Fed Chairman Delivered Last Rites on US Economy

Daily Forex Fundamentals | Written by Foreign Exchange Analytics | Dec 02 08 13:47 GMT |

I had to pinch myself today while Bernanke spoke to the Austin Chamber of Commerce today. I thought I was at the death bed of the US economy and the Chairman was delivery the last rites. After 425bps of rate cuts, more liquidity programs by the Fed than Jerry Lucas could memorize (former New York Knickerbocker who has a photographic memory and took to memorizing the Manhattan phone book to impress his teammates), $750bln in taxpayer money to invest in banks ($290bln spent), an explosion in the Fed balance sheet to over $2trln from around $880bln in August, Fed buying GSE debt outright to the tune of several hundreds of billions of dollars, around $800bln in bank write downs, downfall of Lehman, Bear and Wachovia, $160bln fiscal stimulus package, untold efforts at pressuring mortgage servicers to modify home loans facing foreclosure, FDIC backing of bank debt, FDIC insurance for deposits up to $250,000 from $100,000, private capital infusions into banks in the billions of dollars and virtual nationalization of AIG, the banking system remains broken and the economy is following suit. Bernanke said so today while delivering the last rites. And he hinted at nonconventional monetary policy or quantitative easing ahead as interest rate cuts ahead are rendered meaning less by the liquidity trap (buying longer-dated US Treasury debt and GSE debt). About the only positive point he made after untold Fed efforts to restore a functioning banking system was that it would be even worse if the Fed had done nothing... now that is the kind of low bar children use to justify unacceptable behavior and outcomes... but that was the Chairman of the Fed. Well the adverse feedback loop is in full bloom. Central banks are climbing all over each other to cut rates - the BOJ (won't be cutting but will be announcing measures to address a Japanese banking system credit freeze) and the Riksbank (expected to cut 100bps) announced today they would be holding emergency board meetings this week ahead of scheduled ones later this month. The BOE and ECB are seen cutting rates 50bps Thursday, but very few think this is realistic in light of the rapidly deteriorating economic fundamentals. Indeed 100bps cut is the new 50bps cut. I would not rule out the ECB cutting 100 and the BOE cutting another 150bps as it did in November. RBA is expected to cut 100-125bp on Tuesday while the RBNZ is expected to cut 150-175bps on Thursday. Both banks will signal more is likely needed ahead. Disinflation, present everywhere, is impacting more than commodity prices - look at US Black Friday retail sales - all driven by discounting and this means lower profit margins. Deflation is two quarters away as weak demand and rising inventories drive most prices down for manufactured goods. And emerging markets, the safety net for world demand, as so many asserted through the last year, is a no show economically. It turns out that emerging economies are not only coupled to developed economies but they are joined at the hip. China is rapidly becoming a basket case and needs massive domestic fiscal spending to keep a restless population from becoming mutineers. Bernanke said today in so many words that it is bad now but is likely to get worse ahead... most official forecasts have unemployment peaking in the second half of 2009 and I would say that is optimistic. And today I could not help but worry about banks cutting unsecured credit lines to households and firms ahead based on remarks Oppenheimer's Meredith Whitney made on CNBC - she has been ahead of the pack by a country mile on the severity of the banking crisis. Whitney said banks only started to cut back on consumer credit card lines in Q3 and this will soar to around $2trln in 2009. So for the unfortunate who lose a job, will also be facing much reduced access to credit. Seems like a dangerous cocktail. Paulson also spoke today and indicated Treasury could use TARP money to support commercial mortgage market (CMBS) as this segment is looking more like residential mortgage market - more tenants in commercially rented spaces not paying rent and property owners down stream not paying bank loans on commercial properties sitting vacant or with deadbeat tenants. US auto firms will be in Washington Tuesday to resell bailout requests. But short of a government bridge loan GM's days are numbered and Chrysler and Ford's months are numbered... I would be betting on government help but at a high price (major concessions from unions, suppliers and management, executive housecleaning and equity stakes). Auto firms also release car and truck sales for November tomorrow. US stocks posted their largest weekly advance since the 1930's through Friday and today posted one of the largest decreases on record (an 8% decline in DJIA). US 30-year Treasury yield is the lowest since June 1955. Fixed income is trading as if quantitative easing is upon us and the US yield curve is turning Japanese. I also do not like the news from the hedge fund space where Tudor Investment reportedly is gating investors in hopes of splitting assets and funds into good bank (liquid) and bad bank (illiquid) on its $10bln flagship BVI fund (investors have to approve it, though the gate is the discretion of the fund itself). This fund was down only 5% for the year yet faced high redemptions... in this world investors are selling good hedge fund investments because the bad ones are locked down with gates... Tudor decision will force more redemptions at strong funds... .some are advocating the whole industry gate but this seems unlikely - a poison pill. The good news in this sector is that funds have deleveraged for the most part (where they can). Private equity has multi-year lock-ups and this sector will face similar redemptions if investors could get their funds... and unless asset prices recover they will be in the same boat in due course. It is enough to go back into the bunker and get fetal. Can we make through another horrific jobs report Friday? I am hopeful... hopeful the Obama administration and economists will end the wasted efforts at pretending the market still works as an allocator of capital and credit. After much rehab maybe the private sector can be released to resume the function it so badly corrupted in this crisis. But we are in for an extended period of Fed and Treasury doing what the private capital market used to do - allocating capital and credit to credit and cash starved firms and households. The sooner we all come the terms with the government as last resort the sooner we can get on with the rehab and hopefully bring the banking system and economy back from the dead. Foreign Exchange Analytics http://www.fxa.com Disclaimer: The opinions expressed herein are those of the author and not a recommendation to buy or sell specific securities.

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Australian and Vietnamese Central Bank Rates Cut by 100 Bps

