Stocks and Need for Risk

Daily Forex Fundamentals | Written by Black Swan Capital | May 20 09 12:38 GMT |

Currency Currents Key News Enthusiasm about an economic recovery in China may be "premature" as private investment lags behind government spending, the World Bank said. (Bloomberg) Japan's economy shrank by a record last quarter as exports collapsed and consumers and businesses slashed spending. (Bloomberg) The United Arab Emirates has pulled out of the planned monetary union of five oil-rich Persian Gulf monarchies. (Bloomberg) German producer prices fell at the fastest rate in almost 22 years last month as energy costs declined and demand weakened. Australian consumer confidence dropped in May. (Bloomberg) Gold investment demand in the first quarter more than tripled from a year ago to a record level as investors piled into gold exchange-traded funds to hedge against the global economic downturn, according a report released early Wednesday by an industry group. (MarketWatch) Key Reports Due (WSJ): 7:00 a.m. Mortgage Applications Refinance Index: Previous: -11.2%. 10:30 a.m. May 22 U.S. Energy Dept Oil Inventories 2:00 p.m. Apr Federal Reserve FOMC Minutes Quotable "Doubt is not a pleasant condition, but certainty is absurd." Voltaire FX Trading - Stocks and Need for Risk I commented to a very smart and savvy friend via email yesterday: "Late move against the dollar today." His response: "Investors need/want risk." It is the type of response Luke Skywalker would have likely received from Yoda, in Star Wars. I am still pondering the deeper meaning of "investors need/want risk." But do I really need to ponder? Can't I simply see it? Absolutely! It's called the stock market. Yesterday I penned a piece to our paid up members highlighting the angst among some players in stocks who would like to see greater volume to validate this latest run. But instead of looking at this low volume move negatively, maybe I need to look at it from the need for risk side. If there is big money still on the sidelines, and stocks do break above the recent intermediate-term high, the "need for risk" could likely be palpable as fund managers will not wish to be left behind. A the moment the commodity currencies, the first responders to anything burning hot like risk appetite, have been the big beneficiaries of this risk move in the stock market - the euro - has lagged, and for seemingly good reason as risk in Europe is high. But, returning to my Yoda-like friend's comments, if investors want more risk the euro is something they will likely embrace, for it hasn't seen the love shared with the other pairs. But that love for euro will likely coincide with those still sitting on the sidelines. So, we continue to watch stocks as a clue there may soon be a wholesale move against the dollar. Jack Crooks Black Swan Capital http://www.blackswantrading.com Black Swan Capital's Currency Snapshot is strictly an informational publication and does not provide individual, customized investment advice. The money you allocate to futures or forex should be strictly the money you can afford to risk. Detailed disclaimer can be found at http://www.blackswantrading.com/disclaimer.html

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FX Thoughts for the Day

Daily Forex Technicals | Written by Kshitij Consultancy Services | May 20 09 11:36 GMT |

USD-CHF @ 1.1064/67...Likely to test 1.0980 R: 1.1102-26 / 1.1156-84 / 1.1220 S: 1.0981 / 1.0923-09 / 1.0800-0750 Dollar-Swiss has dropped recently and looks likely to test the Support at 1.0980 during the US session which is likely to provide a good opportunity to go Long with a strict Stop. But if a comprehensive break below this Support is seen, it would open gates for a fall towards 1.0800-1.0750 over the next few days. We reiterate our medium term view on Dollar-Swiss. Till the Support at 1.0980 holds, and till Gold continues to be ranged between 910-935 with Support near 890-900, we might see some pullback on Dollar-Swiss towards 1.14 over the next few weeks/ months. To see the chart of Gold, click on: http://www.kshitij.com/graphgallery/goldcandle.shtml#candle and Dollar-Swiss, click on: http://www.kshitij.com/graphgallery/chfcandle.shtml#candle Limit Buy Order: Buy USD 10K at 1.1010, SL 1.0960, TP Open Cable GBP-USD @ 1.5480/84...200-DMA Resistance holds R: 1.5554 / 1.5640 / 1.5806 S: 1.5426 / 1.5346 Cable continues to inch closer to the 200-DMA at 1.5554 as the pair has slipped a bit after touching a high of 1.5537. The crude impact on the pair continues to be visible as the relationship gains strength. A rise past the 200-DMA would be seen to coincide with an expected rise past the Resistance on Crude at 61, which is then likely to turn very bullish both for Crude and Cable. A rise past this might make a substantial case for the Cable to rise further towards 1.6050 over the next few weeks/ couple of months. To see the chart of Cable and the trendline Resistance, click on: http://www.kshitij.com/graphgallery/gbpcandle.shtml#candle Aussie AUD-USD @ 0.7719/21...May dip towards 0.7620 R: 0.7735 / 0.7824 / 0.7885 S: 0.7696 / 0.7618 / 0.7567 The pair has not risen beyond the US session high of 0.7788 nor has it dipped towards 0.76 as anticipated. It could possibly slip towards 0.7620-30 during the US session today and find Support of the 100-MA on the hourly chart which has not been breached too often over the last one month. Such a happening would provide a opportunity to go Long on Aussie. Hence we continue with our Limit Buy Order with slight modifications. Limit Buy Order: Buy AUD 10K at 0.7630, SL 0.7600, TP Open 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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Currency Technical Report

Daily Forex Technicals | Written by FX Greece | May 20 09 11:22 GMT |

EUR/USD Resistance: 1,3590/ 1,3615/ 1,3650-60/ 1,3700/ 1,3720-30 Support :1,3570/ 1,3530-40 /1,3515-20/ 1,3470-80/ 1,3420-30/ 1,3390/ 1,3350/ 1,3320 Comment: Negative news from US are good for the dollar. Yesterday's rise was limited at the second resistance level, we had set, at 1,3660-70. The retracement from these levels is still in tight ranges. Intraday support is found at 1,3580 and 1,3530-40, which is the most important. A move below the second, bring the area of 1,3400-20 back in to focus and negative scenarios towards lower levels. If these support levels are confirmed and we see a move towards yesterdays tops, the area of 1,3800-30 will be a possible target. Resistance at 1,3660-70 and 1,3720-30 should be breached in order to confirm this scenario… STRATEGY Small buy orders could be tried at 1,3530-40, with stops below 1,3500 and target at 1,3600. Alternatively, we could move within the Bollinger Bands in the hourly chart , with stops 40 pips above or below and targets accordingly. A possible upward break of 1,3670 will be followed with buy orders and target at 1,3720-30or even 1,3800-30. The above mentioned strategy refers to orders that we may follow for personal accounts, depending on the market analysis and the potential reach of resistance and support levels. We do not encourage but or sell orders, as its effective use is based on correct risk management and the ability of position readjustment depending on current condition FX Greece DISCLAIMER The details and information included in the above analysis, are part of research based exclusively on currency charts and are of purely instructional and educational nature. None of the information featuring in the analysis can be considered as an invitation for opening positions in FOREX market or in the market of forward contracts or any securities listed on an organized or unorganized market. We assume no responsibility for any kind of losses ,profits or property loss resulting, in whole or in part, from acts that are based either directly or indirectly on the processing or the use of information, details and strategies, the reader may find in the analysis. The readers hold full responsibility for the use and the results of their actions. The recipients of the analysis must acknowledge and accept that investment choices of any kind, especially concerning the FOREX market, contain risks (high, low and occasionally zero) of reduction or even loss of their investment. Therefore, they should always be cautious prior to any kind of action. We reserve the right to change the terms and the characteristics of the analysis. The contents of the analysis are solely intended for personal use. They may not be retransmitted, reproduced, distributed, published, adapted, modified or assigned to third parties in any way whatsoever. Anyone having access to them is required to comply with the law provisions on the protection of third party intellectual property rights.

