Mr. Stevens During His Testimony Indicates That Raising Rates Is Inevitable In The Close Future

Daily Forex Fundamentals | Written by ecPulse.com | Aug 14 09 07:15 GMT |

Mr. Stevens Australia's central bank governor indicated today that the Australian economy conditions are ideal taking into consideration the present global economy developments, determining the monetary policy officials to abandon the extra ordinary policies, and increasing believes that the next step taking by the central bank will be raising rates. These remarks came during Mr. Stevens the semi-annual testimony to the Economic Commission of the Australian Parliament; and according to him, the fundamentals released by the Australian economy indicate that the economic performance slowdown, which Australia experienced economy due to the drop in global demand and the deterioration in the financial markets, is over. The stimulus plan adopted by the Australian government along side the aggressive reduction in interest rates by the central bank which reached to their lowest in almost half a contrary, were able to help the economy surpass the distress that prevailed the entire globe as the economy was able to see positive growth during the first quarter of this year and thereby avoid falling into recession. The direction in which the Australian economy in moving into may be far too positive for the radical steps taken by the Central Bank and the Australian Government in order to support growth, thereby it may appear some negative and undesirable results. As the improvement in export was able to determine confidence to rise among investors and companies, having a positive impact on investment levels that increased and on money supply that rose after consumer spending stabilized. And from these circumstances may result some inflationary pressures that the central bank does not desire, and to avoid such developments Mr. Stevens said that a tighter monetary policy is inevitable in the close future, and the start of this procedure which gives the ability to the central bank to control the liquidity volume in the markets is by holding rates unchanged which the central bank recently did, before raising it again. Mr. Stevens didn't neglect to mention the improvement in the economic fundamentals, which indicated that the recession the economy almost fell into is fading, and that the economy started recovering from consequences of this severe financial crisis that managed to hurt the entire planet which turned out to be the worst since the great depression. The Australian central bank sees that more risks may arise if inters rates will be kept at those very low levels for more time, as it may lead to imbalances in the Australian economy which already started to give clear signs of recovery. The central bank also noted earlier that the recovery seen by the Chinese economy has increased demand for Australian exports, since China is one of the main trading partners, and this will be able to support growth during the next periods even more. Besides this, the positives effect resulted from the reduction of interest rates by 4.25% is still seen throughout the performance of the financial and banking sector, alongside the effects from the stimulus plan adopted by the government and which reached to 12 billion Australian dollars that was directed to the domestic sector in order to encourage spending, and the other stimulus plan totaling 22 billion Australian dollars directed to infrastructure projects. All these were able to support the entire economic performance and maintain a balance of supply and demand, which ultimately drove Australia to safe land 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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Morning Forex Overview

Daily Forex Fundamentals | Written by Dukascopy Swiss FX Group | Aug 14 09 07:12 GMT |

Previous session overview The euro and dollar fell against the yen in Asia Friday as weak Chinese stocks and lower U.S. long-term interest rates prompted players to sell those units for the Japanese currency. Japanese exporters joined in the selling on a regular settlement day, dealers said, while the dollar came under further pressure ahead of the redemption of U.S. Treasurys on August 17. With the outlook for Chinese share prices remaining grim, the euro and dollar are expected to continue heading southward against the yen, traders said. Short-term foreign exchange market players have recently grown sensitive to movements in Chinese share markets, amid concerns that weaker-than-expected Chinese growth may drag on a global recovery. A slumping Shanghai Composite index, down 2.4% in early afternoon trade, again triggered a selloff in risk sensitive currencies such as the euro. Meanwhile, the dollar stood at JPY95.22 compared to JPY95.36 late Thursday in New York. The greenback had fallen against the yen overnight, after U.S. retail sales data marked a 0.1% drop in July, disappointing expectations for a 0.8% rise. Sentiment remained negative in Asia, dealers said. Euro rose to a one-week high at USD1.4328 against the greenback on Thursday as the euro zone's two biggest economies unexpectedly returned to growth in the second quarter of the year. In Germany, Europe's largest economy, gross domestic product rose surprisingly by 0.3% in the second quarter. The British pound rebounded even though the UK unemployment rate jumped to 7.8 percent during the second quarter, the highest rate in 14 years, up from 7.1 percent during the first quarter. Yesterday, Bank of England in its inflation report indicated that rates will not be raised for some time. A bullish economic outlook from the central bank sent the Australian dollar to 11 month highs in Asia Friday before renewed jitters on the Shanghai stock exchange sparked a bout of profit taking. Market expectation The euro is under some pressure on Friday, as the slump in the Chinese stock markets dents risk appetite more broadly in Asia. EURUSD bids seen placed between USD1.4255/50, a break below to open a deeper move toward USD1.4245/40 with further interest tucked in close behind at USD1.4235/30. Below here and rate can ease toward USD1.4220/10. Asian account offers noted at USD1.4295, with Swiss accounts sell interest seen at USD1.4315 ahead of stops placed on a break of USD1.4320. EURGBP closed in NY at stg0.8618, the rate nudging up to stg0.8622 in early Asian trade (NY high stg0.8623) before easing back to stg0.8604. Rate currently trades around stg0.8618 into early Europe. Offers seen placed from stg0.8622 through to stg0.8630, a break to open a move on toward stg0.8640/45 ahead of stg0.8650/55. Support stg0.8605/00, a break to allow for a deeper move toward stg0.8590/85 ahead of stg0.8575/70. Currency market reactions to data and other events could continue to be rather fickle for some time yet, given the still-rampant uncertainties relating to growth and also the low-liquidity summer environment, Said analysts. Analysts said there's scope for the local unit to resume its climb higher if U.S. consumer confidence numbers due later surprises on the upside. Dukascopy Swiss FX Group Legal disclaimer and risk disclosure This overview can be used only for informational purposes. Dukascopy SA is not responsible for any losses arising from any investment based on any recommendation, forecast or other information herein contained.

