U.K. Property Slump Eases as Buyers Return, RICS Says

By Brian Swint

April 15 (Bloomberg) -- The slump in U.K. house prices eased last month after more than a year of declines lured buyers back into the market, the Royal Institution of Chartered Surveyors said.

The number of real-estate agents and surveyors saying prices fell exceeded those reporting gains by 73.1 percentage points in March, the lobby group said today in London. That compared with 78.1 in February and was the highest balance in 13 months. The average number of sales per surveyor rose for the first time since 2007, climbing to 9.7 from 9.6.

The report adds to signs the property market’s downward spiral is slowing. The Bank of England has cut its benchmark interest rate to a record low, mortgage approvals increased in February and Nationwide Building Society said prices rose for the first time since October 2007 last month. At the same time, the economy is still battling the worst recession since at least 1980, and prices may fall further in coming months.

“We can all look forward to a tough year but one that in hindsight may yet signal the bottom of the market,” said Benson Beard, a surveyor at Bective Leslie Marsh in London. “The last month has definitely seen an increase in buyer numbers and agreed sales.”

RICS’s main price index has been negative since August 2007. Economists expected this month’s reading to be minus 77, according to the median estimate of 12 forecasts in a Bloomberg News survey. London, the southwest of England and Scotland were the best-performing regions, RICS said. East Anglia was among the worst.

Price Drops

U.K. prices have plunged after a decade-long boom, taking values to levels last seen in 2004, as the financial crisis pushed the economy into a recession and banks restricted credit. U.K. house prices declined 16.5 percent in the year to February, the Land Registry said on March 27.

Property values fell an annual 12.3 percent in February, the Department of Communities and Local Government said today in London. From a month earlier, they dropped 2.7 percent.

The Bank of England has responded to the recession by cutting its key rate to 0.5 percent from 5 percent in October. Last month it started pumping money into the economy through purchases of government bonds.

The average cost of a home loan fixed for two years, one of the most popular, fell to 4.01 percent in March, the Bank of England said on April 9. While the rate hasn’t dropped as much as the bank’s benchmark, it is still lower than the 6.08 percent average in August.

New Buyers

The number of new buyers registering with agents climbed for a fifth month, with the index reaching the highest since 2003, RICS said. Surveyors’ optimism about sales and prices rose on the month, according to the report. U.K. mortgage approvals rose 4 percent in February, the Council of Mortgage lenders said yesterday.

The RICS “report does offer support to the view that the aggressive monetary easing is helping to stabilize the housing market,” said James Knightley, an economist at ING Financial Markets in London. Still, rising unemployment “runs the risk of a double dip in the housing market as people struggle to meet mortgage payments and more forced sellers emerge.”

The economy contracted 1.6 percent in the fourth quarter, the most in almost 30 years. Bank of England Governor Mervyn King has said the decline in output in the first quarter will be similar.

The central bank on April 9 kept the benchmark interest rate at 0.5 percent, the lowest since the bank was founded in 1694, and said it will continue its program to buy 75 billion pounds ($104 billion) of government and corporate bonds to stimulate the economy.

To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net.

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Fed Considering More Disclosure on Emergency Lending Programs

By Craig Torres

April 15 (Bloomberg) -- Federal Reserve officials are considering steps to provide the public with more information about emergency programs aimed at reviving credit and ending the U.S. recession.

The central bank will probably increase disclosure on the collateral it holds against loans to financial firms, while also weighing a full range of options, including possible press conferences, according to people familiar with the matter.

Chairman Ben S. Bernanke has asked an internal committee headed by Vice Chairman Donald Kohn to review ways the central bank can boost transparency after it extended its lender-of-last resort role far beyond banks and doubled its balance sheet to more than $2 trillion to stem the credit crisis.

The committee will probably recommend that the central bank reveal credit ratings on collateral it holds in a program supporting American International Group Inc., the people said. The panel will also suggest more disclosure about the mortgages and related securities the central bank took on while orchestrating the merger of Bear Stearns Cos. with JPMorgan Chase & Co.

The U.S. Senate in a nonbinding April 2 amendment urged the Fed to release details on loan collateral at least every month. It also called on the central bank to provide the number of borrowers and say whether loans accepted in the bailouts of Bear Stearns and AIG have recorded losses that won’t be recovered.

The bill, which passed 96-2, wasn’t as tough as another amendment that passed 59-39 calling on the central bank to release details on the companies that received Fed loans.

Greater Openness

Bernanke, a former economics professor at Princeton University, has published research on central bank transparency and pushed for greater openness at the Fed.

The central bank has considered holding press conferences since Bernanke initiated a review of communication with the public shortly after becoming chairman in 2006.

Bernanke appeared last month in his first televised interview since becoming Fed chairman, saying the biggest risk to an economic recovery is a shortage of “political will.” He has also written newspaper columns and lengthened the normal question and answer periods after some of his speeches.

“One of the admirable features of Ben Bernanke is that he has laid out the rationale for the various steps the Fed has taken and has done it in an effective way,” Lawrence Summers, director of the White House National Economic Council, said in an April 14 interview with Bloomberg Television.

Bernanke said in testimony to the House Financial Services Committee in February that he initiated a review of the information the central bank provides the public. The unprecedented expansion of the Fed’s balance sheet has prompted concern that the central bank is encouraging excessive risk taking and distorting pricing in financial markets.

Bernanke’s term as chairman expires in January 2010.

To contact the reporter on this story: Craig Torres in Washington at ctorres3@bloomberg.net.

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Weber Opposes ECB Rate Below 1%, Highlighting Council Divisions

By Jana Randow

April 15 (Bloomberg) -- European Central Bank council member Axel Weber said he’s against cutting the bank’s benchmark interest rate below 1 percent and would prefer not to buy corporate debt, suggesting policy makers are split over how to haul Europe out of recession.

“I’m critical of reducing the main refinancing rate below 1 percent” as it risks paralyzing the interbank money market, Weber, who heads Germany’s Bundesbank, said in a speech in Hamburg today. Purchases of assets such as commercial paper should not be a priority for the ECB as it considers other tools to revive lending, he said.

The comments put Weber at odds with fellow council members George Provopoulos from Greece and Athanasios Orphanides of Cyprus, who have both indicated they may support cutting the key rate below 1 percent and the purchase of debt securities. Austria’s Ewald Nowotny said last week debt purchases would be “sensible” and the debate on how low to cut the benchmark is still open.

“It seems that council members are divided,” said David Kohl, deputy chief economist at Julius Baer Holding AG in Frankfurt. The ECB risks acting too slowly “given the pace of economic contraction and declining inflation rates,” he said.

While ECB President Jean-Claude Trichet has signaled the bank is likely to lower the benchmark rate to 1 percent from 1.25 percent next month, he’s ruled out cutting the deposit rate further from 0.25 percent.

Rate Corridor

Bringing the ECB’s benchmark too close to the deposit rate could reduce the incentive for banks to lend to each other. Instead of trading excess cash at the overnight market rate, currently at 0.9 percent, financial institutions may decide to avoid risk and park it with the central bank instead.

There would be “practically no reward” for banks to lend, Weber said. “Therefore, the risk exists that the private interbank market would become completely paralyzed.”

The Governing Council is also discussing additional non- standard measures to stimulate growth and lending as interest rates reach their lower limit. So far, the ECB has provided banks with unlimited amounts of liquidity in its refinancing operations for periods of up to six months.

Weber indicated he favors offering banks longer-term loans over asset purchases. The ECB’s measures “should take account of the strong role of banks for our continental-European financial system,” he said. “Direct interventions, such as the purchase of corporate debt, shouldn’t take priority.”

