Monday, November 24, 2008

Analysts Make Their Picks For A Low Liquidity, Potentially High Volatility Week

Daily Forex Technicals | Written by DailyFX | Nov 24 08 14:47 GMT |

Historical precedence says the US Thanksgiving holiday will drain the market of a significant amount of volatility through the second half of this week. Under these conditions, volatility itself can suffer dramatic swings. With the market already experiencing extraordinarily high levels of activity, will this finally be the mark for breakouts across the currency market? Our analysts weigh in below.

Chief Strategist - Antonio Sousa

My picks: Remain Short EUR/USD
Expertise: Economics and Behavioral Finance
Average Time Frame of Trades: 1 week - 3 months

I have been short EUR/USD since 1.47 and I expect more EUR/USD weakness going forward on speculation that a considerable deterioration of the euro zone economy in 2009, could lead to a significant shift of interest rate differentials in favor of the U.S. dollar and keep the EUR/USD under pressure over the next few months. Indeed, it seems the ECB underestimated the size of the biggest housing and credit bubble in history and the once resilient Euro zone economy is slowly succumbing to tight credit conditions and a slowing global economy. The euro zone is now in a technical recession and facing the most serious test since the euro was introduced to the world financial markets in 1999.

Currency Strategist - John Kicklighter

My picks: Pending EURJPY Breakout
Expertise: Combining Money Management with Fundamental and Technical Analysis
Average Time Frame of Trades: 3 days - 1 week

Trading conditions over the coming week are ideal for potential breakouts. The presence of the US Thanksgiving holiday on Thursday has a historical impact on liquidity, a period when leveraging can be dramatically amplified or tempered. Considering how consistently volatile the market has been over the past four months (even if direction has faded), it is safer to prepare for an increase in price action. What's more, for many of the most liquid pairs, congestion has created a number of technical formations where tight ranges multiple the potential for trend-defining breakouts that may come when half of the market is out for lack of liquidity. In preparing for a breakout, an interesting pair to watch will be EURJPY. Fundamentally, it has tracked risk trends very closely and interest rate expectations for the ECB are still up in the air.

Technically, the congestion in this pair for the past month has curbed a major trend but not abornmally high volatility. Daily ranges (today's included) have been extreme. For levels. A falling trend from the October 14th swing high has clearly defined a top to the market - though there is significant congestion in Fib retracements, a 20-day SMA and internal pivots up to 124. Support is less defined, but nonetheless significant to a breakout scenario. The shared low of the past three active sessions maintains a short-term, descending trend channel from the early-November bear swing, but it has not tempted the October 27th low at 113.60 yet. These will be the levels to watch when liquidity drains Thursday. If a breakout happens before hand, the drop in liquidity may instead stiffle direction; therefore, such a situation should be monitored closely.

Currency Strategist - Terri Belkas

My picks: Sell USD/CHF on a Break Below 1.2000
Expertise: Fundamentals Combined With Technicals
Average Time Frame of Trades: 1 - 3 Days

For what it's worth, USD/CHF remains firmly entrenched within an uptrend, as the pair has simply climbed within a clear channel formation for the past week or so. Currently, the supporting line of this channel sits at approximately 1.2050, but with the 38.2% fib of 1.1549-1.2296 and the 11/13 highs looming at 1.2000/11, I'll be looking for a break of 1.2000 as a sell signal to target the 50% fib of 1.1199-1.2296 at 1.1748.

On a shorter-term basis, though, traders could also play the USD/CHF range within the channel, though stops should be kept relatively tight.

Currency Analyst - David Rodriguez

My picks: Sell USD/JPY Rallies
Expertise: System Trading
Average Time Frame of Trades: 2-10 weeks

This is essentially the same call I made last monday. The USD/JPY remains within its medium-term downtrend. Given that I maintain a bullish bias on the Japanese Yen, it makes sense to use this as an opportunity to go short the pair on rallies. That said, I'll look to get into a position above the 96.00 mark, placing max risk above previous spike-highs of 97.08. This is a shorter-term trade than I typically go for, but risk to reward ratios look attractive here and I'm willing to take on the risk of a short-term breakout to the topside.

Currency Analyst - Ilya Spivak

My picks: AUDCAD (pending breakout)
Expertise: Macro Fundamentals, Classic Technical Analysis
Average Time Frame of Trades: 1 week - 6 months

AUDCAD has been consolidating in a triangle chart formation since late September. Prices are further contained by the 38.2% and 23.6% Fibonacci retracements of the 07/29-10/08 decline (0.8207 and 0.7827, respectively). Look for a daily close to surpass either of these levels to set directional bias, then enter short or long accordingly. A bullish target lies at 0.8517, the 50% Fib, while a bearish push would aim to test the 10/08 low at 0.7218.

Currency Analyst - David Song

My picks: Short GBP/CHF
Expertise: Fundamentals and Technicals
Average Time Frame of Trades: 2 - 10 Days

After peaking to a high of 1.8976 on 11/3, the GBPCHF slipped to a low of 1.7436 on 11/13, and fading demands for carry trades continues to favor a bearish outlook for the pair. At the end of last week, the pair surged to a high of 1.8406, but the failure to hold above 1.8370-80 (61.8% Fib level) suggests that investors remain bearish against the pair. Over the week, I anticipate the pair to hold within the 61.8% and 38.2% Fibonacci retracement levels, and may work its way below 1.8020-30 (38.2% Fib level) to test the 11/17 low of 1.7556 over the near-term.

DailyFX

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Technical Analysis Daily USD/JPY 95.16 - 24 November

Daily Forex Technicals | Written by iFOREX.bg | Nov 24 08 12:11 GMT |

USD/JPY Open 95.92 High 97.39 Low 94.99 Close 95.91

On Friday Dollar/Yen consolidated, and developing of a descending movement could not be achieved. On the weekly chart descending pressure continues to remain strong, while the currency pair remains under 100.80. On the daily chart the currency pair also remains under descending pressure. After reaching the minimum level since 1995 at 93.55 on Friday, the couple corrected, but development of its growth so far could not occur. The risk of continuation of the downward movement remains high enough. Immediate support is 94.90 followed by 94.30. The CCI indicator has just crossed down the 100 line on the daily chart, assuming further potential bearish prospects.

Technical resistance levels: 96.30 97.20 98.05
Technical support levels: 94.90 94.30 93.10

Trading range: 95.05 - 95.70
Trend: Upward
Buy at 95.16 SL 94.86 TP 95.56

iFOREX.bg Forecasts and Trading Signals

Technical Analysis Daily: GBP/USD

Daily Forex Technicals | Written by iFOREX.bg | Nov 24 08 09:35 GMT |

GBP/USD 1.4889

GBP/USD Open 1.4916 High 1.5053 Low 1.4712 Close 1.4921

Last Friday the British currency corrected upwards, but growth development could not be achieved. On the weekly chart descendants pressure on the Pound/Dollar is maintained and will remain strong while the British currency remains below 1.6580. On the daily chart the Pound still declines, and the risk of further descending remains high while the pair remains below 1.5120. The currency couple remains within the frames of the short term descending channel. At the same time on the daily chart convergence is formed. Strengthening below 1.4710 would be a signal for the decline of the British currency. Staying above 1.5110 may provoke growth of Pound.

