Europe’s Economy Shrinks Most on Record on Exports

By Simone Meier

July 8 (Bloomberg) -- Europe’s economy contracted by a record in the first quarter as exports dropped and companies cut spending and jobs to weather the slump in demand.

Gross domestic product in the 16-member euro region shrank 2.5 percent from the fourth quarter, when it declined 1.8 percent, the European Union’s statistics office in Luxembourg said today. That’s the biggest drop since the data were first compiled in 1995 and matches an estimate published on June 3. Investment fell 4.1 percent and exports dropped 8.8 percent.

The economy has shown some signs of recovery from the worst recession since World War II, with measures of business confidence and manufacturing improving in the second quarter. Industrial output in Germany, Europe’s largest economy, surged the most in almost 16 years in May, according to a separate report today.

“The rate of contraction within the euro region clearly moderated substantially in the second quarter,” said Howard Archer, chief European economist at IHS Global Insight in London. “The outlook still looks far from bright and we suspect that a sustainable recovery will be delayed until 2010.”

Euro-area consumer spending fell 0.5 percent in the first quarter, the EU report showed. Government spending rose 0.2 percent and imports fell 7.6 percent. From a year earlier, overall GDP declined 4.9 percent, more than the 4.8 percent estimate.

‘Great Uncertainty’

Germany’s economy shrank 3.8 percent in the first quarter, the biggest drop since data were first compiled in 1970. Italian GDP contracted 2.6 percent, the most since records began in 1980, while the economies of France, Spain and the Netherlands also contracted.

“In the middle of next year, in the second half, we will see some countries returning to positive growth,” ECB Executive Board member Jose Manuel Gonzalez-Paramo told reporters in Madrid today. “That scenario is still surrounded by great uncertainty.”

The World Bank on June 22 cut its outlook for this year, forecasting that the global economy will contract 2.9 percent, compared with a previously projected 1.7 percent. In 2010, the economy may expand 2 percent, the Washington-based lender said.

Unemployment Rising

In Europe, investor confidence dropped for the first time in four months in July. Companies from Austrian Airlines AG to ThyssenKrupp AG are cutting jobs and the region’s unemployment rate rose to 9.5 percent in May, the highest in a decade.

PSA Peugeot Citroen, France’s largest automaker, said yesterday that first-half car and light-truck sales dropped 14 percent as the global slump eroded demand.

Governments have stepped up spending to protect their economies and the ECB this month kept its benchmark interest rate at a record low of 1 percent. It also started buying 60 billion euros ($83 billion) of covered bonds, securities backed by mortgages and public-sector loans, to stimulate the economy. ECB President Jean-Claude Trichet said on July 2 that the euro- region economy is probably past the worst and may show a “gradual recovery” by mid-2010.

MAN SE, Europe’s third-largest truckmaker, probably broke even in the second quarter as the market for commercial vehicles showed signs of recovery, CEO Hakan Samuelsson said on July 3.

“We have reached the bottom,” Samuelsson said. “We are quite sure and positive on long-term transport demand.”

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

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Darling Gives FSA, BOE New Power Over U.K. Banks

By Gonzalo Vina

July 8 (Bloomberg) -- Chancellor of the Exchequer Alistair Darling said he’ll give the Financial Services Authority and Bank of England more powers over U.K. banks and curtail risky practices that triggered the worst recession in a generation.

The Treasury also will propose increasing competition among banks by bolstering mutual lenders owned by their customers. It will force the industry to pay a levy funding education for consumers about how to manage their money. It will require banks to limit executive pay and improve the caliber of directors.

The measures are aimed at preventing a repeat of the turmoil in markets that forced the U.K. to take on 1.4 trillion pounds ($2.3 billion) of liabilities and controlling stakes in Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc. Darling has coordinated his proposals with President Barack Obama’s administration in the U.S.

“The world economy has been hit by a severe financial crisis,” Darling said in a statement to Parliament in London today. “Its origins lie in failures in the banking system around the world. Irresponsible pay practices made banks take unnecessary risks.”

Darling said he’s adopting all the recommendations made in March by FSA Chairman Adair Turner, who called for a “revolution” in the way the industry is governed. Those plans include requiring banks to hold more capital and hedge funds to be more open with regulators. Turner suggested banks write mortgages for no more than the value of the homes against which they’re secured, though Darling didn’t mention that today.

Questions Outstanding

The chancellor’s comments brushed over the specifics of exactly what levers the government will develop to rein in the most risky lending practices, saying he will consult finance ministers from the Group of 20 nations on more detailed plans.

“I suspect this paper will be greeted with a great sigh of relief,” said Vince Cable, a lawmaker from the Liberal Democrat opposition who speaks on finance. “It is yet another indication that we are getting back to business as usual.”

Those proposals already have attracted criticism. The British Bankers’ Association has said the plan to reorganize units to lower risk may lead some lenders to relocate abroad. Today, the lobby group welcomed Darling’s proposals and said it would work with ministers on the details.

Industry View

“Banks recognise the need for change and will continue to work positively with all the relevant authorities to ensure the long term success of the U.K. economy and the banking sector,” BBA Chief Executive Angela Knight said in a statement.

Parliament will start work on drafting laws to implement Darling’s plan after its summer recess ends in October. The Treasury issued a draft of proposed legislation today.

Darling brushed over exactly what he plans to do to rein in executive pay at banks, saying he’d develop specific proposals after reviewing a report by David Walker, a senior adviser at Morgan Stanley. He issues his proposals next week.

