By Henry Meyer
Aug. 1 (Bloomberg) -- The honeymoon between Russian President Dmitry Medvedev and Prime Minister Vladimir Putin may be over.
Medvedev's implicit accusation yesterday that his predecessor caused ``nightmares'' for business in Russia by attacking a steel and coal company was the latest sign of division.
The two have rarely been seen in public together since the May 7 presidential inauguration, though Medvedev says they speak several times a day. While Putin maintains control of foreign policy, some key allies, including First Deputy Prime Minister Igor Shuvalov, are now siding with the president.
``Medvedev does not want to remain a puppet president any longer,'' said Alexei Mukhin, director of the Center for Political Information, an independent research group in Moscow. ``He's trying to speed up a handover of power.''
For now, Medvedev's criticisms are more warning shots than a struggle for power with Putin, who is still the nation's pre- eminent politician. Putin, not Medvedev, will be traveling to Beijing next week for the opening of the Olympic Games and to meet world leaders, including U.S. President George W. Bush.
Putin's July 24 attack on OAO Mechel for alleged price fixing halved its share price and wiped more than $60 billion, or almost 9 percent, off the Russian stock market.
Shuvalov, who stands in for the prime minister when he is away, and the president's economic adviser, Arkady Dvorkovich, were among those who showed displeasure at Mechel's treatment.
Divided Loyalties
They belong to a group of Russian officials who, like Medvedev, oppose state intervention in the economy and favor foreign investment. Putin has a history of interference, including the takeover of OAO Yukos Oil Co., once Russia's largest oil producer.
``There are number of people with split loyalties,'' said Sergei Markov, a pro-government lawmaker and director of the Institute of Political Studies, which advises the Kremlin. ``People like Dvorkovich dreamed of a person like Medvedev becoming president and they are happy to be Medvedev supporters.''
So far, Putin, 56, who handed the presidency to Medvedev, 42, after stepping down at the end of his eight years in the Kremlin, has managed to keep the main levers of power. Putin allies dominate the presidential administration and the Cabinet.
The Russian president may seek to reshuffle Putin's Cabinet as early as September or October, according to Mukhin.
The president will start replacing regional governors who owe their jobs to Putin, and possibly Moscow Mayor Yuri Luzhkov as well, Kremlin spokesman Alexei Pavlov said.
Stronger Hand
While Medvedev formally has the power to dismiss the prime minister, Putin currently has the stronger hand as leader of the ruling United Russia party. He controls a two-thirds majority in the lower house of parliament, enough to impeach the president. He has also set up a mini-cabinet that reports only to him, including the defense, interior and foreign ministers, who should nominally be under presidential control.
Western diplomats in Moscow say their governments were taken aback when Russia vetoed United Nations sanctions against Zimbabwe on July 12, four days after Medvedev agreed to punitive measures at a meeting with other Group of Eight leaders in Japan.
Medvedev, a lawyer by training, has stressed the need for more dialogue between East and West. Under Putin, a former KGB colonel, ties with the U.S. and Europe became increasingly strained.
Russia's new foreign affairs strategy, approved last month, for the first time made explicit the role of the prime minister in implementing the policy.
Putin's Popularity
Putin remains Russia's most popular politician, trusted by 54 percent of Russians, compared with 36 percent for Medvedev, according to a poll published July 25 by the Moscow-based Levada Center.
Tension between the two men was clear already on May 9, when Putin watched stonily as the new president addressed the nation from Red Square on the anniversary of victory in World War II.
The first sign that Medvedev may be challenging his second-tier status came a day before the Mechel affair broke, when he demanded a shake-up in the bureaucracy he inherited, condemning the sale of posts to the highest bidder.
Putin's Mechel attack exacerbated investor concern toward Russia amid turmoil in global equity markets and falling commodity prices.
`Utmost Care'
Shuvalov said Mechel shouldn't share the fate of now bankrupt Yukos. Dvorkovich warned of the need to exercise ``utmost care'' toward publicly quoted companies and the stock market.
Investors are assuming the current power structure will last for a 12-month ``honeymoon period, but the risk of some changes ahead of that is one reason why investors remain nervous of Russia and why they are inclined to panic quickly,'' said Chris Weafer, chief strategist at UralSib Financial Corp. in Moscow.
Medvedev will have to tread carefully if he wants to avoid open war with Putin, said Yury Korgunyuk, an analyst with the INDEM research group in Moscow.
``For the moment, Medvedev is biding his time, hoping to exploit more of Putin's mistakes,'' he said. ``It's important for him not only to push Putin aside but to avoid an all-out conflict.''
To contact the reporter on this story: Henry Meyer in Moscow at hmeyer4@bloomberg.net
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Friday, August 1, 2008
Fukuda May Revamp Japan's Cabinet as G-8 Fails to Boost Support
By Toko Sekiguchi and Takashi Hirokawa
Enlarge Image/Details
Aug. 1 (Bloomberg) -- Yasuo Fukuda is preparing to dip into a Japanese prime minister's most trusted playbook to bolster his government's popularity: the Cabinet reshuffle.
Fukuda, 72, will meet a key coalition partner later today to discuss changes 10 months into his term. A shuffle will ``depend on the outcome of the meeting,'' Fukuda told reporters in Tokyo late yesterday.
With an election no more than a year away, he has faced growing calls within the ruling Liberal Democratic Party to replace ministers to shore up public support. No Japanese leader since World War II has gone more than two years without tinkering with his cabinet, a maneuver used to reward factions within a party that has held power for all but one year since 1955.
``Shuffling for shuffling's sake has created a system where most ministers aren't in their posts long enough to gain expertise in a field,'' said Taku Sugawara, a professor of political science at the University of Tokyo. Still, the move ``may stabilize Fukuda's support base within the party.''
Fukuda's public approval rating has fallen by half since he took office in September, punctured by a feisty opposition that controls the less-powerful upper house of parliament, and criticism within his own party that he lacks a vision for Japan. He didn't get the bump in support he was counting on by hosting Group of Eight leaders for their annual summit last month in Hokkaido, northern Japan.
Fukuda inherited 15 of 17 ministers from predecessor Shinzo Abe. Calls from LDP officials to replace some of them intensified as Fukuda's popularity slumped because of struggles with the Democratic Party of Japan, which used its majority in the upper house to frustrate the government.
`Very Unkind'
The DPJ blocked five of Fukuda's nominees for central bank positions, including two former finance ministry officials for the role of governor, saying they would have undermined the Bank of Japan's independence. The opposition also blocked a bill extending a gasoline tax, saying the world's second-largest economy needed the stimulus of tax cuts.
Former LDP Secretary General Koichi Kato said in a July 2 interview that opinion polls ``would be very unkind'' to Fukuda unless he reshuffled his cabinet and clearly defined policies within a month of the G-8 meeting, which ended July 9.
Most senior party officials have served in several governments. Fukuda himself was chief cabinet secretary under Junichiro Koizumi, one of the few leaders to take on party factions and include outsiders in his government. Chief Cabinet Secretary Nobutaka Machimura has served as education minister, and is a two-time foreign minister.
DPJ leader Ichiro Ozawa orchestrated a censure motion against Fukuda last month, the first time for a prime minister in postwar history. The motion, which wasn't binding, criticized his handling of health care for the elderly and a failure to negotiate with upper house lawmakers. Ozawa has also called for general elections before they are required in September 2009.
LDP Criticism
LDP members have also criticized the prime minister. Yuriko Koike called on Fukuda to ``lead more assertively,'' and former foreign minister Taro Aso said in a June 2 speech that the country had lost its ``competitive edge.''
Fukuda's approval rating rose after he hosted the G-8 summit in northern Hokkaido and a cabinet shift may add momentum to the recovery, bolstering his support within the party, lawmaker Seishiro Eto said in a July 24 interview.
Fukuda's popularity gained 1 percentage point from last month to 24 percent in an Asahi newspaper survey, eking out similar gains in polls in the Yomiuri and Mainichi newspapers. All three surveys were published July 15.
Fukuda's approval fell to a low of 21 percent in May following standoffs with the opposition Democratic Party of Japan, down from 59 percent shortly after his term began in September, according to a Nikkei newspaper survey. None of the surveys provided a margin of error.
To contact the reporter on this story: Toko Sekiguchi in Tokyo at Tsekiguchi3@bloomberg.net; Takashi Hirokawa in Tokyo at hirokawa@bloomberg.net;
Read more...
Enlarge Image/Details
Aug. 1 (Bloomberg) -- Yasuo Fukuda is preparing to dip into a Japanese prime minister's most trusted playbook to bolster his government's popularity: the Cabinet reshuffle.
Fukuda, 72, will meet a key coalition partner later today to discuss changes 10 months into his term. A shuffle will ``depend on the outcome of the meeting,'' Fukuda told reporters in Tokyo late yesterday.
With an election no more than a year away, he has faced growing calls within the ruling Liberal Democratic Party to replace ministers to shore up public support. No Japanese leader since World War II has gone more than two years without tinkering with his cabinet, a maneuver used to reward factions within a party that has held power for all but one year since 1955.
``Shuffling for shuffling's sake has created a system where most ministers aren't in their posts long enough to gain expertise in a field,'' said Taku Sugawara, a professor of political science at the University of Tokyo. Still, the move ``may stabilize Fukuda's support base within the party.''
Fukuda's public approval rating has fallen by half since he took office in September, punctured by a feisty opposition that controls the less-powerful upper house of parliament, and criticism within his own party that he lacks a vision for Japan. He didn't get the bump in support he was counting on by hosting Group of Eight leaders for their annual summit last month in Hokkaido, northern Japan.
Fukuda inherited 15 of 17 ministers from predecessor Shinzo Abe. Calls from LDP officials to replace some of them intensified as Fukuda's popularity slumped because of struggles with the Democratic Party of Japan, which used its majority in the upper house to frustrate the government.
`Very Unkind'
The DPJ blocked five of Fukuda's nominees for central bank positions, including two former finance ministry officials for the role of governor, saying they would have undermined the Bank of Japan's independence. The opposition also blocked a bill extending a gasoline tax, saying the world's second-largest economy needed the stimulus of tax cuts.
Former LDP Secretary General Koichi Kato said in a July 2 interview that opinion polls ``would be very unkind'' to Fukuda unless he reshuffled his cabinet and clearly defined policies within a month of the G-8 meeting, which ended July 9.
Most senior party officials have served in several governments. Fukuda himself was chief cabinet secretary under Junichiro Koizumi, one of the few leaders to take on party factions and include outsiders in his government. Chief Cabinet Secretary Nobutaka Machimura has served as education minister, and is a two-time foreign minister.
