European Market Update

Daily Forex Fundamentals | Written by Trade The News | Dec 10 09 11:04 GMT |

Risk aversion sentiment subsides as European central bankers express confidence that Greek authorities will address its debt problems ECONOMIC DATA (SZ) SNB left its 3-Month Libor Target Rate unchanged at 0.25%; as expected. To end corp bind purchases and reiterates to counter any CHF currency strength Iceland cuts its interest rates by 100bps to 10.00% (TU) Turkey Oct Current Account: -0.9Be v -0.9B prior (FI) Finland Oct Preliminary Trade Balance: €1.4B v €1.1Be (FI) Finland Oct Industrial Production M/M: 2.2% v 2.0%e; Y/Y: -18.9% v -20.8%e (GE) German Nov Wholesale Prices M/M: 0.7% v -0.4% prior, Y/Y: -3.2% v -7.0% prior (FR) French Q3 Final Non-farm Payrolls Q/Q: -.06% v 0.0% prior (FR) French Q3 Manufacturing Production M/M: -0.8% v 1.0%e; Y/Y: -8.8% v -6.5%e (FR) French Oct Industrial Production M/M: -0.8% v 0.7%e; Y/Y: -8.4% v -6.6%e (TU) Turkish Oct GDP Y/Y: -3.3% v -3.7%e (TU) Turkey Nov Capacity Utilization: 70.7% v 71.2%e (SW) Swedish Nov CPI-Headline Rate M/M: 0.0% v-0.1%e; Y/Y: -0.7% v -0.7%e (SW) Swedish Nov CPI- Underlying Inflation M/M: 0.0% v0.0%e; Y/Y: 2.3% v 2.3%e; CPI Level 301.03 v 301.22e (DE) Danish NOV M/M: 0.0% v 0.1%e; Y/Y: 1.3% v 1.5%e (DE) Danish NOV CPI EU Harmonized M/M: 0.0% v 0.2%e; Y/Y: 0.9% v 1.1%e (SP) Spain Q3 Housing sales Y/Y: -13.6% (IT) Italian Oct Production M/M: 0.5% v 1.3%e; Y/Y: -11.8% v -12.7%e; Ind Prod WDA Y/Y: -14.0% v -12.9%e (EU) ECB Monthly Report: Mirrors ECB press conference from Dec 3rd (NO) Norwegian Nov CPI M/M: 0.3% v 0.2%e; Y/Y: 1.5% v 1.4%e (NO) Norwegian Nov CPI Underlying M/M: 0.1% v 0.1%e; Y/Y: 2.4% v 2.4%e (NO) Norwegian Nov Producer Prices (incl oil) M/M: 3.6% v 1.5% prior, Y/Y: 4.8% v -4.1% prior (SW) Swedish AMV unemployment Rate: 5.3% v 5.4%e (SA) South African Q3 Current Account Balance (ZAR): -77.4B v -72.5Be; Ratio to GDP): -3.2% v -3.1%e (UK) Oct Mortgage approvals M/M: 55.3K v 50.6K prior -Council of Morgtage Lenders: Mortgage (IT) Italian Q3 Final GDP Q/Q: 0.6% v 0.6%e; Y/Y: -4.6 v -4.6%e v -5.9% prior (GR) Greek Sept Unemployment Rate: 9.1% v 9.3%e (IC) Iceland Nov Unemployment rate: 8.0% v 7.6% prior SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM Equities: European equity markets have taken a back to seat to data and currency plays in today's morning session. Equity markets traded erratically on the open, rallying out of negative territory following SNB action leaving the 3month Libor target unchanged and better than expected Swedish CPI figures. A deluge of data at 4:00EST including the 6th Icelandic rate cut in 2009, Italian industrial production and South African data served as a cap to equity highs. Equities retraced 50% of their rally to 5:00EST when the Italian Q3 GDP met expectations and once again flipped equity sentiment. Other simultaneous macro flows that contributed to trading sentiment today on the positive side included a sharp snap back to the decline in Dubai equity markets with +7% rotation. Greek banks have also found a bottom to a three day slide spurned by Greek sovereign ratings concerns and funding activities. A blistering stream of central bank speak throughout the session has affected equity markets, most notably the ECB's Nowotny on the Euro and SNB's Jordan on the CHF. Sectors that have seen good strength include basic materials, consumer goods and financials. Volumes on European bourses have average below moving ranges throughout the session. Individual stocks: DS Smith [SMDS.UK]: Reports H1 Pretax £34.7M v £44.1My/y, Rev £1.0B v £1.0Be; Expect to exceed the expectations we had for the full-year. || E.On [EOAN.GE]: Company's Ruhrgas unit to import less gas from Russia than expected because of falling prices - Die Welt. || Inditex [ITX.SP]: Reports 9-month Net €831M v €807Me, Rev €7.76B v €7.8Be. || Rio Tinto [RIO.UK]: Reportedly to replace Chief Iron Ore Price Negotiator. || Yara International [YAR.NO]: Sees demand increasing for straight nitrogen fertilizer- investor day comments. || Speakers: ECB's Nowotny: Stronger Euro will have negative impact on Euro-zone. He added that the ECB was watching situation in Greece and Ireland carefully and that Euro membership must not be seen as a solution to economic problems. He noted that the central bank would not be changing framework rules for collateral||Japan Vice Fin Min Noda: Reiterates that MOF strives to keep new JGB issues below ¥44T in next fiscal year || ECB' s Liikanen commented that the Euro-zone government debt was following an "unsustainable trend" and that a Credible plan was needed to break debt trend in Euro-Zone and Finland to stabilize debt-to-gdp ratios before public finances were impacted by the effects of a rising population. He reiterated the ECB view that interest rates were appropriate. The removal of some special measures was NOT a monetary policy signal || ECB's Mersch commented that he saw uneven economic growth continuing into 2010 and that economic uncertainty remained high. He noted that risks to outlook were globally balanced. Inflation had hit a low point and should turn higher (in line with ECB views). Employment situation to worsen over the next few quarters. He commented that stimulus withdrawal to take several year and reiterated that ECB does not pre-commit on policy decisions. Slow economic recovery did not imply double-dip recession. Governments need credible ext strategy on special measures and not obeying budget rules risks massive unemployment (Greece shows the importance of obeying such rule). The recent downgrade of Greece sovereign ratings was worrisome but confident Greece will fix its budget problems || Swiss National Bank's Roth stated that there was no credit crisis in Switzerland and reiterated that the stability in CHF currency was evidence of policy success || Swiss National Bank's Hildebrand stated that it must be possible for large banks to fail, expects large banks to return to profitability || India Central Bank (RBI) Subbarao: Nov Capital inflows are inline with requirements; No plans to curb inflows at this time || Chancellor Darling commented that halving the UK deficit over four years was non-negotiable. He conceded that the UK was not yet there on economic recovery front and continued to see future difficult decisions to be made. Unemployment will not be like year-ago forecasts. He added that the biggest tax burden fell upon the broadest shoulders || SNB comment after its interest rate decision that it would continue to "act decisively" to counter CHF currency gains. It noted that bond purchases wouldbe stopped.. The central bank said the recovery remained fragile and there wais still "considerable uncertainty" on the economic outlook || UK's Shadow Chancellor Osborne stated that he was concerned on sovereign ratings without credible fiscal plan. He did not rule out the Conservatives would keep the 0.5% National Insurance increase announced in the pe-budget on Tuesday by the labor Party. || German RWI institute raised 2010 GDP growth outlook to 1.6% from 1.2% prior || ECB Monthly report repeated the view that interest rates were appropriate and improved markets allowed unwinding of some liquidity measures. It saw 2010 growth as moderate and the economic recovery as uneven Currencies: Consolidation was the buzzword during the European morning as some critical levels for further dollar momentum had yet to be breeched. The EUR/USD continue to hold above the early November low of 1.4630 while the GBP/USD maintained its March uptrend line with key support slated to be at 1.6170. There was a plethora of European central bank comments throughout the session with any utterance of the sovereign debt situation taking precedence. Overall the ECB members remained confident that Greek authorities would address its budget situation. Spain's PM also noted that its was his country's priority to reduce debt. The risk appetite aiding the equity flows and providing some softness in the dollar and yen related pairs. The BOE is not expected to surprise the market at its rate decision later today. The CHF was little changed following the SNB monetary policy meeting and the central bank reiterated its policy to curb CHF currency appreciated and it noted that its action involved several currencies in its effort to stem CHF strength. Fixed Income: Spanish markets breathed a sigh of relief after €2.1B in 10y bono's were sold without any major hiccups following yesterday's outlook revision at S&P. Following the results Spain's 10yr narrowed 3bps to Bunds +72bps but Europe's most profligate nations continue to get spanked with Greece gain leading the way. The Greek 10yr failed to enjoy any benefit from a better than expected unemployment reading, now trading comfortably above Bunds +250bps. Ireland is not far behind, 6bps wider on the session at +196bps and Italy is 4bps wider and at 2 month high above 90bps. Gilts have been punished as the realities of yesterday's pre budget report set in. The hangover from yesterday's short term rally has been nasty, with the 10yr yield up roughly 10bps and above 3.75% and the BoE is highly unlikely to offer any respite via increased QE in about an hour's time. A number of prominient City economists have pointed out that the report, clearly crafted with one eye on next year's election, really did not offer much in terms of decfit reduction. A number expressed misgivings over its dependence on overly optimistic growth assumptions. Treasuries have not escaped the selling, but ahead of a bond reopening it is paradoxically the short end that has borne the brunt of renewed equity market strength. The 2yr note has been the worst performer up with the yield 4bps higher at 0.782%. Commodities: Reportedly Vietnam Central Bank looking at measures to regulate gold trading to protect investors. Among measures suggested are a reduction in the number of gold trading centers, increase in cash margins required to trade forward contracts to as high as 100%, (versus less than 10% currently) Notes: Central bankers express confidence that sovereign debt concerns would be addressed ECB's Trichet reiterated that a strong dollar was important for the global economy (US) RealtyTrac: US Nov foreclosure activity -8% m/m and +18% y/y to 307K properties Looking Ahead: 7:00 (UK) BOE Interest Rate Decision (no changes to rates or Quantitative Easing expected) 8:30 (US)Oct Trade Balance: -$36.8Be v -$36.5B prior 8:30 (US) Initial Jobless Claims w/e Dec 5th: 455Ke v 457K prior, Continuing Claims: 5.45Me v 5.465M prior 8:30 (CA) International Merchandise Trade : -C$0.7Be v -C$0.9B prior 10:00 (US) Treasury Sec Geithner testifies before congress on TARP 12:30 (EU) ECB's Trichet speaks at Cambridge university (UK) 13:00 (US) Treasury's $13B 30y bond re-opening 13:45 (US) Fed's Duke speaks in Chicago 14:00 (US) Monthly Budget Statement: -$131.6B prior v -$125.2B prior Trade The News Staff Trade The News, Inc. Legal disclaimer and risk disclosure All information provided by Trade The News (a product of Trade The News, Inc. "referred to as TTN hereafter") is for informational purposes only. Information provided is not meant as investment advice nor is it a recommendation to Buy or Sell securities. Although information is taken from sources deemed reliable, no guarantees or assurances can be made to the accuracy of any information provided. 1. Information can be inaccurate and/or incomplete 2. Information can be mistakenly re-released or be delayed, 3. Information may be incorrect, misread, misinterpreted or misunderstood 4. Human error is a business risk you are willing to assume 5. Technology can crash or be interrupted without notice 6. Trading decisions are the responsibility of traders, not those providing additional information. Trade The News is not liable (financial and/or non-financial) for any losses that may arise from any information provided by TTN. Trading securities involves a high degree of risk, and financial losses can and do occur on a regular basis and are part of the risk of trading and investing.

