Asian Stocks Fall to a Three-Month Low on Oil; Toyota Declines

By Patrick Rial and Kyung Bok Cho

June 23 (Bloomberg) -- Asian stocks slumped to the lowest in three months after a rebound in oil prices and renewed predictions of asset writedowns rekindled concern economic growth will slow.

Bridgestone Corp., the world's largest tiremaker by sales, dropped for a third day. Australia & New Zealand Banking Group Ltd. led financials lower as Citigroup Inc. prepared to cut jobs and UBS AG forecast the U.S. bank will write down more assets. Toyota Motor Corp. tumbled to the lowest in a month as the dollar weakened and the U.S. auto market showed further signs of deteriorating.

``People's fears about inflation are materializing as commodity prices rise,'' said Yang Jeung Won, chief investment officer in Seoul at Samsung Investment Trust Management Co., which oversees the equivalent of $7.8 billion in equities. ``Financials are going to teeter on shaky ground for a while to come.''

The MSCI Asia Pacific Index lost 1.1 percent to 138.52 as of 11:30 a.m. in Tokyo, the lowest since March 24. Japan's Nikkei 225 Stock Average fell 1.2 percent to 13,779.81. Indexes declined throughout the region, except in Vietnam.

More than $8 trillion in stock market value has been wiped out this year as a 41 percent jump in oil raises costs for consumers and businesses. Higher commodities prices are also hampering central bank efforts to keep interest rates low as financial institutions' access to credit dries up.

Valad Property Group led Australian shares lower after the company cut its earnings forecast amid the U.S. housing recession. Valad joins Mirvac Group and APN/UKA European Retail Property Group, who last week cut forecasts in the wake of the U.S. subprime rout.

More than $398 billion in asset writedowns and credit losses stem from the collapse of the U.S. subprime-mortgage market, according to data compiled by Bloomberg.

Citigroup Job Cuts

Oil rebounded from the lowest in a week, climbing 2 percent to $134.62 in New York on June 20 and recently traded at $135.70. The weakening dollar has spurred a flight to commodities and other assets that will retain their value in an inflationary environment.

Benchmarks in the U.S. and Europe fell to the lowest in three months on June 20, dragged down by the gain in oil and after analysts predicted banks will post more credit-market losses.

Australia & New Zealand Banking declined 1.9 percent to A$18.43. Mitsubishi UFJ Financial Group Inc., the biggest publicly traded lender in Japan, lost 1.5 percent to 990 yen. T&D Holdings Inc., the nation's largest publicly traded life insurer, dropped 6 percent to 6,590 yen.

Citigroup may add another $8.7 billion in asset writedowns this quarter to the $42 billion it has already announced, according to UBS AG. Citigroup may also begin a round of previously announced job cuts this week, a person familiar with the situation said.

Elsewhere, Lehman Brothers Holdings Inc. predicted UBS and Deutsche Bank AG could produce a total of $8.5 billion in asset write-offs for the second quarter.

Banks, Bridgestone

``The resurgence of risks related to the credit crunch is the most important factor in the market,'' Tomochika Kitaoka, a Tokyo- based strategist at Mizuho Securities Co., said in an interview with Bloomberg Television.

Bridgestone, which loses almost $250 million in operating profit for every $10 gain in the price of oil according to Nikko Citigroup Ltd., declined 3.1 percent to 1,801 yen. Bridgestone expects net income to fall 32 percent this fiscal year on surging costs for petroleum-based materials and rubber. About 60 percent of materials used in tires are oil based, according to the Japan Automobile Tyre Manufacturers Association.

LG Electronics Inc., Asia's second-largest mobile-phone maker, dropped 2.7 percent to 124,500 won. Mitsui Chemicals Inc., Japan's largest chemical maker by sales, slumped 3.3 percent to 566 yen.

Tumbling Sales

Toyota, the world's largest automaker by value, led a drop by automakers, falling 2.4 percent to 5,280 yen. Denso Corp., Japan's largest auto-parts maker, slid 3.6 percent to 3,750 yen. Hyundai Motor Co., South Korea's largest automaker, fell 2.1 percent to 76,600 won.

Prices in the U.S. for used large pickups and sports utility vehicles tumbled at least 21 percent in May, according to Atlanta- based Manheim Consulting estimates, lowering the attractiveness of new vehicles as well. Toyota generates over half of its profit from the U.S.

Auto shares also slumped after Standard & Poor's said it may lower credit ratings on the three largest U.S. auto producers due to the effect higher fuel prices are having on the industry.

The dollar dropped to as low as 107.11 against the yen in trading today, a level not seen since June 11. The weaker dollar reduces the value of sales generated in the world's largest economy.

Valad, an Australian real estate investment trust, lost 4.2 percent to 80 cents. The company cut its earnings forecast for this quarter by 11 percent, citing ``challenging'' conditions created by the U.S. subprime crisis.

Perpetual Ltd., an Australian fund management company, posted the biggest decline among the MSCI Asian index's 990 members, plunging 11 percent to A$42.50. Its rating was downgraded to ``underweight'' from ``equal-weight'' by Morgan Stanley.

To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net. Kyung Bok Cho in Seoul at kcho7@bloomberg.net

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Inflation: Enemy Number Two

By Bill Bonner

All bubbles end in busts...and the perp walk.

Two hedge fund managers were arrested yesterday. It was claimed that the two Bear Stearns boys deceived customers.

Oh stop it! We're going to break a rib laughing....

Deceived customers? What is a hedge fund anyway? It's a way for Wall Street to take money from investors who can't do math. There's no deception required. In fact, the funds' names – High Grade Structured Credit Strategies Fund and High Grade Structured Credit Strategies Enhanced Leverage Fund – told investors all they needed to know. They practically screamed out: 'SAY GOODBYE TO YOUR MONEY...IF NOT NOW, LATER.'

So, imagine that you have money invested in the fund that advertises itself as offering "enhanced leverage" from "structured credit strategies." Now, imagine that you read in the paper that houses are going down in price...and that subprime mortgages are going belly up. Couldn't you put two and two together? Well...duh... but that's just it, people who invest in hedge funds can't do math. The managers didn't have to deceive them. They just had to keep their mouths shut...which they did.

But this is the way bubbles end...in losses...in anger...and in jail. The losers always think someone else is to blame. It's not long before they have a CEO, a speculator, or a fund manager mounting the scaffold.

Let's leave that thought on the shelf and get on with our reckoning.

Oil lost $4 last Thursday. The Dow rose 34 points. The euro slipped a little. No biggie.

But look at this: "Inflation now enemy #1 for the Fed," says the Wall Street Journal. This sort of thinking sent the price of gold up $10 yesterday; it's now back over the $900 level. And one of the key fellows at Schroder Investment Management told a crowd in Hong Kong that he thought gold could go to $5,000 before this run of inflation is over.

$5,000? Who knows? But, the poor saps at the WSJ are missing the point. No central bank keeps rates 2.2% below the level of consumer price inflation if it is really fighting inflation. Enemy Numero Ono? What are they thinking? Why are all the Fed's guns facing deflation, not inflation? Sure, there's been some blabbing about turning around...about switching sides in the war between inflation and deflation. But so far, it's just talk.

Talk is cheap. It's action that is dear. And the action the Fed needs to take – raising rates – will be so potentially costly for the lame U.S. economy that Bernanke and Co. are afraid to do it. They're hoping inflation will go away so they can continue the battle against the slump, without having to worry about their unprotected flanks. Most likely, they will make a gesture towards raising rates – perhaps a quarter of a point. But then, when the mob starts howling for his head, Ben Bernanke will drop them again.

Henry Paulson has been gurgling about a strong dollar. Yesterday, he gave voice to a contradictory notion – that the Chinese should let their currency rise (and the dollar fall).

The problem for the Chinese is that they have too many dollars, furnished courtesy of the Fed, while Americans have too few. In the United States, the average household barely has enough dollars to fill its gas tank and pay its bills. But the Middle Kingdom is flooded with them.

If you don't watch out, you're going to drown in them, said Paulson – or words to that effect. China's economy continues floating higher and higher. But all these extra dollars are pushing up wages and prices as well as the economy.

And then, wouldn't you know it, Chinese export prices go up too. And pretty soon, prices are up all over the world.

Which is why the WSJ thinks it's the top problem for the Fed too. Of course, it is a problem. But with the official CPI at 4.2% it's not enemy number one. Maybe it's Enemy Number Two. Most likely, it will stay there for a while longer. We still haven't seen a big drop in commercial property...or in consumer spending. Those are probably still ahead...and will give the Fed a reason to continue blasting away at a deflationary slump. Consumer prices will continue to rise, too. Eventually, they will become so high that inflation really does become Enemy Number One.

