Thursday, November 6, 2008

Obama to Back Ailing Ethanol Makers, Follow Failed Bush Policy

By Mario Parker and Kim Chipman

Nov. 6 (Bloomberg) -- President-elect Barack Obama plans to support unprofitable U.S. ethanol producers and pursue the same policies that failed George W. Bush.

Obama, the Democratic senator from Illinois, the second- biggest corn-growing state, will maintain Bush's goal requiring fuel producers use at least 36 billion gallons of biofuels in 2022, said Heather Zichal, the campaign's senior energy adviser. The ethanol industry, which loses about 66 cents a gallon at current prices, will receive at least as much support as from the current administration, including tax credits to spur consumption, she said.

``Obama recognizes how important the renewable and biofuels industry is to creating jobs and meeting our goal of reducing dependence on foreign oil,'' Zichal said in a Nov. 3 interview. ``He's fully committed to it and sees tremendous value in the renewable fuels standard and continuing down this path.''

Ethanol makers are collapsing after wrong-way bets on corn prices overwhelmed $20 billion in federal aid and government- guaranteed demand for the fuel additive. VeraSun Energy Corp., the second-largest producer, filed for Chapter 11 bankruptcy protection on Oct. 31.

Bush's approach has been criticized for hurting the environment, increasing global food prices and contributing to riots from Haiti to Egypt. Earlier this year, at least 51 members of his own party, led by Texas Governor Rick Perry, called for relaxing the policy.

Distillers struggle to make money because costs to produce ethanol are rising while increasing supplies drive down prices of the fuel. U.S. output climbed to a record 647,000 barrels a day in August, more than double the 318,000 barrels a day in June 2006, when VeraSun had its initial public offering, according to the U.S. Energy Department.

Farm Politics

Rising feed costs caused third-quarter profit to plunge 92 percent at Tyson Foods Inc., the nation's largest meat producer. Pilgrim's Pride Corp. said Sept. 25 it may breach a credit covenant because of a ``significant'' loss in the quarter ended Sept. 27. Pilgrim's Pride shares dropped 24 percent on Oct. 17 amid speculation the company may file for court protection from creditors.

Record prices for corn, soybeans and wheat in the past 12 months helped boost net farm income to a record $95.7 billion this year, according to the U.S. Department of Agriculture. There are about 2 million farmers in the U.S., according to the USDA. Farm belt states that voted Republican in 2004, including Colorado, Indiana, Iowa and Ohio, went to Obama this time.

`Zero Margins'

``We know that corn farmers like ethanol very, very much,'' said Pavel Molchanov, an analyst at Raymond James & Associates in Houston. ``Corn farmers have a lot of political influence in swing states such as Iowa and Missouri. Certainly ethanol continues to enjoy some support because of its political and electoral significance.''

Corn futures traded in Chicago more than doubled in the past three years to almost $8 a bushel as worldwide demand expanded to make sweeteners and fuel. U.S. ethanol prices dropped 5 percent because output from new mills grew faster than demand, damaging profit for distillers.

``Obama has clearly said part of his energy policy has been for renewable fuels, including ethanol,'' said Ronald Miller, chief executive officer of Aventine Renewable Holdings Inc., a Pekin, Illinois-based ethanol producer, which delayed the opening of a plant in Aurora, Nebraska, until the second quarter. Producers ``are managing the day-to-day business on near zero margins,'' he said.

Advanced Biofuels

Obama, 47, plans to spend $150 billion over 10 years to develop renewable fuels and to create 5 million so-called green collar jobs. He will also require at least 60 billion gallons of advanced biofuels be produced by 2030. Ethanol is a form of alcohol created by fermenting and distilling the starches from corn and other crops.

Bush's Energy Independence and Security Act, passed in December, called for ethanol production to more than double to 15 billion gallons in 2015 from 6.5 billion last year. The U.S. pays oil refiners 51 cents in tax credits for each gallon of ethanol they blend into regular gasoline. A 54 cent-a-gallon tariff is slapped on imports from Brazil to protect and stimulate U.S. production.

Obama supports the mandate and wants to expand it and move toward so-called cellulosic ethanol, Zichal said. Cellulosic ethanol is derived from non-food crops such as switch grass and wood chips.

Speaking in Missouri in July, Obama said corn-based ethanol isn't ``our best strategy'' because of its impacts on food, adding the current additive will usher in commercial production of cellulosic.

Bad Hedges

``He very much sees it as an important bridge fuel and important source of revenue for many rural communities but something that is the beginning of hopefully a greater investment and greater commitment to advanced biofuels,'' Zichal said.

Falling margins caused Gateway Ethanol LLC, Heartland Ethanol LLC, LiquidMaize LLC, Greater Ohio Ethanol, Glacial Lakes Corn Processors and Abengoa SA to curtail production.

Biofuel Energy Corp., based in Denver, said in August that it didn't have enough money to cover $46 million in losses on contracts for corn, ethanol and the natural gas used to run its distilleries. The company locked in third- and fourth-quarter corn costs of $7.01 and $6.90 a bushel, respectively. Corn plunged to about $4 a bushel for December delivery on the Chicago Board of Trade.

Failure stems from ``the way they operate their companies rather than the government support,'' said Ian Horowitz, an analyst at Soleil Securities Corp. in New York. ``You can't policy your way out of bad hedging positions.''

To contact the reporters on this story: Mario Parker in Chicago at mparker22@bloomberg.net; Kim Chipman in Chicago at 1927 or kchipman@bloomberg.net.

Power-Station Coal Prices May Decline, McCloskey Says

By Angela Macdonald-Smith

Nov. 6 (Bloomberg) -- Prices for power-station coal may fall further because of potential oversupply and as the market returns to being driven by demand, currency and cost factors rather than by speculative investors, The McCloskey Group said.

Record prices earlier this year were driven by ``speculative play by the banks and hedge funds'' rather than by fundamentals, which are ``weak,'' Gerard McCloskey, founder of the consulting firm, said today in a presentation to a conference in Sydney. Demand growth this year is set to be the lowest on record, he said.

Prices for thermal coal exported from Australia's Newcastle port, the world's biggest export harbor for the fuel, were at $100.83 a metric ton in the week ended Oct. 31, down from a record $194.79 in July, according to the globalCOAL NEWC Index. The International Monetary Fund predicts the world's advanced economies will grow next year at the slowest pace since 1982.

Growth next year in demand for power-station coal in both the Atlantic and Asian regions may be ``slight,'' McCloskey said in the presentation. South African exports to India may increase, while Russia may ship more from the Pacific coast to Asia and export capacity may increase in Australia, he said.

``Current levels for steam coals look stable for now,'' McCloskey told the conference by telephone from London. Demand is still sufficient to ensure growth in seaborne trade, with consumption set to increase by 15 million tons to 615 million tons, more than double this year's expected growth of 6.2 million tons, he said.

