Economic Calendar

Thursday, March 3, 2011

Today's Market Outlook

Daily Forex Technicals | Written by Windsor Brokers Ltd | Mar 03 11 08:32 GMT


Yesterday's fresh strength from 1.3742 higher low has finally cleared 1.3860 resistance and spiked to 1.3889, ahead of shallow correction to 1.3860 zone, former resistance and now reverted to support. While the latter holds dips, immediate target lies at 1.3947, 76.4% Fibonacci retracement of 1.4280/1.2872 downleg, ahead of psychological barrier at 1.40. Further correction on overbought hourly conditions would target 1.3835/15, Fibonacci levels, while 1.38 marks key near-term support and needs to hold to keep near-term bullish outlook intact.

Res: 1.3874, 1.3889, 1.3900, 1.3947
Sup: 1.3845, 1.3803, 1.3780, 1.3742



Has posted a fresh high at 1.6342 after pullback from double top at 1.6328 reached 1.6215, 38.2% retracement of 1.6030/1.6328 ascend, where good support was found . Hourly studies look somewhat exhausted, but 1.63/1.6270 supports hold for now. Wider picture remains bullish, with scope for fresh extension higher and 1.6456, Jan 2010 high in sight. At the downside, 1.6215 offers key near-term support and should contain corrective dips.

Res: 1.6331, 1.6342, 1.6371, 1.6456
Sup: 1.6300, 1.6271, 1.6245, 1.6215



Remains at the back foot after recovery attempt from 81.61 failed to sustain gains above 82 zone, with fresh weakness extending through 81.61 to test 81.57, trendline drawn off 80.24 low. Bounce from 81.57 is so far capped by 82.00, and clearance of 82.00/23 is needed to improve near-term outlook and signal fresh recovery towards 82.90/83.05 resistance zone. At the downside, loss of 81.57 will focus 81.10/80.92.

Res: 81.91, 82.10, 82.23, 82.31
Sup: 81.76, 81.57, 81.10, 80.92



Extends the latest downleg from 0.9773 high, to post fresh record low at 0.9200, after corrective attempt from 0.9221, previous low, stalled at 0.9320. Overall tone remains bearish, with 0.9100 zone seen next, while 0.9320 expected to limit the upside for now.

Res: 0.9261, 0.9289, 0.9320, 0.9390
Sup: 0.9221, 0.9200, 0.9150, 0.9100


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EUR/USD Sets New 2011 High Going Into The ECB Meeting

Sunrise Market Commentary

  • Global core bonds correct lower
    Global core bonds were under downward pressure virtually from the opening of trading in Europe to the closure in the US. Stronger eco releases in the EU and US didn't provoke immediate reactions. Today, the ECB-meeting and the fol-lowing press conference will be very closely monitored.
  • EUR/USD sets new 2011 high going into the ECB meeting
    On Wednesday, the correction in EUR/USD didn't last long as markets expected the ECB to raise its inflation alert which gave the euro additional interest rate support. EUR/USD reached a new 2011 top. Trichet holds the key to decide on a further up-leg of the single currency

The Sunrise Headlines

  • US Equities ended slightly up on Wednesday led by gains in energy shares. This morning, most Asian shares trade in positive territory, while Chinese stocks lose some ground on expectations that inflation will rise above 5%.
  • The European Central Bank is expected to step-up its anti-inflation rhetoric at the monetary policy meeting today as it may raise its alertness on inflation. Another step in the exit policy is likely, but it might be a small step rather than a giant leap.
  • Libyan leader Muammar Gaddafi and the president of the Arab League are considering a peace plan from Venezuela's President Hugo Chavez to end the crisis in the North African country, news agencies reported this morning.
  • Bundesbank President Axel Weber has proposed to automatically extend ma-turities of bonds issued by countries that tap Europe's future rescue fund in order to give them breathing room to consolidate their public finances.
  • Many manufacturers are passing along higher input costs to their customers, a sign that rising prices for commodities could increasingly reach consumers, the Fed's Beige Book survey showed.
  • China's annual inflation is likely to top 5% in the first quarter of 2011, a senior government economist said this morning.
  • Brent crude oil prices dropped this morning below $115/barrel on speculation that a peace plan to end the crisis in Libya was under consideration.
  • Today, the eco calendar contains the euro zone (final) and UK services PMI, the US non-manufacturing ISM, euro zone retail sales, preliminary estimate of euro zone Q4 GDP and US initial claims. The ECB holds its monthly policy meeting.

Currencies: EUR/USD Sets New 2011 High Going Into The ECB Meeting


On Wednesday, EUR/USD opened the session on a weaker footing. The pair was seen in the 1.3745 area after a correction on Tuesday evening. Question was whether this was just a technical correction after the rejected test of the 1.3857/62 resistance area (week highs/year high) or whether the euro had again become more sensitive to global risk aversion. The jury is still out on this issue as markets don't really know how to react to higher oil prices. However, at least for now, it looks that the decline on Tuesday evening and yesterday morning was nothing more than a simple correction. In Europe there were only some second tier eco data on the agenda, but the euro soon found again a better bid. EUR/USD traded again in the 1.3840 area around noon in Europe. The dollar tried a moderate comeback going into the ADP labour market report. The report showed a rise in private jobs of 217 000, well above the market consensus. However, there were no follow-through gains of the US currency against the euro. Even more, EUR/USD even set a 'minor' new high for 2011 at 1.3890. The expectation that the ECB will step up its inflation rheto-ric today kept the euro well supported. A further slide on the equity markets and oil holding close to the $115/116 level (Brent) were unable to derail the single currency. The Beige Book, giving input for the March 15 Fed meeting indicated that that overall economic activity continued to expand at a modest to moderate pace in January and early February. However, in general there was no euphoria on the progress in the la-bour market yet. EUR/USD closed the session at 1.3866, compared to 1.3777 on Tuesday

