By Marianne Stigset
July 16 (Bloomberg) -- Gold was little changed in London, paring earlier losses as U.S. consumer prices jumped the most since 2005, boosting the appeal of the metal as a hedge against inflation.
Prices paid by consumers gained on higher costs for fuel and food, the U.S. Labor Department said today. The cost of living soared 1.1 percent in June, after a 0.6 percent gain in May. Federal Reserve Chairman Ben S. Bernanke yesterday said risks to growth and inflation have risen.
``Those figures overall were supportive for gold,'' Narayan Gopalakrishnan, a Geneva-based trader at MKS Finance, one of Switzerland's four bullion refiners, said by phone from Geneva. ``We're not seeing a consolidation as much as a brief respite,''
Gold for immediate delivery traded 15 cents lower at $977.35 an ounce as of 2:39 p.m. in London, after earlier declining as much as 0.8 percent. Futures for August delivery dropped 60 cents, or 0.1 percent, to $978.11 an ounce on the Comex division of the New York Mercantile Exchange.
Harmony Gold Mining Co. and Gold Fields Ltd.'s mining operations in South Africa's Free State province were closed by a one-day strike over power prices. South Africa is the world's the second-biggest gold producer.
ETF Securities Ltd. said investors added $265 million to its exchange-traded gold products yesterday. U.S. financial shares fell to the lowest in a decade yesterday on speculation a shortage of capital will cause some banks to collapse.
``Gold is a safe-haven asset and the only asset class that is not someone else's liability and this is why it is thriving in the current environment,'' Mark O'Byrne, managing director of brokerage Gold and Silver Investments Ltd., said in a report.
Mining Fixing
Gold fell to $974 an ounce in the morning ``fixing'' in London, used by some mining companies to sell production, from $986 at the previous afternoon fixing.
Silver for immediate delivery rose 10 cents, or 0.5 percent, to $19.02 an ounce in London.
Hochschild Mining Ltd., Peru's second-largest silver producer, said second-quarter output rose 24 percent. The company remains ``very bullish'' on gold and silver prices as investors seek refuge during ``difficult economic times,'' Chief Executive Officer Miguel Aramburu said.
Among other metals for immediate delivery, platinum dropped $29.50, or 1.5 percent, to $1,950 an ounce. Palladium declined $8.50, or 1.9 percent, to $436.75 an ounce.
To contact the reporter on this story: Marianne Stigset in Oslo at mstigset@bloomberg.net
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Wednesday, July 16, 2008
U.S.: Consumer Prices Rise Much More than Expected in June
Daily Forex Fundamentals | Written by TD Bank Financial Group | Jul 16 08 14:07 GMT |
* U.S. headline CPI was much higher than expected in June, rising by 1.1% M/M, bringing the yearly inflation rate to 5.0% Y/Y.
* Core CPI was also higher than expected, rising by 0.3% M/M, with the annual rate of core price inflation climbing to 2.4% Y/Y.
* The report was all-round ugly, with the extent of the price increases being fairly broadly-based.
U.S. consumer price inflation rose by a very strong 1.1% M/M in June. This was much higher than the 0.7% M/M increase expected by the markets and was the biggest monthly increase in this indicator since September 2005. On an annual basis, consumer price are up 5.0% Y/Y, again well above the market consensus for a more modest 4.5% Y/Y print. This is the highest print on headline inflation since February 1991. Core inflation was also somewhat stronger than expected on the month, rising by 0.3% M/M, compared to market expectations for a 0.2% M/M rise. On a year-ago basis, core consumer prices are now 2.4% Y/Y, again higher than the 2.3% Y/Y expected by the markets. The 3-month annualised trend for core inflation now stands at 2.5% (up from 1.8% in May), while the 6-month annualised trend has also risen, climbing to 2.3% in June from 2.1% in May.
The details of the report were fairly ugly, with most categories posting price gains on the month. In addition to the strong gains in energy prices, which rose by 6.6% M/M (following the 4.4% M/M increase in May), there were strong gains in the price of food (up 0.8% M/M) and housing (up 0.5% M/M). Moreover, the service side was just as strong, with a 0.5% M/M increase during the month. As expected, much of the gains in energy prices were on account of the astounding 10.1% M/M gain in fuel prices, which is almost double the 5.7% M/M gain the month earlier.
This report gave further justification to the Fed's concern about the elevated consumer price pressures in the U.S., even in an environment of sluggish domestic demand. However, the tone from the recent remarks by Chairman Bernanke in his testimony before Congress suggests that the Fed is unlikely to engage in hiking rates in the near-term. Nonetheless, this report certainly gives some credence to the market consensus that the next move by the Fed will be a hike – a view we have held for some time now, though we do not expect any hikes until well into 2009.
TD Bank Financial Group
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* U.S. headline CPI was much higher than expected in June, rising by 1.1% M/M, bringing the yearly inflation rate to 5.0% Y/Y.
* Core CPI was also higher than expected, rising by 0.3% M/M, with the annual rate of core price inflation climbing to 2.4% Y/Y.
* The report was all-round ugly, with the extent of the price increases being fairly broadly-based.
U.S. consumer price inflation rose by a very strong 1.1% M/M in June. This was much higher than the 0.7% M/M increase expected by the markets and was the biggest monthly increase in this indicator since September 2005. On an annual basis, consumer price are up 5.0% Y/Y, again well above the market consensus for a more modest 4.5% Y/Y print. This is the highest print on headline inflation since February 1991. Core inflation was also somewhat stronger than expected on the month, rising by 0.3% M/M, compared to market expectations for a 0.2% M/M rise. On a year-ago basis, core consumer prices are now 2.4% Y/Y, again higher than the 2.3% Y/Y expected by the markets. The 3-month annualised trend for core inflation now stands at 2.5% (up from 1.8% in May), while the 6-month annualised trend has also risen, climbing to 2.3% in June from 2.1% in May.
The details of the report were fairly ugly, with most categories posting price gains on the month. In addition to the strong gains in energy prices, which rose by 6.6% M/M (following the 4.4% M/M increase in May), there were strong gains in the price of food (up 0.8% M/M) and housing (up 0.5% M/M). Moreover, the service side was just as strong, with a 0.5% M/M increase during the month. As expected, much of the gains in energy prices were on account of the astounding 10.1% M/M gain in fuel prices, which is almost double the 5.7% M/M gain the month earlier.
This report gave further justification to the Fed's concern about the elevated consumer price pressures in the U.S., even in an environment of sluggish domestic demand. However, the tone from the recent remarks by Chairman Bernanke in his testimony before Congress suggests that the Fed is unlikely to engage in hiking rates in the near-term. Nonetheless, this report certainly gives some credence to the market consensus that the next move by the Fed will be a hike – a view we have held for some time now, though we do not expect any hikes until well into 2009.
TD Bank Financial Group
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Canadian Manufacturing Sales Jump
Daily Forex Fundamentals | Written by RBC Financial Group | Jul 16 08 13:57 GMT |
Manufacturing sales jumped another 2.7% in May, once again trouncing expectations for a more modest a 0.5% rise. This marked the strongest gain since March 2007. Sales were 1.3% slower than a year earlier, an improvement from the 5.5% year-over-year decline in April. On a volume basis, eliminating the impact of price changes, sales rose at a more moderate 0.2%, building on April's solid 1.1% gain.
The manufacturing report showed broad-based strength with 16 of 21 sub-sectors posting gains in May. The big increase was in the petroleum and coal products industry - sales rose 9.2% - accounting for about one-half the monthly rise. Higher prices were largely responsible for the industry's strong gain. Primary metals sales also rose strongly, up 3.1%. The motor vehicle sector saw sales slip marginally, meaning that sales excluding motor vehicles, parts and accessories posted a 3.1% rise. Inventories posted a solid 1.3% increase, the third consecutive monthly rise, due in large part, to price increases.
After a tough first quarter, manufacturing sales picked up pace in April and May, although, on a volumes basis, they posted a marginal 0.9% annualized decline relative to the first quarter, an improvement from the solid 12.2% annualized drop recorded in the period from January to March.
The firming in manufacturing activity in the second quarter is consistent with the Bank of Canada's view that the domestic economy is continuing to "expand at a solid pace". More worrying is the outlook for inflation with the Bank highlighting the risk that the inflation rate may climb above 4% in early 2009 on the back of elevated commodity prices.
While the domestic economy looks poised to support a rebound in GDP in the second quarter, the merchandise trade numbers point to net exports acting as a drag on the pace of growth. On balance, Canada's economy is set to continue to grow at a sub-potential pace in the quarter. Against a backdrop of an economy that is growing at rates that are below potential but with upside risks to the inflation outlook, the Bank of Canada is likely to stay to the sidelines, holding the policy rate at 3%.
RBC Financial Group
http://www.rbc.co
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Manufacturing sales jumped another 2.7% in May, once again trouncing expectations for a more modest a 0.5% rise. This marked the strongest gain since March 2007. Sales were 1.3% slower than a year earlier, an improvement from the 5.5% year-over-year decline in April. On a volume basis, eliminating the impact of price changes, sales rose at a more moderate 0.2%, building on April's solid 1.1% gain.
The manufacturing report showed broad-based strength with 16 of 21 sub-sectors posting gains in May. The big increase was in the petroleum and coal products industry - sales rose 9.2% - accounting for about one-half the monthly rise. Higher prices were largely responsible for the industry's strong gain. Primary metals sales also rose strongly, up 3.1%. The motor vehicle sector saw sales slip marginally, meaning that sales excluding motor vehicles, parts and accessories posted a 3.1% rise. Inventories posted a solid 1.3% increase, the third consecutive monthly rise, due in large part, to price increases.
After a tough first quarter, manufacturing sales picked up pace in April and May, although, on a volumes basis, they posted a marginal 0.9% annualized decline relative to the first quarter, an improvement from the solid 12.2% annualized drop recorded in the period from January to March.
The firming in manufacturing activity in the second quarter is consistent with the Bank of Canada's view that the domestic economy is continuing to "expand at a solid pace". More worrying is the outlook for inflation with the Bank highlighting the risk that the inflation rate may climb above 4% in early 2009 on the back of elevated commodity prices.
While the domestic economy looks poised to support a rebound in GDP in the second quarter, the merchandise trade numbers point to net exports acting as a drag on the pace of growth. On balance, Canada's economy is set to continue to grow at a sub-potential pace in the quarter. Against a backdrop of an economy that is growing at rates that are below potential but with upside risks to the inflation outlook, the Bank of Canada is likely to stay to the sidelines, holding the policy rate at 3%.
RBC Financial Group
http://www.rbc.co
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Rabobank Introduces Equity Indices Linked to Food, Agriculture
By Feiwen Rong
July 16 (Bloomberg) -- Rabobank International, a unit of Rabobank Group, introduced two equity indices to tap investor interest in food and agriculture at a time when underlying commodities may not repeat the returns of the past two years.
Each of the Rabobank Fastracks Indices, one global and one Asia Pacific, consists of 20 agriculture companies from fertilizer makers to machinery manufacturers, the company said today in a statement. The index members have been weighted according to their relative importance in the business cycle, liquidity and market capitalization, it said.
``Agriculture, more than any other business, is cyclical,'' Brady Sidwell, analyst at Rabobank, said today at a press conference. ``We are not saying things will top and fall but the boom we've seen in the past 18-24 months, that type of growth, is not going to continue.''
Investors worldwide are buying commodity-linked indexes and futures, seeking to beat stock and bond returns as concern about raw material shortages push oil and corn to records. Within commodities, the Rogers International Commodity Agriculture Index returned a total of 40 percent in the past two years.
