDP-led coalition must defend its two-thirds majority in lower house elections due by September 2009.
Cigarette Tax
Lawmakers from ruling and opposition parties began meeting last month to discuss raising tobacco taxes. Hidenao Nakagawa, a former LDP secretary-general, wants the government to consider tripling the retail price of a pack of cigarettes to 1,000 yen to help fund rising social welfare costs.
Richards of RBS Securities said a 200 yen increase ``would produce enough revenue to more than cover the required pension contribution, since the demand for cigarettes is highly inelastic.''
Economic and Fiscal Policy Minister Hiroko Ota also told reporters today that the government wasn't discussing delaying the plan to increase the pension burden.
Nukaga said the government has promised the public that it will secure stable funding based on the assumption it will raise the government's pension contribution from April 2009.
To contact the reporters on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net
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Yuan's Advance This Year Matches Gains for All 2007; Bonds Rise
By Judy Chen and Kim Kyoungwha
July 11 (Bloomberg) -- The yuan's advance this year matched its gains for all of 2007 as China pledged to maintain efforts to strengthen the currency to stem inflation and narrow the trade surplus. Bonds rose.
The local currency climbed to the highest since authorities abandoned a dollar link in July 2005 as U.S. Treasury Secretary Henry Paulson yesterday urged China to accelerate the yuan's appreciation that is ``a key'' to the country's economic progress. The yuan rose 2.5 percent in the past three months, the best performance among the 10 most-active currencies in Asia outside Japan, as Premier Wen Jiabao reaffirmed in July that the battle against inflation remains his government's top priority.
``Inflation is still a huge issue,'' said Naomi Fink, a Tokyo-based senior currency strategist at Bank of Tokyo- Mitsubishi UFJ Ltd. ``China cannot afford to support exports by stopping the yuan rise. The dollar's strength would only aggravate already existing inflationary pressure.''
The yuan strengthened 0.34 percent this week to 6.8359 a dollar as of 3:05 p.m. in Shanghai, from 6.8589 on July 4, according to the China Foreign Exchange Trade System. It touched 6.8352 today, the strongest since the end of the dollar peg, increasing this year's gain to 6.86 percent this year.
Quicker Inflation
Inflation accelerated to 8.1 percent in the first five months of the year, from 4.8 percent for all of 2007, posing a threat to economic stability as the nation prepares to host the Olympics next month. The strengthening of the yuan has helped lower import costs as oil prices reached a record $145.85 a barrel on July 3 and narrow a record trade surplus that has flooded the economy with cash.
The June trade surplus narrowed 21 percent to $21.4 billion from a year earlier, the customs bureau said yesterday. The yuan is ``obviously substantially undervalued,'' Dominique Strauss- Kahn, managing director of the International Monetary Fund, said on July 9.
``Solid export growth and the still-large trade surplus should support a stronger effective yuan exchange rate going forward,'' Song Yu, an economist at Goldman Sachs Group Inc. in Hong Kong, said in a report yesterday.
The Westpac Nominal Effective Exchange Rate, a trade- weighted index for the yuan, has climbed 6 percent this year, almost double the 3.4 percent gain last year.
`Biggest Challenge'
``The biggest challenge for the central bank is to deter bets on yuan gains while allowing its steady appreciation,'' said Liu Dongliang, a foreign-exchange analyst in Shenzhen at China Merchants Bank Co., the country's sixth largest lender. ``Wider fluctuations would keep some hot money out of the country by raising speculators' transaction costs.''
Liu said the currency won't rise more than 5 percent versus the dollar in the second half of this year.
In its efforts to tighten controls on speculative capital, the State Administration of Foreign Exchange, said July 2 that it will require exporters to deposit foreign-currency income, including prepayments, into designated bank accounts from July 14 before the currency regulator confirms authenticity of the revenue and allows it to be converted.
``Exporters are hurrying to repatriate earnings from overseas and convert the money to the yuan before the start of the new rules, which boosted the demand for the local currency in the past two days,'' said Liu Hantao, a foreign-exchange trader at China Construction Bank Corp. in Beijing.
Bonds Advance
One-year non-deliverable forward contracts show traders are betting on a 5.7 percent advance in the yuan to 6.465 in the next 12 months. The currency will reach 6.65 per dollar by year- end, according to the median estimate of 27 analysts surveyed by Bloomberg News.
Forwards are agreements in which assets are bought and sold at current prices for delivery at a later specified time and date. Non-deliverable contracts are commonly used for currencies that aren't freely convertible and are settled in dollars.
Local-currency bonds rose after the finance ministry sold debt at a lower-than-expected yield today. The government sold at least 24 billion yuan ($3.5 billion) of three-year bonds at a yield of 3.92 percent, compared with 3.95 percent traders expected, said Nie Shuguang, a fixed-income trader at Industrial Bank Co. in Shanghai.
The yield on the 4 percent note due in October 2012 fell 10 basis points to 4.05 percent, according to the China Interbank Bond Market. The price climbed to 99.79 from 99.41. A basis point is 0.01 percentage point.
To contact the reporters on this story: Judy Chen in Shanghai at xchen45@bloomberg.net; Kim Kyoungwha in Beijing at kkim19@bloomberg.net.
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July 11 (Bloomberg) -- The yuan's advance this year matched its gains for all of 2007 as China pledged to maintain efforts to strengthen the currency to stem inflation and narrow the trade surplus. Bonds rose.