By that time, the price of gold could be $500 higher.

Bill Bonner
The Daily Reckoning Australia




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Argentina farmers lift roadblocks

The farmers' protests have caused deep divisions in Argentine society Farmers in Argentina have lifted most of the roadblocks they put in place across the country during a three-month dispute with the government. The cause of the dispute - a sharp increase in taxes on soy and other agricultural exports - is now to be debated by the Argentine Congress. But farmers are poised to resume their protest if no progress is made. The protests caused widespread food shortages, travel chaos and hit the export of agricultural goods. The protesting farmers set up and manned more than 300 roadblocks across the country. Truck drivers, inconvenienced by the farmers' blockades, erected their own barricades. The protests made it impossible on some days to travel around Argentina, stopping materials from reaching factories and hitting tourism, with hotels reporting big losses. Sigh of relief The farmers' decision to end the protest came after President Cristina Fernandez said the contentious export tax increases would be sent to Congress for debate. The BBC's Daniel Schweimler, in Buenos Aires, says most Argentines will now be breathing a deep sigh of relief that the dispute, for now at least, is over. The government says it needs to raise taxes to tackle inflation and improve help for the poor. But some farmers fear Congress will merely rubber stamp the tax policy, and are prepared to resume their protest.

Taken From : http://news.bbc.co.uk
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Gold Calls Bernanke's Bluff

By Dan Denning • June 20th, 2008 • Related Articles • Filed Under
About the Author

Dan DenningDan Denning is the author of 2005's best-selling The Bull Hunter (John Wiley & Sons). A specialist in small-cap stocks, Dan draws on his network of global contacts from his base in Melbourne, Australia and pens the small cap newsletter, The Australian Small Cap Investigator. He is also a contributing editor to the Australian resource investing publication Diggers & Drillers.

See All Articles by This Author

* Aquaculture: Soybeans and Corn Under Water
* Farmers Say ‘Rain, Rain Go Away’ Throughout the United States
* Farmers Feel Consumers Blame Them for High Food Costs
* Record Misery Index Sends People Scrambling for Gold
* Why Choose Gold When Real Interest Rates Sink?

Filed Under: The Americas
Tags: bernanke • Gold

Gold and silver are calling Ben Bernanke's bluff this week. Bernanke huffed and he puffed and he bluffed and he bluffed all month long about inflation. But the market realises that with America's housing market mired in the muck, the Fed won't be raising rates to defend the greenback this year.

In the futures market, the odds of a Fed rate rise dropped from 26% last week to 12% this week. The U.S. dollar continues to fall and gold was up US$6.60 in New York trading while silver hit US$17.34. Commodities have spoken. "Liar!"

Is there a big move coming in the precious metals? The Fed's open market committee meets next week to discuss and set the price for America's money. By then, we reckon traders will have a healthy scepticism that the Fed is willing or even able to defend the dollar with higher rates. Gold and silver have been treading water, technically speaking, for a while. Don't be surprised to see new investment demand for precious metals as an inflation hedge.

Once you get people expecting higher prices, it's hard to change their mind. Inflation is like a mental contagion. The Fed should know this. It started the epidemic with lower rates.

This isn't good: "Australia's mortgage arrears rate rose to a record in March as borrowers struggled to make repayments because of rising inflation and higher interest rates, according to Standard & Poor's."

That's from the Age. "Payments more than 30 days late on so-called prime loans increased to 1.45% of mortgages used to secure bonds, from 1.37% in January, S&P said in a report."

It's not a tsunami of defaults yet. But as far as we can tell, many Aussies remain convinced housing prices never go down. Most are unaware that a mortgage bubble is responsible for rising house prices, some the demographic flim-flammery you get from the housing industry.

Is protein about to get more expensive? We haven't covered the flooding in the mid-West of the US because it's in the US, not Australia. But everything affects everything in the globalised world. If US corn production craters because of a lost crop due to the massive spring floods in America's Corn Belt, there will be less corn. Less corn for ethanol. Less corn to feed animals like pigs and cows, which give us hungry humans are protein.

You can substitute wheat and rice for corn. But there's no replacing Iowa. Oil rigs can be rebuilt after cyclones. If you lose an entire year's crop or your farmland goes under water, it might be a good idea to stock up on staples. They're probably going up in price. It shows you just how valuable farmland is as capital.

Dan Denning
The Daily Reckoning Australia






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October Surprise? In June?"

by Jon Nadler
Senior Metals Market Analyst

Friday's New York gold was once again range-bound and repeated yesterday's pattern of early gains followed by afternoon declines, although today's focus was a near $3 gain in crude oil following news of an ominous June 2nd Israeli military drill and current threats by Venezuela's Hugo Chavez to suspend oil shipments to the EU. The dollar traded lower most of the day amid newly scaled-back expectations of rate hike action by the Fed next week. It was last seen at 73.05 on the index but had fallen to 1.562 against the euro.

Stocks finished a week that is best forgotten, showing a 221 point loss (worst since March) and the Dow now finds itself flirting dangerously close with the pivotal 11,750 area. The "bright spot" for the day was a fairly decent estimate of US growth put forth by the IMF, which concluded that the U.S. economy has fared well "considering the severity of headwinds it has faced, and that its GDP should gradually improve" to around 2% in 2009 after being "roughly flat" in Q4 of 2008. The question, of course, is what Q2 and Q3 will be tallied up at; flat-to-negative, or starting to pick up?

At the root of such changing Fed punditry sentiment was the jittery week we saw in financials (worst showing in bank stocks in a decade) as well as the forecasts for bank earnings going forward. Merrill sees investors effectively throwing in the proverbial towel when it comes to bank stocks. With capitulation come buying opportunities - normally. A normal year, 2008 has not been thus far. The consensus among analysts therefore, calls for no Fed action next week. Perhaps more Fedspeak will be on tap. In the interim, showing that it is serious about inflation combat, the Mexican central bank sprang a surprise .25 bp rate hike on the markets instead of offering propagandistic jawboning.

The final trading session of the week had gold easing off its intra-day highs in the afternoon hours, and the metal once again came closer to the $900 area after a duo of attempts to take out overhead resistance at $910 on both Thursday and Friday. The precious metal might manage an above $900 close today (it did not achieve it on Thursday afternoon) but is still needs to vault above $945 to regain its stride. Participants focused mainly on crude oil and on geopolitical developments in the absence of data from the economic calendar. OPEC gets to together this weekend and will likely have participants pulling out some large wrenches with which to turn up the flow of crude oil to the world. (The price of black gold was -at last check - up $2.6 at $134.80 per barrel.) This, after weeks or protests, frustration, pleas, and - the latest - a major hike in domestic price by China.

Predictably, Iran's response to the de facto early June Israeli rehearsal of an air attack on its nuclear installations was stern, swift, and laden with a threatening retaliatory tone that included words such as 'heavy blow' to describe its potential actions. Our good friend, Roger Wiegand, sums up the tense situation as follows:

" What lies ahead in this radically changing environment? In our view, the primary news changing event is the forthcoming attack by Israel on Iran. Our European friends have been predicting this for months and we chose to think it might not happen. Now we are about 80-90% certain it will. This event, if it becomes true, will drive energy and precious metals prices to the moon. On the other hand, stock markets could severely crash. The disruptions in global banking and credit markets might receive immeasurable damage; perhaps some of it un-repairable. One analyst says its a partial ploy to keep [President] Bush in office after January based upon the War Powers Emergency Act."

Recall that we alluded to an 'outside' and 'outsized' event as the best (perhaps only) possible driver of another rally by gold to four digits in our last Marketwatch TV interview in May. This is one of those potential events, although we are still nowhere near as confident as Roger is about the percentage of its occurrence probability.

Silver also gave up most of its Friday gains late in the day, and was last seen up 1 cent at $17.33 while platinum recouped some of Thursday's losses with a $10 gain to $2051 and palladium climbed $1 to $470 per ounce. Poor US auto sales estimates drove the noble metals to lower levels during the week. Gold futures closed the week out with a 3.5% gain after losing about 2% last week.

Also from the world of platinum, Johnson Matthey's Platinum Today reports that:
"The Tokyo Commodity Exchange will cooperate with the Tokyo Stock Exchange to develop exchange traded funds (ETFs) and Multi Commodity Exchange will now commence future trading in platinum. Platinum is now actively traded at Tokyo Community Exchange in Japan and New York Commodity Exchange as the metal is increasingly used as a catalytic converter in Japan.

According to reports from Reuters, TOCOM Chairman Masaaki Nangaku believes that the launch of commodities ETFs will have a good impact on developing the sector. Further reports from the Economic Times revealed that Joseph Messey, Chief Executive Officer of the Multi Commodity Exchange MS, said that platinum needed to be added to the offering.