Technical resistance levels: 1.4975 1.5055 1.5240
Technical support levels: 1.4850 1.4715 1.4555

Trading range: 1.4875 - 1.4950

Trend: Upward

Buy at 1.4889 SL 1.4859 TP 1.4939

iFOREX.bg Forecasts and Trading Signals
http://www.zifx.com

FX Thoughts for the Day

Daily Forex Technicals | Written by Kshitij Consultancy Services | Nov 24 08 12:19 GMT |

USD-CHF @ 1.2141/45...Moving in a channel

R: 1.2217-22 / 1.2385-407 / 1.2460
S: 1.2076-49 / 1.2008-1.1999 / 1.1976

The currency has moved little since the last update. It has traded between 1.2161 and 1.2227 during the day. Some bit of consolidation is happening in this region after the surge that the pair has seen over the past few days. It may manage to come out of the channel it has re-entered into on the 4-hourly chart which if held could keep the pair ranged between 1.2050 and 1.2200. The pair has an important Support at 1.2090-43. If this Support breaks, it can once again slip out of the channel, this time, on the downside. But this decline could just be a correction which could turn its tide upwards sometime later.

Holding:

Long USD @ 1.2269, SL 1.2080, TP 1.2500

Limit Buy Order:

Buy USD 10K @ 1.2100, SL 1.2060, TP 1.2500

GBP-USD @ 1.5021/24...Bullish if closes above 1.5108

R: 1.5059 / 1.5100-08 / 1.5272
S: 1.4907-886 / 1.4862 / 1.4501

The pair has risen in the last few hours abruptly and may now test an important Resistance at 1.5108. For the Pound to show some bullishness, it will have to close above the 13-SMA (1.5107) on the daily chart which has not happened in the last 39 days though there have been spikes above this line on a number of occasions. The Support at 1.4862 looks strong enough for the pair but the volatility which has pretty much remained calm over the last few days may show up once again.

AUD-USD @ 0.6345/49...Little changed

R: 0.6404-08 / 0.6474-0.6500 / 0.6547-49
S: 0.6277 / 0.6236 / 0.5928

Aussie, too, has moved little through the day and has ranged between 0.6255 and 0.6326. May rise towards the higher end of the consolidation range of 0.60 to 0.68 if it is able to trade above 0.6549 for significant time, though this may happen over a longer period of time. For the rest of the day and during the US session, Aussie could range between 0.62 and 0.64

Kshitij Consultancy Service
http://www.fxthoughts.com

Legal disclaimer and risk disclosure

These views/ forecasts/ suggestions, though proferred with the best of intentions, are based on our reading of the market at the time of writing. They are subject to change without notice.Though the information sources are believed to be reliable, the information is not guaranteed for accuracy. Those acting in the market on the basis of these are themselves responsibly for any profits or losses that might occur, without recourse to us. World financial markets, and especially the Foreign Exchange markets, are inherently risky and it is assumed that those who trade these markets are fully aware of the risk of real loss involved.

Forex Technical Analysis EUR/USD

Daily Forex Technicals | Written by DeltaStock Inc. | Nov 24 08 09:28 GMT |

Current level-1.2598

EUR/USD is in а downtrend, after finalizing the rebound from 1.3882 (Sept. 11 2008) at 1.3882. Technical indicators are falling, and trading is situated below the 50- and 200-Day SMA, currently projected at 1.4049 and 1.5194.

The expected dip reached 1.2421 and we think, that is enough for the pair to begin a significant uptrend towards 1.3281, en route to 1.3760 . On the larger frames we still think, that a break above 1.2811 will trigger strong uptrend towards 1.3281 and 1.3760.

Resistance		Support
intraday	intraweek	intraday	intraweek
1.2601	1.2811	1.2461	1.2331
1.2693	1.3281	1.2412	1.20+

USD/JPY

Current level - 95.27

The pair is in the second part of the broad consolidation since 90.95 short-term bottom, aiming at 103.52. Trading is situated below the 50- and 200-day SMA, currently projected at 107.61 and 105.76.

As expected, last week's dip was limited to 93.53 and we think, that the pair reversed at that level, setting the beginnig of an uptrend towards 100.53.

Resistance		Support
intraday	intraweek	intraday	intraweek
95.96	99.86	94.86	93.35
97.48	103.52	94.46	86.01

GBP/USD

Current level- 1.4907

The pair has finished the broad consolidation above 1.9338 and the general downtrend has been renewed, targeting levels around 1.45+. Trading is situated below the 50- and 200-day SMA, currently projected at 1.8391 and 1.9421.

Still ranging without a clear direction and only a break above 1.5250 will set the stage for the next upmove towards 1.6103. Intraday bias is negative for 1.4712.

Resistance		Support
intraday	intraweek	intraday	intraweek
1.5076	1.5270	1.4812	1.45+
1.5167	1.6490	1.4653	1.4168

DeltaStock Inc. - Online Forex & Securities Broker
www.deltastock.com

RISK DISCLAIMER: These analyses are for information purposes only. They DO NOT post a BUY or SELL recommendation for any of the financial instruments herein analyzed. The information is obtained from generally accessible data sources. The forecasts made are based on technical analysis. However, Delta Stock’s Analyst Dept. also takes into consideration a number of fundamental and macroeconomic factors, which we believe impact the price moves of the observed instruments. Delta Stock Inc. assumes no responsibility for errors, inaccuracies or omissions in these materials, nor shall it be liable for damages arising out of any person's reliance upon the information on this page. Delta Stock Inc. shall not be liable for any special, indirect, incidental, or consequential damages, including without limitation, losses or unrealized gains that may result. Any information is subject to change without notice.

Govt. Bailout Provides Short Term Euphoria, Still Room for Additional Market Turbulence

Daily Forex Fundamentals | Written by AC-Markets | Nov 24 08 14:12 GMT |

The dollar was battered in intraday trading as the market reacts to the announcement of another US Govt. bailout. The EurUsd rose sharply by 190pips to the high range of 1.27, while the UsdJpy is mostly flat slight under 97. The GbpUsd rose over 70 pips finding resistance near 1.50 as risk aversion eases in the marketplace. Equity futures are pointing higher in the US, following the trend of European stock indexes with the FTSE up 175pts or 4.6% and the DAX up 141pts or 3.4%. Commodities are consistent with the bias towards risky assets in early trading, oil is higher by 3.7% at $51bbl, and gold up 2.5% at $821oz. Bonds are appearing to be overbought, but an unwinding is unlikely to occur until further stabilization in credit related sectors occurs. Yields are slightly higher on US and European Govt. backed securities, but being that an air of fear still lurks in this volatile environment expect Traders to start bond buying by the close of the US session.

German Ifo index came in lower than expected at 85.8 vs. the projected figure of 88.7. This additional economic data is disappointing, and important to be cognizant of, even though economic fundamentals currently have little effect on price behavior. The Ifo figure at its level since the 1992-93 recession, expectations have dropped below 80, which is further evidence that long term pessimism regarding long-term outlook remains strong. German GDP is scheduled to be released tomorrow and forecasts indicate another negative quarter. In the UK, the Pre-budget report will be out and is probably going to detail an in depth spending plan to stimulate growth. The 20Bln fiscal stimulus plan sounds similar to actions the Fed and ECB may launch to salvage deteriorating economic conditions.

Existing home sales are set to be released at 10:00est in the US, a steep drop of -0.5% is expected. The controlling theme in trading activity has been the Citigroup bailout, with the govt. guaranteeing $306bln of assets. They are set to receive a $20bln cash injection from the TARP, which helped boost the stock over 40% in the German trading. Look for short term relief through an early rally in equities, gains in both the Euro and Sterling, as well as high yielders in Asia. This reactionary move will probably trail-off by the end of the US session and a resurgence of risk aversion will cause continued volatility in the market.

