Economic Calendar

Monday, April 27, 2009

Swine Flu Pressure European Indices into the RED ZONE!!!

Daily Forex Fundamentals | Written by ecPulse.com | Apr 27 09 12:44 GMT |

Another Phenomena, a new week had started with a whole different concern emerged to dominate market movement known by the Swine Flu. Indices across Europe tumbled, dipping heavily into negative levels wasting part of the gain seen in the prior week. Travel stocks, Airline Stocks were the main to decline because citizens no longer want to move around the world unless a cure figured out.

European Indices fell as off 7:58 EST, Dow Jones euro stoxx fell 1.55% reaching 2283.11 levels, the French CAC 40 lost 1.34% reaching 3061.39 and the German DAX lost 1.22% reaching 4617.50 levels.

Nevertheless, the main concern in financial markets remain heading toward the protracted recession that had altered and transformed to the worst contagion the Europeans face since World War II. Yet a hassle is taking place between the ECB members, some believe that further rate cuts must take place and others believe only a twenty-five basis points taking the benchmark down to 1.00%.

According to prediction recession will resume this year to extend further to the upcoming year, the European Central bank earlier predicted a 2.9% contraction in the current year yet the International Monetary Fund revised down their projections to 4.2% contraction this and 0.4 in the upcoming year.

The worst Credit Crisis since the Great Depression had started in 2007 diffusing further through the years to leave the Euro Area in situation where a recovery postponed further into the year. Germany Europe’s leading economy that was highly exposed to what took place in financial markets is struggling with lower exports after demand was hammered badly across the globe.

Though the weakness was not only seen in the levels of exports but imports got hit badly, the Import Price Index fell 0.4% on the month and 7.1% on the year, the falling energy costs form the unprecedented levels seen earlier increased pressures on prices. So according to expectations euro area consumer prices will be heading deeper near zero barrier with projections that it would be falling below zero temporarily.

However, Confidence is improving significantly in the zone; the German GFK Consumer Confidence inched higher in May to 2.5% coming better than market projections 2.3% yet still as the revised previous 2.5%. The easing inflationary pressures are working to bolster in confidence in the area, where prices are becoming cheaper for citizens. If confidence reading continues to incline this means a recovery will be seen soon because investors and citizens will start to foresee the euro area as a safe place in to invest.

From Italy, the Consumer Confidence Industrials surged in April above 100 barrier levels to reach to 104.9 levels coming better than the previous and market expectations 99.8. In addition, this improvement came as result for the easing prices, which is narrowing down the levels of expenses by individuals.

Therefore, dear reader an improvement in the Confidence levels would be positive at the time being because it is spreading back homes in the economy, ensuring the fact that April would the turning points for the Europeans.

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 27 09 12:16 GMT |

European market Update: Risk Aversion returns as the 'health' of the global economy is again questioned

ECONOMIC DATA

  • (GE) German March Import Price Index: -0.4% v -0.1%e; Y/Y: -7.1% v -6.5%e
  • (GE) German May GFK Consumer Confidence Survey: 2.5 v 2.3e
  • (CZ) Czech Apr Consumer & Business Confidence: -9.9 v -14.1 prior
  • (IT) Italian Consumer Confidence: 104.9 v 99.8e; highest reading since Dec 2007
  • (SW) Swedish Trade Balance: SEK8.1B v SEK9.5B prior
  • (TT) Taiwan Mar Leading Indicator M/M: 1.5% v -0.5% prior; Coincident M/M: 0.7% v -3.6% prior
  • (PD) Polish March Retail Sales M/M: 11.8% v 11.5%e, Y/Y:-0.8% v -0.8%e
  • (PD) Polish March Unemployment Rate: 11.2% v 11.2%e
  • (HK) Hong Kong March Trade Balance (HKD): -18.2B v -19.7Be; Exports Y/Y: -21.1% v -18.7%e; Imports Y/Y: -22.7% v -19.5%e
  • (UK) March BBA Loans for House Purchase: 26.1K v 28.0K prior; off 25% y/y
  • (UK) BOE Quarterly APF Report: Purchases £15.1B as of Mar 26th; Might take some time to observe full effects of Quantitative Easing (QE) purchases

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities: European equity markets opened sharply to the downside as indicated by heavy pre-market weight. Exchanges opened low and quickly accelerated to losses of over 1% across the board. Continuing the trend out of Asia, fears, or willingness to use the outbreak of 'Swine Flu' as a reason to sell risk led to heavy selling in the airlines, travel, hospitality and hotel sector. Leading movers to the downside on the FTSE100, CAC40 and DAX30 has been dominated by national flag carriers (BAY.UK, LHA.GE, and AF.FR) with British Airways trading as lows as 11% in early crosses. The sole outperforming sector in Europe was the broader pharma sector being led by Tamiflu maker, Roche (ROG.SZ) which traded as high at 6% to the pos side before paring those gains. Consistently dismal numbers out of European automaker Scania (SCVB.SW) just after the Euro open pushed that sector and its related suppliers to their session lows as the indexes continued their decline. By 3:30 markets had hit their collective lows and began a ninety minute rise off their lows. The FTSE100 recovered the best, trading as high as -50% by 5:00EST. Travel and Airlines remained on their lows but industrial and financials moved off their lows, while still trading broadly negative. Despite continued easing in the 3-month LIBOR, markets sharply paired their upward trend past 5:00EST following weak auction results out of Italy and further German leaks regarding the establishment of a 2-part bad bank model.

In individual stocks: Aviva [AV.UK] Reports Q1 Worldwide sales £10.3 (+5% y/y), IGD solvency surplus €2.5B, Q1 Net funded inflows of £1.9B. ||Merck [MRK.GE] Reports Q1 Net €56.7M v €186.8Me, Op profit €198M v €217Me, Rev €1.9B v €1.82Be, expects FY09 sales to flat to +5% y/y (implies €7.56-9.94B v €7.6Be) Core ROS +15% to 210% y/y. States: That while Merck's Pharmaceuticals business sector remains strong, the economic slowdown is having a considerable negative impact on the Chemicals business sector. || Siemens [SIE.GE] Firm is set to lower profit guidance on back of deeper than expected global slowdown -FT. Article notes that firm seeking to lower previous guidance of €8-8.5B target (€6B current analyst estimate). || Fortis [FORB.BE] Holder Ping An to reportedly vote against combination with BNP Paribas; wants return to original operating structure. Notes that any break up of company could destroy shareholder value. ||

Speakers: ECB's Noyer commented over the weekend that "Big problems' exist in IMF estimates for banking losses. Noted that recent stress tests on French banks build confidence. || ECB's Liikanen commented that there were signs of global economic stabilization (from low levels). He was cautious on any economic rebound for 2010, saying sluggish growth was likely due to continued deleveraging. Falling trade and Industrial Production coupled with rising unemployment having an adverse effect on global economy. He did note that International discussions in recent weeks have been 'encouraging' || France's Fin Min Lagarde reiterates that gov't did not share IMF's pessimism on global growth outlook. Governments are cautiously optimistic that the global economy has stopped worsening and entered a phase of stabilization. However, she stated that French Mar jobless rose around 60K to 70K || ECB, SNB's noted that their 1-week currency swap operations would continue until at least the end of July || BOE: Might take some time to observe full effects of Quantitative Easing (QE) purchases || Reportedly German Gov't reaches preliminary agreement on 2 bad bank models