The issue of asset purchases “is clearly one which the Governing Council is finding hard to agree upon,” said Julian Callow, chief European economist at Barclays Capital in London. “As an influential voice in the Governing Council’s debate, opposition by Weber to particular actions can represent a significant, if not ultimately insuperable, hurdle.”

To contact the reporter on this story: Jana Randow in Frankfurt jrandow@bloomberg.net.

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A Dissent is Taking Place between ECB Members...

Daily Forex Fundamentals | Written by ecPulse.com | Apr 15 09 11:51 GMT |

Looks like a dissent is taking place between the European Central Banks members, where some members are with slashing their benchmark below one percent yet others believe reducing rates would cripple markets rather than reviving back the money supply. The zone gloomy outlook is controlling members' actions; they no longer see a light at the end of the tunnel after the recovery postponed until the upcoming year. Axel Weber a member in the ECB said today, reducing rates below one percent would push money markets in “Standstill”, because extremely low rates would not be appealing for greedy investors to borrow money from banks, where they will start looking for other solutions such as what took place in the United States when the dot com bubble enlarged. In Greenspan's era rates was reduced to one percent just to revive growth, at that time investors across the globe who used to depend on returns from US treasuries believed that one percent is considered an extremely low rates. Due to that more methods and instruments was established in order to achieve higher returns but after time passed on the failure of that Era was evident now in our time. The European Central Bank would be facing two issues if they reduce their benchmark down to or below one percent, first of all investors taking money at those extremely low rates would be good for them but with time rates will starts to incline back again after tranquility begins to diffuse back. At that time, high rates will be an issue for investors where they will not be able to pay back the money taken at previously low rates. The other issue would be the establishment of new profitable instruments that could enlarge investors' gains, and here the dilemma would start any lack of control and monitoring in financial markets will create future instabilities that would cripple the zone financial market imitating the American mistakes. The European Central Bank who is responsible on monitoring markets must be careful in taking any further rate reductions because the disadvantages of those low rates would be larger than the advantages gained at the time being. After what I said interventions by using unorthodox methods would be the best at the time being even it would spur inflation, because containing surging inflationary pressures would be easier than the overall defaults in loans which would destroy a whole financial system like what we are living at the time being. Therefore, financial markets are at risk where movements most be considered step by step any vast actions would result into larger issues that would destroy the internal structure of the sixteen economies. So dear reader it all about time, till we see what would Trichet and his comment reach to a final decision and whether they would consider holding rates at the current levels however introducing other non-standard measures. Ecpulse disclaimer: The content of ecPulse.com and any page in the website contain information for investors/traders and is not a recommendation to buy or sell currencies, stocks, gold, silver & energies, nor an offer to buy or sell currencies, stocks, gold, silver & energies. The information provided reflects the writers' opinions that deemed reliable but is not guaranteed as to accuracy or completeness. ecPulse is not liable for any losses or damages, monetary or otherwise that result. I recommend that anyone trades currencies, stocks, gold, silver & energies should do so with caution and consult with a broker before doing so. Prior performance may not be indicative of future performance. Currencies, stocks gold, silver &energies presented should be considered speculative with a high degree of volatility and risk

