Daily Financial Market Outlook

Daily Forex Fundamentals | Written by Lloyds TSB | Jun 01 09 07:21 GMT |

Overview & economic commentary The Bank of England, the ECB, the Reserve Bank of Australia and the Bank of Canada are widely expected to hold interest rates at current levels at their respective meetings this week. Further, there may be little in the way of new announcements from the BoE, but the ECB may provide details of its corporate bond purchase scheme as well as its quarterly GDP growth and inflation forecast update. A busy week for data releases, manufacturing and service business confidence surveys, published by the UK, the US & the EU (final), are likely to extend their rising trend. In the UK, early indications from BBA data suggest that mortgage approvals may have increased to 41,000 in April from 39,000 in March, while net mortgage lending may also tick up to £1bn from £0.8bn. Of note, although these higher mortgage lending numbers are encouraging, they are still at historically very weak levels. The US data highlight is the non-farm payroll jobs report due on Friday. We forecast that the US lost 500,000 jobs in May compared with 539,000 in April, therefore considerably below the largest monthly loss of 741,000 in January. We expect the unemployment rate to have risen from 8.9% of the workforce in April to 9.2% in May. In the EU, the unemployment rate may have increased from 8.9% in March to 9% in April, retail sales may have grown slightly in April and Q1 GDP will probably confirmed at -2.5% on the quarter and 4.6% on the year in the second estimate. US fixed income markets have a break after last week's $101bn of treasury sales, which were well received. UK DMO auctions £2bn of 4.25% gilts due 2049 (Tuesday 10:30) and £3.5bn of 4.5% gilts due 2019 (Wednesday 10:30). Germany sells €4bn of 4.75% bunds due 2040 (Wednesday 10:15). Currency commentary The visit of US treasury Secretary Geithner to China over the weekend carries on today but comments that the US favours a 'strong dollar' policy and that China's treasury holdings are' safe' appear to have been ignored so far. The dollar lost more ground in Asia overnight as stock markets gained (Nikkei above 9,500) and commodity currencies firmed. $/A$ surged above 0.80 to an 8-month high. Oil is bid above $67.50 and gold cleared $980. The dollar index slipped below 80.0 and could target a move to the December low of 77.7 if bearish momentum persists into the US ISM and NFP data releases. £/$ hit a high of 1.6288 and €/$ reached 1.4199. S&P futures are up 13.9, pointing to a strong open for US stocks the likelihood of GM filing for bankruptcy later today. Next line of resistance for the S&P-500 runs at 930.0, the May 8 high. The FTSE-100 could make a push for 4,500. The UK manufacturing PMI is due at 9.30 and a 3rd successive rise would probably help to support sterling strength. €/£ may re-test 0.8700 support. Major data and events today Today UK manufacturing PMI US personal income and spending, ISM manufacturing EU-16 manufacturing PMI Australia retail sales Canada IPPI, RMPI, GDP Tuesday UK money supply, consumer credit, mortgage data EU-16 unemployment Japan monetary base Reserve Bank of Australia interest rate decision (03:30) UK DMO to auction £2bn of gilts (10:30) US speaker: Fisher (18:20) Wednesday UK services PMI US ADP employment, ISM services, factory orders EU-16 services PMI, producer prices, GDP Australia GDP Germany to sell €4bn of bunds (10:15) UK DMO to auction £3.5bn of gilts (10:30) US speaker: Hoenig (19:30) Thursday US initial claims, non-farm productivity, unit labour costs French unemployment EU-16 retail sales Australia trade balance Canada Ivey PMI Bank of England interest rate decision (12:00) ECB interest rate decision (12:45) Canada interest rate decision (14:00) US speakers: Pianalto (12:50), Dudley (13:00), Bernanke (13:45) ECB speaker: Gonzalez-Paramo (15:50) French auction of OAT bonds (10:00) Friday UK producer prices US non-farm payrolls, unemployment rate, earnings Canada labour market statistics ECB speakers: Trichet and Stark (08:50) US speakers: Rosengren and Yellen (19:15) Chart: Manufacturing confidence surveys are likely to have extended their upward trend in May

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Asian Data Point That Economic Crisis Will Determine A Further Decline In Inflation

Daily Forex Fundamentals | Written by ecPulse.com | Jun 01 09 08:08 GMT |

Today a new week and new month starts in the global markets with optimism returning among investors as they had more prove that the worst of this economic crisis might have gone, therefore we could be upon a stage defined as stable then afterward recovery will most probably find its way into the economy, as today's economic data released from the Asian continent although point to the fact that various sectors still suffer from this vicious economic crisis signs show that its not getting deeper. We'll start with China the third largest economy in the world which today released their PMI manufacturing for the month of May which rose to 53.1 however less than the previous reading of 53.5, as any reading above 50 indicates growth and any reading below 50 indicated contraction therefore the manufacturing sector remain firm during the second quarter in the face of this crisis that determined worldwide demand and consumption to decline considerably. The 585 billion dollars stimulus plan which the Chinese government adopted in order to prevent the economy from a further weakening in its activities contributed positively in supporting the economy as loans and fixed investments increased, while local demand remained firm compensating the decline in exports. Expectations regarding the economic growth of China differ from one side to another, as the government expects indicate that the economy will grow 8% while other economists see that the economy will grow far less as its hard for the domestic consumption to compensate the decline in exports, however since the economy grew by 6.1% during the first quarter which is seen as the worst so far while during the second quarter stability started to find its way into the economy, it is more likely that China might achieve an economic growth which could be close to its governments expectations. Moving to Thailand which today released the CPI for the month of ay, recording a decline to -0.3% in comparison to the previous 1.0% while on the year it fell to -3.3% compared to the previous -0.9%, and finally the core CPI fell to -0.3% compared to the previous 1.0%. Its clear that prices in the country are directly affected by the decline not only in the commodities prices but also in local consumption, since citizens expect more decline in prices and in order to benefit from low costs they delay parching pushing prices to a further drop increasing fears of deflation while the economy still faces a deep recession as the GDP contracted by 7.1% during the first quarter. South Korea today released their yearly exports index that fell by 28.3% in May to 28225 million dollars, the sharpest fall in 4 months as worldwide demand remain weak, while the previous reading was -19.6% or 30418 million dollars. Imports also fell in May by 40.4% to 23075 million dollars from the previous -35.6% as local consumption fell since the economy faced a sharp slowdown in its activities however succeeded to avoid recession since the government adopted some stimulating plans. Ecpulse disclaimer: The content of ecPulse.com and any page in the website contain information for investors/traders and is not a recommendation to buy or sell currencies, stocks, gold, silver & energies, nor an offer to buy or sell currencies, stocks, gold, silver & energies. The information provided reflects the writers' opinions that deemed reliable but is not guaranteed as to accuracy or completeness. ecPulse is not liable for any losses or damages, monetary or otherwise that result. I recommend that anyone trades currencies, stocks, gold, silver & energies should do so with caution and consult with a broker before doing so. Prior performance may not be indicative of future performance. Currencies, stocks gold, silver &energies presented should be considered speculative with a high degree of volatility and risk

