Monday, July 14, 2008

Most Japan Stocks Fall, Led by Shipping Lines; Steelmakers Gain

By Patrick Rial and Satoshi Kawano

July 14 (Bloomberg) -- Most Japanese stocks fell, led by shipping lines after cargo rates for commodities fell. Steelmakers advanced after a South Korean producer raised its earnings forecast.

Mitsui O.S.K. Lines Ltd., Japan's second-largest shipping line by sales, fell the most in almost two weeks. Daiichi Sankyo Co. dropped the most in four months after its Indian buyout target was probed for falsification of data on generic drugs. JFE Holdings Inc., the world's third-largest steelmaker, soared after South Korea's Posco said demand from China helped profit climb last quarter.

The Nikkei 225 Stock Average fell 38.94, or 0.3 percent, to 13,000.75 as of 1:59 p.m. in Tokyo, erasing a 1.1 percent gain. The broader Topix index dipped 3.34, or 0.3 percent, to 1,282.57. Seventeen of 33 industry groups on the Topix sank.

Mitsui O.S.K. fell 2.6 percent to 1,410 yen, the biggest drop since July 2. Market leader Nippon Yusen K.K. dropped 2 percent to 953 yen. The Baltic Dry Index, a measure of shipping costs for commodities, tumbled on Friday for the first time since July 4.

Daiichi Sankyo, Japan's third-biggest drugmaker, sank 4.8 percent to 3,010 yen, the steepest slump since March 17 and the Nikkei's second-biggest decline. India's Ranbaxy Laboratories Ltd., set to be acquired by Daiichi, is being probed by U.S. courts for falsifying data and failing to meet quality controls on generic drugs.

JFE Holdings jumped 5.4 percent to 5,460 yen, its steepest advance since April 25. Nippon Steel Corp., the world's second- biggest steelmaker, gained 3.6 percent to 582 yen.

Posco, Asia's third-biggest steelmaker, said second-quarter profit rose 34 percent after increasing prices as demand from automakers and shipbuilders rose. Also, ArcelorMittal, the world's biggest steelmaker, and ThyssenKrupp AG are seeking to renegotiate steel contracts with Nissan Motor Co. and other automakers, NHK television said on July 12. JFE and Nippon Steel have been raising prices in order to offset material costs.

To contact the reporters for this story: Patrick Rial in Tokyo at prial@bloomberg.net; Satoshi Kawano in Tokyo at skawano1@bloomberg.net

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Malaysia Stocks to Rise as Political Woes Ease, JPMorgan Says

By Chan Tien Hin

July 14 (Bloomberg) -- Bumiputra-Commerce Holdings Bhd., Bursa Malaysia Bhd. and WCT Bhd. are among stocks recommended by JPMorgan Chase & Co. to benefit from a rebound in Malaysia's market as concern about a government leadership struggle abates.

Prime Minister Abdullah Ahmad Badawi, who led the ruling coalition this year to its worst electoral performance, last week set June 2010 to hand over power to his deputy, Najib Razak. The Kuala Lumpur Composite Index has fallen 12 percent since the March 10 elections, pushing the benchmark into a bear market.

``The Malaysian market is poised for a bounce,'' Chris Oh, an analyst at JPMorgan, wrote in a report today. The move is an ``optimal outcome'' and provides a ``calming effect'' for investors who have ``steered away from the equity market,'' he said.

Announcing the handover date may thwart a leadership challenge this year and ease Malaysia's political turmoil after Abdullah's National Front coalition in March lost its two-thirds parliamentary majority and ceded control of almost half the contested states.

The index has tumbled 25 percent since its Jan. 11 record high, more than the 20 percent threshold many consider to signal a bear market. The index dropped 0.7 percent to 1,142.59 as of 11:06 a.m. local time.

The leadership transition allows for Abdullah to focus on ``policy making and structural reform as the infighting abates,'' Oh said in the report.

Abdullah's announcement gives him time for an ``orderly transition and enables proper restructuring of the party leadership to be more relevant to the public in the run-up to the next election,'' he said.

Bumiputra-Commerce, Malaysia's second-biggest bank, fell 5 sen, or 0.6 percent, to 7.75 ringgit at 10:58 a.m. local time. It has fallen 30 percent this year. Bursa, the stock exchange manager, lost 2.2 percent to 6.75 ringgit. It's down 53 percent this year. WCT, a builder that's fallen 32 percent this year, slid 1 percent to 2.85 ringgit.

To contact the reporter on this story: Chan Tien Hin in Kuala Lumpur at thchan@bloomberg.net

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China's Stocks Gain, Led by Mining Companies on Higher Prices

By Chua Kong Ho

July 14 (Bloomberg) -- China's stocks rose for the first time in three days as mining companies advanced along with prices of gold and copper.

Shandong Gold Mining Co. and Yunnan Copper Industry Co. advanced along with gold and copper prices. China Petroleum & Chemical Corp. and PetroChina Co., the country's two largest refiners, declined as oil climbed above $147 a barrel to a record on July 11.

The CSI 300 Index, a measure of 300 yuan-denominated stocks traded in Shanghai and Shenzhen, gained 21.91, or 0.7 percent, to 2,975.41, as of 10:24 a.m. local time, reversing a loss of 1.2 percent. About three stocks advanced for each that declined.

To contact the reporter responsible for this story: Chua Kong Ho in Shanghai at Kchua6@bloomberg.net

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Daily Technical Analysis

Daily Forex Technicals | Written by FX Instructor | Jul 14 08 02:07 GMT |

EURUSD Outlook

In last three days, the Greenback slumped against Euro. Friday, the pair topped at 1.5947 and closed at 1.5936, but sharply corrected early today in Asian market, bottomed at 1.5882 (temporarily?). It's a little bit tricky at this phase. My model is mixed with neutral bias. A correctional downside move towards 1.5800 area might happen as the pair already in overbought area on daily chart. The nearest key level (support) is 1.5850. Should the bullish momentum continue, the pair is heading towards 1.6019 (22/04/2008 high) level.

EURUSD Daily Supports and Resistances:

S1= 1.5818
S2= 1.5700
S3= 1.5636
R1= 1.6000
R2= 1.6064
R3= 1.6182

GBPUSD Outlook

The Greenback also slumped against Sterling on Friday, but corrected early today in Asian market. My model for today is mixed with downside bias. Immediate support is seen at 1.9780 which also the nearest key level at this phase. A break to the downside could trigger further correctional downside move, while consistent move above that level can be seen at long opportunity targeting 2.0000 area. Initial resistance is seen at 1.9958 (Friday's high). CCI heading up towards 100 line on daily chart.

GBPUSD Daily Supports and Resistances:

S1= 1.9775
S2= 1.9661
S3= 1.9570
R1= 1.9980
R2= 2.0071
R3= 2.0185

USDJPY Outlook

The USDJPY attempted to push lower Friday, but failed to move below key level 105.50. My model is long, targeting 107.15. Immediate support is seen at 105.90. CCI in neutral area on daily chart.

USDJPY Daily Supports and Resistances:

S1= 105.51
S2= 104.76
S3= 103.87
R1= 107.15
R2= 108.04
R3= 108.79

USDCHF Outlook

The US Dollar slumped against the Swiss Franc on Friday. The pair bottomed at 1.0136 and closed at 1.0160, but corrected early today in Asian market. My model is mixed with downside bias. Immediate resistance is seen at 1.0230. Initial support at 1.0136 (Friday's low). CCI about to cross -100 line down on daily chart.

USDCHF Daily Supports and Resistances:

S1= 1.0096
S2= 1.0033
S3= 0.9930
R1= 1.0262
R2= 1.0365
R3= 1.0428

FX Instructor LLC
www.fxinstructor.com

Forex Exchange Morning Report

Daily Forex Fundamentals | Written by Westpac Institutional Bank | Jul 14 08 01:15 GMT |

News And Views

It was a sadly familiar tale for the US dollar in Friday's NY session, hammered once again on the back of worries over the government-sponsored mortgage giants Fannie Mae and Freddie Mac. FRE opened a staggering 50% below Thursday's close, recovering much lost ground over the session but US equities overall stayed heavy, weighing on USD. This helped the New Zealand dollar rally from 0.7585 during the London morning to a high of 0.7648 before easing to a 0.7614.

AUD/USD was also a willing participant in the USD rout in the NY morning, punching through long-standing resistance to new post-float (1983) highs of 0.9716 before it too backed off to 0.9662.

EUR/USD made hefty gains, pressing up from 1.5775 to a high of 1.5943 near the time of the NZD and AUD highs (and oil >$147/bbl) but proved more resilient, popping up late to close at 1.5937.

The safe haven Japanese yen enjoyed strong demand in the NY morning, falling as far as 105.65 vs over 107 in late Asia-Pacific, closing the week at 106.27.

