CIBC Tops TD Securities as Canadian Banks Target Trading Fees

By Doug Alexander and Sean B. Pasternak

May 25 (Bloomberg) -- CIBC World Markets ousted TD Securities as the top equities trader for the first time in six years as Canadian banks use a rebound in trading to help replace profits lost to bad loans.

Canadian Imperial Bank of Commerce’s investment bank was the top trader by volume on the Toronto Stock Exchange for the past three months, taking almost a fifth of the market in April, according to data from TMX Group Inc., the exchange owner. TD Securities had been the top trader every month since 2003.

Canadian banks, which begin reporting second-quarter results tomorrow, will probably post a surge in trading revenue as global markets recover from the worst economic crisis since the Great Depression. Canada’s benchmark Standard & Poor’s/TSX Composite Index rose 7.2 percent in the quarter ended April 30, outpacing the 5.7 percent increase in the S&P 500 Index.

Trading fees at the six biggest banks will more than double to C$2.62 billion ($2.3 billion), said Sumit Malhotra, an analyst at Macquarie Capital Markets in Toronto.

CIBC, Canada’s fifth-biggest bank, hired three exchange executives, including former executive vice-president Rik Parkhill, as it ramped up electronic trading to win business from Toronto-Dominion Bank and other rivals.

“The placement of Rik gives them a definite inside edge in terms of TSX and how it trades,” said John Aiken, a bank analyst at Dundee Securities Inc. in Toronto. “This is a strategic move by CIBC and it effectively has taken place almost overnight.”

Profits Plunge

The surge won’t be enough to increase overall profits, which will plunge on higher provisions for bad loans and falling demand for credit in the country’s first recession since 1992, analysts said.

Canadian banks will report that profit before one-time items dropped 17 percent on average, the sixth straight quarterly decline, said Malhotra. Bank of Montreal, the No. 4 bank, is the first lender to report, at about 7:30 a.m. tomorrow.

Canadian Imperial is among the banks benefiting from the trading rebound, surpassing TD Securities in February, according to TMX data. Simone Philogene, a spokeswoman for Toronto- Dominion, declined to comment.

CIBC hired former exchange Chief Executive Officer Richard Nesbitt to head its investment bank in January 2008. Parkhill followed in August after the owner of the Toronto Stock Exchange bought the Montreal Exchange derivatives market.

“If you look at who’s running the show, it makes obvious sense,” Genuity Capital Markets analyst Gabriel Dechaine said. “Having the exchange background, their view is very different from the traditional brokerage executives.”

Electronic Trading

CIBC is focusing on electronic trading for money managers and traders to reduce costs and exploit split-second price discrepancies. Those customers tap the Toronto exchange, and alternative trading systems such as Pure Trading and Chi-X Canada, as well as marketplaces in the U.S.

Toronto-based CIBC spent a decade building systems to take advantage of automated trading, which is gaining on the traditional block trading dominated by Canadian banks. Electronic trading accounts for 15 percent of volume on the Toronto exchange, up from almost nothing a year ago, according to TMX. Block trades are orders of 10,000 shares or more worth at least C$100,000.

“We adapted rapidly to the market structure changes that are under way in Canada and developed products and services that allowed our clients to trade more efficiently,” said Parkhill, CIBC’s head of cash equities. “The market is changing, and either you embrace change or you become a victim of it.”

Smallest Business

Even with the gains, CIBC has the smallest trading business among the country’s six biggest lenders. The bank’s second- quarter trading revenue was about C$85 million, a 27 percent increase from the year earlier, according to Darko Mihelic, a CIBC bank analyst. Royal Bank of Canada, the biggest bank, will probably report revenue 10 times higher, he said. The revenue figures include fixed-income, currency and stock trading.

“The all-important question is how profitable is this trading for CIBC, and that’s yet to be seen,” Aiken said.

Still, trading gains won’t be enough to offset rising loan defaults among the country’s biggest banks with unemployment at a seven-year high of 8 percent.

Canadian banks may set aside C$2.26 billion for bad loans, more than double the amount from a year ago, according to BMO Capital Markets analyst Ian de Verteuil.

“We’re still nervous about that particular area, as unemployment is rising and consumers have pretty much maxed out their credit cards,” said John Kinsey, who helps manage about C$1 billion at Caldwell Securities Ltd. including bank shares. “It’s only going to get worse.”

Bank of Nova Scotia

Bank of Montreal may say that profit before one-time items fell 28 percent to 86 cents a share, according to de Verteuil.

Toronto-Dominion, Bank of Nova Scotia, CIBC and National Bank of Canada report results May 28. Toronto-Dominion may say profit fell 11 percent to C$1.17 a share on lower asset- management fees, de Verteuil said.

Bank of Nova Scotia, Canada’s No. 3 bank, may say profit fell 10 percent to 87 cents a share on higher loan losses and a decline in asset-management fees, he said. Montreal-based National Bank may report per-share profit fell 14 percent to C$1.21 on higher trading and credit losses. Canadian Imperial’s profit probably fell 12 percent to C$1.43 a share on lower investment-banking earnings.

Royal Bank’s profit may be unchanged at C$1.05 a share, excluding $850 million in writedowns announced last month.

To contact the reporter on this story: Doug Alexander in Toronto at dalexander3@bloomberg.net; Sean B. Pasternak in Toronto at +1- spasternak@bloomberg.net

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PetroChina Matches Exxon as Most Valuable Company

By Bloomberg News

May 25 (Bloomberg) -- PetroChina Co. briefly overtook Exxon Mobil Corp. as the world’s most valuable company after China’s stimulus plan caused a surge in the nation’s stocks this year.

State-controlled PetroChina’s Shanghai-traded shares rose as much as 3 percent to 13.25 yuan today for a market value exceeding $336 billion, surpassing Exxon’s $335.9 billion as of May 22. The gain came as China’s largest oil producer agreed to pay as much as $2.2 billion to buy Singapore Petroleum Co.

“If you have to buy an energy stock, you want to buy the dominant one in China,” said Gordon Kwan, head of energy research at Mirae Asset Securities Co. in Hong Kong. “China’s fuel demand is growing, while in Northern America and Europe demand is actually falling.”

PetroChina shares have advanced 29 percent this year as government spending has increased fuel consumption in China, while the worst recession since the Great Depression curbs demand in the U.S. China’s benchmark Shanghai Composite Index has surged 43 percent this year on optimism that the $586 billion economic stimulus and record bank lending will counter a slump in exports and boost growth. The Standard & Poor’s 500 Index has dropped 1.8 percent.

Exxon rose 0.6 percent to $68.83 in New York trading on May 22, and has declined 14 percent this year. PetroChina was listed in Hong Kong in 2000 and became the world’s first trillion- dollar company after selling shares in Shanghai in November 2007, when it first passed the U.S. oil company. The stock ended at 13.10 yuan in Shanghai, making the capitalization $333.6 billion.