"We were missing the presence of an important metal like platinum and now, since we have received approval, we are looking to start future trading activity soon," he explained.

"With the presence of a precious metal like platinum, investors will now have more opportunities for investment and the industry can hedge their requirements," he added."

Pre-Fed meeting trading floor chatter has begun in earnest and it points to rising expectations that the central bank will leave rates as they are (currently at an 88% probability level) and that it will also push potential rate hikes back a few months as the economic picture sorts itself out in the US. Marketwatch echoes the speculative crowd's latest sentiments and cites a few contrarian factor as well:

"Surging commodity prices and strident warnings from Federal Reserve officials about inflation have some in the market betting that the central bank will increase interest rates as early as this fall, according to closely watched federal funds futures contracts. Yet, five other indicators flatly contradict that outlook, suggesting that the central bank will instead opt to keep borrowing at currently low levels to prevent the ailing U.S. economy from experiencing even more pain.

Analysts point to at least five reasons the Fed won't rush to raise rates: 1) lending rates show the credit crunch continues; 2) the banking system is still fragile; 3) rates hikes in election years are rare; 4) the economy, especially housing, still poses a threat; and 5) flattening the yield curve could pressure bank profits.

Falling home prices and continuing bank losses, along with market rates for short-term loans, are likely to hold back the Fed. That's despite the message telegraphed by the bond market's favorite interest-rate indicator: fed funds futures, which are used to determine market odds of a move in interest rates by the Federal Reserve."

The first three days of next week will provide enough fuel for trading action of all kinds. Aside from the Fed meeting, we expect position statements from OPEC and from the ECB. Geopolitics -largely absent from the scene since December- are back on the stage. Summer begins tonight. Will it be a long, hot summer?

Taken From : http://www.ibtimes.com
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Stocks drop as credit woes continue, oil rises

By TIM PARADIS
20 June 2008 @ 06:48 pm EST

NEW YORK (AP) - Stocks capped a difficult week with steep losses Friday amid escalating worries about the financial and automotive sectors and a rebound in oil prices. The major indexes fell by more than 1 1/2 percent on the day, and the Dow Jones industrial average gave up more than 200 points to end at its lowest level in three months.

While investors have seen other triple-digit days in the past year since concerns about the economy began emerging, the Dow's first finish under 12,000 since mid-March could deal Wall Street a psychological blow.

An afternoon downgrade of automakers helped draw out sellers in the stock market while Treasury prices rose as investors sought the safety of government debt.

A Merrill Lynch downgrade of regional banks added to the market's initial anxiety, which ballooned Thursday when Citigroup Inc. warned of significant debt markdowns for the second quarter, Washington Mutual Inc. announced 1,200 job cuts and Moody's Investors Service decided late in the day to downgrade the two biggest bond insurers.

Troubling news about the financial sector piled up all week, sending stocks to steep losses. Early on, the investment banks posted profit declines, Fifth Third Bancorp said it need to raise $2 billion in capital and two Bear Stearns hedge fund managers were charged with lying to investors--causing many investors to flee from stocks.

Quincy Krosby, chief investment strategist at The Hartford, said Friday's session saw a confluence of the worries that investors have been grappling with as they try to determine where the economy is headed.

"I liken it to the GPS system saying 'recalculating,'" she said, referring to the market's uncertainty. "There's no clarity, there's no confidence."

Krosby added: "The crosscurrents are coming at a time when the backdrop for the economy appears to be stabilizing. And yet the headline risk is unrelenting."

The headlines Friday helped send the Dow down 220.40, or 1.83 percent, to 11,842.69. The blue chips haven't closed below 12,000 since March 17, when the market was worried about Bear Stearns Cos. collapsing. Friday's pullback left Coca Cola Co. as the only advancer among the 30 stocks that comprise the Dow.

Broader stock indicators also dropped. The Standard & Poor's 500 index fell 24.90, or 1.85 percent, to 1,317.93, and the Nasdaq composite index fell 55.97, or 2.27 percent, to 2,406.09.

Declining issues outnumbered advancers by about 5 to 1 on the New York Stock Exchange, where consolidated volume came to a heavy 5.15 billion shares compared with 4.44 billion shares traded Thursday. Volume was heavy in part because of "quadruple witching"--the simultaneous expiration of four types of options contracts.

For the week, the Dow fell 3.78 percent, the S&P 500 lost 3.1 percent and the Nasdaq declined 1.97 percent.

Bond prices rose Friday as stocks sank. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 4.17 percent from 4.21 percent late Thursday.

Concerns over further tensions between Israel and Iran added to investors' worries and pushed oil prices higher.

"That introduces dramatic uncertainty," Krosby said of the investors' reaction to unease in the Middle East.

Crude oil futures jumped $2.69 to settle at $134.62 a barrel on the New York Mercantile Exchange, recovering some of Thursday's drop of nearly $5 per barrel on news of a fuel price hike in China.

Investors are awaiting the weekend's meeting in Saudi Arabia of oil producers and consumer nations, which could bring some relief to the problem of soaring oil prices. But many analysts believe the gathering might end up being a mere finger-pointing session.

The concerns made for a difficult market.

"There has to be reticence about getting back in," said Stephen Carl, principal and head of equity trading at The Williams Capital Group. "It's definitely an ugly end to the week."

Bond insurer MBIA Inc. fell 86 cents, or 13 percent, to $5.59, while competitor Ambac Financial Group Inc. edged up 2 cents to $2.05, after losing their "AAA" rating from Moody's.

Another ratings move hit stocks of automakers. Standard & Poor's Ratings Services placed the corporate credit ratings of General Motors Corp., Ford Motor Co. and Chrysler LLC on watch with negative implications. The classification means ratings have a one-in-two chance of being downgraded in the next three months. S&P believes high fuel costs will hurt the U.S. auto market through 2009.

GM fell $1, or 6.7 percent, to $13.79, while Ford lost 51 cents, or 8.1 percent, to $5.81.

The dollar fell against most other major currencies, while gold prices rose.

The Russell 2000 index of smaller companies fell 12.10, or 1.64, to 725.73.

Overseas, Japan's Nikkei stock average dropped 1.33 percent. Britain's FTSE 100 fell 1.53 percent, Germany's DAX index declined 2.12 percent, and France's CAC-40 fell 1.79 percent.

___

The Dow Jones industrial average ended the week down 464.66, or 3.78 percent, at 11,842.69. The Standard & Poor's 500 index finished down 42.10, or 3.10 percent, at 1,317.93. The Nasdaq composite index ended the week down 48.41, or 1.97 percent, at 2,406.09.

The Russell 2000 index finished the week down 7.88, or 1.07 percent, at 725.73.

The Dow Jones Wilshire 5000 Composite Index--a free-float weighted index that measures 5,000 U.S. based companies--ended Friday at 13,415.89, down 374.77 points, or 2.70 percent, for the week. A year ago, the index was at 15,291.15.

Taken From : http://www.ibtimes.com
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China hikes fuel prices

Beijing raises prices for gasoline by as much as 18% in bid to cool demand.

BEIJING (AP) -- China raised prices for fuel by as much as 18% on Friday in a move that could cool the nation's surging energy consumption.

International oil prices dropped sharply Thursday after China said it will raise fuel prices, with U.S. crude for July delivery falling $4.75 to settle at $131.93 a barrel on the New York Mercantile Exchange. In Asian trading, oil was up slightly at $132.01 a barrel.

Growing Chinese demand for oil has underpinned the multiyear rally in oil prices, but higher prices could help crimp that demand. Concerns about spiking Chinese demand for diesel due to cleanup operations in the aftermath of last month's earthquake contributed to oil's recent run-up.

Lower demand in China "would be a major factor in driving prices down," said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago.

The China Daily newspaper reported Friday that the increase was "because of the soaring price of crude in the international market." It said areas in Sichuan province, hit by a massive earthquake last month, were exempt from the increase.

The price increase was announced issued late Thursday after China's financial markets were disclosed by the National Development and Reform Commission, the government's main economic planning agency announced.

Prices of gasoline and diesel rose by $145 per ton to $1,015 and $949, respectively.

Aviation kerosene rose by $218 per ton to $1,084, the commission said on its Web site.

Electricity prices will also rise for most businesses by 36 cents per kilowatt, although residential housing and the farming and fertilizer industries would be exempt, the planning agency said.

Natural gas and liquefied petroleum gas prices will remain unchanged, it said.

The government last hiked fuel prices by about 11% in November but had kept them frozen since, seeking to avoid fanning inflation, which has touched 12-year highs since the beginning of the year.

