By Patricia Lui
June 25 (Bloomberg) -- India's decision to raise interest rates by the most since 2000 will fail to reverse the rupee's slide as the nation's current-account deficit widens on oil import costs, according to Goldman Sachs Group Inc.
The Reserve Bank of India raised its key repurchase rate for the second time in two weeks yesterday and signaled more will follow as oil's rally to a record this month pushed the inflation rate to the highest in 13 years. The rupee's 6.3 percent decline this quarter made it the second-worst performer among Asia's 10 most-active currencies excluding the yen.
``Given India's increasing current account deficit, high dependence on oil imports and inflation concerns, we expect the rupee to continue to weaken,'' wrote Tushar Poddar and Pranjul Bhandari, Goldman's Mumbai-based analysts, in a note yesterday.
The rupee strengthened 0.4 percent to 42.7910 against the dollar as at 12:24 p.m. in Mumbai, according to data compiled by Bloomberg. Goldman retained its forecast for the rupee to fall 2.5 percent against the dollar to 43.9 in three months and to 44.1 in six months.
The Reserve Bank raised the repurchase rate by 0.5 percentage point late yesterday to 8.5 percent and increased the cash-reserve ratio by a similar amount to 8.75 percent. On June 11, the central bank had raised the repurchase rate by 0.25 percentage point for the first time in 15 months, as the wholesale price index jumped 11.05 percent in the first week of June, the most since May 1995.
Selling Equities
Global funds, spooked by accelerating inflation, have dumped $6.3 billion more Indian shares than they bought this year, compared with a record net purchase of $17.2 billion in 2007. The benchmark Bombay Stock Exchange Sensitive Index, or Sensex, has slumped 30 percent in 2008, following a 47 percent advance last year.
``We remain bearish on rupee's medium-term prospects, owing to the continued pressure on the current account and simultaneous slowdown in net capital flows,'' JPMorgan Chase & Co.'s analysts Vikas Agarwal and Siddharth Mathur wrote in a research report yesterday. ``Likely bearish equity market reaction to the central bank's strong-dosage prescription could trigger withdrawals by foreign investors.''
The central bank's actions are ``positive'' and ``welcome'' moves, Goldman and JPMorgan said.
``The rupee may gain a brief reprieve,'' Mumbai-based Agarwal and Singapore-based Mathur said, as the higher cost of funds and the central bank's intervention to support the currency will ``temporarily soften the upward pressure on the dollar against the rupee.''
The Reserve Bank will likely raise the repurchase rate and cash reserve ratio again this year to rein in price pressures, the analysts at both the banks predicted.
JPMorgan also kept its forecast for the rupee to weaken to 45 a dollar by the end of the third quarter and to stay there until year-end.
To contact the report on this story: Patricia Lui in Singapore at plui4@bloomberg.net.
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Wednesday, June 25, 2008
Australian, N.Z. Dollars Rise as Fed May Delay Raising Rates
By Lilian Karunungan and Ron Harui
June 25 (Bloomberg) -- The Australian and New Zealand dollars climbed on speculation the Federal Reserve will delay raising interest rates, maintaining the yield advantage offered by the two South Pacific nations.
Australia's dollar, known as the Aussie, rose to a two-week high as traders pared bets the Fed will increase borrowing costs after U.S. reports yesterday showed consumer confidence fell to a 16-year low and housing prices slumped. New Zealand's dollar, nicknamed the kiwi, ended two days of losses as investors were attracted to the nation's 8.25 percent benchmark interest rate, the highest of any country with an Aaa credit rating.
``We still expect the Fed to hold steady,'' said Emmanuel Ng, a currency strategist at Oversea-Chinese Banking Corp. in Singapore. ``The yield advantage will be there. That continues to underpin the other dollars like the Aussie and the kiwi.''
Australia's dollar rose to 95.60 U.S. cents as of 4:39 p.m. in Sydney from 95.36 cents late in Asia yesterday. It has risen 4.6 percent this quarter and 8.9 percent this year. The currency advanced to 103.35 yen, the strongest since Nov. 9, before trading at 103.12 yen from 102.97 yen. It has climbed 13.3 percent versus the yen this quarter.
New Zealand's dollar strengthened to 75.65 U.S. cents from 75.56 cents yesterday. It has fallen 4.2 percent this quarter and 2.2 percent this year. The currency, which has gained 3.7 percent this quarter, was unchanged at 81.60 yen.
Rate Futures
Futures contracts on the Chicago Board of Trade show a 35 percent chance the Fed will increase its target rate for overnight lending between banks by at least a quarter-point at its August meeting, down from 47 percent odds a week ago. There is a 10 percent chance the Fed will raise borrowing costs at its two-day meeting ending today, the contracts show.
Benchmark interest rates are 7.25 percent in Australia and 8.25 percent in New Zealand, compared with 2 percent in the U.S. and 0.5 percent in Japan.
``The scaling back of Fed tightening expectations saw U.S. yields fall, increasing the interest-rate support for the New Zealand dollar,'' said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington. Still, ``worries about the sharp slowdown in the New Zealand economy should continue to temper gains.''
New Zealand's economy may have contracted 0.3 percent in the first three months of the year, according to the median forecast of 13 economists surveyed by Bloomberg News before the government reports the figure on June 27. Seven said the economy may also shrink in the second quarter, pushing New Zealand into its first recession since 1998.
There's a 28 percent chance the Reserve Bank of New Zealand will cut its 8.25 percent benchmark rate by a quarter-percentage point at next month's meeting, according to a Credit Suisse Group index based on trading in interest-rate swaps.
Bonds Gain
Australian government bonds gained, pushing the yield of the 10-year security down 7 basis points to 6.49 percent, according to data compiled by Bloomberg. The price of the 5.25 percent note due March 2019 rose 0.525, or A$5.25 per A$1,000 face amount, to 90.561.
New Zealand's government bonds rose with the yield on the benchmark 10-year note dropping 2 basis points to 6.42 percent. A basis point is 0.01 percentage point.
To contact the reporter on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net
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Euro May Reach 169 Yen If It Stays Over 167.59, Mitsubishi Says
By Kosuke Goto
June 25 (Bloomberg) -- The euro may rise to a record 169 Japanese yen should it stay above its five-day moving average, said Masashi Hashimoto, a senior currency analyst at Bank of Tokyo-Mitsubishi UFJ Ltd.
The current five-day moving average is 167.59 and represents a level of so-called support, Tokyo-based Hashimoto said, citing technical charts traders use to predict price movements. The euro reached a record high of 168.99 yen on July 23. Support is an area where buy orders may be clustered.
``Should the euro stay beyond its five-day moving average, and should the average show the upward trend, the euro will have a high chance to reach its record high set on July 23,'' said Hashimoto at the unit of Japan's largest publicly traded financial group.
Europe's single currency traded at 167.82 yen at 11:58 a.m. in Tokyo, from 167.85 in New York yesterday, when it touched 168.38, the weakest since July 23.
If the euro rises beyond 169 yen, it may climb to 173.60, which is a 123.6 percent reversal of its decline to 149.27 on August 17 from a high of 168.99 on July 23, based on a series of numbers known as the Fibonacci sequence, Hashimoto said.
Other Fibonacci points are 38.2 percent, 50 percent and 61.8 percent. A break of one indicates a currency may move to the next, and a failure suggests a decline or a gain may stall.
Traders typically look for evidence of a currency's short- term trend by using the five-day moving average, and seek to predict two- to three-week trends with the 21-day moving average. They use moving averages to identify levels of support, where they expect buying, or resistance, where they expect selling.
In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index.
To contact the reporter on this story: Kosuke Goto in Tokyo at kgoto2@bloomberg.net.
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June 25 (Bloomberg) -- The euro may rise to a record 169 Japanese yen should it stay above its five-day moving average, said Masashi Hashimoto, a senior currency analyst at Bank of Tokyo-Mitsubishi UFJ Ltd.
The current five-day moving average is 167.59 and represents a level of so-called support, Tokyo-based Hashimoto said, citing technical charts traders use to predict price movements. The euro reached a record high of 168.99 yen on July 23. Support is an area where buy orders may be clustered.
``Should the euro stay beyond its five-day moving average, and should the average show the upward trend, the euro will have a high chance to reach its record high set on July 23,'' said Hashimoto at the unit of Japan's largest publicly traded financial group.
Europe's single currency traded at 167.82 yen at 11:58 a.m. in Tokyo, from 167.85 in New York yesterday, when it touched 168.38, the weakest since July 23.
If the euro rises beyond 169 yen, it may climb to 173.60, which is a 123.6 percent reversal of its decline to 149.27 on August 17 from a high of 168.99 on July 23, based on a series of numbers known as the Fibonacci sequence, Hashimoto said.
Other Fibonacci points are 38.2 percent, 50 percent and 61.8 percent. A break of one indicates a currency may move to the next, and a failure suggests a decline or a gain may stall.
Traders typically look for evidence of a currency's short- term trend by using the five-day moving average, and seek to predict two- to three-week trends with the 21-day moving average. They use moving averages to identify levels of support, where they expect buying, or resistance, where they expect selling.
In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index.
To contact the reporter on this story: Kosuke Goto in Tokyo at kgoto2@bloomberg.net.
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Japan Stocks Fall as Developer Default Sparks Financial Concern
By Masaki Kondo
June 25 (Bloomberg) -- Japan's stocks fell, sending the benchmark index to its longest losing streak this year, on mounting doubts about the financial health of developers and consumer-finance companies.
Mitsui Fudosan Co. sent real-estate companies lower after a smaller rival filed for bankruptcy, while consumer lender Aiful Corp. tumbled to the lowest in a decade. Mazda Motor Corp., which exports 80 percent of domestic production, dropped on signs the U.S. economy is slowing.
``We may see more condominium developers go under as falling wages reduce demand, forcing builders to cut prices,'' said Naoki Fujiwara, who oversees the equivalent of $720 million as chief fund manager at Shinkin Asset Management Co. ``Non-performing loans are certainly on the rise among consumer lenders.''
The Nikkei 225 Stock Average sank 19.64, or 0.1 percent, to close at 13,829.92 in Tokyo, extending its drop to a fifth day. The broader Topix index fell 3.11, or 0.2 percent, to 1,346.08.
To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net.
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European Stock-Index Futures Are Little Changed; BHP May Slip
By Adria Cimino
June 25 (Bloomberg) -- European stock-index futures were little changed before the Federal Reserve ends a two-day meeting at which policy makers are expected to halt a run of seven interest-rate cuts.
BHP Billiton Ltd, the world's biggest mining company, and Rio Tinto Group dropped in Australia as metals prices retreated. Scor SE may gain after UBS AG recommended shares of France's biggest reinsurer.
Futures on the Dow Jones Euro Stoxx 50 Index, a benchmark for the euro region, fell 2, or less than 0.1 percent, to 3,432 at 7:05 a.m. in London. The U.K.'s FTSE 100 Index may decrease 9, according to Cantor Index, a betting firm.
Fed Chairman Ben S. Bernanke may signal today that inflation is now the biggest risk facing the economy as the central bank holds the benchmark rate at 2 percent today, stopping the fastest series of reductions in two decades, according to economists surveyed by Bloomberg News.
The Stoxx 600 has tumbled 19 percent this year on concern accelerating inflation, record oil prices and credit-related losses approaching $400 billion will erode economic and profit growth.
U.S. stocks retreated to a three-month low yesterday after consumer confidence weakened and United Parcel Service Inc. said rising fuel costs will reduce profit. Asian stocks today fell for a fifth day.
BHP, Rio Tinto
BHP Billiton sank 4.1 percent in Australia, while Rio Tinto, the world's third-largest mining company, lost 3.7 percent.
Platinum futures in Tokyo headed for their longest losing streak in 10 months. Gold also slid.
Scor was upgraded to ``buy'' from ``neutral'' at UBS, which cited low exposure to U.S. windstorms and an ``attractive'' earnings profile.
Swiss Reinsurance Co., the world's largest reinsurer, was raised to ``neutral'' from ``sell'' at UBS.
J.D. Wetherspoon Plc, the owner of almost 700 U.K. pubs, and Mitchells & Butlers Plc may climb after Goldman Sachs Group Inc. raised its recommendation on the shares.
J.D. Wetherspoon and Mitchells & Butlers, the owner of O'Neill's pubs and Browns restaurants, were lifted to ``neutral'' from ``sell'' at Goldman.
Escada AG may be active. Tchibo owners Wolfgang and Michael Herz are buying a ``significant minority interest'' in Escada, a German luxury fashion brand. Escada also named former Hugo Boss AG Chief Executive Officer Bruno Saelzer as CEO.
Swatch Group AG, the world's biggest watchmaker, may gain after Dresdner Kleinwort raised its recommendation on the stock to ``buy'' from ``add.''
Bradford & Bingley Plc, a U.K. mortgage lender, and Alliance & Leicester Plc, the British bank that gets a quarter of revenue from mortgages and savings, were both raised to ``equal-weight'' from ``underweight'' at Morgan Stanley.
To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.
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June 25 (Bloomberg) -- European stock-index futures were little changed before the Federal Reserve ends a two-day meeting at which policy makers are expected to halt a run of seven interest-rate cuts.
BHP Billiton Ltd, the world's biggest mining company, and Rio Tinto Group dropped in Australia as metals prices retreated. Scor SE may gain after UBS AG recommended shares of France's biggest reinsurer.
Futures on the Dow Jones Euro Stoxx 50 Index, a benchmark for the euro region, fell 2, or less than 0.1 percent, to 3,432 at 7:05 a.m. in London. The U.K.'s FTSE 100 Index may decrease 9, according to Cantor Index, a betting firm.
