Europe Economic Confidence Improves to 12-Month High

By Simone Meier

Sept. 29 (Bloomberg) -- European confidence in the economic outlook increased to the highest in 12 months in September as the economy showed signs of rebounding from the worst recession in more than six decades.

An index of executive and consumer sentiment in the 16- nation euro region rose to 82.8, the highest since September 2008, from 80.8 in August, the European Commission in Brussels said today. That was the sixth straight monthly gain. Economists had projected an increase to 82.7, a Bloomberg survey showed.

European companies including Germany’s ThyssenKrupp AG and Paris-based L’Oreal SA have beaten analysts’ earnings estimates, suggesting government stimulus programs are feeding into the economy. Manufacturing and service industries expanded for a second month in September and German business confidence climbed to a 12-month high. Rising unemployment may prompt consumers to rein in spending, curbing the recovery.

“The figures show that we can expect a further recovery with quarterly growth rates of 0.5 percent in the third and fourth quarters,” said Juergen Michels, chief euro-region economist at Citigroup in London. “However, it will take a long time until the loss of economic activity during the crisis is compensated.”

The world economy is emerging from the deepest slump since the 1930s following $2 trillion of government spending, tax breaks and infrastructure projects. The European Central Bank earlier this month kept its key interest rate at a record low of 1 percent, with ECB President Jean-Claude Trichet saying the economy is past the worst and will show a “gradual recovery.”

Current Quarter

The euro-area economy may expand 0.2 percent in the current quarter and 0.1 percent in the three months through December, the commission said on Sept. 14. In the second quarter, the economy contracted just 0.1 percent as Germany and France, the region’s two largest economies, returned to growth.

Ryanair Holdings Plc Chief Executive Officer Michael O’Leary said on Sept. 24 that he anticipates earnings will rise “significantly” this year. Dublin-based Ryanair, Europe’s largest low-cost airline, is cutting the “cost base and gearing the company up for a period of renewed growth over the coming years,” O’Leary said.

“We do see light at the end of the tunnel; there are more and more signs that the economy is improving,” HeidelbergCement AG Chief Executive Officer Bernd Scheifele said in an interview on Sept. 22. Germany’s biggest cement supplier will benefit “noticeably” from the government’s stimulus programs, he said.

DAX Index

The Dow Jones Stoxx 600 Index has risen 20 percent this year while Germany’s benchmark DAX Index has jumped 8 percent in the past two months, bringing gains to 17 percent in 2009.

L’Oreal, the world’s largest cosmetics maker, on Aug. 28 posted a smaller-than-projected earnings decline and forecast a gradual recovery through the second half of 2009. ThyssenKrupp, Germany’s biggest steelmaker, last month posted a smaller-than- forecast third-quarter loss.

“The recent jump in economic expectations exceeds our own projections,” ThyssenKrupp Chief Executive Officer Ekkehard Schulz said on Sept. 4 in Dusseldorf. “We’re seeing the first signs of bottoming out and rising orders in the steel area.”

European companies are starting to ramp up output to meet reviving global demand. European industrial orders rose for a second month in July, led by durable consumer goods, and exports increased 4.1 percent from June. The euro-area services industry index showed a return to expansion in September.

Jobless Rate

ECB policy makers including Trichet have warned the recovery may face obstacles such as rising unemployment. European retail sales fell for a 16th month in September, Markit Economics said today, citing a survey of more than 1,000 executives. Europe’s jobless rate probably rose to 9.6 percent in August, according to a Bloomberg survey. That would be a 10- year high. The European Union’s statistics office in Luxembourg will release the report on Oct. 1.

The commission noted in today’s report that the September increase in sentiment was “the smallest since the upturn started in April.” The August index reading was revised to 80.8 from the 80.6 reported on Aug. 28.

European households anticipate prices will decline more, today’s report showed. A gauge of consumers’ price expectations over the next 12 months held near a record low, rising to minus 14 in September from minus 16 in August, which was the lowest since the data were first compiled in 1990.

Consumer Prices

The ECB said earlier this month that it projects euro- region consumer prices will rise about 0.4 percent this year and around 1 percent in 2010. In September, consumer prices probably dropped 0.2 percent from a year ago, a Bloomberg survey shows. The ECB aims to keep inflation just below 2 percent.

With companies still cutting costs and the economy struggling to gather steam, ECB officials have signaled they are ready to maintain the bank’s unconventional measures for a while. The ECB has offered banks unlimited cash over 12 months and purchased covered bonds to encourage lending.

“The ECB won’t be in any rush over the next six months, but we see a rate hike towards the end of 2010,” said Laurent Bilke, a senior economist at Nomura in London. “They probably have the tools to negotiate a gradual exit.”

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

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Lots of Comments on Currency Prices