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Spain Contracts More Than Estimated, Spending Slumps

By Emma Ross-Thomas

May 20 (Bloomberg) -- Spain’s economy shrank more than initially estimated in the first quarter as consumer spending extended its slump and unemployment soared toward 20 percent.

Gross domestic product contracted 1.9 percent from the previous quarter, when it shrank 1 percent, the National Statistics Institute in Madrid said today. From the previous year, the economy shrank 3 percent, the most since at least 1970. In an initial report on May 14, the institute estimated GDP fell 1.8 percent on the quarter and 2.9 percent on the year.

Spain, whose construction boom made it a motor of job creation in Europe, now has 4 million people out of work, accounting for almost 70 percent of the annual increase in euro- area unemployment over the last year. About a million new homes remain unsold and the European Commission expects Spain to continue to contract next year even after other economies in the region start to recover.

“Three percent is not going to be the floor,” said Jose Luis Martinez, strategist at Citigroup Inc in Madrid. “Unemployment is going to keep rising, we’re looking at a range of 20 to 22 percent in the next 12 months.”

Household spending fell 4.1 percent from a year earlier, almost double the decline in the previous quarter. Investment fell 13.1 percent, with investment in capital goods falling 18.6 percent from a year earlier, the report showed. The decline in capital goods was particularly bad news and it was difficult to say when it will ease, Martinez said.

Second-Quarter Prediction

Deputy Finance Minister Jose Manuel Campa said some indicators suggested the second quarter would not be as weak as the first. He cited unemployment data showing the rate of increase had slowed, as well as interest rates, credit conditions and stock markets. Still, he also told reporters in Madrid today that it was too early to predict when Spain would return to growth rates of 1.5 percent to 2 percent.

Burberry Group Plc, Britain’s largest luxury-goods company, said yesterday it wrote off the value of its business in Spain and cut jobs in the country, where retail sales have been falling for more than a year. Kesa Electricals Plc has said that its Spanish outlets had “extremely weak” results in the four months through April.

Spain’s unemployment rate rose to 17.4 percent in the first quarter, double the European Union average, government data show.

Rising Joblessness

Joblessness will reach 20.5 percent in 2010 after the economy contracts 3.2 percent this year, the commission has forecast. More than a million Spanish households have no one in work, and a million unemployed people no longer receive government benefits, according to government data.

As the economy slumps, bad loans have more than tripled, according to the central bank. The collapse of the debt-fueled building boom and the squeeze on credit pushed 475 construction and real-estate companies into bankruptcy proceedings in the first quarter.

The crisis is taking a political toll on Prime Minister Jose Luis Rodriguez Zapatero, who was re-elected last year after pledges of full employment. A poll of 2,500 people by the state- run Sociological Research Center in April showed the prime minister’s Socialist Party would have won 40.8 percent of the vote if elections were held then, against 40 percent for the opposition People’s Party. In last year’s election, the Socialists won 43.9 percent of the vote, against the People’s Party’s 39.9 percent.

Zapatero proposed new incentives last week to encourage people to buy homes and cars, on top of measures already announced that the government says amount to 2.3 percent of GDP, more than any other country in Europe. Extra spending and rising unemployment will swell the budget deficit to 8.3 percent of output this year, according to the Bank of Spain, almost three times the EU limit.

To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net

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Canada’s Deepest Recession Since 1930s May Also Be Shortest

By Theophilos Argitis and Alexandre Tanzi

May 20 (Bloomberg) -- Canada’s recession, likely its deepest since the Great Depression, may also be its shortest.

Rising home and car sales, unexpected gains in building permits and employment, easing credit conditions and higher commodity prices signal Canada’s slump may be nearing an end. Eight of 11 economists surveyed by Bloomberg this month predict the economy will return to growth next quarter.

“It doesn’t feel quite like it’s over yet, but people are breathing a little bit better,” said Russ Girling, president of pipelines at TransCanada Corp., the country’s biggest pipeline company, which recorded a 12 percent rise in revenue in the first quarter.

All but one of the country’s five post-World War II major recessions have lasted at least one year, with the shortest in 1957 at nine months, according to Philip Cross, who tracks the country’s business cycles for Statistics Canada.

Canada’s economy contracted at a 3.4 percent pace in the last quarter of 2008 and growth in the first quarter may shrink at a 7.3 percent rate, the Bank of Canada estimates.

The U.S. recession started in December 2007, according to the National Bureau of Economic Research, the arbiter of U.S. business cycles. Statistics Canada, which defines a major recession as a slump where both employment and output post annual declines, has yet to date the start of Canada’s recession, Cross said. The Bank of Canada has said the country entered into a recession in the fourth quarter of last year.

No Bailouts

While Canada has suffered from falling U.S. demand for exports, the country’s banks have largely avoided credit losses. No government money has been given to any of Canada’s 21 banks since global credit seized up in August 2007. The U.S. government oversees about $200 billion in investments in banks through the taxpayer-funded Troubled Asset Relief Program.

Canada’s housing market has also held up better than in the U.S., where prices declined 18.6 percent in February from a year earlier, according to the S&P/Case-Shiller index of 20 major cities. Average resale home prices in Canada dropped at less than half that pace during the same period, according to the Canadian Real Estate Association.

“We may not be in a recovery, but I think we might be in a position where it’s not getting worse, where it’s truly plateauing,” Prime Minister Stephen Harper said in a May 8 interview, adding he’d like another “month or two” of data before coming to that conclusion.

Canada’s benchmark Standard & Poor’s/TSX Composite Index has posted a 50 percent gain in U.S. dollars since its low on March 9, compared with the 34 percent gain for the Standard & Poor’s 500 Index over the same period.

Recession

Economists surveyed by Bloomberg earlier this month said they expect Canadian growth to rebound at an annual pace of 0.5 percent in the third quarter and by 2 percent in the fourth quarter.

“In February, the rapid decline in demand had come to an end and by April, the rapid declines in employment had come to an end,” Cross said. “Was that a temporary end or not? We don’t know.”

