Economic Calendar

Monday, December 14, 2009

FX Thoughts for the Day

Daily Forex Technicals | Written by Kshitij Consultancy Services | Dec 14 09 12:04 GMT |

USD-CHF @ 1.0334/37...Holding Short

R: 1.0350-65 / 1.0430 / 1.0470
S: 1.0300 / 1.0255-30 / 1.0220-00

The Support at 1.0300 mentioned in the morning commentary held during the day and Swiss has risen from the day's low of 1.0293. As mentioned earlier, Resistance is seen in 1.0350-65 which we expect to hold as the broader picture continue to remain bearish. However, if it continues to trade above 1.0300 and gains upside momentum, a strong break above this Resistance region (1.0350-65) might increase the chances of further rise towards 1.0450-70.

On the downside, a break below 1.0300 might pull it down towards 1.0220-00. Remember, the pair traded above 1.0200 most part of the last week.


USD 10K Short at 1.0320, SL 1.0410, TP Open

As soon as the market trades 1.0270 bring the SL down to 1.0370

Cable GBP-USD @ 1.6229/32...Testing Support at 1.6229

R: 1.6255-57 / 1.6346-51 / 1.6377-83
S: 1.6135 / 1.6031 / 1.5853

Cable has fallen towards the Trendline Support once again. A structured fall towards 1.60 looks likely over the course of the week. Over the last 4 days, the pair has ranged sideways and unless a close below the Trend Support at 1.6229 is seen, the range may continue for a couple of more days. But overall the pair is bearish. The Projected Max High and low for the day is at 1.6377 and 1.6135 respectively. To see the chart of Cable, click on:

Aussie AUD-USD @ 0.9096/99...Crucial Support at the 13-Week-MA (0.9062)

R: 0.9160 / 0.9230 / 0.9320
S: 0.9062 / 0.8980 / 0.8930

After trading in a very narrow range of 0.9100-25 most part of the day, Aussie has broken and trading just below 0.9100. As no significant move on either side was not seen during the day, oru view remains the same on the pair. The 13-Week-MA (currently at 0.9062) is the crucial Support level to watch for which is holding the pair above 0.9000 over the last couple of weeks. This keeps the overall uptrend still alive. A strong break below the 13-Week-MA might pull it down towards 0.9000-0.8980 in the US session today. Note that the projected Max-Low for the day is 0.8980.

On the other hand, if it gains upside momentum, a break once again above 0.9100 might see a rise towards the Resistance at 0.9160. A strong break above 0.9160 might see a rise towards 0.9230-60

Kshitij Consultancy Service

Legal disclaimer and risk disclosure

These views/ forecasts/ suggestions, though proferred with the best of intentions, are based on our reading of the market at the time of writing. They are subject to change without notice.Though the information sources are believed to be reliable, the information is not guaranteed for accuracy. Those acting in the market on the basis of these are themselves responsibly for any profits or losses that might occur, without recourse to us. World financial markets, and especially the Foreign Exchange markets, are inherently risky and it is assumed that those who trade these markets are fully aware of the risk of real loss involved.


Daily Report: Dollar Pares Gains, Yen Slightly Higher

Market Overview | Written by | Dec 14 09 08:08 GMT |

Dollar pares some recent gains on news that Abu Dhabi is providing $10b to help Dubai World to meet it's obligations. Dubai will use $4.1b to repay an Islamic bond maturing today for Nakhell PJSC, its real-estate unit. The rest of the money will be used to pay trade creditors, contractors, interest expenses and be the working capital through April 2010. The news came in as a relief for the market and sent stocks higher.

Japanese yen trades higher today after release of better than expected quarterly tankan survey. The large manufacturers index improved from -33 to -24 in Q4 while the non-manufacturing index rose from -24 to -22. Both were above expectation of -26 and -23 respectively. However, the outlook of capex is bleak as large manufacturers said they'll lower their spending by -28.2% in the fiscal year to March 2010, the biggest drop on record while all large firms plan to cut spending by -13.8%.

According to BoE's Quarterly Bulletin, Chief Economist Spencer Dale said that "employment to date has not fallen by as much as we might have feared given the falls in output." "A substantial element of the workforce appears to have been able to protect their jobs by accepting slower wage growth." "Despite the severe recession, the proportion of households who reported difficulties keeping up with bills and credit commitments had fallen slightly."

Looking at the dollar index, it's retreats mildly ahead of 76.82 resistance and some sideway trading might be seen today. But after all, short term outlook will remain bullish as long as 75.83 support holds. Rise from 74.19 is still expected to continue for 76.82 resistance. Break there will confirm that the index has bottomed out in medium term already. In such case, we'll be looking at a strong rebound to 38.2% retracement of 89.62 to 74.19 at 80.08, as a correction to fall from 89.62, in the least bullish scenario.

AUD/USD Daily Outlook

Daily Pivots: (S1) 0.9079; (P) 0.9136; (R1) 0.9183; More

AUD/USD's recovery might have completed at 0.9193 already and with 4 hours MACD crossed below signal line, intraday bias is mildly on the downside for the moment. Break of 0.9013 support will indicate that fall from 0.9321 has resumed and should target 100% projection of 0.9404 to 0.8945 from 0.9321 at 0.8862 next. On the upside, above 0.9193 will turn bias neutral again. But after all risk will remain on the downside as long as 0.9321 resistance holds and we'd continue to prefer the bearish case that AUD/USD has topped out in medium term already.

In the bigger picture, at this point, we're still slightly preferring the bearish case that medium term rise from 0.6008 has completed at 0.9404 already, with bearish divergence condition in daily MACD. This is supported with weekly MACD crossed below signal line. Break of 0.8945 support will confirm this case by completing a head and shoulder top (ls: 0.9326, h: 0.9404, rs: 0.9321). In such case, sizeable correction should be seen to 0.7702/0.8626 support zone but strong support should be seen there to bring rebound. On the upside, decisive break of 0.9321 resistance will indicate that fall form 0.9404 has completed. The corrective three wave structure will indicate that AUD/USD's up trend is not completed yet and medium term rally from 0.6008 is still in progress for 0.9849 high.

AUD/USD 4 Hours Chart

Economic Indicators Update

GMT Ccy Events Actual Consensus Previous Revised
23:50 JPY Tankan Large Manufacturers Index Q4 -24 -26 -33
23:50 JPY Tankan Non-Manufacturing Index Q4 -22 -23 -24
00:01 GBP Rightmove House Prices M/M Dec -2.20% -- -1.60%
08:15 CHF Combined PPI M/M Nov
0.10% -0.40%
08:15 CHF Combined PPI Y/Y Nov
-3.10% -4.70%
10:00 EUR Eurozone Employment Q/Q Q3
-- -0.50%
10:00 EUR Eurozone Industrial Production s.a. M/M Oct
-0.70% 0.30%
10:00 EUR Eurozone Industrial Production w.d.a. Y/Y Oct
-10.80% -12.90%
13:30 CAD Capacity Utilization Rate Q3
67.70% 67.40%


London Session Recap

Daily Forex Fundamentals | Written by | Dec 14 09 12:03 GMT |

High yield currencies have given up some of their earlier gains this morning in very thin conditions. The big news of the session came in Asian hours; Abu Dhabi has pledged $10 bln to allow Dubai World to meet its debt obligations and to allow the company to pay contractors and operating costs until an agreement is met with its creditors. As stocks in Dubai surged 10%, relief sent banking stocks higher in London and pressured the JPY lower vs the AUD, EUR, GBP and the USD; though the JPY has failed to hold its softer tone vs the USD and the GBP. This month’s decision by the BoJ to provide Y10trn in emergency credit in addition to talk that the Fed may bring forward its first rate hike can both be linked with a softer JPY this month. Given that short-end Japanese yields are set to stay soft for an extended period there has been a surge in talk that the yen will return to being the funding currency of choice through next year. That said talk of repatriation is presently supporting the yen and has taken USD/JPY back to the 88.40 level this morning. The reaction to the BoJ’s Tankan report has been mixed. The headline numbers on the Tankan were mostly better than expected. However, firms generally failed to fulfil their forecasts from September which has provide fodder to the deflation theme and pulled the Nikkei 225 lower overnight.