Daily Forex Fundamentals | Written by AC-Markets | Sep 29 09 10:34 GMT |

News and Events: In the aftermath of the G20 meeting it seems that policy makers are still clearly disturbed about the state of exchange rates. In the last few days we have heard choirs of high profile complaints against currency strength. With the EURCHF trading around the 1.5100 level, markets should be focused on the recent SNB comments, which forcefully defend action (not a 'beggar-thy-neighbor' strategy) while staying committed to their current interventionist policy. In Canada, BoC Governor Carney reiterated that long term persistent strength of the CAD would be negative for the Canadian economy and prolong soft inflation figures. While yesterday ECB's Trichet and Nowotny both said a strong USD is 'important' for the global economy. Perhaps the most interesting, while confusing, would be the comments from Japan. Overnight new Minister of Finance Hirohisa Fujii seems to be backtracking from recent comments and now has expressed some displeasure at JPY moves but also declined to commit to intervention, stating the market had twisted his earlier statements. In the last 24hr Fujii has said 'We are watching FX moves closely' and 'FX intervention is possible under extreme circumstances.' On the other side, Prime Minister Hatoyama stated that the JPY rise is already hurting small companies, hinting that the new government will probably not permit the Yen to appreciate forever. Sounds like the historical goverment policy of a weak JPY is returning. These comments have created considerable distortion in the FX markets and traders would be advised to watch out for continued verbal intervention. Wall Street was able to close on a high note and for the most part Asian regional indexes follow (lone exception Shanghai -0.21%). The rally in risk appetite feels light with only a slight rebound in risk correlated trades. Yesterday's economic calendar was light, while today we have couple of releases, which could move the markets. The UK Q2 GDP turned out to a nonevent, printing at -5.5% y/y vs. -5.4% exp, -0.6% q/q vs -0.6% exp. And from the Eurzone September's increase in economic sentiment to its highest level in a year is another good sign that the domestic economy continues to recover. Economic sentiment, jumped to 82.8 from 80.8 , a touch higher than expected . From the US we're awaiting S&P/Case-Shiller Composite-20 Y/Y Jul house price index and the consumer confidence for September. Today Key Issues: 07:30 SEK Retail sales, % m/m (y/y) Aug 1.9 (5.4) exp 08:00 EUR Retail PMI, index Sep 47.1 exp 08:30 GBP Final GDP, % q/q (y/y) Q2) -0.6 (-5.4) exp, -0.7 (-5.5) P prior 08:30 GBP BoE mortgage approvals, K Aug 51.5 exp, 50.1 prior 08:30 GBP BoE net secured lending, £ bn Aug 0.2 exp, -0.4 prior 08:30 GBP BoE net consumer credit, £ bn Aug 0 exp, -0.2 prior 08:30 GBP BoE publishes sectoral breakdown of M4 data Aug 09:00 EUR Consumer confidence, index Sep -21 exp, -22 prior 09:00 EUR Industrial confidence, index Sep -24 exp, -26 prior 10:00 GBP CBI distributive trades, reported sales Sep -13 exp, -16 prior 13:00 USD S&P/Case-Shiller 20-city HPI, % m/m (y/y) Jul (-14.3) exp, -0.7 (-15.44) prior 13:00 SEK Riksbank Governor Ingves will speak on 'A Cure for Crisis: Confidence, Confidence and Trust' 13:50 USD Fed Reserve Bank of Dallas President Fisher will speak14:00 USD Consumer confidence Sep 57.0 exp, 54.1 prior 23:00 USD Fed Reserve Bank of Philadelphia Plosser speaks 23:01 GBP GfK consumer confidence survey, balance Sep -24 exp, -25 prior The Risk Today: EurUsd EURUSD is likely to continue trading in a choppy fashion as we remain between 1.4515 and 1.4730. 14-day RSI currently stands at a benign 57 which does not suggest the pair is oversold after last week's correction lower; nevertheless, despite a resurgence of risk aversion that should focus attention on the downside, expect considerable support at the 1.4515 level. GbpUsd GBPUSD remains on a downtrend after last week's head and shoulders top, but as 14-day RSI hovers around 30 and most GBP crosses are decidedly signalling oversold territory, we believe a test of the neckline around 1.5950 could well materialize given the heavy buying we have seen today. While GBPUSD remains below 1.6150 resistance, the near-term support remains just below 1.5800 and further at 1.5690. UsdJpy Verbal comments will keep this pair very jumpy. USDJPY emphatically pierced through the psychologically important 90.00 handle, pointing to a resumption of a longer term downtrend in the pair. 90.50 should contain any rallies as focus turns to the 87.10 lows. UsdChf traders are careful pushing this pair much lower considering the SNBs stern warning and past actions. The USDCHF correction has made a push towards intraday resistance at 1.0390, however the bigger picture remains bearish and we expect to see a resumption of selling pressure towards first support at 1.0250 and then 1.0190. EURUSD GBPUSD USDJPY USDCHF 1.4850 1.6085 91.90 1.0490 1.4770 1.6050 91.10 1.0390 1.4720 1.5990 90.50 1.0375 1.4579 1.5842 89.76 1.0363 1.4560 1.5815 89.15 1.0250 1.4510 1.5770 88.25 1.0190 1.4460 1.5750 87.10 1.0130 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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London Session Recap

Daily Forex Fundamentals | Written by Forex.com | Sep 29 09 10:39 GMT |

European stocks markets failed to pick up the positive lead set by their Asian counterparts. Another wave of concerns that 2009 has been a 'tough' year stoked concerns about corporate performance and encouraged the USD to move higher vs the EUR and the JPY. Selling in the JPY had been triggered by comments from Japanese Finance Minister that the government may take action in the markets. These remarks have directly countered the rise in market opinion that Japan's new government may not be willing to intervene in the fx market. The better tone in the USD also followed a reiteration by ECB President Trichet of support for the US government's strong USD policy, though the impact of his remarks on EUR/USD will have been countered by his comments yesterday which referred to exit policies from the 'exceptional measures' taken by the ECB. While the AUD has also moved lower vs the USD, the unit has fared relative well on the back of another bout of rate hike speculation and on comments from the RBA's Richards that Australian house prices may surge too fast. The downward correction in AUD/USD ran into support above 0.8710. Sterling has suffered a late morning boost on reports of a large GBP buy order at the 11:00 BST fix. This news coincided with the release of a significantly improved CBI distributed trades report. The index of reported sales jumped to +3 in Sept from -16 in Aug. If the improved tone of this data is reflected in official retail sales numbers for the month, the chances of the UK reporting positive growth in Q4 this year will be significantly boosted. UK data released earlier in the morning had created little reaction. In line with expectations Q2 GDP data was revised to -0.6% q/q from a previous estimate of -0.7% q/q. Net consumer credit in Aug fell by -0.3 bln as consumers paid down debt. This marks the start of a more healthy position of UK consumer balance sheets by does not tie in well with the pickup in consumption suggesting the economic outlook will be very vulnerable when fiscal incentives dry up. Also worrying is the modest 0.1% m/m rise in M4 which does not say much for the success of QE. Cable has been squeezed back to the 1.5940 level from a low of 1.5830. EUR/GBP has dropped down below 0.9140. US Sep consumer confidence data are due this afternoon Forex.com http://www.forex.com DISCLAIMER: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase of sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

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Near-Term Yen Peak

Daily Forex Fundamentals | Written by Investica | Sep 29 09 10:42 GMT |

Capital repatriation flows should now ease which will lessen upward pressure on the yen. Comments from government officials will continue to be watched very closely and the evidence suggests that Finance Minister Fujii will take a more cautious attitude and avoid comments in favour of a strong yen. Markets will still suspect an underlying agenda for a firm currency which will tend to limit yen selling pressure. Overall, there is scope for a slightly firmer dollar trend, but it will be difficult to make much headway with further immediate resistance close to the 90.20 level. Confusion is liable to remain the dominant short-term theme over official policy towards the yen which will increase the risk of volatile trading. In comments on Tuesday, Finance Minister Fujii stated that he would not rule intervention and the comments suggest that rapid en gains have unsettled the government. Underlying nationwide consumer prices also declined 2.4% in the year to August, maintaining deflation fears and there will be pressure for yen gains to be curbed given that a strong domestic currency will exacerbate deflation pressures Capital repatriation should now ease which will tend to lessen the underlying upward pressure on the Japanese currency. The yen weakened back to 89.40 in US trading as global equity markets also rallied. Following Fujii's comments, the yen weakened to beyond 90 with the dollar hitting tough resistance near this important technical level. Investica http://www.investica.co.uk Disclaimer: Investica's market analysis is not investment advice and must not be taken as recommending particular market positions. Investica can take no responsibility for any actions taken by investors.

