Currencies: Risk Averion On Global Markets Sparks The 'Logical' Reactions On The Currency Markets

Daily Forex Fundamentals | Written by KBC Bank | Oct 29 09 09:01 GMT |

Sunrise Market Commentary Global bonds extend rebound, but gains remain limited despite the sell-off on the equity markets Yesterday, global bonds couldn't really build out Tuesday's juicy gains in a convincing way, despite a sharp sell off on the equity markets. This indicates that sentiment on the bond markets remains quite shaky. Also from a technical point of view, more gains are needed to make the technical outlook again bullish. FX: risk averion on global markets sparks the 'logical' reactions on the currency markets The correction on global markets favours the dollar, and even more the yen. EUR/USD is testing a first important uptrend line. The global down-move of the single currency also hit EUR/GBP as the pair fell below the key 0.8984 support area The Sunrise Headlines Yesterday, US Equities fell for the fourth consecutive session led by materials and financials. This morning, Asian shares track Wall Street lower, but lose no additional ground. Norway's central bank ordered the first interest rate hike since the global financial crisis and signaled more tightening to come as the economy recovers from its downturn. In New Zealand, the central bank surprisingly announced to hold interest rates at a record low at least until July, squashing speculation that an economic rebound would lead to tightening as early as January. The NZD dropped to four-week low. Japanese Finance Minister Hirohisa Fuji has criticized the Bank of Japan's view of the economy as too rosy and narrowly informed, pressuring the central bank before it reviews support for credit markets tomorrow. China has told the United States it is launching a trade investigation that could lead to new import duties on autos made by Chrysler, Ford and General Motors, according to a US industry official. In Japan, industrial production rose for the seventh consecutive month in September, the longest gaining streak in more than 12 year as global stimulus measures led car and electronics makers to increase production. This morning, Thailand's central bank raised its economic forecast for this and next year on signs that the nation is emerging from its recession. On Wednesday, crude oil dropped below $78 a barrel on an unexpected rise in US gasoline stocks. Today, the calendar contains the European Commission confidence indicators, UK lending data, US third quarter GDP figures and weekly claims. EUR/USD On Wednesday, the correction global markets continued and the currency market was no exception to this rule. Scaling down/taking profit on positions in riskier assets was the name of the game of the game. The unwinding of carry trades favoured the dollar (and even more the yen). European stock markets were already under pressure from the open, but at first the damage for EUR/USD was rather limited. The pair gradually drifted to the 1.4800 area. At the start of US trading, the correction on the stock markets slowed temporarily, supported by a decent US durable orders release. However, a disappointing US new home sales release spoiled the game again. A new selling wave on the equity markets kicked in and this time the euro was hit quite hard, too. Negative headlines and uncertainty on the European banking sector probably added to the euro negative sentiment. The EUR/USD pair dropping below Tuesday's low reinforced the move and EUR/USD slipped to test the 1.4700 big figure, coming close to the long standing uptrend line at in the 1.4680 area. The pair closed the session at 1.4706 compared to 1.4804 on Tuesday evening. EUR/USD testing a key uptrend line. Support comes in at 1.4796 (Daily uptrend line), at 1.4684/74 (reaction lowMT reaction low), at 1.4618/08 (Daily envelope), at 1.4570/61 (Boll bottom/38% retracement since June) and at 1.4480 (02 Oct low). Resistance stands at 1.4749/62 (Daily envelope/LTMA), at 1.4823/28 (STMA/Boll Midline) and at 1.4897 (MTMA). The pair is moving into oversold conditions USD/JPY The eco calendar is well filled. In Europe, the sentiment indicators from the European Commission will be published. Usually they are no market movers. However, in the current euro negative sentiment, negative surprises, if they would occur, might be used to extend the current move. However, regarding the data, the focus will be on the advanced release of the US Q3 GDP. Markets expect an annualised growth rate of 3.2%. We don't expect a negative surprise for this figure. However, in the current environment, such an outcome would only add to the market nervousness. It is still a bit strange, but in current market thinking (swings in risk aversion/risk appetite) such a bad figure would be USD supportive. On the other hand, one can raise the question whether a better than expected figure would be able to stop the current correction on the stock markets. On top of that, will a better outcome raise speculation on the timing of the Fed's exit from QE? Such a scenario in theory would also not be that bad for the dollar. So, the currency markets have different themes they can react, too. For now we assume that the risk aversion/risk appetite paradigm will continue to set the tone for trading. As we don't have any indication that the correction on the stock markets will halt today, we keep a wait-and-see mode and don't try to catch the falling knife even as we stay dollar cautious longer term. Global context: recently, the swings in risk appetite/risk aversion were the drivers on the currency markets. Improving investor sentiment towards 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 on 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 stay dollar skeptical as long as we don't get a clear signal that the Fed is coming closer to scale down its stimulating monetary policy. Nevertheless, the ongoing building up of USD short positions in step with the stock market rally apparently has run its course short-term and this triggered a correction earlier this week. This scaling down of overextended long positions could still a bit further. Looking at the (technical) charts, the break of EUR/USD above the range top at 1.4438/48 and above the 1.4719 (Dec high) improved the picture, but the move continued to develop in a rather gradual way. Nevertheless, until now, the corrections are very limited, too. However, as we had reached our long-standing technical target of 1.5021 (2nd target double bottom of 1.3739), we turned more cautious on the ST upside potential in the pair and advised partial profit taking on standing EUR/USD long positions. We still look to (re)establish EUR/USD long exposure. However we are not in a hurry to do so. The daily channel bottom (today at 1.4696) is a first important level which is currently under test. A sustained break below this level would question the short-term EUR/USD positive bias. This is not our preferred scenario, but we closely watch today's price action. If we are wrong on this call, the 1.4445 previous high is the next high profile support. On Wednesday, risk aversion was the key factor for trading on all markets. Over the previous weeks, in a global positive context, there were some doubts which currency was the favoured currency for funding carry trades, the dollar on or the yen. This made the link between USD/JPY trading and the stock markets quite loose. However, yesterday's price action illustrated that, as soon as the storm heats up, the yen still has some role to play as safe haven. So, as the correction on the stock market continued, USD/JPY continued to drift gradually lower throughout the session. The pair closed the session at 90.75, compared to 91.80 on Tuesday evening. Overnight, the Japanese/Asian stock markets extended the slide from yesterday evening in the US. There were heavy losses at the start of the session, but later in the session, the sell-off slowed. USD/JPY slipped further south this morning. Japanese industrial production figures for the month of September came out slightly better than expected at 1.4% M/M. As usual, this was not a major factor for trading. Markets also keep a close eye on tomorrow's BOJ policy meeting. Will the bank extend its programs to support corporate financing? Recently, several members of the Japanese government indicated they would not be that happy if the BOJ would withdraw its support for the economy. This is an interesting debate to assess the independence of the BOJ. However, we don't have the impression that it is a major issue for the currency markets at this stage. Global context: USD/JPY reached a reaction high in the 97.80 area early August. Despite 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 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. Situation in USD/JPY has become a bit paralysed. Recently, we indicated that we were looking to sell into a more pronounced up-tick, hopefully in the 92/93 area. The 92 area has been reached earlier this week. Yesterday, we indicated that the short-term picture in USD/JPY had become toppish and we advocated to reinstall USD/JPY short positions for return action lower in the recent trading range. We hold on to that bias. USD/JPY: yen safe haven again? Support is seen at 90.31/25 (Boll Midline/reaction low), at 90.07/89.90 (20 Oct low/break-up daily) and at 89.66 (62% retracement), at 88.83 (14 Oct low), at 88.19/01 (Boll Bottom/ 07 Oct low). Resistance comes in at 90.88/96 (MTMA//Breakdown hourly), at 91.22/44 (STMA/Reaction high), at 92.33 (ST high), at 92.55 (21 Sep high), at 92.61/83 (2nd and 3th target H&S) and at 93.31/36 (Sep.7 high/weekly envelope) and at 94.05 (62% retracement from 97.79). EURGBP On Wednesday, there were not key eco data in the UK. However, the swings in global markets and in other major currencies also affected sterling trading. EUR/GBP traded sideways in the 0.9050 area during the morning session in Europe. However, later in the session the (stock market driven) correction on EUR/USD also dragged EUR/GBP lower. Apparently, there was still some unwinding of stale euro long positions to do and this move also hit the euro against sterling. The dropped to the 0.9000 area first and finally broke below the key 0.8984 support area. This triggered additional stop loss selling and the pair reached intraday lows in the 0.8952 area and closed the session at 0.8981, compared to 0.9042 on Tuesday. Today, the UK calendar contains the Money supply and lending figures. They are interesting from a monetary policy point of view but we don't expect them to be important for currency trading. So, global factors and even more technical considerations will continue to set the tone for trading in sterling. Yesterday's move in EUR/GBP was for an important part driven by the global correction in the euro. So, EUR/GBP traders will keep a close eye on whether or not the decline in EUR/USD will continue. The high degree of uncertainty going into the next week BoE meeting contains the risk of ongoing market nervousness and a higher volatility. Global context: Since early August, sterling sentiment deteriorated again. The BoE decision in August 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 and this applies also to the October meeting. However, the Minutes of that meeting nevertheless attracted the attention. Some observers correctly noted that in contrast to September meeting, the more dovish MPC members didn't re-state there preference for more QE, making such an expansion of the QE unlikely, especially as some MPC members including governor King in a newspaper had become slightly more optimistic on the economy. We were not sure whether such an interpretation of the Minutes was correct and we probably only know at the next MPC meeting in early November. However, the weak Q3 GDP figures show the debate on QE is entirely open. This question will dominate markets in the next ten days. We have a long-standing sterling negative view and don't feel any need to change it when considering the economic fundamentals and the BOE's monetary policy approach. Nevertheless, yesterday's drop below the key 0.8984 support is a high profile technical warning signal. It at least suggested that the unwinding of sterling over overextend sterling short positions, was not completely worked out. For now we keep a wait and see approach to see how the test of this key support area will work out. However, it is obvious that our ST sterling negative bias is under pressure. If the pair doesn't return above the 0.9000 mark soon, the correction might go quite a bit further. The 0.8845 area is the next high profile support on the charts. EUR/GBP is dropping below the key 0.8984 support Support comes in at 0.8951 (Week low), at 0.8939 (Boll bottom), at 0.8916/06 (Daily envelope/ 50% retracement off 0.8400), at 0.8872 (200 d MA), and at 0.8829 (LTMA break-up). Resistance is at 0.9001 (Breakdown hourly), at 0.9044 (Daily envelope), at 0.9063 (STMA), at 0.9122 (MTMA). The pair is on oversold territory US: new home sales disappoint in September US new home sales showed an unexpected decline in September. On a monthly basis, new home sales dropped by 3.6% M/M from a downwardly revised 417 000 to a total number of 402 000. Regional details showed a decline in the South (-10.0% M/M) and West (-10.6% M/M), while sales rose in the Midwest (34.0% M/M) and stayed flat in the Northeast. Months' supply stayed unchanged at 7.5 in September, while the total number for sale dropped from 261 000 to 251 000. Price details showed that both median and mean prices increased. This is the first decline in new home sales in six months and indicates that the recovery is still fragile. The expiration of the fiscal stimulus in November might have had an impact on the September figures although it is difficult to estimate the exact impact. In September, US durables goods orders came out in line with expectations rising by 1.0% M/M, while the previous figure was downwardly revised from -2.4% M/M to - 2.6% M/M. Excluding transportation, durable goods orders rose by 0.9% M/M, while the consensus was looking for an increase by 0.7% M/M. Looking at the details, the improvement was led by machinery (7.9% M/M), but also transportation (1.1% M/M) and primary metals (0.3% M/M) increases, while electrical equipment (-0.9% M/M) and computers, electronics (-0.2% M/M) deteriorated and fabricated metals stayed flat. EMU: German annual inflation flat in October In October, German HICP inflation rose from -0.5% Y/Y to 0.0% Y/Y, while the consensus was looking for a slightly negative figure. According to the first estimate, inflation rose by 0.2% M/M after dropping by 0.5% M/M in the previous month. Regional data showed declines in food prices while for example clothing and transportation prices rose in October. The rise in energy prices this month together with the steep drop in October 2008 helped to push the overall year-on-year CPI rate substantially higher. Other: Norway becomes first European country to increase rates Yesterday, the Norges Bank's Executive Board decided to increase the key policy rate by 0.25% to 1.50%, becoming the first European central bank to reverse its easing cycle. The bank said that activity in the Norwegian economy has picked up more rapidly than expected and the downturn may be relatively mild. The Executive Board added that the policy rate was reduced to prevent inflation from falling too far below target and to mitigate the impact of the global downturn on the Norwegian economy. The Board signalled more increases than previously forecasted as they said the policy rate should be in the interval 1.25%-2.25% in the period to the publication of the next Monetary Policy Report in March. 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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Malaysia Refrains From Rate Increase to Spur Recovery