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Forex Technical Update

Daily Forex Technicals | Written by India Forex | Aug 14 09 06:33 GMT |

Rupee :Rupee moved up to 48.50 day before levels but unable to break 48.60 resistance to change the bullish bias. It is likely to be rangebound between 48.20 to 48.40 today. Please note if the dollar momentum continues and Indian stocks sell off pushes rupee above 48.60 we would consider medium term weakness to resume till then rupee maintains stronger bias. Neutral (USD/INR : 48.25) Euro : Euro broke 1.4320 yesterday taking support from trendline at 1.41 levels. Maintaining above 1.43 today and Monday would be bullish for the pair otherwise consolidation would continue between 1.40-1.44 levels in the days to come. Only a break below 1.3852 would negate the weekly trend of euro. (EUR/USD 1.4267) Sterling : Cable also took a trendline support close to 1.6370 levels and moved up to 1.6560 . It stands bearish below 1.6640 .Bias is again neutral until the pair is able break of 1.6250-6300 (weekly trendline& 55 day EMA) would confirm a trend reversal for the pair and target 1.58 again. (GBP/USD 1.6570) .Slight Bearish Yen : Yen broke the weekly trendline of 95.40 after a long phase of consolidation . Expect the levels to act as an important support now and target 99 levels in medium term. (USD/JPY 95.25) Bearish Aud :Aud seems to be entering into correction mode lately .We have started witnessing sell off in commodity prices . It is bullish until we see a break below 0.7950. (AUD/USD -0.8427) In Correction Mode Gold : Gold has also seen correction lately. Bullish only above 960 dollar otherwise rangebound. (Gold- $956.41). Rangebound Dollar Index : The Dollar Index (basket against 6 currencies with EUR accounting for 57% of the basket) rebounded close to 77 levels. Expect retracement till 80 levels.Closing above 82 levels would change the bias of the index. (Dollar Index - 78.42) Neutral India Forex http://www.indiaforex.in DISCLAIMER These views/ forecasts/ suggestions, though proferred with the best of intentions, are based on our reading of the market at the time of writing. They are subject to change without notice.Though the information sources are believed to be reliable, the information is not guaranteed for accuracy. Those acting in the market on the basis of these are themselves responsible for any profits or losses that might occur, without recourse to us. World financial markets, and especially the Foreign Exchange markets, are inherently risky and it is assumed that those who trade these markets are fully aware of the risk of real loss involved.

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Forex Technical Analytics

Daily Forex Technicals | Written by FOREX Ltd | Aug 14 09 07:31 GMT |

CHF The pre-planned break-out variant for sales has been implemented but with loss in the achievement of minimal anticipated target. OsMA trend indicator, having marked break-out of key supports by sign of rate oversold does not clarify the choice of planning priorities for today. Therefore, considering rate position below Ichimoku cloud and relatively low bullish activity level it is recommended to preserve short positions opened before with the targets of 1,0660/80, 1,0600/20, 1,0540/60. The alternative for buyers will be above 1,0800 with the targets of 1,0840/60, 1,0900/20, 1,0960/80. GBP The pre-planned break-out variant for buyers has been implemented with loss in the achievement of estimated targets. OsMA trend indicator, having marked preservation of minimal bullish activity, at the moment also gives grounds for preservation of long positions opened before. Nevertheless, considering rate position within Ichimoku cloud border as a sign of uncertainty in the choice of planning priorities for opened long positions the targets will be 1,6620/40, 1,6680/1,6700, 1,6720/40 and (or) further break-out variant up to 1,6780/1,6800, 1,6860/80, 1,6960/1,7000. The alternative for sales will be below 1,6360 with the targets of 1,6300/20, 1,6200/40, 1,6100/20 JPY The estimated test of key resistance range levels was confirmed, but relative sales activity rise according to OsMA trend indicator version did not help in the implementation of pre-planned long positions. At the moment, considering general outlook of activity parity of both parties, but with the preservation of bearish priorities we can assume probability of rate return to close 95,60/80 resistance levels where it is recommended to evaluate the development of the activity of both parties in accordance with the charts of shorter time interval. As for short-term sales on condition of formation of topping signals the targets will be 95,00/20, 94,60/80 and (or) further break-out variant up to 94,00/20, 93,60/80. The alternative for buyers will be above 96,40 with the targets of 96,80/97,00, 97,40/80. EUR The pre-planned break-out variant for buyers has been implemented with loss in the achievement of minimal anticipated target. OsMA trend indicator, having marked break-out of key resistance range levels by sign of rate overbought with further relative sales activity rise in rate position within Ichimoku cloud border and does not clarify the choice of planning priorities for today. Therefore, considering current bearish cycle of indicator chart we can assume probability of rate return to 1,4200/20 supports, where it is recommended to evaluate the development of the activity of both parties in accordance with the charts of shorter time interval. As for short-term buying positions, on condition of formation of topping signals the targets will be 1,4260/80, 1,4320/40 and (or) further break-out variant up to 1,4380/1,4400, 1,4440/60, 1,4500/20. The alternative variant for sales will be below 1,4160 with the targets of 1,4100/20, 1,4040/60, 1,3980/1,4000 . FOREX Ltd www.forexltd.co.uk

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Philippine Farm Output Eases, Threatening Economy

By Francisco Alcuaz Jr.

Aug. 14 (Bloomberg) -- Growth in Philippine agricultural production faltered in the second quarter as corn harvests fell, threatening an economy that’s already expanding at the slowest pace in a decade.

Farm output rose 0.87 percent last quarter from a year earlier, after gaining 2.27 percent in the first three months of 2009, the Department of Agriculture said in a statement in Manila today. Total output expanded 1.5 percent in the first six months of the year.

Agriculture employs more than a third of the Southeast Asian nation’s workforce. Economic growth slowed to 0.4 percent in the first quarter as the global recession slashed exports, prompting the government to cut its full-year forecast a third time and predict a 2009 expansion of as little as 0.8 percent.

“When you see a marked slowdown in agricultural output, you’ll likely see numbers pulled down in other sectors,” said Song Seng Wun, an economist at CIMB-GK Securities Pte in Singapore. “It has a multiplier effect on other industries.”

Sales growth at SM Prime Holdings Inc., the nation’s biggest shopping-mall operator, slowed to 14 percent in the second quarter from 18 percent in the first. Revenue at Jollibee Foods Corp., the nation’s biggest fast-food company, rose 11 percent in the second quarter compared with a 13.5 percent gain in the previous three months.

Along with falling exports and “patchy” remittances from overseas Filipinos, slower agricultural gains may limit second- quarter gross domestic product growth to about 0.1 percent, Song said. A “step up in government spending might be the only thing to keep GDP growth positive,” he said.

Crop production, the biggest part of total farm output, fell 3.61 percent in the second quarter as corn output shrank 0.52 percent and sugar cane slid 9.85 percent. Rice production rose 1.87 percent from a year earlier. For the first six months, crops declined 1.3 percent, countering gains in livestock, poultry and fisheries.

To contact the reporter on this story: Francisco Alcuaz Jr. in Manila at falcuaz@bloomberg.net

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No New Normal JPMorgan Sees V-Shaped Recovery on Robust Growth

By Steve Matthews

Aug. 14 (Bloomberg) -- Instead of a so-called New Normal of subdued growth, the U.S. may be heading for a robust recovery.

The worst recession since the 1930s has created a reservoir of demand that will buoy the economy, say a growing number of economists led by James Glassman at JPMorgan Chase & Co., former Federal Reserve Governor Laurence Meyer and Stephen Stanley at RBS Securities Inc.

“Whenever we have plunged off a cliff and fallen into a deep hole in the past, for a while the economy has a tendency to bounce back very quickly,” said Glassman, a senior economist at JPMorgan in New York. Glassman and his colleagues this month said forecasts of 3 percent to 4 percent growth in coming quarters may be too low given “pent-up” consumer demand.

