By Kosuke Goto
June 27 (Bloomberg) -- The yen headed for a seventh weekly decline against the euro, the longest losing streak since May 2007, as Japanese workers spend their summer bonuses on overseas assets offering higher yields.
The currency snapped a three-day gain against the dollar as Japanese finance companies seek to raise more than 1 trillion yen ($9.4 billion) for funds investing abroad by June 30, according to data compiled by Bloomberg. The euro traded near a three-week high versus the dollar on speculation the European Central Bank will raise interest rates next week, while traders bet the Federal Reserve will keep borrowing costs on hold in August.
``The yen was a bit overbought and this is giving Japanese investors a very attractive chance of buying foreign currencies on dips,'' said Seiichiro Muta, director of foreign exchange in Tokyo at UBS AG, the world's second-largest currency trader. ``The yen will weaken today.''
Japan's currency traded at 168.34 per euro as of 9:52 a.m. in Tokyo, from 168.30 yesterday in New York, when it touched a record low of 169.46. The yen dropped to 106.92 per dollar from 106.81 yesterday, when it rose to 106.62, the highest level since June 11. The dollar was at $1.5746 per euro from $1.5757 yesterday, when it dropped to $1.5767, the weakest since June 9.
The yen may fall to 169 a euro and 107.50 a dollar today, Muta forecast.
Japan's currency slid to 102.28 per Australian dollar from 102.08 in New York. It fell to 13.5031 per South Africa's rand from 13.4229. It dropped to 104.50 against the Swiss franc and approached the lowest level since February 1991.
Summer Bonuses
The yen remained lower after a government report today showed Japanese core consumer prices rose 1.5 percent in May from a year earlier, the fastest pace in a decade. The data also showed household spending fell for a third month.
``The BOJ will elevate a sense of vigilance against inflation,'' said Tomoko Fujii, head of economics and strategy for Japan at Bank of America Corp. ``But with the economy slowing, the central bank cannot raise interest rates any time soon. We expect the BOJ to wait to increase rates until April.''
The yen may fall to 108 a dollar by Sept. 30, she said.
Employees at private companies may get summer bonuses totaling 14.8 trillion yen from June to July, down 1.8 percent from a year earlier, according to Kazuyoshi Nakata, an economist in Tokyo at Mitsubishi UFJ Research and Consulting Co., a unit of Japan's largest publicly traded lender by assets. T&D Asset Management Co. will seek to raise 500 billion yen for a fund focused on Chinese environment-related business this month.
The Bank of Japan will keep its target lending rate at 0.5 percent through September of next year, according to the median forecast of 11 economists surveyed by Bloomberg News. Benchmark rates are 7.25 percent in Australia, 12 percent in South Africa and 12.25 percent in Brazil.
Fed Rate Outlook
The dollar headed for a second weekly loss against the euro as futures on the Chicago Board of Trade showed the chance of the Fed increasing its target rate at its next meeting on Aug. 5 fell to 25 percent, from 44 percent a week ago. The balance of bets is for rates to stay on hold.
Crude oil traded at $138.93 a barrel after jumping above $140 to a record yesterday as Libya threatened to cut production. Investors buy commodities as a hedge against the dollar when inflation erodes the value of the U.S. currency.
The Fed left its target lending rate at 2 percent on June 25, saying in a statement at the end of its two-day meeting that ``uncertainty'' about the inflation outlook remains high.
``People are starting to wonder whether the Fed has the guts to raise rates,'' said Matthew Kassel, director of proprietary trading at ING Financial Markets LLC in New York. ``The dollar could test $1.60 in the next month.''
U.S. Inflation
The Fed's preferred gauge of annual inflation, which excludes food and fuel costs, increased to 2.2 percent in May, from 2.1 percent for the prior month, according to the median forecast of economists surveyed by Bloomberg News. Policy makers including Fed Chairman Ben S. Bernanke have said they prefer core inflation to be below 2 percent. The Commerce Department will deliver its report at 8:30 a.m. in Washington.
The dollar has gained 0.2 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.
European Central Bank President Jean-Claude Trichet reiterated in a June 25 speech that policy makers may increase the 4 percent main refinancing rate by a quarter-percentage point next month to contain inflation.
``The euro is generally benefiting from expectations the ECB will raise rates next week,'' said Marcus Hettinger, a currency strategist in Zurich at Credit Suisse Group, Switzerland's second-biggest bank. ``The ECB is focused on inflation, and that's supporting the euro. It's not the real economic data that's driving the euro.''
To contact the reporters on this story: Kosuke Goto in Tokyo at kgoto2@bloomberg.net.
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Friday, June 27, 2008
Rubber Futures Reach 28-Year High as Oil Boosts Rival's Costs
By Aya Takada
June 27 (Bloomberg) -- Natural rubber futures in Tokyo climbed to the highest in 28 years after crude oil surged to a record yesterday, boosting production costs for the rival synthetic product used to make car tires.
Rubber for December delivery rose as much as 6.8 yen, or 2 percent, to 354.7 yen a kilogram ($3,322 a metric ton) on the Tokyo Commodity Exchange and traded at 354.5 yen at 9:16 a.m. local time.
To contact the reporter on this story: Aya Takada in Tokyo atakada2@bloomberg.net
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June 27 (Bloomberg) -- Natural rubber futures in Tokyo climbed to the highest in 28 years after crude oil surged to a record yesterday, boosting production costs for the rival synthetic product used to make car tires.
Rubber for December delivery rose as much as 6.8 yen, or 2 percent, to 354.7 yen a kilogram ($3,322 a metric ton) on the Tokyo Commodity Exchange and traded at 354.5 yen at 9:16 a.m. local time.
To contact the reporter on this story: Aya Takada in Tokyo atakada2@bloomberg.net
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Oil Falls From Record as U.S. House Passes Speculation Measure
By Margot Habiby
June 27 (Bloomberg) -- Crude oil fell in New York, retreating from the record $140.39 a barrel reached yesterday, as the U.S. House of Representatives approved a bill aimed at curbing excessive energy-market speculation.
The bill, which passed 402-19, would require the Commodity Futures Trading Commission to consider using position limits, or constraints on the size of the stake each speculative investor can own, and raising margin requirements, the amount of money required to trade. The vote came after the record was set.
The measure is ``not likely to be bullish,'' said Tim Evans, an energy analyst for Citi Futures Perspective in New York. ``You can argue that it may not be effective, but I don't know that you can actually argue that it's bullish.''
Crude oil for August delivery fell as much as $1.03, or 0.7 percent, to $138.61 a barrel, and was at $138.99 at 9:47 a.m. in Sydney in after-hours trading on the New York Mercantile Exchange.
Yesterday, oil rose $5.09, or 3.8 percent, to $139.64 a barrel, a record settlement price, as Libya threatened to cut output, OPEC's president said prices may reach $170 by the summer and the dollar weakened. Yesterday's all-time-high intraday price surpassed the $139.89 reached June 16.
Oil futures have moved by 2 percent or more on half of the trading days this month. Prices veered 43.4 percent from the 30- day average yesterday, the highest volatility in 16 months, according to Bloomberg data. Volatility is a measure of how far the price of a commodity such as oil deviates from average closing prices over a prior period, such as 30 or 60 days.
Pre-Recess Vote
The House passed the measure just hours before recessing for a week for the July 4 Independence Day holiday, a time when members typically return home and meet with constituents. Rising retail gasoline prices, which averaged $4.07 a gallon on June 25 and reached a high of $4.08 on June 16 according to the AAA, have angered voters. Gasoline prices are up 34 percent this year.
The measure calls on the CFTC to ``curb immediately the role of excessive speculation'' in any market it oversees in which energy futures or swaps are traded.
The bill directs the CFTC to use its authority to ``eliminate excessive speculation, price distortion, sudden or unreasonable fluctuations or unwarranted changes in prices, or other unlawful activity that is causing major market disturbances that prevent the market from accurately reflecting the forces of supply and demand for energy commodities.''
Task Force
The measure needs to be passed by the Senate and signed by the president before becoming law.
The CFTC, which regulates U.S. commodity futures and options markets, said earlier this month that it formed an interagency task force to evaluate developments in commodity markets, including the role of speculators. The task force includes the Federal Reserve, the Securities and Exchange Commission, the CFTC and the U.S. Departments of Treasury, Energy and Agriculture.
The House defeated a separate measure mandating that oil companies produce energy from current leases or be disqualified from future leasing.
Brent crude oil for August settlement rose $5.50, or 4.1 percent, yesterday to settle at a record $139.83 a barrel on London's ICE Futures Europe exchange. Prices touched $140.56 earlier, the highest since trading began in 1988.
To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net.
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June 27 (Bloomberg) -- Crude oil fell in New York, retreating from the record $140.39 a barrel reached yesterday, as the U.S. House of Representatives approved a bill aimed at curbing excessive energy-market speculation.
The bill, which passed 402-19, would require the Commodity Futures Trading Commission to consider using position limits, or constraints on the size of the stake each speculative investor can own, and raising margin requirements, the amount of money required to trade. The vote came after the record was set.
The measure is ``not likely to be bullish,'' said Tim Evans, an energy analyst for Citi Futures Perspective in New York. ``You can argue that it may not be effective, but I don't know that you can actually argue that it's bullish.''
Crude oil for August delivery fell as much as $1.03, or 0.7 percent, to $138.61 a barrel, and was at $138.99 at 9:47 a.m. in Sydney in after-hours trading on the New York Mercantile Exchange.
Yesterday, oil rose $5.09, or 3.8 percent, to $139.64 a barrel, a record settlement price, as Libya threatened to cut output, OPEC's president said prices may reach $170 by the summer and the dollar weakened. Yesterday's all-time-high intraday price surpassed the $139.89 reached June 16.
Oil futures have moved by 2 percent or more on half of the trading days this month. Prices veered 43.4 percent from the 30- day average yesterday, the highest volatility in 16 months, according to Bloomberg data. Volatility is a measure of how far the price of a commodity such as oil deviates from average closing prices over a prior period, such as 30 or 60 days.
Pre-Recess Vote
The House passed the measure just hours before recessing for a week for the July 4 Independence Day holiday, a time when members typically return home and meet with constituents. Rising retail gasoline prices, which averaged $4.07 a gallon on June 25 and reached a high of $4.08 on June 16 according to the AAA, have angered voters. Gasoline prices are up 34 percent this year.
The measure calls on the CFTC to ``curb immediately the role of excessive speculation'' in any market it oversees in which energy futures or swaps are traded.
The bill directs the CFTC to use its authority to ``eliminate excessive speculation, price distortion, sudden or unreasonable fluctuations or unwarranted changes in prices, or other unlawful activity that is causing major market disturbances that prevent the market from accurately reflecting the forces of supply and demand for energy commodities.''
Task Force
The measure needs to be passed by the Senate and signed by the president before becoming law.
The CFTC, which regulates U.S. commodity futures and options markets, said earlier this month that it formed an interagency task force to evaluate developments in commodity markets, including the role of speculators. The task force includes the Federal Reserve, the Securities and Exchange Commission, the CFTC and the U.S. Departments of Treasury, Energy and Agriculture.
The House defeated a separate measure mandating that oil companies produce energy from current leases or be disqualified from future leasing.
Brent crude oil for August settlement rose $5.50, or 4.1 percent, yesterday to settle at a record $139.83 a barrel on London's ICE Futures Europe exchange. Prices touched $140.56 earlier, the highest since trading began in 1988.
To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net.
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Nikkei down 1.6 pct as exporters sold
(Updates with opening)
TOKYO, June 27 (Reuters) - Japan's Nikkei stock average fell 1.6 percent on Friday, with exporters such as Toyota Motor Corp (7203.T: Quote, Profile, Research, Stock Buzz) sold after U.S. stocks plunged on record high oil prices and renewed concerns about additional write-downs at financial institutions.
As of 0001 GMT, the benchmark Nikkei .N225 fell 217.06 points to 13,605.26. The broader Topix lost 1.4 percent to 1,325.57. (Reporting by Taiga Uranaka)
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TOKYO, June 27 (Reuters) - Japan's Nikkei stock average fell 1.6 percent on Friday, with exporters such as Toyota Motor Corp (7203.T: Quote, Profile, Research, Stock Buzz) sold after U.S. stocks plunged on record high oil prices and renewed concerns about additional write-downs at financial institutions.
As of 0001 GMT, the benchmark Nikkei .N225 fell 217.06 points to 13,605.26. The broader Topix lost 1.4 percent to 1,325.57. (Reporting by Taiga Uranaka)
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Economic Calendar
| Eco Data 6/27/08 |  |  |
| GMT | Ccy | Events | Actual | Consensus | Previous | Revised |
|---|---|---|---|---|---|---|
| 22:45 | NZD | New Zealand GDP Q/Q Q1 | -0.30% | 1.00% | | |
| 22:45 | NZD | New Zealand GDP Y/Y Q1 | 2.00% | 3.70% | | |
| 22:45 | NZD | New Zealand Trade balance (nzd) May | 150.0M | -334M | | |
| 22:45 | NZD | New Zealand Imports May | 3.70B | 4.13B | | |
| 22:45 | NZD | New Zealand Exports May | 3.95B | 3.80B | | |
| 23:30 | JPY | Japan Unemployment rate May | 4.00% | 4.00% | | |
| 23:30 | JPY | Japan Household spending Y/Y May | -2.00% | -2.70% | | |
| 23:30 | JPY | Japan Tokyo CPI Y/Y Jun | 1.20% | 0.90% | | |
| 23:30 | JPY | Japan National CPI Y/Y May | 1.40% | 0.80% | | |
| 23:50 | JPY | Japan ndustrial prod'n M/M May | 2.70% | -0.20% | | |
| 23:50 | JPY | Japan Industrial prod'n Y/Y May | 1.20% | 1.90% | | |
| 23:50 | JPY | Japan Retail sales Y/Y May | 0.00% | 0.10% | | |
| 08:00 | EUR | Eurozone Current account (euro) Apr | N/A | -15.3 | | |
| 08:30 | GBP | U.K. GDP Q/Q Q1 F | 0.40% | 0.40% | | |
| 08:30 | GBP | U.K. GDP Y/Y Q1 F | 2.50% | 2.50% | | |
| 08:30 | GBP | U.K. Current account (gbp) Q1 | -12.1B | -8.5B | | |
| 09:30 | CHF | Swiss KOF indicator Jun | 1 | 1.09 | | |
| 12:30 | USD | U.S. PCE core M/M May | 0.20% | 0.10% | | |
| 12:30 | USD | U.S. PCE core Y/Y May | 2.10% | 2.10% | | |
| 12:30 | USD | U.S. PCE index M/M May | N/A | 0.20% | | |
| 12:30 | USD | U.S. PCE index Y/Y May | 3.20% | 3.20% | | |
| 12:30 | USD | U.S. Personal income May | 0.40% | 0.20% | | |
| 12:30 | USD | U.S. Personal spending May | 0.70% | 0.20% | | |
| 12:30 | CAD | Canada PPI M/M May | 1.00% | 1.40% | | |
| 12:30 | CAD | Canada PPI Y/Y May | N/A | 1.00% | | |
| 14:00 | USD | U.S. U. Michigan survey Final Jun | 56.7 | 56.7 | |
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This Week's Data and Events
Weekly Forex Fundamentals | Written by Global Forex Trading | Jun 23 08 14:45 GMT |
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The US currency was hit last week, and the easy explanation is that the US economy is on pretty bad shape. The economy is going to get in much worse shape, but the correlation with the dollar is not all that high. The European currencies remain in a tight trading range, while dollar/yen is stubbornly high. The dollar should indeed weaken, but getting married to your position may be dangerous to your health.