The local currency climbed to the highest since authorities abandoned a dollar link in July 2005 as U.S. Treasury Secretary Henry Paulson yesterday urged China to accelerate the yuan's appreciation that is ``a key'' to the country's economic progress. The yuan rose 2.5 percent in the past three months, the best performance among the 10 most-active currencies in Asia outside Japan, as Premier Wen Jiabao reaffirmed in July that the battle against inflation remains his government's top priority.
``Inflation is still a huge issue,'' said Naomi Fink, a Tokyo-based senior currency strategist at Bank of Tokyo- Mitsubishi UFJ Ltd. ``China cannot afford to support exports by stopping the yuan rise. The dollar's strength would only aggravate already existing inflationary pressure.''
The yuan strengthened 0.34 percent this week to 6.8359 a dollar as of 3:05 p.m. in Shanghai, from 6.8589 on July 4, according to the China Foreign Exchange Trade System. It touched 6.8352 today, the strongest since the end of the dollar peg, increasing this year's gain to 6.86 percent this year.
Quicker Inflation
Inflation accelerated to 8.1 percent in the first five months of the year, from 4.8 percent for all of 2007, posing a threat to economic stability as the nation prepares to host the Olympics next month. The strengthening of the yuan has helped lower import costs as oil prices reached a record $145.85 a barrel on July 3 and narrow a record trade surplus that has flooded the economy with cash.
The June trade surplus narrowed 21 percent to $21.4 billion from a year earlier, the customs bureau said yesterday. The yuan is ``obviously substantially undervalued,'' Dominique Strauss- Kahn, managing director of the International Monetary Fund, said on July 9.
``Solid export growth and the still-large trade surplus should support a stronger effective yuan exchange rate going forward,'' Song Yu, an economist at Goldman Sachs Group Inc. in Hong Kong, said in a report yesterday.
The Westpac Nominal Effective Exchange Rate, a trade- weighted index for the yuan, has climbed 6 percent this year, almost double the 3.4 percent gain last year.
`Biggest Challenge'
``The biggest challenge for the central bank is to deter bets on yuan gains while allowing its steady appreciation,'' said Liu Dongliang, a foreign-exchange analyst in Shenzhen at China Merchants Bank Co., the country's sixth largest lender. ``Wider fluctuations would keep some hot money out of the country by raising speculators' transaction costs.''
Liu said the currency won't rise more than 5 percent versus the dollar in the second half of this year.
In its efforts to tighten controls on speculative capital, the State Administration of Foreign Exchange, said July 2 that it will require exporters to deposit foreign-currency income, including prepayments, into designated bank accounts from July 14 before the currency regulator confirms authenticity of the revenue and allows it to be converted.
``Exporters are hurrying to repatriate earnings from overseas and convert the money to the yuan before the start of the new rules, which boosted the demand for the local currency in the past two days,'' said Liu Hantao, a foreign-exchange trader at China Construction Bank Corp. in Beijing.
Bonds Advance
One-year non-deliverable forward contracts show traders are betting on a 5.7 percent advance in the yuan to 6.465 in the next 12 months. The currency will reach 6.65 per dollar by year- end, according to the median estimate of 27 analysts surveyed by Bloomberg News.
Forwards are agreements in which assets are bought and sold at current prices for delivery at a later specified time and date. Non-deliverable contracts are commonly used for currencies that aren't freely convertible and are settled in dollars.
Local-currency bonds rose after the finance ministry sold debt at a lower-than-expected yield today. The government sold at least 24 billion yuan ($3.5 billion) of three-year bonds at a yield of 3.92 percent, compared with 3.95 percent traders expected, said Nie Shuguang, a fixed-income trader at Industrial Bank Co. in Shanghai.
The yield on the 4 percent note due in October 2012 fell 10 basis points to 4.05 percent, according to the China Interbank Bond Market. The price climbed to 99.79 from 99.41. A basis point is 0.01 percentage point.
To contact the reporters on this story: Judy Chen in Shanghai at xchen45@bloomberg.net; Kim Kyoungwha in Beijing at kkim19@bloomberg.net.
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Lehman Takes `Pounding' Again as Speculation Drags Down Shares
By Yalman Onaran
July 11 (Bloomberg) -- Lehman Brothers Holdings Inc., the securities firm that lost almost 75 percent of its market value this year, sank to the lowest since 2000 in New York trading as customers' votes of confidence failed to halt speculation that the stock may drop further.
Lehman, once the biggest U.S. underwriter of mortgage bonds, fell $2.44, or 12 percent, to $17.30 in New York Stock Exchange composite trading yesterday. Shares of the New York- based investment bank lost 22 percent in the last two days.
Yesterday's speculation centered on two clients backing away from the firm. Pacific Investment Management Co., manager of the world's biggest bond fund, and hedge fund SAC Capital Advisors LLC both said publicly that they continued to do business with the company. Pimco fund manager Bill Gross said in an interview with CNBC that there's ``no question'' about the firm's solvency.
Pimco and SAC's endorsements were overwhelmed as Lehman, led by Chief Executive Officer Richard Fuld, dropped alongside home-loan financing companies Fannie Mae and Freddie Mac. Both face pressure to raise more capital amid a credit contraction that has saddled banks with $408 billion of writedowns. Lehman has taken a ``pounding'' from traders betting the shares will drop since rival Bear Stearns Cos. collapsed in March, according to Richard Bove, an analyst at Ladenburg Thalmann & Co.
