Morning Forex Overview

Daily Forex Fundamentals | Written by Dukascopy Swiss FX Group | May 27 09 07:02 GMT |

Previous session overview The yen touched a one-week low against the dollar in Asia on Wednesday as rising regional stocks and signs of healthy demand for U.S. government debt eased worries over the U.S. and global economies, boosting investors' risk appetites. Japan's currency, which is widely considered the safest currency to buy at times of crisis, often comes under selling pressure when the outlook for global growth improves. In addition to optimism over the U.S. and world economies, expectations that Japanese mutual funds are about to resume investment in overseas assets also hurt the yen, dealers said. Asian investors led the selling. The dollar rose to a one-week high of JPY95.51, compared with JPY94.97 in New York late Tuesday, and dealers expect further appreciation ahead. The European single unit climbed one yen to JPY133.53. EUR was sold until noon London on weak current account and industrial orders data, falling from USD1.4000 to USD1.3860, but rebounded completely after much better-than-expected U.S. consumer index, with the data also boosting U.S. equities as investors became more optimistic the worst of the global recession is over. The Pound rallied sharply off European lows although settled comfortably below the key USD1.60 level. The banking sector rebound is helping the Pound to recover faster than other currencies with London a major financial centre. The Australian dollar was stronger late Wednesday as rebounding risk appetite on the back of Wall Street gains emerged as a strong driver of higher-yielding currencies. Market expectation The dollar and the euro are higher against the yen, but doubts remain that the dollar's rebound will last long. The euro is holding even against the dollar. Traders said the U.S. dollar drew help from a report in the Wall Street Journal that General Motors Corp. and the United Auto Workers had agreed to a new restructuring plan. The new version would give the union a significantly smaller stake in the company than previously envisioned, and leave the U.S. government owning as much as 70%. The U.K. pound is carrying on its technical rebound against the dollar, and could reach USD1.60, around which selling may emerge. The pound is also higher against the euro yet also looks vulnerable to profit-taking. EURUSD - rate initially followed euro-yen higher at the start of the session, but failed to reach last night's USD1.4023 NY high (USD1.4001 high so far) after running into rumored sell orders at USD1.4020, while larger interest is now seen at USD1.4040 region. The pair's subsequent pullback then sees it slide through USD1.3990, mild stops seen on the break below USD1.3980, for a USD1.3948 low, before a bounce follows, moderate bids now noted at USD1.3930, according to dealers. Dollar-yen currently trades at JPY95.35, offers just ahead of early high at JPY95.50, capping gains for now, but break of these could then see the pair push on towards JPY95.80, where there are more buy stops said to be sitting. European stocks are expected to open higher Wednesday, benefitting from the healthy tone on Wall Street Tuesday, as investors take comfort from some positive economic data. Dukascopy Swiss FX Group Legal disclaimer and risk disclosure This overview can be used only for informational purposes. Dukascopy SA is not responsible for any losses arising from any investment based on any recommendation, forecast or other information herein contained.

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Consumer Confidence The Trigger For Dip-Buying

Daily Forex Fundamentals | Written by Saxo Bank | May 27 09 06:59 GMT |

We maintain that the S&P500 will be a “buy-on-dips” until we see a test of the 200 DMA, currently around 931. Calendar Economic Data Releases Country Name Time (GMT) Expectation Prior Comment GE Consumer Price Index YoY 0.2% 0.7% US 14:00 FHFA House Price Index MoM (MAR) 0.2% 0.7% US 14:00 Existing Home Sales MoM (APR) 2.0% -3.0% What's going on? US Case/Shiller Home Prices show no signs of stabilization. National home prices declined at an 18.7% annualized pace, the fastest ever. Stocks rallied nonetheless on the much better than expected Consumer Confidence from the Conference Board, which showed the biggest gain since 2003. The Richmond Fed Index was also better than expected and corporate CDS prices and the VIX were continuing to slide lower. We maintain that the S&P500 will be a “buy-on-dips” until we see a test of the 200 DMA, currently around 931. Eastern European Sovereign CDS prices crept higher – beware of a break higher in the EUR vs. PLN, HUF and CZK. FX FX Daily stance Comment EURUSD 0/+ 1.4050 looks key to further gains. Buy break or buy dip to 1.3910-15 for 1.4160 EURJPY 0 Near-term res at 133.50. Seen ranging 132.50-133.50 USDJPY - Look to sell rallies up to 95.50-60 res with a stop abv 96.25, target 93.0 lvls GBPUSD 0/+ Look to buy dips to 1.5890-00 for a challenge on 1.5990 then 1.6050 AUDUSD 0/+ Buy dips to 0.7840 for a test of new 2009 highs at 0.7930. Stop below 0.7750 Equities Equities Daily stance Comment DAX 0/+ Buy on dips towards 4948 and target 5000. Stop below 4920. FTSE + Buy around 4410 and target 4500. Stop below 4380. S&P500 + Buy around 910 and target 923. Stop below 900. Nasdaq100 0/+ Buy on dips towards 1400 and target 1422. Stop below 1390. Nikkei 0/+ Buy at the break of 9500 and target 9600. Stop below 9450. Futures Commodities Daily Stance Comment Gold 0/+ Buy on dips towards 942 and target 953. Stop below 935.50. Silver 0/+ Buy on dips towards 14.40 and target 14.60. Stop below 14.30. Oil 0 Neutral. Risk-reward unconvincing. Beware of inventory figures today. FX Options FX-Options Comment EURUSD Vols corrected a bit lower after last week’s jump, but main interests still looking for EUR calls. Could see some range trading around 1.39/1.40 levels before breaking higher. USDJPY Risk reversals have eased as spot moved back above 9500. Gamma comes back offered as spot ticks higher. 9500 strikes for Tokyo cut would likely attract spot. AUDUSD Front end remains weak while 1m-6m area have found bids after spot moved to new highs above 7800. 2m-3m upside (8000-8200 area) seen some buying interests. Analysis Disclosure & Disclaimer Saxo Bank A/S shall not be responsible for any loss arising from any investment based on any recommendation, forecast or other information herein contained. The contents of this publication should not be construed as an express or implied promise, guarantee or implication by Saxo Bank that clients will profit from the strategies herein or that losses in connection therewith can or will be limited. Trades in accordance with the recommendations in an analysis, especially leveraged investments such as foreign exchange trading and investment in derivatives, can be very speculative and may result in losses as well as profits, in particular if the conditions mentioned in the analysis do not occur as anticipated. Saxo Bank utilizes financial information providers and information from such providers may form the basis for an analysis. Saxo Bank accepts no responsibility for the accuracy or completeness of any information herein contained. Any recommendations and other comments in Saxo Bank's analysis derive from objective fundamental macro economical and company specific calculations, statistical and technical analysis, and subjective general market assessment. If an analysis contains recommendations to buy or sell a specific financial instrument, such recommendation should be seen as Saxo Bank's opinion that the specific instrument will respectively outperform the relevant market or underperform compared to the market. Saxo Bank's recommendations should statistically correspond to an even distribution between buy and sell recommendations. The recommendations may expire promptly due to market volatility and in general, Saxo Bank does not anticipate its recommendations to be valid more than one month. An analysis will be updated if and only if a market development or other issues relevant to the analysis render a new analysis on the same topic relevant. Saxo Bank's analysis does not cover any specific financial product over time but only products which Saxo Bank's strategy team finds it important to cover at any given point in time. In order to prevent conflicts of interest, Saxo Bank has established appropriate business procedures, incl. procedures applicable to research and analysis to ensure objective research reports. Saxo Bank's research reports have not been discussed with the parties, e.g. issuers of securities, mentioned in the analysis. Saxo Bank is under supervision by the Danish Financial Supervisory Authority. Saxo Bank does not engage in corporate finance activities and accordingly, Saxo Bank's employees, incl. the persons responsible for an analysis, do not receive remuneration associated with investment banking transactions.