JPMorgan’s outlook contradicts the view popularized by Mohamed El-Erian at Pacific Investment Management Co. that elevated unemployment and record wealth destruction will keep growth at 2 percent or less for years. The divergence highlights the dilemma for policy makers, who must decide whether to maintain record fiscal and monetary stimulus or begin to pull back and prevent a surge in inflation should growth accelerate.

El-Erian, chief executive officer of Newport Beach, California-based Pimco, said “the indicators we follow continue to point to sluggish medium-term growth in the U.S.,” when asked to respond to arguments for a so-called v-shaped recovery.

Retail Sales

Retail sales figures released yesterday indicated that consumers have yet to ramp up spending. The Commerce Department said purchases fell for the first time in three months, by 0.1 percent. A Labor Department report showed 558,000 Americans, more than forecast, filed claims for unemployment insurance last week; the U.S. has lost 6.7 million jobs in the recession that began in December 2007.

The New Normal theory predicts that the recession will leave unemployment, forecast to reach 10 percent for the first time since 1983 early next year, higher for years. Glassman and Meyer dispute that.

“The thing I object to most about the New Normal idea is that we are stuck and have to accept higher unemployment --if you look at the Fed, they are doing everything they can to fight it,” said Glassman, who formerly worked as a Fed economist in Washington.

Meyer’s Projections

Meyer, who served as a central bank governor from 1996 until 2002, said he and his colleagues “don’t find any evidence” that the unemployment rate consistent with stable inflation is now higher. Meyer is now vice chairman of St. Louis-based Macroeconomic Advisers LLC, whose economic estimates are monitored by the National Bureau of Economic Research panel charged with dating U.S. recessions.

Meyer expects gross domestic product to jump by 3.6 percent in 2010 and 3.9 percent in 2011. Annual growth surpassed 3 percent only once so far this decade, in 2004, and has averaged just 2.2 percent.

“The big driver of that is home prices,” said Meyer, referring to his recovery forecast. “If home prices stabilize, that is a tremendous boost to housing that dominates every other variable in our equation. There is a lot of pent-up demand in that particular area.”

Home construction has subtracted from GDP growth for a record 14 straight quarters through June 2009. Consumer spending has also dropped in four of the past six quarters, and is down 2 percent from its peak in July-to-September 2007, the biggest retrenchment since 1980.

‘Very Depressed’

Housing and automobile sales are at “very depressed levels” and are likely to contribute to growth even if they don’t reach prior peaks, said Stanley, chief economist at RBS Securities in Greenwich, Connecticut, who used to work at the Richmond Fed.

“Consumers are holding off on practically all of their discretionary purchases,” said Stanley, who sees the expansion picking up from 2.9 percent next year to 4.4 percent in 2011 and “about” 3.5 percent in 2012. “There is a lot of pent-up demand.”

Recoveries from the past two recessions were weaker than in previous decades. After the 2001 recession, the economy expanded just 1.6 percent in 2002, picking up to 2.5 percent the next year. The 1990-91 recession was followed by 3.3 percent growth in 1992 and a 2.7 percent gain in 1993.

By contrast, the U.S. roared out of the 1981-82 recession. In 1983, GDP rose 4.5 percent, accelerating to a 7.2 percent pace in 1984, when Ronald Reagan won re-election with victories in 49 of 50 states.

Blinder ‘Skeptical’

Alan Blinder, the former Fed vice chairman who is now an economics professor at Princeton University in New Jersey, has described himself as “skeptical” of the New Normal scenario.

“To accept a 2 percent trend, you have to believe in about a 1.2 or 1.3 percent productivity trend -- I don’t,” Blinder said in an e-mailed response to questions. He added that he sees growth sustained at “closer, but not quite, to 3 percent” in coming years.

Fed policy makers in their latest projections submitted in June anticipated an expansion of 2.1 percent to 3.3 percent from this year’s fourth quarter to the same period next year and 3.8 percent to 4.6 percent in 2011.

Chairman Ben S. Bernanke and his Federal Open Market Committee colleagues two days ago said the economy is “leveling out.” The central bank has pumped about $1 trillion into the banking system in a campaign to end the crisis, triggered by mortgage defaults, that has caused more than $1.6 trillion in losses and writedowns among financial firms worldwide.

Victory Call

President Barack Obama last week said: “We are pointed in the right direction,” in remarks at the White House. “We’ve rescued our economy from catastrophe.” The administration anticipates a gathering impact from its $787 billion fiscal stimulus into next year.

Some companies are also seeing signs of a turn in the economy.

Karen Hoguet, chief financial officer at Macy’s Inc., the second-biggest U.S. department store chain, said on a conference call Aug. 12 that the Cincinnati-based company is “cautiously optimistic” its sales trends will improve.

A rebound in equities in recent months will help repair households’ balance sheets and buttresses the outlook for spending, said Glassman at JPMorgan.

The Standard & Poor’s 500 Stock Index has climbed about 50 percent from its low in March. U.S. stock-market capitalization has increased by almost $4 trillion in that time.

Economists’ Forecasts

Economists this month lifted their projection for third- quarter growth by 1.2 percentage points to 2.2 percent compared with July, according to the median of 55 forecasts in a Bloomberg News survey. That is the biggest such boost in surveys dating from May 2003. Forecasts for 2010 were raised to 2.3 percent from 2.1 percent.

Neal Soss, chief economist at Credit Suisse Group AG in New York, played down concern that the economy may suffer a “double dip” recession.

“Historically these double dips are routinely forecast and actually very rarely come to pass,” Soss said in a Bloomberg TV interview this week. “Once the economy tends to get some upward momentum, it tends to keep going that way.”

To contact the reporter on this story: Steve Matthews in Atlanta at smatthews@bloomberg.net.

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Hong Kong May Emerge From Recession as Trade Improves

By Sophie Leung

Aug. 14 (Bloomberg) -- Hong Kong probably emerged from its worst recession since at least 1990 in the second quarter as a recovery in mainland China bolstered exports.

Gross domestic product rose 1.2 percent from the previous three months, snapping a year of declines, according to the median estimate in a Bloomberg News survey. All seven economists forecast an expansion. The government is due to announce the figure at 4:30 p.m. today.

The Hang Seng Index has climbed 84 percent from this year’s low in March as China’s record lending and 4 trillion yuan ($585 billion) stimulus package help the city, which is a hub for trade and finance. Across Asia-Pacific, South Korea and Australia have bounced back after economic contractions and Singapore has climbed out of a recession as the worst global slump since the Great Depression eases.

“Hong Kong is riding on China’s recovery and may return to year-on-year growth in the fourth quarter,” said Kelvin Lau, an economist at Standard Chartered Plc in Hong Kong.

The city’s economy may have declined 5.3 percent in the second quarter from a year earlier, after a 7.8 percent drop in the previous three months, economists’ forecasts show. The government began releasing quarter-on-quarter figures in 1990.

