Markets Falling, Dollar Is Rising: Bears and Dollar In it Together?

Daily Forex Fundamentals | Written by Lena Manousarides | Nov 20 08 14:18 GMT |

What a day turned out to be yesterday, with markets taking a slump in New York and DOW JONES ending the day 400 points lower printing new multi year lows. Asian markets continued in the same manner and the same thing happened in European session. It is clear that traders continue to worry about the worsening global economic conditions and at the end whatever happens, risk aversion always wins! EUR/USD made an impressive turn too yesterday, after it hit intraday high at 1.2820. The move did not find any followers and therefore it dropped all the way below 1.25. The latest range of 1.25-1.28 is still in play and although the pair dropped briefly below 1.25, the move found temporary break at 1.2470. If the later level gives way today, next level to watch is 1.2360. Today the economic calendar does not have any important releases, and apart from retail sales we saw earlier out of UK, which again fell for yet another month, the only other data are the jobless claims and Philadelphia Fed out later. Traders are not focusing so much at the data lately, however the more negative news we get about the economy the bigger chances to have another sell off in the global markets. The surprise event however came from the Swiss National bank, when it announced this morning a sudden rate cut of 100 points in order to stabilize things in the economy and meet their inflationary targets. The move was not expected at all today, however traders know that in desperate times we need desperate measures. The Swiss franc fell across the board, with USD/CHF making new multi years above 1.22 and EUR/CHF appreciating more than 200 points in the aftermath of the news. All market participants are now wondering what next, as many now speculate that other central banks may follow SNB and cut rates before the scheduled monetary policy meeting. Already traders have priced in further cuts from both ECB and BOE and some say that FED might be forced to cut even further in order to “save” the economy from collapsing further. With news daily hitting the wires of further bank losses and corporate earnings , traders hopes for a better and healthier market environment start to fade and the only way to go for now is either to remain a spectator or join in the fall. It does look like things are likely to continue in the same manner and for now whatever efforts we see for an upside rally; the bear market is very much a reality. For now, traders should stop trying to find a bottom and just admit that the economic situation is too unstable that any upside moves are turning out to be simple corrections before the downtrend resumes again. And the more the markets fall the more the dollar rise along with investors insecurity for the economic outlook! For sure, at some point the bull market will resurface again, maybe next year if things stabilize a bit, however for now it looks like the bears will win, more out of necessity rather than technical or fundamental factors… Lena Manousarides Independent Market Analyst and Professional Trader Email: manousarides@yahoo.comThis email address is being protected from spam bots, you need Javascript enabled to view it Lena Manousarides is a professional Trader and an independent Market Analyst, who pioneers in Fx trading in Athens, Greece. After several years of professional trading in the Forex Market, Lena formerly worked with FXGreece as a Market Analyst, writing articles on a daily basis, using fundamental and technical analysis. She also writes for several major financial newspapers in Greece and is in the process of becoming professional Commodity Trading Advisor.

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Jobless Caims Rise To Highest Level Since 1992

Daily Forex Fundamentals | Written by DailyFX | Nov 20 08 14:00 GMT |

Initial jobless claims in the U.S. unexpectedly rose last week to 542,000 - the highest level since 1992. The total benefit rolls rose above 4 million for the first time since 1982. The country has already seen job losses of 1.2 million and more is expected as several companies like Citigroup have announced significant cuts. Additionally, the troubles of the big three auto makers will be pressure on the labor markets as suppliers look to cut costs, as the industry is expected to be restructured and production reduced. The dollar would initially rally against the Euro on risk aversion flows but retraced shortly thereafter. 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 20 08 14:38 GMT |

Today's Focus: EURUSD & GBPUSD EURUSD: Price Failure Turns Attention To The 1.2330 Level. GBPUISD: Print Of A Higher Level Rejection Candle Portends A Retest Of The 1.4558 Level. EURUSD EUR traded back into its symmetrical triangle Wednesday to close the session at 1.2503 after an intra day upmove pushed it to as high as 1.2814.The pair's YTD low at 1.2330 is now being targeted. We maintain that the pair's medium term outlook remains lower and the resolution of its current range should be to the downside with a continuation of its overall weakness started at the 1.6038.Support in such a case are located at the 1.2134 level, its .50 Ret (its 0.8231-1.6038 high, monthly chart) and the 1.1827 level, its Mar'06 low.However,if a return back above its Wednesday high at 1.2814 is seen, EUR should head further down towards its Nov 13'08 high ahead of the 1.3058/05 level, its Oct 23'06 high/.618 Ret (0.8231-1.6038 rally, monthly chart) and then the 1.3259/98 level, its Oct 30'08 high/Oct 10'08 low. Break of the latter will serve as a trigger for directional bias out of its current range though not envisaged. On the whole, pressure continues to build on the 1.2330 level and possibly even lower. Support Comments 1.2484 Oct'06 low 1.2334/24 Jan/April'06 highs 1.1827 Mar'06 low 1.1640 Nov'05 low Resistance Comment 1.2866 Jan'07 low 1.3058 .618 Ret (0.8231-1.6038 rally, monthly chart) 1.3259 Oct 10'08 GBPUSD Backing off its Oct 24'08 low at 1.5265 Thursday and declining in early morning trading today now suggest a return back to its YTD low at 1.4558 is now shaping up. This is coming on the back of a failure at the 1.5250 level and subsequent weakness recorded on Thursday. The above scenario remains consistent with the pair's broader medium to long term bearish bias. Invalidating its immediate support at the 1.4837 level, its Oct 2001 high will expose two other supports at the 1.4558 level and the 1.4045 level, its Jan'02 low. Alternatively, a revisit and close above the 1.5000 and its Nov 19'08 high/Oct 24'08 low at 1.5250/65 will be required to resume its corrective recovery started at the 1.4558 level.All in all,GBP maintains in an overall bearish structure suggesting that its current price action remains corrective. Support Comments 1.4837 Oct,2001 high 1.4045 Jan'02 low 1.3682 Jun'01 low Resistance Comments 1.5000 Psycho Leve 1.5219 Oct'02 low 1.5250/65 Nov 19'08 high/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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Rising Jobless Claims Makes 8% Unemployment Growing Possibility