Today, the calendar is extremely busy with several items that have market moving potential. In Europe the (final) services PMI's; the January retails sales and the pre-liminary release (with details) of the EMU Q4 GDP will be published. These data might provide interesting information on the health of the European economy, but in-vestors and traders probably won't adjust positions ahead of the key ECB policy meeting. The ECB press conference will be a key factor for investors to decide whether there is enough reason to push EUR/USD for an further up-leg beyond the 1.3862 resistance which is showing serious cracks. We expect Trichet to hold a hawkish tone (for an in debt analysis of the ECB policy decision see our KBC flash report and the bond part of this report). Of course, interest rate markets have already priced in the rising chance of an ECB rate hike mid this year. Nevertheless, the ECB indicating that inflation risks have moved to the upside and/or the Bank raising its 2012 inflation forecast above 2.0% would be a strong sign that an early ECB rate hike is highly probable. Such a scenario might pull the trigger for another up-leg in EUR/USD. The US initial jobless claims and the ISM of the non-manufacturing sector are interesting from an economic point of view. However, with the Fed giving no indi-cation at all that it intends to change its assessment/tactics anytime soon, the relevance of these data for markets should be limited after all. As was the case over the previous two weeks, oil and the tension in the MENA countries will continue to play a role on the background. However, we expect the ECB to be the decisive factor for EUR/USD trading today.

Looking at the technical charts, EUR/USD yesterday moved already (temporary?) above the 1.3862 resistance and the test is ongoing. Of late, we advocated that a sustained break above this 1.3862 resistance wouldn't be easy. Over the previous days, our working hypothesis was under heavy pressure. If the euro would get addi-tional interest rate support after the ECB press conference, we will have to adapt our strategy as it would open the way for a retest of the November high (1.4282).


EUR/USD: setting new 2011 top ahead of the ECB meeting.

Support comes in at 1.3827/08 (break-up hourly/ STMA + Daily envelope), at 1.3730/12 (Daily flag bottom)/MTMA +reaction low), 1.3694 (Broken daily down-trend line) and at 1.3641 (LTMA).

Resistance stands 1.3890/96 (Reaction high hourly/Daily Boll top), at 1.3932/47 (Daily Flag top/76% retracement since 1.4283) and at 1.4010 (2nd target double bottom).

The pair is in overbought terri-tory.


On Wednesday, the USD/JPY cross rate showed some intraday swings but at the end of the session the difference with Tuesday's close was again very limited. USD/JPY tried to regain the 82.00 mark early in Europe and after the publication of the stronger than expected ADP labour market report. However, the dollar remained under pressure across the board as higher oil prices and declining interest rate sup-port weighed on the US currency. USD/JPY reached an intraday low at 81.57. Of course, the higher oil price is also not a present for the Japanese economy and for the yen. So, traders didn't really know which way to go. USD/JPY regained the ear-lier losses. The pair closed the day at 81.87, almost unchanged from the 81.86 close on Tuesday.

This morning, Q4 capital spending data in Japan were reported below market con-sensus. This might have negative implications for the revision of the Q4 GDP. Asian stocks are mostly in positive territory (except for China). At the moment of writing, the oil price shows some tentative signs of topping out. It is not yet clear whether this move will have strong legs. However, if US bond yields would move higher (in case of easing tensions in the Middle East or for another reason), this might give USD/JPY downside protection.

Recently we favoured range trading in the 81.00/84.50 sideways pattern. Early February, a correction bottomed out in the low 81.00 area and the cross rate reached a correction high just below 84.00 mid-February. However, the rebound did run out of steam as the rise in US interest rates slowed. An unexpectedly sharp rise in US bond yields will probably be needed to push USD/JPY beyond this range top. However, of late, US data were unable to inspire such a move. So, we expect the above men-tioned range to hold for now. Last week, USD/JPY made a setback due to declining interest rate support for the US dollar and as the yen profited from safe haven flows.

In a day-to-day perspective, the pair is still within striking distance of the 81.10/80.93 support area. We continue to doubt that risk aversion originated by tensions in the Middle East should be a lasting support for the yen. So, for now, we assume that the 81.10/80.93 range bottom will hold.


USD/JPY: capped by higher oil prices

Support is seen at 81.57 (week low), at 81.43 (Broken daily downtrend line), at 81.24/10 (Daily Boll bottom/Reaction low), at 81.93 (year low) and at 80.54/21 (Nov Low/2010 low)

Resistance comes in at 82.14/24 (Daily envelope/Week high), at 82.45/53 (LTMA/MTMA), at 82.67 (Weekly envelope) and at 83.01 (Breakdown daily).