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Currency Pair Daily Forecasts

Daily Forex Technicals | Written by Finotec Group | Sep 29 09 09:23 GMT |

EUR/USD Daily Technical Reports EUR/USD-market strategy can be a sell from the level 1.4604$ 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 after a bearish crossover 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. USD/JPY Daily Technical Reports USD/JPY-market strategy can be a buy from the level 89.80 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 after a bullish crossover 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 bullish direction. Also, MA oscillators indicate a bullish cross on the short MA line. GBP/USD Daily Technical Reports GBP/USD-market strategy can be a sell from the level 1.5891$ 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 after a bearish crossover 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 USD/CHF Daily Technical Reports USD/CHF-market strategy can be a buy from the level 1.0359 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 after a bullish crossover 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. 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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Daily FX Report

Daily Forex Technicals | Written by Varengold Bank | Sep 29 09 09:13 GMT |

Good morning from Hamburg and welcome to the Daily FX Report. Today we will report about the US market and some other important details about some currency pairs. Anyway, we wish you a successful trading day Markets review The EUR climbed for the first time in six days versus the JPY to 131.45 as the Asian stocks rebounded and before a report forecast to show that the European confidence in the economy improved. The JPY declined to 90.01 against the USD as the Japanese Trade Minister Masayuki Naoshima mentioned a stronger JPY will hurt exporters and stoking speculation that Japan may intervene in currency market. The USD climbed and touched the 1.4606 level versus the EUR. Speculations that the Federal Reserve may keep its benchmark interest rate at a record low for too long and that increases the pressure on the USD. Federal Reserve Chairman Ben. S. Bernanke and many other policy makers may hold off increasing rates until the mid-term Congressional elections in November 2010 is over, as inflation stays within the central bank`s target rate. In Europe said European Central Bank President Jean-Claude Trichet, that the USD is extremely important for the world economy and it`s too early for the ECB to unwind emergency stimulus measures. He mentioned that only a strong USD will support a recovery from the recession. Technical analysis USD/CHF Since the middle of August, the USD has been trading in bearish trend channel. When it reached or crossed the upper line from the trend channel, the currency pair rebounded always. Now it reached the upper line of the trend channel again and it seems that the USD can`t cross it. Also the RSI may indicate a weakening trend XAU/USD Since the beginning of September, the XAU has been trading in a bullish trend. Now, it reached the bottom of the Bollinger Bands. Four times before, when the XAU touched the low Bollinger Band and was able to recover close to or over the middle Bollinger Band line and it seems that support line at 984.94 is strong enough. Also a crossing MACD could indicate, that the last down trend is over and we might expect a recovery. Pivot Points - Daily FX Support and Resistance Levels Daily Calendar & Key FX Events Varengold Bank IMPORTANT NOTIFICATION TO BE READ IN CONJUNCTION WITH THE CONTENTS OF THIS DOCUMENT This document is issued and approved by Varengold WPH Bank AG. The document is only intended for market counterparties and intermediate customers who are expected to make their own investment decisions without undue reliance on the information set out within the document. It may not be reproduced or further distributed, in whole or in part, for any purpose. Due to international laws/regulations not all financial instruments/services may be available to all clients. You should have informed yourself about and observe any such restrictions when considering a potential investment decision. This electronic communication and its contents are intended for the recipient only and may contain confidential, non public and/or privileged information. If you have received this electronic communication in error, please advise the sender immediately, and delete it from your system (if permitted by law). Varengold does not warrant the accuracy, completeness or correctness of any information herein or the appropriateness of any transaction. Nothing herein shall be construed as a recommendation or solicitation to purchase or sell any financial product. This communication is for informational urposes only. Any market or other views expressed herein are those of the sender only as of the date indicated and not of Varengold. Varengold reserves the right to consider any order sent electronically as not received unless it is confirmed verbally or through other means.

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Hungarian Loan Growth Will Be ’Subdued,’ Farkas Says

By Edith Balazs

Sept. 29 (Bloomberg) -- Hungarian bank lending growth may be “subdued” until next year, threatening to prolong the worst recession in almost two decades, according to the eastern European nation’s financial regulator.

“The room to maneuver is extremely tight,” Adam Farkas, head of financial regulator Pszaf, said in a Budapest interview on Sept. 23. “I expect lending to post a very subdued growth rate. The first positive signs will only emerge in 2010.”

Hungarians, eager to enjoy living standards closer to western European levels, ratcheted up borrowing as banking services expanded in the past decade. The amount of outstanding mortgages rose more than 30 times since 2000 to 3.9 trillion forint ($21 billion) by June 2009, central bank data show.

With Hungarian interest rates higher than those on loans in euros or Swiss francs, the ratio of foreign-currency household mortgages jumped to 70 percent by the end of 2008 from about 5 percent in 2003, the year before the country joined the European Union. The forint’s plunge to a record low against the euro this year pushed up payments and bad debt, threatening the stability of the mostly foreign-owned banking system.

The parent companies of local banks, including Austria’s Raiffeisen International Bank-Holding AG and Erste Group Bank AG, Italy’s UniCredit SpA and Germany’s Bayerische Landesbank have said they are committed to their units in the region after concern that deteriorating financial stability and eroding profits may convince them to leave.

Emergency Bailout

Hungary was the first European Union member to get an emergency bailout last year when concern that the country may run into difficulty repaying its foreign debt sent stocks, bonds and the currency tumbling. The government must keep the budget deficit in check to fulfill the loan terms.

Prime Minister Gordon Bajnai, who took office in April after the crisis toppled his predecessor, imposed austerity measures and the central bank raised its benchmark rate to as high as 11.5 percent to prop up the currency, exacerbating the problems faced by banks.

The government expects the economy to shrink 6.7 percent this year and 0.9 percent in 2010. The decline boosted unemployment, trimmed disposable incomes and slashed corporate spending.

‘Temper the Impact’

“The task of the authorities would be to temper the pro- cyclical impact” of the drop in lending, Farkas said. “This is a highly complex task and authorities can only ration incentives very carefully.”

At OTP Bank Nyrt., the nation’s largest lender, loans overdue more than 90 days rose to 7.4 percent of total lending in the second quarter from 5.7 percent in the previous three months, forcing it to triple provisions. Non-performing loans are poised to rise further, Standard & Poor’s said on Sept. 2.

OTP, which has subsidiaries in eight countries in central and eastern Europe, including Russia and Ukraine, faces heightened credit risk from its rapid loan growth outside Hungary and foreign currency lending, S&P said in the report.

