Daily Technical Strategist

Daily Forex Technicals | Written by FXTechstrategy | Dec 19 08 13:12 GMT |

Today's Focus: EURUSD & GBPUSD

• EURUSD: Prints A Shooting Star Candle After Failing At The 1.4719 Level.
• GBPUSD: Failure At Higher Prices To Trigger Declines Towards The 1.4470 Level.

EURUSD

EUR's attempt at further upside prices was cut short Thursday reversing lower and closing at 1.4293, forming a shooting star candle pattern(top reversal signal).The pair is experiencing its first downside losses since breaking and closing above the 1.3298 level on Dec 11'08.After going vertical to the upside for days, corrective pullbacks of that short term run will not be a surprise at this stage. We envisage a follow through lower targeting the 1.4073 level, its Sept 16'08 high initially with a penetration and negation of there setting the stage for a decline towards the 1.3882/1.3900 area, its Sept 11'08 high/.618 Ret. The 1.3785 level, its Oct 09'08 high will be aimed at if an invalidation of the later zone occurs. Upside objectives run from the 1.4310 level, its Dec 20'08 low, its psycho level at 1.3500 to its Sept 22'08 high at 1.4857.On the whole, we could even see a retest of the 1.3298 level if its present corrective pullbacks take the nature of its parabolic move off the 1.2551 level.

Support	Comments
1.4073	Sept 16'08 high
1.3882/1.3900	Sept 11'08 high/.618 Ret
1.3785	Oct 09'08 high
Resistance	Comments
1.4310	Dec 20'08 low
1.4500	Psycho Level
14857	Sept 22'08 high

GBPUSD

GBP followed through to the downside on Wednesday breaking the 1.5250/65 zone, its Nov 19'08 high/Oct 24'08 low and opening up scope for lower prices towards the 1.5048 level, its Dec 08'08 high and then the 1.4558 level, its Nov 13'08 low. A clean break of the latter will reverse its nearer term recovery started at its YTD low at 1.4470 and turn focus to that level and possibly lower towards its Jan'02 low at 1.4045.Its daily RSI and Stochastics are pointing lower suggesting more downside weakness. Resistance levels are located at the 1.5250/65 zone and the 1.5534 level, its Nov 25'08 high accompanied by the 1.5724 level, marking its Dec 17' 08 high. Further out, the next target sits at the 1.5885 level, its Nov 10'08 high. As indicated in our previous analyses of the corrective nature of its move from the 1.4470 level, we expect the pair to resume its medium to longer term weakness towards the 1.4045 level.

Support	Comments
1.5048	Dec 08'08 high
1.4558	Nov 13'08 low
1.4470	YTD low
Resistance	Comments
1.5250/65	Nov 19'08 high/Oct 24'08 low
1.5534	Nov 25'08 high
1.5885	Nov 10'08 high

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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Bank of Japan Easing Steps Surpassed Expectations

Daily Forex Fundamentals | Written by CurrencyThoughts | Dec 19 08 13:02 GMT |

The yen strengthened 0.4% against the dollar and much more versus the euro in spite of Bank of Japan actions.

The dollar advanced 1.8% against the euro, 1.7% versus the Canadian dollar and Swiss franc, 1.5% against the kiwi, 0.5% against the Aussie dollar and 0.2% relative to sterling.

Asian stocks closed mixed. Nikkei -0.9%. Hang Seng -2.4%. Thailand -1.0%. Vietnam +0.6%. China +0.3%. South Korea +0.4%. Australia +1.0%.

European stocks are trading lower by 2.0% in Britain, 1.5% in France and 1.1% in Germany. Today is a quadruple witching hour for equities.

Sovereign bond yields are broadly lower. The 10-year JGB touched 1.21%, lowest since July 2005, but recovered to 1.235%, down 2.5 basis points net.

Oil hit yet another low is is off 1.4% on balance at $35.71/barrel. Gold relapsed 2.5% to $838.90 per ounce.

The Bank of Japan Policy Board deliberated for 5 hours, 6 minutes of 2 days and then cut its overnight money target by 20 basis points to 0.1% (by a vote of 7-1 with Noda dissenting). The Lombard rate was sliced to 0.3% from 0.5%. The BOJ upped its monthly outright purchases of government bonds to Y 1.4 trillion from 1.2 trillion yen and broadened the range of JGB's it will purchase. The central bank will also buy commercial paper outright to alleviate a corporate credit crunch and will consider other ways of pumping funds into the money market. Governor Shirakawa left the door open to more easing if necessary but denied that today's actions constitute a return to quantitative easing.

The Bank of Japan also reduced its economic assessment, saying that exports are decreasing, domestic demand is weaker, profits are declining, employment and income are worsening, financial conditions have deteriorated sharply, CPI inflation is poised to moderate, and it “will likely take some time” for the necessary conditions for recovery to be satisfied.

Japan's government is projecting no growth next fiscal year. Prime Minister Aso called the BOJ actions “timely.”

Ukraine's overnight refinancing rate was hiked to 22% from 18%, and the unsecured deposit rate was raised 500 basis points to 25%. These steps engineered a 10% rebound in the beleaguered hryvnia to 8.25/$.

Vietnam cut its base rate by 150 basis points to 8.5%, lowest since 8.25% over the 26 months to Feb 2008. The rate previously had been cut in four increments of 100 bps each from a peak of 14% in mid-October.

Denmark cut its key 1-week CD and lending rates by 50 basis points to 3.75%.

Japan's all-industry index fell 0.5% in October and by 2.5% from a year earlier. Industrial output sank 2.5%, but construction (0.9%) and services (0.4%) rose.

British consumer confidence recovered a bit further to -33 in December from -35 in November and -39 last July. The better-than-anticipated result reflects a psychological lift from the cut in VAT taxes.

INSEE of France projects negative French GDP growth of 0.8% in the present quarter and a continuing contraction in each of the next two quarters. This downward revision follows announced results that business sentiment dropped 6 points in December to 73, lowest since June 1993 and down from 91 as recently as September.

German producer price inflation fell to 5.3% in November from 7.8% in October. The non-energy PPI index slid to 2.1% from 2.9%. The monthly drop of 1.5% in all producer prices was 50% greater than expected.

Turkish consumer confidence sagged to 68.88 in November from 74.24 in October.

China raised taxes on the consumption of a wide variety of energies.

Canadian CPI inflation fell to 2.0% from 2.6% last month. Core dropped to 1.7% from 2.4%.

Larry Greenberg
CurrencyThoughts

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Mid-Day Report: Euro's Weakness Continues as a Short Term Top Formed

Market Overview | Written by ActionForex.com | Dec 19 08 13:35 GMT |

Euro continues to pare this week's gain today and weakens sharply across the board. While there are various stories about the reversal of fortune in Euro, it's believed that the main reason is due to ECB's announcement of widening the rate corridor yesterday. Note that Euro is the main beneficiary of dollar's weakness since the start of the month due to fund flows from US to the Eurozone. However, ECB's announcement, which involved lowering the deposit rate from 2.00% to 1.50%, 100bps below the benchmark interest rates currently at 2.50% and raising the marginal lending rate from 3.00% to 3.50%, 100bps above the benchmark rates, is viewed as an intention to discourage capital inflows to park with ECB. Traders, thus, take profit on Euro longs on concern of reversal in the trend.