US trade deficit narrows to $59.8bn in May. The trade deficit unexpectedly narrowed in May due mainly to a reduced oil import bill, despite surging prices (i.e. volumes were down sharply). With exports continuing to grow, though more slowly than in April, the deficit edged back below $60bn again. However with import price data for June showing yet another 2.6% surge, mostly but not entirely due to rising oil prices, the trade deficit is sure to jump rapidly in coming months. That said, the real trade deficit narrowed by $3bn in May, which means net exports will make a bigger than expected contribution to Q2 GDP growth (which could come in closer to 2% than 1% annualised, depending on what the Commerce Dept assumes for trade and inventories in June).

US UoM consumer sentiment edges up to 56.6 in July. Consumer sentiment remained very weak in early July but, in line with weekly confidence measures, did not slump further, despite a renewed bounce in inflation expectations. It may be the case that the tax rebates helped boost spending in May (and possibly June), but with no confidence impact apparent, the risk is that sales slump again once the cheques have been spent.

Slumping share prices for Fannie Mae and Freddie Mac, the shareholder-owned firms that participate (as owners or guarantors) in half of all outstanding mortgages in the US, prompted Treasury Secretary Paulson to say that 'our primary focus is supporting [them] in their current form as they carry out their important mission'. The problem for the firms is that losses they have borne due to the mortgage market meltdown might have been greater than their capital, rendering them insolvent. Their regulator, the Office of Federal Housing Enterprise Oversight, also indicated that 'the steps necessary' would be taken to allow them to continue operating.

Japanese consumer confidence on expectations: very pessimistic. Confidence recorded a 32.9 outcome in June, down from 34.1.

Canadian employment posted its first decline this year in June (-5k), as factory jobs growth stalled and falling construction jobs offset strength in the commodity sector. Unemployment edged higher, firming the case against any retightening of monetary policy by the Bank of Canada, although the data are not weak enough to put a further rate cut back on the agenda. Also, the trade surplus widened to C$5.4bn in May as energy-driven exports strength more than offset another solid month of imports growth; and flat house prices in May add to the growing body of evidence pointing to a softening housing market.

Outlook

We have been brazenly bearish on the NZD for some time now and have remained short via the TWI since April 24. But for the week ahead, we have to temper our negativity. If we are correct on our CPI forecast, it will make the July OCR outcome that much more difficult to price. With the OIS market allocating about a 3 in 4 chance of a 25bps cut at the July meeting, we have to see some short term upside risks for the NZ$ and potentially the TWI.

Events Today

Date	Country	Release	Last	Forecast
14-Jul	NZ	May Retail Sales	1.00%	-0.5%
	Eur	May Industrial Production	0.90%	-1.0%
	UK	Jun Producer Prices %yr	8.90%	9.90%
15-Jul	NZ	Q2 CPI %qtr	0.70%	1.60%
		Jun Food Price Index	1.00%	0.30%
	Aus	Jul RBA Meeting Minutes
	US	Jun Producer Price Index	1.40%	1.80%
		Jun PPI Core	0.20%	0.20%
		Jun Retail Sales	1.00%	0.10%
		Jun Retail Sales Ex Auto	1.20%	0.60%

Westpac Institutional Bank
http://www.wib.westpac.co.nz/

Gold May Rise for 5th Week as Investors Seek Haven, Survey Says

By Pham-Duy Nguyen

July 14 (Bloomberg) -- Gold may rise for a fifth straight week on speculation record energy costs and slumping equities will spark demand for a haven.

Eighteen of 25 traders, investors and analysts surveyed from Mumbai to Chicago on July 10 and July 11 advised buying gold, which gained 2.9 percent to $960.60 an ounce last week in New York. Five said to sell, and two were neutral.

Crude-oil futures reached a record $147.27 a barrel on July 11, heightening inflation expectations. The Standard & Poor's 500 Index fell into a bear market last week. Gold reached an all-time high of $1,033.90 on March 17.

A majority of analysts surveyed July 3 and July 4 anticipated gold's gain last week. The survey has forecast prices accurately in 134 of 219 weeks, or 61 percent of the time.

This week's survey results: Bullish: 18 Bearish: 5 Neutral: 2

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

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Philippines Beats Six-Month Rice Output Target by 200,000 Tons

By Luzi Ann Javier

July 14 (Bloomberg) -- Rice production in the Philippines, the world's biggest importer of the grain, likely exceeded a government target by 200,000 metric tons after the state boosted spending on agriculture.

Output in the first half may have risen 9 percent to 7.3 million metric tons, from 6.7 million tons a year earlier, the Agriculture Department said in a statement e-mailed yesterday. That compares with a January-to-June target of 7.1 million tons.

The government aims to expand production to 10 million tons in the second half, from 9.5 million tons a year ago, by providing fertilizer subsidies to farmers to make up for production losses caused by Typhoon Fengshen, according to the statement.

The typhoon caused more than 7 billion pesos ($153.5 million) of damage to crops and fisheries when it hit the Philippines on June 20 and 21, the government said.

To contact the reporter for this story: Luzi Ann Javier in Manila at ljavier@bloomberg.net

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Oil Falls as Dollar's Gains Reduces Appeal as Inflation Hedge

By Nesa Subrahmaniyan and Gavin Evans

July 14 (Bloomberg) -- Crude oil fell for the first time in four days in New York as the dollar advanced, reducing the commodity's appeal as a hedge against inflation.

Oil dropped after the dollar rose from a two-month low against the euro as U.S. Treasury Secretary Henry Paulson said he will seek approval to buy stakes in and lend to Freddie Mac and Fannie Mae, the nation's largest mortgage financiers, to help stem a slump in the housing market. Oil has gained 50 percent this year as the sliding dollar and falling U.S. equities prompted investors to buy commodities.

``There's probably a general view that the dollar is close to bottoming, and that we could see some firmness in the coming months,'' Mark Pervan, a senior commodity analyst at Australia & New Zealand Banking Group Ltd. in Melbourne, said in a Bloomberg Television interview. ``The market is very news-sensitive'' and any decline in the dollar or threats to supply will send oil prices higher, he said.

Crude oil for August delivery fell as much $2.59, or 1.8 percent, to $142.49 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $143.63 at 9:36 a.m. in Singapore.

The contract jumped to a record $147.27 on July 11 after the dollar fell and the Jerusalem Post said Israeli war planes practiced over Iraq for an attack on Iran's nuclear research facility. Israel denied the newspaper's report and oil settled at $145.08, a gain of 2.4 percent on the day.

The dollar climbed after Treasury Secretary Paulson's announcement, and traded at $1.5896 per euro at 9:32 a.m. in Tokyo, from an earlier low of $1.5971, and $1.5938 in late New York trading July 11. The dollar touched an all-time low of $1.6019 on April 22.

Demand Risk

While high prices are curtailing demand, there has been a noticeably lagged affect, ANZ's Pervan said. Oil may have to reach $175 a barrel, where it will be at a record relative to GDP expenditure, before the global economy reacts.

``At that point we could see some real demand erosion,'' he said. ``Somewhere between $170 and $180 we could see a pull back.''

Brent crude oil for August settlement fell as much as $1.99, or 1.4 percent, to $142.50 a barrel on London's ICE Futures Europe exchange. The contract, which expires July 16, reached a record $147.50 on July 11.

The more widely held September contract fell $1.27, or 0.9 percent, to $144.30 a barrel.

To contact the reporters on this story: Nesa Subrahmaniyan in Singapore at nesas@bloomberg.net; Gavin Evans in Wellington at gavinevans@bloomberg.net

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Bernanke Embrace May Turn as Fed Seeks More Powers

By Scott Lanman

July 14 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke picked a good time to ask Congress for the biggest expansion of his office's powers since the Great Depression. He has to make the most of an opportunity that may prove fleeting.

Bernanke, who testifies before Congress this week, has stored up goodwill with lawmakers after reducing interest rates at the most aggressive pace in two decades and acting to prevent a financial-market meltdown.

``The chairman has done a good job at crisis management,'' says Representative Carolyn Maloney of New York. ``I like the moves he's made,'' says Representative Mel Watt of North Carolina. Both are Democratic members of the House Financial Services Committee, which will question Bernanke July 16 after he delivers his semi-annual report on the economy to Congress.

The favorable reviews on Capitol Hill will serve Bernanke, 54, well as Congress considers his bid to expand his authority over the financial-services industry, a debate that will probably continue into early 2009. The longer it lasts, the more he may find his popularity strained whenever he has to start taking the rate cuts back.

The chairman already faces pressure from some regional Fed- bank presidents to start raising the cost of credit to curb expectations of higher inflation. Such a move would test both his political skills and the Fed's independence, requiring him to justify higher rates to the same lawmakers he's asking for authority to help prevent future financial crises.