`Quite Robust'

Prices for coal burned in power plants may drop 25 percent from current levels this year or next as demand weakens and supply grows, Societe Generale SA said this week. Citigroup Inc. last month cut its forecast for the 2009 contract price for the year starting April 1, 2009, by 38 percent to $100 a ton. Merrill Lynch & Co. cut its forecast 24 percent to $130 a ton.

Still, power-station coal should fare better in an economic slowdown than coking coal used in steelmaking, Andrew Pedler, senior research analyst at Wilson HTM Investment Group, said at the conference. Japan and South Korea are expanding coal-fired power generation capacity this year, while India needs to increase imports and Vietnam and Indonesia have plans to add plants, he said. Demand ``remains quite robust,'' he said.

Demand for coal in developing Asian nations will also be boosted by an expected deferral in natural gas supply projects because of difficulties small and medium-sized petroleum companies face in obtaining finance, said Mark Hutchison, senior director of Cambridge Energy Research Associates in Singapore.

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

Merrill Cuts Singapore Oil-Refining Profit Estimates

By Jane Lee

Nov. 6 (Bloomberg) -- Merrill Lynch & Co. cut its estimates for Singapore oil-refining profit, citing a slowdown in demand growth and an increase in processing capacity.

The forecast for Singapore complex margin for 2009 was lowered by 20 percent to $7.20 a barrel, and the margin for 2010 reduced by 9 percent to $7 a barrel, Merrill said in a report today. Margins could tumble as low as $4 a barrel should Asia fall into a recession, the bank said.

A slowdown in economic growth in China, India and neighboring countries will reduce travel and cut consumption of diesel, gasoline and jet fuel. Oil demand in Asia including Japan will grow 300,000 barrels a day next year while new refinery capacity is at 1.7 million barrels a day, Merrill said.

``If the global economic condition deteriorates more aggressively than our base case, we believe there is further downside to our forecasts,'' six Merrill analysts including Sonia Song and Duke Suttikulpanich said in the report.

To contact the reporter on this story: Jane Lee in Kuala Lumpur at jalee@bloomberg.net

Korean Won Falls as Stocks Slump on Export Outlook; Bonds Gain

By Kim Kyoungwha

Nov. 6 (Bloomberg) -- South Korea's won fell as the nation's stocks dropped for the first time in six days on concern global economic growth will hurt exports and corporate profits. Government bonds gained.

A measure of volatility in the currency rose as overseas investors sold more Korean shares than they bought today after yesterday purchasing the most in three days. The won is down 29 percent this year, the worst performer of the 10 most-active currencies in Asia outside Japan.

``The volatility in the currency market will remain high until the end of this year,'' said Kwon Goohoon, an economist at Goldman Sachs Group Inc. in Seoul. ``There are many uncertainties and concerns about corporate earnings and economic performances and markets will be number-sensitive.''

Korea's currency fell 3.6 percent to 1,313.25 per dollar as of 10:05 a.m. local time, according to Seoul Money Brokerage Services Ltd. It fell as low as 1,325.05 today, the weakest level this month. The Kospi stock index dropped 5.4 percent.

Implied volatility for one-month dollar-won options rose to 60 percent, from 49 percent yesterday, according to data compiled by Bloomberg. Dealers quote implied volatility, a measure of expectations for future currency swings, as part of pricing options.

In an effort to keep the economy from sliding, the government this week announced a 14 trillion won ($10.7 billion) package of extra spending and tax breaks for 2009.

Growth was the weakest in four years in the third quarter as exports fell and household consumption stagnated.

Bonds Advance

Korea's local-currency bonds rose for a second day as the slide in stocks and concern economic growth will slow spurred demand for the relative safety of government debt.

``There's a sustained bid for flight to quality as investors snapped up government debt amid concerns over the economy,'' said Kim Taek Hoi, a fixed-income fund manager at Hana Bank in Seoul. ``This trend will continue.''

The yield on the 5.5 percent note due June 2011 fell 8 basis points or 0.08 percentage point, to 4.56 percent, according to Korea Exchange Inc. The price rose 0.21, or 21 won per 10,000 won face amount, to 104.52.

To contact the reporters on this story: Kim Kyoungwha in Beijing at kkim19@bloomberg.net.

Euro Falls on Speculation ECB Will Cut Rates to Bolster Economy

By Stanley White and Daniel Kruger

Nov. 6 (Bloomberg) -- The euro fell for a second day against the dollar on speculation the European Central Bank will follow an expected interest-rate cut today with further reductions to revive the region's shrinking economy.

The 15-nation currency also declined against the yen as economists forecast the ECB will lower its main refinancing rate by a half-percentage point to 3.25 percent, after a similar- sized reduction less than a month ago. Britain's pound also weakened on speculation the Bank of England will bring down borrowing costs when it meets today.

``You can't buy the euro,'' said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. ``The ECB may cut rates well into next year, and that will cause the currency to fall.''

The euro declined 0.6 percent to $1.2877 at 10:10 a.m. in Tokyo, after falling 0.2 percent yesterday. It bought 126.29 yen from 126.89 yen. The dollar traded at 98.13 yen from 97.94. The pound fell 0.5 percent to $1.5827.

The ECB will announce its decision at 1:45 p.m. in Frankfurt today and the bank's president, Jean-Claude Trichet, will hold a press conference 45 minutes later. The ECB reduced the target to 3.75 percent from 4.25 percent on Oct. 8, joining the Fed, the Bank of England, the Bank of Canada and the Swiss National Bank in coordinated reductions.

``The market will view the action as a step to restore confidence and to mitigate the economic fallout from the crisis,'' said Todd Elmer, currency strategist at Citigroup Global Markets in New York.

U.S. Economy

The dollar was little changed against the yen after companies in the U.S. cut an estimated 157,000 jobs in October, the most in almost six years, a private report based on payroll data showed. The drop was larger than forecast and followed a revised 26,000 decrease in September that was bigger than previously estimated, ADP Employer Services said.

Total U.S. payrolls fell by 200,000 last month, and the unemployment rate rose to a five-year high of 6.3 percent, according to the median forecast of economists surveyed by Bloomberg News. The Labor Department's report is due tomorrow.

President-elect Barack Obama has advocated a second fiscal stimulus package to help boost the economy. About three weeks ago, as financial markets reeled and the crises deepened, Obama increased the proposed cost of his ``middle-class rescue plan'' to $175 billion from $115 billion.

`Very Bleak'

U.S. stocks dropped yesterday on concern the world's largest economy will worsen even as Obama moves to stimulate growth. The Standard & Poor's 500 Index slumped 5.3 percent yesterday, the most following a presidential election, after data showed U.S. services industries contracted by the most on record in October.

``Everything is very, very bleak,'' said Firas Askari, head currency trader at BMO Nesbitt Burns in Toronto. ``It's hard for me to be a lover of the U.S. dollar. You're putting your grandkids into hock.''

The pound declined for a second day against the dollar and yen as traders bet that U.K. policy makers will lower their benchmark interest rate by 75 basis points to 3.75 percent, according to a Credit Suisse Group AG index of probability based on overnight indexed swap rates. Fifteen of 60 economists in a Bloomberg survey say the Bank of England will reduce rates by that amount or more, with the rest predicting a half-point cut.