AC Markets
http://www.ac-markets.com

Disclaimer: This report has been prepared by AC Markets (thereof ACM) and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by Salesperson or Traders of ACM at any given time. ACM is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment.

US Dollar Trying to Compensate Losses

Daily Forex Fundamentals | Written by Crown Forex | Nov 24 08 12:28 GMT |

Majors fluctuated in the European session, after the direction indicators got adjusted, clearing to us that their might be a possibility for the pairs to incline higher.

The euro against the US dollar tested the resistance at 1.2680 levels, where it couldn't breach it which made it rebounded back deeply down to the support level at 1.2550 levels which was not breached also; this allowed the pair to gather an upside momentum in order to breach the resistance level mentioned above.

If the pair managed to breach the mentioned resistance level a new target will be set at 1.2720 levels opening the path 74.6% correctional level which happens to fall on 1.2748, if the pair can't break the resistance level it will drop back to 1.2550. The pair recorded high of 1.2678 and a low of 1.2561.

The upward movement still controls the GBP/USD trading, after it made a correctional movement extended to 1.4850 levels, this supported the pair with an upside momentum to push it back to trade again at 1.5000 levels, if the pair manages to breach the above mentioned levels then new targets at 1.5025 followed by 1.5050, the pair recorded a high of 1.5018 and a low of 1.4836.

The USD/JPY pair started trading in a neutral movement fluctuating across the chart yet showing some signals that it would be climbing higher to compensate some of the losses that was faced in the Asian session; as now we see the pair trading around 95.60 levels trying to breach it in order to climb higher but according to the past period we can say the pair might not be able to break it. Technical indicators are showing that the upside momentum is weakening which would be pushing the pair down to 94.90 levels as a first target. The USD/JPY recorded a high of 95.98 levels and a low of 94.91 levels.

Crown Forex

disclaimer:The above may contain information for investors/traders and is not a recommendation to buy or sell currencies, gold, silver & energies, nor an offer to buy or sell currencies, gold, silver & energies. The information provided is obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. I am not liable for any losses or damages, monetary or otherwise that result. I recommend that anyone trading currencies, gold, silver & energies should do so with caution and consult with a broker before doing so. Prior performance may not be indicative of future performance. Currencies, gold, silver &energies presented should be considered speculative with a high degree of volatility and risk.

Citigroup Gets $306 Billion Government Bailout

Daily Forex Fundamentals | Written by CurrencyThoughts | Nov 24 08 12:22 GMT |

Stocks rallied in Europe and closed 2.7% higher in Japan in response to a rescue of Citigroup, sending a signal there will not be more Lehmans. The British Ftse (+4.0%), Paris Cac (+3.9%) and German Dax (+3.0%) are each sharply higher. Citigroup will issue $27 bn of preferred shares to the government, which in turn will cover bad assets beyond the first $29 bn of losses.

Stocks in Asia were mixed, with losses of 4.3% in China, 3.4% in South Korea, 2.9% in Thailand, 2.5% in Singapore and 1.3% in Malaysia but gains of 2.7% in Japan, 1.9% in the Philippines, and 0.3% in Australia.

The dollar is broadly lower, dropping below Friday closing levels by 0.9% against the euro, 0.8% versus sterling, 0.7% against the Canadian dollar and Swiss franc, 0.6% against the yen, 0.3% against the Aussie dollar, and 0.1% relative to the kiwi.

Sovereign bond yields are mostly higher.

Oil is steady and very near to $50/barrel. Opec is aiming to cut output again. Gold jumped 2.9% and is back above $800/ounce.

The British pre-budget statement at 15:30 GMT today will include temporary tax cuts and other stimulus worth about $30 bn. German officials continue to reject tax cuts despite a much weaker-than-anticipated IFO business climate index.

The IFO index fell 4.4 points to 85.8 in November, lowest since February 1993 and 18.8 points less than last March. Current conditions dropped 5.1 points to 94.8, while expectations fell 4.4 points to 77.6. Markets had expect a drop of only about half as much as occurred. Manufacturing suffered the deepest decline, but all sectors were much lower. The IFO's services index worsened to -7.3 from -4.3 in October and +17.2 in November 2007.

Euroland industrial orders tumbled 3.9% in September, led by a 9.4% decrease in Germany's component. Orders fell by 7.4% at a seasonally adjusted annual rate in the third quarter.

Euroland's current account deficit doubled to EUR 10.6 billion in September from EUR 5.3 bn in October on a seasonally adjusted basis. There have been five consecutive monthly deficits in a row. In unadjusted terms, portfolio and direct investment generated a EUR 38.6 bn inflow in September after a EUR 28.0 bn outflow in August.

The Canadian Prime Minister and Finance Minister at the annual APEC conference of Pacific Rim leaders said Canada may experience negative growth in both 4Q08 and 1Q09, hence qualifying as a "technical recession." A budget update is due later this week. The U.S. did not seal a firm date for an Andean-U.S. bilateral trade agreement at the APEC conference but promised to announce such soon.

Obama will unveil his top economic advisors at a press conference at 17:00 GMT from Chicago.

Japan observed Labor Thanksgiving. The central bank of Thailand signaled a readiness to begin cutting rates. It tightened twice this past summer. The Bank of Korea is putting up half the money for a $7 bn fund to recapitalize commercial banks and hard-hit firms. Singapore consumer prices firmed 0.8% m/m and 6.4% y/y in October. An officials of the People's Bank of China called interest rates "relatively appropriate." Further cuts nonetheless are widely expected.

Euribor rates fell, and Smaghi of the ECB expressed satisfaction with a softer euro. There are mounting signs of a credit card distress.

Larry Greenberg
CurrencyThoughts

Euro-Zone Fundamentals Deteriorate, Highlighting Further Weakness Ahead

Daily Forex Fundamentals | Written by DailyFX | Nov 24 08 12:16 GMT |

Fundamental Headlines

U.S. Agrees to Rescue Struggling Citigroup - Wall Street Journal
U.S. Auto Makers Look to Federal Sales Incentives - Wall Street Journal
Investors rush to quit buy-out funds - Financial Times
Barclays Wins Investor Support to Sell Shares, Chairman Says - Bloomberg
UBS Overvalued Property by $100 Million, Fired Executive Says - Bloomberg

EURUSD - The German IFO business confidence survey fell to a 16 year low of 85.8 from 90.2 as demands from home and abroad weakened further. In addition, business expectations slipped to 77.6 from 81.4, which crossed the wires much weaker than the 81.0 estimate projected by economists. Meanwhile, the Euro-Zone current account deficit widened to 10.6B from a revised reading of 5.3B in September due to a surge in capital outflows. The breakdown of the report showed that capital outflows reached EUR 106.8B this year, compared to an inflow of EUR 166.5 in 2007. Furthermore, industrial new orders for the Euro-Zone fell 3.9% in October following a 1.5% decline in the previous month, and may fall further over the coming months as fears of a global recession intensify. The breakdown of the report showed that orders for basic metals plunged 5.1%, followed by a 3.8% decline in transportation equipment. The data suggests that economic activity may remain subdued well into 2009 as demands deteriorate, and may lead the ECB to ease policy further in order to stave off a deep and prolonged downturn in Europe.

