Europe Payrolls Shrink by Record 1.22 Million Jobs

By Simone Meier

June 15 (Bloomberg) -- Europe’s economy lost a record 1.22 million jobs in the first quarter as companies cut spending to survive the worst global economic slump in more than six decades.

Employment payrolls in the 16-member euro region fell 0.8 percent from the fourth quarter, when they declined 0.4 percent, the European Union statistics office in Luxembourg said today. The first-quarter drop was the biggest decline since the data series started in 1995. From a year earlier, payrolls contracted 1.2 percent, the first annual decline on record.

The euro-area economy may struggle to gather strength after shrinking at the fastest pace in at least 15 years in the first quarter. Even as indications mount that the worst of the recession may be over, unemployment is near a 10-year high and forecast to rise more as industries from auto makers to airlines reduce output and staffing to weather the economic crisis.

“Companies will continue to cut jobs well into 2010, pushing up unemployment across the region,” said Stefan Bielmeier, an economist at Deutsche Bank AG in Frankfurt. “While the economy may start to stabilize, the worst is still ahead in terms of the labor market.”

Continental AG, the second-largest car-parts maker in Europe, said this month that it may fire as many as 2,600 workers in Germany. Air France-KLM Group, Europe’s biggest airline, last month said it will deepen job cuts after reporting its first annual loss since 1996.

Biggest Increases

The European Commission expects unemployment across the euro region to average 9.9 percent this year and 11.5 percent in 2010, with the biggest increases in Ireland and Spain. The jobless rate is currently 9.2 percent, the highest since September 1999.

While European Central Bank President Jean-Claude Trichet said on June 4 that the region’s economy may be past the worst and return to growth by mid-2010, the ECB forecasts that the euro-area economy will shrink around 4.6 percent this year and about 0.3 percent in 2010.

Hanover, Germany-based Continental said on June 5 that it may cut as much as 9.6 percent of the 27,000 jobs at its German auto-component operations by the end of next year. “We have to do something because our customers are ordering less,” spokeswoman Dagmar Weiner said.

3,000 Positions

Paris-based Air France-KLM will reduce its workforce by about 3,000 positions this year following 2,000 job cuts in fiscal 2009, Chief Executive Officer Pierre-Henri Gourgeon said on May 19. Airline losses worldwide may total $9 billion this year, nearly double a previous forecast, the industry’s main trade group said last week.

European shares fell for a second day. The Dow Jones Stoxx 600 Index was down 1.5 percent at 211.16 at 11:05 a.m. in London. The euro was at $1.3872, down 1 percent, as the dollar was boosted by Russian Finance Minister Alexei Kudrin’s comments that his nation has full confidence in the U.S. currency.

The worldwide financial crisis, which started with the collapse of the U.S. property market in 2007, has triggered more than $1.46 trillion of writedowns and credit losses at banks and other financial institutions, according to data compiled by Bloomberg, and sent the global economy into its first recession since World War II.

The statistics office estimates that the total number of people employed in the euro area was 146.2 million in the first quarter. Total employment in the 27-nation EU was 223.8 million.

The fourth-quarter drop in euro-area employment from the prior quarter was revised to 0.4 percent from 0.3 percent estimated earlier.

To contact the reporter on this story: Simone Meier in Frankfurt at smeier@bloomberg.net

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G-8 Plans to Reverse Stimulus as Rebound Signs Grow

By Simon Kennedy and Rainer Buergin

June 15 (Bloomberg) -- Group of Eight finance ministers began drawing up contingency plans for rolling back budget deficits and bank bailouts as the economy shows signs of recovery and investors start worrying about inflation.

Officials meeting in Lecce, Italy, over the weekend said it’s prudent to consider what exit strategies to deploy once global growth is secured and asked the International Monetary Fund to examine how to do so without reigniting the two-year crisis. At the same time, they said it’s premature to rein back more than $2 trillion in stimulus packages.