By Stephanie Phang

Oct. 29 (Bloomberg) -- Malaysia’s central bank refrained from raising interest rates, opting to keep borrowing costs at a record low to support a nascent economic recovery as the government prepares to cut spending to trim its budget deficit.

Bank Negara Malaysia maintained its overnight policy rate at 2 percent for a fifth straight meeting yesterday, it said in a statement in Kuala Lumpur. The decision was predicted by all 21 economists surveyed by Bloomberg News. The benchmark is at its lowest level since it was introduced in April 2004.

“The international economic and financial conditions have improved further,” the central bank said. “Notwithstanding these improvements, the outlook for the global economy continues to be uncertain, with recovery likely to be slow and uneven in view of the ongoing adjustments.”

Asian policy makers from India to South Korea have begun to signal they may be prepared to raise interest rates as inflation returns with economic recovery. Malaysia has less reason to follow Australia’s Oct. 6 move to increase borrowing costs anytime soon because consumer prices are declining and the nation is still in a recession, economists say.

“Malaysia could be amongst the last to raise rates in Asia,” said Kit Wei Zheng, a Singapore-based economist at Citigroup Inc. who expects Bank Negara to increase borrowing costs in the fourth quarter of next year. “With policy needing to stay accommodative to offset the fiscal tightening implied by a smaller deficit, the risk is that rates are kept low for longer.”

Policy ‘Appropriate’

The central bank said yesterday its current monetary policy stance is “appropriate” to support growth because price pressures should remain “contained” as the economy improves.

The ringgit fell for a third day to 3.4450 a dollar as at 9:01 a.m. today, its lowest level in more than three weeks, and Malaysia’s benchmark stock index slid a second day as concern a global economic recovery is faltering hurt demand for emerging- market assets. Confidence among U.S. consumers declined for a second month in October, a report showed earlier this week.

“Bank Negara still views growth concerns as the greater risk to macroeconomic stability,” said Matt Hildebrandt, an economist at JPMorgan Chase & Co. in Singapore. Inflation is “muted” and “uncertainties about the growth outlook are still high,” he said.