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European Market Update

Daily Forex Fundamentals | Written by Trade The News | Apr 15 09 10:01 GMT |

European market Update: Risk Aversion/Appetite eyes China GDP report on Thursday; UBS pre-announces more losses, job cuts and net money outflows ECONOMIC DATA (GE) German March Wholesale Price Index M/M: -0.9% v -0.3%e; Y/Y: -8.0% v -7.1%e; largest annual decline since January 1987 (SP) Spain March CPI M/M: 0.2% v 0.1%e; Y/Y: -0.1% v -0.1%e (SP) Spain March CPI Core M/M: 0.4% v 0.3%e; Y/Y: 1.3% v 1.1%e (SP) Spain March CPI EU Harmonized M/M: 0.2% v 0.1%e; Y/Y: -0.1% v -0.1%e (CZ) Czech March PPI M/M: -1.1% v 0.3%e; Y/Y; -2.0% v -0.6%e (CZ) Czech Feb Export Price index: 8.3% v 3.3% prior; Import Price index: 4.5% v 0.0% prior (HU) Hungary Feb Final Industrial Output M/M: -4.1% v -4.1% prior; Y/Y: -25.4% v -25.4% prior (TU) Turkish Jan Unemployment Rate: 15.5% v 13.6% prior (FR) Bank of France: Mar Retail Sales M/M -1.3% v 3.6% prior month (SA) South African Retail Sales Y/Y: -4.5% v 0.6%e (UK) DCLG UK house Prices Y/Y: -12.3% v -11.5% prior SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM Equities: European equity markets opened to the downside accelerating to the -1% across the board in early choppy trading. Initial losses were concentrated in the previous days winning sectors with financials moving broadly lower (UBS halted limit down on the open). As Goldman's Q1 report lifted European banks on Tuesday, Goldman's guidance for its cap raise lowered banks on Wednesday. Other sectors under performing included the mixed mining sector after downbeat comments from Rio Tinto (confirming intentions to peruse Chinalco deal and seeing global output down approx 6% y/y in Q1) and the tech sector following Intel's and ASML's Q1 reports. By 4:00EST markets had rallied off their lows as banks recovered and consumer product continued to trade higher, the FTSE100 turning positive just after 4:00EST. Crude front month moving past the $50/bbl level pushed large cap energy shares higher, adding extra index point weight to the uptick. Gains were slowly paired in lighter than average trading heading into the European afternoon. || Rio Tinto [RIO.UK] Provides Q1 production update, output in line with reduced market demand; Still committed to reaching deal with Chinalco. Has seen no significant movement in net debt since Q4 2008, markets remain volatile; timing of global economic recovery uncertain. Expects recovery in Chinese steel demand in H2 2009 (in line with previous statements). 2009 budget for Greenfield expansion cut by 60%. ||Fiat [F.IT] CEO: Sees 50/50 chance a partnership will be formed with Chrysler, will discontinue discussion with co if does not reach big labor cost cuts - Globe and Mail. Labor talks progressing especially slow in Canada. || UBS [UBSN.SZ] Guides Q1 Net Loss CHF2B v Loss 6.7Be, Tier 1 Capital Ratio of about 10%, sees 8,700 job cuts through 2010 ( about 11% of workforce). States that the losses stems from a negative contribution totaling roughly CHF 3.9B due to losses on previously disclosed illiquid risk positions- To exit high risk, unpromising businesses. Will maintain its core businesses: international wealth management and the Swiss banking business, alongside its global expertise in investment banking and asset management. Planning cost savings by FY2010 of between CHF2.5B and 3.5B. || Pernod Richard [RI.FR] To launch previously announced €1.04B rights issue with 36% discount (approx €26.70/shr based on Tuesdays close) - Les Echos. Shareholders can subscribe to 3 new shares for 17 existing shares. || Air Franc [AF.FR] Planning to cut 3,000 jobs through 2011 (about 2.8% of workforce) - La Tribune. || Speakers: ECB's Weber noted that there was a bit more leeway to lower its main Refi rate but was skeptical having it move below 1%. He reiterated the view that a decision on unconventional policy tools would be made in early May with adequate bank liquidity provisions as a key ingredient. Future deficit procedure against Germany is likely. He did note that outright asset purchases should take back seat || ECB Provopoluos noted that interest rate cuts were not fully translated to lower borrowing rates for consumers and business. Monetary policy and liquidity provision are main factors averting any deflation risks in EU || German DIW Institute forecasted that German 2009 GDP could contract by as much as 4.9% but added that it saw "signs emerging of a possible end to the sharp recession.” The institute saw Q2 GDP contraction of 0.9% versus a contraction of 2.2% in the prior quarter. It did see Germany's 2009 deficit of €77.9B (or 3.3% of GDP) which would be above the Maastrict Stability Pact guidelines ||Swedish Fin Min Borg commented that one could not rule out further support towards the banking sector and that the decline of business in the Baltic's might required further Swedish interaction. He did note that the stimulus measures were seen as tool to fight unemployment || Russian Central Bank Deputy Chief Ulyukayev stated that there was an improvement in the country's balance of payments & current account after its currency “devaluation” back in late Jan. he saw the 2009 current account surplus above $40B and that average oil price above $44/barrel. The central bank might cut its refi rate at some point in next few weeks || European Bank for reconstruction & Development (EBRD) chief economist stated that the Baltic States have no alternative to moving to Euro; to raise investment to region in 2009 || Russia Fin Min reiterated the view that 2010 could be more difficult then 2009. he did note yesterday that the forecast of -2.2% decline in 2009 GDP was "looking optimistic," and it could be several years for Russia to exit crisis || In Currencies: Far East factors provided the price action in most currency pairs. The JPY was the primary focus during the pre-European morning. The initial theme of risk aversion continued to help both the USD and JPY against their major pairs but fixed-income flows were also having a favorable impact on the JPY. Dealer chatter circulated that EUR/JPY cross was weighed down by Euro bond redemptions with talk that around €45B in redemptions maturing later this week. Also aiding the JPY cause was talk that Japan's Kampo Life was not planning to purchase non-JPY bonds during the course of 2009. The EUR/USD proved unable to break below the 1.32 level during the course of the European morning as a degree of risk appetite return with equity markets moving to the upper part of the session range and commodities holding steady. Vague chatter of a 'second' Chinese stimulus package making the rounds and helping to reverse the currency price action seen during the Asian session. JPY off its best levels as a result. USD/JPY at 99.02 after testing 98.15 pre-Europe and EUR/JPY above 131 after testing 129.90 in Asia. The AUD pair was in focus as its recent multi-month highs brought back some players who were 'burned' in the post-Lehman bankruptcy price movements and unwinding of carry-related pairs. The AUD weakness was attributed to chatter circulating of addition position unwinding by Citic Pacific. Back in late Oct 2008, HK-listed Citic Pacific reported that it lost billions on unauthorized bets related to the AUD. Fixed income: European Government bonds have benefited from a generally risk averse sentiment amongst investors this morning, with Bund and Gilt futures firmly in positive territory despite having supply and fluctuating equity and currency markets to contend with. ||The Bundesbank sold just under €6B in 2011 Schatz, with mixed results. The auction was covered 1.5 times, below the previous 2.1 and 1.6 average in previous three Schatz auctions, but the Bundesbank retained just 15% for market intervention, less than the average of 20%. || In the UK, the DMO sold £500M in 2037 linkers, with the auction covered 1.62 times, above the average of 1.3 in the previous three auctions. The Bank of England announced plans to buy £3.5B in Gilts in the 5-10y maturity basket later in the session. ||US Treasuries have seen flattening, with selling in the short end and buying in the long end of the yield curve. 2s10s is back below 190bps. ||Euro-zone interbank rates continue to touch fresh record lows. One month Euribor fell another basis point to 0.99%, whilst 3 Month Euribor fell 0.8pbs to 1.415%. ||In corporate issuance, Michelin confirmed plans to sell £750M in a new 5y year whilst Veolia is reportedly planning a 2 part 5 and 10y euro denominated benchmark offering In Energy: Repsol [REP.SP] Closing its Cartagena refinery in Southern Spain (100K bpd) for undetermined period due to refining margins NOTES Risk aversion theme focusing on the Asian factor with mixed results being provided ahead of the key China GDP data set for release on Thursday in Asia. Japan's Feb Capacity Utilization M/M fell by almost 12% and the Industrial output slipped by 9.4% M/M. But the MOF did issue a somewhat better outlook for Mar and Apr period. South Korea SK lost 195k jobs in Mar with its unemployment being the highest level since Oct 2005. S. Korea also lowered its 2009 export growth target to -13.5% from +1.1% prior China Q1 GDP Rumored in 6.0-6.8% range compared to the 6.2% consensus ahead of the official report tomorrow Jitters in the financial sector continue following the UBS Q1 pre-release. With a loss of about CHF2.0B, reduction of 11% of more staff and CHF23.0B net money outflows Vague chatter of a 'second' Chinese stimulus package helping European bourses recover from opening level lows and weaken USD, JPY related pairs Preventing protectionism was a key theme at the G20 earlier this month but China's China's National Development and reform Commission has withheld approval of Hunan Valin Steel's bid for 17% of Australia's Fortescue Metals for the time being... WSJ: Fed considering holding press conferences much in the fashion that the ECB currently does. Considering more disclosure on emergency lending programs Market participants talking about an article in the Telegraph by Ambrose Evans Pritchard. The article noted that; S&P expected 1/3 of EU junk bonds to default by end of 2011. Looking Ahead: Key US Corp earnings expected ahead of the US market open: Abbot labs [ABT]; Progressive Corp [PGR] and Charles Schwab [SCHW] 7:00 (US) MBA Mortgage Applications w/e Apr 10th: No expectations v 4.75 prior 8:00 (PD) Polish March CPI M/M: 0.4% expected v 0.9% prior; Y/Y: 3.4% expected v 3.3% prior 8:30 (CL) Chile Mar Copper exports: No estimates versus $1.28B prior 8:30 (CA) Canadian Feb New Motor Vehicle Sales M/M: -2.0% expected v 5.5% prior 8:30 (US) March CPI (last m/m 0.4%, y/y 0.2%; ex food & energy last m/m 0.2%, y/y 1.8%), March CPI Core Index SA (last 217.670), April Empire Manufacturing (last -38.23) 9:00 (US) Feb Net Long-Term TIC Flows (last -$43B), Feb Total Net TIC Flows (last -$148.9B) 9:15 (US) March Industrial Production (last -1.5%), March Capacity Utilization (last 70.2%) 10:30 (US) DoE Crude Oil/Gasoline/Distillate Inventories 13:00 (US) Apr NAHB Housing Market index: 10 expected versus 9 prior 14:00 (US) Fed's Beige Book Trade The News Staff Trade The News, Inc. Legal disclaimer and risk disclosure All information provided by Trade The News (a product of Trade The News, Inc. "referred to as TTN hereafter") is for informational purposes only. Information provided is not meant as investment advice nor is it a recommendation to Buy or Sell securities. Although information is taken from sources deemed reliable, no guarantees or assurances can be made to the accuracy of any information provided. 1. Information can be inaccurate and/or incomplete 2. Information can be mistakenly re-released or be delayed, 3. Information may be incorrect, misread, misinterpreted or misunderstood 4. Human error is a business risk you are willing to assume 5. Technology can crash or be interrupted without notice 6. Trading decisions are the responsibility of traders, not those providing additional information. Trade The News is not liable (financial and/or non-financial) for any losses that may arise from any information provided by TTN. Trading securities involves a high degree of risk, and financial losses can and do occur on a regular basis and are part of the risk of trading and investing.