While Canada’s jobless rate is at a seven-year high of 8 percent, the economy in April created new jobs for the first time in six months and sales of existing homes rose the most in more than five years. Credit markets are also improving. The Bank of Canada’s composite index of financial market conditions is at its strongest since September.

Improved credit markets have allowed companies like Enbridge Inc., the biggest transporter of oil to the U.S. from Canada’s oil sands, to move ahead with the new debt sales to finance operations. Enbridge sold C$400 million of bonds last week.

‘Cross Our Fingers’

“Our approach is to watch for windows when we think there are opportunities to raise capital funds,” said Richard Bird, Enbridge’s chief financial officer. “This is a window and let’s cross our fingers and hope that it’s a trend.”

A quick end to the recession would raise pressure on the Bank of Canada, led by Governor Mark Carney, to say it no longer plans to keep its benchmark lending rate near zero through June 2010. The country’s central bank projected last month the economy will contract four consecutive quarters, bringing it closer to the average length of the last five major recessions.

“The Bank of Canada will have to revisit their own view of what they will do with interest rates,” said Paul-Andre Pinsonnault, an economist at National Bank Financial. “GDP will be stronger than what they are looking for.”

A quick end to the recession doesn’t guarantee a strong rebound. DBRS Ltd., a rating company, predicts an L-shaped recovery for Canada, which it defines as “a prolonged period of flat or slowly improving performance.”

“The earliest I can see an improvement is in October or November,” said Jacques Plante, chief financial officer of Hart Stores Inc., a discount retailer. “I can’t imagine we’ll have anything positive this summer.”

To contact the reporters on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net; Alex Tanzi in Washington at atanzi@bloomberg.net

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Canada’s Deepest Recession Since 1930s May Also Be Shortest

By Theophilos Argitis and Alexandre Tanzi

May 20 (Bloomberg) -- Canada’s recession, likely its deepest since the Great Depression, may also be its shortest.

Rising home and car sales, unexpected gains in building permits and employment, easing credit conditions and higher commodity prices signal Canada’s slump may be nearing an end. Eight of 11 economists surveyed by Bloomberg this month predict the economy will return to growth next quarter.

“It doesn’t feel quite like it’s over yet, but people are breathing a little bit better,” said Russ Girling, president of pipelines at TransCanada Corp., the country’s biggest pipeline company, which recorded a 12 percent rise in revenue in the first quarter.

All but one of the country’s five post-World War II major recessions have lasted at least one year, with the shortest in 1957 at nine months, according to Philip Cross, who tracks the country’s business cycles for Statistics Canada.

Canada’s economy contracted at a 3.4 percent pace in the last quarter of 2008 and growth in the first quarter may shrink at a 7.3 percent rate, the Bank of Canada estimates.

The U.S. recession started in December 2007, according to the National Bureau of Economic Research, the arbiter of U.S. business cycles. Statistics Canada, which defines a major recession as a slump where both employment and output post annual declines, has yet to date the start of Canada’s recession, Cross said. The Bank of Canada has said the country entered into a recession in the fourth quarter of last year.

No Bailouts

While Canada has suffered from falling U.S. demand for exports, the country’s banks have largely avoided credit losses. No government money has been given to any of Canada’s 21 banks since global credit seized up in August 2007. The U.S. government oversees about $200 billion in investments in banks through the taxpayer-funded Troubled Asset Relief Program.

Canada’s housing market has also held up better than in the U.S., where prices declined 18.6 percent in February from a year earlier, according to the S&P/Case-Shiller index of 20 major cities. Average resale home prices in Canada dropped at less than half that pace during the same period, according to the Canadian Real Estate Association.

“We may not be in a recovery, but I think we might be in a position where it’s not getting worse, where it’s truly plateauing,” Prime Minister Stephen Harper said in a May 8 interview, adding he’d like another “month or two” of data before coming to that conclusion.

Canada’s benchmark Standard & Poor’s/TSX Composite Index has posted a 50 percent gain in U.S. dollars since its low on March 9, compared with the 34 percent gain for the Standard & Poor’s 500 Index over the same period.

Recession

Economists surveyed by Bloomberg earlier this month said they expect Canadian growth to rebound at an annual pace of 0.5 percent in the third quarter and by 2 percent in the fourth quarter.

“In February, the rapid decline in demand had come to an end and by April, the rapid declines in employment had come to an end,” Cross said. “Was that a temporary end or not? We don’t know.”

While Canada’s jobless rate is at a seven-year high of 8 percent, the economy in April created new jobs for the first time in six months and sales of existing homes rose the most in more than five years. Credit markets are also improving. The Bank of Canada’s composite index of financial market conditions is at its strongest since September.

Improved credit markets have allowed companies like Enbridge Inc., the biggest transporter of oil to the U.S. from Canada’s oil sands, to move ahead with the new debt sales to finance operations. Enbridge sold C$400 million of bonds last week.

‘Cross Our Fingers’

“Our approach is to watch for windows when we think there are opportunities to raise capital funds,” said Richard Bird, Enbridge’s chief financial officer. “This is a window and let’s cross our fingers and hope that it’s a trend.”

A quick end to the recession would raise pressure on the Bank of Canada, led by Governor Mark Carney, to say it no longer plans to keep its benchmark lending rate near zero through June 2010. The country’s central bank projected last month the economy will contract four consecutive quarters, bringing it closer to the average length of the last five major recessions.

“The Bank of Canada will have to revisit their own view of what they will do with interest rates,” said Paul-Andre Pinsonnault, an economist at National Bank Financial. “GDP will be stronger than what they are looking for.”

A quick end to the recession doesn’t guarantee a strong rebound. DBRS Ltd., a rating company, predicts an L-shaped recovery for Canada, which it defines as “a prolonged period of flat or slowly improving performance.”

“The earliest I can see an improvement is in October or November,” said Jacques Plante, chief financial officer of Hart Stores Inc., a discount retailer. “I can’t imagine we’ll have anything positive this summer.”

To contact the reporters on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net; Alex Tanzi in Washington at atanzi@bloomberg.net

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BOE Votes 9-0 to Boost Bond Plan, Keep Rate at 0.5%

By Jennifer Ryan

May 20 (Bloomberg) -- Bank of England policy makers voted unanimously this month to extend their money-printing plan by 50 billion pounds ($78 billion) after initially debating whether to increase the program by more to fight the recession.

“For some members, a case could be made for a larger stimulus,” according to minutes of the bank’s May 7 decision published today in London. “But as the precise amount that would ultimately be required was so uncertain, there was no pressing need for the larger extension at this meeting.”

Governor Mervyn King said last week that the British economy may face a “slow and protracted recovery” from the nation’s worst recession in a generation. Inflation slowed more than economists forecast in April to the weakest level in 15 months, raising the prospect that deflation may take hold.