“Growth should remain the principal focus of policy,” U.S. Treasury Secretary Timothy Geithner said after the meeting ended on June 13. “It is too early to shift toward policy restraint.”

Policy makers trod a fine line in the knowledge that withdrawing stimulus measures too soon could choke the recovery before it starts, and allowing them to last too long might push up borrowing costs. They are also trying to reassure markets after the yield on the 10-year U.S. Treasury note rose last week to the highest since October.

“Markets aren’t looking for specific exit strategies now, but want governments to start thinking about them,” said Bill Witherell, chief global economist at Cumberland Advisors Inc. in Vineland, New Jersey, which oversees $1 billion in assets. “They worry that inflation is going to build up if nothing is done to withdraw the stimulus.”

Dollar Support

The G-8’s statement made no reference to currencies or interest rates given the absence of central bankers from the meeting.

Treasuries rose for a third day and the dollar gained the most in a week against the euro today after Russian Finance Minister Alexei Kudrin told Bloomberg Television he has full confidence in the U.S. currency. Russia’s central bank drove U.S. bonds and the dollar lower on June 10 by saying it may shift some reserves from Treasuries, pushing the yield on the 10-year security above 4 percent.

“It’s too early to speak of an alternative” to the dollar, Kudrin said in Lecce. IMF Managing Director Dominique Strauss- Kahn said he didn’t see a “weak dollar.”

German Finance Minister Peer Steinbrueck also said he wasn’t concerned by the euro’s 10 percent climb against the dollar in the past four months.

Upbeat Reports

The G-8 ministers delivered their most upbeat outlook since the collapse of Lehman Brothers Holdings Inc. in September amid mounting evidence that the deepest global recession in six decades is moderating.

Economists expect reports on U.S. housing and German investor sentiment to back that case in coming days.

Home Depot Inc., the world’s largest home-improvement chain, said June 10 that fiscal 2009 profit may decline less than it had projected. Virgin America Inc., an airline partly owned by billionaire Richard Branson, said June 12 its first-quarter net loss narrowed as it filled more seats on planes.

Still, data last week showed the situation is fragile. European industrial production dropped by a record in April and Volkswagen AG, Europe’s largest automaker, said June 12 that “very weak” global car markets aren’t yet recovering.

There are “signs of stabilization,” though “the situation remains uncertain” as climbing unemployment and volatile commodity prices present obstacles, the ministers said in their statement.

No Exit Talk

Geithner and U.K. Chancellor of the Exchequer Alistair Darling were among the most vocal in warning officials not to move too soon. Steinbrueck sought a “credible exit strategy” to avoid inflation.

“We’re not there yet,” Darling told reporters. “No one is talking about exiting yet.”

The officials argued over whether Europe is endangering the rebound by refusing to follow the U.S. and subject its banks to individual and public stress tests. European governments have preferred to examine their financial system as a whole, arguing banks are too diverse to evaluate by a single standard and that publishing results could rekindle the crisis.

“We want stress tests, but stress tests of the system, not related to individual banks,” Steinbrueck told reporters in Lecce. “The European banking sector, and the German one in particular, is a lot more heterogeneous than the North American one.”

Canadian Critic

Such resistance drew criticism before the talks from Canadian Finance Minister Jim Flaherty, who said it risked impeding a worldwide revival.

The G-8’s statement made no mention of the topic. Flaherty said later that he was “much less frustrated” with Europe’s stance after the talks. Italian Finance Minister Giulio Tremonti said the continent may start discussing its approach.

“The uncomfortable truth for Europe is that, however flawed it might have been, the U.S. stress test exercise has so far proved effective in bolstering confidence and helping banks to raise capital,” said Marco Annunziata, chief economist at UniCredit Group in London.

The G-8 is composed of the U.S., Japan, Germany, France, U.K., Canada, Italy and Russia. Its ministers met to shape an agenda for their leaders’ meeting on July 8-10 in L’Aquila, the Italian town destroyed by an earthquake in April.