Daily Forex Fundamentals | Written by GFT | Nov 20 08 14:33 GMT |

Every single day we have more reason to believe that the US unemployment rate will break 8 percent next year. Jobless claims rose to a 16 year high last week of 542k, driving the US dollar lower against the Japanese Yen. Continuing claims rose to 4.012 million, the highest level in close to 26 years. The most powerful aspect of today's report is the fact that the Veteran's Day Holiday usually pushes jobless claims down which suggests that if there wasn't a holiday, jobless claims could easily surpass 550k. There is no question that the US labor market is in trouble and non-farm payrolls will continue to drop. However, with major layoffs from companies like Citigroup, there is a decent chance that we may see non-farm payrolls double dip like it has in past recessions. In analyzing non-farm payrolls data during the last 3 recessions, we see that at the beginning of an official recession, as defined by the National Bureau of Economic Research, non-farm payrolls start to decline rapidly. However after falling between 200k and 300k, job cuts stall and then pick up once again. We saw this trend in the 1981 to 1982 recession, the 1990 to 1991 recession and during the 2001 recession. Therefore don't expect the labor market to stabilize anytime soon - non-farm payrolls should top -300k, stabilize and then revisit that level once again in the first half of 2009. ZIRP? Recession Trades For the Federal Reserve, this is yet another piece of growing evidence that the US economy is deteriorating and they may need to serious consider taking interest rates to zero. Oil prices dropped below $50 a barrel today for the first time since May 2005. With inflation pressures easing and the economy deteriorating, there is no reason to stop easing. For the currency market, repatriation and risk aversion should continue to lift the US dollar and Japanese Yen. My favorite recession trades of short USD/JPY and short EUR/JPY are moving nicely in my direction! Kathy Lien http://www.gftforex.com DISCLAIMER: GFT refers to Global Futures & Forex, Ltd. and all of its divisions, branches and subsidiaries, including Global Forex Trading and GFT Global Markets UK Limited. GFT Global Markets UK Limited is authorized and regulated by the United Kingdom Financial Services Authority. Each investment product is offered only to and from jurisdictions where solicitation and sale are lawful. Trading of foreign exchange contracts, contracts for differences, derivatives and other investment products which are leveraged, can carry a high level of risk, and may not be suitable for all investors. It is possible to lose more than the initial investment. In Australia, GFT means Global Futures & Forex, Ltd. ARBN 103 508 461, AFS Licence 226625. A Product Disclosure Statement (PDS) is available at www.gft.com.au. You should read and consider the PDS before making any decision to deal in GFT products. © 2008 Global Futures & Forex, Ltd. All rights reserved.

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U.S. Jobless Claims for the Week of Nov. 15: Summary

By Kristy Scheuble

Nov. 20 (Bloomberg) -- Following is a summary of the Nov. 15 initial jobless claims report from the Labor Department.

========================================================================
Week Ending                  Nov. 15     Nov. 8     Nov. 1   Prior Year
========================================================================
Initial Claims (SA)            542,000    515,000    484,000    333,000
    Change                     27,000     31,000     -1,000    209,000
    Percent change               5.2%       6.4%      -0.2%      62.8%
4-Wk moving average           506,500    490,750    477,750    331,750
------------------------------------------------------------------------
Initial Claims (NSA)           511,941    538,658    466,341    323,124
    Change                    -26,717     72,317     16,952    188,817
    Percent change              -5.0%      15.5%       3.8%      58.4%
========================================================================
Week Ending                   Nov. 8     Nov. 1    Oct. 25   Prior Year
========================================================================
Continuing claims (SA)       4,012,000  3,903,000  3,832,000  2,580,000
    Change                    109,000     71,000    111,000  1,432,000
========================================================================
Week Ending                   Nov. 8     Nov. 1    Oct. 25   Prior Year
========================================================================
    Percent change               2.8%       1.9%       3.0%      55.5%
4-Wk Moving average (SA)    3,867,000  3,795,750  3,751,250  2,588,750
------------------------------------------------------------------------
Ins. Unemployment Rate (SA)       3.0%       2.9%       2.9%       1.9%
Ins. Unemployment Rate (NSA)      2.6%       2.6%       2.5%       1.7%
------------------------------------------------------------------------
Continuing claims (NSA)      3,518,151  3,457,894  3,310,892  2,293,829
    Change                     60,257    147,002     77,774  1,224,322
    Percent change               1.7%       4.4%       2.4%      53.4%
========================================================================
                             Nov. 1    Oct. 25    Oct. 18   Prior Year
========================================================================
Extended benefits (NSA)             94        111        675          0
    Change                        -17       -564       -424         94
Emergency Unemp. Comp. (NSA)   713,059    756,683    773,049          0
    Change                    -43,624    -16,366   -205,093    713,059
========================================================================

(SA) = Seasonally adjusted figures. (NSA) = Not seasonally adjusted.

To contact the reporter on this story: Kristy Scheuble in Washington at kmckeaney@bloomberg.net

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Belgium's November Consumer Confidence Declines to 15-Year Low

By Jurjen van de Pol

Nov. 20 (Bloomberg) -- Belgian consumer confidence fell to the lowest level in 15 years this month on increased pessimism about the labor market as economic growth stagnates.

The sentiment index for Belgium, the sixth-largest economy in the euro area, dropped to minus 22 from minus 17 in October, the National Bank of Belgium in Brussels said today in an e- mailed statement. The November reading is the lowest since December 1993.

Consumer sentiment is ``in marked decline,'' the central bank said. ``This latest drop reflects the climate of persistent turmoil on the financial markets and the deteriorating economic outlook.''

The economy may be heading for the first recession in six years as the global financial turmoil undermines expansion across Europe and forces governments to rescue banks, Belgian central bank Governor Guy Quaden said on Oct. 31. Growth in Belgium was the slowest in more than three years in the third quarter.

The drop in consumer confidence this month ``is mainly due to the much increased pessimism among consumers about unemployment prospects,'' the central bank said. The sub-index for the unemployment outlook in the next 12 months rose to 57 from 41 in October, signaling deterioration, the bank said.

AstraZeneca Plc today said it will eliminate 1,400 jobs and close plants in Belgium, Spain and Sweden as the U.K.'s second- largest drugmaker expands cost-cutting measures amid increased competition from generic medicines.

``Households' expectations concerning their capacity to save have been revised downwards once again,'' the Belgian bank said.

To contact the reporter on this story: Jurjen van de Pol in Amsterdam jvandepol@bloomberg.net

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Taiwan Economy to Fall Into Recession on Export Slump

By Tim Culpan and Chinmei Sung

Nov. 20 (Bloomberg) -- Taiwan’s economy will sink into a recession this year after shrinking in the third quarter for the first time since 2003, the government said.

Gross domestic product contracted 1.02 percent from a year earlier, compared with a revised 4.56 percent gain in the previous three months, the statistics bureau said in a statement in Taipei today. The bureau forecast the economy will shrink 1.73 percent this quarter.

Taiwan’s Cabinet announced last night plans to spend NT$483 billion ($14 billion) over four years to spur growth after overseas shipments tumbled last month and as job cuts damp consumer spending. Across Asia, the global financial crisis has tipped Japan, Singapore and Hong Kong into recession.

“The negative numbers could continue into the first half of next year because the U.S. is looking at such a large contraction,” said Cheng Cheng-mount, chief economist for Taiwan at Citigroup Inc. “The best the government can do is to minimize the damage, but they can’t avoid it.”

The government cut today its forecast for next year’s growth to 2.12 percent from 5.08 percent. It slashed this year’s estimate to 1.87 percent from 4.3 percent.