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Daily Technical Strategist

Daily Forex Technicals | Written by FXTechstrategy | Apr 15 09 09:24 GMT |

Today's Focus: EURUSD & GBPUSD EURUSD: Trapped In A Channel With Downside Bias. GBPUSD: Eyeing The 1.4986 Level. EURUSD EUR failed to follow through to the upside on its Monday recovery gains, and its Tuesday downturn in momentum now opens the door for lower prices. With an established falling channel now in place, weakness should shape towards the 1.3113 level, its Mar 30'09 low and the 1.3097/93 area, its Feb 09'09 high/.50 Ret (1.2456-1.3738 rally) with a decline through the latter accelerating further downside towards the 1.2991 level, its Feb 23'09 high. Its daily RSI is negative and trending lower suggesting further weakness. Immediate resistance lies at the 1.3330 level, its Jan 27'09 high with a turn above there putting the next upside target at its falling channel top at 1.2470.This level is within the vicinity of the pair ‘s daily 200 ema at 1.2488.While we envisage that initial attempt at these levels should fail, a break through there will call for additional upside aiming at the 1.3580 level, its April 06'09 high and then its Mar 19'09 high at 1.3738.On the whole, although short term upmove activated at the 1.2456 level is still alive, corrective price activities has put that on hold. Support Comments 1.3330 Jan 27'09 high 1.3113 Mar 30'09 low 1.3097/93 Feb 09'09 high/.50 Ret(1.2456-1.3738 rally) Resistance Comments 1.3490 Daily 200 ema 1.3580 April 06'09 high. 1.3738 Mar 19'09 high GBPUSD Although marginal gains were recorded at the end of Tuesday trading session, while the pair continues to maintain within its daily rising channel, risk of a retarget of its April 06'09/Feb 09'09 highs at 1.4986/65 continues to shape up. In that case, a loss of there will trigger the resumption of GBP's upmove initiated off the 1.3504 level towards the 1.5374 level, its Jan 08'09 high and possibly higher. The daily RSI has turned higher supporting this view. Downside targets are situated at the 1.4662 level, its Feb 23'09 high and the 1.4465 level, its rising channel base. On continued weakness, lower level prices should be aimed at with the 1.4305 level, its Mar 06'09 seen as the next target followed by the 1.4110 level, its Mar 30'09 low and subsequently the 1.3845 level, its Mar 18'09 low. All in all, though GBP retains its longer term bearishness, it remains biased to the upside in the short term while confined within its channel. Support Comments 1.4662 Feb 23'09 high 1.4465 Rising channel base 1.4305 Mar 06'09 high Resistance Comments 1.4986/59 April 06'09/Feb 09'09 highs 1.5373 Jan 08'09 high 1.5724 Dec 17'08 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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G7 Forex Report

Daily Forex Technicals | Written by The Traders Club | Apr 15 09 10:06 GMT |

EUR/USD Weekly Trend direction: Bearish Weekly trend reversal level: 1.3600 Key G7 resistance levels: 1.3450, 1.3600 Counter-trend opportunities: Strategy: Whilst below the weekly trend reversal level, sell rallies to resistance levels after an entry signal. Today's trade suggestion: Sideways in a large range for the past month, there is not a lot to add to last week's commentary. If anything, the Euro looks like it is in a “bullish flag” pattern, with the potential to rally back up to 1.3900 or 1.4200 in the next few weeks. Still, we remain true to the G7 system and look to sell the Euro into rallies to the resistance levels above (1.3450 and 1.3600) and we'll wait for a clear G7 entry signal if/when the price reaches up there. Targets will be 1.3100 initially, and then the ever-present support at 1.3000. Note that the Pound is probably ready for a decent rally, which might drag the euro up with it in the short term. Update: No change to the strategy! Summary: Sell rallies to the resistance levels above only after a clear G7 entry signal. Target 1.3100 and then 1.3000. EUR/USD Hourly chart: EUR/USD Weekly chart: GBP/USD Weekly Trend direction: Bullish Weekly trend reversal level: 1.4580 Key G7 support levels: 1.4770, 1.4580 Counter-trend opportunities: Strategy: Whilst above the weekly trend reversal level buy dips to support levels after an entry signal. Today's trade suggestion: The Pound is looking very bullish indeed and may well be the investment of the month, with a target around the 1.6000 level. This view is supported by the G7 system, with the bullish direction being held up as long as we are above the weekly reversal level at 1.4580. We might not get another decent shot at buying dips for some time (you should already be long from last week, or have taken profits) Supports now lie at 1.4770 and the weekly reversal level at 1.4580. If/when we break above the previous rally resistance at 1.4961, we should rapidly advance to 1.5000 and then 1.5300. Update: No changes! Summary: Buy dips to support levels above after a clear G7 entry signal. Target 1.4960, then 1.5000. (then 1.5300!) GBP/USD Hourly chart: GBP/USD Weekly chart: USD/JPY Weekly Trend direction: Wait and see!! Weekly trend reversal level: Key G7 support levels: Counter-trend opportunities: Buy at 98.00 Strategy: Wait and see!!l Today's trade suggestion: The dollar rally vs. the Yen is looking a little tentative, with last week's “doji” candle being either a pause in the rally or a potential medium term top. In any event, the weekly reversal level is just below the current price at 99.30, and we need to hold above there for this rally to take another leg higher, and for our bullish direction to remain intact. Look to buy dips to 99.50/70, with stops below 99.30, for a rally back to the 100.00 barrier and then 103.00. The medium term target remains 105.00, where some consolidation is likely. Update: Weekly reversal level has been breached. Wait and see how the week ends. Try tiny counter-trend longs at 98.00 Summary: Buy dips to 99.50/70 after a reversal signal, stops below 99.30. Target 100.00 and then 103.00 USD/JPY Hourly chart: USD/JPY Weekly chart: The Traders Club http://www.thetradersclub.com

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OPEC Cuts 2009 Oil Demand Forecast as World Economy Contracts

By Ayesha Daya

April 15 (Bloomberg) -- The Organization of Petroleum Exporting Countries cut its forecast for oil demand this year for an eighth successive month as the economic slowdown in the world’s biggest oil consumers worsens.

The estimate for 2009 global demand was lowered by 430,000 barrels a day to 84.18 million barrels a day, the producer group said. Demand will contract by 1.37 million barrels a day this year, or 1.6 percent. That’s slightly more than North Africa’s biggest oil supplier Algeria produces. OPEC forecast a decline of 1.2 percent last month.

“The world economic recession continues to erode oil demand growth, particularly in the U.S., Japan and China,” the group’s secretariat said in its monthly oil market report today. Demand in industrialized countries will fall this year and developing economies are “likely to see only minor growth.”

Oil has fallen almost $100 a barrel from a record high of $147.27 a barrel in July as the global crisis dampens demand for the fuel. OPEC’s net oil-export revenue will fall an estimated 51 percent to $476 billion this year, the U.S. Energy Information Administration said yesterday.

OPEC will meet in Vienna on May 28 to review production quotas. It agreed in March to keep supply unchanged as members continue to implement record reductions agreed last year, totaling 4.2 million barrels a day, to stem plunging prices.

Crude oil for May delivery rose as much as $1.09, or 2.2 percent, to $50.50 a barrel on the New York Mercantile Exchange, trading for $50.32 at 10:23 a.m. London time.

Benchmark Price

The benchmark crude price used by OPEC, derived from the cost of oil produced by each of its 12 members, averaged $45.78 in March, $4.37 or 11 percent higher than February, and was at $51.07 yesterday, OPEC said in its report today.

“Prices continued to strengthen in early April as economic sentiment showed some improvement following efforts by the G-20 to boost global growth,” the group said. “However, more recently, bearish reports showed a further slowdown in demand and higher stock levels have had a negative impact on prices.”

Three-quarters of the downward revision to oil demand came from developed economies, which will see demand fall to 46 million barrels a day. Consumption in those countries will decline 1.5 million barrels a day in 2009, OPEC forecasts, a drop of 3.2 percent compared with 2008.

Demand for OPEC’s crude in 2009 will contract by 2.07 million barrels a day to 28.74 million barrels a day, the group said, calculating that figure using its world demand and non- OPEC supply forecasts. That’s about 330,000 barrels a day less than it predicted last month.