Billionaire Li Ka-shing, Hong Kong’s richest man, said yesterday that “the worst is over” for the global economy, after his companies, Cheung Kong (Holdings) Ltd. and Hutchison Whampoa Ltd., posted better-than-estimated first-half earnings.

‘Turning Point’

“It’s too optimistic to say the global economy has reached a turning point,” Li added. “The degree of decline has shrunk but that doesn’t mean it has stopped shrinking.”

Germany and France unexpectedly emerged from recessions in the second quarter, according to reports yesterday, and a Bloomberg survey of users showed confidence in the world economy at a 22-month high in August.

Hong Kong’s exports to China rose in June from a year earlier. Overall, overseas shipments fell by the least in seven months. Retail sales declined at a slower pace as consumer confidence improved.

“Hong Kong is showing positive and encouraging signs of a faster-than-expected recovery,” said Tao Dong, chief Asia- Pacific economist at Credit Suisse AG in Hong Kong. “Whether the recovery can be sustained depends on external factors.”

Stimulus Spending

The city’s government will raise today its forecast for full-year GDP to a contraction of between 3 percent and 5.5 percent, Sing Tao Daily reported yesterday, without saying where it got the information. Financial Secretary John Tsang’s current estimate is for a decline of between 5.5 percent and 6.5 percent.

The government has allocated HK$87.6 billion ($11.3 billion), or about 5.2 percent of GDP, since 2008 for stimulus ranging from tax cuts to rent subsidies.

Chief executive Donald Tsang is unlikely to announce more relief measures in his October policy address, the South China Morning Post reported Aug. 11, citing people it didn’t identify.

“The need and urgency for fiscal stimulus has decreased,” said Standard Chartered’s Lau, who said policy makers may need to focus on preventing bubbles in stocks and property as money flows into the city, including from China’s record lending.

Hong Kong home prices may rise 32 percent by the end of 2010 on ample liquidity and low interest rates, UBS AG said last month. The Hang Seng Property Index, which tracks six of the city’s biggest developers, rose 56 percent this year, outpacing the 45 percent gain in the overall index.

Besides the fragility of the global economy, Hong Kong’s recovery faces challenges including a jobless rate at a three- year high of 5.4 percent. Swine flu also crimped tourist arrivals and spending during the quarter.

Lifestyle International Holdings Ltd., the operator of Hong Kong’s Sogo stores, said this month that consumers will be “very conservative about spending” for the rest of the year and subway operator MTR Corp. called the economic outlook “challenging.”

To contact the reporter on this story: Sophie Leung in Hong Kong at sleung59@bloomberg.net

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Obama Considers Raising Fees on Larger Financial Institutions

By Rebecca Christie

Aug. 14 (Bloomberg) -- President Barack Obama’s administration is considering raising fees on larger financial firms to help cover costs of new regulation by an agency set up to safeguard consumer financial products.

The proposed Consumer Financial Protection Agency “will be funded by fees, appropriations, and other transfers,” Treasury spokesman Andrew Williams said yesterday. Firms with assets of more than $10 billion “will pay more for prudential and consumer supervision, while community banks will not pay any more for supervision than they do today. Non-banks will be assessed for the first time.”

The plan marks a further burden on banks such as Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co. that may be subjected to more government fees, aimed at shielding consumers and buffering taxpayers from excessive risk taking. The proposal follows Obama’s plan to ensure systemically important financial institutions pay for costs of additional supervision.

The administration wants firms deemed too big to fail to be liable for costs of any government assistance. Collecting larger fees on major banks to fund the proposed consumer products agency isn’t part of the administration’s 600-plus page proposal to overhaul financial regulation, Williams said.

Led by chairman Sheila Bair, the Federal Deposit Insurance Corp. has proposed slapping fees on the biggest bank holding companies to the extent that they carry on activities, such as proprietary trading, outside of traditional lending. That idea goes beyond the Obama administration’s regulation-overhaul plan, which would have the Fed adjust capital and liquidity standards for the biggest firms, without any pre-set fees.

Two-Tiered Structure

A two-tiered fee structure for consumer protection would levy higher fees on firms with more than $10 billion in assets, while fees for smaller institutions would be lower, an administration official said yesterday on the condition of anonymity because the proposals have not been announced.

Michael Barr, the Treasury’s assistant secretary for financial institutions, said the Obama administration is pleased with the debate on Capitol Hill over the proposals, even though they have yet to be embraced wholesale by lawmakers.

“It is not surprising that it’s generating debate,” Barr said in an interview this week. “It would have been crazy to think that we’d send it up and people would sing ‘Kumbaya’ and hold hands and pass it in five minutes. The entire conversation on the Hill right now, on regulatory reform, all revolves around people fighting about our plan.”

While the Treasury already has proposed some kind of assessment on financial institutions to cover its costs, the legislation does not specify exactly who would be assessed or how.

Fees Assessed

“The agency shall recover the amount of funds expended by the agency under this title, through the collection of annual fees or assessments on covered persons,” said the proposed legislation, released on June 30.

Regulators have each opposed some aspect of the Obama plan. Fed Chairman Ben S. Bernanke has sought to retain authority for protecting consumers of financial products after the administration sought to create a new agency for the task.

Bair and Securities and Exchange Commission Chairman MarySchapiro have favored a council of agencies -- rather than the Fed -- to have powers to rein in risk-taking at financial firms so large or interconnected their failure would threaten the system.

Geithner, in a July 31 meeting aimed at cracking down on dissent, used strong language with the regulatory heads, reflecting concern at the fate of the administration’s proposals, a person briefed on the matter said on condition of anonymity.

Banks and other financial institutions have reported about $1.6 trillion in credit losses and writedowns worldwide since the global credit crisis began in 2007.

Consumer Oversight

As proposed, the Obama administration’s consumer regulator wouldn’t have the power to make major changes to the financial landscape, said William Black, a University of Missouri law and economics professor in Kansas City and a former U.S. bank regulator. That’s because the Obama administration plan calls for keeping broad-based, consumer-oriented oversight separate from bank examination and regulatory enforcement, he said.

“If it had been in place, it wouldn’t have stopped the last crisis,” Black said yesterday in a telephone interview. “This is another example of creating an ivory tower divorced from the day-to-day examination findings.”

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

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BOJ May Extend Credit Steps Into 2010, Minutes Show

By Mayumi Otsuma

Aug. 14 (Bloomberg) -- The Bank of Japan may extend its emergency credit programs into 2010 should funding conditions fail to improve enough, minutes from last month’s policy meeting show.

The central bank extended the steps for three months until Dec. 31 at the July 14-15 gathering because some companies were still struggling to obtain credit, according to the minutes released today in Tokyo.

“Another extension might become necessary if the bank’s judgment was that the situation had not improved sufficiently,” some members said. At the same time, “further improvement in the situation would justify termination of the measures.”

Governor Masaaki Shirakawa said this week that any recovery in the economy won’t be impressive as demand may not pick up enough to sustain growth. His remarks indicated that the bank won’t hurry to stop buying corporate debt from lenders and raise the key interest rate from 0.1 percent.