The government expects Malaysia’s $195 billion economy to expand between 2 percent and 3 percent in 2010 after shrinking 3 percent this year, helped by a recovery in demand for Malaysian Pacific Industries Bhd. semiconductors, IOI Corp. palm oil and other exports.

Budget Deficit

Prime Minister Najib Razak plans to narrow the budget shortfall to 5.6 percent of gross domestic product next year, reducing spending after stimulus measures to revive economic growth pushed the deficit to a 22-year high of 7.4 percent of GDP in 2009.

Malaysia will probably lag behind South Korea and India in raising interest rates because the Southeast Asian nation’s economic recovery isn’t as strong as the other two countries’, said Vishnu Varathan, an economist at Forecast Singapore Pte.

India’s central bank, which expects Asia’s third-largest economy to expand 6 percent in the year through March 31, on Oct. 27 ordered lenders to keep more cash in government bonds as it raised its inflation forecast. The move followed Australia’s decision on Oct. 6 to raise its benchmark rate to 3.25 percent from a 49-year low of 3 percent.

South Korea, India

South Korea’s economy expanded 2.9 percent in the third quarter from three months earlier, the fastest pace in seven years, and Bank of Korea Governor Lee Seong Tae said Oct. 23 that keeping rates at a record low may not be healthy.

Malaysia’s economy, Southeast Asia’s third largest, shrank in the first two quarters of this year and the government doesn’t expect growth to resume until the final three months. Neighboring Singapore emerged from its recession in the second quarter and Indonesia and the Philippines have avoided economic contraction altogether.

Governor Zeti Akhtar Aziz refrained from following other policy makers in raising interest rates last year when Malaysia’s inflation surged to as high as 8.5 percent amid soaring commodity costs, predicting that price gains would ease as world economic growth slowed.

Consumer prices in Malaysia fell for a fourth straight month in September. The decline is expected to be “temporary,” the central bank said yesterday.

‘Subdued’ Inflation

“Excluding further unanticipated price adjustments and external influences, inflation in 2010 is projected to be positive but remain subdued,” Bank Negara said.

Interest-rate swaps signal the market is pricing in an eventual increase in borrowing costs in Malaysia in the second half of 2010, according to DBS Group Holdings Ltd., which cited the widening difference in yield, or spread, between the one- year swap rate and the Kuala Lumpur three-month interbank offered rate, or the Klibor.

The one-year swap rate of 2.44 percent offered 28 basis points more than Klibor yesterday from 10 basis points on April 29, when Bank Negara ended its interest-rate cuts, according to data compiled by Bloomberg.

To contact the reporter on this story: Stephanie Phang in Singapore at sphang@bloomberg.net

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Euro Zone Confidence Indicators Slightly Improve

Daily Forex Fundamentals | Written by ecPulse.com | Oct 29 09 09:09 GMT |

After a quiet beginning, we see that the euro zone is finally releasing major economic data that is expected to show confidence in the zone improving, so that we can be sure that businesses and consumers are looking forward to the government and ECB measures. First on our calendars is Germany's unemployment rate for October, which is expected to rise higher to 8.3% from 8.2% and this continues to reveal that the labor market remains fragile. The softening job market is negatively impacting growth since it leaves Germans euro less; therefore weighing on spending levels. Unemployment continues to rise as a result of industries demobilizing employees as a way to reduce expenses, since production output has been lowered due to the global downturn as they deal with eroded profits. Also scheduled to come out from Germany is unemployment change for the same time frame, with expectations showing that it will rise to 15 thousand from the prior shed of 12 thousand. Now turning to the zone; the business climate indicator, which assesses the economical situation, is presumed to improve slightly to -1.90 from -2.07; therefore more evidence that the ECB unorthodox measures have been successful at restoring confidence. From the expectations of rising confidence, we see that the government interventions are kicking in as the pace of the economic deterioration is easing, while the central bank is buying 60 euro-dominated bonds as a way to provide tranquility in the financial system. Consumer confidence for October is also scheduled with projections showing that it will inch higher to -18 from -19, while economic confidence is presumed to rise to 84.4 from 82.8. In addition, industrial confidence for October forecasted to also incline to -22 from -24, while services confidence for the same month is anticipated to slightly rise to -8 from -9. However, with rising confidence comes greater spending that will help sooth the recession in the euro zone, as they contracted by 2.5% in the first three months of the year, which was the worst since 1995 and shrank by 0.2 in the second quarter. The euro area is trying its hardest to shake off the worst recession witnessed since the post world war era. The European stock market yesterday ended the session in the red zone; we saw DJ Euro Stoxx 50 shed 56.71 points or 2.00% to 2778.46 points; CAC 40 fell 80.17 points or 2.14% to 3663.78 points; while DAX dipped 138.75 points or 2.46% to 5496.27 points. Ecpulse disclaimer: The content of ecPulse.com and any page in the website contain information for investors/traders and is not a recommendation to buy or sell currencies, stocks, gold, silver & energies, nor an offer to buy or sell currencies, stocks, gold, silver & energies. The information provided reflects the writers' opinions that deemed reliable but is not guaranteed as to accuracy or completeness. ecPulse is not liable for any losses or damages, monetary or otherwise that result. I recommend that anyone trades currencies, stocks, gold, silver & energies should do so with caution and consult with a broker before doing so. Prior performance may not be indicative of future performance. Currencies, stocks gold, silver &energies presented should be considered speculative with a high degree of volatility and risk

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Asia Must Continue Stimulus as Economies Rebound, IMF Says

By Jacob Greber

Oct. 29 (Bloomberg) -- Asian economies are “rebounding fast” from the global crisis, helped by fiscal support that the region’s governments must maintain due to sluggish world export demand, the International Monetary Fund said.

Growth in Asia including Japan, Australia and New Zealand will probably accelerate to 5.8 percent next year from 2.8 percent this year, “well below” the 6.8 percent average over the past decade, the Washington-based lender said today.

Asian governments have pumped more than $950 billion into their economies by cutting taxes, distributing cash and boosting spending after the global credit crunch cut world demand for the region’s exports from cars to flat-panel televisions. A rebound in shipments may be slow as consumer spending in the U.S. and Europe is “likely to remain weak for some time,” the fund said.

“Consequently, Asian countries will likely need to maintain policy support for some time,” the IMF said in its regional economic outlook published today.

Asia’s biggest customers, the Group of Seven economies, are forecast by the IMF to expand just 1.25 percent in 2010 as households and businesses in the U.S. and Europe remain “hobbled by the legacy of the crisis.”

The region’s leaders will need to manage a balancing act by supporting Asian economies “until it is clear that the recovery is sufficiently robust and self-sustaining” without stoking inflation or “concerns about fiscal sustainability,” the report said.

Striking Balance

“Striking the right balance will be difficult,” the IMF said. “Policy makers will need to assess the state of private demand and the extent to which it can substitute for a withdrawal of public-sector demand.”

Evidence is mounting that Asia’s economies are strengthening, prompting central bankers to signal they may soon begin raising rates in coming months, following the lead of policy makers in Australia, Norway and Israel.

China, the world’s third-biggest economy, expanded 8.9 percent in the third quarter, a report showed last week, stoking speculation government officials may be preparing to reduce monetary stimulus. Indian central bank Governor Duvvuri Subbarao said two days ago “it may be appropriate to sequence the ‘exit’ in a calibrated way” from record monetary stimulus.

Reserve Bank of Australia Governor Glenn Stevens this month became the first Group of 20 policy maker to increase borrowing costs since the height of the global recession after his nation’s economy expanded 1 percent in the first half of the year amid a surge in household spending.