The pair is in oversold territory


On Wednesday, there was again no big story to tell on EUR/GBP trading. The cross rate reached an intraday low at 84.64 after the publication of a better than expected PMI of the UK construction sector. However, the week low at 0.8460 held. Later in the session, EUR/GBP joined the rebound in EUR/USD and filled offers just above 0.8500 late in Europe/at noon in the US. The pair closed session at 0.8493 (com-pared to 0.8469 on Tuesday).

This morning the Hometrack housing survey came out at -0.2%M/M and -2.7% Y/Y. EUR/GBP tries to extend gains above the 0.8500 mark. Later today, sterling traders will keep an eye at the UK PMI of the services sector. A moderate decline from 54.5 to 53.7 is expected. However, the euro side of the story will prevail today. ECB's Trichet bringing a hawkish message at the press conference might also support this euro cross rate.

In a longer term perspective, we expect a bumpy road for the UK economy in 2011. The BoE faces a big policy dilemma. Inflation remains much too high, but the real economy will most probably require ongoing policy support. Since early January, the pair moved up and down within a range of 0.8285 and 0.8672. In the first halve of February, investors started taking into account the scenario of an early UK rate hike. This supported sterling. At the same time, the euro ceded some ground as Trichet didn't step up his inflation rhetoric at the February meeting. In the February inflation report, the BoE saw rising upside inflation risks. However, BoE governor King was less committed to a rate hike than a lot of investors had anticipated. So, there was a window of opportunity to take profit on sterling long positions. From here, we expect some consolidation in EUR/GBP. The downside in this pair has become better pro-tected. Hawkish ECB talk might continue to support this process. A first important support is coming at around 0.8355/60, while 0.8285 is the key point of reference. We expect this level to be tough to break without high profile news. The day-to-day overall euro gains might cause EUR/GBP to try to regain the 0.8529 neckline.


EUR/GBP: slightly higher on overall euro strength

Support comes in at 0.8483 (Re-action low + LTMA), at 0.8461/60 (Reaction low + MTMA/Daily Boll Midline), at 0.8445 (Break-up daily + daily envelope), at 0.8429/22 (Weekly enve-lope/reaction low hourly) and at 0.8406 (Break-up hourly).

Resistance is seen at 0.8504 (STMA), at 0.8518 (Breakdown hourly), at 0.8549/54 (Daily Boll top/Reaction high) and at 0.8688/94 (daily downtrend line/Weekly envelope + Reaction high).

The pair is in neutral territory.


US: ADP employment report remains strong in February

The ADP employment report showed another decent gain in private employment. In February, private employment increased by 217 000, according to the ADP report, while the consensus was looking for an increase by 180 000. The previous figure was slightly upwardly revised to 189 000 (from 187 000). Looking at the details, the service providing sector added 202 000 jobs (from 166 000) and employment rose by 15 000 in goods-producing (from 23 000); of which 20 000 in manufacturing (from 24 000). Employment rose the most in medium (104 000) and small (100 000) size firms, while large firms added only 13 000 workers. The ADP report incorporates the claims data which fell from 447 000 in the week ended January 8 to 385 000 in the week ended February 7, which might be partially explain the strong ADP data. Nevertheless, the ADP report is less pre-cise at capturing payrolls changes at large firms, possibly because they process their own payrolls. This outcome provides further evidence that the US labour market is improving, but we are still looking for confirmation of the official BLS payrolls re-port, which was lagging in the previous months and remained weak. For February, we hope to see some improvement in the BLS report too, partially due to a weather-related rebound.

EMU: PPI jumps at fastest pace since 1982

Euro zone PPI inflation surprised on the upside of expectations in January. On a monthly basis, inflation rose by 1.5% M/M to an annual level of 6.1% Y/Y, significantly above the expected 5.7% Y/Y level. This was the highest monthly jump since 1982, while the annual. The details show that inflationary pressures were led by energy (3.2% M/M), but also prices of intermediate goods (1.5% M/M), non-durable consumer goods (0.4% M/M), durable consumer goods (0.2% M/M) and capital goods (0.2% M/M) rose in Janu-ary. Excluding energy, PPI rose by 0.8% M/M. Although the data are rather outdated, they confirm that price pressures are rising sharply led by higher energy prices

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


ECB Dilemma, Euro Peripherals Vs. Inflation

Daily Forex Fundamentals | Written by Saxo Bank | Mar 03 11 09:08 GMT

The ECB rate meeting tops the agenda Thursday as markets await the verdict of Trichet; does the ECB fight the inflationary pressures building or does it do what it can to save the peripheral countries of the Euro bloc?

ECB to ramp up hawk speak?

The Euro has been quite resilient throughout the commotion in the Middle East with various ECB members making noises about the untenable trajectory of inflation in the 17-nation region. The markets are preparing themselves for hikes as they are currently pricing in 98.5 bps (or 1%) within the next twelve months. We are still more dovish on this call though the history of the Trichet-led ECB suggests that the central bank is capable of surprise; e.g. the 25bps hike in July 2008 as the world was in (about to enter) a global recession. The question is whether the ECB will focus on the looming inflation threat or the need for low rates in various Eurozone countries, the peripherals in particular.

The recent data points to even higher inflation in the near term as commodity price gains ripple through the Eurozone econonmy. The CPI flash report suggests inflation of 2.4 percent in February on a year-on-year basis while yesterday's ´report on producer prices showed a jump in inflation there to 6.1 percent in January from 5.3 percent in December.

Today's ECB meeting also provides the council with new forecasts from the staff of economists where the new forecast of inflation is of course key at the moment.