The technical definition of a recession is two consecutive quarters of negative growth. The contraction was the first since a deadly epidemic of SARS, severe acute respiratory syndrome, in 2003. Taiwan’s most recent recession was in 2001.

Waning Export Demand

Exports will decline 9.59 percent next year after gaining 8.17 percent in 2008, the statistics bureau said. Inflation will slow to 0.37 percent from 3.64 percent, it forecast.

Export orders, an indicator of shipments in one to three months, advanced in September by the least in six years. Shipments fell last month by the most since February 2005 as demand waned in mainland China.

Taiwan companies’ customers, including Dell Inc., the world’s second-largest computer maker, and Intel Corp., the largest chip manufacturer, say the global economic slowdown will deepen, hurting sales.

Fuel costs, which peaked during the quarter, also curbed growth in the island, which imports 99 percent of its energy needs. Crude oil has fallen 64 percent from a record of $147.5 a barrel on July 11.

‘Economic Tsunami’

Taiwan Power Co., a monopoly grid operator, expects electricity demand to increase this year at the slowest pace in seven years because of the global recession and higher prices.

“We’re in this economic tsunami, which is prompting technology companies to cut output,” Chief Engineer Tu Yueh- yuan, said in an interview yesterday. “It was just miserable for industrial users in October.”

Unemployment is at a three-year high and the key Taiex stock index is down 52 percent this year, damping consumer sentiment and spending. Nan Shan Life Insurance Co. plans to cut its staff of 4,700 by at least 7 percent to reduce costs, the company said Nov. 19.

Private consumption will fall 0.3 percent this year before increasing 1.86 percent in 2009 because of the boost from government spending, the statistics bureau said.

Plans to spur growth include handing out NT$3,600 in shopping vouchers to each citizen by the end of January. The move will pump NT$83 billion into the economy and be supplemented by NT$100 billion a year in public works and investment-promotion projects.

The measures may add 1.64 percentage points to economic growth next year, according to the Cabinet. Without the spending plan, the statistics bureau would’ve forecast an expansion of only 0.53 percent in 2009, Shih Su-mei, the island’s top statistician, said at today’s briefing.

Taiwan revised last year’s economic growth to 5.70 percent from 5.72 percent and the 2006 expansion to 4.8 percent from 4.89 percent.

To contact the reporter on this story: Tim Culpan in Taipei at tculpan1@bloomberg.net.

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U.K. October Retail Sales Decline for a Second Month

By Jennifer Ryan and Svenja O'Donnell

Nov. 20 (Bloomberg) -- U.K. retail sales fell less than economists forecast in October as shoppers bought more food items, offsetting lower spending on electrical goods and clothing.

Sales fell 0.1 percent on the month after dropping 0.5 percent in September, the Office for National Statistics said today in London. The decline was less than the 0.9 percent median forecast in a Bloomberg News survey of 27 economists. On the year, sales increased 1.9 percent.

Marks & Spencer Group Plc, the U.K.'s biggest clothing retailer, will offer discounts on all apparel and some alcohol today after saying this month that the business climate was the toughest since the early 1990s. Bank of England Governor Mervyn King says that Britain is probably already in a recession.

``The retail environment looks an awful lot worse than these figures suggest, given the sales that have been announced at places such as Marks & Spencer,'' said Jeavon Lolay, an economist at Lloyds TSB Group Plc in London. ``Consumer spending will get worse. The Bank of England is still going to be cutting interest rates and we see a 1 percentage point reduction next month.''

Bank of England policy makers voted unanimously to cut the benchmark interest rate by 1.5 percentage points to 3 percent this month, and considered an even bigger reduction as their forecasts showed a deepening recession, minutes of the Nov. 6 decision showed yesterday.

Electrical Goods

Household goods stores led the monthly drop and fell 5.4 percent from a year earlier, the most since 1992, as shoppers bought fewer electrical items, the statistics office said. Food sales rose 1 percent, helping to offset the overall decline.

Department stores and retailers of textiles, clothing and footwear also reported declines on the month. Total non-food sales increased 0.9 percent from a year earlier, the least in three years, the statistics office said.

The drop in ``non-food sales clearly suggests that discretionary spending is taking a hit,'' Vicky Redwood, an economist at Capital Economics Ltd. in London who formerly worked at the central bank, said in a note. ``It's shaping up to be a pretty awful Christmas for retailers.''

Marks & Spencer is holding a ``one-day Christmas spectacular'' today with discounts of 20 percent, according to a flyer distributed late yesterday outside its Finsbury Pavement store in central London.

`Tough Time'

``We know our customers are having a tough time,'' Marks & Spencer Chairman Stuart Rose said yesterday. ``We want to show our customers we are with them.''

Consumers are paring back spending as the slump in the housing market deepens. The asking price of a home dropped 7.1 percent from a year earlier this month, Rightmove Plc said on Nov. 17. Unemployment rose the most in 16 years in September.

Prospects for Britain's economic growth have worsened as concerns of a global recession increase. The International Monetary Fund predicts advanced economies will together contract next year for the first time since World War II.

King said on Nov. 12 the bank is ``prepared to cut bank rate to whatever level is necessary,'' to keep inflation at the target and didn't rule out putting the benchmark at zero. The Bank of England's forecasts, published on Nov. 12, show inflation may slow ``well below'' the 2 percent goal in 2009.

The annual price deflator, a measure of store prices, showed costs rose 0.6 percent from a year earlier in October, the least in five months, the statistics office said today.

To contact the reporters on this story: Jennifer Ryan in London at Jryan13@bloomberg.net; Svenja O'Donnell in London at sodonnell@bloomberg.net.

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Bernanke May Find Deflation Is Back as Fed Concern

By Steve Matthews

Nov. 20 (Bloomberg) -- Five years after Federal Reserve Chairman Ben S. Bernanke helped stamp out the risk of deflation, the threat is returning as the financial crisis and a worsening economic slump pull inflation lower.

Fed policy makers now predict the U.S. economy will contract until the middle of next year, according to minutes of their Oct. 28-29 meeting released yesterday in Washington. Government figures showed that consumer prices excluding food and fuel costs fell for the first time since 1982 last month.

The minutes, along with a slide in financial stocks to the lowest level in 13 years, increased the odds that the Fed will cut its benchmark interest rate next month. Bernanke may also need to revisit the unorthodox policy options, such as purchases of U.S. government debt, that he outlined as a board member in 2002-2003, Fed watchers said.

``The Federal Reserve put deflation back on the table as a significant policy concern,'' said Vincent Reinhart, former director of the Fed's Division of Monetary Affairs, who is now a visiting scholar at the American Enterprise Institute in Washington. ``There does not appear to be any barrier to lowering'' main rate below the current 1 percent level, he said.