“We need a change of culture in the banks and their boardrooms, with pay practices that are focused on long-term stability and not short-term profit,” Darling said, adding that he will ask the FSA to report annually on the issue. “Boards and institutional investors must become better equipped, with more effective risk management and greater independence of non- executives who must not be afraid to ask searching questions.”

Bank Supervision

At a less-developed stage are proposals for “macro- prudential supervision” of banks, which aim to limit lending excesses during a boom and strengthen institutions during a slump. Darling said there’s no consensus yet on what tools are required to “lean against the wind,” although central bankers probably will have the most important role to play.

“The principle of leaning against the cycle is easy to agree,” Darling said. “Deciding what action to take, and when, is far more complex.”

George Osborne, the lawmaker for Britain’s Conservative opposition who speaks on finance, said it was a concern that Darling hasn’t yet cleared up whether the central bank or FSA will have the decisive role in keeping banks out of trouble.

“Institutional jealousies and blurred lines of responsibility means everyone gets involved but no one gets in charge,” Osborne said in Parliament. “The Labour Party wants to stick with the financial system that failed us, that they created.”

Big Banks Preserved

Darling also rejected the case for splitting up the biggest institutions to protect retail depositors from the risks of investment banking. Instead, he said authorities will require banks to have in place detailed plans to unwind their businesses in the event they fail or go bankrupt.

“The FSA and the Bank of England will make institutions put in place practical resolution plans which can be deployed in the event they get into difficulties,” Darling said.

The FSA will get a new statutory duty to preserve the financial stability of the economy and extended power to develop the rules it thinks are needed to oversee banks. It will have tougher powers to impose penalties against misconduct, though Darling didn’t say exactly what those will be.

“Darling did not say that much,” said Thomas Kirchmaier, professor of management at the London School of Economics. “I would have liked more concrete proposals on competition and how to improve the supervisory framework. It looks like the old times with slightly revised terms.”

G-20 Talks

British officials will consult G-20 nations later this year when the organization’s finance ministers meet in London, and at that time Darling will unveil proposals to take big banks into custody when they run into trouble. He also wants tighter standards for the derivatives market to keep problems there from spreading.

The Bank of England, FSA and Treasury each will contribute officials to a new Financial Stability Council aimed at monitoring risks to the economy.

“Financial institutions in many countries took on too much risk,” Darling said. “They became over-reliant on wholesale funding, too exposed to particular products. Some financial institutions had little appreciation of what was going on inside their businesses.”

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

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Democrats Split on Stimulus as Job Losses Mount, Deficit Soars

By Matthew Benjamin

July 8 (Bloomberg) -- Democrats who control the levers of power in Washington are divided over whether to push for more deficit spending to end the recession and stem job losses, complicating the possibility of a second stimulus bill.

“We need to be open to whether or not we need further action,” House Majority Leader Steny Hoyer, a Maryland Democrat, told reporters yesterday. Senate Majority Leader Harry Reid of Nevada countered that “there is no showing to me that another stimulus is needed.”

President Barack Obama underscored the dilemma by addressing both sides of the argument. In an interview with ABC News yesterday, he said unemployment approaching 10 percent is something “we wrestle with constantly.” He added that spending more borrowed money is “potentially counterproductive.”

The split reflects two major challenges facing the Democrats: Record budget deficits that make additional spending much tougher to pass and a 26-year-high unemployment rate of 9.5 percent that is expected to rise to double digits.

“They’re between a rock and a hard place,” said Stuart Rothenberg, editor of the Rothenberg Political Report in Washington.

The U.S. economy lost 467,000 jobs in June, exceeding economists’ forecasts, while the federal budget deficit is projected by the Congressional Budget Office to top $1.8 trillion this year and $1.4 trillion in fiscal 2010. That’s provoked criticism of the $787 billion stimulus bill passed in February as either wasteful or not large enough.

Borrowing Surge

The Treasury is increasing debt sales to pay for the spending. After more than doubling note and bond offerings to $963 billion in the first half, another $1.1 trillion may be sold by year-end, according to Barclays Plc. The second-half sales would be more than the total amount of debt sold in all of 2008.

The U.S. should consider drafting a second stimulus package focusing on infrastructure projects because the bill approved in February was “a bit too small,” said Laura Tyson, an adviser to Obama during last year’s presidential campaign who now sits on the White House’s Economic Recovery Advisory Board.

Rhode Island Senator Sheldon Whitehouse, a Democrat whose home state has a 12 percent jobless rate, told ABCNews.com that a second stimulus is “probably needed.” Action by Congress would “probably take place towards the end of the year,” Whitehouse said.

With the White House and congressional Democrats focused on a major health-care overhaul and a climate bill, some lawmakers expressed pessimism about the likelihood of such legislation.

Deferring to Obama

“I’m not sure how you would do it,” said the Senate’s second-ranking Democrat, Dick Durbin of Illinois. He said he would leave any decision on the need for a fiscal stimulus to “the president’s evaluation.”

Republicans seized on the unemployment rate and job losses of about 6.5 million since the recession began in December 2007 as validation of their vote against the measure in February.

Senate Republican leader Mitch McConnell of Kentucky said in a floor speech yesterday that Democratic proponents of the stimulus program “over-promised on results and now their predictions are coming back to them.”

McConnell mocked the idea of another stimulus. He called it “mind-boggling” and a worse idea than the previous one, which he said “has been demonstrably proven to have failed.” He added, “There is no education in the second kick of a mule.”