Fed Chairman Ben S. Bernanke may signal today that inflation is now the biggest risk facing the economy as the central bank holds the benchmark rate at 2 percent today, stopping the fastest series of reductions in two decades, according to economists surveyed by Bloomberg News.
The Stoxx 600 has tumbled 19 percent this year on concern accelerating inflation, record oil prices and credit-related losses approaching $400 billion will erode economic and profit growth.
U.S. stocks retreated to a three-month low yesterday after consumer confidence weakened and United Parcel Service Inc. said rising fuel costs will reduce profit. Asian stocks today fell for a fifth day.
BHP, Rio Tinto
BHP Billiton sank 4.1 percent in Australia, while Rio Tinto, the world's third-largest mining company, lost 3.7 percent.
Platinum futures in Tokyo headed for their longest losing streak in 10 months. Gold also slid.
Scor was upgraded to ``buy'' from ``neutral'' at UBS, which cited low exposure to U.S. windstorms and an ``attractive'' earnings profile.
Swiss Reinsurance Co., the world's largest reinsurer, was raised to ``neutral'' from ``sell'' at UBS.
J.D. Wetherspoon Plc, the owner of almost 700 U.K. pubs, and Mitchells & Butlers Plc may climb after Goldman Sachs Group Inc. raised its recommendation on the shares.
J.D. Wetherspoon and Mitchells & Butlers, the owner of O'Neill's pubs and Browns restaurants, were lifted to ``neutral'' from ``sell'' at Goldman.
Escada AG may be active. Tchibo owners Wolfgang and Michael Herz are buying a ``significant minority interest'' in Escada, a German luxury fashion brand. Escada also named former Hugo Boss AG Chief Executive Officer Bruno Saelzer as CEO.
Swatch Group AG, the world's biggest watchmaker, may gain after Dresdner Kleinwort raised its recommendation on the stock to ``buy'' from ``add.''
Bradford & Bingley Plc, a U.K. mortgage lender, and Alliance & Leicester Plc, the British bank that gets a quarter of revenue from mortgages and savings, were both raised to ``equal-weight'' from ``underweight'' at Morgan Stanley.
To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.
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Bernanke May Halt Rate Cuts, Shift Focus to Inflation Concern
By Steve Matthews
June 25 (Bloomberg) -- The Federal Reserve may signal today that inflation is starting to replace a recession and the credit crunch as the biggest risk facing the economy.
Chairman Ben S. Bernanke and his colleagues are laying the groundwork for a policy shift after oil prices doubled in the past year and inflation exceeded 4 percent. At the same time, they may be reluctant to go too far because the economy has yet to shake off the credit crunch and bank losses are deepening.
The Federal Open Market Committee will leave the benchmark interest rate at 2 percent today, ending the fastest series of reductions in two decades, according to all 102 economists surveyed by Bloomberg News.
``They are going to lean a bit more to inflation risks than growth risks, and may provide a hint they could hike rates down the road,'' said Ethan Harris, chief U.S. economist at Lehman Brothers Holdings Inc. in New York. ``They will signal their concern in a subtle way, not explicitly. They don't want to have a statement that would tie their hands.''
Today's statement is scheduled for about 2:15 p.m. in Washington. Officials may say their past actions are helping sustain growth, while price increases might take time to moderate, Fed watchers said.
Fed governors and district-bank presidents are bringing new quarterly forecasts to the meeting, which began yesterday in Washington. As recently as April, ``many'' of them foresaw an economic contraction in the first half. That's now unlikely after more than $70 billion of tax rebates helped keep Americans spending and record exports eased the slump in manufacturing.
Bernanke's Assessment
Bernanke in a June 9 speech said that risks of a ``substantial downturn'' in the economy had diminished. He also flagged concerns about consumer prices, and warned that the Fed will ``strongly resist'' a leap in inflation expectations.
In the statement after their April 29-30 meeting, policy makers predicted inflation would ``moderate in coming quarters'' with a ``leveling out'' of commodity prices. Since then, gasoline prices have surged 13 percent to a record, and consumer expectations for average inflation over the next five years reached the highest since 1995.
Bernanke's warning this month spurred traders to bet on a rate rise. There are 33 percent odds of a boost in August and 88 percent in September, according to contracts quoted on the Chicago Board of Trade.
Emergency Measures
One impediment to an early increase may be the Fed's emergency programs providing funds for investment banks. Officials introduced them in March to alleviate the credit crisis that pushed Bear Stearns Cos. close to bankruptcy.
It may be difficult for the Fed to justify raising the cost of credit while at the same time lending to nonbanks, something it's only supposed to do under ``unusual and exigent circumstances'' when no other ``adequate'' credit is available.
The Primary Dealer Credit Facility allows securities firms to borrow from the Fed overnight at the same so-called discount rate available to commercial banks. The Fed said in March the program would be in place ``for at least six months.''
``The withdrawing of facilities creates some risk'' for the credit-market outlook, said Brian Sack, senior economist at Macroeconomic Advisers LLC in Washington and a former research manager at the Fed board. ``They may want to withdraw the facilities and see how credit conditions respond before'' lifting rates, he said.
Policy Priority
In its April 30 statement, the FOMC avoided specifying whether weaker growth or faster inflation was the greater concern. In their paragraph telegraphing policy priorities, officials may reiterate they will ``act as needed'' to promote both economic expansion and stable prices, Fed watchers said.
That would afford policy makers some flexibility. Higher borrowing costs now would hurt banks grappling with mounting losses. Commercial bank loans written off as unrecoverable climbed to 0.97 percent of the total in the first quarter, the highest since 2002, Fed data showed last month.
``It's a delicate balancing act -- don't look for a signal of a strong inclination for raising rates,'' said Michael Feroli, a former Fed researcher who is now an economist at JPMorgan Chase & Co. in New York.
One way of strengthening the message on inflation would be to echo the emphasis that Bernanke, Vice Chairman Donald Kohn and other officials have placed this month on keeping inflation expectations in check. In its last statement, the FOMC said it was important to monitor price developments ``carefully.''
Inflation Expectations
American consumers foresee average annual inflation of 3.4 percent over the next five years, the highest expectation since 1995, according to a Reuters/University of Michigan survey. The five-year outlook among investors has been more stable, at 2.41 percent, up from 2.31 percent in January, according to a measure derived from inflation-linked Treasuries.
Consumer prices rose 4.2 percent in the 12 months to May, government figures show.
``They might emphasize their concern with inflation expectations, saying that it will be necessary to continue to monitor inflation developments, and particularly inflation expectations, carefully,'' said former Fed governor Lyle Gramley, who is now senior economic adviser Washington for Stanford Group Co., a wealth-management firm.
To contact the reporter on this story: Steve Matthews in Atlanta at smatthews@bloomberg.net.
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India Signals Further Rate Moves to Fight Inflation
By Cherian Thomas and Anil Varma 
Governor Yaga Venugopal Reddy has been caught wrong-footed in setting policy by the surge in crude-oil prices that pushed inflation to a 13-year high. Higher rates are needed to convince investors that officials won't let inflation erode returns on stocks and the currency, which have suffered their worst start to the year in at least a quarter-century.
``The RBI is trying to catch up with the curve finally,'' said Edwin Gutierrez, who manages $5.5 billion in emerging- market debt in London at Aberdeen Asset Management. ``The move underscores the fact that they blew their opportunity to do this earlier.''
Yesterday's decision came a month before the next monetary policy meeting, scheduled for July 29, as the impact of the first increase in gasoline prices in more than a year pushed inflation to double Reddy's target. Higher fuel prices accounted for most of the 11.05 percent wholesale rate of inflation during the first week of June.
First Step
The central bank may raise interest rates by another 25 basis points in the July 29 policy meeting, economists at JPMorgan Chase & Co. said, while analysts at Citigroup Inc. expect borrowing costs to be increased by as much as 50 basis points without giving a time frame.
``If inflation indicators don't start to come down in the next two or three months, the RBI has more tricks up its sleeve,'' said Jyoti Narasimhan, research director for India at Global Insight Inc. in Lexington, Massachusetts. ``This is more of a first step than a last step.''
The government needs a stronger rupee to lower import costs and aid in curbing prices. The rupee has fallen 8.2 percent this year, making India the only one of the so-called BRIC nations including Brazil, China and Russia that has a weaker currency. The rupee gained 0.2 percent to 42.87 per dollar at 10:55 a.m.
``The policy stance adopted by the RBI should boost the confidence of investors, both domestic and foreign, and augur well for economic growth,'' the finance ministry said in a statement in New Delhi today. ``The objective of the RBI is to moderate and manage aggregate demand.''
Spooked Investors
Overseas investors, spooked by accelerating inflation, have dumped $6.2 billion more of Indian shares than they bought this year, causing a 30 percent decline in the Sensitive index.
India's 10-year bond yields climbed to as much as 8.86 percent, the highest since October 2001 in Mumbai. The benchmark Sensitive stock index fell 1 percent to 13,967.8, after earlier declining to the lowest in 13 months.
Last week's spurt in inflation in India was driven by the first increase in retail prices of gasoline and diesel this year. India joined China, Indonesia, Malaysia and Sri Lanka as a near doubling of oil prices pushed up costs and eroded profits of refiners such as Indian Oil Corp.
`Inflation Shocker'
``The latest inflation reading was a shocker because of the nature of the oil prices passthrough,'' said S. Ananthanarayan, chief bond trader at Kotak Mahindra Bank Ltd., a Mumbai-based primary dealer that underwrites government debt sales. ``They probably felt all the measures they've taken so far have been inadequate, and now they're playing catch-up.''
Higher inflation may further hurt consumer demand and threatens to derail India's record 8.8 percent annual economic growth since 2003, the fastest after China among the world's major economies.
The inflation rate has almost tripled this year, eroding the popularity of Prime Minister Manmohan Singh's ruling Congress Party, which lost ground in nine of 11 state elections since January 2007. Congress will also face criticism from its communist allies today over a nuclear accord with the U.S. that threatens its four-year hold on power.
``The Manmohan Singh government is squarely responsible for this dismal situation,'' the Communist Party of India (Marxist), the biggest ally of the government, said on June 20. ``It cannot escape by blaming global inflation.''
`Line of Defense'
Finance Secretary D. Subbarao said June 21 that monetary policy is the ``first line of defense'' as the government tries to keep food and fuel affordable before elections. More than half of India's 1.1 billion people live on less than $2 a day.
Before yesterday's move, Reddy had raised the repurchase rate eight times in the past 2 1/2 years and increased the cash reserve ratio seven times since December 2006 to slow money supply and cool inflation.
The central bank's reserve ratio will be increased to 8.5 percent from the fortnight commencing July 5 and raised to 8.75 percent in the two weeks starting July 19, according to yesterday's statement.
India has supported monetary policy steps with tax cuts to ease prices. On June 4 the government scrapped taxes on imports of crude oil and reduced duties on other fuel products, forgoing $5.3 billion of revenue to cushion consumers from high fuel costs.
``It'll be difficult for them to hike just once or twice and then step back,'' said Paresh Upadhyaya, who helps oversee about $50 billion in currency assets, including in emerging markets, at Putnam Investments in Boston. ``This is going to be a clear tightening cycle, and I expect more to come in the next 12 months.''
To contact the reporter on this story: Cherian Thomas in New Delhi at cthomas1@bloomberg.net
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June 25 (Bloomberg) -- India's central bank signaled it will keep raising borrowing costs after unexpectedly lifting interest rates for the second time in two weeks and telling lenders to keep more cash in reserve. Bonds and stocks tumbled.
The Reserve Bank of India increased the repurchase rate by 0.5 percentage point late yesterday to 8.5 percent, the biggest move since 2000, and adjusted the cash-reserve ratio by a similar margin to 8.75 percent. A ``heightened vigil'' was needed to anchor inflation expectations, the central bank said in a faxed statement.Governor Yaga Venugopal Reddy has been caught wrong-footed in setting policy by the surge in crude-oil prices that pushed inflation to a 13-year high. Higher rates are needed to convince investors that officials won't let inflation erode returns on stocks and the currency, which have suffered their worst start to the year in at least a quarter-century.
``The RBI is trying to catch up with the curve finally,'' said Edwin Gutierrez, who manages $5.5 billion in emerging- market debt in London at Aberdeen Asset Management. ``The move underscores the fact that they blew their opportunity to do this earlier.''
Yesterday's decision came a month before the next monetary policy meeting, scheduled for July 29, as the impact of the first increase in gasoline prices in more than a year pushed inflation to double Reddy's target. Higher fuel prices accounted for most of the 11.05 percent wholesale rate of inflation during the first week of June.
First Step
The central bank may raise interest rates by another 25 basis points in the July 29 policy meeting, economists at JPMorgan Chase & Co. said, while analysts at Citigroup Inc. expect borrowing costs to be increased by as much as 50 basis points without giving a time frame.
``If inflation indicators don't start to come down in the next two or three months, the RBI has more tricks up its sleeve,'' said Jyoti Narasimhan, research director for India at Global Insight Inc. in Lexington, Massachusetts. ``This is more of a first step than a last step.''
The government needs a stronger rupee to lower import costs and aid in curbing prices. The rupee has fallen 8.2 percent this year, making India the only one of the so-called BRIC nations including Brazil, China and Russia that has a weaker currency. The rupee gained 0.2 percent to 42.87 per dollar at 10:55 a.m.
``The policy stance adopted by the RBI should boost the confidence of investors, both domestic and foreign, and augur well for economic growth,'' the finance ministry said in a statement in New Delhi today. ``The objective of the RBI is to moderate and manage aggregate demand.''
Spooked Investors
Overseas investors, spooked by accelerating inflation, have dumped $6.2 billion more of Indian shares than they bought this year, causing a 30 percent decline in the Sensitive index.