“There was a persistent degree of slack forecast for the economy, and a high probability that inflation, in the absence of a further monetary stimulus, could significantly undershoot the 2 percent target in the medium term,” the Monetary Policy Committee’s minutes said.

The pound was little changed after the decision, trading at $1.5517 at 10:05 a.m. in London today.

The nine-member panel has now committed to spending 125 billion pounds of newly-printed money on government bonds and corporate debt. Prime Minister Gordon Brown’s government has authorized the bank to spend a maximum of 150 billion pounds, and policy makers said they would ask King to seek permission for an extension “should economic conditions require it.”

Heart of the Matter

“They are almost certainly going to use up the final 25 billion pounds and they’ve opened up the possibility of moving even higher,” said Nick Kounis, an economist at Fortis in Amsterdam and a former U.K. Treasury official. “A recovery doesn’t necessarily mean that inflation will be where you want it. That’s the heart of the matter when they consider how aggressively they should step up quantitative easing.”

The panel discussed an extension of either 50 billion pounds or 75 billion pounds this month, the minutes showed. They agreed that the risks of giving the economy too little stimulus “seemed greater than the risks of stimulating it too much.”

If inflation accelerates faster than policy makers expect, they could remove stimulus by raising interest rates or selling assets, the minutes said.

“The committee was alert to such risks and would take effective action should they crystallize,” the minutes said.

The central banks’ new quarterly economic forecasts show growth resuming next year while inflation slows as low as 0.4 percent this year. The central bank predicted that inflation won’t reach the 2 percent goal by 2012, though the bank raised its forecast to 1.5 percent by the end of 2010, up from a February projection of 0.6 percent.

The U.K. economy contracted 1.9 percent in the first quarter, the most since 1979. Annual consumer price growth slowed to 2.3 percent in April as households’ energy bill fell and food costs dropped, the Office for National Statistics said yesterday in London.

To contact the reporter on this story: Jennifer Ryan in London at Jryan13@bloomberg.net



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U.S. May Strip SEC of Powers in Regulatory Overhaul

By Robert Schmidt and Jesse Westbrook

May 20 (Bloomberg) -- The Obama administration may call for stripping the Securities and Exchange Commission of some of its powers under a regulatory reorganization that could be unveiled as soon as next week, people familiar with the matter said.

The proposal, still being drafted, is likely to give the Federal Reserve more authority to supervise financial firms deemed too big to fail. The Fed may inherit some SEC functions, with others going to other agencies, the people said. On the table: giving oversight of mutual funds to a bank regulator or a new agency to police consumer-finance products, two people said.

The 75-year-old SEC, chartered to oversee Wall Street and safeguard investors, has seen its reputation tarnished as some lawmakers blamed it for missing the incipient financial crisis and failing to detect Bernard Madoff’s $65 billion Ponzi scheme. Any move to rein in the agency is likely to provoke a battle in Congress, which would need to approve the changes, and draw the ire of union pension funds and other advocates for shareholders.

“It would be a terrible mistake,” said Stanley Sporkin, a former federal judge and enforcement chief at the SEC. “Whatever the SEC has done or didn’t do, it is still the premier investor protection agency around.”

Schapiro Determination

SEC Chairman Mary Schapiro’s agency has been mostly absent from negotiations within the administration on the regulatory overhaul, and she has expressed frustration about not being consulted, according to people who have spoken with her. She has pledged to fight any attempt to diminish the SEC, they said.

Treasury Secretary Timothy Geithner was set to discuss proposals to change financial regulations at a dinner last night with National Economic Council Director Lawrence Summers, former Fed Chairman Paul Volcker, ex-SEC Chairman Arthur Levitt and Elizabeth Warren, the Harvard University law professor who heads the congressional watchdog group for the $700 billion Troubled Asset Relief Program.

Levitt, in an interview today with Bloomberg Television, said it’s unlikely the SEC will ultimately be stripped of its responsibilities.

“I don’t think it’s a great idea nor do I necessarily think it’s going to happen,” Levitt said. The SEC “is a pretty powerful unit and to substitute that for a new bureaucracy is a mistake. I don’t think policy makers are likely to go down that path.”

More Resources

Levitt added that the SEC needs stronger resources to make up for “nearly 15 years of deregulatory efforts.”

Geithner and Summers are leading the administration’s effort to redraw the lines of authority for policing the financial system.

“We’re going to have to bring about a lot of changes to the basic framework of oversight, so there’s better enforcement,” Geithner, said May 18 at the National Press Club in Washington. “That’s going to require simplifying, consolidating this enormously complicated, segmented structure.”

Geithner may be asked about his plans for a regulatory revamp at a Senate Banking Committee hearing on financial-rescue efforts in Washington today.

“The Administration has been holding series of meetings with various parts of the government -- including regulators -- as it crafts its proposal for regulatory reform,” Treasury spokesman Andrew Williams said. “No decisions have been made but” the administration “is seeking views as it puts together its framework.”

The SEC didn’t immediately respond to a request for comment.

Frank Hearings

President Barack Obama has said he wants to sign legislation on regulatory changes by year-end. House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, is planning hearings with the aim of drafting a bill by the end of June.

The SEC’s job is to regulate stock markets, police securities sales and make sure public companies make adequate disclosures to investors about their finances. The commission has five members, with the chairman and two commissioners typically from the president’s political party and the other two from the party not in the White House.

Schapiro was appointed by Obama to replace Christopher Cox, who was named by President George W. Bush.

Cox Legacy

Under Cox, the SEC ceded some of its authority to the Fed after the central bank responded to Bear Stearns Cos.’ near collapse last year by inserting its own examiners into Wall Street securities firms.

Former Treasury Secretary Henry Paulson, Geithner’s predecessor, urged Congress in a March 2008 “blueprint” for overhauling financial rules to give the Fed broader powers to oversee risk in the system.

Opponents of giving the Fed more authority, such as former SEC chief Levitt, have said the central bank’s focus on keeping the financial system solvent may trump efforts to punish companies for violating securities laws. Levitt is a board member of Bloomberg LP, the parent company of Bloomberg News.

The SEC’s reputation took a hit last week when U.S. Senator Charles Grassley, an Iowa Republican, released a report saying two of its enforcement attorneys face an insider-trading investigation by the Federal Bureau of Investigation.

Trades Questioned

The report, written by the SEC inspector general’s office, faulted the SEC for inadequately monitoring trades by the employees and said one of them sold shares in companies after co-workers opened probes into the firms. Both employees, who are enforcement attorneys in the SEC division that investigates securities fraud, denied any wrongdoing.

While the agency has been battered recently, it still has powerful supporters, including a number of Democrats on the Senate Banking Committee who aren’t likely to support having an agency they oversee cut back.

In addition, public pension funds that hold $872 billion of assets urged lawmakers this month to protect the SEC’s turf in any legislation overhauling financial regulation.