That policy, however, has led to shortages at the pump as refiners find themselves squeezed by rising world oil and gas prices.

To help counter such shortages, China's largest city, Shanghai, on Monday announced an increase in prices for liquefied petroleum gas used by scooters.

Earlier this week, the economic planning agency said it would look for an opportunity to adjust oil product prices, prompting a rally in shares of major refiners that have been swallowing huge losses due to soaring crude oil prices.

In an explanatory note accompanying its announcement, the commission said high world oil prices had created "contradictions in the purchasing price of oil being higher than the selling price of refined products that were becoming more glaring by the day."

That had led some refiners to halt or suspend production, creating supply interruptions and long lines at some filling stations, it said.

Coal prices that have risen $12 in the past two years have created massive losses for four of the country's five major power producers, it said.

Along with the electricity price rise, the government will also continue to provide subsidies to the industry to guarantee supplies, the commission said. To top of page
Saudi summit aims at oil prices

Taken From : http://money.cnn.com


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Technical analysis for crude oil

After crude markets were getting support from China's growing demand, yesterday an increase in Chinese fuel prices is expected to cripple oil demand as prices fell massively yesterday. Prices of gasoline and diesel in China will jump by 18% starting from today. Despite the fact that their oil consumption that was reported in June 10 is projected to increase by 440,000 barrels to an average of 8.02 million barrels a day this year, still there are worries that demand would still dampen due to price increase. The contract shed $4.57 as it closed at $132.60 while recording a high of $138.36 per barrel and a low of $132.09 per barrel.

As China is known to be the world's second biggest energy consumer after the U.S while the hike in prices since 8 months is still in affect today. Prices remain steady above the $132 per barrel as fears still overcome the market of lower demand from china. Today the markets opened at $132.41 while recording a high of $132.94 per barrel and a low of $131.75 per barrel.

Looking back at Wednesday when the EIA report was released showing that the U.S. commercial crude oil inventories decreased by 1.2 million barrels from the previous week. At 301.0 million barrels, U.S. crude oil inventories are at the lower boundary of the average range for this time of year. Total motor gasoline inventories decreased by 1.2 million barrels last week, and are in the lower half of the average range. Finished gasoline inventories increased last week while gasoline blending components inventories decreased during this same time. Distillate fuel inventories increased by 2.6 million barrels, and are in the lower half of the average range for this time of year.

With Saudi Arabia scheduled to meet Sunday in order to discuss its current output in order to increase production so prices can ease prices further have every investor's attention currently. This decision of either increasing output or if they feel there is no need for more pumping of crude in the ma
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Fundamental analysis for precious metals silver

Target met at 17.70 for silver; despite it started to retrieve from there, the bullish scenario is still on and the risk limit now is at 17.16, which if breached will bring the metal back in a neutral territory till 16.35 again, but right now we are initiating a new target at 18.20 with a stop below 17.20.


The trading range is among the key support level at 16.70 and the key resistance level at 18.20

The general trend is to the upside as far as 13.20 remains intact, with targets at 22.00 and 25.00.

Support 17.35 17.20 17.11 16.98 16.92
Resistance 17.45 17.62 17.70 17.89 18.01

Recommendation
Buy Silver above 17.25 with a target at 18.00 and a stop loss below 17.15
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Fundamental analysis for precious metals gold

The shiny metal reached yesterday to its first target at 908 and despite it bounced back form there it remains above the 887.50 level, which still give more push to the upside rather than the downside, technical indicators are showing more weakness today in the movement and a tendency to the downside but as far as 887.50 remains intact we are still bullish on gold.

The trading range is among the key support level at 887 and the key resistance level at 925.00.

The general trend is to the upside as far as 810.00 remains intact; targets are set at 1080.00 and 1170.00.

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Non-OPEC Oil Output Not Expected to Grow in 2008

By Reuters | 19 Jun 2008 | 10:18 AM ET

Oil supply from countries outside OPEC, source of three in every five barrels, is stalling this year and may even decline, keeping the heat under record-high oil prices.

The International Energy Agency and the U.S. government have cut forecasts for supply growth in 2008, in part due to delays at new fields and declining output at existing ones.

"There is a risk of zero non-OPEC growth," said Mike Wittner, oil analyst at Societe Generale, who forecasts non-OPEC supply will expand by 400,000 barrels per day (bpd) this year. "As far as our forecast is concerned, there is definitely downside to our numbers."

Struggling supply outside OPEC has helped fuel the surge in oil prices to a record near $140 a barrel, adding a strain to the world economy. It also increases reliance on OPEC oil exporters to meet rising demand.

Signs that oil supply is faltering in parts of the world are leading to growing interest in peak oil, the view that production is nearing a high point and will then fall.

Influential forecasters such as the IEA, adviser to 27 industrialised countries, have been lowering forecasts for supply from non-OPEC countries, but still predict an expansion.

Output from non-OPEC will grow by 460,000 bpd in 2008 from 2007, the IEA said in a monthly report on June 10, down from growth of 680,000 bpd previously forecast.

Others say even that may prove optimistic.

Analysts at investment bank Barclays Capital expect non-OPEC supply to decline by 40,000 bpd this year, while Credit Suisse sees non-OPEC supply as flat or negative through 2012 or longer.

Another bank, Citigroup, said on June 9 that non-OPEC supply was at risk of posting no growth this year.

Delays, Decline

There are several reasons why supply from non-OPEC has fallen short of forecasts in recent years.

Delays at new fields, faster-than-expected declines at existing ones and unforeseen events such as hurricanes in the U.S. Gulf of Mexico have meant production came in lower than first thought.

Oilfields in places such as the North Sea and Mexico are seeing declines while output in Russia, the world's second-largest exporter and the engine of growth outside OPEC in recent years, has faltered.

Russian oil supply in May averaged 9.95 million bpd, the fifth straight month of decline from a year ago, according to the IEA. It expects Russian supply to be largely flat in 2008 at 10.1 million bpd.

Barclays questions if the IEA's prediction of a surge in non-OPEC supply in the last few months of 2008 will materialise, saying that the IEA's figures show a second-quarter drop of 500,000 bpd year-on-year.

"We believe that the IEA is significantly overstating the short-term ability of non-OPEC supply to bounce back and moderate the current situation," the bank said.

Some in the industry are more pessimistic about supply. Billionaire oil investor T. Boone Pickens said on Tuesday that he believed world crude production has topped out at 85 million bpd.

Peak oil has its detractors, such as BP Chief Executive Tony Hayward.The Organization of the Petroleum Exporting Countries is still expected by the IEA and others to expand its supply capacity this year.

Others avoid the term but still see non-OPEC output levelling off.

"The rate of year-on-year decline in Russia and Mexico has been surprising and it doesn't show any sign of letting up," Wittner said. "Non-OPEC output is certainly hitting a plateau."

Copyright 2008 Reuters.

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Pound Gains as U.K. Retail Sales Unexpectedly Jump Last Month

By Lukanyo Mnyanda

June 19 (Bloomberg) -- The pound rose to the highest level against the euro in almost three weeks after a government report showed retail sales in May surged the most since records began, prompting traders to bet on higher interest rates.

The currency also climbed to a one-week high versus the dollar after Bank of England Governor Mervyn King said policy makers will tolerate declining living standards to tackle price growth. The path of interest rates was ``uncertain,'' even with inflation at the highest level in at least a decade, King wrote in a letter to the government this week. Two-year gilts fell by the most in 10 days after the sales report.

``The number was a complete shock,'' said Derek Halpenny, head of currency research in London at Bank of Tokyo-Mitsubishi. ``In fact, it was such a shocker it's hard to believe. Understandably, we've seen a move up in sterling, but it's questionable how sustainable that will be.''


The U.K. currency climbed as much as 0.9 percent to 78.52 pence per euro, the strongest since June 2, and was at 78.56 pence by 4:11 p.m. in London, from 79.26 pence yesterday. It rose to $1.9727, the highest level since June 10, and was at $1.9718, from $1.9599 yesterday.

The pound may fall to 81 pence per euro over the next three months, Halpenny said. That compares with a median forecast of 80 pence by the end of the third quarter in a survey of 19 economists compiled by Bloomberg.

The 3.5 percent jump in U.K. retail sales was the most since the series started in 1986, and compared with a decline of 0.3 percent in April, the Office for National Statistics said. Economists in a Bloomberg News survey forecast a 0.1 percent drop. Sales rose 8.1 percent on the year, the most since 2002.

`Take Action'

The U.K. inflation rate rose to more than a percentage point above the central bank's target in May, a government report showed June 17, forcing King to write a letter of explanation to Chancellor of the Exchequer Alistair Darling.