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Forex Technical Analytics

Daily Forex Technicals | Written by FOREX Ltd | Jun 01 09 07:15 GMT |

CHF The pre-planned break-out variant for sales has been implemented with the achievement of main targets. OsMA trend indicator marks preservation of bearish priorities at the attainment of channel line '1' and gives grounds to maintain bearish direction priority of planning of trading operations for today. On the assumption of it as well as of the current cycle of bullish activity we can assume probability of rate return to close resistance range levels at 1,0720/40 where it is recommended to evaluate development of the activity of both parties in accordance with the charts of a shorter time interval. As for the short-term sales on condition of the formation of topping signals the targets will be 1,0660/80, 1,0600/20 and (or) further break-out variant up to 1,0540/60, 1,0460/80, 1,0360/1,0400. The alternative for buyers will be above 1,0800 with the targets of 1,0840/60, 1,0900/20, 1,0960/80. GBP The pre-planned break-out variant for buyers has been implemented with the overlap of minimal anticipated target. OsMA trend indicator, having marked relative rise of buyers activity at the break-out of key resistance range level and gives grounds for the priority of bullish direction for planning of trading operations for today. On the assumption of it as well as of descending direction of indicator chart we can assume probability of rate return to close 1,6140/60 supports, where it is recommended to evaluate development of the activity of both parties in accordance with the charts of a shorter time interval. As for the short-term buying positions on condition of formation of topping signals the targets will be 1,6200/20, 1,6280/1,6300 and (or) further break-out variant up to 1,6360/80, 1,6460/1,6500, 1,6600/60. The alternative for sales will be below 1,6020 with the targets of 1,5940/60, 1,5860/80. JPY The pre-planned break-out variant for sales has been implemented with the overlap of estimated target. OsMA trend indicator, having marked close activity parity of both parties as it was before and does not clarify the choice of planning priorities for today. Nevertheless, evaluating the current situation in favour to bearish party we can assume probability of rate return to key resistance range levels at 95,80/96,00 where it is recommended to evaluate development of the activity of both parties in accordance with the charts of a shorter time interval. As for the short-term sales on condition of formation of topping signals the targets will be 95,20/40, 94,60/80 and (or) further break-out variant up to 94,00/20, 93,40/60. The alternative for buyers will be above 96,60 with the targets of 97,00/20, 97,60/80. EUR The long positions opened before had positive result of the achievement of main estimated targets. OsMA trend indicator marks renewed May’s high by a sign of rate overbought but, nevertheless, without confirmative level of bearish resistance it gives grounds for preservation of buying planning priorities for today. On the assumption of it and considering incompleteness of the current cycle of bearish activity, we can assume probability of rate return to close 1,4080/1,4100 levels where it is recommended to evaluate the development of the activity of both parties in accordance with the charts of a shorter time interval. As for short-term buying positions on condition of the formation of topping signals the targets will be 1,4140/60, 1,4200/20 and (or) further break-out variant up to 1,4260/80, 1,4320/40. The alternative for sales will be below 1,3960 with the targets of 1,3900/20, 1,3840/60, 1,3780/1,3800. FOREX Ltd www.forexltd.co.uk

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Forex Technical Update

Daily Forex Technicals | Written by India Forex | Jun 01 09 07:35 GMT |

Rupee: Rupee rides on the waves of positive sentiments as it appreciated to breach the 47-mark in the early trade today, however, is holding above the mentioned support of 46.80. Below 46.80 rupee is likely to test our medium term target of 46.00. (USD/INR : 47.02). Medium Term Bullish. Euro: Euro reached as high as 1.4168 (near the 50% retracement resistance) in the last trading session. The 4-hourly and daily charts continue to indicate further upside. Slight correction could be witnessed, however, sustained trading above 1.41 (21 Hourly EMA) and decisive break of 1.4180 resistance can push Euro higher to 1.4363 levels. ECB Policy decision is awaited on June 4th. Until then buying at dips is suggested. (Eur/Usd:1.4135).. Bullish above 1.3750. Pound: Cable surged close to 300 pips in the last trading session to 1.62 levels. All the major charts have become flat in the overbought region indicating further upside. Currently, Cable is pressing the 55-weekly EMA at 1.6230. Avoid initiating short positions as Cable is still in an uptrend and decisive break of 1.6230 can take cable to test 1.6670. Initiate longs at dips around 1.5950 levels for 150 – 200 pips. (Gbp/Usd: 1.6209). Short term Bullish Yen: Dollar-Yen pair fell 190 pips on Friday to test 95-levels again. The pair is bearish till it is holds below 98.25 which is the falling trendline. The hourly and 4-hourly charts are due for some correction. Retracements upto 96.50 cluster EMA resistance could be considered as a good selling opportunity. On the upside, decisive break of 98.25 will change the outlook to bullish. (USD/JPY 95.24).Bearish Australian Dollar: Aussie continues to rally after breaking past the 0.7935 resistance and moving higher to trade above 0.80 – mark. The charts continue to show further upside as they have flattened in the overbought region. Longs can be entered around 0.7995 (21 hourly EMA) and further around 0.78 levels (cluster EMA support in 4-hourly and weekly) as the outlook remains bullish and a test of 0.8375 is probable. (Aud/Usd: 0.8047).Bullish Gold: Gold as expected continues to strengthen. After rising almost $22 from $958 on Friday, it is currently trading at $984. The charts continue to indicate further upside and it is likely to test $1000 (double top) soon. Accumulate longs at dips around $960 for $18 - $20. (Gold- 984.80). Bullish Dollar Index: DX fell to 79.20 levels as major sell-off in Dollar was witnessed on Friday. The charts continue to indicate selling bias as the charts remain flat in the oversold region. Overall Bearish. (DI- 79.20) 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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Foreign Exchange Market Commentary

Daily Forex Technicals | Written by HY Markets | Jun 01 09 07:57 GMT |

EUR/USD closed sharply higher on Friday and above the 75% retracement level of the 2008-2009-decline crossing. The high-range close sets the stage for a steady to higher opening on Monday. Stochastics and the RSI are overbought but are turning neutral again signalling that sideways to higher prices is possible near-term. If it extends this month's rally, the reaction high crossing is the next upside target. Closes below the 20-day moving average crossing would confirm that a short-term top has been posted. USD/JPY closed sharply higher on Friday and above the 10-day moving average crossing. The high- range close sets the stage for a steady to higher opening on Monday. Despite today's rally, stochastics and the RSI remain bearish signalling that sideways to lower prices are possible near-term. If it extends Thursday's decline, the reaction low crossing is the next downside target. Closes above the reaction high crossing would confirm that a short- term low has been posted. GBP/USD closed higher on Friday and above the 38% retracement level of the 2008-2009-decline crossing as it extends this spring's rally. The high-range close sets the stage for a steady to higher opening on Monday. Stochastics and the RSI are overbought but remain neutral to bullish signalling that sideways to higher prices are possible near- term. If it extends the rally off April's low, the 50% retracement level of the 2008-2009 decline crossing is the next upside target. Closes below the 20-day moving average crossing would confirm that a short-term top has been posted. USD/CHF closed sharply higher on Friday and above the 75% retracement level of last fall's rally crossing. The high-range close sets the stage for a steady to higher opening on Monday. Stochastics and the RSI are overbought but remain neutral to bullish signalling that sideways to higher prices are possible near-term. If it extends the rally off April's low, the 87% retracement level of last fall's rally crossing is the next upside target. Closes below the 20-day moving average crossing would confirm that a short-term top has been posted. HY Markets http://www.hymarkets.com