The California Public Employees’ Retirement System, the New York retirement fund and 12 other pension funds wrote letters to Frank and Senate Banking Committee Chairman Christopher Dodd, arguing that the SEC “must maintain robust regulatory and enforcement authority” over securities trading, brokers, money managers, corporate disclosures and accounting rules.

To contact the reporters on this story: Robert Schmidt in Washington at rschmidt5@bloomberg.net; Jesse Westbrook in Washington at jwestbrook1@bloomberg.net.



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Japan Economy Shrinks Record 15.2% as Exports, Spending Plunge

By Jason Clenfield

May 20 (Bloomberg) -- Japan’s economy shrank by a record last quarter as exports collapsed and consumers and businesses slashed spending, a decline that probably marked the low point in the country’s worst recession since World War II.

Gross domestic product fell an annualized 15.2 percent in the three months ended March 31, following a revised fourth- quarter drop of 14.4 percent, the Cabinet Office said today in Tokyo. The economy contracted 3.5 percent in the year ended March 31, the most since records began in 1955.

Exports plunged an unprecedented 26 percent last quarter, forcing companies from Toyota Motor Corp. to Hitachi Ltd. to cut production, workers and wages. Stocks have gained 32 percent since reaching a 26-year low in March on speculation worldwide interest-rate reductions and spending by governments will halt the slide in the world’s second-largest economy.

“There was a collapse across the board,” said Yoshiki Shinke, a senior economist at Dai-Ichi Life Research Institute in Tokyo. Still, he added, there’s “light at the end of the tunnel” and the economy will resume growing this quarter as companies replenish inventories and stimulus plans at home and abroad take effect.

The yen traded at 95.59 per dollar at 12:56 p.m. in Tokyo from 96.16 before the report was published. The Nikkei 225 Stock Average rose 0.3 percent. Economists surveyed predicted the economy would shrink 16.1 percent.

Worse Than U.S.

GDP fell 4 percent on a non-annualized basis, more than double the U.S.’s 1.6 percent slide. It’s also worse than Europe’s record 2.5 percent contraction. Without adjusting for price changes, Japan shrank 2.9 percent last quarter.

Weaker domestic demand was the biggest contributor to the decline, shaving 2.6 percentage points off GDP, the most since 1974. Net exports -- the difference between exports and imports -- was responsible for 1.4 percentage points of the drop.

Consumer spending slid 1.1 percent and business investment plunged a record 10.4 percent. Economists say companies will keep cutting spending because the decline in demand has left factories and workers underused.

“There is a huge problem of over-capacity,” said Hiromichi Shirakawa, chief economist at Credit Suisse Group AG in Tokyo. “That means capital spending is not likely to pick up.”

Hitachi, a maker of nuclear reactors, home appliances and hard-disk drives, will trim costs by 500 billion yen ($5.2 billion) this fiscal year to minimize losses after a record 787.3 billion yen deficit last year. The Tokyo-based company said in January it plans to cut 7,000 jobs.

May Grow

Still, reports in the past month suggest the world’s second-largest economy may grow for the first time in a year this quarter, albeit from a low point, as exports stabilize and Prime Minister Taro Aso’s 15.4 trillion yen stimulus plan, announced in April, takes effect.

Consumer confidence climbed to a 10-month high in April. Exports increased in March from a month earlier, and factory output rose for the first time since September.

“Japan, first of all, will get a big boost from fiscal stimulus,” Thomas Byrne, senior vice president of Moody’s Investors Service, said in an interview in Tokyo. “Second, if the global economy picks up a little bit, that will help tremendously in Japan because of its dependence on exports.”

Byrne said Moody’s is unlikely to cut Japan’s debt rating over the next year because investors are willing to buy bonds that will fund the stimulus plans. Moody’s unified Japan’s ratings at Aa2 this week, raising the local-currency assessment from Aa3 and lowering the foreign-currency view from Aaa.

Replenishing Inventories

“While the economy will continue to be in a severe state, I expect less pressure from inventory adjustments and the stimulus package to provide support,” Economy and Fiscal Policy Minister Kaoru Yosano said after today’s report.

Falling inventories accounted for 0.3 percentage point, or about a tenth, of last quarter’s contraction. Companies including Honda Motor Corp. have cut stockpiles at a quicker rate than sales have declined, giving them room to boost output.

Honda plans to increase production in Japan this quarter as dealerships clear inventories, the Wall Street Journal reported last week. Auto sales in Japan and the U.S. may have “bottomed,” Fuji Heavy Industries Ltd. President Ikuo Mori said in Tokyo today. Fuji Heavy makes Subaru-brand cars.

Still, the failure of export demand to do better than simply stabilize will probably limit the scope of Japan’s recovery. Toyota, Hitachi, and Panasonic Corp. all forecast continued losses in the current business year. Panasonic said last week it plans to close about 20 factories this year and proceed with the 15,000 job cuts announced in February.

“We basically bottomed out,” said Jesper Koll, chief executive officer of hedge fund adviser TRJ Tantallon Research Japan. Even so, “on the consumer spending side you’ve got a very clear negative from the severe labor market adjustment.”

To contact the reporter on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net

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Japan Economy Shrinks Record 15.2% as Exports, Spending Plunge

By Jason Clenfield

May 20 (Bloomberg) -- Japan’s economy shrank by a record last quarter as exports collapsed and consumers and businesses slashed spending, a decline that probably marked the low point in the country’s worst recession since World War II.

Gross domestic product fell an annualized 15.2 percent in the three months ended March 31, following a revised fourth- quarter drop of 14.4 percent, the Cabinet Office said today in Tokyo. The economy contracted 3.5 percent in the year ended March 31, the most since records began in 1955.

Exports plunged an unprecedented 26 percent last quarter, forcing companies from Toyota Motor Corp. to Hitachi Ltd. to cut production, workers and wages. Stocks have gained 32 percent since reaching a 26-year low in March on speculation worldwide interest-rate reductions and spending by governments will halt the slide in the world’s second-largest economy.

“There was a collapse across the board,” said Yoshiki Shinke, a senior economist at Dai-Ichi Life Research Institute in Tokyo. Still, he added, there’s “light at the end of the tunnel” and the economy will resume growing this quarter as companies replenish inventories and stimulus plans at home and abroad take effect.

The yen traded at 95.59 per dollar at 12:56 p.m. in Tokyo from 96.16 before the report was published. The Nikkei 225 Stock Average rose 0.3 percent. Economists surveyed predicted the economy would shrink 16.1 percent.

Worse Than U.S.

GDP fell 4 percent on a non-annualized basis, more than double the U.S.’s 1.6 percent slide. It’s also worse than Europe’s record 2.5 percent contraction. Without adjusting for price changes, Japan shrank 2.9 percent last quarter.

Weaker domestic demand was the biggest contributor to the decline, shaving 2.6 percentage points off GDP, the most since 1974. Net exports -- the difference between exports and imports -- was responsible for 1.4 percentage points of the drop.