India's 10-year bond yields climbed to as much as 8.86 percent, the highest since October 2001 in Mumbai. The benchmark Sensitive stock index fell 1 percent to 13,967.8, after earlier declining to the lowest in 13 months.
Last week's spurt in inflation in India was driven by the first increase in retail prices of gasoline and diesel this year. India joined China, Indonesia, Malaysia and Sri Lanka as a near doubling of oil prices pushed up costs and eroded profits of refiners such as Indian Oil Corp.
`Inflation Shocker'
``The latest inflation reading was a shocker because of the nature of the oil prices passthrough,'' said S. Ananthanarayan, chief bond trader at Kotak Mahindra Bank Ltd., a Mumbai-based primary dealer that underwrites government debt sales. ``They probably felt all the measures they've taken so far have been inadequate, and now they're playing catch-up.''
Higher inflation may further hurt consumer demand and threatens to derail India's record 8.8 percent annual economic growth since 2003, the fastest after China among the world's major economies.
The inflation rate has almost tripled this year, eroding the popularity of Prime Minister Manmohan Singh's ruling Congress Party, which lost ground in nine of 11 state elections since January 2007. Congress will also face criticism from its communist allies today over a nuclear accord with the U.S. that threatens its four-year hold on power.
``The Manmohan Singh government is squarely responsible for this dismal situation,'' the Communist Party of India (Marxist), the biggest ally of the government, said on June 20. ``It cannot escape by blaming global inflation.''
`Line of Defense'
Finance Secretary D. Subbarao said June 21 that monetary policy is the ``first line of defense'' as the government tries to keep food and fuel affordable before elections. More than half of India's 1.1 billion people live on less than $2 a day.
Before yesterday's move, Reddy had raised the repurchase rate eight times in the past 2 1/2 years and increased the cash reserve ratio seven times since December 2006 to slow money supply and cool inflation.
The central bank's reserve ratio will be increased to 8.5 percent from the fortnight commencing July 5 and raised to 8.75 percent in the two weeks starting July 19, according to yesterday's statement.
India has supported monetary policy steps with tax cuts to ease prices. On June 4 the government scrapped taxes on imports of crude oil and reduced duties on other fuel products, forgoing $5.3 billion of revenue to cushion consumers from high fuel costs.
``It'll be difficult for them to hike just once or twice and then step back,'' said Paresh Upadhyaya, who helps oversee about $50 billion in currency assets, including in emerging markets, at Putnam Investments in Boston. ``This is going to be a clear tightening cycle, and I expect more to come in the next 12 months.''
To contact the reporter on this story: Cherian Thomas in New Delhi at cthomas1@bloomberg.net
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Japan's Exports Grow 3.7% as Asian Shipments Offset U.S. Slump
By Jason Clenfield and Lily Nonomiya
June 25 (Bloomberg) -- Japan's exports grew at twice the pace economists estimated in May, as accelerating shipments to Asia helped the economy withstand a slump caused by falling demand from the U.S. and Europe.
Exports, which contributed at least half of Japan's growth in the past three quarters, rose 3.7 percent from a year earlier after climbing 3.9 percent in April, the Finance Ministry said today in Tokyo. The gain was faster than the 1.9 percent median prediction of 18 economists surveyed by Bloomberg News.
Asia, the destination of half of Japan's goods sent abroad, supported exporters including Idemitsu Kosan Co. even as the yen gained 14 percent and shipments to Europe fell for the first time in more than two years. Exports to the U.S. declined for a ninth month, and sales may worsen after consumer confidence in Japan's biggest overseas market dropped to a 16-year low.
``We expect exports to slow from here. In trend terms, it's already happening,'' said Hiroshi Shiraishi, an economist at Lehman Brothers Holdings Inc. in Tokyo. ``Looking ahead, we think Asian economies will slow because of inflation, and in the U.S., the fundamentals of the consumer economy are pretty bad.''
The Nikkei 225 Stock Average slipped 1 percent as of 1:06 p.m. in Tokyo on concern that the drop in U.S. household confidence will reduce demand for the nation's cars and electronics. The yen was little changed at 107.76 per dollar.
Exports to Asia climbed 8.1 percent from a year earlier, and those to China gained 12.3 percent, led by shipments of steel, automobiles and oil products. Japan's refiners sent extra fuel to China as part of relief efforts following the May 12 earthquake that killed more than 69,000 people.
Idemitsu's Expansion
Idemitsu Kosan, Japan's second-biggest refiner, said this month that may double its storage and pipe capacity within the next three years to tap Asia's rising demand.
``The strength of exports to China and other Asian countries became more prominent,'' said Junko Nishioka, a senior economist at ABN Amro Securities Japan Ltd. in Tokyo. ``Japan's economic growth will keep slowing, but it can probably avoid a contraction.''
Imports advanced 4.4 percent from a year earlier as oil prices surged to a record, narrowing the trade surplus by 7.6 percent to 365.6 billion yen ($3.4 billion), the ministry said. Economists expected a surplus of 30 billion yen.
While eroding profits, the commodity price shock is also increasing sales of Japanese cars and construction equipment to resource-rich markets. Shipments to Russia, the world's biggest exporter of oil and gas, soared 58.8 percent last month.
Exports to the U.S. fell 9.5 percent and shipments to Europe slid 1.1 percent, the first drop since October 2005.
Slowdown Spreading
``With the U.S. and European economies slowing, we're going to see that start to spread to the global economy,'' said Kiichi Murashima, chief economist at Nikko Citigroup Ltd. in Tokyo. ``Given the ongoing slump in the U.S. economy, the question is whether U.S.-bound exports will get even worse or will just be unimpressive.''
The World Bank said this month it expects global growth to slow to 2.7 percent this year from 3.7 percent in 2007 because of surging prices and the subprime credit crisis.
Japan may lose the boost that sales overseas have been providing throughout its longest postwar expansion. Exports have grown less than 4 percent on average in April and May, slowing from 6.2 percent in the first quarter. Economists predict net exports won't contribute to economic growth this quarter.
Businesses are paring production and spending on concern that demand will weaken and record oil prices will further crimp profits. Sentiment at large manufacturers marked the biggest drop in four years this quarter and companies said they plan to cut spending by 0.9 percent this year, a report this week showed.
``Eventually we're going to see more signs of an export slowdown,'' Lehman's Shiraishi said. ``But I admit, we've been saying that for a long time.''
To contact the reporters on this story: Lily Nonomiya in Tokyo at lnonomiya@bloomberg.net; Jason Clenfield in Tokyo at jclenfield@bloomberg.net.
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Asian Stocks Drop for a Fifth Day as U.S. Confidence Declines
By Chua Kong Ho and Katherine Espina
June 25 (Bloomberg) -- Asian stocks fell for a fifth day, led by carmakers and electronics manufacturers as a drop in U.S. consumer confidence and home prices added to concern demand for exports will wane in their biggest overseas market.
Toyota Motor Corp., Japan's largest automaker, and Matsushita Electric Industrial Co. led declines after the U.S. Conference Board's confidence index tumbled to a 16-year low. BHP Billiton Ltd., the world's biggest mining company, dropped the most in two weeks after metals prices fell.``As long as U.S. data continues to look bad, it will definitely create fear and uncertainty in Asia,'' said Nicole Sze, a Singapore-based investment analyst at Bank Julius Baer & Co., which manages $350 billion in assets worldwide.
The MSCI Asia Pacific Index dropped 1 percent to 137.22 as of 11 a.m. in Tokyo, extending a four-day, 4.1 percent decline. About five stocks fell for each two that rose today, with nine of the benchmark's 10 industry groups retreating.
The Asian benchmark has lost 13 percent this year as credit- related losses among financial institutions and a 43 percent jump in oil raised concern the global economy will slow. More than $8 trillion in global stock market value has been wiped out in 2008.
Japan's Nikkei 225 Stock Average slipped 1.5 percent to 13,644.97. Shimamura Co., an operator of clothing stores, tumbled the most in almost nine months after UBS AG cut its rating.
Australia's S&P/ASX 200 Index lost 0.7 percent as Macarthur Coal Ltd., the world's largest exporter of pulverized coal, plunged after ending takeover talks with ArcelorMittal yesterday.
Tumbling Confidence
Hong Kong's stock market will be closed this morning because of Typhoon Fensheng and may resume trading in the afternoon, the exchange said. All markets open for trading in Asia declined apart from Malaysia.
U.S. stocks retreated to a three-month low yesterday after the Conference Board's confidence index slumped more than forecast and the S&P/Case-Shiller home-price index fell the most on record. Consumer spending accounts for more than two thirds of the U.S. economy.
Toyota, which derives about half of its profit from North America, declined 1.7 percent to 5,140 yen. Matsushita Electric, the world's largest maker of consumer electronics, fell 1 percent to 2,380 yen.
BHP dropped 2.5 percent to A$44.75, while rival Rio Tinto Group retreated 1.6 percent to A$139.50. BHP said higher iron-ore prices agreed to by Rio from Chinese steelmakers are too low to cover extra shipping costs.
BHP and Toyota were the biggest contributors to the MSCI Asian index's decline.
Metals Prices
A measure of six metals traded on the London Metal Exchange dropped 1.1 percent yesterday. Zinc declined 1.4 percent, copper 0.6 percent and nickel 1.6 percent. Raw-materials producers had the biggest decline among the MSCI Asian gauge's 10 groups today.
Shimamura fell 8 percent to 6,720 yen, after UBS cut its rating on the clothing retailer to ``neutral'' from ``buy,'' citing slower spending.
Macarthur Coal tumbled 9.5 percent to A$18.77, after Chairman Keith De Lacy said yesterday no agreement with ArcelorMittal, the world's largest steelmaker, has been reached in its takeover discussions.
Woodside Petroleum Ltd. led oil and gas producers higher after oil rose to $138.75 a barrel in New York, the highest since reaching a record $139.89 on June 16. Woodside, Australia's second-largest oil and gas producer, climbed 2.1 percent to A$67.54, while rival Santos Ltd. gained 1.5 percent to A$21.73.
Energy stocks had the biggest gain among the 10 industry groups on MSCI's Asian benchmark today.
To contact the reporter for this story: Chua Kong Ho at kchua6@bloomberg.net; Katherine Espina at kespina@bloomberg.net
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US rates expected to stay at 2%
US interest rates are expected to remain at 2% amid further signs of problems in the housing market and falling consumer confidence.
Analysts suggest the Federal Reserve faces a difficult balancing act as it tries to cope with rising prices and a slowing economy.
US consumer confidence is reportedly at its lowest level in 16 years.
Meanwhile, a survey suggested house prices were substantially lower in April compared with a year earlier.
Higher oil prices, high commodity prices and higher fuel prices are causing an inflation headache for the Central Bank, according to the BBC's Michelle Fleury in New York.
Analysts suggest the next move in rates could be upwards in an attempt to tackle inflation.
But that could worsen the economic slowdown caused by crises in the credit and housing markets, economists suggest.
It is a situation that the head of the IMF recently described as being caught between "fire and ice".
Although no change in rates is expected on Wednesday, investors will watch closely for any accompanying statements from the Fed for an indication of what its future interest rate policy might be, our correspondent says.
Housing slump
In the housing market, property prices fell by their fastest rate since 2000, according to the Case-Schiller home price index released on Tuesday.
Prices in the 20 cities it monitors were 15.3% lower in April compared to the year before.
The narrower 10-city index was 16.3% down, its biggest decline in its more than two-decade history.
Las Vegas and Miami experienced falls of more than 25%, while the declines in Denver, Chicago and Cleveland were less severe than in the previous month.
Economic gloom
The latest reading of US consumer sentiment also showed a worsening situation.
Higher food and fuel prices and fears over the economy, jobs and wages mean that US consumers' expectations for the next six months are at an all-time low, according to the Conference Board which polls 5000 households monthly.
The percentage of consumers expecting business conditions to get worse over the next six months jumped to 33.9% in June from 32.9% the previous month.
And the percentage of those expecting fewer jobs to be created in the months ahead rose to 35.5% from 32.3%.
"They feel purchasing power is diminishing. They've got rising gas and food prices and they don't feel wages are keeping pace with it and that is really taking a bite out of consumer confidence," Lynn Franco from the Conference Board told BBC News.
Taken From : http://news.bbc.co.uk
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Platinum Falls on Concern Auto Sales Weaken; Palladium Declines
By Halia Pavliva
June 24 (Bloomberg) -- Platinum fell to the lowest in more than a week on concern that demand will weaken for the metal used in engine exhaust filters as U.S. vehicle sales may touch a 15-year low this month. Palladium also declined.
Vehicle sales may drop to an annual rate of 12.5 million to 13 million units this month, according to Citigroup Inc. and Deutsche Bank AG analysts. That would be the lowest U.S. auto sales rate since March 1993 and down as much as 20 percent from a year earlier. Platinum mine output trailed demand in eight of the past nine years, metal trader Johnson Matthey Plc has said.
``Supply fundamentals in the complex are being offset by worries that auto sales could fall through the floor in the wake of current gas prices,'' Jon Nadler, a senior analyst at Kitco Minerals & Metals Inc. in Montreal, said in an e-mailed note. Gas prices at U.S. pumps are hovering around $4 a gallon.
Platinum futures for July delivery fell $14.20, or 0.7 percent, to $2,031.50 an ounce on the New York Mercantile Exchange, after touching $2,026 earlier, the lowest since June 16.
Most-active futures dropped 1.7 percent in the past five sessions, while they are still up 33 percent this year. That compares with a 33 percent gain in all of last year. Platinum reached a record $2,308.80 on March 4.
Palladium futures for September delivery slipped $2.30, or 0.5 percent, to $471.95 an ounce. Most-active futures have gained 25 percent this year, including a 1.7 percent rise in the past five sessions.