European data today

The ECB meeting is the high point, but the revised GDP report for the fourth quarter or 2010, in which we wil have new information of the components that make up the GDP aggregate, and retail sales, will also be interesting. In particular retail sales may surprise consensus to the upside (we look for 0.6 percent month-on-month vs. a consensus forecast of 0.3 percent) as Germany was out with much better retail sales this morning. Sales at the retail level in Germany jumped 1.4 percent month-on-month in January against expectations of 0.5 percent while December's 0.3 percent decline was changed into a 0.3 percent gain.

Equity Kickoff: US employment data sparked optimism among investors

European stocks will open flat to slightly higher as Wednesday's U.S. employment data showed an improving labour market. Stocks will probably range trade ahead of Friday's non-farm figures unless we see significant changes in Eurozone GDP or retail sales.

The FTSE 100 index futures are unchanged ahead of the opening. Today's economic figures are centred around Eurozone gross domestic product and retail sales (both at 10:00 GMT). Eurozone GDP is expected to come in unchanged quarter-over-quarter from the previous period and retails sales is expected to show a 0.3 percent increase month-over-month. With Brent crude oil prices also slightly lower than USD 115 per barrel, stocks might find some support in today's session despite the continuous tensions in the Middle East.

Yesterday, the S&P 500 index rose 0.2 percent as the ADP employment change in February came in higher than expected at 217K and showed a healthy improvement, ahead of Friday's non-farm figures, and compared to the revised 189K figure for January. The initial reaction to the data was modest in the futures market but as the market opened, the ADP employment figures gave fuel to the gains in U.S. stock indices. An interestingly underlying signal in the ADP report was that small and medium sized businesses hired aggressively in February, which is good news for the U.S. economy. The Federal Reserve's Beige Book also confirmed an improving U.S. labour market but added at the same time that companies are reporting greater ability to pass on rising input costs to consumers and this could signal inflationary pressures going forward, noted the Fed.

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Euro Trades Near November High on ECB Rate Outlook; Yen Erases Its Gains

The euro rose toward its strongest since November against the dollar on speculation the European Central Bank will emphasize its readiness to raise interest rates as price pressures increase.

The single currency maintained gains from yesterday before a report forecast to show European retail sales increased and before U.S. figures tomorrow on non-farm payrolls. The yen erased gains versus the euro as reports the Arab League was studying a peace plan for Libya curbed demand for Japan’s currency as a refuge.

“The ECB must act to curb inflation given they already have sustained growth -- the U.S. doesn’t have that,” said Kurt Magnus, executive director of currency sales at Nomura Holdings Inc. in Sydney. “If payrolls disappoint in the U.S. we could see euro through $1.40 by Friday.”

The euro traded at $1.3867 as of 7:58 a.m. in London from $1.3866 in New York yesterday, when it reached $1.3891, the strongest since Nov. 9. Europe’s common currency was at 113.55 yen from 113.52 yen. The greenback fell as low as 81.77 yen before buying 81.89 yen from 81.87. It yesterday declined to 81.57, the weakest since Feb. 4.

The ECB, which aims to keep annual gains in consumer prices to just below 2 percent, will publish inflation projections for 2011 and 2012 today after its monthly policy meeting. Council member Yves Mersch said Feb. 21 the central bank may raise its 2011 inflation forecast to more than 2 percent from 1.8 percent. Policy makers have kept the benchmark interest rate at 1 percent since May 2009.

European Inflation

The euro was supported by “speculation the ECB will sharpen its anti-inflation rhetoric,” John Kyriakopoulos, head of currency strategy at National Australia Bank Ltd. in Sydney, wrote today in a note to clients.

Retail sales in the bloc rose 0.3 percent in January after falling 0.4 percent the prior month, according to a Bloomberg survey of economists before today’s European Union statistics office report. An index of services and manufacturing industries in the euro area rose to 58.4 from 57, a separate survey showed ahead of the Markit Economics data today. Figures above 50 indicate growth.

U.S. employers added 195,000 jobs last month, the most since May 2010, according to a Bloomberg News survey of economists before tomorrow’s Labor Department report.

Bernanke signaled in congressional testimony he will keep the Fed on course to finish $600 billion of Treasury purchases through June.

Bernanke Comments

Asked at a House Financial Services Committee hearing yesterday what conditions would warrant a third round of so- called quantitative easing, Bernanke said “what we’d like to see is a sustainable recovery. We don’t want to see the economy falling back into a double dip or to a stall-out.”

The Fed has kept its benchmark interest rate at zero to 0.25 percent since December 2008.

The yen erased gains after Al Arabiya TV cited the Arab League secretary general as saying the group is studying a plan proposed by Venezuelan President Hugo Chavez to end the violence in Libya.

Japan’s currency earlier climbed against most of its major peers as crude oil held above $100 a barrel. A U.S. government report showed crude stockpiles unexpectedly dropped last week, while fighting in Libya renewed concern that supply disruptions may spread to the Middle East.

Oil Prices

Nouriel Roubini, an economist who predicted the credit- market collapse, said yesterday an expansion of troubles in the Mideast could push oil prices as high as $140 to $150 per barrel, triggering a double-dip recession in parts of Europe.

“We could still see some more significant risk aversion,” said Jonathan Cavenagh, a currency strategist in Singapore at Westpac Banking Corp, Australia’s second-largest lender. “The Middle East situation still remains very uncertain.”

