Asian Market Update

Daily Forex Fundamentals | Written by Trade The News | May 05 09 06:18 GMT |

Media Speculation of More US Banks Requested to Raise Additional Capital Spoils Equity Rally; RBA Remains on Hold at 3.00%, Citing Substantial Pipeline Easing and More Gradual Inflation Decline With many of Asian financial markets on holiday break, trading in the region has been more subdued and noticeably less volatile than in recent sessions, particularly in light of the broad-based gains seen in US indices on Monday. Nikkei225 remained on holiday break for second of the three consecutive sessions, and was also joined by Korea's Kospi. The absence of a bullish follow-through from the US rally in the Asian bourses that did stay open however is predominantly related to the afterhours developments from the US banking sector, and the news is hardly positive. Quoting unnamed sources familiar with the stress-test results, Wall St Journal reported that the government is expected to request that 10 out of the 19 banks undergoing stress tests would be requested to raise additional capital. This follows speculation that Bank of America and Citi, would need a $10B equity raise - a claim refuted by BAC spokesman - and earlier rumors of as many as 4-6 banks would have to post additional capital. In Australia, S&P/ASX reversed its initial rally, trading down to unchanged levels, and front-month S&Ps slid below $900 after trading just below $904. Despite the weaker than expected Q1 inflation data and accelerated rise in unemployment rate, Reserve Bank of Australia heeded consensus forecast to retain cash rate unchanged at 3.00%. Australia's monetary body cited signs of stabilization in some regional economies as well as substantial easing undertaken in the past whose impact was yet to be felt. On inflation, the RBA noted that price pressures would remain on a downward path albeit at a more gradual pace. Going forward, RBA suggested it would continue to assess if more rate reductions are required based on the unfolding economic and financial conditions. On the upside, Australia's March building approvals reported earlier came in above expectations of 2.8% at 3.5% on a m/m basis. In notable Sydney index shares, energy and gold producers Woodside Petroleum and Newcrest Mining traded to the upside on strength from both commodity markets earlier in US hours. In other materials, Bluescope Steel was halted after announcing it would raise A$825M in secondary offering at A$1.55 v last price of A$2.57. Elsewhere in Asia, Taiwan government was reportedly looking to implement a tax exemption for funds in its offshore banking units so as to extend the recent equity market outperformance. In Indonesia, markets were preparing for the likelihood of another interest rate easing of 25bps, taking Reference Rate down to 7.25%. In currencies, hints of risk aversion led to consolidation of USD losses against the European and commodity majors, as well as JPY strength tracked from the US session. EUR/USD sold off to 1.3350's after trading above 1.3430, while GBP/USD peaked just shy of 1.5050 before falling to 1.4980's. Swiss Franc drifted against USD just below 1.13, but fell against the other EUropean majors after SNB's Hildebrand forecasted negative domestic inflation in 2009 and zero inflation in 2010/11 periods. In commodity FX, AUD gained slightly after the RBA decision to keep rates on hold before the prevailing caution in today's session pulled the Aussie back to 0.74 handle against USD. CAD traded at its best level against the greenback since early November, breaching 1.1715. Japanese Yen consolidated its gains posted earlier in the US session, where it decoupled from equity rally with strength of its own. USD/JPY traded down to 98.60s, while EUR/JPY declined nearly one big figure from session's best levels to 131.80's. Crude oil prices are lower in Asia, after gaining by more than 2% during the NY session. The NY gains for oil came as the S&P 500 had its biggest point and percentage gain since April 9. Additionally, the recent expansionary PMI figures from China and India are seen as supportive for oil prices. Spot Gold is higher and trading above $900/oz, after gaining more than $13 during the NY session. Looking ahead, gold prices may gain some direction from the release of the stress test results for the US banks, which are due later this week. 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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Asia Session Recap

Daily Forex Fundamentals | Written by Forex.com | May 05 09 05:42 GMT |

The Reserve Bank of Australia left the cash rate unchanged today at a 49 year low of 3.0% as most expected, as well the Aussie Dollar hit a seven month high of 0.7426 leading up to the non-event. The AUD/USD continued its magnificent run into the Asia session, driving 40 pips or so from the open to touch the high before a wave a profit taking took back some of the gains, dropping the pair to the session low of 0.7376 before the rate decision blew some wind back into the Aussie's sails. Profit taking coupled with news that as many as 10 of the 19 'stress test' banks in the US may need additional capital to carry on helped drop the Euro and the British Pound from session highs as well. EUR/USD dropped from highs of 1.3438 to levels close to 1.3364 as London traders rolled in for the day. The GBP/USD pair was in the same boat, dropping from 1.50460 highs, to current levels just under 1.49900. USD/JPY moves favored the yen, drifting from 98.96 levels to lows of 98.62 later in the day. EUR/JPY dropped as well, in this case from 132.75 to levels close to 131.85. It will be interesting to see if the recent rally in riskier assets can remain unscathed through Thursday's 'Stress Test' results…. Upcoming Economic Data Releases (London Session): 5/5/2009 5:45 SZ SECO Consumer Climate APR -23 -25 05-08 MAY MAY UK Halifax House Prices sa (MoM) APR -1.90% -1.00% 05-08 MAY MAY UK Halifax House Price 3Mths/Year APR -17.50% -17.50% 5/5/2009 7:30 EC EU Finance Ministers Hold Meeting 5-May 5/5/2009 8:30 UK PMI Construction APR 30.9 31.9 5/5/2009 9:00 EC Euro-Zone PPI (YoY) MAR -1.80% -2.90% 5/5/2009 9:00 EC Euro-Zone PPI (MoM) MAR -0.50% -0.50% Forex.com http://www.forex.com

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FX Technical Analysis

Daily Forex Technicals | Written by Mizuho Corporate Bank | May 05 09 06:32 GMT |