Bernstein Defense

The White House dismissed calls to augment or alter the initial legislation.

“It’s working, it’s demonstrably working,” said Jared Bernstein, chief economic adviser to Vice President Joseph Biden, whose office is overseeing the rollout of the first stimulus.

Bernstein said about $200 billion of the $787 billion allocated in the bill has been obligated or spent, adding that the effects of the spending and tax cuts will continue to ramp up in the next few months.

“There is no conceivable stimulus package on the face of this earth that would fully offset the deepest recession since the Great Depression,” Bernstein said in a telephone interview yesterday.

The Obama administration may have to stick with that argument, as more spending is unlikely in the face of record deficits, said Stan Collender, a former House and Senate budget analyst.

“Adding additional spending or tax cuts right now would be very difficult,” Collender said. He added, however, that if the economy deteriorates, another bill to juice the economy may become possible.

“Right now it doesn’t seem to be justified,” said Collender, managing director of Qorvis Communications in Washington. “Come September, it might be.”

To contact the reporter on this story: Matthew Benjamin in Washington at Mbenjamin2@bloomberg.net

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G-8 to Prepare Exit Strategy Once Recovery Assured

By Helene Fouquet and Roger Runningen

July 8 (Bloomberg) -- Group of Eight leaders said they will delay reversing stimulus measures until an economic recovery is assured and will each decide on their own exit strategies.

“We agreed on the need to prepare the appropriate strategies for unwinding the extra policy measures taken to respond to the crisis, once the recovery is assured,” according to a draft statement today during their summit in L’Aquila, Italy. The strategies “will vary from country to country depending on domestic economic conditions and public finances.”

While some policy makers have expressed optimism that the global recession may be easing, reports indicate any recovery is likely to be slow. The International Monetary Fund today said this year’s 1.4 percent global economic contraction will be worse than its 1.3 percent April forecast, while 2010 growth of 2.5 percent will be stronger than it previously estimated.

In mid-June, G-8 finance ministers concluded that it was time to begin drafting contingency plans for rolling back budget deficits and bank bailouts as the economy showed signs of recovery. They also said it was premature to rein in more than $2 trillion in stimulus packages.

Economy Unstable

An aide to President Barack Obama said earlier today that the global economy remained unstable and that it was too soon to begin withdrawing the stimulus.

“There is still uncertainty and risk in the system,” Mike Froman, deputy National Security Adviser, told reporters at a briefing in L’Aquila.

Obama arrived in Italy today from Russia where he met President Dmitry Medvedev and Prime Minister Vladimir Putin. He met Italian President Giorgio Napolitano in Rome before traveling to L’Aquila.

More U.S. Stimulus

Obama has left the door open to a second stimulus package after the first one for $787 billion was signed into law in February.

Obama has underscored the dilemma of either boosting an already record budget deficit or letting unemployment climb. In an interview with ABC News yesterday, he said unemployment approaching 10 percent is something “we wrestle with constantly.” He added that spending more borrowed money is “potentially counterproductive.”

The G-8 leaders also agreed on the need for “enhanced” financial regulation, including coordinating accounting and oversight standards as well “comprehensive oversight of all systemically significant entities and activities.”

And they called for the “rapid” conclusion of global trade talks and the rejection of “protectionism of any kind.”

The members of the G-8 -- Canada, France, Germany, Italy, Japan, Russia, the U.K. and the U.S -- comprise 880 million people with combined gross domestic product of $32 trillion.

Other participants at this week’s meetings include Brazil, China, India, Mexico, South Africa, Egypt and several other nations from Asia, Africa and Europe. The summit concludes July 10.

To contact the reporter on this story: Roger Runningen in L’Aquila, Italy, at rrunningen@bloomberg.net; Helene Fouquet in L’Aquila, Italy at hfouquet1@bloomberg.net