PetroChina Reserves

Exxon, which traces it roots to the 1880s and John D. Rockefeller’s Standard Oil Trust, had regained the top ranking in March last year after PetroChina’s Shanghai stock slumped by more than 50 percent as exploration costs climbed and government controls prevented the company from increasing fuel prices.

PetroChina’s reserves surpassed those of Exxon last year after the Chinese company added the equivalent of 890 million barrels of oil through discoveries and acquisitions. Exxon’s reserves declined by 3 percent in 2008 to the equivalent of 21.1 billion barrels, enough to sustain output for almost 15 years.

China agreed to give Russia, Kazakhstan, Brazil and Venezuela $49 billion in loans this year in exchange for oil supplies. The government is tapping its $1.95 trillion foreign- exchange reserves to buy energy assets made cheaper by oil’s decline from a record in $147.27 a barrel in July.

Singapore Purchase

PetroChina will buy 45.5 percent of the Singapore Petroleum for S$1.47 billion ($1 billion), or S$6.25 a share, from Keppel Corp., a premium of 24 percent to the last-traded price of S$5.04 at the May 22 close. The transaction, when completed, will trigger a general offer for the remaining shares, the Beijing-based oil company said yesterday.

PetroChina last month agreed to buy a 50 percent share in AO Mangistaumunaigas for as much as $1.4 billion after China agreed to lend $10 billion to Kazakhstan, the largest energy producer in the former Soviet Union after Russia.

PetroChina’s status as a state-controlled entity allows it to accept lower returns from oil-rich nations in exchange for access to reserves under terms Exxon would find unacceptable, said Douglas Ober, who helps manage $550 million at Petroleum & Resources Corp. in Baltimore, including Exxon shares.

“PetroChina’s state orientation lets it look at things differently than Exxon does,” Ober said. “Exxon has a more strictly economic interest, so if their returns are going to be reduced by requirements to build highways or hospitals or schools so they can drill off the coast, they’re going to take that into consideration.”

Sudan Fields

China National Petroleum Corp., PetroChina’s parent, is the largest foreign developer of oil fields in Sudan, accused by the U.S. of supporting genocide in the African nation’s western Darfur region.

PetroChina’s 14 percent return on capital is less than half of Exxon’s 36 percent return, the highest among the world’s biggest 10 oil companies by sales, according to data compiled by Bloomberg. Exxon is bigger by sales and profit.

The U.S. company raked in $425 billion in sales last year, or $60.45 for every man, woman and child on the planet. Exxon’s 2008 profit of $45.22 billion was the most ever for a U.S. corporation, marking the fourth consecutive year of record- setting results. PetroChina’s net income was 114 billion yuan ($16.7 billion) last year on sales of 1.1 trillion yuan.

Ober of Petroleum & Resources said he doesn’t own shares of PetroChina or any other Chinese energy firms because of concern their accounting may not measure up to U.S. standards. PetroChina executives aren’t as accessible to U.S. investors as management from American and European companies, which also limits the appeal of the stock, he said.

“I have no doubt that over time, China’s companies should grow to be among the world’s largest,” said Victoria Mio, a Hong Kong-based senior portfolio manager at Robeco Group, which had about $155 billion in assets under management as of Dec. 31. “But it has to be in terms of profitability, rather than inflated market capitalization.”

To contact the reporters on this story: John Liu in Shanghai at jliu42@bloomberg.net; Joe Carroll in Chicago at Jliu42@bloomberg.net

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Currency Technical Report

Daily Forex Technicals | Written by FX Greece | May 22 09 11:13 GMT |

EUR/USD Resistance: 1,3970-80/ 1,4000/ 1,4035/ 1,4070/ 1,4130 Support : 1,3900/ 1,3830-40/ 1,3800/ 1,3770/ 1,3700/ 1,3650 Comment: Euro is forming new tops, testing our targets at 1,3940. The upward channel that sets the uptrend from April lows (daily and 4 hour chart) allows a rise resumption towards 1,3980-00, levels where bears are likely to gain momentum. A reversal candle formation at these levels will give the confirmation. A move above 1,4000 will bring our higher targets at 1,4130-50 and 1,4350-00 into focus, in terms of the wider sideways consolidation that we presented in the weekly chart yesterday. If important resistance is confirmed, a move towards 1,3820-40 support, would be possible, followed by 1,3750 area. A daily reversal candle at the upper part of the channel, while oscillators are in an overbought area would be a good indication that the rise from April lows is completed… STRATEGY Our sell orders from our yesterday's analysis are still open and we could add positions at 1,3990-00 rising our stops above 1,4050. First target will be at 1,3830… 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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USD Forecast To Extend Losses Versus Euro And Sterling

Daily Forex Fundamentals | Written by AC-Markets | May 22 09 10:36 GMT |

News and Events: The week drew to a close in Asia with the Dollar showing no signs of recovery whatsoever. USD selling was the highlight yesterday with an early charge of EURUSD and GBPUSD getting sharply reversed on the back of S&P cutting its outlook for the UK's AAA sovereign rating. Similar comments were made early this morning in regards to the USA. Price action however came back in the late European afternoon with further aggressive USD losses to drive both pairs to new highs. Technically the picture has decisively turned bearish from a medium term perspective. Another interesting point is that the USD weakened despite a 10bp increase in 10yr Treasury yields and a weak equity market - a combination that is utterly unusual and may suggest that investors are demanding a higher risk premium for holding USD denominated assets. In a speech last night, BoE Deputy Governor Bean reiterated the MPC's view that the outlook for growth and inflation remains subdued, and sought to quell concerns about the QE exit strategy. Mr Bean said that the combined policy stimulus and the lower value of sterling would probably lead to a resumption of growth by the end of the year. However, he thought it likely that the supply of credit would remain impaired for some time, and this would ensure that the recovery was subdued. Inflation, he believed, would fall below target and remain there for the next couple of years. EUR/USD edged up to 1.3955 before supply pushed it back to 1.3930. There is talk in the market of sizeable selling at the 1.4000 level. GBP/USD rose towards 1.5900 but lacked the momentum to push higher and slipped back to 1.5850. It was a similar story in USD/JPY where selling to 93.90 was seen thanks to comments from Japanese Finance Minister Yosano who said that Japan is 'not currently thinking about Forex intervention' but a lack of follow through saw it recover to 94.20. The BoJ Policy Board ended its two-day monetary policy meeting with a unanimous vote to leave the uncollateralized overnight call rate at 0.1%, as widely expected. Separately, the Bank decided to expand the range of eligible collateral to include cross-border instruments, namely bonds issued by the governments of the US, UK, Germany and France. This move is meant to ensure stability in financial markets by further facilitating money market operations - specifically, to make it easier for Japan branches of foreign banks to raise liquidity from the BoJ. With both the US and UK enjoying a holiday on Monday, trading will likely be subdued and could well see a corrective move as positions are adjusted and pared back for the long weekend. Today Key Issues: 08:30 GBP Gross Domestic Product (QoQ) -1.9% vs. -1.9% 08:30 GBP Gross Domestic Product (YoY) -4.1% vs. -4.1% 08:30 GBP Private Consumption (1Q P) -1.0% vs. -1.0% 08:30 GBP Government Spending (1Q P) 0.8% vs. 1.3% 08:30 GBP Gross Fixed Capital Formation (1Q P) -4.1% vs. -1.4% 12:30 CAD Retail Sales (MoM) (MAR) 0.5% vs. 0.2% 12:30 CAD Retail Sales Less Autos (MoM) (MAR) -0.1% vs. 0.6% 18:00 USD Bernanke Speaks at Boston College Law School Graduation The Risk Today: EurUsd The uptrend in EUR/USD is gathering pace, fuelled by buying out of the US time zone. We expect the move to extend up to 1.4185. Next resistance comes in at 1.4000. GbpUsd A precipitous decline yesterday stopped dead on the 1.5520 level and the pound recovered. This implies the short-term trend is up and is likely to continue. UsdJpy Support is steadily being eroded and price is slipping steadily towards the Mar spike low at 93.55. The risk is that this fails and when it does it would confirm the 2009 uptrend is over and would point to a run at 90 and probably to the Dec/Jan lows in a broad based USD negative environment. UsdChf This morning USD/CHF has dropped below weekly cloud support at 1.0970. Over the last 15 years we have learned to respect the cloud as it has proved useful in identifying 1-2 year trends. A close today below 1.0970 would imply the corrective USD rally of the last 18 months is over and the cyclical downtrend has resumed. EURUSD GBPUSD USDJPY USDCHF 1.4185 1.6195 96.70 1.1130 1.4060 1.6080 96.10 1.1060 1.4000 1.5995 95.30 1.1015 1.3949 1.5836 94.16 1.0908 1.3840 1.5755 93.30 1.0810 1.3720 1.5615 92.60 1.0775 1.3665 1.5545 91.95 1.0710 S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot ACM FOREX Disclaimer: This report has been prepared by AC Markets (thereof ACM) and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by Salesperson or Traders of ACM at any given time. ACM is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment.