EUR/GBP ran into some sellers this morning ahead of the 0.9050 level. UK economic news has been mixed. Overnight Rightmove suggested that house prices fell 2.2% m/m in December which may suggest that the recent stability in the market is losing its grip. By contrast, the BRC brought some good news in the form of its report that retailing in central London has risen by 13.3% y/y (UK +1.8% y/y). The publication of the BoE’s Quarterly Bulletin suggests that the UK labour market has not fallen as sharply as expected. However, the export sector has not reacted to the weaker pound as forecast either. Later this week release of the UK retail sales report for Nov could offer the pound some fresh direction.

The ECB’s Liikanen warned that Greece must take responsibility for its own budget deficit. These comments are in contrast to those from Chancellor Merkel last week and offer a reminder that there is no precedent within the structure of EMU to deal with a country that could potentially be facing default. As yet the Greek government has offered no detail on what (painful) action will be taken to restore confidence in its budget and investors can be expected to remain nervous.

With no key US data due in the front part of this week and with the FOMC scheduled on Wednesday, risk is that conditions remain subdued in the fx market this week. Canadian Q3 capacity utilisation data is due.

DISCLAIMER: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase of sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.


U.K. Property Gains to Stall in 2010, Rightmove Says

By Jennifer Ryan

Dec. 14 (Bloomberg) -- The U.K. housing market recovery will peter out in 2010 as the supply of homes increases because of forced sales, Rightmove Plc said.

Average asking prices will stagnate next year after rising about 2 percent in 2009, the operator of the U.K.’s biggest property Web site said in a statement today. Prices fell 2.2 percent this month to an average of 221,463 pounds ($361,405), and may drop again next month, the group said.

Banks may show “less forbearance” to consumers who are late on mortgage payments after the general election, which Prime Minister Gordon Brown must call by June 2010, Rightmove said. A shortage of properties available helped stoke prices this year and erased some losses in values caused during the slump.

“2009 turned out to be a good time to trade up,” Miles Shipside, commercial director of Rightmove, said in the statement. “We forecast the positive mood will continue into 2010 until the post-election hang-over kicks in.”

The pound was fell 0.1 percent against the dollar today to $1.6223 as of 9:13 a.m. in London. The two-year gilt was 2 basis points lower at 1.19 percent.

Asking prices fell 5.8 percent from November in the North of England, making it the worst-performing of 10 regions tracked by Rightmove. East Anglia, where prices rose 0.5 percent on the month, was the only area to show a monthly increase. Rightmove measured asking prices from listings on its site from Nov. 8 to Dec. 5.

100,000-Pound Drop

Prices in London fell 1.2 percent, led by a 6.2 percent drop in Hounslow. The next-biggest drop was in Kensington and Chelsea, the capital’s most expensive district, where prices declined 5 percent, or almost 100,000 pounds in a month.

The average number of properties available for sale per real estate agent fell to 67, the lowest since February 2008, from 69 the previous month, Rightmove said.

The Council of Mortgage Lenders cut its forecast for U.K. mortgage repossessions this year after low interest rates helped Britons manage their payments. The CML last month forecast 48,000 repossessions, down from an earlier prediction of 75,000.

Repossessions may increase from the second half of 2010 because banks may become less patient with as many as 240,000 homeowners who have been late on mortgage payments and if interest rates increase, Rightmove said.

Record-low interest rates have made borrowing more affordable and helped more U.K. households meet debt payments, the Bank of England said today, citing a survey it conducted with NMG Financial Services Consulting from September to October.

Still, Shipside said a jump in mortgage lending next year isn’t likely.

“We have seen recovery to a degree in mortgage lending, which is fairly a snail’s pace, and they are being particularly choosy,” Shipside said in an interview on Bloomberg Television. “I can’t see that changing particularly next year, it may even tighten up after the election.”

To contact the reporter on this story: Jennifer Ryan in London at


Europe Industrial Output Declines on Consumer Goods

By Simone Meier

Dec. 14 (Bloomberg) -- European industrial output fell for the first time in six months in October, led by a slump in demand for consumer goods. Employment declined in the third quarter.

Production in the economy of the 16 euro nations dropped 0.6 percent from September, when it gained 0.2 percent, the European Union’s statistics office in Luxembourg said today. Economists forecast a decline of 0.7 percent, the median of 30 estimates in a Bloomberg survey showed. Euro-region employment fell 0.5 percent in the third quarter from the previous three months, according to a separate report by the office.

The euro-region economy may struggle to gather strength after emerging from the worst recession in more than six decades in the third quarter as a stronger euro hurts exports just as rising unemployment erodes consumer spending. In Germany, Europe’s largest economy, investor confidence dropped in November.

“There are increasing signs that demand is weakening a little bit after an initial surge,” said Christoph Weil, an economist at Commerzbank AG in Frankfurt. “It’s a recovery with a foot on the brake. Indicators will continue to point upward, but we’ll see a phase of disillusionment.”

The euro was little changed against the dollar after the data, trading at $1.4668 at 10:01 a.m. in London, up 0.4 percent on the day. The yield on the German 10-year benchmark bond dropped 0.3 basis point to 3.17 percent.

European Payrolls

October output dropped 11.1 percent from the year-earlier month after declining 12.8 percent in September, today’s report said. European payrolls fell 2.1 percent in the year.

European companies may keep spending plans on hold as the euro’s ascent makes their goods less competitive abroad. The single currency has gained 18 percent against the dollar since mid-February. Europe’s jobless rate has risen to 9.8 percent, the highest since December 1998.

European output of non-durable consumer goods dropped 1.6 percent in the month after rising 0.7 percent in September, today’s report showed. Production of durable consumer goods fell 1.4 percent, while energy output slipped 0.3 percent. Production of capital goods such as factory machinery was unchanged.

“I should like to warn against overly great optimism,” Martin Winterkorn, chief executive officer of Volkswagen AG, Europe’s largest carmaker, said earlier this month. “It would be premature now to call the end of the crisis. The recovery that’s emerging right now is a recovery on probation.”

Gathering Strength

The global economy is gathering strength after central banks cut interest rates to near zero and governments pledged $2 trillion in stimulus measures. The European Central Bank said on Dec. 3 it expects the euro region to expand about 0.8 percent in 2010 instead of a previously forecast 0.2 percent. In 2011, the economy may grow 1.2 percent, the bank said.