IEA Forecast

The International Energy Agency cut its 2009 oil demand forecast last week for an eighth month, reducing its forecast by 1 million barrels a day to 83.4 million barrels a day. The IEA also revised its oil supply forecast from non-OPEC countries, saying it will fall by 320,000 barrels a day. Last month it expected non-OPEC output to be unchanged year-on-year.

OPEC cut its forecast for oil supply from outside the group to 50.61 million barrels a day due to lower expectations for China, Mexico, Kazakhstan, Azerbaijan and Vietnam. That still leaves an increase of 290,000 barrels a day, or 0.6 percent, this year over 2008. The IEA said it expects non-OPEC supply to fall to 50.3 million barrels a day in 2009.

Indonesia left the producer group this year. OPEC’s 12 remaining members are Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela.

To contact the reporter on this story: Ayesha Daya in Dubai adaya1@bloomberg.net

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Asian Currencies Fall, Led By Won, Ringgit, as Stocks Retreat

By Bob Chen

April 15 (Bloomberg) -- Asian currencies declined after the U.S. reported an unexpected drop in retail sales, dimming the outlook for regional exports and prompting investors to seek safer bets than emerging-market assets.

Six of Asia’s 10 most-used currencies excluding the yen fell, led by slides in South Korea’s won and Malaysia’s ringgit, and the MSCI Asia Pacific Index of shares snapped a four-day rally. The Standard & Poor’s 500 Index retreated from a two- month high and futures contracts pointed to further weakness.

“It’s a modest adjustment, it’s natural given that U.S. stocks were down a bit,” said Thomas Harr, a senior currency strategist at Standard Chartered Bank in Singapore. “It depends a lot on what happens with U.S. stocks and risk appetite generally.”

The won dropped 1.1 percent to 1,338.22 per dollar in Seoul, the biggest decline in a week. The ringgit was 0.6 percent lower at 3.6090 as of 4:46 p.m. in Kuala Lumpur. Taiwan’s dollar slipped 0.5 percent to NT$33.79.

The S&P 500 Index of U.S. stocks slid 2 percent yesterday after the Commerce Department reported a 1.1 percent decrease in March retail sales. Economists surveyed by Bloomberg News forecast a 0.3 percent increase in sales.

Concern a global recession is deepening spurred demand for the perceived safety of the Japanese yen and the U.S. dollar. The yen climbed to 130.15 per euro, from 131.25 late yesterday in New York. It was little changed versus the dollar at 99.05.

Deepening Slump

U.S. reports later today may show industrial output declined for a fifth month and a gauge of manufacturing contracted, according to economists surveyed by Bloomberg News. South Korea today reported its highest unemployment rate since 2005 and Finance Minister Yoon Jeung Hyun said the local jobs market is likely to remain weak.

The Korean won fell for the first time in three days. The nation’s economy will shrink 2.4 percent this year, the first contraction since 1998, the Bank of Korea forecast on April 10.

The ringgit fell the most in a week after a local research institute forecast the economy will shrink this year. Singapore, Malaysia’s biggest overseas market, yesterday said its gross domestic product may drop at a record pace.

“You are going to get sporadic weak data and that’s going to restrain risk-taking in the market,” said Wan Suhaimi Saidi, an economist at Kenanga Investment Bank Bhd. in Kuala Lumpur. “Volatile trade in the ringgit is only to be expected as we don’t expect any strong economic recovery until the fourth quarter.”

Shrinking Economies

Malaysia’s economy may contract as much as 3.8 percent this year at worst, the Malaysian Institute of Economic Research said today, lowering its estimate to a contraction of 2.2 percent, from a previous forecast of 1.3 percent growth. A Singapore trade ministry report yesterday showed the city-state’s GDP shrank an annualized 19.7 percent in the first quarter from the previous three months, the most on record.

Taiwan’s dollar weakened on concern the government’s stimulus spending is straining public finances amid a recession. Standard & Poor’s Rating Services yesterday cut the outlook on the island’s long-term credit rating to negative from stable, citing a “marked deterioration in the government’s fiscal position.”

The jobless rate may exceed 6 percent in the coming months and peak in September, the Chinese-language Commercial Times reported today, citing Vice President Vincent Siew.

More Bad Data

“Taiwan’s economic fundamentals haven’t changed,” said Tigr Cheng, an economist at Polaris Securities Co. in Taipei. “We are expecting more bad data to come in May or June, which will take the Taiwan dollar weaker.”

Thailand’s government yesterday declared April 16 and April 17 as public holidays to help “restore order” following violent anti-government protests. The country’s financial markets have been shut since April 10, before the Thai New Year holiday.

Elsewhere, the Philippine peso fell 0.3 percent to 47.805 against the U.S. currency and the Singapore dollar declined 0.2 percent to S$1.5009. Vietnam’s dong climbed 0.1 percent to 17,743, while Indonesia’s rupiah rose 0.1 percent to 10,890. India’s rupee climbed 0.3 percent to 49.735 and China’s yuan was little changed at 6.8329.

To contact the reporters on this story: Bob Chen in Hong Kong at bchen45@bloomberg.net

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Dollar Optimism Drops to One-Year Low as Fed Dilutes Currency

By Ye Xie

April 15 (Bloomberg) -- Expectations for a weaker dollar increased to the highest level in a year after the Federal Reserve diluted the currency to lift the economy out of a recession, a survey of Bloomberg users showed.

Participants turned bearish on the dollar over the next six months for the first time since January, according to 1,349 respondents from Paris to New York in the Bloomberg Professional Global Confidence Index. They were most bullish on Brazil’s real since August and expected the Mexican peso to rally for the first time since January, as the Group of 20 nations pledged on April 2 to spend $1 trillion to revive global economic growth.

The Fed’s broad dollar index has declined 4.7 percent against 26 of the U.S.’s major trading partners, since touching a 4 1/2-year high on March 3. Fed Chairman Ben S. Bernanke joined central bankers in Japan, Switzerland and the U.K. on March 18 by printing money to buy debt assets after exhausting other monetary-policy tools. Bernanke said yesterday there are signs that the “sharp decline” in the U.S. economy is slowing.

“We are likely to see a gradual decline of the dollar,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto, a survey participant. “The economic stimulus will pay off. Optimism has fed into commodities and commodities currencies at the expense of the dollar.”

‘Limited Upside’

The dollar weakened against 15 of the 16 most traded currencies in the past month, falling as much as 11 percent against New Zealand’s dollar. Only the yen fared worse, losing 1 percent versus the U.S. currency. The greenback depreciated a record 3.4 percent versus the euro on March 18, when the Fed unexpectedly announced a plan to buy as much as $300 billion of Treasuries and increase purchases of mortgage securities.

The index of expectations for the dollar fell to 42.87, a level last seen in April 2008, from 53.41 in March. The measure is a diffusion index, meaning a reading above 50 indicates participants expect the currency to appreciate. Participants were last bearish on the dollar in January, when the index dropped to 45.53. Bloomberg began compiling the data in December 2007.

“There’s limited upside for the dollar,” said Maxime Tessier, head of foreign exchange in Montreal at Caisse de Depot et Placement, which has C$120 billion ($98.7 billion) under management. “Since the beginning of the year, we’ve been gradually reducing our exposure to the dollar.”

Fiscal Stimulus

Participants’ confidence in the global economy rebounded to 21.2, the highest level since May 2008, from 8.49 in March, according to the Bloomberg survey. Expectations for the yield on 10-year Treasury notes to rise increased to 59.66, from 56.83 a month earlier.