DPJ leader Ichiro Ozawa orchestrated a censure motion against Fukuda last month, the first time for a prime minister in postwar history. The motion, which wasn't binding, criticized his handling of health care for the elderly and a failure to negotiate with upper house lawmakers. Ozawa has also called for general elections before they are required in September 2009.
LDP Criticism
LDP members have also criticized the prime minister. Yuriko Koike called on Fukuda to ``lead more assertively,'' and former foreign minister Taro Aso said in a June 2 speech that the country had lost its ``competitive edge.''
Fukuda's approval rating rose after he hosted the G-8 summit in northern Hokkaido and a cabinet shift may add momentum to the recovery, bolstering his support within the party, lawmaker Seishiro Eto said in a July 24 interview.
Fukuda's popularity gained 1 percentage point from last month to 24 percent in an Asahi newspaper survey, eking out similar gains in polls in the Yomiuri and Mainichi newspapers. All three surveys were published July 15.
Fukuda's approval fell to a low of 21 percent in May following standoffs with the opposition Democratic Party of Japan, down from 59 percent shortly after his term began in September, according to a Nikkei newspaper survey. None of the surveys provided a margin of error.
To contact the reporter on this story: Toko Sekiguchi in Tokyo at Tsekiguchi3@bloomberg.net; Takashi Hirokawa in Tokyo at hirokawa@bloomberg.net;
Read more...
Rudd Says Banks Should Cut Lending Rates If RBA Acts
By Rebecca Keenan
Aug. 1 (Bloomberg) -- Australian Prime Minister Kevin Rudd said the nation's banks have a responsibility to lower borrowing costs if the Reserve Bank of Australia cuts its benchmark interest rate.
``Banks will be under huge pressure in the marketplace to act in response to official interest rates,'' Rudd said during an interview today with Radio 3AW. ``Look at the overall profitability levels of these banks, they are huge. Therefore, they have a responsibility to pass on changes.''
Home buyers are paying more for mortgages after the nation's five biggest lenders increased mortgage rates by an average of 105 basis points since the start of this year amid rising credit costs. The RBA has boosted rates by 50 basis points in that time.
The effect of higher lending costs is beginning to seep out into the broader economy. Lending to consumers and businesses in June rose at the slowest annual pace in almost six years, according to the central bank. Retail sales in May fell by the most in six years, the Bureau of Statistics said yesterday.
Central bank Governor Glenn Stevens raised benchmark interest rate to 7.25 percent in March, the fourth increase since August last year. The country's benchmark rate is at its highest in 12 years and is 5.25 percentage points higher than the U.S. Federal Reserve's rate. Stevens said last month that there is a ``good chance'' the economy will slow enough to bring inflation back within his target range.
``Every economy in the world is facing challenges in difficult global economic conditions,'' Rudd, who won office in November, said today. ``It is very important to keep downward pressure on inflation.''
To contact the reporter on this story: Rebecca Keenan in Melbourne at rkeenan5@bloomberg.net
Read more...
Aug. 1 (Bloomberg) -- Australian Prime Minister Kevin Rudd said the nation's banks have a responsibility to lower borrowing costs if the Reserve Bank of Australia cuts its benchmark interest rate.
``Banks will be under huge pressure in the marketplace to act in response to official interest rates,'' Rudd said during an interview today with Radio 3AW. ``Look at the overall profitability levels of these banks, they are huge. Therefore, they have a responsibility to pass on changes.''
Home buyers are paying more for mortgages after the nation's five biggest lenders increased mortgage rates by an average of 105 basis points since the start of this year amid rising credit costs. The RBA has boosted rates by 50 basis points in that time.
The effect of higher lending costs is beginning to seep out into the broader economy. Lending to consumers and businesses in June rose at the slowest annual pace in almost six years, according to the central bank. Retail sales in May fell by the most in six years, the Bureau of Statistics said yesterday.
Central bank Governor Glenn Stevens raised benchmark interest rate to 7.25 percent in March, the fourth increase since August last year. The country's benchmark rate is at its highest in 12 years and is 5.25 percentage points higher than the U.S. Federal Reserve's rate. Stevens said last month that there is a ``good chance'' the economy will slow enough to bring inflation back within his target range.
``Every economy in the world is facing challenges in difficult global economic conditions,'' Rudd, who won office in November, said today. ``It is very important to keep downward pressure on inflation.''
To contact the reporter on this story: Rebecca Keenan in Melbourne at rkeenan5@bloomberg.net
Read more...
Australian Manufacturing Contracted in July on Falling Orders
By Jacob Greber
Aug. 1 (Bloomberg) -- Australian manufacturing contracted in July as companies received fewer orders, production slowed and employers cut jobs amid interest rates at a 12-year high.
The performance of manufacturing index shed 0.1 points to 46.9 from June, when it fell 4.2 points, PricewaterhouseCoopers and the Australian Industry Group said in a report released in Canberra today.
The index was below 50 for a second month, signaling manufacturing is shrinking. Manufacturing may cool further after reports yesterday showed retail sales fell by the most in six years and lending to consumers and businesses rose at the slowest annual pace since 2002 after the central bank raised its benchmark interest rate to 7.25 percent in March.
``Activity will continue to be soft in the near term,'' Heather Ridout, chief executive officer of the Australian Industry Group, said in an e-mailed statement. ``The July outcome reflects a decline in production, employment and new orders.''
Manufacturing accounts for 10 percent of gross domestic product and employs one-tenth of the workforce.
The manufacturing survey, which is similar to the U.S. ISM index, asked more than 200 companies about production, new orders, deliveries, inventories and employment.
To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net
Read more...
Aug. 1 (Bloomberg) -- Australian manufacturing contracted in July as companies received fewer orders, production slowed and employers cut jobs amid interest rates at a 12-year high.
The performance of manufacturing index shed 0.1 points to 46.9 from June, when it fell 4.2 points, PricewaterhouseCoopers and the Australian Industry Group said in a report released in Canberra today.
The index was below 50 for a second month, signaling manufacturing is shrinking. Manufacturing may cool further after reports yesterday showed retail sales fell by the most in six years and lending to consumers and businesses rose at the slowest annual pace since 2002 after the central bank raised its benchmark interest rate to 7.25 percent in March.
``Activity will continue to be soft in the near term,'' Heather Ridout, chief executive officer of the Australian Industry Group, said in an e-mailed statement. ``The July outcome reflects a decline in production, employment and new orders.''
Manufacturing accounts for 10 percent of gross domestic product and employs one-tenth of the workforce.
The manufacturing survey, which is similar to the U.S. ISM index, asked more than 200 companies about production, new orders, deliveries, inventories and employment.
To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net
Read more...
Big Mac Index Shows Asian Economies Out of Whack: William Pesek
Commentary by William Pesek
Aug. 1 (Bloomberg) -- Big Macs probably aren't much on the minds of Indians or Indonesians facing surging food prices. They should be very much in the thoughts of Asian central bankers.
The Economist magazine's ``Big Mac Index,'' which compares prices for McDonald's Corp.'s burger globally, is a light-hearted barometer of whether currencies are properly valued against the dollar. At times, it offers keen insights -- like how undervalued Asian currencies are at the moment. That may surprise some investors and annoy policy makers struggling to reverse things.
All the bellyaching from Asian officials over the last year about strong currencies damaging growth prospects was in vain. As of July 26, when the Economist published its 2008 index, 10 Asia- Pacific region currencies were undervalued against the U.S. dollar, many significantly so.
The Malaysian ringgit was the most out of whack, undervalued by 52.4 percent. Currencies also were below their true worth by 52.1 percent in Hong Kong, 48.7 percent in China, 47.9 percent in Thailand, 42.9 percent in Indonesia, 26.6 percent in Japan, and 18.2 percent in Singapore.
What is Burgernomics telling us about Asia? It's easier to hold down exchange rates than to drive them higher.
Asia spent much of the last decade obsessed with exchange rates. The region made it an art form to talk up currencies. Untold billions of dollars were used intervening in markets to beat back bullish speculators. Controls on the flow of capital were imposed here and there.
Inflation's Return
It worked brilliantly to support all-important export industries. That was, until the dollar began sliding. Next came a near doubling in the price of crude oil. Food costs surged, too. While the phenomena have numerous causes and many moving parts, the end result was a return of inflation.
The sudden onset of rising prices came as a surprise to those who had listened to economists such as former Federal Reserve Chairman Alan Greenspan. They painted a warm and fuzzy picture of a world in which technology, globalization and market innovations had repealed the business cycle. Their argument was that the inflation risks of the past were no more.
What they missed was the emergence of a new kind of business cycle -- one involving bicycles.
In cities such as New York, London and Tokyo, more and more motorists are trading cars for bicycles to save on energy costs. Such decisions by wealthy-nation consumers are being driven by the aspirations of developing-nation ones. From Mumbai to Beijing to Sao Paulo, consumers are swapping bicycles for cars, which is boosting demand for energy.
Currency Weakness
As that global adjustment plays out, Asian policy makers are realizing they have a worsening inflation problem on their hands. They have tried reducing fuel subsidies, raising interest rates and strengthening currencies. What they may get for their efforts is an extended run of stagflation.
Things might have turned out differently if steps had been taken to boost currencies, say, five years ago. Firmer exchange rates would have meant less imported inflation over the last 24 months. Now, it's all being done at once.
Policy makers must try harder to convince markets, according to Benjamin Pedley of LGT Investment Management Ltd. in Hong Kong. Many investors, he says, still think ``its all about Asia's appetite for export growth, getting it up and keeping it up.''
Asia, in other words, has been holding down currencies for so long it has almost created a psychological price ceiling that traders are reluctant to breach.
Also, the combination of a global credit crunch and widespread risk aversion is rarely good for emerging-market currencies. ``In the short run, people are focusing on weaker Asian growth,'' says Callum Henderson, head of currency strategy at Standard Chartered Bank in Singapore.
Merrill's Savior
News that the once mighty Merrill Lynch & Co. is being saved by Singapore reminded investors just how precarious markets are. Temasek Holdings Pte., the government-owned fund that became Merrill's biggest investor in December, will buy $3.4 billion of new stock in the third-biggest U.S. securities firm.
The lack of strong leadership in Asia also is working against efforts to boost exchange rates. You have political turmoil in Malaysia and Thailand, paralysis in Japan, India and South Korea and rising poverty rates in Indonesia and the Philippines. China, meanwhile, is moving in the other direction, favoring less yuan appreciation.
Few nations dramatize Asia's predicament better than Korea. Last month, a group of 118 economics and business professors called on Korean Finance Minister Kang Man-Soo to resign for pursuing ``irrational'' policies that fanned inflation and hurt the economy.