Credit volumes may take two or three years to return to pre-crisis levels, said Gergely Tardos, chief economist at OTP.

“In the short term, cautiousness will be the main characteristic of the credit market both in terms of demand and supply,” he said in an e-mail.

OTP has gained 88 percent this year, the third-best performer on Hungary’s benchmark BUX Index, which advanced 68 percent. The stock yesterday climbed 135 forint, or 2.6 percent, to 5,400 forint, close to a year high.

Second Recession

The government was already taking steps to rein in spending and boost revenue when the global financial crisis engulfed the economy as it was faced with the prospect of the EU suspending grants because of a burgeoning budget deficit, the widest in the 27-nation bloc at the time.

Hungary entered its second recession in two years in the third quarter of 2008, with the pace of economic contraction reaching an annual 7.5 percent compared with 5.3 percent in Slovakia and 5.8 percent in the Czech Republic. Poland has so far avoided recession, with 1.1 percent growth.

Policy makers delayed cutting the benchmark rate to protect the forint, which slumped to a record low against the euro in March. The government and central bank now want to steer lending toward forint-denominated credit from foreign-currency loans.

The forint has since gained 16 percent against the euro, the second-best performance among the 26 emerging-market currencies tracked by Bloomberg.

“Authorities could improve the situation by steering Hungary along a convergence path that would lead to a decline in risk premiums and allow the central bank to eventually lower interest rates,” Zoltan Torok, an economist at the Budapest unit of Raiffeisen International AG said.

Spending Cuts

Bajnai pledged to cut spending by 1.3 trillion forint ($7.1 billion) this year and next. Spending cuts and the dearth of credit curb consumption, worsening the recession. By the end of July, household mortgages declined to 3.9 trillion forint from 4.3 trillion forint at the end of March.

The Magyar Nemzeti Bank returned to easing monetary policy after a six-month pause July and has since trimmed interest rates by 2 percentage points to 7.5 percent. Policy makers have said they want to continue lower borrowing costs as the economic contraction mutes inflation pressure.

“Hungary has understood this crisis, turned around its economy,” Bajnai said in an interview with Bloomberg Television. “Hungary will be one of those economies in 2011, 2012 that will come out of this crisis fastest in the region.”

To contact the reporter on this story: Edith Balazs in Budapest at ebalazs1@bloomberg.net.

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U.K. GDP Falls Less Than Prior Estimate, Loans Hold Steady

By Jennifer Ryan and Svenja O’Donnell

Sept. 29 (Bloomberg) -- The U.K. economy shrank less than previously estimated in the second quarter and mortgage approvals stayed near the highest in more than a year last month, a sign Britain is emerging from recession.

Gross domestic product fell 0.6 percent from the first quarter, compared with a prior measurement of a 0.7 percent drop, the Office for National Statistics said today in London. Banks granted 52,317 loans to buy homes in August, close to the highest level since April 2008, a separate report by the Bank of England showed.

Britain’s worst recession in a generation is easing after five consecutive quarters of contraction. Chancellor of the Exchequer Alistair Darling said yesterday that the recovery may be under way by the end of the year, supported by the government’s stimulus measures and Bank of England asset purchases.

“We should be looking forward to a decent positive number in the third quarter and an even better one in the fourth quarter,” said Alan Clarke, an economist at BNP Paribas SA in London in a Bloomberg Television interview. “But my view is: enjoy it while it lasts. We could see a soft patch in 2010.”

GDP slumped 2.5 percent in the first quarter, the most since 1958 and revised down from a 2.4 percent decline. The recession has now shaved 5.6 percent off gross domestic product. From a year earlier, the economy contracted 5.5 percent, the most since records began in 1956, the statistics office said.

Brown’s Promise

Prime Minister Gordon Brown promised last week to maintain stimulus spending until the recovery is secure. The Treasury plans to sell an extra 220 billion pounds ($349 billion) in debt this year and next year expects a deficit of 12 percent of GDP.

Brown’s ruling Labour Party fell to third place for the first time since 1982 in an opinion poll published today. Both Conservatives and Liberal Democrats led Labour in the Ipsos-Mori Ltd. survey finished Sept. 27.

“Many independent forecasters now believe the U.K. too is coming out of recession. I think it is too early to say so with total confidence,” Darling told the Labour Party annual conference in Brighton, England yesterday. “As long as we continue to support the economy, recovery will be under way in the U.K. by the turn of the year.”

A report by Hometrack Ltd. showed yesterday that U.K. house prices increased the most in two years in September as confidence in the property market improved. Services expanded at the fastest pace in almost two years in August.

GDP Breakdown

In the second quarter, manufacturing fell 0.1 percent, half the amount previously estimated, while construction declined 0.8 percent instead of 2.2 percent, the statistics office said. Services dropped 0.6 percent, unchanged from the prior assessment.

Wolseley Plc, the world’s largest supplier of heating and plumbing gear, said yesterday a decline in profits will slow next year while fund raising from investors along with cuts in working capital helped it pare debt. The Reading, England-based company has shed a total of 30,000 jobs as the recession hammered profit.

Bank of England Chief Economist Spencer Dale said last week that while the economy has “turned a corner,” the U.K. faces a “slow and protracted” climb out of the recession as unemployment continues to rise. The number of people seeking jobs rose in the three months through July to 2.47 million, the highest level since 1995.

Growth ‘Uncertainty’

“The fiscal stimulus is likely to subside from the middle of next year and it leaves a lot of uncertainty about the sustainability of growth momentum,” said Lena Komileva, an economist at Tullett Prebon in London. “The Bank of England may look to counterbalance the draconian tightening that’s in store from the next parliament.”

The household savings ratio, which measures the proportion of post-tax income saved, increased to 5.6 percent in the second quarter, the most since 2003, the statistics office said. Household disposable incomes adjusted for inflation rose 0.9 percent in the second quarter and were 0.7 percent higher than a year earlier.

Consumer spending, which accounts for two thirds of the economy, fell 0.6 percent in the quarter, revised up from a 0.7 percent drop, the report showed.

Gross domestic product will rise 0.3 percent in the third quarter and 0.4 percent in the last three months of the year, the Confederation of British Industry, the nation’s biggest business lobby, said last week. The central bank will start raising the benchmark interest rate from the current record low of 0.5 percent in the first half of 2010, the CBI says.

BOE Decision

Policy makers unanimously decided this month to maintain their plan to buy bonds with newly created money at 175 billion pounds, minutes of the Sept. 10 decision showed last week.

The current account gap widened to 11.4 billion pounds in the second quarter from 4.1 billion pounds in the previous three months, the statistics office said in a separate report today. That’s the most since 2007 and amounts to 3.3 percent of GDP.