Japan's currency strengthened to 66.34 against the Australian dollar from 66.73 and to 9.9670 per South African rand from 10.0239 on speculation the drop in stocks will discourage carry trades, in which investors get funds in a country with low borrowing costs and buy assets where returns are higher. Japan's 0.3 percent target lending rate compares with 5.25 percent in Australia and 12 percent in South Africa.

`Repatriation Flows'

The yen dropped against the dollar and the euro on Nov. 4 as U.S. stocks rallied the most on a presidential Election Day since the New York Stock Exchange first opened for trading on a voting day in 1984.

Any yen weakness ``is likely to prove both limited and short-lived as the onset of potentially the worst global recession since the early 1980s continues to drive further dollar- and yen-supportive repatriation flows,'' Lee Hardman, a currency strategist in London at Bank of Tokyo-Mitsubishi Ltd., wrote in a client note.

The yen and the dollar posted the biggest monthly gains versus the euro in October since it debuted in 1999 as signs of a global recession led investors to seek safety in the Japanese and U.S. currencies.

Futures on the Chicago Board of Trade showed an 98 percent chance yesterday that the Fed will cut the 1 percent target lending rate for overnight lending between banks by a half- percentage point at its Dec. 16 meeting, compared with 55 percent odds on Nov. 4.

To contact the reporters on this story: Daniel Kruger in New York at dkruger1@bloomberg.net; Ye Xie in New York at yxie6@bloomberg.net

Oil Is Steady After More Than $5 Slump on Gasoline Supply Gain

By Mark Shenk

Nov. 6 (Bloomberg) -- Crude oil was little changed after falling more than $5 a barrel yesterday as an Energy Department report showed an unexpected increase in gasoline inventories.

Gasoline supplies rose 1.12 million barrels to 196.1 million barrels last week, the report showed. A 650,000-barrel drop was forecast, according to the median of 14 analysts surveyed by Bloomberg News. Stockpiles of crude oil and distillate fuel, a category that includes heating oil and diesel, also climbed.

``There is plenty of inventory, given how weak demand is,'' said Michael Lynch, president of Strategic Energy & Economic Research, in Winchester, Massachusetts. ``The report was mildly bearish because of the product numbers.''

Crude oil for December delivery fell 9 cents to $65.21 a barrel at 10:36 a.m. Sydney time on the New York Mercantile Exchange. Prices, which have tumbled 55 percent since reaching a record $147.27 on July 11, are down 33 percent from a year ago. Yesterday, futures plunged $5.23, or 7.4 percent, to $65.30 a barrel, the biggest drop since Oct. 10.

Gasoline for December delivery rose 0.06 cent to $1.4250 a gallon in New York. Yesterday, it declined 10.83 cents, or 7.1 percent, to $1.4244 a gallon.

Pump prices have followed futures lower. Regular gasoline, averaged nationwide, declined 2.6 cents to $2.365 a gallon, AAA, the nation's largest motorist organization, said yesterday on its Web site. The fuel has tumbled 43 percent from the record $4.114 a gallon reached on July 17.

Gasoline Demand

U.S. fuel demand during the past four weeks averaged 19.1 million barrels a day, down 6.7 percent from a year ago, the report showed. Gasoline consumption over the period was down 2.3 percent at 9 million barrels a day.

``We are probably most comfortable in the mid-$60 range unless we get another massive drop in the stock market,'' said Rick Mueller, director of oil markets at Energy Security Analysis Inc. in Wakefield, Massachusetts. ``We are out of the peak gasoline demand period and have yet to see heating-oil demand pick up, so there's not much to support a move higher.''

Gasoline consumption in the U.S. peaks during the summer, when Americans take to the highways for vacations. Global fuel demand peaks during the Northern Hemisphere winter.

Futures rose $6.62, or 10 percent, to $70.53 a barrel Nov. 4, the largest one-day gain since Sept. 22, as U.S. stock markets recorded the biggest presidential-election day rally since Ronald Reagan won a second term 24 years ago.

`Overdone to the Upside'

The move ``was way overdone to the upside,'' said Michael Fitzpatrick, vice president for energy risk management at MF Global Ltd. in New York. ``The surprising gasoline build is going to keep the pressure on the crack spread.''

The profit margin, or crack spread, for making three barrels of crude into two of gasoline and one of heating oil, based on futures prices, has dropped 80 percent to $3.42 a barrel since Sept. 12. The margin for refining crude into gasoline has been negative since Oct. 21.

Distillate inventories rose 1.21 million barrels to 127.8 million barrels last week. Analysts forecast that supplies would increase by 1.55 million barrels.

Crude oil stockpiles climbed 54,000 barrels to 311.9 million barrels in the week ended Oct. 31, the department said. A 1 million-barrel gain was forecast. Imports dropped 365,000 barrels to 9.97 million barrels a day. The department released its weekly report yesterday in Washington.

Economic Concern

Prices also fell because of concern that the economy of the U.S., the world's biggest energy consumer, will continue to contract. Companies in the U.S. cut an estimated 157,000 jobs in October, the most in almost six years, a private report based on payroll data showed yesterday.

The drop was larger than forecast and followed a revised 26,000 decrease in September that was bigger than previously estimated, ADP Employer Services said. The decline in employment was the biggest since November 2002, when the U.S. was emerging from a recession.

The Institute for Supply Management's non-manufacturing index, which covers almost 90 percent of the economy, dropped to 44.4 from 50.2 in September, the Tempe, Arizona-based group said yesterday. A reading of 50 is the dividing line between growth and contraction.

Brent crude oil for December settlement declined $4.57, or 6.9 percent, to settle at $61.87 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.

Australia Stocks: Babcock, BHP, Leighton, News Corp., Woodside

By Shani Raja

Nov. 6 (Bloomberg) -- The S&P/ASX 200 Index slumped 175.40 points, or 4 percent, to 4,161.20 at 10:20 a.m. in Sydney, the most in two weeks. The broader All Ordinaries Index fell 168.70, or 3.9 percent, to 4,118.60, while the futures index expiring in December was down 4.2 percent to 4,182.

Mining stocks: BHP Billiton Ltd. (BHP AU), the world's largest mining company, plunged A$2.32, or 7.3 percent, to A$29.28, the most since Oct. 23. Rio Tinto Group (RIO AU) tumbled A$8.29, or 9.6 percent, to A$78.31.

A measure of six metals traded on the London Metal Exchange dropped 3.5 percent. Copper lost 5.4 percent, nickel 4.7 percent, and zinc 4.8 percent.

Oil companies: Woodside Petroleum Ltd. (WPL AU), Australia's second-biggest oil producer, dropped A$1.28, or 2.8 percent, to A$43.72, the most since the end of last month. Santos Ltd. (STO AU) slumped 74 cents, or 5 percent, to A$14.15, the most since Oct. 23.