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Currency Currents

Daily Forex Fundamentals | Written by Black Swan Capital | Jul 08 09 12:46 GMT |

Key News Policy makers on both sides of the Atlantic launched an effort to crack down on what they called speculation in oil markets, underscoring concerns that a sharp rise in oil prices could worsen the global economic downturn. (WSJ) A steep drop in exports and corporate investment led to a record economic contraction in the euro zone in the first quarter of 2009, the European Union's statistics office said on Wednesday. (Reuters) Chinese authorities are detaining Rio Tinto Ltd's top iron ore negotiator on suspicion of espionage and stealing state secrets, Australia said on Wednesday, threatening to strain already fraying ties. Key Reports Due (WSJ): 7:00 a.m. July 1 Mortgage Refinance Applications: Previous: -30%. 10:30 a.m. July 2 U.S. Energy Dept Oil Inventories 3:00 p.m. May Consumer Credit: Expected: -$7.7B. Previous: -$15.7B. Quotable "We are the cause of all the values that you covet, we who perform the process of thinking, which is the process of defining identity and discovering causal connections. We taught you to know, to speak, to produce, to desire, to love. You who abandon reason-were it not for us who preserve it, you would not be able to fulfill or even to conceive your wishes. You would not be able to desire the clothes that had not been made, the automobile that had not been invented, the money that had not been devised, as exchange for goods that did not exist, the admiration that had not been experienced for men who had achieved nothing, the love that belongs and pertains only to those who preserve their capacity to think, to choose, to value. "You-who leap like a savage out of the jungle of your feelings to the Fifth Avenue of our New York and proclaim that you want to keep the electric lights, but to destroy the generators-it is our wealth that you use while destroying us, it is our values that you use while damning us, it is our language that you use while denying the mind." Ayn Rand FX Trading - Deflationary Spiral Source: WSJ Above is the yield curve. Notice how far rates in the low-end (left side) of the curve have fallen. This is good for banks but likely bad for us who want to borrow and not too good for those who depend on deposits for income. The spread between the long-end, where banks do lend, and the short-end, where they do borrow, is quite high. It is quite profitable to lend. But it is also quite profitable not to lend because the Fed is paying a nice little interest rate on reserves at the bank. So in effect, the banks can hold reserves and garner a risk free rate of interest from the Fed. So, if you are a bank and have some bad paper still hanging around, and are still in need of personal healing, it likely makes more sense to grab the risk free rate and let the political chips fall where they may on lending…heck, the US administration has bigger fish to fry, like determining how to dole out socialized medicine to the highest politically connected bidders, fixing executive pay by nasty little bureaucrats who never met a payroll, and making sure there isn't too much profit making in the oil market by those evil speculators who risk their hard earned private capital everyday to make a market liquid and don't complain when they lose. Yes, the US government is far too busy to understand what motivates real profit-seeking players in the real world. Thus, the Fed has increased reserves by "$858 billion in the last 12-months ended May. But excess reserves on the books of depository institutions have increased by almost as much, $842 billion. So, in the 12 months ended May, 98% of the increase in reserves created by the Fed has simply ended up as idle reserves on the books of depository institutions," according to Northern Trust very smart economist Paul Kasriel. This leads to the following equation (our apologies to real economists and econometricians): Deflation =Massive Government Stimulus (eating private stock of capital) + Increases Money Supply + Plunging Monetary Velocity + Huge Reserves + High Savings + Tight Lending Standards + Private Deleveraging of Bad Paper + Global Tax of Rising Commodities Prices + Rising Unemployment + Obliteration of the Export Model Prices are falling just about EVERYWHERE in case the inflationist crowd hasn't noticed. Of course our illustrious government has noticed, thus the talk of yet another stimulus to eat away at more private capital and continue to add leverage to solve a problem that was created by leverage. So let's keep regulating away the ability to make profit so the market won't clear or keep thinking of ways to tax it away to hand over to the moochers or spend it away for political power and then wonder why we are entering a global deflationary spiral? Who is John Galt? Jack Crooks Black Swan Capital http://www.blackswantrading.com Black Swan Capital's Currency Snapshot is strictly an informational publication and does not provide individual, customized investment advice. The money you allocate to futures or forex should be strictly the money you can afford to risk. Detailed disclaimer can be found at http://www.blackswantrading.com/disclaimer.html

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Chancellor of the Exchequer Alistair Darling Gives FSA and BoE More Power

Daily Forex Fundamentals | Written by ecPulse.com | Jul 08 09 13:43 GMT |

Chancellor of the Exchequer Alistair Darling today ahead of the Parliament stating that he wants stricter rules for the financial system in the United Kingdom that is dealing with the worst financial crisis since the Great Depression. The rules would include more policies to guarantee that banks are functioning correctly and that Britons are aware of what is happening with financial institutions. Darling guaranteed the financial markets would have more competition so that non-banking organizations can present services to Britons. The finance minister was against dividing financial institutions between retail and investment banking despite this might avoid bankruptcy and losses. Also the speculations in the market regarding Darling giving the Bank of England and Financial Services Authority (FSA) more authority over banks and helping them lower transactions that are risky, which resulted in the worst economic growth in the nation since the post war era. Giving the BoE more authority means that they might actually extend their quantitative easing methods as they are already buying gilts worth 125 billion pounds while so far it was reported lately that only 96 billion pounds were purchased, the government had given green light for the central bank to buy 150 billion pounds, yet they did not want to use this much in fears it might be difficult to pull back the money injected in markets. The new efforts are set towards avoiding another financial turmoil in the markets that caused the economy to undertake 1.4 trillion pounds of liabilities and hold shares in Lloyds Banking Group Plc. and Royal Bank of Scotland Group Plc. As long as banks have not stabilized, an economic recovery in the nation will be difficult because with the lack of loans being provided to Britons, there will be lack of spending and weakness in the housing sector while the nation already contracted by 2.4 percent in the first quarter, which was the worst reading since 1958! In news today, HBOS which was taken over by Lloyds, released their Halifax house prices showing that for the month of June they fell 0.5% while they were rising 2.6% in the prior month, on the year, prices dipped 15.0% from the previous decline of 16.3 percent. After house prices were easing their monthly slide lately, now we see that the scenario has reversed as banks are still not fully lending to Britons which is a main factor that is pressuring prices, yet the yearly index is rising therefore giving us slight proof that the housing sector might just be reaching its bottom. Nationwide Building Society, today released its consumer confidence showing that it climbed to an eight-month high for the month of June to 58 from 54 as Britons are somewhat optimistic regarding the outlook of the economy, yet in my opinion I believe that it will take a while for a full economic recovery to occur in the UK. The UK stock markets today slipped slightly as investors were worried about the outlook of the housing sector as house prices slipped worse than expectations arousing worries once again that the housing slump continues. As of 13:22 GMT the FTSE-100 index shed 11.65 points or 0.28% to 4,175.35 points. 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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USD Mixed as Risk Aversion Rises, JPY at Six Week High