``People are worried about Fannie and Freddie, Lehman falls; people aren't worried about them, Lehman falls again,'' said Brad Hintz, an analyst at Sanford C. Bernstein & Co. ``This is one where you scratch your head and ask `what's going on?' It's fear and over-reaction.''
`Concentrated Effort'
Fuld, 62, declined to comment through a firm spokesman.
Short-sellers, who borrow shares betting that they'll decline, are spreading rumors about the bank in an organized attempt to depress the stock, according to Bove.
``There's a concentrated effort to break Lehman,'' Bove said. `` And I can't say it won't work because it worked with Bear.''
Similar speculation may have contributed to the demise of Bear Stearns when clients and creditors stopped doing business with the firm. The Federal Reserve has since allowed brokers to borrow from the central bank, as commercial lenders do. Since Bear Stearns's failure and takeover by JPMorgan Chase & Co. in March, Lehman has boosted its cash holdings and reduced dependence on short-term funding.
U.S. Representative Paul Kanjorski, a Democrat from Pennsylvania, said he wasn't convinced the sinking share prices resulted from wrongdoing.
`Disrupt the Balance'
``There are winners and losers in the market,'' said Kanjorski, chairman of the House Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises. ``We've got to be very careful not to disrupt that balance because if we do we're effectively destroying the market.''
Freddie Mac shares dropped 22 percent yesterday to $8, extending its drop in two days to 41 percent. Fannie Mae has sunk 25 percent in the last two days.
The cost of protecting debt sold by Lehman Brothers from default rose to the highest in almost four months, according to traders of credit-default swaps.
Contracts on the New York-based broker jumped 40 basis points to 325 yesterday, according to Phoenix Partners Group in New York. A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.
Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company's ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A rise indicates deterioration in the perception of credit quality; a decline, the opposite.
To contact the reporter on this story: Yalman Onaran in New York at yonaran@bloomberg.net.
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Fannie, Freddie Too Critical to Fail, Lawmakers Say
By Dawn Kopecki
July 11 (Bloomberg) -- Fannie Mae and Freddie Mac, the largest buyers of U.S. home loans, are too big for the government to allow them to fail, leading Republican and Democratic lawmakers said.
A government takeover of one or both companies is one of several options that have been considered by White House officials, according to a person familiar with the discussions who spoke on condition of anonymity. Senior Bush administration officials are considering placing either or both firms in a conservatorship if their problems get worse, the person said.
The companies, which own or guarantee about half of the $12 trillion of U.S. mortgages, can count on a federal lifeline, said Republican Senator John McCain, and Democratic Senator Charles Schumer. Fannie Mae and Freddie Mac would have to post pretax losses and writedowns of about $77 billion before the U.S. would be compelled to start a rescue, according to estimates by Fox-Pitt Kelton and Friedman, Billings, Ramsey & Co.
``They must not fail,'' McCain, of Arizona, said yesterday during a campaign stop in Belleville, Michigan. Fannie Mae and Freddie Mac ``are vital to Americans' ability to own their own homes,'' he said at an earlier stop in the state, one of the worst affected by the surge in foreclosures.
The remarks by the presumptive Republican presidential candidate and Schumer, head of the Joint Economic Committee, indicate Congress would push the administration to use government funds to prevent the companies from failing.
The New York Times earlier today reported the government is considering a takeover of the companies, citing people briefed on the plan whom it didn't name.
`Critical Capital'
Under a 1992 law, the Office of Federal Housing Enterprise Oversight can put Fannie Mae or Freddie Mac into a conservatorship if their ``critical capital'' falls below guidelines. White House and Treasury Department spokespeople didn't immediately return calls seeking comment on whether the administration has considered plans to invoke the authority.
Shares in Washington-based Fannie Mae and Arlington, Virginia-based Freddie Mac shares slid to the lowest level since 1991 this week on concern the firms don't have enough capital to offset writedowns. Their failure would deepen a housing recession that already is the worst in a quarter century.
``They are adequately capitalized, holding capital well in excess of the'' requirements, James Lockhart, the director of Ofheo, said in a statement yesterday. ``They have large liquidity portfolios, access to the debt market and over $1.5 trillion in unpledged assets.''
Estimates of Losses
Fannie Mae would need to lose $40 billion ``immediately'' and Freddie Mac $37 billion to be considered insolvent, New York- based Fox-Pitt analyst Howard Shapiro said in a report this week. Arlington, Virginia-based Friedman Billings analyst Paul Miller estimates losses of about $45 billion and $30 billion before they would fail.
Central banks, pension funds and other investors hold $5.2 trillion in debt sold by the companies.
While bondholders can count on a backstop, equity investors can't expect the government to halt a tumble in the companies' shares, Representative Spencer Bachus, the senior Republican on the House Financial Services Committee, said yesterday.
Fannie Mae slid 14 percent yesterday to close at $13.20 in New York, down 67 percent this year. Freddie Mac declined 22 percent to close at $8, bringing its slump since the end of December to 77 percent.
Stockholders should be prepared for more ``difficulties,'' said Kevin Flanagan, a fixed-income strategist in Purchase, New York, for Morgan Stanley's individual investor clients. ``Continued woes, continued difficulties are the expectation, and this is going to take a while to play itself out.''
Fair Value
Freddie Mac owed $5.2 billion more than its assets were worth in the first quarter, making it insolvent under fair-value accounting rules. The fair value of Fannie Mae assets fell 66 percent to $12.2 billion, data provided by the Washington-based company show, and may be negative next quarter, former St. Louis Federal Reserve President William Poole said.