Rabobank identified five food and agriculture sectors: protein, food processing, energy crops, agriculture inputs and machinery and equipment. The indices will be rebalanced every six months or one year reflecting the bank's outlook.
The indices will help investors sidestep growing government anxiety about speculation in commodities markets, Sidwell said.
Top Five Holdings in Rabobank's Fastracks Global Composition
Monsanto Co.
Potash Corp. of Saskatchewan
Mosaic Co.
Archer-Daniels-Midland Co.
Terra Industries Inc.
Top Five Holdings in Rabobank's Fastracks Asia-Pacific
Composition
Nufarm Ltd.
Sinofert Holdings Ltd.
China Bluechemical Ltd.
Nissin Food Products Co.
Kikkoman Corp.
To contact the reporters on this story: Feiwen Rong in Singapore at frong2@bloomberg.net
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July 16 (Bloomberg) -- Rabobank International, a unit of Rabobank Group, introduced two equity indices to tap investor interest in food and agriculture at a time when underlying commodities may not repeat the returns of the past two years.
Each of the Rabobank Fastracks Indices, one global and one Asia Pacific, consists of 20 agriculture companies from fertilizer makers to machinery manufacturers, the company said today in a statement. The index members have been weighted according to their relative importance in the business cycle, liquidity and market capitalization, it said.
``Agriculture, more than any other business, is cyclical,'' Brady Sidwell, analyst at Rabobank, said today at a press conference. ``We are not saying things will top and fall but the boom we've seen in the past 18-24 months, that type of growth, is not going to continue.''
Investors worldwide are buying commodity-linked indexes and futures, seeking to beat stock and bond returns as concern about raw material shortages push oil and corn to records. Within commodities, the Rogers International Commodity Agriculture Index returned a total of 40 percent in the past two years.
Rabobank identified five food and agriculture sectors: protein, food processing, energy crops, agriculture inputs and machinery and equipment. The indices will be rebalanced every six months or one year reflecting the bank's outlook.
The indices will help investors sidestep growing government anxiety about speculation in commodities markets, Sidwell said.
Top Five Holdings in Rabobank's Fastracks Global Composition
Monsanto Co.
Potash Corp. of Saskatchewan
Mosaic Co.
Archer-Daniels-Midland Co.
Terra Industries Inc.
Top Five Holdings in Rabobank's Fastracks Asia-Pacific
Composition
Nufarm Ltd.
Sinofert Holdings Ltd.
China Bluechemical Ltd.
Nissin Food Products Co.
Kikkoman Corp.
To contact the reporters on this story: Feiwen Rong in Singapore at frong2@bloomberg.net
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U.S. Stocks Gain After Wells Fargo Beats Estimates, Oil Drops
By Lynn Thomasson
July 16 (Bloomberg) -- U.S. stocks rose, helping the Standard & Poor's 500 Index rebound from the lowest level since 2005, after profit at Wells Fargo & Co. topped analysts' estimates and a drop in oil eased concern about faster inflation.
Wells Fargo, the U.S. West Coast bank that lost almost a third of its value this year, rallied the most since at least 1980 after also boosting its dividend 10 percent. United Parcel Service Inc. and Target Corp. climbed as a two-day retreat in crude prices overshadowed a government report showing the biggest gain in consumer prices since 2005.
The S&P 500 added 7.98, or 0.7 percent, to 1,222.89 at 10:02 a.m. in New York. The Dow Jones Industrial Average climbed 70.42, or 0.6 percent, to 11,032.96, while the Nasdaq Composite Index rose 16.47, or 0.7 percent, to 2,232.18. Almost two stocks rose for each that fell on the New York Stock Exchange.
``This quarter was fairly good'' for earnings, said Eric Green, Cherry Hill, New Jersey-based director of research and senior money manager at Penn Capital Management, which oversees about $4.5 billion. ``This is a buying opportunity if you have a 12-month time horizon.''
Profits have slipped only 0.8 percent on average for the 26 companies in the S&P 500 that have reported second-quarter results so far, according to data compiled by Bloomberg. Earnings for all companies in the index are forecast to drop 14 percent on average, according to an analyst survey published July 11. The quarter is expected to cap a full year of declining earnings, the longest profit slump in six years.
Almost $14 Trillion Lost
About $14 trillion has been wiped off the value of global equities since October, with the S&P 500 falling into a bear market last week, as $417 billion in credit-related losses prolong the global economy's slump and rising commodity prices stoke inflation.
Among the 23 industrialized nations in the MSCI World Index, only Canada averted a bear-market decline of 20 percent. Financial institutions and consumer companies dependent on discretionary spending led the world's retreat in 2008, losing 31 percent and 22 percent.
Wells Fargo rallied $3.32, or 16 percent, to $23.83 for the steepest gain in the S&P 500. Gains in credit card fees and insurance revenue softened the blow from bad home loans. Net income slumped 23 percent to $1.75 billion, or 53 cents a share. That beat the 50-cent average estimate of 21 analysts surveyed by Bloomberg. Revenue rose 16 percent to a record $11.5 billion.
Resilient Sales
Intel rose 10 cents to $20.81. Third-quarter sales will be $10 billion to $10.6 billion, the company said yesterday. That compares with an average prediction of $10 billion in a Bloomberg survey of analysts. Computer-processor sales remain strong worldwide, with no signs of the U.S. economy sapping demand, according to Chief Financial Officer Stacy Smith.
Sears lost 40 cents to $70.05. Coca-Cola retreated 8 cents to $51.71.
The global bear market in equities will deepen from New York to London to Tokyo in the next six months as credit losses prolong the economy's slump and inflation erodes profits, a survey of Bloomberg users showed.
The S&P 500, the U.K.'s FTSE 100 Index, Japan's Nikkei 225 Stock Average, Spain's IBEX 35 Index, the Swiss Market Index, France's CAC 40 Index, Italy's S&P/MIB Index and Germany's DAX Index will decline, according to the Bloomberg Professional Global Confidence Survey of 4,232 users taken July 7 to 11. In Brazil, the only market where investors predict gains, optimism dropped to a five-month low, the survey showed.
Citigroup, Fannie Mae
The S&P 500 has slumped 22 percent since its Oct. 9 record. Financial shares in the measure capped the steepest-ever five-day decline yesterday, with Citigroup Inc., the biggest U.S. bank, plunging to the lowest level since it was created through a merger in October 1998. Fannie Mae tumbled 27 percent yesterday for its steepest slump since at least July 1980 as investors lost confidence in the government's plan to rescue the largest U.S. mortgage-finance company.
The S&P 500 now trades for 20.1 times the reported earnings of companies in the index, while the MSCI World Index, excluding the U.S., is valued at 11.8 times profit. When the gap between their price-to-earnings ratios widened to 9.89 in May, the rest of the world hadn't been that much cheaper than the U.S. since 2002.
To contact the reporter on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net.
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July 16 (Bloomberg) -- U.S. stocks rose, helping the Standard & Poor's 500 Index rebound from the lowest level since 2005, after profit at Wells Fargo & Co. topped analysts' estimates and a drop in oil eased concern about faster inflation.
Wells Fargo, the U.S. West Coast bank that lost almost a third of its value this year, rallied the most since at least 1980 after also boosting its dividend 10 percent. United Parcel Service Inc. and Target Corp. climbed as a two-day retreat in crude prices overshadowed a government report showing the biggest gain in consumer prices since 2005.
The S&P 500 added 7.98, or 0.7 percent, to 1,222.89 at 10:02 a.m. in New York. The Dow Jones Industrial Average climbed 70.42, or 0.6 percent, to 11,032.96, while the Nasdaq Composite Index rose 16.47, or 0.7 percent, to 2,232.18. Almost two stocks rose for each that fell on the New York Stock Exchange.
``This quarter was fairly good'' for earnings, said Eric Green, Cherry Hill, New Jersey-based director of research and senior money manager at Penn Capital Management, which oversees about $4.5 billion. ``This is a buying opportunity if you have a 12-month time horizon.''
Profits have slipped only 0.8 percent on average for the 26 companies in the S&P 500 that have reported second-quarter results so far, according to data compiled by Bloomberg. Earnings for all companies in the index are forecast to drop 14 percent on average, according to an analyst survey published July 11. The quarter is expected to cap a full year of declining earnings, the longest profit slump in six years.
Almost $14 Trillion Lost
About $14 trillion has been wiped off the value of global equities since October, with the S&P 500 falling into a bear market last week, as $417 billion in credit-related losses prolong the global economy's slump and rising commodity prices stoke inflation.
Among the 23 industrialized nations in the MSCI World Index, only Canada averted a bear-market decline of 20 percent. Financial institutions and consumer companies dependent on discretionary spending led the world's retreat in 2008, losing 31 percent and 22 percent.
Wells Fargo rallied $3.32, or 16 percent, to $23.83 for the steepest gain in the S&P 500. Gains in credit card fees and insurance revenue softened the blow from bad home loans. Net income slumped 23 percent to $1.75 billion, or 53 cents a share. That beat the 50-cent average estimate of 21 analysts surveyed by Bloomberg. Revenue rose 16 percent to a record $11.5 billion.
Resilient Sales
Intel rose 10 cents to $20.81. Third-quarter sales will be $10 billion to $10.6 billion, the company said yesterday. That compares with an average prediction of $10 billion in a Bloomberg survey of analysts. Computer-processor sales remain strong worldwide, with no signs of the U.S. economy sapping demand, according to Chief Financial Officer Stacy Smith.
Sears lost 40 cents to $70.05. Coca-Cola retreated 8 cents to $51.71.
The global bear market in equities will deepen from New York to London to Tokyo in the next six months as credit losses prolong the economy's slump and inflation erodes profits, a survey of Bloomberg users showed.
The S&P 500, the U.K.'s FTSE 100 Index, Japan's Nikkei 225 Stock Average, Spain's IBEX 35 Index, the Swiss Market Index, France's CAC 40 Index, Italy's S&P/MIB Index and Germany's DAX Index will decline, according to the Bloomberg Professional Global Confidence Survey of 4,232 users taken July 7 to 11. In Brazil, the only market where investors predict gains, optimism dropped to a five-month low, the survey showed.
Citigroup, Fannie Mae
The S&P 500 has slumped 22 percent since its Oct. 9 record. Financial shares in the measure capped the steepest-ever five-day decline yesterday, with Citigroup Inc., the biggest U.S. bank, plunging to the lowest level since it was created through a merger in October 1998. Fannie Mae tumbled 27 percent yesterday for its steepest slump since at least July 1980 as investors lost confidence in the government's plan to rescue the largest U.S. mortgage-finance company.
The S&P 500 now trades for 20.1 times the reported earnings of companies in the index, while the MSCI World Index, excluding the U.S., is valued at 11.8 times profit. When the gap between their price-to-earnings ratios widened to 9.89 in May, the rest of the world hadn't been that much cheaper than the U.S. since 2002.
To contact the reporter on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net.
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US Industrial Production Grows Most In 11 Months
Daily Forex Fundamentals | Written by DailyFX | Jul 16 08 13:55 GMT |
US Industrial Production (JUN)
Actual: 0.5%
Expected: 0.1%
Previous: -0.2%
Despite record raw material prices and a generational low in domestic demand, factory activity actually rose at its fastest pace in 11 months through June. The Federal Reserve's Industrial Production survey reported a 0.5 percent pick up in activity last month and a pick up in capacity utilization to 79.9 percent. This is a promising sign for general growth as fears of a recession are still threatening the world's largest economy with consumer spending fading and the housing recession deepening. At the same time, the source of this strength was largely seen in temporary or external components. Export bookings accounted for a generous portion of the pick up in production. Looking deeper into the components, a 0.2 percent improvement in the manufacturing component was largely encouraged by a 5.4 percent jump in auto and parts orders as the supplier strike came to an end. From the sector breakdown, production of consumer goods rose 0.7 percent, business equipment increased 0.2 percent and energy output jumped 1.0 percent. With the housing slump still in full swing, construction dropped 0.9 percent.