Japanese Manufacturers

South Korea’s economy expanded 2.9 percent in the third quarter, the fastest pace in seven years, and Japan’s manufacturers increased production in September for a seventh month, recent reports showed.

“Asia is rebounding fast from the depths of the global crisis,” the IMF said. “The rebound in economic activity has been fastest in the export-dependent Asian economies that were hit most severely at the end of 2008.”

The IMF raised its forecast this month for world economic growth in 2010 as more than $2 trillion in stimulus packages and demand in Asia pull the world economy out its worst recession since World War II. The global economy will expand 3.1 percent, more than a July forecast of 2.5 percent, the fund said Oct. 1.

The lender forecasts China will lead the region, expanding 8.5 percent this year and 9 percent in 2010. India’s gross domestic product will gain 5.4 percent and 6.5 percent respectively, the report said.

Australian Economy

Japan’s economy will emerge from this year’s recession, when GDP will fall 5.4 percent, to expand 1.7 percent in 2010. Australian GDP will gain 0.7 percent this year and 2 percent in 2010, and New Zealand’s economy will expand 2.2 percent after shrinking 2.2 percent this year.

The so-called newly industrialized economies including Hong Kong, South Korea, Singapore and Taiwan will expand between 3.5 percent and 4.3 percent in 2010, after shrinking this year, the fund predicts, helped by a rebound in consumer confidence and “continued buoyancy in exports.”

A key challenge facing the region’s leaders “will be to devise a way to return to sustained, rapid growth in a new global environment of softer G-7 demand,” the IMF said.

“In this ‘new world,’ Asia’s longer-term growth prospects may be determined by its ability to recalibrate the drivers of growth to allow domestic sources to play a more dynamic role.”

The region will also need to be “willing to live with smaller current account surpluses and more flexible exchange rate management.”

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

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Unemployment Declined In Germany, Amid Signs Of Recovery

Daily Forex Fundamentals | Written by ecPulse.com | Oct 29 09 09:36 GMT |

Despite the vivid recovery signs in the largest economy in the euro zone spurred by Germany, the largest economy in the 16-nation economy, the escalating unemployment rate is threatening recovery and putting more pressure on the German government. The current rate of unemployment in the euro zone is 9.6%, the highest in more than 10 years. However, today, Germany released its jobless rate for October coming in at 8.1%, lower than the previous 8.2% and median forecasts of 8.3%. The rate improved slightly in October, but it is still high. Many companies shed jobs to cut costs to return to profitability. For instance, Siemens AG announced previously that it has slashed the number of workers from all its affiliates to 408,000 this year from roughly 420,000. Also, there are other companies planning to terminate more employees which may cause the number to become scarier in the coming period. The Bundesbank predicts the rate of unemployed people to rise to 10.5% in 2010. However, the gigantic economy grew 0.3% in the second quarter, leading the recovery in the euro zone; still the unemployment is considered the major problem. The German economy improved since the second quarter and the progress continued in the third quarter; however, there have been volatility in the data released recently which is raising concerns that the recovery may be slow. The German chancellor Angela Merkel launched 85 billion euros plan to reinvigorate the economy in addition to the 60 billion euros stimulus introduced by the ECB to pump liquidity and boost lending and thereby spending. The expansionary fiscal and monetary policies adopted by the ECB and European national governments managed to ease the contraction. Eyes in the coming period will be focused on GDP for the third quarter where positive growth figures are expected. IW economic institute projects the German economy will shrink 4.5% in 2009, before growing to 1.5% next year. The important question now is can Germany and France pull the euro zone out of recession Ecpulse disclaimer: The content of ecPulse.com and any page in the website contain information for investors/traders and is not a recommendation to buy or sell currencies, stocks, gold, silver & energies, nor an offer to buy or sell currencies, stocks, gold, silver & energies. The information provided reflects the writers' opinions that deemed reliable but is not guaranteed as to accuracy or completeness. ecPulse is not liable for any losses or damages, monetary or otherwise that result. I recommend that anyone trades currencies, stocks, gold, silver & energies should do so with caution and consult with a broker before doing so. Prior performance may not be indicative of future performance. Currencies, stocks gold, silver &energies presented should be considered speculative with a high degree of volatility and risk

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Forex and Dow Jones Recommended Levels

Daily Forex Technicals | Written by FXtechtrade | Oct 29 09 09:12 GMT |

EUR/USD Today's support: - 1.4672 and 1.4648(main), where correction is possible. Break would give 1.4622, where correction also may be. Then follows 1.4597. Break of the latter would result in 1.4572. If a strong impulse, we would see 1.4544. Continuation will give 1.4526. Today's resistance: - 1.4477, 1.4805, 1.4827 and 1.4864(main). Break would give 1.4892, where a correction is possible. Then goes 1.4993. Break of the latter would result in 1.4950. If a strong impulse, we'd see 1.4987. Continuation will give 1.5008. USD/JPY Today's support: - 90.08(main). Break would bring 89.78, where correction is possible. Then 89.57, where a correction may also happen. Break of the latter will give 89.26. If a strong impulse, we would see 89.12. Continuation would give 88.78 and 88.52. Today's resistance: - 91.42, 91.80, 92.07 and 92.28(main), where a correction may happen. Break would bring 92.44, where also a correction may be. Then 92.56. If a strong impulse, we would see 92.70. Continuation will give 93.14, 93.35 and 93.58. DOW JONES INDEX Today's support: - 9742.44 and 9714.37(main), where a delay and correction may happen. Break of the latter will give 9689.06, where correction also can be. Then follows 9666.56. Be there a strong impulse, we would see 9636.62. Continuation will bring 9587.81 and 9563.30. Today's resistance: - 9866.20 and 9897.19(main), where a delay and correction may happen. Break would bring 9938.37, where a correction may happen. Then follows 9967.40, where a delay and correction could also be. Be there a strong impulse, we'd see 9990.18. Continuation would bring 10036.36 and 10084.53. FXtechtrade http://www.fxtechtrade.com Disclaimer: Any information presented by Nikolajs Serikovs at this very website should be in no way understood as an offer, promise or guarantee for receiving a profit or avoiding the losses. Stated here levels of support and resistance must not be construed as an investment advice or endorsement for any financial instrument. There exists no guarantee that the market would behave in accordance with the information stated here Prepared in Republic of Latvia for the worldwide distribution.

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Fed Ending Treasury Purchases That Helped Cap Yields

By Liz Capo McCormick

Oct. 29 (Bloomberg) -- The Federal Reserve will complete its $300 billion Treasury purchase program today amid signs the seven-month buying spree helped stabilize the housing market and limited increases in borrowing costs.

Yields on the benchmark 10-year note, which help determine rates on everything from mortgages to corporate bonds, never rose above 4 percent after the central bank began acquiring the debt. They are less than half a percentage point higher than the day before the program was announced on March 18, even though the U.S. sold a record $1.25 trillion in notes and bonds, more than double the amount in the year-earlier period.

“The Fed’s purchases likely restrained rates from rising faster during the April through June period when 10-year notes went to about 4 percent,” said George Goncalves, chief fixed- income rates strategist in New York at Cantor Fitzgerald LP, one of the 18 primary dealers of U.S. government securities that trade with the Fed.

The purchases were the first of U.S. Treasuries by the central bank to keep borrowing costs low since the 1960s. The Fed joined its counterparts in the U.K. and Japan in extraordinary debt-buying programs, broadening efforts to unlock credit and end the worst recession since the 1930s after cutting the benchmark U.S. interest rate to a range of zero to 0.25 percent.