``Markets should be assured that the federal government will stand by Fannie Mae and Freddie Mac,'' Schumer, of New York, said in a statement yesterday. They ``are too important to go under,'' and Congress ``will act quickly'' if necessary, he said.
Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson, while noting the central role of Fannie Mae and Freddie Mac in ending the mortgage-finance crisis, yesterday refrained from endorsing any extra federal backing for the companies.
The firms ``are playing a very important and vital role right now,'' Paulson said in testimony to the House Financial Services Committee. They ``need to continue to play an important role in the future,'' he said.
`Expand' Capital
Fannie Mae and Freddie Mac ``are well capitalized now'' in ``a regulatory sense,'' Bernanke told the panel. Still, the companies, like all financial institutions, need ``to expand their capital bases,'' the Fed chief said.
The federal government can't afford to take over all of Fannie Mae's and Freddie Mac's operations, because such a move would more than double federal government debt outstanding and ``have disastrous consequences for the dollar,'' said Joshua Rosner, an analyst with Graham Fisher & Co. Inc. in New York.
Instead, the government could move the companies' combined $1.5 trillion investment portfolios into a separate limited liability corporation that would gradually liquidate the assets, Rosner said. Fannie Mae and Freddie Mac would still be able to support the U.S. housing market by packaging home loans into securities they guarantee.
The U.S. Treasury, which analysts said would play a central role in any rescue of the firms, currently has the authority to buy $2.25 billion in each of the companies' debt.
Great Depression
Congress created Fannie Mae during the Great Depression to revive the housing market and formed Freddie Mac in 1970. While a federal rescue is ``premature,'' Representative Paul Kanjorski said lawmakers and officials should prepare for more trouble.
``I don't think any of us could anticipate all the contingencies that can happen,'' said Kanjorski, a Democrat from Pennsylvania. ``We recognize that we're in very dangerous waters, very stormy. We should have contingencies.''
A taxpayer-funded rescue shouldn't be an option, said Representative Jeb Hensarling, chairman of the fiscally conservative Republican Study Committee.
``The government should not be supporting the system as is,'' said Hensarling, of Texas. Fannie Mae and Freddie Mac ``no longer helps the market in the way that it once did'' while posing ``a huge systemic risk'' to the economy, he said.
In a sign that bondholder confidence is more stable, the difference in yields between Fannie Mae's 10-year notes and 10- year U.S. Treasuries narrowed by 2.2 basis points yesterday from a four-month high of 89.9 basis points July 7. Freddie Mac's yield premium diminished 2 basis points, from a four-month high of 96 basis points this week.
To contact the reporter on this story: Dawn Kopecki in Washington at dkopecki@bloomberg.net
Read more...
U.S. Trade Gap Probably Widened in May on Record Oil Prices
By Bob Willis
July 11 (Bloomberg) -- The U.S. trade deficit widened in May as record oil prices pushed up the value of imports faster than American companies expanded their exports, economists said before reports today.
The gap grew 2.6 percent to $62.5 billion, according to the median forecast in a Bloomberg survey of 74 economists before a Commerce Department report, compared with a shortfall of $60.9 billion the prior month. Another report from the Labor Department may show the cost of imported goods increased in June for a sixth month, as commodity prices surged.
Rising prices for oil, metals and other imported commodities are boosting the trade deficit. Still, the dollar's six-year slide, coupled with stronger growth in Asia, Latin America and the Middle East, is spurring demand for equipment made by companies such as Caterpillar Inc., helping to keep the economy from contracting.
``It's the high energy prices that are causing the trade deficit to widen,'' said Jay Bryson, global economist at Wachovia Corp. in Charlotte, North Carolina. ``Beneath the surface, our sense is that trade will contribute positively to growth again in the second quarter.''
The Commerce Department will issue the report at 8:30 a.m. in Washington. Economists' estimates of the deficit ranged from $59.5 billion to $65 billion.
Another report at the same time from the Labor Department may show import prices rose 2 percent last month, according to a Bloomberg survey of economists. That would bring the year-over- year gain to 18.6 percent, and compares with a 2.3 percent rise in May from the prior month.
Consumer Confidence
Gasoline over $4 a gallon helped push consumer confidence in July to near-three-decade lows, economists surveyed said before another report today. The University of Michigan/Reuters preliminary confidence index for July probably came in at 55.5, the lowest since 1989, from 56.4 at the end of June. The survey will be released at 10 a.m. New York time.
The economy probably grew 1.5 percent in the second quarter, as growing exports helped counter weakness in manufacturing and construction, according to a Bloomberg survey of economists taken the first week of July. The economy grew 1 percent in the first quarter, when net exports contributed 0.8 percentage point to the expansion.
Tax Rebates
About $78 billion in tax rebates probably gave consumer spending a boost in the second quarter, helping to spur purchases of foreign televisions and cars. Economists surveyed by Bloomberg forecast consumer spending rose 2 percent in the April-to-June period, compared with a 1.1 percent gain in the first quarter.
Faster growth overseas is spurring exports of U.S.-made goods, ranging from Boeing Co. aircraft, to mining and construction equipment, steel and grains. China's economy grew 10.6 percent in the first quarter from a year earlier. India's expanded 8.8 percent, Argentina's 8.4 percent and Brazil's 5.8 percent.
