Canada’s Dollar Falls as Economy Contracts, Investors Shun Risk

By Chris Fournier

Jan. 31 (Bloomberg) -- Canada’s currency fell in January as a report showed the economy shrank in November and the global recession led investors to take refuge in the U.S. dollar.

The Canadian dollar, known as the loonie, depreciated 0.8 percent this month as the U.S. economy contracted the most in the fourth quarter since 1982. The U.S. is Canada’s largest export market.

“There’s not a lot of good things out there right now for the Canadian dollar,” said Andrew Busch, a currency strategist at BMO Capital Markets in Chicago. “We’ve been getting earnings and economic data that continue to show a dire situation. It’s hard to gain any traction.”

The Canadian currency slid to C$1.2296 per U.S. dollar yesterday in Toronto, from C$1.2188 on Dec. 31. One Canadian dollar buys 81.40 U.S. cents.

The loonie will weaken to C$1.26 against the U.S. dollar by the end of March before rebounding by year-end to C$1.20, according to the median forecast of 41 economists surveyed by Bloomberg News.

Canada’s economy, the world’s eighth-largest, contracted 0.7 percent in November, Statistics Canada said yesterday in Ottawa. The drop, which was more than forecast, was the biggest since August 2003, when northeastern North America was hit by a power blackout.

“GDP numbers for Canada were horrible,” said David Watt, a senior currency strategist in Toronto at RBC Capital Markets. “Any sort of rebound in confidence in the Canadian dollar has proved elusive.”

C$40 billion Stimulus

Petro-Canada, Canada’s third-biggest oil and gas producer posted a C$691 million fourth-quarter loss on Jan. 29. Procter & Gamble Co., the world’s largest consumer-products company, posted quarterly sales yesterday that trailed estimates, and the company reduced its annual forecast.

A collapse in demand for commodities and a recession in the U.S. weakened the loonie by 18 percent last year, the currency’s worst-ever performance. It fell in seven of the last eight months. Raw materials such as crude oil generate half the country’s exports.

Canada’s dollar rose to C$1.2026 on Jan. 28, the strongest in two weeks, after the opposition Liberal Party spared the ruling Conservative Party from defeat by signaling accord with its proposed C$40 billion ($32.6 billion) package of economic revival measures.

The greenback strengthened this week against 10 of its 16 most actively traded counterparts as investors sought relative safety from global economic turmoil in the world’s reserve currency. The exceptions were the pound, South Korea’s won, the loonie, Brazil’s real, Norway’s krone and South Africa’s rand.

The yield on the two-year government bond rose 18 basis points in the week, or 0.18 percentage point, to 1.42 percent. The price of the 2.75 percent security due in December 2010 fell 35 cents to C$102.40.

To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net

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Zambia Will Scrap Windfall Tax on Mining Companies

By Geoffrey Kapembwa

Jan. 30 (Bloomberg) -- Zambia, Africa’s biggest copper producer, will scrap a windfall tax on mining companies, Finance Minister Situmbeko Musokotwane said, following opposition to the duty from miners.

The levy will be abolished with effect from April 1, Musokotwane said in his annual budget speech today in the capital, Lusaka. A variable-rate profit tax will be kept.

The government will “remove the windfall tax and retain the variable-profit tax, which will still capture any windfall gains that may arise in the sector,” Musokotwane said.

Zambia introduced the two levies last year, raising the effective tax rate on miners to 47 percent from 31 percent. Copper prices last year dropped 54 percent on the London Metal Exchange, the most since at least 1987, as recessions in the U.S., Japan and Europe curbed demand for industrial metals. Copper accounts for about 70 percent of Zambia’s export income.

On June 10, former Finance Minister Ng’Andu Magande said the country was renegotiating the new code with some mining companies in order to boost mineral production.

Fiscal revenue from the mining industry in 2008 was 319.3 billion kwacha ($62.3 million), compared with a target of 917.3 billion kwacha, according to the Economic Intelligence Unit.

The windfall tax required miners to pay a levy on sales of copper when the price rose above $2.50 per pound. A charge of 25 percent applied to the surplus amount above $2.50 to a maximum of $3.00 per pound. The rate increased to 50 percent at between $3.00 and $3.50 and 75 percent above $3.50.

Economic Growth

A tax on profits of up to 15 percent was also imposed on companies that earned a return in excess of 8 percent on their investments.

Companies including First Quantum Minerals Ltd., Vedanta Resources Plc and Glencore International AG operate in Zambia.

Zambia’s economy expanded an estimated 5.8 percent last year, down from 6.3 percent the year before, while consumer inflation accelerated to 16.6 percent from 8.9 percent, driven by higher food costs, the budget showed. The government is targeting growth of 5 percent this year and inflation of 10 percent.

“Our export receipts are expected to be significantly lower than in previous years due to the fall in world copper prices,” Musokotwane said. “This will adversely affect our balance of payments. This problem is compounded by our continued dependence on a single major export commodity.”

The government expects to spend 15.3 billion kwacha ($297 million) this year, with 17.2 percent of that allocated toward education, 11.9 percent toward health and 9.9 percent toward transport.

To contact the reporter on this story: Geoffrey Kapembwa in Lusaka via Johannesburg at pmrichardson@bloomberg.net.

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Bank Bailout Plan Will Toughen Rules on Bonuses, Axelrod Says

By Julianna Goldman

Jan. 31 (Bloomberg) -- President Barack Obama’s senior adviser, when asked whether the new administration will ban Wall Street bonuses, said “limiting some of this executive compensation” is necessary to rally public support for a financial-rescue plan.

David Axelrod, who was Obama’s chief strategist during the campaign, stopped short of embracing a ban on bonuses for companies receiving bailout funds. He left no doubt, however, that the administration will take tough steps to address the issue.

“It’s very hard for the American people to understand how a bank executive should get a multimillion dollar bonus at a time when he’s asking the government to essentially bail out his institution,” Axelrod said in an interview on Bloomberg Television’s “Political Capital with Al Hunt,” scheduled to air this weekend.

Obama, 47, expressed outrage this week after the New York state comptroller reported that Wall Street firms disbursed $18.4 billion in bonuses last year as the U.S. sank into a recession. While the figure represents a decline of 44 percent from the previous year amid record losses in the securities industry, the bonus pool was the sixth-largest ever, the comptroller said in a yearly report.

Geithner Plan

Axelrod said Treasury Secretary Timothy Geithner will “have something to say about” bonuses as early as next week when he releases guidelines for banks receiving funds from the second half of the $700 billion financial rescue package.

The administration is committed to “a strong, private financial sector” in the bank bailout, Axelrod said when asked whether there are discussions to partially nationalize U.S. banks.

“Obviously, we’re trying to help these institutions on a temporary basis, but that’s our goal,” Axelrod said. “We’re going to provide assistance to these institutions and hope that they -- hope and expect that they’ll -- get back on their feet and that credit will flow.”

Financial experts and lawmakers including Democratic Senator Chuck Schumer of New York have said the government may need to spend more than $1 trillion to help the financial markets. Axelrod declined to discuss specific numbers, though he said the administration is crafting a plan that will “set up new rules of the road” for spending the remaining $350 billion of the rescue package approved under the Bush administration.

‘Trust’

“There are a variety of things that we need to do in order to win the trust and confidence of the American people,” Axelrod said. “And we’ll address these other issues down the road, but right now, we’ve got to work with what we’ve got.”

Axelrod defended Geithner, who sparked controversy during his confirmation hearings last week by saying Obama believes China is “manipulating its currency.”