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Sunrise Market Commentary

Daily Forex Fundamentals | Written by KBC Bank | May 27 09 06:57 GMT |

On Tuesday, US Equities rallied after US consumer confidence showed its biggest jump in six years. Dow/S&P ended 2.37% / 2.63% higher. This morning, Asian shares hit their highest level in seven months. The Japanese trade balance showed modest signs of recovery as exports rose for the second consecutive month in April; providing more evidence that the worst in trade may be over. In the US, conference board consumer confidence jumped from a revised 40.8 to 54.9 in May, the highest level in eight months, which might reflect some easing of the severe strains in the labour market. In March, S&P Case Shiller house prices fell by 2.2% M/M, indicating that the fall in home prices remains steep. Today, the German government is due to decide which bidder or bidders it prefers as a partner of the Opel unit of struggling US carmaker General Motors. Yesterday morning, crude oil dropped below $60 a barrel, but ended the session significantly higher ($62.54) boosted by the rebound in US consumer confidence. Markets On Tuesday, trading on almost all markets showed two different faces. The US consumer confidence report was the tipping point for trading. Before the release, investors were rather cautious. The tension surrounding North Korea was even a good excuse to lock in profits in some riskier asset classes. Global stock markets were waiting for guidance from the US as US and UK markets were to resume trading after the holiday on Monday. US markets were perfectly able to take up this role. US consumer confidence jumped higher at a pace well beyond market expectations. At the same time, also the Richmond Fed activity index came out stronger than expected. Those two data series erased investor's disappointment after weaker than expected US housing data published earlier in the sessions. Stocks and other cyclically sensitive assets (like commodities) jumped higher upon those releases as investors saw those data series as another potential indication that the trough in this economic cycle might be behind us. The S&P recorded a gain of 2.63%. So, the 877 previous high now perfectly plays its role as first support area. The reaction on other markets was rather straight forward. Bonds already faced quite some headwinds recently and this pattern didn't change after yesterday's US data. US 10-year yields cleared the psychological barrier of 3.50%. German 10-year yields closed the session at 3.62%, the highest level since mid-November of last year. Over the previous days, government bond yields were higher on credit concerns. Yesterday, bonds were pressured by the hope on an economic recovery. Whatever the reason, the least one can say that bonds continue to fight an uphill battle. This analysis is also confirmed by the technical picture as yields for maturities longer than five years on both side of the Atlantic have now confirmed the break above the key levels that were broken recently. Today, markets will take a very close look at the 5-year bond auction in the US (35 B). On the currency markets, the euro lost some ground early in the session, but the return of risk appetite after the US consumer confidence release helped the single currency to recoup the earlier losses. Nevertheless, despite yesterday's intra-day rebound, a sustained break of the 1.40 mark doesn't look that easy for now. The initial reaction in USD/JPY was much more muted. The pair balanced between global dollar weakness and some yen selling pressure due to improved risk sentiment. This morning, the latter prevailed and the pair regained the 95.00 mark, confirming the view that a break below the 93.85/52 range bottom is not that evident. Yesterday's data had no big impact on sterling trading. The UK currency remains well bid, supported by a global positive investor sentiment. However, for now the key EUR/GBP 0.8637 level is still not really challenged. Regarding the eco data, today, the calendar contains the German CPI data (May), the French business confidence indicator (May) and US existing home sales (April). In May, German CPI inflation is forecasted to decline further and come out close to zero (0.2% Y/Y). The monthly figure might however show a slight uptick due to the upward trend in oil prices. French business confidence is forecasted to show the second consecutive improvement (73 from 71) in May. In the US, existing home sales are expected to have risen by 2.0% M/M in April after falling by 3.0% M/M in the previous month. The improvement is expected to come from low rates and home prices and government stimulus plans. Download entire Sunrise Market Commentary Disclaimer: This non-exhaustive information is based on short-term forecasts for expected developments on the financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a KBC judgment as of the data of the report and are subject to change without notice.

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Forex and Dow Jones Recommended Levels

Daily Forex Technicals | Written by FXtechtrade | May 27 09 07:03 GMT |

EUR/USD Today's support: - 1.3922 and 1.3910(main), where correction is possible. Break would give 1.3891, where correction also may be. Then follows 1.3857. Break of the latter would result in 1.3812. If a strong impulse, we would see 1.3770. Continuation will give 1.3735. Today's resistance: - 1.4017, 1.4040, 1.4075 and 1.4104(main). Break would give 1.4130, where a correction is possible. Then goes 1.4147. Break of the latter would result in 1.4172. If a strong impulse, we'd see 1.4198. Continuation will give 1.4218. USD/JPY Today's support: - 95.06, 94.84 and 94.50(main). Break would bring 94.35, where correction is possible. Then 94.02, where a correction may also happen. Break of the latter will give 93.80. If a strong impulse, we would see 93.54. Continuation would give 93.37. Today's resistance: - 95.67(main), where a correction may happen. Break would bring 95.90, where also a correction may be. Then 96.30. If a strong impulse, we would see 96.64. Continuation will give 96.95. DOW JONES INDEX Today's support: - 8413.62 and 8393.00(main), where a delay and correction may happen. Break of the latter will give 8367.18, where correction also can be. Then follows 8343.79. Be there a strong impulse, we would see 8325.00. Continuation will bring 8303.90 and 8281.75. Today's resistance: - 8507.77 and 8528.40(main), where a delay and correction may happen. Break would bring 8552.80, where a correction may happen. Then follows 8578.12, where a delay and correction could also be. Be there a strong impulse, we'd see 8606.22. Continuation would bring 8628.73 and 8551.20. FXtechtrade http://www.fxtechtrade.com Disclaimer: Any information presented by Nikolajs Serikovs at this very website should be in no way understood as an offer, promise or guarantee for receiving a profit or avoiding the losses. Stated here levels of support and resistance must not be construed as an investment advice or endorsement for any financial instrument. There exists no guarantee that the market would behave in accordance with the information stated here Prepared in Republic of Latvia for the worldwide distribution.

