Daily Report: Sterling Lower on Cross Actions, Dollar Steady ahead of PCE

Market Overview | Written by ActionForex.com | Aug 04 08 07:13 GMT |

Sterling dives against dollar as markets enter into European session on rumors that a major bank was set to announce a loss in UK. Nevertheless, the weakness in sterling is believed to be cross driven as EUR/GBP fails to take out medium term range while GBP/CHF has made a short term top ahead of medium term resistance. As mentioned before, the cable is relatively resilient among the majors and is the only one still holding above near term support level. But it seems that it's time for cable to catch up and align with other major pairs with dollar continuing to build up strengths. Markets focus in European session will be on Swiss SVME PMI, UK construction PMI and Eurozone PPI. Australia's house price index showed first drop in almost three years, falling -0.3% qoq, dragging yoy rate down to 8.2% in Q2. Though, the reading was slightly better than expectation of 1.0%qoq, 8.2% yoy. AUD/USD recovers mildly as the pair is deeply oversold too but further downside is still in expected from intraday point of view as long as 0.9381 minor resistance holds. Elsewhere, dollar remains steady against other major currencies. Focus is on personal income and spending report today which is expected to show -0.2% drop of income in Jun while spending rose 0.5%. Headline PCE is expected to surge further to 3.9% yoy with core PCE mildly up to 2.1% yoy. Factory orders will be released and is expected to rise 0.7% in Jun. GBP/USD Daily Outlook Daily Pivots: (S1) 1.9704; (P) 1.9773; (R1) 1.9819; More Cable dives further to as low as 1.9701 into European session today. At this point, intraday bias remains on the downside as long as 1.9788 minor resistance holds. Further fall should be seen to test key near term support at 1.9647 support. As discussed before, development in other pairs argues that dollar is staging a stronger rally. Break of 1.9647 support will put cable back inline with other majors and will target 1.9337/63 support zone next. On the upside, above 1.9788 will turn intraday outlook neutral first. But still, further decline is in favor as long as recovery is limited by 1.9930 resistance. Though, strong rebound above 1.9647, followed by break of 1.9930 resistance will revive the case that rise from 1.9363 is still in progress for 2.0391 resistance before completion. In the bigger picture, down trend from 2.1161 have made a low at 1.9337. Subsequent price action is treated as consolidation in third down trend only. Recent development argues that this consolidation is unfolding as a triangle pattern with rise from 1.9363 as the third leg. Break of 1.9647 will add more credence to this case and bring deeper fall to 1.9337/63 support zone. Though, support should be seen there and bring another rise, the fifth leg in the triangle, before completing the consolidation. On the upside, though, above 1.9930 will revive that case that cable might be developing three wave sideway consolidation instead with rise from 1.9363 going to extend to retest 2.0391 resistance. Nevertheless, upside should still be limited by 61.8% retracement of 2.1161 to 1.9337 at 2.0464.

Economic Indicators Update

GMT	Ccy	Events	Actual	Consensus	Previous	Revised
1:30	AUD	Australia Hse price index Q/Q Q2	-0.30%	-1.00%	1.10%
1:30	AUD	Australia Hse price index Y/Y Q2	8.20%	8.10%	13.80%
7:30	CHF	Swiss SVME PMI Jul		53.3	54.9
8:30	GBP	U.K. PMI construction Jul		37.5	38.8
9:00	EUR	Eurozone PPI M/M Jun		0.80%	1.20%
9:00	EUR	Eurozone PPI Y/Y Jun		7.90%	7.10%
12:30	USD	U.S. PCE core M/M Jun		0.20%	0.10%
12:30	USD	U.S. PCE core Y/Y Jun		2.20%	2.10%
12:30	USD	U.S. PCE index M/M Jun		N/A	0.40%
12:30	USD	U.S. PCE index Y/Y Jun		3.90%	3.10%
12:30	USD	U.S. Personal income Jun		-0.20%	1.90%
12:30	USD	U.S. Personal spending Jul		0.50%	0.80%
14:00	USD	U.S. Factory orders Jun		0.70%	0.60%
		Canada Market holiday

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Today's Key Points

Daily Forex Fundamentals | Written by Danske Bank | Aug 04 08 07:23 GMT |

Danske Daily The bearish sentiment in the equity markets continue, led by automakers and commodity producers. However, the US bond market rallied after the labour market report and ended Friday down a few bp. Key events today are Euroland PPI data and personal spending from the US including the core PCE deflator - we expect an 0.3% m/m rise in the core PCE deflator. Markets Overnight Asian stock markets declined for a second day following the negative sentiment from the US markets. The decline was led by automakers and commodity producers, after Nissan and Olympus Corp. said that their earnings dropped, and metal prices retreated. BHP, the world's largest mining group, lost 1.6%. The MSCI Asia pacific index lost 1.3% and the Nikkei index has shed 0.6% this morning. US stocks performed very poorly on Friday, adding to two months of losses for the S&P 500 Index, after the labour market report showed an increase in the unemployment rate to 5.7% in July, and some horrible data from General Motors, the number one US car maker, which plunged after posting the third-biggest loss in its 100-year history. This coincided with a report showing that US auto sales tumbled 13% in July. S&P500 lost 0.6% on Friday. The US bond market had a volatile session on Friday, starting at 3.95% in 10Y Treasuries bouncing up to 4% before ending the session at 3.93%. A mixed session in Asian bond markets, where yields on 10Y JGB rise ahead of a government bond auction tomorrow. In the currency markets USD/JPY and EUR/USD have been range trading this morning. USD/JPY is trading at 107.7 more or less unchanged from Friday's close. The dollar is modestly weaker against the euro this morning, trading around the 155.8-level after having traded at 155.5-level on Friday. SEK has stabilised at the 947- level versus the euro, while EUR/NOK is trading at the 800-level this morning. Global Daily After a hectic ending of last week, today's calendar is somewhat lighter. In Euroland the only data of interest is the June PPI data at 11:00. Later in the day, at 14:30, the June US personal spending report is due. The key data of the report is the core PCE deflator. Here we expect that an unfavourable decimal rounding will result in a 0.3% m/m reading - slightly higher than the consensus expectation of 0.2% m/m. This should take annual core PCE inflation a notch higher to 2.3% m/m. The report will also include personal nominal spending, where we look for a 0.5% m/m (consensus 0.5% m/m) reading. Despite solid nominal growth, real personal spending should decline slightly in June due to extremely high headline PCE inflation. Generally, however, the information in the report should be relatively redundant, as Q2 national accounts were released last week and the June data had been implemented in these numbers. In the bond markets attention is likely to mostly focus on key events later this week, when all G3 countries will see monetary policy decisions - Tuesday at the Fed and Thursday at ECB and BoE. Lending surveys from the Fed and ECB, which may be published this week, are also likely to be key events. As the earnings season continues at full speed, it will also be important to keep an eye on the Q2 reports throughout the week. Given the weight of the events ahead, we expect bond markets to trade relatively sideways today, barring any significant sentiment drivers from commodity or equity markets. Danske Bank http://www.danskebank.com/danskeresearch Disclaimer This publication has been prepared by Danske Markets for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Markets' research analysts are not permitted to invest in securities under coverage in their research sector. This publication is not intended for private customers in the UK or any person in the US. Danske Markets is a division of Danske Bank A/S, which is regulated by FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange. Copyright (©) Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.

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Daily Forex Analysis

Daily Forex Technicals | Written by FOREXYARD | Aug 04 08 08:03 GMT |

Headlines

US Economic Outlook Keeps USD From Rising.

Economic News

USD

Personal Spending and Factory Orders Will Determine USD Value.

The USD underwent a bullish trading session last week, as it appreciated versus all of its major currency rivals. The greenback saw significant bullishness on Tuesday and Wednesday as the Consumer Confidence Index beat our forecasts and the ADP Nonfarm Employment Change which was expected to be a low negative figure, turned out positive at 9K. Crude Oil also affected the USD and was very volatile last week. Traders noted that the Crude Oil was traded around $120 a barrel for part of the trading session on Tuesday. At the end of the week, the USD was traded around the 1.55 level against the EUR and 107.00 level against the JPY. Traders should also notice that towards the end of last week, the USD took advantage of the GBP's bearishness as the GBPUSD dropped to the mid 1.97's.