“What Tim said was akin to what the president said during the campaign, these are issues that we have to work through,” Axelrod said. “We weren’t blazing new ground there.”

Obama spoke with President Hu Jintao of China this week following Geithner’s testimony. Axelrod wouldn’t say whether Obama reassured the Chinese leader on this issue.

Separately, Axelrod said the president will “make an announcement shortly” on his choice to lead the Commerce Department, the only Cabinet post left unfilled.

Judd Gregg

Speaking of Republican Senator Judd Gregg, a leading candidate for the position, Axelrod said the lawmaker and Obama “haven’t agreed on all issues,” though the president has “a great respect for his ability and for his seriousness about public service.”

Axelrod also expressed confidence the Senate would confirm former South Dakota Senator Tom Daschle, Obama’s choice as Health and Human Services secretary, whose tax records have come under scrutiny by Republicans on the Finance Committee.

“I think that he’s going to be confirmed,” Axelrod said.

Obama’s economic recovery plan cleared a hurdle this week with House passage of an $819 billion stimulus measure, which now goes to the Senate for approval.

Even though Obama took the unusual step of traveling to Capitol Hill to ask for support from Republican lawmakers, not a single House Republican voted for the bill.

Senate Republicans

Axelrod said he couldn’t predict whether any Republicans would support the package in the Senate, where the bill has grown to almost $900 billion.

“We’ll see,” Axelrod said. “You know, we’re hopeful. But the important thing is that a dialogue was opened. There were good discussions back and forth.”

He also said Obama would continue to try to set the tone of bipartisanship he pledged to bring to Washington during the campaign.

“Old habits die hard in this town,” Axelrod said. “There will be many instances in which there’ll be cooperation -- maybe not with every Republican, and maybe not with every Democrat -- but we’re going to forge coalitions behind all of our initiatives.”

Karl Rove, President George W. Bush’s former adviser, wrote this week that the Obama administration is trying to consolidate more power in the White House at the expense of the Cabinet by doubling the staff.

Axelrod said the larger staff reflects a “multidisciplinary kind of approach” to coordinate issues such as health care and global warming with their related Cabinet departments.

“I appreciate any advice that Karl Rove has,” he said. “But you know, they had their eight years and now we have our chance.”

To contact the reporter on this story: Julianna Goldman in Washington at jgoldman6@bloomberg.net.

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Toyota to Cut Pay for Executives as Sales Slump, Nikkei Says

By Toru Fujioka

Jan. 31 (Bloomberg) -- Toyota Motor Corp., the world’s second-largest automaker, will cut salaries for its executives, the Nikkei newspaper reported.

The automaker hasn’t decided when and by how much it will lower compensation, the paper said without saying where it obtained the information.

Toyota already announced plans in December to skip bonuses for board members. The carmaker is forecasting its first loss in 71 years as a stronger yen and sales slump squeeze profits.

To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net

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London Luxury-Homes Prices Have Second-Biggest Drop on Record

By Peter Woodifield

Jan. 31 (Bloomberg) -- London luxury-home prices had the second-biggest decline on record in January as would-be buyers struggled to secure mortgages from banks hurt by the global financial crisis.

The average value of homes costing more than 1 million pounds ($1.4 million) in London’s most expensive neighborhoods fell 3.7 percent from a month earlier, Knight Frank LLP said in an e-mailed statement today. In the past 12 months, prices have slumped 21 percent, the biggest annualized drop recorded by Knight Frank.

“The sudden restriction of mortgage finance” was the main cause of the market’s decline last year, Liam Bailey, head of residential research at London-based Knight Frank, said in the statement. “This factor is continuing to cause problems for the housing market and the wider economy.”

The cost of buying a luxury home in the U.K. capital has fallen for 10 straight months, declining 21 percent since the market’s peak in March. The biggest drop since the broker started the survey in 1976 was 3.9 percent, recorded in October.

Financial-services companies in London may cut as many as 60,000 jobs in London by the end of 2010, according to research firm Oxford Economics. As a result, the market won’t rebound anytime soon, Knight Frank said.

“Price falls should begin to level out towards the end of 2009, although 2010 is likely to see prices move sideways at best,” said Bailey. Knight Frank now expects prices to fall as much as 35 percent from their peak, compared with its previous estimate of 30 percent.

Country-Wide Slump

House prices across the U.K. fell 1.3 percent in January from the previous month and about 17 percent on an annual basis, Nationwide Building Society, the U.K.’s largest customer-owned mortgage lender, said Jan. 29. The report covered all types of homes.

London isn’t the only prime residential property market to lose value because of the credit crisis. In the Hamptons, the New York seaside resort favored by financiers and celebrities, median prices were 14 percent lower at $690,000 in January than a year earlier according to New York property appraiser Miller Samuel Inc. and broker Prudential Douglas Elliman Real Estate.

London-based Knight Frank compiles its monthly index from estimated values of properties in the Mayfair, St John’s Wood, Regent’s Park, Kensington, Notting Hill, Chelsea, Knightsbridge, Belgravia and the South Bank neighborhoods of London.

To contact the reporter on this story: Peter Woodifield in Edinburgh at pwoodifield@bloomberg.net.

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Asian Currencies Post Monthly Loss as Global Recession Deepens

By Kim Kyoungwha and David Yong

Jan. 31 (Bloomberg) -- South Korea’s won led a decline in Asian currencies this month as a deepening global recession hurt regional exports and sapped demand for emerging-market assets.

The Korean currency dropped 8.7 percent versus the dollar, its worst start to a year since at least 1991, as the government announced the steepest drop in gross domestic product in a decade. Asian shares tumbled yesterday after reports showed U.S. orders for durable goods and new home sales slumped in December, while Japanese manufacturers cut production at a record pace.

“The data suggests recession in Asia intensified in December and probably got significantly uglier this quarter,” said Kit Wei Zheng, an economist in Singapore at Citigroup Inc. “There’s room for downside surprises for Asian currencies. Risk appetite is still going to be quite poor.”

The won traded at 1,379.50 per dollar in Seoul versus 1,259.50 at end-December, according to Seoul Money Brokerages Ltd. Malaysia’s ringgit slumped 4.3 percent over the same period to 3.6077, its worst January performance in a decade, according to data compiled by Bloomberg News.

The MSCI Asia Pacific Index of regional equities declined 1.7 percent yesterday, extending its January slide to 7.1 percent. The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-active currencies excluding the yen, was poised for a 2.4 percent drop.

U.S. durable goods orders fell for a fifth month in December while new home sales reached a record low, according to Commerce Department reports on Jan. 29. Japan said yesterday industrial production fell by a record 9.6 percent last month from November. The two nations are the world’s biggest economies.

Dollar Shortage

South Korea’s won traded near a seven-week low of 1,399.10 on Jan. 28 on concern tighter global credit markets and sliding exports will curb the supply of dollars the nation needs to meet payments on imports and foreign debt.

Asia’s fourth-largest economy contracted by a larger-than- expected 5.6 percent in the fourth quarter, the most since the Asian financial crisis a decade earlier, the Bank of Korea said on Jan. 22.

The central bank yesterday reported a current-account deficit of $6.41 billion for 2008, the first shortfall in 11 years, as higher oil prices and a weaker won drove up the cost of imported goods. “More active measures” may be used to improve to ease the credit crunch, Governor Lee Seong Tae said.

Demand for Dollars

“There’s a general feeling that demand for dollars is outweighing supplies given concern that January may see a trade deficit,” said Jeff Kim, a currency dealer with Korea Exchange Bank in Seoul. “The decline in stocks is also unnerving currency players.”