Bad Position

``From a political standpoint for the Fed, that's a bad position to be in,'' says Jay Bryson, global economist at Wachovia Corp. in Charlotte, North Carolina, who formerly worked at the Fed in Washington. ``You're going to have senators and congressmen breathing down their necks.''

While Watt, 62, and Maloney, 60, give Bernanke high marks for helping to keep the economy out of a recession and stepping in to prevent the bankruptcy of Bear Stearns Cos., both say it's much too soon to be talking about higher interest rates. Their support matters because the committee they sit on would decide on any expansion of the Fed's regulatory powers.

Although those powers and changes in interest rates ``are unconnected on a policy level, they could be connected politically,'' says Senator Michael Crapo, an Idaho Republican who sits on the Banking Committee, which will be the first to hear Bernanke's report in a session tomorrow. Raising rates may lead some politicians to try ``to stop efforts'' to expand the Fed's authority, he says.

Inflation Mandate

Bernanke's appearances this week on Capitol Hill provide him with the chance to separate the Fed's approach to financial markets from its mandate to keep a lid on inflation, says Dean Maki, chief U.S. economist at Barclays Capital in New York.

``There can be a fuzzy line between them at times,'' says Maki, a former Fed researcher.

Bernanke's decision in March to allow investment banks to borrow from the Fed on terms similar to those it extends to commercial banks has opened a discussion about how to legislate oversight of the securities firms, with bills likely to be debated next year.

Yesterday, Bernanke decided to open the Fed's lending window to Fannie Mae and Freddie Mac, government sponsored companies that are the biggest buyers of mortgage securities. The Fed board's action was part of a broader effort led by Treasury Secretary Henry Paulson, who asked Congress for authority to buy unlimited stakes in and lend to the companies, aiming to stem a collapse in confidence.

A Single Regulator

Last week, Bernanke told the Financial Services Committee that Congress should give a single federal regulator enhanced jurisdiction to set standards for the capital, liquidity and risk management of investment banks.

While he didn't say the regulator should be the Fed, Bernanke did tell the committee that if the central bank is given responsibility for the ``overall stability of financial markets,'' it needs additional authority to examine institutions and collect information on those markets.

``Holding the Fed more formally accountable for promoting financial stability makes sense only if the institution's powers are consistent with its responsibilities,'' Bernanke said in a July 8 speech.

To accomplish that mission, the Fed needs the ``ability to look at financial firms as a whole,'' as well as the ``authority to set expectations and require corrective actions as warranted in cases in which firms' actions have potential implications for financial stability,'' he said.

Skepticism Among Lawmakers

Some lawmakers are skeptical of granting Bernanke any more authority. Senator Jim Bunning, a Kentucky Republican, says he ``wouldn't give the Fed an inch more of power.'' Individual senators can block bills from coming to a vote.

Democratic Representative Barney Frank of Massachusetts, who chairs the Financial Services Committee, may be more accommodating. ``There's an increasing consensus that there should be new powers given to the Federal Reserve to regulate some of the activities of investment banks and hedge funds,'' he says.

The tradeoff for such authority would be heightened scrutiny by lawmakers. ``If we grant additional powers to the Fed or to other regulatory bodies, I certainly hope that that will provide more reliable information to the Congress,'' says Representative Brad Miller, a North Carolina Democrat.

Regional Fed Presidents

Frank, 68, is also demanding scrutiny of the role regional Fed presidents play in setting monetary policy. While Bernanke has yet to advocate increasing borrowing costs, some Fed-bank presidents who sit on the central bank's policy committee are agitating to do so.

Dallas Fed President Richard Fisher dissented from the Fed's June 25 decision to leave the benchmark rate at 2 percent, the first pause after seven cuts totaling 3.25 percentage points. Fisher sought an increase. Last week, Richmond Fed President Jeffrey Lacker said in a speech that the Fed should consider raising rates to limit inflation.

Frank said in an interview July 9 that he plans to probe how the 12 regional Fed presidents are appointed and their role in setting interest rates.

``There's a real question whether or not they should have as much governmental power as they do,'' Frank said. Still, he said, ``we're not talking about compromising'' the Fed's independence on monetary policy.

Political Interference

Political interference with that policy has been rare since the early 1990s, when some lawmakers pushed unsuccessfully to pass legislation that would have taken interest-rate votes away from Fed bank presidents, and then-Treasury Secretary Nicholas Brady was criticizing the Fed for not lowering rates fast enough.

Now, a potential rate increase looms for the first time since Democrats won control of Congress in the 2006 elections, taking over from Republicans, who had been in charge for most of the previous 12 years. Traders see a 69 percent probability of higher rates before Americans vote Nov. 4 on electing a new president, the entire House of Representatives and one-third of the Senate.

That prospect isn't sitting well with some lawmakers after the first half's 438,000 job cuts, soaring home foreclosures and plunging housing prices.

``It would be counterproductive to be talking about raising interest rates right now,'' says Watt. Maloney says ``it's hard to see how the Fed can start raising rates in the face of widespread job losses, declining consumer confidence and weak growth.''

`Difficult Medicine'

Crapo says interest-rate increases are ``probably going to happen'' and he wouldn't necessarily object. ``It's difficult medicine to take, but I think it's the medicine that's going to be applied, and it probably is called for.''

For Bernanke, accomplishing his goals on regulatory powers without compromising on monetary policy may help keep the central bank independent from political pressure by lawmakers, something his predecessor, Alan Greenspan, has flagged as a major risk.

``An independent Federal Reserve is important in good times,'' says James Leach, who formerly chaired the House Financial Services Committee and now directs the Institute of Politics at Harvard University's Kennedy School of Government. ``It's imperative in challenging times.''

To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net

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Russian Industrial Output Probably Slowed in June: Week Ahead

By Alex Nicholson and Emma O'Brien

July 14 (Bloomberg) -- Russian industrial production growth slowed in June because of a traditional summer lull and a decline in state manufacturing orders, the Federal Statistics Service may say this week.

The annual rate slipped to 6 percent from 6.7 in May, according to the median of 21 forecasts in a Bloomberg survey.

State orders for goods have lost momentum since government changes carried out in early May, said Vladimir Tikhomirov, chief economist at UralSib Financial Corp. in Moscow. Vladimir Putin, appointed prime minister on May 8 after leaving the presidency, moved officials from the Kremlin into new roles in government.

``In summer, activity slows,'' Tikhomirov said. ``It's nothing catastrophic. We expect to see an acceleration in the second half.''

The economy of Russia, the world's biggest energy exporter, grew 8.5 percent in the first quarter, the second-fastest pace since 2000, as annual investment growth averaged more than 20 percent in the first three months, spurring expansion in the construction and retail industries. Industrial production rose to a nine-month high of 9.2 percent in April.

The Federal Statistics Service is scheduled to release industrial production data on July 16 or July 17.

Company News

In corporate news, the new board of OAO GMK Norilsk Nickel, with billionaire Vladimir Potanin as chairman, meets on July 14 to discuss the long-term strategy of Russia's biggest mining company.

United Co. Rusal, which owns 25 percent in Norilsk and wants to combine with the nickel miner, said last week the board's lineup was skewed in favor of Potanin. Rusal wants to re-elect it and expand it to 13 from nine at a special shareholders' meeting.

Mikhail Prokhorov, the billionaire who together with Potanin acquired Norilsk from the state in 1996 and is now a Rusal shareholder, said on July 10 he would consider returning as chief executive officer of the nickel miner.

Evraz Group SA, Russia's second-largest steelmaker, will release a trading update on production on July 15.

VTB Group, Russia's second-biggest bank, may say profit in the first quarter dropped on trading losses.

Markets

Russia's benchmark Micex stock index declined for a third week, falling 2.7 percent, led by OAO GMK Norilsk Nickel, Russia's largest mining company, on concern global demand for steel will decline. OAO Gazprom, the world's biggest gas company, slid 3.9 percent in the week to 306.19 rubles.

The ruble strengthened 0.3 percent against its dollar-euro basket last week as the central bank said it expanded the currency's trading range for the second time in a month. The ruble advanced as much as 0.4 percent on July 10 to a record 29.4001. Bank Rossii purchased as much as $3 billion to weaken it again later in the day, according to Trust Investment Bank estimates.

The currency was at 29.4389 to the basket by the end of last week, after it slipped 0.3 percent to 36.9980 per euro, and gained to a nine-year high of 23.2260 per dollar bringing its rise from July 4 to 1 percent.

Russian government bonds climbed last week, as the central bank boosted its key interest rates July 11 by a quarter- percentage point for the fourth time this year.