Daimler AG, the world’s second-largest maker of luxury cars, said on Dec. 7 that the Mercedes-Benz cars unit’s fourth- quarter sales will rise “significantly.” Alstom SA, which makes high-speed trains and energy-generation equipment, sees “some businesses doing better and they will eventually rebound,” CEO Patrick Kron said on Dec. 2.

ECB President Jean-Claude Trichet said on Dec. 3 that the bank will scale back its emergency financing operations next year after the economy emerged from the recession. The recovery will “likely be uneven,” he said that day.

“It’s very clear that there won’t be any easy and rapid recovery in the world economy,” ECB council member Erkki Liikanen told Bloomberg News in an interview on Dec. 11. The recovery is “slow and shaky.”

To contact the reporter on this story: Simone Meier in Dublin at


Oil Falls a Ninth Day on Speculation Demand Recovery Is Slowing

By Ann Koh and Christian Schmollinger

Dec. 14 (Bloomberg) -- Crude oil fell for a ninth day, poised for the longest decline since July 2001, on speculation the global economy’s uneven recovery from recession may slow growth in demand for fuel and energy.

Prices declined after the Tankan business confidence index in Japan, the world’s third-largest oil consumer, posted its smallest improvement this year. Crude has dropped 15 percent since reaching a year-to-date high on Oct. 21. Goldman Sachs Group Inc. said in a report today that prices have fallen because of “slow recovery” in demand in developed markets.

“The next big support level is $65 and if we were trading on fundamentals, oil would be below $60,” said Victor Shum, a senior principal at consultants Purvin & Gertz Inc. in Singapore. “The reality is that the worst of the financial crisis is behind us, but that doesn’t mean we’re out of the woods.”

Crude oil for January delivery dropped as much as $1.28, or 1.8 percent, to $68.59 a barrel in electronic trading on the New York Mercantile Exchange. It was at $69.60 at 9:03 a.m. in London. Oil recovered some of its losses after Abu Dhabi pledged $10 billion in aid to the Dubai government, spurring investors to buy higher-yielding assets.

Futures fell 1 percent to $69.87 a barrel on Dec. 11, the lowest settlement since Oct. 7. Prices dropped 7.4 percent last week, the biggest decline since September, as U.S. fuel stockpiles rose and the dollar climbed to a two-month high against the euro, reducing the investment appeal of commodities.

Fuel deliveries in the U.S., the world’s biggest oil user, averaged 18.5 million barrels a day in the four weeks ended Dec. 4, 3 percent less than a year earlier, the Energy Department reported last week.

‘Face Reality’

“Now the traders have to start to face reality and that means they have to take a look at the weak fundamentals,” said Tetsu Emori, a commodity fund manager at Astmax Co. in Tokyo. “The levels of crude and product inventories are quite high and we’re seeing smaller imports.”

Gasoline stockpiles rose for a third week to 216.3 million barrels, the highest since April. Distillate inventories, including heating oil and diesel, climbed to 167.3 million, 25 percent above the five-year average for the period.

Brent crude oil for January settlement was at $72.02 a barrel, up 14 cents, at 9:02 a.m. in Singapore.

Hedge-fund managers and other large speculators reduced their bets on rising oil prices to a two-month low last week, according to U.S. Commodity Futures Trading Commission data.

Speculative net-long positions, the difference between orders to buy and sell the commodity, fell 11 percent to 67,817 contracts in the week ended Dec. 8, the commission said in its weekly report.

To contact the reporters on this story: Ann Koh in Singapore at; Christian Schmollinger in Singapore at


British Pound Little Changed Versus Dollar After Dubai Bailout

By Keith Jenkins

Dec. 14 (Bloomberg) -- The pound was little changed against the dollar, paring a decline, after Abu Dhabi bailed out Dubai World, sending stocks higher as investor concern eased about loans made by British banks to the Gulf emirate.

Sterling rose earlier versus the U.S. currency. Dubai will use part of the money to meet its obligations, including $4.1 billion needed to repay an Islamic bond maturing today for the real-estate unit Nakheel PJSC. The FTSE 350 Banks Index advanced 2.8 percent.

“The news out of Dubai has taken some of the negativity about sterling that we were seeing last week off the agenda,” said Jeremy Stretch, senior currency strategist at Rabobank International in London. “There had been concerns about the U.K. banking sector and potential losses in the region.”

The pound was little changed at $1.6241 of 8:43 a.m. in London, from $1.6262 at the end of last week. It dropped earlier to $1.6190. Sterling weakened to 90.22 pence per euro, from 89.87 pence.

Average house asking prices will stagnate next year after rising about 2 percent in 2009, Rightmove Plc, the operator of the U.K.’s biggest property Web site, said in a statement today.

To contact the reporter on this story: Keith Jenkins in London at


Eurosclerosis Is U.S. Diagnosis After Dodging Japan Stagnation

By Rich Miller and Michael McKee

Dec. 14 (Bloomberg) -- The U.S. may have avoided the Japanese disease of prolonged stagnation only to end up with a dose of eurosclerosis: chronically high unemployment in a growing economy.

Economists are starting to extend their forecasts through 2011 and the results don’t look pretty. Jan Hatzius, chief U.S. economist at Goldman Sachs Group Inc. in New York, forecasts that the jobless rate will rise to 10.75 percent by the middle of 2011 from 10 percent now.

Even optimists such as Bruce Kasman, chief economist at JPMorgan Chase & Co. in New York, see unemployment remaining well above the 20-year average of 5.6 percent. Kasman, whose forecast of 3.4 percent growth next year is higher than the 2.6 percent median of 83 economists surveyed by Bloomberg News, projects the unemployment rate will average 9.9 percent in 2010 and 9.3 percent in 2011.

“We had been worried about turning into Japan,” says David Wyss, chief economist at Standard & Poor’s Corp. in New York. “But it may be more likely that we end up with sclerosis.”

Persistent European-style unemployment means that the Federal Reserve, which holds its last policy meeting of the year Tuesday and Wednesday, won’t raise its benchmark interest rate from near zero through 2010, according to Curtis Arledge, co- head of U.S. fixed income in New York at BlackRock Inc., the world’s largest asset manager.

‘Wouldn’t Surprise Me’

“I don’t think they’re even going to be thinking about it until the third or fourth quarter of 2010,” says Arledge, who helps oversee more than $500 billion. “It wouldn’t surprise me if it was into 2011.”

Bond investors should expect large supplies of Treasury securities as the budget deficit stays near last year’s record $1.4 trillion, according to Kasman. Unemployment will help keep the deficit at an historic level by robbing the government of income-tax revenue while forcing it to spend more on jobless benefits.

Because it will help the Fed stay on hold, a high jobless rate also may mean the government can finance that deficit at low cost. The Treasury sold $44 billion of two-year notes on Nov. 23 at a yield of 0.802 percent, the lowest on record.

Stock prices will continue to rise as companies boost profits by concentrating on cutting costs and getting more out of their workers, Sinai says. Employee output per hour rose at an 8.1 percent annual rate in the third quarter, according to the Labor Department, the fastest pace in six years.

Rising Corporate Profits

Sinai sees profits for the companies making up the Standard & Poor’s 500 Index climbing by more than 20 percent next year. Third-quarter corporate profits increased 11 percent, the biggest gain since the first three months of 2004, the Commerce Department reported Nov. 24. The S&P 500 has rallied 64 percent to 1,106.41 from a 12-year low in March.

