Yen Weakens Against Euro as Stock Gains Boost Demand for Yield

By Theresa Barraclough and Oliver Biggadike

June 5 (Bloomberg) -- The yen declined, heading for a third weekly loss against the euro, as Asian stocks advanced on speculation the worst of the financial crisis is over, spurring demand for higher-yielding currencies.

The euro strengthened for a fourth day versus the British pound after European Central Bank President Jean-Claude Trichet said yesterday the region’s economic performance will improve this year. The yen weakened against 11 of the 16 major currencies before a U.S. report today that may show employers cut fewer jobs last month, damping demand for the relative safety of the Japanese currency. The Australian and New Zealand dollars gained as commodity prices rose.

“What Trichet was saying fueled risk appetite in the markets,” said Kathy Lien, director of currency research at GFT Forex, an online currency-trading firm in New York. “I continue to expect the underperformance of the yen against all of the higher-yielding currencies.”

The yen fell to 137.32 per euro as of 1:42 p.m. in Tokyo, from 136.97 yesterday in New York, heading for a 1.8 percent drop this week. Japan’s currency slid to 96.76 per dollar from 96.58, set for a 1.5 percent weekly loss. The euro traded at $1.4191 from $1.4183. It climbed to $1.4338 June 3, the strongest this year. The euro rose to 88.06 pence from 87.67.

Australia’s dollar climbed 0.5 percent to 77.79 yen and gained 0.3 percent to 80.41 U.S. cents. New Zealand’s dollar climbed 0.4 percent to 61.50 yen. Australia benchmark interest rate is 3 percent and New Zealand’s is 2.5 percent, compared with 0.1 percent in Japan, luring investors to the South Pacific nation’s higher-yielding assets.

‘Weaker Yen’

The Nikkei 225 Stock Average rose 0.6 percent and the MSCI Asia Pacific Index of regional shares gained 0.4 percent. The Reuters/Jefferies CRB index of 19 commodities surged 2.6 percent yesterday, approaching a six-month high reached June 2.

“The market is already expecting some turnaround in the business cycle,” said Susumu Kato, chief economist in Tokyo at Calyon Securities, the investment banking unit of Credit Agricole SA. “A rise in crude and other commodities suggests a flow of money into risk assets, leading to a weaker yen.”

The yen may decline to 150 per euro by year-end, Kato said.

The dollar gained for a third day versus the yen before today’s U.S. payrolls report. U.S. employers cut 520,000 jobs in May, down from 539,000 positions the prior month, according to a Bloomberg survey of economists before the Labor Department releases the figure.

The jobless rate in the world’s largest economy still rose to a 25-year high of 9.2 percent last month, another U.S. report will show, according to a separate Bloomberg survey.

‘Better Day’

“We are looking at a better day in the market” for higher-yielding currencies, said Tony Morriss , a senior markets strategist at Australia & New Zealand Banking Group Ltd. in Sydney. Even a bad jobless rate in the U.S. won’t wipe out the overall optimism of the global economy, he said.

The euro rose versus 11 of the 16 most-traded currencies today after the ECB kept its benchmark rate at an all-time low of 1 percent yesterday, after cutting it at its previous meeting.

“The current rates are appropriate,” ECB President Trichet said in Frankfurt. “For the remainder of the year economic activity will decline with much less negative rates.”

The central bank plans to start buying covered bonds next month to hold down borrowing costs and complete the 60 billion euro ($85.1 billion) program in June 2010, Trichet said.

Dollar Index

The euro gained 6 percent against the dollar since the ECB last met on May 7 as economic reports added to evidence the most acute phase of the recession passed, damping demand for the U.S. currency as a refuge.

The Dollar Index was little changed today after falling yesterday on speculation nations are considering alternatives to the world’s main reserve currency.

Russian President Dmitry Medvedev reiterated concern about the dollar’s role as the world’s reserve currency and said an alternative may help to create a new global financial architecture, in an interview with Kommersant newspaper published today.

The dollar “is not in a spectacular position, let’s be frank, and its prospects cause various questions as do the prospects for the global currency system,” Medvedev, who today hosts an international economic forum in St. Petersburg, said, according to Moscow-based Kommersant.