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FX Technical Analysis

Daily Forex Technicals | Written by Mizuho Corporate Bank | May 27 09 06:33 GMT |

EURUSD Comment: Yesterday's small 'spike low/hanging man' candle hints at a market looking for direction (here and in several major currencies too). As we move towards the pivotal 1.4200 area we feel that implied volatility should leap higher on a sustained break above 15.00%. Strategy: Buy at 1.3950, adding to 1.3800; stop well below 1.3700. Short term target 1.4000, then a lot more with a first measured target at 1.4200 then 1.4550. Direction of Trade: →↗ Chart Levels: Support Resistance 1.3932 " 1.4005 1.386 1.4051/1.4060* 1.38 1.41 1.3730* 1.4125 1.37 1.4200* GBPUSD Comment: Sneaking to a new high for the year at 1.5982 after two consecutive 'spike low/doji' candles. Cable is overbought but bullish momentum is stronger than it has been since December 2006. Strategy: Buy at 1.5950, adding to 1.5800; stop well below 1.5700. Add to longs on a sustained break above 1.6000 for 1.6100/1.6200 short term. Direction of Trade: →↗ Chart Levels: Support Resistance 1.5900 " 1.5982 1.5835 1.6000* 1.5778 1.6100* 1.57 1.6200* 1.5514* 1.64 USDJPY Comment: Hovering above fairly pivotal support roughly between 94.00 and 94.50, but below a large Ichimoku 'cloud' with moving averages suggesting a short. Implied volatility is expected to pick up over the next two weeks as prices look for direction. We continue to favour a move lower, maybe not this week but probably early in June. Strategy: Sell at 95.45, adding to 96.00; stop above 97.00. First target 94.55, then 93.55. Direction of Trade: → Chart Levels: Support Resistance 94.93 " 95.51 94.55 95.65 94.25 96 93.85 96.22 93.55* 96.71* EURJPY Comment: Consolidating above a very large Ichimoku 'cloud' in what we now see as a large 'triangle'. We now favour a slow sideways move over the next week or two, here and in a whole range of other Yen crosses. Strategy: Possibly attempt small shorts at 133.00; stop above 133.75. Add to shorts on a sustained break below 130.90 for 129.50 short term. Direction of Trade: → Chart Levels: Support Resistance 132.05 " 133 131.47 133.45/133.60* 130.95 134 130.2 134.33 129.50* 134.80* Mizuho Corporate Bank Disclaimer The information contained in this paper is based on or derived from information generally available to the public from sources believed to be reliable. No representation or warranty is made or implied that it is accurate or complete. Any opinions expressed in this paper are subject to change without notice. This paper has been prepared solely for information purposes and if so decided, for private circulation and does not constitute any solicitation to buy or sell any instrument, or to engage in any trading strategy.

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Forex Technical Update

Daily Forex Technicals | Written by India Forex | May 27 09 06:51 GMT |

Rupee: Rupee opened stronger at 47.55 after taking resistance from the 38.2% Retracement at 47.92 yesterday as expected also backed by month-end dollar demand by importers and weak stocks. The overall outlook for rupee still remains bullish. Sustained trading below 48.35 (50% Retracement) can bring a re-test of 46.80 support. Exporters should cover their exposures around 47.90 - 48.20 levels. (USD/INR : 47.58). Bullish. Euro: Euro retraced around 165 pips from 1.4022 high yesterday, however closed stronger at 1.3989. The daily and 4-hourly charts are overbought which may again lead to some correction in Euro. Break below 1.3935 (21 4-hourly EMA) can take Euro to cluster support of 1.3810 (38.2% retracement of the recent rise & 55 hourly EMA). Longs can be initiated around 1.3750 - 1.3820 levels for 150 pips. On the upside sustained trading above 1.40 can push Euro higher to 1.4170 (50% of the fall from 1.6038 to 1.2329). Avoid shorts in Euro. (Eur/Usd:1.3975). Short Term Bullish Pound: Cable retraced and took support around 1.5777 (channel trendline & 100 Hourly EMA) yesterday. Later in the US session cable surged higher to 1.5980 levels meeting our target of yesterday. The charts remain overbought with resistance around 1.6035 (38.2% of the fall from 2.0158 to 1.3502) and then 1.6228 (55 Weekly EMA). Correction could be witnessed, however, avoid initiating short positions as Cable is still in an uptrend. Initiate longs around 1.58 levels for 150 pips. Stay cautious on shorts before 1.62. (Gbp/Usd: 1.5973). Short term Bullish Yen: The Usd/Jpy pair traded in a thin range yesterday. The daily stochastic shows buying pressure which can take the pair to 96.25 levels (21 Daily EMA). The 4-hourly & hourly charts are yet to get completely oversold with first resistance around 96.20 where shorts in the pair could be considered. Overall outlook remains bearish and a break of 93.50 can take JPY to 92.50 (Usd/Jpy: 95.40). Bearish Australian Dollar: Aussie remained volatile yesterday trading in 180 pips and surging to 0.7881 breaking past the weekly resistance. Major charts have flattened in the overbought region indicating further upside in Aussie. The 4-hourly charts are overbought which may bring a correction upto 0.7721 (55 4-hourly EMA) where longs can be entered. On the upside resistance comes at 0.7935 (50% Retarcement of the fall in weekly). (Aud/Usd: 0.7861).Bullish Gold: Gold plunged to $940 yesterday before closing at $951. We booked profits on yesterday's long position as the daily and 4- hourly charts remain overbought and a retracement upto $930 (cluster support) is on the cards. We maintain our view for going long in Gold around $930 - 935 as the overall bias for gold is bullish.(Gold- 949.72). Bullish Dollar Index: DX continues to trade above our support target of 80.20; breaking of which can bring further bearishness upto 79.66. The stochastic continues to be flat in the oversold region. A small rebound could be expected from 79.66 support. (DI- 80.28) Bearish. India Forex http://www.indiaforex.in DISCLAIMER 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 responsible 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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Sales of Existing U.S. Homes Probably Increased in April

By Bob Willis

May 27 (Bloomberg) -- Home resales in the U.S. probably rose in April as foreclosure auctions and improved affordability spurred bargain hunters, economists said before a report today.

Purchases of existing homes rose 2 percent to a 4.66 million annual pace from 4.57 million a month earlier, according to the median forecast in a Bloomberg News survey. Houses have sold at an average 4.6 million pace since November, raising speculation the market may be stabilizing after declining 38 percent from its peak in 2005.

Record-low mortgage rates, tax credits and falling prices may keep boosting demand and trim the glut of unsold homes. In turn, a pickup in sales will help stem the slump in property values, which is key to shoring up household finances and construction as the economy begins to emerge from the recession.