To contact the reporters on this story: Rainer Buergin in Lecce at Rbuergin1@bloomberg.net; Simon Kennedy in Paris at skennedy4@bloomberg.net

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IMF Raises Forecast for U.S. Economy, Calls for Exit Strategies

By Timothy R. Homan

June 15 (Bloomberg) -- The International Monetary Fund, which has rescued economies from Pakistan to Iceland in the past year, raised its outlook for the U.S. and called for steps to reduce concern about rising public debt and inflation.

The IMF forecasts the world’s largest economy will contract 2.5 percent this year before expanding 0.75 percent in 2010, according to a statement today after an annual staff analysis of the U.S. In the IMF’s World Economic Outlook report released in April, the U.S. was forecast to contract 2.8 percent this year before stalling in 2010.

The Washington-based lender said a “gradual” recovery is likely with downside risks “tilted to the upside.” The Federal Reserve could ease credit further if conditions worsen and additional fiscal stimulus “could also be considered” in the event the economy doesn’t bounce back, the IMF said.

“The combination of financial strains and ongoing adjustments in the housing and labor markets is expected to restrain growth for some time, with a solid recovery projected to emerge only in mid-2010,” the IMF staff report said.

Today’s statement said a solid recovery is unlikely until the middle of next year as unemployment peaks close to 10 percent.

The report praised the efforts of the Fed, the Obama administration and Congress, calling the economic stimulus package “well targeted” and saying monetary policy is relieving financial strains. It also warns that the extraordinary measures required to stabilize the economy and financial markets must be followed by a plan to unwind them as soon as possible to avoid a rise in inflation.

Inflation Concern

“Monetary and fiscal stimulus may stoke concerns about inflation and rising debt, exerting upward pressure on interest rates,” the statement said. “Unwinding interventions will pose major challenges, and -- given the high level of cross-border competition in the financial sector -- will need to be coordinated internationally to facilitate a smooth exit.”

The U.S. jobless rate climbed to 9.4 percent in May, the highest since 1983, according to Labor Department data. Falling home prices, coupled with near-record low mortgage rates and tax credits for first-time buyers, may help bring an end to the worst residential construction slump in seven decades. Reports this week are forecast to show builders began work on more houses as sales steadied and consumer prices rose.

The IMF projects the U.S. stimulus package will raise gross domestic product growth by 1 percent this year and 0.25 percent in 2010. The fund also said additional spending could also be considered.

Deficits Rising

The IMF staff projects federal deficits will average 9 percent of GDP from 2009 through 2011, and public debt will almost double to 75 percent of GDP.

The increased debt “may put significant pressure on Treasury bond rates,” the fund said.

Along with fiscal measures, the IMF staff mission offered its analysis of the American financial industry, saying that while steps taken by the Federal Reserve and Federal Deposit Insurance Corp. have “done much to stabilize financial conditions,” its unclear whether the administration’s Public- Private Investment Program will be used effectively.

The fund cautioned that the “ramping up” of the Term- Asset Backed Securities Loan Facility, known as TALF, and further purchases of Treasury debt and mortgage-backed securities could “substantially” inflate the Fed’s balance sheet.

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

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New York Region Manufacturing Shrinks at Faster Pace

By Bob Willis

June 15 (Bloomberg) -- Manufacturing in the New York region this month contracted at a faster pace as sales and inventories declined, showing the economy is still months away from a sustained recovery.

The Federal Reserve Bank of New York’s June general economic index fell to minus 9.4, less than forecast, from minus 4.6 the prior month, the bank said today. Readings below zero for the Empire State index signal manufacturing is shrinking.

U.S. companies are likely to keep cutting stockpiles until sales improve, indicating orders and production will be restrained. The New York Fed’s factory gauge of the outlook for the next six months climbed to the highest level in almost two years as the drawdown in goods on hand clears the way for factories to ramp up output in coming months.