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European Market Update

Daily Forex Fundamentals | Written by Trade The News | Dec 10 09 11:04 GMT |

Risk aversion sentiment subsides as European central bankers express confidence that Greek authorities will address its debt problems ECONOMIC DATA (SZ) SNB left its 3-Month Libor Target Rate unchanged at 0.25%; as expected. To end corp bind purchases and reiterates to counter any CHF currency strength Iceland cuts its interest rates by 100bps to 10.00% (TU) Turkey Oct Current Account: -0.9Be v -0.9B prior (FI) Finland Oct Preliminary Trade Balance: €1.4B v €1.1Be (FI) Finland Oct Industrial Production M/M: 2.2% v 2.0%e; Y/Y: -18.9% v -20.8%e (GE) German Nov Wholesale Prices M/M: 0.7% v -0.4% prior, Y/Y: -3.2% v -7.0% prior (FR) French Q3 Final Non-farm Payrolls Q/Q: -.06% v 0.0% prior (FR) French Q3 Manufacturing Production M/M: -0.8% v 1.0%e; Y/Y: -8.8% v -6.5%e (FR) French Oct Industrial Production M/M: -0.8% v 0.7%e; Y/Y: -8.4% v -6.6%e (TU) Turkish Oct GDP Y/Y: -3.3% v -3.7%e (TU) Turkey Nov Capacity Utilization: 70.7% v 71.2%e (SW) Swedish Nov CPI-Headline Rate M/M: 0.0% v-0.1%e; Y/Y: -0.7% v -0.7%e (SW) Swedish Nov CPI- Underlying Inflation M/M: 0.0% v0.0%e; Y/Y: 2.3% v 2.3%e; CPI Level 301.03 v 301.22e (DE) Danish NOV M/M: 0.0% v 0.1%e; Y/Y: 1.3% v 1.5%e (DE) Danish NOV CPI EU Harmonized M/M: 0.0% v 0.2%e; Y/Y: 0.9% v 1.1%e (SP) Spain Q3 Housing sales Y/Y: -13.6% (IT) Italian Oct Production M/M: 0.5% v 1.3%e; Y/Y: -11.8% v -12.7%e; Ind Prod WDA Y/Y: -14.0% v -12.9%e (EU) ECB Monthly Report: Mirrors ECB press conference from Dec 3rd (NO) Norwegian Nov CPI M/M: 0.3% v 0.2%e; Y/Y: 1.5% v 1.4%e (NO) Norwegian Nov CPI Underlying M/M: 0.1% v 0.1%e; Y/Y: 2.4% v 2.4%e (NO) Norwegian Nov Producer Prices (incl oil) M/M: 3.6% v 1.5% prior, Y/Y: 4.8% v -4.1% prior (SW) Swedish AMV unemployment Rate: 5.3% v 5.4%e (SA) South African Q3 Current Account Balance (ZAR): -77.4B v -72.5Be; Ratio to GDP): -3.2% v -3.1%e (UK) Oct Mortgage approvals M/M: 55.3K v 50.6K prior -Council of Morgtage Lenders: Mortgage (IT) Italian Q3 Final GDP Q/Q: 0.6% v 0.6%e; Y/Y: -4.6 v -4.6%e v -5.9% prior (GR) Greek Sept Unemployment Rate: 9.1% v 9.3%e (IC) Iceland Nov Unemployment rate: 8.0% v 7.6% prior SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM Equities: European equity markets have taken a back to seat to data and currency plays in today's morning session. Equity markets traded erratically on the open, rallying out of negative territory following SNB action leaving the 3month Libor target unchanged and better than expected Swedish CPI figures. A deluge of data at 4:00EST including the 6th Icelandic rate cut in 2009, Italian industrial production and South African data served as a cap to equity highs. Equities retraced 50% of their rally to 5:00EST when the Italian Q3 GDP met expectations and once again flipped equity sentiment. Other simultaneous macro flows that contributed to trading sentiment today on the positive side included a sharp snap back to the decline in Dubai equity markets with +7% rotation. Greek banks have also found a bottom to a three day slide spurned by Greek sovereign ratings concerns and funding activities. A blistering stream of central bank speak throughout the session has affected equity markets, most notably the ECB's Nowotny on the Euro and SNB's Jordan on the CHF. Sectors that have seen good strength include basic materials, consumer goods and financials. Volumes on European bourses have average below moving ranges throughout the session. Individual stocks: DS Smith [SMDS.UK]: Reports H1 Pretax £34.7M v £44.1My/y, Rev £1.0B v £1.0Be; Expect to exceed the expectations we had for the full-year. || E.On [EOAN.GE]: Company's Ruhrgas unit to import less gas from Russia than expected because of falling prices - Die Welt. || Inditex [ITX.SP]: Reports 9-month Net €831M v €807Me, Rev €7.76B v €7.8Be. || Rio Tinto [RIO.UK]: Reportedly to replace Chief Iron Ore Price Negotiator. || Yara International [YAR.NO]: Sees demand increasing for straight nitrogen fertilizer- investor day comments. || Speakers: ECB's Nowotny: Stronger Euro will have negative impact on Euro-zone. He added that the ECB was watching situation in Greece and Ireland carefully and that Euro membership must not be seen as a solution to economic problems. He noted that the central bank would not be changing framework rules for collateral||Japan Vice Fin Min Noda: Reiterates that MOF strives to keep new JGB issues below ¥44T in next fiscal year || ECB' s Liikanen commented that the Euro-zone government debt was following an "unsustainable trend" and that a Credible plan was needed to break debt trend in Euro-Zone and Finland to stabilize debt-to-gdp ratios before public finances were impacted by the effects of a rising population. He reiterated the ECB view that interest rates were appropriate. The removal of some special measures was NOT a monetary policy signal || ECB's Mersch commented that he saw uneven economic growth continuing into 2010 and that economic uncertainty remained high. He noted that risks to outlook were globally balanced. Inflation had hit a low point and should turn higher (in line with ECB views). Employment situation to worsen over the next few quarters. He commented that stimulus withdrawal to take several year and reiterated that ECB does not pre-commit on policy decisions. Slow economic recovery did not imply double-dip recession. Governments need credible ext strategy on special measures and not obeying budget rules risks massive unemployment (Greece shows the importance of obeying such rule). The recent downgrade of Greece sovereign ratings was worrisome but confident Greece will fix its budget problems || Swiss National Bank's Roth stated that there was no credit crisis in Switzerland and reiterated that the stability in CHF currency was evidence of policy success || Swiss National Bank's Hildebrand stated that it must be possible for large banks to fail, expects large banks to return to profitability || India Central Bank (RBI) Subbarao: Nov Capital inflows are inline with requirements; No plans to curb inflows at this time || Chancellor Darling commented that halving the UK deficit over four years was non-negotiable. He conceded that the UK was not yet there on economic recovery front and continued to see future difficult decisions to be made. Unemployment will not be like year-ago forecasts. He added that the biggest tax burden fell upon the broadest shoulders || SNB comment after its interest rate decision that it would continue to "act decisively" to counter CHF currency gains. It noted that bond purchases wouldbe stopped.. The central bank said the recovery remained fragile and there wais still "considerable uncertainty" on the economic outlook || UK's Shadow Chancellor Osborne stated that he was concerned on sovereign ratings without credible fiscal plan. He did not rule out the Conservatives would keep the 0.5% National Insurance increase announced in the pe-budget on Tuesday by the labor Party. || German RWI institute raised 2010 GDP growth outlook to 1.6% from 1.2% prior || ECB Monthly report repeated the view that interest rates were appropriate and improved markets allowed unwinding of some liquidity measures. It saw 2010 growth as moderate and the economic recovery as uneven Currencies: Consolidation was the buzzword during the European morning as some critical levels for further dollar momentum had yet to be breeched. The EUR/USD continue to hold above the early November low of 1.4630 while the GBP/USD maintained its March uptrend line with key support slated to be at 1.6170. There was a plethora of European central bank comments throughout the session with any utterance of the sovereign debt situation taking precedence. Overall the ECB members remained confident that Greek authorities would address its budget situation. Spain's PM also noted that its was his country's priority to reduce debt. The risk appetite aiding the equity flows and providing some softness in the dollar and yen related pairs. The BOE is not expected to surprise the market at its rate decision later today. The CHF was little changed following the SNB monetary policy meeting and the central bank reiterated its policy to curb CHF currency appreciated and it noted that its action involved several currencies in its effort to stem CHF strength. Fixed Income: Spanish markets breathed a sigh of relief after €2.1B in 10y bono's were sold without any major hiccups following yesterday's outlook revision at S&P. Following the results Spain's 10yr narrowed 3bps to Bunds +72bps but Europe's most profligate nations continue to get spanked with Greece gain leading the way. The Greek 10yr failed to enjoy any benefit from a better than expected unemployment reading, now trading comfortably above Bunds +250bps. Ireland is not far behind, 6bps wider on the session at +196bps and Italy is 4bps wider and at 2 month high above 90bps. Gilts have been punished as the realities of yesterday's pre budget report set in. The hangover from yesterday's short term rally has been nasty, with the 10yr yield up roughly 10bps and above 3.75% and the BoE is highly unlikely to offer any respite via increased QE in about an hour's time. A number of prominient City economists have pointed out that the report, clearly crafted with one eye on next year's election, really did not offer much in terms of decfit reduction. A number expressed misgivings over its dependence on overly optimistic growth assumptions. Treasuries have not escaped the selling, but ahead of a bond reopening it is paradoxically the short end that has borne the brunt of renewed equity market strength. The 2yr note has been the worst performer up with the yield 4bps higher at 0.782%. Commodities: Reportedly Vietnam Central Bank looking at measures to regulate gold trading to protect investors. Among measures suggested are a reduction in the number of gold trading centers, increase in cash margins required to trade forward contracts to as high as 100%, (versus less than 10% currently) Notes: Central bankers express confidence that sovereign debt concerns would be addressed ECB's Trichet reiterated that a strong dollar was important for the global economy (US) RealtyTrac: US Nov foreclosure activity -8% m/m and +18% y/y to 307K properties Looking Ahead: 7:00 (UK) BOE Interest Rate Decision (no changes to rates or Quantitative Easing expected) 8:30 (US)Oct Trade Balance: -$36.8Be v -$36.5B prior 8:30 (US) Initial Jobless Claims w/e Dec 5th: 455Ke v 457K prior, Continuing Claims: 5.45Me v 5.465M prior 8:30 (CA) International Merchandise Trade : -C$0.7Be v -C$0.9B prior 10:00 (US) Treasury Sec Geithner testifies before congress on TARP 12:30 (EU) ECB's Trichet speaks at Cambridge university (UK) 13:00 (US) Treasury's $13B 30y bond re-opening 13:45 (US) Fed's Duke speaks in Chicago 14:00 (US) Monthly Budget Statement: -$131.6B prior v -$125.2B prior Trade The News Staff Trade The News, Inc. Legal disclaimer and risk disclosure All information provided by Trade The News (a product of Trade The News, Inc. "referred to as TTN hereafter") is for informational purposes only. Information provided is not meant as investment advice nor is it a recommendation to Buy or Sell securities. Although information is taken from sources deemed reliable, no guarantees or assurances can be made to the accuracy of any information provided. 1. Information can be inaccurate and/or incomplete 2. Information can be mistakenly re-released or be delayed, 3. Information may be incorrect, misread, misinterpreted or misunderstood 4. Human error is a business risk you are willing to assume 5. Technology can crash or be interrupted without notice 6. Trading decisions are the responsibility of traders, not those providing additional information. Trade The News is not liable (financial and/or non-financial) for any losses that may arise from any information provided by TTN. Trading securities involves a high degree of risk, and financial losses can and do occur on a regular basis and are part of the risk of trading and investing.

Read more...