Investors increased bets the central bank will lift rates in the third quarter. The implied yield on the short-sterling futures contract due September rose 21 basis points to 6.33 percent. The odds of a rate rise jumped to 35 percent, from 9 percent yesterday, according to a Credit Suisse Group derivatives index.

``The Monetary Policy Committee is prepared to take whatever action is needed to return inflation to the 2 percent target and to keep expectations of inflation in the medium term anchored to the target,'' King said yesterday in his annual Mansion House speech.

`Times are Tough'

Darling, speaking at the same event, said the economy is headed for a slowdown. He suggested the impact of a worldwide squeeze in borrowing costs is continuing and called on companies to keep a lid on pay raises that may embed faster inflation.

``Times are tough,'' Darling said. ``Today's inflation must be tackled. We cannot be complacent.''

The market ``has read King's comments as taking back some of the dovish tone in his letter,'' said Jeremy Stretch, a senior currency strategist in London at Rabobank International, the third-largest Dutch bank. ``That has probably helped provide some support for sterling.'' The U.K. currency may trade as high as 78.50 pence per euro in the next week, he said

The Bank of England will probably raise its key interest rate by a quarter-point in August to 5.25 percent to curb inflation, Malcolm Barr, chief U.K. economist at JPMorgan Chase & Co., said in an e-mail today.

Government bonds fell for a second day, pushing the yield on the two-year gilt up by as much as 16 basis points to 5.54 percent. It was last at 5.48 percent. The price of the 4.75 percent security due June 2010 fell 0.22, or 2.2 pounds pence per 1,000-pound ($1,978) face amount, to 98.63.

The 10-year yield rose 9 basis points to 5.24 percent. Yields move inversely to bond prices.

The pound has dropped this month amid speculation flagging growth will prevent policy makers from raising rates even as inflation accelerates. HBOS Plc, the U.K.'s biggest mortgage lender, said house prices will fall as much as 9 percent this year, more than it earlier forecast.

`` We suspect the market is over-reacting to the retail sales figures,'' currency strategists at Brown Brothers Harriman & Co. in New York including Win Thin wrote in a client note. ``Other indicators point to a weakening of the economy and suggest these numbers may be a fluke.''

To contact the reporter on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net



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Forex - U.S. dollar firms slightly; Pound extends gains on strong retail sales

LONDON (Thomson Financial) - The dollar firmed slightly as a weak manufacturing survey was accompanied by further evidence of rising prices, while the pound continued to gain after shockingly strong UK retail sales data increased talk of a UK interest rate hike.

The latest Philly Fed survey of manufacturing in the mid-Atlantic region showed a further contraction in June, surprising economists who thought the situation would improve slightly from May. Worries about rising inflationary pressures remain, however, as the prices paid component jumped sharply, keeping alive the possibility that the Federal Reserve may begin to consider increasing U.S. interest rates.

The U.S. dollar also firmed against the euro as the single currency suffered sharp falls against the pound, falling to a three-week low.

The UK currency has been strengthening sharply across the board after Thursday's retail sales data, which showed a massive 3.5 percent month-on-month rise during May that confounded all expectations. The rise was the highest since records began in 1986.

"There is more talk of a rate hike in the UK now, especially after today's shocking retail sales data, coupled with the doom and gloom coming out of Mansion House last night," said Mic Mills, a trader at TradIndex.com.

Bank of England governor Mervyn King adopted a more hawkish stance at his annual Mansion House speech on Wednesday, stressing that the central bank will "take whatever action is needed to return inflation to the 2 percent target and to keep expectations of inflation in the medium term anchored to the target". He also warned that households may have to get used to the pain of high inflation over the coming year.

The comments caused the market to reassess the dovish interpretation of King's letter to Chancellor Alistair Darling on Tuesday after annual CPI inflation rose to 3.3 percent, where he said a rate hike now could harm the economy.

London 1630 GMT London 1600 GMT U.S. dollar yen 107.99 up from 107.66 Swiss franc 1.0462 up from 1.0438 Euro U.S. dollar 1.5488 down from 1.5491 pound 0.7852 down from 0.7868 yen 167.32 up from 166.82 Swiss franc 1.6212 up from 1.6171 Pound U.S. dollar 1.9731 up from 1.9686 yen 213.05 up from 211.99 Swiss franc 2.0642 up from 2.0550 Australian dollar U.S. dollar 0.9494 up from 0.9472 pound 0.4811 unchanged yen 102.55 up from 102.01 jessica.mortimer@thomsonreuters.com jkm/am COPYRIGHT Copyright Thomson Financial News Limited 2008. All rights reserved.

The copying, republication or redistribution of Thomson Financial News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Financial News.

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U.S. Stocks Advance, Led by Technology, Transportation Shares

By Elizabeth Stanton

June 19 (Bloomberg) -- U.S. stocks rose for the first time in three days as an almost $5-a-barrel drop in oil boosted transportation and consumer companies and technology shares rallied on forecasts for higher earnings at Broadcom Corp.

The market extended its gains after regional bank BB&T Corp. said it expects to increase its dividend this year, countering speculation it will slash the payout. Broadcom rallied the most since April after Lehman Brothers Holdings Inc. said the maker of computer chips is poised for steadier profit growth. Ryder Systems Inc. and Southwest Airlines Co. led nine of ten transportation companies in the Standard & Poor's 500 Index higher as crude slid.

The S&P 500 added 5.02 points, or 0.4 percent, to 1,342.83. The Dow Jones Industrial Average increased 34.03, or 0.3 percent, to 12,063.09. The Nasdaq Composite Index jumped 32.36, or 1.3 percent, to 2,462.07. More than three stocks rose for every two that fell on the New York Stock Exchange.


``If sentiment starts to develop that the economy's indeed bottomed, and oil prices could pull back a little bit, I think that would set off a pretty bullish atmosphere,'' James Paulsen, chief investment strategist of Wells Capital Management in Minneapolis, said on Bloomberg Television.

Among the 10 industries in the S&P 500, only energy producers declined. BB&T's announcement helped financial shares in the index gain after the group earlier plunged to a five-year low on Citigroup Inc.'s forecast for more writedowns from subprime-infected holdings.

Broadcom Rallies

Broadcom rose 7.6 percent to $27.22 for the biggest gain in the S&P 500. Lehman analyst Tim Luke increased his second-quarter earnings forecast for the maker of semiconductors used in Nintendo Co.'s Wii video-game console and said his third-quarter profit forecast may ``prove conservative'' as demand increases.

All but one of 18 semiconductor companies in the S&P 500 advanced as the group gained 2.5 percent. Intel Corp., the world's largest chipmaker, added 57 cents to $22.85.

Ryder, the largest U.S. truck-leasing company, rose $3.59 to $73.86. Southwest Airlines, the biggest low-fare carrier, climbed 66 cents to $14.80. Carnival Corp., the world's largest cruise- line company, added 5.4 percent to $36.84.

Crude's Plunge

Crude oil fell $4.75, or 3.5 percent, to $131.93 a barrel on speculation demand will decline after China said it will raise fuel prices starting tomorrow. China, the second-biggest fuel consumer after the U.S., will increase gasoline and diesel prices by 17 percent and 18 percent respectively, the National Development and Reform Commission said. Gasoline, natural gas and heating oil also fell.

Energy shares, the best performing of 10 industries in the S&P 500 over the past 12 months with an 17 percent gain, fell 2.1 percent as a group. Exxon Mobil Corp., the world's largest oil company, lost 2.3 percent to $85.79. Chevron Corp., the second- biggest U.S. oil company, dropped 2.4 percent to $96.86. The two companies fell the most in the Dow average.

BB&T, the third-biggest bank based in North Carolina, rose 2 cents to $24.35 after earlier plunging as much as 12 percent. BB&T said it stood by its April 17 statement that it expects ``some increase in the cash dividend during 2008.''

BB&T tumbled earlier after analysts at Sterne Agee & Leach Inc. said the bank may have to cut its dividend by 50 percent to preserve capital.

Fifth Third Bancorp, Ohio's second biggest bank, led the market lower yesterday after slashing its dividend and forecasting earnings below analysts' estimates.

Regionals Recover

Regional banks in the S&P 500 fell less than 0.1 percent as a group after sinking 5 percent earlier in the day.

Citigroup lost 23 cents, or 1.1 percent, to $20.17. The biggest U.S. bank will have ``substantial'' additional writedowns on its holdings of debt linked to the subprime mortgage market, Chief Financial Officer Gary Crittenden said on a conference call with investors hosted by Deutsche Bank AG.

American International Group Inc. rose 4.9 percent to $33.07 for the biggest gain in the Dow average. The world's biggest insurer was upgraded to ``buy'' by Citigroup Inc. analyst Joshua Shanker, who said investors have ``irrationally'' driven the company's shares down.