The yield on the benchmark 7.5 percent bond due in March 2030 was at 5.54 percent by July 11, from 5.69 percent a week earlier. The yield on the 8.25 percent note maturing in March 2010 was at 5.49 percent, from 5.52 percent on July 4. Bond yields move inversely to prices.

The following is a list of events in Russia this week:

OAO GMK Norilsk Nickel board meeting              July 14
German Economy Minister Gloss Arrives in Russia   July 14
Evraz Group SA trading update                     July 15
Russian consumer price growth update              July 16
Russian industrial production update              July 16 or
later
VTB Group reports first-quarter profit            July 16

To contact the reporter on this story: Maria Levitov in Moscow at mlevitov@bloomberg.net

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Oil Brings U.S. Closer to OPEC Dependence, Replacing Japanese

By Daniel Kruger

July 14 (Bloomberg) -- Petroleum exporting nations from Saudi Arabia to Russia are not only charging Americans record high prices for fuel, they are also poised to become the biggest creditor to the U.S. government.

Holdings of Treasuries by oil producers and institutions such as U.K. banks that are proxies for Middle East nations rose 44 percent this year to $510.8 billion through April, four times faster than the rest of the world, according to the Treasury Department's most recent data. At the current pace, they'll surpass Japan, which holds $592.2 billion, as the largest owner this month.

While the investment of so-called petrodollars into government debt is helping to temper a rise in borrowing costs as the U.S. finances a record budget deficit, it highlights America's dependence on foreign money. New York's Chrysler Building was bought last week by Middle East investors.

``We should be very happy that they're buying U.S. Treasuries because they're keeping interest rates low, and that's a positive for bond investors,'' said Gary Pollack, who helps oversee $12 billion as head of fixed-income trading at Deutsche Bank AG's Private Wealth Management unit in New York. ``Whether there's geopolitical risk is something else.''

The benchmark 10-year note's yield fell 2 basis points, or 0.02 percentage point, to 3.96 percent last week, according to BGCantor Market Data. It touched 3.78 percent on July 10, the lowest since May 21. The price of the 3.875 percent security due in May 2018 rose 5/32, or $1.56 per $1,000 face amount, to 99 10/32.

McKinsey Study

Yields on 10-year notes are 21 basis points lower because of the investment by oil-producing nations, New York-based consulting company McKinsey & Co. said in October, when oil was $86 a barrel. Prices touched a record $147.27 on July 11.

Assets held by oil exporters swelled to $4.6 trillion at the end of 2007, according to McKinsey. They're pouring that money into Treasuries as losses on alternatives such as equities and corporate debt mount amid the collapse of the U.S. subprime mortgage market. Merrill Lynch & Co. indexes show Treasuries have returned 2.5 percent this year, while major stock indexes in the U.S., Europe and Asia have tumbled at least 10 percent.

The Organization of Petroleum Exporting Countries held $153.9 billion in Treasuries at the end of April, Russia had $60.2 billion and Norway owned $45.3 billion, according to the Treasury Department. Combined, that represents a 113 percent increase from 12 months earlier.

Oil producers own a majority of the $251.4 billion in Treasuries held in the U.K., an 85 percent increase.

Surpassing China

Since the 1960s the U.K. has acted as a financial center where international investors purchase and hold securities, according to the Bank of International Settlements. Morgan Stanley's chief Treasury strategist, George Goncalves, estimates that only $50 billion of the U.K.'s Treasuries are owned by investors based in the country. The rest belong to investors primarily from OPEC and Russia, as well as China, he said.

The Treasury will release data on May holdings on July 16.

Oil-producing nations have surpassed China, which owns $502 billion of U.S. government debt, and are increasing their holdings as Japan cuts back. The nation reduced its stake in Treasuries by 3.6 percent the past 12 months.

The rise in oil-based economies is reminiscent of the 1980s, when Japan enjoyed an export-fueled boom.

Back to the '80s

Holdings of U.S. long-term securities by the Japanese surged almost sevenfold in the five years ended in 1989 to $180 billion as it reinvested its dollar-based reserves. Purchases of landmarks such as New York's Rockefeller Center and the Pebble Beach golf course in Pebble Beach, California, by the Japanese raised concern that the U.S.'s economic primacy was eroding.

Questions of whether purchases by foreigners are a threat to U.S. economic sovereignty are again being raised. The Chrysler Building was acquired last week by the Abu Dhabi Investment Council for an undisclosed price. Last month a Dubai fund was part of a group that paid $2.8 billion for the General Motors Building in Manhattan.

``It's a net transfer of wealth from the United States to the oil exporting economies on a very, very significant scale,'' said Brad Setser, an economist with the Council on Foreign Relations and former acting director of the Treasury's Office of International Monetary and Financial Policy. ``That is a reality. Anybody who is pursuing a policy with large deficits is implicitly planning on relying on demand from those countries.''

Transfer of Wealth

The United Arab Emirates had $964 billion in foreign assets at the end of 2007, followed by Russia with $811 billion, McKinsey said in a report last week. Soaring oil prices have also given Algeria, Iran, Libya, Nigeria and Venezuela more clout in foreign markets, McKinsey said.

Senators Barack Obama of Illinois and John McCain of Arizona, the presumptive presidential candidates for the Democratic and Republican parties, have taken positions on foreign oil wealth that may be difficult to reconcile with the U.S.'s need to attract $2 billion per day in foreign investment to fund its current account deficit. The shortfall in the broadest measure of trade totals $653 billion.

``I am concerned if these sovereign wealth funds are motivated by more than just market considerations,'' Obama said in February. ``We are over time transferring wealth to those countries, and that's something I intend to stop as president.''

`Way Of Life'

McCain told Germany's Sueddeutsche Zeitung newspaper the same month that Russia's membership in the Group of Eight leading industrial nations should be revoked and the G-8 should revert to a ``club of market-based democracies.'' In May he pledged to work in ``partnership'' with Russia to on weapons proliferation.

Compromises may have to be made when it comes to purchase of Treasuries by oil exporters, said Michael Cheah, who manages $2 billion in bonds at AIG SunAmerica Asset Management in Jersey City, New Jersey.

Goldman Sachs Group Inc., BNP Paribas and Societe Generale SA say oil prices are heading higher because of increasing fuel consumption in emerging markets, regardless of a U.S. downturn.

As long as the U.S. continues to borrow and oil exporters continue to lend, Cheah said, ``this is a vindication of the American way of life.''

To contact the reporter on this story: Daniel Kruger in New York at dkruger1@bloomberg.net

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N.Z. Retail Sales Fall, Adding to Recession Signs

By Tracy Withers

July 14 (Bloomberg) -- New Zealand's retail sales fell by the most in more than four years in May as car sales slumped, adding to signs the economy has slipped into a recession.

Retail spending slumped 1.2 percent from April when it increased the same amount, Statistics New Zealand said today in Wellington. The median estimate in a Bloomberg News survey of 12 economists was for a 0.1 percent decline.

Consumer confidence has fallen to a record low, crimping spending at retailers such as Hallenstein Glasson Holdings Ltd., as higher food, fuel and credit costs strain household budgets. The economy contracted in the first quarter, and eight of 13 economists expect it also shrank in second, pushing New Zealand into its first recession since 1998.

``Retailers should be budgeting on tough times continuing for a long time yet,'' said Jason Wong, director of economics and strategy at First NZ Capital Group in Wellington. ``The story is very familiar now, with higher interest rates, higher food petrol prices and the significant housing market downturn more than of robust growth in incomes.''

The New Zealand dollar bought 75.97 U.S. cents at 11:40 a.m. in Wellington trading from 75.99 cents immediately before the report.

Car sales plunged 15 percent from April, the biggest decline since March 1997, the statistics agency said. Excluding cars, spending would have been little changed. The unadjusted value of car sales was the lowest since May 2001.

Profit Declines

Core retail sales, which exclude cars, fuel and workshops, rose 0.7 percent from April, the first increase in three months,. Economists expected a 0.5 percent gain.

Hallenstein Glasson last week said full-year profit will fall at least 28 percent as sales at its clothing stores drop. The Auckland-based company joins larger rivals Warehouse Group Ltd. and Briscoe Group Ltd. in slashing earnings targets as slumping consumer confidence crimps winter sales.

A confidence measure compiled by research group Roy Morgan fell to a record low in the two weeks ended June 29. Forty nine percent of 1,119 people surveyed said it was a bad time to buy a major household item, up from 45 percent in a poll completed two weeks earlier, the company said on July 7.

Slowing consumer spending, which makes up 60 percent of the $104 billion economy, adds to signs Reserve Bank Governor Alan Bollard will cut interest rates from a record-high 8.25 percent this year.

Gasoline Costs

The central bank chief said on June 5 that cooling domestic demand will help curb inflation, making it ``likely'' he will cut borrowing costs. Twelve of 13 economists expect a reduction before Sept. 30 and one forecasts a cut in October.