European Market Update

Daily Forex Fundamentals | Written by Trade The News | Dec 10 09 11:04 GMT |

Risk aversion sentiment subsides as European central bankers express confidence that Greek authorities will address its debt problems ECONOMIC DATA (SZ) SNB left its 3-Month Libor Target Rate unchanged at 0.25%; as expected. To end corp bind purchases and reiterates to counter any CHF currency strength Iceland cuts its interest rates by 100bps to 10.00% (TU) Turkey Oct Current Account: -0.9Be v -0.9B prior (FI) Finland Oct Preliminary Trade Balance: €1.4B v €1.1Be (FI) Finland Oct Industrial Production M/M: 2.2% v 2.0%e; Y/Y: -18.9% v -20.8%e (GE) German Nov Wholesale Prices M/M: 0.7% v -0.4% prior, Y/Y: -3.2% v -7.0% prior (FR) French Q3 Final Non-farm Payrolls Q/Q: -.06% v 0.0% prior (FR) French Q3 Manufacturing Production M/M: -0.8% v 1.0%e; Y/Y: -8.8% v -6.5%e (FR) French Oct Industrial Production M/M: -0.8% v 0.7%e; Y/Y: -8.4% v -6.6%e (TU) Turkish Oct GDP Y/Y: -3.3% v -3.7%e (TU) Turkey Nov Capacity Utilization: 70.7% v 71.2%e (SW) Swedish Nov CPI-Headline Rate M/M: 0.0% v-0.1%e; Y/Y: -0.7% v -0.7%e (SW) Swedish Nov CPI- Underlying Inflation M/M: 0.0% v0.0%e; Y/Y: 2.3% v 2.3%e; CPI Level 301.03 v 301.22e (DE) Danish NOV M/M: 0.0% v 0.1%e; Y/Y: 1.3% v 1.5%e (DE) Danish NOV CPI EU Harmonized M/M: 0.0% v 0.2%e; Y/Y: 0.9% v 1.1%e (SP) Spain Q3 Housing sales Y/Y: -13.6% (IT) Italian Oct Production M/M: 0.5% v 1.3%e; Y/Y: -11.8% v -12.7%e; Ind Prod WDA Y/Y: -14.0% v -12.9%e (EU) ECB Monthly Report: Mirrors ECB press conference from Dec 3rd (NO) Norwegian Nov CPI M/M: 0.3% v 0.2%e; Y/Y: 1.5% v 1.4%e (NO) Norwegian Nov CPI Underlying M/M: 0.1% v 0.1%e; Y/Y: 2.4% v 2.4%e (NO) Norwegian Nov Producer Prices (incl oil) M/M: 3.6% v 1.5% prior, Y/Y: 4.8% v -4.1% prior (SW) Swedish AMV unemployment Rate: 5.3% v 5.4%e (SA) South African Q3 Current Account Balance (ZAR): -77.4B v -72.5Be; Ratio to GDP): -3.2% v -3.1%e (UK) Oct Mortgage approvals M/M: 55.3K v 50.6K prior -Council of Morgtage Lenders: Mortgage (IT) Italian Q3 Final GDP Q/Q: 0.6% v 0.6%e; Y/Y: -4.6 v -4.6%e v -5.9% prior (GR) Greek Sept Unemployment Rate: 9.1% v 9.3%e (IC) Iceland Nov Unemployment rate: 8.0% v 7.6% prior SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM Equities: European equity markets have taken a back to seat to data and currency plays in today's morning session. Equity markets traded erratically on the open, rallying out of negative territory following SNB action leaving the 3month Libor target unchanged and better than expected Swedish CPI figures. A deluge of data at 4:00EST including the 6th Icelandic rate cut in 2009, Italian industrial production and South African data served as a cap to equity highs. Equities retraced 50% of their rally to 5:00EST when the Italian Q3 GDP met expectations and once again flipped equity sentiment. Other simultaneous macro flows that contributed to trading sentiment today on the positive side included a sharp snap back to the decline in Dubai equity markets with +7% rotation. Greek banks have also found a bottom to a three day slide spurned by Greek sovereign ratings concerns and funding activities. A blistering stream of central bank speak throughout the session has affected equity markets, most notably the ECB's Nowotny on the Euro and SNB's Jordan on the CHF. Sectors that have seen good strength include basic materials, consumer goods and financials. Volumes on European bourses have average below moving ranges throughout the session. Individual stocks: DS Smith [SMDS.UK]: Reports H1 Pretax £34.7M v £44.1My/y, Rev £1.0B v £1.0Be; Expect to exceed the expectations we had for the full-year. || E.On [EOAN.GE]: Company's Ruhrgas unit to import less gas from Russia than expected because of falling prices - Die Welt. || Inditex [ITX.SP]: Reports 9-month Net €831M v €807Me, Rev €7.76B v €7.8Be. || Rio Tinto [RIO.UK]: Reportedly to replace Chief Iron Ore Price Negotiator. || Yara International [YAR.NO]: Sees demand increasing for straight nitrogen fertilizer- investor day comments. || Speakers: ECB's Nowotny: Stronger Euro will have negative impact on Euro-zone. He added that the ECB was watching situation in Greece and Ireland carefully and that Euro membership must not be seen as a solution to economic problems. He noted that the central bank would not be changing framework rules for collateral||Japan Vice Fin Min Noda: Reiterates that MOF strives to keep new JGB issues below ¥44T in next fiscal year || ECB' s Liikanen commented that the Euro-zone government debt was following an "unsustainable trend" and that a Credible plan was needed to break debt trend in Euro-Zone and Finland to stabilize debt-to-gdp ratios before public finances were impacted by the effects of a rising population. He reiterated the ECB view that interest rates were appropriate. The removal of some special measures was NOT a monetary policy signal || ECB's Mersch commented that he saw uneven economic growth continuing into 2010 and that economic uncertainty remained high. He noted that risks to outlook were globally balanced. Inflation had hit a low point and should turn higher (in line with ECB views). Employment situation to worsen over the next few quarters. He commented that stimulus withdrawal to take several year and reiterated that ECB does not pre-commit on policy decisions. Slow economic recovery did not imply double-dip recession. Governments need credible ext strategy on special measures and not obeying budget rules risks massive unemployment (Greece shows the importance of obeying such rule). The recent downgrade of Greece sovereign ratings was worrisome but confident Greece will fix its budget problems || Swiss National Bank's Roth stated that there was no credit crisis in Switzerland and reiterated that the stability in CHF currency was evidence of policy success || Swiss National Bank's Hildebrand stated that it must be possible for large banks to fail, expects large banks to return to profitability || India Central Bank (RBI) Subbarao: Nov Capital inflows are inline with requirements; No plans to curb inflows at this time || Chancellor Darling commented that halving the UK deficit over four years was non-negotiable. He conceded that the UK was not yet there on economic recovery front and continued to see future difficult decisions to be made. Unemployment will not be like year-ago forecasts. He added that the biggest tax burden fell upon the broadest shoulders || SNB comment after its interest rate decision that it would continue to "act decisively" to counter CHF currency gains. It noted that bond purchases wouldbe stopped.. The central bank said the recovery remained fragile and there wais still "considerable uncertainty" on the economic outlook || UK's Shadow Chancellor Osborne stated that he was concerned on sovereign ratings without credible fiscal plan. He did not rule out the Conservatives would keep the 0.5% National Insurance increase announced in the pe-budget on Tuesday by the labor Party. || German RWI institute raised 2010 GDP growth outlook to 1.6% from 1.2% prior || ECB Monthly report repeated the view that interest rates were appropriate and improved markets allowed unwinding of some liquidity measures. It saw 2010 growth as moderate and the economic recovery as uneven Currencies: Consolidation was the buzzword during the European morning as some critical levels for further dollar momentum had yet to be breeched. The EUR/USD continue to hold above the early November low of 1.4630 while the GBP/USD maintained its March uptrend line with key support slated to be at 1.6170. There was a plethora of European central bank comments throughout the session with any utterance of the sovereign debt situation taking precedence. Overall the ECB members remained confident that Greek authorities would address its budget situation. Spain's PM also noted that its was his country's priority to reduce debt. The risk appetite aiding the equity flows and providing some softness in the dollar and yen related pairs. The BOE is not expected to surprise the market at its rate decision later today. The CHF was little changed following the SNB monetary policy meeting and the central bank reiterated its policy to curb CHF currency appreciated and it noted that its action involved several currencies in its effort to stem CHF strength. Fixed Income: Spanish markets breathed a sigh of relief after €2.1B in 10y bono's were sold without any major hiccups following yesterday's outlook revision at S&P. Following the results Spain's 10yr narrowed 3bps to Bunds +72bps but Europe's most profligate nations continue to get spanked with Greece gain leading the way. The Greek 10yr failed to enjoy any benefit from a better than expected unemployment reading, now trading comfortably above Bunds +250bps. Ireland is not far behind, 6bps wider on the session at +196bps and Italy is 4bps wider and at 2 month high above 90bps. Gilts have been punished as the realities of yesterday's pre budget report set in. The hangover from yesterday's short term rally has been nasty, with the 10yr yield up roughly 10bps and above 3.75% and the BoE is highly unlikely to offer any respite via increased QE in about an hour's time. A number of prominient City economists have pointed out that the report, clearly crafted with one eye on next year's election, really did not offer much in terms of decfit reduction. A number expressed misgivings over its dependence on overly optimistic growth assumptions. Treasuries have not escaped the selling, but ahead of a bond reopening it is paradoxically the short end that has borne the brunt of renewed equity market strength. The 2yr note has been the worst performer up with the yield 4bps higher at 0.782%. Commodities: Reportedly Vietnam Central Bank looking at measures to regulate gold trading to protect investors. Among measures suggested are a reduction in the number of gold trading centers, increase in cash margins required to trade forward contracts to as high as 100%, (versus less than 10% currently) Notes: Central bankers express confidence that sovereign debt concerns would be addressed ECB's Trichet reiterated that a strong dollar was important for the global economy (US) RealtyTrac: US Nov foreclosure activity -8% m/m and +18% y/y to 307K properties Looking Ahead: 7:00 (UK) BOE Interest Rate Decision (no changes to rates or Quantitative Easing expected) 8:30 (US)Oct Trade Balance: -$36.8Be v -$36.5B prior 8:30 (US) Initial Jobless Claims w/e Dec 5th: 455Ke v 457K prior, Continuing Claims: 5.45Me v 5.465M prior 8:30 (CA) International Merchandise Trade : -C$0.7Be v -C$0.9B prior 10:00 (US) Treasury Sec Geithner testifies before congress on TARP 12:30 (EU) ECB's Trichet speaks at Cambridge university (UK) 13:00 (US) Treasury's $13B 30y bond re-opening 13:45 (US) Fed's Duke speaks in Chicago 14:00 (US) Monthly Budget Statement: -$131.6B prior v -$125.2B prior Trade The News Staff Trade The News, Inc. Legal disclaimer and risk disclosure All information provided by Trade The News (a product of Trade The News, Inc. "referred to as TTN hereafter") is for informational purposes only. Information provided is not meant as investment advice nor is it a recommendation to Buy or Sell securities. Although information is taken from sources deemed reliable, no guarantees or assurances can be made to the accuracy of any information provided. 1. Information can be inaccurate and/or incomplete 2. Information can be mistakenly re-released or be delayed, 3. Information may be incorrect, misread, misinterpreted or misunderstood 4. Human error is a business risk you are willing to assume 5. Technology can crash or be interrupted without notice 6. Trading decisions are the responsibility of traders, not those providing additional information. Trade The News is not liable (financial and/or non-financial) for any losses that may arise from any information provided by TTN. Trading securities involves a high degree of risk, and financial losses can and do occur on a regular basis and are part of the risk of trading and investing.