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London Session Recap

Daily Forex Fundamentals | Written by Forex.com | May 22 09 10:15 GMT |

Following an early sell off cable bounced off the USD/GBP1.5760 level as sterling sentiment was lifted by comments from the OECD's Secretary General Gurria that S&P's downgrade to its UK debt outlook was inexplicable. The volatility in sterling over the past 24 hours or so describes the confusion in the market as to the extent of the bad news with respect to the UK national debt. While the outlook is indeed sour most investors do not suspect that the UK government is anywhere close to being at risk of defaulting on its debt obligations; though clearly budgetary restraint will have to be displayed by government going forward. While the budget outlook is a significant concern, this is not new news. Crushed by bad news on the UK financial system and national accounts, the pound is still about 30% weaker vs the EUR relative to its pre-Northern Rock levels and about 20% softer vs the USD. With so much bad news still in the price, it is likely that the pound will remain sensitive to good news going forward. Yesterdays' news from S&P on UK debt completely overshadowed the announcement from Spanish bank Caja Madrid that it would skip a bond interest payment due to subprime related problems at home. With Spanish unemployment at 17.7% and rising it is not surprising than the level of domestic bad debts are rising. It is possible that more bad news will emerge from Eurozone banks during the summer, a factor which would like put further downside pressure on EUR/GBP. Sterling was largely unresponsive to this morning's second estimate of Q1 GDP. The estimate remains at -1.9% q/q. The outlook for cable continues to be complicated by an unwinding of USD longs created in response to the financial crisis. It follows that many of these 'safe-haven' positions would be unwound following the softening in Libor. However, there is significant risk that this recession could bring further negative shocks meaning that USD buyers could yet return. For now, however, the USD is responding to concerns over the outlook for US fiscal policy which was intensified by comments from Boston Fed President Rosengren that the US recovery could be 'slow' and the tone is clearly bearish. Technically, while cable remains above GBP/USD1.5520 it is in an uptrend, but going forward the fundamental picture is less secure. The uptrend in EUR/USD has remained a theme during London hours and with no US data scheduled until Tuesday; this could remain the theme over the long weekend. The NZD has been the largest benefactor from the negative USD sentiment this morning. Yen gains vs the USD have been fairly modest with many investors cautious of extending yen long given the perception in some quarters that the risk of intervention by Japanese authorities may have risen this week. Upcoming Economic Data Releases (US Session). Prior, Expected 5/22/2009 12:30 CA Retail Sales MoM MAR 0.20% 0.50% 5/22/2009 12:30 CA Retail Sales Less Autos MoM MAR 0.60% -0.30% 5/22/2009 16:00 CA Minister of Finance Jim Flaherty Speaks in Toronto 22-May 5/22/2009 18:00 US Bernanke Speaks at Boston College Law School Graduation 22-May Forex.com http://www.forex.com DISCLAIMER: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase of sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