This week should be highly volatile for the greenback, as many crucial news events are expected to be released from the U.S. The major releases on tap this week will be: Personal Spending which will be announced today, the Federal Funds Rate which is expected to stay at 2.00% and ISM Non-Manufacturing Composite both on Tuesday and the very fragile Pending Home Sales which will affect the greenback very much on Wednesday. It might sound repetitive, but the Crude Oil will also be a huge factor in the USD's value and besides the pure economic data, the Crude Oil Inventories will affect the 'Black Gold's' price.

Looking specifically at today's economic calendar in the U.S, there will be a batch of releases. The USD's own volatility will be determined by the actual values of the Core PCE Price Index, Personal Spending and Factory Orders. With the current forecasts, look for the Personal Spending and Factory Orders to neutralize each other and both should cause some effects on the American stock market. Because of the number of data releases, the greenback should see some volatility; however its value shouldn't change much if the figures come out as expected.

EUR

Weak EUR Data May Reinforce Fears And Limit the Scope for EUR Gains.

The EUR saw a very bearish trading session last week, losing grounds to all of its currency crosses, besides the CHF. Overall there seemed to be a lack of impactful data releases to come out of the Euro-Zone compared to the average week and most of the major releases were bearish for the EUR. Germany, the Euro-Zone's biggest economy, had a bad week as the German Consumer Confidence and German Retail Sales both declined compared to their previous values and were lower than forecasted. The EUR was also hurt by the USD's success, which causes the cross to trade in the mid 1.55's, a steady trading zone that hasn't been reached in more than 2 months.

This week should be a little more interesting for EUR traders, as there is an ECB Press Conference and the announcement of the Minimum Bid Rate. Also look for more German economic data to come out as the German Factory Orders and German Industrial Production will be released on Wednesday and Thursday respectively. Both figures are forecasted to be higher than their previous values and this should help the EUR rebound against its currency rivals. There are minor data releases expected today from the Euro-Zone and it seems like the USD will be the dominant volatility source. The Sentix Investor Confidence monthly PPI will be released today and both are expected to be lower than their previous values so the EUR could fall even lower today.

JPY

Last Week's Drop in the Crude Oil Helped JPY Gain Grounds.

The JPY saw a fairly bullish trading session last week as it gained value against most of its currency crosses besides the USD. The week started with a drop in the Crude Oil prices that helped the export focused Yen gain grounds against most of its rivals. The better than forecasted yearly Overall Household Spending and Retail Sales also helped spark the positive momentum for the JPY. The Yen lost some of its positive trading trend with a lower than expected Prelim Industrial Production during the week, but overall saw bullish week. Most notable was the EUR/JPY that dropped to under 168 towards the end of the previous trading week.

No much Japanese made volatility will be seen this week as only three data releases are left to be announced. The two most impactful figures will be released on Wednesday and are expected to be bearish for the JPY. The focus should be going to the Core Machinery Orders, which is expected to significantly depreciate to -9.6% after recording a positive figure of 10.4% last month. As always, the American Crude Oil Inventories will also affect the JPY as the Crude Oil prices could get volatile after this release. Look for most of the Yen's trading trends to be caused by its currency crosses' momentum.

Oil

Oil is Up on Storm Factor.

Oil prices jumped above $126 a barrel today during the Asian session on concern that a showdown over Iran's nuclear program could threaten crude supplies out of the Middle East. Crude also continued its rising trend for a second day as a tropical storm Eduard threatens U.S. output in the Gulf of Mexico, and Israeli and U.S. officials sought additional sanctions against Iran. Light Crude for September delivery rose $1.20 to $126.30 a barrel in electronic trading on the New York Mercantile Exchange by midday in Singapore. The contract gained $1.02 on Friday to settle at $125.10 a barrel. Last week, hedge fund managers and other large speculators reduced their bets on falling Oil prices, according to Commodity Futures Trading Commission data. Overall, while the U.S. economy may be heading toward recession, demand in India and China remains strong, markets now expect the Oil to reach $175 a barrel before the end of the year.

Technical News

EUR/USD

The ongoing tight range continues without a break of any significant importance. The daily chart is maintaining a slightly bearish indication yet with no distinct conclusion. The Bollinger Bands on the 4 hour chart are tightening which indicates that the break might be imminent. Traders are advised to hold for the break and then swing into it.

GBP/USD

The intensive bearish trend is calming on the hourly charts, yet shows no real indication of a halt or a correction move. In fact, on the hourlies and the 4 hour chart a bearish formation is still intact. A negative slope on the daily chart's Slow Stochastic validates that notion. Going short seems to be a good choice today.

USD/JPY

After reaching the 107.23 level, the pair has marked it as a very strong support level and is showing difficulties breaking it locally. If that support will sustain an additional attempt, we may see a strong bullish correction move that might take the pair to the 108.20 level as a first step. Traders should pay close attention to that level as it holds high profit potential.

USD/CHF

The pair's movement is quite moderate and characterized by relatively low liquidity, with a slightly bullish move. Indicators on the 4 hour level shows mixed signals, as the daily studies are still a bit bullish. Waiting for a clear signal on the hourly level before entering the market might be wise.

The Wild Card

NZD/USD

The pair is in the middle of a strong bearish move ever since it peaked at 0.8220, and is now traded at 0.7230. The pair continues its nonstop bearish journey overlooking every possible support level and shows no sign of a stop. All oscillators on the daily chart are still bearish and the trend appears to have more room to run. Forex traders should note that being on the short side appears to be a wiser move during the day.

Indicators

Date	Time (GMT)	Country	Event	Period	Previous	Forecast	Importance
2008-08-04		CAD	Holiday: Civic Holiday		*	*	*
2008-08-04	01:30:00	AUD	House Price Index	q/q	1.1%	-1.0%	***
2008-08-04	07:30:00	CHF	SVME PMI		54.9	53.3	***
2008-08-04	08:30:00	EUR	Sentix Investor Confidence		-9.3	-10.0	*
2008-08-04	08:30:00	GBP	Construction PMI		38.8	37.6	***
2008-08-04	09:00:00	EUR	PPI	m/m	1.2%	0.9%	*
2008-08-04	11:30:00	USD	Challenger Job Cuts	y/y	46.7%	-	*
2008-08-04	12:30:00	USD	Core PCE Price Index	m/m	0.1%	0.2%	***
2008-08-04	12:30:00	USD	Personal Spending	m/m	0.8%	0.5%	***
2008-08-04	12:30:00	USD	Personal Income	m/m	1.9%	-0.1%	*
2008-08-04	14:00:00	USD	Factory Orders	m/m	0.6%	0.7%	***
2008-08-04	23:30:00	AUD	Services PMI		45.4	-	*

FOREXYARD

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Australia to Leave Benchmark Rate at 7.25 Percent

By Jacob Greber

Aug. 4 (Bloomberg) -- Australia's central bank will probably leave its benchmark interest rate at a 12-year high amid signs rising unemployment will cool inflation that has surged above its target range.

Governor Glenn Stevens will keep the overnight cash rate target at 7.25 percent tomorrow in Sydney, according to all 24 economists surveyed by Bloomberg News. A separate survey shows employment growth probably slowed to 5,000 extra jobs in July from 29,800 in June.

Slower jobs growth adds to signs four interest-rate increases in 12 months are cooling Australia's $1 trillion economy. Record gasoline prices and declining stock values also are prompting consumers and companies to slash spending, offsetting a surge in income from iron ore and coal exports.

``Reserve Bank policy makers aren't ready to cut yet, but when they do, it's likely to be 50 basis points,'' said Rory Robertson, an economist at Macquarie Group Ltd. in Sydney. ``The economy is seriously slowing.''

The Reserve Bank of Australia will announce its decision at 2:30 p.m. tomorrow in Sydney.

Policy makers have left borrowing costs unchanged since March, when they raised the benchmark rate for a second straight month to curb inflation.

Consumer prices jumped 4.5 percent in the second quarter from a year earlier as gasoline costs rose, a report showed last month. The central bank aims to keep annual inflation between 2 percent and 3 percent on average.

Consumer Confidence

Stevens said last month that the chances of keeping inflation ``low over the medium term are good.'' There is ``pretty clear evidence'' consumers and businesses are cutting expenditure, the governor said on July 16.