DailyFX
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US Industrial Production (JUN)
Actual: 0.5%
Expected: 0.1%
Previous: -0.2%
Despite record raw material prices and a generational low in domestic demand, factory activity actually rose at its fastest pace in 11 months through June. The Federal Reserve's Industrial Production survey reported a 0.5 percent pick up in activity last month and a pick up in capacity utilization to 79.9 percent. This is a promising sign for general growth as fears of a recession are still threatening the world's largest economy with consumer spending fading and the housing recession deepening. At the same time, the source of this strength was largely seen in temporary or external components. Export bookings accounted for a generous portion of the pick up in production. Looking deeper into the components, a 0.2 percent improvement in the manufacturing component was largely encouraged by a 5.4 percent jump in auto and parts orders as the supplier strike came to an end. From the sector breakdown, production of consumer goods rose 0.7 percent, business equipment increased 0.2 percent and energy output jumped 1.0 percent. With the housing slump still in full swing, construction dropped 0.9 percent.
DailyFX
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Brasil Telecom, Rossi, TAM, Tecnisa: Brazilian Equity Movers
By Paulo Winterstein
July 16 (Bloomberg) -- Brazil's Bovespa index of the most- traded shares on the Sao Paulo stock exchange gained 0.3 percent to 61,174.56 at 9:21 a.m. New York time.
The following are among the most active stocks in the Brazilian market today. In Brazil, the preferred share is usually the company's most-traded class of stock.
Brasil Telecom SA (BRTO4 BS) climbed 2.5 percent to 18.80 reais. The operating unit of Brasil Telecom Participacoes SA (BRTP4 BS), the country's third-biggest fixed-line telephone company, reported second-quarter net income rose 75 percent to 254.4 million reais ($160.2 million) as it added Internet and mobile-phone customers. The profit beat the 197 million reais predicted by analysts in a Bloomberg survey. Brasil Telecom Participacoes rose 1.1 percent to 23.25 reais.
Rossi Residencial SA (RSID3 BS) gained for a fourth day, adding 3.3 percent to 12.50 reais. Brazil's third-biggest homebuilder said its second-quarter presales contracts more than doubled to 533 million reais ($336 million). Presales increased from 247 million reais a year earlier, Sao Paulo-based Rossi said in a filing on the Brazilian regulator's Web site yesterday. The company began work on 776 million reais of new projects, up from 401 million reais in the second quarter of last year.
Tecnisa SA (TCSA3 BS) rose to the highest in two weeks, adding 4.9 percent to 7.90 reais. Brazil's third-largest homebuilder said its presales contracts rose more than fourfold in the second quarter. Presales contracts rose to 331 million reais ($208 million) from 73 million reais a year earlier, Sao Paulo-based Tecnisa said in a filing on the Brazilian regulator's Web site.
TAM SA (TAMM4 BS) advanced to the highest in two weeks, adding 2.2 percent to 29.30 reais. Brazil's biggest airline may report earnings growth in the second quarter at a time when ``positive second-quarter of 2008 net earnings for any airline is an accomplishment,'' Citigroup Inc. analyst Stephen Trent wrote in a note.
To contact the reporter on this story: Paulo Winterstein in Sao Paulo at pwinterstein@bloomberg.net.
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July 16 (Bloomberg) -- Brazil's Bovespa index of the most- traded shares on the Sao Paulo stock exchange gained 0.3 percent to 61,174.56 at 9:21 a.m. New York time.
The following are among the most active stocks in the Brazilian market today. In Brazil, the preferred share is usually the company's most-traded class of stock.
Brasil Telecom SA (BRTO4 BS) climbed 2.5 percent to 18.80 reais. The operating unit of Brasil Telecom Participacoes SA (BRTP4 BS), the country's third-biggest fixed-line telephone company, reported second-quarter net income rose 75 percent to 254.4 million reais ($160.2 million) as it added Internet and mobile-phone customers. The profit beat the 197 million reais predicted by analysts in a Bloomberg survey. Brasil Telecom Participacoes rose 1.1 percent to 23.25 reais.
Rossi Residencial SA (RSID3 BS) gained for a fourth day, adding 3.3 percent to 12.50 reais. Brazil's third-biggest homebuilder said its second-quarter presales contracts more than doubled to 533 million reais ($336 million). Presales increased from 247 million reais a year earlier, Sao Paulo-based Rossi said in a filing on the Brazilian regulator's Web site yesterday. The company began work on 776 million reais of new projects, up from 401 million reais in the second quarter of last year.
Tecnisa SA (TCSA3 BS) rose to the highest in two weeks, adding 4.9 percent to 7.90 reais. Brazil's third-largest homebuilder said its presales contracts rose more than fourfold in the second quarter. Presales contracts rose to 331 million reais ($208 million) from 73 million reais a year earlier, Sao Paulo-based Tecnisa said in a filing on the Brazilian regulator's Web site.
TAM SA (TAMM4 BS) advanced to the highest in two weeks, adding 2.2 percent to 29.30 reais. Brazil's biggest airline may report earnings growth in the second quarter at a time when ``positive second-quarter of 2008 net earnings for any airline is an accomplishment,'' Citigroup Inc. analyst Stephen Trent wrote in a note.
To contact the reporter on this story: Paulo Winterstein in Sao Paulo at pwinterstein@bloomberg.net.
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Westport Innovations May Rise on China Venture; Potash May Slip
By Fabio Alves
July 16 (Bloomberg) -- Westport Innovations Inc. may rise after creating a joint venture with China's fourth-largest diesel-engine maker, bids submitted on the Toronto Stock Exchange show.
Potash Corp. of Saskatchewan Inc., the world's largest crop-nutrient maker, may retreat after commodities prices slid for a third day yesterday on concern that a slowing global economy will curb demand for raw materials, including fertilizers.
The Standard & Poor's/TSX Composite Index dropped most since March, losing 2.8 percent to 13,357.56. The Canadian stock benchmark has lost 11 percent from its June 18 record, a market correction.
Westport Innovations may rise may rise 13 cents to C$4.90, bids showed. The Canadian designer of low-pollution engine parts linked up with China's Weichai Power Co. Ltd. to create a unit to manufacture alternative fuel engines and parts for cars, trucks and power plants. Vancouver-based Westport said in a statement distributed by Marketwire that it will invest $4.5 million in the venture for a 35 percent stake.
Potash may drop C$2.01 to C$223, bids indicate. The Reuters/Jefferies CRB Index of 19 commodities fell 5.2 percent from its July 2 peak this year through yesterday as poorer outlook for global growth.
TransCanada Corp., owner of Canada's largest natural-gas pipeline system, may gain 16 cents to C$38, bids show. TransCanada and Houston-based ConocoPhillips plan to expand the Keystone pipeline to provide additional capacity from western Canada to the U.S. Gulf Coast. The 500,000-barrel-per-day expansion is expected to cost about $7 billion, Calgary-based TransCanada said today in a Marketwire statement.
Standard & Poor's 500 Index futures expiring in September added 4 points, or 0.3 percent, to 1,215.50 at 9:04 a.m. in New York. Dow Jones Industrial Average futures climbed 30, or 0.3 percent, to 10,948. Nasdaq-100 Index futures increased 8.75, or 0.5 percent, to 1,807.75.
To contact the reporter on this story: Fabio Alves in New York at falves3@bloomberg.net.
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July 16 (Bloomberg) -- Westport Innovations Inc. may rise after creating a joint venture with China's fourth-largest diesel-engine maker, bids submitted on the Toronto Stock Exchange show.
Potash Corp. of Saskatchewan Inc., the world's largest crop-nutrient maker, may retreat after commodities prices slid for a third day yesterday on concern that a slowing global economy will curb demand for raw materials, including fertilizers.
The Standard & Poor's/TSX Composite Index dropped most since March, losing 2.8 percent to 13,357.56. The Canadian stock benchmark has lost 11 percent from its June 18 record, a market correction.
Westport Innovations may rise may rise 13 cents to C$4.90, bids showed. The Canadian designer of low-pollution engine parts linked up with China's Weichai Power Co. Ltd. to create a unit to manufacture alternative fuel engines and parts for cars, trucks and power plants. Vancouver-based Westport said in a statement distributed by Marketwire that it will invest $4.5 million in the venture for a 35 percent stake.
Potash may drop C$2.01 to C$223, bids indicate. The Reuters/Jefferies CRB Index of 19 commodities fell 5.2 percent from its July 2 peak this year through yesterday as poorer outlook for global growth.
TransCanada Corp., owner of Canada's largest natural-gas pipeline system, may gain 16 cents to C$38, bids show. TransCanada and Houston-based ConocoPhillips plan to expand the Keystone pipeline to provide additional capacity from western Canada to the U.S. Gulf Coast. The 500,000-barrel-per-day expansion is expected to cost about $7 billion, Calgary-based TransCanada said today in a Marketwire statement.
Standard & Poor's 500 Index futures expiring in September added 4 points, or 0.3 percent, to 1,215.50 at 9:04 a.m. in New York. Dow Jones Industrial Average futures climbed 30, or 0.3 percent, to 10,948. Nasdaq-100 Index futures increased 8.75, or 0.5 percent, to 1,807.75.
To contact the reporter on this story: Fabio Alves in New York at falves3@bloomberg.net.
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Westport Innovations May Rise on China Venture; Potash May Slip
By Fabio Alves
July 16 (Bloomberg) -- Westport Innovations Inc. may rise after creating a joint venture with China's fourth-largest diesel-engine maker, bids submitted on the Toronto Stock Exchange show.
Potash Corp. of Saskatchewan Inc., the world's largest crop-nutrient maker, may retreat after commodities prices slid for a third day yesterday on concern that a slowing global economy will curb demand for raw materials, including fertilizers.
The Standard & Poor's/TSX Composite Index dropped most since March, losing 2.8 percent to 13,357.56. The Canadian stock benchmark has lost 11 percent from its June 18 record, a market correction.
Westport Innovations may rise may rise 13 cents to C$4.90, bids showed. The Canadian designer of low-pollution engine parts linked up with China's Weichai Power Co. Ltd. to create a unit to manufacture alternative fuel engines and parts for cars, trucks and power plants. Vancouver-based Westport said in a statement distributed by Marketwire that it will invest $4.5 million in the venture for a 35 percent stake.
Potash may drop C$2.01 to C$223, bids indicate. The Reuters/Jefferies CRB Index of 19 commodities fell 5.2 percent from its July 2 peak this year through yesterday as poorer outlook for global growth.
TransCanada Corp., owner of Canada's largest natural-gas pipeline system, may gain 16 cents to C$38, bids show. TransCanada and Houston-based ConocoPhillips plan to expand the Keystone pipeline to provide additional capacity from western Canada to the U.S. Gulf Coast. The 500,000-barrel-per-day expansion is expected to cost about $7 billion, Calgary-based TransCanada said today in a Marketwire statement.
Standard & Poor's 500 Index futures expiring in September added 4 points, or 0.3 percent, to 1,215.50 at 9:04 a.m. in New York. Dow Jones Industrial Average futures climbed 30, or 0.3 percent, to 10,948. Nasdaq-100 Index futures increased 8.75, or 0.5 percent, to 1,807.75.