Purchase Schedule

The Fed is slated to acquire Treasuries maturing between December 2013 and April 2016 at 10:15 a.m. New York time. The central bank has purchased $298.063 billion of government debt securities through today.

Longer-maturity Treasuries rallied the most since 1962 when the Fed said March 18 it would start buying the securities. That day, Treasury 10-year yields fell almost half a percentage point to 2.52 percent as the Fed surprised investors by expanding the debt purchase portion of its so-called quantitative easing policy, which already included $1.45 trillion of agency and mortgage-backed debt.

While yields subsequently rose to an intraday high of 4 percent on June 11, they have since fallen back, ending at 3.42 percent yesterday, according to BGCantor Market Data.

Demand is returning to housing after the industry shaved an average of 1 percentage point from gross domestic product each quarter since the start of 2006. Sales of existing U.S. homes surged a record 9.4 percent in September to a 5.57 million annual rate, the highest in more than two years, the National Association of Realtors in Washington said Oct. 23.

Mortgage Rates

Mortgage rates for 30-year fixed home loans averaged 5 percent in the week ended Oct. 22, down from as high as 6.63 percent last year, according to McLean, Virginia-based Freddie Mac. The rate was 5.05 percent in March.

Corporate bonds yield 5.9 percent on average, down from 10.3 percent in March, according to Merrill Lynch & Co. index data. Borrowers have sold $1.11 trillion in U.S. corporate bonds in 2009, the fastest pace on record, according to data compiled by Bloomberg.

Fed Chairman Ben S. Bernanke and his fellow policy makers indicated last month for the first time since August 2008 that the economy is accelerating, even as they recommitted to keep rates “exceptionally low” for an “extended period.”

The Commerce Department may say today that the economy returned to growth in the third quarter. Gross domestic product probably expanded at an annual rate of 3.2 percent after contracting in the previous four quarters, according to the median forecast of 79 economists surveyed by Bloomberg News.

‘Good Time’

“The Fed also happens to be exiting the Treasury market at a good time,” Goncalves added. “Other markets, such as equities, which performed well due to the expansion of the Fed’s balance sheet are retreating and that will provide a backstop for the Treasury market.”

The Standard and Poor’s 500 index of stocks, which rallied 57 percent from a 12-year low on March 9, has slipped 3.5 percent from this year’s high on Oct. 19. Speculation the gains outpaced the prospects for earnings and economic growth has weighed on share prices this month.

Fed policy makers said at their August Federal Open Market Committee meeting they would slow the pace of Treasury purchases in a effort to “promote a smooth transition in markets.” The program was originally scheduled to end last month.

Bond Rally

“Yields rallied when the Fed said they wouldn’t be buying more Treasuries because of a decline in inflationary risks associated with the perceptions that the Fed was monetizing the government debt,” said Michael Pond, interest-rate strategist in New York at primary dealer Barclays Plc. “Foreign investors had begun to be spooked by those risks during the second quarter.”

Policy makers likely realized that, by concentrating purchases in mortgage-related debt, “they could more directly influence consumer borrowing costs in specific areas,” Pond said.

The difference in yield between 10-year Treasury Inflation Protected Securities and 10-year notes is 1.97 percentage points, compared with an average of 2.18 over the past five years. The gap, known as the breakeven rate, suggests investors expect inflation to remain low over the life of the securities.

Fed purchases have helped buttress demand as the U.S. sells record amounts of debt to finance a budget deficit that exceeds $1 trillion for the first time. Total sales of Treasuries will increase to $2.38 trillion in the fiscal year that began Oct. 1, from $1.81 trillion in the prior 12 months, primary dealer Goldman Sachs Group Inc. said in a report on Oct. 20.

Bids at yesterday’s record $41 billion sale of five-year notes exceeded the amount offered by 2.63 times, the highest so- called bid-to-cover ratio since October 2007. The two-year notes sold the day before drew the strongest demand since August 2007.

“Having the Fed buy $300 billion in Treasury debt has supported the market,” said Ward McCarthy, chief financial economist at primary dealer Jefferies & Co. in New York. “Knowing that the Fed has been on the buy-side of the market increased the confidence level of private sector investors in owning Treasuries.”

To contact the reporter on this story: Liz Capo McCormick in New York at Emccormick7@bloomberg.net

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Japan’s Industrial Output Rises 1.4%, Seventh Gain

By Jason Clenfield and Tatsuo Ito

Oct. 29 (Bloomberg) -- Japanese manufacturers increased production for a seventh month in September, extending the longest stretch of gains in 12 years, as spending by governments worldwide helped to revive trade.

Output rose 1.4 percent last month from August, when it climbed 1.6 percent, the Trade Ministry said today in Tokyo. The median estimate of 30 economists surveyed by Bloomberg News was for a 1 percent gain.

Companies said they planned to increase production in October and November as well, indicating the recovery from a record export collapse in the first quarter is holding up. Growth in China is generating sales for manufacturers including Hitachi Construction Machinery Co., which this week said it has worked off stockpiles that piled up during the recession.

“The pace of the recovery is faster than expected,” said Hiroshi Miyazaki, chief economist at Shinkin Asset Management Co. in Tokyo. Withdrawal of stimulus in the U.S. and Europe may cause output and exports to slow down this quarter, Miyazaki said, “but so far, today’s production report showed few signs of that.”

Investors looked past the figures, with stocks falling and the yen strengthening after U.S. data showed new home sales unexpectedly fell, highlighting concern that the recovery in Japan’s second-biggest export market may weaken.

The Nikkei 225 Stock Average dropped 1.6 percent at 10:13 a.m. in Tokyo. The yen traded at 90.59 per dollar from 90.70 before the production report. Japan’s currency has gained 4.9 percent in the past three months, reducing the value of repatriated profits.

Exports Improve

When stripping out the effects of currency moves, exports are improving. By volume, overseas shipments rose 10.4 percent last quarter from the previous three months, according to the Cabinet Office.

Today’s report showed shipments climbed 3.4 percent in September, more than twice the pace of production, causing inventories to decline 0.5 percent. Stockpiles have fallen in eight of the past nine months, leaving manufacturers room to increase output as soon as orders come in. Companies surveyed by the Trade Ministry said they plan to increase production 3.1 percent in October and 1.9 percent next month.

“Inventories and export growth are the drivers,” said Sean Yokota, an economist at UBS AG in Tokyo. “There is demand out there. First it was led by China and exports to Asia, but slowly you’re getting exports to the U.S. starting to rise.”

Chinese Demand

China, the world’s third-largest economy and Japan’s biggest overseas market, grew 8.9 percent last quarter, the fastest pace in a year, fueled by fiscal stimulus and bank lending. Surging Chinese demand was one of the main reasons Honda Motor Co. this week tripled its full-year profit forecast.

Retail sales in the U.S. have risen in three of the past five months and a report later today may show the economy grew an annualized 3.2 percent last quarter, the first expansion in more than a year, according to the median estimate of analysts.

Hitachi Construction, Japan’s second-largest maker of digging equipment, this month raised output at its largest domestic plant to about 50 percent of capacity from below 10 percent in September.

“We faced a tough time,” Chief Financial Officer Nobuhiko Kuwahara said this week in Tokyo after the company announced it returned to profitability last quarter. “We’ve come out of the bottom.”

Not Hiring or Spending

Still, gains in Japan’s output since March have yet to generate employment, trigger capital investment or return companies like Nippon Yusen K.K or Toyota Motor Corp. to profit.