Since the bank's last meeting on July 1, reports show consumer confidence slumped in July to the lowest level in 16 years, retail sales fell in June by the most in six years, and lending to consumers and businesses rose at the slowest annual pace since 2002.

Home-loan approvals, which fell 7.9 percent in May, the most in eight years, probably dropped 2 percent in June, according to the median estimate of 21 economists surveyed by Bloomberg News. The government publishes its home-loan report at 11:30 a.m. on Aug. 6 in Sydney.

Rate Outlook

``It looks more likely now than it did a couple of months ago that this more moderate track for demand will continue,'' Stevens said on July 16. That will ``in due course begin to exert downward'' pressure on inflation, he said.

Investors have increased bets that the central bank will cut interest rates, according to a Credit Suisse Group index based on trading in interest-rate swaps.

Stevens will lower the benchmark rate by 68 basis points, or 0.68 percentage point, in the next 12 months, the index showed at 8:02 a.m. in Sydney. At the start of July, traders forecast 19 basis points of gains.

The Reserve Bank may cut its benchmark by as much as 3 percentage points by the end of 2009, said Stephen Koukoulas, a senior economist at TD Securities Ltd. in London.

``The collapse in the domestic economy appears to have gained breadth and momentum in recent months,'' Koukoulas said.

Job Losses

Qantas Airways Ltd., Australia's largest airline, said last month it will sack 1,500 workers, and meat processing company Don Smallgoods will cut 640 at factories in Perth and Melbourne.

Starbucks Corp., the world's largest chain of coffee shops, said July 29 it will close three-quarters of its 84 Australian stores, part of a plan to cut at least 12,000 jobs globally.

The jobless rate, which fell to a 34-year low of 3.9 percent in February, probably rose to 4.3 percent last month from 4.2 percent in June, according to the median estimate of 24 economists surveyed by Bloomberg News.

The government will publish the jobs report at 11:30 a.m. in Sydney on Aug. 7.

``The risk of recession is now very high,'' said Shane Oliver, senior economist at AMP Capital Investors in Sydney. ``The Reserve Bank should be cutting rates.''

To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Malaysian Export Growth Slows on Electronics Shipments to U.S.

By Stephanie Phang and Michael Munoz

Aug. 4 (Bloomberg) -- Malaysia's exports rose at the slowest pace in three months in June as shipments of electronics to the U.S. and European Union declined.

Overseas sales increased 18.4 percent from a year earlier to 58.2 billion ringgit ($17.8 billion), the Trade Ministry said in a statement in Kuala Lumpur today. That matched the median estimate of 14 economists in a Bloomberg News survey.

Slowing growth in the U.S., Asia's largest export market, is crimping demand for made-in-Malaysia Intel Corp. computer chips and other electronics. The pace of expansion in Malaysia's $151 billion economy may ease to about 5 percent this year from 6.3 percent in 2007, the central bank said last month.

``You've got an electronics slowdown,'' said Joseph Tan, a senior market strategist at Fortis Bank SA in Singapore. ``Invariably there will be a slowdown from the growth that we had last year, because the U.S. is still a very major trading partner for Malaysia.''

Shipments to the U.S. fell 5.8 percent to 7.07 billion ringgit in June from a year earlier on lower exports of electrical and electronics products, the trade ministry said. Sales to the EU slipped 1.7 percent.

The U.S., No. 1 buyer of Malaysian products last year, has fallen behind Singapore in the first six months of 2008.

Economic growth may moderate in the next 12 months, Bank Negara Malaysia said last week. The central bank broke with its inflation-fighting Asian neighbors when it kept rates unchanged at 3.5 percent on July 25, saying its immediate concern was to ``avoid a fundamental economic slowdown.'' Inflation jumped to a 26-year high of 7.7 percent in July.

Palm Oil

Overseas sales may weaken further in coming months as easing prices reduce the gains made by Malaysia's palm oil and energy exports so far this year. Malaysia is Southeast Asia's second-largest oil and gas producer and the world's No. 2 palm oil seller.

``Signs are emerging that this commodity boom may soon come to an end as a slower world economy and sky-high prices damp global demand for commodities,'' said Azrul Azwar Ahmad Tajudin, an economist at Bank Islam Malaysia Bhd. in Kuala Lumpur.

Crude oil in New York has slipped more than 14 percent from a record $147.27 a barrel on July 11, and palm oil produced by Sime Darby Bhd. and other Malaysian planters closed below 3,000 ringgit a ton on July 29 for the first time since December.

Exports of palm oil jumped 82.8 percent in June from a year earlier, though they fell 4.2 percent from May. Sales of crude oil climbed 50.2 percent from a year ago, the slowest pace in six months. Shipments of liquefied natural gas rose 60.1 percent.

Sales of Unisem Bhd. semiconductors and other electrical and electronics goods rose 6.5 percent from a year earlier, the smallest gain in three months. Such goods accounted for 38.5 percent of total exports in June, down from 40.4 percent the previous month.

Imports expanded 12.1 percent in June, leaving a trade surplus of 12.97 billion ringgit.

Exports increased 15.5 percent in the first six months from a year earlier. Imports rose 8.3 percent in the same period, leaving a trade surplus of 67.59 billion ringgit.

To contact the reporter on this story: Stephanie Phang in Singapore at sphang@bloomberg.net



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China Wins Financial Olympics as Losses Hit U.S.

By Cathy Chan

Aug. 4 (Bloomberg) -- China already has won most of the medals in the financial Olympics by avoiding the toxic debt investments that devastated banks in the U.S. and Europe.

Chinese banks hold three of top six spots among the world's largest financial companies based on market value, even though their shares fell more than 20 percent in Hong Kong trading since October. London-based HSBC Holdings Plc, the biggest non-Chinese bank, is No. 3, trailing Beijing-based Industrial & Commercial Bank of China Ltd. and China Construction Bank Corp.

The Chinese banks owe their rankings in part to having avoided almost all of the $480 billion in writedowns and credit- market losses that have sent bank stocks tumbling worldwide, data compiled by Bloomberg show. Only two years ago, the world's biggest banks were led by Citigroup Inc. and Bank of America Corp. of the U.S. and UBS AG in Europe.

``Compared with the continuing writedowns at Citigroup and Merrill Lynch, Chinese banks are definitely winning the financial medals,'' said Shao Chingxiao, managing partner of SMC China Fund in Shanghai, which owns shares of China Construction Bank and Bank of China Ltd., the world's fifth-largest bank.

ICBC's unaudited figures released July 3 show first-half profit rose more than 50 percent. Three days later, Beijing-based China Citic Bank Co. said earnings jumped more than 150 percent in the same period. China Construction Bank followed, saying net income may have advanced more than 50 percent.

ICBC and China Construction Bank are the most expensive among the 15 largest global banks by market value, trading at 3.2 times and 3.4 times book value, respectively, according to data compiled by Bloomberg. That compares with New York-based Citigroup, which trades at less than 1 times book value. Bank of America in Charlotte, North Carolina, the world's fourth-biggest bank by market value, is at 1.07 times book value.

Morgan Stanley

China's success in growing its state-owned domestic banks hasn't been matched by its investments in overseas financial firms. Chinese funds and companies spent $19.3 billion buying stakes in Blackstone Group LP, Morgan Stanley, Barclays Plc, Fortis and Johannesburg-based Standard Bank Group Ltd. since May 2007 that are now worth $7 billion less on paper.

The sprint into overseas financial stocks culminated Dec. 19 with Beijing-based China Investment Corp.'s $5 billion purchase of a 9 percent stake in New York-based Morgan Stanley, the second-biggest U.S. securities firm.

Morgan Stanley has declined 18 percent in New York trading since then. The $200 billion sovereign wealth fund also invested $3 billion in shares of New York-based Blackstone, manager of the world's largest buyout fund, only to see their value decline 41 percent since the firm's initial public offering in June 2007.

Paper Profits

The losses may have deterred China from making further investments in overseas banks rocked by credit-market turmoil, said Howard Wang, who oversees $10 billion at JF Asset Management in Hong Kong.

``The whole world is so uncertain right now,'' Wang said. ``And the Chinese government is so afraid of a misstep that will draw criticism that it doesn't want to play.''

By contrast, foreign banks' investments in Chinese financial firms have fared much better, showing $50 billion of paper profits, according to Bloomberg data.