“The road to recovery in manufacturing is going to be long and gradual,” said Ryan Sweet, a senior economist at Moody’s Economy.com in West Chester, Pennsylvania. “At some point manufacturers will cut inventories to below final demand and that will set the stage for a recovery in production.”

Stocks extended losses following the report and Treasury securities rose. The Standard & Poor’s 500 index was down 1.4 percent to 932.82 at 9:40 a.m. The yield on the 10-year Treasury note decreased to 3.72 percent from 3.79 percent late on June 12.

Less than Forecast

Economists projected the Empire State index would hold unchanged at minus 4.6, according to the median of 43 estimates in a Bloomberg News survey. Forecasts ranged from 5 to minus 8.1.

The International Monetary Fund today raised its outlook for the U.S. and called for steps to reduce concern about rising public debt and inflation. The lender forecasts the world’s largest economy will contract 2.5 percent this year before expanding 0.75 percent in 2010. In April, the IMF projected the economy would contract 2.8 percent this year.

International holdings of long-term U.S. financial assets, a haven for investors during the global financial crisis, rose at a slower pace in April as China, Japan and Russia trimmed their holdings of Treasuries, the government also reported today. Total net purchases of long-term equities, notes and bonds rose a net $11.2 billion, compared with buying of $55.4 billion in March.

Growing Optimism

Factory executives in the New York Fed’s district, which encompasses New York state, northern New Jersey and one county in Connecticut, turned more optimistic about the future. The gauge measuring the manufacturing outlook climbed to 47.8, the highest level since July 2007, from 43.8.

The New York Fed’s measure of new orders increased to minus 8.2 from minus 9 and a gauge of shipments fell to minus 4.8 from 1.3. The index of inventories decreased to minus 25.3 from minus 21.6.

The index of prices paid increased to minus 5.8 from minus 11.4, and the gauge of prices received rose to minus 12.6 from minus 27.3. A measure of employment improved to minus 21.8 from minus 23.9.

The headline New York Fed survey number conveys the general impression of executives on whether activity is increasing or decreasing, and isn’t a composite of the other readings.

‘Disappointing’ Reading

Although the main reading was “disappointing from the perspective of the stabilization story, the details of the report were not as weak as the headline,” John Ryding, chief economist at RDQ Economics in New York, wrote in a note to clients.

Today’s report is one of the earliest measures of regional manufacturing this month. The Philadelphia Fed report, due June 18, may show manufacturing in that region contracted at a slower pace in June, according to the Bloomberg survey median.

Regional and national purchasing manager surveys have shown a declining rate of contraction in recent months, one sign the worst of the manufacturing slump may have passed. Still, General Motors Corp. and Chrysler LLC’s plant closings as part of their bankruptcy reorganizations portend the auto industry will weaken further before it gets better.

Economists surveyed by Bloomberg News June 1 to June 8 projected the U.S. economy would grow at an average 1.2 percent pace in the second half of the year after falling by 2 percent in the second quarter. They also estimated the jobless rate will climb to 10 percent by the end of the year.

Signs of Improvement

Some companies, particularly technology and industrial- materials firms, are seeing signs the outlook is improving.

Armonk, New York-based International Business Machines Corp. last month said it’s “ahead of pace” to meet its 2010 earnings forecast.

Alcoa Inc., the largest U.S. aluminum producer, said May 29 that distributors of the lightweight metal are showing renewed buying interest and will generate a “giant sucking sound” of demand when the global economy revives.

Distributors “know if the green shoots turn over to become demand, they will not be able to supply,” Alcoa Chief Executive Officer Klaus Kleinfeld said at a presentation in New York. “The distribution chain will generate this giant sucking sound of demand.”