Technically speaking, a short term top is confirmed to be formed at 1.4719 in EUR/USD. While some more downside is expected in near term, there is no confirmation of EUR/USD's rally yet. Focus will turn to 1.3408 support for guidance. Similarly, dollar index's break of 80.44 confirms that a short term bottom is in place at 77.69 after drawing support from 61.8% retracement of 71.31 to 88.46 at 77.86. We're favoring the case that fall from 88.46 is merely a correction in the larger up trend. However, a break of 83.11 cluster resistance (50% retracement of 88.46 to 77.69 at 83.07) is needed to firstly confirm the completion and corrective nature of such decline first.

On the data front, Canadian CPI dropped -0.3% mom, rose 2.0% yoy in Nov versus consensus of -0.5% mom, 1.8% yoy. Core CPI rose 0.7% mom, 2.4% yoy versus consensus of -0.2% mom, 1.5% yoy. Germany PPI dropped -1.5% mom, rose 5.3% yoy versus consensus of -1.0% mom, 5.9% yoy. Japan's all industry index dropped 0.5% mom in October, above market expectation of -0.8% following a revised reading of -0.1% in September. In the UK, December Gfk consumer confidence unexpectedly improved to -33 from -35 as tax reduction and lower energy costs stimulated spending desires.

Bank of Japan cut the overnight lending rate from 0.3% to 0.1% on 7-1 vote and announced plan to buy corporate debts to help corporate raise funds during deepening recession. Tado Noda was the sole member to dissent. Basic loan rate was also lowered by 20bps to 0.3% by unanimous vote.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.4042; (P) 1.4380; (R1) 1.4580; More

EUR/USD's break of 1.4008 minor support with 4 hours MACD dragged below signal line confirms that a short term top in place at 1.4719, after meeting mentioned target of 61.8% retracement of 1.6038 to 1.2329 at 1.4621. Intraday bias is flipped back to the downside for 4 hours 55 EMA (now at 1.3685) first. On the upside, above 1.4306 will indicate that fall from 1.4719 has completed and flip intraday bias back to the upside for retesting 1.4719 high.

In the bigger picture, whole fall from 1.6038 has made a medium term bottom at 1.2329. Strong rebound from there has met mentioned resistance zone of 1.4621 fibo resistance and 1.4867 already. With a short term top in place, focus now turns to 1.3408 cluster support (61.8% retracement of 1.2549 to 1.4719 at 1.3378). Break there will indicate that rise from 1.2549, as well as that from 1.2329 has finished. In such case, deep decline could be seen to retest 1.2329 low. On the upside, note that sustained trading above 1.4867 will target 1.6038 record high again.

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We'll forge ahead with reforms: Hu

Updated: 2008-12-19

By Zhu Zhe (China Daily) The nation will press forward with the reform and opening-up drive and socialist system, which in the past 30 years transformed its economy into the world's fourth-largest, President Hu Jintao said on Thursday.

Zeng Gusheng, who was laid off from a State-owned enterprise in Hengfeng County, Jiangxi Province, and his family receive a special gift from the government on Thursday on the 30th anniversary of the country’s reform and opening up: A subsidized apartment for low-income people. Zeng, who now works as a pedicab driver, said the new apartment is much better than his former shanty home. [Asianewsphoto]

In a nationally-televised speech celebrating 30 years of reform policies, Hu hailed the country's rise from poverty to one of the world's biggest economies and a major political power.

"The significant changes prove that the direction and path of reform and opening-up are completely correct," Hu told an audience of more than 6,000 at the Great Hall of the People in Beijing.

"Standing still and regressing will lead only to a dead end."

Hu said the country must focus on economic growth and social stability, adding that China should learn from the best of political civilization of human society and not blindly copy the model of Western political institutions.

"Without stability, we can do nothing, and can lose what has been achieved.

"We must adhere to the Party's leadership and continue developing socialism with Chinese characteristics."

He made the remarks on the 30th anniversary of the 3rd plenary session of the 11th Central Committee of the Communist Party of China (CPC). It was at that meeting when the Party decided to open up the country and reform its moribund economy.

The decision, which saved the country from economic collapse after the "cultural revolution" (1966-76), was masterminded by Deng Xiaoping, chief architect of the reforms, along with his comrades who were bold enough to change the old norms.

The brave transformation has made China the world's fourth-biggest economy in terms of gross domestic product, with 24.95 trillion yuan ($3.6 trillion) last year, up from 10th place with 364.5 billion yuan 30 years ago.

The feat of feeding 20 percent of the global population is also quite a contribution to the world, with personal disposable income rising from 343 yuan to 13,786 yuan. The number of people mired in poverty has shrunk to 14 million from 250 million in 1978, Hu said.

He paid tribute to the past three generations of the country's leadership. In response, the third generation of the leadership, including former president Jiang Zemin and former premier Zhu Rongji, who rarely appear in public now, stood up to greet the public.

Hu also set targets for the country's development: China should have become a more well-off society by 2021, and become modernized by mid-century.

"If we don't sway back and forth, relax our efforts or get sidetracked, but firmly push forward the reform and opening up as well as adhere to socialism with Chinese characteristics, then this grand blueprint will definitely materialize," he said.

However, while stressing that officials must back market reforms, Hu also dwelt on the need for greater State control.

The country must "focus on strengthening and improving the country's macro-economic controls and overcoming certain shortcomings in the market itself", he said.

Hu said the country had "achieved positive results in responding to the global financial crisis", but it needs to do more to keep the economy growing fast.

"We must earnestly implement various measures to further boost domestic demand and promote economic growth, properly deal with the global financial crisis and other risks from the international economy, and do our best to maintain relatively fast and stable growth."

Hu also acknowledged that the country still faces many problems such as low-efficient modes of development, a wealth gap between the rich and poor, and lagging economic indicators in some rural areas.

His speech was warmly welcomed by both academics and the people.

"It summarizes our country's development experience in the past 30 years and looks into the future," Shen Baoxiang, a professor at the Party School of the Central Committee of CPC, said. "There's an old Chinese saying that at 30, a man becomes well established. That applies to our country's reform drive as well."

Li Zaichun, a 74-year-old who was formerly an official with the All China Federation of Trade Unions and attended yesterday's meeting, burst into tears when asked about her feelings about the changes in the past three decades. "Life has changed so much ... it's beyond words," she said.

Also at yesterday's meeting was 18-year-old Peking University freshman Cheng Bingxiao, who came to the Great Hall of the People for the first time in his life. "After hearing the president's speech, I suddenly feel a sense of historic responsibility," he said.

By last night, thousands of netizens had left comments on the meeting and Hu's speech on major news portals such as sina.com. Almost all of them expressed support for the Party's leadership and praised the country's changes in the past 30 years, but some also wanted the country to better combat corruption.

"My family was too poor to buy me a pair of shoes when I was young (in the 1970s). I could only wear a pair of slippers in the snow," one entry said. "No one can deny what we've achieved in the past 30 years."

Another post read: "I fully support what President Hu said today. If the Party can better deal with corruption, then there's nothing to be worried about."
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EU Says Economy Faces Substantial Impact From Crisis

By Ben Sills and Stephanie Bodoni

Dec. 19 (Bloomberg) -- The European economy may suffer a “substantial” impact from the global financial crisis next year as bank losses stymie lending, the European Commission said.

“Downsizing of banks’ balance sheets should exert a significant drag on economic growth,” the Brussels-based commission, the European Union’s executive, said today in a report. “Together with the marked deterioration in the global economy, this paves the way for a sharp cyclical downturn in the euro area.”