Economic sentiment improved after global governments and central banks beefed up efforts to combat the worst economic crisis since the Great Depression. The U.S. government and the Fed have spent, lent or committed as much as $12.8 trillion to shore up the nation’s banking system and economy. In Japan, the government announced a record 15.4 trillion yen ($153 billion) stimulus package on April 10, bringing total spending to 25 trillion yen.

“I am fundamentally optimistic about our economy,” Bernanke said in Atlanta yesterday. “Today’s economic conditions are difficult, but the foundations of our economy are strong, and we face no problems that cannot be overcome with insight, patience, and persistence.”

Economists surveyed by Bloomberg News estimate the economy contracted 5 percent in the first quarter of this year, compared with an 6.3 percent annual rate in the final three months of 2008.

Brazil, Mexico

“We are fairly bearish on the dollar,” said Jonathan Xiong, who oversees $18 billion as vice president and senior portfolio manager at Mellon Capital Management Corp. in San Francisco. “Some of the risk aversion has decreased in the market place.”

Participants in Brazil turned upbeat on the real, with the index rising to 54.41, from 48.41 in March. The index for the Mexican peso climbed to 64.36 from 41.50.

The real gained 4.2 percent in the past month to 2.21 per dollar, while the peso advanced 10 percent to 13.24. The rally came after world leaders at the G-20 summit agreed to triple the amount the International Monetary Fund can lend to crisis- stricken countries and offered cash to revive trade. The peso also advanced as Mexico said on April 1 that it will seek a $47 billion credit line from the IMF to shore up its foreign reserves.

“I would see Brazil attractive if we do incorporate a strategy” of buying emerging-market assets, said Xiong.

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

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Yen, Dollar Strengthen on Concern Global Recession Is Deepening

By Bo Nielsen and Anchalee Worrachate

April 15 (Bloomberg) -- The yen and the dollar rose as UBS AG Chief Executive Officer Oswald Gruebel said markets are “extremely unstable,” stoking concern the global recession is deepening.

The Japanese and U.S. currencies climbed against the Australian and New Zealand dollars and the Norwegian krone. UBS, Switzerland’s biggest bank, said it will cut another 7,500 jobs. The euro recovered losses after European Central Bank council member Axel Weber said cutting the benchmark interest rate below 1 percent risks bringing lending between banks to a standstill.

“We have seen spectacular rallies across several asset classes, while evidence of an improvement on the real economic front is lagging and clearly investors remain cautious,” said Michael Klawitter, a currency strategist with Dresdner Kleinwort in Frankfurt. “Things will get worse before they get better and that’s benefiting the yen at the moment”

The yen strengthened to 71.49 per Australian dollar as of 6:36 a.m. in New York, from 71.63 yesterday. It reached 129.93 per euro earlier, the highest level since April 1, before trading little changed at 131.43. Japan’s currency was at 98.96 against the dollar, from 98.98. It earlier touched 98.15, the strongest since March 31.

Investors reduced holdings of higher-yielding assets before U.S. data that may add to evidence the economy may not recover anytime soon.

Industrial Output

U.S. industrial output declined 0.9 percent last month, according to a Bloomberg News survey before the Federal Reserve report today. The Fed Bank of New York’s Empire State index of manufacturing, also due today, was minus 35 in April, a 12th month of contraction, a separate Bloomberg survey showed.

Nine of the 10 most-traded Asian currencies outside Japan weakened after China said foreign direct investment fell a sixth month.

“The yen has benefited from increasing concerns over the sustainability of the recent rally in risk assets,” Lee Hardman, a currency strategist in London at Bank of Tokyo- Mitsubishi UFJ Ltd., wrote in a note today. “Any further disappointment will benefit both the yen and the dollar. The scope for both significant yen and dollar gains driven by a reversal in risk sentiment is fairly limited.”

The dollar depreciated to $1.3291 per euro, from $1.3259. The Dollar Index, which the ICE uses to track the greenback against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, was little changed at 84.61.

Shares Decline

The MSCI World Index of shares fell for the second day and the Nikkei 225 Stock Average declined 1.1 percent. The MSCI benchmark gained 20 percent since the beginning of March. Futures on the Standard & Poor’s 500 Index were little changed.

“We are negative on equity sentiment over the short term and accordingly, expect euro-dollar to trade lower,” Ashley Davies, a Singapore-based currency strategist at UBS, said in a research note today.

Foreign direct investment into China dropped 9.5 percent to $8.4 billion in March from a year earlier, the Commerce Ministry said in Beijing today. That compares with a 15.8 percent decline in February.

Volatility implied by one-month Australian dollar options against the yen rose to 29.9 percent from 29.2 percent yesterday, indicating a greater risk of exchange-rate fluctuations that can erode profit on so-called carry trades.

Carry Trades

In carry trades, investors get funds in a country with relatively low borrowing costs and invest in another with higher interest rates. The risk is market moves can erase those profits. The benchmark interest rate is 0.1 percent in Japan, compared with 3 percent in Australia and in New Zealand.

The yen rose the most in four weeks against the dollar yesterday after the Commerce Department said U.S. retail sales unexpectedly fell 1.1 percent in March, after rising a revised 0.3 percent the previous month.

“Sooner rather than later pessimism will return to the market,” said Toru Umemoto, chief currency strategist in Tokyo at Barclays Capital, the world’s third-largest foreign-exchange trader. “The yen will be the beneficiary.”

The euro weakened yesterday as Standard & Poor’s said leveraged buyouts may help push corporate defaults in Europe to a record 14.7 percent this year.

“The S&P report renews concern over possible defaults at financial institutions in Europe,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “It would be negative for the euro.” The euro may weaken to $1.3180 and 130 yen today, he said.

Ichimoku Cloud

The dollar may weaken toward the post-World War II low of 79.75 yen after climbing to about 103 yen in the coming weeks, according to Mizuho Financial Group Inc.

The level of 103 yen is the top of a so-called ichimoku cloud, where sell orders may be triggered, causing the dollar to approach 79.75 yen, the postwar low set in April 1995, said Hiroyuki Tanaka, chief technical analyst at Mizuho Corporate Bank, a unit of Japan’s third-largest lender.

“The real game starts when dollar-yen hits the cloud,” Tokyo-based Tanaka said. The dollar’s path resembles the currency’s movements from March to August 2008, he said.

The dollar tumbled to a 13-year low of 87.13 yen on Jan. 21 after the previous occasion the greenback failed to break through a cloud pattern. The dollar is entering the cloud for a second time after reaching a “double-bottom” of about 87.10 in December and January, according to Tanaka.

To contact the reporters on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net; Anchalee Worrachate in London at aworrachate@bloomberg.net

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Oil Rises for the First Day in Three as Equities Pare Losses

By Grant Smith

April 15 (Bloomberg) -- Oil rose for the first time in three days in New York to trade above $50 a barrel as European stock indexes pared losses and drew investors to commodities.

Oil recovered earlier losses that were driven by forecasts that a U.S. government report will show crude stockpiles at their highest in more than 15 years. European stocks and U.S. index futures pared their declines as energy producers climbed. The MSCI World Index has advanced 21 percent since the start of March as crude has gained 25 percent.

“We are coming out of the darkest hole in the recession and we are going to see oil prices heading up towards the high $50s, low $60s level within the next six months,” Francisco Blanch, head of global commodities research at Merrill Lynch & Co., said in a television interview.

Crude oil for May delivery rose as much as $1.38, or 2.8 percent, to $50.79 a barrel on the New York Mercantile Exchange, trading for $50.56 at 11:37 a.m. London time. It earlier fell as much as 49 cents, or 1 percent, to $48.92 a barrel.

The Dow Jones Stoxx 600 Index declined 0.2 percent to 190.62 as of 11:35 a.m. in London, having earlier dropped as much as 1.2 percent. Futures on the Standard & Poor’s 500 Index were up 0.1 percent at 841.