Daily Forex Fundamentals | Written by Easy Forex | Jul 08 09 13:30 GMT |

FX Highlights USD and JPY are trading higher supported by a spike in risk aversion as Asian equity markets decline and crude prices fall below $62 a barrel, Japanese machinery orders unexpectedly dropped to a new low and the Nikkei index trades a six-week low, USD supported by uncertainty about the global recovery, USD pares early gains in reaction to report of a sharp rise in German industrial output and expected steady open for US equities G-8 draft communiqué makes no reference to FX markets or the USD, G-8 officials expressed concern about economic recovery and warned that it's too early to withdraw stimulus, pledged to reject protectionism Japan's May core machinery orders fall 3%, May current account surplus falls 34.3%, JPY at a six week high supported by safe haven flows UK June Nationwide consumer confidence index rises to 58 from 54 last month, Halifax house price index falls 0.5%, GBP flat EU Q1 GDP at -2.5%q/q, N. -4.9%y/y, German industrial output rose 3.7%, an 0.5% rise was expected, this was the largest monthly gain in 16 years, EUR higher Australia's July consumer confidence index rises 9.3% to 109.4, May housing finance rises 2.2%,AUD lower Swiss SECO June unemployment hits highest level in three years, KOF says Swiss unemployment rate could hit 6% in 2010, recovery will be sluggish at best, CHF flat ABA says credit card delinquencies hit record high of 3.23% in Q1 2009 sparked by fallout from job losses and housing market US equity markets set to open higher, European equities mixed, Nikkei closed 227 points lower Upcoming Events US-Wednesday, May consumer credit will be released expected -9.5 bln compared to -15.7 bln last month CAN- Wednesday, June housing starts will be released expected at 130k compared to the hundred 124k last month By Michael J. Malpede Easy Forex Michael J. Malpede is Chief Market Analyst with Easy-Forex® and has previously been featured on Bloomberg TV, Bloomberg radio, Reuters, MarketWatch, Wall Street Journal, Chicago Tribune, Chicago Sun Times, Toronto Star and Nikkei press. In analyzing the markets, he draws from 29 years of Foreign Exchange Research as a Foreign Exchange Analyst. Please note that Forex trading (OTC Trading) involves substantial risk of loss, and may not be suitable for everyone. This report is provided by Easy- Forex® for informative purposes only. In no way it is a recommendation by Easy-Forex® for you to engage in any trade. It is your sole responsibility and you will have no claims with regards to this report against Easy-Forex®. If you do not agree to this, you are strongly advised not to use this report. Hence, Easy-Forex® shall not be held responsible for any outcome of trading decisions, in regards with this report or similar reports.

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IMF Sees Stronger Global Rebound From ’09 Recession

By Sandrine Rastello and Timothy R. Homan

July 8 (Bloomberg) -- The International Monetary Fund said the global economic rebound next year will be stronger than it forecast in April as the financial system stabilizes and the pace of contractions from the U.S. to Japan moderates.

The Washington-based lender said in a revised forecast released today that the world economy will expand 2.5 percent in 2010, compared with its April projection of 1.9 percent growth. A contraction this year will be 1.4 percent, worse than an April forecast for a 1.3 percent drop, the IMF said.

The improved outlook for next year boosted U.S. stocks. The forecasts reflect differing stages of recovery across the globe, with emerging economies including China helping pull the world out of the worst recession in six decades, while Europe lags behind the U.S. and Japan. The fund warned the pickup is likely to be “sluggish” and called repairing the international banking system a priority.

“The global economy is still in recession, but a recovery is coming,” IMF chief economist Olivier Blanchard said in a Bloomberg Television interview today. “A weak recovery is a way of putting it,” he said, adding that unemployment around the world may keep rising into 2010.

Stocks and Treasuries rose after the IMF released its new forecasts and an updated outlook for the global financial system. The Standard & Poor’s 500 Index gained 0.6 percent to 886.5 as of 10:22 a.m. in New York. The yield on the benchmark 10-year government note slipped to 3.44 percent from 3.46 percent late yesterday.

Exit Strategies

The fund also called on policy makers to start crafting plans to exit such support measures in order to tame inflation concerns and take steps toward balancing public finances.

Advanced economies will continue to lead the slump this year by shrinking 3.8 percent. They will grow 0.6 percent in 2010, more than forecast in April, when the fund expected no growth for next year.

U.S. gross domestic product will shrink 2.6 percent this year before expanding 0.8 percent in 2010, the IMF said. In April it expected growth to stall next year.

Asked whether the U.S. should consider a stimulus plan in addition to a $787 billion package passed earlier this year, Blanchard said it may become an option worth debate if the recession lingers.

Stimulus Efforts

“It may well be that if the recovery turns out to be very weak, weaker than we expect, governments may have to continue fiscal stimulus in 2010” and even 2011, Blanchard said in a press conference in Washington. “These are options that they have to be thinking about.”

The outlook for Japan jumped to 1.7 percent next year from an April estimate of 0.5 percent. This year the fund sees Japan’s economy contracting 6 percent, from an earlier estimate of 6.2 percent, helped by “aggressive fiscal policies” and increased demand from other Asian partners.

Emerging and developing economies will grow 4.7 percent next year, a 0.7 percentage point increase from the previous forecasts. This year they will expand 1.5 percent, compared with a 1.6 percent expansion expected in April.