This Week's Data and Events
United States
The US economic calendar will start on Tuesday with the release of the consumer confidence report for June.
On Wednesday, the FOMC will not result in a rate hike - the economy is not strong enough for a tightening of the borrowing costs.
The same day, be on the look out for the new home sales report for May and for the volatile durable goods orders report for May.
Thursday will see the existing home sales report for May, the real GDP report for the first quarter, and the price index report for the first quarter.
The core PCE deflator report for May, the personal spending and income reports for May, and the final University of Michigan survey for June are due on Friday.
The Eurozone
The Eurozone economic calendar will start on Monday at full blast. The headline report is Germany's IFO business climate, current assessment and expectations reports for June. In addition, there will be the regional PMI Services and PMI Manufacturing reports for June.
Tuesday will be another busy day. It will feature Germany's CPI report for June and the GfK consumer confidence report for July, the French business survey for June and consumer spending report for May, and the Italian consumer confidence index for June.
The French consumer confidence and the Italian business confidence reports for June are due on Thursday.
The final French GDP for the first quarter is due on Friday.
Japan
The Japanese economic calendar will open on Wednesday with the trade balance report for May.
Friday will see the CPI national report for May, the Tokyo CPI report for June, and the unemployment rate and the industrial production reports for May.
The UK
The UK calendar will begin on Wednesday with the release of the CBI distributive trades survey for June.
The final Business investment report for the first quarter is due on Thursday.
Friday will see the release of the final GDP and of the Balance of Payments current account report for the first quarter.
Canada
There are no economic events scheduled for release in Canada this week.
Past Week's Data and Events
United States
The dollar closed the week lower amid a very strong oil price and a very weak stock market. “Experts'” voices are starting to sound weaker about the silly notion that the US economy will recover in the second half of the year. If we get lucky, that we'll happen in the second half of 2009 - of we are that lucky.
I'm not sure how many ways we can say stagflation, or how many times I can say without getting bored. But that's what it is, even though it's not the same as in the early 80s. But remember, the only way to get out of it is by accelerating the recession.
The US was basically bad last week.
The New York Fed's "Empire State" general business conditions index fell to minus 8.68 from minus 3.23 in May. The index was down in four of the past months - not so good, is it?
Foreign buying of U.S. financial assets rose by a net $115.1 billion in April to an 11-month high from $79.6 billion the previous month, the Treasury Department said.
There was little reaction to the US data on Tuesday.
The producer price index surged 1.4 percent in May following an unrevised 0.2 percent increase in April. The core PPI slowed to 0.2 percent in May from +0.4 percent in the previous month.
Housing starts fell 3.3 percent to a seasonally adjusted annual rate of 975,000 units in May from a downwardly revised rate of 1.008 million units in April. Housing starts contracted 32.1 percent on a yearly basis. Meanwhile, building permits fell 1.3 percent to 969,000.
Industrial production unexpectedly fell by 0.2 percent in May as output at utilities shrank, while capacity utilization fell to 79.4 percent, the lowest since September 2005, from 79.6 percent.
The current account deficit widened to $176.4 billion in the first quarter from a downwardly revised $167.2 billion in the fourth quarter.
Initial jobless claims fell 5,000 to 381,000 in the week ended June 14 from an upwardly revised 386,000 (initially 384,000) the prior week. So, no big real change. The total number of people collecting benefits dropped 76,000 to 3.06 million for the week ended June 7.
The Federal Reserve Bank of Philadelphia's manufacturing index fell further to -17.1, a seventh month of contraction, from -15.6 in May.
Of less importance, the Conference Board's index of leading economic indicators climbed 0.1 percent, matching April's gain, the first back-to-back monthly increases in a year and a half.
The Eurozone
The euro/dollar made a half hearted recovery last week, but while this should continue, there is no momentum. The ECB should hike rates next week - but only once.
The Eurozone final inflation figures for May were revised upward to 3.7 percent, the highest since June 1992,from the original 3.6 percent, and from April's 3.3 percent. Core inflation edged up to 1.7 percent from 1.6 percent.
The euro/dollar fell on Tuesday on news that the German ZEW index of investor and analyst expectations fell sharply to -52.4 in June from -41.4 in May. The current conditions index fell to +37.6 from +38.6.
German PPI slowed to 1 percent in May from 1.1 percent but rose 6 percent on a yearly basis from 5.2 percent. Excluding energy, producer prices have risen 2.9 percent.
Elsewhere, Italy's total trade deficit narrowed to 1 billion euros in April from 1.28 billion euros in the previous year. Exports rose 18.8 percent and imports climbed 17 percent.
Italy's unemployment rate unexpectedly rose to 6.5 percent in the first quarter from a revised 6.2 percent the previous quarter.
Japan
Dollar/yen made a weak pullback last week, and the risk is on the downside.
Japan's tertiary index rose in 1.8 percent April after being unchanged the previous month.
The UK
The sterling/dollar encountered very choppy waters last week, but ended way up - if within recent ranges.
Cable crashed on Tuesday after the open letter from the Governor to the Chancellor in response to UK rise in inflation to 3.3 percent in May was not as hawkish as expected. This eased concerns that the next move in UK interest rates will be up.
The CBI trends survey showed only a small decline in the prices expectations balance to +28 in June from +30 in May.
The pound then exploded higher on Thursday on news that UK retail sales surged a mammoth (and record) 3.5 percent in May, after falling 0.3 percent in April. On a yearly basis, sales ballooned 8.1 percent. The number is absurd, it will probably give it all up and more next month, but the damage was done.
As widely expected, Bank of England's Monetary Policy Committee voted 8-1 to keep the benchmark rate at 5 percent, minutes of the June 5 decision showed.
Canada
Dollar/Canada fell last week - not that much given where the energy prices are.
Canada's index of leading economic indicators rose 0.2 percent in May, as expected. This was the first increase in four months. Seven of the index's 10 components rose.
Consumer prices rose 1 percent in May, the most since January 1991, and 2.2 percent from a year earlier, the fastest pace since January. The upmove was generated by surging energy prices. The Bank of Canada unexpectedly (but correctly) left its benchmark interest rate at 3 percent this month after energy costs as inflation rose.
Retail sales rose 0.6 percent in April on clothes and gasoline, after stalling in March (after the initially reported 0.1 percent advance). The report suggests domestic consumer demand continues to offset a slump in exports to the U.S., Canada's main market. Dollar/Canada spiked lower on the data and then registered a vicious recovery. Long live the fundamentals!
Switzerland
Dollar/Swiss franc slipped last week, but the pair remains in a trading range.
The Swiss National Bank left its three-month LIBOR target at 2.75 percent, the mid-point of the 2.25-3.25 percent band, as I expected. This confirms that the SNB will defer to the big-brother ECB's likely rate hike in July. The next SNB meeting is in September.
Australia
The Australian dollar ended the week higher, but got stuck in an inside range.
The RBA's minutes suggested the central bank will leave the benchmark rate at 7.25 percent this year, after four increases between August and March. The borrowing costs at a 12-year high will probably be enough to cool demand and curb inflation.
Cornelius Luca
http://www.gftforex.com
DISCLAIMER: This forum and the information provided here should not be relied on as a substitute for extensive independent research before making your investment decisions. Global Forex Trading is merely providing this column for your general information. The views of the author are not necessarily those of Global Forex Trading, its owners, officers, agents or employees. In addition, any projections or views of the market provided by the author may not prove to be accurate. Global Forex Trading and Cornelius Luca will not be responsible for any losses incurred on investments made by readers and clients as a result of any information contained in this column. Global Forex Trading and Cornelius Luca do not render investment, legal, accounting, tax, or other professional advice. If investment, legal, tax, or other expert assistance is required, the services of a competent professional should be sought.
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Thursday, June 26, 2008
South Africa Rand Falls on Speculation Importers Buying Dollars
By Garth Theunissen
June 26 (Bloomberg) -- South Africa's currency dropped on speculation the country's importers sold it to buy the dollar after the rand rose to the highest level in more than two weeks yesterday.
The rand snapped a two-day gain versus the dollar, and was the worst performer of the 16 major currencies, as traders bet importers used its 2 percent advance yesterday to buy dollars, euro and yen at cheaper rates. The rand fell even as economists forecast producer inflation would stay at 12.4 percent in May, according the median estimate of 16 analysts surveyed by Bloomberg News.
``We've seen strong importer demand for dollars this morning,'' said David Gracey, head of currency trading in Johannesburg at Nedbank Capital. ``Importers usually try to shore up foreign-exchange purchases following a rand rally.''
The rand slipped as much as 0.7 percent to 7.9095 per dollar, and was at 7.8898 by 11 a.m. in Johannesburg, from 7.8547 yesterday. Against the euro the rand fell 0.6 percent to 12.3787.
``Importers are finding current levels attractive to increase dollar holdings,'' said George Glynos, managing director in Johannesburg at Econometrix Treasury Management, which advises clients on bond and foreign-exchange transactions. ``They need to do business daily so they tend to jump in and buy after a rand rebound.''
The rand gained by the most since March 18 yesterday after stronger-than-expected inflation data raised the likelihood policy makers will lift interest rates, spurring demand for so- called carry-trade purchases of the currency.
Carry Trade
In these transactions, investors borrow a currency at a low interest rate, convert the proceeds into one they can lend out for a higher return, such as the rand. They earn the spread between the borrowing and lending rates, taking the risk currency moves will erase their profit.
South Africa's 12 percent main lending rate compares with borrowing costs of 0.5 percent in Japan, 2 percent in the U.S. and 2.75 percent in Switzerland.
Inflation in Africa's largest economy accelerated to an annual 10.9 percent in May, exceeding the 10.8 median estimate of 20 economists surveyed by Bloomberg, a report yesterday showed.
The South African Reserve Bank, led by Governor Tito Mboweni, raised the benchmark rate a half-point on June 12 and forecast price-growth will exceed its 3 percent to 6 percent target until the third quarter of 2010.
``After yesterday's inflation number we revised our inflation forecast,'' said Glynos. ``We see inflation peaking at around 13.1 percent in August.''
Government bonds fell, with the yield on South Africa's benchmark 13.5 percent security due September 2015 rising 3 basis points to 10.63 percent. Yields move inversely to bond prices.
To contact the reporter on this story: Garth Theunissen in Johannesburg gtheunissen@bloomberg.net
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June 26 (Bloomberg) -- South Africa's currency dropped on speculation the country's importers sold it to buy the dollar after the rand rose to the highest level in more than two weeks yesterday.
The rand snapped a two-day gain versus the dollar, and was the worst performer of the 16 major currencies, as traders bet importers used its 2 percent advance yesterday to buy dollars, euro and yen at cheaper rates. The rand fell even as economists forecast producer inflation would stay at 12.4 percent in May, according the median estimate of 16 analysts surveyed by Bloomberg News.
``We've seen strong importer demand for dollars this morning,'' said David Gracey, head of currency trading in Johannesburg at Nedbank Capital. ``Importers usually try to shore up foreign-exchange purchases following a rand rally.''
The rand slipped as much as 0.7 percent to 7.9095 per dollar, and was at 7.8898 by 11 a.m. in Johannesburg, from 7.8547 yesterday. Against the euro the rand fell 0.6 percent to 12.3787.
``Importers are finding current levels attractive to increase dollar holdings,'' said George Glynos, managing director in Johannesburg at Econometrix Treasury Management, which advises clients on bond and foreign-exchange transactions. ``They need to do business daily so they tend to jump in and buy after a rand rebound.''
The rand gained by the most since March 18 yesterday after stronger-than-expected inflation data raised the likelihood policy makers will lift interest rates, spurring demand for so- called carry-trade purchases of the currency.
Carry Trade
In these transactions, investors borrow a currency at a low interest rate, convert the proceeds into one they can lend out for a higher return, such as the rand. They earn the spread between the borrowing and lending rates, taking the risk currency moves will erase their profit.
South Africa's 12 percent main lending rate compares with borrowing costs of 0.5 percent in Japan, 2 percent in the U.S. and 2.75 percent in Switzerland.
Inflation in Africa's largest economy accelerated to an annual 10.9 percent in May, exceeding the 10.8 median estimate of 20 economists surveyed by Bloomberg, a report yesterday showed.
The South African Reserve Bank, led by Governor Tito Mboweni, raised the benchmark rate a half-point on June 12 and forecast price-growth will exceed its 3 percent to 6 percent target until the third quarter of 2010.