In response to growing demand from China, Caterpillar, the world's biggest maker of earthmoving equipment, will build a factory in eastern China to make light hydraulic excavators for the world's largest earthmover market after the U.S.
``Our customers in China are demanding a greater variety of construction equipment,'' Mary Bell, Caterpillar's global vice president for construction machines, said in a statement June 30.
Dollar's Decline
U.S. exporters are also getting a boost from the dollar, which was down 8.3 percent against a trade-weighted basket of currencies of major trading partners in the 12 months ended in May. The dollar is down by about 27 percent since February 2002, and that has helped push up the price of commodities.
Charlotte, North Carolina-based Nucor Corp., the largest U.S.-based steelmaker by market value, is working to keep up with surging demand from emerging economies, many of them profiting from gains in prices of oil and other commodities, Chief Executive Officer Dan DiMicco said on June 25.
``Because of the global shortage of steel, we have a strong ability to export,'' DiMicco said in an interview in New York. Demand for steel and other commodities is in a ``30-plus-year bull market,'' he said, as emerging economies including China and India expand infrastructure.
Bloomberg Survey
================================================================
Trade ImportU of Mich
Balance Prices Conf.
$ Blns MOM% Index
================================================================
Date of Release 07/11 07/11 07/11
Observation Period May June July P
----------------------------------------------------------------
Median -62.5 2.0% 55.5
Average -62.6 2.0% 55.3
High Forecast -59.5 3.0% 57.0
Low Forecast -65.0 0.6% 51.0
Number of Participants 74 52 60
Previous -60.9 2.3% 56.4
----------------------------------------------------------------
4CAST Ltd. -63.9 2.5% 54.5
Action Economics -63.5 2.4% 55.0
AIG Investments -63.0 --- 57.0
Aletti Gestielle SGR -63.3 --- 55.0
Argus Research Corp. -62.5 0.6% ---
Banc of America Securitie -62.1 --- ---
Bank of Tokyo- Mitsubishi -62.6 1.6% 55.0
Bantleon Bank AG --- 2.1% 55.0
Barclays Capital -63.5 2.3% 53.5
BBVA -62.0 1.6% 51.0
BMO Capital Markets -61.9 1.7% 55.5
BNP Paribas -62.4 1.5% 55.5
Briefing.com -61.0 --- 55.0
Calyon -61.5 --- 55.5
CFC Group -61.7 --- 57.0
CIBC World Markets -63.0 --- ---
Citi -65.0 2.4% 56.0
ClearView Economics -61.5 --- ---
Credit Suisse -62.7 1.5% 56.0
Daiwa Securities America -61.5 --- 55.0
DekaBank -62.0 2.1% 55.0
Desjardins Group -64.1 1.5% 53.0
Deutsche Bank Securities -61.0 2.5% 56.0
Deutsche Postbank AG -62.0 2.0% 56.0
Dresdner Kleinwort -64.3 2.2% 55.0
DZ Bank -61.5 1.9% 54.5
First Trust Advisors -62.1 1.8% 56.0
Fortis -63.2 --- 56.0
GCI Capital --- 2.0% ---
Global Insight Inc. -62.8 --- 56.0
Goldman, Sachs & Co. -61.5 --- ---
H&R Block Financial Advis -62.0 1.8% ---
Helaba -59.5 1.5% 54.0
High Frequency Economics -63.0 3.0% 53.0
Horizon Investments -63.0 2.2% 54.0
HSBC Markets -63.5 1.5% 56.0
IDEAglobal -61.5 2.0% 55.5
Informa Global Markets -64.3 1.5% 56.0
ING Financial Markets -62.5 --- 56.0
Insight Economics -63.0 2.5% 55.0
Intesa-SanPaulo -62.5 2.3% 55.0
J.P. Morgan Chase -61.1 1.9% 56.0
Janney Montgomery Scott L -62.0 2.1% ---
JPMorgan Private Client -60.5 --- ---
Landesbank Berlin -63.0 1.6% 53.0
Lehman Brothers -62.5 2.2% 55.0
Lloyds TSB -62.0 2.0% 56.0
Maria Fiorini Ramirez Inc -63.0 2.8% ---
Merrill Lynch -64.4 1.0% 56.0
Moody's Economy.com -61.7 1.9% 57.0
Morgan Keegan & Co. -62.5 1.6% ---
Morgan Stanley & Co. -64.0 --- ---
National Bank Financial -64.0 --- 57.0
National City Corporation -62.9 1.4% 56.4
Natixis -64.6 2.5% 54.0
Newedge -61.8 --- 55.2
Nomura Securities Intl. -62.0 --- ---
Nord/LB -63.0 3.0% 57.0
PNC Bank -64.0 --- ---
RBS Greenwich Capital -64.0 --- 55.0
Ried, Thunberg & Co. -63.5 2.8% 56.0
Schneider Trading Associa -61.2 2.1% 53.8
Scotia Capital -63.5 2.1% ---
Societe Generale -62.5 --- 56.0
Stone & McCarthy Research -63.2 1.5% 55.5
TD Securities -62.0 --- 55.0
Thomson Financial/IFR -62.3 1.8% 56.0
Tullett Prebon -62.7 --- 55.5
UBS Securities LLC -63.5 2.0% 56.0
Unicredit MIB -62.5 1.5% 54.0
University of Maryland -60.9 0.7% 55.5
Wachovia Corp. -62.5 --- ---
Wells Fargo & Co. -63.5 2.4% 54.0
WestLB AG -62.0 2.0% 56.0
Westpac Banking Co. -62.5 2.0% 55.0
Wrightson Associates -63.5 2.8% 56.0
================================================================
To contact the reporters on this story: Bob Willis in Washington at bwillis@bloomberg.net
Read more...