Unemployment Claims

Government figures today signaled further deterioration in the labor market, buttressing the case for more interest-rate cuts. Initial jobless claims increased by 27,000 to a higher- than-forecast 542,000 in the week ended Nov. 15, from 515,000 the prior week, the Labor Department said. Stocks were lower and crude oil fell below $50 a barrel in New York for the first time in almost two years.

Deflation, or prolonged declines in prices, hurts the economy by making debts harder to pay off and lenders more reluctant to extend credit. Japan is the only major economy to have suffered the phenomenon in modern times.

``A lesson I take from the Japanese experience is not to let that get ahead of us, to be aggressive,'' Bernanke's deputy, Vice Chairman Donald Kohn, said in answering questions after a speech yesterday in Washington. ``Whatever I thought that risk was four or five months ago, I think it is bigger now even if it is still small.''

Kohn and Bernanke were both at the Fed in 2003, when the central bank's preferred consumer-price gauge reached a low of 1.3 percent, spurring then-Chairman Alan Greenspan to cut the key rate to 1 percent.

`Policy Challenges'

Some policy makers saw a risk last month that the inflation rate will fall below their mandated goal of ``price stability.'' ``Aggressive easing should reduce the odds of a deflationary outcome,'' they said, while noting that the low federal funds rate target ``would pose important policy challenges'' in that case.

The Fed's actions so far, including unprecedented injections of liquidity, haven't been enough to spur lending. Banks may make it even harder to get loans as their share prices plummet. Citigroup Inc. closed at a level unseen since 1995. The Standard & Poor's 500 Financials Index fell 12 percent to 139.84.

Fed officials expressed concern at last month's meeting at the risk for ``financial strains to intensify if some investors, such as hedge funds, found it necessary to sell assets and as lending institutions built reserves against losses.''

``Credit availability certainly hasn't increased,'' said Lyle Gramley, a former Fed governor. ``That has to be a major concern for the Fed because historically the way we get out of recessions is having the Fed push down hard on the accelerator. If that is not working very well, we have to look somewhere else for salvation.''

Buying Treasuries

Future action by the central bank might include ``aggressively buying long-term Treasury issues,'' Gramley, now a Washington-based senior economic adviser for Stanford Group Co., said in a Bloomberg Television interview.

Michael Feroli, a JPMorgan Chase & Co. economist who used to work at the Fed, said the central bank could also purchase the debt of Fannie Mae and Freddie Mac, the mortgage-finance companies seized by the government in September.

``Before ramping up'' such programs, the Fed might ``first communicate to the markets that the nature of the current economic woes should keep rates low for an extended period,'' Feroli wrote in a note yesterday.

The Fed's balance sheet has already doubled to almost $2 trillion as officials introduced programs to inject liquidity into the economy.

Fed's Minutes

``Several'' participants at last month's Federal Open Market Committee meeting judged the extraordinary programs will need to be ``unwound appropriately as the financial situation normalized,'' the minutes said.

Bernanke, a scholar of the Great Depression and former Princeton University professor, detailed possible assets the Fed could buy to fight deflation in a November 2002 speech when he was a governor. ``Sustained deflation can be highly destructive'' and ``should be strongly resisted,'' he said.

Fed officials at last month's meeting ``agreed to take whatever steps were necessary to support the recovery.''

Policy makers projected the Fed's preferred gauge of inflation at 1.5 percent to 2 percent next year, with a further slowdown in the next two years, reaching 1.3 percent to 1.7 percent in 2011, yesterday's report showed.

Some officials ``suggested that additional policy easing could well be appropriate at future meetings,'' the minutes said.

``The door is wide open for a rate cut of half-a-point at the December 16 meeting,'' said Allen Sinai, chief economist at Decision Economics in New York. He predicts the central bank will pare the main interest rate to 0.25 percent in January.

To contact the reporters on this story: Steve Matthews in Atlanta at smatthews@bloomberg.net

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Dollar Falls Against Yen as Jobless Claims Unexpectedly Rise

By Ye Xie

Nov. 20 (Bloomberg) -- The dollar fell against the yen as a government report showed initial jobless claims unexpectedly rose last week.

The U.S. currency dropped 0.3 percent to 95.43 yen at 8:42 a.m. in New York, from 95.73 yesterday. The euro traded at $1.2509, compared with $1.2489 yesterday. The euro declined 0.1 percent to 119.41 yen from 119.55.

First-time claims for U.S. unemployment insurance unexpectedly rose last week to the highest level since 1992, a sign the labor market is deteriorating as the economic slump deepens.

Initial jobless claims increased by 27,000 to a higher- than-forecast 542,000 in the week ended Nov. 15, from 515,000 the prior week, the Labor Department said today in Washington. The number of people staying on benefit rolls the prior week rose to 4.012 million, the most since December 1982.

The euro pared its gain versus the greenback as the jobs report encouraged investors to take refuge in U.S. assets.

To contact the reporter on this story: Ye Xie in New York at yxie6@bloomberg.net

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U.S. Initial Jobless Claims Rose to 542,000 Last Week

By Bob Willis

Nov. 20 (Bloomberg) -- First-time claims for U.S. unemployment insurance unexpectedly rose last week to the highest level since 1992, a sign the labor market is deteriorating as the economic slump deepens.

Initial jobless claims increased by 27,000 to a higher- than-forecast 542,000 in the week ended Nov. 15, from 515,000 the prior week, the Labor Department said today in Washington. The number of people staying on benefit rolls the prior week rose to 4.012 million, the most since December 1982.

Job losses in the U.S. have totaled 1.2 million this year as the economy entered a downturn exacerbated by the worst credit crisis in seven decades. More firings will weigh on the economy and consumer spending, putting pressure on President- elect Barack Obama and Congress to agree on legislation that will stimulate growth.

``Layoffs are picking up at a more rapid pace,'' said Jonathan Basile, an economist at Credit Suisse Holdings Inc. in New York. ``This is a reflection of the level of caution that hit the economy in October. Payrolls are likely to get worse before they get better.''

Treasuries rose, pushing yields lower. The benchmark 10- year note yielded 3.21 percent as of 8:45 a.m. in New York, down 12 basis points from yesterday. Stock-index futures were lower.

Economists surveyed by Bloomberg had anticipated a reading of 505,000, based on the median of 40 projections in a Bloomberg News survey, from the originally reported 516,000 in the prior week. Estimates ranged from 490,000 to 550,000 initial claims.

Four-Week Average

The four-week moving average of initial claims, a less volatile measure, increased to 506,500 last week from 490,750 a week earlier. So far this year, weekly claims have averaged 404,000, compared with an average of 321,000 for all of 2007, when the economy added a total of 1.1 million jobs.

The unemployment rate among people eligible for benefits, which tends to track the jobless rate, rose to 3 percent, the highest since June 2003. These data are reported with a one-week lag.

Forty-three states and territories reported an increase in new claims, while 10 reported a decrease.