The yen typically strengthens in times of political, financial and economic turmoil. Japan’s trade surplus makes the currency attractive because it means the nation doesn’t have to rely on overseas lenders.

To contact the reporters on this story: Candice Zachariahs in Sydney at; Ron Harui in Singapore at

To contact the editor responsible for this story: Rocky Swift at


Asian Stocks Gain as Improving U.S. Jobs Data Offsets Middle East Unrest

Japanese Stock Futures, Climb on U.S. Jobs

Japanese stock futures rose as signs of a strengthening U.S. job market overshadowed concern that political unrest in the Middle East and North Africa will drive energy costs higher. Photographer: Tomohiro Ohsumi/Bloomberg

Asian stocks rose as signs of a strengthening U.S. job market overshadowed concern that political unrest in the Middle East and North Africa will drive energy costs higher.

Honda Motor Co., Japan’s second-biggest carmaker that gets 84 percent of its revenue abroad, advanced 0.6 percent in Tokyo. BHP Billiton Ltd. (BHP), Australia’s biggest oil producer, rose 0.5 percent and Woodside Petroleum Ltd. (WPL) gained 1.4 percent in Sydney as crude in New York rose for a third day to near a 29-month high. BlueScope Steel Ltd. lost 2 percent amid concern the Australian government’s carbon-pricing plans may force a shutdown of its Port Kembla steelworks.

“The employment data showed a better-than-expected improvement and we got confirmation of upward momentum in the U.S. economy,” said Mitsushige Akino, who oversees about $450 million in Tokyo at Ichiyoshi Investment Management Co. “It’s possible turmoil in the Middle East and North Africa will spread to Saudi Arabia and Iran, so uncertainty still remains.”

The MSCI Asia Pacific Index rose 0.2 percent to 137.72 at 9:31 a.m. in Tokyo, with almost four stocks rising for each that fell. The gauge dropped 2.1 percent last week as political unrest swept the Middle East and North Africa.

Japan’s Nikkei 225 (NKY) Stock Average gained 0.5 percent. Australia’s S&P/ASX 200 Index was little changed, while South Korea’s Kospi Index advanced 1 percent.

U.S. Jobs

Futures on the Standard & Poor’s 500 Index added 0.1 percent today. The index climbed 0.2 percent yesterday in New York after a report from ADP Employer Services showed U.S. employment increased by 217,000 in February, compared with a median estimate of 180,000 in the Bloomberg News survey. The Federal Reserve separately said the labor market improved throughout the U.S. early this year, driven by increasing retail sales and “solid growth” in manufacturing.

The MSCI Asia Pacific Index slid 0.2 percent this year through yesterday, compared with gains of 4 percent by the S&P 500 and 2.5 percent by the Stoxx Europe 600 Index. Stocks in the Asian benchmark are valued at 14 times estimated earnings on average, compared with 13.6 times for the S&P 500 and 11.2 times for the Stoxx 600.

Crude for April delivery climbed 2.6 percent to $102.23 a barrel in New York yesterday, the highest settlement since Sept. 26, 2008, on concern that the unrest curbing exports from Libya will spread to other countries in the region. Today, crude rose as much as 0.7 percent.

Libyan forces loyal to Muammar Qaddafi counter-attacked rebels in the coastal region where much of the country’s crude is refined or shipped abroad, according to a local oil official. And Qaddafi, speaking on state television, said his government retains control of oil fields though output has fallen to “the lowest level” after workers fled.

To contact the reporters on this story: Shani Raja in Sydney at Satoshi Kawano in Tokyo at

To contact the editor responsible for this story: Nick Gentle at


Crude Drops From 29 Month High in New York to Trade Below $102 a Barrel

Oil dropped from the highest close in 29 months in electronic trading on the New York Mercantile Exchange. April futures fell 67 cents to $101.56 a barrel at 1:57 p.m. in Singapore. The contract earlier rose as much as 71 cents to $102.94 a barrel.

To contact the reporter on this story: Christian Schmollinger in Singapore at

To contact the editor responsible for this story: Alexander Kwiatkowski at


Food Prices to Extend Advances, Led by Corn, Wheat, Soybeans, UBS AG Says

Food prices will extend gains even as harvests expand, as exporters need to rebuild stockpiles, tightening global supplies and driving corn, wheat and soybeans higher, UBS AG said.

Corn may advance to $8.30 a bushel, 15 percent higher than yesterday’s close, Dominic Schnider, director for wealth management research at UBS, said in an interview. Wheat may jump 23 percent to $10 a bushel, while soybeans may surge 7.6 percent to $15 a bushel, he said.

“We need to have at least two or three years of good harvests” to rebuild stockpiles, Schnider said in Singapore yesterday. “We expect food prices to trend higher. At one point, it will come off in 2012,” he said, predicting a peak this year.

The global food price index, compiled by the United NationsFood and Agriculture Organization, surged to a record for a second month in January, driven by higher prices of cereals, dairy and sugar. Extending those gains may push millions more people into extreme hunger and poverty, prompting governments to pay more for food subsidies, widening national budget deficits.

Food prices are at “dangerous levels” after pushing 44 million people into poverty since June, World Bank President Robert Zoellick said Feb. 15. That adds to the more than 900 million people around the world who go hungry each day, he said.