To contact the reporter on this story: Fabio Alves in New York at falves3@bloomberg.net.
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July 16 (Bloomberg) -- Westport Innovations Inc. may rise after creating a joint venture with China's fourth-largest diesel-engine maker, bids submitted on the Toronto Stock Exchange show.
Potash Corp. of Saskatchewan Inc., the world's largest crop-nutrient maker, may retreat after commodities prices slid for a third day yesterday on concern that a slowing global economy will curb demand for raw materials, including fertilizers.
The Standard & Poor's/TSX Composite Index dropped most since March, losing 2.8 percent to 13,357.56. The Canadian stock benchmark has lost 11 percent from its June 18 record, a market correction.
Westport Innovations may rise may rise 13 cents to C$4.90, bids showed. The Canadian designer of low-pollution engine parts linked up with China's Weichai Power Co. Ltd. to create a unit to manufacture alternative fuel engines and parts for cars, trucks and power plants. Vancouver-based Westport said in a statement distributed by Marketwire that it will invest $4.5 million in the venture for a 35 percent stake.
Potash may drop C$2.01 to C$223, bids indicate. The Reuters/Jefferies CRB Index of 19 commodities fell 5.2 percent from its July 2 peak this year through yesterday as poorer outlook for global growth.
TransCanada Corp., owner of Canada's largest natural-gas pipeline system, may gain 16 cents to C$38, bids show. TransCanada and Houston-based ConocoPhillips plan to expand the Keystone pipeline to provide additional capacity from western Canada to the U.S. Gulf Coast. The 500,000-barrel-per-day expansion is expected to cost about $7 billion, Calgary-based TransCanada said today in a Marketwire statement.
Standard & Poor's 500 Index futures expiring in September added 4 points, or 0.3 percent, to 1,215.50 at 9:04 a.m. in New York. Dow Jones Industrial Average futures climbed 30, or 0.3 percent, to 10,948. Nasdaq-100 Index futures increased 8.75, or 0.5 percent, to 1,807.75.
To contact the reporter on this story: Fabio Alves in New York at falves3@bloomberg.net.
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US CPI Rises At Fastest Annual Pace In 17 Years
Daily Forex Fundamentals | Written by DailyFX | Jul 16 08 13:23 GMT |
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Consumer prices in the US surged significantly more than expected in June, as the Labor Department's index jumped 1.1 percent during the month, bringing the annual rate up to a more than 17 year high of 5.0 percent. Unsurprisingly, a breakdown of the report shows that energy prices were responsible for the bulk of the rise, as they gained 6.6 percent from a month ago and 24.7 percent from a year earlier, while food costs rose 0.8 percent.
What may be most disconcerting to the Federal Reserve, however, was the unexpected increase in core CPI of 0.3 percent during the month and 2.4 percent from a year earlier. As Federal Reserve Chairman Ben Bernanke noted yesterday that "the currently high level of inflation, if sustained, might lead the public to revise up its expectations for longer-term inflation." Nevertheless, the central bank is unlikely to raise interest rates in response due to the looming downside risks to growth and unstable conditions in the financial sector.
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Fannie Mae, Freddie Mac May Halt Dividends on Losses
By Lynn Thomasson
July 16 (Bloomberg) -- Fannie Mae and Freddie Mac, the beleaguered U.S. mortgage-finance companies, may cut common stock dividends to preserve capital after their shares fell 80 percent this year, data compiled by Bloomberg show.
Freddie Mac will probably halt its 25-cents-a-share quarterly payment and Fannie Mae will likely eliminate dividends after more than $11 billion in combined losses since last year, according to Bloomberg dividend forecasts. Washington-based Fannie Mae has paid shareholders for three decades, while Freddie Mac, located in McLean, Virginia, increased its payout every year since 1990 before lowering the awards in November.
The government-sponsored companies tumbled yesterday in New York Stock Exchange composite trading as investors lost confidence in Treasury Secretary Henry Paulson's plan to shore up their finances. Moody's Investors Service reduced the lenders' financial strength ratings, saying credit losses may jeopardize dividend payments on preferred shares.
``I don't know how you can justify a taxpayer-led bailout and agree to pay dividends to stockholders,'' said Don Wordell, a fund manager at Ceredex Value Advisors, which manages $3 billion in Orlando, Florida. Fannie Mae and Freddie Mac ``need to be in capital preservation mode right now,'' he said.
Freddie Mac paid $1.55 billion in common and preferred dividends last year, according to the 2007 annual report. Fannie Mae's payouts totaled $2.48 billion.
Increasing Credit Losses
Fannie Mae dropped 27 percent yesterday, its biggest slump since at least July 1980, to close at $7.07 in New York, while Freddie Mac declined 26 percent to $5.26. Moody's reduced the company's so-called financial strength ratings, citing their limited ability to raise capital and the likelihood of increasing credit losses.
Fannie Mae rebounded 15 percent to $8.10 at 10 a.m. in New York, while Freddie Mac climbed 16 percent to $6.12.
Fannie Mae's share slump has pushed its dividend yield up to 12.3 percent, almost five times the 2.5 percent average of the companies in the Standard & Poor's 500 index. Freddie Mac's yield is 16.3 percent. The yield is the annualized gross dividend divided by the current market price.
No Bailout Needed
The White House and the Federal Reserve should give Fannie Mae and Freddie Mac assurance they will continue as for-profit firms with reasonable regulation, not a ``bailout,'' Franklin D. Raines, Fannie Mae's former chairman and chief executive officer, wrote in an opinion piece in the Washington Post today.
While the companies, which have the implicit backing of the U.S. government, kept their Aaa senior and subordinated debt ratings, Moody's cut the preferred stock to A1 from Aa3 and said all rankings are being reviewed for further downgrades.
Paulson sought to boost investor confidence July 13 when he said he will seek authority to buy equity stakes and increase the government's credit lines to the companies.
Fannie Mae and Freddie Mac are critical to the U.S. housing market because they provide financing to banks and mortgage lenders by purchasing mortgages and either keeping them or packaging them for sale to investors. The companies own or guarantee more than half the $12 trillion of U.S. home loans.
The lenders would join 21 other S&P 500 Index companies that cut payouts in 2008, according to S&P data. That's more than the past five years combined. General Motors Corp., the biggest U.S. automaker, suspended its dividend yesterday for the first time since 1922.
`Well Capitalized'
Fannie Mae spokeswoman Janis Smith declined to comment on the company's dividend plans.
``This is a well-capitalized company with strong liquidity and access to the world's capital markets,'' Freddie Mac spokeswoman Sharon McHale said. ``We're out there in the market day in and day out buying mortgages from our lenders.''
Citigroup Inc., Regions Financial Corp., KeyCorp and SunTrust Banks Inc. will probably reduce payouts 50 percent this year, according to the Bloomberg data, which analyzes net income, the ratio of debt to assets, earnings per share, credit ratings and option prices to help determine potential dividend changes. Banks are reducing expenses after the worst U.S. housing slump since the Great Depression left financial companies with writedowns and credit losses of more than $416 billion.
Fannie Mae and Freddie Mac would be barred from paying dividends under restrictions proposed by Representative Barney Frank should the mortgage companies tap an increased line of credit with the Treasury. Frank's comments yesterday reflected efforts by lawmakers to introduce conditions on Paulson's request for unlimited power to provide capital for the two companies.
`Last Things'
Fannie Mae raised its dividend until 2005, when the company was investigated for accounting errors. It declared a 25-cent dividend on May 6, down from 35 cents in April, after announcing plans to raise $6 billion because of a bigger-than-estimated first-quarter loss.
Freddie Mac reduced payments by half, to 25 cents, in November. The company said the cut would save $650 million annually and preserve capital depleted by growing losses from bad loans. Last week, Freddie Mac said it would consider reducing its dividend further.
``If you've increased your dividend for 10 years and then stop paying, you better hold up a sign that says liquidity problem,'' said Howard Silverblatt, senior index analyst at S&P in New York. ``Cutting a dividend is one of the last things you want to do, but we do expect more'' among financial institutions and consumer companies dependent on discretionary spending.
Shareholders face more risks because Freddie Mac may be forced to eliminate the dividend on its preferred shares, Moody's said yesterday. Owners of preferred equity are guaranteed a payout, unlike common stock. Fannie Mae probably won't miss any preferred stock payments, Moody's said.
To contact the reporter on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net.
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Sunrise Market Commentary
| Daily Forex Fundamentals | Written by KBC Bank | Jul 16 08 07:31 GMT | | |
The Sunrise Headlines
Currencies: EUR/USD Sets New All-Time High, But Test Was RejectedOn Tuesday, the crisis feeling was again omnipresent and contrary to what often happened recently, the currency market this time didn't escape from the global turmoil. Lingering concerns on how US authorities will handle the credit crisis (Fannie and Freddie and the problems at regional banks) already kept the dollar under pressure from the start of European trading. A shape decline in the German ZEW economic sentiment index temporary halted the rise in EUR/USD, but at that stage the European side of the equation obviously was not the major concern of the currency markets. So, EUR/USD hit new all-time highs in the 1.6035/40 area going into the US trading session. The US data were mixed to slightly softer than expected but didn't contain a clear signal for currency trading and EUR/USD even ceded some ground going towards Mr. Bernanke testimony before the Senate. While still mentioning inflation risk, the Fed president gave some more weight to the downside risks for the economy than was the case recently. Regarding the dollar, he admitted that the fall of the US currency might have contributed to the rise in oil prices but his assessment on this item was very balanced. So, at first glance, the Bernanke statement didn't contain much obvious support for the dollar. However, the dollar was saved by the other major wildcard, being oil. Oil dropped sharply and this contained the damage for both the stock markets and the dollar. At the end of the day, EUR/USD closed the session at 1.5912, little changed from the 1.5908 close on Monday. The price action in EUR/JPY also deserves some attention and put the EUR/USD developments in perspective. With markets recently focused on the credit problems of the US agencies, it is quite logical that the dollar comes under pressure first. However, the sharp decline in EUR/JPY yesterday suggests that the rise in the EUR/USD probably is not really a strong vote of confidence in the single currency but rather some kind of 'by default' reaction. Yesterday, the yen was the only real safe haven currency among the majors. Today, the calendar is again very interesting with the final European and US CPI data, the US TIC data and production data. The US CPI is the most important release. The combination of a high headline reading and a softer core figure should be rather neutral for the dollar. Of course, the second part of the Bernanke Testimony (Q&A) also deserves the markets attention. Yesterday, the assumption that EUR/USD had entered a consolidation pattern, confined by the 1.6020 to 1.5285 medium term trading range, was seriously questioned, but at the end of the day, the test of the topside was rejected. The jury is still out on this test, but if yesterday's price action is confirmed today, it suggests that, if US credit headlines turn less aggressive, the underlying assumption of the market remains that the longer-term economic picture for both the US and Europe is not that different. Both areas face a similar problem of too high inflation and low/slowing growth and the Fed and the ECB have little room of maneuver to fix this difficult situation any time soon. On top of that, the eco picture in Europe is deteriorating rather sharply, too. This suggests that a major break higher of EUR/USD is not evident. It is still early days, but the price action in EUR/JPY (cf. supra) points in the same direction. Yesterday, we said that EUR/USD had to move away from the EUR/USD 1.60 area soon and in a convincing way, otherwise, a new USD-selling wave might be on the cards. Yesterday's rejected test still asks for confirmation and EUR/USD is still too close to the highs to call off the dollar alert. However, at least for now, there is no convincing reason to front-run on a major break higher in EUR/USD. Stop-loss protection (e.g. in the 1.6050 area) is still warrant; However, in a day-to-day perspective, courageous dollar optimists may even to try to sell EUR/USD on up-ticks hoping that the range holds.