“We still expect the U.S. stock market to be the intermediate price driver for most commodity complexes over the next few weeks,” Edward Meir, an analyst with MF Global Ltd. in Connecticut, said in a report dated today.

Inventory Forecast

Crude-oil stockpiles rose 1.75 million barrels in the week ended April 10 from 361.1 million the previous week, the highest level since July 1993, according to a Bloomberg survey before today’s Energy Department report.

The industry-funded American Petroleum Institute, which often reports similar data to the Energy Department, said yesterday that oil inventories rose 6.51 million barrels to 371.2 million last week, their highest since 1990.

Brent crude oil for May settlement was at $52.59 a barrel, 63 cents higher, on London’s ICE Futures Europe exchange at 11:31 a.m. London time. It declined 18 cents, or 0.3 percent, to end the session at $51.96 a barrel yesterday.

The May contract expires today. The more-active June contract was at $53.57 a barrel, 64 cents higher, at 11:36 a.m. London time.

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

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Zinc at Six-Month High, Poised for Longest Rally Since January

By Glenys Sim

April 15 (Bloomberg) -- Zinc advanced for a fourth day to the highest level in six months on speculation demand is increasing in China, the world’s largest producer and consumer of the metal used to galvanize steel.

Stockpiles in Shanghai warehouses dropped last week for a third week to 73,318 metric tons, according to exchange data. The global surplus of zinc, the third-best performer on the London Metal Exchange this year, narrowed in February, according to an International Lead and Zinc Study Group report.

“We’re getting anecdotal evidence of orders picking up in recent weeks, and this has given the bulls a reason to push prices higher,” Shenzhen Rongtuo Trading Co. analyst Pang Ying said today. Three-month delivery zinc jumped as much as 1.5 percent to $1,462 a ton, the highest since Oct. 14, and traded at $1,452 at 11:14 a.m. Singapore time, heading for the longest rally since January.

Zinc for July delivery on the Shanghai Futures Exchange gained as much as 4.2 percent to 13,300 yuan ($1,946) a ton, before trading at 13,220 yuan.

China’s imports of refined zinc outpaced exports for a third month in February, according to customs data. March trade figures are expected to be released this week.

“China is the world’s largest producer of zinc and still remains a net importer as the widening spread between London and Shanghai prices encourages overseas purchases,” said Pang.

Premium Increases

The premium of Shanghai over London climbed to more than 1,000 yuan a ton this week, compared with this year’s low of around 300 yuan in March, according to data compiled by Bloomberg. Futures in China gained 33 percent this year, compared with 20 percent in London.

Reports of domestic stockpiling are helping support prices, Pang said. Hunan Nonferrous Metals Corp. plans to borrow 1.2 billion yuan ($176 million) from banks to help its units stockpile metals, the Hunan Daily reported yesterday. The country’s State Reserve Bureau has procured about 159,000 tons of zinc this year.

China’s Shaanxi province will buy 44,000 tons of zinc from local producers for stockpiling, researcher CBI China Co. said March 19, while Chenzhou in China’s Hunan province plans to store 50,000 tons of zinc this year to support local industry amid the global economic crisis.

Among other LME-traded metals, copper was little changed at $4,705 a ton and aluminum was unchanged at $1,513 a ton. Lead fell 0.7 percent to $1,475, nickel lost 0.8 percent to $11,750 a ton, while tin climbed 0.2 percent to $11,025 at 11:08 a.m. in Singapore.

To contact the reporter on this story: Glenys Sim in Singapore at Gsim4@bloomberg.net

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Goldman Sachs Ends ‘Long’ China Strategy After Gains

By Reinie Booysen

April 15 (Bloomberg) -- Goldman Sachs Group Inc. ended its recommendation to be “long” on China’s A shares as the benchmark Shanghai Composite Index is nearing the target set when the bank initiated the strategy in December.

The shares, mainly restricted to domestic investors, have gained 22 percent since then because of the combination of “aggressive” government stimulus measures and “sequential improvement” in the nation’s economic data, Goldman Sachs analysts including Jim O’Neill said in a note to customers today.

“We are now close to our 2,600 target and while it is easily possible that the market could go higher, perhaps significantly, we think the risk-reward is now lower than it was,” Goldman Sachs said in a note to customers today.

The Shanghai Composite’s 39 percent gain this year makes it the second-best performer after Peru among the 88 primary stock gauges tracked by Bloomberg globally. Stocks have rallied on optimism the government’s 4 trillion yuan ($585 billion) stimulus package and record new lending will spur a recovery in the world’s third-largest economy amid the global recession. Interest rates were cut five times from September to December.

The Shanghai Composite rose for a fifth day today, the longest-winning streak in three weeks, to 2,536.06 at the close. Goldman Sachs advised buying the shares in December when the index was at 2,079 and told investors to hold them until the measure reaches 2,600.

‘Further Strength’

“Our decision should not be interpreted either as a sign of concern about the Chinese growth outlook or the general picture for risk or cyclical assets,” Goldman Sachs said. “We think further strength in China’s economic news is likely.”

China’s economy probably expanded 6.3 percent from a year earlier in the first quarter, the slowest pace in almost 10 years, according to the median estimate of 12 economists surveyed by Bloomberg News. The statistics bureau is due to release the figure tomorrow.

Foreign direct investment dropped 9.5 percent from a month earlier to $8.4 billion in March, the sixth straight monthly decline, the commerce ministry said at a briefing in Beijing today. For the first quarter, spending fell 20.6 percent.

A “long” position means buying a security before selling because of an expected price increase.

For Related News and Information: Chinese stocks stories: TNI CHINA STK The most-read Chinese stock stories: MNI CHS Global stocks stories: TOP STK World equity index monitor: WEI World equity valuations: WPE

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Asian Stocks Decline on U.S. Retail Sales, Yen; Nomura Slumps

By Jonathan Burgos and Patrick Rial

April 15 (Bloomberg) -- Asian stocks dropped for the first time in five days after U.S. retail sales unexpectedly declined and a stronger yen dimmed the earnings outlook for Japan’s electronics and auto companies.

Li & Fung Ltd., the biggest supplier of toys and clothing to Wal-Mart Stores Inc., tumbled 10 percent in Hong Kong. Canon Inc., which generates more than half of its sales from the U.S. and Europe, lost 2.6 percent in Tokyo as the yen rose to a two- week high against the dollar. Nomura Holdings Inc., Japan’s No.1 brokerage, sank 7.7 percent, leading declines by financial company shares, the region’s best performers in the past month.

“This is a reality check,” said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments Ltd. in Tokyo, which manages $28 billion. “The collapse the global economy was experiencing has come to an end, but investors moved too quickly in predicting a recovery.”

The MSCI Asia Pacific Index lost 0.5 percent to 89.14 at 7:23 p.m. in Tokyo, snapping a four-day, 5.6 percent advance. The gauge rallied 26 percent from a five-year low reached on March 9 amid speculation government stimulus efforts worldwide will succeed in easing the global financial crisis.

Japan’s Nikkei 225 Stock Average dropped 1.1 percent to 8,742.96. Hong Kong’s Hang Seng Index rose 0.6 percent and China’s Shanghai Composite Index added 0.4 percent amid speculation China will introduce more measures to bolster its economy. Markets in Asia declined except China, India, Indonesia, Malaysia, Singapore, Sri Lanka and New Zealand.

‘Economic Progress’

Thailand, where the government called a state of emergency this week following clashes between security forces and protesters, remained shut for new year holidays.

