US Consumer Confidence Unexpectedly Improves But Are Things Improving?

Daily Forex Fundamentals | Written by DailyFX | Nov 14 08 15:32 GMT |

The preliminary reading of the Reuters / University of Michigan consumer confidence survey for November improved unexpectedly over the previous month's reading. However, should we take this to mean conditions are genuinely improving for Americans and that we should assume spending will recover in short-form? No. It's true that economists were expecting a drop in this sentiment gauge to 56.7, but actually marked a 0.3 point improvement to 57.9. Despite this modest uptick though, we have to remember that the indicator is hovering just above 28-year lows. Considering policy authorities have consistently downgraded their growth forecasts, employment and income is tumbling quickly and weatlh is virtually collapsing, the outlook looks much worse than what has already been seen so far. Looking at the component breakdown of the indicator, the economic conditions indicator edged off its record (going back to 1978) low - perhaps a more realistic forecast for trends than through the volatile forecasts for expectations. The outlook dropped month over month, but was still above its own 28 year low. However, this comparatively reserved decline is likely due to the ongoing drop in energy costs and a brief stability in stock portfolios and retirement accounts. The most impressive shift in the breakdown was the drop in one-year inflation expectations. Gapping from 3.9 percent to 2.9 percent - owing largely to the drop in heating oil and gasoline prices - the Fed's monetary policy until now has been subsidized by the populace. More importantly, the expectation for prices to fall going forward may be an early sign that consumers will increase their spending habits (within their capacity given empoyment and income) going forward. DailyFX Disclaimer Investment in the currency exchange is highly speculative and should only be done with risk capital. Prices rise and fall and past performance is no assurance of future performance. This website is an information site only. Accordingly we make no warranties or guarantees in respect of the content. The publications herein do not take into account the investment objectives, financial situation or particular needs of any particular person. Investors should obtain individual financial advice based on their own particular circumstances before making an investment decision on the basis of the recommendations in this website. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. All intellectual property rights are the property of Daily FX. Daily FX and its affiliates, will not be held responsible for the reliability or accuracy of the information available on this site. The content herein is provided in good faith and believed to be accurate, however, there are no explicit or implicit warranties of accuracy or timeliness made by Daily FX or its affiliates. The reader agrees not to hold Daily FX or any of its affiliates liable for decisions that are based on information from this website. Daily FX highly recommends that before making a decision, the reader collects several opinions related to the decision and verifies facts from at least several independent sources.

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Advance Retail Sales: Record Low

Daily Forex Fundamentals | Written by Merk Hard Currency Fund | Nov 14 08 14:56 GMT |

Advance retail sales for the month of October declined -2.8% m/m and are down -3.3% y/y/. The core ex-autos estimate fell -2.2% m/m and is up 1.7% y/y. On a monthly basis ex-gas was down -1.5%, ex-autos and building materials have fallen -2.4%, ex-autos and gas -0.5% and ex-good service -3.1%. On a three month annualized basis sales in the retail and food service sector have fallen -10.9% with the ex-auto estimate down -7.4%. Inside the data sales were down just about across the board. The sale of motor vehicles and parts declined -5.5%, furniture -2.5%, electronics -2.3% and clothing 1.4%. Sales at department stores dropped -1.3% and non-store retailers dropped -1.8%. Purchases at gasoline stations declined -12.7%, while that of good and beverages was flat. The only major group that saw an increase in sales for the month was the health and personal care category that increased 0.4%. The decline in retail sales in both the headline and the core exceed the very bearish expectations of the market in just about manner possible and is the worst posting on record. It On an annual basis sales of motor vehicles and parts are down 23.3%, furniture -13.2%, electronics -5.7% and clothing -3.0%. On a three month annualized basis ex-food sales are down -12.4%. This sets the stage for what will be a sharp contraction in overall economic activity during the fourth quarter of 2008 that we think will be -4.1%. If it was not clear before in Washington that the stimulus packages that the new Administration and Congress are going to pass should be well planned, implemented efficiently and be outsized it should be now. Joseph Brusuelas Chief Economist Merk Investments http://www.merkfund.com/ The views in this article were those of Axel Merk as of the newsletter's publication date and may not reflect his views at any time thereafter. These views and opinions should not be construed as investment advice nor considered as an offer to sell or a solicitation of an offer to buy shares of any securities mentioned herein. Mr. Merk is the founder and president of Merk Investments LLC and is the portfolio manager for the Merk Hard Currency Fund. Foreside Fund Services, LLC, distributor.

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Retail Sales: Largest Monthly Decline on Record in October

Daily Forex Fundamentals | Written by Wachovia Corporation | Nov 14 08 14:39 GMT |

Retail sales fell 2.8 percent in October, the fourth consecutive decline and well-below expectations. Excluding motor vehicles, sales fell 2.2 percent. Core retail sales, excluding gasoline stations, building materials and autos fell 0.5 percent. Gasoline station sales had the largest decline, 12.7 percent. Retails Sales Fell as Prices at the Pump Declined Retail sales fell 2.8 percent, the largest monthly drop since the series began. The biggest drop was in gasoline station sales, which fell 12.7 percent since prices at the pump have come off their high. Auto sales continued to decline as cost-conscious consumers shy away from big-ticket items and bargain hunt. No Holiday Cheer for Retailers The weakness in retail sales means that consumer spending will almost certainly decline in the coming quarters and could be a harbinger of real trouble this holiday season. We expect holiday sales will decline between zero and two percent. The only silver lining is that core sales excluding gas, building materials and autos were up 2.3 percent year over year. Wachovia Corporation http://www.wachovia.com Disclaimer: The information and opinions herein are for general information use only. Wachovia Corporation and its affiliates, including Wachovia Bank, N.A., do not guarantee their accuracy or completeness, nor does Wachovia Corporation or any of its affiliates, including Wachovia Bank, N.A., assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, are for general information only and are not intended as an offer or solicitation with respect to the purchase or sales of any security or any foreign exchange transaction, or as personalized investment advice. Securities and foreign exchange transactions are not FDIC-insured, are not bank-guaranteed, and may lose value.

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Renewed Volatility Recharges Australian And New Zealand Dollar Breakout Potential