The biggest winner is HSBC, which traces its origins to 1865, when it was incorporated in Hong Kong as Hong Kong & Shanghai Banking Co. It bought 19.9 percent of Shanghai-based Bank of Communications Co. in 2004, the country's fifth-largest lender, and 10 percent of Shenzhen-based Ping An Insurance (Group) Co., China's second-largest insurer, in 2002, later increasing that stake to 17 percent. HSBC is sitting on a $16 billion gain from those investments.

`A Marathon'

Bank of America, which bought 9 percent of China Construction Bank for $3 billion in 2005, has a $14 billion paper profit, Bloomberg data show.

For both China and non-Chinese banks, the value of their investments isn't measured only by stock price. Foreign banks are positioning themselves to sell services into the world's most populous country, where economic growth is above 10 percent.

Chinese banks and sovereign wealth funds, flush with cash, are eager to build their portfolios overseas and prove that China can compete on a global stage, said Richard Gibb, Asia head of financial-service investment banking at Merrill Lynch & Co. in Hong Kong.

``This is a marathon, not a 20-yard dash,'' Gibb said. ``The trend of Chinese institutions investing overseas will continue.''

Charles-Everard de T'Serclaes, who heads New York-based JPMorgan Chase & Co.'s insurance business in Asia, also said China has a long investment horizon.

Merrill's Slump

``They are now significant strategic investors in global financial institutions,'' de T'Serclaes said. ``This is a major shift from four to five years ago, when they were mostly recipients of international capital.''

While the Hang Seng China Enterprise Index, comprising 42 Chinese companies traded in Hong Kong, fell 23 percent this year, bank stocks outperformed. Of the four companies on the index that gained since Dec. 31, three are banks. ICBC climbed 4.5 percent, China Construction Bank rose 4.8 percent and China Citic Bank advanced 2.04 percent today.

By contrast, Merrill Lynch, the third-biggest U.S. securities firm by market value, has slumped 50 percent in 2008 in New York Stock Exchange composite trading. Merrill raised $8.5 billion on July 29 by selling shares to investors including Temasek Holdings Pte, following almost $19 billion of losses in the past 12 months.

Temasek, Singapore's sovereign wealth fund, agreed to buy an additional $3.4 billion of Merrill shares, cementing its status as the firm's biggest stockholder. It also received a $2.5 billion payment from New York-based Merrill to offset losses on an earlier investment.

Slowdown in Investing

China, unlike Singapore, has slowed its investments in overseas financial companies. China Development Bank's and Ping An's purchases of additional shares in London-based Barclays and Fortis, Belgium's biggest financial-services company, were the only such investments this year.

The government blocked plans by Beijing-based China Development Bank to invest in Citigroup because of the U.S. bank's mortgage-related losses, a person with knowledge of the decision said in January. At almost $103 billion, Citigroup's market value is less than half of China Construction Bank's.

``They, like anyone else, are scared,'' said Glenn Henricksen, chief financial officer of Vestasia Ltd., a financial advisory firm in Shenzhen, China. ``Look at what's going on with financial institutions around the globe.''

Olympic Moves

Chinese banks may not be as well off as they seem, according to Henricksen. A drop in real estate prices in Shenzhen and other cities, along with the government's decision to raise reserve ratios, don't bode well, he said.

``I expect the credit quality of the banks' portfolios to deteriorate significantly,'' he said. ``They're going to find they have a lot of questionable assets on the balance sheet.''

Henricksen said he doesn't expect Chinese banks to announce any bad news until after the Olympics.

Bank of China, the only lender that's an official sponsor of the Summer Games, which begin Aug. 8, has set up five temporary outlets in Beijing, four in Qingdao and one in Hong Kong. It installed 2,500 point-of-sales terminals in Olympic venues, hotels and athletes' residential areas, and its outlets can now handle conversions for 14 foreign currencies, compared with the usual eight.

ICBC, which has a market value of almost $250 billion, has 4,613 automatic teller machines in the six co-host cities and has set up a task force of 60 managers to handle calls from customers in six foreign languages.

The Olympics aren't ``just a strict test to the quality of Chinese banks' internationalized services,'' ICBC said in a July 28 statement, ``but a stage to project their brand images.''

To contact the reporter on this story: Cathy Chan in Hong Kong at kchan14@bloomberg.net

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Indonesia May Raise Key Rate on Inflation: Week Ahead

By Arijit Ghosh and Michael Munoz

Aug. 4 (Bloomberg) -- Indonesia's central bank may raise its benchmark interest rate for a fourth straight meeting after inflation jumped to a 22-month high in July.

Governor Boediono and his seven colleagues will increase the policy rate by a quarter point to 9 percent, according to 20 of 22 economists in a Bloomberg News survey. The board of governors will meet tomorrow in Jakarta.

Central banks across Asia are raising borrowing costs to contain prices of food and fuel. Bank Indonesia will raise the rate to manage inflation expectations as the nation with the world's largest Muslim population prepares to celebrate Id-ul-Fitr following the fasting month of Ramadan that begins in September, said economist Lana Soelistianingsih. Inflation accelerated 11.9 percent in July, exceeding estimates.

``People will need more money for celebrations,'' said Soelistianingsih from PT Samuel Sekuritas in Jakarta. ``Bank Indonesia should minimize the inflation impact from these demand- side pressures by increasing rates.''

President Susilo Bambang Yudhoyono's government raised fuel prices by about 30 percent in May to reduce its burden of capping pump costs. That made it more expensive to transport food, steel and cement across the 18,000 islands that make Indonesia the world's largest archipelago.

Consumer prices in Indonesia jumped 11.9 percent in July, beating estimates for an 11.2 percent gain, the Central Statistics Bureau reported last week. Prices rose 1.37 percent from a month earlier.

`Remain High'

``We hope that month-on-month inflation will peak in the next one or two months, then it will slow toward the year-end, though year-on-year inflation will remain high,'' central bank Senior Deputy Governor Miranda Goeltom said Aug. 1.

Bank Indonesia in May was the first central bank in Southeast Asia after Vietnam to raise borrowing costs this year. Vietnam increased its benchmark rate in January. India on July 29 raised its policy rate by a more-than-expected half point as inflation accelerated to the fastest pace since 1995.

PT International Nickel Indonesia, the local unit of Cia. Vale do Rio Doce, the world's largest iron-ore producer and Indonesia's biggest producer of nickel, will announce its second- quarter earnings on Aug. 7.

PT Aneka Tambang, Indonesia's second-largest producer of nickel by market value, said sales in the second quarter of the year fell 4.6 percent as the company produced less nickel and prices declined.

Indonesia's benchmark stock index rose 0.2 percent to 2,248.75 last week, a second week of gains. PT United Tractors, Indonesia's biggest heavy-equipment seller, gained 8.4 percent after first-half profit more than doubled from a year earlier as orders for coal-extraction and construction machinery increased.

The rupiah had its seventh weekly gain on speculation the central bank will raise interest rates. The rupiah increased 0.3 percent, making it the best performer among Asia's 10 most-traded currencies outside Japan. The currency fell 0.1 percent to 9,102 at 10:22 a.m. in Jakarta.

The following are key events for this week and a table of economists' estimates for the BI rate.