Buy a Burger
Kang's sin was holding down the Korean won to boost growth. The policy helped fuel the fastest inflation in almost 10 years, eroding household incomes and corporate earnings. While Kang has tried to reverse course, the won is the second-worst performer of the 10 most-active Asian currencies outside of Japan.
Investor perceptions aren't easily changed. Asia's policy makers need to step up efforts -- and get more creative -- when it comes to boosting currencies. All it takes to see that is to buy a burger.
(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)
To contact the writer of this column: William Pesek in Tokyo at wpesek@bloomberg.net
Read more...
Aug. 1 (Bloomberg) -- Big Macs probably aren't much on the minds of Indians or Indonesians facing surging food prices. They should be very much in the thoughts of Asian central bankers.
The Economist magazine's ``Big Mac Index,'' which compares prices for McDonald's Corp.'s burger globally, is a light-hearted barometer of whether currencies are properly valued against the dollar. At times, it offers keen insights -- like how undervalued Asian currencies are at the moment. That may surprise some investors and annoy policy makers struggling to reverse things.
All the bellyaching from Asian officials over the last year about strong currencies damaging growth prospects was in vain. As of July 26, when the Economist published its 2008 index, 10 Asia- Pacific region currencies were undervalued against the U.S. dollar, many significantly so.
The Malaysian ringgit was the most out of whack, undervalued by 52.4 percent. Currencies also were below their true worth by 52.1 percent in Hong Kong, 48.7 percent in China, 47.9 percent in Thailand, 42.9 percent in Indonesia, 26.6 percent in Japan, and 18.2 percent in Singapore.
What is Burgernomics telling us about Asia? It's easier to hold down exchange rates than to drive them higher.
Asia spent much of the last decade obsessed with exchange rates. The region made it an art form to talk up currencies. Untold billions of dollars were used intervening in markets to beat back bullish speculators. Controls on the flow of capital were imposed here and there.
Inflation's Return
It worked brilliantly to support all-important export industries. That was, until the dollar began sliding. Next came a near doubling in the price of crude oil. Food costs surged, too. While the phenomena have numerous causes and many moving parts, the end result was a return of inflation.
The sudden onset of rising prices came as a surprise to those who had listened to economists such as former Federal Reserve Chairman Alan Greenspan. They painted a warm and fuzzy picture of a world in which technology, globalization and market innovations had repealed the business cycle. Their argument was that the inflation risks of the past were no more.
What they missed was the emergence of a new kind of business cycle -- one involving bicycles.
In cities such as New York, London and Tokyo, more and more motorists are trading cars for bicycles to save on energy costs. Such decisions by wealthy-nation consumers are being driven by the aspirations of developing-nation ones. From Mumbai to Beijing to Sao Paulo, consumers are swapping bicycles for cars, which is boosting demand for energy.
Currency Weakness
As that global adjustment plays out, Asian policy makers are realizing they have a worsening inflation problem on their hands. They have tried reducing fuel subsidies, raising interest rates and strengthening currencies. What they may get for their efforts is an extended run of stagflation.
Things might have turned out differently if steps had been taken to boost currencies, say, five years ago. Firmer exchange rates would have meant less imported inflation over the last 24 months. Now, it's all being done at once.
Policy makers must try harder to convince markets, according to Benjamin Pedley of LGT Investment Management Ltd. in Hong Kong. Many investors, he says, still think ``its all about Asia's appetite for export growth, getting it up and keeping it up.''
Asia, in other words, has been holding down currencies for so long it has almost created a psychological price ceiling that traders are reluctant to breach.
Also, the combination of a global credit crunch and widespread risk aversion is rarely good for emerging-market currencies. ``In the short run, people are focusing on weaker Asian growth,'' says Callum Henderson, head of currency strategy at Standard Chartered Bank in Singapore.
Merrill's Savior
News that the once mighty Merrill Lynch & Co. is being saved by Singapore reminded investors just how precarious markets are. Temasek Holdings Pte., the government-owned fund that became Merrill's biggest investor in December, will buy $3.4 billion of new stock in the third-biggest U.S. securities firm.
The lack of strong leadership in Asia also is working against efforts to boost exchange rates. You have political turmoil in Malaysia and Thailand, paralysis in Japan, India and South Korea and rising poverty rates in Indonesia and the Philippines. China, meanwhile, is moving in the other direction, favoring less yuan appreciation.
Few nations dramatize Asia's predicament better than Korea. Last month, a group of 118 economics and business professors called on Korean Finance Minister Kang Man-Soo to resign for pursuing ``irrational'' policies that fanned inflation and hurt the economy.
Buy a Burger
Kang's sin was holding down the Korean won to boost growth. The policy helped fuel the fastest inflation in almost 10 years, eroding household incomes and corporate earnings. While Kang has tried to reverse course, the won is the second-worst performer of the 10 most-active Asian currencies outside of Japan.
Investor perceptions aren't easily changed. Asia's policy makers need to step up efforts -- and get more creative -- when it comes to boosting currencies. All it takes to see that is to buy a burger.
(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)
To contact the writer of this column: William Pesek in Tokyo at wpesek@bloomberg.net
Read more...
China to Be World's Top Manufacturer of Green Energy Technology
By Jim Efstathiou Jr.
Aug. 1 (Bloomberg) -- China, the world's biggest greenhouse- gas emitter, is poised to lead world production of solar cells, wind power turbines and low-carbon energy technology.
China is already the world's largest renewable-energy producer as measured by installed generating capacity, according to a report today from the Climate Group, a coalition of companies and governments that support solutions to global warming. The country is also the world's top manufacturer of solar cells and will be the leading exporter of wind turbines by 2009.
China's position as a renewable-energy consumer and manufacturer runs counter to its ranking as one of the world's biggest polluters and the country's rapid expansion of coal-fired power generation. About 75 percent of China's electricity comes from coal, said Changhua Wu, China director for the Climate Group, who is based in Beijing.
``They have to do clean energy because they can't just do more and more dirty energy,'' said Michael Liebreich, chief executive officer of London-based New Energy Finance Ltd., which provides research to clean-energy investors. ``We're seeing China as being a Number 1, 2 or 3 player in lots of different sectors in this industry.''
China is closing older coal-fired power plants and replacing them with more efficient coal generators, Changhua said in a July 25 interview. While China will continue to rely on coal to fuel its rapid economic growth, state officials understand the need to transition to clean energy, she said.
The government wants to reduce the amount of energy China uses to produce each unit of economic output by 20 percent in two years and has told its 1,000 largest energy-consuming companies to cut their power consumption even more, according to the report.
Extreme Pollution
Meantime, the government is imposing emergency traffic and industrial production restrictions to lessen pollution during this month's Olympic Games in Beijing.
Leaders ``really understand the issue,'' Changhua said. ``They know the urgency of the issue. They know the impact of the issue not only to the world but to China.''
About 16 percent of China's electricity came from renewable sources in 2006, led by the world's largest number of hydroelectric generators, according to the report. The nation's goal is to increase the proportion of renewable electricity to 23 percent by 2020.
China invested over $12 billion in renewable energy in 2007, second only to Germany. The nation needs to invest another $398 billion to reach its 2020 renewable energy goals, an average of $33 billion a year, the report said.
Getting Things Done
``The system in China compared to many other countries seems to be more effective,'' Changhua said. ``Basically, if the top leadership in Beijing decides to drive this kind of effort, they really get things done.''
China, which leads the world in production of solar photovoltaic technology, has doubled its output of solar panels in each of the last four years, according to the report. Suntech Power Holdings Co., based in Jiangsu, is the world's third- biggest supplier of solar cells. China's six largest solar-cell makers had a market value of over $14 billion at the beginning of this year.
China is exporting solar panels to developed countries better able to pay the higher costs of generating electricity from the sun, Liebreich said. Domestic production of cheaper wind power is advancing, Liebreich said.
``I don't think they want to shackle themselves to high electricity costs just to develop an industry,'' Liebreich said in a July 30 interview. ``Wind is a more mature industry. There isn't the same economic penalty today to implement wind.''
Europeans, Americans
In 2007, each of China's 1.3 billion people emitted 5.1 tons of carbon, less than the 8.6 tons from each European and the 19.4 tons for each American. Last month, the world's richest countries, which are responsible for almost half the world's emissions, pledged to cut heat-trapping pollution by at least 50 percent by 2050.
The Group of Eight nations didn't specify how to make those reductions or provide intermediate targets. Developing nations including China said industrialized nations should commit to emissions cuts of at least 25 percent by 2020 and 80 percent by 2050.
To contact the reporter on this story: Jim Efstathiou Jr. in New York at jefstathiou@bloomberg.net.
Read more...
Aug. 1 (Bloomberg) -- China, the world's biggest greenhouse- gas emitter, is poised to lead world production of solar cells, wind power turbines and low-carbon energy technology.
China is already the world's largest renewable-energy producer as measured by installed generating capacity, according to a report today from the Climate Group, a coalition of companies and governments that support solutions to global warming. The country is also the world's top manufacturer of solar cells and will be the leading exporter of wind turbines by 2009.
China's position as a renewable-energy consumer and manufacturer runs counter to its ranking as one of the world's biggest polluters and the country's rapid expansion of coal-fired power generation. About 75 percent of China's electricity comes from coal, said Changhua Wu, China director for the Climate Group, who is based in Beijing.
``They have to do clean energy because they can't just do more and more dirty energy,'' said Michael Liebreich, chief executive officer of London-based New Energy Finance Ltd., which provides research to clean-energy investors. ``We're seeing China as being a Number 1, 2 or 3 player in lots of different sectors in this industry.''
China is closing older coal-fired power plants and replacing them with more efficient coal generators, Changhua said in a July 25 interview. While China will continue to rely on coal to fuel its rapid economic growth, state officials understand the need to transition to clean energy, she said.
The government wants to reduce the amount of energy China uses to produce each unit of economic output by 20 percent in two years and has told its 1,000 largest energy-consuming companies to cut their power consumption even more, according to the report.
Extreme Pollution
Meantime, the government is imposing emergency traffic and industrial production restrictions to lessen pollution during this month's Olympic Games in Beijing.
Leaders ``really understand the issue,'' Changhua said. ``They know the urgency of the issue. They know the impact of the issue not only to the world but to China.''
About 16 percent of China's electricity came from renewable sources in 2006, led by the world's largest number of hydroelectric generators, according to the report. The nation's goal is to increase the proportion of renewable electricity to 23 percent by 2020.
China invested over $12 billion in renewable energy in 2007, second only to Germany. The nation needs to invest another $398 billion to reach its 2020 renewable energy goals, an average of $33 billion a year, the report said.
Getting Things Done
``The system in China compared to many other countries seems to be more effective,'' Changhua said. ``Basically, if the top leadership in Beijing decides to drive this kind of effort, they really get things done.''