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Market Highlights

Daily Forex Fundamentals | Written by Westpac Institutional Bank | Jun 01 09 02:02 GMT |

Australian dollar Currencies led the charge in risk on Friday, most making new 2009 highs, the USD index losing 1.3% from the NZ close. Unusually, equities were laggards, the S&P500 little changed until the last hour, closing up 1.4%. Commodities gained throughout, oil up 1.9%, copper 2.8%, and gold 2.1%, hinting of inflation concerns, and shipping charges (Baltic index) rose 5.9%,. US data was mixed, but consensusbeating Japanese IP and Indian GDP supported risk. US treasuries rallied throughout the NY session, relieved at the passing of last week's hefty $101 billion issuance, the 10yr note closing 15bp lower at 3.46%. Credit appetite continued to improve. In Sunday news, Fitch revised California's outlook to negative, in turn a negative for USD. EUR broke 1.4000 resistance and accelerated to 1.4160, consolidating around there during late NY. GBP rallied from 1.5980 (NZ close) to 1.6200. USD/JPY fell heavily from 96.50 to 95.05. AUD started a rally around noon Sydney, from 0.7860, continuing until the NY close to 0.8015. The NZD broke higher from 0.6260 near the NZ close, making a 0.6415 post Oct-08 high ahead of the Monday holiday. NZD out-performance saw AUD/NZD dip briefly under 1.25 a couple of times, but without follow-through. Economic data and events US Q1 GDP revised from –6.1% to –5.7% annualised. A relatively minor first revision to the Q1 GDP bottom line mainly reflected revisions to consumer spending (lower) and inventories (higher), plus minor tweaks to the other components. US Chicago PMI down 5.2 pts to 34.9 in May. Chicago was the one exception amongst the eight or so regional factory surveys for May released over the past two weeks: it did not post a gain, possibly given its acknowledged sensitivity to auto industry developments. Orders and jobs were the weakest components. We still expect tonight's national ISM factory index for May to post a gain to a less contractionary level - it often moves in an opposite direction to Chicago, though longer term trends in the two indices are similar. Uni of Michigan consumer sentiment was revised up by 0.8pts to 68.7 in late May; its two month gain of 11.4 pts was much less impressive than the Conference Board's confidence index gain of 28 pts in April-May. Inflation expectations were also revised higher in the UoM report. Canadian current account deficit C$9.1bn in Q1. The second consecutive quarterly CAD reflected a near zero goods trade surplus, and ongoing services and investment income deficits. The Q1 deficit is the largest on record; back to back deficits have not been seen in Canada since 1994. Euroland flash estimate of the annual CPI fell to zero this month, the lowest since the euro was introduced in 1999. Money supply growth continued to decelerate in April, and loans to the private sector grew at just 2.4% yr, it slowest on record (after three monthly declines in Feb-Apr). German retail sales posted an April gain of 0.5%, however the timing of Easter was probably a distorting factor that will be reversed in the May report. UK consumer confidence did not improve further this month but it held at April's 11 month high, not a bad result given swine flu, MP's expenses and ongoing angst about the economy. House prices posted their second rise in three months on the Nationwide measure, another positive signal. 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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Daily Technical Analysis

Daily Forex Technicals | Written by FX Instructor | Jun 01 09 01:37 GMT |

EURUSD Outlook The EURUSD continued it's bullish scenario on Friday. On h4 chart below we can see that after break above key resistance level at 1.4050 the pair topped at 1.4168 and closed at 1.4156. The bias is bullish in nearest term targeting 1.4220 but we seem to have strong resistance around 1.4173 area (50% Fibo Retracement of 1.6037 – 1.2327). Break above that area could trigger further bullish momentum. However CCI in overbought area and heading down on h4 chart suggesting a potential downside rebound testing 1.4075/50 support area. Break below that area could lead us into no trading zone. EURUSD Daily Supports and Resistances: S1= 1.3997 S2= 1.3838 S3= 1.3753 R1= 1.4241 R2= 1.4326 R3= 1.4485 GBPUSD Outlook After some consolidation movement last week, the GBPUSD continued it's bullish scenario on Friday. On hourly chart below we can see that after break above 1.6000 key level the pair topped at 1.6198 and close at 1.6186. The bias is bullish in nearest term targeting 1.6290. However, we seem to have a good resistance area at 1.6198 (Friday and November 5th 2008 high). We need a consistent movement above that area to confirm further bullish scenario. CCI in overbought area and heading down suggesting a potential downside rebound testing 1.6130 - 1.6090 support area. GBPUSD Daily Supports and Resistances: S1= 1.6002 S2= 1.5818 S3= 1.5720 R1= 1.6284 R2= 1.6382 R3= 1.6566 USDJPY Outlook The USDJPY failed to continued it's bullish momentum on Friday. On h4 chart below we can see that the pair failed to stay above 96.60 key level and then had bearish momentum, bottomed at 95.00 and closed at 95.32. The bias is bearish in nearest term targeting 94.50 but remains neutral in medium term. CCI just cross the -100 line up on hourly chart suggesting a potential upside pressure testing 95.90 resistance area. Break above that area could lead us into no trading zone. USDJPY Daily Supports and Resistances: S1= 94.56 S2= 93.81 S3= 92.62 R1= 96.50 R2= 97.69 R3= 98.44 USDCHF Outlook The USDCHF continued it's bearish scenario on Friday. On hourly chart below we can see that after break below 1.0810 area the pair had bearish momentum, bottomed at 1.0654 and closed at 1.0667. The bias is bearish in nearest term targeting 1.0565 area. However CCI just cross the -100 line up on hourly chart so watch out for a potential upside rebound testing 1.0730 area. Break above that area could lead us into no trading zone. USDCHF Daily Supports and Resistances: S1= 1.0594 S2= 1.0522 S3= 1.0390 R1= 1.0798 R2= 1.0930 R3= 1.1002 FX Instructor LLC www.fxinstructor.com The information has been prepared for information purposes only. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. This information contained herein is derived from sources we believe to be reliable, but of which we have not independently verified. FXInstructor LLC assumes no responsibilities for errors, inaccuracies or omissions in these materials, nor shall it be liable for damages arising out of any person's reliance upon this information. FXInstructor LLC does not warrant the accuracy or completeness of the information, text, graphics, links or other items contained within these materials. FXInstructor LLC shall not be liable for any indirect, incidental, or consequential damages including without limitation losses, lost revenues or lost profits that may result from these materials. Opinions and estimates constitute our judgment and are subject to change without notice. Past performance is not indicative of future results

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Thai Prices Fall for Fifth Month as Economy Contracts

By Suttinee Yuvejwattana

June 1 (Bloomberg) -- Thailand’s consumer prices dropped for a fifth month in May, the longest contraction in at least nine years, as demand collapsed amid the shrinking economy.

An index of consumer prices fell 3.3 percent from a year earlier, after declining 0.9 percent in April, the Commerce Ministry said today in Bangkok. The median estimate of 12 economists in a Bloomberg survey was for a 2.4 percent decline. The gauge has fallen each month this year, the longest slump since Bloomberg began tracking it in 2000.