“The issue is whether the board can maintain its outlook for a recovery” in the second half of the year ending March 31, said Mari Iwashita, chief market economist at Daiwa Securities SMBC Co. in Tokyo. “If it can’t, it will probably extend the credit programs again, probably through March.”

Japan’s 10-year bonds rose for a fourth day on concern a global economic recovery may be weak, sending the yield two basis points lower to 1.39 percent at 11:19 a.m. in Tokyo. The yen traded at 95.33 per dollar from 95.48 late yesterday.

Return to Growth

The world’s second-largest economy probably grew last quarter for the first time in more than a year as rebounds in exports and consumer spending helped the country emerge from its worst postwar recession, the government is expected to say next week.

An index measuring demand for services unexpectedly rose in June, the Trade Ministry said today, spurred by Prime Minister Taro Aso’s 25 trillion yen ($262 billion) stimulus.

Since lowering the overnight rate in December, the central bank has been buying commercial paper and corporate bonds from lenders to funnel cash to companies. It has also offered to provide banks with limitless credit in exchange for eligible collateral. Economists surveyed by Bloomberg expect the key rate to stay unchanged at least through 2010.

‘Safety Valve’

Some board members said the commercial paper purchases acted as a “safety valve” for corporate funding even though bids by lenders to sell such debt failed to reach the amounts offered by the central bank in recent months. One policy maker said ending the purchases as scheduled in September would have a “considerable negative impact on market sentiment.”

Members agreed they should take into account that funding conditions have improved when they judge whether to extend the credit programs into 2010. Companies with high debt ratings are finding it easier to sell debt, while lower-rated businesses are still struggling to obtain credit, they said.

Federal Reserve policy makers this week extended by a month the scheduled end to a $300 billion program to buy U.S. Treasuries, signaling that they will avoid any rush to end their unprecedented efforts to promote lending and support an economic recovery. The Bank of England this month expanded its asset-purchase plan beyond the previous limit, saying the U.K.’s recession has been deeper than officials anticipated.

GDP Report

Japan’s gross domestic product grew an annualized 3.9 percent in the quarter ended June 30, following a record drop of 14.2 percent in the previous three months, according to the median estimate of 22 analysts surveyed before the report due Aug. 17.

Confidence in the Japanese and global economies climbed to a 22-month high in August, according to a survey of Bloomberg users published this week.

More than $2 trillion in emergency spending by governments worldwide has buoyed sales for Japanese makers of cars and electronics. Even so, economists say any recovery is likely to be weak because deflation will persist and shrinking profits will force companies to cut spending and shed workers.

“Japan’s economy is currently riding on a minor upward trend, but we expect it will start losing momentum later this year,” said Yasunari Ueno, chief market economist at Mizuho Securities Co. in Tokyo.

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

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U.S. Factory Output Likely Rose in July as Auto Plants Reopened

By Bob Willis

Aug. 14 (Bloomberg) -- U.S. industrial production probably rose for the first time in nine months after mid-year retooling at automakers and as a federal “cash-for-clunkers” program spurred demand for cars, economists said before reports today.

Output at manufacturers, mines and utilities climbed 0.4 percent, erasing the previous month’s decline, according to the median forecast in a Bloomberg News survey ahead of today’s report from the Federal Reserve. Other data may show the cost of living was unchanged in July while consumer confidence rose this month.

General Motors Co. and Chrysler Group LLC, the two U.S. automakers that emerged from bankruptcy, reopened plants and benefited from cash incentives to buy fuel-efficient cars. A record-breaking drawdown in inventories in the first half of 2009 has set the stage for a ramp-up in output that will help pull the economy out of the worst recession since the 1930s.

“The reason for the big spike is mostly the revival of GM and Chrysler from shutdowns, and recovery from inventory adjustment” at other factories, Mike Montgomery, a U.S. economist at IHS Global Insight in Lexington, Massachusetts, said before the report. “July is probably the start of the manufacturing recovery.”

The Fed’s production figures are due at 9:15 a.m. in Washington. Estimates from the 71 economists surveyed ranged from a decline of 0.2 percent to an increase of 2.5 percent. The projected gain would be the first since October, the month after Lehman Brothers Holdings Inc. collapsed, accelerating a meltdown in markets that rippled through the global economy.

Auto Restructuring

GM emerged from 39 days of restructuring on July 10 as a leaner company majority-owned by the U.S. government. Chrysler left court protection on June 10 under an alliance with Italy’s Fiat SpA. The Treasury Department helped bankroll the reorganizations, with $65 billion for Detroit-based GM and $12 billion for Auburn Hills, Michigan-based Chrysler.

They are joining other carmakers such as South Korea’s Hyundai Motor Co. in renewing output after slashing stockpiles. Automakers added 28,200 workers in July, the biggest 1-month gain in more than a decade, the Labor Department said last week.

Industry data showed sales of cars and light trucks rose to an 11.2 million unit annual pace in July, the highest since September, after the Obama administration offered credits of as much as $4,500 to trade in gas-guzzlers for more fuel-efficient vehicles.

‘Booster Shot’

The jump in sales may prompt further gains in production this month. GM will look at introducing third shifts, paying overtime and reopening more closed plants as a result of the incentives, Mike DiGiovanni, a sales analyst for the company, said last week in a Bloomberg Television interview.

“We are looking at the cash-for-clunkers as a booster shot to get us through the fragile economic recovery,” he said.

Higher consumer confidence also would give factories a reason to produce. The Reuters/University of Michigan preliminary survey on consumer sentiment for this month may show at about 10 a.m. that confidence rose to 69 from 66 at the end of July, according to the survey median.

The Standard & Poor’s 500 Index has soared 50 percent from its 12-year low on March 9, on forecasts that the economic contraction is slowing. It closed up 0.7 percent yesterday at 1,012.73 in New York.

Capacity Use

The industrial production report may show capacity utilization, or the proportion of plants in use, rose to 68.3 percent from a record low of 68 percent reached the month before, according to the survey.

Economists track plant operating rates to gauge factories’ ability to produce goods with existing resources. Lower rates reduce the risk of bottlenecks that can force prices higher.

At 8:30 a.m., Labor Department figures may show the consumer-price index was unchanged last month after gaining 0.7 percent in June. So-called core prices, which exclude food and fuel, probably increased 0.1 percent after gaining 0.2 percent, the survey showed.

Prices likely fell from the same time last year by the most in six decades, reinforcing projections that inflation will be contained. A report yesterday from Labor showed prices of imported goods dropped in July as the cost of commodities such as petroleum and chemicals decreased.

“Substantial resource slack is likely to dampen cost pressures,” Fed policy makers said Aug. 12 at the end of a two-day meeting in Washington as they kept interest rates unchanged near zero. Fed officials said the central bank’s monetary policy committee “expects that inflation will remain subdued for some time.”