Annual economic growth in 2011 will be 2.8 percent, according to the median forecast in the Bloomberg News survey -- slower than the average annual rate of 3 percent in the decade before the recession began in December 2007.

The pace is still faster than Japan’s. The country’s central bank lowered its benchmark target interest rate to near zero in February 1999, trying to boost an economy suffering through a “lost decade” of expansion that averaged 1.9 percent a year. Growth since then has averaged 0.7 percent annually as Japan sank into a liquidity trap, where additions to the money supply failed to stimulate the economy.

Big Differences

The median U.S. forecast for this year and next masks big differences among economists about the outlook. Mohamed El- Erian, chief executive officer of Newport Beach, California- based Pacific Investment Management Co., manager of the world’s largest bond fund, argues that the U.S. has entered a “new normal” period with annual growth of 2 percent. He sees growth fading in the second half of next year after an initial burst.

“I’m more bearish than the consensus,” says El-Erian, who sees the dollar experiencing “periods of downward pressure” during the year. “We start the year at 3 percent and then end up at 2.”

Larry Kantor, head of research for Barclays Capital Inc. in New York, is more upbeat.

“What we think is going on right now is that the U.S. economy is growing at a 4 to 5 percent rate,” he says. “When you go down hard, you tend to have a bounce because of pent-up demand, policy stimulus and the like.”

Above Average

No matter what their growth estimates, the economists surveyed by Bloomberg agree that unemployment during the next two years will remain above the 4.9 percent average of the decade before the start of the recession. The jobless rate will average 10 percent next year and 9 percent in 2011, according to the median forecast of those surveyed.

Herbert Giersch, former president of the Kiel Institute for the World Economy in Kiel, Germany, coined the term eurosclerosis in 1985 to describe European economies beset with high unemployment at a time of overall growth. Joblessness that year averaged 9 percent in France, 11.4 percent in Britain and 8.2 percent in what was then West Germany.

Economists say Europe’s malaise, which extended into the mid-1990s, was caused by monetary policy biased toward fighting inflation and maintaining currency stability, generous unemployment and social benefits that encouraged the jobless to stay on the dole, and penalties such as government-imposed employee-severance packages that discouraged companies from hiring.

Zero Bound

Fed Chairman Ben S. Bernanke can’t reduce the federal funds rate -- the rate for overnight loans between banks -- because at Friday’s close of 0.14 percent it is already essentially at what economists call the zero bound. That leaves the U.S. stuck with a higher rate than is appropriate given 10 percent unemployment and the outlook for the economy, says Laurence Ball, professor of economics at Johns Hopkins University in Baltimore.

Bernanke has tried to compensate with a variety of programs aimed at spurring credit more directly, including the purchase of $1.75 trillion in Treasuries, agency bonds and mortgage- backed securities. Fed officials themselves disagree over what impact the measures have had.

Ball says some of the European policy makers in the 1980s and 1990s, including former British Prime Minister Margaret Thatcher, were “anti-inflation zealots” who kept interest rates high even after price pressures had eased. For them, “inflation is like a vampire,” he says. “You can’t just kill it once.”

Stable Currencies

European central banks were also constrained from reducing interest rates by a need to keep their currencies stable within the European Exchange Rate Mechanism, the predecessor of the European Monetary Union and the euro, Ball added.

The high unemployment rates Europe suffered in the 1980s and early 1990s stemmed from limited labor mobility, according to a 2009 paper by economics professors Tito Boeri at Bocconi University in Milan and Pietro Garibaldi at the University of Turin in Italy. They found that mobility increased and joblessness declined starting in the mid-1990s after European countries reduced unemployment benefits and made it easier for companies to fire workers.

Labor mobility in the U.S. dropped last year to its lowest level since records began in 1948, according to the Census Bureau. The so-called national mover rate fell to 11.9 percent of the population in 2008 from 13.2 percent in 2007 as 35.2 million Americans one year or older changed residence.

Pull Up Stakes

One reason is a 27.8 percent decline in housing prices nationwide between the peak in June 2006 and September 2009, the last month for which data are available, according to the S&P/Case-Shiller home-price index. Millions of owners owe more on their mortgages than their homes are worth, making it hard for them to pull up stakes and look for work elsewhere without suffering big losses when they sell.

The number of U.S. homes worth less than the debt owed on them reached almost 10.7 million, or 23 percent of all mortgaged properties, at the end of the third quarter, according to a report from First American CoreLogic, a Santa Ana, California- based real-estate research firm.

An additional 2.3 million mortgages are approaching “negative equity” as loan defaults rise nationwide, the company said Nov. 24.

“The weak housing market will contribute to high unemployment,” Nobel Prize-winning economist and Columbia University professor Joseph Stiglitz said in testimony to the Joint Economic Committee of Congress on Dec. 10.

“A distinguishing feature of America’s labor market is its high mobility,” he added. “But if individuals’ mortgages are underwater, or if home equity is significantly eroded, they will be unable to move, reinvest in a new home.” He urged U.S. lawmakers to use “overwhelming force” to reduce joblessness.

Mimic Europe

The U.S. is also starting to mimic Europe by increasing the role of the central government in the economy, says Nobel Prize- winning economist Edward Prescott.

“There’s been a regime change,” he says. Taxes are likely to rise and that will weigh on the U.S. economy by reducing incentives to work, just as is the case in Europe, adds Prescott, who is a senior monetary adviser to the Federal Reserve Bank of Minneapolis and a professor at Arizona State University in Tempe.

The U.S. shares another characteristic of the eurosclerosis era: high levels of long-term unemployment. Some 5.8 million Americans have been looking for work for more than 26 weeks, representing 38 percent of the unemployed, the most since records began in 1948.

The so-called underemployment rate -- which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking -- stood at 17.2 percent in November.

“There’s reason to think we could suffer a U.S. sclerosis,” Ball says. “That would be horrible. We’d have a big pool of people being left behind.”

To contact the reporters on this story: Rich Miller in Washington rmiller28@bloomberg.netMichael McKee in New York at


BOE Says Job Market Coped With Recession Better Than Forecast

By Jennifer Ryan and Scott Hamilton

Dec. 14 (Bloomberg) -- The Bank of England said the British job market has come through the recession better than it initially forecast and record low interest rates are helping consumers cope with their debt.

“Employment to date has not fallen by as much as we might have feared given the falls in output,” Chief Economist Spencer Dale said in the bank’s quarterly bulletin, published today. “Despite the severe recession, the proportion of households who reported difficulties keeping up with bills and credit commitments had fallen slightly.”

The report suggests policy makers see the recovery from the longest recession on record is under way. The Bank of England also said asset prices and credit conditions are shaking off the effects of the financial crisis and U.K. stock prices “do not look particularly elevated.”

Consumer spending accounts for more than three fifths of gross domestic product and Britain has lost more than 600,000 jobs since the recession began, taking the unemployment rate to 7.8 percent. Employment rose in October and claims for jobless benefits increased the least in 18 months, the statistics office said Nov. 11.

Higher unemployment has nevertheless eased wage pressures. Compensation agreements have “fallen sharply” this year as the average increase fell below 2 percent while some companies froze pay, the report said. In the third quarter, annual pay growth was 1.2 percent, compared with 3.4 percent in the same period a year earlier, easing inflation pressures in the economy.