The Dollar Index, used by the ICE to track the greenback against the euro, yen, pound, Swiss franc, Canadian dollar and Swedish krona, was at 79.422 from 79.357 yesterday, when it declined 0.2 percent.

‘Bad to Worse’

The British pound may weaken to less than $1.60 per dollar and below 155 yen as increasing concern about the future of Prime Minister Gordon Brown’s cabinet spurs investors away from the currency, according to Calyon.

“The U.K. political situation is rapidly moving from bad to worse, which is acting as a major drag on the British pound,” Mitul Kotecha, head of global foreign-exchange strategy at Calyon in Hong Kong, wrote in a research report today.

Work and Pensions Secretary James Purnell yesterday resigned, the fifth minister to quite the U.K. Cabinet in a week, and called on Brown to follow suit.

The pound weakened 0.3 percent to $1.6122 and fell 0.2 percent to 155.98 yen.

To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net; Oliver Biggadike in New York at obiggadike@bloomberg.net.

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U.S. Corn Crop May Fall 6.6% as Rain Delays Sowing, Study Shows

By Jeff Wilson

June 5 (Bloomberg) -- U.S. farmers may produce 6.6 percent less corn than last year after rain-delayed planting reduced acreage and yields, according to study by the University of Illinois.

Corn output will total 11.307 billion bushels, assuming normal weather for the rest of the season, down from 12.1 billion last year, the study shows. The forecast harvest would be the lowest in three years according to the estimate which compares yields and planting dates in Iowa, Illinois and Indiana to national production since 1960.

Planting of the U.S. corn crop, the world’s largest, was about 93 percent complete as of May 31, down from a five-year average for the period of 97 percent, the U.S. Department of Agriculture said this week. It is forecasting the crop at 12.09 billion bushels.

“Standard errors of the forecasts at this point in the growing season could easily exceed 15 bushels per acre,” according to the report by Urbana, Illinois-based agricultural economists Darrel Good and Scott Irwin. “The size of the 2009 crop will also depend on the magnitude of acreage harvested for grain.”

Planting delays will reduce corn acreage by about 1.7 million acres from the 85 million farmers said they intended to plant in a March survey by the department, Good and Irwin said in their report yesterday.

They estimate about 30 percent of the U.S. crop was planted after May 20, the fourth slowest in the past 20 years. That will also cut the national average yield to 148.6 bushels per acre, down from the trend average of 154.9 bushels over the past 20 years.

Ideal growing weather and an extended frost-free growing season could boost production to 12.272 billion bushels, the pair said. Production could slump to 9.95 billion should hot, dry weather develop when plants are reproducing or filling kernels with sugars and starch in July and August.

The U.S. government is scheduled to release updated U.S. and world supply and demand estimates for corn, soybeans, wheat, cotton and rice on June 10 at 8:30 a.m. in Washington.

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

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Soybeans in Chicago Rise to Nine-Month High on Weather Concerns

By Luzi Ann Javier

June 5 (Bloomberg) -- Soybean futures rose to a nine-month high in Chicago, extending yesterday’s gains, on concern adverse weather will delay planting in the U.S., curbing yields in the world’s largest grower and exporter.

Severe storms and flash flooding are forecast for the plains, AccuWeather.com said in a report yesterday. There will be severe weather in Nebraska “over the next few days” and “parts of Iowa, Kansas, Missouri and northeastern Colorado will occasionally be at risk,” the report said. Iowa is the biggest soybean and corn producing state in the U.S. Soybeans closed 4.1 percent higher yesterday and corn rose 3.7 percent.

“A lot of this has to do with weather concerns and I think this is driving the whole complex a lot higher,” Jonathan Barratt, managing director at Commodity Broking Services Pty in Sydney, said by phone today, referring to oilseeds and grains.

July-delivery soybeans rallied as much as 0.5 percent to $12.365 a bushel, the highest since Sept. 4. The most-active contract traded at $12.3575 at 9:22 a.m. Singapore time.

