Economic Calendar

Thursday, October 8, 2009

Currencies: Dollar Remains Under Pressure

Daily Forex Fundamentals | Written by KBC Bank | Oct 08 09 08:03 GMT |

Sunrise Market Commentary

  • Global bonds have good run, following some modest correction at start of the week
    Yesterday's strong performance of the bond markets indicated that the underlying sentiment is still bullish following last week's technical break higher. Bonds benefited from the slightly more cautious sentiment on the equity markets ahead of Q3 earnings and from strong auction results in both Germany and the US. Today's ECB and BoE meetings aren't expected to rock the boat, while the US Treasury will close its refinancing with a 30-year Bond auction.
  • FX: Dollar remains under pressure
    Strength in the Australian job market puts the low yielding dollar under pressure, as it raises risk appetite and stimulates new carry trades funded in dollar. Will the ECB up its FX rhetoric, as EUR strength is increasingly seen as harmful.

The Sunrise Headlines

  • US equities end a sideways oriented dull trading session with small gains. Asian equities trade positively, helped by strong data from Australia and South Korea.
  • An unexpectedly strong job report in Australia, on the back of the rate hike boosts Australian equities and propels the Aussi dollar to a 14-month high against the US dollar.
  • According to traders, a number of Asian Central Banks, like the Korean and Philippian one, were seen buying US dollars against their currency to stem the strength of their currency.
  • Strong eco data in South Korea up the speculation that the BoK may follow the example of the RBA and hike rates, maybe as soon as tomorrow.
  • ECB is expected to keep rates unchanged and talk cautiously at today's meeting, but also the BoE will stand put at its meeting.
  • Gold continues to catch the attention as it jumps to $1050/ounce, as US dollar remains under pressure. FT runs the headline: Obama under fire over falling dollar.
  • Alcoa, opening the earnings season, posts unexpectedly strong Q3 results, following three quarters of losses, on cost cutting and higher aluminum prices, but its CEO remains cautious also on metal prices.
  • Today, the ECB and BoE meetings will get all attention, but the US claims and German industrial production are worth looking at. Fresh bond supply from the US and the Netherlands

EUR/USD

After a session with a lot of fireworks on Tuesday, markets entered calmer waters yesterday. Eco data were few. The German factory orders were slightly better than expected but European Q2 growth was revised slightly lower from -0.1% Q/Q to - 0.2% Q/Q. The latter was completely irrelevant from a market point of view, but together with a very moderate correction on the equity markets, it was a good excuse to take some profit on Tuesday's EUR/USD rebound. So, the a test of the 1.4803/45 area didn't occur and EUR/USD drifted south below the 1.47 mark, awaiting the things to come: the US 10-year auction and the earnings from Alcoa and its potential impact on the equity markets. The 10-year Note auction went well, but didn't impact the dollar. Alcoa surprised analysts by posting a Q3 profit instead of an expected loss, but also here it couldn't give the pair much direction.

EUR/USD closed the session at 1.4692, compared to 1.4722 on Tuesday evening. The newswires/news providers brought still a lot of market talk on future role of the dollar, e. g. with respect to oil transactions, but it had no additional negative impact on trading. Nevertheless, the fundamental debate on the status of the dollar is heating up. Overnight, the dollar came again under pressure. The trigger was a stellar job report in Australia. On the back of the rate hike on Tuesday, it suggests that the RBA will have to raise rates rapidly again and probably by more than expected until now. This contrasts with the near 0% rate in the US where the Fed isn't anytime close to hiking rates. So, talk about carry trades funded in USD is flaring up. Other Asian currencies are profiting as their economies are thriving well too and traders reported that several Asian Central Banks were seen buying dollars. Attention focuses now on the Bank of Korea who meets tomorrow amid speculation it might hike rates. This risks of course more Won strength, something the Central Bank is afraid of. The weakness of the dollar against the Asian currencies was transferred to the EUR/USD that rose to about 1.4770 overnight, closing in on the recent highs

EUR/USD: ST highs coming within reach

Support comes in at 1.4674/615 (STMA/Boll Midline/MTMA), at 1.4633 (STMA), at 1.4650 (reaction low hourly), at 1.4582 (week low) and 1.4531/02 (LTMA/Bollinger bottom/ uptrendline daily since March).

Resistance stands at 1.4773/77 (today high/channel top), at 1.4796/1.4803 (Bollinger top/reaction high), 1.4845 (Reaction high), at 1.4867 (Sep 2008 high).

The pair is in overbought territory.

USD/JPY

Today, the eco calendar is again more inspiring. The German production data and the US jobless claims are interesting and may have intra-day impact on EUR/USD trading. However, the ECB policy decision and press conference are the key. Usually, the ECB refrains from high profile comments on the external value of the euro. In ECB policy framework, the external value is an input for its inflation scenario, but no objective of policy. However, recently, ECB's Trichet and other ECB board members stressed that the rebalancing of the global economy didn't mean the dollar had to weaken versus the euro. Such weakening was needed against Asia with which the US has a huge trade deficit. We don't expect hard talk or action from the ECB to stress its opinion on EUR/USD, but it remains interesting to see how much weight the ECB will give to the strength of the single currency. (e. g; is it addressed in the prepared statement or will Tichet only repeat the new ECCB mantra in case of a question?). After the close of US markets, Fed Bernanke will speak on a very interesting in issue for all markets: the Fed's balance sheet.

Global context: recently, the swings in risk appetite/risk aversion were the obvious drivers on the currency markets. In this context, improving investor sentiment toward risk is still considered a good reason to sell the US dollar. On top of that, in this low yield environment, the dollar has become (or is at least perceived to have become) the preferred currency to fund carry-trade deals. Lingering uncertainty on the huge US financing needs, some international debate the status of the dollar and the Fed's intention to run an expansionary monetary policy for a prolonged period of time offer additional ammunition for carry traders to use the dollar rather than other currencies. This has put the dollar in a vulnerable position. We don't see many reasons to turn dollar positive before it becomes clear that the Fed will start tightening monetary policy. Last week's US payrolls report only reinforced the feeling that point hadn't been reached. Any correction on the stock markets might still have some impact EUR/USD. However, as we expect corrections on the liquidity driven rally on the stock markets to be limited, the downside in EUR/USD well protected. From the euro side of the story, we keep a close eye on today's ECB meeting, but we don't expect Trichet to rock the boat on the currency issue (cf. supra).

Looking at the (technical) charts, the break of EUR/USD above the range top at 1.4438/48 improved the picture. The pair extensively tested the key 1.4719 December high and even set a new minor high (1.4844). However, there was no followthrough action on this 'break'. Following a correction, that narrowly missed the 1.4438/50 break-up area, put forward as offering a good opportunity to step in again, the pair is again closing in on the 1.4844 resistance. If the stock market rebound continues, the 1.5021 target (2nd target double bottom of 1.3739) might come again in the picture and the technical picture would get yet another EUR bullish upgrade.