The Philippine peso declined 0.4 percent yesterday to 47.38 per dollar after the central bank slashed interest rates and signaled more cuts to help spur economic growth. The currency rose 0.3 percent in January, making it the sole gainer among the 10 most-traded regional currencies excluding the yen.

Bangko Sentral ng Pilipinas on Jan. 29 cut its overnight borrowing rate by half a percentage point to 5 percent, the second reduction in six weeks. Governor Amando Tetangco told reporters that cooling inflation provides the central bank “room for further easing.”

Sliding Support

“The more you cut rates, the more you take the fundamental support for the currency,” said Dwyfor Evans, a strategist with State Street Global Markets in Hong Kong. “Even if inflation is falling, you need some premium for holding the peso. If they overdo the cutting, the peso could get hurt.”

Indonesia’s rupiah fell 1.1 percent to 11,440 yesterday, capping a 4.7 percent slide for the month. Overseas investors sold a net $128 million worth of Indonesian stocks in the four weeks of January, contributing to this month’s 1.7 percent drop in the Jakarta Composite Index.

“The global stock market kept declining as well as the Jakarta stock exchange and this is spurring fund outflows,” said Lindawati Susanto, head of currency trading at PT Bank Resona Perdania in Jakarta. “In addition, there is month-end corporate demand for dollars.”

Elsewhere, the Singapore dollar fell 4.2 percent for the month to S$1.5076 versus the greenback, the Thai baht dropped 0.7 percent to 34.94 and India’s rupee declined 0.2 percent to 48.875 per dollar.

To contact the reporters on this story: Kim Kyoungwha in Beijing at kkim19@bloomberg.net; David Yong in Singapore at dyong@bloomberg.net.

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Japan’s Bonds Complete Worst Month Since May on Supply Outlook

By Yasuhiko Seki and Nate Hosoda

Jan. 31 (Bloomberg) -- Japan’s 10-year bonds completed their worst month since May on concern the government will increase debt sales as it seeks to spend its way out of the deepest recession in the postwar period.

Benchmark yields extended this month’s advance to 12 basis points as government reports yesterday showed factory output slumped a record 9.6 percent in December, unemployment surged the most in 41 years and households cut spending for a 10th month. The Ministry of Finance may need to sell a record 38.1 trillion yen ($426 billion) of new bonds in the fiscal year starting April 2011, official calculations show.

“As governments across the globe scramble to address the deepening recession, the market is shifting its attention to the supply problem,” said Ryutaro Matsuyama, a strategist in Tokyo at Mizuho Investors Securities Ltd., the brokerage arm of Japan’s second-largest banking group. “The market has already priced in an acceleration of the economic slump.”

The yield on the 1.3 percent bond due in December 2018 touched a three-week high of 1.29 percent yesterday in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. A basis point is 0.01 percentage point.

Ten-year bond futures for March delivery fell 0.90 to 138.91 during the week in Tokyo, the biggest slump since the five days ended Jan. 9.

Production Slides

Japan’s drop in production eclipsed the previous record of 8.5 percent set only a month earlier, the Trade Ministry said yesterday in Tokyo. The jobless rate climbed to 4.4 percent from 3.9 percent and household spending slid 4.6 percent.

Bond declines were limited after a statistics bureau report yesterday showed consumer prices excluding fresh food rose 0.2 percent from a year earlier in December, less than the previous month’s 1 percent increase. Slower inflation helps preserve the purchasing power of fixed-income securities.

“If Japan’s economy falls into a deflationary spiral, I wouldn’t be surprised if the 10-year yield falls below 1 percent,” said Takeshi Minami, chief economist in Tokyo at Norinchukin Research Institute. The “data suggest the economy is now on the verge of returning back to deflation.”

Demand for Japanese debt weakened after yields on 10-year Treasuries on Jan. 29 rose the most since Nov. 21, after the U.S. government sold a record $30 billion of five-year notes at a higher yield than analysts forecast, indicating weak demand.

Supply Concerns

The auction results may signal investors will have trouble absorbing debt issued to pay for a $1 trillion U.S. budget deficit and programs to spur growth. The U.S. will probably borrow a record $2.5 trillion this fiscal year ending Sept. 30, versus $892 billion in notes and bonds sold in the prior 12 months, according to Goldman Sachs Group Inc.

“The supply concerns are more pronounced in the U.S. and Europe than in Japan,” said Akitsugu Bandou, a senior economist at Okasan Securities in Tokyo.

The Ministry of Finance will sell 1.9 trillion yen of 10- year securities bearing a coupon of 1.3 percent on Feb. 3. The prior sale on Jan. 8 drew bids for 2.33 times the amount on offer, compared with a so-called bid-to-cover ratio of 2.9 at the December auction.

“There is emerging uncertainty about whether the Bank of Japan alone can absorb the swelling debt issuance,” said Yuuki Sakurai, general manager of financial and investment planning in Tokyo at Fukoku Mutual Life Insurance Co., which manages the equivalent of $54 billion in assets.

To contact the reporter on this story: Yasuhiko Seki in Tokyo at Yseki5@bloomberg.net; Nate Hosoda in Tokyo at nhosoda@bloomberg.net.

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Real GDP in Q4: Weaker than Meets the Eye

Daily Forex Fundamentals | Written by Wachovia Corporation | Jan 30 09 14:40 GMT |

Real GDP declined at an annualized rate of 3.8 percent in the fourth quarter, which was not as bad as the consensus forecast had anticipated. However, the economy is weaker than it appears. Indeed, the rise in inventories in the fourth quarter suggests that the economy will contract at a faster pace in the current quarter. GDP Head Fake in the Fourth Quarter U.S. real GDP declined at an annualized rate of 3.8 percent in the fourth quarter (see top chart). Although the decline in GDP was the largest contraction since the first quarter of 1982, the outturn was not nearly as bad as the 5.5 percent plunge that the market consensus forecast had anticipated. Is it time to break out the champagne and start celebrating the incipient economic recovery? Hardly. The real surprise in today's report was the unexpected increase in real inventories, which rose $6.2 billion in the fourth quarter following a $30 billion drawdown in the third quarter (see middle chart). Inventories made a positive contribution to GDP growth equal to 1.3 percentage points in the fourth quarter. Without the build in stocks, overall GDP growth in the fourth quarter would have been much weaker. Indeed, final sales to domestic purchasers, which include personal consumption expenditures (PCE), fixed investment, and government spending, plunged 4.9 percent in the fourth quarter (see bottom chart). Real PCE tumbled 3.5 percent and fixed investment spending cratered, down 20 percent. Within fixed investment spending, purchases of equipment and software plunged nearly 28 percent – the sharpest quarterly decline in fifty years - and residential construction continued its freefall, down another 24 percent. As if to rub salt in the wound, gross exports plunged nearly 20 percent, a by-product of recession in most foreign countries. However, gross imports also tanked (down nearly 16 percent), so there was little overall effect on GDP from net exports. The only bright spot in domestic spending was the 1.9 percent rise in government consumption expenditures. A modest decline in state and local spending was offset by an increase in federal government spending. As the Obama stimulus package hits the economy in the quarters ahead, government spending will continue to rise. Inventory Rise in Fourth Quarter Should Be Reversed in First Quarter In sum, today's GDP report is no cause for celebration - the economy is even weaker than the "headline" growth number would suggest. In addition, the apparent inventory build-up in the fourth quarter sets up a big drawdown of stocks in the first quarter that will weigh significantly on GDP growth. Prior to today's report, we had thought that the weakest quarter in the current cycle would be the fourth quarter of 2008. However, with mounting job losses weighing on consumer spending, businesses axing their capex plans and a big decline in inventories looming, an even sharper contraction in the economy seems to be shaping up in the first quarter. Wachovia Corporation http://www.wachovia.com Disclaimer: The information and opinions herein are for general information use only. Wachovia Corporation and its affiliates, including Wachovia Bank, N.A., do not guarantee their accuracy or completeness, nor does Wachovia Corporation or any of its affiliates, including Wachovia Bank, N.A., assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, are for general information only and are not intended as an offer or solicitation with respect to the purchase or sales of any security or any foreign exchange transaction, or as personalized investment advice. Securities and foreign exchange transactions are not FDIC-insured, are not bank-guaranteed, and may lose value.