Daily Forex Technicals | Written by DailyFX | Nov 14 08 15:17 GMT |

Congestion over the first half of this month has not sat well with the Australian and New Zealand dollar crosses. With underlying volatility still extraordinarily high and interest rate - as well as growth - expectations deteriorating rapidly, these high yielding currencies threaten to revive momentum and trends at any moment. See what our DailyFX Analysts expect in terms of activity and direction from these unpredictable currencies. Chief Strategist - Antonio Sousa My picks: Reamin Short AUD/JPY Expertise: Economics and Behavioral Finance Average Time Frame of Trades: 1 day - 3 months Yesterday's upward movement of high yielding currencies against the Japanese yen seems to have been propelled by a short-term recover in the appetite for riskier assets and not by real economic fundamentals. In fact, with the world economy slowing down is reasonable to think that the demand for commodities will also begin to slow down which could only mean further losses to commodity sensitive currencies like AUD, NZD and CAD. In addition, high exchange rate volatility, deleveraging in the financial sector and new banking regulation against excessive leverage could make carry trade a very poor strategy going forward. Currency Strategist - John Kicklighter My picks: Short AUDJPY Expertise: Combining Money Management with Fundamental and Technical Analysis Average Time Frame of Trades: 3 days - 1 week Risk aversion has trended higher throughout this past week despite refined bailout policy from the US, news that China was overing its own bailout package and initial comments from the G20 that suggested that a collaborative effort to stabilize the economy and markets could be reached. Why is the market so skeptical about the help the ongoing government spending and intervention may offer; because the fundamental drivers for the drop in the markets is too great to be sidestepped. With the world's largest economies falling into recession (and the worst is no doubt still ahead and unmeasurable) and market participants still far overleveraged in an illiquid and decline market, the wave of risk aversion will continue. Taking advantage of this outlook, AUDJPY presents one of the best fundamental shorts. The Japanese yen is the consumate funding currency for carry - and therefore will be unwound - while the BoJ is also seen as having little additional room to cut rates further. Alternatively, the Australian dollar is one of the top carry currencies while the economic is probabably still too optimistic considering the impact the global drop in growth will have on the island continent. Placing this broad forecast into a clear setup, it is best to wait for a significant technical event as a cue for entry and to base a reasonable risk reward around. This pair is very near the very bottom of its multi-decade range. Long-term, this could suggest there may be additional support at 55 where the pair bounced back on Oct 24th; however, we have seen many other pairs set their own records. It would not be hard for AUDJPY to do the same and break below the psychological level. Short-term however, the entry is essential. An aggressive approach would be to wait for a break of the pivot and fib confluence at 63. A better fit for setting up stops though would be to wait for a retracement closer to the falling trendline (beginning on Oct 7th) that now holds around 68.50. The first target should equal risk and the stop on the second lot should be moved to breakeven when the first lot is taken out to preserve profit. Currency Strategist - Terri Belkas My picks: Short AUD/CAD Expertise: Fundamentals Combined With Technicals Average Time Frame of Trades: 1 - 3 Days I'm sticking with my choice from yesterday, and now, risk/reward potential looks much better. This trade is based more on technicals than anything else, and looking at the consolidation of AUD/CAD, I think we'll ultimately see the pair break lower. Potential targets include the psychologically important 0.75 level while market-wide declines in carry trades could trigger losses down toward the 10/8 low of 0.7218. MACD on the daily charts is barely positive, while RSI remains in bearish territory below 50. There are multiple indicators of resistance near 0.8050, but since it doesn't take much to shake AUD/CAD up, I would place stops above 0.8100. Currency Analyst - David Rodriguez My picks: Long AUD/USD Above 0.7040 Expertise: System Trading Average Time Frame of Trades: 2-10 weeks Last week I was looking to go long the AUD/USD on a break above 0.7040, but that break never happened. My justification for the trade idea came from the fact that the AUD/USD had been forming a rather makeshift inverse head and shoulders formation, and a break above 0.7040 would represent a break of the makeshift neckline. My justification for going long above 0.7040 this week is much the same, except this time we see a much more defined inverse head and shoulders pattern--adding weight to the argument for going long on a break to the topside. As such, I'd like to issue the same trade idea. Though we'e obviously 500 pips away from my long entry level, I think a break above 0.7040 would signal that a larger upswing is underway. Currency Analyst - Ilya Spivak My picks: Short AUDUSD (pending) Expertise: Macro Fundamentals, Classic Technical Analysis Average Time Frame of Trades: 1 week - 6 months Australian Dollar positioning loooks to be setting up an inverted Head and Shoulders bullish reversal formation, with neckline resistance in close proximity of the 38.2% Fibonacci retracement of the 09/22-10/27 selloff at 0.6957. Current positioning is showing a Bullish Engulfing pattern, hinting at the possibility of an upside reversal. Look for a bullish correction to take prices past the neckline to position for a short in line with the long term AUDUSD downtrend. Currency Analyst - John Rivera My picks: Long AUD/USD Expertise: Fundamentals Combined With Technicals Average Time Frame of Trades: 2-4 Days The 20-Day SMA has proved to be a staunch resistance line for the AUD/USD pair and after another failed test yesterday I am tempted to short the pair. However, with the upcoming G-20 meeting expected to launch initiatives by world leaders, we could see a rebound in the global outlook and risk appetite which would be supportive for the high yielding currency. Technically it appears that a reverse head and shoulders is forming which could lead to a bullish breakout. Therefore, I would be long the AUD/USD if it makes a clear break of the 20-day SMA. The 11/10 high of 0.6987 would be my target. Currency Analyst - David Song My picks: Short AUD/CAD Expertise: Fundamentals and Technicals Average Time Frame of Trades: 2 - 10 Days After reaching a high of 0.9846 on 7/15/08, the AUDCAD dipped to a low of 0.7152 on 10/08, but bounced back to find resistance near 0.8495 (50.0% Fib level of 0.7152-0.9846). The failure to break above this level suggests that market participants remain bearish against the Australian dollar, and I anticipate the pair to fall lower over the following week as investors continue to curb their appetite for high-yielding currencies. In the week ahead, I expect increase selling pressures to drag the pair lower, and we may see the pair work its way down towards the 10/28 low of 0.7777. DailyFX Disclaimer Investment in the currency exchange is highly speculative and should only be done with risk capital. Prices rise and fall and past performance is no assurance of future performance. This website is an information site only. Accordingly we make no warranties or guarantees in respect of the content. The publications herein do not take into account the investment objectives, financial situation or particular needs of any particular person. Investors should obtain individual financial advice based on their own particular circumstances before making an investment decision on the basis of the recommendations in this website. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. All intellectual property rights are the property of Daily FX. Daily FX and its affiliates, will not be held responsible for the reliability or accuracy of the information available on this site. The content herein is provided in good faith and believed to be accurate, however, there are no explicit or implicit warranties of accuracy or timeliness made by Daily FX or its affiliates. The reader agrees not to hold Daily FX or any of its affiliates liable for decisions that are based on information from this website. Daily FX highly recommends that before making a decision, the reader collects several opinions related to the decision and verifies facts from at least several independent sources.