On Wednesday, USD/JPY continued to drift south. There was a lot of market talk on option related activity with markets looking to trip stops in the key sub-88 area. However, the attempt didn't succeed (88.01 for a low) and USD/JPY rebounded to the 0.89 area. A senior IMF Director indicated that in the Fund's view the current value of the yen was not out of line with medium term fundaments. The impact on USD/JPY trading was limited. Nevertheless, the pair couldn't sustain above USD/JPY 89 and closed the session at 88.61, compared to 88.82 on Tuesday evening. Overnight, the dollar selling resumed, essentially driven by events in Australia (see EUR/USD) and AUD-induced general dollar weakness. The pair slid to the low 88's, but without much momentum or specific Japan news behind. Speculation on whether the Japanese will intervene and at what levels is lively, with analysts tending to believe the government will only become more serious on the issue if the economy would show again more signs of weakness maybe towards year end of in early 2010. We are not sure that it will be the economic data that are the referee. An acceleration of the strengthening of the yen and disorderly moves may be enough to convince Japanese authorities to intervene.

Global context: USD/JPY reached a reaction high in the 97.80 area early August. Despite a positive global investor sentiment, the dollar could not hold on to its gains against the yen. The link between USD/JPY and global investor risk aversion/risk appetite became less tight and sometimes it had even reversed. The dollar (and not the yen) was said to have become the preferred funding currency for carry trades. So, the price action in USD/JPY more or less joined the global dollar trend (decline). The long-term trend obviously remains USD/JPY negative. However, recently, we turned more cautious on USD/JPY shorts on technical considerations. On top of that, the change in talk from the Japanese authorities also slowed the ascent of the yen. So, the situation in USD/JPY has become a bit paralysed. We still look to sell USD/JPY in case of a more pronounced up-tick. The 87.10 (year low) area remains the next high profile target on the downside for this pair. Even as we have a longterm yen positive bias, we would not go yen long at the current levels as Japanese authorities will most probably continue to use verbal interventions to prevent a to swift rise of their currency. The 92/93 area might be a good entry point if the correction would go that far.

USD/JPY: Downtrend well in place, but markets are cautious as the major 87.10 support looms

Support is seen at 88.26 (Bollinger bottom), at 88.01 (new recent low), at 87.10/04 (Year low/Starc bottom).

Resistance comes in at 89.05 (STMA/Daily envelope), at 89.81/98 (MTMA/downtrendline/week high), at 90.28 (Bollinger mid-line) and at 90.42 (30Sep high).

The pair is in oversold conditions

EUR/GBP

On Wednesday, the sterling storm that resurfaced on Tuesday after the very poor UK production data calmed down. There were only some second tier UK eco data on the agenda. A shy attempt to break above Tuesday's highs failed. Later on, the sterling even gained some ground in what we would qualify as a technical-inspired corrective move on recent sharp weakening. EUR/GBP closed at 0.92011 versus a previous close at 0.92475. Overnight, EUR/GBP moved again higher and changes hands at 0.9269. Sterling as a low yielding currency remains vulnerable as risk appetite increases, which was the theme overnight after Australia reported unexpected strength in its labour market.

Today, the focus is on the BOE policy meeting. However, we expect to Bank to maintain its wait-and-see mode until the November meeting (when a new inflation report will be available). Last month, there was a very small sterling positive reaction as the BOE didn't decide to raise the amount of asset purchases (which apparently was still seen as an outside chance in the market at that time). A similar, very brief sterling rebound was seen after the publication of the Minutes of the September meeting as it appeared that the Bank voted 9-0 to keep the amount of asset purchases unchanged. So, BoE's King didn't vote for raising the amount as he did in August, but indicated at the same time that his case was still valid. After the recent sterling sell-off, an unchanged decision might trigger a similar, technical reaction. However, if any, we don't expect it to have strong legs

Global context: Since early August sterling sentiment deteriorated again. The August BoE decision to raise the asset purchase program to £175B and Governor King's call for an even greater effort indicated that the Bank intended to maintain a loose policy for a prolonged period of time. This triggered a new sterling selling wave. At the September meeting, the BoE took no additional policy steps. Nevertheless, the (monetary) picture stays sterling negative and more BOE talk on the positive effects of sterling weakness for the UK economy reinforced investors' feeling that the BOE was quite happy with the course of events. We have a long-standing sterling negative view and don't feel any need to change it. However, recently we advocated some caution on the recent steep EUR/GBP rise. Last week, there was a temporary unwinding of overextended sterling short positions. Recently, we were looking for a correction to go add/reinstall EUR/GBP long positions. The 0.9080 area (previous high) has already been tested twice. So, its might become a hard nut to crack. A break above the 0.93-area could reinforce the EUR/GBP ascent

EUR/GBP: remains near recent highs with uptrend well intact

Support comes 0.9202 (STMA), at 0.9188/75 (reaction low hourly/daily envelop), at 0.9188 (STMA), at 0.9154/40 (MTMA/week low) and at 0.9113 (Weekly envelop).

Resistance is seen at 0.9256/60 (Reaction high hourly/daily envelop), at 0.9277 (week high), at 0.9304 (recovery high), at 0.9318 (Weekly envelop).

The pair is in overbought conditions.

News

EMU: Ongoing strength in German factory orders

German factory orders rose a stronger than expected 1.4% M/M in August to be down still 20.4% Y/Y, little changed from July when orders fell 20.1% Y/Y. The July rise of 3.5% M/M was revised to 3.1% M/M meaning that all in all the report was in line with expectations. The report suggests that the recovery in the German industry continued. The increase was broad-based across sectors, but with cars outperforming sharply.

Q2 EMU GDP was revised down to -0.2% Q/Q from -0.1% Q/Q previously. There was a clear geographical divergence between Germany, France and Portugal all up 0.3% Q/Q on the one hand and Spain (-1.1% Q/Q), Italy (-0.9% Q/Q) and Austria (- 0.5% Q/Q) on the other hand. The composition of GDP didn't show big revisions

Download entire Sunrise Market Commentary

Disclaimer: This non-exhaustive information is based on short-term forecasts for expected developments on the financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a KBC judgment as of the data of the report and are subject to change without notice.


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Bankruptcies In Japan Fall To The Lowest In 4 years

Daily Forex Fundamentals | Written by ecPulse.com | Oct 08 09 07:40 GMT |

The easing credit crunch started to help more companies in Japan avoid bankruptcy during the month of September, where the index that measures bankruptcies fell to the lowest in 4 years, stressing the ability of Japanese firms to survive the current financial crisis.