Perusahaan Gas Negara stock split              Aug. 4
BI rate decision                               Aug. 5
Medco Energi extraordinary shareholders meet   Aug. 7
PT Timah stock split                           Aug. 8

Indonesia BI Rate Estimates
--------------------------------------------------
                            Aug.     End     End
Firm                           5       3Q      4Q
--------------------------------------------------
Median                      9.00%   9.25%   9.50%
% Estimates at Median         91%     56%     25%
Average                     9.00%   9.17%   9.45%
High                        9.25%   9.50%  10.00%
Low                         8.75%   9.00%   9.00%
Number of Estimates            22      16      16
--------------------------------------------------
Action Economics            9.00%   9.25%  10.00%
ANZ Banking Group           9.00%   9.00%   9.25%
ATR-Kim Eng Capital         9.00%   9.00%   9.00%
Bank Central Asia           9.00%   9.00%   9.00%
Bank Danamon                9.00%   9.25%   9.50%
Bank Intl Indonesia         9.00%   9.25%   9.50%
BNI Securities              8.75%      --      --
Credit Suisse               9.00%      --      --
Danareksa Securities        9.00%   9.00%   9.00%
Forecast Ltd.               9.00%      --      --
HSBC                        9.00%   9.25%   9.75%
Ideaglobal                  9.00%   9.00%   9.00%
ING Groep NV                9.00%      --      --
Lehman Brothers             9.00%      --      --
Mandiri Securities          9.00%   9.25%   9.50%
Moody's Economy.com         9.00%   9.25%   9.75%
Morgan Stanley              9.00%      --      --
PT. Mega Capital            9.00%   9.25%   9.75%
Samuel Sekuritas Indonesia  9.00%   9.25%   9.75%
Standard Chartered          9.00%   9.25%   9.50%
Thomson IFR                 9.25%   9.50%  10.00%
UOB Group                   9.00%   9.00%   9.00%
--------------------------------------------------

To contact the reporters on this story: Arijit Ghosh in Jakarta at aghosh@bloomberg.net

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CPC Seeks 20,000 Tons of LPG for September Delivery to Taiwan

By Yu-huay Sun

Aug. 4 (Bloomberg) -- CPC Corp., Taiwan's state oil refiner, seeks to import 20,000 metric tons of liquefied petroleum gas in September, the Taipei-based company said on its Web site today.

Details of the company's planned purchase are as follows:

--------------------------------------------------------------
Product: LPG (65 percent propane, 35 percent butane)
Quantity: 20,000 metric tons
Delivery: Sept. 1-15
Port: Shen-Ao (northern Taiwan)
Bid Close: Aug. 5, 12 p.m. Taiwan time
--------------------------------------------------------------

LPG, a by-product of oil refining and crude and natural gas output, is used for cooking, heating and as a motor fuel in Asia.

To contact the reporter on the story: Yu-huay Sun in Taipei ysun7@bloomberg.net
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China's Guangdong Plant May Halt LNG Spot Purchases This Month

By Winnie Zhu

Aug. 4 (Bloomberg) -- Guangdong Dapeng LNG Corp., the operator of one of China's two liquefied natural gas terminals, may halt purchases of LNG cargoes from the global spot market this month because of rising costs, a Chinese official said.

The company hasn't secured any spot cargoes for August, said the official with knowledge of monthly purchases, who asked not to be identified because import transactions are confidential. Guangdong Dapeng normally orders spot cargoes one month before the delivery date, the official said.

The $900 million LNG import terminal, a venture between China National Offshore Oil Corp. and BP Plc, is buying cargoes to supplement contracted supplies from Australia. Guangdong Dapeng paid a record $14.35 per million British thermal units for a cargo from Nigeria in June, four times more than the Australian imports, customs figures showed on July 22.

``LNG prices keep rising in the Asia Pacific region, making it harder for Chinese companies to buy individual cargoes, Kevin Zhuang, a gas analyst with Guangdong Oil and Gas Association, said by telephone from the southern province today. ``The halt in purchases may also be attributed to increased imports in July.''

Guangdong Dapeng bought three spot cargoes last month, bringing this year's total overseas shipment to seven.

Current LNG prices are too high and the Guangdong provincial government doesn't provide enough subsidies for local power plants to use the more costly cleaner fuel, the Chinese official said.

China, the world's second-biggest energy user, subsidizes purchases of LNG, part of a government target to double the use of the fuel by 2010 and cut pollution.

A spot LNG cargo typically weighs between 55,000 and 60,000 metric tons. LNG is natural gas chilled to liquid form, reducing it to one-six-hundredth of its original volume at minus 161 degrees Celsius (minus 258 degrees Fahrenheit) for transportation by ships to destinations not connected by pipeline.

To contact the reporters on this story: Winnie Zhu in Shanghai at wzhu4@bloomberg.net.



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U.S. Issues Hurricane Watch as Tropical Storm Moves Across Gulf

By Margot Habiby and Aaron Sheldrick

Aug. 4 (Bloomberg) -- U.S. authorities issued a hurricane watch after Tropical Storm Edouard formed south of Louisiana in the Gulf of Mexico and moved west along the coastline with winds of 50 miles per hour.

The hurricane watch extends from west of Intracoastal City to Port O'Connor in Texas, the U.S. National Hurricane Center said in its latest advisory. Edouard was located about 75 miles (120 kilometers) south-southwest of the mouth of the Mississippi River at 1 a.m. New Orleans time today, according to the Miami- based Hurricane Center.

``We can't rule out the possibility that it will strengthen to a Category 1 hurricane,'' Rebecca Waddington, a meteorologist with the Miami-based center, said in an interview yesterday.

Edouard is forecast to strengthen and cross the coast near Galvesto in Texas tomorrow. Hurricanes Katrina and Rita, both Category 5 storms with wind speeds of more than 155 miles an hour, devastated New Orleans and the U.S. Gulf's oil output and refineries in August and September 2005, roiling oil and natural-gas markets.

``It's really almost too late to evacuate many of the offshore platforms,'' Andy Lipow, president of Lipow Oil Associates LLC in Houston, said yesterday.

A hurricane watch means hurricane conditions are possible within about 36 hours. Edouard was moving west at about 9 miles an hour and is expected to head west-northwest later today.

A tropical storm warning was issued for parts of Louisiana from the mouth of the Mississippi River west to Cameron. This type of warning means conditions include winds of more than 39 miles an hour.

Storm Prediction

There is a 24 percent chance Edouard will strengthen to a hurricane, the center said earlier. A storm reaches hurricane status when its wind speeds are 74 miles an hour.

Andy Mussoline, a meteorologist at Accuweather.com, projected that the storm would make landfall on Aug. 5 between the Texas-Louisiana border and Corpus Christi, Texas, about a 300-mile stretch of coastline.

Oil and gas operators in the Gulf ``have to be prepared for enhanced rainfall and gusty winds, but as far as damage to the rigs or anything of the sort, that's unlikely at this point,'' Mussoline said yesterday from State College, Pennsylvania. ``They will have to take precautions to be prepared for gusty winds of tropical-depression or tropical-storm strength.''

The storm hasn't affected operations at the Louisiana Offshore Oil Port, spokeswoman Barb Hestermann said yesterday.

The LOOP, as it is known, is the biggest U.S. crude-oil import terminal, with the capacity to receive 1 million barrels a day, or about 11 percent of U.S. imports.

Monitoring Storm

``We're just kind of keeping an eye on it,'' Hestermann said. ``We don't feel like we need to take action.''

Danny Holder, director of helicopter operator Air Logistics Inc. in New Iberia, Louisiana, said yesterday his company hasn't lifted any workers from oil and natural-gas rigs in the Gulf of Mexico before the storm.

``We're watching it, but to the best of my knowledge, we haven't started any evacuations yet,'' he said in a telephone interview. Air Logistics is a unit of Bristow Group Inc., the second biggest helicopter operator in the Gulf.

Exxon Mobil Corp.,Chevron Corp. and Royal Dutch Shell Plc are among oil producers and drillers that evacuated personnel from offshore rigs and platforms when Dolly, the season's first hurricane in the Gulf, swept through the region in late July.

The U.S. Gulf of Mexico produces about 1.3 million barrels a day of crude oil and 7.7 billion cubic feet of natural gas, according to the U.S. Minerals Management Service, part of the Interior Department.

Safeguarding Installations

``The recommendation we give is to keep a close eye on the storm,'' the Hurricane Center's Waddington said. ``We do expect it to strengthen over the next couple of days before it makes landfall. The industry knows better than we do how to safeguard their installations. I'd advise them to act early.''

Crude oil for September delivery rose as much as $1.25, or 1 percent, to $126.35 a barrel in electronic trading on the New York Mercantile Exchange and traded at $126.21 at 11:58 a.m. in Singapore.

The hurricane center is also tracking a low-pressure system about 525 miles east of the Northern Leeward Islands. It was moving west-northwest at 15 to 20 mph.

To contact the reporters on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net; Aaron Sheldrick in Tokyo at asheldrick@bloomberg.net.



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Medco to Sell Six Oil, Gas Areas, Daily Indonesia Reports

By Berni Moestafa

Aug. 4 (Bloomberg) -- PT Medco Energi Internasional may raise as much as $300 million selling its stake in six oil and gas areas, Investor Daily Indonesia reported, citing a company official.