EURUSD Comment: Rallying from the top of the 'cloud' and a weekly close above the top of the 'flag' have turned momentum bullish. Similar patterns can be seen in a series of major currencies suggesting generalised US dollar weakness this month, probably a lot longer than that. Strategy: Buy at 1.3365, adding to 1.3260; stop well below 1.3190. Add to longs on a sustained break above 1.3450 for 1.3575/1.3600 and more further out. Direction of Trade: →↗ Chart Levels: Support Resistance 1.3357 " 1.3439 1.33 1.35 1.326 1.352 1.3190* 1.3582* 1.3145 1.365 GBPUSD Comment: The strongest weekly close since early January but under the psychological 1.5000 area. Other currencies are doing something similar and bullish momentum has increased. Futures positions are less than half of 2007's peak suggesting many are looking in the wrong direction. Expect another squeeze higher this week and maybe all month. Strategy: Buy at 1.5000; stop below 1.4500. Add to longs on a sustained break above 1.5075 for 1.5375 short term and then 1.5725/1.5800 Direction of Trade: →↗ Chart Levels: Support Resistance 1.4983 " 1.5049/1.5069* 1.49 1.5165 1.4835 1.5285 1.47 1.5375* 1.4500* 1.5535 USDJPY Comment: Golden week holiday in Japan as the Yen weakens against most currencies. It appears to be stalling around the 99.00 area as it did in February and March. Moving averages suggest a short, though prices have rallied well from the top of the 'cloud', so conflicting messages and we may end up trading between 96.00 and 99.00 for longer than we had originally thought. Strategy: Attempt shorts at 98.80; stop above 99.85. Short term target 97.65, maybe 97.15 Direction of Trade: → Chart Levels: Support Resistance 98.61/98.52 " 98.98 97.9 99.57/99.69* 97.15 99.77 96.00* 100 95.63* 100.74 EURJPY Comment: Trading back up to March's highs and a few Yen crosses are at their highest levels so far this year. Note though that moving averages suggest a short while the 'clouds' a long, so still mixed signals. We feel the latest move might stall around the 133.00 area for a small retreat. Strategy: Possibly attempt tiny shorts at 132.20; stop above 133.65. Cover shorts between 130.03 and 128.85 Direction of Trade: → Chart Levels: Support Resistance 131.86 " 132.77/132.89 131.35 133.5 130.9 134 130.3 134.33/134.50* 128.85 135.5 Mizuho Corporate Bank Disclaimer The information contained in this paper is based on or derived from information generally available to the public from sources believed to be reliable. No representation or warranty is made or implied that it is accurate or complete. Any opinions expressed in this paper are subject to change without notice. This paper has been prepared solely for information purposes and if so decided, for private circulation and does not constitute any solicitation to buy or sell any instrument, or to engage in any trading strategy.

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Technical Analysis for Crosses

Daily Forex Technicals | Written by ecPulse.com | May 05 09 06:24 GMT |

GBP/JPY Sterling versus Japanese yen is still forming the bearish structure slowly below 88.6 Fibonacci of the Bat pattern's CD leg (located at 148.67 zones). Now additional bearishness is still in favor based on the overall negative candlestick structure and the continuous overbought signs appearing on (William%R, Stochastic and CCI-RVI combination). Carefully note that if a clear breakout occurs below 147.60 areas, this will activate our prediction on the intraday basis. Trading range for today is among key support at 143.85 and key resistance at 152.75. The general trend is to the downside as far as 156.20.remains intact with target at 116.00. Support: 147.60, 146.95, 146.20, 145.50, 144.60 Resistance: 148.70, 149.45, 150.00, 150.60, 151.50 Recommendation: According to our analysis, sell the pair at 148.20 with targets at 145.50 and stop loss at 150.50. EUR/JPY The previous expected bearishness is still under construction for the time being as the pair is still struggling below 61.8% Fibonacci of the whole decline that started at 137.40 and bottomed out at 124.40 zones while the overall candlestick structure is bearish below 132.50. Hence we still keep our outlook to the downside on the intraday basis supported by the clear overbought signal appearing on Stochastic, William and CCI while AROON also started to be activated for the time being. A break of 131.50-Envelopes value- will accelerate this negative scenario. Trading range for today is among key support at 129.35 and key resistance now at 135.50. The general trend is to the downside as far as 141.44 remains intact with targets at 100.00 followed by 88.97 levels. Support: 131.50, 130.90, 130.10, 129.60, 128.85 Resistance: 132.50, 133.15, 133.80, 134.25, 134.80 Recommendation: According to our analysis, sell the pair at 132.20 with targets at 129.85 and stop loss at 134.00 EUR/GBP The royal pair is trapped inside a very tight range area below the Alligator forming a bearish candlestick structure that helps us to say that the pair is about to move to the downside particularly if it succeeds to breach the 61.8% Fibonacci of the last rise started at 0.8785 and was topped out at 0.9080 zones while the bulls and bears indicator shows that the bears power is increasing gradually; supporting our anticipated bearishness on the intraday basis. Carefully note that a breakout below the range area will accelerate this scenario. Trading range is among the key support 0.8760 and key resistance now at 0.9130. The general trend is to the upside as far as 0.8020 area remains intact with targets at 1.0000 followed by 1.0400 levels. Support: 0.8890, 0.8855, 0.8825, 0.8800, 0.8760 Resistance: 0.8935, 0.8965, 0.9005, 0.9030, 0.9070 Recommendation: According to our analysis, sell the pair at 0.8915 with targets at 0.8825 and stop loss at 0.8990. 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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Australian Building Approvals Rise 3.5% on Grants

By Jacob Greber

May 5 (Bloomberg) -- Australian home-building approvals rose in March for a second month as government grants and interest-rate cuts spurred demand among first-time buyers.

The number of permits granted to build or renovate houses and apartments increased 3.5 percent from February, when they rose a revised 8 percent, the Bureau of Statistics said in Sydney today. The median estimate of 18 economists surveyed by Bloomberg was for a 2.8 percent gain.

Central bank Governor Glenn Stevens will probably keep the benchmark interest rate at a 49-year low of 3 percent today to boost an economy that is in its first recession since 1991. The government is trying to avoid a U.S.-style collapse in property prices by handing out grants to buyers of new homes of as much as A$21,000 ($15,400). House prices fell by a record annual amount in the first quarter.

“We expect dwelling construction to add to growth,” said David de Garis, a senior economist at National Australia Bank Ltd. in Sydney. “That’s one sector of the economy that will be doing better over the next year or so.”

Building approvals fell 16.5 percent in March from a year earlier, today’s report showed. Economists tipped an 18.9 percent drop.

The Australian dollar traded at 73.98 U.S. cents at 11:53 a.m. in Sydney from 73.94 cents before the report was released. The two-year government bond yield was unchanged at 3.27 percent.