“Home sales and construction activity are probably at the bottom,” Celia Chen, an economist at Moody’s Economy.com in West Chester, Pennsylvania, said in an interview on Bloomberg Television yesterday. “Home sales are being boosted by foreclosure sales and that’s helping to keep activity stable.”

The report from the National Association of Realtors is due at 10 a.m. in Washington. The median forecast was based on 72 estimates that ranged from a 4.47 million rate to 4.8 million.

Foreclosure filings in the U.S. rose to a record in April for the second consecutive month, Realtytrac Inc., a seller of foreclosure data, said May 13, as the jobless rate climbed to its highest in more than a quarter century. Foreclosure filings jumped 32 percent from a year earlier, the group said.

Foreclosure Sales

Purchases of foreclosed properties accounted for about 50 percent of home resales in March as the drop in prices brought first-time buyers into the market, the NAR said last month. Home values are down by almost a third from their peaks in mid-2006, according to data from S&P/Case Shiller.

In addition, the Obama administration’s stimulus plan provided an $8,000 tax credit for first-time home buyers for purchases completed before Dec. 1.

Lower mortgage costs are also helping to make buying more affordable. Rates on 30-year fixed loans fell to 4.78 percent in April, the lowest level since Freddie Mac began keeping records in 1972. Federal Reserve purchases of mortgage securities have contributed to bringing down rates, economists said.

“The housing market is beginning to stabilize,” Fed Chairman Ben S. Bernanke said in congressional testimony on May 5. “We continue to expect economic activity to bottom out, then to turn up later this year.”

Some housing-related businesses are reporting an improved outlook. Lowe’s Cos., the second-largest U.S. home-improvement retailer, posted first-quarter earnings that fell less than analysts estimated.

“There have been some encouraging signs in recent weeks that suggest perhaps the worst is behind us,” Lowe’s Chief Executive Officer Robert Niblock said on a conference call May 18. “Consumer confidence has ticked up. Housing turnover, especially in certain markets, is showing signs of a bottom.”

                        Bloomberg Survey

================================================================
                           Exist     FHFA
                           Homes      HPI
                            Mlns     MOM%
================================================================

Date of Release              05/27    05/27
Observation Period           April    March
----------------------------------------------------------------
Median                        4.66     0.2%
Average                       4.66     0.2%
High Forecast                 4.80     1.0%
Low Forecast                  4.47    -0.6%
Number of Participants          72        8
Previous                      4.57     0.7%
----------------------------------------------------------------
4CAST Ltd.                    4.70    -0.2%
Action Economics              4.63     ---
AIG Investments               4.65    -0.1%
Aletti Gestielle SGR          4.70     ---
Ameriprise Financial Inc      4.63     ---
Argus Research Corp.          4.60     ---
Bank of Tokyo- Mitsubishi     4.71     ---
Bantleon Bank AG              4.60     ---
Barclays Capital              4.70     ---
BBVA                          4.67     ---
BMO Capital Markets           4.67     ---
BNP Paribas                   4.80     ---
Briefing.com                  4.65     ---
Calyon                        4.61     ---
CIBC World Markets            4.70     ---
Citi                          4.68     ---
ClearView Economics           4.67     ---
Commerzbank AG                4.61     ---
Credit Suisse                 4.70     ---
Daiwa Securities America      4.70     ---
Danske Bank                   4.57     ---
DekaBank                      4.75     ---
Desjardins Group              4.61     ---
Deutsche Bank Securities      4.65     ---
Exane                         4.70     ---
First Trust Advisors          4.70     ---
Fortis                        4.68     0.3%
FTN Financial                 4.55     ---
Goldman, Sachs & Co.          4.68     ---
Helaba                        4.70     ---
Herrmann Forecasting          4.64     0.2%
High Frequency Economics      4.70     1.0%
Horizon Investments           4.60     ---
HSBC Markets                  4.75    -0.6%
IDEAglobal                    4.70     ---
IHS Global Insight            4.47     ---
Informa Global Markets        4.65     ---
ING Financial Markets         4.62     ---
Insight Economics             4.60     ---
Intesa-SanPaulo               4.70     ---
J.P. Morgan Chase             4.70     ---
Janney Montgomery Scott L     4.62     ---
Johnson Illington Advisor     4.60     ---
Landesbank Berlin             4.70     ---
Landesbank BW                 4.60     ---
Lloyds TSB                    4.63     ---
Merrill Lynch                 4.72     ---
Moody’s Economy.com           4.72     ---
Morgan Stanley & Co.          4.60     ---
National Bank Financial       4.75     ---
Natixis                       4.66     ---
Nomura Securities Intl.       4.61     ---
PNC Bank                      4.60     ---
Raymond James                 4.65     ---
RBS Securities Inc.           4.70     ---
Ried, Thunberg & Co.          4.65     ---
Schneider Foreign Exchang     4.60     ---
Scotia Capital                4.70     ---
Societe Generale              4.75     ---
Standard Chartered            4.55     ---
Stone & McCarthy Research     4.65     ---
TD Securities                 4.66     0.5%
Thomson Reuters/IFR           4.70     ---
Tullett Prebon                4.63     ---
UBS Securities LLC            4.70     ---
Unicredit MIB                 4.75     ---
University of Maryland        4.72     ---
Wachovia Corp.                4.52     ---
Wells Fargo & Co.             4.63     ---
WestLB AG                     4.60     0.2%
Westpac Banking Co.           4.66     ---
Wrightson Associates          4.65     ---
================================================================

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

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U.K. Millionaire Club Shrivels by Half on Housing, Bonus Slump

By Svenja O’Donnell

May 27 (Bloomberg) -- The U.K.’s millionaire club has shriveled by half because of the slump in property prices, falling stock prices and smaller bonuses, the Centre for Economics and Business Research said.

There are currently 242,000 people living in Britain with assets of at least 1 million pounds ($1.6 million), compared with 489,000 estimated in the CEBR’s previous report in 2007, the research group said today in London.

The financial crisis cost British households 1.9 trillion pounds of their wealth since July 2007, according to a report in March by PricewaterhouseCoopers LLP. With the property market extending its slump and the economy mired in a recession forecast by the government to be the worst since World War II, the number of millionaires may keep falling this year.

The drop “reflects the collapse in the property market, the fall in the values of shares and the 70 percent drop in City bonuses,” Douglas McWilliams, chief executive of the CEBR, said in a statement. “With property prices near to bottoming out, we would expect the number of millionaires to start to rise again in 2011.”

Other analysts are more pessimistic on U.K. house prices. Savills Plc said on May 1 that the property market may not recover until 2012, a year later than projected previously, as unemployment rises and the crisis deters buyers.