Crude oil fell more than $5 a barrel after an Energy Department report showed an unexpected increase in gasoline inventories. Crude oil for December delivery fell $5.23, or 7.4 percent, to settle at $65.30 a barrel at 2:43 p.m. on the New York Mercantile Exchange, the biggest drop since Oct. 10.

U.S.-Related Stocks: Westfield Group (WDC AU), the world's biggest shopping mall owner by market value, declined 62 cents, or 3.8 percent, to A$15.88, the most since Oct. 29. James Hardie Industries NV (JHX AU), the biggest seller of home siding in the U.S., fell 30 cents, or 5.8 percent, to A$4.92.

The U.S. stock market posted its biggest plunge following a presidential election as reports on jobs and service industries stoked concern the economy will worsen even as President-elect Barack Obama tries to stimulate growth. The S&P 500 tumbled 52.96 points, or 5.3 percent, to 952.79, erasing a 4.1 percent rally the previous day.

Atlas Iron Ltd. (AGO AU) tumbled 9 cents, or 9.7 percent, to 83 cents, the lowest in more than a week. Atlas was downgraded to ``sector perform'' from ``outperform'' by analyst Lee Bowers at RBC Capital Markets, with a price target of A$1.30 per share.

Babcock & Brown Infrastructure Group (BBI AU), owner of ports and energy transmission lines in Australia, Europe and the U.S., fell to a record low, plunging 2 cents, or 13 percent, to 17 cents. The company tumbled 26 percent yesterday after saying it scrapped plans to sell its stake in the Multinet Gas Network business due to ``inadequate'' offers.

Leighton Holdings Ltd. (LEI AU), Australia's largest engineering and construction company, dived A$1.34, or 4.7 percent, to A$27.31, the most since Oct. 29. Leighton said it expects to see ``short-term impacts'' from the credit crunch, while repeating a forecast that profit will rise 15 percent this fiscal year.

News Corp. (NWS AU) fell A$3, or 19 percent, to A$12.90, the most since 1990 and the index's biggest loser. The media company, controlled by Rupert Murdoch, said fiscal first-quarter profit fell 30 percent on slumping television advertising and film studio sales.

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

Australia, New Zealand Dollars Slip on U.S. Stocks, Commodities

By Candice Zachariahs

Nov. 6 (Bloomberg) -- The Australian and New Zealand dollars declined as U.S. stocks and the prices of commodities the nations export fell, prompting investors to sell higher-yielding assets.

New Zealand's currency extended its decline after a government report showed the nation's jobless rate rose to the highest in five years in the third quarter. The South Pacific nations' currencies touched 2-week highs yesterday after U.S. stocks surged in the biggest election day rally in 24 years.

``The euphoria of yesterday is going to wear off and leave people with a bit of a hangover,'' said Tony Allen, head of currency trading in Wellington at ANZ National Bank Ltd. ``Commodities have ended weaker on the day and risk aversion is coming back. That's going to put pressure on the Aussie and kiwi,'' he said, referring to the currencies by their nicknames.

Australia's currency slid 1.8 percent to 67.91 U.S. cents as of 9:11 a.m. in Sydney from 69.15 cents late in Asia yesterday. The currency fell 2.9 percent to 66.40 yen.

New Zealand's dollar lost 1.2 percent to 59.50 U.S. cents from 60.21 in Asia yesterday. It bought 58.23 yen from 59.53.

The currencies slipped after U.S. equities slumped as a report showed the world's largest economy lost the most private- sector jobs in six years in October. The UBS Bloomberg Constant Maturity Commodity index of 26 raw materials fell the most since Oct. 22. Raw materials account for 60 percent of Australia's exports, and 70 percent of New Zealand's.

New Zealand's unemployment rate increased to 4.2 percent from 3.9 percent in the previous three months, Statistics New Zealand said in Wellington today, citing seasonally adjusted figures. The median estimate of 12 economists surveyed by Bloomberg News was for 4.3 percent.

``The kiwi will actually perform even worse than the Aussie,'' said Allen, who expects the Australian dollar to strengthen towards NZ$1.18 into next week. The Aussie traded at NZ$1.1429 from NZ$1.1484 yesterday.

Australia's unemployment rate probably climbed to 4.4 percent in October, from 4.3 percent in September, according to a separate survey of 13 economists. The report will be released at 11:30 a.m. in Sydney. The Australian dollar may slip as low as 67.60 U.S. cents today, said Allen.

To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

Japan's Stocks Decline on Economic Outlook; Kobe Steel Tumbles

By Masaki Kondo

Nov. 6 (Bloomberg) -- Japanese stocks dropped for the first time in three days as worse-than-expected economic statistics in the U.S. overshadowed expectations President-elect Barack Obama will enact new measures to boost the world's largest economy.

Sony Corp., which gets a quarter of its sales from the U.S., and Toyota Motor Corp. were poised to fall. Kobe Steel Ltd. declined 5.8 percent after ArcelorMittal forecast earnings will decline by about a half in the fourth quarter.

The Nikkei 225 Stock Average declined 265.55, or 2.8 percent, to 9,255.69 as of 9:09 a.m. in Tokyo. The broader Topix index fell 26.63, or 2.8 percent, to 940.28. In New York, the Standard & Poor's 500 Index slumped 5.3 percent, the most in two weeks.

``Now that the U.S. election is over, investors' attention has returned to the deteriorating outlook for the global economy,'' Mitsushige Akino, who oversees the equivalent of $468 million at Tokyo-based Ichiyoshi Investment Management Co., said in an interview with Bloomberg Television.

Yesterday, the Nikkei climbed 4.5 percent, extending its rebound to 33 percent from a 26-year low on Oct. 27, as expectations grew that Obama will take additional measures to spur U.S. economic growth.

Service industries in the U.S. contracted the most on record to 44.4 last month, below the 47 estimated by economists, according to a report from the Institute for Supply Management. Meanwhile, U.S. companies cut 157,000 jobs in October, the most since November 2002 and bigger than an estimated drop of 102,000, according to ADP Employer Services.

Steel Production

ArcelorMittal, the world's biggest steelmaker, yesterday forecast an earnings decline of as much as 48 percent in the fourth quarter and said it will cut global output by more than 30 percent. The announcement coincided with a Nikkei English News report that JFE Holdings Inc., Japan's second-largest steelmaker, has proposed a 10 percent price increase in plate steel for ships.

Crude oil for December delivery fell 7.4 percent to $65.30 a barrel in New York yesterday, the biggest drop since Oct. 10, as gasoline inventories rose in the U.S. Copper futures for December delivery fell 7.1 percent.

Meanwhile, the Japanese currency appreciated to as much as 97.77 per dollar from 99.58 at the close of stock trading in Tokyo yesterday, reducing the value of repatriated sales of Japanese companies. The yen strengthened against the euro to as much as 126.35 from 128.14.

Nikkei futures expiring in December retreated 5.3 percent to 9,020 in Osaka and slumped 5.5 percent to 9,025 in Singapore.

To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net.