In Currencies: Risk aversion set in as the fragile global economic growth scenario could be adversely impacted by any flu pandemic. The swine flu that originated in Mexico last week has spread to other continents by early Monday. World Bank estimated back in 2008 that any potential flu pandemic could cost $3T and result in a nearly 5% drop in world gross domestic product. The World Bank has estimated that more than 70M people could die worldwide in a severe pandemic. The USD and JPY were the main benefactors on the risk aversion theme as equities and energy sold off in the session. EUR/USD hovered around the 1.3150 area for the majority of the session, down from the 1.3250 close seen in NY last Friday. EUR/JPY cross probing below the 127 handle, off over 80 pips from the Tokyo open. USD/JPY testing the 96.50 neighborhood, off 20 pips from its Asian opening levels. The EUR/CHF cross-tested its lowest level of 1.5039 since the SNB intervened in the pair back on Mar 12th. CAD and AUD were softer as NYMEX June Crude futures fell by over $2.50/barrel to probe below the $49

Fixed income: Government Bonds futures higher in session on Safe-Haven plays amid flu concerns. Dealers noting that no major economic data on the agenda for Monday and look towards equity market price actionto provide near-term direction.

In Energy: EU's Solana: Reiterates view that Iran's nuclear program is a grave concern. Expected Iran reply in coming days on nuclear issue. Comments that President Obama's approach to Iran as a "window of opportunity"

NOTES

  • Risk aversion and the potential impact of a global flu pandemic are the topic of conversation this morning. Oil was off almost $3/barrel on economic impact.
  • Last week most government officials noted that the global economy was "getting worse more slowly" thus signs of stabilization. The Mexican flu situation (and the era of globalization) just reiterates how fragile any recovery would be. Thus risk aversion back on the front burner, as one believes it is premature to start pricing in an immediate economic recovery
  • Various ECB members continue to talk rate cut in May and mull other non-standard measures. The question is where does the ECB see the floor on rates?
  • Dealers noting that liquidity would be an issue as week winds on ahead of with May Day holidays in UK and Europe; coupled with the start of the Japanese Golden Week

Looking Ahead: US Corp earnings continue to roll out. Enterprise [EPD]; Corning [GLW]; Humana [HUM]; Qualcomm [QCOM]; and Verizon [VZ] expected before the NY equity open today

  • (CL) Chile Central bank minutes
  • 10:30 (US) Dallas Fed Manufacturing Activity: -46.0% expected v -49.0% prior
  • 10:30 (IS) Israeli Base Rate Announcement: No change expected, current Base Rate is 0.50%
  • 13:00 (US) Treasury's $40B 2y Note Auction

Trade The News Staff
Trade The News, Inc.

Legal disclaimer and risk disclosure

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FX Thoughts for the Day

Daily Forex Technicals | Written by Kshitij Consultancy Services | Apr 27 09 11:47 GMT |

USD-CHF @ 1.1457/60...Bullish

R: 1.1507 / 1.1537 / 1.1561
S: 1.1436 / 1.1411 / 1.1360

Dollar-Swiss rose towards 1.1487 during the day and is quite likely to continue moving up as the 100- and 200-MAs on the 4-hourly are flattening out. The Support at 1.1360 continued to hold during the day and is likely to hold during the US session as well. We continue to believe that a rise towards 1.17 over the next few days may be seen till this Support holds.

Cable GBP-USD @ 1.4566/70...Mixed

R: 1.4603 / 1.4641 / 1.4690
S: 1.4504 / 1.4474 / 1.3886

The view on Cable continues to be the same. The broad range of 1.4400 to 1.5070 remains intact. Cable looks mixed within the range. But overall the broad range remains intact. During the day it had dipped towards 1.4514 and has bounced towards the current levels.

A further dip could be well Supported at 1.4418 and a rise might see it move towards 1.4700 during the US session.

Aussie AUD-USD @ 0.7141/46...200-day MA Resistance

R: 0.7173 / 0.7230-36 / 0.7538
S: 0.7101 / 0.7038 / 0.7002

Aussie rose towards 0.7171 during the day and has since then been dipping lower. A further dip is likely to be supported near 0.7100. The 200-day MA continues to pressure the pair down and we continue to believe the range of 0.6945-0.7230 is likely over the next couple days.

Holding:

AUD 10K LOng at 0.7126, SL 0.7100 (up from 0.7080), TP 0.7200

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

Legal disclaimer and risk disclosure

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


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Daily Technical Strategist

Daily Forex Technicals | Written by FXTechstrategy | Apr 27 09 11:53 GMT |

Today's Focus: EURJPY & USDCAD

  • EURJPY: A third-Week Of Downside With A Hammer Formation.
  • USDCAD: Retest Of The 1.1983 Level Looks To Occur

EURJPY

EURJPY weakened for a third week in a row holding below its psycho level at 130.00 to test a low of 126.09 before reversing part of those losses to close at 128.27.A hammer candle has now formed following its bounce off its strong support s at its Mar 30'09 low at 126.41 and its Mar 26'09 high at 126.09.A follow through higher on that hammer formation is now expected for confirmation and if that occurs, further recovery will shape up towards the 130.00 level followed by its Oct 30'08 high at 131.06/range top with a breach of there bringing further upside gains towards the 134.33/53 area, its Mar 24'09/April 13'09 highs enroute to the 137.42 level, representing its April 06'09 high. On the other hand, a failure to follow through will turn focus to the 126.41 and 126.09 levels where cap is expected again. Below there if seen should pave the way a move towards the 122.12 level, marking its Mar 12'09 low and may be even lower. This downside view is consistent with its current weakness activated at the 137.42 level in early April'09. On the whole, although respite might be coming the pair's way, it remains biased to the downside following its weakness off the 137.42 level

Support Comments
126.40 Mar 30'09 low
122.12 Mar 12'09 low 131.06
120.01 Feb 09'09 high

Resistance Comments
127.65 Mar 13'09 high
129.72 Dec 29'09 high
131.06 Range top

USDCAD

Having reversed almost all of its recovery gains started at the 1.1983 level, its April 16'09 low,USDCAD is now shaping up for a retest of that level in the coming week. Supporting this is the fact that the pair has printed a higher level rejection candle and its weekly momentum indicators are bearish and pushing to the downside suggesting further weakness. Beyond the 1.1983 level will set the stage for a move lower towards the 1.1771 level, its Jan 07'09 low and then its Nov 05'08 low at 1.1464. Resistance is located at the 1.2192 level, its Mar 19'09 low ahead of its April 07'09 high at 1.2484 followed by the 1.2716 level, its April 01'09 high with a cut through there putting the next upside target at the 1.2957 level, its Mar 12'09 high. Overall, weakness off the 1.3064 level remains in progress having invalidated and maintained below its ascending triangle

Support Comments
1.2192 Mar 19'09 high
1.2024 Jan 28'09 low
1.1981/71 April 16'09 low/daily 200 ema

Resistance Comments
1.2482 April 07'09 low
1.2673 Feb17'09 high
1.2789 Mar 16'09 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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Copper Falls in London on Concern Swine Flu Will Hurt Economies

By Anna Stablum

April 27 (Bloomberg) -- Copper fell in London on concern an outbreak of swine flu may hurt efforts to revive the world economy. Aluminum, nickel and zinc also declined.