US Pressures Continue

Daily Forex Fundamentals | Written by Investica | Nov 24 08 12:13 GMT |

Despite some defensive support, the dollar will remain at risk as the severe US deterioration focuses attention on a huge financing requirement.

In data reported on Friday, the US ECRI leading growth index weakened to the lowest level for 15 years and the downturn in the index was at the fastest pace on record. This trend will reinforce fears that the economy has deteriorated rapidly over the past few weeks. There will be expectations of a sharp fourth-quarter GDP contraction and a very poor payroll report for December.

Underlying fears over the economy unsettled Wall Street initially, especially with further stresses within the banking sector and downbeat comments from the Federal Reserve officials.

The Euro recovered to around 1.2550 as Wall Street looked to rally in late trade with a report that New York Fed chief Geithner would be nominated as Obama's Treasury Secretary.

The Euro pushed stronger again on Monday as the US currency was generally weaker following a US$306bn support package for Citigroup which will risk further stresses on the US budget position.

Investica
http://www.investica.co.uk

Disclaimer: Investica's market analysis is not investment advice and must not be taken as recommending particular market positions. Investica can take no responsibility for any actions taken by investors.

EUR/USD Shrugs off Poor Germany Ifo Reading

Market Overview | Written by ActionForex.com | Nov 24 08 11:01 GMT |

EUR/USD shrugs off another poor reading in the Germany Ifo and remains firm in tight range. The main Business Climate Index dropped to new 16 year low of 85.8 in Nov, much worse than expectation of 88.7. The fall was driven by deterioration in both Current Situation Component, which dropped from 99.9 to 94.8 and Business Expectations Component, which fell from 81.4 to 77.6. All industry components, trade & industry, manufacturing, construction, wholesaling, retailing deteriorated deeper into negative region. There deterioration in business outlook in Germany, the largest economy in the Eurozone is fueling increased speculations that ECB will have another deep cut in Dec, by 75bps or even 100bps. Other data from Eurozone saw current account deficit of EUR 10.6B in September, down from a deficit of EUR 5.3B in August, as goods deficits widened and service surplus lowered.

From US, existing home sales are expected to fall back to 5.05M annualized rate in Oct after the surprised jump to 5.18M in September. Note that the 3-month, 6-month, 12-month average in Sep was 5.04m, 4.97m and 4.97m respectively. Any figure above 5m will be supportive to the view that sales are stabilizing as price falls. Also, markets will be keening awaiting stock markets' reaction to the news of bailout of Citigroup as well as Obama's job stimulus plan. President-Elect Obama's announcement of appointing NY Fed Geithner as the next Treasury and the plan to create 2.5m jobs. US Government's announced bailout plan to protect the "unusually large" loses on Citi's $306 billion in mortgage-backed assets and $20b injection into the bank from TARP by buying preferred shares of the company.

Technical Briefing

No change in the outlook in major pairs and crosses as they're all staying in tight range. Note that dollar index tries to draw some support from 4 hours 55 EMA for a rebound but fails to sustain gain. While some more pull back might be seen, near term focus remains on 86.14 minor support and as long as this support holds, further rally is still in favor. Elsewhere, note that the rally in Gold and Silver, which reaches as high as 820.20 and 9.97, is quite impressive, and more gain there will likely trigger further pull back in the greenback.

Economic Indicators Update

GMT	Ccy	Events	Actual	Consensus	Previous	Revised
9:00	EUR	Germany Ifo business climate Nov	85.8	88.7	90.2
9:00	EUR	Eurozone Current account (euro) Sep	-6.0B	N/A	-7.9B	-6.0B
10:00	EUR	Eurozone Industrial orders M/M Sep	-3.90%	-3.00%	-1.20%	-1.50%
10:00	EUR	Eurozone Industrial orders Y/Y Sep	-1.10%	-1.90%	-6.60%	-6.40%
15:00	USD	U.S. Existing home sales Oct		5.05M	5.18M
15:00	USD	U.S. Existing home sales M/M Oct		-3.50%	5.50%
		Japan Market holiday

Malaysia Cuts Benchmark Interest Rate for First Time Since 2003

By Stephanie Phang

Nov. 24 (Bloomberg) -- Malaysia’s central bank cut interest rates for the first time since 2003 and lowered the amount lenders need to set aside as reserves to help shield the Southeast Asian economy from a global recession.

Bank Negara Malaysia cut its overnight policy rate by a quarter of a percentage point to 3.25 percent, it said in a statement in Kuala Lumpur. The decision was predicted by seven of the 17 economists surveyed by Bloomberg News. One expected a half-point cut and the rest forecast no change.

“The adverse global developments have already affected the Malaysian economy, as evidenced by the slowdown in export performance and lower equity prices,” the central bank said. The rate cut “is a pre-emptive measure aimed at providing a more accommodative monetary environment.”

Malaysia, which avoided raising interest rates earlier this year when others were doing so to tame inflation, now joins nations around the world in cutting borrowing costs and boosting public spending to stimulate growth amid the global financial crisis. The government expects the economy to expand 3.5 percent in 2009, the slowest pace in eight years, as exports weaken.

“The recent and current economic conditions have deteriorated significantly, and the outlook points to further weakness,” said Suhaimi Ilias, an economist at Aseambankers Malaysia Bhd. in Kuala Lumpur today.

There are signs that Malaysia’s labor market is weakening and business activity is slowing, the central bank said. Sustaining domestic demand is crucial to ensure growth in 2009, it said.

The central bank cut the so-called Statutory Reserve Requirement to 3.5 percent from 4 percent, effective Dec. 1, “to reduce the cost of intermediation,” it said.

Inflation Eases

“The risk to domestic price stability is now substantially reduced,” Bank Negara said. “Going forward, the lower cost pressures and the slowdown in demand are expected to exert a greater dampening influence on inflation. Inflation is, therefore, expected to moderate significantly, particularly in the second-half of 2009.”

Malaysia’s inflation slowed to a five-month low of 7.6 percent in October, and has eased from a 26-year high of 8.5 percent in August, as slowing global demand caused crude oil and commodity prices to decline in the second half of this year. Consumer-price gains will slow further as fuel and food prices fall, Domestic Trade and Consumer Affairs Minister Shahrir Abdul Samad said Nov. 21.

“All signs indicate that the worst of inflation is behind us, and this would give room for Bank Negara to lower its policy rate, especially since growth concerns are in the limelight,” said Gundy Cahyadi, an economist at IDEAglobal in Singapore, before today’s decision.

Rate History

Central banks from India to Australia have already lowered borrowing costs in recent months to spur growth as the U.S., Japan and the euro region slipped into recession.

Bank Negara has kept its benchmark rate unchanged since raising it by a quarter-point to 3.5 percent in April 2006. The central bank last trimmed borrowing costs in May 2003 when the benchmark, then known as the intervention rate, was lowered to 4.5 percent from 5 percent. It introduced the overnight rate as a benchmark in April 2004, without altering the policy bias.

Earlier this year, Bank Negara had held off from raising rates to cool inflation as challenges to Prime Minister Abdullah Ahmad Badawi’s leadership threatened to hurt consumer confidence and economic growth. Political tension has eased after opposition leader Anwar Ibrahim missed his target of toppling the government by mid-September, and Abdullah agreed on a date to hand over power to his deputy, Najib Razak.