“The stimulus is going to start to disappear and there’s going to be a severe and sustained fiscal squeeze that will keep growth relatively sluggish,” said Jonathan Loynes, an economist at Capital Economics Ltd. in London.

To contact the reporters on this story: Jennifer Ryan in London at Jryan13@bloomberg.net; Svenja O’Donnell in London at sodonnell@bloomberg.net.

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Romanian Central Bank Cuts Key Interest Rate to 8%

By Irina Savu

Sept. 29 (Bloomberg) -- Romania’s central bank cut its main interest rate to the lowest level in 19 months as a deepening recession saps price pressures in the east European country.

The Banca Nationala a Romaniei lowered the monetary policy rate to 8 percent from 8.5 percent, the Bucharest-based bank said in an e-mail today. The decision matched the expectations of all 13 economists surveyed by Bloomberg. The rate remains the highest in the European Union after Hungary cut its rate to 7.5 percent yesterday.

Twenty of the 53 central banks tracked by Bloomberg eased monetary conditions in the past three months to fight the recession, including east European countries such as Russia and the Czech Republic in August and September. The cut comes two months before presidential elections on Nov. 22 that pit the two governing parties against each other and threatens to break up the governing coalition.

“The decision is as expected, so no real surprise at this stage,” Raffaella Tenconi, chief economist at Wood & Co. in Prague, said in an e-mail today. “Clearly the political situation is an important factor going forward and I expect a temporary pause of the monetary easing cycle for a few months now.”

International Bailout

The bank has lowered the rate five times since February as government austerity measures linked to the country’s international bailout made room for a monetary easing needed to soften the impact of a recession.

Romania’s economy contracted an annual 8.7 percent in the second quarter, the most on record, and inflation slowed to a two-year low in August as consumption dropped and the global crisis forced the government to seek an international bailout.

The central bank also left the minimum reserve requirements on foreign-currency commercial deposits at 30 percent and 15 percent on deposits in lei. The bank has cut the foreign currency rate from 40 percent and 18 percent on lei deposits so far this year.

“They were loosening requirements too fast, so generally I think this is welcome news,” Tenconi said. “I think it’s possible they will cut requirements further in November, but leave interest rates unchanged in order to support lending.”

Leu Strengthens

Romania’s leu was higher against the euro after the interest rate announcement, advancing as much as 0.3 percent to 4.1922 versus Europe’s common currency. The Bucharest Stock Exchange’s benchmark BET Index rose 0.6 percent to 4,418.81.

The bank, which will hold its next rate-setting meeting on Nov. 3, said it will “closely monitor domestic and global economic developments so that, by using its available instruments, to ensure the fulfillment of its objectives of achieving and maintaining price stability in the medium-term.”

Inflation slowed to a two-year low of 5 percent in August compared with 5.1 percent in July. The central bank forecasts the inflation rate will fall to 4.3 percent by the end of this year and 2.6 percent in 2010.

The government predicts the economy will shrink about 8.5 percent this year, after growing 7.1 percent last year, the fastest pace in the EU. It predicts an emergence from a recession in the fourth quarter and growth of about 0.5 percent next year.

Romania obtained a 20 billion-euro ($29 billion) international loan led by the International Monetary Fund and the EU this year to finance its budget and current-account gaps.

As a condition for receiving the credit, the government froze state wages this year and pledged to cut spending to meet a budget target of 7.3 percent of gross domestic product in 2009. Hungary, Ukraine, Belarus, Latvia and Serbia have also sought bailouts to prevent defaults and aid banks.

To contact the reporter on this story: Irina Savu in Bucharest isavu@bloomberg.net.

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UBS Revises One- and Three-Month Forecasts for Dollar Versus Yen

By Daniel Tilles

Sept. 29 (Bloomberg) -- UBS AG, the world’s second-biggest currency trader, revised its one- and three-month forecasts for the dollar against the yen.

The dollar will buy 85 yen in one month and 90 yen in three, Brian Kim, a strategist in Stamford, Connecticut, wrote yesterday in a report.

The U.S. currency climbed 0.3 percent to 89.91 yen as of 6:35 a.m. in London.

To contact the reporter on this story: Daniel Tilles in London at dtilles@bloomberg.net

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U.S. Fed May Wait Too Long to Raise Rates, Hanke Says

By Shamim Adam

Sept. 29 (Bloomberg) -- The U.S. Federal Reserve may keep its benchmark interest rate at a record low for “too long,” increasing pressure on the dollar to weaken, said Steve Hanke, a professor at Johns Hopkins University.

Fed Chairman Ben S. Bernanke and other policy makers may hold off increasing rates until after the mid-term Congressional elections in November 2010, as inflation stays within the central bank’s target range, Hanke said in an interview in Kuala Lumpur late yesterday. The U.S. economy will probably slow once rates are increased, resulting in a W-shaped recovery, he said.

Fed policy makers indicated last week for the first time in more than a year that the economy is accelerating, while recommitting to keep their key rate “exceptionally low” for an “extended period.” The majority of policy makers consider a longer-run inflation rate of about 2 percent to be consistent with the Fed’s mandates for full employment and price stability.

“If you look at what the Fed is saying now, and you look at Bernanke’s inflation-targeting mentality, they won’t do much as long as the headline inflation rate stays in that zone of zero to 2 percent,” Hanke said. “It’s conceivable they’ll wait too long and they’ll probably keep as loose as they can before the elections. 2011 would really be way too late.”

The U.S. faces the possibility of becoming “trapped” in a situation with low levels of inflation and interest rates near zero, Fed Bank of St. Louis President James Bullard said Sept. 25. He doesn’t vote on rates this year.

The W Scenario

The Fed, in a statement after its Sept. 23 policy-setting meeting, said “inflation will remain subdued for some time.” Consumer prices fell 1.5 percent in the year ended in August.

“The economy is coming back, and as it starts coming back, we’re going to have inflation in the picture,” said Hanke, professor of applied economics at the university in Baltimore. “As we have more and more inflation, ultimately, the Fed will probably start fighting it and when they do, it’s going to tip us into another slump. That’s the W scenario.”

The U.S. needs to adopt a policy for a “strong and stable dollar” to ensure sustained economic growth and attract investment, Steve Forbes, chief executive officer of Forbes Inc., said in an interview in Kuala Lumpur yesterday. The trade- weighted Dollar Index has fallen 11 percent since President Barack Obama’s inauguration in January, in part because of a budget deficit projected to rise to $1.6 trillion this year as the government increases spending to boost the economy.

‘Complete Disaster’

The dollar’s decline will increase commodity prices, contributing to inflationary pressures, Hanke said. A stronger dollar limits investors’ need for physical assets such as commodities to hedge against inflation.