Consumer spending slid 1.1 percent and business investment plunged a record 10.4 percent. Economists say companies will keep cutting spending because the decline in demand has left factories and workers underused.

“There is a huge problem of over-capacity,” said Hiromichi Shirakawa, chief economist at Credit Suisse Group AG in Tokyo. “That means capital spending is not likely to pick up.”

Hitachi, a maker of nuclear reactors, home appliances and hard-disk drives, will trim costs by 500 billion yen ($5.2 billion) this fiscal year to minimize losses after a record 787.3 billion yen deficit last year. The Tokyo-based company said in January it plans to cut 7,000 jobs.

May Grow

Still, reports in the past month suggest the world’s second-largest economy may grow for the first time in a year this quarter, albeit from a low point, as exports stabilize and Prime Minister Taro Aso’s 15.4 trillion yen stimulus plan, announced in April, takes effect.

Consumer confidence climbed to a 10-month high in April. Exports increased in March from a month earlier, and factory output rose for the first time since September.

“Japan, first of all, will get a big boost from fiscal stimulus,” Thomas Byrne, senior vice president of Moody’s Investors Service, said in an interview in Tokyo. “Second, if the global economy picks up a little bit, that will help tremendously in Japan because of its dependence on exports.”

Byrne said Moody’s is unlikely to cut Japan’s debt rating over the next year because investors are willing to buy bonds that will fund the stimulus plans. Moody’s unified Japan’s ratings at Aa2 this week, raising the local-currency assessment from Aa3 and lowering the foreign-currency view from Aaa.

Replenishing Inventories

“While the economy will continue to be in a severe state, I expect less pressure from inventory adjustments and the stimulus package to provide support,” Economy and Fiscal Policy Minister Kaoru Yosano said after today’s report.

Falling inventories accounted for 0.3 percentage point, or about a tenth, of last quarter’s contraction. Companies including Honda Motor Corp. have cut stockpiles at a quicker rate than sales have declined, giving them room to boost output.

Honda plans to increase production in Japan this quarter as dealerships clear inventories, the Wall Street Journal reported last week. Auto sales in Japan and the U.S. may have “bottomed,” Fuji Heavy Industries Ltd. President Ikuo Mori said in Tokyo today. Fuji Heavy makes Subaru-brand cars.

Still, the failure of export demand to do better than simply stabilize will probably limit the scope of Japan’s recovery. Toyota, Hitachi, and Panasonic Corp. all forecast continued losses in the current business year. Panasonic said last week it plans to close about 20 factories this year and proceed with the 15,000 job cuts announced in February.

“We basically bottomed out,” said Jesper Koll, chief executive officer of hedge fund adviser TRJ Tantallon Research Japan. Even so, “on the consumer spending side you’ve got a very clear negative from the severe labor market adjustment.”

To contact the reporter on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net

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Euro May Fall to 3-Month Low Against Pound: Technical Analysis

By Ron Harui

May 20 (Bloomberg) -- The euro may fall to three-month low against the British pound should the currency drop below so- called support between 87.65 pence and 87.85 pence, Citigroup Inc. said, citing trading patterns.

Support at 87.85 pence represents an ascending trend line that connects the lows of Feb. 10 and May 7, while the 87.65 pence level is the May 7 low, based on Citigroup’s chart. Support is where buy orders may be clustered.

The euro-pound is “now testing a strong support between 87.65 and 87.85, which has been sticky in the past,” New York- based Tom Fitzpatrick and London-based Shyam Devani, wrote in a research note yesterday. “A break below here would open up for a test of the much more significant support in the 86.35-86.75 area.”

Europe’s single currency dropped to 87.84 pence as of 7:35 a.m. in London from 88.08 pence in New York yesterday when it reached 87.65 pence, the lowest level since May 7. The 86.75 pence level was last traded on Feb. 10.

Support at 86.75 pence is a horizontal trend line that connects the Nov. 13 high and the Feb. 6 low, while the 86.35 pence level is the Feb. 10 low, based on Citigroup’s chart. The Nov. 13 high is a previous level of resistance. When so-called resistance is breached, that level becomes support. Resistance is where sell orders may be clustered.

In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index.

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

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Pound Holds Near Highest Level This Year as Stocks, Oil Advance

By Gavin Finch

May 20 (Bloomberg) -- The pound traded near the highest level this year against the dollar as oil traded above $60 a barrel and U.S. stock-index futures gained on speculation the worst of the global recession is over.

The pound advanced earlier after an industry report showed U.K. manufacturers were the least pessimistic on the outlook for production in eight months in May. The MSCI World Index of stocks climbed for a third day after Bank of America Corp. raised about $13.5 billion in a stock sale, indicating the U.S. financial industry may be stabilizing.

“Sterling is benefiting from the return of risk appetite which has seen stocks outperform,” said Daragh Maher, deputy head of global foreign-exchange strategy in London at Calyon, the investment-banking unit of Credit Agricole SA. “A lot of bad news has already been priced into the pound, making it one of the most undervalued currencies.”

The pound advanced as much as 0.4 percent to $1.5536, the strongest since Dec. 18, and was at $1.5490 by 12:22 p.m. in London. It declined 0.1 percent to 88.15 pence per euro.

The pound pared gains and two-year gilts reversed declines after the minutes of the Bank of England’s last rate-setting meeting showed policy makers voted unanimously to extend their money-printing plan to 125 billion pounds ($193 billion). They discussed increasing the program to 150 billion pounds.

An index of expectations for U.K. output in the next quarter rose to minus 17 in May, the highest since September, from minus 32 in April, the Confederation of British Industry said today. An index of factories’ order books was at minus 56 after minus 57 in April.

Record Sale

The yield on the two-year gilt fell two basis points to 0.99 percent. Five-year gilt yields rose four basis points to 2.50 percent before a record 5 billion pound sale of the securities tomorrow. Bond yields move inversely to prices.

Tomorrow’s debt sale is part of a plan to auction 220 billion pounds of gilts this fiscal year, 50 percent more than last year, to help drag the economy out of the recession. The Debt Management Office didn’t find enough buyers at a sale of gilts on March 25, the first so-called failed auction since 2002.

To contact the reporter on this story: Gavin Finch in London at gfinch@bloomberg.net

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Canadian Dollar Rises for Third Day as Stock-Index Futures Gain

By Chris Fournier

May 20 (Bloomberg) -- Canada’s currency climbed for a third straight day as an increase in U.S. stock-index futures spurred demand for higher-yielding assets.

“The Canadian dollar will continue to take its cue from global risk factors, primarily measured by equities,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto. “The loonie is really being influenced by macro risk factors rather than by domestic economic data.”

The Canadian currency, known as the loonie, appreciated 0.5 percent to C$1.1503 per U.S. dollar at 8:12 a.m. in Toronto, from C$1.1558 yesterday. It touched C$1.1478, the strongest since May 11. One Canadian dollar buys 86.93 U.S. cents.

