Bank of England Raises Bonuses, Takes on Most Staff Since 1987

By Brian Swint and Jennifer Ryan

May 19 (Bloomberg) -- The Bank of England expanded its bonus pool and took on the most staff in more than two decades as the financial crisis stressed out its officials.

The bank lifted the budget for the bonus pot in the year through February to 8.1 percent of salaries from 7 percent in the previous year, according to its annual report published in London yesterday. The number of full and part-time employees rose by about 6 percent to 1,857, the first “significant” addition since 1987.

“Clearly the bank is under a lot of pressure at the moment,” said Colin Ellis, an economist at Daiwa Securities SMBC Europe Ltd. in London who left the central bank in October. “You may not agree with all the policy decisions they’ve taken but I have no question in my mind that the bank staff work incredibly hard, so I’m not sure that you can begrudge them their bonuses. They surely deserve it.”

The Bank of England grappled with the near-collapse of HBOS Plc and Royal Bank of Scotland Group Plc, brought interest rates to a three-century low and began unconventional policy measures to fight Britain’s worst recession for a generation. The staff increase contrasts with the rest of London’s financial services industry, where companies may cut thousands of jobs this year.

“The increase in staff numbers was due to the extra workload brought on by the bank’s new responsibilities,” the bank’s non-executive directors said in the report. “In recognition of the exceptional workload over the past year, the bank increased its bonus and special payments budget.”

Expertise Needed

Amit Kara, a former bank official who is now an economist at UBS AG in London, said that the increase in staff may also reflect a need for people with specialized knowledge as the central bank buys assets to aid the economy.

“Their work is cut out for them,” Kara said. “I’m not surprised they’re hiring more people because they have to gain expertise on the credit side which they did not have strength in particularly.”

The report also noted the amount of stress that events of the past year have placed on officials. The crisis will prompt financial services companies to cut about 29,000 jobs this year before employment growth resumes in 2010, the Centre for Economics and Business Research forecast on April 20.

Crisis Stress

The directors have “been concerned about pressures on staff, particularly on key individuals in the markets and banking areas” and have raised questions on whether “actions were being taken to recruit and redeploy staff and to manage the risks associated with the exceptional levels of stress in many parts of the organization,” the report said.

The bank’s directors still said they’re satisfied that the issues are being managed effectively.

King’s salary rose 2.5 percent to 297,920 pounds, while pay for former deputy governors Rachel Lomax and John Gieve increased by the same amount, to 246,338 pounds. Charles Bean took over from Lomax on the same salary, the report said. None received bonuses. Inflation was 2.9 percent in March.

“Bank staff are quite proud of how they’ve operated under fire,” Ellis said. “They’ve been working very hard but it’s been quite interesting. There will be more interesting work as the bank exits quantitative easing.”

To contact the reporters on this story: Brian Swint in London at bswint@bloomberg.net; Jennifer Ryan in London at jryan13@bloomberg.net

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China ‘Struggling’ on Weak Exports, Oppenheimer Says

By Allen Wan and Veronica Navarro Espinosa

May 19 (Bloomberg) -- China’s economy is “struggling” and may fall short of the government’s 8 percent growth forecast this year as export demand slumps, said Katherine Lu, director of China equity research at Oppenheimer & Co.

“The 8 percent target will be hard,” Lu said in an interview at an investment conference in New York. “Even though the economic stimulus is helping, export demand is still weak.”

China’s government removed lending restrictions and unveiled a 4 trillion yuan ($586 billion) stimulus package in November to shore up growth amid a global recession that has choked export demand. The world’s third-biggest economy expanded 6.1 percent in the first quarter, the slowest pace in almost a decade. Overseas shipments declined 22.6 percent in April from a year earlier, the customs bureau said last week.

“The economy is struggling,” Lu said. “The biggest concern is export demand.”

Xu Lin, director general of China’s department of fiscal and financial affairs at the National Development and Reform Commission, said yesterday the economy can “definitely” reach its 8 percent growth forecast this year. Gross domestic product may expand 7.8 percent in 2009, according to the median forecast of 10 economists surveyed by Bloomberg.

Stock Market Rally

The Shanghai Composite Index has surged 47 percent this year on optimism the stimulus plan and record bank lending will spur growth. The rally prompted JPMorgan Chase & Co. to cut the country’s equities yesterday to “neutral” from “overweight.” The measure rose for a third day, adding 1 percent to 2,678.93 as of 9:49 a.m. in Shanghai.

“As China discounts its economic recovery, we are reallocating capital to other North Asian economies that are later in the recovery phase,” the JPMorgan analysts wrote.

The outlook for mainland stocks is bullish even as growth falls short of projections, Oppenheimer’s Lu said.

“Valuations are still close to historical lows,” Lu said. “Investors are pricing in a year-end rebound.”

The Shanghai Composite Index trades at 26.7 times the reported earnings of its companies, compared with about 28 times a year ago and almost 49 times in October 2007.

Hao Hong, a New York-based analyst with Brean Murray Carret & Co., said equities may sustain gains because the money supply is swelling after the central bank lowered interest rates five times in the final four months of last year. Money supply rose by a record 26 percent in April, the bank said last week.

“I’m not as bullish on the economy,” said Hong. “Less than 25 percent of the stimulus package is new spending.”

To contact the reporters on this story: Veronica Espinosa in New York at vespinosa@bloomberg.net; Allen Wan in New York at awan3@bloomberg.net

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Stevens Says Australia Aided By Rate Cuts, China

By Jacob Greber

May 19 (Bloomberg) -- Australia’s economy is in a good position to benefit from a global recovery later this year as interest-rate cuts drive domestic demand and a pickup in China stokes exports, central bank Governor Glenn Stevens said today.

Australia is “well placed to take part in a renewed international expansion,” Stevens said in Sydney. “That said, most observers think that the early part of any new global expansion will be characterized by pretty slow growth.”

The Reserve Bank decided against cutting its interest rate this month on signs record policy easing and government stimulus are taking effect, the board said in minutes of the May 5 meeting released today. Australia is benefiting from a sound banking system and households are responding to the lowest borrowing costs in half a century, Stevens said, after recent reports showed retail sales and mortgage lending surged in March.

“The Reserve Bank is happy with policy at the moment,” said Brian Redican, a senior economist at Macquarie Group Ltd. in Sydney. “They’re saying we’ll eventually drag ourselves out of the current downturn, but it’s going to be a drawn-out affair.”

Australia’s dollar advanced to 76.74 U.S. cents at 2:31 p.m. in Sydney from 76.47 cents before the speech was released. The two-year government bond yield climbed 9 basis points to 3.52 percent from yesterday. The S&P/ASX 200 index rose 2.2 percent to 3,817.2, led by shares in resources companies and banks.