Australian Shares, Japan Stock Futures Drop on Economy Concern

By Masaki Kondo

Nov. 6 (Bloomberg) -- Australian shares and Japanese stock futures dropped as worse-than-expected economic statistics in the U.S. overshadowed expectations President-elect Barack Obama will enact new measures to boost the world's largest economy.

BHP Billiton Ltd., the world's biggest mining company, slid 6.3 percent after prices for copper and crude oil dropped. U.S.- traded receipts of Sony Corp., which gets a quarter of its sales from the U.S., sank 7.1 percent from the closing share price in Tokyo. Those of Toyota Motor Corp. lost 7.5 percent.

Australia's S&P/ASX 200 Index slumped 3.8 percent to 4,169.90 as of 10:29 a.m. in Sydney. New Zealand's NZX 50 Index fell 1.2 percent to 2,851.18 in Wellington.

Nikkei 225 Stock Average futures expiring in December closed at 9,155 in Chicago, lower than 9,520 in Osaka and 9,550 in Singapore. In New York, the Standard & Poor's 500 Index slumped 5.3 percent, the most in two weeks.

Steel Production

To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net.

APEC Economies Seeing Confidence Return, Philippines' Tan Says

By Shamim Adam

Nov. 6 (Bloomberg) -- Members of the Asia-Pacific Economic Cooperation are experiencing a return in investor confidence in their financial systems as equity and credit markets ``calm down,'' Philippine Treasurer Roberto Tan said.

The worst of the credit crisis may have passed as governments pump liquidity into their banking systems to ease the lending crunch, Tan said in an interview yesterday in Trujillo, Peru, where APEC finance officials are meeting this week.

``Everyone is hoping the worst is over and it looks like it is, based on how markets are behaving right now,'' Tan said. ``What's important is bringing back confidence so trades can take place and increase liquidity in the markets.''

A slump in global equity markets last month erased more than $9.5 trillion from the value of stocks worldwide, almost one-third of the total wiped out this year, as credit-related losses and writedowns by financial firms approached $700 billion.

APEC members are Australia, Brunei, Canada, China, Chile, Hong Kong, Indonesia, Japan, Malaysia, Mexico, New Zealand, Papua New Guinea, Peru, the Philippines, Russia, Singapore, South Korea, Taiwan, Thailand, the U.S. and Vietnam.

To contact the reporter on this story: Shamim Adam in Trujillo, Peru at sadam2@bloomberg.net

New Zealand Jobless Rate Rises to Five-Year-High 4.2%

By Tracy Withers

Nov. 6 (Bloomberg) -- New Zealand's jobless rate rose to the highest in almost five years in the third quarter, adding to signs of a prolonged recession that is prompting companies to cut production and fire workers.

The unemployment rate increased to 4.2 percent from 3.9 percent in the previous three months, Statistics New Zealand said in Wellington today, citing seasonally adjusted figures. The median estimate of 12 economists surveyed by Bloomberg News was for 4.3 percent.

Rising unemployment will curb consumer spending and adds to signs New Zealand will post its worst gross domestic product result in 10 years. Reserve Bank Governor Alan Bollard has lowered the benchmark interest rate by 1.75 percentage points since July and will probably cut by at least another half point in December to bolster confidence and demand, economists say.

``You have a weak recessionary economy, rising unemployment, and a very weak global backdrop,'' said Su-Lin Ong, senior economist at RBC Capital Markets Ltd. in Sydney. ``The Reserve Bank of New Zealand will still cut rates further and these numbers are consistent with further easing.''

New Zealand's dollar bought 59.58 U.S. cents at 11:25 a.m. in Wellington trading from 59.71 cents immediately before the report was released.

Business Confidence

New Zealand's economy contracted in the first two quarters of the year and probably shrank in the three months to September, according to central bank and Treasury forecasts. Bollard last month said full-year growth will be slower than the 0.6 percent pace he forecast in September. The economy grew 3.2 percent in 2007.

Employment rose 0.1 percent, or about 3,000 jobs, in the third quarter, the statistics agency said. Economists expected employers would shed 13,000 jobs. Employment increased 1 percent from a year earlier.

Business confidence has slumped amid global financial market turmoil that has slowed the world economy. In October, confidence had its largest reversal on record, ANZ National Bank Ltd. said last week. The same survey showed 30 percent of companies plan to fire workers in the next year.

Fletcher Building Ltd., the nation's biggest building materials company, has fired 600 of its 9,000 workers in the past three months as home construction slows.

Lumber Demand

Carter Holt Harvey Ltd. last month announced the loss of 316 jobs at two sawmills as it cuts costs because demand for lumber is slowing.

ANZ National said in September it is reviewing staffing levels at its branches amid a decline in teller transactions. The nation's largest bank is also freezing recruitment and reducing the use of casual workers, it said.

The number of people working or seeking work rose 8,000 to 2,266,000 and most of the additional people didn't find jobs, the agency said. The number not looking for work or unavailable to work increased 1,000.

The participation rate, which measures the proportion of the population working or seeking employment, rose to a record 68.7 percent from 68.6 percent in the second quarter.

The highest unemployment rate since December 2003, when it was 4.6 percent, will ease pressure on wages and slow spending, justifying Bollard's decision to cut borrowing costs.

Wages for non-government workers rose 3.5 percent in the year ended Sept. 30, the fastest pace on record, the statistics agency reported on Nov. 3.

Total actual hours worked declined 0.9 percent from the second quarter and rose 0.2 percent from a year earlier, the agency said.

Full-time employment rose by 8,000 jobs, or 0.5 percent, in the third quarter after seasonal adjustments.

Part-time employment declined by 2,000 jobs, or 0.5 percent. Statistics New Zealand adjusts the full-time and part-time employment figures separately, which means they may not add to the total change in employment.

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

BOJ Agreed Economic Uncertainty Rising, Minutes Show

By Mayumi Otsuma

Nov. 6 (Bloomberg) -- The Bank of Japan's policy board last month agreed that the economic outlook was becoming more uncertain as strains in global financial markets intensified, meeting minutes show.

Some members said ``the timing of the economy's return onto a sustainable growth path was highly uncertain and that it would be later than previously expected,'' according to the minutes of the Oct. 6-7 meeting released today in Tokyo.

Governor Masaaki Shirakawa and his colleagues last week cut the key overnight lending rate to 0.3 percent from 0.5 percent, its first reduction in more than seven years. Shirakawa said yesterday that his board needs to focus on the risk that the economy will deteriorate further because of the market turmoil.

The bank will keep cutting rates ``given the possibility that the economy will worsen, stocks will be weak and the yen will be strong,'' said Kazuhiko Sano, chief strategist in Tokyo at Nikko Citigroup Ltd. Sano predicted the benchmark rate will be lowered to 0.1 percent by the end of March.

Central banks around the world are lowering rates to limit the damage from the crisis and prop up their economies. The U.S., China, India, Australia, Taiwan, Norway and Saudi Arabia cut borrowing costs in the past week, and the European Central Bank and the Bank of England are expected to follow suit today.