``After yesterday's inflation number we revised our inflation forecast,'' said Glynos. ``We see inflation peaking at around 13.1 percent in August.''
Government bonds fell, with the yield on South Africa's benchmark 13.5 percent security due September 2015 rising 3 basis points to 10.63 percent. Yields move inversely to bond prices.
To contact the reporter on this story: Garth Theunissen in Johannesburg gtheunissen@bloomberg.net
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Ruble Band May Be Widened 5%, Korishchenko Says
By Emma O'Brien and Alex Nicholson
June 26 (Bloomberg) -- Russia may expand the ruble's trading band by as much as 5 percent at each end to deter speculation and force the currency lower, said Konstantin Korishchenko, deputy chairman of the country's central bank.
``The corridor will get wider,'' Bank Rossii's Korishchenko said yesterday in an interview in Moscow. ``That would mean adequate volatility would be achieved. It could create a massive unwinding of positions that will effectively implement this depreciation.'' He didn't give a timeframe for widening the range.
The ruble is kept within a trading band versus a basket of euros and dollars to prevent gains that would hurt the competitiveness of Russian exports. That policy has come under strain as rising oil and gas prices and 10 years of economic growth drove inflation to 15.1 percent in May. Investors have been lured to the currency on speculation the central bank will have to let it rise to reduce prices on imported goods.
The Russian currency strengthened about 0.6 percent this year to as high as 29.4835 against the basket, which is made up of 55 percent dollars and 45 percent euros. It gained 4.8 percent against the dollar and fell 2.5 percent versus the euro.
After keeping the ruble little changed at 29.61 versus the basket since the beginning of March, Bank Rossii widened the range by 0.5 percent, or 10 kopeks, on June 10 as part of a new foreign-exchange policy announced the previous month. It will buy and sell the currency at different and unpublicized levels within that corridor to make it a two-way bet for speculators, it said.
Wrong Bets
The wider band will make it harder to predict the point at which the central bank will intervene. That will make it costlier for traders to limit losses should bets go the wrong way, Korishchenko, 49, said. Before Russia announced the new policy on May 14, the ruble's band was 15 kopeks on either side of the basket rate.
Banks including Merrill Lynch & Co., BNP Paribas SA and Dresdner Kleinwort predict spiraling inflation in Russia will force the central bank to let the ruble rise as much as 5 percent against the basket this year. They advised investors to put so-called long positions on the ruble. A long position is a bet the currency is going to rise.
Bank Rossii plans to ``definitely increase'' the amount of dollars it purchases to weaken the ruble and boost volatility, Korishchenko said. ``We've just started the process, we've just put our toe in the water.''
`Encourages Inflows'
To stifle consumer-price growth, the central bank has raised Russia's main interest rates three times this year and increased reserve requirements for local banks.
The bank will use ruble appreciation, interest rates and reserve levels to help bring down inflation this year, Korishchenko said. ``There is no one tool preferable and favorite and there should not just be one tool,'' he said.
Bank Rossii let the currency rise as much as 1.3 percent against the basket last year as annual inflation accelerated to 11.9 percent. A 1 percentage-point increase in the ruble versus the basket cuts inflation by 0.3 percentage point, according to the central bank.
While letting the ruble strengthen helps cut import prices, it can also boost inflation as it ``encourages inflows,'' Korishchenko said.
Net capital flows into Russia rose to a record $82 billion last year, according to central bank figures.
``Number one in our thinking are the risks associated with ruble appreciation,'' Korishchenko said. ``The effect on inflation is number two.''
The central bank calculates the ruble's rate against the basket by multiplying its price versus the dollar by 0.55 and its rate against the euro by 0.45, then adding the two figures together.
To contact the reporters on this story: Emma O'Brien in Moscow at eobrien6@bloomberg.net; Alex Nicholson in Moscow at anicholson6@bloomberg.net
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Fed Sounds Inflation Alarm, Moves Toward Rate Rise
By Scott Lanman
June 26 (Bloomberg) -- The Federal Reserve is sounding the alarm on inflation without committing to raise interest rates.
The Federal Open Market Committee left its benchmark rate at 2 percent yesterday and said ``upside risks'' to prices have picked up. The statement also said consumer spending is ``firming,'' while acknowledging that rising energy prices will curb growth into 2009.
The FOMC cited ``the elevated state'' of some measures of inflation expectations and dropped an April forecast of a ``leveling out'' in commodity prices. The officials want to keep their options open on rate changes in case the credit crisis worsens and the economy deteriorates after consumers spend their tax rebates, Fed watchers said.
``It is a baby step in the direction of raising rates,'' said Stephen Stanley, chief economist at RBS Greenwich Capital Markets in Greenwich, Connecticut. The central bankers signaled ``they are not expecting to tighten in the near term. That is as far as they are willing to go,'' he said.
Two-year Treasury yields, more sensitive to Fed rate expectations than longer-dated debt, initially rose after the central bank's announcement, before dropping later. The notes yielded 2.78 percent at 8:08 a.m. in New York, from 2.81 percent late yesterday.
The FOMC said employment had weakened and financial markets remained under ``considerable stress,'' even as growth risks ``diminished somewhat.''
Pledge to Act
Chairman Ben S. Bernanke and his colleagues stopped short of specifying that inflation was a greater concern than growth. They reiterated language from their April meeting that the Fed will ``act as needed'' to promote both economic expansion and stable prices.
Traders trimmed bets on a rate increase in the next three months after the announcement. Odds that the Fed will keep its benchmark at 2 percent in September rose to 23 percent today from 2 percent a week ago, according to futures contracts quoted on the Chicago Board of Trade.
``I don't think they are signaling a rate hike as a possibility at the next meeting,'' said Cary Leahey, senior economist at Decision Economics Inc. in New York. ``Before they would tighten credit, they would have a statement that would say `we do have a tightening bias' and they would say that as clearly as they can.''
Bernanke Message
Yesterday's statement reflected Fed officials' comments this month that the central bank must keep price expectations in check to avoid a spiraling in inflation. Bernanke said June 9 that officials would ``strongly resist'' a jump in those expectations.
The FOMC cited ``the elevated state'' of some measures of inflation expectations, and dropped an April forecast of a ``leveling out'' in commodity prices.
The decision wasn't unanimous, with Dallas Fed President Richard Fisher dissenting for a fourth straight time, favoring the first rate increase in two years.
Oil prices touched a record $139.89 June 16, extending a rally that helped push the consumer price index up 4.2 percent in the 12 months to May compared with an average of 2.7 percent over the past decade.
Dow Chemical Co. said two days ago that higher raw materials costs will cause the company to raise prices by as much as 25 percent in July, following an increase of as much as 20 percent. United Parcel Service Inc. cut its second-quarter profit forecast June 23 because of rising fuel costs and slowing U.S. growth.
`Tentative Signs'
``Higher headline rates of inflation have shown only a few tentative signs of embedding themselves in core inflation or in longer-term inflation expectations,'' Fed Vice Chairman Donald Kohn said in a speech to a conference today in Frankfurt.
American consumers foresee average annual inflation of 3.4 percent over the next five years, the highest expectation since 1995, according to the Reuters/University of Michigan survey. The five-year outlook among investors has been more stable, at 2.43 percent, up from 2.31 percent in January, according to a measure derived from inflation-linked Treasuries.
``What they're saying is, we have a duty to price stability, and we want you to know that we are mindful of that duty, but we may not think it's appropriate to act on that duty in the short run,'' said Neal Soss, chief economist at Credit Suisse in New York, who used to work as an aide to former Fed chief Paul Volcker.
Financial Stress
Credit markets have yet to normalize and bank losses are mounting as the economic slowdown adds to stresses from the subprime mortgage collapse. The gap between investors' expectations for the Fed's main rate and the rate that banks charge each other for funds increased this month, a sign of continued turmoil.
The difference between the three-month London Interbank Offered Rate and the overnight index swap rate widened to 0.73 percentage point yesterday from 0.68 point at the end of May. Former Fed chairman Alan Greenspan said this month the credit crisis will be over when the spread narrows past 0.25 point.
The worst housing recession in a quarter century is showing few signs of ending. Reports this week showed sales of new homes extended their decline in May, consumer confidence dropped to a 16-year low and orders for durable goods stagnated.
Yesterday's statement contained no mention of the contraction in gross domestic product that many officials judged likely at their April meeting. The Commerce Department today lifted its estimate of GDP growth for the first quarter to a 1 percent annual pace, from a previous estimate of 0.9 percent.
``I hope we'll be in good enough shape by later in the year'' that the Fed could raise rates, House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, said in an interview with Bloomberg Television. Frank added he was ``skeptical'' there will be sufficient improvement by then.
To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net
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Gold Futures Climb as Fed Keeps Rates Steady; Silver Advances
By Pham-Duy Nguyen
June 26 (Bloomberg) -- Gold surged the most in seven months on speculation the Federal Reserve won't rush to raise borrowing costs to curb inflation. Silver also gained.
The Fed yesterday kept its benchmark interest rate at 2 percent, even as policy makers acknowledged heightening inflationary expectations. Gold reached an all-time high of $1,033.90 an ounce in March as fuel, corn and other commodities soared and the dollar fell to a record against the euro.
``The Fed said that inflation is a major concern, but they're not going to do anything about it, which made gold go ballistic,'' said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois. ``The dollar is going to get slammed again.''
Gold futures for August delivery jumped $27.40, or 3.1 percent, to $907.70 an ounce at 8:52 a.m. on the Comex division of the New York Mercantile Exchange. A close at that price would mark the biggest percentage gain for a most-active contract since Nov. 23.
Silver futures for September delivery soared 73.3 cents, or 4.4 percent, to $17.34 an ounce. A close at that price would mark the biggest increase since March 5.
Before today, silver advanced 11 percent this year, while gold climbed 5.3 percent.
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
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June 26 (Bloomberg) -- Gold surged the most in seven months on speculation the Federal Reserve won't rush to raise borrowing costs to curb inflation. Silver also gained.
The Fed yesterday kept its benchmark interest rate at 2 percent, even as policy makers acknowledged heightening inflationary expectations. Gold reached an all-time high of $1,033.90 an ounce in March as fuel, corn and other commodities soared and the dollar fell to a record against the euro.
``The Fed said that inflation is a major concern, but they're not going to do anything about it, which made gold go ballistic,'' said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois. ``The dollar is going to get slammed again.''
Gold futures for August delivery jumped $27.40, or 3.1 percent, to $907.70 an ounce at 8:52 a.m. on the Comex division of the New York Mercantile Exchange. A close at that price would mark the biggest percentage gain for a most-active contract since Nov. 23.
Silver futures for September delivery soared 73.3 cents, or 4.4 percent, to $17.34 an ounce. A close at that price would mark the biggest increase since March 5.
Before today, silver advanced 11 percent this year, while gold climbed 5.3 percent.
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
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Crude Oil Rises on Lower Dollar, Possible Libya Production Cut
By Mark Shenk
June 26 (Bloomberg) -- Crude oil rose more than $3 a barrel as a lower U.S. dollar spurred investors to purchase commodities as a hedge and Libya said it may cut production.
Oil has more than doubled over the past year as the dollar dropped against the euro. The U.S. currency weakened after the Federal Reserve gave no signal of higher interest rates yesterday. The head of Libya's national oil company said the country may reduce output because the market is oversupplied.
``Commodities are rallying because there's a lack of confidence that the Fed will raise rates,'' said Phil Flynn, a senior trader at Alaron Trading Corp. in Chicago. ``They didn't raise rates yesterday and it doesn't look like they will raise them soon. Their statement yesterday was too wishy-washy.''
Crude oil for August delivery rose $3.78, or 2.8 percent, to $138.33 a barrel at 9:10 a.m. on the New York Mercantile Exchange, after rising as much as $4.40 a barrel. Prices reached a record $139.89 on June 16.
The dollar is also down on a forecast that the European Central Bank will boost interest rates. The dollar's drop against the euro made commodities cheaper for buyers outside the U.S. The dollar was at $1.5727 per euro as of 9:20 a.m. New York time, compared with $1.5574 earlier.
``There's no reason for prices to rise $4 in 10 minutes,'' said Peter Beutel, president of energy consultant Cameron Hanover Inc. in New Canaan, Connecticut. ``Things are very unsettled and now the worry is that the European central bank may raise rates, which would be the same as another Fed cut.''
Benchmark Rate
The Federal Reserve yesterday left its benchmark interest rate at 2 percent and said ``uncertainty about the inflation outlook remains high'' as energy and commodity prices continue to rise. Leaving the interest rate unchanged ended the most aggressive series of rate cuts in two decades.
Libya's National Oil Corp. Chairman Shokri Ghanem declined to say when a decision would be made on whether to lower Libyan production or give any indication of the size of the cut under consideration.
He said the reductions may also be made because of threats of sanctions against Iran and U.S. legislation allowing lawsuits against the Organization of Petroleum Exporting Countries.
Brent crude oil for August settlement rose $3.37, or 2.5 percent, to $137.70 a barrel on London's ICE Futures Europe exchange. Prices climbed to a record $139.32 on June 16.
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.
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June 26 (Bloomberg) -- Crude oil rose more than $3 a barrel as a lower U.S. dollar spurred investors to purchase commodities as a hedge and Libya said it may cut production.
Oil has more than doubled over the past year as the dollar dropped against the euro. The U.S. currency weakened after the Federal Reserve gave no signal of higher interest rates yesterday. The head of Libya's national oil company said the country may reduce output because the market is oversupplied.
``Commodities are rallying because there's a lack of confidence that the Fed will raise rates,'' said Phil Flynn, a senior trader at Alaron Trading Corp. in Chicago. ``They didn't raise rates yesterday and it doesn't look like they will raise them soon. Their statement yesterday was too wishy-washy.''
Crude oil for August delivery rose $3.78, or 2.8 percent, to $138.33 a barrel at 9:10 a.m. on the New York Mercantile Exchange, after rising as much as $4.40 a barrel. Prices reached a record $139.89 on June 16.