EUR/USD: first test rejected. Support stands at 1.5864/61 (Reaction low/23% retracement), at 1.5839/22 (Week low/Weekly envelope), at 1.5800 (Break-up/MTMA), at 1.5747/40 (Daily Channel bottom/Boll Midline) and 1.5729 (Break-up). Resistance is seen at 1.5960 (Breakdown), at 1.5992 (Boll Top), 1.6018 (Daily envelope), at 1.6040 (All-time high), and at 1.6076 (Daily Channel top), at 1.6182 (Weekly envelope) The pair is in overbought territory. USD/JPYOn Tuesday, the heat of the global market meltdown also triggered a significant move in the major yen cross rates. Over the previous sessions, the impact of the global credit turmoil on USD/JPY (and EUR/JPY) was rather modest, but this pattern changed yesterday. Already during the morning session in Europe; USD/JPY dropped below the first important support at 104.99, painting a short-term double top pattern on the charts. However, the 'damage' was not limited to USD/JPY as also EUR/JPY moved sharply lower. It has been different recently, but the yen apparently resumes its function of safe haven in stormy financial times. USD/JPY closed the session at 104.72 (compared to 106.15 on Monday). EUR/JPY currently tests the first important support (166.09 neckline). This morning, the Asian stocks markets traded mostly mixed, but this doesn't really help USD/JPY to regain the 105-resistence. Recently, we had a neutral bias USD/JPY. The rejected test of the 108.58/62 area triggered a correction, but an intermediate bottom was found at 104.99. However, yesterday's break below this levels, (if confirmed), makes the picture in USD/JPY short-term negative again. The signals from the most obvious drivers for USD/JPY (oil and stocks) are not that clear, but for now we take the technical picture as the factor with the highest weight for our day-to-day strategy and put the risk for additional losses in USD/JPY. The first target of the short-term double top pattern is at 102.23.
USD/JPY: 104.99 support broken. Support stands at 104.16 (ST low), at 103.87/68 (Daily envelope/38% retracment), at 102.70/55 (Reaction lows), at 102.23 (Target double bottom). Resistance comes in at 105.12 (Daily envelope), at 106.46 (Break-down), at 105.72 (STMA), at 106.27 (MTMA), at 106.81 (ST high), at 106.91/08 (Break-down/weekly envelope). The pair is in neutral territory EUR/GBPOn Tuesday, EUR/GBP initially moved slightly higher, probably due to spill-over effects from EUR/USD. However, the move was technically insignificant and a higher than expected UK CPI also helped to block the upside in this pair. Later in the session EUR/GBP first continued to trade in a very tight 0.7950/70 trading range, but an acceleration in the EUR/USD correction also caused EUR/GBP to close the session near the intraday lows at 0.7934, compared to 0.7974 on Monday. Today, the UK labour market data are scheduled for release. A deterioration in the conditions could be a (slightly) negative for the sterling. However, recently the impact of this kind of data most often only was of intraday significance. Since mid April, EUR/GBP developed a very uninspiring consolidation pattern (0.7766/0.8098). We turned neutral on EUR/GBP as the pair shows no trading momentum at all. An attempt to move higher early this month again ran into resistance and also at the end of last week and early this week a test of the key 0.8033/34 area was rejected. After yesterday's price action, EUR/GBP is again in the middle of the long-standing trading pattern. So, the short-term alert on sterling is again called off. In a longer term perspective we hold on to our sterling skeptic attitude.
EUR/GBP: ST sterling alert called off. Support comes in at 0.7925/23 (ST low/LTMA), at 0.7915 (Daily envelope), at 0.7900 (07 July low), at 0.7865 (MT Break-up), at 0.7868/61 (01 July/Boll bottom). Resistance stands at 0.7967/69 (Daily envelope/Reaction high), 0.8004 (Boll top), at 0.8022 (ST high), at 0.8033/34 (Reaction highs), at 0.8051 (Reaction high) and at 0.8098 (All-time high). The pair is again in neutral territory. NewsUS: PPI accelerates, but retail sales disappointPPI rose by a higher-than-expected 1.8% M/M and 9.2% Y/Y in June, the highest since June 1981. Consensus expected a more 'moderate' 1.4% M/M increase. As expected, energy prices, up 6% M/M (27% Y/Y) were the main culprit, but also food prices rose quite dynamic. On a more positive note, core PPI rose by 0.2% M/M and 3% Y/Y, slightly below expectations and keeping the Y/Y rate stable versus May. Pipeline inflation measures showed hefty increases. Crude goods PPI increased by 3.7% M/M (45.5% Y/Y), following a 6.7% M/M gain in May and Intermediate goods PPI increased by 2.1% M/M (14.5% Y/Y) following a 2.9% M/M increase in May. This suggests that price pressures at the finished goods level might still intensify in the next months. June Retail sales rose by a very disappointing 0.1% M/M (3% Y/Y), following a downwardly revised 0.8% M/M in May. Gas station sales, largely a price effect, jumped 4.6% M/M, added to give the report de qualification of weak. Core sales (excluding cars) were stronger at 0.8% M/M, following a strong 1.2% M/M, but fell nevertheless short of the 1% M/M increase expected. Car sales dropped 3.3% M/M The report is disappointing, as it concerns nominal sales, which means that real sales will still be lower (tomorrow's CPI will tell how much lower) and as it suggests the tax rebate checks won't have a big positive and sustainable impact. The NY Fed manufacturing survey suggested that the contraction in slowed in July somewhat, but labour market conditions deteriorated and price pressures intensified. The 'headline' general business conditions index rose to -4.9 from -8.7 and compares to expectations for -8. However, the details were on balance constructive with the exception of the labour market indices. Indeed, new orders jumped to 8.3 and shipments to 13.5 from respectively -5.5 and -6.5, passing the 0 boom/bust line. Unfilled orders (-8.4 from -10.5) and delivery times (-2.1 versus -7) improved more modestly. The number of employees index fell to -6.3 though (from 1.2) and the average workweek to -8.4 (from -2.3). The prices paid index set a new cycle high at 74.7 (from 73.3) while the prices received virtually stabilized at 47.4. EMU: ZEW economic sentiment tumblesThe German June ZEW economic sentiment report shows that the deterioration of activity is fast deepening. The sentiment index dropped 11.5 points to an all time low of -63.9. It was the fourth straight decline. The current situation index, that is still at a historical high level and stabilized in February-to-June period, got whacked, as it dropped 20 points to 17. This is a sobering report that suggests that the German economy is slowing rapidly. French business sentiment index (Banque de France) dropped 1 point to 95 in June, a 5-year low, from a downwardly revised 96 previously. Also here the downtrend is well established. It confirms other sentiment data. Other: UK inflation surges higher in JuneUK CPI rose a higher-than-expected 0.7% M/M and 3.8% Y/Y, the highest since June 1992 and the second month inflation has been more than 1%-point above the BoE inflation target. Consensus was looking for a 0.4% M/M increase. Core CPI exceeded expectations too and rose to 1.6% Y/Y from 1.5% Y/Y in May. The larger than expected increase in the headline inflation rate indicates that the Bank has currently no room to cut rates, despite the recessionary economic environment. Download entire Sunrise Market Commentary | |
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Forex Technical Analytics
| Daily Forex Technicals | Written by FOREX Ltd | Jul 16 08 07:16 GMT | | |
CHFThe pre-planned breakout variant for sells has been realized with attainment of minimal assumed target. OsMA trend indicator having marked the relative rise of parties' activity with a minimal advantage from buyers gives minimal grounds to choose buyers' planning priorities for today. Hence and taking into account the feature of incompletion of bearish development, we assume a possibility of pair return to supports 1.0070/90, where it is recommended to evaluate the activity development according to the charts of shorter time interval. For short-term buyers' positions on condition of formation of topping signals the targets will be 1.0120/30, 1.0160/80 and/or further breakout variant up to 1.0210/20, 1.0240/60. An alternative for sells will be below 0.9990 with the targets 0.9920/40, 0.9880/.09900
GBPThe pre-planned breakout variant for buyers has been realized with attainment of minimal assumed target. OsMA trend indicator having marked further development with strengthening of bearish activity up to parity level of the parties does not bring in clearness to a choice of planning priorities for today. But taking into account the fact that without grounds to change planning priorities in favor of sells we assume a possibility of attainment of supports 1.9960/80, where it is recommended to evaluate the activity development according to the charts of shorter time interval. For short-term buyers' positions on condition of formation of topping signals the targets will be 2.0040/60 and/or further breakout variant above 2.0080 with the targets 2.0140/60. An alternative for sells will be below 1.9900 with the targets 1.9840/60, 1.9760/80, 1.9700/20.
JPYThe pre-planned breakout variant for sells has been realized with overlap of assumed targets. OsMA trend indicator having marked the preservation of bearish advantage continues to support the preservation of corresponding planning priority for today. Hence and taking into account bullish character of indicator chart, we assume a possibility of pair return to resistance range 104.70/80, where it is recommended to evaluate the activity development according to the charts of shorter time interval. For short-term sells on condition of formation of topping signals the targets will be 104.10/30, 103.80/90 and/or further breakout variant up to 103.20/40, 102.80/103.00. An alternative for buyers will be above 105.50 with the targets 105.80/90, 106.20/40.
EURThe pre-planned breakout variant for buyers has been realized but without attainment of minimal assumed target within previous trading day. OsMA trend indicator having marked further development as a relative rise of bearish activity gives grounds to make a corresponding choice of planning priorities for today. Hence and because of ascending direction of indicator chart, we assume a possibility of pair return to resistance range 1.5920/40, where it is recommended to evaluate the activity development according to the charts of shorter time interval. For sells on condition of formation of topping signals the targets will be 1.5860/80, 1.5820/40, 1.5770/80 and/or further breakout variant up to 1.5710/30, 1.5660/70. An alternative for buyers will be above 1.5980 with the targets 1.6020/40, 1.6080/1.6100.
FOREX Ltd | |
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Dollar Plunged Heavily…
| Daily Forex Fundamentals | Written by Crown Forex | Jul 16 08 07:14 GMT | | |
| "Significant downside risks to the outlook for growth" this is what Mr. Bernanke said yesterday in his semiannual testimony, but seriously my dear reader that downside risk to growth is hovering around most economies in the world, not just the Americans and the British, as this time growth in the European Union is tumbling after it proved to the whole world the resilience of their economy. The recorded a new yesterday, taking advantage of the weak dollar that was affected by the ongoing issue of Freddie Mac and Fannie Mae, supported by its one fundamental was not the case yesterday; but falling down as a correction from the extreme overbought area what we got today, as now the pair is trading around 1.5903 levels, with investors tending to take some of their profits after they saw the Euro record a high of 1.6038. With this profit taking transaction the pair might dipping more to the downside facing support levels at 1.5820-30 levels. As for today's calendar the European Union has just some inflationary data that are going to be discarded due the lag of those results, where Trichet had hiked rates after this month. Not just the Euro, the Royal currency took advantage of the weakening dollar, rallying to the upside recording a high of 2.0156, as it started its trading today in a plunging behavior down to 2.0039 levels, as its still holding above the 2 psychological barrier, the data today would affect the pound movements, with expectations that the people filling for unemployment benefits will increase in June as their economy is still struggling, fighting inflation and trying to revive growth. According to technical indicators the pound falls in an extremely overbought area, increasing the expectations that the market participants will head to profit taking transactions any minute but still waiting for today unemployment data. Finally the US dollar, facing serious challenges with Fannie Mae and Freddie Mac issue and what the upside risks to inflation from the surge in food and commodity prices; all what is occurring in the markets had its toll on the US dollar against the Japanese Yen taking it down to 104.20 levels with intention that it would continue its movement to the downside according to the technical indicators, as the target facing the dollar is 103.60 now. | |
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U.S. Consumer Prices Probably Rose in June as Fuel, Food Surged
By Shobhana Chandra
July 16 (Bloomberg) -- Consumer prices in the U.S. probably rose in June by the most in seven months as Americans paid more for fuel and food, a government report today may show.