“Consumer prices will contract until at least the third quarter,” said Pimonwan Mahujchariyawong, an economist at Kasikorn Research Ltd. in Bangkok. “Local demand is very fragile and hasn’t shown any clear recovery sign yet.”

The worst global economic slump since the Great Depression and domestic political protests have sent Thailand’s economy into its first recession in a decade. Prime Minister Abhisit Vejjajiva said May 28 that Thailand may face deflation, although it’s “under control.” The government is boosting spending to spur demand, and the central bank says the worst may be over.

The Bank of Thailand on May 20 held its one-day bond repurchase rate at 1.25 percent, ending its most aggressive ever string of reductions from December to April. Gross domestic product shrank 7.1 percent in the first quarter, the steepest contraction in a decade. The economy may return to growth in the fourth quarter, the government predicts.

Lower Oil Price

Lower fuel costs compared with a year ago and government measures to help low-income earners, including free bus rides and utilities, contributed to the drop in consumer prices, said Pimpapaan Chansilpa, deputy secretary-general for commerce. The price of crude oil, almost all of which Thailand imports, has fallen more than 50 percent from a record $147.27 a barrel in July last year.

“Consumer prices may pick up from August in line with rising oil prices and the end of the government’s measures,” Pimpapaan told a press conference in Nonthaburi province. “We still maintain our target of 0.5 percent inflation for the whole year.”

Abhisit’s government on May 6 unveiled a four-year, 1.4 trillion-baht ($41 billion) investment plan. His seven-party coalition government is strong enough to pass a borrowing plan and next year’s 1.7 trillion-baht budget, Abhisit said May 20.

Thailand’s core inflation index, which excludes fresh food and fuel, fell 0.3 percent last month from a year earlier, the Commerce Ministry said today. Economists surveyed by Bloomberg News predicted a 0.6 percent gain. The measure increased 1 percent in April.

To contact the reporter on this story: Suttinee Yuvejwattana in Bangkok at Suttinee1@bloomberg.net

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Japan’s Wages Slide, Extending Longest Losing Streak Since 2003

By Toru Fujioka

June 1 (Bloomberg) -- Japan’s wages fell for an 11th month in April, extending their longest losing streak in five years and indicating households will pare spending further in coming months.

Monthly wages, including overtime and bonuses, dropped 2.5 percent from a year earlier after declining 3.9 percent in March, the fastest pace since July 2002, the Labor Ministry said today in Tokyo.

Tighter budgets and rising unemployment indicate households will hold back an economy showing signs of emerging from a recession. Daiichi Kasei Co. and Toto Ltd. are among companies slashing salaries even as exports and production begin to stabilize.

“We’ll see more visible weakness in consumer spending along with a deterioration in the job market,” said Hiroshi Miyazaki, chief economist at Shinkin Asset Management Co. in Tokyo. “Wages won’t grow for a while.”

Daiichi Kasei, a maker of synthetic leather for clothing and sports equipment, began cutting wages for executives and full-time workers in April, according to Tokyo Shoko Research Ltd. Toto, Japan’s largest maker of toilets and bathroom fixtures, last month said it will reduce executives’ salaries by as much as 10 percent from June through September.

Overtime pay led the decline in wages, sliding 18.8 percent after an unprecedented 20.8 percent drop in March, according to Akira Motokawa, head of the Labor Ministry’s statistics division.

A rebound in production helped ease a drop in overtime working hours among manufacturers for the first time in 11 months. Extra working hours fell 45.3 percent in April after an unprecedented 48.9 percent plunge in March, today’s report showed.

To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net

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S. Korean Exports Fall at Fastest Pace in Four Months

By Seyoon Kim

June 1 (Bloomberg) -- South Korea’s exports fell at the fastest pace in four months in May as demand from Japan, China and the U.S. weakened amid the global recession.

Overseas shipments decreased 28.3 percent from a year earlier to $28.2 billion, after April’s revised 19.6 percent drop, the Ministry of Knowledge Economy said in Gwacheon today. The country posted a trade surplus of $5.2 billion as imports fell more than exports.

South Korea avoided a technical recession in the first three months of this year, helped by record-low interest rates and government stimulus. The won’s 18 percent drop against the dollar in the past year has provided some relief for exporters including Samsung Electronics Co. and Hyundai Motor Co.

“Exports and imports are both falling as local and overseas demand remain weak,” said Lee Sang Jae, an economist at Hyundai Securities Co. in Seoul. “Exports are likely to rebound toward the end of the year.”

Hanjin Shipping Co. and Hyundai Merchant Marine Co., South Korea’s biggest container lines, posted losses in the first quarter as the global recession hammered trade.

Last month’s drop in exports was the seventh in a row, extending the longest run of declines since 2002. Shipments to China, the nation’s largest market, declined 22.8 percent in the first 20 days of last month and sales to Japan fell 36.3 percent. Exports to the U.S. slid 20 percent.

Imports Tumble

Imports tumbled the most in more than a decade, falling 40.4 percent to $23.1 billion, as domestic demand weakened and prices of oil and other materials dropped, the ministry said.

The Kospi stock index rose 0.1 percent at 11 a.m. in Seoul. The won was little changed at 1,254.35 per dollar, compared with 1,254.25 before the trade figures were released.

Finance Minister Yoon Jeung Hyun said the decline in exports wasn’t a cause for concern and shipments will probably pick up this month.

There are signs that the worst of the slump may be over, both for South Korea as well as its biggest Asian trading partners. Factory production gained for a fourth month in April, and manufacturers’ confidence climbed to an eight-month high.

In China, manufacturing expanded for a third month in May, according to a Purchasing Manager’s Index released today. Japan’s industrial output surged the most in 56 years in April from March, a report showed last week.

Daewoo Shipbuilding & Marine Engineering Co., the world’s third-largest shipbuilder, said profit rose for a second straight quarter as the weaker won helped increase overseas earnings. Kia Motors Corp., South Korea’s second-biggest carmaker, expects unit sales to be unchanged in 2009, bucking the industrywide slump in demand.

South Korea’s economy grew 0.1 percent in the first quarter, rebounding from a 5.1 percent contraction in the previous three months.

To contact the reporter on this story: Seyoon Kim in Seoul at skim7@bloomberg.net

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Australia’s Retail Sales Rise, Manufacturing Contraction Eases

By Jacob Greber

June 1 (Bloomberg) -- Australian retail sales advanced for a second month, new home sales gained for a fourth month and manufacturing shrank at a slower pace, providing evidence that the nation’s recession may be easing.

Retail spending rose 0.3 percent in April from the previous month, the statistics bureau said today. Sales of newly building dwellings gained 0.5 percent from March, the Housing Industry Association reported. A performance of manufacturing index climbed 7.4 points to a seven-month high of 37.5 in May, according to data compiled by the Australian Industry Group.

The economy is being buttressed by the lowest borrowing costs in half a century and record government spending, including cash handouts to consumers of as much as A$950 ($765). The central bank will probably keep the nation’s benchmark interest rate unchanged tomorrow at 3 percent to gauge whether the stimulus measures are enough to revive Australia from its first recession since 1991, according to a survey of economists.