New Zealanders paid 7 percent more for gasoline in the final week of May compared with a month earlier. Food prices rose 1 percent in May from April.

Retail sales fell in May at 12 of the 24 store categories measured in today's report. Purchases at furniture stores, bars and clubs declined. Sales from fuel outlets increased 3.2 percent.

Supermarket and grocery sales, which make up one-fifth of all retailing, rose 3 percent. Department store, hardware and accommodation sales also increased.

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.

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New Zealand's May Retail Sales: Summary (Table)

By Daniel Petrie

July 14 (Bloomberg) -- Following is a summary of New Zealand's May retail sales figures from Statistics New Zealand in Wellington.

============================================================================
                             May  April  March   Feb.   Jan.   Dec.   Nov.
                            2008   2008   2008   2008   2008   2007   2007
============================================================================
                          -------------------- MoM% ----------------------
[bn:WBTKR=NZRSSAM:IND] All industries []               -1.2%   1.2%  -1.1%  -0.6%   0.2%   0.1%   1.8%
[bn:WBTKR=NZRSSUBM:IND] ex motor vehicles []            0.7%  -0.3%  -0.4%   0.2%   0.3%   0.3%   1.0%
By Industry
Supermarket                  3.0%  -3.5%  -0.6%   1.6%   2.3%   0.3%   2.1%
Fresh produce                2.3%   1.1%   3.5%  -2.7%   0.9%  -0.6%   0.3%
Liquor                       2.0%  -2.1%   0.4%  -0.3%  -1.5%   2.7%  -3.1%
Other food                  -0.1%   2.5%   0.0%  -1.6%  -0.6%  -2.3%  -1.9%
Takeaway food                0.6%   0.8%   2.2%   2.8%  -6.8%   1.4%  -0.6%
Department stores            3.0%   0.9%   0.7%   1.1%  -1.7%   2.8%  -1.5%
Furniture/Floor coverings  -15.6%   8.4%  -2.2%   0.7%  -2.8%   0.3%  -5.4%
Hardware                     4.1%  -1.0%   0.9%  -1.2%  -0.3%  -3.9%   2.6%
============================================================================
                             May  April  March   Feb.   Jan.   Dec.   Nov.
                            2008   2008   2008   2008   2008   2007   2007
============================================================================
                          -------------------- MoM% ----------------------
Appliance retailing          1.5%  -0.8%  -2.0%  -2.2%  -3.6%   3.2%   1.9%
Recreational goods          -5.4%   2.1%  -2.8%  -2.5%   1.3%   2.6%  -0.3%
Clothing/softgoods          -0.9%   3.6%  -2.5%  -1.2%  -1.4%  -0.7%   3.5%
Footwear                    -0.4%   6.4%  -0.9%   1.4%  -4.2%   4.5%   6.9%
Pharmacies                   2.1%  -0.9%   2.8%   0.0%   0.3%  -2.0%  -0.1%
Repairs                     -1.8%   9.7%   0.7%   1.1%   0.7%  -5.3%   0.3%
Other retailing             -1.4%   2.1%  -0.3%   0.0%  -1.0%  -0.5%   2.0%
Accommodation                3.3%  -0.6%   1.8%   0.3%  -1.6%   0.9%   0.7%
Bars/Clubs                  -2.8%   1.7%   1.1%  -5.6%   7.6%   3.8%   0.9%
Cafes/Restaurants           -0.3%  -0.7%  -1.3%   1.0%   2.1%  -2.8%   3.0%
Personal/goods hiring        1.0%  -2.9%  -4.3%   6.7%  -6.6%   5.9%   0.3%
Other personal               0.6%   1.3%  -1.1%  -0.6%   3.0%  -1.1%  -1.0%
ex motor vehicles            0.7%  -0.3%  -0.4%   0.2%   0.3%   0.3%   1.0%
Motor vehicles             -14.8%   8.5%  -4.6%  -4.6%  -0.9%  -2.9%   4.2%
Fuel retailing               3.2%  -1.9%   0.7%  -0.8%   0.6%   2.3%   6.4%
Smash repair/tires          -7.0%  16.6%  -8.7%   0.0%  -0.2%  -2.6%  -3.2%
Other vehicle repairs       -2.2%   9.0%  -4.7%  -2.8%   1.6%   1.5%  -0.8%
============================================================================

Note: Figures are seasonally adjusted.

Source: Statistics New Zealand

To contact the reporter on this story: Daniel Petrie in Sydney at dpetrie5@bloomberg.net

N.Z. Economy Faces Stagflation as Recession Looms

By Tracy Withers

July 14 (Bloomberg) -- New Zealand consumer-price increases probably accelerated in the second quarter, fanned by fuel and food costs, adding to signs the economy is facing stagflation as it slips into recession.

The consumer prices index rose 1.4 percent from the first quarter, according to the median estimate of 12 economists surveyed by Bloomberg News. Annual inflation was probably 3.8 percent, the fastest pace in two years. The report will be released tomorrow at 10:45 a.m. in Wellington.

Central banks from Chile to Japan are grappling with slowing economic growth while surging fuel and food prices fan inflation. New Zealand retail sales fell by the most in four years in May, adding to signs the economy was probably in a recession in the first half of 2008, while inflation will likely reach an 18-year high by December, said economist Craig Ebert.

``We expect gross domestic product to go backward and inflation will go higher,'' said Ebert, senior markets economist at Bank of New Zealand Ltd. in Wellington. ``In a headline sense, there is no denying this is stagflation, although it's not an extreme example.''

The economy contracted 0.3 percent in the first quarter. Eight of 13 economists surveyed by Bloomberg expect it also shrank in the second quarter, putting the economy in its first recession since 1998.

Pricing Intentions

A net 23 percent of companies say sales will slow in the next three months, the most pessimistic outlook since 1990, suggesting the economy will also contract in the third quarter, according to a July 8 report from the New Zealand Institute of Economic Research.

Ebert expects inflation will accelerate to almost 5 percent this year, the highest since 1990, as fuel and food costs rise. A net 47 percent of firms surveyed by the New Zealand Institute plan to raise prices in the next three months.

Reserve Bank Governor Alan Bollard, who is required to keep annual inflation between 1 percent and 3 percent, has left the benchmark interest rate at a record-high 8.25 percent since July last year, betting the slowing economy will curb inflation.

The Bank of Japan will probably keep its overnight rate unchanged this week as high prices discourage spending and derail growth, according to all 39 economists surveyed by Bloomberg. Interest rates in Chile have tripled the past year even as economic growth slows.

Drought, Housing

Last month, Bollard said borrowing costs are likely to fall this year because annual inflation will slow to less than 3 percent within two years. Three of 13 economists surveyed by Bloomberg News expect he will cut the benchmark interest rate on July 24. Nine forecast a reduction in September and one a cut in October.

The chance of a quarter-point cut this month rose to 58 percent on July 11 from 32 percent a week earlier, according to an index calculated by Credit Suisse based on swaps prices.

Bollard ``will want to make monetary policy less restrictive, but he may wait until September,'' said Ebert.

Bollard is under pressure from companies and home-owners to cut interest rates as drought, international credit turmoil and a slump in the housing market weigh on consumer spending.

Hallenstein Glasson Holdings Ltd. last week said full-year profit will fall at least 28 percent as sales drop, the third New Zealand retailer to cut earnings forecasts in the past two weeks. In May, retail spending slumped 1.2 percent as car sales had their biggest slump since March 1997, Statistics New Zealand said in a report today.

House Prices

New Zealand's house prices posted their smallest annual gain in more than three years in June, Quotable Value New Zealand Ltd., the government valuation agency, said in a report today. A third report showed the nation's services industry contracted for a third month as falling business confidence damped demand.

Still, the central bank doesn't want to fan inflation pressures by cutting borrowing costs too early, said Doug Steel, senior economist at Westpac Banking Corp. in Wellington.

``Inflation expectations are already elevated and are likely to press higher,'' he said. ``The cumulative pressure built up in the economy will prevent an aggressive monetary easing despite a rather sharp softening in economic growth.''

Air New Zealand Ltd., the nation's biggest airline, raised fares by an average 10 percent between March and June, citing record-high jet fuel prices.

Electricity prices have increased as a drought depleted the levels of lakes and rivers that account for 60 percent of the nation's generation.

Bloomberg Survey

Bollard will focus on non-tradable inflation, a core measure of prices that are not influenced by currency fluctuations and fuel, said Bank of New Zealand's Ebert.

Non-tradable prices probably increased 0.9 percent from the first quarter, when they rose 1.1 percent, according to the median estimate of eight economists. Bollard is expecting a 1 percent gain.