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Daily Technical Strategist

Daily Forex Technicals | Written by FXTechstrategy | Nov 14 08 14:23 GMT |

Today's Focus: EURUSD & GBPUSD EURUSD: Turns Off Ahead Of The 1.2330 Level, Back Into Its Sideways Range. GBPUSD: Prints A Reversal Candle After Testing A Low Of 1.4558. EURUSD Having turned sharply higher ahead of the 1.2330 level, its YTD low, EUR is now back into its 1.3298 and 1.2330 sideways trading range after resolving to the downside from its 4 Hourly triangle on Tuesday. Break either way is needed to create meaningful directional moves. However, we still see the pair heading lower out of the said range based on its bearish medium term trend. Resistance on a follow-through higher will expose the 1.3058/05 level, its Oct 23'06 high/.618 Ret (0.8231-1.6038 rally, monthly chart) before the 1.3259/98 level, its Oct 30'08 high/Oct 10'08 low and next the 1.3666 level, its Dec'04 high.Alternatively,support levels rest at the 1.2728 level, its Oct 22'08 low initially and later the 1.2330 level with a break of there taking price towards the 1.2134 level, its .50 Ret (its 0.8231-1.6038 high, monthly chart) and the 1.1827 level, its Mar'06 low. On the whole, with reversal ahead of the 1.2330 level seen, EUR should continue its consolidative price activities between the 1.2330 and the 1.3298 levels. Support Comments 1.2728 Oct 22'08 low 1.2484 Oct'06 low 1.2334/24 Jan/April'06 highs 1.1827 Mar'06 low Resistance Comment 1.2866 Jan'07 low 1.3058/05 Oct 23'06 high/.618 Ret (0.8231-1.6038 rally, monthly chart) 1.3259/98 Oct 30'08 high/Oct 10'08 low GBPUSD A long legged doji-like reversal candle has halted the pair's decline off the 1.6673 level, its Oct 30'08 high and taken back its intra day losses on Thursday. This price action is suggestive of a temporary bottom and if that materializes, higher prices may be seen targeting its Oct 24'08 low at 1.5265 where a cap is expected to turn the pair lower again. Downside targets are located at the 1.4837 level, its Oct 2001 high with a loss of there extending prices towards the 1.4045 level, its Jan'02 low. All in all,the primary trend remains lower suggesting that any recovery higher seen is corrective. Support Comments 1.4837 Oct,2001 high 1.4045 Jan'02 low 1.3682 Jun'01 low Resistance Comments 1.5000 Psycho level 1.5219 Oct'02 low 1.5265 Oct 24'08 low 1.5461/71 April'03 low/Aug'03 low Mohammed Isah Market Analyst www.fxtechstrategy.com This report is prepared solely for information and data purposes. Opinions, estimates and projections contained herein are the author's own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed to be reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness and neither the information nor the forecast shall be taken as a representation for which the author incur any responsibility. The does not accept any liability whatsoever for any loss arising from any use of this report or its contents. This report is not construed as an offer to sell or solicitation of any offer to buy any of the currencies referred to in this report

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U.S. Oct. Advance Retail Sales: Statistical Summary (Table)

By Alex Tanzi

Nov. 14 (Bloomberg) -- Following is the summary of the U.S. retail sales report for Oct. from the Commerce Department.

===============================================================================
                          Oct.   Sept.    Aug.    July    June    May    Oct.
                          2008    2008    2008    2008    2008    2008   YOY
===============================================================================
                           --------------------MOM%--------------------
Retail & food service      -2.8%   -1.3%   -0.7%   -0.6%    0.1%    0.8%  -3.3%
Ex-autos                  -2.2%   -0.5%   -1.1%    0.1%    0.7%    1.2%   1.7%
Ex-gas                    -1.5%   -1.4%   -0.4%   -0.7%   -0.3%    0.5%  -3.9%
Ex-autos & build mat.     -2.4%   -0.6%   -1.0%    0.1%    0.8%    1.0%   2.1%
Ex-autos & gas            -0.5%   -0.6%   -0.8%    0.1%    0.3%    0.8%   1.8%
Ex-food service           -3.1%   -1.5%   -0.8%   -0.7%    0.1%    0.8%  -4.3%
Ex-build mat., auto dlrs  -2.3%   -0.5%   -1.0%    0.1%    0.8%    1.1%   2.1%
Ex-gas, bldg mat, dlrs(*) -0.5%   -0.6%   -0.6%    0.1%    0.4%    0.7%   2.3%
                          -----------3-mo. Average Annualized----------
Retail & food service     -10.9%   -4.8%    0.0%    3.7%    3.7%    3.0%   n/a
Ex-autos                  -7.4%    0.2%    6.3%   10.9%   10.3%    7.8%   n/a
===============================================================================
                          Oct.   Sept.    Aug.    July    June    May     Oct.
                          2008    2008    2008    2008    2008    2008    YOY
===============================================================================
Ex-gas                    -9.2%   -5.9%   -2.3%    0.8%    1.6%    1.4%   n/a
Ex-autos & build mat.     -7.2%    0.5%    6.4%   10.6%   10.0%    8.2%   n/a
Ex-autos & gas            -4.5%   -0.4%    4.2%    8.1%    8.5%    6.4%   n/a
Ex-food service          -12.4%   -5.7%   -0.5%    3.3%    3.3%    2.9%   n/a
Ex-build mat. & auto dlrs -7.0%    0.5%    6.3%   10.6%   10.0%    8.1%   n/a
Ex-gas, build mat & dlrs  -3.9%   -0.1%    4.1%    7.4%    8.0%    6.6%   n/a
                           --------------------MOM%--------------------
Motor vehicles, parts      -5.5%   -4.8%    1.4%   -4.2%   -2.7%   -0.9% -23.3%
Furniture                  -2.5%   -2.6%   -2.9%   -0.7%   -2.0%    0.5% -13.2%
Electronics                -2.3%   -1.8%   -2.7%   -0.5%   -1.1%    1.6%  -5.7%
Building materials         -0.4%   -0.3%   -2.0%    0.4%   -0.6%    2.5%  -2.0%
Food, beverages             0.0%   -0.2%    0.6%    0.2%    1.1%   -0.1%   6.7%
Health, personal care       0.4%    0.6%    0.1%    0.1%    0.8%    0.0%   4.2%
Gasoline stations         -12.7%   -0.4%   -3.0%    0.0%    3.2%    3.3%   1.0%
Clothing                   -1.4%   -3.6%   -0.7%    0.4%   -0.1%    0.6%  -3.0%
Sporting goods             -1.6%   -2.6%   -0.1%   -0.5%    0.5%    0.8%  -3.4%
General merchandise        -0.4%   -0.6%   -0.7%    0.0%    0.4%    1.4%   3.5%
===============================================================================
                          Oct.   Sept.    Aug.    July    June    May     Oct.
                          2008    2008    2008    2008    2008    2008    YOY
===============================================================================
Department stores         -1.3%   -1.4%   -2.1%   -0.6%    0.0%    0.6%  -5.3%
Miscellaneous               0.7%   -0.5%   -3.4%    2.1%    1.9%   -0.1%   0.8%
Non-store retailers        -1.8%   -0.3%   -2.2%   -0.1%    0.5%    1.0%   0.7%
Eating, drinking            0.3%    0.6%    0.2%    0.1%    0.2%    0.8%   5.3%
===============================================================================
NOTE: Percent changes are monthly unless otherwise noted.
Three month annualized calculations are the latest three months
average compared to the previous three months average.
Monthly changes are seasonally adjusted, yearly changes are not adjusted.

(*) This calculation removes gas, building materials & auto and other
motor vehicle dealers (a component of motor vehicles & parts) from
total retail & food service sales.

The estimates above are based on a sample of about 5,000 retail and food
service firms whose sales are then weighted. Based upon this sample, the
Census Bureau is 90 percent confident that retail sales to the over 3
million retail establishments was between -3.3 and -2.3 percent last month.

SOURCE: U.S. Commerce Department http://www.census.gov/retail

To contact the reporter on this story: Alex Tanzi in Washington at atanzi@bloomberg.net

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G-20 May Endorse Stimulus, Little Else as Bush Exits

By Michael McKee and Simon Kennedy

Nov. 14 (Bloomberg) -- A two-day summit on the global economic crisis begins today in Washington with world leaders likely to agree on little more than trying to spend their way out of a global recession.

