No Break From USD Selling - EUR And Gold Surge

Daily Forex Fundamentals | Written by AC-Markets | Sep 17 09 10:53 GMT |

News and Events: The USD sank to new lows on broad based selling, as participants ponder whether the Fed is really concerned about potential inflationary pressure of QE and actually moving toward an exit strategy. In addition, risk appetite remains high and risk correlated trades are gaining across the board, many making yearly highs. The EURUSD traded up to 1.4755, while the AUDUSD traded up to 0.8772. Considering the wide spread, the USD selling the reaction in USDJPY has been muted, with the pair stuck in a mild 90.0- 91.80 range. Asian region indexes are currently trading higher across the board, with Shanghai leading gainers up 1.96%. Precious metals continued to rip through resistances, with spot Silver and spot Gold peaking at $17.65 and $1024.25, respectively. At this point, pressure is mounting on the greenback from all sides and we don't see the selling abating any time soon. The BoJ left policy rates unchanged overnight, as was universally expected. However, the tone regarding economic prospects was slightly more optimistic. But markets are not too concerned over the BoJ 's stagnate monetary policy, but more interested in the incoming DPJ remarks on intervention and the JPY. So far, we have not gotten much insight, just random comments. The general sell-off of the USD has been distorting the historically positive correlation between USDJPY and SPX. We still believe the JPY is overbought and still remains a risk trade. When the USD stabilizes, then JPY will be next to come under significant selling pressure. In Switzerland, the SNB will be meeting today. We are inline with consensus and expected no change in interest rates. However, while the CHF is trading at the SNB implicit ceiling against the EUR , the recent strength against the USD might come under question. We would not be completely surprised if the Central Bank renewed its focus on exchange rates. While domestic data has improved, including yesterday's ZEW whopper, and global recovery well underway, deflation fears still linger and there is a clear understanding that backing away from their current stance will lead to substantial CHF gains. Currently, EURCHF is trading around horizontal resistance located at 1.5193 as traders unwind long CHF positions due to event risk. The sterling was able to shrug off Governor King's statement about the likelihood of lowering the rate paid on banks' reserves for most of Asian trading. However, when UK retail sales failed to reach market expectations printing at 0.0 vs. 0.1% m/m (2.1 vs. 2.7% exp y/y) sellers jumped in, trading the GBPUSD down to the 1.6500 handle. In the US, data should continue to surprise to the upside (House Starts, Build Permits, Continuing Claims and Philly Fed) to the detriment of the USD. In Canada, the CPI will be released and markets are expecting it to remain weak. The data will be less important than the fact that traders will be watching CAD. Markets have been jittery around the CAD since BoC continues to warn against elevated CAD levels. Just yesterday, BoC Deputy Governor Murray stated that a strong CAD is a 'headwind' that threatens economic recovery. With USDCAD trading to yearly lows (breaking key horizontal support at 1.0630) we expect verbal intervention to begin in earnest now. Today Key Issues: 08:30 GBP Retail sales, % m/m (y/y) Aug 0.1 (2.6) exp 09:00 EUR Trade balance, € bn (sa) Jul 0.3 1.1 1.0 4.0 1.2 11:00 GBP CBI industrial trends, total orders, net bal Sep -50 exp, -54 prior 11:00 CAD CPI, %y/y Aug 0.1 -0.6 exp, -0.6 exp, 0.9 prior 11:00 CAD Bank of Canada core CPI, %y/y Aug 1.6 exp, 1.8 prior 12:00 CHF SNB Interest rate announcement, % Q3 0.0 - 0.75 exp/prior 12:30 EUR ECB non-policy meeting 12:30 USD Initial jobless claims, thous (4wk ma) 12-Sep 561 (565) exp 12:30 USD Housing starts, thous Aug 594 exp, 581 prior 14:00 USD Philadelphia Fed mfg index Sep 8.0 exp, 4.2 prior 16:00 USD Flow of Funds accounts Q2 The Risk Today: EurUsd Well well well. EUR USD continues to ramp higher on the 'carry trade theme' and a continuation of risk appetite in the equities markets. Looking at the 4 hour chart, we can see that while the Euro is moving higher, the RSI on the pair is going in completely the other direction..... not particularly confidence inspiring for those looking to get into a long trade as RSI divergence of this magnitude usually equals upcoming weakness. Furthermore, while the world's journalists continue to bang the tables about the USD carry trade, one can easily argue that the smart money behind the theme is already in, precisely why the pair has moved 6 big figures since it touched the 10 month uptrend only 2 weeks ago. GbpUsd While on the carry trade theme, sterling has just added another feather to the bow of weakness. If risk appetite subsides, sterling should get hit. If risk appetite increases, sterling should still get hit because of the carry trade. Doesnt leave much hope for the cable bulls. Only a break above 1.6750 would put the current head and shoulders formation in jeopardy. UsdJpy The 6 week downtrend continues to dominate for the pair. With some support found at 90.20 and positive RSI divergence there is a chance that we see a pop up to the upper downtrend and resistance at 91.80 where one would expect to see short sellers coming back for more. Keep a close eye on the 4 hourly RSI to see if ti breaks its uptrend over the next 24 hours as this can give an early indication to whether we see a break of 90.20 or not. UsdChf We mentioned a few days back that sicne the descending triangle breakdown, there is a very clear trend channel on USD CHF 15 minute chart that can be traded very easily. This point remains firm with shorts expected on the upper trendline and resistance in the 1.0340 / 50 area with 1.0260 as the next support in the pair's continued march towards the text book target of 1.0050. Bear in mind that text book targets are applicable only in a perfect world so it is more likely that the pair will find major support at 1.0150. EURUSD GBPUSD USDJPY USDCHF 1.4910 1.6745 93.30 1.0700 1.4860 1.6700 92.30 1.0550 1.4800 1.6660 91.80 1.0452 1.4737 1.6538 90.70 1.0314 1.4640 1.6445 90.10 1.0220 1.4560 1.6425 89.90 1.0175 1.4520 1.6365 89.20 1.0135 S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot ACM FOREX Disclaimer: This report has been prepared by AC Markets (thereof ACM) and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by Salesperson or Traders of ACM at any given time. ACM is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment.