The yearly index of bankruptcies which measures the number of companies that filed for bankruptcy during last month with liabilities of over 10 million Yen, fell to -18.0% in September from the previous reading of -1.00%. 1155 companies filled for bankruptcy in September marking the lowest since April 2005.

Japan's recent economic fundamentals confirm that the worst for the crisis ended during the first quarter of this year, as a result of the stimulus plans and the monetary easing policy that helped support many sectors, although there were some concerns that if the government end its support to the economy many sectors might start falling.

The improvement in global demand in addition to the strong recovery seen by the Chinese economy helped improve Japan's exports. However, there is still a major problem that the economy faces right now and that is the increased exchange rate of the currency. As the yen rose yesterday against the dollar to its highest in 8 months at 88.0, and this reduces the competitiveness of Japanese products and goods in the global market.

The Japanese authorities decided to stop their non-standard financial programs by the end of this year, as a result to the improvement started to be seen within the financial system, where big companies started having access to the needed funds while small companies were able to avoid bankruptcy as a result to the recovery seen by the economy.

Since interest rates in Japan reached to 0.10% and there were no more means to help the economy throughout the monetary policy, authorities started injecting liquidity in the financial markets to unfreeze the credit markets and buying bad debts and troubled assets from the Japanese companies in order to cushion the fall resulted from the severe decline in global demand.

Despite the improvement witnessed by several sectors in Japan, there are still fears that the economy may witness a relapse, since exports did not rise sufficient to support the economy and the domestic consumption cannot compensate completely for the decline in exports. The rise in unemployment also played a role into keeping households from spending freely.

The Japanese Finance Minister said during the G7 meeting held in Istanbul that the government is not reluctant to intervene in the currency markets in order to stabilize the local currency, which started to have a negative impact on the economy. The current rise in the Japanese yen against the dollar and other currencies might not leave options to the government but to work on reducing the value of the Japanese yen

Ecpulse

disclaimer: The content of ecPulse.com and any page in the website contain information for investors/traders and is not a recommendation to buy or sell currencies, stocks, gold, silver & energies, nor an offer to buy or sell currencies, stocks, gold, silver & energies. The information provided reflects the writers' opinions that deemed reliable but is not guaranteed as to accuracy or completeness. ecPulse is not liable for any losses or damages, monetary or otherwise that result. I recommend that anyone trades currencies, stocks, gold, silver & energies should do so with caution and consult with a broker before doing so. Prior performance may not be indicative of future performance. Currencies, stocks gold, silver &energies presented should be considered speculative with a high degree of volatility and risk


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FX Technical Analysis

Daily Forex Technicals | Written by Mizuho Corporate Bank | Oct 08 09 06:50 GMT |

EURUSD

Comment: Limping along behind the leaders as the US dollar weakens against a raft of major currencies. Momentum is zero and the Euro is certainly not overbought. Allow for hesitation at the 1.4750 area this morning, and mainly all day. Until the Euro manages a daily (and preferably weekly) close above 1.4800 we cannot rule out another test of support between 1.4600 and 1.4500.

Strategy: Possibly attempt the tiniest of shorts at 1.4755; stop/reverse above 1.4845. Cover between 1.4650 and 1.4600 and watch for signs of basing before going long

Direction of Trade: →↗

Chart Levels:

Support Resistance
1.4683 " 1.4763
1.465 1.4774
1.4593 1.4803
1.4565 1.4845**
1.4500/1.4480* 1.49

GBPUSD

Comment: Consolidating nervously inside a tiny 'triangle' another downside probe of medium term Fibonacci retracement support looks likely.

Strategy: Possibly attempt tiny longs at 1.5900/1.5875; stop well below 1.5700. Short term target 1.6050.

Direction of Trade: →

Chart Levels:

Support Resistance
1.5858 " 1.6013
1.5805 1.605
1.5770* 1.6127
1.5700* 1.615
1.56 1.6200*

USDJPY

Comment: Despite yesterday's strong intra-day rally, which was stopped by the 9-day moving average, the dollar is back down to where it was this time yesterday. The US dollar is oversold and bearish momentum has increased; add to this the threat of verbal intervention and the mix becomes increasingly volatile. A test of this year's low at 87.10, and then critical long term support at 85.00, is imminent.

Strategy: Attempt shorts at 88.25 but only if prepared to add to 89.40; stop above 90.05. Short term target 88.25, eventually 87.25

Direction of Trade: →↘

Chart Levels:

Support Resistance
88.16 " 88.72
88.01/87.97* 89.4
87.5 90.00*
87.10/87.00** 90.42
86.80/86.65* 86.00 90.85

EURJPY

Comment: Yen crosses are very mixed with some hovering close to this year's highs and other currencies trading at some of this year's lower levels. EUR/JPY is still hovering rather precariously on trendline support with the Euro oversold again and bearish momentum increasing slightly. Any minute now this yen cross should drop, maybe like a stone.

Strategy: Attempt small shorts at 130.25, adding to 131.00; stop above 132.25. Short term target 129.65 then 129.00.

Direction of Trade: →↘

Chart Levels:

Support Resistance
129.98 " 130.5
129.84 131.1
129.58 131.66
129.00* 132.04*
128 133

Mizuho Corporate Bank

Disclaimer

The information contained in this paper is based on or derived from information generally available to the public from sources believed to be reliable. No representation or warranty is made or implied that it is accurate or complete. Any opinions expressed in this paper are subject to change without notice. This paper has been prepared solely for information purposes and if so decided, for private circulation and does not constitute any solicitation to buy or sell any instrument, or to engage in any trading strategy.


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Forex Technical Analytics

Daily Forex Technicals | Written by FOREX Ltd | Oct 08 09 06:53 GMT |

CHF

The pre-planned short positions from key resistance range levels were implemented and the achievement of pre-planned targets is supported by current bearish activity cycle with the tendency for its strengthening. Therefore, considering the risk of another rate return to 1,0300/20 resistance levels the targets for opened short positions will be 1,0240/60, 1,0160/80 levels and (or) further break-out variant up to 1,0100/20, 1,0040/60, 0,9980/1,000. The alternative for buyers will be above 1,0400 with the targets of 1,0440/60, 1,0500/20.

GBP

The preplanned break-out variant for buyers has been implemented with overlap of minimal estimated target. OsMA trend indicator, having marked the tendency of bullish activity strengthening gives grounds to prefer buyers positions planning for today. On the assumption of it as well as of the signs of local reversal downside momentum we can assume probability of rate return to Senkou Span B line of Ichimoku indicator at 1,5940/60 levels where it is recommended to evaluate the development of the activity of both parties in accordance with the charts of shorter time interval. As for short-term buying positions on conditions of formation of topping signals the targets will be 1,6000/20, 1,6060/80, 1,6120/40 and (or) further break-out variant up to 1,6180/1,6200, 1,6240/60, 1,6360/1,6400. The alternative for sales will be below 1,5880 with the targets of 1,5820/40, 1,5760/80, 1,5700/20.