                        Bloomberg Survey

===============================================================
                              CPI     Core     Ind. U of Mich
                                       CPI    Prod.    Conf.
                             MOM%     MOM%     MOM%    Index
===============================================================

Date of Release              08/14    08/14    08/14    08/14
Observation Period            July     July     July   Aug. P
---------------------------------------------------------------
Median                        0.0%     0.1%     0.4%     69.0
Average                       0.0%     0.1%     0.5%     68.9
High Forecast                 0.3%     0.2%     2.5%     75.0
Low Forecast                 -0.3%    -0.1%    -0.2%     64.0
Number of Participants          76       75       71       61
Previous                      0.7%     0.2%    -0.4%     66.0
---------------------------------------------------------------
4CAST Ltd.                    0.0%     0.1%     0.2%     69.5
Action Economics              0.1%     0.2%     1.8%     68.0
AIG Investments              -0.2%     0.0%     0.8%     68.0
Ameriprise Financial Inc     -0.1%     0.2%     0.4%     69.0
Argus Research Corp.          0.3%     0.2%    -0.1%     70.0
Banesto                       ---      ---      0.0%     67.9
Bank of Tokyo- Mitsubishi     0.3%     0.2%     0.0%     64.6
Bantleon Bank AG              0.0%     0.2%     0.1%     69.0
Barclays Capital              0.1%     0.1%     1.5%     69.0
BBVA                         -0.1%     0.2%    -0.1%     68.4
BMO Capital Markets          -0.1%     0.0%     0.4%     69.0
BNP Paribas                   0.0%     0.1%     0.3%     69.0
Briefing.com                  0.0%     0.1%     0.5%     70.0
C I T I C Securities          0.1%     ---      ---      68.0
Calyon                        0.0%     0.2%     1.2%     68.0
Capital Economics            -0.1%     0.1%     1.0%     68.0
CIBC World Markets            0.1%     0.2%     0.6%     68.0
Citi                         -0.1%     0.1%     ---      ---
ClearView Economics           0.1%     0.1%     0.0%     ---
Commerzbank AG                0.0%     0.1%     2.5%     70.0
Credit Suisse                 0.0%     0.1%     1.6%     70.0
Daiwa Securities America      0.0%     0.2%     1.0%     68.5
Danske Bank                   0.3%     0.2%    -0.2%     72.0
DekaBank                      0.1%     0.2%     0.3%     70.0
Desjardins Group             -0.1%     0.2%     0.3%     67.0
Deutsche Bank Securities      0.0%     0.2%     0.4%     75.0
Deutsche Postbank AG         -0.1%     0.1%     0.2%     ---
DZ Bank                       0.1%     0.2%     0.5%     70.0
Exane                         0.1%     0.0%     1.0%     64.0
First Trust Advisors          0.1%     0.2%     1.2%     70.0
Fortis                        0.1%     0.2%     0.0%     ---
FTN Financial                 0.1%     0.0%     0.2%     70.0
Goldman, Sachs & Co.          0.0%     0.1%     0.3%     ---
Helaba                        0.0%     0.1%     0.2%     68.0
Herrmann Forecasting         -0.1%     0.0%     0.6%     69.0
High Frequency Economics      0.0%     0.1%     0.4%     68.0
HSBC Markets                  0.1%     0.1%     0.3%     69.0
IDEAglobal                   -0.1%     0.1%     0.5%     68.0
IHS Global Insight            0.1%     0.2%     0.8%     70.0
Informa Global Markets        0.0%     0.1%     0.5%     67.0
ING Financial Markets         0.2%     0.2%     0.3%     69.0
Insight Economics            -0.2%     0.1%     0.5%     68.0
Intesa-SanPaulo              -0.3%     0.1%     0.2%     66.0
J.P. Morgan Chase             0.1%     0.1%     1.5%     68.0
Janney Montgomery Scott L    -0.3%     0.0%     0.2%     ---
Landesbank Berlin             0.1%     0.0%     0.3%     64.0
Maria Fiorini Ramirez Inc     0.0%     0.1%     ---      ---
Merrill Lynch/BAS             0.0%     0.0%     0.8%     72.0
MFC Global Investment Man     0.0%     0.2%     0.5%     69.0
Moody’s Economy.com           0.0%     0.1%     1.5%     68.5
Morgan Keegan & Co.           0.0%     0.1%     0.2%     ---
Morgan Stanley & Co.          0.0%     0.1%     0.7%     ---
National Bank Financial      -0.1%     0.2%     ---      68.0
Natixis                      -0.1%     0.1%     ---      ---
Newedge                       0.1%     0.2%     0.2%     ---
Nomura Securities Intl.       0.0%     0.2%     0.6%     ---
Nord/LB                       0.2%     0.2%     0.0%     70.0
PNC Bank                      0.1%     0.2%     1.0%     ---
Raymond James                 0.0%     0.1%     0.1%     68.2
RBC Capital Markets           0.1%     0.2%     1.0%     67.0
RBS Securities Inc.          -0.1%     0.0%     0.3%     69.0
Ried, Thunberg & Co.          0.0%     0.2%     1.2%     70.0
Schneider Foreign Exchang     0.2%     0.2%     ---      74.2
Scotia Capital                0.0%     0.2%     0.4%     ---
Societe Generale              0.2%     0.1%     0.1%     68.0
Stone & McCarthy Research    -0.1%     0.1%     0.0%     70.0
TD Securities                 0.2%     0.2%     0.5%     70.0
Thomson Reuters/IFR          -0.2%     0.0%     0.1%     71.0
UBS Securities LLC            0.0%     0.1%     0.7%     71.0
UniCredit Research            0.0%     0.1%     2.0%     71.0
Union Investment              0.2%     0.1%     0.1%     ---
University of Maryland        0.1%     0.2%    -0.1%     68.0
Wells Fargo & Co.            -0.2%     0.1%     0.1%     ---
WestLB AG                     0.0%     0.1%    -0.1%     68.0
Westpac Banking Co.          -0.1%    -0.1%     0.5%     70.0
Woodley Park Research         0.1%     0.2%     0.1%     68.5
Wrightson Associates          0.0%     0.2%     1.2%     70.0
===============================================================

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

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Stevens Says RBA May Raise Rate From Emergency Level

By Jacob Greber

Aug. 14 (Bloomberg) -- The Reserve Bank of Australia will have to raise the benchmark interest rate from its “emergency” level at some stage as the economy rebounds from the global recession, bank Governor Glenn Stevens said.

“There will come a time when the exceptional monetary stimulus in place at present will no longer be needed,” Stevens said in his half-yearly testimony to parliament’s economics committee in Sydney today. “It will then be appropriate for the board to do what it has done on past such occasions, namely to start adjusting interest rates back towards normal levels.”

The Australian dollar and bond yields jumped on mounting speculation the central bank may increase borrowing costs before the end of the year. A more normal level for the overnight cash rate target is “a good deal north” of the current 49-year low of 3 percent, Stevens said today.