The dollar is also down on a forecast that the European Central Bank will boost interest rates. The dollar's drop against the euro made commodities cheaper for buyers outside the U.S. The dollar was at $1.5727 per euro as of 9:20 a.m. New York time, compared with $1.5574 earlier.
``There's no reason for prices to rise $4 in 10 minutes,'' said Peter Beutel, president of energy consultant Cameron Hanover Inc. in New Canaan, Connecticut. ``Things are very unsettled and now the worry is that the European central bank may raise rates, which would be the same as another Fed cut.''
Benchmark Rate
The Federal Reserve yesterday left its benchmark interest rate at 2 percent and said ``uncertainty about the inflation outlook remains high'' as energy and commodity prices continue to rise. Leaving the interest rate unchanged ended the most aggressive series of rate cuts in two decades.
Libya's National Oil Corp. Chairman Shokri Ghanem declined to say when a decision would be made on whether to lower Libyan production or give any indication of the size of the cut under consideration.
He said the reductions may also be made because of threats of sanctions against Iran and U.S. legislation allowing lawsuits against the Organization of Petroleum Exporting Countries.
Brent crude oil for August settlement rose $3.37, or 2.5 percent, to $137.70 a barrel on London's ICE Futures Europe exchange. Prices climbed to a record $139.32 on June 16.
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.
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Goldman Says Buy GAZ, Sollers, in New Russian Mid-Cap Coverage
By Paul Abelsky
June 26 (Bloomberg) -- Carmakers including OAO GAZ and OAO Sollers received a ``buy'' recommendation in Goldman Sachs Group Inc.'s new coverage of 23 Russian small- and mid-cap stocks from cement makers to a warplane manufacturer.
GAZ, Russia's second-biggest carmaker owned by billionaire Oleg Deripaska, and Sollers, formerly called OAO Severstal-Avto, are among the companies that will provide ``super-normal growth opportunities at attractive valuations'' and ``may have been overlooked by the market,'' analysts including Sergei Arsenyev in Moscow wrote in a note to investors today.
Goldman named GAZ, Sollers and Krasnyi Kotelschik, a manufacturer of industrial steam boilers, as its ``top picks'' in in seven industries.
Sibirsky Cement, Russia's second-biggest cement maker, was recommended ``buy.''
Goldman said it's taking a ``neutral view'' on whether small and mid-cap stocks will outperform large caps.
Aerospace is the least preferred industry of the seven as the companies may struggle to become profitable even with government orders, according to the note.
OAO AvtoVAZ, Russia's biggest carmaker, OAO KamAZ, the country's largest truck manufacturer, and warplane maker OAO Irkut Corp. received ``neutral'' recommendations.
OAO Novoil, and OAO Ufaneftekhim, oil companies in the Republic of Bashkortostan, were rated ``buy.'' Goldman said refineries in the republic are ``extremely undervalued.''
Goldman initiated NPO Saturn, which manufactures engines for use in military and civilian aircraft, with a ``sell'' recommendation.
To contact the reporter on this story: Paul Abelsky in St. Petersburg at pabelsky@bloomberg.net
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June 26 (Bloomberg) -- Carmakers including OAO GAZ and OAO Sollers received a ``buy'' recommendation in Goldman Sachs Group Inc.'s new coverage of 23 Russian small- and mid-cap stocks from cement makers to a warplane manufacturer.
GAZ, Russia's second-biggest carmaker owned by billionaire Oleg Deripaska, and Sollers, formerly called OAO Severstal-Avto, are among the companies that will provide ``super-normal growth opportunities at attractive valuations'' and ``may have been overlooked by the market,'' analysts including Sergei Arsenyev in Moscow wrote in a note to investors today.
Goldman named GAZ, Sollers and Krasnyi Kotelschik, a manufacturer of industrial steam boilers, as its ``top picks'' in in seven industries.
Sibirsky Cement, Russia's second-biggest cement maker, was recommended ``buy.''
Goldman said it's taking a ``neutral view'' on whether small and mid-cap stocks will outperform large caps.
Aerospace is the least preferred industry of the seven as the companies may struggle to become profitable even with government orders, according to the note.
OAO AvtoVAZ, Russia's biggest carmaker, OAO KamAZ, the country's largest truck manufacturer, and warplane maker OAO Irkut Corp. received ``neutral'' recommendations.
OAO Novoil, and OAO Ufaneftekhim, oil companies in the Republic of Bashkortostan, were rated ``buy.'' Goldman said refineries in the republic are ``extremely undervalued.''
Goldman initiated NPO Saturn, which manufactures engines for use in military and civilian aircraft, with a ``sell'' recommendation.
To contact the reporter on this story: Paul Abelsky in St. Petersburg at pabelsky@bloomberg.net
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U.K. Stocks Decline, Led by BSkyB and ITV; Lloyds TSB Retreats
By Sarah Jones
June 26 (Bloomberg) -- U.K. stocks dropped, led by media companies after JPMorgan Chase & Co. recommended investors sell holdings in British Sky Broadcasting Group Plc and Morgan Stanley cut its price estimate for Thomson Reuters Corp.
Lloyds TSB Group Plc led a retreat by banks as Goldman Sachs Group Inc. warned of additional writedowns at Citigroup Inc.
The FTSE 100 Index fell 68.8, or 1.2 percent, to 5,597.30 at 12:31 p.m. in London. The FTSE All-Share Index lost 1.2 percent and Ireland's ISEQ Index declined 1.5 percent.
BSkyB retreated 3.8 percent to 476 pence, the lowest since January 2004. JPMorgan downgraded the U.K.'s biggest pay- television provider to ``underweight'' from ``overweight.''
``High-margin advertising revenues could slow given the deteriorating macro environment,'' London-based analyst Mark O'Donnell wrote in a note to investors. ``High-margin revenue streams are underperforming.''
ITV Plc, the U.K.'s largest commercial broadcaster, lost 4.1 percent to 50.3 pence.
Thomson Reuters, formed by Thomson Corp.'s $15.9 billion purchase of Reuters Group Plc, lost 5.1 percent to 1,366 pence.
Morgan Stanley reduced its price estimate 9.9 percent to 1,280 pence and maintained its ``underweight'' recommendation on the shares.
``Our negative growth forecast is predicted on the ongoing retrenchment in investment bank headcount and market data spend,'' London-based analyst Patrick Wellington wrote in a note.
Bloomberg LP competes with Thomson Reuters in selling information and trading systems to the financial-services industry.
Lloyds TSB, the biggest provider of checking accounts in the U.K., declined 5.5 percent to 310.5 pence. HSBC Holdings Plc, Europe's largest bank by market value, fell 2.2 percent to 796.5 pence.
Goldman Sachs downgraded Citigroup to ``neutral'' saying the U.S. bank may take an additional $8.9 billion in net writedowns in the second quarter.
The following stocks also gained or fell in the U.K. market. Stock symbols are in parentheses.
Avesco Group Plc (AVS LN) lost 7.5 pence, or 9.8 percent, to 69, the steepest decline since 2003. The U.K. provider of large video screens for concerts posted a first-half loss.
Regent Inns Plc (REG LN) dropped 1.5 pence, or 23 percent, to 5, the lowest since at least 1993. The U.K. owner of the Walkabout pub chain said talks on a potential offer for the company have ended after suitors were unable to obtain funding because of the credit crunch.
The company also said pretax profit will be ``minimal'' before one-time items for the fiscal year ending June 28 because of a ``substantial'' drop in same-outlet sales at its entertainment unit.
To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net.
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June 26 (Bloomberg) -- U.K. stocks dropped, led by media companies after JPMorgan Chase & Co. recommended investors sell holdings in British Sky Broadcasting Group Plc and Morgan Stanley cut its price estimate for Thomson Reuters Corp.
Lloyds TSB Group Plc led a retreat by banks as Goldman Sachs Group Inc. warned of additional writedowns at Citigroup Inc.
The FTSE 100 Index fell 68.8, or 1.2 percent, to 5,597.30 at 12:31 p.m. in London. The FTSE All-Share Index lost 1.2 percent and Ireland's ISEQ Index declined 1.5 percent.
BSkyB retreated 3.8 percent to 476 pence, the lowest since January 2004. JPMorgan downgraded the U.K.'s biggest pay- television provider to ``underweight'' from ``overweight.''
``High-margin advertising revenues could slow given the deteriorating macro environment,'' London-based analyst Mark O'Donnell wrote in a note to investors. ``High-margin revenue streams are underperforming.''
ITV Plc, the U.K.'s largest commercial broadcaster, lost 4.1 percent to 50.3 pence.
Thomson Reuters, formed by Thomson Corp.'s $15.9 billion purchase of Reuters Group Plc, lost 5.1 percent to 1,366 pence.
Morgan Stanley reduced its price estimate 9.9 percent to 1,280 pence and maintained its ``underweight'' recommendation on the shares.
``Our negative growth forecast is predicted on the ongoing retrenchment in investment bank headcount and market data spend,'' London-based analyst Patrick Wellington wrote in a note.
Bloomberg LP competes with Thomson Reuters in selling information and trading systems to the financial-services industry.
Lloyds TSB, the biggest provider of checking accounts in the U.K., declined 5.5 percent to 310.5 pence. HSBC Holdings Plc, Europe's largest bank by market value, fell 2.2 percent to 796.5 pence.
Goldman Sachs downgraded Citigroup to ``neutral'' saying the U.S. bank may take an additional $8.9 billion in net writedowns in the second quarter.
The following stocks also gained or fell in the U.K. market. Stock symbols are in parentheses.
Avesco Group Plc (AVS LN) lost 7.5 pence, or 9.8 percent, to 69, the steepest decline since 2003. The U.K. provider of large video screens for concerts posted a first-half loss.
Regent Inns Plc (REG LN) dropped 1.5 pence, or 23 percent, to 5, the lowest since at least 1993. The U.K. owner of the Walkabout pub chain said talks on a potential offer for the company have ended after suitors were unable to obtain funding because of the credit crunch.
The company also said pretax profit will be ``minimal'' before one-time items for the fiscal year ending June 28 because of a ``substantial'' drop in same-outlet sales at its entertainment unit.
To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net.
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European Stocks, U.S. Futures Drop; Fortis, Oracle, BSkyB Fall
By Adam Haigh
June 26 (Bloomberg) -- European stocks and U.S. index futures fell on concern credit losses will reduce bank earnings, while slowing economic growth curbs profits for broadcasters and technology companies. Asian shares advanced.
Fortis tumbled 15 percent on plans to raise $2.4 billion of equity and cancel a dividend to boost solvency, while Citigroup Inc. declined after Goldman Sachs Group Inc. recommended selling the shares, predicting $8.9 billion more in writedowns for the bank. Oracle Corp. dropped after its forecast signaled a slowdown in growth. British Sky Broadcasting Group Plc retreated to the lowest in almost four years after JPMorgan Chase & Co. downgraded the stock, citing a ``poor'' economic environment.
Europe's Dow Jones Stoxx 600 Index lost 1.9 percent to 290.44, the lowest since 2005, bringing this year's decline to 20 percent at 2:23 p.m. in London. Futures on the Standard & Poor's 500 Index fell 1.2 percent. The MSCI Asia Pacific Index increased 0.5 percent.
``There is still a lot of nervousness out there,'' said Peter Jarvis, a London-based director of European equities at F&C Asset Management, which has about $200 billion. ``Losses are going to continue. We still haven't seen the hit to earnings downgrades that we would expect.''
The Stoxx 600 has tumbled 9.8 percent this month, headed for the worst June since at least 1987. Record oil prices and rising inflation have stoked speculation central banks will keep borrowing costs high or raise them as credit losses and writedowns approaching $400 billion stifle economic and profit growth.
European Central Bank President Jean-Claude Trichet reiterated yesterday policy makers may raise their key rate from a six-year high next month to curb price increases. The Federal Reserve kept rates unchanged yesterday, after a series of seven reductions, saying ``upside risks'' to prices have increased.
National Markets
National indexes declined in all 18 western European markets. The U.K.'s FTSE 100 slipped 1.5 percent, and France's CAC 40 lost 1.7 percent. Germany's DAX sank 1.8 percent.
Fortis dropped 1.93 euros to 10.72. The company will raise 1.5 billion euros ($2.4 billion) of equity. The measures will increase solvency by 8 billion euros, the company said.
Citigroup lost 4.1 percent to $18.11 in Germany. The bank that's posted the biggest losses from the collapse of the U.S. mortgage market may take an additional $8.9 billion in net writedowns in the second quarter, Goldman said in a report.
The brokerage lowered its recommendation on U.S. investment banks to ``neutral'' from ``attractive,'' and added Citigroup to its ``conviction sell'' list.
``We are hard pressed to find a catalyst that will move the group significantly higher over the next few months as fundamentals continue to deteriorate,'' the brokerage said in a note to clients.
World's Worst
The MSCI World Financials Index has lost 21 percent this year, the worst performance among the 10 industry groups in the index, as banks cut their workforce and sell shares to shore up their balance sheets. Financial firms have raised a total of $314 billion in the past year and have announced plans to trim more than 83,000 jobs since last July, according to figures compiled by Bloomberg.
BSkyB declined 4.9 percent to 470.75 pence. JPMorgan lowered the stock to ``underweight'' from ``overweight'' saying it's at risk from a slowdown in sales and a ``poor'' economic environment, according to a note to clients.
Oracle
Oracle, the biggest software maker, fell 3.9 percent to $21.67 after a forecast of a possible slowdown in growth in the current quarter.
Excluding some costs, profit will be 26 cents to 27 cents a share, the U.S. company said yesterday. Analysts had estimated 27 cents, according to a Bloomberg survey. Sales will rise between 18 percent and 20 percent, which would be the slowest growth since 2006.
Nike Inc., the world's biggest athletic-shoe maker, tumbled 3.9 percent to $63.39 in Germany after reporting a 10 percent drop in U.S. pretax income. Adidas AG, the world's second-largest sporting-goods maker, dropped 3.9 percent to 41.15 euros.