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Currency Pair Daily Forecasts

Daily Forex Technicals | Written by Finotec Group | Sep 17 09 09:11 GMT |

EUR/USD Daily Technical Reports EUR/USD-market strategy can be a buy from the level 1.4691$ Technical oscillators supporting the bullish trend for the currency pair To strengthen our analysis; we use many other indicators, starting with MACD (Moving Averages convergence divergence); we notice the MACD lines in a bullish direction and crossing above the zero line. In order to find the power of the market, we use RSI (Relative Strength Index).With RSI; we can determine that the market is in a bullish direction. Also, MA oscillators indicate a bullish cross on the short MA line USD/JPY Daily Technical Reports USD/JPY-market strategy can be a sell form the level 91.13 Technical oscillators supporting the bearish trend for the currency pair To strengthen our analysis; we use many other indicators, starting with MACD (Moving Averages convergence divergence); we notice the MACD in a bearish direction below the zero line. In order to find the power of the market, we use RSI (Relative Strength Index).With RSI; we can determine that the market is in a bearish direction. Also, MA oscillators indicate a bearish cross on the short MA line. GBP/USD Daily Technical Reports GBP/USD-market strategy can be a buy from the level 1.6476$ Technical oscillators supporting the bullish trend for the currency pair To strengthen our analysis; we use many other indicators, starting with MACD (Moving Averages convergence divergence); we notice the MACD lines are in a bullish direction. In order to find the power of the market, we use RSI (Relative Strength Index).With RSI; we can determine that the market is in a bullish direction. Also, MA oscillators indicate a bullish cross on the short MA line. USD/CHF Daily Technical Reports USD/CHF-market strategy can be a sell from the level 1.0343 Technical oscillators supporting the bearish trend for the currency pair To strengthen our analysis; we use many other indicators, starting with MACD (Moving Averages convergence divergence); we notice the MACD lines in a bearish direction below the zero line. In order to find the power of the market, we use RSI (Relative Strength Index).With RSI; we can determine that the market is in a bearish direction. Also, MA oscillators indicate a bearish cross on the short MA line Finotec Group Inc. http://www.finotec.com/ Disclaimer: FINOTEC Tradings Market Commentaries are provided for informational purposes only. The information contained within these reports is gathered from reputable news sources and not intended as investment advice. FINOTEC Trading assumes no responsibility or liability from gains or losses incurred by the information herein.

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Greek Deficit to Widen to Twice EU Limit, Papathanasiou Says

By Maria Petrakis

Sept. 17 (Bloomberg) -- Greece’s budget deficit will reach twice the European Union limit this year, prompting the ruling New Democracy government to propose spending cuts and wage freezes that are hurting its popularity weeks before elections.

The economy will contract this year for the first time since 1993, and shrinking revenue will boost the deficit to 6 percent of gross domestic product, Economy and Finance Minister Ioannis Papathanasiou said in e-mailed responses to questions. That tops a previous forecast of 3.7 percent and depends on the success of one-off measures like taxing yacht owners, he said.

Prime Minister Kostas Karamanlis on Sept. 2 called elections two years early, saying he needed a new mandate to tackle mounting economic problems. He’s trailing in opinion polls by as much as 8 percentage points after pledging to freeze public-sector wages, pensions and hiring to trim the deficit. Opposition leader George Papandreou has promised more spending and higher wages to boost consumption and growth.

“Our income policy is clearly within the framework of curbing state spending,” Papathanasiou said. The government will also maintain its commitment to lower tax rates for businesses and individuals to increase competitiveness and growth, he said.

Tax Evasion

With the global recession hurting shipping and tourism, the country’s biggest industries, and unemployment rising, the government can’t count on additional revenue. Papathanasiou plans to tame spending and crack down on tax evasion to convince the EU that Greece is serious about deficit control. Greece risks sanctions by the European Commission if can’t meet a 2010 deadline to trim the deficit to within the EU’s 3 percent limit.

“Of course we will request an extension,” Papathanasiou said. “We have to be convincing that we deserve one.”

Offering voters spending cuts and wage freezes has done little to help New Democracy in opinion polls since calling the elections. The party has trailed the socialist Pasok party for more than a year but the gap has widened this month and for the first time some polls indicate Pasok could win a majority in the 300-seat parliament in the Oct. 4 vote.

New Democracy’s chances have been hurt by Greece’s stumbling economy, until last year one of the fastest growing in the European Union. GDP will see a “small contraction” this year, Papathanasiou said, revising his earlier estimates of zero growth. His latest forecast incorporates data from the summer tourism period, he said.

Debt Growing

With Europe’s second-biggest debt load after Italy and a swelling deficit, the government has had little to spend on stimulus measures to try to buffer the effect of the global slowdown. Total net borrowing was 52.5 billion euros ($77.1 billion) at the end of September, the equivalent of more than 20 percent of GDP. The country will sell another 3.5 billion euros of Treasury bills next month to cover maturing debt, he said. He wouldn’t give a target for 2010 debt sales.

“Although the situation in financial markets has improved recently, compared with the first quarter of 2009, conditions continue to be volatile,” he said. “It would be irresponsible for anyone to hazard an accurate estimate for developments in 2010. The 2010 borrowing program will have to have the necessary flexibility for us to deal with any market conditions.”

With the larger European economies and the U.S. emerging from recession, the prospects for the Greek economy “are more positive,” and the recovery will be sustained by low interest rates, he said.

Papathanasiou said he believed the European Central Bank will keep rates “at present levels for some time, given there is no inflationary pressure.” He said he didn’t see a danger of a “two-speed” recovery in the 16-nation bloc but that “the rate of growth in the Greek economy will increase at least as much as the euro-zone average.”

To contact the reporter on this story: Maria Petrakis in Athens at mpetrakis@bloomberg.net.

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Europe’s Trade Surplus Increases as Exports Rise 4.1%

By Emma Ross-Thomas

Sept. 17 (Bloomberg) -- Europe posted a trade surplus for a fourth month in July as exports increased, adding to signs the region’s economy is starting to emerge from the recession.

Exports from the 16-nation euro area rose a seasonally adjusted 4.1 percent from June, when they gained 0.9 percent, the European Union’s statistics office in Luxembourg said today. July imports fell 0.3 percent after rising 0.2 percent in June. The trade surplus rose to 6.8 billion euros ($10 billion), the largest since 2004, from 2.3 billion euros in June. Construction output fell 2 percent in July, a separate report showed.

As evidence mounts that the global economy is recovering from the worst recession in 60 years, Germany and France returned to growth in the second quarter and euro-area gross domestic product fell just 0.1 percent after plunging 2.5 percent in the previous three months. Germany, the euro region’s biggest economy, relies on foreign sales for growth.

The euro edged higher against the dollar after the data were released. The European currency traded at $1.4737 at 10:27 a.m. in London, up 0.2 percent on the day.

Exports to the U.K., the largest market for euro-area goods, declined 27 percent in the first six months of 2009 from a year earlier, while shipments to China fell 5 percent. Sales to the U.S., the world’s biggest economy, dropped 21 percent, according to today’s report.