Coventry Health Care Inc. posted its worst decline in nine years, dragging down larger insurers UnitedHealth Group Inc. and WellPoint Inc., after cutting its profit forecast.

Coventry tumbled 22 percent to $31.30. The managed-care provider said higher medical costs and increased patient claims would hurt second-quarter profit.

Health Insurers Tumble

UnitedHealth, the largest U.S. health insurer, dropped 7.7 percent to $27.89. WellPoint, the second-biggest, lost 5.2 percent to $49.28. Aetna Inc., the third-largest, declined 1.8 percent to $41.85. Health insurers in the S&P fell 6.4 percent as a group, their steepest tumble since March.

Huntsman Corp. plunged the most ever after buyout firm Apollo Management LP and its Hexion Specialty Chemicals Inc. unit sued to back out of an agreement to acquire the chemical maker for $6.54 billion. Huntsman dropped $8, or 38 percent, to $12.86, the most since it went public three years ago.

To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net





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Bear Stearns ex-managers arrested

Two former managers at investment bank Bear Stearns have been arrested in New York over the collapse of the bank's hedge fund last year.

Reports say Ralph Cioffi and Matthew Tannin will face charges in connection with their management of hedge funds that collapsed in June 2007.

The bank's hedge funds bet on the high-risk sub-prime mortgage market in the US before it collapsed.

Authorities in Brooklyn are due to give details about the case later.

FBI spokesman Jim Margolis told the BBC the men faced criminal charges of "securities fraud related to their management of two Bear Stearns hedge funds".

The men are due to appear in the US Federal Court in Brooklyn later this afternoon local time.

If charged, the men would become the first Wall Street executives to face criminal charges related to the US sub-prime mortgage crisis.

Sub-prime mortgages, loans issued to people with a poor credit history, were repackaged as securities and sold across the globe.

The collapse of these hedge funds preceded Bear Stearns' own demise earlier this year.

In March, JP Morgan agreed to buy Bear Stearns with backing of the US Federal Reserve. The deal was approved by Bear Stearns shareholders last month.

Bear Stearns was one of the most high-profile victims of the credit crunch, which was triggered by bank losses linked to the US housing market.

The Fed took swift action over the situation at Bear Stearns to prevent problems spreading to the rest of the international financial sector.

Taken From : www.news.bbc.co.uk




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UK Retail Sales Should Be Taken With a Grain of Salt, Say Economists

European Economy | Written by CEP News

Economists and analysts are taking May's results in UK retail sales with a grain of salt after the Office of National Statistics announced a 3.5% month-over-month rise in sales, up from both the 0.1% fall expected and the 0.3% decline recorded in the previous month.

April's figure was revised down from an initial decline of 0.2%.

Annual retail sales jumped 8.1%. Economists had expected an increase of 4.1% in May following April's 3.8% rise, revised down from an initial growth rate of 4.2%.

Raymond Van der Putten of BNP Paribas does not think the Bank of England will take the data very seriously. "It is unlikely that the MPC will blindly accept today's data. It tends to give greater weight to the observations by its own regional contacts," adding, "In the June Minutes, the Committee noted that the observed strength in consumer spending in Q1 is likely to be revised down once more data have become available."

The data was also sharply different from a survey conducted by the Confederation of British Industry for May which saw a reading of -14 compared to -26 in April.

"Given the backdrop of sharply rising inflation and plummeting confidence, we continue to think that the official sales figures should be taken with a pinch of salt," said Ben May of Capital Economics. "Indeed, the CBI retail sales survey and the official figures have recently diverged sharply."

Meanwhile the British Retail Consortium issued a statement saying "These official figures confirm our own findings that retail sales growth was lifted by the final arrival of warm weather in early May. As the sun came out so did shoppers, boosting sales of summer food and drink and particularly clothing which had been struggling."

The BRC's total retail sales figure for May grew 4.6% month-over-month and same store sales moved higher by 1.9%. On a three-month basis, total sales advanced by 2.1% in May, but same store sales declined 0.5%.

"However, the economic fundamentals remain weak. Much of this sales growth is the result of discounts and promotions and people are still reluctant to buy more expensive items, such as furniture and electricals," added the BRC press release on Thursday.

The data also have economists speculating on how the Bank of England will interpret the news.

"The number is surprising in two ways: 1) Surveys have been weak across the board, and 2) Fundamentals for UK consumers are weak, with inflation expectations rising. We are a bit sceptical of the strength but it does increase the risk that the Bank of England could follow the ECB and send a "warning shot" to anchor inflation expectations," according to a research note from Danske Bank. "We still believe this probability is below 50%, though, and hence are not changing our forecast of the Bank of England on hold for now, followed by rate cuts next year."

On Wednesday evening, Bank of England Governor Mervyn King said, "Growth is now slowing quite sharply," speaking at the Lord Mayor's Banquet for Bankers and Merchants in London, and commented that it is "impossible to judge now" where interest rates must go to bring inflation back to target levels.

"It is, however, also worth bearing in mind that BoE Governor King would have known this number when he gave his Mansion House speech last night," said Simon Hayes of Barclays Capital Economics. "Notwithstanding that fact, Mr King was downbeat on growth and household demand, saying that growth was 'slowing quite sharply' and that both house prices and consumer spending would weaken further in response to the squeeze in real household incomes. This suggests that he at least does not set too much store by this number as a guide to future activity."

Nevertheless, markets took the news seriously, according to a report from RBC Capital Markets. "GBP/USD rallied to a high of 1.9717 and EUR/GBP fell to just above the month's low after an extremely upbeat May UK retail sales report and as implied forward UK rates rose as much as 25bp," according to Adam Cole, head of FX strategy in London.

"While, like ourselves, the Bank will likely take this report with a pinch of salt, this release underlines the fact that the threat of an ECB-style 'fine tuning' hike will remain significant over the near term. We suspect that August represents the most likely date for just such a move (coinciding with the next Inflation Report) but the risk is now clearly slanted to those members who discussed a pre-emptive hike in June, voting for higher rates in July," he added.

By Erik Kevin Franco, efranco@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it with contributions from Todd Wailoo, twailoo@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it and Patrick McGee, pmcgee@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it , edited by Cristina Markham, cmarkham@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it

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Darling sets out new Bank remit

Chancellor Alistair Darling has outlined plans to give the Bank of England new responsibilities in his Mansion House speech.

Speaking in his first keynote address to business leaders, the chancellor said the Bank would now be accountable for the UK's financial stability.

This is in addition to its statutory objective of setting interest rates.

The radical new measures come in the wake of the collapse of Northern Rock amid global credit problems.

Part of the reforms will include setting up a new Financial Stability Committee, which will guide the Bank's operations in this field.

"It will bring valuable, external expertise with City experience to bear on the Bank's decision making," he said.

"The challenge for us is to ensure that the authorities can act quickly and decisively where necessary to support financial institutions," Mr Darling added.

He intimated that the proposals would clarify and enhance the powers of the Bank of England and the UK financial watchdog, the Financial Services Authority, and improve co-ordination between the regulators.

More details will come in a letter to the Treasury Select Committee chairman John McFall on Thursday.

'Tough times'

Mr Darling also addressed inflation risks, saying "times are tough".

He said consumer inflation, which reached 3.3% in May, must be tackled and called again for pay restraint in both the private and public sector.

But he dismissed suggestions that the most recent inflation figures show we are returning to the days of the 1970s when economic growth was falling, while prices were rising by 26%.

Upbeat that the UK would continue to grow despite "global difficulties", he said: "Independent forecasters expect UK inflation to fall back next year.

"Employment is at a record high. Many order books are full. British business is competing and winning all over the world. Our economy is flexible and resilient."

The chancellor's optimism was tempered by comments from the Bank of England Governor Mervyn King, who offered a grimmer picture of the economic reality.

He said that rising fuel, gas, electricity and food prices will mean that average take-home pay will "stagnate" this year, but warned that pay settlements must remain low to bring inflation back to the government's target of 2%.

Insisting that the Bank's rate-setting Monetary Policy Committee (MPC) "is prepared to take whatever action is needed" to bring inflation down, the suggestion is that higher wage settlements may result in higher interest rates.

'Right framework'

He said that the Bank had the "right framework" to make sure inflation returns to the government's 2% target and that economic growth recovers.

But he added that no monetary policy could prevent the current effects of rising food and energy prices on living standards.

Neither could interest rate cuts coax banks, which are currently re-evaluating risk and keeping a tight grasp on their balance sheet, to be more generous in their lending to house buyers.

And he warned that higher living costs were likely to restrain consumer spending to a far greater extent than tighter lending conditions as a result of the credit crisis.