Wealth Drop

Britain’s millionaires, who more than doubled in number between 2003 and 2007 as property prices soared, have seen their wealth drop by almost a quarter in the past year, the CEBR said.

“It looks as though the experience for millionaires is relatively similar to that chronicled by the Sunday Times for their rich list, which showed a fall in the number of U.K. billionaires this year from 75 in 2008 to 43 this year,” the CEBR said.

The newspaper showed a 38 percent drop in the wealth of those on the list of the nation’s richest individuals, larger than the 24 percent decline estimated for the average U.K. millionaire in today’s report, the CEBR said.

The wealth squeeze has also hurt luxury goods sales. The CEBR cited reports saying that sales of Bentley Motors Ltd. cars fell by two-thirds so far this year, while Bayerische Motoren Werke AG car sales are down 35 percent.

To contact the reporter on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net.

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N.Z. Businesses Become Optimistic for First Time in 8 Months

By Tracy Withers

May 27 (Bloomberg) -- New Zealand businesses become optimistic for the first time in eight months in May as a drop in borrowing costs buoyed the outlook for profit and hiring.

A net 3.8 percent of companies surveyed expect sales and profit will rise over the next 12 months from 3.8 percent expecting a decline in April, according to a report released by ANZ National Bank Ltd. in Wellington today. The net figure subtracts the number of pessimists from the number of optimists.

Fewer businesses said they plan to reduce workers and cut capital spending, adding to signs the economy may recover later this year from the worst recession in more than three decades. Reserve Bank Governor Alan Bollard last month cut the benchmark interest rate to a record low of 2.5 percent and said he was unlikely to raise borrowing costs until late 2010.

“We fully expect the economy to regain forward momentum in the second half,” said Cameron Bagrie, chief economist at ANZ. “The recovery will likely remain patchy.”

New Zealand’s dollar rose to 62.19 U.S. cents at 3:15 p.m. from 62.09 cents immediately before the report was released.

A net 1.9 percent of companies surveyed expect the broader economy will improve compared with 15 percent expecting deterioration in the April survey.

Sixteen percent of companies plan to fire workers this year, compared with 19 percent in April, the survey showed. The ratio of companies expecting reduced profits dropped to 24 percent from 30 percent.

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.

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English Readies New Zealand Budget Amid Rating Threat

By Tracy Withers

May 27 (Bloomberg) -- New Zealand Finance Minister Bill English, wary of the threat of a credit ratings downgrade, will likely focus on spending cuts in his first budget since the National Party swept to an election victory in November.

The minister tomorrow may defer tax cuts planned for 2010 and suspend payments to a national pension plan to narrow the ballooning deficit. Standard & Poor’s cut the outlook on the nation’s AA+ long-term rating to negative in January.

English, 47, inherited an economy in its worst recession in more than three decades, with government finances depleted by falling tax revenue and rising welfare payments when his party ended nine years of opposition by ousting the Labour Party. A downgrade to S&P’s third-highest ranking would add about 1.5 percentage points to New Zealand interest rates, making mortgages and company loans more expensive, Treasury Secretary John Whitehead said last week.

“English will need to convincingly demonstrate how the government will rein in spending so as to avoid a rating downgrade,” said Donna Purdue, an economist at Westpac Banking Corp. in Wellington. “Achieving this will be no mean feat.”

The government’s priority on narrowing the deficit means English is likely to refrain from adding to February’s stimulus package. In contrast, Australia’s Treasurer Wayne Swan announced his nation’s biggest ever building program, pushing the budget deficit to a record in 2010.

Early Recession

New Zealand succumbed to recession in the first quarter of 2008, earlier than most of its trading partners, as a drought curbed farm production and the central bank raised borrowing costs to cool a housing-market bubble.

Over the previous nine years the economy had expanded at an average pace of 3.6 percent, benefiting from rising prices for the dairy products that make up 20 percent of its exports.

The economy is now being buffeted as the worst global recession since the Great Depression hurts prices for milk, lumber, fish and lamb and deters tourists, whose spending accounts for about 10 percent of gross domestic product.

Fonterra Cooperative Group Ltd., the world’s largest dairy exporter, said today it may pay suppliers 12 percent less next season. New Zealand’s dollar slid to 62.27 U.S. cents as of 10:29 a.m. in Wellington from 62.46 late yesterday. The currency has gained 7.4 percent this year.

Business confidence is at a record low and the jobless rate reached a six-year high in the first quarter. Warehouse Group Ltd., New Zealand’s biggest discount retailer, said May 8 third- quarter sales fell 2.8 percent as consumers reduced outlays.

Export Earnings

The drop in export revenue has helped to push the current account deficit to 8.9 percent of GDP, as the nation spends more than it earns. A report yesterday showed the trade deficit dropped as New Zealanders curtailed their demand for imports.

S&P in January cited concern that the current account deficit would put pressure on the nation’s growth and fiscal performance, and called on the government to deliver a plan to prevent the debt growing further.

“A credible medium-term fiscal plan combined with an easing of New Zealand’s external imbalances could result in ratings stabilizing at the existing levels,” S&P said on Jan. 13. “Absent such developments, the foreign-currency rating could be lowered.”

English said in April that the government’s “books are undoubtedly in worse shape” than in December, when he predicted a deficit for the year to June 30 of NZ$6.63 billion ($4 billion), ending eight years of surpluses.

Those surpluses were mostly spent by the Labour-led coalition on targeted payments to low-income families, and increased outlays on hospitals and education.

Tax Cuts

English said in April that he would have to reconsider whether the government could afford the tax cuts in 2010 and 2011 that it promised in the election campaign. He also put under review the NZ$2 billion annual payment to the National Superannuation Fund, which was set up to pay future pensions.

The National Party, which last year won the most seats since 1996, had 52 percent support in a Roy Morgan Research poll of 985 voters this month. Labour had 31.5 percent backing.

Prime Minister John Key, 47, said this week he was confident the government has done enough to dissuade S&P from lowering the rating, which was last at AA in 1996.

“I personally don’t think we’ll be downgraded when the rating agencies look at the budget,” Key told Television New Zealand this week.

The budget has been prepared with the ratings threat in mind, Key said, adding that the government will review “wasteful” spending begun by the Labour government.

Pension Payments

Welfare, student and pension payments won’t be touched and extra spending on health and education required to keep pace with rising costs and already announced new services is also locked in, Key said earlier this month.

The government is also committed to more capital expenditure, which it expects to generate jobs and accelerate an economic recovery next year. In February, it announced NZ$500 million of spending on schools, state highways and state-owned houses and said it had NZ$5 billion for roads and railways over the next three years.

To fund the deficit, English may have to sell as much as NZ$10 billion bonds in the year ending June 30, 2010, up from NZ$5.5 billion in the current year, according to Westpac.

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.