China’s growth is forecast to accelerate to 8.5 percent next year, a percentage point more than expected in April, after slowing to 7.5 percent this year. India’s economy will expand by 6.5 percent in 2010, compared with the April forecast of 5.6 percent, after a 5.4 increase percent this year that was higher than the IMF’s prior estimate.

Inflation Risks

While the fund called risks for sustained deflation “small,” the outlook for global inflation “is expected to remain subdued through 2010, held back by significant excess capacity.”

Still, risks to the outlook, which have “diminished noticeably,” are still “tilted to the downside,” the fund said, citing a possible downward pressure on asset prices resulting from rising unemployment, pressure on bond yields from concerns on public debt, and emerging economies’ vulnerability to financial stress.

A larger-than-expected drop in risk aversion and stronger demand in emerging economies could offer “some upside risk” that boosts growth, according to the fund.

In a separate report today on the state of the global financial system, the IMF said that while financial markets and confidence in an economic recovery have improved since April, risks remain and policy makers must remain vigilant until a sustained recovery is under way. Credit risks are high, bank lending to the private sector is slowing and the recovery so far has been dependent primarily on public funds, the fund said in an update to its Global Financial Stability Report.

To contact the reporters on this story: Sandrine Rastello in Washington at srastello@bloomberg.net; Timothy R. Homan in Washington at thoman1@bloomberg.net

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German Industrial Production Improved Significantly In May

Daily Forex Fundamentals | Written by ecPulse.com | Jul 08 09 13:45 GMT |

The final reading is out, the sixteen nations GDP contracted in first quarter 2.5% on the quarter and 4.9% on the year, as its considered the deepest contraction since the records started in 1995. The endless turbulence in the markets that managed to diffuse into the economies was the main reason behind this endless downturn. Banks, abstained from lending money to non-financial institutions, as they still hold on their hesitation along with trying to adjust according to the newly issued rules and regulations. It might be the bottom; studying the data released since the beginning of the second quarter markets started to believe that the contraction seen in the first quarter is the bottom to the current dilemma. Economies in the sixteen nations are finally getting some grip to head toward an expansion once again; nevertheless, this does not mean that growth will be seen this year, where it’s currently postponed to second half of 2010. However, in the middle of this pessimism we have seen better than expected fundamentals, the German Industrial Production rose in May 3.7% on the month from the revised previous -2.6%; the yearly production improved to -17.9% from revised previous -22.3%. This improvement in the Europe’s leading economy won’t prevent a deep contraction this year, where we already seen a wide contraction in the GDP reading along with further confirmations are needed. The German finance minister had already approved huge stimulus packages to bolster the economy, alongside with the rate reduction, which have been taking place by the European Central Bank since the dilemma began. Rates in the euro area reached down to 1.0% from the highest in July 2008 settling at 4.255 levels. The contraction in the second quarter of this year would be narrower than the one seen in the first three months of the year, as those predictions were built upon the previously released fundamentals along with Trichet comments that narrower contraction will be taking place. Nevertheless, what we are really looking for at time is when an expansion will take place, as according to our predictions the GDP will expand in the upcoming year. The released fundamentals from the euro area could not boost European indices falling for the fourth consecutive month, where Dow Jones euro stoxx 50 lost 0.75% or 17.32 points reaching 2303.58 levels; CAC 40 lost 0.78% reaching 3024.74 levels and finally the German DAX lost 0.04% or 1.67 points reaching 4596.54 levels. Pessimism will remain to linger financial markets, as markets recently had inclined boosted heavily by the ongoing optimism that took place recently, especially when markets started to foresee an improvement and bottoming out to the recession. 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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As Risk Aversion Reigns, JPY Makes its Presence Felt Once again while USD Strength is More Hesitant