Daily Forex Fundamentals | Written by CurrencyThoughts | Dec 02 08 13:18 GMT |

The dollar is mixed, with gains of 0.5% against sterling, 0.3% against the Swissy, and 0.1% versus the yen but losses of 0.5% against the Aussie dollar, 0.4% against the kiwi, and 0.2% against the euro. The Canadian dollar is unchanged. Asian stocks mostly fell, with losses of 6.4% in Japan, 4.7% in the Philippines, 3.0% in South Korea and Singapore, 2.6% in Indonesia. Australia's bourse dropped 4.7% in spite of the Reserve Bank's greater-than-expected cash rate cut to 4.25% from 5.25% (see review). European stocks are up. Dax +2.1%. Ftse +0.7%. Cac40 +0.6%. U.S. stock futures point to a rise at the open. Euribor short-term rates again eased. Sovereign bond yields fell sharply most everywhere. 10-year JGB's at 1.35%, down 5 basis points. Oil touched a 3-1/2 year low of $47.36/barrel and is 1.8% lower on balance at $48.37. Gold eased 0.6% to $772/ounce. The Reserve Bank of Australia cut its cash rate to 4.25% from 5.75% and a peak prior to Sept 2nd of 7.25%. Further rate cuts indicated as possible. Vietnam's base rate was cut for the fourth time since October by 1 percentage point to 10% from 11%. Reserve ratios were also lowered. Australia's current account deficit of A$ 9.736 billion in 3Q was less than expected and down by 30.7% from 2Q and 43.9% from a year earlier. Australian retail sales unexpectedly rose 0.7% in October, and government spending in 3Q08 climbed 1.3%, more than assumed. A Reuters Tankan proxy index that is calculated monthly plunged in November to -42 from -25 for manufacturers and fell to -16 from -9 for non-manufacturers. The data herald a bad Bank of Japan Tankan business survey due at mid-month. An emergency meeting of the Bank of Japan today voted unanimously not to cut the 0.3% overnight target rate. Policymakers instead unveiled more lenient collateral criteria and other technical steps to ease a corporate credit crunch. Shirakawa again warned of problems in cutting rates any lower but left that door open, saying that the quarterly Tankan survey would be especially examined. The next scheduled central bank meeting is set for December 18-19. The Wall Street Journal said Goldman Sachs may suffer a loss of as much as $2 billion this quarter. Producer prices in Euroland fell 0.8% in October, with declines of over 1% in Italy, Spain, Belgium, the Netherlands, and Portugal. The PPI rose 6.3% from a year earlier, down from 12-month gains of 7.9% in September and 9.2% in July. Non-energy producer price inflation slid to 3.2% from 4.1% in September and 4.4% in July. Markets are pricing in a 100 basis-point Bank of England rate cut. A former policymaker from that bank who correctly predicted last month's 150-bp cut, Buiter, thinks another 150-bp cut is in the offing for Thursday. Pressure has mounted on the ECB to do more than 50 basis points. I attach 60% probability to a cut of 75 basis points. The ECB and Bank of England announcements are on Thursday. In the meantime, the Reserve Bank of New Zealand is expected to cut its cash rate sharply again tomorrow. South African motor vehicle sales plunged 28.3% in the year to November. Norwegian consumer sentiment deteriorated in 4Q08 to a -13.3 from +0.6 in 3Q. Such was the worst reading since this data series was unveiled in 1992. Bank of Korea officials warned that growth may sink to less than 3% this quarter, weakest since 1Q05. Swiss consumer prices fell 0.7% last month and to a 12-month rate of rise of 1.5% from 2.6% in October and September. The British construction PMI had a record low reading in November of 31.8 after 35.1 in October. This series began in 1997. Japan's monetary base accelerated to 1.9% y/y in November from October's 1.4% reading, following a rate cut to 0.3% from 0.5%. Larry Greenberg CurrencyThoughts

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Further US Action Realistic

Daily Forex Fundamentals | Written by Investica | Dec 02 08 13:06 GMT |

Although the dollar will gain defensive support at times, the fundamental outlook and aggressive balance sheet expansion will represent a major threat to medium-term currency stability. The Euro was unable to make any headway on Monday and dipped to test lows below 1.26 against the dollar. There was no relief in the US data with the ISM index for the manufacturing sector weakening further to 36.2 in November from 38.9 the previous month. This was the lowest reading since the 1982 recession while the prices component was at the lowest level for over 50 years due to the rapid decline in energy prices. There were also increased fears over the risk that consumer credit lines will be cut which would depress spending. With the PMI index at a record low, fear continued to provide defensive dollar support. There will still be increasing fears over the underlying US fundamentals which should curb currency support while Fed Chairman Bernanke stated that further interest rate reductions were possible which will reinforce speculation over zero interest rates. Bernanke also indicated that the central bank will look to buy Treasury bonds to push yields down further. 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.

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London Session Recap

Daily Forex Fundamentals | Written by Forex.com | Dec 02 08 13:05 GMT |

The buck was sold modestly in what was a rather lackluster London trading session. Euro-zone producer prices came in much lower than expected at -0.8% for October. This suggests inflation will be a lesser concern for the ECB and leaves room for the bank to cut rates in size. European bourses rallied and were currently up about 1.5% despite the horrid performance in Asia stocks earlier. This modest return in risk appetite helped Euro rally some. EUR/USD added about 40 points into the 1.2660/70 area. The 1.2700 level looms as the trigger for further upside while the pair should find decent support into the 1.2550 zone. EUR/JPY meanwhile rallied a more modest 30 pips and was sitting near 118.10/20 just ahead of the NY session. The lack of economic data in NY today should have the FX market squarely focused on the goings on in US stocks. Futures are pointing to a 1.5% increase at the open and we would expect a better than expected performance to usher in a rally in JPY crosses. Upcoming Economic Data Releases (NY Session) Prior Estimate 12/02 16:30 GMT US Paulson to Speak on U.S.-China Strategic Economic Dialogue 12/02 17:30 GMT US Philadelphia Fed's Plosser to Speak on Economy 12/02 22:00 GMT US ABC Consumer Confidence 30-Nov -52 -53 Forex.com http://www.forex.com DISCLAIMER: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase of sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

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Daily Technical Strategist

Daily Forex Technicals | Written by FXTechstrategy | Dec 02 08 13:11 GMT |

Today's Focus: EURUSD & USDJPY EURUSD: EUR Set To Retarget The 1.23330 Level. USDJPY: Declines Decisively Through the 93.56 level.. EURUSD While the pair continues to maintain its broader range between the 1.2330 and the 1.3298 levels, its recovery started at the 1.2423 level, its Nov 20'08 low has reversed pushing it back below the 1.2814 level, its Nov 19'08 high to close lower at 1.2691 on Monday. As long as the pair continues to maintain its present downside tone, a return to its YTD low at 1.2330 is likely with a turn below there triggering the resumption its medium term declines towards the 1.2134 level, its .50 Ret (its 0.8231-1.6038 high, monthly chart) and later the 1.1827 level, its Mar'06 low . Resistance now runs through the 1.2814 level, its Nov 19'08 high ahead of its Nov 25 & 05'08 highs at 1.3081/1.3116 and subsequently the 1.3298 level. We expect the pair to continue to face downside pressure especially now that price action and daily studies are pointing lower. On the whole, failure at higher level prices has increased the odds of a return to the 1.2330 level with a break through there envisaged. Support Comments 1.2484 Oct'06 low 1.2330/24 Oct 28'08 low/Jan/April'06 highs 1.2134 .50 Ret (0.8231-1.6038 rally) Resistance Comment 1.2814 Nov 19'08 high 1.3058/05 Oct 23'06 high/.618 Ret (0.8231-1.6038 rally, monthly chart) 1.3259/98 Oct 30'08 high/Oct 10'08 low GBPUSD USDJPY traded sharply lower Monday breaking and closing below its strong support at the 93.56 level ,its Nov 20'08 low. We continue to view this break leading to further declines towards its YTD low at 90.91 with a loss of there setting the pair up for lower prices targeting the 86.52 level, its 1.618 Fib Ext and the 79.70 level, its April'1995 low. Daily momentum indicators are bearish and pointing lower suggesting further declines. On the upside, initial resistance resides at the 93.56 level just eroded followed by the 96.35/95.75 level and next its Nov 10'08 high at 99.48.Another key resistance lies at the 96.35/95.75 level and its Nov 10'08 high at 99.48 ahead of the 100.00/55 area, its psycho level/Nov 04'08 high. All in all, the pair's overall outlook remains lower in the medium term with the 90.91 support coming in as the main target. Support Comments 93.56 Nov 20'08 low 90.91 YTD low 86.52 1.618 Fib Ext 79.70 April'1995 low Resistance Comments 96.35/95.75 Oct 31'08/Mar'08 lows 99.48 Nov 10'08 high 100.00/55 Psycho level/Nov 04'08 102.42 Oct 20'08 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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Currency Technical Report