China, which leads the world in production of solar photovoltaic technology, has doubled its output of solar panels in each of the last four years, according to the report. Suntech Power Holdings Co., based in Jiangsu, is the world's third- biggest supplier of solar cells. China's six largest solar-cell makers had a market value of over $14 billion at the beginning of this year.
China is exporting solar panels to developed countries better able to pay the higher costs of generating electricity from the sun, Liebreich said. Domestic production of cheaper wind power is advancing, Liebreich said.
``I don't think they want to shackle themselves to high electricity costs just to develop an industry,'' Liebreich said in a July 30 interview. ``Wind is a more mature industry. There isn't the same economic penalty today to implement wind.''
Europeans, Americans
In 2007, each of China's 1.3 billion people emitted 5.1 tons of carbon, less than the 8.6 tons from each European and the 19.4 tons for each American. Last month, the world's richest countries, which are responsible for almost half the world's emissions, pledged to cut heat-trapping pollution by at least 50 percent by 2050.
The Group of Eight nations didn't specify how to make those reductions or provide intermediate targets. Developing nations including China said industrialized nations should commit to emissions cuts of at least 25 percent by 2020 and 80 percent by 2050.
To contact the reporter on this story: Jim Efstathiou Jr. in New York at jefstathiou@bloomberg.net.
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New Zealand Wages Probably Rose by Record 3.6% in Year to June
By Tracy Withers
Aug. 1 (Bloomberg) -- New Zealand's annual wage inflation probably accelerated at a record pace in the second quarter as a shortage of labor forced companies to pay more for workers.
Ordinary time wages for non-government workers rose 3.6 percent in the year to June, according to the median estimate of 11 economists surveyed by Bloomberg. Wages probably gained 0.8 percent from the previous three months. Statistics New Zealand releases the report at 10:45 a.m. in Wellington on Aug. 4.
Workers are demanding higher wages as soaring food and fuel costs are expected to push inflation to an 18-year high. New Zealand's jobless rate was close to a record-low in the first quarter and immigration has slowed, forcing companies to pay more to keep and attract staff.
``There is every reason to expect wage demands to be met,'' said Brendan O'Donovan, chief economist at Westpac Banking Corp. in Wellington. Workers ``are living through the highest inflation in two decades, and they will demand compensation.''
Annual wage inflation will probably accelerate from 3.5 percent in the year to March, which was the fastest pace since the series began in the fourth quarter of 1992.
Consumer prices will rise about 5 percent in the year to September, the fastest pace since 1990, according to central bank forecasts. New Zealand's jobless rate was 3.6 percent in the first quarter, rising from a record 3.4 percent. Annual immigration was close to a seven-year low in June.
Union Demands
New Zealand's biggest union said this month it will seek higher wages for its 50,000 members after a report showed gasoline prices rose 13 percent in the second quarter.
``Every time our members fill up their cars or fill their supermarket trolleys, they're feeling the pinch and the only answer to that is to ensure that they're getting high enough wages to keep ahead of the game,'' said Andrew Little, national secretary of the Engineering, Printing and Manufacturing Union.
Reserve Bank Governor Alan Bollard last week cut the benchmark interest rate a quarter point to 8 percent, the first reduction in five years, saying slowing economic growth will ease inflation to less than 3 percent by mid-2010
The economy contracted in the first quarter and eight of 13 economists forecast it also shrank in the three months to June, putting New Zealand in its first recession since 1998.
Bollard said last week that slowing growth ``will make it more difficult for higher wage claims to be agreed'' and he expects wage growth will slow from next year, combating inflation.
Bloomberg Survey
A second report on Aug. 4 will show average ordinary time hourly earnings for non-government workers rose 1.4 percent in the second quarter, according to the median forecast of nine economists. Earnings increased 1.1 percent in the first quarter.
Following is a table of forecasts for the non-government labor cost index for ordinary wages and for average hourly ordinary time earnings.
Labor Cost Avg. Hourly
Ordinary time Earnings
Qtr Year Qtr
----------------------------------
Median 0.8% 3.6% 1.4%
Number 11 11 9
----------------------------------
ANZ Bank 0.8% 3.5% 1.5%
ASB Bank 0.8% 3.7% 1.0%
BNZ 0.9% 3.7% 0.9%
Citibank 0.9% 3.7% 1.2%
Deutsche 0.8% 3.6% 1.9%
First NZ 0.8% 3.6% 1.2%
Goldman 0.5% 3.3% 0.9%
JPMorgan 0.8% 3.6% ---
Macquarie 0.7% 3.5% ---
UBS 0.7% 3.5% 1.5%
Westpac 0.9% 3.7% 1.6%
==================================
To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.
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Japan's Yen, Chinese Yuan, Rupiah, Baht: Asia Currency Preview
By Aaron Pan
Aug. 1 (Bloomberg) -- The following events and economic reports may influence trading in Asian currencies today.
Exchange rates are from the previous session.
Japanese yen: Finance Minister Fukushiro Nukaga, Economic and Fiscal Policy Minister Hiroko Ota and Chief Cabinet Secretary Nobutaka Machimura will hold briefings after a cabinet meeting this morning. Machimura will address reporters again at 4 p.m. in Tokyo.
The yen was at 107.85 a dollar at 10:33 a.m. in New York.
Chinese yuan: The July Purchasing Managers' Index, a gauge of manufacturing, is due at 9 a.m. local time. The measure fell to 52 in June, the lowest since August 2005.
The yuan traded at 6.8318.
South Korean won: Consumer prices climbed 5.7 percent in July from a year earlier, the biggest increase in almost a decade, following a 5.5 percent gain the previous month, economists said in a Bloomberg News survey before the government reports the data at 1:30 p.m. local time.
Factory output rose 6.7 percent in June from a year earlier, the slowest pace in nine months, the statistics office said yesterday.
The won closed at 1,012.05.
Indonesian rupiah: Consumer prices rose 11.2 percent in July from a year ago, after an 11 percent gain the previous month, economists said in a Bloomberg survey before the government reports the data at 3 p.m. in Jakarta.
The rupiah was at 9,095.
Thai baht: Inflation quickened to 9.3 percent in July from a year earlier, economists said in a Bloomberg survey. Consumer prices gained 8.9 percent the previous month. The report is due at 11 a.m. in Bangkok.
The baht traded at 33.52.
To contact the reporter on this story: Aaron Pan in Hong Kong at apan8@bloomberg.net.
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Aug. 1 (Bloomberg) -- The following events and economic reports may influence trading in Asian currencies today.
Exchange rates are from the previous session.
Japanese yen: Finance Minister Fukushiro Nukaga, Economic and Fiscal Policy Minister Hiroko Ota and Chief Cabinet Secretary Nobutaka Machimura will hold briefings after a cabinet meeting this morning. Machimura will address reporters again at 4 p.m. in Tokyo.
The yen was at 107.85 a dollar at 10:33 a.m. in New York.
Chinese yuan: The July Purchasing Managers' Index, a gauge of manufacturing, is due at 9 a.m. local time. The measure fell to 52 in June, the lowest since August 2005.
The yuan traded at 6.8318.
South Korean won: Consumer prices climbed 5.7 percent in July from a year earlier, the biggest increase in almost a decade, following a 5.5 percent gain the previous month, economists said in a Bloomberg News survey before the government reports the data at 1:30 p.m. local time.
Factory output rose 6.7 percent in June from a year earlier, the slowest pace in nine months, the statistics office said yesterday.
The won closed at 1,012.05.
Indonesian rupiah: Consumer prices rose 11.2 percent in July from a year ago, after an 11 percent gain the previous month, economists said in a Bloomberg survey before the government reports the data at 3 p.m. in Jakarta.
The rupiah was at 9,095.
Thai baht: Inflation quickened to 9.3 percent in July from a year earlier, economists said in a Bloomberg survey. Consumer prices gained 8.9 percent the previous month. The report is due at 11 a.m. in Bangkok.
The baht traded at 33.52.
To contact the reporter on this story: Aaron Pan in Hong Kong at apan8@bloomberg.net.
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New Zealand Dollar Heads For Weekly Drop on Rate Expectations
By Candice Zachariahs
Aug. 1 (Bloomberg) -- The New Zealand dollar headed for a second consecutive weekly decline as traders raised bets that the central bank will keep lowering borrowing costs to boost a slowing economy.
New Zealand's currency traded near a 10-month low as investors speculated the currency will extend July's 4 percent decline as the Reserve Bank of New Zealand continues to reduce interest rates. The kiwi, as it's called, fell 1 percent on July 30 after central bank Governor Alan Bollard emphasized an ``easing bias' in monetary policy.
``A number of economic indicators are declining, there are stresses in the financial sector and the RBNZ has clearly turned dovish,'' said Matthew Strauss, a senior currency strategist at RBC Capital Markets Inc. in Toronto, a unit of Canada's biggest bank. ``We are most concerned about the New Zealand dollar,'' among the major currencies.
New Zealand's dollar rose to 73.42 U.S. cents at 8:49 a.m. in Wellington from 73.33 cents late in Asia yesterday and from 74.54 a week ago. Earlier it touched 73.17 cents, near its Sept. 26 low of 73.08 cents. The currency bought 79.12 yen from 79.35 yesterday and 79.88 yen a week ago in New York. The kiwi dropped 1.4 percent against the yen last month.
A benchmark rate of 8 percent, compared with 0.5 percent in Japan and 2 percent in the U.S., has made the New Zealand currency a favorite with investors looking to invest in higher- yielding assets.
Bollard lowered the benchmark rate by a quarter-percentage point from 8.25 percent on July 24, the first reduction in five years. Two days ago, he said the bank had ``adopted an easing bias in our monetary policy'' as a weak economy is ``sufficient'' to slow inflation.
ANZ National Bank Ltd. reported yesterday that business confidence in New Zealand fell for the first time in four months, saying that the economy was ''firmly in contraction mode.'' The nation's economy contracted 0.3 percent in the first quarter. Eight of 13 economists surveyed by Bloomberg News expect it also shrank in the three months ended June 30, putting the nation in its first recession since 1998.
``The survey is very deeply in negative territory and more rate cuts will be required to lift business confidence,'' said Joshua Williamson, a senior strategist at TD Securities Ltd. in Sydney.
Traders are betting the RBNZ will cut its benchmark interest rate by 149 basis points in the next 12 months, up from 143 basis points yesterday, according to a Credit Suisse Group index based on interest-rate swaps.
To contact the reporter on this story: Candice Zachariahs in New York at czachariahs1@bloomberg.net
Read more...
Aug. 1 (Bloomberg) -- The New Zealand dollar headed for a second consecutive weekly decline as traders raised bets that the central bank will keep lowering borrowing costs to boost a slowing economy.