‘Exceptionally Low’

Federal Reserve Chairman Ben S. Bernanke said on Sept. 15 the worst U.S. recession since the 1930s has probably ended. The central bank has kept the benchmark lending rate as low as zero since December and in August said “exceptionally low” rates are likely warranted for “an extended period.”

Leaders of the Group of 20 nations next week will pledge to keep economic stimulus policies in place until a recovery is certain, President Barack Obama’s G-20 liaison said. The U.S. also will seek to phase out fossil-fuel subsidies and agree on how to rein in bankers’ bonuses, Michael Froman, a deputy assistant to Obama, said in an interview yesterday.

The European Central Bank has cut its key rate to a record low of 1 percent and started buying as much as 60 billion euros of covered bonds to stimulate bank lending and boost investments and consumption.

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

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Americans Plan to Limit Spending on Recovery Concern

By Mike Dorning

Sept. 17 (Bloomberg) -- Americans plan to refrain from boosting their spending even after the biggest drop in consumption since 1980, signaling concern about the direction of the economy over the next six months.

Only 8 percent of U.S. adults plan to increase household spending, almost one-third will spend less, and 58 percent expect to “stay the course,” a Bloomberg News poll showed. More than 3 in 4 said they reduced spending in the past year.

Respondents were divided over whether the economy will get better or stay the same in the next six months; only 1 in 6 said things will get worse. More than 40 percent of those surveyed said they feel less financially secure than they did when President Barack Obama took office in January, outnumbering 35 percent who said they feel more secure.

“People I never thought would lose their jobs have lost their jobs,” said Angela Payton, 42, a university publications editor in Florence, South Carolina. She kept her children out of summer camp, stopped buying organic milk and plans to curtail the party for her daughter’s 6th birthday in November.

In the poll, conducted Sept. 10-14, 40 percent of those questioned said they have experienced one or more problems from the banking crisis. In the most-often cited repercussions, 27 percent said their credit-card interest rates have risen dramatically and 15 percent report that they couldn’t get a home-equity, car, or other kind of consumer loan.

View on Obama

Americans are divided about Obama’s handling of the financial industry’s crisis -- 45 percent approve of the president’s performance and 44 percent disapprove.

Wall Street faces a more hostile public as Obama presses for new financial regulations. Half of the Americans surveyed have an unfavorable view of Wall Street, versus 31 percent with favorable views.

“Everybody is angry. We all know if we screwed up as badly as the Wall Street managers, we would not be paid, we would be fired and we would not get bonuses,” said Virginia Clifford, 54, a lawyer in Olympia, Washington. “A lot of people are waiting to see if Obama has the guts to reform Wall Street.”

Three out of four Americans support government-imposed limits on executive pay at companies that haven’t repaid government bailout money, the poll shows.

Backing Regulation

While banks and financial companies are lobbying to kill Obama’s proposal to establish a Consumer Financial Protection Agency, 56 percent of Americans support the idea, with 31 percent of the poll respondents opposed.

“If somebody is not looking out for consumers, who cares whether something is unhealthy or unwise?” said Tony Dumas, 39, a graduate student at the University of California in Davis. “Capitalism run amok is why we’re in the mess we’re in.”

Underscoring consumers’ austere attitudes, 77 percent of respondents said they have cut back on spending during the past year, 59 percent said they have made a bigger effort to pay off debts and 48 percent have put more money aside as savings.

Consumer spending dropped in four of the past six quarters, and is down 1.9 percent from its peak in July-to-September 2007, the biggest retrenchment since 1980.

A separate survey of Bloomberg users showed little change in confidence in September from last month. The Bloomberg Professional Global Confidence Index was at 58.54 this month, remaining above 50, which means optimists outnumbered pessimists.

Stock Investors

Investors remain encouraged at signs that the global recession, the deepest since the Great Depression, has ended. Stocks in Asia gained today with the MSCI Asia Pacific Index up 1.3 percent as of 12:14 p.m. in Tokyo.

Because consumer spending accounted for 70 percent of the American economy since 2001, the speed and strength of a recovery may depend on how quickly Americans loosen their purse strings.

Retail sales in August surged 2.7 percent, the largest monthly jump in three years, fueled in part by the government’s “cash-for-clunkers” auto-purchase program. August sales also probably benefited from sales-tax holidays that some areas offered back-to-school shoppers and may not signal a turning point, said Louis Crandall, chief economist at Wrightson ICAP LLC, a Jersey City, New Jersey-based research firm.

“There are lots of reasons to expect consumer spending to remain soft,” Crandall said, citing rising unemployment and drops in home values and household wealth.

Savings Suffer

More than 4 of 10 Americans surveyed said their retirement savings have suffered in the past year, 40 percent said home values have dropped, and 27 percent said workers in their households have less job security.

By 62-34 percent, Americans said high unemployment is a greater danger than inflation over the next two years.

The Federal Reserve, which Obama would like to give preeminent regulatory authority over the financial system, is viewed favorably by 44 percent of respondents against 33 percent with unfavorable opinions.

Democrats including House Financial Services Committee Chairman Barney Frank and Senate Banking Committee Chairman Christopher Dodd have questioned Obama’s plan to give the Fed the primary authority to regulate systemic risks. They have backed Federal Deposit Insurance Corp. chief Sheila Bair’s preference for a council of regulators to monitor risks.

Americans are skeptical about the prospects for two industries that have received large-scale government support. Fifty-three percent said they’re pessimistic about the banking industry, versus 41 percent who are optimistic. When asked about the automobile industry, 53 percent are pessimistic versus 42 percent who are optimistic.

The poll is based on interviews with 1,004 U.S. adults 18 and older. Interviewers contacted households with randomly selected landline and cell-phone numbers. Percentages based on the full sample may have a maximum margin of error of plus-or- minus 3 percentage points.

To contact the reporter on this story: Mike Dorning in Washington at mdorning@bloomberg.net.

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Brown’s Spending Cuts Will Be Worst Since 1976, IFS Says

By Gonzalo Vina

Sept. 17 (Bloomberg) -- Prime Minister Gordon Brown’s government may have to cut spending at the sharpest pace since Britain negotiated its finances with the International Monetary Fund in 1976, the Institute for Fiscal Studies said.

The non-partisan research group estimated the government will squeeze its budget by 2.9 percent a year from 2011, more than the 2.3 percent it expected in April. It based its analysis on Treasury documents obtained by the Conservative opposition.