Following is a table of economists' forecasts for the change in second-quarter consumer prices from the previous three months and from a year earlier, and changes in non-tradables prices from the first quarter.

                            Consumer Prices     Non-Tradables
                           Qtr      Year           Qtr
--------------------------------------------------------------
Median                       1.4%     3.8%          0.9%
High Forecast                1.6%     4.0%          1.0%
Low Forecast                 1.2%     3.5%          0.8%
No. of replies               12       12            8
--------------------------------------------------------------
ANZ Bank                     1.4%     3.8%          1.0%
ASB Bank                     1.4%     3.8%          0.9%
Bank of New Zealand          1.4%     3.8%          1.0%
Barclays                     1.1%     3.5%          ---
Citibank                     1.4%     3.8%          ---
Deutsche Bank                1.4%     3.8%          0.8%
First N.Z.                   1.5%     3.9%          ---
Goldman Sachs JBWere         1.2%     3.6%          0.9%
ICAP                         1.4%     3.9%          ---
JP Morgan                    1.4%     3.8%          0.9%
UBS                          1.6%     4.0%          0.8%
Westpac Bank                 1.6%     4.0%          1.0%
--------------------------------------------------------------

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.

Yen, Thailand's Baht, Singapore Dollar: Asia Currency Preview

By Yumi Teso

July 14 (Bloomberg) -- The following events and economic reports may influence trading in Asian currencies today.

Exchange rates are from the previous session.

Japanese yen: The Bank of Japan may keep its benchmark interest rate unchanged at 0.5 percent after a two-day meeting that starts today in Tokyo, according to a Bloomberg News survey.

Chief Cabinet Secretary Nobutaka Machimura will hold briefings at 11 a.m. and 4 p.m. in Tokyo. Vice Finance Minister Kazuyuki Sugimoto will talk to reporters at 5 p.m. local time.

The yen was at 106.40 a dollar at 8:11 a.m. in Tokyo.

Thai baht: A report on June consumer confidence is due today. The consumer confidence index was at 71.8 in May.

The baht was at 33.65.

Singapore's dollar: Retail sales increased 6.5 percent in May from the previous year, after rising 7.5 percent in April, economists said before a report tomorrow.

The Singapore dollar was at S$1.3588.

Philippine peso: A report on overseas workers remittances for May is due tomorrow. Money sent home by Filipinos working abroad increased 18.4 percent in April.

The peso was at 45.662.

To contact the reporter on this story: Yumi Teso in Singapore at yteso@bloomberg.net.

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N.Z. Dollar Trades Near Two-Week High on U.S. Credit Concerns

By Tracy Withers

July 14 (Bloomberg) -- The New Zealand dollar traded near a two-week high as speculation that U.S. authorities will have to bail out mortgage companies Fannie Mae and Freddie Mac increased demand for the nation's higher-yielding assets.

The currency gained for a fourth day as people with knowledge of the discussions said the two largest buyers of U.S. home loans are in talks with Treasury, Federal Reserve and White House officials to come up with funding plans should they require financing.

``Escalating fears about the health of Freddie Mac and Fannie Mae saw the U.S. dollar fall heavily against all the major currencies,'' said Danica Hampton, currency strategist at Bank of New Zealand Ltd. in Wellington. ``The ongoing weakness in the U.S. dollar has seen the New Zealand dollar defy the steadily deteriorating domestic outlook.''

New Zealand's currency bought 76.23 U.S. cents at 9:51 a.m. in Wellington from 76.14 cents in late New York trading July 11. It bought 80.86 yen from 80.94 yen.

The U.S. dollar fell to $1.5965 per euro in Wellington from $1.5933 in New York. That's the weakest since April 23. The dollar reached the all-time low of $1.6019 the previous day.

Fannie and Freddie fell to the lowest level in more than 17 years in New York trading July 11 on concerns the companies don't have enough capital to survive the housing slump. They are critical for the housing market because they guarantee almost half the $12 trillion in outstanding U.S. mortgages.

Pledged Support

Treasury Secretary Henry Paulson has pledged support for the companies. Authorities may stand behind the companies if they cannot raise capital through bond sales, people said.

New Zealand's dollar gained even as investors have increased bets Reserve Bank Governor Alan Bollard will cut the benchmark interest rate of 8.25 percent in the third quarter, amid expectations economic growth has stalled.

Last month, the Governor said a rate cut is ``likely'' this year as economic growth slows.

The chance of a quarter-percentage point cut at the next review on July 24 is 58 percent from 32 percent a week earlier, according to an index calculated by Credit Suisse Group based on overnight swaps trading. Nine of 13 economists surveyed by Bloomberg expect a reduction in September. Three expect a July cut and one a move in October.

A government report today may show retail sales fell in May for the third month in four, adding to signs that the economy may have contracted in the second quarter, according to the median forecast of 12 economists surveyed by Bloomberg.

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net

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Australian Dollar Gains on Optimism Economy to Weather Crisis

By Chris Young

July 14 (Bloomberg) -- The Australian dollar gained for a fourth day on speculation the nation's economy will withstand widening losses among U.S. financial institutions.

The currency climbed toward its 25-year high of 97.16 U.S. cents reached July 11 after a slump in the shares of Fannie Mae and Freddie Mac, the two largest buyers of U.S. home loans. ``The main Australian institutions are generally well placed'' to prosper in the current environment, Reserve Bank of Australia Governor Glenn Stevens said July 9.

``The high-yielding Australian dollar is benefiting from concerns in the U.S. credit markets,'' said Peter Pontikis, a treasury strategist at Suncorp-Metway Ltd. in Brisbane, Australia, in a note to clients. ``Its 2.5 cent rally of the past three trading days will be hard to sustain.''

The Australian dollar bought 96.82 U.S. cents at 9:43 a.m. in Sydney, compared with 96.62 in late New York on July 11, according to data compiled by Bloomberg. It earlier reached 97.11 cents, near the strongest level since February 1983 touched late last week.

The Australian dollar pared its advance after Treasury Secretary Henry Paulson sought authority from Congress to buy equity stakes in the two firms and lend to them.

Paulson proposed that Congress enact legislation giving the Treasury temporary authority to buy equity ``if needed'' in Fannie Mae and Freddie Mac, and to increase their lines of credit with the department from $2.25 billion each.

Australia's currency has risen almost 11 percent this year on speculation the nation's financial institutions have avoided the worst of the U.S. subprime crisis that's caused more than $400 billion in losses and writedowns due to a lack of confidence in credit markets.

To contact the reporter on this story: Chris Young in Sydney at cyoung12@bloomberg.net.

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Dollar Gains as Paulson Seeks Equity Stakes in Freddie, Fannie

By Stanley White and Kosuke Goto

July 14 (Bloomberg) -- The dollar gained against the yen and snapped a three-day decline versus the euro after U.S. Treasury Secretary Henry Paulson asked Congress for theauthority to buy shares of Freddie Mac and Fannie Mae.

The currency also erased earlier losses after the Federal Reserve said it will offer direct loans to the two largest U.S. mortgage finance companies, easing concerns that confidence in housing and financial markets will worsen. The New Zealand dollar fell as a government report showed retail sales slid by the most in more than four years.

``This should prove to be dollar supportive,'' said Sean Callow, senior currency strategist in Sydney at Westpac Banking Corp., Australia's fourth-biggest bank. ``The notion of the Treasury buying stakes in Freddie Mac and Fannie Mae has got to be great for their share prices. That's a big step toward easing concern that these mortgage lenders can get access to funds.''

The dollar traded at $1.5896 per euro at 9:32 a.m. in Tokyo, from an earlier low of $1.5971 and $1.5938 late in New York on July 11. The U.S. currency reached a record low of $1.6019 on April 24. It bought 106.58 yen from 106.28 yen at the end of last week. The euro was little changed at 169.38 yen after earlier reaching 169.75, the strongest level since the single currency was introduced in 1999.

The dollar may rise to $1.5820 to $1.5830 today, Callow forecast.

The New Zealand dollar was the weakest among the 16 most- traded currencies. It traded at 75.91 U.S. cents from 76.14 on July 11 as retail spending slumped 1.2 percent in May after increasing the same amount in April, adding to signs the economy has slipped into a recession.

Paulson Plan

Paulson proposed that Congress enact legislation giving the Treasury temporary authority to buy equity ``if needed'' in Fannie and Freddie, and to increase their lines of credit with the department from $2.25 billion each. The Fed authorized the companies to borrow directly from the New York Fed, in a step that could provide funding before the bill is passed.

Today's announcement came after Fannie Mae and Freddie Mac lost about half their value last week. Global banks and securities firms have reported losses of about $400 billion as the subprime mortgage market collapsed.