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EURUSD - Weakness Set To Target The 1.4625 Level Or Even Lower

Daily Forex Technicals | Written by FXTechstrategy | Dec 10 09 11:08 GMT |

EURUSD: A one day reversal saw EUR backing off lower level prices on Wednesday to close higher at 1.4732. Part of that gain was seen being eroded in early trading today and while the pair holds and trades below its violated LT rising trendline and the 1.4799 level , odds are for a move lower towards its Nov 03'09 low at 1.4625. However, we expect that level to put up a tough defense on initial test and turn the pair back up again but if that fails, deeper weakness could shape up towards its Oct 02'09 low at 1.4479 or even lower. Its nearer term bearish outlook is coming on the back of two shooting star candles printed the previous week and the past week. Therefore, a convincing break of the 1.4625 level will break its pattern of higher highs and higher lows thereby halting is medium term uptrend and targeting further downside prices. Conversely, to reverse the present downside threats, EUR has to first break above its invalidated rising trendline and retarget its YTD high at 1.5143. Beyond there will resume its medium term uptrend towards its May 08'08 low at 1.5283 with a trade above there putting it on the path to further higher prices towards its Aug 01'08 high at 1.5630. Market Analyst www.fxtechstrategy.com This report is prepared solely for information and data purposes. Opinions, estimates and projections contained herein are the author's own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed to be reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness and neither the information nor the forecast shall be taken as a representation for which the author incur any responsibility. The does not accept any liability whatsoever for any loss arising from any use of this report or its contents. This report is not construed as an offer to sell or solicitation of any offer to buy any of the currencies referred to in this report

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Technical Analysis Daily: USD/JPY

Daily Forex Technicals | Written by iFOREX.bg | Dec 10 09 11:12 GMT |

USD/JPY 88.18 USD/JPY Open 88.06 High 88.67 Low 87.36 Close 87.89 Dollar/Yen made a significant bearish movement on Wednesday. On the 3 hour chart the currency pair broke down the 87.40 support level, was limited by the 87.36 bottom, and is now correcting upwards toward the key 88.67 resistance, the break of which may be a serious threat to the bearish outlooks. Short term signals are expected to remain increasing, so be prepared for possible further upward corrections. Let us remind that the Japanese government wants a weaker Yen, which could fundamentally limit the bearish momentum. Immediate support is 87.36. Break bellow this level may trigger stronger decreasing impulse. Penetration of the first resistance at 88.67 might cause further strengthening of the Dollar towards 89.15. The CCI indicator is leaning upwards on the 1 hour chart, suggesting insignificant bullish pressure. Technical resistance levels: 88.67 89.15 90.09 Technical support levels: 87.36 86.60 85.81 Trading range: 88.05 - 87.70 Trend: Upward Buy at 88.18 SL 87.88 TP 88.58 iFOREX.bg Forecasts and Trading Signals http://www.zifx.com

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U.K. Banks to Swallow ‘Poison Pill’ of Bonus Tax

By Andrew MacAskill and Gavin Finch

Dec. 10 (Bloomberg) -- British Chancellor of the Exchequer Alistair Darling’s plan to levy a 50 percent tax on bonuses will make banks choose between punishing shareholders or employees.

Darling yesterday imposed the tax, to be paid by all banks operating in the U.K., on bonuses they pay employees until April 5. The measure, which the Treasury says will raise more than 550 million pounds ($890 million), will affect about 20,000 people.

Banks will have to decide whether to maintain payments to employees, allowing the additional tax expense to boost the cost of compensation and reduce profits for shareholders, or to protect profits by slashing bonuses. In some cases, firms may have to pay out bonuses because the terms have already been agreed with staff, said Jo Keddie, an employment lawyer at London-based Dawsons LLP.

“It’s a poison pill,” Keddie said in a telephone interview. “Either shareholders are going to take home less, or banks are going to have to punish their employees who have done very well,” she said. “It’s potentially shareholders that are going to lose out because many of the bonuses have already been agreed.”

Goldman Sachs Group Inc., the most profitable securities firm in Wall Street history, and U.K. banks including Barclays Plc and Royal Bank of Scotland Group Plc are most affected by the levy because they have the largest bonus pools, said Shaun Springer, chief executive officer of Square Mile Services Ltd., which advises London financial firms on pay.

‘Most to Lose’

Goldman Sachs, based in New York, set aside $16.7 billion to pay employees in the first nine months of the year. RBS’s directors are seeking to increase the amount the Edinburgh-based lender allocates for bonuses by at least 50 percent to 1.5 billion pounds, the Sunday Times reported Dec. 5, without saying where it got the information.

“Goldman has the most to lose,” said Springer. “Banks that employ the most U.K. citizens will be next in line.”

Barclays Capital, Barclays’s securities unit, employs about 20,000 people, and RBS employs about the same amount at its investment-banking division worldwide. Officials at Goldman Sachs, Barclays and RBS declined to comment.

International securities firms such as Goldman Sachs and JPMorgan Chase & Co. both base their European headquarters in the square mile, as London’s principal financial district is known. Goldman Sachs International Ltd., one of the firm’s more than 25 U.K. divisions, employed 5,831 people and allocated a total of 81 million pounds in gross wages and salaries in the year through November 2008, according to filings at the Cardiff, Wales-based registrar Companies House.