Consumer prices rose 0.4 percent in April from a year earlier after a 1.2 percent increase in the previous month, Statistics Canada said today in Ottawa. The median forecast of 21 economists surveyed by Bloomberg was a 0.6 percent advance.

“Diminished inflation helps to maintain the value of money invested in a country,” said Eric Lascelles, Toronto-based chief economics and rates strategist at TD Securities Inc.

Futures on the Standard & Poor’s 500 Index expiring in June added 0.7 percent.

The loonie will weaken to C$1.19 versus the U.S. dollar by year-end, according to the median forecast in a Bloomberg survey of 42 analysts and economists.

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

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Deutsche Bank Says Borrow Australian Dollars, Buy Brazil’s Real

By Oliver Biggadike

May 20 (Bloomberg) -- Deutsche Bank AG, the world’s biggest currency trader, recommends buying the Brazilian real with funds borrowed in currencies such as the Australian, New Zealand and Canadian dollars.

The Aussie’s exchange rate against the real has a lower correlation with stocks than other currency pairs such as the dollar and yen, lowering the risk that swings in equity markets wipe out profits on the trades, Deutsche Bank’s Adam Boyton told reporters yesterday at a briefing. Speculators bought Japan’s currency last year as the decline in global stock markets pushed them out of investments in Australia and New Zealand that were funded with yen-denominated loans.

“The market’s pricing too much recovery, but whenever you go and express that trade in the market, you’re up against this correlation of foreign exchange to equities,” Boyton, a currency strategist in New York, told reporters at a briefing to discuss his outlook for currencies this year. “You’ll see a lot more interest in carry with G-10 on the funding side and emerging markets on the investing side.”

The Australian dollar was little changed at 77.44 U.S. cents as of 8:34 a.m. in Sydney, after reaching 77.84 cents yesterday, the highest since October. The Aussie fell 0.1 percent to 1.585 reais, extending its decline this year against the Brazilian currency to 2.9 percent.

Carry is the income earned from investing at a higher rate of interest than the cost of borrowing to finance the investment. It declines as the value of the funding currency increases, and vice versa. Investors who borrowed in Australian dollars to buy in Brazil on Dec. 31 would have earned 5.9 percent so far this year, the best Australian dollar-funded return among the 16 most-traded currencies, according to data compiled by Bloomberg.

Rate Advantage

Australia’s benchmark interest rate of 3 percent is 7.25 percentage points lower than Brazil’s 10.25 percent. The 30-day correlation coefficient between the Australian dollar-real exchange rate and the Standard & Poor’s 500 Index is close to zero at 0.03, and below the 0.78 correlation between the yen- Aussie cross rate and stocks. A correlation of 1 would mean the currencies moved in lockstep with the equity index.

“What’s the point of picking up a 3 percent interest-rate differential by being long Aussie and short Japan in a world where the exchange rate can move by that much in two days?” Boyton said at the briefing. Japan’s benchmark rate is 0.1 percent.

The Aussie-yen exchange rate has bigger swings than Aussie- real, which has risen or fallen more than 3 percent in a single day only twice this year, Bloomberg data show. By contrast, Aussie-yen experienced such swings 12 times, as well as having more consecutive two-day or three-day increases or decreases exceeding 3 percent.

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

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Timah Expects Tin Prices to Top $15,000 a Ton

By Yoga Rusmana

May 20 (Bloomberg) -- PT Timah, the world’s second-largest tin producer, expects prices of the metal to top $15,000 a ton in the second half of the year, Corporate Secretary Abrun Abubakar said.

The Indonesian company may sell about 46,000 tons of the metal this year, Abubakar told reporters in Jakarta today. Timah sold 46,438 tons of the metal in 2008.

“Prices will stabilize in the second half as economic conditions are improving,” Wachid Usman, the company’s president director, said.

Tin for three-month delivery on the London Metal Exchange rose 2.5 percent to close at $13,650 a ton on Tuesday.

The state-owned company would allocate 700 billion rupiah ($68 million) for capital spending this year compared with 1.4 trillion rupiah in 2008, Abubakar said.

To contact the reporter on this story: Yoga Rusmana in Jakarta at yrusmana@bloomberg.net

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Dollar Falls as Lower Volatility, Libor Erode Safety Demand

By Ye Xie

May 20 (Bloomberg) -- The dollar declined beyond $1.37 per euro for the first time in a week as falling volatility of currencies and stocks spurred speculation investors will seek higher-yielding assets.

New Zealand’s and Canada’s dollars gained versus the greenback as crude oil prices rose above $60 a barrel and copper advanced, encouraging demand for currencies of commodity producers. The pound traded near the highest level this year as U.S. stock-index futures gained and the cost of borrowing in dollars between banks dropped.

“The currency market is very much influenced by the temperature of risk,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto. “Overall sentiment is building on itself, contributing to dollar selling.”

The euro advanced 0.4 percent to $1.3685 at 8:22 a.m. in New York, from $1.3630 yesterday. It earlier touched $1.3707, the highest level since May 13. Japan’s currency appreciated 0.3 percent to 95.71 per dollar from 95.97. The common European currency increased 0.1 percent to 130.99 yen from 130.81.

The VIX, as the Chicago Board Options Exchange Volatility Index is known, and Europe’s VStoxx Index have both retreated to their lowest levels since Sept. 12, the last trading day before Lehman Brothers Holdings Inc. filed the biggest bankruptcy in U.S. history.

The London interbank offered rate, or Libor, for three- month dollar loans decreased 0.04 percentage point to 0.72 percent, bringing its drop over the past four days to almost 0.14 percentage point, according to the British Bankers’ Association. The rate was 1.43 percent at the end of 2008.

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

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India May Raise Sugar Cane Prices to Boost Output, Pare Imports

By Pratik Parija

May 20 (Bloomberg) -- India, the world’s biggest consumer of sugar, may increase the price of cane it pays farmers by 33 percent to increase plantings and stem a decline in production of the sweetener, a government official said.

The food ministry may recommend to the cabinet a price of 107.76 rupees for 100 kilograms (220 pounds), compared with 81.18 rupees paid a year ago, said the official, who didn’t want to be identified because the information isn’t public.

A decline in sugar production for a second year has forced the South Asian country to become a net importer for the first time since 2006, and fueled a 31 percent rally this year in raw- sugar prices. Worldwide demand may exceed output by 12.3 million tons in the year ending Aug. 31, according to Barclays Capital.

The proposal comes as the Congress party returned to power with its allies in elections that ended May 16, winning 21 seats in Uttar Pradesh, India’s biggest sugar cane producer, compared with nine in 2004. The country’s 50 million sugar cane farmers, a powerful voting block, shifted to grains and oilseeds last year because of a delay in payments by mills.

