US Dollar: The Good News And The Bad New

Daily Forex Fundamentals | Written by Global Forex Trading | Aug 21 08 01:36 GMT |

Today's Biggest Percentage Movers

* USD/CHF ( +85 pips or 0.80%)
* CHF/JPY ( -60 pips or 0.60%)
* NZD/USD ( +83 pips or 0.48%)

The Stories in the Currency Market

US Dollar: The Good News and the Bad News

The last 2 weeks of August is always a painstakingly quiet time in the currency market. European traders are off on their month long holidays while US traders are more worried about taking their kids to college and planning for the Labor Day holiday than taking on risk. The consolidation that we have seen in the currency market over the past few trading days is evidence of the declining volume in the marketplace. After selling off yesterday, the greenback has recovered against all of the major currencies. Stocks have been unusually volatile as oil prices oscillate between positive and negative territory. The biggest story in the markets this week is the problems in the financial sector. Fannie Mae and Freddie Mac shares continue to get pummeled as the market continues to discount the possibility of a government bailout which would be good for economy and eventually the US dollar but not so good for Fannie and Freddie shareholders. Yesterday, Freddie issued 5 year notes at 113bp over Treasuries, which is a higher premium than their cost of borrowing after the Bear Stearns debacle in March. This indicates that credit concerns are still running high across the financial markets. However there is hope. The US government is not going to just let Fannie and Freddie die. Recent comments from the Treasury and the Federal Reserve indicate that they are keeping a close eye on the 2 big mortgage giants. The FDIC has also announced a rescue plan for IndyMac mortgages which will certainly help thousands of homeowners. Also, there is talk that China is considering a fiscal stimulus package. As the primary engine for growth over the past few years, this would be huge for the financial markets. One of the greatest fears has been a post Olympic slowdown, but a fiscal stimulus could keep the Chinese economy and by extension, the global economy going. We are also closely watching the retail sector. Earnings have been tepid suggesting weak retail sales this month, but retailers are pulling out all the stops with General Motors extending warranty and relaunching their previously successful employees discount program while eBay is making changes to their fee structure to boost fixed price sales. The dollar could extend its gains tomorrow with the Philadelphia Fed index and leading indicators due for release.

Data Call on the Philadelphia Fed index and the Leading Indicators Report (14:00 GMT): Dollar Bullish

British Pound: Could be in for More Losse

The British pound could be in for more losses ahead of Thursday's retail sales report. The market remains extremely bearish pounds after the dovish Bank of England minutes and the sharp drop in the CBI Industrial Trends survey. Although the votes remained the same from the last meeting with 7 members favoring no change to interest rates, 1 member voting in favor of a rate hike and 1 member in favor of a rate cut, BoE Governor King's prediction that inflation will slow to below the central bank's 2 percent target in 2 years is a lean towards dovishness. The UK economy is deteriorating and there is no doubt that it has also hit the consumer sector.

Data Call on the UK retail sales number (8:30 GMT): British Pound Bearish

Euro Heads Back Towards 6 Month Lows

The Euro headed back towards its 6 month lows on broad dollar strength, bearish comments from the German government who said that the outlook for the economy has worsened and the prospect of weak Eurozone economic data. The purchasing managers' index for Germany and the Eurozone as a whole are due for release Thursday morning and given the drop in exports and factory orders, there is a greater chance that the manufacturing and service sector PMI numbers will surprise to downside than the upside. The Eurozone economy is in a downward spiral with the market now pricing in 1 to 2 quarter point rate cuts over the next 12 months.

Data Call on the Eurozone PMI Report (8:00 GMT): Euro Bearish

Strong Data Fails to Help the Commodity Currencies

There has been no big action in the Canadian, Australian and New Zealand dollars despite stronger economic data. Canadian retail sales excluding autos doubled expectations thanks to stronger spending on clothing and gasoline purchases. However the rally in the Canadian dollar did not last because on a volume basis, spending has declined. This indicates that the economy is slowing but not at a severely rapid pace. Consumer prices are due for release tomorrow. The data is difficult to call because despite the drop in the price component of IVEY PMI, industrial product and raw material prices increased. Technically, USD/CAD is prime for a turn. Keep an eye on that 1.0542 level. Meanwhile Australia reported stronger leading indicators, which has helped to keep the currency above water. The New Zealand dollar on the other hand is continuing to struggle - credit card spending is due for release this evening.

USD/JPY Advances, Japanese Yen Crosses Mixed

The Japanese Yen crosses were mixed with USD/JPY rising but pairs like CHF/JPY and GBP/JPY slipping. Despite the 68 point rise in the Dow, carry trades are still struggling. The Merchandise trade balance is due for release this evening. The market is expecting stronger numbers.

GBP/USD: Currency Pair in Play Over the Next 24 Hours

The marquee tomorrow is the UK retail sales report (8:30 AM GMT)

The currency pair that I am watching the most closely over the next 24 hours is the GBP/USD. It is trading within the Sell Zone, which is established using Bollinger Bands. The key levels to watch are 1.85 and 1.8830. A close above 1.8830 would negate the current downtrend. Since we expect weak UK numbers and strong US numbers, the 1.85 level could be challenged.





Kathy Lien
Global Forex Trading
http://www.gftforex.com

DISCLAIMER: This forum and the information provided here should not be relied on as a substitute for extensive independent research before making your investment decisions. Global Forex Trading is merely providing this column for your general information. The views of the author are not necessarily those of Global Forex Trading, its owners, officers, agents or employees. In addition, any projections or views of the market provided by the author may not prove to be accurate. Global Forex Trading and Cornelius Luca will not be responsible for any losses incurred on investments made by readers and clients as a result of any information contained in this column. Global Forex Trading and Cornelius Luca do not render investment, legal, accounting, tax, or other professional advice. If investment, legal, tax, or other expert assistance is required, the services of a competent professional should be sought.





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Trade Desk Thoughts - Japanese Trade Balance

Daily Forex Fundamentals | Written by TheLFB-Forex.com | Aug 21 08 01:11 GMT |

Actual 0.17T, Expected 0.35T, Previous 0.14T

Release Explanation: This report measures the difference between the total value of exports and the total value of imports. A positive figure indicates a trade surplus while a negative value represents a trade deficit. Because Japan's economy is highly export-led, trade data can give critical insight into developments in Japan's economy and changes into foreign exchange rates.

Trade Desk Thoughts: Shipments from Japan rebounded in July. Exports to China picked up as demand from the U.S. waned. This is the first time that China has surpassed the United States. Even so, the Bank of Japan has gone on record to say that they feel that growth has become 'sluggish' for the first time in more than a decade while citing the cause as weakening export demand and higher commodity costs. Imports into Japan rose 18.2 percent, the fastest pace in two years.

Forex Technical Reaction: As of right now, the Japanese yen is seeing signs of strength as it runs into the support of the S1 area at 109.50.

Written by TheLFB Trade Team, © 2007-2008 LFB Services, LLC. All rights reserved. http://www.TheLFB-Forex.com

TheLFB Risk Disclaimer can be found at http://www.thelfb-forex.com/content.aspx?id=174.

The Copying, Broadcast, Republication or Redistribution of TheLFB Content is Expressly Prohibited Without the Prior Written Consent of LFB Services, LLC.



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Asian Stocks Drop on Earnings, Credit-Loss Concerns; Banks Fall

By Chen Shiyin and Patrick Rial

Aug. 21 (Bloomberg) -- Asian stocks fell, led by financial companies, after Babcock & Brown Ltd. posted its first profit decline and amid speculation credit-market losses will widen.

Babcock & Brown, the region's worst-performing stock this year, plunged 22 percent in Sydney after a slump in its listed funds dragged its first-half profit lower. Sumitomo Mitsui Financial Group Inc., Japan's No. 2 bank by market value, slipped 1.5 percent after HSBC Holdings PLC downgraded the stock. Santos Ltd., Australia's third-biggest oil and gas producer, jumped 6.3 percent after it posted a 59 percent gain in first-half profit and as crude oil prices rose for a third day.