The nation’s economy is likely to “record better outcomes than most other advanced economies in 2009 and 2010,” the central bank’s minutes said.

Government Spending

The government last week announced a A$22 billion ($16.9 billion) program of spending on roads, rail, ports, hospitals and education, adding to cash handouts to workers and families already allocated in 2008 and early this year.

“The early signs are positive” that the government’s spending is aiding the economy, Secretary to the Treasury Ken Henry said in Sydney today. “Consumer confidence has held up better than many other countries.”

Retail sales surged 2.2 percent in March from the previous month, four times as much as economists forecast. Home-loan approvals jumped 4.9 percent, the sixth consecutive gain.

The central bank cut its benchmark rate by a record 4.25 percentage points between early September and April to 3 percent.

“Certainly for the household sector, this is an expansionary monetary policy,” Stevens said today. “The way households are responding confirms that.”

China Pickup

The governor added that there are signs of “quite a significant” pickup in the economy of China, Australia’s largest trading partner. The central bank’s May 5 minutes noted that export volumes from Australia had held up better than expected in the first quarter.

The nation recorded its second-largest trade surplus on record in March as agricultural exports gained.

Employers unexpectedly added 27,300 workers in April, pushing the jobless rate down to 5.4 percent from 5.7 percent, the first drop in eight months, a report showed this month.

“Central bankers can finally see some light at the end of the tunnel,” said Michael Blythe, chief economist at Commonwealth Bank of Australia in Sydney. “While they are understandably cautious, the hint of optimism is there.”

Federal Reserve Bank of Minneapolis President Gary Stern said the U.S. economy is approaching the trough of the worst recession in at least half a century. “There have been a number of more favorable developments in recent months,” Stern said in an interview last week.

Interest Rates

The question faced by the Reserve Bank of Australia board two weeks ago was “was whether monetary policy should be eased further at this stage, or whether the cash rate should be maintained at its current level,” according to the May 5 minutes.

Investors expect Australia’s benchmark interest rate will be lower in 12 months time, according to a Credit Suisse Group index based on swaps trading.

Traders forecast the overnight cash rate target will be 8 basis points lower in 12 months, the index showed at 1:04 p.m. in Sydney. Late yesterday, they forecast 16 basis points of reductions and at the start of April, they tipped 37 basis points of adjustment.

While it’s “too soon to say” whether the global economy is rebounding, “developments over recent months are certainly consistent with the view that a recovery will get underway towards the end of the year,” Stevens said in his speech.

To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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U.S. Needs More Inflation to Speed Recovery, Say Mankiw, Rogoff

By Rich Miller

May 19 (Bloomberg) -- What the U.S. economy may need is a dose of good old-fashioned inflation.

So say economists including Gregory Mankiw, former White House adviser, and Kenneth Rogoff, who was chief economist at the International Monetary Fund. They argue that a looser rein on inflation would make it easier for debt-strapped consumers and governments to meet their obligations. It might also help the economy by encouraging Americans to spend now rather than later when prices go up.

“I’m advocating 6 percent inflation for at least a couple of years,” says Rogoff, 56, who’s now a professor at Harvard University. “It would ameliorate the debt bomb and help us work through the deleveraging process.”

Such a strategy would be risky. An outlook for higher prices could spook foreign investors and send the dollar careening lower. The challenge would be to prevent inflation from returning to the above-10-percent levels that prevailed in the 1970s and took almost a decade and a recession to cure.

“Anybody who has been a central banker wouldn’t want to see inflation expectations become unhinged,” says Marvin Goodfriend, a former official at the Federal Reserve Bank of Richmond. “The Fed would have to create a recession to get its credibility back,” adds Goodfriend, now a professor at Carnegie Mellon University’s Tepper School of Business in Pittsburgh.

Preventing Deflation

For the moment, the Fed’s focus is on preventing deflation -- a potentially debilitating drop in prices and wages that makes debts harder to repay and encourages the postponement of purchases. The Labor Department reported May 15 that consumer prices were unchanged in April from the previous month and were down 0.7 percent from a year earlier.

“We are currently being very aggressive because we are trying to avoid” deflation, Fed Chairman Ben S. Bernanke told an Atlanta Fed conference on May 11.

The central bank has cut short-term interest rates effectively to zero and engaged in what Bernanke calls “credit easing” to spur lending to consumers, small businesses and homebuyers.

Bernanke, 55, said the risk of deflation was receding and that the Fed was ready to reverse course when needed to maintain stable prices and prevent an outbreak of undesired inflation. The Fed has implicitly defined price stability as annual inflation of 1.5 percent to 2 percent, as measured by a price index based on personal consumption expenditures.

Lifting Prices, Wages

Even after all the Fed has done to stimulate the economy, some economists argue that it needs to do more and deliberately aim for much faster inflation that would also lift wages.

With unemployment at a 25-year high of 8.9 percent, workers are being squeezed. Wages and salaries rose 0.3 percent in the first quarter, the least on record, according to the Labor Department, as companies including Memphis, Tennessee-based based package-delivery company FedEx Corp. and newspaper publisher Gannett Co. of McLean, Virginia slashed pay.

Given the Fed’s inability to cut rates further, Mankiw says the central bank should pledge to produce “significant” inflation. That would put the real, inflation-adjusted interest rate -- the cost of borrowing minus the rate of inflation -- deep into negative territory, even though the nominal rate would still be zero.

If Americans were convinced of the Fed’s commitment, they’d buy and borrow more now, he says.

Mankiw, currently a Harvard professor, declines to put a number on what inflation rate the Fed should shoot for, saying that the central bank has computer models that would be useful for determining that.

Gold Standard

In advocating that the Fed commit itself to generating some inflation, Mankiw, 51, likens such a step to the U.S. decision to abandon the gold standard in 1933, which freed policy makers to fight the Depression.

Faster inflation might be preferable to increased unemployment, or to further budget stimulus packages that push up the national debt, says Mankiw, who was chairman of the Council of Economic Advisors under President George W. Bush.

The White House has forecast that the budget deficit will hit $1.84 trillion this fiscal year, or 12.9 percent of gross domestic product. Rogoff doubts that politicians will be willing to reduce that shortfall by raising taxes as much as needed. Instead, he sees them pressing the Fed to accept faster inflation as a way of easing the burden of reducing the deficit.

Easier Debt Repayment

Inflationary increases in wages -- and the higher income taxes they generate -- would make it easier to pay off debt at all levels.

“There’s trillions of dollars of debt, in mortgage debt, consumer debt, government debt,” says Rogoff, who was chief economist at the Washington-based IMF from 2001 to 2003. “It’s a question of how do you achieve the deleveraging. Do you go through a long period of slow growth, high savings and many legal problems or do you accept higher inflation?”

Laurence Ball, a professor at Johns Hopkins University in Baltimore, says it’s risky to try to engineer a temporary surge in inflation because it might spark a spiral of rising prices.