Daily Forex Technicals | Written by FX Greece | Dec 02 08 13:15 GMT |

EUR/USD Resistance: 1,2650/ 1,2710-20/ 1,2750/ 1,2800-10/ 1,2860-70/ 1,2900/ 1,2960 Support : 1,2570-80/ 1,2520/ 1,2480/ 1,2430/ 1,2390-00 Comment: Our targets at 1,2580 were achieves, but euro's sentiment remains negative, as the reaction from 1,2580 was limited at 1,2700 area. The base of the wider consolidation is found at 1,2430-60 and will be the target in case of a downward break of 1,2580 area. Resistance is found at 1,2650 and 1,2690-2710, which is the most important today. A possible break would lead to 1,2810-30, in the upper part of the channel that set the downtrend (4hour chart). According to current signs and due to Thursday's and Friday's important announcements, the formation of a strong trend is not very likely. Prices should remain within the ranges of the wider consolidation. Its lower part is found at 1,2400... *STRATEGY : Buy: We took advantage of the reaction towards 1.2700, at 1,2580 area, according to our scenario. A possible reach of 1,2560-80 could be used for buy orders with small positions and stops below 1,2540. Buy orders could also be tried at a break of 1,2690-2710 with target at 1,2780-00 and stops below 1,2640. Sell: Sell opportunities emerge at a break of 1,2560, with stops above 1,2620 and target at 1,2480-00.... Alternatively, small short term positions could be tried at 1,2690-2710 area. We would also try sell orders at an upward reaction towards 1,2800-30 with stops above 1,2860... FX Greece DISCLAIMER The details and information included in the above analysis, are part of research based exclusively on currency charts and are of purely instructional and educational nature. None of the information featuring in the analysis can be considered as an invitation for opening positions in FOREX market or in the market of forward contracts or any securities listed on an organized or unorganized market. We assume no responsibility for any kind of losses ,profits or property loss resulting, in whole or in part, from acts that are based either directly or indirectly on the processing or the use of information, details and strategies, the reader may find in the analysis. The readers hold full responsibility for the use and the results of their actions. The recipients of the analysis must acknowledge and accept that investment choices of any kind, especially concerning the FOREX market, contain risks (high, low and occasionally zero) of reduction or even loss of their investment. Therefore, they should always be cautious prior to any kind of action. We reserve the right to change the terms and the characteristics of the analysis. The contents of the analysis are solely intended for personal use. They may not be retransmitted, reproduced, distributed, published, adapted, modified or assigned to third parties in any way whatsoever. Anyone having access to them is required to comply with the law provisions on the protection of third party intellectual property rights.

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FX Thoughts for the Day

Daily Forex Technicals | Written by Kshitij Consultancy Services | Dec 02 08 12:42 GMT |

USD-CHF @ 1.2063/67...Traded higher R: 1.2069-92 / 1.2247-76 / 1.2320 S: 1.2049-33 / 1.1941-39 / 1.1886-67 The pair is trading stronger having touched a high of 1.2094 after seeing a low of 1.2021 during the early European session today. It has managed to stay above the 8-, 13- & 21-day MA. If it manages to stay above, there is good potential that it may continue with bullishness seen in the longer term charts (both weekly and monthly) and may inch upwards to 1.22 in the near term. If that happens, the downmove seen in the pair since 24th Nov could just be ruled out as correction. We have a bullish bias for the pair. However, a down slide (if seen) could find Support at 1.1939. We continue to mention our view of a long term consolidation range between 1.18 and 1.26 for the next few months. It could come out of the range if it is able to trade lower than the Long Term Support at 1.18 for significant time on the downside. GBP-USD @ 1.4931/37...Range of 1.4630-1.5090 R: 1.5056-88 / 1.5173 S: 1.4791 / 1.4685 / 1.4420 Cable has traded weaker during the day and has managed to stay in a band of 1.4776-1.4941. The range of 1.4630-1.5090 mentioned in the morning for the pair may hold for the rest of the day as well with a downward bias. As mentioned in the morning, the Support near the 1.45-1.46 region looks strong enough for the pair. This being the 61.8% retracement of the rise from 1.0520 (Feb 1985) to 2.1163 (Nov 07) as seen on the monthly candle chart. Since the last few days, the pair had made successful attempts to remain above the 21-day MA which could probably come to rest today and end the short lived upside it saw on the last 7-8 trading days. In the last hour, the pair has found Support at 1.4791 and then bounced back sharply. Given the kind of volatility, that the pair has seen over the last few days, not much looks predictable for the pair as it continues to make wild swings in both the directions. AUD-USD @ 0.6469/72...Testing 8-day MA Resistance R: 0.6478-503 / 0.6526-38 S: 0.6416-06 / 0.6123-07 / 0.6029 The pair has traded higher during the day. It has traded between 0.6344 and 0.6467. Having risen little in the last few hours, the pair has also unsuccessfully attempted to breach the 8-day MA at 0.6477. But on a fresh rally, this Resistance could easily be breached with potential to move up towards 0.6538 where the pair could make fresh attempts to rise past the 21-day MA Resistance line. However, inability to sustain the marginal upmove, could result in the pair having potential to go down towards 0.61 where the buyers could chip in to support the pair. 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.

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European Producer Prices Plunge Most in 22 Years

By Fergal O’Brien

Dec. 2 (Bloomberg) -- European producer prices dropped the most in 22 years in October, a sign that inflation will slow further and give the European Central Bank leeway to extend its interest-rate cuts to tackle the recession.

Factory prices fell 0.8 percent from September, the biggest decline since October 1986, the European Union statistics office in Luxembourg said today. The drop was due to a slump in oil prices and reduced the annual producer-price inflation rate to 6.3 percent from 7.9 percent.

Slowing inflation is giving the ECB scope to cut interest rates as policy makers across the globe seek to limit the economic damage from the global financial crisis. Consumer-price inflation has already eased to the lowest in more than a year and the ECB will probably cut its key rate by half a percentage point this week, a survey of economists shows. That would be the third time reduction since early October.

This “adds to the now substantial evidence that inflationary pressures in the euro-zone are retreating sharply,” said Howard Archer, chief European economist at IHS Global Insight in London. “There is a compelling case for the ECB to slash interest rates by 100 basis points” this week.

Economists forecast that producer prices would fall 0.3 percent in October from the previous month, based on the median of 27 estimates in a Bloomberg News survey. They also predicted that the annual rate would ease to 7 percent.

Oil Prices Drop

Energy prices dropped 4 percent from September, today’s report showed. Crude oil has declined about two-thirds to below $50 a barrel since reaching a record $147.27 in July. The surge in oil costs this year pushed producer-price inflation to 9.2 percent in July, the highest level since the data series began in 1990.

ECB council member Axel Weber said last week that the central bank has plenty of room to lower rates as inflation and economic growth slow.

Data last week showed that the euro area’s inflation rate fell by the most in almost two decades in November, dropping to 2.1 percent from 3.2 percent. The ECB aims to keep inflation close to, but below, 2 percent.

“Diminishing inflation pressure has given the ECB ample room to move and it will use it, given the rapidly deteriorating economic outlook,” Weber said on Nov. 26.

The ECB’s governing council holds its next policy meeting in Brussels in two days. A half-point cut at the meeting would reduce its benchmark rate to 2.75 percent. Nineteen of the 56 economists in the Bloomberg survey see the bank cutting the rate by at least 75 basis points. The ECB has never cut its key rate by more than 50 basis points since it was founded in 1999 and Archer and Jacques Cailloux at Royal Bank of Scotland Plc say it may not break from that pattern this week.

“The economic conditions and the risks about the outlook warrant a larger cut from the ECB than 50 or 75 basis points,” Jacques Cailloux, chief euro-area economist at Royal Bank of Scotland Plc, said in a Bloomberg Television interview in London. “They may want to save ammunition for the future, though we wonder why that is the case.”

To contact the reporter on this story: Fergal O’Brien in Dublin at fobrien@bloomberg.net.