Platinum output this year is expected to trail demand by 260,000 ounces, London-based Blue Oar Securities Plc said in a report last month.
Slump in Car Buying
U.S. auto sales have averaged 16.8 million units a year this decade, and are now at ``surprisingly low levels,'' Deutsche Bank analyst Rod Lache said in a report.
Confidence among U.S. consumers fell to the lowest in 16 years and house prices in major cities slid the most on record, raising the risk that consumers will cut back on purchases, according to reports released today.
The Conference Board's consumer confidence index fell to 50.4 in June from 57.2 in May. Home prices in 20 cities dropped about 15 percent in April from a year earlier, S&P/Case-Shiller said, the most since the group began collecting data.
Sales of cars and trucks by U.S. automakers may drop to 14.5 million this year, Lache said. That would be the fewest since 1993, when 13.9 million were sold. From January through May, U.S. light vehicle sales fell 8.4 percent to 6.2 million, according to Autodata Corp. of Woodcliff Lake, New Jersey.
June sales may fall as low as 12.5 million, on an annual basis, according to Citigroup analyst Itay Michaeli.
Dollar Effect
Still, platinum may rise as the weaker dollar and higher crude-oil prices enhance the appeal of the precious metal as a hedge against inflation, said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois.
Some investors buy platinum, which is priced in dollars and used in jewelry as well as car and truck parts, to preserve value when the U.S. currency weakens. The U.S. Dollar Index, a gauge that includes the euro and yen among six major currencies, fell as much as 0.5 percent.
``The dollar has a lot to do with it, as well as other factors, such as oil,'' Kaplan said. ``If crude goes up, platinum goes up as well.''
Crude-oil futures rose as much as 1.5 percent in New York.
To contact the reporter on this story: Halia Pavliva in New York at hpavliva@bloomberg.net
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June 24 (Bloomberg) -- Platinum fell to the lowest in more than a week on concern that demand will weaken for the metal used in engine exhaust filters as U.S. vehicle sales may touch a 15-year low this month. Palladium also declined.
Vehicle sales may drop to an annual rate of 12.5 million to 13 million units this month, according to Citigroup Inc. and Deutsche Bank AG analysts. That would be the lowest U.S. auto sales rate since March 1993 and down as much as 20 percent from a year earlier. Platinum mine output trailed demand in eight of the past nine years, metal trader Johnson Matthey Plc has said.
``Supply fundamentals in the complex are being offset by worries that auto sales could fall through the floor in the wake of current gas prices,'' Jon Nadler, a senior analyst at Kitco Minerals & Metals Inc. in Montreal, said in an e-mailed note. Gas prices at U.S. pumps are hovering around $4 a gallon.
Platinum futures for July delivery fell $14.20, or 0.7 percent, to $2,031.50 an ounce on the New York Mercantile Exchange, after touching $2,026 earlier, the lowest since June 16.
Most-active futures dropped 1.7 percent in the past five sessions, while they are still up 33 percent this year. That compares with a 33 percent gain in all of last year. Platinum reached a record $2,308.80 on March 4.
Palladium futures for September delivery slipped $2.30, or 0.5 percent, to $471.95 an ounce. Most-active futures have gained 25 percent this year, including a 1.7 percent rise in the past five sessions.
Platinum output this year is expected to trail demand by 260,000 ounces, London-based Blue Oar Securities Plc said in a report last month.
Slump in Car Buying
U.S. auto sales have averaged 16.8 million units a year this decade, and are now at ``surprisingly low levels,'' Deutsche Bank analyst Rod Lache said in a report.
Confidence among U.S. consumers fell to the lowest in 16 years and house prices in major cities slid the most on record, raising the risk that consumers will cut back on purchases, according to reports released today.
The Conference Board's consumer confidence index fell to 50.4 in June from 57.2 in May. Home prices in 20 cities dropped about 15 percent in April from a year earlier, S&P/Case-Shiller said, the most since the group began collecting data.
Sales of cars and trucks by U.S. automakers may drop to 14.5 million this year, Lache said. That would be the fewest since 1993, when 13.9 million were sold. From January through May, U.S. light vehicle sales fell 8.4 percent to 6.2 million, according to Autodata Corp. of Woodcliff Lake, New Jersey.
June sales may fall as low as 12.5 million, on an annual basis, according to Citigroup analyst Itay Michaeli.
Dollar Effect
Still, platinum may rise as the weaker dollar and higher crude-oil prices enhance the appeal of the precious metal as a hedge against inflation, said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois.
Some investors buy platinum, which is priced in dollars and used in jewelry as well as car and truck parts, to preserve value when the U.S. currency weakens. The U.S. Dollar Index, a gauge that includes the euro and yen among six major currencies, fell as much as 0.5 percent.
``The dollar has a lot to do with it, as well as other factors, such as oil,'' Kaplan said. ``If crude goes up, platinum goes up as well.''
Crude-oil futures rose as much as 1.5 percent in New York.
To contact the reporter on this story: Halia Pavliva in New York at hpavliva@bloomberg.net
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Gold: Don't count on $1,000
With oil prices rising and the dollar weakening, gold has climbed back above $900. But there's not much more headroom.
By Paul R. La Monica, CNNMoney.com editor at large
NEW YORK (CNNMoney.com) -- Don't look now but the price of gold is back above $900 an ounce.
Gold, which typically rises during times of economic uncertainty and inflation, hit an all-time high of more than $1,030 an ounce back in mid-March.
The price started to slip soon after that as credit crunch fears subsided. But it has been back on the rise this week partly due to the dollar's weakness and stubbornly high oil prices.
Talkback: Will gold hit a new record anytime soon?
A week ago, gold futures were trading at $866 an ounce. Today, they hit nearly $909 in mid-morning trading. That's a 5% jump in just a couple of days.
So will gold prices keep rising? And what should investors do about it?
There is a case to be made that gold prices will continue to rise modestly. Demand for gold is still strong in many emerging markets. As such, profits for many gold miners are expected to double this year.
Still, most financial planners and market strategists say that people should only have a very small percentage of their portfolio dedicated to gold. It is, after all, an incredibly volatile investment. And betting on gold often means that you're taking a leap of faith about currency and interest-rate fluctuations as opposed to looking at fundamentals like sales and earnings growth.
But based on how well the gold market is doing this year, it's not a bad idea to have some exposure to gold given how it is typically a hedge against inflation.
Gold prices are up nearly 9% year-to-date. Not surprisingly then, gold stocks, mutual funds and ETFs have been some of the market's better performers during this tumultuous year on Wall Street.
According to fund tracker Morningstar, precious metals funds are up 1% year-to-date compared to a 8.5% loss for the S&P 500. And top mining stocks such as Goldcorp (GG), Agnico-Eagle Mines (AEM) and Yamana Gold (AUY) have each gained more than 10% in 2008.
Nonetheless, investors probably shouldn't expect a return to $1000 in the near future.
Keep in mind, when gold hit its all-time high, the overall market was in a panic about whether Bear Stearns would collapse.
Barring another major scare to the market like that, it's hard to imagine that gold will shoot up to a new record, especially if the Fed does actually raise rates later this year, a move that could help strengthen the dollar and lead to a pullback in commodity prices.
"I don't think we're going back to $1,000 levels," said Keith Walter, co-manager with the Julius Baer Global Equity fund. "There is a wide pricing disparity between gold and oil but I think that will narrow with crude coming down, not gold catching up."
In addition, Walter said that although global demand is still strong for gold, there are concerns that China's economy may be starting to slow a bit. That could dampen gold prices.
"We've been pleased with our investments in metals and mining but we're cutting back though because we're starting to see cracks in the Chinese economy," Walter said. As such, he said his fund has reduced its exposure to mining stocks. It still owns several though, including Newmont Mining (NEM, Fortune 500) and Freeport McMoRan Copper & Gold (FCX, Fortune 500).
So even though investing in gold and gold mining stocks may be a good idea for a long-term portfolio, now's not the time to go overboard and make too a big bet on all that glitters.
Taken From : http://money.cnn.com
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By Paul R. La Monica, CNNMoney.com editor at large
NEW YORK (CNNMoney.com) -- Don't look now but the price of gold is back above $900 an ounce.
Gold, which typically rises during times of economic uncertainty and inflation, hit an all-time high of more than $1,030 an ounce back in mid-March.
The price started to slip soon after that as credit crunch fears subsided. But it has been back on the rise this week partly due to the dollar's weakness and stubbornly high oil prices.
Talkback: Will gold hit a new record anytime soon?
A week ago, gold futures were trading at $866 an ounce. Today, they hit nearly $909 in mid-morning trading. That's a 5% jump in just a couple of days.
So will gold prices keep rising? And what should investors do about it?
There is a case to be made that gold prices will continue to rise modestly. Demand for gold is still strong in many emerging markets. As such, profits for many gold miners are expected to double this year.
Still, most financial planners and market strategists say that people should only have a very small percentage of their portfolio dedicated to gold. It is, after all, an incredibly volatile investment. And betting on gold often means that you're taking a leap of faith about currency and interest-rate fluctuations as opposed to looking at fundamentals like sales and earnings growth.
But based on how well the gold market is doing this year, it's not a bad idea to have some exposure to gold given how it is typically a hedge against inflation.
Gold prices are up nearly 9% year-to-date. Not surprisingly then, gold stocks, mutual funds and ETFs have been some of the market's better performers during this tumultuous year on Wall Street.
According to fund tracker Morningstar, precious metals funds are up 1% year-to-date compared to a 8.5% loss for the S&P 500. And top mining stocks such as Goldcorp (GG), Agnico-Eagle Mines (AEM) and Yamana Gold (AUY) have each gained more than 10% in 2008.
Nonetheless, investors probably shouldn't expect a return to $1000 in the near future.
Keep in mind, when gold hit its all-time high, the overall market was in a panic about whether Bear Stearns would collapse.
Barring another major scare to the market like that, it's hard to imagine that gold will shoot up to a new record, especially if the Fed does actually raise rates later this year, a move that could help strengthen the dollar and lead to a pullback in commodity prices.
"I don't think we're going back to $1,000 levels," said Keith Walter, co-manager with the Julius Baer Global Equity fund. "There is a wide pricing disparity between gold and oil but I think that will narrow with crude coming down, not gold catching up."
In addition, Walter said that although global demand is still strong for gold, there are concerns that China's economy may be starting to slow a bit. That could dampen gold prices.
"We've been pleased with our investments in metals and mining but we're cutting back though because we're starting to see cracks in the Chinese economy," Walter said. As such, he said his fund has reduced its exposure to mining stocks. It still owns several though, including Newmont Mining (NEM, Fortune 500) and Freeport McMoRan Copper & Gold (FCX, Fortune 500).
So even though investing in gold and gold mining stocks may be a good idea for a long-term portfolio, now's not the time to go overboard and make too a big bet on all that glitters.
Taken From : http://money.cnn.com
Read more...
Tuesday, June 24, 2008
Bernanke Plays `Dangerous Game' Balancing Rate Talk With Action
By Scott Lanman
June 24 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke, by voicing concern about inflation and the slumping dollar, has fanned investor expectations for an interest-rate increase as soon as August. He may regret it.
Raising rates may exacerbate the economic slowdown and roil banks whose losses sent their stocks down the most in a decade this month. Forgoing a rate boost next quarter risks damaging the Fed's credibility and deepening its divisions. Already this year, three officials have dissented on rate decisions.
While Bernanke's warning that the Fed will ``strongly resist'' a jump in inflation expectations led traders to bet on a rate increase, economists are more skeptical. All 101 in a Bloomberg News survey said the Federal Open Market Committee will keep the benchmark rate unchanged tomorrow and most analysts this month predicted officials will stand pat until 2009.
``That's the dangerous game,'' said Scott Anderson, senior economist in Minneapolis at Wells Fargo & Co., the fourth- largest U.S. bank by market value. ``Instead of putting the shot across the bow on inflation,'' Bernanke might have ``held off a few more months to let the credit crisis heal a little bit more.''
The Fed chief shifted stance after soaring costs of energy and imported goods threatened to stoke consumer price expectations. Gasoline climbed 37 percent in the past year, according to AAA. Import prices excluding petroleum rose the most since 1988 in the 12 months to May, government figures show.
Bernanke's Message
Bernanke said at a Boston Fed conference June 9 the risk of a ``substantial downturn'' in the economy had diminished and accelerating inflation ``would be destabilizing for growth.'' The previous week, he said the falling dollar caused an ``unwelcome'' increase in domestic prices and the Fed was ``attentive'' to the problem.
There are widespread expectations among traders for a rate rise in the next three months: There are 36 percent odds of a boost in August and 93 percent in September, according to futures contracts on the Chicago Board of Trade. Economists in a monthly Bloomberg survey through June 11 projected the Fed will keep the rate at 2 percent this year, according to the median estimate.
The FOMC begins gathering today in Washington and will issue its statement tomorrow around 2:15 p.m.
`No Bite'
``Unless the inflation expectations and the numbers come down, they're going to have to raise rates,'' William Ford, a former Atlanta Fed chief who's now at Middle Tennessee State University in Murfreesboro, said in a Bloomberg Radio interview. ``If he's saying we're going to fight inflation but he's all bark and no bite, division is what's going to happen.''
Dallas Fed President Richard Fisher, Philadelphia Fed chief Charles Plosser and William Poole, who retired from the St. Louis Fed in March, dissented on rate decisions this year.
The FOMC usually has seven Fed board members and five district-bank heads. Two board positions are now vacant, and a third opens in August with Governor Frederic Mishkin's departure.
That means the presidents, who tend to dissent more than governors, may get a majority. The Senate has yet to confirm the Bush administration's board nominees, though Democratic Senator Christopher Dodd of Connecticut, who chairs the Senate Banking Committee, has said he may hold a vote on at least one of the picks.