``Investors can't shake the concern that profits are going to be dragged lower due to the external economic picture,'' Juichi Wako, a strategist at Nomura Holdings Inc, said in an interview with Bloomberg Television. ``Oil producers and trading companies look like some of the better bets to be in at the moment.''

The MSCI Asia Pacific Index lost 0.5 percent to 122.83 as of 10:01 a.m. in Tokyo, with more than three shares retreating for each that advanced. Financial companies were the biggest drag among the measure's 10 industry groups.

The Asian benchmark index has slumped 22 percent this year as soaring inflation assailed global economies and the world's largest financial companies posted writedowns and credit losses of more than $500 billion.

Japan's Nikkei 225 Stock Average slipped 0.7 percent to 12,789.51. Australia's S&P/ASX 200 Index dropped 1.1 percent, the region's largest retreat, with QBE Insurance Group Ltd. dropping after reporting lower first-half profit.

U.S. stocks advanced yesterday, led by energy and metals shares, after Goldman Sachs Group Inc. predicted oil will gain 29 percent through the end of the year. The Standard & Poor's 500 Index climbed 0.6 percent.

To contact the reporter for this story: Chen Shiyin in Jakarta at schen37@bloomberg.net; Patrick Rial in Tokyo at prial@bloomberg.net.



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Most Japan Shares Fall on Report Lehman Financing Talks Failed

By Patrick Rial

Aug. 21 (Bloomberg) -- Most Japanese stocks declined, led by brokerages and banks, after a report Lehman Brothers Holdings Inc. was unable to complete a share sale and HSBC Holdings Plc slashed ratings on two of Japan's largest banks.

Nomura Holdings Inc., Japan's largest brokerage, lost 1.6 percent after the Financial Times reported Lehman was unable to reach an agreement with South Korean investors to sell a 50 percent stake. Sumitomo Mitsui Financial Group Inc., the nation's No. 2 bank by market value, dropped 1 percent after HSBC said rising credit costs will eat away profit.

Mitsubishi Corp., which gets more than half its profits from commodities trading, gained 3.6 percent after Goldman Sachs Group Inc. predicted oil will rally this year.

The Nikkei 225 Stock Average slipped 63.62, or 0.5 percent, to 12,788.07 as of 9:51 a.m. in Tokyo after gaining as much as 0.3 percent. The broader Topix index declined 7.93, or 0.6 percent, to 1,225.44. Eight shares fell for every five that advanced on the index.

Nikkei futures expiring in September lost 0.4 percent to 12,810 in Osaka and dropped 0.7 percent to 12,810 in Singapore.

To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net.



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Australia Stocks: Brambles, Cabcharge, Perilya, Santos, Tishman

By Shani Raja

Aug. 21 (Bloomberg) -- The S&P/ASX 200 Index declined 15.80 points, or 0.3 percent, to 4,913.70 at 10:30 a.m. in Sydney. The broader All Ordinaries Index lost 12.40 points, or 0.3 percent, to 4,985.10, while the futures index expiring in September dropped 4 points 4,878.

Brambles Ltd. (BXB AU) fell 6 cents, or 0.8 percent, to a record low A$7.35 after Credit Suisse Group cut the company's rating to ``neutral'' from ``outperform.''

Cabcharge Australia Ltd. (CAB AU), a Sydney-based taxi payment system operator, lost 65 cents, or 9.1 percent, to A$6.50, the lowest in more than two years. The company reported net profit of A$59 million in fiscal 2008.

Centennial Coal Co. (CEY AU), Australia's fourth-largest coal producer, rose for a second day, gaining 29 cents, or 5.8 percent, to A$5.31, the fifth-best performer on the benchmark. Centennial yesterday reported an almost threefold gain in second- half profit on surging prices for the fuel.

OZ Minerals Ltd. (OZL AU), the world's second- largest zinc mining company, fell 13 cents, or 6.8 percent, to A$1.71, the most since Aug. 5, after dropping consideration of a share buyback in order to focus on acquisitions and mine development.

Perilya Ltd. (PEM AU) gained 3 cents, or 6.7 percent, to 48 cents, the third-biggest gainer on the index. The Australian zinc and lead producer will reduce output and cut more than half of the staff at its biggest mine because of lower zinc and lead prices.

Santos Ltd. (STO AU), Australia's third-biggest oil and gas producer, leapt A$1.05, or 6.1 percent, to A$18.25, the second biggest gainer on the index. Santos posted a 58 percent gain in first-half profit after prices rose, and said it intends to move into electricity production to speed the development of gas reserves.

Sunshine Gas Ltd. (SHG AU) rose 53 cents, or 24 percent, to A$2.73, the most since January. Sunshine yesterday agreed to a takeover offer from Queensland Gas Co. (QGC AU), which lost 25 cents, or 5.8 percent, to A$4.07.

Tishman Speyer Office Fund (TSO AU), a trust that invests in and manages office properties in the U.S., dropped 13 cents, or 11 percent, to a record low A$1.08, the worst performer on the index. The company reported an after-tax loss of A$112 million for the year ended June 30, compared with A$263.6 million profit the previous year.

To contact the reporter on this story: Shani Raja in Sydney at sraja4@bloomberg.net.



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Japan's July Merchandise Trade Balance: Summary (Table)

By Shizuka Muragishi

Aug. 21 (Bloomberg) -- Following is a summary of Japan's merchandise trade balance from the Ministry of Finance in Tokyo.

===============================================================================
            July      June       May      April     March     Feb.      Jan.
            2008      2008      2008      2008      2008      2008      2008
===============================================================================
            -----------------Not Seasonally Adjusted Yen Level-----------------
Balance        91.1     121.9     357.8     475.2   1,109.0     963.3     -89.8
 3-mo. avg    190.3     318.3     647.3     849.2     660.8     580.2     520.5
 Exports    7,632.1   7,153.7   6,809.0   6,891.4   7,682.5   6,975.4   6,408.4
 Imports    7,541.0   7,031.9   6,451.2   6,416.2   6,573.6   6,012.0   6,498.1
            --------------------Year-on-Year Percent Change--------------------
Balance      -86.6%    -90.2%     -9.5%    -47.4%    -30.8%      0.2%    n/a
 Exports       8.1%     -1.8%      3.7%      3.9%      2.3%      8.7%      7.7%
 Imports      18.2%     16.4%      4.5%     12.0%     11.2%     10.2%      9.2%
            ---------------------Three-Month Percent Change--------------------
Balance      -77.6%    -51.8%     11.6%     63.1%    -25.2%    -48.7%    -53.4%
 Exports       0.2%     -1.0%      2.7%      2.1%     -5.1%     -5.5%     -3.1%
===============================================================================
            July      June       May      April     March     Feb.      Jan.
            2008      2008      2008      2008      2008      2008      2008
===============================================================================
 Imports      10.6%      4.3%      1.9%     -2.8%     -2.4%      2.4%      6.0%
            -------------------Seasonally Adjusted Yen Level-------------------
Balance       172.4     131.3     483.6     626.3     668.3     600.0     817.3
 3-mo. avg    262.4     413.7     592.8     631.6     695.2     666.8     735.4
 Exports    7,375.1   7,284.1   7,216.0   6,928.0   7,140.1   7,053.9   7,239.9
 Imports    7,202.7   7,152.8   6,732.4   6,301.6   6,471.7   6,453.9   6,422.6
            -------------------Month-on-Month Percent Change-------------------
Balance       31.3%    -72.8%    -22.8%     -6.3%     11.4%    -26.6%     40.2%
 Exports       1.2%      0.9%      4.2%     -3.0%      1.2%     -2.6%      0.9%
 Imports       0.7%      6.2%      6.8%     -2.6%      0.3%      0.5%     -2.6%
            ---------------------Three-Month Percent Change--------------------
Balance      -58.4%    -40.5%    -11.1%    -14.1%    -13.3%    -30.1%    -30.8%
 Exports       3.6%      0.0%     -0.9%     -2.0%     -0.1%      0.9%      1.0%
 Imports       9.7%      4.3%      0.2%     -0.7%      1.6%      5.8%      6.5%
===============================================================================

NOTE: Levels are in billions of yen. Three-month percentage changes are calculated as the three-month average change from the prior three- month average.