Deflation May Return to World Economy, Say SocGen, Deutsche
By Simon Kennedy
July 11 (Bloomberg) -- Societe Generale SA's Albert Edwards, who predicted the Asian currency crisis a decade ago, is warning central bankers that deflation may soon overtake surging prices as the biggest risk to the world economy.
``Inflation fears are overdone and the deflation threat could reappear, prompted by a global recession and collapse in the commodity bubble,'' London-based Edwards, 47, said in an interview. He has been ranked Europe's top global strategist for the last seven years by the Thomson Extel survey of investors.
While his forecast that prices in the U.S. and Europe will be falling by the end of 2009 is dismissed by most economists, it echoes last week's acknowledgement from the Bank for International Settlements that a ``greater'' global slowdown risks triggering deflation. As central banks from Mumbai to Frankfurt raise interest rates, policy makers could yet be forced into a U-turn, say economists at Deutsche Bank AG.
``Far-fetched as it may sound at present, fears of deflation could return and interest rates could drop again toward the lows reached earlier this decade,'' said economists Peter Hooper, Thomas Mayer and Torsten Slok in a July 7 report. While it's not part of their central forecast, a period of declining prices is more likely than runaway inflation, they say.
Just over four years ago, the Fed's benchmark interest rate was at a 45-year low of 1 percent as it fought the last deflation scare. Japan's escape from a decade of declining prices remains fragile with prices excluding those for food and energy dropping 0.1 percent in May.
Deflation Worry
``The fact that people are worrying about inflation now doesn't mean they won't be worrying about deflation in a year,'' said Edwards.
Most economists are still raising their forecasts for consumer prices as food and fuel costs set records. Larry Kantor, head of research at Barclays Capital in New York, estimates global inflation of 5 percent this year, the fastest pace since 1983.
Central bankers are ratcheting up their inflation-fighting rhetoric. European Central Bank President Jean-Claude Trichet said July 9 that he sees the ``first signs'' of inflation pushing up wages. Federal Reserve Bank of Richmond President Jeffrey Lacker said the previous day the central bank should consider acting to limit inflation as the threat of a steep economic downturn fades.
Long Way
The ECB already lifted its key rate last week to a seven-year high of 4.25 percent and the Fed left its main rate at 2 percent on June 25 amid ``upside risks to inflation.'' Merrill Lynch & Co. economists predict 78 percent of the central banks they monitor will increase rates.
``We're a long way from deflation,'' said Dario Perkins, an economist at ABN Amro Holding NV. ``We have to get through the inflation problem first.''
Edwards counters that such concerns are exaggerated because weaker global growth will prevent workers from winning pay increases and companies from raising prices. That will depress so- called core inflation, which strips out oil and food prices, he says.
``The market would then wonder why central bankers spent so long jumping at inflationary shadows,'' said Edwards, who in May recommended investors cut their exposure to stocks and boost holdings of government bonds. In the U.S., core prices rose 2.3 percent in May, less than the 4.2 percent headline advance.
Inflation Bout
The current bout of global inflation may itself contain the key to a spiral of falling prices, says Mark Cliffe, chief economist at ING Financial Markets in London.
A jump in the oil price to $200 per barrel could generate a global slump, sparking a plunge in the price of crude and ``outright deflation in the U.S.,'' he says. Oil cost $136 a barrel yesterday, down from a record $145.85 on July 3.
At the Basel, Switzerland-based BIS, the bank for central banks, the concern is the present ``global slowdown could be much greater and longer-lasting than would be required to keep inflation under control,'' it said June 30. ``Over time, this could potentially even lead to deflation. Such an outcome, even if unlikely, cannot be ruled out entirely.''
David Owen, chief economist at Dresdner Kleinwort in London, says deflation may be some way off yet, but may develop in three to five years if the world economy remains sluggish.
``Whatever is happening with inflation at the moment, the outlook for growth is pretty grim,'' said Owen. ``You can build a fairly convincing case that deflation will return to the agenda.''
To contact the reporter on this story: Simon Kennedy in Paris at skennedy4@bloomberg.net.
Read more...
July 11 (Bloomberg) -- Societe Generale SA's Albert Edwards, who predicted the Asian currency crisis a decade ago, is warning central bankers that deflation may soon overtake surging prices as the biggest risk to the world economy.
``Inflation fears are overdone and the deflation threat could reappear, prompted by a global recession and collapse in the commodity bubble,'' London-based Edwards, 47, said in an interview. He has been ranked Europe's top global strategist for the last seven years by the Thomson Extel survey of investors.
While his forecast that prices in the U.S. and Europe will be falling by the end of 2009 is dismissed by most economists, it echoes last week's acknowledgement from the Bank for International Settlements that a ``greater'' global slowdown risks triggering deflation. As central banks from Mumbai to Frankfurt raise interest rates, policy makers could yet be forced into a U-turn, say economists at Deutsche Bank AG.
``Far-fetched as it may sound at present, fears of deflation could return and interest rates could drop again toward the lows reached earlier this decade,'' said economists Peter Hooper, Thomas Mayer and Torsten Slok in a July 7 report. While it's not part of their central forecast, a period of declining prices is more likely than runaway inflation, they say.