The cost of living increased 0.7 percent after a 0.6 percent gain in May, according to the median forecast of 79 economists surveyed by Bloomberg News. Excluding food and energy, so-called core prices probably climbed 0.2 percent, the survey showed.
The figures underscore why Federal Reserve Chairman Ben S. Bernanke yesterday said inflation risks had ``intensified.'' The surge in energy costs has also slowed consumer and business spending, hurting growth and making it less likely policy makers will boost interest rates to stem even bigger price increases.
``Concern about inflationary developments and the resiliency of consumer spending has pushed the Fed to the sidelines,'' said Steven Wood, president of Insight Economics LLC in Danville, California.
The Labor Department's consumer-price report is due at 8:30 a.m. in Washington. Survey forecasts ranged from gains of 0.2 percent to 1.1 percent. Prices probably rose 4.5 percent from a year earlier, the most since September 2005.
A Fed report at 9:15 a.m. may show industrial production rose 0.1 percent in June, the first increase in three months, according to economists surveyed.
Energy costs will continue stoking price pressures. Crude oil futures reached a record $147.27 a barrel on July 11 and have risen almost 90 percent in the past year. Regular gasoline, which topped $4 a gallon for the first time in June, is rising further this month, AAA figures show.
Wholesale Prices
Wholesale prices rose 1.8 percent in June, the most in seven months, the Labor Department reported yesterday. From a year ago, prices climbed 9.2 percent, the biggest surge since 1981.
``There are tremendous price pressures in the inflation pipeline,'' said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York. ``But it is less clear if they will be successfully passed along to consumers.'' That's why the CPI data will be of ``heightened importance.''
Americans trimmed purchases of automobiles, furniture and restaurant meals last month as the cost of gasoline soared, a Commerce Department report showed yesterday. Retail sales rose 0.1 percent, less than forecast, a sign the boost from the tax rebate checks is already fading.
Bernanke, testifying before Congress yesterday as part of his semi-annual report on the economy, cited ``significant downside risks to the outlook for growth'' in addition to the heightened threat of inflation.
Less Spending
Consumer spending is ``likely to be restrained over coming quarters,'' and businesses are ``likely to be cautious with their spending in the second half of the year,'' Bernanke said.
Companies, unable to fully recover ballooning raw-material costs by raising prices, have cut staff and reduced equipment purchases as profits shrink.
Kimberly-Clark Corp., the maker of Huggies diapers and Scott paper towels, said earnings for this year will trail its previous forecast as expenses rise more than twice as fast as predicted, In May, the company said it would raise prices for a second time this year to counter higher costs for materials such as oil, natural gas and pulp.
``Inflation has outpaced our ability to offset higher costs in the near term through price increases, cost reductions and other measures,'' Thomas Falk, the Dallas-based company's chief executive officer, said this week in a statement.
Procter & Gamble Co., the maker of Tide detergent and Head & Shoulders shampoo, last week said it'll raise prices as much as 16 percent due to higher costs for plastic, energy and paper. The increases start in September and are the Cincinnati-based company's steepest in at least 18 months.
Bloomberg Survey
================================================================
CPI Core Ind. Cap.
CPI Prod. Util.
MOM% MOM% MOM% %
================================================================
Date of Release 07/16 07/16 07/16 07/16
Observation Period June June June June
----------------------------------------------------------------
Median 0.7% 0.2% 0.1% 79.4%
Average 0.7% 0.2% 0.1% 79.4%
High Forecast 1.1% 0.4% 0.5% 79.7%
Low Forecast 0.2% 0.1% -0.4% 79.0%
Number of Participants 79 78 78 67
Previous 0.6% 0.2% -0.2% 79.4%
----------------------------------------------------------------
4CAST Ltd. 0.9% 0.2% 0.3% 79.5%
Action Economics 0.8% 0.2% 0.3% 79.5%
AIG Investments 0.7% 0.3% -0.2% ---
Aletti Gestielle SGR 0.8% 0.2% -0.3% 79.0%
Allianz Dresdner Economic 0.7% 0.2% 0.1% 79.4%
Argus Research Corp. 0.6% 0.2% 0.1% 79.5%
Banc of America Securitie 0.5% 0.2% 0.4% 79.4%
Bank of Tokyo- Mitsubishi 0.7% 0.2% 0.1% 79.3%
Bantleon Bank AG 0.7% 0.2% 0.1% ---
Barclays Capital 0.9% 0.2% 0.4% 79.6%
BBVA 0.6% 0.2% -0.3% 79.2%
BMO Capital Markets 0.7% 0.2% 0.2% 79.4%
BNP Paribas 0.9% 0.2% 0.0% 79.3%
Briefing.com 0.7% 0.2% 0.2% 79.4%
Calyon 0.7% 0.2% 0.1% 79.4%
CFC Group --- --- 0.1% 79.5%
CIBC World Markets 0.7% 0.2% -0.1% 79.4%
Citi 0.7% 0.1% -0.4% 79.0%
ClearView Economics 0.5% 0.2% -0.2% 79.0%
Commerzbank AG 0.8% 0.2% 0.0% 79.3%
Credit Suisse 0.8% 0.2% 0.5% 79.7%
Daiwa Securities America 0.5% 0.2% -0.1% 79.3%
Danske Bank 0.5% 0.2% 0.0% 79.4%
DekaBank 0.7% 0.2% 0.2% 79.4%
Desjardins Group 0.6% 0.1% 0.0% 79.3%
Deutsche Bank Securities 0.6% 0.2% 0.0% 79.4%
Deutsche Postbank AG 0.6% 0.2% 0.1% ---
Dresdner Kleinwort 0.7% 0.2% -0.1% 79.2%
DZ Bank 0.6% 0.2% 0.0% 79.2%
First Trust Advisors 0.8% 0.2% 0.0% 79.2%
Fortis 0.7% 0.3% 0.3% ---
FTN Financial 0.2% 0.2% -0.1% 79.2%
GCI Capital 0.8% 0.4% --- ---
Global Insight Inc. 0.9% 0.2% 0.5% ---
Goldman, Sachs & Co. 0.7% 0.2% 0.0% 79.3%
H&R Block Financial Advis 0.6% 0.2% 0.1% 79.4%
Helaba 0.7% 0.2% -0.2% 79.3%
High Frequency Economics 0.7% 0.2% 0.3% 79.6%
Horizon Investments 0.7% 0.2% 0.1% 79.5%
HSBC Markets 0.7% 0.2% -0.1% 79.2%
IDEAglobal 0.8% 0.2% 0.3% 79.7%
ING Financial Markets 0.7% 0.2% -0.1% 79.4%
Insight Economics 0.6% 0.3% 0.1% 79.2%
Intesa-SanPaulo 0.7% 0.2% 0.1% ---
J.P. Morgan Chase 0.8% 0.2% 0.5% 79.7%
Janney Montgomery Scott L 1.1% 0.3% -0.3% 79.0%
JPMorgan Private Client 0.6% 0.2% -0.1% 79.3%
Landesbank Berlin 0.5% 0.3% -0.3% 79.0%
Lehman Brothers 0.8% 0.2% 0.0% 79.3%
Lloyds TSB 0.7% 0.3% 0.2% 79.4%
Maria Fiorini Ramirez Inc 0.8% 0.2% 0.0% 79.3%
Merk Investments 0.9% 0.2% -0.1% 79.4%
Merrill Lynch 0.8% 0.2% 0.4% 79.6%
Moody's Economy.com 0.5% 0.2% -0.2% 79.1%
Morgan Stanley & Co. 0.8% 0.2% 0.5% 79.7%
National Bank Financial 0.8% 0.2% --- ---
National City Corporation 0.5% 0.2% 0.2% 79.5%
Natixis 0.7% 0.2% -0.2% 79.4%
Newedge 0.6% 0.2% 0.0% ---
Nomura Securities Intl. 0.8% 0.2% -0.2% 79.1%
Nord/LB 0.7% 0.2% -0.1% 79.2%
Okasan Securities 1.0% 0.2% 0.3% 79.3%
PNC Bank 0.7% 0.2% 0.3% 79.5%
RBS Greenwich Capital 0.7% 0.2% 0.3% ---
Ried, Thunberg & Co. 0.8% 0.2% 0.4% 79.6%
Schneider Trading Associa 0.7% 0.3% 0.3% 79.5%
Scotia Capital 0.8% 0.2% 0.1% 79.5%
Societe Generale 0.9% 0.2% 0.2% 79.4%
Standard Chartered 0.7% 0.2% -0.1% 79.3%
Stone & McCarthy Research 0.6% 0.2% -0.1% 79.2%
TD Securities 0.7% 0.2% 0.0% ---
Thomson Financial/IFR 0.8% 0.3% -0.3% 79.1%
UBS Securities LLC 0.8% 0.2% 0.2% ---
Unicredit MIB 0.6% 0.2% 0.0% 79.2%
University of Maryland 0.7% 0.2% 0.3% 79.6%
Wachovia Corp. 0.7% 0.2% 0.0% 79.3%
Wells Fargo & Co. 0.7% --- 0.3% 79.5%
WestLB AG 0.6% 0.2% -0.1% 79.3%
Westpac Banking Co. 0.5% 0.2% -0.1% ---
Wrightson Associates 0.8% 0.2% 0.4% 79.6%
================================================================
To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net
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Paulson Pounded by Investors as He Seeks to Halt Market Crisis
By Brendan Murray and Rebecca Christie
July 16 (Bloomberg) -- U.S. Treasury Secretary Henry Paulson, who arrived in Washington two years ago from the summit of American capitalism, is being pummeled by the markets that nurtured him.
Investors are rebuffing Paulson's plan to rescue the nation's two largest mortgage-finance companies. Shares of Fannie Mae have slid 31 percent, Freddie Mac has lost 32 percent and the Standard & Poor's 500 Financial Index has fallen 8 percent since his July 13 pledge of government support. Yesterday the skepticism spread to his own Republican Party, signaling what may be a tough fight ahead for his proposal.
Paulson, who came from Goldman Sachs Group Inc. expecting his biggest tasks to be forging a compromise on Social Security and fostering an economic dialogue with China, today faces a deepening housing crisis and a stock market lower than the day he started.
``This is a man who finds himself in a whirlpool he never dreamed he'd see,'' said David Kotok, chairman and chief investment officer of Cumberland Advisors Inc., a Vineland, New Jersey, firm that manages $1 billion.
He is also advocating policies he might not have expected to embrace. Paulson's recognition that the threats Fannie Mae and Freddie Mac pose require a federal response helped convince President George W. Bush to back the rescue plan.
``In the short term, you do what you need to do to protect the financial system,'' Keith Hennessey, the director of Bush's National Economic Council, said in an interview.
`Systemic Financial Risk'
The Bush administration's decision to back the mortgage companies, as well as the Federal Reserve's aid for Bear Stearns Cos. earlier this year, are ``specific cases that could involve systemic financial risk'' Hennessey said.
When Paulson, 62, started at Treasury in July 2006, consumer confidence in the U.S. was rising, stocks were advancing and crude oil cost half what it does today. His agenda included helping American businesses and workers become more competitive.