Officials are increasingly sounding the alert that they're prepared to raise rates this year.
`Act Preemptively'
``If we don't take action and stay on top of the situation,'' inflation will probably accelerate, James Bullard, Poole's successor, said June 11. Bullard doesn't vote this year. The Fed must ``act preemptively,'' Plosser said June 12.
Consumers anticipate annual inflation of 3.4 percent in the coming five years, a 13-year high, a Reuters/University of Michigan survey showed this month. A measure of price expectations based on 10-year Treasury inflation-protected securities has also risen this year, to 2.46 percent.
A measure of prices tied to consumer spending has averaged annual gains of 3.3 percent so far this year, up from 2.5 percent in 2007. Excluding food and energy costs, the Commerce Department's index has averaged 2 percent increases this year, compared with a 1.8 percent average pace since 1998.
Bernanke has said the slowdown should alleviate price pressures. The economy expanded 0.9 percent in the first quarter, capping the weakest six-month performance in five years.
Bank Losses
The downturn is weakening U.S. banks already struggling with the credit crisis and the worst housing slump in a quarter century.
The Standard & Poor's 500 Banks Index is down 20 percent in June, on course for the worst month since August 1988. More than 100 lenders have been forced to close, halt operations or sell themselves since the beginning of last year.
Fifth Third Bancorp, Ohio's second-biggest bank, said June 18 most of its quarterly profit will evaporate after already posting nine consecutive declines.
``The issue here is whether the Fed is willing to risk an escalation of inflation and then a bigger recession later, or acts earlier, taking a risk of a smaller recession, but preventing inflation from getting out of hand,'' Poole said in a Bloomberg Television interview.
To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net
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FOREX-Yen under pressure, hits 11-mth low vs euro
By Ian Chua
LONDON, June 24 (Reuters) - The yen plumbed an 11-month low versus the euro and lost ground against the dollar on Tuesday on talk that investors in Japan were using summer bonuses to buy higher yielding assets overseas.
This contrasted with a Reuters poll showing Japanese individual investor sentiment on the stock market grew less negative in June, which should be a positive for the currency. For more on the poll, see [ID:nTKF003220]
"The market seems to be fixated with the idea that Japanese retail investors are sellers of yen," said Adam Cole, global head of FX currency strategy at RBC Capital Markets in London.
"Yen weakness seems to be driven by talk of strong retail outflows from Japan into overseas assets, possibly associated with the allocation of summer bonuses into overseas bond funds."
While investors might be more upbeat on Japanese equities, the search yield was highlighted by expectations for Japanese interest rates to stay on hold this year as euro area and U.S. borrowing costs rise.
Investors were also unwinding positions ahead of the outcome of the Federal Reserve policy meeting due on Wednesday after having sold the euro on the back of disappointing euro zone data in the previous session.
At 0800 GMT, the euro was up 0.2 percent against the greenback at $1.5560, recovering from Monday's fall to about $1.5467 after a closely watched survey showing contraction in the euro zone's manufacturing and service sectors.
The single currency gained 0.5 percent versus the Japanese currency to 168.03 yen after earlier reaching an 11-month peak of 168.26 yen.
The dollar rose 0.2 percent against a broadly softer yen to 108.00 yen, while the Australian dollar reached a seven-month high above 103 yen.
Against a basket of major currencies, the dollar slipped 0.2 percent to 73.279 .DXY.
Data on Tuesday was mixed. A report by market research firm GfK showed German consumers were likely to be less ready to spend money in July on worries about rising energy bills, and Italian consumer morale fell sharply in June.
But consumer spending in France jumped 2.0 percent in May, beating the consensus forecast in a Reuters poll for a rise of 0.7 percent.
FED MAY DISAPPOINT?
The Fed statement due on Wednesday following the two-day policy meeting will be the key driver for currencies this week.
While the U.S. central bank is widely expected to keep the key Fed funds rate unchanged at 2.0 percent, investors are keenly awaiting confirmation of market pricing of nearly 75 basis points worth of hikes by year-end. See [FEDWATCH].
But some analysts said the U.S. central bank might be less hawkish than some in the market are expecting.
"We expect this week's FOMC meeting to disappoint the market's expectation of three U.S. rate hikes before the end of the year," said UBS analysts in a report.
"In contrast the ECB is likely to raise interest rates next month so the euro should trade back towards the top of its $1.53/1.60 range. This will also drag euro/yen up as the Bank of Japan, like the Fed, is unlikely to raise interest rates either."
Reflecting a stronger risk taking mood among investors, European stocks were slightly higher in early trade .
Read more...
LONDON, June 24 (Reuters) - The yen plumbed an 11-month low versus the euro and lost ground against the dollar on Tuesday on talk that investors in Japan were using summer bonuses to buy higher yielding assets overseas.
This contrasted with a Reuters poll showing Japanese individual investor sentiment on the stock market grew less negative in June, which should be a positive for the currency. For more on the poll, see [ID:nTKF003220]
"The market seems to be fixated with the idea that Japanese retail investors are sellers of yen," said Adam Cole, global head of FX currency strategy at RBC Capital Markets in London.
"Yen weakness seems to be driven by talk of strong retail outflows from Japan into overseas assets, possibly associated with the allocation of summer bonuses into overseas bond funds."
While investors might be more upbeat on Japanese equities, the search yield was highlighted by expectations for Japanese interest rates to stay on hold this year as euro area and U.S. borrowing costs rise.
Investors were also unwinding positions ahead of the outcome of the Federal Reserve policy meeting due on Wednesday after having sold the euro on the back of disappointing euro zone data in the previous session.
At 0800 GMT, the euro was up 0.2 percent against the greenback at $1.5560, recovering from Monday's fall to about $1.5467 after a closely watched survey showing contraction in the euro zone's manufacturing and service sectors.
The single currency gained 0.5 percent versus the Japanese currency to 168.03 yen
The dollar rose 0.2 percent against a broadly softer yen to 108.00 yen, while the Australian dollar reached a seven-month high above 103 yen
Against a basket of major currencies, the dollar slipped 0.2 percent to 73.279 .DXY.
Data on Tuesday was mixed. A report by market research firm GfK showed German consumers were likely to be less ready to spend money in July on worries about rising energy bills, and Italian consumer morale fell sharply in June.
But consumer spending in France jumped 2.0 percent in May, beating the consensus forecast in a Reuters poll for a rise of 0.7 percent.
FED MAY DISAPPOINT?
The Fed statement due on Wednesday following the two-day policy meeting will be the key driver for currencies this week.
While the U.S. central bank is widely expected to keep the key Fed funds rate unchanged at 2.0 percent, investors are keenly awaiting confirmation of market pricing of nearly 75 basis points worth of hikes by year-end. See [FEDWATCH].
But some analysts said the U.S. central bank might be less hawkish than some in the market are expecting.
"We expect this week's FOMC meeting to disappoint the market's expectation of three U.S. rate hikes before the end of the year," said UBS analysts in a report.
"In contrast the ECB is likely to raise interest rates next month so the euro should trade back towards the top of its $1.53/1.60 range. This will also drag euro/yen up as the Bank of Japan, like the Fed, is unlikely to raise interest rates either."
Reflecting a stronger risk taking mood among investors, European stocks were slightly higher in early trade .
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Germany's DAX Index Erases Gains; Deutsche Post, Daimler Fall
By Henrietta Rumberger
June 24 (Bloomberg) -- German stocks erased earlier gains as Deutsche Post AG and Daimler AG declined. Deutsche Telekom AG, Europe's largest telephone company, led rising shares.
The benchmark DAX Index was little changed at 6,592.18 as of 9:44 a.m. in Frankfurt after climbing as much as 0.4 percent. DAX futures expiring in September slipped 0.1 percent to 6,659. The HDAX Index of the country's 110 biggest companies added less than 0.1 percent to 3,400.55.
German consumer confidence dropped to the lowest in more than two years as soaring energy prices sapped people's purchasing power. GfK AG's index for July, based on a survey of about 2,000 people, declined to 3.9 from a revised 4.7 in June, the Nuremberg-based market-research company said today.
Deutsche Post, Europe's biggest postal service, declined 21 cents, or 1.2 percent, to 17.44 euros. United Parcel Service Inc., the world's largest package-delivery company, lowered its profit forecast because of rising fuel costs and a slowing U.S. economy.
Daimler, the world's second-biggest maker of luxury cars, lost 62 cents, or 1.4 percent, to 42.91 euros.
Deutsche Telekom gained 18 cents, or 1.8 percent, to 10.38 euros. The stock was raised to ``overweight'' from ``equal- weight'' by Morgan Stanley, which said long-term investors ``should begin to build positions.''
To contact the reporter on this story: Henrietta Rumberger in Frankfurt at hrumberger@bloomberg.net.
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June 24 (Bloomberg) -- German stocks erased earlier gains as Deutsche Post AG and Daimler AG declined. Deutsche Telekom AG, Europe's largest telephone company, led rising shares.
The benchmark DAX Index was little changed at 6,592.18 as of 9:44 a.m. in Frankfurt after climbing as much as 0.4 percent. DAX futures expiring in September slipped 0.1 percent to 6,659. The HDAX Index of the country's 110 biggest companies added less than 0.1 percent to 3,400.55.
German consumer confidence dropped to the lowest in more than two years as soaring energy prices sapped people's purchasing power. GfK AG's index for July, based on a survey of about 2,000 people, declined to 3.9 from a revised 4.7 in June, the Nuremberg-based market-research company said today.
Deutsche Post, Europe's biggest postal service, declined 21 cents, or 1.2 percent, to 17.44 euros. United Parcel Service Inc., the world's largest package-delivery company, lowered its profit forecast because of rising fuel costs and a slowing U.S. economy.
Daimler, the world's second-biggest maker of luxury cars, lost 62 cents, or 1.4 percent, to 42.91 euros.
Deutsche Telekom gained 18 cents, or 1.8 percent, to 10.38 euros. The stock was raised to ``overweight'' from ``equal- weight'' by Morgan Stanley, which said long-term investors ``should begin to build positions.''
To contact the reporter on this story: Henrietta Rumberger in Frankfurt at hrumberger@bloomberg.net.
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European Stocks Fall; U.S. Index Futures Are Little Changed
By Adria Cimino
June 24 (Bloomberg) -- European stocks fell for a fifth day as higher oil prices weighed on earnings prospects for carmakers and airlines, while Kesa Electricals Plc said sales weakened. U.S. index futures were little changed, and Asian financial shares dropped.
Daimler AG, the world's second-largest maker of luxury cars, and Ryanair Holdings Plc, Europe's biggest discount carrier, declined as oil rose for a third day. Kesa dropped after Europe's third-largest consumer-electronics retailer refrained from announcing a stock buyback after sales growth weakened in its second half.
The Dow Jones Stoxx 600 Index lost 0.3 percent to 293.97 at 9:35 a.m. in London. Futures on the Standard & Poor's 500 Index rose less than 0.1 percent, while the MSCI Asia Pacific Index decreased less than 0.1 percent.
The Stoxx 600 has tumbled 19 percent this year on speculation higher inflation will keep policy makers from cutting borrowing costs, while credit-related losses approaching $400 billion erode economic and profit growth.
National benchmark indexes decreased in 12 of the 17 western European markets that were open. France's CAC 40 and Germany's DAX fell 0.3 percent. The U.K.'s FTSE 100 gained 0.2 percent.
Daimler slid 2.7 percent to 42.36 euros. Fiat SpA, Italy's biggest carmaker, retreated 2.2 percent to 11.33 euros.
Ryanair lost 1.9 percent to 2.91 euros.
Crude rose as the U.S. dollar dropped, enhancing the appeal of commodities as an inflation hedge, and OPEC's secretary- general said the group won't increase production.
Oil for August delivery increased as much as $1.16, or 0.9 percent, to $137.90 a barrel in electronic trading on the New York Mercantile Exchange.
Consumer Confidence
Kesa sank 5.3 percent to 165.25 pence. Chief Executive Officer Jean-Noel Labroue said profit and sales growth weakened over the second half and that a drop in consumer confidence is continuing. Kesa, which raised 550 million euros ($856 million) by selling its BUT unit, refrained from announcing the timing or amount of a share buyback.
To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.
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June 24 (Bloomberg) -- European stocks fell for a fifth day as higher oil prices weighed on earnings prospects for carmakers and airlines, while Kesa Electricals Plc said sales weakened. U.S. index futures were little changed, and Asian financial shares dropped.
Daimler AG, the world's second-largest maker of luxury cars, and Ryanair Holdings Plc, Europe's biggest discount carrier, declined as oil rose for a third day. Kesa dropped after Europe's third-largest consumer-electronics retailer refrained from announcing a stock buyback after sales growth weakened in its second half.
The Dow Jones Stoxx 600 Index lost 0.3 percent to 293.97 at 9:35 a.m. in London. Futures on the Standard & Poor's 500 Index rose less than 0.1 percent, while the MSCI Asia Pacific Index decreased less than 0.1 percent.
The Stoxx 600 has tumbled 19 percent this year on speculation higher inflation will keep policy makers from cutting borrowing costs, while credit-related losses approaching $400 billion erode economic and profit growth.
National benchmark indexes decreased in 12 of the 17 western European markets that were open. France's CAC 40 and Germany's DAX fell 0.3 percent. The U.K.'s FTSE 100 gained 0.2 percent.
Daimler slid 2.7 percent to 42.36 euros. Fiat SpA, Italy's biggest carmaker, retreated 2.2 percent to 11.33 euros.
Ryanair lost 1.9 percent to 2.91 euros.