The Dollar Index traded on ICE futures in New York, which tracks the greenback against the currencies of six U.S. trading partners, rose to 72.113 from 72.096 on July 11, its first gain in four days. Against the Australian dollar, the U.S. currency advanced from a 25-year low of 97.16 cents reached July 11 to trade at 96.73 cents.

Mortgage Support

``The markets' initial reaction to Paulson's remarks was to buy the dollar,'' said Motonari Ogawa, director of currency trading in Tokyo at Barclays Capital Inc., a unit of the U.K.'s third-biggest bank. ``This time he expressed some support for those two troubled mortgage firms, easing concerns about them.''

The dollar may move between 105.80 yen and 107 yen, and $1.5870 and $1.5970 a euro today, he said.

Futures traders decreased their bets that the euro will gain against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission show.

The difference in the number of wagers by hedge funds and other large speculators on an advance in the euro compared with those on a drop -- so-called net longs -- was 24,007 on July 8, compared with net longs of 27,683 a week earlier.

Bill Gross, manager of the world's biggest bond fund, turned bearish on the euro for the first time since the currency's inception in 1999.

Pimco and Euro

A growing number of the world's biggest investors say a slowdown in the region's economy may be more severe than in the U.S., forcing the European Central Bank to reverse this month's rate increase. By January, the euro will be lower against the dollar, yen and even the pound, according to the median estimate of strategists surveyed by Bloomberg.

``We might have hit a point where the euro doesn't have a lot to stand on,'' said Emanuele Ravano, co-head of European strategy in London for Gross's Pacific Investment Management Co., which runs the $129 billion Pimco Total Return Fund. ``The euro is ultimately very overvalued. It could be quite a bit lower at some point in time over the next couple of years.''

Gains in the dollar may be limited by speculation Fed Chairman Ben S. Bernanke will highlight risks to the economy in his semi-annual testimony on monetary policy before the Senate Banking Committee tomorrow.

``Bernanke will talk about inflation and the downside risk of the U.S economy,'' said Etsuko Yamashita, chief economist at Sumitomo Mitsui Banking Corp. in Tokyo. ``With U.S. economic fundamentals deteriorating amid financial turmoil, the markets will be more fixated by his remarks on the slowing economy. This will lead to dollar-selling.''

The dollar may fall to $1.5990 a euro this week, she said.

To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net; Kosuke Goto in Tokyo at kgoto2@bloomberg.net

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US moves to support lending firms

Page last updated at 00:18 GMT, Monday, 14 July 2008 01:18 UK

BBC News, The US government has announced sweeping measures to shore up the nation's two largest mortgage finance companies, Freddie Mac and Fannie Mae.

The plan calls on Congress to expand the companies' current line of credit and allow the Treasury to buy equity capital in the companies if needed.

Freddie Mac and Fannie Mae guarantee almost half of all US home loans.

Their share prices fell nearly 50% last week amid fears that they might have trouble raising funds.

The BBC's Greg Wood in New York says the emergency measures are meant to allay fears that the two companies are about to run out of money.

Key role

Announcing that new credit lines would be sought from Congress, Treasury Secretary Henry Paulson said: "Fannie Mae and Freddie Mac play a central role in our housing finance system and must continue to do so in their current form as shareholder-owner companies."

Fannie Mae and Freddie Mac play an important role in our housing finance system, and they should continue to play this role in their current forms
Dana Perino
White House spokeswoman

He added that their "support for the housing market is particularly important as we work through the current housing correction".

The Federal Reserve also said it would lend to Fannie Mae and Freddie Mac if they need additional funds.

The two firms play an important role in the financial markets in providing funding for home loans by buying up mortgages and packaging them as investments.

As mortgage backers, the companies have had to pay out when homeowners have defaulted on their loans.

Last week, investor concern that the government might have to bail out Fannie Mae and Freddie Mac because of the huge losses they have suffered in the US property crash sent their shares plummeting

If either firm were to fail, the consequences for the already fragile US financial system would be disastrous as mortgage lending could virtually dry up, our correspondent says.

Restore stability

Both firms have defended their finances, saying they had enough capital to weather the housing slump.

Freddie Mac is due to sell $3bn in short-term debt on Monday, which will be a critical test of confidence in the mortgage companies.

Freddie Mac and Fannie Mae are both privately-owned companies mandated by the US Congress to provide funding to the housing market.

As many private sector banks consider reducing their mortgage business, the US government has increasingly looked to Fannie Mae and Freddie Mac to help restore stability to the market.

"Fannie Mae and Freddie Mac play an important role in our housing finance system, and they should continue to play this role in their current forms," White House spokeswoman Dana Perino said in a statement on Sunday.

Fannie Mae was founded in 1938, during the depression, when millions of families could not become homeowners, or faced losing their homes, because of a lack of mortgage funds.

It was a government agency until 1968. Freddie Mac was created in 1970.

Read more...

Economic Calendar Eco Data 7/14/08

GMT	Ccy	Events	Consensus	Previous
22:45	NZD	New Zealand Retail sales M/M May	-0.10%	1.00%
08:30	GBP	U.K. PPI core M/M Jun	0.80%	1.20%
08:30	GBP	U.K. PPI core Y/Y Jun	6.50%	5.90%
08:30	GBP	U.K. PPI input M/M Jun	2.50%	3.80%
08:30	GBP	U.K. PPI input Y/Y Jun	28.90%	27.60%
08:30	GBP	U.K. PPI output M/M Jun	1.20%	1.60%
08:30	GBP	U.K. PPI output Y/Y Jun	9.80%	8.90%
09:00	EUR	Eurozone Industrial prod'n M/M May	-2.30%	0.90%
09:00	EUR	Eurozone Industrial prod'n Y/Y May	0.30%	3.90%
14:00	USD	Fed Governors Vote on Mortgage Rules in Open Meeting

Australia Stocks Update: S&P/ASX 200 Falls 16.20 to 4,963.70

By Nicolas Johnson

July 14 (Bloomberg) -- Australia's benchmark stock index, the S&P/ASX 200 Index, fell 0.33 percent at 10:05 a.m.

The index of 200 companies traded on the Australian Stock Exchange fell 16.20 to 4,963.70. Among the stocks in the index, 34 rose, 84 fell and 82 were unchanged.

Declines in the S&P/ASX 200 Index were led by Bhp Billiton Ltd, Commonwealth Bank Of Australia and Csl Ltd/australia. About 83.29 million shares changed hands on the Australian Stock Exchange.

Bhp Billiton Ltd, which fell 32 cents to A$40.03, was the most active stock by value in Australia.

The next most-active issues were Australia & New Zealand Banking Group Ltd, which fell 3 cents to A$17.92, and Commonwealth Bank Of Australia, which fell 31 cents to A$40.01.

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Most Japan Stocks Fall on U.S. Slowdown Concern; Promise Gains

By Makiko Kitamura and Satoshi Kawano

July 14 (Bloomberg) -- Most Japanese stocks fell on concern surging energy prices will dent earnings for the nation's auto and electronics makers. Consumer lenders surged after Shinsei Bank Ltd. agreed to buy General Electric Co.'s local finance business.

Toyota Motor Corp., Japan's largest carmaker, dropped 0.2 percent, and Honda Motor Co. declined 0.6 percent. Canon Inc., the world's biggest maker of digital cameras, fell 0.8 percent. Promise Co., Japan's second-largest consumer lender by market value, climbed 3.3 percent.

The Nikkei 225 Stock Average declined 17.40, or 0.1 percent, to 13,022.29 as of 9:02 a.m. in Tokyo. The broader Topix index fell 0.2, or less than 0.1 percent, to 1,285.71.

U.S. Treasury Secretary Henry Paulson sought authority from Congress to buy stakes in and lend to Fannie Mae and Freddie Mac, aiming to stem the collapse of confidence in the largest sources of U.S. mortgage financing. Meanwhile, IndyMac Bancorp Inc. became the second-biggest federally insured financial company to be seized by U.S. regulators after a run by depositors left the California mortgage lender short on cash.

Goldman Sachs Group Inc. lowered its rating on Japan's megabank sector to ``neutral'' from ``attractive,'' cutting its rating on Mitsubishi UFJ Financial Group Inc. to ``neutral'' from ``buy.''

``The sector has deteriorated more than we expected,'' Goldman analyst Toyoki Sameshima wrote in a report dated July 12. ``We see few price drivers that could shake off the macroeconomic deterioration.''

Shinsei will buy GE's Tokyo-based Lake unit and its mortgage-loan and credit-card businesses, the bank said in a statement on July 11. The deal will add 779 billion yen to Shinsei's balance of outstanding loans to individuals in Japan, which stood at 1.2 trillion yen as of March 31, the company said.

Crude oil for August delivery fell for the first time in four days to $142.49 a barrel.

To contact the reporters for this story: Makiko Kitamura in Tokyo at mkitamura1@bloomberg.net.