``The global economy has been more robust than at any point I can recall,'' the former Goldman Sachs chairman said in his first major speech, in August 2006, at Columbia University's business school in New York.
That changed a year later. U.S. credit markets began to deteriorate in August 2007 as debt linked to mortgage-backed securities fell in value, altering Paulson's initial plans to address ``long-term challenges'' to economic growth.
First Steps
As the crisis unfolded, sending stocks down for five straight months between November 2007 and March of this year, Paulson's initial efforts to respond met with only limited success.
He organized a group of mortgage lenders and services into an alliance called ``Hope Now'' to help struggling homeowners. It was criticized by House Financial Services Committee Chairman Barney Frank for moving too slowly.
Paulson tried to get banks including Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co. to start an $80 billion fund to draw investors back into the market for short- term debt. Under an agreement he brokered, the fund would buy some of the $320 billion in assets held by structured- investment vehicles. The effort never got off the ground, because the banks decided to arrange their own rescues.
As the instability spread to Bear Stearns earlier this year, he helped organize the Fed's response: a $30 billion package to help facilitate JPMorgan's purchase of Bear in March. The government's help was needed to prevent the collapse of Wall Street's fifth-biggest bank from taking down the financial system, Paulson said.
Unprecedented Problems
``To be fair, he's facing problems that no one has ever faced before,'' said Peter Wallison, a fellow at the American Enterprise Institute in Washington and a former Treasury general counsel.
Those problems have multiplied with Fannie Mae and Freddie Mac. The companies have struggled as mortgage defaults soared, sending the value of mortgage-backed securities -- their main investment -- plummeting.
Paulson this week asked Congress to approve a plan to let the Treasury increase the companies' credit lines from $2.25 billion each, buy shares in them if necessary and give the Federal Reserve a role in setting their capital requirements.
He won the approval of Bush, who has ``tremendous confidence'' in Paulson, Hennessey said. ``There's no one with more experience, institutional knowledge and the connections to help the president.''
Credibility Questioned
At the same time, Paulson's credibility has been called into question both by the market reaction to his efforts and at a hearing yesterday in the Senate.
``The market has reacted to your plan by driving down Fannie Mae shares 26 percent today,'' Senator Jim Bunning, a Kentucky Republican, told the Treasury chief. ``Freddie Mac's are down 29 percent at this moment, just in case you are interested in how the markets are reacting to your wonderful plan.''
After a verbal lashing from senators of both parties, Paulson emphasized the urgency of the proposal.
This ``will be a great confidence-builder throughout the world, to see Republicans and Democrats, both houses come together and do something quickly here,'' he said.
Other lawmakers praise Paulson's willingness to work with Democrats. ``One of the things that Paulson has done is get the president to be sensible,'' Frank, a Massachusetts Democrat, said in an interview yesterday.
`Still Optimistic'
Paulson took the hearing in stride, David Nason, the Treasury's assistant secretary for financial institutions, said in an interview late yesterday. ``We're still optimistic that we're going to be able to get this done on a short time frame,'' Nason said.
Still, as Paulson spoke to the Senate panel, yields widened between Freddie Mac's and Fannie Mae's five-year debt and five-year U.S. Treasuries, signaling doubt that the government response would help.
Paulson has repeatedly emphasized the virtues of ``market discipline'' -- code words for self-policing. Now, with Fannie Mae and Freddie Mac in crisis, he has endorsed what critics say may be an open-ended commitment to save them.
``They say there are no atheists in a foxhole,'' said Harvard economist Jeffrey Frankel, a former Clinton administration official. ``Well, there are no libertarians in a financial crisis, either.''
To contact the reporters on this story: Brendan Murray at brmurray@bloomberg.net; Rebecca Christie in Washington at Rchristie4@bloomberg.net
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UBS Seeks to Appease Clients With Auction-Rate Buy
By Christopher Condon
July 16 (Bloomberg) -- UBS AG, Switzerland's largest bank, plans to buy back as much as $3.5 billion of auction-rate preferred shares after being sued in the U.S. for fraudulently selling the securities as low-risk alternatives to cash.
Investors will be able to get their money back in full, the Zurich-based company said yesterday in a statement. The offer, the first by a broker, applies to shares issued by tax-exempt closed-end funds managed by firms such as BlackRock Inc. and Nuveen Investments Inc. It doesn't include auction-rate debt from municipalities or student-loan providers.
UBS was sued last month by Massachusetts Secretary of State William Galvin, who said investors were misled by brokers and financial advisers into believing the securities were as safe as cash while paying higher dividends. At least 15 lawsuits have been filed against securities firms on behalf of investors whose money was frozen when the auction-rate market collapsed in February amid fallout from the subprime-mortgage crisis.
``It's fabulous,'' Harry Newton, 66, an investor in New York who owns $3.5 million in auction-rate preferred securities, said in an interview. ``They were the worst of all the brokerage companies that sold this stuff.''
UBS said last month it will ``defend the specific allegations'' of Galvin's suit. UBS spokeswoman Rohini Pragasam declined to comment yesterday. Galvin couldn't be reached for comment.
Pressure on Banks
``Obviously this is constructive, but other steps remain and there is no timetable mentioned,'' David Chandler, 68, the lead plaintiff in a lawsuit against UBS, said in an interview from his home in San Diego.
The UBS announcement will put pressure on other brokers to make similar offers, said Joseph Witthohn, a research analyst for Janney Montgomery Scott LLC in Philadelphia.
``You can be sure they're going to get calls from clients asking if they're going to do the same thing,'' Witthohn said.
Auction-rate securities were bought by individuals and corporations in auctions run by dealers. Dividend rates were set every seven, 28 or 35 days, a feature promoted by the brokers as providing the ability to buy or sell quickly. As much as $218 billion of the $330 billion of auction-rate bonds and shares outstanding in February remains frozen.
UBS will finance the repurchases by reissuing the preferred shares in a private placement through a trust that will be consolidated on the bank's balance sheet. The reissued shares will carry a put option, guaranteeing the holder the right to sell, and will be marketed to money-market funds and other institutional investors.
Credit Losses
The bank, the hardest hit in Europe by the holdings in subprime mortgage-backed securities, has written down more than $38 billion in losses in the past three quarters, equal to more than two-thirds of equity it had at the end of June 2007. UBS didn't say how the buyback will affect earnings or capital.
The UBS plan is similar to those announced by the three largest U.S. closed-end fund companies. Chicago-based Nuveen, BlackRock in New York and Boston-based Eaton Vance Corp. intend to replace some outstanding preferred shares with new ones carrying a put option that they hope will attract capital from U.S. money-market funds, which control $3.5 trillion.
The bank said it received guidance from the U.S. Treasury and is in talks with the Securities and Exchange Commission over the planned reissue. The staff of the SEC has already approved the closed-end funds' proposals.
UBS said it hopes to begin making repurchase offers ``within 30 days of resolving these regulatory issues.''
To contact the reporter on this story: Christopher Condon in Boston at ccondon4@bloomberg.net
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Pound Snaps Three-Day Gain Versus Dollar, Falls Against Euro
By Justin Carrigan
July 16 (Bloomberg) -- The pound snapped three days of gains against the dollar and fell versus the euro.
The U.K. currency dropped to $2.003 as of 6:48 a.m. in London, from $2.006 yesterday. It weakened to 79.37 pence per euro, from 79.33 pence.
To contact the reporter on this story: Justin Carrigan in London at jcarrigan@bloomberg.net
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July 16 (Bloomberg) -- The pound snapped three days of gains against the dollar and fell versus the euro.
The U.K. currency dropped to $2.003 as of 6:48 a.m. in London, from $2.006 yesterday. It weakened to 79.37 pence per euro, from 79.33 pence.
To contact the reporter on this story: Justin Carrigan in London at jcarrigan@bloomberg.net
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Australian Dollar Falls After Stevens Says Inflation to Slow
By Ron Harui
July 16 (Bloomberg) -- The Australian dollar fell from a 25-year high and two-year government bonds advanced after Reserve Bank of Australia Governor Glenn Stevens signaled interest rates may be high enough to keep inflation in check.
Australia's dollar snapped a four-day gain after Stevens told economists that the chances of ``keeping inflation low over the medium term are good,'' suggesting the RBA may have finished raising rates. The currency also declined as the yield premium on the nation's two-year debt compared with similar-maturity Treasuries narrowed 6 basis points to 4.17 percentage points.
``Interest rates are at a peak is the bottom line of the speech,'' said Matthew Johnson, an economist at ICAP Australia Ltd. in Sydney. ``The Australian dollar might go down, and that's what we're seeing immediately.''
The Australian dollar slipped to 97.78 U.S. cents at 2:10 p.m. in Sydney from 98.07 cents before the speech and an earlier high of 98.49 cents, the strongest since January 1983. The currency weakened 0.6 percent to 102.24 yen from 102.88 yen.
The RBA's outlook on inflation ``does involve a period of significantly slower growth in demand in Australia,'' Stevens said in a speech in Sydney today. ``We still expect inflation to fall back to 3 percent by mid-2010, and to continue declining gradually thereafter.''
Australia's benchmark interest rate is at a 12-year high of 7.25 percent, compared with 2 percent in the U.S. and 0.5 percent in Japan, making the country a popular destination for international investors seeking higher returns. The local currency, known as the Aussie, has risen the most among the 16 most-active currencies versus the U.S. dollar this year.
Traders increased bets that the RBA will lower its benchmark rate after Steven's speech. A Credit Suisse Group index based on interest-rate swaps showed the central bank will cut borrowing costs by 13 basis points in the next 12 months, compared with 2 basis points yesterday. A basis point is 0.01 percentage point.
Australian two-year government bond yields slid 10 basis points to 6.51 percent. Bond yields move inversely to prices.
To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net;
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Rupiah to Outperform Other Asian Currencies, State Street Says
By Lilian Karunungan
July 16 (Bloomberg) -- Investors should buy the Indonesian rupiah as the nation's interest-rate advantage attracts overseas funds and commodity exports boost Southeast Asia's largest economy, according to State Street Global Markets.
The currency will rise to the strongest level since June 2007 by the end of the third quarter, Dwyfor Evans, a Hong Kong- based strategist at the unit of the world's biggest money manager for institutions, said in an interview today. Bank Indonesia has countered inflation better than other central banks in the region by increasing interest rates and allowing the rupiah to strengthen, he said.
``It's one of the Asian currencies with the strongest and clearest buy signal at the moment,'' Evans said. The central bank's ``rate-tightening cycle has been a boon in terms of interest-rate differentials.''
The rupiah appreciated about 2 percent over the past month, the second-biggest gainer among the 10 most-active Asian currencies outside of Japan. It traded at 9,133 as of 12:08 p.m. in Jakarta today.
The currency may advance 1.5 percent to 9,000 by the end of September, Evans predicted. Only three of 21 analysts surveyed by Bloomberg have a similar or more bullish forecast.
Indonesia is the world's biggest producer of palm oil and the largest thermal coal exporter. Its total sales abroad increased 31 percent in May from a year earlier, swelling the trade balance to $3.2 billion, double the amount in April, the government said on July 1. Foreign-exchange reserves were at a record $59.5 billion in June.
Volatility Falls
Policy makers will add to this year's three interest-rate increases by raising the benchmark borrowing cost by another quarter-percentage point at their next meeting on Aug. 5, Evans said in a report dated yesterday.
Indonesia's inflation accelerated to 11 percent in June, the fastest in 21 months, after the government cut fuel subsidies. The interest-rate premium over the U.S. benchmark rate stands at 6.75 percent, the widest since 2006.