The MSCI World Index of stocks dropped for the first time in five days as the U.S. declared swine flu a public health emergency. Mexico’s toll of flu-related deaths exceeded 100.

“These pandemics, even just the risk of it, tends to shut economic activity down,” John Meyer, research chief at Fairfax IS in London, said by phone. “It’s going to slow things down.”

Copper for delivery in three months fell $185, or 4.1 percent, to $4,285 a metric ton by 12:44 p.m. in London, extending last week’s 7 percent drop.

The Dollar Index, a basket of six major currencies, rose for the first time in five days, making dollar-denominated commodities more expensive for those holding other currencies.


Metals “have come under pressure on the back of resurgent fears over economic growth, a stronger dollar and the emergence over the weekend of news that the outbreak of swine fever in Mexico has spread,” Leon Westgate, an analyst at Standard Bank Group Ltd. in London, said in a report.

Copper, used in plumbing and wiring, reached $4,925 a ton on April 14, the highest in almost six months, and is up 41 percent so far this year.

“Copper prices may have reached a top,” Credit Suisse Group AG said today in a note. China’s stockpiling agency “has already completed most of its purchases for 2009. Inventories are still at very high levels as real demand remains subdued.”

Copper Stockpiles

Stockpiles have risen 25 percent this year. Inventories monitored by the London Metal Exchange fell 1 percent to 425,275 tons, the bourse said.

Hedge-fund managers and other large speculators increased their net-short position, or bets prices will fall, in New York copper futures in the week ended April 21, according to U.S. Commodity Futures Trading Commission data released April 24.

Goldman Sachs Group Inc. said commodities will recover next year. “The global economy will bottom sometime in the second half of 2009, which would imply strong commodity returns to be realized in 2010 and 2011,” the bank said in a note yesterday.

Among other LME metals for three-month delivery, aluminum fell $23, or 1.6 percent, to $1,434 a ton. Stocks in LME- monitored warehouses rose 0.3 percent to a record 3.7 million tons, exchange data showed.

Total aluminum inventories shrank to 2.74 million tons in March, from 2.91 million tons in February, the International Aluminium Institute said in a report today.

Lead fell $73, or 5.1 percent, to $1,362 a ton, extending an 8 percent drop from last week.

Zinc retreated $55.25, or 3.9 percent, to $1,364.75 a ton, after dropping 9 percent last week. Tin eased 4 percent to $12,100 a ton and nickel fell $490, or 4.2 percent, to $11,060 a ton after dropping 10 percent last week.

To contact the reporter on this story: Anna Stablum in London at astablum@bloomberg.net.




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Dollar Wins Heads-or-Tails Toss on Growth or Weakness

By Oliver Biggadike

April 27 (Bloomberg) -- Former Federal Reserve Chairman Alan Greenspan said five years ago that predicting currencies is no better than tossing a coin. A growing number of traders are betting that heads or tails, the dollar wins.

Investors bullish on the U.S. economy say the dollar will strengthen as America recovers first from the global economic recession. Those who expect the longest contraction since the early 1980s to continue say the currency should appreciate as the haven from turmoil in world markets. Foreign investors bought a net $22 billion of U.S. financial assets in February, the Treasury Department said April 15.

The dollar is “the best-looking horse in the glue factory” among major currencies, said Robert Blake, head of strategy for North America in Boston at State Street Global Markets LLC, which has $11.3 trillion in assets under custody.

America’s currency is rising even as the Treasury sells record amounts of bonds to finance a deficit the Congressional Budget Office estimated will swell to $1.85 trillion this fiscal year. Intercontinental Exchange Inc.’s Dollar Index, which measures the greenback against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, is up 4.7 percent this year, after falling 5.4 percent at this point in 2008.

Strategists increased their forecasts for the dollar this year against all those currencies, data compiled by Bloomberg show. Since January, the analysts have boosted their year-end dollar forecast 2.2 percent to $1.32 per euro from $1.35, and 5.2 percent to 101 yen from 96 in February, the median of more than 40 estimates compiled by Bloomberg show.

Boosting Forecasts

The U.S. currency has strengthened to $1.3141 versus the euro from the low this year of $1.4058 on Jan. 2, and Blake predicts it will rise to $1.28 in a month. Against the yen, the dollar appreciated to 96.60 from the low of 87.13 on Jan. 21, and is likely to climb to 102, he said.

The dollar rose against 15 of the 16 most-traded currencies today as demand for safer assets increased after an outbreak of swine flu spurred concern there may be a global pandemic.

Much of the dollar’s gains over the past year came as the deteriorating global economy caused investors to flee stocks and emerging market bonds and reinvest their money in Treasuries. Rates on three-month Treasury bills have averaged 0.19 percent this year, compared with 1.27 percent in 2008.

The 30-day correlation coefficient between the Dollar Index and Morgan Stanley’s MSCI World Index reached negative 0.72 on Feb. 19, the most since July 2006, as the greenback approached a three-year high against its trading partners and global stocks fell. A correlation of minus 1 would mean the dollar gains whenever stocks decline.

Seeking Signs

Now, the dollar is gaining as stocks rally, signaling investors see the economy bottoming and are putting their money in U.S. assets.

The Dollar Index rose as much as 5.1 percent since March 19 as the MSCI World Index rallied 11 percent. The 30-day correlation coefficient narrowed to minus 0.55 in that period.

“If there’re signs that the U.S. is the first out of the recession, it’s beneficial for the dollar,” said Samarjit Shankar, director of global strategy for the Global Markets group in Boston at Bank of New York Mellon, which administers more than $20 trillion in assets.

Purchases of new homes in the U.S. were higher than forecast in March and German business confidence rebounded from a 26-year low this month, data on April 24 showed. The same day, finance chiefs from the Group of Seven industrialized nations said in a joint statement they see “signs of stabilization.”

Recovery Forecast

“Economic activity should begin to recover later this year amid a continued weak outlook, and downside risks persist,” the G-7 finance ministers and central bankers said in the statement.

Greenspan, who stepped down as Fed chairman in 2006, compared the accuracy of currency predictions to tossing a coin in November 2004 at the European Banking Congress in Frankfurt.

“Forecasting exchange rates has a success rate no better than that of forecasting the outcome of a coin toss,” he said in a speech in which he warned that the U.S. current-account deficit would diminish the appeal of accumulating dollar assets.

Strength in the dollar may be tempered as the Fed prints money to purchase U.S. debt in an attempt to keep yields from rising, according to Jonathan Xiong, who helps manage $18 billion in foreign exchange as a senior portfolio manager at Mellon Capital Management Corp. in San Francisco. The U.S. central bank’s balance sheet rose to $2.2 trillion as of April 22 from $906 billion at the beginning of September.

“You’re issuing your own debt and buying it back in the marketplace; that definitely will have to devalue the currency,” he said. “The big powerhouses like China do have a little bit of concern.”

Rising Demand

So far, data show undiminished foreign demand for U.S. financial assets. Net purchases totaled $22 billion in February as China and Japan added to their holdings of U.S. government debt, the Treasury said. The Fed’s holdings of Treasuries on behalf of foreign central banks and other institutions rose 8.7 percent this year to $1.84 trillion.