New Zealand's currency traded near a 10-month low as investors speculated the currency will extend July's 4 percent decline as the Reserve Bank of New Zealand continues to reduce interest rates. The kiwi, as it's called, fell 1 percent on July 30 after central bank Governor Alan Bollard emphasized an ``easing bias' in monetary policy.
``A number of economic indicators are declining, there are stresses in the financial sector and the RBNZ has clearly turned dovish,'' said Matthew Strauss, a senior currency strategist at RBC Capital Markets Inc. in Toronto, a unit of Canada's biggest bank. ``We are most concerned about the New Zealand dollar,'' among the major currencies.
New Zealand's dollar rose to 73.42 U.S. cents at 8:49 a.m. in Wellington from 73.33 cents late in Asia yesterday and from 74.54 a week ago. Earlier it touched 73.17 cents, near its Sept. 26 low of 73.08 cents. The currency bought 79.12 yen from 79.35 yesterday and 79.88 yen a week ago in New York. The kiwi dropped 1.4 percent against the yen last month.
A benchmark rate of 8 percent, compared with 0.5 percent in Japan and 2 percent in the U.S., has made the New Zealand currency a favorite with investors looking to invest in higher- yielding assets.
Bollard lowered the benchmark rate by a quarter-percentage point from 8.25 percent on July 24, the first reduction in five years. Two days ago, he said the bank had ``adopted an easing bias in our monetary policy'' as a weak economy is ``sufficient'' to slow inflation.
ANZ National Bank Ltd. reported yesterday that business confidence in New Zealand fell for the first time in four months, saying that the economy was ''firmly in contraction mode.'' The nation's economy contracted 0.3 percent in the first quarter. Eight of 13 economists surveyed by Bloomberg News expect it also shrank in the three months ended June 30, putting the nation in its first recession since 1998.
``The survey is very deeply in negative territory and more rate cuts will be required to lift business confidence,'' said Joshua Williamson, a senior strategist at TD Securities Ltd. in Sydney.
Traders are betting the RBNZ will cut its benchmark interest rate by 149 basis points in the next 12 months, up from 143 basis points yesterday, according to a Credit Suisse Group index based on interest-rate swaps.
To contact the reporter on this story: Candice Zachariahs in New York at czachariahs1@bloomberg.net
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Oil Is Steady After Biggest Monthly Decline Since December 2004
By Mark Shenk
Aug. 1 (Bloomberg) -- Crude oil was little changed after falling more than $2 a barrel, capping the biggest one-month decline since December 2004, as a slowing U.S. economy caused fuel consumption to weaken to the lowest in three years.
The economy shrank at the end of 2007 and grew less than forecast in this year's second quarter, curbing fuel demand. Consumption averaged 20.7 million barrels a day in the past 12 months, the lowest for the period since 2004-2005, according to U.S. Energy Department data.
``Expectations about the economy have deteriorated, which is weighing on the oil market,'' said Brad Samples, a commodity analyst for Summit Energy Inc. in Louisville, Kentucky. ``With demand so poor, we have to re-examine price expectations. The market will be guided by the economic outlook here, in Europe and in the emerging markets.''
Crude oil for September delivery fell 2 cents to $124.06 a barrel at 8:29 a.m. Sydney time on the New York Mercantile Exchange. Prices are up 62 percent from a year ago. They dropped 11 percent in July. Yesterday, futures fell $2.69, or 2.1 percent, to settle at $124.08 a barrel.
Oil prices have slipped more than $23 a barrel from the $147.27 record on July 11 on signs of declining demand in the U.S., which consumed about 24 percent of the world's crude in 2007, according to BP Plc.
`Depressed Demand'
``A weak economy and high prices don't usually coincide with demand growth,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``It's becoming clear that demand should be depressed through the end of the year.''
The U.S. economy expanded less than forecast in the second quarter as the drag from housing and rising unemployment blunted the impact of federal tax rebates.
The economy grew at a 1.9 percent annualized rate after expanding 0.9 percent in the first quarter, the Commerce Department said in Washington. The report also showed a recession may have begun in the final three months of 2007, as gross domestic product was revised to show a contraction in the period.
Energy-company profits have climbed with the price of oil. Exxon Mobil Corp., the world's biggest oil company, posted a smaller increase in second-quarter profit than analysts estimated after production slid the most in at least a decade. Record prices allowed Exxon Mobil to achieve the highest profit ever for a U.S. company without one-time gains.
Shell, Eni, Repsol
Royal Dutch Shell Plc, Eni SpA and Repsol YFP SA, posted higher second-quarter earnings, boosted by record oil prices which countered slower production. Shell is Europe's biggest oil company and Eni and Repsol are the biggest Italian and Spanish oil companies respectively.
Gasoline for September delivery fell 0.1 cent to $3.0699 a gallon in New York. Gasoline for August delivery expired at the close of floor trading yesterday after declining 8.71 cents, or 2.8 percent, to settle at $3.048 a gallon. Futures reached a record $3.631 a gallon on July 11.
Pump prices are following changes in futures. Regular gasoline, averaged nationwide, fell 1.7 cents to $3.909 a gallon, AAA, the nation's largest motorist organization, said on its Web site yesterday. Pump prices reached a record $4.114 a gallon on July 17. Diesel prices fell 1.6 cents to $4.698 a gallon, the AAA said. Diesel reached a record $4.845 on July 17.
``We found a slowdown in same-store diesel of 4 to 4.5 percent across the board,'' Marathon Oil Corp. refining chief Gary Heminger said on a conference call yesterday with analysts. One reason is that truckers are driving at lower speeds, ``which has really taken an improvement of about 4 percent in their miles per gallon, which has dropped demand.''
Marathon is the U.S. Midwest's largest refiner.
U.S. automakers have lost money and market share because of higher gasoline prices. General Motors Corp., Ford Motor Co. and Chrysler LLC had their credit ratings lowered one step further into junk status by Standard & Poor's yesterday.
Brent crude oil for September settlement declined $3.12, or 2.5 percent, yesterday to close at $123.98 a barrel on London's ICE Futures Europe exchange.
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.
Read more...
Aug. 1 (Bloomberg) -- Crude oil was little changed after falling more than $2 a barrel, capping the biggest one-month decline since December 2004, as a slowing U.S. economy caused fuel consumption to weaken to the lowest in three years.
The economy shrank at the end of 2007 and grew less than forecast in this year's second quarter, curbing fuel demand. Consumption averaged 20.7 million barrels a day in the past 12 months, the lowest for the period since 2004-2005, according to U.S. Energy Department data.
``Expectations about the economy have deteriorated, which is weighing on the oil market,'' said Brad Samples, a commodity analyst for Summit Energy Inc. in Louisville, Kentucky. ``With demand so poor, we have to re-examine price expectations. The market will be guided by the economic outlook here, in Europe and in the emerging markets.''
Crude oil for September delivery fell 2 cents to $124.06 a barrel at 8:29 a.m. Sydney time on the New York Mercantile Exchange. Prices are up 62 percent from a year ago. They dropped 11 percent in July. Yesterday, futures fell $2.69, or 2.1 percent, to settle at $124.08 a barrel.
Oil prices have slipped more than $23 a barrel from the $147.27 record on July 11 on signs of declining demand in the U.S., which consumed about 24 percent of the world's crude in 2007, according to BP Plc.
`Depressed Demand'
``A weak economy and high prices don't usually coincide with demand growth,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``It's becoming clear that demand should be depressed through the end of the year.''
The U.S. economy expanded less than forecast in the second quarter as the drag from housing and rising unemployment blunted the impact of federal tax rebates.
The economy grew at a 1.9 percent annualized rate after expanding 0.9 percent in the first quarter, the Commerce Department said in Washington. The report also showed a recession may have begun in the final three months of 2007, as gross domestic product was revised to show a contraction in the period.
Energy-company profits have climbed with the price of oil. Exxon Mobil Corp., the world's biggest oil company, posted a smaller increase in second-quarter profit than analysts estimated after production slid the most in at least a decade. Record prices allowed Exxon Mobil to achieve the highest profit ever for a U.S. company without one-time gains.
Shell, Eni, Repsol
Royal Dutch Shell Plc, Eni SpA and Repsol YFP SA, posted higher second-quarter earnings, boosted by record oil prices which countered slower production. Shell is Europe's biggest oil company and Eni and Repsol are the biggest Italian and Spanish oil companies respectively.
Gasoline for September delivery fell 0.1 cent to $3.0699 a gallon in New York. Gasoline for August delivery expired at the close of floor trading yesterday after declining 8.71 cents, or 2.8 percent, to settle at $3.048 a gallon. Futures reached a record $3.631 a gallon on July 11.
Pump prices are following changes in futures. Regular gasoline, averaged nationwide, fell 1.7 cents to $3.909 a gallon, AAA, the nation's largest motorist organization, said on its Web site yesterday. Pump prices reached a record $4.114 a gallon on July 17. Diesel prices fell 1.6 cents to $4.698 a gallon, the AAA said. Diesel reached a record $4.845 on July 17.
``We found a slowdown in same-store diesel of 4 to 4.5 percent across the board,'' Marathon Oil Corp. refining chief Gary Heminger said on a conference call yesterday with analysts. One reason is that truckers are driving at lower speeds, ``which has really taken an improvement of about 4 percent in their miles per gallon, which has dropped demand.''
Marathon is the U.S. Midwest's largest refiner.
U.S. automakers have lost money and market share because of higher gasoline prices. General Motors Corp., Ford Motor Co. and Chrysler LLC had their credit ratings lowered one step further into junk status by Standard & Poor's yesterday.
Brent crude oil for September settlement declined $3.12, or 2.5 percent, yesterday to close at $123.98 a barrel on London's ICE Futures Europe exchange.
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.
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Australian Dollar Heads for 2nd Weekly Decline on Rate Concerns
By Candice Zachariahs
Aug. 1 (Bloomberg) -- The Australian dollar headed for a second-straight weekly decline for the first time this year as traders speculated the Reserve Bank of Australia will cut borrowing costs to boost a slowing economy.
The currency fell in July for the first month since March after a government report showed retail sales dropped the most in six years and the National Australia Bank Ltd. and Australia and New Zealand Bank Ltd. boosted provisions for delinquent loans. RBA Governor Glenn Stevens said last month there is a ``good chance'' the economy will slow enough to curb rising prices.
``The signal from the RBA has been that the rate tightening cycle is over,'' said Sophia Drossos, a New York-based currency strategist at Morgan Stanley, the second-biggest U.S. securities firm. ``The flow of data in Australia reinforces the view that the economy has peaked and is slowing. The potential for rate cuts is what's weighing on the Aussie,'' she said referring to the currency by its nickname.