“What we have learned from the leaks are the government’s plans to cut spending by 2.9 percent each year, which is the tightest since the IMF imposed spending plans in the late 1970s,” said Gemma Tetlow, a research economist at the group that counts the Bank of England and Treasury among its clients.

The forecast undermines Brown’s suggestion that the government can safeguard funds for education, police and other public services while the Treasury works to put a lid on the budget gap. Britain’s shortfall next year will exceed 12 percent of gross domestic product, the most in the Group of 20 nations.

Conservative leader David Cameron, who passed out the documents to journalists in London yesterday, said they show Brown has misled Parliament about the scale of the fiscal tightening that must follow the next election due by June.

The documents suggest Britain will pay 63 billion pounds ($104 billion) on debt interest in 2014, more than it spends on education. The IFS estimated that to avoid spending cuts the Treasury would have to raise taxes by 29 billion pounds, amounting to 2.1 percent of national income or 930 pounds per family per year.

‘Drag Anchor’

“The risks of having such a huge deficit are a drag anchor on the recovery,” Cameron said at a press conference yesterday. Brown “was saying one thing in Parliament. Documents say he was doing something different. He has to explain himself.”

Until this week, Brown has refused to acknowledge that cuts will be needed to erode the national debt which is due to more than double by 2014. Instead, he characterized Labour as the party that would keep public spending rising while the Conservatives were the party of cuts.

Brown’s spokesman, Simon Lewis, said “the prime minister would never mislead Parliament.” He declined to comment on the leaked documents, adding that the Treasury makes “plenty of assumptions” on “different scenarios.” The Treasury plans to investigate who leaked the papers.

The IFS says the fiscal squeeze it forecasts amounts to about 8.6 percent of GDP over three years. That’s sharper than the 8 percent reduction Liberal Democrat lawmaker Vince Cable proposed earlier this week.

Cameron vs Brown

Cameron sidestepped the question about how quickly his party would rein in spending, saying only that the Treasury’s plan to increase spending by 30 billion pounds to 702 billion pounds in the year through April 2011 seemed “excessive.

“We believe we ought to get on with it more quickly,” Cameron said. “If you start earlier you’re going to make faster progress.”

The IFS estimated that if the Conservatives sped up the deficit reduction, taking four years instead of eight currently planned by the Treasury, the cost would be 44 billion a year, or an average 1,400 pounds per family.

The Treasury already has announced tax increases on incomes above 100,000 pounds and fuel duties that will make up about 10 percent of the total, leaving spending cuts to absorb the rest.

For Related News and Information:

To contact the reporter on this story: Reed Landberg in London at landberg@bloomberg.net.

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U.K. Retail Sales Unexpectedly Stalled in August

By Jennifer Ryan

Sept. 17 (Bloomberg) -- U.K. retail sales unexpectedly stalled in August as shoppers bought less clothing, a sign consumers are cutting back on spending as unemployment rises.

Sales were unchanged from July, when they climbed 0.2 percent, the Office for National Statistics said today in London. The median forecast was for a 0.1 percent increase, according to a Bloomberg News survey of 30 economists. Sales climbed 2.1 percent from a year earlier.

Bank of England Governor Mervyn King said this week that households will keep feeling pain from the recession as the economy embarks on a “highly uncertain” recovery. Consumers are struggling to pay off record debts of 1.5 trillion pounds ($2.5 trillion) of debt as unemployment, currently at a 14-year high, increases.

“Consumer spending has been fairly resilient, but with growth below its potential unemployment will continue to rise and that will hold back consumer spending,” said Alan Clarke, an economist at BNP Paribas SA in London. “There’s a chance the bank will increase the bond purchase program further, and there won’t be any rate increases until at least 2011.”

Sales at non-food stores fell by 0.6 percent on the month, led by textile, clothing and footwear, the statistics office said. That outweighed a 0.7 percent increase in food sales.

Retail sales have stalled after two months of increases. The gain in July was revised down by half from 0.4 percent, the statistics office said.

‘Challenging’ Conditions

Next Plc, the U.K.’s second-biggest clothing retailer, said in a statement yesterday its outlook for the second half “remains cautious.”

The retailer forecasts a drop of 3.5 percent to 6.5 percent in same-store sales for the year. It expects declines in that revenue through at least mid-2010 as public spending cuts hurt employment and tax increases reduce disposable income.

The number of people seeking jobs reached 2.5 million in the three months through July, the most since 1995, the statistics office said yesterday. Prime Minister Gordon Brown, who faces an election next year, said this week that the recovery “is still fragile.”

Britons’ sentiment on spending is showing some signs of recovery. A majority say now is a good time to buy a home as the property market pauses from its slump, according to a survey published yesterday by the Building Societies Association.

Central bank policy makers this month confirmed their plan to buy 175 billion pounds of bonds with newly created money to stoke spending and ensure the end of the recession.

“The strength and sustainability of the recovery is highly uncertain,” King said on Sept. 15. “The key question facing the Monetary Policy Committee is whether this recovery will prove to be sufficiently strong and sustained to keep inflation on track to meet our 2 percent target.”

The retail sales deflator, used to measure changes in shop prices, showed a 0.4 percent annual drop, today’s report showed.

To contact the reporter on this story: Jennifer Ryan in London at Jryan13@bloomberg.net

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BOJ Signals Economic Concern Even After Raising View

By Mayumi Otsuma

Sept. 17 (Bloomberg) -- Japan’s central bank policy makers said they remain concerned about the strength of a recovery even after raising their assessment of the nation’s economy.

Officials kept the benchmark overnight lending rate at 0.1 percent, and maintained their emergency lending programs to banks and companies. While describing the economy as “showing signs of recovery,” an upgrade from the “stopped worsening” assessment last month, the Bank of Japan said in a statement in Tokyo today that it still sees “downside” risks to growth.

Today’s statement reflected global doubts about the strength of a recovery from the deepest recession since the Great Depression. A Bloomberg News poll of U.S. households published today showed Americans plan to refrain from boosting spending even after the biggest drop in consumption in 29 years.

“Most countries are experiencing a recovery, but few can be confident about the sustainability of those recoveries,” said Yoshiki Shinke, a senior economist at Dai-Ichi Research Life Institute in Tokyo. “Japan will be the last country to raise its interest rate” because it has the added problem of deflation, he said.

Bank of Japan Governor Masaaki Shirakawa told reporters in Tokyo today that while stimulus measures have helped the economy improve, “we’re not confident about the strength of private final demand after those effects fade.” He added that central bankers are monitoring the appreciating exchange rate, which is contributing to the drop in Japanese consumer prices.