“This is a complete disaster because the Fed wants to keep inflation up between zero and 2 percent but as long as they are in that zone, they just don’t care what happens to the dollar,” he said. “If you have a weak dollar, you have all sorts of problems and knock-on effects related to it.”

Hanke is recommending investors go “long” the Indonesian rupiah and the Australian dollar versus the U.S. currency, calling them “good” carry trades. A long position is a bet that a currency will strengthen. The carry trade uses funds in countries with lower borrowing costs to invest in those with higher rates, allowing investors to pocket the difference.

He also suggests going long on the euro against the pound after Bank of England Governor Mervyn King said last week that the decline in the sterling’s value will help to rebalance the U.K. economy by shifting resources into exports.

Avoid Yuan Gain

“The pound will stay under more pressure,” Hanke said. He is in the Malaysian capital for the three-day Forbes Global CEO Conference, which started yesterday.

Hanke said China should avoid allowing its currency to strengthen, calling a resumption of gains “bad policy” and “destabilizing.”

The yuan appreciation “will just do the same thing that it did the last time,” Hanke said. “The speculative flows will start coming in and they’ll have more problems than they’ll know what to do with. They’ll have to accumulate even more reserves and get more China-bashing from the U.S. It’s very destabilizing if they start doing that.”

To contact the reporter on this story: Shamim Adam in Kuala Lumpur at sadam2@bloomberg.net

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Home Prices in U.S. Probably Fell at Slower Pace, Confidence Up

By Bob Willis

Sept. 29 (Bloomberg) -- Home values in 20 U.S. metropolitan areas probably declined at a slower pace and consumer confidence improved, signs the recession is abating as the real-estate crisis eases, economists said before reports today.

The S&P/Case-Shiller home-price index fell 14.2 percent in July from a year earlier, the least in 17 months, according to the median forecast of 35 economists surveyed by Bloomberg News. The Conference Board may say its gauge of consumer sentiment rose this month to the highest level in a year.

Foreclosure-driven price declines, low borrowing costs and government tax credits for first-time buyers have lifted home sales for much of this year, helping to slow the decline in prices. Stability in real-estate values and rising stock prices may help set the stage for a recovery in the consumer spending that accounts for two thirds of the economy.

“The year-on-year decline in home prices is slowing considerably, showing a bottoming in home prices,” said Michelle Meyer, an economist at Barclays Capital Inc. in New York. “We look for overall confidence to improve in the near term as the general economy rebounds.”

The S&P/Case-Shiller figures are due at 9 a.m. Estimates in the Bloomberg survey ranged from declines of 12.5 percent to 15 percent. Year-over-year records for the gauge, which was down 15.4 percent in June from a year earlier, began in 2001, and the measure has fallen every month since January 2007.

At 10 a.m., the New York-based Conference Board may report its consumer confidence index increased to 57 this month from 54.1 in August, according to the Bloomberg survey median.

Home Sales Rise

Combined sales of new and existing homes have risen for four out of the last five months, signaling the worst of the housing crisis is over.

Sales of new homes climbed in August to the highest level in almost a year, the Commerce Department reported last week. Sales of existing homes unexpectedly declined, while remaining at the second-highest level in 23 months, the National Association of Realtors reported last week.

The S&P/Case-Shiller price index for June rose 1.4 percent from the previous month, following a 0.5 percent increase in May, the first back-to-back gains since 2006. The monthly figures aren’t adjusted for seasonal effects, so economists prefer to focus on year-over-year changes.

Signs of a revival in the housing market have sent homebuilder stocks higher. The Standard & Poor’s Supercomposite Homebuilding index is up 27 percent so far this year, compared with an 18 percent increase for the S&P 500 Index.

Share price gains, along with a slower pace of job losses, have also helped boost consumer confidence. The economy lost 216,000 jobs in August, the least in a year, the Labor Department reported on Sept. 4.

Household Wealth

The gains in share prices contributed to a $2 trillion increase in household wealth in the second quarter. Net worth for households and non-profit groups climbed to $53.1 trillion from $51.1 trillion in the first quarter, marking the first gain since the third quarter of 2007, according to a Sept. 17 report from the Federal Reserve.

Fed policy makers last week said they would keep the benchmark lending rate near zero “for an extended period,” while noting that the economy and housing had strengthened. They also said they would slow the central bank’s purchases of mortgage debt and extend the program through the first quarter of 2010 in order to keep lending rates low.

Lennar Corp., the third-largest U.S. homebuilder, is among companies that see demand improving, even as losses mount. The Miami-based company said last week it expects to turn a profit in fiscal 2010.

Signs of Improvement

“In the third quarter we started to see some real signs that the housing market is in fact starting to stabilize,” Stuart Miller, Lennar’s chief executive officer, said on a Sept. 21 conference call. “The sense that now is the time to buy is starting to gain momentum.”

Mounting foreclosures present a risk of renewed price declines as more homes are thrown onto the market. Foreclosure filings in August exceeded 300,000 for the sixth straight month, according to data from RealtyTrac Inc. A total of 358,471 properties received a default or auction notice or were seized last month, 18 percent more than a year earlier.

KB Home, the Los Angeles-based homebuilder that sells to first-time buyers, on Sept. 25 reported a third-quarter loss exceeding analysts’ estimates and said a housing recovery isn’t imminent.

“The precise timing of a housing recovery remains uncertain,” Chief Executive Officer Jeffrey Mezger said on a conference call with analysts.

                         Bloomberg News

=================================================
                        Case Shil Consumer
                          Monthly     Conf
                             YOY%    Index
=================================================