Medco plans to sell its stakes because it isn't the operator of these blocks, the newspaper said, citing Nusky Suyono, an investor relations officer at the Jakarta-based company. The six blocks are located in Indonesia's Madura, Riau, South Sumatra, Aceh and East Java, the report said.

The company expects to complete the sale this year, Investor said, citing Suyono. Medco is Indonesia's biggest publicly traded oil company.

To contact the reporter on this story: Berni Moestafa in Jakarta at bmoestafa@bloomberg.net



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Babcock Infrastructure May Sell Stakes in Rail, Power

By Angela Macdonald-Smith

Aug. 4 (Bloomberg) -- Babcock & Brown Infrastructure Group, the energy and transport company managed by Babcock & Brown Ltd., said it may sell as much as half of two of its principal businesses to reduce debt and provide funds for investment.

The company started identifying partners that may take stakes of as much as 50 percent in WestNet Rail and New Zealand electricity distributor Powerco Ltd., Sydney-based Babcock Infrastructure said today in a statement to the Australian stock exchange. The move also follows ``a number of unsolicited approaches,'' the company known as BBI said.

BBI said in June its board had decided to review the company's capital management strategy, including asset sales, debt levels and dividends. It bought Powerco for NZ$680 million ($495 million) in 2004, and a majority stake in WestNet Rail in Western Australia in 2006, valuing the Western Australian rail track company at about A$854 million ($794 million).

``BBI will apply the proceeds of any completed transaction to reducing corporate gearing and providing capacity for BBI to fund future accretive investment opportunities,'' the company said in the statement. An update will be provided at the release of annual earnings on Aug. 26, it said.

Babcock Infrastructure gained 3 Australian cents, or 3.4 percent, to 90.5 cents in Sydney trading. The shares have slumped 43 percent this year amid investor concern that the company may fail to refinance debt and fund future investments.

Call Option

Powerco's BBB rating isn't immediately affected by the move, Standard & Poor's Ratings Services said. The company, New Zealand's second-largest electricity and gas distributor, has more than 400,000 customer connections.

``Subject to how the divestment process proceeds, the ratings and outlook on Powerco will be reviewed,'' S&P said in an e-mailed statement.

BBI owns 76 percent of WestNet Rail and is due to exercise a call option by the end of the year over the remaining interest. WestNet Rail moves about 50 million metric tons a year of freight on its rail network of 5,100 kilometers (3,169 miles) between Perth and Kalgoorlie that is leased from the state government.

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net



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Japan to Announce Oil-Relief Plan Soon, Yosano Says

By Kyoko Shimodoi and Jason Clenfield

Aug. 4 (Bloomberg) -- Japan's government plans to announce additional measures to help households and companies cope with rising energy costs, newly appointed Economic and Fiscal Policy Minister Kaoru Yosano said.

``The prime minister is extremely concerned about the economy,'' Yosano told reporters in Tokyo today after Yasuo Fukuda urged him to come up with a relief plan as soon as possible. Yosano said he'll produce an outline before the nation's ``obon'' summer holidays begin next week.

The move is the latest by Fukuda to shore up the economy and his popularity after he appointed Yosano and Finance Minister Bunmei Ibuki in a Cabinet reshuffle last week. Rising food and fuel costs sent household confidence to a record low in June and prompted fishermen to go on strike last month.

Yosano said he and Fukuda didn't discuss whether an extra budget would be required to fund the measures. The ability to provide additional spending is limited because Japan has public debt that may be as high as 1.8 times the economy's annual output, according to the Organization for Economic Cooperation and Development.

``We're trying to come up with a plan in the midst of very difficult circumstances,'' Yosano said.

The government in December allocated 215 billion yen ($2 billion) until March 2009 for oil relief. Crude oil has climbed 31 percent this year, and gasoline reached a record last month.

``The possibility of a supplementary budget is increasing,'' said Mamoru Yamazaki, chief Japan economist at RBS Securities Japan Ltd. in Tokyo. An extra budget would also cover earthquake reconstruction and probably wouldn't exceed 2 trillion yen, Yamazaki said.

To contact the reporters on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net; Kyoko Shimodoi in Tokyo at kshimodoi@bloomberg.net.



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Pickens, Gore Sidestep Differences in Alternative-Energy Quest

By Kim Chipman

Aug. 4 (Bloomberg) -- The most unlikely alliance in this election year hasn't come out of any political campaign. It's in the convergence of interests between billionaire oilman and Republican Party backer T. Boone Pickens and former vice president turned uber-environmentalist Al Gore.

Gore, the Democratic Party's 2000 standard-bearer, and Pickens, who helped bankroll the group that questioned Democrat John Kerry's war record in the 2004 presidential race, are pursuing separate paths toward a shared goal: cutting U.S. dependence on oil.

Pickens said he and Gore have had ``several conversations'' about their complementary campaigns to overhaul the U.S. energy menu and usher in a new era of wind farms, natural gas pumps and solar panels.

``We have to get the country off the $700 billion a year it spends on foreign oil,'' Pickens said in a telephone interview from his ranch in the Texas panhandle. ``It's a killer and is going to cause our economy great problems.''

Gore's emphasis is on the environment more than energy independence. The biggest difference between the two concurrent campaigns and past efforts at addressing both issues is the money being put into the projects and a growing consensus that an era of profitable alternative-energy production is here.

`For the Country'

Pickens, 80, insists his $58 million marketing campaign to push the country off imported oil toward domestic energy sources and his investment in a $10 billion wind farm in Texas isn't about making money -- he's said he does that well enough already.

``What I'm doing now I'm trying to do for the country,'' he said.

Asked if he agrees with another billionaire, Ted Turner, that shifting to a low-carbon economy is the ``biggest business opportunity there's ever been,'' Pickens hesitated.

``Hold on,'' he said.

With that, Turner, the 69-year-old founder of the Cable News Network and Turner Broadcasting got on the line to say he ``absolutely'' believes his assessment is correct.

``I've been saying that for years,'' said Turner, whose ideology is closer to that of Gore than Pickens.

Turner said he and Pickens spent two days ``mostly talking about green energy, global warming.''

Pickens argues that wind harnessed from the country's midsection could provide 22 percent of U.S. electricity by 2010. That would free up natural gas to replace gasoline in vehicles.

Gore's Campaign

Gore, 60, who won a Nobel Prize for raising awareness about global warming, is taking a slightly different approach. In a July 17 speech, he issued a call for the U.S. to completely convert to electricity production from solar, wind and other zero-carbon-emissions sources. His Alliance for Climate Protection is undertaking a $300 million advertising campaign to promote the concept.

Gore's main focus is environmental, though he also frames the debate as a matter of security and economics.

While Pickens views his own proposal as a ``bridge to where Al wants to go,'' there are no plans now to coordinate.

``He asked if we could we join together and do something; I told him no, because global warming is on page two for me,'' Pickens, founder and chairman of Dallas-based BP Capital LLC, said. ``Page one is foreign oil.''

``There are some pieces where they might differ,'' Gore spokeswoman Kalee Kreider said. Gore's ``feeling is they have more in common than the elements that might separate their proposals.''

Environmentalists Enthused

The prospect of two such different public figures even reading from the same book has environmentalists enthused.

``I'm delighted at both of them,'' said lawyer and activist Robert Kennedy Jr., the son of the late Senator Robert Kennedy.

Kennedy, 54, who is seeking a meeting with Pickens, agrees with Turner that the profit motive will trigger the biggest U.S. economic shift since the Industrial Revolution.

``As soon as you open up the marketplace, you are going to see an explosion in entrepreneurial activity,'' Kennedy said.

While Republican lawmakers last week blocked passage of energy legislation that would extend tax credits for alternative energy, backers of such measures say Pickens and Gore are giving the drive increased credibility.

``There's an emerging consensus that renewables, which have been derided for so long as a pop gun when you need a cannon, are showing signs of being able to contribute on a much larger scale than anyone has thought,'' said Reid Dechton, an official in former President George H.W. Bush administration who is now with Turner's United Nations Foundation.

The immediate goal for the two men is turning up the volume of the debate in the presidential campaign. The two major-party candidates, Senator Barack Obama, an Illinois Democrat, and Senator John McCain, an Arizona Republican, agree on the need to combat climate change and cut U.S. dependence on oil, even if their solutions differ.