Policy makers decided to lower the key rate last week after the Nikkei 225 Stock Average slumped to lowest level since 1982 and the yen surged to a 13-year high against the dollar. The decision was evenly split between the eight-member board, requiring Shirakawa to cast the deciding vote. Three of the four dissenters wanted a 25 basis-point cut and one favored no change.

Inflationary Pressure

In the earlier October meeting, many members agreed that global price pressure remained high. The Bank of Japan needed to watch developments in consumers' inflationary expectations and the ways companies set prices, they said.

Reports since the meeting showed increases in Japan's consumer prices have moderated as commodities costs decline. The central bank last week forecast prices excluding fresh food will be flat in the fiscal year starting April 1.

A few members said central bank should bear in mind that keeping rates low for too long could ``lead to swings in economic activity and prices'' that hamper growth in the long run, according to the minutes.

The policy board reiterated that concern even after lowering the benchmark rate last week, saying the risk still applied ``from a longer-term perspective.''

The bank also released minutes from an emergency board meeting held on Sept. 29, when it agreed to double the supply of dollars in Japan as part of a currency-swap arrangement with the U.S. Federal Reserve to help thaw credit markets.

Many board members said providing dollars alone wouldn't solve the global financial disruptions. Policy makers should take measures to address financial institutions' lack of capital, they said.

To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net

What to Expect for the ECB and BoE Rate Decisions

Daily Forex Fundamentals | Written by GFT | Nov 05 08 23:21 GMT |

European Central Bank: Another 50bp Rate Cut Expected

A rate cut will not be a surprise since ECB President Trichet warned a few weeks ago that he plans on reducing rates at the November monetary policy meeting. As a central banker, Trichet is notorious for preparing the market for any imminent changes to monetary policy in the hopes that it will reduce volatility in the financial markets when the actual change occurs.

Another 50bp point rate cut is expected and with the strong possibility that a recession is already underway, there may be a need for further rate cuts. We expect Trichet to retain a dovish tone as he proceeds to close the gap between US and Eurozone interest rates which should be Euro bearish.

Downward revisions were reported in the final October purchasing managers indexes for Germany, Italy and France while Eurozone retail sales declined by 0.2 percent in September. As an export dependent region, a contraction in manufacturing activity spells big trouble for the overall economy.

With interest rates expected to fall to 2.5 percent over the next 12 months, the Euro will have a tough time moving back above 1.35.

Bank of England: Risk of 1% Rate Cut

To be clear, the official forecasts for both central banks is a 50bp rate cut, but the word on the street is that the BoE could cut by as much as 100bp. For the UK central bank, a larger interest rate cut will depend upon how proactive the central bank wants to be. Economic data has been very weak with the service sector PMI index falling to a record low. Even though consumer confidence edged higher, industrial production dropped for the 5th consecutive month.

In October, the UK government openly admitted that the country has fallen into a recession. The European Commission believes that of any other mature European Union economy, the UK will suffer the sharpest contraction in growth. We expect the Bank of England to cut by at least 75bp.

A 50bp rate cut would be a big disappointment while a 100bp rate cut is exactly what the market needs. Either way, the outcome of the BoE rate decision should be pound bearish. Over the next 12 months, UK interest rates could fall to below 3 percent.

Kathy Lien
http://www.gftforex.com

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ECB to Cut Rates as Economic Slump Calls for `Radical Action'

By Christian Vits

Nov. 6 (Bloomberg) -- The European Central Bank will cut interest rates for the second time in less than a month today as the region's economy suffers its worst slump in 15 years, economists said.

``It's time for radical action,'' said Ken Wattret, an economist at BNP Paribas SA in London. ``This is a very severe economic downturn, interest rates should come down a long way.''

ECB policy makers meeting in Frankfurt will lower the benchmark lending rate to 3.25 percent from 3.75 percent, according to 54 of 55 economists in a Bloomberg News survey. The ECB cut the rate by half a percentage point when it joined a globally coordinated move on Oct. 8 in response to the deepening financial crisis. President Jean-Claude Trichet last week signaled another reduction was likely.

Economists predict the ECB will reduce borrowing costs at the most aggressive pace in its 10-year history, taking its key rate to 2.5 percent by April as growth slows around the world. The economy of the 15 nations sharing the euro is probably already in a recession and will stagnate in 2009, the European Commission said this week.

The ECB announces its decision at 1:45 p.m. and Trichet holds a press conference 45 minutes later. Separately, the Bank of England will lower its key rate by half a point at noon in London, another survey of economists shows.

Trichet said last week a Nov. 6 rate cut was ``possible,'' with inflation pressures abating as the economy cools.

More Than Fifty?

Juergen Michels, a Citigroup Inc. economist in London, said the extent of the slump will prompt policy makers to slash rates by a full percentage point.

``Given the fall in inflation expectations and the bleak economic outlook, a rate cut of 100 basis points looks more likely,'' said Michels, the only dissenter in the Bloomberg survey. ``If the ECB lowers its benchmark by only half a point, it will flag another cut for December.''

Banks in Europe remain reluctant to lend to each other even after the ECB flooded them with cash and governments announced rescue packages to prevent banking failures. The crisis that started with the U.S. housing slump and drove Lehman Brothers into bankruptcy caused the biggest global stock sell-off in 70 years.

Economic growth in the euro area will slump to just 0.1 percent next year, the worst performance since 1993, the Brussels- based European Commission forecast on Nov. 3. It said the economy, which contracted in the three months through June, will probably continue to shrink in the third and fourth quarters.

Europe's manufacturing and service industries contracted at a record pace in October while executive and consumer confidence has slumped to a 15-year low.

`Behind The Curve'

``Interest rates have to be appropriate for the economic environment,'' ECB council member Axel Weber said Oct. 30. ``If the economy cools, then rates have to come down rapidly so one doesn't risk falling behind the curve.''

The ECB raised rates as recently as July, saying Europe's economic fundamentals were sound and inflation was a bigger threat than weaker growth. Since then, oil prices have more than halved from a peak of $147 a barrel.

Inflation slowed to 3.2 percent in October after reaching a 16-year high of 4 percent in July. Still, the ECB aims to keep the rate below 2 percent. Trichet has stressed the need for moderate pay increases, saying there's a risk of a wage-price spiral as workers seek compensation for the higher cost of living.

Lowering interest rates too much also risks re-fueling the excessive borrowing that led to today's problems, ECB Executive Board member Lorenzo Bini Smaghi said on Oct 31.

``The present crisis is partially due to interest rates that remained at low levels for too long,'' he said. ``At that time, rates were lowered too much in order to stimulate growth. We need to avoid repeating the same mistakes.''