The rupiah has also gained as volatility fell to near an all-time low, State Street's report said. Implied volatility on one-month dollar-rupiah options was at 5.15 percent compared with 8.75 percent on May 28, the highest this year.
Traders quote implied volatility, a gauge of expected swings in exchange rates, as part of pricing options. Options give the right, but not the obligation, to buy or sell a security at a pre-set time and price.
``The rupiah is no longer one of the more volatile currencies,'' Evans said in the report. It is a ``managed floating currency'' as the central bank has been selling dollars to stem a slide in the rupiah to quell inflation.
To contact the reporter on this story: Lilian Karunungan in Singapore at at lkarunungan@bloomberg.net.
Read more...
July 16 (Bloomberg) -- Investors should buy the Indonesian rupiah as the nation's interest-rate advantage attracts overseas funds and commodity exports boost Southeast Asia's largest economy, according to State Street Global Markets.
The currency will rise to the strongest level since June 2007 by the end of the third quarter, Dwyfor Evans, a Hong Kong- based strategist at the unit of the world's biggest money manager for institutions, said in an interview today. Bank Indonesia has countered inflation better than other central banks in the region by increasing interest rates and allowing the rupiah to strengthen, he said.
``It's one of the Asian currencies with the strongest and clearest buy signal at the moment,'' Evans said. The central bank's ``rate-tightening cycle has been a boon in terms of interest-rate differentials.''
The rupiah appreciated about 2 percent over the past month, the second-biggest gainer among the 10 most-active Asian currencies outside of Japan. It traded at 9,133 as of 12:08 p.m. in Jakarta today.
The currency may advance 1.5 percent to 9,000 by the end of September, Evans predicted. Only three of 21 analysts surveyed by Bloomberg have a similar or more bullish forecast.
Indonesia is the world's biggest producer of palm oil and the largest thermal coal exporter. Its total sales abroad increased 31 percent in May from a year earlier, swelling the trade balance to $3.2 billion, double the amount in April, the government said on July 1. Foreign-exchange reserves were at a record $59.5 billion in June.
Volatility Falls
Policy makers will add to this year's three interest-rate increases by raising the benchmark borrowing cost by another quarter-percentage point at their next meeting on Aug. 5, Evans said in a report dated yesterday.
Indonesia's inflation accelerated to 11 percent in June, the fastest in 21 months, after the government cut fuel subsidies. The interest-rate premium over the U.S. benchmark rate stands at 6.75 percent, the widest since 2006.
The rupiah has also gained as volatility fell to near an all-time low, State Street's report said. Implied volatility on one-month dollar-rupiah options was at 5.15 percent compared with 8.75 percent on May 28, the highest this year.
Traders quote implied volatility, a gauge of expected swings in exchange rates, as part of pricing options. Options give the right, but not the obligation, to buy or sell a security at a pre-set time and price.
``The rupiah is no longer one of the more volatile currencies,'' Evans said in the report. It is a ``managed floating currency'' as the central bank has been selling dollars to stem a slide in the rupiah to quell inflation.
To contact the reporter on this story: Lilian Karunungan in Singapore at at lkarunungan@bloomberg.net.
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Yen Sales by Tokyo Individual Investors at Highest Since August
By Kosuke Goto
July 16 (Bloomberg) -- Yen sales by Japanese individual investors on the Tokyo Financial Exchange reached the most since August yesterday as gains in the yen made higher-yielding assets abroad cheaper.
Housewives, pensioners and businessmen accelerated purchases of foreign exchange as Japan's currency rose to a six-week high against the dollar. The highest yen sales in 11 months came as Bank of Japan policy makers unanimously voted to keep interest rates at 0.5 percent and cut their economic growth forecast, raising speculation the central bank will leave borrowing costs unchanged beyond this year.
``With Japan's interest rates expected to remain low for a long time, Japanese investors have persistent demand for higher- yielding currencies,'' said Takahide Nagasaki, senior currency strategist in Tokyo at Daiwa Securities SMBC Co., a unit of Japan's second-largest brokerage. ``Their yen sales help stem any sharp appreciation of the yen.''
Net short positions, or bets a currency will decline, on the yen against seven major currencies, including the U.S. dollar and euro, rose to 353,418 contracts among so-called mom-and-pop traders yesterday, the highest since Aug. 14, exchange data showed.
Investors increased net long positions on the U.S. currency to a four-month high of 105,990 contracts, and on the euro to a five-month high of 20,869 contracts. A long position is a bet that an asset price will rise.
The contracts are denominated in 10,000 units of foreign currency.
The yen traded at 104.84 per dollar at 10:50 a.m. in Tokyo from 104.73 in New York yesterday, when it rose to 104.16, the strongest since June 3. It was also at 166.84 a euro from 166.65 yesterday, when it climbed to 166.42, the highest since July 1.
Carry Trades
Japan's benchmark rate is the lowest among major economies, making assets outside of the country more attractive to domestic investors. Benchmark borrowing costs are 2 percent in the U.S. and 4.25 percent at the European Central Bank.
The BOJ may keep rates on hold at least until the first quarter, Daiwa Securities SMBC's Nagasaki said.
The exchange's data signals Japan's individual investors may be resuming carry trades after reducing their positions as some higher-yielding currencies depreciated in the past year due to the U.S. subprime mortgage crisis.
In carry trades, investors get funds in countries with low borrowing costs and buy assets in countries with higher rates, earning the spread between the two. The risk is that currency moves erase those profits.
So-called margin trading of currencies in Japan using borrowed funds rose 86 percent in the first quarter to a record 213 trillion yen ($2.03 trillion), figures from the Financial Futures Association of Japan showed in May.
Japanese households have 1,490 trillion yen in financial assets, according to the Bank of Japan.
To contact the reporters on this story: Kosuke Goto in Tokyo at kgoto2@bloomberg.net
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Dollar Declines Against Yen as U.S. Banks May Report Losses
By Stanley White and Kosuke Goto
July 16 (Bloomberg) -- The dollar fell against the yen on speculation U.S. banks will report further losses this week, eroding confidence in the financial system of the world's largest economy.
The U.S. currency traded near a record low versus the euro before quarterly earnings from Wells Fargo & Co., Merrill Lynch & Co., JPMorgan Chase and Citigroup Inc. that may show banks are losing more money after the U.S. subprime mortgage collapse. Federal Reserve Chairman Ben S. Bernanke yesterday abandoned his view that economic risks had diminished as regulators announced plans for a rescue of Freddie Mac and Fannie Mae, the two largest buyers of U.S. mortgages. The yen rose as losses in Asian stocks spurred investors to pare so-called carry trades.
``Dollar selling will continue for some time,'' said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. ``Bank earnings will likely highlight that the U.S. financial system isn't stable. A protracted downturn in U.S. economic growth is all but unavoidable.''
The dollar fell to 104.41 yen as of 6:55 a.m. in London, from 104.73 yen late yesterday in New York. It traded at $1.5907 per euro, after touching $1.6038 yesterday, the weakest since the 15-nation currency's 1999 debut. Japan's currency rose to 166.10 per euro from 166.65. The dollar may weaken to $1.5920 versus the euro and 104.40 yen today, Soma forecast.
The Australian dollar declined to 97.80 U.S. cents from 97.93 cents late yesterday in New York after Reserve Bank of Australia Governor Glenn Stevens said slowing demand will ease inflationary pressure. The Aussie, as the currency is known, reached a 25-year high of 98.49 cents yesterday.
`Yen Buying'
The yen rose to 102.20 per Australian dollar from 102.56. It also gained 0.4 percent against the New Zealand dollar to 80.62 and 0.2 percent versus the South African rand to 13.6545. The MSCI Asia-Pacific Index of regional shares fell 0.2 percent for its third day of declines.
``Risk aversion is prompting yen-buying,'' said Akira Kato, senior manager of the foreign-exchange trading department in Tokyo at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan's biggest publicly traded lender by assets. ``Investors are concerned about U.S. government-sponsored enterprises and upcoming earning reports from the U.S.''
The yen may rise to 165.50 a euro today, he said.
In carry trades investors borrow in countries with low interest rates and invest in high-yielding assets elsewhere. Japan's 0.5 percent target lending rate compares with 4.25 percent for the European Central Bank, 7.25 percent in Australia, 8.25 percent in New Zealand and 12 percent in South Africa.
$400 Billion
Wells Fargo, the second-biggest U.S. mortgage lender, reports quarterly earnings today. JPMorgan Chase and Merrill announce results tomorrow, while Citigroup, the biggest U.S. bank, publishes its earnings on July 18.
Global banks and securities firms have reported losses of about $400 billion due to rising defaults on mortgages for U.S. homeowners with poor credit, according to Bloomberg data.
In testimony before the Senate Banking Committee yesterday, Bernanke abandoned his June assessment that the threat of an economic downturn has diminished, telling lawmakers that growth and inflation risks are increasing. Treasury Secretary Henry Paulson told the panel that the government would buy shares in Fannie and Freddie ``only if necessary.'' Bernanke speaks again before the House Financial Services Committee at 10 a.m. in Washington today.
`More Bearish'
``Bernanke has become a bit more bearish on the U.S. economy than before,'' said Yuji Kameoka, a senior economist and currency analyst in Tokyo at Daiwa Institute of Research, a unit of Japan's second-largest brokerage. ``This reduces expectations for a Fed rate increases this year and is currently weighing on the dollar.''
The U.S. currency may move between 104 yen and 106 yen, and $1.58 and $1.60 a euro this week, he said.
Federal funds futures on the Chicago Board of Trade show a 7 percent chance the Fed will increase its 2 percent target lending rate at its Aug. 5 meeting, compared with 77 percent odds a month ago.
The Dollar Index, which tracks the greenback against the currencies of six U.S. trading partners, fell for a sixth day, dropping 0.2 percent to 71.71.
The U.S. currency has given up most of the gains made versus the euro since July 3, when European Central Bank President Jean-Claude Trichet said he had ``no bias'' on future interest-rate moves. The dollar strengthened 0.6 percent to $1.5706 per euro that week. It has since slumped 1.2 percent on concern that losses at Fannie Mae and Freddie Mac will deepen.
Consumer Prices
U.S. consumer prices may have risen at an annual rate of 4.5 percent in June, the most since September 2005, according to the median forecast of economists surveyed by Bloomberg News. The Labor Department report is due at 8:30 a.m. New York time.
``Consumer-price data aren't likely to support the dollar,'' Masafumi Yamamoto, head of foreign-exchange strategy for Japan at Royal Bank of Scotland Plc in Tokyo and a former Bank of Japan currency trader, wrote in a research note today. ``It will serve as a reminder that the U.S. faces stagflationary risks, making it difficult to conduct monetary policy.''
The dollar may fall to a seven-week low of 103.70 yen, according to technical analysis of its price chart, said Masashi Hashimoto, a senior currency analyst at Bank of Tokyo-Mitsubishi UFJ Ltd. in Tokyo.
The U.S. currency is poised to slide as the relative strength index, a comparison of the magnitude of gains and losses, shows the dollar is losing momentum, Hashimoto said. The dollar's 14-day relative strength index against the yen, was 37.3 today, down from 46.4 on July 14 and 51.6 a week ago.
The so-called support level of about 103.70 yen represents a 38.2 percent reversal of the dollar's climb to a high of 108.58 reached on June 16 from a low of 95.76 on March 17, based on a series of numbers known as the Fibonacci sequence. Support is a level where buying is expected to outweigh selling.
To contact the reporters on this story: Stanley White in Tokyo at swhite28@bloomberg.net; Kosuke Goto in Tokyo at kgoto2@bloomberg.net.
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