“There is a lot more positive data flowing,” said Savanth Sebastian, an economist at Commonwealth Bank of Australia in Sydney. “You’re seeing that the government stimulus policies are having an impact.”

Today’s reports suggest “Reserve Bank rates are on hold over the next few months,” he added.

The Australian dollar bought 80.47 U.S. cents at 1 p.m. in Sydney from 80.51 cents before the reports were released at 11:30 a.m. The S&P/ASX 200 stock index rose 1.3 percent to 3,867.4, led by banks and exporters. The two-year bond yield fell 1 basis point, or 0.01 percentage point, to 3.56 percent.

Sales Climb

Purchases of household goods jumped 3.9 percent in March from April and consumers spent 0.8 percent more on clothing.

Woolworths Ltd., Australia’s largest retailer, said last month that sales surged 6.5 percent to A$12.3 billion in the three months ended April 5.

Sales of newly built detached housing jumped 1.1 percent in April from March, the Housing Industry Association figures showed. Demand for homes is being stoked by government grants to first-time buyers of new dwellings of as much as A$21,000.

“The leading indicators point to housing as an emerging bright spot in the economy,” HIA Chief Economist Harley Dale said in Canberra.

To revive the economy, the central bank cut its benchmark rate by a record 4.25 percentage points between early September and April to 3 percent. The government has been distributing more than A$12 billion to lower-income earners, with most of the cash handed out in April.

Treasurer Wayne Swan, in the government’s annual budget last month, unveiled a A$22 billion program of spending on roads, rail, ports, hospitals and education.

China Recovery

The nation is in a good position to benefit from a global recovery later this year as interest-rate cuts drive domestic demand and a pickup in China stokes exports, Reserve Bank Governor Glenn Stevens said on May 19.

Manufacturing in China expanded for a third month in May, a sign that Australia’s largest trading partner is recovering from its deepest slump in almost a decade, a government report in that country showed today.

Not all data today signaled a stronger economy. Australian business profits fell for a second consecutive quarter amid a slump in earnings for manufacturers, miners and property companies.

Gross operating profits decreased 7.2 percent in the three months ended March 31 from the fourth quarter, more than the median estimate of a 4.5 percent decline in a Bloomberg News survey of economists.

Difficult Times

Profit at BHP Billiton Ltd., the world’s largest mining company, dropped 57 percent in the six months ended Dec. 31 on costs to close mines and plants after metal prices slumped.

“We are suffering from the current market environment,” Chief Executive Officer Marius Kloppers said on May 27. BHP doesn’t “expect a sharp rebound as our view is that overall world economic recovery will be slow and protracted.”

Australia’s economy is forecast by the central bank to shrink 1 percent this year as companies pare investment and fire workers. Gross domestic product will expand 2 percent the following year, the bank predicted last month.

The economy probably contracted 0.2 percent in the first quarter from the previous three months, when it shrank 0.5 percent, according to the median estimate of 18 economists surveyed by Bloomberg News. The GDP figures are due June 3.

“Australia’s recession is intertwined with a massive business investment overhang, buckets of spare capacity and, of course, depressed global conditions,” said Annette Beacher, an economist at TD Securities Ltd. in Singapore.

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

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Geithner Tells China U.S. to Tackle Deficit as Economy Recovers

By Rebecca Christie

June 1 (Bloomberg) -- Treasury Secretary Timothy Geithner told China that the U.S. wants to shrink its budget gap as soon as an economic recovery takes hold, reassuring the nation that is the biggest holder of U.S. government debt.

The U.S. goal is a deficit of “roughly 3 percent” of gross domestic product, Geithner reaffirmed today in a speech to be delivered at Peking University in Beijing.

The treasury secretary’s two-day visit is to meet with Premier Wen Jiabao, President Hu Jintao and Vice Premier Wang Qishan, cementing the Obama administration’s relationship with China. U.S. government debt has this year handed investors the worst loss since at least 1977 on forecasts for ballooning deficits and Wen has expressed concern about the “safety” of China’s dollar assets.

“I hope Geithner’s visit can soothe our nerves,” said Yu Yongding, a senior researcher at the government-backed Chinese Academy of Social Sciences and a former central bank adviser. “The Chinese public is worried about the safety of its foreign- exchange reserves,” Yu said in an e-mail.

China held about $768 billion of Treasuries as of March. For the fiscal year that ends Sept. 30, the U.S. deficit is projected to reach a record $1.75 trillion from last year’s $455 billion shortfall, according to the Congressional Budget Office.

‘Sustainable’ Deficit

“We are going to have to bring our fiscal deficit down to a level that is sustainable over the medium term,” Geithner said. “This will mean bringing the imbalance between our fiscal resources and our expenditures down to the point -- roughly 3 percent of GDP -- where the overall level of public debt to GDP is definitely on a downward path.”

That would be a reduction from a projected 12.9 percent this year.

The U.S. will need to phase out the tax cuts and bank rescue programs set up to help the economy recover from a deep recession, Geithner said. Spending cuts also will be needed, along with health care reform and new budget constraints like pay-as-you-go rules.

The global economic recession “seems to be losing force” although recovery will be a long and slow process, he said, acknowledging General Motors Corp. factory closures and its corporate reorganization being announced today in Washington.

“The plant closures, and company restructurings that the recession is causing are painful, and this process is not yet over,” Geithner said. “The fallout from these events has been brutally indiscriminant.”

Avoiding Showdown

In his prepared remarks, Geithner repeated the U.S. desire for a more flexible yuan. He has avoided a showdown on the issue, declining to repeat comments he made in written remarks to lawmakers after his Senate confirmation hearing in January that China was “manipulating” its currency.

In his remarks today, Geithner said China needs to shift its economy to rely more on domestic demand than exports.

“Allowing the market, interest rates and other prices to function to encourage the shift in production will be particularly important,” he said. “An important part of this strategy is the government’s commitment to move toward a more flexible exchange-rate regime.”

Geithner will meet tomorrow with Wen, who in March called for the U.S. to “guarantee the safety of China’s assets.”

To contact the reporter on this story: Rebecca Christie in Beijing at Rchristie4@bloomberg.net

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China’s Manufacturing Expands, Adds to Recovery Signs

By Bloomberg News

June 1 (Bloomberg) -- China’s manufacturing expanded for a third month, adding to evidence that the world’s third-largest economy is recovering from its deepest slump in almost a decade.

The official Purchasing Manager’s Index was at a seasonally adjusted 53.1 in May after registering 53.5 in April, the Federation of Logistics and Purchasing said today in Beijing in an e-mailed statement. A reading above 50 indicates an expansion.

Loan growth, accelerating fixed-asset investment and rising retail sales have spurred confidence that Premier Wen Jiabao’s 4 trillion yuan ($586 billion) stimulus package is working. Stocks climbed in China and Australia’s dollar traded near an eight- month high on optimism Chinese demand for commodities will rise.

“The Chinese economy is well on track for recovery and economic growth is picking up steam,” said Lu Ting, an economist at Merrill Lynch & Co. in Hong Kong. “The PMI may trigger a rally for asset prices, especially commodity prices.”