When Gore last month announced his challenge to rewire the country and produce carbon-free electricity, both offered support. McCain made a point of praising Gore. Now Pickens is part of the conversation as well.

At a July 31 fundraiser in Houston, Obama told supporters, ``T. Boone Pickens is onto something here.''

To contact the reporter on this story: Kim Chipman in Washington at kchipman@bloomberg.net.



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Australian Worldwide Shares Rise After Natural Gas Discovery

By Angela Macdonald-Smith

Aug. 4 (Bloomberg) -- Australian Worldwide Exploration Ltd. gained the most in two weeks after the Sydney-based oil and gas company confirmed a natural gas discovery at the Netherby-1 well off the southeast coast.

Australian Worldwide rose as much as 14 cents, or 4.2 percent, to A$3.45 in Sydney trading. It was at A$3.43 at 12:37 p.m. local time. Adelaide-based Santos, the operator of the drilling venture, advanced as much as 70 cents, or 4 percent, to A$18.15.

The well, about 4 kilometers (2.5 miles) from the Henry-1 gas find, will be connected by pipeline to the Casino and Henry fields, Australian Worldwide said today in a statement to the exchange. Mitsui & Co. has a stake in the venture.

The partners said in November they would invest A$275 million ($256 million) to develop the Henry field to expand gas sales in Australia's southeastern states. The project to link Henry into the Casino venture would include work to allow the connection of future discoveries at wells including Netherby, Santos said then.

Further wells will be drilled at the Henry field once drilling at Netherby is completed, Australian Worldwide said today.

Santos owns 50 percent of the Netherby-1 venture, while Australian Worldwide and Mitsui each owns 25 percent.

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net



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U.S. Consumer Spending Probably Slowed in June as Rebates Faded

By Bob Willis

Aug. 4 (Bloomberg) -- Consumer spending probably slowed in June as the boost from tax rebates waned, signaling near-record gasoline prices and a weakening labor market hurt households, economists said before a report today.

The 0.4 percent increase followed a 0.8 percent rise in May, according to the median forecast of 67 economists surveyed by Bloomberg News. The report may also show inflation accelerated.

The tax rebates from the government's stimulus plan will provide only a temporary boost for Americans in the face of $4-a- gallon gasoline, tumbling home prices and mounting job losses. The Federal Reserve is projected to hold interest rates unchanged tomorrow as prices rise and the economy slows.

``Consumer spending still has tremendous headwinds and it will no longer be fueled by the tax rebates,'' said Bill Hampel, chief economist at the Credit Union National Association in Washington. ``Consumer spending will be weak at least through the middle of next year.''

The Commerce Department's report is due at 8:30 a.m. in Washington. Spending estimates in the Bloomberg survey ranged from 0.5 percent drop to a gain of 0.9 percent.

Separately, the Commerce Department may report that factory orders rose 0.7 percent in June compared with a 0.6 percent gain the prior month, according to economists surveyed by Bloomberg. Commerce will release its report at 10 a.m.

The tone of spending today's report will hinge on whether the jump in prices accounted for much of the expected increase in purchases, economists said.

Incomes Fall

Incomes likely fell 0.2 percent in June after a 1.9 percent gain the prior month, when most of the tax rebates were delivered. About $28 billion went out in June, compared with about $50 billion in late April and May, according to Treasury Department figures.

The Fed's preferred price gauge, known as the core measure because it excludes food and fuel, probably rose 0.2 percent last month after a 0.1 percent May gain, the median forecast showed.

Core prices in the 12 months ended in June probably climbed 2.2 percent, the biggest year-over-year increase since December, according to the survey median.

Investors are betting the Fed will hold the benchmark rate unchanged at 2 percent tomorrow, according to federal funds futures contracts. Fed Chairman Ben S. Bernanke on July 15 told lawmakers that the economy faced threats to both growth and inflation.

There are ``significant downside risks to the outlook for growth'' and ``upside risks to the inflation outlook have intensified,'' he told the Senate Banking Committee in Washington.

Spending to Slow

Most economists are forecasting the lift from the rebates will fade in the second half of the year. Retail sales rose 0.1 percent in June, less than forecast, indicating consumers may already have started to retrench. Purchases of autos and light trucks dropped in July to the lowest level since 1993, industry figures last week showed.

Economists surveyed by Bloomberg in the first week of July forecast economic growth would slow to a 1.4 percent annual pace in the third quarter and to 0.5 percent in the fourth quarter.

The economy shrank at a 0.2 percent rate in the last three months of 2007 and grew at about an average 1.5 percent pace in the first six months of 2008, government data last week showed.

With the economy teetering on the brink of a recession, consumers are focusing their purchases on staples while cutting back on luxuries like $4 lattes, causing sales to slump at Starbucks Corp. the world's largest chain of coffee shops.

Starbucks Corp. last week said it will close more U.S. stores than it will open next year after it posted its first loss in 16 years as a public company.

``Until the economy significantly improves, we're just trying to do what we can to get through this storm,'' Starbucks Chairman Howard Schultz said on a conference call.

                          Bloomberg News

================================================================
                            Pers     Pers Core PCE  Factory
                             Inc    Spend   Prices   Orders
                            MOM%     MOM%     MOM%     MOM%
================================================================

Date of Release              08/04    08/04    08/04    08/04
Observation Period            June     June     June     Jan.
----------------------------------------------------------------
Median                       -0.2%     0.4%     0.2%     0.7%
Average                      -0.1%     0.4%     0.2%     0.7%
High Forecast                 1.2%     0.9%     0.3%     2.0%
Low Forecast                 -0.8%    -0.5%     0.1%    -0.2%
Number of Participants          61       67       45       54
Previous                      1.9%     0.8%     0.1%     0.6%
----------------------------------------------------------------
4CAST Ltd.                   -0.3%     0.3%     0.3%     2.0%
Action Economics             -0.3%     0.5%     0.3%     0.9%
Argus Research Corp.          0.6%     0.5%     ---      0.7%
Banc of America Securitie    -0.4%     0.4%     0.3%     0.6%
Bank of Tokyo- Mitsubishi    -0.3%     0.6%     0.2%     0.6%
Bantleon Bank AG             -0.2%     0.4%     0.2%     0.6%
Barclays Capital             -0.4%     0.4%     0.3%     0.8%
BBVA                         -0.8%     0.4%     ---      ---
BMO Capital Markets          -0.3%     0.3%     0.2%     0.7%
BNP Paribas                   1.0%     0.4%     ---      0.3%
Briefing.com                  0.0%     0.4%     ---      0.5%
Calyon                       -0.3%     0.5%     0.2%     1.1%
CIBC World Markets            0.0%     0.4%     ---      ---
Citi                         -0.2%     0.6%     ---      1.0%
ClearView Economics          -0.5%    -0.5%     0.2%     0.8%
Commerzbank AG                1.2%     0.5%     ---      ---
Credit Suisse                -0.2%     0.4%     0.2%     ---
Daiwa Securities America     -0.5%     0.3%     0.2%     0.8%
Danske Bank                  -0.1%     0.5%     0.3%     ---
DekaBank                     -0.2%     0.5%     ---      0.6%
Deutsche Bank Securities     -0.1%     0.3%     0.2%     1.0%
Deutsche Postbank AG          ---      0.3%     ---      0.7%
Dresdner Kleinwort            ---      0.6%     0.2%     0.9%
DZ Bank                      -0.2%     0.4%     0.2%     0.5%
First Trust Advisors         -0.1%     0.5%     ---      0.7%
Fortis                        ---      0.5%     ---      0.8%
GCI Capital                   ---      0.2%     0.2%     ---
H&R Block Financial Advis    -0.3%     0.6%     0.2%     0.6%
Helaba                       -0.3%     0.4%     0.3%     0.4%
HSBC Markets                 -0.3%     0.5%     0.2%     0.9%
IDEAglobal                   -0.3%     0.4%     0.2%     ---
Informa Global Markets       -0.5%     0.6%     ---     -0.1%
ING Financial Markets        -0.4%     0.5%     0.2%     1.0%
Insight Economics            -0.3%     0.3%     0.3%     0.7%
Janney Montgomery Scott L    -0.3%     0.3%     0.2%     0.9%
JPMorgan Private Client      -0.1%     0.6%     0.2%     0.8%
Landesbank Berlin             0.7%     0.3%     ---      1.3%
Landesbank BW                -0.1%     0.5%     ---      0.7%
Lehman Brothers              -0.1%     0.5%     0.3%     0.5%
Lloyds TSB                    1.0%     0.5%     0.2%    -0.2%
Maria Fiorini Ramirez Inc    -0.2%     0.4%     0.2%     0.7%
Merrill Lynch                 0.3%     0.6%     ---      0.8%
MFC Global Investment Man     0.1%     0.3%     0.2%     1.0%
Moody's Economy.com          -0.3%     0.4%     0.2%     0.9%
Morgan Stanley & Co.         -0.3%     0.4%     ---      ---
National City Corporation    -0.3%     0.4%     0.2%     0.4%
Natixis                       0.5%     0.8%     0.2%     ---
Newedge                      -0.2%     0.4%     0.2%     0.5%
Nomura Securities Intl.      -0.4%     0.5%     0.1%     0.2%
Nord/LB                       0.1%     0.4%     0.2%     0.7%
PNC Bank                     -0.2%     0.6%     ---      0.5%
RBS Greenwich Capital        -0.1%     0.6%     0.3%     0.5%
Ried, Thunberg & Co.          ---      0.4%     ---      0.6%
Schneider Trading Associa     0.5%     0.4%     0.2%     1.1%
Scotia Capital               -0.3%     0.3%     ---      0.9%
Societe Generale             -0.2%     0.5%     0.2%     1.1%
Stone & McCarthy Research    -0.5%     0.3%     ---      0.7%
TD Securities                 0.1%     0.3%     0.3%     ---
Thomson Financial/IFR         1.1%     0.9%     0.2%     1.1%
UBS Securities LLC            ---      0.5%     0.3%     ---
Unicredit MIB                 0.6%     0.2%     ---      ---
University of Maryland       -0.2%     0.5%     0.2%     0.8%
Wachovia Corp.                0.4%     0.4%     0.2%     0.4%
Wells Fargo & Co.            -0.3%     0.5%     ---      0.9%
WestLB AG                    -0.3%     0.5%     0.2%     0.7%
Westpac Banking Co.           0.0%     0.3%     0.3%     1.2%
Wrightson Associates         -0.5%     0.5%     0.2%     ---
================================================================