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European Market Update

Daily Forex Fundamentals | Written by Trade The News | May 22 09 10:13 GMT |

Sovereign rating concerns weigh upon USD, GBP currencies ECONOMIC DATA (TT) Taiwan Apr Unemployment Rate 5.8% v 5.8%e (SZ) Swiss Apr Money Supply M3 Y/Y: 3.8% v 3.4% prior (IT) Italian Mar Retail Sales M/M: 0.1% v -0.2%e; Y/Y: -5.2% v -0.9%e; Lowest YoY reading since series began in 1997 (UK) Q1 Prelim GDP Q/Q: -1.9% v -1.9%e; Y/Y: -4.1% v -4.1%e (UK) Index of Services 3M/3M: -1.2% v -1.2%e SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM In equities: Following Thursday's declines, equity futures opened to the positive side on light/mixed corporate news. On the open, European bourses snapped a negative streak with the FTSE, DAX and CAC opening between +0.25% to 0.60%. Following disappointing FY08/09 earnings out of British Airways [BAY.UK], shares underperformed to the downside, other large cap carriers including Air France [AF.FR] and Lufthansa [LHA.GE] underperformed their respective indicators. Analyst upgrades from Goldman on miners/basic resource names sent those shares higher in first trades, Kazakhmys [KAZ.UK] and Rio Tinto [RIO.UK] outperforming following upgrades. Goldman commentary on the Euro steel sector, making cautiously positive statements sent ArcellorMittal [MT.NV] and ThyssenKrupp [TKA.GE] higher in first crosses. Buying enthusiasm quickly waned and by 3:30EST both the CAC and DAX had surrendered all their gains, moving into negative territory. Weakness at this time developed in pan-European automotive names following comments seen pre-market out of the Washington Post regarding a bankruptcy of GM and other concerns regarding OPEL bids and the potential changes in the European car market makeup. By 3:45EST all three major equity bourses had surrendered opening gains and had moved into negative territory. This equity weight was short-lived, however, as markets bounced positive on an extremely choppy session. Once turning positive, all markets continued that flow, in light volume, printing new session highs past 4:15EST. UK provision Q1 GDP data at 4:30EST saw markets pare some gains prior to the number as traders positioned themselves for the second of three Q1 readings. Provisional reading at -1.9% as expected accelerated the rally post 4:30EST. Into the 5:00EST hour equity markets have held on to gains in positive territory while trending off their best levels. Trading themes in this Friday morning session would be characterized by light volume, and choppy price actions ahead of a long US weekend. Reminder: US equity markets will be closed on Monday, May 25, 2009 in observance of Memorial Day Holiday In equities -GlaxoSmithKline [GSK] Company potentially involved in $1.9B IRS dispute - WSJ. IRS is said to object to company's tax transaction with a Swiss subsidiary. || Marston's [MARS.UK] Reported H1 Net £13.2M compared to estimates of £7.8M. Rev came in at £307.5M above the £295M consensus. || Bank of Ireland [BKIR.IR] Guaranteed Irish banks to be asked to establish subsidiaries to administer toxic loans being transferred to Nama according to a Irish Time articles. || Speakers: BoJ Shirakawa commented that Japan's Q2 GDP to show 'sharp' improvement on Q1 decline of -15.2%. He noted that the Japanese economy was performing in line with BoJ expectations. Capital increase in Japanese banks was an important step for stabilization. BOJ noted that the risk of an economic free fall was fading from previous levels but Japanese economic pick up would be dependent on demand trends. The drop in wages could weigh upon consumption. ||| India Central bank: No clear sign of turnaround in export demand.- If conditions remain calm, could experience economic turnaround by end of 2009. As economic growth picks up, liquidity will have to be absorbed; such challenge is not as daunting for India compared to other countries. New Gov't might pressure more fiscal stimulus and large Gov't borrowings run against central bank's effort to keep interest rates low. Can manage Gov't borrowing in an orderly manner ||| OECD's Gurria noted that some economic indicators have demonstrated improvements but added the risk that the economic crisis could be prolonged without fiscal discipline. He did the US economic recovery could be faster than any one taking place in Europe. He also commented that he saw no justification for UK sovereign rating cut at this time ||| In Currencies: Continued concerns over the implications of a potential US sovereign rating downgrade continued to weigh upon the USD sentiment. Dealers noting that next weeks Treasury auction size and rating fears have scare away any prospect of any near-term dollar recovery. One dealer noted that the recent trend of Equity-dollar price movement correlation might shift to towards a stronger Bonds/dollar correlation. The EUR/USD approached the 1.4000 level during the session,a level last tested back on Jan 2nd. The dollar's soft tone lingered over the concerns that the 'AAA' US sovereign rating could come into question thanks to the revisions to the deficit projections. On Thursday, the Congressional Budget Office (CBO) commented in early NY that its March economic forecast was too optimistic and that any economic recovery could take several years. CBO also saw US jobless rate peaking above 10% in 2010 from the current level of 8.9%. Currency and fixed-income dealers noted of the potential of higher US budget deficits from this revision in growth. This brought back comments from May 11th when the Obama Administration revised its forecast for the 2009 federal deficit to $1.84T from $1.752T, while the 2010 deficit was also nudged higher, to $1.258T from $1.171T. Dealers have noted that comments from Fed Chairman Bernanke talking up the dollar were presumably designed to help fund massive deficits in the wake of the revisions, hence the dollar dilemma. The USD/JPY briefly tested below the 94.00 level where some good buying surfaced (Chatter of Far Eastern names). USD/CHF was softer and tested below the 1.09 level. The GBP was also softer against the major pairs due to reports that U.K. Treasury refused to release stress tests on RBS and Lloyds that the Financial Services Authority (FSA) carried out earlier this year. Reportedly the UK Treasury commented that disclosure of the results 'at this time may lead to uncertainty in financial markets, either in relation to specific institutions or more generally,' GBP/USD was off over 100 pips at one time to test 1.5760 before consolidating its losses. In Fixed Income: Bunds have under performed this morning, losing out most in the game of catch up with Treasuries, which were aggressively sold yesterday post NY Fed intervention. The yield on the Bund is higher by about 7bps at 3.51%, but the Bund is now just 18bps cheap relative to the 10y Note compared to 29bps on Thursday. Gilts are still weaker, however, with the 10y Gilt is now 35bps cheap relative to the 10y Note compared to 29bps yesterday. European Interbank rates increased for the third successive day, with 3-Month Euribor higher by another 0.7bps at 1.259%. I n Energy: Reportedly Russia will not attend the May 28th OPEC meeting Credit Crisis: Business Week article noted that Pension Insurer's might need aid as corporate bankruptcies increase . The article noted that the government agency that insures the pensions of 44M Americans has amassed a record $33.5B deficit, triple what it was six months ago. NOTES Moody's: Comfortable with US AAA now but not guaranteed forever. Dealers noting that there are clear long-term pressures. US bank regulators close Bank United in biggest bank failure this year. Washington Post reported that the Obama administration could send GM into bankruptcy next week. However, US Treasury commented that there were no plans to send GM into bankruptcy ahead of Jun 1 deadline. US Pension Insurer may need aid as corporate bankruptcies increase as it accumulates $33.5B deficit BoJ leaves its interest rates and upgrades view on economy and says its likely to stop deteriorating. It expands it acceptance of collateral Fed's Plosser (non voter) noted that the economy not yet ready for an interest rate hike yet but will have to at some point. US default chances remote. Japans Fin Min Yosano: Not planning to intervene in FX markets Looking Ahead: 8:30 (CA) Canadian Mar Retail Sales M/M: % v 0.5%e; Retail Sales less Autos M/M: % v -0.1%e (RU) Russian Apr Unemployment rate: % v 10.2%e (RU) Russian Apr retail Sales M/M: % v 5.6% prior, Y/Y: % v -5.2%e 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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Forex Exchange Morning Report

Daily Forex Fundamentals | Written by Westpac Institutional Bank | May 22 09 01:34 GMT |