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Hong Kong Fights Slump With HK$16.8 Billion Stimulus

By Theresa Tang and Kevin Hamlin

May 27 (Bloomberg) -- Hong Kong unveiled HK$16.8 billion ($2.2 billion) of tax cuts, fee waivers and spending to spur growth and cushion residents from the deepest global slump since the Great Depression.

The government may “do something further” if conditions worsen, Financial Secretary John Tsang said at a briefing in the city yesterday.

The latest measures push the government’s stimulus and relief spending since 2008 to HK$87.6 billion, or about 5.2 percent of gross domestic product, Tsang said. Some economists say the city needs to spend more, faster after first-quarter economic growth shrank by the most since at least 1990 on plunging exports.

“It’s too little, too late,” said Kevin Lai, an economist with Daiwa Institute of Research in Hong Kong, adding that the city had needed at least HK$40 billion of extra measures.

A waiver on salary tax payments will be raised to HK$8,000 for 2008-09 from HK$6,000, Tsang said. Fees for business registrations and for entertainment and restaurant licenses will be dropped for a year. The government will waive property rates for two more quarters.

“The public had expected giveaways that would deliver a more immediate stimulus to the economy,” said Denise Yam, an economist with Morgan Stanley in Hong Kong. The package “fell short of radical,” she said, adding that the government could tap into “ample fiscal resources.”

Stocks Gain

Hong Kong’s fiscal reserves stood at HK$494.4 billion at the end of March and the city had a HK$1.4 billion budget surplus for the year ended March 31, rather than the deficit the government had forecast.

The benchmark Hang Seng Index, which has gained 21.3 percent this year, rose 2.7 percent at 10:59 a.m. in Hong Kong.

Tsang predicted that the second half of this year will be better than the first half and the city may return to economic growth in 2010. He cautioned that uncertainties include the world economy and swine flu.

The government has forecast a full-year contraction of as much as 6.5 percent in 2009, which would be the largest decline since data began in 1962.

The jobless rate climbed to 5.3 percent in the three months to April 30, the highest level in three years. It has risen every month since September.

Hong Kong’s exports fell a less-than-estimated 18.2 percent in April from a year earlier after a 21.1 percent decline in the previous month, the government said separately yesterday.

“It’s another sign that the downturn in trade is bottoming out and that has to be good for the Hong Kong economy,” said David Cohen, an economist with Action Economics in Singapore.

Tsang had rolled out measures including increased infrastructure spending in his February budget.

To contact the reporters on this story: Theresa Tang in Hong Kong at ttang3@bloomberg.net; Kevin Hamlin in Beijing at khamlin@bloomberg.net

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U.S. Inflation to Approach Zimbabwe Level, Faber Says

By Chen Shiyin and Bernard Lo

May 27 (Bloomberg) -- The U.S. economy will enter “hyperinflation” approaching the levels in Zimbabwe because the Federal Reserve will be reluctant to raise interest rates, investor Marc Faber said.

Prices may increase at rates “close to” Zimbabwe’s gains, Faber said in an interview with Bloomberg Television in Hong Kong. Zimbabwe’s inflation rate reached 231 million percent in July, the last annual rate published by the statistics office.

“I am 100 percent sure that the U.S. will go into hyperinflation,” Faber said. “The problem with government debt growing so much is that when the time will come and the Fed should increase interest rates, they will be very reluctant to do so and so inflation will start to accelerate.”

Federal Reserve Bank of Philadelphia President Charles Plosser said on May 21 inflation may rise to 2.5 percent in 2011. That exceeds the central bank officials’ long-run preferred range of 1.7 percent to 2 percent and contrasts with the concerns of some officials and economists that the economic slump may provoke a broad decline in prices.

The U.S.’s main interest rate may need to stay near zero for several years given the recession’s depth and forecasts that unemployment will reach 9 percent or higher, Glenn Rudebusch, associate director of research at the Federal Reserve Bank of San Francisco, said yesterday.

Funds Rate

Members of the rate-setting Federal Open Market Committee have held the federal funds rate, the overnight lending rate between banks, in a range of zero to 0.25 percent since December to revive lending and end the worst recession in 50 years.

The global economy won’t return to the “prosperity” of 2006 and 2007 even as it rebounds from a recession, Faber said.

Equities in the U.S. won’t fall to new lows, helped by increased money supply, he said. Still, global stocks are “rather overbought” and are “not cheap,” Faber added.

Faber still favors Asian stocks relative to U.S. government bonds and said Japanese equities may outperform many other markets over a five-year period. “Of all the regions in the world, Asia is still the most attractive by far,” Faber.

Faber, the publisher of the Gloom, Boom & Doom report, said on April 7 stocks could fall as much as 10 percent before resuming gains. The Standard & Poor’s 500 Index has since climbed 9 percent.

To contact the reporter on this story: Chen Shiyin in Singapore at schen37@bloomberg.net; Bernard Lo in Hong Kong at blo2@bloombeg.net

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Australian Leading Index Climbs on Shares, Building

By Jacob Greber

May 27 (Bloomberg) -- An Australian index of leading economic indicators rose in March for the first time in seven months after shares surged and demand for housing climbed.

The index, a gauge of future economic growth, increased 0.3 percent to 247.9 points from 247.2 in February, Westpac Banking Corp. and the Melbourne Institute said in Sydney today. The index shrank at an annualized rate of 5.1 percent in March, after contracting 6 percent the previous month.

Today’s report adds to signs that the lowest interest rates in 49 years and government spending will help Australia rebound from its first recession in two decades. Central bank Governor Glenn Stevens said last week the economy is in a good position to benefit from a global recovery later this year.

“The slight improvement in the index is consistent with indicators suggesting the pace of contraction in the global economy has eased in recent months,” said Matthew Hassan, a senior economist at Westpac in Sydney.

“However, recovery still looks to be a long way off,” Hassan added. “The index remains deep in recession territory, implying a likely further contraction in activity through the middle of 2009.”

The Australian dollar rose to 78.68 U.S. cents at 10:34 a.m. in Sydney from 78.63 cents just before the report was released. The two-year government bond yield was unchanged at 3.63 percent.

To stoke an economy that contracted in the fourth quarter for the first time in eight years, the central bank reduced the benchmark rate by 4.25 percentage points between early September and April to 3 percent.

Shares Rebound

The S&P/ASX200 stock index has climbed 21.5 percent since March 6. Home-loan approvals rose in March for a sixth month as government payments to first-time buyers of as much as A$21,000 ($16,500) and cheaper mortgages cuts spurred demand.

Westpac’s leading index tracks eight gauges of activity, such as company profits and productivity, to give an indication of how the economy will perform over the next three to nine months.

“Even if we see similar improvements in the months ahead, it will take three or four months for the index to return to levels consistent with positive growth,” Hassan said. That implies “a recovery in the real economy is unlikely before the December quarter at the earliest.”