Yen Rises

The yen has climbed 4.3 percent against the dollar in the past month, and reaching 90.13 yesterday, its highest level since Feb. 12. Currency gains may erode Japanese exporters’ earnings and make it harder for the nation’s growth to accelerate. Currencies should move in a stable manner, Shirakawa said today.

Japanese stocks initially pared gains after the central bank statement, before recouping their advance. The Nikkei 225 Stock Average rose 1.7 percent at the close in Tokyo. The yen traded at 90.61 per dollar, up from 90.93 late yesterday.

The bank’s policy board said consumer spending remains weak and companies are still reducing investment because of falling profits. Financial conditions are showing signs of improvement “with some severity lingering,” the central bank said.

“While there are signs of a better-than-projected recovery in emerging economies, risks to the economy are still on the downside,” the bank said. “The outlook is attended by a significant level of uncertainty stemming mainly from developments in global financial markets.”

Return to Growth

Japan’s economy grew in the second quarter for the first time in more than a year, helped by some $2 trillion in global stimulus that bolstered exports and household spending.

Reports today showed Japanese manufacturers turned optimistic for the first time in almost two years and demand for services rose for a second month in July. Yet the recovery from the country’s worst postwar recession remains hampered by record unemployment, falling wages and consumer-price declines that threaten companies’ profits.

The value of households’ financial assets slid 3 percent from a year earlier to 1,441 trillion yen ($15.8 trillion) last quarter, the Bank of Japan said earlier today.

“Consumer spending will remain sluggish and deflationary pressure will mount,” said Akio Makabe, a professor of economics at Shinshu University in Matsumoto, central Japan. “Companies will continue to carry idle capacity and face pressure to streamline operations.”

Confidence Measure

A survey of Bloomberg users showed little change in global confidence in September from last month. The Bloomberg Professional Global Confidence Index was at 58.54, remaining above 50, which means optimists outnumbered pessimists.

Since its most recent rate cut in December, the Bank of Japan started buying corporate debt from lenders and offering them unlimited loans backed by collateral to channel funds to companies. The policy board extended the measures until Dec. 31 in July, saying funding conditions remain “tight.”

Masaaki Kanno, a former central bank official, said today’s upgrade to the economic assessment indicated the policy board may start discussing an end to the programs.

“Although we are nowhere near a phase where we can discuss prospects of tightening interest rates, the BOJ may want to start debate on the possibility of suspending, terminating or canceling part of its corporate fund-raising measures sooner rather than later,” said Kanno, who is now chief economist at JPMorgan Chase & Co. in Tokyo.

Rate Outlook

The central bank will hold the key rate at 0.1 percent at least through the end of 2010, according to 14 of 16 economists surveyed this month.

Consumer prices excluding fresh food fell a record 2.2 percent in July, and policy makers are likely to forecast the slide will extend into 2011 in their twice-annual outlook next month. They consider prices to be stable within a range of zero to 2 percent.

Economists say Shirakawa may face pressure from the Democratic Party of Japan, which took power yesterday, to increase the central bank’s monthly purchases of government bonds. While the DPJ has said it supports the Bank of Japan’s independence, the government may need to sell debt to pay for promises to provide child care benefits and cut taxes.

“The issue of an increase in the bank’s bond purchases may gain momentum if the government finds it has to sell more debt to make up for a shortage of revenue,” said Tetsufumi Yamakawa, chief Japan economist at Goldman Sachs Group Inc.

The central bank currently buys 1.8 trillion yen ($20 billion) of the securities each month.

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

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China Import Surge Casts Obama Tariff as Phony War

By Bloomberg News

Sept. 17 (Bloomberg) -- Chinese consumers who buy $608 billion of goods from overseas are diminishing the prospects of a trade war with the U.S.

China’s imports, up 68 percent in five years, now amount to almost one-third of gross domestic product, according to World Bank data. The nation’s demand for foreign products is a boon for American companies, which exported $351 billion to China in the past five years.

U.S. President Barack Obama’s 35 percent tariff on tires from China spurred a Chinese investigation into prices of U.S. poultry and car products. Dangers of further escalation may be mitigated by the increasing benefit China provides the world economy. Poised to surpass Japan as No. 2 in GDP, its purchasing power is a lure to firms seeking new customers.

“As China depends more on domestic demand, its rise won’t be seen by the rest of the world to be as big a threat as some view it now,” said Shen Minggao, a former consultant to the World Bank who is chief economist in Hong Kong for the Greater China region at Citigroup Inc., the third-largest U.S. bank.

Tyson Foods Inc., the world’s biggest meat producer, entered China in 2001. Last year, the Asian nation accounted for 10 percent of the Springdale, Arkansas-based company’s $1.4 billion in beef sales and 12 percent of its $1.6 billion chicken sales.

Prevent Escalation

Meat consumption per person is about 20 pounds a year in China, compared with 89 pounds in the U.S., Tyson estimates. That helps explain why Tyson joined Hormel Foods Corp. and 32 other agriculture companies and industry associations this month to push the Obama administration to refrain from engaging in a trade battle with China.

“The size of China’s economy and the extent to which the nation is entwined with other major economies may prevent an escalation” of conflicts, said Lu Ting, an economist at Bank of America-Merrill Lynch in Hong Kong.

China accounted for a third of global expansion last year, according to International Monetary Fund data using purchasing- power-parity calculations to adjust for exchange-rate differences. Its growth this decade has averaged 10.2 percent, and it will overtake Japan next year with GDP of $5.3 trillion, surpassing its Asian neighbor’s $4.72 trillion, the IMF projects.

‘Dynamic’ Growth

Increasing consumer demand in China for foreign goods and services has been spurred by 4 trillion yuan ($586 billion) in stimulus spending. The import surge is helping reshape the region, with China passing the U.S. as Japan’s biggest export customer this year and also becoming the No. 1 export market for South Korea.

China is “providing a much more dynamic source of pan- regional growth, and ultimately of global growth” than Japan ever did, said Stephen Roach, chairman of Morgan Stanley Asia, based in Hong Kong. “China’s pretty open to both exports and imports.”

While some Chinese imports are components used in products that are later shipped to consumers abroad, that share is dropping. Government figures show it fell to about 33 percent last year from 39 percent in 2007. Analysts said the nation is likely to become a bigger final destination for global goods and services.

China’s advancing economy benefits from having the world’s largest population: At 1.33 billion, it is more than 10 times that of Japan. Chinese GDP per person was $3,300 in 2008, equal to Japan’s 1973 total, according to estimates by economists at Nomura International Ltd.

‘Early Stage’

“It just shows you that China is still at a very early stage of development,” said Robert Subbaraman, chief economist for non-Japan Asia at Nomura in Hong Kong, who worked at the Australian central bank.