Rate Cuts

Stevens, who cut borrowing costs by a record 4.25 percentage points between early September and last month, will keep the overnight cash rate target unchanged at 2:30 p.m. today in Sydney, according to 18 of 19 economists surveyed by Bloomberg News. One expects a quarter-point cut.

The governor said on April 21 that while the economy is in a recession, there “remain good grounds to think that we will continue to weather the storm better than most.”

Rate cuts as well as government spending will “still be coming through for some time,” Stevens said.

Home-loan approvals rose for a fifth month in February and consumer confidence jumped in April by the most since August. Business sentiment gained in March for a second month.

Households with an average-sized mortgage of A$250,000 are paying A$7,000 a year less than they were six months ago, which is equal to 8 percent of average family incomes, according to the Reserve Bank.

Demand for new homes is being fueled by Prime Minister Kevin Rudd’s decision in October to triple a grant to buyers of new dwellings to A$21,000. He also doubled payments to buyers of existing homes to A$14,000.

Bank lending increased in March, helped by a 0.6 percent gain in mortgage borrowing, the Reserve Bank reported on April 30.

Approvals to build private houses rose 2.8 percent to 7,333 in March, today’s report showed. Approvals for apartments and renovations also advanced 2.8 percent to 2,840.

To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Philippine Inflation Eases, Giving Policy Flexibility

By [bn:PRSN=1] Francisco Alcuaz Jr []. and Karl Lester M. Yap

May 5 (Bloomberg) -- Philippine inflation slowed to a 16- month low in April as fuel and utility prices fell for a fifth month, giving the central bank more room to reduce borrowing costs and stoke economic growth.

Consumer prices rose 4.8 percent from a year earlier, the National Statistics Office said in Manila today. That compares with the median forecast of 4.6 percent in a Bloomberg News survey of nine economists.

``We are encouraged by the increased flexibility afforded to monetary policy by the continued improvement in the inflation outlook,'' central bank Governor Amando Tetangco said in a mobile-phone text message after the inflation data today. Policy makers next meet on May 28 to decide on borrowing costs.

Bangko Sentral ng Pilipinas has cut its benchmark interest rate to a 17-year low of 4.5 percent to spur domestic spending as exports slump and remittances from overseas Filipinos falter amid the global recession. The government forecasts 2009 economic growth may slow to as little as 3.1 percent, the weakest pace in eight years.

``The fast drop in inflation expectations provides breathing space'' for the central bank to lower its key interest rate or reduce banks' reserve requirements, said Jonathan Ravelas, a market strategist at Banco de Oro Unibank Inc. in Manila. ``Because of low inflation, there's no risk.''

The peso rose a fourth day, climbing 0.5 percent to 47.9 per dollar as of 10:28 a.m. in Manila, according to Tullett Prebon Plc.

Orderly Adjustment

``We continue to keep a close eye on the medium-term implications of previous monetary policy easing to ensure orderly adjustment of liquidity conditions,'' Tetangco said.

Inflation may slow to 1 percent in the third quarter, central bank Deputy Governor Diwa Guinigundo said last week.

Lower borrowing costs have spurred demand for loans, helping the nation's biggest lender by market value return to profit growth. Bank of the Philippine Islands said last week profit in the three months ended March jumped 86 percent from a year earlier, the first increase in five quarters.

Fuel, electricity and water prices fell 2.4 percent from a year earlier last month compared with a 2.8 percent decline in March. Food, beverage and tobacco costs climbed 8 percent, easing from an 11.4 percent gain in March.

To contact the reporter on this story: Francisco Alcuaz Jr. in Manila at falcuaz@bloomberg.net

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Obama’s Bid to End Offshore Tax Havens Faces Hurdle in Congress

By Ryan J. Donmoyer

May 5 (Bloomberg) -- President Barack Obama’s plan to end tax breaks for U.S.-based multinational companies drew a skeptical response from fellow Democrats on Capitol Hill, indicating that his plan may face obstacles on its path through Congress.

Senate Finance Committee Chairman Max Baucus, a Montana Democrat, called for “further study” of Obama’s proposals within minutes of the president’s announcement yesterday. Representative Joseph Crowley, a Democrat on the tax-writing House Ways and Means Committee, said he’s wary because the tax changes would hurt Citigroup Inc., his New York district’s largest private-sector employer.

Natalie Ravitz, a spokeswoman for Senator Barbara Boxer, a California Democrat, said that any tax overhaul should not lead to “unintended consequences.”

Other Democrats, including House Ways and Means Committee Chairman Charles Rangel of New York, support the proposal. Some lawmakers, including Iowa Senator Charles Grassley, the ranking Republican on the Senate finance panel, are still weighing the plan.

Obama proposed outlawing three offshore tax-saving strategies commonly used by companies such as Citigroup, General Electric Co., and Procter & Gamble Co. In doing so, he reignited debate about whether U.S. companies can remain competitive in world markets if they have to pay billions of dollars in taxes on foreign profits.

Lawmakers will have “a great deal of willingness to listen to companies” that face as much as a 10 percent tax increase under Obama’s plan, said Clinton Stretch, managing principal of Deloitte Tax LLP in Washington. One proposal to limit deductions by companies that defer U.S. tax payments on foreign profits faces “very tough sledding in the Senate,” he said.

‘Broken Tax System’

The U.S. has “a broken tax system” that is “full of corporate loopholes that makes it perfectly legal for companies to avoid paying their fair share,” Obama said as he outlined his plan with Treasury Secretary Timothy Geithner at the White House. Obama called most of the breaks “unjustifiable” and likened some company practices to a “tax scam.”

That rhetoric stung some executives: Carl Guardino, chief executive of the Silicon Valley Leadership Group, told Treasury officials on a conference call after the speech that Obama’s “word choices were a bit troubling” because chief executives in his organization are “proud Americans.”

A reporter for Bloomberg News, who identified himself and his affiliation, was on the call between Treasury officials and the business leaders.

Surprised

In an interview after the call, Guardino said he and 52 other top executives of companies such as Hewlett-Packard Co., Intel Corp., and Oracle Corp., meeting in Washington this week found it “surprising to be construed in the same way as tax cheats.”