Lower borrowing costs may help companies such as Tenaga Nasional Bhd., Malaysia’s state-controlled power utility, survive the economic slowdown.

Tenaga, which predicts electricity demand will grow at a slower 4 percent pace in the year ending Aug. 31 from 6.1 percent a year earlier, had to postpone a plan to build a new headquarters that may cost as much as 350 million ringgit ($96 million), the Business Times reported in Nov. 18.

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

Belgian November Business Confidence Falls to Lowest Since 1993

By Jurjen van de Pol

Nov. 24 (Bloomberg) -- Belgian business confidence declined the lowest in more than 15 years in November, led by the manufacturing and building industries.

The confidence index for Belgium, the sixth-largest economy among the 15 countries that use the euro, fell to minus 23.7 this month from minus 14.8 in October, the Brussels-based National Bank of Belgium said today in an e-mailed statement. The index is now at its lowest since June 1993, the bank said.

Belgian companies face “declining exports and domestic demand as consumers also don’t have much confidence,” said Steven Vanneste, an economist at Fortis in Brussels. If “a further credit tightening occurs, producer confidence may go down further.”

Business sentiment in neighboring Germany, Europe’s largest economy, slumped to the lowest level in almost 16 years in November as the global financial crisis sapped demand for exports, data from the Munich-based Ifo institute showed today. The Belgian economy may be heading for the first recession in six years, central bank Governor Guy Quaden said last month.

“There was an exceptionally large drop in business confidence in the manufacturing industry,” the bank said in today’s report. “The decline was less pronounced in the building industry.”

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

Brown to Cut Taxes, Boost Borrowing to Counter U.K. Recession

By Gonzalo Vina

Nov. 24 (Bloomberg) -- Prime Minister Gordon Brown will cut taxes and increase spending in a stimulus package that economists expect to total more than 15 billion pounds ($22 billion) as Britain slides into its first recession in 17 years.

“We have seen in previous recessions how a failure to take action at the start of the downturn has increased both the length and depth of the recession,” Brown told business leaders in London today. “A boost to the economy to sustain growth will help to keep businesses open and protect people’s jobs and homes.”

Brown’s stimulus plan mirrors efforts by counterparts in the U.S., Europe and Asia to cushion the worst global slump in three decades. Economists, including George Johns at Barclays Capital, estimate the U.K. package may be worth about 1 percent of gross domestic product, or 15 billion pounds.

The costliest part of the plan may be a cut in the 17.5 percent value-added tax, a sales levy, which accounting firms and economists say Brown may reduce by as much as 12 billion pounds to spur consumer spending. Government officials yesterday called newspaper reports of the reduction “speculation.”

Brown also will propose measures to contain the deficit, including a tax on the highest earners and asset sales.

Brown will impose a new 45 percent income-tax rate on those making more than 150,000 pounds a year, said a person familiar with his plans. The highest rate is now 40 percent and all brackets above that ceiling were abolished in 1988.

Pre-Budget Measures

Chancellor of the Exchequer Alistair Darling will detail the so-called pre-budget report in Parliament today at 3:30 p.m. in London. Other components may include: delaying a planned tax increase on small companies and giving them a grace period to pay previous tax bills, a person with knowledge of the plans said. The government will also defer a doubling in annual taxes on drivers of the most-polluting cars.

He will also exempt foreign companies’ taxes on dividend payments, another person with knowledge of the matter said.

“A temporary fiscal stimulus is just that -- temporary,” Brown said. Darling’s statement today will also be about “showing what we will do later to ensure stability,” fund- raising measures that will include “asset sales over the medium term that will help bring government borrowing down,” Brown said.

The Confederation of British Industry, the nation’s biggest business lobby group, urged 13 billion pounds of corporate-tax cuts. A survey by Ipsos-Mori Ltd. of the CBI’s membership in October and November found 78 percent expect business conditions to worsen in 2009.

‘Exceptional Circumstances’

“In these exceptional circumstances, a shot in the arm is required,” CBI Director-General Richard Lambert said in a Bloomberg Television interview ahead of its annual conference today in London. “All our proposals are designed to support and sustain jobs.”

The National Institute for Economic and Social Research has forecast the U.K. economy won’t recover until 2010 after shrinking by 1.5 percent next year, the biggest contraction since 1980. The London-based group sees the unemployment rate climbing from an average of 5.75 percent this year to as high as 7.5 percent by 2011, the highest since 1997.

The slump is squeezing government finances. The budget deficit was 37 billion pounds for the first seven months of the fiscal year, the most since records began in 1993 and close to the government’s full-year forecast of 42.5 billion pounds.

Debt Sales

That’s causing borrowing to surge. The U.K. may sell a record amount of gilts next year, according to a Bloomberg survey. The government will issue 135.4 billion pounds of bonds in the next fiscal year, according to the median forecast by 10 banks that deal directly with the Treasury. That’s more than double the amount sold last year and up from the 80 billion pounds the government estimated in March.

Brown said the government has no choice but to run up higher deficits and has attacked Conservative leader David Cameron, who opposes spending above what has been budgeted.

“To fail to act now would be not only a failure of economic policy but a failure of leadership,” Brown said. “Doing too little too late would mean more damage, more deterioration -- a weaker economy, lower growth, eventually greater fiscal problems.”

That approach has resonated with voters who, according to opinion polls, have swung back to the Labour Party in recent weeks. Cameron said higher borrowing now meant higher taxes in the future.

‘Mind-Boggling Figure’

“The real story of this PBR will be our enormous deficit,” Cameron told the CBI in a speech replying to Brown’s. “The gap between the taxes that come in and the spending that goes out will be 80 billion pounds. That’s a mind-boggling figure. Gordon Brown will have borrowed more than all previous governments combined.”

Darling will delay for a year a 1 point increase in the 21 percent tax on small companies, which was due to take effect in April 2009, a person familiar with the matter said.

The chancellor will also outline a plan to give the nation’s 4.7 million small companies more time to settle tax and National Insurance bills with the government, the person said.

The pre-budget report will also exempt foreign dividends from taxes, heeding companies’ complaints. WPP Group Plc, the world’s second-biggest advertising company, in September joined United Business Media Plc and drugmaker Shire Plc in saying they would move their tax homes to Ireland to reduce payments. The measure will save companies 300 million pounds a year, a person with knowledge of the plans said.

Treasury officials yesterday wouldn’t say whether Darling would make permanent an increase in the tax-free allowance for 22 million of the lowest wage-earners, introduced in May to stave off a rebellion from members of Brown’s Labour Party.

That U-turn cost 2.7 billion pounds and Darling said he would spell out plans to help poor workers in today’s report. The chancellor said he would borrow to finance the move.

To contact the reporters on this story: Gonzalo Vina in London at gvina@bloomberg.net;

Hungary Unexpectedly Cuts Key Rate as Inflation Eases

By Zoltan Simon

Nov. 24 (Bloomberg) -- The Hungarian central bank unexpectedly cut the European Union's highest benchmark interest rate as it starts to roll back last month's emergency increase, expecting inflation to slow ``rapidly.''

The Magyar Nemzeti Bank in Budapest cut the two-week deposit rate to 11 percent from 11.5 percent today. One of 25 economists in a Bloomberg survey expected a cut, while the rest forecast no change. The central bank also reduced the reserve rate to 2 percent from 5 percent, effective next month.