SOURCE: Ministry of Finance

To contact the reporter of this story: Shizuka Muragishi in Tokyo at smuragishi@bloomberg.net



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Americans Less Gloomy on Economy Amid Discontent, Poll Finds

By Matthew Benjamin

Aug. 21 (Bloomberg) -- Americans are slightly more optimistic about the economy even as large majorities disapprove of the country's overall direction and President George W. Bush's performance, the latest Bloomberg/Los Angeles Times poll shows.

For the first time since January 2007, Americans who say the economy will improve in the next six months outnumber people who say it will get worse, by 28-to-21 percent. A bigger group, 45 percent of those surveyed, says it will stay about the same.

``Americans may be less gloomy because they're seeing gas prices fall below $4 in many places, giving them some hope the economy may be back on track,'' says Susan Pinkus, the Los Angeles Times polling director.

Consumer confidence is inching up from 28-year lows: The Reuters/University of Michigan preliminary index of consumer expectations rose in August to 56.8 from 53.5. The index measures consumers' outlook for personal finances and the economy.

Economists say the retreat in gasoline prices stopped the confidence free fall, although rising unemployment, declining home values and tight credit make it likely that consumer spending will stagnate in the next quarter.

Wrong Track

Overall, about three of every four people in the Bloomberg/Los Angeles Times survey say the U.S. is on the wrong track; only 18 percent are satisfied with the country's direction.

About seven of 10 poll respondents disapprove of the way Bush is handling his job, compared with 25 percent who approve. The president's rating barely exceeds President Richard Nixon's 24 percent approval in a Gallup Poll conducted the week before his August 1974 resignation over the Watergate scandal. Bill Clinton's approval rating among registered voters stood at 61 percent in September 2000.

Independents, crucial to the presidential chances of both Democrat Barack Obama and Republican John McCain, are more pessimistic than Democrats or Republicans. About half of non- aligned respondents see the economy staying the same, with the rest split evenly over whether it will get better or worse.

``We were just notified that natural-gas prices in our area will go up,'' says Heidi Artise, 48, an independent voter whose husband has found only occasional jobs as a maintenance worker over the past year. ``I don't see many future prospects for me and my family,'' says Artise, who lives in the town of North East, Pennsylvania, on Lake Erie.

Assessing the Economy

Among respondents of all political persuasions, the number of Americans who say the economy is doing badly fell slightly since a poll two months ago. About three out of four people now say the economy is in bad shape, compared with 82 percent in June -- the worst assessment in 15 years. Respondents who say the economy is doing ``very badly'' dropped 6 percentage points, to 44 percent.

``The stimulus package has helped people and the price of gas is going down, so I think things will start getting better for a lot of people,'' says Alexandra Westover, a poll respondent from Springfield, Oregon. The 26-year-old Republican voter runs a family business selling doors and frames. ``We have never been busier, so that's got to be a good sign,'' she says.

In June's poll, by contrast, only 18 percent of respondents expected the economy to improve in six months' time, 31 percent said it would get worse, and 45 percent expected conditions to stay the same.

The improvement in Americans' economic outlooks since June accompanies a tightening of the presidential contest. Obama edges McCain 45-43 percent, a statistical dead heat, in a match-up excluding third-party candidates. In June, Obama led McCain 49-37 percent.

`Could Help McCain'

``If this trend increases and people start opening up their pocketbooks, it could help McCain, since Obama is now winning on the economy and gas-price issues,'' Pinkus says.

Black Americans report more acute economic pain than the overall population. Almost six out of 10 blacks surveyed say the economy is doing very badly, compared with a little more than four of 10 whites.

The Aug. 15-18 poll of 1,375 adults nationwide had a margin of sampling error of plus or minus 3 percentage points.

High energy prices are a growing source of discontent. Almost three-fourths of poll respondents say they're suffering financial hardship because of the costs of oil and gas. A higher proportion of blacks -- 83 percent -- say energy prices are troubling them. Two months ago, when an average gallon of gasoline cost about 36 cents more, seven in 10 Americans called fuel prices a hardship.

The expense of cooling his home, and the expected costs of heating it this winter, are becoming problems for Doug Wollenburg, 46, an independent voter in Lincoln, Nebraska. Wollenburg, who worked in slaughterhouses before he became disabled, says Congress and Bush aren't providing solutions.

``They'll wait until the bogeyman barks to do something about it,'' he says.

To contact the reporters on this story: Matthew Benjamin in Washington at mbenjamin2@bloomberg.net.



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Greenspan's Glasnost Comes to Tokyo Just in Time: William Pesek

Commentary by William Pesek

Aug. 21 (Bloomberg) -- An extraordinary thing is happening in Tokyo: Bank of Japan officials are speaking Japanese.

Japan's central bankers always deliberate in their mother tongue -- just not in ways most of the nation's 127 million people could fathom. When Governor Masaaki Shirakawa steps to the microphone these days, he speaks in a clear, logical and forthcoming manner of which BOJ watchers are unaccustomed.

The latest sign that the kind of glasnost Alan Greenspan brought to the U.S. Federal Reserve is arriving in Japan came on Aug. 19. Shirakawa, who's just four months in the job, matter-of- factly listed the reasons policy makers kept the benchmark rate at 0.5 percent.

Shirakawa's attempts to demystify the BOJ go beyond that, as Bloomberg News reporter Mayumi Otsuma detailed in a story yesterday. Before July, the BOJ said nothing when leaving rates steady. The BOJ is increasing the number of forecasts it publishes, instead of signaling the direction of borrowing costs at press conferences.

Such efforts may do two things: Boost the BOJ's credibility and enhance its independence.

Much remains to be done to make Asia's biggest economy more open. Yet what's happening in Tokyo may be akin to the events of 1994, when the Fed began announcing rate changes rather than having monetary economists decipher things. The Fed also accelerated the release of the minutes of its meetings.

Greenspan Fed

It was nothing short of shocking for those schooled in winks, nods and secret handshakes of Fed watching. Greenspan's legacy was tarnished by the bubbles he aided and abetted before stepping down in 2006. History will look more kindly on how he helped democratize an undemocratic institution.

The Fed doesn't do press conferences like the BOJ or European Central Bank. Being able to ask questions means little, though, if they're met with econobabble. Japanese officials talk lots about the economy. They just rarely offer useful insights. Shirakawa, 58, wasted no time trying to make one of the most opaque major central banks more transparent.

Shirakawa is an accidental BOJ leader. He wasn't Prime Minister Yasuo Fukuda's first choice to replace Toshihiko Fukui. He wasn't even the second choice. Shirakawa was a bit of a desperation candidate.

Efforts by Fukuda's Liberal Democratic Party to replace Fukui, whose term ended in March, were thwarted by the opposition Democratic Party of Japan. Fukuda's first two candidates were shot down more out of political score-settling than policy differences.

The Right Guy

Ironically, Japan may have ended up with the right central banker at the right time. The University of Chicago-educated Shirakawa is hard to pigeonhole as an economist. Observers certainly have tried, yet so far he's proving to be more ad hoc than doctrinaire in his views.

None of this means Shirakawa's effort to open the BOJ to a curious world will work as planned.

``It remains to be seen whether this is going to help markets anticipate policy changes, but it should,'' says Richard Jerram, chief Japan economist at Macquarie Securities Ltd. ``The risk they have is that people start to focus on minor changes in wording of the post-meeting statements, as they do with the Fed.''

Sometimes the message gets lost in translation. Bad wording can have bond traders overanalyzing points officials didn't want to convey. Markets can move on poorly placed adjectives. A few years back, a Fed-watcher buddy of mine joked that he was using the sentence-diagramming skills the nuns taught him in grade school more than his economics degree.

BOJ Independence

This is a work in progress for the BOJ, and one should expect bumps along the way. Anything the BOJ can do to boost its credibility is worth a try. After all, how seriously can anyone take a central bank that's so compliant to politicians that it lowered rates to zero?