The package of corporate and individual tax changes, which will be part of a detailed budget the administration plans to release May 7, would generate about $210 billion in tax revenue over the next decade, according to Treasury estimates. Obama’s proposals, if adopted, wouldn’t take effect until 2011.

For the biggest chunk, the administration expects to raise $86.5 billion through 2019 by ending a strategy that lets U.S.- based multinational companies effectively hide the role their foreign subsidiaries play in shifting profits into low-tax jurisdictions such as the Cayman Islands.

The proposal, combined with a $60.1 billion plan to limit many expense deductions for American companies that take advantage of laws allowing them to defer tax on foreign profits and a $43 billion crackdown on abusive foreign tax credits, including those with artificially inflated values, would be the biggest tax increase on U.S. corporations since 1986.

Burden of Proof

Obama’s plan also would shift the burden of proof to individuals when the IRS alleges assets are being hidden in certain offshore bank accounts, the White House said in a statement.

In exchange, Obama proposed to make permanent a research and experimentation credit worth about $75 billion over the same period to manufacturers and other companies that can claim it.

Obama’s plan drew immediate criticism from the U.S. Chamber of Commerce and the Business Roundtable, a group of chief executives at some of the biggest U.S. companies. Roundtable President John Castellani said Obama is pushing “the wrong idea at the wrong time for the wrong reasons.”

‘Fresh Opinions’

An advisory group headed by former Federal Reserve Chairman Paul Volcker, which is studying tax proposals, isn’t bound by Obama’s plan, said Gene Sperling, an economic adviser to the president. “They are there to give the president fresh opinions,” Sperling told corporate executives on the conference call about the tax plan.

Obama based many of his proposals on earlier ideas by Democratic lawmakers such as Senator Carl Levin of Michigan, Representative Lloyd Doggett of Texas, and Rangel.

Baucus, who said he supports the president’s overall goals, said it’s best to consider an overhaul of international tax rules as part of a broader rewrite of the tax code.

“Further study is needed to assess the impact of this plan on U.S. businesses,” Baucus said in a statement.

In a separate statement, Crowley said he favors taking steps to “protect U.S. multinational companies, including Citibank which is the largest private-sector employer in Queens, so they are not subject to double taxation overseas.”

‘Misunderstanding’

Boxer’s spokeswoman Ravitz said that the senator’s experience in pushing a corporate “repatriation” tax holiday “indicates that there is a great deal of misunderstanding surrounding these issues.”

Other lawmakers reacted more favorably.

“Our tax code should reward companies that thrive by continuing to invest in America and American workers,” Rangel said. “I applaud President Obama’s commitment to simplifying our tax code and look forward to working with the administration to close these loopholes.”

Grassley said he supports efforts to crack down on tax abuse. “Out of fairness, corporate taxpayers generally shouldn’t pay pennies on the dollar compared to the rest of Americans,” Grassley said. However, he said, if Obama is “using tax shelters as a stalking horse to raise taxes on corporations at the cost of U.S. jobs, he’ll lose me.”

To contact the reporter on this story: Ryan J. Donmoyer in Washington at rdonmoyer@bloomberg.net

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IMF Sees Vietnam Strength, Even After Cutting Growth Forecast

By Jason Folkmanis

May 5 (Bloomberg) -- Vietnam’s economy is showing strength in areas including construction and domestic sales, and even with weakened growth prospects is expected to be among Asia’s top performers this year, the International Monetary Fund said.

The agency, which has 185 members, last month cut its forecast for Vietnamese economic growth in 2009 to 3.3 percent from a previous prediction of 4.8 percent. Neighboring Malaysia, Thailand and Cambodia are all expected by the IMF to contract this year.

Vietnamese construction output expanded 6.9 percent in the first quarter, a “surprise on the upside,” according to a note last month from Vietnam Property Fund Ltd. Retail sales of goods and services in the country grew 21.5 percent in the first four months, according to the General Statistics Office in Hanoi.

“We expect some recovery in agriculture in the remainder of 2009, and this combined with robust construction and resilient private consumption should provide support to economic activity despite continued weakness in manufacturing exports and foreign direct investment,” said Benedict Bingham, the IMF’s senior resident representative in Hanoi.

Bingham was commenting in a telephone interview yesterday, in response to questions about the lender’s reduction of its 2009 growth prediction for Vietnam.

“With the global environment this tough, some downward revision in growth was inevitable in 2009,” Bingham said. “Nevertheless, Vietnam is still going to be one of the strongest performers in the region this year, and we remain positive about the longer-term outlook for Vietnam.”

Weighed Down

Vietnam posted first-quarter economic growth of 3.1 percent, the slowest pace on record. The figure was weighed down by a 0.4 percent rate of growth in agriculture, forestry and fisheries, which accounted for 15 percent of gross domestic product.

“Agriculture was weaker than anticipated, principally because of the flooding that hit northern Vietnam earlier in the year,” Bingham said. “While this didn’t affect rice production much, it did affect other food crops.”

A 0.3 percent first-quarter contraction in manufacturing was also a weaker figure than had been expected, Bingham said. Still, construction activity was better than had been anticipated during the period, he said.

A government interest-rate subsidy program is sparking a “new credit boom” in Vietnam, Citigroup Inc. said last month. The worst phase of Vietnam’s economic slowdown may be over, Vinacapital Investment Management Ltd. said in a note released last week.

“Retail sales growth remained healthy” during the first quarter, Vinacapital said. “The residential real-estate market saw higher transaction volumes, as numerous apartment projects in both Hanoi and Ho Chi Minh City neared completion.”

To contact the reporter on this story: Jason Folkmanis in Ho Chi Minh City at folkmanis@bloomberg.net

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Fed Stress Test Results May Show 10 U.S. Banks Need Capital

By Robert Schmidt and Rebecca Christie

May 5 (Bloomberg) -- The Federal Reserve plans to deliver results of stress tests on U.S. banks to executives today that may show about 10 companies need additional capital to weather a deeper recession, people familiar with the matter said.

Banks are formulating plans for filling their capital requirements, much of which would likely come from conversions of preferred shares, the people said. Many of the 19 lenders under review and the government are set to discuss publicly the examinations after markets close May 7, the people said.

Financial shares jumped the most in almost a month yesterday on optimism about the tests. The Treasury and regulators have presented different options for the banks to shore up their books without taking taxpayer money, including selling assets, seeking private capital and converting previous government investments from preferred to common shares.