"It will not be an easy time, and I know that some families will find it particularly difficult."

But he said these pressures would be temporary - the opposite side of the coin to the falls in price of manufactured goods from countries such as India and China, which over the past few years allowed our standard of living to rise at a rate faster than productivity.

Mr King also welcomed the chancellor's plans to increase the Bank's responsibilites that will come in the form of a Banking Bill.

This he said provided an opportunity to put in place a set of reforms that "provide a coherent framework for banking regulation".

"It is an opportunity we must not throw away," he added.

Criticised

The chancellor's speech was criticised by the Conservative Party.

Shadow chief secretary to the Treasury Philip Hammond called it a "missed opportunity".

"Gordon Brown's reputation for economic competence has gone bust and this was the big test of whether the chancellor had the vision to steer Britain's economy through these difficult times," he said.

"What Britain needed from the Mansion House speech was a display of economic leadership. Instead all we got were re-hashed announcements and no new ideas."

Taken From: http://news.bbc.co.uk

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U.S., China Agree to Investment Treaty Talks, Clash on Currency

By John Brinsley and Li Yanping

June 19 (Bloomberg) -- China and the U.S. agreed to negotiate an investment treaty and urged each other to strengthen their exchange rates in the fourth round of semiannual economic talks.

Treasury Secretary Henry Paulson said he was content to have ``frank'' exchanges on currency issues and hailed the Strategic Economic Dialogue for deepening the two nations' engagement. The countries also signed a 10-year deal aimed at ensuring the world's two biggest oil-consuming nations have enough energy to power their economies.

The Treasury chief, who started the SED in 2006, steered the forum toward energy security, environmental protection and financial-market access that can be taken up by the next U.S. administration after January.

``Paulson will be making the case that there's been enough progress in opening China's markets to continue this dialogue in some form in the next administration,'' said Charles Freeman, a fellow at the Center for Strategic and International Studies and a former top U.S. trade official on China.

Paulson and China's Vice Premier Wang Qishan led two days of talks in Annapolis, Maryland that spanned trade and investment issues to food safety, intellectual property rights and protecting the environment.

Heading into the meetings, Paulson called on China to end price controls on domestic fuels, a request that went unheeded during the SED. As at past gatherings, he urged China to let markets play a bigger role in setting the yuan's value, and on that issue China also gave no new ground.

Pressing on Yuan

``I welcome the recent increased pace of appreciation of the renminbi,'' Paulson said in a press conference in Washington yesterday, using another term for the yuan. Greater ``flexibility'' in the yuan is ``a crucial tool in controlling inflation'' for China, he said.

China's officials responded by flagging concerns about the dollar's decline, which People's Bank of China Governor Zhou Xiaochuan said had pushed up commodity prices around the world.

``Emerging economies are feeling the pinch,'' Zhou said on June 17. ``A weakening dollar may push up prices of commodities such as crude oil.''

Chinese Assistant Finance Minister Zhu Guangyao said yesterday that ``excessive depreciation is not to the interest of all countries including the U.S.'' Zhu urged the U.S. to ``plan a responsible role in terms of the dollar issue.''

Paulson said he didn't have an issue with the comments, reiterating his confidence that U.S. competitiveness is ``going to be reflected in our currency value.''

`On the Offensive'

China ``has also gone on the offensive'' on exchange-rate discussions, Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York, wrote in a note to clients.

Paulson and Wang signed an accord between the world's two biggest greenhouse-gas emitters to cooperate on energy and the environment, focusing on air, water, clean sources of power, transportation, and conservation of forests and wetlands.

U.S. officials have urged China to drop tariffs on environmental equipment, saying such barriers hinder efforts to clean up a country that the World Bank says has 16 of the world's 20 most-polluted cities.

The two sides also agreed to start negotiations on an investment treaty that would grant easier access for companies to buy assets in the other country.

The talks may take at least a year to complete, one U.S. official said on condition of anonymity yesterday. That puts them beyond President George W. Bush's administration, which ends Jan. 20.

Timing Issue

``We are concerned about the timing,'' House Ways and Means Committee Chairman Charles Rangel, a New York Democrat, wrote in a letter to Paulson. The administration ``should make clear to China that all major decisions in the negotiations will necessarily be left to the next president,'' he wrote.

China would be the largest country with which the U.S. signed an investment treaty, and the talks come as American firms seek greater access to the world's fastest-growing major economy. U.S. business groups representing companies such as Citigroup Inc. have pushed China to allow a greater role for overseas enterprises.

An investment pact may also benefit China as it pushes state-owned companies including oil explorer Cnooc Ltd. and smelter Aluminum Corp. of China Ltd. to buy oilfields and mines abroad to feed its expanding economy. Cnooc in 2005 failed in a bid to buy El Segundo, California-based Unocal Corp. because of U.S. lawmaker opposition.

Financial Deals

The Treasury said China agreed to allow non-deposit-taking foreign companies provide consumer finance ``on a pilot-project basis'' and to let foreign firms list on its stock exchanges through issuing shares or depository receipts.

China will also ease requirements for foreign banks to issue subordinated, yuan-denominated bonds. Authorities will conduct a review by year-end of foreign participation in Chinese securities, futures and fund management firms and make policy recommendations, according to a joint statement released by the two sides.

China pledged to consider participating with other countries to ease oil-market disruptions, through an International Energy Agency initiative.

John Engler, president of the U.S.'s National Association of Manufacturers, said the SED, ``while not achieving everything we had hoped, has had a positive effect.''

Washington-based Engage China, a coalition of 10 financial- services trade groups, called the results ``modest.''

The next SED meeting is scheduled for December in Beijing.

To contact the reporters on this story: John Brinsley in Washington at jbrinsley@bloomberg.netRob Delaney in Washington at robdelaney@bloomberg.net

Last Updated: June 18, 2008 20:55 EDT

Taken From :http://www.bloomberg.com


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Bernanke May Regret Interest-Rate Cuts, Lawson Says

By Kim-Mai Cutler

June 18 (Bloomberg) -- Former U.K. Chancellor of the Exchequer Nigel Lawson said Federal Reserve Chairman Ben S. Bernanke may be ``regretting'' the fastest pace of U.S. interest-rate cuts since 1984 as global inflation accelerates.

The Fed reduced its benchmark rate by 3.25 percentage points to 2 percent between September and April 30 to stave off a recession following the collapse of the U.S. subprime-mortgage market. The Bank of England, also facing a slowdown, cut its key rate by 0.75 percentage point to 5 percent. The European Central Bank left rates unchanged at 4 percent for a year and signaled this month it may raise them in July.

``The Bank of England has been very cautious and careful and it has been much closer to the views of the European Central Bank,'' Lawson, 76, who was finance minister from 1983 to 1989 under former Prime Minister Margaret Thatcher, said in a telephone interview. ``It has not gone conspicuously the way of the Fed, where I suspect that Mr. Bernanke's now regretting it.''

U.S. consumer prices rose 0.6 percent in May, the most since November, the Labor Department said June 13. Inflation in the euro area accelerated last month to a 3.7 percent annual rate, the fastest since June 1992, the European Union reported June 16.

Inflation caused by rising commodity prices is the biggest threat to the world economy, eclipsing concern about the seizure in the credit markets, finance ministers from the Group of Eight nations said June 14. The World Bank said on June 10 that global economic growth will probably slow to 2.7 percent this year from 3.7 percent in 2007.

Oil `Bubble'

Rising food prices and a ``speculative bubble'' in oil markets will prompt central banks to lift rates, leading to a ``growth recession'' where the rate of expansion is lower than historical trends, Lawson said in the interview.

Crude oil rose 95 percent from a year ago and traded at an all-time high of $139.89 a barrel in New York June 16. Corn for December delivery also traded at a record $7.915 in Chicago.

``Most of the central banks are very, very clear on just how dangerous it is to let inflationary expectations get out of hand,'' he said.

Traders see a 48 percent chance the Fed will raise its target rate for overnight bank loans from 2 percent as early as August, up from 4.1 percent odds a month ago, futures contracts on the Chicago Board of Trade show. The chances of an increase in October are 99 percent, the contracts show.

Michelle Smith, a Fed spokeswoman in Washington, declined to comment on Lawson's remarks.

`Shallow' Recession

The slowdown in the U.K. is going to last ``longer than most people expect,'' while remaining ``shallow,'' Lawson said. The economy, the second-largest in Europe, grew 0.4 percent in the first quarter, its weakest pace since 2005, as higher credit costs hurt construction and business services slowed, according to the Office for National Statistics.

``This is the hangover after the binge,'' Lawson said. ``It's going to be very, very difficult for the next two to three years for the global economy.''