Date of Release              09/29    09/29
Observation Period            July    Sept.
-------------------------------------------------
Median                      -14.2%     57.0
Average                     -14.1%     57.4
High Forecast               -12.5%     70.0
Low Forecast                -15.0%     54.0
Number of Participants          35       76
Previous                    -15.4%     54.1
-------------------------------------------------
4CAST Ltd.                  -14.3%     57.0
Action Economics            -14.7%     57.0
AIG Investments             -13.6%     59.0
Aletti Gestielle SGR          ---      58.0
Ameriprise Financial Inc      ---      57.0
Argus Research Corp.          ---      60.0
Banesto                     -14.3%     57.0
Bank of Tokyo- Mitsubishi     ---      58.5
Bantleon Bank AG              ---      58.0
Barclays Capital            -14.0%     57.0
Bayerische Landesbank       -14.5%     56.0
BBVA                        -13.1%     57.9
BMO Capital Markets         -14.3%     57.0
BNP Paribas                   ---      58.0
Briefing.com                -14.5%     59.5
Calyon                        ---      56.0
Capital Economics           -14.0%     55.0
CIBC World Markets            ---      58.0
Citi                          ---      57.0
ClearView Economics         -14.6%     56.0
Commerzbank AG              -14.3%     56.0
Credit Suisse                 ---      70.0
Daiwa Securities America      ---      57.0
Danske Bank                   ---      56.2
DekaBank                    -13.9%     56.5
Desjardins Group            -14.7%     56.0
Deutsche Bank Securities      ---      56.5
Deutsche Postbank AG          ---      56.0
First Trust Advisors          ---      62.0
Fortis                      -14.0%     56.0
Goldman, Sachs & Co.          ---      59.0
Helaba                        ---      57.0
Herrmann Forecasting        -14.2%     60.1
High Frequency Economics    -14.0%     56.0
HSBC Markets                -14.0%     59.0
IDEAglobal                  -14.4%     57.0
IHS Global Insight            ---      54.0
Informa Global Markets        ---      55.8
ING Financial Markets       -14.5%     56.5
Insight Economics           -12.5%     55.0
Intesa-SanPaulo               ---      55.0
J.P. Morgan Chase           -13.8%     57.0
Janney Montgomery Scott L   -14.6%     55.0
Jefferies & Co.               ---      57.5
Johnson Illington Advisor     ---      57.5
Landesbank Berlin             ---      58.0
Maria Fiorini Ramirez Inc     ---      57.0
Merrill Lynch/BAS           -14.0%     56.0
MFC Global Investment Man     ---      58.0
Mizuho Securities           -15.0%     56.0
Moody’s Economy.com           ---      58.8
Morgan Stanley & Co.          ---      55.0
National Bank Financial       ---      58.5
Natixis                     -13.7%     56.4
Newedge                       ---      55.6
Nord/LB                       ---      58.0
Raymond James                 ---      58.5
RBC Capital Markets           ---      59.0
RBS Securities Inc.           ---      59.0
Ried, Thunberg & Co.        -13.8%     58.0
Schneider Foreign Exchang     ---      60.4
Scotia Capital              -14.4%     56.0
Standard Chartered          -14.2%     57.0
Stone & McCarthy Research     ---      57.0
TD Securities               -14.2%     58.0
Thomson Reuters/IFR           ---      57.5
Tullett Prebon                ---      58.5
UBS                           ---      58.5
UniCredit Research          -13.8%     57.0
Union Investment              ---      60.0
University of Maryland      -14.3%     56.3
Wells Fargo & Co.             ---      55.5
WestLB AG                   -14.3%     58.0
Westpac Banking Co.         -14.2%     55.0
Woodley Park Research       -13.5%     56.5
Wrightson Associates          ---      58.0
=================================================

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

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Dollar Gains as Russia Rate Cut Spurs Concern Rebound to Falter

By Matthew Brown and Yoshiaki Nohara

Sept. 29 (Bloomberg) -- The dollar advanced to a two-week high versus the euro as evidence economies have yet to shake off the worst effects of the global recession reduced demand for higher-yielding assets.

The U.S. currency strengthened as Russia’s central bank cut its main interest rate, reviving concern policy makers have more work to do to spur a recovery. The yen slid against the dollar after Japan’s finance minister said the government may take action in markets to curb gains that are hurting exports.

Russia’s rate cut “is a signal that things are not as positive as they appeared previously,” said Adam Cole, head of global currency strategy at Royal Bank of Canada Europe Ltd. in London. “That’s positive for the dollar.”

The dollar climbed 0.4 percent to $1.4558 per euro at 7 a.m. in New York, from $1.4622 yesterday, and touched $1.4537, the strongest level since Sept. 14. The yen depreciated 0.4 percent to 89.96 per dollar, from 89.63, after reaching 88.24 yesterday, the strongest level since Jan. 23. Japan’s currency was little changed at 130.94 per euro.

The ruble was little changed at 30.1195 per dollar after Bank Rossii cut its refinancing rate to 10 percent from 10.5 percent. The bank lowered borrowing costs seven times since April 24, including a quarter-point reduction on Sept. 14.

The yen fell against the dollar for the first time in four days after Finance Minister Hirohisa Fujii said he may intervene in foreign-exchange markets.

“If the currency market moves abnormally, we may take necessary steps in the national interest,” Fujii said at a news conference in Tokyo today. He denied saying he tolerates a stronger yen.

Fujii on Yen

As the Democratic Party of Japan, or DPJ, came into power for the first time two weeks ago, Fujii said the idea of a weaker yen helping the nation’s exports is “absurd” and he opposed governments stepping into currency markets “in principle.” Central banks intervene in foreign-exchange markets by selling and buying currencies.

The yen gained about 16 percent versus the dollar in the past year, making Japanese products shipped abroad more expensive and eroding the value of exporters’ repatriated profits. The DPJ has said a stronger currency may benefit households by making imported goods cheaper.

Japanese companies said they can remain profitable as long as the yen trades at 97.33 per dollar or weaker, according to a Cabinet survey released on April 22. Exports account for 12 percent of Japan’s economy, compared with 6 percent in the U.S.

‘Losing Momentum’

“The yen’s recent gains, fueled by market interpretation of Fujii’s comments, are losing momentum,” said Masato Mori, senior manager of the business and marketing department at NTT SmartTrade Inc. a unit of Nippon Telegraph & Telephone Corp.

South Korea’s won led gains among Asian currencies after the nation’s central bank forecast a seven-month run of current- account surpluses will extend through to the end of the year.

The won was also supported by a report saying affiliates of Samsung Group, the nation’s biggest family-run industrial group, have based their business plans for next year on an exchange rate that’s about 8 percent stronger than the current level.

“The fact that there is improvement in the balance of payments and current-account surplus will provide another layer of support for the Korean won,” said Mitul Kotecha, head of global foreign-exchange strategy in Hong Kong at Calyon, the investment-banking unit of Credit Agricole SA. “The won will benefit from flows and improvement in the capital position.”

The won climbed 0.8 percent to 1,186.00 per dollar as of the close of trading in Seoul. It touched 1,184.93 yesterday, the strongest level since October 2008.

European Sentiment

The euro fell against the dollar even as a report showed European confidence in the economy increased to the highest level in 12 months in September. An index of executive and consumer sentiment in the 16-nation euro region rose to 82.8, from 80.8 in August, the European Commission in Brussels said today. That was the sixth straight monthly gain.

The U.S. currency also advanced after European Central Bank President Jean-Claude Trichet told lawmakers in Brussels yesterday the “solidity of the dollar is very important” for the world economy. The euro reached a one-year high of $1.4844 on Sept. 23.