Carrefour SA, the world's second-biggest food retailer, fell 8.8 percent to 37.90 euros, leading a retreat among retail shares in Europe. JPMorgan cut its recommendation to ``neutral'' from ``overweight,'' while Merrill Lynch & Co. lowered its rating to ``neutral'' from ``buy.''
DSG International Plc lost 1.1 percent to 44.5 pence as the largest U.K. consumer-electronics retailer reported its first annual loss since 1994 after writing down the value of its money-losing Italian unit.
Consumer confidence in France declined to a record low in June as the fastest inflation in 12 years eroded households' purchasing power. A gauge of Italian business confidence slumped to the lowest in almost three years this month as orders were curbed by slowing economic growth, rising energy costs and a stronger euro.
The Stoxx Retail Index tumbled 3.5 percent today, its biggest drop in three months and the steepest decline among the 18 groups in the index after banks and automakers.
To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net
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Citigroup May Write Down $8.9 Billion, Goldman Says
By Cathy Chan
June 26 (Bloomberg) -- Citigroup Inc., the bank that's posted the biggest losses from the collapse of the U.S. mortgage market, may take an additional $8.9 billion in net writedowns in the second quarter, Goldman Sachs Group Inc. said.
Goldman also lowered its rating on U.S. brokerages to ``neutral'' from ``attractive,'' saying the pace of deterioration in the industry ``appears to be far worse than'' it originally anticipated, according to a June 25 note.
``The turnaround in business trends that we had been expecting in the second half of 2008 may not occur as quickly as we should have thought,'' Goldman said. ``We see multiple headwinds for Citigroup,'' such as risks of further writedowns, higher consumer provisions, and the potential need for additional capital raisings, dividend cuts or asset sales, Goldman said.
Goldman joined UBS AG and Merrill Lynch & Co. in predicting more writedowns for New York-based Citigroup, already reeling from $42.9 billion of credit-related losses. Citigroup Chief Executive Officer Vikram Pandit has announced 13,000 job cuts this year, and the bank this month forecast ``substantial'' additional writedowns and more losses on consumer loans.
Citigroup may write down $7.1 billion of collateralized debt obligations and associated hedges, and $1.2 billion for other asset classes, Goldman said. It may need to post a $600 million loss to reflect the mark-to-market value of its own structured note liabilities, New York-based Goldman said.
Payouts in Doubt
Goldman cut its six-month price target for Citigroup to $16 and put the New York-based investment bank on its ``conviction sell'' list. Citigroup closed at $18.85 in New York trading yesterday, having dropped 36 percent this year.
Citigroup probably won't be able to keep its current 7 percent dividend yield and may need to raise more capital, according to the report. Goldman estimated Citigroup could generate $3.5 billion in capital a year by cutting payouts in half.
``Given the firm's current level of earnings power, we do not believe the dividend is safe,'' it said. ``We believe any additional capital raises will be in the form of common equity, dividend cuts and or additional asset sales.''
Citigroup is more exposed to hedges on its leveraged loan and commercial mortgage-backed securities portfolios than Merrill and JPMorgan Chase & Co., indicating higher potential losses, Goldman said.
Merrill analyst Guy Moszkowski this week said Citigroup may post another $8 billion of writedowns this year. UBS analyst Glenn Schorr on June 20 said Citigroup probably will post a second-quarter loss of 40 cents a share after $8.7 billion of asset writedowns.
To contact the reporter on this story: Cathy Chan in Hong Kong at kchan14@bloomberg.net
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June 26 (Bloomberg) -- Citigroup Inc., the bank that's posted the biggest losses from the collapse of the U.S. mortgage market, may take an additional $8.9 billion in net writedowns in the second quarter, Goldman Sachs Group Inc. said.
Goldman also lowered its rating on U.S. brokerages to ``neutral'' from ``attractive,'' saying the pace of deterioration in the industry ``appears to be far worse than'' it originally anticipated, according to a June 25 note.
``The turnaround in business trends that we had been expecting in the second half of 2008 may not occur as quickly as we should have thought,'' Goldman said. ``We see multiple headwinds for Citigroup,'' such as risks of further writedowns, higher consumer provisions, and the potential need for additional capital raisings, dividend cuts or asset sales, Goldman said.
Goldman joined UBS AG and Merrill Lynch & Co. in predicting more writedowns for New York-based Citigroup, already reeling from $42.9 billion of credit-related losses. Citigroup Chief Executive Officer Vikram Pandit has announced 13,000 job cuts this year, and the bank this month forecast ``substantial'' additional writedowns and more losses on consumer loans.
Citigroup may write down $7.1 billion of collateralized debt obligations and associated hedges, and $1.2 billion for other asset classes, Goldman said. It may need to post a $600 million loss to reflect the mark-to-market value of its own structured note liabilities, New York-based Goldman said.
Payouts in Doubt
Goldman cut its six-month price target for Citigroup to $16 and put the New York-based investment bank on its ``conviction sell'' list. Citigroup closed at $18.85 in New York trading yesterday, having dropped 36 percent this year.
Citigroup probably won't be able to keep its current 7 percent dividend yield and may need to raise more capital, according to the report. Goldman estimated Citigroup could generate $3.5 billion in capital a year by cutting payouts in half.
``Given the firm's current level of earnings power, we do not believe the dividend is safe,'' it said. ``We believe any additional capital raises will be in the form of common equity, dividend cuts and or additional asset sales.''
Citigroup is more exposed to hedges on its leveraged loan and commercial mortgage-backed securities portfolios than Merrill and JPMorgan Chase & Co., indicating higher potential losses, Goldman said.
Merrill analyst Guy Moszkowski this week said Citigroup may post another $8 billion of writedowns this year. UBS analyst Glenn Schorr on June 20 said Citigroup probably will post a second-quarter loss of 40 cents a share after $8.7 billion of asset writedowns.
To contact the reporter on this story: Cathy Chan in Hong Kong at kchan14@bloomberg.net
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Arawak, BCE, Research In Motion, WestJet: Canada Equity Preview
By John Kipphoff
June 26 (Bloomberg) -- The following companies may have unusual price changes in Canadian trading today. Stock symbols are in parentheses, and share prices are from the yesterday's close in Toronto.
The Standard & Poor's/TSX Composite Index gained 0.2 percent to 14,441.13.
Arawak Energy Corp. (ABG CN): The Canadian company exploring for oil and gas in Kazakhstan, Russia and Azerbaijan, said it plans to list its shares on the London Stock Exchange. Arawak will maintain its Toronto Stock Exchange listing, the Jersey, U.K.-based company said today in a statement distributed by the Regulatory News Service. The shares fell 3.9 percent to C$2.50.
BCE Inc. (BCE CN): BCE is being told by investors to skip its quarterly dividend payment, in the hope that retaining the C$294 million ($290.84 million) cash will persuade banks to keep to their loan commitment for the buyout of Canada's largest phone company, the Globe and Mail reported., without naming the investors.
BCE has agreed to a C$42.75-a-share takeover offer from a group led by the Ontario Teachers' Pension Plan. The deal depends on a C$32 billion ($31.7 billion) debt package being negotiated by banks including Citigroup Inc. and Toronto- Dominion Bank, the newspaper said. BCE's board is expected to make a decision on the 36.5 cent-a-share payout it by June 30. The shares rose 0.9 to C$37.55.
Compton Petroleum Corp. (CMT CN): The natural gas producer that's seeking a buyer said it agreed to sell four groups of assets for $218 million. Compton, based in Calgary, agreed to sell properties with production of the equivalent of 3,700 barrels of oil a day. The shares fell 2.3 percent to C$12.61.
Husky Energy Inc. (HSE CN): The oil and gas producer controlled by Hong Kong billionaire Li Ka-shing said it signed an accord with the China National Offshore Oil Corp. for an exploration block in China's South China Sea. Cnooc, as the Beijing-based company is known, is China's biggest offshore oil producer. Husky fell 0.4 percent to C$47.94.
Jean Coutu Group Inc. (PJC/A CN): Rite Aid Corp., the U.S. drugstore chain 30 percent owned by Jean Coutu, posted its fourth straight quarterly loss after integrating the 1,800 Brooks and Eckerd locations it bought last year. Rite Aid reported a net loss of $156.6 million, compared with profit of $27.6 million a year earlier. Sales rose to $6.61 billion from $4.43 billion. Jean Coutu fell 0.9 percent to C$8.63.
Magna International Inc. (MG/A CN): An Austrian unit of Magna, North America's biggest car-parts maker, will produce Porsche SE's Boxster and Cayman models, the German carmaker said. Magna will replace Metso Oyj's Valmet Automotive division from 2012, Porsche said. Magna gained 2.5 percent to C$65.99.
Research In Motion Ltd. (RIM CN): The maker of the BlackBerry e-mail phone missed analysts' profit estimates for the first time in five quarters and gave a disappointing forecast amid higher spending to take on Apple Inc.'s new iPhone.
Second-quarter profit will be as low as 84 cents a share, the Waterloo, Ontario-based company said yesterday. That missed the average prediction by analysts of 92 cents, according to a Bloomberg survey. The stock dropped 9.4 percent in early U.S. trading, and 0.6 percent to C$141 during regular trading in Toronto yesterday.
Talisman Energy Inc. (TLM CN): Talisman's Norwegian unit discovered a ``small oil column'' in a wildcat well near the Varg Field the North Sea, Norway's Petroleum Safety Authority said. The find is between 100,000 and 250,000 standard cubic meters of recoverable oil, which will be produced through Varg starting on July 5, the regulator said. Talisman fell 2.3 percent to C$22.31.
WestJet Airlines Ltd. (WJA CN): Canada's second-biggest airline was raised to ``buy'' from ``neutral'' by Fadi Chamoun at UBS. The Toronto-based analyst set a 12-month share-price target of C$19. WestJet added 1.1 percent to C$14.26.
To contact the reporter on this story: John Kipphoff in Toronto at jkipphoff@bloomberg.net.
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June 26 (Bloomberg) -- The following companies may have unusual price changes in Canadian trading today. Stock symbols are in parentheses, and share prices are from the yesterday's close in Toronto.
The Standard & Poor's/TSX Composite Index gained 0.2 percent to 14,441.13.
Arawak Energy Corp. (ABG CN): The Canadian company exploring for oil and gas in Kazakhstan, Russia and Azerbaijan, said it plans to list its shares on the London Stock Exchange. Arawak will maintain its Toronto Stock Exchange listing, the Jersey, U.K.-based company said today in a statement distributed by the Regulatory News Service. The shares fell 3.9 percent to C$2.50.
BCE Inc. (BCE CN): BCE is being told by investors to skip its quarterly dividend payment, in the hope that retaining the C$294 million ($290.84 million) cash will persuade banks to keep to their loan commitment for the buyout of Canada's largest phone company, the Globe and Mail reported., without naming the investors.
BCE has agreed to a C$42.75-a-share takeover offer from a group led by the Ontario Teachers' Pension Plan. The deal depends on a C$32 billion ($31.7 billion) debt package being negotiated by banks including Citigroup Inc. and Toronto- Dominion Bank, the newspaper said. BCE's board is expected to make a decision on the 36.5 cent-a-share payout it by June 30. The shares rose 0.9 to C$37.55.
Compton Petroleum Corp. (CMT CN): The natural gas producer that's seeking a buyer said it agreed to sell four groups of assets for $218 million. Compton, based in Calgary, agreed to sell properties with production of the equivalent of 3,700 barrels of oil a day. The shares fell 2.3 percent to C$12.61.
Husky Energy Inc. (HSE CN): The oil and gas producer controlled by Hong Kong billionaire Li Ka-shing said it signed an accord with the China National Offshore Oil Corp. for an exploration block in China's South China Sea. Cnooc, as the Beijing-based company is known, is China's biggest offshore oil producer. Husky fell 0.4 percent to C$47.94.
Jean Coutu Group Inc. (PJC/A CN): Rite Aid Corp., the U.S. drugstore chain 30 percent owned by Jean Coutu, posted its fourth straight quarterly loss after integrating the 1,800 Brooks and Eckerd locations it bought last year. Rite Aid reported a net loss of $156.6 million, compared with profit of $27.6 million a year earlier. Sales rose to $6.61 billion from $4.43 billion. Jean Coutu fell 0.9 percent to C$8.63.
Magna International Inc. (MG/A CN): An Austrian unit of Magna, North America's biggest car-parts maker, will produce Porsche SE's Boxster and Cayman models, the German carmaker said. Magna will replace Metso Oyj's Valmet Automotive division from 2012, Porsche said. Magna gained 2.5 percent to C$65.99.
Research In Motion Ltd. (RIM CN): The maker of the BlackBerry e-mail phone missed analysts' profit estimates for the first time in five quarters and gave a disappointing forecast amid higher spending to take on Apple Inc.'s new iPhone.
Second-quarter profit will be as low as 84 cents a share, the Waterloo, Ontario-based company said yesterday. That missed the average prediction by analysts of 92 cents, according to a Bloomberg survey. The stock dropped 9.4 percent in early U.S. trading, and 0.6 percent to C$141 during regular trading in Toronto yesterday.
Talisman Energy Inc. (TLM CN): Talisman's Norwegian unit discovered a ``small oil column'' in a wildcat well near the Varg Field the North Sea, Norway's Petroleum Safety Authority said. The find is between 100,000 and 250,000 standard cubic meters of recoverable oil, which will be produced through Varg starting on July 5, the regulator said. Talisman fell 2.3 percent to C$22.31.
WestJet Airlines Ltd. (WJA CN): Canada's second-biggest airline was raised to ``buy'' from ``neutral'' by Fadi Chamoun at UBS. The Toronto-based analyst set a 12-month share-price target of C$19. WestJet added 1.1 percent to C$14.26.
To contact the reporter on this story: John Kipphoff in Toronto at jkipphoff@bloomberg.net.