Australia's dollar fell 0.4 percent to 94 U.S. cents at 9:04 a.m. in Sydney, from 94.39 cents late in Asia yesterday and 95.62 cents in New York a week ago. It traded at 101.38 yen, down 0.8 percent from 102.15 late yesterday. The Australian dollar traded at 103.11 yen a week ago.
The Aussie lost 1.7 percent against the dollar in July.
The local currency fell for a fourth day after the Bureau of Statistics said yesterday retail sales declined 1 percent in June, after rising a revised 0.9 percent in May. Reserve Bank figures yesterday showed that lending to businesses and consumers rose at the slowest pace since 2002.
Borrowing Costs
A benchmark rate of 7.25 percent in Australia, compared with 0.5 percent in Japan and 2 percent in the U.S., has made Australia a favorite with investors looking to invest in higher- yielding assets.
Traders speculated yesterday the RBA will lower borrowing costs by 52 basis points, or 0.52 percentage point, over the next 12 months, according to a Credit Suisse Group index based on interest-rate swaps. The gauge showed July 25 that traders were betting on a 32 basis point reduction.
``The market's view of future interest rates is changing quite dramatically,'' said Matthew Strauss, a senior currency strategist at RBC Capital Markets Inc. in Toronto, a unit of Canada's biggest bank. ``From expectations of tighter monetary policy now to expectations of a cut before year-end.''
A close below 93.36 cents, below would be strong bearish signal for the currency, he said.
ANZ, Australia's third-biggest bank by assets, on July 28 forecast its biggest full-year earnings drop since 1992 and tripled provisions for delinquent loans to about A$1.2 billion from a year earlier. National Australia, the country's biggest bank, last week disclosed A$830 million of provisions for credit market investments, prompting its worst share slump in 21 years.
To contact the reporter on this story: Candice Zachariahs in New York at czachariahs1@bloomberg.net
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Australia Stocks Preview: Mirvac, Sims Group, Sonic, Westfield
By Shani Raja
Aug. 1 (Bloomberg) -- The following is a list of companies whose shares may rise or fall in Australia. This preview includes news announced after markets closed yesterday. Prices are from yesterday's close unless otherwise stated.
The S&P/ASX 200 Index futures contract due in September fell 1 percent to 4,930 at 6:59 a.m. in Sydney. The Bank of New York Australia ADR Index declined 1.1 percent in New York.
The S&P/ASX 200 Index rose for a second day, gaining 40.7 points, or 0.8 percent, to 4,977.40.
Mining shares: A measure of six metals traded on the London Metal Exchange advanced 0.3 percent. Zinc rose 1.7 percent and copper 0.3 percent.
American depositary receipts of BHP Billiton Ltd. (BHP AU), the world's largest mining company, fell 1.6 percent to the equivalent of A$39.66 a share in New York, 5 cents lower than the A$39.71 close in Sydney.
Rio Tinto Group (RIO AU), the world's third-largest mining company, jumped A$3.90, or 3.2 percent, to A$125.40.
Oil companies: Crude oil fell more than $2 a barrel, capping the biggest one-month decline since December 2004, as a slowing U.S. economy caused fuel consumption to weaken to the lowest in three years. Crude for September delivery fell $2.69, or 2.1 percent, to settle at $124.08 a barrel at 2:54 p.m. on the New York Mercantile Exchange.
Woodside Petroleum Ltd. (WPL AU), Australia's second-largest oil and gas producer, rose A$2.03, or 3.9 percent, to A$53.80.
U.S.-linked companies: U.S. stocks fell, capping a second monthly drop for the Standard & Poor's 500 Index, after economic growth trailed forecasts, jobless claims rose to a five-year high and Exxon Mobil Corp.'s profit missed analysts' estimates. The S&P 500 slid 16.88 points, or 1.3 percent, to 1,267.38, leaving the benchmark index down 1 percent in July.
Separately, former Federal Reserve Chairman Alan Greenspan said falling U.S. home prices are ``nowhere near the bottom'' and the resulting market turmoil isn't showing signs of abating.
James Hardie Industries NV (JHX AU), the biggest seller of home siding in the U.S., advanced 11 cents, or 2.4 percent, to A$4.65. Westfield Group (WDC AU), which owns 59 shopping malls in the U.S., lost 36 cents, or 2.2 percent, to A$16.18.
Allco Finance Group Ltd. (AFG AU): The Sydney-based manager of ships, aircraft and wind farms said yesterday that it has cut senior debt by about a third since April and its bankers agreed to a new debt facility. Allco added 4 cents, or 9.4 percent, to 46.5 cents.
Mirvac Group (MGR AU): The Australian real estate investment trust has stopped redemptions and halted new applications for three mortgage funds holding more than A$240 million ($226 million), the Australian Financial Review reported. An examination found A$39 million of loans were impaired, the newspaper said, citing Mirvac's incoming managing director Nick Collishaw. Mirvac was unchanged at A$2.55.
Sims Group Ltd. (SGM AU): The company was rated new ``buy'' in new coverage by analyst Mark Busuttil at UBS AG. The 12-month price target is A$37.50 per share. Sims jumped 40 cents, or 1.2 percent, to A$33.20.
Sonic Healthcare Ltd. (SHL AU): Australia's biggest provider of medical diagnostics arranged a A$160 million ($151 million), three-year debt program to help it buy more pathology laboratories in Europe and the U.S. Sonic advanced 40 cents, or 3 percent, to A$13.88.
To contact the reporter on this story: Shani Raja in Sydney at sraja4@bloomberg.net.
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Greenback Little Changed Despite Weak Data
| Daily Forex Fundamentals | Written by CMS Forex | Jul 31 08 22:24 GMT | | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| The dollar was little changed after an initial drop as reports showed the US economy grew less than forecast in Q2 and initial jobless claims rose last week to a 5-year high. The yen and Swiss franc were modestly higher as US stocks fell. The USD/CAD was little changed, unable to penetrate the 1.03 resistance for a third day. The GBP/USD rose modestly. The AUD/USD fell after Australian retail sales fell the most in six years. The EUR/USD initially gained on weaker-than-expected US data. However, the pair later pared gains as oil prices fell and the Chicago PMI rose above the 50-line. The pair is testing the 1.56 resistance ahead of Friday's US employment report.
Financial and Economic News and CommentsUS & Canada The US gross domestic product rose at a slower-than-expected 1.9% q/q annual rate in Q2 2008, the Commerce Department said in its first estimate of Q2 GDP. The strongest component of real GDP was net exports, which added 2.4 points to the real GDP growth rate, the most in any quarter since 1980. Businesses drew down inventories sharply; inventories subtracted 1.9 points from growth, the second largest decline in history. The decline in inventories may suggest smaller cuts in production down the road. Private consumption rose 1.5% q/q at an annual rate after increasing 0.9%. Consumer spending contributed 1.08 percentage points to GDP after contributing 0.61 percentage points. Real GDP rose 1.8% y/y. GDP growth in Q1 was revised down to a 0.9% rate of increase, compared to a previously reported 1.0% rate of increase. The GDP price index rose at a 1.1% q/q at an annual rate in Q2, up 2.0% y/y. The key price index for personal consumption expenditures rose 4.2% in Q2 after increasing 3.6% in Q1. The PCE price gauge excluding food and energy grew 2.1% after increasing 2.3%. US jobless initial claims jumped 44,000 in the week ended July 26 to 448,000 to a 5-year high, the Labor Department said. The data are typically volatile at this time of the year due to auto plant re-tooling and the Labor Department said many extra workers re-applied for benefits due to the recently enacted extension of jobless benefits, so the data are not directly comparable to previous periods. Still, the trend is moving higher, indicating a weakening labor market. Continuing claims rose 185,000 to 3,282,000, the highest level since December 2003. Chicago PMI rose to a slightly less-than-expected 50.8 in July from 49.6 in June, showing an expansion of manufacturing activity in that key region, to the highest level in six months. Europe Eurozone inflation rate rose to 4.1% y/y in July, the highest since April 1992, from 4.0% y/y in June, the Eurostat said. GfK confidence index fell 5 points to -39, the lowest since the data began in 1974, GfK NOP Ltd. said. The average price of a UK home fell 8.1% y/y, the biggest decline since at least 1991, Nationwide Building Society said. Asia-Pacific The Australian trade balance unexpectedly turned to a surplus in June after coal and meat exports jumped. The surplus was A$411 million ($387 million) in June, compared with a revised deficit of A$253 million in May. Australia's retail sales fell 1.0% m/m in June, the most in six years, after increasing 0.9% m/m in May, the Australian Bureau of Statistics said. FX Strategy Update
Hans Nilsson ©C2004-2005 Globicus International, Inc. and Capital Market Services, L.L.C. Any information in this report is based on data obtained from sources considered to be reliable, but no representations or guarantees are made by Capital Market Services, L.L.C. with regard to the accuracy of the data. The opinions and estimates contained herein constitute our best judgment at this date and time, and are subject to change without notice. Capital Market Services, L.L.C. accepts no responsibility or liability whatsoever for any expense, loss or damages arising out of, or in any way connected with, the use of all or any part of this report. No part of this report may be reproduced or distributed in any manner without the permission of Capital Market Services, L.L.C. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Economic Calendar Eco Data 8/1/08
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New York Session Recap
| Daily Forex Fundamentals | Written by Forex.com | Jul 31 08 20:52 GMT | | |
| Despite weaker than expected economic data and a stock market rout the buck held in pretty well against the majors in the NY session. The advance read of US 2Q GDP came in below market expectations at 1.9% from 0.9% in 1Q. The weakness in the automotive sector contributed heavily to the disappointment and excluding autos GDP would have been a very healthy 3.1% for the quarter. Initial jobless claims were a worse than anticipated 448K after a 404K print the prior week and this took the 4-week moving average to 393K from 382K. Statistical quirks seem to be at play here as the first two weeks of the month were relatively low and the last two were on the high side. The government seems to have had trouble adjusting the data to the timing of the typical summer automotive layoffs. Euro shot up against the buck on the weaker news, getting as high as 1.5700 in NY trading after opening around the 1.5610 mark. Better than expected Chicago PMI -- which rose to 50.8 in July from a prior 49.6 -- helped pare gains subsequently. EUR/USD would close near the 1.5600 level. USD/JPY saw a similar knee-jerk reaction to the weak data reports, falling as low as 107.57 after opening the session around the 108.25 mark. The pair would come back some and held in relatively well considering the sharp decline in US stocks towards the latter half session. USD/JPY was sitting near 107.90 as the session came to a close. The buck was bid against its Canadian counterpart as a weaker than expected monthly GDP out of Canada and lower oil prices weighed on the currency. Canada May GDP came in at a paltry -0.1% after a 0.4% expansion in April. Meanwhile, oil fell about $2 in the span to a close just above $124/bbl. This helped boost USD/CAD from an open near 1.0225 to a close around 1.0240. Upcoming Economic Data Releases (Asia Session) Prior Estimate
Forex.com DISCLAIMER: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase of sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions. | |
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British Pound Crosses in Well Defined Uptrends
| Daily Forex Technicals | Written by DailyFX | Jul 31 08 21:12 GMT | | |
GBPCHFExpect a break through 2.0963, possibly as early as next week. The rally from 1.9421 to 2.0963 is in 3 waves and is wave A of what is probably a flat. Wave B most likely ended at 2.0012 and wave C is underway now. Wave C would sport equality with A at 2.1554. The 200 day may serve as resistance as well at 2.1286.