While the BOJ has been technically independent for a decade, it remains under the government's thumb. Talk about Shirakawa's predecessor being a maverick was bunk. In five years as governor, during which Japan was enjoying its longest postwar recovery, Fukui only managed to increase rates twice.

Given the dismal state of the global economy and Japan's slide toward a recession, higher rates aren't an option right now. Yet by telegraphing moves, Shirakawa can use markets to make politically unpopular decisions. With the eyes of the world on the BOJ and its challenges clearly articulated, politicians may have less latitude to control the central bank.

Glasnost in Tokyo

Of course, Shirakawa could end up playing with fire here. One false move -- like a big rate increase politicians don't like -- and his BOJ reforms could be over. Yet getting the BOJ out of the government's pocket is vital to Japan's future.

The reason politicians don't reduce the world's largest public debt or make big decisions about competitiveness, demographics and immigration is free money. It's the glue holding Japan Inc. together and the crutch that enables it to delay changes that should've been made years ago.

Ultra-low rates hold Japan back more than help it. A little glasnost in Tokyo could be just the thing.

(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



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Japan's Exports Rebound, China Becomes No. 1 Customer

By Toru Fujioka

Aug. 21 (Bloomberg) -- Japan's exports rebounded in July as China replaced the U.S. as the nation's largest customer.

Shipments overseas rose 8.1 percent from a year earlier, after declining for the first time since 2003 in June, the Finance Ministry said today in Tokyo. Shipments to China climbed 16.8 percent to a record, with the value surpassing those sent to the U.S. for the first time.

Today's number may not be enough to alleviate concern that waning global demand will tip the world's second-largest economy into a recession. The Bank of Japan this week described growth as ``sluggish'' for the first time in a decade, citing weakening exports as well as higher commodity costs.

``The rise in exports doesn't necessarily mean they're solid,'' Junko Nishioka, an economist at RBS Securities Japan Ltd. in Tokyo, said before the report was published. ``It just shows exports are going to slow gradually rather than drastically as demand from Asia and Europe weakens.''

The yen traded at 109.61 per dollar as of 9:20 a.m. in Tokyo from 109.75 before the report. The median estimate of 18 economists surveyed by Bloomberg News was for exports to increase 5.3 percent.

Exports to Asia advanced 12.7 percent to the highest ever. Shipments to the U.S. fell 11.5 percent, the 11th monthly decline. Exports to Europe gained 4.1 percent, the first increase in three months.

Import Bill

Imports climbed at the fastest pace in two years, surging 18.2 percent from a year earlier, as oil prices soared to a record. That caused the trade surplus to narrow 87 percent to 91.1 billion yen ($830 million), the ministry said.

The biggest drop in exports in seven years caused the economy to shrink last quarter, robbing it of the main driver of its longest postwar expansion. Gross domestic product declined an annualized 2.4 percent in the three months ended June, the worst reading since the third quarter of 2001, when Japan was in a recession.

``Exports aren't strong enough to propel the economy as the slowdown spreads worldwide,'' said Kyohei Morita, chief economist at Barclays Capital in Tokyo. ``The economic stagnation will become clearer.''

Toyota Motor Corp., Japan's biggest company, this month reported its biggest earnings decline in five years as U.S. sales slumped. The automaker on Aug. 7 scrapped its goal of selling 10.4 million vehicles in 2009.

Toyota's Sales

``Growth in exports is expected to remain only modest for the time being, due to the slowdown in overseas economies,'' the central bank said in its monthly report yesterday.

Even demand from Asia, the destination of about half of Japan's goods sent overseas, has waned this year as accelerating inflation prompted central banks to raise interest rates, slowing growth in the region. A recent easing of commodity costs may revive shipments to Asia and other emerging markets, according to economist Richard Jerram.

``If the recent decline in commodity prices is sustained, then it should allow growth in Japan's major export markets to pick up in 2009,'' said Jerram, chief Japan economist at Macquarie Securities Ltd. in Tokyo.

To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net



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Greenspan's Glasnost Comes to Tokyo Just in Time: William Pesek

Commentary by William Pesek

Aug. 21 (Bloomberg) -- An extraordinary thing is happening in Tokyo: Bank of Japan officials are speaking Japanese.

Japan's central bankers always deliberate in their mother tongue -- just not in ways most of the nation's 127 million people could fathom. When Governor Masaaki Shirakawa steps to the microphone these days, he speaks in a clear, logical and forthcoming manner of which BOJ watchers are unaccustomed.

The latest sign that the kind of glasnost Alan Greenspan brought to the U.S. Federal Reserve is arriving in Japan came on Aug. 19. Shirakawa, who's just four months in the job, matter-of- factly listed the reasons policy makers kept the benchmark rate at 0.5 percent.

Shirakawa's attempts to demystify the BOJ go beyond that, as Bloomberg News reporter Mayumi Otsuma detailed in a story yesterday. Before July, the BOJ said nothing when leaving rates steady. The BOJ is increasing the number of forecasts it publishes, instead of signaling the direction of borrowing costs at press conferences.

Such efforts may do two things: Boost the BOJ's credibility and enhance its independence.

Much remains to be done to make Asia's biggest economy more open. Yet what's happening in Tokyo may be akin to the events of 1994, when the Fed began announcing rate changes rather than having monetary economists decipher things. The Fed also accelerated the release of the minutes of its meetings.

Greenspan Fed

It was nothing short of shocking for those schooled in winks, nods and secret handshakes of Fed watching. Greenspan's legacy was tarnished by the bubbles he aided and abetted before stepping down in 2006. History will look more kindly on how he helped democratize an undemocratic institution.

The Fed doesn't do press conferences like the BOJ or European Central Bank. Being able to ask questions means little, though, if they're met with econobabble. Japanese officials talk lots about the economy. They just rarely offer useful insights. Shirakawa, 58, wasted no time trying to make one of the most opaque major central banks more transparent.

Shirakawa is an accidental BOJ leader. He wasn't Prime Minister Yasuo Fukuda's first choice to replace Toshihiko Fukui. He wasn't even the second choice. Shirakawa was a bit of a desperation candidate.

Efforts by Fukuda's Liberal Democratic Party to replace Fukui, whose term ended in March, were thwarted by the opposition Democratic Party of Japan. Fukuda's first two candidates were shot down more out of political score-settling than policy differences.

The Right Guy

Ironically, Japan may have ended up with the right central banker at the right time. The University of Chicago-educated Shirakawa is hard to pigeonhole as an economist. Observers certainly have tried, yet so far he's proving to be more ad hoc than doctrinaire in his views.

None of this means Shirakawa's effort to open the BOJ to a curious world will work as planned.

``It remains to be seen whether this is going to help markets anticipate policy changes, but it should,'' says Richard Jerram, chief Japan economist at Macquarie Securities Ltd. ``The risk they have is that people start to focus on minor changes in wording of the post-meeting statements, as they do with the Fed.''

Sometimes the message gets lost in translation. Bad wording can have bond traders overanalyzing points officials didn't want to convey. Markets can move on poorly placed adjectives. A few years back, a Fed-watcher buddy of mine joked that he was using the sentence-diagramming skills the nuns taught him in grade school more than his economics degree.

BOJ Independence

This is a work in progress for the BOJ, and one should expect bumps along the way. Anything the BOJ can do to boost its credibility is worth a try. After all, how seriously can anyone take a central bank that's so compliant to politicians that it lowered rates to zero?

While the BOJ has been technically independent for a decade, it remains under the government's thumb. Talk about Shirakawa's predecessor being a maverick was bunk. In five years as governor, during which Japan was enjoying its longest postwar recovery, Fukui only managed to increase rates twice.

Given the dismal state of the global economy and Japan's slide toward a recession, higher rates aren't an option right now. Yet by telegraphing moves, Shirakawa can use markets to make politically unpopular decisions. With the eyes of the world on the BOJ and its challenges clearly articulated, politicians may have less latitude to control the central bank.