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Gol, Grupo Modelo, Marcopolo, Socotherm: Latin Equity Preview
By Paulo Winterstein and Alexander Ragir
June 26 (Bloomberg) -- The following stocks may have significant gains or losses in Latin American markets. Symbols are in parentheses after company names, and stock prices are from the last session.
The MSCI index of Latin American shares rose 2.3 percent to 4,784.55 yesterday. In Brazil, preferred shares are the most commonly traded class of stock.
Argentina
Socotherm Americas SA (STHE AR): The maker of steel pipe coatings won a $14.2 million contract to treat a gas pipeline between Tierra del Fuego and the South American mainland, it wrote in a regulatory filing yesterday. Socotherm rose 1.3 percent to 15.80 pesos in Buenos Aires trading.
Brazil
Cia. de Bebidas das Americas (AMBV4 BS): Anheuser-Busch Cos. is prepared to reject a $46.3 billion takeover offer by InBev NV, parent of AmBev, as Latin America's biggest brewer is known, the Wall Street Journal reported, citing people familiar with the matter. Anheuser-Busch believes the offer of $65 a share undervalues the company, the Journal said in a story on its Web site. AmBev added 0.4 percent to 104.80 reais.
Gol Linhas Aereas Inteligentes SA (GOLL4 BS): Brazil's second-biggest airline had its purchase of rival Varig authorized by the country's antitrust regulator, on the condition that Gol modify a contract with Varig's sellers. Gol, based in Sao Paulo, must remove a clause stipulating that the sellers of Varig wouldn't be able to operate their cargo transport business for three years after the purchase, Brazil's antitrust regulator said today in an e-mailed statement. Gol was unchanged at 19.96 reais.
JBS SA (JBSS3 BS): The world's biggest beef producer and two Brazilian rivals said shipments to Russia won't be halted by Brazil's suspension of exports from the state of Goias. The Agriculture Ministry today suspended beef exports to Russia from Goias after finding cattle with gall-bladder infections in the central state. Marfrig Frigorificos & Comercio de Alimentos SA (MRFG3 BS), the world's fourth-biggest beef producer, and Minerva SA (BEEF3 BS) also said in separate filings on Brazil's regulator Web site that they will continue to ship to Russia from plants in other Brazilian states. JBS was unchanged at 8.20 reais. Marfrig fell 1.4 percent to 21.50 reais. Minerva fell 4.1 percent to 9.40 reais.
Marcopolo SA (POMO4 BS): Latin America's biggest maker of bus parts and chassis will invest $50 million over the next three years in a newly formed joint venture with Egyptian bus maker GB Auto SAE and begin building vehicles in the African country by July 2009, Marcopolo said in a filing yesterday. GB Auto will control 51 percent of the new company and Marcopolo will own the remaining 49 percent. Marcopolo rose 0.3 percent to 6.71 reais.
SLC Agricola SA (SLCE3 BS): The Brazilian agricultural company and its stockholders are raising 369.2 million reais ($232 million) in an additional sale of shares in Brazil. The company is selling about 9.4 million shares for 27.50 reais each, while shareholders are selling more than 4 million shares at the same price, according to a statement posted yesterday on Brazil's securities regulator Web site. That includes a possible supplemental offering of as much as 15 percent. SLC fell 1 percent to 27.80 reais.
Cia. Vale do Rio Doce (VALE5 BS): The world's biggest iron- ore producer was rated ``overweight'' in initial coverage by Lehman Brothers Holdings Inc. because of rising steel demand from emerging economies. The company may also revive its takeover offer for Xstrata Plc because it is the ``best fit,'' Lehman said. Vale rose 2.7 percent to 49.48 reais.
Colombia
Bolsa de Valores de Colombia (BVC CB): Colombia's main securities exchange was downgraded to ``hold'' from ``buy'' at Interbolsa SA. Analyst Andres Jimenez reduced BVC's year-end price estimate to 32.10 pesos from 41.21 pesos in a note to clients yesterday, citing lower fixed-income volumes. BVC fell 1.4 percent to 28.9 pesos.
Mexico
Grupo Modelo SAB (GMODELOC MM): Anheuser Busch, which owns a non-controlling 50 percent stake in Mexico's largest brewer, will present its own strategic plan to increase the company's share price after it rejects an unsolicited bid, the Wall Street Journal reported. Modelo rose 1.4 percent to 54.23 pesos.
To contact the reporters on this story: Paulo Winterstein in Sao Paulo at pwinterstein@bloomberg.net; To contact the reporters on this story: Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net;
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June 26 (Bloomberg) -- The following stocks may have significant gains or losses in Latin American markets. Symbols are in parentheses after company names, and stock prices are from the last session.
The MSCI index of Latin American shares rose 2.3 percent to 4,784.55 yesterday. In Brazil, preferred shares are the most commonly traded class of stock.
Argentina
Socotherm Americas SA (STHE AR): The maker of steel pipe coatings won a $14.2 million contract to treat a gas pipeline between Tierra del Fuego and the South American mainland, it wrote in a regulatory filing yesterday. Socotherm rose 1.3 percent to 15.80 pesos in Buenos Aires trading.
Brazil
Cia. de Bebidas das Americas (AMBV4 BS): Anheuser-Busch Cos. is prepared to reject a $46.3 billion takeover offer by InBev NV, parent of AmBev, as Latin America's biggest brewer is known, the Wall Street Journal reported, citing people familiar with the matter. Anheuser-Busch believes the offer of $65 a share undervalues the company, the Journal said in a story on its Web site. AmBev added 0.4 percent to 104.80 reais.
Gol Linhas Aereas Inteligentes SA (GOLL4 BS): Brazil's second-biggest airline had its purchase of rival Varig authorized by the country's antitrust regulator, on the condition that Gol modify a contract with Varig's sellers. Gol, based in Sao Paulo, must remove a clause stipulating that the sellers of Varig wouldn't be able to operate their cargo transport business for three years after the purchase, Brazil's antitrust regulator said today in an e-mailed statement. Gol was unchanged at 19.96 reais.
JBS SA (JBSS3 BS): The world's biggest beef producer and two Brazilian rivals said shipments to Russia won't be halted by Brazil's suspension of exports from the state of Goias. The Agriculture Ministry today suspended beef exports to Russia from Goias after finding cattle with gall-bladder infections in the central state. Marfrig Frigorificos & Comercio de Alimentos SA (MRFG3 BS), the world's fourth-biggest beef producer, and Minerva SA (BEEF3 BS) also said in separate filings on Brazil's regulator Web site that they will continue to ship to Russia from plants in other Brazilian states. JBS was unchanged at 8.20 reais. Marfrig fell 1.4 percent to 21.50 reais. Minerva fell 4.1 percent to 9.40 reais.
Marcopolo SA (POMO4 BS): Latin America's biggest maker of bus parts and chassis will invest $50 million over the next three years in a newly formed joint venture with Egyptian bus maker GB Auto SAE and begin building vehicles in the African country by July 2009, Marcopolo said in a filing yesterday. GB Auto will control 51 percent of the new company and Marcopolo will own the remaining 49 percent. Marcopolo rose 0.3 percent to 6.71 reais.
SLC Agricola SA (SLCE3 BS): The Brazilian agricultural company and its stockholders are raising 369.2 million reais ($232 million) in an additional sale of shares in Brazil. The company is selling about 9.4 million shares for 27.50 reais each, while shareholders are selling more than 4 million shares at the same price, according to a statement posted yesterday on Brazil's securities regulator Web site. That includes a possible supplemental offering of as much as 15 percent. SLC fell 1 percent to 27.80 reais.
Cia. Vale do Rio Doce (VALE5 BS): The world's biggest iron- ore producer was rated ``overweight'' in initial coverage by Lehman Brothers Holdings Inc. because of rising steel demand from emerging economies. The company may also revive its takeover offer for Xstrata Plc because it is the ``best fit,'' Lehman said. Vale rose 2.7 percent to 49.48 reais.
Colombia
Bolsa de Valores de Colombia (BVC CB): Colombia's main securities exchange was downgraded to ``hold'' from ``buy'' at Interbolsa SA. Analyst Andres Jimenez reduced BVC's year-end price estimate to 32.10 pesos from 41.21 pesos in a note to clients yesterday, citing lower fixed-income volumes. BVC fell 1.4 percent to 28.9 pesos.
Mexico
Grupo Modelo SAB (GMODELOC MM): Anheuser Busch, which owns a non-controlling 50 percent stake in Mexico's largest brewer, will present its own strategic plan to increase the company's share price after it rejects an unsolicited bid, the Wall Street Journal reported. Modelo rose 1.4 percent to 54.23 pesos.
To contact the reporters on this story: Paulo Winterstein in Sao Paulo at pwinterstein@bloomberg.net; To contact the reporters on this story: Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net;
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Anheuser-Busch, Citigroup, General Motors: U.S. Equity Preview
By Katherine Greene
June 26 (Bloomberg) -- The following companies may have unusual price changes in U.S. markets. Stock symbols are in parentheses after company names, and prices are as of 7:44 a.m. in New York, unless stated otherwise.
Anheuser-Busch Cos. (BUD US) fell 0.8 percent to $61.25. The maker of Budweiser may reject InBev NV's $46.3 billion takeover bid and announce plans to lower costs and sell off divisions to increase its stock price, the Wall Street Journal reported yesterday, citing unidentified people familiar with the matter.
Autodesk Inc. (ADSK US) lost 4.5 percent to $34.71 in extended trading yesterday. The biggest maker of engineering- design software cut its second-quarter forecast for adjusted earnings per share to as low as 50 cents a share. Analysts had expected 53 cents, the average of 17 estimates in a Bloomberg survey, for the quarter ending July 31.
Bed Bath & Beyond Inc. (BBBY US) added 8 percent to $30.84 in extended trading yesterday. The largest U.S. home-furnishings retailer reported profit that fell less than analysts estimated on higher sales. First-quarter net income declined to 30 cents a share from 38 cents a year earlier, the company said in a statement. Analysts had forecast 27 cents, the average of 20 estimates in a Bloomberg survey.
Citigroup Inc. (C US) fell 4.5 percent to $18. The bank that's posted the biggest losses from the collapse of the U.S. mortgage market may take an additional $8.9 billion in net writedowns in the second quarter, Goldman Sachs Group Inc. said.
General Motors Corp. (GM US) dropped 5.5 percent to $12.10. The world's largest automaker was downgraded to ``sell'' from ``neutral'' at Goldman, Sachs & Co., which said the shares will continue to slide as the sales outlook worsens, citing soaring gas prices, falling consumer confidence and tighter credit conditions.
Ford Motor Co. (F US), GM's smaller rival, fell 3 percent to $5.08.
Merrill Lynch & Co. (MER US) slid 3.3 percent to $34.40. The third-biggest U.S. securities firm is likely to post losses in the second quarter and 2008 after writing down the value of mortgage-related assets, according to Sanford C. Bernstein & Co.'s Brad Hintz.
Oracle Corp. (ORCL US) lost 3.3 percent to $21.81. The second-largest software maker said it expects first-quarter profit before some items of 26 cents to 27 cents a share. Analysts had expected 27 cents, the average of 16 analyst estimates in a Bloomberg survey.
Research In Motion Ltd. (RIMM US) lost 9.6 percent to $128.62. The maker of the BlackBerry e-mail phone missed profit and sales estimates for the first time in five quarters and gave a disappointing forecast amid heightened competition with Apple Inc.'s iPhone. The company reported first-quarter profit of 84 cents a share. That trailed the 85 cents predicted by analysts in a Bloomberg survey.
-- With reporting by Jeff Kearns. Editor: Allen Wan
To contact the reporter on this story: Katherine Greene in New York at kgreene8@bloomberg.net.
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June 26 (Bloomberg) -- The following companies may have unusual price changes in U.S. markets. Stock symbols are in parentheses after company names, and prices are as of 7:44 a.m. in New York, unless stated otherwise.
Anheuser-Busch Cos. (BUD US) fell 0.8 percent to $61.25. The maker of Budweiser may reject InBev NV's $46.3 billion takeover bid and announce plans to lower costs and sell off divisions to increase its stock price, the Wall Street Journal reported yesterday, citing unidentified people familiar with the matter.
Autodesk Inc. (ADSK US) lost 4.5 percent to $34.71 in extended trading yesterday. The biggest maker of engineering- design software cut its second-quarter forecast for adjusted earnings per share to as low as 50 cents a share. Analysts had expected 53 cents, the average of 17 estimates in a Bloomberg survey, for the quarter ending July 31.
Bed Bath & Beyond Inc. (BBBY US) added 8 percent to $30.84 in extended trading yesterday. The largest U.S. home-furnishings retailer reported profit that fell less than analysts estimated on higher sales. First-quarter net income declined to 30 cents a share from 38 cents a year earlier, the company said in a statement. Analysts had forecast 27 cents, the average of 20 estimates in a Bloomberg survey.
Citigroup Inc. (C US) fell 4.5 percent to $18. The bank that's posted the biggest losses from the collapse of the U.S. mortgage market may take an additional $8.9 billion in net writedowns in the second quarter, Goldman Sachs Group Inc. said.
General Motors Corp. (GM US) dropped 5.5 percent to $12.10. The world's largest automaker was downgraded to ``sell'' from ``neutral'' at Goldman, Sachs & Co., which said the shares will continue to slide as the sales outlook worsens, citing soaring gas prices, falling consumer confidence and tighter credit conditions.
Ford Motor Co. (F US), GM's smaller rival, fell 3 percent to $5.08.
Merrill Lynch & Co. (MER US) slid 3.3 percent to $34.40. The third-biggest U.S. securities firm is likely to post losses in the second quarter and 2008 after writing down the value of mortgage-related assets, according to Sanford C. Bernstein & Co.'s Brad Hintz.
Oracle Corp. (ORCL US) lost 3.3 percent to $21.81. The second-largest software maker said it expects first-quarter profit before some items of 26 cents to 27 cents a share. Analysts had expected 27 cents, the average of 16 analyst estimates in a Bloomberg survey.