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

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Empire State Survey Signals Tough Period for Manufacturing

Daily Forex Fundamentals | Written by Wachovia Corporation | Jun 15 09 13:25 GMT |

The Empire index of general business conditions deteriorated in June, signaling an increase in the pace of decline for the manufacturing sector. However, the forward-looking component that measures general conditions for the next six months jumped to its highest level since before the credit crisis first gripped markets in the summer of 2007. Tough Work-out Period, but Future is Looking Brighter Manufacturing in the New York area appears to have lost its footing in June as the business conditions index slipped to a -9.41 from -4.55 the pervious month. Any negative number suggests contraction in New York manufacturing activity. The silver lining in this report is the fourth consecutive month of improvement for the forward-looking measure of business conditions six months from now, which jumped to 47.8. Orders Still Negative, Pricing Pressures Building The new orders index remained negative this month, but did show slight improvement from the even-lower reading in May. This is merely a slowing in the rate of decline, not growth. After falling off a cliff over most of the last year, the prices paid index has been steadily increasing in recent months. This mirrors the drop and subsequent recovery in oil and other commodities, and suggests pricing pressures for manufacturers. Wachovia Corporation http://www.wachovia.com Disclaimer: The information and opinions herein are for general information use only. Wachovia Corporation and its affiliates, including Wachovia Bank, N.A., do not guarantee their accuracy or completeness, nor does Wachovia Corporation or any of its affiliates, including Wachovia Bank, N.A., assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, are for general information only and are not intended as an offer or solicitation with respect to the purchase or sales of any security or any foreign exchange transaction, or as personalized investment advice. Securities and foreign exchange transactions are not FDIC-insured, are not bank-guaranteed, and may lose value.

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Currency Technical Report

Daily Forex Technicals | Written by FX Greece | Jun 15 09 12:34 GMT |

EUR/USD Resistance: 1,3930-40/ 1,3980-85/ 1,4020-30/ 1,4070/ 1,4120-30/ 1,4170 Support : 1,3850-55/ 1,3800-10/ 1,3750-60/ 1,3700/ 1,3650/ 1,3600 Comment: The week starts negative for euro, and support at 1,3900 is being breached at the time of the writing. We do not have much to add to our previous analysis. Our higher targets according to our basic scenario (1,4340) for the midterm were achieved and the reversal candle formation in the weekly chart, leave us negative regarding euro, while the top formation (Head and Shoulders) that is clear in the 4 hour and daily chart confirm our bearish sentiment. The base of 1,3800-10 should be breached downwards, in order to confirm this scenario. Possible targets will be at 1,3430-60 and 1,3270-00 area. If the area of 1,3800 is not breached or a false break and pullback above 1,3900, would cancel our downward scenario. *STRATEGY : We remain bearish trying sell orders at current levels 1,3880-90, adding more at 1,3940-50 and set our stops above 1,4000. Our target will be at 1,3800-20 area. We will follow the first reach of 1,3800 with buy orders and close stops, while a downward break will be used for sell orders.... FX Greece DISCLAIMER The details and information included in the above analysis, are part of research based exclusively on currency charts and are of purely instructional and educational nature. None of the information featuring in the analysis can be considered as an invitation for opening positions in FOREX market or in the market of forward contracts or any securities listed on an organized or unorganized market. We assume no responsibility for any kind of losses ,profits or property loss resulting, in whole or in part, from acts that are based either directly or indirectly on the processing or the use of information, details and strategies, the reader may find in the analysis. The readers hold full responsibility for the use and the results of their actions. The recipients of the analysis must acknowledge and accept that investment choices of any kind, especially concerning the FOREX market, contain risks (high, low and occasionally zero) of reduction or even loss of their investment. Therefore, they should always be cautious prior to any kind of action. We reserve the right to change the terms and the characteristics of the analysis. The contents of the analysis are solely intended for personal use. They may not be retransmitted, reproduced, distributed, published, adapted, modified or assigned to third parties in any way whatsoever. Anyone having access to them is required to comply with the law provisions on the protection of third party intellectual property rights.