News And Views US jobs data disappointed investors, prompting a broad selloff in equities. The S&P500 plunged at the open, and remained weak to close down 1.7%. Chartists will point to Wednesday's key day reversal as the warning, and bears will note VIX jumped back over 30 (it appears 30 is the new 40, the psychological demarcation between optimism and pessimism). A significant jolt to US sentiment came from Standard and Poor's unexpected revision of the United Kingdom's sovereign (foreign currency) credit rating from AAA to AAA (negative outlook), citing the high government debt levels projected over the medium term. The announcement affected many asset classes in many countries, including US 10 year treasuries which sold off by 17bp. Credit default swaps for the UK, relative to Germany, were 5bp higher on the day. US 3mth Libor fell, as has been usual, but by a larger 5.5bp to 0.66%. While negative events have benefited the USD in the cycle, expectations that the US could be in line for the ratings chopping block saw the dollar index weaken by 0.9%. This breakdown in correlations saw EUR jump higher to around 1.39 at midday NY, after spending the European session fixed at 1.38 (some countries on holiday). GBP fell from 1.5800 to 1.5515 around the Standard & Poor's news, but climbed back over the next 6 hours to 1.5890, a 6-month high. USD/JPY posted a 2-month low, at 94. AUD was supported by USD weakness, the UK's rating producing a prolonged dip to 0.7670 before recovering to 0.7795. There was speculation the RBA may have sold AUD above 0.7800. NZD dipped a cent on the rating, to 0.6015, but is back around 0.6100. AUD/NZD slipped to a lower 1.27 to 1.28 range. NZ interest rate swaps rates are 5bp higher this morning, following US and AU rates. US Philly Fed posted virtually no headline improvement in May, rising 1.8pts to –22.6, indeed the new orders index was slightly weaker. Shipments and jobs, however, posted more significant gains, but even these readings are still consistent with sharply contracting activity. US leading index posted its first monthly rise since June last year in April. Almost half of the 1.0% gain was due to the surging stock market; interest rates and consumer confidence explained most of the rest although lower initial jobless claims and the work-week also contributed. This is a positive signal although a turning point is not usually called until three consecutive positives are recorded. US initial jobless claims fell 12k to 631k last week (the prior week was boosted by Chrysler related layoffs) but remained within the 605k to 674k range that has prevailed since the end of January. This is the payrolls survey week and with the 4 week claims average of 629k comparing to 648k in the same week in April, there are grounds for expecting a modestly smaller fall in non-farm payrolls in May compared to April. Japanese tertiary activity index slumps 4%. The index, which tracks household and business spending on phone calls, power and transport, recorded its sharpest fall in 12yrs, well below expectations of a 1.5% decline. Coming on the heels of the horror 15.2% annualised rate of contraction in Q1 GDP, the result underscores how the export-led slump is now permeating throughout the domestic economy. Euroland advance PMIs showed a further improvement in May, still consistent with declining economic activity in the second quarter, but not as drastically weak as Q1's 2.5% GDP contraction. UK business investment fell 5.5% in Q1, limiting the scope for an upward revision to Q1 GDP growth. Also UK retail sales volumes posted back to back rises in March and April in the newly revamped retail sales series. The April gain of 0.9% was close to our 0.8% forecast and reflected temporary factors such as the timing of Easter and the relatively hot weather last month Standard & Poor's revised its outlook on the UK's AAA credit rating from stable to negative, coinciding with the publication of April public borrowing data which revealed further deterioration in the UK's public finances. Recall that earlier this year, Spain and then Ireland lost their AAA S&P ratings. Outlook Monday is a London and NY market holiday, so we expect volatility tonight from heightened position squaring. Given positions are likely long risk currencies, any squaring should produce a selloff in NZD during the next 24 hours. Adding to the negativity, extrapolations of the UK's rating onto NZ, given the budget next Thursday, are possible. The 0.6130 level is still important resistance, though, and should that be exceeded for whatever reason, NZD would go much higher. Events Today Date Country Release Last Forecast 22-May US Fedspeak: Bernanke Jpn Bank of Japan Meeting 0.10% 0.10% UK Q1 GDP Revision –1.9% –1.8% Can Mar Retail Sales 0.20% 0.50% 25-May US Memorial Day Jpn BoJ Monthly Report Mar All Industry Activity Index –2.0% – Ger May Ifo Business Climate 83.7 84.9 UK Late May Bank Holiday 26 May NZ Apr Merchandise Trade NZDm 324 450 Q2 RBNZ Inflation Expectations 2.30% 2.10% Westpac Institutional Bank http://www.wib.westpac.co.nz/ Disclaimer All customers please note that this information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs. Australian customers can obtain Westpac's financial services guide by calling +612 9284 8372, visiting www.westpac.com.au or visiting any Westpac Branch. The information may contain material provided directly by third parties, and while such material is published with permission, Westpac accepts no responsibility for the accuracy or completeness of any such material. Except where contrary to law, Westpac intends by this notice to exclude liability for the information. The information is subject to change without notice and Westpac is under no obligation to update the information or correct any inaccuracy which may become apparent at a later date. Westpac Banking Corporation is regulated for the conduct of investment business in the United Kingdom by the Financial Services Authority. © 2004 Westpac Banking Corporation. Past performance is not a reliable indicator of future performance. The forecasts given in this document are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The ultimate outcomes may differ substantially from these forecasts.

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Ratings Rock Pound And Dollar

Daily Forex Fundamentals | Written by Easy Forex | May 22 09 01:25 GMT |

U.S. Dollar Trading (USD) fell heavily for the second day as concern for the US's AAA rating saw investors dump the dollar. Weak US stocks did little to help and the link between the two has weakened. Weekly Jobless claims fell 12k to 631K this week. Crude Oil was down $1.01 a barrel to close at $61.05. In US share markets, the Nasdaq was down 32 points or -1.89% and the Dow Jones was down -129 points or -1.54%. Looking ahead, Fed Chairman Bernanke Speaks. The Euro (EUR) gained heavily with the market focusing on the USD. Gains in the Euro led the market higher with EUR/AUD and EUR/GBP also making solid gains. May EU PMI's were slightly better than expected at 44.7 vs. 43.8 previously. The Euro is the second largest currency in the world and any threat to the USD will result in substantial gains for the single currency. Overall the EUR/USD traded with a low of 1.3727 and a high of .1.3925 before closing at 1.3910. The Japanese Yen (JPY) gained against the USD although support at the low 94 Yen level was very solid. Crosses were mixed finishing slightly higher as their respective majors soared. Overall the USDJPY traded with a low of 93.96 and a high of 95.28 before closing the day around 94.20 in the New York session. Looking ahead, BOJ meeting today. The Sterling (GBP) had a very volatile day crashing after the S&P put the UK on negative watch. The pair found support at 1.55 and rebounded for the rest of the day to touch fresh week highs just below 1.5900. UK business investment fell 5.5% in Q1. Overall the GBP/USD traded with a low of 1.5513 and a high of 1.5893 before closing the day at 1.5870 in the New York session. Looking ahead, Q1 GDP is forecast at 1.9%. The Australian Dollar (AUD) retreated with stocks in the Asian session before rocketing with the Euro to test 0.7800 for the second time this week. The correlation with US stocks is weakening and the safe haven status is failing to have the same impact as at the start of the Financial crisis. Overall the AUD/USD traded with a low of 0.7666 and a high of 0.7805 before closing the US session at 0.7795. Gold (XAU) rallied with the USD weakness causing investors to seek out protection. Gold has long been seen as a USD hedge. Overall trading with a low of USD$936 and high of USD$956 before ending the New York session at USD$952 an ounce. Easy Forex http://www.easy-forex.com Easy-Forex makes no recommendations as to the merits of any financial product referred to in this website, emails or its related websites and the information contained does not take into account your personal objectives, financial situation and needs. Therefore you should consider whether these products are appropriate in view of your objectives, financial situation and needs as well as considering the risks associated in dealing with those products