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U.S. May Be in for ‘Great Recession,’ Longest Postwar

By Steve Matthews and Timothy R. Homan

Dec. 2 (Bloomberg) -- The U.S. economy, now officially in recession, may be in the midst of the longest slump in the post- World War II era as job losses mount and credit dries up.

The economic slump began in December 2007 when payrolls reached a peak, the business cycle dating committee of the National Bureau of Economic Research, a private, nonprofit group of economists based in Cambridge, Massachusetts, said yesterday. The last time the U.S. was in a recession was from March through November 2001, according to NBER.

“We’re looking at some pretty severe numbers for the fourth quarter, and the first quarter of 2009 will be pretty bad as well,” said Stephen Stanley, chief U.S. economist at RBS Greenwich Capital in Greenwich, Connecticut. “The economy isn’t going to turn around definitively until the credit markets unclog.”

The NBER designation means the U.S. was the first country to have slipped into a contraction. While definitions differ, the economies of both the euro area and Japan fell into a slump in the second quarter of this year, making it the first simultaneous recession in the three regions in the postwar era.

The longest economic slumps since 1945 were the 16-month downturns that ended in March 1975 and November 1982. The Great Depression lasted 43 months, from August 1929 to March 1933.

“This may be referred to as the Great Recession,” because of its length, said Norbert Ore, chairman of the Institute for Supply Management’s factory survey. “It looked like we were headed for a shallow recession earlier in the year because of higher energy prices. With the meltdown in the financial sector, it has become something more serious.”

Manufacturing Slump

American manufacturing contracted in November at the steepest rate in 26 years, the ISM said yesterday. The Tempe, Arizona-based group’s report came as factory indexes in China, the U.K., euro area, and Russia all fell to record lows.

Federal Reserve Chairman Ben S. Bernanke, a former member of the NBER panel, said yesterday the economy “will probably remain weak for a time” and the Fed may use unconventional methods, such as buying Treasury securities, to spur growth.

“We have gone through in the last year a remarkable set of events, ranging from housing market to credit market to financial market shocks,” James Poterba, president of the NBER and an economics professor at the Massachusetts Institute of Technology, said in an interview. “The collection of shocks is a very rare coincidence. It is not terribly surprising you might get a longer-than-average downturn.”

Job Losses

The loss of 1.2 million jobs so far this year was the biggest factor in determining the starting point of the U.S. recession, the NBER said. By that measure, the contraction probably deepened last month.

Payroll employment probably fell by 325,000 in November, the most since the last recession, according to the median forecast of economists surveyed by Bloomberg News ahead of a Labor Department report due Dec. 5. The jobless rate is projected to increase to 6.8 percent, the highest level since 1993.

U.S. employers cut 240,000 jobs in October, a 10th consecutive decline. The unemployment rate rose to 6.5 percent, the highest level in 14 years, according to Labor Department statistics.

“It is clearly not going to end in a few months,” Jeffrey Frankel, a member of the NBER committee and a professor at Harvard University, said in an interview. “We would be lucky to get done with it in the middle of next year.”

Second Bush Slump

The contraction is the second under President George W. Bush’s watch, making him the first U.S. leader since Richard Nixon to preside over two recessions.

Lawrence Summers, President-elect Barack Obama’s pick for White House economic adviser, said the economy is getting worse and requires more legislative action.

“Recent economic evidence suggests that the pace of this downturn is accelerating,” Summers said in a statement. He said Obama wants to enact a recovery package “soon after taking office.”

Although a recession is conventionally defined as two quarters of successive contraction in gross domestic product, the private committee doesn’t require supporting GDP data to make a recession call. Its members focus on month-to-month changes in the economy.

The NBER committee defines a recession as a “significant” decrease in activity over a sustained period of time. The decline would be visible in gross domestic product, payrolls, industrial production, sales and incomes.

The U.S. economy shrank at a 0.5 percent pace in the third quarter after expanding 2.8 percent in the previous three months. Economists at Goldman Sachs Group Inc. and Morgan Stanley in New York are among those projecting the economy will contract at a 5 percent pace this quarter.

“The recession is likely to last at least into the summer of 2009,” said Conrad DeQuadros, a founding partner at RDQ Economics in New York. “Even as the economy begins to recover, it’s likely to still fell like a recession, and the unemployment rate is still likely to rise.”

To contact the reporters on this story: Timothy R. Homan in Washington at thoman1@bloomberg.netSteve Matthews in Atlanta at smatthews@bloomberg.net

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EDF Offers Remedies to Seal British Energy Takeover

By Paul Dobson

Dec. 2 (Bloomberg) -- Electricite de France’s SA, Europe’s biggest power producer, offered remedies to address European Union antitrust concerns about its planned takeover of British Energy Group Plc.

Paris-based EDF said in a statement today that remedies, which it didn’t reveal, will be sent to competitors and customers in the U.K. for market testing. Competitors and consumer groups have expressed concerns the takeover will reduce trading and power-market competition.

The European Commission today extended its review of the 12.5 billion-pound ($18.5 billion) deal by 10 working days to Dec. 22. EDF agreed in September to buy British Energy to become the U.K.’s biggest power producer and gain control of eight sites to build reactors. The purchase adds commercial clients to the 5 million households EDF’s U.K. unit supplies.

“The European Commission could ask for disposals of some British Energy generation plants, mostly likely coal-fired, or the sale of land adjacent to some of British Energy’s existing nuclear sites where new reactors could be built,” Miriam Hehir, an analyst at RBC Capital Markets Inc., said by telephone. Such “requests could go beyond what EDF may have already offered.”

The Brussels-based commission can extend the investigation by 90 working days on Dec. 22.

Buyers?

EDF fell 0.506 euros, or 1.2 percent, to 43.5 euros in Paris as of 1:39 p.m.

Drax Group Plc, the operator of the U.K.’s biggest power plant, said in October it planned to tell authorities that EDF’s takeover may reduce competition and trading in the U.K. electricity market. Consumer group Energywatch also said the transaction may reduce competition in the traded market.

Britain’s six biggest power suppliers, including EDF, also own generation units and sell the majority of their output to retail and business customers instead of in the market. The takeover of British Energy may concentrate more power in the hands of the “big six energy companies,” Energywatch said.

From the Outset

“Other market players have expressed competition concerns from the outset, particularly about liquidity in the wholesale market,” said Tina Cook, an analyst at Charles Stanley in London, by telephone today. “There might be some attempt to address these issues.”

Ian Marchant, Scottish & Southern Energy Plc’s chief executive officer, said on a conference call on Nov. 12 he had concerns about “whether there will be sufficient competition in nuclear new build” after the takeover.

As part of the deal agreed with the U.K. government, British Energy’s largest shareholder, EDF said it will sell land for nuclear development to competitors, subject to its ability to build plants at its preferred sites.

The so-called “market-testing” could involve EDF talking to potential buyers of surplus British Energy land considered suitable for new reactors, Hehir said today.

U.K. Prime Minister Gordon Brown is seeking an expansion of nuclear power with competition between consortia and reactor designs to cut imports and reduce carbon-dioxide emissions.

The London-based Times newspaper reported Oct. 13 that EDF may sell output from its coal-fired Eggborough power plant to get EU antitrust approval.

“The U.K. is short generation capacity in the medium to long term and EDF has offered both the expertise and funding capability to build new U.K. reactors,” Hehir said. “The European Commission needs to balance generation competition issues with the increasingly urgent need for new capacity.”

To contact the reporter on this story: Paul Dobson in London at pdobson2@bloomberg.net

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Crude Oil Prices May Fall for Further 12-18 Months, BP Says

By Eduard Gismatullin

Dec. 2 (Bloomberg) -- The slide in oil prices won’t bottom out until another 12 to 18 months, according to Christof Ruehl, the chief economist of BP Plc.