Corn Stocks

Global corn stocks will slide for the third consecutive season in the year through June 2012 as record world production won’t be enough to satisfy rising demand, the International Grains Council forecast last month.

Inventories were forecast to decline further from a four- year low of 119 million tons at the end of June this year, the council said. It lowered its estimate for this season by 1 million tons from a previous forecast because of demand from U.S. ethanol makers.

Strong ethanol demand in the U.S. will continue to drain supply of corn, and prices of the grain would need to rise to $8.30 a bushel to squeeze margins by makers of the fuel additive and ration demand, Schnider said. Corn for May delivery was little changed at $7.2075 a bushel on the Chicago Board of Trade at 11:37 a.m. Singapore time, narrowing a 0.5 percent loss earlier. It reached a record $7.9925 a bushel on June 27, 2008.

About 43 percent, or 4.95 billion bushels of the 11.6 billion bushels of corn demand in the U.S., the world’s largest grower, user and exporter, is for ethanol use, according to a U.S. Department of Agriculture estimate on Feb. 9.

Demand for corn from U.S. ethanol makers is forecast to gain this season from 4.57 billion bushels a year ago, according to USDA data. Demand climbed after the nation’s Environmental Protection Agency agreed in January to let refiners increase the corn-based fuel additive in gasoline to as much as 15 percent, from 10 percent for vehicles of 2001 model-year and later.

‘Demand Rationing’

“The focus lies in demand rationing,” Schnider said. “Which demand will give in? It’s not going to be the consumption of food items. It’s going to be ethanol.”

Wheat futures may surge to as high as $10 a bushel if Russia maintains its export ban and China becomes a net importer of the cereal this year, he said.

Russia’s wheat stockpiles were forecast by the USDA to plunge to 3.87 million tons before this year’s harvest, from 11.87 million tons a year earlier. Its coarse-grain stockpiles, which include all cereals except for rice and wheat, were estimated to fall to 1.36 million tons, from 2.89 million tons a year ago, and 4.8 million tons in the 2008-2009 season, according to USDA data.

The worst drought in at least 50 years in China’s wheat- growing regions may curb the nation’s yields, Weather Trends International said. That may push the Asian nation to become a net wheat importer, intensifying competition for U.S. supplies, Schnider said.

To contact the reporter on this story: Luzi Ann Javier in Singapore at

To contact the editor responsible for this story: James Poole at


Gold Trades Near Record on Demand for Haven Amid Turmoil in Middle East

Gold for immediate delivery rose 0.1 percent to trade near a record reached yesterday on demand for a haven. The metal was at $1,435.45 an ounce at 10:02 a.m. Melbourne time, compared with the all-time high of $1,440.32.

Bullion for April delivery in New York fell 0.2 percent to $1,435.50 an ounce after reaching a record yesterday of $1,441.

To contact the reporter on this story: Wendy Pugh in Melbourne at

To contact the editor responsible for this story: Wendy Pugh at


U.K. House Prices Fall as Supply of Properties Surges Most in Three Years

U.K. house prices fell for an eighth month in February as the supply of homes for sale increased the most in three years, Hometrack Ltd. said.

The average cost of a home fell 0.2 percent from January, the London-based property researcher said in an e-mailed report today. Prices in London were unchanged, according to Hometrack, which no longer publishes an average property price. The supply of homes for sale jumped 7.5 percent.

“With supply likely to remain in check, it is the outlook for demand that will have the greatest impact on pricing levels and market activity in the coming months,” Hometrack director of research Richard Donnell said in the report. “We expect a continued modest pick-up in demand over March but the timing of interest rate rises is critical.”

Bank of England policy makers will meet next week after three of the nine-member panel voted to increase the benchmark interest rate last month to tame inflation. The Institute of Directors said in a separate report today that the central bank should hold its key rate at a record low of 0.5 percent or risk derailing the economic recovery.

Demand for homes rose 14.7 percent in February from January, the first increase in eight months, Hometrack said. Real-estate agents reported a 25 percent increase in sales last month, it said.

The decline in prices in February was the smallest in six months. O’Donnell said smaller drops “will be sustained if demand for housing continues to grow in the coming months and February’s increase proves to be more than a seasonal blip.”

As well as leaving its benchmark rate on hold, the Bank of England should consider extending its 200-billion pound ($326 billion) emergency bond-purchase program, the Institute of Directors said. It sees the U.K. economy growing 1.2 percent this year and said house prices will be “weak” and transactions levels “low.”

To contact the reporter on this story: Svenja O’Donnell in London at

To contact the editor responsible for this story: Craig Stirling at


Bernanke Says Stronger Economic Growth Would Ease States Fiscal Problems

Federal Reserve Chairman Ben S. Bernanke said an improvement in state and local government finances will depend on the rate of U.S. economic expansion.

“If the economy continues to strengthen at about the pace projected by the Federal Reserve and many private forecasters, states and localities may start to get a little breathing space,” Bernanke said yesterday in a speech in New York. Measures of risk in the market for state and local debt that rose earlier this year are now receding, he said.

Concern that a wave of cash-strapped local governments will default prompted investors to pull money from municipal bond mutual funds during the past 15 weeks. Spending cuts by state and local governments also contributed to a revision lower of U.S. gross domestic product growth in the fourth quarter.