Glasnost in Tokyo

Of course, Shirakawa could end up playing with fire here. One false move -- like a big rate increase politicians don't like -- and his BOJ reforms could be over. Yet getting the BOJ out of the government's pocket is vital to Japan's future.

The reason politicians don't reduce the world's largest public debt or make big decisions about competitiveness, demographics and immigration is free money. It's the glue holding Japan Inc. together and the crutch that enables it to delay changes that should've been made years ago.

Ultra-low rates hold Japan back more than help it. A little glasnost in Tokyo could be just the thing.

(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



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Japan's Crude Imports Rise on Demand From Utilities

By [bn:PRSN=1] Shigeru Sato [] and [bn:PRSN=1] Yuji Okada []

Aug. 21 (Bloomberg) -- Japan's crude oil imports increased in July as regional power utilities burned more fossil fuels to make up for reduced nuclear generation in the world's third- largest energy-consuming nation.

Japan purchased 20.3 million kiloliters, or about 4.12 million barrels a day, of oil last month, up 2.8 percent from a year earlier, according to a finance ministry report released in Tokyo today. The oil import bill rose 69 percent to 1.79 trillion yen ($16.3 billion) as crude oil prices remained above $110 a barrel.

The indefinite closure of Tokyo Electric Power Co.'s Kashiwazaki-Kariwa nuclear plant, which was shut after an earthquake on July 16, 2007, prompted the utility to switch to oil and gas-fired generation.

Japan's fuel oil use at thermal power plants increased by 7.6 percent in June from a year earlier, in contrast to the decline in consumption of other refined products such as gasoline.

Liquefied natural gas imports rose 7.6 percent last month to 6.06 million metric tons, according to the trade report. Coal imports gained 5.4 percent to 17.5 million tons.

Benchmark crude oil prices in New York climbed 67 percent in the past 12 months, sending local retail gasoline, kerosene and gasoil prices to record levels. Oil traded at $115.87 a barrel in after-hours trading at 9:03 a.m. Tokyo time.

To contact the reporters on this story: Shigeru Sato in Tokyo at ssato10@bloomberg.net; Yuji Okada in Tokyo at yokada6@bloomberg.net.



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Georgia Cuts Rate to Spur Economy as Russia Maintains Its Grip

By Helena Bedwell and Maria Levitov

Aug. 21 (Bloomberg) -- Georgia, a third of its land under military occupation, cut its benchmark interest rate in an effort to shore up an economy that was already slowing prior to Russia's Aug. 8 invasion.

The National Bank of Georgia, the nation's central bank, reduced its key rate yesterday to 11 percent from 12 percent to counter the war's effects on economic growth, officials said in Tbilisi, the capital. ``Our first and main goal is to keep macroeconomic stability,'' David Amaglobeli, the bank's acting chairman, said in a telephone interview.

Amaglobeli reiterated the bank's forecast for growth of about 9 percent this year, down from 12.4 percent a year ago. ``I think we've lived through the worst period already, when military actions were going on,'' he said.

Others say he may be overly optimistic. ``The displacement of people, disruption of trade and some damage to infrastructure will affect economic growth,'' said Edward Parker, an emerging- markets credit analyst at Fitch Ratings in London, which along with Standard & Poor's cut Georgia's below-investment-grade credit rating when fighting began.

Since the start of the war, Georgia's five-year bonds have tumbled, pushing yields to 10.2 percent from 8.5 percent, and oil shipments have been disrupted. Russia, which has resisted western calls for a withdrawal, still controls the Black Sea port of Poti and the crossroads city of Gori, cutting off the west from the east.

Still, with Russia no longer bombing or threatening Tbilisi, life has begun to return to normal in the capital, said Vladimer Papava, an economist at the Georgian Foundation for Strategic and International Studies.

`Some Panic'

``There was some panic on Aug. 11 when they said the Russians were coming to take Tbilisi,'' Papava said. ``The ground was shaking and people were running and queuing for food. But it was short-lived.''

At Populi, the nation's biggest supermarket chain, with 33 outlets, prices are the same as they were before the conflict started because demand and supply haven't changed.

``We're not experiencing shortages, or even warnings of any from our suppliers,'' Populi spokeswoman Lika Mikautadze said.

Inflation will probably slow to 8 percent this year from last year's 11 percent, according to the central bank.

Factories across all industries have continued to operate and there are ``more than enough'' oil and diesel supplies, Finance Minister Nika Gilauri said yesterday.

The government has been paying pensions and salaries on time. And while banks, led by London-listed Bank of Georgia, lost about 10 percent of their deposits immediately after the invasion, money has begun returning, said Amaglobeli. ``The banking sector has showed resilience during the crisis,'' the central bank said in announcing the rate cut.

Oil Shipments

All rail and pipeline shipments of oil were stopped at one point and supplies haven't fully resumed. About 5 percent of GDP is derived from fees for such shipments, the central bank says.

With Russian troops still blocking railways, Georgia's Black Sea ports are running out of crude oil and oil products, said Vako Kavzharadze, an agent in Batumi for TeRo Co. Ltd.

``The country, from every perspective, not purely economic, needs a return to security and stability,'' Fitch's Parker said. A secure peace with Russia ``is far from certain.''

Supporting a key ally and a government that the World Bank last year called the world's ``top economic reformer,'' the West has promised financial assistance.

International Aid

U.S. Senator Joseph Biden, a Delaware Democrat, said he'll seek $1 billion, about a tenth of the nation's $10 billion GDP, when Congress reconvenes next month. The finance ministers of the Group of Seven industrialized countries said yesterday they will work with the International Monetary Fund to ``reinforce the soundness of Georgia's economic reform program.''

That kind of support is enough to provide ``a positive outlook'' for Georgia, said Martin Blum, head of emerging-market economics and strategy in Vienna at UniCredit SpA, the largest bank by assets in eastern Europe. U.S. aid may be ``quite meaningful'' to the Georgian economy, Blum said.

Roy Southworth, World Bank country director for Georgia, last month praised the government of President Mikheil Saakashvili, 40, for promoting growth, reducing poverty and fighting corruption. ``There's 24-hour electricity countrywide, social reforms and transparency in business,'' Southworth said.

To contact the reporters on this story: Helena Bedwell in Tbilisi hbedwell@bloomberg.net; Maria Levitov in Moscow at mlevitov@bloomberg.net



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Tokyo Gas, 2 Others Consider Acquiring Sendai-City Gas Utility

By Megumi Yamanaka and Michio Nakayama

Aug. 21 (Bloomberg) -- Tokyo Gas Co., Japan's biggest distributor of the fuel, and two other companies are considering bidding for a gas utility in the country's northern city of Sendai that may be privatized in April 2010.

``We are studying whether the acquisition will contribute to profit and whether our entrance into the area will benefit locals,'' spokesman Naoyoshi Ogake said. Tohoku Electric Power Co. and Japan Petroleum Exploration Co. are also considering the acquisition, Tohoku spokesman Mitsuhiro Takauchi and Japan Petroleum spokesman Shigeyoshi Hasegawa said by phone today.

To contact the reporters on this story: Megumi Yamanaka in Tokyo at myamanaka@bloomberg.net.



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Sunshine Gas Shares Jump After Queensland Gas Takeover Offer

By Angela Macdonald-Smith

Aug. 21 (Bloomberg) -- Sunshine Gas Ltd. rose the most in two months in Sydney trading after agreeing to a takeover offer from Queensland Gas Co. valuing it at a minimum of A$837 million ($731 million) based on yesterday's closing share prices.

Brisbane-based Sunshine advanced as much as 53 cents, or 24 percent, to A$2.73. Queensland Gas, also based in Brisbane, fell as much as 6.3 percent to A$4.05, lowering the value of the takeover offer, in which shareholders can accept either all in stock or a mix of stock and cash.

Queensland, Australia's third-biggest fuel-consuming state, will be the major contributor to demand growth and is set to become the biggest energy user by 2012, the government's commodities forecaster said in December. Queensland Gas said yesterday it will primarily use Sunshine's reserves to meet rising local demand, as well as to bolster a planned fuel-export project.