Initial jobless claims averaged 416,000 a week during the last recession, from March 2001 to November 2001, and rose to a high of 517,000 in the last week of September after the terrorist attacks on New York and Washington.

The jobless rate rose to 6.5 percent in October, a 1.5 percentage point jump from six months earlier and one sign the economy may have entered a recession. The economy contracted 0.3 percent in the third quarter and economists surveyed by Bloomberg forecast negative growth of about 1 percent for the next six months.

Banks, Automakers

Companies are trimming staff as consumer spending is forecast to fall through at least March, according to economists surveyed by Bloomberg early this month. Banks, faced with mounting losses and writeoffs as the financial crisis spread over the past year, have been sacking thousands of workers.

Citigroup Inc., the fourth-largest U.S. bank, will eliminate 52,000 jobs over the next year, twice the target announced last month, as loan losses surge and the economy shrinks, the company said Nov. 17.

``We thought last year the bottom had been reached, but it hasn't,'' Citigroup Chairman Win Bischoff said in a conference in Dubai. ``Most responsible companies are getting into a planning cycle with more pessimistic budgets than they have been in the past.''

Carmakers are also shedding workers. Ford Motor Co. plans temporary shutdowns at nine North American plants this quarter, idling as many as 23,000 workers, as it slashes production after an 18 percent drop in U.S. sales this year, the company said Nov. 12.

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

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Tullow, Interoil Find Oil, Gas at Ghana's Tano Block

By Eduard Gismatullin and Maher Chmaytelli

Nov. 20 (Bloomberg) -- Tullow Oil Plc, the U.K. explorer with the most licenses in Africa, and Interoil Exploration & Production ASA found oil and natural gas at Ghana's Tano Block, boosting prospects for oil recovery at the nearby Tweneboa field.

The Ebony-1 shallow-water well found a 4-meter (13-foot) layer of oil at a depth of 2,053 meters and a 2-meter layer of gas condensates at 2,570 meters, Lysaker, Norway-based Interoil said today in a statement.

The deeper gas condensate layer may be linked to the deep- water Tweneboa oil deposit, ``a big prospect'' that Tullow plans to drill in January, Ian Springett, chief financial officer of the London-based company, said today by telephone.

``The gas condensate has very high pressure'' at the bottom of the well, where it's ``definitely worth a lot of money,'' Springett said, adding that the top oil layer may not be commercially viable.

Tullow plans to invest about $3.2 billion to develop the nearby Jubilee field and produce the first oil there in 2010. The company is targeting about 4 billion barrels of oil and gas resources in the Gulf of Guinea, offshore Ghana and Ivory Coast. It intends to supply the first gas from Jubilee to Ghana in 2011.

Tullow is working with Ghana National Petroleum Corp. on Jubilee's gas development plan, Springett said. ``Any of the gas found in the area will be very beneficial to that plan.''

Chance of Success

The Ebony-1 discovery ``has improved the chance of success at Tweneboa from around 30 percent to around 40 percent,'' Exploration Director Angus McCoss said today in a phone interview. Tullow targets as much as 800 million barrels of oil resources at Tweneboa and will announce drilling results in March, he said.

Tullow fell as much as 4.2 percent to 424.75 pence in London trading and was at 440 pence as of 12:50 p.m. local time. The stock earlier climbed as much as 1.2 percent.

``While activity from a Tullow perspective in the shallow- water Tano license ranks secondary to drilling around'' Jubilee, ``the result is nevertheless positive in that it opens up the prospect of further exploration in the shallow-water area,'' Gerry Hennigan, an analyst with Goodbody Stockbrokers in Dublin, said today in a report.

Tullow, the operator of the Tano license, and Interoil each hold a 31.5 percent interest in the field. The other partners are Thani Ghana, Sabre Oil and Ghana National Petroleum.

``The potential volumes associated with this discovery will be subject to an ongoing evaluation and further appraisal drilling will be discussed with our license partners,'' Interoil Chief Executive Officer Nils Trulsvik said in the statement.

To contact the reporters on this story: Eduard Gismatullin in London at egismatullin@bloomberg.net; Maher Chmaytelli in Nicosia at mchmaytelli@bloomberg.net

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Goldman Cuts 2009 Oil Outlook, Closes Recommendations

By Grant Smith

Nov. 20 (Bloomberg) -- Goldman Sachs Group Inc. cut its forecast for the average price of New York-traded crude oil in 2009 to $80 a barrel from $86, adding that it was closing all its trading recommendations for oil.

“Poor credit conditions and their negative implications for economic activity will continue to pressure WTI crude prices,” Goldman analysts led by Jeffrey Currie said in a report dated yesterday. “Over the past week, macroeconomic data confirmed the severity of recent economic weakness, reinforcing the concerns flagged by extremely weak physical commodities markets.”

A price average of $50 a barrel for most of next year is possible if economic and industrial activity in Asia fails to stabilize, the weekly report said. With this latest revision the bank has cut its 2009 outlook 46 percent since September.

“Although the worst of the commodity demand weakness in OECD economies is likely already behind us, the outlook for non- OECD demand is more uncertain,” the report added. “We are closing all of our oil trading recommendations.”

The report closed four oil-related recommendations. These involved trading the price difference gasoline and crude, a three-way transaction using crude options, buying crude swap contracts for 2012, and trading the difference between 2008 and 2013 futures.

Demand Growth

This last recommendation was running a loss of $40.88 a barrel, according to the report.

The bank lowered its old demand growth forecast for next year to 100,000 barrels a day, from 300,000 barrels a day. It also cut estimates for supply expansion outside the Organization of Petroleum Exporting Countries by 50 percent to 200,000 barrels a day, because of slower production recovery in the Gulf of Mexico and Azerbaijan.

Until a Sept. 16 report, Goldman had projected an average of $148 a barrel for West Texas Intermediate crude next year, the highest at that time among 35 analyst estimates compiled by Bloomberg.

Goldman said its year-end target of $107 a barrel for 2009 was unchanged by the revision to the annual average outlook. The bank has a three-month price target of $59 a barrel, six-month of $70 and 12-month of $102 a barrel.

To contact the reporters on this story: Grant Smith in London at gsmith52@bloomberg.net

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Chidambaram Says India Will Revisit Bond Limits When Reached

By Jurjen van de Pol and Celeste Perri

Nov. 20 (Bloomberg) -- India will reconsider the nation's limits on foreign institutional investment in Indian bonds once the current levels are reached, Finance Minister Palaniappan Chidambaram said.

``There's enough headroom,'' he said today after a presentation in Amsterdam. ``If we reach the limit, we will certainly revisit the limits. We haven't touched that level.''

India on Oct. 15 doubled the limit for foreign institutional investors in local corporate bonds to $6 billion. It left the limit on overseas investments in Indian government bonds unchanged at $5 billion. Chidambaram said foreign direct investment in the country hasn't yet been affected by the global financial crisis.