The Group of 20 heads of state are divided on what needs to be done after that. European leaders are demanding greater state controls over financial markets. President George W. Bush, who hosts a dinner of his counterparts at the White House tonight, takes a narrower view.

Increased government spending on economic stimulus is something most of the industrialized and developing nations that form the G-20 are already planning to do. Any shift toward substantive change to the international financial system will probably wait for another meeting after President-elect Barack Obama takes office.

``The most realistic outcome is an agreement to start putting in place principles for reforms, and then agree to meet again,'' said Brad Setser, an economist at the Council on Foreign Relations and former U.S. Treasury official.

Leaders of the G-20, who represent almost 90 percent of the world economy, are feeling pressure with stock markets tumbling and economists forecasting the deepest global recession in three decades.

Deteriorating Economies

Statistics published within the last 24 hours showed deterioration in economies around the world. The 15-nation euro area fell into its first recession in 15 years; the number of Americans collecting jobless benefits jumped to a 25-year high; and Chinese industrial production gained last month at the slowest pace in seven years. The Organization for Economic Cooperation and Development predicted the economies in its bloc of 30 rich nations would contract next year by 0.3 percent.

The U.S. president invited the G-20 leaders to Washington for their first-ever summit in response to calls from French President Nicolas Sarkozy and U.K. Prime Minister Gordon Brown for a discussion of the causes and possible cures of the financial crisis.

Bush's European guests want a more international approach to market regulation with curbs on executive pay and hedge funds as well as greater cross-border supervision of banks.

More Rules

German Chancellor Angela Merkel today said she'll do ``everything to ensure that there are more rules to prevent us from ever having to face such a situation again.'' Sarkozy says the view that ``everything could be solved by deregulation, free competition and the market'' is now outmoded.

One possible compromise is adopting Brown's suggestion for a network of international regulators who meet to monitor banks that have significant interests in multiple economies. Merkel said she backs a ``global map'' to assess risks in the financial system and Bush yesterday said the G-20 ``must strengthen cooperation among the world's financial authorities.''

Bush remains averse to ``too much'' government meddling in markets, even after his administration backed bailouts of American International Group Inc. and Bear Stearns Cos. and began implementing a $700 billion rescue program.

``History has shown that the greater threat to economic prosperity is not too little government involvement in the market, but too much,'' Bush said in a speech yesterday in New York. ``Our aim should not be more government, it should be smarter government.''

Common Standards

The G-20 leaders will also consider pushing common standards for accounting and creating centralized clearing houses for financial instruments such as credit default swaps, Bush said. He added ways will be sought to give developing nations more power within the International Monetary Fund and World Bank.

Japanese Prime Minister Taro Aso will offer up to $100 billion in lending to the IMF at the summit and ask other nations to give further resources too, his office said.

That may leave foreign leaders to take up a broader regulatory push after Obama's inauguration in January. The president-elect won't attend this week's meeting, sending former Secretary of State Madeleine Albright and former Republican Representative Jim Leach as his emissaries.

``This is a process and not an event,'' said Charles Freeman, a foreign policy analyst at the Center for Strategic and International Studies in Washington.

That means results from this round of talks may be limited to agreement on common principles such as a desire to avoid protectionism and a pledge to take more steps to boost expansion. ``There should be no heightened expectations,'' Russian President Dmitry Medvedev said yesterday.

`Need for Urgency'

Interest-rate cuts by the world's major central banks have yet to unfreeze credit markets, leaving governments to step in with more spending and lower taxes.

``There is a need for urgency,'' Brown told reporters traveling with him to the U.S. yesterday. ``The cost of inaction will be far greater than the cost of any action.''

China, the world's fourth-largest economy, last week announced a 4 trillion-yuan ($586 billion) stimulus plan, while Germany's Merkel is considering boosting her fiscal stimulus program from the 50 billion-euro ($62.6 billion) package endorsed by her Cabinet last week.

Brown is signaling he'll cut British taxes soon and Aso promised Oct. 30 to pump 5 trillion yen into his economy after a 1.8 trillion-yen supplementary budget was passed last month.

Stimulus Measures

In the U.S., Democratic lawmakers are considering passing two stimulus measures, one during a so-called lame-duck session starting next week and another after Obama and a larger Democratic majority in Congress take office.

``Practically everyone agrees on the need for massive fiscal stimulus,'' said Julian Jessop, chief international economist at Capital Economics Ltd. in London. ``Agreement on reform of the global financial architecture will clearly be much harder.''

G-20 members are Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the U.S., the U.K. and the European Union. The Netherlands and Spain will also be represented.

Others invited include International Monetary Fund managing director Dominique Strauss-Kahn, World Bank President Robert Zoellick and United Nations Secretary General Ban Ki-moon.

To contact the reporter on this story: Simon Kennedy in Washington at Skennedy4@bloomberg.net; Michael McKee in New York at mmckee@bloomberg.net

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French Third-Quarter GDP Unexpectedly Increases

By Sandrine Rastello

Nov. 14 (Bloomberg) -- France's economy unexpectedly grew in the third quarter, dodging the recession that is hammering Germany as consumer spending gained and exports rebounded.

Gross domestic product in the euro-region's second-largest economy rose 0.1 percent from the second quarter, when it shrank 0.3 percent, Paris-based national statistics office Insee said today. Economists expected a contraction of 0.1 percent, the median of 24 forecasts in a Bloomberg survey showed.

A recession may just be delayed by two quarters, economists such as Bank of America Corp.'s Gilles Moec said, as companies facing the global credit crunch and a slowdown in demand scale back investment and cut jobs. The French government last week slashed its growth forecast for this year and next, while the European Commission predicted the euro-area economy would stagnate next year.

``The third quarter doesn't completely reflect the effects of the financial crisis,'' said Moec, who expected stagnation. ``We've clearly been in recession territory since September.''

Germany yesterday said GDP dropped 0.5 percent in the three months through September after a 0.4 percent decline in the second quarter. Spain and Italy reported contractions of 0.2 percent and 0.5 percent, respectively. The European economy fell into its first recession in 15 years, separate data today showed, with GDP of the 15-nation area area falling 0.2 percent in the third quarter.

`Surprising' Numbers

In France, ``the numbers are surprising. Everyone was waiting for a negative number,'' Finance Minister Christine Lagarde said on RTL radio today. ``France is not technically in a recession.''

Still, business confidence fell to the lowest in almost 15 years in October as the global credit crisis worsened. Airbus SAS orders in the first 10 months dropped 34 percent as declining traffic and airline bankruptcies forced cancellations at the world's largest maker of commercial aircraft.

Car manufacturers are also struggling. Renault SA trimmed its full-year profit and sales forecasts and plans to cut 6,000 European jobs. Rival PSA Peugeot Citroen, has said it would slash production by about 30 percent because of a ``collapse'' in the global auto market.

French manufacturers expect to decrease investment 3 percent next year, Insee said today in a separate report. They also scaled back their plans for this year from a July estimate, it said.