Even so, he sees good reasons for the Fed to lift its implicit, medium-term inflation target to 3 percent to 4 percent from 1.5 percent to 2 percent now.

To battle recession, the Fed had to cut interest rates to 1 percent in 2003 and zero in the current period. That implies its inflation target has been too low because it’s left the Fed running up against the zero bound on nominal interest rates.

Inflation Advantage

“The basic advantage of pushing inflation a little higher is that it would make it less likely that we run into the problem of the interest rate hitting zero and the Fed not being able to stimulate the economy if necessary,” Ball says.

John Makin, a principal at hedge fund Caxton Associates in New York, wants the Fed to go further and target the level of prices instead of simply a rate of inflation. Such a policy would mean that if inflation fell short of 2 percent over a period of time, the Fed would have to push inflation above that rate subsequently to make up for the shortfall and keep prices rising on the desired trajectory.

While that might sound radical, it’s the same sort of policy that Bernanke advocated Japan follow in 2003 to fight deflation. In a speech in Tokyo that year, then-Fed Governor Bernanke called on the Bank of Japan to adopt “a publicly announced, gradually rising price-level target.”

‘Bad for Creditors’

Some investors are already worried that Bernanke will go too far. “We’re on the path of longer-term, higher inflation,” says Axel Merk, president of Merk Investments LLC in Palo Alto, California. “It’s good for debtors but it’s bad for creditors. It’s dangerous and irresponsible.”

Billionaire investor Warren Buffett, chairman of Berkshire Hathaway Inc. in Omaha, Nebraska, suggested that faster inflation was all but inevitable.

“A country that continuously expands its debt as a percentage of GDP and raises much of the money abroad to finance that, it’s going to inflate its way out of the burden of that debt,” he told the CNBC financial news television channel on May 4, adding, “That becomes a tax on everybody that has fixed- dollar investments.”

To contact the reporter on this story: Rich Miller in Washington rmiller28@bloomberg.net

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India’s Stock Surge Shows Investors See Open Economy

By Cherian Thomas, Kartik Goyal and Shobhana Chandra

May 19 (Bloomberg) -- India’s record stock-market surge yesterday after the election triumph of Prime Minister Manmohan Singh’s Congress Party is a sign of just how much investors want the next government to open Asia’s third-biggest economy.

Expectations are soaring as Singh, 76, starts his second term without the need for support from the communist allies who choked his market-opening efforts from 2004. Investors are betting the Oxford-trained economist will remove the last barriers to foreign investments in financial services and re- start asset sales to help trim a widening budget deficit.

“There’s a real sense of urgency in taking this event and translating it into tangible results,” said Nick Chamie, global head of emerging-markets research at RBC Capital Markets in Toronto. “If we don’t see some positive signs on an improving fiscal deficit in relatively short order, we could end up again with a weaker equity market, a weaker rupee and reduced confidence in the government’s ability.”

The benchmark Sensitive Index, or Sensex, declined 2 percent to 13993.18 at 10:00 a.m. local time today on concern the 17 percent jump yesterday was too rapid. The rupee extended its rally today, climbing 0.9 percent against the dollar to 47.48 in Mumbai.

Indian bonds fell, paring yesterday’s gains, after the government said it will sell additional debt this month. The benchmark bond yield rose 10 basis points to 6.41 percent.

Mukherjee, Nath

Among the names being speculated by the Indian media to take over the reigns of the finance ministry is Palaniappan Chidambaram, who had the job for more than four years until last November, when he was moved to the home ministry to tackle terrorism after the Mumbai attacks. Chidambaram, 63, presided over a record average growth rate of almost 9 percent since 2004.

Other potential candidates for the position include acting finance minister Pranab Mukherjee, Commerce Minister Kamal Nath, 62, Deputy Chairman of the Planning Commission, Montek Singh Ahluwalia, 65, and former central bank governor Chakravarthy Rangarajan, the Economic Times reported yesterday.

Congress and its allies won 261 of the 543 elected lower- house seats, with the party getting 206 lawmakers of its own, the most since 1991, when Singh as finance minister abandoned Soviet-style state planning and introduced free-market policies that have helped India’s economy quadruple in size.

The immediate interest among investors is the fiscal stimulus the government can provide to revive an economy growing at its weakest pace since 2003. The finance minister may unveil this year’s budget by July. Singh’s government said before the elections that the economy needs stimulus of at least another 1 percent of gross domestic product.

Six-Month ‘Honeymoon’

“They’ll have a honeymoon of six to eight months,” said John Praveen, chief investment strategist at Pramerica International Investments Advisers, a unit of Prudential Financial Inc. in Newark, New Jersey. “As long as they’re delivering on some of the expectations, the markets will hold the gains. They have to make the right start.”

The Reserve Bank of India estimates the fiscal and monetary steps announced so far are worth more than $85 billion, or almost 7 percent of GDP.

The tax cuts and increased spending since December widened the federal budget deficit to 6 percent of GDP in the year ended March 31, from a target of 2.5 percent.

The prospect of an increased budget shortfall prompted Standard & Poor’s to say in February that India’s spending plans were “not sustainable” and the nation’s credit rating may be cut to junk if finances worsen. S&P has a BBB- long term credit rating on India, the lowest investment-grade level.

Window of Opportunity

S&P and Moody’s Investors Service, which places India two steps below investment grade, yesterday indicated the South Asian nation has a chance to improve its fiscal situation after the resounding election victory.

The poll result gives the government more “political space” to sell stakes in state-run companies and improve revenue, Moody’s senior analyst Aninda Mitra told Bloomberg News.

S&P’s director of sovereign ratings Takahira Ogawa said “there is a possibility for the government to implement various measures to reform for further expansion of the economy and for the fiscal consolidation.”

Singh had to depend on the communist parties to gain a majority in parliament in his first term. The communists were opposed to his plans to raise funds by selling stakes in National Hydroelectric Power Corp., Oil India Ltd., Bharat Heavy Electricals Ltd. and National Aluminium Co.

Communist Impact

“Among the key reforms will be disinvestment now - the new government will focus on fiscal responsibility,” said Rajeev Malik, an economist at Macquarie Group Ltd. in Singapore. “The key issue will be for the government to balance the need for additional fiscal stimulus with a credible plan for fiscal consolidation.”

Communists also stalled a bill to raise the foreign- investment ceiling for Prudential Plc and other insurers to 49 percent from 26 percent, and resisted legislation aimed at removing a 10 percent cap on the voting rights of foreign investors in non-state banks. They also blocked entry of global retailers such as Wal-Mart Stores Inc. into India.

“Now the Congress party can rule with a minimum number of coalition partners and with a mandate for reform,” said Rory Medcalf, an India specialist at the Lowy Institute for International Policy in Sydney. “This is exceptionally good news for India.”