Tyson -- along with Austin, Minnesota-based Hormel, the second-largest U.S. turkey processor -- and 32 other agriculture companies and industry associations pressed the Obama administration in a Sept. 3 letter to refrain from tariffs on Chinese tire imports, concerned that China would retaliate against U.S. products.

“For some, the Chinese market is the difference between profitability and possible bankruptcy,” the groups wrote to U.S. Trade Representative Ronald Kirk.

Gary Mickelson, a Tyson spokesman, declined to comment on why his company joined the effort. Julie Craven, a spokeswoman for Hormel, didn’t respond to requests for comment.

U.S. Factory Jobs

Obama said Sept. 11 he will boost by 35 percent the 4 percent tariff on $1.8 billion of imported Chinese car and light-duty truck tires. He acted on a petition from the United Steelworkers union that said surging imports are cutting factory jobs. The duties start Sept. 26 and last for three years, dropping 5 percentage points a year, according to a White House statement.

“China and the U.S. share extensive and broad common interests and we are ready to work with the U.S.,” Foreign Ministry spokeswoman Jiang Yu told reporters in Beijing today, when asked about the tire issue. China is ready to “strengthen communication, dialogue and cooperation in various fields and properly deal with our problems,” she said.

U.S. stocks showed little sign of investor concern, with the Standard & Poor’s 500 Index rising 2.5 percent since the announcement. American government bond yields are also little changed; China is the biggest holder of Treasury securities, with $800.5 billion. Benchmark 10-year notes closed to yield 3.47 percent yesterday, compared with an average 3.43 percent the past month.

Obama played down the danger of escalating tensions with China, arguing that trade rules must be enforced to build support among lawmakers and the American public.

Bilateral Ties

“We’re not going to see a trade war,” Obama said in a Sept. 14 interview at the White House. “We have rules on the books” and “we’ve got to establish credibility and enforcement of the rules precisely because I want to further expand trade,” he said when asked what he will tell China’s President Hu Jintao at the Group of 20 meeting next week in Pittsburgh.

While China’s Ministry of Commerce said it “strongly opposes” Obama’s decision and announced probes of chicken and auto products from the U.S., it also sought to underscore the importance of bilateral economic ties.

“We don’t want to see individual trade-remedy cases hurt the trade and economic relationship between China and the U.S.,” Yao Jian, a ministry spokesman, told reporters Sept. 15 in Beijing.

There may still be a risk that tensions will become more heated because China lacks the political and military ties Japan has with the U.S., said Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics in Washington.

‘Trade Friction’

“The potential for trade friction, and any other kind of friction, is much higher with China than Japan,” Lardy said. “We don’t have a security relationship with China and we’re not likely to have one.”

U.S. Steel Corp. filed yesterday a petition with the U.S. International Trade Commission seeking dumping and anti-subsidy duties of as much as 90 percent on $400 million of Chinese-made steel pipes used in chemical, petrochemical, refineries and related operations, according to Roger Schagrin, a lawyer for the U.S. producers. The U.S. imposed tariffs this month on a different type of steel pipe from China in a separate case.

A Chinese Ministry of Commerce official, asked about the U.S. Steel filing, said that giving in to protectionism will only provoke more such actions. He spoke on condition of anonymity.

Obama and Hu are scheduled to meet at the summit of leaders from the world’s largest developed and emerging nations Sept. 24-25. The G-20 at its November and April gatherings committed to “reject protectionism” and promote global trade.

Rising Rank

China’s ascendance comes after it already surpassed Germany and the U.K. in global GDP rankings earlier this decade. IMF projections indicate its economy will climb to $8.5 trillion in 2014, about half the size of the $16.9 trillion estimate for the U.S.

Premier Wen Jiabao said last week tax cuts on property and car purchases, subsidies for low-income households and a three- year 850 billion yuan plan to improve health-care coverage were aimed at boosting income and spurring domestic demand.

Wen’s government is targeting 8 percent GDP expansion this year, after the growth rate averaged 9.9 percent during the past three decades. In Japan, the central bank estimates that potential growth has fallen to about 1 percent, roughly half the pace achieved during a six-year expansion through 2007.

“The big development this year is that China has become a market in and of itself, not just a production base,” said Jian-min Jin, a senior fellow at Fujitsu Research Institute in Tokyo who previously helped craft technology policy at China’s Department of Science and Technology. “China’s attitude towards its own market has changed. The government is actively trying to build a domestic market.”

For Related News and Information: China economic snapshot: ESNP CH Most-read China economy stories: TNI CHECO MOSTREAD BN Most-read stories on China: MNI CHINA 1W Stories on the credit crisis: NI CRUNCH BN Top China news: TOP CHINA Top economic news: TOP ECO

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Pound to Drop to Euro Parity, Dollar to Reach 85 Yen, BNP Says

By Candice Zachariahs

Sept. 17 (Bloomberg) -- The euro will surge to parity versus the pound and reach its highest level in more than a year against the greenback as investors borrow low-cost funds in the U.K. and U.S. to buy higher-yielding assets, BNP Paribas SA said.

The Bank of England and Federal Reserve are flooding their financial systems with cash to keep borrowing costs low on expectations their economies will recover slowly from recession. That will spur investors to use funds from the nations to buy securities in countries with higher interest rates, BNP Paribas said. The bank raised its forecast for the yen and expects it to climb to its highest since 1995 against the dollar by year-end.

“Sterling is likely to be the weakest currency in town followed by the U.S. dollar,” analysts led by Hans-Guenter Redeker, London-based global head of currency strategy at BNP Paribas, wrote in a note to clients yesterday. “The U.S. dollar has been used as a funding and a reserve currency simultaneously, suggesting the U.S. dollar will depreciate less than sterling.”

The euro bought 89.317 pence as of 10:49 a.m. in Tokyo, from 89.244 pence yesterday in New York. The 16-nation currency rose above 98 pence for the first time on Dec. 30. It advanced a third day to $1.4716 and yesterday reached $1.4737, the strongest level since Sept. 25, 2008.

The yen was at 91.12 per dollar and yesterday hit 90.13, the strongest level since Feb. 12. The pound was at $1.6477 from $1.6493.

The U.S. dollar will slide to 85 yen by year-end and recover to 90 yen in the first quarter, BNP Paribas said, revising forecasts for 93 and 95 yen respectively.

‘Funding Currency’

Benchmark interest rates are 0.5 percent in the U.K. and as low as zero in the U.S., compared with 3 percent in Australia, 7 percent in South Africa and 8.75 percent in Brazil. The yield gap lures investors to borrow low-cost funds and invest in higher-yielding assets in so-called carry trades.