Corporate Investment

Consumer spending rose 0.2 percent after stagnating in the second quarter, the GDP report showed. Exports and imports both rose 1.9 percent after falling the previous quarter, with trade not contributing to expansion overall. Corporate investment rose 0.3 percent after a 1 percent drop, while household investment sank 1.6 percent.

Companies' cost cutting has started to show in the labor market. Payrolls fell 0.1 percent in the third quarter, Insee said in a separate report today. The number of job seekers has increased for the past five months, prompting President Nicolas Sarkozy to pledge to add 100,000 government-subsidized positions.

The Organization for Economic Cooperation and Development yesterday cut its forecast for global growth in 2009, following the International Monetary Fund in forecasting economic contractions in advanced economies next year.

``The OECD as a whole is currently in recession'' and will start recovering in the second half of 2009, Jorgen Elmeskov, the OECD's director of policy studies, said yesterday.

Profit Forecasts

L'Oreal SA, the world's largest cosmetics maker, on Oct. 30 cut sales and profit forecasts for the third time in less than four months as European and U.S. consumers curbed their spending.

``Since September, we have noted a clear slowdown in some markets in western Europe and North America, and have been confronted with a contraction of purchasing by some distributors in view of the current economic crisis,'' Chief Executive Officer Jean-Paul Agon said in a statement.

Consumers and companies may get a respite from the euro, which has dropped 20 percent against the dollar in the past four months, and from the falling oil prices that have collapsed to under $60 a barrel from a peak of more than $147 in July, easing inflation pressure and giving central banks from Washington to Beijing room to slash interest rates.

``It's true that's an enormous shock but compared with 1993, monetary policy is not restrictive and emerging economies have reserves and can do support measures,'' said Laurence Boone, an economist at Barclays Capital in Paris. ``We're going through the worst period, but let's not overdramatize.''

To contact the reporter on this story: Sandrine Rastello in Paris at srastello@bloomberg.net

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Business Inventories in U.S. Fall 0.2%, Most in Three Years

By Shobhana Chandra

Nov. 14 (Bloomberg) -- Inventories at U.S. businesses fell in September by the most in three years as companies tried to adjust to slumping sales.

The 0.2 percent drop in the value of unsold goods at factories, retailers and wholesalers was larger than projected and the biggest since July 2005, the Commerce Department said today in Washington. Sales declined 2 percent following a 2.2 percent decrease in August.

Companies had enough goods on hand to last 1.29 months at the current sales rate, the most since January 2007, the report showed. Firms will redouble efforts to slash stockpiles after another Commerce report today showed retail sales plunged 2.8 percent in October, the most since records began in 1992.

``We're going to see leaner orders,'' Guy LeBas, chief economist at Janney Montgomery Scott LLC in Philadelphia, said before the report. ``With credit tight, there's very little demand and very little money that companies can spend to finance inventories.''

Inventories were forecast to fall 0.1 percent, according to the median estimate in a Bloomberg News survey of 50 economists. Projections ranged from an increase of 0.5 percent to a decline of 0.4 percent. The August increase in stocks was revised down to 0.2 percent from 0.3 percent.

The decline in October retail sales, reported separately, was broad based with decreases in automobiles, furniture, electronics and clothing. The drop in autos was the biggest in three years and service station receipts declined by the most on record, partly reflecting the slump in gasoline prices.

Sales Slump

Inventories at retailers, the only part of today's release not previously reported, increased 0.2 percent and sales dropped 1.5 percent. That pushed the inventory-to-sales ratio up to 1.5 months from 1.48.

Stockpiles at auto dealers decreased 0.3 percent as sales slumped 4.8 percent. Automakers are pulling back as the credit crisis hurts demand for expensive goods. Ford Motor Co. on Nov. 12 said it will have temporary shutdowns at 9 North American plants this quarter to reduce production.

Retail inventories account for about a third of all business inventories. Factory stockpiles, which also account for a third, fell 0.7 percent in September. Wholesale stockpiles, which make up the rest, dropped 0.1 percent.

Declines in consumer spending will cause the economy to shrink this quarter and in the first three months of 2009, according to the median estimate in a Bloomberg monthly survey conducted from Nov. 3 to Nov. 11. Combined with last quarter's contraction, it would be the longest slump since 1974-75.

Gap Inc., the largest U.S. clothing retailer, is among chains that plan to control expenses and inventories after sales plunged in October.

We ``will continue to use inventory and cost management to offset what we anticipate will be a challenging holiday season,'' Chief Financial Officer Sabrina Simmons said in a statement last week.

To contact the reporter on this story: Shobhana Chandra in Washington schandra1@bloomberg.net Courtney Schlisserman in Washington at cschlisserma@bloomberg.net

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Bernanke Says Central Bankers Ready for More Actions

By Scott Lanman

Nov. 14 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said central bankers worldwide are prepared to take additional actions as needed to unfreeze credit markets, citing continued strains even amid ``tentative improvements.''

``The continuing volatility of markets and recent indicators of economic performance confirm that challenges remain,'' Bernanke said today at a panel discussion hosted by the European Central Bank in Frankfurt. ``For this reason, policy makers will remain in close contact, monitor developments closely and stand ready to take additional steps should conditions warrant.''

Bernanke led the ECB and other central banks last month in the broadest coordinated interest-rate cut in history. The Fed also removed limits on currency-exchange programs with four of its counterparts, including the ECB, and agreed to provide $30 billion each to the central banks of Brazil, Mexico, South Korea and Singapore.

Economic data this week signaled that policy makers have failed to avert a global downturn. Gross domestic product in the 15 euro nations contracted 0.2 percent in the third quarter and the Organization for Economic Cooperation and Development predicted yesterday that the economies of its 30 developed member nations will shrink next year by 0.3 percent.

``Monetary policy actions have not resolved the ongoing strains in financial markets,'' Bernanke said in prepared remarks at the ECB conference, which is marking the 10th anniversary of the euro. ECB President Jean-Claude Trichet, Bank of Israel Governor Stanley Fischer, People's Bank of China Deputy Governor Su Ning and Banco de Mexico Governor Guillermo Ortiz are also scheduled to speak.

Fourth Consecutive Drop

Retail sales in the U.S. dropped in October by the most since records began in 1992, the U.S. Commerce Department said today. The 2.8 percent decrease was the fourth consecutive drop. Purchases excluding automobiles also fell by the most ever.

Bernanke said ``financial markets remain under severe strain,'' while noting ``tentative improvements in credit-market functioning.''

He didn't specify what new steps central banks could take. The Fed, ECB, Bank of England and other central banks have all lowered rates since the coordinated cut on Oct. 8. While the governments probably won't coordinate fiscal policy, their actions will likely become increasingly similar, Bernanke said.

``It's increasingly likely there will be a convergence'' in fiscal policy, Bernanke said in response to an audience question.

`Sharp Deterioration'

Central banks created the currency swap lines in response to ``strong demand for dollar funding'' in the U.S. and other countries, Bernanke said. The ``recent sharp deterioration'' in interbank and other funding markets, where some financial institutions normally got dollars, left some companies ``without adequate access to short-term dollar financing,'' he said.