To contact the reporter on this story: Cherian Thomas in New Delhi at Cthomas1@bloomberg.net.

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Morgan Stanley, JPMorgan, Goldman Said to Apply to Repay TARP

By Christine Harper and Elizabeth Hester

May 19 (Bloomberg) -- Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley applied to refund a combined $45 billion of government funds, people familiar with the matter said, a step that would mark the biggest reimbursement to taxpayers since the program began in October.

The three New York-based banks need approval from the Federal Reserve, their primary supervisor, to return the money, according to the people, who requested anonymity because the application process isn’t public. Spokesmen for the three banks declined to comment, as did Calvin Mitchell, a spokesman for the Federal Reserve Bank of New York.

If approved, the refunds would be the most substantial since Congress established the $700 billion Troubled Asset Relief Program last year to quell the turmoil that followed the bankruptcy of Lehman Brothers Holdings Inc. Banks want to return the money to escape restrictions on compensation and hiring that were imposed on TARP recipients in February.

“It really is a way for them to break from the herd,” said Peter Sorrentino, a senior portfolio manager at Huntington Asset Advisors in Cincinnati, which holds Goldman Sachs and JPMorgan shares among the $13.8 billion it oversees. “It’s a great way to attract customers, personnel, capital.”

Treasury Secretary Timothy Geithner said on April 21 that he would welcome firms returning TARP funds as long as their regulators sign off. He added that regulators will consider whether banks have enough capital to keep lending and whether the financial system as a whole can supply the credit needed to ensure an economic recovery.

Geithner’s ‘Broad Constraints’

One of the people familiar with the efforts by the banks to repay TARP said he anticipates that the government would prefer to issue industrywide compensation guidelines before allowing any major banks to repay TARP money.

Geithner said yesterday that he would like to establish “some broad constraints” on compensation incentives in the financial industry instead of setting limits on pay. A law that went into effect in February sets a cap on the bonuses that can be paid to the highest-paid 25 employees at banks that have more than $500 million of TARP funds. Banks are awaiting guidance from the Treasury on how to implement the rules, such as how to determine which people to count in the top 25.

JPMorgan, Goldman Sachs, and Morgan Stanley were among nine banks that were persuaded in mid-October by then-Treasury Secretary Henry Paulson to accept the first $125 billion of capital injections from the TARP program to help restore stability to the financial markets.

Stress-Test Results

The refunds would be the first by the biggest banks that participated in the program. As of May 15, 14 of the smaller banks that received capital under the program had already repaid it, according to data compiled by Bloomberg.

The 19 biggest banks were waiting for the conclusion earlier this month of so-called stress tests to determine whether they would require additional capital to withstand a further deterioration of the economy.

Goldman Sachs and JPMorgan, the fifth- and second-biggest U.S. banks by assets, were found not to need any more money. Morgan Stanley, the sixth-biggest bank, raised $4.57 billion by selling stock this month, exceeding the $1.8 billion in additional capital the regulators said the bank may require.

‘Wrong Time’

While executives at Goldman Sachs and JPMorgan have expressed a desire to repay their TARP money for months, Morgan Stanley Chairman and Chief Executive Officer John Mack told employees on March 30 that he thought it was “the wrong time” to repay the money.

Morgan Stanley, which reported a first-quarter loss, also slashed its quarterly dividend 81 percent to 5 cents. On May 8, when the company sold stock, it also sold $4 billion of debt that didn’t carry a government guarantee. Selling non-guaranteed debt is a prerequisite for repaying TARP money.

The banks will also have to decide whether to try to buy back the warrants that the government received as part of the TARP investments. The warrants, which could convert into stock if not repurchased, would add to the cost of repayment.

JPMorgan, which has $25 billion of TARP money, would need to pay about $1.13 billion to buy back the warrants, according to a May 14 estimate by David Trone, an analyst at Fox-Pitt Kelton Cochran Caronia Waller. Morgan Stanley’s warrants would cost $770 million and Goldman Sachs’s would cost $685 million, Trone estimated, using the Black-Scholes option-pricing model.

Bank Shares

Goldman Sachs and Morgan Stanley shares have climbed since Oct. 10, the last trading day before the banks were summoned to a meeting by Paulson and informed of the government’s plans to purchase preferred stock in them. Goldman Sachs, whose stock closed today at $143.15 in New York Stock Exchange composite trading, is up 61 percent. Morgan Stanley, which closed today at $28.28, has almost tripled from $9.68.

JPMorgan shares, by contrast, are 11 percent lower at today’s $37.26 closing price than they were on Oct. 10, when they closed at $41.64.

Banks could open themselves up to lawsuits if they repay the money too quickly and end up needing to ask the government for help in the future, James D. Wareham, a partner in the litigation department at Paul Hastings Janofsky & Walker LLP said last week.

CNBC on-air editor Charlie Gasparino reported on May 15 that Goldman Sachs and JPMorgan believe they have been given permission to exit the TARP. He reported yesterday that Morgan Stanley is seeking preliminary assurances that it can exit the program.

To contact the reporters on this story: Christine Harper in New York at charper@bloomberg.net; Elizabeth Hester in New York at ehester@bloomberg.net.

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U.S. Home Starts Probably Rose in April From Near-Record Lows

By Bob Willis

May 19 (Bloomberg) -- Builders probably broke ground on more homes in April after starts plunged to a near-record-low level the month before, amid signs the housing slump now in its fourth year may be reaching a bottom.

Housing starts increased 2 percent to an annual rate of 520,000 last month, according to the median forecast of economists surveyed by Bloomberg News. Building permits, an indication of future activity, probably rose 2.7 percent to a 530,000 level, the survey showed.

Record-low mortgage rates, prices nearly a third lower than peak levels and tax incentives for first-time buyers are helping to clear a glut of unsold new homes. An easing in the housing slump is viewed as essential to an economic recovery later this year. Still, a sustained turnaround will take time because unemployment is at a 25-year high, foreclosures persist and builders are grappling with tight credit conditions.

“Some quickening in the pace of starts seems inevitable given the recent stabilization in some economic data,” said Tom Porcelli, a senior economist at RBC Capital Markets Corp. in New York. “But builders need to be careful of not getting too far ahead of themselves. Risks remain on the horizon.”

The Commerce Department is due to release the figures at 8:30 a.m. in Washington. Forecasts for starts ranged from 465,000 to 564,000, the survey showed.

Housing data in recent weeks have shown signs of stabilization. Sales of existing homes, which in January reached the lowest since records began in 1990, have held within a narrow range centered on a 4.6 million annual rate for five months. Sales of new houses, while more than 70 percent below their 2005 peaks, have bounced from a record low set in January.