More foreign money flowed into U.S. stock markets in the 20 business days ended April 15 than in 69 percent of the other 20- day periods going back to 1997, according to State Street data. The five-day flow was in the 77.6 percentile, compared with outflows in the last six months that were higher than 86.4 percent of past periods, the data showed.

“We’re at a loss to identify other major currencies that look more attractive” than the dollar, State Street’s Blake said. “The equity-flow data have been dollar supportive almost any way you look at it. When people flood into the equity market they’ve been buying the dollar as well.”

Shrinking Deficit

Jim O’Neill, chief economist at Goldman Sachs Group Inc. in London, said a shrinking U.S. trade deficit will spur demand for the U.S. currency. He said in an April 21 interview that February’s 28 percent drop to $26 billion “means this massive commercial overhang of excessive supply of dollars coming from the trade deficit is basically being taken away.”

“What that tells you is that the funding problem has effectively been cut by a third already,” he said. “So I find myself these days difficult to be that bearish on the dollar, which is the base for me for the past 25 years. It’s really quite a big change.”

O’Neill predicts the dollar may rise as high as 110 yen in the next six months. He also reiterated his firm’s prediction that the U.S. will expand about 1 percent in the third quarter.

The Dollar Index largely followed the U.S. trade balance in the past nine years, rising to 117 in December 2001, the last time the gap was close to $26 billion, according to analysts at Citigroup Inc. in New York that use trading patterns to predict future price movements.

“Wow ... wow ... wow,” technical analysts Tom Fitzpatrick and Shyam Devani wrote in a report on April 9. “This dynamic could be extremely dollar positive.”

To contact the reporters on this story: Oliver Biggadike in New York at obiggadike@bloomberg.net.





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Pound Declines for Second Day on Concern Economy Deteriorating

By Anna Rascouet

April 27 (Bloomberg) -- The pound declined for a second day against the dollar after former U.K. Treasury adviser Roger Bootle said Britain may be heading for a 1930s-type depression as house prices slump.

The British currency also fell versus the Japanese yen as concern an outbreak of swine flu in Mexico will spread to Europe stoked demand for currencies perceived as a refuge from financial turmoil. U.K. house prices dropped for a 19th month in April, Hometrack Ltd. said in a separate report. BNP Paribas SA lowered its forecast for the pound, predicting it will trade at $1.49 by the end of June, from a prior estimate of $1.58.

“The U.K. economy is going to deteriorate far more rapidly than the market was expecting,” said Ian Stannard, a currency strategist in London at BNP Paribas SA. “Sterling is under pressure from the events of last week and negative news over the weekend.”

The pound weakened 0.7 percent to $1.4577 by noon in London and depreciated 1.3 percent to 140.77 yen. It was little changed at 90.13 pence per euro, and may trade at 95 pence to 96 pence per euro over the next few months, Stannard said.

The British currency slipped 1.5 percent against the euro in the past five days, paring its advance this year to 5.6 percent, amid signs the slump in Europe’s second-largest economy is deepening.

Gross domestic product will drop 1 percent in 2010 after shrinking 4 percent this year, Bootle said in a Bloomberg Television interview. The median estimate of 17 economists surveyed by Bloomberg is for 0.3 percent growth next year. Bootle was on former Chancellor of the Exchequer Kenneth Clarke’s panel of economic forecasters, known as the “Wise Men,” under the previous Conservative government until 1997.

Darling Forecasts

The current chancellor, Alistair Darling, said in his budget report to Parliament on April 22 the economy will contract 3.5 percent this year and expand 1.25 percent in 2010.

Prime Minister Gordon Brown’s government will sell a record 220 billion pounds ($321 billion) of gilts this fiscal year to help fund the budget deficit and revive the economy, the Debt Management Office said last week. That’s 50 percent more than last year.

The pound will trade at $1.51 by the end of September, compared with prior estimates of $1.65, analysts led by Hans- Guenter Redeker, the London-based global head of currency strategy, also said today. Sterling will trade at 95 pence per euro by the end of June and 96 pence by the end of the third quarter, they said. The previous estimates were 90 pence and 88 pence.

Credit Rating

“The massive fiscal deterioration will push the debt levels well above 70 percent of gross domestic product, which in combination with excessive private debt, might force rating agencies to take down the U.K.’s creditworthiness,” Redeker’s team wrote.

The cost of hedging against losses on British government debt through credit-default swaps rose to 101 basis points at 8:50 a.m. in London, according to CMA Datavision prices. It climbed every day last week, from 86 basis points on April 17.

Gilts advanced as investors sought the safety of government fixed income on concern the swine flu outbreak may spread and burden a global economy already mired in recession. The U.K.’s FTSE 100 Index of shares fell 1 percent.

“It’s the Mexican swine flu,” said Jason Simpson, an interest-rate strategist in London at Royal Bank of Scotland Group Plc. “All fixed-income markets rallied on the back of that.”

The yield on the two-year note fell four basis points to 1.7 percent, leaving it 27 basis points lower since the day before Darling presented the budget. The 4.25 percent security due March 2011 climbed 0.07, or 70 pence per 1,000-pound ($1,460) face amount, to 105.64. The 10-year gilt yield slipped three basis points to 3.45 percent. Bond yields move inversely to prices.

To contact the reporter on this story: Anna Rascouet in London arascouet@bloomberg.net.





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Canadian Currency Depreciates for First Time in Three Days

By Chris Fournier

April 27 (Bloomberg) -- Canada’s dollar fell for the first time in three days as global stocks declined and crude oil traded below $50, boosting the appeal of haven currencies such as the U.S. dollar and the Japanese yen.

“We started off with stronger bias for yen and the U.S. dollar as a consequence of the swine flu,” said Steven Barrow, head of research for Group of 10 nations in London at Standard Bank Plc. “Traders are keeping their positions pretty close to their chests at the moment.”

The Canadian currency dropped as much as 0.8 percent to C$1.2188 per U.S. dollar before trading at C$1.2162 at 8:13 a.m. in Toronto, compared with C$1.2096 on April 24. One Canadian dollar buys 82.22 U.S. cents.

The MSCI World Index, a gauge of equities in 23 developed nations, fell 0.6 percent, the first drop in five sessions. Crude for June delivery fell as much as $2.93, or 5.7 percent, to $48.62 a barrel in after-hours electronic trading on the New York Mercantile Exchange. The Canadian dollar tends to track swings in equity indexes.

The loonie will weaken to C$1.25 against the U.S. dollar by the end of this quarter before rebounding to C$1.19 by the end of March 2010, according to the median forecast in a Bloomberg survey of 38 analysts and economists. Barrow predicts the loonie will appreciate to C$1.18 within three months.

“Generally the trend is towards a weaker U.S. dollar,” he said.

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





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Swine Flu Outbreak Spreads to Spain as Mexico Death Toll Rises

By Hans Nichols and Shannon Pettypiece

April 27 (Bloomberg) -- Mexico’s toll of flu-related deaths exceeded 100, Asian countries screened travelers and Spain reported its first case of swine influenza, prompting concern of a pandemic.

Six people in Canada contracted swine flu and more cases are likely, government officials said. New Zealand said as many as 13 students who recently visited Mexico may have swine flu.