Since the coordinated rate reduction, the Fed has cut its benchmark rate another half-point to 1 percent. The central bank has provided more than $1 trillion in loans to financial institutions to mitigate the worst credit crunch in seven decades and head off a global recession. The Federal Open Market Committee next meets Dec. 16.

``Bernanke's remarks make us think another coordinated rate cut cannot be ruled out,'' said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. There is ``no hint that the Fed has run out of bullets,'' he said.

Corporations with investment-grade credit ratings were paying a premium of about 6 percentage points above comparable Treasuries to issue debt as of Nov. 4, up from 5 points a month earlier and 2.5 points in May, according to Merrill Lynch & Co.

`Vibrant' Economy

``Central bankers and other policy makers around the world must continue to work together to address disruptions in credit markets and to promote a vibrant global economy,'' Bernanke said.

The U.S. economy may contract at a 3 percent annual pace this quarter, the median estimate in a Bloomberg News survey of 59 analysts this month. Economists don't expect growth to resume until the three months ending in September 2009. The Fed is forecast to reduce the federal funds target rate to 0.75 percent by the end of December and 0.50 percent in the first quarter.

Fed governors and district-bank presidents updated forecasts at the FOMC's Oct. 28-29 meeting. Those will be released along with the meeting minutes on Nov. 19.

To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net.

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U.S. Retail Sales Drop in October by Most on Record

By Shobhana Chandra

Nov. 14 (Bloomberg) -- Retail sales in the U.S. dropped in October by the most on record, pushing the economy toward the worst slump in decades.

The 2.8 percent decrease was the fourth consecutive drop and the biggest since records began in 1992, the Commerce Department said today in Washington. Purchases excluding automobiles also posted their worst performance.

Spending may continue to falter as mounting job losses, plunging stocks and falling home values leave household finances in tatters. Retailers from Best Buy Co. to Nordstrom Inc. are cutting revenue forecasts ahead of what may be the worst holiday shopping season in six years.

``We are in the eye of the storm,'' said James O'Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut, who accurately projected the decline in sales. ``The recession is clearly intensifying. The next few months will look pretty bad. The fourth quarter will be even weaker.''

Federal Reserve Chairman Ben S. Bernanke said at a conference today in Frankfurt that continuing strains in financial markets and recent economic data ``confirm that challenges remain.'' He said central bankers worldwide ``stand ready to take additional steps'' as warranted.

Stocks, Treasuries

Stock futures, which had fallen earlier in the day, remained lower. Contracts on the Standard & Poor's 500 Stock Index were down 1.7 percent at 892.10 at 8:41 a.m. in New York. Yields on benchmark 10-year notes fell to 3.74 percent from 3.85 percent late yesterday.

Retail sales were projected to fall 2.1 percent, according to the median estimate of 73 economists in a Bloomberg News survey. Forecasts ranged from a gain of 1.4 percent to a decline of 6 percent. Purchases in September were revised down to show a 1.3 percent decrease compared with an originally reported 1.2 percent drop.

Sales have now fallen for four months in a row, the first time that's happened since records began in 1992. Excluding automobiles, purchases decreased 2.2 percent, almost twice as much as the 1.2 percent decline anticipated.

Today's report showed sales at 10 of 13 merchant categories dropped last month, testament to the broad-based nature of the slump.

Purchases at automobile dealerships and parts stores plunged 5.5 percent after falling 4.8 percent in September.

Luxury Goods

Purchases of expensive goods are taking the biggest plunge as banks turn borrowers away. Treasury Secretary Henry Paulson this week said the government will shift the focus of the second half of the $700 billion rescue plan from buying mortgage assets to unclogging consumer credit. President-elect Barack Obama and Democrats in Congress are under pressure to push through another stimulus plan even before the new administration takes over.

Filling station sales decreased 13 percent, also the most ever, in part reflecting a $1-per-gallon drop in the average cost of gasoline. Excluding gas, retail sales fell 1.5 percent.

Sales at furniture, electronics, clothing, sporting goods and department stores were also among the losers. Restaurants, grocery stores and a miscellaneous category were the only areas that showed a gain.

``Since mid-September, rapid, seismic changes in consumer behavior have created the most difficult climate we've ever seen,'' Brad Anderson, chief executive officer of Best Buy, said in a Nov. 12 statement.

Best Buy Outlook

The Richfield, Minnesota-based electronics chain said sales in the four months through February 2009 will decline more than it previously estimated. Rival Circuit City Stores Inc. filed for bankruptcy protection this week.

Macy's Inc., Target Corp. and Gap Inc. were among the chains that reported same-store sales dropped in October, while shoppers searching for discounts on groceries gave sales a lift at Wal- Mart Stores Inc., the world's largest retailer. Nordstrom yesterday cut its profit forecast for the third time this year

The International Council of Shopping Centers has forecast the November-December holiday season will be the worst since 2002.

Shoppers are pulling back as the labor market slumps. The unemployment rate jumped to 6.5 percent in October, the highest level since 1994. Employers cut more than a half million workers from payrolls in the past two months.

The longest expansion in consumer spending on record ended last quarter, causing the economy to shrink at a 0.3 percent annual pace.

The economic slump will intensify this quarter and persist into the first three months of 2009, making it the longest downturn since 1974-75, economists forecast in a Bloomberg survey conducted from Nov. 3 to Nov. 11.

Excluding autos, gasoline and building materials, the retail group the government uses to calculate gross domestic product figures for consumer spending, sales decreased 0.5 percent after a 0.6 percent decrease in the prior month. The government uses data from other sources to calculate the contribution from the three categories excluded.

To contact the reporter on this story: Shobhana Chandra in Washington schandra1@bloomberg.net

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Nymex Gasoline Declines as Economic Slump Crimps Fuel Demand

By Aaron Clark

Nov. 14 (Bloomberg) -- Gasoline futures fell for the third time in four days as the global economic slowdown cut demand in the largest energy-consuming countries.

The motor fuel dropped as much as 5.8 percent after China Petroleum & Chemical Corp., supplier of more than half the fuel in the world's second-biggest oil consumer, said it's slashing processing rates by 10 percent from July's record. Fuel demand in the last four weeks was 6.6 percent lower than a year earlier, a U.S. Energy Department report yesterday showed.

``In the energy sector it's boom or bust and now we are seeing the downside,'' said Dan Flynn, an energy analyst at Alaron Trading Corp. in Chicago. Flagging demand and consumer confidence are the main contributors to falling prices, he said.

Gasoline for December delivery fell 6.5 cents, or 5 percent, to $1.2374 a gallon at 9:07 a.m. on the New York Mercantile Exchange. The motor fuel has fallen 50 percent this year.

Crude oil for December delivery slumped $1.21, or 2.1 percent, to $57.03 a barrel. Crude has tumbled 41 percent this year.

Regular gasoline at the pump, averaged nationwide, fell 2.6 cents to $2.152 a gallon, AAA, the nation's biggest motoring group, said today on its Web site. That's the lowest since January 2007.

Heating oil for December delivery dropped 3.1 cents, or 1.7 percent, to $1.844 a gallon in New York.