Even after seven months of rising output, factories are using only about two-thirds of their capacity. Production, while improving month-on-month, was still down 18.9 percent in September from a year ago, today’s report showed.

Nippon Yusen, Japan’s biggest shipping line, this week widened its loss forecast for the fiscal year to 27 billion yen ($300 million) from 5 billion yen as a dearth of demand for container transport caused shipping rates to plummet. The Tokyo-based company also cut by half its plans to buy new vessels from 2011.

Toyota’s domestic output fell 11 percent in September from a year earlier, the company said yesterday. It forecasts a loss this business year and says it will sell only 6.5 million vehicles, compared with the 9 million it’s capable of producing.

“Even though we have increases in industrial production, that doesn’t mean workers will get paid more, or more investment will be following,” said Richard Koo, chief economist at Nomura Research Institute in Tokyo. “The initial fall was so large we’re only maybe one third of the way back.”

To contact the reporters on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net; Tatsuo Ito in Tokyo at tito@bloomberg.net.

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U.K. Mortgage Approvals Climb to 18-Month High in September

By Jennifer Ryan

Oct. 29 (Bloomberg) -- U.K. mortgage approvals climbed to their highest level for 18 months in September, adding to signs the housing market is recovering from a rout.

Lenders granted 56,215 home loans, compared with 52,970 in August, the Bank of England said today in London. The median of 20 forecasts in a Bloomberg News survey was 53,600. By value, mortgage lending increased by 922 million pounds.

Bank of England policy makers will decide next week whether to expand their 175 billion-pound ($286 billion) program of buying bonds to fight the recession. The economy unexpectedly shrank in the third quarter, and some economists say the housing-market revival may fizzle out as job losses mount.

``The mortgage market is dragging itself off the bottom but it's not particularly strong or dynamic,'' said Peter Dixon, an economist at Commerzbank AG in London. ``The bank will probably take the path of least resistance and raise the asset purchase ceiling by 50 billion pounds.''

Recent reports show house prices are recovering after falling as much as a fifth from their peak in 2007. Land Registry figures published yesterday showed prices have risen almost 4 percent since April.

Former central bank policy maker David Blanchflower said Oct. 26 that house prices may fall next year, leaving as many as 3 million with homes worth less than the mortgages used to buy them. Monthly mortgages approvals are still only half what they were in September 2007 when the credit crisis began.

Divided Opinion

Economists are divided over whether the Monetary Policy Committee should expand its money-printing program after the economy shrank 0.4 percent between July and September. The slump extended the recession to six quarters, the longest since records began in 1955.

Figures published today suggest the central bank's efforts to boost the money supply are struggling to work.

The measure of M4 that the bank uses to assess the effectiveness of so-called quantitative easing fell 0.9 percent in September from August and was down an annualized 1.7 percent in the third quarter. The gauge excludes financial companies that specialize in intermediating between banks, such as bank holding companies and non-bank credit grantors.

The main gauge of M4, the broadest measure of money supply, rose 0.8 last month and gained 11.6 percent on the year, the central bank said today.

Britons cut their unsecured debts for a third month in September, with consumer credit falling 262 million pounds, the Bank of England said.

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

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Bernanke, Shirakawa Trail Gjedrem Amid Policy Split

By Simon Kennedy

Oct. 29 (Bloomberg) -- The global monetary policy divide is widening as the Federal Reserve, Bank of Japan and major counterparts lag behind Norway and Australia in raising interest rates, a trend that’s set to continue into 2010.

While Fed Chairman Ben S. Bernanke and BOJ Governor Masaaki Shirakawa may soon unwind some of their emergency measures, JPMorgan Chase & Co. doesn’t expect a Group of Seven member to lift rates before the third quarter. The divergence may boost the currencies of those nations shifting first, with New York University professor Nouriel Roubini warning low U.S. rates may be generating “huge” bubbles as investors borrow dollars to invest in other assets.

“The big boys are going to hold off raising rates for the foreseeable future,” said Jay Bryson, global economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “Their economies have been decimated and are going to take some time to recover even with better global growth.”

The Norges Bank, under Governor Svein Gjedrem, yesterday cited higher-than-expected inflation in pushing its benchmark rate up a quarter point to 1.5 percent and signaling steeper increases than it previously forecast. In August, Bank of Israel Governor Stanley Fischer boosted his benchmark a quarter point to 0.75 percent, while Reserve Bank of Australia Governor Glenn Stevens raised to 3.25 percent from a 49-year low of 3 percent on Oct 6.

Asia Rising

They may soon be joined by other central banks with those in Asia leading the way as their economies power the globe from its recession, fanning inflation and asset gains. South Korea’s economy grew at the fastest pace in seven years in the third quarter, while Indian central bank Governor Duvvuri Subbarao has prepared investors for higher rates by telling banks on Oct. 27 to set aside more cash in government bonds to restrain credit.

By contrast, Reserve Bank of New Zealand Governor Alan Bollard today kept his benchmark rate at a record low of 2.5 percent and said he won’t increase borrowing costs until the second half of 2010 because the nation’s economy needs ongoing stimulus to ensure it emerges from a recession.

Investors will be attracted to the currencies of those economies with rising interest rates, said Mansoor Mohi-uddin, Zurich-based chief currency strategist at UBS AG. He predicts Norway’s krone will outperform the euro, while the Australian dollar will best Canada’s.

Sticking Together

The weak U.S. dollar has hurt earnings at companies such as Airbus SAS that have their costs in the euro, which has gained 12 percent against the U.S. currency in the past six months. Airbus orders are down 80 percent in the first nine months and Chief Operating Officer Fabrice Bregier said on Oct. 8 that “we can only appeal to monetary authorities to ensure currency stability.”

There are risks for both the central banks that act soon and those that delay, said Manoj Pradhan, an economist at Morgan Stanley in London, who likens recent monetary policy to a peloton in cycling in which riders stick together as a group. Those central banks that break away may hurt their economies through rising currencies. Israel has already intervened to weaken the shekel. Those that wait may eventually have to raise rates faster to catch-up, he says.

There is already the threat of bubbles as investors take advantage of low U.S. rates to borrow in dollars and buy higher- yielding assets such as equities and commodities, Roubini said Oct. 27.

“Everybody’s playing the same game and this game is becoming dangerous,” Roubini said. The dollar has dropped 6 percent this year against a basket of six leading currencies.

Hardest Hit

The reason G-7 central banks are lagging behind is that their economies were the hardest hit by the crisis and, even in a recovery, will take time to reclaim lost ground, said David Hensley, an economist at JPMorgan Chase.

The 186-member International Monetary Fund doesn’t expect the G-7’s output gap, which measures the excess of supply versus demand, to be in balance before 2014. That’s helping control inflation, with the Washington-based lender predicting consumer prices in the G-7 will fall an average of 0.1 percent this year and inflation will stay below 2 percent for at least the next five years.

“There’s a lot of slack,” said New-York based Hensley. “There is no way we can see the major central banks hiking for a while.”

Retreating Prices

While the Fed has already announced a phase-out of some of its emergency programs, such as its term auction facility, it has retained a commitment to keep rates near zero for an “extended period.” At the BOJ, policy makers are debating ending their purchases of corporate debt, yet will probably forecast in a report tomorrow that deflation will extend into fiscal 2011, indicating no sign they’ll boost their 0.1 percent benchmark.