“A substantial element of the workforce appears to have been able to protect their jobs by accepting slower wage growth,” Dale said.

Record Low

The central bank held its key interest rate at 0.5 percent last week and kept its bond-purchase program at 200 billion pounds ($325 billion) to ensure the recovery.

Low rates have made borrowing more affordable and helped more U.K. households meet debt payments, the bank said, citing a survey it conducted with NMG Financial Services Consulting from September to October.

Central bank policy has underpinned an improvement in credit markets and has also spurred demand for riskier assets, the bank said. The benchmark FTSE-100 Index has gained about 50 percent from its March low.

Bond purchases are “likely to have boosted asset prices by encouraging portfolio rebalancing toward riskier assets and reducing required risk premia,” the report said. “Despite their rapid rise since March, the level of U.K. equity prices did not look particularly elevated compared with long-run averages of simple valuation metrics.”


Still, investor confidence is vulnerable, the report said. Royal Bank of Scotland Group Plc was the biggest underwriter of loans to Dubai World, the state company that roiled markets last month when it tried to rescheduled debt payments.

HSBC Holdings Plc has the most at risk in the United Arab Emirates, JPMorgan Chase & Co. said in a Nov. 27 report.

“Sentiment in financial markets remained fragile,” the Bank of England said. The report cited a “renewed period of market volatility linked to worries about the possible wider implications of the potential default of the Dubai World investment company.”

The pound’s 20 percent drop in the past two years against a basket of trade-weighted currencies hasn’t helped lower the price of exports relative to imports, the bank said. Since the middle of 2007, export and import prices have both increased by around 15 percent.

“The recent stability of the U.K. terms of trade reflects the fact that sterling import and export prices have risen by similar amounts and by only a little less than the overall exchange rate depreciation,” the report said. “But if the rise in export prices is persistent, then this will create an incentive for rebalancing within the U.K. economy.”

To contact the reporters on this story: Jennifer Ryan in London at; Scott Hamilton in London at


Yen Favored for Carry Trades as Japan Faces Deflation

By Oliver Biggadike and Theresa Barraclough

Dec. 14 (Bloomberg) -- The yen is poised to replace the dollar as the top funding currency for investments in cities from Sydney to Sao Paulo after borrowing from Japan became almost as cheap as U.S. loans for the first time in four months.

Rates on 90-day yen loans between banks have fallen the most in 13 years amid record deflation that prompted the Bank of Japan to start a $113 billion lending program last week. By easing demand for private-sector loans, the move helped shrink the gap between U.S. and Japanese London interbank offered rates by two-thirds over the past three months to 0.024 percentage point, the least since Aug. 26, data compiled by Bloomberg show.

Investors are betting Libor rates in the U.S. will be higher by June as it recovers from the recession quicker than Japan, according to Bloomberg data. The U.S. will expand 2.6 percent in 2010, twice as fast as Japan, median forecasts in Bloomberg surveys of as many as 82 economists show. That may entice traders to shift to yen from dollars to buy assets in higher-interest countries like Australia and Brazil, weakening Japan’s currency and shoring up the dollar, as advocated in public statements by both governments.

“The dollar’s role as a funding currency is fleeting at best,” said Samarjit Shankar, a foreign-exchange group managing director in Boston at BNY Mellon, the world’s largest custodial bank at more than $20 trillion in assets. “When central banks start raising rates, the yen will be left behind as the primary funding currency.”

The yen fell 7.7 percent in the five months after the last time Japanese loans became cheaper, in August 1993. That plunge followed a 45 percent gain in the previous three years, when American rates were mostly lower.

Libor Spread

Japan’s currency also tended to slide as the Libor spread between the two countries widened during the 13 years that U.S. loans cost more, from 1993 until Aug. 24. The yen depreciated 24 percent in five months in 1995 as that spread expanded by 41 basis points, or 0.41 percentage point. It weakened 13 percent in 2005 as Japan’s borrowing costs became almost 2 percentage points cheaper than in the U.S.

This year’s falling U.S. loan costs encouraged investors to sell dollars in carry trades, which seek to profit by using money from low-interest economies to buy assets in higher- yielding countries. Since American rates began dropping in March, the dollar has lost 9.4 percent against the yen, almost twice as much as the U.S. currency had weakened in the prior 10 months.

The three-month yen Libor rate fell to 0.28 percent on Dec. 11, from 1.09 percent on Oct. 8 last year, following its biggest 14-month plunge since 1996. The U.S. rate last week was 0.25 after its largest drop since 2002.

Cash and Carry

Since U.S. borrowing costs fell below Japan’s in August, buying Australian dollars with U.S. funds has produced a 9.9 percent profit, Bloomberg data show. With Brazilian real, the trade gained 6.9 percent. Using yen as a funding currency would have gained less than half as much against the Aussie and barely broken even versus the real.

“The difference between U.S. dollar and Japanese interest rates in general, including Libor rates, is one of the main drivers of the dollar-yen,” said Masafumi Yamamoto, Tokyo-based chief foreign-exchange strategist at Barclays Capital. Based on British Bankers’ Association surveys, Libor rates are what banks charge each other for loans and serve as benchmarks for $360 trillion worth of financial products globally from home mortgages to corporate bonds.

Weaker Yen

“A higher dollar Libor rate than yen Libor rate means stronger dollar versus yen,” said Yamamoto, who predicts Japan’s currency will fall to 96 by June and to 100 by the end of 2010, an 11 percent drop from its Dec. 11 close, at 89.10. Median estimates from as many as 41 strategists surveyed by Bloomberg see the yen weakening to 93 by mid-year and to 97 six months later.

The dollar traded at 88.86 yen today, after falling 1.6 percent against the yen last week, down 2.5 percent for the year. The greenback bought $1.4624 per euro, after gaining 1.7 percent for the week and down 4.7 percent for the year. The U.S. Dollar Index measuring its performance against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona added 0.9 percent last week and is down 5.8 percent for the year.

Investors are betting that the Bank of Japan will keep its 0.1 target rate through next year and that the Federal Reserve will abandon its near-zero benchmark.

Future Chances

There’s at least an 88 percent chance the U.S. will raise rates in 2010, up from 78 percent on Nov. 24, futures on the CME Group show. Prices indicate a 46 percent likelihood of an increase by June, up from 30 percent on Nov. 30. By contrast, overnight interest-rate swaps traders see no chance that the BOJ will increase its benchmark next year, Bloomberg data show.

Trading in forward contracts on three-month swaps, used to hedge against Libor fluctuations by agreeing to pay or receive a specified rate starting on a future date, show U.S. borrowing costs rising above Japan’s within six months.

The yen hit a 14-year high of 84.83 per dollar on Nov. 27, less than three weeks after U.S. Treasury Secretary Timothy Geithner said a “strong dollar” is “very important.” Prime Minister Yukio Hatoyama said on Dec. 2 the yen’s rise can’t continue, Nikkei newspaper reported.

There is “no doubt” that accelerating yen gains would hit exporter profits, said Chief Cabinet Secretary Hirofumi Hirano on Nov. 26 in Tokyo. That would be a “huge risk” for auto makers, Nissan Motor Co. Chief Operating Officer Toshiyuki Shiga said on Nov. 19 in Yokohama.