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EUR/USD Nears Convergence Point

Daily Forex Technicals | Written by TradersChoiceFX | May 22 09 02:44 GMT |

The EUR/USD is nearing the pivotal point of a consolidating triangle formation, also known as a wedge formation. Although there is a potential for a breakout as the pair attempts to breach the upper trend line for the 4th time, it is likely that the pair continues to trade within the pattern. The resistance from the top trend line and the resistance zone of 1.3950 should exhibit strong price reaction, due to the extent of their existence and the numerous confirming points they have shown. There is a strong possibility that the pair will bounce off either the 1.3950 zone or the upper trend line and continue to trade within the wedge formation. The pair should consolidate towards the convergence point of the upper and lower trend line. Typically the closer the pair is to this point, the more probable the occurrence of a break out. As the pair nears this point, overall price volatility is likely to continue to shrink until a true break out occurs. This trend is exemplified by the graph of the ATR indicator: Currently there is a neutral sentiment among forex traders for the pair as they await further data and information to determine which direction the pair will move. Traders should exhibit extreme caution as the pair is likely to signal many false breaks outs in the coming days Matthew Cherry TradersChoiceFX - Forex Broker

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FX Technical Commentary

Daily Forex Technicals | Written by Easy Forex | May 22 09 01:27 GMT |

Euro 1.3910 Initial support at 1.3531 (May 19 low) followed by 1.3424 (May 18 low). Initial resistance is now located at 1.3963 (Jan 5 high) followed by 1.4058 (Jan 2 high) Yen 94.20 Initial support is located at 93.98 (Mar 20 low) followed by 93.54 (Mar 19 low). Initial resistance is now at 96.70 (May 19 high) followed by 97.84 (May 11 high). Pound 1.5850 Initial support at 1.5450 (May 20 low) followed by 1.5296 (May 19 low). Initial resistance is now at 1.5891 (May 21 high) followed by 1.6198 (Nov 5 high). Australian Dollar 0.7785 Initial support at 0.7630 (May 20 low) followed by the 0.7451 (May 18 low). Initial resistance is now at 0.8097 (Sep 30 high) followed by 0.8348 (Oct 6 high). Gold 953 Initial support at 916 (May 18 low) followed by 906 (May 8 low). Initial resistance is now at 956 (Mar 21 high) followed by 967 (Mar 20 high). Currency Sup 2 Sup 1 Spot Res 1 Res 2 EUR/USD 1.3424 1.3531 1.3910 1.3963 1.4058 USD/JPY 93.54 93.98 94.20 96.70 97.84 GBP/USD 1.5296 1.5450 1.5850 1.5891 1.6198 AUD/USD 0.7451 0.7630 0.7785 0.8097 0.8348 XAU/USD 906.00 916.00 953.00 956.00 967.00 Easy Forex http://www.easy-forex.com Easy-Forex makes no recommendations as to the merits of any financial product referred to in this website, emails or its related websites and the information contained does not take into account your personal objectives, financial situation and needs. Therefore you should consider whether these products are appropriate in view of your objectives, financial situation and needs as well as considering the risks associated in dealing with those products

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Singh May Set Record in India Asset Sales After Election Victory

By M.C. Govardhana Rangan

May 22 (Bloomberg) -- Indian Prime Minister Manmohan Singh, who began his second term this week, may set a record for selling state assets as he revives efforts that were foiled by his former communist allies, bankers and analysts said.

The new administration could start by resuming share sale plans for NHPC Ltd., India’s largest producer of electricity from water, explorer Oil India Ltd. and fuel retailer Hindustan Petroleum Corp., according to Mumbai-based brokerage Religare Capital Markets Ltd.

Singh may sell $20 billion of state assets in the next five years as he tries to plug a budget shortfall, said Rashesh Shah, chief executive officer of Edelweiss Capital Ltd. After a privatization wave that netted a record $6 billion between 1999 and 2004 to a government led by Singh’s main opponents, sales slumped during his first term as communist allies thwarted plans.

“Sales by this government will be significantly higher than the previous record,” S. Subramanian, head of investment banking at Enam Financial Consultants Ltd. in Mumbai, said in an interview. Mumbai-based Enam has managed share offerings for state-owned companies including Power Grid Corp. of India Ltd., CMC Ltd. and Power Finance Corp.

Singh’s Congress party-led coalition faces a fiscal deficit that’s more than double the government target and an economy growing at the slowest pace since 2003.

The nation will sell stakes in companies as promised by the Congress party’s election manifesto, P. Chidambaram, who was in charge of the finance and home ministries in Singh’s previous administration, said on May 18. Singh, the first premier to win re-election after serving a full term since 1971, doesn’t need the Communists’ support for his new administration after winning the backing of 322 lawmakers in the 545-seat lower house.

‘Right to Own’

“The Indian people have every right to own part of the shares of public sector companies while the government retains majority shareholding,” the election manifesto said. Still, Congress “rejects the policy of blind privatization” followed by the opposition Bharatiya Janata Party and its allies, it said.

Singh, 76, raised 67 billion rupees ($1.41 billion) from selling stakes in NTPC Ltd. and Rural Electrification Corp. of India Ltd. during his first term, according to India’s Department of Disinvestment. Then-finance minister Chidambaram’s plans to sell shares in companies including Bharat Heavy Electricals Ltd., India’s biggest maker of power equipment, and National Aluminium Co. were blocked by the communists in 2006.

The previous Singh administration waived farm loans, raised government employees’ salaries for the first time in 12 years, cut taxes and increased spending on roads, ports and other infrastructure as it sought to revive economic growth and shore up support before the election. That strained state finances as the economic slowdown hurt tax collections.

Strained Finances

India’s fiscal deficit reached 6 percent of gross domestic product in the year ended March 31, surpassing the 2.5 percent government target.

The prospect of a wider budget shortfall prompted Standard & Poor’s to say in February that India’s spending plans were “not sustainable” and the nation’s credit rating may be cut to junk if finances worsen.

“The government will now have the ability to look at disinvestment seriously in the context of the fiscal deficit,” S. Ramesh, chief operating officer of Kotak Mahindra Bank Ltd.’s investment banking unit, said in an interview. “The numbers can be significant.”

Raising 100 billion rupees from share sales and initial public offerings in the financial year that began April 1 would help cut the fiscal deficit by a quarter-point, according to Religare estimates.

NHPC, Oil India

Companies in which the government had planned to reduce its holding through an IPO, only to scrap the proposals, may be first in line for sales, Religare said in a May 12 research note. Such firms include NHPC, which had expected to raise 55 billion rupees, RITES Ltd., and Oil India, the brokerage said.

The nation’s Disinvestment Committee had also previously recommended cutting stakes in Shipping Corp. of India Ltd., National Buildings Construction Corp., Projects & Equipment Corp., Hindustan Shipyard and Electronics Corp. of India, making them likely candidates during Singh’s second term, Religare said.