Global production of soybeans is forecast to drop 3.6 percent to 211.9 million metric tons in the 2008-2009 marketing year as drought curbs output in South America, the U.N.’s Food and Agriculture Organization said in a report yesterday.

“Prices of oilseeds and products should remain firm and possibly strengthen further during the remainder of the current season,” the FAO report said. “Market tightness, and thus firmness in prices, could also spread into next season,” it said, citing the “very low level of carry-in stocks.”

Oilseed Production

Total oilseed output is estimated to rise 0.7 percent to 405.9 million tons in 2008-2009, from a year earlier, it said.

July-delivery corn was little changed at $4.4825 a bushel at 9:54 a.m. Singapore time. Wheat for July delivery in Chicago traded little changed at $6.3475 a bushel after ending 2.9 percent higher yesterday.

Prices of wheat and corn are likely to increase as wet weather makes fields too muddy for farm machinery, delaying planting and raising the risk of lower yields, Commodity Broking’s Barratt said.

“With wheat, it’s going to be pretty tough going, in terms of putting in the next crop,” Barratt said. “There’s still quite significant tightness in the corn market” that will help drive prices higher, he said.

To contact the reporter on this story: Luzi Ann Javier in Singapore at ljavier@bloomberg.net

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Gold Drops as Gain in the Dollar Reduces Demand for Safe Haven

By Jason Scott

June 5 (Bloomberg) -- Gold declined in Asian trading as a gain in the dollar pared demand for the metal as an alternative investment. Silver rose.

Bullion fell as much as 0.3 percent on a recovery in the U.S. currency. The precious metal typically moves in the opposite direction to the dollar.

“Gold is driven by dollar sentiment at the moment,” said Charles Dowsett, director of commodity derivatives at ABN Amro Holding NV in Sydney, said by phone today. “The price is coming off today as the dollar is a little bit stronger.”

The Dollar Index, a six-currency gauge of the greenback’s value, rose as much as 0.2 percent and was trading at 79.389 at 10:48 a.m. in Singapore. The index fell 0.2 percent yesterday.

Gold for immediate delivery declined 0.3 percent to $977.40 an ounce at 10:42 a.m. in Singapore after trading between $976.62 and $983.14. Silver for immediate delivery rose as much as 0.5 percent and was trading up 0.1 percent to $15.9050 an ounce after surging 3.5 percent yesterday.

Silver has outpaced gold this year. An ounce of gold now buys about 61.44 ounces of silver, according to data compiled by Bloomberg. That’s down from a high of 84.4 on Oct. 10, which was the most since March 1995.

Holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, were unchanged at 1,132.5 metric tons as of yesterday, according to the company’s Web site.

Gold for August delivery, the most-active contract on the Comex division of the New York Mercantile Exchange, declined 0.3 percent to $979.50, after falling as much as 0.4 percent.

“Some medium- to longer-term investment has come in on longer-term inflation fears,” ABN Amro’s Dowsett said. “As governments print more money to spend on stimulus packages, the view is eventually that will push inflation.”

Among other precious metals for immediate delivery, platinum fell 1.3 percent to $1,278.25 an ounce. Palladium, up 4.7 percent yesterday, fell 0.9 percent to $252.75 an ounce.

To contact the reporter on this story: Jason Scott in Perth at Jscott14@bloomberg.net

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Oil Rises, Heads for Third Weekly Gain, After Goldman Forecast

By Christian Schmollinger and Ben Sharples

June 5 (Bloomberg) -- Crude oil rose in New York, poised for a third weekly gain, after Goldman Sachs Group Inc. said prices may reach $85 a barrel by the end of the year as demand recovers and supplies shrink.

Oil surged to a seven-month high yesterday and gasoline climbed after the bank increased its year-end forecast from $65. The dollar’s drop over the past six weeks has boosted crude prices as investors buy commodities as an inflation hedge.

“It’s the funds that are pushing the market higher,” said Jonathan Kornafel, a director for Asia at options trader Hudson Capital Energy in Singapore. “When everyone reads the same report and comes to the same conclusion, then you’re going to have the market moving in one direction. The general trend is for the dollar to get weaker and for crude to get stronger.”