Australia, Japan, Singapore and South Korea are among countries screening travelers for fever, while Hong Kong raised its swine-flu response level to “serious” from “alert.” The European Union advised travelers to avoid areas affected by the outbreak. Barack Obama’s administration declared swine flu, normally spread among pigs, a public health emergency after 20 people contracted the disease.

“The surveillance system has been cranked up to a very sensitive level and what we’re getting, and what we expect a lot more of, are rumors of cases and these cases will be investigated,” said Dick Thompson, a spokesman for the World Health Organization in Geneva. “There will be rapid clinical laboratory testing to see whether or not these sick people are indeed sick with swine flu.”

Swine flu is a respiratory disease of pigs caused by type-A influenza that regularly leads to outbreaks among the animals, according to the U.S. Centers for Disease Control and Prevention. Three main human flu strains -- H3N2, H1N1 and type B --circulate and cause 250,000 to 500,000 deaths a year in seasonal epidemics, according to the WHO.

Pandemics occur when a novel influenza A-type virus, to which almost no one has natural immunity, emerges and begins spreading.

Spanish Case

One person in Spain has been confirmed as suffering from swine flu in Europe’s first case of the disease, Health Minister Trinidad Jimenez said. A further 16 people are being tested for the flu, she said. Both the confirmed case and possible infections involve people who had been in Mexico, where swine flu first broke out.

Ten high-school students who returned to New Zealand on April 25 from Mexico tested positive for influenza A, Health Minister Tony Ryall said in Wellington. Three students from another school are ill and being tested for influenza A, he said.

Concern about swine flu contributed to a drop in stocks worldwide today. The MSCI World Index dropped for the first time in five days, slipping 0.6 percent as of 12:05 p.m. in London. Air France KLM-Group led a decline in airline shares. GlaxoSmithKline Plc and Roche Holding AG, which make drugs to treat flu, advanced.

Bars, Theaters, Churches

The number of deaths from Mexico’s flu outbreak has risen to 103, Health Minister Jose Cordova said in an interview with television broadcaster Grupo Televisa SAB yesterday. Not all deaths have been confirmed to be caused by swine flu, he said.

The Mexican government requested that bars, movie theaters and churches be closed in Mexico City. In New York, where eight cases were confirmed at a private school, Mayor Michael Bloomberg is keeping city schools open and urging residents to wash their hands frequently, stay home if ill and avoid the hospital unless very sick.

EU officials “strongly recommend avoiding” travel to Mexico and other areas affected by the virus, EU Health Commissioner Androula Vassilou said in a videotaped statement released in Brussels today. The EU won’t advise against traveling to Spain.

‘More Severe’

While the U.S. cases were mild and no one died, the disease may become “more severe,” said Richard Besser, acting chief of the CDC. The 20 cases were confirmed in California, Kansas, New York, Ohio and Texas states.

Fears of a lethal pandemic lie in the nature of flu germs, which mutate readily and can become virulent by exchanging genes with related influenza viruses. While the H5N1 bird virus that spread across Asia in the last few years, killing millions of fowl and several hundred people, never gained genes to spread easily among humans, the Mexican swine flu already has, said Malik Peiris, a microbiologist from the University of Hong Kong.

“The concern is that this virus has the ability to transmit from humans to humans because a number of the cases who got infection have had no direct exposure to swine,” said Peiris, who has studied the severe acute respiratory syndrome and avian flu viruses.

Swine flu results in symptoms similar to regular human influenza such as fever, lethargy and cough, and may also cause nausea, vomiting and diarrhea, according to the CDC.

Sustained Transmission

Disease trackers are looking for sustained, human-to-human transmission of the viruses in the community to determine whether the WHO needs to elevate its level of pandemic alert.

Singapore tightened checks at Changi airport to screen arriving passengers, the Health Ministry said. Malaysia placed officials at airports to screen travelers, and told hospitals and clinics to check for patients with unusual fevers.

Japan will heighten its monitoring for any signs of swine flu and authorities will examine flights from Mexico, Chief Cabinet Secretary Takeo Kawamura said today.

Taiwan has tightened border checks for visitors from Mexico and the U.S., while Australia will require captains of all planes arriving from the Americas to report on the health of passengers before receiving landing permission.

China warned citizens visiting or already in Mexico to take precautions. It has banned all direct or indirect imports of swine or pork products from Mexico and from Texas, California and Kansas, the country’s General Administration of Quality Supervision, Inspection and Quarantine said.

Pork Ban

Indonesia, Southeast Asia’s largest economy, also banned imports of pork and edible swine products from today.

Russia, which has stopped pork imports from about 10 U.S. states, said it’s seeking more information from the U.S. on measures it’s taking to combat swine flu before lifting the ban.

Swine-flu viruses aren’t transmitted by food, and eating properly handled and cooked pork and pork products is safe, according to the CDC. There’s no evidence the disease is spread by exposure to “pork or pigs,” said Keiji Fukuda, WHO’s assistant director-general for health security and environment.

WHO declared the outbreak a “public health emergency of international concern” on April 25. The organization also concluded that more evidence is needed to determine whether the level of pandemic alert should be increased.

Emergency Committee

An emergency committee will meet again today, the WHO’s Thompson said. The WHO’s six-stage pandemic threat level is currently at 3. Evidence of increased human-to-human spread of a new virus would move it to level 4, according to the agency’s Web site.

Scientists are trying to determine why the virus has been more severe in Mexico. In the U.S. only one person has required hospitalization, Besser said.

There is no vaccine for the virus, he said. Homeland Security Secretary Janet Napolitano said 25 percent of “courses of treatments” of drugs, known as antivirals, were being released from U.S. stockpiles. In all, there are 50 million courses, she said. Among those are Tamiflu, sold by Roche, and Relenza, from GlaxoSmithKline.

The U.S. government is issuing a health emergency declaration to devote more resources to blocking the virus, Napolitano said. For now, the monitoring of travelers will remain “passive” and no restrictions on travel with Mexico have been issued.

White House press secretary Robert Gibbs said it was “far too early to determine” whether there will be an economic impact from the outbreak.

The World Bank promised Mexico $205 million in loans to help fight the disease, said Mexico’s finance minister, Agustin Carstens.

Obama

President Barack Obama was in Mexico City April 16 for meetings with Mexican President Felipe Calderon. Gibbs said the incubation period for an infection is long past and “the president’s health was never in danger.”

John Brennan, a special assistant to the president for homeland security, said the government is putting in place systems to allow “rapid identification” of any new cases and efforts to “mitigate a broader outbreak” in the U.S.

Four people in France suspected of having swine flu have tested negative for the virus, an official at the Health Ministry said today.

In Brazil, the Sao Paulo state hospital Emilio Ribas has isolated a potential case, said Doctor Edenilson Eduardo Calore, head of weekend duty. The patient had been in Mexico, Calore said.

Michael Bloomberg is the founder and majority owner of Bloomberg LP, the parent company of Bloomberg News.

To contact the reporters on this story: Hans Nichols in Washington at Hnichols2@bloomberg.net; Shannon Pettypiece in New York spettypiece@bloomberg.net.





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U.K. Stocks Drop; British Airways, Carnival Fall on Swine Flu

By Alexis Xydias

April 27 (Bloomberg) -- U.K. stocks fell from a ten-week high, led by British Airways Plc and Carnival Plc on concern the spread of swine flu may damp earnings at travel-related companies.