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net



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Santos Profit Rises 58% on Oil; Plans Power Station

By Angela Macdonald-Smith
Enlarge Image/Details

Aug. 21 (Bloomberg) -- Santos Ltd., Australia's third- biggest oil and gas producer, posted a 58 percent gain in first- half profit after prices rose, and said it intends to move into electricity production to speed the development of gas reserves.

Net income climbed to A$303.7 million ($265 million), or 48.1 cents a share, in the six months ended June 30, from A$192.7 million, or 29.3 cents, a year earlier, Adelaide-based Santos said today in a statement. Profit before one-time items rose to A$289 million, compared with a market consensus of A$295 million cited by UBS AG.

Santos in May reached a A$2.51 billion accord with Malaysia's Petroliam Nasional Bhd. to sell a stake in a planned liquefied natural gas project and said today it will buy back A$300 million of shares to distribute some of the proceeds to shareholders. Australia is due to start a carbon trading system in 2010, boosting demand for power generated from cleaner fuels such as gas rather than coal.

``It's a robust result, it's within consensus,'' said Brendan Warn, an oil and gas analyst at Macquarie Group Ltd. in Sydney. ``The move down the value chain into power generation makes sense in that they are going to be long in gas in Victoria.''

Santos rose as much as 8.9 percent to A$18.73 in Sydney trading and was at A$18.57 at 10:13 a.m. local time.

Prices Rise

Sales advanced 14 percent to A$1.4 billion, buoyed by gains of more than 40 percent in the Australian dollar-denominated oil and condensate prices compared with a year earlier. Production fell 8 percent to 27.6 million barrels of oil equivalent due to field shutdowns in Western Australia.

``Looking forward, our focus is on delivering the base business and executing our LNG and Asian growth strategies,'' Santos Chief Executive Officer David Knox said in the statement, sent to the exchange. ``Entry into power generation is consistent with Santos's strategy of accelerating the commercialization of its gas reserves and resources.''

The first phase of the Shaw River power project in western Victoria state will cost A$800 million for a 500-megawatt plant. Engineering studies will start immediately and the project is scheduled for approval by the end of 2009, enabling the plant to start up in 2012, Santos said. The project may be expanded to a three-unit 1,500-megawatt plant at a later stage, it said.

Gas will be supplied to the generator through a 105- kilometer (65-mile) pipeline from Port Campbell near the coast into which gas will be delivered from Santos's offshore fields.

The company reiterated its reduced full-year production forecast of between 54 million and 56 million barrels of oil equivalent. It declared an interim dividend to 22 cents a share, up 10 percent on the final dividend last year, and said it intends to repay some existing debt as part of its capital management plan post the Petronas transaction.

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net



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Korean Won Is Little Changed on Speculation BOK Will Intervene

By Kim Kyoungwha and Judy Chen

Aug. 21 (Bloomberg) -- South Korea's won was little changed on speculation policy makers will intervene in the market to help reduce inflation from a decade high.

Traders are cautious after the Bank of Korea yesterday bought the local currency to defend the ``psychologically important barrier'' of 1,050 won to the dollar, according to Ko Yun Jin, a currency dealer with Kookmin Bank in Seoul. Vice Finance Minister Kim Dong Soo said yesterday the government is monitoring volatile currency moves.

``The dollar's upside is capped by intervention fears,'' Ko said. ``Still, hefty foreign sales of local stocks in the past couple of days will curb any gains in the won as well.''

The currency traded at 1,048.70 against the dollar as of 9:15 a.m. in Seoul, compared with 1,049.40 yesterday, according to Seoul Money Brokerage Services Ltd. The won fell 11 percent this year, the worst performer after the Thai baht, among 10 most-active Asian currencies outside of Japan.

Central banks intervene in currency market by either selling or buying foreign exchange.

To contact the reporters on this story: Kim Kyoungwha in Beijing at kkim19@bloomberg.net; Judy Chen in Shanghai at xchen45@bloomberg.net



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New Zealand Central Bank Says Financial System Is `Sound'

By Tracy Withers

Aug. 21 (Bloomberg) -- New Zealand's financial system is fundamentally sound and local banks are managing the turmoil in the credit markets, the Reserve Bank said today.

``Our banks are navigating their way through the current turmoil well,'' Toby Fiennes, head of prudential supervision at the Wellington-based central bank, said in a statement. ``The New Zealand financial system is fundamentally sound. We are monitoring the situation closely.''

As many as 25 non-bank lenders have failed the past year as borrowers have been unable to meet their obligations because of a weak housing market and rising credit costs. Some mortgage funds have been frozen and banks have increased provisions for bad debts as the economy slows.

``The majority of institutions are not directly affected by these current events,'' Fiennes said. ``These institutions are well-capitalized businesses and give no apparent reason for concern.''

The Reserve Bank is accepting a wider range of securities as collateral for cash, including mortgaged-backed paper, he said. The facility has been designed in case global markets deteriorate further and the likelihood of it being needed remains extremely low, he said.

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



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Australian, New Zealand Dollars Advance on Commodities, Yield

By Ron Harui and Chris Young

Aug. 21 (Bloomberg) -- The Australian and New Zealand dollars gained on speculation their declines are overdone given demand for commodities and the countries' interest-rate advantage over the U.S. and Japan.

Australia's currency climbed for a second day as the yield premium of Australian two-year government bonds over similar- dated U.S. Treasuries widened to the most in two weeks. The UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials advanced for a third day, helping trim the drop in the Australian and New Zealand dollars to 10.7 percent and 6.6 percent respectively in the past month.

``We expect to see a bounce over the next month as the Australian dollar has fallen too far,'' said Joseph Capurso, a currency strategist in Sydney at Commonwealth Bank of Australia, the nation's largest lender. ``Commodity prices will tend to support the Australian dollar.''

The Australian dollar rose to 87.27 U.S. cents as of 10:05 a.m. in Sydney from 86.90 cents late in Asia yesterday. It touched a 25-year high of 98.49 cents on July 16 before sliding to a six-month low of 85.93 cents on Aug. 13. It may appreciate to 87.50 cents today, Capurso said. The currency, called the Aussie, climbed to 95.78 yen from 95.66 yen.

The New Zealand's dollar advanced to 71.29 U.S. cents from 70.99 cents late in Asia yesterday. It fell from a six-week high of 77.60 cents on July 16 to 68.26 cents on Aug. 13, the lowest level in a year. The currency, known as the kiwi, strengthened to 78.22 yen from 78.16 yen.

Commodity Prices

The Australian and New Zealand dollars are the second and third-best performers among the 16 most-traded currencies in the past five days as commodity prices halted their slide.

Commodity prices influence the Australian and New Zealand dollars because raw materials account for 60 percent of Australia's exports, while sales of commodities including lumber make up 70 percent of New Zealand's overseas shipments.

``Given the speed and magnitude of the currency's descent over the past month, we look for the New Zealand dollar to consolidate near-term,'' Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington, wrote in a research note. The currency is trading at ``fair value'' given interest- rate spreads with the U.S. and commodity prices, she said.

The difference in yield between two-year Australian and U.S. government bonds widened to 3.56 percentage points this week, the most since Aug. 4. The yield advantage of 10-year New Zealand debt over like-dated Treasuries increased to 2.38 percentage points this week, the most since July 10.

Australian government bonds gained, pushing the yield on the 10-year note down 5 basis points, or 0.05 percentage point, to 5.80 percent. The price of the 5.25 percent security due in March 2019 rose 0.394, or A$3.94 per A$1,000 face amount, to 95.738.

New Zealand's government debt was little changed, with the benchmark 10-year yield at 6.18 percent and the three-year yield at 6.25 percent. Yields move inversely to prices.

To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net; Chris Young in Sydney at cyoung12@bloomberg.net.



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Dollar Falls Against Yen, Euro Before U.S. Manufacturing Report

By Kosuke Goto

Aug. 21 (Bloomberg) -- The dollar fell against the yen before a central bank report forecast by economists to signal manufacturing contracted, undermining the case for the Federal Reserve to raise interest rates.