JPY

The pre-planned long positions from key supports were implemented with overlap of minimal estimated target. OsMA trend indicator having marked in general outlook bullish development priority gives grounds to support buyers positions planning priority for today. On the assumption of it we can suppose another test of close 88,00/10 supports where it is recommended to evaluate the development of the activity of both parties in accordance with the charts of shorter time interval. As for short-term buying positions on condition of the formation of topping signals the targets will be 88,50/60, 89,00/20 and (or) further break-out variant up to 89,60/80, 90,20/40. The alternative for sales will be below 87,60 with the targets of 87,00/20, 86,40/60.

EUR

The pre-planned long positions from key supports were implemented with the achievement of minimal and main estimated target. OsMA trend indicator having marked relative bullish activity rise at the break of key resistance level gives grounds to preserve bullish direction priority for planning of trading operations for today. On the assumption of it we can assume probability of rate return to close 1,4710/30 supports where it is recommended to evaluate the development of the activity of both parties in accordance with the charts of shorter time interval. As for short-term buying positions on condition of the formation of topping signals the targets will be 1,4770/1,90, 1,4840/60 and (or) further break-out variant up to 1,4900/20, 1,4960/80, 1,5020/40.

FOREX Ltd
www.forexltd.co.uk


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India’s Wholesale Prices Climb a Fourth Straight Week

By Kartik Goyal

Oct. 8 (Bloomberg) -- India’s wholesale prices rose for a fourth week, making it harder for central bank Governor Duvvuri Subbarao to keep interest rates low and boost economic growth without fanning inflation.

The benchmark wholesale-price index climbed 0.7 percent in the week to Sept. 26 from a year earlier, after rising 0.83 percent in the previous week, the Commerce Ministry said in New Delhi today. That compared with the median forecast for a 1 percent gain in a Bloomberg News survey of 20 economists.

Price pressures are resurfacing across Asia due to a surge in commodity prices, forcing policy makers to start thinking about increasing borrowing costs after bringing them to record lows to counter the global recession. Australia on Oct. 6 unexpectedly raised its benchmark interest rate, prompting economists at Moody’s Economy.com to say others may follow.

“The Reserve Bank of India’s communications are likely to be increasingly hawkish in a bid to manage inflationary expectations,” said Sujan Hajra, chief economist at Anand Rathi Financial Services Ltd. in Mumbai. “India’s monetary authorities face a quandary.”

The yield on the 6.90 percent note due in 2019 fell three basis points to 7.22 percent as of 11:57 a.m. in Mumbai, from 7.25 percent before the report, according to the central bank’s trading system.

Sugar, Lentils

India’s wholesale prices rose in September after declining for three months, and consumer-price inflation is already running above 10 percent. Price gains may accelerate as the driest monsoon since 1972 creates food shortages.

Today’s report showed sugar prices gained 42.69 percent in the week to Sept. 26 from a year earlier. Lentil and rice costs rose 20.45 percent and 17.2 percent, respectively, while vegetable prices surged 43 percent. Gasoline, metal and cooking- oil prices declined.

Finance Minister Pranab Mukherjee said yesterday inflation may accelerate to as high as 6 percent by the end of March, more than the central bank’s 5 percent estimate.

Subbarao said this week the South Asian nation may have to raise interest rates ahead of advanced economies “in view of incipient inflationary pressures.”

India needs a “careful management of trade-offs” between supporting growth with lower borrowing costs and curbing inflation, the governor said in Istanbul on Oct. 5. “An early exit on inflation concerns runs the risk of derailing the fragile growth, while a delayed exit many engender inflation expectations.”

Consumer Prices

Consumer prices paid by farm workers jumped 12.89 percent in August from a year earlier. Inflation for rural workers was 12.67 percent and consumer prices paid by industrial workers climbed 11.72 percent.

“With inflation coming higher than expected, rate hikes are coming closer,” Pranjul Bhandari and Tushar Poddar, Mumbai- based economists with Goldman Sachs Group Inc., wrote in a report. They expect India’s first rate increases in January and predict the central bank may raise the reverse-repurchase rate by 300 basis points in 2010 to 6.25 percent.

The Reserve Bank of India cut interest rates six times from October 2008 to April 2009 to shield India’s $1.2 trillion economy from the worst global recession since the Great Depression. In the last monetary policy announcement on July 28, it left the reverse-repurchase rate unchanged at 3.25 percent and kept the repurchase rate at 4.75 percent.

The central bank will review interest rates on Oct. 27.

‘Inevitable’ Moves

“Central banks in China, India and South Korea are keeping a close watch on rising economic activity and emerging inflation pressures,” said Matt Robinson, an economist at Moody’s Economy.com in Sydney. “As sentiment in global financial markets improves and signs emerge that global growth is resuming, it is inevitable that central banks in the region will raise interest rates.”

India’s wholesale-price index published today may be revised in two months, after the government receives additional data. The ministry revised the rate for the week ended Aug. 1 to a drop of 0.83 percent from a decline of 1.74 percent.

To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net





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Japan’s Merchant Sentiment Rises, Rebounding From August Slide

By Toru Fujioka

Oct. 8 (Bloomberg) -- Confidence among Japanese merchants rose in September, a boost economists say may not last as near- record unemployment and falling wages deter people from spending.

The Economy Watchers index, a survey of barbers, taxi drivers and others who deal with consumers, climbed to 43.1, the Cabinet Office said today in Tokyo. The index dropped for the first time in eight months in August.

The improvement in sentiment doesn’t indicate the economy’s recovery from its worst postwar recession is gaining traction, economists said. The unemployment rate is close to a record high and wages have dropped for 15 months, which may compel households to tighten their purse strings.

“We need to see a clear improvement in the labor market and wages before sentiment gains momentum,” said Yoshimasa Maruyama, a senior economist at Itochu Corp. in Tokyo. “Consumer spending will weaken as support from government measures fades.”

Japan’s economy expanded in the second quarter for the first time in more than a year, helped by exports and 25 trillion yen ($282 billion) in government stimulus packages. Economists expect growth to slow in coming months.

“We can’t be optimistic about the current state of the economy,” Deputy Prime Minister Naoto Kan said this week, adding that the government may need to compile an extra budget to support the nation’s weakening job market.

The jobless rate dropped to 5.5 percent in August from a record 5.7 percent in July. Winter bonuses for Japan’s large companies will fall 13.1 percent to about 660,000 yen ($7,472), the biggest drop since the survey began in 1970, the Institute of Labor Administration reported this week.