Just over four years ago, the Fed's benchmark interest rate was at a 45-year low of 1 percent as it fought the last deflation scare. Japan's escape from a decade of declining prices remains fragile with prices excluding those for food and energy dropping 0.1 percent in May.
Deflation Worry
``The fact that people are worrying about inflation now doesn't mean they won't be worrying about deflation in a year,'' said Edwards.
Most economists are still raising their forecasts for consumer prices as food and fuel costs set records. Larry Kantor, head of research at Barclays Capital in New York, estimates global inflation of 5 percent this year, the fastest pace since 1983.
Central bankers are ratcheting up their inflation-fighting rhetoric. European Central Bank President Jean-Claude Trichet said July 9 that he sees the ``first signs'' of inflation pushing up wages. Federal Reserve Bank of Richmond President Jeffrey Lacker said the previous day the central bank should consider acting to limit inflation as the threat of a steep economic downturn fades.
Long Way
The ECB already lifted its key rate last week to a seven-year high of 4.25 percent and the Fed left its main rate at 2 percent on June 25 amid ``upside risks to inflation.'' Merrill Lynch & Co. economists predict 78 percent of the central banks they monitor will increase rates.
``We're a long way from deflation,'' said Dario Perkins, an economist at ABN Amro Holding NV. ``We have to get through the inflation problem first.''
Edwards counters that such concerns are exaggerated because weaker global growth will prevent workers from winning pay increases and companies from raising prices. That will depress so- called core inflation, which strips out oil and food prices, he says.
``The market would then wonder why central bankers spent so long jumping at inflationary shadows,'' said Edwards, who in May recommended investors cut their exposure to stocks and boost holdings of government bonds. In the U.S., core prices rose 2.3 percent in May, less than the 4.2 percent headline advance.
Inflation Bout
The current bout of global inflation may itself contain the key to a spiral of falling prices, says Mark Cliffe, chief economist at ING Financial Markets in London.
A jump in the oil price to $200 per barrel could generate a global slump, sparking a plunge in the price of crude and ``outright deflation in the U.S.,'' he says. Oil cost $136 a barrel yesterday, down from a record $145.85 on July 3.
At the Basel, Switzerland-based BIS, the bank for central banks, the concern is the present ``global slowdown could be much greater and longer-lasting than would be required to keep inflation under control,'' it said June 30. ``Over time, this could potentially even lead to deflation. Such an outcome, even if unlikely, cannot be ruled out entirely.''
David Owen, chief economist at Dresdner Kleinwort in London, says deflation may be some way off yet, but may develop in three to five years if the world economy remains sluggish.
``Whatever is happening with inflation at the moment, the outlook for growth is pretty grim,'' said Owen. ``You can build a fairly convincing case that deflation will return to the agenda.''
To contact the reporter on this story: Simon Kennedy in Paris at skennedy4@bloomberg.net.
Read more...
Deflation May Return to World Economy, Say SocGen, Deutsche
By Simon Kennedy
July 11 (Bloomberg) -- Societe Generale SA's Albert Edwards, who predicted the Asian currency crisis a decade ago, is warning central bankers that deflation may soon overtake surging prices as the biggest risk to the world economy.
``Inflation fears are overdone and the deflation threat could reappear, prompted by a global recession and collapse in the commodity bubble,'' London-based Edwards, 47, said in an interview. He has been ranked Europe's top global strategist for the last seven years by the Thomson Extel survey of investors.
While his forecast that prices in the U.S. and Europe will be falling by the end of 2009 is dismissed by most economists, it echoes last week's acknowledgement from the Bank for International Settlements that a ``greater'' global slowdown risks triggering deflation. As central banks from Mumbai to Frankfurt raise interest rates, policy makers could yet be forced into a U-turn, say economists at Deutsche Bank AG.
``Far-fetched as it may sound at present, fears of deflation could return and interest rates could drop again toward the lows reached earlier this decade,'' said economists Peter Hooper, Thomas Mayer and Torsten Slok in a July 7 report. While it's not part of their central forecast, a period of declining prices is more likely than runaway inflation, they say.
Just over four years ago, the Fed's benchmark interest rate was at a 45-year low of 1 percent as it fought the last deflation scare. Japan's escape from a decade of declining prices remains fragile with prices excluding those for food and energy dropping 0.1 percent in May.
Deflation Worry
``The fact that people are worrying about inflation now doesn't mean they won't be worrying about deflation in a year,'' said Edwards.
Most economists are still raising their forecasts for consumer prices as food and fuel costs set records. Larry Kantor, head of research at Barclays Capital in New York, estimates global inflation of 5 percent this year, the fastest pace since 1983.
Central bankers are ratcheting up their inflation-fighting rhetoric. European Central Bank President Jean-Claude Trichet said July 9 that he sees the ``first signs'' of inflation pushing up wages. Federal Reserve Bank of Richmond President Jeffrey Lacker said the previous day the central bank should consider acting to limit inflation as the threat of a steep economic downturn fades.
Long Way
The ECB already lifted its key rate last week to a seven-year high of 4.25 percent and the Fed left its main rate at 2 percent on June 25 amid ``upside risks to inflation.'' Merrill Lynch & Co. economists predict 78 percent of the central banks they monitor will increase rates.
``We're a long way from deflation,'' said Dario Perkins, an economist at ABN Amro Holding NV. ``We have to get through the inflation problem first.''