“The bank is clearly going to hike rates soon -- year end is the most likely time,” said Adam Carr, an economist at ICAP Australia Ltd. in Sydney. Stevens points out that “the economy is more resilient than most thought it would be, global growth is leveling out and financial markets have stabilized,” he said.

The economy grew 0.4 percent in the first quarter, rebounding from its first contraction in eight years in the previous three months, as lower borrowing costs and government spending stoked domestic demand. Stevens said today it appears that gross domestic product also expanded in the second quarter.

Currency Climbs

Australia’s currency advanced to 84.65 U.S. cents at 11:20 a.m. in Sydney from 84.17 cents before the governor’s testimony began. The two-year government bond yield rose 8 basis points to 4.53 percent.

Traders have a more than 90 percent expectation that the central bank will raise the benchmark rate by half a percentage point before the end of 2009, according to interbank futures on the Sydney Futures Exchange as of 11:36 a.m. local time. A month ago, the futures implied the rate would remain unchanged.

“What we’ve got is an emergency setting” for the benchmark rate that was “put in place in anticipation that the economy would be seriously weak,” Stevens said. “As the set of risks that we think you face start to shift, at some point you have to move away from the emergency setting.”

Last week, the central bank scrapped its forecast for the economy to contract this year, instead predicting GDP will expand 0.5 percent. The bank expects growth to accelerate to 2.25 percent in 2010 and 3.75 percent in 2011.

Shallow Slowdown

“On the basis of the information to hand at present, this may well turn out to be one of the shallower recessions Australia has experienced,” Stevens said. Low interest rates risked stoking economic imbalances, he added.

The Reserve Bank board slashed the overnight cash rate target by 4.25 percentage points between September and April. As well, the government distributed A$12 billion ($10.2 billion) to households and pledged to spend A$22 billion on roads, ports, railways, schools and hospitals.

Stevens didn’t provide a timeframe for when the central bank may begin raising rates.

“It’ll be the right thing to start removing it before it’s excessive,” Stevens said in response to questions. Policy makers will remove monetary policy stimulus “in a timely fashion and when the time is right,” he added.

“The emphasis on removing the ‘emergency’ setting of the cash rate was emphasized and re-emphasized” by Stevens, said Annette Beacher, an economist at TD Securities Ltd. in Singapore.

“While coy about timing, there is no doubt that at this point the governor is looking to withdraw the extraordinary stimulus in the economy.”

Stevens declined to identify what policy makers regard as a so-called normal or neutral policy setting, though he said the benchmark rate has averaged in the 5 percent range for the last 20 years, which he characterized as the “low inflation world.”

He added that a more normal level for the key rate is “a good deal north of what the cash rate is now” and borrowing costs could go “noticeably” higher.

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

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Germany, France Put Europe on Course For Recovery

By Matthew Brockett

Aug. 14 (Bloomberg) -- Germany and France are hauling Europe out of its worst recession since World War II, aiding a global economic recovery.

The euro region’s two largest economies, among the nations labeled “Old Europe” by former U.S. Defense Secretary Donald Rumsfeld in 2003, unexpectedly returned to growth in the second quarter. That cut the drop in the 16-nation bloc’s gross domestic product to just 0.1 percent, helping it outperform the U.S. and the U.K.

“It’s France and Germany that are pushing things up,” said Erik Nielsen, London-based chief European economist at Goldman Sachs Group Inc., which now predicts euro-region growth of 0.5 percent in the third quarter instead of stagnation. “But the recovery is still fragile, and it will be at least a year before the European Central Bank raises interest rates.”

Global stimulus measures to battle the deepest slump since the Great Depression have boosted demand for European exports, and government packages are supporting spending at home. The danger is that the rebound will run out of steam as those policies expire.

“These are short-term positive signs, but the French and the Germans have thrown a lot at it,” former Bank of England policy maker David Blanchflower said yesterday in a Bloomberg Television interview. “They’ve got the cash-for-clunkers program and subsidies in the labor market. My view is: early days. One quarter doesn’t make a trend.”

Cash for Clunkers

Government and household spending were among the main drivers of second-quarter growth in Germany and France. German Chancellor Angela Merkel, who faces national elections next month, has committed 85 billion euros ($121 billion) to revive the economy. French President Nicolas Sarkozy’s stimulus package is worth about 30 billion euros.

Both countries have turned to vehicle-scrapping subsidies as one way of encouraging consumers to spend. Germany offers a 2,500-euro payment to people who junk old cars to buy a new one, while France offers 1,000 euros. The subsidies are due to be withdrawn at the end of this year.

“As the schemes expire, households will have to face up to high and rising unemployment and weak earnings,” said Colin Ellis, an economist at Daiwa Securities in London. “We still think that the euro area will fall back into its old habits, with exports having to take up the mantle of growth again.”

Fewer Jobs

The euro area’s jobless rate of 9.4 percent is the highest since 1999. The region’s potential growth rate may slide to 1.3 percent from 2 percent, UniCredit Group estimates. The rate at which the U.S. can grow without inflation may drop to 2.5 percent from about 3.25 percent, the bank says.

There are signs that Europe’s exports are picking up. German sales abroad gained 7 percent in June and French exports rose 1 percent in the second quarter.

The German and France economies both expanded 0.3 percent in the three months through June after four consecutive quarters of contraction. Almost all forecasters in Bloomberg News surveys had predicted GDP would decline.

By comparison, the U.S. economy shrank 0.3 percent in the second quarter from the first three months of the year and British GDP dropped 0.8 percent. Japan will report second- quarter figures on Aug. 17.

Not all euro-area countries are growing. Italy’s economy contracted 0.5 percent in the second quarter, Dutch GDP declined 0.9 percent, and Spain is also forecast to post a 0.9 percent drop today, according to the median forecast of 12 economists in a Bloomberg News survey. That report is due at 9 a.m. in Madrid.

Exit Strategy

“In 2003, Germany was the sick man of Europe; now it’s Italy and Spain,” said Joerg Kraemer, chief economist at Commerzbank AG in Frankfurt. “Structural imbalances are not resolved, but growth will return earlier than expected.”

While signs of a global recovery have prompted speculation about central banks’ exit strategies, the ECB is showing little willingness to depart from its current policy of offering banks unlimited cash and keeping its benchmark interest rate at a record low of 1 percent.

ECB President Jean-Claude Trichet said last week officials “never pre-commit in any respect on the timing of various measures” after the bank started buying covered bonds to boost the flow of credit. Federal Reserve policy makers on Aug. 12 signaled they will avoid any rush to end their own efforts to strengthen a U.S. recovery.

The euro region’s surprise upturn will require most economists to raise forecasts for Europe. Goldman said it now expects the economy to shrink 3.8 percent in 2009 instead of 4.4 percent. The bank lifted its 2010 growth forecast to 1.2 percent from 0.7 percent.

“Germany and France have surprised massively,” said Sunil Kapadia, an economist at UBS AG in London. “We’re a bit wary of how sustainable this growth is, but we think an export recovery is quite likely and we think this will continue into 2010.”