Sterling will weaken in the coming months as the government needs to rein in spending and its central bank is likely to retain an expansionary monetary policy, BNP Paribas said.

“Sterling will degenerate from an investment into a funding currency,” said the analysts.

Moody’s Investors Service warned the U.K. and U.S. will need to “severely adjust their fiscal policies,” in a Sept. 9 report. Both nations have “lost altitude” in their ratings even as they remain resilient, Moody’s said.

Standard & Poor’s in May lowered its outlook on the U.K. to “negative” from “stable” and said it faces a one-in-three chance of a ratings cut as debt approaches 100 percent of gross domestic product.

Fragile Recovery

The pound traded near its lowest since May as a report yesterday showed the jobless rate in the U.K. rose to the highest since 1995. BOE Governor Mervyn King said Sept. 15 policy makers may cut the rate paid to hold reserves at the central bank.

“The strength and sustainability of the recovery is highly uncertain and the balance of risks to inflation around the 2 percent target remains on the downside,” King said.

The euro will trade at 98 pence by year-end and at parity in the first three months of 2010, BNP Paribas said, revising an earlier call for the currency to trade at 88 and 86 pence, according to Bloomberg News data. Sterling will buy $1.57 at the end of the fourth quarter and $1.48 in the following quarter, compared with earlier forecasts of $1.53 and $1.51.

Europe’s single currency will rise to $1.54, the most since August 2008, by year-end and buy $1.48 in the first quarter of 2010, compared to earlier expectations for $1.35 and $1.30.

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

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Obama, G-20 to Pledge to Keep Stimulus in Place, Froman Says

By Rebecca Christie and Hans Nichols

Sept. 17 (Bloomberg) -- President Barack Obama and other Group of 20 leaders next week will pledge to keep economic stimulus policies in place until a recovery is certain, the White House’s G-20 liaison said.

In talks in Pittsburgh, the U.S. also will seek to phase out fossil-fuel subsidies and agree on how to rein in bankers’ bonuses, said Michael Froman, a deputy assistant to Obama, in an interview yesterday. The U.S. wants to build on a G-20 agreement in London earlier this month to toughen oversight of compensation practices and curb pay excesses, he said.

“It is important to plan for exit but it is still too early to begin to withdraw stimulus,” Froman said in the interview. The global financial situation has “changed dramatically” since the April G-20 meeting in London, he said in a separate briefing with reporters.

The leaders gather as economies from Brazil to Japan show signs of emerging from recessions. The G-20, a collection of industrial economies and emerging nations, will try to ensure the expansion is balanced, a goal economists say will require more savings in the U.S. and greater domestic demand in countries such as China.

The Standard and Poor’s 500 Index is up 34 percent from early April and the London interbank offered rate, or Libor, is down 100 basis points from its peak, Froman said. Still, he cautioned that “Pittsburgh is not intended to be a victory lap.”

The Obama administration will use the summit to emphasize “the need to remain vigilant to avoid premature withdrawal of stimulus.”

IMF Forecasts

The International Monetary Fund expects G-20 countries to grow 3.2 percent next year after contracting 1.1 percent in 2009, according to estimates circulating among the G-20 ahead of the IMF’s annual meeting next month.

The U.S. has called on G-20 countries to take steps to increase domestic, private-sector demand, just as Treasury Secretary Timothy Geithner has urged China to do in recent months.

Froman said the results from the Sept. 24-25 summit may solidify commitments G-20 finance ministers made earlier this month. They agreed to sustain efforts to nurture a nascent recovery, while also agreeing on proposals to curb bank bonuses and force lenders to hold more capital.

In their Sept. 5 statement, the ministers united on a plan to tie executive pay to long-term performance and also allow for the “clawback” of cash awards if company conditions deteriorate.

Executive Pay

Next week, the U.S. will press the group to move quickly on executive pay and other proposals that would force banks to hold more capital, in order to guard against a repeat of the worst financial turmoil since the Great Depression.

“There will likely be a robust package of reforms on executive pay touching the structure of pay packages as well as their governance and their transparency,” Froman said in the Bloomberg interview. The U.S. also will move ahead with Geithner’s proposal to tighten capital requirements and limit the amount of leverage a bank can take on, he said.

At the Pittsburgh summit, the U.S. will seek G-20 pledges to reduce budget deficits, contain inflation and improve the way their economies operate. The U.S. wants to reach agreement on a framework for sustainable growth, along with renewed commitment to overhaul the IMF and avoid protectionist policies.

Froman said the U.S. so far isn’t overly concerned that recently erected trade barriers are hampering global trade flows. Next week’s meetings will provide an opportunity to reinforce commitments to maintain and expand trade where possible, he said.

‘Come Together’

“The G-20 leaders are likely to come together again and reaffirm their commitment to avoiding protectionism and to rectifying protectionism when it arises,” Froman said.

On climate change, Obama will press his counterparts to eliminate subsidies for fossil fuels and electricity, Froman said. The U.S. also wants to increase transparency in the oil market by making more data available and tightening supervision of derivatives markets.

“We’re in dialogue with countries about how to make sure that countries can continue to provide the sort of social policy around energy that they need to, while at the same time reducing greenhouse gasses,” Froman said. He said studies predict that if broad-based fossil-fuel subsidies were phased out, greenhouse-gas emissions would fall 10 percent or more by 2050.

To contact the reporters on this story: Rebecca Christie in Washington at Rchristie4@bloomberg.net; Hans Nichols in Washington at Hnichols2@bloomberg.net;

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Dollar Falls to One-Year Low Versus Euro on Signs Slump Easing

By Lukanyo Mnyanda and Yasuhiko Seki

Sept. 17 (Bloomberg) -- The dollar slid to a one-year low against the euro as a report showed Europe’s trade surplus grew in July and investors bet the U.S. housing market improved last month, sapping demand for the currency as a refuge.

The Dollar Index dropped to a 12-month low as the MSCI World Index of stocks advanced for a third day, boosting appetite for higher-yielding alternatives to the U.S. currency. Demand for riskier assets also increased as Japan’s central bank raised its assessment of the nation’s economy. The Swiss franc was little changed against the euro before the Swiss National Bank’s decision on interest rates.

“People are getting more optimistic and this is driving the dollar,” lower, said Ulrich Leuchtmann, head of currency research at Commerzbank AG in Frankfurt. “With more risk appetite and improved liquidity in the market, people are again looking at interest-rate differentials.”