Chances are increasing that Japanese policy makers will sell the currency to prevent damage to the economy from further gains, said Sophia Drossos, co-head of global foreign-exchange strategy for Morgan Stanley in New York.

Options traders are the least optimistic on the yen since before the bankruptcy of Lehman Brothers Holdings Inc. pushed up volatility in currency markets and forced investors to buy protection against yen gains. The cost on Dec. 4 of hedging for a month against a gain was the cheapest relative to guarding against a decline since February 2007, so-called risk reversal rates show.

Japan’s struggling economy and signs of a U.S. recovery are shifting the carry-trade funding advantage back toward the yen, where it had been since 1993, when the BOJ cut rates in an unsuccessful attempt to avert a recession that sparked a decade of deflation.


Employers in the U.S. eliminated 11,000 jobs in November, the fewest since the recession began, and unemployment fell to 10 percent from 10.2 percent a month earlier, the Labor Department reported on Dec. 4. The dollar rose that week against the yen by the most since 1999, advancing 4.7 percent.

“The U.S. economy will perform strongly; the Fed will tighten,” said Adam Boyton, a senior currency strategist in New York at Deutsche Bank AG, the world’s biggest currency trader. “It makes the yen again a much more attractive vehicle for funding carry trades.”

In Japan, the economy has shrunk 7.7 percent since 2008’s first quarter, the steepest decline in at least 29 years. Prime Minister Hatoyama is boosting borrowing to a record 53.5 trillion yen ($607 billion) in the year ending March 2010 to support the economy and slow deflation.

Consumer prices have fallen 2.5 percent in the past year, the sharpest 12-month decline since at least 1970, sparking demand for the nation’s debt and pushing down bond yields as investors bet the securities’ fixed payments will gain purchasing power.

Real Yields

Mitsubishi UFJ Financial Group Inc. and Yasuda Asset Management Co. say they are buying the bonds even though Japan’s 1.23 percent 10-year yield is lower than in the U.S., U.K. and Germany. That’s because deflation has driven so-called real yields up to 3.78 percent, compared to the U.S.’s 3.7 percent.

From 2004 to 2007, carry trade investors who sold borrowed yen to invest in Mexican pesos, South African rand, Brazilian real and New Zealand and Australian dollars earned as much as 84 percent, Bloomberg data show.

The trades benefited from interest rates as low as zero in Japan and three-month bill yields as high as 8.4 percent in New Zealand. The popularity weakened the yen more as it fell as much as 13 percent in that period, further increasing carry profits.

Last year’s financial crisis magnified price swings and caused the trades to lose money. Dollar-yen volatility surged on Oct. 24, 2008 to 42 percent as Japan’s currency rallied 27 percent from 110.66 on Aug. 15, 2008 to 87.13 on Jan. 21, erasing carry trade profits from the previous four years.

‘World’s Weakest’

Now, narrowing interest-rate differences are making the yen the funding currency of choice again. Six-month borrowing costs in yen fell below dollar rates for one day last week after the Bank of Japan announced its 10 trillion yen ($112.7 billion) program on Dec. 1 to offer three-month loans to commercial banks at 0.1 percent interest. The central bank said on Dec. 10 that it had initiated the program with an 800 billion yen injection into the banking system.

Japan’s currency “may become the world’s weakest,” said Keiji Matsumoto, currency strategist at Nikko Cordial Securities Inc. in Tokyo.

To contact the reporters on this story: Oliver Biggadike in New York at; Theresa Barraclough in Tokyo at


Citigroup Said to Near Agreement on TARP Repayment

By Bradley Keoun

Dec. 14 (Bloomberg) -- Citigroup Inc. is nearing an accord with the Treasury Department and regulators that would let the bank repay its $20 billion of bailout funds and escape government pay limits, people familiar with the matter said.

Under the plan, which may be announced as soon as today, the U.S. bank would raise about $20 billion of capital, said three people briefed on the plan, who declined to be identified because the talks are private. A partial offering of the Treasury’s 7.7 billion shares may be coordinated with New York- based Citigroup’s effort to raise capital, the people said.

Chief Executive Officer Vikram Pandit is pressing for an exit from the Troubled Asset Relief Program to avoid being the only large bank left on “exceptional assistance,” a Treasury designation reserved for companies including American International Group Inc. and General Motors Co. that are surviving on taxpayer aid. Bank of America Corp. exited last week after paying back $45 billion of bailout funds.

“It is important to get back to normal and if they pay back the TARP money they aren’t so much under the pressure of public opinion,” said Roger Groebli, Singapore-based head of financial market analysis at LGT Capital Management, which oversees about $75 billion.

Citigroup rose to $4.01 in European trading today, up 1.5 percent from its $3.95 close in New York on Dec. 11. The stock has tumbled 41 percent this year, valuing the lender at about $90 billion.

Treasury, FDIC

Citigroup also plans an early termination of guarantees from the Treasury, Federal Deposit Insurance Corp. and the Federal Reserve on $301 billion of the bank’s riskiest securities, mortgages, auto loans, commercial real estate and other assets, the people said. Citigroup paid $7 billion in advance for the guarantees, which last five to 10 years, depending on the type of underlying assets. The matter remains under discussion, the people said, adding that the terms or timing could still change.

In October, Pandit, said he was “focused on repaying TARP as soon as possible” in cooperation with regulators. Pandit pushed to accelerate the talks after Bank of America’s plan was announced, people familiar with the matter said last week.

Pandit, 52, has indicated he’s seeking to repay the exceptional assistance partly on concern the government-imposed pay limits might make Citigroup vulnerable to employee poaching by unfettered Wall Street rivals, according to people familiar with the matter.

Citigroup spokesman Jon Diat declined to comment. A Treasury spokesman, Andrew Williams, declined to comment. Williams said last week, “We continue to believe that banks and our financial system are better off with private capital instead of government capital.”

Wind Down

Citigroup, which took $45 billion of TARP funds last year, converted about $25 billion in September into common stock, equivalent to a 34 percent stake. Some details of Citigroup’s plan were reported earlier by the Wall Street Journal.

The government is trying to wind down bailout programs extended as financial markets convulsed late last year. Treasury Secretary Timothy Geithner said in a Dec. 4 interview that most taxpayer money injected into banks through TARP will eventually be recovered.

JPMorgan Chase & Co., Goldman Sachs Group Inc. and Morgan Stanley, all based in New York, repaid bailout funds in June. San Francisco-based Wells Fargo & Co., with $25 billion of TARP money, isn’t subject to pay limits because it never needed a second helping of bailout funds.

To contact the reporter on this story: Bradley Keoun in New York at


Euro Gains After Dubai Gets $10 Billion Bailout From Abu Dhabi

By Bo Nielsen and Yasuhiko Seki

Dec. 14 (Bloomberg) -- The euro rallied after Abu Dhabi pledged to bail out Dubai, easing concern that Europe’s biggest banks will suffer writedowns on loans in the Gulf emirate.

The European currency rose against the dollar, while the pound pared its declines as stocks rebounded after Dubai said it will use some of the funds to pay “trade creditors and contractors as well as meet interest expenses and company working capital.” The yen gained against all 16 most-traded currencies tracked by Bloomberg after the Tankan index of confidence among Japanese manufacturers increased.