Delivering on asset sales pledges may reassure foreign investors that Singh is also serious about economic reforms aimed at making India more competitive. Overseas funds bought $3.1 billion of Indian equities so far in May, the most in a month since October 2007, according to Bloomberg data.

“There’s a huge backlog of offers that will get cleared now,” said Ravi Sardana, senior vice president of ICICI Securities Ltd. “It is also a good message for global investors.”

To contact the reporters on this story: M.C. Govardhana Rangan in Mumbai at grangan@bloomberg.net

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Brown Goes ‘Full Circle’ as Debt Casts Doubt on AAA Bond Rating

By Gonzalo Vina

May 22 (Bloomberg) -- When Gordon Brown took over as Britain’s Labour finance minister in 1997 after 18 years of Conservative rule, he promised “sustainable public finances” to cut a debt load that was near the highest in more than decade.

Brown, prime minister since 2007, is leaving the next government -- either his own or one led by the Conservatives -- a mess similar to the one he inherited.

Standard & Poor’s yesterday highlighted the task facing the next finance chief, saying it may cut Britain’s AAA credit rating for the first time as debt heads to 100 percent of gross domestic product amid the worst recession since World War II.

“We have gone full circle,” said Danny Gabay, director of Fathom Financial Consulting in London and a former Bank of England economist. “Like then, there was a massive collapse in the fiscal position. Whoever is in government won’t have the luxury of waiting, because the situation is pressing.”

Debt costs will consume 6.9 percent of government spending by 2013, double the current rate, crowding out funds available for roads, schools and hospitals, according to the independent Institute for Fiscal Studies in London. The government expects to spend 60 percent more servicing debt next year. By 2014, it will be paying lenders almost as much as it spends on defense.

Britain needs to sell a record 220 billion pounds ($344 billion) of bonds in the fiscal year through March 2010. Chancellor of the Exchequer Alistair Darling says the budget deficit will reach 175 billion pounds, or 12.4 percent of GDP, the highest among the Group of Eight nations.

Pound, Stocks Slide

After S&P lowered the U.K. credit outlook to “negative” from “stable,” the pound fell the most in four weeks against the dollar, the FTSE 100 Index slid 2.8 percent and the cost of insuring U.K. debt against default rose by 8 basis points.

The move couldn’t have happened at a worse time for Brown, who trails in opinion polls and is struggling to overcome a scandal regarding expense reimbursements provided to lawmakers - - a controversy that toppled the Speaker of the House of Commons this week for the first time since 1695.

A BPIX Ltd. survey published May 17 showed Brown, who must call an election by June 2010, lagging behind the Conservatives by 22 points.

“Does this government in its current state have the steel and the authority to put through a painful program of tax increases and spending reductions and nurture the economy in a consensual way through a period of difficult economic adjustment?” said George Magnus, senior economic adviser at UBS AG. “ No. The politics just aren’t right.”

Higher Taxes

Regardless of whether Brown’s Labour Party or David Cameron’s Conservatives win the next election, Britain is headed for years of pain as the government raises taxes and slashes spending to restore credibility with investors, economists say.

“The huge deficit will still require significant and active tightening of fiscal policy,” said Ben Broadbent, a U.K. economist at Goldman Sachs Inc. in London.

A credit rating cut may drive government borrowing costs higher, eating further into what a Brown or Cameron government can spend on public services.

Fathom’s Gabay says the average interest rate paid by the government following a downgrade may rise to about 7 per cent. That rate was last seen in 1997 and, because of the size of the debt, servicing costs as a share of the economy would rise to their highest since 1946.

The government estimates it will devote 5.9 percent of spending to paying interest by 2011, jumping from a low of 4.1 percent this year, though still less than the 9.1 percent when Brown became chancellor in 1997.

Debt Costs

For now, the Treasury plans on paying an average interest rate on outstanding debt of 4.8 percent from April 2010. That compares with averages of 10 percent in the early 1980s and 7 percent in the 1990s.

With the economy shrinking, tax revenue is crumbling and the deficit ballooning. The government says debt may total 1.4 trillion pounds by 2014 from about 600 million pounds last year.

Darling has already announced a spending squeeze and higher taxes that will boost Treasury coffers by almost 27 billion pounds a year. The International Monetary Fund said yesterday those steps aren’t enough to restore the government’s finances and urged further action.

“Britain’s economic reputation is on the line,” said George Osborne, the lawmaker in charge of Treasury affairs for the Conservatives. “Unless Britain has a government with a credible plan to reduce debt, there will be a further downgrade, with all of the serious consequences for our prosperity that would entail.”

Britain’s debt next year will be 66.9 percent of GDP, exceeding Canada’s 29.1 percent and Germany’s 58.1 percent, according to April 22 forecasts by the IMF. The U.S. will be at 70.4 percent, and the 16-nation euro area at 68 percent, according to the Washington-based lender.

“We’ll get to 100 percent quite easily,” said Colin Ellis, an economist at Daiwa Securities SMBC Europe Ltd. in London. “The public finances are really in trouble.”

To contact the reporters on this story: Gonzalo Vina in London at gvina@bloomberg.net;

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Bean Says BOE Faces ‘Tricky Judgment’ on Policy Stimulus Exit

By Jennifer Ryan and Brian Swint

May 22 (Bloomberg) -- Bank of England Deputy Governor Charles Bean said policy makers face a “tricky judgment” on when to exit its money-printing strategy as the lending squeeze keeps Britain’s economy mired in recession.

“It is possible that the supply of credit will remain impaired for some while,” Bean said in a speech in Sheffield, England yesterday. “We are still some way from having banks that feel sufficiently secure that they can lend normally, and investors that have enough confidence in the banks to provide them with sufficient funds.”

Bean said the central bank has flexibility in how it unwinds its strategy to aid the economy by buying assets with newly created money, and will be guided by its 2 percent inflation target. The Monetary Policy Committee can also raise the benchmark interest rate from the current record low of 0.5 percent, he said.

“It is not necessary to unwind the asset purchases before raising bank rate,” he said. “The timing of the withdrawal of the monetary stimulus will be governed by the need to meet the MPC’s inflation objective, not by the government’s financing needs,” he said.

Bean noted the bank may also stagger gilt sales by swapping them for short-term central bank bills.

Policy makers voted this month to increase to 125 billion pounds ($197 billion) the bank’s asset purchase program to fight Britain’s worst recession in a generation. Standard & Poor’s yesterday cut its outlook on the U.K.’s top AAA credit rating to negative from stable for the first time ever after the slump hammered tax receipts and swelled the government’s deficit.

Purchase Effects

The asset purchases have had a “beneficial impact” in cutting spreads on commercial paper and corporate bonds, and in boosting issuance of company debt, Bean said. He noted that the strategy may be helping to push down the cost of borrowing between banks, through it will “take some time” before policy makers can assess the full effects on the economy.

“Business surveys around the world do suggest that the rate of contraction in activity has been moderating over that past few months and that business confidence has started to improve,” Bean said. “So the bottom in economic activity may not be far off.”