To contact the reporter on this story: Christian Vits in Frankfurt at cvits@bloomberg.net

Why Non-Farm Payrolls Could Fall by 300K

Daily Forex Fundamentals | Written by GFT | Nov 05 08 23:19 GMT |

TODAY'S BIGGEST PERCENTAGE MOVERS

AUD/JPY (-285 pips or -4.23%)
NZD/JPY (-215 pips or -3.45%)
CAD/JPY (-301 pips or -3.39%)

THE STORIES IN THE CURRENCY MARKET

USD: Why Non-Farm Payrolls Could Fall by 300K
EUR: Another 50bp Rate Cut Expected from the ECB
GBP: Risk of 1% Rate Cut from BoE
CAD: Oil Prices at $65 a Barrel
AUD: Sells Off Despite Mixed Economic Data
NZD: Employment Report Due for Release
JPY: Dow Drops 486 Points, Carry trades to Follow Suit

EXPECTATIONS FOR UPCOMING FED MEETINGS

GFT Forex

** PERCENTAGES MAY NOT ADD UP TO 100% BECAUSE OF THE PROBABILITY OF LARGER OR SMALLER MOVES BEYOND THOSE SHOWN ON THIS TABLE

US DOLLAR: WHY NON FARM PAYROLLS COULD FALL BY 300K

The sweeping victory of Barack Obama in the US Presidential Race has been the biggest story of the day. Obama supporters are ecstatic, but the financial markets are not. The Dow Jones Industrial Average dropped close to 500 today while the reaction in the US dollar has been mixed. Considering the big drop in US equities, carry trades have held up well. With one major uncertainty out of the picture, the markets have quickly turned their attention back to the economy. Although Obama has been synonymous with the hope for change, many people are beginning to realize that turning around the US economy will be a seismic challenge for the new President.

Implications of ObamaNation on the FX Markets

Based upon a previous study that we have conducted, over the past 30 years regardless of what party wins the elections, the US dollar tends to appreciate in the 6 months following the election. However the US economy is in the worst shape since the Great Depression, which was nearly 80 years ago. Like many of his predecessors, we expect Obama to do no more than pay lip service to the strong dollar policy. The dollar has already strengthened significantly and it would be counterproductive to engineer further strength in the greenback. In order to turn the US economy around, a weaker and not stronger currency is needed. In this economic environment, Obama will have no choice but to boost government spending and adopt more protectionist policies, which could hurt the US dollar. Even though Obama has given the country renewed hope, he won't be able to deliver any change for the financial markets until he becomes President on January 20th and even then, it will take time for him to implement new policies. Therefore the recessionary trade is still on and US interest rates are headed lower.

Non-Farm Payrolls Should be Ugly

In the meantime, all eyes will turn to Friday's non-farm payrolls report. The leading indicators for NFP are in and so far, all signs point to a very large drop in non-farm payrolls. The market is currently expecting NFPs to fall by 200k, but traders should not rule out the growing possibility of payrolls dropping by 300k. There is every reason to believe that the US labor market deteriorated significantly last month. Planned layoffs by US corporations hit a 5 year high while the employment components of service and manufacturing ISM fell deep into contractionary territory. Even the ADP report posted a 157k drop in private sector payrolls. US companies have made large scale cutbacks in anticipation of a sharp deterioration in growth and this has translated into major layoff announcements across the nation. In the past 3 decades, there has been 3 recessions and in each of those recessions, there was at least one month where non-farm payrolls fell by more than 300k. Given that this downturn is worst in almost 80 years, there is no reason to believe that this time will be different and that the US economy will be able to avoid a single month job loss of more than 300k.

Fed Changes Formula on Paying Interest

The Fed has been struggling to put a floor under the fed funds rate but so far, their efforts have not worked. This has forced them to change the formula for paying interest on reserves. Prior to their announcement today, the interest paid on reserves was 10bp below the Fed funds target average rate and now interest is being paid at the average rate, which basically means that they have increased the amount of interest that they are paying on the reserves. Even though the credit markets have been improving, the central bank and the US Treasury are still having a tough time encouraging lending. As a result, don't expect today's the change from the Fed to be their last.

EUR/USD: ANOTHER 50BP RATE CUT EXPECTED FROM ECB

The biggest event risk this week for the Euro is the European Central Bank interest rate decision. Weak economic data and softer inflationary pressures will force the ECB to take interest rates below 3 percent. A rate cut will not be a surprise since ECB President Trichet warned a few weeks ago that he plans on reducing rates at the November monetary policy meeting. As a central banker, Trichet is notorious for preparing the market for any imminent changes to monetary policy in the hopes that it will reduce volatility in the financial markets when the actual change occurs. Another 50bp point rate cut is expected and with the strong possibility that a recession is already underway, there may be a need for further rate cuts. We expect Trichet to retain a dovish tone as he proceeds to close the gap between US and Eurozone interest rates which should be Euro bearish. Downward revisions were reported in the final October purchasing managers indexes for Germany, Italy and France while Eurozone retail sales declined by 0.2 percent in September. As an export dependent region, a contraction in manufacturing activity spells big trouble for the overall economy. With interest rates expected to fall to 2.5 percent over the next 12 months, the Euro will have a tough time moving back above 1.35.

GBP/USD: RISK OF A 1% RATE CUT

Like the European Central Bank, the Bank of England will also be making a decision on interest rates tomorrow morning. However the difference between the ECB and the BoE is that we could see a much larger interest rate cut from the UK. To be clear, the official forecasts for both central banks is a 50bp rate cut, but the word on the street is that the BoE could cut by as much as 100bp. For the UK central bank, a larger interest rate cut will depend upon how proactive the central bank wants to be. Economic data has been very weak with the service sector PMI index falling to a record low. Even though consumer confidence edged higher, industrial production dropped for the 5th consecutive month. In October, the UK government openly admitted that the country has fallen into a recession. The European Commission believes that of any other mature European Union economy, the UK will suffer the sharpest contraction in growth. We expect the Bank of England to cut by at least 75bp. A 50bp rate cut would be a big disappointment while a 100bp rate cut is exactly what the market needs. Either way, the outcome of the BoE rate decision should be pound bearish. Over the next 12 months, UK interest rates could fall to below 3 percent.

DOW DROPS 486 POINTS, CARRY TRADES TO FOLLOW SUIT

Carry trades have trailed the move in equities today. In the past, the 486 point drop in the Dow would have led to a sharper decline in the Japanese Yen crosses. However we expect the Nikkei to follow the US equity markets lower, which should drag carry trades down as well. The problems in the US economy will come to forefront later this week with the US non-farm payrolls report due for release. The data should provide further evidence of the recessionary conditions in the US economy. We continue to expect the Japanese Yen to outperform all of the major currencies going forward as risk aversion remains the predominant theme in the financial markets. The minutes from the Bank of Japan monetary policy are due for release this evening. This will shed more light on the reasoning behind the central bank's latest rate cut and could provide more information on whether Japan could return to a zero interest rate policy.

AUSTRALIAN, NEW ZEALAND AND CANADIAN DOLLARS HIT BY RISK AVERSION

The Australian, New Zealand and Canadian dollars have been hit by a wave of selling as equity and commodity prices turn lower. Crude prices are now trading at $65 a barrel, which is off its recent lows but still represents a 55 percent decline from its July peak. Australia reported a stronger trade balance last night, but a sharp decline in the service sector PMI report and building approvals. Employment numbers are expected from Australia and New Zealand this evening along with the Canadian IVEY PMI report. We expect weak labor market reports that will confirm the need for further rate cuts in Australia and New Zealand. As for the IVEY PMI, the drop in leading indicators points to weakness for the key Canadian report.