The world economy will stage a recovery from recession in 18 to 24 months, followed by “possible spikes” in oil prices, Ruehl told a conference in London today.

BP, Europe’s second-largest oil producer, has so far maintained capital spending plans. The company may review future investment to keep up with dividend payouts, Ruehl said.

To contact the reporter on this story: Eduard Gismatullin in London at egismatullin@bloomberg.net.

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Malaysia’s YTL Power to Buy Temasek’s PowerSeraya

By Will Kennedy

Dec. 2 (Bloomberg) -- YTL Power International Bhd., a Malaysian utilities company, agreed to buy Singapore power generator PowerSeraya Ltd. from Temasek Holdings Ltd. for about S$3.6 billion ($2.4 billion).

YTL Power will also take on S$201 million of PowerSeraya’s debt, Temasek, Singapore’s state investment company, said in an e-mailed statement today. The transaction is due to be completed early next year.

Temasek had scrapped the sale of Power Seraya on Nov. 25 as the global credit crisis drove down asset prices and froze funding for potential buyers. The investment company started the tender process in October as Singapore further opens the industry to competition.

“After we stopped the tender process last week, YTL Power put forward an unsolicited proposal which met our requirements,” Temasek said in the statement. “We are pleased with the successful outcome of the PowerSeraya divestment.”

Corporate advisory firm Lexicon Partners, based in London and Hong Kong, advised YTL on the transaction.

Temasek has already disposed of Senoko Power Ltd., the island’s biggest generator, and Tuas Power Ltd., the smallest.

A Marubeni Corp.-led group agreed in September to pay S$1.1 million per megawatt of capacity for Senoko Power, and China Huaneng Group said in March it would pay S$1.58 million per megawatt for Tuas Power.

Oil, Gas

Seraya, which generates power from oil and gas, has an installed capacity of 3,240 megawatts, or 30 percent of the island’s capacity.

The pool of funds for mergers and acquisitions has shrunk after the collapse of the U.S. subprime mortgage market. Merger and acquisition transactions in Asia’s power industry totaled $16 billion so far this year, a fifth of 2007, according to data compiled by Bloomberg News.

Power Seraya posted a profit of S$218 million on revenue of S$2.79 billion in the financial year ended March. The Seraya Power Station consists of two blocks of natural gas-fired combined cycle plants and nine units of steam plants.

To contact the reporter on this story: Will Kennedy in London at wkennedy3@bloomberg.net.

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Brazil’s Bond Yields Fall as Output Slide Raises Rate Cut Bets

By Adriana Brasileiro

Dec. 2 (Bloomberg) -- Yields on Brazil’s local-currency bonds and interest-rate-futures contracts dropped as slower industrial output growth fueled speculation that deflation may lead the central bank to cut borrowing costs.

“The whole market can see very clearly now that there is no way the central bank will increase rates, and that a cut is inevitable,” said Marcio Ezequiel, head of fixed-income trading at Agora Corretora, Brazil’s largest brokerage, in Sao Paulo.

The yield on Brazil’s zero-coupon bond due in January 2010 fell 32 basis points, or 0.32 percentage point, to 14 percent, according to Banco Votorantim. It reached 13.99 percent, the lowest level since May 15.

Brazil’s industrial output increased at a 0.8 percent annual rate in October, the national statistics agency said. The median forecast of 27 economists surveyed by Bloomberg News was 3.6 percent.

The data signals economic growth will slow in the fourth quarter against the third, putting Latin America’s biggest economy “on pre-recession footing,” Tony Volpon, chief strategist at CM Capital Markets in Sao Paulo, wrote in an e-mail to clients today.

The yield on the nation’s overnight futures contract for January 2010 delivery dropped 33 basis points to 13.86 percent, showing the market is starting to price in a rate cut early in 2009, Volpon said. Brazil’s benchmark target Selic interest rate is 13.75 percent.

The real rose the most in almost a week as gains in U.S. equity-index futures revived investors’ appetite for higher- yielding local assets. The currency climbed 0.4 percent to 2.3291 per dollar, from 2.3373 yesterday. The real gained as much as 2.1 percent to 2.2971 earlier.

Brazil’s real has dropped 29 percent against the dollar in the past three months, the worst performance among the 16 major currencies tracked by Bloomberg.

To contact the reporter on this story: Adriana Brasileiro in Rio de Janeiro at abrasileiro@bloomberg.net

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Paulson May Find China Snubs Call for Yuan Gains: Chart of Day

By Lee J. Miller and Kim Kyoungwha

Dec. 2 (Bloomberg) -- U.S. Treasury Secretary Henry Paulson may clash with Chinese officials this week when he seeks a stronger yuan at meetings in Beijing, according to TD Securities Ltd. and CFC Seymour Ltd.

Paulson plans to reiterate the case for a stronger yuan to aid U.S. companies by making it more affordable for China to buy foreign goods. The government of the world’s most-populous nation may favor a weaker currency to support sales abroad.

“There is now tentative evidence that the authorities are using the exchange rate to help stimulate the faltering Chinese economy,” Stephen Koukoulas, the London-based head of global foreign exchange and fixed-income strategy at TD Securities, wrote in a report late yesterday. “The slippage of the yuan could well be designed to shore up the export sector.”

The CHART OF THE DAY shows the yuan-dollar rate and China’s trade surplus since July 2005, when the central bank ended a fixed exchange rate. The surplus widened this year even as the yuan strengthened 6.1 percent. Yesterday, though, the Chinese currency fell 0.67 percent, the most since the peg was removed. It traded at 6.8851 today, near a five-month low.

Currency reform “is as important now as it ever has been,” David McCormick, the Treasury’s undersecretary for international affairs, said yesterday in Washington ahead of a two-day meeting starting Dec. 4 under the U.S. and China’s Strategic Economic Dialogue. A People’s Bank of China spokesman, who declined to be named, said in a phone interview that he hadn’t heard of any change in foreign-exchange policy principles.

China has the upper hand, said Dariusz Kowalczyk, a Hong Kong-based currency analyst with CFC Seymour Ltd.

“If you want to deliver bad news to the U.S., do it now, when their authority has been weakened by the financial crisis and Paulson’s credibility has been hurt as well,” Kowalczyk said yesterday.

To contact the reporters on this story: Lee J. Miller in Bangkok at lmiller@bloomberg.net; Kim Kyoungwha in Beijing at kkim19@bloomberg.net.

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Australia Dollar Rallies on Rate Cut; N.Z.’s Dollar Declines

By Candice Zachariahs

Dec. 2 (Bloomberg) -- The Australian dollar rallied after the central bank lowered interest rates 1 percentage point, the fourth cut since September, seeking to help the nation avoid a recession. New Zealand’s dollar fell.

The currencies declined against the yen as Asian and U.S. equities tumbled after a panel said the world’s largest economy entered a recession a year ago, reducing demand for higher- yielding assets. The Reserve Bank of New Zealand, which meets Dec. 4, is forecast by economists to slash its benchmark 1.5 percentage points as policy makers in the two South Pacific nations’ attempt to boost domestic growth.

“For the Aussie, in the short-term with the deterioration we’re seeing in global growth, strength much north of 64.5 to 65 U.S. cents represents a selling opportunity,” said Robert Rennie, chief currency strategist in Sydney at Westpac Banking Corp. “We still expect the RBA to cut a further 75 basis points in the February-March period.”