Imports Fall

In another sign of weak demand, imports fell by a record amount in August, causing the current-account surplus to widen, the Finance Ministry said in a report today.

Households are shifting to cheaper stores including Uniqlo Co. and turning their back on luxury brands. Gianni Versace SpA will close its three Japanese stores and review its entire business strategy, Federico Steiner, spokesman for Versace in Milan, said on Oct. 6.

The starting salary for graduates fresh out of college this year rose 0.09 percent to 208,306 yen, according to the business lobby Keidanren, the smallest gain since the survey started in 1966.

“The drop in starting salary is a direct reflection of how severe this recession is,” said Hideshi Nitta, manager of the labor policy bureau at the Keidanren in Tokyo. “Growth will probably remain tepid next year.”

To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net





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Japan Risks Undermining Banks With Loans Moratorium, Gomi Says

By Finbarr Flynn and Shingo Kawamoto

Oct. 8 (Bloomberg) -- The Japanese government may undermine banks by forcing them to defer debt repayments while easing accounting standards on the loans, the country’s former top financial regulator said.

Shizuka Kamei, Japan’s newly appointed financial services minister, plans to submit legislation next month that would allow ailing small firms to postpone loan repayments for up to three years. Banks won’t have to classify credits encompassed by the moratorium as non-performing, he said this week.

“Banks will ultimately end up carrying the bill for a compulsory moratorium,” Hirofumi Gomi, 60, who pushed for stricter disclosure of delinquent loans as Financial Services Agency commissioner between 2004 and 2007, said yesterday in an interview. “Allowing banks not to call loans non-performing only puts off a problem, which will hurt banks’ finances later.”

Kamei, 72, says his plan will ease pressure on small companies after Japan’s deepest postwar recession drove bankruptcies to a six-year high. An index tracking Japanese banks has lost 5.5 percent since his Sept. 16 appointment partly on concern the proposed loan moratorium will sap profits.

“Banks are really afraid not only their balance sheets but also their reputations may get hurt,” said Martin Schulz, senior economist at Fujitsu Research Institute in Tokyo. “Saying banks won’t have to declare default on these loans is simply bad business and it’s not what banks are supposed to do.”

Hit Hardest

Sumitomo Mitsui Financial Group Inc., Japan’s second- largest listed lender, may be hit hardest among the nation’s biggest banks in terms of lost income from a moratorium as small companies account for a larger percentage of its loan portfolio, Ismael Pili, a Tokyo-based analyst at Macquarie Group Ltd., said yesterday in an interview.

Japan’s 123 lenders posted a combined loss of 2 trillion yen ($22.5 billion) in the fiscal year through March as investments soured and bad loans swelled, according to the Japanese Bankers Association. It was the first shortfall in five years.

Corporate bankruptcies rose to 8,169 cases in the six months ended June, an 8.2 percent increase from a year earlier, according to data from Tokyo Shoko Research Ltd. Kamei’s plans may put pressure on large banks’ credit ratings, said Naoko Nemoto, managing director at Standard & Poor’s in Tokyo Oct. 6.

Banks aren’t cutting off loans to borrowers and are dealing with requests to delay loan repayments on an individual basis, Tadashi Ogawa, head of Japan’s Regional Banks Association, said last month.

Moratorium Alternative

The government must adopt more measures to encourage banks to lend, said Gomi, who spent 10 years at the nation’s financial watchdog until he stepped down as commissioner in July 2007. Providing low-interest loans to small firms through state-owned financial institutions in cooperation with private banks and continuing guarantees for certain credits should be considered, he said.

Combined debts at failed companies rose 47 percent to 4.7 trillion yen in the first half, Tokyo Shoko data show. Japan’s three largest banks, including Mitsubishi UFJ Financial Group Inc., and more than half the nation’s 87 publicly traded regional lenders posted losses in the latest fiscal year.

While at the agency, Gomi led a push to protect investor rights and was responsible for forcing banks to disclose bad loans from the late 1990s, when lenders were saddled with real estate debts dating back to the previous decade’s land-value bubble. Gomi is currently chairman of PricewaterhouseCoopers Research Institute (Japan) Co. in Tokyo.

Former Prime Minister Junichiro Koizumi’s measures to force banks to write off non-performing caused an unnecessary increase in bad debts, according to Kamei.

To contact the reporters on this story: Finbarr Flynn in Tokyo at fflynn3@bloomberg.net; Komaki Ito in Tokyo at kito@bloomberg.net; Shingo Kawamoto in Tokyo at skawamoto@bloomberg.net.





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Ireland’s Lenihan Says Banks May Need More Capital

By Dara Doyle

Oct. 8 (Bloomberg) -- Irish Finance Minister Brian Lenihan said the country’s biggest banks may need further money from the state even after selling real-estate loans to the government.

The proposed National Asset Management Agency will pay 54 billion euros ($79.4 billion) to buy loans with a book value of 77 billion euros from five lenders, including Bank of Ireland Plc and Allied Irish Banks Plc. Losses on those loans are likely to leave the companies needing more cash, Lenihan said.

“You can see some element of state capital, but certainly an element of private participation would be most welcome,” Lenihan, 50, said in an interview in Dublin yesterday. “If they can raise funds on the private markets, well and good. The market analysis is that will be very difficult at this stage.”

The minister wants to purge the banks of toxic assets related to the slumping property market to revive lending and reignite what used to be Europe’s most-dynamic economy. Nobel Prize-winning economist Joseph Stiglitz said yesterday that the plan is “squandering” public money.

Lenihan pointed to the U.S. as an example of a rescue package that was attacked before succeeding.

“I simply do not accept his analysis,” Lenihan said. “As far as Professor Stiglitz is concerned, he made the same criticism of the U.S. bank package, which is now proved to be a tremendous success.”

Allied Irish will transfer 24 billion euros of loans to NAMA, while Bank of Ireland will move 16 billion euros. The current market value of the 77 billion debt is about 47 billion euros, the government has estimated.

‘Massive Transfer’

“It’s a massive transfer of money from the public to bankers,” Stiglitz said at an event in Dublin. “There are consequences going forward.”

NAMA will complete its valuations of the bank loans by the middle of next year, Lenihan said. The government has said the agency, which can hold assets for up to 15 years, may break even or even show a profit. Tom O’Connell, chief economist at Ireland’s central bank, said earlier this week that there is a “fair chance” that it won’t lose money over its lifetime.

Bank of Ireland rose 2 percent, or 6 cents, to 3.06 cents at 8:18 a.m. in Dublin, while Allied Irish advanced 2 percent to 3.08 euros.

“The bigger valuations will be completed by the end of this year,” Lenihan said. “Clearly the government then will be in a position to look at the capital ratios, look at the extent of the writedowns, and come to a conclusion with Bank of Ireland and Allied Irish about their capital structures.”