GBPCAD5 waves up from 1.9288 confirms the long term bullish bias. The decline from 2.0409 did reach the midpoint of the triangle and the GBPCAD has reached and slightly exceeded the wave 5 high. Unless an expanded flat is underway, the GBPCAD will accelerate higher in wave 3 over the next few weeks. Look for potential support near 2.02. A bullish bias is warranted against 1.9999.
GBPAUDWe wrote last update that "the GBPAUD has accelerated and price should continue higher in this 3rd wave (or C wave) from 2.0393. A break above 2.0933 is what we expect at minimum." The pair has exceeded 2.0933 and the initial objective is 2.1426 (161.8% extension of 2.0295-2.0932/2.0393. A correction to at least 2.0923 is likely near term but price should remain above 2.0633.
GBPNZDLast week, we mentioned that "price should remain above 2.5863 as the rally continues from current levels." The advance is nearing a the top side of a potential channel. Any near term decline should find support at 2.6653 or channel support. The long term trend is up so look to buy dips near these mentioned levels, against 2.5855.
TREND ANALYSIS is based on a rolling pivot model. LONG TERM TREND is determined by the last 3 months of price data (high, low, close). SHORT TERM TREND is determined by the last 4 weeks of price data (high, low, close). R3, R2, R1, PL, PH, S1, S2, and S3 are provided to aid in identifying entries and exits. These are objective measures and our subjective analysis (STRATEGY) may differ.
Disclaimer Investment in the currency exchange is highly speculative and should only be done with risk capital. Prices rise and fall and past performance is no assurance of future performance. This website is an information site only. Accordingly we make no warranties or guarantees in respect of the content. The publications herein do not take into account the investment objectives, financial situation or particular needs of any particular person. Investors should obtain individual financial advice based on their own particular circumstances before making an investment decision on the basis of the recommendations in this website. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. All intellectual property rights are the property of Daily FX. Daily FX and its affiliates, will not be held responsible for the reliability or accuracy of the information available on this site. The content herein is provided in good faith and believed to be accurate, however, there are no explicit or implicit warranties of accuracy or timeliness made by Daily FX or its affiliates. The reader agrees not to hold Daily FX or any of its affiliates liable for decisions that are based on information from this website. Daily FX highly recommends that before making a decision, the reader collects several opinions related to the decision and verifies facts from at least several independent sources. | |
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DailyFX Analysts Mixed The Canadian Dollar, Eying Greenback Volatility
| Daily Forex Technicals | Written by DailyFX | Jul 31 08 18:27 GMT | | |
| The expected carry through in US dollar volatility following today's GDP release and before tomorrow's NFPs is leading some DailyFX Analysts to the breakout potoential in USDCAD. Check out the Analysts picks below: Quantitative Currency Strategist - Antonio SousaMy picks: Long USD/CAD Over the past two weeks the U.S. dollar has been rallying against the Canadian dollar on speculation the U.S. economy will be able to escape what once seemed inevitable, a technical recession. Indeed, I expect the U.S. dollar to gain more strength ahead of tomorrow’s release of Non-farm payrolls and I expect the U.S. Federal Reserve to be much more aggressive than the Banc of Canada in the second half of 2008. According to overnight index swaps, which measure interest rate expectations for the next twelve months, traders expect the Fed to be more hawkish than the BoC. While the BoC is expected to keep rates unchanged, the Fed is expected to increase rates by 78 bps over the next 12 months. My recommendation is to buy USD/CAD at the market with a stop in a daily close below parity for a 300 pips profit potential. Technical Currency Analyst - Jaime SaettleMy picks: Stay Long USDCAD I am staying long the USDCAD in anticipation of the break above 1.0378 and expected test of 1.05 and possibly 1.08. Near term support is at 1.0174. I have thought about adding to this trade through other CAD crosses (long GBPCAD, EURCAD for example) but a longer term USD rally is probably underway although a short term corrective USD decline is underway now. Currency Analyst - John KicklighterMy picks: Watching for a potential EURCAD breakout The Canadian economy has faltered once again. The country's May GDP reading unexpectedly slipped 0.2 percent - leading traders to cut back on speculation that a rate hike from the Bank of Canada is imminent. In fact, the outlook for the benchmark lending has actually dipped into negative territory (denoting a net outlook for a potential cut over the coming year). In comparision, the projections for the ECB are very similar - with a slight skew in interest rates suggesting a possible easing over the period. However, looking at the bigger picture, inflation is still far greater an issue in Europe, growth has yet to bauble like it has in Canada and the ECB has set no precedence for easing (where as Canadian policy makers have just recently come off of considerable rate cuts). Technically, EURCAD is in an ascending wedge that goes back to November. As of today, that formation is offering the market less than 200 points to trade in and that range is closing fast. Considering the dominate trend, the prominence of the rising trendline, 50-day and 100-day SMA as well as the 50% fib of the March 31st to May 29th swing low all around 1.5800/50; the probabilities are leaning towards an upside breakout. I will wait until spot clears 1.6125/50 with a close on the higher time frame (or perhaps even a market entry on a push through 1.6300). My stop will be wide to allow for a pull back before continuation. If momentum does not develop however (as this pair is already near record highs), I will step back and reaccess the trade. Currency Analyst - Terri BelkasMy picks: Long USD/JPY While this morning's economic data (disappointing US Q2 GDP) will certainly not be a positive point for the US dollar and US equities, I think it may be creating a good buying opportunity for USD/JPY. I suspect the pair will drop a bit lower, with near-term support sitting at a rising trendline at 107.50 but more substantial support at the 38.2% fib of 103.76 - 108.26 at 106.60. The obvious risk here is 1) the lasting reaction of the USD throughout the day to this morning's data and 2) Friday's US non-farm payrolls. As a result, I think the best way to play this is to allow price to come to us and go forward from there. Currency Analyst - David RodriguezMy picks: Take profit on CAD/JPY short My CADJPY short from last week has hit my first profit target and is well on its way to hitting its full profit target, but the pair's inability to break below important support suggests that we should tighten risk on the position. The pair has now stalled several times at the 61.8 percent Fibonacci retracement of 103.60-107.20, and as such, I'd like to move max risk on this position to just above intraday resistance at 106.00. In terms of a new trade, breakout traders may prefer to short a break of noteworthy support at the 104.85 mark, but it will be difficult to achieve attractive risk:reward levels on such a trade. Currency Analyst - Ilya SpivakMy picks: Short AUDCAD Yesterday saw AUDCAD break below a trend line that has supported price action since late December of last year. The decline found an interim bottom at 0.9631, the 38.2% Fibonacci retracemenf of the 05/14-06/09 rally. Fresh fundamental data reveals the Australian economy in a dire state. Consumer demand fell sharply in June, with Retail Sales printing at a six-year low of -1.0%. If the recent collapse in crude prices continues, this may give RBA Governor Glenn Stevens room for a rate cut to support the economy at the next policy meeting in September. With the BOC still firmly on hold, this would begin to tilt interest rate expectations in favor of the Canadian dollar, supporting a trend change. Strategy: Short AUDCAD on a pull-up to 0.9708, the 23.6% Fib level. Initial target at 0.9501, the 61.8% Fib. Stop loss at 0.9809. Currency Analyst - John RiveraMy picks: Long EURUSD I am bearish on the Loonie after the negative growth reading in May and the EURCAD pair looks like the best play as it has broke above 1.600 and may look to restest the March high of 1.6326 . with 1.6700 as the next level of resistance. Target 1.6350 Disclaimer Investment in the currency exchange is highly speculative and should only be done with risk capital. Prices rise and fall and past performance is no assurance of future performance. This website is an information site only. Accordingly we make no warranties or guarantees in respect of the content. The publications herein do not take into account the investment objectives, financial situation or particular needs of any particular person. Investors should obtain individual financial advice based on their own particular circumstances before making an investment decision on the basis of the recommendations in this website. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. All intellectual property rights are the property of Daily FX. Daily FX and its affiliates, will not be held responsible for the reliability or accuracy of the information available on this site. The content herein is provided in good faith and believed to be accurate, however, there are no explicit or implicit warranties of accuracy or timeliness made by Daily FX or its affiliates. The reader agrees not to hold Daily FX or any of its affiliates liable for decisions that are based on information from this website. Daily FX highly recommends that before making a decision, the reader collects several opinions related to the decision and verifies facts from at least several independent sources. | |
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Thursday's News Recap: U.S., Canadian GDP Data Soft, U.S. Jobless Claims Spike
| News Recap | Written by CEP News | Jul 31 08 20:49 GMT | | |