Komatsu Ltd., the world’s No. 2 maker of earthmoving equipment, dropped 5.6 percent in Tokyo after saying it will close two plants. SembCorp Marine Ltd., the world’s second- biggest oil-rig maker, fell 4.5 percent in Singapore as a customer went into liquidation. Infosys Technologies Ltd., India’s second-largest software-services provider, slipped 2.8 percent after forecasting lower sales.

Futures on the U.S. Nasdaq Composite Index dropped 0.6 percent as Intel Corp. reported a slide in first-quarter profit. The Standard & Poor’s 500 Index sank 2 percent yesterday after the government said the country’s retail sales fell 1.1 percent in March, compared with the 0.3 percent increase economists in a Bloomberg survey had estimated.

President Barack Obama said yesterday that his economic- stimulus package and plans to rescue banks and bolster housing are starting to “generate signs of economic progress.” Still, he warned of “pitfalls” ahead.

Finance Stocks Retreat

Li & Fung tumbled 10 percent to HK$20.60 in Hong Kong. Canon, the world’s largest maker of digital cameras, fell 2.6 percent to 3,030 yen in Tokyo. Mazda Motor Corp., which generates more than half of its sales in North America and Europe, dropped 2.5 percent to 237 yen in Tokyo.

Japan’s exporters fell as the stronger yen erodes the value of sales generated overseas. The yen climbed to as high as 98.15 against the dollar from 99.79 at the close of trading in Tokyo yesterday, the strongest level in since April 1.

“The situation in the U.S., combined with the stronger yen, point to losses in the local market today,” said Hiroichi Nishi, general manager at Nikko Cordial Securities Co., in an interview with Bloomberg Television. “From a technical perspective, investors may be thinking now is a good time to sell.”

The MSCI Asia Pacific Index’s rally in the past five weeks has driven the average valuation of companies on the gauge to 18 times reported profit, the highest since Nov. 7, 2007.

Komatsu, SembCorp Marine

A measure of finance stocks on the MSCI measure lost 1.3 percent today. The drop pared the gauge’s gain in the past month to 27 percent, the most of 10 industry groups.

Nomura slumped 7.7 percent to 597 yen, following a 38 percent surge in the month through yesterday. Mitsubishi UFJ Financial Group Inc., Japan’s biggest publicly traded bank, lost 3 percent to 521 yen. It climbed 24 percent in the past month.

National Australia Bank Ltd., the nation’s largest lender by assets, dropped 3.1 percent to A$21.78. Australian banks face “headwinds” as asset values diminish and the economy slows, said Brian Johnson, an analyst at CLSA Asia Pacific Markets.

Komatsu slid 5.6 percent to 1,225 in Tokyo. Declining demand forced the company to close two factories in Japan, the company said yesterday after the market closed. It will shift production and workers to other factories and take a 6.5 billion yen ($66 million) charge for the reorganization.

Intel, Infosys Profit

SembCorp Marine slumped 4.5 percent to S$2.13. Bank of America Corp. and Macquarie Group Ltd. cut their recommendations on the stock after PetroPod Ltd., a Singapore-based oil-services provider, went into liquidation. SembCorp Marine is building an oil rig and converting a tanker for PetroPod.

Infosys slipped 2.8 percent to 1,370.6 rupees. The company forecast its first annual drop in dollar-denominated sales as customers pare orders. Sichuan Guodong Construction Co. fell 2.8 percent to 9.52 yuan in Shanghai after the company said 2008 net income declined 48 percent.

Advantest Corp., the world’s biggest maker of equipment used to test memory chips, sank 3.9 percent to 1,522 yen after Intel said first-quarter profit fell 55 percent because of slowing computer demand and signaled sales won’t recover in the current period.

Shares of Intel, the world’s biggest chipmaker, retreated 5.3 percent in extended trading. Taiwan Semiconductor Manufacturing Ltd., the world’s largest maker of customized chips, lost 1 percent to NT$52.

To contact the reporters for this story: Jonathan Burgos in Singapore at jburgos4@bloomberg.net; Patrick Rial in Tokyo at prial@bloomberg.net.

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Stock Bulls Increase as Economy, Bank Profits Spur Confidence

By Eric Martin and Alexis Xydias

April 15 (Bloomberg) -- Investors in 10 countries grew less concerned that stocks will keep falling, the first unanimous improvement in Bloomberg’s Professional Global Confidence Survey since it began 17 months ago, after equities posted their steepest increase since April 2003.

Participants turned bullish on Japan’s Nikkei 225 Stock Average, Brazil’s Bovespa Index, Mexico’s Bolsa and Italy’s S&P/MIB, predicting gains in the next six months. They became less bearish in the U.S., France, Germany, Spain, Switzerland and the U.K. The 1,214 responses between April 6 and April 10 followed the biggest monthly rally for the MSCI World Index in six years.

Global stocks rebounded from the lowest levels in more than a decade on speculation $12.8 trillion in spending pledged by the U.S. government and Federal Reserve will end the first simultaneous recessions in the U.S., Europe and Japan since World War II. The MSCI World Index of 23 developed nations added 7.2 percent in March, boosted when the three biggest U.S. banks said they made money in the first two months of the year.

“The market is anticipating some sort of economic recovery,” said Carlos Sanchez, a Madrid-based trader at Interdin Bolsa, a member of the Madrid stock exchange since 1998. “The indications we’ve been getting from financial firms about the start of the year have been encouraging,” said Sanchez, who participated in the survey.

U.S. Rebound

Confidence in the U.S. rebounded from March, when investors were the most pessimistic on the Standard & Poor’s 500 Index since it entered a bear market in July. The gauge increased 47 percent, the most since the survey began, to 43.43. Anything above 50 indicates investors expect stocks to rise in the next six months, while readings below 50 mean they anticipate a retreat.

The S&P 500 jumped 27 percent from a 12-year low on March 9 through last week, the steepest five-week rally since 1933, after New York-based Citigroup Inc. and JPMorgan Chase & Co. and Bank of America Corp. in Charlotte, North Carolina, said they were profitable at the start of 2009. Treasury Secretary Timothy Geithner spurred a 7.1 percent advance, the fourth-biggest gain since the 1930s, on March 23 after announcing a plan to finance as much as $1 trillion in purchases of illiquid real-estate assets from banks.

Mexico was the only country where investors’ outlook improved more than in the U.S., soaring 75 percent to 58.91. The Bolsa climbed 23 percent since the start of March after the central bank cut its key lending rate more than forecast by economists.

Raised Rating

JPMorgan last month raised Mexico stocks to “overweight” from “neutral” among emerging markets on expectations a strengthening peso will allow the central bank to keep reducing borrowing costs. Ben Laidler, JPMorgan’s head of Latin America equity strategy, advised buying shares of America Movil SAB, Grupo Televisa SAB and Wal-Mart de Mexico SAB, all based in Mexico City, because of their “resilient” cash flows.

Investors turned positive on Japan’s Nikkei amid speculation the government would use public money to support the nation’s equity market. Prime Minister Taro Aso unveiled a record 15.4 trillion yen ($153 billion) stimulus package on April 10. The Nikkei has fallen 1.3 percent this year. The survey index in Japan increased 44 percent to 53.33.

Conviction that Brazil’s stocks will advance climbed 34 percent to 56.37 and the measure for Italian stocks added 29 percent to 57.81. Respondents also grew less convinced that the Swiss Market Index and Germany’s DAX will fall. Switzerland’s reading rose 15 percent to 41.67, while the German confidence gauge added 21 percent to 40.

French, Spanish and U.K. investors became less bearish. The reading in France climbed 27 percent to 45.64, while it increased 23 percent to 36.07 in Spain and 26 percent to 37.25 in the U.K.

To contact the reporters on this story: Eric Martin in New York at emartin21@bloomberg.net; Alexis Xydias in London at axydias@bloomberg.net.

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