Emerging markets have been scorched by the global credit crisis as investors dumped riskier assets in a flight to safety, forcing a 3 percentage-point rate increase on Oct. 22 to defend the forint. The inflation rate fell to the lowest in more than two years and a forecast recession is set to ease price pressure, giving policy makers scope for a reduction.

``There is a great probability that inflation will significantly undershoot the 3 percent target,'' Andras Simor, the central bank's president, said at a press conference in Budapest following the rate decision. ``This gives us an opportunity to lower rates substantially and gradually.''

The forint traded at 260.84 per euro at 3:32 p.m. in Budapest, compared with 266.25 late on Nov. 21. It weakened 15 percent against the euro in the first three weeks of October, reaching a record 286.55 rate on Oct. 23.

Forint Rebounds

The currency has strengthened 6.3 percent since the emergency rate increase, which was the biggest in five years, and as the government secured loans from the International Monetary Fund, the European Union and the World Bank to avert a default.

``Today's monetary easing seems justified,'' Zsolt Papp, an economist at KBC Groep NV in London, wrote in a note to clients today. ``The reaction of the euro-forint suggests the Monetary Council managed to find the policy mix. Today's interest rate cut also suggests that the Monetary Council is prepared to consider another 50 basis-point cut in December.''

Policy makers voted with a ``significant majority'' to reduce the rate to 11 percent today, after discussing proposals to keep it unchanged or cut it to 10.5 percent, Simor said. Future reductions hinge on risks to the country's external financing ability abating, the bank said in a statement.

Rate Expectations

Forward-rate agreements show that investors are stepping up expectations for rate reductions. The six-month forward fell to 10.1 percent today, from as much as 12 percent on Oct. 27 and 10.6 percent a week ago.

``The IMF package and the rate increase stabilized the market,'' said Zoltan Torok, the Budapest-based Raiffeisen International Bank AG analyst who was the only one to correctly predict the rate cut. ``The global recession also improved the domestic inflation outlook.''

The forint avoiding a decline after the reduction would allow the central bank to continue lowering rates, Torok said.

The central bank today cut its forecast for this year's inflation to 6.2 percent from 6.3 percent, next year's forecast to between 3.1 percent and 3.4 percent from 4.1 percent and to between 1.5 percent and 1.9 percent from 3 percent for 2010.

Inflation slowed to 5.1 percent in October, the lowest rate since August 2006 and a looming recession will further ease price pressure, ``substantially'' increasing the room for possible rate cuts, central bank Vice President Ferenc Karvalits said on Nov. 13.

The central bank's 3 percent target will be met ``at the latest by 2010,'' Simor said on Nov. 14 in Frankfurt. The bank issued its latest updated inflation estimates today.

Premier Urges

Prime Minister Ferenc Gyurcsany has urged the central bank to cut rates as soon as the market situation allows to limit damage to the recession-bound economy. Gross domestic product will probably contract by 1 percent next year, according to government forecasts, as demand falters in the euro region, where the majority of Hungarian exports are shipped.

The economy contracted 0.1 percent in the third quarter from the previous three months, while the euro zone slumped into a recession for the first time since the introduction of the common currency 15 years ago.

The central bank expects economic growth between 1 percent and 1.1 percent this year, contraction of 0.2 percent to 1.7 percent next year and growth of 0.5 percent to 2 percent in 2010, according to the latest economic forecasts.

This year's budget deficit may be 2.9 percent of GDP, rather than the government's 3.4 percent plan, narrowing to between 2.2 percent and 2.7 percent next year, the bank said. In 2010, the shortfall may be between 2.3 percent and 3.1 percent, according to the latest forecasts.

To contact the reporter on this story: Zoltan Simon in Budapest at zsimon@bloomberg.net.

Kazakhstan Plans to Spend Almost 20% of GDP to Bolster Economy

By Nariman Gizitdinov

Nov. 24 (Bloomberg) -- Kazakhstan plans to spend 2.2 trillion tenge ($18.3 billion), almost 20 percent of gross domestic product, to support the $100 billion economy amid the global financial crisis.

Government spending will include $5 billion to make discount-rate mortgages available to homeowners and $4 billion to buy shares and subordinated debt from the country’s largest banks, Prime Minister Karim Masimov said today during a government meeting in the capital Astana.

The former Soviet republic will also spend $1 billion to help small and medium-sized businesses, $1 billion to promote agriculture and $1 billion on infrastructure and industrial projects, according to a statement distributed at the meeting.

Kazakhstan, holder of 3.2 percent of the world’s oil reserves, faces a credit squeeze after a decade-long boom during which the economy expanded by an average of 10 percent a year, helped by a surge in the price of crude. The government will probably cut its economic growth forecast for next year to 3 percent from as much as 7 percent, officials said on Nov. 20.

The government will invest $3 billion from its oil fund to provide new mortgages at 10.5 percent annual interest, while the National Wellbeing Fund Samruk-Kazyna will sell $2 billion in bonds to pension funds to raise money for the program, Masimov said.

Distressed Assets

Kazakhstan’s distressed-assets fund, created to help compensate banks for the depreciation of assets provided as collateral for loans, may sell $4 billion of bonds to pension funds, Yelena Bakhmutova, head of the Financial Supervision Agency, told reporters after the meeting. No legal limit will be set on pension funds’ investments in the distressed-assets fund, she said.

The government moved last month to spend $4 billion to buy stakes in the country’s largest banks to boost capitalization and liquidity amid the global credit turmoil.

Kazakhstan joins Ukraine, the U.K. and the Netherlands in bailing out ailing financial companies as the global financial crisis deepens. Kazakh banks posted a 61 percent drop in profit in the first nine months as they set aside cash to cover bad loans as the economic growth rate slows.

To contact the reporter on this story: Nariman Gizitdinov in Almaty, through the Moscow newsroom at ngizitdinov@bloomberg.net

Obama’s Troika May Push for Deeper Role in Economy

By Rich Miller and Robert Schmidt

Nov. 24 (Bloomberg) -- Barack Obama will today unveil an economic team steeped in fighting crises and likely to push for an unprecedented government role in reviving growth and stabilizing the financial system.

New York Federal Reserve Bank President Timothy Geithner is set to be nominated as Treasury secretary, former Treasury chief Lawrence Summers will be White House economic director and Peter Orszag, head of the Congressional Budget Office, will be in charge of assembling President-elect Obama’s budget, aides said. Christina Romer, a University of California, Berkeley, professor, will head the Council of Economic Advisers, according to a person familiar with the matter.

“Obama has picked a very strong troika to pull the sled,” said Peter Wallison, a Treasury general counsel in the 1980s and now a fellow at the American Enterprise Institute in Washington.

They’re going to need all their skills, and coordination, to get ahead of a financial market meltdown that has confounded outgoing President George W. Bush’s policy makers. First up: putting together and passing a stimulus package that may run to $700 billion or more, in an attempt to head off millions of job losses as the credit crunch freezes the economy.

Focus on Jobs

“It will be a two-year, nationwide effort to jump-start job creation,” Obama said two days ago. The president-elect is due to hold a press conference in Chicago at noon New York time.

Obama’s program will be far larger than the $175 billion package of tax cuts and stepped-up government spending he proposed just a month ago. Some of his advisers, and Democratic Senator Charles Schumer of New York, have suggested a figure of $700 billion. Bush’s February stimulus was just $168 billion.

The incoming administration may also enlarge the $700 billion financial-rescue fund enacted last month. It may surge to perhaps $1.2 trillion, said Martin Baily, who served as White House chief economist under Clinton and is now at the Brookings Institution in Washington.