Builder Confidence

Confidence among U.S. homebuilders in May increased to the highest level since September, capping the first back-to-back gain since February 2008, the National Association of Home Builders/Wells Fargo index showed yesterday. A reading below 50 means most respondents view conditions as poor.

Foreclosure-driven declines in prices have helped the resale market settle. Distressed properties have made up as much as 50 percent of existing-home purchases in recent months, according to the National Association of Realtors.

The biggest contraction in residential construction on record helped builders trim their excess supply even as sales faltered. The number of unsold new houses dropped in March to the lowest level since 2002, according to Commerce figures.

Still, construction companies are feeling the pain of having to slash prices to spur demand. D.R. Horton Inc., the largest U.S. homebuilder by market value, on May 5 reported a quarterly loss that exceeded analysts’ estimates as orders plummeted 45 percent from a year earlier.

‘Challenging’ Conditions

“Market conditions in the homebuilding industry are still challenging, characterized by rising foreclosures, high inventory levels of both new and existing homes, increasing unemployment, tight credit for homebuyers and eroding consumer confidence,” Chairman Donald Horton said in a statement.

Pulte Homes Inc. and Centex Corp., the companies that plan to combine this year, also reported quarterly losses that exceeded analysts’ estimates as the housing recession forced them to record $762 million in land writedowns and property expenses.

Richard Dugas, Pulte’s chief executive officer, said in a May 5 statement that the company was “nevertheless encouraged” by sales, traffic and cancellation trends seen in the first quarter that continued into April.

Financing also remains scarce, a quarterly survey of banks by the Federal Reserve showed last month. A larger share of lenders tightened terms on residential mortgages compared with the prior survey, the Fed said on May 4. At the same time, about 35 percent of domestic respondents saw increased demand for prime mortgages, the first gain in at least two years.

                        Bloomberg Survey

================================================================

Housing Building

Starts Permits

,000’s ,000’s ================================================================

Date of Release 05/19 05/19 Observation Period April April ---------------------------------------------------------------- Median 520 530 Average 524 526 High Forecast 564 560 Low Forecast 465 480 Number of Participants 74 50 Previous 510 516 ---------------------------------------------------------------- 4CAST Ltd. 520 530 Action Economics 520 520 AIG Investments 550 --- Aletti Gestielle SGR 530 530 Ameriprise Financial Inc 520 530 Argus Research Corp. 500 --- Bank of Tokyo- Mitsubishi 539 492 Bantleon Bank AG 530 530 Barclays Capital 500 --- BBVA 532 520 BMO Capital Markets 500 516 BNP Paribas 540 --- Briefing.com 525 530 Calyon 520 520 CIBC World Markets 550 560 Citi 520 530 ClearView Economics 550 --- Commerzbank AG 520 520 Credit Suisse 545 --- Daiwa Securities America 520 --- Danske Bank 540 --- DekaBank 520 530 Desjardins Group 530 505 Deutsche Bank Securities 550 550 Deutsche Postbank AG 520 --- First Trust Advisors 560 --- Fortis 540 --- FTN Financial 515 520 Goldman, Sachs & Co. 510 --- Helaba 540 525 Herrmann Forecasting 558 537 High Frequency Economics 500 530 HSBC Markets 535 535 IDEAglobal 520 530 IHS Global Insight 510 527 Informa Global Markets 500 505 ING Financial Markets 515 510 Insight Economics 525 --- Intesa-SanPaulo 520 530 J.P. Morgan Chase 520 495 Janney Montgomery Scott L 547 556 Johnson Illington Advisor 536 --- Landesbank Berlin 550 540 Landesbank BW 520 520 Lloyds TSB 520 530 Maria Fiorini Ramirez Inc 530 --- Merrill Lynch 465 480 MFC Global Investment Man 515 520 Mizuho Securities 500 --- Moody’s Economy.com 530 540 Morgan Stanley & Co. 500 --- National Bank Financial 520 525 Natixis 520 --- Nomura Securities Intl. 545 530 PNC Bank 500 --- Raymond James 535 530 RBS Securities Inc. 520 --- Ried, Thunberg & Co. 510 540 Schneider Foreign Exchang 564 526 Scotia Capital 540 530 Societe Generale 550 --- Standard Chartered 525 527 Stone & McCarthy Research 500 520 TD Securities 530 530 Thomson Reuters/IFR 515 530 Tullett Prebon 520 --- UBS Securities LLC 500 --- Unicredit MIB 540 530 University of Maryland 520 520 Wachovia Corp. 485 --- Wells Fargo & Co. 520 520 WestLB AG 525 535 Westpac Banking Co. 500 537 Wrightson Associates 510 540 ================================================================

To contact the reporter responsible for this story:
Bob Willis in Washington
bwillis@bloomberg.net

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Yen Declines Versus Higher-Yielding Currencies as Stocks Gain

By Ron Harui

May 19 (Bloomberg) -- The yen weakened against higher- yielding currencies as an advance in Asian stocks and optimism the global recession is easing damped demand for safer assets.

The yen fell against all of the 16 most-traded currencies before a U.S. government report that may show housing starts climbed from near a record low, boosting the appetite for riskier investments. South Korea’s won approached a seven-month high versus the dollar as the gain in shares spurred demand for emerging-market assets. The dollar fell to the lowest level this year against the British pound as demand for the relative safety of the U.S. currency eased.

“Equities are rising and the worldwide recession may have bottomed out,” said Yuji Saito, head of the foreign-exchange group in Tokyo at Societe Generale SA, France’s third-largest bank. “This augurs well for risk-taking appetite and is negative for the yen and the dollar.”

The yen fell to 58.08 against the New Zealand dollar as of 7:55 a.m. in London from 57.28 in New York yesterday. It weakened to 12.9242 Korean won from 13.0768. Japan’s currency declined to 131.34 per euro from 130.61, and dropped to 96.58 per dollar from 96.30.

The euro rose to $1.3593 from $1.3562 yesterday. The pound climbed to $1.5440 from $1.5348, after earlier rising to $1.5443, the highest since Dec. 18.

Asian Currencies

Asian currencies advanced against the yen and the dollar, led by the won and the Indonesian rupiah, as optimism the worst of the global recession is over encouraged investors to buy securities in the region.

The Nikkei 225 Stock Average surged 2.8 percent and the MSCI Asia-Pacific Index of regional shares climbed 2.3 percent after the Standard & Poor’s 500 Index rose 3 percent yesterday. Sony Corp., which gets a quarter of its sales from the U.S., jumped 3.3 percent.

The VIX Index, a measure of market volatility known as Wall Street’s “fear gauge,” fell 8.7 percent to 30.24 yesterday, indicating traders became more optimistic about stock gains.

“The healing in market stress continues,” Mitul Kotecha, head of global foreign-exchange strategy at Calyon in Hong Kong, wrote in a note sent to clients today. “Risk currencies moved back into favor.”