To contact the reporter on this story: Aaron Clark in New York at aclark27@bloomberg.net

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Europe Economy Falls Into First Recession in 15 Years

By Fergal O'Brien and Simon Kennedy

Nov. 14 (Bloomberg) -- Europe's economy fell into its first recession in 15 years in the third quarter, paving the way for deeper cuts to interest rates and taxes amid the worst financial crisis since the Great Depression.

Gross domestic product in the 15 euro nations shrank 0.2 percent from the previous three months, when it also contracted 0.2 percent, the European Union's Luxembourg-based statistics office said today. The two quarters of contraction -- the result of this year's surges in the cost of credit, the euro and oil prices -- mark the first recession since the single currency was introduced almost a decade ago.

Consumers and companies are feeling the pain as sales, profits and hiring deteriorate, forcing the European Central Bank to embark on the fastest round of rate cuts in its history and governments to line up fiscal-stimulus programs. With the U.S. and Asian economies also struggling, leaders from the world's largest nations meet in Washington today to discuss ways to limit the impact of the slump.

``The situation is likely to get worse before it gets better,'' said Nick Kounis, an economist at Fortis in Amsterdam. ``There will be no real recovery before 2010.''

The German economy, Europe's largest, contracted by a bigger-than-expected 0.5 percent in the third quarter, confirming it has entered its worst recession in at least 12 years, its government said yesterday. Ireland and Italy have also slipped into recession this year, while Spain's economy contracted in the third quarter for the first time in 15 years. Growth in the Netherlands and Portugal stagnated.

Surprised Economists

Bucking the trend, French GDP unexpectedly expanded 0.1 percent from the second quarter, when it shrank 0.3 percent. Economists had forecast a contraction of 0.1 percent.

Europe's downturn surprised economists who in July saw just a 35 percent chance of a recession occurring in 2008, according to the median of 26 forecasts. Policy makers expressed confidence earlier in the year that the economy would dodge a recession even as the U.S. faltered. The European Commission began the year predicting growth of 1.5 percent in 2009, only to cut its forecast to just 0.1 percent as the financial crisis escalated.

Other major economies may not be far behind the euro region as the International Monetary Fund predicts the worst global slump in almost three decades. The U.S. economy, the world's largest, contracted 0.1 percent in the third quarter, after a fiscal stimulus package boosted it by 0.7 percent in the previous three months. The U.K. economy shrank 0.5 percent, marking the first decline in 16 years.

Stimulus Package

In China, where the government has announced a $586 billion stimulus package, the economy grew at the slowest pace in five years in the third quarter. Japan's economy, the world's second- largest, was probably at a standstill, according to economists surveyed by Bloomberg.

The euro remained lower against the dollar after today's reports. The 15-nation currency traded at $1.2691 as of 12:30 p.m. in London, down from $1.2769 in New York yesterday.

The Dow Jones Stoxx 600 was up 2.2 percent to 208.65, having been as low as 205.23 after the GDP data.

The economy of the 15 nations using the euro is suffering from multiple shocks, including the euro's rise to a record $1.60 in mid-summer, the strongest inflation in almost 16 years and oil's jump to an unprecedented $147 a barrel in July. The cost of credit then surged globally after the September collapse of Lehman Brothers Holdings Inc., forcing banks to cut lending to businesses and households and shattering demand for euro-area exports from America to Hungary.

Luxury Products

European car sales plunged almost 15 percent in October, the sixth straight monthly decline, the European Automobile Manufacturers' Association said today. Bulgari SpA, the world's third-largest jeweler, today scrapped its forecast for increased 2008 profit as consumers curb purchases of its luxury products.

Holcim Ltd., the world's second-biggest cement maker, on Nov. 12 said it would shut a factory in Spain as earnings decline. German chemicals supplier BASF SE and French tire maker Michelin & Cie. also are cutting output and jobs.

``The financial crisis has arrived in the real economy,'' BASF Chief Executive Officer Juergen Hambrecht said on Oct. 30. ``It all has some kind of a flavor of a recessionary development.''

The ECB last week lowered its benchmark rate by a half- point to 3.25 percent, the second such reduction within a month. Having raised rates as recently as July to combat inflation, policy makers are now signaling further cuts.

October Inflation

Separate figures today showed that inflation in October eased to 3.2 percent from 3.6 percent in September, matching an initial estimate on Oct. 31. Energy-price inflation cooled from 13.5 percent to 9.6 percent, the lowest since December.

From a year earlier, the euro-area economy expanded 0.7 percent in the third quarter. Both the quarterly and annual rates were in line with the median estimates of economists surveyed by Bloomberg News.

Investors expect the ECB will lower its key rate by at least another half a percentage point at its next meeting on Dec. 4, Eonia forward contracts show. Economists at Fortis and Morgan Stanley this week revised their outlooks to show the ECB cutting to 2 percent next year, while those at Deutsche Bank expect 1.5 percent to be reached for the first time.

While the recent decline of the euro against the dollar and a halving in the price of oil from its peak may provide some strength to the economy, analysts warn the recession may persist for longer in Europe than in the U.S. because its policy makers have been slower to act than counterparts in Washington.

``There has been an excessive degree of complacency'' as the economy was already in recession when the ECB increased its key rate in July, said Marco Annunziata, chief economist at Unicredit MIB in Milan. ``The policy response in Europe is well behind the curve.''

To contact the reporters on this story: Fergal O'Brien in Dublin at fobrien@bloomberg.net; Simon Kennedy in Paris at Skennedy4@bloomberg.net.

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Oil Tanker Demand Lifted by Unwanted Crude Storage

By Alaric Nightingale

Nov. 14 (Bloomberg) -- Oil tanker demand is being buoyed by traders seeking to store unwanted crude, potentially bolstering hire rates that have plunged 71 percent since July.

Frontline Ltd., the largest owner of supertankers, got about 10 enquiries from oil companies seeking vessels for storage this week, Jens Martin Jensen, interim chief executive officer of the management unit, said by phone today. Royal Dutch Shell Plc, Europe's largest oil company, booked the carrier Leander, Paris- based shipbroker Barry Rogliano Salles said this week.

Iran, the second-largest member of the Organization of Petroleum Exporting Countries, idled as many as 15 of its biggest ships in May to store crude. That contributed to three consecutive months of higher rental rates.

``That's definitely positive for the market,'' Anders Karlsen, an Oslo-based analyst at Nordea Securities who recommends investors buy Frontline shares, said by phone. ``It will have the same impact as last time; it doesn't matter if they are in Iran or wherever.''

Demand for tankers as storage ``encouraged bidding'' in tanker derivative contracts betting on the future cost of shipping oil, said Ben Goggin, a broker of the contracts at SSY Futures Ltd., a unit of the world's second-largest shipbroker.

Oil prices have plunged 61 percent since reaching a record price of $147.27 a barrel in July as slower global economic growth sapped demand. The International Monetary Fund last week warned of the first simultaneous recession in the U.S., Japan and Europe in more than 60 years.

North Sea Premium

The slump has prompted oil futures to move into contango, with near-term prices cheaper than those further into the future. That creates an incentive for traders to use ships for storage.

North Sea January cargoes are trading at a premium of about $2.20 a barrel to December shipments, according to PVM Oil Associates Ltd. A VLCC would cost about 90 cents to $1 a barrel a month to hire for storage, according to data yesterday from shipbroker Galbraith's Ltd.