Westpac’s coincident index, a measure of the current state of the economy, rose 0.1 percent in March to 240.2 points. The annualized growth rate of the coincident index was 0.7 percent, compared with its long-term trend of 3.3 percent.

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

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Shirakawa Says Central Banks Must Keep Balance Sheets Healthy

By Mayumi Otsuma

May 27 (Bloomberg) -- Bank of Japan Governor Masaaki Shirakawa said central banks should be mindful about the soundness of their balance sheets as they purchase more assets to combat global financial turmoil.

“In times of crisis, a central bank attempts to provide liquidity aggressively sometimes with taking some credit risk,” Shirakawa said at a speech in Tokyo today. Even so, “a central bank should be cautious about the risk of undermining its credibility, which is prerequisite for any policy implementation.”

Central banks in Japan, the U.S. and Europe have lowered interest rates and purchased government and corporate debt since the collapse of Lehman Brothers Holdings Inc. in September froze credit markets around the world. The Bank of Japan has also eased requirements for securities it accepts as collateral to channel more funds to companies.

“Outright purchases of credit instruments imply that a central bank shoulders credit risk in a more straightforward manner,” Shirakawa said. “In that regard, monetary policy approaches the region of fiscal policy.”

Shirakawa’s policy board last week decided to add government bonds issued by the U.S., the U.K., Germany and France to its eligible collateral to make it easier for lenders to borrow from the central bank.

“The effectiveness of monetary policy measures crucially depends on the central bank’s credibility, which is partly affected by the soundness of the central bank balance sheet and central bank’s neutrality perceived by the public at large,” he said.

To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net

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U.S. Recession May End Next Quarter, Business Economists Say

By Shobhana Chandra

May 27 (Bloomberg) -- The U.S. recession will probably end in the third quarter, a survey of business economists showed, even as rising joblessness indicates the recovery will be weaker than previously estimated.

The world’s largest economy will begin to expand next quarter, according to 74 percent of economists in a National Association for Business Economics survey. Compared with NABE’s February poll, growth will be slower and unemployment will be higher in the second half of this year and through 2010.

Government stimulus spending and Federal Reserve efforts to thaw credit markets are helping pull the economy out of the worst slump in half a century, the survey said. While housing is stabilizing, the economists predicted consumer spending will be restrained by a deteriorating labor market as job losses continue for the rest of the year.

“There are emerging signs that the economy is stabilizing,” Chris Varvares, president of the group and of Macroeconomic Advisers LLC in St. Louis, said in a statement. Still, the recovery may be “considerably more moderate than those typically experienced following steep declines,” he said.

The economy will shrink at a 1.8 percent annual rate from April to June, and then grow at a 0.7 percent pace in the next three months, the survey showed. Growth will accelerate to a 1.8 percent rate by the final quarter.

Spending to Fall

Consumer spending, which accounts for about 70 percent of the economy, may fall 0.4 percent this year, compared with a 1.3 percent drop forecast in the prior poll. Purchases will increase 2.1 percent next year, less than estimated in February.

The NABE survey, based on the median forecast of a panel of 45 economists, was conducted from April 27 to May 11.

Nine of every 10 participants said the Fed’s new credit facilities improved borrowing conditions, and 55 percent said the programs also benefited markets that were not directly targeted. At the same time, nearly half the economists said credit was still hard to get.

Home sales may reach a bottom by mid-year, according to 72 percent of the panelists, and more than six in 10 predicted housing starts will hit a trough by that time. The survey showed home prices have further to fall, with 40 percent of the respondents forecasting the declines will continue into 2010 or later.

Payrolls will decrease by an estimated 4.5 million in 2009, pushing the unemployment rate to 9.8 percent by year-end, almost a percentage point higher than the previous estimate of 9 percent, the survey showed. Job gains next year will help reduce the jobless rate to 9.3 percent by the end of 2010.

The outlook for business investment this year also soured compared with the February survey, reflecting sharper pullbacks in spending on equipment, software and facilities, and a bigger reduction in inventories. Economists in the survey also predicted corporate profits will decline 16 percent this year.

The cost of living will fall and worker productivity will improve this year, the NABE report showed. With inflation in check and unemployment rising, Fed policy makers will keep the benchmark interest rate close to zero until the second quarter of next year, at which time a series of increases may push the rate to 1.25 percent by year-end.

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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Malaysia Keeps Key Interest Rate Unchanged, Predicting Recovery

By Stephanie Phang and Michael Munoz

May 27 (Bloomberg) -- Malaysia’s central bank refrained from cutting interest rates for a second straight meeting, betting the economy will improve after contracting last quarter for the first time since 2001.

Bank Negara Malaysia kept its overnight policy rate unchanged at 2 percent, it said in a statement in Kuala Lumpur yesterday. The decision was predicted by all 20 economists surveyed by Bloomberg News.

“A more modest pace of decline in the latest indicators of global economic activity suggest the potential for a gradual improvement in the second half of the year,” the central bank said. “The current assessment is that the accumulated monetary policy initiatives and measures to enhance access to financing are sufficient to provide support to domestic demand.”

Asian policy makers, who have slashed borrowing costs and pledged more than $950 billion of stimulus plans, have started saying their economies may be past the worst of the deepest worldwide recession since the Great Depression. Bank of Japan Governor Masaaki Shirakawa said last week the region’s largest economy is improving after a record first-quarter contraction.

“Signs of the global economy stabilizing in recent months, after earlier plunges in activity, are mitigating the need for further interest-rate cuts,” said Suhaimi Ilias, an economist at Maybank Investment Bank Bhd. in Kuala Lumpur. “More central banks have stopped reducing rates.”

The Bank of Thailand unexpectedly kept interest rates on hold last week and South Korea has left borrowing costs unchanged for three months.

‘Marked Contraction’

Malaysia’s 1.5 percentage points of interest-rate cuts since late November and the government’s 67 billion ringgit ($19 billion) of public spending, loan guarantees and other measures should help the economy resume growth in the second half after a contraction in the first six months, Governor Zeti Akhtar Aziz said May 9.

The central bank may report today that gross domestic product shrank 3.9 percent in the first quarter from a year earlier, according to the median estimate of 16 economists.

“The domestic economy continues to be adversely affected by the significant contraction in external demand, resulting in steep declines in exports and industrial production,” Bank Negara said yesterday. “This has resulted in a marked contraction in the Malaysian economy in the first quarter of 2009. These conditions have continued into the second quarter.”

Zeti refrained from lowering Malaysia’s benchmark interest rate for a second time after cutting it for three consecutive meetings from Nov. 24 to Feb. 24.

Stimulus Plans

Prime Minister Najib Razak, whose coalition has lost three of four regional elections this year, has unveiled two stimulus plans to spur growth as exports such as Intel Corp. computer chips and IOI Corp. palm oil tumbled.