The economy of the nations that use the euro is already heading deeper into recession during the current quarter after the collapse of Lehman Brothers Holdings Inc. triggered a rout in stock, bond and loan markets. Manufacturing and service industries contracted at the fastest pace in a decade in December and business confidence in Germany, the region’s largest economy, dropped to the lowest since 1982.

“Quick and decisive action is needed to prevent a downward spiral,” the commission said in the report, a quarterly assessment of the euro region’s economy. “To be effective, the European fiscal response to the crisis needs to be coordinated.”

Even so, European Central Bank President Jean-Claude Trichet this week signaled policy makers may pause in January after lowering its benchmark rate by 175 basis points since October. Trichet said Dec. 16 the central bank is more concerned in ensuring that cheaper credit reaches companies and consumers than cutting its benchmark rate further.

The credit crunch has “impaired the transmission mechanism of monetary policy to output and inflation,” the commission said.

European lenders have written off almost $300 billion of assets over the past 17 months as the fallout from the collapse of the U.S. housing market roiled global markets. EU leaders have pledged to deliver 200 billion euros ($280 billion) of fiscal stimulus in a bid to keep the economy going.

To contact the reporters on this story: Ben Sills in Madrid at bsills@bloomberg.net; Stephanie Bodoni in Brussels at sbodoni@bloomberg.net.

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Euro Will Fall 10% Versus Dollar in 3 Months, UBS, Barclays Say

By Garfield Reynolds and Candice Zachariahs

Dec. 19 (Bloomberg) -- The euro will fall about 10 percent against the dollar in the next three months as demand for safety and economic weakness in Europe boosts demand for the U.S. currency, UBS AG and Barclays Capital said.

The 15-nation euro will weaken to $1.25 as the European Central Bank follows the Federal Reserve in lowering its benchmark interest rate over the next six months, UBS analysts wrote yesterday in a note to clients. UBS, the world’s second- largest currency trader, also said the euro is likely to fall against the yen. Barclays forecasts the euro will weaken to $1.30 in three months.

“Global rates are converging towards zero with deflation risks looming,” Benedikt Germanier and Brian Kim, based in Stamford, Connecticut, wrote in the report. “Wanted in such an environment is safety, liquidity and a store of value. The U.S. dollar and Japanese yen meet those criteria.”

The euro traded at $1.4254 as of 10:54 a.m. in Tokyo, after touching a three-month high of $1.4719 yesterday. The currency has gained 6.9 percent this week, the most since its 1999 debut. The currency traded at 127.35 yen from 127.44 yesterday.

The European single currency rose 6.8 percent against the dollar this week after the Fed on Dec. 16 cut its interest rate target to a range of zero to 0.25 percent, the lowest among the industrialized economies. The Fed said its key rate would stay at “exceptionally low levels” for some time and it would “employ all available tools” to ensure sustainable growth.

The euro’s recent gains were a disadvantage to the region’s exporters, French Finance Minister Christine Lagarde said yesterday. Business confidence in Germany, Europe’s largest economy, dropped to the lowest since 1982, the Ifo Institute’s survey of 7,000 executives showed yesterday.

“The European economy is in very poor condition to deal with the recent appreciation” of the euro, Steven Englander, a currency strategist at Barclays in New York, wrote in a research report yesterday. “The outlook for Russia and Eastern Europe remains the most important downside risk to the euro.”

To contact the reporter on this story: Garfield Reynolds in Sydney at greynolds1@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

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Valco Plans to Make Rival Offer to Buy Bakrie’s Debt

By Leony Aurora

Dec. 19 (Bloomberg) -- Valco Corp., an Indonesian energy company, plans to make a rival bid to buy PT Bakrie & Brothers’ debt and take shares of PT Bumi Resources that were pledged as collateral for the loans.

Valco, which is leading a group including Middle Eastern investors, is in talks to purchase the debt from Odickson Finance SA, Muhammad Hadi Bil’id, Valco’s chief executive officer, said today in Jakarta. He declined to give details.

An offer from Valco would compete with a bid from Northstar Equity Partners, the Indonesian affiliate of U.S. buyout firm TPG, which agreed this month to take over $575 million of debt from Odickson and form a venture with Bakrie & Brothers that would gain control of the Bumi shares.

“A lot of people are interested in Bumi’s assets that are currently undervalued,” said Lanang Trihardian, head of research at PT Syailendra Capital, which manages about $50 million. Even so, “the situation is fluid and it is difficult to predict the course of developments; one has to be careful.”

Bumi is Asia’s biggest coal exporter and produces more than a quarter of the fuel in Indonesia. Profit excluding one-time items almost doubled in the first nine months to $490 million from a year earlier on higher prices, Dileep Srivastava, head of investor relations at Bumi, said on Dec. 1.

No ‘Hit-and-Run’

“We are still in negotiations” with Odickson, Bil’id said in a telephone interview today. “We’re an energy company, it’s not going to be a hit-and-run” investment, he said.

Bakrie & Brothers has repaid some of the $1.1 billion it borrowed from Odickson in April. The company pledged stock as collateral for the loans, including 4.1 billion shares in Bumi, equivalent to a 21.2 percent stake.

The value of Bakrie & Brothers’ 35 percent stake in Bumi fell 78 percent to $541 million in three months as coal prices dropped and some investors dumped the shares on concerns that the Indonesian investment company won’t be able to pay the debt.

“The priority for us is to finalize the terms of strategic partnership with Northstar,” Srivastava, also a director at Bakrie & Brothers, said today. “Other things are, unfortunately, not a priority and can disturb the positive advancing process.”

Patrick Walujo, managing director of Northstar, didn’t respond to calls and a mobile-phone text message seeking comment. Bakrie & Brothers said this month it expected to complete talks with Northstar by Dec. 24.

Valco has a coal concession that hasn’t started production in South Sumatra province and is in talks to buy stakes in four oil and gas fields from PT Medco Energi Internasional, Bil’id said.

To contact the reporter on this story: Leony Aurora in Jakarta at laurora@bloomberg.n



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Public Power’s Drive for Coal Defies EU Carbon Policy

By Maher Chmaytelli and Maria Petrakis

Dec. 19 (Bloomberg) -- Just as the European Union imposes the world’s toughest restrictions on carbon emissions, Public Power Corp., Greece’s biggest utility, plans to relocate an entire village to exploit the coal beneath it.

PPC, as the unprofitable Athens-based company is known, plans to move the 1,300 residents of Pontokomi because the town sits on about 50 million tons of lignite, the soft, brownish- black coal that generates about two-thirds of the country’s electricity.

Greece, the fifth-poorest of the 15 countries in the euro region, is growing more dependent on lignite after the government denied PPC’s request to raise energy prices enough to pay for cleaner natural gas-fed turbines. The utility may fall farther behind EU rules because the European agency will require utilities pay for all their emission permits as of 2013, sapping funds that could have been used to curb pollution.

“Lignite mining will still be the most cost-effective option for Public Power,” said David Cox, managing director of Poyr Energy Consulting in Oxford, England. “It’s hardly in line with the EU’s efforts to tackle climate change, but the company’s hands are tied.”

Lignite-fired units cost about 30 euros ($38) a megawatt- hour, according to the Hellenic Transmission System Operator, the manager of the Greek electricity grid. When oil climbed to a record in July, natural-gas costs were around 85 euros a megawatt-hour, according to the group.