British Airways, the U.K.’s largest airline, and Carnival slipped more than 7 percent after the swine-flu outbreak spread beyond Mexico and the U.S. as the American government declared a public health emergency.

The FTSE 100 Index decreased 28.4, or 0.7 percent, to 4,127.59 as of 12:04 p.m. in London, after closing last week at the highest since Feb. 13. The FTSE All-Share Index dropped 0.8 percent, while Ireland’s ISEQ Index retreated 1.1 percent.

The FTSE 100 has rebounded 17 percent from its low this year on March 3 amid optimism that the worst of the global recession may be over. Almost $1.3 trillion in bank losses worldwide since the start of 2007 dragged the U.K. benchmark index down 48 percent between June 2007 and March this year.

“The market is at or around resistance levels after the strong gains we’ve seen, so anything that may precipitate selling pressure will certainly do it,” said Angus Campbell, head of sales at Capital Spreads in London. Investors “are going to target” travel-related stocks “if you get headlines” like the swine flu outbreak.

Credit Suisse Group AG strategists today advised buying U.K. stocks, saying easing credit conditions and lower interest rates and share prices will underpin an outperformance of the market relative to other regions.

Swine Flu

British Airways dropped 7.9 percent to 151 pence amid concern the outbreak of swine flu will depress global demand for air travel. Carnival, the world’s biggest cruise-line company, slipped 7.3 percent to 1,798 pence. TUI Travel, Europe’s largest travel company, dropped 4.1 percent to 260.5 pence. InterContinental Hotels Group Plc, owner of the Holiday Inn lodging brand, declined 4.8 percent to 639.5 pence.

A growing number of swine flu cases led the U.S. government to release stockpiles of medicine. Japan, Malaysia and Singapore said they are screening passengers at checkpoints for fever, while Hong Kong raised its swine-flu response level.

One person in Spain has been confirmed as suffering from swine flu in Europe’s first case of the disease, Health Minister Trinidad Jimenez said.

GlaxoSmithKline Plc advanced 3.7 percent to 1,043 pence. Britain’s biggest pharmaceutical company is producing its Relenza flu treatment at “full capacity” following the spread of swine flu, spokesman Stephen Rea said in a phone interview today.

Irish Banks

AstraZeneca Plc added 3 percent to 2,465 pence. The U.K.’s second-largest drugmaker was upgraded to “buy” from “neutral” at UBS AG, which cited a “valuation at historic lows.”

Allied Irish Banks Plc, the country’s biggest lender by market value, fell 5.2 percent to 81 cents. Rival Bank of Ireland Plc dropped 7.6 percent to 61 cents.

Ireland’s government is preparing to buy 90 billion euros ($119 billion) of property loans in a bid to stave off nationalizing its biggest lenders. It may still end up with majority control of the country’s banks.

Companies led by Allied Irish Banks may get 25 percent less than the face value of their loans under the proposal from the National Asset Management Agency, according to the median estimate of seven analysts surveyed by Bloomberg News. That implies losses of 22.5 billion euros. Analyst estimates for the discount ranged from 15 percent to 30 percent.

The following stocks also rose or fell in U.K. and Irish markets:

U.K. companies:

3i Group Plc (III LN) declined 30.75 pence, or 8.3 percent, to 341. The U.K.’s biggest publicly traded private-equity firm said it’s considering selling shares in a rights offering to reduce debt.

Aviva Plc (AV/ LN) advanced 9 pence, or 3.3 percent, to 282.25. The U.K.’s biggest insurer said its capital surplus increased to 2.5 billion pounds ($3.64 billion) at the end of the first quarter from 2 billion pounds three months earlier.

First-quarter revenue from Aviva’s life and pension business rose to 9.6 billion pounds from 8.6 billion pounds a year earlier, the London-based insurer said. Sales in North America increased 84 percent.

Venture Production Plc (VPC LN), an oil and gas producer, rose 9 pence, or 1.1 percent, to 806, a third day of gains. RWE AG and Vattenfall AB have been invited to bid for Venture and are analyzing the company’s books in preparation to make offers, the London-based Sunday Times reported without saying where it got the information.

Irish companies:

CRH Plc (CRH ID), Europe’s largest maker and distributor of building materials, climbed 22 cents, or 1.3 percent, to 17.04 euros. The company and rival Cie. de Saint-Gobain SA were among European suppliers upgraded by Credit Suisse, which citied a possible U.S. housing recovery this year. The stock was raised to “outperform” from “neutral.”

Independent News & Media Plc (INM ID) fell 2.6 cents, or 11 percent, to 23 cents. The Irish Times reported April 25 that Denis O’Brien, the media company’s second-largest shareholder, said the company has a “50-50” chance of refinancing a 200 million-euro ($263 million) bond due next month.

To contact the reporter on this story: Alexis Xydias in London at axydias@bloomberg.net.





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Carnival, Corning, Smithfield Foods, UAL: U.S. Equity Preview

By Rita Nazareth

April 27 (Bloomberg) -- Shares of the following companies may have unusual moves in U.S. trading. Stock symbols are in parentheses, and prices are as of 7:45 a.m. in New York.

Hotel, travel and airline shares dropped as the American government declared a public health emergency after an outbreak of swine flu spread beyond Mexico to Canada, Spain and five U.S. states.

Carnival Corp. (CCL US) slumped 8.5 percent to $26. Las Vegas Sands Corp. (LVS US) plunged 8.4 percent to $6.80. Marriott International Inc. (MAR US) declined 6.1 percent to $20.95. Host Hotels & Resorts Inc. (HST US) dropped 5.1 percent to $7.40. UAL Corp. (UAUA US) dropped 6.5 percent to $6.

Biotechnology companies which make flu vaccines surged.

BioCryst Pharmaceuticals Inc. (BCRX US) climbed 89 percent to $4.18. The drugmaker is working on an experimental flu vaccine that’s still in testing. Novavax Inc. (NVAX US) surged 129 percent to $3.25. The biotechnology company has an experimental vaccine that spurred an immune response in people to a deadly strain of bird flu, the H5N1 version.

Apple Inc. (AAPL US) fell 1.2 percent to $122.41. The maker of iPods and iPhones said it filed an amendment to correct the Form 10-Q it submitted to the Securities and Exchange Commission on April 23. As a result, Shareholder Proposal No. 5 Regarding Advisory Vote on Compensation, known as “Say on Pay,” was approved with a majority of votes cast.

Comerica Inc. (CMA US): The Dallas-based bank forecast fiscal 2009 credit-related chargeoffs of $650 million to $700 million. The company said its provision for credit losses exceeded chargeoffs by about $45 million.

Corning Inc. (GLW US) rose 0.7 percent to $15.43. The biggest maker of glass for flat-panel televisions posted first- quarter earnings that beat analysts’ estimates as demand for liquid-display TVs began to rebound. Profit excluding some items was 10 cents a share, double the consensus estimate of 5 cents.

CVS Caremark Corp. (CVS US) and Walgreen Co. (WAG US): The two largest U.S. drug-store chains are preparing stores for a possible rush on hygiene products and pharmaceuticals as swine flu spreads through North America.