Crude oil for July delivery rose as much as 71 cents, or 1 percent, to $69.52 a barrel on the New York Mercantile Exchange. It was at $69.40 a barrel at 11:20 a.m. Singapore time. Yesterday, the contract rose $2.69 to $68.81, the highest settlement since Nov. 4 and the biggest gain since May 18. Prices are up 4.6 percent this week.

The U.S. Dollar Index, which values the greenback against a basket of international currencies, has dropped 5.5 percent since May 7, while crude has gained 22 percent.

“It really has been driven by pretty strong inflows from funds and that’s been encouraged by quite significant weakness in the dollar,” said Toby Hassall, an analyst at Commodity Warrants Australia Pty in Sydney. “Given the momentum crude seems to have at the moment, $85 as a high for 2009 doesn’t seem unreasonable.”

Goldman Forecast

Oil posted its biggest monthly gain in a decade in May on speculation a global economic recovery will trigger a rebound in demand. This increase is a “prologue” to a price recovery in the second half of the year as the global economy stabilizes and crude inventories decline, Goldman said.

“As the financial crisis eases, an energy shortage lies ahead,” Goldman analysts Jeffrey Currie in London and David Greely in New York wrote in a research report e-mailed yesterday. The bank set a 12-month price target of $90 a barrel, up from $70, and forecast $95 for the end of 2010.

Goldman’s New York-based energy equities research team, led by analyst Arjun Murti, in March 2005 predicted a “super spike” in prices. In May last year, Murti said oil may rise to between $150 and $200 a barrel within two years. The team revised its forecast after prices then slumped from a record $147.27 in July.

Gasoline Jump

Gasoline for July delivery rose 2.09 cents to $1.9830 a gallon at 11:27 a.m. Singapore time. Yesterday, it gained 6.05 cents, or 3.2 percent, to end the session at $1.9621, the highest settlement since Oct. 9.

Travelers taking to U.S. roads during the Northern Hemisphere summer typically cause a spike in gasoline demand. Motor fuel consumption last week jumped 2.2 percent from a year ago because of more driving during the Memorial Day holiday, MasterCard Inc. said on June 2.

A government report on June 3 showed that U.S. crude-oil inventories unexpectedly rose last week as fuel consumption dropped.

Crude-oil supplies climbed 2.9 million barrels to 366 million in the week ended May 29, according to the Energy Department. A 1.5 million-barrel decline was forecast in a Bloomberg News survey. The gain occurred as imports jumped 9.9 percent and refineries increased operating rates to the highest in six months. Fuel demand fell 900,000 barrels to 17.7 million barrels a day last week, the lowest since May 1999.

‘Weak Fundamentals’

“Fundamentals are still weak in the oil market, with crude inventories in the U.S. at 19 year highs and the International Energy Agency last month revising down their forecast of world oil demand,” Ben Westmore, a minerals and energy economist at National Australia Bank Ltd. in Melbourne, wrote in a research report e-mailed yesterday.

Brent crude for July delivery rose as much as 59 cents, or 0.9 percent, to $69.30 a barrel on London’s ICE Futures Europe exchange. It was at $69.16 a barrel at 11:31 a.m. Singapore time. Futures rose 4.3 percent to end yesterday’s session at $68.71 a barrel, the highest settlement since Oct. 21.

To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net; Ben Sharples in Melbourne bsharples@bloomberg.net

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Japan Stocks Rise, Extend Weekly Gain, on Oil; Shippers Fall

By Jason Clenfield and Toshiro Hasegawa

June 5 (Bloomberg) -- Japanese stocks rose, extending a weekly gain, after oil surged to a seven-month high and the weaker yen lifted the earnings prospects of electronics makers.

Inpex Corp., Japan’s No. 1 oil driller, climbed 6.6 percent after Goldman Sachs Group Inc. lifted its target price and said crude may reach $85 a barrel. Nikon Corp., a camera maker that gets 81 percent of its sales overseas, jumped 4.1 percent after the yen reached the lowest in a week. Mazda Motor Corp. climbed 8 percent as Nikko Citigroup Ltd. raised the automaker’s target price. Mitsui O.S.K. Lines Ltd., the world’s largest merchant fleet operator, lost 2.7 percent after shipping rates fell.