“Maybe the capital that’s required from these tests is going to be smaller than the market had been anticipating,” said Blake Howells, an analyst at Becker Capital Management, which oversees $1.7 billion in Portland, Oregon, and owns shares of U.S. Bancorp and KeyCorp, referring to the stock rally.

Still, “for the stress test to have any sort of legitimacy, some of the banks are going to have to raise capital,” he said.

Fed Meeting

Fed spokeswoman Michelle Smith declined to comment. The Fed’s Board of Governors met late on May 3rd to discuss the stress tests, according to a posting on the central bank’s Web site, the second Sunday evening meeting on the matter in three weeks.

Last week, the Fed delayed the release of the tests, originally scheduled for yesterday, as banks challenged some of the conclusions. Citigroup Inc. and Bank of America Corp. were among the banks found to need additional capital, people familiar with the matter have said.

Both firms disputed the Fed’s determination. Yesterday, Bank of America gained 19 percent after the company denied it was working on a plan to raise $10 billion. Citigroup rose 7.7 percent.

A person familiar with Citigroup’s plans said the bank wasn’t likely to need new taxpayer cash and was focusing on converting government shares and getting capital from private investors to satisfy regulators.

The number of banks deemed to need more capital has increased from six to eight a week ago, after regulators boosted their target for the reserves the firms must hold, according to a person familiar with the matter.

Capital Ratio

Officials favor tangible common equity equal of about 4 percent of a bank’s assets, up from a 3 percent goal earlier in the process, two people with knowledge of the deliberations said last week.

While banks are trying to avoid the taint of taking federal funds -- and the potential pay restrictions and executive firings that come with it -- the government will also benefit by handing out less cash. Not including repayments, the Treasury has about $110 billion left in the $700 billion Troubled Asset Relief Program that Congress passed last October.

Lawmakers have repeatedly said they won’t approve any more funds. Some lenders, including Goldman Sachs Group Inc., have said they intend to pay back as soon as possible the TARP money they received last year.

President Barack Obama’s spokesman said yesterday that some banks will “undoubtedly” need more capital but the administration expects them to be able to get it in private markets.

TARP Funds

“The administration doesn’t believe we need to go to Congress right now” to seek more money to rescue banks, White House press secretary Robert Gibbs said at his daily briefing.

For those institutions needing more capital, “everyone involved will be looking for banks to raise this through either private means or the selling of some assets that they have or that they control,” Gibbs added.

Such a result may not appease critics, including Nobel prize laureate in economics Joseph Stiglitz, who have suggested temporary government takeovers to cleanse banks’ balance sheets.

“Rather than financial or economic fixes, it looks like the Treasury really doesn’t have enough money to address the situation, and therefore is going back to this idea that somehow if we change preferred into common, magically the problem goes away,” said Joseph Mason, a banking professor at Louisiana State University in Baton Rouge who previously worked at the Treasury’s Office of the Comptroller of the Currency.

The 19 firms include Citigroup, Bank of America, Goldman Sachs, GMAC LLC, MetLife Inc., Fifth Third Bancorp and Regions Financial Corp. The banks in the test hold two-thirds of the assets and more than half of the loans in the U.S. banking system, according to a Fed study released April 24.

Regulators are pushing higher minimum capital levels for the banks to determine whether they can survive a worsening recession. Tangible common equity can be boosted by converting preferred shares to common equity.

To contact the reporter on this story: Robert Schmidt in Washington at rschmidt5@bloomberg.net; Rebecca Christie in Washington at rchristie4@bloomberg.net

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South Korea Has Room for Fiscal Stimulus, Yoon Says

By Shamim Adam and Seyoon Kim

May 5 (Bloomberg) -- Finance Minister Yoon Jeung Hyun said South Korea has scope to add to its fiscal stimulus if needed to aid an economy where the jobless rate has climbed to the highest since 2005 and bad loans have risen to the most in four years.

“We do see positive signs” that the effects of extra spending and lower interest rates “are showing right now,” Yoon said in an interview yesterday in Bali, Indonesia. The nation “has a lot more fiscal room to maneuver,” though the government doesn’t have plans to allocate more spending, he said.

The Kospi stock index has risen 24 percent this year, beating a 4 percent gain by the MSCI Asia Pacific Index on optimism government spending and record interest-rate cuts will support Asia’s fourth-biggest economy. Warren Buffett, chairman of Berkshire Hathaway Inc., said on May 3 that some South Korean companies are undervalued and are on his “radar screen.”

“The worst is behind us,” Kim Jong Chang, governor of the Financial Supervisory Service, said yesterday in an interview in Seoul. Bad loans at the nation’s banks are “manageable” and industry profits will begin to recover next year, he said.

Parliament approved on April 30 the government’s revised 17.2 trillion-won ($13.6 billion) package of cash handouts, cheap loans, labor-market aid and infrastructure spending that adds to 50 trillion won allocated in relief measures.

“We don’t have any further plans because we haven’t started to execute the supplementary budget yet,” Yoon said. “In terms of other policy measures that can be taken, for example for the financial markets or other situations, of course we will continue to add on those as we see necessary.”

Sound Position

South Korea has leeway to add to stimulus to ensure an economic recovery takes hold, the International Monetary Fund and Organization for Economic Cooperation and Development both signaled in global outlook reports.

“We do have a very sound fiscal balance. Right now, we are aggressively using our expansionary fiscal measures to try to revive the economy as much as possible,” Yoon, 62, said in Bali, where he is attending the annual Asian Development Bank meeting.

The country’s budget deficit will be 3.2 percent of gross domestic product in 2009, less than an average 10.4 percent shortfall for major advanced economies, according to IMF forecasts.

Bank of Korea Governor Lee Seong Tae left the benchmark interest rate unchanged at 2 percent for a second month on April 9 after 3.25 percentage points in reductions since early October, saying there are signs the economic slump may abate.

“Because of the interest-rate cuts and measures to try to strengthen the financial sectors, we also see signs of recovery in the financial industry,” Yoon said.

Economy Expands

South Korea’s economy unexpectedly expanded 0.1 percent in the first quarter from the previous three months, when it contracted 5.1 percent.