Edwards counters that such concerns are exaggerated because weaker global growth will prevent workers from winning pay increases and companies from raising prices. That will depress so- called core inflation, which strips out oil and food prices, he says.
``The market would then wonder why central bankers spent so long jumping at inflationary shadows,'' said Edwards, who in May recommended investors cut their exposure to stocks and boost holdings of government bonds. In the U.S., core prices rose 2.3 percent in May, less than the 4.2 percent headline advance.
Inflation Bout
The current bout of global inflation may itself contain the key to a spiral of falling prices, says Mark Cliffe, chief economist at ING Financial Markets in London.
A jump in the oil price to $200 per barrel could generate a global slump, sparking a plunge in the price of crude and ``outright deflation in the U.S.,'' he says. Oil cost $136 a barrel yesterday, down from a record $145.85 on July 3.
At the Basel, Switzerland-based BIS, the bank for central banks, the concern is the present ``global slowdown could be much greater and longer-lasting than would be required to keep inflation under control,'' it said June 30. ``Over time, this could potentially even lead to deflation. Such an outcome, even if unlikely, cannot be ruled out entirely.''
David Owen, chief economist at Dresdner Kleinwort in London, says deflation may be some way off yet, but may develop in three to five years if the world economy remains sluggish.
``Whatever is happening with inflation at the moment, the outlook for growth is pretty grim,'' said Owen. ``You can build a fairly convincing case that deflation will return to the agenda.''
To contact the reporter on this story: Simon Kennedy in Paris at skennedy4@bloomberg.net.
Read more...
July 11 (Bloomberg) -- Societe Generale SA's Albert Edwards, who predicted the Asian currency crisis a decade ago, is warning central bankers that deflation may soon overtake surging prices as the biggest risk to the world economy.
``Inflation fears are overdone and the deflation threat could reappear, prompted by a global recession and collapse in the commodity bubble,'' London-based Edwards, 47, said in an interview. He has been ranked Europe's top global strategist for the last seven years by the Thomson Extel survey of investors.
While his forecast that prices in the U.S. and Europe will be falling by the end of 2009 is dismissed by most economists, it echoes last week's acknowledgement from the Bank for International Settlements that a ``greater'' global slowdown risks triggering deflation. As central banks from Mumbai to Frankfurt raise interest rates, policy makers could yet be forced into a U-turn, say economists at Deutsche Bank AG.
``Far-fetched as it may sound at present, fears of deflation could return and interest rates could drop again toward the lows reached earlier this decade,'' said economists Peter Hooper, Thomas Mayer and Torsten Slok in a July 7 report. While it's not part of their central forecast, a period of declining prices is more likely than runaway inflation, they say.
Just over four years ago, the Fed's benchmark interest rate was at a 45-year low of 1 percent as it fought the last deflation scare. Japan's escape from a decade of declining prices remains fragile with prices excluding those for food and energy dropping 0.1 percent in May.
Deflation Worry
``The fact that people are worrying about inflation now doesn't mean they won't be worrying about deflation in a year,'' said Edwards.
Most economists are still raising their forecasts for consumer prices as food and fuel costs set records. Larry Kantor, head of research at Barclays Capital in New York, estimates global inflation of 5 percent this year, the fastest pace since 1983.
Central bankers are ratcheting up their inflation-fighting rhetoric. European Central Bank President Jean-Claude Trichet said July 9 that he sees the ``first signs'' of inflation pushing up wages. Federal Reserve Bank of Richmond President Jeffrey Lacker said the previous day the central bank should consider acting to limit inflation as the threat of a steep economic downturn fades.
Long Way
The ECB already lifted its key rate last week to a seven-year high of 4.25 percent and the Fed left its main rate at 2 percent on June 25 amid ``upside risks to inflation.'' Merrill Lynch & Co. economists predict 78 percent of the central banks they monitor will increase rates.
``We're a long way from deflation,'' said Dario Perkins, an economist at ABN Amro Holding NV. ``We have to get through the inflation problem first.''
Edwards counters that such concerns are exaggerated because weaker global growth will prevent workers from winning pay increases and companies from raising prices. That will depress so- called core inflation, which strips out oil and food prices, he says.
``The market would then wonder why central bankers spent so long jumping at inflationary shadows,'' said Edwards, who in May recommended investors cut their exposure to stocks and boost holdings of government bonds. In the U.S., core prices rose 2.3 percent in May, less than the 4.2 percent headline advance.
Inflation Bout
The current bout of global inflation may itself contain the key to a spiral of falling prices, says Mark Cliffe, chief economist at ING Financial Markets in London.
A jump in the oil price to $200 per barrel could generate a global slump, sparking a plunge in the price of crude and ``outright deflation in the U.S.,'' he says. Oil cost $136 a barrel yesterday, down from a record $145.85 on July 3.
At the Basel, Switzerland-based BIS, the bank for central banks, the concern is the present ``global slowdown could be much greater and longer-lasting than would be required to keep inflation under control,'' it said June 30. ``Over time, this could potentially even lead to deflation. Such an outcome, even if unlikely, cannot be ruled out entirely.''
David Owen, chief economist at Dresdner Kleinwort in London, says deflation may be some way off yet, but may develop in three to five years if the world economy remains sluggish.
``Whatever is happening with inflation at the moment, the outlook for growth is pretty grim,'' said Owen. ``You can build a fairly convincing case that deflation will return to the agenda.''
To contact the reporter on this story: Simon Kennedy in Paris at skennedy4@bloomberg.net.
Read more...
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