“The rise in commodity prices helps to support confidence in the economy’s outlook,” said Kazuhiro Takahashi, a general manager at Daiwa Securities SMBC Co. in Tokyo.

The Nikkei 225 Stock Average rose 59.28, or 0.6 percent, to 9,728.24 at 12:36 p.m. in Tokyo. The broader Topix climbed 3.26, or 0.4 percent, to 914.25. For the week, the Nikkei is poised for a 2.1 percent advance, while the Topix is headed for a 1.9 percent gain, the second weekly advance for both gauges.

The Bank of Japan may upgrade its economic assessment of the country for a second straight month at the conclusion of a policy meeting beginning June 15, the Mainichi newspaper said, without saying where it got the information.

$85 a Barrel

Inpex rose 6.6 percent to 843,000 yen after crude oil rose 4 percent to its highest settlement since Nov. 4. Goldman Sachs said prices may reach $85 a barrel by the end of the year as world demand recovers and supplies shrink. Goldman Sachs also raised Inpex’s share-price target by 17 percent.

Japan Petroleum Exploration Co. the country’s second- biggest energy explorer, rose 10 percent to 5,500 yen, after Nikko Citigroup Ltd. raised its rating on the company to “buy” from “hold” on May 1. AOC Holdings Inc., a mining and refining company, soared 11 percent to 985 yen, also benefiting from an upgrade to “outperform” by Mitsubishi UFJ Financial Group Inc. analyst Reiji Ogino.

Mitsubishi Corp., a trading house that gets more than half its profit from commodities, added 2.4 percent to 1,908 yen, while rival Mitsui & Co. gained 3.5 percent to 1,305 yen.

The yen declined yesterday versus 15 of the 16 most-traded currencies on speculation domestic investors are sending funds overseas to buy higher-yielding assets. The Japanese currency depreciated to as much as 96.97 versus the dollar late yesterday, the weakest since May 29. The currency recently traded at 96.76.

Nikon surged 4.1 percent to 1,521 yen. Mazda, which exports about 80 percent of its production, climbed 8 percent to 271 yen after Nikko Citigroup Ltd. raised the automaker’s target price by 36 percent to 350 yen, citing better earnings prospects in the second half of the business year.

Baltic Slips

Canon Inc., the world’s largest maker of digital cameras, rose 1.6 percent to 3,170 yen after Nikkei English News said the company has revived a plan to build a domestic factory because of recovering demand. The plant will start operations in April 2010, the report said.

Shippers fell after the Baltic Dry Index, a measure of shipping costs for commodities, ended its longest winning streak in almost three years on speculation that Chinese demand for raw materials may be easing.

Mitsui O.S.K. declined 2.7 percent to 662 yen, while Kawasaki Kisen Kaisha Ltd., Japan’s third-largest shipping line, dropped 3.9 percent to 423 yen. A gauge of stocks tracking shipping lines was the biggest decliner among the Topix’s 33 industry groups.

To contact the reporters on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net; Toshiro Hasegawa in Tokyo at thasegawa6@bloomberg.net.

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Asian Stocks Head for Third Weekly Gain; BHP, Rio Tinto Surge

By Shani Raja

June 5 (Bloomberg) -- Asian stocks gained, with the MSCI Asia Pacific Index set for its third weekly advance, after Rio Tinto Group scrapped an investment by China in favor of a $15.2 billion share sale as commodity prices rebound.

Rio surged 9.9 percent in Sydney after saying it will sell shares and form a $5.8 billion venture with BHP Billiton Ltd. instead of pursuing Aluminum Corp. of China’s investment. BHP, the world’s biggest mining company, climbed 8.1 percent. Inpex Corp., Japan’s largest oil explorer, jumped 5.6 percent after oil prices rose to a seven-month high. Mazda Motor Corp. climbed 8.4 percent as Nikko Citigroup Ltd. raised its stock forecast.