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US GDP Contracts in Q4 By Most in Over 26 Years, Slightly Better Than Forecasts

Daily Forex Fundamentals | Written by DailyFX | Jan 30 09 14:25 GMT |

According to advanced reports, the US economy contracted in Q4 by the most since Q1 1982 at a rate of 3.8 percent, marking the second consecutive quarter of contraction. This was actually a bit better than forecasts, as a Bloomberg News poll shows that economists had expected a decline of 5.5 percent. All told, US real GDP for 2008 slowed to a 1.3 percent pace of growth, the lowest since 2001. This helps to explain the mixed reactions from the markets, as US stock market futures surged at 8:30 ET, immediately pulled back, and then slowly climbed into positive territory by 9:00 ET. The same goes for the USD/JPY, and the impact of this report on risk sentiment will be crucial to where the forex markets go next. As it stands, USD/JPY seems more likely to fall toward the bottom of its recent range at 89.00, suggesting other "risky" assets could decline as well. Source: FXTrek Intellicharts Focusing back on the data, the decline in GDP could be attributed to a variety of factors, including a 3.5 percent drop in personal consumption, a 12.3 percent decline in gross private investment, and a 19.7 percent plunge in exports. We already know that the US has been in recession since December 2007, per the National Bureau of Economic Research (NBER), but one of the bigger questions now is how long the recession will last for. It will be important to watch gauges of employment and business activity for the early months of 2009, as the latest trends suggest that GDP could continue to fall sharply in Q1 and Q2. Also worth keeping in mind that today's GDP report is simply the advanced reading, and with two more revisions due out on February 27 (preliminary) and March 26 (final), these figures could ultimately change dramatically. DailyFX Disclaimer Investment in the currency exchange is highly speculative and should only be done with risk capital. Prices rise and fall and past performance is no assurance of future performance. This website is an information site only. Accordingly we make no warranties or guarantees in respect of the content. The publications herein do not take into account the investment objectives, financial situation or particular needs of any particular person. Investors should obtain individual financial advice based on their own particular circumstances before making an investment decision on the basis of the recommendations in this website. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. All intellectual property rights are the property of Daily FX. Daily FX and its affiliates, will not be held responsible for the reliability or accuracy of the information available on this site. The content herein is provided in good faith and believed to be accurate, however, there are no explicit or implicit warranties of accuracy or timeliness made by Daily FX or its affiliates. The reader agrees not to hold Daily FX or any of its affiliates liable for decisions that are based on information from this website. Daily FX highly recommends that before making a decision, the reader collects several opinions related to the decision and verifies facts from at least several independent sources.

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Mid-Day Report: Dollar Pares Gains as GDP Contraction Not as Worse as Expected

Market Overview | Written by ActionForex.com | Jan 30 09 14:35 GMT |

Dollar pares gains in early US session after release of GDP report that showed the contraction of US economy was not as worse as expected. Advanced GDP report showed -3.8% annualized contraction against expectation of -5.4%, following -0.5% contraction in Q3. But after all, it's still the worst reading since 1982. Personal consumption dropped by -3.5%, slightly better than -3.8% in Q3. Another surprise was in the price index which dropped -0.3% versus expectation of 0.5%. Q4 employment cost index rose 0.5%, below expectation of 0.7%. From Canada, GDP in Dec dropped -0.7%, worse than consensus of -0.4%. Aussie is leading the markets today, dropping over 2% against dollar and yen. In particular, the break of 0.6419 confirms down trend resumption in AUD/USD. USD/CAD's break of 1.2330 also clears out the picture and revive original bullish outlook for 1.3005/15. EUR/GBP stabilizes a bit after the sharp fall to 0.8943. Dollar Index's rise is still in force to 86.81 resistance first. Eurozone's CPI eased to 1.1% yoy in January, much lower than market expectation of 1.4% and 1.6% in December. This was also the lowest reading since Jul 1999. On the other hand, unemployment rate rose to 2-year high of 8% in December from a revised 7.9% in the previous month. Euro remains generally pressured, in particular against Sterling which is supported by unexpected rise in UK mortgage approvals from 27k to 31k. Released in earlier today, Japan manufacturing PMI fell to 29.6, the lowest level since 2001 and the 11th consecutive month below 50, in January from 30.8 in December as the country's export was greatly affected by economic slowdown. January unemployment rate increased to 4.4%, above consensus of 4.2% and December's 3.9%. At the same time, household spending contracted -4.6% yoy, worse than market expectation of -3.8% decline and -0.5% drop in the previous month. Japan's national CPI rose 0.4% yoy in December following a 1% gain in November while core inflation adding 0.2% yoy, the lowest reading since October 2007, after a 1% annual increase in the previous month. As a leading indicated to the nationwide index, Tokyo core CPI in January eased to 0.5% after rising 0.8% in the previous month. Tokyo's overall inflation also came in at 0.5% yoy in December. Japan's industrial production slid severely by a record -9.6% mom in December, worse than consensus of -9% and -8.5% in November. On yearly basis, the gauge plunged -20.6% from -16.6% a month ago. Although better than consensus of -8%, Japan's housing starts plunged for the first time in 6 months by -5.8% in December. Construction orders also fell -27.3% in December after dropping -12.5% a month ago. UK Gfk consumer confidence dropped to -37 in January, the lowest in 6 month, after falling to -33 in December. USD/CAD Mid-Day Outlook Daily Pivots: (S1) 1.2145; (P) 1.2205; (R1) 1.2321; More. USD/CAD's break of 1.2330 minor resistance clears out the near picture and indicates that fall from 1.2765, though deeper than expected, has completed at 1.2024 as correction to rise from 1.1761. Intraday bias is flipped back to the upside for 1.2765 first and break will bring retest of 1.3005/15 resistance zone. On the downside, however, below 1.2211 minor support will mix up the outlook again. In the bigger picture, there is no confirmation of completion of medium term up trend from 0.9056 yet. Such rise is expected to be developing into a five wave sequence (1.0378, 0.9823, 1.3015, ......). Consolidation from 1.3015 is treated as the fourth wave consolidation. Failure below 1.3005 suggests that such consolidation is still in progress and a test of 1.1464 support could be seen before completion. On the upside, note that decisive break of 1.3005/15 will confirm medium term up trend resumption and should then target 61.8% retracement of 1.6196 to 0.9056 at 1.3469.

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U.S. Fourth Quarter Advance GDP: Statistical Summary

By Kristy Scheuble

Jan. 30 (Bloomberg) -- Following is a summary of Gross Domestic Product from the Commerce Department.