Worst-Performing Stock

What’s bad for the environment may be good for PPC shareholders, who saw the value of their stock slump 68 percent in the past 12 months, the worst performance in the 32-member Dow Jones Europe Stoxx Utilities Index. The company, which controls 96 percent of the nation’s power capacity, remains a “buy” among 10 of 16 analysts followed by Bloomberg. PPC will rise 38 percent in Athens trading to 16.95 euros in the next year, according to data compiled by Bloomberg. The stock fell 2.2 percent to 12.34 euros as of 1:31 p.m. local time.

PPC expects to report a full-year loss, its first in at least 10 years, after costs rose and the government, which owns a 51 percent stake, granted only limited price increases. PPC didn’t reply to telephone calls and e-mails seeking comment.

Even after 2012, when Public Power will have to pay for all its carbon permits, lignite would be cheaper as long as CO2 permits are trading around 25 euros a ton and oil isn’t lower than $60 a barrel, according to Paris Mantzavras, an analyst at HSBC Pantelakis Securities SA in Athens.

Carbon Permits

Carbon permits for December 2012 traded at 17.55 euros a ton on the Intercontinental Exchange today. 18. Oil for delivery the same month was $67.56 a barrel in New York yesterday.

“It makes a lot of sense for them to run lignite plants,” Mantzavras said.

The residents of Pontokomi voted unanimously for relocation in September after PPC pledged 185 million euros to build new homes, roads and schools, said Giorgios Dakis, the local prefect.

“That’s not enough,” said Andreas Athanassiades, the village schoolteacher. “We need double that, and we need PPC to put in filters to the power plant, cover the conveyor belts in the mines, and plant trees in the mines that are exhausted.”

The move demonstrates the limits of the EU’s push to curb greenhouse gas emissions by 20 percent, compared with 1990 levels, by 2020.

‘Polluting so Much’

“When you’re polluting so much, like PPC, it’s easy to cut pollution,” said Arthouros Zervos, chairman of the Brussels- based Global Wind Energy Council, an industry lobby group. CO2 emissions from PPC’s lignite-fired power plants totaled about 43 million tons in 2005.

Greece is the second-largest producer of lignite in the EU after Germany. A total 1.3 billion tons of lignite have been mined in the country, and the remaining 3.1 billion of exploitable reserves can last more than 45 years, according to PPC’s Web site.

Electricity demand in Greece grew 50 percent in the last decade, according to data compiled by the U.S. Energy Department. The country needs to increase capacity by 6,000 megawatts to guarantee supplies through 2015, according to the national energy regulatory authority.

Pontokomi will be the seventh village in Kozani, the region of northern Greece that produces 70 percent of the nation’s electricity, moved since the early 1970s.

The town’s residents are descendents of Greek refugees who fled Turkey in the Black Sea wars early last century.

“I grew up listening to stories of my family’s exile, the war, and my father telling me how grateful we should be to have found a new home,” Athanassiades said. “It’s a wrench that we have to leave again.”

To contact the reporters on this story: Maher Chmaytelli in Athens at mchmaytelli@bloomberg.netMaria Petrakis in Athens at mpetrakis@bloomberg.net

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JPMorgan Adds to $14 Billion CLO Bet Amid Downgrades

By Pierre Paulden and Neil Unmack

Dec. 19 (Bloomberg) -- JPMorgan Chase & Co. is adding to a $14 billion bet on collateralized loan obligations while other investors flee the market amid plummeting prices.

Within the past month, the largest U.S. bank by assets bought about $1.1 billion of the AAA rated portions of the securities for about 80 cents on the dollar, according to a person familiar with the transactions who declined to be identified because the trades were private. The bonds are typically backed by speculative-grade loans used to finance leveraged buyouts.

JPMorgan, based in New York, is buying even as the worst economy since World War II forces Chicago-based newspaper owner Tribune Co. and other companies to default. Standard & Poor’s said this month that lower-rated portions of scores of CLOs may face downgrades due to the “rapid deterioration in the credit quality” of the corporate loans.

“If everything’s fine and the companies pay back their loans, the AAA is paid back at par,” said David Preston, an analyst at Wachovia Corp. in Charlotte, North Carolina. “If the situation gets worse, the bonds get paid back quicker and the yield rises.”

That’s because downgrades may trigger a clause in CLO contracts forcing managers to pay off top-ranked bonds faster, at the expense of lower-rated debt. Those managers include firms such as New York-based Kohlberg, Kravis Roberts & Co., which may see investments and fees decline as underlying loan prices fall.

In Better Shape

JPMorgan, under Chief Executive Officer Jamie Dimon, wrote down $20.5 billion since the start of the credit crisis, less than a third of Citigroup Inc.’s total. It also received $25 billion from the U.S. government’s $700 billion bailout fund.

Dimon, 52, is using this financial strength relative to competitors to bulk up on the best pieces of the high-yield loan pools, just as he took advantage of market turmoil by taking over troubled financial companies Bear Stearns Cos. in March and Washington Mutual Inc. in September. Brian Marchiony, a spokesman for JPMorgan in New York, declined to comment.

“There aren’t enough people with the cash to buy these securities,” said Colin Fleury, a portfolio manager at Henderson Global Investors Ltd. in London, which oversees $80 billion of assets including CLOs. “You need to have a medium-term view because if you want to get your cash back you may struggle to find someone to take you out of the position.”

$14 Billion Stake

JPMorgan bought $200 million of top-rated CLOs last week, after purchasing $900 million in the previous month, according to people familiar with the transaction, who declined to be identified because the details are private. That’s on top of at least $14 billion of such investments the bank already held, according to a third-quarter regulatory filing.

CLOs are a kind of collateralized debt obligation, debt instruments that repackage loans into securities of varying risk that pay investors different yields. The safest AAA notes, as designated by rating companies, yield the lowest returns. The latest purchase by JPMorgan yields between 2.8 percentage points and 4.7 percentage points more than the benchmark London interbank offered rate, or Libor.

The market for the securities ballooned amid the record number of buyouts, with $605.5 billion issued since 2001, according to JPMorgan. The bank has been the biggest arranger of high-risk, high-yield loans from 2001 through 2007, according to Bloomberg data. Money managers, including private equity firms, hedge funds and insurance companies, set up teams to manage the loan pools, growing revenue by charging management fees and earning a return on the stakes of the debt that they kept.

Sales Fell

Then the seizure in credit markets hit and CLO sales fell to $64 billion this year as investors moved to safer government debt. Financial institutions have taken losses and writedowns of about $1 trillion since the start of 2007, according to Bloomberg data.

Yields on top-rated portions of loan pools have climbed to 5 percentage points more than the Libor from 1.85 percentage points in July, JPMorgan data show. Yields rose as loan prices dropped 31 cents this year to a record 63.5 cents on the dollar, according to S&P’s Leveraged Commentary and Data unit.

S&P said Dec. 5 that the lower-rated portions of 127 CLOs managed by firms including KKR and Carlyle Group of Washington may face downgrades.

Even with downgrades rising at a record pace, according to S&P, AAA rated portions of the pools are likely to survive the credit crunch, said James Finkel, chief executive officer of Dynamic Credit Partners, a New York-based investment adviser with $5 billion in assets.

“As the economy worsens, the market may love the CLOs less and the tranches may be downgraded” he said. “But they’re still likely to be paid back.”