CVS rose 0.6 percent to $29.90. Walgreen gained 3.1 percent to $30.50.

General Motors Corp. (GM US) rose 7.7 percent to $1.82. The automaker working to beat a June 1 U.S.-ordered bankruptcy deadline will kill the Pontiac brand and step up dealer shutdowns and job cuts to help persuade bondholders to slash debt in a bid to stave off a June 1 U.S.-backed bankruptcy, people familiar with the plan said.

Honeywell International Inc. (HON US): The biggest maker of airplane cockpit controls may report earnings at the low end of the forecast that it cut last week, Citigroup Inc. said, downgrading its rating on the stock to “hold” from “buy.”

Humana Inc. (HUM US) surged 5.1 percent to $28.75. The second-biggest provider of U.S.-backed medical benefits said 2009 earnings excluding some items will be at least $6.10 a share, beating the average analyst estimate of $5.92. Humana also said that first-quarter profit more than doubled as it raised prices and had fewer elderly customers whose prescriptions dragged down earnings last year.

Life Time Fitness Inc. (LTM US): The operator of 83 fitness and spa centers in the U.S. said Michael J. Gerend, president and chief operating officer, will leave the company, effective May 1.

Netflix Inc. (NFLX US) rose 0.7 percent to $43.03. The largest U.S. mail-order movie service was raised to “buy” from “hold” at Citigroup Inc., which said the company has one of the best earnings outlooks among Internet stocks.

Plumas Bancorp (PLBC US): The Quincy, California-based bank holding company suspended its dividend after posting a first- quarter loss of 29 cents a share.

Tyson Foods Inc. (TSN US): JPMorgan Chase & Co. cut earnings estimates for the largest U.S.-based meat producer, and Smithfield Foods Inc. (SFD US), the world’s biggest pork processor, “in part because of swine flu concerns.”

Smithfield Foods fell 5 percent to $9.80.

Whirlpool Corp. (WHR US): The world’s largest appliance maker said first-quarter profit excluding some items was $1.02 a share, beating the average analyst estimate for a loss of 18 cents.

Whole Foods Market Inc. (WFMI US): The largest natural-food grocer was cut to “sell” from “neutral” at UBS AG, which said the stock is expensive and consumer spending will continue to weigh on sales and hamper any meaningful recovery.

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net.





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Technology Stocks Favorites in S&P 500 on Zero Debt

By Eric Martin and Michael Tsang

April 27 (Bloomberg) -- Technology companies are piling up cash and cutting debt faster than any other industry, a signal to investors that they will rally even as evidence mounts that the stock market’s fastest advance since 1938 is in jeopardy.

Cisco Systems Inc., Salesforce.com Inc. and Cognizant Technology Solutions Corp. have driven technology shares in the Standard & Poor’s 500 Index to a 16 percent gain in 2009, the best start since 1998 and the most among the 10 industries in the measure. Money managers are betting the cash reserves, rising profits and cheapest valuations on record will send U.S. technology stocks up 24 percent this year, compared with an increase of less than 1 percent for the S&P 500, according to analyst price forecasts and data compiled by Bloomberg.

The S&P 500 fell 0.4 percent last week, the first drop since early March, after bank losses increased and the International Monetary Fund said world economies may contract for another year. MFS Investment Management, Harris Private Bank and Huntington Bancshares Inc. say computer and software makers may climb even as the rest of the market retreats.

“If you are putting money into the market, that’s the first place to look,” said James Swanson, Boston-based chief investment strategist at MFS, which oversees $134 billion. “They have cash on their balance sheets, they don’t have a lot of requirements to pay back debt, and valuations on the stocks are amazingly low. It’s a winner.”

Futures on the S&P 500 slipped 1.6 percent at 11:35 a.m. in London today as the swine flu outbreak spread and Lawrence Summers said the U.S. economy will keep contracting.

Most in Cash

Technology companies in the S&P 500 hold 19 percent of their assets in cash on average and have the least debt relative to overall value at 17 percent, according to data compiled by Bloomberg. Of the 75 companies in the S&P 500 Information Technology Index, 18 have no borrowings, including Cupertino, California-based Apple Inc., Mountain View, California-based Google Inc. and Qualcomm Inc. in San Diego. Among the remaining 425 companies in the index, only 12 have no debt, data show.

Corporate budgets for technology spending will increase in 2010 as equipment updates spur a 5.5 percent rise in computer shipments and a recovery in server sales, UBS AG said in a report to clients dated April 8. The Zurich-based firm’s survey of chief information officers in the U.S. and Europe showed they expect spending to climb after dropping 5.1 percent this year.

Global Recession

Prospects the first global recession since World War II would halt business upgrades and reduce consumer spending sent the technology index down as much as 55 percent from its October 2007 high. The gauge fetched 7.2 times its companies’ average cash flow last month, the lowest level in at least 16 years.

Even as Microsoft Corp. reported its first revenue decline since the company went public in 1986 last week, technology earnings held up better than other industries whose profits rely on economic growth.

Unlike banks, energy producers, retailers, mining companies and phone providers, computer makers in the S&P 500 haven’t lost money on a combined basis in any quarter since the bear market began, according to data compiled by Bloomberg. Industrial companies, makers of consumer staples, utilities and health-care providers also haven’t posted deficits.

A prolonged recession may delay a recovery in consumer and business spending and cause the rally in technology stocks to unravel, according to Stephanie Giroux, chief investment strategist for TD Ameritrade Holding Corp., an Omaha, Nebraska- based online brokerage with $225 billion in client assets.

IMF Forecast

The Washington-based IMF said in a forecast released April 22 that the world economy will shrink 1.3 percent this year, compared with its January projection of 0.5 percent growth. The lender predicted expansion of 1.9 percent next year instead of its earlier 3 percent estimate.

The contraction, which has already thrown 5.1 million Americans out of work, will push the U.S. jobless rate to 9.5 percent by year-end, economists surveyed by Bloomberg predict. Analysts who say corporate America will halt nine quarters of profit declines by the end of the year have proven to be too optimistic in every period since the third quarter of 2007, data compiled by Bloomberg show.

“The rally is reflecting a more bullish economic recovery than is likely to pan out,” said TD Ameritrade’s Giroux. “You have to be careful about some of these sectors that have run too far, too fast.”

Technology companies will benefit more as the economy emerges from $1.34 trillion in global bank losses and the highest unemployment rate in 25 years when businesses spend on equipment to make up for fired workers, according to Genesis Asset Management’s Michael Williams.

‘At The Dock’

Companies excluding banks, brokerages and insurers in the Russell 3000, which represents 98 percent of the value of U.S. stocks, have a combined $787 billion of cash, according to data compiled by Bloomberg. That’s twice the level at the end of the last bear market in 2002. They will use some of it to buy computers and make acquisitions, Williams said.

“We believe tech is leaving everybody at the dock,” said Williams, who oversees about $880 million as chief executive officer of Genesis Asset in New York. “We were aggressive, aggressive buyers. No one has liked technology for so long you’d be hard-pressed to remember there was a bubble 10 years ago.”

Williams said the firm owns shares of Cisco, the world’s biggest maker of networking equipment.

Cisco Shares

Shares of San Jose, California-based Cisco climbed 15 percent in March, when it traded at 6.4 times cash flow. That was the lowest valuation ever and 59 percent less than the five- year average, data compiled by Bloomberg show.