===============================================================================
-Annualized               4Q      3Q      2Q      1Q      4Q      3Q      2Q
    Quarterly Change-   2008    2008    2008    2008    2007    2007    2007
===============================================================================
Real GDP                  -3.8%   -0.5%    2.8%    0.9%   -0.2%    4.8%    4.8%
 YOY percent             -0.2%    0.7%    2.1%    2.5%    2.3%    2.8%    1.8%
Personal consumption      -3.5%   -3.8%    1.2%    0.9%    1.0%    2.0%    2.0%
Durable goods           -22.4%  -14.8%   -2.8%   -4.3%    0.4%    2.3%    5.0%
Nondurable goods         -7.1%   -7.1%    3.9%   -0.4%    0.3%    1.2%    1.9%
Services                  1.7%   -0.1%    0.7%    2.4%    1.4%    2.4%    1.4%
Gross private investment -12.3%    0.4%  -11.5%   -5.8%  -11.9%    3.5%    6.2%
Fixed investment        -20.1%   -5.3%   -1.7%   -5.6%   -6.2%   -0.9%    3.0%
 Nonresidential         -19.1%   -1.7%    2.5%    2.4%    3.4%    8.7%   10.3%
  Structures             -1.8%    9.7%   18.5%    8.6%    8.5%   20.5%   18.3%
  Equipment & software  -27.8%   -7.5%   -5.0%   -0.6%    1.0%    3.6%    6.9%
 Residential            -23.6%  -16.0%  -13.3%  -25.1%  -27.0%  -20.6%  -11.5%
===============================================================================
                         4Q      3Q      2Q      1Q      4Q      3Q      2Q
                        2008    2008    2008    2008    2007    2007    2007
===============================================================================
Exports                  -19.7%    3.0%   12.3%    5.1%    4.4%   23.0%    8.8%
 Goods                  -27.7%    3.7%   16.3%    4.5%    5.1%   21.8%    6.9%
 Services                 0.6%    1.4%    3.8%    6.4%    2.7%   25.9%   13.3%
Imports                  -15.7%   -3.5%   -7.3%   -0.8%   -2.3%    3.0%   -3.7%
 Goods                  -18.8%   -4.7%   -7.1%   -2.0%   -2.6%    2.4%   -4.0%
 Services                 0.9%    3.3%   -8.0%    5.5%   -0.9%    6.3%   -2.0%
Government consumption     1.9%    5.8%    3.9%    1.9%    0.8%    3.8%    3.9%
Federal                   5.8%   13.8%    6.6%    5.8%   -0.5%    7.2%    6.7%
 National defense         2.1%   18.0%    7.3%    7.3%   -0.9%   10.2%    8.5%
 Nondefense              14.5%    5.1%    5.0%    2.9%    0.4%    1.2%    3.1%
State and local          -0.5%    1.3%    2.5%   -0.3%    1.6%    1.9%    2.4%
                        --------------------Other Measures--------------------
Change in inventories $B   $6.2  -$29.6  -$50.6  -$10.2   -$8.1   $16.0   -$2.8
Net exports $B          -$356.4 -$353.1 -$381.3 -$462.0 -$484.5 -$511.8 -$571.2
Real final sales          -5.1%   -1.3%    4.4%    0.9%    0.8%    4.0%    4.3%
Gross domestic purchases  -3.7%   -1.5%   -0.1%    0.1%   -1.0%    2.6%    2.9%
Final sales to dom purch  -4.9%   -2.3%    1.3%    0.1%   -0.1%    1.9%    2.5%
===============================================================================
                         4Q      3Q      2Q      1Q      4Q      3Q      2Q
                        2008    2008    2008    2008    2007    2007    2007
===============================================================================
                        ------------Contribution to Change in GDP-------------
Real GDP                  -3.8%   -0.5%    2.8%    0.9%   -0.2%    4.8%    4.8%
Personal consumption     -2.47%  -2.75%   0.87%   0.61%   0.67%   1.44%   1.42%
Durables                -1.71%  -1.16%  -0.21%  -0.33%   0.03%   0.19%   0.40%
 Motor Vehicle          -1.15%  -0.83%  -0.64%  -0.35%  -0.03%  -0.22%   0.05%
Nondurables             -1.49%  -1.57%   0.80%  -0.08%   0.05%   0.25%   0.40%
Services                 0.74%  -0.03%   0.28%   1.02%   0.59%   1.00%   0.62%
 Housing                 0.02%   0.08%   0.18%   0.05%   0.12%   0.08%   0.09%
Gross pvt dom invest     -1.80%   0.06%  -1.74%  -0.89%  -1.93%   0.54%   0.94%
Fixed investment        -3.12%  -0.79%  -0.25%  -0.86%  -0.97%  -0.15%   0.47%
 Nonresidential         -2.26%  -0.19%   0.27%   0.26%   0.36%   0.91%   1.07%
  Structures            -0.07%   0.36%   0.64%   0.30%   0.29%   0.65%   0.57%
  Equipment & software  -2.19%  -0.55%  -0.37%  -0.04%   0.07%   0.26%   0.50%
   Info processing      -0.76%  -0.16%   0.30%   0.27%   0.37%   0.31%   0.41%
    Computers           -0.21%  -0.16%   0.08%   0.10%   0.12%   0.12%   0.09%
    Software            -0.15%  -0.08%   0.04%   0.16%   0.16%   0.10%   0.22%
 Residential            -0.85%  -0.60%  -0.52%  -1.12%  -1.33%  -1.06%  -0.60%
===============================================================================
                         4Q      3Q      2Q      1Q      4Q      3Q      2Q
                        2008    2008    2008    2008    2007    2007    2007
===============================================================================
Change in inventories    1.32%   0.84%  -1.50%  -0.02%  -0.96%   0.69%   0.47%
 Nonfarm                 1.33%   0.83%  -1.36%   0.15%  -1.43%   0.77%   0.33%
Net exports               0.09%   1.05%   2.93%   0.77%   0.94%   2.03%   1.66%
Exports                 -2.84%   0.40%   1.54%   0.63%   0.53%   2.54%   1.01%
 Goods                  -2.87%   0.34%   1.39%   0.39%   0.43%   1.66%   0.55%
 Services                0.03%   0.06%   0.15%   0.24%   0.10%   0.88%   0.46%
Imports                  2.93%   0.65%   1.39%   0.14%   0.40%  -0.51%   0.65%
 Goods                   2.95%   0.74%   1.14%   0.29%   0.38%  -0.34%   0.59%
 Services               -0.03%  -0.09%   0.25%  -0.15%   0.02%  -0.17%   0.06%
Govt. consumption         0.38%   1.14%   0.78%   0.38%   0.16%   0.75%   0.77%
Federal                  0.44%   0.97%   0.47%   0.41%  -0.04%   0.51%   0.47%
 National defense        0.11%   0.85%   0.36%   0.34%  -0.04%   0.48%   0.40%
 Nondefense              0.33%   0.12%   0.11%   0.06%   0.01%   0.03%   0.07%
State and local         -0.06%   0.17%   0.31%  -0.03%   0.19%   0.24%   0.30%
                        ---------------Implicit Price Deflators---------------
GDP                       -0.3%    3.9%    1.3%    2.6%    2.5%    1.5%    2.0%
Gross domestic purchases  -4.8%    4.4%    4.4%    3.4%    3.7%    2.2%    3.3%
===============================================================================
                         4Q      3Q      2Q      1Q      4Q      3Q      2Q
                        2008    2008    2008    2008    2007    2007    2007
===============================================================================
                        --------------------Price Indexes---------------------
GDP                       -0.1%    3.9%    1.1%    2.6%    2.8%    1.5%    2.0%
 YOY percent              1.9%    2.6%    2.0%    2.3%    2.6%    2.5%    2.8%
Personal consumption      -5.5%    5.0%    4.3%    3.6%    4.3%    2.5%    3.6%
 YOY percent              1.7%    4.3%    3.7%    3.5%    3.5%    2.2%    2.4%
ex food and energy        0.6%    2.4%    2.2%    2.3%    2.5%    2.1%    1.8%
Real final sales          -0.1%    4.0%    1.2%    2.7%    2.8%    1.5%    2.0%
Gross domestic purchases  -4.6%    4.5%    4.2%    3.5%    4.0%    2.2%    3.3%
 
SOURCE: U.S. Commerce Department  http://www.bea.gov.