Outgoing Treasury Secretary Henry Paulson already plans a new program to aid consumer-finance companies, signaling he may request from Congress the remaining half of the funds.

Summers, in a Bloomberg Television interview last month, urged “extraordinary steps” to ensure the flow of credit and address the cycle of mortgage foreclosures. He will take on a wide-ranging portfolio at the White House, coordinating economic policy across the administration.

Summers, 53, will also be positioned to take the helm of the Federal Reserve in 2010 when Chairman Ben S. Bernanke’s term ends. Geithner may stay on at the New York Fed until Obama takes office Jan. 20.

Shift at Fed

For Bernanke, today’s designations mean a shift in his ties with Geithner, who until now has been his top lieutenant on Wall Street. Any perception that Obama wants him replaced could also undermine his authority.

Still, any decision on the Fed chairman post is likely a year away, leaving time for Bernanke to build on his increasing outreach to Democratic positions -- and for any opposition to Summers to emerge. Summers, now a Harvard University professor, has repeatedly stirred controversy that has affected his career; he was forced out as Harvard president in 2006 after clashes with the faculty.

Obama has shifted gears as the economic crisis mushroomed. Initially inclined to steer clear of influencing policy while Bush was president, Obama indicated Nov. 22 that his team might start working with Congress on a stimulus program now. That would make it more likely it could be signed soon after he takes office Jan. 20.

Down Payment

The stimulus package will act as a down payment on Obama’s longer-term proposals to cut taxes for the middle class, improve the country’s infrastructure and lessen U.S. dependence on foreign oil, according to his radio address Nov. 22.

“We’ll put people back to work rebuilding our crumbling roads and bridges, modernizing schools that are failing our children and building wind farms and solar panels,” Obama said.

Investors gave the Geithner pick a vote of confidence, driving the Standard & Poor’s 500 Stock Index up 6.3 percent from its lowest level in 11 years.

Obama’s team will need to avoid the type of internal squabbling that characterized the early years of the Bush administration and which could delay speedy action to counter the economic travails facing the country. Both Geithner, 47, and Summers had been in the running for Treasury secretary, people close to the Obama camp said earlier this month.

No Nirvana

“It’s certainly not going to be Nirvana, but policy making never is,” said Michael Barr, who worked with Geithner and Summers at the Treasury in the 1990s and is now at the University of Michigan Law School in Ann Arbor. At the same time, “a strong president is best served by a strong series of team members and that’s what Obama is getting.”

Bush’s team began the crisis seeking to avoid government intervention, then oversaw an intrusion into the financial system unprecedented since the Great Depression. Yet even after seizing mortgage financers Fannie Mae and Freddie Mac, taking over insurer American International Group Inc. and creating the $700 billion financial-rescue fund, the financial turbulence has morphed into a global recession.

Since the Nov. 4 election, reports have shown the jobless rate climbed to 6.5 percent in October, the highest level since 1994, with retail sales and consumer prices plunging the most on record. Fed policy makers now anticipate the economy will contract through the middle of 2009, with private analysts forecasting the worst recession in at least a quarter century.

Tax Cuts

David Axelrod, who will be a senior adviser to the president, left open the possibility that Obama will refrain from repealing tax cuts for the wealthy right away -- as he suggested he would do during the campaign. Instead, he may allow them to lapse at the end of 2010 when they are scheduled to expire under current law.

“The main thing right now is to get this economic recovery package on the road, to get money in the pockets of the middle class, to get these projects going, to get America working again,” Axelrod, Obama’s chief strategist during the campaign, said in an interview with “Fox News Sunday” yesterday. “That’s where we’re going to be focused in January.”

Champion of Stimulus

Summers has already advocated a massive stimulus package, saying it needs to be “speedy, substantial and sustained” to counter the forces buffeting the economy. He’s also played down concerns about what’s shaping up to be a record federal budget deficit, arguing that demand for Treasury securities currently far outstrips supply.

The stimulus program won’t be the only thing swelling the deficit. Obama has said he wants to do more to help homeowners who are facing foreclosure and the loss of their houses. The big three automakers -- General Motors Corp., Ford Motor Co. and Chrysler LLC -- are seeking assistance from the government.

Geithner and his onetime mentor Summers were top advisers to former Treasury Secretary Robert Rubin when the Clinton administration tapped a government fund to rescue Mexico from default in 1993-94. Later, they corralled banks into extending financing to South Korea, and worked with the International Monetary Fund to prop up emerging markets during the 1997-98 Asian financial crisis.

“There were two people who could make fun of Larry: Bob Rubin and Tim -- one from above, the other from below,” said Jeffrey Shafer, who served with Geithner and Summers at the Treasury from 1993 to 1997 and who is now vice chairman of global banking for Citigroup Inc. in New York.

Bear, Lehman, AIG

Geithner has, along with Paulson and Bernanke, been one of the top decision-makers in handling the current crisis. He helped lead the rescue of Bear Stearns Cos. in March, the ultimately unsuccessful attempts to prevent a Lehman Brothers Holdings Inc. collapse in September, and the subsequent takeover of AIG.

A collapse in Citigroup shares this month may leave what was once the nation’s biggest bank next on the list of casualties.

It will be up to Geithner in his role as Treasury secretary to try to make sure that the flood of securities coming from the U.S. government doesn’t spook America’s foreign creditors, including those in China and the Middle East, who may be already worried about what they see as an unprecedented borrowing binge.

That’s a part for which the former Treasury undersecretary for international affairs is well suited. Geithner has studied Japanese and Chinese and has lived in East Africa, India, Thailand, China and Japan.

‘Savvy Negotiator’

“He is a substantive and savvy negotiator on the international scene, understands the substance and nuances well, and knows the key players,” said Mohamed El-Erian, co-chief executive officer of Newport Beach, California-based Pacific Investment Management Co, which runs the world’s biggest bond fund.

At the New York Fed, Geithner’s departure will leave a gap at the central bank’s main link with Wall Street. Among potential leading candidates to succeed him is Kevin Warsh, a Fed governor who previously worked at the White House and as an investment banker with Morgan Stanley.

To contact the reporters on this story: Rich Miller in Washington at rmiller28@bloomberg.net; Robert Schmidt in Washington at rschmidt5@bloomberg.net;

Shell Examines Possible Oilfield Projects in Iraq, CEO Says

By Edward Gismatullin

Nov. 24 (Bloomberg) -- Royal Dutch Shell Plc, Europe’s largest oil company, is examining possible oilfield projects in Iraq, Chief Executive Officer Jeroen van der Veer said today.

“We have the right technologies to have successful projects there,” he told reporters today at a conference in London. “We are quite excited.”

Shell’s CEO said the company plans to invest “north of” $1 billion on gas projects in Iraq.

In September, Shell signed a gas-capturing and marketing agreement with Iraq, in which the company has a 49 percent stake and the Iraqi South Gas Co. 51 percent.

To contact the reporter on this story: Eduard Gismatullin in London at

Arch Coal Attracts Soros as Peabody Lures Citadel

By Arijit Ghosh and Christopher Martin

Nov. 24 (Bloomberg) -- Billionaire investor George Soros, Citadel Investment Group LLC and T. Rowe Price Group Inc. are snapping up coal mining shares, taking advantage of the cheapest valuations in five years as demand for electricity rises.