Recommending CLOs

More than 90 percent of U.S. companies with ratings below BBB- by S&P and Baa3 by Moody’s Investors Service would need to default before an investor buying top-ranked CLO bonds at 80 cents on the dollar lost money, said Finkel. He said he’s buying AAA rated portions and is recommending the trade to clients.

CLOs can typically hold no more than 7.5 percent of their assets in loans rated CCC or lower without having to book them at market value rather than face value. Falling loan prices and increasing downgrades are causing some loan pools to breach those limits, forcing managers to divert cash or repay senior debt.

Wachovia’s Preston said 14 CLOs are failing tests in this way. The proportion of companies rated lower than CCC+, seven grades below investment grade, nearly doubled to 8.2 percent this month from 4.4 percent in October, according to New York-based S&P. It was 2.7 percent at the end of 2007.

High Default Rates

Recent bankruptcies helped send corporate default rates to their highest level since May 2002, according to S&P. The percentage of loans defaulting rose to 4.11 percent this month, from 0.97 percent last December, S&P said.

Loan downgrades to CCC may increase to 15 to 20 percent of the total outstanding, said Jeffrey Kushner, managing director at investment firm BlueMountain Capital Management LP, whose London unit oversees $5 billion of assets, including corporate loans.

“No CLO manager in the world will be unaffected by the CCC issue,” said Kushner. “Most CLO equity right now is probably worth close to zero.”

The equity portion is the unrated piece that loses money first and is typically owned by pension funds, hedge funds and private-equity firms, because it pays more.

‘Historic’ Price Declines

KKR’s debt-management unit, KKR Financial Holdings LLC, said in a regulatory filing last month that it expects three of five CLOs it issued in 2006 and 2007 to fail valuation tests after declines in loan prices of “historic magnitude.” The San Francisco-based company sold pools of high-yield loans to fund the purchase of more than $8 billion of leveraged, or speculative grade, loans.

A KKR affiliate invested $525.4 million in the “junior notes,” the company’s November regulatory filing said. Interest payments from the loans the private-equity firm bought will likely be directed to paying down the top-rated slices of the CLOs, according to a KKR Financial conference call with analysts on Dec. 16.

KKR Financial replaced Chief Executive Officer Saturnino Fanlo Dec. 15 after losing 95 percent of its value this year on the New York Stock Exchange. David Lilly, a New York-based spokesman for KKR, declined to comment.

Carlyle “assembled the assets in the CLO portfolios in a way to perform through a recession,” said Michael Zupon, head of the company’s U.S. leveraged finance team in New York. He wouldn’t comment on the performance of the loan pools.

To contact the reporters for this story: Pierre Paulden in New York at ppaulden@bloomberg.net; Neil Unmack in London nunmack@bloomberg.net

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Dollar Rises Versus Euro as Losses Judged Too Big to Sustain

By Kim-Mai Cutler

Dec. 19 (Bloomberg) -- The dollar advanced the most against the euro in almost two months as traders judged the decline after the Federal Reserve lowered interest rates to near zero this week as too fast to be sustained.

The euro also weakened after the European Commission said the region may suffer a “substantial” effect from the financial crisis next year. The yen traded near a 13-year high against the dollar even after the Bank of Japan lowered its target lending rate to 0.1 percent.

“This is a retracement of the very big dollar losses we saw earlier this week,” said Chris Furness, the head of foreign-exchange strategy in London at 4Cast Ltd. “There’s been a shakeout of euro positions after gains, and there’s concern that the European Central Bank will have to play catch-up.”

The dollar climbed 1.8 percent to $1.3985 versus the euro at 7:56 a.m. in New York, from $1.4240 yesterday, when it slumped to a 12-week low of $1.4719. The U.S. currency gained as much as 2.3 percent today, the biggest intraday gain since Oct. 24. The euro fell 2 percent to 124.93 yen from 127.44. The dollar traded at 89.32 yen, compared with 89.43. It dropped to 87.14 yen on Dec. 17, the lowest level since 1995.

The dollar declined 4.3 percent against the euro this week after the Fed lowered its target lending rate on Dec. 16 to a range of zero to 0.25 percent. The Fed reiterated plans to purchase agency debt and mortgage-backed securities and said it will study buying Treasuries.

The nine-day relative strength index of the dollar versus the euro, a comparison of magnitude of gains and losses, was at 21.44 yesterday, below the level of 30 that signals a change in direction may be imminent.

“This is not a fundamentally driven move in the euro,” said Lutz Karpowitz, a Frankfurt-based currency strategist at Commerzbank AG. “We have very low liquidity right now, and volatility is very high.”

To contact the reporter on this story: Kim-Mai Cutler in London at kcutler@bloomberg.net

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Cocoa Heads for Biggest Weekly Gain in Four on Supply Concerns

By Marianne Stigset

Dec. 19 (Bloomberg) -- Cocoa headed for its biggest weekly gain in four in London on concern over declining supply from Ivory Coast, the world’s biggest grower.

Exports from the Ivory Coast ports for shipment fell 30 percent in November from a year earlier. Shipments of the beans dropped to 79,297 metric tons, from 113,193 tons, according to data supplied by the ports of Abidjan and San Pedro yesterday. Exports were also hit by a six-day wage strike in Abidjan that ended yesterday, according to the National Dockers’ Association.

“For the time being and until we have strong technical and fundamental evidence to the contrary, there is only one way, and that is up,” Stephanie Garner, a cocoa trader at Sucden (U.K.) Ltd., said in an e-mailed report today.

Cocoa for March delivery rose 16 pounds, or 0.9 percent, to 1,806 pounds ($2,706) as of 11:25 a.m. on London’s Liffe exchange. The beans have gained 8.1 percent this week, the biggest advance since the week ending Nov. 21, and have climbed 73 percent this year.

Cocoa futures for March delivery climbed $3, or 0.1 percent, to $2,675 a ton on ICE Futures U.S. in New York.

Exports of cocoa beans from the port of Abidjan, in the east, fell to 31,864 tons from 58,494 tons a year earlier, while the western port of San Pedro shipped 47,433 tons, down from 54,699 tons in the same month a year earlier, according to the data.

Stockpiles

The eastern port of Abidjan handles about 40 percent of the country’s cocoa shipments, while the smaller port of San Pedro, in the west, ships the rest. Ivory Coast’s mid-crop is collected from April through September after the main harvest is completed in February and March.

Cocoa stockpiles in warehouses monitored by the Liffe exchange rose 13 percent to 183,890 tons in the two weeks ended Dec. 15, according to data from the exchange. Robusta coffee inventories totaled 32,556 lots, each equal to 5 metric tons, compared with 32,335 lots two weeks earlier.

Among other agricultural commodities, robusta coffee for March delivery fell $20, or 1.2 percent, to $1,654 a ton. White sugar for March delivery slipped $3.40, or 1 percent, to $322.10 a ton.

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

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FX Thoughts for the Day

Daily Forex Technicals | Written by Kshitij Consultancy Services | Dec 19 08 13:38 GMT | USD-CHF @ 1.1032/35...Support at 1.5275 for EUR-CHF holds

R: 1.1007 / 1.1369-79 / 1.1460
S: 1.0799-79 / 1.0722 / 1.0685

Swiss has moved upwards of the Max projected high (at 1.0970) for today as the Support at 8-week MA on EUR-CHF Cross held on and Euro faltered. It also faces a Resistance at 1.55 at 21-day MA presently. If that holds on, we could see an almost proportionate move in Swiss and Euro in the negative fashion. However, it has moved up quite a bit during the day and could be expected to move in a sideways fashion during the US session. Though there are not too many Resistances on its way towards 1.1350, a sideways consolidation in Euro could prompt Swiss to hold on at the current levels as well.