The won extended gains in the past month to 6.6 percent against the dollar, the best performance among Asia’s 10 most- traded currencies, as overseas investors bought more local shares than they sold for a third day. The won rose 0.8 percent to 1,249.25, according to data compiled by Bloomberg.

‘Early Boost’

“The won is getting an early boost from an overnight rally in U.S. shares and as foreign investors continue buying local stocks,” said Jo Hyun Suk, a currency dealer at Korea Exchange Bank in Seoul.

The Indonesian rupiah advanced 1.1 percent to 10,270 per dollar and the Taiwan dollar gained 0.3 percent to NT$32.885.

The Australian dollar climbed to a one-week high against the U.S. currency after central bank Governor Glenn Stevens said the economy is in good shape to benefit from a global recovery as interest-rate cuts drive domestic demand and a pickup in China stokes exports.

Australia “should be in a relatively good position and well placed to take part in a renewed international expansion,” Stevens said in Sydney.

The Australian dollar strengthened to 76.87 U.S. cents from 76.58 cents yesterday, after earlier reaching 77.02 cents, the strongest level since May 13.

U.S. housing starts increased in April to an annual rate of 520,000 from 510,000 the previous month, according to the median forecast of economists surveyed by Bloomberg. The Commerce Department will release the report at 8:30 a.m. in Washington.

German ZEW

Demand for the euro was bolstered on speculation a German report today will show investor confidence increased.

The ZEW Center for European Economic Research will say its index of investor and analyst expectations rose to 20 from 13 in April, according to the median forecast in a separate Bloomberg survey. ZEW releases the report, which aims to predict economic developments six months ahead, at 11 a.m. in Mannheim.

“There’s a possibility that Germany’s ZEW survey may surprise on the upside,” said Masafumi Yamamoto, head of foreign-exchange strategy for Japan at Royal Bank of Scotland Group Plc in Tokyo and a former Bank of Japan currency trader. “This may lead to buying of the euro against the yen amid renewed risk sentiment.”

Losses in the yen may be tempered on speculation overseas investors will buy Japanese government bonds after Moody’s Investors Service yesterday brought Japan’s local and foreign- currency debt ratings to the same level, Aa2.

Moody’s cut the foreign-currency debt rating from Aaa and raised the local-currency assessment from Aa3, saying it can no longer assume that Japan would be more likely to repay debt borrowed in currencies other than the yen. The outlook remains stable, Moody’s said in a statement.

“This should be net positive for the yen as local-currency JGBs are considered the benchmark in global debt markets,” Ashley Davies, a currency strategist in Singapore at UBS AG, wrote in a research note today.

To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net.

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Steel Demand in India to Accelerate Following Polls, JSW Says

By Debarati Roy

May 19 (Bloomberg) -- India’s steel demand will accelerate this year as the incoming Congress party-led government increases investments in infrastructure, following its best showing in an election in two decades, JSW Steel Ltd. said.

“The steel industry’s performance is dependent on how the economy grows and now with a stable government more thrust will be placed on infrastructure,” Joint Managing Director Seshagiri Rao said yesterday in an interview in Mumbai. “Those programs announced earlier will now be accelerated.” Orders from the construction industry will drive a 6 percent gain in overall sales this fiscal year, up from 1.3 percent last year, he said.

Prime Minister Manmohan Singh’s re-election may spur the investment needed to fund a $500 billion plan to build roads, ports and bridges and continue a rural jobs program that lifted demand in villages and towns. Bharat Heavy Electricals Ltd. said it expects as much as $1.5 billion of new power-equipment orders in the first quarter as pending government projects are cleared.

“Demand for construction grade steel will jump as we expect investments to increase sharply in infrastructure,” said Bharath S., an analyst at Sundaram BNP Paribas Mutual Fund.

Operating profit at Mumbai-based JSW, India’s third-biggest steel producer, will improve this quarter from 3.57 billion rupees ($75 million) in the previous three months, Rao said, without giving specific numbers. Operating profit was 8.9 billion rupees in the fiscal first quarter last year.

JSWshares rose 15 percent to 480 rupees in Mumbai yesterday, the highest since Sept. 30, before trading on the Bombay Stock Exchange was halted for the day. The key Sensitive Index breached the upper limit, gaining 17.2 percent to 14,272.63.

Stimulus Package

Congress won the most seats in an election since 1991, clearing the ruling party to form a government without needing the support of communist parties that frustrated plans to entice foreign investment in Singh’s first five-year term.

The government had announced three stimulus packages since December and spending worth $8.95 billion this fiscal year to build networks of roads, phones, electricity and irrigation.

“There won’t be other pulls and pressures on the government so they will be focusing now on growth and governance,” Rao said.

JSW’s crude steel production climbed 60 percent last month as sales of construction grade products surged 78 percent.

The company reported a fourth-quarter group loss after the global recession eroded demand in the U.S. The net loss was 399.3 million rupees, compared with a profit of 3.57 billion rupees a year ago. Sales fell 16 percent to 35.7 billion rupees.

U.S. Shutdown

JSW plans to shut one of its three plants in U.S. as demand has collapsed in that market, Rao said. The company will decide on the shutdown by the end of the month and restart only after it accumulates orders, he said.

The company’s three factories in the U.S. employed 950 workers when JSW acquired the unit in 2007 for $810 million from Jindal Saw Ltd. A 1.2 million ton steel-plate mill, which could be shut, employs 300 people, Rao said.

“In hindsight, this seems like a bad purchase,” JSW Steel Managing Director Sajjan Jindal had said on May 7, while announcing fourth-quarter earnings. “It would be difficult to get a buyer even if we decide to sell the unit.”

Inventories worth $58 million were written down during the March quarter in the U.S. and demand there remains weak, Jindal had said. The three plants are running at 15 percent of their installed capacity.

To contact the reporter on this story: Debarati Roy in Mumbai at droy5@bloomberg.net.

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Copper Trades Near One-Week High on Rising Builder Confidence

By Richard Dobson

May 19 (Bloomberg) -- Copper traded near a one-week high in London as improved sentiment among U.S. builders and rising equity markets increased investor confidence in the demand outlook for industrial metals.

The National Association of Home Builders/Wells Fargo index of builder confidence rose a second month to its highest since September, the Washington-based NAHB said yesterday. The Standard & Poor’s 500 Index jumped 3 percent, its biggest gain in two weeks.

The housing “news and the gain in the U.S. stock market subsequently showed sentiment has further improved and bolstered metals as well,” analysts led by Tan Wentao at HNA Topwin Futures Co. wrote in an e-mailed report today. “We’ll need more concrete data to sustain the positive mood.”