The U.K. won't adopt the euro in place of the pound as a global slowdown heightens tensions between members of the 27- nation European Union, Lawson said. Ireland vetoed the bloc's new government treaty June 13, sinking an agreement that needed ratification by all EU countries.

``There are going to be considerable strains within the euro area,'' Lawson said. ``There are going to be a number of countries that found the single currency satisfactory during the benign period, that are now going to hurt much more under these difficult conditions.''

To contact the reporter on this story: Kim-Mai Cutler in London at kcutler@bloomberg.net

Last Updated: June 18, 2008 08:02 EDT

Taken From :http://www.bloomberg.com

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Gold, Silver Rise on Speculation Fed Won't Raise Rates Soon

By Pham-Duy Nguyen

June 18 (Bloomberg) -- Gold and silver rose on speculation that a slowing U.S. economy will deter the Federal Reserve from raising borrowing costs, boosting the appeal of precious metals as alternative investments to the dollar.

Financial futures show a 12 percent chance the Fed will raise the benchmark interest rate by 0.25 percentage point to 2.25 percent next week, compared with a 26 percent chance yesterday. Gold rallied 39 percent from Sept. 17 to March 17 as the Fed reduced rates from 5.25 percent.

``The odds of rate increases have gone down,'' said Matt Zeman, a trader at LaSalle Futures Group in Chicago. ``We're still losing jobs, and housing is incapable of turning around. The dollar has very limited upside potential.''

Gold futures for August delivery rose $6.60, or 0.7 percent, to $893.50 an ounce on the Comex division of the New York Mercantile Exchange.

Silver futures for July delivery rose 26.5 cents, or 1.6 percent, to $17.34 an ounce. The price has advanced 16 percent this year, while gold climbed 6.6 percent.

Silver has climbed 2.9 percent in the past week. A drop to $16 or a rally above $18.20 will attract buyers, Zeman said.

Gold generally moves in the opposite direction of the dollar, which was little changed against a weighted basket of six major currencies after dropping 0.9 percent in the previous two days.

Home Foreclosures

The Mortgage Bankers Association this month reported that the number of Americans in danger of losing their homes to foreclosure rose to the highest in at least three decades during the first quarter as borrowers who fell behind on payments were unable to sell their properties.

Investors also purchased precious metals to hedge against inflation. The UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials climbed for a sixth straight session to a record 1650.68. Gold reached an all-time high of $1,033.90 an ounce on March 17, and crude oil, gasoline, copper, corn, soybeans and wheat climbed to records this year.

``There's a tremendous amount of inflation percolating through this system,'' said Frank McGhee, the head metals trader at Integrated Brokerage Services LLC in Chicago. ``Any weakness in the dollar and strength in crude will allow gold to rally significantly.''

To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.

Last Updated: June 18, 2008 14:20 EDT

Taken From :http://www.bloomberg.com


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Bank and economic fears drive Dow to 3-month low

Wed Jun 18, 2008 7:01pm EDT

By Walker Simon

NEW YORK (Reuters) - The Dow industrials sank to their lowest close in three months on Wednesday after slipping below 12,000 for the first time since mid-March, as worries about a weak economy compounded credit sector concerns and drove shares of banks, autos and transportation companies sharply lower.

Triggering fears of a slowing economy, FedEx Corp, forecast dismal profits as rising fuel costs could sap demand. Shares of the package delivery company, closely watched by Wall Street as a proxy for U.S. business activity, fell 2.1 percent to $82.60 on the New York Stock Exchange.

Adding to the bleak outlook for bank stocks, Fifth Third Bancorp sank 27 percent to $9.26 and ranked among the Nasdaq's biggest percentage losers. The Midwestern bank said it would cut its dividend and raise $2 billion in capital, stirring fears that the credit crisis was tightening its grip on commercial banks.

A 2 percent rise in oil prices above $136 a barrel compounded concerns about rising raw material costs.

The Dow fell to an intraday low at 11,993.64 -- its lowest level since the Federal Reserve's mid-March rescue of Bear Stearns rattled investors who were already worried about the health of the banking sector.

"The autos, financials and transport sectors are very sensitive to the perception that economic growth is waning," said Bruce Zaro, chief technical strategist at Delta Global Advisors in Boston. "We've had little evidence the economy is at (its) bottom."

Worries were surfacing over the reading of the U.S. second-quarter gross domestic product, due in July, he said. A Reuters poll of economists see the GDP's growth rate slowing to an annual pace of 0.2 percent in the second quarter, which would be the weakest since 2002.

The Dow Jones industrial average .DJI tumbled 131.24 points, or 1.08 percent, to 12,029.06 -- its lowest close since March 17.

The Standard & Poor's 500 Index .SPX fell 13.09 points, or 0.97 percent, to 1,337.81. The Nasdaq Composite Index dropped 28.02 points, or 1.14 percent, to 2,429.71.

Shares of General Motors Corp fell 5.9 percent to $14.89, ranking as the Dow's biggest percentage loser. GM touched $14.75, its lowest level since the recession of 1982.

Shares of rival Ford Motor Co fell 5.8 percent to $6.22 on the NYSE.

GM's stock fell after Deutsche Bank cut the industry-wide outlook, saying leading indicators pointed toward continued "recessionary levels" of demand.

The KBW index .BKX, which includes money-center banks like Bank of America, slid 4.2 percent to an intraday low at 62.36, its lowest since October 2002, after Fifth Third's plan prompted investors to dump other banks' shares.

At the close, the KBW bank index was down 2.9 percent at 63.21.

Bank of America shares lost 3 percent to $28.37 on the New York Stock Exchange, while SunTrust Banks, a regional bank company whose stock is also in the KBW index, sank 9 percent to $36.95 in NYSE trading.

Shares of FedEx rival UPS dropped 2.3 percent to $65.80.

A rare bright spot was provided by Boeing, whose shares rose 0.4 percent to $74.65 after the U.S. Government Accountability Office, a nonpartisan auditing arm of Congress, recommended the Air Force reopen a competition to award a refueling tanker program, potentially worth $35 billion.

In February, the Air Force awarded the contract to rival Northrop Grumman Corp and its European partner EADS. Shares of Northrop fell 1.4 percent and stock of EADS, the parent of Airbus, fell 3.4 percent to 13.55 euros.

Only four of the Dow's 30 components finished higher, with Boeing leading that list.

U.S. crude oil for July delivery rose $2.67 to settle at $136.68 a barrel, up 2 percent for the day.

Trading was moderate on the New York Stock Exchange, with about 1.28 billion shares changing hands, well below last year's estimated daily average of roughly 1.90 billion, while on Nasdaq, about 2.07 billion shares traded, below last year's daily average of 2.17 billion.

Declining stocks outnumbered advancing ones by a ratio of about 5 to 2 on both the NYSE and the Nasdaq.

Taken From :http://www.reuters.com


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PRECIOUS METALS: Gold, Silver Futures Close Higher, Dollar Drops

Natalie Simmons

18 June 2008 @ 04:19 pm EST

New York - Gold futures rose on Wednesday on speculation that a slumping U.S. economy will prevent the Federal Reserve from lowering interest rates, while soaring oil prices and a weaker dollar boosted the demand for the precious metal.

Gold futures for August delivery rose $6.60, or 0.7 percent, to $893.50 an ounce on the Comex division of the New York Mercantile Exchange. Gold rallied 39 percent from Sept. 17 to March 17 as the Fed reduced rates from 5.25 percent.

"Although as yet unable to break out of the price channel it has carved out recently, gold looked quite a bit more buoyant today," said Jon Nadler, senior analyst at Kitco Bullion Dealers, in a research note.

"However, aside from short-term fund plays following various economic or geopolitical news items, the bulk of would-be players remained sidelined ahead of next week's Fed meeting," he said.

In currency trading, the dollar took a downturn as traders reconsidered bets that the Federal Reserve will be raising interest rates later this year as economic woes continue to hit stocks.

The dollar index , which tracks the performance of the greenback against other major currencies, fell 0.1 percent to 73.44.

Weakness in the U.S. dollar typically benefits dollar-denominated commodities, such as gold and crude oil, because it makes them cheaper for holders of other currencies.

Crude-oil futures closed higher Wednesday, recovering from their lowest level in more than a week after a rise in refinery activity helped boost distillate inventories, crude supplies have been declining since mid-May. Crude closed at $136.68 a barrel, its strongest closing level since June 12, up $2.67 on the New York Mercantile Exchange.

Also on the Nymex, July platinum gained $27.60 to $2,091.90 an ounce. September palladium added $7.95 to $471.80 an ounce and July copper futures rose 10 cents to $3.75 a pound.

This article is copyrighted by International Business Times.

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