The bank’s actions and the drop in the pound may also help the economy, Bean said.

“Our latest assessment is that the combined stimulus from policy easing and the lower value of sterling should be sufficient to lead to growth resuming as we move towards the end of the year,” he said.

Still, the squeeze on credit across the economy remains “very much at the forefront of our concerns,” Bean said.

To contact the reporters on this story: Jennifer Ryan in London at Jryan13@bloomberg.net; Brian Swint in London at bswint@bloomberg.net.

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Thai Economy May Contract Most in a Decade, Entering Recession

By Suttinee Yuvejwattana and Michael Munoz

May 22 (Bloomberg) -- Thailand’s economy probably slid into a recession in the first quarter, shrinking the most since the Asian financial crisis a decade ago.

Gross domestic product fell 6.5 percent last quarter from a year earlier, after contracting 4.3 percent in the previous three months, according to the median estimate of 17 economists surveyed by Bloomberg News. The government will release the data on May 25 at 9:30 a.m. in Bangkok.

“Exports deteriorated markedly,” said Radhika Rao, an economist at IDEAglobal Ltd. in Singapore. “Investment interest was also likely sluggish against the backdrop of simmering political tensions.”

The government has boosted spending on training, cash handouts and public works to buoy consumption as the worst global economic slump since World War II and political protests hurt Southeast Asia’s second-largest economy. The central bank, which this week ended its most aggressive string of rate cuts ever, says there’s signs the contraction is moderating.

“The economy possibly hit the bottom in the first quarter,” said Somprawin Manprasert, an economist at Tisco Securities Ltd. in Bangkok. “There are some positive signs but it doesn’t mean the recovery has started. We will go through periods of moderate contraction and may pick up next year.”

‘Worst is Over’

The government “will do whatever we can” to ensure economic expansion by this year’s final quarter, Abhisit said on May 20, the same day the Bank of Thailand kept interest rates at 1.25 percent, saying economic indicators are showing a more “moderate” contraction even as risks to the economy remain.

Production has picked up in electronic and automotive industries and exports, and consumer demand is recovering, Finance Minister Korn Chatikavanij said May 7.

“Things improved in the past six weeks,” Richard Han, chief executive officer at Hana Microelectronics Pcl, said May 20. “The worst is over.”

Thailand’s economy will contract less each quarter before returning to growth in the final three months of this year, based on the median estimate of the economists surveyed by Bloomberg News. Singapore and Taiwan governments yesterday said their economies are showing signs of recovery.

Exports, Thailand’s main economic driver, declined for a sixth straight month in April, the longest contraction in seven years, the Commerce Ministry said May 20. Industrial output slid for a fifth month in March as exporters curbed output and cut jobs, the central bank said April 30.

Sales Hurt

Consumer confidence is at its lowest level in seven years. An emergency decree was imposed for 13 days in Bangkok last month to quell anti-government riots that left two people dead.

“It’s very difficult to do business amid unpredictable events like this,” said Pornrat Janejarassakul, vice president of Advanced Info Service Pcl, the nation’s biggest mobile-phone operator. “Our sales have been hurt by the political turmoil.”

Advanced’s profit slid 11 percent in the first quarter as service and rental revenue declined. The average share price of companies trading in Thailand’s benchmark SET Index fell to 8.3 times earnings in the three months to March 30, compared with 15 times a year earlier.

Thailand’s economy hasn’t shrunk for two straight quarters since the first three months of 1999. That was the last of eight quarterly contractions triggered two years earlier, when the nation cut a peg to the dollar that had overvalued the baht and slashed exports. The economic crisis eventually extended to the Philippines, Indonesia, Malaysia, Taiwan and South Korea.

Election Pledge

Prime Minister Abhisit Vejjajiva has pledged to call elections once stability is restored in the nation of 66 million people. The protesters say the prime minister’s rule is illegitimate because he came to office after a court dissolved the former ruling party.

Power in Thailand has shifted between parties allied to former Prime Minister Thaksin Shinawatra and his opponents since the 2006 coup that ousted him, hurting successive governments’ ability to implement spending plans.

Abhisit’s seven-party coalition is strong enough to pass a borrowing plan and next year’s 1.7 trillion-baht ($49 billion) budget, he said this week. That’s in addition to a 1.4 trillion- baht, four-year investment plan, and a 116.7 billion-baht stimulus package aimed at stemming this year’s economic slide.

Following are forecasts for Thailand’s GDP compiled by Bloomberg News:

================================================================
                         1Q    1Q    2Q    3Q    4Q   GDP   GDP
Firm                 QoQ% sa  YoY%  YoY%  YoY%  YoY%  2009  2010
================================================================
Median                 -1.7% -6.5% -5.2% -4.3%  1.2% -3.5%  3.0%
Average                -1.8% -6.6% -5.3% -4.2%  1.3% -3.7%  3.1%
High                   -0.5% -4.9% -4.1% -2.9%  3.5% -3.0%  4.5%
Low                    -4.6% -9.5% -7.0% -6.0% -1.1% -4.9%  1.5%
Number of Estimates       12    17    11    11    11    13    12
================================================================
Action Economics       -0.5% -5.6% -5.6% -4.3%  3.5% -3.0%  3.0%
ATR-Kim Eng Capital       -- -7.0% -5.2% -3.0%  1.4% -3.5%  2.8%
Barclays Capital       -0.8% -5.8%    --    --    --    --    --
Citi                   -0.6% -4.9%    --    --    --    --    --
DBS Group              -1.8% -6.8%    --    --    -- -3.5%  3.8%
HSBC                   -0.9% -6.0% -5.8% -5.1%  2.6% -3.5%  3.0%
Ideaglobal                -- -6.5%    --    --    -- -3.5%    --
ING Groep NV           -3.0% -7.9%    --    --    --    --    --
JP Morgan Chase        -2.5% -7.1% -6.2% -4.7%  2.0% -4.0%  4.0%
Kasikorn Research      -1.5% -6.5% -6.1% -5.7%  0.5% -4.5%  2.5%
KTB Securities            -- -6.8% -4.8% -3.5%  1.2% -3.5%  3.8%
Macquarie Capital         -- -5.5%    --    --    --    --    --
Moody’s Economy.com    -4.6% -9.5% -4.5% -3.0%  3.0% -3.5%  2.8%
Phatra Securities      -1.6% -6.0% -4.6% -3.0%  0.6% -3.3%  2.9%
Reuters IFR            -2.5% -7.5% -7.0% -6.0%  1.1% -4.9%  4.5%
Standard Chartered        -- -5.8% -4.1% -2.9% -1.1% -3.5%  1.5%
Tisco Securities       -1.7% -6.5% -4.1% -4.9% -0.1% -3.9%  2.7%
================================================================

To contact the reporters on this story: Suttinee Yuvejwattana in Bangkok at Suttinee1@bloomberg.netMichael J. Munoz in Hong Kong at mjmunoz@bloomberg.net

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