Copper for three-month delivery on the London Metal Exchange rose as much as 0.8 percent to $4,556 a ton, the highest intra-day price since May 13. It traded at $4,515 at 9:55 a.m. Shanghai time.

Copper for August delivery on the Shanghai Futures Exchange, the benchmark contract, climbed as much as 2.7 percent to 36,200 yuan ($5,303) a ton, and last traded at 35,910.

Homebuilders are the biggest users of copper in the U.S., the world’s second-largest consumer of the metal after China. It is used in electrical wiring and plumbing.

Among other LME-traded metals, aluminum was down 0.1 percent at $1,518 a ton. Zinc climbed 0.8 percent to $1,530 a ton, lead gained 0.3 percent to $1,495 a ton and nickel rose 0.6 percent to $12,425 a ton. Tin was yet to trade.

To contact the reporter on this story: Glenys Sim in Singapore at gsim4@bloomberg.net

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Crude Oil Rises to Six-Month High on Gains in Equities Market

By Ben Sharples and Christian Schmollinger

May 19 (Bloomberg) -- Crude oil rose to the highest in six months in New York as gains in the stock market increased optimism that the global economy is recovering.

Oil also got a boost on speculation inventories fell last week, while Sunoco Inc. said a refinery fire forced the shutdown of the plant’s main gasoline unit. The rally in oil followed gains in stocks.

“Sentiment has driven this market from its lows in the hopes of an imminent recovery,” said Toby Hassall, research analyst at Commodity Warrants Australia Pty in Sydney. “If we do see equities continue their rally, oil and a lot of other commodities are probably going to follow.”

Crude oil for June delivery climbed as much as $1.12, or 1.9 percent, to $60.15 a barrel on the New York Mercantile Exchange, the highest since Nov. 11. Oil traded at $60.14 at 2:42 p.m. Singapore time. Futures are up 35 percent this year.

Prices were also supported by concerns of disruptions to African oil supplies as Nigerian militants threatened to block waterways used for energy exports.

The June crude contract expires today. The more-actively traded July contract gained $1.19, or 2 percent, to $60.78 a barrel at 2:43 p.m. in Singapore.

$60 Resistance

“$60 is still the resistance level,” said Clarence Chu, a trader with oil options dealer Hudson Capital Energy in Singapore. “Everybody is still looking at the June contract even though July is where the volume and the liquidity are.”

The MSCI Asia Pacific Index advanced 2.3 percent to 99.11 at 2:36 p.m. in Tokyo. The equities gauge has climbed 40 percent from a more than five-year low on March 9 and is set to close at the highest level since Oct. 6.

Crude-oil stockpiles dropped 1.75 million barrels in the week ended May 15 from 370.6 million the previous week, according to the median of eight estimates by analysts before an Energy Department report this week.

Inventories may fall as oil imports to the U.S., the world’s biggest crude user, decline. Supplies brought into the country fell 12 percent to 8.71 million barrels a day in the week ended May 8, the lowest since the week ended Sept. 12, the Energy Department said on May 13.

Refineries probably operated at 84.1 percent of capacity last week, up 0.4 percentage point from the previous week, according to the median of responses in the survey. Refinery operations usually climb for the peak gasoline-consumption period, which lasts from the Memorial Day weekend in late May to Labor Day in September.

Marcus Hook Refinery

Gasoline stockpiles fell 1.5 million barrels from 208.3 million the prior week, according to the survey. Supplies of distillate fuel, a category that includes heating oil and diesel, increased 950,000 barrels from 147.5 million.

The Energy Department is scheduled to release its weekly report on May 20 at 10:30 a.m. in Washington.

Sunoco, the largest refiner in the U.S. Northeast, closed a gasoline making unit and is operating its crude distillation plant at a reduced rate at it Marcus Hook, Pennsylvania, facility after a fire at the ethylene unit.

The refinery can process 175,000 barrels a day of crude oil into fuels including gasoline and diesel. The company plans to “optimize” operations at its plants in Philadelphia and Eagle Point, New Jersey, to meet customer needs, Sunoco spokesman Thomas Golembeski said yesterday.

Valero Plant

Valero Energy Corp., the largest U.S. refiner, released gases into the atmosphere from its gasoline-producing unit at its Delaware City, Delaware, refinery yesterday.

Gasoline for June delivery rose as much as 2.19 cents, or 1.3 percent, to $1.78 a gallon.

The Movement for the Emancipation of the Niger Delta said that ships near the southern part of the country would be traveling at their own risk. Fighting in Nigeria has escalated since May 13 when militants said they responded to an army offensive by attacking military positions and hijacking a tanker.

MEND claimed responsibility May 17 for rupturing two pipelines supplying oil and natural gas from a Chevron Corp. facility to domestic refineries and power stations.

Nigeria produces low-sulfur, or sweet, oil, prized by U.S. refiners because of the proportion of high-value gasoline and diesel it yields.

Brent crude for July settlement increased as much as 93 cents, or 1.6 percent, to $59.40 a barrel on London’s ICE Futures Europe exchange.

To contact the reporters on this story: Ben Sharples in Melbourne bsharples@bloomberg.net; Christian Schmollinger in Singapore at christian.s@bloomberg.net

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Air France-KLM, Adecco, SAP AG, Shell: Europe Equity Preview

By Nadja Brandt

May 19 (Bloomberg) -- The following companies may have unusual price changes in European trading. Stock symbols are in parentheses, and share prices are from the previous close.

The Dow Jones Stoxx 600 increased 2.4 percent to 207.83. The Dow Jones Stoxx 50 Index added 2.6 percent to 2,107.35. The Euro Stoxx 50 Index, a benchmark for the nations using the euro, rose 2.5 percent to 2,422.74.

Adecco SA (ADEN VX): The world’s largest supplier of temporary workers had its outlook lowered to negative from stable by Moody’s Investors Service. The stock added 1.3 francs, or 2.9 percent, to 46.16.

Continental AG (CON GY): Europe’s second-largest car-parts maker and workers at the truck-tire plant at its Hanover, Germany, headquarters are close to a compromise that may prevent the factory’s closure, Deutsche Presse-Agentur reported, citing unidentified people close to the company. The shares climbed 2.5 percent to 19.48 euros.

Air France-KLM Group (AF FP): Europe’s biggest airline reports full-year earnings after the market close in Paris. The company has already forecast an operating loss of about 200 million euros for the period and said it is unlikely to return to profit this year. The shares rose 5.5 cents, or 0.6 percent, to 9.65 euros.

Corio NV (CORA NA): The largest Dutch developer publishes first-quarter results after trading ends in Amsterdam. Corio advanced 47 cents, or 1.4 percent, to 35.30 euros.

Royal Dutch Shell Plc (RDSA NA): Europe’s largest oil company hosts its annual shareholders’ meeting at 11:00 a.m. in The Hague and may give forecasts. Shell added 51 cents, or 2.8 percent, to 18.54 euros.