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

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U.S. GDP Shrank 3.8% Last Quarter, Most Since 1982

By Timothy R. Homan

Jan. 30 (Bloomberg) -- The U.S. economy shrank the most since 1982 in the fourth quarter of last year as consumer spending recorded the worst slide in the postwar era, a trajectory that’s likely to continue in coming months.

The 3.8 percent annual pace of contraction in the final three months of last year was less than forecast, with a buildup of unsold goods cushioning the blow. Without the jump in inventories, the contraction would have been 5.1 percent, the Commerce Department said today in Washington.

“It looks like the economy carried a lot of negative momentum into the first quarter,” former Fed Governor Laurence Meyer, said in an interview with Bloomberg Television.

The economy is likely to contract further after retailers and manufacturers from Starbucks Corp. to Boeing Co. this week announced plans to slash payrolls and cut production to get rid of unwanted goods. Today’s report will maintain the pressure on President Barack Obama to win quick congressional approval of a fiscal stimulus package in excess of $800 billion.

“Without the stimulus plan, the economy would be flat to declining in the second half of the year,” Meyer said. With the recovery package, the unemployment rate may peak at 8 percent instead of 9.5 percent or higher, he added.

Stocks, Treasuries

Stock-index futures headed higher after the report as some investors were encouraged by the smaller drop in gross domestic product than forecast. Contracts on the Standard & Poor’s 500 Stock Index rose 0.2 percent to 844.10 at 8:52 a.m. in New York. Treasuries advanced, sending benchmark 10-year note yields to 2.80 percent from 2.86 percent late yesterday.

GDP was forecast to contract at a 5.5 percent annual pace last quarter, according to the median estimate of 79 economists surveyed by Bloomberg News. Projections ranged from declines of 3 percent to 7 percent.

Consumer spending, which accounts for more than two-thirds of the U.S. economy, dropped at a 3.5 percent annual rate last quarter following a 3.8 percent drop the previous three months. It’s the first time purchases declined by more than 3 percent in consecutive quarters since records began in 1947.

The world’s largest economy shrank at a 0.5 percent annual rate from July through September. The back-to-back contraction is the first since 1991.

2008 Performance

For all of 2008, the economy expanded 1.3 percent as a boost from exports and government tax rebates in the first half of the year helped offset the deepening spending slump.

Congress is considering a two-year fiscal stimulus package supported by Obama. House lawmakers this week passed the $819 billion measure.

The GDP price gauge dropped at a 0.1 percent annual pace in the fourth quarter, the most since 1954, reflecting the slump in commodity prices. The Federal Reserve’s preferred measure, linked to consumer spending and excluding food and fuel, rose at a 0.6 percent pace, the least since 1962.

Unadjusted for inflation, GDP shrank at a 4.1 percent pace, the most since the first three months of 1958. The drop in so- called nominal growth explains why corporate profits slumped as the year ended.

“This is a severe, steep, broadly based recession” with “no quick fix,” Stephen Roach, chairman of Morgan Stanley Asia Ltd., said in a Bloomberg Television interview from Davos, Switzerland today.

Unemployment Climbs

Americans may pull back further as employers slash payrolls. Companies cut 524,000 workers in December, bringing total job cuts for last year to almost 2.6 million. The unemployment rate last month was 7.2 percent, up from 4.9 percent a year before.

More cutbacks are on the way. Eastman Kodak Co., Target Corp. and Texas Instruments Inc. are among U.S. companies that announced thousands of layoffs this week.

Target, the second-biggest U.S. discount retailer, said this week it will slash 600 existing jobs and 400 open positions, mainly in its hometown of Minneapolis. It also said it will close a distribution center in Little Rock, Arkansas, later this year that employs 500 workers.

“We are clearly operating in an unprecedented economic environment that requires us to make some extremely difficult decisions,” Chief Executive Officer Gregg Steinhafel said in a Jan. 27 statement.

Business Investment

The economic slump intensified last quarter as companies also retrenched. Business investment dropped at a 19 percent pace, the most since 1975. Purchases of equipment and software dropped at a 28 percent pace, the most in a half century.

The slump in home construction also accelerated, contracting at a 24 percent pace last quarter after a 16 percent drop in the previous three months.

PPG Industries Inc., the world’s second-biggest paint maker, said this week that it may cut as many as 4,500 employees, or 10 percent of its workforce, because of weak global demand from automakers and homebuilders.

“We are probably looking at the sharpest downturn that anyone working at our company has seen,” Chief Executive Officer Charles E. Bunch said in an interview Jan. 27. “The regions outside of North America, which had been really helping PPG in the first three quarters of last year, have sort of caught the disease that started here in the U.S. with the credit crisis.”

The slowdown in global demand indicates American exports are unlikely to contribute less to growth in early 2009. World growth will be 0.5 percent this year, the weakest postwar pace, the International Monetary Fund said Jan. 28.

Inventories Climb

Inventories grew at a $6.2 billion pace in the fourth quarter, the first gain in more than a year. Its contribution to growth was the biggest since the fourth quarter of 2005.

The Fed this week said it’s prepared to purchase Treasury securities to shore up lending and warned inflation may recede too rapidly. Fed policy makers voted to leave the benchmark interest rate as low as zero.

The GDP report is the first for the quarter and will be revised in February and March as more information becomes available.

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

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EU Carbon Will Fall; ‘Only Real Price Floor Is Zero,’ UBS Says

By Mathew Carr

Jan. 30 (Bloomberg) -- European Union emission permits may fall to record lows, with little to stop them temporarily dropping near zero during potential oversupplies as factories and power stations sell for cash, according to a UBS AG analyst.

“The only real price floor is zero,” Per Lekander, Paris- based UBS managing director and utilities analyst, said by phone today. That, along with potential regulatory changes by governments that created the market, means there are better opportunities for traders in the power, natural-gas and oil markets, he said this week in a conference presentation in London e-mailed to Bloomberg.

Benchmark EU emission prices have plunged more than 60 percent from a peak in July, as factory output dropped because of the recession, slashing demand. Prices may temporarily drop a further 58 percent as Poland issues allowances next week, boosting supplies, or as nations issue 2009 permits next month, Lekander said.

Prices may fall to 9.50 euros ($12.23) a metric ton from 11.93 euros today, Lekander said. They should be bolstered because post-2012 prices will be higher as the European Commission crimps the supply of allowances, he said. That forecast implies a minimum price of 20 euros in 2013 and a 20 percent cost of carry because of the risks in the multiyear trade, he added.

EU carbon dioxide allowances for December rose 5 cents, or 0.4 percent, to 11.93 euros a metric ton on the European Climate Exchange in London at 8:15 a.m. local time. They closed at 11.50 euros on Jan. 21, a record low for any phase-two contract. The phase runs for the five years starting last year.

Prices could drop as low as 5 euros in the next few months, before utilities including RWE AG of Germany step up purchasing, according to the UBS analyst.

Factories and power stations can use their allowances from 2008 in the third phase, the eight years through 2020. “Had there been no phase three, I would have forecast it would fall to zero,” Lekander said.