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

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Rolling Recessions Bring Paralysis to Bernanke, King, Trichet

By Rich Miller and Simon Kennedy

Aug. 4 (Bloomberg) -- Recessions are threatening to crash over the world economy in waves, as one country after another turns down a year after the onset of the global credit crisis.

Such rolling recessions pose a quandary for central bankers Ben S. Bernanke, Jean-Claude Trichet and Mervyn King: If the whole world were clearly slumping, they'd be united in cutting interest rates. Instead, with some countries still booming, they can't ignore the inflation threat. Paralyzed between slowing growth and accelerating prices, U.S. and European policy makers this week are set to fall back on keeping rates unchanged.

``We're in a peculiar situation where, a year from now, we're likely to look back and say that monetary policy makers have made a very, very serious error,'' says David Lipton, head of global country-risk management for New York-based Citigroup Inc. ``The problem is, we don't know whether we're going to say they were too loose or too tight.''

A lot's at stake. If central bankers leave rates too low, they risk stoking global inflation that's already projected by the International Monetary Fund to be the fastest in nine years. Keep rates too high and the world could fall into its first recession since 2001-2002.

In the past, when the U.S. economy weakened, the rest of the world usually followed quickly, and inflation eased as demand for oil and other commodities fell. U.S. recessions in 1990-1991 and 2001 brought global growth down by half, sending fuel prices tumbling.

Slowdown Delayed

That didn't happen this time. The world expansion barely slowed last year and oil prices surged, even as the U.S. economy shrank in the fourth quarter. Only now -- two years after the U.S. housing boom went bust -- is the slowdown spreading worldwide and the price of oil showing signs of receding.

The world may avoid a recession, deemed by economists to be global growth of 3 percent or less, and still end up with what Allen Sinai, chief economist at Decision Economics in New York, calls a ``witches' brew'' of ailments: declines in the housing and stock markets, a credit crunch and commodity-driven inflation.

The energy and credit crises may have permanently weakened the global economy by making production and investment costlier. Deutsche Bank AG economists say long-term growth may fall to 4 percent from 5 percent.

`Weaker for Longer'

While the world rebounded from its last slump to record the strongest expansion since the 1970s, Richard Berner, co- head of global economics for Morgan Stanley in New York, says that ``growth will have to stay weaker for longer'' this time if central banks are to curb inflationary pressures. ``Investors should consider these developments as a regime change,'' Berner says.

The U.S. risks a relapse after bouncing up in the second quarter as consumers spent some of their $91 billion in tax rebates. ``I don't see recovery'' on the horizon, says Harvard University's Martin Feldstein, who serves on the National Bureau of Economic Research committee that determines when recessions start and end.

The big concern is that consumers -- whose spending accounts for more than 70 percent of the economy -- will cut back after their splurge. The omens aren't good: Overdue payments at the six largest credit-card lenders rose in June after falling the two previous months.

Division at Fed

Chairman Bernanke and his Fed colleagues are divided over what to do next after cutting rates to 2 percent from 5.25 percent a year ago. Some, including Dallas Fed President Richard Fisher, favor tighter credit now to contain inflation. A majority prefer to wait and see how the economy develops.

Kenneth Rogoff, a Harvard economics professor and former IMF chief economist, says Fed policy makers are ``stuck.'' While they may want to raise rates to 3 percent to head off inflationary pressures, they can't for fear of upsetting still- fragile financial markets. Consequently, they'll hold borrowing costs unchanged for ``an extended period,'' he says.

European Central Bank President Trichet's dilemma is similar. After dodging the U.S. slowdown last year, the 15- nation euro-area economy may have shrunk in the second quarter for the first time since the common currency's introduction in 1999. As in the U.S., housing booms in Spain, Portugal and Ireland are collapsing, while the euro's appreciation is hurting companies that export.

Recession Risk

``The risk of a recession is no longer negligible,'' says Holger Schmieding, chief European economist at Bank of America Corp. in London.

When a worldwide slump last began in 2001, the ECB cut interest rates. Not this time.

With inflation the fastest in more than 16 years, the bank raised rates to a seven-year high of 4.25 percent last month. Officials warn they'll do more if workers win big wage deals. Employees at Deutsche Lufthansa AG, Europe's second-biggest airline, last week ended a strike after winning a 5.1 percent pay increase retroactive to July 1, and an additional 2.3 percent increase next year.

``The ECB is clearly walking a tightrope,'' says Martin van Vliet, an economist at ING Bank in Amsterdam, who predicts the bank will keep its key rate unchanged until 2009. ``It has to balance the lingering risk of a wage-price spiral with prospective disinflationary pressures emanating from the downturn,'' he says.

Sharp Debate

The debate is sharper at Governor King's Bank of England. The U.K. is slipping toward its first recession since 1990 as house prices slide after tripling in the past decade. With inflation almost twice the bank's 2 percent target, King's policy panel split three ways last month; the majority voted to keep rates at 5 percent.

Japan, too, is at risk of a recession. Exports fell in June for the first time since 2003 and unemployment reached 4.1 percent, almost a two-year high. The Bank of Japan has little room to act, with its benchmark interest rate of just 0.5 percent and consumer prices rising at the fastest pace in a decade.

``The fog hanging over Japan's economy will stick around for the time being,'' bank board member Atsushi Mizuno said July 24.

Even Asia's rapidly growing emerging economies are showing signs of slowing. The region's policy makers are at odds over how to react as inflation remains high.

Chinese officials suggest they may seek to bolster their economy after growth slowed in the second quarter by the most since 2005. Others remain intent on curbing inflation. India has raised rates three times since May while suffering the weakest growth in five years. Surging food and energy costs prompted Indonesia, Thailand and the Philippines to tighten credit in July.

``There's a kind of stagflation marching over the world economy,'' Sinai says. ``I hope policy makers are able to figure it out and make the right decisions to fight it.''

To contact the reporters on this story: Rich Miller in Washington at rmiller28@bloomberg.netSimon Kennedy in Paris at skennedy4@bloomberg.net



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