Australia’s currency was little changed at 64.06 U.S. cents as of 3:55 p.m. in Sydney from 64.07 cents late in Asia yesterday, after touching as low as 63.36 cents. The currency slipped 0.4 percent to 59.86 yen.

New Zealand’s dollar slid 0.9 percent to 53.04 U.S. cents from 53.54 cents in Asia yesterday. It bought 49.57 yen from 50.22.

“Weighing up the international and domestic developments of recent months, the board judged that a further significant reduction in the cash rate was warranted now, to take monetary policy to an expansionary setting,” RBA Governor Glenn Stevens said today in a statement.

Today’s cut extends the RBA’s biggest easing cycle since a recession in 1991. The bank has slashed rates 300 basis points to 4.25 percent from a 12-year high of 7.25 percent.

Equities Fall

The Australian and New Zealand dollars slipped today against the yen as Australian and Japanese equities followed U.S. stocks lower after declines in American and European manufacturing pointed to a deepening global recession. The National Bureau of Economic Research, the panel that dates U.S. business cycles, said the U.S. is in its longest recession since 1982.

“Much more important is the deterioration in equity markets that we saw overnight, the weakness in commodities -- all pointing toward renewed Australian dollar weakness,” said John Horner, a currency strategist at Deutsche Bank AG in Sydney. “We continue to look for a run below 60 cents in the next couple of weeks.”

Carry Unwind

The Australian dollar has dropped 26 percent against the dollar and 35 percent versus Japan’s yen since September when credit markets froze and equities tumbled after the collapse of Lehman Brothers Holdings Inc. New Zealand’s currency has fallen 24 percent and 33 percent against the dollar and yen in the same period.

Higher interest rates in Australia and New Zealand, compared with 0.3 percent in Japan and 1 percent in the U.S., prompt investors to invest in the South Pacific nations’ assets with low-cost funds. The risk in such trades is that currency market moves will erase profits.

The Reserve Bank of New Zealand will cut the official cash rate to 5 percent, according to 10 of 17 economists surveyed by Bloomberg. Seven forecast a 1 percentage point reduction.

Australian government bonds advanced. The yield on the 10- year note fell 11 basis points, or 0.11 percentage point, to 4.41 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 rose 0.957, or A$9.57 per A$1,000 face amount, to 106.840.

New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell to 4.87 percent from 4.97 yesterday.

To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

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Euro Rises as Stocks Gain, Central Banks Seek to Buoy Markets

By Bo Nielsen

Dec. 2 (Bloomberg) -- The euro rose against the dollar and the yen as stocks advanced and central banks around the world increased measures to stem the economic slowdown, reducing the allure of the two haven currencies.

The euro gained as the Bank of Japan said it will begin accepting BBB rated corporate debt and the Reserve Bank of Australia cut its key interest rate more than expected to the lowest level since 2002. The yen fell against the New Zealand dollar as U.S. stock futures rose, suggesting markets will rebound from the biggest rout since mid-October yesterday.

“The euro strengthens in line with equity markets rebounding from the lows,” said Audrey Childe-Freeman, senior currency analyst with Brown Brothers Harriman & Co. in London. “More stimulus may bring relief to the equity markets.”

The currency shared by 15 European nations advanced to $1.2682 at 8:05 a.m. in New York, from $1.2610 yesterday. The euro bought 118.28 yen from 117.51 yen. Against the dollar, the yen was at 93.25 from 93.19.

The euro fell earlier against the yen and the dollar after the Standard & Poor’s 500 Index’s 8.9 percent decline yesterday. The Nikkei 225 index closed down 6.4 percent today, while Europe’s Stoxx 600 advanced 0.6 percent, reversing an earlier drop of as much as 2.3 percent. Futures on the S&P rose 1.9 percent.

Federal Reserve Chairman Ben S. Bernanke said yesterday in Austin, Texas, he may use less conventional policies, such as buying Treasury securities, to revive the economy, because his room to lower the main U.S. rate from the current 1 percent level is “obviously limited.”

Australian Rate Cut

The Australian central bank cut its key cash rate to 4.25 percent from 5.25 percent, more than median estimate of a 0.75 percent cut in a Bloomberg survey. The RBA said its benchmark rate is now at a level that will stimulate growth.

Interest rates will be lowered 1.5 percentage points to 5 percent in New Zealand, by 1 percentage point to 2 percent in the U.K. and to 2.75 percent from 3.25 percent in the euro region this week as central banks move to stem the economic slowdown, according to Bloomberg surveys.

The pound weakened against the euro after former Bank of England policy maker Willem Buiter said that the central bank will weigh the risk of “a rout” in the British currency as it cuts its interest rate to an all-time low this week.

“The deterioration of sterling we’ve seen so far has been extremely welcome from the British point of view,” Buiter said in a speech to the Council of Mortgage Lenders annual conference in London today. “The risk is that it could become a rout.”

Five-Year High

The yen rose to a five-year high versus the dollar earlier as investors reversed so-called carry trades. In such transactions, traders borrow funds in a country with low interest rates to buy higher-yielding ones elsewhere.

The Bank of Japan kept its benchmark rate at 0.3 percent today following an October cut in the overnight lending rate from 0.5 percent and said it will accept lower grade corporate bonds as collateral for loans to banks to unlock credit markets.

The yen’s advance is hurting exporters, although the strength in the currency isn’t a bad thing in itself, Economic and Fiscal Policy Minister Kaoru Yosano said today.

“The economy is struggling under the weight of the strong currency and global slowdown and the Japanese authorities will not want to see further significant strength” in the yen, Adrian Schmidt, a London-based senior foreign exchange strategist at the Royal Bank of Scotland Plc, wrote in a note. RBS is the fourth-biggest currency trader. “The yen is expensive here,” he wrote.

The Institute for Supply Management’s U.S. Non Manufacturing index will fall to 42 in November, from 44.4 the prior month, a report will show tomorrow according to the median estimate in a Bloomberg survey.

The factory index fell to 36.2 the same month, the lowest level since 1982, the Tempe, Arizona-based group reported yesterday. A reading of 50 is the dividing line between expansion and contraction. Similar gauges for the euro zone and the U.K. dropped to records.

To contact the reporter on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net

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White Sugar Tumbles as Recessionary Concerns Buoy U.S. Dollar

By Marianne Stigset

Dec. 2 (Bloomberg) -- White sugar fell for a third day in London on concerns a slowing global economy and a stronger U.S. dollar will erode demand for raw materials.

The Dollar Index, a gauge of the currency against six major counterparts, gained for a third day as investors sought a haven from global economic turmoil. U.S. manufacturing shrank at the steepest rate in 26 years in November, a report showed yesterday.

“Economic news is not encouraging anyone to buy,” Peter Hoyt, a sugar trader at Sucden (U.K.) Ltd., said in a note today. “A strong dollar might have contributed to the pull back.”

White sugar for March delivery fell as much as $2.70, or 0.8 percent, to $319.30 a metric ton, the lowest since Nov. 24, and stood at $320.80 as of 11:44 a.m. on London’s Liffe exchange. Raw sugar for March delivery dropped 0.05 cent, or 0.4 percent, to 11.60 cents a pound on ICE Futures U.S. in New York.

Global sugar output next season is forecast to drop for the first time since 2004-05, led by cuts in India and the European Union, according to the International Sugar Organization. Production will drop 3.8 percent to 162.3 million tons in the year to Sept. 30, 2009, according to the London-based group.

Demand will climb 2.4 percent to 165.9 million tons, leaving a shortfall of 3.6 million tons, it said, adding the deficit may widen to as much as 5 million tons in the 2009-2010 season.