‘Bankers’ Folly’

U.K. financial firms were preparing to set aside as much as 6 billion pounds in bonuses for 2009, 50 percent more than 2008, according to an October report by the Centre for Economics & Business Research Ltd., a London-based research firm.

Rising bonus payments sparked anger among politicians and labor unions after the government provided more than 1 trillion pounds to prop up lenders including Royal Bank of Scotland during the credit crisis.

“It’s just not on to make nurses, social workers, dinner ladies, cleaners and hospital porters pay the price for the folly of the bankers,” said Dave Prentis, general secretary of Unison, the U.K.’s largest public employees’ union. “The people who earn most should pay the most.”

The U.K. will force banks awarding discretionary bonuses of more than 25,000 pounds to pay the one-time levy. Employees will still have to pay income tax on bonuses, the Treasury said. The top tax rate on earnings of more than 150,000 pounds will rise to 50 percent in April, a measure announced earlier this year. The bonus measure may be extended beyond April if the Treasury finds banks are deferring payments.

Thatcher, Blair

“On a bonus of 1 million pounds, the new tax will be 500,000 pounds, National Insurance will be 130,000 pounds, and personal income tax is 400,000 pounds,” said Chris Maddock, tax director of Vantis Group Ltd. “This makes a total of 1.03 million pounds for the Treasury.”

Bankers aren’t the first to be subject to an industry- specific tax. In 1981, the Conservative Party under Margaret Thatcher imposed a 2.5 percent levy on bank deposits, saying that rising interest rates were generating unearned profit. Almost two decades later, Tony Blair later put a windfall levy on utility companies.

Package Differently

“It’s something that the banks are probably going to have to pay up on this year and hope it doesn’t happen again,” said Daniel Naftalin, a partner at Mishcon de Reya in London. “This isn’t really a tax on individual bankers, so the government is a lot less open to legal challenges than it could have been.”

Taxes on bankers pay may extend beyond the next general election even if the Conservative Party who are leading in the polls take power, said Mark Wickham-Jones, professor of politics at the University of Bristol.

“One of the by products of the banking crisis is that it has marginalized bankers and turned them into a sort of bogey man,” he said. “The Conservative Party may continue with similar measures arguing the taxes are functional. They will just package the rhetoric differently.”

To contact the reporters on this story: Andrew MacAskill in London at amacaskill@bloomberg.net; Gavin Finch in London at gfinch@bloomberg.net.

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Australian Employment Soars for Third Straight Month

By Jacob Greber

Dec. 10 (Bloomberg) -- Australian employment soared for a third straight month as companies added six times more jobs than economists estimated. The nation’s currency rose as traders bet the central bank will keep raising interest rates next year.

The number of people employed gained 31,200 in November from October and the jobless rate fell to 5.7 percent from 5.8 percent, the statistics bureau said in Sydney today.

Reserve Bank Governor Glenn Stevens raised the benchmark interest rate Dec. 1 for an unprecedented third straight month and said this week the economy is stronger than he previously forecast. Mining companies including BHP Billiton Ltd. are taking on more workers as they increase iron-ore production to satisfy China’s demand for steel.

“It looks increasingly like the unemployment rate’s going to top out a little bit below 6 percent,” said David Forrester, a currency economist at Barclays Capital in Singapore. “That may pressure the RBA to move a little bit faster on rates.”

The Australian dollar rose to 91.53 U.S. cents at 1:33 p.m. in Sydney from 91.05 cents just before the report was released. The two-year government bond yield rose 10 basis points to 4.5 percent.

Bets on Rates

Investors are betting there is a 60 percent chance of a quarter-point increase in the benchmark lending rate to 4 percent at the central bank’s next meeting on Feb. 2, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 12:10 p.m. It stood at 48 percent just before today’s report. Rates are near zero in the U.S. and Japan.

The local currency has risen 40 percent in the past 12 months, the most among the 16 major currencies tracked by Bloomberg. The Australian dollar carry trade, in which investors borrow yen, Swiss francs and U.S. dollars to invest in higher yielding assets, is helping stoke the nation’s currency, central bank official Guy Debelle said.

“The Australian dollar carry trade now again appears to be back in vogue,” the Reserve Bank assistant governor said in Sydney today. “The Australian interest-rate differential remains relatively high compared to most other major currency pairs.”

Australia’s economy shows signs of strengthening, helped by a surge in business confidence last month to the highest level in more than seven years, and increased Asian demand for iron ore, coal and gas.

Natural Gas

Chevron Corp. said Dec. 5 it has signed an agreement with Japan’s Tokyo Electric Power Co. to supply liquefied natural gas from its Wheatstone venture in Western Australia, a deal the Australian government values at A$90 billion ($82 billion). The project is forecast to generate 6,500 jobs during construction.

It is in addition to the Chevron-led Gorgon gas venture, which is forecast to create another 10,000 jobs when construction starts early next year. Qantas Airways Ltd.’s low- cost carrier Jetstar is also taking on more workers.

The number of full-time jobs gained 30,800 in November and part-time employment increased 300, today’s report showed. Employers have added 99,500 new jobs in the past three months. The median estimate of 22 economists surveyed by Bloomberg was for an increase of 5,000 jobs in November.

BHP and Rio Tinto Group boosted iron-ore production to a record in the third quarter to satisfy Chinese demand for steel, which helped exports surge 5 percent in September.

The labor market in “the mining sector is pretty much back to capacity,” Governor Stevens told economists in Sydney on Dec. 8. “There are a lot of other countries in the world who would like to have that problem.”

U.S. Unemployment

Unemployment in the U.S. was 10 percent in November, 9.8 percent among European Union countries in October, the highest level in more than a decade, and 7.8 percent in the three months through September in the U.K.

“Australia has lived up to its reputation as the ‘wonder from Down Under,’” Craig James, chief economist at CommSec, said in a note after the report was released. “The economy may not yet be going gangbusters, but Australia clearly has the strongest economy in the developed world.”

Rising consumer demand after Prime Minister Kevin Rudd’s government distributed more than A$20 billion ($18 billion) in cash to households is also prompting airlines and retailers to boost hiring.

Airline Jobs

Jetstar plans to hire 300 workers as it adds 700,000 new seats to existing routes with four extra Airbus 320 planes, the Australian Financial Review said today, citing Chief Executive Officer Bruce Buchanan.

Michael Luscombe, chief executive officer of Australia’s largest retailer, Woolworths Ltd., told Bloomberg in an Oct. 20 interview the company will hire another 6,000 workers.

Advertisements for job vacancies jumped in November by the most since May 2007, a survey by Australia & New Zealand Banking Group Ltd. showed this week.

The government is also stoking demand for workers as it spends A$22 billion on roads, ports, schools and hospitals. An index of business confidence rose in November to the highest level since May 2002, according to a National Australia Bank Ltd. survey published on Dec. 8.

“At the beginning of the year, I would not have expected the economy be looking as good as it does” now, Stevens said this week. “I thought things would turn out rather worse than they have. But who’s complaining? Not me.”

Stevens is the only central banker in the world to raise borrowing costs three times this year, predicting Chinese demand for iron ore will stoke a surge in economic growth in Australia, one of the few nations to skirt the global recession.

The participation rate, which measures the labor force as a percentage of the population aged over 15, fell to 65.2 percent in November from a revised 65.3 percent, today’s report showed.

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

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Japan Machinery Orders Decline as Companies Cut Costs

By Keiko Ujikane and Tatsuo Ito

Dec. 10 (Bloomberg) -- Orders for Japanese machinery fell in October, adding to signs the nation’s rebound from its deepest postwar recession isn’t strong enough to encourage companies to spend on plant and equipment.

Orders, an indicator of business investment in three to six months, declined 4.5 percent from September, when they increased 10.5 percent, the Cabinet Office said today in Tokyo. The median estimate of 27 economists surveyed by Bloomberg was for a 4.4 percent drop.

Companies including Kyocera Corp. are cutting costs to limit losses, and have little incentive to add plant and equipment with more than one third of the country’s factory capacity sitting idle. A government report yesterday showed growth last quarter was a third of the pace initially reported as businesses slashed spending.