“Investors are looking for a reason to stay positive and the Rio and BHP news provides that,” said Tim Schroeders, who helps manage $1 billion at Pengana Capital Ltd. in Melbourne. “The bull market for resources stocks continues today.”

The MSCI Asia Pacific Index added 0.3 percent to 103.49 as of 1:07 p.m. in Tokyo. The gauge has climbed 1.4 percent this week as a Chinese purchasing manager’s index and better-than- expected Australian gross domestic product figures fueled optimism that the global economy is recovering. The measure climbed 47 percent from a more than five-year low on March 9.

Japan’s Nikkei 225 Stock Average gained 0.5 percent as a weaker yen boosted the earnings prospects for companies reliant on overseas sales. Australia’s S&P/ASX 200 Index rose 1.1 percent. New Zealand’s NZX 50 Index added 0.5 percent.

Futures on the U.S. Standard & Poor’s 500 Index added 0.1 percent. The gauge climbed 1.2 percent after analysts recommended buying bank shares. Keycorp surged 20 percent after RBC Capital Markets named the bank a “top pick,” while Goldman Sachs Group Inc. rose 5.2 percent as Sanford C. Bernstein & Co. raised the shares to “outperform.”

Rio Share Sale

Rio Tinto, the world’s third-largest mining company, surged 9.9 percent to A$73.50. Today’s transactions allow Rio to reduce $38.9 billion in debt without selling stakes in its largest mines to Aluminum Corp., which investors said favored the Chinese company. Chinalco, as Aluminum Corp. is known, is China’s largest producer of the material.

“The Chinalco deal was wrong in a strategic sense,” said Prasad Patkar, who helps manage close to $1 billion at Platypus Asset Management in Sydney. “The market was right in marking the management and board down for trying to jam it down shareholders’ throats.”

Investors will be offered 21 new shares in Rio for every 40 they hold at 1,400 pence each, 49 percent below yesterday’s close in London, the company said. BHP, which agreed to pay Rio $5.8 billion to form an Australian iron ore joint venture, climbed 8.1 percent to A$37.96.

Best Performers

Mining and energy companies are the best performers of the MSCI Asia Pacific Index’s 10 industry group in the past month as prospects of a global recovery fueled optimism that demand for commodities will increase.

The Bank of Japan may upgrade its economic assessment of the country for a second straight month at the conclusion of a policy meeting beginning June 15, the Mainichi newspaper reported. Australia’s statistics office said this week gross domestic product gained 0.4 percent in the first quarter from the previous three months, compared with economist forecasts for a 0.2 percent contraction.

“The better-than-expected economic data is convincing people the worst is over,” said Will Seddon, who helps manage $250 million at White Funds Management Pty. in Sydney. “People who are underweight or short don’t want to get left out of the rally.”

Stock gains since March have driven the average valuation of companies on MSCI’s Asian index to 1.5 times the book value of assets, the highest level since Oct. 1.

Oil Prices

Inpex climbed 5.6 percent to 835,000 yen. Santos Ltd., Australia’s third-largest oil company, gained 3.6 percent to A$14.99.

Crude oil rose after Goldman Sachs said prices may reach $85 a barrel by the end of the year as world demand recovers and supplies shrink. Oil climbed 4.1 percent to $68.81 a barrel in New York, the highest settlement since Nov. 4 after the bank increased its year-end forecast from $65 and withdrew a prediction that prices will dip prior to a rally.

Mazda, which makes 28 percent of its revenue in North America, climbed 8.4 percent to 272 yen. Nikko Citigroup raised its target price to 350 yen from 257 yen, citing expectations for an earnings recovery in the second half of the business year.

Mazda shares also rose after the yen declined yesterday versus 15 of the 16 most-traded currencies on speculation Japanese investors are sending funds overseas to buy higher- yielding assets. The yen traded at 96.56 per dollar in Tokyo, after declining 0.6 percent yesterday to its lowest since May 29.

A weaker yen boosts the value of Japanese companies’ dollar-denominated sales. Sony Corp., which gets 24 percent of its revenue from the U.S., climbed 2.1 percent to 2,695 yen.

To contact the reporter on this story: Shani Raja in Sydney at sraja4@bloomberg.net.

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