Four of nine traders, analysts and brokers surveyed last week by Bloomberg forecast raw sugar traded in New York would drop. Three predicted it would gain and two expected little change. Three of five surveyed said white sugar traded in London would decline and two expected no change.

Robusta Gains

Robusta coffee for January delivery climbed $15, or 0.8 percent, to $1,980 a ton on Liffe.

Coffee farmers in Vietnam, the world’s second-largest grower after Brazil, have resumed harvesting in the country’s largest growing region after rains cleared, according to traders and local government officials.

“Farmers are trying to take advantage of the current dry weather,” said Hua Thanh Hong, business manager of the Sept. 2nd Import-Export Co. The rains had stopped for two days, according to Huynh Quoc Thich, head of cultivation office in the agricultural department of Dak Lak province.

About two weeks of prolonged rains had interrupted the harvest, delaying the picking of berries and hampering efforts to dry the crop. The difficulties had raised concerns among some traders that they may not be able to fulfill export orders.

Farmers “will need at least one sunny week to dry the picked beans,” Hong said today by telephone. The Dak Lak-based company is among the three biggest Vietnamese coffee exporters.

Cocoa futures for December delivery fell 9 pounds, or 0.6 percent, to 1,575 pounds ($2,331) a ton on Liffe.

-- With additional reporting by Nguyen Dieu Tu Uyen in Hanoi. Editors: Tony Barrett

To contact the reporter on this story: Marianne Stigset in Oslo at mstigset@bloomberg.net

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Copper Drops in London on Speculation China’s Growth Is Slowing

By Claudia Carpenter

Dec. 2 (Bloomberg) -- Copper fell in London on speculation that slower growth in China will curb demand for industrial metals. Lead declined to a two-year low and aluminum dropped to the lowest in three years.

China’s construction of homes, offices and factories slid at least 16.6 percent in October after rising 32.5 percent a year earlier, according to Macquarie Securities Ltd. Copper has dropped 47 percent this year, the biggest drop since at least 1987 after a housing slump in the U.S. spread to Europe and Asia.

“When you have data coming out that’s as weak as it’s recently been, whether it’s U.S. or China it’s not going to help sentiment,” said Gayle Berry, an analyst at Barclays Capital in London. “Prices are not trading rationally to the fundamentals. It’s a case of how bad can sentiment get.”

Copper for delivery in three months on the London Metal Exchange dropped $45, or 1.3 percent, to $3,545 a metric ton as of 12:02 p.m. local time. The price fell 4.4 percent the past three sessions. Copper futures for March delivery declined 2.85 cents, or 1.8 percent, to $1.6025 a pound on the Comex division of the New York Mercantile Exchange.

Automobile Sales

November industrywide auto sales in the U.S., the world’s biggest auto market, may have marked the 13th straight monthly drop. Barclays Capital forecasts copper for immediate delivery will average $4,700 a ton next year, Berry said. It’s averaged $7,290 this year so far.

Copper stockpiles monitored by the LME gained 1,825 tons, or 0.6 percent, to 293,025 tons. They have jumped every month from July.

Lead dropped $18, or 1.6 percent, to $1,082 a ton. Earlier, the price fell to $1,052 a ton, the lowest since July 26, 2006. The metal, used in car batteries, has dropped 57 percent this year. Aluminum extended its drop to a three-year low, falling $15 to $1,720. It earlier fell to $1,705, the lowest since July 7, 2005.

Zinc gained $4 to $1,170 a ton and nickel climbed $100 to $9,900 a ton.

To contact the reporter on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net or ccarpenter2@bloomberg.net



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Oil Little Changed After Falling to 3-Year Low on U.S. Slump

By Christian Schmollinger and Grant Smith

Dec. 2 (Bloomberg) -- Crude oil traded little changed after falling to the lowest in more than three years on signs the U.S., the world’s largest energy consumer, may be in the longest slump since World War II.

The U.S. first entered a recession in December 2007, the panel of economists that dates American business cycles said yesterday. The country’s manufacturing output in November contracted at the fastest pace in 26 years, a report showed.

Oil for January delivery was at $48.31 a barrel, up 3 cents, on the New York Mercantile Exchange at 1:13 p.m. London time, after falling as much as $1.92, or 3.9 percent, to $47.36 in electronic trading. That’s the lowest since May 20, 2005.

“Demand is going down from week to week, hand-in-hand with the worldwide slowdown in economic growth,” said Gerrit Zambo, an oil trader at BayernLB in Munich. “If sentiment gets worse and equities move lower we could see oil go to $40.”

Oil prices have tumbled 68 percent since reaching a record $147.27 on July 11 as the U.S., Europe and Japan face their first simultaneous recession since World War II.

Crude is also under pressure after the United Arab Emirates’ state-owned producer said it would provide full contractual volumes to Asian refiners, indicating members of the Organization of Petroleum Exporting Countries may fail to fully comply with production cuts last month.

“All the poor economic news plus the lack of clear indication of full compliance on the part of OPEC, means a further downturn is possible,” said Victor Shum, senior principal at consultants Purvin & Gertz Inc. in Singapore.

December Recession

Brent crude oil for January settlement fell as much as $1.95, or 4.1 percent, to $46.02 a barrel on London’s ICE Futures Europe exchange, the lowest intraday price since Feb. 18, 2005. It was at $47.85 a barrel at 1:05 p.m. London time.

The declaration on the U.S. recession was made by the National Bureau of Economic Research, a private, non-profit group of economists based in Cambridge, Massachusetts. The last time the U.S. was in a recession was from March through November 2001, according to the agency.

The longest economic slumps since 1945 were the 16-month downturns that ended in March 1975 and November 1982. The Great Depression lasted 43 months, from August 1929 to March 1933.

The Institute for Supply Management’s factory index dropped to 36.2, the lowest level since 1982, the Tempe, Arizona-based group reported. A reading of 50 is the dividing line between expansion and contraction.

OPEC Debate

OPEC ministers put off debate on a second cut in output in as many months during the Nov. 29 meeting in Cairo.

Abu Dhabi National Oil Co., the United Arab Emirates state- owned producer, will supply full crude shipments to its Asian customers in January, said four traders at refiners in Japan, South Korea and Singapore.

Abu Dhabi National, known as Adnoc, will supply contracted volumes of its Murban, Upper Zakum, Lower Zakum and Umm Shaif grades next month, said the traders, who asked to remain unidentified because of company policy. The U.A.E. was OPEC’s fourth-largest supplier in October.

OPEC will reduce crude production when it meets in Oran, Algeria, this month, OPEC Secretary General Abdalla el-Badri said. Oil demand is likely to drop further next year, he said.

“For sure there will be action” at the meeting, el-Badri told reporters in Tehran yesterday, declining to specify the amount of output that may be curbed.

Stockpiles May Rise

U.S. crude-oil inventories probably rose for a 10th week as imports rebounded, a Bloomberg News survey of analysts showed.

Crude-oil stockpiles probably climbed 850,000 barrels in the week ended Nov. 28 from 320.8 million the week before, according to the median of six analyst estimates before an Energy Department report this week.

Refineries probably operated at 86.5 percent of capacity, up 0.3 percentage point from the week before, the survey showed.

Gasoline stockpiles probably increased 1.5 million barrels from 200.5 million the week before, according to the survey. Seven analysts gave product-supply estimates.

Supplies of distillate fuel, a category that includes heating oil and diesel, rose 1 million barrels from 126.7 million barrels the week before, according to the survey.

The Energy Department is scheduled to release its weekly report tomorrow at 10:35 a.m. in Washington.