Japan’s Toyoo Gyohten, who is slated to become an adviser to Finance Minister Fujii, also expressed support for the dollar, indicating the DPJ may keep buying U.S. Treasuries, extending the policy of the former government.

“There’s no better alternative to the dollar,” Gyohten, 78, said in an interview yesterday in Tokyo. “Making it as stable as possible would be the best policy option at the moment.”

To contact the reporters on this story: Matthew Brown in London at mbrown42@bloomberg.net; Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net

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India’s Iron Ore Prices Gain on Higher China Demand

By Debarati Roy

Sept. 29 (Bloomberg) -- India’s export price for iron ore rose as much as 16 percent in the past week as customers in China replenished inventories ahead of National Day holidays, said an official of the Indian mineral industry association.

Prices rose to $70 a metric ton from $60 earlier this month, R.K. Sharma, secretary general of the Federation of Indian Mineral Industries, said today in a telephone interview.

China’s steelmakers are buying more iron ore, their main raw material, as the government implements a $586 billion stimulus spending. The economy is forecast to expand 8.2 percent this year, compared with a March estimate of 7 percent, the Asian Development Bank said last week, easing concern that the nation may slow raw-material imports.

“Demand has gathered momentum,” Sharma said. “India is benefiting as mills are stocking up ahead of the holidays.”

India’s exports may have fallen 15 percent in August and 25 percent in the first two weeks of this month, Siddharth Rungta, president of the Indian mineral body, said on Sept. 16.

China, the world’s biggest consumer of iron ore, may buy 20 percent more than forecast of the material next year, Canberra- based Australian Bureau of Agricultural and Resource Economics said on Sept. 22. China may import 637 million tons of ore in calendar 2010, compared with its June prediction of 529 million tons.

Also, global steel consumption may be 1.3 billion tons next year, up 6.5 percent from this year’s estimated 1.2 billion tons, the bureau said.

Shipping Surge

The Baltic Dry Index, the main measure of shipping costs for commodities, may surge more than 80 percent by the end of the year on increased demand for shipments to China, according China Ocean Shipping Group Co.

The gauge may rebound to 4,000 points as local governments encourage factory output, especially of steel, said Kong Fanhua, a senior researcher at China Ocean Shipping Group.

Iron-ore swaps for settlement this month traded at $79.67 a ton yesterday, according to SGX AsiaClear over-the-counter prices from Singapore Exchange Ltd. They indicate prices may rise to $81.42 in October.

China will be shut for more than week for the National Day holiday next month.

To contact the reporter on this story: Debarati Roy in Mumbai at droy5@bloomberg.net.

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Ivorian Cocoa Output May Fall on Lack of Investment, Pesticides

By Monica Mark

Sept. 29 (Bloomberg) -- Cocoa production in Ivory Coast, the world’s biggest producer of the chocolate ingredient, may decline by as much as 15 percent next season, according to two industry officials with access to confidential government data.

Output may drop to 1 million metric tons in the season that begins on Oct. 1 and ends on Sept. 30, 2010, compared with an estimated 1.18 million tons in the current season that ends tomorrow, according to one industry official. Production probably won’t exceed 1.1 million tons, said an exporter who also has access to the statistics. Both officials declined to be named because they aren’t authorized to speak to the media.

The International Cocoa Organization forecast world demand for cocoa beans will exceed output by 73,000 tons this year. A shortfall next year will make it four years in a row, the longest deficit run since 1969. Reduced supplies may push cocoa futures prices in New York to an average of $3,300 a ton, the highest since 1980, during the second half of 2010, London-based Barclays Plc said in an e-mailed report last month.

Global inventories in the year ending this month will fall to the lowest level since 2003, sending the ratio of stockpiles to usage to 39.7 percent, the lowest since 1986, according to the ICCO.

Cocoa output in Ivory Coast, which accounts for 40 percent of global production, is being hampered by a lack of investment by impoverished farmers and delayed government programs to distribute pesticides, according to shippers. Diseases including Black Pod Rot and ageing trees are also curtailing output, said Ali Lakiss, another exporter.

Quality

“I’m pretty sure the crop for the 2009-10 season won’t be any higher than 1.1 million tons,” Lakiss, director of Saf- Cacao, Ivory Coast’s largest domestically owned exporter, said by phone from San Pedro in western Ivory Coast. “And many of those beans simply won’t be of commercial standard because the fields haven’t been treated.”

Farmers in Daloa, Ivory Coast’s most important cocoa growing region with production of about 300,000 tons a year, said delays to the government’s free pesticide program meant the benefits of spraying would now be reduced. Black Pod, a fungus that causes cocoa pods to turn black and rot, can reduce yields if not treated.

“We were supposed to receive the pesticides by August free from the government, but it’s being sold on the open market,” Sassandra-based farmer Jean-Claude Coffie said in an interview on Sept. 25. “People are making a fast buck from selling it.”

Pesticides

During the current season Ivory Coast’s state-owned Fund for Developing and Promoting Coffee and Cocoa Activities treated 200,000 hectares (494,211 acres) of land with chemicals that combat black pod. Next season, the fund plans to use general pesticides to treat a total of 500,000 hectares, of which 312,000 hectares will be sprayed with chemicals that tackle black pod.

Most of the country’s 2.2 million hectares will have to be treated at farmers’ expense or left untreated, Coffie said.

Ivory Coast has come under pressure from the World Bank and the International Monetary Fund to reorganize its cocoa industry. The Washington-based lenders have urged the country to reduce taxes by about 50 percent over the next two years. The taxes weigh on farm-gate prices that exporters pay growers, reducing their earnings to around 37 percent of the free-on- board price, according to the World Bank.

Producers in neighboring Ghana, the world’s second-biggest cocoa grower, get 70 percent of the free-on-board price paid by the importer and annual output has grown to around 700,000 tons from 500,000 tons three years ago, according to the Ghana Cocoa Board. Low farm-gate prices crimp productivity as growers have less money to invest in maintaining plantations.

Debt Relief

Under debt-relief terms set by the World Bank, Ivory Coast has reduced two of the eight main export taxes on cocoa and coffee for the coming season. One tax, known as the droit unique de sortie, will be cut by 20 CFA francs (4 U.S. cents) per kilogram (2.2 pounds) to 200 CFA francs from 2010.

Ivory Coast has been able to rely on higher world cocoa prices to raise farm-gate prices to compensate for the high levels of domestic taxation.

Cocoa futures for December delivery rose $2, or 0.1 percent, to $3,085 a ton on ICE Futures U.S. in New York yesterday. The price has gained 16 percent this year.

To contact the reporters on this story: Monica Mark in Abidjan via Johannesburg at pmrichardson@bloomberg.net.

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