European Central Bank President Jean-Claude Trichet and colleagues say declining consumer prices mean there is no rush to raise the record low 1 percent benchmark rate. Bank of Canada Governor Mark Carney says his key rate is likely to be unchanged from 0.25 percent through June. At the Bank of England, where the rate is a record low of 0.5 percent, Governor Mervyn King may extend the bank’s bond purchase plan after the U.K. economy unexpectedly contracted in the third quarter.

The status quo is likely to last into 2010 and perhaps even beyond for some central banks. JPMorgan Chase economists predict the Bank of England will be the only G-7 member to raise its main interest rate next year, starting in the third quarter.

“Exiting too early could abort the present nascent recovery and push economies and financial markets back into crisis,” said Deutsche Bank AG economists Thomas Mayer and Peter Hooper in an Oct. 21 report.

To contact the reporter on this story: Simon Kennedy in Paris at skennedy4@bloomberg.net

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Russia Lowers Benchmark Rate to 9.5% to Boost Lending

By Paul Abelsky and Alex Nicholson

Oct. 29 (Bloomberg) -- Russia’s central bank cut its key interest rates to record lows in an effort to boost lending and help carry the commodity-reliant economy out of its worst slump since official records began more than a decade ago.

Bank Rossii lowered the refinancing rate to 9.5 percent from 10 percent and reduced the repurchase rate charged on central bank loans to 8.5 percent from 9 percent, effective from tomorrow. The bank has cut the rates eight times since April 24. It last lowered them by a half point on Sept. 29.

The decision was made “with the aim of additionally stimulating lending activity of the banking sector,” Bank Rossii said in a statement. “The central bank’s interest rate measures will create the conditions for further reducing the cost of credits for end borrowers.”

Previous cuts in the benchmarks have been slow to filter through to bank lending rates, hampering domestic demand and leaving companies short on credit needed to resume investment and hire workers. Businesses in the world’s biggest energy producer still lack funds to rebuild inventories and recover from last year’s slump in raw material demand. The economy shrank a record 10.9 percent in the second quarter and contracted a further 9.4 percent in the three months ended September.

The ruble maintained declines and was down 0.5 percent at 29.2924 against the dollar in Moscow. It was little changed against the euro at 43.1796.

‘Big Opportunity’

The current level of inflation and interest rates provides a “big opportunity” to cut rates further, Alexei Ulyukayev, first deputy chairman of the central bank, said in Moscow on Oct. 21. The regulator may lower rates below 9 percent in 2010, he added.

The cuts “so far have not lead to an increase in lending by banks or a comparable reduction in the interest rates on loans,” Audit Chamber head Sergei Stepashin said during parliamentary hearings last week.

Russia is the only member of the four so-called BRIC nations still cutting rates. India last cut its reverse repo and repo rates in April, China lowered its lending rate in December and Brazil hasn’t cut its overnight rate since July.

The government of Prime Minister Vladimir Putin expects the economy of the world’s biggest energy exporter to contract 6.8 percent in the second half and 8.5 percent in 2009 on average, after growth of 5.6 percent in 2008 and 8.1 percent the year before. Output will grow 1.6 percent next year and 3 percent in 2011, the government estimates.

Recovery Prospects

Recovery prospects still hinge on Russia’s financial system and a resumption of lending growth. Credit flows have faltered even after Bank Rossii cut rates as banks remain concerned that borrowers can’t service debt and as asset quality deteriorates. Overdue bank loans rose to 5.8 percent of total lending in August from 5.5 percent a month earlier. Average interest rates charged on corporate loans declined to 14.5 percent last month after growing to 15.1 percent in August.

“High risks and uncertainty” continue to stifle corporate lending, Putin said last week.

The severity of Russia’s economic decline has undercut demand and may bring the inflation rate this year below the government’s target for the second time in a decade. Consumer prices grew an annual 10.7 percent in September, compared with 15 percent the same month last year.

‘Favorable Conditions’

“The usual seasonal October acceleration in inflation may well be smoothed by consistent ruble strengthening in the foreign-currency market,” said Anton Nikitin, an analyst at Renaissance Capital in Moscow. Producer prices, budget spending and an increased money supply aren’t creating enough pressure to fuel inflation, he said. “These conditions remain favorable for loosening monetary policy as early as October.”

Consumer-price growth this year may be “a little more” than 8 percent, Putin said in St. Petersburg on Oct. 25. That would be the slowest annual average pace of inflation since records began after the collapse of the Soviet Union in 1991.

Slowing price growth marks a reversal for Russia, which is still haunted by inflation rates in excess of 100 percent endured after its 1998 default and in excess of 1,000 percent after it abandoned central planning for market prices in the early 1990s.

Ruble Strength

The ruble has gained this month to the strongest level against the dollar in more than three quarters. Against the central bank’s target currency basket, the ruble has appreciated to the highest level since the end of December.

Crude oil, Russia’s chief export, touched a one-year high of $82 a barrel on Oct. 21. Oil prices have gained almost 80 percent this year as a recovery in stock markets encouraged investors and after the sliding dollar boosted commodities purchases.

“A rate cut is likely not only in response to slowing inflation, but also as a further effort to curb the ruble’s rally,” said Vladimir Osakovsky, an economist at UniCredit SpA in Moscow. “Monetary easing should eventually reverse the national currency’s current rally.”

Putin said last month that preventing the appreciation of the ruble remains one of the government’s objectives. “The market sees no grounds for sharp foreign-exchange fluctuations or devaluation,” he said at an Oct. 16 government meeting.

Russia’s benchmark rate is Europe’s fourth-highest behind Iceland, Serbia and Ukraine. Eighteen 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 Hungary, Romania and the Czech Republic.

Russia’s rate cuts represent a reversal of last year’s tightening that had sought to prevent lenders using borrowed cash to speculate on the ruble’s decline after oil prices slumped.

To contact the reporter on this story: Paul Abelsky in Moscow at pabelsky@bloomberg.net.

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Economy in U.S. Probably Shook Off Recession in Third Quarter

By Timothy R. Homan

Oct. 29 (Bloomberg) -- The U.S. economy probably grew in the third quarter for the first time in more than a year, driven by gains in consumer and government spending that have failed to reduce unemployment.

The world’s largest economy expanded at a 3.2 percent annual pace from July through September after shrinking in the previous four quarters, according to the median estimate of 79 economists surveyed by Bloomberg News. Household purchases likely rose by the most since the first three months of 2007.

Policy makers will now focus on whether the recovery, buoyed by federal assistance to the housing and auto industries, can be sustained into next year and create jobs. The record $1.4 trillion budget deficit limits President Barack Obama’s ability to provide further stimulus, while Federal Reserve officials are trying to convince investors that the central bank will exit emergency programs in time to prevent a pickup in inflation.

“At this stage the numbers are just going to tell you the recession is over, and now the argument is going to center on the speed of the recovery,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “There will be a lot of naysayers after the numbers because ‘cash for clunkers’ did figure prominently in the quarter’s bounce back.”

The Commerce Department’s report on gross domestic product is due at 8:30 a.m. in Washington. The economy shrank 3.8 percent in the 12 months to June, the worst performance in seven decades.

Consumers Spend

Consumer spending, which comprises about 70 percent of the economy, probably rose last quarter at a 3.1 percent annual rate from the previous three months, the report may show according to the survey median.

Much of the boost in purchases was provided by the administration’s auto-incentive program known as cash for clunkers, which offered buyers payments of as much as $4,500 to trade in older cars and trucks for new, more fuel-efficient vehicles. The plan, which ended in August, boosted sales by about 700,000 vehicles, according to a Transportation Department estimate.