The Shanghai Composite Index rose 2.3 percent as of 11:11 a.m. local time, taking this year’s gain to 48 percent as investors bet that stimulus spending will revive earnings.

China’s manufacturing expanded for a second month, according to another PMI, released today by CLSA Asia-Pacific Markets. CLSA’s measure gives different results because it gives a larger weighting to smaller companies, according to Merrill Lynch’s Lu.

‘Gaining Traction’

“For the first time the PMI shows genuine evidence that policy really is gaining traction,” said Eric Fishwick, head of economic research at CLSA in Hong Kong. A jump in orders and declines in companies’ inventories suggest “sustained output growth in months to come.”

By the end of April, China had built 20,000 kilometers (12,430 miles) of rural roads, 214,000 low-rent homes, 445 kilometers of highway, and 100,000 square meters (1.08 million square feet) of airport buildings under the stimulus plan, the National Development and Reform Commission said on May 21.

“Economic growth may continue to pick up in the future as accelerating investment and consumer demand boost industrial production,” Zhang Liqun, an economist at the State Council Development and Research Center, said in a statement with the official PMI. Zhang said that while business sentiment remains “weak,” a PMI reading above 50 shows that “the economy will continue to recover.”

Export Orders Climb

In the government-backed PMI, the export order index increased to 50.1 from 49.1 in April. The output index fell to 56.9 from 57.4 and the new order index dropped to 56.2 from 56.6.

Dongfeng Motor Group Co., China’s third-largest automaker, said stimulus measures helped boost sales in the first four months of the year.

Industrial production growth may accelerate to 8 percent this quarter as stimulus spending gathers momentum, up from 7.3 percent last month and 5.1 percent in the first three months, the Ministry of Industry and Information Technology said May 22. Output may increase 10 percent in the second half, it added.

China’s economic growth may quicken to 6.8 percent this quarter from 6.1 percent in the first three months, according to a Bloomberg News survey of economists.

The official PMI, released jointly with the statistics bureau, spans measures of manufacturing activity including orders, inventories, output and employment.

To contact the reporters on this story: Paul Panckhurst in Beijing at ppanckhurst@bloomberg.net

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Yen Gains Versus Dollar on Speculation GM to Declare Bankruptcy

By Theresa Barraclough

June 1 (Bloomberg) -- The yen rose for a second day against the dollar and the euro as speculation General Motors Corp. will file for bankruptcy today spurred demand for Japan’s currency as a refuge from the financial crisis.

The yen advanced versus 15 of the 16 of the most-traded currencies after people familiar with the matter said GM will make its announcement before 8 a.m. in New York, adding to signs the global recession is far from over. The euro weakened against the British pound on concern European Central Bank policy makers will signal this week they plan further steps to keep down borrowing costs, damping the appeal of the 16-nation currency.

“The problem is far from solved, even if GM is dissolved,” said Daisuke Uno, Tokyo-based chief bond and currency strategist in Tokyo at Sumitomo Mitsui Banking Corp., a unit of Japan’s second-biggest bank by market value. “As the issue drags on, it’ll continue to be negative for the dollar and the yen is likely to benefit.”

The yen strengthened to 94.85 per dollar as of 12:14 p.m. in Tokyo, from 95.34 in New York last week, when it completed a 3.5 percent gain last month. Japan’s currency rose to 134.27 per euro from 134.96. The euro traded at $1.4155 from $1.4158, after gaining 7 percent last month, its biggest advance since December. Europe’s currency dropped to 87.16 pence from 87.46 last week.

The dollar may weaken to as low as 94.25 yen today, Sumitomo Mitsui’s Uno said.

Dollar Index

The Dollar Index fell the most in three weeks on concern the U.S. government will end with a 60 percent stake in GM, the world’s largest automaker for 77 years. The government is “a reluctant equity owner,” the Obama administration said yesterday in a statement.

The Dollar Index, used by the ICE to track the greenback against the euro, yen, pound, Swiss franc, Canadian dollar and Swedish krona, fell 1.6 percent to 79.142, the biggest decline since May 8.

The dollar dropped beyond $1.41 against the euro last week for the first time this year after the Congressional Budget Office projected the U.S. budget deficit would quadruple to about $1.8 trillion.

“The trend is for a decline in the dollar on the deteriorating quality of U.S. government debt,” said Susumu Kato, chief economist in Tokyo at Calyon Securities, the investment banking unit of Credit Agricole SA. “The market is very skeptical of the growing budget deficit.”

Treasury Secretary Timothy Geithner told China the U.S. wants to shrink its budget gap as soon as an economic recovery takes hold. The U.S. goal is a deficit of “roughly 3 percent” of gross domestic product, Geithner reaffirmed today in a speech to be delivered at Peking University in Beijing.

U.S. Debt Holders

South Korea’s National Pension Service, which had 236 trillion won ($189 billion) of assets at the end of 2008, said on May 29 it pared its allocation for U.S. Treasuries over the next five years. China, the largest foreign owner of Treasuries, said in March it was “worried” about its $767.9 billion investment.

The euro fell against 11 of the 16 most-traded currencies on speculation European policy makers meeting on June 4 will announce additional measures to spur growth in the region.

“There is the risk that the European Central Bank will expand its quantitative easing program,” which may be weighing on the euro, said Sue Trinh, a senior currency strategist at RBC Capital Markets in Sydney.

ECB President Jean-Claude Trichet said last month the bank would buy 60 billion euros ($85 billion) of covered bonds. The Federal Reserve, the Bank of England and the Bank of Japan are already buying government and corporate bonds in a policy known as quantitative easing. The ECB will keep interest rates unchanged at 1 percent at the meeting, according to all but two economists surveyed by Bloomberg News.

China’s Manufacturing

The euro pared losses of as much as 0.4 percent against the dollar after China said its manufacturing expanded for a third month, adding to evidence the world’s third-largest economy is recovering and boosting demand for higher-yielding currencies.

“The China PMI data dispelled concerns the world’s third- largest economy may fail to drive a recovery in the global economy,” said Minoru Shioiri, senior foreign-exchange manager in Tokyo at Mitsubishi UFJ Securities Co., the brokerage unit of Japan’s biggest banking group. “The data triggered a buyback of the euro which had been sold prior to the release of a Chinese report on speculation there would be a poor result.”

The Purchasing Manager’s Index fell to a seasonally adjusted 53.1 in May from 53.5 in April, the Federation of Logistics and Purchasing said in Beijing. A reading above 50 indicates expansion.

To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net.

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Corn, Soybeans May Rise as Dollar Slump Boosts Commodity Demand

By Jeff Wilson

June 1 (Bloomberg) -- Corn prices may rise for a third straight week, and soybeans may gain for a sixth week as a slumping dollar increases demand for commodities as an alternative investment.

Twenty-five of 33 traders and analysts surveyed from Tokyo to Chicago on May 29 said corn will climb, and 25 of 35 forecast a gain in soybeans.

Corn futures for July delivery rose 1.4 percent last week to $4.3625 a bushel on the Chicago Board of Trade, and soybeans for July delivery rallied 1.5 percent to $11.84 a bushel.

The increase in corn and soybeans last week was expected by a majority of analysts surveyed on May 22. Since 2004, respondents were correct 53 percent of the time for corn and 55 percent for soybeans.