Daily Forex Fundamentals | Written by Saxo Bank | Jul 08 09 14:10 GMT |

Corporate earnings season getting underway as risk appetite at key inflection point. MAJOR HEADLINES – PREVIOUS SESSION US Weekly ABC Consumer Confidence out at -52 vs. -50 expected and -51 last week UK BRC Shop Price Index rose +0.7% YoY vs. 1.3% in May Japan Jun. Machine Orders fell -3.0% MoM vs. +2.0% expected Japan May Adj. Current Account Total out at ¥1016B vs. ¥1206B expected Australia Jul. Westpac Consumer Confidence rose 9.3% vs. +12.7% in Jun. Australia May Home Loans rose 2.2% vs. 1.3% expected and 1.8% in Apr. Switzerland Jun. Unemployment Rate rose to 3.8% vs. 3.6% expected and 3.5% in May Sweden May Industrial Production fell -2.7% MoM vs. +0.5% expected Sweden May Industrial Orders rose 3.8% MoM vs. +0.4% in Apr. UK Jun. Halifax House Prices fell -0.5% MoM vs. +0.3% expected Germany May Industrial Production rose 3.7% MoM vs. 0.5% expected THEMES TO WATCH – UPCOMING SESSION US Weekly DOE Crude Oil and Product Inventories (1430) US Fed's Evans to Speak (1655) US May Consumer Credit (1900) Australia Jun. Employment Change and Unemployment Rate (0130) Market Comments: The USD is finding plenty of support from the enormous fall in crude prices. The chicken-and-egg aspect of crude oil prices and the dollar is always difficult to untangle, but crude has been severely hit by the combination of risk aversion and new threats by the US regulatory agencies to curtail speculation in the futures market. This latter development has most certainly aggravated the severity of the drop in prices and offers therefore a supporting hand to a further rise in the greenback. Also reflecting the fading of the "devaluation trade" for the USD is the action in the gold market, where gold is close to breaking to a new low since mid-May. Weekly US ABC Consumer Confidence came in worse than expected at -52, not far from the all-time nadir of -54 reached on two occasions for the recent part of the cycle (late last year and in January). It feels like this recession is beginning to double dip. For the risk appetite equation at the moment, we have crossed the Rubicon technically with the break of the head and shoulders formation in the likes of the US S&P500 and the 200-day moving average (though we've yet to see a follow up day and it makes us nervous that this development is receiving so much attention in the media). Yet this is happening on the cusp of a new earnings season for Q2: so one of the key puzzle pieces in coming couple of weeks will be corporate earnings and outlooks from major companies. Alcoa, as usual, kicks off earnings season today. If the market decides to harvest hope from earnings season, we could stumble back into the ranges once again for perhaps a few days or weeks during these summer doldrums, but we still feel that an eventual reckoning awaits for markets on the risk front. As long as unemployment remains this high and confidence is in the dumps, it is hard to see any uptick on the demand side of the equation. As we are writing this, an analyst is touting the potential of one of the US discount grocers because of the enormous expansion in the food stamp program for feeding families with insufficient income to cover their basic nutrition needs. This is a sad reminder of the state of affairs. It's more than a bit interesting that China's Hu Jintao has cancelled his visit to the G8 meeting in Italy this weekend due to the riots and ethnic unrest in Xinjiang. This reminds us of another reason why the US dollar has a fighting chance for a while yet: political/ethnic violence and an autocratic regime are risks that simply don't exist for the US dollar - at least not yet. If US unemployment doubles again, however, we might have to revisit that proposition. The JPY has basked in the negative developments in risk appetite across the board. USDJPY is down close to those sub-94.00 lows since late February and other JPY crosses have seen a vicious week of downside action. In EURJPY, the 200-day moving average looms down just below 127.50. Watch out for the Australia employment report tonight. Some of the Australia data of late has been relatively positive or stable, but the employment situation is deteriorating. Analysis Disclosure & Disclaimer Saxo Bank A/S shall not be responsible for any loss arising from any investment based on any recommendation, forecast or other information herein contained. The contents of this publication should not be construed as an express or implied promise, guarantee or implication by Saxo Bank that clients will profit from the strategies herein or that losses in connection therewith can or will be limited. Trades in accordance with the recommendations in an analysis, especially leveraged investments such as foreign exchange trading and investment in derivatives, can be very speculative and may result in losses as well as profits, in particular if the conditions mentioned in the analysis do not occur as anticipated. Saxo Bank utilizes financial information providers and information from such providers may form the basis for an analysis. Saxo Bank accepts no responsibility for the accuracy or completeness of any information herein contained. 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Forex Exchange Morning Report

Daily Forex Fundamentals | Written by Westpac Institutional Bank | Jul 08 09 01:22 GMT |

News And Views All eyes were on the S&P500 last night, watching for signs of a breakdown, as it sits perilously close to the 200 day moving average support level. To that we add the Dow Industrials did break below a neckline at 8000. The S&P500 closed down 2.0%, led by growth stocks (rather than financials). Talk by a US economic advisory panel of further possible government stimulus added to investors worries all is not well. Oil and copper both fell by 2.6%. US 10yr treasuries rallied 6bp, and 3mth Libor fell by another 1bp to 0.54%. The US dollar dipped on earlier equities strength, but recovered on the selloff in risk from noon London. The EUR mirrored that action, rallying to 1.4050 (strong German factory orders may have added to the move) before falling back to minor support at 1.3900. GBP's morning rally was dampened by the downbeat UK factory orders report, reaching only 1.6260 before falling to 1.6120. JPY firmed amid the gloom, from 95.45 to 94.70 against the dollar. AUD peaked around 0.8040, in line with equities, and then fell to 0.7900. An article by influential columnist McCrann, which said the RBA did the right thing, had no market effect. NZD reached 0.6395 before dropping to 0.6300, residual effects from the earlier bullish business opinion survey cushioning. AUD/NZD ranged between 1.2510 and 1.2585, an hourly head-and-shoulders pattern arguing for lower today. No US data. German factory orders jumped 4.4% in May, well ahead of the market forecast of +0.5%. Domestic orders rose 3.9% while foreign orders rose 5.2%. Orders remain down 29.4% on a year ago, but this is a welcome improvement in activity data in a region where the 'green shoots' to date have largely been confined to confidence surveys. UK industrial output fell 0.6% in May and was down 11.9% on a year ago. Durable goods recorded a strong 6.6% increase, but aside from utilities most other sectors were weaker. Canadian Ivey PMI surged from 48.8 to 58.2 in June, the highest since September last year and well up from the low of 36.1 in January. This series is not seasonally adjusted and can be jumpy from month to month, but the underlying trend does appear to be improving. Canadian building permits rose 14.8% in May. Most of the rise was in apartments, up 40.6%, but single home permits also rose by 1.5%. The number of permits is now 28% above the lows reached earlier this year, consistent with recent signs of stabilisation in the housing sector. Outlook Having retraced 50% of the move down (since 30 June), NZD appears ready to resume its recent trend lower, and we look for a break below 0.6250 over the next few days. Any upside price action should be capped at 0.6400. The next important event on the calendar will be the Australian employment report tomorrow Events Today Country Release Last Forecast Aus Jul Westpac-MI Consumer Sentiment 100.1 – May Housing Finance 0.90% 2.50% US May Consumer Credit $bn –15.7 –10.0 Fedspeak: Evans Jpn May Machinery Orders –5.4% 2.40% May Current Account ¥bn sa 966 1228 Jun Bank Lending %yr 3.10% – Eur Q1 GDP (F) –2.5% a 2.50% Ger May Industrial Production –1.9% flat UK Jun Consumer Confidence 53 51 Jun BRC Shop Price Index %yr 1.30% – 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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FX Technical Commentary