The International Energy Agency, an adviser to 28 nations, cut its global oil demand forecast by the most in 12 years yesterday. The five-member Bloomberg Tanker Index, led by Hamilton, Bermuda-based Frontline, has dropped 59 percent from its peak in May.

To contact the reporter on this story: Alaric Nightingale in London at Anightingal1@bloomberg.net;

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Pemex May Award First Oil Exploration Contract by End of 2009

By Andres R. Martinez

Nov. 14 (Bloomberg) -- Petroleos Mexicanos may award the company's first external oil production and exploration contract by the end of next year, as it targets producers such as Exxon Mobil Corp.,Royal Dutch Shell Plc and Chevron Corp.

The contracts will focus on deepwater projects or its onshore Chicontepec development, areas where the state oil company lacks technical expertise, said Carlos Morales, chief of exploration and production at Pemex, as the company is known. Pemex lowered its daily output forecast for 2008 on Oct. 30.

``We expect to be ready to release the first tender by the middle of the year and award it by the end of the year,'' Morales said in an interview yesterday at his Mexico City office. ``We can learn the most from working with major oil companies, such as Petrobras, Statoil, Exxon, BP, Shell, Total and Chevron.''

Mexico's Congress approved seven oil-related bills in October after a summer-long debate and protests by opponents. The legislation allows Mexico City-based Pemex to hire companies to explore and produce oil and lets it seek outside expertise to search for crude in more expensive and complex fields.

For 70 years, the Mexican constitution prohibited foreign companies from exploring or producing oil on domestic soil or water as those rights were restricted to Pemex. Now, Pemex may hire companies and pay them incentives to find oil or cut costs.

Hired companies won't be allowed to own the oil or book the reserves, which are the lifeblood of oil companies. Mexico estimates it has 30 billion barrels of deepwater reserves.

Pemex has discussed partnering with Shell, Italy's Eni SpA and Norway's StatoilHydro ASA on exploration projects outside Mexico, Morales said. Pemex declined to participate on a StatoilHydro project in Timor it wouldn't directly benefit its domestic capabilities, he said.

Petrobras Rejection

Pemex also rejected an offer last year from Brazil's state- controlled Petroleo Brasileiro SA to take a 15 percent stake in an exploration block in deep waters of the U.S. Gulf of Mexico, he said.

Amid the global credit crisis and falling oil prices, Pemex postponed publishing tenders for some projects to allow companies to secure financing, Morales said. This includes a $1 billion pipeline maintenance project in the Gulf of Mexico.

Pemex doesn't have any plans to cut its $20 billion budget (258.7 billion pesos) amid the financial crisis, Morales said.

Last week, the IMF warned of the first simultaneous recession in the U.S., Japan and Europe in more than 60 years.

Pemex's projects are profitable at oil as low as $25 a barrel, he said. Below that, Pemex would have to consider cutting production or shelving or delaying projects, he said.

Crude at today's price is ``undervalued'' and will likely trade in a range of $50 to $70 a barrel through 2009, he said.

Tumbling Prices

Oil futures traded in New York have tumbled 60 percent since reaching a record $147.27 a barrel on July 11. They touched $54.67 a barrel yesterday, the lowest since Jan. 30, 2007.

Mexico is the third-largest supplier of crude to the U.S. Canada and Saudi Arabia are the first- and second-largest suppliers.

Pemex's output may fall next year to 2.75 million barrels of oil a day, Morales said. Cantarell, the world's third-largest field and Pemex's largest, is losing pressure, making it more expensive and harder to maintain output.

Pemex extracted 65 percent of its oil from Cantarell in March 2005, its peak. Cantarell now accounts for 35 percent of Pemex's total output.

The company on Oct. 30 lowered its 2008 output forecast by 3.6 percent to between 2.7 million barrels of oil a day and 2.8 million barrels after interruptions from hurricanes and stormy weather.

The company plans to drill three deepwater wells this year and 15 deepwater wells a year by 2011, Morales said. So far, the company has drilled eight deepwater wells. Pemex is betting that deepwater fields will produce 500,000 barrels a day by 2021.

Production Start-ups

Pemex may begin production at its Lakach deepwater natural gas field in 2013, at a daily rate of 400 million cubic feet, Morales said. Crude output at other deepwater wells may not begin until 2015, he said.

Pemex will publish seven tenders for work at its Chicontepec field in the next three months. The winning companies will drill about 2,520 wells, he said. Pemex expects output at the field to reach 600,000 barrels a day by 2021, helping the company return to production of 3 million barrels a year by 2012, Morales said.

To contact the reporter on this story: Andres R. Martinez in Mexico City at amartinez28@bloomberg.net

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Barclays Expands Commodities Team, Expects More in `Bull Cycle'

By Chanyaporn Chanjaroen

Nov. 14 (Bloomberg) -- Barclays Capital expanded its commodities team by about a third to more than 300 people this year, anticipating a resumption of the ``bull cycle'' in raw materials.

The bank had 225 employees in commodities at the start of the year and added people through hiring and the takeover of Lehman Brothers Holdings Inc.'s North American business, said Benoit de Vitry, head of commodities and emerging markets.

``Massive destruction of demand is going to persist in the short term,'' De Vitry, 46, said yesterday by phone from New York. ``But it is not going to last forever, and the natural growth is still there.''

Commodities, after six consecutive years of growth, are headed for their worst annual drop in more than a quarter- century. The Organization for Economic Cooperation and Development expects the economy of its 30 members to contract next year, sapping demand for natural resources.

Barclays Plc, the U.K.'s second-largest bank, bought part of Lehman's investment banking and capital markets operations for $1.75 billion after the 158-year-old U.S. investment bank filed the largest bankruptcy in history in September.

London-based Barclays has already selected which of Lehman's commodities staff to retain, De Vitry said, declining to elaborate. The bank will now work on integration, he said.

``We still want to grow in some aspects of the business,'' De Vitry said. ``We think the market is going to grow further, not shrink. There needs to be more participants.''

Economic Growth

The International Energy Agency, an adviser to 28 nations, yesterday cut its global oil demand forecast the most in 12 years, citing expectations for deteriorating world economic growth. Goldman Sachs Group Inc. and Morgan Stanley reduced their forecasts for metals prices this month.

``We're in a long-term bull cycle of commodities,'' said De Vitry, who joined Barclays Capital in 2000. He was previously managing director and head of commodities at Canadian Imperial Bank of Commerce in New York.

The plunge in commodity prices is spurring mining and energy companies to curb output and delay or scrap projects.

Cia. Vale do Rio Doce, the world's biggest iron-ore producer and second-largest nickel supplier, start reducing output this month. ArcelorMittal, the world's biggest steelmaker, announced deeper production cuts.

Energy companies are cutting back development of Canadian oil sands, the world's biggest oil reserves outside Saudi Arabia, as crude prices plunge.

``The lack of investments will create similar conditions that we've seen in the past few years,'' when supply failed to keep pace with expanding demand, De Vitry said.

To contact the reporter on this story: Chanyaporn Chanjaroen in London at cchanjaroen@bloomberg.net

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