Crude rose as the U.S. dollar dropped, enhancing the appeal of commodities as an inflation hedge, and OPEC's secretary- general said the group won't increase production.
Oil for August delivery increased as much as $1.16, or 0.9 percent, to $137.90 a barrel in electronic trading on the New York Mercantile Exchange.
Consumer Confidence
Kesa sank 5.3 percent to 165.25 pence. Chief Executive Officer Jean-Noel Labroue said profit and sales growth weakened over the second half and that a drop in consumer confidence is continuing. Kesa, which raised 550 million euros ($856 million) by selling its BUT unit, refrained from announcing the timing or amount of a share buyback.
To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.
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European shares turn negative, autos weigh
LONDON, June 24 (Reuters) - European shares gave up gains to turn negative early on Tuesday as weaker auto and utility stocks more than offset gains in oil shares that tracked crude higher.
At 0824 GMT, the FTSEurofirst 300 index of top European shares was down 0.1 percent at 1,221.52 points after earlier rising to as high as 1,229.08.
Auto stocks fell, led lower by the stronger euro and concerns about the U.S. market. BMW fell 1.8 percent, Daimler (DAIGn.DE: Quote, Profile, Research, Stock Buzz) lost 2.5 percent and Fiat slipped 4 percent.
BP , Shell and Total gained 0.8-1.0 percent as crude rose more than $1 a barrel to around $138.
(Reporting by Sitaraman Shankar)
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At 0824 GMT, the FTSEurofirst 300 index of top European shares was down 0.1 percent at 1,221.52 points after earlier rising to as high as 1,229.08.
Auto stocks fell, led lower by the stronger euro and concerns about the U.S. market. BMW fell 1.8 percent, Daimler (DAIGn.DE: Quote, Profile, Research, Stock Buzz) lost 2.5 percent and Fiat slipped 4 percent.
BP , Shell and Total gained 0.8-1.0 percent as crude rose more than $1 a barrel to around $138.
(Reporting by Sitaraman Shankar)
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Oil extends gains as Asian steel makers drop
Tue Jun 24, 2008 2:44am EDT
By Rafael Nam
HONG KONG (Reuters) - Oil prices climbed further on Tuesday, propped up by worries over supply disruptions in Nigeria and tensions in the Middle East, while Asian stocks eased to new multi-month lows on concerns about the U.S. economy.
Surging energy costs in Asia coincide with signs of a global economic slowdown, a bad omen for a region that relies on exports to help fuel profits.
United Parcel Service Inc , the world's largest package delivery company, warned on Monday that high fuel prices and a sluggish U.S. economy will hit its second-quarter earnings would be below expectations.
Trading was thin, with the dollar and regional bonds steady as investors wait for the outcome of a two-day U.S. Federal Reserve meeting that is widely expected to end on Wednesday with no change to interest rates.
European shares were set to open flat on Tuesday as well.
"Investors are holding back ahead of the U.S. interest rate meeting, as they are keen on hearing the Fed's comments on the economy and any hints about its future stance," said Bae Sung-young, a market analyst at Hyundai Securities in Seoul.
"What the market needs is some sort of positive outlook from the Fed, but we'll see about that."
The MSCI index of Asian stocks outside Japan inched down 0.1 percent, after at one point hitting its lowest since late March.
The index has fallen some 17 percent so far this year, reflecting investor unease about inflation and the global economy, as well as fears of more write-downs by financial firms.
Asian central banks from China to Vietnam, are being forced to tighten monetary policy, as they grapple with surging energy and food costs, bringing an end to several years of double-digit growth in several of the region's bourses.
Tokyo's Nikkei average .N225 closed flat.
Shares in Taiwan fell 1.8 percent, while markets in South Korea , Hong Kong .HSI, and Singapore .FTSTI were down less than 1 percent each.
But shares in Australia and India .BSESN rose, while Shanghai's main index .SSEC gained 1.8 percent.
STEEL MAKERS HIT
Among the big movers in the region, shares in steel makers slumped after Baoshan Iron and Steel (Baosteel) (600019.SS: Quote, Profile, Research, Stock Buzz) agreed on behalf of the Chinese steel industry to the steepest price rise in at least a decade for iron ore term contracts with Rio Tinto
Baosteel shares dropped as much as 10 percent at one point, while South Korea's POSCO fell 1.9 percent, as concerns it would also have to pay up offset its announcement on Tuesday it would raise steel prices.
Australia-listed shares of Rio Tinto gained 3.2 percent, while rival BHP Billiton , which has not signed a deal, rose 2.9 percent in Sydney on expectations it will also win better terms.
BHP had previously launched a formal bid for rival Rio Tinto.
Meanwhile, shares in Origin Energy surged 5.7 percent after British gas producer BG Group submitted a hostile $13.1 bid for the Australian firm.
OIL GAINS
U.S. crude futures prices rose for a third consecutive session, up 15 cents at $136.89 a barrel as of 2:05 a.m. EDT, after already gaining more than $1 on Monday. Oil hit a record $139.89 on June 16.
Saudi Arabia's recent pledge to increase output has been overshadowed by a limited strike by some oil workers at Chevron in Nigeria, raising concerns that supply from the oil producing nation could be disrupted, though it hasn't yet.
On top of that, Iran and Israel are engaged in an escalating exchange of sharp words this month, adding to concerns over supply.
The dollar edged up on Tuesday to 108.05 yen, holding below a four-month high of 108.59 yen hit last week, ahead of the Fed meeting. The euro was little changed at
$1.5522.
The region's government bonds were also largely flat ahead of the Fed. Japan's September 10-year futures were up 0.05 point at 134.05 by early afternoon.
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Gold Gains as Crude Rises, Spurring Demand for Inflation Hedge
By Feiwen Rong
June 24 (Bloomberg) -- Gold rose as crude oil traded above $137 a barrel for a second day, spurring demand for the precious metal as a hedge against inflation. Silver also gained.
Crude oil futures rose for a third day in New York amid signs that an increase in output by Saudi Arabia may not boost supply enough to make up for disruptions in Nigeria. Gold has gained 6.2 percent this year as crude oil soared 43 percent. Investors usually buy gold to preserve buying power amid rising inflation.
``Gold is supported by the inflation scare, especially in emerging markets such as China and India,'' Wei Yanan, an analyst at Jingyi Futures Co., said today by phone from Shanghai.
Bullion for immediate delivery climbed 0.2 percent to $885.75 an ounce at 10:24 a.m. in Singapore, paring yesterday's 2.1 percent decline that was driven by the dollar's gain against the euro. Silver rose 0.3 percent to $16.845 an ounce.
An agreement yesterday by Baosteel Group Corp., China's largest steelmaker, to pay about 80 percent more for iron ore from Rio Tinto Group further stoked inflationary concern as manufacturers will try to pass cost increases, Wei said.
China's producer prices accelerated 8.2 percent last month, their fastest pace in more than three years. Consumer prices in the world's largest consumer of commodities gained 7.7 percent in May, beating the government's annual target of 4.8 percent.
Fed Decision
Still, gold's gains may be limited amid expectations that the dollar may rise before Federal Reserve policy makers agree this week to keep the benchmark interest rate on hold at 2 percent, Wei added. The Fed is scheduled to convene for a two-day meeting today.
The dollar was little changed today against the euro before an industry survey that may show U.S. consumer confidence slumped to the lowest since 1992 amid a housing recession. The dollar traded at $1.5519 against the euro at 9:00 a.m. in Singapore.
Gold for August delivery was little changed at $888 an ounce in after-hours electronic trading on Comex at 9:44 a.m. Singapore time.
Gold for April 2009 delivery fell 46 yen, or 1.5 percent, to 3,103 yen a gram ($894 an ounce) on the Tokyo Commodity Exchange at 10:45 a.m. local time. Gold for December traded in Shanghai fell 2 percent to 196.61 yuan a gram ($890 an ounce).
To contact the reporter for this story: Feiwen Rong in Singapore at frong2@bloomberg.net
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June 24 (Bloomberg) -- Gold rose as crude oil traded above $137 a barrel for a second day, spurring demand for the precious metal as a hedge against inflation. Silver also gained.
Crude oil futures rose for a third day in New York amid signs that an increase in output by Saudi Arabia may not boost supply enough to make up for disruptions in Nigeria. Gold has gained 6.2 percent this year as crude oil soared 43 percent. Investors usually buy gold to preserve buying power amid rising inflation.
``Gold is supported by the inflation scare, especially in emerging markets such as China and India,'' Wei Yanan, an analyst at Jingyi Futures Co., said today by phone from Shanghai.
Bullion for immediate delivery climbed 0.2 percent to $885.75 an ounce at 10:24 a.m. in Singapore, paring yesterday's 2.1 percent decline that was driven by the dollar's gain against the euro. Silver rose 0.3 percent to $16.845 an ounce.
An agreement yesterday by Baosteel Group Corp., China's largest steelmaker, to pay about 80 percent more for iron ore from Rio Tinto Group further stoked inflationary concern as manufacturers will try to pass cost increases, Wei said.
China's producer prices accelerated 8.2 percent last month, their fastest pace in more than three years. Consumer prices in the world's largest consumer of commodities gained 7.7 percent in May, beating the government's annual target of 4.8 percent.
Fed Decision
Still, gold's gains may be limited amid expectations that the dollar may rise before Federal Reserve policy makers agree this week to keep the benchmark interest rate on hold at 2 percent, Wei added. The Fed is scheduled to convene for a two-day meeting today.
The dollar was little changed today against the euro before an industry survey that may show U.S. consumer confidence slumped to the lowest since 1992 amid a housing recession. The dollar traded at $1.5519 against the euro at 9:00 a.m. in Singapore.
Gold for August delivery was little changed at $888 an ounce in after-hours electronic trading on Comex at 9:44 a.m. Singapore time.
Gold for April 2009 delivery fell 46 yen, or 1.5 percent, to 3,103 yen a gram ($894 an ounce) on the Tokyo Commodity Exchange at 10:45 a.m. local time. Gold for December traded in Shanghai fell 2 percent to 196.61 yuan a gram ($890 an ounce).
To contact the reporter for this story: Feiwen Rong in Singapore at frong2@bloomberg.net
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Oil Rises as Nigeria Supply Disruptions Outweigh Saudi Pledge
By Christian Schmollinger
June 24 (Bloomberg) -- Crude oil rose for a third day in New York as disruptions in Nigeria have removed more supply from the market than Saudi Arabia's promised output increase.
Attacks on a Royal Dutch Shell Plc platform and a Chevron Corp. pipeline last week halted 300,000 barrels a day of Nigerian output. The country's white-collar oil union began a strike against Chevron today that may stop up to 350,000 barrels a day. Saudi Arabia will pump an extra 200,000 barrels a day next month, Oil Minister Ali al-Naimi said June 22.
``When you have so many short-termed focused traders in the market, something like what's happening in Nigeria has a big influence,'' said Mark Pervan, a senior commodity strategist at Australia & New Zealand Banking Group Ltd. in Melbourne.
Crude oil for August delivery climbed as much as 74 cents, or 0.5 percent, to $137.48 a barrel on the New York Mercantile Exchange. The contract was trading at $136.94 a barrel at 9:40 a.m. in Singapore.
Prices touched a record $139.89 on June 16 and are up 99 percent in the past year. Yesterday, oil rose $1.38, or 1 percent, to settle at $136.74 a barrel.
An attack on Shell's Bonga platform, off the coast of Nigeria, on June 19 may halt deliveries for as long as six weeks, the company said last week. The field produces about 190,000 barrels a day. Chevron halted 120,000 barrels a day of onshore production after its pipeline was blown up last week.
After the latest round of attacks, the Movement for the Emancipation of the Niger Delta said it will declare a cease- fire starting today to ``give peace and dialogue another chance.'' Action against foreign oil companies in Nigeria will end at midnight local time today, the group said.
Low-Sulfur Oil
Brent crude oil for August settlement was at $136.02 a barrel, up 11 cents, on London's ICE Futures Europe exchange at 9:26 a.m. Singapore time. It rose $1.05, or 0.8 percent, to settle at $135.91 a barrel yesterday. Prices climbed to a record $139.32 on June 16.
Nigeria produces low-sulfur, or sweet, oils prized by refiners because of the high proportion of gasoline and distillate fuels it yields. Distillate fuel is a category that includes heating oil and diesel.
``The employees belonging to the Petroleum and Natural Gas Senior Staff Association of Nigeria have declared a work stoppage,'' Chevron spokeswoman Margaret Cooper said yesterday in a statement.
Cooper said it's too early to comment on the impact of the strike on operations. Chevron in 2007 produced about 350,000 barrels of oil a day from its 32 fields in Nigeria, according to the company's Web site.
Full-Scale Strike
Jonathan Omare, secretary of the local Chevron union, said a full-scale strike had begun, though production was not yet affected. ``The strike is everywhere,'' Omare said by telephone. `Nobody's working apart from the guys in the field.''
Saudi Arabia first pledged to raise output by 200,000 barrels a day after King Abdullah met with United Nations Secretary-General Ban Ki-Moon on June 15.
``People were expecting an increase of about this size, so it's a minor element in the market today,'' Lynch said. ``There would have had to be an increase of 1 million barrels to have a major impact.''
The kingdom will offer more oil if there is demand and also plans to increase its production capacity to 12.5 million barrels a day by the end of next year, Al-Naimi said June 22 at a summit in Jeddah. Capacity may eventually rise to 15 million if necessary, using oil from five ``mega'' fields that could potentially start up within three years, Al-Naimi said.
To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net.
Read more...
June 24 (Bloomberg) -- Crude oil rose for a third day in New York as disruptions in Nigeria have removed more supply from the market than Saudi Arabia's promised output increase.