“We do not expect a full-scale capex recovery anytime soon given uncertainties surrounding the corporate earnings picture,” said Tetsufumi Yamakawa, chief Japan economist at Goldman Sachs Group Inc. “Exports will remain the key economic driver in 2010-11 amid continued weakness in domestic demand.”

The yen traded at 88.26 per dollar at 10:40 a.m. in Tokyo from 88.03 before the report was published. The Nikkei 225 Stock Average rose 0.1 percent.

Today’s report suggests Japanese companies are concerned about the sustainability of global demand once more than $2 trillion in government stimulus wears off.

Stocks Fall

Japanese stocks fell yesterday after a report showed gross domestic product growth slowed last quarter and a Dubai developer posted a $3.65 billion loss, fueling concern the recovery in the global financial system would stall. The yen, which climbed to a 14-year high of 84.83 per dollar on Nov. 27, has gained more than 4 percent in the past three months. An advance in the currency erodes the value of profits exporters earn overseas.

“Factory orders will stay at a low level because corporate sentiment isn’t rising,” said Yasuhiro Onakado, chief economist at Daiwa SB Investments Ltd. in Tokyo. “The stronger yen and the Dubai shock have increased uncertainties about the future, so companies can’t help but be cautious about spending.”

Manufacturer orders rose 25.4 percent in October led by a large request for chemical equipment, the Cabinet Office said. Orders by non-manufacturers fell 17.3 percent, the report said.

Combat Deflation

The Japanese government unveiled a 7.2 trillion yen ($81 billion) economic stimulus package this week to combat deflation and the rising yen. The plan came a week after the Bank of Japan released a 10 trillion yen credit program to support the economy.

Some companies are trying to protect earnings by cost reductions from cutting jobs and slashing investment in plant and equipment.

Kyocera plans to close a mobile phone factory in Tianjin, China, and consolidate production in Malaysia to help return the business to profit, the Nikkei newspaper reported last month. The Kyoto-based company has been cutting production amid struggling sales in North America, the newspaper said.

Sega Toys Co. said on Dec. 1 that it plans to eliminate 35 jobs and to save about 300 million yen from the measure.

Increase Outlays

Some economists say Japanese companies may become confident enough to increase outlays as their earnings recover.

Last quarter “should still mark the bottom in the investment cycle,” said Julian Jessop, chief international economist at Capital Economics Ltd. in London, citing improvements in areas including capacity use and profits. “The weakness last quarter may simply reflect the long lags between projects being put on hold at the height of the financial crisis and this showing up in the actual data.”

The Cabinet Office forecast last month orders will increase 1 percent in the three months ending Dec. 31, which would be the first advance in seven quarters.

Demand from Asia, especially China, is helping Japanese exports and production. Exports fell at the slowest pace in a year in October and industrial output increased for an eighth month. China’s economy, Japan’s biggest overseas market, grew 8.9 percent in the third quarter, the fastest expansion in a year, spurring demand for Japanese cars and electronics.

“On the whole, machinery orders are showing signs of bottoming,” said Yoshiki Shinke, senior economist at Dai-Ichi Life Research Institute in Tokyo. “Exports are looking strong, so Japan will probably be able to avoid a double-dip recession.”

To contact the reporters on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net; Tatsuo Ito in Tokyo at tito@bloomberg.net.

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Chinese Exports May Rebound, Spurring Deutsche Bank Bet on Yuan

By Bloomberg News

Dec. 10 (Bloomberg) -- China is likely to report its first gain in overseas shipments in 13 months, beginning a rebound that may encourage the world’s second-biggest exporting nation to let the yuan strengthen next year.

Exports rose 1.4 percent in November from a year earlier, according to the median estimate of 26 economists surveyed by Bloomberg News. The trade surplus swelled to $24.3 billion, the largest this year excluding seasonal distortions, tomorrow’s report in Beijing may show.

China’s exports may jump 20 percent in the first quarter of 2010 because of the global recovery and comparisons with this year’s low base, according to Macquarie Securities Ltd. and Royal Bank of Scotland Group Plc. Yuan forwards suggest that the currency will appreciate about 2.6 percent against the dollar in the next 12 months even after Premier Wen Jiabao last month rebuffed Europe’s calls for gains.

“Global political pressure for currency gains will continue to intensify,” said Ma Jun, chief China economist at Deutsche Bank AG in Hong Kong. “China may begin to increase the flexibility of its currency in March or April.”

Ma forecasts a gain of as much as 5 percent against the dollar in the next year.

China had “good reason” to depreciate its currency during the global financial crisis as exports fell and chose instead to keep the yuan stable, central bank Deputy Governor Zhu Min said at a forum in Beijing yesterday. He echoed Wen’s comments to European leaders, saying a stable yuan aids a world recovery.

Return to Inflation

“We took the same policy as we did in the Asian financial crisis; we decided to stabilize the renminbi exchange rate,” the central banker said, using another word for the yuan.

November’s data may show a return to inflation as China’s economy rebounds from the slowest growth in almost a decade and food prices climb. Consumer prices rose 0.4 percent from a year earlier, the survey of economists showed.

Industrial output gained 18.2 percent, the most in more than two years, and retail sales climbed 16.5 percent, economists estimated. Banks may have extended 250 billion yuan ($36.6 billion) of local-currency loans, compared with 253 billion yuan in October.

Urban fixed-asset investment may have increased 33 percent in the first 11 months of 2009 from a year earlier as stimulus spending and unprecedented bank lending drove a recovery.

Citic Securities Co. said Dec. 8 that China’s textile and apparel companies may “outperform” as domestic sales are sustained and exports recover, recommending companies including Fujian Septwolves Industry Co., Luthai Textile Co. and Youngor Group Co.

‘Toughest Time’

“The toughest time is behind us and we expect overseas demand to continue to recover next year,” Kelly Wen, the overseas sales manager of shoe company Yaqite Industrial Co. said at the Canton Fair, China’s biggest trade show, last month.

China’s trade surplus, export gains and a currency effectively pegged to the dollar may exacerbate trade tensions. China faces U.S. tariffs on tires and European Union duties on screws and bolts and is investigating imports of U.S. autos and poultry.

China was the second-biggest exporter of goods in 2008 and is poised to overtake Germany. The Asian nation’s trade surplus was $24 billion in October.

The nation already sees itself as being at the center of world trade friction, facing 101 trade-remedy investigations in 19 countries and regions involving more than $11 billion of goods, the state-run Xinhua News Agency reported Dec. 3, citing the commerce ministry.

Trade ‘Tranquility’

Morgan Stanley’s Asia chairman Stephen Roach said that high unemployment in the U.S. and the need to win votes in congressional elections in November next year may push President Barack Obama to take tougher trade action against China.

“This is not a recipe for tranquility on trade,” Roach said in an interview in Beijing on Dec. 3.

Wen told European leaders Nov. 30 that calls for the yuan to appreciate are “unfair” as the country faces rising protectionism and a stable yuan aids the world’s recovery.

Authorities in Beijing have held the currency steady at about 6.83 against the U.S. dollar since July 2008. The yuan rose 21 percent in the three years after a fixed exchange rate was scrapped in 2005.

The International Monetary Fund says the yuan is “substantially” undervalued and Pacific Investment Management Co., which runs the world’s biggest bond fund, describes bets that China will ease controls on its currency as among the best in emerging markets.

‘Gradual’ Gains

Societe Generale SA said Dec. 8 that investors should use call options to benefit from China allowing “gradual” gains in the yuan next year as the economy recovers.

Policy makers are more likely to allow yuan appreciation for domestic economic reasons than in response to pressure from foreign governments, said Kevin Lai, an economist with Daiwa Institute of Research in Hong Kong.

Inflation pressures are building as import prices rise and “if you don’t allow the yuan to appreciate you are shooting yourself in the foot,” Lai said.

--Kevin Hamlin, Li Yanping. Editors: Paul Panckhurst, Leon Mangasarian.