Soros bought 2.9 million Arch Coal Inc. shares last quarter for a 2 percent stake in the second-largest U.S. coal producer, filings with the Securities and Exchange Commission show. Citadel, the Chicago-based hedge fund, and Invesco Ltd. in Atlanta bought 3.5 million shares of Peabody Energy Corp., the biggest miner. T. Rowe reported purchasing stock in Peabody, Arch, Consol Energy Inc. and Indonesia’s PT Bumi Resources.

While coal, the cheapest fuel for power, is up 88 percent in Pennsylvania, shares of the companies that mine the mineral have slumped along with the rest of the commodities industry. Now, investors are betting that Peabody, which trades at 3.7 times projected 2009 earnings, and Arch at 2.5 times are cheap because coal use will increase. The valuations are at more than a 54 percent discount to the MSCI World/Energy Index.

“Coal is the best commodity to get into right now,” said Daniel Rice, manager of BlackRock Advisors Inc.’s $1.5 billion Global Resources Fund in Boston, which is among the largest holders of Peabody and Arch. “It’s a lot less sensitive to downturns because it’s needed for basic power generation, and demand is growing.”

Crude oil in New York has dropped 48 percent this year compared with a 6.1 percent decline in Australian coal prices.

Electricity Demand

Demand for electricity in major economies, where coal is used to generate 52 percent of power, will increase 3.3 percent by 2010, according to a UBS AG report on Nov. 17. Global coal use will rise 2 percent a year through 2030, led by China and India, the Paris-based International Energy Agency said Nov. 6.

Coal company shares tumbled this year as the U.S., Europe and Japan entered their first simultaneous recession since World War II. Peabody dropped 79 percent after reaching a record in June and Arch lost 84 percent. Consol, the third-largest U.S. coal producer, slipped 82 percent. Bumi fared the worst among the world’s biggest producers, plunging 92 percent in Jakarta.

The MSCI World Index has declined 49 percent this year, while its energy sub index fell 44 percent. The Bloomberg U.S. Coal Index slumped 75 percent and the measure of coal stocks in Asia dropped 73 percent.

‘Particularly Irrational’

Analysts say the decline has been overdone. While oil company profits will fall this year after New York crude futures dropped, coal producers have the advantage because mining companies have long-term sales contracts that cushion them from falling prices.

“People are dumping all equities and it’s particularly irrational for coal,” said Richard Price, an investment banker at Westminster Securities in St. Louis, who advises coal producers and utilities in the U.S. and China. “Even if contract prices come off next year, they’ve still got the ones signed this year at higher prices.”

Edward Giltenan, a Baltimore-based spokesman at T. Rowe couldn’t be reached by phone after office hours and didn’t immediately respond to an e-mail. Michael Vachon, a New York- based spokesman for Soros, Aysha Mawani, spokeswoman at Invesco and Katie Spring at Citadel didn’t immediately respond to e- mails seeking comment.

Bumi may advance fivefold, according to the average forecast of 20 analysts compiled by Bloomberg. Peabody will probably more than triple to $58 in the next 12 months, the analysts surveyed by Bloomberg said. Arch has an average target price of $37.69 among 13 analysts, more than three times its Nov. 21 close, the data show.

‘Recession Resistant’

“I wouldn’t say we’re recession-proof, but certainly recession resistant,” Steven Leer, chief executive officer of Arch, said in a Nov. 19 interview. “People will still be turning on their lights. Electricity demand rarely goes down.”

Profits at Peabody and Arch, both based in St. Louis, will rise next year as less lucrative contracts get replaced with ones signed at this year’s higher prices, analysts forecast. Lower costs for diesel, steel and explosives will help reduce mining expenses, Leer, 56, said.

Increased demand from utilities and analyst forecasts for 22 percent profit growth at Bumi attracted U.S. buyout firm TPG and San Miguel Corp., the Philippines’ biggest food and drinks company, to vie for a stake in the company, Asia’s biggest thermal coal exporter. PT Bakrie & Brothers, which agreed to sell its 35 percent stake to North Star Equity Partners, expects TPG’s Indonesian affiliate to decide on the purchase by Nov. 28.

‘Wonderful Environment’

Change in ownership will attract investors because Bumi’s stock is undervalued, said Bryan Collings, who manages $250 million at Hexam Capital’s Global Emerging Markets Fund in London. Bumi is the only Southeast Asian stock he owns.

“If you are looking to buy the stock, it’s a wonderful environment,” said Collings. “Energy hasn’t gone out of fashion and it’s still the core business for Bumi.”

Coal and nuclear plants are the cheapest to operate and more difficult to start up or shut down than natural gas generators. That’s why coal is used to produce half of U.S. electricity and 78 percent of China’s.

India’s government expects imports to double to 40 million tons by 2012 as Asia’s third-largest economy increases coal- based generation capacity by 72 percent. Japanese utilities plan to add 11 percent more coal-fired capacity by 2010, and Indonesia 40 percent by 2011.

China intends to increase coal power by 2010, while the U.S. Energy Department forecasts the world’s biggest economy will boost use of the fuel 24 percent by 2030.

Coal Prices Drop

Still, a deepening global economic downturn may drive coal shares lower and curb energy demand.

The 32 percent gain in the Reuters/Jefferies CRB Index to an unprecedented 473.97 on July 3, was followed by a 51 percent decline in the measure. The gauge is set for its worst annual performance on record.

Spot coal prices at Australia’s Newcastle port, an Asian benchmark, dropped 56 percent from a record $192.5 a ton in the week ended July 4. Prices at South Africa’s Richards Bay declined 18 percent this year to $78.15 a ton.

South African prices may average $70 a ton in the next three months and return above $90 within 18 months, Manqoba Madinane, a Johannesburg-based analyst with Standard Bank Group Ltd., said in a Nov. 18 interview.

Coal prices “will continue to fall” as economic activity deteriorates “very rapidly,” Francisco Blanch, a London-based Merrill Lynch & Co. analyst, said in a Nov. 14 report.

‘Tight Supply’

“While there is uncertainty in today’s economy, any easing of demand growth is likely to be offset by diminished coal supply,” Peabody President Richard Navarre said on an Oct. 16 earnings conference call. “Tight supply will be further compounded by the global credit freeze because a significant amount of planned production expansions and new mines will be at risk around the world.”

Arch plans to cut output next year at some of its higher- cost mines in the western U.S. In the east, producers Consol and Massey Energy Co. say they’ve been curtailed by increased mine safety inspections and more difficult reserves to tap.

Production in Indonesia, the world’s biggest exporter of power-station coal, will slow as the global credit crisis hampers expansion plans, Fitch Ratings said in Nov. 21 report without giving figures. The Indonesian Coal Mining Association on Aug. 21 forecast a 15 percent increase in output to 270 million metric tons in 2009.

‘Lot of Money’

Bumi will remain profitable even at lower coal prices because its production costs are among the lowest in the world, said Peter Ball, a director at the Jakarta-based company.

Bumi expects to sell coal at an average $77 a ton this year and at least at that level in 2009, he said. It cost Bumi $33.10 to produce a ton of coal in the first half, according to regulatory filings. That compares with $75 to $80 a ton in Russia, where coal costs are the highest in the world, according to Ball.

“It’s clear that we’ll keep on making a lot of money no matter what,” Ball said.

To contact the reporters on this story: Arijit Ghosh in Jakarta at aghosh@bloomberg.net; Christopher Martin in New York at +1- cmartin11@bloomberg.net.