SAP AG (SAP GY): The world’s largest maker of business- management software plans to hold its annual shareholders meeting. The shares advanced 3.8 percent to 30.70 euros.

Solvay SA (SOLB BB): Belgium’s second-biggest drugmaker by sales obtained access to Huya Bioscience International LLC’s Chinese molecules to speed up development of drugs for cardiovascular diseases. Solvay rose 3.04 euros, or 5 percent, to 64.25 euros.

To contact the reporter on this story: Nadja Brandt in Los Angeles at nbrandt@bloomberg.net

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American Express, Interpublic, MGM Mirage: U.S. Equity Preview

By Eric Martin

May 19 (Bloomberg) -- The following companies may have unusual price changes in U.S. markets. Stock symbols are in parentheses.

American Express Co. (AXP US): The largest U.S. credit-card company by purchases will cut about 6 percent of its workforce as cardholders squeezed by rising unemployment fail to pay debts.

Interpublic Group of Cos. (IPG US): The second-largest U.S. advertising company said in a regulatory filing it amended a credit pact, preserving its ability to tap the agreement if General Motors Corp. or any of its affiliates file for bankruptcy.

Invesco Ltd. (IVZ US): The manager of the Aim and PowerShares funds plans to sell $400 million of additional common shares. The sale of additional shares may dilute the value of those held by investors.

MGM Mirage (MGM US): The largest operator of casinos on the Las Vegas Strip amended its loan agreement with lenders led by Bank of America Corp. to waive covenant defaults and allow it to pay down debt, according to a filing with the Securities and Exchange Commission.

MSCI Inc. (MXB US): Morgan Stanley, the sixth-biggest U.S. bank by assets, plans to sell its remaining 27.7 million shares in the index provider in a public offering that may garner about $650 million.

To contact the reporter on this story: Eric Martin in New York at emartin21@bloomberg.net.

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Daily Technical Analysis

Daily Forex Technicals | Written by FX Instructor | May 19 09 01:54 GMT |

EURUSD Outlook The EURUSD failed to continue it's bearish scenario yesterday. The pair attempted to push lower, bottomed at 1.3423 but further bearish momentum was rejected as the pair whipsawed to the upside, hit the top at 1.3562 and closed at 1.3560. This fact bring us into no trading zone in nearest term. On hourly chart below, we still have the bearish channel since downside momentum from 1.3721. Violation to the upside of the bearish channel could trigger further bullish momentum back towards 1.3721 again. Immediate support is seen at 1.3480 area. Break below that area could trigger further bearish pressure. CCI in neutral area on h4 chart. EURUSD Daily Supports and Resistances: S1= 1.3468 S2= 1.3376 S3= 1.3329 R1= 1.3607 R2= 1.3654 R3= 1.3746 GBPUSD Outlook The GBPUSD had a bullish momentum yesterday. The pair topped at 1.5347 and closed at 1.5346. On h4 chart below we can see that the trendline support did a great job preventing the pair from further bearish attack. I think we are now in no trading zone area and it's better to stay away from the market and wait for further development. The key level at this phase is 1.5370 area. Break above that area could trigger further bullish scenario towards 1.5525 area. CCI just cross the 100 line up on daily chart suggesting a potential upside pressure. GBPUSD Daily Supports and Resistances: S1= 1.5191 S2= 1.5037 S3= 1.4959 R1= 1.5423 R2= 1.5501 R3= 1.5655 USDJPY Outlook The USDJPY had a significant upside correction yesterday. The pair topped at 96.45 and closed at 96.29. The bias is neutral in nearest term. Key level at this phase is 96.60/70. Break above that area could trigger further bullish momentum targeting 97.50. Immediate support at 95.75. CCI just cross the -100 line up on daily chart suggesting a potential upside pressure. USDJPY Daily Supports and Resistances: S1= 95.07 S2= 93.86 S3= 93.17 R1= 96.97 R2= 97.66 R3= 98.87 USDCHF Outlook The USDCHF had a bearish momentum yesterday. On h4 chart below we can see that the trendline resistance did a great job preventing the pair from further bullish attack and now the pair is traded below 1.1160. The bias is neutral in nearest term. Immediate support is seen at 1.1100. Break below that area could trigger further bearish momentum. CCI in neutral area on h4 chart. USDCHF Daily Supports and Resistances: S1= 1.1098 S2= 1.1057 S3= 1.0978 R1= 1.1218 R2= 1.1297 R3= 1.1338 FX Instructor LLC www.fxinstructor.com The information has been prepared for information purposes only. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. This information contained herein is derived from sources we believe to be reliable, but of which we have not independently verified. FXInstructor LLC assumes no responsibilities for errors, inaccuracies or omissions in these materials, nor shall it be liable for damages arising out of any person's reliance upon this information. FXInstructor LLC does not warrant the accuracy or completeness of the information, text, graphics, links or other items contained within these materials. FXInstructor LLC shall not be liable for any indirect, incidental, or consequential damages including without limitation losses, lost revenues or lost profits that may result from these materials. Opinions and estimates constitute our judgment and are subject to change without notice. Past performance is not indicative of future results

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Foreign Exchange Market Commentary

Daily Forex Technicals | Written by HY Markets | May 19 09 03:32 GMT |

EUR/USD closed higher due to short covering on Monday and above the 10-day moving average crossing. The high-range close sets the stage for a steady to higher opening on Tuesday. Stochastics and the RSI are turning bearish signalling that additional profit taking is possible near-term. Closes below the 20-day moving average crossing would temper the near-term friendly outlook in the market. If it renews this month's rally, March's high crossing is the next upside target. USD/JPY posted a key reversal down due to profit taking on Monday as it consolidated some of last week's rally. The low-range close sets the stage for a steady to lower opening on Tuesday. Stochastics and the RSI are overbought and are turning neutral hinting that a short-term top might be in or is near. Closes below the 20-day moving average crossing would confirm that a short-term top has been posted. If it extends this month's rally, March's high crossing is the next upside target. GBP/USD closed higher on Monday and the high-range close sets the stage for a steady to higher opening on Tuesday. Stochastics and the RSI are overbought but remain neutral to bullish signaling that sideways to higher prices are possible near-term. If it extends the rally off April's low, December's high crossing is the next upside target. Closes below the 20-day moving average crossing would confirm that a short-term top has been posted. USD/CHF closed sharply higher due to profit taking on Monday and above the 10-day moving average crossing signalling that a short-term bottom has likely been posted. The high-range close sets the stage for a steady to higher opening on Tuesday. Stochastics and the RSI are overbought and are turning bullish signalling that sideways to higher prices are possible near-term. Closes above the 20-day moving average crossing would confirm that a short-term bottom has been posted. HY Markets http://www.hymarkets.com

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