To contact the reporter on this story: Mathew Carr in London at m.carr@bloomberg.net

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U.K. Oil, Power Workers Strike as Foreign Staff Protest Spreads

By Paul Dobson and Ben Farey

Jan. 30 (Bloomberg) -- Workers at U.K. oil refineries and power plants walked out as a three-day protest against the employment of foreign staff at a Total SA plant expanded.

The strike spread to BP Plc’s Forties Pipeline System and Royal Dutch Shell Plc’s St. Fergus gas plant in Scotland. Contract workers walked out at Scottish & Southern Plc’s Fiddler’s Ferry power station in Cheshire and RWE AG’s Aberthaw plant in Wales.

Protestors gathered outside Total’s Lindsey plant in northeast England today to demand government action to protect jobs after the recession increased unemployment claims to a 9- year high. About 600 contractors at the 200,000 barrel-a-day refinery remain on strike, Total said. Foreign workers at the plant were told to stay at home today.

“I understand people’s anxieties about their jobs,” Prime Minister Gordon Brown said today in Davos. “The action we’ve taken to help people in work to stay in work, to help people who lose their jobs to get new jobs, to help young people to get skills, it’s the right way to deal with that.”

Contract workers at the Ineos Group Holding Plc’s plant in Scotland stopped work today, spokesman Richard Longden said. Workers at ConocoPhillip’s Humber refinery, Scottish Power Plc’s Longannet plant, and BP’s Dimlington gas terminal walked out yesterday.

Meetings were taking place to end the dispute and production at the Lindsey remained unaffected, spokesman Iain Hutchison said by phone. The strike started after Italian and Portuguese workers were brought in to work on the construction of a hydro-desulfurization unit.

‘Demanding Right’

“There is sufficient unemployed skilled labor wanting the right to work on that site and they are demanding the right to work on that site,” Bernard McAuley, regional officer for the Unite union said in an interview with the British Broadcasting Corp. today.

BP said the action in Scotland followed similar protests at its Dimlington gas plant and Saltend chemical site in northeast England yesterday.

National Grid Plc data showed flows at the Dimlington terminal dropped to about 1 million cubic meters a day from about 7 million earlier this week. BP said operations at all its sites were unaffected by the walkout.

At Aberthaw, 50 contractors staged a protest, RWE npower spokeswoman Jennifer Crawford said by phone. The plant is running normally and no other plants are affected, she said.

Scottish & Southern Plc spokeswoman Jennifer McGregor said production at the Fiddler’s Ferry coal-fired plant was unaffected by the contractor walk out.

Steel Plant

Protests also spread to Corus Plc’s Redcar steel plant and a chemical plant at Wilton in northeast England, the BBC said. As many as 300 stopped work at Grangemouth, it said.

Scottish Power, the U.K. unit of Iberdrola SA, said labor protests at its Longannet and Cockenzie coal-fired plants aren’t disrupting output.

The company will be holding talks with contractors and unions to resolve the dispute, spokesman Simon McMillan said today in a telephone interview.

At Longannet, the contractors were working on technology to reduce emissions of poisonous gases from the plant. The impact will be “negligible,” because it’s a three-year project, he said. At Cockenzie, Scottish Power has its own staff to cover for the absent contractors, who were working on general maintenance.

In September 2007, Prime Minister Gordon Brown promised “British jobs for British workers,” referring to job creation, rather than job protection. The economy was growing at the time. This week, in the face of recession, he made a speech warning against protectionism, a message he said he’d take to the World Economic Forum in Davos, where he’s speaking today and tomorrow.

To contact the reporter on this story: Alexander Kwiatkowski in London at akwiatkowsk2@bloomberg.net; Ben Farey in London at bfarey@bloomberg.net.

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EDF Beats GDF Suez to Build New Reactor in France

By Tara Patel

Jan. 30 (Bloomberg) -- Electricite de France SA, Europe’s biggest power producer, beat off competition from GDF Suez SA to win French government approval to spearhead development of a second new-generation atomic reactor.

The Evolutionary Power Reactor, or EPR, will be built at an existing nuclear site at Penly, northern France, starting in 2012, President Nicolas Sarkozy said in a statement. Paris-based EDF will have majority control over a company created to oversee the project. GDF Suez “will be associated” with the venture.

The decision ends months of speculation over which utility would pilot the project and where it would be located. EDF is already building a 1,650-megawatt, Areva SA-designed EPR at Flamanville in Normandy at an estimated cost of 4 billion euros ($5.2 billion). It plans similar models in the U.K. and the U.S., and has started developing reactors in China.

“EDF will have to put cash down to invest,” Chicuong Dang, an analyst at Richelieu Finance in Paris, said today by telephone. “Earnings will come over the longer term. Costs of building the EPR have risen while French power rates remain low.”

Construction of a second EPR, targeted for completion in 2017, has been condemned by some environmental groups as unnecessary.

‘No Justification’

“It has no justification other than to provide a massive contract to the state-owned nuclear industry,” Greenpeace said in a statement. “No other options such as energy efficiency or renewable-energy potential have been considered.”

EDF dropped as much as 65 cents, or 1.7 percent, to 38.31 euros in Paris trading, and was at 38.38 euros as of 1:42 p.m. local time. GDF Suez lost 2.5 percent to 30.07 euros, taking its decline this year to 15 percent.

EDF, which operates 58 atomic plants in France, will join with other investors in the project, “in particular GDF Suez,” the state-controlled utility said today in a separate e-mailed statement. The government left open the possibility of a third new-generation reactor, saying it “acknowledges the willingness of GDF Suez to lead, develop and operate the next EPR.”

GDF Suez and Total SA, Europe’s third-biggest oil company, have said they will collaborate on the Penly reactor. Their commitment to cooperate on the project follows their existing partnership with Areva to develop a plant in Abu Dhabi.

Third EPR

GDF Suez will be “a candidate” to pilot a third EPR in France, Vice Chairman Jean-Francois Cirelli said today in an interview on France24.

The utility operates seven reactors in Belgium through its Electrabel SA unit. The European Commission has put pressure on the French government to increase competition on the national power market, now dominated by former monopoly holder EDF.

EDF signed a deal with Enel SpA in 2007, giving Italy’s largest utility a 12.5 percent stake in the Flamanville generator and an option to invest in five more plants in France. EDF has said it’s keen to expand nuclear operations in Italy, China, the U.K. and the U.S.

GDF Suez has agreements to use power from two of EDF’s French reactors, at Tricastin and Chooz. GDF Suez Chief Executive Officer Gerard Mestrallet has said he wants to operate EPRs by 2020 and that France is “obviously a priority.”

French power exports exceeded imports by 46.6 terawatt-hours last year, 15 percent less than in 2007, according to Reseau de Transport d’Electricite, EDF’s wholly owned grid operator. The utility has to rely on imports to meet peak demand during hot or cold spells.

To contact the reporter on this story: Tara Patel in Paris at tpatel2@bloomberg.net

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OPEC’s El-Badri Says $70-90 Is ‘Reasonable’ Oil Price

By Francine Lacqua and Grant Smith

Jan. 30 (Bloomberg) -- Abdalla el-Badri, OPEC secretary- general, said $70 to $90 a barrel is a “reasonable” oil price to support investment in new production.

“It’s a reasonable price where we can invest and that’s the most important thing for the world,” el-Badri said in a television interview at the World Economic Forum in Davos today. “We control 75 to 80 percent of the world reserves, we need to develop that reserve so we can have more supply to the world.”