New Regulator

The minister, who has already pumped 7 billion euros into Allied Irish and Bank of Ireland, said the proposals creating NAMA should pass into law by the end of the year.

Separately, Lenihan said the appointment of a new financial regulator is “close” and will probably be made “within a matter of weeks.”

The new regulator will join the recently appointed central bank governor, Patrick Honohan, on an international tour to help restore investor confidence in Ireland, Lenihan said.

The ISEF index of Irish financial stocks has plunged 76 percent over the past 18 months.

To contact the reporter on this story: Dara Doyle at ddoyle1@bloomberg.net




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BOE May Debate Bigger Bond Plan at November Meeting, Gieve Says

By Svenja O’Donnell and David Tweed

Oct. 8 (Bloomberg) -- Bank of England policy makers will consider expanding their bond purchase plan when they review its progress in November on concern the economy’s recovery may be a “false dawn,” former Deputy Governor John Gieve said.

The “next decision point” will be the Nov. 5 meeting, Gieve said in a Bloomberg Television interview on Oct. 6. The Monetary Policy Committee will keep the asset purchase plan at 175 billion pounds ($278 billion) at their decision today, according to all 42 economists in a Bloomberg News survey.

“The immediate risk that they’ll be very aware of is a false dawn,” said Gieve, who left the central bank at the end of February. Increasing the bond program next month, when the bank will have new economic forecasts, “will be an option they’ll look at pretty closely.”

Bank of England policy makers face conflicting signals on the strength of the economy as they assess whether Britain escaped the recession in the third quarter. Governor Mervyn King favored spending as much as 200 billion pounds at the August decision, and he opted for a consensus vote last month while insisting that more purchases could still be justified.

“We’re likely to see quite a difficult and slow recovery,” Gieve said. “Recovery back to the sort of growth we’re used to may be quite slow. Banks will take some time.”

Gieve’s caution on the economy echoes the minutes of the central bank’s decision last month, where policy makers noted that “promising indications” from asset markets could signal “false dawns.” The outcome of the bank’s meeting today will be released at 12 p.m. in London.

‘Bit of a Bounce’

The U.K. economy shrank 0.6 percent in the second quarter, less than previously estimated, and the National Institute of Economics and Social Research says gross domestic product stopped falling in the three months through September. Other reports this week showed services expanded at the fastest pace in two years last month and consumer confidence rose.

“I am expecting a bit of a bounce in the output figures in the second half of this year, but does that mean that the recovery is well established?” Gieve said. “You’ve got quantitative easing, you’ve got very low interest rates. After all that, it should cause a bounce.”

The economy is also showing some signs of persisting weakness. Manufacturing production slumped in August to the lowest level since 1992, the statistics office said this week.

Main Risk

“The main risk, short term, is that everyone thinks the recovery is over, we tighten too quickly, and we see a sort of ‘W’ emerge,” Gieve said. “The manufacturing figures are a reminder that it’s too early to say it’s definitely over.”

King was defeated in August in his bid to expand the bond purchase program by 25 billion pounds more than the majority wanted. Policy maker David Miles, who supported King at that decision, said last week that the plan is helping to revive the U.K. economy and will be reversible when recovery is secured.

The bank has been buying assets since March, when it cut its benchmark interest rate to a record low of 0.5 percent. The bank will keep the rate unchanged today, according to all 58 economists in a Bloomberg News survey.

Policy makers must avoid the mistake of keeping the rate too low once the recovery is established, Gieve said.

“Long term, the main risk is that we do what the Fed did after the 2000 dot-com boom, which is to cut rapidly, which is the right thing to do, but then tighten it slowly,” he said. “I’d expect to see quite a fast tightening of policy once recovery is genuinely established. But I’m not assuming a recovery is established yet.”

To contact the reporters on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net; David Tweed in London at dtweed@bloomberg.net.





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* STORY * PHOTO * VIDEO * Trichet Faces ‘Trap’ as ECB Prods Leaders on Deficit Vigilance

By Simon Kennedy and Gabi Thesing

Oct. 8 (Bloomberg) -- Jean-Claude Trichet needs governments to walk through the emergency exit first if he’s going to be able to keep nurturing Europe’s recovery with record low interest rates and cash injections.

As an economic rebound allows policy makers to mull how they will withdraw stimulus measures, the European Central Bank President is demanding that when growth takes hold, lawmakers execute “ambitious” plans to reverse the region’s largest budget deficit since the euro began trading in 1999.

Failure by politicians to devise a plan and then carry it out may fuel debt and inflation, forcing the Frankfurt-based ECB to raise interest rates faster in the recovery, according to economists at Goldman Sachs Group Inc. and Barclays Capital. That could then threaten the economic pick-up by driving up the euro and bond yields.

“Deficit spending and tight money mean much higher interest rates,” said Barry Eichengreen, a professor at the University of California at Berkeley and author of a 2006 book on Europe’s economic history. “That’s a very unfriendly investment mix.”

Central bankers may already be fretting that their unlimited loans to banks are being cycled into government bonds. That would put the Trichet into a “trap,” said Julian Callow, chief European economist at Barclays Capital.

“It’s anathema to the ECB to be financing deficits,” he said. “It’s a factor which encourages the ECB to be getting out of its non-standard operations.”

Concern

Trichet may today signal his concern today by detailing how the ECB plans to unwind its policy of offering banks as much money they want for up to 12 months at the central bank’s benchmark rate, Callow said.

While lending to households and companies has almost ground to a halt, banks expanded their holdings of government bonds by 241 billion euros and their loans to the public sector by 34 billion euros in the first eight months of the year. That will fund almost half the euro area’s estimated 2009 budget deficit of 560 billion euros, Barclays estimates.

The yield on 10-year German bunds, the benchmark European government security, was between 3.1 percent and 3.2 percent this week, compares with a high this year of 3.75 percent on June 8, and a low of 2.85 percent.

‘Sustainable Finances’

The ECB will probably leave its key rate at 1 percent when its Governing Council meets in Venice today, according to all 53 economists in a Bloomberg News survey. It may keep the rate there until September 2010, a separate survey shows. It will announce its decision at 1:45 p.m.

When policy makers last convened to debate policy on Sept. 3, Trichet said afterward that governments “must now substantiate their commitment to ensuring a swift return to sound and sustainable public finances.”

Since then, they have said it’s too early to scale back their own emergency measures and signaled they intend to leave them in place at least into next year to support the economy.

“When the economy is walking solely with the aid of fiscal and monetary crutches, it’s not advisable to whip them away,” ECB council member Axel Weber said Sept. 10. Luxembourg’s Yves Mersch said the same day the bank will monitor the impact of its stimulus measures “until the end of the year.”