The U.S. currency also weakened against the euro on speculation futures traders will pare bets that the dollar will gain. The British pound traded close to a two-year low versus the dollar as minutes of the Bank of England's August meeting indicated expectations for the British economy worsened.

``The dollar has been recently heavily overbought despite deteriorating U.S. economic fundamentals,'' said Keiichi Iguchi, a currency dealer in Tokyo at Resona Bank Ltd., a unit of Japan's fourth-largest lender by market value. ``Weaker economic data could spark sharp dollar-selling'' as traders unwind their positions, he said.

The dollar fell to 109.65 yen as of 9:47 a.m. in Tokyo from 109.86 in New York yesterday. It also declined $1.4779 per euro from $1.4747 yesterday, when it climbed 0.2 percent. The euro was at 162.08 yen from 162.03. It reached 160.87 on Aug. 19, the lowest level in three months.

The dollar may fall to $1.50 per euro in a few days should it fall below $1.48, Iguchi forecast.

The U.S. currency has gained 7.8 percent versus the euro since touching the all-time low of $1.6038 on July 15 and appreciated 1.6 percent this month against the yen as economies in Europe and Japan shrank and crude oil fell more than 20 percent from its record of $147.27 a barrel last month.

`Kind of Scary'

Futures traders are betting for the first time since March 2007 that the dollar will rise against the euro, yen and British pound. The difference wagers by hedge funds and other large speculators on a gain in the dollar compared with those on a drop, known as net longs, was 24,060 on Aug. 12, compared with net shorts of 20,886 a week earlier, data from the Washington- based Commodity Futures Trading Commission showed Aug. 15.

The 14-day relative strength index of the euro against the dollar was at 23.4. A level below 30 signals Europe's single currency's losses may be excessive and a reversal may occur.

``It's kind of scary to conduct euro-selling further from this stage, as it has been already sold a lot against the dollar,'' said Motonari Ogawa, director of currency trading in Tokyo at Barclays Capital Inc., a unit of the U.K.'s third- biggest bank. ``One small thing could lead to a correction.''

Crude oil today increased 0.2 percent to $115.86 a barrel. The euro-dollar exchange rate and oil have had a correlation of 0.9 in the past year, according to Bloomberg calculations based on their value changes. A reading of 1 would mean they move in lockstep.

Manufacturing Slump

The Fed Bank of Philadelphia's general economic index will be minus 12.6 in August from minus 16.3 in the prior month, according to the median forecast of 62 economists surveyed by Bloomberg News. Readings less than zero signal a decline. The bank releases the report at 10 a.m. in New York.

The pound traded at $1.8632 from $1.8621 yesterday. It reached $1.8512 on Aug. 15, the lowest level since July 2006. BOE policy makers split three ways when they kept the target lending rate unchanged at 5 percent earlier this month, minutes of the Aug. 7 meeting showed yesterday. Seven policy makers voted for the move, while one official called for an increase and another for a cut.

Gains in the euro may be limited as Germany's Economy Ministry yesterday said the economic outlook has worsened even beyond the second quarter, when gross domestic product shrank for the first time in four years.

The dollar has traded in a range of $1.46 to $1.48 per euro this week after advancing for five consecutive weeks, the longest stretch of gains since February 2006.

Fannie Mae, Freddie Mac

The U.S. currency also weakened on speculation credit- market losses in the U.S. will deepen. Fannie Mae and Freddie Mac shares tumbled in New York trading to the lowest levels since at least 1990 as speculation increased that the U.S. Treasury will have to bail out the mortgage-finance companies.

``To the extent that you get further unsettling news on the financial side, that will cause a turnaround and lead to more softening for the U.S. dollar,'' said Michael Gregory, a senior economist at the Bank of Montreal in Toronto.

Futures on the Chicago Board of Trade show a 18 percent chance the U.S. central bank will raise the 2 percent target rate for overnight lending between banks by at least a quarter- point by its Dec. 16 meeting, down from 34 percent odds a week earlier. Policy makers next meet Sept. 16.

To contact the reporters on this story: Kosuke Goto in Tokyo at kgoto2@bloomberg.net



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Crude Oil Is Steady After Rising on Gasoline Supply Decline

By Mark Shenk

Aug. 21 (Bloomberg) -- Crude oil was little changed after rising yesterday as a government report showed U.S. gasoline inventories dropped for a fourth week.

Supplies of the fuel declined 6.2 million barrels, more than double the 3 million-barrel decline analysts predicted, a U.S. Energy Department report showed. Oil stockpiles rose 9.39 million barrels to 305.9 million barrels, the biggest gain since March 2001.

``It looks like wholesalers are finally taking deliveries of gasoline after putting them off because of the record prices last month,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts.

Crude oil for October delivery rose 6 cents to $115.62 a barrel at 8:41 a.m. Sydney time on the New York Mercantile Exchange. Futures are down 21 percent from a record $147.27 that was reached on July 11. Prices are up 67 percent from a year ago.

The September contract expired yesterday after increasing 45 cents, or 0.4 percent, to settle at $114.98 a barrel.

Gasoline for September delivery rose 4.64 cents, or 1.6 percent, yesterday to settle at $2.9103 a gallon in New York. Futures reached a record $3.631 a gallon on July 11.

Pump prices haven't increased since July 19, according to the AAA, the nation's largest motorist organization. Regular gasoline, averaged nationwide, fell 1.3 cents to $3.717 a gallon, the AAA said yesterday on its Web site. Prices reached a record $4.114 a gallon on July 17.

Mitigated Impact

``The drop in gasoline supplies was quite large, but any impact on the market will be mitigated somewhat because it's the middle of August and summer driving season is almost over,'' said Rick Mueller, director of oil markets at Energy Security Analysis Inc. in Wakefield, Massachusetts.

Gasoline demand in the U.S. peaks during the summer, when Americans take to the highways for vacations. The so-called driving season lasts from the Memorial Day weekend in late May to Labor Day in early September.

U.S. fuel demand averaged 20.2 million barrels a day during the past four weeks, down 3 percent from a year earlier, the department said. Gasoline consumption averaged 9.46 million barrels a day over the period, down 1.6 percent.

Refineries operated at 85.7 percent of capacity in the week ended Aug. 15, down 0.2 percentage point from the week before and the lowest since the week ended May 2, the report showed.

Brent crude oil for October settlement rose $1.11, or 1 percent, to settle at $114.36 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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Economic Calendar Eco Data 8/21/08

GMT    Ccy  Events                       Actual  Consensus  Previous  Revised
23:50  JPY Japan Import Y/Y Jul                      12.90% 16.20% 
23:50  JPY  Japan Export Y/Y Jul                      5.60%  -1.70%  
23:50  JPY  Japan Trade balance (jpy) Jun            252.5B  138.6B  
06:15  CHF  Swiss Trade balance (chf) Jul             2.0B  2.41B  
07:15  CHF  Swiss Combined PPI M/M Jul                0.30%  0.60%  
07:15  CHF  Swiss Combined PPI Y/Y Jul                4.60%  4.50%  
07:30  EUR  Germany Manufacturing PMI Aug             50.5  50.9  
07:30  EUR  Germany Services PMI Aug                  52.1  53.1  
08:00  EUR  Eurozone Manufacturing PMI Aug              47  47.4  
08:00  EUR  Eurozone Services PMI Aug                   48  48.3  
08:30  GBP  U.K. Retail sales M/M Jul               -0.40%  -3.90%  
08:30  GBP  U.K. Retail sales Y/Y Jul                2.00%  2.20%  
09:00  CHF  Swiss ZEW index Aug                       N/A   -76.9  
11:00  CAD  Canada CPI M/M Jul                       0.40%  0.70%  
11:00  CAD  Canada CPI Y/Y Jul                       3.40%  3.10%  
11:00  CAD  Canada CPI core M/M Jul                  0.20%  0.10%  
11:00  CAD  Canada CPI core Y/Y Jul                  1.60%  1.50%  
12:30  USD  U.S. Jobless claims Aug                   450K  450K  
14:00  USD  U.S. Leading indicators Jul              -0.20%  -0.10%  
14:00  USD  U.S. Philadelphia Fed survey Aug          -15  -16.3  

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Japan's Commodity Shares Rise on Oil Forecast; Nintendo Drops

By Patrick Rial
Enlarge Image/Details

Aug. 21 (Bloomberg) -- Japan's commodity stocks advanced after Goldman Sachs Group Inc. predicted oil will rally this year, while Nintendo Co. slipped after being sued for patent infringement.