The Organization of Petroleum Exporting Countries, responsible for 40 percent of the world’s oil supply, announced a record production cut last month to support plunging prices. Crude oil futures have declined more than $100 a barrel from a record $147.27 a barrel in July to trade around $40 on the New York Mercantile Exchange this week.

The group is next due to meet on March 15. OPEC won’t hesitate to cut output further to keep prices from falling, el- Badri said earlier this week.

El-Badri reiterated his call for curbs on speculators to reduce oil price volatility.

To contact the reporter on this story: Francine Lacqua in Davos at flacqua@bloomberg.net; Grant Smith in London at gsmith52@bloomberg.net

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Chevron’s Fourth-Quarter Net Income Rises on One-Time Gain

By Joe Carroll

Jan. 30 (Bloomberg) -- Chevron Corp., the second-biggest U.S. oil company, said fourth-quarter profit rose less than 1 percent as one-time gains made up for the largest plunge in crude prices on record.

Net income climbed to $4.9 billion, or $2.44 a share, from $4.88 billion, or $2.32, a year earlier, San Ramon, California- based Chevron said today in a Business Wire statement. The results included a $600 million gain on an asset exchange.

Stung by a $100 drop in oil prices, producers are cutting budgets and reassessing projects conceived when U.S. crude futures were heading toward an all-time high above $147 a barrel reached in July. For Chevron, the collapse in prices coincided with a ninth straight quarter of declining output.

“Chevron’s production volumes have been disappointing,” said Brian Youngberg, an analyst at Edward Jones & Co. in Des Peres, Missouri, who rates the company’s shares “buy” and doesn’t own any. “They’re growth- and reserves-challenged.”

The statement was released before the opening of regular U.S. stock trading. Chevron fell $3.17 to $70.62 yesterday in New York Stock Exchange composite trading. The stock dropped 21 percent last year, Chevron’s biggest decline since 2002.

Worldwide oil demand will increase 0.5 percent this year after shrinking in 2008 for the first time since 1983, the International Energy Agency said last month. The 2009 forecast is less than one-fourth the average rate of growth in 2004-2007.

Prices Decline

Oil futures on the New York Mercantile Exchange fell 56 percent in the fourth quarter, and natural-gas futures slid 24 percent. Gas has continued to tumble since the end of 2008, falling 20 percent as new wells in Louisiana, Texas and Arkansas create a surfeit.

Chevron may sell some refineries because of shrinking profit margins on gasoline and diesel, John Watson, executive vice president for strategy and development, said last month at an energy conference in New York. The company’s refining profit slumped 59 percent in the first three quarters of 2008 as fuel prices failed to keep pace with oil costs.

Chevron, which triggered the Saudi energy boom with the 1938 discovery of oil in the kingdom, wants to focus on higher- profit ventures such as gas production off the coast of Australia and oil projects in West Africa and the Gulf of Mexico, Watson told investors and analysts at the conference.

Irving, Texas-based Exxon Mobil Corp., the world’s largest oil company, said today that its fourth-quarter net income fell the most in six years, sliding 33 percent to $7.82 billion, or $1.55 a share.

Royal Dutch Shell Plc, Europe’s largest oil company, yesterday reported its first loss in a decade, at $2.81 billion. Houston-based ConocoPhillips, the third-biggest U.S. oil company, this week posted the largest loss in its history, at $31.8 billion, on costs recorded to reflect a plunge in the value of acquired assets.

To contact the reporter on this story: Joe Carroll in Houston at jcarroll8@bloomberg.net.

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Suzlon Reports Unexpected Loss on Replacement Costs

By Sumit Sharma and Gaurav Singh

Jan. 30 (Bloomberg) -- Suzlon Energy Ltd., India’s biggest maker of wind-turbine generators, unexpectedly reported a loss in the third-quarter after making payments to replace faulty equipment and the value of orders declined.

The net loss, including that of units, was 589.7 million rupees ($12 million) in the three months ended Dec. 31 compared with a profit of 1.52 billion rupees a year earlier, the Ahmedabad-based company said in a statement on its Web site. The median estimate of five analysts compiled by Bloomberg was for a profit of 2.45 billion rupees.

Suzlon may face a slowdown in orders as falling oil prices make alternative energy sources less attractive and access to credit tightens due to the global recession. The company’s shares dropped 84 percent last year on concern that its equipment was faulty as some U.S. customers canceled orders after Suzlon’s blades cracked.

“Suzlon doesn’t seem to have got any big orders from June,” said Chintan Mewar, an analyst at Mumbai-based Finquest Securities Pvt.

Orders, excluding those of units, were valued at 103.87 billion rupees. That compares with 140.5 billion rupees the company reported on Oct. 31 and 171.1 billion rupees a year earlier.

Group revenue more than doubled to 68.93 billion rupees in the third quarter from 31.69 billion rupees. Suzlon expects sales growth to halve to 10 to 15 percent in the year starting April and plans to counter the decline by entering new markets.

New Markets

“Our strategy is to go to the bigger markets,” Chief Operating Officer Sumant Sinha told reporters in Mumbai. “We’re exploring markets in the Middle East, the Mediterranean and South America.”

The turbine maker has orders for 1,916 megawatts and is in “negotiations” for more than 2,000 megawatts in the U.S., Europe, China and Australia, the company said in an e-mailed statement. Suzlon got orders for 195 megawatts in the quarter and expects $1 billion of sales in the U.S. in the year to March, Sinha said.

“Things look very good in the second half, especially as the company says they are pursuing orders,” said Mewar. “We maintain our buy on Suzlon.”

Suzlon gained 5.6 percent, the most since Jan. 19, to 47.25 rupees at the close in Mumbai trading, after falling as much as 7 percent. The stock has declined 24 percent this month.

Fixing Blades

The company spent 2.33 billion rupees in the quarter on replacing and fixing faulty blades compared with 187.4 million rupees a year earlier. It provided an additional 1.71 billion rupees for the retrofit plan, which it expects to complete by June, after previously setting aside 5.9 billion rupees for possible payments to clients who may have incurred output losses due to defective blades.

Mark-to-market losses on foreign exchange contracts were 1.24 billion rupees for the group, Suzlon said.

Morgan Stanley cut its price target yesterday for Suzlon to 46.5 rupees from 52.45 rupees, saying the company may struggle to repay loans because of lower margins and fewer new orders.

Suzlon raised 5 billion rupees by selling a 10 percent stake in unit Hansen Transmissions International NV to London-based investment company Ecofin Ltd. Suzlon has an interest of 61.28 percent in Hansen after the sale.

The stake was sold after Suzlon scrapped a $368 million rights offer, citing bad market conditions. The rights offer was aimed at raising funds to buy more shares in another unit.

Overseas Share Sale

Suzlon plans to sell shares overseas instead of the rights offer, the government said in a statement today. Overseas investment in the company may be increased to 25.25 percent from the current 20.76 percent, according to the statement.

Suzlon plans to complete the purchase of additional shares in Hamburg-based unit Repower Systems AG from Portugal’s Martifer SGPS SA in May. Martifer was paid 65 million euros ($84 million) in December for some of its 22.4 percent stake in Repower. Another 30 million euros will be paid in April and 175 million euros in May, increasing Suzlon’s stake in Repower to 91 percent.

The Indian company plans to use its own funds and overseas debt to buy the stake in Repower, Sinha said. “All options” are being considered with regard to selling shares, he said.

To contact the reporters on this story: Sumit Sharma in Mumbai at sumitsharma@bloomberg.net; Gaurav Singh in New Delhi at gsingh31@bloomberg.net.

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