‘Picked Up’

The global economy may be recovering faster than some economists had envisaged. The International Monetary Fund last week raised its forecast for global growth next year to 3.1 percent from 2.5 percent. The Federal Reserve last month said the U.S. economy has “picked up,” while Australia’s central bank on Oct. 6 became the first Group of 20 nation to raise interest rates since the start of the global financial crisis.

Marco Annunziata, chief economist at UniCredit Group in London, said that if governments heed Trichet’s request, Europe’s economy will benefit by allowing the ECB to keep rates lower for longer and giving investors a reason not to push up long-term borrowing costs.

“If fiscal policy starts to tighten first, the central bank has room for maneuver,” he said. “The dangerous mix is too- loose fiscal policy, so you have rates rising over many yields.”

Currency Moves

The euro may also be pushed higher if governments force the ECB to act. The single currency is already irritating Trichet as its 17 percent rise against the dollar since February threatens profit at companies such as Metro AG, Germany’s largest retailer, and sporting-goods maker Adidas AG.

“An undesirable mix of easy fiscal and tight money would be a recipe for a strong euro, just about the last thing anyone in the euro zone wants,” said Erik Nielsen, chief European economist at Goldman Sachs. “The fiscal exit should start ahead of the monetary exit.”

The ECB isn’t alone in looking for governments to commit to fiscal consolidation when expansion is secured. Bank of England Monetary Policy Committee member Adam Posen last month warned in the Financial Times of “policy mismatches” that generate higher interest rates, as happened in the U.S. in the early 1980s.

European governments are sending mixed messages. While German Chancellor Angela Merkel is resisting a campaign for deeper tax cuts from her probable coalition partners, French President Nicolas Sarkozy says his government needs to spend more borrowed money to kick start growth.

Stephane Deo, chief European economist at UBS AG in London, predicts the deficit of the five biggest euro-area nations will rise to 6.7 percent of gross domestic product in 2010 from 6.2 percent this year, more than double the European Union limit.

“We find little evidence of a fiscal tightening next year,” said Deo.

Governments may play a “game of chicken” by refusing to retrench and daring the ECB to carry out interest-rate increases that may derail the recovery, said UniCredit’s Annunziata.

“You may have the central bank telling governments that if they don’t start tightening, they’ll have to,” he said. “Governments may say ‘try it, do you have the guts?’”

To contact the reporters on this story: Simon Kennedy in Paris at skennedy4@bloomberg.netGabi Thesing in Frankfurt at gthesing@bloomberg.net





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Trichet Faces ‘Trap’ as ECB Prods Leaders on Deficit Vigilance

By Simon Kennedy and Gabi Thesing

Oct. 8 (Bloomberg) -- Jean-Claude Trichet needs governments to walk through the emergency exit first if he’s going to be able to keep nurturing Europe’s recovery with record low interest rates and cash injections.

As an economic rebound allows policy makers to mull how they will withdraw stimulus measures, the European Central Bank President is demanding that when growth takes hold, lawmakers execute “ambitious” plans to reverse the region’s largest budget deficit since the euro began trading in 1999.

Failure by politicians to devise a plan and then carry it out may fuel debt and inflation, forcing the Frankfurt-based ECB to raise interest rates faster in the recovery, according to economists at Goldman Sachs Group Inc. and Barclays Capital. That could then threaten the economic pick-up by driving up the euro and bond yields.

“Deficit spending and tight money mean much higher interest rates,” said Barry Eichengreen, a professor at the University of California at Berkeley and author of a 2006 book on Europe’s economic history. “That’s a very unfriendly investment mix.”

Central bankers may already be fretting that their unlimited loans to banks are being cycled into government bonds. That would put the Trichet into a “trap,” said Julian Callow, chief European economist at Barclays Capital.

“It’s anathema to the ECB to be financing deficits,” he said. “It’s a factor which encourages the ECB to be getting out of its non-standard operations.”

Concern

Trichet may today signal his concern today by detailing how the ECB plans to unwind its policy of offering banks as much money they want for up to 12 months at the central bank’s benchmark rate, Callow said.

While lending to households and companies has almost ground to a halt, banks expanded their holdings of government bonds by 241 billion euros and their loans to the public sector by 34 billion euros in the first eight months of the year. That will fund almost half the euro area’s estimated 2009 budget deficit of 560 billion euros, Barclays estimates.

The yield on 10-year German bunds, the benchmark European government security, was between 3.1 percent and 3.2 percent this week, compares with a high this year of 3.75 percent on June 8, and a low of 2.85 percent.

‘Sustainable Finances’

The ECB will probably leave its key rate at 1 percent when its Governing Council meets in Venice today, according to all 53 economists in a Bloomberg News survey. It may keep the rate there until September 2010, a separate survey shows. It will announce its decision at 1:45 p.m.

When policy makers last convened to debate policy on Sept. 3, Trichet said afterward that governments “must now substantiate their commitment to ensuring a swift return to sound and sustainable public finances.”

Since then, they have said it’s too early to scale back their own emergency measures and signaled they intend to leave them in place at least into next year to support the economy.

“When the economy is walking solely with the aid of fiscal and monetary crutches, it’s not advisable to whip them away,” ECB council member Axel Weber said Sept. 10. Luxembourg’s Yves Mersch said the same day the bank will monitor the impact of its stimulus measures “until the end of the year.”

‘Picked Up’

The global economy may be recovering faster than some economists had envisaged. The International Monetary Fund last week raised its forecast for global growth next year to 3.1 percent from 2.5 percent. The Federal Reserve last month said the U.S. economy has “picked up,” while Australia’s central bank on Oct. 6 became the first Group of 20 nation to raise interest rates since the start of the global financial crisis.

Marco Annunziata, chief economist at UniCredit Group in London, said that if governments heed Trichet’s request, Europe’s economy will benefit by allowing the ECB to keep rates lower for longer and giving investors a reason not to push up long-term borrowing costs.

“If fiscal policy starts to tighten first, the central bank has room for maneuver,” he said. “The dangerous mix is too- loose fiscal policy, so you have rates rising over many yields.”

Currency Moves

The euro may also be pushed higher if governments force the ECB to act. The single currency is already irritating Trichet as its 17 percent rise against the dollar since February threatens profit at companies such as Metro AG, Germany’s largest retailer, and sporting-goods maker Adidas AG.

“An undesirable mix of easy fiscal and tight money would be a recipe for a strong euro, just about the last thing anyone in the euro zone wants,” said Erik Nielsen, chief European economist at Goldman Sachs. “The fiscal exit should start ahead of the monetary exit.”

The ECB isn’t alone in looking for governments to commit to fiscal consolidation when expansion is secured. Bank of England Monetary Policy Committee member Adam Posen last month warned in the Financial Times of “policy mismatches” that generate higher interest rates, as happened in the U.S. in the early 1980s.