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Asian Stocks Retreat on U.S. Bank Concerns, Record Oil Prices

By Chen Shiyin

July 14 (Bloomberg) -- Asian stocks fell for the first time in four days as U.S. regulators seized mortgage lender IndyMac Bancorp Inc. and crude oil prices climbed to a record.

Macquarie Group Ltd. and Kookmin Bank led declines among banks. Canon Inc. and Samsung Electronics Co. dropped after crude oil prices rose above $147 a barrel on July 11, renewing speculation higher fuel costs will dent consumer spending. Posco advanced in Seoul after the steelmaker reported a 34 percent increase in profit.

The MSCI Asia-Pacific Index lost 0.4 percent to 133.02 at 9:20 a.m. Tokyo time, halting a three-day, 2.4 percent rally. About five stocks retreated for every four that rose on the index, which has dropped 16 percent this year.

Japan's Nikkei 225 Stock Average slipped 0.1 percent to 13,023.48. Benchmark indexes also retreated in Australia, New Zealand and South Korea.

U.S. markets fell on July 11, extending the longest stretch of weekly losses for the Standard & Poor's 500 Index since 2004, as growing concern about the health of Fannie Mae and Freddie Mac sent bank shares to an 11-year low.

Crude oil for August delivery jumped as much as 4 percent to a record $147.27 a barrel on July 11 after the dollar fell and the Jerusalem Post said Israeli war planes practiced over Iraq for an attack on Iran's nuclear research facility. Futures were at $143.36 today.

To contact the reporter for this story: Chen Shiyin in Singapore at schen37@bloomberg.net.

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Persian Gulf Shares Retreat, Led by Dubai Investments, Taqa

By Zainab Fattah

July 13 (Bloomberg) -- Persian Gulf shares declined, tracking global markets as foreign investors moved away from riskier assets.

Dubai Investments PJSC fell to its lowest in more than three months. Abu Dhabi National Energy Co., known as Taqa, also declined. Commercial Bank of Qatar QSC lost for a third day.

``Foreign investors, especially hedge funds, are moving away from risky assets by reducing their exposure to equity markets globally,'' Kamran Butt, head of Middle East equity research at Credit Suisse Group AG, said in a telephone interview from Dubai. ``Combine that with geopolitical risk and the fact that Gulf markets are not the most cheaply valued right now and you can see why markets are falling.''

Stocks last week fell around the globe, giving the MSCI World Index a 20 percent bear-market decline from its October record, as oil reached $147 a barrel and concern deepened that Fannie Mae and Freddie Mac are short of capital.

The Dubai Financial Market General Index dropped 1.1 percent to 5,287.63, its lowest since March 30. The Abu Dhabi Securities Exchange General Index lost 1.4 percent, while Qatar's Doha Securities Market Index slid 1.8 percent.

Multiples

The MSCI GCC Countries Index, a measure of 115 companies in six Gulf states, trades at an average of 17 times estimated earnings, according to data compiled by Bloomberg. That compares with a multiple of 11 for the MSCI Emerging Markets Index.

The U.S. has intensified its push for tougher sanctions on Iran in a dispute over the country's nuclear program. Last week, the Iranian military test-fired a long-range Shahab-3 missile, with a 2,000-kilometer (1,240-mile) range and a 1-ton weight capable of reaching Israel, to demonstrate its power.

Dubai Investments, which owns stakes in more than 40 companies, declined 3.7 percent to 3.62 dirhams. The stock closed at its lowest since March 30.

Taqa, the state-controlled investment company, lost 4.5 percent to 2.79 dirhams. Commercial Bank of Qatar, the Persian Gulf country's second-biggest bank by assets, retreated 3.4 percent to 137.8 riyals.

Gulf Pharmaceutical Industries PJSC slid 5.3 percent to 2.32 dirhams. The U.A.E.-based medical supplies-maker known as Julphar said Chief Executive Officer Abdul-Razzak Yousef resigned for personal reasons, according to a statement posted on the Web site of Abu Dhabi's bourse today.

Saudi Shares Gain

Saudi Arabia's Tadawul All Share Index advanced 1.7 percent, gaining for the first time in four days.

Saudi Basic Industries Corp. rose 2.6 percent to 136.25 riyals. The world's biggest chemicals maker by market value agreed to market through its Chinese unit polyolefin products produced by a Saudi Aramco venture in China.

Bank Albilad surged 6.7 percent to 40 riyals. The second- smallest Saudi Arabian bank by market value said second-quarter net income advanced 64 percent to 57 million riyals ($15.5 million) on income from investments and commissions.

National Metal Manufacturing & Casting Co. jumped 9.8 percent, the biggest surge in three months, to 67 riyals. The Saudi maker of industrial wires and steel products said net income more than tripled to 28.6 million riyals, according to a statement posted on the Web site of the Saudi bourse.

Oman Cables Climbs

The Kuwait Stock Exchange Index increased 0.5 percent, while the Bahrain All Share Index lost 0.1 percent. The Muscat Securities Market 30 Index gained 0.3 percent.

Oman Cables Industry SAOG jumped 6.1 percent to 4.191 rials, its biggest one-day gain since Feb. 26. The maker of wires and cables said first-half net income more than doubled to 11.5 million rials ($29.9 million), according to a statement posted on the Web site of the Omani bourse today.

United Development Co. gained 1.3 percent to 62.7 riyals. The Qatari developer building man-made islands off the emirate's coast said first-half net income almost doubled to 241 million riyals ($66.2 million).

InvestBank PSC rose 1.5 percent to 3.5 dirhams. The lender based in Sharjah, the U.A.E., said second-quarter net income jumped 57 percent to 78.2 million dirhams ($21.3 million) on higher interest and fee income.

To contact the reporter on this story: Zainab Fattah in Dubai on zfattah@bloomberg.net.

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Apple, Crocs, Fannie Mae, Republic Airways: U.S. Equity Preview

By Lynn Thomasson

July 13 (Bloomberg) -- The following companies may have unusual price changes in U.S. markets tomorrow. Stock symbols are in parentheses after company names, and prices are as of 5:45 p.m. in New York on July 11, unless stated otherwise.

Apple Inc. (AAPL US): The maker of iPod media players and Macintosh computers still had models of the new iPhone for sale in its own shops today after most AT&T Inc. stores ran out of inventory. Apple shares fell $4.05, or 2.3 percent, to $172.58.

Crocs Inc. (CROX US): The maker of colorful plastic clogs with holes sued Skechers USA Inc. (SKX US), accusing it of selling footwear that copies patented and trademarked designs. A Skechers spokeswoman couldn't immediately be reached for comment. Crocs fell 2.9 percent to $7.79 in regular trading.

Diageo Plc (DEO US): The maker of Johnnie Walker scotch and Guinness stout may rise more than 30 percent in a year as the distiller withstands concerns about slowing sales, Barron's reported, citing an analyst. The company's American depositary receipts, each of which represent four ordinary shares, fell $1.71 to $69.02.

Fannie Mae (FNM US): The largest providers of U.S. mortgage financing are in a ``sound situation,'' said Senator Christopher Dodd. Separately, the Times of London said U.S. Treasury Secretary Henry Paulson is planning a $15 billion injection of capital into Fannie Mae and Freddie Mac (FRE US), without citing anyone. Fannie Mae fell $2.95, or 22 percent, to $10.25 on July 11. Freddie Mac shares dropped 3.1 percent to $7.75.

Microsoft Corp. (MSFT US): The world's largest software developer will triple the storage capacity of its Xbox 360 video-game console without raising the price to compete with market leaders Nintendo Co. and Sony Corp. Microsoft fell 20 cents to $25.25.

Nasdaq OMX Group Inc. (NDAQ US): The stock exchange operator, which has fallen by almost half since last year's 52- week high, may climb by 50 percent during the next two to three years as the world's securities exchanges consolidate, Barron's reported, citing Mark Boyar, adviser to the Boyar Value Fund. Nasdaq OMX gained 63 cents to $24.33 on July 11.

Republic Airways Holdings Inc. (RJET US): The operator of regional flights for bigger airlines said it would cut 500 jobs amid record fuel prices and ``expected reductions'' in its contracts with larger carriers. The company's shares fell 31 cents, or 3.8 percent, to $7.78.

Steak n Shake Co. (SNS US): The restaurant chain said Chief Financial Officer Jeffrey Blade resigned to ``pursue other interests.'' The stock retreated 0.2 percent to $5.80 in regular trading.

UAL Corp. (UAUA US): The parent of United Airlines, the world's second-largest carrier, said it will offer as many as 400 employees voluntary buyouts as it cuts seating capacity because of record fuel costs. UAL shares tumbled 13 percent to $3.63 in regular trading.

To contact the reporter on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net.

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