Daily Forex Technicals | Written by Easy Forex | Jul 08 09 03:59 GMT |

Euro 1.3920 Initial support at 1.3827 (Jun 29 low) followed by 1.3827 (Jun 22 low). Initial resistance is now located at 1.4026 (July 3 high) followed by 1.4201 (Jun 1 high) Yen 94.85 Initial support is located at 94.45 (Jun 1 low) followed by 93.86 (May 22 low). Initial resistance is now at 96.13 (Jun 06 high) followed by 97.19 (Jun 19 high). Pound 1.6120 Initial support at 1.6096 (Jul 6 low) followed by 1.5986 (Jun 9 low). Initial resistance is now at 1.6429 (Jul 3 high) followed by 1.6546 (July 1 Level). Australian Dollar 0.7885 Initial support at 0.7880 (July 6 low) followed by the 0.7790 (May 19 low). Initial resistance is now at 0.8107 (Jul 03 high) followed by 0.8155 (Jul 1 high). Gold 923 Initial support at 913 (June 23 low) followed by 906 (May 8 low). Initial resistance is now at 934 (Jul 3 high) followed by 948 (June 26 high). Currency Sup 2 Sup 1 Spot Res 1 Res 2 EUR/USD 1.3749 1.3827 1.3920 1.4201 1.4267 USD/JPY 93.86 94.45 94.85 96.13 97.19 GBP/USD 1.5986 1.6096 1.6120 1.6429 1.6546 AUD/USD 0.7790 0.7880 0.7885 0.8107 0.8155 XAU/USD 906.00 913.00 923.00 934.00 948.00 Easy Forex http://www.easy-forex.com Easy-Forex makes no recommendations as to the merits of any financial product referred to in this website, emails or its related websites and the information contained does not take into account your personal objectives, financial situation and needs. Therefore you should consider whether these products are appropriate in view of your objectives, financial situation and needs as well as considering the risks associated in dealing with those products

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US Stocks Slump

Daily Forex Fundamentals | Written by Easy Forex | Jul 08 09 03:57 GMT |

U.S. Dollar Trading (USD) was volatile as the market sold in Europe then bought back in the US session with stocks steadily fell for the whole night. Oil continued to plumb monthly lows as concerns over proposed US regulation of the Energy market led to speculation some funds would exit the market. The Dollar continues to find support in the fall of Oil. Crude Oil down $2.68 at $64.05. In US share markets, S&P ended -17.69 points (-1.97%) at 881.03, NASDAQ ended -41 points (-2.31%) at 1746 and DOW JONES ended -161.27 points (-1.94%) at 8163.60. The Euro (EUR) tested day highs after German Factory Orders +4.4% vs. +0.6%. The pair topped out near 1.4050 resistance than fairly consistently tracked the stocks markets lower. Talks of a second US stimulus package was quashed by the White House and led to more market nerves. Overall the EUR/USD traded with a low of 1.3875 and a high of 1.4000 before closing at 1.3970. Looking ahead, EU GDP Q1 Q/Q forecast -2.5% at vs. -1.8% previously. The Japanese Yen (JPY) was the strongest currency after receiving solid support via fresh safe haven flows and the closing of carry trades such as AUD/JPY and GBP/JPY. The USD/JPY was pressured back below 95 Yen but held well as the USD also received support. May Machine Orders fell -3% vs. +2.1% previously. Overall the USDJPY traded with a low of 94.59 and a high of 95.49 before closing the day around 94.80 in the New York session. The Sterling (GBP) was pressured lower by risk aversion and a surprise drop in Manufacturing and Industrial Production (-0.5% and -0.6% respectively). GBP/USD found support at 1.6100 but with the BOE looming then further pullbacks can not be ruled out. Overall the GBP/USD traded with a low of 1.6296 and a high of 1.6066 before closing the day at 1.6090 in the New York session. The Australian Dollar (AUD) Support at 0.7900 on the AUD/USD and 75 Yen on the AUD/JPY broke as US stocks slipped past month lows and Oil continued lower. RBA comments were bullish and helped during the Asia session and then EUR/USD strength helped the pair above 0.8000 in Europe. Most analysts are calling for a downside correction but this is the case with the majority of markets given the 30% rally seen in Q1-2. Overall the AUD/USD traded with a low of 0.7854 and a high of 0.8041 before closing the US session at 0.7900. UPDATE July Westpac Confidence +9.3%. Gold (XAU) was under pressure from USD strength but safe haven flows supported. Overall trading with a low of USD$921 and high of USD$932 before ending the New York session at USD$924 an ounce Easy Forex http://www.easy-forex.com Easy-Forex makes no recommendations as to the merits of any financial product referred to in this website, emails or its related websites and the information contained does not take into account your personal objectives, financial situation and needs. Therefore you should consider whether these products are appropriate in view of your objectives, financial situation and needs as well as considering the risks associated in dealing with those products

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