| (CEP News) - Concerns about the U.S. economy bubbled back up to the surface on Thursday with the release of softer-than-expected second-quarter U.S. GDP data, while a spike in weekly jobless claims was largely attributed to legislative changes. In Canada, GDP data surprised to the downside, showing a contraction in May. The advance U.S. GDP report came in lower than expected for the second quarter, rising by 1.9% against expectations of 2.3% growth, the Bureau of Economic Analysis reported Thursday. Revisions showed the U.S. economy shrank 0.2% in the fourth quarter of 2007. The negative figure is the first decline in quarterly growth since the third quarter of 2001. Revisions also showed the first quarter grew at 0.9%, down one-tenth from a previously reported 1.0% growth. "Despite the weaker than expected print on U.S. GDP in Q2, the report is unlikely to sway the Fed's interest rate decision next week in either direction, since output growth in 2008 is likely to remain in line with the Fed's central tendency of 1% to 1.6%," said Millan Mulraine, economics strategist from TD Securities. "U.S. consumers continue to be buffeted by the headwinds of a deteriorating labour market, high energy prices, wealth reduction from the prolonged correction in the housing market and tighter credit conditions." Canadian GDP for May was also released and showed a dip of 0.1% from the previous month against expectations for a second consecutive monthly increase. Statistics Canada cited a "significant decrease" in the energy sector in May, including a 1.2% decline in mining and oil and gas extraction, as contributing to the decline. It is "difficult to find a silver lining in this report if indeed one exists at all," said HSBC Canada market strategist Stewart Hall. "Rather the effect of the report is to sap what optimism may have been fostered by the data stream that had flowed out of the month of May." U.S. initial jobless claims for the week ending July 26 shot up to 448k, above expectations for a 393k reading and higher than the previous week's revised 404k figure. Continuing claims for the week ending July 19 rose to 3.22 million from the previous week's downwardly revised 3.097 million. "This massive 44K rise was probably due in large part to the Labour Department in the U.S. changing the rules to make filing for unemployment easier," noted Charmaine Buskas, senior economics strategist from TD Securities. As part of the changes, which came into effect on June 30, the government also extended benefits for up to 13 weeks. In an interview on CNBC, Former Federal Chairman Alan Greenspan warned that if the Federal Reserve is given a role to oversee the financial system it could undermine its credibility. Greenspan said the U.S. is facing a "once in a century crisis," and warned that the U.S. is teetering on the brink of recession. When asked about the GSE bailout, Greenspan said Treasury Secretary Henry Paulson had no choice but to support Fannie and Freddie, but warned against the Federal Reserve becoming involved in fiscal policy. Speaking before the Exchequer Club of Washington, U.S. Treasury Secretary Paulson said the stimulus package has supported the economy in the last year. Paulson said market turmoil and energy prices have dragged on the economy, while the labour market has softened. He added that the key to stabilizing housing and the financial markets is to work through unsold homes. Paulson noted that existing home inventories are expected to remain elevated for some time. The ISM-Chicago business barometer bounced into growth mode in July following five months of slowdown. The growth was led by advances in production and new orders, even as prices hit a 28-year high and employment remained in contraction for the eighth straight month. The headline index grew at 50.8 in July, the first spurt of growth since January, following a 49.6 reading in June. Economists were expecting modest contraction at 49.0. The manufacturing sector in Kansas City bounced back in July, while the prices paid index remained at historically high levels, according to the Federal Reserve Bank of Kansas City's manufacturing activity index. The production index jumped to 7 in July, a large increase from the previous year's reading of -10. According to the U.S. Institute for Supply Management (ISM), the Milwaukee manufacturing index rebounded to 44 in July, compared to June's reading of 39. The manufacturing index came in slightly above the consensus figure of 43.5. The prices paid index decreased slightly to 74 from the previous month's level of 75. Business activity in New York City dropped in July, according to the National Association of Purchasing Management-New York. The current business conditions index slid to 38.5 in July, the sixth month this year that the index has fallen. Inflation pressures are more pronounced as the prices paid index hit a 10-month high of 75, while purchasing volumes weakened as the quantity of purchases index dropped to 44.8 in July. Underground natural gas storage in the United States increased 65 billion cubic feet in the week ending July 25, the Energy Information Administration (EIA) said Thursday. The weekly increase was slightly below the +70 Bcf Bloomberg estimate. In the previous week, the EIA reported a supply increase of 84 Bcf. Speaking in an interview on CNBC, White House officials remained upbeat on the economic outlook for the United States and Thursday morning's advance U.S. GDP report. "We're quite happy with the number," said Edward Lazear, chairman of the Council of Economic Advisers. Americans have not spent all of their stimulus cheques, which should continue to support growth down the road, he added. Lazear went on to point out that strong productivity growth in the United States was responsible for keeping the U.S. economy competitive and exports high. Consequently, the export economy should not be neglected, he said. The U.S. Bureau of Transportation Statistics reported today that Canadian surface exports to the U.S. were 3.3% lower in May than in April, while imports climbed 4.7%. It is the first time since imports have contracted since December 2007, suggesting a contracting Canadian trade surplus. Total Canada-U.S. surface trade was reported at US$48.939 billion, up 0.2% in May and 10.5% year-over-year. Canada Mortgage and Housing Corporation announced Thursday that it is expanding its Canada Mortgage Bonds (CMB) program to include a CMB with a 10-year maturity. In a statement issued late Thursday afternoon, CMHC said the introduction of a 10-year CMB will allow the program to attract a broader pool of investors. Meanwhile, a global cost of living survey from Mercer ranked Toronto as the 54th most expensive place to live, the costliest of all Canadian cities. Vancouver moved up into the 64th spot from 89, Calgary moved to 66 from 92 and Montreal jumped to the 72nd spot from 98th last year. Moscow ranked as the most expensive city for expatriates for the second consecutive year. Key overnight releases included record high euro zone inflation along with weaker-than-expected consumer confidence in the UK. According to Eurostat preliminary estimates, euro zone inflation reached a record high of 4.1% as expected in July. The previous record of 4.0% had been set in June. Eurostat also reported that the unemployment rate in the euro zone remained stable at 7.3% in June, unchanged from May's revised reading. Economists had expected no change to May's pre-revised 7.2% rate. The GfK Group released UK consumer sentiment in July and reported that its consumer confidence indicator fell to -39 for the month. Economists had expected a decline to only -37 after the indicator had slipped to -34 in June. By Stephen Huebl, shuebl@economicnews.ca, with contributions from Patrick McGee, pmcgee@economicnews.ca, Steve Stecyk, sstecyk@economicnews.ca, Geoff Matthews, gmatthews@economicnews.ca , Adam Button, abutton@economicnews.ca, Erik Kevin Franco, efranco@economicnews.ca and Todd Wailoo, twailoo@economicnews.ca, edited by Sarah Sussman, ssussman@economicnews.ca 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. A copy of CEP News disclaimer can be found at http://www.economicnews.ca/cepnews/wire/disclaimer. | |
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Closing Market Recap: Equity Markets Sag and Treasury Yields Fall
| Market Updates | Written by CEP News | Jul 31 08 21:52 GMT | | |
| (CEP News) - Growth figures in the United States and Canada were weaker than expected, U.S. jobless claims shot higher, inflationary concerns reemerged and the former head of the Federal Reserve cast doubt on the financial system. The avalanche of worrisome data sparked large declines in equities and bond yields. "We've had a few days of quiet, then all of the sudden, we get economic data on both sides of the border telling us the same story," said Levente Mady, bond strategist at MF Global Canada. "We've had a number of people saying Canada is going to be more isolated from the U.S. but that doesn't look like the case." Yields on U.S. 10-year Treasury notes were down 9.8 bps to 3.95% and down 11.9 bps to 3.70% on 10-year Canadian Government Bonds. The Dow Jones industrial average fell 206 points to 11378 and the S&P TSX Composite Index closed down 90 points to 13593. Traders were pointing to a number of reasons for the drop in stocks and yields: 1- The advance U.S. GDP report came in lower than expected in the second quarter of 2008, rising by 1.9% against expectations of 2.3% growth, according to the Bureau of Economic Analysis. At the same time, the fourth quarter of last year was revised to -0.2% from +0.6%. 2- Canada's GDP fell 0.1% in May. Economists had been looking for a 0.2% increase following the previous month's +0.4% reading. 3- Initial claims for unemployment benefits in the United States climbed to 448,000 in the week ending July 26 - the highest since April 2003. 4- Though the Chicago Purchasing Managers' Index bounced into growth mode in July following five months of slowdown, it was largely due to an inventory build. The employment component declined. 5- Former Federal Chairman Alan Greenspan warned against the Federal Reserve becoming involved in overseeing the financial system and called Fannie Mae and Freddie Mac "a major accident waiting to happen." 6- U.S. Treasury Secretary Henry Paulson said the "housing correction, credit market turmoil, and high energy prices remain a considerable drag on the economy - and the effects of this drag can be seen in the soft job market." 7- End of the month index-extension buying in Treasuries and asset-mix reallocation. Yields on two-year Canadian government bonds were down 12.2 bps to 2.95%, with five-year yields down 13.6 bps to 3.24%, 10-year yields down 11.9 bps to 3.70% and 30-year yields down 7.3 bps to 4.10%. The December 08 BAX contract was up 10.0 ticks to 97.00. The Canadian 10-year note was yielding 24.42 bps less than the U.S. 10-year note. In Germany, returns on two-year German bonds were down 5.5 bps to 4.26%, with five-year yields down 7.6 bps to 4.27%, 10-year yields down 6.0 bps to 4.36% and 30-year yields down 4.6 bps to 4.65%. Yields on UK two-year bonds were down 2.6 bps to 4.80%, with five-year yields down 3.0 bps to 4.78%, 10-year yields down 4.1 bps to 4.81% and 30-year yields down 0.6 bps to 4.52%. Toronto's S&P/TSX composite index closed down 90 points to 13593, the Dow Jones industrial average was down 206 points to 11378, the S&P 500 finished the day down 17 points to 1267 and the Nasdaq closed down 4 points to 2326. European stock markets closed in mixed territory with the Eurostoxx down 1 point to 2881, the UK FTSE 100 down 9 points to 5412 and the German DAX up 19 points to 6480. The Canadian dollar was up 0.0012 to 0.9770 against the U.S. dollar (1.0235 USD/CAD) and up 0.06 to 105.37 against the yen. The U.S. dollar was down 0.06 to 107.86 against the yen and the Dollar Index was down 0.127 to 73.195. The euro was down 0.0002 to 1.5602 against the U.S. dollar, down 0.0021 to 1.5968 against the Canadian dollar, unchanged 0.7864 against the pound sterling and was lower by 0.12 to 168.26 against the yen. The pound sterling was down 0.0004 to 1.9838 against the U.S. dollar and down 0.0029 to 2.0303 against the Canadian dollar. WTI crude oil was down $2.69 to $124.08. The front month gold contract at the Chicago Board of Trade was up $10.20 to $922.40 per ounce. The day ahead features the U.S. report on nonfarm payrolls. The consensus estimate is for a decline of 75k jobs and for the unemployment rate to move up one tick to 5.6%. "The USD is equally sensitive to a higher or lower NFP tomorrow," said Dustin Reid, currency analyst from ABN Amro. "I think a worse than expected NFP print tomorrow will send USD materially lower. That said, the whisper numbers are indeed already lower for NFP tomorrow so an upside surprise will be taken positively - although likely only for a short time," he said. "I think there is still some skepticism in the quality of the NFP data and a stronger than expected print might not prove convincing given the claims numbers now moving well above 400k, which, typically, have been associated with periods of economic stagnation." All data taken at 5:30 a.m. EDT. By Adam Button, abutton@economicnews.ca, edited by Stephen Huebl, shuebl@economicnews.ca 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. A copy of CEP News disclaimer can be found at http://www.economicnews.ca/cepnews/wire/disclaimer. | |
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