India’s sugar output is forecast to drop to 14.7 million tons in the year ending Sept. 30, the second year of decline. Cane production may be 289.2 million tons, down from a February estimate of 290.45 million tons, the farm ministry said May 12.

To contact the reporter on this story: Pratik Parija in New Delhi at pparija@bloomberg.net.

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India May Raise Sugar Cane Prices to Boost Output, Pare Imports

By Pratik Parija

May 20 (Bloomberg) -- India, the world’s biggest consumer of sugar, may increase the price of cane it pays farmers by 33 percent to increase plantings and stem a decline in production of the sweetener, a government official said.

The food ministry may recommend to the cabinet a price of 107.76 rupees for 100 kilograms (220 pounds), compared with 81.18 rupees paid a year ago, said the official, who didn’t want to be identified because the information isn’t public.

A decline in sugar production for a second year has forced the South Asian country to become a net importer for the first time since 2006, and fueled a 31 percent rally this year in raw- sugar prices. Worldwide demand may exceed output by 12.3 million tons in the year ending Aug. 31, according to Barclays Capital.

The proposal comes as the Congress party returned to power with its allies in elections that ended May 16, winning 21 seats in Uttar Pradesh, India’s biggest sugar cane producer, compared with nine in 2004. The country’s 50 million sugar cane farmers, a powerful voting block, shifted to grains and oilseeds last year because of a delay in payments by mills.

India’s sugar output is forecast to drop to 14.7 million tons in the year ending Sept. 30, the second year of decline. Cane production may be 289.2 million tons, down from a February estimate of 290.45 million tons, the farm ministry said May 12.

To contact the reporter on this story: Pratik Parija in New Delhi at pparija@bloomberg.net.

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Copper Advances for a Fifth Day in London on Equities, Dollar

By Anna Stablum

May 20 (Bloomberg) -- Copper advanced for a fifth day in London, the longest winning streak in a month, on a weaker dollar, rising global equities and falling stockpiles.

The MSCI World Index of shares rose for a third day, jumping 3.2 percent this week. Copper inventories in warehouses monitored by the London Metal Exchange fell for a tenth day. The Dollar Index, a gauge of the currency’s value against six major counterparts, also dropped for a third day, making dollar- denominated metals cheaper for holders of the euro and pound.

“Copper and the other metals are taking their cue from equities and I think a big factor here is the weaker dollar that is supportive,” Robin Bhar, an analyst at Credit Agricole SA’s Calyon unit in London, said by phone today.

Copper for three-month delivery rose $60, or 1.3 percent, to $4,590 a metric ton by 9:51 a.m. on the LME, delivering the longest winning streak since April 15. The metal for July delivery climbed 1 percent to $2.0905 a pound on the New York Mercantile Exchange’s Comex division.

Stockpiles of copper in LME-monitored warehouses fell 2 percent to 341,475 tons, for a 16 percent decline in May.

“There is still room to be bullish” with stockpiles falling, William Adams, an analyst at BaseMetals.com, said in a report. Still, “too much optimism is already priced into the markets,” he said, making them “vulnerable to setbacks.”

Copper has gained 3.5 percent on the LME so far in May, after four straight months of gains because of restocking by China, the world’s largest consumer of the metal.

Looking Forward

The more forward looking data suggest “that we are bottoming out here,” Bhar said. Germany investor confidence climbed to a three-year high yesterday.

Aluminum for three-month delivery climbed 0.1 percent to $1,501 a ton. LME-monitored inventories of the lightweight metal rose 2 percent today to a record 4.14 million tons.

Lead rose 0.3 percent to $1,490 a ton, while zinc held at $1,523 a ton. Nickel gained 1.4 percent to $12,650 a ton. Tin rose 0.4 percent to $13,700 a ton.

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

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Gold Demand Surges 38% on Investment, Council Says

By Claudia Carpenter

May 20 (Bloomberg) -- Gold purchases rose 38 percent in the first quarter, led by investment demand that exceeded usage by jewelers for the first time since at least 2004, according to the World Gold Council.

Global demand increased to 1,015.5 metric tons, from 733.9 tons a year earlier, the London-based council said today in a report based on figures from research company GFMS Ltd. Investment purchases more than tripled to 595.9 tons while jewelry demand fell 24 percent to 339.4 tons.

Gold rose to an 11-month high of $1,006.29 an ounce on Feb. 20 as governments spent trillions of dollars to fight recession, sparking speculation inflation will accelerate. In India, the world’s largest gold buyer last year, jewelry demand was the lowest in at least 20 years and net retail investment turned negative for the first time as holders sold metal for recycling, the council said. Chinese demand was six times that of India.

“In the current environment, investment demand is part of the diversification of assets in portfolios and therefore is less sensitive to price than jewelry demand,” said John Meyer, research director at Fairfax IS in London.

Investment demand for coins, bars and exchange-traded funds was the highest since at least 2004, when GFMS began tracking them, and “could well be” a record, GFMS senior metals analyst Philip Newman said. Jewelry demand had accounted for about two- thirds of gold demand in the past 30 years, he said.

Investment Flows

“Investment flows in the first quarter of this year were unprecedented and, based on an analysis of the past 30 years of the gold market, probably unsustainable in the long term,” UBS AG analyst John Reade wrote in an e-mail. Concerns about inflation and currencies “are likely to continue for the next year or so and this should keep investment flows strong, if not perhaps at the super-strong levels seen in the first quarter.”

The U.K. Royal Mint used 75 percent more gold in the first quarter than a year earlier and the U.S. Mint’s sales of 1-ounce American Eagle gold coins more than quadrupled in January.

Gold for immediate delivery climbed $2.98, or 0.3 percent, to $928.04 an ounce by 8:24 a.m. in London.

Total demand from India fell 83 percent to 17.7 tons, from 107.2 tons a year earlier. In Thailand, total usage was a negative 16.9 tons, compared with net demand of 2.1 tons a year earlier. Purchases in China rose 1.8 percent to 105.2 tons from 103.3 tons. In the U.S., demand rose 15 percent to 55.2 tons.

‘A Bigger Role’

“Certainly over the long run, you’re going to see China permanently taking a bigger role,” said Rozanna Wozniak, London-based investment manager at the council. “Across the world, there has been an increase in recycled gold sales, due to a combination of profit taking and distress selling due to difficult economic conditions.”

Demand in Germany for bars and coins expanded fivefold in the first quarter to 59 tons, according to the report.

“Throughout the western world, the safe-haven motive to buy gold was very strong due to economic uncertainty,” Wozniak said. “In Germany, it also appears to be motivated by inflation.”

Owners of gold sold a record 558 tons of metal back into the market, with net retail investment a negative 17 tons in India and 19.9 tons in Thailand, according to the report.

Gold mine production rose 2.9 percent to 560 tons from 544 tons. Central bank sales slumped 55 percent to 35 tons from 77 tons.

To contact the reporter on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net

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