GBP/USD: Currency in Play for the Next 24 Hours

GBP/USD will be the currency in play for the next 24 hours. Traders are much awaiting tomorrow's BoE Rate decision scheduled for 7:00am ET or 12:00 GMT.

Technically, GBP/USD price action is on the border between the Bollinger band sell and neutral zone. It has backed off of an earlier 250 pip rally, as it has since returned to the one-standard deviation Bollinger band. As resistance, we will use the 10-period simple moving average lying at about 1.600, as well as the 23.6% retracement of the late-September highs to mid-October lows. This creates a range between 1.600 and 1.6066. As support we will use yesterday's low of 1.5600, which of course will be back by lows placed October 24th. For several days we have seen the pair unable to sustain itself within the neutral trading zone and above the 10-day SMA. A significant close above these levels may be followed by rallies to October 30th highs.

GFT Forex

Kathy Lien
http://www.gftforex.com

Ezone and U.S. Service Sector Purchasing Manager Surveys Weakened

Daily Forex Fundamentals | Written by CurrencyThoughts | Nov 05 08 23:12 GMT |

A 2.6-point decline in Euroland's service-sector PMI score in October was followed today by even gloomier news that the U.S. counterpart tumbled 5.8 points. Each index, 45.8 in Euroland and 44.4 in the United States was sufficiently below the 50-line separating expansion from contraction to convey a serious recession. The first difference between these indices (U.S. minus Euroland) swung adversely by 3.2 points and into the red. Among key components, the spreads worsened 3.9 points to -0.8 for new orders, 3.0 points to -6.9 for jobs, and 15.9 points to 3.0 for prices. The table below provides 2008 history for the U.S. and Euroland services and manufacturing PMI scores and for the first differences between them. The right-most column adds the two spreads together, resulting in a negative score (-3.6) for the first time since April. As bad as Euroland's economy has been performing, the United States is even worse according to comparisons of their respective PMI surveys.

	U.S. Services	Ezone Services	Spread	U.S. Mf'g	Ezone Mf'g	Spread	Sum of Spreads
January	44.6	50.6	-6.0	50.7	52.8	-2.1	-8.1
February	49.3	52.3	-3.0	48.3	52.3	-4.0	-7.0
March	49.6	51.6	-2.0	48.6	52.0	-3.4	-5.4
April	52.0	52.0	0.0	48.6	50.7	-2.1	-2.1
May	51.7	50.6	+1.1	49.6	50.6	-1.0	+0.1
June	48.2	49.1	-0.9	50.2	49.2	+1.0	+0.1
July	49.5	48.3	+1.2	50.0	47.4	+2.6	+3.8
August	50.6	48.5	+2.1	49.9	47.6	+2.3	+4.4
Sept	50.2	48.4	1.8	43.5	45.0	-1.5	+0.3
October	44.4	45.8	-1.4	38.9	41.1	-2.2	-3.6

Larry Greenberg
CurrencyThoughts

New York Session Recap

The buck had a mixed session in NY as poor US economic data set the tone early and a US stock market rout late in the day saw the USD come back smartly. The ADP employment report registered a -157K decline in October and this does not bode well for NFP this Friday despite the shoddy track record. This coupled with USD selling into the 1100ET fix saw the buck on the matt all morning.

Into the afternoon, however, risk trades were pared and US stocks sank to fresh lows and an eventual close down -5.25%. EUR/USD, which had traded as high as 1.3115/20 in the session crept all the way back down to a close near the 1.2950/60 zone. GBP/USD ran up to 1.6190/95 and was later decimated into the 1.5910/00 area. JPY crosses also ended the session lower as USD/JPY fell -105 pips to 97.90/95 while EUR/JPY slipped about -90 pips into the 126.80/90 zone.

USD/CAD saw a nice 175 pips reversal in NY as better than expected weekly gasoline inventories nudged oil prices back towards the $65/bbl mark. Loonie was sitting near 1.1690/95 at the close after making a bottom into the 1.1480 area. Speaking of commodity currencies, AUD is the focus in the Asia session as we get Australian October employment data. Better than expected results should see AUD/USD towards the 0.6860 55hr SMA.

Upcoming Economic Data Releases (Asia Session) Prior Estimate

11/5/2008 23:50 GMT JN BoJ Monetary Policy Meeting Minutes for October 5-Nov
11/6/2008 0:01 GMT UK NIESR GDP Estimate OCT -0.20% - -
11/6/2008 0:30 GMT AU Employment Change OCT 2.2K -10.0K
11/6/2008 0:30 GMT AU Unemployment Rate OCT 4.30% 4.40%
11/6/2008 0:30 GMT AU Participation Rate OCT 65.10% 65.10%
11/6/2008 5:00 GMT JN Leading Index CI SEP P 89 89.2
11/6/2008 5:00 GMT JN Coincident Index CI SEP P 100.6 100.8

Forex.com
http://www.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.

British Pound Crosses Drop to Support

Daily Forex Technicals | Written by DailyFX | Nov 05 08 21:36 GMT |

The British Pound crosses have dropped into long term support.

GBPCHF

Longer term, a drop below the all-time low at 1.7537 is possible if not probable given that the rally from 1.7537 is in 3 waves. The trendline that has held since November 2007 defines the trend. Divergence with RSI on the weekly suggests that the line could be put to the test before a drop to a new low.

GBPCAD

There is no discernible pattern (long or short term) in the GBPCAD. The pair is nearing long term support at 1.7668/1.8059 from the lows in 1989 and 1993. These levels are defended by a downward sloping support line drawn off of the 2003 and November 2005 lows.

GBPAUD

The GBPAUD has entered a support zone that began with former resistance from the September 18th high at 2.3167. Potential measured support from the 61.8% retracement of 2.0291-2.7110 is at 2.2666. The long term trend is viewed as up so signs of a low near there would warrant a bullish bias.

GBPNZD

The long term trend is considered up. The false breaks of the long term support line in late 2005 and early 2008 should serve to fuel a rally. Ideally, the double bottom at 2.41 remains intact.

DailyFX

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Thursday, November 6, 2008

TODAY'S BIGGEST PERCENTAGE MOVERS

THE STORIES IN THE CURRENCY MARKET

EXPECTATIONS FOR UPCOMING FED MEETINGS

US DOLLAR: WHY NON FARM PAYROLLS COULD FALL BY 300K

EUR/USD: ANOTHER 50BP RATE CUT EXPECTED FROM ECB

GBP/USD: RISK OF A 1% RATE CUT

DOW DROPS 486 POINTS, CARRY TRADES TO FOLLOW SUIT

AUSTRALIAN, NEW ZEALAND AND CANADIAN DOLLARS HIT BY RISK AVERSION

GBP/USD: Currency in Play for the Next 24 Hours

GBPCHF

GBPCAD

GBPAUD

GBPNZD

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