“The all-dominating news is Abu Dhabi bailing out Dubai and it has added to the risk-on sentiment for now, sending euro- dollar higher,” Kasper Kirkegaard, a currency analyst with Danske Bank A/S, said in an interview with Bloomberg Television from Copenhagen.

The euro climbed to $1.4663 as of 9:36 a.m. in London, from $1.4615 in New York last week, when it declined to $1.4586, the weakest level since Oct. 5. The 16-nation currency traded at 129.73 yen, from 130.24 yen, after dropping as low as 129.18 yen earlier. The yen was at 88.46 per dollar, from 89.10.

The MSCI World Index of shares advanced 0.4 percent, reversing a 0.1 percent decline, after the Dubai government said Abu Dhabi provided $10 billion to help state-owned Dubai World meet its obligations, including $4.1 billion needed to repay an Islamic bond maturing today for the real-estate unit Nakheel PJSC. Nakheel accumulated debt during a six-year real-estate boom in Dubai, when the sheikhdom borrowed $10 billion and its state-controlled companies a further $70 billion.

Pound Rebounds

Royal Bank of Scotland Group Plc was the biggest underwriter of loans to Dubai World, according to JPMorgan Chase & Co. British banks, including RBS and HSBC Holdings Plc arranged about $4.4 billion of Dubai World’s loans, according to a report by Bank of America Merrill Lynch.

The pound pared declines versus the dollar, trading at $1.6237, from $1.6262 last week and as low as $1.6190 earlier.

“It does remove a layer of uncertainty in the market but that doesn’t mean we’re out of the woods yet,” said Geoffrey Yu, a London-based currency strategist at UBS AG.

Gains in the euro were tempered on speculation the credit ratings of European nations will come under pressure.

Spain had the outlook on its AA+ debt rating cut to “negative” from “stable” by Standard & Poor’s last week. Greece’s credit was reduced one step to BBB+ by Fitch Ratings. Portugal’s outlook was also revised to “negative” from “stable” by S&P.

Greece Reforms

Greek Prime Minister George Papandreou will today outline structural reforms aimed at cutting his nation’s budget deficit. European Central Bank Vice President Lucas Papademos said last week Greece’s fiscal situation as “extremely serious.”

“Dollar strengthening may extend somewhat further against the euro as concerns over fiscal solvency in some euro-zone member countries dominate market focus,” Michael Hart, a currency strategist at Citigroup Inc. in New York, wrote in a note today.

Industrial production in the 16 nations using the euro retreated 0.6 percent in October following a revised 0.2 percent increase the previous month, according to the European Union’s statistics office in Luxembourg today. Economists in a Bloomberg survey forecast a reading of negative 0.7 percent.

ZEW Report

The ZEW Center for European Economic Research in Mannheim will say tomorrow its index of investor and analyst expectations, which aims to predict developments six months ahead, fell to 50.0 from 51.1 in November, according to a separate survey.

“The euro is likely to remain captive to downside risk, depending on the outcome of this week’s economic data,” said Toshiya Yamauchi, manager of foreign-exchange margin trading at Ueda Harlow Ltd. in Tokyo.

The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain, so-called net shorts, was 511 on Dec. 8, compared with net longs of 22,151 a week earlier. That’s the first time since April 28 that short bets outnumbered longs.

The dollar has risen against the euro in the past two weeks after a Dec. 4 report showed that U.S. employers cut the fewest jobs in November since the recession began and unemployment unexpectedly fell, prompting traders to bet that the Federal Reserve will bring forward interest-rate increases.

Dollar and Data

“Why is good data suddenly supporting the dollar?” a team of analysts led by Ulrich Leuchtmann at Commerzbank AG in Frankfurt wrote today. “This development makes sense if one relies on good U.S. data eventually leading to an end of the Fed’s zero rate policy. Previously rate rises had moved into the very distant future so that the effect had been ignored. This is obviously changing now.”

The yen advanced most against Taiwan and Australia’s dollar after the Tankan report, rising 1.2 percent and 0.9 percent, respectively. The index of sentiment among big makers of products including cars and electronics climbed nine points to minus 24 in December, the Bank of Japan said in Tokyo today. The median forecast of 19 economists surveyed by Bloomberg News was minus 27. A negative number means pessimists outnumber optimists.

To contact the reporters on this story: Bo Nielsen in Copenhagen at; Yasuhiko Seki in Tokyo at


Tokyo Steel to Cut Prices as Construction Declines

By Masumi Suga

Dec. 14 (Bloomberg) -- Tokyo Steel Manufacturing Co., Japan’s largest maker of construction girders, will reduce prices for the second time in three months as manufacturers cut back investment and the government reviews public works spending.

Prices of H-beams will drop 2,000 yen, or 3.1 percent, to 63,000 yen ($711) a metric ton for January contracts, the lowest since February 2004, the Tokyo-based company told reporters. The hot-rolled coil price will drop 3.5 percent to 55,000 yen.

Uncertainty over the economic outlook in the world’s second-largest economy is prompting Japanese companies to reduce capital spending. Construction steel prices are also declining as the new government of Prime Minister Yukio Hatoyama, under pressure to control spending, reviews public works projects, said Tokyo Steel Managing Director Naoto Ohori.

The bottom of domestic steel demand “is not in sight yet,” Ohori said today in Tokyo. “Production levels are too high, given the size of demand,” he said.

Tokyo Steel shares gained 0.6 percent to 1,041 yen at 1:24 p.m. local time on the Tokyo Stock Exchange.

Large enterprises plan to cut capital spending by 13.8 percent this fiscal year, the Bank of Japan’s Tankan index of corporate sentiment showed today. It was the worst reading for a December survey and compares with a 10.8 percent decline three months ago.

Product Prices

Tokyo Steel Manufacturing said it will cut most of its other product prices including plates and deformed steel bars by 2,000 yen, compared with December. The company will maintain the price of wire rods at 61,000 yen per ton.

The increased value of the Japanese currency has raised concern that domestic products are becoming less competitive compared with imported steel, Ohori said. The yen, which last month appreciated to the strongest level since July 1995, traded at 88.85 yen to the dollar at 1:26 p.m. in Tokyo.   Tokyo Steel’s price cuts contrast with gains outside Japan. Baosteel Group Corp., China’s largest steelmaker, raised benchmark product prices by 8 percent for January delivery, the first increase since September, on rising raw material costs and improving demand from automakers.

To contact the reporter on this story: Masumi Suga in Tokyo at +81-3-3201-3088 or


Raw, Refined Sugar May Rise in New York, London, Survey Shows

By M. Shankar and Catarina Saraiva

Dec. 14 (Bloomberg) -- Raw-sugar futures and refined-sugar contracts may gain this week as adverse weather hampers harvesting in Brazil and India, the world’s top producers of the sweetener, according to a survey.

Six out of 10 traders, analysts and brokers surveyed last week forecast that raw sugar traded in New York would rise. Three predicted a drop, and one said it would be little changed. Raw sugar gained 6.6 percent to 24 cents a pound last week.

Six of 10 respondents said white sugar traded in London would gain and two said the price would slump. Two forecast it would be little changed. White, or refined, sugar rose 1.3 percent to $626.10 a metric ton last week.