To contact the Bloomberg News staff on this story: Kevin Hamlin in Beijing at khamlin@bloomberg.net

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Saudi Arabia to Supply Full Crude Oil Volumes to Asia

By Christian Schmollinger and Yuji Okada

Dec. 10 (Bloomberg) -- Saudi Arabian Oil Co., the world’s largest producer, will supply full volumes of crude to refiners in China, South Korea and Japan for January.

Saudi Aramco, as the company is known, will provide 100 percent of cargoes sold under long-term contracts next month, according to a Bloomberg News survey of refinery officials in Japan, South Korea, China, who asked not to be identified because of confidentiality of agreements with the company.

For December, Saudi Aramco will provide full volumes to refiners in Japan while other Asian refiners will get 85 percent to 90 percent of their contracted deliveries.

Aramco on Dec. 6 raised the official selling price for its Medium grade by 10 cents to a discount of 45 cents a barrel to the average price of Middle East benchmarks Oman and Dubai. It Heavy crude was increased by 20 cents to a discount of $1.25 a barrel. Arab Light, the country’s largest export type, was lowered by 5 cents to a premium of 45 cents a barrel.

Super Light crude was raised by 40 cents to a premium of $1.70 a barrel while Extra Light was left unchanged at a premium of $1.25 a barrel.

Saudi Arabia has reduced its output under the production quotas instituted by the Organization of Petroleum Exporting Countries. The country is OPEC’s biggest producer.

Saudi Arabia has an OPEC production quota of 8.051 million barrels a day. In November, the kingdom pumped 8.19 million barrels a day, up from 8.19 million barrels a day in October, according to a Bloomberg News survey.

OPEC’s compliance with its production target has slipped as crude prices have climbed. The target for the 11 members with quotas, all except Iraq, is set at 24.845 million barrels a day. Since reaching a low of 25.32 million barrels a day in March, output has climbed to 26.5 million barrels a day last month.

Crude oil traded in New York was at $70.68 a barrel at 12:21 p.m. Singapore time. Prices have gained 59 percent this year. The OPEC price basket, a volume-weighted average of the various grades produced by the group, was at $74.60 on Dec. 8, the last day it was calculated. That’s up from $37.73 a barrel a year ago.

To contact the reporters on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net; Yuji Okada in Tokyo at yokada6@bloomberg.net

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BOE May Hold Bond Purchases at 200 Billion Pounds

By Jennifer Ryan

Dec. 10 (Bloomberg) -- The Bank of England will probably today stick to its plan to spend 200 billion pounds ($326 billion) on bonds as officials seek to cement Britain’s recovery from recession.

The Monetary Policy Committee, led by Governor Mervyn King, will keep the purchase program unchanged, according to all 38 economists in a Bloomberg News survey. Policy makers said last month they may also consider trying to stoke lending with a reduction in the rate paid on commercial bank deposits. The bank will announce today’s decision at 12 p.m. in London.

Bank of England policy makers expanded the emergency bond plan last month after Britain unexpectedly stayed mired in the longest recession on record in the third quarter. Chancellor of the Exchequer Alistair Darling said today the recession hasn’t ended, a day after he proposed measures to aid growth amid a record budget deficit.

“Darling and King both see the recovery as being fairly tentative at the outset and the need to maintain the stimulus that’s in place at least for the next year,” said David Tinsley, an economist at National Australia Bank who used to work at the central bank. “There’s an outlying risk that they move on the deposit rate, but our view is that if they want do anything more at all they’ll wait.”

The bank will keep its benchmark interest rate at a record low of 0.5 percent, according to all 53 economists in a Bloomberg News survey. The Swiss National Bank kept its benchmark, the three-month Libor target, at 0.25 percent, as forecast by all 16 economists in a Bloomberg News survey.

‘Open Mind’

The Bank of England has now spent more than 187 billion pounds of newly created money on bonds. The bulk of its purchases have been in gilts, with the rest on corporate securities.

King said last month he had an “open mind” on further bond purchases as he weighed the risk that withdrawing stimulus too soon will jeopardize the recovery. Policy makers said at the November decision that the next “most natural time” to assess the plan will be in February, when they produce new economic forecasts.

The economy may now have escaped the recession. An index of service company growth stayed close to a two-year high in November, the Chartered Institute of Purchasing and Supply and Markit Economics said last week. Gross domestic product rose 0.2 percent in the quarter through November, an estimate by the National Institute of Economic and Social Research shows.

Tesco Plc, the world’s third-largest retailer, is seeing “improving customer confidence and encouraging trends in both the U.K. and our international businesses,” Chief Executive Officer Terry Leahy said in a statement this week.

Darling’s Forecast

Darling predicted yesterday that the economy will expand as much as 1.5 percent next year after contracting 4.75 percent in 2009. He pledged to increase income taxes as the recession drives up U.K. government borrowing, and said today spending cuts are in store.

“We’re not out of recession yet,” he told BBC Radio 4 today. “A reduction in spending, that will be done in an orderly way, it will be tough.”

The U.K. will increase gilt sales to a record 225.1 billion pounds in the year ending March 2010. Gilts advanced after the announcement yesterday, though today the yield on the 10-year bond rose 9 basis points to 3.753 percent as of 8:51 a.m. in London. The pound rose 0.4 percent to $1.6284.

While the Bank of England has been trying to keep a lid on yields with its purchases of government bonds, it has also pursued other measures to ensure the recovery.

The bank said last week it will consider selling corporate bonds it purchased to improve market liquidity. While conditions in the new issue, or primary, bond market have improved, buying and selling of company bonds in the secondary market is “somewhat restricted,” it said.

Deposit Rate

Policy makers also discussed cutting the deposit rate last month to spur lending. While they said it was “unlikely to have a significant impact on the outlook,” they said that it “could ease monetary conditions further” and might be something they would consider in future.

“There won’t be any change at the Bank of England this month, though there may be some discussion of other measures,” said Jonathan Loynes, an economist at Capital Economics in London. “They won’t want to slam on the brakes when the economy hasn’t emerged from the recession.”

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

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SNB to Stop Bond Purchases, Joining Central-Bank Exit

By Klaus Wille

Dec. 10 (Bloomberg) -- Switzerland’s central bank said it will stop purchases of corporate bonds as it joins other countries in starting to withdraw emergency measures.

The Swiss National Bank, which announced plans to buy bonds in March, also held the three-month Libor target at 0.25 percent, as expected by all 16 economists in a Bloomberg News survey. It will continue to “act decisively to prevent any excessive appreciation” in the Swiss franc, it said.

Central banks around the world have started withdrawing measures used to fight the worst global recession in more than six decades. While the Swiss economy returned to growth in the third quarter, SNB Chairman Jean-Pierre Roth said today that a “swift correction in monetary policy would be precipitate” as deflation risks remain.

“The interesting part was the first settings of an exit road map,” said Julien Manceaux, an economist at ING Group in Brussels. “The SNB did not rush to the exit door. Although all economic indicators have improved since the last meeting, it is certainly too early to act.”

The franc was little changed as of 10:45 a.m. in Zurich, at 1.5113 per euro from 1.5120 yesterday.

Roth said the franc has stayed “stable” against the euro since the SNB began intervening and that the central bank’s monetary policy since March “has been effective.”

Growth Forecast

Some central banks have already started unwinding their non-conventional policies. European Central Bank President Jean- Claude Trichet last week announced plans to scale back its emergency lending next year. Federal Reserve Chairman Ben S. Bernanke has promised a “smooth” withdrawal of stimulus in the U.S.

Swiss gross domestic product rose 0.3 percent in the three months through September, ending a year-long contraction, and data indicate the recovery is strengthening. The KOF leading indicator has risen for seven months and manufacturing has resumed expansion.

The SNB sees the economy expanding between 0.5 percent and 1 percent in 2010 after a contraction of about 1.5 percent this year. It previously forecast that the economy would shrink as much as 2 percent this year. It sees inflation averaging 0.5 percent in 2010 and 0.9 percent in 2011.

“Risks remain significant, and for this reason we are maintaining our expansionary monetary policy,” said Roth, chairing his last monetary policy meeting before Vice-Chairman Philipp Hildebrand takes over in January.“The legacy of the crisis still weighs heavily.”

To contact the reporter on this story: Klaus Wille in Zurich at kwille@bloomberg.net.

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