European governments are sending mixed messages. While German Chancellor Angela Merkel is resisting a campaign for deeper tax cuts from her probable coalition partners, French President Nicolas Sarkozy says his government needs to spend more borrowed money to kick start growth.

Stephane Deo, chief European economist at UBS AG in London, predicts the deficit of the five biggest euro-area nations will rise to 6.7 percent of gross domestic product in 2010 from 6.2 percent this year, more than double the European Union limit.

“We find little evidence of a fiscal tightening next year,” said Deo.

Governments may play a “game of chicken” by refusing to retrench and daring the ECB to carry out interest-rate increases that may derail the recovery, said UniCredit’s Annunziata.

“You may have the central bank telling governments that if they don’t start tightening, they’ll have to,” he said. “Governments may say ‘try it, do you have the guts?’”

To contact the reporters on this story: Simon Kennedy in Paris at skennedy4@bloomberg.netGabi Thesing in Frankfurt at gthesing@bloomberg.net





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Ireland’s Lenihan Says Banks May Need Cash, Rejects Stiglitz

By Dara Doyle

Oct. 8 (Bloomberg) -- Irish Finance Minister Brian Lenihan said the country’s biggest banks may need further money from the state even after selling real-estate loans to the government.

The proposed National Asset Management Agency will pay 54 billion euros ($79.4 billion) to buy loans with a book value of 77 billion euros from five lenders, including Bank of Ireland Plc and Allied Irish Banks Plc. Losses on those loans are likely to leave the companies needing more cash, Lenihan said.

“You can see some element of state capital, but certainly an element of private participation would be most welcome,” Lenihan, 50, said in an interview in Dublin yesterday. “If they can raise funds on the private markets, well and good. The market analysis is that will be very difficult at this stage.”

The minister wants to purge the banks of toxic assets related to the slumping property market to revive lending and reignite what used to be Europe’s most-dynamic economy. Nobel Prize-winning economist Joseph Stiglitz said yesterday that the plan is “squandering” public money.

Lenihan pointed to the U.S. as an example of a rescue package that was attacked before succeeding.

“I simply do not accept his analysis,” Lenihan said. “As far as Professor Stiglitz is concerned, he made the same criticism of the U.S. bank package, which is now proved to be a tremendous success.”

Allied Irish will transfer 24 billion euros of loans to NAMA, while Bank of Ireland will move 16 billion euros. The current market value of the 77 billion debt is about 47 billion euros, the government has estimated.

‘Massive Transfer’

“It’s a massive transfer of money from the public to bankers,” Stiglitz said at an event in Dublin. “There are consequences going forward.”

NAMA will complete its valuations of the bank loans by the middle of next year, Lenihan said. The government has said the agency, which can hold assets for up to 15 years, may break even or even show a profit. Tom O’Connell, chief economist at Ireland’s central bank, said earlier this week that there is a “fair chance” that it won’t lose money over its lifetime.

“The bigger valuations will be completed by the end of this year,” Lenihan said. “Clearly the government then will be in a position to look at the capital ratios, look at the extent of the writedowns, and come to a conclusion with Bank of Ireland and Allied Irish about their capital structures.”

The minister, who has already pumped 7 billion euros into Allied Irish and Bank of Ireland, said the proposals creating NAMA should pass into law by the end of the year.

Separately, Lenihan said the appointment of a new financial regulator is “close” and will probably be made “within a matter of weeks.”

The new regulator will join the recently appointed central bank governor, Patrick Honohan, on an international tour to help restore investor confidence in Ireland, Lenihan said.

The ISEF index of Irish financial stocks has plunged 77 percent over the past 18 months.

To contact the reporter on this story: Dara Doyle at ddoyle1@bloomberg.net





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Executive Pay ‘Party’ Continues in U.K. as Stock Market Rallies

By Kevin Crowley

Oct. 8 (Bloomberg) -- Chief executive officers at Britain’s leading 100 companies received pay increases last year even as the FTSE 100 Index fell the most on record and may be handed more this year after the stock market rally, a study said.

The median compensation paid to a FTSE 100 chief executive officer last year was 2.57 million pounds ($4.1 million), up 1 percent from 2007, as increased salaries and share awards offset lower bonuses, according to research by remuneration consultant MM&K Ltd. and Manifest Information Services Ltd., a corporate governance research firm.

Reckitt Benckiser Group Plc CEO Bart Becht was the index’s top earner in 2008, receiving 38.1 million pounds in salary, bonus, pension contribution and share options, after the world’s largest maker of household cleaning products fell 12 percent in the 12-month period. Schroders Plc’sMichael Dobson was the only CEO of a financial firm in the top 10 earners, which included three energy bosses.

Public outcry over directors’ pay has prompted Prime Minister Gordon Brown and lawmakers from the opposition Conservative Party to pledge tighter rules linking remuneration to a company’s long-term performance. Any reduction in bonuses this year is likely to be offset by higher pay in the form of share options as the FTSE 100 stands to have its best year since 2005, according to Cliff Weight, director of London-based MM&K.

“The party isn’t so much over but postponed,” Weight said in a telephone interview. “There may be a temporary slowdown but the long-term drivers of executive pay, such as matching remuneration in the U.S. and in private equity, over the last ten years are still there.”

Beating FTSE 100

Total remuneration for FTSE 100 CEOs grew 15 percent in the decade to 2008, the study said, even though the index fell 3 percent in that period. That’s mainly due to a rise in long- term incentive plans, which typically give directors the option of buying shares at a set price several years after the performance period.

Becht, Tullow Oil Plc’sAidan Heavey and Paul Pindar of Capita Group Plc, the top three earning CEOs last year, received more than 88 percent of their total compensation through long- term incentives, which last year made up 47 percent of the average FTSE 100 CEO’s remuneration. That’s an increase from 15 percent in 1998.

“Even after the financial crisis, we don’t have a good link between performance and reward,” Tom Powdrill, a spokesman for Pension Investment Research Consultants Ltd., which advises investors with more than $2.4 trillion in assets. “There’s never really a downwards trend in remuneration. Investors have to be much more assertive than they have been so far.”

‘Pay Out Regardless’

The median point at which the share options are awarded is when total shareholder return, or stock-price changes plus dividends, reaches 8 percent per annum, according to the research. That “seems a rather low target for the maximum payout,” the survey said. The FTSE 100 has rallied 15 percent since the beginning of the year.

Incentive plan payouts “raise serious questions about the extent to which plans are based on performance targets and how much they are designed to pay out regardless,” said Janet Williamson, senior policy advisor at the Trades Union Congress, whose member unions represent 6.5 million employees. “We need people whose commitment is to their job and the company they serve, not to their paycheck.”

To contact the reporter on this story: Kevin Crowley in London at kcrowley1@bloomberg.net





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