Attacks on a Royal Dutch Shell Plc platform and a Chevron Corp. pipeline last week halted 300,000 barrels a day of Nigerian output. The country's white-collar oil union began a strike against Chevron today that may stop up to 350,000 barrels a day. Saudi Arabia will pump an extra 200,000 barrels a day next month, Oil Minister Ali al-Naimi said June 22.
``When you have so many short-termed focused traders in the market, something like what's happening in Nigeria has a big influence,'' said Mark Pervan, a senior commodity strategist at Australia & New Zealand Banking Group Ltd. in Melbourne.
Crude oil for August delivery climbed as much as 74 cents, or 0.5 percent, to $137.48 a barrel on the New York Mercantile Exchange. The contract was trading at $136.94 a barrel at 9:40 a.m. in Singapore.
Prices touched a record $139.89 on June 16 and are up 99 percent in the past year. Yesterday, oil rose $1.38, or 1 percent, to settle at $136.74 a barrel.
An attack on Shell's Bonga platform, off the coast of Nigeria, on June 19 may halt deliveries for as long as six weeks, the company said last week. The field produces about 190,000 barrels a day. Chevron halted 120,000 barrels a day of onshore production after its pipeline was blown up last week.
After the latest round of attacks, the Movement for the Emancipation of the Niger Delta said it will declare a cease- fire starting today to ``give peace and dialogue another chance.'' Action against foreign oil companies in Nigeria will end at midnight local time today, the group said.
Low-Sulfur Oil
Brent crude oil for August settlement was at $136.02 a barrel, up 11 cents, on London's ICE Futures Europe exchange at 9:26 a.m. Singapore time. It rose $1.05, or 0.8 percent, to settle at $135.91 a barrel yesterday. Prices climbed to a record $139.32 on June 16.
Nigeria produces low-sulfur, or sweet, oils prized by refiners because of the high proportion of gasoline and distillate fuels it yields. Distillate fuel is a category that includes heating oil and diesel.
``The employees belonging to the Petroleum and Natural Gas Senior Staff Association of Nigeria have declared a work stoppage,'' Chevron spokeswoman Margaret Cooper said yesterday in a statement.
Cooper said it's too early to comment on the impact of the strike on operations. Chevron in 2007 produced about 350,000 barrels of oil a day from its 32 fields in Nigeria, according to the company's Web site.
Full-Scale Strike
Jonathan Omare, secretary of the local Chevron union, said a full-scale strike had begun, though production was not yet affected. ``The strike is everywhere,'' Omare said by telephone. `Nobody's working apart from the guys in the field.''
Saudi Arabia first pledged to raise output by 200,000 barrels a day after King Abdullah met with United Nations Secretary-General Ban Ki-Moon on June 15.
``People were expecting an increase of about this size, so it's a minor element in the market today,'' Lynch said. ``There would have had to be an increase of 1 million barrels to have a major impact.''
The kingdom will offer more oil if there is demand and also plans to increase its production capacity to 12.5 million barrels a day by the end of next year, Al-Naimi said June 22 at a summit in Jeddah. Capacity may eventually rise to 15 million if necessary, using oil from five ``mega'' fields that could potentially start up within three years, Al-Naimi said.
To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net.
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Dollar Is Little Changed Before Confidence Data, Fed Meeting
By Stanley White and Kosuke Goto
June 24 (Bloomberg) -- The dollar was little changed against the euro before an industry survey that may show consumer confidence in the U.S. slumped to the lowest since 1992 as a housing recession weighs on the economy.
Federal Reserve policy makers start a two-day meeting later today at which they will probably keep the benchmark interest rate on hold at 2 percent. The yen may weaken on speculation Japanese individuals due to receive summer bonuses in June will plow cash into investment trusts targeting higher yields overseas.
``Weak consumer confidence could ripple through the currency market and keep pressure on the dollar,'' said Hideki Amikura, deputy general manager of foreign exchange at Nomura Trust and Banking Co., a unit of Japan's largest brokerage. ``Expectations for a Fed rate increase later this year are slowly peeling away.''
The dollar traded at $1.5507 against the euro at 10:52 a.m. in Tokyo, little changed from last yesterday. It touched an all- time low of $1.6019 on April 22. The greenback held at 107.99 yen while the euro bought 167.47 yen from 167.35. The dollar may fall to 107.60 yen today, Amikura forecast.
The Australian dollar bought 95.02 U.S. cents, near a two- week high of 95.67 cents, after Rio Tinto Group said China had agreed to pay a record price increase for iron ore, Australia's largest export. The South Korean won rose to 1,037.65 per dollar from 1,039.15, snapping two days of losses, on speculation South Korean officials will buy the currency to lower import prices.
Fund Raising
Japanese asset management companies and banks will market more than 1 trillion yen ($9.2 billion) of funds focused on foreign securities by the end of the month, according to data compiled by Bloomberg. T&D Asset Management Co. will seek to raise 500 billion yen for a fund focused on Chinese environment- related business on June 27. Daiwa Asset Management Co. will seek 20 billion yen for commodity funds.
``Sales of investment trusts are not so bad,'' said Kei Katayama, who helps oversee the equivalent of about $1 billion at Daiwa SB Investments Ltd. in Tokyo. ``This is supportive for foreign currencies against the yen.''
Japan's currency may weaken to 110 per dollar in a month, Katayama said.
U.S. Economy
The Conference Board's confidence index declined to 56 in June, the lowest since December 1992, from 57.2 in May, according to a Bloomberg News survey of economists. The research group will release the data at 10 a.m. in New York. The S&P/Case-Shiller home-price index fell 16 percent in April from a year earlier, according to a separate survey. The report is due an hour before the confidence survey.
All of the 102 economists surveyed by Bloomberg News predict the central bank will leave rates unchanged tomorrow. The dollar has traded in a range of $1.5303 to $1.5843 per euro since Fed Chairman Ben S. Bernanke said on June 9 that economic risk has faded, prompting investors to bet the central bank will increase the target lending rate later this year after seven reductions beginning in September.
Traders have since reduced bets on a rate increase. Futures contracts show a 38.9 percent chance the Fed will raise rates by at least a quarter of percent at its meeting in August, down from 68.5 percent odds a week ago.
Slowdown in Europe
Any gains in the euro may be limited before a survey forecast by economists to show German consumer confidence will fall in July, reducing speculation the European Central Bank will increase borrowing costs.
The dollar has gained 1.7 percent against the euro this quarter as traders bet the economic slowdown sparked by the collapse of the subprime-mortgage market will spread to Europe as the U.S. recovers. The greenback is down 7 percent this year.
``Economic data point to a slowdown in Europe and make it hard for the ECB to raise rates beyond its July policy meeting,'' said Masaki Fukui, a senior economist and currency analyst in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan's second-largest publicly traded financial group. ``The euro may move between $1.53 and $1.58 against the dollar in one month.''
The Nuremberg-based GfK AG's index for July, based on a survey of about 2,000 people, will probably fall to 4.6, from 4.9 in June, according to the median forecast of 28 economists surveyed by Bloomberg News.
ECB Rates
Investors reduced bets yesterday on rate increases by the ECB, futures contracts showed. The implied yield on the March Euribor futures contract dropped 2 basis points, or 0.02 percentage point, to 5.31 percent. The contract has gained 55 basis points in the past month.
ECB President Jean-Claude Trichet speaks later today. He said on June 5 that the bank may increase the 4 percent main refinancing rate by a quarter-percentage point next month. The central bank will make such an increase by the end of September, while the Fed will hold its target unchanged, according to the median forecast of economists in Bloomberg News surveys.
``There's still an expectation that the ECB will tighten quicker than the Fed,'' said Alan Ruskin, head of international currency strategy, at RBS Greenwich Capital Markets in Greenwich, Connecticut. ``But if they're tightening into weakening data,'' the ECB may be more cautious.
To contact the reporters on this story: Stanley White in Tokyo at swhite28@bloomberg.netKosuke Goto in Tokyo at kgoto2@bloomberg.net
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June 24 (Bloomberg) -- The dollar was little changed against the euro before an industry survey that may show consumer confidence in the U.S. slumped to the lowest since 1992 as a housing recession weighs on the economy.
Federal Reserve policy makers start a two-day meeting later today at which they will probably keep the benchmark interest rate on hold at 2 percent. The yen may weaken on speculation Japanese individuals due to receive summer bonuses in June will plow cash into investment trusts targeting higher yields overseas.
``Weak consumer confidence could ripple through the currency market and keep pressure on the dollar,'' said Hideki Amikura, deputy general manager of foreign exchange at Nomura Trust and Banking Co., a unit of Japan's largest brokerage. ``Expectations for a Fed rate increase later this year are slowly peeling away.''
The dollar traded at $1.5507 against the euro at 10:52 a.m. in Tokyo, little changed from last yesterday. It touched an all- time low of $1.6019 on April 22. The greenback held at 107.99 yen while the euro bought 167.47 yen from 167.35. The dollar may fall to 107.60 yen today, Amikura forecast.
The Australian dollar bought 95.02 U.S. cents, near a two- week high of 95.67 cents, after Rio Tinto Group said China had agreed to pay a record price increase for iron ore, Australia's largest export. The South Korean won rose to 1,037.65 per dollar from 1,039.15, snapping two days of losses, on speculation South Korean officials will buy the currency to lower import prices.
Fund Raising
Japanese asset management companies and banks will market more than 1 trillion yen ($9.2 billion) of funds focused on foreign securities by the end of the month, according to data compiled by Bloomberg. T&D Asset Management Co. will seek to raise 500 billion yen for a fund focused on Chinese environment- related business on June 27. Daiwa Asset Management Co. will seek 20 billion yen for commodity funds.
``Sales of investment trusts are not so bad,'' said Kei Katayama, who helps oversee the equivalent of about $1 billion at Daiwa SB Investments Ltd. in Tokyo. ``This is supportive for foreign currencies against the yen.''
Japan's currency may weaken to 110 per dollar in a month, Katayama said.
U.S. Economy
The Conference Board's confidence index declined to 56 in June, the lowest since December 1992, from 57.2 in May, according to a Bloomberg News survey of economists. The research group will release the data at 10 a.m. in New York. The S&P/Case-Shiller home-price index fell 16 percent in April from a year earlier, according to a separate survey. The report is due an hour before the confidence survey.
All of the 102 economists surveyed by Bloomberg News predict the central bank will leave rates unchanged tomorrow. The dollar has traded in a range of $1.5303 to $1.5843 per euro since Fed Chairman Ben S. Bernanke said on June 9 that economic risk has faded, prompting investors to bet the central bank will increase the target lending rate later this year after seven reductions beginning in September.
Traders have since reduced bets on a rate increase. Futures contracts show a 38.9 percent chance the Fed will raise rates by at least a quarter of percent at its meeting in August, down from 68.5 percent odds a week ago.
Slowdown in Europe
Any gains in the euro may be limited before a survey forecast by economists to show German consumer confidence will fall in July, reducing speculation the European Central Bank will increase borrowing costs.
The dollar has gained 1.7 percent against the euro this quarter as traders bet the economic slowdown sparked by the collapse of the subprime-mortgage market will spread to Europe as the U.S. recovers. The greenback is down 7 percent this year.
``Economic data point to a slowdown in Europe and make it hard for the ECB to raise rates beyond its July policy meeting,'' said Masaki Fukui, a senior economist and currency analyst in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan's second-largest publicly traded financial group. ``The euro may move between $1.53 and $1.58 against the dollar in one month.''
The Nuremberg-based GfK AG's index for July, based on a survey of about 2,000 people, will probably fall to 4.6, from 4.9 in June, according to the median forecast of 28 economists surveyed by Bloomberg News.
ECB Rates
Investors reduced bets yesterday on rate increases by the ECB, futures contracts showed. The implied yield on the March Euribor futures contract dropped 2 basis points, or 0.02 percentage point, to 5.31 percent. The contract has gained 55 basis points in the past month.
ECB President Jean-Claude Trichet speaks later today. He said on June 5 that the bank may increase the 4 percent main refinancing rate by a quarter-percentage point next month. The central bank will make such an increase by the end of September, while the Fed will hold its target unchanged, according to the median forecast of economists in Bloomberg News surveys.
``There's still an expectation that the ECB will tighten quicker than the Fed,'' said Alan Ruskin, head of international currency strategy, at RBS Greenwich Capital Markets in Greenwich, Connecticut. ``But if they're tightening into weakening data,'' the ECB may be more cautious.
To contact the reporters on this story: Stanley White in Tokyo at swhite28@bloomberg.netKosuke Goto in Tokyo at kgoto2@bloomberg.net
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Korean Won Advances on Speculation Central Bank May Purchase It
By Kim Kyoungwha
June 24 (Bloomberg) -- South Korea's won rose on speculation the nation's foreign-exchange authorities will purchase the currency to help strengthen it and limit inflation caused by rising import prices. Bonds were little changed.
The won snapped a two-day loss as government officials have shifted their focus in recent months to curbing inflation that quickened to the fastest pace in seven years in May. Finance Minister Kang Man Soo said last week the government will ``put utmost priority on stabilizing prices and looking after the lives of the people.''
``It's hard for market players to take positions either way given that the dollar is trading near the 1,040 level where authorities last intervened to stem the won's loss,'' said Kim Hee, a currency dealer with state-run Korea Development Bank. ``Some export deals flew in, propping up the won as well.''
The won rose 0.2 percent to 1,037.20 against the dollar as of 10:16 a.m. local time, according to Seoul Money Brokerage Services Ltd. The currency has weakened 9.8 percent this year, the second worst performer of the 10 most-active currencies in Asia outside of Japan, according to data compiled by Bloomberg.
Central banks intervene in currency markets by arranging purchases or sales of foreign exchange.