Singapore’s government said last week the economy shrank less than initially estimated in the first quarter and the nation may have “hit the bottom” of its worst recession since independence in 1965. The island’s industrial production declined 0.5 percent last month, the smallest drop in seven months, a report showed yesterday.

The “stabilization in the external environment is also supported by the accelerated implementation of fiscal measures, the further moderation in inflation and continued access to financing, thereby increasing the prospects for a resumption of growth in the Malaysian economy,” Malaysia’s central bank said. “With sizeable and sufficient liquidity in the system, continued emphasis will be given to ensure an adequate flow of credit to all segments of the economy.”

Malaysia’s ringgit has strengthened about 2 percent since Bank Negara first held rates steady on April 29.

2009 Estimate

Still, a worse-than-expected slump in exports will force policy makers to cut the country’s full-year economic forecast, Zeti said earlier this month. The central bank currently predicts a contraction of 1 percent or growth of that much.

“The deterioration in the world economy during the first quarter was worse than expected as the global financial turmoil became more prolonged,” Bank Negara said yesterday. “The full effect of these global developments is being felt by the regional economies during the first half of 2009.”

Southeast Asia’s third-largest economy will “definitely” shrink more than 1 percent in 2009, Second Finance Minister Ahmad Husni Mohamad Hanadzlah said yesterday.

“We believe this reflects a technical adjustment to the weaker-than-expected first-quarter numbers,” said Kit Wei Zheng, a Singapore-based economist at Citigroup Inc. “Recent signs of bottoming as seen in trade and production figures coupled with low inflation rates will give Bank Negara greater confidence to stand pat on further monetary or fiscal easing.”

‘Frustrating Time’

Inflation slowed to a one-year low of 3 percent in April as transport and communications costs fell amid slowing growth.

Economic growth may yet miss policy makers’ expectations this year, said Sean Callow, a Sydney-based currency strategist at Westpac Banking Corp.

The second half of 2009 may be “a frustrating time for many policy makers globally as they discover that the recovery is faltering and weak, meaning that what they hoped was the low in policy rates turned out to not quite be low enough,” he said.

To contact the reporter on this story: Stephanie Phang in Singapore at sphang@bloomberg.net

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Yen Declines as Signs of U.S. Recovery Damp Demand for Safety

By Yasuhiko Seki and Ron Harui

May 27 (Bloomberg) -- The yen fell against higher-yielding currencies as a rebound in U.S. consumer confidence drove Asian stocks higher, damping demand for safer assets.

The yen dropped against 15 of the 16 most-active currencies before a U.S. report today that economists said will show sales of existing homes rose last month. New Zealand’s dollar fell from near a seven-month high after Fonterra Cooperative Group Ltd., the world’s largest dairy exporter, cut its forecast for milk prices. China’s yuan fell to a six-week low before U.S. Treasury Secretary Timothy Geithner visits Beijing next week.

“Hopes the U.S. is on the road to recovery and strong global equities are reinvigorating risk appetite,” said Danica Hampton, a foreign-exchange strategist at Bank of New Zealand Ltd. in Wellington. “This is reducing ‘safe-haven’ demand for the dollar and the yen.”

The yen fell 0.8 percent to 13.1959 won as of 1:04 p.m. in Tokyo from yesterday in New York, and dropped 0.8 percent to 2.932 per Taiwan dollar. The yen declined to 133.29 per euro from 132.90, after earlier dropping to 133.52, the lowest level since May 12. It weakened to 95.41 per dollar from 95.03. The euro traded at $1.3977 from $1.3984.

The MSCI Asia Pacific Index of regional shares gained 1.8 percent and the MSCI World Index climbed 0.2 percent.

New Zealand Dollar

New Zealand’s dollar fell for the first time in eight days after Auckland-based Fonterra said it may pay its suppliers 12 percent less next season due to weak dairy prices and recent gains in the local currency. Farmers will probably receive NZ$4.55 ($2.83) for each kilogram of milk solids supplied in the year to May 31, 2010, the company said.

“With the negative news from Fonterra in New Zealand, there may be an incentive for a bit of profit-taking,” Bank of New Zealand’s Hampton said.

Demand for the yen weakened after the U.S. Conference Board said yesterday its index of U.S. consumer sentiment surged in May to 54.9, the biggest gain since April 2003. An index of manufacturing in the central Atlantic region climbed to 4 this month, the Richmond Federal Reserve Bank reported.

Sales of existing houses, which account for more than 90 percent of the U.S. market, rose 2 percent last month to a 4.66 million annual rate from a 4.57 million pace in April, economists forecast before the National Association of Realtors’ report today. New-home sales increased 1.1 percent to a 360,000 annual rate, the most this year, a separate Bloomberg survey showed before a Commerce Department report tomorrow.

‘Euphoric Views’

“We are watching incoming housing data, especially if they will support renewed euphoric views about the economy following the surprisingly strong consumer confidence data,” said Tokichi Ito, deputy general manager of foreign exchange in Tokyo at Trust & Custody Services Bank Ltd., a unit of Japan’s second- largest lender. “The spread of euphoria means safe-haven currencies such as the yen and the dollar will weaken against emerging currencies.”

Japan’s export slump moderated in April, helping the country post an unexpected trade surplus. Shipments abroad fell 39.1 percent from a year earlier, after dropping 45.5 percent in March and a record 49.4 percent in February, the Finance Ministry said today in Tokyo.

The yuan slid to the weakest level since April 14 after the People’s Bank of China fixed the daily reference rate for yuan trading at a five-week low. Vice Premier Wang Qishan said on May 25 that China will try its best to maintain the market share of its exports, according to a statement on the State Council’s Web site yesterday.

Protect Exporters

“China lowered the reference rate before Geithner’s visit to make him aware of the need to weaken the yuan to protect exporters,” said Yang Shengkun, a currency analyst in Beijing at China Citic Bank Co., a unit of the nation’s biggest state investment company. “But it doesn’t mean the government will give up the current policy of keeping the yuan stable.”

The yuan declined 0.04 percent to 6.8330 per dollar, according to the China Foreign Exchange Trade System. It touched 6.8372 today, the lowest since April 14.

Demand for the euro may weaken before a German report tomorrow that economists say will show the jobless rate climbed to the highest level in more than a year in May, suggesting the region may be slower than the U.S. in emerging from recession.

Germany’s adjusted jobless rate rose to 8.4 percent in May, the highest since November 2007, from 8.3 percent in April, according to a Bloomberg survey of economists.

“Europe’s economy may take a while to recover,” said Masashi Kurabe, head of currency sales and trading in Hong Kong at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan’s biggest publicly traded bank. “The markets may perceive this as a negative factor and sell the euro.”

ECB Executive Board member Lorenzo Bini Smaghi will speak at 10 a.m. today in Rome today. Bini Smaghi told Italian television on May 8 that the ECB’s current record-low interest rate of 1 percent “is not necessarily the minimum.”

To contact the reporters on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.

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