Still, “we don’t believe it is a full-fledged recovery in consumption yet,” Yoon said. “This is an area we have a lot of concern about. In a recession right now, unemployment could be one of our biggest issues.”

Consumers, already burdened by record debt, may rein in spending amid fears for job security. The jobless rate climbed to 3.7 percent in March as the number of people employed fell by the most since March 1999.

South Korean banks’ bad-loan ratio climbed to the highest in almost four years in the first quarter, the financial regulator said yesterday. Hana Bank, the country’s fourth biggest, had the highest ratio followed by Woori Bank.

Signs of Improvement

In contrast to the deteriorating jobs market, other economic indicators are painting a more positive picture.

Confidence among manufacturers for May rose to a seven- month high. Exports, which are equivalent to about 60 percent of GDP, fell 19 percent in April from a year earlier, less than the 22 percent decline in March.

“Without a full recovery in the global economy, it would be very difficult for our economy to have a full-fledged recovery,” said Yoon, who became finance minister in February. “The general view is probably at the end of this year, or next year would be the bottoming out period for the economy.

“After that bottom has been passed, we will see stronger signs in the economy,” he said, adding the nation’s growth in 2010 is likely to surpass the 1.5 percent expansion predicted by the IMF last month.

To contact the reporters on this story: Shamim Adam in Singapore at sadam2@bloomberg.net; Seyoon Kim in Seoul at skim7@bloomberg.net.

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Indonesia May Cut Key Rate for a Sixth Month to Bolster Growth

By Aloysius Unditu and Michael J. Munoz

May 5 (Bloomberg) -- Indonesia’s central bank will probably cut its benchmark interest rate for a sixth straight month to help sustain consumer spending amid slowing inflation.

Governor Boediono will reduce the key rate to 7.25 percent from 7.50 percent, according to all 17 economists in a Bloomberg News survey. That would be the lowest since the bank introduced the measure in July 2005. The decision is due in Jakarta today.

Policy makers across Asia are slashing borrowing costs and boosting spending to counter the worst global recession since World War II. The Asian Development Bank expects growth in Indonesia’s $433 billion economy to weaken to as little as 3.6 percent this year from 6.1 percent in 2008.

“Growth is likely to be below trend,” said Wai Ho Leong, a regional economist at Barclays Capital in Singapore. “The perception in policy circles is that more support for the economy may be needed.”

Southeast Asia’s largest economy probably expanded between 4.3 percent and 4.8 percent in the first quarter of this year, the slowest in a decade, as exports slumped and commodity prices plunged from record levels, according to Finance Minister Sri Mulyani Indrawati.

Indonesia needs to rely on domestic consumption to rekindle growth as shipments and investment fall, Sri Mulyani said.

Overseas sales from Indonesia dropped 28.8 percent in March to $8.54 billion from a year earlier, following a 32.8 percent decline in February.

Cars, Cement

Vehicle sales at the Indonesian unit of Toyota Motor Corp. and rivals fell 27 percent to 34,127 units in February. Cement sales dropped 12.5 percent to 2.95 million metric tons in March from a year earlier.

Private consumption, which accounts for about two-thirds of the economy, is expected to increase between 4.3 percent and 5 percent in the first quarter of 2009, Sri Mulyani said April 29. That would be the weakest pace in two years.

Bank Indonesia has scope to lower interest rates as inflation eases. Consumer prices rose 7.3 percent in April from a year earlier, the smallest increase in 16 months.

Inflation may slow to below 5 percent in June, central bank Deputy Governor Hartadi Sarwono told Bloomberg News in a May 2 interview in Bali.

“Inflation is trending down,” Sarwono said. “Exports are definitely going to decline, so the most important policy is to stimulate domestic demand.”

The Philippine central bank cut its key interest rate to a 17-year low of 4.5 percent last month and Thailand reduced its benchmark interest rate to 1.25 percent, the lowest level since July 2004.

===========================================================
Observation Period             May    June    July     End
                                5       3       3    2009
===========================================================
Median                       7.25%   7.00%   7.00%   7.00%
% forecasts at Median       100.0%   90.9%   72.7%   75.0%
High                         7.25%   7.25%   7.25%   7.25%
Low                          7.25%   7.00%   6.75%   6.50%
Number of Estimates             17      11      11      12
===========================================================
Action Economics             7.25%   7.00%   7.00%   7.00%
Bahana Securities            7.25%   7.00%   6.75%   6.50%
Bank Central Asia            7.25%      --      --      --
Bank Danamon                 7.25%      --      --   7.00%
Bank Intl Indonesia          7.25%   7.00%   7.00%   7.00%
BNI Securities               7.25%   7.00%   6.75%   6.50%
Capital Economics Ltd.       7.25%      --      --      --
CIMB Niaga Bank              7.25%   7.00%   7.00%   7.00%
Danareksa Securities         7.25%   7.25%   7.25%   7.25%
DBS Group                    7.25%   7.00%   7.00%   7.00%
HSBC                         7.25%   7.00%   7.00%   7.00%
Ideaglobal                   7.25%   7.00%   7.00%   7.00%
ING Groep NV                 7.25%      --      --      --
Nomura Singapore Limited     7.25%      --      --      --
PT. Mega Capital             7.25%      --      --      --
Standard Chartered           7.25%   7.00%   7.00%   7.00%
Westpac Banking              7.25%   7.00%   7.00%   7.00%
===========================================================

To contact the reporters on this story: Aloysius Unditu in Jakarta at aunditu@bloomberg.net

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Asia May Resist Tapping $120 Billion Fund as Region Improves

By Shamim Adam and Aloysius Unditu

May 5 (Bloomberg) -- Asian nations may resist dipping into their new $120 billion foreign-exchange reserve pool as the region is showing signs of emerging from the worst global recession since World War II, officials and economists said.

“It’s better if we do not take the funds,” Anggito Abimanyu, head of fiscal policy at Indonesia’s Finance Ministry, said in an interview yesterday. “If things are returning to normal, we don’t need to tap the funds. The fund is for contingencies.”

The Asian Development Bank expects regional growth to accelerate to 6 percent next year from 3.4 percent in 2009 as stimulus packages boost domestic demand. China’s 4 trillion yuan ($585 billion) spending plan is increasing consumption and supporting the region’s exports, while shipments from Taiwan, Singapore and Indonesia begin to rise on a monthly basis.