“Continued evidence that states and localities are addressing fiscal shortfalls should help calm the municipal bond market,” Bernanke said in the text of remarks at the Citizens Budget Commission’s annual awards dinner in New York. “The Federal Reserve will continue to monitor the municipal bond market closely.”

Yields on top-rated tax-exempt municipal bonds maturing in 10 years fell about 35 basis points in February, the steepest monthly decline since August, according to a Bloomberg Valuation index. A basis point is 0.01 percentage point.

While measures of risk “remain elevated, they have been looking somewhat better recently, presumably reflecting expectations of continuing improvement in the finances of states and localities,” Bernanke said in the speech. The municipal bond market in general “seems to be functioning reasonably well,” he said.

Perceptions of Risk

States and municipalities can help reduce investor perceptions of risk in the market for their debt by closing budget gaps, Bernanke said.

Investors withdrew about $610 million from U.S. municipal- bond mutual funds last week, the least in 11 weeks, Lipper US Fund Flows said Feb. 24.

Speculation about the possibility of widespread municipal bond defaults intensified after Meredith Whitney, the banking analyst who drew attention for correctly predicting Citigroup Inc.’s 2008 dividend cut, said in December that “hundreds of billions” of dollars in municipal bonds may default this year.

Whitney’s analysis drew criticism from investors and state officials, including California Treasurer Bill Lockyer, who said her estimates were too high.

More Defaults

Roubini Global Economics LLC, the consulting firm co- founded by Nouriel Roubini, said in a Feb. 28 report that U.S. municipal bond investors can expect about $100 billion of defaults over the next five years.

“Because the pace of near-term economic growth expected by most forecasters is relatively modest given the depth of the downturn, some time will likely be required before state and local fiscal conditions return to something approximating normal,” Bernanke said in the speech.

Bernanke’s speech expanded on remarks in congressional testimony this week. He said on March 1 that while it’s “possible” U.S. states could pose a risk to the financial system, the Fed won’t purchase state debt.

“While states are facing very tough financial conditions, at least as long as the recovery continues, they are seeing higher tax revenues and that will at least be helpful to some of them,” he said March 1 in response to questioning before the Senate Banking Committee. “Obviously, this is something we have to watch carefully.”

Tax Receipts

California, Texas, New York and Florida -- the four most- populous U.S. states -- reported better-than-expected tax and fee receipts last month. That may foreshadow a fifth straight quarterly gain after 41 states said revenue in the last three months of 2010 rose 6.9 percent from a year earlier, the Nelson A. Rockefeller Institute of Government said Feb. 1.

Local tax revenues have held up “relatively well” compared with states in the past couple of years, Bernanke said. “The continued softness in real estate prices, however, does not bode well for local government revenues” because of the greater reliance on property taxes.

The economy grew at a 2.8 percent annual pace in the fourth quarter, down from a 3.2 percent initial estimate, as state and local expenditures fell at a 2.4 percent annual rate, the Commerce Department said Feb. 25.

“What we’d like to see is a sustainable recovery,” Bernanke said yesterday before Congress. “We don’t want to see the economy falling back into a double dip or to a stall-out.”

Fed on Course

Bernanke, 57, signaled in testimony this week that he will keep the Fed on course to complete the purchase of $600 billion of Treasuries through June to spur economic growth and hiring. The central bank chief didn’t rule out expanding the so-called quantitative easing program, saying he doesn’t want to see the U.S. relapse into a recession.

“The economy’s recovery is not firmly established, and we think monetary policy needs to be supportive,” Bernanke told the House Financial Services Committee.

Separately yesterday, the Fed said in its regional Beige Book survey that the labor market improved throughout the country early this year, driven by increasing retail sales and “solid growth” in manufacturing.

Overall, the economy “continued to expand at a modest to moderate pace,” the central bank said in Washington. Eleven of the Fed’s 12 regional banks, including San Francisco and Philadelphia, described their regions as expanding, improving or experiencing moderate growth. Only Chicago reported growth “at a pace not quite as strong” as before.

To contact the reporters on this story: Scott Lanman in Washington at; Caroline Salas in New York at

To contact the editor responsible for this story: Christopher Wellisz at


Fed Says Labor Market Strengthened `Modestly' on Manufacturing, Retailing

The Federal Reserve said the labor market improved throughout the country early this year, driven by increasing retail sales and “solid growth” in manufacturing.

“Labor market conditions continued to strengthen modestly, with all Districts reporting some degree of improvement,” the Fed said today in its Beige Book report, an anecdotal account of the economy released two weeks before meetings of the Federal Open Market Committee. Its last survey, released Jan. 12, said the job market was “firming somewhat.”

Overall, the economy “continued to expand at a modest to moderate pace,” the central bank said in Washington. Eleven of the Fed’s 12 regional banks, including San Francisco and Philadelphia, described their regions as expanding, improving or experiencing moderate growth. Only Chicago reported growth “at a pace not quite as strong” as before.

Fed policy makers at their last meeting in January took a more optimistic view of the economy while maintaining their dissatisfaction with job growth. Policy makers, who are pressing ahead with their plan to buy $600 billion in Treasuries through June, raised projections for economic growth this year and made little change to forecasts after 2011 for unemployment and inflation.

The Beige Book reported that all districts except St. Louis “experienced solid growth in manufacturing production” and noted an increase in retail sales in every district except Richmond and Atlanta.