However if it does move up, we could see it scaling 1.1350 and find Resistance there. It is currently finding Resistance at 21-SMA on the 4-hourly candle chart. Bullishness may re-emerge on a rise past this level.

GBP-USD @ 1.4981/84...Entangled in MAs

R: 1.5068-71 / 1.5101-13 / 1.5146-53
S: 1.4689 / 1.4590

The downward journey in Cable has been curtailed a little as the pair has got entangled in the braiding of the 8-, 13- and 21-day MA. This is turning out to be some Support, a breach of which could take the pair towards 1.4590, the Support which we have mentioned in the morning.

In the longer run, the pair looks to consolidate in a broad range between 1.45-1.55. However a monthly close below 1.53 could be very bearish for the pair as it would have then broken an important Support on the monthly close charts. To see the chart of Cable, click on: http://www.kshitij.com/graphgallery/gbpmth.shtml#mth

AUD-USD @ 0.6810/12...Support at 0.6562

R: 0.6909-26 / 0.6953 / 0.7063
S: 0.6787-84 / 0.6728-05 / 0.6684

Aussie has traded lower and broken the 21-SMA on the 4-hourly chart on the downside. A dip from here on could find a substantial Support at 0.6562 (which is the 21-day MA). However, if the pair is able to take Support at 8-day MA (at 0.6727) itself which also coincides with the trendline Support as can be seen from the daily chart, it could tread higher taking 8-day MA as the Support going forward through the US session. A rise from here could possibly find Resistance at 0.7050-60. To see the chart of Aussie, click on:

http://www.kshitij.com/graphgallery/audcandle.shtml#candle

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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Ukraine Central Bank Raises Its Refinancing Rates

By Daryna Krasnolutska and Halia Pavliva

Dec. 19 (Bloomberg) -- Ukraine’s central bank raised its refinancing rates for the second time in two days to cut loans to lenders and bolster the hryvnia after the currency fell as much as 16 percent in the past two days.

The Kiev-based Natsionalnyi Bank Ukrainy raised its overnight rate to 22 percent from 18 percent, when Treasury bills are used as collateral, the bank said today on its Web site. The rate for non-collateral loans was raised to 25 percent from 20 percent.

The hryvnia has plunged 38.83 percent against the dollar this year as investors shunned assets in emerging markets amid global financial turmoil. Ukraine, like other developing markets, including Hungary and Latvia, has turned to the International Monetary Fund for a loan, signing an agreement for $16.4 billion.

The Ukrainian central bank increased lenders’ refinancing funds in October, injecting 29.230 billion hryvnias ($3.21 billion), compared with 5.96 billion hryvnias lent in September. It injected 39.6 billion hryvnias in November and 16.5 billion hryvnias as of Dec. 17, according to central bank data. President Viktor Yushchenko said on Nov. 20 the banks spent part of refinancing to buy dollars, adding pressure on the hryvnia.

The hryvnia rose 10 percent to 8.2500 per dollar at interbank market at 1 p.m. in Kiev trading. That pared an earlier 18 percent two-day drop to a record 9.78 after the central bank sold reserves to support the currency.

Discount Rate

The bank doesn’t plan to raise its 12 percent key discount rate ‘for now,’” Petro Poroshenko, the head of the central bank council, said yesterday, though the Finance Ministry said in a statement on its Web site it was “advising” an increase to 18 percent.

“A hryvnia level above 9 per dollar is unacceptable, it threatens the economy and banking system,” Poroshenko said today at a press conference in Kiev. “The situation with the hryvnia rate demands urgent measures.”

Ukraine has enough reserves to stabilize its currency and wants exporters to sell part of their revenue from abroad, Poroshenko said.

Yushchenko also agreed today with the central bank that it will sell dollars on a daily basis in the interbank market to prop up the hryvnia. The bank will also check lenders and revoke licenses of those found guilty of speculating against the currency.

Economy Shrinking

Ukraine’s central bank spent $7.5 billion to help the hryvnia in October and November, cutting its foreign reserves to $32.7 billion as of Nov. 30. The hryvnia declined 21 percent last month. The bank’s reserves total $32.8 billion, up from $32.7 billion at Nov. 30 as the euro rose versus the dollar, Poroshenko said.

Under the agreement with the IMF, reserves cannot fall below $31.4 billion by the end of year.

The central bank will call for a law obliging exporters to sell part of their foreign currency revenue, while loans in foreign currencies to citizens should be banned, Poroshenko said.

Ukraine’s economy has been expanding at an annual pace of 7 percent since 2000, driven by consumption, industrial production and investments. Industrial output declined 29 percent in November, the Ukrainian Statistics Office said last week. The global financial turmoil is reducing investment in Ukraine, and the weakening hryvnia is undermining domestic consumption.

Ukraine’s economy will probably contract by 5 percent next year, the president’s office estimates.

The central bank will pay for natural gas imports using reserves to avoid placing pressure on the currency, Poroshenko said.

The country will have repay $29 billion next year and $6.7 billion in the first quarter, Poroshenko said, citing anticipated debt refinancing needs of companies, the state and banks.

To contact the reporter on this story: Halia Pavliva in Kiev at hpavliva@bloomberg.net.

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Palm Oil Drops on Concern Falling Crude Hurting Biofuels Demand

By Thomas Kutty Abraham and Claire Leow

Dec. 19 (Bloomberg) -- Palm oil futures in Kuala Lumpur dropped for a second day after crude oil’s slump raised investors’ concerns that demand for the tropical oil as a feedstock for alternative fuel will dim.

Crude is set for the worst monthly performance since 1986 as the global recession erodes energy demand. Palm oil, used mainly in cooking, can track crude prices because of its usage in biofuels.

“Crude has been steadily falling, offering little support for palm oil,” James Ratnam, an analyst at TA Securities Holdings Bhd. in Kuala Lumpur, said in a phone interview. “For palm oil to recover, physical demand has to emerge.”

March-delivery palm oil fell 0.6 percent to 1,536 ringgit ($443) a metric ton, the lowest since Dec. 5, on the Malaysia Derivatives Exchange. The contract lost 3.4 percent this week.

Oil fell to as low as $35.62 a barrel this week on rising U.S. stockpiles and skepticism the Organization of Petroleum Exporting Countries will achieve an agreed production cut. It was at $35.71 a barrel at 7 p.m. in Singapore.

Malaysia, the second largest palm oil producer, reported on Dec. 12 that stockpiles climbed to a record 2.27 million tons in November, according to data from the country’s palm oil board. Output reached a record 1.67 million tons that month.

‘Too Early’

“The catalyst for a recovery is lacking with still high inventory levels,” Simone Yeoh, an analyst at JPMorgan Chase & Co., said in a report today. “It is too early to turn bullish.”

The ratio of stockpiles to usage increased to 1.68 times in November from 1.56 times in October, Penny Yaw, an analyst at Citigroup Inc. in Kuala Lumpur said on Dec. 16. Stockpiles won’t fall until “we enter a seasonally lower production period in the first half” of 2009, Yaw said.