“The wetness in Brazil has lowered the sugar content in the final stages of this crop year,” Craig Ruffolo, a senior vice president at McKeany-Flavell Co. in Oakland, California, said in an e-mail.

Four of 10 said refined sugar’s premium over raw sweetener would widen, four said it would be little changed and two said the gap would narrow.

Bullish on raw sugar: 6       Bearish: 3     Neutral: 1
Bullish on refined sugar: 6 Bearish: 2 Neutral: 2
Widening refined premium: 4 Narrow: 2 Neutral: 4

To contact the reporters on this story: M. Shankar in London at; Catarina Saraiva in New York at


Asian Stocks Rebound on Dubai Financing; Japan Shares Drop

By Shani Raja

Dec. 14 (Bloomberg) -- Asianstocks rebounded from earlier losses after Dubai secured $10 billion of funding to repay its debt. Japan shares dropped as a measure of business confidence showed companies are scaling back investment plans.

Samsung C&T Corp., builder of the world’s tallest tower in Dubai, climbed 3.3 percent after Abu Dhabi agreed to provide the money for Dubai’s financial support fund. Standard Chartered Plc, which has made loans to the Middle East, climbed 3.9 percent in Hong Kong. Mitsubishi UFJ Financial Group Inc., Japan’s biggest bank by value, sank 2.9 percent after the country’s Tankan confidence survey was released.

The MSCI Asia Pacific Index added 0.5 percent to 120.32 at 4:30 p.m. in Tokyo. It dropped 0.6 percent earlier. The gauge fell by 0.4 percent last week as downgrades to Greece’s credit rating exacerbated credit-market concern sparked by Dubai World’s plan to reschedule payments on its liabilities.

“It’s a positive development if Dubai steps in and says look, we’ll honor these debts,” said Prasad Patkar, who helps manage $1.7 billion at Platypus Asset Management in Sydney. “It has the potential to help along the subdued investor risk appetite that was in place the last couple of weeks.”

Japan’s Topix Index declined 0.4 percent. The Tankan survey of confidence among the country’s largest manufacturers rose the least since the economy emerged from its worst postwar recession.

Qantas, Alumina

China’s Shanghai Composite Index gained 1.7 percent. Hong Kong’s Hang Seng Index added 1 percent, while South Korea’s Kospi Index gained 0.5 percent.

Australia’s S&P/ASX 200 Index rose 0.4 percent. Qantas Airways Ltd. surged 3.5 percent in Sydney on plans to raise its international airfares. Alumina Ltd. jumped 6.4 percent after JPMorgan Chase & Co. boosted the profit outlook for Alcoa Inc., the largest U.S. aluminum producer.

Futures on the Standard & Poor’s 500 Index climbed 0.8 percent, while the MSCI World Index added 0.2 percent. The U.S. futures contracts rebounded from an earlier 0.3 percent drop after Abu Dhabi’s financing for Dubai was announced. The money will help repay obligations including $4.1 billion needed for a Nakheel PJSC Islamic bond maturing today.

State-controlled Dubai World said Dec. 1 it is seeking to restructure $26 billion of debt, less than half the $59 billion of liabilities it had at the end of 2008.

Dubai World

Samsung C&T climbed 3.3 percent to 49,500 won. The stock slumped as much as 14 percent after the Dubai government said on Nov. 25 that Dubai World was seeking a “standstill” accord on its debt. Samsung C&T said on Nov. 27 it stopped work on a $350 million bridge in Dubai after Nakheel halted payments.

Standard Chartered gained 3.9 percent to HK$196.30. The bank has $18 billion of loans to the Middle East and South Asia, of which two-thirds relates to the United Arab Emirates, Finance Director Richard Meddings said on Dec. 9.

HSBC Holdings Plc, Europe’s largest bank, added 1.7 percent to HK$91.70. The London-based banks are among Dubai World’s six main creditors, a banker familiar with the talks last week.

“Markets are likely to take the news positively in the immediate term as concerns are lifted,” said Lee King Fuei, a Singapore-based fund manager at Schroders Plc, which oversees $222 billion worldwide as of September. “Dubai is a symptom of a problem over the past decade of excessively loose credit and liquidity. That requires a long time to work through.”

In Tokyo, Obayashi Corp. lost 1.6 percent to 301 yen, paring an earlier slump of 5.9 percent. General contractors and machinery makers were holding about $7.5 billion of bills owed by the Dubai government and its affiliated companies as of Oct. 31, Nikkei reported, citing the Japanese government.

Growth Optimism

Kajima Corp. rose 1.1 percent to 184 yen, after slumping 5.5 percent. Mitsubishi Heavy Industries Ltd. added 0.3 percent to 322 yen, having earlier lost 1.6 percent. Both companies were also named in the Nikkei report.

The Standard & Poor’s 500 Index added 0.4 percent on Dec. 11 as better-than-estimated retail sales and consumer confidence reports fueled economic growth hopes that have boosted the U.S. index by 64 percent since March 9. The MSCI Asia Pacific Index has climbed 69 percent in that time, while Europe’s Dow Jones Stoxx 600 Index advanced 55 percent.

Stocks in the MSCI benchmark are valued at an average 22 times estimated earnings, higher than 18 times for the S&P 500 and 15 times for the Stoxx 600.

A report last week showed China’s industrial production rose 19.2 percent in November from a year earlier, exceeding the 18 percent estimated by economists, while South Korea’s central bank said gross domestic product will grow next year at a faster pace than previously forecast.

Capital Spending

“There’s always a chance things could get derailed, but we’re seeing an improving environment that bodes well for markets next year,” said Paul Xiradis, who manages $10 billion at Ausbil Dexia Ltd. in Sydney. “There is inaction by a number of market participants at the end of a wild year who are happy just to wait and see what happens next year.”

Mitsubishi UFJ sank 2.9 percent to 442 yen. Shinsei Bank Ltd. lost 1 percent to 104 yen. Large Japanese enterprises plan to cut capital spending by 13.8 percent this fiscal year, the worst reading for a December survey, compared with the 10.8 percent decline the Tankan showed three months ago.

“Weak capital investment shows we can’t expect a robust recovery in the domestic economy in the coming months,” said Hiroshi Morikawa, a senior strategist in Tokyo at MU Investments Co., which manages about $14 billion. “Unless businesses invest, the recovery led by exports won’t spread to the domestic economy.”

Higher Fares

Japan’s gross domestic product grew an annualized 1.3 percent in the three months to September, slower than the 4.8 percent reported last month, government data on Dec. 9 showed.

Qantas, Australia’s biggest airline, surged 3.5 percent to A$2.67. The carrier said it will increase economy-class fares as much as 5 percent on flights to destinations including Japan, North America and Europe.

Japan Airlines Corp. rose 3.2 percent to 98 yen. The U.S. and Japan agreed on a draft “open skies” treaty that will allow airlines in the two countries to act more like a single company for pricing, scheduling and marketing global flights.

Alumina climbed 6.4 percent to A$1.665. Alcoa’s earnings will be $1.45 a share in 2010, compared with an earlier prediction of $1.15, JPMorgan analyst Michael Gambardella wrote in a report. He raised his 2010 Alcoa share price estimate to $25 from $22 in line with metal-price revisions by a JPMorgan strategist.

To contact the reporter on this story: Shani Raja in Sydney at