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U.S. Stock Futures Drop; Chevron, Freeport Fall With Oil, Metal

By Sarah Jones and Jeff Kearns

June 15 (Bloomberg) -- U.S. stock futures fell, signaling the Standard & Poor’s 500 Index may drop from a seven-month high, as lower oil and metal prices weighed on commodity producers and manufacturing in the New York region contracted at a faster pace.

Chevron Corp. lost 1.3 percent as crude declined for a second day. Freeport-McMoRan Copper & Gold Inc. slid 2.9 percent as copper decreased by the daily limit in Shanghai on speculation supply may outpace demand in China, the largest consumer. Wal-Mart Stores Inc. sank 1.7 percent after Goldman Sachs Group Inc. downgraded the shares.

Futures on the S&P 500 expiring in September decreased 1.2 percent to 929.7 at 9:08 a.m. New York time, after the benchmark index climbed 40 percent from a 12-year low March 9. Dow Jones Industrial Average futures lost 1.2 percent to 8,635 and Nasdaq- 100 Index futures fell 1 percent to 1,470.75. Stocks also retreated in Europe and Asia.

“There’s no clear trajectory for moving us out of a recessionary environment,” said Wayne Wicker, who oversees $33 billion as chief investment officer at Vantagepoint Funds in Washington. “Given the shellshock of the last year and a half, you have a lot of people who don’t think this market is sustainable.”

Futures extended declines after the Federal Reserve Bank of New York said its June general economic index fell to minus 9.4 from minus 4.6 the prior month. Readings below zero for the Empire State index signal manufacturing activity is shrinking.

Valuation Watch

The S&P 500’s rally since March left the index valued at 14.9 times its companies’ earnings, near the highest level since October. Last week, the Dow average became the latest major U.S. stock gauge to give investors a profit for the year amid growing optimism the worst recession since World War II is ending after the government and Federal Reserve pledged $12.8 trillion to revive economic growth.

Group of Eight finance ministers, who met in Italy over the weekend, have began drawing up contingency plans for rolling back budget deficits and bank bailouts as the economy shows signs of recovery and investors start worrying about inflation.

Russian Finance Minister Alexei Kudrin said the dollar is in “good shape,” further affirming that there’s no substitute for the world’s reserve currency. “It’s too early to speak of an alternative,” Kudrin said in an interview two days ago in Italy after meeting officials from the G-8 nations.

Treasuries Gain

Treasuries climbed for a third day, the longest streak in a month. International holdings of long-term U.S. financial assets, a haven for investors during the global financial crisis, rose at a slower pace in April as China, Japan and Russia trimmed their holdings of Treasuries. Purchases of long- term equities, notes and bonds rose a net $11.2 billion, compared with buying of $55.4 billion in March, the Treasury said today in Washington.

Chevron, the second-biggest U.S. oil company, lost 1.3 percent to $71.75, while rival ConocoPhillips retreated 1.6 percent to $43.65.

Crude oil for July delivery dropped as much as 1.9 percent to $70.71 a barrel in electronic trading on the New York Mercantile Exchange as the dollar rose the most in a week against the euro, limiting investors’ need to use commodities as a hedge against inflation.

Freeport-McMoRan, the world’s biggest publicly traded copper producer, slid 2.9 percent to $56.84 as gold declined to a three-week low.

Inventories of copper in Shanghai warehouses grew for a second week to 60,647 metric tons last week, the highest since the week of March 20, 2008, the exchange said after the market closed June 12. China’s imports of the metal and its products increased 6 percent in May from April to 422,666 tons.

Wal-Mart lost 1.4 percent to $49.16 after Goldman cut the largest retailer to “neutral” from “buy,” saying it sees “little near-term positive catalysts to drive shares higher.”

To contact the reporters on this story: Sarah Jones in London at sjones35@bloomberg.net. Jeff Kearns in New York at jkearns3@bloomberg.net.

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