Demand for palm oil typically slows during the Northern Hemisphere winter as palm oil clouds over in cooler temperatures. Soybean oil, its main rival, is 54 percent more expensive than palm oil, its main substitute, according to Bloomberg data.

Soybean oil for March delivery fell 0.3 percent to 30.95 cents a pound on the Chicago Board of Trade at 6:51 p.m. Singapore time.

There were no physical palm oil tenders in Indonesia today as the state marketing center for the world’s largest producer of the commodity had no offers from state plantations to sell, Aziz Kahar, head of sales, said by phone in Jakarta.

To contact the reporters on this story: Thomas Kutty Abraham in Mumbai at tabraham4@bloomberg.net; Claire Leow in Singapore at cleow@bloomberg.net

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Swiss Stocks Retreat, Led by ABB, UBS; Credit Suisse Declines

By Jakob Lindstroem

Dec. 19 (Bloomberg) -- Switzerland’s SMI index dropped for a third day, led by ABB Ltd. after the world’s biggest builder of electricity networks said fourth-quarter profit will be hurt by pretax provisions.

UBS AG, the country’s biggest lender, declined as it transferred $16.4 billion of mostly mortgage assets to the Swiss central bank’s rescue fund and Standard & Poor’s cut its rating. Credit Suisse Group AG retreated after Neue Zuercher Zeitung reported it plans to close three U.S. money market funds totaling $8 billion.

The Swiss Market Index of the largest and most actively traded companies lost 58.59, or 1.1 percent, to 5,456.46 at 1:35 p.m. in Zurich, extending the decline so far this week to 3.2 percent. The broader Swiss Performance Index decreased 40.26, or 0.9 percent, to 4,507.2 today.

ABB slumped 54 centimes, or 4.4 percent, to 15.3 Swiss francs. ABB will book provisions of $850 million for potential costs related to investigations into alleged anti-competitive practices in the U.S. and Europe. The company said it plans to reduce costs by $1 billion after new orders in October and November were hurt by the economic slowdown and lack of financing for its clients.

“That ABB is warning of a weakening order intake in all business areas in October and November is weighing on the stock,” said Hampus Engellau, an analyst at Svenska Handelsbanken AB in Stockholm. “ABB’s valuation has been falling recently.” He has an “accumulate” recommendation on ABB.

UBS, Credit Suisse

UBS decreased 52 centimes, or 3.6 percent, to 14.13 francs. Zurich-based UBS in October agreed to a government plan to split off as much as $60 billion of risky assets into the SNB fund.

S&P reduced its rating on UBS to A+ from AA- by S&P.

“The downgrades and revised outlooks reflect our view of the significant pressure on large complex financial institutions’ future performance due to increasing bank industry risk and the deepening global economic slowdown,” S&P said.

Credit Suisse lost 90 centimes, or 3 percent, to 29.3 francs. The funds, Prime Portfolio, Government Portfolio and Cash Reserve Fund, will be closed for new investments at the end of the month and liquidated early next year, Neue Zuercher Zeitung said, citing an unidentified spokeswoman.

Givaudan SA declined 36 francs, or 4.1 percent, to 836 francs. The world’s biggest flavors and fragrances maker had its shares added to Goldman Sachs Group Inc.’s “conviction sell” list.

“The company has a significantly more leveraged balance sheet than in previous economic downturns,” London-based analyst Richard Logan wrote in a note to clients. “The consumer spending downturn expected by our economists in the second half of next year is greater than any experienced by Givaudan before,” he said.

The following stocks also rose or fell in Swiss markets. Symbols are in parentheses.

AFG Arbonia-Forster Holding AG (AFG SW) sank 2.4 francs, or 2.1 percent, to 113.6. Helvea SA cut its share-price estimate for Switzerland’s largest home-appliance maker to 130 francs from 155.

“In the current difficult economic environment, AFG’s non- construction related divisions will be hit much harder as its main end-markets, the automotive and printing industries, are expected to see significantly lower volumes,” Zurich-based analyst Patrick Appenzeller wrote in a note.

Arpida Ltd. (ARPN SW) added 2 centimes, or 3.8 percent, to 55 centimes. The Swiss biotechnology company working on new treatments for skin infections said mid-stage studies of its Iclaprim treatment showed positive results.

Barry Callebaut AG (BARN SW) climbed 10.5 francs, or 1.6 percent, to 675 francs. The world’s biggest bulk-chocolate maker was given an “overweight” recommendation by JPMorgan Chase & Co. in new coverage.

“We expect earnings to accelerate” the coming two years, London-based analyst Pablo Zuanic wrote to investors.

Conzzeta Holding AG (CZH SW) declined 52 francs, or 3.1 percent, to 1,603. The Swiss maker of metal-cutting machinery forecast a “marked” decline in full-year profit after orders slumped.

Lindt & Spruengli AG (LISP SW) sank 51 francs, or 2.6 percent, to 1,889 francs, the fourth straight day of declines. Helvea initiated coverage of Switzerland’s oldest chocolate maker with a “reduce” recommendation. “Visibility into 2009 remains poor, and we believe that Lindt & Spruengli might not achieve its long-term sales growth target of 6 to 8 percent in 2009,” Zurich-based analyst Andreas von Arx wrote to clients.

To contact the reporter on this story: Jakob Lindstroem in Stockholm at jlindstroem@bloomberg.net.

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German Stocks Fall, Led by K+S, ThyssenKrupp; Hochtief Declines

By Stefanie Haxel

Dec. 19 (Bloomberg) -- German stocks fell amid concern the deteriorating global economy will curb corporate profits.

K+S AG, Europe’s largest producer of potash used in fertilizers, plunged 6.4 percent after global market leader Potash Corp. of Saskatchewan Inc. lowered its full-year profit forecast. ThyssenKrupp AG fell for the first time in a week after saying its steel unit will cut working hours as a slump in demand from carmakers and builders reduces demand for the alloy.

The benchmark DAX Index fell 72.86, or 1.5 percent, to 4,683.54 as pf 12:31 p.m. in Frankfurt, curbing this weeks rise to 0.4 percent. DAX futures expiring today lost 1.5 percent. The broader HDAX Index sank 1.5 percent today.

Germany’s DAX is still headed for a 42 percent decline this year, the steepest annual drop since 2002, as more than $1 trillion in credit-related losses and writedowns at finance firms worldwide push the economy toward a recession.

Trading may be more volatile than usual today as options and futures expire across Europe.

“The overall climate is still difficult,” said Robert Halver, head of research at Baader Bank in Frankfurt. “There is a lot of imponderable things such as a possible bailout of U.S. carmakers or the outcome of full-year reports at the start of next year. Investors don’t want to take a stab in the dark and volatility will continue until the end of the year.”

K+S tumbled 6.4 percent to 37.43 euros. Potash Corp., the world’s largest fertilizer maker, said earnings per share will probably be $10.75, or 10 percent less than the midpoint of the pervious forecast.

ThyssenKrupp

ThyssenKrupp retreated 3.6 percent to 17.27 euros, the steepest drop since Dec. 5. Germany’s largest steelmaker may cut as many as five shifts a month at nearly all plants between February and September after reaching an agreement with works councils yesterday, Dietmar Stamm, a spokesman for the unit, said today by phone.

Hochtief AG declined 6.3 percent to 30.76 euros. Merrill Lynch & Co. cut its recommendation for Germany’s largest construction company to “neutral” from “buy.”