The improving global economy helped companies from Amazon.com Inc. to Whirlpool Corp. exceed analysts’ sales estimates last quarter. Profits at about 85 percent of the companies in the Standard & Poor’s 500 Index that have released results beat expectations, according to Bloomberg data. That marks the highest proportion in records going back to 1993. The S&P 500 closed at a one-year high on Oct. 19.

Fewer Stockpiles

Growing demand caused inventories to keep falling, which may prompt companies to ramp up production in the coming months and contribute to growth. The drawdown will restrain today’s GDP numbers, economists said.

Orders for durable goods rose 1 percent in September, the Commerce Department said yesterday. The gain was the fourth in the last six months and indicates companies are planning to invest in new equipment.

“You should see more expansion in the categories we’re in, as well as more geographical expansion over time,” Chief Financial Officer Thomas Szkutak of Amazon.com, the world’s largest Internet retailer, said on an Oct. 22 conference call.

The White House’s Council of Economic Advisers estimates the stimulus program, signed into law by President Obama in February, boosted economic growth by 2 percentage points to 3 percentage points in the second quarter, by 3 points to 4 points last quarter and has prevented payrolls from falling even more.

Mounting Unemployment

In September, the unemployment rate reached a 26-year high of 9.8 percent, up from 7.6 percent from when Obama took office in January, figures from the Labor Department show. Economists project the jobless rate will exceed 10 percent by early 2010.

Since the recession began in December 2007, the U.S. has lost 7.2 million jobs. Payroll cuts peaked at 741,000 in January and slowed to 201,000 in August before accelerating again last month.

A report today from the Labor Department, also at 8:30 a.m., may show the number of Americans filing for jobless benefits decreased to 523,000 last week from 531,000 a week earlier, according to the median estimate in a Bloomberg survey.

The economy will likely grow at a 2.4 percent annual rate from October through December, the median forecast in a survey earlier this month showed. GDP will also grow 2.4 percent next year and 2.8 percent in 2011, the survey showed, compared with an average of 3.4 percent growth over the past six decades.

                        Bloomberg Survey

===============================================================
                          Initial      GDP Personal      GDP
                           Claims   Annual Consump.   Prices
                           ,000’s     QOQ%     QOQ%     QOQ%
===============================================================
Date of Release              10/29    10/29    10/29    10/29
Observation Period          24-Oct     2Q A     2Q A     2Q A
---------------------------------------------------------------
Median                         523     3.2%     3.1%     1.4%
Average                        523     3.3%     2.7%     1.4%
High Forecast                  540     4.8%     3.5%     2.3%
Low Forecast                   515     2.0%    -0.4%     0.3%
Number of Participants          42       79       20       45
Previous                       531    -0.7%    -0.9%     0.0%
---------------------------------------------------------------
4CAST Ltd.                     520     2.5%     ---      1.2%
Action Economics               525     2.2%     ---      0.8%
Aletti Gestielle SGR          ---      3.7%     3.0%     1.9%
Ameriprise Financial Inc       515     3.1%     2.4%     1.3%
Argus Research Corp.          ---      4.0%     ---      2.2%
Banesto                        532     3.4%     ---      ---
Bank of Tokyo- Mitsubishi      525     2.8%     ---      2.0%
Bantleon Bank AG              ---      3.0%     ---      ---
Barclays Capital               525     3.5%     ---      1.3%
Bayerische Landesbank         ---      3.0%     ---      ---
BBVA                           527     4.1%     ---      0.8%
BMO Capital Markets            515     3.8%     ---      2.2%
BNP Paribas                    521     2.7%     ---      1.4%
BofA Merrill Lynch Resear      520     2.5%     ---      0.9%
Briefing.com                   520     2.5%     ---      1.3%
C I T I C Securities          ---      3.8%     ---      ---
Calyon                        ---      3.4%     3.1%     1.2%
Capital Economics             ---      4.2%     ---      ---
CIBC World Markets            ---      3.8%     ---      1.7%
Citi                           525     3.3%     3.2%     1.0%
ClearView Economics           ---      3.4%     ---      1.5%
Commerzbank AG                 525     ---      ---      ---
Credit Suisse                  530     3.6%     3.1%     1.8%
Daiwa Securities America      ---      3.0%     ---      1.0%
Danske Bank                   ---      4.0%     3.2%     ---
DekaBank                      ---      3.3%     ---      2.0%
Desjardins Group              ---      2.5%     ---      ---
Deutsche Bank Securities      ---      4.0%     ---      1.7%
Deutsche Postbank AG          ---      3.0%    -0.4%     ---
DZ Bank                       ---      3.0%     ---      1.5%
First Trust Advisors           529     3.9%     ---      2.3%
Fortis                        ---      2.8%     ---      ---
FTN Financial                 ---      3.8%     ---      ---
Goldman, Sachs & Co.          ---      2.7%     ---      1.6%
Helaba                         520     4.8%     ---      ---
Herrmann Forecasting           527     2.9%     3.3%     1.2%
High Frequency Economics       520     3.7%     3.2%     2.0%
HSBC Markets                   525     4.0%     ---      ---
Ibersecurities                ---      3.3%     0.6%     ---
IDEAglobal                     515     3.5%     2.8%     1.2%
IHS Global Insight            ---      4.3%     ---      ---
Informa Global Markets         525     4.5%     3.3%     ---
ING Financial Markets          520     3.5%     3.2%     ---
Insight Economics              525     3.0%     ---      1.5%
Intesa-SanPaulo               ---      3.2%     ---      ---
J.P. Morgan Chase              520     3.5%     ---      0.6%
Janney Montgomery Scott L     ---      2.9%     2.8%     1.3%
Jefferies & Co.               ---      3.0%     ---      1.3%
Landesbank Berlin              525     3.9%     ---      ---
Landesbank BW                 ---      2.6%     ---      ---
Maria Fiorini Ramirez Inc      535     3.0%     ---      2.0%
MFC Global Investment Man      515     3.0%     1.8%     1.5%
Mizuho Securities              540     2.0%     ---      ---
Moody’s Economy.com            520     3.2%     ---      1.2%
Morgan Keegan & Co.           ---      2.7%     ---      1.4%
Morgan Stanley & Co.          ---      3.9%     ---      ---
National Bank Financial       ---      3.8%     3.0%     ---
Natixis                       ---      3.0%     3.5%     0.3%
Newedge                       ---      2.8%     ---      ---
Nomura Securities Intl.       ---      3.0%     ---      0.8%
Nord/LB                        525     3.2%     ---      1.5%
PNC Bank                      ---      3.0%     ---      1.0%
RBC Capital Markets           ---      2.6%     2.5%     ---
RBS Securities Inc.            525     3.4%     ---      0.9%
Ried, Thunberg & Co.           515     3.0%     ---      ---
Schneider Foreign Exchang      518     3.2%     ---      ---
Scotia Capital                 525     3.3%     ---      0.5%
Societe Generale              ---      3.0%     ---      1.7%
Standard Chartered            ---      3.0%     3.0%     2.2%
Stone & McCarthy Research      530     3.5%     ---      1.6%
TD Securities                  520     3.8%     ---      ---
Thomson Reuters/IFR            525     2.8%     ---      ---
UBS                            520     3.5%     3.2%     1.5%
UniCredit Research             520     3.8%     ---      ---
University of Maryland         520     2.0%     ---      0.8%
Wells Fargo & Co.             ---      3.7%     ---      ---
WestLB AG                     ---      3.1%     ---      ---
Westpac Banking Co.            520     2.3%     ---      ---
Woodley Park Research         ---      3.5%     ---      ---
Wrightson Associates           515     3.0%     ---      ---
===============================================================

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

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