Easing overseas investment rules may help increase dollar supply into the economy and check the worst fall in the rupee in 17 years. The rupee today tumbled to a record low against the dollar as a rout in global equities added to speculation investors will increase sales of riskier emerging-market assets amid the deepening economic slump. Some foreign investors have pulled money from India because of pressure at home, Chidambaram said.

India deserves a permanent seat on the United Nation Security Council, the minister said. ``We'll take our place at the table when we earn it,'' he added.

To contact the reporters on this story: Jurjen van de Pol in Amsterdam jvandepol@bloomberg.net; Celeste Perri in Amsterdam at at cperri@bloomberg.net.

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Sacyr Jumps on Possible Repsol Stake Sale to Lukoil

By Gianluca Baratti and Stephen Bierman

Nov. 20 (Bloomberg) -- Sacyr Vallehermoso SA, Spain's worst-performing stock this year, jumped the most in two years in Madrid trading on reports the builder will sell its 20 percent stake in Repsol YPF SA to OAO Lukoil.

Sacyr, which said last week it was in talks over the possible sale of the stake, rose as much as 14 percent after EFE newswire identified Lukoil as a possible bidder. Repsol, Spain's biggest oil producer, advanced 3.9 percent while Lukoil fell 11 percent in Moscow.

Lukoil may buy an additional 9.9 percent of Repsol shares on the open market, EFE reported yesterday, citing unidentified people. Russia's biggest non-state oil producer would be required to make an offer for the whole company if it bought more than 30 percent, EFE said.

``Lukoil's fastest way to get into Repsol is to agree on the stake at the market price,'' Steven Fernandez, a Paris-based industrial analyst at Exane BNP Paribas said in a telephone interview today. ``Otherwise it could just build its stake at a discount in the market.''

The overall stake would be worth 5.1 billion euros ($6.4 billion) based on Repsol's market value of 17 billion euros as of yesterday.

Lukoil spokesman Dmitry Dolgov declined to comment when contacted by Bloomberg. Nobody from Repsol was available for comment. Sacyr has no comment to make beyond last week's regulatory filing when it said it had held talks with possible buyers, Ana de Pro, managing director for corporate development, said in a telephone interview today.

`Independent'

The Spanish government will do all it can to ensure Repsol remains ``independent and Spanish,'' Industry Minister Miguel Sebastian was cited today as saying by Efe.

Separately, Europa Press reported that Lukoil may pay 9 billion euros for Sacyr's Repsol holding and a stake owned by Criteria Caixacorp SA, a Spanish investment company.

Criteria hasn't received a ``concrete offer'' for its 9.1 percent interest in Repsol, the Barcelona-based company said today in a regulatory filing, without identifying any counterparties.

Sacyr spent 6.5 billion euros on the Repsol holding in 2006, paying an average of 26.71 euros a share. It may be under pressure from creditor banks to guarantee its debt, said Fernandez at Exane BNP.

``The only way to remove this debt would be to sell the Repsol stake, but the price is critical,'' he said. ``If 9 billion euros was the case, they would take it.''

Dividend Payments

Collateral, in the form of shares of Sacyr's Testa real estate subsidiary, is linked to the price of Repsol. If Repsol shares drop, the amount of collateral increases. Even so, selling its stake would deprive Sacyr of dividend payments from Repsol.

``Sacyr would rather sell Itinere before its stake in Repsol,'' Jose Lizan, a fund manager at Inversiones SV in Madrid, said in an interview with Bloomberg Television, referring to Itinere Infraestructuras SA, its toll road unit.

In June, Lukoil agreed to pay Italy's ERG SpA 1.35 billion euros for 49 percent in a new venture that will control the 320,000 barrel-a-day Isab refinery, storage tanks, and a 99- megawatt power plant in Priolo, Sicily. It also has refineries in Bulgaria and Romania.

Repsol operates five refineries in Spain, three in Argentina and one in Peru. It has holdings in another refinery in Argentina and two in Brazil, giving the company a total refining capacity of 1.23 million barrels a day, according to the Madrid-based company's Web site.

Gazprom, Total

OAO Gazprom, Russia's natural-gas exporter, said Nov. 14 that it's not interested in the Repsol stake.

The Spanish government wouldn't stand in the way of a Lukoil bid for 29.9 percent of Repsol, Cinco Dias reported today. The administration would prefer Lukoil, rather than Total SA of France, purchases the stake, the Spanish newspaper said, without saying how it got the information.

Sacyr was 50 cents, or 7.7 percent, higher at 7 euros as of 1:37 p.m. local time. The stock is down 72 percent this year. Repsol increased 1.8 percent to 14.20 euros. Lukoil slid 7.8 percent to 766 rubles on the Micex Stock Exchange.

To contact the reporter on this story: Gianluca Baratti in Madrid gbaratti@bloomberg.net.

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SNB Cuts Benchmark Rate by a Record 100 Basis Points

By Joshua Gallu

Nov. 20 (Bloomberg) -- Switzerland's central bank lowered its benchmark interest rate by an unprecedented percentage point after the economic growth outlook worsened.

The Swiss National Bank reduced its target for the three- month Libor to 1 percent and promised a ``generous and flexible'' supply of Swiss francs. It's the third unscheduled move by the SNB since the beginning of October. Today's step is the biggest single cut the Zurich-based SNB has made since it began targeting the three-month Libor in 2000.

``It's a huge step and a big surprise,'' said Holger Schmieding, chief European economist at Bank of America Corp. in London. ``The global financial environment has considerably worsened over the past days. They'll probably keep rates on hold next month given the extent of today's step.''

The SNB gained room to act after pushing the three-month range for borrowing francs, or Libor, back within its target this week for the first time in two months. The SNB predicted inflation will fall below 2 percent as soon as this year, giving it room to lower interest rates to counter a possible recession.

``To cut rates by that much in one go begs the question whether there's something we don't know,'' said Kenneth Broux, an economist at Lloyds TSB Group Plc in London.

After the announcement, the SNB offered 3-month and 6-month funding at 0.15 percent.

World Worsening

``International economic conditions have worsened appreciably, bringing a higher risk of a marked slowdown in economic activity in Switzerland next year,'' the statement said. ``The SNB will continue to monitor closely the situation on the money and foreign exchange markets.''

The International Monetary Fund predicts advanced economies including the U.S. and euro area will contract simultaneously next year for the first time since World War II. Federal Reserve Chairman Ben S. Bernanke, Bank of England Governor Mervyn King and European Central Bank President Jean-Claude Trichet have all signaled they're ready to cut interest rates further to stem the deepening economic slump.

``From the ECB perspective, the SNB surprise move, adds to the evidence suggesting that it is likely to lower its policy rate by 75 basis points at the Dec. 4 meeting,'' Julian Callow, chief European economist at Barclays Capital Plc in London, said in a research note.