----With assistance from Brian Swint in London and Frances Robinson, Simone Meier, Christian Vits and Jana Randow in Frankfurt. Editors: John Fraher, Reed Landberg

To contact the reporter on this story: Matthew Brockett in Frankfurt at mbrockett1@bloomberg.net.

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Spanish Economy Contracted More Than Forecast in Second Quarter

By Emma Ross-Thomas

Aug. 14 (Bloomberg) -- Spain’s economy contracted more than forecast in the second quarter, suggesting a recovery in Germany and France has yet to reach a country that was once an engine of growth for the euro region.

Gross domestic product declined 1.0 percent from the previous quarter, when it shrank 1.9 percent, the Madrid-based National Statistics Institute said in an e-mailed statement today. From a year earlier, it contracted 4.1 percent. The Bank of Spain estimated on July 30 that the economy contracted 0.9 percent in the second quarter and 4 percent from a year earlier.

Spain’s recovery is lagging behind that of other European countries as data yesterday showed the German and French economies both resumed expansion in the second quarter. Battling the highest unemployment rate in Europe at 18 percent, Spain has pumped money into the economy and is putting builders to work on public projects across the country.

“In the third quarter, you may get another contraction and after that some ups and downs, or flat readings,” said Dominic Bryant, an economist at BNP Paribas in London. “I just don’t think the recovery will gain any traction.”

Even as the government plans to inject 2.3 percent of GDP into the economy this year and further stimulus in 2010, Spain’s economy will continue to contract next year, the Organization for Economic Cooperation and Development forecast on June 24. It projects the Spanish economy will contract 4.2 percent this year and 0.9 percent in 2010, which would make it the worst performer of the 30 OECD nations after Hungary and Ireland.

Boom to Bust

As well as the global crisis, Spain is suffering from the collapse of a debt-fueled construction boom that has left around 1 million newly built homes unsold. Unemployment has doubled in two years, with construction workers leading the job losses, and Spain accounts for about half of the euro region’s increase in unemployed in the last year, according to Eurostat, the European Union’s statistics office.

International companies have cited Spanish business as a weak spot. Coca-Cola Co. said on July 21 that it saw weakness in Spain due to “significant macroeconomic challenges,” and Vodafone Group Plc said in May it had an impairment charge of 5.9 billion pounds ($9.7 billion), most of it related to Spain.

The economic slump has had a political cost as the ruling Socialist Party now trails the opposition in popular support, a poll by the state-run Center for Sociological Research showed on July 27.

To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net

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Japan’s Service Demand Unexpectedly Rises on Stimulus

By Aki Ito

Aug. 14 (Bloomberg) -- Japan’s demand for services rose unexpectedly in June as government stimulus measures spurred consumer spending, another sign that the economy is emerging from a recession.

The tertiary index, which captures 63 percent of the economy, climbed 0.1 percent from May, when it slid a revised 0.3 percent, the Trade Ministry said today in Tokyo. The median estimate of surveyed was for a 0.3 percent drop.

Prime Minister Taro Aso’s 25 trillion yen ($262 billion) stimulus has helped counter Japan’s deepest postwar recession by providing people with cash handouts and incentives to buy energy-efficient cars and electronics. Worsening job prospects and falling wages make it unlikely consumers will lead a recovery once the government spending runs out.

“The improvement in consumer spending was largely bolstered by the government’s stimulus measures,” said Yoshiki Shinke, a senior economist at Dai-ichi Life Research Institute in Tokyo. “It’s unclear whether consumers will continue spending after the measures are withdrawn.”

A separate report today showed Bank of Japan policy makers are cautious about the outlook. Some members said last month emergency credit programs may need to be extended into 2010, according to minutes from a July 14-15 meeting published today. The central bank extended measures to buy corporate debt from lenders for three months until Dec. 31 at the gathering.

Nikkei Climbs

The Nikkei 225 Stock Average rose 0.9 percent to 10,612.92 at 10:42 a.m. in Tokyo. The gauge has climbed 49 percent since touching a 26-year low on March 10.

Business at service providers is growing. Fast Retailing Co. reported sales at its Uniqlo stores rose 6.4 percent in June. Softbank Corp., Japan’s third-largest mobile-phone company, said profit rose 41 percent last quarter amid subscriber growth.

The stimulus package and a rebound in stock prices drove consumer confidence to a 20-month high in July, the Cabinet Office said this week. An increase in stock transactions and higher demand for engineering services related to public-works projects led the gains in the tertiary index, the report showed.

A rebound in exports and production probably helped the economy expand for the first time in a year last quarter. Gross domestic product rose at a 3.9 percent annual pace in the three months ended June after contracting a record 14.2 percent in the first quarter, analysts expect a report will show Aug. 17.

Remains Sluggish

The Bank of Japan said this week that while shipments abroad and factory output are improving, domestic demand remains sluggish and the outlook for a recovery is uncertain.

Wages fell at a record pace of 7.1 percent in June, and the jobless rate reached a six-year high of 5.4 percent. Economists expect the jobless rate to climb to an unprecedented 5.9 percent by next year, according to a Bloomberg News survey.

“For a strong recovery, we need to see improvements in the jobless rate and wages,” Shinke said. “We probably won’t see that until the end of 2010.”

To contact the reporter on this story: Aki Ito in Tokyo at aito16@bloomberg.net

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Euro Reversal to Mark Risk Aversion Return: Technical Analysis

By Candice Zachariahs

Aug. 14 (Bloomberg) -- The euro may fall towards 130.85 yen with a close below 135.34 signaling a “bearish trend reversal” and the return of higher levels of risk aversion across equity, commodity and currency markets, RBC Capital Markets said.

The euro is testing the base of an ascending channel with daily momentum charts showing a “double top in overbought territory,” George Davis, chief technical analyst for fixed- income and currency strategy in Toronto at the unit of Canada’s biggest lender, wrote in a note to clients yesterday.

“A daily close below 135.34 would produce a bearish trend reversal that would have significant cross-asset implications,” Davies said. That “would push risk aversion levels higher and project additional losses toward support at 132.81, followed by 130.85.”

The euro slipped 0.2 percent to 136.14 yen from 136.46 yen as of 8:29 a.m. in Tokyo. It declined 0.1 percent to $1.4283.

The Dollar Index, which the ICE uses to track the dollar against currencies of six major U.S. trading partners, has formed a double bottom near 77.69, Davies wrote. A gauge of commodity prices is charting a double top in the 269.18 area, he said.

The euro will have to close above 139.14 yen to “to generate new upward price momentum that is required to sustain the recent rally in stock and commodity markets.”

A double top is made up of two consecutive peaks that are approximately equal, with a moderate trough in between, and can be used as a sell signal. A double bottom is made up of two consecutive troughs and may indicate a rebound.

In technical analysis, investors and analysts study charts of trading patterns and prices to forecast price changes in a security, commodity, currency or index.

To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

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