Mitsubishi Corp., which generates more than half its profit from raw materials trading, was bid higher by 2.7 percent. Seven & I Holdings Co., Japan's largest retailer, climbed 1.8 percent after nationwide convenience store sales rose 11.7 percent. Nintendo retreated 1.9 percent after it was sued by a Maryland electronics company over devices used in its Wii game system.

``Oil producers and trading companies look like some of the better bets at the moment,'' Juichi Wako, a strategist at Nomura Holdings Inc, said in an interview with Bloomberg Television. ``Investors can't shake the concern that profits are going to be dragged lower due to the external economic picture.''

The Nikkei 225 Stock Average was little changed at 12,846.19 as of 9:11 a.m. in Tokyo. The broader Topix index was little changed at 1,233.45.

Nikkei futures expiring in September fell 0.2 percent to 12,830 in Osaka and dropped 0.5 percent to 12,835 in Singapore.

To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net.



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Belgians' Confidence Rises for First Time in 6 Months

By Jurjen van de Pol

Aug. 20 (Bloomberg) -- Belgian consumer confidence improved for the first time in six months in August as households worried less about economic growth and personal finances.

The sentiment index for Belgium, the sixth-largest economy in the euro area, rose to minus 11 from minus 13 in July, the National Bank of Belgium in Brussels said today in an e-mailed statement. The July reading was the lowest since 2005.

``Consumers took a less pessimistic view on the general economic developments'' and ``regard their future financial situation as slightly more favorable,'' the central bank said. ``On the other hand, the unemployment outlook has deteriorated further.''

The nation's economy outpaced the contracting euro region in the second quarter, expanding 0.3 percent from the previous three months. Still, that was the nation's slowest growth in more than three years and the jobless rate increased in July for the first time in 15 months, signaling employers' hesitance to hire after the Belgian central bank cut its full-year economic- growth forecast.

Belgian business sentiment probably dropped to a three-year low this month, according to the median estimate of 16 economists in a Bloomberg News survey, which sees the indicator falling to minus 8 from minus 7.6 in July. The business- confidence report, considered a leading indicator for Europe, will be released by the central bank on Aug. 22.

Sales Forecast

Belgacom SA, the country's largest telephone company, last month lowered its sales forecast as corporate clients cut back spending on network equipment, communication gear and integration services. The Brussels-based company now expects sales to drop 2 percent this year.

Supermarket operator Delhaize Group on Aug. 4 said its second-quarter revenue fell 7.5 percent and reiterated its July prediction that operating profit may not rise at all this year. The grocer last month cut forecasts for sales and profit as shoppers bought fewer items or opted for discount chains.

Consumers across the euro region are coping with surging food and energy prices, which have curbed their purchasing power. Households were more negative about their ability to save this month, with that indicator falling to minus 1 from 0 in July, according to today's report.

Inflation in Belgium accelerated last month to the fastest pace in almost a quarter-century as crude-oil prices jumped to an all-time high of $147.27 a barrel on July 11. Oil prices have declined 20 percent from that record, trading today at $116.18.

To contact the reporter on this story: Jurjen van de Pol in Amsterdam jvandepol@bloomberg.net



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Georgian Central Bank Cuts Key Rate, Citing War

By Helena Bedwell

Aug. 20 (Bloomberg) -- The National Bank of Georgia cut its benchmark interest rate by 1 percentage point to 11 percent to promote economic growth and increase liquidity following fighting with Russia.

``Due to the current war situation and possible decline of economic activities it is appropriate to loosen monetary policy,'' the bank said in a statement released today in Tbilisi.

Russia sent troops into Georgia on Aug. 8 after a day of fighting between Georgia and the separatist region of South Ossetia. Russian soldiers occupy about a third of the country. Shipments of oil through Georgia, a key transit point for Caspian crude, have been cut because of the fighting.

The bank had raised its benchmark one-week certificate of deposit rate by a total of 5 percentage points since November in an effort to slow inflation. The inflation rate has declined for the past four months, reaching 9.8 percent in July from 12.3 percent in March.

``The banking system has shown resilience during the crisis,'' the statement said, adding that the ``investment climate may experience less capital inflows by the end of this year.''

BP Plc, Azerbaijan's national oil company and other exporters halted crude and product exports by rail through Georgia to the Black Sea after a bridge was blown up near the village of Grakali on Aug. 16.

An ``alternative bridge is fixed, however Russian troops blocked the railways near the city of Khashuri,'' about 100 kilometers (60 miles) from Tbilisi, Vako Kavzharadze, an agent at shipper TeRo Co. Ltd. in the Georgian port of Batumi, said today in an e-mailed statement.

He said Georgian Black Sea ports are running out of oil.

Anatoly Nogovitsyn, deputy chief of Russia's General Staff, denied the military's involvement in blocking railways and attacking the bridge.

``Why would we block a railway? We haven't done that,''

The bank's monetary policy committee is scheduled to meet again on Sept. 17, the bank's statement said.

For Related News:

To contact the reporter on this story: Helena Bedwell in Tbilisi hbedwell@bloomberg.net



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Natural Gas Is Steady Amid Speculation Inventories Increased

By Mario Parker

Aug. 20 (Bloomberg) -- Natural gas in New York was little changed amid speculation a government report tomorrow will show an above-average inventory increase and as Tropical Storm Fay showed signs it probably won't strengthen into a hurricane.

Stockpiles rose 82 billion cubic feet in the week ended Aug. 15, according to the median of 11 analyst estimates compiled by Bloomberg News. The average change for this time of year over the past five is 56 billion. Fay's sustained winds were 50 miles (85 kilometers) per hour, down from 65 mph yesterday, according to a Miamai-based National Hurricane Center advisory. A hurricane watch for the Florida coast was dropped.

``People are anticipating a hefty injection tomorrow,'' said Michael Haigh, senior commodity strategist for Societe Generale in New York.

Natural gas for September delivery rose 1.8 cents to $7.994 per million British thermal units at 12:38 p.m. on the New York Mercantile Exchange. Gas earlier rose as high as $8.181.

On this trading day in 2007, gas closed at $6.04 per million Btu. Futures are 6 percent higher this year.

Futures have declined 41 percent since closing at $13.577 on July 3, a 30-month high. The 200-day moving average is $9.589.

A series of above-average additions to storage means winter supplies will be ample, Haigh said. ``The picture a month or two ago was that we would be way behind last year's level. Things will be pretty healthy from the supply side.''

Inventories totaled 2.567 trillion cubic feet, 6 billion, or 0.2 percent, below the five-year average, the Energy Department said in the week ended Aug. 8. The next report is scheduled tomorrow at 10:35 a.m. in Washington.

Stockpiles rose to a record 3.545 trillion cubic feet in Nov. 2007.

Bearish Number

Traders are now ``pricing in'' a bearish supply number, said Larry Young, a senior trader at Infinity Futures Inc. in Chicago. ``It's kind of a `shoot first and ask questions later' mentality.''

Natural gas also declined after a government report showed the biggest gain of U.S. crude oil supplies in more than seven years.

Stockpiles rose 9.39 million barrels to 305.9 million barrels, the biggest jump since March 2001, the U.S. Energy Department said.

Crude oil for September delivery fell $1.04, or 0.9 percent, to $113.49 barrel in New York. Futures touched a 15-week low of $111.34 a barrel on Aug. 15. Prices are up 18 percent this year.

Gas ``will try to trade in sympathy with other energies,'' such as oil, said Young. ``We're waiting on tomorrow's data, so that's going to temper any move.''

To contact the reporter on this story: Mario Parker in Chicago at mparker22@bloomberg.net



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