Exports Drop

Swiss exports fell 4.6 percent from the previous month in October as a global economic slowdown eroded demand for machines, chemicals and metals, the Federal Customs Office said today. Foreign sales of textile machinery dropped 46 percent from a year earlier.

Today's decision helps damp that decline, according to Janwillem Acket, chief economist at Bank Julius Baer. `` You help exporters by taking stress out of the exchange rate. It's a sensible forceful action.''

The Swiss franc fell to its lowest level against the dollar since August 2007 after the announcement and dropped 0.8 percent to a one-month low of 1.5287 against the euro.

The euro-region, which buys more than half of Swiss exports, is in a recession for the first time since the single currency was introduced a decade ago and the head of the U.S. National Bureau of Economic Research, Robert Hall, said this month that the U.S. is also contracting.

Switzerland's benchmark SMI share index has lost 38 percent since the beginning of the year, including 15 percent since the beginning of this month. Shares of UBS AG, the Zurich-based European bank with the largest losses from the global credit crisis, dropped as much as 11 percent to 10.73 francs today.

``Monetary policy is the only instrument that can help the banking sector,'' said Sylvain Broyer, an economist at Natixis in Frankfurt. ``Should equity markets not recover, further rate cuts are not excluded.''

The SNB is scheduled to hold its next regular monetary policy meeting on Dec. 11. The central bank has cut rates by a total of 175 basis points since Oct. 8.

To contact the reporter on this story: Joshua Gallu in Zurich at jgallu@bloomberg.net

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Putin Pledges to Prevent Financial Collapse in Russia

By Henry Meyer and Lyubov Pronina

Nov. 20 (Bloomberg) -- Russian Prime Minister Vladimir Putin vowed to do ``everything'' to prevent the kind of financial crises that shook the country after the collapse of the Soviet Union.

Putin unveiled new measures to counter the effects of the global economic crunch, including corporate tax cuts and higher welfare payments, and promised to defend the ruble.

``We'll do everything we can to prevent a repeat in our country of the problems of past years, the collapse of past years,'' Putin told the annual congress in Moscow today of the ruling United Russia party which he heads, broadcast live on state television. ``We have amassed sizable financial reserves which will give us the freedom to maneuver, allow us to maintain macroeconomic stability.''

Putin, 56, is bolstering his public role in response to a global slowdown that has punctured Russia's 10-year oil-fueled boom, amid growing speculation that he may seek to return to the Kremlin as president next year.

Putin remains at the center of power after handing the presidency in May to his chosen successor, Dmitry Medvedev, 43. He may persuade Medvedev to step down, triggering snap elections that would enable Putin to reclaim the No. 1 post for as many as 12 years under a new six-year presidential term, analysts say.

``Medvedev can announce that he isn't coping and it's better if an experienced political leader takes the reins again,'' said Leonid Sedov, a political analyst at the Levada Center research group in Moscow.

Oil, Gas Exports

As the U.S., Europe and Japan slip into recession, the price of oil has fallen below $50 a barrel in New York from a July high of almost $150, hurting Russia, the world's largest energy exporter, which relies on oil and gas for two-thirds of its export earnings.

Russia's economic growth will slow to 3 percent next year after average expansion of 7 percent a year since 1999, the year after the 1998 financial default, the World Bank estimates.

Russia in August 1998 defaulted on $40 billion of debt and devalued the ruble, wiping out the life savings of millions of people overnight and pushing the government to the edge of bankruptcy.

Russia ``won't allow a spike in inflation or sharp changes in the ruble's exchange rate,'' Putin said. Bank deposits are safe in Russia because 98.5 percent of all retail deposits are fully covered by a state guarantee, he said.

Tax Cuts

Putin announced that the government will cut the tax rate on corporate profits by 4 percentage points in January, reduce taxes for small businesses and speed refunds of value-added tax. Unemployment benefits will rise next year to 4,900 rubles ($178) a month as ``structural'' labor-market changes loom, he said.

Plans to inject funds into health and education and increase social spending under a long-term strategy until 2020 will not be abandoned, Putin said. Pensions will rise 50 percent by 2010, he added.

With Urals crude already $20 below the $70 average required to balance Russia's budget next year, the government is depleting its reserves, the world's third-largest.

Already Russia has spent 24 percent, or $144.6 billion, of its central-bank stockpile since early August, mostly on a failed attempt to defend the ruble, which has lost more than 17 percent of its value against the dollar during that period.

The ruble snapped a four-day drop after Putin's speech, rising 0.2 percent to 27.5657 per dollar by 2:40 p.m. in Moscow, from 27.6196 late yesterday.

The tax cuts announced amount to 550 billion rubles, Finance Minister Alexei Kudrin said. Putin also pledged 50 billion rubles for the defense industry and 83 billion rubles for new housing.

Boosting Liquidity

The government has already pledged more than $200 billion in loans, tax cuts, delayed tax payments and other measures to boost liquidity in the financial system during the credit crunch.

Russia's budget may have a 1 percent deficit next year, which will be the ``peak'' of the global crisis, and Russia will use its oil reserve fund to cover the shortfall, Kudrin said.

Putin accused certain politicians of complacency inherited from the years of high prices, which he criticized as ``absolutely unacceptable'' in today's crisis. He didn't name any of the politicians he attacked.

``This will inevitably lead to mistakes that will cost us the trust of the Russian people,'' he said in his speech. ``In difficult circumstances, the real capabilities of public institutions become clear.''

Putin Call-in Show

Putin will again take center stage next month by holding a live call-in show on national television.

Putin has held a nationwide call-in every year since 2001, broadcast live and lasting several hours, with questions on a wide range of issues submitted by TV link-up, phone and Internet. The event dominated TV news coverage on the days it aired.

Russia's lower house of parliament is close to approving a constitutional amendment that would extend the president's term to six years from four.

The measure will probably secure final legislative approval by mid-December. It would allow Putin, who stepped down after serving two consecutive terms, the constitutional limit, to serve at least another 12 years if he again becomes president.

-- With reporting by Emma O'Brien, Alex Nicholson, Maria Levitov and Denis Maternovsky in Moscow. Editors: Leon Mangasarian, Alan Crawford.

To contact the reporters on this story: Henry Meyer in Moscow at hmeyer4@bloomberg.net; Lyubov Pronina in Moscow at lpronina@bloomberg.net.

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U.K. Pound Falls Against Dollar, Euro as Retail Sales Decline

By Lukanyo Mnyanda

Nov. 20 (Bloomberg) -- The U.K. pound dropped and government bonds rose after retail sales fell for a second month, raising the likelihood policy makers will cut borrowing costs to revive Britain’s faltering economy.

The currency declined the most in a week versus the euro as the Office for National Statistics said sales shrank 0.1 percent last month. The Bank of England signaled yesterday it’s prepared to cut interest rates further, after reducing the main rate 1.5 percentage points to the lowest level since 1955.