“Now that we are moving into the recovery phase, confidence is returning to the system and the risk of a funding crisis is dissipating quite quickly,” said Peter Redward, head of emerging Asia research at Barclays Capital in Singapore. “Adding another layer of funding through the initiative is not going to add anything.”

Indonesia’s rupiah has risen 11.7 percent in the past three months, making it the best performing among the 10 most-traded currencies in the Asia outside Japan, recovering from a 6.8 percent drop in the preceding three months. The South Korean won has gained 8.3 percent in the period from a 6.7 percent drop.

The Association of Southeast Asian Nations, together with Japan, China and South Korea, on May 3 agreed on terms for the so-called Chiang Mai Initiative and to use the funds in times of turmoil. The pool will be ready by year-end.

Swine Flu

“Even if we don’t need to use it, we want to be prepared,” South Korea’s Finance Minister Yoon Jeung Hyun said in an interview in Bali yesterday. “From Asia’s perspective, having another leg or another source to depend upon for liquidity is good.”

The preparation may be useful. The European Union yesterday cut its forecast for the euro-area economy to show a contraction twice as deep as it projected just three months ago. In the U.S., a report this week may show unemployment probably climbed in April to a 25-year high.

The export and tourism-dependent Asia may also be affected by swine flu, as Americans and Europeans curtail travel amid concern the World Health Organization may declare a pandemic.

“The spread of the new health threat of influenza H1N1 requires us to stay vigilant on the possible impact,” finance ministers from the 13 nations said in a statement on May 3 after announcing the terms for the reserve fund.

Fund Contributions

Japan will contribute $38.4 billion to the fund, while China and Hong Kong together will add another $38.4 billion to the pool. South Korea’s contribution will be $19.2 billion.

The Southeast Asian nations will contribute 20 percent of the total amount. Thailand, Indonesia, Malaysia and Singapore, the four biggest Southeast Asian economies, will contribute $4.77 billion each, and the Philippines will provide $3.68 billion.

The Asian financial crisis a decade ago, which forced Thailand, Indonesia and South Korea to borrow from the International Monetary Fund, helped nations including Indonesia take “proactive” steps, Indonesian President Susilo Bambang Yudhoyono said in Bali today.

The IMF arranged more than $100 billion of loans to the three Asian nations after their currencies collapsed during the 1997-1998 crisis. In return, governments were forced to cut spending, raise interest rates and sell state-owned companies.

Critics including former World Bank chief economist Joseph Stiglitz, a Nobel laureate, say IMF policies needlessly deepened the region’s recession.

International Community

Asian nations such as Indonesia choose to seek help from its neighbors instead of borrowing from the IMF during the latest crisis. Indonesia raised $5.5 billion of standby loans from the ADB, World Bank, Australia and Japan. Indonesia also increased the size of its currency swap arrangements with China and Japan to bolster access to foreign exchange.

“One of the most significant positive outcomes from this crisis has been the way the international community has rallied together,” Yudhoyono said in the speech.

To contact the reporter on this story: Shamim Adam in Bali at sadam2@bloomberg.net; To contact the reporter on this story: Aloysius Unditu in Jakarta at aunditu@bloomberg.net

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Australia Leaves Key Interest Rate Unchanged at 3%

By Jacob Greber

May 5 (Bloomberg) -- Australia’s central bank kept its benchmark interest rate unchanged to gauge whether the lowest borrowing costs in 49 years and government spending will pull the economy out of its first recession in two decades.

Governor Glenn Stevens left the overnight cash rate target at 3 percent in Sydney today after cutting it by a quarter point last month, the sixth reduction in eight months. Eighteen of 19 economists surveyed by Bloomberg forecast today’s decision.

While Australia’s economy is shrinking amid a slump in global demand for exports and weaker consumer spending, Stevens said today that government spending, lower borrowing costs and a pickup in China will drive a rebound. Stevens has more scope to cut rates in coming months to spur an economy he expects will recover later this year.

Today’s statement “hints at a wait-and-watch stance,” said Su-Lin Ong, senior economist at RBC Capital Markets Ltd. in Sydney. “It’s clear we’re getting closer to the end of this easing cycle.”

The Australian dollar rose to 74.08 U.S. cents at 2:57 p.m. in Sydney from 73.91 cents before the decision was announced and 74 cents in New York yesterday. The two-year government bond yield gained 3 basis points to 3.33 percent. A basis point is 0.01 percentage point.

“The stance of monetary policy, together with the substantial fiscal initiatives, will provide significant support to domestic demand over the period ahead,” Stevens said today in a statement.

Record Cuts

In deciding whether future rate cuts are needed, policy makers will “monitor how economic and financial conditions unfold, and how they impinge on prospects for a substantial recovery in economic activity,” he added.

Stevens and his board have reduced the benchmark rate by a record 4.25 percentage points since early September as companies including Qantas Airways Ltd. and BHP Billiton Ltd. fire workers to offset waning demand for travel and raw materials.

With demand for workers weakening, wages will rise at a slower pace, helping “inflation to continue to abate,” Stevens said today.

Australia’s jobless rate probably rose to 5.9 percent in April, the highest level in almost six years, according to the median estimate of 19 economists surveyed by Bloomberg. The employment report will be released on May 7. Unemployment rose by the most in 18 years in March, climbing to 5.7 percent from 5.2 percent.

Government Stimulus

The full effect on the economy of interest-rate cuts and almost A$90 billion ($67 billion) in government spending on grants, infrastructure and bond-market assistance since October are “yet to be observed,” Stevens said.

Prime Minister Kevin Rudd signaled on April 21 that further stimulus will be provided in the government’s May 12 budget.

Australia’s gross domestic product declined 0.5 percent in the fourth quarter from the previous three months, a report showed on March 4. By contrast, the U.S. and U.K. economies both shrank 1.6 percent. Japan contracted 3.2 percent.

Recent reports support Stevens’ view that lower borrowing costs and government spending are reviving the economy. Home- loan approvals rose for a fifth month in February and consumer confidence jumped in April by the most since August. Business sentiment gained in March for a second month.

“Monetary policy has been eased significantly,” Stevens said, and market and mortgage rates “are at very low levels by historical standards, and business loan rates are below average, reducing debt-servicing burdens considerably.”