Bullish on corn: 25 Bullish on soybeans: 25 Bearish on corn: 8 Bearish on soybeans: 10

To contact the reporter on this story: Jeff Wilson in Chicago at jwilson29@bloomberg.net.

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Oil Rises to Seven-Month High on China Manufacturing Expansion

By Ben Sharples and Ann Koh

June 1 (Bloomberg) -- Crude oil rose to the highest in almost seven months as China’s manufacturing expanded for a third month and the nation raised fuel prices.

Oil climbed 1 percent to the highest since Nov. 5 after China’s Purchasing Manager’s Index stayed above 50 in May, indicating economic recovery. China, the world’s second-biggest energy consumer, increased prices of gasoline and diesel by as much as 8 percent today, a move that may prompt domestic refiners to boost crude purchases for processing.

“That makes it easier for refineries there to buy overseas products and crude than before,” said Ken Hasegawa, a commodity derivative sales manager at Newedge brokerage in Tokyo. “That’s one factor for crude moving up.”

Crude oil for July delivery rose as much as 69 cents, or 1.1 percent, to $67 a barrel on the New York Mercantile Exchange. It was at $66.81 at 11:12 a.m. Singapore time.

Crude had its biggest monthly gain in a decade in May, surging 30 percent, after OPEC left output unchanged on signs the global economy is recovering and fuel demand will increase.

Oil climbed last week as the dollar fell beyond $1.41 against the euro for the first time this year, making raw materials such as oil and gold attractive alternative investments.

China is raising prices for the second time this year, allowing the nation’s refiners to pass on climbing crude oil costs. China Petroleum & Chemical Corp., the nation’s biggest refiner, said on May 22 it will lose money turning oil into fuels should crude trade above $60 a barrel and the government prevent it from increasing prices.

Dollar Losses

Oil climbed last week as the dollar fell beyond $1.41 against the euro for the first time this year, making raw materials such as oil and gold attractive alternative investments.

“The big moves upwards coincided with a sharp decline in the dollar,” said Toby Hassall, a research analyst at Commodity Warrants Australia Pty in Sydney. “Commodities across the board have been boosted by the dollar.”

The dollar weakened 6.3 percent in May to $1.4158 per euro, from $1.3230 on April 30. It was the biggest drop since December’s 9.2 percent decline. The dollar traded at $1.4146 per euro from $1.4158.

The MSCI Asia Pacific Index gained 1 percent to 103.05 at 10:17 a.m. in Tokyo. The gauge has risen 46 percent since falling to a more than five-year low on March 9 on speculation the worst of the financial crisis has passed.

OPEC Decision

Saudi Arabian Oil Minister Ali al-Naimi said last week that the Organization of Petroleum Exporting Countries opted not to alter its output targets because “prices are good, the market is in good shape.”

Oil’s rally is driven by improving sentiment about the global economy and isn’t supported by demand, OPEC Secretary General Abdalla el-Badri said May 30.

Hedge-fund managers and other large speculators increased their net-long position in New York crude-oil futures in the week ended May 26, according to U.S. Commodity Futures Trading Commission data.

Speculative long positions, or bets prices will rise, outnumbered short positions by 40,122 contracts on the New York Mercantile Exchange, the Washington-based commission said in its Commitments of Traders report on May 29. Net-long positions gained by 4,885 contracts, or 14 percent, from a week earlier.

Fourteen of 28 analysts surveyed by Bloomberg News last Friday predicted that crude oil futures would decline this week on speculation that U.S. inventories will rise and fuel demand stays low.

Brent prices would see an “inevitable” return to $100 a barrel within the next two years because of reduced spare capacity among OPEC members, Cazenove Asia Ltd. said on May 29.

Brent crude for July settlement rose as much as 61 cents, or 0.9 percent, to $66.13 a barrel on London’s ICE Futures Europe exchange.

To contact the reporters on this story: Ben Sharples in Melbourne bsharples@bloomberg.net; Ann Koh in Singapore at akoh15@bloomberg.net.

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Total Says New Discoveries Can Beat North Sea Field Decline

By Tara Patel

June 1 (Bloomberg) -- Total SA, Europe’s third-largest oil company, is calculating investment in North Sea fields will make it the U.K.’s biggest oil and gas operator within three years, challenging top-ranked BP Plc on its home turf.

“Our strategy is more aggressive than other companies,” Roland Festor, managing director of Total E&P U.K. Ltd., said in an interview May 28 in Aberdeen, Scotland. “We don’t have a strategy to grow by acquisitions but by exploration in our hubs.”

The fourth-largest producer in the U.K. is aiming to drive its costs in the region down, reducing spending by about one quarter this year as it pushes ahead with North Sea expansion even amid a recession which has hurt demand for crude oil and natural gas.

Total has lowered its spending cap for development of the Laggan and Tormore fields west of the Shetland Islands by at least 10 percent to 1.8 billion pounds ($2.9 billion) as part of a drive to save money. It remains committed to investment amid a natural long-term decline in output from the North Sea.

“We had a pre-crisis budget of 2 billion pounds and now have to get it down,” Festor said, adding the company is taking bids on work for the project, which could start pumping natural gas in 2014, later than planned. Total had said in February it could spend as much as 2.5 billion pounds developing the area and expected first gas output by mid-2013.

Output Trends

Once the world’s fourth-largest oil and gas producer, the U.K. has been in decline since 1999 and is now seeking ways to keep companies from abandoning the North Sea, where costs for exploration and production are among the highest in the world.

While BP’s development spending in the North Sea rose 13 percent to $907 million in 2008, its output of liquids fell 14 percent and gas by 1 percent over the period. The London-based company, still the biggest producer in the U.K., made two discoveries at South West Foinaven and Kinnoull, and said in its annual report in March it is now concentrating on “in-field drilling and selected new field developments” in the area.

Royal Dutch Shell Plc, another major operator in the region, sold some U.K. assets last year, including its share of the South Cormorant, Cormorant North, Tern, Eider, Kestrel and Pelican licenses, non-operated interests in the Hudson license and interests in the Brent System and Sullom Voe terminal. It also divested its share in the Dunlin Cluster in the North Sea, according to its annual report released March 17.

Recession Effect

Oil production from mature fields declines naturally at rates that depend on their size, location and whether investment is made to counter the process, such as by drilling new wells.

North Sea fields have some of the highest natural decline rates while those on the Middle East have the lowest, according to the Paris-based International Energy Agency’s 2008 World Energy Outlook. North Sea fields have declined on average by 11.5 percent a year since peak compared with a rate of 3 percent in the Middle East, the report said.

This is one reason European oil supply is expected to fall to 2.2 million barrels of oil per day in 2030 from 4.9 million barrels of oil per day last year, the IEA said.

Lower spending on exploration and production due to the economic slowdown has hit the North Sea particularly hard where “exploration drilling fell by 78 percent in the first quarter of 2009 almost twice as fast as the overall drop in drilling,” according to a separate IEA report published this month for a meeting of the Group of Eight industrialized nations. “For the industry as a whole there is a risk that decline rates could rise as a result of capital spending cuts.”

New Wells

Hoping to buck the trend, Total said its U.K. operated production this year is likely to rise to 274,000 barrels of oil equivalent a day from 267,000 last year.