To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net. Grant Smith in London at gsmith52@bloomberg.net

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Gold Advances in London as Yesterday’s Plunge Draws Investors

By Chanyaporn Chanjaroen

Dec. 2 (Bloomberg) -- Gold rose in London as yesterday’s plunge, the biggest in more than seven weeks, attracted investors. Platinum and silver also advanced.

Equity markets in Europe and Asia dropped and oil prices fell to the lowest in three years, buoying demand for gold from investors seeking to diversify their portfolios. The U.S. economy began to weaken in December 2007, the Cambridge, Massachusetts- based National Bureau of Economic Research said yesterday.

“There are reports of bargain hunters showing interest in response to the lower priced environment,” John Meyer, head of resources analysis at Fairfax IS Plc in London, said in a report.

Gold for immediate delivery rose $3.29, or 0.4 percent, to $772.24 an ounce by 11:09 a.m. in London, after earlier falling to 762.76, the lowest intraday price since Nov. 21.

December futures were $5.10, or 0.7 percent, lower at $771.70 in electronic trading on the Comex division of the New York Mercantile Exchange.

Gold fell to $772.50 an ounce in the morning “fixing” in London, used by some mining companies to sell production, from $778 at the previous afternoon fixing.

Imports to India, the world’s biggest consumer of the metal, fell 26 percent last month to about 40 metric tons, according to provisional estimates from the Bombay Bullion Association Ltd., a group of 230 traders. The decline came after the biggest monthly price gain in nine years and jewelry buyers were deterred by an extremist attack last week in Mumbai.

“There were no imports or trading in the last four days of the month because of the terrorist attacks,” Suresh Hundia, president of the association, said in a phone interview today. “There was no real demand as high prices kept buyers away.”

Gold Trust

Gold in the SPDR Gold Trust, the largest exchange-traded fund backed by bullion, were unchanged at 758.12 tons, according to data on the company’s Web site. The fund totaled a record 770.64 tons on Oct. 13, overtaking Japan as the world’s seventh- largest holder of gold.

Gold assets held in exchange-traded funds managed by ETF Securities Ltd. rose to 1.615 million ounces, from 1.606 million on Nov. 28, the Jersey, Channel Islands-based company said today. Platinum assets rose to 135,643 ounces from 134,623, it said.

Among other metals for immediate delivery, silver rose 1.6 percent to $9.42 an ounce. Platinum gained 0.4 percent to $803.50 and palladium lost $2.75, or 1.6 percent, to $173.25.

Lonmin Plc, the world’s third-largest platinum producer, may cut 1,500 jobs at its Limpopo mine, taking the tally of potential redundancies at its South African operations to more than 6,000.

Platinum, after a 48 percent drop this year, is trading at its lowest price relative to gold in about 11 years, signaling investors should buy the silver metal and sell the yellow one, according to Dresdner Bank AG.

“It is a very rare event for platinum to trade this close to or below gold,” Bayram Dincer, an analyst at Dresdner in Zurich, said yesterday by telephone. “You surely have to buy platinum and sell gold. The downside risk is very limited.”

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

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Romania’s Leu, Stocks Fall as Voters Fail to Elect Government

By Yon Pulkrabek and Irina Savu

Dec. 2 (Bloomberg) -- Romania’s currency and stocks fell, while investors demanded a bigger return to hold the country’s bonds after elections failed to determine a winner to tackle a growing current-account deficit and deepening financial crisis.

Romania’s leu slid 0.7 percent to 3.8146 to the euro at 1:03 p.m. in Bucharest, bringing its loss this year to 6.3 percent against the euro, the biggest drop among the currencies in new European Union members. The Bucharest Exchange Trading Index fell as much as 2.9 percent, giving a 2008 drop of 70 percent, and last traded 1 percent lower from yesterday. The MSCI Emerging Market Index lost 2.3 percent today.

With all votes counted in the European Union’s second- poorest member country, the ex-communist Social Democratic Party and the Liberal Democratic Party are so close that neither is able to form a government on its own. The new government faces a current-account deficit that has ballooned to $16 billion as economic growth slows.

“It looks like the politics are going to be cloudy for quite some time and we could see more sustained pressure” on the leu if the stalemate drags on, said Nicholas Kennedy, an emerging- markets currency strategist at 4Cast Ltd. in London. “I think the market won’t be sitting on its hands.”

The deadlock threatens to extend the losses of Romania’s BET, the world’s eighth-worst performing equities index so far this year. The leu is near a four-year low of 3.9865 against Europe’s common currency reached on Oct. 6.

BRD-Groupe Societe Generale, Romania’s second biggest bank controlled by France’s Societe Generale SA, slid 3.6 percent to 7.9 lei.

Stocks Decline

Petrom SA, the biggest oil company in Romania and a unit of Austria’s OMV AG, dropped 2.2 percent to 0.178 lei, its lowest level since Nov. 24. Rompetrol Rafinare, the country’s second- largest, declined 1.7 percent to 0.0177 lei.

Crude oil for December delivery fell as much as 3.9 percent in after-hours New York trading to $47.36 a barrel today after plunging 9.5 percent yesterday.

The National Liberal Party, led by current Prime Minister Calin Tariceanu, came in third place with 18.7 percent of the vote. The count is still preliminary, as candidates filed complaints against voting procedures in some stations, according to the country’ Central Electoral Bureau.

“This is the last thing the markets wanted to see,” said Elisabeth Andreew, chief currency strategist in Copenhagen at Nordea AB, Scandinavia’s biggest bank. “There is no clear winner” and that is “not good from the market’s perspective.”

The leu may drop to 4 per euro if it breaches the 3.87 level, which has been “a line in the sand,” Kennedy said.

Extra Yield

The extra yield investors demand to hold the benchmark Romanian government bond due May 2012 rather than German government bonds of similar maturity increased 5 basis points to 884 basis points, according to ING Groep prices. The yield on the notes was little changed at 11.11 percent.

Mircea Geoana, a 50-year-old former foreign minister, is the Social Democrats’ choice for prime minister. Tariceanu, who won elections four years ago and has governed amid an economic boom, ran for the Liberals and Theodor Stolojan, 65, a former premier, is the candidate of the second-place Liberal Democrats.

“We won’t see a positive market reaction this week without a stable government in place,” said Florin Irimin, a trader at Intercapital Invest SA in Bucharest. “We’ll see only tough negotiations to form a government by spring, considering no party has a clear victory.”

‘Market-Friendly’

The three main parties included promises of more spending on social programs, public-sector wages and infrastructure. Talks to form a coalition can only begin after authorities confirm the vote in coming days. The new Parliament will have to convene by Dec. 20, and fighting over the prime minister’s job may drag on into next year.

A coalition between the Social Democrats and the Liberals “is likely to lack both the coherence and resolve to carry out the much-needed fiscal tightening,” Citigroup Inc.’s Istanbul- based analyst Ilker Domac wrote in a research note last week. The outcome would be “negative” for markets, they wrote.

A coalition between the Liberals and Liberal Democrats would be “the most market-friendly outcome,” according to the analysts. Still the partnership may be unstable because of years- old feuding between the leaders of the two parties, they added.

“It looks increasingly likely that the Social Democrats will be sidelined in coalition talks,” Lucy Bethell, an emerging-market currency strategist at Royal Bank of Scotland Group Plc in London, wrote in a client note today. “That’s a good scenario for the market, though we’d delay leu longs until clear signs of policy improvement are visible.”

To contact the reporter on this story: Yon Pulkrabek in Prague at ypulkrabek@bloomberg.net; Irina Savu in Bucharest at isavu@bloomberg.net.

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