Salesforce.com added 25 percent this year as the world’s largest seller of Internet-based customer-management software said fourth-quarter earnings rose 86 percent and predicted full- year profit growth that beat analysts’ estimates.

The San Francisco-based company, which delivers its programs to subscribers online, has no debt and cash reserves that account for 33 percent of its assets. That’s the second- highest ratio among S&P 500 software suppliers.

“As companies need to economize and improve their operations, technology is a logical choice,” said Jack Ablin, chief investment officer at Chicago-based Harris Private Bank, which oversees $60 billion. “They view that they’ll get a return from their investment.”

Cognizant’s Cash

Cognizant is the only S&P 500 company that has at least 30 percent of its assets in cash, a stock price that’s less than 15 times estimated 2009 profit and is expected to earn more this year than it did in the previous 12 months, according to data compiled by Bloomberg.

The company, which sells on-site computer support, hasn’t had a decline in quarterly earnings since going public in 1998. First-quarter profit will rise 14 percent when it reports next month, analysts’ estimates show.

While shares of Teaneck, New Jersey-based Cognizant have climbed 27 percent this year, the average price forecast from analysts shows the stock will rise 19 percent in the next 12 months.

Technology makers are using cash to fund acquisitions and expand into new businesses. Cisco CEO John Chambers said in February he plans to use the company’s $29.5 billion in cash, the most of any U.S. technology company, to add product lines. He’s pushing into the market for data centers, the rooms of computers that store information and files, to boost sales.

Technology Takeovers

Sun Microsystems Inc., located in Santa Clara, California, has more than doubled this year after Redwood City, California- based Oracle Corp. agreed to buy the server maker for $7.4 billion. Sun shares dropped 79 percent in 2008.

Debt-free Broadcom Corp., a maker of semiconductors for headsets and televisions, offered $764 million for Emulex Corp., a provider of chips for data centers.

That raised the odds Cisco or Sunnyvale, California-based Juniper Networks Inc. will bid for QLogic Corp., a rival of Emulex, Morgan Keegan Inc. said. Costa Mesa, California-based Emulex gained 47 percent on April 21 following the offer. QLogic, located in Aliso Viejo, California, added 19 percent.

“The values are certainly there,” said Randy Bateman, chief investment officer at the asset management unit of Huntington Bancshares, which oversees $13 billion. “The more cash you’ve got on hand, the better off you will be.”

Bateman’s firm bought Cisco and Armonk, New York-based International Business Machines Corp. because they may benefit from acquiring smaller companies at bargain prices.

Hedge Funds

Some of the world’s biggest hedge funds have taken notice. Westport, Connecticut-based Bridgewater Associates Inc. bought a stake in Cisco. Steven Cohen’s Stamford, Connecticut-based SAC Capital Advisors LLC bought more Salesforce.com stock. Lee Ainslie’s Maverick Capital Ltd. in New York lifted shareholdings in Cognizant at the end of 2008, SEC filings show. The three hedge funds manage more than $50 billion.

The last time the technology index started a year with a bigger rally, it continued. The measure rose 29 percent in 1998 through April 24 and went on to climb another 38 percent. The gauge surged 16-fold during the 1990s before peaking in March 2000 and then plunging 83 percent through October 2002.

The advance a decade ago was spurred by the likes of Pets.com Inc., which closed after burning through cash raised in its 2000 initial public offering in less than a year, and GeoCities, a Web-site hosting company that Yahoo! Inc. bought in 1999 and said last week it would shut. Investors say the current rise is different because it’s being driven by mature businesses with little or no debt.

“Technology has come to the forefront, and we believe the answer is low leverage,” said Richard Weiss, who oversees about $50 billion as chief investment officer at City National Bank in Beverly Hills, California. “The lack of debt problems, liquidity problems is allowing them to do things that other companies and industries may not be able to do.”

To contact the reporters on this story: Eric Martin in New York at emartin21@bloomberg.net; Michael Tsang in New York at mtsang1@bloomberg.net.





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U.S. Stock-Index Futures Fall on Swine Flu Concern; Alcoa Drops

By Adam Haigh

April 27 (Bloomberg) -- U.S. stock-index futures declined and Treasuries gained as the swine flu outbreak spread and Lawrence Summers, director of the White House National Economic Council, said the U.S. economy will keep contracting.

Alcoa Inc. led a drop among raw-material producers, falling 1.9 percent in German trading, as metal prices dropped on concern the economic decline won’t ease anytime soon. General Electric Co. slid 1.7 percent as Summers said unemployment will continue to rise for “quite some time.”

Futures on the Standard & Poor’s 500 Index expiring in June retreated 1.9 percent to 850.1 at 12:13 p.m. in London. Dow Jones Industrial Average futures lost 1.7 percent to 7,917. Nasdaq-100 Index futures declined 1.5 percent to 1,354.25.

“We have seen a setback coming from the swine flu so we move away from fundamentals for the time being,” said Roger Groebli, Singapore-based head of financial market analysis at LGT Capital Management. “The market will be in limbo because of the uncertainty,” he said in a Bloomberg Television interview.

The Standard and Poor’s 500 Index has rallied 28 percent since March 9 as companies from American Express Co. to Ford Motor Co. posted better-than-estimated earnings and investors speculated U.S. Treasury Secretary Timothy Geithner’s plan to finance the purchase of as much as $1 trillion in illiquid assets from banks will help to pull the global economy out of the economic slump.

Earnings

Earnings are expected at companies from Verizon Communications Inc. to Qualcomm Inc. today. Of the 178 S&P 500 companies that have reported earnings since April 7, 120 beat the average analyst estimate and 57 missed, according to Bloomberg data. Profits have declined an average of 32 percent during the period.

Yields on 10-year Treasury notes dropped six basis points to 2.94 percent. The yen strengthened to 127.05 per euro from 128.66 last week. The dollar advanced to $1.3163 per euro, from $1.3242.

Japan, Malaysia and Singapore said they are screening passengers at checkpoints for fever, while Hong Kong raised its swine-flu response level.

The S&P 500 trimmed its weekly decline on April 24 as the Federal Reserve, which released the criteria for its stress test of lenders, said most of the country’s banks hold capital “well in excess” of regulatory standards.

U.S. equities were lowered to “benchmark” from “overweight” by London-based equity strategist at Credit Suisse Group AG, which wrote “the relative performance of the U.S. deteriorates as lead indicators turn up.”

Alcoa

Alcoa, the biggest U.S. aluminum producer, lost 1.9 percent to $8.96 in German trading. Freeport-McMoRan Copper & Gold Inc., the world’s largest publicly traded copper producer, slid 1.7 percent to $40.24.

Copper for three-month delivery on the London Metal Exchange dropped as much as 3.7 percent to $4,305 a metric ton.

General Electric, the world’s biggest maker of power-plant turbines and jet engines, slid 1.7 percent to $11.91 in German trading.

The U.S. economy will experience “sharp declines in employment for quite some time this year,” Lawrence Summers said yesterday on “Fox News Sunday.”

Whole Foods Market Inc., the largest natural-food grocer, retreated 3.2 percent to $19.11 in German trading as UBS AG cut its recommendation on the shares to “sell” from “neutral.”

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





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