Nevertheless, the French company has lowered investment in the U.K. this year and is cutting back spending on projects such as new offices in Aberdeen, Festor said. “We’ve postponed everything not linked to production.”

Total produced about 10 percent of the U.K.’s oil and gas between 2004 and 2008, and its output from the region accounts for 9 percent of the company’s daily production. The U.K. is the third-largest contributor to Total’s output after Norway and Nigeria, according to a company presentation in February.

To raise output, company executives said plans are moving forward for new wells at the Elgin and Franklin fields, about 240 kilometers (149 miles) from Aberdeen, and the new Laggan- Tormore development west of Shetlands.

Longer Life

Elgin Franklin, which began producing oil and natural gas in 2001 and delivers about 7 percent of U.K. overall output, is the deepest producing field in the North Sea and the largest so-called high pressure, high temperature development in the world.

Capable of daily production of about 220,000 barrels of oil equivalent, Elgin Franklin was initially expected to contain about 700 million barrels of oil equivalent and last for about 25 years. This estimate has been increased to about 1 billion barrels a day with a field life of 30 years as new wells have been added.

Maintaining current production will be possible “until at least the middle of next year,” said Thierry Bourgeois, Operations and Geosciences Director at Total E&P U.K., during a press visit to the platform.

New discoveries at the West Franklin part of the development as well as at the nearby Kessog and Corfe prospects could extend Elgin Franklin’s production life, Bourgeois said.

Pressure, Temperature

“We are relatively optimistic,” Festor said of continuing tests at Kessog, in which Total acquired an interest from BP and would become operator if the development goes through. “By the end of the year we will have a good idea and then will decide.”

Festor said Total has developed an expertise it wants to export for high-pressure, high-temperature wells worldwide from working at Elgin Franklin.

Further north, Total has extended the life of the Alwyn field over the past two decades through satellite discoveries, the latest being last year’s addition of output from the Jura field, and plans to add a discovery at Islay to the hub.

Located in a far harsher and more remote area of the North Sea, Laggan and Tormore are “the future of Total U.K.,” Festor said.

The fields are 140 kilometers west of Shetland, requiring underwater pipelines to transport natural gas to a planned processing plant at Sullom Voe Terminal and another connection to the existing Frigg U.K. pipeline to St. Fergus.

To contact the reporter on this story: Tara Patel in Paris On tpatel2@bloomberg.net

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Rubber Retreats From Two-Week High as Stronger Yen Cuts Appeal

By Aya Takada

June 1 (Bloomberg) -- Rubber declined for the first time in four days as the appreciation of the Japanese currency reduced the appeal of yen-denominated contracts for the commodity traded globally in dollars.

Prices in Tokyo retreated from a two-week high reached May 29. The yen advanced for a second day against the dollar after the U.S. budget deficit was projected to quadruple to about $1.8 trillion, diminishing the attraction of assets denominated in the currency.

“The strength of the yen is the largest drag on the price of rubber futures,” Shuji Sugata, research manager at Mitsubishi Corp. Futures & Securities Ltd., said today in a phone interview.

Natural rubber for November delivery, the most-active contract, lost as much as 1 percent to 167.7 yen a kilogram ($1,769 a metric ton) before trading at 168.2 yen on the Tokyo Commodity Exchange at 10:45 a.m. local time.

Rubber also decreased amid speculation General Motors Corp. will file for bankruptcy today, Sugata said.

General Motors intends to file for bankruptcy before 8 a.m. New York time and will name turnaround specialist Al Koch as its chief restructuring officer, according to people familiar with the plans. The U.S. Treasury and GM, battered by almost $88 billion of losses since 2004, prepared the way for a planned bankruptcy filing by getting a majority of bondholders to agree to a revised reorganization plan.

The Congressional Budget Office projects the U.S. deficit will be about $1.8 trillion this year, about four times the previous record, and $1.38 trillion in fiscal 2010.

Rubber for September delivery on the Shanghai Futures Exchange, the most-active contract, gained 4 percent to 15,320 yuan ($2,243) a ton at 9:52 a.m. local time. The exchange was closed for holidays on May 28 and May 29.

To contact the reporter on this story: Aya Takada in Tokyo at atakada2@bloomberg.net

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China Group Rejects Price Reached by Rio and Nippon Steel

By Bloomberg News

June 1 (Bloomberg) -- The China Iron & Steel Association rejected an agreement on ore prices reached between Rio Tinto Plc and Nippon Steel Corp., according to a statement on the group’s Web site. The price reached between Rio and Nippon Steel doesn’t reflect changes in the global market and would result in losses for Chinese steelmakers, the group said.

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Soybeans Rise Near to 8-Month High, Corn Gains to 7-Month Peak

By Jae Hur

June 1 (Bloomberg) -- Soybeans jumped close to an eight- month high and corn climbed to a more than seven-month peak on speculation rain may delay planting, possibly damaging yields for some crops already seeded in the U.S. Midwest.

Rain that falls over the next few days will hinder planting efforts of farmers, according to a forecast yesterday from AccuWeather.com. Corn planting remains several weeks behind schedule in parts of the Midwest, it said. In areas where planting has taken place, any new flooding issues could damage existing crops, the forecaster said.

“Forecast for rain this week has stoked concerns over planting delays of corn as well as soybeans,” said Hiroyuki Kikukawa, general manager of research at IDO Securities Co.

Soybeans for July delivery added as much as 1.3 percent to $11.995 a bushel on the Chicago Board of Trade and were $11.99 by 10:04 a.m. Singapore time. The most-active contract rose 1.5 percent last week, climbing for a fifth straight week, and jumped 12 percent in May, the third straight monthly advance. The price touched $12.0075 on May 27, the highest since Sept. 25.

U.S. soybean inventories on Aug. 31, before the harvest, will drop to a five-year low of 130 million bushels from 205 million bushels a year earlier, the USDA said on May 12.

The weaker dollar has boosted demand for soybeans and corn as well as other commodities, Kikukawa said. The dollar weakened to a five-month low on May 29 and fell 7 percent in May, its biggest monthly decline this year against the euro.

Planting Delays

Corn for July delivery was 0.2 percent higher at $4.37 a bushel at 10:10 a.m. Singapore time after touching $4.3775, the highest since Oct. 9. The grain rose 8 percent in May on speculation planting delays would reduce acreage and yields in the U.S.

Commodities posted the biggest monthly rally in 34 years, as the slumping dollar bolstered demand for energy, metals and crops as a hedge against inflation. In May, the Reuters/Jefferies CRB Index of 19 raw materials gained 14 percent, the most since July 1974.

Signs of a recovery in the global economy have spurred demand for fuel, metals and crops. Crude oil rose 30 percent in May, the biggest monthly gain in a decade, boosting demand prospects for corn and soybeans as a source for biofuel.

July-delivery wheat rose as much as 0.9 percent to $6.43 a bushel and was at $6.42 by 10:06 a.m. Singapore time. The most- active contract advanced 18.8 percent last month, the biggest such gain since September 2007, on speculation that adverse weather will harm U.S. crops.

To contact the reporter for this story: Jae Hur in Singapore at jhur1@bloomberg.net

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