The dollar traded at $1.4737 per euro at 10:12 a.m. in London, from $1.4709 yesterday in New York. It earlier reached $1.4767, the weakest level since Sept. 25, 2008. The yen strengthened to 90.70 per dollar, from 90.93 yesterday, when it appreciated to 90.13, the highest level since Feb. 12. Japan’s currency was at 133.66 per euro, from 133.78 yesterday.

Australia’s currency rose to 87.48 U.S. cents, from 87.35 cents yesterday. New Zealand’s dollar was at 71.34 U.S. cents, from 71.41 cents.

Interest Rates

Benchmark interest rates are 3 percent in Australia and 2.5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits.

The Nikkei 225 Stock Average rose 1.7 percent and Europe’s Dow Jones Stoxx 600 Index climbed 0.3 percent. The MSCI World advanced 0.5 percent.

The 16-nation euro area’s trade surplus widened to 6.8 billion euros ($10 billion) in July, the European Union’s statistics office said in Luxembourg today. Economists had forecast an increase to 1.2 billion euros, according to a Bloomberg survey of economists. The Dutch central bank said yesterday a “slight improvement” is visible in the global economy.

The Swiss franc traded at 1.5189 against the euro, from 1.5180 yesterday. It was at 1.0304 against the dollar, compared with 1.0322 yesterday and 1.0285 earlier today, the strongest level since July 22, 2008.

SNB Meeting

The SNB, led by Jean-Pierre Roth, will leave the three- month Libor target at 0.25 percent at today’s quarterly monetary policy assessment, according to all 21 economists in a Bloomberg News survey. The SNB publishes the decision in Zurich at 2 p.m.

Traders increased bets the European Central Bank will raise its main refinancing rate by the middle of next year, with the implied yield on the three-month Euribor futures contract for June 2010 delivery rising to 1.265 percent today from 1.225 percent yesterday. Federal funds futures contracts traded on the Chicago Board of Trade show a 3 percent chance of an increase in the U.S. benchmark interest rate in December.

The Dollar Index, which tracks the U.S. currency against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, sank as low as 76.010 today, the weakest level since Sept. 22, 2008. It was recently at 76.133.

‘Reinforcing Confidence’

“We are getting good economic data from the U.S. that is reinforcing confidence in the global recovery,” Derek Halpenny, European head of currency strategy in London at Bank of Tokyo- Mitsubishi UFJ Ltd., said in a Bloomberg Television interview. “Until we start to see interest rates respond to the positive news from the U.S., I think the line of least resistance is to continue selling the dollar.”

U.S. builders broke ground on 598,000 new homes last month at an annual rate from 581,000 in the previous month, according to a Bloomberg News survey before the Commerce Department releases the data today.

The Philadelphia Federal Reserve Bank will report today that its index of the region’s manufacturing advanced this month to the highest level since 2007, according to the median forecast of 55 economists in a Bloomberg News survey. The index is expected to increase to 8 from 4.2 in August, with a positive reading signaling expansion.

The Bloomberg Professional Global Confidence Index rose to 58.54 this month from 58.12 in August. The index exceeded 50 for a second month, which means optimists outnumbered pessimists. Measures of confidence in France and Germany surged after their economies unexpectedly returned to growth last quarter.

‘Downward Pressure’

“Given the fragility of the U.S. economy, the Fed can’t normalize credit and monetary-easing policies,” said Mitsuru Saito, chief economist in Tokyo at Tokai Tokyo Securities Co. “The bulk of highly liquid dollar assets will continue to flow into other currencies or commodities, putting downward pressure on the dollar.”

The yen rose against the dollar and the euro after Japan’s newly appointed Finance Minister Hirohisa Fujii said he doesn’t agree a weaker yen is necessarily good for exporters.

“It’s an absurd idea that the cheaper the yen is, the better for exports,” Fujii, 77, said at a press conference in Tokyo. “But it doesn’t mean higher yen is always the best.”

To contact the reporters on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net; Yasuhiko Seki in Tokyo at yseki5@bloomberg.net

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Copper, Little Changed in London, May Fall as Stockpiles Swell

By Anna Stablum

Sept. 17 (Bloomberg) -- Copper, little changed in London today, may fall as swelling inventories fuel concern that this year’s rally carried prices too high to reflect demand.

Stockpiles tallied by the London Metal Exchange expanded for a 15th day to 324,375 metric tons, the most since May 26. Inventories have increased 8.5 percent this month after rising 6.4 percent in August and 5.6 percent in July. In Shanghai, stockpiles rose 12 percent last week to 97,396 tons, the highest level since June 2007.

“The price should adjust to the high inventories and a looming oversupply,” Eugen Weinberg, an analyst at Commerzbank AG in Frankfurt, said by phone. “We have had huge increases in stocks on the LME and in Shanghai, and there are probably undisclosed inventories in China as well.”

Copper for three-month delivery rose $17.50, or 0.3 percent, to $6,437.50 a ton on the LME at 9:55 a.m. local time. The metal has doubled in 2009. Futures for December delivery slipped 0.1 percent to $2.9325 a pound in electronic trading on the New York Mercantile Exchange’s Comex division.

A report today probably will show that builders in the U.S., the world’s second-biggest copper user after China, broke ground in August on the most houses in nine months, according to economists. Construction uses 25 percent of world output of the metal, the Copper Development Association’s Web site shows.

Confidence Survey

Housing starts rose 2.9 percent to an annual rate of 598,000, according to a Bloomberg News survey. The Commerce Department report is due at 1:30 p.m. London time.

Prices also gained as a survey of Bloomberg users on six continents showed that confidence in the world economy held at a record high in September after reports suggested the recession is over. The Bloomberg Professional Global Confidence Index rose to 58.54 from 58.12 in August. It exceeded 50 for a second month, which means there were more optimists than pessimists.

Record first-half imports into China helped copper’s surge this year. The State Reserve Bureau, which buys commodities on behalf of the government, is estimated to have purchased 230,000 tons of copper this year, and Chinese traders and fabricators have bought another 600,000 tons, Mike Henry, head of base- metals marketing at BHP Billiton Ltd., said yesterday.

Consumer and industrial demand in China will support growth in copper demand, Henry said at a presentation in London. Existing supply and expanded production will be insufficient to meet demand by 2020, he said, predicting a 10 million-ton supply shortfall. BHP is the world’s biggest mining company.

Among other LME metals for three-month delivery, aluminum gained 1.3 percent to $1,951.50 a ton and tin fell 0.3 percent to $14,605 a ton. Lead rose 1.7 percent to $2,331 a ton, nickel advanced 2.5 percent to $17,730 a ton, and zinc gained 1.6 percent to $1,967 a ton.

To contact the reporter on this story: Anna Stablum in London at astablum@bloomberg.net

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