The following stocks also rose or fell in German markets. Symbols are in parentheses.

Air Berlin Plc (AB1 GY) rallied 16 percent to 4.97 euros, gaining for a fifth day. Etihad Airways, the national airline of the United Arab Emirates, may buy a stake in Europe’s third- largest discount airline, Sueddeutsche Zeitung reported, citing unidentified industry sources. Air Berlin spokesman Peter Hauptvogel declined to comment when contacted by Bloomberg News.

A.S. Creation Tapeten AG (ACW GY) gained 5.6 percent to 14.25 euros. Germany’s biggest wallpaper maker bought majority stakes in two French wholesalers for 15.7 million euros ($22.5 million).

BASF SE (BAS GY) tumbled 1.4 percent to 26.29 euros. Goldman Sachs Group Inc. cut its share-price estimate on the world’s largest chemical maker 7.7 percent to 24 euros.

Kloeckner & Co. (KCO GY) declined for a second day, losing 4.8 percent to 10.26 euros. JPMorgan Chase & Co. downgraded the steel trader to “neutral” from “overweight.”

Lanxess AG (LXS GY) dropped 5.7 percent to 12.37 euros, snapping a four-day increase. Germany’s largest publicly traded specialty chemicals maker said it will delay investment projects including a butyl rubber plant in Singapore in response to falling demand for chemicals worldwide.

MorphoSys AG (MOR GY) climbed 3 percent to 47.57 euros. The biotechnology company that makes antibodies for use in drug development will implement a planned 3-for-1 stock split on Dec. 23 to spur trading of the shares.

To contact the reporter on this story: Stefanie Haxel in Frankfurt at shaxel@bloomberg.net.

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U.K. Stocks Drop, Led by Commodity Producers; BP, Shell Retreat

By Adam Haigh

Dec. 19 (Bloomberg) -- U.K. stocks fell for the first time in four days, led by commodity producers, as crude headed for the second-biggest weekly decline in more than five years and a slide in metal prices dragged mining shares lower.

BP Plc and Royal Dutch Shell Plc, Europe’s two largest oil companies, decreased more than 3 percent. Anglo American Plc and Rio Tinto Group dropped more than 3 percent as copper fell below its daily limit in Shanghai after a rise in global inventories indicated demand is weakening.

“Commodity prices will go lower,” said Christian Blaabjerg, a market strategist at Saxo Bank A/S in Copenhagen. “We see demand destruction due to a contraction in the economy,” in China, he told Bloomberg Television.

The benchmark FTSE 100 Index lost 75.42, or 1.7 percent, to 4,255.24 at 11:14 a.m. in London, paring this week’s advance to 0.6 percent. The FTSE All-Share Index declined 1.7 percent today and Ireland’s ISEQ Index fell 1.4 percent.

The FTSE 100 has slumped 33 percent this year as more than $1 trillion in global losses and writedowns at financial firms froze credit markets and sent the U.S., Europe and Japan into the first simultaneous recessions since World War II.

BP, Europe’s second largest oil producer, slid 4.6 percent to 500.5 pence. Shell, the region’s biggest, lost 3.3 percent to 1,752 pence. The stocks account for more than 15 percent of the FTSE 100 index by market weighting.

Oil has dropped 33 percent this month even as OPEC agreed to its largest production cut in more than a decade because traders speculated that falling demand would outweigh the reduction. Crude slid more than $1 after the close of the U.K. equity market yesterday and remained lower this morning.

Copper Retreats

Anglo American lost 7.1 percent to 1,479 pence. The fourth biggest diversified mining company was downgraded to “neutral” at UBS AG and given a “short-term sell” recommendation. Rio Tinto, the world’s third-largest mining company, fell 3.3 percent to 1,478 pence.

Copper for March delivery fell 4 percent from the previous settlement price at the Shanghai market’s open, the lowest intra- day price since December 2003.

Anglo Irish Bank Corp. Plc lost 3.1 percent to 31 cents. The lender said Chairman Sean Fitzpatrick resigned from the company with immediate effect. Donal O’Connor was appointed to succeed him. The stock has slumped almost 98 percent this year.

SkyePharma Plc slid 4.6 percent to 134 pence. The maker of the Flutiform asthma inhaler expects writedowns and charges of as much as 8 million pounds ($12 million) in 2008 after talks to win approval of the Certihaler asthma drug in the U.S. failed.

To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net

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Gold Drops Most in Three Weeks as Stronger Dollar Saps Demand

By Nicholas Larkin

Dec. 19 (Bloomberg) -- Gold fell the most in almost three weeks in London as the dollar strengthened against the euro, reducing bullion’s appeal as an alternative investment to the U.S. currency.

Oil headed for its second-biggest weekly decline in more than five years as a deepening global recession saps demand, dimming the metal’s allure as a hedge against inflation. The dollar is rebounding from a 12-week low set this week when the Federal Reserve slashed interest rates. Gold typically moves inversely to the U.S. currency.

“If the dollar strengthens, gold tends to get sold off,” said Dan Smith, a Standard Chartered Plc analyst in London. “The reduction in the oil price also makes people less worried about inflation.”

Gold for immediate delivery lost as much as $19.43, or 2.3 percent, to $833.47 an ounce and traded at $839.90 by 11:30 a.m. in London. February futures fell $20.40, or 2.4 percent, to $840.20 in electronic trading on the Comex division of the New York Mercantile Exchange.

The metal declined to $839 in the morning “fixing” in London used by some mining companies to sell production, from $855.25 at the afternoon fixing yesterday. Bullion, still heading for a second weekly gain in London, is little changed this year. It reached a record $1,032.70 an ounce in March.

The dollar today gained as much as 1.7 percent against the euro, while crude oil slid as much as 7.5 percent to $35.62 a barrel in New York.

Currency Conundrum

The euro will fall about 10 percent against the dollar in the next three months as demand for safety and economic weakness in Europe boosts demand for the U.S. currency, UBS AG and Barclays Capital said. James Moore, an analyst at TheBullionDesk.com, expects the dollar’s rally to peter out.

“Given the recessionary fears still overhanging the U.S. economy we anticipate the dollar will remain pressured for some time,” Moore wrote in a note today. With the year-end and the Christmas holiday period approaching, traders will be “torn between locking in profits, maintaining sufficient cash liquidity and factoring safe-haven protection into their portfolios,” he said.

Among other metals for immediate delivery in London, silver declined 1.6 percent to $10.80 an ounce. Platinum lost $6.75, or 0.8 percent, to $847.25 an ounce, and palladium was 0.3 percent higher at $178.

Auto Bailout

Forecasts for platinum and palladium, both used in auto catalysts, were cut by Troika Dialog on a worsening manufacturing outlook and falling demand from carmakers.

Platinum will average $930 an ounce next year, down from a previous forecast of $1,685 an ounce, the Moscow-based bank said in a report today. Palladium will average $210 an ounce, down from $421 an ounce, it said.

General Motors Corp. and Chrysler LLC are set to get U.S. loans to stay afloat until March under a U.S. government plan that may be unveiled as soon as today, people familiar with the talks said. The companies have said they need $14 billion to stay in business through March and are temporarily idling plants to trim expenses.

Automakers account for about half of global platinum and palladium consumption, according to estimates by Johnson Matthey Plc, a London-based metals refiner, trader and researcher. The figures take recycling into account.

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