Mortgage Savings

Households with an average-sized mortgage of A$250,000 are paying A$7,000 a year less than they were six months ago, which is equal to 8 percent of average family incomes, according to the Reserve Bank.

Stevens said that while the near-term outlook for the global economy “remains weak,” there are further signs of stabilization in several countries.

“The Chinese economy in particular has picked up speed in recent months and many commodity prices have firmed a little,” he said. China is Australia’s largest trade partner.

To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Euro Falls on Speculation ECB Will Cut Rates to Stem Recession

By Ron Harui

May 5 (Bloomberg) -- The euro fell against the dollar and the yen on speculation the European Central Bank will cut interest rates to a record to counter a deepening recession, diminishing the allure of assets in the 16-nation region.

The euro dropped versus 12 of the 16 most-active currencies after the European Commission yesterday said the euro-area economy will shrink 4 percent this year, a contraction twice as deep as projected three months ago. The dollar rose versus 12 of 16 currencies after the Wall Street Journal reported that U.S. regulators will tell 10 lenders to raise more capital, reviving demand for the relative safety of the greenback. Australia’s dollar gained after its central bank left rates unchanged.

“We saw the European governments downgrade their growth forecasts,” said Amy Auster, head of foreign-exchange and international economics research at Australia & New Zealand Banking Group Ltd. in Melbourne. “The ECB will end up still cutting interest rates and probably undertaking some more unorthodox measures. We’ve got a weak outlook for the euro.”

The euro declined to $1.3390 as of 12:52 p.m. in Singapore from $1.3406 in New York yesterday. It earlier reached $1.3438, the highest level since April 6. Europe’s currency also fell to 132.22 yen from 132.45 yen.

The dollar traded at 98.74 yen from 98.80 yen in New York yesterday. The U.S. currency was at $1.5011 per British pound from $1.5018, and bought 1.1269 Swiss francs from 1.1265.

Australian Rates

Gains in the yen were tempered after the Reserve Bank of Australia left interest rates unchanged and said the full impact of its reductions in borrowing costs has yet to be seen.

The RBA left the overnight cash rate target at 3 percent in Sydney today after cutting it by a quarter of a percentage point last month. Eighteen of 19 economists surveyed by Bloomberg forecast today’s decision. Governor Glenn Stevens said last month he is confident that stimulus measures, a strong banking system and a pickup in China will drive a rebound.

Europe’s single currency snapped a two-day winning streak versus the dollar as a Bloomberg survey of economists showed European Central Bank policy makers will lower the benchmark rate by a quarter-percentage point to an all-time low of 1 percent on May 7.

ECB Policy Makers

The 16-nation euro region’s economy will shrink 4 percent in 2009 and 0.1 percent in 2010, the European Commission, the EU executive in Brussels, said yesterday, revising a January estimate for a contraction of 1.9 percent this year.

“The ECB needs a package with a ‘shock and awe’ effect,” wrote UBS AG analysts led by Mansoor Mohi-uddin, Zurich-based chief currency strategist, in a research note yesterday. “A token or tame step, which some still expect, would add very little value to policy. We continue to see the euro-dollar at $1.30 in one month.”

The dollar was supported after the Wall Street Journal reported, citing several unidentified people, that the 10 U.S. banks which need to raise more capital may include Wells Fargo & Co., Bank of America Corp. and Citigroup Inc.

Wells Fargo would need to increase its capital by $37.4 billion to achieve a 6 percent ratio of Tier 1 capital to total assets, should almost 10 percent of the loans become uncollectible as projected by the bank, analytics firm SNL Financial LLC said in a report completed May 1. SNL said it based its analysis on the adverse economic scenario outlined by regulators and its own stress test.

‘Paring Risk Appetite’

“The WSJ article that banks need more capital is paring risk appetite,” said Lee Wai Tuck, a currency strategist at Forecast Pte Ltd. in Singapore. “There’s dollar buying.”

The Federal Reserve plans to release results of the stress tests on May 7. The Dollar Index, used by the ICE to track the greenback versus the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, traded at 83.905 from 83.970 yesterday.

“Investors are being cheered by an improving global outlook,” said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington. “This backdrop is likely to lead to reduced demand for the dollar and the yen as ‘safe- haven’ currencies.”

Australia’s dollar rose to 74.17 U.S. cents from 74.00 cents in New York yesterday, and bought 73.18 yen from 73.10 yen.

The volume of currency trading will probably be less than normal because of Japan’s “Golden Week” holidays that started yesterday and will end tomorrow, Hampton said.

The MSCI AC Asia Pacific excluding Japan Index of regional shares rose 0.3 percent today and the MSCI World Index climbed 2.8 percent yesterday, erasing its 2009 drop. U.S. pending home resales beat estimates and China’s manufacturing expanded for the first time in nine months, boosting confidence the worst of the global recession may be over.

“PMIs from China to Europe, eastern Europe and Russia all show a positive turnaround,” analysts led by Hans-Guenter Redeker, London-based global head of currency strategy, wrote in a research note yesterday. “With risk appetite increasing, traditional funding currencies have come under pressure.”

To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net

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OZ Minerals CEO Resigns to Join China Minmetals Group

By Jesse Riseborough

May 5 (Bloomberg) -- OZ Minerals Ltd., the world’s second- biggest zinc mining company, said Chief Executive Officer Andrew Michelmore will join China Minmetals Group as part of the Chinese company’s purchase of most of its assets.

Melbourne-based OZ Minerals is searching for a managing director to replace Michelmore, the company said today in a statement. Five other members of the board including Chairman Barry Cusack will also resign, it said.

OZ Minerals is seeking to complete the sale of $1.2 billion of assets to China’s biggest metals trader by mid-June following a shareholder vote, it said last week. Michelmore, 56, agreed to sell almost all OZ Minerals’ assets to Minmetals after a rout in commodity prices following the company’s creation last year.

The company will also reduce the number of people employed in its Melbourne headquarters by about 80 percent. Some senior executives and the majority of company management will join Minmetals once the deal is completed, it said.

OZ Minerals, whose biggest asset will be the Prominent Hill copper and gold mine if the sale is approved, fell 0.6 percent to 79 cents at 10:36 a.m. Sydney time.

To contact the reporter on this story: Jesse Riseborough in Melbourne at jriseborough@bloomberg.net

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