Extended Gains

Treasuries extended losses after the report. The yield on the 10-year Treasury note rose to 3.45 percent as of 2:22 p.m. in New York, from 3.39 percent yesterday. The yield on the 30- year Treasury bond rose to 4.54 from 4.48 yesterday.

Fed Chairman Ben S. Bernanke, in congressional testimony today, said he’s still not satisfied with the strength of the recovery from a recession that the National Bureau of Economic Research describes as the longest since the Great Depression.

“The economy’s recovery is not firmly established, and we think monetary policy needs to be supportive,” Bernanke said in semiannual testimony to the House Financial Services Committee.

Responding to a question from Representative Nydia Velazquez, a New York Democrat, Bernanke said the Fed’s policy of keeping its benchmark rate near zero for an “extended period” helps provide support to the economy, “which in our judgment, it still needs.”

Economies Growing

The Beige Book’s characterization of growth was little changed from the report in January, when six Fed regions, including Atlanta and Chicago, showed economies growing “modestly to moderately,” and four, including New York and Boston, reported “improving” conditions.

The Commerce Department last week reduced its estimate of fourth-quarter economic growth to a 2.8 percent annual pace from 3.2 percent as state and local governments made deeper cuts in spending. Consumer purchases rose at a 4.1 percent pace, the most since 2006, providing a boost for retailers.

Last week Target Corp., the second-largest U.S. discount retailer, projected sales at stores open at least a year may rise as much as 5 percent this year, after a 2.1 percent gain the prior period.

“Retail spending strengthened compared with a year ago across all Districts except Richmond and Atlanta,” today’s report said, while noting that winter weather “had a negative impact on retail activity” in Boston, New York, Philadelphia, Atlanta, Kansas City and Dallas.

Beige Book

The Beige Book report released today reflects information collected on or before Feb. 18 and summarized by the Atlanta Fed.

“The Boston, Cleveland, Minneapolis, and Dallas Districts cited noticeable improvements in the manufacturing sector, and the Boston and Cleveland Districts also observed increased labor demand in the health-care and medical sectors,” today’s the report said.

The Labor Department will report March 4 that the economy added 190,000 jobs in February, the most since May 2010 when the government was hiring to conduct the decennial census, according to the median forecast of a Bloomberg News survey. The unemployment rate will rise to 9.1 percent.

“Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established,” Bernanke said this week.

The chairman repeated his call for lawmakers to adopt a long-term plan to reduce the federal government’s debt, and said the Fed won’t buy state debt to alleviate any funding crunch, even as it’s “possible” that U.S. states could pose a risk to the financial system.

Real Estate

The Beige Book report described the real estate market as “varied, but overall sales and construction remained at low levels across all districts.”

Four Fed districts, including Dallas and Boston, described the manufacturing outlook as “optimistic” and four, including Philadelphia and Atlanta, reported “more rapid improvement in factory orders.”

Manufacturing in the U.S. grew in February at the fastest pace in almost seven years, driven by gains in orders, employment and exports that signal factories will continue to propel the expansion.

The Institute for Supply Management’s factory index increased to 61.4, exceeding the median forecast of economists surveyed by Bloomberg News and the highest level since May 2004, the Tempe, Arizona-based group said yesterday.

Auto dealers are seeing improved demand. General Motors Co. yesterday said U.S. sales of its four remaining brands rose 49 percent in February, topping analysts’ estimates.

Company Profits

Berkshire Hathaway Inc.’s quarterly profit rose 43 percent to the highest since 2007, boosted in part by Chairman Warren Buffett’s purchase last year of Burlington Northern Santa Fe, the second biggest railroad in the United States. Economic expansion in the U.S. fueled profit gains at the freight-hauling unit in 2010.

The improvement in the job market has not translated to pay increases, the report said, describing wage pressures as “minimal across all Districts.”

The report noted that “non-wage input costs increased for manufacturers and retailers” and that many manufacturers “reported having greater ability to pass through higher input costs to customers.”

“Retailers in some Districts mentioned they had implemented price increases or were anticipating such action in the next few months,” the Fed said.

Price Gauge

The Fed’s preferred price gauge, which excludes food and fuel, rose 0.8 percent in January from a year earlier, matching December’s year-over-year gain, the lowest in five decades of record-keeping. Fed officials aim for long-run overall inflation of 1.6 percent to 2 percent.

Oil and crop prices have soared even as core inflation has remained low. The price of gasoline, among the most visible expenses consumers, has risen 25 percent in the last year, according to an index from the American Automobile Association.

Experience with such price gains in recent decades, along with currently stable labor costs, suggests a “temporary and relatively modest increase in U.S. consumer price inflation,” Bernanke told Congress today.

Farmland values also are rising as commodities soar. A report last month from the Chicago Fed showed Midwest farmland values rising 12 percent in the fourth quarter from a year earlier. The Kansas City Fed has recorded cropland prices nearly 20 percent above year-earlier levels in Kansas and Nebraska.

Kansas City Fed President Thomas Hoenig warned Feb. 17 that the surge in farmland prices may be part of an “unsustainable bubble.”

The Fed said today that for now, “strong commodity prices were benefitting producers” of many crops, even as there were reports “of rising input prices, particularly in fertilizer and feed prices.”

To contact the reporter on this story: Joshua Zumbrun in Washington at

To contact the editor responsible for this story: Christopher Wellisz in Washington at