“The economic outlook is still negative for the pound,” said Antje Praefcke, a currency strategist in Frankfurt at Commerzbank AG, Germany’s second-biggest lender. “The huge rate cuts and bad fundamentals are considerably negative.”

The pound fell to $1.4896 as of 1:06 p.m. in London, from $1.4952 yesterday, when it reached the highest level since Nov. 12. The U.K. currency is down 25 percent against the dollar this year. Against the euro, it weakened to 84.22 pence from 83.55 pence. It reached a record low of 86.63 pence last week.

Central banks around the world are discussing deeper reductions in borrowing costs as economies founder. Federal Reserve policy makers predicted the U.S. will contract through mid-2009, with some prepared to cut rates further, a record of their latest meeting showed yesterday. The Swiss National Bank cut its key rate 100 basis points to 1 percent today.

The pound may drop to $1.45 against the dollar in the “next couple of days,” said Praefcke, who also recommends investors sell it against the Japanese yen as global growth slows. The pound lost 0.5 percent to 142.42 yen today.

Bigger Cut Considered

U.K. policy makers, led by Governor Mervyn King, considered a bigger reduction in the key interest rate on Nov. 6, according to minutes of their meeting released yesterday. The monetary policy committee discussed the need for a cut to less than 2.5 percent, the minutes showed. It settled on 3 percent.

The yield on the 10-year gilt slipped below 4 percent for the first time since January 2006, falling seven basis points to 3.97 percent. The 5 percent security due March 2018 advanced 0.57, or 5.7 pounds per 1,000-pound ($1,484) face amount, to 107.91. The yield on the two-year note decreased nine basis points to 2.06 percent, near the lowest level since at least 1992. Yields move inversely to bond prices.

“The front-end should perform quite well,” Andre de Silva, global deputy head of fixed-income strategy in London at HSBC Holdings Plc, Europe’s biggest bank by market value, said in a Bloomberg Television interview. “We have seen the MPC cut early and boldly.”

Sale Demand Drops

Investors increased bets the Bank of England will cut rates again. The implied yield on the short-sterling December futures contract dropped seven basis points to 3.37 percent today, bringing its decline since Oct. 31 to 87 basis points.

Policy makers “will do whatever to ensure that inflation remains close to our target,” Bank of England Chief Economist Spencer Dale said in an interview published in the Newcastle Journal today.

The decline in retail sales was less than the 0.9 percent median forecast in a Bloomberg News survey of 27 economists. Household goods stores led the monthly drop as shoppers bought fewer electrical items, the statistics office said.

Demand dropped today at a sale of 3 billion pounds of 4.50 percent government notes maturing in March 2019. Investors bid for 1.6 times the securities offered, down from 2.19 times at the auction of the same bonds on Sept. 25. The yield averaged 4.14 percent.

Surging Borrowing

“The result was pretty weak,” said John Wraith, head of U.K. rates-product development at Royal Bank of Canada in London. “The big build-up in supply means you need higher yields, but that has been masked by the slowing economy.”

Government borrowing is surging as the looming economic recession cuts tax revenue. The U.K. budget deficit swelled to 37 billion pounds in the first seven months of the year, the largest since records began in 1993, the Office for National Statistics said today.

British government bonds still rallied this month as investors’ inflation expectations fell, with the U.K.’s five- year breakeven rate dropping below zero for the first time this week. The conventional gilt yielded 20 basis points less than its inflation-protected counterpart today.

To contact the reporter on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net

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Gold Rises in London as Slump in Stocks Increases Haven Appeal

By Nicholas Larkin

Nov. 20 (Bloomberg) -- Gold rose in London as tumbling stocks worldwide and data signaling a deeper recession increased bullion's appeal as an alternative investment.

European and Asian equities fell. The benchmark MSCI World Index slumped to its lowest since 2003 while yields on two-year Treasury notes reached an all-time low. Japanese exports declined the most in almost seven years and U.S. consumer prices dropped the most on record.

``We've seen equity markets back under pressure again,'' James Moore, an analyst at TheBullionDesk.com, said by phone today. ``We're starting to see some more investment in safe-haven assets. People are still expecting gloomy data.''

Gold for immediate delivery gained $14.85, or 2 percent, to $749.40 an ounce as of 1:14 p.m. in London. December futures were $12.50, or 1.7 percent, higher at $748.50 in electronic trading on the Comex division of the New York Mercantile Exchange.

The metal fell to $745.25 in the morning ``fixing'' in London used by some mining companies to sell production, from $762 at the previous afternoon fixing. Gold, heading for a third weekly gain, has slipped 28 percent since reaching a record $1,032.70 an ounce in March.

The U.S. Federal Reserve will probably cut interest rates to zero percent over the next two months to staunch deflation, JPMorgan Chase & Co. said in a note to investors. The Bank of England signaled yesterday it's prepared to cut rates further, after reducing the main rate to the lowest level since 1955.

U.S. Unemployment

U.K. retail sales fell for a second month in October as rising unemployment and the financial crisis dissuaded shoppers from spending. A U.S. report at 1:30 p.m. London time may show first-time claims for jobless benefits in the country stayed near a seven-year high last week, while total benefit rolls in the prior week probably rose to the highest level since 1983, according to a Bloomberg survey.

``The return of investment interest into gold ETFs is encouraging,'' Moore wrote in a note today. Gold's failure to rise above $765 an ounce yesterday ``suggests the metal is vulnerable to another test lower.''

Gold in the SPDR Gold Trust, the largest exchange-traded fund backed by bullion, increased by more than 3 metric tons to 752 tons as of today, according to data on the company's Web site. Assets held in exchange-traded funds managed by ETF Securities Ltd. gained 1.3 percent to 1.540 million ounces on Nov. 18, its Web site showed.

Bullion demand increased 18 percent to 1,133.4 tons in the third quarter from a year earlier, as lower prices encouraged purchases by jewelers and as investors sought a haven, the World Gold Council said yesterday. So-called identifiable investment, which includes purchases through ETFs and of bars and coins, climbed 56 percent.

Auto Woes

Among other metals for immediate delivery in London, silver added 1.7 percent to $9.415 an ounce. Platinum fell $6.50, or 0.8 percent, to $811.50 an ounce and palladium was $1.50, or 0.8 percent lower, at $182 an ounce.

Japan's Finance Ministry today said auto shipments fell 15 percent in October, while Nissan Motor Co. has said that second- half profit will fall to ``zero'' as a recession pushes U.S. vehicle sales to the lowest annual tally in 15 years. Automakers account for more than 60 percent of global platinum consumption, according to estimates by metals refiner and trader Johnson Matthey Plc.

``Investors have a window of opportunity to buy'' platinum as subdued supply growth from South Africa may keep the metal in deficit until 2012, Edison Investment Research wrote in a note. Platinum will average $1,350 an ounce in 2009, it said.

To contact the reporter on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net

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