Gains in the won may be tempered on concern a four-day decline in the benchmark Kospi stock index will spur overseas investors to cut their holdings of the nation's assets.
`Intervention Fears'
``A weak stock market and foreign sales of equities all point to demand for the dollar,'' said Ko Yun Jin, a currency dealer at Kookmin Bank in Seoul. ``Still, intervention fears will keep investors on their toes.''
South Korea's government bond yields stayed near the highest level since January on concern that rising inflation will erode the value of the fixed payments of debt.
``The inflation concern is unnerving debt investors,'' said Kim Do Sung, a futures trader with PB Futures Co. in Seoul. ``Trading is also very limited as few in the market are willing to take positions.''
The yield on the 5.25 note due March 2013 was little changed at 5.92 percent, according to Korea Exchange. The price held at about 98.76. A basis point is 0.01 percentage point.
To contact the reporters on this story: Kim Kyoungwha in Beijing at kkim19@bloomberg.net.
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Australian Dollar Little Changed on Ore; N.Z. Dollar Falls
By Ron Harui and Tracy Withers
June 24 (Bloomberg) -- Australia's dollar was little changed as Rio Tinto Group said China agreed to pay a record price for iron ore, the nation's largest export. The New Zealand dollar fell before a report on economic growth.
The Australian currency headed for a second quarterly gain as Rio said Baosteel Group Corp., China's biggest steelmaker, will pay 80 percent more for ore. That could bolster Australia's overseas earnings and support the nation's economic expansion. The New Zealand currency was poised to snap a two-quarter winning stretch as a government report this week is forecast by economists to show the economy contracted.
``News that Rio Tinto had achieved an average 85 percent increase in iron ore contract prices helped the Australian dollar gain,'' said John Kyriakopoulos, a currency strategist at National Australia Bank Ltd. in Sydney, in a client note today. ``Traders believe the boost from commodity prices could see economic growth re-accelerate in the second half of the year.''
The Australian dollar traded at 95.17 U.S. cents at 11:07 a.m. in Sydney from 95.14 cents late in Asia yesterday. It has risen 4.2 percent this quarter and 8.7 percent this year. The currency advanced to 102.71 yen from 102.49 yen.
The New Zealand dollar fell to 75.73 U.S. cents from 75.84 cents late in Asia yesterday. It has lost 3.6 percent this quarter and 1.1 percent this year. The currency traded at 81.79 yen from 81.69 yen.
Commodity Exports
China's Baosteel will pay $144.66 a dry metric ton for so- called Pilbara blend fines in the year that began April 1, Rio said yesterday in a statement. The contract marks the first time Chinese buyers agreed to pay more for Australian ore than supplies from Brazil, which are costlier to ship.
The Australian Bureau of Agricultural and Resource Economics said yesterday commodity exports may rise to a record A$212 billion ($202 billion) in the year ending June 30, 2009. That compares with its March forecast of A$189 billion and estimated 2008 sales of A$151 billion. Exports of raw materials contribute 17 percent to Australia's economy.
The New Zealand dollar was set for a monthly decline on concern that slowing economic growth may spur Reserve Bank of New Zealand Governor Alan Bollard to lower interest rates.
``Market pricing for a Reserve Bank easing sticks out like a sore thumb against a backdrop of expected rate hikes elsewhere,'' said Michael Gordon, a currency strategist at Westpac Banking Corp. in Wellington. ``There seems to be little appetite to hold the currency.''
New Zealand's Economy
A government report on June 27 will show the economy contracted 0.3 percent in the first three months of the year, according to the median forecast of 13 economists surveyed by Bloomberg. Seven of the economists said gross domestic product may also shrink in the second quarter, pushing New Zealand into its first recession since 1998.
Bollard said on June 5 it is ``likely'' he will reduce the 8.25 percent benchmark interest rate this year because weak growth is slowing inflation. He forecast the economy will rebound in the second quarter after shrinking in the three months ended March 31.
There is a 28 percent chance of a quarter-point cut next month, according to an index calculated by Credit Suisse Group based on trading in overnight interest-rate swaps.
Australian government debt gained for a second day, pushing the yield on the 10-year security down 1 basis point to 6.53 percent. The price of the 5.25 percent bond maturing in March 2019 rose 0.081, or A$0.81 per A$1,000 face amount, to 90.211. A basis point is 0.01 percentage point.
New Zealand's government bonds were little changed. The yield on the 6 percent note due December 2017 was unchanged from yesterday at 6.44 percent, and the three-year yield held at 6.50 percent. Yields move inversely to prices.
To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net; Tracy Withers in Wellington at twithers@bloomberg.net
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June 24 (Bloomberg) -- Australia's dollar was little changed as Rio Tinto Group said China agreed to pay a record price for iron ore, the nation's largest export. The New Zealand dollar fell before a report on economic growth.
The Australian currency headed for a second quarterly gain as Rio said Baosteel Group Corp., China's biggest steelmaker, will pay 80 percent more for ore. That could bolster Australia's overseas earnings and support the nation's economic expansion. The New Zealand currency was poised to snap a two-quarter winning stretch as a government report this week is forecast by economists to show the economy contracted.
``News that Rio Tinto had achieved an average 85 percent increase in iron ore contract prices helped the Australian dollar gain,'' said John Kyriakopoulos, a currency strategist at National Australia Bank Ltd. in Sydney, in a client note today. ``Traders believe the boost from commodity prices could see economic growth re-accelerate in the second half of the year.''
The Australian dollar traded at 95.17 U.S. cents at 11:07 a.m. in Sydney from 95.14 cents late in Asia yesterday. It has risen 4.2 percent this quarter and 8.7 percent this year. The currency advanced to 102.71 yen from 102.49 yen.
The New Zealand dollar fell to 75.73 U.S. cents from 75.84 cents late in Asia yesterday. It has lost 3.6 percent this quarter and 1.1 percent this year. The currency traded at 81.79 yen from 81.69 yen.
Commodity Exports
China's Baosteel will pay $144.66 a dry metric ton for so- called Pilbara blend fines in the year that began April 1, Rio said yesterday in a statement. The contract marks the first time Chinese buyers agreed to pay more for Australian ore than supplies from Brazil, which are costlier to ship.
The Australian Bureau of Agricultural and Resource Economics said yesterday commodity exports may rise to a record A$212 billion ($202 billion) in the year ending June 30, 2009. That compares with its March forecast of A$189 billion and estimated 2008 sales of A$151 billion. Exports of raw materials contribute 17 percent to Australia's economy.
The New Zealand dollar was set for a monthly decline on concern that slowing economic growth may spur Reserve Bank of New Zealand Governor Alan Bollard to lower interest rates.
``Market pricing for a Reserve Bank easing sticks out like a sore thumb against a backdrop of expected rate hikes elsewhere,'' said Michael Gordon, a currency strategist at Westpac Banking Corp. in Wellington. ``There seems to be little appetite to hold the currency.''
New Zealand's Economy
A government report on June 27 will show the economy contracted 0.3 percent in the first three months of the year, according to the median forecast of 13 economists surveyed by Bloomberg. Seven of the economists said gross domestic product may also shrink in the second quarter, pushing New Zealand into its first recession since 1998.
Bollard said on June 5 it is ``likely'' he will reduce the 8.25 percent benchmark interest rate this year because weak growth is slowing inflation. He forecast the economy will rebound in the second quarter after shrinking in the three months ended March 31.
There is a 28 percent chance of a quarter-point cut next month, according to an index calculated by Credit Suisse Group based on trading in overnight interest-rate swaps.
Australian government debt gained for a second day, pushing the yield on the 10-year security down 1 basis point to 6.53 percent. The price of the 5.25 percent bond maturing in March 2019 rose 0.081, or A$0.81 per A$1,000 face amount, to 90.211. A basis point is 0.01 percentage point.
New Zealand's government bonds were little changed. The yield on the 6 percent note due December 2017 was unchanged from yesterday at 6.44 percent, and the three-year yield held at 6.50 percent. Yields move inversely to prices.
To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net; Tracy Withers in Wellington at twithers@bloomberg.net
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Nikkei down 0.4 pct on US, Japan economy worries
TOKYO, June 24 (Reuters) - Japan's Nikkei stock average fell 0.4 percent on Tuesday, led lower by blue chips such as Fast Retailing Co (9983.T: Quote, Profile, Research, Stock Buzz) and Fanuc Ltd (6954.T: Quote, Profile, Research, Stock Buzz) on worries about the economic outlook in the United States and Japan.
The persistent strength of oil prices pushed up energy shares such as oil and gas field developer Inpex Holdings Inc (1605.T: Quote, Profile, Research, Stock Buzz).
"Yesterday, Wall Street ended virtually flat. But if you take a closer look, it's a lot worse than that. Auto and financial sectors were a damper in investors' minds," said Katsuhiko Kodama, senior strategist at Toyo Securities.
"Japan's not good either. Recent economic data points to weak fundamentals."
Government data showed on Monday that big Japanese firms were more pessimistic about business conditions in the three months to June, signalling that gloom was spreading across the economy. [ID:nT183666]
As of 0059 GMT, the benchmark Nikkei .N225 fell 52.34 points to 13,805.13. The broader Topix lost 0.1 percent to 1,346.83.
Trade is expected to remain thin, as investors hold off making bets ahead of the U.S. Federal Reserve meeting.
The Fed is expected to leave rates unchanged in its decision due out on Wednesday, and the market will focus on the accompanying statement for clues on the future course of monetary policy.
Apparel retailer Fast Retailing fell 2.1 percent to 10,050 yen and industrial robot maker Fanuc lost 1.8 percent to 11,590 yen, the two biggest drags on the Nikkei.
Inpex gained 1.6 percent to 1.31 million yen and Mitsubishi Corp (8058.T: Quote, Profile, Research, Stock Buzz) rose 2.1 percent to 3,490 yen. Mitsubishi and rival trading houses have stakes in overseas natural resources.
Drug maker Daiichi Sankyo (4568.T: Quote, Profile, Research, Stock Buzz) slid 3.2 percent to 2,745 yen after it and Eli Lilly and Co (LLY.N: Quote, Profile, Research, Stock Buzz) said on Tuesday the U.S. Food and Drug Administration has extended the review period for its blood thinner prasugrel by three months. (Reporting by Taiga Uranaka; Editing by Brent Kininmont)
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The persistent strength of oil prices pushed up energy shares such as oil and gas field developer Inpex Holdings Inc (1605.T: Quote, Profile, Research, Stock Buzz).
"Yesterday, Wall Street ended virtually flat. But if you take a closer look, it's a lot worse than that. Auto and financial sectors were a damper in investors' minds," said Katsuhiko Kodama, senior strategist at Toyo Securities.
"Japan's not good either. Recent economic data points to weak fundamentals."
Government data showed on Monday that big Japanese firms were more pessimistic about business conditions in the three months to June, signalling that gloom was spreading across the economy. [ID:nT183666]
As of 0059 GMT, the benchmark Nikkei .N225 fell 52.34 points to 13,805.13. The broader Topix lost 0.1 percent to 1,346.83.
Trade is expected to remain thin, as investors hold off making bets ahead of the U.S. Federal Reserve meeting.
The Fed is expected to leave rates unchanged in its decision due out on Wednesday, and the market will focus on the accompanying statement for clues on the future course of monetary policy.
Apparel retailer Fast Retailing fell 2.1 percent to 10,050 yen and industrial robot maker Fanuc lost 1.8 percent to 11,590 yen, the two biggest drags on the Nikkei.
Inpex gained 1.6 percent to 1.31 million yen and Mitsubishi Corp (8058.T: Quote, Profile, Research, Stock Buzz) rose 2.1 percent to 3,490 yen. Mitsubishi and rival trading houses have stakes in overseas natural resources.
Drug maker Daiichi Sankyo (4568.T: Quote, Profile, Research, Stock Buzz) slid 3.2 percent to 2,745 yen after it and Eli Lilly and Co (LLY.N: Quote, Profile, Research, Stock Buzz) said on Tuesday the U.S. Food and Drug Administration has extended the review period for its blood thinner prasugrel by three months. (Reporting by Taiga Uranaka; Editing by Brent Kininmont)
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Most Asian Stocks Drop, Led by Banks, Carmakers; Woodside Gains
By Chua Kong Ho
June 24 (Bloomberg) -- Most Asian stocks fell for a fourth day, led by financials and automakers, after Goldman Sachs Group Inc. advised selling banks as credit losses continue and oil prices rose.
Mizuho Financial Group Inc., which recorded the biggest losses in Japan from subprime-related securities, and Commonwealth Bank of Australia retreated on speculation financial institutions will have to write down more assets. Toyota Motor Corp., Japan's largest automaker, dropped on concern higher oil prices will cut demand for cars. Inpex Holdings Inc. and Woodside Petroleum Ltd. advanced as oil rose for a third day.
``There is a heightening sense of alarm as crude prices continue their climb,'' Mamoru Shimode, Tokyo-based chief equity strategist at Deutsche Bank AG, said in an interview with Bloomberg Television.
The MSCI Asia Pacific Index was little changed at 138.61 as of 9:31 a.m. in Tokyo. About three stocks fell for every two that rose, with financial shares contributing the most to declines.
Japan's Nikkei 225 Stock Average fell 0.6 percent to 13,776. South Korea's Kospi Index declined 0.5 percent. Posco, Asia's largest stainless-steel maker, slid after saying it will cut production of the metal in July because of lower demand.
More than $8 trillion in global stock market value has been wiped out this year as a 43 percent jump in oil raises costs for consumers and businesses. Oil rose for a third day in New York amid signs an increase in output from Saudi Arabia may not boost supply enough to make up for production disruptions in Nigeria.
About $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.
To contact the reporter for this story: Chua Kong Ho at kchua6@bloomberg.net
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