Research In Motion Ltd. (RIMM US) lost 9.6 percent to $128.62. The maker of the BlackBerry e-mail phone missed profit and sales estimates for the first time in five quarters and gave a disappointing forecast amid heightened competition with Apple Inc.'s iPhone. The company reported first-quarter profit of 84 cents a share. That trailed the 85 cents predicted by analysts in a Bloomberg survey.
-- With reporting by Jeff Kearns. Editor: Allen Wan
To contact the reporter on this story: Katherine Greene in New York at kgreene8@bloomberg.net.
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U.S. Stocks Drop on Earnings Concern; Citigroup, RIM Retreat
By Michael Patterson
June 26 (Bloomberg) -- U.S. stocks tumbled, sending the Dow Jones Industrial Average to its lowest since October 2006, after analysts said Citigroup Inc. will post more writedowns and Research In Motion Ltd. forecast earnings that trailed estimates.
Citigroup led bank and brokerage stocks to a five-year low as Goldman analysts said the lender may report an $8.9 billion second-quarter charge and cut its dividend. Research In Motion, maker of the BlackBerry e-mail phone, posted its biggest drop since 2004 on concern competition with Apple Inc.'s iPhone is reducing earnings. Oracle Corp., the world's second-largest software maker, declined the most since April after predicting the slowest sales growth since 2006.
Standard & Poor's 500 Index lost 13.92, or 1.1 percent, to 1,308.05 at 9:35 a.m. in New York, extending its 2008 retreat to 11 percent. The Dow decreased 109.68, or 0.9 percent, to 11,702.15. The Nasdaq Composite Index sank 40.03 to 2,361.23. Six stocks fell for each that rose on the New York Stock Exchange.
``Most investors are going to sit on the sidelines until they're more certain the sharks have left the waters and it's safe to go back in,'' said Bruce McCain, the Cleveland-based head of investment strategy at Key Private Bank, which oversees about $30 billion. ``The writeoffs have been far worse than anyone would have imagined.''
Nine of 10 industry groups retreated as higher-than-forecast initial jobless claims also weighed on the market. The Commerce Department said the U.S. economy expanded at an annual rate of 1 percent in the first quarter, capping the weakest six months of growth in five years, as measures of inflation accelerated more than previously projected. Energy shares posted the only advance as oil climbed more than $3 a barrel.
European stocks fell after Belgium-based lender Fortis scrapped its dividend and said it will sell shares. Asian stocks advanced.
To contact the reporter on this story: Michael Patterson in New York at mpatterson10@bloomberg.net.
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June 26 (Bloomberg) -- U.S. stocks tumbled, sending the Dow Jones Industrial Average to its lowest since October 2006, after analysts said Citigroup Inc. will post more writedowns and Research In Motion Ltd. forecast earnings that trailed estimates.
Citigroup led bank and brokerage stocks to a five-year low as Goldman analysts said the lender may report an $8.9 billion second-quarter charge and cut its dividend. Research In Motion, maker of the BlackBerry e-mail phone, posted its biggest drop since 2004 on concern competition with Apple Inc.'s iPhone is reducing earnings. Oracle Corp., the world's second-largest software maker, declined the most since April after predicting the slowest sales growth since 2006.
Standard & Poor's 500 Index lost 13.92, or 1.1 percent, to 1,308.05 at 9:35 a.m. in New York, extending its 2008 retreat to 11 percent. The Dow decreased 109.68, or 0.9 percent, to 11,702.15. The Nasdaq Composite Index sank 40.03 to 2,361.23. Six stocks fell for each that rose on the New York Stock Exchange.
``Most investors are going to sit on the sidelines until they're more certain the sharks have left the waters and it's safe to go back in,'' said Bruce McCain, the Cleveland-based head of investment strategy at Key Private Bank, which oversees about $30 billion. ``The writeoffs have been far worse than anyone would have imagined.''
Nine of 10 industry groups retreated as higher-than-forecast initial jobless claims also weighed on the market. The Commerce Department said the U.S. economy expanded at an annual rate of 1 percent in the first quarter, capping the weakest six months of growth in five years, as measures of inflation accelerated more than previously projected. Energy shares posted the only advance as oil climbed more than $3 a barrel.
European stocks fell after Belgium-based lender Fortis scrapped its dividend and said it will sell shares. Asian stocks advanced.
To contact the reporter on this story: Michael Patterson in New York at mpatterson10@bloomberg.net.
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U.S. Preview: Existing Home Sales Expected to Bump Up to 4.95 Million in May (Repeat)
US Economy | Written by CEP News | Jun 26 08 13:09 GMT |
(CEP News) - Existing home sales for May, which will be released Thursday by the National Association of Realtors (NAR), are expected to see a 1.2% rise to an annual pace of 4.95 million units following April's 1.0% decline to 4.89 million. The pace has been below the 5 million mark for two months.
The previous report saw single-family unit sales come in at 4.34 million, decreasing from a rate of 4.36 million in the previous month, while the national median existing home price was $202,300, up from the previous month but marking an 8% decline from the same time a year ago.
Lehman Brothers economists expect a 2.5% increase to 5.00 million in May based on the unexpected gain in pending home sales in April, which suggests "an increase in closed contracts in May and June."
U.S. pending home sales have been declining in five of the past six months, yet in the most recent report they jumped 6.3% to reach their highest level in six months. The index tracks home sales that have been signed but not finalized, a process that takes another month or two, thereby offering a forecast for existing home sales.
In the longer-term, however, Lehman analysts said the expected gain in existing home sales will be "a fleeting gain" as sales should continue to decline through the rest of the summer, "bottoming in September."
By contrast, Dawn Desjardins, assistant chief economist at RBC Capital Markets, is looking for sales to stabilize, "albeit at a very low level." She said the housing market "remains in deep depression and, for the time being, the main concern is the glut of homes for sale."
Total housing inventories came in with an 11.2-month supply in April, up from the 10-month supply in March.
Desjardins said "persistent price concessions will likely bolster activity but we haven't seen any clear signs of improvement yet."
A third view comes from BBVA economists, who expect housing demand to keep weakening as deflation plagues the housing market. "In our view, the housing market will deteriorate - each time at a slower pace - throughout the rest of the year and will not start to recover until the beginning of 2009."
Other forecasters are looking for a gain of up to 5.3% in the month, which would put the annual pace at 5.15 million units, while the lowest forecasts expect a 2.9% decline to a pace of 4.75 million units.
Earlier in the week, the S&P Case-Shiller U.S. home price index continued to deteriorate in April as the 20-city composite index posted a record annual decline of 15.3%. Meanwhile, the Office of Federal Housing Enterprise Oversight (OFHEO) reported a 0.8% monthly decline in house prices in April.
By Patrick McGee, pmcgee@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it , edited by Stephen Huebl, shuebl@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it
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(CEP News) - Existing home sales for May, which will be released Thursday by the National Association of Realtors (NAR), are expected to see a 1.2% rise to an annual pace of 4.95 million units following April's 1.0% decline to 4.89 million. The pace has been below the 5 million mark for two months.
The previous report saw single-family unit sales come in at 4.34 million, decreasing from a rate of 4.36 million in the previous month, while the national median existing home price was $202,300, up from the previous month but marking an 8% decline from the same time a year ago.
Lehman Brothers economists expect a 2.5% increase to 5.00 million in May based on the unexpected gain in pending home sales in April, which suggests "an increase in closed contracts in May and June."
U.S. pending home sales have been declining in five of the past six months, yet in the most recent report they jumped 6.3% to reach their highest level in six months. The index tracks home sales that have been signed but not finalized, a process that takes another month or two, thereby offering a forecast for existing home sales.
In the longer-term, however, Lehman analysts said the expected gain in existing home sales will be "a fleeting gain" as sales should continue to decline through the rest of the summer, "bottoming in September."
By contrast, Dawn Desjardins, assistant chief economist at RBC Capital Markets, is looking for sales to stabilize, "albeit at a very low level." She said the housing market "remains in deep depression and, for the time being, the main concern is the glut of homes for sale."
Total housing inventories came in with an 11.2-month supply in April, up from the 10-month supply in March.
Desjardins said "persistent price concessions will likely bolster activity but we haven't seen any clear signs of improvement yet."
A third view comes from BBVA economists, who expect housing demand to keep weakening as deflation plagues the housing market. "In our view, the housing market will deteriorate - each time at a slower pace - throughout the rest of the year and will not start to recover until the beginning of 2009."
Other forecasters are looking for a gain of up to 5.3% in the month, which would put the annual pace at 5.15 million units, while the lowest forecasts expect a 2.9% decline to a pace of 4.75 million units.
Earlier in the week, the S&P Case-Shiller U.S. home price index continued to deteriorate in April as the 20-city composite index posted a record annual decline of 15.3%. Meanwhile, the Office of Federal Housing Enterprise Oversight (OFHEO) reported a 0.8% monthly decline in house prices in April.
By Patrick McGee, pmcgee@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it , edited by Stephen Huebl, shuebl@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it
CEP Newswires - CEP News © 2008. All Rights Reserved. www.economicnews.ca
The Copying, Broadcast, Republication or Redistribution of CEP News Content is Expressly Prohibited Without the Prior Written Consent of CEP News.
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European Market Recap: German Bonds Move Higher, UK Bonds Lower
Market Updates | Written by CEP News | Jun 26 08 11:32 GMT |
(CEP News) - European equity markets are trading lower with the Eurostoxx losing 38.23 points on the day and the UK FTSE 100 down 66.90 points to 5599.199. In Germany, the bund was up 3.0 ticks to 110.48 with yields down 0.2 bps to 4.61% while the 10-year gilt was down 13.0 ticks to 104.29 with yields up 1.9 bps to 5.14%.
The five-year Bobl was up 4.0 ticks to 105.87, the two-year Schatz up 4.0 ticks to 102.39 and the June 2008 Euribor contract trading up 5.5 ticks to 94.94.
The spread between the 10-year Bund and 10-year U.S. Treasury notes widened 1.962 bps to -48.80.
Yields on the UK's 30-year bond were up 2.3 bps to 4.67%, the five-year bond up 0.8 bps to 5.19% and the two-year bond up 0.4 bps to 5.25%.
The September 2008 Short Sterling contract was up 6.0 ticks to 93.92.
Yields on U.S. 10-year Treasury notes are up 2.4 bps to 4.123%.
European stock markets are declining with the Eurostoxx down 38.23 points to 2920.04, the UK FTSE 100 down 66.90 points to 5599.199 and the German DAX down 88.75 points to 6529.09.
The Japanese Nikkei was trading down 7.60 points to 13822.32.
The Canadian dollar was down 0.02 cents to 0.9907 against the USD (1.0099 USD/CAD). Against the euro, the loonie was down 0.17 cents to 0.6305 (1.5859 CAD/EUR).
The U.S. dollar was down 0.07 to 107.75 and the euro was up 0.35 to 169.24, both against the yen.
The euro was up 0.38 cents to 1.5705 while the pound sterling was up 0.69 cents to 1.9820, both against the USD.
The euro was down 0.08 cents to 0.7924 pounds.
The Swiss franc was up 0.39 cents to 1.0311 against the USD and up 0.19 cents to 1.6196 against the euro.
All data taken at 7:30 a.m. EDT.
Generated by CEP Newswires, edited by Stephen Huebl, shuebl@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it
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The Copying, Broadcast, Republication or Redistribution of CEP News Content is Expressly Prohibited Without the Prior Written Consent of CEP News.
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(CEP News) - European equity markets are trading lower with the Eurostoxx losing 38.23 points on the day and the UK FTSE 100 down 66.90 points to 5599.199. In Germany, the bund was up 3.0 ticks to 110.48 with yields down 0.2 bps to 4.61% while the 10-year gilt was down 13.0 ticks to 104.29 with yields up 1.9 bps to 5.14%.
The five-year Bobl was up 4.0 ticks to 105.87, the two-year Schatz up 4.0 ticks to 102.39 and the June 2008 Euribor contract trading up 5.5 ticks to 94.94.
The spread between the 10-year Bund and 10-year U.S. Treasury notes widened 1.962 bps to -48.80.
Yields on the UK's 30-year bond were up 2.3 bps to 4.67%, the five-year bond up 0.8 bps to 5.19% and the two-year bond up 0.4 bps to 5.25%.
The September 2008 Short Sterling contract was up 6.0 ticks to 93.92.
Yields on U.S. 10-year Treasury notes are up 2.4 bps to 4.123%.
European stock markets are declining with the Eurostoxx down 38.23 points to 2920.04, the UK FTSE 100 down 66.90 points to 5599.199 and the German DAX down 88.75 points to 6529.09.
The Japanese Nikkei was trading down 7.60 points to 13822.32.
The Canadian dollar was down 0.02 cents to 0.9907 against the USD (1.0099 USD/CAD). Against the euro, the loonie was down 0.17 cents to 0.6305 (1.5859 CAD/EUR).
The U.S. dollar was down 0.07 to 107.75 and the euro was up 0.35 to 169.24, both against the yen.
The euro was up 0.38 cents to 1.5705 while the pound sterling was up 0.69 cents to 1.9820, both against the USD.
The euro was down 0.08 cents to 0.7924 pounds.
The Swiss franc was up 0.39 cents to 1.0311 against the USD and up 0.19 cents to 1.6196 against the euro.
All data taken at 7:30 a.m. EDT.
Generated by CEP Newswires, edited by Stephen Huebl, shuebl@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it
CEP Newswires - CEP News © 2008. All Rights Reserved. www.economicnews.ca
The Copying, Broadcast, Republication or Redistribution of CEP News Content is Expressly Prohibited Without the Prior Written Consent of CEP News.
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German Import Prices Have Biggest Gain in 18 Years
By Simone Meier
June 26 (Bloomberg) -- German import prices rose the most in almost 18 years in May, adding to signs of increasing inflation pressure in Europe's largest economy.
Prices gained 2.4 percent from April, when they climbed 0.9 percent, the Federal Statistics Office in Wiesbaden said today. That's the biggest gain since September 1990. Economists expected an increase of 1.5 percent, according to the median of 16 forecasts in a Bloomberg News survey.
A surge in oil prices to a record $139.89 a barrel on June 16 has pushed up inflation and increased pressure on companies to pass on higher costs, even as a stronger euro makes imports more affordable. The European Central Bank has said it is ready to raise borrowing costs from a six-year high next month.
``Inflation pressures are much stronger than expected,'' said Thorsten Polleit, chief German economist at Barclays Capital in Frankfurt. ``It's mainly due to developments on commodity markets. Prices will continue to rise.''
From a year earlier, import prices increased 7.9 percent after rising 5.7 percent in April, the statistics office said today. That's the strongest annual increase since November 2000. Energy costs increased 10.1 percent in the month and imported crude oil was 13.3 percent more expensive, today's report showed.
The price of oil has increased 43 percent this year, draining the purchasing power of companies and consumers. The euro has gained 6.6 percent against the dollar over the same period.
Faster Inflation
In Germany, inflation probably accelerated to 3.3 percent in June from 3 percent in the previous month, a Bloomberg survey of economists shows. That would be the fastest since harmonized records began in 1996. The statistics office will release the data tomorrow.
The ECB is concerned that faster inflation will feed into wage demands and prompt companies to pass on higher costs. ECB President Jean-Claude Trichet reiterated yesterday that the bank is in a state of ``heightened alertness'' and may raise the key rate from 4 percent in July.
Adding to signs of cost pressures, German producer-price inflation accelerated to the fastest pace in almost two years in May and wholesale prices jumped the most in 26 years. Export-price inflation accelerated to 2.3 percent in May from 2.2 percent in the previous month, today's report showed.
`Readiness to Act'
Lanxess AG, Germany's biggest publicly traded specialty- chemicals maker, said on May 29 it is passing on rising raw- material costs. Continental AG, Europe's second-largest tire maker, said last month it will raise car tire prices in the region by up to 4 percent to counter rising oil costs.
The ECB forecasts inflation in the economy of the 15 euro nations will average about 3.4 percent this year and around 2.4 percent in 2009. The Frankfurt-based bank aims to keep annual gains in consumer prices just below 2 percent.
``Financial markets should by now have understood our readiness to act,'' ECB council member Axel Weber, who is also head of Germany's Bundesbank, said yesterday. ``It is our strong determination to secure a firm anchoring of medium and long-term inflation expectations in line with price stability.''
Investors expect the ECB to raise its key rate twice this year, Eonia forwards show.
Still, with the economy losing momentum and households holding back spending, companies may find it more difficult to raise prices. In Germany, consumer confidence dropped to the lowest in more than two years, GfK AG's index for July showed.
German companies ``are able to pass on higher input prices to consumers,'' said Stefan Bielmeier, an economist at Deutsche Bank AG in Frankfurt. ``However, in view of the deterioration in consumer sentiment, this elbowroom can diminish rapidly.''
To contact the reporter on this story: Simone Meier in Frankfurt at smeier@bloomberg.net
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June 26 (Bloomberg) -- German import prices rose the most in almost 18 years in May, adding to signs of increasing inflation pressure in Europe's largest economy.
Prices gained 2.4 percent from April, when they climbed 0.9 percent, the Federal Statistics Office in Wiesbaden said today. That's the biggest gain since September 1990. Economists expected an increase of 1.5 percent, according to the median of 16 forecasts in a Bloomberg News survey.
A surge in oil prices to a record $139.89 a barrel on June 16 has pushed up inflation and increased pressure on companies to pass on higher costs, even as a stronger euro makes imports more affordable. The European Central Bank has said it is ready to raise borrowing costs from a six-year high next month.
``Inflation pressures are much stronger than expected,'' said Thorsten Polleit, chief German economist at Barclays Capital in Frankfurt. ``It's mainly due to developments on commodity markets. Prices will continue to rise.''
From a year earlier, import prices increased 7.9 percent after rising 5.7 percent in April, the statistics office said today. That's the strongest annual increase since November 2000. Energy costs increased 10.1 percent in the month and imported crude oil was 13.3 percent more expensive, today's report showed.
The price of oil has increased 43 percent this year, draining the purchasing power of companies and consumers. The euro has gained 6.6 percent against the dollar over the same period.
Faster Inflation
In Germany, inflation probably accelerated to 3.3 percent in June from 3 percent in the previous month, a Bloomberg survey of economists shows. That would be the fastest since harmonized records began in 1996. The statistics office will release the data tomorrow.
The ECB is concerned that faster inflation will feed into wage demands and prompt companies to pass on higher costs. ECB President Jean-Claude Trichet reiterated yesterday that the bank is in a state of ``heightened alertness'' and may raise the key rate from 4 percent in July.
Adding to signs of cost pressures, German producer-price inflation accelerated to the fastest pace in almost two years in May and wholesale prices jumped the most in 26 years. Export-price inflation accelerated to 2.3 percent in May from 2.2 percent in the previous month, today's report showed.
`Readiness to Act'
Lanxess AG, Germany's biggest publicly traded specialty- chemicals maker, said on May 29 it is passing on rising raw- material costs. Continental AG, Europe's second-largest tire maker, said last month it will raise car tire prices in the region by up to 4 percent to counter rising oil costs.
The ECB forecasts inflation in the economy of the 15 euro nations will average about 3.4 percent this year and around 2.4 percent in 2009. The Frankfurt-based bank aims to keep annual gains in consumer prices just below 2 percent.
``Financial markets should by now have understood our readiness to act,'' ECB council member Axel Weber, who is also head of Germany's Bundesbank, said yesterday. ``It is our strong determination to secure a firm anchoring of medium and long-term inflation expectations in line with price stability.''
Investors expect the ECB to raise its key rate twice this year, Eonia forwards show.
Still, with the economy losing momentum and households holding back spending, companies may find it more difficult to raise prices. In Germany, consumer confidence dropped to the lowest in more than two years, GfK AG's index for July showed.
German companies ``are able to pass on higher input prices to consumers,'' said Stefan Bielmeier, an economist at Deutsche Bank AG in Frankfurt. ``However, in view of the deterioration in consumer sentiment, this elbowroom can diminish rapidly.''
To contact the reporter on this story: Simone Meier in Frankfurt at smeier@bloomberg.net
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Sales of Existing Homes in the U.S. Probably Increased in May
By Courtney Schlisserman
June 26 (Bloomberg) -- Sales of U.S. previously owned houses probably rose in May from a record low as depressed prices lured some buyers into the market, economists said before a report today.
Resales rose 1.2 percent to a 4.95 million annual rate, according to the median forecast of 72 economists surveyed by Bloomberg News ahead of a report by the National Association of Realtors. April's sales pace of 4.89 million matched the lowest level since records began in 1999.
A drop in property values may have spurred demand in some of the most depressed areas, such as California and the Midwest. Even so, rising mortgage rates, a glut of unsold homes, and stricter borrowing rules indicate the real estate recession will persist for most of the year.
``We're not quite convinced we've reached a bottom yet,'' said Nigel Gault, chief U.S. economist at Global Insight Inc. in Lexington, Massachusetts.
The Realtors group is scheduled to release the report at 10 a.m. in Washington. Estimates in the Bloomberg survey ranged from 4.75 million to 5.15 million.
Other reports today may show that firings eased last week and the economy grew in the first quarter at a faster pace than previously estimated.
Initial jobless claims fell to 375,000 last week, from 381,000 a week earlier, according to the Bloomberg survey median. While down, the level of applications still indicates the job market is soft.
Economic Growth
Gross domestic product rose at a 1 percent annual rate for the first three months of the year, compared with the 0.9 percent pace estimated last month, according to the survey median. Following the fourth quarter's 0.6 percent growth rate, the economic expansion for the six months ended in March was the weakest in five years.
Federal Reserve policy makers yesterday left the benchmark interest rate at 2 percent, ending the most aggressive series of rate cuts in two decades, and said growth risks had diminished while higher energy costs boosted the threat of inflation.
The ``ongoing housing contraction,'' stricter lending rules and the jump in fuel costs were among the factors the central bankers predicted would hurt economic growth for at least the rest of the year.
Declines in residential construction have been a drag on growth since the first quarter of 2006. In addition, demand for furniture and building materials has sagged and home prices and consumer confidence have fallen.
Prices Drop
The S&P/Case-Shiller index earlier this week showed prices in 20 U.S. metropolitan areas fell 15.3 percent in April from a year earlier, the steepest decline since records began in 2001.
Rising rates of defaults and foreclosures may bring more homes onto the market and put even more pressure on prices. Banks repossessed twice as many homes in May as they did a year ago and foreclosure filings rose 48 percent, according to RealtyTrac Inc., a real estate database in Irvine, California.
The California Association of Realtors yesterday said sales in that state rose 18 percent in May from the same month last year as median prices dropped 35 percent.
The increase was due to a high number of ``distressed sales,'' the group said.
Recent reports suggest the housing slump will continue. The Mortgage Bankers Association's index of loan applications to purchase homes fell last week to the lowest level in more than five years.
The Commerce Department said yesterday that sales of new homes fell to a 512,000 pace last month, the second-lowest reading since 1991. At that pace, it would take 10.9 months to sell all the houses currently on the market.
Timelier Gauge
While sales of previously owned homes account for about 85 percent of the market, new home sales are considered to be a timelier indicator because they are based on contract signings. Resales are tabulated once a transaction is closed, which typically occurs a month or two later.
``It feels to us as though we're pretty much on the bottom, but that doesn't make you feel too good,'' Robert Toll, chief executive officer of Toll Brothers Inc., the largest U.S. luxury-home builder, said in a Bloomberg Television interview June 24. ``We have noticed some good times coming back in some markets, but in other markets, there's no sign of recovery.''
On June 3, Horsham, Pennsylvania-based Toll reported a loss for the third straight quarter.
Bloomberg Survey
================================================================
GDP Initial Exist
Annual Claims Homes
QOQ% ,000's Mlns
================================================================
Date of Release 06/26 06/26 06/26
Observation Period 1Q F 22-Jun May
----------------------------------------------------------------
Median 1.0% 375 4.95
Average 1.0% 377 4.95
High Forecast 1.3% 388 5.15
Low Forecast 0.9% 370 4.75
Number of Participants 70 37 72
Previous 0.9% 381 4.89
----------------------------------------------------------------
4CAST Ltd. 1.0% --- 4.90
Action Economics 1.2% 375 4.90
Aletti Gestielle SGR 1.0% 378 4.95
Argus Research Corp. 0.9% --- 5.00
Banc of America Securitie 0.9% --- 4.96
Bank of Tokyo- Mitsubishi 1.1% --- 5.00
Bantleon Bank AG --- --- 4.85
Barclays Capital 1.2% 375 5.00
BBVA 1.0% --- 4.80
BMO Capital Markets 1.0% 388 4.94
BNP Paribas 1.0% 386 5.15
Briefing.com 1.0% --- 5.05
Calyon 1.1% --- 4.93
CFC Group 1.0% 373 5.01
CIBC World Markets 1.0% --- 4.95
Citi 1.2% 380 4.95
ClearView Economics 1.0% --- 4.75
Commerzbank AG 1.0% 370 5.00
Commonwealth Bank of Aust --- 370 ---
Credit Suisse 1.1% 380 5.00
Daiwa Securities America 1.0% --- 4.90
DekaBank 1.0% --- 5.00
Desjardins Group 0.9% 378 4.93
Deutsche Bank Securities 0.9% 375 4.75
Deutsche Postbank AG 1.0% --- ---
Dresdner Kleinwort 1.1% --- 4.94
DZ Bank 0.9% --- 4.95
First Trust Advisors 0.9% 376 4.96
Fortis 1.0% --- 5.00
FTN Financial --- --- 4.85
Global Insight Inc. 1.2% --- 4.99
Goldman, Sachs & Co. 1.0% --- 4.96
H&R Block Financial Advis 1.0% 380 4.90
Helaba 1.0% --- 4.90
High Frequency Economics 1.0% --- 5.00
Horizon Investments 1.0% --- 4.90
HSBC Markets 0.9% 375 5.05
IDEAglobal 1.0% 385 5.01
Informa Global Markets 1.2% 375 5.00
ING Financial Markets 1.0% 380 5.05
Insight Economics 1.0% 375 4.85
Intesa-SanPaulo 1.0% --- 4.90
J.P. Morgan Chase 1.3% --- 5.01
Janney Montgomery Scott L 0.9% --- 4.80
JPMorgan Private Client 1.1% 375 4.92
Landesbank Berlin 0.9% 375 4.95
Landesbank BW 1.0% --- 4.95
Lehman Brothers 1.0% 380 5.00
Maria Fiorini Ramirez Inc 1.0% 370 4.90
Merk Investments 1.0% 375 5.04
Merrill Lynch 1.1% --- 4.84
Moody's Economy.com 1.1% 385 5.00
Morgan Stanley & Co. 1.2% --- 4.95
National Bank Financial --- --- 4.85
National City Corporation 1.1% --- 4.93
Newedge 1.1% --- ---
Nomura Securities Intl. 0.9% --- 4.90
Nord/LB --- 370 ---
PNC Bank 1.0% --- 5.00
RBS Greenwich Capital 1.2% --- 4.95
Ried, Thunberg & Co. 1.2% 380 5.00
Schneider Trading Associa 0.9% 370 5.01
Scotia Capital 1.0% --- 4.98
Standard Chartered 0.9% --- 4.90
Stone & McCarthy Research 1.0% 375 5.08
TD Securities 1.0% 380 4.90
Thomson Financial/IFR 1.0% 385 4.88
Tullett Prebon 1.0% 375 4.95
UBS Securities LLC 1.1% 375 5.01
Unicredit MIB --- 370 4.80
University of Maryland 1.0% --- 5.06
Wachovia Corp. 1.1% --- 4.75
Wells Fargo & Co. 1.2% 375 4.90
WestLB AG 0.9% --- 4.93
Westpac Banking Co. 1.0% 385 5.01
Wrightson Associates 1.2% 380 5.00
================================================================
To contact the reporter on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg.net
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